Broom v. Mydatt Servs., Inc.

STEPHEN BROOM, Plaintiff, v. MYDATT SERVICES, Inc., dba BLOCK BY BLOCK, et al. Defendants.

Civ. No. 18-00358 JMS-RT

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF HAWAII

April 8, 2019

ORDER GRANTING DEFENDANTS' MOTION TO COMPEL ARBITRATION, ECF NO. 14, AND DISMISSING ACTION

I. INTRODUCTION

Defendants Mydatt Services, Inc., d.b.a. Block by Block; SMS Holdings Co.; and Block by Block (collectively "Mydatt" or "Defendants")¹ move pursuant to 9 U.S.C. § 4 of the Federal Arbitration Act ("FAA") to compel arbitration of this action. They base their motion on an arbitration agreement that Plaintiff Stephen Broom ("Plaintiff" or "Broom") entered into with Mydatt on September 28, 2015. As explained to follow, the Motion to Compel Arbitration isGRANTED. Further, because the entire dispute is subject to arbitration, the court DISMISSES the action (rather than staying it under 9 U.S.C. § 3).²

II. DISCUSSION

A. The Federal Arbitration Act

An arbitration agreement within the scope of the FAA "shall be valid, irrevocable and enforceable," except "upon such grounds as exist at law or in equity for the revocation of any contract." 9 U.S.C. § 2. And any party "aggrieved by the alleged . . . refusal of another to arbitrate" may petition a district court for an order compelling arbitration in the matter provided for in the agreement. 9 U.S.C. § 4. "The FAA 'mandates that district courts shall direct the parties to proceed to arbitration on issues as to which an arbitration agreement has been signed.'" Kilgore v. KeyBank, Nat. Ass'n, 718 F.3d 1052, 1058 (9th Cir. 2013) (en banc) (quoting Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213, 218 (1985)). "[T]he FAA limits courts' involvement to 'determining (1) whether a valid agreement to arbitrate exists and, if it does, (2) whether the agreement encompasses the dispute at issue.'" Cox v. Ocean View Hotel Corp., 533 F.3d 1114, 1119 (9th Cir. 2008) (quoting Chiron Corp. v. Ortho Diagnostic Sys., Inc., 207 F.3d 1126, 1130 (9th Cir. 2000)).

To determine whether a valid agreement to arbitrate exists, a court applies "ordinary state-law principles that govern the formation of contracts." First Options of Chi., Inc. v. Kaplan, 514 U.S. 938, 944 (1995). "[A]greements to arbitrate [may] be invalidated by generally applicable [state-law] contract defenses" to enforceability such as "fraud, duress, or unconscionability." AT&T Mobility LLC v. Concepcion, 563 U.S. 333, 339 (2001) (citations and quotation marks omitted); see Lowden v. T-Mobile USA, Inc., 512 F.3d 1213, 1217 (9th Cir. 2008) ("This requires [a court] to consider what is unconscionable and unenforceable under . . . state law."). "The party seeking to compel arbitration carries the initial burden of establishing that an arbitration agreement exists," and if met, the burden then "shifts to the opposing party to present evidence on its defenses to the arbitration agreement." Siopes v. Kaiser Found. Health Plan, Inc., 130 Haw. 437, 446, 312 P.3d 869, 878 (2013) (citations and quotation marks omitted).

Here, it is undisputed that Plaintiff entered into an arbitration agreement with Mydatt, obligating the parties to arbitrate "disputes or controversies arising out of or relating to . . . your employment with the Company, and/or the termination of your employment." Defs.' Ex. 1, ECF No. 14-4; Defs.' Ex. 8, ECF No. 20-5. It is also undisputed that this action arises out of or relates toPlaintiff's termination of employment.³ The only question is whether the agreement is unconscionable and unenforceable.

Specifically, when Plaintiff applied online for employment with Mydatt in September of 2015, he selected the option "I have read and accept the terms of the agreement" at the bottom of an "Arbitration Agreement," which is required for all of Mydatt's employees. See Defs.' Ex. A at 6, ECF No. 18-1 at 6; Scott McClish Decl. (Jan. 3, 2019) ¶ 10, ECF No. 14-2 at 5 ¶ 10. Further, on November 17, 2015, Plaintiff acknowledged receipt of (and an obligation to read and comply with) a Mydatt employee handbook, which includes the following paragraph:

Block & Block does enter into arbitration agreements with employees . . . and those agreements are intended to be binding contracts between Block & Block and its employees. Any policies or policy statements related to the resolution of disputes by arbitration should be interpreted in accordance with the parties' intent that the arbitration agreement is a binding and enforceable contract pursuant to the Federal Arbitration Act and to applicable state and local laws.

Defs.' Ex. 3, ECF No. 14-6; Defs.' Ex. 4 at 3, ECF No. 14-7 at 3.

Plaintiff contends, however, that the arbitration agreement is unconscionable and unenforceable. He argues that it is written in a "very small print," with a print size "smaller than the print size in other documents" he completed in his application process. Pl.'s Opp'n at 6, ECF No. 19 at 6. He also originally argued that the agreement "requires cost and fee splitting between the parties," id. at 7, and that sharing in the costs of arbitration would create a financial hardship for him because his only income consists of worker's compensation benefits of approximately $1,060 every two weeks, id. at 4.

B. The Arbitration Agreement is Enforceable and is not Unconscionable

Under Hawaii law, "[u]nconscionability encompasses two principles: one-sidedness (substantive unconscionability) and unfair surprise (procedural unconscionability)." Gabriel v. Island Pac. Acad., Inc., 140 Haw. 325, 337, 400 P.3d 526, 538 (2017) (citing Balogh v. Balogh, 134 Haw. 29, 41, 332 P.3d 631, 643 (2014)). "'Generally, a determination of unconscionability requires a showing that the contract was both procedurally and substantively unconscionable when made,' but an impermissibly one-sided contract can be unconscionable and unenforceable without a showing of unfair surprise." Id. (quoting Balogh, 134 Haw. at 41, 332 P.3d at 643) (emphases added).

"Procedural unconscionability 'requires an examination of the contract formation process and the alleged lack of meaningful choice.'" Narayan v. Ritz-Carlton Dev. Co., 140 Haw. 343, 351, 400 P.3d 544, 552 (2017) (quoting Gilman v. Chase Manhattan Bank, N.A., 534 N.E.2d 824, 828 (1988)). When assessing procedural unconscionability, courts consider (among other factors) "whether deceptive or high-pressured tactics were employed, the use of fine print in the contract, the experience and education of the party claiming unconscionability, and whether there was disparity in bargaining power between the parties." Id., 400 P.3d at 552 (quotation marks and citation omitted). "Although adhesion contracts are not unconscionable per se, they are defined by a lack of meaningful choice and, thus, often satisfy the procedural element of unconscionability." Id., 400 P.3d at 552.

"Substantive unconscionability, in contrast, focuses on the content of the agreement and whether the terms are one-sided, oppressive, or 'unjustly disproportionate.'" Id., 400 P.3d at 552 (quoting Balogh, 134 Haw. at 41, 332 P.3d at 643). See, e.g., Gabriel, 140 Haw. at 337, 400 P.3d at 538 (holding that a cost-splitting provision in an arbitration agreement is substantively unconscionable if "it would be prohibitively expensive for [plaintiff] to pursue her claims in the arbitral forum").

Plaintiff's original opposition asserted — without providing evidence of the applicable provision — that the arbitration agreement is substantively unconscionable because it requires fee-splitting. In this regard, the agreement provides that "[i]f you and the Company cannot agree, the American Arbitration Association ('AAA') will administer the arbitration pursuant to its applicable Rules . . . available on the AAA's website (www.adr.org)." Defs.' Ex. 1, ECF No. 14-4. It continues: "The AAA Rules will govern the allocation of costs between the parties and the course of proceedings unless otherwise agreed." Id.

In a supplemental filing, however, Defendants provided the applicable AAA rules regarding arbitration costs and an arbitrator's fees. See Defs.' Ex. 10, ECF No. 23-2. Those rules provide, in pertinent part, that (1) for an arbitration filed by the company (e.g., Mydatt), an administrative fee of $2,200 is payable in full by the company, id. at 1 (emphasis added),⁴ and (2) in any event, "[t]he employer or company shall pay the arbitrator's compensation unless the employee or individual, post dispute, voluntarily elects to pay a portion of the arbitrator's compensation." Id. at 2 (emphasis added).

Plaintiff forthrightly agrees that those AAA rules regarding allocation of costs are applicable. See Pl.'s Supp. Mem. at 4, ECF No. 28 at 4. And apparently recognizing that under those rules Plaintiff would pay very little if anything for an arbitration initiated by the employer, Plaintiff also candidly agrees that the rules "are not substantively unconscionable." Id. at 5, ECF No. 28 at 5. Plaintiff asserts, however, that "[t]he only remaining issue is whether the fine print of the Arbitration Agreement makes in procedurally unconscionable." Id.

But, in this instance, it does not matter whether the arbitration agreement is procedurally unconscionable. Before the agreement can be unenforceable, it must be both procedurally and substantively unconscionable. See, e.g., Gabriel, 140 Haw. at 337, 400 P.3d at 538; Narayan, 140 Haw. at 350, 400 P.3d at 551.⁵ In other words, even assuming the agreement is procedurally unconscionable,⁶ it is still enforceable because it is not impermissibly one-sided —it is not, as Plaintiff ultimately agrees, substantively unconscionable. See, e.g., S. Glazer's Wine & Spirits, LLC v. Denyer, 2017 WL 6417810, at *8 (D. Haw. Dec. 15, 2017) (upholding arbitration agreement, reasoning that "even if this were sufficient to establish procedural unconscionability, the failure . . . would only render the agreement unenforceable if the arbitration policy was substantively unconscionable") (citation and...