Judge: Armen Tamzarian, Case: 23STCV17071, Date: 2024-01-22 Tentative Ruling
Please notify Department 52 via email at smcdept52@lacourt.org and indicate that the parties are submitting on the tentative ruling. Please provide the attorney's name and represented party. Please notify the opposing side via email if submitting on the Court's tentative ruling.
Case Number: 23STCV17071 Hearing Date: March 15, 2024 Dept: 52
Defendant Triller Hold Co LLC’s Motion to
Compel Arbitration
Defendant Triller Hold Co LLC (Triller) moves to compel
arbitration of this action by plaintiff Shayan Rostam.
In opposition, plaintiff contends the arbitration
agreement is unconscionable. “The burden
of proving unconscionability rests upon the party asserting it.” (OTO, L.L.C. v. Kho (2019) 8 Cal.5th
111, 126 (OTO).) This defense to
enforcing an arbitration agreement requires both procedural and substantive
unconscionability, using a sliding scale.
(Id. at p. 125.) “Procedural unconscionability focuses on the
elements of oppression and surprise.” (Serafin
v. Balco Properties Ltd., LLC (2015) 235 Cal.App.4th 165, 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.)
Procedural Unconscionability
Plaintiff
shows some procedural unconscionability. “A procedural unconscionability analysis
‘begins with an inquiry into whether the contract is one of adhesion.’ ” (OTO, supra, 8 Cal.5th at p. 126.) “An adhesive contract is standardized,
generally on a preprinted form, and offered by the party with superior
bargaining power ‘on a take-it-or-leave-it basis.’ ” (Ibid.) “Arbitration contracts imposed as a condition
of employment are typically adhesive.” (Ibid.)
Plaintiff presents evidence that the
agreement’s arbitration provision was adhesive.
He states, “I negotiated
for my compensation and length of employment. However, the remainder of the agreement was
presented to me on a take-it-or-leave-it basis. I … did not have the opportunity to negotiate
any of the other terms of the Agreement, including the arbitration clause; on
the contrary, Triller … conditioned my employment on my acceptance of those
terms as written.” (Rostam Decl., ¶ 10.)
Defendant presents testimony that plaintiff “was
permitted to review and negotiate [the contract’s] terms.” (de Silva Decl., ¶ 9.) Defendant does not, however, present evidence
plaintiff had the opportunity to negotiate the arbitration provision
specifically. A “ ‘[p]laintiff’s ability
to negotiate other aspects of his employment with [his employer] has no bearing
on the question of whether he had power to negotiate the arbitration
provision.’ ” (Nyulassy v. Lockheed
Martin Corp. (2004) 120 Cal.App.4th 1267, 1285 (Nyulassy).)
The adhesive nature of the arbitration clause presents
some unconscionability. “By itself,
however, adhesion establishes only a ‘low’ degree of procedural
unconscionability.” (Davis v. Kozak (2020) 53
Cal.App.5th 897, 907.) Plaintiff shows one
other way in which the agreement was slightly oppressive or surprising. He argues the agreement was oppressive
because it did not attach the applicable rules.
“[A] viable claim of procedural unconscionability for failure to
identify the particular version of the applicable arbitral rules—like a claim
for failure to attach the rules themselves—depends in some manner on the
substantive unfairness of a term or terms contained within the unidentified
version of the rules applicable to the dispute.” (Id. at p. 909.)
The contract
provides that “the Comprehensive Arbitration Rules of JAMS” will apply. (de Silva Decl., Ex. A, § 21.) The rules are not attached. The contract also does not specify which
version of those rules applies. And, as
the court will discuss below, the rules contain one term that is substantively
unfair as to some (but not all) of plaintiff’s causes of action.
Plaintiff further
argues the agreement’s provision
permitting a prevailing defendant to recover attorney fees and costs is both
procedurally and substantively unconscionable.
Plaintiff’s reliance on OTO is misplaced. There, the agreement provided, “ ‘If CCP §
1284.2 conflicts with other substantive statutory provisions or controlling
case law, the allocation of costs and arbitrator fees shall be governed by said
statutory provisions or controlling case law instead of CCP § 1284.2.’ ” (OTO, supra, 8 Cal.5th at p.
128.) The California Supreme Court noted
the drafter’s “obligation to pay arbitration-related costs would not be evident
to anyone without legal knowledge” such that “[i]t would have been nearly
impossible to understand the contract’s meaning without legal training and
access to the many statutes it references.”
(Id. at p. 129.)
Here, by contrast, the provision is crystal
clear. It states, “[T]he arbitrator
shall award to the prevailing party, the prevailing party’s fees and costs
(including reasonable attorneys’ fees and costs).” (de Silva Decl., Ex. A, § 21.) As the court shall explain, that provision is
contrary to law as applied to certain statutory causes of action with
asymmetric attorney fee provisions. But
that is a matter of substantive unconscionability. It is not oppressive or otherwise procedurally
unconscionable. This provision comports
with the parties’ reasonable expectations—which were that the agreement did not
create an employment relationship subject to statutory claims with asymmetric
fee provisions. The agreement is not
between defendant and Shayan Rostam as an individual. It identifies the “Consultant” as “Rostam
Consulting LLC.” (Id., p.
1.) And it provides, “Consultant [is]
not an employee” and “is an independent contractor for Client.” (Id., § 10.) Furthermore, as the court will discuss below,
the unfairness in this provision does not apply to all of plaintiff’s causes of
action.
Other factors weigh against procedural unconscionability. The power imbalance was less than typically
seen in employment cases. The parties
dispute whether plaintiff was misclassified as an independent contractor. Courts generally do not and should not “resolve the question
of whether [a plaintiff] was an employee” when analyzing unconscionability. (Subcontracting Concepts (CT), LLC v. De
Melo (2019) 34 Cal.App.5th 201, 210.)
Regardless of whether defendant misclassified plaintiff, the agreement was between defendant and Rostam
Consulting LLC—not plaintiff as an individual.
(de Silva Decl., Ex. A, pp. 1, 8.)
Defendant agreed to pay plaintiff’s LLC $20,000 per month. (Id., p. 10.) Defendant further agreed that, if the company
went public or completed a merger with a valuation of least $3 billion, defendant
would pay plaintiff a “one-time Success Fee” of between $400,000 to $1,050,000. (Ibid.)
Finally, there is no evidence defendant pressured
plaintiff to sign the agreement or demanded that he sign it immediately. Plaintiff presents no evidence showing
anything approaching the oppression found when, for example, the “[p]laintiff
had been unemployed for nearly three years … and he needed the job from
defendant to support his family.” (Nyulassy,
supra, 120 Cal.App.4th at p. 1285.) Furthermore,
the agreement was presented to him before any employment relationship began,
unlike OTO, where the plaintiff “was required to sign the agreement to
keep the job he had held for three years.”
(OTO, supra, 8 Cal.5th at p. 127.) The arbitration agreement is also in plain
language and is not hidden. (de Silva
Decl., Ex. A, § 21.) It is in the same legible
font as the remainder of the agreement.
Overall, the court finds a low degree of procedural
unconscionability.
Substantive Unconscionability
Plaintiff argues the agreement is
substantively unconscionable for three reasons the court will discuss below. As a threshold matter, defendant contends
plaintiff’s arguments fail because Armendariz v. Foundation Health
Psychcare Services, Inc. (2000) 24 Cal.4th 83 (Armendariz) does not
apply. Defendant is partially correct. Under Armendariz, “arbitration
agreements that encompass unwaivable statutory rights must be subject to
particular scrutiny.” (Id. at p.
100.)
But
“Armendariz does not apply” to cases that are “not based on the FEHA or
a fundamental public policy that is tied to a constitutional or statutory
provision.” (Giuliano v. Inland
Empire Personnel, Inc. (2007) 149 Cal.App.4th 1276, 1290 (Giuliano).) In Giuliano, the court held Armendariz
did not apply to a claim for breach of contract, which “is distinguishable from
the statutory overtime or minimum wage claims.”
(Id. at p. 1289.)
Plaintiff’s
complaint alleges seven causes of action.
The first three causes of action are statutory claims under the Labor
Code. Armendariz applies to those
claims. Plaintiff, however, also alleges
causes of action for conversion, breach of contract, unjust enrichment, and
declaratory relief. As in Giuliano,
plaintiff’s claims include a dispute over a large bonus payment. His seventh cause of action seeks a
declaration that he “is entitled to a success fee … when and if Triller or its
successor entity becomes a publicly traded company.” (Comp., ¶ 56.) Plaintiff’s three arguments below regarding
substantive unconscionability therefore apply only to his first three causes of
action for violations of the Labor Code.
Plaintiff
first argues the agreement is substantively unconscionable because it provides,
“[T]he arbitrator shall award to the prevailing party, the prevailing party’s
fees and costs (including reasonable attorney’s fees and costs).” (de Silva Decl., Ex. A, § 21.) This provision is unconscionable as applied
to plaintiff’s first cause of action for “wage theft and failure to pay regular
wages” and his third cause of action for waiting time penalties. For these claims, Labor Code section 218.5(a)
provides that a prevailing employer can only recover attorney fees and costs if
“the employee brought the court action in bad faith.” This provision in the arbitration agreement
therefore imposes “the
obligation to pay [defendant’s] attorney fees where [plaintiff] would have no
such obligation under” his “California statutory claims.” (Ajamian v.
CantorCO2e, L.P. (2012) 203 Cal.App.4th 771, 800.)
Second,
plaintiff argues the agreement is unconscionable because it requires plaintiff
to pay his pro rata share of fees unique to arbitration under the JAMS
Comprehensive Arbitration Rules, rule 31(a).
This provision is unconscionable as applied to plaintiff’s Labor Code
claims. “[W]ith respect to arbitration
of statutory claims, the employee cannot be required ‘to bear any type of
expense that the employee would not be required to bear if he or she were free
to bring the action in court.’ This means ‘the employer [must] pay all types of
costs that are unique to arbitration,’ including the arbitrator’s fee.” (Mercuro v. Superior Court (2002)
96 Cal.App.4th 167, 181, fn omitted.)
Third,
plaintiff argues the agreement is substantively unconscionable because it only
permits bringing a claim in arbitration if it “cannot be settled through direct
discussions within 30 days of initial notice.”
(de Silva Decl., Ex. A, § 21.) This
provision is not unconscionable.
Plaintiff relies on Nyulassy, which is
distinguishable. There, the agreement
required the plaintiff to engage in “discussions with his supervisors in
advance of, and as a condition precedent to, having his dispute resolved
through binding arbitration.” (Nyulassy,
supra, 120 Cal.App.4th at p. 1282.) The
court first noted, “The arbitration clause plainly contains only a unilateral
agreement to arbitrate; any claims that defendant may have that arise out of
plaintiff’s employment are not subject to the arbitration clause.” (Ibid.) It reasoned, “Given the unilateral nature of
the arbitration agreement, requiring plaintiff to submit to an
employer-controlled dispute resolution mechanism (i.e., one without a neutral
mediator) suggests that defendant would receive a ‘free peek’ at plaintiff's
case, thereby obtaining an advantage if and when plaintiff were to later demand
arbitration.” (Id. at pp.
1282-1283.)
Here,
the arbitration agreement is bilateral.
It requires both parties to settle any disputes via binding arbitration,
and the “direct discussions” requirement applies equally to both parties.
The
court therefore finds the agreement includes two provisions that are
substantively unconscionable, only as applied to plaintiff’s claims under the
Labor Code.
Severability
The
two partially unconscionable provisions in the agreement are severable. “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.) “There is no
magic number of unconscionable provisions that will preclude a court from
deeming the entire agreement unenforceable.”
(Murrey v. Superior Court (2023) 87 Cal.App.5th 1223, 1255.)
This
agreement has two provisions that are substantively unconscionable only as to
plaintiff’s claims under the Labor Code.
Both provisions concern related subjects: (1) potentially requiring
plaintiff to pay the company’s attorney fees and costs, and (2) requiring
plaintiff to pay fees unique to arbitration.
Unconscionability does not permeate the agreement. The court can easily sever both
unconscionable provisions by striking one sentence from the arbitration
agreement and one sentence from the JAMS Comprehensive Arbitration Rules.
Disposition
Defendant Triller
Hold Co LLC’s motion to compel arbitration is granted.
The court
hereby severs the following provision of the arbitration agreement, only
as to plaintiff’s causes of action under the Labor Code: “[T]he arbitrator shall award to the prevailing
party, the prevailing party’s fees and costs (including reasonable attorney’s fees
and costs).” (de Silva Decl., Ex. A, §
21.) If appropriate, the arbitrator may
still apply this provision to plaintiff’s fourth through seventh causes of
action for conversion, breach of contract, unjust enrichment, and declaratory
relief.
The
court hereby severs the following provision of the JAMS Comprehensive
Arbitration Rules, rule 31: “Each Party shall pay its pro rata share
of JAMS fees and expenses as set forth in the JAMS fee schedule in effect at
the time of the commencement of the Arbitration, unless the Parties agree on a
different allocation of fees and expenses.”
Plaintiff
Shayan Rostam is ordered to arbitrate this action against defendant
Triller Hold Co LLC. The court hereby stays
the entire action pending resolution of the arbitration proceeding.