Rappaport v. Fed. Sav. Bank, CV-18-01404-PHX-GMS

• Decision Date: 31 July 2018
• Docket Number: No. CV-18-01404-PHX-GMS,CV-18-01404-PHX-GMS
• Parties: Jason E. RAPPAPORT, Plaintiff, v. FEDERAL SAVINGS BANK, et al., Defendants.
• Court: U.S. District Court — District of Arizona

341 F.Supp.3d 1039

Jason E. RAPPAPORT, Plaintiff,

v.FEDERAL SAVINGS BANK, et al., Defendants.

No. CV-18-01404-PHX-GMS

United States District Court, D. Arizona.

Signed July 31, 2018

Kraig J. Marton, Laura Allison Rogal, Jaburg & Wilk PC, Phoenix, AZ, for Plaintiff.

Daniel S. Hefter, Hefter Law Limited, Chicago, IL, Kami Marie Hoskins, Kira Nicole Barrett, Gordon Rees Scully Mansukhani LLP, Phoenix, AZ, Rolf Nathaniel Clarkson, Stephen Franklin Banta, Anderson Banta Clarkson PLLC, Mesa, AZ, for Defendants.

ORDER

Honorable G. Murray Snow, United States District Judge

Pending before the Court are Defendants' Motion to Stay, (Doc. 12), and Plaintiff's Motion to Strike, (Doc. 33). The Court grants both motions.

BACKGROUND

Plaintiff Jason E. Rappaport brought suit against his former employer, Defendant The Federal Savings Bank ("TFSB"), and its CEO, Stephen M. Calk. (Doc. 1). Mr. Rappaport alleges that TFSB illegally terminated his employment after he developed leukemia

, and that TFSB and Mr. Calk lied to Mr. Rappaport's clients about his dismissal. (Doc. 1). The first four counts of Mr. Rappaport's Complaint concern the defamation and intentional interference with a business relationship claims, and the last two counts concern the wrongful dismissal and retaliation claims. (Doc. 1).

Mr. Rappaport's employment contract with TFSB included an arbitration agreement. (Doc. 12, Exh. A ¶ 10). It states that any dispute "concerning the wages, hours, working conditions, terms, rights, responsibilities or obligations between them or arising out of their employment relationship ... shall be resolved through binding arbitration in accordance with the rules of JAMS Arbitration...." (Doc. 12, Exh. A ¶ 10). Pursuant to this clause and the Federal Arbitration Act, Defendants have requested the Court to stay this case until arbitration is completed. (Doc. 12).

DISCUSSION

I. Legal Standard

Under the Federal Arbitration Act ("FAA"), an arbitration provision in an employment contract "shall be valid, irrevocable, and enforceable...." 9 U.S.C. § 2 ; see, e.g., Circuit City Stores, Inc. v. Adams , 532 U.S. 105, 113–19, 121 S.Ct. 1302, 149 L.Ed.2d 234 (2001) (holding that the FAA applies to employment contracts except those of transportation workers); Chiron Corp. v. Ortho Diagnostic Sys., Inc. , 207 F.3d 1126, 1130 (9th Cir. 2000) ; Tracer Research Corp. v. Nat'l Envtl. Servs. Co. , 42 F.3d 1292, 1294 (9th Cir. 1994), cert. dismissed, 515 U.S. 1187, 116 S.Ct. 37, 132 L.Ed.2d 917 (1995). "Although [a] contract provides that [state] law will govern the contract's construction, the scope of the arbitration clause is governed by federal law." Tracer Research Corp , 42 F.3d at 1294 (citing Mediterranean Enters., Inc. v. Ssangyong Corp. , 708 F.2d 1458, 1463 (9th Cir. 1983) ); see Circuit City Stores, Inc. v. Adams , 279 F.3d 889, 892 (9th Cir. 2002) (holding that FAA "not only placed arbitration agreements on equal footing with other contracts, but established ... a federal common law of arbitrability which preempts state law"); Simula, Inc. v. Autoliv, Inc. , 175 F.3d 716, 719 (9th Cir. 1999) ("Federal substantive law governs the question of arbitrability.").

"Notwithstanding the federal policy favoring it, ‘arbitration is a matter of contract and a party cannot be required to submit to arbitration any dispute which he has not agreed so to submit.’ " Tracer Research Corp. , 42 F.3d at 1294 (quoting United Steelworkers of Am. v. Warrior & Gulf Navigation Co. , 363 U.S. 574, 582, 80 S.Ct. 1347, 4 L.Ed.2d 1409 (1960) ); see French v. Merrill Lynch, Pierce, Fenner & Smith, Inc. , 784 F.2d 902, 908 (9th Cir. 1986). Where the arbitrability of a dispute is in question, a court must look to the terms of the contract. See Chiron Corp. , 207 F.3d at 1130. "Any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration." Simula , 175 F.3d at 719 (quoting Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp. , 460 U.S. 1, 20, 103 S.Ct. 927, 74 L.Ed.2d 765 (1983) ).

However, a court "cannot expand the parties' agreement to arbitrate in order to achieve greater efficiency." Tracer Research Corp. , 42 F.3d at 1294. "[T]he judicial inquiry ... must be strictly confined to the question whether the reluctant party did agree to arbitrate...." United Steelworkers , 363 U.S. at 582, 80 S.Ct. 1347. "The court's role under the [FAA] is therefore limited to determining (1) whether a valid agreement to arbitrate exists and, if it does, (2) whether the agreement encompasses the dispute at issue." Chiron Corp. , 207 F.3d at 1130 (citations omitted); see Simula , 175 F.3d at 720 (stating that "the district court can determine only whether a written arbitration agreement exists, and if it does, enforce it in accordance with its terms") (citation omitted).

II. Analysis

A. Conscionability of Arbitration Provision

In evaluating whether the parties intended to arbitrate, courts apply ordinary state-law contract principles. Wynn Resorts, Ltd. v. Atlantic-Pacific Capital, Inc. , 497 Fed.Appx. 740, 741 (9th Cir. 2012) (applying New York law in arbitrability determination) (citing First Options of Chi., Inc. v. Kaplan , 514 U.S. 938, 944, 115 S.Ct. 1920, 131 L.Ed.2d 985 (1995) ). The arbitration agreement states that the terms were "made and entered into in the State of Illinois" and shall be governed by "the laws of the State of Illinois." (Doc. 12, Exh. A ¶ 10).

Illinois law favors arbitration and enforces valid arbitration agreements. Williams v. Jo-Carroll Energy, Inc. , 382 Ill. App. 3d 781, 784, 321 Ill.Dec. 844, 890 N.E.2d 566 (2d Dist. 2008) (citations omitted). An arbitration agreement is not enforceable if it is unconscionable. Id. "Unconscionability may be either procedural or substantive, or a combination of both." Id. (citation omitted).

1. Procedural Unconscionability

Procedural unconscionability considers whether "a term is so difficult to find, read, or understand that the plaintiff cannot fairly be said to have been aware he was agreeing to it." Razor v. Hyundai Motor America, 222 Ill.2d 75, 100, 305 Ill.Dec. 15, 854 N.E.2d 607 (2006). It also takes into account a lack of bargaining power. Id. The procedural unconscionability analysis considers "whether each party had the opportunity to understand the terms of the contract, whether important terms were hidden in a maze of fine print, and all of the circumstances surrounding the formation of the contract." Phoenix Ins. Co. v. Rosen , 242 Ill.2d 48, 60, 350 Ill.Dec. 847, 949 N.E.2d 639 (2011) (internal quotations removed) (citations omitted).

Illinois courts have not considered whether an arbitration agreement is unconscionable if it fails to attach all of the applicable rules of arbitration. By analogy, Mr. Rappaport refers to California precedent on the issue. In general, California courts consider what the weaker party in the agreement would expect in the unattached rules. One court found procedural unconscionability when the unattached rules contradicted elements in the employment contract and were different than the ones typically used in employment disputes. Lou v. Ma Labs., Inc., 2013 WL 2156316 at *3–*4 (N.D. Cal. 2013). Another California court found unconscionability when the unattached rules included prohibitive fees that a typical person would not expect in dispute resolution. Parada v. Superior Court , 176 Cal.App.4th 1554, 1571, 98 Cal.Rptr.3d 743 (3d Div. 2009) (citing Gutierrez v. Autowest, Inc., 114 Cal.App.4th 77, 90, 7 Cal.Rptr.3d 267 (5th Div. 2003) ); see also Harper v. Ultimo , 113 Cal.App.4th 1402, 1406, 7 Cal.Rptr.3d 418 (3d Div. 2003) (finding procedural unconscionability when unattached rules had elements that would surprise the weaker party). Simple failure to attach the arbitration rules does not conclusively show that the arbitration agreement is unconscionable. See Coup v. Scottsdale Plaza Resort, LLC , 823 F.Supp.2d 931, 953 (D. Ariz. 2011) ("Even California's pro-employee law in the arbitration arena has rejected ... [the] argument that an employer's mere reference to unattached arbitration rules renders an arbitration agreement unconscionable per se. ") (citing Mathis v. Screen Actors Guild Producer Pension Health Plan , 2011 WL 199002, *6 (Cal. App. 2 Dist. January 24, 2011) ).

The arbitration agreement in Mr. Rappaport's employment contract explicitly states that disputes "shall be resolved through binding arbitration in accordance with the rules of JAMS Arbitration applicable to employment claims...." (Doc. 12 Exh. A ¶ 10). The clause is plainly set in the contract and is not otherwise hidden. Although the specific rules used in JAMS Arbitration of employment claims were not attached to the agreement, those rules are easily accessible. The applicable arbitration rules require a standard $1,500 filing fee, twelve percent case management fee, and other customary procedures to efficiently resolve the dispute. (Doc. 12 Exh. B). Illinois courts have upheld these JAMS rules. See Tritsis v. BankFinancial Corp. , 2017 WL 1134472 at *4 (N.D. Ill. Mar. 27, 2017) ; Bahoor v. Varonis Systems, Inc. , 152 F.Supp.3d 1091, 1100–1101 (N.D. Ill. 2015). The rules do not contradict the employment contract and conform to expected rules governing arbitration. Further, the claim allows for a party to opt out at the time of signing the agreement or within thirty days of its execution. (Doc. 12 Exh. A ¶ 10). Considering all of this, the arbitration agreement is not procedurally unconscionable.

2. Substantive Unconscionability

"Substantive unconscionability concerns the actual terms of the contract and examines the relative fairness of the obligations assumed." Phoenix Ins. Co. v. Rosen , 242 Ill.2d 48, 60, 350 Ill.Dec. 847, 949 N.E.2d 639 (2011) (internal quotations removed) (citations omitted). The substantive unconscionability analysis considers whether terms are "so one-sided as to oppress or unfairly surprise an innocent party, [presenting] an overall imbalance in the obligations and...