Chism v. Pepsico, Inc. et al

REPLY

N.D. Cal.November 14, 2017

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Case No. 3:17-cv-05052-VC REPLY BRIEF IN SUPPORT OF DEFENDANT FRITO-LAY INC.’S MOTION TO (1) COMPEL ARBITRATION AND (2) STAY THIS ACTION THOMAS M. MCINERNEY, Cal Bar No 162055 tmm@ogletree.com JASON P. BROWN, Cal Bar No 266472 jason.brown@ogletree.com OGLETREE, DEAKINS, NASH, SMOAK & STEWART, P.C. Steuart Tower, Suite 1300 One Market Plaza San Francisco, CA 94105 Telephone: 415.442.4810 Facsimile: 415.442.4870 STEPHEN R. WOODS, (pro hac vice) stephen.woods@ogletree.com JAMES R. SILVERS, (pro hac vice) james.silvers@ogletree.com OGLETREE, DEAKINS, NASH, SMOAK & STEWART, P.C. 300 North Main Street, Suite 500 Greenville, SC 29601 Telephone: 864.271.1300 Facsimile: 864.235.8806 Attorneys for Defendant FRITO-LAY, INC. UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF CALIFORNIA MARCUS CHISM, on behalf of himself, all others similarly situated, Plaintiffs, v. PEPSICO, INC., a North Carolina Corporation; FRITO-LAY, INC., a Delaware Corporation; FIRST ADVANTAGE BACKGROUND SERVICES CORP., a Florida corporation; and DOES 1 to 100, Inclusive, Defendants. Case No. 3:17-cv-00152-VC REPLY BRIEF IN SUPPORT OF DEFENDANT FRITO-LAY INC.’S MOTION TO (1) COMPEL ARBITRATION AND (2) STAY THIS ACTION Date: November 30, 2017 Time: 10:00 a.m. Courtroom: 4, 17th Floor Case 3:17-cv-00152-VC Document 81 Filed 11/14/17 Page 1 of 18 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 i Case No. 3:17-cv-05052-VC REPLY BRIEF IN SUPPORT OF DEFENDANT FRITO-LAY INC.’S MOTION TO (1) COMPEL ARBITRATION AND (2) STAY THIS ACTION TABLE OF CONTENTS I. INTRODUCTION..................................................................................................................1 II. ARGUMENT AND AUTHORITIES ....................................................................................2 A. The Arbitration Agreement Encompasses All of Chism’s Background Check Claims.........................................................................................................................2 B. The Arbitration Agreement Is Not Procedurally Unconscionable. ............................4 C. The Arbitration Agreement Is Not Substantively Unconscionable. ...........................5 1. Frito-Lay’s four-step dispute resolution process is valid ...............................5 a. Frito-Lay’s dispute resolution process applies equally to Frito- Lay...................................................................................................5 b. Frito-Lay’s dispute resolution process includes a valid, informal mediation step...................................................................................6 c. Frito-Lay’s dispute resolution process does not shorten any statute of limitations..........................................................................6 2. The attorney’s fees provisions are not unconscionable. .................................6 3. A non-binding arbitration requirement is not unconscionable. ......................7 D. Any Unconscionable Terms Should Be Severed........................................................8 E. Frito-Lay Has Not Waived its Right to Arbitrate .......................................................9 F. After Deciding the Current Motion To Compel Arbitration of Chism's Claims, If the Court Does Not Transfer this Matter, the Court Should Stay the Class Action Allegations, Pending the Morris decision.....................................................11 III. CONCLUSION ....................................................................................................................13 Case 3:17-cv-00152-VC Document 81 Filed 11/14/17 Page 2 of 18 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 ii Case No. 3:17-cv-05052-VC REPLY BRIEF IN SUPPORT OF DEFENDANT FRITO-LAY INC.’S MOTION TO (1) COMPEL ARBITRATION AND (2) STAY THIS ACTION TABLE OF AUTHORITIES Page(s) CASES Acosta v. Kerrigan, 150 Cal. App. 4th 1124 (2007)......................................................................................................7 Armendariz v. Found. Health Psychcare Servs., Inc., 24 Cal.4th 83, 99 Cal.Rptr.2d 745, 6 P.3d 669 (2000)..................................................................8 Balthazar v. Forever 21, 62 Cal.4th 1237 (2016)..................................................................................................................4 Bank of Am. v. Micheletti Family P'ship, No. 08-02902 JSW, 2009 WL 1110827 (N.D. Cal. Apr. 24, 2009)..............................................7 Bankwitz v. Ecolab, Inc., No. 17-CV-02924-EMC, 2017 WL 4642284 (N.D. Cal. Oct. 17, 2017) ....................................12 Carlile v. Russ Berrie & Co., 2008 WL 4534281 (C.D. Cal. 2008) .............................................................................................4 Cobb v. Ironwood Country Club, 233 Cal. App. 4th 960 (2015), review denied (Apr. 15, 2015)......................................................3 Cole v. Asurion Corp., No. CV066649PSGJTLX, 2007 WL 9627611 (C.D. Cal. Sept. 27, 2007)...................................8 Harper v. Ultimo, 113 Cal.App.4th 1402 (2003)........................................................................................................8 Jackson v. SAW Entertainment Ltd. 629 F. Supp.2d 1018 (N.D. Cal. 2009)..........................................................................................6 Keene v. Harling, 61 Cal.2d 318 (1964).....................................................................................................................9 Landis v. N. Am. Co. (1936) 199 U.S. 248 ..............................................................................................................11, 12 Lima v. Gateway, Inc., 886 F. Supp. 2d 1170 (C.D. Cal. 2012).........................................................................................3 Lockyer v. Mirant Corp., 398 F.3d 1098 (9th Cir. 2005) .....................................................................................................12 Long v. Fid. Water Sys., Inc., No. C-97-20118 RMW, 2000 WL 989914 (N.D. Cal. May 26, 2000) .........................................3 Case 3:17-cv-00152-VC Document 81 Filed 11/14/17 Page 3 of 18 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 iii Case No. 3:17-cv-05052-VC REPLY BRIEF IN SUPPORT OF DEFENDANT FRITO-LAY INC.’S MOTION TO (1) COMPEL ARBITRATION AND (2) STAY THIS ACTION Martin v. Yasuda, 829 F.3d 1118(9th. Cir. 2016) .................................................................................................9, 10 Martinez v. Master Protection Corp., 118 Cal. App.4th 107 (2004).........................................................................................................6 McElrath v. Uber Techs., Inc., No. 16-CV-07241-JSC, 2017 WL 1175591 (N.D. Cal. Mar. 30, 2017) .....................................12 Morris v. Ernst & Young, LLP, 834 F.3d 975 (9th Cir. 2016), cert. granted, 137 S. Ct. 809, 196 L. Ed. 2d 595 (2017)..... passim Morse v. Servicemaster Global Holdings, Inc. 2012 WL 4755035 (N.D. Cal. 2012).............................................................................................3 Moses H. Cone Mem’l Hosp. v. Mercury Constr. Corp., 460 U.S. 1 (1983) ..................................................................................................................1, 4, 8 Nyulassy v. Lockheed Martin Corp., 120 Cal. App. 4th 1267 (2004)......................................................................................................5 Oregel v. PacPizza, LLC, 237 Cal. App. 4th 342 (2015)..................................................................................................9, 10 Pinnacle Museum Tower Ass'n v. Pinnacle Mkt. Dev. (US), LLC, 55 Cal.4th 223 (2012)....................................................................................................................4 Pokorny v. Quixtar, Inc., 601 F.3d 987 (9th Cir. 2010) .....................................................................................................5, 6 Poublon v. C.H. Robinson Co., 846 F.3d 1251 (9th Cir. 2017) .......................................................................................................4 Robledo v. Randstad US, L.P., No. 17-CV-01003-BLF, 2017 WL 4934205 (N.D. Cal. Nov. 1, 2017) ......................................12 Sanchez v. Valencia Holding Co., LLC, 61 Cal.4th 899 (2015)....................................................................................................................4 Sandquist v. Lebo Automotive, Inc., 1 Cal.5th 233, 248 (2016)..............................................................................................................4 Serpa v. Cal. Sur. Investigations, Inc., 215 Cal.App.4th 695......................................................................................................................5 Sonic-Calabasas A, Inc. v Moreno, 57 Cal.4th 1109 (2013)..................................................................................................................8 Three Valleys Municipal Water District v. EF Hutton & Co. Inc. 925 F.2d 1136 (9th Cir. 1991) .......................................................................................................3 Case 3:17-cv-00152-VC Document 81 Filed 11/14/17 Page 4 of 18 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 iv Case No. 3:17-cv-05052-VC REPLY BRIEF IN SUPPORT OF DEFENDANT FRITO-LAY INC.’S MOTION TO (1) COMPEL ARBITRATION AND (2) STAY THIS ACTION In re Toyota Motor Corp. Hybrid Brake Mktg., Sales, Practices & Prod. Liab. Litig., 828 F. Supp. 2d 1150 (C.D. Cal. 2011), aff'd sub nom. Kramer v. Toyota Motor Corp., 705 F.3d 1122 (9th Cir. 2013)..........................................................................................10 Turner v. Schultz, 175 Cal. App. 4th 974 (2009)........................................................................................................7 Wolsey, Ltd. v. Foodmaker, Inc., 144 F.3d 1205 (9th Cir. 1998) .......................................................................................................8 Zaborowski v. MHN Gov't Servs. 936 F. Supp.2d 1145 (N.D. Cal. 2013), aff'd, 601 F. App'x 461 (9th Cir. 2014)..........................6 STATUTES Federal Arbitration Act (FAA), 9 U.S.C. § 1 et seq. ...................................................................1, 4, 8 National Labor Relations Act. .............................................................................................................2 California Civil Code § 1599 ............................................................................................................................................8 § 1670.5(a).....................................................................................................................................8 California Code of Civil Procedure § 128.7(b)(2)..................................................................................................................................6 § 128.7(b)(3)..................................................................................................................................6 Case 3:17-cv-00152-VC Document 81 Filed 11/14/17 Page 5 of 18 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 1 Case No. 3:17-cv-05052-VC REPLY BRIEF IN SUPPORT OF DEFENDANT FRITO-LAY INC.’S MOTION TO (1) COMPEL ARBITRATION AND (2) STAY THIS ACTION I. INTRODUCTION Defendant Frito-Lay, Inc. (“Frito-Lay”) asks the Court to order Plaintiff Marcus Chism (“Chism”) to arbitrate his claims pursuant to the terms of his arbitration agreement and, via a separate motion, to transfer the balance of the class action to the Eastern District of Texas. Chism signed an arbitration agreement with Frito-Lay enforceable under the Federal Arbitration Act, 9 U.S.C. § 1 et seq. (“FAA”) and agreed to arbitrate his current allegations that Frito-Lay violated state and federal background check laws. Chism's arbitration agreement is valid and enforceable pursuant to California law. None of the contract provisions Chism challenges are unconscionable, and the cases Chism relies upon for his challenges are distinguishable. Further, this court should order arbitration in light of the “liberal federal policy favoring arbitration agreements,” including that “any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration, where the problem at hand is the construction of language itself or an allegation of waiver, delay, or a like defense to arbitrability.” Moses H. Cone Mem’l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24 (1983). Frito-Lay has not waived enforcement of Chism's arbitration agreement. Waiver of arbitration agreements is a disfavored outcome and requires Chism, as the party alleging waiver, to show both that (a) Frito-Lay both acted inconsistently with the arbitration provision (by actively litigating this matter and utilizing the Court’s jurisdiction) and (b) he was prejudiced by the inconsistent acts. In those cases that have found waiver of an arbitration agreement, the waiving party engaged in clear and frequent inconsistent actions, like propounding written discovery or taking depositions, that resulted in prejudice to the other litigant. Here, after little to no discovery (responded to by only Frito-Lay) and a mediation session in which both parties confidentially shared with a mediator their theories of the case, there is no analogous evidence of inconsistent conduct and absolutely no evidence of prejudice to Chism. In light of the strong policy in favor of arbitration, this court should find no waiver of Chism's arbitration agreement. Chism’s arbitration agreement contains a class action waiver—which have been both upheld and prohibited, creating a circuit split. Chism cites to Morris v. Ernst & Young, LLP, 834 F.3d 975 (9th Cir. 2016), cert. granted, 137 S. Ct. 809, 196 L. Ed. 2d 595 (2017) (hereinafter Case 3:17-cv-00152-VC Document 81 Filed 11/14/17 Page 6 of 18 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 2 Case No. 3:17-cv-05052-VC REPLY BRIEF IN SUPPORT OF DEFENDANT FRITO-LAY INC.’S MOTION TO (1) COMPEL ARBITRATION AND (2) STAY THIS ACTION “Morris”), which held that a class waiver violated the National Labor Relations Act. As the Court knows, Morris is pending review in the Supreme Court and will resolve this issue when it is decided. Accordingly, to the extent Morris may be applicable, and if the Court does not transfer the case to the Eastern District of Texas (which transfer Frito-Lay strongly urges), the Court should stay the instant case pending the Supreme Court’s decision, which is anticipated shortly. In sum, Chism agreed to arbitrate his individual grievances and should be compelled to do so. The remaining class claims should be transferred to the Eastern District of Texas as outlined in the separately filed motion to transfer venue. Alternatively, if that motion is not granted and this Court does not compel Chism to arbitrate his claims, Frito-Lay requests the Court stay any further proceedings on the class claims until Morris is decided. II. ARGUMENT AND AUTHORITIES A. The Arbitration Agreement Encompasses All of Chism’s Background Check Claims. All of Chism’s claims, including the current background check allegations, are subject to binding arbitration. The arbitration agreement defines “covered claims” to include “claims for a violation of any other non-criminal federal, state, or other governmental law, statute, regulation or ordinance.” (Declaration of Claudia Cuevas in Support of Defendant’s Motion to Compel Arbitration (“Cuevas Decl.” ) at ¶ 2, Ex. A; Declaration of Katie Thompson in Support of Defendant’s Motion to Compel Arbitration (“Thompson Decl.”), ¶3, Exh. A.) Likewise, the Dispute Resolution Program1 booklet states that “[c]laims and disputes subject to arbitration 1 Plaintiff's argument in his Response--that the Agreement and Receipt for Dispute Resolution Program (the "Agreement") does not include the California Dispute Resolution Program (the "Program") and that the Program terms may not be considered, because of the Agreement's merger clause—either is intentionally misleading or very poor document analysis. The Program is incorporated into the Agreement. See Thompson Decl. Exh. A [ECF 71-2] ("I have received a copy of the Dispute Resolution Program of Frito-Lay, Inc…and have read and understood its contents;” “I understand and agree that by entering into this Agreement, I anticipate gaining the benefits of a speedy, impartial dispute resolution procedure. This procedure is explained in the Dispute Resolution Program Booklet, which I acknowledge I have received and read or have had an opportunity to read;” “SOLE AND ENTIRE AGREEMENT. This Agreement and the Dispute Resolution Program Booklet are the complete agreement of the parties in the subject of arbitration of disputes;” “…This Agreement is a binding promise between the Company and me to arbitrate all claims in dispute described in the Program Booklet…;” “I have entered into the Agreement voluntarily and not in reliance on any other promises or representations by the Company other than those in the Agreement itself and the Dispute Resolution Program”) (emphasis added). Additionally, the Program's linkage with the Agreement is underscored by the fact that the Program document contains the step-by-step dispute process relied upon so extensively by Plaintiff in his Response as alleged evidence of unconscionability. Case 3:17-cv-00152-VC Document 81 Filed 11/14/17 Page 7 of 18 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 3 Case No. 3:17-cv-05052-VC REPLY BRIEF IN SUPPORT OF DEFENDANT FRITO-LAY INC.’S MOTION TO (1) COMPEL ARBITRATION AND (2) STAY THIS ACTION include all those legal claims you may now or in the future have against the Company . . . . and all claims that the Company may now or in the future have against you” (Cuevas Decl. at ¶ 2, Ex. A (emphasis added) [ECF 71-3]). The plain language of the Agreement and the incorporated-by- reference Program covers every claim asserted in Chism’s Complaint, regardless of whether the background checks occurred before or after Chism signed the arbitration agreement. Chism’s reliance on Three Valleys Municipal Water District v. EF Hutton & Co. Inc. 925 F.2d 1136, 1141 (9th Cir. 1991) and Long v. Fid. Water Sys., Inc., No. C-97-20118 RMW, 2000 WL 989914, at *2 (N.D. Cal. May 26, 2000) is misplaced. Each case involves a plaintiff who flatly denied ever signing or even knowing about the existence of the arbitration agreement. Because he cannot, Chism does not dispute that he signed the arbitration agreement and does not challenge that he received, knew about, and agreed to use the dispute resolution program referenced therein. Chism also cites to Morse v. Servicemaster Global Holdings, Inc. 2012 WL 4755035 (N.D. Cal. 2012) and Cobb v. Ironwood Country Club, 233 Cal. App. 4th 960, 967 (2015), review denied (Apr. 15, 2015) for the argument that a subsequently signed arbitration agreement cannot apply retroactively to already-filed claims. Here, unlike the plaintiffs in Cobb or Morse and distinguishable from those holdings, Chism had not filed or presented any claims, let alone background check claims, against Frito-Lay when he signed his arbitration agreement. Chism also cites to consumer class action cases holding that arbitration agreements are invalid if they cover claims that would have been unexpected by the consumer. Lima v. Gateway, Inc., 886 F. Supp. 2d 1170, 1183 (C.D. Cal. 2012), citing Bruni v. Didion, 160 Cal.App.4th 1272, 1295 (2008) (“[I]t is completely unexpected that an adhesive consumer warranty would require arbitration of all disputes between the parties—including those beyond the scope of the warranty coverage.”) Those cases are not applicable or persuasive to the current case. Chism has provided no arguments or evidence that he did not expect his arbitration agreement to apply to his background check claims (based on disclosures Frito-Lay presented to him during the course of his application process). It is not surprising that Chism fails to make this argument, since it would strain credulity that Chism could be surprised by or not expect claims like these to be covered by Case 3:17-cv-00152-VC Document 81 Filed 11/14/17 Page 8 of 18 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 4 Case No. 3:17-cv-05052-VC REPLY BRIEF IN SUPPORT OF DEFENDANT FRITO-LAY INC.’S MOTION TO (1) COMPEL ARBITRATION AND (2) STAY THIS ACTION his arbitration agreement. Finally, Chism’s reliance on Sandquist v. Lebo Automotive, Inc., 1 Cal.5th 233, 248 (2016), also is misplaced. Sandquist speaks of contract interpretation under a lesser standard than that required under the FAA. By its terms, Chism’s arbitration agreement is subject to interpretation under the FAA, “which establishes that, as a matter of federal law, any doubts concerning the scope of the arbitrable issues should be resolved in favor of arbitration.” Moses H. Cone Mem'l Hosp., supra, 460 U.S. at 24–25. B. The Arbitration Agreement Is Not Procedurally Unconscionable. Under California law, “the party opposing arbitration bears the burden of proving any defense, such as unconscionability.” Pinnacle Museum Tower Ass'n v. Pinnacle Mkt. Dev. (US), LLC, 55 Cal.4th 223, 236 (2012). In order to establish the defense of unconscionability, the party opposing arbitration must demonstrate that the contract as a whole or a specific clause in the contract is both procedurally and substantively unconscionable. Sanchez v. Valencia Holding Co., LLC, 61 Cal.4th 899, 910 (2015). Procedural and substantive unconscionability are examined on balance with each other; “the more substantively oppressive the contract term, the less evidence of procedural unconscionability is required to come to the conclusion that the term is unenforceable, and vice versa.” Id. (quoting Armendariz v. Found. Health Psychcare Servs., Inc., 24 Cal.4th 83, 114, 99 Cal.Rptr.2d 745, 6 P.3d 669 (2000)). The fact that the arbitration agreement is a mandatory employment contract alone does not render it unconscionable. California courts consistently have held that arbitration clauses are enforceable even if presented as part of an adhesion contract. Balthazar v. Forever 21, 62 Cal.4th 1237, 1244-1246 (2016) (adhesion alone, in the absence of “oppression or sharp practices,” is insufficient to support a finding of procedural unconscionability). Here, Chism has not met his burden to establish there was oppression, sharp practices (e.g., lying), or surprise for the arbitration agreement. See, e.g., Poublon v. C.H. Robinson Co., 846 F.3d 1251, 1261-63 (9th Cir. 2017) (finding no oppression or surprise where arbitration rules were incorporated by reference, or arbitration agreement signed as condition of employment); Carlile v. Russ Berrie & Co., 2008 WL 4534281, at *3 (C.D. Cal. 2008) (finding no procedural Case 3:17-cv-00152-VC Document 81 Filed 11/14/17 Page 9 of 18 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 5 Case No. 3:17-cv-05052-VC REPLY BRIEF IN SUPPORT OF DEFENDANT FRITO-LAY INC.’S MOTION TO (1) COMPEL ARBITRATION AND (2) STAY THIS ACTION unconscionability where the arbitration agreement was a condition of employment and was not buried within the agreement). Because “there is no other indication of oppression or surprise,” then “the agreement will be enforceable unless the degree of substantive unconscionability is high.” Serpa v. Cal. Sur. Investigations, Inc., 215 Cal.App.4th 695, 704, as modified (Apr. 26, 2013). C. The Arbitration Agreement Is Not Substantively Unconscionable. 1. Frito-Lay’s four-step dispute resolution process is valid Chism wrongly argues that the plainly-worded four step dispute resolution process—(1) internal complaint, (2) management review, (3) neutral mediation, and (4) arbitration—is unconscionable. (Cuevas Decl., Exh. A. [ECF 71-3]) He cites to only one case in support of this position, Pokorny v. Quixtar, Inc., 601 F.3d 987, 998 (9th Cir. 2010), which is distinguishable. Pokorny relied heavily on a California state court case, Nyulassy v. Lockheed Martin Corp., 120 Cal. App. 4th 1267 (2004), which involved a multi-tiered arbitration procedure, with three attributes that rendered it substantively unconscionable: (1) lack of mutuality; (2) an “employer-controlled dispute resolution mechanism (i.e. one without a neutral mediator)”; and (3) “stringent time limitations on the plaintiff's assertion of any claims against the defendant without placing any similar limitations on the defendant's right to bring claims against the plaintiff.” Id. Chism’s case is easily distinguishable from Pokorny (and its cited case Nyulassy) because none of the three unconscionable elements is present here. a. Frito-Lay’s dispute resolution process applies equally to Frito-Lay First and importantly, the ADR process here applies equally to both Chism and Frito- Lay—a fact self-servingly omitted in the numerous places Chism's Response argues one-sidedness. The relevant language states, “[t]his policy describes the steps that both you and the Company must take to resolve many types of workplace problems. The Company is also obligated to follow the Program and will also be bound by arbitration.” (Cuevas Decl., Exh. A [ECF 71-3]) (emphasis added). Accordingly, by its own clear terms, the arbitration agreement/process is mutual. /// /// Case 3:17-cv-00152-VC Document 81 Filed 11/14/17 Page 10 of 18 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 6 Case No. 3:17-cv-05052-VC REPLY BRIEF IN SUPPORT OF DEFENDANT FRITO-LAY INC.’S MOTION TO (1) COMPEL ARBITRATION AND (2) STAY THIS ACTION b. Frito-Lay’s dispute resolution process includes a valid, informal mediation step. Different (and also distinguishable) from Pokorny, the informal dispute resolution mechanism here includes a step for informal resolution by a neutral mediator. (Cuevas Decl., Exh. A, at pg. 3 [ECF 71-3]) (“In mediation, the Company and employee speak with an objective, independent third party to help . . . The Company and employee will work together to choose a professional mediator to mediate the dispute.”) This provision is fair and not unconscionable. Neither the Pokorny court nor any court in California has deemed unconscionable a provision involving mediation by a neutral mediator. c. Frito-Lay’s dispute resolution process does not shorten any statute of limitations. Contrary to Plaintiff's argument, the Frito-Lay dispute resolution process provides that all claims, by both parties, must be brought “within one year or within the applicable statute of limitations, whichever is longer.” (Cuevas Decl., Exh. A, at pg. 6 [ECF 71-3]) (emphasis added). Chism cites to a string of cases in which alternative dispute resolution programs were deemed unconscionable because they limited all statutes of limitations to 6 months. Jackson v. SAW Entertainment Ltd. 629 F. Supp.2d 1018, 1029 (N.D. Cal. 2009), Martinez v. Master Protection Corp., 118 Cal. App.4th 107, 117 (2004) and Zaborowski v. MHN Gov't Servs. 936 F. Supp.2d 1145, 1153 (N.D. Cal. 2013), aff'd, 601 F. App'x 461 (9th Cir. 2014). Because the Frito-Lay program case has no blanket shortening of any statute of limitations, each of these cases is easily distinguishable. Chism has failed to carry his burden of proving unconscionability of Frito-Lay's valid, enforceable, four-step dispute resolution program. 2. The attorney’s fees provisions are not unconscionable. The first attorneys’ fees provision authorizes the arbitrator to “assess attorneys’ fees against a party upon a showing by the other party that the first party’s claim is frivolous or unreasonable or factually groundless.” (Cuevas Decl. Exh. A, pg. 1. [ECF 71-3]) Chism incorrectly alleges this provision is unconscionable. To the contrary, this provision is consistent with section 128.7(b)(2) Case 3:17-cv-00152-VC Document 81 Filed 11/14/17 Page 11 of 18 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 7 Case No. 3:17-cv-05052-VC REPLY BRIEF IN SUPPORT OF DEFENDANT FRITO-LAY INC.’S MOTION TO (1) COMPEL ARBITRATION AND (2) STAY THIS ACTION and (3) of California Code of Civil Procedure, which authorizes a court to award fees and costs if claims are brought that are frivolous or lack evidentiary support. This provision also is not one- sided as it clearly applies to claims brought by either party. The second attorney's fees provision provides that either party will be entitled to recover attorneys’ fees and expenses incurred should the other party elect, in violation of and despite the terms of the arbitration agreement, to pursue a claim in court. (Cuevas Decl., Exh. A, pg. 7 [ECF 71-3].) This provision also is consistent with California law. In Acosta v. Kerrigan, 150 Cal. App. 4th 1124, 1129-1132 (2007), the court enforced an arbitration agreement’s term that expressly called for an award of attorneys’ fees, costs, expenses, and damages in the event the other party initiated legal action by any other method other than arbitration—a term nearly identical to the present. The Northern District has upheld a similar term. Bank of Am. v. Micheletti Family P'ship, No. 08-02902 JSW, 2009 WL 1110827, at *3 (N.D. Cal. Apr. 24, 2009)(“[T]he contract at issue in Acosta expressly contemplated a fee award if a party was required to move to enforce the arbitration agreement.”) This provision, and Acosta, have been applied and enforced in the employment context as well. Turner v. Schultz, 175 Cal. App. 4th 974, 985 (2009) (where a terminated employee filed in civil court in contravention of an agreement to arbitrate, under the terms of the arbitration agreement the former employee must pay the employer’s attorney’s fees related to the civil action filed in violation of the arbitration agreement and “accept the consequences of forcing defendants to fight on two fronts.”) Both of these provisions are consistent with California law and enforceable. 3. A non-binding arbitration requirement is not unconscionable. Chism argues that the arbitration agreement requires arbitration “regardless of court rulings on enforceability”–which misstates the Agreement's language and meaning. The plain language of the Agreement states that if a Court rules that arbitration is not “the exclusive, final and binding method for the Company and its employees to resolve disputes…the party must submit the claim(s) to [the non-binding] arbitration before pursuing any legal…claim in a court of competent jurisdiction.” (Cuevas Decl., Exh. A, pg. 7 [ECF 71-3]) In other words, in the event a Court decides that the arbitration contemplated under the arbitration agreement is to be non-binding (as Case 3:17-cv-00152-VC Document 81 Filed 11/14/17 Page 12 of 18 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 8 Case No. 3:17-cv-05052-VC REPLY BRIEF IN SUPPORT OF DEFENDANT FRITO-LAY INC.’S MOTION TO (1) COMPEL ARBITRATION AND (2) STAY THIS ACTION opposed to binding), the parties must complete that non-binding arbitration before proceeding with other procedures. Chism cites only to a portion of Sonic-Calabasas A, Inc. v Moreno, 57 Cal.4th 1109, 1168-1169 (2013) (“Sonic II”), in support of his argument against non-binding arbitration, but that case is simply inapplicable to a clause requiring non-binding arbitration as an agreed-upon method of alternative dispute resolution to be paid for by the employer. Rather, non-binding arbitration is not unconscionable as it “merely forces Plaintiff to follow an additional procedural step” and does not “deprive Plaintiff of her day in court.” Cole v. Asurion Corp., No. CV066649PSGJTLX, 2007 WL 9627611, at *5 (C.D. Cal. Sept. 27, 2007). And non-binding arbitration is also afforded the same protections and deference as binding arbitration under the FAA. Wolsey, Ltd. v. Foodmaker, Inc., 144 F.3d 1205, 1209 (9th Cir. 1998) (“In light of the strong presumption in favor of arbitrability recognized in Moses H. Cone, we hold that arbitration need not be binding in order to fall within the scope of the Federal Arbitration Act.) Accordingly, the provision in the Agreement requiring non-binding arbitration in the event arbitration is not deemed binding by a Court is, in fact, favored—not unconscionable. D. Any Unconscionable Terms Should Be Severed. In this Response and its earlier Motion, Frito-Lay has set forth why all of the provisions in its dispute resolution program and arbitration agreement are valid and enforceable. However, to the extent the Court finds that any terms are unconscionable the Court should sever such terms and enforce the remainder of the agreement. If a court concludes that a contract contains one or more unconscionable clauses, it may: (1) refuse to enforce a contract that was unconscionable at the time it was made; (2) enforce the remainder of the contract without the unconscionable clause(s); or (3) limit the application of any unconscionable clause as to avoid any unconscionable result. Cal. Civ. Code § 1670.5(a). Refusing to enforce the entire agreement is disfavored.” Armendariz, 24 Cal.4th at 122, (citing Cal. Civ. Code § 1670.5, Legis. Comm. Comments, n.2); see also Harper v. Ultimo, 113 Cal.App.4th 1402, 1411 (2003) (“refusing to enforce the entire agreement is an option `only when an agreement is "permeated" by unconscionability'). Contracts with several distinct terms are valid as to those provisions that are lawful and void as to the rest. Cal. Civ. Code § 1599. A contract is deemed to be permeated with Case 3:17-cv-00152-VC Document 81 Filed 11/14/17 Page 13 of 18 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 9 Case No. 3:17-cv-05052-VC REPLY BRIEF IN SUPPORT OF DEFENDANT FRITO-LAY INC.’S MOTION TO (1) COMPEL ARBITRATION AND (2) STAY THIS ACTION unconscionability only when the contract no longer has those distinct objects, i.e. “[t]he good cannot be separated from the bad, or rather the bad enters into and permeates the whole contract, so that none of it can be said to be good.” Keene v. Harling, 61 Cal.2d 318, 322 (1964). On the other hand, if the offending provision “is collateral to the main purpose of the contract, and the illegal provision can be extirpated from the contract by means of severance or restriction, then such severance and restriction are appropriate.” Id. E. Frito-Lay Has Not Waived its Right to Arbitrate Chism makes four unsuccessful arguments that Frito-Lay waived its right to arbitrate his claims. First, Chism claims that he has been prejudiced because he propounded class discovery and conducted this case “very differently” than he would have if arbitration had been demanded at the outset. Chism tries to analogize his actions to Oregel v. PacPizza, LLC, 237 Cal. App. 4th 342, 344 (2015), but the analogy completely misses the mark. In Oregel, the defendant litigated actively for seventeen months (resulting in more than 1,300 attorney hours), propounded 226 written discovery requests, took 26 depositions (including the named Plaintiff), and engaged in motion practice (including class certification)—all prior to moving to compel arbitration. The current case is very different from Oregel. The Oregel case was actively litigated for seventeen months, and the defendant had engaged in extensive discovery and motion practice (vs. no propounding of discovery or motion practice by Frito-Lay in the present matter). Chism next claims that he is somehow prejudiced because he revealed information during a mediation that he presumably would not have if the case had been in an arbitral forum. Participating in a voluntary mediation has no bearing whatsoever on arbitration or court proceedings, as mediation can and frequently does occur prior to either. Additionally, during the mediation process, Chism received as much information from Frito-Lay as he revealed. In the case Chism cites, Martin v. Yasuda, 829 F.3d 1118, 1126-27(9th. Cir. 2016), prejudice occurred when the moving party utilized civil proceedings to obtain information through discovery about the other “side’s case that could not have been gained in arbitration.” Similar to Oregel, Yasuda also was pending seventeen months before the motion to compel was brought, during which significant Case 3:17-cv-00152-VC Document 81 Filed 11/14/17 Page 14 of 18 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 10 Case No. 3:17-cv-05052-VC REPLY BRIEF IN SUPPORT OF DEFENDANT FRITO-LAY INC.’S MOTION TO (1) COMPEL ARBITRATION AND (2) STAY THIS ACTION discovery had occurred and in which the party opposing the arbitration agreement had disclosed information about their case during discovery. As of today, Chism has provided no information to Frito-Lay in discovery. Frito-Lay, on the other hand, has produced discovery responses to Chism. Neither Oregel nor Yasuda discusses prejudice arising from information revealed during a voluntary early mediation. In further support of his second argument, Chism also cites to In re Toyota Motor Corp. Hybrid Brake Mktg., Sales, Practices & Prod. Liab. Litig., 828 F. Supp. 2d 1150, 1163 (C.D. Cal. 2011), aff'd sub nom. Kramer v. Toyota Motor Corp., 705 F.3d 1122 (9th Cir. 2013) (hereinafter “Toyota”). In Toyota, the Court denied the motion to compel arbitration on the grounds that Toyota had waived arbitration because “Toyota has vigorously litigated this action for nearly two years, engaged in extensive discovery and meet and confer conferences with Plaintiffs, filed motions with this Court, and negotiated and sought protective orders.” Id. It was in that context of inconsistent civil litigation by Toyota that the Court found the plaintiff to have been prejudiced in committing to a litigation strategy and revealing information in response, certainly not during a voluntary mediation. This case is clearly distinguishable from Toyota. Frito-Lay never engaged in any behavior inconsistent with arbitration such as noticing depositions, propounding discovery, or filing motions. Further, the present case has been pending a much shorter time than Toyota or Oregel—the current motion to compel was filed only nine months after the initial Complaint, only four months after current Frito-Lay counsel became counsel of record (after taking over from the original law firm), and less than a month after Frito-Lay counsel became aware of the arbitration program - much less than the almost two years of active litigation in Toyota prior to the filing of the motion to compel arbitration or the seventeen months of active litigation in Oregel and Yasuda. Third, without much explanation, Chism argues that Frito-Lay gained an unfair advantage because a different Defendant, First Advantage, filed its own motion to dismiss and obtained rulings from this Court thereon. This Court's treatment of a former co-defendant has nothing to do with Frito-Lay, and Frito-Lay had nothing to do with Chism’s subsequent dismissal of First Advantage after First Advantage’s successful motion to dismiss. Case 3:17-cv-00152-VC Document 81 Filed 11/14/17 Page 15 of 18 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 11 Case No. 3:17-cv-05052-VC REPLY BRIEF IN SUPPORT OF DEFENDANT FRITO-LAY INC.’S MOTION TO (1) COMPEL ARBITRATION AND (2) STAY THIS ACTION Fourth, Chism argues that if this matter is submitted to arbitration, he would be precluded by a two-year statute of limitations from bringing any claim in arbitration. He provides no legal support for this argument, and Frito-Lay is unaware of any legal reason why Chism cannot pursue his background check claims in arbitration.2 F. After Deciding the Current Motion To Compel Arbitration of Chism's Claims, If the Court Does Not Transfer this Matter, the Court Should Stay the Class Action Allegations, Pending the Morris decision. Chism has challenged the enforceability of his class action waiver under the Morris v. Ernst & Young decision currently pending before the Supreme Court. Frito-Lay has separately moved to transfer this matter to the Eastern District of Texas—which Frito-Lay continues to argue is the appropriate, correct course. Alternatively, however, if the Court is unwilling to transfer this matter, the Court should stay the class action claims until the Supreme Court decides Morris. District Courts have the inherent power to “stay proceedings in one suit until the decision of another” in furtherance of administration of justice. Landis v. N. Am. Co. (1936) 199 U.S. 248, 249, 254. The purpose of this power is to permit every court to control the disposition of cases on its docket “with economy of time and effort for itself, for counsel, and for litigants.” Id. at 254-55. The Landis factors regarding the issuance of a stay are (1) the hardship or inequity which a party may suffer in being required to go forward, (2) the possible damage which may result from the granting of a stay, and (3) the orderly course of justice. Id. Here, Morris will resolve a threshold issue as to whether Chism, or any other California putative class member, has waived the right to bring a class action against Frito-Lay. Should the Supreme Court reverse the Ninth Circuit’s Morris decision and join the Second, Fifth, and Eighth Circuits (as well as Justice Ikeda’s position in dissent in Morris), the class action waiver should be enforced. Accordingly, if the Court does not transfer this matter (as requested and briefed by Frito- Lay in the separate motion), the Court should stay this action pending Morris as demonstrated by the three Landis factors. 2 Chism’s position that the applicable statute of limitations for his claims is five years would render this argument completely moot. (See Response, pg. 13, fn1 (ECF 78)). Frito-Lay does not waive its position that the applicable statute of limitations is two years (especially with respect to any class), but Frito-Lay is not arguing that a current arbitration claim by Chism would be outside the applicable two-year statute of limitations. Case 3:17-cv-00152-VC Document 81 Filed 11/14/17 Page 16 of 18 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 12 Case No. 3:17-cv-05052-VC REPLY BRIEF IN SUPPORT OF DEFENDANT FRITO-LAY INC.’S MOTION TO (1) COMPEL ARBITRATION AND (2) STAY THIS ACTION Under the first Landis factor, if forced to proceed in the class action, the parties will be forced to incur costly class fees and expenses in a case that very well could result in a class dismissal. Under the second Landis factor, the only possible “damage” to Chism resulting from a stay is a brief delay in this proceeding until issuance of the Supreme Court’s decision. This delay is particularly inconsequential in light of the fact that the remedies sought by Chism and the putative class are monetary. The Ninth Circuit has held that a delay in monetary recovery should not serve as the foundation for the denial of a stay. Lockyer v. Mirant Corp., 398 F.3d 1098, 1110 (9th Cir. 2005). Under the third Landis factor the stay facilitates the orderly course of justice because Morris will, at the very least, could impact the dispute issue before the Court, and thus it makes eminent sense to await its ruling in a few months. In a recent Northern District decision, Judge Freeman stated the issue succinctly: “[i]t is not an oversimplification to state that if the Supreme Court upholds the Ninth Circuit's decision in Morris, the Plaintiffs have the stronger case against compelling arbitration. However, if the Supreme Court reverses the Ninth Circuit and sides with the majority of circuit courts who have upheld class action waivers in arbitration agreements, Randstad has a strong likelihood of prevailing on its motion to compel arbitration…” Robledo v. Randstad US, L.P., No. 17-CV-01003-BLF, 2017 WL 4934205, at *2 (N.D. Cal. Nov. 1, 2017) (“Robledo”). As all three Landis factors are met here, a brief stay would be an appropriate option for the Court in awaiting Morris. Indeed, in addition to Robledo, two other Northern District judges have stayed their pending employment class actions until Morris is decided. In McElrath v. Uber Techs., Inc., No. 16-CV-07241-JSC, 2017 WL 1175591, at *6 (N.D. Cal. Mar. 30, 2017) Judge Corley stayed the case pending Morris because “this case is in its early stages, and the outcome of Morris will have a significant impact on this case.” Judge Chen also recently stayed an employment class action allegation pending the decision in Morris. See Bankwitz v. Ecolab, Inc., No. 17-CV-02924-EMC, 2017 WL 4642284, *5 (N.D. Cal. Oct. 17, 2017) (staying the class allegations, but permitting discovery on the individual causes of action during the stay “since a similar exchange of information would likely need to occur in arbitration, too.”). Frito-Lay requests that the Court enforce the arbitration agreement, order Chism to arbitrate Case 3:17-cv-00152-VC Document 81 Filed 11/14/17 Page 17 of 18 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 13 Case No. 3:17-cv-05052-VC REPLY BRIEF IN SUPPORT OF DEFENDANT FRITO-LAY INC.’S MOTION TO (1) COMPEL ARBITRATION AND (2) STAY THIS ACTION his individual claims, and transfer the class claims to the Eastern District of Texas. Even if the Court does not compel arbitration, it should still transfer the case to the Eastern District of Texas (for the reasons spelled out in that motion), as that Court is well-equipped to resolve the arbitration issues pending the Supreme Court’s ruling in Morris. Alternatively, to the extent the enforceability of the class action waiver impacts the Court’s decision on either the motion to compel arbitration or motion to transfer venue, Frito-Lay asks the Court to stay the case until the disposition of Morris. III. CONCLUSION For the foregoing reasons, Frito-Lay respectfully requests that the Court (a) compel Chism to arbitrate his claims against Frito-Lay and (b) transfer the remaining class allegations to the Eastern District of Texas. In the alternative, Frito-Lay respectfully requests the Court stay the class action claims pending the Supreme Court’s decision in Morris v. Ernst & Young. DATED: November 14, 2017 OGLETREE, DEAKINS, NASH, SMOAK & STEWART, P.C. By: /s/ Thomas M. McInerney THOMAS M. MCINERNEY JASON P. BROWN STEPHEN R. WOODS JAMES R. SILVERS Attorneys for Defendant Frito-Lay, Inc. 31977287.3 Case 3:17-cv-00152-VC Document 81 Filed 11/14/17 Page 18 of 18