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A California federal district court has rejected a wide range of substantive unconscionability challenges to a predispute employment arbitration agreement, noting that the incorporation of a recognized arbitral administrator's rule set satisfied many of the requirements imposed on California arbitration agreements under Armendariz.
In Swallow v. Toll Brothers, Inc., Slip Copy, 2008 WL 4164773 (N.D. Cal. Sept. 8, 2008), Swallow was employed by construction company Toll. As part of the employment relationship, Toll entered into an arbitration agreement with Swallow. Ward, a manager for Toll, maintained that Swallow was presented with the agreement, afforded an opportunity to review it, and ultimately signed it. Later, Swallow was terminated for allegedly ordering work at private residences and billing it to Toll.
Swallow filed suit against Toll, alleging slander, defamation, discrimination, and breach of contract. Toll moved to compel arbitration of the claims. Swallow opposed the motion, maintaining that the arbitration agreement's substantive provisions were unconscionable under Armendariz v. Found. Health Psychcare Servs., Ins., 24 Cal.4th 83, 102 (Cal. 2000). Swallow alleged that these provisions, combined with the agreement's adhesive nature, rendered the entire agreement unenforceable.
First, the Court determined that the agreement did not lack mutuality. "The plain language," said the Court, "makes clear that it covers all disputes… and that both the employer and employee are bound."
Second, the Court found the agreement provided for neutral arbitrators through its incorporation of the American Arbitration Association's (AAA) rule set. The AAA rules establish a fair procedure for arbitrator selection, disqualification, and removal, according to the Court.
Third, the Court decided that the arbitration agreement's express requirement that the employer bear all arbitration expenses defeated Swallow's allegation that the agreement imposed any costs on him that would not be assessed had the action been brought in court.
Fourth, the Court cited the incorporated AAA rules in finding provisions for adequate discovery in the agreement. Unlike the arbitrary "one deposition" limit on discovery imposed by the agreement in Ontiveros v. DHL Express (USA), Inc., 164 Cal.App.4th 494, 513 (Cal. Ct. App. 2008), the agreement here provided for "sufficient discovery," without any arbitrary limit on the number of depositions or unreasonable burdens on a party showing a need for additional discovery.
Fifth, the Court disagreed that the agreement prohibited some types of relief allowed in a court, noting that the agreement granted the broad power to "grant legal and equitable remedies," including fees and costs to either party.
Sixth, the Court rejected Swallow's argument that the agreement altered the standard of review afforded an arbitration decision, noting that the agreement provided for a written decision with findings and conclusions. Also, the Court cited the agreement's preservation of challenges based on "material error of law" or other grounds allowed under the Federal Arbitration Act.
Finally, the Court found the arbitration agreement here was distinguishable from the type of jury trial waiver found ineffective in Grafton Partners, L.P. v. Superior Court, 36 Cal.4th 944, 955 (Cal. 2005). It noted the distinction was drawn by the Grafton court that "[u]nlike predispute jury waivers, predispute arbitration agreements are specifically authorized by statute," and that "arbitration agreements are distinguishable… in that they represent an agreement to avoid the judicial forum altogether."
Accordingly, the Court held that the arbitration agreement was valid and enforceable and granted Toll's motion to compel arbitration of Swallow's claims.
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