Severing Unconscionable Arbitration Provisions: Poublon v. C.h. Robinson Co.

• Citation: Vol. 31 No. 2
• Publication year: 2017
• Author: By Joel M. Grossman

Severing Unconscionable Arbitration Provisions: Poublon v. C.H. Robinson Co.

By Joel M. Grossman

Joel M. Grossman is a mediator and arbitrator with JAMS in Los Angeles. He has been selected five times as one of the Top Neutrals in California by the Daily Journal. For more information please contact: www.grossmanmediation.com.

Plaintiffs often respond to motions to compel arbitration by attacking the validity of one or more provisions of the arbitration agreement. This challenge can raise the following questions: first, is one or more provisions of the arbitration agreement unconscionable and therefore unenforceable; and second, if so, can the unenforceable provision be severed by the court, with the balance of the arbitration agreement upheld? These two interrelated questions are the subject of the recent Ninth Circuit case of Poublon v. C.H. Robinson Company.¹ Applying California case law, the court deemed two provisions unenforceable but nevertheless overruled the district court and held that the improper provisions could be severed, and the balance of the arbitration agreement enforced.

As the court explained, a party opposing a motion to compel arbitration must show that the arbitration agreement is both procedurally and substantively unconscionable.² There is a sliding scale, so that the more substantive unconscionability exists, the less procedural unconscionability is required, and vice versa.³ Beginning with procedural unconscionability, the court noted that the arbitration agreement, which was incorporated in an incentive bonus plan, was adhesive, but that a contract of adhesion is not automatically procedurally unconscionable. The plaintiff claimed that the agreement to arbitrate also was procedurally unconscionable because it referenced AAA arbitration rules, but did not attach the rules to the arbitration agreement. An additional procedural objection was unique to the case and is not discussed here.

Addressing the employer's failure to provide a copy of the AAA rules, the court relied on the California Supreme Court's holding in Baltazar v. Forever 21, Inc.,⁴ which held that while courts "will more closely scrutinize the substantive unconscionability of terms that were 'artfully hidden' by the simple expedient of incorporating them by reference rather than including them [in the arbitration agreement],"⁵ such is not the case with the AAA (or other provider's) rules, if the rules are easily accessible. The court noted that an employer may not sneak in an unfair rule by incorporating it by reference, but since there is nothing unfair about the AAA rules, the fact that they were incorporated by reference but not fully set forth does not add to the unconscionability of the agreement.

The court then addressed a number of claims that various provisions of the arbitration agreement were substantively unconscionable and the agreement could not be enforced. The court agreed that two provisions were in fact unenforceable. First, the court addressed the "judicial carve-out provision," whereby certain claims by the employer could proceed to court, notwithstanding the broad language that all disputes must be arbitrated. In the agreement, which (of course) was prepared by the employer, claims by the employer for injunctive or equitable relief—including claims made to enforce restrictive covenants or non-solicitation rules, or to protect the employer's trade secrets or other intellectual property—were carved out of the arbitration agreement so that the employer could sue the employee in court for such claims. The district court held this provision unenforceable, and the employer did not contest the ruling on appeal. Therefore, without addressing the merits of plaintiff's claim, the court held that the employer had waived any contention that the carve-out was not unconscionable. This was the first of two provisions that the court held to be unenforceable.

The second unenforceable provision was an overbroad class action waiver, in which the employee not only waived the right to file a class action in court, but also waived the right...