Judge David S. Cunningham, Case Number: 23STCV14059, Date: 2024-01-22 Tentative Ruling

Judge: David S. Cunningham, Case: 23STCV14059, Date: 2024-01-22 Tentative Ruling

Moving Party: The Private Suites Holdings, LLC (“Defendant” or “TPS”)

The Court intends to hold an evidentiary hearing with live testimony on whether the Federal Arbitration Act (“FAA”) applies.

The hearing is continued for supplemental briefing on whether section 5.8’s specific-performance sentence can be severed.

Plaintiff used to work for TPS, “serv[ing] as a Member Experience Manager and Member Associate” from October 4, 2021 through April 12, 2023. (Plaintiff Decl., ¶ 3.) During that time period, she claims TPS failed to pay wages for all hours worked, pay overtime wages, provide meal periods, provide rest periods, reimburse business expenses, furnish timely and accurate wage statements, and pay all compensation due at the time of discharge. (See, e.g., Complaint, ¶¶ 23-36, 44-78.)

“[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.)

Defendant’s arbitration provision is attached to the declaration of Natalie Kimm at Exhibit A. The provision states:

5.1 Employee and TPS (“Company”) agree to submit to mandatory binding arbitration under the [FAA], any and all claims arising out of or related to your service with The Company and/or the termination thereof, including, but not limited to, claims for Unpaid wages, wrongful termination, torts, contracts, benefits, FSLA claims, unpaid meal periods, rest periods, stock or stock options or other ownership interest in the Company, hostile work environment and/or discrimination (including harassment) based upon any federal, state or local ordinance, statute, regulation or constitutional provision (collectively, “Arbitrable Claims”). The FAA applies to this Agreement because the Company's business involves interstate commerce.

5.2 Notwithstanding the foregoing, each party may, at its, his or her option, seek injunctive relief in court related to the improper use, disclosure or misappropriation of a party's private, proprietary, confidential or trade secret information.

5.3 To the fullest extent permitted by law, you and the Company agree that no class or collective Actions can be asserted in arbitration or otherwise. All claims, whether in arbitration or otherwise, must be brought solely in your or the Company’s individual capacity, and not as a plaintiff or class member in any purported class or collective proceeding. THE PARTIES HEREBY WAIVE ANY RIGHTS THEY MAY HAVE TO TRIAL BY JURY IN REGARD TO ARBITRABLE CLAIMS. THE PARTIES FURTHER WAIVE ANY RIGHTS THEY MAY HAVE TO PURSUE OR PARTICIPATE IN A CLASS OR COLLECTIVE ACTION PERTAINING TO ANY ARBITRABLE CLAIMS BETWEEN YOU AND THE COMPANY

5.4 This Agreement does not restrict Employee’s right to file administrative claims you may bring before any government agency where, as a matter of law, the parties may not restrict your ability to file such claims (including, but not limited to, the National Labor Relations Board, the Equal Employment Opportunity Commission and the Department of Labor). However, the parties agree that, to the fullest extent permitted by law, arbitration shall be the exclusive remedy for the subject matter of such administrative claims.

5.5 Any arbitration shall be conducted before a single arbitrator selected by the parties and shall be conducted under the JAMS Employment Arbitration Rules & Procedures (“JAMS Rules”) then in effect. You may obtain a copy of the JAMS Rules by accessing the JAMS website at www.jamsadr.com. If you are unable to locate a copy of the rules, the Company will provide a copy to you at no charge. The arbitration shall take place within 75 miles of the metropolitan city in which you are or were last employed by the Company. Other than $150 of any initial filing fee that the you must pay to initiate the action with JAMS, the Company will pay all forum costs, including any further filing fees, arbitrator fees, or administrative fees subject to authority of the Arbitrator to reallocate such costs or fees and require you to reimburse the Company, if Company is the prevailing party in the Arbitration.

5.6 The arbitrator shall have the authority to order such discovery as the arbitrator considers necessary to a full and fair exploration of the issues in dispute, consistent with the expedited nature of arbitration. The arbitrator is authorized to award any remedy or relief available under applicable law that would have been available to the parties had the matter been heard in a court. To the extent any temporary injunctive relief is obtained in court, however, the underlying merits dispute must be resolved through the arbitration procedures described in this Agreement.

5.7 The arbitrator shall have the authority to award attorney's fees and costs if a court would be authorized to make such an award under applicable law. The decision of the arbitrator shall be in writing and shall provide the reasons for the award. This Agreement is enforceable under and subject to the FAA, 9 U.S.C. Sec 1.

5.8 This Agreement states the full and complete terms of any dispute resolution as between Employee and the Company. Specific performance of the Agreement may be compelled by an action in a court of competent jurisdiction at the sole discretion of the Company. Employee agrees that there is adequate consideration for this Agreement and that Employee is not relying upon any representations or promises regarding the matters herein that are not set forth in writing in this Agreement[.]

It is undisputed that Plaintiff e-signed the provision. (See id. at ¶ 5; see also, e.g., Plaintiff Decl., ¶¶ 6-7, 9.)

Nevertheless, she appears to raise an assent challenge, insinuating that she did not understand that she was agreeing to arbitration. (See Plaintiff Decl., ¶¶ 8-9.)

The argument fails. Plaintiff does not claim she could not read English, and, anyway, lack of understanding is not a defense. (See, e.g., Ramos v. Westlake Services LLC (2015) 242 Cal.App.4^th 674, 687 [“[T]he fact that [the plaintiff] signed a contract in a language he may not have completely understood would not bar enforcement of the arbitration agreement. If [the plaintiff] did not speak or understand English sufficiently to comprehend the English Contract, he should have had it read or explained to him.”].)

Although the arbitration provision plainly states that the FAA applies, Plaintiff contends the Court should find it inapplicable based on an exception. She claims the FAA does not apply to employment contracts of transportation workers. She asserts that Defendant employed her as a transportation worker and that she “was directly involved in the transportation of goods in interstate commerce.” (Opposition, p. 5.)

Defendant contends the exception is unsatisfied because Plaintiff “work[ed] in the hospitality industry and not as [a] transportation worker[].” (Reply, p. 2.)

Southwest Airlines Co. v. Saxon (2022) 596 U.S. 450 (“Southwest”) is the controlling case. (See Opposition, pp. 5-6; see also Reply, pp 1-2.) There, the High Court analyzed section 1 of the FAA. Section 1 states that the FAA “does not apply ‘to contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce.’” (Knight, supra, at ¶ 5:57, emphasis in original.) The justices held that this exception, which only applies to “transportation workers[,]” encompasses “airline ramp supervisors who load and unload airplane cargo[.]” (Id. at ¶¶ 5:57, 5:58.)

Plaintiff declares that part of her job duties involved “load[ing] and unload[ing] cargo on and off airplanes” (Opposition, p. 6):

3. I served as a Member Experience Manager and Member Associate for Defendant on or about October 4, 2021 through on or about April 12, 2023. In those positions, I regularly assisted high-net-worth clients, including well-known bands, celebrities, and royal families in their travel arrangements, transportation, and accommodations. I regularly coordinated the flow of client packages and cargo to ensure their security and integrity, and to prevent loss, theft, or damage. I frequently physically unloaded and loaded clients’ luggage, retail items, and packages as well as coordinated with both the company's drivers and the cargo companies responsible for transporting such cargo. Indeed, ensuring customer’s belongings and retail items were safely transported from Defendant’s airplanes to customer private vehicles and trucks was a core part of my responsibility.

4. A primary function of my job included the handling and coordination of international commercial cargo. For example, on or about September 11, 2022, Defendant transported a well-known international pop star who arrived in the country for a concert tour. This individual brought in both personal and retail cargo and/or merchandise to sell at their performances. I personally carried and/or supervised the safe transport of the band’s packages, merchandise for sale, and bags upon arrival in California, through the U.S. Customs and Border Control and to their subsequent flight to another state.

5. On another occasion, on or about July 8, 2022, I coordinated the flow of packages for a prominent royal family. I personally assisted and ensured the safe transport of seventy (70) bags and packages upon their arrival and to their next destination. These instances were consistent with my regular duties, although the volume of cargo varied.

2. I am aware of the day-to-day duties and responsibilities of Member Associates (“MA”) and Member Experience Managers (“MEM”) at TPS in Los Angeles.

3. MAs and MEMs are not responsible for loading and/or unloading baggage or cargo when working at TPS. Their primary responsibilities are in the area of hospitality, and they act as “greeters” welcoming TPS members to the suite or salon that the member has selected and facilitating their experience (food, beverage, spa services, etc.) while the member waits for their flight (for departing passengers) or when the member arrives to TPS terminal from the flight (for returning passengers).

4. Upon a member’s arrival at the TPS terminal for a departing trip, the MA or MEM will welcome the member and engage in the “check-in” process. The MA or MEM will coordinate with the member and/or their driver to retrieve their baggage from their vehicles. TPS Operations Associates (“OA”) are on hand to assist with this process. The MA or MEM will then print out luggage tags for the member’s baggage at the checkin desk at TPS terminal. After tagging the baggage, the MA or MEM turns the baggage over to a third-party vendor, Airport Terminal Management (“ATM”). TPS contracts with ATM to deliver passenger baggage to the airline for the member’s travel and contractually is unable to load or unload passenger baggage on airplanes (and no TPS employee is authorized to do so). TPS has no common ownership with ATM, which is a completely separate entity.

5. When a member returns from a trip, ATM is responsible for retrieving the member’s baggage from the designated baggage area and returning it to the TPS terminal. The MA or MEM will verify that ATM has properly collected all such baggage and will then coordinate getting such luggage to the member’s personal transportation to leave TPS. At no time is a MA or MEM responsible or authorized to actually unload any baggage from any airplane.

6. No MA or MEM ever is involved in working with commercial cargo. TPS solely works with passenger travel and is not involved with commercial cargo as that term is understood within the industry.

The Court plans to hold an evidentiary hearing with live testimony to resolve the factual differences. The matter is continued for this purpose.

What happens if the FAA is inapplicable? What law governs in that scenario? The arbitration provision does not say. During oral arguments, the attorneys need to answer these questions.

“‘[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 provision is a contract of adhesion, Defendant failed to explain arbitration to her, and Defendant failed to provide the JAMS fee schedule. (See Opposition, pp. 10-12.)

The Court disagrees with the first two points. 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.) Moreover, to repeat, lack of understanding is not a defense.

The Court also disagrees with the third point. In addition to stating that the JAMS Rules govern, section 5.5 of the arbitration provision identifies the JAMS website where the JAMS Rules, including the fee schedule, can be viewed and offers to have Defendant give a hard copy to Plaintiff for free. (See Kimm Decl., Ex. A, § 5.5.)

For substantive unconscionability, Plaintiff contends the arbitration provision:

* allows Defendant “to compel Plaintiff and similarly situated employees to arbitration while disallowing Plaintiff to compel [Defendant] the reciprocal right to compel it into private arbitration” (Opposition, p. 12); and

* grants “access to judicial remedies for only those claims and remedies that unilaterally benefit Defendant while requiring arbitration of claims and denying remedies that would benefit Plaintiff and other similarly situated employees.” (Id. at p. 13.)

The first point concerns sections 5.1 and 5.3. They are clear. They state that either side can compel arbitration, and both sides waive the right to seek a jury trial with respect to covered disputes. The language is mutual. (See Kimm Decl., Ex. A, §§ 5.1., 5.3.)

The potential problem, though, is section 5.8. It gives Defendant sole authority to compel specific performance of the arbitration provision in court. The specific-performance sentence is one-sided. Whether it can be severed is a question for supplemental briefing, especially since the arbitration provision appears to lack a severance clause. Does the Court have inherent authority to sever it in the absence of a severance clause?

Plaintiff’s second point regards the class waiver and section 5.2. She claims both are one-sided.

The fate of the class waiver depends on whether the FAA applies. (See Motion, pp. 8-9; see also Opposition, pp. 6-9; Reply, p. 2.) As noted above, the FAA is inapplicable; thus, the Court is inclined to find the class waiver unenforceable.

Section 5.2 says “each party may, at its, his or her option, seek injunctive relief in court related to the improper use, disclosure or misappropriation of a party’s private, proprietary, confidential or trade secret information.” (Kimm Decl., Ex. A, § 5.2.) It is mutual, and it covers claims that Plaintiff likely would have an interest in bringing, namely, claims related to private or confidential personal information.

* the Court orders the parties to submit supplemental briefs regarding severance of section 5.8’s specific-performance sentence; and

[1] Defendant’s reply brief mentions a Private Attorneys General Act cause of action (see Reply, p. 1), but the complaint does not contain such a claim.