Judge: Anne Richardson, Case: 23STCV18947, Date: 2023-11-09 Tentative Ruling

Case Number: 23STCV18947    Hearing Date: November 9, 2023    Dept: 40

Superior Court of California

County of Los Angeles

Department 40

Background

Plaintiff John Jung Han sues Defendants First-Citizens Bank & Trust Company (First Citizens Bank or the Bank), Yegishe Nahabedian, Rick Lam, and Does 1 through 100 pursuant to an August 9, 2023 Complaint alleging claims of (1) Sex/Gender Harassment in Violation of Cal. Gov. Code § 12940 et seq., (2) Sex/Gender Discrimination in Violation of Cal. Gov. Code § 12940 et seq., (3) Sex/Gender Retaliation in Violation of Cal. Gov. Code § 12940 et seq., and (4) Wrongful Termination in Violation of Public Policy.

The claims arise from allegations that in his employment with First Citizens Bank, Plaintiff Han was harassed, discriminated against, and retaliated against based on his sex/gender, such as by Defendants Nahabedian and Lam scrutinizing, counseling, and disciplining Plaintiff to a greater extent than his female co-workers. Defendants Nahabedian and Lam are alleged to be managers, officers, shareholders, directors, supervisors, managers, managing agents, supervisors, principals, and/or employees of First Citizens Bank and Does 1 through 100.

On October 18, 2023, First Citizens Bank filed a motion to compel arbitration of Plaintiff’s Complaint and to stay the proceedings pursuant to an alleged arbitration agreement between the Bank and Plaintiff.

On October 27, 2023, Plaintiff Han opposed the motion.

On November 2, 2023, First Citizens Bank replied to the opposition.

First Citizens Bank’s motion is now before the Court.

Evidentiary Objections

Objection to Reply’s Patel Declaration and Attached Exhibits

Objection: OVERRULED [correction of attachments to moving papers, not new evidence].

Motion to Compel Arbitration and Stay Proceedings

Legal Standard

The Federal Arbitration Act (“FAA”), while a federal statute, applies in California courts and requires state courts to enforce arbitration agreements as required by the federal common law developed under the FAA. (See Southland Corp. v. Keating (1984) 465 U.S. 1, 15-16; Broughton v. Cigna Healthplans (1999) 21 Cal.4th 1066, 1074-78, superseded by statute on another ground as stated in Ferguson v. Corinthian Colleges, Inc. (9th Cir. 2013) 733 F.3d 928, 937.).) The FAA preempts and invalidates state law and state judicial decisions that disfavor arbitration or require arbitration provisions to pass higher scrutiny. (Southland Corp. v. Keating, supra, at p. 12; Perry v. Thomas (1987) 482 U.S. 483, 490.) If the parties designate the FAA applies, then California arbitration law is preempted. (See, e.g., Rodriguez v. American Techs., Inc. (2006) 136 Cal.App.4th 1110, 1121-1122.) However, courts have found that where the FAA is found not to apply, the California Arbitration Act (Code Civ. Proc. § 1280 et seq.) applies. (See Valencia v. Smyth (2010) 185 Cal.App.4th 153, 178.)

 A court’s inquiry is limited to a determination of (1) whether a valid arbitration agreement exists and (2) whether the arbitration agreement covers the dispute. (9 U.S.C. § 4; Chiron Corp. v. Ortho Diagnostics Systems, Inc. (9th Cir. 2000) 207 F.3d 1126, 1130; Howsam v. Dean Witter Reynolds, Inc. (2002) 537 U.S. 79, 84; see Simula, Inc. v. Autoliv, Inc. (9th Cir. 1999) 175 F.3d 716, 720 [if the finding is affirmative on both counts the FAA requires the Court to enforce the arbitration agreement in accordance with its terms].) “An order to arbitrate the particular grievance should not be denied unless it may be said with positive assurance that the arbitration clause is not susceptible of an interpretation that covers the asserted dispute.” (United Steelworkers of America v. Warrior & Gulf Navigation Co. (1960) 363 U.S. 574, 582-583.) 

 Moreover, the general rule is that the FAA governs all agreements to arbitrate in contracts “involving interstate commerce.” (Higgins v. Superior Court (2006) 140 Cal.App.4th 1238, 1247.) The term “involving” commerce “is broad and is indeed the functional equivalent of “affecting’ commerce.” (Allied-Bruce Terminix Companies, Inc. v. Dobson (1995) 513 U.S. 265, 273-274.) The U.S. Supreme Court has held that this broad interpretation includes employment contracts. (See Circuit City Stores v. Adams (2001) 532 U.S. 105, 106.) The defendant bears the burden of proving applicability of the FAA by showing that its activities constitute interstate commerce. (Hoover v. Am. Income Life Ins. Co. (2012) 206 Cal.App.4th 1193, 1207.) Failure to demonstrate that the employment agreement affects interstate commerce renders the FAA inapplicable. (See Lane v. Francis Capital Management LLC (2014) 224 Cal.App.4th 676, 687-688; Woolls v. Superior Court (2005) 127 Cal.App.4th 197, 212.)

Even where the FAA governs the interpretation of arbitration clauses, California law governs whether an arbitration agreement has been formed in the first instance. (Baker v. Osborne Development Corp. (2008) 159 Cal.App.4th 884, 893.) 

 The party seeking arbitration has the “burden of proving the existence of a valid arbitration agreement by a preponderance of the evidence.” (Ruiz v. Moss Bros. Auto Group, Inc. (2014) 232 Cal.App.4th 836, 842 (Ruiz).) “Once that burden is satisfied, the party opposing arbitration must prove by a preponderance of the evidence any defense to the petition.” (Lacayo v. Cataline Restaurant Group Inc. (2019) 38 Cal.App.5th 244, 257.) “The trial court sits as the trier of fact, weighing all the affidavits, declarations, and other documentary evidence, and any oral testimony the court may receive at its discretion, to reach a final determination.” (Ruiz, supra, at p. 842.) 

On a petition to compel arbitration, the court must grant the petition unless it finds (1) no written agreement to arbitrate exists, (2) the right to compel arbitration has been waived, (3) grounds exist for revocation of the agreement, or (4) litigation is pending that may render the arbitration unnecessary or create conflicting rulings on common issues. (Code Civ. Proc., § 1281.2; see Condee v. Longwood Management Corp. (2001) 88 Cal.App.4th 215, 218-219.)

In determining the enforceability of an arbitration agreement, the court considers “two ‘gateway issues’ of arbitrability: (1) whether there was an agreement to arbitrate between the parties, and (2) whether the agreement covered the dispute at issue.” (Omar v. Ralphs Grocery Co. (2004) 118 Cal.App.4th 955, 961.) If these issues are satisfied in favor of the movant, (3) the party opposing arbitration must prove by a preponderance of the evidence any defense to the petition. (Lacayo v. Cataline Restaurant Group Inc., supra, 38 Cal.App.5th at p. 257.)

Order Compelling Arbitration and Staying Proceedings: DENIED.

I.

Whether Arbitration Agreement Exists

“Parties are not required to arbitrate their disagreements unless they have agreed to do so. [Citation.] A contract to arbitrate will not be inferred absent a ‘clear agreement.’ [Citation.] When determining whether a valid contract to arbitrate exists, we apply ordinary state law principles that govern contract formation. [Citation] In California, a ‘clear agreement’ to arbitrate may be either express or implied in fact. [Citation.]” (Davis v. Nordstrom, Inc. (9th Cir. 2014) 755 F.3d 1089, 1092-93 [applying California law].) The court is only required to make a finding of the agreement’s existence, not an evidentiary determination of its validity. (Condee v. Longwood Management Corp., supra, 88 Cal.App.4th at p. 219.)

First Citizens Bank contends that Plaintiff signed an agreement to arbitrate any claims, disputes, or controversies between Plaintiff and First Citizens Bank and the Bank’s direct and indirect subsidiaries (including but not limited to their owners, members, managers, officers, directors, agents and employees), and expressly encompassing discrimination, harassment, and retaliation claims. (Mot., pp. 2-4, 6-8.; see Mot., Ex. 1 [copy of alleged arbitration agreement]; Mot., Ex. 2, Hesse Decl., ¶¶ 1-13 [authentication of signature], Sub-Exs. A [copy of alleged arbitration agreement], B [Docu-sign confirmation]; Mot., Ex. 3, Patel Decl., ¶¶ 1-3.)

In opposition, Plaintiff raises various arguments to undercut the existence of an agreement to arbitrate. Plaintiff argues that he does not know whether the agreement advanced by the Bank is the same agreement that Defendants forced Plaintiff to sign by threatening him with termination in January or February 2022. (Opp’n, Bernabe Decl., Ex. A, Han Decl., ¶¶ 7-10.) Plaintiff also challenges the authentication of the electronic signature in the alleged arbitration agreement. (Opp’n, pp. 5-6, citing Opp’n, Bernabe Decl., Ex. A, Han Decl., ¶¶ 4, 7, 9-10, 12-13 & Mot., Ex. 2, Hesse Decl., Sub-Ex. B [certificate of completion].)

In reply, the Bank argues that the Hesse declaration properly authenticated the agreement between the parties, and that Plaintiff did consent to arbitration. The reply also attaches a declaration from Ketul Patel, in which the Bank’s counsel apologizes for attaching to the moving papers an incorrect certificate of completion for the Docu-Sign signature attributed to Plaintiff Han and attaching the correct certificate of completion as Exhibit 3. (Reply, pp. 5-8; Reply, Patel Decl., ¶¶ 1-2, Ex. 3.)

The Court finds that no agreement to arbitrate exists between the parties.

Even if the Court were to accept that Plaintiff Han signed the document attached as Exhibit 1 and Exhibit 2.A. to First Citizens Bank’s motion, a plain reading of that document does not show an agreement to arbitrate. (Mot., Ex. 1 & Ex. 2, Hesse Decl., Sub-Ex. A [“Dispute Resolution Procedure & Voluntary Mutual Binding Arbitration Agreement”].) Despite the title of the agreement, the agreement explicitly provides that Plaintiff Han agrees that “any claims, disputes or controversies arising between [Plaintiff] and First-Citizens Bank and Trust Company and its direct and indirect subsidiaries (including but not limited to their owners, members, managers, officers, directors, agents and employees)” would “be addressed in the following manner:” “Step 1, through good faith negotiation between the Bank and [Plaintiff]”; “Step 2, at the Bank’s option, through mediation …”; and “Step 3, if still not resolved, and if agreed to voluntarily by both parties, by binding arbitration under the Federal Arbitration Act administered by JAMS ….” (Mot., Ex. 1, p. 1, & Ex. 2, Hesse Decl., Sub-Ex. A, p. 1.) This language involves an agreement to enter a dispute resolution procedure, the third step of which is a voluntary (not expressly mandated) option to enter arbitration proceedings. (See Opp’n, p. 9-10 [arguing that this lack of clarity as to whether parties agreed to arbitrate favors finding of procedural unconscionability].)

In its reply, First Citizens Bank argues, without much elaboration, that the parties’ alleged agreement is clear as to the terms forming an agreement to arbitrate and that the agreement does not contain an “opt out” provision. (Reply, pp. 8-9 [arguments against a finding of procedural unconscionability].) However, the Court disagrees. Steps 1 and 2 appear to be mandatory provisions of the parties’ alleged January 24, 2022 agreement, but Step 3 is optional insofar as it requires the voluntary consent of both parties before submitting any claims by either party to arbitration. It does not, by its plain language, constitute a pre-dispute agreement to arbitrate, but rather an agreement to consider arbitration after a dispute has arisen and after the parties have gone through the first two steps.

Alternatively, the Court determines that even if an arbitration agreement existed between the parties that encompassed the scope of Plaintiff’s claims, that agreement would be unenforceable due to inseverable unconscionability. Procedural unconscionability arises from the contract of adhesion nature of the purported agreement to arbitrate, as well as from contractual terms that are unclear as to whether Step 3 is voluntary or mandatory. (See Opp’n, Ex. A, Han Decl., ¶¶ 8-10 [adhesion]; Opp’n, Ex. B, Acuff Decl., Ex. 2, p. 2 [same]; Baxter v. Genworth North America Corp. (2017) 16 Cal.App.5th 713, 723 [contract of adhesion as condition of ongoing employment, with other factors, showed high degree of unconscionability]; see also Opp’n, Ex. A, Han Decl., Sub-Ex. 1, Step 3 at p. 1 & Voluntary Agreement at p. 3 [language unclear as to whether “voluntary” agreement to arbitrate for Step 3 purposes is effected through this agreement]; OTO, L.L.C. v. Kho (2019) 8 Cal.5th 111, 125 [procedural unconscionability where agreement “appears to have been drafted with an aim to thwart, rather than promote, understanding”].) Substantive unconscionability arises from the purported agreement’s confidentiality clause, which the Court finds sufficiently similar to Ramos v. Superior Court (2018) 28 Cal.App.5th 1042, 1066-1067 because the arbitration agreement provides that “[t]he arbitration shall be confidential to the extent allowed by law, including, without limitation, the claims made, discovery conducted, pleadings and papers filed, proceedings, rulings, testimony, hearings and award, if any.” (Mot., Ex. 1, p. 3, § Confidentiality.) The Court also determines that severance is not appropriate here and the difficulty of modifying the unconscionable provisions. (Carmona v. Lincoln Millennium Car Wash, Inc. (2014) 226 Cal.App.4th 74, 90 [“A trial court has the discretion to refuse to enforce an agreement as a whole if it is permeated by … unconscionability,” where the overarching inquiry is “whether ‘the interests of justice … would be furthered by severance,’” citation omitted]; Magno v. The College Network, Inc. (2016) 1 Cal.App.5th 277, 292 [agreement to arbitrate is considered “permeated” by unconscionability where, for example, it contains more than one unconscionable provision]; Carbajal v. CWPSC, Inc. (2016) 245 Cal.App.4th 227, 254 [multiple defects indicate a systematic effort to impose arbitration on an employee not simply as an alternative to litigation but as an inferior forum that works to the employer’s advantage]; see, e.g., Lange v. Monster Energy Co. (2020) 46 Cal.App.5th 436, 455 [“[W]e agree with the trial court that the parties’ arbitration agreement is permeated with too high a degree of unconscionability for severance to rehabilitate”].)

First Citizens Bank’s motion is thus DENIED. 

Conclusion

Defendant First Citizens Bank’s Motion to Compel Arbitration and Stay Litigation is DENIED.