Judge Bruce G. Iwasaki, Case Number: 22STCV16105, Date: 2023-05-11 Tentative Ruling

Judge: Bruce G. Iwasaki, Case: 22STCV16105, Date: 2023-05-11 Tentative Ruling

Case Number: 22STCV16105 Hearing Date: May 11, 2023 Dept: 58

Judge Bruce G. Iwasaki

Department 58

Hearing Date: May 11, 2023

Case Name: Jake Choi v. TJ Sierra RMG, Inc. et al.

Case No.: 22STCV16105

Matter: Motion to Compel Arbitration

Moving Parties: Specially Appearing TJ Sierra RMG, Inc. dba Tenno Sushi; A Mi Japanese Restaurant, Inc.; Crazy Tokyo Sushi Group, Inc.; 321 JC, Inc.; and Moon Japanese Restaurant Inc., erroneously sued as Sushi Moon Japanese Restaurant

Responding Party: Plaintiff Jake Choi

Tentative Ruling: Defendants’ motion to compel arbitration and stay proceedings is granted.

Background

This motion concerns a dispute about whether this action should be compelled to arbitration.

This is an action for wrongful termination and Labor Code violations. On May 13, 2022, Jake Choi (Plaintiff) sued TJ Sierra RMG, Inc. dba Tenno Sushi, A Mi Japanese Restaurant, Inc., Crazy Tokyo Sushi Group, Inc., 321 JC, Inc., Kopan Ramen – LA, and Sushi Moon Japanese Restaurant (Defendants) for unlawful business practices, unpaid overtime wages, failure to provide meal/rest periods, failure to pay split shift premium, declaratory relief, and wrongful termination.

On March 8, 2023, Defendants moved for an order compelling arbitration of this matter pursuant to California Code of Civil Procedure § 1281.2. Defendants move on the grounds that there is a written agreement between the parties containing an express arbitration provision that covers any and all disputes arising out of their relationship. Defendants also move to stay the proceedings until the application for arbitration is determined, and thereafter until arbitration is complete, pursuant to Code of Civil Procedure § 1281.4.

On March 20, 2023, Plaintiff filed an opposition, arguing that the agreement allegedly containing an arbitration clause is void under Labor Code Section 206.5 and on other grounds. Defendants filed a reply on April 21, 2023.

Legal Standard

Under California¿law,¿public policy favors arbitration as an efficient and less expensive means of resolving private disputes.¿ (Moncharsh¿v.¿Heily¿&¿Blase¿(1992) 3 Cal.4th 1, 8-9;¿AT&T Mobility LLC v. Concepcion¿(2011) 563 U.S. 333, 339 (Concepcion).)¿¿“To further that policy, Code of Civil Procedure, section 1281.2 requires a trial court to enforce a written arbitration agreement unless one of three limited exceptions¿applies. Those statutory exceptions arise where (1) a party waives the right to arbitration; (2) grounds exist for revoking the arbitration agreement; and (3) pending litigation with a third party creates the possibility of conflicting rulings on common factual or legal issues.” (Acquire II, Ltd. v. Colton Real Estate Group¿(2013) 213 Cal.App.4th 959, 967 (Acquire II), citing Code of Civ. Proc., § 1281.2, subds. (a)-(c).)¿

Similarly, the Federal Arbitration Act (“FAA”) reflects a liberal federal policy favoring arbitration and the fundamental principle that arbitration is a matter of contract. (Concepcion,¿supra, 563 U.S. at p. 339.)¿ In line with these principles, courts must place arbitration agreements on an equal footing with other contracts and enforce them according to their terms.¿ (Id.)¿¿“[U]nder¿both the FAA and California law, ‘arbitration agreements are valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.’”¿ (Higgins v. Sup. Ct.¿(2006) 140 Cal.App.4th 1238, 1247.)¿

Accordingly, whether an agreement is governed by the California Arbitration Act (“CAA”) or the¿FAA, courts resolve doubts regarding the scope of arbitrable issues in favor of arbitration.¿ (Moncharsh,¿supra,¿at 3 Cal.4th at p. 9;¿Comedy Club, Inc. v. Improv West Assocs.¿(9th Cir. 2009) 553¿F.3d¿1277, 1284; see also¿Engalla¿v. Permanente Med. Grp., Inc.¿(1997) 15 Cal.4th 951, 971-972. [“California law incorporates many of the basic policy objectives contained in the Federal Arbitration Act, including a presumption in favor of arbitrability [citation] and a requirement that an arbitration agreement must be enforced on the basis of state law standards that apply to contracts in general [citation]”].)¿¿The petitioner bears the burden of proving the existence of a valid arbitration agreement, and the opposing party bears the burden of proving any fact necessary to its defense.¿¿(Gatton v. T-Mobile USA, Inc.¿(2007) 152 Cal.App.4th 571, 579.)¿

If the court orders arbitration, then the court shall stay the action until arbitration is completed. (Code Civ. Proc., § 1281.4.)

Discussion

Defendants seek an order compelling arbitration of the instant dispute between the parties pursuant to an agreement entered into between Plaintiff and Defendants. There are four main issues raised by this motion: (1) the timeliness of Defendants’ arbitration demand; (2) whether Defendants have met their burden to show the existence of a valid arbitration agreement; (3) the applicability of the arbitration agreement to the instant action; and (4) whether Plaintiff meets his burden to show defenses apply.

1. Defendants’ Motion to Compel Arbitration was Timely

As an initial matter, the Court finds that Defendants’ arbitration demand was timely.

A party seeking to compel arbitration under Code of Civil Procedure, section 1281.2 must “plead and prove a prior demand for arbitration under the parties’ arbitration agreement and a refusal to arbitrate under the agreement.” (Mansouri v. Super. Ct. (2010) 181 Cal.App.4th 633, 640; Civ. Proc. Code, § 1281.2.)

Plaintiff filed this action on May 13, 2022. According to Defendants, they first demanded arbitration in August 2022, then again during the court hearing of January 18, 2023, and finally for a third time on February 22, 2023, but Plaintiff ignored their demands. (Declaration of Sung Woo Choi ¶ 3.) On the other hand, Plaintiff contends that Defendants’ first demand was not until February 22, 2023.

The cases Plaintiff relies on do not support his untimeliness argument. Service Employees Internat. Union, Local 715, AFL-CIO v. Cupertino Union School Dist. (2005) 31 Cal.Rptr.3d 858, was ordered not published and thus is not citable authority. And Platt Pacific, Inc. v. Andelson (1993) 6 Cal.4th 307 is not on point. In Platt, our Supreme Court held that “a contractual requirement that a party’s demand for arbitration must be made within a certain time is a condition precedent to the right to arbitration.” (Id. at p. 321.) Here, unlike in Platt, the agreement does not contain any timeline for invoking arbitration.

The Agreement here contains no clause dictating a timeline to arbitrate. Generally, a party has four years to compel arbitration based on an agreement. (Spear v. Cal. State Auto. Assn. (1992) 2 Cal.4th 1035, 1040.) The right to compel does not accrue until the other party “has refused to arbitrate the controversy.” (Id. at pp. 1041-1042.) Moreover, where there is no stated deadline to arbitrate, the parties must arbitrate within a reasonable time so as to avoid prejudice to either party. (Id. at p. 1043.) What constitutes a “reasonable time” is a question of fact depending on the situation of the parties, the nature of the transaction, and the facts of the particular case, including any prejudice suffered by the opposing party because of the delay. (Ibid.) Here, Plaintiff fails to show that he has been prejudiced by the timing of Defendants’ arbitration demand. Litigation is in its very early stages. No discovery has taken place. Accordingly, Defendants’ arbitration demand was timely and is not waived.

2. The Arbitration Agreement is Valid and Enforceable

Defendants have the burden to show the existence of a valid, enforceable arbitration agreement. The Court finds that Defendants have met their burden.

“[T]he petitioner bears the burden of proving the existence of a valid arbitration agreement by the preponderance of the evidence . . . .” (Giuliano v. Inland Empire Personnel, Inc. (2007) 149 Cal.App.4th 1276, 1284.) “In determining whether an arbitration agreement applies to a specific dispute, the court may examine only the agreement itself and the complaint filed by the party refusing arbitration [citation]. The court should attempt to give effect to the parties’ intentions, in light of the usual and ordinary meaning of the contractual language and the circumstances under which the agreement was made.” (Weeks v. Crow (1980) 113 Cal.App.3d 350, 353.) “To determine whether a contractual arbitration clause requires arbitration of a particular controversy, the controversy is first identified and the issue is whether that controversy is within the scope of the contractual arbitration clause.” (Titolo v. Cano (2007) 157 Cal.App.4th 310, 316.) “Doubts as to whether an arbitration clause applies to a particular dispute are to be resolved in favor of sending the parties to arbitration. The court should order them to arbitrate unless it is clear that the arbitration clause cannot be interpreted to cover the dispute.” (California Correctional Peace Officers Ass’n v. State (2006) 142 Cal.App.4th 198, 205.)

Here, it is undisputed that an agreement containing an arbitration clause was entered into by all parties. The parties entered into a Severance Agreement and General Release (the “Agreement”) on December 25, 2020. (Motion, Choi Decl., ¶ 4, Exhibit 1.) The following language contained in the Agreement is pertinent to this motion:

“Any dispute regarding the validity or terms of this Agreement or any aspects of Employee’s employment or its termination and any other disputes between these parties shall be resolved by an arbitrator selected in accordance with the employment rules of the American Arbitration Association in Los Angeles County, California, as the exclusive remedy for any such dispute, and in lieu of any court action, which is hereby waived. The only exception is a claim by either party for injunctive relief pending arbitration…” (Motion, Choi Decl., ¶ 4, Exhibit 1, ¶ 13.)

This language appears under a paragraph entitled “Governing Law; Venue.” Defendants signed the Agreement on December 23, 2020 and Plaintiff signed the Agreement on December 25, 2020. (Motion, Choi Decl., ¶ 4, Exhibit 1, p. 10.)

Although Plaintiff acknowledges the existence of the Agreement, Plaintiff contends that the Agreement is unenforceable under Labor Code Section 206.5. That provision invalidates any agreement between employer and employee that seeks to release wages due, unless payment of those wages was made in full. However, Defendants, contend that there were no unpaid wages outstanding at the time of the Agreement.

“[A] party opposing the petition bears the burden of proving by a preponderance of the evidence any fact necessary to its defense. In these summary proceedings, the trial court sits as a trier of fact, weighing all the affidavits, declarations, and other documentary evidence, as well as oral testimony received at the court’s discretion, to reach a final determination. (Giuliano, supra, 149 Cal.App.4th at p. 1284.)

Plaintiff contends that Defendants submit no proof that full payment of wages was made to Plaintiff as of the signing of the severance. Plaintiff cites to the Declaration of Byung Ha Chang, wherein Chang states that he executed the Agreement on behalf of Defendants. According to Chang, “the discussion was that $15,000 was paid to help [Plaintiff] with his new job as a good gesture after mutually leaving the company, it was not because any wage was outstanding. [Plaintiff] also acknowledged and confirmed that nothing was owing to him. [Plaintiff] thereafter cashed the check and [has] kept the funds of $15,000 paid to him.” (Chang Decl. ¶ 3.) Contrary to Plaintiff’s assertions, Chang’s statements do not prove that wages were outstanding at the time the Agreement was entered into. In fact, Chang’s statements specifically express that “nothing was owing to [Plaintiff]” and the $15,000 was to “help [Plaintiff] with his new job as a good gesture.” Therefore, Plaintiff does not show that Defendants violated Labor Code Section 206.5.

3. The Arbitration Agreement Governs this Dispute

The burden shifts to Plaintiff to show that the instant controversy between the parties is not governed by the Agreement. Plaintiff does not meet his burden.

The Agreement covers “any dispute regarding the validity or terms of this Agreement or any aspects of Employee’s employment or its termination and any other disputes between these parties.” Here, Plaintiff’s claims concern unlawful business practices, unpaid overtime wages, failure to provide meal/rest periods, failure to pay split shift premium, declaratory relief, and wrongful termination relating to Plaintiff’s employment with Defendants. Plaintiff makes no showing otherwise. Therefore, the dispute is covered by the Agreement.

4. The Agreement is not Unconscionable

Plaintiff also argues that the Agreement is procedurally and substantively unconscionable. The Court disagrees.

The doctrine of unconscionability refers to “an absence of meaningful choice on the part of one of the parties together with contract terms which are unreasonably favorable to the other party.”¿¿(Sonic-Calabasas A, Inc. v. Moreno (2013)¿57 Cal.4th 1109, 1133.) It consists of procedural and substantive components, “the former focusing on oppression or surprise due to unequal bargaining power, the latter on overly harsh or one-sided results.”¿¿(Id.) Although both components of unconscionability must be present to invalidate an arbitration agreement, they need not be present in the same degree.¿(Armendariz v. Found. Health¿Psychcare¿Servs., Inc. (2000)¿24 Cal.4th 83, 114.)¿¿¿¿

“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.¿In other words, the more substantively unconscionable 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.) “The party resisting arbitration bears the burden of proving unconscionability.”¿(Pinnacle Museum Tower¿Ass’n¿v. Pinnacle Market Dev. (2012)¿55 Cal.4th 223, 247.)¿¿¿

i. Procedural Unconscionability

Plaintiff contends that the arbitration provision is procedurally unconscionable because 1) it is a contract of adhesion; 2) it is buried in “Governing Law; Venue” and is not titled “Arbitration”; and 3) it is unclear as to what claims are subject to arbitration.

Procedural unconscionability “pertains to the making of the agreement.”¿ (Ajamian v. CantorCO2e, L.P. (2012) 203 Cal.App.4th 771, 795.)¿ Procedural unconscionability “focuses on two factors: ‘oppression’ and ‘surprise.’ ‘Oppression’ arises from an inequality of bargaining power which results in no real negotiation and ‘an absence of meaningful choice.’ ‘Surprise’ involves the extent to which the supposedly agreed-upon terms of the bargain are hidden in the prolix printed form drafted by the party seeking to enforce the disputed terms.”¿ (Zullo v. Superior Court (2011) 197 Cal.App.4th 477, 484.)¿¿

A contract of adhesion typically denotes a standardized contract imposed and drafted by the party of superior bargaining strength which relegates to the subscribing party only the opportunity to adhere to the contract or reject it. (Armendariz, supra, 24 Cal.4th at p. 113.) The adhesive nature of a contract is one factor that the courts may consider in determining the degree of procedural unconscionability. (Carmona v. Lincoln Millennium Car Wash, Inc. (2014) 226 Cal.App.4th 74, 84 fn.4 (Carmona).)

The Court finds that the Agreement is procedurally unconscionable to a slight degree. First, the Agreement is only minimally adhesive. On one hand, it was drafted by Defendants, who appear to have had the superior bargaining power given that Plaintiff risked losing the $15,000 severance opportunity if he did not sign the Agreement. On the other hand, as a severance agreement rather than a pre-employment contract, the Agreement does not carry the same weight as a contract that “stands between the employee and necessary employment.” (Armendariz, supra, at p. 116.) Furthermore, the Agreement states that Plaintiff had the opportunity to review the Agreement with counsel of his choice. Plaintiff offers no proof that he did not have the opportunity to negotiate. Again, Plaintiff has the burden of proof as the party opposing arbitration.

As for the claim that the arbitration provision was buried, the Court finds that it only slightly supports procedural unconscionability. The provision containing the arbitration clause was entitled governing law/venue rather than, for example, “Arbitration.” However, the paragraph discussed the mandatory arbitration of claims arising under the Agreement. The arbitration language was set aside from other terms in the Agreement.

Finally, the arbitration provision is not unclear as to what claims are subject to arbitration.

Based on this evidence, Plaintiff has established a low degree of procedural unconscionability.

ii. Substantive Unconscionability

Plaintiff alleges that the arbitration provision is substantively unconscionable because it mandates use of the American Arbitration Association rules and does not clearly specify what rights are preserved for Plaintiff.

An agreement is substantively unconscionable if it imposes terms that are “overly harsh,” “unduly oppressive,” “unreasonably favorable,” or “so one-sided as to ‘shock the conscience.’”¿ (Sanchez v. Valencia Holding Co., LLC¿(2015) 61 Cal.4th 899, 910-911.)¿ “All of¿these formulations point to the central idea that unconscionability doctrine is concerned not with ‘a simple old-fashioned bad bargain’ [citation], but with terms that are ‘unreasonably favorable to the more powerful party.’ [Citation.]”¿ (Id. at p. 911.)¿ “These include ‘terms that impair the integrity of the bargaining process or otherwise contravene the public interest or public policy; terms (usually of an adhesion or boilerplate nature) that attempt to alter in an impermissible manner fundamental duties otherwise imposed by the law, fine-print terms, or provisions that seek to negate the reasonable expectations of the¿nondrafting¿party, or unreasonably and unexpectedly harsh terms having to do with price or other central aspects of the transaction.’ ”¿ (Id. at p. 911.)

The California Supreme Court set forth five minimum requirements for enforceable arbitration agreements: (1) neutral arbitrator(s), (2) more than minimal discovery, (3) a written award, (4) all types of relief that would otherwise be available in court, and (5) no additional costs for the employee beyond what the employee would incur if bringing the claim in court. (Armendariz, supra, 24 Cal.4th at p. 102.)

Plaintiff fails to show that the submission of disputes to an arbitrator selected in accordance with the rules of the American Arbitration Association is in and of itself unduly harsh or one-sided, or that the procedures for arbitrations in that forum shock the conscience. Plaintiff fails to show grounds for substantive unconscionability.

On balance, Plaintiff’s unconscionability claim is not well-founded. Because there is insufficient unconscionability to find the Agreement unenforceable, the Court does not need to discuss whether the Court should sever any unenforceable provisions.

Conclusion

Defendants’ motion to compel arbitration is granted. The Court stays proceedings until arbitration is completed pursuant to Code Civ. Proc., § 1281.4. Defendants are ordered to give notice.