Judge David S. Cunningham, Case Number: 23STCV24278, Date: 2025-04-01 Tentative Ruling

Judge: David S. Cunningham, Case: 23STCV24278, Date: 2025-04-01 Tentative Ruling

Plaintiff used to work for VXI. He alleges that VXI subjected him and other current and former employees to numerous wage-and-hour violations.

“[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 hired Plaintiff in February 2023. (See Tang Decl., ¶ 3.) As part of the onboarding process, Plaintiff received a new-hire packet, which contained an arbitration agreement that she signed. (See ibid.; see also Bennett Decl., ¶ 3.)

The arbitration agreement is attached to the declaration of Defendant’s corporate counsel, Aileen Tang, at exhibit A. The agreement states:

I recognize that differences may arise between VXI Global Solutions, LLC (the "Company") and me during or after my employment with the Company and that those differences may or may not be related to my employment. I understand and agree that by entering into this Mutual Agreement to Arbitrate Claims (the "Agreement") both the Company and I anticipate gaining the benefit of the speedy, impartial dispute resolution procedure offered by arbitration.

I understand that any reference in this Agreement to the Company will be a reference to the Company and all of its past and present partners, officers, directors and employees; all subsidiary and affiliate entities, all benefit plans, the benefit plans' sponsors, fiduciaries, administrators, affiliates and all successors and assigns of any of them.

1. Claims Covered by this Agreement. The Company and I agree to resolve, by arbitration, all individual claims or controversies, except as excluded in paragraph 2 below, involving the Company and any of its past or present partners, officers, employees or agents, whether or not those claims or controversies arise out of my employment with the Company or the termination of my employment ("Claims"). Subject to the exclusions in paragraph 2, the Claims covered by this Agreement include, but are not limited to, claims for wages, bonuses, commissions or any other form of compensation; claims for breach of any contract, express or implied; tort claims; claims for discrimination or harassment, including but not limited to discrimination or harassment based on race, sex, religion, national origin, age, marital status, physical or mental disability, medical condition or sexual orientation; claims for benefits; all claims for violation of or damages under any federal, state or other governmental law, statute, ordinance, Executive Order or regulation; and claims by the Company for injunctive and/or other equitable relief for, among other claims, unfair competition, the use or unauthorized disclosure or misappropriation of trade secrets or client information, the disclosure of any other confidential information or the violation of any confidentiality agreement which may be in effect between me and the Company.

2. Claims not Covered by the Agreement. This Agreement does not apply to or cover claims by me for workers' compensation benefits or unemployment compensation benefits; claims based upon an employee pension or benefit plan, the terms of which may contain an arbitration or other dispute resolution procedure, in which case the provisions of such plan shall control; charges filed with any administrative or government agency (e.g., the National Labor Relations Board or the Equal Employment Opportunity Commission); and any other claim that cannot be referred to arbitration as a matter of law.

3. Required Notice of Claim. If either the Company or I has a dispute which we wish to resolve, written notice of the dispute must be given to the other party within the applicable statute of limitations period on which the claim is based; otherwise, the claim shall be void and deemed waived. Written notice to the Company shall be sent by certified or registered mail, return receipt requested, to the attention of Corporate Counsel, VXI Global Solutions, LLC, 220 W 1st St., 3rd Floor, LA 90012.

Written notice to me shall be sent by certified or registered mail, return receipt requested, to the last address recorded in my personnel file. The written notice must identify and describe the nature of all claims asserted, the facts upon which such claims are based, the amount in controversy and the remedy sought.

4. Arbitration Procedures. The Company and I agree that, except as provided in this Agreement, any arbitration shall be conducted in accordance with the Employment Arbitration Rules and Mediation Procedures of the American Arbitration Association (“AAA”), but excluding AAA’s Supplemental Rules for Class Arbitration, before an arbitrator who is a retired judge (the "Arbitrator"). AAA’s rules are available on its website, www.adr.org or you may obtain a copy from the Company’s HR Department. The arbitration shall take place in or near the city in which I am or was last employed by the Company.

The Arbitrator shall apply the substantive law (and the law of remedies, if applicable) of the state in which the claim arose, or federal law, or both, as applicable to the individual claim(s) asserted. The Arbitrator, and not any federal, state or local court or agency, shall have exclusive authority to resolve any dispute relating to the interpretation, applicability, enforceability or formation of this agreement, including but not limited to any claim that all or any part of this Agreement is void or potentially void. The Arbitrator's decision shall be final and binding upon the parties, except as provided in this agreement.

The Arbitrator shall have jurisdiction to hear and rule on prehearing disputes and is authorized to hold pre-hearing conferences by telephone or in person as the Arbitrator deems necessary. The Arbitrator shall have the authority to entertain a motion to dismiss and/or a motion for summary judgment by any party.

Either the Company or I, at our own expense, may arrange for and pay the cost of a court reporter to provide a stenographic record of the proceedings.

Either the Company or I, upon our request at the close of the hearing, shall be permitted to file a post-hearing brief. The time for the filing of any such brief shall be set by the Arbitrator.

Either the Company or I may bring an action in any court of competent jurisdiction to compel arbitration under and in compliance with this Agreement and to enforce an arbitration award. Except as otherwise provided in this Agreement, the Company and I agree that neither of us shall initiate nor prosecute any lawsuit in any way related to any claim.

The Arbitrator's remedial authority shall be no greater than that which is available under the statutory or common law theory asserted. The decision of an Arbitrator on any claim submitted to arbitration as provided in this Agreement shall be final and binding upon the Company and me.

5. Arbitration Fees and Costs. The Company shall pay the fees and costs of the arbitrator to the full extent required by law. The Company will deposit such funds for the Arbitrator’s fee, as the Arbitrator may determine to be necessary. Both the Company and I will pay our own costs and attorneys’ fees, unless otherwise required by law.

6. Interstate Commerce. I understand and agree that the Company is engaged in transactions involving interstate commerce and that my employment involves such commerce.

7. Requirements for Modification or Revocation. This Agreement can only be revoked or modified by a writing signed by all of the partners of the Company and me which specifically states intent by both of us to revoke or modify this Agreement.

8. Sole and Entire Agreement. This is the complete agreement between the Company and me on the subject of the arbitration of disputes (except for any arbitration agreement in connection with any pension or benefit plan). This Agreement supersedes any prior or contemporaneous oral or written understanding on the subject. Neither the company nor I is relying on any representations, oral or written, on the subject of the effect, enforceability or meaning of this Agreement except as specifically set forth in this Agreement.

9. Construction. If any provision of this Agreement is determined to be void or otherwise unenforceable, in whole or in part, such determination shall not affect the validity of the remainder of this Agreement.

10. Consideration. The promises by the Company and by me to arbitrate claims, rather than to litigate them, provide consideration for each other.

11. Survival of Provisions. This Agreement to arbitrate shall survive the termination of my employment and shall apply to any Claims whether they arise or are made during or after the ending of my employment or other relationship with the Company.

12. Not an Employment Agreement. This Agreement is not intended to, and shall not be construed to, change the at-will relationship, express or implied, which presently exists between me and the Company, and does not create any contract of employment between us.

The Company and I acknowledge that we have both carefully read this Agreement, that all understandings between me and the Company relating to the subject matter of arbitration are contained in it, that our respective signatures on this Agreement mean that both the Company and I are giving up our rights to a jury trial and to a trial in a court of law, and that we have both entered into this Agreement voluntarily and not in reliance on any premises or representations other than those contained in this Agreement. The Company and I further acknowledge that we have had an opportunity to discuss this Agreement with attorneys of our choice prior to signing it and we have used that opportunity to the extent we wish to do so.

Defendant contends the FAA governs because Defendant engages in interstate commerce. (See Motion, pp. 9-10.)

Plaintiff did not respond. (See Opposition, pp. 2-15 [merely arguing that the agreement is unconscionable].)

The Court agrees with Defendant. The FAA applies if the plain language says it applies or if “the underlying contract facilitates interstate commercial transactions or directly or indirectly affects commerce between states.” (Knight, supra, at ¶ 5:50.2, emphasis in original.) Section 6 of the agreement states: “I understand and agree that the Company is engaged in transactions involving interstate commerce and that my employment involves such commerce.” (Tang Decl., Ex. A.) Also, Tang declares: “VXI operates call centers across the United States and handles calls on behalf of its clients’ customers located across the United States.” (Id. at ¶ 2.) Taken together, these factors render the FAA applicable.

Unconscionability is a contract defense. (See Torrecillas v. Fitness International, LLC (2020) 52 Cal.App.5^th 485, 492.) Under the FAA, unconscionability can be utilized to “invalidate [an] arbitration agreement[].” (Ibid.) Courts apply state law to test whether the agreement is unconscionable. (See, e.g., Lagatree v. Luce, Forward, Hamilton & Scripps (1999) 74 Cal.App.4^th 1105, 1119.)

“[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, internal quotation marks omitted.) “The prevailing view is that [procedural 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.” (Ibid.) “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.)

The party opposing arbitration bears the burden to prove that the arbitration agreement is unconscionable. (See Ajamian v. CantorCO2e, L.P. (2012) 203 Cal.App.4^th 771, 795.)

For procedural unconscionability, Plaintiff claims Defendant’s agreement constitutes a contract of adhesion and is complex. (See Opposition, pp. 3-4.)

“[A] predispute 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.) Stated another way, “the 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.)

More importantly, the agreement states: “The Company and I further acknowledge that we have had an opportunity to discuss this Agreement with attorneys of our choice prior to signing it and we have used that opportunity to the extent we wish to do so.” (Tang Decl., Ex. A, p. 6.)

For substantive unconscionability, Plaintiff contends (1) the scope of the agreement is overbroad, (2) the duration is indefinite, (3) mutuality is lacking, (4) the agreement alters entitlement to attorney fees, (5) it waives representative PAGA claims, (6) it waives Plaintiff’s right to seek a public injunction, (7) the jury waiver is overbroad, and (8) the confidentiality agreement is unenforceable. (See Opposition, pp. 4-13.)

Points (1), (2), and (3) are based on Cook v. University of Southern California (2024) 102 Cal.App.5^th 312, a May 2024 decision from the Second District Court of Appeal. (See Opposition, pp. 9-12.) There, the trial court found the arbitration agreement substantively unconscionable in three ways and held that the unconscionable provisions could not be severed. The Second District affirmed all three findings. First, the panel found the scope unconscionable because the agreement covered all claims, not just employment-related claims. (See Cook, supra, 102 Cal.App.5^th at 321-325.) Second, the duration was unconscionable because the agreement stated that it would survive Cook’s employment and could only be “revoked” if Cook and USC’s president signed a written termination request that “expressly mention[ed] the arbitration agreement.” (Id. at 326; see also id. at 325.) Third, the agreement lacked mutuality because it “require[d] Cook to arbitrate . . . all claims she [] ha[d] against USC” and USC’s “related entities” without requiring the “‘related entities’ to arbitrate their claims against [her].” (Id. at 326; see also id. at 327-328.)

SCOPE – “[b]y its express terms,” the Cook agreement covered “all claims, whether or not arising out of Employee’s University employment, remuneration or termination, that Employee may have against the University or any of its related entities . . . ; and all claims that the University may have against Employee.” (Cook, supra, 102 Cal.App.5^th at 321.) “The plain language of the agreement require[d] Cook to arbitrate claims that [were] unrelated to her employment with USC.” (Ibid.; see also id. at 325 [“The arbitration agreement drafted by USC applies to all claims ‘whether or not arising out of Employee's University employment, remuneration or termination.’ If USC had been concerned about capturing termination or retaliation claims related to Cook’s employment, it simply could have limited the scope of the agreement to claims arising out of or relating to her employment or termination. It is difficult to see how it is justified to expect Cook—as a condition of her employment at the university—to give up the right to ever sue a USC employee in court for defamatory statements or other claims that are completely unrelated to Cook's employment.”].)

1. Claims Covered by this Agreement. The Company and I agree to resolve, by arbitration, all individual claims or controversies, except as excluded in paragraph 2 below, involving the Company and any of its past or present partners, officers, employees or agents, whether or not those claims or controversies arise out of my employment with the Company or the termination of my employment ("Claims"). Subject to the exclusions in paragraph 2, the Claims covered by this Agreement include, but are not limited to, claims for wages, bonuses, commissions or any other form of compensation; claims for breach of any contract, express or implied; tort claims; claims for discrimination or harassment, including but not limited to discrimination or harassment based on race, sex, religion, national origin, age, marital status, physical or mental disability, medical condition or sexual orientation; claims for benefits; all claims for violation of or damages under any federal, state or other governmental law, statute, ordinance, Executive Order or regulation; and claims by the Company for injunctive and/or other equitable relief for, among other claims, unfair competition, the use or unauthorized disclosure or misappropriation of trade secrets or client information, the disclosure of any other confidential information or the violation of any confidentiality agreement which may be in effect between me and the Company.

DURATION – to repeat, the Second District found the duration of the USC agreement unconscionable because it expressly survived Cook’s employment and could only be “revoked” if Cook and USC’s president signed a written termination request that “expressly mention[ed] the arbitration agreement.” (Cook, supra, 102 Cal.App.5^th at 326.)

The trial court also found the agreement was unconscionable because it lacked mutuality. The agreement requires Cook to arbitrate any and all claims she may have against USC “or any of its related entities, including but not limited to faculty practice plans, or its or their officers, trustees, administrators, employees or agents, in their capacity as such or otherwise.” However, the agreement does not require USC's “related entities” to arbitrate their claims against Cook.

Under Armendariz, a modicum of bilaterality is required in arbitration agreements. Still, nothing in Armendariz supports the conclusion that the presence of a modicum of bilaterality renders an agreement per se conscionable. The presence of a modicum of bilaterality will not save a clause that is, in practical effect, unjustifiably one-sided. There is no question that it is more difficult for a party to enforce an arbitration agreement against a nonsignatory than it is for a nonsignatory to enforce an arbitration agreement against a party. This is intentional, as arbitration is “a voluntary means of resolving disputes, and this voluntariness has been its bedrock justification.” [Citation.] “Arbitration is consensual in nature. The fundamental assumption of arbitration is that it may be invoked as an alternative to the settlement of disputes by means other than the judicial process solely because all parties have chosen to arbitrate them. [Citations.] Even the strong public policy in favor of arbitration does not extend to those who are not parties to an arbitration agreement or who have not authorized anyone to act for them in executing such an agreement.” [Citation.]

As a result, nonsignatories may enforce an arbitration agreement against a party to the agreement simply by showing they are intended third-party beneficiaries of the arbitration agreement. [Citation.] Where the agreement requires arbitration of claims against certain classes of third parties, nonsignatories can make “a prima facie showing sufficient to allow them to enforce the arbitration clause as third party beneficiaries” simply by showing they fall within one of the classes of beneficiaries identified by the contract. [Citation.]

Conversely, for Cook to enforce the arbitration agreement against USC's agents or employees as third-party beneficiaries, she would have to show they actually accepted a benefit under the agreement. [Citation.] It is difficult to imagine how Cook could carry this burden to compel USC's employees and agents to arbitration unless those specific agents or employees first moved to compel arbitration under the agreement. While it is theoretically possible for Cook to make this showing, it is unlikely. [Citation.]

The plain language of the arbitration agreement thus provides a significant benefit to USC's related entities without any reciprocal benefit to Cook.

USC has offered no justification for this one-sided treatment. [Citation.] We find the trial court did not err in holding the arbitration agreement was substantively unconscionable for lack of mutuality in the claims that are subject to arbitration.

1. Claims Covered by this Agreement. The Company and I agree to resolve, by arbitration, all individual claims or controversies, except as excluded in paragraph 2 below, involving the Company and any of its past or present partners, officers, employees or agents, whether or not those claims or controversies arise out of my employment with the Company or the termination of my employment ("Claims").

(Tang Decl., Ex. A, p. 1, underline in original, italics added.) Arguably, the obligation to arbitrate is a two-way obligation.

On balance, the Court believes Cook is analogous. The linchpin in Cook was that the scope was unlimited. (See Cook, supra, 102 Cal.App.5^th at 321-325.) It was the overbroad scope that made the other two defects troublesome and severance impossible. (See Cook, supra, 102 Cal.App.5^th at 328-330.) Similarly, VXI’s overbroad scope cannot be fixed without rewriting the agreement.

Defendant’s cases do not change the result. Cook is a Second District decision; it is published; and it has not received negative treatment in a published California opinion. Salgado v. Carrows Restaurants, Inc. (2019) 33 Cal.App.5^th 356, Tiri v. Lucky Chances, Inc. (2014) 226 Cal.App.4^th 231, Carmona v. Lincoln Millenium Car Wash, Inc. (2014) 226 Cal.App.4^th 74, Auto Equity Sales, Inc. v. Superior Court (1962) 57 Cal.2d 450, and Mercuro v. Superior Court (2002) 96 Cal.App.4^th 167 all predate Cook, and Ramirez v. Charter Communications, Inc. (2024) 16 Cal.5^th 478 mentions Cook without criticism. (See Ramirez, supra, 16 Cal.5^th at 499.)

As a matter of guidance, the Court finds point (4) unavailing. Section 5 of the agreement provides:

(Tang Decl., Ex. A, § 5, underline in original, italics added.) The italicized wording ensures that Plaintiff’s right to seek – and recover – attorney fees must comply with the law.

Points (5) and (6) also fail. VXI’s agreement does not include such waivers. Section 1, which Plaintiff cites, does not expressly waive either type of claim or prohibit the arbitrator from awarding a public injunction. (See id. at Ex. A, § 1; see also Reply, p. 7; cf. Jack v. Ring LLC (2023) 91 Cal.App.5^th 1186, 1204 [the arbitration agreement specified that the arbitrator could “award injunctive relief ‘only in favor of the individual party seeking relief and only to the extent necessary to provide relief warranted by that party's individual claim[]’”].)

The Court tends to disagree with point (7). Plaintiff does not allege sexual-assault and sexual-harassment causes of action. Additionally, the agreement states:

2. Claims not Covered by the Agreement. This Agreement does not apply to or cover claims by me for workers' compensation benefits or unemployment compensation benefits; claims based upon an employee pension or benefit plan, the terms of which may contain an arbitration or other dispute resolution procedure, in which case the provisions of such plan shall control; charges filed with any administrative or government agency (e.g., the National Labor Relations Board or the Equal Employment Opportunity Commission); and any other claim that cannot be referred to arbitration as a matter of law.

(Tang Decl., Ex. A, § 2, underline in original, italics added.) The Court is confident that the arbitrator would be capable of applying this sentence if the need arose.

Point (8) concerns the confidentiality agreement that Plaintiff signed during onboarding. Plaintiff asserts that the arbitration agreement is unconscionable because the confidentiality agreement – including the non-compete and non-solicitation clauses – is unconscionable. (See Opposition, pp. 11-13; see also Bennett Decl., Ex. 2.)

The Court disagrees in part. Even assuming VXI’s arbitration agreement and the confidentiality agreement should be treated as one contract, Plaintiff’s authority is distinguishable. In Alberto v. Cambrian Homecare (2023) 91 Cal.App.5^th 482, the confidentiality agreement “required [the plaintiff] to consent to an ‘order of an immediate injunction, without bond, from any court of competent jurisdiction, enjoining and restraining’ [the plaintiff] from disclosing confidential or proprietary information.” (Alberto, supra, 91 Cal.App.5^th at 492.) VXI’s confidentiality agreement does not waive the bond requirement and does not obligate Plaintiff to consent to an immediate injunction being ordered. (See Bennett Decl., Ex. 2, § 9; see also Reply, p. 9.)

The Court declines to address the non-compete and non-solicitation clauses. If it were necessary to analyze them, the Court would be inclined to order supplemental briefing. Given the Cook analysis, however, it is unnecessary. The motion must be denied regardless of whether these clauses can be enforced, so ordering supplemental briefing would be inefficient.

[1] The agreement carves out a handful of claims that are required to be carved out by law – e.g., workers’-compensation claims and administrative claims before the National Labor Relations Board and Equal Employment Opportunity Commission. (See id. at Ex. A, § 2.) But the overall scope is overbroad like the Cook agreement was.