Judge Daniel M. Crowley, Case Number: 23STCV12050, Date: 2024-01-31 Tentative Ruling

Defendants Triumph Processing Inc.’s and Coast Plating, Inc. dba Valence Surface Technologies’ motion to compel Plaintiff John Merritt’s claims in his Complaint to arbitration is granted. The case is stayed pending arbitration.

The Court sets a non-appearance case review for January 31, 2025, at 8:30 a.m. The parties are directed to submit a joint statement five calendar days in advance, apprising the Court of the status of the arbitration.

Plaintiff John Merritt’s motion for preferential trial date is denied as moot.

Defendants Triumph Processing Inc.’s and Coast Plating, Inc. dba Valence Surface Technologies (collectively, “Valence”) (collectively, “Moving Defendants”) move to compel Plaintiff John Merritt (“Merritt”) (“Plaintiff”) to arbitrate all his claims alleged in his complaint (“Complaint”) and to stay all proceedings in this action pending completion of arbitration. (Notice Compel Arbitration, pg. 2; C.C.P. §§1280-1294.2.; 9 U.S.C. §§1-16.)

Plaintiff moves for an order setting a preferential trial date and all related deadlines and dates to May 13, 2024, or as soon thereafter as the calendar of this Court may accommodate within 20 days. (Notice Trial Preference, pgs. 1-2; C.C.P. §36.)

On May 26, 2023, Plaintiff filed his operative Complaint in the instant action against Moving Defendants and Non-moving Defendants ATL Partners Aerospace Transportation & Logistics (“ATL”), British Columbia Investment Management Corporation (“BCI”), Kyle Parham (“Parham”), Paul Sellars (“Sellars”), and Salil Pradhan (“Pradhan”) (collectively, “Defendants”) alleging six causes of action: (1) Discrimination (FEHA); (2) Hostile Work Environment (FEHA); (3) Retaliation (FEHA)); (4) Failure to Prevent Discrimination (FEHA); (5) Retaliation (Labor Code §1102.5); and (6) Negligent Supervision and Retention. Plaintiff’s causes of action stem from Plaintiff’s employment with Valence, which commenced on March 1, 1989. (Complaint ¶20.)

On January 8, 2024, Moving Defendants filed the instant motion to compel arbitration. Plaintiff filed an opposition to the motion on January 18, 2024. Moving Defendants filed their reply January 24, 2024.

On September 15, 2023, Plaintiff filed the instant motion for trial preference. Moving Defendants filed their opposition to the motion on January 18, 2024. Plaintiff filed his reply on January 24, 2024.

Federal law provides for enforcement of this Arbitration Agreement. The Federal Arbitration Act, 9 U.S.C. §1, et seq. (“FAA”), establishes a strong federal policy in favor of arbitration of disputes where a written arbitration agreement exists. Section 2 of the FAA provides, in pertinent part that “[a] written provision . . . to settle by arbitration a controversy thereafter arising out of such contract . . . shall be valid, irrevocable, and enforceable.” (9 U.S.C. §2.) The purpose of the FAA is to “reverse the longstanding judicial hostility to arbitration agreements.” (Gilmer v. Interstate/Johnson Lane Corp. (1991) 500 U.S. 20, 24.) The FAA places arbitration agreements “on an equal footing with other contracts and [requires courts] to enforce them according to their terms.” (AT&T Mobility, LLC v. Concepcion (2011) 563 U.S. 333, 339; see also Rent-A-Center West, Inc. v. Jackson (2010) 561 U.S. 63, 67 [“The FAA reflects the fundamental principle that arbitration is a matter of contract.”].) The FAA will preempt not only a state law that “discriminat[es] on its face against arbitration,” but also a state law that “covertly accomplishes the same objective by disfavoring contracts that (oh so coincidentally) have the defining features of arbitration agreements.” (Kindred Nursing Centers Limited Partnership v. Clark (2017) 137 S.Ct. 1421, 1426.)

The United States Supreme Court has specifically held that the FAA applies to employment contracts: “[A]s a matter of law the answer is clear. In the Federal Arbitration Act, Congress has instructed federal courts to enforce arbitration agreements according to their terms.” (Epic Systems Corp. v. Lewis (2018) 138 S.Ct. 1612, 1619, [holding that employees must submit to arbitration agreements including those with collective action waivers].)

The FAA restricts a court’s inquiry related to compelling arbitration to two threshold questions: (1) whether there was an agreement to arbitrate between the parties; and (2) whether the agreement covers the dispute. (Howsam v. Dean Witter Reynolds, Inc. (2002) 537 U.S. 79, 84.) Here, both criteria are satisfied. First, Plaintiff agreed to arbitration when he entered into the Arbitration Agreement (“Agreement”) that contained the relevant arbitration clause. (Decl. of Barahona ¶6, Exh. A; Decl. of Hamrick ¶9, Exh. A.) Second, the Agreement expressly covers “any controversy, dispute, or claim” between Plaintiff and Valence. (Decl. of Barahona ¶6, Exh. A at ¶2.)

California law also favors arbitration for dispute resolution. The California Arbitration Act (“CAA”), codified at C.C.P. §1281 et seq., provides, “A written agreement to submit to arbitration an existing controversy or a controversy thereafter arising is valid, enforceable and irrevocable, save upon such grounds as exist for the revocation of any contract.” (C.C.P. §1281; see also Grafton Partners L.P. v. Superior Court (2005) 36 Cal.4th 944, 955 [“[U]nlike predispute jury waivers, predispute arbitration agreements are specifically authorized by statute.”].)

“California law, like federal law, favors enforcement of valid arbitration agreements.” (Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, 97, 99.) The public policy in favor of arbitration is so strong that California courts have held that an employee is “bound by the provisions of the [arbitration] agreement regardless of whether [he] read it or [was] aware of the arbitration clause when [he] signed the document.” (Brookwood v. Bank of America (1996) 45 Cal.App.4th 1667, citing Macaulay v. Norlander (1992) 12 Cal.App.4th 1.) The only prerequisite for a court to order arbitration is a determination that the parties have entered into an agreement to arbitrate the dispute. (United Transportation Union v. Southern California Rapid Transit District (1992) 7 Cal.App.4th 804, 808.) Thus, arbitration must be ordered “unless the agreement clearly does not apply to the dispute in question.” (Vianna v. Doctors’ Management Co. (1994) 27 Cal.App.4th 1186, 1189.)

Moving Defendants proved the existence of an arbitration agreement with Plaintiff. Moving Defendants submitted evidence that on December 7, 2018, Plaintiff signed the Agreement. (See Decl. of Barahona ¶6, Exh. A.) Pursuant to C.C.P. §1281.2, Moving Defendants demonstrated they made a formal demand for arbitration on June 23, 2023, to which Plaintiff responded by stating he did not agree to stipulate to proceed to arbitration. (Decl. of Herter Perkin ¶2, Exh. A.)

Plaintiff’s argument that Moving Defendants waived their right to arbitrate is unavailing. Moving Defendants engaged in brief discovery early on in this case by propounding a set of document requests, special interrogatories, and form interrogatories on Plaintiff on July 27, 2023. Since then, Moving Defendants have not engaged in any discovery, nor have they pushed for any depositions, given the fact that Moving Defendants do not know which forum they will be in to litigate this case. Plaintiff propounded a set of discovery request on Moving Defendants in October 2023, to which Moving Defendants only served objections with no responses.

Moving Defendants have not waived their rights to arbitration by serving basic initial discovery, and objecting to Plaintiff’s discovery for the purpose of preserving all legal rights. Defendants have not engaged in any conduct which would support the argument that they have waived their right to arbitration by acting inconsistently with such right. (See Khalatian v. Prime Time Shuttle, Inc. (2015) 237 Cal.App.4th 651, 660-661 [finding no waiver of right to arbitration where discovery was limited in which plaintiff demanded documents and sent form interrogatories to defendant, and defendant propounded one set of requests for production of documents and one set of special interrogatories on plaintiff]; Hall v. Nomura Securities International (1990) 219 Cal.App.3d 43, 51 [instituting discovery by noticing other party’s deposition was not sufficient to waive right to seek arbitration]; see also Groom v. Health Net (2000) 82 Cal.App.4th 1189, 1196 [no prejudice when party seeking to avoid a waiver had propounded discovery requests].)

Plaintiff’s arguments regarding the validity of the arbitration agreement are also unavailing. Plaintiff does not argue that it is not his signature on the Agreement, or that he was not provided the entire document upon signing the Agreement. Plaintiff fails to provide evidence or argument as to any fraud in the execution of the Agreement, other than to refer to the paragraph in the agreement which refers to at-will employment, which is not a sufficient argument. (See Rosenthal v. Great Western Financial Securities Corp. (1996) 14 Cal.4th 394, 425 [to make out a claim of fraud in the execution, a party seeking to avoid arbitration must show that the party was deceived as to the basic character of the documents signed and had no reasonable opportunity to learn the truth); see also Brown v. Wells Fargo Bank, N.A. (2008) 168 Cal.App.4th 938, 959 [noting that it is not reasonable to fail to read a contract].)

Based on the foregoing, Moving Defendants proved the existence of a valid Agreement that is enforceable by Moving Defendants.

The Claims which are to be arbitrated under this Policy include, but are not limited to claims for wages and other compensation, claims for breach of contract (express or implied), claims for violation of public policy, tort claims, and claims for harassment, retaliation or discrimination (including, but not limited to, race, national origin, religion, color, national origin, ancestry, physical disability, mental disability, medical condition, marital status, age, pregnancy, sex or sexual orientation, gender identity, gender expression) to the extent

allowed by law, and claims for violation of any federal, state, or other government law, statute, regulation, or ordinance.

Plaintiff’s claims arise from his employment relationship with Moving Defendants and are therefore governed by the Agreement. Based on the foregoing, Moving Defendants met their burden to establish the Agreement covers the causes of action asserted in Plaintiff’s Complaint.

“[P]rocedural and substantive unconscionability must both be present in order for a court to exercise its discretion to refuse to enforce a contract or clause under the doctrine of unconscionability.” (Armendariz, 24 Cal.4th at pg. 102.) Courts invoke a sliding scale which disregards the regularity of the procedural process of the contract formation, that creates the terms, in proportion to the greater harshness or unreasonableness of the substantive terms themselves, i.e., the more substantively oppressive the contract term, the less evidence of procedural unconscionability is required to conclude that the term is unenforceable, and vice versa. (Id., at pg. 114.) Plaintiff bears the burden of proving that the provision at issue is both procedurally and substantively unconscionable.

Plaintiff argues the Agreement is procedurally unconscionable because the Agreement was presented to Plaintiff as a condition of his employment on “on a take-it-or-leave-it basis.” (Opposition, pg. 14.)

“Procedural unconscionability focuses on the elements of oppression and surprise. [Citations] ‘Oppression arises from an inequality of bargaining power which results in no real negotiation and an absence of meaningful choice . . . Surprise involves the extent to which the terms of the bargain are hidden in a ‘prolix printed form’ drafted by a party in a superior bargaining position.’ [Citations.]” (Roman v. Superior Court (2009) 172 Cal.App.4th 1462, 1469.)

Procedural unconscionability “focuses on the unequal bargaining positions and hidden terms common in the context of adhesion contracts.” (24 Hour Fitness, Inc. v. Superior Court (1998) 66 Cal.App.4th 1199, 1212-1213.) Although standard employment agreements offered on a “take it or leave it” basis are generally considered contracts of adhesion, this alone is not enough to equate to unconscionability. (See Graham v. Scissor-Tail, Inc. (1981) 28 Cal.3d 807, 817-819 [“To describe a contract as adhesive in character is not to indicate its legal effect. It is, rather, ‘the beginning and not the end of the analysis insofar as enforceability of its terms are concerned.’”].) Adhesion contracts are “fully enforceable . . . unless certain other factors are present which under established legal rules—legislative or judicial—operate to render it otherwise.” (Id. at pgs. 819-820; Harper v. Ultimo (2003) 113 Cal.App.4th 1402, 1409 [adhesion alone does not render arbitration agreements unconscionable]; see also Armendariz, 24 Cal.4th at 114; Lagatree v. Luce, Forward, Hamilton & Scripps, LLP (1999) 74 Cal.App.4th 1105 [discussing many authorities upholding arbitration agreements contained in adhesion contracts].)

Plaintiff’s argument in opposition that his requirement to sign the Arbitration Agreement as a condition of his employment and is therefore procedurally unconscionable is unavailing and is unsupported by case law. The adhesive nature of arbitration agreements in the employment context does not render an agreement unenforceable. (Lagatree, 74 Cal.App.4th at pg. 1127 [“[C]ases uniformly agree that a compulsory predispute arbitration agreement is not rendered unenforceable just because it is required as a condition of employment or offered on a ‘take it or leave it’ basis.”]; Armendariz, 24 Cal. 4th at pg. 113 [holding that the requirement that the employee sign an arbitration agreement may contain some elements of procedural unconscionability, but that, in itself, does not invalidate the arbitration agreement]; Ajamian v. CantorCO2e, LP (2012) 203 Cal.App.4th 771, 796 [“Where there is no other indication of oppression or surprise, the degree of procedural unconscionability of an adhesion agreement is low[.]”].)

Here, the terms of the Agreement do not appear hidden or obscure: the Agreement is a standalone document with “Binding Arbitration Agreement” titled in bold and italicized, with individual paragraphs indicating the procedure for demanding arbitration and the arbitration itself. (Decl. of Barahona, Exh. A.). The fourth-to-last paragraph on the third page of the Agreement reads, “The Parties represent and agree that each has reviewed all aspects of this Agreement, has carefully read and fully understands all provisions of this agreement, and is voluntarily entering into this Agreement. The Parties represent and agree that each has had the opportunity to review any and all aspects of this Agreement with the legal or other advisor of the party’s choice before executing this Agreement.” (Decl. of Barahona, Exh. A.) Accordingly, the Arbitration Agreement’s duty to arbitrate was not hidden from Plaintiff in a manner as to make him unaware of the agreement to arbitrate.

Based on the foregoing, the Court finds the Arbitration Agreement is at the most minimally procedurally unconscionable. However, as discussed below, the Court finds the arbitration agreement is not substantively unconscionable.

Plaintiff argues the Agreement is substantively unconscionable because, while discovery is permitted under the JAMS rules, it requires additional efforts (and the arbitrator’s approval) to seek discovery that is more than the amount provided as a maximum in the JAMS rules, the process to compel any non-compliant third-party witness to provide a deposition or other discovery is quite a bit more cumbersome than the court process, and the Agreement states on page 2 that “[t]he arbitrator shall have the authority to determine what constitutes reasonable discovery,” which are limitations generally advantageous to a defendant such as the employer in this case. (Opposition, pg. 15.)

“Substantive unconscionability focuses on the actual terms of the agreement and evaluates whether they create ‘overly harsh’ or ‘‘one-sided’ results’ [Citations] that is, whether contractual provisions reallocate risks in an objectively unreasonable or unexpected manner. [Citation] Substantive unconscionability ‘may take various forms,’ but typically is found in the employment context when the arbitration agreement is ‘one-sided’ in favor of the employer without sufficient justification, for example, when ‘the employee’s claims against the employer, but not the employer’s claims against the employee, are subject to arbitration.’ [Citations].” (Roman, 172 Cal.App.4th at pgs. 1469-1470.) In determining whether an arbitration agreement is unconscionable, the Court considers whether the agreement: (1) provides for a neutral arbitrator; (2) provides for reasonable discovery; (3) requires a written award; (4) provides for the same remedies that otherwise would be available in court; and (5) does not require employees to bear costs unique to arbitration. (See Armendariz, 24 Cal.4th at pgs. 102-103.)

The Arbitration Agreement satisfies the requisite elements set forth in Armendariz to determine the Agreement is not substantively unconscionable. First, the Arbitration Agreement provides the arbitration will apply the rules and procedures of the Judicial Arbitration and Mediation Service (“JAMS Rules”). By incorporating the JAMS Rules, the Agreement provides for the selection of a mutually agreed to neutral arbitrator. (See JAMS Employment Arbitration Rules & Procedures (“JAMS Rules”), Rules 7 and 15.) The Agreement provides the parties with the opportunity of selecting an arbitrator. (See JAMS Rules, Rule 15, “Arbitrator Selection, Disclosures, and Replacement”.)

Second, the court in Armendariz explicitly acknowledged an arbitrator’s authority to determine what constitutes sufficient discovery adequate to arbitrate an employee’s claims. (Armendariz, 24 Cal.4th at pg. 106 [employees are “entitled to discovery sufficient to adequately arbitrate their statutory claim, including access to essential documents and witnesses, as determined by the arbitrator.”].) Here, the JAMS Rules provide for adequate discovery, allowing an exchange of documents, interrogatories, and depositions. (See JAMS Rules, Rule 17, “Exchange of Information”.) The Agreement contains no actual limitation on discovery and therefore does not limit Plaintiff’s discovery rights in any way.

Third, The JAMS Rules provide for a written award with essential findings of fact and conclusions of law on which the Award is based. (See JAMS Rules, Rule 24, “Award.”)

Fourth, the Agreement provides for all relief that would be available in court, stating: “The arbitrator shall be permitted to award only those remedies in law or equity which are requested by the parties and allowed by law.” (Decl. of Barahona ¶6, Exh. A.)

Fifth, under Armendariz, an employee cannot be required to pay any type of expense that the employee would not be required to bear if he or she were free to bring the action in court. (Armendariz, 24 Cal.4th at pgs. 110-111.) Here, the Agreement places no obligations on Plaintiff to pay for or to contribute towards the fees for the arbitrator and the use of the arbitration forum. The Agreement requires Moving Defendants to pay for the costs of arbitration, stating, “[t]he cost of the arbitrator and other incidental costs of arbitration that would not be incurred in a court proceeding shall be come by the Company. In no event will Employee be responsible for any portion of those fees in excess of the filing or initial appearance fees applicable to court actions in the jurisdiction where the arbitration will be conducted. The Company otherwise will pay all costs and expenses unique to arbitration, including the arbitrator's fees.” (Decl. of Barahona ¶6, Exh. A.)

Based on the evidence before the Court, the terms of the Agreement do not create overly harsh or one-sided results, satisfying the requirements for a substantively conscionable agreement.

Based on the foregoing, the Court finds the Arbitration Agreement is not substantively unconscionable.

Pursuant to C.C.P. §1281.4, if an application has been made to a court involving order to arbitrate a controversy and such application is undetermined, the court where the application is pending shall, upon motion of a party to the action, stay the action until the application for an order to arbitrate is determined. (C.C.P. §1281.4.)

Moving Defendants’ motion to compel arbitration is granted. The case is stayed pending arbitration. The Court sets a non-appearance case review for January 31, 2025, at 8:30 a.m. The parties are directed to submit a joint statement five calendar days in advance, apprising the Court of the status of the arbitration.

Based on the Court’s ruling on the Motion to Compel Arbitration, Plaintiff’s Motion for Trial Preference is denied as moot.

Hon. Daniel M. Crowley

Judge of the Superior Court