Judge: Cherol J. Nellon, Case: 23STCV15699, Date: 2023-10-10 Tentative Ruling

Case Number: 23STCV15699    Hearing Date: October 10, 2023    Dept: 14

Instant Motion

 

Defendant MHF now moves this court for an order staying this case and compelling Plaintiff to arbitrate his claims, on the basis that the parties have entered into a binding arbitration agreement.

 

Decision

 

The motion is DENIED.

 

Discussion

 

On January 12, 2023, Plaintiff signed an “Arbitration Agreement” (“Agreement”) which provides in relevant part as follows:

 

“MHF & AMMD strongly urges employees to make use of the arbitration process should a dispute arise to permit for an efficient process of resolving disputes at the election of the parties. This process permits the Employee to submit disputes that cannot ro have not been resolved to a Neutral Arbitrator…Employees are free to have legal (attorney) representation at any time during arbitration or represent themselves. Arbitration is an election and not mandatory.

I, as an MHF & AMMD employee, agree and understand that should a conflict arise between myself and MHF & AMMD or its employees or officers or agents that cannot be resolved, I agree to submit the dispute to arbitration for resolution.

 

I understand that as an employee electing this process, I can choose the Arbitrator…The parties will equally share the costs of the Arbitration.

 

·       NOTE: If I cannot afford to pay the Arbitrator’s hourly rate to resolve the dispute, upon showing of hardship, MGH & AMMD has agreed to pay the arbitrators fees in full to permit the Arbitration to proceed and a Finding to be issued on the dispute, subject to reimbursement unless waived by MHF & AMMD.

 

I agree that any arbitration will be subject to AAA Procedures and rules, the process followed by the Arbitrator…

 

I hereby agree to using an Arbitrator as set forth above should a dispute arise that cannot be resolved between myself and MHF & AMMD (including its employees, offices, and agents) and I understand and agree that I HEREBY AND FOREVER WAIVE a right to litigate complaints in the United States Courts or Superior Court related to MHF & AMMD and/or its employees’…acts so that these may be submitted to an Arbitrator in Arbitration exclusively – whether based on state or federal law. Both MHF & AMMD and I, as the employee, agree to bear our own attorney’s fees, if any, should attorney’s be used during Arbitration and regardless of who is the prevailing party as determined by the Arbitrator.

 

I agree and understand that if any arbitration agreement has provision that prove to be unenforceable that these provisions will be deemed severed from the agreement without negating the agreement to Arbitrate any disputes should they occur.” (Declaration of Kevin Ralph Exhibit B) (Emphasis in original).

 

The parties to the Agreement were Plaintiff and Defendant. Plaintiff now seeks to avoid the agreement on the basis that it is unconscionable.

 

There are two prongs to an unconscionability analysis: procedural and substantive. “Procedural unconscionability focuses on whether there is “oppression” arising from an inequality of bargaining power or “surprise” arising from buried terms in a complex printed form. The substantive element addresses the existence of overly harsh or one-sided terms. An agreement to arbitrate is unenforceable only if both the procedural and substantive elements are satisfied. However…the 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.” McManus v. CIBC World Markets Corp. (2003) 109 Cal.App.4th 76, 87 (internal quotations and citations omitted).

 

Procedural Unconscionability

 

            This agreement is procedurally unconscionable because its terms are fundamentally confusing and unclear. The agreement leads off by saying that the Defendant “strongly encourages” arbitration should a “dispute” arise. It emphasizes that arbitration “is an election and not mandatory.” The next paragraph says that the employee agrees to arbitrate should a “conflict” arise. Nowhere are the terms “dispute” or “conflict” defined. While perfectly reasonable as layman’s terms, in the technical context of a contract they are hopelessly ambiguous. Not until the bottom of the page is there a whiff of a litigation waiver, and it is never clear what claims are being waived.

 

The reference to “AAA Procedures and Rules, the process followed by the Arbitrator” is also mysterious. “AAA” presumably means the American Arbitration Association, but nowhere is that expressly spelled out. AAA is simply identified as “a well-established alternative-dispute resolution program.” And while following a reference to the AAA rules with the phrase, “the process followed by the arbitrator” appears to be a (somewhat redundant) attempt to explain what sort of thing those Procedures and Rules are, it also appears to leave open the possibility that the individual Arbitrator selected may have a different process that might also need to be followed.

 

            A sophisticated reader with a background in the law of arbitration might be able to overcome all this confusing verbiage, with the aid of some confirming questions addressed to Defense’s legal department. They might infer that while the employee is under no obligation to sign the agreement, if they do sign, the agreement waives all rights to litigate legal claims against the Defendant in court. That would be the sensible way to read the agreement if this court were charged with resolving its ambiguity. But that is not what the court is charged with. It is sufficient for present purposes to recognize the ambiguities, and to recognize that they render this agreement incomprehensible to a layperson.

 

Substantive Unconscionability

 

            The agreement is also substantively unconscionable because it requires the employee to expend additional costs to proceed with a claim, while waiving his statutory right to certain monetary remedies which would be available in court. See Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, 102.

 

            First, the agreement says that the parties will share the costs of the Arbitration equally. But the cost of arbitration includes not only the ordinary administration and filing fees incumbent on any legal process, it includes the hourly fee of the Arbitrator as well. Second, the agreement provides that the employee waives his right to recover attorney’s fees even if he prevails.

 

            Defendant suggests that these provisions should be severed. While the waiver provision might be severed if it stood alone, the cost-sharing provision cannot be severed. Defendant rightly observes that a contract should be voided entirely only if the agreement is “permeated” with unconscionability. Roman v. Superior Court (2009) 172 Cal.App.4th 1462, 1477-78. But a contract may be “permeated” if there is (a) more than one unconscionable provision or (b) the court cannot cure the unconscionability without re-writing the contract. Id. at 1478 (citing Armendariz).

 

            Here both factors obtain. There are two unconscionable provisions, suggesting that the contract is designed to make arbitration prohibitively expensive. And while the court might strike the waiver provision wholesale, leaving the arbitrator free to follow the ordinary course of the law, the cost-sharing provision would have to be edited by the court to render it conscionable.

 

            The cost-sharing provision is currently written such that the parties share costs unless Plaintiff makes a showing of (undefined) hardship. In that case, Defendant will advance only the amount of the Arbitrator’s hourly fees. But Defendant reserves the right to claim reimbursement in an unspecified manner at an unspecified time in the future. The court cannot simply strike this and leave the parties without an agreement regarding arbitration costs. Nor can the court reframe the terms, removing or defining Defendant’s right of reimbursement, defining a hardship, or altering the effect of a hardship finding. To do so would be to draft for the parties a new agreement they should use in the future, not to preserve for them the old agreement they already made. These defects are not severable.

 

Conclusion

 

            This Agreement is fundamentally ambiguous in its terms, and likely to confuse any reader as to (1) whether the Agreement secured them the option to arbitrate or foreclosed their option to litigate and (2) what “disputes” or “conflicts” the Agreement even covers. This renders it procedurally unconscionable. Further, the Agreement requires that an employee split the entire cost of arbitration and waive the right to recover attorney’s fees, thus adding greatly to the expense of resolution while removing a major monetary remedy. This renders it substantively unconscionable. These problems do permeate the contract. Therefore, it cannot be enforced.

 

            Since the Agreement is not enforceable, the motion to compel arbitration is DENIED.