Villanueva v. Maxim Healthcare Servs.

• Docket Number: 23-cv-03403-JSC
• Decision Date: 11 September 2023
• Parties: CINDY VILLANUEVA, Plaintiff, v. MAXIM HEALTHCARE SERVICES, INC., et al., Defendants.
• Court: U.S. District Court — Northern District of California

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CINDY VILLANUEVA, Plaintiff, v. MAXIM HEALTHCARE SERVICES, INC., et al., Defendants.

No. 23-cv-03403-JSC

United States District Court, N.D. California

September 11, 2023

ORDER RE: MOTION TO COMPEL ARBITRATION

RE: DKT. NO. 8

JACQUELINE SCOTT CORLEY, United States District Judge

Cindy Villanueva brings a putative class action against Maxim Healthcare Services, Inc., Maxim Healthcare Services Holdings, Inc., and Maxim Healthcare Staffing Services Inc. (collectively “Maxim”). Maxim moves to compel arbitration according to the terms of an arbitration agreement Villanueva signed. Because the parties signed a valid arbitration agreement that covers Villanueva's claims, the Court grants Maxim's motion to compel arbitration.

I. COMPLAINT ALLEGATIONS

Maxim proves healthcare staffing services to hospitals and healthcare facilities throughout California. (Dkt. No. 1-1 ¶ 2.) Villanueva alleges Maxim “engaged in a systematic pattern of wage and hour violations” under California Law, including, in part, failing to pay minimum and overtime wages, failing to provide meal periods or rest breaks, and failure to reimburse necessary business expenses. (Id. ¶¶ 3-4.) Plaintiff seeks to bring this action on behalf of a class of Maxim's employees. (Id. ¶ 20.)

II. PROCEDURAL HISTORY

Villanueva filed her action in California state court and Defendant removed the action to this Court. (Dkt. No. 1.) Maxim then filed a Motion to Compel Arbitration. (Dkt. No. 8.) Maxim asserts “Plaintiff agreed to be bound by a mandatory arbitration agreement with Maxim” when she signed an arbitration agreement as part of her onboarding. (Id. at 8-9.) Villanueva opposes Maxim's motion, asserting the arbitration agreement is unconscionable and therefore, unenforceable. (Dkt. No. 18 at 5.)

III. DISCUSSION

The Federal Arbitration Act [“FAA”] governs arbitration agreements “evidencing a transaction involving commerce.” 9 U.S.C. § 2. Such agreements “shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.” Id. In resolving a motion to compel arbitration, this Court must decide two “gateway” issues: “(1) whether a valid agreement to arbitrate exists and, if it does, (2) whether the agreement encompasses the dispute at issue. If both conditions are met, the [FAA] requires the court to enforce the arbitration agreement in accordance with its terms.” Lim v. TForce Logistics, LLC, 8 F.4th 992, 999 (9th Cir. 2021) (cleaned up).

A. Gateway Issues Were Not Delegated to the Arbitrator

Before addressing either of the gateway issues, the Court must decide whether the determination of those issues is itself delegated to the arbitrator. Id., 999-1000 (Both “gateway issues can be expressly delegated to the arbitrator.”). The Ninth Circuit instructs courts to apply a “more rigorous standard” than a traditional application of contract principles “in determining whether the parties have agreed to arbitrate the question of arbitrability.” Momot v. Mastro, 652 F.3d 982, 987 (9th Cir. 2011). “Courts should not assume that the parties agreed to arbitrate arbitrability unless there is clear and unmistakable evidence that they did so.” First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 944 (1995) (cleaned up).

Section XII of the agreement, titled “Judicial Enforcement” establishes “[e]ither EMPLOYEE or MAXIM may bring an action in any court of competent jurisdiction to compel arbitration of this agreement.” (Dkt. No. 8-3 at 24.) Thus, the arbitration agreement itself indicates parties have agreed determination of gateway issues is for the Court, not an arbitrator.

Maxim argues the arbitration agreement's incorporation of the American Arbitration Association (AAA) rules constitutes clear and unmistakable intent to delegate arbitrability questions to an arbitrator, citing Brennan v. Opus Bank, 796 F.3d 1125, 1131 (9th Circ. 2015).

The explicit terms of the arbitration agreement control any conflict between that agreement and AAA rules. See Fitz v. NCR Corp., 118 Cal.App.4th 702, 721 (2004) (when agreement incorporates AAA rules by reference, explicit terms of agreement regarding discovery provisions control even though they conflicted with AAA rules on discovery). Moreover, even assuming the AAA rules applied to this issue, Brennan left unresolved whether its ruling applies when at least one of the arbitration agreement parties is unsophisticated. Brennan, 796 F.3d at 1131; see also MacClelland v. Cellco P'ship, No. 21-CV-08592-EMC, 609 F.Supp.3d 1024, 2022 WL 2390997, at *3 (N.D. Cal. July 1, 2022) (“Where at least one party is unsophisticated, courts in this district and elsewhere have routinely found that the incorporation of the AAA rules is insufficient to establish a clear and unmistakable agreement to arbitrate arbitrability”).

As the party seeking to enforce the contract, Maxim bears the burden of establishing the delegation clause is enforceable. See Momot v. Mastro, 652 F.3d 982, 987 (9th Cir. 2011) (“[G]ateway issues of arbitrability presumptively are reserved for the court”); Ingalls v. Spotify USA, Inc., No. C 16-03533 WHA, 2016 WL 6679561, at *4 (N.D. Cal. Nov. 14, 2016) (Explaining the party seeking to compel arbitration has the “burden to establish that the delegation clause is enforceable”). Since Maxim did not demonstrate Villanueva was a sophisticated party and did not address why Brennan should apply if Villanueva is unsophisticated, Maxim failed to establish the parties delegated the threshold arbitrability question to the arbitrator. Thus, this Court will proceed by deciding the gateway issues itself.

B. A Valid Agreement to Arbitrate Exists

As to the first gateway issue, it is undisputed that before she began employment with Maxim, Villanueva signed a document titled “Mutual Agreement to Arbitrate Employment-Related Disputes.” (Dkt. No. 18 at 7.) That agreement includes all Defendants. (Dkt. Nos. 8 at 16, 8-3 at 20.) However, under the Federal Arbitration Act (“FAA”), agreements to arbitrate may be found invalid “upon such grounds as exist at law or in equity for the revocation of any contract.” 9 U.S.C. § 2. Federal courts apply state contract law to determine whether an arbitration agreement is enforceable. Pokorny v. Quixtar, 601 F.3d 987, 994 (9th Cir. 2010).

Both parties agree California law applies to this dispute. Plaintiff argues the arbitration agreement is unconscionable and thus unenforceable. “Under California law, a contractual provision is unenforceable if it is both procedurally and substantively unconscionable.” Kilgore v. KeyBank, Nat'l Ass'n, 718 F.3d 1052, 1058 (9th Cir. 2013) (cleaned up). However, procedural and substantive unconscionability need not be present to the same degree: “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.” Armendariz v. Found. Health Psychcare Servs., Inc., 24 Cal.4th 83, 114 (2000) (quotation marks and citation omitted).

a. Procedural Unconscionability

“Procedural unconscionability concerns the manner in which the contract was negotiated and the respective circumstances of the parties at that time, focusing on the level of oppression and surprise involved in the agreement.” Chavarria v. Ralphs Grocery Co., 733 F.3d 916, 922 (9th Cir. 2013). “Oppression addresses the weaker party's absence of choice and unequal bargaining power that results in no real negotiation.” Id. (cleaned up). “Surprise involves the extent to which the contract clearly discloses its terms as well as the reasonable expectations of the weaker party.” Id. The California Supreme Court has cautioned that in the “employment setting” the “economic pressure exerted by employers . . . may be particularly acute,” so courts should be “particularly attuned” to the “danger of oppression and overreaching.” Baltazar v. Forever 21, Inc., 62 Cal.4th 1237, 1244 (2016).

Both sides agree the arbitration agreement was a mandatory condition of Villanueva's employment with Maxim and Villanueva had no opportunity to negotiate or change the agreement's terms. Since “[a] contract is procedurally unconscionable if it is a contract of adhesion, i.e., a standardized contract, drafted by the party of superior bargaining strength, that relegates to the subscribing party only the opportunity to adhere to the contract or reject it,” Ting v. AT&T, 319 F.3d 1126, 1148 (9th Cir. 2003), there is at least some level of procedural unconscionability present.

But concluding the contract was adhesive is “insufficient to invalidate an arbitration agreement: Rather, an adhesion contract remains fully enforceable unless . . . the provision falls outside the reasonable expectations of the weaker party or it is [substantively] unconscionable.” Lane v. Francis Cap. Mgmt. LLC, 224 Cal.App.4th 676, 689 (2014) (cleaned up). Villanueva argues an additional level of procedural unconscionability was present because Maxim failed to provide Villanueva with “a copy of applicable AAA Rules” and thus Villanueva was “not aware of the terms” of the contract. (Dkt. No. 18 at 13.) The arbitration agreement Villanueva signed provided any arbitration “shall be conducted before a single, neutral arbitrator of the American Arbitration Association (“AAA”) . . . in accordance with and selected pursuant to the then-current rules and procedures of the Employment Arbitration Rules of the AAA (the ‘Rules') to the extent not inconsistent with the terms of this Agreement.” (Dkt. No. 8-3 at 23.) The agreement then listed “www.adr.org” as the location where parties could find “[t]he most current version of the Rules” and further indicated “[a] printed copy of these rules is also...