Split 9th Circuit Upholds District Court Finding that Arbitration Provision Is Unconscionable

Jose Emilio Ronderos was employed by defendants USF Reddaway, Inc. and Yellow Corporation, FKA YRC Worldwide, Inc. (Reddaway) as a haul manager. When he applied for the job, he was pressured to sign a non-negotiable arbitration agreement. The arbitration agreement required the arbitration of all claims that Mr. Ronderos might bring against Reddaway, but not all claims that Reddaway might brring against Mr. Ronderos. In addition, Mr. Ronderos had to provide notice of any claims using a particular form, and and the provision established a one-year statute of limitations on all of his claims. Failure to abide by these procedural requirements would constitute a waiver of Mr. Ronderos’s claims. Reddaway was not subject to the same procedural requirements.

After over two years on the job, Mr. Ronderos was diagnosed with cancer. He alleges that Reddaway terminated him shortly after he took a medical leave of absence. He sued, alleging statutory claims under California law. Reddaway removed the case to federal court and moved to compel arbitration. On appeal in Ronderos v. USF Reddaway, Inc. Reddaway conceded that its arbitration agreement is unconscionable in part, but it argued that the district court erred when it refused to sever the unconscionable bits and grant the motion under the remaining provisions of the arbitration agreement. Two members of the Ninth Circuit panel agreed with the district court because Duh. There is some procedural unconscionability, and the substantive provisions are overtly one-sided and thus the arbitration agreement is pervaded with unconscionabiilty such that the unconscionable parts cannot be severed.

Although the Court did not reach the issue, this logo is also unconscionable. It confuses me every time I see it and probably causes innumerable accidents as drivers check their vision for color-blindness.

The Ninth Circuit Majority found elements of procedural unconscionability in the fact that Mr. Ronderos was pressured to sign the agreement on the spot and Reddaway did not explain it to him. This is a big deal. Arbitration involves waiving one’s constitutional right to a jury trial. It’s not something that one should enter into lightly (although we all do). Criminal courts don’t allow defendants to enter into plea agreements before advising them that by doing so they are waiving their constitutional right to a jury trial. We should expect the same formalities with respect to civil juries. In addition, the cost-splitting provisions of the agreement were confusing, if not incoherent, and thus procedurally unconscionable.

As to substantive unconscionability, the Majority concluded that “the filing provision’s one-sided notice requirements and one-year statute of limitations severely restrict Ronderos’s ability to vindicate his employment rights and, therefore, are substantively unconscionable.” In addition, the arbitration agreement preserved Reddaway’s ability to obtain preliminary injunctive relief against Ronderos. The Majority was not persuaded that limiting the imbalance to preliminary relief prevented the one-sided access to courts from lacking in “basic fairness and mutuality.”

Image by DALL-E

Courts have discretion to decide whether to sever unconscionable provisions or to declare an arbitration provision to be unconscionable as a whole. Given its conclusion that the arbitration agreement suffered from moderate procedural unconscionability and contained multiple provisions that were substantively unconscionable, the Majority thought the the district court acted within its discretion in refusing to sever the unconscionable parts and preserve the remainder of the arbitration agreement.

It surprises me that the Majority took nearly forty pages to explain why an obviously unconscionable arbitration agreement is unconscionable. More surprising still is the twenty-page dissent that accuses the Majority and the district court of reviving age-old court hostility to arbitration agreements. The dissent wants to sever the unconscionable provisions, but I can’t imagine what that looks like. One of the elements of substantive unconscionability is that Reddaway can go to court to prosecute its claims against Ronderos. So if we sever that bit, it could mean that Reddaway too would have to go to arbitration, but that provides Ronderos no relief and encourages the in terrorem effect of imposing unconscionable terms on employees. Another way to sever is to allow Ronderos to go to court, just like Reddaway can do, and that amounts to the same as not severing. A court evinces no hostility to arbitration when it treats an arbitration agreement permeated with unconscionability just like it would treat any other agreement permeated with unconscionability. That agreement cannot be enforced.

The dissent concludes that the arbitration agreement was only minimally procedurally unconscionable and that its two substantively unconscionable provisions could be severed because they are “collateral to the agreement’s core purpose: securing an arbitral forum.” But the core purpose was actually securing an arbitral forum when Reddaway was the defendant while preserving Reddaway’s right to bring actions in court. The arbitration agreement’s core purpose was one-sided, lacking in mutuality and fairness. It’s a textbook case of an agreement permeated with unconscionability.