When Jose Emilio Ronderos applied to work for USF Reddaway, Inc. as a line haul manager, Reddaway required him to sign a document titled “Candidate’s Statement,” which is a pre-printed document that contains the arbitration agreement. Reddaway presented that pre-printed document to Ronderos on a take-it-or-leave-it basis.

Ronderos was hired and worked for Reddaway for two and a half years. Ronderos alleges that, shortly after he was diagnosed with cancer and took a medical leave of absence, Reddaway terminated him. Ronderos filed claims in California state court against Reddaway for age and disability discrimination, retaliation, and failure to accommodate his disability under California’s Fair Employment and Housing Act (FEHA), California Government Code §§ 12900 et. seq., and failure to pay unpaid wages in violation of California state law, among other claims.

After Reddaway removed the case to federal court, it filed a motion to compel arbitration. Ronderos opposed the motion, contending that the arbitration agreement is procedurally and substantively unconscionable under California law and, therefore, unenforceable.

Reddaway conceded that the arbitration agreement is a contract of adhesion – that is, it is a pre-printed form that Reddaway presented to Ronderos on a take-it-or-leave-it basis, with no opportunity for Ronderos to negotiate its terms. Reddaway also conceded that two of the agreement’s provisions – the one-year statute of limitations for filing claims and the preliminary injunction carve-out – are unenforceable under California law. Reddaway argued, however, that the court should sever those provisions and enforce the remainder of the agreement by compelling arbitration.

The district court concluded that the agreement is procedurally unconscionable to a moderate degree. The district court also concluded that the agreement contains multiple substantively unconscionable provisions, and that it lacks mutuality to a substantial degree. Finally, the district court declined to sever the unconscionable provisions.

The 9th Circuit Court of Appeal affirmed the trial court in the published case of Ronderos v USF Reddaway, Inc – 5:21-cv-00639-MWF-KK – (August 2024).

After agreeing with the trial court that the agreement contains multiple procedurally and substantively unconscionable provisions, the 9th Circuit reviewed the district court’s decision not to sever the unconscionable provisions for abuse of discretion. In doing so, the 9th Circuit was mindful of the July 2024 California Supreme Court decision in Ramirez v. Charter Communications, Inc clarifying that no bright line rule requires a court to refuse enforcement if a contract has more than one unconscionable term.

Reddaway argued that the district court should have found that the unconscionable provisions are merely “collateral” to the main purpose of the contract, and that it erred by instead finding that the multiple unconscionable provisions show that the central purpose of the agreement is tainted with illegality.

Nonetheless, the 9th Circuit concluded that the district court did not abuse its discretion by declining to sever the unconscionable provisions and enforce the remainder of the agreement. In doing so, it noted that while case law does “not establish bright lines, they shed some light on the outer bounds of a trial court’s range of discretion. Our understanding of the trial court’s range of discretion is confirmed by our review of cases in which appellate courts have held that the trial court acted within its discretion.”

It reviewed several appellate cases on this issue and concluded that like the California Supreme Court in Armendariz v. Found. Health Psychcare Servs., Inc., 6 P.3d 669 (Cal. 2000)) it conclude that, “given the multiple unlawful provisions, the [district] court did not abuse its discretion in concluding that the arbitration agreement is permeated by an unlawful purpose.”

Dissenting Judge Bennett wrote that “Not once has the California Supreme Court, nor any of the California Courts of Appeal, affirmed a trial court’s refusal to sever easily excisable collateral provisions from an arbitration agreement that includes a severability clause. Nor have we – until today.”

“The district court abused its discretion because it misapplied California law in declining to sever the collateral provisions here. It should have severed those provisions and granted Reddaway’s motion to compel arbitration. Both its decision and the majority’s evince the type of ‘judicial hostility to arbitration’ that led Congress to pass the Federal Arbitration Act.”

9th Circuit Decision Continues “Judicial Hostility” to Employer Arbitration