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Bailey v. Affinitylifestyles.Com, Inc.

United States District Court, D. Nevada

November 29, 2017

Lisa Marie Bailey, Plaintiff
v.
Affinitylifestyles.com, Inc., dba Real Alkalized Water, a Nevada Corporation; Does I-X; and Roe Business Entities I-X, inclusive Defendants

          ORDER GRANTING MOTION TO COMPEL ARBITRATION [ECF NO. 17]

          Jennifer A. Dorsey, U.S. District Judge

         When Lisa Bailey started working for Affinity Lifestyles.com, Inc. dba Real Alkalized Water, she signed an employment agreement that binds her to mediate then arbitrate any employment claim against the company.[1] So when Bailey sued Affinity, alleging that it discriminated against her based on her religion, age, sex, and disability, [2] Affinity filed this motion to compel arbitration.[3] Bailey opposes the motion, arguing that: (1) Affinity has waived its right to arbitrate through its litigation conduct, (2) the arbitration clauses are procedurally and substantively unconscionable, and (3) the arbitration clauses are unenforceable under NRS 597.995.[4] But I find that the agreement is valid and enforceable and that Affinity has not waived its arbitration right. So I grant Affinity's motion to compel arbitration, dismiss Bailey's claims without prejudice, and direct the Clerk of the Court to close this case.

         Background

          When Bailey began working for Affinity as a human resources director in 2016, she signed an employment agreement.[5] That agreement obligates Bailey to mediate then arbitrate “any claim or dispute out of and/or involving” the agreement “or any other aspect of” the parties' “employment relationship, ” except for workers' compensation claims, unemployment-insurance claims, or “actions for allegedly due and unpaid wages under California Labor Code § 229.”[6]Bailey initialed next to each of the arbitration provisions in the agreement, and she expressly elected that her binding-arbitration agreement include Title VII claims.[7] Bailey also initialed next to the section stating that she had the opportunity to review the agreement, consult with an advisor, and negotiate these terms.[8]

         Bailey's employment relationship with Affinity soured, and she sued. She asserts Title VII claims based on religion, a hostile-work environment, and retaliation; a claim for violations of Nevada State employment laws; and claims for violations of the Americans with Disabilities Act, the Age Discrimination in Employment Act, and the Fair Labor Standards Act.[9] The parties engaged in some discovery, including document requests to third parties, interrogatories, requests to produce documents, and requests for admissions.[10] Affinity then filed this motion to compel arbitration, [11] and discovery was stayed while I considered that motion.[12]

         Affinity seeks to hold Bailey to her arbitration agreement.[13] Bailey does not deny that her claims fall within the agreement's scope, but she claims that, by participating in this litigation for several months before filing this motion to compel, Affinity waived its right to arbitrate. She also argues that the agreement is void and unenforceable because it is procedurally and substantively unconscionable and violates NRS 597.995.[14] I consider each argument in turn.

         Discussion

         The Federal Arbitration Act states a strong preference that parties arbitrate disputes when they have a valid agreement to do so.[15] A valid agreement requires that: (1) the parties agreed to arbitrate, (2) the claim is within the agreement's scope, and (3) the agreement is conscionable.[16]Bailey does not deny that she agreed to arbitrate or that her claims fall within the scope of that agreement. She attacks the agreement on the third requirement, contending that it is procedurally and substantively unconscionable and that it is void under NRS 597.995 because the arbitration provision was not authorized separately from the rest of the agreement.[17]

         A. The agreement is not unconscionable.

         “Generally, both procedural and substantive unconscionability must be present in order for a court to exercise its discretion to refuse to enforce a clause as unconscionable.”[18]Procedural unconscionability refers to a party's unequal bargaining power and misunderstanding of the provision's effects.[19] Substantive unconscionability focuses on whether an agreement's terms are one-sided or bilateral.[20]

         1. Procedural unconscionability

          “An arbitration clause is procedurally unconscionable when a party has no ‘meaningful opportunity to agree to the clause terms either because of unequal bargaining power, as in an adhesion contract, or because the clause and its effects are not readily ascertainable upon a review of the contract.'”[21] To avoid procedural unconscionability, an arbitration provision must be conspicuous and put the signer on notice that she is giving up important legal rights.[22]Misleading or complicated language can suggest procedural unconscionability.[23] And a party's ability to negotiate the terms of an agreement factors into a procedural-unconscionability review.[24] For example, in Gonski v. Second Judicial District Court, the Nevada Supreme Court found procedurally unconscionable an arbitration clause that was typed in normal-sized font and found on page 15 of an 18-page agreement “in the midst of identically formatted paragraphs, even though” other provisions were “called out through the use of all capital letters.”[25] And although the signers initialed the bottom of the page containing the arbitration provision, “nothing drew their attention to the importance of what those pages contained.”[26]

         Bailey argues that she was not given a meaningful opportunity to negotiate her arbitration agreement and that she was not sufficiently on notice that she was giving up substantial rights.

         But the form and substance of the arbitration paragraphs in her employment agreement belie her claim. Although the arbitration paragraphs are typed in the same size and style of font as the rest of the agreement, paragraphs 17 and 18 read in all capital letters:

17. I UNDERSTAND THAT IN THE EVENT OF AN ARBITRATION UNDER THIS AGREEMENT, JUDGMENT UPON THE AWARD RENDERED BY THE ARBITRATOR MAY BE ENTERED IN ANY COURT HAVING PROPER JURISDICTION. THE ARBITRATOR SHALL DETERMINE IF THERE IS A PREVAILING PARTY AND THE PREVAILING PARTY SHALL BE AWARDED REASONABLE ATTORNEY'S FEES. I UNDERSTAND HOWEVER THAT BY THIS AGREEMENT, THE ARBITRATOR IS PROHIBITED FROM IMPOSING ANY TYPE OF FEES, COST OR EXPENSE UPON ME THAT I WOULD NOT BE REQUIRED TO BEAR IF I WERE FREE TO BRING A LEGAL ACTION IN COURT. I UNDERSTAND AND ACKNOWLEDGE THAT BY AGREEING TO ARBITRATION I AM GIVING UP ANY RIGHT THAT I MAY HAVE TO A JUDGE OR JURY WITH REGARD TO ALL APPLICABLE ISSUES CONCERNING MY EMPLOYMENT, SPECIFICALLY INCLUDING TERMINATION OF EMPLOYMENT.
18. I ACKNOWLEDGE AND AGREE THAT PRIOR TO SIGNING THIS AGREEMENT AND AGREEING TO ITS TERMS, I HAVE HAD AN OPPORTUNITY TO REVIEW THIS TEXT, CONSULT WITH AN ADVISOR OF MY CHOICE (INCLUDING MY OWN LEGAL COUNSEL), AND NEGOTIATE ON SUCH TERMS.[27]

         These are the only paragraphs in the agreement that are written in all capital letters, causing them to stand out from all other provisions of the agreement. Bailey initialed next to each of them, acknowledging that she fully understood the scope of this arbitration agreement and that she had been afforded the opportunity negotiate its terms and consult with her counsel of choice about it.

         The language and structure of the arbitration clauses bolster the conclusion that Bailey had and exercised choice in agreeing to the arbitration terms. For example, in paragraph 13, the agreement gave her the ability to elect to make her Title VII claims subject to binding arbitration or leave them for court. She checked the binding-arbitration option[28]:

         Image Omitted

         Thus, Bailey's agreement is distinguishable from the one in Gonski because: (1) Bailey initialed next to each section to show that she read it, not just on each page; (2) the arbitration provision stands out from the other terms of the agreement; (3) the agreement contains explicit language detailing what rights she was giving up; and (4) both the form and substance of the agreement demonstrate that the contract was not one of adhesion, but of choice, and Bailey freely elected arbitration. I do not find that this agreement is procedurally unconscionable.

         2. Substantive unconscionability

         Substantive unconscionability refers to an agreement's one-sidedness.[29] Bailey argues that the agreement is one-sided because Affinity's failure to submit this dispute to mediation before arbitration shows that Affinity doesn't consider itself bound to the agreement's terms.

         While the agreement requires the parties to mediate before they arbitrate, Affinity moving to compel arbitration does not make the agreement's terms one-sided. Bailey didn't comply with the mediation requirement either, and the agreement puts the mediation-arbitration process obligation equally on both parties. Regardless, Affinity's post-agreement conduct does not show that the agreement's terms are themselves one-sided.

         Bailey next contends that the agreement is substantively unconscionable because it imposes an “insidious” 90-day limitations period for demanding mediation.[30] She argues that the Ninth Circuit's decision in Ingle v. Circuit City Stores, Inc.[31] demonstrates that this short time limit renders the agreement substantively unconscionable. But Ingle is materially distinguishable because the Circuit City agreement contained an express claim waiver that effectively shortened the period for any covered claim to one year, regardless of what the statutes of limitations for those claims were.[32] Bailey's agreement with Affinity contains no similar waiver. And Affinity is not arguing that Bailey's claims are time-barred because she did not request mediation within 90 days of its alleged violations; they are moving to compel her to comply with the agreed-upon process.

         Bailey then argues that a third reason that the agreement is substantively unconscionable is that it may force an employee to bear some of the cost of mediation and arbitration. She cites Ingle, Ting v. AT&T, [33] and D.R. Horton v. Green, [34] to support her argument.

         Ingle offers no true support for Bailey's position. The Ingle court found that an agreement's requirement that the employee and employer each pay one-half of the costs of the arbitration and giving the arbitrator the discretion to “require the [employee] to pay Circuit City's share of the costs of arbitration and incidental costs” “offend[ed] basic principles of fairness” and was “harsh and unfair to employees seeking to arbitrate legal claims.”[35] For those reasons, the panel found the agreement substantively unconscionable. But Bailey's agreement contains no similar provisions. The mediation clause states that “The parties shall each pay at least a fair portion of such mediation unless otherwise specifically prohibited by law or unless such cost-sharing would reasonably act to deter Employee from pursuing any employment-related legal right.”[36] And although the arbitration clause allows the arbitrator to award “reasonable attorney's fees” to the prevailing party, it also says that “the arbitrator is prohibited from imposing any type of fees, cost or expense upon [employee] that [she] would not be required to bear if [she] were free to bring a legal action in court.”[37] I cannot conclude that these provisions offend basic fairness principles or are harsh and unfair to employees.

         Nor does the Nevada Supreme Court's decision in D.R. Horton, Inc. v. Green compel the conclusion that Bailey's arbitration agreement is substantively unconscionable. The Court found D.R. Horton's agreement substantively unconscionable for two reasons: (1) it had a one-sided $10, 000 liquidated-damages provision penalizing homebuyers who forgo arbitration, but imposed no similar penalty on D.R. Horton; and (2) it required “that each party pay equally for the costs of arbitration.”[38] Although the Court acknowledged that “an arbitration agreement's silence regarding potentially significant arbitration costs does not, alone, render the agreement enforceable, ” it explained that “‘the existence of large arbitration costs could preclude a litigant from effectively vindicating her rights in the arbitral forum.'”[39] But Bailey's agreement contains no liquidated-damages penalty and limits Bailey's arbitration costs to those she would have to pay had she brought her claim in court. For this reason, Ting v. AT&T -in which the Ninth Circuit invalidated an arbitration clause that imposed “a scheme [that was] unconscionable because it impose[d] on some consumers costs greater than those a complainant would bear if . . . she would file the same complaint in court”[40]-is also inapposite. I therefore find that the agreement is not substantively unconscionable.

         B. NRS 597.995

         Bailey next argues that the agreement is void because it violates NRS 597.995, which states that “an agreement [that] includes a provision [that] requires a person to submit to arbitration any dispute arising between the parties to the agreement must include specific authorization for the provision [that] indicates that the person has affirmatively agreed to the provision.”[41] Bailey interprets this statute to require that “any clause of a contract [that] seeks to impose binding arbitration must be its own standalone agreement, rather than one (or two) of many paragraphs in a several-page document.”[42]

         I disagree with Bailey's interpretation. The Nevada Supreme Court provided guidance on how to satisfy NRS 597.995 in Fat Hat, LLC v. DiTerlizzi.[43] It held that an arbitration clause inside an agreement that lacked a separate line to acknowledge the arbitration clause specifically did not comply with the statute, but an agreement that required the signers “to fill in their names and addresses in the blank spaces of the provision, explicitly stating that the agreement to arbitrate was ...


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