Judge David S. Cunningham, Case Number: 24STCV02086, Date: 2025-01-24 Tentative Ruling

Judge: David S. Cunningham, Case: 24STCV02086, Date: 2025-01-24 Tentative Ruling

Opposing Party: Sergio Montiel and Jason Komen (collectively “Plaintiffs”)

Both Plaintiffs allege that CS and AN subjected them and other current and former employees to numerous wage-and-hour violations.

Here, CS moves to compel arbitration. CS contends Montiel must arbitrate pursuant to CS’s arbitration agreement and Komen must arbitrate pursuant to AN’s arbitration agreement.

“[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, supra, at ¶ 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.)

Montiel started working for Defendant in January 2022. (See Johnson Decl., ¶ 3.) During onboarding, Montiel acknowledged receiving Defendant’s employee handbook by signing an acknowledgment document. (See id. at ¶ 4.)

* states that the employee and Defendant agree that employment-related disputes shall be resolved by (1) informal negotiation, (2) possibly mediation, and (3) binding arbitration (see id. at Ex. A, p. 14);

* waives class, collective, and representative actions (see id. at Ex. A, p. 15);

* discusses costs, arbitrator selection, and discovery (see id. at Ex. A, pp. 15-16); and

Facts and terms like these normally suffice to establish an agreement to arbitrate; however, Montiel raises an assent challenge. He asserts that the arbitration section is just a policy, not an arbitration agreement. He also asserts that he did not sign an arbitration agreement and that the only thing he executed was the handbook acknowledgment. Effectively, Montiel contends the handbook and acknowledgment do not constitute an arbitration agreement. (See Opposition, pp. 2-3.)

Defendant disagrees. Defendant claims “it is well-settled in California that arbitration agreements contained in employee handbooks are enforceable[.]” (Reply, p. 3.) Defendant contends “an employee’s signature on an acknowledgment form demonstrates assent to an arbitration clause contained in a handbook.” (Ibid.)

Multiple cases address this issue. They recognize that an unsigned arbitration agreement – which is part of, or provided in connection with, an employee handbook – can be enforced if the employee signed an acknowledgment of receipt. The acknowledgment’s language is a salient feature to evaluate. (See Mitri v. Arnel Management Co. (2007) 157 Cal.App.4^th 1164, 1173; see also Gorlach v. Sports Club Co. (2012) 209 Cal.App.4^th 1497, 1507-1511; Harris v. TAP Worldwide, LLC (2016) 248 Cal.App.4^th 373, 381-385; Esparza v. Sand & Sea, Inc. (2016) 2 Cal.App.5^th 781, 788-792; Sparks v. Vista Del Mar Child & Family Services (2012) 207 Cal.App.4^th 1511, 1519-1522; Mendoza v. Trans Valley Transport (2022) 75 Cal.App.5^th 748, 782-791; Romo v. Y-3 Holdings, Inc. (2001) 87 Cal.App.4^th 1153, 1158-1160; Avery v. Integrated Healthcare Holdings, Inc. (2013) 218 Cal.App.4^th 50, 68-70; Ajamian v. CantorCO2e, L.P. (2012) 203 Cal.App.4^th 771, 804-806.)

Given these rules, the Court agrees with Defendant. Defendant’s acknowledgment states:

This is to acknowledge that I have received a copy of Connect Staffing Employee Handbook. This Handbook sets forth the terms and conditions of my employment as well as the rights, duties, responsibilities and obligations of my employment with the Company. I understand and agree that it is my responsibility to read and familiarize myself with all of the provisions of the Handbook. I further understand and agree that I am bound by the provisions of the Handbook, particularly the provision relating to the mandatory, binding arbitration of any wage and contract claims arising out of my employment. I understand that by agreeing to arbitration, I am waiving the right to a trial by jury of the matters covered by the “Arbitration” provisions of the Handbook, with exception to enumerated types of claims.

I understand the Company has the right to amend, modify, rescind, delete, supplement or add to the provisions of this Handbook, as it deems appropriate from time to time in its sole and absolute discretion. I further understand that my employment is at will and no manager, supervisor, or other employee of the Company, other than the President of Connect Staffing, can enter into an agreement for continued or indefinite employment, or employment for a specific term and that any such agreement must be in writing.

My signature below certifies that I understand that the foregoing agreement on at will status is the sole and entire agreement between the Company and me concerning the duration of employment and the circumstances under which my employment may be terminated. It supersedes all prior agreements, understandings and representations concerning my employment with the Company.

(Johnson Decl., Ex. A, p. 57, bold in original, italics added.) The plain language demonstrates that Montiel acknowledged receiving the arbitration section and agreed to its contents.

* the cover of the handbook states: “This Handbook contains an arbitration requirement for both your and Connect Staffing, Inc. that waives your right to a trial by jury” (id. at Ex. A);

* the table of contents identifies pages and sections pertaining to arbitration (see id. at Ex. A, p. i);

* the arbitration section appears on pages 14 through 16 of the handbook (see id. at Ex. A, pp. 14-16);

* Montiel’s signature on the acknowledgment is uncontested (see id. at Ex. A, p. 57; see also Opposition, p. 2); and

* the acknowledgment states that the arbitration section is binding (see Johnson Decl., Ex. A, p. 57); and

* Defendant provided Montiel with English and Spanish versions of the arbitration section and acknowledgment. (See id. at ¶ 5.)

The Court agrees with Defendant that the FAA controls. The FAA applies if the agreement’s wording 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.) The arbitration section states that the arbitration shall be binding under the FAA and that the FAA shall govern interpretation issues. (See Johnson Decl., Ex. A, pp. 14, 15.) These words make 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.)

For procedural unconscionability, Montiel argues that the agreement qualifies as a contract of adhesion and that the right to amend the agreement is one-sided. (See, Opposition, pp. 3-4.)

For substantive unconscionability, he contends the agreement allows CS to pursue mediation, the scope is overbroad, and the duration is indefinite. He cites Cook v. University of Southern California (2024) 102 Cal.App.5^th 312 as support. (See Opposition, pp. 5-6.)

First, “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.)

This is to acknowledge that I have received a copy of Connect Staffing Employee Handbook. This Handbook sets forth the terms and conditions of my employment as well as the rights, duties, responsibilities and obligations of my employment with the Company. I understand and agree that it is my responsibility to read and familiarize myself with all of the provisions of the Handbook. I further understand and agree that I am bound by the provisions of the Handbook, particularly the provision relating to the mandatory, binding arbitration of any wage and contract claims arising out of my employment. I understand that by agreeing to arbitration, I am waiving the right to a trial by jury of the matters covered by the “Arbitration” provisions of the Handbook, with exception to enumerated types of claims.

Third, case law upholds an employer’s right to modify the employee handbook and arbitration agreement. (See Harris, supra, 248 Cal.App.4^th at 389-390 [collecting cases and noting that “[t]he implied covenant of good faith and fair dealing limits the employer's authority to unilaterally modify the arbitration agreement and saves that agreement from being illusory and thus unconscionable”].)

Fourth, having the option to try mediation before arbitration does not “bear[] on whether the arbitration requirement itself is” unconscionable. (Reply, p. 6.)

Fifth, Cook is distinguishable. The linchpin there was that the agreement covered all claims, not just employment-related claims – i.e., the scope was unlimited. (See Cook, supra, 102 Cal.App.5^th at 321-325.) It was the overbroad scope that made the other defects (duration and mutuality) troublesome. Here, differently, the scope is limited to employment-related claims. (See Johnson Decl., Ex. A, p. 14.) An indefinite duration, alone, is not enough to make Cook analogous and to show substantive unconscionability. (See also Reply, pp. 6-7.)

* the class claims should be stricken (see Johnson Decl., Ex. A, p. 15 [class waiver]);

Komen contends CS does not have standing to enforce AN’s arbitration agreement. (See Opposition, p. 7.)

Defendant claims it is entitled to enforce AN’s agreement based on agency, equitable-estoppel, and third-party-beneficiary principles. (See Reply, pp. 7-9.)

“Certain persons who did not sign the agreement to arbitrate may be entitled to enforce it and prosecute the arbitration in their own names.” (Knight, et al., Cal. Practice Guide: Alternative Dispute Resolution (The Rutter Group December 2023 Update) ¶ 5:262.) For example, third-party beneficiaries (see id. at ¶ 5:263), employees (see id. at ¶ 5:265.7), associates (see ibid.), agents (see id. at ¶ 5:266.5), and assigns. (See id.at ¶ 5:266.7.) Another example is when equitable estoppel applies. (See id. at ¶ 5:266.15.) “[A] nonsignatory defendant may invoke an arbitration clause to compel a signatory plaintiff to arbitrate its claims when the causes of action against the nonsignatory are ‘intimately founded in and intertwined’ with the underlying contract obligations.” (Marenco v. DirecTV LLC (2015) 233 Cal.App.4^th 1409, 1419-1420.)

In light of these rules, the Court agrees with Defendant. AN’s agreement is enforceable. (See 1/24/25 Tentative Ruling Re: American Nuts LLC Motion to Compel Arbitration, pp. 4-6.) The operative complaint alleges that CS and AN were/are agents, joint venturers, joint-employers, and alter-egos. (See First Amended Complaint, ¶¶ 14-18.) At minimum, the allegations support application of the agency and equitable-estoppel exceptions such that Defendant should be permitted to enforce AN’s agreement against Komen.

[1] The fact that the word “Policy” appears in the title of the arbitration section does not change the result. Montiel does not cite authority requiring the title to say “Agreement” instead of “Policy” to be enforceable. The contents of the “Policy” are akin to an arbitration agreement.

Moving Party: American Nuts LLC (“AN,” “American Nuts,” or “Defendant”)

Opposing Party: Sergio Montiel and Jason Komen (collectively “Plaintiffs”)

If CS’s agreement ends up being found enforceable, the Court intends to allow AN to enforce it against Sergio Montiel.

Both Plaintiffs allege that AN subjected them and other current and former employees to numerous wage-and-hour violations.

Here, AN moves to compel arbitration. AN contends Komen must arbitrate pursuant to AN’s arbitration agreement and Montiel must arbitrate pursuant to CS’s arbitration agreement.

Komen started working for Defendant on September 27, 2021. (See Sanchez Decl., ¶ 5.) On that day, Komen signed Defendant’s arbitration agreement. (See id. at ¶ 6.)

The agreement is attached to the declaration of Defendant’s manager of human resources, Lisette Sanchez, at exhibit A. It:

* states that Komen and Defendant agree that employment-related disputes “shall be settled by binding arbitration” (id. at Ex. A, p. 1);

* waives the right to a jury trial, class actions, and representative actions (see id. at Ex. A, p. 3);

PLEASE NOTE: BY ACCEPTING AND/OR CONTINUING EMPLOYMENT WITH AMERICAN NUTS AFER RECEIVING THIS ARBITRATION AGREEMENT, YOU ACKNOWLEDGE THAT YOU HAVE RECEIVED AND CAREFULLY READ THE ARBITRATION AGREEMENT AND UNDERSTAND ITS TERMS, CONSEQUENCES, AND THE BINDING EFFECT OF THE AGREEMENT. YOUR FURTHER ACKNOWLEDGE AND AGREE TO BE BOUND BY ALL THE TERMS SET FORTH IN THIS ARBITRATION AGREEMENT. YOUR HEREBY KNOWINGLY AND VOLUNTARILY WAIVE YOUR LEGAL RIGHTS TO CLASS, REPRESENTATIVE, AND COLLECTIVE PROCEDURES AND THE RIGHT TO TRIAL BY JURY OR JUDGE FOR ANY COVERED CLAIM SET FORTH IN THIS AGREEMENT. YOU, HOWEVER, RETAIN ALL OTHER RIGHTS, INCLUDING YOUR RIGHT TO COUNSEL, TO CALL AND CROSS-EXAMINE WITNESSES, AND TO HAVE YOUR CLAIMS ADDRESSED BY AN IMPARITAL FACT FINDER. YOU ACKNOWLEDGE THAT YOU ARE HEREBY ADVISED TO SEEK LEGAL ADVICE AS TO YOUR RIGHTS AND RESPONSIBILITIES UNDER THIS AGREEMENT.

By my signature below, I declare that (i) I have read this Arbitration Agreement, (ii) I have hand an opportunity to ask questions about this Arbitration Agreement and have had any questions answered, (iii) I understand this Arbitration Agreement, its terms, consequences, and binding effect, and (iv) I am giving my informed consent and voluntary agree to be bound by the terms of this Arbitration Agreement, and any subsequent amendments hereto. I will be given 30 days’ notice of any subsequent amendment to this Arbitration Agreement before the amendment takes effect.

Defendant asserts that the FAA controls because the agreement expressly states that the FAA governs, and Defendant’s business impacts interstate commerce. (See Motion, pp. 15-18.)

Komen contends Defendant’s evidence fails to show a connection between interstate commerce and Komen’s job duties. (See Opposition, pp. 2-3.)

The Court agrees with Defendant. The FAA applies if the agreement’s wording 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.) The agreement states: “YOU and American Nuts acknowledge and agree that the FAA shall govern the interpretation and enforcement of this Agreement, and all proceedings pursuant to this Agreement.” (Sanchez Decl., Ex. A, p. 1.) These words render the FAA applicable.

For procedural unconscionability, Komen contends the agreement constitutes a contract of adhesion. (See, Opposition, pp. 3-4.)

The Court disagrees. “[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.)

For substantive unconscionability, Komen argues that the agreement’s scope is overbroad. He cites Cook v. University of Southern California (2024) 102 Cal.App.5^th 312 as support. (See Opposition, pp. 4-5.)

The Court disagrees. The linchpin in Cook was that the agreement covered all claims, not just employment-related claims – i.e., the scope was unlimited. (See Cook, supra, 102 Cal.App.5^th at 321-325.) It was the overbroad scope that made the other defects (duration and mutuality) troublesome. Here, differently, the scope is limited to employment-related claims. (See Sanchez Decl., Ex. A, pp. 1, 2; see also Reply, p. 5.) On balance, Cook is distinguishable.

Next, Komen asserts that the class waiver and representative waiver lack mutuality. (See Opposition, p. 5.)

The Court disagrees. Since the FAA applies, the class waiver and representative waiver are enforceable. (See Knight, supra, at ¶ 5:49.4c [discussing AT&T Mobility LLC v. Concepcion (2011) 563 U.S. 333]; see also Iskanian v. CLS Transportation Los Angeles, LLC (2014) 59 Cal.4^th 348, 359-360 [finding that the FAA preempts “a state’s refusal to enforce [] a [class] waiver on grounds of public policy or unconscionability”]; Viking River Cruises, Inc. v. Moriana (2022) 142 S.Ct. 1906.)[1]

Montiel contends AN does not have standing to enforce CS’s arbitration agreement. (See Opposition, pp. 6-7.)

AN claims it is entitled to enforce CS’s agreement based on agency, equitable-estoppel, and third-party-beneficiary principles. (See Reply, pp. 6-9.)

In light of these rules, the Court agrees with AN. The operative complaint alleges that AN and CS were/are agents, joint venturers, joint-employers, and alter-egos. (See First Amended Complaint, ¶¶ 14-18.) At minimum, the allegations support application of the agency and equitable-estoppel exceptions.

The outcome ultimately depends on CS’s agreement being found enforceable. If that happens, the Court would be inclined to permit AN to enforce it. (The enforceability of CS’s agreement will be addressed in a separate tentative ruling.)

[1] Plaintiff’s cases are distinguishable and do not confront these controlling authorities. (See Opposition, p. 5; see also Reply, pp. 5-6.)