Opinion
ORDER GRANTING DEFENDANT'S MOTION FOR PARTIAL SUMMARY JUDGEMENT; LIFTING STAY OF THE FINRA ARBITRATION ACTION, ORDERING ARBITRATION OF PLAINTIFF IMAN DAUOD'S INDIVIDUAL CLAIMS, AND DISMISSING THE ACTION
CORMAC J. CARNEY, District Judge.
I. INTRODUCTION
Plaintiffs Iman Dauod and Roger O'Donnell (collectively, "Plaintiffs") brought this putative class action against Defendant Ameriprise Financial Services ("Ameriprise") on February 16, 2010. Plaintiffs, who were employed by Ameriprise as financial advisors, allege a variety of wage and hour claims against Ameriprise and seek declaratory relief and rescission of a loan they obtained from Ameriprise. Before Plaintiffs filed this lawsuit, Ameriprise had initiated arbitration proceedings against Ms. Dauod in front of the Financial Industry Regulatory Authority ("FINRA") to recover the proceeds from the loan after her employment with Ameriprise ended. The Court stayed the arbitration proceedings pending resolution of the class action claims. Mr. O'Donnell subsequently withdrew from the lawsuit and dismissed his claims. Currently before the Court is Ameriprise's motion for partial summary judgment to dismiss Ms. Dauod's putative class allegations asserted in the Second Amended Complaint, in light of the Supreme Court's recent decision in AT&T Mobility LLC v. Concepcion, ___ U.S. ___, 131 S.Ct. 1740 (2011), finding class action waivers in arbitration agreements enforceable. Ameriprise also requests that the Court's previous stay of Ameriprise's FINRA arbitration action against Ms. Dauod be lifted and that the Court order Ms. Dauod to pursue her remaining claims as an individual, if any, in that arbitration. In essence, Ameriprise's motion for partial summary judgment is functionally equivalent to a motion to compel arbitration of Ms. Dauod's claims, and the Court treats Ameriprise's motion as such.
Because the Court finds that AT&T Mobility LLC v. Concepcion renders the class action waiver in Ms. Dauod's arbitration agreement enforceable and does not find the agreement otherwise unconscionable, the Court GRANTS Ameriprise's motion for partial summary judgment and DISMISSES WITH PREJUDICE Ms. Dauod's class allegations. The Court further LIFTS the stay of Ameriprise's FINRA arbitration action against Ms. Dauod, ORDERS Ms. Dauod to pursue her claims as an individual in that arbitration, and DISMISSES the action.
Having read and considered the papers presented by the parties, the Court finds this matter appropriate for disposition without a hearing. See FED. R. CIV. P. 78; LOCAL RULE 7-15. Accordingly, the hearing set for October 17, 2011 at 1:30pm is hereby vacated and off calendar.
II. BACKGROUND
On September 25, 2008, Ms. Dauod executed a Financial Advisor's Agreement (the "Agreement") with Ameriprise under which she agreed to work as a financial advisor for Ameriprise. (Second Amended Complaint ("SAC") ¶¶ 5-8; Depo. of Iman Dauod, 161:15-163:12; Magarian Decl., Exh. D [Financial Advisor's Agreement].) The Agreement contained the terms of Ms. Dauod's employment with Ameriprise that became effective on October 8, 2008. (Magarian Decl., Exh. D.) The Agreement contained an arbitration provision, which provided that Ms. Dauod and Ameriprise would "arbitrate any dispute, claim or controversy that may arise between [them] or a customer or any other person ("Claims"), unless otherwise agreed to in writing by the parties." (Id. ) The Agreement stated that the parties would submit any disputes to arbitration before FINRA and that it would be covered and enforceable under the Federal Arbitration Act ("FAA"). (Id. ) The Agreement also contained the following waiver clause under Part 12(4):
In consideration of the promises and the compensation provided in this Agreement neither you nor Company shall have a right (a) to arbitrate any Claim on a class action basis or in a purported representative capacity on behalf of any Advisors, employees, applicants or other persons similarly situated; (b) to join or to consolidate in any arbitration Claims brought by or against another Advisor, employee, applicant or Company, unless agreed to in writing by all parties; (c) to litigate any Claims in court or to have a jury trial on any Claims; and (d) to participate in a representative capacity or as a member of any class of claimants in an action in a court of law pertaining to any Claims....
(Id. ) The Agreement further contained the following limitation under Part 6(1)(e):
pursuant to this Agreement, you will receive valuable and confidential trade secret information, including without limitation, information regarding the operational, sales, promotional, and marketing methods and techniques of Company. In recognition and in consideration for these and other benefits, to protect the confidentiality of the Company's Client Information and to protect Company's goodwill, you covenant that (a) during the term of this Agreement and (b) for one year after the expiration or termination of this Agreement in the geographic area within one hundred (100) miles of the office from which you operated, you shall not, either directly or indirectly, for yourself or through, on behalf of, or in conjunction with any person or entity... (4) Solicit or receive compensation from or related to, any Clients that you contracted, serviced or learned about while operating under this Agreement or any Rider to this Agreement to open an account other than a Company account or to sell any investment, financial or insurance Products or Services to such Clients.
(Id. ) On October 8, 2008, Ms. Dauod executed a Promissory Note (the "Note") under which Ameriprise agreed to pay back the sum of $132,090.23 that she received as a loan from Ameriprise upon the commencement of her employment, with interest, in yearly installments from October 8, 2009 to October 8, -. (Magarian Decl., Exh. E [Promissory Note].) The Note provided that upon termination of her employment, Ms. Dauod would pay back any unpaid balance of the principal sum, plus accrued interest. (Id. ) On October 13, 2008, Ms. Dauod and Ameriprise executed a "Bonus Agreement," which provided that Ameriprise agreed to pay Ms. Dauod yearly bonuses for her continued services spread over a five-year period from October 2009 to October -. (Magarian Decl., Exh. G [Bonus Agreement].) The bonuses promised to Ms. Dauod corresponded to the yearly installment payments to Ameriprise under the Note. (Magarian Decl., Exhs. E, G.)
Ms. Dauod ended her employment with Ameriprise less than a year later. Claiming that Ms. Dauod failed to repay her loan upon termination of her employment, Ameriprise initiated arbitration proceedings before FINRA in December 2009 in Arbitration Action No. 09-06899 (the "Arbitration Action") to recover proceeds from the loan. Two months later, on February 16, 2010, Ms. Dauod and Mr. O'Donnell, another financial advisor who apparently signed a similar promissory note, brought a class action against Ameriprise on behalf of current and former financial advisors in the County of Orange. (Dkt. No. 6.) Ameriprise subsequently removed the action to this Court on March 11, 2010. (Dkt. No. 1.) On April 19, 2010, Plaintiffs moved to have this Court determine that Ameriprise's claim against Ms. Dauod is part of the class action and thus not arbitrable under the parties' Financial Advisor's Agreement. (Dkt. No. 22.) At around the same time, Ameriprise moved to dismiss Plaintiffs' claims for failure to state a claim pursuant to Federal Rule of Civil Procedure 12(b)(6). (Dkt. No. 21.) The Court granted Plaintiffs' motion to determine that FINRA Arbitration Action No. 09-06899 is part of the class action and stayed the arbitration proceeding. (Ct. Order, Dkt. No. 36, July 29, 2010.) The Court also granted with leave to amend Ameriprise's motion to dismiss. (Id. ) Plaintiffs filed a First Amended Complaint on August 25, 2010 and the operative Second Amended Complaint on October 1, 2010. (Dkt. Nos. 40, 43.) Plaintiff O'Donnell thereafter stipulated to dismiss himself as a plaintiff and putative class representative, which the Court granted. (Dkt. Nos. 58, 59.) On October 28, 2010, Ameriprise moved to dismiss certain claims in the SAC, to strike the class allegations, and to lift the stay of the FINRA arbitration action. (Dkt. No. 46.) The Court denied the motions to dismiss and to strike on the basis that the issues should be resolved by way of a summary judgment motion or trial and that the stay of the pending FINRA arbitration should not be lifted until their resolution. (Ct. Order, Dkt. No. 49, Dec. 9, 2010.)
On August 17, 2011, Ameriprise filed the instant motion for partial summary judgment. (Dkt. No. 60.) Ameriprise contends that in light of the Supreme Court's recent decision in AT&T Mobility LLC v. Concepcion , finding that arbitration agreements with class action waivers are enforceable, the Court should dismiss Ms. Dauod's class allegations pursuant to the Agreement under which she agreed not to pursue any class claims against Ameriprise. (Def.'s Mot. for Partial Sum. Judgmt., at 1, 5-7.) Ameriprise further contends that the Court should lift its previous stay of the FINRA arbitration action because there is no longer a rational for the stay, as this case cannot proceed as a class action and because Ms. Dauod's lawsuit concerns the Bonus Agreement, not the Promissory Note at issue in the arbitration. (Id. ) Ms. Dauod argues that the arbitration provision in the Agreement is unconscionable and illegal because the Agreement prevents her from bringing a representative action under the California Private Attorney General Act of 2004 ("PAGA"), Cal. Lab. Code §§ 2698-2699, and because the Agreement unlawfully restricts her right to engage in a lawful profession, trade, or business. (Pl.'s Opp., at 1, 3-10.) Ms. Dauod further argues that the stay of the FINRA arbitration proceeding should not be lifted because the action implicates the same issues of fact and law as the FINRA proceedings. (Id. at 10-11.)
III. DISCUSSION
The issue before the Court is whether the arbitration provision contained in the Agreement, which includes a class action waiver, is enforceable under federal and California law in light of AT&T Mobility LLC v. Concepcion .
A. Legal Standard
Summary judgment is proper if the evidence before the Court "show[s] that there is no genuine issue as to any material fact and that the movant is entitled to judgment as a matter of law." FED. R. CIV. P. 56(c); see also Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). Both parties assume that Ameriprise's motion for partial summary judgment is a de facto motion to compel arbitration under 9 U.S.C. § 4. Thus, the Court treats Ameriprise's motion as functionally equivalent to a motion to compel arbitration. See Craft v. Campbell Soup Co., 177 F.3d 1083, 1084 n.4 (9th Cir. 1999) (treating a motion for summary judgment as a de facto motion to compel arbitration), abrograted on other grounds by Circuit City Stores, Inc. v. Adams, 532 U.S. 105 (2001).
The Federal Arbitration Act provides that a "written provision in any... contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract... shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of the contract." 9 U.S.C. § 2. The FAA reflects both a "liberal federal policy favoring arbitration" and the "fundamental principle that arbitration is a matter of contract." AT&T Mobility LLC v. Concepcion, 131 S.Ct. at 1745; see also Circuit City Stores, Inc. v. Adams, 279 F.3d 889, 892 (9th Cir. 2002) (the FAA not only places arbitration agreements on equal footing with other contracts, but also establishes a federal policy in favor of arbitration).
In deciding whether to enforce an arbitration agreement, the court must determine "(1) whether a valid agreement to arbitration exists and, if it does, (2) whether the agreement encompasses the dispute." Cox v. Ocean View Hotel Corp., 533 F.3d 1114, 1119 (9th Cir. 2008) (internal citation and quotes omitted); see also 9 U.S.C. § 2. Determining the validity of an arbitration agreement is a question of contract interpretation and thus governed by state law. Circuit City Stores, 279 F.3d at 892. Nevertheless, the FAA only "permits arbitration agreements to be declared unenforceable upon such grounds as exist at law or in equity for the revocation of any contract.'" AT&T, 131 S.Ct. at 1746 (quoting 9 U.S.C. § 2). "When state law prohibits outright the arbitration of a particular type of claim, the analysis is straightforward: The conflicting rule is displaced by the FAA." Id. at 1747. But "when a doctrine normally thought to be generally applicable, such as duress or... unconscionability, is alleged to have been applied in a fashion that disfavors arbitration," the inquiry becomes more complex. Id. "[A] court may not rely on the uniqueness of an agreement to arbitrate as a basis for a state-law holding that enforcement would be unconscionable, for this would enable the court to effect what... the state legislature cannot.'" Id. at 1747 (quoting Perry v. Thomas, 482 U.S. 483, 493 n.9 (1987)).
B. Class Action Waiver
The parties do not dispute that both the FAA and California contract law apply to the instant action. Although Ms. Daoud takes issues with the legality of the Financial Advisor's Agreement, she does not contest the fact that she executed the Agreement, which contained an arbitration provision. Nor do the parties dispute that Ms. Daoud's claims are encompassed by the arbitration provision. Ms. Dauod also does not take issue with whether the class action waiver in the Agreement is enforceable under AT&T Mobility LLC v. Concepcion . In that case, the Supreme Court held that that the FAA preempts Discovery Bank v. Superior Court, 36 Cal.4th 148, 162-63 (2005), holding class action arbitration waivers in contracts of adhesion involving disputes over small amounts of money to be unconscionable. AT&T, 131 S.Ct. at 1748, 1750-51. The Supreme Court concluded that to the extent that the Discovery Bank rule allowed for and mandated the availability of class arbitration, it was inconsistent with the FAA, which was designed to ensure the enforcement of arbitration agreements according to their terms so as to facilitate streamlined proceedings. Id. Specifically, the Supreme Court found that requiring class arbitration is inconsistent with the FAA because (1) class arbitration sacrifices the informality characteristic of arbitral proceedings, thereby rending arbitration slower and more costly; (2) class arbitration requires procedural formality to the extent not envisioned by Congress when it passed the FAA, and (3) class arbitration greatly increases risks to defendants in high-stakes class proceedings because errors would not be subject to appellate review. Id. at 1751-52.
Under AT&T, the class action waiver in the arbitration provision in the Agreement is enforceable and precludes Ms. Daoud from bringing class action claims. Although Ms. Dauod makes the distinction that AT&T concerned a consumer class action, rather than a labor class action (Pl.'s Opp., at 4), the Court declines to construe AT&T so narrowly as the Supreme Court's basis for abrogating the Discovery Bank rule applies equally to a labor class action. See, e.g., Lewis v. UBS Financial Servs., Inc., No. C 10-04867, 2011 WL 4727795, *4-*5 (N.D. Cal. Sept. 30, 2011) (in a putative class action filed by former employee for violations of the California Labor Code and California's Unfair Competition Law, the district court found class action waivers contained in arbitration clauses enforceable under AT&T ).
C. Unconscionability of the Agreement
Ms. Daoud nevertheless contends that under Brown v. Ralphs Grocery Co., 197 Cal.App.4th 489 (2011), the Agreement's arbitration provision is unconscionable and unenforceable because it precludes her from bringing a representative action under PAGA. Although the Court agrees that a PAGA waiver is unconscionable under California law, the Court finds that it is inapposite to the instant action.
Under California law, courts may refuse to enforce a contract where, at the time of its formation, it was unconscionable, or may limit the application of any unconscionable clause. Cal. Civ. Code § 1670.5(a). A finding of unconscionability has both a procedural and substantive component. See Armendariz v. Found. Health Psychcare Servs., Inc., 24 Cal.4th 83, 114 (2000). While procedural unconscionability focuses on the element of "oppression' or surprise' due to unequal bargaining power," substantive unconscionability centers on an "overly harsh,' or one-sided' results.'" Id. This Court recently opined at length on the unconscionability of a PAGA waiver under Franco v. Athens Disposal Co., 171 Cal.App.4th 1277 (2009) and Brown v. Ralphs Grocery Co. See Urbino v. Orkin Servs. of California, Inc., ___ F.Supp.2d ___, No. 2:11-cv-06456, 2011 WL 4595249 (C.D. Cal. Oct. 5, 2011). In Urbino, this Court found that AT&T should not be extended to PAGA waivers because such waivers contradict the fundamental nature and purpose of a PAGA action, which deputizes aggrieved employees to act as private attorney generals and bring claims on behalf of the State in furtherance of the public's interest. Id. at *10-*11. However, in the instant action, there are no PAGA claims asserted by Ms. Dauod. Indeed, nowhere in the Second Amended Complaint is there any reference to the statutory provisions of PAGA. Instead, Ms. Dauod only purports to bring wage and hour claims as a putative class representative, on behalf of herself and other persons similarly situated. Nor does the arbitration waiver preclude Ms. Dauod from specifically bringing a PAGA action, unlike the arbitration provision in Urbino, which explicitly prevented the plaintiff from bringing a private attorney general action. Urbino, 2011 WL 4595249, at *1. Thus, whether a PAGA waiver taints the Agreement with illegality is not even a genuine issue in this case.
Ms. Dauod further challenges the enforceability of the Agreement by contending that Part 6(1)(e) of the Agreement amounts to an illegal covenant not to compete. (Pl.'s Opp. at 8-9.) The Court finds this argument unavailing. There is no evidence in the record that Ameriprise has attempted to enforce any provision of the alleged covenant not to compete against Ms. Daoud.
D. Dismissal
Where a dispute is subject to arbitration under the terms of a written agreement, the district court shall "stay the trial of the action until such arbitration has been had in accordance with the terms of the agreement." 9 U.S.C. § 3. Nevertheless, courts have discretion under 9 U.S.C. § 3 to dismiss claims that are subject to an arbitration agreement. Sparling v. Hoffman Constr. Co., Inc., 864 F.2d 635, 638 (9th Cir. 1988); Thinket Ink Info. Resources, Inc. v. Sun Microsystems, Inc., 368 F.3d 1053, 1060 (9th Cir. 2004) (finding dismissal, rather than a stay of plaintiffs' claims that were subject to arbitration proper). Here, as discussed above, the class action waiver is enforceable, leaving only Ms. Dauod's individual claims remaining in this action. Because those claims are subject to arbitration, the Court finds that dismissal of the action is appropriate.
IV. CONCLUSION
For the foregoing reasons, the Court GRANTS Ameriprise's motion for partial summary judgment and DISMISSES WITH PREJUDICE Ms. Daoud's class allegations in the Second Amended Complaint. The Court further LIFTS the Court's July 29, 2010 stay of the FINRA arbitration action, ORDERS Ms. Daoud to pursue her remaining claims as an individual in that arbitration, and DISMISSES the instant action.