Judge: Douglas W. Stern, Case: 23STCV02413, Date: 2023-05-18 Tentative Ruling
Case Number: 23STCV02413 Hearing Date: May 18, 2023 Dept: 68
Tracy Ann
Chow vs. Solace Capital Partners, L.P., et al., Case No. 23STCV02413
Motion to Compel
Arbitration
Moving
Parties – Defendants Solace Capital Partners, L.P.; Solace Employee, LLC;
Solace Employee II, LLC; Solace General Partner, LLC; Solace Special Limited
Partner, LLC; and Solace Special Limited Partner II, LLC (collectively Solace
Group Defendants); and Christopher Brothers, Brett Wyard, and Xavier Corzo
(collectively Individual Defendants)
Opposing
Party – Plaintiff Tracy Ann Chow
Background and Moving Party’s Position
Plaintiff Tracy Ann Chow (Plaintiff)
worked as an investment professional and served as Principal of Solace Capital
Partners, L.P., (SCP) which falls under the umbrella of the Solace Group with
the Solace Group Defendants. Plaintiff ultimately resigned from her position
after negotiations fell through with SCP regarding her continued employment.
For instance, SCP had wanted her to move to Los Angeles to work in office, but
she wanted to stay in another city and work remotely. Plaintiff also alleges
that she was denied a promotion and increase in her incentive points.
Plaintiff’s complaint alleges several causes of action related to gender
discrimination, wrongful constructive discharge, and breach of contract.
When she was hired for the position
in January 2017, Plaintiff had to sign an offer letter, job description for her
then-role of Vice President, and a letter outlining SCP’s incentive points.
None of those documents explicitly contained an arbitration provision. However,
the incentive points letter made reference to Solace Employee’s Second Amended
and Restated Operating Agreement. This document outlines the process by which
incentive points are given, and it contains an arbitration provision for
disputes arising under that agreement. (Corzo Decl., Ex. A, p. 29, ¶ 15.8.) This
arbitration agreement states that “all claims or disputes relating to, arising
out of or involving this agreement shall be resolved exclusively through
arbitration.” (Id.) Further, the agreement requires that any disputes
that arise under the agreement should be arbitrated in Los Angeles County and
are subject to the Streamlined Arbitration Rules of JAMS. (Id.)
Based on this, Defendants have moved
to compel arbitration, claiming that Plaintiff’s claims are arbitrable under
the agreement and that the agreement applies to Plaintiff based on the
references to the agreement in the incentive points letter which Plaintiff
signed.
Opposing Party’s Position
Plaintiff argues in opposition that the
arbitration agreement does not apply to her claims because the agreement
outlines the terms of Solace Employee, LLC, only, and that entity did not
employ her. She argues that the arbitration agreement would not apply to her
claims under the FEHA, Labor Code, and California Equal Pay Act. The only
claims that the arbitration agreement could apply to would be her
non-employment claims for breach of contract, breach of implied covenant of
good fair and fair dealing, and declaratory judgment. However, Plaintiff argues
that the arbitration agreement is also procedurally and substantively
unconscionable, so it would not apply to these claims, either.
Next, Plaintiff also argues that the
arbitration agreement does not apply to her because she did not sign the
Operating Agreement, and the arbitration agreement was not clearly incorporated
by reference into the incentive points letter that she did sign.
Further, Plaintiff argues that
equitable estoppel does not apply and the arbitration agreement only applies to
Solace Employee, LLC, and not any of the other Defendants because Plaintiff’s
claims for discrimination and retaliation are not intimately intertwined with
the terms or obligations of the Operating Agreement.
Plaintiff argues that the
Arbitration Agreement is procedurally unconscionable because it is a contract
of adhesion. Plaintiff also alleges that the Arbitration Agreement is
substantively unconscionable because it does not meet the Armendariz
requirements. Finally, Plaintiff argues that the carve out for injunctive
relief is substantively unconscionable, and the choice of law provision is
voidable by the employee.
Reply
Defendants argue in their reply that
the arbitration agreement was valid and binding and was incorporated by
reference. Defendants also maintain that the arbitration agreement applies to
Plaintiffs’ claims, and that all Defendants are covered by the arbitration
agreement. Finally, they argue that the agreement is not unconscionable
Analysis
I.
Legal Standard
California law incorporates many of the basic policy
objectives contained in the Federal Arbitration Act, including a presumption in
favor of arbitrability. (Engalla v. Permanente Medical Group, Inc.
(1997) 15 Cal.4th 951, 971-972.) The petitioner bears the burden of proving the
existence of a valid arbitration agreement by the preponderance of the
evidence. (Rosenthal v. Great Western Financial Securities Corp. (1996)
14 Cal.4th 394, 413.) The Court is empowered by CCP § 1281.2 to compel parties
to arbitrate disputes pursuant to an agreement to do so.
Code of Civil Procedure § 1281.2 states that:
“The court
shall order the petitioner and the respondent to arbitrate the controversy if
it determines that an agreement to arbitrate the controversy exists, unless it
determines that:
(a) The right to compel arbitration has been waived by the
petitioner; or
(b) Grounds exist for the revocation of the agreement.
(c) A party
to the arbitration agreement is also a party to a pending court action or special
proceeding with a third party, arising out of the same transaction or series of
related transactions and there is a possibility of conflicting rulings on a
common issue of law or fact. For purposes of this section, a pending court
action or special proceeding includes an action or proceeding initiated by the
party refusing to arbitrate after the petition to compel arbitration has been
filed, but on or before the date of the hearing on the petition. This
subdivision shall not be applicable to an agreement to arbitrate disputes as to
the professional negligence of a health care provider made pursuant to Section
1295.” (CCP § 1281.2.)
The party petitioning to compel arbitration under written
arbitration agreement bears the burden of proving the existence of a valid
arbitration agreement by a preponderance of the evidence. The trial court acts
as the trier of fact, weighing all the affidavits, declarations, and other
documentary evidence. (CCP § 1281.2.)
A. Existence of an Agreement
Under California law, arbitration agreements are valid,
irrevocable, and enforceable, except on such grounds that exist at law or
equity for voiding a contract. (Winter v. Window Fashions Professions, Inc.
(2008) 166 Cal.App.4th 943, 947.) The party moving to compel arbitration must
establish the existence of a written arbitration agreement between the parties.
(CCP § 1281.2.) In ruling on a motion to compel arbitration, the court must
first determine whether the parties actually agreed to arbitrate the dispute, and
general principles of California contract law help guide the court in making
this determination. (Mendez v. Mid-Wilshire Health Care Center (2013)
220 Cal.App.4th 534, 541.)
Once petitioners allege that an arbitration agreement
exists, the burden shifts to respondents to prove the falsity of the purported
agreement, and no evidence or authentication is required to find the
arbitration agreement exists. (See Condee v. Longwood Mgt. Corp. (2001)
88 Cal.App.4th 215, 219.)
“With respect to the moving party’s burden to provide
evidence of the¿existence¿of an agreement to arbitrate, it is generally
sufficient for that party to present a copy of the contract to the court. (See¿Condee
v. Longwood Management Corp.¿(2001) 88 Cal.App.4th 215, 218); see also Cal.
Rules of Court, rule 3.1330 [“A petition to compel arbitration or to stay
proceedings pursuant to Code of Civil Procedure sections 1281.2 and 1281.4 must
state, in addition to other required allegations, the provisions of the written
agreement and the paragraph that provides for arbitration. The provisions must
be stated verbatim or a copy must be physically or electronically attached to
the petition and incorporated by reference”].) Once such a document is
presented to the court, the burden shifts to the party opposing the motion to
compel, who may present any challenges to the enforcement of the agreement and
evidence in support of those challenges. [Citation]” (Baker v. Italian Maple
Holdings, LLC¿(2017) 13 Cal.App.5th 1152, 1160.)
This
Court is not convinced that the arbitration agreement was properly incorporated
by reference into the documents that Plaintiff signed at the beginning of her
employment, such that the Operating Agreement would apply to Plaintiff’s
current claims. The references in the incentive points letter (Corzo Decl., Ex.
C) are limited to the following:
·
“Upon your acceptance of this letter, you will
become a Member in the Company, which is a member of Solace General Partner,
LLC (the "GP"). Terms used in this letter are defined in the Second
Amended and Restated Operating Agreement of the Company (the
"Agreement"), a copy of which is attached.” (Corzo Decl., Ex. C, p.
1.)
·
“The mechanics of these Special Situations Fund
Employee Incentive Points are set forth in the Agreement, and the above
description is qualified in full by reference to the Agreement. The Agreement
includes provisions restricting transferability of your Special Situations Fund
Employee Incentive Points, provisions concerning confidentiality, competition
and non-disparagement, your obligation to return certain distributions under
the "clawback" provisions of the Agreement, actions which may result
in the reduction or cancellation of your Units, and other terms and conditions
of this grant. We encourage you to read it carefully.” (Corzo Decl., Ex. C., p.
2.)
·
Other references to the Agreement which refer to
the mechanic of the incentive points system.
·
“By signing and returning this letter to the
undersigned you acknowledge acceptance of the Special Situations Fund Employee
Incentive Points, your agreement to become a Member in the Company, your
authorization for the Managing Member to execute the Agreement on your behalf,
and your confirmation of the suitability and other representations set forth
above.” (Corzo Decl., Ex. C, p. 5.)
Nowhere in the letter
is there any indication that the Operating Agreement would apply to anything
beyond the distribution of the incentive points and Plaintiff’s status as a
Member (not an employee) in the Company. Nowhere is there any indication that
by signing this letter, Plaintiff would then be bound to arbitrate all claims
related to her employment. Additionally, there is also no indication that any
claims that she would have against individuals would be required to be
arbitrated.
This Court interprets
the Operating Agreement to apply only to disputes under that agreement: in
other words, disputes related to the incentive points system, or disputes
related to Plaintiff’s status as a member in Solace Employee, LLC. The Court
does not interpret the Operating Agreement to apply to every claim arising out
of Plaintiff’s employment with SCP. Nor would the Operating Agreement apply to
Plaintiff’s claims against individual Defendants.
The claims of
Plaintiff’s that shall be arbitrated are her Tenth Cause of Action for Breach
of Contract, her Eleventh Cause of Breach of Implied Covenant of Good Faith and
Fair Dealing, Twelfth Cause of Action for Breach of Contract, Thirteenth Cause of
Action for Breach of the Covenant of Good Faith and Fair Dealing, and her
Fourteenth Cause of Action for Declaratory Judgment. Plaintiff admits that the
Third Amended and Restated Operating Agreement is “valid and enforceable” as is
the Operating Agreement of Solace Employee II, LLC. She seeks to recover based on those agreements. They each contain arbitration
provisions. Those claims should
therefore be arbitrated as Plaintiff may not assert a claim arising under the
agreements claiming that they are valid and enforceable by her, but refuse to
accept the arbitration provision that each contains.
B. Unconscionability
Plaintiff argues that
if the arbitration agreement does exist, then it is procedurally and
substantively unconscionable. However, Plaintiff has not met her burden in this
regard.
For substantive
unconscionability, the California Supreme Court held in Armendariz v.
Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83 that an
agreement to arbitrate employment-related statutory claims, such as claims
under the FEHA, is subject to certain minimal requirements: (1) the arbitration
agreement may not limit the damages normally available under the statute; (2)
there must be discovery sufficient to adequately arbitrate their statutory
claim; (3) there must be a written arbitration decision and judicial review
sufficient to ensure the arbitrators comply with the requirements of the
statute; and (4) the employer must pay all types of costs that are unique to
arbitration. (Pearson Dental Supplies, Inc. v. Superior Court (2010) 48
Cal.4th 665, 677 (citing Armendariz v. Foundation Health Psychcare Services,
Inc., 24 Cal.4th at 101-113).)
The arbitration
agreement in the Operating Agreement complies with these requirements. It
provides that the parties are to arbitrate based on the JAMS rules.
Further, Plaintiff’s
argument that the arbitration agreement is procedurally unconscionable because
it is a contract of adhesion does not hold up. The agreement was not presented
to Plaintiff on a take or leave it basis, nor was it a condition of her
employment. She opted into the arbitration agreement by virtue of agreeing to
the incentive points system and becoming a Member of Solace Employee, LLC.
Accordingly, the
arbitration agreement should apply to Defendant Solace Employee only, and only
then to the causes of action for breach of contract, breach of implied covenant
of good faith and fair dealing, and one of Plaintiff’s causes of action for
declaratory judgment.
ORDER
1. The
Motion to Compel Arbitration is GRANTED for the Tenth, Eleventh, Twelfth,
Thirteenth and Fourteenth Causes of Action.
2. This
action is stayed for the above causes of action. All other causes of action may
proceed.