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Chavarria v. Ralphs Grocery Co.

United States Court of Appeals, Ninth Circuit

October 28, 2013

Zenia CHAVARRIA, individually, and on behalf of other members of the general public similarly situated, Plaintiff-Appellee,
v.
RALPHS GROCERY COMPANY, an Ohio Corporation, Defendant-Appellant.

Argued and Submitted Aug. 8, 2013.

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Steven B. Katz (argued), Linda S. Husar, and Mara Matheke, Reed Smith LLP, Los Angeles, CA, for Defendant-Appellant.

Glenn A. Danas (argued), Capstone Law, Los Angeles, CA; Mark Yablonovich, Neda Roshanian, and Michael D. Coats, Law Offices of Mark Yablonovich, Los Angeles, CA, for Plaintiff-Appellee.

Appeal from the United States District Court for the Central District of California, Dean D. Pregerson, District Judge, Presiding. D.C. No. 2:11-cv-02109-DDP-VBK.

Before: RICHARD C. TALLMAN, RICHARD R. CLIFTON, and CONSUELO M. CALLAHAN, Circuit Judges.

OPINION

CLIFTON, Circuit Judge:

Defendant Ralphs Grocery Company appeals the district court's denial of its motion to compel arbitration. Plaintiff Zenia Chavarria filed an action alleging violations of the California Labor Code and California Business and Professions Code §§ 17200 et seq. She asserted claims on behalf of herself and a proposed class of other Ralphs employees. Ralphs moved to compel arbitration of her individual claim pursuant to its arbitration policy, to which all employees acceded upon submitting applications for employment with Ralphs. The district court denied the motion, holding that Ralphs' arbitration policy was unconscionable under California law and therefore unenforceable.

Ralphs argues that its policy is not unconscionable under California law and in the alternative that the Federal Arbitration Act (" FAA" ) preempts California law. The FAA provides that arbitration agreements must be enforced except " upon such grounds as exist at law or in equity for the revocation of any contract." 9 U.S.C. § 2. The FAA preempts a contract defense, such as unconscionability, that may be generally applicable to any contract but disproportionately impacts arbitration agreements. AT& T Mobility LLC v. Concepcion, __ U.S. __, 131 S.Ct. 1740, 179 L.Ed.2d 742 (2011).

We affirm. We conclude that Ralphs' arbitration policy is unconscionable under California law, and that the state law supporting that conclusion is not preempted by the FAA.

I. Background

Plaintiff Zenia Chavarria completed an employment application seeking work with Defendant Ralphs Grocery Company. Chavarria obtained a position as a deli clerk with Ralphs and worked in that capacity for roughly six months. After leaving her employment with Ralphs, Chavarria filed this action, alleging on behalf of herself and all similarly situated employees that Ralphs violated various provisions of the California Labor Code and California Business and Professions Code §§ 17200 et seq. Ralphs moved to compel arbitration of her individual claim pursuant to an arbitration policy incorporated into the employment application. Chavarria opposed the motion, arguing that the arbitration agreement was unconscionable under California law.

By completing an employment application with Ralphs, all potential employees agree to be bound by Ralphs' arbitration policy. The application contains an acknowledgment that the terms of the mandatory and binding arbitration policy have been provided for the applicant's review. Ralphs' policy contains several provisions central to this appeal.

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Paragraph 7 governs the selection of the single arbitrator who will decide the dispute.[1] It provides that, unless the parties agree otherwise, the arbitrator must be a retired state or federal judge. It explicitly prohibits the use of an administrator from either the American Arbitration Association (" AAA" ) or the Judicial Arbitration and Mediation Service (" JAMS" ).

If the parties do not agree on an arbitrator, the policy provides for the following procedure:

(1) Each party proposes a list of three arbitrators;
(2) The parties alternate striking one name from the other party's list of arbitrators until only one name remains;
(3) The party " who has not demanded arbitration" makes the first strike from the respective lists; and
(4) The lone remaining arbitrator decides the claims.

In practice, the arbitrator selected through this process will invariably be one of the three candidates nominated by the ...


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