In this case, Ritarose Capili, a sales associate, brought an action against her former employer The Finish Line, Inc. (“Finish Line”), an athletic retailer in California federal court. Finish Line made a motion to compel arbitration based on an arbitration agreement in its employment application, which was denied. Finish Line appealed to the Ninth Circuit.
First, the Ninth Circuit agreed with the California federal court’s finding that the arbitration agreement was adhesive, and thus at least “minimally procedurally unconscionable” because it was essentially offered on a “take it or leave it” basis. Next, the Court also concurred with the district court’s finding that a cost-sharing provision in the arbitration agreement — which required the plaintiff to pay up to $10,000 at the outset of arbitration, not including the fees and costs for legal representation — was substantively unconscionable because it imposes substantial non-recoverable costs on low-level employees just to get in the door, effectively foreclosing vindication of employees’ rights. The Ninth Circuit also found that the district court correctly determined that a provision in the arbitration agreement that allowed Finish Line, but not the employee, to seek judicial resolution of specified claims, was substantively unconscionable. Thus, the Ninth Circuit held that based on the entire record, the district court did not err in finding that the arbitration agreement was both procedurally and substantively unconscionable. The Ninth Circuit also found that the district court did not abuse its discretion by declining to sever the unconscionable portions of the arbitration agreement, noting that “[w]here unconscionability permeates the entire agreement, California courts may refuse to sever unconscionable provisions.” Thus, the Ninth Circuit held that the district court properly denied Finish Line’s motion to compel arbitration.