Tag Archives: Unconscionable

N.D.Cal.: Agreement to Shorten Statute of Limitations to Six Months Procedurally and Substantively Unconscionable Under California Law

Bowlin v. Goodwill Industries of Greater East Bay, Inc.

This case was before the court on the plaintiff’s motion for partial summary judgment as to the defendant’s twenty-sixth affirmative defense, which asserted that the claims were barred based on the six-month limitations provision contained in an agreement between the parties that the plaintiff was required to sign as part of his employment with the defendant. The plaintiff argued that the clause in the agreement between the parties shortening the time in which the plaintiff had to bring his claims was unconscionable, rendering the agreement unenforceable, and his claims timely. The court granted the plaintiff’s motion holding that the six-month limitations period was in fact unconscionable under California law.

Initially the court held the agreement was procedurally unconscionable, because the agreement was a contract of adhesion. Discussing this issue, the court reasoned:

The threshold inquiry in California’s unconscionability analysis is whether the … agreement is adhesive.” Nagrampa v. MailCoups, Inc., 469 F.3d 1257, 1281 (9th Cir.2006) (quoting Armendariz, 99 Cal.Rptr.2d 745, 6 P.3d at 689). A contract of adhesion is “a standardized contract, which, imposed and drafted by the party of superior bargaining strength, relegates to the subscribing party only the opportunity to adhere to the contract or reject it.” Armendariz, 99 Cal.Rptr.2d 745, 6 P.3d at 689. A finding that a contract is adhesive is essentially a finding of procedural unconscionability.   Nagrampa, 469 F.3d at 1281;Circuit City Stores, Inc. v. Adams, 279 F.3d 889, 893 (9th Cir.2002) (“The [contract] is procedurally unconscionable because it is a contract of adhesion….); Flores v. Transamerica HomeFirst, Inc., 93 Cal.App.4th 846, 113 Cal.Rptr.2d 376, 382 (Cal.Ct.App.2001). The critical factor for determining both adhesion and procedural unconscionability is whether the contract “was presented on a take-it-or-leave-it basis” and “oppressive due to an inequality of bargaining power that result[ed] in no real negotiation and an absence of meaningful choice.” Nagrampa, 469 F.3d at 1281.

Goodwill’s senior human resources administrator, Grizelda Guzman, states that “all employees were presented with [agreement at issue] in 2008.” Dkt. No. 32–1 ¶ 5. This suggests that the agreement was a standard contract, drafted by Goodwill. As the moving party, however, it is Bowlin’s burden to show that there is no genuine factual dispute that the manner in which the contract was presented to him renders it procedurally unconscionable. To this end, Bowlin submits a declaration and avers that “a manager presented [him] with a copy of the agreement … to initial and sign while [he] was working,” that no one “reviewed the terms or content of the agreement with [him],” and that he “was not able to discuss, negotiate or modify any of the terms or content of the agreement.” Dkt. No. 29–1 ¶¶ 2–4… Accordingly, the Court finds that as a matter of law, the agreement is procedurally unconscionable.

The court then held that the agreement was also substantively unconscionable, holding that, as a matter of law, applying a six-month limitations period to wage and hour claims is unduly harsh.

Because the court held that the agreement was both procedurally and substantively unconscionable, it struck the six-month limitations period from the parties’ agreement and granted the plaintiff’s motion for partial summary judgment.

Click Bowlin v. Goodwill Industries of Greater East Bay, Inc. to read the entire Order Granting Motion for Partial Summary Judgment.

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S.D.Cal.: Although Arbitration Agreement With Class Waiver Enforceable, Confidentiality Provision Stricken as Unconscionable Because Overbroad

Grabowski v. Robinson

This case was before the court on defendant’s motion to compel arbitration on an individual (rather than class) basis.  Although the court noted that plaintiffs were required to sign the arbitration agreement contained in their compensation agreements, under threat of forfeiture of commissions, the court held that did not make the agreement unenforceable as entered into under duress.  The court also, in large part, dismissed other arguments regarding the substantive and procedural unconscionability of the agreement.  However, as discussed here, the court held that the confidentiality provision which barred any discussion of the litigation without the other party’s consent to be far too broad.

Discussing the confidentiality provision the court stated:

“Plaintiff contends: ‘[T]he Defendant’s rules impose confidentiality which unfairly favors Defendant. While arbitration normally is not open to the public, the Defendant’s rules go much further. Defendant’s rules require that the record of the proceedings be confidential under threat of a sanction order by the arbitrator.’

The Employment Dispute Mediation/Arbitration Procedure contains a provision entitled, “Confidentiality,” which states:

All aspects of the arbitration, including without limitation, the record of the proceeding, are confidential and shall not be open to the public, except (a) to the extent both Parties agree otherwise in writing, (b) as may be appropriate in any subsequent proceedings by the Parties, or (c) as may otherwise be appropriate in response to a governmental agency or legal process, provided that the Party upon whom such process is served shall give immediate notice of such process to the other Party and afford the other Party an appropriate opportunity to object to such process.

At the request of a Party or upon his or her initiative, the Arbitrator shall issue protective orders appropriate to the circumstances and shall enforce the confidentiality of the arbitration as set forth in this article.

In Davis, the Court of Appeals for the Ninth Circuit stated that, under California law, “[c]onfidentiality by itself is not substantively unconscionable,” but the employer’s “confidentiality clause … is written too broadly” and “unconscionably favors [the employer],” when the clause at issue “would prevent an employee from contacting other employees to assist in litigating (or arbitrating) an employee’s case.” Davis, 485 F.3d at 1078–79 (“The clause precludes even mention to anyone ‘not directly involved in the mediation or arbitration’ of ‘the content of the pleadings, papers, orders, hearings, trials, or awards in the arbitration’ or even ‘the existence of a controversy and the fact that there is a mediation or an arbitration proceeding.’ ”). In this case, the confidentiality provision in the Employment Dispute Mediation/Arbitration Procedure is broader than what the court in Davis indicated would be conscionable. Cf. id. at 1079 (noting that “[t]he parties to any particular arbitration, especially in an employment dispute, can always agree to limit availability of sensitive employee information (e.g., social security numbers or other personal identifier information) or other issue-specific matters, if necessary”).

The Court finds that the confidentiality provision in the arbitration agreement is substantively unconscionable under California law.”

While courts- seemingly bound by a recent slew of employer/arbitration-friendly decisions from the Supreme Court- continue to compel arbitration and enforce class and collective action provisions contained in arbitration agreements, this decision seems somewhat in line with the remedial nature of the FLSA and related state wage and hour laws.  One way employees and their counsel can try to even the playing field might be to seek court-approved notice of pending litigation, notwithstanding the inability to proceed as a class/collective action.  Notifying other employees of existing litigation (and their rights to be paid in accordance with wage and hour laws) would certainly be in line with the remedial purposes of the FLSA and related state wage and hour laws.  In any event, the court’s holding that an employer cannot hide its alleged violations for other employees certainly seems to be a step in the right direction.

Click Grabowski v. Robinson to read the entire Opinion.

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Filed under Arbitration, Class Certification, Class Waivers

U.S.S.C.: State Law Regarding Unconscionability of Class Waivers in Arbitration Agreements Preempted by the Federal Arbitration Act (FAA)

AT&T Mobility LLC v. Concepcion

There has long been talk of the pr0-business conservative majority that currently comprises the United State’s Supreme Court.  However, many pundits have commented that while the Court has ruled as might be expected, largely based on their political leanings, on social issues, there has been wide agreement that other cases have not necessarily gone as some might have expected.  Last term with its decision that corporations could contribute unlimited amounts of money to political campaigns (while individuals were subject to the caps put in place by campaign finance laws), it appeared that the Court was getting more comfortable in trading in a lot of the basic individual freedoms that have always been a foundation for the United States, in exchange for satiating the demands of big business who are forever seeking to tilt the playing field in its favor.  Wednesday the Court handed down perhaps its biggest blow to average Americans ever, when it reversed the Ninth Circuit’s opinion in Concepcion v. AT&T Mobility, a decision that had sought to balance individual consumer rights, against those of a behemoth corporation.

As the Court stated in its Syllabus opinion, “[t]he cellular telephone contract between respondents (Concepcions) and petitioner (AT&T) provided for arbitration of all disputes, but did not permit classwide arbitration. After the Concepcions were charged sales tax on the retail value of phones provided free under their service contract, they sued AT&T in a California Federal District Court.Their suit was consolidated with a class action alleging, inter alia, that AT&T had engaged in false advertising and fraud by chargingsales tax on “free” phones. The District Court denied AT&T’s motion to compel arbitration under the Concepcions’ contract. Relying onthe California Supreme Court’s Discover Bank decision, it found the arbitration provision unconscionable because it disallowed classwide proceedings. The Ninth Circuit agreed that the provision was unconscionable under California law and held that the Federal Arbitration Act (FAA), which makes arbitration agreements “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, did not preempt its ruling.”

However, the Supreme’s disagreed.  Instead they held that “[b]ecause it ‘stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress,’ Hines v. Davidowitz, 312 U. S. 52, 67, California’s Discover Bank rule is preempted by the FAA. Pp. 4–18.”

Of course big business cheered the opinion as a necessary step towards giving parties the rights they had contracted for.  In reality however, the Ninth Circuit’s decision was much more in line with the realities of today’s business environment.  As anyone who has a cell phone can attest, the contracts we all enter into with a cell phone provider are anything but a fairly negotiated one.  In order to get your phone and/or start your service, you must sign away any rights you would normally have, in a take it or leave it contract.

Although aimed at eliminating consumer class actions, those in which the size of the claims is typically a few dollars to a few thousand dollars at most, the effects of the decision will be felt throughout all types of litigation, including employment and wage and hour litigation, where individual claims are often small by themselves, by collectively worthwhile for an attorney to pursue, in order to vindicate the rights of an entire class.  Given what could be a death nell for class and collective litigation for employees, pro-consumer legislators have been shaken to action.

As noted by blog thePopTort, Senator Al Franken, who actually has a great track record persuading Congress to outlaw unfair arbitration agreements, is taking the lead on this one.  Responding to yesterday’s decision, “U.S. Sens. Al Franken (D-Minn.) and Richard Blumenthal (D-Conn.) and Rep. Hank Johnson (D-Ga.) said today they plan to introduce legislation next week that would restore consumers’ rights to seek justice in the courts. Their bill, called the Arbitration Fairness Act, would eliminate forced arbitration clauses in employment, consumer, and civil rights cases, and would allow consumers and workers to choose arbitration after a dispute occurred.”

Consumer and employee groups have been quick to respond as well, calling for legislation, that has been raised but stalled in prior legislative sessions in Washington, D.C.  For example the National Employment Lawyers Association (NELA), who had filed an Amicus Brief in support of the Concepcions, released this press release calling for immediate action by Congress to rectify the situation.  It remains to be seen how this will all end in both the short and long terms, but for now the decision is unquestionably a boon for big business, who has essentially been given the green light to ignore laws big and small to the detriment of average Americans, with the knowledge that there will be little or no repercussions for same.

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Filed under Arbitration, Class Waivers