Judge David S. Cunningham, Case Number: 23STCV09332, Date: 2024-01-10 Tentative Ruling

Judge: David S. Cunningham, Case: 23STCV09332, Date: 2024-01-10 Tentative Ruling

Moving Party: Southern California Medical Center, Inc. (“Defendant” or “SCMC”)

The hearing on SCMC’s motion to compel arbitration is continued for supplemental briefing regarding substantive unconscionability and the PAGA waiver.[1]

Plaintiff used to work for SCMC. During the onboarding process, SCMC provided her with a policy packet that contains an arbitration agreement. (See Busheri Decl., Ex. A1, pp. 3-5.) On November 5, 2021, she signed the packet. (See id. at Ex. A1, p. 5.)

Here, SCMC moves to compel arbitration of Plaintiff’s individual causes of action.

“[W]hen a petition to compel arbitration is filed and accompanied by prima facie evidence of a written agreement to arbitrate the controversy, the court itself must determine whether the agreement exists and, if any defense to its enforcement is raised, whether it is enforceable.” (Rosenthal v. Great Western Fin. Securities Corp. (1996) 14 Cal.4^th 394, 413.)

“Under ‘both federal and state law, the threshold question . . . is whether there is an agreement to arbitrate.’” (Cruise v. Kroger Co. (2015) 233 Cal.App.4^th 390, 396, emphasis in original.)

The burden of proof rests with the petitioner. (See Rosenthal, supra, 14 Cal.4^th at 413 [requiring the petitioner to prove the existence of the agreement “by a preponderance of the evidence”].) To meet the burden, “the provisions of the written agreement and the paragraph that provides for arbitration . . . must be stated verbatim or a copy must be physically or electronically attached to the petition and incorporated by reference.” (Cal. Rules of Court, rule 3.1330; see also Condee v. Longwood Management Corp. (2001) 88 Cal.App.4^th 215, 218 [same].)

“Competent evidence is required to establish both the existence of the arbitration agreement and any ground for denial.” (Knight, et al., Cal. Practice Guide: Alternative Dispute Resolution (The Rutter Group December 2023 Update) ¶ 5:321.) “The verified petition (and attached copy of the agreement) normally proves the existence of the arbitration agreement. Affidavits or declarations may be necessary when factual issues are tendered.” (Ibid.)

SCMC’s arbitration agreement appears in section 2 of the policy packet. (See Busheri Decl., Ex. A1, pp. 3-5.) Section 2 states:

2. Arbitration. Any controversy, dispute or claim arising out of, in connection with, or related to the interpretation, performance or breach of Employee's employment with COMPANY shall be resolved by final and binding arbitration (the "Arbitration"). The Arbitration shall be initiated and administered by and in accordance with the then existing Rules of Practice and Procedures of the Judicial Arbitration and Mediation Services, Inc. (“JAMS”) or, if JAMS is not located or actively conducting arbitrations in Los Angeles County, with the Commercial Rules of the American Arbitration Association (“AAA”). The Arbitration shall be held in Los Angeles County, California, unless the parties mutually agree to have such proceeding in some other locale; the exact time and location shall be decided by the arbitrator(s) selected in accordance with the then existing Rules of Practice and Procedures of JAMS (or the Commercial Rules of AAA, if applicable). The arbitrator(s) shall apply California substantive law, or federal substantive law where state law is preempted. Civil discovery in such Arbitration shall be conducted in accordance with the provisions of California law that would apply if the matter were being litigated in a Superior Court in the State of California. The arbitrator(s) selected shall have the power to enforce the rights, remedies, duties, liabilities and obligations of discovery by the imposition of the same terms, conditions and penalties as can be imposed in like circumstances in a civil action by a court of competent jurisdiction of the State of California. The provisions of California law governing discovery in a civil action filed in Superior Court of the State of California (including with limitation depositions) are incorporated herein by reference and made applicable to this Agreement. The arbitrator(s) shall have the power to grant all legal and equitable remedies provided by California law and award compensatory damages provided by California law, except that punitive damages shall not be awarded. The arbitrator(s) shall prepare in writing and provide to the parties an award including factual findings and the legal reasons on which the award is based. The arbitrator(s) shall not have the power to commit errors of law or legal reasoning. Any judicial review of the arbitrator(s) decision shall be governed by California Code of Civil Procedure Sections 1285 et seq., except that the parties expressly grant the Superior Court the authority to correct errors of law, and modify the arbitrator(s)' ruling to avoid errors of law. The prevailing party in any Arbitration hereunder shall be awarded reasonable attorneys' fees, expert and nonexpert witness costs and expenses incurred directly or indirectly with said Arbitration, including without limitation the fees and expenses of the arbitrator(s) and any other expenses of the Arbitration.

Notwithstanding the foregoing, in the event that either party wishes to obtain injunctive relief or a temporary restraining order, such party may initiate an action for such relief in a court of general jurisdiction in the State of California. The decision of the court with respect to the requested injunctive relief or temporary restraining order shall be subject to appeal only as allowed under California law. Such courts shall not, however, have the authority to review or grant any request or demand for damages.

It is the intent of the parties that any dispute covered by this Arbitration Agreement will be arbitrated on an individual basis, and, unless prohibited by applicable law, the parties mutually waive their right to bring, maintain, participate in, or receive money from, any class, collective, or representative proceeding. Further, no dispute between an employee and COMPANY may be brought in arbitration under this Agreement on behalf of other employees as a class or collective action or other representative proceeding.

BY EXECUTING THIS DOCUMENT, EMPLOYEE DOES HEREBY ACKNOWLEDGE AND WARRANT THAT EMPLOYEE UNDERSTANDS AND AGREES TO THE TERMS SET FORTH ABOVE. EMPLOYEE HAS HAD ADEQUATE OPPORTUNITY TO CONSULT WITH ATTORNEYS, WHETHER OR NOT EMPLOYEE CHOSES TO SEEK INDEPENDENT COUNSEL. EMPLOYEE ACKNOWLEDGES THAT THIS AGREEMENT TO ARBITRATE IS VOLUNTARY AND IS ENTERED INTO VOLUNTARILY AND NOT IN RELIANCE ON ANY PROMISES OR REPRESENTATIONS MADE BY THE COMPANY OTHER THAN THOSE CONTAINED IN THIS AGREEMENT.

Importantly, assent is uncontested. Plaintiff does not dispute that she signed the agreement.

The Court finds that these provisions and facts suffice to establish an agreement to arbitrate.

“‘[U]nconscionability 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.” (Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, 114.) “The prevailing view is that . . . both [must] be present in order for a court to exercise its discretion to refuse to enforce a contract or clause under the doctrine of unconscionability.” (Ibid., emphasis added.) “But they need not be present in the same degree.” (Ibid.) “Essentially a sliding scale is invoked 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.” (Ibid.) “In other words, 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.” (Ibid.)

For procedural unconscionability, Plaintiff claims the arbitration agreement is a contract of adhesion, the onboarding process involved a high degree of oppression, and Defendant failed to attach the applicable arbitration rules. (See Opposition, pp. 2-5.)

The Court disagrees with the first two points. Plaintiff bears the burden to show unconscionability (see Knight, supra, at ¶ 5:155.7 [instructing that “[t]he party opposing a motion to compel arbitration on the ground of unconscionability has the burden to prove the defense”]; see also id. at ¶ 5:155.30 [stating that “the burden of proving unconscionability is on the party seeking to block enforcement”]), yet she failed to file a declaration. She does not declare under oath that Defendant presented the arbitration agreement on a “take it or leave it” basis, that Defendant pressured her to sign, or that she failed to receive opportunities to read the agreement and to consult attorneys before signing. (See Reply, pp. 3-4.)[2] In fact, the agreement says the opposite, so her burden is unsatisfied:

The Court also disagrees with Plaintiff’s third point. She cites Trivedi v. Curexo Technology Corp. (2010) 189 Cal.App.4^th 387, claiming “[f]ailure to provide an employee with a copy of the applicable arbitration rules in advance of executing the agreement is procedurally unconscionable.” (Opposition, p. 5.) Trivedi is distinguishable. In Baltazar v. Forever 21, Inc. (2016) 62 Cal.4^th 1237, the California Supreme Court held that the Trivedi rule applies when the “unconscionability challenge concern[s] some element” of the arbitration rules themselves. (Baltazar, supra, 62 Cal.4^th at 1246.) Plaintiff’s unconscionability challenge “has nothing to do with the [JAMS or] AAA rules[.]” (Ibid.; see also Reply, pp. 5-6.)

Arguably, since Plaintiff fails to demonstrate procedural unconscionability, it is unnecessary to analyze substantive unconscionability; however, the Court will address Plaintiff’s arguments in an abundance of caution.

To start, Plaintiff contends the arbitration agreement contains an unlawful non-disparagement clause. (See Opposition, p. 7.)

The Court disagrees. The non-disparagement clause is in section 1.8 of the policy packet. (See Busheri Decl., Ex. A1, pp. 2-3). It is not in the arbitration section (see Reply, p. 6), and, regardless, it states that “[t]he restrictions shall not” cover “truthful statements made in court, arbitration proceedings or mediation proceedings or in documents produced or testimony given in connection with legal process associated with Employee's employment with COMPANY that are based on Employee's reasonable belief and are not made in bad faith.” (Id. at Ex. A1, p. 3, emphasis added.) Also, Plaintiff fails to cite authority rendering an arbitration agreement unenforceable due to a non-disparagement clause.

Next, Plaintiff claims the agreement “waive[s] Defendant’s requirement to post a bond in order to obtain an injunction.” (Opposition, p. 8.)

The hearing is continued. Section 1.6 states that “Employee hereby waives any requirement for securing or posting a bond in connection with COMPANY'S obtaining any injunctive or other equitable relief.” (Id. at Ex. A1, p. 2.) The provision “lacks mutuality and is substantively unconscionable” as a matter of law (Carbajal v. CWPS, Inc. (2016) 245 Cal.App.4^th 227, 250 [holding that “[a]n arbitration provision lacks mutuality and is substantively unconscionable when it authorizes the stronger party to obtain injunctive relief without establishing all of the essential elements for the issuance of an injunction”]; see also Knight, supra, at ¶ 5:155.1c), but it is not part of the arbitration section. Does that make a difference? And could it be severed? In reply, Defendant answers yes and yes. (See Reply, pp. 6, 7, 9-10.) What does Plaintiff think? The Court orders both sides to file short supplemental briefs on these issues.

Third, Plaintiff contends the agreement is one-sided, requiring Plaintiff to arbitrate the claims she prefers while allowing Defendant to litigate the claims it prefers. (See Opposition, p. 9.)

Notwithstanding the foregoing, in the event that either party wishes to obtain injunctive relief or a temporary restraining order, such party may initiate an action for such relief in a court of general jurisdiction in the State of California. The decision of the court with respect to the requested injunctive relief or temporary restraining order shall be subject to appeal only as allowed under California law. Such courts shall not, however, have the authority to review or grant any request or demand for damages.

(Busheri Decl., Ex. A1, p. 4, emphasis added.) The plain language permits both sides to seek full injunctive relief in court. It is mutual.

Fourth, Plaintiff contends the agreement bars punitive damages. (See Opposition, pp. 9-10.)

The Court disagrees. Case law is conflicted. (See Armendariz, supra, 24 Cal.4^th at 103-104 [finding a prohibition on punitive damages for statutory claims unenforceable]; see also Lange v. Monster Energy Co. (2020) 46 Cal.App.5^th 436, 448-449 [finding a “waiver of punitive damages . . . for all nonstatutory claims . . . substantively unconscionable” despite mutality]; cf. Chin v. Advanced Fresh Concepts Franchise Corp. (2011) 194 Cal.App.4^th 704, 712 [upholding a prohibition on punitive damages because the arbitration language was mutual, the plaintiff did not show that the prohibition violated public policy, and punitive damages were not available under the statutes cited in the complaint].) On balance, the circumstances here appear analogous to the circumstances in Chin because:

* the agreement’s language – “[t]he arbitrator(s) shall have the power to grant all legal and equitable remedies provided by California law and award compensatory damages provided by California law, except that punitive damages shall not be awarded” (Busheri Decl., Ex. A1, p. 4) – is mutual;

* Plaintiff fails to show that punitive damages are recoverable under the cited “wage and hour” statutes (see Reply, p. 7); and

* she fails to request punitive damages. (See ibid.; see also First Amended Complaint, pp. 22-26.)

Fifth, Plaintiff claims the agreement “allows [] the prevailing party to be awarded all litigation fees and expenses even if they are not entitled to them by statute.” (Opposition, p. 10.)

The prevailing party in any Arbitration hereunder shall be awarded reasonable attorneys’ fees, expert and nonexpert witness costs and expenses incurred directly or indirectly with said Arbitration, including without limitation the fees and expenses of the arbitrator(s) and any other expenses of the Arbitration.

(Busheri Decl., Ex. A1, p. 4.) At least three key sentences precede this wording:

* “[t]he arbitrator(s) shall have the power to grant all legal and equitable remedies provided by California law and award compensatory damages provided by California law” (ibid., emphasis added);

* “[t]he arbitrator(s) shall not . . . commit errors of law or legal reasoning” (ibid.); and

* “the parties expressly grant the Superior Court the authority to correct errors of law, and modify the arbitrator(s)’ ruling to avoid errors of law” (ibid.).

Read together, the parties’ intent is clear – the arbitrator must award fees and costs in compliance with California law, statutory or otherwise. If the arbitrator makes a mistake, for example, if the arbitrator grants an unrecoverable fee or cost, it can be corrected via judicial review.[4]

Sixth, Plaintiff contends the agreement fails to “explain how to initiate arbitration[.]” (Opposition, p. 11.)

The Court disagrees. The agreement says “[t]he Arbitration shall be initiated and administered by and in accordance with the then existing Rules of Practice and Procedures of [JAMs] or, if JAMS is not located or actively conducting arbitrations in Los Angeles County, with the Commercial Rules of the [AAA].” (Busheri Decl., Ex. A1, p. 4, emphasis added.) JAMS is active in Los Angeles County. The JAMS rules are available online and discuss the initiation process. (See https://www.jamsadr.com/rules-employment-arbitration/english.)[5]

In summary, the Court continues the hearing and orders supplemental briefing on Plaintiff’s second argument.

Plaintiff asserts that the arbitration agreement waives representative PAGA claims. (See Opposition, pp. 12-13.)

This issue is premature. It will not be ripe until the unconscionability issue is resolved, and only if the Court finds the agreement enforceable.

As a matter of guidance, prior to Viking River Cruises, Inc. v. Moriana (2022) 142 S.Ct. 1906 (“Viking River”), the applicable law was Iskanian v. CLS Transportation Los Angeles, LLC (2014) 59 Cal.4^th 348. “Iskanian’s principal rule prohibits waivers of ‘representative’ PAGA claims in the first sense.” (Viking River, supra, 142 S.Ct. at 1916, underlined case name added.) “That is, it prevents parties from waiving representative standing to bring PAGA claims in a judicial or arbitral forum.” (Ibid., emphasis in original.) “But Iskanian also adopted a secondary rule that invalidates agreements to separately arbitrate or litigate ‘individual PAGA claims for Labor Code violations that an employee suffered,’ on the theory that resolving victim-specific claims in separate arbitrations does not serve the deterrent purpose of PAGA.” (Id. at 1916-1917, underlined case name added; see also, e.g., Knight, supra, at ¶ 5:49.4m [citing California case law for the proposition that a “single count under PAGA could not be ‘split into an arbitrable individual claim and a nonarbitrable representative claim”].)

In Viking River, the plaintiff “executed an agreement to arbitrate any dispute arising out of her employment.” (Viking River, supra, 142 S.Ct. at 1916.) “The agreement contained a ‘Class Action Waiver’ providing that in any arbitral proceeding, the parties could not bring any dispute as a class, collective, or representative PAGA action.” (Ibid.) “It also contained a severability clause specifying that if the waiver was found invalid, any class, collective, representative, or PAGA action would presumptively be litigated in court.” (Ibid.) “But under that severability clause, if any ‘portion’ of the waiver remained valid, it would be ‘enforced in arbitration.’” (Ibid.)

“After leaving her position” with the defendant, the plaintiff “filed a PAGA action . . . in California court.” (Ibid.) “Her complaint contained a claim that [the defendant] had failed to provide her with her final wages within 72 hours, as required by” Labor Code sections 101 and 102. (Ibid.) “But the complaint also asserted a wide array of other code violations allegedly sustained by other . . . employees, including violations of provisions concerning the minimum wage, overtime, meal periods, rest periods, timing of pay, and pay statements.” (Ibid.) The defendant “moved to compel arbitration of [the plaintiff’s] ‘individual’ PAGA claim” – i.e., “the claim that arose from the violation she suffered — and to dismiss her other PAGA claims.” (Ibid.) “The trial court denied that motion, and the California Court of Appeal affirmed, holding that categorical waivers of PAGA standing are contrary to state policy and that PAGA claims cannot be split into arbitrable individual claims and nonarbitrable ‘representative’ claims.” (Ibid.)

The Court of Appeal’s ruling “was dictated by . . . Iskanian.” (Ibid., underlined case name added.) “Iskanian’s principal prohibition required the lower courts to treat the representative-action waiver” in Viking River “as invalid insofar as it was construed as a wholesale waiver of PAGA standing.” (Id. at 1917, underlined case name added.) “The agreement's severability clause, however, allowed enforcement of any ‘portion’ of the waiver that remained valid, so the agreement still would have permitted arbitration of [the plaintiff’s] individual PAGA claim even if wholesale enforcement was impossible.” (Ibid.) “But because” Iskanian “prohibits division of a PAGA action into constituent claims, the state courts refused to compel arbitration of that claim as well.” (Ibid.)

The United States Supreme Court granted review and reversed, holding, eight to one, that the Federal Arbitration Act (“FAA”) preempts Iskanian “insofar as it precludes division of PAGA actions into individual and non-individual claims through an agreement to arbitrate.” (Id. at 1924.) The opinion instructs:

This holding compels reversal in this case. The agreement between [the defendant] and [the plaintiff] purported to waive “representative” PAGA claims. Under Iskanian, this provision was invalid if construed as a wholesale waiver of PAGA claims. And under our holding, that aspect of Iskanian is not preempted by the FAA, so the agreement remains invalid insofar as it is interpreted in that manner. But the severability clause in the agreement provides that if the waiver provision is invalid in some respect, any “portion” of the waiver that remains valid must still be “enforced in arbitration.” Based on this clause, [the defendant] was entitled to enforce the agreement insofar as it mandated arbitration of [the plaintiff’s] individual PAGA claim. The lower courts refused to do so based on the rule that PAGA actions cannot be divided into individual and non-individual claims. Under our holding, that rule is preempted, so [the defendant] is entitled to compel arbitration of [the plaintiff’s] individual claim.

The remaining question is what the lower courts should have done with [the plaintiff’s] non-individual claims. Under our holding in this case, those claims may not be dismissed simply because they are “representative.” Iskanian’s rule remains valid to that extent. But as we see it, PAGA provides no mechanism to enable a court to adjudicate non-individual PAGA claims once an individual claim has been committed to a separate proceeding. Under PAGA's standing requirement, a plaintiff can maintain non-individual PAGA claims in an action only by virtue of also maintaining an individual claim in that action. [Citation.] When an employee's own dispute is pared away from a PAGA action, the employee is no different from a member of the general public, and PAGA does not allow such persons to maintain suit. [Citation.] As a result, [the plaintiff] lacks statutory standing to continue to maintain her non-individual claims in court, and the correct course is to dismiss her remaining claims.

* Iskanian is preempted to the extent it bars dividing PAGA claims into individual and representative claims;

* the defendant is allowed to compel the plaintiff’s individual PAGA claim to arbitration; and

* once the plaintiff’s individual PAGA claim is compelled to arbitration, he or she lacks standing to maintain the representative PAGA claim.

The High Court’s standing ruling is nonbinding. Indeed, the California Supreme Court reversed it in Adolph v. Uber Technologies, Inc. (2023) 14 Cal.5^th 1104.

Given Iskanian, Viking River, and Adolph, the significant question here is whether the FAA applies. Do the parties agree that it applies? Is there a dispute? The Court intends to ask the attorneys at the hearing and, if there is a dispute, to order supplemental briefing.

* Option One == if the Court finds the agreement unenforceable, the PAGA issue would be moot;

* Option Two = if the Court finds the agreement enforceable and the FAA applicable, Plaintiff’s individual PAGA claim would be arbitrated (Viking River), and the representative PAGA claim would be stayed until the arbitration is finished (Adolph); or

* Option Three = if the Court finds the agreement enforceable and the FAA inapplicable, the individual and representative PAGA claims would be stayed (Iskanian and Adolph).

As noted above, the arbitration agreement waives class claims. (See Busheri Decl., Ex. A1, pp. 4-5.)

Defendant’s request to strike the class claims pursuant to the class waiver is unopposed.

The request is premature, but the Court intends to grant it if the agreement is found enforceable.

[1] “PAGA” means Private Attorneys General Act.

[2] Thus, OTO, LLC v. Kho (2019) 8 Cal.5^th 111 is distinguishable.

[3] An arbitration agreement “is not invalid merely because it is imposed as a condition of employment.” (Lagatree v. Luce, Forward, Hamilton & Scripps (1999) 74 Cal.App.4th 1105, 1122–1123.) “[T]he mandatory nature of an arbitration agreement does not, by itself, render the agreement unenforceable.” (Ibid.; see also Knight, supra, at ¶ 5:146 [“The mere fact an adhesion contract is involved does not per se render the arbitration clause unenforceable. Rationale: Such contracts are ‘an inevitable fact of life for all citizens – businessman and consumer alike.’”], emphasis in original.)

[4] Moreover, Defendant admits that it cannot recover fees “[u]nder the Labor Code provisions at issue[.]” (Reply, p. 7.)

[5] Undisputedly, Defendant must pay the arbitration costs. (See Motion, p. 9; see also Reply, pp. 8-9.)