Judge Jill Feeney, Case Number: 23STCV16876, Date: 2023-12-01 Tentative Ruling

This is an action for discrimination, harassment, retaliation, failure to provide reasonable accommodation, failure to engage in the interactive process, failure to prevent discrimination, breach of contract, negligent hiring, wrongful termination, and intentional infliction of emotional distress. Plaintiff alleges that she was employed at EWB Bank (“EWB”). Plaintiff was diagnosed with Hodgkin’s Lymphoma in October 2017 and went on disability leave to receive treatment. In 2019, an HR representative contacted Plaintiff and demanded a return date. The representative promised a position would be available for her when she returned to work. After receiving clearance to return to work in 2020, Plaintiff was informed that her position had been filled and she was no longer employed at EWB. EWB agreed to allow Plaintiff to transfer to another location if she completed an interview process. A regional manager, Renee Chang, disapproved of Armenian employees, made racial comments, and singled out Chinese customers. Chang refused to fire another employee for using pre-signed bank wire forms. An internal investigator then began inquiring as to why Plaintiff failed to file a suspicious activity report. In July 2021, Plaintiff went on maternity leave. During maternity leave, Chang informed Plaintiff that she had been terminated. Plaintiff was later informed that bank positions were filled with younger Chinese employees.

California law reflects a strong public policy in favor of arbitration as a relatively quick and inexpensive method for resolving disputes. To further that policy, California Code of Civil Procedure section 1281.2 requires a trial court to enforce a written arbitration agreement unless one of three limited exceptions applies. Those statutory exceptions arise where (1) a party waives the right to arbitration; (2) grounds exist for revoking the arbitration agreement; and (3) pending litigation with a third party creates the possibility of conflicting rulings on common factual or legal issues.” (Acquire II, Ltd. v. Colton Real Estate Group (2013) 213 Cal.App.4th 959, 967 [citations omitted]; Code Civ. Proc. § 1281.2.)

In deciding a petition to compel arbitration, trial courts must decide first whether an enforceable arbitration agreement exists between the parties, and then determine the second gateway issue whether the claims are covered within the scope of the agreement. (Omar v. Ralphs Grocery Co. (2004) 118 Cal.App.4th 955, 961.) The party seeking arbitration has the “burden of proving the existence of a valid arbitration agreement by a preponderance of the evidence, while a party opposing the petition bears the burden of proving by a preponderance of the evidence any fact necessary to its defense.” (Ruiz v. Moss Bros. Auto Group, Inc. (2014) 232 Cal.App.4th 836, 842.) The trial court “sits as the trier of fact, weighing all the affidavits, declarations, and other documentary evidence, and any oral testimony the court may receive at its discretion, to reach a final determination.” (Id.) General principles of contract law govern whether parties have entered a binding agreement to arbitrate. (Pinnacle Museum Tower Assn. v. Pinnacle Market Development (US), LLC (2012) 55 Cal.4th 223, 236; see also Winter v. Window Fashions Professions, Inc. (2008) 166 Cal.App.4th 943, 947.)

Whether there is a written agreement to arbitrate is a matter of contract, and courts must enforce arbitration contracts according to their terms. (Banc of California, National Association v. Superior Court of Los Angeles County (2021) 69 Cal.App.5th 357, 366.) A party cannot be required to submit to arbitrate any dispute to which he has not agreed to arbitrate. (Id.)

A contract is not formed without mutual assent. (Civ. Code, §§ 1550, 1565.) However, “[t]he existence of mutual assent is determined by objective criteria, not by one party’s subjective intent. The test is whether a reasonable person would, from the conduct of the parties, conclude that there was a mutual agreement.” (Marin Storage & Trucking, Inc. v. Benco Contracting and Engineering, Inc. (2001) 89 Cal.App.4th 1042, 1050)

A nonsignatory may also be compelled to arbitrate a dispute when the nonsignatory is a third-party beneficiary of the contract containing the arbitration agreement. (See Epitech, Inc. v. Kann (2012) 204 Cal.App.4th 1365, 1371.) A nonsignatory must be determined to be a third-party beneficiary in order to be bound by the arbitration agreement. (See id.) The contract must show an intent by the contracting parties to confer a benefit on the third party. (Id. at 1372.) “‘[I]t is not enough that the third party would incidentally have benefited from performance.’” (Id. (quoting Souza v. Westlands Water Dist. (2006) 135 Cal.App.4th 879, 891).)

“Where resolution cannot be achieved through the Bank’s internal resources, Employee and the Bank mutually agree to submit claims covered by the Agreement exclusively to final and binding arbitration rather than to a judge or jury in court. Arbitration is the process by which a neutral third party makes a binding decision relating to a dispute.

This Agreement is a condition of employment with the Bank. If Employee accepts or continues employment with the Bank, both Employee and the Bank will be bound by its terms. Both the Bank and Employee understand that by using arbitration to resolve disputes they are giving up any right that they may have to a judge or jury trial with regard to all claims covered by this Agreement.

…Employee and the Bank agree to resolve, through final and binding arbitration, any disputes, claims, or causes of action, which could otherwise be raised in court, whether legal or equitable (collectively, “claims”) that relate in any way to Employee’s association or employment relationship with the Bank that Employee may have against the Bank and/or its or their present and former officers, directors, agents, and employees or that the Bank may have against Employee. The claims covered by this Agreement include, but are not limited to, claims arising out of Employee’s application for employment or hiring, claims relating to the terms and conditions of employment, claims for breach of any contract or covenant (express or implied), tort claims, wage and other compensation claims, misappropriation of trade secrets, unfair competition, violation of public policy, wrongful termination, claims related to leaves of absence, claims for discrimination…claims for unlawful retaliation, claims for violation of any federal, state, or other governmental law, statute, regulation, or ordinance, including, but not limited to, all claims arising under Title VII of the Civil Rights Act of 1969, the Age Discrimination in Employment Act of 1967, the Americans With Disabilities Act, the Family and Medical Leave Act, the Rehabilitation Act of 1973, the Equal Pay Act, the Fair Credit Reporting Act, the Pregnancy Discrimination Act, the Worker Adjustment and Retraining Notification Act, the Fair Labor Standards Act, the Consolidated Omnibus Budget Reconciliation Act of 1985, Employee Retirement Income Security Act, any other federal, state, or local law, ordinance or regulation relating to the employment relationship…”

EWB’s Global Chief Information Security Officer of Financial Services & Banking, Matt Fearin, testifies that US-based employees are limited to accessing EWB’s systems when they are either logged into their individual employee profile using an EWB-issued computer, on-site bank computer, or through EWB’s Virtual Private Network (“VPN”). (Fearin Decl., ¶3.) Employees access the on-site bank computer by entering a unique username and password. (Id.) Employees access the bank VPN using a multi-factor authentication (“MFA”) process requiring the employees to enter a unique username and password and complete a second method of authentication via text message, mobile application, or mobile application challenge. (Id., ¶¶3-4.) Employees use a training platform called Cornerstone, which must also be accessed via a unique username and password. (Id., ¶3.) On January 11, 2021, EWB rolled out an updated employee handbook and a copy of the arbitration agreement to all US-based employees. (Id., ¶6.) The arbitration agreement was placed in Plaintiff’s Cornerstone account on January 11, 2021 and Plaintiff was given a deadline of March 12, 2021 to review and acknowledge the documents. (Id., ¶6.) A backend report generated by the Cornerstone platform shows Plaintiff acknowledged receipt and acceptance of the arbitration agreement and employee handbook on January 22, 2021. (Id.)

EWB’s First Vice President and Employee Services Manager, Peggy Chiang, testifies that the Cornerstone platform is only available if an employee is working on-site or through the VPN. (Chiang Decl., ¶5.) Chiang reiterates that the Cornerstone records show Plaintiff accessed the updated employee handbook and arbitration agreement on January 22, 2021. (Id., ¶9.)

“An electronic record or electronic signature is attributable to a person if it was the act of the person. The act of the person may be shown in any manner, including a showing of the efficacy of any security procedure applied to determine the person to which the electronic record or electronic signature was attributable.” (Civ. Code, § 1633.9, subd. (a).) “The effect of an electronic record or electronic signature attributed to a person under subdivision (a) is determined from the context and surrounding circumstances at the time of its creation, execution, or adoption, including the parties' agreement, if any, and otherwise as provided by law.” (Id., subd. (b).)

A signature is not required to demonstrate express acceptance of an arbitration agreement. (Pinnacle Museum Tower Ass’n v. Pinnacle Market Dev. (US), LLC (2012) 55 Cal.4th 223, 23.) A party’s acceptance of an agreement to arbitrate may also be implied in fact. (Id at p. 236.) For example, an employee’s continued employment constitutes acceptance of an arbitration agreement proposed by an employer. (Craig v. Brown & Root, Inc. (2000) 84 Cal.App.4th 416, 422.) Courts have also found express acceptance where an arbitration agreement states that an employee who commences or continues employment consents to an arbitration agreement. (Harris v. TAP Worldwide, LLC (2016) 248 Cal.App.4th 373, 381.) (“Harris”)

Here, EWB’s evidence shows that Plaintiff acknowledged an updated employee handbook on January 22, 2021 which contained an arbitration agreement beginning on page 148 of the handbook. Because the handbook was acknowledged on a secure employee training portal which require a VPN or bank computer and unique login credentials, EWB provides sufficient evidence of security measures applied which confirm that the electronic record of the acknowledgement was attributable to Plaintiff. The arbitration agreement specifies that if an employee commences or continues employment, the employee and EWB would be bound by the terms of the agreement. Plaintiff does not dispute that she continued to be employed by EWB after acknowledging the employee handbook in January 2021 until her termination sometime after July 2021.

Plaintiff argues that no valid contract was ever formed because Defendants failed to establish the authentication of Plaintiff’s electronic acceptance of the arbitration agreement. Specifically, Plaintiff alleges that she never signed the agreement, and that the acknowledgement of the agreement is not even contained in the document itself. However, a signature is not required to show consent. Harris is directly on point here because the arbitration agreement there was also presented to an employee in an employee handbook. (Harris at p.381.) The agreement there contained substantially similar language stating an employee’s continued employment constituted consent to the agreement. (Id.) The court there found that the employee consented to arbitrate his claims when he continued working for his employer.

Plaintiff cites Mitri v. Arnel Management Co., (2007) 157 Cal. App. 4th 1164 and argues that signing acknowledgment of receipt of an employee handbook is not sufficient to demonstrate that an agreement exists. However, Mitri is distinguishable because it involves different facts. There, the employee handbook referred to a separate arbitration agreement which was supposed to have been transmitted separately to the employee. Thus, the evidence there showed that the parties intended to execute a separate arbitration agreement and acknowledgement of the handbook was not intended to constitute an arbitration agreement. Although Plaintiff argues that the court in Mitri rejected the argument that continued employment constituted acceptance of the agreement, the court only rejected the argument because the express terms of the employee handbook required a separate, signed arbitration agreement.

The doctrine of unconscionability refers to “an absence of meaningful choice on the part of one of the parties together with contract terms which are unreasonably favorable to the other party.”¿¿(Sonic-Calabasas A, Inc. v. Moreno (2013)¿57 Cal.4th 1109, 1133.) It consists of procedural and substantive components, “the former focusing on oppression or surprise due to unequal bargaining power, the latter on overly harsh or one-sided results.”¿¿Id.¿ Although both components of unconscionability must be present to invalidate an arbitration agreement, they need not be present to the same degree.¿(Armendariz v. Found. Health¿Psychcare¿Servs., Inc. (2000)¿24 Cal.4th 83, 114 (abrogated in-part on other grounds by¿Concepcion, 563 U.S. 333).)¿¿¿

“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.¿ [Citations.]¿ In other words, the more substantively unconscionable the contract term, the less evidence of procedural unconscionability is required to come to the conclusion that the term is unenforceable, and vice versa.”¿¿(Id.) “The party resisting arbitration bears the burden of proving unconscionability.”¿(Pinnacle Museum Tower¿Ass’n¿v. Pinnacle Market Dev. (US) (2012) LLC,¿55 Cal.4th 223, 247.¿

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.’ ‘Oppression’ arises from an inequality of bargaining power which results in no real negotiation and ‘an absence of meaningful choice.’ ‘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.” (Zullo v. Superior Court (2011) 197 Cal.App.4th 477, 484.) “The circumstances relevant to establishing oppression include, but are not limited to (1) the amount of time the party is given to consider the proposed contract; (2) the amount and type of pressure exerted on the party to sign the proposed contract; (3) the length of the proposed contract and the length and complexity of the challenged provision; (4) the education and experience of the party; and (5) whether the party's review of the proposed contract was aided by an attorney.”¿¿(Grand Prospect Partners, L.P. v. Ross Dress for Less, Inc.¿(2015) 232 Cal.App.4th 1332, 1348, fn. omitted.)¿

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.)

Here, the arbitration agreement was a contract of adhesion because the agreement allowed Plaintiff to either adhere to it by continuing employment or rejecting it by ceasing employment. However, the arbitration agreement was not concealed and was clearly delineated with bold text and headings. Thus, the arbitration agreement has some degree of procedurally unconscionability.

An agreement is substantively unconscionable if it imposes terms that are “overly harsh,” “unduly oppressive,” “unreasonably favorable,” or “so one-sided as to ‘shock the conscience.’”¿(Sanchez v. Valencia Holding Co., LLC¿(2015) 61 Cal.4th 899, 910-911¿(Sanchez).)¿“All of¿these formulations point to the central idea that unconscionability doctrine is concerned not with ‘a simple old-fashioned bad bargain’ [citation], but with terms that are ‘unreasonably favorable to the more powerful party.’ [Citation.]”¿(Id. at p. 911.)¿“These include ‘terms that impair the integrity of the bargaining process or otherwise contravene the public interest or public policy; terms (usually of an adhesion or boilerplate nature) that attempt to alter in an impermissible manner fundamental duties otherwise imposed by the law, fine-print terms, or provisions that seek to negate the reasonable expectations of the¿nondrafting¿party, or unreasonably and unexpectedly harsh terms having to do with price or other central aspects of the transaction.’ ”¿(Id. at p. 911.)

Here, Plaintiff argues that the agreement is substantively unconscionable because there is a lack of mutuality. Plaintiff cites Davis v. TWC Dealer Group, Inc. (2019) 41 Cal.App.5th 662, 674. Davis involved an arbitration agreement that was only signed by one party and only bound one party to the agreement. Here, unlike Davis, the arbitration agreement provides that both employees and EWB would be bound by the agreement if the employee commences or continues employment. Thus, there is mutuality because EWB is bound by the agreement.

The arbitration agreement provides that arbitration would be conducted under the American Arbitration Association’s national rules for the resolution of employment disputes or, if there is no AAA office, according to the rules and procedures of the Judicial Arbitration Mediation Service’s employment arbitration rules and procedures. (Chiang Decl., Exh A, p. 149.) The rules are linked in the agreement or are available through EWB’s Human Resources department. (Id.) Arbitration would proceed before a single arbitrator who may be informally chosen by the parties or as provided in the agreement. (Id., p. 150.) Both parties had the right to discovery and were required to exchange witnesses before arbitration. (Id.) EWB was required to pay all arbitration fees, except for a filing fee (equivalent to that incurred for filing a case in court) unless payment of the filing fee would cause financial hardship to the employee.(Id.)

Finally, Plaintiff argues that the motion to compel arbitration must be denied with respect to Defendants EWB Bancorp, Inc. (“Bancorp”) and Renee Chang since these defendants are not signatories to the agreement. Plaintiff argues that therefore arbitration should be denied as to all parties. The Court ordered supplemental briefing on this issue on December 1, 2023.

Here, two nonsignatory Defendants seek to enforce the arbitration agreement against Plaintiff. One of these defendants, Renee Chang, is an employee in the supervisory chain of Defendant EWB and was at the time of the events at issue here a Regional Manager over the EWB Glendale location where Plaintiff worked. The other nonsignatory defendant EWB Bancorp, Inc. is the parent corporation of EWB. EWB is wholly owned by EWB Bancorp, Inc.

Plaintiff brings 12 causes if action: (1) discrimination in violation of FEHA; (2) hostile work environment in violation of FEHA; (3) retaliation in violation of FEHA; (4) failure to provide reasonable accommodation in violation of FEHA; (5) failure to engage in the interactive process in violation of FEHA; (6) failure to prevent discrimination, harassment or retaliation in violation of FEHA; (7) breach of express oral contract not to terminate employment without good cause; (8) breach of implied in fact contract not to terminate employment without good cause; (9) negligent hiring, supervision and retention; (10) wrongful termination of employment in violation of public policy; (11) whistleblower retaliation; and (12) intentional infliction of emotional distress. (Complaint.)