Judge Bruce G. Iwasaki, Case Number: 24STCV06756, Date: 2024-06-03 Tentative Ruling

Tentative Ruling: The Motion to Compel Arbitration is granted; the matter is stayed pending resolution of the arbitration.

In this breach of contract action filed on March 18, 2024, Plaintiff Bob Mizer Foundation, Inc. (Plaintiff) filed a complaint against Defendant CultureEdit, LLC (Defendant). The Complaint seeks relief based on the parties’ contract wherein Defendant CultureEdit was to act as Plaintiff’s agent in securing licenses for the use of Plaintiff’s intellectual property.

On May 6, 2024, Defendant filed a motion to compel arbitration pursuant to the parties’ arbitration agreement. In opposition, Plaintiff argues Defendant failed to carry its burden of showing the existence of a valid arbitration agreement and that the arbitration agreement is unconscionable.

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.)

In ruling on a motion to compel arbitration, a court must determine two threshold matters: first, whether a valid agreement to arbitrate exists; and second, whether that agreement encompasses the dispute at issue. (See Code Civ. Proc. § 1281.2.)

On September 29, 2017, Plaintiff and Defendant entered into an agreement under which Defendant CultureEdit was appointed as Plaintiff’s agent and agreed to perform certain services related to Plaintiff’s intellectual property. (Andreasson Decl., ¶ 4; Compl., ¶ 8, Ex. A.) Under the Agreement, Defendant CultureEdit was given the authority “to solicit and negotiate all offers from third parties” relating to the licensing/use of Plaintiff’s intellectual property, and “to seek to obtain agreements with third parties” relating to the licensing/use of such works. (Andreasson Decl., ¶ 4; Compl., ¶ 8, Ex. A, ¶ 2.) In exchange, Defendant CultureEdit was compensated in the form of commissions on these royalties and revenues, and was “entitled to deduct and retain the commission[s] from the revenues [it] collected” under these third-party agreements before forwarding the remainder to Plaintiff. (Andreasson Decl., ¶ 4; Compl., ¶ 8, Ex. A, ¶ 4(a) & (c).) The Complaint alleges that Defendant failed to perform on this Agreement.

Relevant to this motion, Paragraph 9 of the Agreement provides that that “all disputes arising hereunder [are] to be resolved by binding arbitration in accordance with the JAMS Streamlined Arbitration Rules and Procedures.” (Andreasson Decl., ¶ 4; Compl., ¶ 8, Ex. A, ¶ 9.)

In opposition, Plaintiff argues that Defendant has failed to present any evidence of existence of the Agreement and thus failed to carry its initial burden on this motion to compel arbitration. In making this argument, Plaintiff first argues that Defendant has failed to attach any Agreement or quote the specific language. However, the moving papers adequately demonstrate the existence of an arbitration agreement, which the papers note is attached to Plaintiff’s Complaint and forms the basis of Plaintiff’s claims. (Andreasson Decl., ¶ 4.)

Plaintiff also relies on the holding in Domestic Linen Supply Co., Inc. v. L J T Flowers, Inc. (2020) 58 Cal.App.5th 180 to argue that there was no meeting of the minds on the arbitration provision because the arbitration provision hidden in tiny font, in the middle of a very large section labeled “Miscellaneous” and buried in a prolix of legal terms. (Opp., 5:5-6.)

In Domestic Linen Supply Co., Inc. v. L J T Flowers, Inc., the court held no arbitration agreement had been formed where arbitration clause was buried in a “thicket of fine print” on the back page of the contract, after the signature line. (Id. at 185.)

The facts here are entirely distinguishable. Unlike in Domestic Linen Supply, the arbitration provision is directly above the signature lines in the same font size as all the other provisions. In contrast, in Domestic Linen Supply Co., Inc. v. L J T Flowers, Inc., the arbitration provision was located on the back side of the contract whereas the parties’ signatures were located on the front; further, the back page was “filled from top to bottom with closely spaced lines of small type” and with nothing to distinguish that provision from any other provision. (Id. at 185.)

Based on the foregoing, Defendant has carried its initial burden of demonstrating the existence of a valid, binding arbitration agreements and that Plaintiff’s claims fall within the scope of the Agreement.

In opposition, Plaintiff argues the contract is unenforceable because it is both 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 argues the Arbitration Agreement is procedurally unconscionable because the Agreement was offered on a take it or leave it basis. (Bell Decl., ¶ 6 [“Like many consumer contracts that the Foundation is presented, there was no negotiation as to any of the terms of this contract. I do not have any background or training in the law. It was my impression that this contract was being presented by Cultureedit as a “take it or leave it contract.”].)

This argument is not well taken. The Agreement is not an employment contract or a consumer contract. Most importantly, the reply evidence demonstrates Plaintiff was in fact involved in the negotiations of this contract. (Andreasson Reply Decl., ¶¶ 3-5, Exs. A-B.)

Plaintiff also notes that the JAMS Streamlined Rules were incorporated but not attached to the Agreement. However, standing alone, the failure to attach the arbitration rules to an agreement is of minor significance in analyzing procedural unconscionability. (Lane v. Francis Capital Management LLC (2014) 224 Cal.App.4th 676, 691–692.) In Lane, the court concluded that the failure to attach the American Arbitration Association (AAA) rules did not render an agreement procedurally unconscionable where the rules were readily available on the internet, and the plaintiff had the means to access them. Further, in Zullo v. Superior Court (2011) 197 Cal.App.4th 477, 485–486, the court concluded that the failure to attach the AAA rules added “a bit to the procedural unconscionability” of the agreement.

Generally, such an omission is unconscionable only when “the failure would result in surprise to the party opposing arbitration.” (Id. at 690-91 [collecting cases and distinguishing Harper v. Ultimo (2003) 113 Cal. App. 4th 1402].)

The remaining procedural unconscionability arguments are not well taken.[1] While admittedly the arbitration provision is not clearly separated from other provisions without its own heading, the Agreement is only three pages and all one size font – that is, not hidden. Further, the parties were sophisticated and the contract was negotiated. Therefore, Plaintiff’s argument of surprise is unpersuasive.

Accordingly, contrary to the argument in the opposition, there is not a high degree of procedural unconscionability. Rather, Plaintiff has not identified any procedural unconscionability in the Agreement and Plaintiff’s unconscionability argument fails for this reason. (Baltazar v. Forever 21, Inc. (2016) 62 Cal.4th 1237, 1243.)

Nonetheless, the Court will address the substantive unconscionability argument, as well.

With respect to substantive unconscionability, Plaintiff argues the Agreement was substantively unconscionable because it “forces” Plaintiff to pay arbitration fees it cannot afford, citing Gutierrez v. Autowest, Inc. (2003) 114 Cal.App.4th 77.

Pointing to the streamlined JAMS rules, Plaintiff notes that under Rule 26(a), “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. JAMS' agreement to render services is jointly with the Party and the attorney or other representative of the Party in the Arbitration.”

Plaintiff contends that streamlined rules would require an initiation fee from the Plaintiff of $1,000 and likely arbitration and administration fees that would “easily” cost over $100,000. (Henning Decl., ¶ 3.)

In Gutierrez v. Autowest, Inc., 114 Cal.App.4th 77, the court held that “where a consumer enters into an adhesive contract that mandates arbitration, it is unconscionable to condition that process on the consumer posting fees he or she cannot pay.” (Id. at p. 89.)

Outside of employment claims, however, neither Gutierrez nor any other California decision has found that an arbitration clause requiring a plaintiff to pay arbitration costs is per se unconscionable. Instead, in Gutierrez and Parada v. Superior Court (2009) 176 Cal.App.4th 1554, the courts held that the substantive unconscionability of provisions in consumer (Gutierrez) and financial (Parada ) agreements requiring the claimant to pay his or her own arbitration costs must be evaluated on a “case-by-case basis,” with the outcome dependent on the ability of the claimant to pay, the anticipated costs of the arbitration, and the amount at issue in the arbitration. (Gutierrez, at pp. 97–98; Parada, at pp. 1580–1581.) The consumer has the burden of demonstrating the clause unconscionable on these grounds, necessarily by submitting evidence on the relevant issues. (Gutierrez, at p. 97.)

As preliminary matter, Plaintiff provides no legal authority that this agreement between two business constitutes a “consumer contract.”

Moreover, Plaintiff provides no direct evidence of its financial condition. Rather, the evidence shows that – in 2017 – it had limited financial resources and only operated by volunteers out of the basement of Plaintiff’s President, Dennis Bell. (Bell Decl., ¶¶ 1-5; see also Henning Decl., ¶ 4 [asserting that he took the case pro bono “because the Bob Mizer Foundation made clear that they were unable to pay for an attorney in this litigation”].) This evidence is insufficient to show an inability to pay arbitration costs. The evidence as to the likely amount of arbitration costs and the amount at issue was equally speculative and unsubstantiated. (Bell Decl., ¶¶ 1-5; see also Henning Decl., ¶¶ 3-6.)

Based on the foregoing, Plaintiff has failed to meet its burden of showing the Agreement is unenforceable based on either procedural or substantive unconscionability.

Accordingly, the Court grants Defendant’s motion to compel arbitration. The motion to compel arbitration is granted; the matter is stayed pending the outcome of arbitration.

[1] The argument for procedural unconscionability is similar to Plaintiff’s argument made under Domestic Linen Supply Co., Inc. v. L J T Flowers, Inc.

Department 58