Judge: Douglas W. Stern, Case: 21STCV37409, Date: 2022-09-15 Tentative Ruling

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Case Number: 21STCV37409    Hearing Date: September 15, 2022    Dept: 52

Tentative Ruling:

Plaintiff Matthew Sumner’s Motion and Petition to Compel Arbitration and Stay Action

          Plaintiff Matthew Sumner moves to compel arbitration and stay this case.  Defendant Always Fresh Farms, LLC opposes the motion on two grounds.

Evidentiary Objections      

          Plaintiff makes four objections to defendant Always Fresh Farms, LLC’s evidence in support of its opposition.  Objection Nos. 1, 2, and 3 are sustained.  Objection No. 4 is overruled. 

Enforceability

First, defendant argues the agreement is unenforceable because it requires the parties to split the costs of arbitration.  “[W]ith respect to arbitration of statutory claims, the employee cannot be required ‘to bear any type of expense that the employee would not be required to bear if he or she were free to bring the action in court.’  [Fn.]  This means ‘the employer [must] pay all types of costs that are unique to arbitration,’ including the arbitrator's fee.  [Fn.]”  (Mercuro v. Superior Court (2002) 96 Cal.App.4th 167, 181.)

The agreement provides that it shall “be governed by the Commercial Arbitration Rules of the American Arbitration Association.”  (Sumner Decl., Ex. 1, § 20, p. 14.)  Those rules provide that either side must pay for the expenses of producing its witnesses and must split all other arbitration expenses.  (Nielson Decl., Ex. 5, Rule R-54, pp. 29-30.)  This portion of the agreement is not enforceable in this case, which includes claims for Labor Code violations.

The parties’ agreement can, however, be cured by severance or restriction.  The strong legislative and judicial preference is to sever the offending term and enforce the balance of the agreement” unless the agreement is “permeated by unconscionability.”  (Lange v. Monster Energy Company (2020) 46 Cal.App.5th 436, 453 (internal quotes, citations, and alterations omitted.)  The parties’ agreement also provides for severing any unenforceable terms.  “If any provision of this Agreement shall be held unenforceable as applied to any circumstance, the remainder of this Agreement and the application of such provision to other circumstances shall be interpreted so as best to effect the intent of the parties.”  (Sumner Decl., Ex. 1, § 14, p. 12.)   

In his moving papers, plaintiff sought to have the AAA Employment Arbitration Rules apply.  Defendant argues that doing so would constitute impermissibly rewriting the agreement rather than simply severing an unenforceable term.  “[C]ourts must have the capacity to cure the unlawful contract through severance or restriction of the offending clause, which … is not invariably the case.”  (Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, 124.)  In plaintiff’s reply, he states he is willing to arbitrate under the Commercial Arbitration Rules so long as defendant pays the costs of arbitration.

Restricting or severing rule R-54 of the Commercial Arbitration Rules adequately effects the intent of the parties and makes the agreement enforceable.  The court need not supply any additional terms.  The resulting agreement will require defendant to pay all costs unique to arbitration.  “[S]ilence about costs in an arbitration agreement is not grounds for denying a motion to compel arbitration.”  (Little v. Auto Stiegler, Inc. (2003) 29 Cal.4th 1064, 1084.)  Little “conclude[d] that on remand the court compelling arbitration should require the employer to pay in this case ‘all types of costs that are unique to arbitration.’ ”  (Id. at p. 1085.)

Waiver

Second, defendant argues plaintiff waived his right to compel arbitration.  “[A] party who resists arbitration on the ground of waiver bears a heavy burden [citation], and any doubts regarding a waiver allegation should be resolved in favor of arbitration [citation].”  (St. Agnes Medical Center v. PacifiCare of California (2003) 31 Cal.4th 1187, 1195 (St. Agnes).)  “[F]iling a lawsuit without first requesting arbitration” does not necessarily result in waiver.  (Id. at p. 1202.)  Nor does “merely participating in litigation by itself.”  (Id. at p. 1203.)  “[C]ourts will not find prejudice where the party opposing arbitration shows only that it incurred court costs and legal expenses.”  (Ibid.)

          The court notes that plaintiff first raised his willingness to arbitrate this action on October 11, 2021, only three days after he filed the complaint.  On that day, plaintiff’s counsel wrote to defendant, “We are not opposed to stipulating to arbitration provided the arbitration comports with California law” but that doing so required defendant bearing the costs instead applying the AAA Commercial Rules in full.  (Nielson Decl., ¶ 2, Ex. 1.)

Defendant contends it has suffered prejudice because plaintiff delayed nearly one year before filing this motion.  Delay alone is insufficient for waiver.  (Khalatian v. Prime Time Shuttle, Inc. (2015) 237 Cal.App.4th 651, 663 [“even though there was a 14-month period from the filing of the original complaint to the filing of the motion to compel, absent prejudice, the delay is insufficient to support the waiver”].)  In Iskanian v. CLS Transportation Los Angeles, LLC (2014) 59 Cal.4th 348, 376, the Supreme Court of California found the opposing party did not suffer sufficient prejudice for waiver though he “spent three years attempting to obtain class certification, including considerable effort and expense on discovery.”  (Id. at p. 376, abrogated on other grounds by Viking River Cruises, Inc. v. Moriana (2022) 596 U.S. ___, 142 S.Ct. 1906.) 

Defendant also argues it has been prejudiced because plaintiff conducted significant discovery during this action.  “[C]ourts have found prejudice where the petitioning party used the judicial discovery processes to gain information about the other side’s case that could not have been gained in arbitration.”  (St. Agnes, supra, 31 Cal.4th at p. 1204.) 

Though plaintiff has conducted discovery, defendant fails to show he has gained any information that he could not have discovered in arbitration.  Even if he had arbitrated this case from the beginning, he would have been able to do the same discovery.  The parties’ agreement provides that “pursuant to Section 1283.1(b) of the California Code of Civil Procedure (the ‘Code’), the provisions of Section 1283.05 of the Code shall be incorporated into the arbitration.”  (Sumner Decl., Ex. 1, § 20, p. 14.)  That section provides that the parties “have the right … to use and exercise all of the same rights, remedies, and procedures” as under the Civil Discovery Act.  (CCP § 1283.05(a).)  It further provides that arbitrators “shall have power… to enforce the rights, remedies, procedures, duties, liabilities, and obligations of discovery… as can be or may be imposed in like circumstances in a civil action by a superior court.”  (CCP § 1283.05(b).) 

Disposition

          The motion is granted. 

The court hereby restricts the parties’ arbitration agreement by prohibiting the application of AAA Commercial Arbitration Rules, rule R-54.  (Nielson Decl., Ex. 5, pp. 29-30.)  Defendant Always Fresh Farms, LLC is ordered to pay all types of costs that are unique to arbitration.

The court hereby orders the parties to arbitrate this action. 

The court hereby stays the entire action pending resolution of the parties’ arbitration proceeding.