Judge Christian R. Gullon, Case Number: 22STCV35280, Date: 2023-11-17 Tentative Ruling

Judge: Christian R. Gullon, Case: 22STCV35280, Date: 2023-11-17 Tentative Ruling

(1) MOTION TO COMPEL ARBITRATION OF PLAINTIFF’S CLAIMS ON AN INDIVIDUAL BASIS Re: 22STCV28338 (individual claims) is GRANTED.

(2) Motion to Compel Arbitration Re: 22STCV35280 (PAGA claims) is GRANTED.

On August 31, 2022, Plaintiff filed suit for six claims related to wage and overtime and one claim for injunctive relief claim under California's unfair competition law (UCL) pursuant to Bus. & Prof. Code, § 17200 et seq.

On October 5, 2023, the court issued the following minute order (in 22STCV28338): Plaintiff Counsel's oral motion to submit additional briefing to the Court is heard and GRANTED. Plaintiff's Counsel is Ordered to submit supplemental briefing due on or before October 20, 2023. Further, Defense Counsel is Ordered to submit supplemental briefing due on or before November 3, 2023. On the Court's own motion, the Hearing on Motion to Compel Arbitration scheduled for 10/05/2023 is continued to 11/17/2023 at 10:00 AM in Department O at Pomona Courthouse South.

On October 27, 2023, Plaintiff filed a ‘NOTICE OF ERRATA RE SUPPLEMENTAL OPPOSITION TO DEFENDANT’S MOTION TO COMPEL ARBITRATION,’ indicating “the incorrect draft of the Supplemental Opposition was filed and served. The substantive contents of the correct version of the Supplemental Opposition is not different from the incorrect version. In the correct version, the table of contents is removed and unnecessary highlights are removed.” (Notice of Errata p. 1.)

The FAA applies to contracts that involve interstate commerce. (9 U.S.C. §§ 1, 2.)

Section 2 of the FAA provides in relevant part: “A written provision in . . . a contract . . . to settle by arbitration a controversy thereafter arising out of such contract or transaction . . . shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.” (9 U.S.C. § 2.) Under the FAA, there is a strong policy favoring arbitration. (Moses H. Cone Memorial Hospital v. Mercury Construction (1983) 460 U.S. 1, 24; Engalla v. Permanente Medical Group, Inc. (1997) 15 Cal.4th 951, 971–972.) “The overarching purpose of the FAA is to ensure the enforcement of arbitration agreements according to their terms …..” (AT&T Mobility LLC v. Concepcion (2011) 563 U.S. 333, 344 (Concepcion).)[2]

On a motion to compel arbitration, a trial court is posed with determining two questions: (1) whether an enforceable arbitration agreement exists between the parties and (2) whether the claims are covered within the scope of the agreement. (Omar v. Ralphs Grocery Co. (2004) 118 Cal.App.4th 955, 961.) Both questions present a matter of contract interpretation. (AT&T Technologies, Inc. v. Communications Workers of America (1986) 475 U.S. 643, 648 [“Arbitration is a matter of contract….”].)

The party seeking arbitration bears the burden of proving the existence of an arbitration agreement, and the party opposing arbitration any defense, such as unconscionability and waiver. (Pinnacle Museum Tower Assn. v. Pinnacle Market Development (US), LLC (2012) 55 Cal.4th 223, 236 (Pinnacle); see St. Agnes Medical Center v. PacifiCare of California (2003) 31 Cal.4th 1187, 1195.)

In an answer in the affirmative as to both “leaves no room for the exercise of discretion by a [] court, but instead mandates that [] court[] shall direct the parties to proceed to arbitration on issues as to which an arbitration agreement has been signed.” (Dean Witter Reynolds, Inc. v. Byrd (1985) 470 U.S. 213, 213.)

Defendant moves to Compel Arbitration of Plaintiffs’ Claims on an Individual Basis within arbitration. (See Proposed Order.)

The Agreement, which is governed by the Federal Arbitration Act (Zuniga Decl., Ex. A., p. 9 of 14 of PDF) states in pertinent part:

This Arbitration Agreement is entered into between the employee and Consolidated Precision Products, its divisions, affiliates, subsidiaries and each of its or their respective officers, directors, employees, representatives… (collectively ‘the Company’)… The parties hereby mutually waive their right to a jury or court trial of any and all Covered Claim and mutually waive their right to maintain or participate in any Class Action… in any forum… Examples of the type of disputes or claims under the MAP include, but are not limited to… wage or overtime claims or other claims under any other state or local wage laws, and/or any other legal or equitable claims and causes or action recognized by local, state or federal law or regulations… (Motion p. 1, emphasis added.)

Effectively, based off the plain language of the Arbitration Agreement, Plaintiff waived his right to a class action suit and consented to arbitrate any individual wage/PAGA-related claims. And as the FAA applies, the law is well-settled that arbitration agreements limiting an employee to pursuing claims individually are enforceable. (See Epic Sys. Corp. v. Lewis (2018) 138 S. Ct. 1612, 1619.) Thus, as the agreement is not susceptible to an interpretation that the claims are not covered by arbitration, the order to arbitrate should not be denied.

- The court must deny the motion to compel arbitration in relation to plaintiff’s business and professions code section 17200 claims because the agreement has an express carve out for injunctive and equitable claims related to claims for unfair competition.

1. Whether The Agreement Exempts Injunctive and Equitable Relief Claims Based On Unfair Competition

In section 5 of the agreement, titled “Claims Not Covered Under [Mutual Arbitration Agreement],” the agreement states the following:

MAP does not cover … a claim by either party for injunctive or other equitable relief related to claims for unfair competition AND the use or unauthorized disclosure of trade secrets or confidential information,…, for which either party may seek and obtain relief from a court of competent jurisdiction without waiving the obligation under this Agreement to otherwise pursue such claims by way of mediation, and if necessary, arbitration…

Applying the principles of contract law, a court must take the contract as a whole, “so as to give effect to every part, if reasonably practicable, each clause helping to interpret the other.” (Vaughn v. Tesla, Inc. (2023) 87 Cal.App.5th 208, 219.), internal citation omitted.) With that in mind, whether under state or federal law, “any ambiguities or doubts about the scope of an arbitration agreement must be resolved in favor of arbitration.” (Ericksen, Arbuthnot, McCarthy, Kearney & Walsh, Inc. v. 100 Oak Street (1983) 35 Cal.3d 312, 323, emphasis added.)[4]

Here, as raised by Defendant in Reply, Plaintiff does not read the provision in its entirety. The plain text signals that only claims for unfair competition “and” (i.e., predicated on) the use or unauthorized disclosure of trade secrets or confidential information is exempt. (Reply p. 2:21-24.) The ordinary and usual usage of ‘and’ is as a conjunctive, meaning ‘“an additional thing,”’ ‘also’ or ‘plus.’” (Reply p. 3, citing In re C.H., 53 Cal.4th 94, 101 (2011). Accordingly, read as a conjunctive, a UCL claim would only be excluded from arbitration if it was also brought forth with, also, or plus the use or unauthorized disclosure of trade secrets or confidential information. Here, however, there is no such claim, meaning the UCL claim is not excluded from arbitration.[5] (See also Reply p. 3 [discussing the punctuation of the ‘Exemption Clause’ further supports the interpretation].)

To the extent that in its supplemental opposition Plaintiff contends that the court’s reliance and Defendant’s citation to In re C.H. was unavailing as the case involved statutory interpretation, not contract interpretation, that distinction does not necessarily render the case inapposite. After all, similar to statutory interpretation which starts with the “statute's words, assigning them their usual and ordinary meanings, and construing them in context” (X.M. v. Superior Court (2021) 68 Cal.App.5th 1014, 1021), contract interpretation also looks at the plain meaning of the text.

In lieu of In re C.H., Plaintiff cites Amerigraphics, Inc. v. Mercury Casualty Co. (2010) 182 Cal.App.4th 1538 to argue that the use of “and” carves out two distinct types of claims for injunctive or equitable relief, claims for “unfair competition” and the “use or unauthorized disclosure of trade secrets or confidential information.” (Supp. Opp. p. 6.) But Amerigraphics is inapposite as it involved an insurance policy and “[i]n insurance policy, coverage provisions are interpreted broadly so as to afford the greatest possible protection to the insured, whereas exclusionary clauses are interpreted narrowly.” (Id. at p. 1551.) Arbitration provisions however are to be construed to favor of arbitration (i.e., affording greatest protection to the employer).

To the extent that Plaintiff in opposition relies upon Lacayo v. Catalina Restaurant Group, Inc. (2019) 38 Cal.App.5th 244 and Cortez v. Purolator Air Filtration Prods. Co. (2000) 23 Cal.4th 163 to support its proposition that “at minimum, the Court must deny the arbitration agreement in relation to Plaintiff’s seventh cause of action seeking equitable relief based on claims of unfair competition in the form of injunction and restitution in violation of Business and Professions Code section 17200 because the agreement expressly permits such claims to proceed in court or arbitration,” (Opp. p. 1:8-12; see also Opp. p. 3 [header 2]), neither case is instructive.

In Lacayo, in addition to the section entitled “Claims Covered by the Agreement” that pertained to standard wage claims, there was another section entitled “Claims Not Covered by the Agreement.” It consisted of the following language:

Claims that Employee may have for workers' compensation, unemployment compensation benefits, or claims deemed not subject to arbitration under law are not covered by this Agreement. [¶] Upon a showing of reasonable cause, either party to this Agreement may petition a court of competent jurisdiction for immediate injunctive and/or equitable relief for unfair competition and/or the use and/or unauthorized disclosure of trade secrets or confidential information.

In determining that there was a specific exemption agreed to by the parties in the arbitration agreement for unfair competition claims, the court concluded so (with minimal analysis) because the terms of the contract were “clear” that “the parties intended to exempt the UCL claim from arbitration.” (Id. at p. 258.)

However, the language of the provisions differs. Whereas in Lacayo the UCL claim standing alone is exempted, here, a UCL claim is exempted if it is predicated upon or based upon the unauthorized disclosure of trade secrets or confidential information. Put another way, the language in Lacayo would be similar if it read that “injunctive and/or equitable relief for unfair competition AND the use and/or unauthorized disclosure of trade secrets or confidential information” are exempted. Rather, the exemption clause in Lacayo’s use of the word “or” suggests alternatives (i.e., the UCL claim is a separate, alternative claim than one use and/or unauthorized disclosure of trade secrets or confidential information. (See Reply p. 5.)

Regarding Cortez, the case does not involve an arbitration agreement; therefore, the case is irrelevant.

In its supplemental brief, Plaintiff addresses another case: Duran v. EmployBridge Holding Co. (2023) 92 Cal.App.5th 59. But that case is also distinguishable.

There, the arbitration agreement had a broad agreement to arbitrate claims which included “any dispute between [Duran] and the company” which “may include but are not limited to claims for or under: … wages, salary, compensation, reimbursement, penalties, … the Federal Labor Standards Act and comparable state or local laws.” (Id. It p. 62.) However, the agreement also referenced that PAGA claims are exempt from arbitration by stating “Claims for unemployment compensation, claims under the National Labor Relations Act, claims under PAGA, claims for workers' compensation benefits, and any claim that is non-arbitrable under applicable state or federal law are not arbitrable under this Agreement.” (Id. at 63.) The court (again with minimal analysis and relying on the unambiguous language that claims under PAGA are not arbitrable under the agreement (id. at p. 67), denied the motion to compel arbitration PAGA labor code violations.

However, unlike Duran wherein one part of the provision stated that wage claims are subject to arbitration but then in another provision stated that PAGA claims (which pertains to wage violations) is not subject to arbitration—thus, creating ambiguiety—here, no ambiguiety exists: wage claims are subject to arbitration and claims for unfair competition and (i.e., predicated on) the use or unauthorized disclosure of trade secrets or confidential information ae excluded from arbitration. (See also Supp. Reply p. 6.)

In sum, abiding the basic canon that words of a contract are to be understood in their ordinary and popular sense (Civil Code section 1644), here, all the claims fall under arbitration.[6]

The California Supreme Court has stated the following regarding the general principles of unconscionability.

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. Under this standard, the unconscionability doctrine has both a procedural and a substantive element. The procedural element addresses the circumstances of contract negotiation and formation, focusing on oppression or surprise due to unequal bargaining power. Substantive unconscionability pertains to the fairness of an agreement's actual terms and to assessments of whether they are overly harsh or one-sided. Both procedural and substantive unconscionability must be shown for the defense to be established, but they need not be present in the same degree. Instead, they are evaluated on ‘a sliding scale.’ [T]he more substantively oppressive the contract term, the less evidence of procedural unconscionability is required to conclude that the term is unenforceable. Conversely, the more deceptive or coercive the bargaining tactics employed, the less substantive unfairness is required … 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, internal citations omitted, emphasis added.)

Plaintiff’s only argument as to procedural unconscionability is that he had to sign the agreement. (Opp. p. 9.)

But the inquiry does not end there. “The pertinent question, then, is whether circumstances of the contract's formation created such oppression or surprise that closer scrutiny of its overall fairness is required. 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.” (Ibid, internal citations omitted, italics original). To determine the presence of such circumstances, there are five considerations to examine: “(1) the amount of time the party is given to consider the proposed contract; (2) the amount and type of pressure exerted on the party to sign the proposed contract; (3) the length of the proposed contract and the length and complexity of the challenged provision; (4) the education and experience of the party; and (5) whether the party's review of the proposed contract was aided by an attorney.” (Id. at pp. 126-128.)

Here, however, Plaintiff has provided no facts about the circumstances surrounding the formation and negotiations of the Arbitration Agreement. “Absent any evidence, we cannot just assume there was procedural unconscionability.” (Performance Team Freight Systems, Inc. v. Aleman (2015) 241 Cal.App.4th 1233, 1248; see also Reply p. 6, citing to Torrecillas v. Fitness Int’l LLC (2020) 52 Cal.App.5th 484, 493 [“Whether the agreement was or was not a contract of adhesion is not the core question. Rather, from the standpoint of determining whether there was procedural unconscionability, the core issues are surprise and oppression.”].)

In its supplemental opposition (and in response to the court’s original tentative), Plaintiff argues that it did provide evidence of procedural unconscionability: it was an adhesion contract. (Supp. Opp. p. 7.) In support of its contention that an adhesion contract alone evidences procedural unconscionability, Plaintiff cites to Alberto v. Cambrian Homecare (2023) 91 Cal.App.5th 482, 490. Upon appeal, as the trial court’s ruling was not contested, the court held that “low degree of procedural unconscionability due to the adhesive nature of the agreement.” (Id; see also Ramirez v. Charter Communications, Inc. (2022) 75 Cal.App.5th 365, 373 [““[T]he adhesive nature of the contract is sufficient to establish some degree of procedural unconscionability.”].)

But neither case is a California Supreme Court case and OTO has answered otherwise. The pertinent question, even with an adhesion contract, is “whether circumstances of the contract's formation created such oppression or surprise that closer scrutiny of its overall fairness is required.” (OTO, supra, 8 Cal.5th at p. 126.) The requirement of a showing of oppression or surprise for procedural unconscionability is further suggested by the court’s organization of the opinion: the first header is dedicated to ‘Procedural Unconscionability’ (pages 126-129) and the second header discusses ‘Substantive Unconscionability’ (pages 129 to 138.) Had the analysis merely ended with a finding of an adhesion contract, the state Supreme Court would not have discussed other factors required to show procedural unconscionability; its analysis would have ended with a finding of an adhesion contract. To the extent that Plaintiff cites to Grand Prospect Partners, L.P. (2015) 232 Cal.App.4th 1332, that is not a California Supreme Court case and was decided before OTO.

Therefore, the court adheres to its original ruling in that Plaintiff did not make an adequate showing of procedural unconscionability. As both procedural and substantive unconscionability of a contract must be shown for the defense of unconscionability to be established and Plaintiff has not shown the former, Plaintiff has not established that the agreement is unconscionable.

As the arguments raised in 22STCV28338 (seeking that Plaintiff pursue the individual PAGA claims alleged in his Complaint within arbitration and on an individual basis) are largely similar if not identical, that motion is also granted.

[1] The Agreement has already been recently enforced by this Court against two former employees of Defendant, in a PAGA-only action pending in Los Angeles County Superior Court, Salazar v. CPP-City of Industry Cast Parts, Inc., Case No. 21PSCV00014 and Nunez v. Cast Parts, Inc. DBA Consolidation Precision Products, Case No. 21STCV08428.

[2] As correctly observed by Defendant, the United States Supreme Court has made clear that California policy that sought to prohibit enforcement of arbitration agreements including class action waivers is preempted by the FAA. (Id. at p. 341 [“When state law prohibits outright the arbitration of a particular type of claim, the analysis is straightforward: The conflicting rule is displaced by the FAA.”].)

[3] Though not raised by Defendant, this provision (regarding exempt claims) would typically be employed by the employer not the employee. (See Martinez v. Master Production Corp. (2004) 118 Cal.App.4th 107, 115 [“Claims for unpaid wages, wrongful termination, employment discrimination and the like invariably are brought by employees, while claims involving trade secrets, misuse or disclosure of confidential information, and unfair competition typically are asserted only by employers.”].) And Plaintiff is aware of this distinction as it it’s used to argue substantive unconscionability. Thus, Plaintiff’s argument that this provision also applies to Plaintiff’s claims is incongruent with the basis of Plaintiff’s opposition.

[4] Plaintiff’s opposition acknowledges this canon. (Opp. p. 3:18-19.)

[5] Thus, Plaintiff’s predominant reliance on Lacayo v. Catalina Restaurant Group, Inc. (2019) 38 Cal.App.5th 244, 257-259 is inapposite because the arbitration agreement used “and/or” whereas here the agreement only uses “and.”

[6] Plaintiff’s heavy reliance upon Rebolledo v. Tilly’s, Inc. (2014) 228 Cal.App.4th 900, 920 is inapposite as not only the facts involved numerous factual dissimilarities (i.e., plaintiff there could not speak or read English), but also the agreement(s) “expressly exclude[d] ‘any matter within the jurisdiction of the California Labor commissioner.’” (Id. at p. 913.) Here, however, the arbitration agreement does not make any reference to the Labor commissioner’s jurisdiction regarding labor code violations. Plus, here, the agreement is specific (not general) in that it states what is subject to arbitration and what claims are not subject to arbitration.