MAURA ESCOBAR V. NAT'L MAINT. CONTRACTORS, LLC ( 2022 )

NOT FOR PUBLICATION FILED
UNITED STATES COURT OF APPEALS DEC 21 2022
MOLLY C. DWYER, CLERK
U.S. COURT OF APPEALS
FOR THE NINTH CIRCUIT
MAURA ESCOBAR; et al., No. 21-35765
Plaintiffs-Appellants, D.C. No. 3:20-cv-01695-SB
v.
MEMORANDUM*
NATIONAL MAINTENANCE
CONTRACTORS, LLC, a Delaware limited
liability company; et al.,
Defendants-Appellees.
MAURA ESCOBAR; et al., No. 21-35780
Plaintiffs-Appellees, D.C. No. 3:20-cv-01695-SB
v.
NATIONAL MAINTENANCE
CONTRACTORS, LLC, a Delaware limited
liability company; et al.,
Defendants-Appellants.
Appeal from the United States District Court
for the District of Oregon
Stacie F. Beckerman, Magistrate Judge, Presiding
Argued and Submitted December 6, 2022
*
This disposition is not appropriate for publication and is not precedent
except as provided by Ninth Circuit Rule 36-3.
Seattle, Washington
Before: McKEOWN, MILLER, and MENDOZA, Circuit Judges.
Appellants are individuals who either signed franchise agreements to
provide janitorial services or are family members of a signatory. They brought this
action against National Maintenance Contractors, LLC; NMC Franchising, LLC;
Marsden Services, LLC; and eight individual directors or officers (collectively
“NMC”) asserting various claims predicated on the theory that they are actually
employees, not franchisees. Appellants appeal from the district court’s order
compelling arbitration of their claims. NMC cross-appeals, challenging the district
court’s holding that the arbitration agreement’s forum-selection clause is
unenforceable. We have jurisdiction under 28 U.S.C. § 1291. We conclude that the
arbitration clause in the franchise agreement is unenforceable, and we affirm in
part, reverse in part, and remand for further proceedings.
“We review de novo the district court’s decision to grant or deny a motion to
compel arbitration.” Balen v. Holland Am. Line Inc., 583 F.3d 647, 652 (9th Cir.
2009). We review the underlying factual findings for clear error. Id.The parties agree that all of the agreements are governed by either Oregon or
Washington law. No party argues that the Federal Arbitration Act, 9 U.S.C. §§ 1–
16, preempts state law in this case. In Oregon and Washington, substantive
unconscionability, by itself, can be a sufficient basis for invalidating a contract. See
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Hatkoff v. Portland Adventist Med. Ctr., 287 P.3d 1113, 1118 (Or. Ct. App. 2012);
Hill v. Garda CL Northwest, Inc., 308 P.3d 635, 638 (Wash. 2013). We conclude
that three provisions of the arbitration agreement are substantively unconscionable:
the limit on punitive damages, the forum-selection clause, and the cost-sharing
provision.
First, the district court held that the arbitration agreement’s limit on punitive
damages is unconscionable, and NMC does not challenge that determination on
appeal.
Second, the arbitration agreement’s forum-selection clause is
unconscionable. The district court held that the clause is unconscionable because
of Appellants’ “geography and respective financial situations.” NMC argues that
Atlantic Marine Construction Co. v. United States District Court for the Western
District of Texas, 571 U.S. 49, 63–64 (2013), prohibits considering private-interest
factors such as geography and income. But the Court’s analysis in Atlantic Marine
concerned whether a “contractually valid forum-selection clause” could be
enforced. Id. at 62 & n.5. An unconscionable forum-selection clause is invalid, so
the analysis in Atlantic Marine is inapplicable here. See DePuy Synthes Sales, Inc.
v. Howmedica Osteonics Corp., 28 F.4th 956, 967 (9th Cir. 2022). Accordingly,
the district court did not err in considering private-interest factors in its
unconscionability analysis.
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Third, the arbitration agreement’s cost-sharing provision is unconscionable.
In Oregon and Washington, a cost-sharing provision is unconscionable if it denies
parties the opportunity to vindicate their rights because of their inability to pay. See
Vasquez-Lopez v. Beneficial Oregon, Inc., 152 P.3d 940, 951–52 (Or. Ct. App.
2007); Hill, 308 P.3d at 639. The provision in question provides that the “expenses
of the arbitration . . . shall be born equally by the parties, unless they agree
otherwise or unless the arbitrator in the award assesses such expenses or any part
thereof against any specified party or parties.” The district court erred in
concluding that “[t]he risk that [Appellants] may have to pay arbitration expenses
does not support a finding of unconscionability here.” For that conclusion, the
court relied on cases in which incomplete factual records required courts to
speculate about how a cost-sharing provision would affect a party’s ability to
access an arbitral forum. No such speculation is necessary here. Instead,
Appellants have provided undisputed evidence about the costs of arbitration and
how those costs would prevent them from bringing their claims. NMC provides no
evidence to the contrary. On this record, the cost-sharing provision is substantively
unconscionable.
Although the agreement contains a severability clause, severance is
inappropriate here because the arbitration agreement is permeated with
unconscionable provisions. See McKee v. AT&T Corp., 191 P.3d 845, 860–61
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(Wash. 2008). Oregon and Washington courts have held that severance is
inappropriate for arbitration agreements with two or three unconscionable
provisions. See Vasquez-Lopez, 152 P.3d at 949–54; Gandee v. LDL Freedom
Enters., 293 P.3d 1197, 1200–02 (Wash. 2013). In addition, we cannot sever an
unconscionable provision if doing so would require us to rewrite the contract.
Severing the cost-sharing provision would require exactly that because, in the
absence of the provision, it would fall to us to decide who should bear the costs of
arbitration. See Vasquez-Lopez, 152 P.3d at 954. We therefore conclude that the
entire arbitration agreement is substantively unconscionable and unenforceable, so
we need not reach the remaining issues briefed by the parties.
The motion to become an amicus (Dkt. No. 27) and motions to file
supplemental briefs (Dkt. Nos. 62, 68) are granted.
Costs shall be taxed against appellees/cross-appellants.
AFFIRMED in part, REVERSED in part, and REMANDED.
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