Judge: Barbara M. Scheper, Case: 22STCV24867, Date: 2023-03-20 Tentative Ruling
Case Number: 22STCV24867 Hearing Date: March 20, 2023 Dept: 30
Dept. 30
Calendar No.
Gaughan, et. al.
vs. Packetfabric, Inc., et. al., Case No. 22STCV24867
Tentative Ruling
re: Defendants’ Motion to Compel
Arbitration
Defendant R-Stor, Inc. and
Packetfabric, Inc., joined by Defendants Giovanni Coglitore, Sequoia One PEO,
LLC, and Resource Management, Inc., (collectively, Defendants) move to compel Plaintiffs
Tony Gaughan and Conor Malone (collectively, Plaintiffs) to binding
arbitration, and to dismiss or stay this action. The motion to compel arbitration is granted. Proceedings in this Court are stayed pending
completion of the arbitration.
“On petition of a party to an
arbitration agreement alleging the existence of a written agreement to
arbitrate a controversy and that a party thereto refuses to arbitrate such
controversy, the court shall order the petitioner and the respondent to
arbitrate the controversy if it determines that an agreement to arbitrate the
controversy exists, unless it determines that: (a) The right to compel
arbitration has been waived by the petitioner; or (b) Grounds exist for the
revocation of the agreement.” (Code Civ.
Proc. § 1281.2, subds. (a), (b).)
A proceeding to compel arbitration
is in essence a suit in equity to compel specific performance of a contract. (Freeman v. State Farm Mutual Auto Insurance
Co. (1975) 14 Cal.3d 473, 479.) Such enforcement may be sought by a party
to the arbitration agreement. (Code Civ. Proc., § 1280, subd. (e)(1).)
The
petition to compel arbitration functions as a motion and is to be heard in the
manner of a motion, i.e., the facts are to be proven by affidavit or
declaration and documentary evidence with oral testimony taken only in the
court’s discretion. (Code Civ. Proc., §1290.2; Rosenthal v. Great Western Fin. Securities Corp. (1996) 14 Cal.4th
394, 413–414.) The petition to compel must set forth the provisions of the
written agreement and the arbitration clause verbatim, or such provisions must
be attached and incorporated by reference. (Cal. Rules of Court, rule 3.1330;
see Condee v. Longwood Mgmt. Corp.
(2001) 88 Cal.App.4th 215, 218 (Condee).)
Once
petitioners allege that an arbitration agreement exists, the burden shifts to
respondents to prove the falsity of the purported agreement, and no evidence or
authentication is required to find the arbitration agreement exists. (See Condee, supra, 88 Cal.App.4th at p. 219.) However, if the existence of the
agreement is challenged, “petitioner bears the burden of proving [the
arbitration agreement’s] existence by a preponderance of the evidence.” (Rosenthal v. Great Western Fin. Securities
Corp. (1996) 14 Cal.4th 394, 413; see also Espejo v. Southern California Permanente Medical Group (2016) 246
Cal.App.4th 1047, 1058–1060.)
Plaintiffs’ First Amended Complaint
(FAC) asserts claims against Defendants for breach of contract and under the
Labor Code, arising from Plaintiffs’ employment with Defendant R-Stor, Inc.
(R-Stor). Plaintiff Tony Gaughan allegedly began his employment on July 10,
2018, and Plaintiff Conor Malone began his on February 16, 2017. (FAC ¶¶
19-20.)
Defendants move to compel
arbitration based on arbitration agreements purportedly signed by each
Plaintiff as part of their respective on-boarding processes (the Agreements),
made between R-Stor, each of the Plaintiffs, and Defendant Sequoia One PEO, LLC
(Sequoia). Sequoia contracted with R-Stor from March 2017 to December 2021, to
provide administrative services including payroll, benefits, onboarding, and
unemployment insurance administration. (Sullivan Decl. ¶ 2.) The Agreements provide
as follows:
Employee, on the one hand, and R-Stor
Inc., and Sequoia One PEO, LLC (“PEO”), on the other hand, agree to utilize
binding individual arbitration as the sole and exclusive means to resolve all
disputes that may arise between Employee and R-Stor Inc. and/or Employee and
PEO, including but not limited to disputes regarding termination of employment
and compensation. Employee specifically waives and relinquishes his/her right
to bring a claim against R-Stor Inc. and/or PEO, in a court of law, and this
waiver shall be equally binding on any person who represents or seeks to
represent Employee in a lawsuit against R-Stor Inc. or PEO in a court of law.
Similarly, R-Stor Inc. and PEO specifically waive and relinquish their rights
to bring a claim against Employee in a court of law, and this waiver shall be
equally binding on any person who represents or seeks to represent R-Stor Inc.
or PEO in a lawsuit against the Employee in a court of law.
(Sullivan Decl. ¶ 10, Ex. C.)
Plaintiffs
first oppose the motion on the basis that Defendants have failed to properly authenticate
Plaintiffs’ electronic signatures on the Agreements.
Under the Uniform Electronic Transactions Act (UETA), an electronic
signature “is attributable to a person if it was the act of the person. The act
of the person may be shown in any manner, including a showing of the efficacy
of any security procedure applied to determine the person to which the
electronic record or electronic signature was attributable.” (Civ. Code, §
1633.9, subd. (a).) “Electronic signature”
means an electronic sound, symbol, or process attached to or logically
associated with an electronic record and executed or adopted by a person with
the intent to sign the electronic record. (Civ. Code, § 1633.2, subd. (h).) The effect of such electronic signature “is
determined from the context and surrounding circumstances at the time of its
creation, execution, or adoption, including the parties’ agreement.” (Civ.
Code., § 1633.9, subd. (b).)
An electronic signature may be authenticated by a declaration detailing
“security precautions regarding transmission and use of an applicant’s unique
username and password, as well as the steps an applicant would have to take to
place his or her name on the signature line” of the agreement. (Espejo v.
Southern California Permanente Medical Group (2016) 246 Cal.App.4th 1047,
1062.)
Here, the declaration of Christina Sullivan, Sequoia’s Senior Vice
President and General Manager, is sufficient to authenticate Plaintiffs’
electronic signatures on the arbitration agreements. Sullivan describes the processes
by which employees are provided accounts on Sequoia’s web portal and the
security procedures in place to verify the identity of a user. (Sullivan Decl.
¶¶ 5-6.) Employees must login to the portal using a user-created password
inaccessible to Sequoia or R-Stor. (Sullivan Decl. ¶ 6.) New hires at R-Stor,
including Plaintiffs, were required to review and electronically sign the
Agreements, done by entering their user name and password and authenticating
their personal information. The date and time of signing are recorded on the
Agreements’ signature page. (Ibid.) The “Electronic Signature” sections
on the attached Agreements read, “Signed On : 2017-4-12 15:36 by Conor
Malone” and “Signed On :
2018-7-20 18:33 by Anthony Gaughan” Defendants’ evidence is sufficient to show
that these electronic signatures are attributable to the acts of Plaintiffs,
and so satisfies the UETA.
Plaintiffs
next argue that the arbitration agreements are unenforceable due to
unconscionability.
The inquiry into
unconscionability consists of two prongs: A contract will be revoked if it is
both procedurally unconscionable and substantively unconscionable. (See Armendariz
v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, 103.)
Procedural and substantive unconscionability need not be present to the same
degree, with the test operating on a “sliding scale”: “[T]he 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.” (Id. at 114.)
“‘Procedural unconscionability’
concerns the manner in which the contract was negotiated and the circumstances
of the parties at that time. It focuses
on the factors of oppression and surprise. The oppression component arises from
an inequality of bargaining power of the parties to the contract and an absence
of real negotiation or a meaningful choice on the part of the weaker party. The
component of surprise arises when the challenged terms are ‘hidden in a prolix
printed form drafted by the party seeking to enforce them.’” (Nyulassy v. Lockheed Martin Corp. (2004)
120 Cal.App.4th 1267, 1281.)
Where a contract of adhesion
includes the unequal bargaining power of contracting parties, with the weaker
party’s inability to negotiate, this may indicate procedural unconscionability
in the form of oppression. (See Thompson
v. Toll Dublin, LLC (2008) 165 Cal.App.4th 1360, 1372.) “The term ‘adhesion
contract’ refers to standardized contract forms offered to consumers of goods
and services on essentially a ‘take it or leave it’ basis without affording the
consumer a realistic opportunity to bargain and under such conditions that the
consumer cannot obtain the desired product or services except by acquiescing in
the form contract. [Citations.] The distinctive feature of a contract of
adhesion is that the weaker party has no realistic choice as to its terms.
[Citations.]” (Wheeler v. St. Joseph
Hospital (1976) 63 Cal.App.3d 345, 356.)
“[A] compulsory
pre-dispute arbitration agreement is not rendered unenforceable just because it
is required as a condition of employment or offered on a ‘take it or leave it’
basis.” (Lagatree v. Luce, Forward,
Hamilton & Scripps (1999) 74 Cal.App.4th 1105, 1127.) However, the fact
that an arbitration agreement is mandatory for employment may be a factor in
determining that it is procedurally unconscionable. (See, e.g., Trivedi v. Curexo Technology Corp.
(2010) 189 Cal.App.4th 387, 393; Armendariz,
supra, 24 Cal.4th at
pp. 114-115.)
Plaintiffs
argues that procedural unconscionability is present because the Agreement was
made a mandatory condition of Plaintiff’s employment, a fact which Defendants
concede. The Court agrees that that this constitutes evidence of procedural
unconscionability, though on its own does not make the Agreement unenforceable.
(Lagatree, supra, 74 Cal.App.4th at 1126-27.)
Plaintiffs
further argue that procedural unconscionability exists due to oppression. “The circumstances relevant to establishing oppression
include, but are not limited to (1) the amount of time the party is given to
consider the proposed contract; (2) the amount and type of pressure exerted on
the party to sign the proposed contract; (3) the length of the proposed
contract and the length and complexity of the challenged provision; (4) the
education and experience of the party; and (5) whether the party's review of
the proposed contract was aided by an attorney.” (OTO, L.L.C. v. Kho
(2019) 8 Cal.5th 111, 126–127 (OTO).)
The Court
disagrees with Plaintiffs that the facts here show oppression. With respect to
“the amount of time given to consider the proposed contract,” Plaintiffs were
not given a deadline for completing the Agreement. (Sullivan Reply Decl. ¶ 4.) Most
significant, “the education and experience of the party” strongly warrants
against a finding of oppression. Gaughan and Malone were hired by R-Stor as,
respectively, Senior Vice President of Engineering and Vice President of
Hardware Engineering and Manufacturing. (FAC ¶¶ 19-20.) In contrast, the employee in OTO
was an automobile service technician whose first language was Chinese. (OTO,
8 Cal.5th at 118.) The provision of
arbitration agreements to highly educated and experienced employees, to be
completed at their leisure, does not support a finding of oppression.
In sum, the Court finds that there
is some procedural unconscionability present because the Agreements were
contracts of adhesion.
“‘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 Services, Inc. (1999) 70 Cal.App.4th
1322, 1330 (citations omitted).) Substantive unconscionability looks to overly
harsh or one-sided results. (Armendariz,
supra, 24 Cal.4th at 99.) “[T]he paramount consideration in assessing
[substantive] unconscionability is mutuality. . . When only the weaker party's
claims are subject to arbitration, and there is no reasonable justification for
that lack of symmetry, the agreement lacks the requisite degree of mutuality.”
(Abramson v. Juniper Networks, Inc. (2004) 115 Cal.App.4th 638, 657.)
Plaintiffs argue that there is substantive
unconscionability present due to lack of mutuality. “[A]n arbitration agreement imposed in an
adhesive context lacks basic fairness and mutuality if it requires one
contracting party, but not the other, to arbitrate all claims arising out of
the same transaction or occurrence or series of transactions or occurrences.” (Abramson,
115 Cal.App.4th at 657.) Here, though, the arbitration provisions are
mutual; they provide, “Employee specifically waives and relinquishes his/her
right to bring a claim against R-Stor Inc. and/or PEO, in a court of law,” and
“[s]imilarly, R-Stor Inc. and PEO specifically waive and relinquish their
rights to bring a claim against Employee in a court of law.” (Sullivan Decl.,
Ex. C.)
Plaintiffs also argue
that the Agreement is unconscionable because it is overbroad in time and scope.
The Agreement applies to all disputes between the parties, without limit:
“Included within the scope of this Agreement are all disputes, whether based on
tort, contract, statute . . ., equitable law, or otherwise.” (Sullivan Decl.,
Ex. C.) Defendants do not attempt to dispute that the language of the
Agreements encompasses matters unrelated to Plaintiffs’ employment with
Defendants, but argue that the issue is irrelevant because Plaintiffs’ claims
are employment related. The Court agrees with Defendants and does not find the
instant clause unconscionable based on overbreadth under these circumstances.
Application to non-signatory defendants
“There are six
theories by which a nonsignatory may be bound to arbitrate: ‘(a) incorporation
by reference; (b) assumption; (c) agency; (d) veil-piercing or alter ego; (e)
estoppel; and (f) third-party beneficiary.’” (Jenks v. DLA Piper Rudnick Gray Cary US LLP (2015) 243 Cal.App.4th
1, 9–10.) “Nonsignatory defendants may enforce arbitration agreements ‘where
there is sufficient identity of parties.’ [Citation.] Enforcement is permitted
where the nonsignatory is the agent for a party to the arbitration agreement
[Citations], or the nonsignatory is a third party beneficiary of the
agreement.” (Marenco v. DirecTV LLC (2015) 233 Cal.App.4th 1409, 1417.)
Here, the
non-signatory defendants may enforce the Agreement as alleged agents of the
signatories, R-Stor and Sequoia. “[W]hen a plaintiff alleges a defendant acted
as an agent of a party to an arbitration agreement, the defendant may enforce
the agreement even though the defendant is not a party thereto.” (Thomas v.
Westlake (2012) 204 Cal.App.4th 605, 614.) Plaintiffs allege that Coglitore
was the CEO of R-Stor. (FAC ¶ 8.) Defendant Packetfabric, Inc. allegedly
acquired R-Stor in September 2021, after which R-Stor became Packetfabric’s
wholly owned subsidiary, and Plaintiffs allege that Packetfabric and R-Stor
were agents of one another. (FAC ¶¶ 5-6.) Finally, Defendant Resource Management, Inc. (RMI)
was allegedly a co-employer of Packetfabric’s employees, including Plaintiffs.
(FAC ¶ 10.) An allegation of joint employment is sufficient to support
application of the agency exception for enforcement by a non-signatory. (Garcia
v. Pexco, LLC (2017) 11 Cal.App.5th 782, 788.)
Waiver
Plaintiffs last argue that
Defendants should be barred from enforcing the arbitration agreements based on
waiver.
“[A]lthough voluntary arbitration agreements
comply with public policy and enjoy specific enforcement under state law, a
party to an arbitration agreement may by its conduct ‘waive’ its right to
compel arbitration.” (Davis v. Blue Cross of Northern California (1979)
25 Cal.3d 418, 425.) “[N]o single test delineates the nature of the conduct of
a party that will constitute such a waiver.” (Id. at 426.) A party
resisting arbitration on the grounds of waiver “bears a heavy burden . . . and
any doubts regarding a waiver allegation should be resolved in favor of
arbitration.” (St. Agnes Medical Center v. PacifiCare of California (2003)
31 Cal.4th 1187, 1195.)
“In
determining waiver, a court can consider “(1) whether the party's actions are
inconsistent with the right to arbitrate; (2) whether 'the litigation machinery
has been substantially invoked' and the parties 'were well into preparation of
a lawsuit' before the party notified the opposing party of an intent to
arbitrate; (3) whether a party either requested arbitration enforcement close
to the trial date or delayed for a long period before seeking a stay; (4)
whether a defendant seeking arbitration filed a counterclaim without asking for
a stay of the proceedings; (5) 'whether important intervening steps [e.g.,
taking advantage of judicial discovery procedures not available in arbitration]
had taken place'; and (6) whether the delay 'affected, misled, or prejudiced'
the opposing party.” (Sobremonte v. Superior Ct. Bank of Am. Nat. Tr. &
Sav. Ass'n (1998) 61 Cal.App.4th 980, 992.)
“ ‘[W]hether litigation results in prejudice
to the party opposing arbitration is critical in waiver determinations.’ . . . Prejudice
typically is found only where the petitioning party's conduct has substantially
undermined this important public policy [favoring arbitration] or substantially
impaired the other side's ability to take advantage of the benefits and
efficiencies of arbitration. [¶] For example, courts have found prejudice where
the petitioning party used the judicial discovery processes to gain information
about the other side's case that could not have been gained in arbitration
[citations]; where a party unduly delayed and waited until the eve of trial to
seek arbitration [citation]; or where the lengthy nature of the delays
associated with the petitioning party's attempts to litigate resulted in lost
evidence [citation].” (Gloster v.
Sonic Automotive, Inc. (2014) 226 Cal.App.4th 438, 448.)
The Court
disagrees with Plaintiffs that Defendants have waived their right to compel
arbitration. Plaintiffs served R-Stor on August 5, 2022, and R-Stor and Sequoia
filed the current motion on December 30, 2022. While Plaintiffs suggest that
R-Stor deliberately withheld the Agreements or failed to search for them in
response to Plaintiffs’ discovery requests, this contention is unsupported by
the evidence presented. Christina Sullivan of Sequoia states that the
onboarding documents for R-Stor employees, including the Agreements, were
stored by Sequoia. (Sullivan Decl. ¶ 11.) After Sequoia was served by
Plaintiffs in December 2022, Sequoia searched its databases and found the
Agreements, which it then provided to R-Stor’s counsel. (Sullivan Decl. ¶ 11.)
Plaintiffs have also failed to show any resulting prejudice from Defendants’
conduct; Defendants have propounded no written discovery (Foley Decl. ¶ 3), and
there is no indication of undue delay.