Opinion

1 2 3 4 5 6 7 UNITED STATES DISTRICT COURT 8 SOUTHERN DISTRICT OF CALIFORNIA 9 10 AKEMI TANAKA, an individual, Case No.: 25-cv-1376-BJC-MSB 11 Plaintiff, ORDER DENYING MOTION TO COMPEL ARBITRATION 12 v. 13 CARIS MPI, INC. (d/b/a Caris Life [ECF No. 18, 21] Sciences), a Texas corporation; and DOES 14 1 through 50, inclusive, 15 Defendants. 16 17 Before the Court is Defendant Caris MPI, Inc.’s (“Caris” or “Defendant”) Motion to 18 Compel Arbitration, ECF No. 18, and Plaintiff’s Motion for Leave to File Sur-Reply. ECF 19 No. 21. The matters are submitted on the briefs without oral argument. See Civ. L. R. 20 7.1(d)(1). For the reasons set forth below, the Court DENIES the Motion to Compel 21 Arbitration and DENIES the Motion for Leave to File Sur-Reply as moot. 22 I. BACKGROUND 23 A. Factual Background 24 Caris is a biotechnology company based in Irving, Texas, that focuses on precision 25 medicine and molecular science. ECF No. 18-1 at 11. The company employs advanced 26 technology to examine tumor tissue and blood samples from cancer patients, providing 27 information that helps physicians make treatment decisions and select appropriate 28 therapies. Id. 1 Dr. Tanaka is a molecular geneticist with expertise in sequencing technologies used 2 for cancer detection and analysis. ECF No. 19 at 9. In the spring of 2023, Dr. Tanaka 3 applied for a molecular geneticist position with Caris. Id. at 10. The hiring process 4 spanned several months and involved three rounds of interviews. Id. On April 11, 2023, 5 Caris offered Dr. Tanaka the position in its San Diego office. Id. 6 Dr. Tanaka began working at Caris on May 8, 2023. Id. During her initial weeks, 7 she participated in the company's onboarding and training program, where she learned to 8 analyze genomic data generated through Caris' Whole Exome Sequencing (“WES”) and 9 Hybrid Whole Exome Sequencing (“HWES”) assays. Id. By the end of May, she 10 successfully completed the WES/HWES competency assessment and was authorized to 11 independently review, analyze, and report molecular testing results for patient samples. Id. 12 B. Arbitration Agreement 13 On June 7, 2023, Caris emailed Plaintiff a DocuSign link directing her to review and 14 execute its Proprietary Information, Intellectual Property, Restrictive Covenant and 15 Arbitration Agreement (the "PIIA"). ECF No. 18-1 at 11. The email advised Plaintiff that 16 her previously approved equity grant was “consideration for and conditioned on” her 17 execution of the PIIA and instructed her to sign the agreement no later than June 14, 2023. 18 ECF No. 18-4 at 2. The email also provided contact information for Caris personnel who 19 were available to answer any questions Plaintiff might have regarding the agreement, 20 including its arbitration provision. Id. Immediately preceding the signature block, the PIIA 21 also included acknowledgments stating that Plaintiff had read and understood the 22 agreement, had been afforded a full and reasonable opportunity to ask questions and 23 consult with any person of her choosing before signing, and was executing the agreement 24 knowingly and voluntarily. ECF No. 18-5 at 13. Plaintiff signed the PIIA later that same 25 day. Id. 26 C. Plaintiff’s Termination 27 In the spring of 2024, Dr. Tanaka was assigned to complete training for Caris’ 28 Hybrid Whole Transcriptome Sequencing (“HWTS”) assay, a newly introduced diagnostic 1 product. ECF No. 19 at 11. During that training, she discovered that Caris had not 2 established standard operating procedures for the HWTS assay, despite regulatory 3 requirements mandating such procedures. Id. Dr. Tanaka promptly reported these 4 compliance concerns to Caris’ Medical Director, Dr. Jaclyn Hechtman, but her objections 5 were disregarded. Id. At a later point, an error occurred in one of Dr. Tanaka’s HWTS 6 cases, which she alleges Caris subsequently relied upon as a justification for terminating 7 her employment. Id. On September 13, 2024, before Dr. Tanaka completed her 8 performance improvement plan, she was unexpectedly locked out of Caris' computer 9 systems while actively working on patient cases. Id. Dr. Tanaka alleges that she did not 10 receive direct notice of her termination from Caris; instead, she learned that her 11 employment had ended only after coworkers contacted her personal cellphone following 12 an email from Caris informing employees that she was no longer with the company. Id. 13 D. Procedural Background 14 On April 4, 2025, Dr. Tanaka initiated suit in San Diego Superior Court, asserting 15 California state law claims, including, whistleblower retaliation, wrongful termination in 16 violation of public policy, and Unfair Business Practices. ECF No. 1-3. On May 30, 2025, 17 Caris removed this matter to this Court based on 28 U.S.C. § 1332. ECF No. 1. On 18 September 12, 2025, Defendant filed the instant Motion to Compel Arbitration. ECF No. 19 18. Plaintiff filed a response on September 26, 2025, ECF No. 19, and Defendant filed a 20 reply on October 10, 2025. ECF No. 20. 21 II. LEGAL STANDARD 22 The Supreme Court has enunciated a “liberal federal policy favoring arbitration.” 23 AT&T Mobility LLC v. Concepcion, 563 U.S. 333, 339, 344 (2011) (“The overarching 24 purpose of the FAA . . . is to ensure the enforcement of arbitration agreements according 25 to their terms so as to facilitate streamlined proceedings.”). The Federal Arbitration Act 26 (“FAA”), 9 U.S.C. § 1, et seq., governs the enforcement of arbitration agreements 27 involving commerce. See Am. Express Co. v. Italian Colors Rest., 570 U.S. 228, 232–33 28 (2013). Under the FAA, “[a] party aggrieved by the alleged failure, neglect, or refusal of 1 another to arbitrate under a written agreement for arbitration may petition any United States 2 district court . . . for an order directing that such arbitration proceed in the manner provided 3 for in such agreement.” 9 U.S.C. § 4. In deciding whether to compel arbitration, courts 4 limit their inquiry to two “gateway” issues: (1) whether a valid agreement to arbitrate 5 exists, and (2) whether the agreement encompasses the dispute at issue. Lim v. TForce 6 Logistics, LLC, 8 F.4th 992, 999 (9th Cir. 2021) (quoting Chiron Corp. v. Ortho Diagnostic 7 Sys., Inc., 207 F.3d 1126, 1130 (9th Cir. 2000)). “If both conditions are met, the [FAA] 8 requires the court to enforce the arbitration agreement in accordance with its terms.” Id. 9 The FAA further provides that arbitration agreements are unenforceable “upon such 10 grounds as exist at law or in equity for the revocation of any contract.” 9 U.S.C. § 2. 11 District courts apply state law principles of contract formation and interpretation in 12 determining which contracts are binding and enforceable under the FAA, if that law 13 governs the validity, revocability, and enforceability of contracts generally. See Arthur 14 Anderson LLP v. Carlisle, 556 U.S. 624, 630–31 (2009); see also Wolsey, Ltd. v. 15 Foodmaker, Inc., 144 F.3d 1205, 1210 (9th Cir. 1998). “Thus, generally applicable 16 contract defenses, such as fraud, duress, or unconscionability, may be applied to invalidate 17 arbitration agreements without contravening” federal law. Dr.’s Assocs., Inc. v. Casarotto, 18 517 U.S. 681, 687 (1996). Nevertheless, courts are directed to resolve any “ambiguities as 19 to the scope of the arbitration clause itself . . . in favor of arbitration.” Volt Info. Sciences, 20 Inc. v. Bd. of Trustees of Leland Stanford Jr. Univ., 489 U.S. 468, 476 (1989). 21 III. DISCUSSION 22 The parties do not dispute that Plaintiff received and signed the Arbitration 23 Provision. Defendant moves for arbitration, arguing that agreement is enforceable, and 24 alternatively, questions regarding the enforceability of the Arbitration Provision should be 25 decided by the arbitrator. ECF No. 18-1 at 20-22. Defendant also contends that any 26 unconscionable terms may be severed. Id. at 28. Plaintiff opposes, arguing that the issue 27 of arbitrability is for the Court to decide and that the Arbitration Provision is unenforceable 28 because it is both procedurally and substantively unconscionable, such that severance 1 cannot cure its defects. See generally ECF No. 19. The Court addresses each argument in 2 turn. 3 A. Arbitrability 4 “Under California law, it is presumed the judge will decide arbitrability, unless there 5 is clear and unmistakable evidence the parties intended the arbitrator to decide 6 arbitrability.” Dennison v. Rosland Cap. LLC, 47 Cal. App. 5th 204, 209, 260 Cal.Rptr.3d 7 675 (2020). Courts in this Circuit have held that where a delegation clause expressly 8 assigns questions concerning the enforceability, revocability, or validity of an arbitration 9 provision to the arbitrator, the clause constitutes clear and unmistakable evidence of the 10 parties’ intent to delegate arbitrability. See Mohamed v. Uber Techs., Inc., 848 F.3d 1201, 11 1209 (9th Cir. 2016) (finding delegation where the arbitration agreement delegated 12 “enforceability, revocability, or validity of the Arbitration Provision or any portion of the 13 Arbitration Provision” to an arbitrator); see also Kohler v. Whaleco, Inc., 757 F. Supp. 3d 14 1112, 1225 (S.D. Cal. 2024) (finding delegation where the agreement provided that “the 15 arbitrator shall have exclusive authority to resolve . . . disputes arising out of or related to 16 . . . the enforceability, revocability, scope, or validity of the Arbitration Agreement.”); 17 Pearl v. Coinbase Global, Inc., 2023 WL 1769190, at *3 (N.D. Cal. Feb. 3, 2023) (same). 18 Here, the Arbitration Provision contains a delegation clause providing that 19 “[e]mployee agrees to arbitrate any and all disputes arising out of or relating to the 20 interpretation or application of this section, but not disputes about the enforceability, 21 revocability or validity of any portion of this section.” ECF No. 18-5 at 9 (emphasis 22 added). Unlike the delegation clauses at issue in Mohamed, Kohler, and Pearl, the 23 language here does not expressly delegate questions concerning enforceability, 24 revocability, or validity of the Arbitration Provision to the arbitrator. Therefore, the Court 25 retains authority to decide Plaintiff’s challenges to the enforceability of the Arbitration 26 Provision. 27 B. Enforceability of the Arbitration Agreement 28 “Under California law, a contract must be both procedurally and substantively 1 unconscionable to be rendered invalid.” Chavarria v. Ralphs Grocery Co., 733 F.3d 916, 2 922 (9th Cir. 2013). “To establish this defense, the party opposing arbitration must 3 demonstrate procedural and substantive unconscionability, but both ‘need not be present 4 in the same degree. Instead, a sliding scale exists such that ‘the more substantively 5 oppressive the contract term, the less evidence of procedural unconscionability is required 6 to come to the conclusion that the term is unenforceable and vice versa.’” Lim v. TForce 7 Logistics, LLC, 8 F.4th 992, 1000 (9th Cir. 2021) (quoting Sanchez v. Valencia Holding 8 Co., 61 Cal. 4th 899, 910 (2015)). 9 1. Procedural Unconscionability 10 “Procedural unconscionability concerns the manner in which the contract was 11 negotiated and the respective circumstances of the parties at that time.” Chavarria, 733 12 F.3d at 922. “To determine whether the arbitration agreement involves more than 13 ‘minimal’ procedural unconscionability, we consider ‘whether circumstances of the 14 contract’s formation created such oppression or surprise that closer scrutiny of its overall 15 fairness is required.’” Ronderos v. USF Reddaway, Inc., 114 F.4th 1080, 1090 (9th Cir. 16 2024); quoting OTO, L.L.C. v. Kho, 8 Cal.5th 111, 126 (2019). “Oppression arises from 17 an inequality of bargaining power that results in no real negotiation and an absence of 18 meaningful choice.” Flores v. Transamerica HomeFirst, Inc., 93 Cal. App. 4th 846, 853, 19 113 Cal.Rptr.2d 376 (2001). “Surprise involves the extent to which the contract clearly 20 discloses its terms as well as the reasonable expectations of the weaker party.” Chavarria, 21 733 F.3d at 922 (citation omitted).” Both elements, oppression and surprise, are present in 22 adhesive contracts, making adhesive contracts at least somewhat unconscionable. See 23 Fuentes v. Empire Nissan, Inc., 19 Cal. 5th 93, 104 (2026) (“Some procedural 24 unconscionability is present whenever an agreement is a contract of adhesion.”) 25 Plaintiff argues that the PIIA and Arbitration Provision constitute an adhesive 26 contract because Caris, a large biotechnology company, possessed overwhelming 27 bargaining power, presented the agreement after Plaintiff had already begun working, and 28 conditioned her continued employment on signing it. ECF No. 19 at 14-15. Defendant 1 responds that Plaintiff has not established procedural unconscionability because she was 2 given at least seven days to review the agreement, consult counsel, and negotiate its terms, 3 but chose not to do so. ECF No. 20 at 4-5. Defendant also disputes Plaintiff's claim that 4 signing the agreement was required to retain previously granted stock options, asserting 5 instead that the stock options were “additional consideration” for executing the agreement. 6 Id. at 5. 7 Here, the Arbitration Provision was procedurally unconscionable because it is an 8 adhesive contract. “An adhesive contract is standardized, generally on a preprinted form, 9 and offered by the party with superior bargaining power ‘on a take-it-or-leave-it basis.’” 10 Fuentes, 19 Cal. 5th at 104. Each of those elements is present here. 11 First, the Provision was standardized. Caris drafted the PIIA and sent it to Plaintiff 12 through DocuSign without Plaintiff’s input. ECF Nos. 18-1 at 11, 18-4 at 2. Second, Caris 13 had greater bargaining power. Caris drafted and presented the PIIA to Plaintiff 14 approximately one month after she began working for the company and completed her 15 initial onboarding and training. ECF No. 18-1 at 11. The disparity in bargaining power 16 was reflected in Caris’s June 7, 2023 email, which informed Plaintiff that her previously 17 approved equity grant was “consideration for and conditioned on” her execution of the 18 PIIA. ECF No. 18-4 at 2. Finally, the Arbitration Provision was offered on a take-it-or- 19 leave-it basis. Caris instructed Plaintiff to execute the PIIA by June 14, 2023. Id. Even 20 though Plaintiff was provided seven days to review the agreement and given two contacts 21 for questions, the agreement was nevertheless presented as a condition of continued 22 employment rather than through meaningful bargaining. See Alvarez v. Altamed Health 23 Servs. Corp., 60 Cal. App. 5th 572, 591 (2021) (“When arbitration is a condition of 24 employment, there is inherently economic pressure on the employee to accept arbitration. 25 This alone is a fairly low level of procedural unconscionability.”). Therefore, Plaintiff has 26 demonstrated that the Arbitration Provision is procedurally unconscionable to at least a 27 minimal degree. 28 // 1 2. Substantive Unconscionability 2 “The substantive element looks to the actual terms of the parties’ agreement to 3 ensure that contracts, particularly contracts of adhesion, do not impose terms that have been 4 variously described as overly harsh, unduly oppressive, so one-sided as to shock the 5 conscience or unfairly one-sided.” Magno v. The Coll. Network, Inc., 204 Cal.Rptr.3d 829, 6 969 (2016) (internal quotation marks omitted). To avoid substantive unconscionability, an 7 arbitration agreement must contained at least “a modicum of bilaterality.” Armendariz v. 8 Found. Health Psychcare Servs., Inc., 24 Cal. 4th 83, 117 (2000). 9 Under California law, [w]hen only the weaker party’s claims are subject to 10 arbitration, and there is no reasonable justification for that lack of symmetry, the agreement 11 lacks the requisite degree of mutuality.” Abramson v. Juniper Networks, Inc., 9 Cal. Rptr. 12 3d 422, 437 (2004). To illustrate, in Armendariz, the California Supreme Court explained 13 that “it is unfairly one-sided for an employer with superior bargaining power to impose 14 arbitration on the employee as plaintiff but not to accept such limitations when it seeks to 15 prosecute a claim against the employee, without at least some reasonable justification for 16 such one-sidedness based on “business realities.” 24 Cal. 4th at 117. The court held that 17 the agreement in Armendariz lacked mutuality because the employee’s wrongful- 18 termination claim was subject to arbitration, while the employer remained free to pursue a 19 corresponding trade-secrets claim in court – and the employer did not offer a reasonable 20 justification based on “business realities.” Id. at 120. Similarly, in Abramson, the 21 arbitration agreement required both parties to arbitrate all claims, however the arbitration 22 agreement contained a carve out that exempted claims relating to trade secrets, confidential 23 information, and other intellectual property from arbitration. 9 Cal. Rptr. 3d at 443. The 24 Court concluded that “[the] carve-out in the employment contract thus addresses only the 25 employee's breach of covenants designed to protect only the employer’s interests. It 26 therefore lacks mutuality, both facially and operationally.” Id. at 443-44. 27 Plaintiff argues that the Arbitration Provision is substantially unconscionable 28 because it requires employees to arbitrate all claims, while allowing Caris to pursue certain 1 claims in court, and exempts Caris from posting a bond. ECF No. 19 at 18-20. Defendant 2 responds that the Provision merely requires “arbitrable claims to be arbitrated.” ECF No. 3 20 at 6. Defendant further argues that the Provision does not improperly waive any bond 4 requirement because posting a bond is not a per se prerequisite to obtaining a preliminary 5 injunction and may be waived by stipulation. Id. 6 The Court agrees with Plaintiff and finds that the Arbitration Provision is 7 substantively unconscionable because it requires Plaintiff to arbitrate practically all claims 8 arising from the employment relationship, while reserving Defendant's right to pursue 9 certain relief in court. More specifically, the Provision requires the employee to arbitrate 10 employment disputes. ECF No. 18-5 at 9 (“[E]mployee agrees that any and all 11 controversies, claims or disputes that Employee has or may in the future have with the 12 Caris Group . . . arising out of, relating to or resulting from the Employment . . . shall be 13 subject to binding arbitration.). In stark contrast, the Arbitration Provision broadly 14 preserves Defendant’s exclusive right to access the courts to pursue certain claims against 15 Plaintiff arising out of her employment, including trade secrets, intellectual property, non- 16 competition, venders, customers, solicitation of employees, and alleged disparagement. In 17 relevant part, it states: 18 [I]n the event of a breach or threatened breach of any of the covenants and promises contained in Section 2 and Section 4 through Section 8, the Caris 19 Group will suffer irreparable injury . . . [and] will therefore be entitled to: 20 preliminary and permanent injunctive relief in addition to any other legal or equitable remedies available to the Caris Group, without the posting of a bond, 21 enjoining Employee from engaging in activities in breach of this Agreement.1 22 23 ECF No. 18-5 at 10. 24 25 26 1 The referenced provisions concern the protection of confidential and proprietary information (Section 2), non-competition obligations (Section 4), non-solicitation and non- 27 inducement of customers and employees (Sections 5 and 6), non-interference with vendors 28 and suppliers (Section 7), and non-disparagement (Section 8). 1 Thus, while Plaintiff must arbitrate her employment-related claims, the Provision 2 expressly preserves Defendant’s ability to seek judicial relief for claims involving the 3 Agreement's restrictive covenants. Defendant, moreover, fails to identify any reasonable 4 justification based on a “business reality” for this lack of mutuality. 2 Armendariz, 24 Cal. 5 4th at 117 (“[I]t is unfairly one-sided for an employer with superior bargaining power to 6 impose arbitration on the employee as plaintiff but not to accept such limitations when it 7 seeks to prosecute a claim against the employee, without at least some reasonable 8 justification for such one-sidedness based on ‘business realities.’”). Accordingly, because 9 the claims most likely to be brought by Caris are exempt from arbitration, while Plaintiff 10 is required to arbitrate virtually all claims she is likely to assert, the Provision lacks 11 mutuality and is unfairly one-sided. 12 3. Conclusion 13 The Court finds that the Arbitration Provision contains both procedural and 14 substantive unconscionability. Therefore, the Provision is unconscionable as a matter of 15 law. The Court turns to whether the issue of whether the unconscionable provisions may 16 be severed. 17 C. Severance 18 Under California law, courts may sever unlawful or unconscionable provisions from 19 an arbitration agreement so long as the remainder of the agreement is not “permeated” by 20 unconscionability. Serafin v. Balco Properties Ltd., LLC, 235 Cal. App. 4th 165, 184 21 (2015); McManus v. CIBC World Markets Corp., 109 Cal. App. 4th 76, 101–02 (2003). 22 When deciding whether to sever the unconscionable provisions, “[c]ourts are to look to the 23 24 2 Defendant contends that third-party beneficiaries are subject to the Arbitration Provision 25 and that arbitration is necessary to ensure that claims brought against its employees by such 26 third parties are resolved expeditiously. See ECF Nos. 18 at 25-28. However, this argument addresses only claims brought by third parties; it does not explain what “business 27 realities” justify requiring Plaintiff to arbitrate her claims while preserving Defendant’s 28 right to pursue its own claims in court. 1 various purposes of the contract.” Armendariz, 99 Cal.Rptr.2d at 775. “If the central 2 purpose of the contract is tainted with illegality, then the contract as a whole cannot be 3 enforced.” Id. However, “[i]f the illegality is collateral to the main purpose of the contract, 4 and the illegal provision can be extirpated from the contract by means of severance or 5 restriction, then such severance and restriction are appropriate.” Id. 6 Courts have found that when an arbitration agreement is unconscionable because the 7 employer has carved out exceptions for itself, the agreement may be so permeated by 8 unconscionability that severance is not appropriate. For example, in Abramson, the court 9 explained that severing the unconscionable provision would effectively require both the 10 employer and employee to arbitrate all claims. 9 Cal. Rptr. 3d at 445. But because the 11 employee was no longer employed by the company, the employer was unlikely to have any 12 claims against the employee in the future. Id. Therefore, there would not be mutuality, 13 because the employee would still be the only party likely to be required to arbitrate a claim. 14 Id. The court therefore concluded that severance would result in “an undeserved benefit to 15 the employer and an undeserved detriment to the employee.” Id. Similarly, in Stoker v. 16 Blue Origin, LLC, 343 Cal. Rptr. 3d 756, 771 (2026), the Court acknowledged that certain 17 provisions of the arbitration agreement could arguably be severed. However, one provision 18 exempted from arbitration claims most likely to be brought by the employer while requiring 19 arbitration of claims most likely to be brought by the employee. Id. at 772. The Court 20 declined to sever the provision, reasoning that “[the] section’s overbreadth could be 21 corrected only by adding language limiting the provisions’ reach to claims arising out of 22 [the employee’s] employment.” Id. The Court concluded that it lacked authority under 23 governing law to cure an unconscionable contract through “reformation and 24 augmentation.” Id. 25 In similar fashion, the Arbitration Provision here cannot be severed. Like the 26 agreements in Abramson and Stoker, the Provision requires Plaintiff to arbitrate virtually 27 all claims arising from her employment while expressly preserving Defendant’s ability to 28 seek judicial relief for the claims most likely to be asserted by Defendant. If the Court 1 || were to sever the section exempting Defendant from arbitration, then all claims would 2 become subject to arbitration — which is a significant obligation that Defendant never 3 ||agreed to. Such “reformation and augmentation” is beyond the Court’s authority. Stoker, 4 ||343 Cal. Rptr. 3d at 772. Also, as in Abramson, severance would provide an undeserved 5 || benefit to the employer and an undeserved detriment to the employee. 9 Cal. Rptr. 3d at 6 ||445. Allowing Defendant to retain the judicial remedies it reserved for itself while 7 ||compelling Plaintiff to arbitrate her claims would produce precisely that result. 8 || Accordingly, because the unconscionability permeates the Arbitration Provision and 9 || severance would not serve the interests of justice, the Court declines to sever the offending 10 || provisions. 11 D. CONCLUSION 12 The Arbitration Provision is procedurally and substantively unconscionable. The 13 |}unconscionability cannot be removed from this Arbitration Provision by severing or 14 |/ restricting the objectionable terms. The agreement thus is wholly unenforceable as a matter 15 law. The motion to compel arbitration is DENIED. ECF No. 18. The Motion for Leave 16 || to File Sur-Reply is also DENIED as moot. ECF No. 21. 17 IT IS SO ORDERED. 18 19 || Dated: September 28, 2026 20 22 23 Honorable Benjamin J. Cheeks United States District Judge 24 25 26 27 28 12 25-cv-1376-BJC-MSB