A California federal court has refused to compel arbitration of employment-related claims, finding insufficient evidence of an agreement between the parties and noting unconscionable, difficult-to-sever cost and venue provisions within the alleged agreement.

In McManigal v. Medicis Pharmaceutical Corp., No. C07-4874 TEH, 2008 WL 618909 (N.D. Cal. Mar. 3, 2008), McManigal accused Medicis of discrimination and sexual harassment during her employment. Medicis moved to compel arbitration of McManigal's claims, maintaining that arbitration agreements within restricted stock and stock option agreements bound the parties to arbitrate employment-related claims.

Suspicious of the authenticity of an exhibit presented by Medicis, the Court did not find sufficient evidence of a valid agreement between the parties as to the restricted stock agreement. It noted that the date of the agreement on the exhibit did not match the date and time of the agreement as testified to by one of Medicis's witness. It also observed that the "creation date" stamped by the computer on the exhibit file was seven months after McManigal's alleged acceptance of the agreement, but only one day before Medicis demanded arbitration of McManigal's claims.

Medicis argued that McManigal's receipt of 150 shares of stock, the amount indicated in the disputed agreement, was evidence that the restricted stock agreement was in fact accepted. The Court, however, stated that there was no evidence presented that McManigal could not have received the shares in another manner, and that lack of evidence precluded a finding that the restricted stock agreement was ever accepted.

As for the stock option agreement, the Court also found insufficient evidence of McManigal's acceptance. Medicis's witness did not testify as to when McManigal allegedly accepted the stock option agreement and did not provide a copy of any document listing its supposed acceptance date. Without such evidence, the Court could not determine whether the stock option agreement was validly accepted by the parties.

According to the Court, even if the parties assented to this particular arbitration agreement, it would still be declared unconscionable. The Court found both the cost and venue provisions within the alleged arbitration agreements unconscionable under California law because they would force McManigal to bear a type of expense not borne if the action were brought in court. See Armendariz v. Foundation Health Psychcare Services, Inc., 6 P.3d 669, 687 (Cal. 2000).

Medicis expressed a willingness to waive the cost and venue provisions if they were declared unconscionable, but the Court stated it would still decline to enforce the agreements' remaining terms due to the absence of a severability provision and because more than one unconscionable term was found to "permeate" the entire agreement.