Summary
finding that an arbitration clause in a forty-five page employment contract was not hidden, and concluding that "any procedural unconscionability inherent in the arbitration agreement is minimal"
Summary of this case from Billie v. Coverall N. Am., Inc.Opinion
No. CV09-5031713-S
September 3, 2010
MEMORANDUM OF DECISION RE MOTION TO DISMISS AND/OR STAY
FACTS
The plaintiff, Randy Van Voorhies, commenced this action by service of process against the defendant, his former employer, Land/Home Financial Services, Inc., a California corporation involved in the mortgage industry, on August 31, 2009. He alleges the following grounds in his seven-count complaint: Count One sounds in breach of an implied contract; Count Two sounds in breach of the duty of good faith and fair dealing; Count Three sounds in promissory estoppel; Count Four sounds in negligent misrepresentation; Count Five sounds in unjust enrichment and quantum meruit; Count Six sounds in violation of the Connecticut wage collection statute; and, Count Seven sounds in violation of the Connecticut minimum wage and overtime compensation statute.
The defendant filed the present motion to dismiss, accompanied by a memorandum of law in support thereof and a copy of the plaintiff's employment agreement, on March 18, 2010. The plaintiff in turn filed an objection to the motion, accompanied by a memorandum of law in support thereof and an affidavit, on April 21, 2010. The court heard the matter at short calendar on June 15, 2010.
"[I]f the complaint is supplemented by undisputed facts established by [ inter alia] affidavits submitted in support of the motion to dismiss . . . the trial court, in determining the jurisdictional issue, may consider these supplementary undisputed facts and need not conclusively presume the validity of the allegations of the complaint." (Citations omitted; internal quotation marks omitted.) Conboy v. State, 292 Conn. 642, 651-52, 974 A.2d 669 (2009).
LEGAL ANALYSIS
"A motion to dismiss . . . properly attacks the jurisdiction of the court, essentially asserting that the plaintiff cannot as a matter of law and fact state a cause of action that should be heard by the court." (Internal quotation marks omitted.) Bacon Construction Co. v. Dept. of Public Works, 294 Conn. 695, 706, 987 A.2d 348 (2010). "The grounds which may be asserted in [a motion to dismiss] are: (1) lack of jurisdiction over the subject matter; (2) lack of jurisdiction over the person; (3) improper venue; (4) insufficiency of process; and (5) insufficiency of service of process." Zizka v. Water Pollution Control Authority, 195 Conn. 682, 687, 490 A.2d 509 (1985), citing Practice Book § 143, which is now § 10-31. "[I]t is the burden of the party who seeks the exercise of jurisdiction in his favor . . . clearly to allege facts demonstrating that he is a proper party to invoke judicial resolution of the dispute." (Internal quotation marks omitted.) Wilcox v. Webster Ins. Co., 294 Conn. 206, 213-14, 982 A.2d 1053 (2009). "It is well established that, in determining whether a court has subject matter jurisdiction, every presumption favoring jurisdiction should be indulged." (Internal quotation marks omitted.) Id., 214.
The defendant moves to dismiss the present action on the ground that the court lacks subject matter jurisdiction because clauses in the plaintiff's employment agreement make arbitration a condition precedent to litigation based on the plaintiff's employment with or termination by the defendant. In the alternative, the defendant moves to stay the present action pending arbitration in accordance with General Statutes § 52-409, which provides: "If any action for legal or equitable relief or other proceeding is brought by any party to a written agreement to arbitrate, the court in which the action or proceeding is pending, upon being satisfied that any issue involved in the action or proceeding is referable to arbitration under the agreement, shall, on motion of any party to the arbitration agreement, stay the action or proceeding until an arbitration has been had in compliance with the agreement, provided the person making application for the stay shall be ready and willing to proceed with the arbitration." The defendant argues that it has met all of the criteria contained in § 52-409 and therefore may avail itself of the statute. The plaintiff objects to the motion by arguing that parts of the arbitration agreement are unconscionable and therefore unenforceable in that they require him to share the cost of arbitration and travel across the country to California in order to pursue arbitration.
The court agrees that the defendant has met the criteria specified in § 52-409. The plaintiff, a party to a written agreement to arbitrate, has brought the present action. The issues in the present action are also referable to arbitration under the agreement's terms, which cover "any claims or controversies arising out of or related to the employee's employment or termination thereof." Furthermore, the defendant is a party to the written agreement to arbitrate, has moved for the stay and has demonstrated that it is ready and willing to proceed with the arbitration. The plaintiff has not challenged the defendant's compliance with § 52-409.
"[A]rbitration is a favored procedure in this state . . . [I]t . . . is intended to avoid the formalities, the delay, the expense and the vexation of ordinary litigation." (Citations omitted; internal quotation marks omitted.) Waterbury Teachers Assn. v. Waterbury, 164 Conn. 426, 434, 324 A.2d 267 (1973). General Statutes § 52-408 provides in relevant part: "An agreement in any written contract, or in a separate writing executed by the parties to any written contract, to settle by arbitration any controversy thereafter arising out of such contract . . . shall be valid, irrevocable and enforceable, except when there exists sufficient cause at law or in equity for the avoidance of written contracts generally."
During short calendar, the defendant argued that the issue of unconscionability is not properly before the court, because the only issues raised by the present motion are the court's subject matter jurisdiction and whether the defendant has met the criteria contained in § 52-409. The court rejects the defendant's argument. The defendant necessarily relies on the enforceability and validity of the arbitration agreement in seeking the stay provided by § 52-409. Furthermore, the plaintiff opposes the present motion on the ground that he is not bound by the entire arbitration agreement because parts of it are unconscionable and therefore unenforceable. "'[A] gateway dispute about whether the parties are bound by a given arbitration clause raises a 'question of arbitrability' for a court to decide.' Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79, 84, 123 S.Ct. 588, 154 L.Ed.2d 491 (2002)." Twin Lake Indoor Tennis, Ltd v. Twin Lakes, Inc., Superior Court, judicial district of Stamford-Norwalk at Stamford, Docket No. CV 07 4011311 (October 30, 2007, Adams, J.).
The arbitration agreement at issue is contained in the plaintiff's offer letter and a form agreement for an account executive position that was modified to reflect the plaintiff's regional sales manager position. The offer letter provides: "You and Land Home Financial Services, Inc., in order to obtain a prompt determination as to rights and avoid the lengthy delay in court actions, agree to binding arbitration of any claims or controversies arising out of or related to the employee's employment or termination thereof, whether sounding in contract, tort or statute, in accordance with the then effective rules of the American Arbitration Association. The consideration for this agreement is the mutual exchange of promises to arbitrate. You and Land Home Financial Services, Inc. consent to the jurisdiction of the Superior Court or Municipal Courts of Contra Costa and of the United States District Court of the Northern District of California for all purposes in connection with the arbitration."
The form agreement similarly provides: "I. Arbitration. In the event of any dispute or claim regarding the interpretation, enforcement or breach of the agreements or acknowledgments incorporated into this agreement, contract, conditions or warranties, relating to Account Executive's engagement as an independent contractor with The Company, Account Executive and The Company agree to submit such dispute or claim to the American Arbitration Association. The parties agree to equally share the cost of arbitration and agree to bear their own respective attorneys fees and expenses. The decision of the arbitrator shall be binding on all parties and enforceable by any court of competent jurisdiction. The Company and the Account Executive agree that Contra Costa Superior Court in California will retain such jurisdiction and that the arbitration hearings will be held in Contra Costa County, California." The form agreement also provides: "E. It is agreed that this Agreement shall be governed by, construed, and enforced in accordance with the laws of the State of California."
The court begins its analysis by considering the defendant's motion to dismiss. The Appellate Court recently held in Catrini v. Erickson, 113 Conn.App. 195, 197, 966 A.2d 275 (2009): "The fact that [§] 52-409 allows a court to enter a stay in a matter involving an arbitration belies . . . the claim . . . that an agreement to arbitrate ousts the court of its subject matter jurisdiction. If the existence of an arbitration agreement in a contract implicated the court's jurisdiction to hear an action, then a court would, accordingly, not have jurisdiction to stay such a matter because, in the absence of jurisdiction, the court may only dismiss a matter. In short, because the power to order a stay implies that the court has jurisdiction over a matter, the legislature could not have empowered the court to enter a stay in such a matter unless the court had jurisdiction over it." See also Thomas v. CM Securities, LLC, Superior Court, judicial district of Hartford, Docket No. CV 09 5033527 (July 7, 2010, Hale, J.T.R.) [ 50 Conn. L. Rptr. 271]. The ground on which the defendant in the present action moves is identical to the ground rejected by the Catrini court. Because Catrini is binding authority, the court denies the defendant's motion to dismiss.
The court must next consider the defendant's motion to stay. The plaintiff objects to the defendant's motion to stay by arguing that the arbitration agreement upon which the defendant relies is both procedurally and substantively unconscionable. The plaintiff claims that the agreement is procedurally unconscionable because he could not negotiate its terms, and the "hire package" of documents in which the clauses were contained was over forty-five pages in length. Because of this, the plaintiff argues that the agreement is substantively unconscionable because it requires the plaintiff to share in the cost of arbitration and travel to California in order to pursue arbitration.
"'[P]arties to a contract generally are allowed to select the law that will govern their contract, unless either: (a) the chosen state has no substantial relationship to the parties or the transaction and there is no other reasonable basis for the parties' choice or (b) application of the law of the chosen state would be contrary to a fundamental policy of a state which has a materially greater interest than the chosen state in the determination of the particular issue and which, under the rule of [1 Restatement (Second), Conflict of Laws, § 188 (1971)], would be the state of the applicable law in the absence of an effective choice of law by the parties.' See Elgar v. Elgar, 238 Conn. 839, 850, 679 A.2d 937 (1996). Accordingly, the issue of unconscionability is an issue of substantive law which ordinarily must be construed by the law of the state which the parties chose . . ." Thomas v. CM Securities, LLC, supra, Superior Court, Docket No. CV 09 5033527. In the present action, the state whose law the parties have chosen to govern the plaintiff's employment agreement is California.
"[T]he doctrine [of unconscionability] has both a procedural and a substantive element, the former focusing on oppression or surprise due to unequal bargaining power, the latter on overly harsh or one-sided results . . . The procedural element of an unconscionable contract generally takes the form of a contract of adhesion, which, imposed and drafted by the party of superior bargaining strength, relegates to the subscribing party only the opportunity to adhere to the contract or reject it. [I]n the case of preemployment arbitration contracts, the economic pressure exerted by employers on all but the most sought-after employees may be particularly acute, for the arbitration agreement stands between the employee and necessary employment, and few employees are in a position to refuse a job because of an arbitration requirement . . . Substantively unconscionable terms may take various forms, but may generally be described as unfairly one-sided. One such form . . . is the arbitration agreement's lack of a modicum of bilaterality, wherein the employee's claims against the employer, but not the employer's claims against the employee, are subject to arbitration . . . Another kind of substantively unconscionable provision occurs when the party imposing arbitration mandates a post-arbitration proceeding, either judicial or arbitral, wholly or largely to its benefit at the expense of the party on which the arbitration is imposed." (Citations omitted; internal quotation marks omitted.) CT Page 17548 Little v. Auto Stiegler, Inc., 29 Cal.4th 1064, 1071-72, 130 Cal.Rptr.2d 892, cert. denied, 540 U.S. 818, 124 S.Ct. 83, 157 L.Ed.2d 35 (2003).
"The prevailing view is that [procedural and substantive unconscionability] must both be present in order for a court to exercise its discretion to refuse to enforce a contract or clause under the doctrine of unconscionability . . . But they need not be present in the same degree. Essentially a sliding scale is invoked which disregards the regularity of the procedural process of the contract formation, that creates the terms, in proportion to the greater harshness or unreasonableness of the substantive terms themselves . . . In other words, 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" (Emphasis in original.) Armendariz v. Foundation Health Psychcare Services, Inc., 24 Cal.4th 83, 114, 99 Cal.Rptr.2d 745 (2000).
"The procedural element focuses on 'oppression' or 'surprise' . . . Oppression arises from an inequality of bargaining power that results in no real negotiation and an absence of meaningful choice. Surprise involves the extent to which the supposedly agreed-upon terms are hidden in a prolix printed form drafted by the party seeking to enforce them." Flores v. Transamerica Homefirst, 93 Cal.App.4th 846, 853, 113 Cal.Rptr.2d 376 (2001).
The plaintiff argues in his memorandum that there was an inequality of bargaining power because he would not have been hired if he had not signed the documents in the "hire package." As a result, he was unable to negotiate or make a meaningful choice. Plaintiff provides no evidence to support his argument, however, nor does he allege in his complaint or aver in his affidavit that the hire package was presented to him on a "take it or leave it" basis. The defendant has not challenged the plaintiff's characterization of the hire package. Regardless of whether the plaintiff is correct, "[t]he adhesive nature of the contract will not always make it procedurally unconscionable." Roman v. Superior Court, 172 Cal.App.4th 1462, 1470 n. 2, 92 Cal.Rptr.3d 153 (2009). "[W]hatever procedural unfairness is inherent in an adhesion agreement in the employment context" is "limited" when, inter alia, the agreement indicates the employee's consent to clear and conspicuous terms. Id., 1470-71.
The plaintiff argues that the arbitration agreement was hidden within the forty-five pages of documents comprising the "hire package." The court rejects this argument. The arbitration agreement appears on the second page of the three-page offer letter and on the last page of the form agreement, directly above the lines designated for the parties' signatures. The plaintiff signed both the offer letter and the form agreement. In each instance, the arbitration agreement is a single paragraph that is distinct and separate from the rest of the document in which it is contained.
The plaintiff avers: "I was not advised to have an attorney review any of the documents, nor did I do so. I did not notice an arbitration clause in any document; my focus was on ensuring that the offer letter properly reflected the terms of compensation we had agreed upon and it did." This averment is insufficient, however, to establish the plaintiff's "surprise" for the purpose of the court's procedural unconscionability analysis. Cf. Wetzstein v. Thomasson, 34 Cal.App.2d 554, 559, 93 P.2d 1028 (1939) ("[W]hen a person with the ability to read and understand an agreement signs it, he is bound by the provisions of such instrument, in the absence of fraud or imposition . . ."). The court thus concludes that any procedural unconscionability inherent in the arbitration agreement is minimal.
"Substantive unconscionability is indicated by contract terms so one-sided as to 'shock the conscience' . . . [I]t is important that courts not be thrust in the paternalistic role of intervening to change contractual terms that the parties have agreed to merely because the court believes the terms are unreasonable. The terms must shock the conscience." (Citations omitted.) American Software, Inc. v. Ali, 46 Cal.App.4th 1386, 1391, 54 Cal.Rptr.2d 477 (1996). Alternatively, "[s]ubstantive unconscionability consists of an allocation of risks or costs which is overly harsh or one-sided and is not justified by the circumstances in which the contract was made." Dean Witter Reynolds, Inc. v. Superior Court, 211 Cal.App.3d 758, 768, 259 Cal.Rptr. 789 (1989). The plaintiff in the present action argues that the arbitration agreement is substantively unconscionable because its location and cost requirements are overly harsh to him and one-sided in favor of the defendant.
In support of his argument that the cost splitting provision of the arbitration agreement is substantively unconscionable, the plaintiff cites to Armendariz v. Foundation Health Psychcare Services, Inc., supra, 24 Cal.4th 110-11, in which the California Supreme Court held that a mandatory arbitration clause in an employment agreement could not require an employer and an employee to share costs equally: "[W]e conclude the imposition of substantial forum fees is contrary to public policy, and is therefore grounds for invalidating or revoking an arbitration agreement and denying a petition to compel arbitration . . . Accordingly, consistent with the majority of jurisdictions to consider this issue, we conclude that when an employer imposes mandatory arbitration as a condition of employment, the arbitration agreement or arbitration process cannot generally require the employee to bear any type of expense that the employee would not be required to bear if he or she were free to bring the action in court. This rule will ensure that employees bringing [California Fair Employment and Housing Act] claims will not be deterred by costs greater than the usual costs incurred during litigation, costs that are essentially imposed on an employee by the employer."
The holding in Armendariz is primarily based upon the fact the plaintiffs sued the defendant for violation of their "unwaivable statutory rights" under the California Fair Employment and Housing Act. Id., 100. "Therefore, to qualify as a claim in arbitration that will justify a cost-shifting order, a statutory right must be involved that invokes substantive and procedural rights not just for the benefit of individuals but also for public purposes . . . Only such statutory rights are deemed to be unwaivable . . ." (Citation omitted; internal quotation marks omitted.) Independent Assn. of Mailbox Center Owners, Inc. v. Superior Court, 133 Cal.App.4th 396, 415, 34 Cal.Rptr.3d 659 (2005). The California Supreme Court held in Boghos v. Certain Underwriters at Lloyd's of London, 36 Cal.4th 495, 508, 30 Cal.Rptr.3d 787 (2005): "[W]e have not extended the Armendariz . . . cost-shifting rule to common law claims generally." A California Court of Appeal has similarly held: " Armendariz does not apply to this case [a breach of contract action brought against a former employer] because it is not based on the [California Fair Employment and Housing Act] or a fundamental public policy that is tied to a constitutional or statutory provision." Giuliano v. InlandEmpire Personnel, Inc., 149 Cal.App.4th 1276, 1290-91, 58 Cal.Rptr.3d 5 (2007).
In the present action, only two of the seven counts in the plaintiff's complaint sound in violation of the plaintiff's statutory rights — Count Six (violation of Connecticut's wage collection statute) and Count Seven (violation of Connecticut's minimum wage and overtime compensation statute). Counts One through Five are all common-law causes of action: breach of implied contract, breach of the duty of good faith and fair dealing, promissory estoppel, negligent misrepresentation and unjust enrichment/quantum meruit. The court concludes that Counts One and Two require application of the holding in Armendariz, because they allege violations of "unwaivable statutory rights."
The rights invoked by the plaintiff are "unwaivable" because the statutes upon which he relies, General Statutes §§ 31-68 and 31-72, invoke procedural and substantive rights for the benefit of both individuals and public purposes. As noted by the court in Cashman v. Tolland, 49 Conn.Sup. 354, 362-63, 883 A.2d 24 (2004), aff'd, 276 Conn. 12, 882 A.2d 1236 (2005), "[O]ur Supreme Court has declared that the statutes regulating and enforcing the payment of wages recognize the public policy of ensuring employees the wages due them, that those statutes are remedial in nature and, therefore, are to be given a liberal construction in favor of those whom the legislature intended to benefit, i.e., wage earners." Cashman v. Tolland. See also Edwards v. Edwards Wines, LLC, Superior Court, judicial district of New London, Docket No. CV 08 5008054 (January 15, 2009, Martin, J.) ( 47 Conn. L. Rptr. 79) (citing cases); Butler v. McIntosh, Superior Court, judicial district of Hartford, Docket No. CV 95 0555751 (October 29, 1998, Lavine, J.) (addressing "remedial nature" of and "great public policy . . . embodie[d]" by §§ 31-68 and 31-72). Because the plaintiff seeks to enforce unwaivable statutory rights in the present action, the holding in Armendariz governs the court's decision. The court thus concludes that the cost splitting provision of the arbitration agreement is substantively unconscionable.
The plaintiff also argues that the arbitration forum selection provision specifying California is substantively unconscionable. In support, he cites to Bolter v. Superior Court, 87 Cal.App.4th 900, 104 Cal.Rptr.2d 888 (2001), in which a California Court of Appeal held that a forum selection provision in an arbitration agreement specifying Utah was substantively unconscionable. Bolter involved a dispute between a franchisor and a class of franchisees who resided in California. In holding the provision at issue to be substantively unconscionable, the court noted how the provision required the franchisees to, inter alia, "close down their shops, pay for airfare and accommodations in Utah, and absorb the increased costs associated in having counsel familiar with Utah law." Id., 909. The court then concluded: "Because [the] franchises are by nature small businesses, it is simply not a reasonable or affordable option for franchisees to abandon their offices for any length of time to litigate a dispute several thousand miles away . . . Moreover, the [franchisees] declared they are all suffering from severe financial hardships and could not afford to maintain their claims if forced to litigate the matter out of state . . . [The] . . . forum selection provisions have no justification other than as a means of maximizing an advantage over the [franchisees]. Arguably, [the franchisor] understood those terms would effectively preclude its franchisees from ever raising any claims against it, knowing the increased costs and burden on their small business would be prohibitive. As aptly stated in Armendariz[, supra, 24 Cal.4th 118], 'Arbitration was not intended for this purpose.'" Id., 909-10.
The court in the present action is persuaded by the Bolter court's reasoning and adopts it accordingly. The plaintiff avers: "I performed all of my duties and responsibilities under the agreement in Connecticut and the east coast . . . I live in Connecticut and all of my witnesses in this case live on the east coast . . . The costs associated with arbitrating this case in California, including airfare, hotels, meals and deposing and videotaping my witnesses, would effectively deny me the opportunity to pursue my claims against Land Home. Nor am I in a financial position to share the costs of this arbitration . . . Since Land Home terminated me on March 3, 2009, I have struggled to find consistently paying work. Although I am beginning to earn money now, I did not earn any income at all in 2009 . . . My total liquid assets are approximately $50,000."
Arbitration in accordance with the forum selection provision specifying California would be neither reasonable nor affordable for the plaintiff, given the difficulty in preparing for arbitration when witnesses are on one coast and proceedings are on the other, the geographic distance between California and Connecticut and the plaintiff's financial state. Furthermore, arbitration in accordance with the forum selection provision allocates risks and costs in a way that is unjustified by the circumstances underlying the employment agreement, overly harsh to the plaintiff and one-sided in favor of the defendant. The court therefore concludes that the arbitration forum selection provision specifying California is also substantively unconscionable. In accordance with California's "sliding scale" test, the court further concludes that it may exercise its discretion to refuse to enforce the cost and location provisions of the arbitration agreement because of their strong substantive unconscionability, which overcomes their minimal procedural unconscionability.
In his memorandum, the plaintiff challenges only the cost and location provisions of the arbitration agreement on unconscionability grounds and asks the court to sever them, in the event that the court compels arbitration. During short calendar, however, the plaintiff argued "that the agreement itself is unenforceable because it's unconscionable." The court rejects the plaintiff's argument. "It is not necessary to throw the baby out with the bath water, i.e., the unconscionable provision can be severed and the rest of the agreement enforced . . . Civil Code section 1670.5, subdivision (a) provides that, 'If the court . . . finds the contract or any clause of the contract to have been unconscionable . . . the court may refuse to enforce the contract, or it may enforce the remainder of the contract without the unconscionable clause, or it may so limit the application of any unconscionable clause so as to avoid any unconscionable result.' The Legislative Committee comment explains, 'Under this section the court, in its discretion, may refuse to enforce the contract as a whole if it is permeated by the unconscionability, or it may strike any single clause or group of clauses which are so tainted or which are contrary to the essential purposes of the agreement, or it may simply limit unconscionable clauses so as to avoid unconscionable results.'" Bolter v. Superior Court, supra, 87 Cal.App.4th 910.
The court will not compel arbitration because neither party has moved for the court to compel arbitration. See General Statutes § 52-410.
The Bolter court denied the plaintiffs' request to strike the entire arbitration agreement: "We did not find the requirement of arbitration alone to be unduly unfair but rather the 'place and manner' in which arbitration was to occur . . . Unconscionability can be cured by striking those provisions, leaving an otherwise valid and complete agreement to submit disputes to arbitration." Id., 910-11. The court in the present action similarly concludes that severance of the cost and location provisions will cure the unconscionability present in the arbitration agreement. The plaintiff has not challenged the rest of the arbitration agreement, and indeed, the rest of the arbitration agreement is valid, complete and binding upon the plaintiff.
The court thus denies the motion to dismiss and grants the motion to stay, subject to the severance of the cost and location provisions in the arbitration agreement.
Ordered this 3rd day of September 2010: