Judge: Armen Tamzarian, Case: 22STCV34014, Date: 2024-02-01 Tentative Ruling
Case Number: 22STCV34014 Hearing Date: February 1, 2024 Dept: 52
Defendant
Garrett J. Gentry General Engineering Incorporated’s Motion to Compel
Arbitration and Stay Proceedings
Defendant
Garrett J. Gentry General Engineering Incorporated (Garrett) moves to compel
arbitration of this action by plaintiff Jose Cordoba. Plaintiff opposes the motion on several
grounds, including that the moving defendant is not a party to the arbitration
agreement. The court does not reach that
issue. Assuming Garrett is a party to
the agreement, the court will still deny the motion for the reasons discussed
below.
Labor
Code Claims
Garrett cannot require plaintiff to
arbitrate the first six causes of action for violations of the Labor Code. Garrett moves to enforce an arbitration
provision included in a document labeled “At-Will Agreement.” (Gentry Decl., Ex. A.) The agreement provides, “Employee and the
Company agree that arbitration shall be the exclusive forum for resolving all
disputes arising out of or involving Employee’s employment with the Company or
the termination of that employment (with the exception of claims for workers’ compensation,
unemployment insurance and any matter within the jurisdiction of the California
Labor Commissioner).” (Ibid.)
Plaintiff’s first six causes of
action allege violations of various provisions of the Labor Code: sections 203,
226(a), 226.7, 1194, and 1194.2. The
Court of Appeal has held, “By defining the type of excluded claims as being
limited to ‘matters governed by’ or ‘within the jurisdiction’ of the
commissioner, the parties intended to exclude employment claims alleging
violations of the Labor Code or other state labor law.” (Rebolledo v. Tilly's, Inc. (2014) 228
Cal.App.4th 900, 917.) Plaintiff’s first
six causes of action allege claims or matters within the Labor Commissioner’s
jurisdiction. Plaintiff did not agree to
arbitrate those claims. At most,
plaintiff could be compelled to arbitrate only his seventh cause of action for
violation of the Unfair Competition Law.
Unconscionability
Plaintiff argues the agreement is unconscionable. Unconscionability requires both procedural
and substantive unconscionability using a sliding scale. (Serafin v. Balco Properties Ltd., LLC
(2015) 235 Cal.App.4th 165, 185.)
“Procedural unconscionability focuses on the elements of oppression and
surprise.” (Id. at p. 177.) “Substantive unconscionability focuses on the
actual terms of the agreement and evaluates whether they create overly harsh or
one-sided results. (Ibid.,
internal quotes omitted.) “Generally,
the burden is on the party opposing arbitration to show an arbitration
agreement is unconscionable.” (Saheli
v. White Memorial Medical Center (2018) 21 Cal.App.5th 308, 330.)
A. Procedural Unconscionability
Plaintiff shows some procedural unconscionability. Procedural unconscionability occurs when the
stronger party drafts the contract and presents it to the weaker party on a
‘take it or leave it basis.’ ” (Trivedi v. Curexo Technology Corp.
(2010) 189 Cal.App.4th 387, 393, disapproved on other grounds by Baltazar v. Forever 21, Inc. (2016) 62
Cal.4th 1237.) “ ‘Arbitration contracts
imposed as a condition of employment are typically adhesive.’ ” (Davis v.
Kozak (2020) 53 Cal.App.5th 897, 906.)
“By itself, however, adhesion establishes only a ‘low’ degree of
procedural unconscionability.” (Id.
at p. 907.)
Defendant drafted
the agreement. (Gentry Decl., ¶ 3.) Garrett Gentry states that “employees were
not required to sign it immediately, but instead given the opportunity to
consider it at their convenience” and “given the option to decline the
arbitration agreement and still maintain their employment.” (Ibid.) The agreement, however, is on page 47 of 48 in
the “employee handbook.” (Id.,
Ex. A.) Nothing in the agreement states
an employee has the right to opt out.
The final paragraph before the signature line states, “My signature
below certifies that I understand that the foregoing agreement on at-will
status is the sole and entire agreement between the Company and myself
concerning the duration of my employment and the circumstances under which my
employment may be terminated. It supersedes all prior agreements,
understandings and representations concerning my employment with the Company.” (Ibid.) This provision means the signature line is
not solely for the agreement to arbitrate.
It applies to other terms between the employee and employer. Even assuming employees had the right to opt
out of the arbitration agreement, it was still somewhat oppressive because any
such right is not apparent from reading the agreement. A reasonable person in the employee’s shoes
would not expect this agreement is optional.
B. Substantive
Unconscionability
Plaintiff
establishes the agreement has two highly unconscionable terms.
First, the agreement
purports to shorten the statute of limitations of all claims to one year. “California courts have held that, in the
context of statutory claims such as the wage-and-hour claims brought by Pinela,
a provision in an arbitration agreement shortening the statutory limitations
period is substantively unconscionable.”
(Pinela v. Neiman Marcus Group, Inc. (2015) 238 Cal.App.4th 227,
254 (Pinela).)
The “At-Will Agreement”
provides, “If the Company does not receive a written request for arbitration
from Employee within one year from the date of the employee’s termination,
Employee agrees that he/she will have waived any right to raise any claim, in
any forum, arising out of the termination of employee’s employment.” (Gentry Decl., Ex. A.) This provision shortens the statute of
limitations for plaintiff’s claims under the Labor Code (Samaniego v. Empire
Today LLC (2012) 205 Cal.App.4th 1138, 1147 [three or four years]) and the
unfair competition law (Bus. &
Prof. Code, § 17208 [four years]). It is
therefore substantively unconscionable.
Moreover, as plaintiff argues, this provision
is expressly one-sided. It only shortens
the plaintiff’s statutes of limitations.
The agreement does not require the company to request arbitration of its
claims against an employee within one year of the employee’s termination.
Second,
the agreement provides, “Employee and the Company shall each bear their own
costs for legal representation at any such arbitration and the cost of the
arbitrator, court reporter, if any, and any incidental costs of arbitration.” (Gentry Decl., Ex. A.) This provision is substantively
unconscionable for two reasons: it requires plaintiff to bear costs unique to
arbitration (Mercuro v. Superior Court (2002) 96 Cal.App.4th 167, 181)
and it limits plaintiff’s statutory right to recover attorney fees (Pinela,
supra, 238 Cal.App.4th at pp. 254-255; Ajamian v.
CantorCO2e, L.P. (2012) 203
Cal.App.4th 771, 800). Garrett “acknowledges that [this] provision
contravenes existing California law.”
(Reply, p. 7.)
C. Severability
Garrett contends the
court can cure any unfairness by severing unconscionable terms. “In the context of severing unconscionable
provisions from an arbitration agreement, ‘the strong legislative and judicial
preference is to sever the offending term and enforce the balance of the
agreement.’ ” (Alberto
v. Cambrian Homecare (2023) 91
Cal.App.5th 482, 495.) “One factor
weighing against severance is when ‘the arbitration agreement contains more
than one unlawful provision.’ ” (Ibid.) The
agreement includes two highly unconscionable provisions. The court finds that unconscionability
permeates the agreement such that it will decline to severe these
provisions. The court will not enforce
the agreement.
Co-Defendant GJ Gentry General
Engineering, Inc.
The court also denies the motion to compel
arbitration for an independent reason. If “[a] party to the arbitration agreement is also a
party to a pending court action or special proceeding with a third party,
arising out of the same transaction or series of related transactions and there
is a possibility of conflicting rulings on a common issue of law or fact,” the
court has discretion to choose one of four options, including denying a motion
to compel arbitration. (CCP §
1281.2(c).)
Plaintiff is a party to the arbitration
agreement and also to this pending action with a third party: the other
defendant, GJ Gentry General Engineering, Inc. (GJ). Plaintiff alleges both defendants are liable
for the same conduct. The claims against
both defendants arise out of identical transactions and events. There is a possibility of conflicting rulings
on common issues of law and fact.
Garrett acknowledges its co-defendant GJ
is not a party to the arbitration agreement with plaintiff. The motion argues, “Although
Cordoba initially named another entity, GJ Gentry General Engineering, Inc.
(hereinafter ‘GJ’), as a defendant to this action in his initial Complaint
filed in October 2022, GJ was not Cordoba’s employer. (Gentry Decl., ¶ 4, 5, Exhibit B.) Accordingly, GJ had no ground to enforce the
arbitration agreement.” (Motion, p. 6,
fn. 1.)
Garrett argues section 1281.2(c) does not apply
because “the only ‘pending court action’ is this one.” (Motion, p. 7.) Section 1281.2(c) does not require separate
pending court actions. Cases
interpreting this provision typically apply it to a single court action where only
some of the parties agreed to arbitrate their disputes. “The legislative history
of section 1281.2 defines the problem the Legislature intended to address: ‘In
actions involving multiple parties with related claims, where some claimants
agree to arbitrate their differences and others remain outside the agreement, arbitration
is unworkable.’ ” (Abaya v.
Spanish Ranch I, L.P. (2010) 189 Cal.App.4th 1490, 1497; see also Cronus
Investments, Inc. v. Concierge Services (2005) 35 Cal.4th 376, 383 [7 of 10
parties in same action had not agreed to arbitrate]; Avila v. Southern
California Specialty Care, Inc. (2018) 20 Cal.App.5th 835, 845 (Avila);
Valencia v. Smyth (2010) 185 Cal.App.4th 153, 180.)
Here, plaintiff and Garrett are parties to
an arbitration agreement. Both are also
parties to a pending court action—this one—with a third party, GJ, who is not a
party to the arbitration agreement. The
claims arise out of the same transactions and present a possibility of
conflicting rulings on common issues of law or fact. Section 1281.2(c) applies.
When section 1281.2(c) applies, the court:
“(1) may refuse to enforce the arbitration agreement and may order intervention
or joinder of all parties in a single action or special proceeding; (2) may
order intervention or joinder as to all or only certain issues; (3) may order
arbitration among the parties who have agreed to arbitration and stay the
pending court action or special proceeding pending the outcome of the
arbitration proceeding; or (4) may stay arbitration pending the outcome of the
court action or special proceeding.”
(CCP § 1281.2.)
The court exercises its discretion to
refuse to enforce the arbitration agreement.
Any arbitration would be limited to one of the seven causes of action as
against only one of the two defendants.
Arbitrating such a small part of this dispute and litigating the rest
would not serve the “policy in favor of arbitration as an expeditious and
cost-effective way of resolving disputes.”
(Avila, supra, 20 Cal.App.5th at p. 843.)
Disposition
Defendant Garrett
J. Gentry General Engineering Incorporated’s motion to compel arbitration of
complaint and stay proceedings is denied. Defendant shall file a responsive pleading
within 20 days.