Taylor v. TA Operating, LLC

• Decision Date: 12 January 2023
• Docket Number: 2:22-cv-00947 WBS DMC
• Parties: MARCUS TAYLOR, individually and on behalf of all those similarly situated, Plaintiff, v. TA OPERATING, LLC, a Delaware limited liability company; and DOES 1 through 50, inclusive, Defendants.
• Court: U.S. District Court — Eastern District of California

MARCUS TAYLOR, individually and on behalf of all those similarly situated, Plaintiff,
v.
TA OPERATING, LLC, a Delaware limited liability company; and DOES 1 through 50, inclusive, Defendants.

No. 2:22-cv-00947 WBS DMC

United States District Court, E.D. California

January 12, 2023

MEMORANDUM AND ORDER RE: DEFENDANT'S MOTION TO COMPEL ARBITRATION

WILLIAM B. SHUBB, UNITED STATES DISTRICT JUDGE.

This is just the most recent of many cases in which the court has been called upon to determine whether an arbitration agreement between an employer and its employee is enforceable. Understandably, employers often include arbitration clauses in their written employment agreements with their employees. The fundamental value of arbitration is that it saves the time and expense of extended litigation for both sides. In the context of the employer-employee relationship (if a relationship still

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exists) it also serves to minimize the disruption of business and the acrimony of litigation. Parties in arbitration further benefit from the experience and expertise of an arbitrator who is a subject-matter expert rather than submitting to the uncertainties associated with a jury trial.

In this case, rather than take advantage of the arbitration provisions in his employment agreement, plaintiff Marcus Taylor seeks to pursue the more costly, time consuming, and rancorous process of litigating his employment dispute in federal court. Accordingly, he has initiated this putative class action against defendant TA Operating, LLC, alleging wage and hour violations under the California Labor Code and California Business and Professions Code. (See Compl. (Docket No. 1-1 at 519) at 2.) Defendant now moves to compel plaintiff to arbitrate his claims and seeks dismissal of the action. (Docket No. 19.)

I. Factual and Procedural Background

Defendant, an owner and operator of truck stops and convenience stores, employed plaintiff as a non-exempt assistant general manager from on or around August 16, 2021 to January 13, 2022. (Decl. of Marcus Taylor (“Taylor Decl.”) (Docket No. 21-2) ¶ 3; Decl. of Claudia Ratica (“Ratica Decl.”) (Docket No. 19-3) ¶¶ 3-4.) At the beginning of his employment with defendant, plaintiff signed a Mutual Agreement to Resolve Disputes and Arbitrate Claims (“Agreement”). (See Taylor Decl. ¶ 4; Ratica Decl. ¶ 5.)

The Agreement provides that if a dispute cannot be resolved through defendant's internal grievance process, it must be arbitrated. (Ex. B to Ratica Decl. (“Agreement”) (Docket No. 19-3 at 14-26) at 1.)

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Pursuant to the Agreement, defendant will pay all arbitration fees. (Id. at 3.) Defendant will not, however, pay associated costs including attorneys' fees and costs incurred in responding to discovery (though the arbitrator can award such costs and fees in his decision). (Id. at 3-4.) The Agreement provides that employees waive the right to bring class or collective claims and the right to a jury trial in the event the Agreement is found unenforceable. (Id. at 4.) A choice of law provision states that disputes regarding enforceability of the Agreement will be determined under Delaware law, while the substance of the claim will be governed by California law. (Id.) The Agreement also contains a delegation clause, which provides that “all challenges to the interpretation or enforceability of any provision of this Agreement shall be brought before the arbitrator, and the arbitrator shall rule on all questions regarding the interpretation and enforceability of this Agreement.” (Id. at 4.)

Defendant previously moved to compel arbitration in two cases that involved the precisely same Agreement.^[1] In Chandler v. TA Operating LLC, Judge Troy L. Nunley granted defendant's motion to compel arbitration, finding that the delegation clause was enforceable, and that even if the delegation clause was unconscionable, the Agreement as a whole was not. No. 2:20-cv-02091 TLN DMC, 2022 WL 597581, at *2 (E.D. Cal. Feb. 28, 2022).

In Holley-Gallegly v. TA Operating LLC, Judge Jesus G. Bernal reached a different result and denied defendant's motion to

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compel arbitration, finding that the Agreement--including the choice of law and waiver of jury trial provisions--was unconscionable and therefore the delegation clause was unenforceable. See No. EDCV-22-593 JGB SHK, 2022 WL 9959778, at *3-5 (C.D. Cal. Sept. 16, 2022).

II. Discussion

The parties do not dispute that the Federal Arbitration Act (“FAA”) governs the instant Agreement. (See Def.'s Mem. in Supp. of Mot. to Compel (“Def.'s Mem.”) (Docket No. 19-1) at 10; Pl.'s Opp'n (Docket No. 21) at 9.) The FAA provides that a written provision in a “contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract . . . shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.” 9 U.S.C. § 2. Because arbitration is a matter of contract, “the central . . . purpose of the FAA is to ensure that private agreements to arbitrate are enforced according to their terms.” Stolt-Nielsen S.A. v. AnimalFeeds Int'l Corp., 559 U.S. 662, 682 (2010) (internal quotation marks omitted). See also Perry v. Thomas, 482 U.S. 483, 490 (1987) (under the FAA, arbitration agreements “must be rigorously enforced”) (internal quotation marks omitted, alterations adopted).

The FAA “leaves no place for the exercise of discretion by a district court, but instead mandates that district courts shall direct the parties to proceed to arbitration on issues as to which an arbitration agreement has been signed.” Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213, 218 (1985). “[A]s a matter

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of federal law, any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration, whether the problem at hand is a construction of the contract language itself or an allegation of waiver, delay, or like defense to arbitrability.” Moses H. Cone Mem'l Hosp. v. Mercury Const. Corp., 460 U.S. 1, 24-25 (1983); see also Poublon v. C.H. Robinson Co., 846 F.3d 1251, 1259 (9th Cir. 2017).

Upon a showing that a party has failed to comply with a valid arbitration agreement, the district court must issue an order compelling arbitration. See Cohen v. Wedbush, Noble Cooke, Inc., 841 F.2d 282, 285 (9th Cir. 1988). “[T]he FAA limits courts' involvement to determining (1) whether a valid agreement to arbitrate exists and, if it does, (2) whether the agreement encompasses the dispute at issue.” Cox v. Ocean View Hotel Corp., 533 F.3d 1114, 1119 (9th Cir. 2008) (internal quotation marks omitted). Ordinarily, courts may “refuse to enforce arbitration agreements ‘upon such grounds as exist at law or in equity for the revocation of any contract.'” Epic Sys. Corp. v. Lewis, 138 S.Ct. 1612, 1622 (2018) (quoting 9 U.S.C. § 2). Such “generally applicable contract defenses” include fraud, duress, or unconscionability, as determined by state law. See AT&T Mobility LLC v. Concepcion, 563 U.S. 333, 340 (2011).

Defendant seeks to compel arbitration not only of the underlying wage and hour claims, but also the threshold issue of whether those claims are subject to arbitration under the Agreement. (See Def.'s Mem.) Plaintiff argues that he cannot be compelled to arbitrate because both the Agreement and the delegation clause are unconscionable and therefore unenforceable.

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(See Pl.'s Opp'n at 16-18.)

A. Plaintiff's Substantive Unconscionability Arguments Lack Merit

“Unconscionability has both a ‘procedural' and a ‘substantive' element.” Armendariz v. Found. Health Psychcare Servs., 24 Cal.4th 83, 114 (2000). “Both [must] be present in order for a court to exercise its discretion to refuse to enforce a contract or clause under the doctrine of unconscionability.” Id. However, “they need not be present in the same degree.” OTO, LLC v. Kho, 8 Cal. 5th 111, 125 (2019). “A procedural unconscionability analysis begins with an inquiry into whether the contract is one of adhesion.” Id. at 126. “A substantive unconscionability analysis examines the fairness of a contract's terms.” Id. at 129. The concern is with “terms that are unreasonably favorable to the more powerful party.” Id. at 130.

Plaintiff first contends that the entire agreement is procedurally unconscionable because it was a condition of employment and plaintiff had no opportunity to negotiate the terms. (Pl.'s Opp'n at 10-11.) Under these circumstances, the Agreement is a contract of adhesion. See Armendariz, 24 Cal.4th at 115 (finding that arbitration agreement that was “imposed on employees as a condition of employment” with “no opportunity to negotiate” was adhesive); OTO, LLC, 8 Cal. 5th at 126 (“Arbitration contracts imposed as a condition of employment are typically adhesive.”).

However, because “adhesion establishes only a ‘low' degree of procedural unconscionability,” Davis v. Kozak, 53 Cal.App. 5th 897, 907 (2020), plaintiff must demonstrate a high level

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of substantive unconscionability. See Poublon, 846 F.3d at 1261 (“if an employee must sign a non-negotiable employment agreement as a condition of employment but there is no other indication of oppression or surprise, then the agreement will be enforceable unless the degree of substantive unconscionability is high”) (internal quotation marks and citations omitted); Armendariz, 24 Cal.4th at 114 (“the more substantively oppressive the contract term, the less evidence of procedural unconscionability is required to come to the conclusion that the term is unenforceable, and vice versa”).

Plaintiff next argues that the Agreement is so permeated by substantive unconscionability that it is unenforceable in its entirety. (Pl.'s Opp'n at 16.) In response to the court's request, counsel for plaintiff has provided a list of each of the provisions of the Agreement that plaintiff contends is substantively...