Judge: Carolyn M. Caietti, Case: 37-2023-00048296-CU-OE-CTL, Date: 2024-06-07 Tentative Ruling

SUPERIOR COURT OF CALIFORNIA,

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HALL OF JUSTICE

TENTATIVE RULINGS - June 06, 2024

06/07/2024  10:30:00 AM  C-70 COUNTY OF SAN DIEGO

JUDICIAL OFFICER:Carolyn Caietti

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Civil - Unlimited  Other employment Motion Hearing (Civil) 37-2023-00048296-CU-OE-CTL KHALAF VS HUB INTERNATIONAL INSURANCE SERVICES INC [IMAGED] CAUSAL DOCUMENT/DATE FILED: Motion - Other, 12/08/2023

Defendant HUB International Insurance Services, Inc.'s Motion to Compel Arbitration and/or Stay Action is GRANTED.

Preliminary Matters Plaintiff alleges he founded Axella Insurance Services in 2012. In 2017, Plaintiff entered into an Asset and Purchase Contribution Agreement with Defendant HUB International Insurance Services and Axella.

Under the agreement, HUB acquired assets of Axella and Plaintiff agreed to certain restrictive covenants. Plaintiff also started working for HUB in 2017. The complaint alleges two causes of action for: (i) declaratory relief; and (ii) violation of the Business and Professions Code section 17200. Generally, Plaintiff asks for: (i) a judicial declaration that the enforcement of the restrictive post-employment covenants violate California law and are void and unenforceable; and (ii) a permanent injunction to preclude HUB's enforcement of the restrictive covenants.

Plaintiff's request for judicial notice is granted and notice will be taken to the extent permitted.

Footnote 3 in HUB's reply includes an objection to the Declaration of Martin Khalaf. Evidentiary objections should be filed in a separate document and should state the language verbatim, page and line number and document where such language appears and the legal ground. (Weil & Brown, Cal. Prac. Guide Civ. Pro. Before Trial (The Rutter Group (June 2024 Update), at § 9:102.6.) On the merits, the objections are overruled.

Discussion HUB Proved the Existence of An Arbitration Agreement and Delegation to the Arbitrator Based on the evidence provided, HUB proved the existence of an arbitration agreement. (C.C.P., § 1281.2; ROA 12 – Declaration of Shannon Taylor, at Ex. 1 [The Agreement].) Parties to arbitration agreements are generally free to delegate to an arbitrator, instead of a court, questions regarding the enforceability of their agreement. (B.D. v. Blizzard Entertainment, Inc. (2022) 76 Cal.App.5th 931, 956.) As explained in B.D., there are two prerequisites for a delegation clause to be effective. First, the language of the clause must be clear and unmistakable. Second, the delegation must not be revocable under state contract defenses such as fraud, duress, or unconscionability. The 'clear and unmistakable' test reflects a 'heightened standard of proof.' (B.D., supra, at p. 957.) Calendar No.: Event ID:  TENTATIVE RULINGS

3062159  56 CASE NUMBER: CASE TITLE:  KHALAF VS HUB INTERNATIONAL INSURANCE SERVICES INC  37-2023-00048296-CU-OE-CTL In Aanderud v. Superior Court (2017) 13 Cal.App.5th 880, the parties agreed to arbitrate all disputes including 'the determination of the scope or applicability of' the arbitration dispute section. The court found this language 'delegates to the arbitration questions of arbitrability and is clear and unmistakable evidence that the parties intended to arbitrate arbitrability.' (Id., at p. 892.) The Aanderud agreement's reference to JAMS rules also provided the parties' clear and unmistakable intent to submit issues of arbitrability to the arbitrator. (Id., at p. 893.) Similarly, here, the agreement provides the parties agree to arbitration of 'each unresolved dispute...including questions regarding the scope and applicability of this section...' and 'shall be settled by binding arbitration administered by JAMS' in accordance with its rules. (Agreement, at § 12.10(a) (emphasis added).) As found under Aanderud, the delegation clause is clear and unmistakable.

Plaintiff raises several issues in response. First, Plaintiff argues the delegation clause does not apply because of Section 12.10(d), which states nothing in the arbitration agreement 'shall preclude any party from seeking and obtaining equitable relief in a court of competent jurisdiction as contemplated by Section 8.10(f) and Section 12.11 or to avoid irreparable harm...' (Agreement, at § 12.10(d) (emphasis omitted).) But Plaintiff does not sufficiently explain how his causes of action seek equitable relief under Section 8.10(f) and 12.11. Indeed, Section 8.10(f) entitles HUB, as the purchaser, to equitable remedies and 12.11 concerns specific performance and equitable remedies without mentioning seeking such remedies in a court of law.

Second, Plaintiff argues Section 12.10(d) creates ambiguity against Section 12.10(a) because it authorizes the court to determine equitable issues. In Aanderud, a general severability clause's reference to a 'court of competent jurisdiction' did not render the delegation clause ambiguous because it did not suggest such a court might decide whether the arbitration provision was enforceable.

(Aanderud, supra, 13 Cal.App.5th at p. 893-94.) Similarly, here, there is no suggestion a court could decide whether the arbitration provision was enforceable in Section 12.10(d). Thus, the first element of the delegation clause being clear and unmistakable is met.

Plaintiff Did Not Prove the Delegation Clause is Unconscionable Next Plaintiff argues both the delegation clause and the agreement as a whole are unconscionable. The focus first is on whether the delegation clause is unconscionable and any claim of unconscionability must be specific to the delegation clause. (Aanderud, supra, 13 Cal.App.5th at p. 895; see also, Nickson v. Shemran, Inc. (2023) 90 Cal.App.5th 121, 133 (concluding it was for the arbitrator, not a court, to determine whether the agreement was unconscionable since: (i) the arbitration agreement contained a delegation clause; (ii) the employee/plaintiff challenged the enforceability of the agreement as a whole and not the delegation clause in particular; and (iii) the delegation to the arbitrator to decide enforceability was clear and unmistakable).) 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. (OTO, L.L.C. v. Kho (2019) 8 Cal.5th 111, 125-26 .) Under this standard, the unconscionability doctrine has both a procedural and a substantive element. (Ibid.) The procedural element addresses the circumstances of contract negotiation and formation, focusing on oppression or surprise due to unequal bargaining power.

(Ibid.) Substantive unconscionability pertains to the fairness of an agreement's actual terms and to assessments of whether they are overly harsh or one-sided. (Ibid.) Both procedural and substantive unconscionability must be shown for the defense to be established, but they need not be present in the same degree. (Ibid.) A procedural unconscionability analysis 'begins with an inquiry into whether the contract is one of adhesion.' (OTO, supra, at p. 126, citing Armendariz v. Foundation Health Psychcare Service, Inc.

(2000) 24 Cal.4th 83, 113.) An adhesive contract is standardized, generally on a preprinted form, and offered by the party with superior bargaining power 'on a take-it-or-leave-it basis.' (Ibid. citing Baltazar v. Calendar No.: Event ID:  TENTATIVE RULINGS

3062159  56 CASE NUMBER: CASE TITLE:  KHALAF VS HUB INTERNATIONAL INSURANCE SERVICES INC  37-2023-00048296-CU-OE-CTL Forever 21, Inc. (2016) 62 Cal.4th 1237, 1245.) 'Oppression occurs where a contract involves lack of negotiation and meaningful choice, surprise where the allegedly unconscionable provision is hidden within a prolix printed form.' (OTO, supra, citing Pinnacle Museum Tower Assn. v. Pinnacle Market Development (US), LLC (2012) 55 Cal.4th 223, 247.) Here, Plaintiff did not prove procedural unconscionability. Plaintiff points to seven facts (Opp., at p. 14:1-19); none of which concern how the delegation clause is specifically procedurally unconscionable.

Even if the Court considers these facts, they do not show adhesion, a lack of negotiation or meaningful choice and surprise. No matter the employee-size disparities between Axella and HUB or Plaintiff's limited experience in acquisitions, the evidence shows he made a choice to enter into the agreement. He concedes he had legal representation, there was negotiation of the terms (albeit 'little negotiation'), 'some due diligence,' and changes made to some of the terms. (Declaration of Martin Khalaf.) The delegation clause is also not buried in an overly complex printed form. Without procedural unconscionability, the defense fails.

Accordingly, the delegation is not revocable under state contract defenses and it is for the arbitrator to determine the 'scope and applicability' of the arbitration provision. (Nickson, supra.) For these reasons, the motion to compel arbitration is GRANTED. The request for a stay of the litigation is also GRANTED. (C.C.P., § 1281.4.) Concluding Orders Plaintiff Martin Khalaf and Defendant HUB International Insurance Services, Inc. are ordered to arbitration for this matter.

This action against is stayed during the pendency of arbitration.

The Case Management Conference is vacated.

The Court sets a status conference on October 4, 2024, at 9:15 a.m. in Department 70 to discuss the status of arbitration.

If the tentative ruling is confirmed without modification, the minute order will be the Court's final ruling.

Defendant is ordered to serve notice of the Court's final ruling by June 11, 2024.

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