Powers v. Northrop Grumman Corporation ( 2020 )

1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 SOUTHERN DISTRICT OF CALIFORNIA 10 11 JAMIE POWERS, WILLIAM DILLARD, Case No.: 20cv1506 DMS(MSB) CORY JONES, JEFFERY KOUT, 12 DOUGLAS MILLER, DAVID PERHAM, ORDER (1) GRANTING 13 JOHN WILLIAMS, all individuals and DEFENDANT’S MOTION TO ROES 1-50, COMPEL ARBITRATION AND 14 DISMISSING CASE AND (2) Plaintiffs, 15 DENYING AS MOOT v. DEFENDANT’S MOTION TO 16 TRANSFER VENUE NORTHRUP GRUMMAN 17 CORPORATION, a multi-national entity, 18 and DOES 1 through 50, inclusive 19 Defendants. 20 21 This case comes before the Court on Defendant’s motion to compel arbitration or, 22 in the alternative, to transfer venue. Plaintiffs filed an opposition and Defendant filed a 23 reply. For the following reasons, the Court grants Defendant’s motion to compel and 24 dismisses this case, and denies as moot Defendant’s motion to transfer venue. 25 I. 26 BACKGROUND 27 Plaintiffs are former employees of Defendant who were employed in San Diego and 28 deployed to the Middle East as part of the Battlefield Airborne Communications Node 1 Program (“BACN”) “in support of the Global Hawk UAV aircraft/BD-700/E-1 lA aircraft 2 as contracted by the US Air Force.” (Compl. ¶15.) Plaintiffs allege that during their 3 deployments, their supervisors instructed them to flat bill twelve hours of work time and 4 1.5 hours of travel time per day regardless of the amount of work they actually performed. 5 Plaintiffs allege they complained to their supervisors about this practice and the general 6 overstaffing of the Program, but were told to continue billing as directed. 7 Plaintiffs allege the Air Force eventually learned of this billing practice and initiated 8 an investigation through the United States Department of Justice (“DOJ”). (Id. ¶22.) As 9 part of that investigation, Plaintiffs were interviewed by management and attorneys for 10 Defendant and attorneys from the DOJ. (Id.) During those interviews, Plaintiffs reported 11 Defendant’s billing practice, their complaints about that practice, and Defendant’s response 12 to those complaints, which Plaintiffs allege was “to essentially ‘sit down, shut up and 13 color.’” (Id.) According to Plaintiffs, the DOJ ultimately concluded that Defendant had 14 overbilled the Air Force by over $5 million in false labor charges as part of the BACN 15 Program. (Id. ¶23.) 16 Plaintiffs allege the DOJ entered into a multi-million dollar civil settlement with 17 Defendant to settle those charges. (Id.) As part of that settlement, the DOJ agreed not to 18 bring criminal charges against Defendant, and Defendant was allowed to continue its 19 participation in the BACN Program. (Id.) Plaintiffs also allege that as part of that 20 settlement, Defendant agreed to retaliate against Plaintiffs and other employees for the 21 billing practice even though they were simply following directions from their supervisors 22 and provided truthful testimony to investigators. (Id.) Defendant carried out that part of 23 the agreement by then terminating Plaintiffs’ employment. (Id. ¶25.) Plaintiffs allege they 24 were essentially “used as sacrificial lambs in Defendant's Civil Settlement with the USAF 25 to allow Defendants to continue their lucrative BACN services contract with the USAF.” 26 (Id. ¶26.) 27 As a result of these events, Plaintiffs filed the present case against Defendant in San 28 Diego Superior Court alleging claims for (1) wrongful termination in violation of 1 fundamental public policies, (2) violation of California Labor Code § 1102.5, (3) negligent 2 hiring, supervision and retention, (4) unfair business practices in violation of California 3 Business and Professions Code § 17200, (5) breach of fiduciary duty, (6) breach of the 4 implied covenant of good faith and fair dealing, (7) breach of written employer policies, 5 (8) intentional infliction of emotional distress, and (9) negligent infliction of emotional 6 distress. Defendant then removed the case to this Court on the basis of diversity 7 jurisdiction, and filed the present motion. 8 II. 9 DISCUSSION 10 Defendant moves to compel arbitration of Plaintiffs’ claims pursuant to International 11 Assignment Agreements (“IAAs”) and International Travel Agreements (“ITAs”) each 12 Plaintiff executed with Defendant as part of their employment. In the alternative, 13 Defendant moves to transfer this case to the United States District Court for the Eastern 14 District of Virginia. Plaintiffs respond that the arbitration provisions in the Agreements 15 are unconscionable and unenforceable. They also argue the factors under 28 U.S.C. § 16 1404(a) weigh against transfer.1 17 / / / 18 19 20 1 Plaintiffs also raise two threshold arguments: First, that Defendant waived its right to 21 bring the present motion by filing an Answer on the same day it filed the motion, and second, that the Federal Arbitration Act (“FAA”), 9 U.S.C. § 1 et seq., does not apply to 22 the Agreements at issue. Both of these arguments are meritless. Federal Rule of Civil 23 Procedure 12(b) allows for the filing of motions “before pleading”, which Defendant did here. See Scottrade, Inc. v. Davenport, No. CV-11-03-BLG-RFC, 2011 WL 13130877, at 24 *1 (D. Mont. June 20, 2011) (finding motion was filed before answer where both 25 documents were filed on same day but motion was filed first). As to Plaintiffs’ second argument, the Agreements clearly affect interstate commerce, (see Reply at 3), and the 26 Supreme Court has rejected Plaintiffs’ argument that the FAA does not apply to 27 employment contracts. Circuit City Stores, Inc. v. Adams, 532 U.S. 105, 113-19 (2001). Accordingly, the Court proceeds to address the merits of Defendant’s motion to compel. 28 1 A. Legal Standard 2 The FAA governs the enforcement of arbitration agreements involving interstate 3 commerce. Am. Express Co. v. Italian Colors Rest., 570 U.S. 228, 232–33 (2013). “The 4 overarching purpose of the FAA ... is to ensure the enforcement of arbitration agreements 5 according to their terms so as to facilitate streamlined proceedings.” AT&T Mobility LLC 6 v. Concepcion, 563 U.S. 333, 344 (2011). “The FAA ‘leaves no place for the exercise of 7 discretion by the district court, but instead mandates that district courts shall direct the 8 parties to proceed to arbitration on issues as to which an arbitration agreement has been 9 signed.’” Kilgore v. KeyBank, Nat. Ass’n, 718 F.3d 1052, 1058 (9th Cir. 2013) (quoting 10 Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213, 218 (1985)) (emphasis in original). 11 Accordingly, the Court’s role under the FAA is to determine “(1) whether a valid 12 agreement to arbitrate exists, and if it does, (2) whether the agreement encompasses the 13 dispute at issue.” Chiron Corp. v. Ortho Diagnostic Sys., Inc., 207 F.3d 1126, 1130 (9th 14 Cir. 2000). If both factors are met, the Court must enforce the arbitration agreement 15 according to its terms. 16 Arbitration is a matter of contract, and a party “cannot be required to submit 17 to arbitration any dispute which he has not agreed so to submit.” Tracer Research Corp. 18 v. Nat’l Envtl. Servs. Co., 42 F.3d 1292, 1294 (9th Cir. 1994) (citation omitted). A court 19 must therefore determine whether there is an agreement to arbitrate before 20 ordering arbitration. Wagner v. Stratton Oakmont, Inc., 83 F.3d 1046, 1048 (9th Cir. 21 1996). State law applies in determining which contracts are binding and enforceable under 22 the FAA, if that law governs the validity, revocability, and enforceability of contracts 23 generally. Arthur Anderson LLP v. Carlisle, 556 U.S. 624, 630–31 (2009). 24 B. Valid Agreement to Arbitrate 25 As set out above, the first issue under the FAA is whether there is a valid agreement 26 to arbitrate. Plaintiffs do not dispute that they all signed IAAs or ITAs, or that each of the 27 Agreements contains an arbitration provision. In the IAAs, that provision in found in 28 Paragraph 11, which states: “Arbitration of Disputes. You acknowledge that any 1 employment-related legal claims during or after your assignment will be subject to the 2 Northrup Grumman Mediation/Binding Arbitration Program USHR 2-31, Arbitration and 3 Mediation, but that the arbitration hearing and related proceedings shall be convened and 4 conducted in Falls Church, VA U.S.” (Decl. of Nozomi Bullock in Supp. of Mot. (“Bullock 5 Decl.”), Ex. 4, ECF No. 5-1 at 38.) The provision in the ITAs is essentially identical, save 6 for the location of the arbitration proceedings, which are to be conducted in McLean, 7 Virginia rather than Falls Church. (Bullock Decl., Ex. 3, ECF No. 5-1 at 31.) On their 8 face, these provisions demonstrate the existence of a valid agreement to arbitrate. 9 “Once it is established that a valid agreement to arbitrate exists, the burden shifts to 10 the party seeking to avoid arbitration to show that the agreement should not be enforced.” 11 Yeomans v. World Fin. Grp. Ins. Agency, Inc., No. 19-CV-00792-EMC, 2020 WL 12 5500453, at *5 (N.D. Cal. Sept. 11, 2020) (citing Green Tree Fin. Corp.-Alabama v. 13 Randolph, 531 U.S. 79, 92 (2000)). Here, Plaintiffs argue the agreements should not be 14 enforced because they are unconscionable.2 15 “Unconscionability has ‘both a procedural and a substantive element, the former 16 focusing on oppression or surprise due to unequal bargaining power, the latter on overly 17 harsh or one-sided results.’” Tompkins v. 23andMe, Inc., 840 F.3d 1016, 1023 (9th Cir. 18 2016) (quoting Sanchez v. Valencia Holding Co., LLC, 61 Cal.4th 899, 910 (2015)). “Both 19 procedural and substantive unconscionability must be present in order for a clause to be 20 unconscionable, but they need not necessarily be present to the same degree.” Id. (citing 21 Armendariz v. Found. Health Psychcare Services, 24 Cal.4th 83, 114 (2000)). Rather, a 22 “sliding scale” approach is used “to determine unconscionability—greater substantive 23 unconscionability may compensate for lesser procedural unconscionability.” Chavarria v. 24 25 2 The parties dispute whether Virginia or California law applies to the issue of the validity 26 and enforceability of the agreements, with Defendant assuming Virginia law applies and 27 Plaintiffs relying on California law. Regardless of this dispute, Defendant argues the result under California and Virginia law is the same. (Mot. at 6.) Therefore, the Court will 28 1 Ralphs Grocery Co., 733 F.3d 916, 922 (9th Cir. 2013) (citing Armendariz, 24 Cal. 4th at 2 114). 3 1. Procedural Unconscionability 4 As mentioned above, “[p]rocedural unconscionability concerns the manner in which 5 the contract was negotiated and the respective circumstances of the parties at that time, 6 focusing on the level of oppression and surprise involved in the agreement.” Id. (citations 7 omitted). “Oppression addresses the weaker party's absence of choice and unequal 8 bargaining power that results in ‘no real negotiation.’” Id. (quoting A & M Produce Co. v. 9 FMC Corp., 135 Cal. App. 3d 473, 186 Cal. Rptr. 114, 122 (1982)). “Surprise involves 10 the extent to which the contract clearly discloses its terms as well as the reasonable 11 expectations of the weaker party.” Id. (citing Parada v. Super. Ct., 176 Cal. App. 4th 1554, 12 98 Cal. Rptr. 3d 743, 757 (2009)). 13 Here, Plaintiffs argue the agreements are procedurally unconscionable because they 14 were required to sign the ITAs and IAAs as a condition of their employment. Defendant 15 disputes this, asserting Plaintiffs were required to sign the Agreements as a condition of 16 their overseas deployments only, not as a condition to employment generally. (Reply at 17 5.) Nevertheless, even assuming some part of Plaintiffs’ employment was conditional on 18 their assent to the Agreements, Defendant argues that does not render the arbitration 19 agreements procedurally unconscionable. 20 Assuming there was some measure of adhesion in the Agreements, that would give 21 rise to “a degree of procedural unconscionability[.]” Lang v. Skytap, Inc., 347 F.Supp.3d 22 420, 427 (N.D. Cal. 2018). However, the adhesive nature of the Agreements, standing 23 alone, would not make the arbitration agreements “per se unenforceable.” Id. Rather, to 24 find the arbitration agreements unenforceable, the Court would still have to “find a high 25 degree of substantive unconscionability, in addition to the existing minimal procedural 26 unconscionability due to the adhesiveness of the contract.” Id. (citing Dotson v. Amgen, 27 Inc., 181 Cal. App. 4th 975, 982 (2010)). Accordingly, the Court turns to the issue of 28 substantive unconscionability below. 1 2. Substantive Unconscionability 2 “A contract is substantively unconscionable when it is unjustifiably one-sided to 3 such an extent that it ‘shocks the conscience.’” Chavarria, 733 F.3d at 923 (quoting 4 Parada, 176 Cal.App.4th 1554, 98 Cal.Rptr.3d at 759). Here, Plaintiffs argue the 5 arbitration agreements are substantively unconscionable because arbitration in Virginia 6 would be prohibitively expensive for Plaintiffs, and because they are unlikely to find a 7 neutral arbitrator in Defendant’s home state of Virginia. 8 Plaintiffs’ first argument is essentially a challenge to the arbitration agreements’ 9 forum selection clauses. In Smith, Valentino & Smith, Inc. v. Superior Court, 17 Cal. 3d 10 491, 495–96, 131 Cal. Rptr. 374 (1976) (In Bank), the California Supreme Court “joined 11 the ‘modern trend which favors enforceability’ of forum selection clauses, and concluded 12 ‘that forum selection clauses are valid and may be given effect, in the court's discretion and 13 in the absence of a showing that enforcement of such a clause would be unreasonable.’” 14 Tompkins, 840 F.3d at 1027 (quoting Smith, Valentino, 17 Cal. 3d at 495–96). “A clause 15 would be unreasonable if ‘the forum selected would be unavailable or unable to accomplish 16 substantial justice.’” Id. (quoting Smith, Valentino, 17 Cal. 3d at 494). Inconvenience and 17 expense of the forum, however, do not meet that standard. Id. (citing Smith, Valentino, 17 18 Cal. 3d at 496). Not surprisingly, therefore, Plaintiffs have not cited a single case holding 19 that the costs associated with traveling to another state as contractually agreed to would 20 render the agreement substantively unconscionable. 21 Pursuant to the IAAs and ITAs, Plaintiffs agreed to travel substantial distances for 22 their employment, which occurred primarily in the Middle East. As a result, the actions 23 that form the basis of the claims here took place overseas. (Reply Br. at 7.) Plaintiffs 24 agreed that disputes arising out of that employment would take place in Virginia, a logical 25 choice given that Defendant is headquartered there and controlled Plaintiffs’ work and 26 assignments from that location. Id. The forum selection clause is not unreasonable under 27 these circumstances. See Gountoumas v. Giaran, Inc., No. CV 18-7720-JFW(PJWx), 2018 28 WL 6930761, at *10-11 (C.D. Cal. Nov. 21, 2018) (compelling California plaintiff to 1 arbitrate in Massachusetts and noting inconvenience and additional expense do not render 2 selected forum unreasonable). Accordingly, Plaintiffs’ first argument does not 3 demonstrate the arbitration agreements are substantively unconscionable. 4 Plaintiffs’ second argument regarding their inability to find a neutral arbitrator in 5 Defendant’s home state of Virginia is also unpersuasive. Indeed, it is purely speculative 6 and not supported by any legal authority. As Defendant points out, the arbitration 7 agreements set out the procedure for selecting an arbitrator, which requires participation 8 by both parties. (See Bullock Decl., Ex. A, ECF No. 5-1 at 15.) The parties are required 9 first to “confer in an attempt to agree on a mutually acceptable arbitrator.” (Bullock Decl., 10 Ex. A, ECF No. 5-1 at 15.) If the parties are unable to agree, they must then request a list 11 of proposed arbitrators, and go through that list until one is selected. (Id.) This kind of 12 process has failed substantive unconscionability challenges in at least one other case, see 13 Warren v. Del Taco Restaurants, Inc., No. EDCV180082JGBSPX, 2018 WL 6167937, at 14 *6 (C.D. Cal. Apr. 23, 2018), and it survives Plaintiffs’ challenge here. Accordingly, the 15 Court finds the arbitration agreements are not substantively unconscionable.3 16 In sum, although there is some degree of procedural unconscionability associated 17 with the adhesive nature of the Agreements, Plaintiffs have failed to show the arbitration 18 agreements are in any way substantively unconscionable. When considered under the 19 sliding scale approach described above, the Court finds the arbitration agreements are not 20 unconscionable, and are therefore valid and enforceable. 21 22 23 3 Plaintiffs’ raise one additional argument against enforcement of the arbitration agreements, namely, that in California, mandatory arbitration agreements in the 24 employment context are disfavored as a matter of public policy. In support of this 25 argument, Plaintiffs cite California Assembly Bill 51, which was signed into law on October 10, 2019. However, Plaintiffs acknowledge that enforcement of this law has been 26 enjoined by a federal court, and it is “expressly not” retroactive. (Opp’n at 13-14.) 27 Therefore, this argument does not warrant a finding that the arbitration agreements are unenforceable. 28 1 ||D. Scope of the Arbitration Provision 2 The only other issue is whether the arbitration agreement covers Plaintiffs’ claims. 3 Plaintiffs do not raise any arguments on this issue, which the Court construes as an 4 acknowledgement that their claims are covered by the arbitration agreement. To the extent 5 || there is any dispute, the Court finds the language of the agreement is broad enough to cover 6 ||the claims asserted. (See Bullock Decl., Ex. 3, ECF No. 5-1 at 31) (stating “any 7 ||employment-related legal claims during or after your travel” are subject to arbitration). 8 II. 9 CONCLUSION AND ORDER 10 For the reasons set out above, the Court grants Defendant’s motion to compel 11 arbitration and dismisses this case, and denies as moot Defendant’s motion to transfer 12 || venue. 13 IT IS SO ORDERED. 14 Dated: October 29, 2020 15 ns my. L4\ Hon. Dana M. Sabraw 16 United States District Judge 17 18 19 20 21 22 23 24 25 26 27 28