Judge: Daniel S. Murphy, Case: 22STCV33325, Date: 2023-03-22 Tentative Ruling

Case Number: 22STCV33325    Hearing Date: March 22, 2023    Dept: 32

BACKGROUND

            On October 11, 2022, Plaintiff Mark Dru filed this action against Defendants Triller Hold Co. LLC and Triller Inc. (now Triller Platform Co.), alleging (1) breach of contract, (2) breach of the covenant of good faith and fair dealing, (3) declaratory judgment, (4) failure to pay wages, and (5) violation of Labor Code section 221.

            Plaintiff alleges that Defendants terminated him and repudiated an agreement that allows Plaintiff to purchase certain shares in Triller HoldCo. Plaintiff alleges that his right to purchase said shares is reflected in his Employment Agreement, the Warrant to purchase the shares, and the Severance Agreement he signed upon his termination.

            All three of these agreements contain an arbitration clause. Accordingly, on February 28, 2023, Defendants filed the instant motion to compel arbitration.   

LEGAL STANDARD

The California Arbitration Act (CAA) states that “[o]n petition of a party to an arbitration agreement alleging the existence of a written agreement to arbitrate a controversy and that a party to the agreement refuses to arbitrate that 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….” (Code Civ. Proc, § 1281.2.) “The party seeking arbitration bears the burden of proving the existence of an arbitration agreement, and the party opposing arbitration bears the burden of proving any defense, such as unconscionability.” (Pinnacle Museum Tower Assn. v. Pinnacle Market Development (US), LLC (2012) 55 Cal.4th 223, 236.)

DISCUSSION

I. Existence of Valid Agreement

            Plaintiff does not dispute that all three agreements at issue contain arbitration provisions covering the claims asserted in the complaint. Plaintiff does not dispute signing all three agreements. Defendants dispute the validity of the Severance Agreement. However, regardless of which agreement applies, it is clear by a preponderance of the evidence that Plaintiff has consented to arbitration of the claims at issue.

            The burden thus shifts to Plaintiff to articulate a defense against enforcement. Plaintiff argues that the agreements are unconscionable for a variety of reasons.

II. Unconscionability

Unconscionability has both a procedural and a substantive element. (Aron v. U-Haul Co. of California (2006) 143 Cal.App.4th 796, 808.) Both elements must be present for a court to invalidate a contract or clause. (Ibid.) However, the two elements need not be present in the same degree; courts use a sliding scale approach in assessing the two elements. (Carbajal v. CWPSC, Inc. (2016) 245 Cal.App.4th 227, 242.)

a. Applicability of Armendariz

With regards to a mandatory employment arbitration agreement, the Supreme Court has imposed the following requirements: (1) the agreement must provide for a neutral arbitrator; (2) the agreement must provide for more than minimal discovery; (3) the arbitration decision must be written and disclose the essential findings and conclusions upon which an award is based; (4) the agreement must provide for all of the types of relief that would otherwise be available in court; and (5) the agreement must not require employees to pay the costs of arbitration. (Armendariz v. Foundation Health Psychare Services, Inc. (2000) 24 Cal.4th 83, 102.)

There is an initial dispute over whether Armendariz applies to this case. “Armendariz applies to unwaivable claims that arise under the FEHA or are tied to a fundamental public policy.” (Giuliano v. Inland Empire Personnel, Inc. (2007) 149 Cal.App.4th 1276, 1288.) “Armendariz does not apply to . . . [a] ‘garden variety’ breach of contract action that involves neither FEHA nor Tameny claims.” (Ibid.) The Armendariz requirements did not apply in Giuliano because that case involved a “contract claim for a $5 million to $8 million bonus and a $500,000 severance payment [which] is distinguishable from . . . statutory overtime or minimum wage claims . . . .” (Id. at p. 1289.)

Relying on Giuliano, Defendants argue that this action also does not involve FEHA or public policy claims because Plaintiff similarly seeks compensation over a severance payment. Like Plaintiff here, the plaintiff in Giuliano also brought a claim for “statutory wages under Labor Code section 200 et seq. based on the nonpayment of the bonus and severance payment allegedly due under the contract.” (Giuliano, supra, 149 Cal.App.4th at p. 1281.) The court rejected the plaintiff’s argument that “[t]he right to be paid wages earned is part of the public policy of the State of California and is not waivable” because the case was distinguishable from cases involving overtime or minimum wage. (Id. at p. 1289.)

In opposition, Plaintiff argues that Giuliano was wrongly decided and points out that “California recognizes the prompt payment of wages as a fundamental policy which involves a broad public interest.” (See Jones v. Humanscale Corp. (2005) 130 Cal.App.4th 401, 412.) However, Giuliano did not repudiate California’s recognition of prompt wage payment as a fundamental public policy. Rather, it held that a claim for substantial bonus and severance payment arising from contract does not invoke the public policy as to render the claim subject to Armendariz. (Giuliano, supra, 149 Cal.App.4th at p. 1290.) Plaintiff’s claims here are similarly based on purported contractual rights beyond statutory overtime or minimum wage. Plaintiff cites to no case overturning Giuliano or refusing to apply it to a similar scenario. In fact, in a case decided even before Giuliano, the court declined to apply Armendariz where “[Plaintiff] does not raise claims under FEHA, nor is the Employment Agreement a ‘generic’ or standard agreement. Moreover, Parker earned $ 700,000 annual salary and negotiated or had the opportunity to negotiate the terms of the Employment Agreement and Telecom Agreement. He is also an attorney. The unconscionability rules of Armendariz have no application here.” (Parker v. McCaw (2005) 125 Cal.App.4th 1494, 1507.)

Furthermore, as discussed below, the arbitration provision at issue is not unconscionable even under Armendariz, and any unconscionable provision can be severed without permeating the arbitration agreement as a whole.  

            b. Procedural Unconscionability

Procedural unconscionability “focuses on two factors: ‘oppression’ and ‘surprise.’ ‘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 supposedly agreed-upon terms of the bargain are hidden in the prolix printed form drafted by the party seeking to enforce the disputed terms.” (Zullo v. Superior Court (2011) 197 Cal.App.4th 477, 484, internal citations and quotations omitted.)

Plaintiff argues that the agreement was a condition of employment, presented on a take-it-or-leave-it basis. However, an adhesion contract, by itself, presents only a minimal degree of procedural unconscionability. (Serpa v. California Surety Investigations, Inc. (2013) 215 Cal.App.4th 695, 704.) “[T]he compulsory nature of a predispute arbitration agreement does not render the agreement unenforceable on grounds of coercion or for lack of voluntariness.” (Lagatree v. Luce, Forward, Hamilton & Scripps (1999) 74 Cal.App.4th 1105, 1129.) Additionally, Plaintiff does not dispute that the employment agreement here was the result of arms-length negotiations and that Plaintiff consulted counsel before signing. There is no indication that Plaintiff was precluded from negotiating the arbitration clause.

Plaintiff next contends that the agreement incorporates the arbitration rules of the Alternative Resolution Centers (ARC) without attaching them, thus subjecting Plaintiff to surprise. However, the failure to attach rules is not dispositive unless the substance of the rules themselves are at issue. (See Baltazar v. Forever 21 (2016) 62 Cal.4th 1237, 1246.) ARC rules are not substantively unconscionable, as discussed below.

Plaintiff then takes issue with the fact that “the Alternative Resolution Centers does not even provide rules dedicated to employment matters, instead simply providing a single set of rules for all claims.” (Opp. 6:6-8.) Plaintiff fails to explain why this is an issue. Plaintiff cites to inapposite cases where the arbitration agreement was not provided at all or where the agreement incorporated rules that did not exist at the time the agreement was signed. (Opp. 6:12-24.) By contrast, it is clear in this case which arbitration rules apply, especially because there is only one set of rules.

c. Substantive Unconscionability

Substantive unconscionability focuses on the actual terms of the agreement and evaluates whether they create overly harsh or one-sided results as to shock the conscience. (Suh v. Superior Court (2010) 181 Cal.App.4th 1504, 1515.)

Plaintiff argues that ARC rules violate the “minimal discovery” standard by being silent on the minimum amount of discovery that a party is guaranteed by right. Plaintiff contends that “[u]nder this discovery restriction, Mr. Dru cannot obtain any discovery without a showing of good cause to the Arbitrator, who in his or her discretion may or may not authorize the discovery.” (Opp. 7:22-26.) There is nothing wrong with leaving discovery to the discretion of the arbitrator. Courts must “assume that the arbitrator will operate in a reasonable manner in conformity with the law.” (See Dotson v. Amgen, Inc. (2010) 181 Cal.App.4th 975, 984.) Nothing in the ARC rules limits Plaintiff’s discovery rights. Being silent on discovery is not the same as imposing a limitation. Plaintiff cites to inapposite cases where the arbitration rules imposed specific limits on discovery, such as the number of depositions or interrogatories. (Opp. 8:9-21.) By contrast, ARC rules impose no such limits.

Next, Plaintiff argues that the arbitration clause improperly calls for an equal division of fees between the parties instead of making the employer pay costs unique to arbitration. As discussed above, Armendariz does not apply to this case. However, if it did, the fee-sharing provision would at most be severed, and the remainder of the agreement would still be enforced. Plaintiff also argues that the agreement waives his right to statutory attorneys’ fees if he prevails. (See Lab. Code, § 218.5(a).) However, the agreement states that “the prevailing party as determined by the arbitrator will be entitled to recover its costs and expenses of arbitration, including attorneys’ fees and costs.” (Lestanin Decl., Ex. 1, § 19(k)(ii).)

Lastly, the agreement contains a one-sided review provision allowing only Defendant to “seek a review of the award for legal error, confirmation, correction, or vacatur in California state court.” (Lestanin Decl., Ex. 1, § 19(k)(iii).) This provision may be severed.

CONCLUSION

            Defendants’ motion to compel arbitration is GRANTED. The following provision is stricken: “the Company will have the right to seek a review of the award for legal error, confirmation, correction or vacatur in California state court.” (Lestanin Decl., Ex. 1, § 19(k)(iii).)