Kepas v. eBay

FILED
United States Court of Appeals
Tenth Circuit

November 2, 2010
UNITED STATES COURT OF APPEALS
Elisabeth A. Shumaker
Clerk of Court
TENTH CIRCUIT

EMMANUEL D. KEPAS,

Plaintiff-Appellant,
v. No. 09-4200
eBAY, a Delaware corporation, (D.C. No. 2:06-CV-00612-DB)
(D. Utah)
Defendant-Appellee.

ORDER AND JUDGMENT *

Before BRISCOE, Chief Judge, LUCERO, and HOLMES, Circuit Judges.

This case involves a challenge by Emmanuel D. Kepas (“Kepas”) to the

enforceability of the arbitration agreement (“Arbitration Agreement”) existing

between Kepas and his former employer, eBay (“eBay”). Kepas appeals the

district court’s order enforcing the Arbitration Agreement, compelling the

arbitration of his claims, and staying Kepas’s action against eBay. As Kepas

pursued this appeal after the district court confirmed the arbitration award and

dismissed his action against eBay, we exercise jurisdiction under 28 U.S.C. §

*
This order and judgment is not binding precedent, except under the
doctrines of law of the case, res judicata, and collateral estoppel. It may be cited,
however, for its persuasive value consistent with Fed. R. App. P. 32.1 and 10th
Cir. R. 32.1.
1291. We affirm the district court’s decision to compel arbitration.

I

Kepas filed this action against eBay in the United States District Court for

the District of Utah alleging claims under Title VII of the Civil Rights Act of

1964, as amended by the Civil Rights Act of 1991, and the Age Discrimination in

Employment Act, as well as common law breach of contract and breach of the

covenant of good faith and fair dealing claims. App. at 4 (Compl. at 1). In

response, eBay filed a motion to compel arbitration and dismiss or stay

proceedings, arguing that the Arbitration Agreement covered Kepas’s claims. Id.

at 25.

In his Complaint, Kepas alleges that eBay, a Delaware corporation with its

principal place of business in San Jose, California, operates a facility in Draper,

Utah. Id. at 5 (Compl. at 2). Kepas further alleges that, subject to a probationary

period, eBay hired Kepas to manage its Draper facility in July of 2003. Id. at 6-7

(Compl. at 3-4), 42. Kepas asserts that, upon the successful completion of his

probationary period, eBay provided him with the Arbitration Agreement and

conditioned his continued employment on his agreeing to the terms contained

therein. Id. at 43. Kepas signed the Arbitration Agreement on November 7,

2003. See id.

The Arbitration Agreement, which appears on eBay letterhead and is

typewritten on two pages, specifies the following details concerning its scope:

2
 The parties to this Agreement agree to arbitrate any dispute, demand, claim,
or controversy (“claim”) they may have against each other . . . which arises
from the employment relationship between Employee and Employer or the
termination thereof. Claims covered by this Agreement include, but are not
limited to, claims of employment discrimination and harassment under Title
VII of the Civil Rights Act, as amended, . . . the Age Discrimination in
Employment Act, as amended, . . . breach of employment contract or the
implied covenant of good faith and fair dealing, express or implied;
wrongful termination in violation of public policy . . . .

The parties agree that any claims that either party has that arise out of the
Employee Proprietary Information and Inventions Agreement are
specifically excluded from this Agreement. This includes, for example and
without limiting the generality of the foregoing exclusion, claims by the
Company that you have disclosed or misappropriated the Company’s trade
secrets and/or claims by you that you are the rightful owner of an
invention.

Id. at 59-60.

Further, the Arbitration Agreement includes the following forum selection

clause and choice-of-law provision:

The arbitration shall be conducted in Santa Clara County . . . in accordance
with the rules issued by the American Arbitration Association (“AAA”) for
resolution of employment disputes, wherever this Agreement is silent on
the arbitration procedure. . . .

....

This Agreement shall be governed by and shall be interpreted in accordance
with the laws of the State of California. . . .

Id.

The Arbitration Agreement includes the following provisions concerning

the arbitration expenses and the types of awards that could be granted in

arbitration:

3
 The Employer will pay the arbitrator’s fee for the proceeding, as well as
any room or other charges by AAA. . . .

....

The arbitrator shall have the power to award any type of legal or equitable
relief that would be available in a court of competent jurisdiction including,
but not limited to, the costs of arbitration, attorneys’ fees and punitive
damages when such damages and fees are available under the applicable
statute and/or judicial authority. . . .

Id. (emphasis added). “Costs of arbitration” is then defined in the AAA Rules

and Mediation Procedures as: “[a]ll expenses of the arbitrator . . . and any AAA

expenses, as well as the costs relating to proof and witnesses produced at the

direction of the arbitrator.” Id. at 62-63.

Finally, the Arbitration Agreement requires the following attestations by

the employee: “I understand that I would not be hired by the Employer if I did

not sign this Agreement. . . . I have been advised of my right to consult with

counsel regarding this Agreement.” Id.

When Kepas filed the present action, eBay responded with a motion to

compel arbitration and stay or dismiss proceedings. Kepas opposed eBay’s

motion, asserting that the Arbitration Agreement was unenforceable. Id. at 41-42.

After conducting a hearing, the district court compelled the arbitration of Kepas’s

claims and stayed the proceedings against eBay, provided that certain conditions

were satisfied. Id. at 81-82. Specifically, the district court required that “eBay

agree[] that the arbitrator(s) selected in this case shall have no authority to award

4
eBay arbitrator fees or the costs associated with room or other facility rental for

the arbitration hearing” and explained that “[t]he arbitrator(s) may award to eBay

only those costs that could be awarded in a proceeding under the Federal Rules of

Civil Procedure or the Local Rules of the Utah Federal District Court.” Id.

Further, the district court modified the Arbitration Agreement to permit “the

arbitration hearing to occur in Santa Clara County, California or in Salt Lake

County, Utah, at the Plaintiff’s election.” Id. at 82.

After the court compelled arbitration, Kepas chose to pursue his claims in

arbitration in Utah. See id. at 120. The arbitrator ultimately entered an Order on

Summary Judgment dismissing each of Kepas’s claims with prejudice. Id. at 93-

108. The district court then confirmed the arbitrator’s decision and dismissed

Kepas’s action against eBay. Id. at 153-54. Kepas now appeals the district

court’s decision to compel arbitration, arguing that the Arbitration Agreement, as

written, is unenforceable.

II

“We review a district court’s grant or denial of a motion to compel

arbitration de novo, applying the same legal standard employed by the district

court.” Armijo v. Prudential Ins. Co. of Am., 72 F.3d 793, 796 (10th Cir. 1995).

The parties agree that California law applies to this dispute. See also Engalla v.

Permanente Med. Group, Inc., 938 P.2d 903, 915 (Cal. 1997) (reasoning that, as

the arbitration agreement had an express choice-of-law provision, California law

5
governed a dispute regarding the agreement’s enforceability).

“California law incorporates many of the basic policy objectives contained

in the Federal Arbitration Act [(“FAA”)], including a presumption in favor of

arbitrability.” Id. Similar to the FAA, the California Arbitration Act (“CAA”)

holds arbitration agreements “valid, enforceable and irrevocable, save upon such

grounds as exist for the revocation of any contract.” Cal. Civ. Proc. Code § 1281.

Thus, enforceability of an arbitration agreement is assessed using the same “state

law standards that apply to contracts in general.” Engalla, 938 P.2d at 915.

On appeal, Kepas identifies the following deficiencies in the Arbitration

Agreement: (1) the Arbitration Agreement fails to satisfy the minimum

requirements established in Armendariz v. Foundation Health Psychare Svcs.,

Inc., 6 P.3d 669 (Cal. 2000); and (2) the Arbitration Agreement is

unconscionable. Further, he contends that these defects render the agreement

unenforceable in its entirety. Thus, Kepas argues that the district court erred in

enforcing the Arbitration Agreement. We will examine each alleged defect

separately and then determine whether the agreement is enforceable.

A. Armendariz Minimum Requirements

In Armendariz, the California Supreme Court established minimum

standards for employer-mandated arbitration agreements that require employees to

waive their statutory rights. 6 P.3d at 682. Specifically, such arbitration

agreements must:

6
 (1) [P]rovide[] for neutral arbitrators, (2) provide[] for more than minimal
discovery; (3) require[] a written award, (4) provide[] for all of the types of
relief that would otherwise be available in court, and (5) . . . not require
employees to pay either unreasonable costs or any arbitrators’ fees or
expenses as a condition of access to the arbitration forum.

Id. at 682 & n.8 (quoting Cole v. Burns Int’l Sec. Servs., 105 F.3d 1465, 1482

(D.C. Cir. 1997)). An arbitration agreement that fails to satisfy these minimum

requirements contravenes public policy. See Armendariz, 6 P.3d at 674. As eBay

required that Kepas execute an arbitration agreement that waived his statutory

rights pursuant to Title VII and the Age Discrimination in Employment Act, the

parties agree that the minimum requirements of Armendariz apply to the

Arbitration Agreement. See id. at 680-81 (concluding that the minimum

requirements of Cole extend beyond the context of Title VII).

Pursuant to the requirement that employees not bear unreasonable costs or

arbitrator fees, Armendariz explains that “the employee [cannot be required] to

bear any type of expense that the employee would not be required to bear if he or

she were free to bring the action in court.” Id. at 687 (emphasis in original).

Rather, “the employer [must] pay all types of costs that are unique to arbitration.”

Id. at 689. Kepas alleges that the Arbitration Agreement impermissibly exposes

him to arbitration expenses and to unreasonable witness travel costs.

1. Arbitration Costs

Kepas asserts that the Arbitration Agreement violates Armendariz because

arbitrator fees and American Arbitration Association (“AAA”) costs could be

7
imposed on employees pursuant to the arbitrator’s award. We agree.

The Arbitration Agreement expressly allows an arbitrator to award “any

type of legal or equitable relief that would be available in a court of competent

jurisdiction, including but not limited to, the costs of arbitration.” App. at 59-60

(emphasis added). As the term “costs of arbitration” is undefined in the

Arbitration Agreement, we look to the AAA Rules and Procedures for its

meaning. See id. at 59 (requiring that, “wherever this Agreement is silent on the

arbitration procedure,” the rules issued by the AAA control). The AAA Rules and

Procedures define the term “costs of arbitration” as “[a]ll expenses of the

arbitrator . . . and any AAA expenses.” Id. at 63. Thus, we conclude that the

Arbitration Agreement impermissibly imposes a significant risk of these costs on

employees.

eBay’s arguments to the contrary are unavailing. First, eBay points to a

provision in the Arbitration Agreement specifying that “the Employer will pay the

arbitrator’s fee for the proceeding, as well as any room or other charges by

AAA.” Id. at 59. However, this provision merely suggests that eBay will cover

these costs initially. The employee nonetheless faces the risk that the arbitrator

could shift the costs to him or her in the arbitration award. As a cost-shifting

“system . . . poses a significant risk that employees will have to bear large costs

to vindicate their statutory right against workplace discrimination,” this provision

contravenes public policy pursuant to Armendariz. Mercuro v. Superior Court,

8
116 Cal. Rptr. 2d 671, 681-82 (Cal. Ct. App. 2002) (internal quotation marks

omitted).

Second, eBay asserts that the arbitrator has no ability to require the

employee to pay arbitrator fees and other AAA expenses, as such relief would be

unavailable “in a court of competent jurisdiction.” App. at 59-60. This argument

ignores the language set forth in the Arbitration Agreement. The arbitrator is

explicitly authorized by the Arbitration Agreement to impose the “costs of

arbitration” on an employee. Id. at 60. Further, adopting eBay’s explanation

would render the term “costs of arbitration” in the award provision inoperative

and, pursuant to the California rules of contract interpretation, such result should

be avoided. See Cal. Civ. Code § 1641 (specifying that, when interpreting the

language of a contract, the court should give effect to every provision).

As we have concluded that the award provision contravenes public policy,

we must also evaluate whether the defect renders the Arbitration Agreement

unenforceable in its entirety or whether this provision is severable. After

addressing other alleged defects in the Arbitration Agreement, we will turn to the

issue of severability.

2. Witness Expenses

Kepas argues that the requirements set forth in Armendariz are also

violated by the forum selection clause’s effect on witness travel expenses. He

asserts that the forum selection clause in the Arbitration Agreement could require

9
employees to incur unreasonable witness travel expenses in order for their

witnesses to travel to distant arbitration proceedings. Specifically, he argues that

the forum selection clause mandates that the arbitration proceedings for covered

claims occur in Santa Clara County, California, while his relevant witnesses are

located in Utah.

As witness travel costs are not unique to arbitration, Kepas’s challenge to

the forum selection clause and its related effect on witness travel expenses is not

compelling. In fact, courts consider these costs when evaluating the

reasonableness of forum selection clauses in conjunction with litigation in

general. See Smith, Valentino & Smith, Inc. v. Superior Court, 551 P.2d 1206,

1209 (Cal. 1976). Thus, an employee’s potential to incur witness travel costs

does not violate the Armendariz minimum requirements. Rather, Kepas’s

argument implicates the reasonableness of the forum selection clause itself, which

we will also address.

B. Unconscionability

Pursuant to California law, courts may refuse to enforce unconscionable

contracts. Cal. Civ. Code § 1670.5. Thus, arbitration agreements can be

challenged based on unconscionability. See Cal. Civ. Proc. Code § 1281. In

California, unconscionability requires evidence of both procedural and

substantive elements. Armendariz, 6 P.3d at 690. However, these components

“need not be present in the same degree.” Id. Rather, “the more substantively

10
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.

Kepas contends that the clauses delineating the scope of the Arbitration

Agreement, as well as the forum selection clause, are unconscionable.

1. Procedural Unconscionability

“Procedural unconscionability concerns the manner in which the contract

was negotiated and the circumstances of the parties at that time.” Parada v.

Superior Court, 98 Cal. Rptr. 3d 743, 756 (Cal. Ct. App. 2009) (internal quotation

marks omitted). When evaluating contracts for procedural unconscionability,

California courts consider: (1) whether the agreement is an adhesion contract; (2)

whether oppression played a role in execution of the agreement; and (3) whether a

party was surprised by the agreement’s hidden terms. See id. at 756-57. Courts

then balance the presence or absence of each factor. See id. at 758.

An adhesion contract is defined as “a standardized contract, which,

imposed and drafted by the party of superior bargaining strength, relegates to the

subscribing party only the opportunity to adhere to the contract or reject it.”

Armendariz, 6 P.3d at 689 (internal quotation marks omitted). The Arbitration

Agreement is clearly an adhesion contract. It is a standardized agreement that

eBay, the party with superior bargaining power, drafted and provided to Kepas.

Further, eBay required that Kepas complete the agreement at the end of his

11
probationary period, and the express language of the agreement conditions

Kepas’s continued employment on his acceptance of its terms.

Nonetheless, our concluding that the Arbitration Agreement is an adhesion

contract does not end the procedural unconscionability analysis. Parada, 98 Cal.

Rptr. 3d at 757. We must proceed to the remaining factors. Id. “Oppression”

refers to the “absence of power to negotiate the terms of the contract” as well as

the “absence of reasonable market alternatives.” Id. at 758 (internal quotation

marks omitted). Despite the fact that the Arbitration Agreement permitted Kepas

to consult with an attorney regarding its terms, most employees are not “in a

position to refuse a job because of an arbitration requirement,” Armendariz, 6

P.3d at 690, even under the advice of counsel. eBay contends that Kepas was

already an employee at the time he entered the Arbitration Agreement, and thus,

he was in a position to negotiate the terms of the Arbitration Agreement.

However, this argument is unpersuasive as eBay required Kepas to enter the

agreement when he completed his probationary employment period. As a result,

Kepas could reasonably have concluded that he had to execute the Arbitration

Agreement in order to continue his employment with eBay by becoming a

permanent eBay employee.

“Surprise” addresses “whether the challenged term is hidden in a prolix

printed form or is otherwise beyond the reasonable expectation of the weaker

party.” Parada, 98 Cal. Rptr. 3d at 757 (internal quotation marks omitted). The

12
Arbitration Agreement lacks the element of surprise. Specifically, the Arbitration

Agreement was typewritten on two pages. Further, the challenged terms were not

beyond Kepas’s reasonable expectations. As eBay is headquartered in California,

a forum selection clause selecting California as the arbitration forum could

reasonably be expected. Additionally, the claims governed by the Arbitration

Agreement, as well as those claims excluded from arbitration, were clearly

identified.

Thus, we conclude that procedural unconscionability is present. However,

the degree of procedural unconscionability is reduced due to the lack of surprise.

2. Substantive Unconscionability

“A provision is substantively unconscionable if it involves contract terms

that are so one-sided as to shock the conscience, or that [are] . . . harsh or

oppressive . . . .” Id. at 759 (internal quotation marks omitted). Kepas asserts

two arguments for substantive unconscionability. First, he argues that the

Arbitration Agreement lacks mutuality. Second, he argues that the forum

selection clause is unreasonably oppressive to employees.

a. Mutuality

Pursuant to California law, arbitration agreements are substantively

unconscionable when they lack a “modicum of bilaterality.” Armendariz, 6 P.3d

at 692 (internal quotation marks omitted). Such one-sidedness exists when

arbitration agreements “compel[] arbitration of the claims more likely to be

13
brought by the weaker party, but exempt[] from arbitration the types of claims

that are more likely to be brought by the stronger party.” Fitz v. NCR Corp., 13

Cal. Rptr. 3d 88, 104 (Cal. Ct. App. 2004) (citing Armendariz, 6 P.3d at 692).

Further, lack of mutuality exists when employees are required to pursue

arbitration for claims arising out of the same transaction or occurrence that the

employer can litigate. See Fitz, 13 Cal. Rptr. 3d at 105. Nevertheless, courts

uphold arbitration agreements lacking mutuality if the employer can present a

reasonable business justification for the one-sidedness of the agreement. See

Armendariz, 6 P.3d at 692.

We conclude the Arbitration Agreement is sufficiently bilateral based on its

plain language. Specifically, the Arbitration Agreement broadly applies to all

claims the parties have against one another arising from the employment

relationship. See App. at 59. The Arbitration Agreement then expressly excludes

from arbitration the claims “that either party has that arise out of the Employee

Proprietary Information and Inventions Agreement.” Id. As the exclusion from

arbitration applies to all claims “arising out of” the Employee Proprietary

Information and Inventions Agreement, the employee would be able to pursue

litigation for all conduct arising from the same transaction or occurrence that the

employer can litigate. For example, per the Arbitration Agreement, an employee

terminated for stealing trade secrets could litigate an accompanying wrongful

termination claim, as this claim would arise out of the Employee Proprietary

14
Information and Inventions Agreement. Cf. Armendariz, 6 P.3d at 694

(concluding that the agreement lacked mutuality on this basis).

Kepas contends that the Arbitration Agreement lacks mutuality by requiring

employees to arbitrate the claims that they are likely to pursue, while eBay can

litigate its likely claims. As the party challenging the agreement, Kepas has the

burden to adequately support this contention. See Arguelles-Romero v. Superior

Court, 109 Cal. Rptr. 3d 289, 305 (Cal. Ct. App. 2010) (specifying that “[i]t is the

plaintiff’s burden to introduce sufficient evidence to establish

unconscionability.”). However, Kepas fails to identify the types of claims

excluded from arbitration pursuant to the Employee Proprietary Information and

Inventions Agreement. Instead, Kepas merely asserts that these claims are more

likely to be brought by the employer.

Further, the cases that Kepas cites to support the contention that the

Arbitration Agreement lacks mutuality are distinguishable. Specifically, in

Mercuro, the court concluded that an arbitration agreement was substantively

unconscionable because it specifically covered claims “for breach of express or

implied contracts or covenants, tort claims, claims of discrimination . . . and

claims for violation” of any law, while it excluded from arbitration “claims for

injunctive and/or equitable relief” for any intellectual property violations. 116

Cal. Rptr. 2d at 677 (internal quotation marks omitted). The court concluded that

the “agreement compel[led] arbitration of the claims employees are most likely to

15
bring against” the employer, and exempted from arbitration the claims the

employer “is most likely to bring against its employees.” Id. While the plain

language of the agreement excluded from arbitration both employee and employer

intellectual property claims, it effectively only allowed litigation of the

employer’s claims as employees would generally not seek injunctive or equitable

relief. See id. In contrast, the arbitration agreement at issue applies to all

employment-related claims and excludes from arbitration both employer and

employee claims regardless of the relief sought.

Nonetheless, in Fitz, the court concluded that an agreement covering “most

workplace concerns,” while excluding from arbitration “disputes over

confidentiality / non-compete agreements or intellectual property rights” lacked

mutuality. 13 Cal. Rptr. 3d at 92, 104-05 & n.6 (internal quotation marks

omitted). The court determined that this agreement included the claims that

employees would most likely pursue against the employer, and excluded from

arbitration the claims the employer would most likely bring against the employee.

Id. at 104-05. While the agreement in Fitz is more analogous to the arbitration

agreement at issue, a key distinction is present in this case because of the unique

industry in which eBay operates. As a technology company, eBay employs many

individuals that develop their own inventions. Thus, the provision excluding from

arbitration the claims “that either party has that arise out of the Employee

Proprietary Information and Inventions Agreement” is likely to be used by

16
employees as well as eBay. 1 App. at 59. While Kepas correctly argues that

employers have the burden to establish their asserted business justifications for

one-sided arbitration agreements, see Mercuro, 116 Cal. Rptr. 2d at 678 (citing

Armendariz, 6 P.3d at 692), the argument in this context is misplaced. eBay’s

industry is not used here to justify a one-sided arbitration agreement, but rather to

determine whether its employees are more likely to also pursue the claims

excluded from arbitration. Thus, we conclude that the claims excluded from

arbitration are likely to be pursued by both parties, rendering the Arbitration

Agreement sufficiently bilateral.

b. Forum Selection Clause

“[F]orum selection clauses are given effect . . . absent a showing that

enforcement would be unfair or unreasonable.” Furda v. Superior Court, 207 Cal.

Rptr. 646, 650 (Cal. Ct. App. 1984). Courts “place a heavy burden on the

plaintiff who seeks to prove that a forum selection clause is unreasonable,

particularly where the alleged unreasonableness is based on additional expense

1
The dissent concludes that Fitz controls the outcome of this case as the
employer in Fitz was also a “technology company.” (Dissent at 1). However, in
Fitz, rather than arguing that employees were more likely to bring intellectual
property claims based on its industry, the employer merely “cite[d] cases where
employees ha[d] filed actions against employers over noncompete agreements and
intellectual property claims” to support the conclusion that the agreement at issue
was sufficiently bilateral. Fitz, 13 Cal. Rptr. 3d at 104. In contrast, eBay
contends that employees are likely to pursue the claims excluded from the
Arbitration Agreement based on the industry in which it operates. Thus, we
conclude that the distinction based on eBay’s industry is not precluded by Fitz.

17
and inconvenience of litigating far from home.” Aral v. Earthlink, Inc., 36 Cal.

Rptr. 3d 229, 241 (Cal. Ct. App. 2005). Nevertheless, this burden is not

insurmountable. Id. The party challenging the forum selection clause must show

that requiring proceedings in the “‘contractual forum will be so gravely difficult

and inconvenient that he will for all practical purposes be deprived of his day in

court.’” Id. at 241-42 (quoting M/S Bremen v. Zapata Off-Shore Co., 407 U.S. 1,

18 (1972)). Alternatively, the challenging party must show that there is “no

rational basis . . . for the choice of forum.” Intershop Commc’ns v. Superior

Court, 127 Cal. Rptr. 2d 847, 853 (Cal. Ct. App. 2002).

Kepas fails to satisfy this heavy burden. While he argues that the forum

selection clause imposes additional expenses and potentially impairs his ability to

secure the presence of witnesses, Kepas does not show that these issues would

effectively preclude him from asserting his claims. Thus, this case is

distinguishable from Bolter v. Superior Court, 104 Cal. Rptr. 2d 888 (Cal. Ct.

App. 2001). In Bolter, the court concluded that requiring the plaintiffs to pursue

their claims in a distant forum essentially deprived them of their day in court

based on the circumstances. See id. at 895. Specifically, the court noted that the

plaintiffs were “Mom-and-Pop franchisees” operating one-person stores and they

would have to “close down their shops, pay for airfare and accommodations . . .

and absorb the increased costs associated in having counsel familiar with Utah

law” to pursue their claims. Id. at 894. Further, the plaintiffs declared that “they

18
are all suffering from severe financial hardships and could not afford to maintain

their claims if forced to litigate the matter out of state.” Id. at 895. The

arbitration agreement also deprived the plaintiffs of the ability to consolidate their

claims to spread these increased costs. Id. at 894. Kepas’s assertions regarding

additional expenses do not rise to the level of hardships faced by the plaintiffs in

Bolter.

Additionally, some of the hardships which allegedly arise from the forum

selection clause are illusory. Specifically, he suggests that he would be unable to

secure the presence of his Utah witnesses in California. While the California

subpoena power is limited to residents of California, see Cal. Civ. Proc. Code §

1989, Kepas could nevertheless obtain the testimony of his Utah witnesses by

deposing them in Utah. Further, Kepas cites witness travel costs as a hardship.

However, rather than incur travel costs for his witnesses, Kepas could use their

deposition testimony. See Smith, 551 P.2d at 1209.

Finally, there is a reasonable connection between the cause of action and

the forum selected. Specifically, eBay’s principal place of business is California.

See Lu v. Dryclean-U.S.A. of Cal., Inc., 14 Cal. Rptr. 2d 906, 908 n.2 (Cal. Ct.

App. 1992) (noting that a party’s principal place of business evidences a

relationship to the forum). Thus, as the forum selected does not preclude Kepas

from asserting his claims and is rationally related to the cause of action, the

19
forum selection provision is not substantively unconscionable. 2

C. Severability

Based on the foregoing analysis, the sole defect in the Arbitration

Agreement is the potential for the arbitrator to impose the “costs of arbitration”

on the employee. Thus, we must consider whether the objectionable term is

severable, or whether it renders the entire Arbitration Agreement unenforceable.

We conclude that this provision is severable.

“Arbitration agreements that fail to meet conscionability standards, or those

that violate public policy, nevertheless may be enforced if the objectionable terms

can be severed.” Abramson v. Juniper Networks, Inc., 9 Cal. Rptr. 3d 422, 437

(Cal. Ct. App. 2004). To evaluate the severability of an unlawful provision, the

“overarching inquiry” is whether severance would further “the interests of

justice.” Armendariz, 6 P.3d at 696 (internal quotation marks omitted). To that

end, California courts weigh several factors. Abramson, 9 Cal. Rptr. 3d at 438-

39. First, courts consider the essential object of the agreement to determine

whether the illegality is collateral to the main purpose. Id. at 438 (citing

Armendariz, 6 P.3d at 696). Second, courts consider whether the agreement

contains more than one objectionable term to assess the pervasiveness of the

illegality. Abramson, 9 Cal. Rptr. 3d at 438-39 (citing Armendariz, 6 P.3d at

2
The district court ultimately modified this provision and the arbitration
proceedings were conducted in Utah. App. at 81-82, 93.

20
697). Finally, courts evaluate whether there is a single provision that a court can

strike or otherwise restrict to remove the illegality from the agreement.

Abramson, 9 Cal. Rptr. 3d at 438-39 (citing Armendariz, 6 P.3d at 696-97).

While not explicitly stated in the agreement, we conclude that the

Arbitration Agreement’s primary purpose is “to provide a mechanism to resolve

disputes.” Gutierrez v. Autowest, Inc., 7 Cal. Rptr. 3d 267, 280 (Cal. Ct. App.

2003) (finding the imposition of substantial arbitration costs as collateral to the

main purpose of the arbitration agreement at issue). Thus, the provision allowing

the arbitrator to impose the “costs of arbitration” on the employee is collateral to

this central purpose. Further, the only objectionable provision in the Arbitration

Agreement is this award provision. Thus, the illegality is not pervasive and the

Arbitration Agreement does not represent a systematic effort to deprive

employees of their rights. Finally, by excising the “costs of arbitration” term

from the award provision, the deficiency in the Arbitration Agreement can be

easily rectified. Thus, this objectionable term is severable and the remainder of

the Arbitration Agreement is enforceable.

21
 The district court properly restricted the meaning of the award provision

and compelled arbitration. We therefore affirm the district court’s decision.

Entered for the Court

Mary Beck Briscoe
Chief Judge

22
Kepas v. eBay, 09-4200

LUCERO, J., dissenting.

I respectfully dissent. Contrary to the majority’s holding, the Arbitration

Agreement lacks mutuality, and is therefore substantively unconscionable. See

Fitz v. NCR Corp., 13 Cal. Rptr. 3d 88, 103 (Ct. App. 2004) (“In assessing

substantive unconscionability, the paramount consideration is mutuality.”). As

with the unconscionable agreement in Fitz, the Arbitration Agreement exempts

claims related to intellectual property—those claims recognized by Fitz as more

likely to be brought by the employer, rather than employees. However, the

majority holds that this carve-out is not unilateral and distinguishes the instant

case from Fitz on the grounds that eBay, unlike NCR, is a “technology company”

which “employs many individuals that develop their own inventions.” (Majority

Op. 16.)

What the majority fails to recognize is that the employer in Fitz, NCR or

National Cash Register Corporation, is also a “technology company” and this fact

was before the Fitz court. 1 Moreover, the California Court of Appeal in Fitz,

1
Brief of Defendant-Appellant at 26, Fitz v. NCR Corp., No. D041738
(Cal. Ct. App., July 1, 2003) (“NCR, formerly known as National Cash Register
Company, is a technology company.”). See also, NCR, Annual Report Pursuant
to Section 13 or 15(d) of the Securities Exchange Act of 1934,
http://www.sec.gov/Archives/edgar/data/70866/00011931251 0041121/d10k.htm
(last visited Oct. 22, 2010) (“NCR Corporation and its subsidiaries
. . . provide technology and services . . .”). NCR developed the first electric cash
register, one of the first ATMs, early computers, invented the liquid crystal
display and commercialized the bar code scanner. NCR History, NCR,
http://www.ncr.com/ about_ncr/company_overview/history.jsp (last visited Oct.
(continued...)
rejected an almost identical argument from NCR. The company cited cases in

which employees brought suit over intellectual property claims. Nonetheless, the

court held that the exemption for intellectual property claims lacked mutuality

because “it is far more often the case that employers, not employees, will file

such claims.” Fitz, 13 Cal. Rptr. 3d at 104. Fitz is clear: The fact that an

employer is a technology company and that some employees might advance

intellectual property claims does not render an intellectual property carve-out

mutual. Fitz governs this case, and the exemption is therefore unconscionable.

I also disagree with the majority on the issue of remedy for the defective

provisions of the Arbitration Agreement. Because I would hold the intellectual

property exemption unconscionable, the district court’s failure to strike this

provision renders its severance remedy inadequate. Invalidation of the

Arbitration Agreement in its entirety vindicates California’s policy objective of

deterring employers from “routinely inserting such a deliberately illegal clause

into the arbitration agreement it mandates for its employees.” Armendariz v.

Found. Health Psychcare Serv., Inc., 6 P.3d 669, 697 n.13 (Cal. 2000).

(...continued)
22, 2010). NCR is not alone in its contention that it is, in fact, a technology
company. The Atlanta Journal-Constitution described the company as a
“[t]echnology giant.” J. Scott Trubey, NCR Profit Soars in the Third Quarter,
Atlanta J.-Const., Oct. 21, 2010, available at http://www.ajc.com/business/ncr-
profit-soars-in-687569.html.

2
Otherwise—as in this case—“employers are encouraged to overreach; if the

covenant they draft is overbroad then the court will redraft it for them.” Id.

For the foregoing reasons, I respectfully DISSENT.

3