Judge: Armen Tamzarian, Case: 24STCV02254, Date: 2024-05-03 Tentative Ruling

Case Number: 24STCV02254    Hearing Date: May 3, 2024    Dept: 52

Tentative Ruling:

            Defendants Lithia Motors, Inc. and Van Nuys-T, Inc.’s Motion to Compel Arbitration and Stay Action

Defendants Lithia Motors, Inc. and Van Nuys-T, Inc. move to compel arbitration and stay this action by plaintiff Zareh Narghizian. 

Plaintiff’s Complaint

            Plaintiff’s complaint alleges the following causes of action against the moving defendants: (1) Retaliation (Lab. Code, § 1102.5); (2) Retaliation (Lab. Code, § 98.6, et seq.); (3) Age Discrimination (Gov. Code § 12940); (4) Wrongful Termination in Violation of Public Policy; (5) Harassment (Gov. Code § 12900, et seq.); (6) Failure to Prevent Discrimination and Harassment (Gov. Code, § 12940(k)); (7) Intentional Infliction of Emotional Distress; (8) Negligent Hiring, Supervision, and Retention; and (9) Defamation. 

The Federal Arbitration Act (FAA) Applies

Defendants move to compel arbitration under the FAA and the California Arbitration Act (CAA).  Plaintiff argues the FAA does not apply.  “The FAA governs arbitration provisions in contracts that involve interstate commerce.”  (Mastick v. TD Ameritrade, Inc. (2012) 209 Cal.App.4th 1258, 1263.)  The Supreme Court of the United States has “interpreted the term ‘involving commerce’ in the FAA as the functional equivalent of the more familiar term ‘affecting commerce’—words of art that ordinarily signal the broadest permissible exercise of Congress’ Commerce Clause power.  [Citation.]  Because the statute provides for ‘the enforcement of arbitration agreements within the full reach of the Commerce Clause,’ [citation], it is perfectly clear that the FAA encompasses a wider range of transactions than those actually ‘in commerce’—that is, ‘within the flow of interstate commerce.’  [Citation.]”  (Citizens Bank v. Alafabco, Inc. (2003) 539 U.S. 52, 56.)  “Congress’ Commerce Clause power ‘may be exercised in individual cases without showing any specific effect upon interstate commerce’ if in the aggregate the economic activity in question would represent ‘a general practice ... subject to federal control.’ ”  (Id. at pp. 56-57.)

Plaintiff’s complaint arises from his employment as a “Used Vehicle Buyer” at an auto dealership.  (Comp., ¶ 1.)  Plaintiff alleges his “primary responsibility was the acquisition of vehicles from both car auctions and private sellers, with the ultimate aim of reselling these vehicles as used cars at Keyes.”  (Id., ¶ 11.)  Buying and reselling vehicles is a general practice subject to federal control.  The FAA applies. 

Agreement to Arbitrate

Plaintiff argues there is no valid agreement to arbitrate because the contract’s terms are not sufficiently certain as to arbitration.  “Contract formation requires mutual consent, which cannot exist unless the parties ‘agree upon the same thing in the same sense.’ ”  (Bustamante v. Intuit, Inc. (2006) 141 Cal.App.4th 199, 208.) 

Plaintiff raises several questions about arbitration that the agreement does not answer.  (Opp., p. 9.)  But he provides no authority that an agreement is not enforceable if it fails to specifically answer them.  “Under California law, a contract will be enforced if it is sufficiently definite (and this is a question of law) for the court to ascertain the parties’ obligations and to determine whether those obligations have been performed or breached.  …  [T]he contract will be enforced if it is possible to reach a fair and just result even if, in the process, the court is required to fill in some gaps.”  (Ersa Grae Corp. v. Fluor Corp. (1991) 1 Cal.App.4th 613, 623.) 

Here, at most, the agreement has some gaps that can be filled to reach a fair and just result.  Both the FAA and California Arbitration Act provide default rules for conducting arbitration when the agreement is silent.  (9 U.S.C. §§ 5, 7, 9-11; Code Civ. Proc., §§ 1281-1284.3.)  When “the agreement is completely silent” as “to the FAA, California law, or any other state law or rules of procedure … California procedure applies in California courts.”  (Los Angeles Unified School Dist. v. Safety National Casualty Corp. (2017) 13 Cal.App.5th 471, 479.)  Case law fills other gaps.  Courts “assume that the arbitrator will operate in a reasonable manner in conformity with the law.”  (Dotson v. Amgen, Inc. (2010) 181 Cal.App.4th 975, 984.)  “[T]he absence of express provisions …  allowing discovery does not render the arbitration agreement unconscionable.  Rather, those terms are implied as a matter of law as part of the agreement.”  (Sanchez v. Western Pizza Enterprises, Inc. (2009) 172 Cal.App.4th 154, 177.)

Most of the questions plaintiff raises are answered by binding authority.  For example, plaintiff asks, “Who decides issues of arbitrability?”  (Opp., p. 9.)  The court does, unless there is “clear and unmistakable evidence that the parties intended” to delegate those issues to the arbitrator.  (Tiri v. Lucky Chances, Inc. (2014) 226 Cal.App.4th 231, 242.)  There is no such delegation clause here.    

Plaintiff also asks, “How would the arbitrator selection process go amongst the parties?”  (Opp., p. 9.)  Code of Civil Procedure section 1281.6 provides a method for doing that when the arbitration agreement does not include such a provision.

Plaintiff further asks, “What remedies are available?”  (Opp., p. 9.)  Plaintiff presents no reason why the arbitrator would be prohibited from awarding the same remedies as a court, which is the default rule.  (See Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, 103 (Armendariz) [“an arbitration agreement may not limit statutorily imposed remedies such as punitive damages and attorney fees”].) 

Plaintiff’s reliance on Flores v. Nature’s Best Distribution, LLC (2016) 7 Cal.App.5th 1 (Flores) is misplaced.  There, the agreement did “not identify with which entity or entities plaintiff had agreed to submit” claims for arbitration.  (Id. at p. 9.)  Here, the agreement’s heading states, “Acknowledgment of Receipt of Lithia Motors At-Will and Binding Arbitration Agreement.”  (Collinet Decl., Ex. 1.)  It provides “both the Company and myself … agree that any claim, dispute, and/or controversy … between myself and the Company (or its owners, directors, officers, managers, employees, agents, and parties affiliated with its employee benefit and health plans),” subject to specified exceptions, shall be arbitrated.  (Ibid.)

            In Flores, the “Agreement fail[ed] to define which disputes would be subject to arbitration before the AAA, and which would be subject to resolution through the grievance and arbitration procedure contained in a collective bargaining agreement.”  (7 Cal.App.5th at p. 10.)  The record included evidence of several potential AAA rules, including several versions of “Labor Arbitration Rules” or “Employment Arbitration Rules.”  (Ibid.)  Here, there is no collective bargaining agreement or other potential grievance procedure that may apply.  And rather than vaguely pointing to a group of multiple rules that may conflict, the agreement is generally silent on the conduct of arbitration, therefore resulting in filling the gaps as a matter of law through default rules that apply in the absence of specific provisions.

            Plaintiff unequivocally agreed to arbitrate disputes arising from his employment with the moving defendants.  Any gaps in the terms can be filled and do not mandate finding the parties never entered a binding agreement to arbitrate.     

Scope of Agreement

The parties did not agree to arbitrate plaintiff’s first, second, third, fifth, and sixth causes of action.  “[N]o public policy compels persons to accept arbitration of controversies they have not agreed to arbitrate.”  (Domestic Linen Supply Co., Inc. v. L J T Flowers, Inc. (2020) 58 Cal.App.5th 180, 184.)

The arbitration agreement provides the parties “agree that any claim, dispute, and/or controversy that either party may have against one another (including, but not limited to, any claims of discrimination and harassment brought under Title VII of the Civil Rights Act of 1964, as amended, as well as all other applicable state or federal laws or regulations) which would otherwise require or allow resort to any court or other governmental dispute resolution forum between myself and the Company … arising from, related to, or having any relationship or connection whatsoever with my seeking employment with, employment by, or other association with the Company, whether based on tort, contract, statutory, or equitable law, or otherwise, (with the sole exception of claims arising under the National Labor Relations Act which are brought before the National Labor Relations Board, claims for medical and disability benefits under my state’s workers’ compensation laws, as well as California Employment Development Department, Labor Code, and Fair Employment and Housing Act claims) shall be submitted to and determined exclusively by binding arbitration.”  (Collinet Decl., Ex. 1, italics added.)

The agreement thus expressly excludes “Labor Code, and Fair Employment and Housing Act claims.”  Plaintiff’s first and second causes of action are Labor Code claims.  Plaintiff’s third, fifth, and sixth causes of action are Fair Employment and Housing Act claims.  The parties did not agree to arbitrate them.  Defendants’ reply does not address this argument.     

The agreement does, however, apply to plaintiff’s other causes of action, which do not allege violations of the Labor Code, the Fair Employment and Housing Act, or any other claim within the agreement’s “sole exception” provision.

Labor Code § 432.6

Plaintiff argues the agreement is invalid under Labor Code section 432.6.  Section 432.6, subdivision (a) provides, “A person shall not, as a condition of employment … require any applicant for employment or any employee to waive any right, forum, or procedure for a violation of any provision of the California Fair Employment and Housing Act … or this code, including the right to file and pursue a civil action or a complaint with, or otherwise notify, any state agency, other public prosecutor, law enforcement agency, or any court or other governmental entity of any alleged violation.” 

Plaintiff’s brief does not address binding authority finding the FAA preempts this statute.  “[T]he FAA preempts AB 51,” which enacted Labor Code section 432.6, “as a whole to the extent it applies to arbitration agreements.”  (Chamber of Commerce of the United States of America v. Bonta (9th Cir. 2023) 62 F.4th 473, 490.)  Because the FAA applies, Labor Code section 432.6 does not permit plaintiff to avoid arbitration.

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.  “ ‘Arbitration contracts imposed as a condition of employment are typically adhesive.’ ” (Davis v. Kozak (2020) 53 Cal.App.5th 897, 906 (Davis).)  “By itself, however, adhesion establishes only a ‘low’ degree of procedural unconscionability.”  (Id. at p. 907.)  Plaintiff establishes this agreement was an adhesion contract. 

Plaintiff also argues the agreement is procedurally unconscionable because it does not specify the applicable rules of arbitration.  “[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.”  (Davis, supra, 53 Cal.App.5th at p. 909.)  “That is, if the unidentified rules are not themselves substantively unfair, then the employer cannot be faulted for vaguely referring to such rules.”  (Ibid.)  As discussed below, plaintiff does not identify any substantively unfair rules—other than the class action waiver, which is specified in the contract itself.

Plaintiff’s evidence does not show any significant degree of procedural unconscionability.  In his declaration, he states, “I did not expect Lithia to present me with a document that resulted in me waiving my right to use the court system in a dispute with the company.  It’s something that I did consider not at all, something that has completely taken me by surprise.  I assumed all of the documents I was being told to sign concerned the usual sort of onboarding documents, acknowledging what my pay and hours would be, workers’ compensation paperwork, and the responsibilities expected from my position.”  (Narghizian Decl., ¶ 5.) 

What plaintiff expected before receiving the document is irrelevant.  The document itself clearly states that it extends beyond those matters plaintiff expected to see.  The agreement is only two pages (except for signature line for David Stork, Chief Legal Officer).  (Collinet Decl., Ex. 1.)  Just above plaintiff’s signature, it states in bold text: “I understand and agree that by entering into this Arbitration Agreement, I and the Company are waiving our respective right to bring such claims to state or federal court, including any right to a jury trial.”  (Id., p. 2.)  No reasonable person would be surprised that signing this agreement results in waiving rights it specifically provides are waived.

B. Substantive Unconscionability

Plaintiff shows only one somewhat substantively unconscionable provision. 

First, plaintiff argues the arbitration agreement does not meet the requirements for arbitrating FEHA claims in Armendariz.  Those requirements do not apply.  The parties did not agree to arbitrate FEHA claims. 

Assuming the requirements apply, the agreement meets them.  Plaintiff relies solely on the agreement’s failure to expressly provide various rights.  But when an agreement does not provide certain rights, they are implied by law.  “Armendariz held that to the extent that the arbitration agreement was silent on these issues, these requirements must be implied as a matter of law.”  (Sanchez v. Western Pizza Enterprises, Inc., supra, 172 Cal.App.4th at p. 176.)  In Armendariz, the California Supreme Court held, “[A] mandatory employment arbitration agreement that contains within its scope the arbitration of FEHA claims impliedly obliges the employer to pay all types of costs that are unique to arbitration.  …  The absence of specific provisions on arbitration costs would therefore not be grounds for denying the enforcement of an arbitration agreement.”  (Armendariz, supra, 24 Cal.4th at p. 113; accord Little v. Auto Stiegler, Inc. (2003) 29 Cal.4th 1064, 1084.) 

Second, plaintiff argues the agreement is substantively unconscionable because it purports to waive the right to class or representative actions.  (Collinet Decl., Ex. 1, p. 2.)  This provision is one-sided.  It can only benefit the employer.  But it is severable. 

Plaintiff argues the court cannot sever any unconscionable provision because the contract contains no severability clause.  Plaintiff, however, cites authority expressly permitting courts to do just that.  (Opp., p. 15.)  “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.)  This agreement is not permeated by unconscionability.  It contains only one unconscionable term.  Severance is appropriate. 

The court also notes the agreement includes one-sided provisions favoring employees.  “Courts repeatedly have found an employer-imposed arbitration agreement to be substantively unconscionable when it requires the employee to arbitrate the claims he or she is mostly likely to bring, but allows the employer to go to court to pursue the claims it is most likely to bring.”  (Carbajal v. CWPSC, Inc. (2016) 245 Cal.App.4th 227, 248.)  This agreement does the opposite.  It excludes certain claims generally (or exclusively) brought by employees against employers.  The parties agreed to arbitrate disputes “with the sole exception of claims arising under the National Labor Relations Act which are brought before the National Labor Relations Board, claims for medical and disability benefits under my state’s workers' compensation laws, as well as California Employment Development Department, Labor Code, and Fair Employment and Housing Act claims.”  (Collinet Decl., Ex. 1.)  This provision favoring employees undermines any finding that the agreement is permeated by unconscionability. 

Stay of Action

            For the reasons discussed above, the court will compel arbitration of plaintiff’s fourth, seventh, eighth, and ninth causes of action against the moving defendants.  The court will stay the remainder of the action. “If a court … has ordered arbitration of a controversy which is an issue involved in an action or proceeding pending before a court of this State, the court in which such action or proceeding is pending shall, upon motion of a party to such action or proceeding, stay the action or proceeding until an arbitration is had in accordance with the order to arbitrate or until such earlier time as the court specifies.  [¶] If the issue which is the controversy subject to arbitration is severable, the stay may be with respect to that issue only.”  (CCP § 1281.4.)

            The court orders arbitration of part of plaintiff’s complaint.  The remaining causes of action are issues involved in that controversy.  Assuming any of the issues subject to arbitration are severable from the inarbitrable claims, the court will exercise its discretion to stay the entire action.  

Disposition

            Defendants Lithia Motors, Inc. and Van Nuys-T, Inc.’s motion to compel arbitration and stay proceedings is granted in part.  Plaintiff Zareh Narghizian is ordered to arbitrate the complaint’s fourth, seventh, eighth, and ninth causes of action against the moving defendants.  The motion to compel arbitration is denied in part as to plaintiff’s first, second, third, fifth, and sixth causes of action. 

The court hereby severs the following provision of the arbitration agreement: “In order to provide for the efficient and timely adjudication of claims, the arbitrator is prohibited from consolidating the claims of others into one proceeding.  This means that an arbitrator will hear only my individual claims and does not have the authority to fashion a proceeding as a class or collective action or to award relief to a group of employees in one proceeding.  [¶]  I further agree that such arbitration shall be conducted on an individual basis with respect to my claims only, not a class, collective or representative basis, and hereby waive any right to bring and/or participate in class-wide, collective or representative claims before any arbitrator or in any forum except to the extent a representative action under the California Private Attorney General Act is, as a matter of law, not deemed subject to a such waiver.  Thus, the Company has the right to defeat any attempt by me to file or join other employees in a class, collective or joint action lawsuit or arbitration (collectively ‘class claims’).”  (Collinet Decl., Ex. 1, p. 2.)

The court hereby stays the entire action pending resolution of the parties’ arbitration proceeding.