1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 SOUTHERN DISTRICT OF CALIFORNIA 10 11 DALEEN FRASER, Case No.: 22cv713-L-MSB

12 Plaintiff,

ORDER DENYING DEFENDANT’S

13 v. MOTION TO COMPEL

ARBITRATION

14 OMV MEDICAL, INC.,

15 [ECF NO. 7] Defendant. 16

17 In this putative class action alleging wages and hours violations of California 18 Labor Code, Defendant moved to compel arbitration. Plaintiff filed an opposition, and 19 Defendant replied. The Court decides the matter on the papers submitted without oral 20 argument. See Civ. L. R. 7.1(d.1). For the reasons stated below, Defendant's motion is 21 denied. 22 Defendant offers medical staffing services to hospitals and medical facilities, 23 including the Naval Hospital at Camp Pendleton in San Diego, California. Plaintiff was 24 employed by Defendant as a non-exempt employee for approximately two years. 25 Throughout that time, she was placed at the Naval Hospital as a full-time registered nurse 26 in the emergency room. Plaintiff alleges that Defendant failed to fully compensate her 27 and other employees by requiring them to work while clocked out, failing to properly 28 account for incentive compensation, failing to provide uninterrupted meal and break 1 periods or to properly compensate for work during such periods, and failing to provide 2 complete and accurate itemized wage statements, among other things. (See ECF No. 1, 3 pages 9-51, Complaint.) 4 Plaintiff filed a complaint in the California Superior Court on her own behalf and 5 on behalf of a putative class. Defendant removed the action to this Court alleging that 6 Plaintiff’s claims arise out of her employment on a federal enclave. (ECF No. 1, pages 1- 7 7, Notice of Removal at 4 (citing Durham v. Lockheed Martin Corp., 445 F.3d 1247, 8 1250 (9th Cir. 2006).)1 9 Following removal, Defendant moved pursuant to the Federal Arbitration Act, 9 10 U.S.C. §1 et seq. ("FAA"), to compel arbitration based on the arbitration clause included 11 in Plaintiff’s offer of employment: 12 As a condition of your employment, you agree to submit any all claims against [Defendant] which arise out of or are otherwise related to your 13 employment or the termination of your employment with [Defendant] to 14 binding arbitration before the American Arbitration Association (the “AAA”). [Defendant] likewise agrees to submit any and all claims 15 [Defendant] may have against you which arise out of or are otherwise 16 related to your employment or the termination of your employment with [Defendant] to binding arbitration before the AAA. The arbitration shall be 17 conducted pursuant to the employment arbitration rules of the AAA. The 18 rules (as amended by the AAA and available for review on the internet) will govern any arbitration between you and [Defendant]. A decision and award 19 of the arbitrator shall be conclusive, final, and binding on the parties ... . 20 The arbitrator shall award reasonable attorney’s fees and costs to the prevailing party in the arbitration. Each party shall bear an equal share of 21 the arbitrator’s expenses and administrative fees of arbitration. 22 23 (ECF No. 1-2, Mathieson Decl. Ex. A.) 24 "The FAA mandates that district courts shall direct the parties to proceed to 25 arbitration on issues as to which an arbitration agreement has been signed." Kilgore v. 26

27 1 Unless otherwise noted, internal quotation marks, ellipses, brackets, citations, and 28 1 KeyBank N.A., 718 F.3d 1052, 1058 (9th Cir. 2013) (emph. in original). "The court's role 2 under the [FAA] is therefore limited to determining (1) whether a valid agreement to 3 arbitrate exists and, if it does, (2) whether the agreement encompasses the dispute at 4 issue." Chiron Corp. v. Ortho Diagnostic Sys., Inc., 207 F.3d 1126, 1130 (9th Cir. 2000). 5 “If both conditions are met, the FAA requires the court to enforce the arbitration 6 agreement in accordance with its terms.” Lim v. TForce Logistics, 8 F.4th 992, 999 (9th 7 Cir. 2021). 8 Plaintiff contends that the arbitration agreement in her offer letter is not valid. 9 Section 2 of the FAA provides that an arbitration agreement “shall be valid, irrevocable, 10 and enforceable, save upon such grounds as exist at law or in equity for the revocation of 11 any contract.” 9 U.S.C. § 2. 12 The final clause of § 2, generally referred to as the savings clause, permits agreements to arbitrate to be invalidated by generally applicable contract 13 defenses, such as fraud, duress, or unconscionability, but not by defenses 14 that apply only to arbitration or that derive their meaning from the fact that an agreement to arbitrate is at issue. 15

16 Lim, 8 F.4th at 999. 17 “When deciding whether the parties agreed to arbitrate ... courts generally should 18 apply ordinary state-law principles that govern the formation of contracts.” First Options 19 of Chicago, Inc. v. Kaplan, 514 U.S. 938, 944 (1995). “Any doubts about ... applicable 20 contract defenses[] are to be resolved in favor of arbitration.” Tompkins v. 23andMe, 21 Inc., 840 F.3d 1016, 1022 (9th Cir. 2016). 22 Plaintiff argues that the arbitration clause is unconscionable. Defendant disagrees 23 but, alternatively, offers to waive any unconscionable provisions within the arbitration 24 clause and requests the Court to sever them. “[T]he party opposing arbitration bears the 25 burden of proving any defense, such as unconscionability.” Lim, 8 F.4th at 999; see also 26 OTO, LLC v. Kho, 8 Cal. 5th 111, 126 (2019). 27 To prevail, Plaintiff must show that the arbitration clause is both procedurally and 28 substantively unconscionable. See Armendariz v. Found. Health Psychcare Servs., Inc., 1 24 Cal.4th 83, 99 (2000). The procedural element focuses on "oppression or surprise due 2 to unequal bargaining power," and the substantive element focuses on "overly harsh and 3 one-sided results." Id. A sliding scale is applied, so that the more substantively 4 oppressive the contract term, the less evidence of procedural unconscionability is 5 required to find it unenforceable and vice versa. Id. “As with any contract, the 6 unconscionability inquiry requires a court to examine the totality of the agreement's 7 substantive terms as well as the circumstances of its formation to determine whether the 8 overall bargain was unreasonably one-sided.” OTO, 8 Cal. 5th at 124. The ultimate issue 9 is “whether the terms of the contract are sufficiently unfair, in view of all relevant 10 circumstances, that a court should withhold enforcement.” Id. at 126. 11 Procedural unconscionability analysis “begins with an inquiry into whether the 12 contract is one of adhesion.” Armendariz, 24 Cal.4th at 113. A contract of adhesion is “a 13 standardized contract, which, imposed and drafted by the party of superior bargaining 14 strength, relegates to the subscribing party only the opportunity to adhere to the contract 15 or reject it.” Id. 16 Ordinary contracts of adhesion, although they are indispensable facts of modern life that are generally enforced, contain a degree of procedural 17 unconscionability even without notable surprises, and bear within them the 18 clear danger of oppression and overreaching. [C]ourts must be particularly attuned to this danger in the employment setting, where economic pressure 19 exerted by employers on all but the most sought-after employees may be 20 particularly acute.

21

22 Baltazar v. Forever 21, Inc., 62 Cal.4th 1237, 1244 (2016). 23 Here, the arbitration clause was drafted by Plaintiff’s prospective employer and 24 included in the offer letter as a condition of employment. (Mathieson Decl. Ex. A.) 25 Although Defendant argues that Plaintiff has not shown any attempt to negotiate the 26 terms of the arbitration clause, “a complaining party need not show it tried to negotiate 27 standardized contract terms to establish procedural unconscionability.” OTO, 8 Cal.5th at 28 127. Moreover, the arbitration clause was a condition of employment, implying that it 1 was not subject to negotiation. Accordingly, Defendant’s arbitration clause was a 2 contract of adhesion containing a sufficient degree of procedural unconscionability to 3 warrant examination of its substantive fairness. 4 Substantive unconscionability focuses on the fairness of a contract’s terms to 5 ensure that contracts, “particularly contracts of adhesion,” do not impose terms that are 6 “unreasonably favorable to the more powerful party.” Lim, 8 F.4th at 1002 (applying 7 Cal. law). Plaintiff argues that the arbitration clause is substantively unconscionable 8 because it imposes on her one half of arbitrator’s expenses and administrative fees of 9 arbitration. It also provides that the arbitrator shall award reasonable attorney’s fees and 10 costs to the prevailing party. (Mathieson Decl. Ex. A.) 11 [W]hen an employer imposes mandatory arbitration as a condition of employment, the arbitration agreement or arbitration process cannot 12 generally require the employee to bear any type of expense that the 13 employee would not be required to bear if he or she were free to bring the action in court. 14

15 Lim, 8 F.4th at 1002 (quoting Armendariz, 24 Cal. 4th at 110-11). Particularly with 16 regard to unwaivable statutory claims such as Plaintiff is asserting here, including wage 17 claims pursuant to California Labor Code section 1194, the arbitration agreement cannot 18 require the employee to pay any arbitrators’ fees or expenses. Lim, 8 F.4th at 1003; 19 Armendariz, 24 Cal. 4th at 102; Reyes v. Hearst Comm’ctns, Inc., 2022 WL 2235793 (9th 20 Cir. Jun. 22, 2022) (applying Cal. law). Similarly, in a wages and hours action an 21 arbitration agreement cannot include a fee shifting provision contrary to the provisions of 22 California Labor Code sections 1194 and 218.5, which generally preclude an award of 23 attorney’s fees to a prevailing employer. See also Lim, 8 F.4th at 1003-04, 1006. 24 Accordingly, Defendant’s arbitration agreement is sufficiently one-sided in Defendant’s 25 favor to be unconscionable. 26 Defendant argues that the unconscionability is negated because the arbitration 27 clause provides that “[t]he arbitration shall be conducted pursuant to the employment 28 arbitration rules of the AAA. The rules (as amended by the AAA and available for 1 review on the internet) will govern any arbitration between you and [Defendant].” 2 (Mathieson Decl. Ex. A.) Defendant points to AAA Rule 1, which provides, “If a party 3 establishes that an adverse material inconsistency exists between the arbitration 4 agreement and these rules, the arbitrator shall apply these rules.” (ECF No. 7-3, Def.’s 5 Ex. A (“AAA Rules”).) Defendant also points to AAA Rule 39(d), which provides that 6 “[t]he arbitrator may grant any remedy or relief that would have been available to the 7 parties had the matter been heard in court including awards of attorney’s fees and costs, 8 in accordance with applicable law.” Finally, they point to the AAA 9 Employment/Workplace Fee Schedule ¶¶1.A. and 2.A., which limit an individual’s 10 arbitration filing fee to $300. (ECF No. 7-4, Def.’s Ex. B.) 11 Lowering the arbitration expenses to make them more affordable does not negate 12 substantive unconscionability. Lim, 8 F.4th at 1004 (“[I]mposing arbitration expenses on 13 an employee that he would not otherwise bear in federal court is unconscionable 14 regardless of his ability to pay.”) (emph. in original). Further, the AAA Rules “still 15 impose an impermissible risk” on Plaintiff that the arbitrator would not agree with her 16 regarding “any material inconsistency” between the arbitration agreement and the AAA 17 Rules. Reyes, 2022 WL 2235793 *2; see also Lim, 8 F.4th at 1002-03, 1006. 18 Defendant’s argument that the reference to the AAA Rules in the arbitration clause 19 negates any unconscionability is therefore unavailing. 20 Defendant next attempts to avoid unconscionability by offering to waive any 21 unconscionable provisions. Defendant’s “later willingness to alter the arbitration 22 provision does not change the fact that the arbitration agreement as written is 23 unconscionable and contrary to public policy.” Lim, 8 F.4th at 1004. 24 The drafter is saddled with the consequences of the provision as drafted. If the provision, as drafted, would deter potential litigants, then it is 25 unenforceable, regardless of whether, in a particular case, the employer 26 agrees to pay a particular litigant's share of the fees and costs to avoid such a holding. To conclude otherwise would incentivize drafters to overreach 27 based on the assumption they could simply waive unconscionable terms 28 when faced with litigation. 1 || /d. at 1005 (emph. in original). The cost-splitting and fee-shifting provisions likely 2 || would deter potential employee litigants from bringing claims against Defendant. 3 || Accordingly, Defendant’s offer of waiver does not mitigate the unconscionable 4 || provisions. 5 Finally, Defendant requests the Court to sever the unconscionable provisions from 6 || the arbitration clause and enforce the valid provisions. 7 If the court as a matter of law finds the contract or any clause of the contract g to have been unconscionable at the time it was made the court may refuse to enforce the contract, or it may enforce the remainder of the contract without 9 the unconscionable clause, or it may so limit the application of any 10 unconscionable clause as to avoid any unconscionable result. 11 }|Cal. Civ. Code § 1670.5. “[A]n unconscionable arbitration term should ... not be severed 12 drafted in bad faith because severing such a term and enforcing the arbitration 13 || provision would encourage drafters to overreach.” Lim, 8 F.4th at 1006. Here, severance 14 not appropriate “given [Defendant’s] inclusion of a fee-splitting provision that has been 15 ||}impermissible under Armendariz for more than two decades.” Reyes, 2022 WL 2235793 16 || *2 (citing Armendariz, 24 Cal. 4th at 124 n. 13). 17 For the foregoing reasons, Defendant’s motion to compel arbitration is denied. 18 IT SO ORDERED. 19 20 Dated: February 28, 2023 : fp ep? 27 H . James Lorenz, United States District Judge 23 24 25 26 27 28