Wainwright v. Melaleuca, Inc. ( 2020 )

1 2 3 4 5 6 UNITED STATES DISTRICT COURT 7 EASTERN DISTRICT OF CALIFORNIA 8 9 JOANN WAINWRIGHT, No. 2:19-cv-02330-JAM-DB individually, and on behalf 10 of other members of the public similarly situated, 11 ORDER GRANTING DEFENDANT’S Plaintiff, MOTION TO COMPEL ARBITRATION AND 12 DISMISS ACTION v. 13 MELALEUCA, INC., an Idaho 14 corporation, 15 Defendants. 16 17 Joann Wainwright filed a putative class action against 18 Melaleuca, Inc. in Sacramento County Superior Court. Exh. C to 19 Notice of Removal (“Compl.”), ECF No. 1-5. Her eight-count 20 complaint alleged Melaleuca violated various provisions of the 21 California Labor Code. Id. Melaleuca timely removed the case to 22 federal court. Notice of Removal, ECF No. 1. It then filed a 23 motion to compel arbitration and either dismiss or stay the 24 underlying suit. ECF No. 9. Wainwright opposed the motion, ECF 25 No. 23, and Melaleuca filed a reply, ECF No. 23.1 26 27 1 This motion was determined to be suitable for decision without oral argument. E.D. Cal. L.R. 230(g). The hearing was 28 scheduled for January 14, 2020. 1 Wainwright and Melaleuca’s contract squarely prevents the 2 Court from determining whether Wainwright’s claims are 3 arbitrable. The enforceable delegation clause contained therein 4 reserves that question for the arbitrator. For this reason and 5 those discussed below, the Court GRANTS Melaleuca’s motion to 6 compel arbitration. The Court also GRANTS Melaleuca’s motion to 7 dismiss this action. The dismissal is without prejudice and 8 Wainwright may refile in the proper forum if the arbitrator finds 9 her claims are not arbitrable. 10 11 I. BACKGROUND 12 Wainwright is a California resident. In 2019, she created 13 an online account with Melaleuca and registered to work as an 14 Independent Marketing Executive for the company. Compl. ¶ 16; 15 Mot. at 2. In completing her registration, Wainwright clicked a 16 box that indicated she “agree[d] to and acknowledge[d] that [she] 17 read the terms & conditions outlined in the Independent Marketing 18 Executive Agreement, Statement of Policies[,] and Compensation 19 Plan.” Mot. at 2-3 (citing Martineau Decl. ¶ 20, ECF No. 9-4; 20 Exh. G to Martineau Decl.). Wainwright stopped working for 21 Melaleuca six months later. Compl. ¶ 16. She contends Melaleuca 22 misclassified her as an independent contractor and, consequently, 23 deprived her of several benefits employees are promised under the 24 California Labor Code. Compl. ¶ 18. 25 26 II. OPINION 27 A. Legal Standard 28 Under the Federal Arbitration Act, an arbitration agreement 1 contained in a “contract evidencing a transaction involving 2 commerce . . . shall be valid, irrevocable, and enforceable, save 3 upon such grounds as exist at law or in equity for the revocation 4 of any contract.” 9 U.S.C. § 2. Section two of the FAA “thereby 5 places arbitration agreements on equal footing with other 6 contracts.” Rent-A-Center, West, Inc. v. Jackson, 561 U.S. 63, 7 68 (2010). Absent a meritorious challenge to the validity of an 8 agreement to arbitrate, “courts must enforce arbitration 9 contracts according to their terms.” Henry Schein, Inc. v. 10 Archer and White Sales, Inc., 139 S. Ct. 524, 529 (2019). 11 Within an arbitration agreement, “parties may agree to have 12 an arbitrator decide not only the merits of a particular dispute 13 but also ‘gateway questions of arbitrability.’” Henry Schein, 14 Inc., 139 S. Ct. at 529. Common arbitrability questions include 15 “whether the parties have agreed to arbitration [and] whether 16 their agreement covers a particular controversy.” Id. When an 17 arbitration clause purports to delegate questions of 18 arbitrability to an arbitrator, it must do so “clearly and 19 unmistakably.” Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 20 79, 83 (2002). A contracting party may challenge the 21 enforceability of a delegation clause by arguing the delegation 22 is not “clear and unmistakable” or by raising a state law 23 defense to contract formation. See Rent-A-Center, West, Inc., 24 561 U.S. at 71 (explaining that “to immunize an arbitration 25 agreement from judicial challenge on the ground of fraud in the 26 inducement would be to elevate it over other forms of 27 contract.”). 28 /// 1 B. Analysis 2 Melaleuca argues the parties entered into a valid 3 arbitration agreement when Wainwright enrolled as an Independent 4 Marketing Executive for the company. Mot at 2-4. It further 5 contends the arbitration agreement contains an enforceable 6 delegation clause that prevents the Court from adjudicating the 7 question of whether Wainwright’s claims fall within the 8 arbitration agreement’s reach. Id. at 6-7. Wainwright 9 disagrees. She argues this Court must determine whether her 10 claims are arbitrable because the agreement’s delegation clause 11 is unenforceable. Opp’n at 3-6. Specifically, Wainwright 12 maintains the delegation clause did not “clearly and 13 unmistakably” delegate the question of arbitrability to an 14 arbitrator and that the delegation clause is unconscionable. 15 Opp’n at 2-6. The Court is not persuaded by either defense. 16 1. Applicable Law 17 Before the Court can address the merits of Wainwright’s 18 defenses, it must determine what law applies to each analysis. 19 The parties do not dispute that the “clear and unmistakable” 20 standard is born out of the Supreme Court’s interpretation of 21 the FAA. See AT&T Tech., Inc. v. Comm’n Workers of America, 475 22 U.S. 643, 649 (1986) (collecting cases). Because this defense 23 is a product of federal law, federal courts’ interpretations of 24 this statute rule the day. Specifically, this Court is bound by 25 decisions of the Ninth Circuit and Supreme Court. See Hart v. 26 Massanari, 266 F.3d 1155, 1171-72 (9th Cir. 2001). 27 Wainwright and Melaleuca do, however, dispute what law 28 applies to this Court’s unconscionability analysis. Melaleuca 1 argues the Idaho choice-of-law clause contained in the 2 Independent Marketing Executive Agreement (“IMEA”) serves as the 3 beginning and end of the analysis, i.e., Idaho law applies. 4 Mot. at 8; Reply at 2 n.1. Wainwright, on the other hand, 5 contends the Court cannot give the choice-of-law clause effect 6 because it would “violate a strong California public policy or 7 result in an evasion of a statute of the forum protecting its 8 citizens.” Opp’n. at 9 (quoting Hall v. Superior Court, 150 9 Cal. App. 3d 411, 416-17 (1983)). Absent an enforceable choice- 10 of-law clause, she asserts, this Court should apply the law of 11 the forum. See id. at 4. 12 Both California and Idaho adopt the approach set forth in 13 the Second Restatement of Conflict of Laws to determine whether 14 a choice-of-law clause is enforceable. See Nedlloyd Lines B.V. 15 v. Superior Court, 3 Cal. 4th 459, 464-465 (1992); Carroll v. 16 MBNA America Bank, 148 Idaho 261, 265 (2009); see also REST 2d 17 CONFL § 187. The first question under Section 187(1) is whether 18 the “particular issue” in dispute—here, the conscionability of 19 the delegation clause—is “one which the parties could have 20 resolved by an explicit provision in their agreement directed to 21 that issue.” See REST 2d CONFL § 187(1). If the answer is yes, 22 section 187(1) applies and the choice-of-law clause is 23 enforceable with respect to that particular issue. REST 2d 24 CONFL § 187 cmt c. If not, the Court proceeds to section 25 187(2). Id. cmt d. Here, neither Wainwright nor Melaleuca 26 suggest that contracting parties can agree to be bound by 27 unconscionable terms. Because the particular issue is not one 28 the parties could resolve by explicit agreement, Section 187(2) 1 applies. 2 Section 187(2) instructs courts to enforce a contract’s 3 choice-of-law clause unless one of two exceptions apply. REST 4 2d CONFL § 187 (emphasis added). The exceptions contained in 5 section 187 prevent courts from enforcing a choice-of-law 6 provisions when: 7 (a) the chosen state has no substantial relationship to the parties or the transaction and there is no 8 other reasonable basis for the parties’ choice, or 9 (b) application of the law of the chosen state would be contrary to a fundamental policy of a state 10 which has a materially greater interest than the chosen state in the determination of the 11 particular issue and which, under the rule of § 188, would be the state of the applicable law 12 in the absence of an effective choice of law by the parties. 13 14 REST 2d CONFL § 187(2). 15 The first exception does not apply. Melaleuca has a 16 substantial relationship to Idaho. It was not only incorporated 17 in Idaho but is also headquartered there. Martineau Decl. ¶ 3. 18 The corporation undoubtedly has an interest in having its 19 contracts governed by the law of the state where it principally 20 exists and makes important business decisions. 21 The second exception, however, poses a more nuanced 22 question. Although not cited by either party, the Court finds 23 that its previous case, Stryker Sales Corp. v. Zimmer Biomet, 24 Inc., 231 F. Supp. 3d 606, 619-20 (E.D. Cal. 2017), provides a 25 helpful illustration of this analysis. See also REST 2d CONFL 26 § 187 cmt g. Under section 187(2)(b) a court must, as a 27 threshold matter, determine whether the chosen law is contrary 28 to a fundamental policy of either the forum state or the state 1 whose law would otherwise apply under section 188 of the 2 restatement. Stryker Sales Corp., 231 F. Supp. 3d at 619-20; 3 REST 2d CONFL § 187 cmt g; see also REST 2d CONFL § 188. If the 4 court determines that enforcing a choice-of-law clause would be 5 contrary to a fundamental policy of the forum state, it must 6 still determine (1) whether “the interests of the forum state 7 are ‘materially greater’ than those of the chosen state” and 8 (2) whether the forum state’s interests “would be more seriously 9 impaired by enforcement of the parties’ [] choice-of-law 10 provision than would the interests of the chosen state by 11 application of the law of the forum state.” Id. If applying 12 the choice-of-law clause would not be contrary to a fundamental 13 policy of the forum state, however, the analysis ends there—the 14 Court will enforce the contractually-chosen state’s law. 15 Stryker Sales Corp., 231 F. Supp. 3d at 620 (quoting Nedlloyd 16 Lines B.V. v. Superior Court, 3 Cal.4th 459, 466 (1992)). 17 As comment g to section 187 explains, there is no bright- 18 line definition of a “fundamental policy.” See id. cmt. g. But 19 “to be ‘fundamental,’ a policy must in any event be a 20 substantial one.” Id. The forum court cannot “refrain from 21 applying the chosen law merely because [it] would lead to a 22 different result than would be obtained under the local law of 23 the state of the otherwise applicable law.” Id. Wainwright 24 argues the choice-of-law provision violates California’s 25 fundamental policy because it “disables California substantive 26 law, undermining [plaintiff’s] claims on the merits.” Opp’n at 27 9 (quoting Pinela v. Nieman Marcus, 238 Cal. App. 4th 227, 251 28 (2015)) (modifications in original)). In so doing, Wainwright 1 urges the Court to find the choice-of-law clause is 2 unenforceable with respect to the delegation clause because it 3 is unenforceable with respect to her broader claims. But the 4 section 187 analysis does not paint with such a broad brush. 5 Instead, it instructs courts to identify “particular issues” and 6 assess whether the choice-of-law clause is enforceable with 7 respect to each discrete issue. See REST 2d CONFL 187(2)(b). 8 So, the question here is not whether resolving all of 9 Wainwright’s claims under Idaho law would violate the forum’s 10 fundamental policy; rather, it is whether conducting an 11 unconscionability analysis of the contract’s delegation clause 12 under Idaho law would violate the forum’s fundamental policy. 13 Wainwright failed to identify a distinction between California’s 14 and Idaho’s unconscionability laws that is so substantial it 15 amounts to a fundamental policy difference. Given her inability 16 to satisfy this threshold requirement, the choice-of-law inquiry 17 ends here. See Stryker Sales Corp., 231 F. Supp. 3d at 620 18 (quoting Nedlloyd Lines B.V. v. Superior Court, 3 Cal.4th 459, 19 466 (1992)). Idaho law applies. 20 2. Clarity of Delegation 21 Having decided what law applies to each of Wainwright’s 22 defenses, the Court proceeds to the question of whether the 23 delegation clause in the parties’ contract “clearly and 24 unmistakably” delegates the question of arbitrability to an 25 arbitrator. As stated above, contracting parties “may delegate 26 threshold arbitrability questions to the arbitrator, so long as 27 the parties’ agreement does so by clear and unmistakable 28 evidence.” Henry Schein, 139 S. Ct. at 530 (internal quotations 1 omitted). An enforceable delegation clause will direct an issue 2 of arbitrability to the arbitrator even if the argument in favor 3 of arbitration is “wholly groundless.” Id. 4 Wainwright argues the delegation clause is unenforceable 5 against her because the IMEA did not make clear that the clause 6 would survive the termination of her agreement. Opp’n 2-3. She 7 contends that because the IMEA expressly stated that some 8 provisions would survive termination of the agreement—the 9 delegation clause not among them—it necessarily follows the 10 provisions not referenced would become inoperable once she 11 stopped working with Melaleuca. Id. At the very least, she 12 argues, the contract’s failure to reference the delegation 13 clause within the survival provision gives rise to uncertainty. 14 Id. But as Melaleuca responds, Wainwright’s claims of ambiguity 15 are belied by the very text of the delegation clause. Reply at 16 1. It states: 17 Except as outlined in Policy 45(b) below, all claims or disputes of any nature between one or more current 18 or former Marketing Executives and Melaleuca . . . if not resolved by mutual agreement, shall be resolved in 19 accordance with the follow procedures . . . . All issues are for the arbitrator to decide, including 20 issues relating to the scope and enforceability of the arbitration provision. 21 22 Exh. E to Martineau Decl. ¶ 45(a), (a)(i) (“Statement of 23 Policies”) (emphasis added), ECF No. 9-9. 24 Courts interpret contracts by looking first to their plain 25 language. Boise Mode, LLC v. Donahoe Pace & Partners Ltd., 154 26 Idaho 99, 108 (2012). A plain reading of Policy § 45 indicates 27 that the parties agreed to delegate issues of arbitrability to 28 an arbitrator even after Wainwright terminated her work with 1 Melaleuca. This delegation is clear and unmistakable. Unlike 2 the plaintiff in Peleg v. Nieman Marcus Group, Inc., 204 Cal. 3 App. 4th 1425, 1442-43 (2012), Wainwright fails to identify any 4 part of the contract that truly undermines the clarity of this 5 provision. The Court therefore finds the parties’ contract 6 clearly and unmistakably delegated questions related to the 7 scope and enforceability of the arbitration agreement to an 8 arbitrator. 9 3. Conscionability of Delegation 10 The Court also finds the delegation clause is conscionable 11 under Idaho law. While true that “equity may intervene” if a 12 contract’s terms are unconscionable, “[c]ourts do not possess 13 the roving power to rewrite contracts in order to make them more 14 equitable,”. Lovey v. Regence BlueShield of Idaho, 139 Idaho 15 37, 41 (2003). Unconscionability will only serve as a basis for 16 invalidating all or part of a contract when both procedural and 17 substantive unconscionability are present. Id. At 42. 18 As Lovey explains, “[p]rocedural unconscionability relates 19 to the bargaining process leading to the agreement while 20 substantive unconscionability focuses upon the terms of the 21 agreement itself.” Id. A contract or one of its terms may be 22 procedurally unconscionable when it “was not the result of free 23 bargaining between the parties.” Id. Indicators of procedural 24 unconscionability include a party’s lack of voluntariness or her 25 lack of knowledge. Id. Idaho courts consider “factors such as 26 the use of high pressure tactics, coercion, oppression[, ] . . . 27 imbalance on the parties’ bargaining power . . . power, or other 28 pressures” to determine whether a party entered into an 1 agreement involuntarily. Id. To gauge whether a contracting 2 party lacked knowledge when entering that agreement, Idaho 3 courts consider “the use of inconspicuous print, ambiguous 4 wording[, or] complex legalistic language.” Id. They also ask 5 whether both parties had the “opportunity to study the contract 6 and inquire about its terms” and whether there was a “disparity 7 in the sophistication, knowledge, or experience of the parties.” 8 Id. 9 Wainwright provides two bases for her procedural 10 unconscionability argument but Lovey is fatal to both. 139 11 Idaho at 43-45. She first contends that adhesion contracts 12 offered on a take-it-or-leave-it basis are per se procedurally 13 unconscionable. Opp’n at 4-5. California law takes this view 14 of adhesion contracts, Szetela v. Discover Bank, 97 Cal. App. 4th 15 1094, 1100 (2002), but Idaho law does not. See Lovey, 139 Idaho 16 at 43 (“[A]n adhesion contract cannot be held procedurally 17 unconscionable solely because there was no bargaining over the 18 terms.”). For the adhesive nature of a contract to serve as the 19 basis for a finding of procedural unconscionability, it must be 20 accompanied by evidence that “market factors, timing, or other 21 pressures” prevented one of the parties “from being able to 22 contract with another party on more favorable terms or to 23 refrain from contracting at all.” Id. Wainwright does not 24 adduce any such evidence. Indeed, she concedes she could have 25 refrained from contracting with Melaleuca. Opp’n at 5. 26 Second, Wainwright argues the delegation clause was 27 procedurally unconscionable because it “was buried within 24 28 pages of single-spaced, 9-point font in a document that [she] 1 had no opportunity to separately sign.” Opp’n at 5-6. In 2 Lovey, the Idaho Supreme Court addressed and rejected an almost 3 identical argument. 139 Idaho at 44-45. In doing so, it found 4 that the arbitration clause—found on page seventeen of a twenty- 5 five-page health insurance contract—was not procedurally 6 unconscionable. Id. Each term in the Lovey contract was 7 printed in the same font and each provision “was separately 8 numbered, titled, and set off by spacing from the preceding and 9 following provisions.” Id. At 44. Given the clarity afforded 10 by the contract’s organization and consistency, the court found 11 accusations of “unfair surprise” rang hollow. Id. Here, 12 Melaleuca’s Statement of Policies—the document containing the 13 delegation clause—is thirteen pages. See generally Statement of 14 Policies. The document’s spacing and overall organization is 15 conducive to both reading and understanding its contents. The 16 document separates each page into three columns. Id. Each 17 policy is numbered and given a descriptive heading. Id. 18 Specifically, the Statement of Policies labels Policy 45, 19 “Dispute Resolution and Arbitration.” Statement of Policies at 20 9. The headings’ font is light blue and slightly larger than 21 the body text. Nothing in the document specifically emphasizes 22 Policy 45; however, nothing in the document attempts to obscure 23 it either. See id. Bound by the Idaho Supreme Court’s analysis 24 in Lovey, the Court does not find that the form this delegation 25 clause takes gives rise to a finding of procedural 26 unconscionability. 27 Nor is the delegation clause substantively unconscionable. 28 Substantive unconscionability does not focus on how the parties 1 came to contract with each other. In contrast, it “focuses 2 solely upon the terms of the contract” and whether they result 3 in “a bargain that no person in his or her senses . . . would 4 make on one hand and that no honest and fair person would accept 5 on the other.” Id. Put simply, a court must decide whether a 6 contract or provision is so “one-sided or oppressive” that it 7 cannot stand. Id. To reach this decision, Idaho courts weigh 8 three factors: the purpose and effect of the terms at issue, the 9 needs of both parties and the commercial setting in which the 10 agreement was executed, and the reasonableness of the terms at 11 the time of contracting. Id. At 43. 12 Wainwright’s substantive unconscionability argument, 13 however, attempts to rest solely upon Pinela, 238 Cal. App. 4th 14 at 248-49. Opp’n at 6. There, the California Supreme Court 15 held a delegation clause was substantively unconscionable where 16 it, when viewed in conjunction with the choice-of-law clause, 17 served as a complete bar to raising an unconscionability defense 18 under California law. 23 Cal. App. 4th at 245-49. Even if 19 California law applied, Pinela would not compel the result 20 Wainwright seeks. As Melaleuca argues, the choice-of-law 21 provision in Pinela materially differs from the one at issue 22 here. See Reply at 2. The clause in Pinela stated: 23 This Agreement shall be construed by, and enforced in accordance with the laws of the State of Texas (except 24 where specifically stated otherwise herein), except that for claims or defenses arising under federal law, 25 the arbitrator shall follow the substantive law as set forth by the United States Supreme Court and the 26 United States Court of Appeals for the Fifth Circuit. The arbitrator does not have the authority to enlarge, 27 add to, subtract from, disregard, or . . . otherwise alter the parties’ rights under such laws, except to 28 the extent set forth herein. 1 Pinela, 238 Cal. App. 4th at 243-44 (emphasis and modifications 2 in original). Essentially, the Pinela contract not only set 3 forth a choice of law, but also prohibited the arbitrator from 4 finding that choice unenforceable–even “where enforcement would 5 result in substantial injustice, as defined by California law.” 6 Id. at 248. 7 The arbitrator here is not similarly hamstrung. As 8 Melaleuca argues, “nothing in the parties’ agreement restricts 9 the arbitrator from considering the enforceability of [this] 10 choice-of-law provision and, in the [] event the provision were 11 found unenforceable, applying California unconscionability law.” 12 Reply at 2. Indeed, because Idaho adopts Section 187 of the 13 Second Restatement of Conflict of Laws, a choice-of-law dispute 14 would require the arbitrator to consider California public 15 policy before deciding what law applies. See supra at 4-8; see 16 also REST 2nd CONFL § 187 cmt g. The delegation clause is not 17 substantively unconscionable. 18 Accordingly, the Court finds the delegation clause 19 contained in the Statement of Policies is enforceable. This 20 clause delegates all “issues relating to the scope and 21 enforceability of the arbitration provision” to the arbitrator. 22 Statement of Policies § 45. This includes Wainwright’s 23 challenges to the forum selection clause and the arbitration 24 agreement as a whole. See Opp’n at 7-17. The Court, therefore, 25 GRANTS Melaleuca’s motion to compel Wainwright’s claims to 26 adjudication. With nothing left to adjudicate, the Court also 27 GRANTS Melaleuca’s motion to dismiss. See Ortiz v. Hobby Lobby 28 Stores, Inc., 52 F. Supp. 3d 1070, 1089 (E.D. Cal. 2014). The 1 Court orders this dismissal without prejudice to Wainwright re- 2 filing in the proper forum should the arbitrator find her claims 3 are not arbitrable. 4 4. Page Limits 5 The Court’s Order re Filing Requirements (“Order”), ECF No. 6 3-2, limits memoranda in support of and opposition to motions to 7 compel to fifteen pages. See Order at 1. A violation of the 8 Order requires the offending counsel (not the client) to pay 9 $50.00 per page over the page limit to the Clerk of Court. Id. 10 The Court does not consider arguments made past the page limit. 11 | Id. Wainwright’s opposition brief exceeded the page limit by two 12 pages. Wainwright’s counsel must therefore send a check payable 13 to the Clerk for the Eastern District of California for $100.00 14 no later than seven days from the date of this Order. 15 16 Til. ORDER 17 For the reasons set forth above, the Court GRANTS 18 Melaleuca’s motion to compel arbitration and dismisses this 19 action without prejudice to re-filing in the proper forum should 20 the arbitrator find Wainwright’s claims are not arbitrable. 21 IT IS SO ORDERED. 22 Dated: January 24, 2020 23 kA 24 Geren aaa pebrsacr 00k 25 26 27 28 15