Judge: Douglas W. Stern, Case: 22STCV12079, Date: 2022-10-03 Tentative Ruling

Case Number: 22STCV12079    Hearing Date: October 3, 2022    Dept: 52

Tentative Ruling:

            Defendants’ Motion to Compel Arbitration and Request for Stay of Action

Defendants Versailles Lakes Investors, Ltd., L.P., Domino Realty Management Company, Inc., James Bowen, and Courtney Alday move to compel arbitration and stay this case. 

The arbitration agreement is unconscionable and unenforceable.  Unconscionability requires both procedural and substantive unconscionability using a sliding scale.  (Serafin v. Balco Properties Ltd., LLC (2015) 235 Cal.App.4th 165, 185 (Serafin).) 

A. Procedural Unconscionability

Procedural unconscionability focuses on “ ‘oppression’ or ‘surprise’ due to unequal bargaining power.” (Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, 114 (Armendariz).)  “Procedural unconscionability occurs when the stronger party drafts the contract and presents it to the weaker party on a ‘take it or leave it basis.’ ”  (Trivedi v. Curexo Technology Corp. (2010) 189 Cal.App.4th 387, 393.) 

The arbitration agreement has moderate procedural unconscionability.  The parties’ unequal bargaining power renders it oppressive.  Plaintiff was required to sign it “on a nonnegotiable take-it or leave-it basis.”  (Mejia Decl., ¶ 6.)  “Defendants indicated that [plaintiff’s] employment was contingent upon signing the” agreement.  (Id., ¶ 10.)

B. Substantive Unconscionability

The agreement is highly substantively unconscionable.  It is not mutual.  “In assessing substantive unconscionability, the paramount consideration is mutuality.”  (Pinela v. Neiman Marcus Group, Inc. (2015) 238 Cal.App.4th 227, 241, internal quotes and citations omitted.) 

The Supreme Court of California has stated, “Given the lack of choice and the potential disadvantages that even a fair arbitration system can harbor for employees, we must be particularly attuned to claims that employers with superior bargaining power have imposed one-sided, substantively unconscionable terms as part of an arbitration agreement.”  (Armendariz, supra, 24 Cal.4th at p. 115.)  “Given the disadvantages that may exist for plaintiffs arbitrating disputes, it is unfairly one-sided for an employer with superior bargaining power to impose arbitration on the employee as plaintiff but not to accept such limitations when it seeks to prosecute a claim against the employee, without at least some reasonable justification for such one-sidedness based on ‘business realities.’” (Id. at p. 117.)

The agreement is one-sided because it only applies to disputes typically brought by employees.  “Courts repeatedly have found an employer-imposed arbitration agreement to be substantively unconscionable when it requires the employee to arbitrate the claims he or she is mostly likely to bring, but allows the employer to go to court to pursue the claims it is most likely to bring.”  (Carbajal v. CWPSC, Inc. (2016) 245 Cal.App.4th 227, 248 (Carbajal).) 

Though the agreement includes some references to “any dispute” and “all disputes” arising from plaintiff’s employment, it repeatedly states that it applies to claims employees bring.  It provides that it applies to “claims of unlawful termination,” “unlawful discrimination or harassment,” “your termination,” “any claims arising out of the termination of your employment.”  (Zamudio Decl., Ex. A, p. 69.)  If “the Equal Employment Opportunity Commission, the National Labor Relations Board, or the Department of Fair Employment and Housing… issues a right to sue notice, binding arbitration will be the sole remedy.”  (Id., p. 70.)

The agreement also provides, “Claims must be brought by either Employee or the Company in your or its individual capacity, not as plaintiffs or class members in any purported class, collective or representative proceeding or as a private attorney general.”  (Zamudio Decl., Ex. A, p. 69.)  “To the extent permitted by law, both Employee and the Company waive the right to bring, maintain, participate in, or receive money from any class, collective or representative proceeding.”  (Ibid.)  This mutual language is misleading.  It makes no sense that the company could ever be part of a class, collective, or representative proceeding against an employee.

Meanwhile, the agreement’s only reference to claims typically brought by employers is to provide that the agreement does not apply to them.  “ ‘[I]t is far more likely’ the employer will seek injunctive relief in court to stop an employee from breaching a nondisclosure or noncompetition agreement than the employee will seek injunctive relief in aid of his or her claims for wrongful termination, illegal discrimination, or unpaid wages.”  (Carbajal, supra, 245 Cal.App.4th at p. 249.)  Here, the agreement explicitly exempts injunctive relief:  “[N]othing contained in this Agreement shall be construed to prohibit either party’s application for injunctive relief to a court of relevant jurisdiction.”  (Zamudio Decl., Ex. A, p. 70.)

The agreement also includes three other substantively unconscionable provisions. 

First, the agreement has an unenforceable provision for recovering attorney fees against a party who files a civil action instead of an arbitration proceeding.  It provides, “Should either party institute any legal action or administrative proceeding with respect to any claim waived by this Agreement or pursue any dispute or matter covered by this Agreement by any method other than the arbitration described herein, the responding party shall be entitled to recover from the other party all damages, costs, expenses and attorneys’ fees incurred as a result of such action, including any appeal.”  (Zamudio Decl., Ex. A, p. 70.) 

This provision is unenforceable.  It violates “the FEHA asymmetrical rule of attorney fees (i.e., a prevailing defendant in a FEHA action can recover attorney fees only if the action was frivolous, unreasonable, or groundless).”  (Ramirez v. Charter Communications, Inc. (2022) 75 Cal.App.5th 365, 377.)  In Ramirez, the Court of Appeal held a provision requiring “the party that resisted arbitration” to pay the other party’s fees “incur[red] in compelling arbitration” was unenforceable.  (Id. at pp. 377-378.)  This provision is equivalent and is therefore unenforceable.

Second, the agreement has an unenforceable provision requiring the parties to split the arbitration fees.  “[W]hen an employer imposes mandatory arbitration as a condition of employment, the arbitration agreement or arbitration process cannot generally require the employee 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.”  (Armendariz, supra,  24 Cal.4th at pp. 110-111.)  The agreement provides, “Each party will bear 50% of the arbitrator's fees, court reporter cost and any incidental costs of arbitration.”  (Zamudio Decl., Ex. A, p. 69.)  Defendants concede this provision is not enforceable.  (Souza Decl., ¶ 8.)

Finally, the agreement imposes strict and unfair limits on discovery.  “[A]dequate discovery is indispensable for the vindication of FEHA claims.”  (Armendariz, supra,  24 Cal.4th at p. 104.)  “The denial of adequate discovery in arbitration proceedings leads to the de facto frustration of the employee's statutory rights.”  (Ibid.)  “In striking the appropriate balance between the desired simplicity of limited discovery and an employee’s statutory rights, courts assess the amount of default discovery permitted under the arbitration agreement, the standard for obtaining additional discovery, and whether the plaintiffs have demonstrated that the discovery limitations will prevent them from adequately arbitrating their statutory claims.”  (Davis v. Kozak (2020) 53 Cal.App.5th 897, 910-911.) 

The default discovery permitted is limited only to exchanging documents.  “Consistent with the expedited nature of arbitration, pre-hearing information exchange shall be limited to the reasonable production of relevant, non-privileged documents, carried out expeditiously.”  (Zamudio Decl., Ex. A, p. 70.)  Limiting discovery to the production of documents means the agreement prohibits any depositions.  And it provides no method of obtaining additional discovery.    

Fair vindication of plaintiff’s statutory claims will require deposing percipient witnesses, including the two individual defendants.  The complaint also alleges similarly situated coworkers were treated differently.  “Plaintiff’s coworkers were provided protective gear, but plaintiff was not.”  (¶ 27.e.)  “Bowen changed the locks to defendants’ property and provided sets of new keys to all employees except plaintiff.”  (¶ 28.e.)  A fair proceeding requires plaintiff to have the opportunity to elicit testimony from his former coworkers before the hearing.

Defendants rely on the JAMS arbitration rules, which permit additional discovery.  Assuming the agreement adopts JAMS rules, the agreement itself still includes this unconscionable limit on discovery.  It is another provision the court would have to sever before it could enforce this agreement. 

C. Severability

Severance cannot fix the agreement’s lack of mutuality.  “[I]n the case of the agreement’s lack of mutuality, such permeation is indicated by the fact that there is no single provision a court can strike or restrict in order to remove the unconscionable taint from the agreement.  Rather, the court would have to, in effect, reform the contract, not through severance or restriction, but by augmenting it with additional terms.”  (Armendariz, supra, 24 Cal.4th at pp. 124-125.)

The agreement also features three other substantively unconscionable terms.  It is “permeated by unconscionability.”  (Lange v. Monster Energy Company (2020) 46 Cal.App.5th 436, 453, internal quotes omitted.)  “[M]ultiple unconscionable clauses serve as evidence of ‘a systematic effort to impose arbitration on an employee not simply as an alternative to litigation, but as an inferior forum that works to the employer's advantage.’”  (Id. at p. 454.)  Making the agreement enforceable would require severing three provisions and adding additional terms.  Doing so would constitute reforming the contract.  The court cannot do that.

Disposition

            The motion is denied.