Judge Christopher K. Lui, Case Number: 23STCV00196, Date: 2023-11-15 Tentative Ruling

Judge: Christopher K. Lui, Case: 23STCV00196, Date: 2023-11-15 Tentative Ruling

Case Number: 23STCV00196 Hearing Date: November 15, 2023 Dept: 76

Pursuant to California Rule of Court 3.1308(a)(1), the Court does not desire oral argument on the motion addressed herein. Counsel must contact the staff in Department 76 to inform the Court whether they wish to submit on the tentative, or to argue the matter. As required by Rule 3.1308(a), any party seeking oral argument must notify ALL OTHER PARTIES and the staff of Department 76 of their intent to appear and argue.

Notice to Department 76 may be sent by email to smcdept76@lacourt.org or telephonically at 213-830-0776.

Per Rule of Court 3.1308, if notice of intention to appear is not given, the Court may adopt the tentative ruling as the final ruling.

Plaintiff alleges that he was discriminated against on the basis of his age and was not promoted in retaliation for complaining about his employer’s illegal practices. Plaintiff alleges constructive termination.

Defendants Classic Distributing Beverage Group, LLC, Classic Distributing and Beverage Group, Inc., Classic Beverage of Southern California, LLC, Joe Hwang, and John Morales move to compel arbitration and to stay this action.

TENTATIVE RULING

The litigation is ordered stayed pending arbitration. (Code Civ. Proc., § 1281.4.)

The parties are ordered to meet and confer to agree upon the arbitral forum. If the parties are unable to agree, Defendants may request a hearing to resolve the dispute. Regardless of the forum, Defendants will bear all costs of arbitration and the arbitrator’s fees.

ANALYSIS

Motion To Compel Arbitration and Stay Action

Existence of Arbitration Agreement

California favors arbitration. (Haworth v. Superior Court (2010) 50 Cal.4^th 372, 380.) Civ. Proc. Code, §1281.2 provides:

On petition of a party to an arbitration agreement alleging the existence of a written agreement to arbitrate a controversy and that a party thereto refuses to arbitrate such controversy, the court shall order the petitioner and the respondent to arbitrate the controversy if it determines that an agreement to arbitrate the controversy exists, unless it determines that:

(a) The right to compel arbitration has been waived by the petitioner; or

(b) Grounds exist for the revocation of the agreement.

Under California law, arbitration agreements are valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract. (Cable Connection, Inc. v. DIRECTV, Inc. (2008) 44 Cal.4th 1334, 1343; Code Civ. Proc., § 1281.) A party petitioning to compel arbitration has the burden of establishing the existence of a valid agreement to arbitrate and the party opposing the petition has the burden of proving by a preponderance of evidence any fact necessary to its defense. (Banner Entertainment, Inc. v. Superior Court (1998) 62 Cal.App.4th 348, 356.) The court may weigh the evidence by considering affidavits, declarations, documents and oral testimony. (Id. at 357.)

Defendants submit an Arbitration Agreement signed by Plaintiff on September 11, 2019. (Declaration of Stephanie E. Gorman, ¶ 3, Exh. 2.) Plaintiff does not dispute that he signed the arbitration agreement.

The FAA applies when the contract “evidences a transaction involving interstate commerce.” (Citation omitted.)

“Section 2 of the FAA provides in relevant part: ‘A written provision in … a contract evidencing a transaction involving commerce 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.)” (Citation omitted.)

(Khalatian v. Prime Time Shuttle, Inc. (2015) 237 Cal.App.4th 651, 657.)

[T]he language of section 2 of the FAA indicates the pertinent question is whether the contract evidences a transaction involving interstate commerce, not whether the dispute arises from the particular part of the transaction involving interstate commerce.

(Shepard v. Edward Mackay Enterprises, Inc. (2007) 148 Cal.App.4th 1092, 1101 [bold emphasis added].”

The Arbitration Agreement provides at Page 1, second paragraph:

This Agreement is governed by the Federal Arbitration Act. 9 U.S.C. § 1 et seq. and evidences a transaction involving commerce. It is intended to apply to the resolution of past. present and future disputes that otherwise would be resolved in a court of law and requires that all such disputes be resolved only by an arbitrator through ¿nal and binding arbitration and not by way of court or jury trial except as otherwise stated in this Agreement.

Moreover, the Declaration of John Morales, Vice President of Administration for Classic Distributing states at ¶ 2 of his Declaration:

2. Classic Distributing is a California limited liability company with its headquarters located in the City of Industry, California. Classic Distributing sells a variety of alcoholic and non-alcoholic beverages in assigned territories throughout Southern California from beverage suppliers throughout the United States, including Oregon, Colorado, Iowa, Montana, Texas, and Michigan.

Accordingly, the contract involves activities having a substantial relation to interstate commerce, and the Federal Arbitration Act applies to the subject arbitration agreement. (Shepard v. Edward Mackay Enterprises, Inc. (2007) 148 Cal.App.4th 1092, 1098-99, 1101.) This is relevant to the class action waiver argument presented by Plaintiff in the Opposition, which is discussed below.

The Arbitration Agreement provides in pertinent part at Page 1, first paragraph that it applies between the employee and the following persons or entities:

Classic Distributing and Beverage Group, Inc. and I agree that, for purposes of this Arbitration Agreement (“Agreement"). the term "Classic" shall include Classic Distributing and Beverage Group, Inc.. as well as any past or former owner, shareholder, partner, director, officer, employee. agent or insurer of Classic Distributing and Beverage Group, Inc., or of any related or affiliated entity.

As such, all moving Defendants are specified as intended third party beneficiaries of the Arbitration Agreement, and they may move to compel arbitration pursuant to the Arbitration Agreement.

At Page 1, third paragraph, the Agreement provides as follows:

This Agreement applies without limitation to disputes regarding the employment relationship, trade secrets. unfair competition, compensation. breaks and rest periods. termination, discrimination, retaliation (including retaliation under the Employee Retirement Income Security Act of 1974) or harassment and claims arising under the Uniform Trade Secrets Act, Civil Rights Act of 1964, Americans With Disabilities Act. Age Discrimination in Employment Act, Family Medical Leave Act. Fair Labor Standards Act, Genetic Information Non-Discrimination Act, and other state and local statutes, addressing the same or similar subject matters, and all other state statutory and common law claims. Such disputes also include without limitation disputes arising out of or relating to the interpretation or application of this Agreement. However. this Agreement does not apply to disputes regarding the enforceability, revocability or validity of the Agreement or any portion of the Agreement. Such disputes can be resolved only by a court of competent jurisdiction.

The scope of the Arbitration Clause covers all claims being asserted by Plaintiff in the Complaint.

Plaintiff argues that no agreement exists because Plaintiff was never informed about the arbitration agreement nor what he was giving up by signing quickly when Defendant’s took over. He did not know or understand what he was signing, he was just told to sign and that they could not move forward with the onboarding process until he did. However, this does not prevent formation of a contract:

"It is well established, in the absence of fraud, overreaching or excusable neglect, that one who signs an instrument may not avoid the impact of its terms on the ground that he failed to read the instrument before signing it." (Citations omitted.)

. . .

"Ordinarily, one who accepts or signs an instrument, which on its face is a contract, is deemed to assent to all its terms, and cannot escape liability on the ground that he has not read it. If he cannot read, he should have it read or explained to him." (Citation omitted.) This is not only the California but the general rule. (3 Corbin, Contracts (1960) § 607, pp. 668-669, fn. omitted ["One who signs an instrument when for some reason, such as illiteracy or blindness, he can not read it, will be bound by its terms in case the other party acts in good faith without trick or misrepresentation. The signer should have had the instrument read to him."].)

(Randas v. YMCA of Metropolitan Los Angeles (1993) 17 Cal.App.4th 158, 163.)

The Court will proceed to address the Armendariz factors.

Armendariz Factors:

Where a party seeks to arbitrate nonwaivable statutory civil rights in the workplace (Fitz v. NCR Corp. (2004) 118 Cal.App.4th 702, 711-12), such as the FEHA claims involved here, there are:

five minimum requirements for the lawful arbitration of such rights pursuant to a mandatory employment arbitration agreement. Such an arbitration agreement is lawful if it "(1) provides for neutral arbitrators, (2) provides for more than minimal discovery, (3) requires a written award, (4) provides for all of the types of relief that would otherwise be available in court, and (5) does not require employees to pay either unreasonable costs or any arbitrators' fees or expenses as a condition of access to the arbitration forum. Thus, an employee who is made to use arbitration as a condition of employment 'effectively may vindicate [his or her] statutory cause of action in the arbitral forum.' " (Citation omitted.)

(Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, 102.)

Initially, we see no reason why Armendariz's "particular scrutiny" of arbitration agreements should be confined to claims under FEHA. Rather, under the Supreme Court's analysis, such scrutiny should apply to the enforcement of rights under any statute enacted "for a public reason."

(Mercuro v. Superior Court (2002) 96 Cal. App. 4th 167, 180 [bold emphasis added].)

However,

Armendariz held that to the extent that the arbitration agreement was silent on these issues, these requirements must be implied as a matter of law. (Armendariz, supra, 24 Cal.4th at pp. 106, 107, 113 [interpreted the agreement to provide for adequate discovery, a written arbitration award, and the employer's payment of arbitration costs].) To the extent that the agreement expressly limited these rights, Armendariz held that the agreement was contrary to public policy and unenforceable. (Id. at p. 104 [stated that a provision limiting damages was unlawful].)

(Sanchez v. Western Pizza Enterprises, Inc. (2009) 172 Cal.App.4th 154, 176 [bold emphasis added].)

(1) Neutral arbitrators:

At Page 2, first paragraph, the Arbitration Agreement provides in pertinent part:

Arbitration shall be before one retired judge of a California court who is mutually agreed upon. I understand and agree that by entering into this agreement I am waiving any right to have a covered dispute heard by a jury or active judge.

Due to the mutual agreement condition, this requirement is satisfied.

(2) More than minimal discovery:

“Adequate discovery is indispensable for the vindication of statutory claims. (Citation omitted.) “ ‘[A]dequate’ discovery does not mean unfettered discovery … .” (Citation omitted.) And parties may “agree to something less than the full panoply of discovery provided in Code of Civil Procedure section 1283.05.” ( Citation omitted.) However, arbitration agreements must “ensure minimum standards of fairness” so employees can vindicate their public rights. (Citation omitted).” (Fitz v. NCR Corp. (2004) 118 Cal.App.4th 702, 715-16[bold emphasis added].)

Page 2 provides: “Classic and I will have the right to conduct adequate civil discovery . . .Any disputes regarding discovery, motions, witnesses and evidence shall be resolved by the arbitrator.” There is no indication that the parties will have an inadequate access to discovery.

This requirement is satisfied.

(3) Written award:

At Page 2, the Arbitration Agreement provides in pertinent part: “The arbitrator shall, within 30 calendar days after submission of the case for decision, render a written award which shall state the essential findings and conclusions on which it is based.”

This requirement is satisfied.

(4) All types of relief available in court:

At Page 2, the Arbitration Agreement provides in pertinent part:

All parties shall have available in arbitration such relief as would be available had the claims or disputes been resolved in a court action, but such relief shall be limited to that that would be available to Classic or me in its/my individual capacity in a court of law for the claims presented to and decided by the arbitrator.

This requirement is satisfied.

(5) Does not require employee to pay unreasonable costs or any arbitrator’s fees or expenses as a condition to access to arbitration:

Page 2, first paragraph provides:

Classic shall pay the arbitrator’s arbitration fees and expenses as well as all fees and expenses charged by any administrative body mutually chosen by the parties. However, I must pay fees and expenses up to the amount I would be required to pay if I were to ¿le a claim in court against Classic.

This requirement is satisfied.

Accordingly, the minimum Armendariz requirements are satisfied.

As such, the Court finds that an agreement exists whereby Plaintiff agreed to submit all of the claims asserted against all of the Defendants in his Complaint to mandatory arbitration. The burden shifts to Plaintiff to demonstrate that the arbitration agreement should not be enforced.

Plaintiff argues that the arbitration agreement is unconscionable.

The doctrine of unconscionability was summarized in Walnut Producers of California v. Diamond Foods, Inc. (2010) 187 Cal.App.4th 634, 645-48 as follows:

“ ‘To briefly recapitulate the principles of unconscionability, the doctrine has “ ‘both a “procedural” and a “substantive” element,’ the former focusing on ‘ “oppression” ’ or ‘ “surprise” ’ due to unequal bargaining power, the latter on ‘ “overly harsh” ’ … or ‘ “one-sided” ’ results.” [Citation.] The procedural element of an unconscionable contract generally takes the form of a contract of adhesion, “ ‘which, imposed and drafted by the party of superior bargaining strength, relegates to the subscribing party only the opportunity to adhere to the contract or reject it.’ ” … [¶] Substantively unconscionable terms may take various forms, but may generally be described as unfairly one-sided.’ [Citation.]” (Citation omitted.)

“Under this approach, both the procedural and substantive elements must be met before a contract or term will be deemed unconscionable. Both, however, need not be present to the same degree. A sliding scale is applied so that ‘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.’ (Citations omitted.)

(Bold emphasis added.)

Procedural Unconscionability

“The procedural element of the unconscionability analysis concerns the manner in which the contract was negotiated and the circumstances of the parties at that time. [Citation.] The element focuses on oppression or surprise. [Citation.] ‘Oppression arises from an inequality of bargaining power that results in no real negotiation and an absence of meaningful choice.’ [Citation.] 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.” ’ [Citation.]” (Citation omitted.)

Plaintiffs claim the Agreement is procedurally unconscionable because it is an adhesion contract. An adhesion contract is “a standardized contract … imposed upon the subscribing party without an opportunity to negotiate the terms.” (Citation omitted.) “The term signifies a standardized contract, which, imposed and drafted by the party of superior bargaining strength, relegates to the subscribing party only the opportunity to adhere to the contract or reject it. [Citation.]” (Citation omitted.)

The California Supreme Court has consistently stated that “ ‘[t]he procedural element of an unconscionable contract generally takes the form of a contract of adhesion … .’ ” (Citations omitted.)

“Whether the challenged provision is within a contract of adhesion pertains to the oppression aspect of procedural unconscionability. A contract of adhesion is ‘ “ ‘ “imposed and drafted by the party of superior bargaining strength” ’ ” ’ and ‘ “ ‘ “relegates to the subscribing party only the opportunity to adhere to the contract or reject it.” ’ ” ’ (Citations omitted.) “[A]bsent unusual circumstances, use of a contract of adhesion establishes a minimal degree of procedural unconscionability notwithstanding the availability of market alternatives.” (Citation omitted.)

(Walnut Producers of California, supra, 187 Cal.App.4^th at 645-46 [bold emphasis added].)

Plaintiff argues that the arbitration agreement is oppressive and a contract of adhesion because it was presented on a take-it-or-leave it basis, and Plaintiff was required to sign it as a condition of employment, as part of new-hire paperwork, and was not given an opportunity to negotiate its terms. The Court accepts, for purposes of argument, that these conditions made the contract adhesive, presented to Plaintiff on a “take it or leave it” basis, which presents only a modest degree of procedural unconscionability. (Nguyen v. Applied Medical Resources Corp. (2016) 4 Cal.App.5th 232, 248.)

Under the sliding scale approach, then, Plaintiffs must demonstrate at least a substantial degree of substantive unconscionability.

“A provision is substantively unconscionable if it ‘involves contract terms that are so one-sided as to “shock the conscience,” or that impose harsh or oppressive terms.’ [Citation.] The phrases ‘harsh,’ ‘oppressive,’ and ‘shock the conscience’ are not synonymous with ‘unreasonable.’ Basing an unconscionability determination on the reasonableness of a contract provision would inject an inappropriate level of judicial subjectivity into the analysis. ‘With a concept as nebulous as “unconscionability” it is important that courts not be thrust in the paternalistic role of intervening to change contractual terms that the parties have agreed to merely because the court believes the terms are unreasonable. The terms must shock the conscience.’ [Citations.]” (Citation omitted

(Walnut Producers of California, supra, 187 Cal.App.4th at 647-48.)

Plaintiff argues that the agreement is substantively unconscionable because of the prohibition of class actions. However, class action waivers in arbitration agreements are enforceable under the Federal Arbitration Act. (Evenskaas v. Cal. Transit, Inc. (2022) 81 Cal.App.5th 285, 297-98.) As discussed above, the FAA applies to the subject contract.

In light of the foregoing, the Court does not find sufficient substantive unconscionability to render the entire agreement unenforceable.

Accordingly, Defendant’s motion to compel arbitration is GRANTED.

The litigation is ordered stayed pending arbitration. (Code Civ. Proc., § 1281.4.)