Judge David S. Cunningham, Case Number: 24STCV07682, Date: 2024-11-15 Tentative Ruling

Judge: David S. Cunningham, Case: 24STCV07682, Date: 2024-11-15 Tentative Ruling

Moving Party: Central Valley Meat Co., Inc. (“CVMC”), et al. (collectively “Defendants”)

Plaintiff used to work for CVMC. He alleges that CVMC 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.)

Plaintiff worked for CVMC from 2016 to March 2018 and was rehired by CVMC on August 6, 2018. (See Lacy Decl., ¶ 4.) During the onboarding process on August 6^th, Defendants claim Plaintiff e-signed CVMC’s arbitration agreement. (See ibid.)

The agreement is attached to the declaration of CVMC’s director of human resources, Juana Lacy, at exhibit A. It:

* states that Plaintiff and CVMC agree to arbitrate their disputes, claims, and controversies against each other (see id. at Ex. A, § 1);

* permits both sides to seek injunctive relief in court (see id. at Ex. A, § 3);

* requires the arbitration to be conducted pursuant to the American Arbitration Association (“AAA”) employment rules (see id. at Ex. A, § 4);

* calls for CVMC to pay all arbitration fees and costs (see id. at Ex. A, § 6);

* includes confidentiality and severability sections (see id. at Ex. A, §§ 7, 8);

* provides that the arbitration agreement “shall survive the employer-employee relationship” (id. at Ex. A, § 9);

* allows any arbitration award to be enforced in court (see id. at Ex. A, § 10);

I UNDERSTAND THAT THIS AGREEMENT IS EFFECTIVE THE DATE MY EMPLOYMENT COMMENCES. I ALSO UNDERSTAND THAT THIS AGREEMENT RESTRICTS MY RIGHT TO SUE CENTRAL VALLEY AND APPLIES TO ANY CLAIM, INCLUDING THOSE THAT OCCURRED BEFORE THE DATE I SIGN BELOW. I FURTHER UNDERSTAND THAT THIS AGREEMENT CONSTITUTES A WAIVER OF MY RIGHT TO A JURY TRIAL.

I HAVE READ THE AGREEMENT ABOVE CAREFULLY AND HAVE BEEN GIVEN THE OPPORTUNITY TO CONSIDER THE TERMS AND THEIR EFFECT ON ME AND MY RIGHTS. BY MY SIGNATURE BELOW, I KNOWINGLY AND VOLUNTARILY AGREE TO BE BOUND BY THE TERMS AND CONDITIONS OF THIS AGREEMENT. BY MY SIGNATURE BELOW, I ALSO ACKNOWLEDGE THAT I HAVE BEEN GIVEN THE OPTON TO OBTAIN A COPY OF THE AAA EMPLOYMENT ARBITRATION RULES AND MEDIATION PROCEDURES.

The Court finds Defendants’ burden satisfied because facts and terms like these suffice to establish an agreement to arbitrate, and assent is effectively uncontested.[1]

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.)

Plaintiff contends the agreement is a contract of adhesion. (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.)

At most, the evidence demonstrates a low degree of procedural unconscionability. (See Cruz-Pulido Decl., ¶¶ 4-5 [declaring that Plaintiff does not “understand legal jargon” and that Lacy “did not explain” the agreement to him]; cf. Lacy Decl., Ex. A, p. 2 [stating: “I HAVE READ THE AGREEMENT ABOVE CAREFULLY AND HAVE BEEN GIVEN THE OPPORTUNITY TO CONSIDER THE TERMS AND THEIR EFFECT ON ME AND MY RIGHTS”].)

Plaintiff claims the agreement is overbroad scope-wise and duration-wise and lacks mutuality as to injunctive relief. In addition, he challenges the class-waiver and confidentiality sections. (See Opposition, pp. 4-7.)

Citing Cook v. University of Southern California (2024) 102 Cal.App.5^th 312, Plaintiff asserts that the agreement covers all claims, not just employment-related claims (see id. at pp. 4-5), and survives Plaintiff’s employment. (See id. at p. 5.)

Defendants contend the FAA preempts Cook. (See Reply, pp. 3-4 [quoting Preston v. Ferrer (2008) 552 U.S. 346, 356].)

The Court disagrees. Defendants only devote one paragraph to the preemption argument; the argument is conclusory. (See ibid.) Moreover, Cook has been followed in an FAA case (see Sandler v. Modernizing Medicine, Inc. (S.D. Cal. Oct. 9, 2024, No. 24-cv-00812-AJB-BJC) 2024 WL 4469217, at *2), and, even when the FAA governs, unconscionability is determined through application of state law. (See Lagatree, supra, 74 Cal.App.4^th at 1119; see also Dr.’s Assocs, Inc. v. Casarotto (1996) 517 U.S. 681, 687; Sandler, supra, 2024 WL 4469217, at *2.)

Cook is a May 2024 decision from the Second District Court of Appeal. 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 points. 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.)

CVMC’s agreement appears to have the scope and duration defects but not the mutuality defect:

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.”].)

CVMC’s agreement also covers claims unrelated to employment: “Disputes Covered: Claims include all disputes not prohibited by law from arbitration, including statutory and common law claims, whether under state, federal, or local law.” (Lacy Decl., Ex. A, § 2, emphasis in original.)

DURATION – to repeat, the Second District found the duration of the USC agreement unconscionable because it 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.)

Similarly, CVMC’s agreement states that it “shall survive the employer-employee relationship between Applicant and Central Valley and that it “shall apply to any covered Claim, whether it arises or is asserted during or after the termination of Applicant’s employment with Central Valley.” (Lacy Decl., Ex. A, § 9.)

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.

CVMC’s agreement is different. Plaintiff and CVMC’s “corporate affiliates, subsidiaries, successors, assigns, owners, officers, [and] directors” must arbitrate. (Lacy Decl., Ex. A, p. 1.) The agreement does not create a one-way obligation.

Nevertheless, despite the distinction (two defects instead of three), the Court believes the motion to compel should be denied. The linchpin in Cook was that the scope was unlimited. It was the overbroad scope that made the other defects (duration and mutuality) troublesome. Indeed, the Cook opinion seems to contextualize the mutuality defect, noting that “[n]o explanation is offered as to why Cook should be required to give up the ability to ever bring claims in court against a USC employee that are unrelated to USC or her employment there.” (Cook, supra, 102 Cal.App.5^th at 327, emphasis added.) CVMC’s scope is similarly overbroad and cannot be fixed without rewriting the agreement, which would be improper. Severance is not possible (see Cook, supra, 102 Cal.App.5^th at 328-330), so the agreement is unconscionable and unenforceable.

Plaintiff contends the injunctive-relief carveout is one-sided (see Opposition, p. 5), the class waiver only benefits Defendants (see id. at p. 6), and the confidentiality section “prevent[s] the claimant from contacting other employees to obtain helpful information . . . .” (Ibid.)

[1] Plaintiff declares that he “do[es] not recall signing” the agreement. (Cruz-Pulido Decl., ¶ 3.) Lack of memory is not a defense. Nor is failure to read. (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.”].)