Judge Holly J. Fujie, Case Number: 23STCV25666, Date: 2024-02-23 Tentative Ruling

On October 20, 2023, Plaintiff Tom of Finland Foundation, Inc. filed a complaint. On January 9, 2024, Plaintiffs Tom of Finland Foundation, Inc. and Effenberger Couture filed a First Amended Complaint (the “FAC”) against Defendants Cultureedit LLC, Joakim Andreasson, and Does 1-35, inclusive (collectively “Defendants”) alleging: (1) Breach of Contract; (2) Breach of Duty of Loyalty; (3) Tortious Interference with Contract; (4) Intentional Interference with Prospective Economic Advantage; (5) Unfair Competition in Violation of Business & Professions Code section 17200, et seq; (6) Breach of the Implied Covenant of Good Faith and Fair Dealing; (7) Conversion; and (8) Accounting for Damages and Declaratory and Injunctive Relief. In relevant part, the FAC alleges that Plaintiff entered into contracts with Defendant Cultureedit as its agent in securing licenses for the use of the intellectual property owned by Plaintiff, but Cultureedit stopped providing information about the licensing arrangements or providing an accounting of money received and how it was to be distributed. (FAC ¶¶ 10-11.)

On January 26, 2024, Defendants filed a motion to compel arbitration and stay proceedings on the grounds that a valid and enforceable arbitration agreement exists between Defendants and Plaintiff. On February 9, 2024, Plaintiff filed an opposition. On February 15, 2024, Defendants filed a reply. The hearing was originally set for February 21, 2024, but was continued to February 23, 2024.

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.) CCP section 1281 provides that 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. California law, like federal law, favors enforcement of valid arbitration agreements. (Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, 97.) 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 support of the Motion, Defendants cite to Paragraph 9 of the Agreement entered by the parties which provides that “all disputes arising hereunder [are] to be resolved by binding arbitration in accordance with the JAMS Streamlined Arbitration Rules and Procedures.” (Andreasson Decl. ¶ 4, Exhib. A.)

In opposition, Plaintiff asserts that there is no contract to arbitrate. In support of its argument, Plaintiff points out that the language is in smaller than 10-point font and buried in a prolix of legal terms.

Plaintiff’s arguments are an attack on the unenforceability of the agreement due to unconscionability. The Court notes that arguments are focused on procedural unconscionability because Plaintiff claims the terms were buried and in small font. “The prevailing view is that [procedural and substantive unconscionability] must both be present in order for a court to exercise its discretion to refuse to enforce a contract or clause under the doctrine of unconscionability.” (Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, 114, emphasis added, quoting Stirlen v. Supercuts, Inc. (1997) 51 Cal.App.4th 1519, 1533.) “But they need not be present in the same degree. ‘Essentially a sliding scale is invoked which disregards the regularity of the procedural process of the contract formation, that creates the terms, in proportion to the greater harshness or unreasonableness of the substantive terms themselves.’ [Citation.]” (Id. at 114, emphasis added.) “ ‘Procedural unconscionability focuses on the factors of surprise and oppression [citations], with surprise being a function of the disappointed reasonable expectations of the weaker party.’ ” (Higgins v. Superior Court (2006) 140 Cal.App.4th 1238, 1252 (“Higgins”), quoting Harper v. Ultimo (2003) 113 Cal.App.4th 1402, 1406.)

Here, the arbitration agreement is contained in one large block of text with words printed in a small font. The paragraph itself has nothing segmenting or highlighting its various sections. The only areas that are set apart are the underlined paragraph titles. While the small font in the arbitration agreement is not illegible, the poor formatting and lack of substantial highlighting or conspicuous features make the agreement difficult to read. Accordingly, the Court finds these facts show at least a moderate degree of procedural unconscionability. Plaintiff, however, fails to show any substantive unconscionability. Thus, the Court finds that the contract is not unconscionable.

Plaintiff also states that there is no arbitration agreement with Plaintiff Effenberger Couture. In reply, Defendants assert they do not seek to compel arbitration of Effenberger’s single cause of action for conversion, which does not relate to the parties’ agreement or Plaintiff Tom of Finland Foundation, Inc.’s claims. Since Defendants seek to compel arbitration of only Tom of Finland Foundation, Inc.’s claims, the Court finds the request to be proper.

Defendants argue that Plaintiff’s claims fall within the scope of the agreement because the parties agreed to arbitrate all disputes arising out of their contractual relationship. Plaintiff counters by claiming that the agreement is limited solely to disputes as to the contract itself, thus precluding Plaintiff’s third cause of action for tortious interference of contract and fourth cause of action for intentional interference with prospective advantage because these claims include conduct outside the contract. Plaintiff also argues that the Second Contract does not include an arbitration clause, but Plaintiff’s claims arise out of the second contract.

Under “both federal and state law, the threshold question presented by a petition to compel arbitration is whether there is an agreement to arbitrate.” (Cruise v. Kroger Co. (2015) 233 Cal.App.4th 390, 396 (citing Cheng-Canindin v. Renaissance Hotel Associates (1996) 50 Cal.App.4th 676, 683). A party moving to compel arbitration bears the threshold burden of establishing the existence of a valid agreement to arbitrate by a preponderance of the evidence. (Engalla v. Perinanente Med. Group, 18 Inc. (1997) 15 Cal.4th 951, 972.) “If the trial court finds an enforceable arbitration agreement between the parties, the court must then determine the second gateway issue: whether respondent's claims are covered by the agreement.” (Omar v. Ralphs Grocery Co. (2004)¿118 Cal.App.4th 955, 961.) “The burden is on the party opposing arbitration to show the agreement cannot be interpreted to apply to the dispute. (Balandran v. Labor Ready, Inc.¿(2004) 124 Cal.App.4th 1522, 1527.) “Whether an arbitration agreement applies to a controversy is a question of law…Although ‘[d]oubts as to whether an arbitration clause applies to a particular dispute are to be resolved in favor of sending the parties to arbitration’¿[citation], there exists no public policy favoring arbitration of disputes which the parties have not agreed to arbitrate.¿[citation].” (American Federation of State, County & Municipal Employees v. Metropolitan Water Dist.¿(2005) 126 Cal.App.4th 247, 257.)

The relevant arbitration provision provides that “all disputes arising hereunder...[shall] be resolved by binding arbitration.” (Andreasson Decl. ¶ 4, Exhib. A.) The Court agrees with Defendants in that this clause is broad enough to cover Plaintiff’s claims arising from the parties’ contract. Although Plaintiff argues that the third and fourth causes of action involve Defendant’s interference with Plaintiff’s relationship with third parties, such that they are outside the scope of arbitration, the Court disagrees. “[A]ny dispute ... concerning the interpretation of any of the terms of [the contract] and the application and effect of such terms encompassed tort claims stemming from the parties’ contractual relationship.” (Buckhorn v. St. Jude Heritage Medical Group (2004) 121 Cal.App.4th 1401, 1407.) Because Plaintiff “failed to demonstrate his tort claims were ‘wholly independent’ of the employment agreement, and any doubts must be resolved in favor of arbitration.” (Id. at p. 1408.) Thus, the claims are arbitrable.

The Court therefore GRANTS the Motion to Compel Arbitration and STAYS all proceedings pending the completion of arbitration and sets a Status Conference for August 30, 2024 at 8:30 a.m., with the parties ordered to file a Joint Status Report on the state of the arbitration seven court days before the Status Conference.

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