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Poublon v. C.H. Robinson Co.

United States Court of Appeals, Ninth Circuit

February 3, 2017

Lorrie Poublon, an individual, on behalf of herself, and on behalf of all persons similarly situated, Plaintiff-Appellee,
v.
C.H. Robinson Company; C.H. Robinson Worldwide, Inc., Defendants-Appellants.

          Argued and Submitted December 9, 2016 Pasadena, California

         Appeal from the United States District Court for the Central District of California Christina A. Snyder, District Judge, Presiding D.C. No. 2:12-cv-06654-CAS-MAN

          Jack S. Sholkoff (argued), Christopher W. Decker, and Kathleen J. Choi, Ogletree Deakins Nash Smoak & Stewart P.C., Los Angeles, California, for Defendants-Appellants.

          Kyle R. Nordrehaug (argued) and Norman B. Blumenthal, Blumenthal Nordrehaug & Bhowmik, La Jolla, California, for Plaintiff-Appellee.

          Before: Consuelo M. Callahan, Carlos T. Bea, and Sandra S. Ikuta, Circuit Judges.

         SUMMARY[*]

         Arbitration

         The panel reversed the district court's order denying defendants' motion to stay proceedings, compel arbitration of claims arising out of the plaintiff's employment, and dismiss class and representative claims.

         The panel reversed the district court's holding that the dispute resolution provision in an Incentive Bonus Agreement signed by the plaintiff was both procedurally and substantively unconscionable under California law. The panel concluded that, even though the Incentive Bonus Agreement was an adhesion contract, there was a low degree of procedural unconscionability. As to substantive unconscionability, the defendants did not contest the district court's holding that a judicial carve-out provision was substantively unconscionable. The panel held that a waiver of representative claims was not substantively unconscionable even though the waiver of the plaintiff's claim under California's Private Attorneys General Act was not enforceable under California law. A venue provision, a confidentiality provision, a sanctions provision, a unilateral modification provision, and limitations on discovery also were not substantively unconscionable.

         The panel concluded that the dispute resolution provision was valid and enforceable once the judicial carve-out was extirpated and the waiver of representative claims was limited to non-PAGA claims. The panel remanded the case to the district court.

          OPINION

          IKUTA, CIRCUIT JUDGE:

         Plaintiff Lorrie Poublon entered into an agreement with defendants C.H. Robinson Co. and C.H. Robinson Worldwide, Inc. (collectively, "C.H. Robinson") to arbitrate claims arising out of her employment. In the present action, the district court denied C.H. Robinson's motion to stay, compel arbitration, and dismiss class and representative claims, concluding that the dispute resolution provision was unconscionable. We hold that the dispute resolution provision is not tainted with illegality and any invalid portions can be severed, and therefore reverse.

         I

         Poublon began working for C.H. Robinson on May 7, 2007, as an Account Manager in Los Angeles, California. While employed at C.H. Robinson, Poublon signed an agreement titled "Incentive Bonus Agreement" each December in order to receive a financial bonus. The Incentive Bonus Agreement was a short one-page document with eight provisions. The seventh provision, which had the heading "Dispute Resolution, " contained four separate paragraphs. The first paragraph stated:

You and the Company agree that, except as provided below, all Claims the Company might bring against You and all claims You might bring against the Company and/or any of its officers, directors, or employees shall be deemed waived unless submitted to mediation, then, if mediation is unsuccessful, to final and binding arbitration in accordance with the Employment Arbitration Rules and Mediation Procedures of the American Arbitration Association, modified as follows: (1) the arbitration need not actually be administered by the American Arbitration Association; (2) any mediation or arbitration shall be governed by the Company's Employment Dispute Mediation/Arbitration Procedure, which is available on the Company intranet; (3) dispositive motions shall be permissible and not disfavored in any arbitration, and the standard for deciding such motions shall be the same as under Rule 56 of the Federal Rules of Civil Procedure; (4) except on a substantial showing of good cause, discovery will be limited to the exchange of relevant documents and three depositions per side; and (5) except as mutually agreed at the time between You and the Company, neither You nor the Company may bring any Claim combined with or on behalf of any other person or entity, whether on a collective, representative, or class action basis or any other basis. In the case of any conflict between the rules and procedures for either mediation or arbitration, the priority and order of precedence shall be as follows: (1) the rules and procedures stated herein; (2) the Company's Employment Dispute Mediation/Arbitration Procedure; (3) the Employment Arbitration Rules and Mediation Procedures of the American Arbitration Association.

         The second paragraph stated, in pertinent part:

This Dispute Resolution Agreement shall not apply to any of the following: (1) Worker's Compensation claims; (2) claims related to unemployment insurance; and (3) any claims by the Company that include a request for injunctive or equitable relief, including, without limitation, claims related to its enforcement of any restrictive covenants, noncompetition obligations, non-solicitation obligations and/or confidential information provisions contained in any Company policy and/or employment agreement(s) entered into between You and the Company and/or any claims to protect the Company's trade secrets, confidential or proprietary information, trademarks, copyrights, patents, or other intellectual property.

         The fourth paragraph provided:

If any portion of this dispute resolution provision is determined to be void or unenforceable, then the remaining portions of this Agreement shall continue in full force and effect, and this Agreement may be modified to the extent necessary, consistent with its fundamental purpose and intent, in order to make it enforceable.

         In December 2011, as in prior years, Poublon met with her supervisor, Gerry Nelson, to discuss her compensation and bonuses for the following year. At this meeting, Nelson gave Poublon the Incentive Bonus Agreement to take home and review. He told her that the agreement would have to be signed and returned within a specified time period in order for her to receive her bonus. Poublon and Nelson did not discuss the dispute resolution provision. Poublon later asked Nelson "what would happen if [she] did not sign the document, " and he responded that "failure to sign would result in [Poublon] not being paid [her] bonus." On December 23, 2011, Poublon signed the Incentive Bonus Agreement and returned it to C.H. Robinson. Poublon's employment at C.H. Robinson ended in February 2012.

         In March 2012, Poublon alleged that C.H. Robinson had misclassified her as exempt from overtime pay requirements and demanded mediation of her claims pursuant to the terms of the Incentive Bonus Agreement that she had signed in 2011. After mediation was unsuccessful, Poublon filed a class action complaint against C.H. Robinson in Los Angeles County Superior Court, making the same misclassification claims on behalf of herself and other employees.

         In August 2012, C.H. Robinson removed Poublon's action to a federal district court. Poublon filed a First Amended Complaint, which added a claim on behalf of California under the Private Attorneys General Act (PAGA), Cal. Labor Code §§ 2698-2699.5. The district court denied C.H. Robinson's motion to compel arbitration, holding that the dispute resolution provision was both procedurally and substantively unconscionable, and therefore unenforceable. C.H. Robinson timely appealed.

         II

         A

         We have jurisdiction under 9 U.S.C. § 16(a)(1). We review the denial of a motion to compel arbitration de novo. Brown v. Dillard's, Inc., 430 F.3d 1004, 1009 (9th Cir. 2005). We review factual findings for clear error, Balen v. Holland Am. Line Inc., 583 F.3d 647, 652 (9th Cir. 2009), and review "[t]he interpretation and meaning of contract provisions" de novo, Lee v. Intelius Inc., 737 F.3d 1254, 1258 (9th Cir. 2013).

         B

         The Federal Arbitration Act (FAA) requires courts to "place arbitration agreements on an equal footing with other contracts, and enforce them according to their terms." AT&T Mobility LLC v. Concepcion, 563 U.S. 333, 339 (2011) (internal citation omitted). Section 2 of the FAA makes agreements to arbitrate "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.[1] The final clause of § 2, generally referred to as the savings clause, "permits agreements to arbitrate to be invalidated by 'generally applicable contract defenses, such as fraud, duress, or unconscionability, ' but not by defenses that apply only to arbitration or that derive their meaning from the fact that an agreement to arbitrate is at issue." Concepcion, 563 U.S. at 339 (quoting Doctor's Assocs., Inc. v. Casarotto, 517 U.S. 681, 687 (1996)). "Any doubts about the scope of arbitrable issues, including applicable contract defenses, are to be resolved in favor of arbitration." Tompkins v. 23andMe, Inc., 840 F.3d 1016, 1022 (9th Cir. 2016).

         Section 2 of the FAA preempts state statutes and state common law principles that "undercut the enforceability of arbitration agreements, " unless the savings clause applies. Southland Corp. v. Keating, 465 U.S. 1, 16 (1984); see also Concepcion, 563 U.S. at 343-44; Sakkab v. Luxottica Retail N. Am., Inc., 803 F.3d 425, 432 (9th Cir. 2015). In other words, a court cannot enforce state laws that apply to agreements to arbitrate but not to contracts more generally. See Mortensen v. Bresnan Commc'ns, LLC, 722 F.3d 1151, 1159 (9th Cir. 2013) ("Any general state-law contract defense . . . that has a disproportionate effect on arbitration is displaced by the FAA.").

         Here, Poublon argues that the dispute resolution provision in the Incentive Bonus Agreement is unenforceable under California's unconscionability doctrine. As the California Supreme Court has noted, California's "unconscionability standard is, as it must be, the same for arbitration and nonarbitration agreements." Sanchez v. Valencia Holding Co., LLC, 61 Cal.4th 899, 912 (2015). Recent California Supreme Court cases have demonstrated how this principle applies to California's unconscionability doctrine. See Baltazar v. Forever 21, Inc., 62 Cal.4th 1237 (2016); Sanchez, 61 Cal.4th at 911; Sonic-Calabasas A, Inc. v. Moreno, 57 Cal.4th 1109, 1143-45 (2013) (Sonic II). In our evaluation of Poublon's claim, we apply principles derived from these cases, as well as other precedent articulating California's general unconscionability standard. See Tompkins, 840 F.3d at 1024 (holding that "we are bound by the California Supreme Court's most recent articulation of its [general unconscionability] standard").

         Under California law, "the party opposing arbitration bears the burden of proving any defense, such as unconscionability." Pinnacle Museum Tower Ass'n v. Pinnacle Mkt. Dev. (US), LLC, 55 Cal.4th 223, 236 (2012). In order to establish such a defense, the party opposing arbitration must demonstrate that the contract as a whole or a specific clause in the contract is both procedurally and substantively unconscionable. Sanchez, 61 Cal.4th at 910. Procedural and substantive unconscionability "need not be present in the same degree." Id. Rather, there is a sliding scale: "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." Id. (quoting Armendariz v. Found. Health Psychcare Servs., Inc., 24 Cal.4th 83, 114 (2000)). We therefore must consider both procedural and substantive unconscionability.

         The procedural element of unconscionability focuses on "oppression or surprise due to unequal bargaining power." Pinnacle, 55 Cal.4th at 246. "The oppression that creates procedural unconscionability arises from an inequality of bargaining power that results in no real negotiation and an absence of meaningful choice." Grand Prospect Partners, L.P. v. Ross Dress for Less, Inc., 232 Cal.App.4th 1332, 1347-48, as modified on denial of reh'g (Feb. 9, 2015). California courts have held that oppression may be established by showing the contract was one of adhesion or by showing from ...


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