Judge: Daniel S. Murphy, Case: 23STCV21523, Date: 2024-01-03 Tentative Ruling

Case Number: 23STCV21523    Hearing Date: January 3, 2024    Dept: 32

BACKGROUND

            On September 7, 2023, Plaintiff Daniel Chow filed this employment discrimination action against Defendants Mini Pharmacy Enterprises, Inc., Angeles Equity Partners, LLC, and Rebecca Rahmanpour.

            On November 16, 2023, Defendants filed the instant motion to compel arbitration. Plaintiff filed his opposition on December 19, 2023. Defendants filed their reply on December 26, 2023.

LEGAL STANDARD

The Federal Arbitration Act (“FAA”) states that “[a] written provision in any . . . 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.) The term “involving commerce” is interpreted to mean simply “affecting commerce” to give the FAA the broadest reach possible, and does not require a transaction that is actually “within the flow of interstate commerce.” (See Allied-Bruce Terminix Co. v. Dobson (1995) 513 U.S. 265, 273-74; Citizens Bank v. Alafabco, Inc. (2003) 539 U.S. 52, 56.) Moreover, parties may agree to apply the FAA notwithstanding any effect on interstate commerce. (Victrola 89, LLC v. Jaman Properties 8 LLC (2020) 46 Cal.App.5th 337, 355.)

“On 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.)

EVIDENTIARY OBJECTIONS

            Plaintiff’s objections are overruled.

DISCUSSION

I. Prima Facie Proof of an Agreement to Arbitrate

“The moving party ‘can meet its initial burden by attaching to the motion or petition a copy of the arbitration agreement purporting to bear the opposing party's signature.’” (Gamboa v. Northeast Community Clinic (2021) 72 Cal.App.5th 158, 165, quoting Bannister v. Marinidence Opco, LLC (2021) 64 Cal.App.5th 541, 543-44.)

On November 19, 2020, Plaintiff signed a Mutual Agreement to Arbitrate between himself and Mini Pharmacy, Inc. and all of its related entities. (Chou Decl., Ex. A.) The agreement covers all claims arising out of Plaintiff’s employment or termination thereof, and all claims against the company or its employees or agents. (Ibid.)

Angeles Equity Partners, LLC and Rebecca Rahmanpour are entitled to enforce the agreement because they are a related entity or employee, respectively. Defendants are also alleged to be agents of one another. (Compl. ¶¶ 5, 8; Ronay Family Ltd. Partnership v. Tweed (2013) 216 Cal.App.4th 830, 838l Thomas v. Westlake (2012) 204 Cal.App.4th 605, 614.)

Therefore, Defendants have satisfied their burden of proving the existence of an arbitration agreement covering the claims at issue. The burden thus shifts to Plaintiff to articulate a defense against enforcement. Plaintiff argues that the agreement is unconscionable.

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. 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.)

            1. Condition of Employment

Plaintiff argues that the agreement is procedurally unconscionable because it was a condition of his continued employment and he had no opportunity to negotiate its terms. However, the agreement at issue expressly states that the employee “is not required to sign this Agreement as a condition of employment.” (Chou Decl., Ex. A, § 17, emphasis added.) Moreover, 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.)

            2. Arbitration Rules

Plaintiff next argues that he was not provided with a copy of the arbitration rules. (Chow Decl. ¶ 6.) However, “the failure to attach the [arbitration] rules, standing alone, is insufficient grounds to support a finding of procedural unconscionability.” (Peng v. First Republic Bank (2013) 219 Cal.App.4th 1462, 1472.) The arbitration agreement here specifies that arbitration will proceed under JAMS rules, provides an internet link, and states that the employee may ask HR for a copy of the rules. (Chou Decl., Ex. A, § 7.)

The failure to attach the rules to the agreement does not make the agreement unconscionable unless the rules themselves are arguably unconscionable or result in surprise. (See Baltazar v. Forever 21 (2016) 62 Cal.4th 1237, 1246; Lane v. Francis Capital Mgmt. LLC (2014) 224 Cal.App.4th 676, 691-92.) Plaintiff does not argue that JAMS rules are unconscionable or surprising. Plaintiff was given sufficient information to access the rules. That Plaintiff may not remember being provided with this information, or chose not to use it, does not make the agreement unconscionable.   

            3. Knowing Waiver

Plaintiff argues that he did not knowingly waive his right to pursue his claims in court. Plaintiff relies on Nelson v. Cyprus Bagdad Copper Corp. (9th Cir. 1997) 119 F.3d 756, 762, which held that “the employee must explicitly agree to waive the specific right in question.” This did not occur in Nelson because “[n]othing in either the acknowledgment form or the Handbook itself put Nelson on notice that by not quitting his job he was somehow entering into an agreement to waive a specific statutory remedy.” (Ibid.) Plaintiff further relies on Prudential Ins. Co. of Am. v. Lai (9th Cir. 1994) 42 F.3d 1299, 1305, which held that “a Title VII plaintiff may only be forced to forego her statutory remedies and arbitrate her claims if she has knowingly agreed to submit such disputes to arbitration.” In Lai, “[t]he U-4 form did not purport to describe the types of disputes that were to be subject to arbitration.” (Ibid.) “That provision did not even refer to employment disputes.” (Ibid.)

By contrast, Plaintiff here signed a standalone agreement expressly requiring arbitration all claims arising out of Plaintiff’s employment. (Chou Decl., Ex. A, § 2.) The agreement also expressly lists the types of claims subject to arbitration. (Ibid.) The agreement contains an express acknowledgment, in all caps directly above Plaintiff’s signature, that “Employee understands that by signing this Agreement, Company and Employee have both waived their right to a jury trial.” (Id. at pp. 4-5.) Plaintiff’s undisputed signature on the agreement is evidence that he knowingly and voluntarily waived his right to a judicial forum, regardless of whether Plaintiff presently recalls reading the document. “[O]ne who signs an instrument which on its face is a contract is deemed to assent to all its terms.” (Marin Storage & Trucking, Inc. v. Benco Contracting & Engineering, Inc. (2001) 89 Cal.App.4th 1042, 1049.) “An arbitration clause within a contract may be binding on a party even if the party never actually read the clause.” (Mendoza v. Trans Valley Transport (2022) 75 Cal.App.5th 748, 777.)

Defendants had no affirmative obligation to explain arbitration to Plaintiff. “No law requires that parties dealing at arm's length have a duty to explain to each other the terms of a written contract.” (Brookwood v. Bank of America (1996) 45 Cal.App.4th 1667, 1674.) “Reasonable diligence requires the reading of a contract before signing it.” (Ibid.) The agreement expressly encourages Plaintiff to consult with counsel (Chou Decl., Ex. A, § 16) and contains an express acknowledgment that “Employee has been given the opportunity to discuss this Agreement with Employee’s private legal counsel and has availed himself or herself of that opportunity to the extent Employee wishes to do so” (id. at p. 5).

Plaintiff does not dispute that he was allowed to ask questions and that an HR representative was available to provide answers. (See Salinas Decl. ¶¶ 7-8.) Plaintiff does not deny that he did not ask any questions. (Id., ¶ 8.) The agreement is not made unconscionable just because Plaintiff chose not to avail himself of the resources available to him to better understand what he was signing. (See Brookwood, supra, 45 Cal.App.4th at p. 1674 [“A party cannot use his own lack of diligence to avoid an arbitration agreement”].) Plaintiff’s claim that he felt rushed to sign the agreement is not credible because Plaintiff signed the agreement one week after he received it. (See Salinas Decl. ¶¶ 7-10.)

The Court finds no procedural unconscionability in the arbitration agreement.

b. 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.)

            1. Arbitration Fees

Plaintiff argues that the agreement improperly requires him to pay attorneys’ fees, which abridges his right under FEHA to recover attorneys’ fees if he prevails. Plaintiff relies on Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, 102 to argue that an employee cannot be required to bear “any expenses as a condition of access to the arbitration forum.” (Opp. 6:9-10.) In reality, Armendariz states that an employee may not be required to bear “any arbitrators' fees or expenses as a condition of access to the arbitration forum.” (Armendariz, supra, 24 Cal.4th at p. 102, emphasis added.) Armendariz requires the employer to bear all costs unique to arbitration. (Id. at pp. 110-11.) The employer is not required to bear all costs generally. The agreement here satisfies Armendariz by providing that “[t]he cost of the Arbitrator and other incidental costs of arbitration shall be borne by Company.” (Chou Decl., Ex. A, § 11.)

As to attorneys’ fees, the agreement provides that “[t]he parties shall each bear their own costs for legal representation in any arbitration proceeding, provided, however, that the Arbitrator shall have the authority to require either party to pay the fees for the other party’s representation during the arbitration, as is otherwise permitted under federal or state law, as part of any remedy that may be ordered.” (Chou Decl., Ex. A, § 11.) Therefore, the agreement does not abridge Plaintiff’s right to recover attorneys’ fees under FEHA. It actually does the opposite by expressly authorizing the arbitrator to award attorneys’ fees in accordance with state law.

            2. Mutuality

An agreement “lacks basic fairness and mutuality if it requires one contracting party, but not the other, to arbitrate all claims arising out of the same transaction or occurrence or series of transactions or occurrences.” (Armendariz, supra, 24 Cal.4th at p. 120.)

Plaintiff argues that the agreement lacks mutuality because it exempts claims “that Company or Employee may have for injunctive relief.” (Chou Decl., Ex. A, § 4.) Plaintiff claims that this effectively exempts Defendants from arbitrating claims that they are likely to bring against employees. Plaintiff relies on Mercuro v. Superior Court (2002) 96 Cal.App.4th 167, 176, where the court found unconscionability because the employer “require[d] the weaker parties--its employees--to arbitrate their most common claims while choosing to litigate in the courts its own claims against its employees.” The agreement in Mercuro required arbitration of all discrimination claims while exempting “claims for injunctive and/or other equitable relief for intellectual property violations, unfair competition and/or the use and/or unauthorized disclosure of trade secrets or confidential information.” (Id. at pp. 175-76.) According to Mercuro, the result of this exemption was that “[a]n employee terminated for stealing trade secrets, for example, must arbitrate his wrongful termination claim under the agreement but [the employer] can avoid a corresponding obligation to arbitrate its trade secrets claim against the employee by the simple expedient of requesting injunctive or declaratory relief.” (Id. at p. 176.)

By contrast, the arbitration agreement here does not exempt common employer claims like intellectual property. Instead, it requires arbitration of “all” claims arising from Plaintiff’s employment, brought by either Plaintiff or Defendants. (Chou Decl., Ex. A, § 2.) Therefore, the agreement applies equally to Plaintiff and Defendants. Additionally, the California Supreme Court has clarified that a provision allowing the parties to pursue injunctive relief in court is not substantively unconscionable because it “does no more than recite the procedural protections already secured by section 1281.8(b), which expressly permits parties to an arbitration to seek preliminary injunctive relief during the pendency of the arbitration.” (Baltazar, supra, 62 Cal.4th at p. 1247.)

Assuming the exemption for injunctive relief makes the agreement nonmutual and therefore unconscionable, the Court may sever the provision to cure the taint. (See Armendariz, supra, 24 Cal.4th at pp. 124-25.) Plaintiff argues that under Armendariz, lack of mutuality cannot be cured by severance if “there is no single provision a court can strike or restrict in order to remove the unconscionable taint from the agreement,” and the court would instead have to reform the contract with additional terms. (Ibid.) In this case, however, severance of the injunctive relief exemption would remove the taint because that is the only provision challenged as nonmutual. The Court would have to do no more than remove part of a sentence. The agreement is not permeated with unconscionability because there are no other unconscionable provisions. (See id. at p. 124 [“given the multiple unlawful provisions, the trial court did not abuse its discretion in concluding that the arbitration agreement is permeated by an unlawful purpose”].)

In sum, the Court finds no substantive unconscionability.   

III. Evidentiary Hearing

             “Evidence received at a law and motion hearing must be by declaration or request for judicial notice without testimony or cross-examination, unless the court orders otherwise for good cause shown.” (Cal. Rules of Ct., Rule 3.1306(a).) Facts pertaining to a motion to compel arbitration ordinarily “are to be proven by affidavit or declaration and documentary evidence, with oral testimony taken only in the court's discretion.” (Rosenthal v. Great Western Fin. Securities Corp. (1996) 14 Cal.4th 394, 413-14.) A trial court has discretion to “resolv[e] evidentiary conflicts without hearing live testimony.” (Id. at p. 414.) However, where “the enforceability of an arbitration clause may depend upon which of two sharply conflicting factual accounts is to be believed, the better course would normally be for the trial court to hear oral testimony and allow the parties the opportunity for cross-examination.” (Ibid.)

Plaintiff requests an evidentiary hearing under California Rules of Court, Rule 3.1306 to cross-examine Defendants’ evidence in support of the motion. However, Plaintiff has not presented good cause for oral testimony. Plaintiff had the opportunity to directly dispute Defendants’ evidence with his declaration. Plaintiff does not deny signing the arbitration agreement. Plaintiff does not dispute the terms of the agreement that he signed. Plaintiff does not dispute that he was allowed to ask questions about the arbitration agreement and that a representative was available to answer questions. Plaintiff does not claim that he tried to ask questions but was ignored or rejected. Plaintiff does not aver that anyone told him to sign the arbitration agreement immediately without reviewing it. Plaintiff does not aver that anyone told him his employment would be terminated if he did not sign the agreement.

Therefore, there are no direct conflicts in the evidence requiring resolution by live testimony. To the extent there is a factual dispute over whether Plaintiff knowingly and voluntarily entered into the agreement, the documentary evidence is sufficient to resolve that conflict. The Court declines to hear live testimony.  

CONCLUSION

            Defendants’ motion to compel arbitration is GRANTED. The case is stayed in its entirety pending the outcome of arbitration.