Pappas v. AMN Healthcare Services

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2

3

4 UNITED STATES DISTRICT COURT

5 NORTHERN DISTRICT OF CALIFORNIA

6

7 JEAN PAPPAS, et al., Case No. 24-cv-01426-JST

8 Plaintiffs,

ORDER DENYING DEFENDANTS’

9 v. MOTION TO COMPEL

ARBITRATION

10 AMN HEALTHCARE SERVICES, et al.,

Re: ECF No. 21

Defendants.

11

12

Before the Court is AMN Healthcare Services, Inc. (“AMN”), as well as Kaiser

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Foundation Health Plan, Inc. and Kaiser Foundation Hospitals’ (“Kaiser”) (collectively,

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“Defendants’”) motion to compel arbitration. ECF No. 21. For the reasons set forth below, the

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Court will deny the motion.

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I. BACKGROUND

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A. Parties and Claims

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Kaiser is a non-profit corporation that operates healthcare facilities in California. ECF No.

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1 ¶¶ 1, 13. AMN is a “nationwide provider of temporary healthcare staffing solutions, and places

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healthcare professionals [like traveling nurses] . . . in temporary assignments at facilities.” ECF

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No. 21-1 ¶ 3. Healthcare facilities such as Kaiser, offer a “bill rate”––“the total amount the

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facility is willing to pay a staffing agency such as AMN for every hour worked by a traveling

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nurse.” ECF No. 1 ¶ 20. AMN “then deducts costs, overhead, and profit margin from the bill rate

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and advertises the hourly rate it is willing to pay a traveling nurse to accept the facility

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assignment.” Id. AMN uses recruiters who pitch traveling nurses on new job opportunities.

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Id. ¶ 23. Plaintiffs Jean Pappas, Johannah Hetherington, Nikole Domke, Michelle Anderson, and

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Jane Angell are traveling nurses. Id. ¶¶ 7–11. “Kaiser contracts with nurse staffing agencies like

1 AMN to recruit and employ travel nurses like Plaintiffs and others similarly situated to fill certain

2 staffing needs at Kaiser facilities.” Id. ¶ 77. AMN recruiters called Plaintiffs and verbally

3 communicated: “(1) a description of the assignment, including the location of the assignment,

4 length of assignment, and total compensation; and (2) the potential repercussions associated with a

5 nurse cancelling the assignment, including potentially being blacklisted from working at AMN or

6 the hospital.” ECF No. 35-1 ¶ 3. Mr. Rick Woods, a former recruiter for AMN, notes that the

7 recruiters were “not trained or instructed to mention arbitration or other dispute resolution

8 procedures.” Id.

9 Plaintiffs were told on the call that “they would be emailed a Professional Services

10 Agreement (“PSA”) confirming [the] verbal agreement and that they should sign the document

11 immediately.” Id. ¶ 4; see also ECF No. 35-2 (“Hetherington Decl.”) ¶ 6 (“I understood from my

12 experience in travel nursing and my conversations with AMN’s recruiter that if I did not sign the

13 document immediately, I would lose the opportunity”); ECF No. 35-3 (“Pappas Decl.”) ¶ 3 (“if I

14 wanted it, I needed to accept immediately”); ECF No. 35-4 (“Domke Decl.”) ¶ 3 (the recruiter

15 “indicated that I had 24 hours to decide whether to accept the offer, otherwise the offer would be

16 automatically rescinded”); ECF No. 35-6 (“Angell Decl.”) ¶ 4 (“this was a great opportunity that

17 would fill quickly”). In the email attaching the PSA, the recruiters noted that “[t]he details

18 discussed regarding your verbal agreement are reflected in your contract for you to review and

19 sign electronically.” ECF No. 35-3 at 13.

20 All Plaintiffs accepted a travel assignment from AMN to relocate and work at a Kaiser

21 facility located in California. ECF No. 1 ¶¶ 7–11. After Plaintiffs committed to an assignment

22 and began work, AMN gave Plaintiffs “take-it-or-leave it” demands that they either accept pay

23 decreases or face termination. Id. ¶¶ 38–69.

24 On March 8, 2024, Plaintiffs filed a class action complaint alleging that AMN “knowingly

25 engag[ed] in ‘bait-and-switch’ practices and perpetrat[ed] fraud on travel nurses in a quest for

26 profit and market share.” Id. ¶ 4. Plaintiffs contend that AMN’s “take-it-or-leave-it” demands to

27 accept less pay or be terminated violate the California Labor Code and California’s Unfair

1 faith and fair dealing, promissory estoppel, fraudulent inducement, fraudulent concealment, and

2 negligent misrepresentation. Id. ¶¶ 101–201. Plaintiffs additionally sue Kaiser for inducing

3 breach of contract and for tortious interference with contractual relations. Id. Plaintiffs seek

4 damages, disgorgement, costs, attorneys’ fees, and pre-and post-judgment interest. Id. at 41.

5 B. Arbitration Provision

6 Prior to their start date, AMN required each Plaintiff to sign and acknowledge a form

7 employment agreement called a PSA to begin work. Id. ¶ 26. The PSAs are two pages long, and

8 “substantially similar for all clinicians, except for the specific assignment details.” ECF No.

9 21-1 ¶ 7. Each Plaintiff signed and acknowledged a PSA.

10 The last section of each PSA is titled “ARBITRATION OF DISPUTES” in boldface.

11 The section provides as follows:

12 The Company and Professional mutually consent to the resolution by

arbitration, under the applicable rules of JAMS (which are available

13 at jamsadr.com, or from the Company upon Professional’s request),

of all claims (common law or statutory) that the Company might have

14 against Professional, or that Professional may have against the

Company, its affiliated companies, the directors, employees or agents

15 of any such company, and all successors and assigns of any of them,

or against any customer to which Professional is assigned hereunder,

16 including but not limited to all claims relating in any way to

Professional’s employment by the Company, or any past or future

17 employment of Professional by the Company.

18 The Company and Professional waive the right to have a court or jury

trial on any arbitrable claim. The Federal Arbitration Act shall govern

19 this Agreement, or if for any reason the FAA does not apply, the

arbitration law of the state in which Professional rendered services to

20 the Company. Notwithstanding any provision of the JAMS Rules,

arbitration shall occur on an individual basis only, and a court of

21 competent jurisdiction (and not an arbitrator) shall resolve any dispute

about the formation, validity, or enforceability of any provision of this

22 Agreement. Professional waives the right to initiate, participate in, or

recover through, any class or collective action.

23

To the maximum extent permitted by law, the arbitrator shall award

24 the prevailing party its costs and reasonable attorney’s fees; provided,

however, that the arbitrator at all times shall apply the law for the

25 shifting of costs and fees that a court would apply to the claim(s)

asserted. Nothing in this Agreement prevents Professional from filing

26 or recovering pursuant to a complaint, charge, or other

communication with any federal, state or local governmental or law

27 enforcement agency, and nothing in this Agreement requires

subject to a predispute agreement to arbitrate claims. This arbitration

1 agreement shall remain in effect notwithstanding the termination of

Professional’s employment with the Company.

2

See, e.g., ECF No. 21-1 at 11.

3

II. JURISDICTION

4

The Court has jurisdiction over this action pursuant to 28 U.S.C. § 1332.

5

III. LEGAL STANDARD

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The Federal Arbitration Act (“FAA”) applies to written contracts “evidencing a transaction

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involving commerce.” 9 U.S.C. § 2. Under the FAA, arbitration agreements “shall be valid,

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irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation

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of any contract.” 9 U.S.C. § 2. This provision reflects “both a liberal federal policy favoring

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arbitration, and the fundamental principle that arbitration is a matter of contract.” AT&T Mobility

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LLC v. Concepcion, 563 U.S. 333, 339 (2011) (quotation marks and citations omitted).

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On a motion to compel arbitration, the Court’s role under the FAA is “limited to

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

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

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F.3d 1126, 1130 (9th Cir. 2000). Section 2 of the Federal Arbitration Act (FAA) provides that an

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arbitration agreement “shall be valid, irrevocable, and enforceable, save upon such grounds as

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exist at law or in equity for the revocation of any contract.” 9 U.S.C. § 2. “The final clause of § 2,

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generally referred to as the savings clause, permits agreements to arbitrate to be invalidated by

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generally applicable contract defenses, such as fraud, duress, or unconscionability, but not by

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defenses that apply only to arbitration or that derive their meaning from the fact that an agreement

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to arbitrate is at issue.” Lim v. TForce Logistics, LLC, 8 F.4th 992, 999 (9th Cir. 2021) (quoting

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Poublon v. C.H. Robinson Co., 846 F.3d 1251, 1259 (9th Cir. 2017)). “[T]he party opposing

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arbitration bears the burden of proving any defense, such as unconscionability.” Id.

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On a motion to compel arbitration, “courts rely on the summary judgment standard of Rule

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56 of the Federal Rules of Civil Procedure.” Hansen v. LMB Mortg. Servs., Inc., 1 F.4th 667, 670

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(9th Cir. 2021). “Courts may consider evidence outside of the pleadings, such as declarations and

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other documents filed with the court.” Burger v. Northrop Grumman Sys. Corp., No. 21-cv-

1 06761-ABM-RWX, 2021 WL 8322270, at *4 (C.D. Cal. Oct. 27, 2021). Under Rule 56, “[a]n

2 affidavit or declaration used to support or oppose a motion must be made on personal knowledge,

3 set out facts that would be admissible in evidence, and show that the affiant or declarant is

4 competent to testify on the matters stated.” Fed. R. Civ. P. 56(c)(4).

5 If the court is “satisfied that the making of the agreement for arbitration or the failure to

6 comply therewith is not in issue, the court shall make an order directing the parties to proceed to

7 arbitration in accordance with the terms of the agreement.” 9 U.S.C. § 4. Where the claims

8 alleged in a complaint are subject to arbitration, the Court may stay the action pending arbitration.

9 9 U.S.C. § 3.

10 IV. DISCUSSION

11 Defendants move to compel arbitration of Plaintiffs’ claims under the PSA. ECF No. 21.

12 Plaintiffs do not contest the existence of the arbitration agreement or that their individual claims

13 fall within the scope of that agreement. They oppose the motion on the grounds that the

14 arbitration agreement is unconscionable and therefore unenforceable. ECF No. 35.1

15 A. Unconscionability

16 Arbitration agreements may be invalidated by “generally applicable contract defenses,

17 such as fraud, duress, or unconscionability.” Rent-A-Center, W., Inc. v. Jackson, 561 U.S. 63, 68

18 (2010) (quoting Doctor’s Assocs., Inc. v. Casarotto, 517 U.S. 681, 687 (1996)). Under California

19 law, “the core concern of unconscionability doctrine is the absence of meaningful choice on the

20 part of one of the parties together with contract terms which are unreasonably favorable to the

21 other party.” Sonic-Calabasas A, Inc. v. Moreno, 57 Cal. 4th 1109, 1145 (Cal. 2013). “The

22 prevailing view is that procedural and substantive unconscionability must both be present in order

23 for a court to exercise its discretion to refuse to enforce a contract or clause under the doctrine of

24 unconscionability . . . [b]ut they need not be present in the same degree.” Sanchez v. Valencia

25 Holding Co., LLC, 61 Cal. 4th 899, 910 (Cal. 2015) (internal citation and quotation marks

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1 Defendants’ objections to the declaration of Rick Woods and to certain paragraphs of the

1 omitted). California courts apply a “sliding scale” to determine whether to invalidate an

2 agreement that is both procedurally and substantively unconscionable: “the more substantively

3 oppressive the contract term, the less evidence of procedural unconscionability is required to come

4 to the conclusion that the term is unenforceable, and vice versa.” Armendariz v. Found. Health

5 Pyschcare Servs., Inc., 24 Cal. 4th. 83, 114 (Cal. 2000), abrogated in part on other grounds by

6 Concepcion, 563 U.S. 333.

7 “Because unconscionability is a contract defense, the party asserting the defense bears the

8 burden of proof.” Sanchez, 61 Cal. 4th at 911.

9 1. Procedural Unconscionability

10 Procedural unconscionability “focuses on oppression or surprise due to unequal bargaining

11 power.” Id. at 910. “Oppression can be established ‘by showing the contract was one of adhesion

12 or by showing from the totality of the circumstances surrounding the negotiation and formation of

13 the contract that it was oppressive.’” Lim, 8 F.4th at 1000 (quoting Poublon, 846 F.3d at 1260)).

14 An adhesive contract is a standardized form offered by the party with superior bargaining power

15 on a take-it-or-leave-it basis. Id.

16 Plaintiffs first argue that the arbitration provision is procedurally unconscionable because it

17 was contained in a contract of adhesion. ECF No. 35 at 15–16. Plaintiffs contend that the PSA is

18 adhesive because it is a standard form contract that was presented to each Plaintiff on a take-it-or-

19 leave-it manner with no opportunity to negotiate or reject individual terms. Id. Plaintiffs argue

20 they “did not believe that they could negotiate or edit the document, nor did the format in which

21 they received it even have that functionality.” Id. at 13.

22 Because Plaintiffs’ offers of employment were contingent on signing the PSAs, which are

23 standard form contracts drafted by Defendants, the arbitration agreement amounts to a contract of

24 adhesion.2

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2 Defendants state that in Chamber of Commerce v. Bonta, 62 F.4th 473 (9th Cir. 2023) (“Bonta”),

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“the Ninth Circuit held that mandatory arbitration agreements imposed as conditions of

employment are lawful and that state laws restricting the ability of employers to mandate

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arbitration are preempted by the FAA.” ECF No. 21 at 14. To the extent Defendant mean to

1 However, under California law, while an adhesive contract establishes “some degree of

2 procedural unconscionability,” a contract of adhesion is not “per se unconscionable.” Lim, 8 F.4th

3 at 1000. Beyond the contract itself, courts may consider additional circumstances such as:

4 (1) the amount of time the party is given to consider the proposed

contract; (2) the amount and type of pressure exerted on the party to

5 sign the proposed contract; (3) the length of the proposed contract

and the length and complexity of the challenged provision; (4) the

6 education and experience of the party; and (5) whether the party’s

review of the proposed contract was aided by an attorney.

7

OTO, L.L.C. v. Kho, 8 Cal. 5th 111, 126–27 (2019) (internal citations omitted).

8

Here, Plaintiffs argue that the Court should find additional oppression factors for two

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reasons: (1) AMN placed them under significant time pressure to accept the PSA such that they

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did not have time to have an attorney review the terms; and (2) that AMN failed to attach the

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JAMS rules. ECF No. 35 at 16–18.

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i. Sufficient Time

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Plaintiffs first contend that they were under significant time pressure to accept the PSAs––

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often immediately or within 24-hours. ECF No. 35 at 16–17. The “PSAs were not sent until

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multiple weeks after a verbal agreement was reached, meaning the arbitration agreement was not

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even presented until a short time before the assignment start date, at which point the nurses were

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already fully committed.” Id. at 16. Furthermore, according to Plaintiffs, the “significantly

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compressed time frame did not allow for the nurses to consult a lawyer as to the arbitration

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provision.” Id.

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Defendants respond that Plaintiffs were not pressured to sign their PSAs immediately.

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ECF No. 36 at 6–7. First, the emails transmitting the PSAs to the Plaintiffs contained no deadlines

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by which the agreements had to be signed. Id. at 6 (citing e.g., Angell Decl., Ex. 1; Pappas Decl.,

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Ex. 3). Second, the PSAs were sent to Plaintiffs with ample time for their review (typically

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approximately two weeks prior to their start date). Id. (citing ECF No. 25-1 (“Jackowski Decl.”)).

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the Bonta court writes, “Of course, mandatory arbitration provisions in employment contracts of

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adhesion are not enforceable if the provisions are procedurally and substantively unconscionable,

1 Third, Defendants assert that although Plaintiffs allege that they were told to sign their PSAs

2 immediately, ECF No. 35 at 8, except for Plaintiff Angell who signed the PSA the same day, the

3 remaining Plaintiffs signed their PSAs between one to seven days after the PSA was sent. ECF

4 No. 36 at 7 (citing ECF No. 36-1 (“Sherwood Decl.”)).

5 The evidence supports Plaintiffs on this point. The declarations submitted by Plaintiff

6 Pappas, Senior Director of Contracts for AMN Healthcare Kristen Sherwood, and Director of

7 Product Management for AMN Healthcare, Inc., Laura Jackowski establish the following timeline

8 for the PSAs at issue:

9

10 Plaintiff Date PSA sent via Date Signed Term Beginning

Email

11

Pappas March 19, 2022 March 21, 2022 April 14, 2022

12 (Pappas Decl. Ex. 3) (Jackowski Decl. at 12) (Jackowski Decl. at

10)

13

Heatherington February 23, 2022 February 24, 2022 March 14, 2022

14

(Sherwood Decl. ¶ 15) (Jackowski Decl. at 15) (Jackowski Decl. at

15 14)

16 Domke February 14, 2022 February 15, 2022 March 15, 2022

(Sherwood Decl. ¶ 10) (Jackowski Decl. at 22) (Jackowski Decl. at

17 20)

18 Anderson March 22, 2022 March 28, 2022 April 12, 2022

19 (Sherwood Decl. ¶ 13) (Jackowski Decl. at 31) (Jackowski Decl. at

29)

20

Angell March 20, 2022 March 20, 2022 April 12, 2022

21 (Angell Decl. Ex. 1)

(Jackowski Decl. at 38) (Jackowski Decl. at

36)

22

23 Thus, while many of the plaintiffs received the PSAs between 20 and 30 days—an average

24 of almost three weeks—before they started work, almost all of them signed the PSA within one

25 day or less of receiving it. This supports plaintiffs’ allegation that AMN recruiters told them they

26 must sign the PSA immediately. See, e.g., Domke Decl. ¶ 3 (the recruiter “indicated that I had 24

27 hours to decide whether to accept the offer, otherwise the offer would be automatically

1 Courts considering similar facts have found that giving employees between one and four

2 days to sign an arbitration agreement demonstrates “significant oppression.” Ali v. Daylight

3 Transp., LLC, 59 Cal. App. 5th 462, 474–75 (2020) (quoting OTO, 8 Cal. 5th at 127); see also

4 Beco v. Fast Auto Loans, Inc., 86 Cal. App. 5th 292, 301 (2022) (finding “significant oppression”

5 where the plaintiff was “given a few minutes to quickly acknowledge a multitude of documents,”

6 and “was told by supervisors that if he did not agree to acknowledge the documents, he would be

7 terminated”).

8 The Court finds that Plaintiffs faced undue time pressure in their consideration of the PSAs

9 and that is evidence of oppression.

10 ii. Failure to Incorporate JAMS Rules

11 Next, Plaintiffs contend that AMN’s failure to identify which specific set of JAMS rules

12 apply to its arbitration agreement is another example of oppressive conduct. ECF No. 35 at 17.

13 Defendants respond that the provision allows Plaintiffs to ask for a copy of the JAMS rules, but

14 none of the Plaintiffs allege having asked for the rules from AMN. ECF No. 36 at 10–11.

15 Defendants also contend that under Baltazar v. Forever 21, Inc., Plaintiffs cannot maintain a claim

16 of procedural unconscionability unless they also allege that there was something substantively

17 unconscionable about the unidentified rules, id. (citing Baltazar v. Forever 21, Inc., 62 Cal. 4th

18 1237, 1245 (2016)), which plaintiffs have not done.

19 Defendants’ second argument is correct. As the California Court of Appeal has stated:

20 A viable claim of procedural unconscionability for failure to identify

the particular version of the applicable arbitral rules—like a claim

21 for failure to attach the rules themselves—depends in some manner

on the substantive unfairness of a term or terms contained within the

22 unidentified version of the rules applicable to the dispute . . . That is,

if the unidentified rules are not themselves substantively unfair, then

23 the employer cannot be faulted for vaguely referring to such rules.

24 Davis v. Kozak, 53 Cal. App. 5th 897, 909 (2020) (relying on Baltazar, 62 Cal. 4th at 1245),

25 disapproved of on other grounds by Ramirez v. Charter Commc’ns, Inc., 16 Cal. 5th 478, 498

26 (2024). Because Plaintiffs do not identify how the JAMS rules are substantively unconscionable,

27 their argument regarding Defendants’ failure to provide those rules fails.

1 different: they argue that AMN’s failure to identify which specific set of JAMS rules applies

2 contributes to procedural unconscionably.” ECF No. 35 at 18 n.7 (emphasis in original). This is a

3 distinction without a difference. In both instances, the employee (or prospective employee) is

4 neither provided with the relevant arbitration rules nor informed how to find them. Furthermore,

5 the cases Plaintiffs cite in their opposition pre-date Baltazar (such as, Carbajal v. CWPSC, Inc.

6 245 Cal. App. 4th 227 (2016)) and are thus inapposite. See Davis v. Kozak, 53 Cal. App. 5th at

7 909 (“the full scope of Carbajal’s procedural unconscionability rationale is in question after the

8 Supreme Court issued its decision in Baltazar”).3

9 b. Unfair Surprise

10 The Court next reviews whether there was unfair surprise that resulted in procedural

11 unconscionability. Unfair surprise “may arise when a party with less bargaining power is not told

12 about an unusual provision, or the party is otherwise ‘lied to, placed under duress, or otherwise

13 manipulated into signing the arbitration agreement.’” Poublon, 846 F.3d at 1261 n.2 (quoting

14 Baltazar, 62 Cal. 4th at 1245). “Surprise may [also] occur when ‘the allegedly unconscionable

15 provision is hidden within a prolix printed form,’” or “when its substance is ‘opaque.’”

16 Ronderos v. USF Reddaway, Inc., 114 F.4th 1080, 1091 (9th Cir. 2024). Plaintiffs argue that

17 surprise is present here because the arbitration “provision is permeated with confusing legal jargon

18 that is indecipherable to a layperson.” ECF No. 35 at 19. Specifically, Plaintiffs take issue with

19 the cost-shifting language of the arbitration clause in the PSA:

20 To the maximum extent permitted by law, the arbitrator shall award

the prevailing party its costs and reasonable attorney’s fees;

21 provided, however, that the arbitrator at all times shall apply the law

for the shifting of costs and fees that a court would apply to the

22 claim(s) asserted.

23 See, e.g., ECF No. 21-1 at 11. Defendants respond that “Plaintiffs received their PSAs weeks

24 before their start date and had the ability to consult with an attorney before executing the two-page

25

3 Plaintiff cites Shahtout by & through Shahtout v. California Psychcare, Inc., which does find

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that an arbitration agreement’s “failure to provide notice of the rules applicable for the arbitration

weighs in favor of a finding of procedural unconscionability.” 562 F. Supp. 3d 913, 928 (C.D.

27

Cal. 2022). Even though Shahtout post-dates Baltazar, however, it does not appear to have

1 PSA and single sentence they claim they did not understand.” ECF No. 36 at 12.

2 Whether legal jargon in an arbitration provision creates procedural unconscionability is a

3 fact-specific inquiry. For example, in OTO, L.L.C. v. Kho, the arbitration agreement stated that

4 “[i]f CCP § 1284.2 conflicts with other substantive statutory provisions or controlling case law,

5 the allocation of costs and arbitrator fees shall be governed by said statutory provisions or

6 controlling case law instead of CCP § 1284.2.” 8 Cal. 5th at 128–29. The California Supreme

7 Court held that:

8 [i]t is difficult to envision that [an employee] would have had any

idea what the cited code section says or that a 13-year-old case

9 [Armendariz] creates a relevant exception to it. This example

illustrates the difficulty a layperson would have in deciphering key

10 terms. It would have been nearly impossible to understand the

contract’s meaning without legal training and access to the many

11 statutes it references.

12 Id. at 129.

13 By contrast, in Davis v. Kozak, the Court found only “low procedural unconscionability”

14 where “[t]he agreement [was] set forth in a standalone three-page document, clearly labeled

15 ‘Binding Arbitration Agreement,’ with standard-sized and readable text. With the exception of a

16 few paragraphs, the agreement [did] not contain overly long or complicated sentences or use

17 statutory references and legal jargon.” 53 Cal. App. 5th at 907–08 (emphasis added).

18 Like the employee in OTO, it is not clear that Plaintiffs would have had any idea what it

19 means for an arbitrator to apply “the law for the shifting of costs and fees that a court would apply

20 to the claim(s) asserted.” See, e.g., ECF No. 21-1 at 11. At the same time, like the agreement in

21 Davis, except for the single sentence regarding cost-shifting, the remainder of the agreement is

22 short, in normal font, easy to comprehend, and contains no legal jargon.

23 The recent Ninth Circuit decision in Ronderos is instructive. 114 F.4th at 1091. There, “a

24 cost-splitting provision require[d] the parties to equally share the cost of arbitration and arbitrator

25 fees, ‘unless other express statutory provisions or controlling case law conflict with this allocation

26 and require the payment of costs and fees by the Company.’” Id. at 1088. Additionally, “the

27 agreement include[d] a choice-of-law provision,” which provided that the Federal Arbitration Act

1 the issue[,] then the provisions of the Indiana Uniform Arbitration Act” would apply. Id. at 1092.

2 The Ronderos court found that the cost-splitting provision was procedurally unconscionable and

3 “opaque because it [did] not indicate which state’s law control[led] the question . . . , and it would

4 be extremely difficult for a layperson . . . to figure that out.” Id. at 1091.

5 Similarly in this case, the cost-shifting provision does not specify which law controls the

6 agreement. Instead, as in Ronderos, the agreement states, that “[t]he Federal Arbitration Act shall

7 govern this Agreement, or if for any reason the FAA does not apply, the arbitration law of the

8 state in which Professional rendered services to the Company.” See, e.g., ECF No. 21-1 at 11.

9 The Court therefore finds that the “cost-splitting provision, coupled with the choice-of-law

10 provision, makes it difficult (even for a lawyer) to figure out whether [plaintiffs] would have to

11 pay half the arbitration costs or not.” Ronderos, 114 F.4th at 1092. Thus, the provision creates

12 “some surprise” which adds to the procedural unconscionability of the agreement. Id.

13 Overall, the Court finds that there is a moderate degree of procedural unconscionability

14 based on the adhesive nature of the form contract, the pressure on prospective employees to sign

15 the PSA immediately, and the indeterminate language regarding cost-shifting.

16 2. Substantive Unconscionability

17 “Substantive unconscionability examines the fairness of a contract’s terms.” Lim, 8 F.4th

18 at 1001. “California law seeks to ensure that contracts, particularly contracts of adhesion, do not

19 impose terms that are overly harsh, unduly oppressive, or unfairly one sided.” Id. at 1002. An

20 arbitration agreement is substantively lawful if it “(1) provides for neutral arbitrators, (2) provides

21 for more than minimal discovery, (3) requires a written award, (4) provides for all of the types of

22 relief that would otherwise be available in court, and (5) does not require employees to pay either

23 unreasonable costs or any arbitrators’ fees or expenses as a condition of access to the arbitration

24 forum.” Armendariz, 24 Cal. 4th at 102 (internal quotations and citation omitted). “[W]hen an

25 employer imposes mandatory arbitration as a condition of employment, the arbitration agreement

26 or arbitration process cannot generally require the employee to bear any type of expense that the

27 employee would not be required to bear if he or she were free to bring the action in court.” Id. at

1 employer back onto the employee violates Armendariz’s prohibition on the imposition of “any

2 type of expense” the employee would not normally be required to bear. Zaborowski v. MHN

3 Gov’t Servs., Inc., 936 F. Supp. 2d 1145, 1155 (N.D. Cal. 2013), aff’d, 601 F. App’x 461 (9th Cir.

4 2014); Lucas v. Gund, Inc., 450 F. Supp. 2d 1125, 1133 (C.D. Cal. 2006).

5 Here, Plaintiffs argue the PSA is substantively unconscionable because it requires

6 employees potentially to pay the employer’s attorneys’ fees or and costs. ECF No. 35 at 19–27.

7 The PSA states that “[t]o the maximum extent permitted by law, the arbitrator shall award the

8 prevailing party its costs and reasonable attorney’s fees; provided, however, that the arbitrator at

9 all times shall apply the law for the shifting of costs and fees that a court would apply to the

10 claim(s) asserted.” ECF No. 21-1 at 11. Defendants respond that the PSA actually complies with

11 Armendariz because it “obligat[es] the arbitrator to apply the law for the shifting of costs and fees

12 that a California court would apply to the claims asserted.” ECF No. 36 at 13. Defendants claim

13 that the PSA requires the arbitrator to “award Plaintiffs their fees and costs if they win, requires

14 Defendants to pay costs relating to the arbitration, and precludes the arbitrator from awarding

15 Defendants their fees and costs even if they win.” Id. Therefore, the question is whether the

16 qualifying language in the PSA is enough to render the fee-shifting provision lawful.

17 Both California state courts and federal district courts applying California law are divided

18 about whether qualifying language can save an otherwise unconscionable provision. Compare

19 Hasty v. Am. Auto. Assn., 98 Cal. App. 5th 1041, 1062 (2023), review denied (May 1, 2024)

20 (adding to the “extent permitted by law,” does not save an otherwise unconscionable

21 confidentiality clause “because the employee would have no way of knowing what would be

22 covered or not covered by this provision”); Ortolani v. Freedom Mortg. Corp., No. 17-cv-1462-

23 JGB-KKX, 2017 WL 10518040, at *6 (C.D. Cal. Nov. 16, 2017) (finding that a cost-shifting

24 provision was not saved by the incorporation of JAMS Rules which do not require fee-sharing)

25 with Aanderud v. Superior Court, 13 Cal. App. 5th 880, 886, 895–96 (2017) (finding that an

26 arbitration agreement that addressed the costs of arbitration, and also referenced and linked

27 specific JAMS rules, saved an otherwise unconscionable clause about cost splitting); Coleman v.

1 (finding that where an arbitration agreement provides for the “recovery of attorney’s fees in an

2 appropriate circumstance or in accordance with applicable law,” such a term is not substantively

3 unconscionable).

4 The Court need not resolve this dispute, however, because the qualifying language at issue

5 here does not adequately inform employees that the fee-shifting provision will not be enforced.

6 Thus, even if qualifying language might sometimes be sufficient to save an otherwise

7 unconscionable provision, it cannot do so here. Ronderos is instructive. In that case, as here, the

8 “agreement indicate[d] only that the cost-splitting requirement will not apply if it conflicts with a

9 statute or case law, without specifying that California law will control and without acknowledging

10 that a conflict with California law actually exists.” 114 F.4th at 1092. Defendants argued that that

11 this provision “simply sets forth in plain language the rule from Armendariz that ‘the arbitration

12 agreement or arbitration process cannot generally require the employee to bear any type of

13 expense that the employee would not be required to bear if he or she were free to bring the action

14 in court.’” Id. (quoting Armendariz, 24 Cal. 4th at 111). The Ronderos court rejected that

15 argument, finding “there is no such plain statement in the agreement.” Id. The Court went on to

16 note that “[i]f [defendants] did not intend to require . . . [plaintiffs] to split the cost of arbitration

17 because such a requirement conflicts with California law, [defendants] could have made that clear

18 in plain language.” Id.

19 The Ninth Circuit “[did] not decide whether [defendants’] cost-splitting provision is

20 substantively unconscionable because doing so [did] not affect the outcome of [the] case.”

21 Ronderos, 114 F.4th at 1093. Nonetheless, applying Ronderos to the facts at issue results in the

22 conclusion that the PSAs are substantively unconscionable, because qualifying language that does

23 not actually inform a contracting party that the fee-shifting provision will not be enforced is the

24 same as not having qualifying language at all. See id. (holding that an agreement that “plainly

25 states that ‘the costs of arbitration and arbitrator fees will be split equally’ . . . creates the

26 impression that employees . . . will have to pay significant costs if they file an arbitration claim”

27 and that “by creating that impression, the provision likely deters employees from filing claims—

1 Thus, the Court concludes that the fee-shifting provision in the PSAs is substantively

2 unconscionable.

3 B. Sliding Scale

4 Having determined the presence and degree of procedural and substantive

5 unconscionability, the Court next applies the sliding scale measurement to determine whether the

6 PSA is enforceable. “As noted above, unconscionability works on a sliding scale: the greater the

7 procedural unconscionability, the less substantive unconscionability is required to make the

8 contract unenforceable, and vice versa.” Fisher v. MoneyGram Int’l, Inc., 66 Cal. App. 5th 1084,

9 1107 (2021). While the PSA displays a moderate degree of procedural unconscionability, it

10 contains a high degree of substantive unconscionability, rendering the PSA unconscionable. See

11 Hale v. Brinker Int’l, Inc., No. 21-CV-09978-VC, 2022 WL 2187397, at *1 (N.D. Cal. June 17,

12 2022) (“Even absent other [procedural] unconscionable terms . . . the cost-shifting provision at

13 issue is reason enough to decline to enforce the agreement and deny [Defendants’] motion to

14 compel arbitration.”).

15 C. Severance

16 Given the finding that the PSA is unconscionable, the next question is whether the

17 substantively unconscionable provision can be severed from the contract.

18 “California law provides, as a general rule, that unlawful contractual provisions should be

19 severed and the remainder of the contract enforced.” Ronderos, 114 F.4th at 1099 (citing Cal. Civ.

20 Code § 1599). However, California Civil Code § 1670.5(a) provides,

21 If the court as a matter of law finds the contract or any clause of the

contract to have been unconscionable at the time it was made the

22 court may refuse to enforce the contract, or it may enforce the

remainder of the contract without the unconscionable clause, or it

23 may so limit the application of any unconscionable clause as to

avoid any unconscionable result.

24

25 Cal. Civ. Code § 1670.5(a). “A court has discretion to refuse to enforce an entire arbitration

26 clause, rather than strike the unconscionable provisions and enforce the remainder of the clause, if

27 the entire arbitration clause is ‘permeated’ with unconscionability.” Gentry v. Empire Med.

1 Lhotka v. Geographic Expeditions, Inc., 181 Cal. App. 4th 816, 826 (2010)). “An arbitration

2 agreement may be permeated with unconscionability if it contains more than one unconscionable

3 provision, because ‘multiple defects indicate a systematic effort to impose arbitration not simply

4 as an alternative to litigation, but as an inferior forum that works to the stronger party’s

5 advantage.’” Id. (quoting Lhotka, 181 Cal. App. 4th at 826).

6 Plaintiffs argue that although only one unconscionable provision is at issue, severance is

7 still inappropriate because otherwise there will no disincentive for employers to include cost-and

8 fee-shifting provisions in arbitration agreements, thereby discouraging employees from trying to

9 vindicate their rights. ECF No. 35 at 28 (citing Hale, 2022 WL 2187397, at *1). They also argue

10 that “severance is not possible here because it would require the Court to draft new language

11 relating to the cost-and-fee-shifting provisions, which it cannot do.” ECF No. 35 at 30. That is,

12 “the severance of the entire cost-and-fee shifting provision would leave a gap as to which party

13 will pay the cost of arbitration.” Id. Defendants respond that the fee-shifting provision does not

14 “permeate the arbitration agreement” and that “the single, purportedly unconscionable term ‘can

15 be severed without disturbing the primary intent of the parties to arbitrate their disputes.’” ECF

16 No. 36 at 14-15 (quoting Openshaw v. FedEx Ground Package Sys., Inc., 731 F. Supp. 2d 987,

17 998 (C.D. Cal. 2010).

18 The Court finds Plaintiff’s first argument to be dispositive. As another court in this district

19 has persuasively explained:

20 Even though the cost-splitting provision is the only substantively

unconscionable provision of the agreement, it remains

21 consequential. Cost-and fee-shifting provisions can create a chilling

effect, discouraging employees from vindicating their rights for fear

22 that failure will prove cripplingly expensive. If employees think

they must split the costs of arbitration, which can easily run in the

23 thousands of dollars, they may (and often will) simply decline to

bring claims in the first place. Even more so where employees lack

24 deep pockets and seek to bring claims for wage and hour violations,

which risks loss of employment or harm to future employment

25 prospects. Were courts to excise those provisions and enforce

arbitration agreements anyway, employers would have no incentive

26 not to chill claims by including cost-shifting provisions in arbitration

agreements. Even absent other unconscionable terms, therefore,

27 under these circumstances the cost-shifting provision at issue is

1 Hale, 2022 WL 2187397, at *1 (citations omitted). The Court agrees with Hale’s analysis and

2 || accordingly declines to sever the unconscionable provision.

3 CONCLUSION

4 For the foregoing reasons, Defendants’ motion to compel arbitration is denied.

5 IT IS SO ORDERED.

6 || Dated: January 8, 2025

7

JON S. TIGAR

g nited States District Judge

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