STEVEN C. PHILLIPS, State Bar No. 191127
EMI GUSUKUMA, State Bar No. 191026
LAW OFFICES OF STEVE PHILLIPS
1375 Sutter Street, Suite 110
San Francisco, CA 94109
Telephone: (415) 353-5740
Fax: (415) 353-5739
Attorneys for Plaintiff
IRIS ARCHULETA
UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF CALIFORNIA
IRIS ARCHULETA, an individual,
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Plaintiff,
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vs.
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IRWIN HOME EQUITY CORPORATION )
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Defendant.
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NO. C 01-04119 CRB
PLAINTIFF’S OPPOSITION TO
DEFENDANT’S MOTION FOR
SUMMARY JUDGMENT OR, IN
THE ALTERNATIVE, TO COMPEL
ARBITRATION
Date:
Time:
Place:
Judge:
May 10, 2002
10:00 a.m.
Courtroom 8
Hon. Charles R. Breyer
I.
INTRODUCTION AND SUMMARY OF ARGUMENT
Plaintiff Iris Archuleta (“Plaintiff”) regrets that the Court’s precious time must be
devoted to disposing of this motion. There is no ambiguity in the controlling state and federal
cases which hold that a fee-splitting provision in an arbitration agreement renders such an
agreement unconscionable per se. Defendant Irwin Home Equity (“Defendant”) knows that the
agreement in the instant case has such a provision, and yet has persisted in seeking to convince
Plaintiff – and now this Court – that its invalid agreement has some legal force and effect. Such
PLAINTIFF’S OPPOSITION TO
DEFENDANT’S MSJ, OR, IN THE
ALTERNATIVE TO COMPEL ARBITRATION
ARCHULETA v. IRWIN HOME EQUITY
(Case No. C01-04119 CRB)
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behavior is disingenuous at best and, at worst, an improper abuse of the judicial system in that it
has the effect of harassing, delaying, and increasing the cost of litigation.
When Defendant hired Plaintiff, it required her to sign an Agreement to Arbitrate
(“Agreement”) that included a provision requiring the parties to split the fees of the arbitration
process. The Ninth Circuit ruled just two months ago that such a “fee allocation scheme alone
would render an arbitration agreement unenforceable.” Circuit City Stores v. Adams, (2001) 279
F.3d 889, 894 (“Circuit City II”) (emphasis added). Two weeks after Circuit City II was
published, the exact same conclusion was reached by a California appellate court in a case that
held that, “As a separate and adequate ground for overturning the trial court’s order compelling
arbitration, we hold the arbitration agreement’s provision for sharing the arbitrator’s fees
prevents Mercuro from having an adequate opportunity to vindicate his unwaivable statutory
rights.” Mercuro v. Super. Ct., 96 Cal.App.4th 167, 179 (2002) (emphasis added).
Defendant’s knowledge that the Agreement was invalid is shown by defense counsel’s
August 10, 2001 letter to Plaintiff’s counsel stating that “Irwin Home Equity is mindful of the
holding in Armendariz v. Foundation Health Physchare [sic] Service, Inc. 24 Cal.4th 83 (2000)
(“Armendariz”), and, in accordance with that decision, Irwin Home Equity will pay all filing
fees, hearing fees, and other administrative fees.” Declaration of Jill A. Fukunaga (“Fukunaga
Decl.”), Ex. B. Defense counsel neglected to mention that Armendariz also held that an after the
fact attempt to remove unconscionable terms from an arbitration agreement “can be seen, at
most, as an offer to modify the contract; an offer that was never accepted.” Armendariz, supra,
24 Cal.4th at 125 (quoting Stirlen v. Supercuts, Inc., 51 Cal.App.4th 1519, 1535-36 (1997)).
The Court’s inquiry need extend no further than the unconscionable fee allocation
scheme in deciding to summarily deny Defendant’s motion. There are, however, other aspects of
the Agreement that are unconscionable including the overly strict statute of limitations and the
general lack of mutuality in the Agreement. As indicated in Defendant’s moving papers, counsel
for the parties have engaged in an intellectual debate regarding the continuing applicability of
PLAINTIFF’S OPPOSITION TO
DEFENDANT’S MSJ, OR, IN THE
ALTERNATIVE TO COMPEL ARBITRATION
ARCHULETA v. IRWIN HOME EQUITY
(Case No. C01-04119 CRB)
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Duffield v. Robertson Stephens & Co., 144 F.3d 1182 (9th Cir. 1998) (“Duffield”) in light of the
United States Supreme Court’s decision in Circuit City Stores, Inc. v. Adams, 532 U.S. 105
(2001) (“Circuit City”). Plaintiff’s position on this issue is presented below for the Court’s
consideration. Plaintiff would also like to draw the Court’s attention to her concern that, in
signing the Agreement, she did not make a knowing and intentional waiver of her 7th
Amendment right to a jury trial. Since the instant motion has been brought by Defendant,
Plaintiff has no choice but to present all of the above issues for the Court’s review. The fact
remains, however, that – given the impermissible fee allocation scheme – there should never
have been a motion in the first place.
II.
FACTUAL AND PROCEDURAL BACKGROUND
In May of 2000, Plaintiff applied for a job with Defendant and signed an application that
included a paragraph requiring arbitration of future employment disputes (“Application”). Ex. A
to Declaration of Iris Archuleta (“Archuleta Decl.”). Plaintiff was hired in June of 2000, and
Defendant gave Plaintiff a Pre-Start Package that included an Agreement to Arbitrate
(“Agreement”) Archuleta Decl., Ex. B; an Employee Guide to Human Resources Policy
(“Guide”), Archuleta Decl., Ex. C, and other standard employment forms. Defendant offered no
opportunity to negotiate or bargain over the terms of the Agreement. Archuleta Decl. ¶3. In
conjunction with Defendant’s directive to sign the documents in the Pre-Start Package, Plaintiff
signed the Agreement on June 4, 2000. Archuleta Decl. ¶3. The Agreement states on its face
that employment disputes are to be submitted to binding arbitration “in accordance with the
provisions of the National Rules for the Resolution of Employment Disputes — Arbitration and
Mediation Rules (effective June 1, 1996) of the American Arbitration Association (“AAA”).
Archuleta Decl., Ex. B.
PLAINTIFF’S OPPOSITION TO
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ALTERNATIVE TO COMPEL ARBITRATION
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In September of 2000, Defendant issued its employees a revised Employee Guide to
Human Resources Policy (“Revised Guide”). Archuleta Decl., Ex. D. As part of the Revised
Guide, a revised Agreement to Arbitrate (“Second Agreement”) was distributed to all employees,
including Plaintiff. Archuleta Decl., Ex. E. Accompanying the Second Agreement was a memo
from Defendant’s Vice President of Human Resources saying, “I have enclosed for you the
revised Employee Guide to HR Policy. Please disregard the copy you may have received at the
time of your hire.” Archuleta Decl., Ex. F. Neither Plaintiff nor any representative of Defendant
signed the Second Agreement. Archuleta Decl. ¶5.
On July 16, 2001, Defendant terminated Plaintiff and another African American woman
employee without advance notice. On July 17, 2001, Defendant gave Plaintiff a packet of
termination documents that included an Arbitration Summary, a AAA Demand for Arbitration
form, and a AAA Administrative Fee Schedule. Archuleta Decl., Ex. G. Shortly after her
termination, Plaintiff secured legal counsel, and her counsel sent a letter to Defendant’s President
requesting that all electronic data pertaining to Plaintiff be preserved. Fukunaga Decl., Ex. A. In
response to Plaintiff’s counsel’s letter, Defendant’s counsel sent a letter asserting that Plaintiff’s
claims were subject to arbitration and offering to pay the initial costs of arbitration proceedings.
See Fukunaga Decl., Ex. B. Subsequently, over the course of several months, Plaintiff’s and
Defendant’s counsel exchanged correspondence sharing their respective understandings of the
applicable law regarding compelled arbitration of claims arising under Title VII of the 1964 Civil
Rights Act as amended (“Title VII”). See generally Fukunaga Decl. On November 5, 2001,
Plaintiff filed her complaint in this action.
On February 6, 2002, Defendant served Plaintiff with Requests for Admission and
Interrogatories. On February 26, 2002, Plaintiff served Requests for Admission and
Interrogatories on Defendant. In an ADR phone conference on March 4, 2002, Defendant
announced its intention to file a motion to compel arbitration. On March 8, 2002, Plaintiff
PLAINTIFF’S OPPOSITION TO
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served Defendant with her responses to the discovery requests. Fukunaga Decl., Exs. I and J. In
the responses, Plaintiff made general objections to the requests and noted that:
It is anticipated that further discovery, independent investigation, legal research and
analysis will supply additional facts and add meaning to the known facts, as well as
establish entirely new factual conclusions and legal contentions, all of which may lead to
substantial additions to, changes in, and variations from the contentions herein set forth.
Id. Plaintiff also asserted work product objections noting that Plaintiff is not required to disclose
all of her arguments in advance of a motion by Defendant. Id. Defendant served Plaintiff with
its answers to Plaintiff’s discovery on March 27, 2002. In its responses, Defendant admitted that
“Defendant’s employees were required to comply with the human resources policies set forth in
the Employee Guide to Human Resources Policy dated September 2000.” Declaration of Steven
C. Phillips (“Phillips Decl.”), Ex. A.
On March 28, 2002, Defendant filed the instant motion. On April 1, 2002, the Ninth
Circuit Court of Appeals heard oral argument regarding the question of whether employees can
be compelled to arbitrate discrimination claims arising under Title VII as it heard the appeal of
Ferguson v. Countrywide Credit Indus., Inc., 2001 U.S. Dist. LEXIS 14436; Fair Empl. Prac.
Cas. (BNA) 354 (C.D. Cal. Apr. 23, 2001).
III.
ARGUMENT
A. Whether the Arbitration Clause is Enforceable Must be Determined in Accordance
with California Law
Defendant is correct insofar as it notes that, in Circuit City, the United States Supreme Court
held that agreements to arbitrate contained in employment contracts are subject to the Federal
Arbitration Act (“FAA”). Def.’s Memo at 6. The Court has also ruled that, “generally applicable
contract defenses, such as fraud, duress, or unconscionability, may be applied to invalidate
arbitration agreements.” Doctor’s Assoc., Inc. v. Casarotto, 517 U.S. 681, 687 (1996).
PLAINTIFF’S OPPOSITION TO
DEFENDANT’S MSJ, OR, IN THE
ALTERNATIVE TO COMPEL ARBITRATION
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Federal courts in California must look to California contract law in ascertaining whether or
not to uphold an arbitration agreement. Circuit City II, 279 F.3d at 892; Ticknor v. Choice Hotels
Int’l, Inc., 265 F.3d 931, 937 (9th Cir. 2001). The governing California law was articulated by
the California Supreme Court in its decision in Armendariz; see also Cal. Civ. Proc. Code §
1281.2 (contract to arbitrate is enforceable unless court determines that grounds exist for the
revocation of the agreement). The governing inquiry, according to Armendariz, is “are there
reasons, based on general contract principles, for refusing to enforce the present arbitration
agreement?” Armendariz, 24 Cal.4th at 99.
B. Under California Law, the Arbitration Clause is Unenforceable Because It Fails to
Protect Plaintiff’s Statutory Rights, and Because It Is Both Procedurally and
Substantively Unconscionable1
It is well-established that an arbitration agreement, like any other contract, is
unenforceable where it is unconscionable. See, e.g., Cal. Civ Code § 1670.5 (court may refuse to
enforce a contract which is unconscionable); Doctor's Assoc., Inc., supra, 517 U.S. at 687.
Unconscionability consists of both a procedural and a substantive aspect. A contract may be
found to be procedurally unconscionable where it was a contract of adhesion, Armendariz, supra,
1
As a threshold matter, Plaintiff notes that there is confusion regarding what documents comprise the
precise arbitration agreement. Defendant has only identified the document signed on June 20, 2000 as the
Agreement, and Defendant makes no mention of the one-sided arbitration provision contained in the Application. If
Defendant accepts the Application as valid and binding, then that Agreement clearly lacks mutuality and is invalid.
If, on the other hand, the Agreement supersedes the Application, then it is only logical that the Second Agreement
would likewise supersede the Agreement. Defendant distributed the Second Agreement with a memo directing
employees to disregard the previous Guide – the Guide in which the Agreement was contained. Archuleta Decl.,
Ex. F. The Second Agreement is unsigned and unexecuted by either party and therefore invalid and unenforceable.
Numerous courts — including the Michigan Supreme Court and federal courts in the 1st and 6th Circuits –
have concluded that arbitration agreements contained in employee handbooks are unenforceable if the handbooks
contain disclaimers to the effect that nothing in the handbook constitutes a contract. See Heurtebise v. Reliable
Business Computers 452 Mich. 405, 413-14 (1996) (an arbitration agreement contained in an employee handbook
that has language disavowing the creation of a contract is unenforceable because “the defendant did not intend to be
bound to any provision in the handbook”); Snow v. BE&K Constr. Co., 126 F. Supp.2d 5, 13-14 (D. Me. 2001)
(“Including the disclaimer suggests that Defendant’s implied promise was merely illusory”); Smith v. Chrysler Fin.
Corp., 101 F. Supp.2d 534, 538 (E.D. Mich. 2000).
Plaintiff believes there is merit in the position that no contract to arbitrate exists because the Revised Guide
superseded the Agreement, and the Second Agreement contained in the Revised Guide was never executed.
PLAINTIFF’S OPPOSITION TO
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ALTERNATIVE TO COMPEL ARBITRATION
ARCHULETA v. IRWIN HOME EQUITY
(Case No. C01-04119 CRB)
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24 Cal.4th at 114, or where there was “an absence of meaningful choice due to the inequality of
bargaining power or hidden terms.” McCoy v. Super. Court, 87 Cal.App.4th 354, 358 (Cal.
2001). A contract may be substantively unconscionable where the terms are overly harsh, onesided, or the agreement was not within the reasonable expectations of the employee.
Armendariz, supra, 24 Cal.4th at 114; Stirlen, supra, 51 Cal.App.4th at 1532. “The two
elements work together in a sliding scale relationship. ‘[T]he 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.’” McCoy, supra, 87 Cal.App.4th at 358
(quoting Armendariz, supra, 24 Cal.4th at 114).
Agreements which seek to compel arbitration of statutory claims such as Title VII or the
California Fair Employment and Housing Act (FEHA) are held to a higher standard of scrutiny.
Mercuro, supra, 96 Cal.App.4th at 21. These remedial statues serve a larger public policy of
deterring discrimination. Armendariz, supra, 24 Cal.4th at 100 – 01. Consequently, the rights
secured under them cannot be waived by an individual employee. The Supreme Court has held
that when agreeing to arbitration of a statutory claim, the party “does not forgo the substantive
rights afforded by the statute but only submits to their resolution in an arbitral . . . forum.”
Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth (1985) 473 U.S. 614, 628. The California
Supreme Court and the Ninth Circuit both identify five minimum requirements necessary to
protect an employee’s statutory rights: (1) neutral arbitrators, (2) more than minimal discovery,
(3) a written award that can be reviewed by an appellate court, (4) availability of all of the types
of relief that would otherwise be available in court, and (5) no provisions requiring the employee
to pay any arbitrators’ fees or expenses as a condition of access to the forum. Armendariz,
supra, 24 Cal.4th at 102; Cole v. Burns International Sec. Serv. 105 F.3d 1465, 1482 (D.C. Cir.
1997); Circuit City II, supra, 279 F.3d at 895.
PLAINTIFF’S OPPOSITION TO
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Plaintiff submits that in the instant case, the Agreement is unenforceable because it lacks
the protections for employees’s statutory rights, and because it is both procedurally, and
substantively, unconscionable.
1. The Agreement is Procedurally Unconscionable
The central inquiry regarding procedural unconscionability “centers on whether the
employment contract is a contract of adhesion.” Farac v. Permanente Medical Group 186
F.Supp.2d 1042, 1046 (N.D. Cal. 2002) (quoting Armendariz, supra, 24 Cal.4th at 113). Giving
an employee a form adhesion arbitration agreement and requiring her to sign it as a condition of
employment is sufficient for procedural unconscionability. McCoy, supra, 87 Cal.App.4th at
357-58; Patterson v. ITT Consumer Fin. Corp., 14 Cal.App.4th 1659, 1664 (1993).
The adhesive and procedurally unconscionable nature of the Agreement is indicated by
the interaction of the parties at the time of Plaintiff’s hiring. The Agreement was included in a
packet of documents along with Federal and State Withholding Certificates and the Guide. All
of the documents were company forms, and none of them were open for negotiation. Clearly,
the Agreement is adhesive and procedurally unconscionable. Notably, Defendant does not
dispute this conclusion. Def’s Memo at 8.
2. The Agreement is Substantively Unconscionable Because It Imposes
Impermissible Forum Costs on Plaintiff, Lacks Mutuality, and Contains
an Illegal Statute of Limitations
Substantive unconscionability is present when the terms of an agreement are not within
the reasonable expectations of the employee or are unduly oppressive, or when the contract
allocates the risks of the agreement in an unreasonable or unexpected manner. Armendariz,
supra, 24 Cal.4th at 117-18; McCoy, supra, 87 Cal.App.4th at 358. Applying principles of
contract law, courts have invalidated arbitration agreements that lack mutuality and that fail to
provide the five minimum protections for statutory rights.
PLAINTIFF’S OPPOSITION TO
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ALTERNATIVE TO COMPEL ARBITRATION
ARCHULETA v. IRWIN HOME EQUITY
(Case No. C01-04119 CRB)
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In the instant case, the Agreement impermissibly imposes forum costs on Plaintiff, lacks
mutuality, fails to provide for neutral arbitrators, and illegally mandates an incorrect statute of
limitations period.
a. The Fee Allocation Scheme is Unconscionable
Requiring an employee to pay forum costs is per se unconscionable. Mercuro, supra, 96
Cal.App.4th at 179; Circuit City II, supra, 279 F.3d at 894. Under state law, there is absolutely
no question that requiring the employee to pay arbitration fees and costs is unconscionable. In
Armendariz, the California Supreme Court held that requiring an employee to pay arbitration
forum fees in order to enforce his statutory rights makes any such arbitration agreement
unconscionable. Armendariz, supra, 24 Cal.4th at 107-13. Federal appellate courts have
similarly struck down agreements that have such provisions. See Circuit City II, supra, 279 F.3d
at 894.
The instant Agreement explicitly states that arbitration is to be conducted “in accordance
with the provisions of the National Rules for the Resolution of Employment Disputes:
Arbitration and Mediation (effective June 1, 1996) of The American Arbitration Association
(“Rules”).” Archuleta Decl., Ex. B. The Rules likewise confirm that, “The parties shall be
deemed to have made these rules a part of their arbitration agreement whenever they have
provided for arbitration by the American Arbitration Association.” Phillips Decl., Ex. B.2 Rule
36 reads, in pertinent part, “All expenses of the arbitration, including required travel and other
expenses of the arbitrator, AAA representatives, and any witness and the costs relating to any
proof produced at the direction of the arbitrator, shall be borne equally by the parties.” Rule 37
states that, “Payment of the arbitrator’s fees and expenses shall be made by the AAA from the
fees and moneys collected by the AAA from the parties for this purpose.” The fact that
2
Defendant’s moving papers include a Declaration from Jill Fukunaga stating that her Exhibit K contains a true and
correct copy of the AAA Rules that she downloaded from the Internet. In fact, the rules in her exhibit became
effective January 1, 2001 – six months after Plaintiff and Defendant executed the Agreement. The applicable rules
incorporated into the Agreement are those that were operative as of June 1, 1996. A true and correct copy of the
correct rules is attached to the Declaration of Steven C. Phillips as Exhibit B.
PLAINTIFF’S OPPOSITION TO
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Defendant’s arbitration scheme requires the employee to split the fees and costs of the
proceedings is confirmed by the Arbitration Summary provided to Plaintiff by Defendant the day
after Plaintiff’s employment was terminated. The Summary states that, “The fees and expenses
of the AAA and the arbitrator are generally borne equally by the parties.” Archuleta Decl., Ex.
G.
Parties to arbitration are often charged two or three thousand dollars per day in arbitration
“forum fees,” since arbitrators typically charge $300-400 per hour for their services. D.
Schwartz, Enforcing Small Print to Protect Big Business, Employee and Consumer Rights
Claims in an Age of Compelled Arbitration, 1997 Wisc. L.R. 33, 44 n.30. Over the course of an
arbitration, a plaintiff may ultimately be required to pay tens of thousands of dollars in fees-even when they have prevailed. Such is certainly the case with Defendant’s Agreement. Rule 32
of the Rules grants the arbitrator the authority to “assess arbitration fees, expenses, and
compensation . . . in favor of any party.” Phillips Decl., Ex. B. AAA’s arbitration fee schedule
confirms the conclusions reached by Schwartz. Of the 22 AAA employment law arbitrators in
the San Francisco area, the average arbitration fee is $365/hr. Phillips Decl., Ex. C. Although
Plaintiff has been diligently seeking employment since her termination, she has nowhere near the
financial means required to pay that amount of fees. Archuleta Decl.
The courts have been adamant and unequivocal in declaring that, in discrimination cases,
it is unconscionable to, in essence, force the employee to pay the salary of the judge. See Cole,
supra 105 F.3d at 1483-85. Since the protections secured by the discrimination statutes serve to
both compensate victims of discrimination and deter illegal conduct by employees, there is a
vital public policy that is served by said laws. California courts have repeatedly held that the
mere possibility of forum fees having to be paid by an employee produces a chilling effect on the
exercise of said rights by all employees. “It is not only the costs imposed on the claimant but the
risk that the claimant may have to bear substantial costs that deters the exercise of the
constitutional right of due process.” Armendariz, supra, 24 Cal.4th at 110; Mercuro, supra, 96
PLAINTIFF’S OPPOSITION TO
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Cal.App.4th at 182; see Cal. Teachers Ass’n v. State of Cal., 20 Cal.4th 327, 357-58 (1999). An
employee does not have to pay a federal court judge to hear his or her discrimination claim;
access to the public courts is free, once the initial $150 filing fee is paid.
Title VII serves important public policies of compensation and deterrence. The broad
remedial provisions of these statutes are designed to make victims of discrimination whole, but
they also serve as a “spur or catalyst” to induce employers to “endeavor to eliminate, so far as
possible, the last vestiges” of discrimination. See, e.g., Albemarle Paper Co. v. Moody, 422 U.S.
405, 417-18 (1975). These goals can only be achieved if the process for resolving statutory
claims contains essential safeguards against the erection of economic barriers that chill, rather
than encourage, the vindication of protected statutory rights. As stated in the seminal case on
this issue, “We are unaware of any situation in American jurisprudence in which a beneficiary of
a federal statute has been required to pay for the services of the judge assigned to hear her or his
case.” Cole, supra, 105 F.3d at 1484.
Not only do the unaffordable fees of AAA block the courthouse doors to this particular
plaintiff, but Defendant’s arbitration payment allocation has a chilling effect on all of its
employees whose rights are statutorily protected by the state and federal anti-discrimination
laws.
Defendant has attempted to remedy the defective agreement with an ex post facto letter
drafted by counsel, not the Defendant itself. The courts have seen through these ruses and have
nearly universally declared such efforts to be meaningless. The Armendariz decision could not
be any clearer in its holding that, “Whether an employer is willing, now that the employment
relationship has ended, to allow the arbitration provision to be mutually applicable, or to
encompass the full range of remedies, does not change the fact that the arbitration agreement as
written is unconscionable and contrary to public policy.” Armendariz, supra, 24 Cal.4th at 125.
In assessing a commitment to pay arbitration fees after termination, the court concluded that,
“Such a willingness ‘can be seen, at most, as an offer to modify the contract; an offer that was
PLAINTIFF’S OPPOSITION TO
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never accepted. No existing rule of contract law permits a party to resuscitate a legally defective
contract merely by offering to change it.’” Id. More recently, the court in Mercuro barred a
similar attempt by defense counsel to fix a defective contract after the employee retained legal
counsel. Mercuro, supra, 96 Cal.App.4th at 181. Defendant’s pre-litigation efforts to change the
terms of a signed agreement can not cure the defective underlying contract that was executed
nearly two years ago.
b. Improper Statute of Limitations Period
As described above, the state and federal courts have adopted five minimum
requirements that must be present in order to ensure preservation of an employee’s statutory
rights. One of those requirements is that the arbitration agreement must not limit statutorily
imposed remedies. Circuit City II, supra, 279 F.3d at 894 – 95. The Agreement limits the time
for bringing an action, and thereby impermissibly imposes a shorter statute of limitations period
than is afforded by statute. Consequently, it must fail.
In Circuit City II, the panel concluded that Circuit City’s arbitration agreement “imposes
a strict one year statute of limitations on arbitrating claims that would deprive Adams of the
benefit of the continuing violation doctrine available in FEHA suits. See, e.g., Richards v.
CH2M Hill, Inc. 29 P.3d 175, 176 (Cal. 2001).” Circuit City II, 279 F.3d at 894. The decision
goes on to hold that, “Just like the agreement invalidated by the California Supreme Court in
Armendariz, the DRA [Dispute Resolution Agreement] forces Adams to arbitrate his statutory
claims without affording him the benefit of the full range of statutory remedies.” Id. at 894-95.
In this case, the Agreement states on its face that, “if IHE does not receive a written
request for arbitration from [the employee] within one year from the date when the dispute first
arose or within one year of the termination of [the employee’s] employment, whichever occurs
first, [the employee] will have waived any right to raise any claim, in any forum.” Although the
language of the Agreement concludes with a disclaimer that, “if [the employee’s] claim arose
under a statute providing for a longer time to file a claim, that statute shall govern,” the language
PLAINTIFF’S OPPOSITION TO
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is inapplicable to cases involving continuing violations since that doctrine was created by case
law, not statute. See generally Richards, supra, 26 Cal.4th 798. The Agreement, then, is
indistinguishable from those invalidated in Armendariz and Circuit City II by the California
Supreme Court and the Ninth Circuit Court of Appeals respectively. Accordingly, Defendant’s
Agreement should likewise be deemed invalid.
c. Lack of Mutuality
Where there is a lack of mutuality in an arbitration agreement, a court may find that it is
unconscionable. See, e.g., Armendariz, supra, 24 Cal.4th at 117-21; McCoy, supra, 87
Cal.App.4th at 361-62; Stirlen, supra, 51 Cal.App.4th at 1541-42; Kinney v. United Health Care,
70 Cal.App.4th 1322, 1332 (1999). When an arbitration agreement imposes limitations on the
employee that are not likewise applicable to the employer, then the agreement lacks mutuality
and must be stricken. Armendariz, supra, 24 Cal.4th at 117; Stirlen, supra, 51 Cal.App.4th at
1541.
Although at first glance, some of the language in the Agreement appears to be reciprocal,
a closer reading of the entire arbitration arrangement reveals the true lack of mutuality in
Defendant’s dispute resolution scheme. Missing from Defendant’s factual recital is the fact that
Defendant forced Plaintiff to sign two arbitration agreements as a condition of employment.
Three weeks before Plaintiff signed the Agreement, Defendant also insisted that Plaintiff sign the
Application as a condition of considering her application for employment. Archuleta Decl., Ex.
A, ¶2. The language in the Application is completely devoid of mutuality in that it says, “I
hereby agree to submit to binding arbitration all disputes and claims arising out of the
submission of this application.” Archuleta Decl. Ex. A. There is no language binding the
company to any form of arbitration or limiting the company’s choice of forum in the application.
In the Agreement itself, only the first sentence is mutual. The language of the entire
second paragraph of the Agreement only binds the employee, not the company. The statute of
limitations of one year only applies “if IHE does not receive a written request for arbitration”
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from the employee. The terms of the Agreement impose no temporal limits on IHE initiating
dispute resolution proceedings. Furthermore, the employee “will have waived any right to raise
any claim, in any forum,” but the employer does not consent to such a waiver in signing the
Agreement. As the Armendariz decision pointed out, “Without reasonable justification for this
lack of mutuality, arbitration appears less as a forum for neutral dispute resolution and more as a
means of maximizing employer advantage. Arbitration was not intended for this purpose.”
Armendariz, supra, 24 Cal.4th at 118. Indeed it was not, and the lack of mutuality in
Defendant’s Agreement renders it unconscionable and unenforceable.
d. Absence of a Neutral Arbitrator
Courts and commentators are quite cognizant of the advantage that accrues to an
employer who develops a long-term relationship with a single arbitration entity. Mercuro, supra,
96 Cal.App.4th at 178; Armendariz, supra, 24 Cal.4th at 115; and see Isbell, Compulsory
Arbitration of Employment Agreements: Beneficent Shield or Sword of Oppression? Armendariz
v. Foundation Health Psychcare Services, Inc. (2001) 22 Whittier L. Rev. 1107, 1142-44;
Bingham, Employment Arbitration: The Repeat Player Effect (1997) 1 Employee Rts. &
Employment Pol’y J. 189. Acknowledging the temptation to curry favor with a corporation that
can provide ongoing revenues and business to the arbitrator, the court in Mercuro observed that
there is a likelihood of “the arbitrators' cultivation of further business by taking a ‘split the
difference’ approach to damages.” Mercuro, supra, 96 Cal.App.4th at 178. The California
Supreme Court observed that, “various studies show that arbitration is advantageous to
employers . . . because it reduces the size of the award that the employee is likely to get,
particularly if the employer is a ‘repeat player’ in the arbitration system.” Armendariz, supra, 24
Cal.4th at 115. Defendant is clearly a repeat player in that it has chosen AAA to arbitrate all of
its employment disputes. Both the Agreement and the Second Agreement state on their face that
arbitration is governed by AAA. Archuleta Decl., Exs. B, E.
PLAINTIFF’S OPPOSITION TO
DEFENDANT’S MSJ, OR, IN THE
ALTERNATIVE TO COMPEL ARBITRATION
ARCHULETA v. IRWIN HOME EQUITY
(Case No. C01-04119 CRB)
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The courts have found that, when combined with other evidence of unconscionability,
arbitrator bias is a valid basis for declaring an entire agreement unconscionable. Mercuro, supra,
96 Cal.App.4th at 178 – 79. In light of the multiple other defects discussed above, the lack of
neutrality should leave no doubt whatsoever that Defendant’s arbitration arrangement is
unconscionable as to all of Plaintiff’s claims.
C. The Supreme Court’s Decision in Circuit City Did Not Disturb the Continuing
Validity of Duffield
Since the Supreme Court handed down its April 2001 decision in Circuit City, nine
district court judges in the Ninth Circuit have published decisions addressing the continuing
validity of Duffield’s holding that employers cannot compel arbitration of claims arising under
Title VII. Five of the District judges have concluded that Duffield remains good law. Ferguson,
supra, 2001 U.S. Dist. LEXIS 14436; Melton v. Phillip Morris Inc., 2001 U.S. Dist. LEXIS
12601, 86 Fair Empl. Prac. Cas. (BNA) 1153, 17 I.E.R. Cas. (BNA) 1859 (D. Or. Aug. 9, 2001);
LeLouis v. Western Directory Co., 2001 U.S. Dist. LEXIS 12517 (D. Or. Aug. 10, 2001); In re
World War II Era Japanese Forced Labor Litig., 164 F. Supp. 2d 1160, 2001 U.S. Dist. LEXIS
14640 (N.D. Cal. 2001); Circuit City Stores, Inc. v. Banyasz, 2001 U.S. Dist. LEXIS 16953
(N.D. Cal. Oct. 11, 2001). On the other hand, four judges – including this Court – have ruled
that Duffield has now been implicitly overruled. Scott v. Burns International Sec. Serv., 165 F.
Supp. 2d 1133, 2001 U.S. Dist. LEXIS 14988 (D. Haw. 2001); Olivares v. Hispanic
Broadcasting Corp., 2001 U.S. Dist. LEXIS 5760, 12 Am. Disabilities Cas. (BNA) 607 (C.D.
Cal. Apr. 26, 2001); Rooz Abras Eftekhari v. Peregrine Fin. & Secs., 2001 U.S. Dist. LEXIS
16087 (N.D. Cal. Sept. 24, 2001); Farac, supra, 2002 U.S. Dist. LEXIS 3882. Notably, this
precise issue is now being considered by the Ninth Circuit which recently heard oral argument of
Judge Matz’s decision in Ferguson, supra, on April 1, 2002.
Plaintiff respectfully disagrees with this Court’s ruling in Farac regarding the continuing
force and effect of Duffield. As this Court itself noted, “The Circuit City decision does not
PLAINTIFF’S OPPOSITION TO
DEFENDANT’S MSJ, OR, IN THE
ALTERNATIVE TO COMPEL ARBITRATION
ARCHULETA v. IRWIN HOME EQUITY
(Case No. C01-04119 CRB)
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mention Duffield at all.” Farac, supra, 2002 U.S. Dist. Lexis at n 2. Not only does the actual
Duffield opinion remain unreviewed, but, more importantly, the underlying analysis of the
specific legislative history and Congressional intent of Section 118 (“Section 118”) of the Civil
Rights Act of 1991 (“Act”) remains unreviewed and unrefuted by any court that has jurisdiction
over Northern District of California courts.
The Duffield panel reached its decision only after an extensive and exhaustive review of
the legislative history and Congressional intent of the Act. The portion of the decision regarding
legislative intent spans 7,561 words and incorporates a review of committee reports, floor
statements, prior conference reports, the Congressional record, and the committee minority
report. After analyzing all of these materials and the surrounding facts and circumstances, the
court came to the conclusion that, “Congress in no way intended to … authorize compulsory
arbitration of Title VII claims. In fact, its clearly expressed intent was precisely the opposite.”
Duffield, supra, 144 F.3d at 1195. In arriving at its findings, the court emphatically stated that,
“[I]t is the unusual force and clarity of the statute’s legislative history that is ultimately
dispositive in this case.” Id. It stands to reason, then, that such a thorough review of legislative
intent could only be overruled by refuting the facts from which the Ninth Circuit panel gleaned
Congress’s intent. No such analysis has been made by any court with jurisdiction in the
Northern District.
As mentioned above, the Supreme Court did not mention, analyze, critique, or examine
Duffield in its Circuit City opinion. Duffield was neither briefed nor mentioned in oral argument.
Even more important, the Supreme Court did not explore the statutory interpretation that is the
foundation of Duffield. Defendant has accurately quoted the passage from the Supreme Court’s
decision that was apparently persuasive to this Court in arriving at its Farac decision — the
language five sentences from the end of the majority opinion:
The Court has been quite specific in holding that arbitration agreements
can be enforced under the FAA without contravening the policies of
congressional enactments giving employees specific protection against
PLAINTIFF’S OPPOSITION TO
DEFENDANT’S MSJ, OR, IN THE
ALTERNATIVE TO COMPEL ARBITRATION
ARCHULETA v. IRWIN HOME EQUITY
(Case No. C01-04119 CRB)
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discrimination prohibited by federal law; as we noted in Gilmer, ‘by agreeing to
arbitrate a statutory claim, a party does not forgo the substantive rights afforded
by the statute; it only submits to their resolution in an arbitral, rather than a
judicial, forum.’
Circuit City, supra, 532 U.S. at 123.
The federal law the Supreme Court was referring to when it mentioned “protection
against discrimination prohibited by federal law,” however, was the Age Discrimination in
Employment Act (“ADEA”), 29 U. S. C. § 621 et seq., not Title VII. See Gilmer v.
Interstate/Johnson Lane Corp., 500 U.S. 20 (1991) (“Gilmer”). It may well be the case, postCircuit City, that claims brought under the ADEA are subject to compelled arbitration, but it is
worth noting that Mr. Gilmer did not present any evidence to the Supreme Court regarding the
legislative history of the ADEA. Id. at 26. Duffield, on the other hand, provides an extensive
and painstaking review of the legislative history behind Section 118. As to the applicability of
Gilmer to claims brought under Title VII, the Duffield court noted that Gilmer did not even
discuss the similarities between the ADEA and Title VII. Duffield, supra, 144 F.3d at 1188 – 89.
The Supreme Court has previously compared the ADEA and Title VII and determined that there
are “significant differences” in “the remedial and procedural provisions of the two laws.”
Lorillard v. Pons, 434 U.S. 575, 584 – 85 (1978).
The fact that Title VII offers unique remedies that are outside the scope of the FAA has
been confirmed by the Supreme Court’s recent reasoning in Equal Employment Opportunity
Comm’n v. Waffle House, Inc., 122 S. Ct. 754 (2002) (“Waffle House”). Contrary to
Defendant’s assertion that Waffle House supports the argument that Duffield has been overruled,
the case actually strongly supports the conclusion that Duffield has neither been considered nor
reviewed. The Waffle House majority ruled that, despite the holding of Circuit City regarding
compelled arbitration of employment contracts under the FAA, the legislative intent and
statutory construction of Title VII was sufficiently distinct that certain claims – those brought by
the EEOC, in that case – could not be compelled to arbitration. Waffle House, supra, 122 S. Ct.
PLAINTIFF’S OPPOSITION TO
DEFENDANT’S MSJ, OR, IN THE
ALTERNATIVE TO COMPEL ARBITRATION
ARCHULETA v. IRWIN HOME EQUITY
(Case No. C01-04119 CRB)
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at 765. Perhaps most telling about the ongoing vitality of Duffield is Justice Thomas’s
frustration in his dissenting opinion in Waffle House (curiously, it is the language from the
Thomas dissent that Defendant cites as the holding in Circuit City. Def’s Memo at 7). Justice
Thomas noted the distinction between the ADEA and the Americans with Disabilities Act
(“ADA”) (and Plaintiff concurs that the ADA’s framework and legislative history are much
closer to that of Section 118), and then stated that, “I see no reason why an employee should not
be required to abide by an agreement to arbitrate an ADA claim.” Waffle House, supra, 122 S.
Ct. at 767 n.1 (Thomas, J., dissenting). Justice Thomas even went on to offer his interpretation
of the legislative intent of the ADA insofar as it relates to compelled arbitration. Id. Six of his
brethren declined to join Justice Thomas’s dissent and its explicit attempt to essentially overrule
Duffield.
Defendant makes much of the fact that the Ninth Circuit stands alone in its holding that
Title VII prohibits mandatory arbitration. Such a comparison is ultimately meaningless. As
Judge Matz observed in Ferguson, “this Court is indisputably bound by Ninth Circuit precedent,
whether it is buttressed by other Circuits or not.” Ferguson, supra, 2001 U.S. Dist. LEXIS
14436 at 6.
Plaintiff obviously cannot predict the future in terms of what will happen with regard to
the prospective viability of Duffield. That question is now in the hands of the Ninth Circuit and
may well one day be headed to the Supreme Court. As to what the coming months or years may
bring, Plaintiff’s humble opinion is that Judge Jelderks’ warning is well-taken: “Perhaps
Duffield eventually will be overruled, but predicting how the Supreme Court will decide a
hypothetical future case is an exercise fraught with peril.” LeLouis v. W. Directory Co., supra,
2001 U.S. Dist. LEXIS 12517 at 13.
D. Compelling Arbitration Would Violate Plaintiff’s Seventh Amendment Right to a
Jury Trial Since Her Waiver was not Knowing, Voluntary, and Intentional
PLAINTIFF’S OPPOSITION TO
DEFENDANT’S MSJ, OR, IN THE
ALTERNATIVE TO COMPEL ARBITRATION
ARCHULETA v. IRWIN HOME EQUITY
(Case No. C01-04119 CRB)
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The Seventh Amendment to the United States Constitution states that, “[i]n suits at
common law, where the value in controversy shall exceed twenty dollars, the right to jury trial
shall be preserved.” U.S. Const. amend. VII. The Supreme Court has repeatedly ruled that,
“trial by jury is justly dear to the American people. It has always been an object of deep interest
and solicitude, and every encroachment upon it has been watched with great jealousy.”
Chauffeurs, Teamsters & Helpers Local No. 391 v. Terry, 494 U.S. 558, 581 (1990) (quoting
Parsons v. Bedford, 28 U.S. (3 Pet.) 433, 446 (1830) (Story, J.)). This and other constitutional
rights merit the highest level of judicial vigilance because alleged waivers of the right to a jury
trial are not lightly implied. The test in examining such waivers is to ascertain whether or not
they were knowing, voluntary, and intentional. Nat’l Equip. Rental, Ltd. v. Hendrix, 565 F.2d
255, 258 (2d Cir. 1977).
In applying the knowing, voluntary, and intentional rule, courts have examined at least
four factors: (1) the negotiability of the document in which the waiver is contained, (2) the
conspicuousness of the waiver, (3) the disparities in bargaining power between the parties, and
(4) the professional experience of the party making the waiver. Morgan Guar. Trust Co. v.
Crane, 36 F. Supp. 2d 602, 603-04 (S.D.NY. 1999). In the instant case, Plaintiff’s waiver was
neither knowing, voluntary, nor intentional because the Agreement was a non-negotiable
adhesion contract, the waiver is so inconspicuous as to be nearly non-existent, there was a great
differential in bargaining power between the parties, and Plaintiff lacked sufficient professional
experience to realize that she was waiving a fundamental constitutional right.
As indicated above, no negotiation occurred between the parties regarding the
Agreement, and Plaintiff’s Declaration confirms that Defendant never offered an opportunity to
negotiate the specifics of the Agreement. Archuleta Decl., ¶3. The lack of conspicuousness can
be seen by a cursory comparison of the Agreement with the Second Agreement in which
Defendant modified and superseded the Agreement. The Second Agreement states in capital
letters, “I AM EXPRESSLY WAIVING ANY RIGHT TO HAVE ANY DISPUTE COVERED
PLAINTIFF’S OPPOSITION TO
DEFENDANT’S MSJ, OR, IN THE
ALTERNATIVE TO COMPEL ARBITRATION
ARCHULETA v. IRWIN HOME EQUITY
(Case No. C01-04119 CRB)
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BY THIS AGREEMENT DECIDED IN A COURT OF LAW AND/OR BY A JURY…”
Archuleta Decl., Ex. E. The Agreement, on the other hand, doesn’t even mention the words
“court” or “jury,” and relies instead on the legal term of art “exclusive forum.” The Agreement
does not even use the words “I am expressly waiving . . . .” In signing the Agreement, Plaintiff
simply did not realize that she was waiving her right to a jury trial. Archuleta Decl., ¶4.
Although Plaintiff had a modest amount of professional experience, courts have determined that
even a very experienced employee can make an involuntary waiver when there is significant
disparity in bargaining power between the parties. Armendariz, supra, 24 Cal.4th at 116. Such
was the case between Plaintiff and Defendant.
Defendant attaches great meaning to recent judicial pronouncements that courts now have
a policy favoring arbitration. Under no circumstances, however, can a judicial policy abrogate
constitutional protections. In order to be upheld, an employee’s waiver of her right to jury must
be knowing, voluntary, and intentional. Plaintiff’s was not.
IV.
DEFENDANT’S MOTION FOR SUMMARY JUDGMENT IS INAPPROPRIATE AND
PREMATURE IN THAT THE TIME FOR REQUESTING ARBITRATION HAS NOT
YET LAPSED
Defendant should know better than to even make this argument. None of the legal
authority cited by Defendant is pertinent to the facts in this case. Not only, as discussed above,
is Defendant unable to show that any of its claims are subject to arbitration in that the Agreement
is invalid for several different reasons, but, more importantly, every single case they cite for
justification for summary judgment involves a fact pattern where the deadline for arbitrating a
dispute had passed. In Defendant’s cited cases, the deadline had passed, the arbitration
agreement was upheld, and summary judgment was granted. The deadline for arbitrating this
dispute has not yet passed. The Agreement clearly states that, “if IHE does not receive a
written request for arbitration from me within one year from the date the dispute first arose or
PLAINTIFF’S OPPOSITION TO
DEFENDANT’S MSJ, OR, IN THE
ALTERNATIVE TO COMPEL ARBITRATION
ARCHULETA v. IRWIN HOME EQUITY
(Case No. C01-04119 CRB)
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within one year of the termination of my employment, whichever occurs first, I will have waived
any right to raise any claim . . . .” Archuleta Decl., Ex. B. Here, the firing is the incident giving
rise to the dispute, and the termination took place on July 16, 2001.
The one case offering even a scintilla of relevance to the instant dispute is 24 Hour
Fitness, Inc. v. Super. Ct., 66 Cal.App.4th 1199 (1998) (“24 Hour Fitness”). In that case,
plaintiff’s counsel explicitly repudiated the arbitration by writing defense counsel a letter stating,
“plaintiffs [sic] are knowingly waiving their right to arbitrate, and are not reversing their
position." 24 Hour Fitness, supra, 66 Cal.App.4th at 1206. Here, Plaintiff’s counsel’s letter
explicitly states, “If Plaintiff ultimately loses on this issue and is duly ordered by a court to
arbitrate her claims, she will comply with such an order.” Fukunaga Decl., Ex. G. Such
language hardly constitutes a waiver.
The controversy is simply not ripe, and the motion should be summarily denied.
V.
CONCLUSION
Defendant has knowingly presented this Court with a whole panoply of meritless
arguments regarding the validity of its arbitration scheme and its right to summary judgment.
Two of the main cases cited by Defendant in support of its request for summary judgment were
argued on appeal by defense counsel’s firm, and yet Defendant still argues for a motion that is
clearly untimely. The arbitration arrangement is unconscionable under clear and uncontradicted
state and federal law. It is time for this litigation to now proceed to resolution on the merits. For
the reasons cited above, Plaintiff respectfully requests that this court deny Defendant’s motions
for summary judgment and for compelled arbitration.
DATED: April 19, 2002
LAW OFFICES OF STEVE PHILLIPS
By:
STEVEN C. PHILLIPS
Attorney for Plaintiff
IRIS ARCHULETA
PLAINTIFF’S OPPOSITION TO
DEFENDANT’S MSJ, OR, IN THE
ALTERNATIVE TO COMPEL ARBITRATION
ARCHULETA v. IRWIN HOME EQUITY
(Case No. C01-04119 CRB)
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