Zaborowski v. MHN Gov’t Services: 9th Cir. Affirms Arb. Agreement as Unconscionable and Unenforceable

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In an unpublished, partly divided opinion, the Court of Appeals for the Ninth Circuit affirmed a ruling by Judge Susan Illston for the Northern District of California, finding that MHN’s arbitration agreement in an employment contract is unconscionable and unenforceable. Zaborowski v. MHN Government Services, Inc., et al., No. 13-15671 (9th Cir. Dec. 17, 2014) (slip op. available here). As to the unconscionability issue, the three judges on the panel agreed, but split where Judge Ronald Gould dissented as to the lower court’s decision not to sever the offending provisions, holding the whole agreement unenforceable instead.

The Ninth Circuit agreed with the lower court that the arbitration agreement was both procedurally and substantively unconscionable. Substantively, multiple aspects of the arbitration clause were correctly found to be unconscionable, including a “unjustifiably one-sided” arbitrator-selection clause; a drastically shortened six-month limitations period; a costs-and-fees shifting clause which awarded fees to a “substantially prevailing party” in contrast to statutory cost-shifting provisions in state and federal law; and excessive filing fees and waiver of punitive damages. Slip op. at 3-6 (citing Chavarria v. Ralph’s Grocery Co., 733 F.3d 916). Regarding the unreasonably shortened statute of limitations, the Ninth Circuit found that it did not provide a party sufficient time to effectively pursue judicial remedies, stating, “[t]he district court correctly noted that violations of labor laws are not discovered overnight: It takes time to recognize the violation, investigate it, and file a claim.” Additionally, it found that “the costs-and-fee-shifting clause results in an ‘unreasonable’ and ‘unexpected’ allocation of risks [citing Samaniego v.Empire Today LLC, 140 Cal. Rptr. 3d 492, 497 (2012)],” which serves to chill employees from seeking vindication of their rights through arbitration.

Judge Gould dissented as to the issue of severance; he would reverse the district court’s ruling on this issue, require severance, and leave the arbitration agreement in place. He wrote, “[i]n my view, Concepcion and its progeny should create a presumption in favor of severance when an arbitration agreement contains a relatively small number of unconscionable provisions that can be meaningfully severed and after severing [them], the arbitration agreement can still be enforced.” Slip op., Gould dissenting op. at 2 (citing AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740 (2011)).