Judge: Anne Richardson, Case: 24STCV08713, Date: 2024-09-25 Tentative Ruling

Case Number: 24STCV08713    Hearing Date: September 25, 2024    Dept: 40

Superior Court of California

County of Los Angeles

Department 40

I. Background

A. Pleadings

Plaintiff Carlos De Leon (De Leon) sues Defendants Allied Digital Services, LLC (Allied Digital) and Does 1 through 50, pursuant to an April 8, 2024 Complaint alleging causes of action for: (1) Disability Discrimination; (2) Failure to Accommodate Disability in Violation of FEHA; (3) Failure to Engage in the Interactive Process; (4) Failure to Prevent Discrimination; (5) Retaliation; and (6) Wrongful Constructive Termination in Violation of Public Policy.

The claim arises from allegations that in December 2022, De Leon, a deskside technician at Allied Digital, suffered injuries to his back, arms, shoulder and right hand while installing a server at work. (Compl. ¶ 11.) De Leon alleges that he was constructively terminated in February 2024 after Allied Digital failed to accommodate his injuries, placed De Leon on a leave of absence, and asked him to return his work equipment. (Compl. ¶¶ 12-25.)

B. Motion Before the Court

On July 12, 2024, Allied Digital filed the instant motion to compel arbitration and stay the proceedings pursuant to an Arbitration Agreement between De Leon and Allied Digital.

On September 12, 2024, De Leon opposed the motion.

Allied Digital has not filed a reply.

II. Motion

A. Legal Standard

A party to an arbitration agreement may seek a court order compelling the parties to arbitrate a dispute covered by the agreement. (Code Civ. Proc., § 1281.2.) Absent a viable defense to enforcement, the court must grant the motion if it determines there is an agreement to arbitrate that has not been rescinded. (See Code Civ. Proc., § 1281.2; see also Cinel v. Barna (2012) 206 Cal.App.4th 1383, 1389 [“Under section 1281.2, the court shall order a matter to arbitration if it determines that there is an agreement to arbitrate and (1) the agreement has not been waived or (2) the agreement has not been revoked”].) 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.) “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 v. Moss Bros. Auto Group, Inc., supra, at p. 842.) “A party required to prove something by a preponderance of the evidence ‘need prove only that it is more likely to be true than not true.’ [Citation.] Preponderance of the evidence means ‘“that the evidence on one side outweighs, preponderates over, is more than, the evidence on the other side, not necessarily in number of witnesses or quantity, but in its effect on those to whom it is addressed.”’ [Citations.] In other words, the term refers to ‘evidence that has more convincing force than that opposed to it.’ [Citations.]” (People ex rel. Brown v. Tri-Union Seafoods, LLC (2009) 171 Cal.App.4th 1549, 1567.) 

“California has a strong public policy in favor of arbitration and any doubts regarding the arbitrability of a dispute are resolved in favor of arbitration.” (Coast Plaza Doctors Hospital v. Blue Cross of California (2000) 83 Cal.App.4th 677, 686.) “This strong policy has resulted in the general rule that arbitration should be upheld unless it can be said with assurance that an arbitration clause is not susceptible to an interpretation covering the asserted dispute.” (Id. [internal quotations omitted].) Generally, thus, on a petition to compel arbitration, the court must grant the petition unless it finds either (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. (Cal. Code Civ. Proc., § 1281.2; see Condee v. Longwood Management Corp. (2001) 88 Cal.App.4th 215, 218-219.)

Nonetheless, California’s policy in favor of arbitration does not override ordinary principles of contract interpretation holding that the contractual terms themselves must be carefully examined before the parties to the contract can be ordered to arbitration. (Rice v. Downs (2016) 248 Cal.App.4th 175, 185. See also Freeman v. State Farm Mut. Auto. Ins. Co. (1975) 14 Cal.3d 473, 481 [“There is indeed a strong policy in favor of enforcing agreements to arbitrate, but there is no policy compelling persons to accept arbitration of controversies which they have not agreed to arbitrate and which no statute has made arbitrable.”].)

B. Existence of Arbitration Agreement

“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.) 

In support of their motion, Allied Digital attaches a copy of an Arbitration Agreement signed by De Leon on March 22, 2019. (Mot., Patel Decl. ¶¶ 9-10, Ex. C.) DeLeon does not contest that he executed the Arbitration Agreement as part of the onboarding process.

Thus, an agreement to arbitrate exists between the parties.

C.    Unconscionability

Under general contract principles, an agreement is unenforceable if it is unconscionable. “‘The prevailing view is that [procedural and substantive unconscionability] must¿both¿be present in order for a court to exercise its discretion to refuse to enforce a contract or clause under the doctrine of unconscionability.’ [Citation] But they need not be present in the same degree. “Essentially a sliding scale is invoked which disregards the regularity of the procedural process of the contract formation, that creates the terms, in proportion to the greater harshness or unreasonableness of the substantive terms themselves.” [Citation] In other words, the more substantively 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.” (Armendariz v. Foundation Health Psychcare Services, Inc.¿(2000) 24 Cal.4th 83, 114.)

De Leon argues that the Arbitration Agreement is procedurally and substantively unconscionable when read together with the Employee Non-Disclosure and Confidentiality Agreement. (Opp. p. 7.) “‘Under Civil Code section 1642, it is the general rule that several papers relating to the same subject matter and executed as parts of substantially one transaction, are to be construed together as one contract [citation].’ ” [Citation] According to that rule, documents executed as part of a single transaction are construed together, even if they do not expressly refer to one another.’” (Alberto v. Cambrian Homecare (2023) 91 Cal.App.5th 482, 490.)

Here, the Arbitration Agreement and the Employee Non-Disclosure and Confidentiality Agreement were presented to and signed by De Leon on the same day. Both agreements were part of De Leon’s onboarding documents and contain terms regarding how the parties may resolve disputes. It is therefore appropriate to consider them together.

1.     Procedural Unconscionability

Procedural unconscionability “addresses the circumstances of contract negotiation and formation, focusing on oppression or surprise due to unequal bargaining power.” (Pinnacle Museum Tower Assn., supra, 55 Cal.4th at p. 246.) Established case law explains that “‘[o]ppression’ arises from an inequality of bargaining power which results in no real negotiation and ‘an absence of meaningful choice’ [and] ‘[s]urprise’ involves the extent to which the supposedly agreed-upon terms of the bargain are hidden [in the agreement] by the party seeking to enforce the disputed terms.” (Zullo v. Superior Court (2011) 197 Cal.App.4th 477, 484.) 

De Leon argues that the Arbitration Agreement is oppressive because when he was offered the job, he was told that his “employment was contingent upon returning all the paperwork and documents included in the email,” the agreements were part of over 100 pages of onboarding documents, and the agreements were legally complex, and he did not have an attorney review the documents. (Opp. pp. 8-9, De Leon Decl., ¶¶ 6-13.)  Additionally, he contends that the Agreement did not contain an opt-out clause. (Opp. p. 11.)

De Leon also argues that the Arbitration Agreement is oppressive because it is a contract of adhesion. He argues that the Arbitration agreement is a standardized contract, presented to him on a ‘take it or leave it’ basis as his employment was conditioned upon returning the signed document, and that there was unequal bargaining power between the parties. (Opp. pp. 9-10.)

He also argues that the Arbitration Agreement contains a high level of surprise because the Arbitration Agreement was two pages amongst over 100 pages presented to him and Allied Digital did not explain what the effects of the Arbitration Agreement were.  (Opp. p. 11.)

Here, De Leon has established that the Arbitration Agreement is an adhesion contract. Allied Digital told De Leon “You cannot begin your employment with us, until all documents are received.” (Mot., Patel Decl. Ex A.) Additionally, there is unequal bargaining power between De Leon and Allied Digital. Although the Arbitration Agreement was only two pages within a lengthy onboarding document package, De Leon states that an employee of Allied Digital called him and “emphasized that [he] must sign page 76 and 78 of the Employee Handbook.” Thus, De Leon was specifically directed to the Arbitration and Confidentiality Agreements within the onboarding package. De Leon also argues that the Agreement is procedurally unconscionably because it was legally complex and no one explained the effects of an Arbitration Agreement to him. Upon review, the language of the Arbitration Agreement is not overly complex. Additionally, directly above the signature line, in bold font, the Agreement states: “By signing this Arbitration Agreement both the Company and the Employee acknowledge and understand that by agreeing to arbitrate their disputes they are bound to arbitrate any disputes arising out of the employment relationship between the Company and the Employee and that, unless otherwise provided by law, both the employee and the Company are forfeiting their rights to file a lawsuit in court.”

Based on the above reasoning, there is a small amount of procedural unconscionability because De Leon has shown a contract of adhesion. Thus, De Leon must show a strong degree of substantive unconscionability for the Arbitration Agreement to be found unenforceable.

2.     Substantive Unconscionability

“Substantive unconscionability focuses on the terms of the agreement and whether those terms are so one-sided as to shock the conscience.” (Kinney v. United HealthCare Servs., Inc. (1999) 70 Cal.App.4th 1322, 1330.) 

De Leon argues that the Arbitration Agreement is substantively unconscionable because it lacks mutuality, requires an unlimited duration, requires employees to engage in employer-controlled pre-arbitration resolution, and requires employees to pay costs unique to arbitration.

First, De Leon argues that the Arbitration Agreement lacks mutuality because the Employee Non-Disclosure and Confidentiality Agreement excludes claims most likely to be brought by Allied Digital. (Opp. pp. 12-13.)  “‘An arbitration agreement is substantively unconscionable if it requires the employee but not the employer to arbitrate claims.’ [Citations.]”  (Martinez v. Master Protection Corp. (2004) 118 Cal.App.4th 107, 114.) “Of the greatest overall significance is the fact that it imposes on the employee only a unilateral obligation to arbitrate: ‘In assessing substantive unconscionability, the paramount consideration is mutuality.’”  (Nyulassy v. Lockheed Martin Corp. (2004) 120 Cal.App.4th 1267, 1287.)

De Leon does not argue that the terms of the Arbitration Agreement are non-mutual. Rather, he argues that the Employee Non-Disclosure and Confidentiality Agreement carves out an option for Allied Digital to seek provisional remedies if an employee discloses confidential information. Specifically, paragraph 7 in the Employee Non-Disclosure and Confidentiality Agreement states that: “Employee acknowledges that Employee’s breach of this NDA may cause irreparable harm to ADSL-US and that remedies at law may be inadequate to redress any threatened or actual violation of this NDA. Employee specifically agrees that, in addition to any other relief that might be available under law, ADSL-US may enforce its rights by temporary and/or permanent injunctive or declaratory relief.” (Opp., Rishwain Decl., Ex. B, ¶ 7.)

A carve-out for provisional remedies such as injunctive relief is not improper as the California Supreme Court has squarely rejected a challenge to an arbitration agreement on this precise ground in Baltazar v. Forever 21, Inc. (2016) 62 Cal.4th 1237.  Further, De Leon does not contend that Allied Services is seeking such relief here, nor does he explain how this provision affects his causes of action in the Complaint, none of which arise from terms of the Employee Non-Disclosure and Confidentiality Agreement.

Thus, considering the Arbitration Agreement and Employee Non-Disclosure and Confidentiality Agreement together, De Leon has failed to show substantive unconscionability on this ground.

Second, De Leon argues that the Arbitration Agreement is substantively unconscionable because it has an unlimited duration. The Arbitration Agreement provides that it “shall survive the employer-employee relationship between the Company and the employee. This Arbitration

Agreement can be modified or revoked only by a written agreement signed by the employee and an executive officer of the Company that references this Arbitration Agreement and specifically states the intent to modify or revoke this Agreement. ” (Mot., Patel Decl. Ex. C, ¶ 7.)  This is substantially the same language that the Court in Cook v. University of Southern California found to be unconscionable because it meant the agreement could potentially survive indefinitely. (Cook v. Univ. of Southern Cal. (2024) 102 Cal.App.5th 312, 325-326)

However, unlike in Cook, the Arbitration Agreement here is limited in scope in that it only applies to disputes arising from De Leon’s employment with Allied Digital. (Compare Cook, supra, 102 Cal.App.5th at 322 [arbitration agreement was substantively unconscionable because it required the arbitration of all claims, whether or not arising out of the plaintiff’s employment with defendant, against defendant and any of its related entities, for an indefinite period of time.]

            Thus, De Leon has shown a small degree of substantive unconscionability because the Arbitration Agreement could potentially survive indefinitely.  

Third, De Leon argues that the Arbitration Agreement requires employer-controlled pre-arbitration resolution. The Arbitration Agreement provides: “The Employee and the Company agree that any controversy, dispute, or claim (collectively “disputes) arising out of or relating to an employee’s employment with the Company will first attempt to be settled through good-faith negotiation.” (Mot., Patel Decl. Ex. C.) However, ‘good-faith negotiation’ does not connote an employer-controlled dispute resolution mechanism. (Compare Nyulassi v. Lockheed Martin Corp. (2004) 120 Cal.App.4th 1267, 1282-83 [Plaintiff specifically required to submit to discussions with his supervisors as a condition precedent to having his dispute resolved through arbitration.])

Thus, De Leon has failed to show substantive unconscionability on this ground.

Finally, De Leon argues that the Arbitration Agreement is substantively unconscionable because it requires him to pay costs that are unique to arbitration.  Paragraph 2 of the Arbitration Agreement provides: “The Company agrees to pay all arbitration forum fees and all fees and expenses charged by the arbitrator. Each party will bear its own attorneys’ fees and costs.” As a provision that would preclude plaintiff from recovering fees and costs from the defendant if plaintiff is the prevailing party, as he would be entitled to under the FEHA, De Leon is correct that “an arbitration agreement may not limit statutorily imposed remedies such as punitive damages and attorneys fees.” (Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, 103.)

Thus, De Leon has shown substantive unconscionability on this ground. However, this provision is severable, since this arbitration agreement is not permeated with illegal contract terms, and there is a single provision that this Court can strike to remove the unconscionable taint from the agreement. (Armendariz, supra, at pp. 123-125.) Elsewhere in the Agreement, there is a provision that provides that the “arbitrator is specifically authorized to award either party any and all remedies that the party would otherwise be entitled to under state or federal law, as if the matter were brought in a civil court of competent jurisdiction.” (Rishwain Decl., Exhibit A at ¶ 5, pp. 1-2.) Thus to avoid any ambiguity and unconscionability, the Court can simply strike the language that each party will bear its own fees.

Based on the foregoing, De Leon has only shown a small degree of procedural and substantive unconscionability. Accordingly, Allied Digital’s motion to compel arbitration is GRANTED. The single provision “Each party will bear its own attorneys’ fees and costs” in paragraph 2 on page 1 of Exhibit A to the Rishwain Declaration is stricken.

III. Conclusion

Defendant Allied Digital Services, LLC motion to compel arbitration and stay proceedings is GRANTED.