Henderson, M.D. v. Watson, M.D. ( 2015 )

 appellants' motion to compel arbitration.' As a threshold matter,
appellants assert for the first time on appeal that the district court lacked
subject matter jurisdiction to determine the enforceability of the
employment agreement because the agreement contained a clause
delegating such authority to the arbitrator. We conclude that the
existence of the delegation clause does not implicate the district court's
subject matter jurisdiction, and appellants have waived this argument by
failing to raise the issue below. Cant? Gas. Co. v. Am. Nat'l Ins. Co., 417
F.3d 727, 732 n.7 (7th Cir. 2005) (recognizing that "the proper course of
action when a party seeks to invoke an arbitration clause is to stay the
proceedings pending arbitration rather than to dismiss outright"
(emphasis omitted)). Further, because the district court was not divested
of subject matter jurisdiction, the court did not err in denying appellants'
request to dismiss the action under NRCP 12(b)(1) and we affirm the
district court's order in that regard.
"We conclude that California law is applicable here as the
employment agreement provides that California law will apply, the
agreement is not contrary to Nevada public policy, and California has a
substantial relationship with this action because EPMG is a California
corporation. See Progressive Gulf Ins. Co. v. Fctehnrich, 130 Nev. Adv. Op.
No. 19, 327 P.3d 1061, 1063-64 (2014) (providing that Nevada courts will
honor choice of law provisions in contract actions when the situs fixed by
the agreement has a substantial relationship with the transaction and the
agreement is not contrary to the public policy of the forum); D.R. Horton,
Inc. v. Green, 120 Nev. 549, 553-54, 96 P.3d 1159, 1162-63 (2004)
(demonstrating that Nevada applies the same standards in determining
the enforceability of an arbitration agreement as California); see also
generally Nedlloyd Lines B.V. v. Superior Court of San Mateo Cnty., 834
P.2d 1148, 1153 (Cal. 1992) (explaining that "[a] party's incorporation in a
state is a contact sufficient to allow the parties to choose that state's law
to govern their contract" (internal quotation marks omitted)).
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The district court, however, erred in concluding that the
arbitration article is unconscionable, and thus, unenforceable. Baker v.
Osborne Dev. Corp., 71 Cal. Rptr. 3d 854, 860 (Ct. App. 2008) (applying de
novo review in determining whether an arbitration agreement is
unconscionable, but reviewing factual inferences relied on by the district
court under the substantial evidence standard). To conclude that a
contract is unenforceable based on unconscionability, the contract must be
both procedurally and substantively unconscionable Armendariz v.
Found. Health Psychcare Servs., Inc., 6 P.3d 669, 690 (Cal. 2000). While
both forms of unconscionability must be present for a contract to be
deemed unenforceable, they can be present on a sliding scale, meaning
"the more substantively oppressive the contract term, the less evidence of
procedural unconscionability is required to come to the conclusion that the
term is unenforceable, and vice versa." Id. Here, there is only a small
degree of evidence demonstrating that the arbitration article is
procedurally and substantively unconscionable.
Procedural unconscionability
In analyzing procedural unconscionability, the circumstances
surrounding the formation and negotiation of the contract are relevant,
with a focus on whether there was "an inequality of bargaining power
which results in no real negotiation and an absence of meaningful choice"
or whether a party may be surprised by the unconscionable term, meaning
"the supposedly agreed-upon terms of the bargain are hidden in a prolix
printed form drafted by the party seeking to enforce the disputed terms."
Bruni v. Didion, 73 Cal. Rptr. 3d 395, 409 (Ct. App. 2008) (internal
quotations omitted). While the fact that the contract is an employment
agreement lends some credence to the idea that the contract is a contract
of adhesion, and thus procedurally unconscionable, respondent did not
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present any evidence other than his own statement that he was unable to
negotiate the contract. See Mission Viejo Emergency Med. Assocs. v. Beta
Healthcare Grp., 128 Cal. Rptr. 3d 330, 336 (Ct. App. 2011) (providing that
the party opposing enforcement of an arbitration agreement has the
burden of establishing that the agreement is unenforceable). Further,
respondent signed the arbitration article independently from the rest of
the contract in an outlined box that provided in bold letters that he had
the opportunity to have an attorney review the provision. He also signed
the contract a full month before EPMG's president, indicating that he had
time for an attorney to review the contract and time to negotiate the
contract.
The district court relied upon EPMG's failure to provide
respondent with copies of the American Arbitration Association (AAA)
rules, Federal Rules of Civil Procedure, and Federal Arbitration Act as
evidence of procedural unconscionability because the contract provided
that certain provisions from each would be applicable. Trivedi v. Curexo
Tech. Corp., 116 Cal. Rptr. 3d 804, 808 (Ct. App. 2010) (providing that "the
failure to provide a copy of the arbitration rules to which the employee
would be bound, supported a finding of procedural unconscionability").
Because the AAA rules were applicable except for a few instances
involving discovery and pre-hearing motions, EPMG's failure to provide
respondent with copies of these three documents only demonstrates
procedural unconscionability to a small extent. See generally Lane v.
Francis Capital Mgmt. LLC, 168 Cal. Rptr. 3d 800, 811-12 (Ct. App. 2014)
(providing that "the failure to attach the arbitration rules could be a factor
in support of a finding of procedural unconscionability, but [we] disagree
that the failure, by itself, is sufficient to sustain a finding of procedural
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unconscionability"). Thus, in considering all of the above, the arbitration
article is procedurally unconscionable but only to a small degree.
Substantive unconscionabilitv
The substantive element of unconscionability focuses on the
actual terms of the contract and assesses whether those terms are overly
harsh or one-sided. Armendariz, 6 P.3d at 690. Neither the availability of
preliminary injunctive relief, see Cal. Civ. Pro. Code § 1281.8(b) (allowing
a party to an arbitration agreement to seek preliminary injunctive relief
regardless of the arbitration agreement's language), nor the unavailability
of an appeal from the arbitrator's decision demonstrates substantive
unconscionability because they apply equally to both parties. And
EPMG's duty to pay the arbitration costs incurred by both parties that
would not be incurred if the matter proceeded in court does not
demonstrate substantive unconscionability. Further, because respondent
did not argue that an adequate remedy would be unavailable to him in the
chosen jurisdiction, the choice-of-law and forum-selection provisions are
not substantively unconscionable. See Olinick v. BMG Entm't, 42 Cal.
Rptr. 3d 268, 283 (Ct. App. 2006) (providing that "[a]n employer and an
employee may validly agree to select a forum other than California, and
may validly select the substantive law of another jurisdiction, provided the
employee has an adequate remedy for his or her discrimination claim in
the selected forum" (emphasis omitted)); see also Mission Viejo, 128 Cal.
Rptr. 3d at 335.
Nevertheless, the presence of the confidentiality provision
precluding the use or release of evidence outside of the arbitration
proceeding demonstrates substantive unconscionability. See Ting v.
AT&T, 319 F.3d 1126, 1151-52 (9th Cir. 2003) (recognizing that
"[c]onfidentiality provisions usually favor companies over individuals . . .
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because companies continually arbitrate the same claims," and gag orders
on those arbitrations prevent plaintiffs from accessing a body of knowledge
regarding those companies). Additionally, because respondent has a
conspiracy claim pending in the district court and arising from the same
facts and circumstances as this matter, if he is unable to use the evidence
discovered during arbitration, he will be forced to incur unfair duplicative
costs.' But the presence of the confidentiality provision alone is not
sufficient to establish the high degree of substantive unconscionability
necessary to render the arbitration article unenforceable. 3
Thus, because there is only minimal evidence that the
arbitration article is procedurally and substantively unconscionable, the
district court erred in concluding that the arbitration article is
unenforceable and denying appellants' motion to compel arbitration.
Accordingly, we reverse the district court's denial of appellants' motion to
'While appellants argue that this court cannot consider the effect
the conspiracy claim has on the enforceability of the arbitration article
because this court must review the article at the time it was made, in
order to determine if the arbitration article is sufficiently bilateral, this
court may examine the actual effects of the challenged provisions. Acorn
v. Household Int'l, Inc., 211 F. Supp. 2d 1160, 1169-71 (D. Cal. 2002).
'We note that on remand the confidentiality provision could be
severed, allowing enforcement of the arbitration article minus the
confidentiality provision, because no other provision of the arbitration
article is substantively unconscionable and the contract provides that
when one provision is held to be unenforceable, the remaining provisions
shall continue in full force. See Armendariz, 6 P.3d at 695-96 (explaining
that when one unconscionable provision is present, it can be severed from
an agreement to allow the majority of the agreement to be imposed); see
also Woodside Homes of Cal., Inc. v. Superior Court, 132 Cal. Rptr. al 35,
42 (Ct. App. 2003) (discussing severing a confidentiality provision from the
rest of the agreement).
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compel arbitration and remand this matter to the district court for
proceedings consistent with this order.
It is so ORDERED.
J.
Saitta
J.
Gibbons
J.
Pickering
cc: Hon. Kerry Louise Earley, District Judge
Salvatore C. Gugino, Settlement Judge
Wilson, Elser, Moskowitz, Edelman & Dicker, LLP/Las Vegas
Fennemore Craig Jones Vargas/Las Vegas
Eighth District Court Clerk
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