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Smith v. Kellogg Co.

United States District Court, D. Nevada

February 15, 2018

BRIAN SMITH, Plaintiff,



         This dispute arises from a putative Fair Labor Standards Act (FLSA) collective action filed by plaintiff Brian Smith against defendants Kellogg Company and Kellogg Sales Company (Kellogg). Kellogg moves to compel arbitration based on an agreement signed by Smith in March 2017, which Smith argues is unenforceable. Kellogg also moves for reconsideration of a limited discovery order and to file supplemental authority in support of this motion.

         The parties are familiar with the facts of the case, and I will not repeat them here except where necessary. I grant Kellogg's motion to compel arbitration. I deny as moot the motion to reconsider and motion to file supplemental authority. The case is stayed pending resolution of the arbitration proceedings.

         I. ANALYSIS

         A. Motion for Reconsideration (ECF No. 85)

         Under Federal Rule of Civil Procedure 59(e), a party may ask the court to reconsider and amend a previous order. Such a motion “should not be granted, absent highly unusual circumstances, unless the district court is presented with newly discovered evidence, committed clear error, or if there is an intervening change in the controlling law.” Kona Enters., Inc. v. Estate of Bishop, 229 F.3d 877, 890 (9th Cir. 2000) (internal quotation omitted). A motion for reconsideration “may not be used to raise arguments or present evidence for the first time when they could reasonably have been raised earlier in the litigation.” Id. (emphasis in original).

         Kellogg moves for reconsideration of my order directing the parties to conduct limited discovery regarding the validity of the parties' arbitration agreement. See ECF No. 79. Kellogg contends this issue is delegated to the arbitrator, pointing to the incorporation of JAMS rules in Smith's Continued Employment/Incentive Agreement. Smith responds that this is a new argument that should have been raised in Kellogg's motion to compel arbitration. Kellogg replies that it did not raise this issue earlier because it did not believe that the validity of the arbitration agreement was at issue.

         The validity of the arbitration provision in Smith's agreement has been the central issue of the motion practice in this case thus far. It is disingenuous to state otherwise, in particular because in its motion to compel arbitration Kellogg asked me to rule that the arbitrative provision was valid and enforceable. For the sake of judicial economy, however, I will consider the arguments made by both parties in the briefing on the motion to reconsider. Because I grant the motion to compel arbitration, I deny as moot the motion for reconsideration.[1]

         B. Motion to Compel Arbitration (ECF No. 55)

         In deciding whether to grant a motion to compel arbitration, I must determine (1) whether there is a valid agreement to arbitrate, and (2) whether the agreement covers the dispute. Brennan v. Opus Bank, 796 F.3d 1125, 1130 (9th Cir. 2015). The gateway question of arbitrability is generally an issue for judicial determination unless “the parties clearly and unmistakably provide otherwise.” AT&T Techs., Inc. v. Commc'n Workers of Am., 475 U.S. 643, 649 (1986). Even if the parties have clearly and unmistakably delegated the arbitrability decision, this delegation may be unenforceable if the delegation itself is unconscionable. Brennan, 796 F.3d at 1132.

         i. The Parties Clearly and Unmistakably Delegated Arbitrability

         The Continued Employment/Incentive Agreement includes the following language: “Employee and Kellogg . . . agree that any controversy, claim or dispute between the parties, directly or indirectly, concerning . . . Employee's employment with Kellogg . . . will only be resolved in individual arbitration before JAMS (Judicial Arbitration Mediation Services) subject to JAMS' Streamlined Arbitration Rules and Procedures . . . .” ECF No. 55-1 at 26. Kellogg argues that the incorporation of JAMS rules delegated the arbitrability decision to the arbitrator. Smith responds that this delegation was not clear and unmistakable to him because he is not a sophisticated party.

         In Brennan, the Ninth Circuit addressed the incorporation of the rules of the American Arbitration Association (AAA) into an arbitration agreement. Those rules, like the JAMS rules, provide that the arbitrator has the power to determine the validity of the arbitration agreement. See Id. at 1130; ECF No. 85-1 at 13 (JAMS rule 8 stating “[j]urisdictional and arbitrability disputes, including disputes over the formation, existence, validity, interpretation or scope of the agreement under which Arbitration is sought . . . shall be submitted to and ruled on by the Arbitrator”). The court in Brennan held that an incorporation of the AAA rules “constitutes clear and unmistakable evidence that contracting parties agreed to arbitrate arbitrability.” Brennan, 796 F.3d at 1130; see also Esquer v. Educ. Mgmt. Corp., No. 17-cv-01240-BAS-AGS, 2017 WL 5194635, at *3-4 (S.D. Cal. Nov. 9, 2017) (applying Brennan analysis to agreement incorporating JAMS rules).

         Smith argues that such an incorporation is insufficient when one of the contracting parties is unsophisticated. In Brennan, the court limited its holding to the facts of that case-which included two sophisticated parties-but stated that the holding did not require that the contracting parties be sophisticated or that the contract be commercial. Id. at 1130. The court noted that “the vast majority of the circuits that hold that incorporation of the AAA rules constitutes clear and unmistakable ...

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