[00:00:02] Speaker 01:
Thank you, Your Honor, and may it please the Court.

[00:00:04] Speaker 01:
Andrew Pinkes for Appellants.

[00:00:05] Speaker 01:
I'd like if I made a reserve three minutes for rebuttal.

[00:00:08] Speaker 01:
The District Court committed three separate errors, each of which independently requires reversal and enforcement of the arbitration order.

[00:00:16] Speaker 01:
I'd like to begin

[00:00:17] Speaker 01:
With substantive unconscionability, reversal on that ground will resolve this case, and the district court's error is clear.

[00:00:24] Speaker 01:
Substantive unconscionability turns on the actual meaning of a contract provision, whether its legal effect is overly harsh, unduly oppressive, or so one-sided as to shock the conscience.

[00:00:35] Speaker 01:
The provision at issue here states, and I'm quoting from our opening brief at page eight, to the maximum extent permitted by law, the arbitrator shall award the prevailing party its costs and reasonable attorney's fees,

[00:00:46] Speaker 01:
provided, however, that the arbitrator at all times shall apply the law for the shifting of costs and fees that a court would apply to the claims asserted.

[00:00:55] Speaker 01:
The plain text expressly limits the arbitrator's authority to shift costs and fees to what a court would do with respect to the particular claims, and that's the exact rule that the California Supreme Court adopted at Amandara's.

[00:01:07] Speaker 01:
It's stated at 6 Pacific 3rd at 765, and I'm quoting, the arbitration agreement or arbitration process cannot generally require the employee

[00:01:16] Speaker 01:
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.

[00:01:23] Speaker 01:
A provision that so closely tracks, Amandaris cannot qualify as oppressive or unfair.

[00:01:28] Speaker 03:
Mr. Pinkus, I think you suggest this in your brief, but I want to get it on the record here if it's true that the defendants then disclaim any fee shifting in the arbitration that, in other words, that neither AMN nor Kaiser

[00:01:45] Speaker 03:
have any right to recover costs or fees in arbitration for the claims.

[00:01:50] Speaker 01:
Is that correct?

[00:01:50] Speaker 01:
Yes, for these claims, absolutely.

[00:01:51] Speaker 01:
Yes, Your Honor.

[00:01:52] Speaker 01:
Okay.

[00:01:53] Speaker 03:
Thank you.

[00:01:54] Speaker 01:
So plaintiffs advance two contrary arguments, neither of which is persuasive.

[00:01:58] Speaker 02:
So can I ask, though, are you making an argument that it wasn't procedurally unconscionable?

[00:02:02] Speaker 02:
Because it is somewhat confusing, that language.

[00:02:05] Speaker 01:
Well, we do argue it's not procedurally unconscionable.

[00:02:08] Speaker 01:
I'm focusing on substantive unconscionability right now because if the court finds no substantive unconscionability, it can resolve the case without addressing procedural.

[00:02:16] Speaker 01:
So since we believe, we obviously think we're right on both counts, but the substantive unconscionability holding of the court below is so clearly wrong that we think it's the easiest route to enforcement of the arbitration clause.

[00:02:31] Speaker 02:
And is your argument that there's only one way to interpret that language, even though it's somewhat ambiguous, so that it is consistent with, I think, is it Elmendarez?

[00:02:40] Speaker 00:
Yes.

[00:02:40] Speaker 01:
Yeah.

[00:02:41] Speaker 01:
Well, we think that is the legal meaning of the provision.

[00:02:44] Speaker 01:
And there is only one way to interpret it, yes, Your Honor.

[00:02:47] Speaker 01:
And in fact, the district court didn't disagree with that.

[00:02:49] Speaker 01:
The district court did not say this provision, the legal effect of this provision is to allow for fee shifting.

[00:02:56] Speaker 01:
The district court rested its decision

[00:02:58] Speaker 01:
On another ground, it claimed that regardless of the actual meaning of the provision, if the plaintiffs erroneously believed that it would permit fee shifting, that that was enough to find substantive unconscionability.

[00:03:10] Speaker 01:
Plaintiffs argue, plaintiffs advance the argument that the district court did not adopt here, which is this argument that its actual legal meaning is that fees can be shifted.

[00:03:22] Speaker 01:
We think that's clearly wrong.

[00:03:24] Speaker 01:
The language, as I say, is exactly

[00:03:26] Speaker 01:
parrots armandaras, it says, do what a court would do.

[00:03:30] Speaker 01:
The plaintiff's argument basically would shave the provision into three separate parts, one sentence into three separate parts, and ignore or give little meaning to the last clause which says, provided, however, that the arbitrator shall apply the law that a court would apply.

[00:03:47] Speaker 01:
And we think that mode of interpretation violates multiple canons of construction under California law and just cannot be sustained.

[00:03:57] Speaker 01:
So let me turn to the second argument, which is the argument that the district court did adopt, which is that even if the provision's actual meaning is neither unfair nor oppressive, it's substantively unconscionable because they had the erroneous impression that employees might have to pay fees.

[00:04:14] Speaker 01:
We don't think it's confusing.

[00:04:15] Speaker 01:
I'll discuss that in connection with procedural unconscionability.

[00:04:19] Speaker 01:
But even if we assume it was, the critical point is confusion is addressed under procedural unconscionability.

[00:04:26] Speaker 01:
Counting it as well for substantive unconscionability would collapse the two-part test that California applies to a one-part test.

[00:04:32] Speaker 01:
That rewrites California law.

[00:04:35] Speaker 01:
Substantive unconscionability, maybe not surprisingly, given the name, it turns on the substance of the provision.

[00:04:41] Speaker 01:
And we don't know of any decision of this court or the California Supreme Court that's held at a contract term whose actual meaning is not substantively unconscionable can nonetheless be substantively unconscionable because of a party's erroneous belief about its meaning.

[00:04:56] Speaker 01:
My friends on the other side rely on the Rendaris case, but there the court didn't address substantive unconscionability of the pre-fee provision.

[00:05:04] Speaker 01:
It only addressed procedural unconscionability.

[00:05:07] Speaker 03:
They also rely... But of course it didn't need to address substantive because it found it procedurally unconscionable.

[00:05:13] Speaker 01:
No, it didn't.

[00:05:14] Speaker 01:
But it certainly doesn't stand for the proposition that an erroneous belief about the real meaning of a provision

[00:05:21] Speaker 01:
can create substantive unconscionability.

[00:05:24] Speaker 03:
So I guess to probe the limits of substantive unconscionability in its relation to procedural, can an ambiguous provision ever be substantially unconscionable if one of the readings can be construed to be unconscionable?

[00:05:46] Speaker 01:
Well, I think what courts have said, including this court, is that provisions that don't provide clarity, especially in this fee-shifting provision, that the Armandaris rule is the rule that applies, can be substantively unconscionable.

[00:06:00] Speaker 01:
For example, this court has said that provisions that say, for example, fees may be shifted to the prevailing party unless controlling case law or express statutory provisions provide otherwise.

[00:06:14] Speaker 01:
And the court has said,

[00:06:16] Speaker 01:
that that kind of provision doesn't, substantively, is not sufficiently clear that it would actually, that it actually means that the Armendar's rule in OFI shifting to the employee is actually adopted.

[00:06:30] Speaker 01:
So I think the way this court has adopted it is to look at the provision and say,

[00:06:34] Speaker 01:
What rule does it adopt?

[00:06:35] Speaker 01:
And in that case, the court has said, especially where there are questions about what controlling law means, about what express statutory provision mean, and questions about what law applies.

[00:06:48] Speaker 01:
And all of those questions mean that that provision can't be said to embody the Armendariz rule.

[00:06:54] Speaker 01:
But here,

[00:06:55] Speaker 01:
because the provision actually embodies the Armendariz rule and says the rule that applies is the rule in court, we think it's clear that those cases don't apply.

[00:07:04] Speaker 03:
I mean, what's the difference between the rule a court would apply and one would hope that a court would apply whatever controlling cases and statute tell it to apply?

[00:07:12] Speaker 03:
So those seem to be the same.

[00:07:16] Speaker 03:
Why is this language clearer than the language you recited as being unconscionable?

[00:07:23] Speaker 01:
Well, I think for a couple of reasons, because I think controlling case law express statutory provisions, I think what the court has said is those may limit the legal texts that can apply, because they seem to sort of rule out things that might not be controlling, but might be persuasive.

[00:07:43] Speaker 01:
They might rule out express statutory provisions that might otherwise apply.

[00:07:47] Speaker 01:
So here, I think,

[00:07:50] Speaker 01:
Whatever the standard there, and it may be that there can be questions about that, here it's crystal clear.

[00:07:57] Speaker 01:
And also, those provisions, because they don't tie to court, leave open the question of choice of law.

[00:08:04] Speaker 01:
And here, basically, all that's being said is, whatever a court would do, the arbitrator must do.

[00:08:09] Speaker 01:
That constrains the arbitrator's authority, clearly, to the rule in Armendariz.

[00:08:15] Speaker 02:
If we were to get to the severance issue, why would the severance violate the FAA?

[00:08:22] Speaker 01:
Or the lack of severance?

[00:08:24] Speaker 01:
Sure.

[00:08:26] Speaker 01:
Let me just start with California law, because I think the critical question for the FAA is, is an unfairly discriminatory law being applied in the arbitration context?

[00:08:36] Speaker 01:
The starting point is what are the California rules and then why is there, why would failing to sever here create, be a violation of the equal treatment rule that the FAA embodies.

[00:08:49] Speaker 01:
So the severance standard that the California Supreme Court and this court have adopted is that there's a severance is strongly favored, the courts say, and it's basically a three part test.

[00:09:02] Speaker 01:
Illegal provisions should be severed when the illegal,

[00:09:06] Speaker 01:
illegality is collateral to the purpose of the agreement, when the illegality can be cured via severance, and when enforcing the agreement is in the interest of justice.

[00:09:17] Speaker 04:
Counsel, let me ask you there.

[00:09:18] Speaker 04:
I don't mean to interrupt, but I do want you to address this.

[00:09:20] Speaker 04:
What is the central purpose of this arbitration agreement?

[00:09:23] Speaker 01:
The central purpose of this agreement is to resolve disputes through arbitration.

[00:09:27] Speaker 04:
Okay.

[00:09:28] Speaker 04:
And then, would the cost allocation provision disrupt this purpose by making it, as the lower court suggested, more likely or less likely that, you know, some of the employees may say, ooh, I don't want to end up taking up a potential cost if I lose at arbitration, because they may not understand that under admin dadis, that's not going to happen.

[00:09:52] Speaker 01:
I think that approach basically means that severance would never happen because it always will be the case that there's an unconscionable provision and the question is whether to sever it and it often will be the case that the provision is unconscionable because if it's both procedurally it either there was coercion or it's opaque

[00:10:11] Speaker 01:
and it's substantively unconscionable.

[00:10:13] Speaker 01:
So if the rule is, if people will be confused, we should never sever, then we would never sever, and that's sort of the opposite of California law.

[00:10:19] Speaker 04:
So then give me an example where it is appropriate.

[00:10:23] Speaker 01:
I think what the courts have said is it's appropriate, again, it may be appropriate where severance doesn't cure the illegality, where

[00:10:33] Speaker 01:
Just redlining out or blue penciling out the provision doesn't leave an enforceable agreement or doesn't solve the problem.

[00:10:38] Speaker 01:
For example, there often are cases where the unconscionable issue is a lack of mutuality.

[00:10:45] Speaker 01:
There are some provisions that apply only to the employee or to the consumer.

[00:10:51] Speaker 01:
And it's not possible to sort of blue pencil out the provision because you can't create mutuality if it didn't exist.

[00:10:57] Speaker 01:
So that's one example.

[00:10:59] Speaker 01:
Courts have also said where the agreement is permeated with unconscionability.

[00:11:03] Speaker 01:
There are so many unconscionable provisions.

[00:11:06] Speaker 01:
The court here relied on a different theory.

[00:11:10] Speaker 01:
That's the interest of justice theory.

[00:11:12] Speaker 01:
And what it said is, I'm not going to sever because I think we need to deter the inclusion of clearly illegal provisions.

[00:11:21] Speaker 01:
And severing will not do that.

[00:11:24] Speaker 01:
And I think the issue here is this wasn't a clearly an illegal provision, because no court had ever held this provision to be unlawful or unconscionable.

[00:11:32] Speaker 02:
And that would only violate the FAA if it was arbitration specific.

[00:11:36] Speaker 02:
So what in the district court's order shows that that type of message to employers that you can't put this in is arbitration specific?

[00:11:44] Speaker 01:
Well, I think the singling out of this provision, the California Supreme Court in Little said a critical question.

[00:11:51] Speaker 01:
in applying the interest of justice standard is whether it would have been clear when the agreement was signed that the provision that has been held to be unconscionable was unconscionable.

[00:12:03] Speaker 01:
That isn't here because there was no precedent and so applying that provision here

[00:12:08] Speaker 01:
applying, refusing to sever here is completely contrary to California law.

[00:12:14] Speaker 01:
And there is a long line as we lay out in our brief.

[00:12:16] Speaker 01:
It might be contrary to California, but why is it arbitration specific?

[00:12:20] Speaker 01:
Because if you look at the decisions involving arbitration agreements and the decisions involving non-arbitration agreements, it's stark that the interest of justice standard

[00:12:31] Speaker 03:
Why frame this as preemption rather than, right, to understand the work that the Supremacy Clause does?

[00:12:36] Speaker 03:
And I understand there may be cases that determine that case law can be preempted in violation of the FAA.

[00:12:44] Speaker 03:
But why isn't it just misapplication of a facially neutral California standard that we're duty-bound to apply?

[00:12:51] Speaker 01:
Well, that's our principal argument, Your Honor, and we're perfectly happy for the court, if it were to reach the severance argument, to say that the district court abused its discretion because it applied the wrong legal standard.

[00:13:01] Speaker 01:
As a backup, if the court were to conclude that that wasn't the case,

[00:13:05] Speaker 01:
then we think there is a preemption issue.

[00:13:06] Speaker 01:
But our principle... Do you have a case?

[00:13:08] Speaker 03:
I mean, what would we look to to determine whether a court's, in this case, a federal court under the Erie Doctrine applying state case law that may or may not be in tension with an underlying state statute, that that's preempted?

[00:13:24] Speaker 01:
Well, Judge Bennett's dissent in Ronderos sort of discussed that issue in great detail.

[00:13:28] Speaker 01:
And of course, the Supreme Court granted cert a while ago in a case called MHN to address this very issue out of concern that there, and those also were, that was also a case coming out of federal court.

[00:13:38] Speaker 04:
But.

[00:13:38] Speaker 04:
Counsel, did the district court below address preemption?

[00:13:41] Speaker 01:
The district court did not.

[00:13:42] Speaker 04:
And so is it appropriate for us to do it?

[00:13:44] Speaker 01:
We think it is.

[00:13:45] Speaker 01:
It's a legal question.

[00:13:46] Speaker 01:
We think it's appropriate.

[00:13:47] Speaker 01:
As we say, that's like our fourth-line argument.

[00:13:49] Speaker 01:
We think there's no substantive unconscionability.

[00:13:52] Speaker 01:
We think that severance was appropriate under California law.

[00:13:54] Speaker 01:
We think that there's no procedural unconscionability, but at the end of the day, yes.

[00:14:00] Speaker 01:
Do you want to say the receiver?

[00:14:00] Speaker 01:
I'd like to reserve the balance of my time.

[00:14:02] Speaker 01:
Thank you.

[00:14:11] Speaker 00:
May it please the court, Austin Moore for the Plaintiff's Appellees.

[00:14:15] Speaker 00:
AMN's core premise here is that an arbitration agreement can never be substantively unfair unless there's a meaningful risk that down the road the arbitrator can take some unfair action against them like shifting fees.

[00:14:32] Speaker 00:
But that is not the governing standard and it's not a distinction that the case law draws.

[00:14:38] Speaker 00:
When determining substantive unfairness, the relevant question is not what an arbitrator might do later on down the road.

[00:14:47] Speaker 00:
It is whether the stronger party with superior bargaining power impose terms that are either overly harsh, unduly oppressive, or unfairly one-sided.

[00:14:58] Speaker 03:
But Mr. Moore, the defendants say they didn't and they've disclaimed that interpretation.

[00:15:03] Speaker 03:
Why don't you accept that?

[00:15:07] Speaker 00:
They're disclaiming the interpretation that the employees would never actually be saddled with these fees, but what's ... Is there any other source of the substantive unconscionability at issue here?

[00:15:19] Speaker 00:
Yes, Judge Johnstone.

[00:15:21] Speaker 00:
The language itself, and here's what it says, to the maximum extent permitted by law, the arbitrator shall award the prevailing party its costs and reasonable attorney's fees.

[00:15:33] Speaker 00:
If it's disclaiming the right to fees ...

[00:15:37] Speaker 03:
I think we all understand we do have to read past the semicolon to the rest of it, don't we?

[00:15:42] Speaker 00:
Absolutely.

[00:15:43] Speaker 00:
And I want to address that because what comes past the semicolon doesn't actually inform the employees that what precedes the semicolon doesn't actually apply.

[00:15:55] Speaker 00:
And to us, that's what makes it an unfair, unduly burdensome and oppressive... But how is that not procedural?

[00:16:03] Speaker 03:
unconscionability rather than substantive unconscionability is what it means.

[00:16:07] Speaker 03:
The defendants have agreed, I think, with what you would argue in a different posture about what it means that they can't, under California law, bear any of those costs.

[00:16:18] Speaker 03:
So this sounds like procedural.

[00:16:21] Speaker 03:
And you understand you need to get both, right?

[00:16:22] Speaker 03:
You need to get at least a little of both in order to prevail.

[00:16:25] Speaker 00:
Absolutely.

[00:16:26] Speaker 00:
But our point is, at the time of contracting, and that's when you have to assess the fairness of this clause,

[00:16:33] Speaker 00:
What is a lay person going to think?

[00:16:35] Speaker 00:
Well, the record shows they're going to be chilled because of this language, and because of that chilling effect, it is unfair, and it is one-sided.

[00:16:48] Speaker 03:
look to frame that as substantive rather than procedural.

[00:16:51] Speaker 03:
I mean, the chilling effect kind of, you know, if we think about it in other aspects of the law, we think about it as coming from uncertainty, the indeterminacy of a provision, but that seems to sound in procedural rather than substantive.

[00:17:03] Speaker 03:
Where should we find this chilling effect landing in the substantive side as a matter of California law?

[00:17:08] Speaker 00:
Sure, Judge.

[00:17:10] Speaker 00:
Is it unfair?

[00:17:11] Speaker 00:
Is it one-sided?

[00:17:12] Speaker 00:
Because of the way it's drafted,

[00:17:14] Speaker 00:
that is going to have this deterrent effect.

[00:17:16] Speaker 03:
And the other point I would make, in the OTO versus... But the it is the legal meaning of the words in the contract, right?

[00:17:23] Speaker 03:
Not the subjective understanding of the, for substantive, subjective.

[00:17:28] Speaker 00:
Well, I think how a lay person would interpret it does go to whether the way it's drafted is fair or oppressive.

[00:17:38] Speaker 00:
But I think it was drafted in a way that is oppressive because it was intended to deter claims.

[00:17:43] Speaker 02:
My colleague where's that where's that come from the intention to deter claims?

[00:17:49] Speaker 02:
Well that kind of gets us to the severance Analysis where I think they but how do you get that from this language from the text of the arbitration agreement?

[00:17:59] Speaker 02:
Well all the nurses testified that that that first clause but that they're subjective understanding not intent of the of the drafter right and

[00:18:09] Speaker 00:
It's their subjective understanding, but it's also coupled with the district court's objective reading of the language.

[00:18:18] Speaker 02:
Right, that's what I'm asking.

[00:18:19] Speaker 02:
So where in the objective reading of the language does it show their intent to discourage claims?

[00:18:24] Speaker 00:
Well, I think the language that says to the, well, just not to reread the clause, but

[00:18:32] Speaker 00:
To the maximum extent permitted by law, the arbitrator shall award the prevailing party its costs and reasonable attorney's fees.

[00:18:39] Speaker 02:
Again, even though- Why would a layperson read that and say, well, they're just going to follow the law?

[00:18:48] Speaker 00:
I think the point is the layperson is not going to know that, first, what law applies, and the nurse has testified to that.

[00:18:55] Speaker 00:
And second, how are they supposed to know that

[00:18:58] Speaker 00:
the law would contradict the immediately preceding phrase.

[00:19:03] Speaker 00:
And I think that's where we're having the difficulty here.

[00:19:06] Speaker 02:
But then you go to the last part of the sentence where it says arbitrators shall file only due to cost shifting as the court would apply.

[00:19:13] Speaker 00:
Right.

[00:19:14] Speaker 00:
And again, the nurses would not have known.

[00:19:18] Speaker 00:
That language to them was effectively meaningless because it did not actually inform them that California law prohibits this.

[00:19:27] Speaker 00:
In the OTO versus co-case, and to your question, Judge Johnson, how do we get to substantive unconscionability?

[00:19:33] Speaker 00:
One way we do, the Supreme Court agreed that if an arbitration agreement effectively takes hiring a lawyer to understand the key provisions, it does not provide access to an accessible or affordable option for resolving disputes.

[00:19:50] Speaker 00:
In other words, if AMN's agreement shifts the financial burden onto the employee to understand it, to decipher the key terms, that goes to substantive unconscionability.

[00:20:00] Speaker 02:
If an arbitrator did shift those costs and fees to the employee, would the arbitrator be violating the agreement?

[00:20:07] Speaker 00:
I actually think it's very possible an arbitrator could read this and improperly shift fees to the

[00:20:14] Speaker 00:
to the employee, and I'll explain why.

[00:20:16] Speaker 00:
The qualifying clause says the arbitrator shall apply the law for the shifting of costs and fees that a court would apply to the claims asserted, right?

[00:20:27] Speaker 00:
So that phrasing matters because the law that would apply to that question varies by claim.

[00:20:35] Speaker 00:
For example, claims brought under the California Labor Code, fee shifting is limited.

[00:20:40] Speaker 00:
Employees can recover if they prevail.

[00:20:42] Speaker 00:
Employers can only recover if the employee brought the claim in bad faith.

[00:20:48] Speaker 00:
But our nurses here assert additional claims, common law claims like fraud, like breach of contract.

[00:20:54] Speaker 03:
Isn't that, Mr. Moore, why the argument and the logic that if the professional would have to consult a lawyer to understand the fees, that proves too much.

[00:21:03] Speaker 03:
I mean, whether the fees are available cost shifting or otherwise, set aside Armendariz, is,

[00:21:12] Speaker 03:
itself part of the substantive claim, which no professional is going to understand what they do or don't have according to the agreement, they're going to have to consult an attorney.

[00:21:22] Speaker 03:
I mean, we're quite a ways down the road.

[00:21:24] Speaker 03:
And it can't simply be.

[00:21:26] Speaker 03:
I get that the Supreme Court and others had said that with respect to arbitration, if the language is just so unclear, you can't make anything of it.

[00:21:32] Speaker 03:
But in here, the fee shifting itself depends on questions such as the, and I think this is, again, part of your argument, but I'm just not sure it points the way that you

[00:21:41] Speaker 03:
suggest, it depends on the jurisdiction.

[00:21:45] Speaker 03:
This is a contract that professionals in multiple jurisdictions, including jurisdictions that do not have the California rule, have to sign.

[00:21:52] Speaker 03:
There's then the underlying substantive law that sets up whether fee shifting is allowed or not, depending on the professional's claim.

[00:21:59] Speaker 03:
By the time you

[00:22:04] Speaker 03:
elucidate all of those, elaborate all of those terms and conditions about, well, if you bring this claim, it could be shifted in Arizona, but it can't be shifted in California.

[00:22:12] Speaker 03:
But if you bring this claim, it can't be shifted in either.

[00:22:15] Speaker 03:
How does that make it easier for a professional to understand than this language?

[00:22:19] Speaker 03:
It's bracketed by two provisos.

[00:22:21] Speaker 00:
Well, I think this is, again, and we can talk about procedural unconscionability and the oppression and how this agreement was presented to them.

[00:22:31] Speaker 00:
But this is a 13-week assignment.

[00:22:33] Speaker 00:
If you're going to require nurses to arbitrate as part of a short-term 13-week employment, make the agreement as simple and straightforward as possible.

[00:22:43] Speaker 03:
If they're never... Would it have to... I mean, I guess, how do we avoid, if we adopt your rule, adopting a rule that requires the incorporation of... It would require a different contract for each state.

[00:22:57] Speaker 03:
Maybe that's the rule you're urging, but it seems like

[00:23:01] Speaker 03:
That's what it would take, because the law in California is different from the law that would apply to professionals in other places, and the claim is determined by where the breach occurs, right?

[00:23:12] Speaker 00:
Well, I know AMN's arguing that, you know, it wants to capture the fee-shifting advantages in five minority-rule states.

[00:23:19] Speaker 03:
To which they're entitled, I think.

[00:23:22] Speaker 00:
But my colleague argued that, well, we're never going to seek fees from the employees at all.

[00:23:28] Speaker 00:
And that's what this language says.

[00:23:32] Speaker 00:
Why not just say that in the agreement for everyone?

[00:23:34] Speaker 00:
Why not use plain language to make that point?

[00:23:37] Speaker 03:
Well, I guess it depends, right?

[00:23:39] Speaker 03:
I guess I took that to mean, and maybe Mr. Pinkus can explain, but I took that to mean that with respect to these employees, the named employees, they are bringing California claims.

[00:23:52] Speaker 03:
Of course, they're not going to ask for something to which they're not entitled to, but there are other employees or professionals covered by this contract in other jurisdictions to whom it could apply.

[00:24:04] Speaker 00:
So if you're going to separate it on that basis, AMN is already tailoring the contracts for every single assignment, for every hospital, for every pay rate.

[00:24:14] Speaker 03:
Adding state-specific language to... So they would need jurisdiction-specific arbitration agreements.

[00:24:20] Speaker 00:
They could.

[00:24:20] Speaker 00:
That would be a way to make sure it's fair for all employees.

[00:24:22] Speaker 03:
Is there any case that would require someone who's a contracting party who's contracting across jurisdictions to tailor it to each... I mean, it doesn't end just with the fee shifting, right?

[00:24:32] Speaker 03:
It would cover lots of other claims that California may or may not recognize and that other states may or may not recognize.

[00:24:37] Speaker 00:
Well, I don't know that there's a requirement you would have to do that.

[00:24:40] Speaker 00:
You could also make clear in the savings language that California law does not allow this, or the majority of state laws would not allow this, right?

[00:24:48] Speaker 00:
So there's ways to draft it where it would be clear, and you maybe wouldn't get to that what we call unfairness because of how a layperson would objectively interpret it.

[00:25:00] Speaker 00:
And I'll just give an example, because under AMN's rule, the agreement could say that the statute of limitations

[00:25:07] Speaker 00:
for initiating a claim is three months, provided, however, the arbitrator must apply a statute of limitations the court would apply.

[00:25:18] Speaker 00:
Well, that is absolutely going to deter claims because employees who maybe have a claim arise six months later are going to see that, and they're going to be deterred from pursuing claims.

[00:25:31] Speaker 00:
But under this rule, that would never be substantively unconscionable because there's no risk

[00:25:36] Speaker 00:
an arbitrator would actually enforce it.

[00:25:39] Speaker 00:
And that's why we think that's the wrong question.

[00:25:42] Speaker 00:
What would an arbitrator ultimately do?

[00:25:45] Speaker 00:
It's how a layperson wouldn't understand the terms of the agreement.

[00:25:50] Speaker 00:
Right.

[00:25:51] Speaker 04:
Oh, sorry.

[00:25:52] Speaker 04:
I wanted to actually ask you to talk about severance here.

[00:25:57] Speaker 04:
Your time is running low, so I just wanted to make sure you had an opportunity to address that.

[00:26:02] Speaker 00:
The district court did not abuse its discretion in Ramirez, the California Supreme Court case from just last year.

[00:26:09] Speaker 00:
The Supreme Court actually noted there was sort of a dearth of case law and authority interpreting what it means to be permeated by unconscionability and what are the right questions to ask.

[00:26:20] Speaker 00:
And relevant to this case, Ramirez held that a court is not required to sever or restrict an unconscionable term

[00:26:29] Speaker 00:
if an agreement has only a single such term.

[00:26:33] Speaker 00:
Instead, the appropriate inquiry is qualitative and accounts for the factors that Armendar has identified.

[00:26:41] Speaker 00:
The first question is whether the central purpose of the contract is tainted with illegality.

[00:26:46] Speaker 00:
If so, the contract cannot be cured.

[00:26:48] Speaker 00:
Severance is inappropriate.

[00:26:50] Speaker 00:
If it can be severed, the question then is whether it should be because in the interest of justice would be furthered by those actions.

[00:26:59] Speaker 00:
I think the key here is intent.

[00:27:03] Speaker 00:
Intent.

[00:27:04] Speaker 00:
The district court found that AMN included a fee-shifting clause strategically and with intent to deter potential valid claims and severing this would... Okay, so that's my problem with it then.

[00:27:17] Speaker 02:
So you're saying the intent is to prevent employees from bringing claims in arbitration essentially, right?

[00:27:25] Speaker 00:
I think it is to deter because that... Right.

[00:27:28] Speaker 02:
So then that's my problem with this.

[00:27:30] Speaker 02:
Then it does seem like it's an arbitration-specific rule that we're not supposed to sever when it would discourage employees from bringing arbitral claims.

[00:27:43] Speaker 00:
So here's where I would push back on that, because Armendariz, if you look at footnote 13 of that opinion, when it set forth this test, it did it by surveying

[00:27:56] Speaker 00:
analogous case of overly broad covenants not to compete.

[00:28:02] Speaker 00:
And it looked at all these case law, considering severance.

[00:28:05] Speaker 02:
But as is applied by the district court, he seems to suggest that he's sending a message to employers that you can't have fee shifting provisions in arbitration agreements.

[00:28:15] Speaker 02:
And that's a message specific to arbitration agreements.

[00:28:19] Speaker 00:
I think it's a little different.

[00:28:21] Speaker 02:
I think he's telling employers... Well, before you say that, if you would agree if that were the case, that would violate the FAA, right?

[00:28:28] Speaker 02:
That would be preempted by the FAA.

[00:28:34] Speaker 00:
I probably need you to repeat the question so I fully understand it.

[00:28:37] Speaker 02:
Well, basically, if I read what the district court is saying, it's like, if I'm sending a message to employers that they cannot include cost and fee-shifting provisions in arbitration agreements,

[00:28:49] Speaker 02:
and that's why I'm not severing, that to me, that would be preempted by the FAA.

[00:28:55] Speaker 00:
Potentially, but I really think that's a much narrower view than what the district court was doing.

[00:29:00] Speaker 02:
So what do you think actually the district court actually did?

[00:29:02] Speaker 00:
Yeah, and look, and when Armendariz was looking at this, it was in the context of non-compete clauses.

[00:29:07] Speaker 00:
And what they found was courts have tended to invalidate rather than restrict such covenants when it appears they were drafted in bad faith.

[00:29:16] Speaker 00:
And here, what the district court found was,

[00:29:18] Speaker 00:
The language in the agreement that says, you know, you're going to have to pay fees to the maximum extent permitted by law was put in there with a deterrent purpose.

[00:29:28] Speaker 00:
And if you do find that type of intent, severance is not appropriate.

[00:29:34] Speaker 00:
And we believe, you know, the district court did not abuse his discretion in reaching that conclusion.

[00:29:39] Speaker 02:
If I can... You're over your time unless my colleagues have any other questions.

[00:29:44] Speaker 02:
If you want to wrap up quickly.

[00:29:46] Speaker 00:
I was going to end just quickly with procedural unconscionability.

[00:29:50] Speaker 00:
This is a unique employment relationship.

[00:29:53] Speaker 00:
And there were… I think you're over your time for a new argument.

[00:29:57] Speaker 00:
Oh, I'm sorry.

[00:29:57] Speaker 00:
Yes.

[00:29:58] Speaker 00:
Thank you.

[00:30:08] Speaker 01:
Just a couple of quick points, Your Honor.

[00:30:11] Speaker 01:
My statement that we're not seeking fees is about these plaintiffs and these California claims and obviously doesn't apply to claims that might be brought that would be governed by the law of the other states that allow that.

[00:30:23] Speaker 01:
This question of what law applies that my friend raises and that that's sort of the critical question, I guess I'd have two responses.

[00:30:30] Speaker 01:
I think this is under procedural unconscionability, but just more generally.

[00:30:35] Speaker 01:
The critical question that someone faces in an arbitration agreement is am I going to be disadvantaged in arbitration compared to where I would be in court?

[00:30:43] Speaker 01:
And this provision deals with that.

[00:30:44] Speaker 01:
It says don't worry, you're going to have the same rules that apply in court.

[00:30:48] Speaker 01:
If my friend is right,

[00:30:49] Speaker 01:
that you had to spell out every rule that governed not just fee shifting, but every substantive claim, every restatement would have to be appended to every arbitration agreement.

[00:30:59] Speaker 01:
The OTO opinion, as I mentioned, there was no substantive unconscionability holding there tied to the fee-shifting provision.

[00:31:07] Speaker 01:
What the court said there is that this trade-off between the Berman statutory process and what it viewed as the very complicated litigation-like process in litigation was substantively unfair to the employees.

[00:31:22] Speaker 01:
So it didn't rest on fee-shifting.

[00:31:25] Speaker 01:
Thank you.

[00:31:25] Speaker 02:
Thank you, counsel.

[00:31:26] Speaker 02:
This case is submitted.