Tinker v. CrimShield Incorporated

1 WO 2 3 4 5 6 IN THE UNITED STATES DISTRICT COURT 7 FOR THE DISTRICT OF ARIZONA 8 9 Rusty William Tinker, No. CV-22-00339-PHX-DLR 10 Plaintiff, ORDER 11 v. 12 CrimShield, Incorporated, 13 Defendant. 14 15 Before the Court is Defendant CrimShield, Incorporated’s (“CrimShield”) motion 16 to dismiss and compel arbitration. (Doc. 10.) The motion is fully briefed. (Docs. 13, 14, 17 24.) For the following reasons, CrimShield’s motion is granted.1 18 I. Background 19 Plaintiff Rusty William Tinker applied for employment with Communications 20 Unlimited Incorporated in December 2021. (Doc. 1 ¶ 24.) As a prerequisite for 21 employment, Tinker consented to a background check by signing an “Application for Non- 22 Employee Security Clearance Eligibility Determination by my Employer’s Client for 23 Certain Restricted/Limited Access to my Employer’s Client’s Customers Facilities and 24 Construction Sites; and other Written Instructions, Waivers and Agreements by Me” 25 (“Application”). (Id. ¶¶ 25-26; Doc. 10-1.) The Application contains an agreement 26 requiring arbitration of any claim linked to “the credit reporting agency that performed the 27 1 CrimShield’s request for oral argument is denied because the issues are adequately 28 briefed and oral argument would not aid the Court’s decision. See Fed. R. Civ. P. 78(b); LRCiv. 7.2(f). 1 original background investigations.” (Doc. 10-1 ¶ 10.) The Application also includes 2 provisions requiring Tinker bear his own attorney fees and costs as well as to waive his 3 rights to appeal. (Id. ¶ 14.) 4 CrimShield performed Tinker’s background check. (Doc. 1 ¶ 25.) In January 2022, 5 Tinker accessed the report produced by CrimShield, which indicated that he had been 6 found guilty of a felony. (Id. ¶ 33.) The same day, Tinker submitted an online dispute to 7 CrimShield. (Id. ¶ 45.) Tinker claims that the reported incident was in fact only a 8 misdemeanor. (Id. ¶ 20.) After several email and phone communications, the dispute 9 remained unresolved. (Id. ¶¶ 46-65.) 10 In March 2022, Tinker filed a complaint alleging that CrimShield violated the Fair 11 Credit Reporting Act (“FCRA”) by inaccurately reporting his criminal history and failing 12 to correct the inaccuracies. CrimShield moves to compel arbitration pursuant to the 13 Application’s arbitration provision. (Doc. 10.) 14 II. Legal Standard 15 The Federal Arbitration Act (“FAA”) provides that written contracts to arbitrate 16 disputes “shall be valid, irrevocable, and enforceable except upon grounds that exist at 17 common law for the revocation of a contract.” 9 U.S.C. § 2; see AT&T Mobility LLC v. 18 Concepcion, 563 U.S. 333, 339 (2011) (discussing liberal federal policy favoring valid 19 arbitration agreements). “[G]enerally applicable contract defenses, such as fraud, duress, 20 or unconscionability, may be applied to invalidate arbitration agreements without 21 contravening § 2.” Doctor’s Assocs., Inc. v. Casarotto, 517 U.S. 681, 687 (1996). 22 Due to the strong federal policy favoring arbitration agreements, the FAA “leaves 23 no place for the exercise of discretion by a district court, but instead mandates that district 24 courts shall direct the parties to proceed to arbitration on issues as to which an arbitration 25 agreement has been signed.” Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213, 218 (1985) 26 (emphasis in original). Therefore, this Court’s limited role is to determine “(1) whether a 27 valid agreement to arbitrate exists and, if it does, (2) whether the agreement encompasses 28 the dispute at issue.” Chiron Corp. v. Ortho Diagnostic Sys., Inc., 207 F.3d 1126, 1130 1 (9th Cir. 2000). “Where a contract contains an arbitration [agreement], courts apply a 2 presumption of arbitrability as to particular grievances, and the party resisting arbitration 3 bears the burden of establishing that the arbitration agreement is inapplicable.” Wynn 4 Resorts, Ltd. v. Atl.-Pac. Capital, Inc., 497 Fed. App’x. 740, 742 (9th Cir. 2012). 5 III. Discussion 6 If the Application’s arbitration provision is valid and enforceable, there is no 7 question that it encompasses the dispute at hand. Instead, Tinker argues that no valid 8 agreement to arbitrate exists because (1) CrimShield, as a non-signatory to the Application, 9 cannot enforce the arbitration provision and (2) even if CrimShield could, the arbitration 10 provision is unconscionable. (Doc. 13 at 5-9.) CrimShield counters that (1) it can enforce 11 the arbitration provision, (2) the provision is not unconscionable, but (3) if any part is found 12 to be unconscionable, the Court can sever it. (Doc. 14 at 6-7.) 13 A. Enforcement by a Non-signatory 14 “State law controls whether federal courts may enforce arbitration agreements 15 against signatories at the request of non-signatories.” Tradeline Enters. Private v. Jess 16 Smith & Sons Cotton, LLC, 772 Fed. App’x 585, 586 (9th Cir. 2019). “Under Arizona law, 17 which controls in this case, a non-signatory may compel arbitration with a signatory to an 18 arbitration agreement if the claims at issue are ‘intimately founded in and intertwined with 19 the underlying contract obligations.’” Id. (quoting Sun Valley Ranch 308 Ltd. P’Ship v. 20 Robson, 294 P.3d 125, 135 (Ariz. Ct. App. 2012)). 21 Tinker argues that CrimShield’s inaccurate reporting is not intertwined with the 22 Application. The Court disagrees. The whole purpose of the Application was to obtain 23 Tinker’s consent to a background check. CrimShield performed the background check, 24 and that background check forms the basis of Tinker’s FCRA claims. Furthermore, the 25 Application states that “any claim, dispute or controversy linked to, arising out of, or in 26 any way related to, or associated with . . . the credit reporting agency that performed the 27 original background investigations . . . shall all be decided solely and only by arbitration.” 28 (Doc. 10-1 ¶ 10.) The Application unmistakably contemplated claims such as these would 1 be arbitrated. Because the claims brought by Tinker are intimately founded in and 2 intertwined with the underlying contractual obligations of the Application, CrimShield can 3 compel Tinker to arbitrate them. 4 B. Unconscionability 5 Under Arizona law, unconscionability has both procedural and substantive 6 elements. Maxwell v. Fidelity Fin. Servs., Inc., 907 P.2d 51, 58-59 (Ariz. 1995). An 7 agreement may be found unenforceable based on substantive unconscionability alone. Id. 8 at 59. Tinker argues that the arbitration provision is both procedurally and substantively 9 unconscionable. 10 1. Procedural Unconscionability 11 “Procedural unconscionability is concerned with unfair surprise; courts examine 12 factors influencing ‘the real and voluntary meeting of the minds of the contracting party: 13 age, education, intelligence, business acumen and experience, relative bargaining power, 14 who drafted the contract, whether the terms were explained to the weaker party, [and] 15 whether alterations in the printed terms were possible[.]’” Wernett v. Serv. Phx., LLC, No. 16 CIV 09-168-TUC-CKJ, 2009 WL 1955612, at *3 (D. Ariz. July 6, 2009) (quoting Maxwell, 17 907 P.2d at 58). The Court also considers whether the terms comport with the parties’ 18 reasonable expectations. See Darner Motor Sales, Inc. v. Universal Underwriters Ins. Co., 19 682 P.2d 388, 394-98 (Ariz. 1984). 20 Terms might run counter to the parties’ reasonable expectations when one party has 21 reason to believe that the other would not have accepted the agreement if he had known it 22 contained those particular terms. Harrington v. Pulte Home Corp., 119 P.3d 1044, 1050 23 (Ariz. Ct. App. 2005). But “[m]ere inequality in bargaining power is not sufficient to 24 invalidate an arbitration agreement.” EEOC v. Cheesecake Factory, Inc., No. CV 08-1207- 25 PHX-NVW, 2009 WL 1259359, at *3 (D. Ariz. May 6, 2009) (citing Gilmer v. 26 Interstate/Johnson Lane Corp., 500 U.S. 20, 33 (1991)). Even where terms are non- 27 negotiable or the weaker party does not understand all of them, an agreement will be 28 enforced so long as it is neither unreasonable nor unduly oppressive. Id. (citing Phx. 1 Baptist Hosp. & Med. Ctr. v. Aiken, 877 P.2d 1345, 1349 (Ariz. Ct. App. 1994) and 2 Broemmer v. Abortion Servs. of Phx., Ltd., 840 P.2d 1013, 1016 (Ariz. 1992)). 3 Tinker argues that the terms of arbitration are procedurally unconscionable because 4 he had no bargaining power: he did not draft the Application and he did not have the ability 5 to alter any of the terms or opt out of the arbitration provision. However, other than the 6 mere inequality in bargaining power, which alone is not sufficient to invalidate, Tinker 7 fails to identify facts suggesting unfair surprise, mistake or ignorance of important facts, 8 or other aspects of the transaction that would justify invalidating the arbitration provision 9 based on procedural unconscionability. Arizona law requires more than Tinker has 10 proffered. The arbitration provision is not procedurally unconscionable. 11 2. Substantive Unconscionability 12 “Substantive unconscionability addresses ‘the actual terms of the contract and . . . 13 the relative fairness of the obligations assumed.’” Duenas v. Life Care Ctrs. of Am., Inc., 14 336 P.3d 763, 769 (Ariz. Ct. App. 2014) (quoting Maxwell, 907 P.2d at 58). “Relevant 15 factors include whether the contract terms are so one-sided as to oppress or unfairly 16 surprise an innocent party, whether there is an overall imbalance in the obligations and 17 rights imposed, and whether there is a significant cost-price disparity.” Id. Tinker asserts 18 that the arbitration provision is substantively unconscionable because it is one-sided in its 19 obligations, removes his right to appeal, and voids his statutory right to recover attorney 20 fees and costs. 21 i. Mutuality of the Agreement 22 Tinker argues the arbitration provision is not mutual because it requires arbitration 23 of all claims brought by him but does not impose the same requirement on claims 24 CrimShield might have. For support, Tinker cites a recent decision from another judge in 25 this District, which considered an identical arbitration provision in a case against 26 CrimShield and concluded that it required arbitration only of claims brought by the 27 prospective employee, and not of claims brought by the employer or the credit reporting 28 agency. (Doc. 24-1.) 1 The Court agrees that the plain language of the arbitration provision is non-mutual 2 but disagrees that the lack of mutuality renders it unconscionable. Arbitration agreements 3 supported by adequate consideration need not impose mutual or equivalent obligations to 4 be enforceable, particularly in the at-will employment context. See Pinto v. USAA Ins. 5 Agency Inc. of Texas (FN), 275 F. Supp. 3d 1165, 1171 (D. Ariz. 2017); Coup v. Scottsdale 6 Plaza Resort, LLC, 823 F. Supp. 2d 931, 951-52 (D. Ariz. 2011); Brady v. Universal Tech. 7 Institute of Ariz., Inc., No. CV-09-1044-PHX-FJM, 2009 WL 5128577, at *2 (D. Ariz. 8 Dec. 17, 2009); Equal Emp. Opportunity Comm'n v. Cheesecake Factory, Inc., No. CV- 9 08-1207-PHX-NVW, 2009 WL 1259359, at *4 (D. Ariz. May 6, 2009). Tinker does not 10 allege a lack of consideration—and the Court does not find one—therefore, the arbitration 11 provision’s lack of mutuality does not render it unconscionable. 12 Furthermore, Tinker fails to identify any plausible claims that CrimShield might 13 bring against him in the first instance. This Court has addressed a similar argument before, 14 in a case concerning an agreement that required the arbitration of disputes brought by a 15 condominium association or unit owners and not those brought by the developer. Desert 16 Breeze Condo. Assoc. v. Richmond Am. Homes of Ariz. Inc., CV 14-00889-PHX-DLR, 17 2014 WL 12672631, at *6 (D. Ariz. Aug. 15, 2015). This Court upheld the agreement and 18 explained that “the disputes that conceivably might arise between a condominium 19 developer and the condominium association or individual unit owners typically will 20 involve claims asserted by the association or unit owners against the developer.” Id. The 21 same is true here. The claims likely to arise between Tinker and CrimShield are claims 22 that Tinker would bring in the first instance, so the non-mutuality of the arbitration 23 provision has little to no practical impact. 24 ii. Right to Appeal 25 Tinker next argues that the arbitration provision’s requirement that he “waive any 26 and all rights to appeal” (Doc. 10-1 ¶ 14) is substantively unconscionable. The Court 27 disagrees. The Ninth Circuit has acknowledged that non-appealability clauses can be 28 construed in two different ways. See In re Wal-Mart Wage and Hour Employment 1 Practices Litigation, 737 F.3d 1262, 1265–66 (9th Cir. 2013). First, some circuits 2 understand these clauses to only preclude a district court’s review of the merits but not to 3 preclude a review of the award under § 10 of the FAA, which provides grounds for vacatur. 4 Id. Second, a court could understand these clauses to preclude a district court from 5 reviewing the arbitration award in any manner, including those provided in § 10 of the 6 FAA. Id. The first construction presents no concerns while the second is unconscionable. 7 The possibility of two constructions creates ambiguity, which must be resolved in 8 favor of arbitration. Moses H. Cone Mem. Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 9 24-25 (1983). Therefore, this Court reads the clause as only waiving a merits appeal, not 10 a § 10 review, avoiding the unconscionability problem identified in In re Wal-Mart.2 11 What’s more, the Court sees a third, more reasonable, way to construe this non- 12 appealability clause. Although a federal court may always review an arbitration award in 13 order to vacate, modify, or correct, 9 U.S.C. §§ 10-11, that is not an “appeal” as that term 14 is traditionally understood. But the American Arbitration Association (“AAA”), whose 15 rules will govern any arbitration between Tinker and CrimShield (Doc. 10-1 ¶ 14), provides 16 its own rules for optional appellate arbitration. See AAA Optional Appellate Arbitration 17 Rules (effective Nov. 1, 2013), available at https://www.adr.org/sites/default/files/AAA- 18 ICDR_Optional_Appellate_Arbitration_Rules.pdf. The non-appealability clause most 19 likely means that Tinker waives any appeal under the AAA’s otherwise optional appellate 20 rules. Such a waiver would not render the arbitration provision substantively 21 unconscionable. 22 iii. Limitation on Attorney Fees and Costs 23 Tinker lastly argues that the arbitration provision’s requirement that “each party 24 shall be responsible for their own attorney fees and costs” (Doc. 10-1 ¶ 14) is substantively 25 unconscionable because under some circumstances fees and costs are available under the 26 FCRA. The Court agrees. Arbitration agreements in the employment setting are 27 2 Regardless, if the clause waives § 10 review it nevertheless could be severed because the Application has a severability clause. (Doc. 10-1 ¶ 16); Tapia v. Braiform 28 Enter., No. SACV 19-2434-JVS, 2020 WL 5163520, at *5 (C.D. Cal. Mar. 25, 2020). || unenforceable if they “fail to provide for all of the types of relief that would otherwise be 2|| available in court” or require the employee to pay “unreasonable costs.” Circuit City 3|| Stores, Inc. v. Adams, 279 F.3d 889, 895 (9th Cir. 2002). 4 Under the FCRA, Tinker would be entitled to costs and reasonable fees if he succeeds on his claims. See 15 U.S.C. § 1681n(a)(3), 0(a)(2). The arbitration provision is 6 || substantively unconscionable to the extent it forecloses this type of relief. See Ingle v. 7\| Circuit City Stores, Inc., 328 F.3d 1165, 1179 (9th Cir. 2003); Bormann v. Waxie Enter. || Inc., No. CIV 09-264-TUC-FRZ, 2009 WL 6325693 (D. Ariz. July 8, 2009). 9 But the unconscionability of the limitation on fees and costs does not render the 10 || entire arbitration provision unenforceable because the Application has a severability clause 11 || (Doc. 10-1 § 16), and where one part of a severable contract is void, the Court may enforce || the remainder of the contract. See Hackin v. Pioneer Plumbing Supply Co., 457 P.2d 312, 13 || 319(1969). Accordingly, although Tinker’s statutory right to recover costs and reasonable fees if he succeeds on his FCRA claims must be preserved, he still may be forced to 15 || arbitrate. IV. Conclusion 17 Apart from the severable limit on recovering attorney fees and costs, a valid and 18 || enforceable agreement to arbitrate exists. There being no question that this dispute falls 19 || within the scope of that agreement, 20 IT IS ORDERED that CrimShield’s motion to compel arbitration (Doc. 10) is 21|| GRANTED. The Clerk is directed to administratively close this case, whereupon, by 22 || proper motion of the prevailing party at arbitration, it may be reopened or dismissed with 23 || prejudice. 24 Dated this 4th day of October, 2022. 25 26 {Z, 27 _- {UO 28 Upited States Dictric Judge -8-