Judge Holly J. Fujie, Case Number: 24STCV20715, Date: 2024-11-25 Tentative Ruling

On September 18, 2024, Defendant filed the instant motion to compel arbitration and stay proceedings (the “Motion”). On November 12, 2024, Plaintiff filed an opposition. On November 13, 2024, Plaintiff filed a notice of errata with an amended opposition. On November 18, 2024, Defendant filed a reply.

In support of the Motion, Defendant submits the declarations of Rafael Gonzalez and Mark Maynard with accompanying exhibits. Plaintiff objects to portions of Mark Maynard’s declaration. The Court rules as follows:

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 v. Keating (1984) 465 U.S. 1, 15-16; Broughton v. Cigna Healthplans (1999) 21 Cal.4th 1066, 1074-78, superseded by statute on another ground as stated in Ferguson v. Corinthian Colleges, Inc. (9th Cir. 2013) 733 F.3d 928, 937.).) 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, at p. 12; Perry v. Thomas (1987) 482 U.S. 483, 490.) If the parties designate the FAA applies, then California arbitration law is preempted. (Rodriguez v. American Techs., Inc. (2006) 136 Cal.App.4th 1110, 1121-1122.) Courts have found that where the FAA is found not to apply, the California Arbitration Act (Code Civ. Proc. § 1280 et seq.) applies. (Valencia v. Smyth (2010) 185 Cal.App.4th 153, 178.)

¿ 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].) 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.) Where the moving party meets that initial burden, “the party opposing arbitration must prove by a preponderance of the evidence any defense to the petition.” (Lacayo v. Cataline Restaurant Group Inc. (2019) 38 Cal.App.5th 244, 257.)

Moreover, the general rule is that 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. (See 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; Woolls v. Superior Court (2005) 127 Cal.App.4th 197, 212.)

“Parties are not required to arbitrate their disagreements unless they have agreed to do so. [Citation.] A contract to arbitrate will not be inferred absent a ‘clear agreement.’ [Citation.] When determining whether a valid contract to arbitrate exists, we apply ordinary state law principles that govern contract formation. [Citation] In California, a ‘clear agreement’ to arbitrate may be either express or implied in fact. [Citation.]” (Davis v. Nordstrom, Inc. (9th Cir. 2014) 755 F.3d 1089, 1092-93 [applying California law].) 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. (2001) 88 Cal.App.4th 215, 219.)

In support of its Motion, Defendant attaches the Arbitration Agreement executed by Plaintiff on September 22, 2020. (Maynard Decl., Ex. A [PathPoint’s Path to Resolution, Conciliation, Mediation & Arbitration Resolution Agreement and Class Action Waiver (the “Arbitration Agreement”).].) Defendant attaches a declaration from Mark Maynard, Chief People Officer for PathPoint since February 2019, which explains the process by which Plaintiff signed the Arbitration Agreement. (Maynard Decl., ¶ 6.) Plaintiff does not dispute the existence of the document.

“[T]he decision as to whether a contractual arbitration clause covers a particular dispute rests substantially on whether the clause in question is ‘broad’ or ‘narrow.’” (Bono v. David (2007) 147 Cal.App.4th 1055, 1067.) “‘A “broad” clause includes those using language such as “any claim arising from or related to this agreement”‘ [Citation] or ‘arising in connection with the [a]greement’ [Citation.]” (Rice v. Downs (2016) 248 Cal.App.4th 175, 186 [italics omitted].) “But clauses requiring arbitration of a claim, dispute, or controversy ‘arising from’ or ‘arising out of’ an agreement, i.e., excluding language such as ‘relating to this agreement’ or ‘in connection with this agreement,’ are ‘generally considered to be more limited in scope than would be, for example, a clause agreeing to arbitrate “‘any controversy … arising out of or relating to this agreement[.]’” [Citations.]” (Id. at p. 186-87 [italics omitted].) “Several Ninth Circuit cases have held that agreements requiring arbitration of ‘any dispute,’ ‘controversy,’ or ‘claim’ ‘arising under’ or ‘arising out of’ the agreement are intended to encompass only disputes relating to the interpretation and performance of the agreement.” (Id. at p. 187.)

Here, the Arbitration Agreement states in relevant part: “Except as otherwise provided in this Resolution Agreement, PathPoint and I mutually agree that all legal disputes arising out of, or related directly or indirectly to, my employment relationship with, or the termination of my employment by, PathPoint shall be resolved only by final and binding arbitration and not by way of court or jury trial. Covered claims include any claim that may be legally compelled to arbitration, including, but not limited to, disputes concerning any or all of the following: […] termination, discrimination, harassment, retaliation and claims arising under state and federal statutes…” (Maynard Decl., Ex. A, Arbitration Agreement, § 4(a).) Plaintiff’s Complaint alleges causes of action for retaliation, discrimination, and harassment in violation of FEHA, failure to prevent discrimination, harassment, and retaliation in violation of FEHA, violation of Labor Code section 1102.5, and wrongful termination. (Compl.) Thus, the Arbitration Agreement encompasses each of the Complaint’s causes of actions as described above.

A motion to compel arbitration based on the FAA must show not only that that the employer engaged in interstate commerce but also that “the employment relationship involved interstate commerce.” (Lane, supra, 224 Cal.App.4th at pp. 687-688.) Courts have found that where the FAA is found not to apply, the California Arbitration Act (Code Civ. Proc. § 1280 et seq.) applies. (Valencia, supra, 185 Cal.App.4th at p. 178.)

The Arbitration Agreement states that it “is an arbitration agreement governed by the Federal Arbitration Act, 9 U.S.C. sections 1 et seq., and evidences a transaction involving commerce.” (Maynard Decl., Ex. A, Arbitration Agreement, § 4.) Defendant further states that it receives federal funding which is used in part for staff compensation. (Mot., p. 5:14-16.) Plaintiff does not oppose applicability of the FAA.

Thus, Defendant has established that a valid arbitration agreement exists between the parties which encompasses the causes of action alleged in the Complaint. The burden thus shifts to Plaintiff to prove by a preponderance of the evidence any defenses to this Motion.

Under general contract principles, an agreement is unenforceable if it is unconscionable. “‘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.’ [Citation] 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] In other words, 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 v. Foundation Health Psychcare Services, Inc.¿(2000) 24 Cal.4th 83, 114.)

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 Arbitration Agreement is oppressive because it is a contract of adhesion. She argues that the Arbitration Agreement is a “standardized and pre-printed agreement which she had no opportunity to negotiate.” (Opp., p. 12:25-26.) She further argues that the Agreement is oppressive because she could not risk losing her employment or upsetting Defendant by not signing the Arbitration Agreement. (Opp., pp. 12:26-13:3.)

Defendant argues that the Arbitration Agreement was not procedurally unconscionable because it is a straightforward four-page document, and Plaintiff had the opportunity and time to ask questions and review the document prior to signing. (Mot., pp. 7-25-8:2; Maynard Decl., ¶ 6.) Defendant notes that “PathPoint employees were invited to participate in Town Hall meetings via Zoom for discussions on the topic of the arbitration process. Two California arbitrators attended two of these Town Hall meetings to participate in discussions.” (Maynard Decl., ¶ 6:4-7.) Defendant further notes that “Plaintiff had the Agreement from August 19, 2020, until she executed it and returned it on September 11, 2020.” (Maynard Decl., ¶ 6:10-11.)

Based on the above, there is a small amount of procedural unconscionability because Plaintiff has shown a contract of adhesion. The degree of oppression is low, however, because Plaintiff was given opportunities to discuss the Arbitration Agreement prior to signing and she had approximately 3 weeks to review the document. (Maynard Decl., ¶.) Thus, Plaintiff must show a strong degree of substantive unconscionability for the Arbitration 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.)

First, Plaintiff argues that the Arbitration Agreement is substantively unconscionable because it “requires the parties to initiate the employer-controlled “conciliation process” prior to initiating mediation or arbitration.” (Opp. p. 13:22-23.) She argues that the process is one-sided because it “is intended to apply to employee grievances, but not those of Defendant” and further “requires employees to first escalate their concerns to their immediate supervisors and HR Representatives (both of whom are still employees and/or agents of Defendant) rather than providing employees with the opportunity to directly report their grievances to an unbiased third-party.” (Opp., p. 14:6, 21-24.)

Defendant argues that the Arbitration Agreement is not substantively unconscionable because it satisfies the Armenderiz fairness requirements. (Mot. pp. 8:19-9:25; Armenderiz, supra, 24 Cal.4th at 102-114, 117-118.) Defendant also argues that the Arbitration Agreement is not one-sided because it applies to claims by both employees and employer. (Reply pp. 6:10-7:5; Maynard Decl., Ex. A, Arbitration Agreement, §§ 1, 4.)

Upon review, the terms of the Arbitration Agreement are not unilateral. In the Agreement, both employee and employer agree to resolve their respective disputes through arbitration. (Maynard Decl., Ex. A, Arbitration Agreement, §§ 1, 4.) Plaintiff’s assertion that the Agreement is unconscionable because it requires her to first participate in internal complaint procedures does not indicate a high degree of substantive unconscionability. The internal “conciliation process” is minimal, and the employee is permitted to bypass the process depending on the nature of the complaint, such as for discrimination, harassment, and retaliation. (Maynard Decl., Ex. A, Arbitration Agreement, § 2.) Further, as Defendant indicates in the reply, Plaintiff did bypass the conciliation process in this case, and Defendant has never sought to enforce it. (Reply, p. 14:14.)

Second, Plaintiff argues that the confidentiality provision in the Arbitration Agreement is unconscionable because it is excessively overbroad. The relevant provision states in full: “Except as may be permitted or required by law, as determined by the Arbitrator, neither a party nor an Arbitrator may disclose the existence, content, or results of any arbitration hereunder without the prior written consent of all parties.” (Maynard Decl., Ex. A, Arbitration Agreement, § 4(g).) Plaintiff relies on Hasty v. American Automobile Assn. (2024) 98 Cal.App.5th 1041, for her argument that this provision is unconscionable. The confidentiality provision in Hasty applied to “any and all disputes, claims, or causes of action, in law or equity, arising from or relating to [e]mployee’s employment or the termination of [e]mployee’s employment, including but not limited to statutory, contractual and other claims…” (Hasty, supra, 98 Cal.App.5th at 1061.) The provision in the Arbitration Agreement here is readily distinguishable because it applies only to the arbitration, and not all disputes and claims, and gives the arbitrator authority to determine the permitted scope of disclosure. Thus, the confidentiality language does not indicate a high degree of substantive unconscionability.

Plaintiff is correct that a provision that would automatically require Plaintiff to bear Defendant’s attorney’s fees and costs if Defendant is the prevailing party violates the FEHA. (Gov. Code § 12965 subd. (c)(6).) Thus, Plaintiff has shown substantive unconscionability on this ground. This provision is severable, however, since the Arbitration 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, at pp. 123-125.)

Lastly, Plaintiff argues that although she stipulated to arbitration for her class action and PAGA claims in a separate action arising from her employment with Defendant, she did not waive her right to a jury trial in this action through that stipulation. (Opp. pp. 18:1-15.) The Court notes that the determination on this motion to compel arbitration is based solely on the discussion above, and not on any stipulations made in a separate action.

Based on the foregoing, Plaintiff has only shown a small degree of procedural and substantive unconscionability in the agreed-upon arbitration process. Accordingly, Defendant’s motion to compel arbitration is GRANTED. The single sentence “Each party will pay his, her or its own attorneys' fees and litigation costs, although the Arbitrator shall make an award of reasonable attorneys’ fees and litigation costs (not to exceed actual attorneys’ fees and costs incurred) to the prevailing party in the arbitration” is stricken.

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