Judge Holly J. Fujie, Case 22STCV00261 2022-10-31 Tentative Ruling

MOVING PARTIES: Defendants Bio-Pacific LLC (“BP”); Grancare Autumn Hills, LLC; Grancare LLC; Autumn Hills Holding Company GP, LLC; Autumn Hills Operating Company LLC; Autumn Hills Operating Company, LP (“AHOC”); Mariner Health Care Management Company; and Grancare Autumn Hills LP (collectively, “Moving Defendants”)

This action arises out of an employment relationship. Plaintiff’s complaint (the “Complaint”) alleges: (1) employment discrimination; (2) failure to engage in a timely, good faith interactive process; (3) failure to provide reasonable accommodation; (4) retaliation; (5) failure to take all reasonable steps necessary to prevent discrimination from occurring; (6) wrongful termination in violation of public policy; and (7) intentional infliction of emotional distress.

Moving Defendants filed a motion to compel arbitration and stay the proceedings (the “Motion”) on the grounds that during her employment, Plaintiff signed a written agreement with that contains a binding arbitration provision (the “Agreement”) which requires that her current claims be adjudicated in binding arbitration.

The purpose of the Federal Arbitration Act (“FAA”) is to move the parties in an arbitrable dispute out of court and into arbitration as quickly and easily as possible. (Moses H. Cone Memorial Hosp. v. Mercury Constr. Corp. (1983) 460 U.S. 1, 23.) The FAA is consistent with the federal policy to ensure the enforceability, according to their terms, of private agreements to arbitrate. (Mastrobuono v. Shearson Lehman Hutton, Inc. (1995) 514 U.S. 52, 57.)

California law, like federal law, favors enforcement of valid arbitration agreements. (Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, 97 (“Armendariz”).) Under California Code of Civil Procedure (“CCP”) section 1281, a written agreement to submit to arbitration an existing controversy or a controversy thereafter arising is valid, enforceable, and irrevocable, save upon such grounds as exist for the revocation of any contract. (CCP § 1281.) On petition of a party to an arbitration agreement alleging the existence of a written agreement to arbitrate a controversy and that a party to the agreement refuses to arbitrate that controversy, the court shall order the petitioner and the respondent to arbitrate the controversy unless grounds exist not to compel arbitration. (CCP § 1281.2.)

In ruling on a petition to compel arbitration, the trial court first decides whether an enforceable arbitration agreement exists between the parties, and then determines whether the plaintiff’s claims are covered by the agreement. (Omar v. Ralphs Grocery Co. (2004) 118 Cal.App.4th 955, 961.) The party seeking arbitration bears the burden of proving the existence of an arbitration agreement, and the party opposing arbitration bears the burden of proving any defense, such as unconscionability. (Pinnacle Museum Tower Assn. v. Pinnacle Market Development (US), LLC (2012) 55 Cal.4th 223, 236.) The trial court may resolve a motion to compel arbitration in summary proceedings. (Gamma Eta Chapter of Pi Kappa Alpha v. Helvey (2020) 44 Cal.App.5th 1090, 1097.) Factual issues may be submitted on declarations and affidavits, or by oral testimony in the court’s discretion. (Juen v. Alain Pinel Realtors, Inc. (2019) 32 Cal.App.5th 972, 978.) When the enforceability of an arbitration clause may depend upon which of two sharply conflicting factual accounts is to be believed, the better course would normally be for the trial court to hear oral testimony and allow the parties the opportunity for cross-examination. (See Rosenthal v. Great Western Fin. Securities Corp. (1996) 14 Cal.4th 394, 414.)

Moving Defendants provide evidence of the Agreement, which is titled “Employment Dispute Resolution Program Agreement” and signed on January 18, 2018 (Declaration of Talisa Lu (“Lu Decl.”) ¶ 5, Exhibit 1.)

“Therefore, both the Company and I agree to resolve all claims, controversies or disputes in relation to my application for employment, my employment and/or termination of employment with the Company exclusively through the Company’s Employment Dispute Resolution Program. … I understand that the EDR Program affects my legal rights. I also understand that I may obtain a copy of the EDR Program Booklet and seek legal advice before signing this Agreement. The·full details of the EDR Program are contained in the EDR Program Booklet, which is hereby incorporated by reference.”

Moving Defendants also provide a copy of the Employment Dispute Resolution Book (the “Handbook”) that is distributed to employees when they sign arbitration agreements. (See Lu Decl., Exhibit 2.) The Handbook provides: “All references to the ‘Company’ in this booklet refer to subsidiaries that employ the individuals working there.” (Id. at p. 2.) On its last page, the Handbook contains an acknowledgement provision, which is not signed. (See id. at p. 15.)

Lu declares that she is the Director of Staff Development at AHOC, which contracts with BP. (Lu Decl. ¶ 1.) She currently handles the onboarding of new AHOC hires, including employees of BP who work at the AHOC location. (Lu Decl. ¶ 2.) Employees are presented with the Agreement and Handbook at the same time and are given time to review the documents. (Lu Decl. ¶ 3.)

In the opposition (the “Opposition”), Plaintiff declares that she does not remember receiving either the Agreement or Handbook and does not remember signing the Agreement. (Declaration of Jacqueline Kazaryan (“Kazaryan Decl.”) ¶ 2.) Plaintiff declares that no one explained the terms of either document and that she would not have signed the Agreement if she were aware that it required her to submit to arbitration. (Kazaryan Decl. ¶¶ 3-5.)

The Court finds that Moving Defendants have met their burden to establish the existence of an agreement to arbitrate. The signed Agreement explicitly provides for the arbitration of claims arising from Plaintiff’s employment and incorporates the terms of the Handbook. The lack of signature on the Handbook does not on its own mean that Plaintiff did not assent to the Agreement. (See Harris v. TAP Worldwide, LLC (2016) 248 Cal.App.4th 373 381.) Further, nothing in the Handbook abrogates or contradicts the terms of the Agreement. Plaintiff’s failure to recall signing the Agreement is insufficient to refute its existence and validity. (See Desert Outdoor Advertising v. Superior Court (2011) 196 Cal.App.4th 86, 872-73.)

An entity seeking to compel arbitration must generally establish it was a party to an arbitration agreement. (JSM Tuscany, LLC v. Superior Court (2011) 193 Cal.App.4th 1222, 1236.) Only in limited circumstances may an arbitration agreement be enforced by a nonsignatory. (See id.) One such circumstance is where a benefit is conferred on the nonsignatory 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.) Another is when the equitable estoppel doctrine applies and a nonsignatory is allowed to enforce an arbitration clause because the claims against the nonsignatory are dependent on, or inextricably intertwined with, the contractual obligations of the agreement containing the arbitration clause. (Jarboe v. Hanlees Auto Group (2020) 53 Cal.App.5th 539, 549.)

By relying on contract terms in a claim against a nonsignatory defendant, even if not exclusively, a plaintiff may be equitably estopped from repudiating the arbitration clause contained in that agreement. (Boucher v. Alliance Title Company, Inc. (2005) 127 Cal.App.4th 262, 272.) That the claims are cast in tort rather than contract does not avoid the arbitration clause. (Id.) When asserting claims against two defendants that “rely on, make reference to, and presume the existence of” an employment agreement, the Plaintiff is estopped from avoiding arbitration of his causes of action against the nonsignatory defendant. (Id.) A plaintiff’s claims for violation of the Labor Code, for example, were held to be intimately founded in and intertwined with his employment relationship with the signatory employment agency, and therefore the nonsignatory client company could compel arbitration of those same claims. (See Garcia v. Pexco (2017) 11 Cal.App.5th 782, 787.)

Here, Plaintiff’s Complaint alleges that Moving Defendants were Plaintiff’s joint employers and collectively refers to them as “Employer Defendants”). (Complaint ¶ 10.) The Complaint does not otherwise differentiate Moving Defendants. Accordingly, the Complaint presumes the existence of an employment relationship such that all Moving Defendants are entitled to enforce the Agreement under the doctrine of equitable estoppel because absent an employment relationship and agreement, Plaintiff would not be able to assert the claims she alleges in the Complaint against them.

Unconscionability has both a procedural and a substantive element, with the former focusing on oppression or surprise due to unequal bargaining power and the latter on overly harsh or one-sided results. (Sanchez v. Valencia Holding Company, LLC (2015) 61 Cal.4th 899, 910.) Though both procedural and substantive unconscionability need to be shown, they need not be present to the same degree; 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. (Armendariz, supra, 24 Cal.4th at 114.)

Procedural unconscionability “pertains to the making of the agreement.” (Ajamian v. CantorCO2e, L.P. (2012) 203 Cal.App.4th 771, 795.) Procedural unconscionability focuses on two factors: “oppression” and “surprise.” (Zullo v. Superior Court (2011) 197 Cal.App.4th 477, 484.) Oppression arises from an inequality of bargaining power which results in no real negotiation and an absence of meaningful choice. (Id.) Surprise involves the extent to which the supposedly agreed-upon terms of the bargain are hidden in the prolix printed form drafted by the party seeking to enforce the disputed terms. (Id.)

A contract of adhesion typically denotes a standardized contract imposed and drafted by the party of superior bargaining strength which relegates to the subscribing party only the opportunity to adhere to the contract or reject it. (Armendariz, supra, 24 Cal.4th at 113.) The adhesive nature of a contract is one factor that the courts may consider in determining the degree of procedural unconscionability. (Carmona v. Lincoln Millennium Car Wash, Inc. (2014) 226 Cal.App.4th 74, 84 fn.4.)

Additionally, the failure to attach arbitration rules, standing alone, is insufficient grounds to support a finding of unconscionability. (Peng v. First Republic Bank (2013) 219 Cal.App.4th 1462, 1469-72.) Where the non-moving party had not been provided with a copy of the arbitration rules, the Court must make a factual determination in deciding whether the non-moving party is prejudiced by the moving party’s failure to attach said rules. (See id.)

The Handbook states: “Although Arbitration is somewhat less formal than going to court, it is governed by the established rules of the EDR Program. You may request a copy of the rules from the EDR Program Administrator. … The selection of the arbitrator is made through the American Arbitration Association, a similar organization or directly with a neutral party.” (Lu Decl., Exhibit 2 at p. 8.)

The Court accepts that the Agreement is procedurally unconscionable to a minimal to moderate degree because Plaintiff’s employers were the party of superior bargaining strength who drafted the Agreement and Plaintiff’s continued employment was contingent on her signing the document. Additionally, while the Agreement incorporates the Handbook’s terms, the Handbook is not fully clear on the guiding rules, and none of the referenced rules referenced rules are attached or incorporated into the Handbook. The Court notes, however, that Plaintiff does not identify a feature of any of the aforementioned rules that would support a finding of procedural unconscionability.

Substantive unconscionability focuses on the terms of the agreement and whether those terms are so one-sided as to “shock the conscience.” (Kinney v. United HealthCare Services, Inc. (1999) 70 Cal.App.4th 1322, 1330.) Substantive unconscionability considers whether the agreement reallocates the risks of the bargain in an objectively unreasonable or unexpected manner. (Id.) Arbitration agreements intended to apply to claims arising under FEHA must: (1) provide for neutral arbitrators; (2) provide for more than minimal discovery; (3) require a written award; (4) provide for all of the types of relief that would otherwise be available in court; and (5) not require employees to pay either unreasonable costs or any arbitrators' fees or expenses as a condition of access to the arbitration forum. (Armendariz, supra, 24 Cal.4th at 102.) These requirements may apply to non-FEHA employment claims. (See Pinela v. Neiman Marcus Group, Inc. (2015) 238 Cal.App.4th 227, 254 (applying the Armendariz factors in the context of claims under the Labor Code).)

Plaintiff argues that a number of the provisions in the Agreement and Handbook are substantively unconscionable because they abridge her statutory rights and unreasonably favor Moving Defendants. The Court does not find Plaintiff’s arguments persuasive.

The Handbook authorizes Plaintiff to recover attorney’s fees in the event that she is a prevailing party, and therefore does not limit her remedies under FEHA. Nor does the Handbook impermissibly limit the scope of discovery. The parties to arbitration agreement are permitted to agree to something less than the full panoply of discovery. (Armendariz, supra, 24 Cal.4th at 104-05.) Here, the Handbook does not delineate strict limits on the scope of discovery and notes that the arbitrator is the sole decision maker. (Lu Decl., Exhibit 2 at p. 8.) Therefore, the Court does not find that the discovery limits are unfairly one-sided because arbitration rules do not expressly limit Plaintiff’s means of discovery.

The confidentiality provision prohibits the disclosure of EDR proceedings or documents to persons other than participants, counsel, witnesses, the mediator, the arbitrator, and the court and court staff, except as provided by law. (Lu Decl., Exhibit 2 at p. 3 (emphasis added).) Because the confidentiality provision, by its terms, does not exceed the scope of law, it is not unconscionable. (See also Sanchez v. Carmax Auto Superstores California, LLC (2014) 224 Cal.App.4th 398, 408.)

Further, the Agreement’s provision stating that only an officer or high-ranking executive has the power to alter the Agreement’s terms is insufficient to render the Agreement unconscionable because an employer’s discretionary power to modify its terms carries with it the duty to exercise that right fairly in good faith. (See Lu Decl., Exhibit 1; Peng v. First Republic Bank (2013) 219 Cal.App.4th 1462, 1473.)

Based on the foregoing, the Court finds that the Agreement is not substantively unconscionable. Because both procedural and substantive unconscionability are required, the Court GRANTS the Motion. The Court sets a status conference on May 22, 2023 at 8:30 a.m. in this department. The parties are ordered to file a joint status report by May 15, 2023. This action is STAYED pending the conclusion of the arbitration proceedings.

In consideration of the current COVID-19 pandemic situation, the Court strongly encourages that appearances on all proceedings, including this one, be made by LACourtConnect if the parties do not submit on the tentative. If you instead intend to make an appearance in person at Court on this matter, you must send an email by 2 p.m. on the last Court day before the scheduled date of the hearing to SMC_DEPT56@lacourt.org stating your intention to appear in person. The Court will then inform you by close of business that day of the time your hearing will be held. The time set for the hearing may be at any time during that scheduled hearing day, or it may be necessary to schedule the hearing for another date if the Court is unable to accommodate all personal appearances set on that date. This rule is necessary to ensure that adequate precautions can be taken for proper social distancing.

Parties who intend to submit on this tentative must send an email to the Court at SMC_DEPT56@lacourt.org as directed by the instructions provided on the court website at www.lacourt.org. If the department does not receive an email and there are no appearances at the hearing, the motion will be placed off calendar.

Hon. Holly J. Fujie

Judge of the Superior Court