Mercado v. Cardinal Employers Organization, Inc.

IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF OREGON

GREGORY MERCADO, Case No. 3:21-cv-1224-SI

Plaintiff, OPINION AND ORDER

v.

CARDINAL EMPLOYERS

ORGANIZATION, INC.; CARDINAL

SERVICES, INC.; and INTEGRATED 3D

LLC d/b/a I3D MFG,

Defendants.

Aaron W. Baker and Serena L. Liss, BAKER LAW PC, One SW Columbia Street, Suite 1850,

Portland, OR, 97204. Of Attorneys for Plaintiff.

John A. Berg, Joseph M. Cooper, and Christine E. 600,000Sargent, LITTLER MENDELSON, PC,

1300 SW Fifth Avenue, Wells Fargo Tower, Suite 2050, Portland, OR, 97201. Of Attorneys for

Defendant Integrated 3D LLC d/b/a I3D MGF.

Michael H. Simon, District Judge.

Defendants Cardinal Employers Organization, Inc., and Cardinal Services, Inc.

(collectively, Cardinal Defendants) provided human resources services to Defendant Integrated

3D LLC (I3D). In April 2019, Defendants hired Plaintiff Gregory Mercado as I3D’s Chief

Operating Officer and Chief Quality Officer at I3D’s facility in The Dalles, Oregon. I3D

terminated Plaintiff’s employment as of September 1, 2020. Plaintiff alleges that, during his

employment with I3D, Defendants discriminated against him based on Plaintiff’s membership

and duties in the military and retaliated against Plaintiff for asking about wages, reporting

criminal activity, opposing unlawful employment practices, and using protected sick leave.

Defendant I3D moves to compel arbitration, based on terms in Plaintiff’s employment

agreement.1 ECF 7. Plaintiff does not dispute that his employment agreement with I3D contains

a mandatory arbitration clause but argues that the agreement is unenforceable as both

procedurally and substantively unconscionable. For the reasons explained below, the Court

grants I3D’s motion to compel arbitration (ECF 7).

STANDARDS

The Federal Arbitration Act (FAA), 9 U.S.C. §§ 1-15, applies to all contracts involving

interstate commerce and specifies that “written agreements to arbitrate controversies arising out

of an existing contract ‘shall be valid, irrevocable, and enforceable, save upon such grounds as

exist at law or in equity for the revocation of any contract.’” Dean Witter Reynolds, Inc. v. Byrd,

470 U.S. 213, 218 (1985) (quoting 9 U.S.C. § 2). The text of the FAA “leaves no place for the

exercise of discretion by a district court,” but “mandates that district courts shall direct the

parties to proceed to arbitration on issues as to which an arbitration agreement has been signed.”

Id. at 218 (citing 9 U.S.C. §§ 3-4) (emphasis in original). The district court must limit itself “to

determining (1) whether a valid agreement to arbitrate exists and, if it does, (2) whether the

agreement encompasses the dispute at issue.” Chiron Corp. v. Ortho Diagnostic Sys., Inc., 207

F.3d 1126, 1130 (9th Cir. 2000).

1 Plaintiff served the Cardinal Defendants on August 25, 2021. See ECF 29; ECF 30. The

Cardinal Defendants have not appeared, and Plaintiff has not moved for an order of default.

Accordingly, the Court will dismiss the Cardinal Defendants without prejudice for lack of

prosecution unless Plaintiff moves for an order of default or the Cardinal Defendants respond to

Plaintiff’s Complaint not later than February 16, 2022.

Under the FAA, “any doubts concerning the scope of arbitrable issues should be resolved

in favor of arbitration.” Moses H. Cone Mem’l Hosp. v. Mercury Const. Corp., 460 U.S. 1, 24-25

(1983). The “liberal federal policy regarding the scope of arbitrable issues is inapposite,”

however, to whether a particular party agreed to the arbitration agreement. Comer v. Micor, Inc.,

436 F.3d 1098, 1104 n.11 (9th Cir. 2006). The validity of an arbitration agreement remains “a

matter of contract and a party cannot be required to submit to arbitration any dispute which he

has not agreed so to submit.” AT & T Technologies, Inc. v. Commc’ns Workers of Am., 475 U.S.

643, 648 (1986). Because arbitration is fundamentally “a matter of contract,” the FAA “places

arbitration agreements on an equal footing with other contracts and requires courts to enforce

them according to their terms.” Rent-A-Ctr., W., Inc. v. Jackson, 561 U.S. 63, 67 (2010)

(citations omitted). Courts also should generally “apply ordinary state-law principles that govern

the formation of contracts” to determine whether the parties agreed to arbitrate. First Options of

Chicago, Inc. v. Kaplan, 514 U.S. 938, 944 (1995).2

Unless there is clear and unmistakable evidence that the parties agreed that an arbitrator

should decide issues of arbitrability, see First Options of Chicago, 415 U.S. at 944, a court, not

an arbitrator, must decide “the threshold issue of the existence of an agreement to arbitrate.”

Three Valleys Mun. Water Dist. v. E.F. Hutton & Co., 925 F.2d 1136, 1140-41 (9th Cir. 1991).

In deciding whether an agreement to arbitrate existed, a court should apply a summary-

judgment-style standard. “Only when there is no genuine issue of fact concerning the formation

of the agreement” should a court decide that an agreement to arbitrate existed. Id. at 1141

2 The only exception to the rule that state law governs the validity of arbitration

agreements is when courts must “decide whether a party has agreed that arbitrators should decide

arbitrability: Courts should not assume that the parties agreed to arbitrate arbitrability unless

there is ‘clea[r] and unmistakabl[e]’ evidence that they did so.” First Options of Chicago, 514

U.S. at 944 (quoting AT & T Techs., Inc. v. Commc’n Workers, 475 U.S. 643, 649 (1986)).

(quoting Par-Knit Mills, Inc. v. Stockbridge Fabrics Co., 636 F.2d 51, 54 (3d Cir. 1980)). The

district court should give the party opposing a motion to compel arbitration “the benefit of all

reasonable doubts and inferences that may arise.” Id. The party seeking to compel arbitration

bears “the burden of proving the existence of an agreement to arbitrate by a preponderance of the

evidence.” Knutson v. Sirius XM Radio Inc., 771 F.3d 559, 565 (9th Cir. 2014). When “the

making of the arbitration agreement” is at issue, “the court shall proceed summarily to the trial

thereof.” 9 U.S.C. § 4. “The court shall hear and determine such issue” if the party alleged to

violate the agreement does not demand a jury trial. Id.

BACKGROUND

Applying the standards applicable to a motion for summary judgment (Fed. R. Civ.

P. 56), the Court draws the following facts from the allegations in Plaintiff’s Complaint, the

parties’ briefs, the filed declarations, and the exhibits submitted by both parties. At this stage of

the dispute, the Court considers only those facts that are relevant to determine the procedural and

substantive unconscionability of the arbitration clause.

Plaintiff is a “Quality and Engineering Director,” with a master’s degree in industrial and

systems engineering. ECF 8-1, at 1 (Stone Decl.). On March 6, 2019, Defendants gave Plaintiff a

one-page offer letter for the position of Chief Operations Officer/Chief Quality Officer at I3D.

ECF 8, at 2 (Stone Decl., ¶ 4). The letter specified that Plaintiff’s employment would begin on

April 4, 2019, and provided, among other things:

Attached you will find a complete employment contract. Please be

aware of the required acceptance of our Arbitration Agreement and

Noncompetition Agreement. If you choose to accept this job offer,

please sign and return this letter and employment contract to me at

your earlier convenience. We look forward to welcoming you to

the I3D MFG team and to years of business and team building.

Please let me know if you have any questions or if I can provide

any additional information.

ECF 8-1, at 2. Plaintiff’s signature and the date March 9, 2019, appear at the bottom of the letter.

Id. Attached to that letter is a document headed “EMPLOYMENT AGREEMENT” (the

Agreement). Id. at 3. The Agreement contains the following provisions, among others:

10.12 Arbitration

(a) Except as otherwise provided in Section 10.12(e), any

dispute, controversy, or claim arising out of the subject

matter of this Agreement will be settled by arbitration

before a single arbitrator in Wasco County, Oregon.

(b) If the parties agree on an arbitrator, the arbitration will

be held before the arbitrator selected by the parties. If the

parties do not agree on an arbitrator, the Presiding Judge of

Wasco County, Oregon Circuit Court shall appoint an

arbitrator in accordance with applicable court rules. The

arbitrator will be an attorney knowledgeable in the area of

business law.

(c) The arbitration will be conducted in accordance with the

procedures set forth in ORS 36.600 through ORS 36.740,

modified by the following provisions:

(1) the arbitrator will resolve any disputes relating

to discovery issues;

(2) the arbitrator will have discretion to order a

prehearing exchange of information by the parties

and an exchange of summaries of testimony of

proposed witnesses;

(3) the arbitrator will have authority to issue interim

relief and provisional remedies;

(4) the arbitrator will have authority to award any

remedy that a court in the State of Oregon could

order or grant, including but not limited to

injunctive relief and other equitable relief and the

imposition of sanctions for abuse or frustration of

the arbitration process, except that the arbitrator will

not have authority to award punitive damages or

any other amount for the purpose of imposing a

penalty;

(5) the award will be in writing, be signed by the

arbitrator, and include a statement regarding the

disposition of each claim; and

(6) the parties will keep all information relating to

the arbitration and the disposition of each claim

confidential to the fullest extent permitted by

applicable law.

(d) The resolution of any dispute, controversy, or claim as

determined by the arbitrator will be binding on the parties.

Judgment on the award of the arbitrator may be entered by

any party in any court having jurisdiction.

(e) A party may seek from a court an order to compel

arbitration, or any other interim relief or provisional

remedies pending an arbitrator’s resolution of any dispute,

controversy, or claim. Any such action, suit, or

proceeding—or any action, suit, or proceeding to confirm,

vacate, modify, or correct the award of the arbitrator—will

be litigated in courts located in Wasco County, Oregon.

(f) For the purposes set forth in Section 10.12(c)(3), each

party consents and submits to the jurisdiction of any local,

state, or federal court located in Wasco County, Oregon.

10.13 Attorney’s Fees. If any arbitration, action, suit, or

proceeding is instituted to interpret, enforce, or rescind this

Agreement, or otherwise in connection with the subject matter of

this Agreement, including but not limited to any proceeding

brought under the Untied States Bankruptcy Code, the prevailing

party on a claim will be entitled to recover with respect to the

claim, in addition to any other relief awarded, the prevailing

party’s reasonable attorney’s fees and other fees, costs, and

expenses of every kind, including but not limited to the costs and

disbursements specified in ORCP 68 A(2), incurred in connection

with the arbitration, action, suit, or proceeding, any appeal or

petition for review, the collection of any award, or the enforcement

of any order, as determined by the arbitrator or court.

Id., at 12-14. Those provisions spanned three pages of the Agreement, paginated “Page 10

of 10,” “Page 11 of 10,” and “Page 12 of 10.” Id. Plaintiff’s signature appears on “Page 13

of 10,” followed by the date, “3/9/2019.” Id. at 15. The Agreement also states, on “Page 9 of 10,”

the following:

10.6 Severability. If a provision of this Agreement is determined to

be unenforceable in any respect, the enforceability of the provision

in any other respect and of the remaining provisions of this

Agreement will not be impaired.

Id., at 11. Plaintiff began work for I3D under the Agreement in April 2019. ECF 15, at 2

(Mercado Decl., ¶ 2).

In December 2019, Plaintiff took leave for military orders. ECF 1, at 4 (Compl., ¶ 12). In

July 2020, Plaintiff informed I3D that he again had military orders in progress, for which he

would need to take leave. Id., at 5 (Compl., ¶ 17). Also in July 2020, Plaintiff submitted formal

discrimination and hostile work environment complaints against I3D, based on several incidents.

Id., at 5-6 (Compl., ¶¶ 20-22). In August 2020, I3D informed Plaintiff that September 1, 2020,

would be Plaintiff’s last day as an employee of I3D. Id., at 7 (Compl., ¶ 23).

On August 17, 2021, Plaintiff filed this lawsuit. ECF 1. The same day, he sent a letter

titled “Arbitration Demand” to I3D, which read, in its entirety:

Mr. Mercado hereby demands arbitration of this matter in the event

that the parties agree to resolve Mr. Mercado’s claims by

arbitration or the Court mandates the parties proceed with

arbitration. The enclosed Complaint identifies the parties, includes

the legal and factual bases for the claims, and states the remedies

sought.

ECF 8-1, at 16 (Stone Decl.). Soon after, I3D filed the pending motion to compel arbitration

(ECF 7) and informed Plaintiff that I3D would not seek to enforce the limitation on punitive

damages in the employment agreement (ECF 22, Berg Decl., ¶ 2). Plaintiff opposes I3D’s

motion, arguing that the arbitration agreement is unconscionable, both procedurally and

substantively, rendering it unenforceable. ECF 13.

DISCUSSION

“Like other contracts, arbitration agreements can be invalidated for fraud, duress, or

unconscionability.” Chavarria v. Ralphs Grocery Co., F.3d 916, 921 (9th Cir. 2013). “The party

asserting unconscionability bears the burden of demonstrating that the arbitration clause in

question is, in fact, unconscionable.” Motsinger v. Lithia Rose-FT, Inc., 211 Or. App. 610, 614

(2007). Unconscionability is a question of law determined by the court “based on the facts in

existence at the time the contract was made.” Id. There are two types of unconscionability—

procedural and substantive. Although some jurisdictions require both substantive and procedural

unconscionability to invalidate a contract, the Oregon Supreme Court has expressly declined to

resolve that question. Bagley v. Mt. Bachelor, Inc., 356 Or. 543, 555 (2014). The Ninth Circuit,

however, interpreting Oregon law, has stated that: “Although both forms of unconscionability

‘are relevant, . . . only substantive unconscionability is absolutely necessary.’” Chalk v. T-Mobile

USA, Inc., 560 F.3d 1087, 1093 (9th Cir. 2009) (quoting Vasquez-Lopez v. Beneficial Or., Inc.,

210 Or. App. 553, 566 (2007)). Plaintiff here argues that the arbitration agreement is both

procedurally and substantively unconscionable, and so the Court considers each of those theories

in turn.

A. Procedural Unconscionability

“Procedural unconscionability refers to the conditions of contract formation and focuses

on two factors: oppression and surprise.” Bagley, 356 Or. at 555. In considering the “oppression”

prong of procedural unconscionability, a court should consider whether “there is inequality in

bargaining power between the parties, resulting in no real opportunity to negotiate the terms of

the contract and the absence of meaningful choice.” Id. Evidence of oppression can include

“gross inequality of bargaining power, a take-it-or-leave-it bargaining stance, and the fact that a

contract involves a consumer transaction.” Id. The “surprise” prong of procedural

unconscionability, on the other hand, “involves whether terms were hidden or obscure from the

vantage of the party seeking to avoid them . . . such as ambiguous contract wording and fine

print.” Id.

Plaintiff contends that Oregon courts have held that contracts signed by an employee as a

condition of employment are contracts of adhesion which, by their nature, satisfy the

“oppression” prong of the procedural unconscionability inquiry. Oregon courts have indeed held

that arbitration agreements found in employment contracts are “not entirely free from procedural

unfairness,” because they are “part of a classic contract of adhesion, that is, an agreement

between parties of unequal bargaining power, offered to the weaker party on a ‘take-it-or-leave-

it’ basis.” Sprague v. Quality Restaurants Nw., Inc., 213 Or. App. 521, 526 (2007). That fact

alone, however, “does not render [an arbitration agreement] unenforceable” absent “other

oppressive circumstances” or deception. Id.; see also Siggelkow v. Nw. Grp., Inc., 2019 WL

294759, at *7 (D. Or. Jan. 22, 2019) (“[I]n Oregon, more than a contract of adhesion and unequal

bargaining power is required to void an arbitration clause.” (simplified)); Motsinger, 211 Or.

App. at 617 (“[T]he only indicia of procedural unconscionability here is unequal bargaining

power. That, however, is not enough to invalidate an arbitration clause on the basis of

unconscionability.”).

In Livingston v. Metropolitan Pediatrics, LLC, the Oregon Court of Appeals discussed

procedural unconscionability:

Although defendants are willing to assume that, as a general

proposition, a prospective employer has greater bargaining power

than an applicant for employment, in this case it is undisputed that

plaintiff, who is highly educated, had an opportunity to review the

employment agreement for two weeks, and he signed and returned

it without making any changes. Thus, there is no contract of

adhesion. We conclude that, to the extent that the parties had

disparate bargaining power, the inequality was minimal, and

plaintiff voluntarily agreed to the arbitration clause.

234 Or. App. 137, 152-53 (2010) (citations omitted); see also Lovelance v. DEKRA N. Am., Inc.,

No. 2017 WL 2927153, at *4 (D. Or. June 30, 2017) (declining to find unconscionable an

arbitration agreement in an employment contract, where a plaintiff was “a sophisticated, highly-

qualified applicant who was offered an executive-level position as Vice President of Sales at an

international company”).

Plaintiff asserts that this case is “distinguishable” from Livingston and Lovelace,

contending that he “was not given the opportunity to negotiate the terms of the Agreement or to

review the Agreement with an attorney prior to singing it.” ECF 13, at 7 n.1. Like the employee

in Lovelace, however, the record here suggests that Plaintiff was a highly educated candidate and

who had at least several days to review the employment agreement before returning it. ECF 8, at

¶¶ 4-5 (Stone Decl.). The record does not reflect that Plaintiff was deprived of the opportunity to

investigate or ask about the arbitration agreement before deciding whether to sign the

Agreement. The record also does not reflect that Plaintiff tried to ask questions or bargain with

Defendants or asked for more time to retain an attorney to review the Agreement.

Plaintiff also argues that the arbitration agreement is procedurally unconscionable

because of surprise. “Surprise involves whether terms were hidden or obscure from the vantage

of the party seeking to avoid them. Generally speaking, factors such as ambiguous contract

wording and fine print are the hallmarks of surprise.” Bagley, 356 Or. at 555 (citations omitted).

Plaintiff contends that the surprise prong is met because the pages containing the arbitration

agreement were misnumbered and the arbitration provisions were not set out in bold or italic

emphasis. See Sprague, 213 Or. App. at 526 (finding an agreement to arbitrate did not meet the

“surprise” prong where the arbitration clause was “clearly and fully described in the employee

handbook, with the key provisions set off in italics and boldface; the acknowledgment form as

well set[] off the agreement in italics[ and t]he language [was] not technical and the typeface

[was] large”). Plaintiff fails to mention, however, that the letter accompanying the Agreement

specifically directed the reader’s attention to the arbitration and attorney fees provisions and

stated that a representative of Defendants could answer any questions related to the Agreement,

including those provisions. ECF 8-1, at 2. Perhaps most importantly, Plaintiff does not contend

that he was, in fact, surprised to learn that the Agreement contained an arbitration clause. Having

considered the circumstances of the execution of the Agreement, the Court is not persuaded that

any potential procedural unconscionability, on its own, voids the arbitration agreement. Thus, the

Court next considers the issue of substantive unconscionability.

B. Substantive Unconscionability

“Substantive unconscionability… generally refers to the terms of the contract, rather than

the circumstances of formation, and focuses on whether the substantive terms contravene the

public interest or public policy.” Bagley, 356 Or. at 555. Plaintiff argues that the arbitration

agreement here contains two substantively unconscionable provisions: a prevailing party attorney

fees provision and a prohibition against recovering punitive damages.

1. Attorney fees provision

Under the Agreement, if any action is initiated related to its subject matter, the prevailing

party may recover fees, costs, and expenses. ECF 8-1, at 14 (section 10.13 of the Agreement).

Plaintiff cites two types of cases in support of his position that the attorney fees provision is

unconscionable. First, Plaintiff cites cases addressing whether provisions that specifically

allocate the costs associated with arbitration are unconscionable. See Vasquez-Lopez v.

Beneficial Oregon, Inc., 210 Or. App. 553, 574 (2007). Second, Plaintiff cites cases addressing

whether attorney fee provisions in arbitration agreements are unconscionable. See Bermudez v.

PrimeLending, 2012 WL 12893080, at *9 (C.D. Cal. Aug. 14, 2012). The courts that have

considered those two distinct types of provisions have applied different analyses to determine a

provision’s unconscionability. When an arbitration agreement allocates the fees associated with

arbitration—for example, the arbitrator’s fee—Oregon courts consider the plaintiff’s economic

circumstances to determine whether the allocation “is sufficiently onerous to act as a deterrent to

plaintiffs’ vindication of their claim.” Vasquez-Lopez, 210 Or. App. at 574 (finding an allocation

of arbitration costs unconscionable where “plaintiffs’ cost of arbitration would not only be high

in the absolute sense . . . but high in comparison to a trial”). In contrast, as it relates to attorney

fee provisions, other jurisdictions have held that “[p]rovisions requiring bilateral, attorney fee

shifting, i.e., in which the prevailing party—whether employer or employee—may be awarded

fees, are unconscionable when they conflict with governing statutes that allow one-way fee

shifting in favor of the employee.” Bermudez, 2012 WL 12893080, at *9 (emphasis added); see

also LaCoursiere v. Camwest Dev., Inc., 181 Wash. 2d 734, 748 (2014) (“[M]andatory attorney

fee shifting provisions in employment contracts are unconscionable where the legislature

authorizes only prevailing employees to collect attorney fees.”).

Oregon courts have not unambiguously adopted the statute-based analysis used in other

jurisdictions to analyze attorney fees provisions of arbitration agreements. In Livingston, the

Oregon Court of Appeals considered whether the record permitted a determination that “the fee-

shifting provision will deter or unreasonably burden plaintiff’s ability to pursue his common-law

and statutory claims” such that this provision “would have a detrimental effect on plaintiff’s

ability to pursue his claims.” Livingston, 234 Or. App. at 155. The court held that “in the absence

of evidence that the fee-shifting provision, in fact, results in the arbitration forum not providing a

reasonable alternative forum for this plaintiff, we conclude that the fee-shifting provision is not

substantively unconscionable.” Id. (emphases added). Although Livingston did not use the strong

language of Bermudez or LaCoursiere, it does suggest that at least some consideration of the

statute may be appropriate. Key to the Livingston analysis, however, is whether a fee-shifting

provision effectively deprives a plaintiff of the ability to pursue his claims, based on his specific

economic circumstances. Id.; see also Le v. Gentle Dental of Oregon, 2010 WL 3394542, at *8-9

(D. Or. July 29, 2010), report and recommendation adopted, 2010 WL 3394476 (D. Or. Aug. 25,

2010) (finding “there is insufficient evidence that the fee-shifting provision renders arbitration an

unreasonable alternative forum for” the plaintiff, who was a “sophisticated signatory” to the

agreement, had time to review it, did not object to the arbitration provision, and produced no

evidence that the defendant refused to discuss or modify that provision).

Plaintiff contends that if he does not prevail on his claims, he will be ordered to pay “at

least” $100,000 to $200,000 in attorney fees for Defendants, based on the resulting fees in a

similar case. ECF 14, at 2 (Liss Decl., ¶ 2). That fee awards in other cases have been significant

and that the fees to be incurred in resolving the pending dispute may be similar is not sufficient.

In fact, that is the type of evidence and argument that the Oregon Court of Appeals in Livingston

considered and found to be inadequate. 234 Or. App. at 155. Under Oregon law, it is not enough

to cite the costs incurred in another case and contend that a similar amount could discourage a

plaintiff in a different case from filing a claim. Id.; see also Gist v. ZoAn Mgmt., Inc., 305 Or.

App. 708, 720, 473 P.3d 565, 574, rev. allowed, 367 Or. 257, 475 P.3d 880 (2020) (“When the

fee provisions themselves are not onerous and when plaintiff’s factual information is incomplete,

we cannot rely on speculation to declare arbitration costs unconscionable.”). Plaintiff also argues

that the potential cost of attorney fees “would be too great of a risk to continue pursuing my

claims.” ECF 20, ¶ 4 (Mercado Decl.). I3D points out, however, that Plaintiff has significant

financial resources, including a six-figure income and substantial savings. Id., at ¶¶ 6-7. I3D

contends that Plaintiff’s financial resources are more than enough to allow him to prosecute his

claim. The Court is not persuaded that Plaintiff has presented enough evidence to meet the

Livingston standard.3

2. Punitive damages

In its motion and reply, I3D does not challenge Plaintiff’s assertion that the limitation on

punitive damages, found at section 10.12(c)(4) of the Agreement (ECF 8-1, at 12), is

substantively unconscionable. Rather, I3D argues that, because I3D has agreed not to seek to

enforce that limitation, the question of whether that provision is unconscionable is moot. Under

Oregon law, “[h]owever, in determining unconscionability, courts review an agreement at the

time it was executed, not after concessions are made during litigation to challenge its validity.”

Young v. Regis Corp., 2006 WL 8459710, at *5 (D. Or. Aug. 2, 2006) (citing Best v. U.S. Nat.

Bank of Oregon, 303 Or. 557, 560 (1987)). Thus, I3D is incorrect in its assertion that its

agreement not to enforce the punitive damages exclusion renders “moot” the question of that

provision’s unconscionability.

Courts applying Oregon law have consistently found provisions limiting a plaintiff’s

ability to pursue punitive damages unconscionable. See Escobar v. Nat’l Maint. Constrs., LLC,

2021 WL 3572652, at *12 (D. Or. Aug. 12, 2021) (“Consistent with Ninth Circuit precedent,

Oregon and Washington courts have found that arbitration provisions prohibiting a party from

seeking punitive damages are unconscionable.”); see also Young v. Regis Corp., 2006 WL

8459710, at *5 (D. Or. Aug. 2, 2006) (finding unconscionable an arbitration provision that

prohibits the plaintiff from seeking punitive damages or injunctive relief). Thus, the Court agrees

3 Because Oregon has not adopted the categorical statute-based test as described above,

the Court declines at this stage to consider whether the statutes underlying Plaintiff’s claims

provide for a one-way fee shifting. Because the test adopted by Oregon courts depends heavily

on an individual plaintiff’s circumstances, the lack of evidence on that issue here is dispositive.

with Plaintiff that this provision is substantively unconscionable. The Court next considers

whether that provision’s unconscionability may be severed from the rest of the Agreement.

3. Severability

I3D contends that, even if the Court finds either of the two challenged provisions

substantively unconscionable, those provisions should be severed, under section 10.6 of the

Agreement (ECF 8-1, at 11). Plaintiff disagrees, arguing that the arbitration agreement is so

“infected with serious procedural and substantive unfairness” as to render it unenforceable in its

entirety. ECF 13, at 14. Because the Court holds that only one provision—the punitive damage

limitation—is substantively unconscionable, the Court considers only whether that provision so

permeates the rest of the Agreement.

Plaintiff’s own authority suggests that a substantively unconscionable punitive damages

provision may be severed from the rest of an otherwise conscionable arbitration agreement. In

Escobar, the court found unconscionable both a provision limiting punitive damages and a forum

selection clause. 2021 WL 3572652, at *13, *11. That agreement—like the one here—also

contained a severability provision, and the court held that the two unconscionable provisions did

not sufficiently permeate the agreement to render it unenforceable. Id. at 14. In contrast, the

court in Young found that “[n]ot only do the damages, attorney fees, and fee-sharing provisions

of the Arbitration Agreement violate federal law, they are flatly inconsistent with the [National

R]ules [for the Resolution of Employment Disputes of the American Arbitration Association]

that purportedly govern it.” Young, 2006 WL 8459710, at *6. In that case, the court declined to

sever the unconscionable provisions. Id. The court noted that severing those provisions “in the

face of well-established legal precedent and arbitration rules rendering them unenforceable …

would encourage employers to retain such provisions in order to persuade economically-

disadvantaged employees to think twice before filing claims related to their employment.” Id.

Plaintiff has not made the kind of showing that the plaintiff in Young did—that multiple

provisions of an arbitration agreement were not only substantively unconscionable, but contrary

to both federal law and the rules set forth by the American Arbitration Association. Plaintiff

argues only that because a provision is unconscionable, severance necessarily is not appropriate.

The Court is not persuaded and agrees with I3D that severing the punitive damages exclusion

under section 10.6 of the Agreement is appropriate. Thus, the Court servers the punitive damages

exclusion and enforces the rest of the Arbitration Agreement.

CONCLUSION

The Court GRANTS I3D’s Motion to Compel Arbitration (ECF 7). In addition, as noted

above, the Court will dismiss the Cardinal Defendants without prejudice for lack of prosecution

unless Plaintiff moves for an order of default or the Cardinal Defendants respond to Plaintiff’s

Complaint not later than February 16, 2022.

IT IS SO ORDERED.

DATED this 2nd day of February, 2022.

/s/ Michael H. Simon

Michael H. Simon

United States District Judge