Judge Holly J. Fujie, Case Number: 24STCV16254, Date: 2025-02-04 Tentative Ruling

MOVING PARTY: Defendants SFM, LLC (erroneously sued as Sprouts Farmers Market, LLC), Adam Schmidt and Brian Yabur (collectively, “Defendants”)

The Court has considered the moving and opposition papers. No reply has been filed.

This is a wrongful termination action. On June 28, 2024, Plaintiff filed a complaint (the “Complaint’) against Defendants alleging causes of action for: (1) discrimination based on physical disability & medical disability [Gov. Code §§12940, et seq.]; (2) hostile work environment in violation of Gov. Code §§12940, et seq.; (3) retaliation in violation of FEHA - Gov. Code §12940(h), et seq.; (4) retaliation in violation of FEHA - Gov. Code §12940(m)(2), et seq.; (5) failure to prevent discrimination, harassment and retaliation in violation of FEHA - Gov. Code §12940(k), et seq.; (6) harassment on the basis of physical disability and medical disability in violation of FEHA; and (7) wrongful termination in violation of public policy and Gov. Code §§12940, et seq.

On October 16, 2024, Defendants filed the instant motion to compel arbitration (the “Motion”). On January 22, 2025, Plaintiff filed an opposition (the “Opposition”).

The Federal Arbitration Act (“FAA”), while a federal statute, applies in California courts and requires state courts to enforce arbitration agreements as required by the federal common law developed under the FAA. (Southland Corp. v. Keating (1984) 465 U.S. 1, 15-16.) The FAA preempts and invalidates state law and state judicial decisions that disfavor arbitration or require arbitration provisions to pass higher scrutiny. (Southland Corp., supra (1984) 465 U.S. at 12; Perry v. Thomas (1987) 482 U.S. 483, 490.) If the parties designate that the FAA applies, then California arbitration law is preempted. (Rodriguez v. American Techs., Inc. (2006) 136 Cal.App.4th 1110, 1121-1122.)

¿ A court’s inquiry is limited to a determination of (1) whether a valid arbitration agreement exists and (2) whether the arbitration agreement covers the dispute. (9 U.S.C. § 4; Chiron Corp. v. Ortho Diagnostics Systems, Inc. (9th Cir. 2000) 207 F.3d 1126, 1130; Howsam v. Dean Witter Reynolds, Inc. (2002) 537 U.S. 79, 84; Simula, Inc. v. Autoliv, Inc. (9th Cir. 1999) 175 F.3d 716, 720 [if the finding is affirmative on both counts the FAA requires the Court to enforce the arbitration agreement in accordance with its terms]; Lacayo v. Cataline Restaurant Group Inc. (2019) 38 Cal.App.5th 244, 257 [Where moving party meets initial burden, “the party opposing arbitration must prove by a preponderance of the evidence any defense to the petition”].)

The FAA governs all agreements to arbitrate in contracts “involving interstate commerce.” (Higgins v. Superior Court (2006) 140 Cal.App.4th 1238, 1247.) The term “involving” commerce “is broad and is indeed the functional equivalent of “affecting’ commerce.” (Allied-Bruce Terminix Companies, Inc. v. Dobson (1995) 513 U.S. 265, 273-274.) The U.S. Supreme Court has held that this broad interpretation includes employment contracts. (Circuit City Stores v. Adams (2001) 532 U.S. 105, 106.) The defendant bears the burden of proving applicability of the FAA by showing that its activities constitute interstate commerce. (Hoover v. Am. Income Life Ins. Co. (2012) 206 Cal.App.4th 1193, 1207.) Failure to demonstrate that the employment agreement affects interstate commerce renders the FAA inapplicable. (Lane v. Francis Capital Management LLC (2014) 224 Cal.App.4th 676, 687-688.)

“Parties are not required to arbitrate their disagreements unless they have agreed to do so. A contract to arbitrate will not be inferred absent a ‘clear agreement.’ When determining whether a valid contract to arbitrate exists, we apply ordinary state law principles that govern contract formation. In California, a ‘clear agreement’ to arbitrate may be either express or implied in fact.” (Davis v. Nordstrom, Inc. (9th Cir. 2014) 755 F.3d 1089, 1092-93 [applying California law] (internal citations omitted).) In determining the enforceability of an arbitration agreement, the court first considers “two ‘gateway issues’ of arbitrability: (1) whether there was an agreement to arbitrate between the parties, and (2) whether the agreement covered the dispute at issue” (Omar v. Ralphs Grocery Co. (2004) 118 Cal.App.4th 955, 961.) The court is only required to make a finding of the agreement’s existence, not an evidentiary determination of its validity. (Condee v. Longwood Management Corp., supra, 88 Cal.App.4th at p. 219.)

In support of their motion, Defendants attach a copy of the ‘Mutual Binding Arbitration Agreement’ (the “Agreement”) executed by Plaintiff on December 17, 2011. (Evans Decl., Ex. 2.) In relevant portion, the Agreement states “The Employee agrees and acknowledges that the Company and Employee will utilize binding arbitration to resolve all disputes that may arise out of the employment context. Both the Company and Employee agree that any claim, dispute, and/or controversy that either the Employee may have against the Company (or its owners, directors, officers, managers, employees, agents, and parties affiliated with its employee benefit and health plans) or the Company may have against the Employee, arising from, related to, or having any relationship or connection whatsoever with my seeking employment by, or other association with the Company, shall be submitted to and determined exclusively by binding arbitration under the Federal Arbitration Act, and following the procedures of the applicable state arbitration act, if any.” (Evans Decl., Ex. 2, ¶ 2.)

In the Opposition, Plaintiff argues that Defendants have not met their burden to show that the Agreement exists because Plaintiff was not presented with the Agreement until 16 months after he was hired, the declaration from Defendants’ counsel references the Agreement with slight typographical variation from the title of the attached exhibit, and when Defendants first produced Plaintiff’s personnel file, it only included the signature page of the Agreement. (Opp. pp. 6:14-8:21.) Plaintiff contends that he does not recall executing the Agreement, but that the handwritten name, date and signature are written in his handwriting. (Hernandez Decl. ¶¶ 4-5.)

Plaintiff has presented no evidence that his signature is forged or unauthentic. The fact that Plaintiff does not recall signing the Agreement does not afford a basis to find that the Agreement does not exist. (Iyere v. Wise Auto Group (2023) 87 Cal.App.5th 747, 758) Upon review, each of Plaintiff’s causes of action arise from his employment with Defendants and thus are covered by the Agreement. (Compare Compl., with Evans Decl., Ex. 2, ¶ 2.) Accordingly, a valid arbitration agreement exists that covers the dispute at issue.

Under the FAA, a party may challenge the validity or applicability of the arbitration provision by raising the same defenses available to a party seeking to avoid the enforcement of any contract. (Cox v. Ocean View Hotel Corp. (2008) 553 F.3d 1114, 1121.)

“Both procedural unconscionability and substantive unconscionability must be shown [for a finding of unconscionability to exist], but ‘they need not be present in the same degree’ and are evaluated on a ‘sliding scale.’ [Citation.] ‘[T]he 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.” (Pinnacle Museum Tower Assn. v. Pinnacle Market Dev. (US), LLC (2017) 55 Cal.4th 223, 247.)

A party claiming that one or more provisions of an arbitration agreement is unconscionable, must not only prove unconscionability in the abstract, but also show how such unconscionability specifically affects the party’s arbitration claim. (Htay Htay Chin v. Advanced Fresh Concepts Franchise Corp. (2011) 194 Cal.App.4th 704, 714 [partial limitation on award of fees and costs for “all claims” limiting amount to one-third of any compensatory damages awarded may be unconscionable, but is not a defense in the absence of a showing that the party would in fact be entitled to recover attorney’s fees].)

Procedural unconscionability “addresses the circumstances of contract negotiation and formation, focusing on oppression or surprise due to unequal bargaining power.” (Pinnacle Museum Tower Assn., supra, 55 Cal.4th at p. 246.) Established case law explains that “‘[o]ppression’ arises from an inequality of bargaining power which results in no real negotiation and ‘an absence of meaningful choice’ [and] ‘[s]urprise’ involves the extent to which the supposedly agreed-upon terms of the bargain are hidden [in the agreement] by the party seeking to enforce the disputed terms.” (Zullo v. Superior Court (2011) 197 Cal.App.4th 477, 484.)

Plaintiff argues that the Agreement is procedurally unconscionable because it is adhesive, he does not recall being told to take time to review the Agreement, receiving an explanation of the Agreement or being advised to consult an attorney and his primary language is Spanish. (Opp. pp. 10:2-12:7; Garcia Decl. ¶¶ 7, 9, 11) He also argues that the Agreement contains an element of surprise in that it does not specify an arbitration or dispute resolution provider. (Opp. pp. 12:8-13:4.)

Based on the foregoing, there is a medium amount of procedural unconscionability because Plaintiff has shown a contract of adhesion. The Agreements states that employees must agree to arbitration “[a]s a condition of initial employment and/or continued employment.” (Evans Decl., Ex. 2, ¶ 1.) Plaintiff’s other arguments, however, do not show procedural unconscionability. While Plaintiff asserts that he does not recall being instructed to take time for review or receiving an explanation of its terms, he does not claim that he was prevented from doing so or that he requested a Spanish-language version of the Agreement and was denied. The fact that Plaintiff is not fully proficient in reading in English does not provide a basis for invalidating the arbitration agreement. (Caballero v. Premier Care Simi Valley LLC¿(2021) 69 Cal.App.5th 512, 519.)

Overall, the degree of oppression is intermediate. Thus, Plaintiff must show at least a medium, if not strong, degree of substantive unconscionability for the Agreement to be found unenforceable.

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 Servs., Inc. (1999) 70 Cal.App.4th 1322, 1330.)

Plaintiff argues that the Agreement is substantively unconscionable because it requires Plaintiff to bear his own attorney’s fees in an arbitration proceeding, it requires a jury trial waiver as to all matters arising from the employment relationship without qualification and it does not specify the process for initiating arbitration. (Opp. pp. 13:17-15:16.)

The Agreement provides that the arbitration procedures shall apply “[t]o the extent permitted by applicable law” and that by waiving their rights to have the matter heard by a court or jury, “the parties are not waiving any remedy or relief due them under applicable law.” (Evans Decl., Ex. 2, ¶ 3.) Thus, the jury trial waiver is appropriately limited and does not extend to matters that the law mandates be heard outside of arbitration. Plaintiff also does not explain how this provision affects his causes of action in the Complaint. Thus, Plaintiff has not shown substantive unconscionability on this ground.

The Agreement also provides that “[e]ither party may be represented by counsel of their own choosing at their own expense in all stages of the arbitration proceeding.” (Evans Decl., Ex. 2, ¶ 6.) As a provision that would preclude Plaintiff from recovering fees and costs from Defendants if he is the prevailing party, as he would be entitled to under the FEHA, this language is unenforceable. “[A]n arbitration agreement may not limit statutorily imposed remedies such as punitive damages and attorneys fees.” (Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, 103.) Thus, Plaintiff has shown substantive unconscionability on this ground. This provision is severable, however, since this Agreement is not permeated with illegal contract terms, and there is a single provision that this Court can strike to remove the unconscionable taint from the agreement. (Armendariz, supra, (2000) 24 Cal.4th 83 at pp. 123-125.) To avoid any unconscionability, the Court can simply strike the language that each party will bear its own expenses.

Based on the foregoing, Plaintiff has only shown a small degree of substantive unconscionability.

Thus, the Motion is GRANTED. The single provision that “[e]ither party may be represented by counsel of their own choosing at their own expense in all stages of the arbitration proceeding” is stricken.

Defendants’ Motion to Compel Arbitration is GRANTED. This action is stayed pending completion of arbitration. A Status Conference re arbitration is set for November 4, 2025 at 8:30 a.m. The parties are ordered to file a Joint Status Conference Report re Arbitration at least 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