Transportation Company’s Arbitration Agreement Unconscionable and Unenforceable.

Ali v. Daylight Transport, LLC, 2020 WL 7090750 (Dec. 31, 2020) [initially not certified for publication on December 4, 2020, then certified for publication except for Part I, Federal Arbitration Act (“FAA”) preemption analysis]

Plaintiffs, truck drivers who transported less-than-truck load (“LTL”) shipments only within California (although Defendant asked one plaintiff to change the certification on his driver’s licenses to interstate commercial driving so he could cross state lines, and Defendant engaged in interstate commerce with drivers other than Plaintiffs), alleged they were willfully misclassified as independent contractors, which entitled them to various wage and hour claims. Defendant sought to compel arbitration, and Plaintiffs amended their complaint to add a PAGA cause of action. The trial court found the arbitration agreement was unenforceable because (1) the FAA did not apply since Plaintiffs were transportation workers engaged in interstate commerce,[i] and (2) the agreement was both procedurally and substantively unconscionable.

On appeal, Defendant initially argued the FAA applied, then abandoned that argument after Plaintiffs did not raise any defenses to the arbitration provision that conflicted with the FAA. The First Appellate District focused instead on the issue of unconscionability. As an initial issue, the appellate court noted its prior decision in Subcontracting Concepts (CT), LLC v. DeMelo (2019) 34 Cal.App.5th 201 in holding that the issue of whether Plaintiffs were independent contractors or employees was irrelevant to the unconscionability analysis. Regarding procedural unconscionability, the Ali court found “significant oppression,” which the Court characterized as “a moderate degree of procedural unconscionability,” as the agreement was both an adhesive contract and presented under pressure to sign, with no meaningful opportunity to review, let alone negotiate, it. Further, the provision stated it was governed by AAA’s Commercial Arbitration Rules but did not define what those rules were or provide a copy of them, and AAA’s Commercial rules contain a provision that the arbitrator’s fees are to be borne equally by both parties, which did not appear in Defendant’s arbitration provision. In that sense, this case differed from Baltazar v. Forever 21, Inc. (2016) 62 Cal.4th 1237, in which the high court noted that the lack of incorporation of arbitration rules was not fatal because the unconscionability challenge did not concern “some element of the AAA rules of which [the employee] had been unaware when she signed the agreement,” whereas the above fee-sharing provision did implicate an element of the AAA rules which Plaintiffs had not been aware of when they signed.

The Ali court agreed with the trial court that three terms in the arbitration provision were substantively unconscionable, as well: (1) a significantly shorter statute of limitations period in which to bring wage claims than available at law (120 days versus three or four years); (2) a court remedy reserved solely for the company; and (3) the fee-split provision in the AAA rules, which directly conflicted with the minimum requirements in Armendariz. Defendant argued that the provisional remedy it carved out for itself “merely reiterates what…[C.C.P.] section 1281.8(b) already provides,” i.e., that parties to an arbitration agreement may file applications for provisional remedies related to the controversy limited to relief from the arbitrator’s award. The Court of Appeal rejected that argument, finding that the carve-out was one-sided and “without limitation,” which far exceeded anything available to Plaintiffs, and that Defendant had not provided any reasonable justification for such a one-sided clause. The appellate court also agreed with the trial court that the arbitration provision was so permeated with unconscionability that no single clause could be severed to remove the taint of illegality.

[i] 9 U.S.C. § 1.

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