Judge: Bruce G. Iwasaki, Case: 22STCV35667, Date: 2024-03-12 Tentative Ruling

Case Number: 22STCV35667    Hearing Date: March 12, 2024    Dept: 58

Judge Bruce G. Iwasaki

Department 58

Hearing Date:             March 12, 2024

Case Name:                Holmes v. Natures Image, Inc.

Case No.:                   22STCV35667

Matter:                        Motion to Compel Arbitration

Moving Party:             Defendant Natures Image, Inc.

Responding Party:      Plaintiff Daniel Holmes

In this employment action, Plaintiff Daniel Holmes (Plaintiff) filed a Complaint on November 10, 2022, alleging causes of action for FEHA violations and a violation of Labor Code section 1102.5 against his former employer, Defendant Natures Image, Inc. (Defendant).

            On January 23, 2024, Defendant filed a “petition” to compel arbitration pursuant to the parties’ arbitration agreement.[1] Plaintiff opposed the petition. A reply was filed.

            The motion to compel arbitration is granted.

            Evidentiary Issues

            Plaintiff’s objection to the reply as untimely is overruled. Plaintiff’s objections to Defendants’ evidence are ruled as follows: Nos. 2-5 are sustained.  

Legal Standard

Under Code of Civil Procedure section 1281.2, a court may order arbitration of a controversy if it finds that the parties have agreed to arbitrate that dispute. Because the obligation to arbitrate arises from contract, the court may compel arbitration only if the dispute in question is one in which the parties have agreed to arbitrate. (Weeks v. Crow (1980) 113 Cal.App.3d 350, 352.) Since arbitration is a favored method of dispute resolution, arbitration agreements should be liberally interpreted, and arbitration should be ordered unless the agreement clearly does not apply to the dispute in question. (Id. at p. 353; Segal v. Silberstein (2007) 156 Cal.App.4th 627, 633.)

Analysis

            Defendant moves to compel arbitration of Plaintiff’s claims and stay the action while the arbitration is pending.

I.               Existence of a Valid Arbitration Agreement

            Defendant seeks to compel arbitration based on a 2020 arbitration agreement. In support of the existence of an arbitration agreement, Defendant submits evidence that Plaintiff began working for Defendant in January 3, 2020. (Fox Decl., ¶ 4.) In connection to his employment, Plaintiff executed an agreement titled “Application for Entry Level Employment” (Agreement), obligating him to arbitrate any employment-related disputes with Defendant Natures Image. (Fox Decl., ¶¶ 5-9, Ex. A.)

The Agreement provides that Plaintiff and Defendant mutually agreed that “ANY CONTROVERSY, CLAIM OR DISPUTE BETWEEN YOU AND THE COMPANY (AND/OR ANY OF ITS AFFILIATES, OWNERS, SHAREHOLDERS, DIRECTORS, MEMBERS, OFFICERS, EMPLOYEES, VOLUNTEERS OR AGENTS) RELATING TO OR ARISING OUT OF THIS AGREEMENT, YOUR EMPLOYMENT (IF HIRED) OR THE CESSATION OF THAT EMPLOYMENT WILL BE SUBMITTED TO FINAL AND BINDING ARBITRATION BEFORE A NEUTRAL ARBITRATOR IN THE COUNTY IN WHICH YOU LAST WORK(ED) FOR DETERMINATION IN ACCORDANCE WITH THE AMERICAN ARBITRATION ASSOCIATION’S EMPLOYMENT ARBITRATION RULES (EXCLUDING MEDIATION) AS THE EXCLUSIVE REMEDY FOR SUCH CONTROVERSY, CLAIM OR DISPUTE.” (Fox Decl., ¶ 8, Ex. A.)

Additionally, Defendant submits evidence that its activities and operations involve interstate commerce. (Fox Decl., ¶ 2.)

            In opposition, Plaintiff does not dispute the existence of the arbitration agreement or otherwise deny signing the agreement. (Holmes Decl., ¶ 10.) In fact, he implicitly concedes that signed the document titled ““Application for Entry Level Employment” but states that he “understood” he was “completing an application for employment only.” (Holmes Decl., ¶ 10. Thus, there is no factual dispute as to the existence of a valid arbitration agreement between the parties.[2]

II.             Enforceability of the Arbitration Agreement

A.    Waiver

            Plaintiff argues that Defendant waived its right to seek arbitration.

            “A party seeking to prove waiver of a right to arbitration must demonstrate: ‘ “(1) knowledge of an existing right to compel arbitration; (2) acts inconsistent with that existing right; and (3) prejudice to the party opposing arbitration.” ’ ” (Hoover v. American Income Life Ins. Co. (2012) 206 Cal.App.4th 1193, 1203.) “Although participating in the litigation of an arbitrable claim does not by itself waive a party's right to later seek to arbitrate the matter, at some point continued litigation of the dispute justifies a finding of waiver.” (Bower v. Inter-Con Security Systems, Inc. (2014) 232 Cal.App.4th 1035, 1042.)

“[A] petitioning party’s conduct in stretching out the litigation process itself may cause prejudice by depriving the other party of the advantages of arbitration as an ‘expedient, efficient and cost-effective method to resolve disputes.’ [Citation.] Arbitration loses much, if not all, of its value if undue time and money is lost in the litigation process preceding a last-minute petition to compel.” (Burton v. Cruise (2010) 190 Cal.App.4th 939, 948.) However, a delay in seeking arbitration absent prejudice is insufficient to show waiver. (Khalatian v. Prime Time Shuttle, Inc. (2015) 237 Cal.App.4th 651, 663.)

Because the law favors arbitration, waiver will not be lightly inferred. (Saint Agnes Medical Center v. PacifiCare of California (2003) 31 Cal.4th 1187, 1195.) A party asserting waiver of the right to arbitrate “bears a heavy burden of proof,” with all doubts to be resolved in favor of arbitration. (Ibid.)

Here, the Complaint was filed on November 10, 2022. As noted by Plaintiff, Defendant filed an Answer on December 27, 2022, which made no reference to arbitration. At a March 22, 2023 Case Management Conference, jury trial was set for February 3, 2025. Notably, however, the motion to compel arbitration was not filed until January 23, 2024 – fourteen months after this action was filed.

However, as a preliminary matter, Defendant submits evidence that it was not aware of the signed Agreement until January 5, 2024. (Smith Decl., ¶ 6.) As such, Defendant’s prior acts could not count as a knowing waiver of a known right.

Further, there has been no other motion practice in this case. That is, there has been little litigation in this action as no motions have been filed since the inception of litigation. Thus, there has been no ruling on the merits of any issues that would have any effect on an incumbent arbitrator. (McConnell v. Merrill Lynch, Pierce, Fenner, & Smith, Inc. (1980) 105 Cal.App.3d 946, 951 [“Partial or piecemeal litigation of issues in dispute, through pretrial procedures, may in many instances justify a finding of waiver . . .”].)

Additionally, while the parties have engaged in discovery, the reply notes that Plaintiff has failed to demonstrate that this discovery constitutes “taking advantage of judicial discovery procedures not available in arbitration.” (Saint Agnes Med. Ctr. v. PacifiCare (2003) 31 Cal.4th 1187, 1196 [emphasis added].) Absence such a showing, undertaking discovery does result in prejudice to Plaintiff. That is, although Plaintiff argues prejudice (Opp. 8:0-9:2.), Plaintiff does not submit any evidence of prejudice aside from the delay alone. (Gloster v. Sonic Automotive, Inc. (2014) 226 Cal.App.4th 438, 449 [“[T]he delay alone was not sufficient to support a finding of waiver.”].) For example, the hours incurred by Plaintiff’s attorneys in mediation are not prejudicial where Plaintiff does not show that these costs are in fact a “waste” – that is, of no value to an arbitration proceeding. Even Plaintiff’s conclusory assertion that he has “disclosed his evidence and strategies” does not demonstrate prejudice.

Plaintiff also notes that Defendant has been delinquent in bringing this arbitration agreement to Plaintiff’s attention in response to pre-litigation document demands and discovery. While true, this factor appears only to weigh further on the issue of delay but does not demonstrate specific prejudice – especially where Defendant submits evidence that the Agreement was newly discovered.

Thus, Plaintiff has not carried its “heavy” burden of demonstrating waiver.

B.    Unconscionability

Plaintiff argues the Agreement is procedurally and substantively unconscionable.

If a court finds as a matter of law that a contract or any clause of a contract is unconscionable, the court may refuse to enforce the contract or clause, or it may limit the application of any unconscionable clause so as to avoid any unconscionable result. (Civ. Code, § 1670.5, subd. (a).) “An agreement to arbitrate, like any other contract, is subject to revocation if the agreement is unconscionable.” (Carmona v. Lincoln Millennium Car Wash, Inc. (2014) 226 Cal.App.4th 74, 83 [citing Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, 98].)

            “The general principles of unconscionability are well established. A contract is unconscionable if one of the parties lacked a meaningful choice in deciding whether to agree and the contract contains terms that are unreasonably favorable to the other party. [Citation.] Under this standard, the unconscionability doctrine ‘ “has both a procedural and a substantive element.” ’ [Citation.] ‘The procedural element addresses the circumstances of contract negotiation and formation, focusing on oppression or surprise due to unequal bargaining power. [Citations.] Substantive unconscionability pertains to the fairness of an agreement's actual terms and to assessments of whether they are overly harsh or one-sided.’ [Citation.] [¶] Both procedural and substantive unconscionability must be shown for the defense to be established, but ‘they need not be present in the same degree.’ [Citation.] Instead, they are evaluated on ‘ “sliding scale.” ’ [Citation.] ‘[T]he more substantively oppressive the contract term, the less evidence of procedural unconscionability is required to’ conclude that the term is unenforceable. [Citation.] Conversely, the more deceptive or coercive the bargaining tactics employed, the less substantive unfairness is required. [Citations.] A contract's substantive fairness ‘must be considered in light of any procedural unconscionability’ in its making. [Citation.] ‘The ultimate issue in every case is whether the terms of the contract are sufficiently unfair, in view of all relevant circumstances, that a court should withhold enforcement.’ ” (OTO, L.L.C. v. Kho (2019) 8 Cal.5th 111, 125–126.) “The burden of proving unconscionability rests upon the party asserting it.” (OTO, supra, 8 Cal.5th at p. 126.)

            Plaintiff first argues the Agreement is procedurally unconscionable because the arbitration provision was a condition of employment and offered on a take-it-or leave it basis. That is, Plaintiff had no ability to negotiate the terms of the Agreement, and Defendant made no effort to explain its terms to Plaintiff. (Holmes Decl., ¶¶ 6-9.) In sum, Plaintiff could either sign the Agreement or find another job.

            Plaintiff also argues that he did not know what he was signing and believed it was only an application for employment. (Holmes Decl., ¶ 10.)

            Given the take it or leave it nature of the contract, the arbitration agreement suffers from some minimal degree of procedural unconscionability. It is an adhesive contract, as are most employment agreements; “few employees are in a position to refuse a job because of an arbitration requirement.” (Armendariz, supra, 24 Cal.4th at p. 115.)

However, Plaintiff’s purported failure to understand the terms of the arbitration provision does not add to the procedural unconscionability of the Application for Employment. (Gutierrez v. Autowest, Inc. (2003) 114 Cal.App.4th 77, 88 [“[S]imply because a provision within a contract of adhesion is not read or understood by the nondrafting party does not justify a refusal to enforce it.”].) Further, the arbitration provision was highly conspicuous in the Application for Employment. The arbitration provision was also not buried in a long document, in a smaller font, or otherwise hidden. (Armendariz, at p. 114 [“Surprise” is defined as “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.”].) In fact, the document was a single page and the arbitration provision portion was in all capital letters, making it highly visible.

            Thus, there is only a small degree of procedural unconscionability arising from the Agreement.

The only argument Plaintiff raises with respect to substantively unconscionability of the Agreement is the claim that the arbitration agreement lacked mutuality because there was no space for Defendant to countersign in the Agreement.

First, the Agreement specifically provides that “ANY CONTROVERSY, CLAIM OR DISPUTE BETWEEN YOU AND THE COMPANY (AND/OR ANY OF ITS AFFILIATES, OWNERS, SHAREHOLDERS, DIRECTORS, MEMBERS, OFFICERS, EMPLOYEES, VOLUNTEERS OR AGENTS) RELATING TO OR ARISING OUT OF THIS AGREEMENT, YOUR EMPLOYMENT (IF HIRED) OR THE CESSATION OF THAT EMPLOYMENT WILL BE SUBMITTED TO FINAL AND BINDING ARBITRATION BEFORE A NEUTRAL ARBITRATOR . . ..” (Fox Decl., Ex. A.) Thus, the clear language of the Agreement does not carve out a litigation option for Defendant as the arbitration applies to “any” claims between the parties.

Further, a “missing signature is irrelevant to whether the substance of the contact is fair.” (Fuentes v. Empire Nissan, Inc. (2023) 90 Cal.App.5th 919, 933.) Said another way, this argument does not inform at all on the substantive unconscionability of the agreement. Moreover, under the circumstances, the absence of Defendant’s signature on the Agreement does not demonstrate a lack of asset by Defendant to the Arbitration provision. (See e.g., Fuentes v. Empire Nissan, Inc., surpa, 90 Cal.App.5th at 933 [“A signature can be important to show contractual assent, but that is beside the point here: Nissan certainly assented to its own arbitration agreement—the agreement that it drafted and required Fuentes to sign and that it now is trying to enforce. In this setting, no signature was necessary to prove Nissan's assent.”].)

Therefore, Plaintiff has not demonstrated any substantive unconscionability. Based on the foregoing, the unconscionability argument fails. (See OTO, L.L.C. v. Kho (2019) 8 Cal.5th 111, 125–126 [“Both procedural and substantive unconscionability must be shown for the defense to be established, but ‘they need not be present in the same degree.’”].)

Plaintiff has not met his burden of demonstrating that the Agreement is unconscionable or otherwise unenforceable.

CONCLUSION

            Accordingly, Defendant’s motion to compel arbitration is granted. The matter is stayed pending issuance of the arbitrator’s decision.