Superior Court of California 

County of Los Angeles – West District  

Beverly Hills Courthouse / Department 205 

 

 

MOVING PARTY: Defendants 360 Group International, William Kirkpatrick, Cathy Kirkpatrick  

 

RESPONDING PARTY: Plaintiff Lorenzo Robert Savage III 

 

 

BACKGROUND 

 

  This case arises from an employment dispute.  Plaintiff Lorenzo Robert Savage III is a former U.S. Secret Service agent.  (Compl. ¶ 2.)  He was hired by Defendant 360 Group International (“360”) as its CEO.  (Id.)  Defendants William Kirkpatrick and Cathy Kirkpatrick are the owners of 360.  (Compl. ¶¶ 10-11.)  Plaintiff served as 360’s CEO from November 2017 to February 2022.  (Compl. ¶¶ 4, 30.) 

Plaintiff, who is African American, alleges that Defendants discriminated against him on the basis of his race, by using him as a “ceremonial prop”, demeaning him in meetings, and undermining his position by stripping him of responsibilities that would normally be associated with his role as CEO.  (Compl. ¶¶ 3, 34-35.)  For example, white managers who should have reported to Plaintiff were instead reporting directly to the owners.  (Compl. ¶ 3, 34) 

Plaintiff also alleges Defendants were engaging in financial misconduct in connection with personal expenses and when he brought this up with the owners, he was terminated.  (Compl. ¶4.)  At the time of his termination, 360 was a strong target for acquisition, and Defendants advised Plaintiff that he needed to attest to the accuracy of the books to any potential investors.  (Compl. ¶ 43.)  Plaintiff resisted, pointing to the irregular accounting practices for expenses and misappropriation of company funds.  (Id.) 

The operative complaint alleges claims for (1) breach of contract, (2) promissory fraud, (3) retaliation in violation of Labor Code §§ 98.6 and 1102.5 and (4) violation of the Fair Employment and Housing Act (“FEHA”). 

This hearing is on Defendants’ motion to compel arbitration.  Defendants seek to compel Plaintiff to arbitrate pursuant to an arbitration agreement in Plaintiff’s employment agreement, and to stay all proceedings pending completion of the arbitration.    

LEGAL STANDARD 

The¿Federal Arbitration Act (“FAA”)¿applies to contracts that involve interstate commerce.  (9 U.S.C. §§ 1,¿2).  The United States Supreme Court has determined that the phrase “involving commerce” in the FAA is the functional equivalent of the term “affecting commerce,” which is a term of art that ordinarily signals the broadest permissible exercise of Congress's commerce clause power. (Citizens Bank v. Alafabco, Inc. (2003) 539 U.S. 52, 55, 56.)  

Relying upon the expansive reading of “involving commerce,” courts have determined the FAA governs arbitration agreements where the employer engages in interstate and international commerce.  (Serpa v. California Surety Investigations, Inc. (2013) 215 Cal.App.4th 695, 702 n. 3 (arbitration agreement was governed by FAA because the employer routinely engages in interstate and international commerce); Dotson v. Amgen, Inc. (2010) 181 Cal. App. 4th 975, 979-980 (FAA governed arbitration agreement where employer was a multi-national company); Giuliano v. Inland Empire Personnel, Inc. (2007) 149 Cal. App. 4th 1276, 1287 (arbitration agreement was governed by FAA where employer was engaged in business throughout California and Arizona). 

Here, 360 provides security services in the states of California, Texas, Nevada and New York, as well as in Mexico.  (Kirkpatrick Decl. ¶2.)  Accordingly, 360 engages in interstate commerce, and the arbitration agreement here is governed by the FAA.   

Under the FAA, “any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration …”.  (Moses H. Cone Memorial Hospital v. Mercury Constr. Corp.¿(1983) 460 U.S. 1, 24–25.)  This federal policy favoring arbitration preempts any state law impediments to the policy’s fulfillment.  If a state law interferes with the FAA’s purpose of enforcing arbitration agreements according to their terms, the FAA preempts the state law provision, no matter how laudable the state law’s objectives. (AT&T Mobility LLC v. Concepcion (2011) 563 U.S. 333, 352.)   

However, while the arbitration agreement here is governed by the FAA, the agreement may be enforced via the summary procedures provided by California arbitration law.  (Rosenthal v. Great Western Financial Securities Corp. (1996) 14 Cal. 4th 394, 409-410.)  It is a “general and unassailable proposition . . . that States may establish the rules of procedure governing litigation in their own courts,” even though the controversy is governed by substantive federal law.  (Felder v. Casey¿(1988) 487 U.S. 131, 138.)  By the same token, however, a state procedural rule must give way “if it impedes the uniform application of the federal statute essential to effectuate its purpose, even though the procedure would apply to similar actions arising under state law.” (McCarroll v. L.A. County etc. Carpenters¿(1957) 49 Cal. 2d 45, 61, 62.)   

“We think it plain¿the California procedures for a summary determination of the petition to compel arbitration serve to further, rather than defeat, the enforceability policy of the [FAA.]” ¿(Rosenthal, 14 Cal. 4th at 409.)  Code Civ. Proc. § 1281.2 and¿1290.2¿are neutral as between state and federal law claims for enforcement of arbitration agreements.  (Id.)  “They display no hostility to arbitration as an alternative to litigation; to the contrary, the summary procedure provided, in which the existence and validity of the arbitration agreement is decided by the court in the manner of a motion, is designed to further the use of private arbitration as a means of resolving disputes more quickly and less expensively than through litigation.”  (Id.) 

As with federal law, under California¿law,¿public policy favors arbitration as an efficient and less expensive means of resolving private disputes.  (Moncharsh¿v.¿Heily¿&¿Blase¿(1992) 3 Cal.4th 1, 8-9;¿AT&T Mobility LLC v. Concepcion,¿563 U.S. at 339.)¿ To further that policy, Code Civ. Proc. §1281.2 requires a trial court to enforce a written arbitration agreement unless it finds (1) no written agreement to arbitrate exists, (2) the right to compel arbitration has been waived, (3) grounds exist for rescission of the agreement or (4) litigation is pending that may render the arbitration unnecessary or create conflicting rulings on common issues.    

When seeking to compel arbitration, the initial burden lies with the moving party to demonstrate the existence of a valid arbitration agreement by a preponderance of evidence.¿ (Ruiz v. Moss Bros. Auto Group (2014) 232 Cal.App.4th 836, 841-42; Gamboa v. Northeast Community Clinic (2021), 72 Cal.App.5th 158, 164-65.)¿ It is sufficient for the moving party to produce a copy of the arbitration agreement or set forth the agreement’s provisions.¿ (Gamboa, 72 Cal.App.5th at 165.)¿ The burden then shifts to the opposing party to prove by a preponderance of evidence any defense to enforcement of the contract or the arbitration clause.¿ (Ruiz, 232 Cal.App.4th at 842; Gamboa, 72 Cal.App.5th at 165.)  The trial court then weighs all the evidence submitted and uses its discretion to make a final determination.¿ (Id.)¿  

If the court orders arbitration, then the court shall stay the action until arbitration is completed.¿ (See Code Civ. Proc., § 1281.4.)  

DISCUSSION 

Existence of Agreement 

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; Victoria v. Superior Court (1985) 40 Cal. 3d 734, 835.)  Even when the FAA applies, “interpretation of the arbitration agreement is governed by state law principles.”  (Hotels Nevada, LLC v. Bridge Banc, LLC (2005) 130 Cal.App.4th 1431, 1435.) 

Although “[t]he law favors contracts for arbitration of disputes between parties” (Player v. Geo. M. Brewster & Son, Inc. (1971) 18 Cal.App.3d 526, 534), “there is no policy compelling persons to accept arbitration of controversies which they have not agreed to arbitrate[.]” (Weeks v. Crow (1980) 113 Cal. App. 3d 350, 353..)¿ “[A]rbitration is a matter of contract and a party cannot be required to submit to arbitration any dispute which he has not agreed so to submit.” (AT&T Technologies v. Communications Workers (1986) 475 U.S. 643, 648 (citations and internal quotations omitted); see also Sparks v. Vista Del Mar Child & Family Services (2012) 207 Cal.App.4th 1511, 1518¿ (“Because arbitration is a contractual matter, a party that has not agreed to arbitrate a controversy cannot be compelled to do so.”).)¿¿¿¿¿¿¿  

Here, Defendants have met their burden of proving the existence of an arbitration agreement by a preponderance of the evidence.  Plaintiff’s executive employment agreement contains an arbitration clause (the “Agreement”) that requires him to arbitrate “any dispute or controversy arising out of or relating to [Plaintiff’s] employment with the Company,” including “claims of discrimination based on race … in violation of [FEHA]” and “any other federal, state or local law or regulation or common law principle forbidding such discrimination or for acting contrary to public policy.”  (Ex. A to Kirkpatrick Decl, Section XI.)  Plaintiff does not dispute that a valid arbitration agreement exists that requires arbitration of his claims. 

Owners’ Standing to Enforce Agreement 

Defendants argue that while the owners are not a party to the Agreement, they may still compel arbitration of Plaintiff’s disputes.  The Court agrees, and Plaintiff does not dispute the owners’ standing to compel arbitration.   

An entity seeking to compel arbitration must generally establish it was a party to an arbitration agreement. (DMS Services LLC v. Superior Court (2012) 205 Cal.App.4th 1346, 1352–1353; JSM Tuscany, LLC v. Superior Court (2011) 193 Cal.App.4th 1222, 1236.)  Only in limited circumstances may an arbitration agreement be enforced by non-signatories.   

One such circumstance is where a benefit is conferred on the non-signatory as a result of the agreement, making the nonsignatory a third party beneficiary of the arbitration agreement. (Jensen v. U-Haul Co. of California (2017) 18 Cal.App.5th 295, 301.)  “To invoke the third party beneficiary exception, [a third party beneficiary] ha[s] to show that the arbitration clause … was made expressly for [its] benefit.” (Ronay Family Limited Partnership v. Tweed (2013) 216 Cal.App.4th 830, 838.)  Here, the Agreement explicitly identifies an “owner” as one of the intended beneficiaries of the arbitration provision.  (Ex. A to Kirkpatrick Decl.)   

Another exception is when the equitable estoppel doctrine applies and a non-signatory is allowed to enforce an arbitration clause because the claims against the non-signatory are dependent on, or inextricably intertwined with, the contractual obligations of the agreement containing the arbitration clause. (See Goldman v. KPMG, LLP (2009) 173 Cal.App.4th 209, 229–230 [92 Cal. Rptr. 3d 534]; Jensen, 18 Cal. App.5th at 306; Boucher v. Alliance Title Co., Inc. (2005) 127 Cal.App.4th 262, 271–272.)  Plaintiff’s claims against the owners are inextricably intertwined with the contract containing the arbitration provision.  Indeed, Plaintiff alleges his breach of contract claim against the owners, and not just 360.   

Still another exception provides that when a plaintiff alleges a defendant acted as an agent of a party to an arbitration agreement, the defendant may enforce the agreement even though the defendant is not a party thereto. (E.g., Dryer v. Los Angeles Rams (1985) 40 Cal.3d 406, 418; RN Solution, Inc. v. Catholic Healthcare West (2008) 165 Cal.App.4th 1511, 1520; 24 Hour Fitness, Inc. v. Superior Court (1998) 66 Cal.App.4th 1199, 1210.)  Here, the operative complaint alleges that “Defendants were acting on behalf of each other in the establishment of, ratification of, and/or execution of the illegal practices and policies as set forth in this pleading.”  (Compl. ¶ 16.)   The complaint further alleges Defendants were alter egos, and 360 was a “mere shell and conduit[] for the conduct of certain of other Defendants’ affairs.”  (Compl. ¶ 18.)  Accordingly, as alleged agents (indeed alter egos) of the party to the agreement containing the arbitration clause, the owners are also entitled to compel arbitration of Plaintiff’s claims against them.  (Rowe v. Exline (2007) 153 Cal. App. 4th 1276, 1285 (nonsignatories who are alleged to be alter egos were entitled to enforce arbitration agreement, noting that if an agent could compel arbitration then an alter ego who is essentially the same as the signatory can certainly compel arbitration).) 

Scope of Agreement 

After deciding the existence of an arbitration agreement, the Court  must next consider the second gateway issue of whether the parties’ dispute falls within the scope of the arbitration provision.  (Omar v. Ralphs Grocery Co. (2004) 118 Cal.App.4th 955, 961.)  It clearly does.  Plaintiff’s breach of contract, promissory fraud, retaliation and race discrimination claims decidedly fall within the scope of the Agreement, as they qualify as disputes “arising out of or relating to [Plaintiff’s] employment with the Company.”  (Ex. A to Kirkpatrick Decl.)  

Unconscionability  

The Court must next consider whether the Agreement is unconscionable.  Unconscionability generally includes the absence of meaningful choice on the part of one of the parties together with contract terms that unreasonably favor the other party. (Carboni v. Arrospide (1991) 2 Cal.App.4th 76, 82-83.)  Unconscionability has both a “procedural” and a “substantive” element.  (A & M Produce Co. v. FMC Corp. (1982) 135 Cal.App.3d 473, 486.)  An agreement to arbitrate is unenforceable only if both procedural and substantive unconscionability is shown. (Stirlen v. Supercuts, Inc. (1997) 51 Cal.App.4th 1519, 1533.)   

Procedural unconscionability focuses on whether there is “oppression” arising from an inequality of bargaining power or “surprise” arising from buried terms in a complex printed form. (Id. at 1280.)  Substantive unconscionability addresses the existence of overly harsh or one-sided terms. (Id.)   

Plaintiff has the burden of proving both procedural and substantive unconscionability. (Crippen v. Central Valley RV Outlet. Inc. (2004) 124 Cal.App.4th 1159, 1165).  Both, however, need not be present to the same degree.  A sliding scale is applied so that 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.” (Morris v. Redwood Empire Bancorp (2005) 128 Cal.App.4th 1305, 1317; see also A & M Produce Co., 135 Cal.App.3d at 486.)   
Here, there is no evidence of procedural unconscionability.  There is no evidence of unequal bargaining power or that the contract was adhesive.  Defendants contend that the contract was the product of negotiation.  Plaintiff was applying for a CEO position and had impeccable credentials, giving him significant bargaining power in negotiating his employment agreement.  The arbitration provision was not buried in a long complex document, and Plaintiff initialed each page of the employment agreement, including the page containing the arbitration provision, evincing that he read the arbitration provision before signing his employment agreement.       

Moreover, “a finding of procedural unconscionability does not mean that a contract will not be enforced, but rather that courts will scrutinize the substantive terms of the contract to ensure they are not manifestly unfair or one-sided.” (Gentry v. Superior Court (2007) 42 Cal.4th 443, 469.)   We now address whether the Agreement is substantively unconscionable. 

“Substantive unconscionability focuses on the one-sidedness or overly harsh effect of the contract term or clause.”  (Harper, 113 Cal.App.4th at 1406-1407.)  Where an employee is asserting rights protected by FEHA, an arbitration provision must also provide an adequate forum to secure these rights.  (See Armendariz v. Found. Health Psychcare Svcs., Inc. (2000) 24 Cal.4th 83, 101.)  An arbitration provision is adequate under Armendariz if it provides for the following: (1) neutral arbitrator; (2) adequate discovery; (3) a written award; (4) no limitation on remedies, and (5) no unreasonable costs and arbitration fees to be paid by the employee.  (Id. at 102.)   

These requirements were not abrogated by the Supreme Court’s holding in AT&T Mobility LLC v. Concepcion (2011) 563 U.S. 333, 339.  In Concepcion, the Supreme Court held that the FAA requires courts to “place arbitration agreements on an equal footing with other contracts.” (Id. at 339.)  The argument advanced by several federal courts is that Armendariz creates a stricter standard for arbitration agreements than for ordinary contracts, which violates Concepcion.  However, California courts, including the California Supreme Court, have expressly found that Concepcion has no effect on these requirements. (See Sonic-Calabasas A, Inc. v. Moreno (2013) 57 Cal.4th 1109, 1144 (noting that the Armendariz requirements remain valid even after Concepcion); Penilla v. Westmont Corporation (2016) 3 Cal. App. 5th 205, 223 n. 16 (Concepcion did not abrogate Armendariz requirements).)  Therefore, Armendariz is the applicable law. 

The Agreement here fully complies with each of the Armendariz factors.  First, the Agreement calls for binding arbitration in accordance with the current Employment Dispute Rules of the American Arbitration Association (“AAA”), which call for arbitration to be conducted by a neutral arbitrator.  (Ex. A to Kirkpatrick Decl; Ex. C to Sanchez Decl.)  The AAA rules provide that arbitrators shall have no personal or financial interest in the matter, and no relation to the dispute, the parties or their attorneys that may create an appearance of bias. (Ex. C to Sanchez Decl., Rule 12.) 

Second, the AAA Rules incorporated into the Agreement provide for reasonable discovery pursuant to Rule 9.  (Ex. C to Sanchez Decl. (“The arbitrator shall have the authority to order such discovery, by way of deposition, interrogatory, document production, or otherwise, as the arbitrator considers necessary to a full and fair exploration of the issues in dispute, consistent with the expedited nature of arbitration.”); see also Lane v. Francis Capital Management LLC (2014) 224 Cal. App. 4th 676, 693 (discovery permitted by AAA rules satisfied requirements of Armendariz such that lack of express provision for discovery did not render the arbitration agreement substantively unconscionable).)   

Third, the AAA Rules provide for a written award signed by the arbitrator per Rule 39.  (Ex. C to Sanchez Decl. (“The award shall be in writing and shall be signed by a majority of the arbitrators and shall provide the written reasons for the award unless the parties agree otherwise.”).)   

Fourth, the Agreement does not limit the type of relief the arbitrator is permitted to grant and expressly states that the arbitrator “shall have the authority to award any remedies available under law and/or equity.”  (Ex. A to Kirkpatrick Decl.)   

Fifth, the Agreement does not require Plaintiff to pay the costs of arbitration.  It expressly states that “the Company shall bear the costs of the arbitration process, including payment of the fees of the arbitrator(s).”  (Ex. A to Kirkpatrick Decl.; see also Tholmer v. Staples & Assocs., 2022 Cal. Super. LEXIS 42780 at *16 (finding no substantive unconscionability where agreement provides that “[t]he Company shall bear those costs specific to the arbitration process, including the compensation of the Arbitration and all administrative expenses”).) 

In sum, the Court finds (and Plaintiff does not dispute) that there is no procedural or substantive unconscionability.  Accordingly, the arbitration agreement is enforceable. 

Waiver 

Plaintiff argues Defendants have waived their right to arbitrate because under the terms of the arbitration agreement, the parties were required to first mediate the dispute but Defendants refused to mediate without Plaintiff’s stipulation to arbitration.  Plaintiff also points to a six month delay in Defendants responding to Plaintiff’s request to mediate.  The Court disagrees that these facts demonstrate waiver.        

Courts are reluctant to find the contractual right to arbitrate has been waived.  (Moses H. Cone Hospital, 460 U.S. at 24-25.)  A party who resists arbitration on the ground of waiver bears a heavy burden.   (St. Agnes Medical Center v. PacifiCare of California (2003) 31 Cal. 4th 1187, 1195.)  Waivers are not to be lightly inferred, and any doubts regarding a waiver should be resolved in favor of arbitration.   (Id.) 

“There is no single test for waiver of the right to compel arbitration, but waiver may be found where the party seeking arbitration has (1) previously taken steps inconsistent with an intent to invoke arbitration, (2) unreasonably delayed in seeking arbitration, or (3) acted in bad faith or with willful misconduct.” (Augusta v. Keehn & Associates (2011) 193 Cal.App.4th 331, 337.)  “While engaging in litigation of the matter may be inconsistent with an intent to invoke arbitration, the party who seeks to establish waiver must show that some prejudice has resulted from the other party's delay in seeking arbitration.”  (Id.)  The moving party’s mere participation in litigation is not enough; the party who seeks to establish waiver must show that some prejudice has resulted from the other party’s delay in seeking arbitration. (Davis v. Continental Airlines, Inc. (1997) 59 Cal.App.4th 205, 212¿("Davis")). 

Defendants’ request that Plaintiff stipulate to arbitration as a condition of mediation is not inconsistent with an intent to invoke arbitration.  It is the exact opposite of such an intention.     

Moreover, the mere delay in Defendants’ response to Plaintiff’s request to mediate does not give rise to waiver.  Delay in asserting the right to arbitrate is not unreasonable merely because the right could have been¿asserted it at an earlier time. (Quach v. Cal. Commerce Club, Inc. (2022) 78 Cal.App.5th 470, 484.)¿ A delay is unreasonable if it causes a party to expend resources it otherwise would have avoided in arbitration, or by allowing the party asserting arbitration to take advantage of judicial processes not available in arbitration.  (Id.)  Here, while an earlier response may have avoided the filing of a complaint, the Court does not find that the filing of a complaint alone constitutes prejudice to Plaintiff, as an arbitration would have also required a complaint and the resources expended to draft the complaint are not wasted. 

Plaintiff’s retention of an attorney also does not support a finding of prejudice.  Plaintiff has been represented by counsel since the onset of pre-litigation communications.  Thus, Plaintiff secured counsel irrespective of Defendant’s position on mediation.   

Moreover, Defendants filed their motion to compel arbitration a mere four weeks after acknowledging receipt of the summons and complaint.  The Court cannot conclude this timing constitutes unreasonable delay.   

Gloster v. Sonic Automotive Inc. (2014) 226 Cal.App.4th 438 is illustrative.  There, the defendants filed a joint answer to the plaintiff’s complaint, filed multiple case management states, filed a demurrer, participated in discovery and eventually filed a motion for summary judgment or in the alternative, petition to compel arbitration after a year of litigating in court.  (Id. at 442-443.)  Despite this protracted litigation, the Court of Appeal held that defendants’ actions were insufficient to constitute a waiver of their right to arbitration and that the mere participation in litigation is not enough to support a finding of waiver.  (Id. at 448-450.)  Here, Defendants moved to compel arbitration shortly after Plaintiff filed his complaint.  Moreover, Defendants have not invoked any litigation machinery or otherwise taken advantage of judicial procedures not available in arbitration.     

Accordingly, the Court concludes Defendants have not waived their right to arbitration.           

Stay of Proceedings 

Code Civ. Proc. §1281.4 provides that if the court has ordered the arbitration of a controversy, it “shall, upon motion of a party to such action or proceeding, stay the action or proceeding until an arbitration is had in accordance with the order to arbitrate or until such earlier time as the court specifies.”  Pursuant to Section 1281.4, therefore, the Court stays this action pending conclusion of the arbitration proceedings.    

CONCLUSION 

For the foregoing reasons, the Court GRANTS Defendants’ motion to compel arbitration and for a stay of proceedings pending completion of the arbitration.   

DATED: May 3, 2023 ___________________________ 

Edward B. Moreton, Jr. 

Judge of the Superior Court