Judge: Jon R. Takasugi, Case: 22STCV36758, Date: 2023-03-01 Tentative Ruling

Case Number: 22STCV36758    Hearing Date: March 1, 2023    Dept: 17

Superior Court of California

County of Los Angeles

DEPARTMENT 17

TENTATIVE RULING

Defendant’s motion to compel arbitration is GRANTED, and this proceeding is stayed pending the completion of arbitration. The statute of limitations provision is ordered severed from the agreement.

            On 11/21/2022, Plaintiff Susan Rebecca Lloyd (Plaintiff) filed suit against Alo House Holdings, LLC and Acadia Malibu, Inc. (collectively, Defendants), alleging: (1) disability and perceived disability discrimination; (2) retaliation; (3) failure to prevent and/or investigate; (4) failure to provide accommodation; (5) failure to engage in the interactive process; (6) wrongful termination; and (7) declaratory and injunctive relief.

            Now, Defendants move to compel arbitration of Plaintiff’s Complaint, and a stay of proceedings pending arbitration.

Legal Standard

Where the Court has determined that an agreement to arbitrate a controversy exists, the Court shall order the petitioner and the respondent to arbitrate the controversy …unless it determines that…  grounds exist for rescission of the agreement.” (Code Civ. Proc., § 1281.2.) Among the grounds which can support rescission are fraud, duress, and unconscionability. (Tiri v. Lucky Chances, Inc. (2014) 226 Cal.App.4th 231, 239.) The Court may also decline to compel arbitration wherein there is possibility of conflicting rulings on a common issue of law or fact. (Code Civ. Proc., § 1281.2 (c).)

Discussion

I.                   Defendants’ Burden

The party moving to compel arbitration “bears the burden of proving [the] existence [of an arbitration agreement] by a preponderance of the evidence.” (Rosenthal v. Great Western Fin. Securities Corp. (1996) 14 Cal.4th 394, 413.) The moving party also bears the burden of demonstrating that the claims fall within the scope of the arbitration agreement. (Omar v. Ralphs Grocery Co. (2004) 118 Cal.App.4th 955, 961.)

A.    Existing Agreement

Here, Defendants presented evidence that on 5/19/2021, Plaintiff, a former employee of Defendant Acadia Malibu, Inc. (Acadia) signed both an arbitration agreement and an Acadia offer letter which acknowledged the arbitration agreement. (Valentine Decl., Exhs, 1, 2.)

In opposition, Plaintiff does not dispute signing the agreement. Rather, she argues that the agreement is invalid under Labor Code section 432.6(a)(h) which prevents employers from requiring current or future applicants to sign arbitration agreements as a condition of employment, continued employment or the receipt of any employment-related benefit. However, this provision is the subject of ongoing litigation. The 9^th Circuit previously upheld the law in Chamber of Commerce of the United State of America v. Bonta, thereby terminating the district court’s injunction prohibiting enforcement. However, on 8/22/2022, the 9^th Circuit withdrew the Bonta opinion. While this has created uncertainty, the preliminary injunction blocking the law will presumably once again take effect while the panel reconsiders its decision.  As such, in light of the injunction blocking the law, this Court is unable to invalidate this arbitration agreement based on Labor Code section 432.6(a)(h).

Plaintiff also argues that the agreement is invalid because it is not supported by lawful consideration. However, Plaintiff does not cite a any caselaw wherein an employer-employee arbitration agreement such as the one here was invalidated on the grounds that it was not supported by legally sufficient consideration.

            Based on the foregoing, the Court concludes that an arbitration agreement exists between the parties.

B.    Covered Claims

Here, the arbitration agreement provides:

The parties to this Agreement agree to arbitrate any and all disputes, claims, or controversies (‘claims’) they may have against each other, including their current and former agents, owners, officers, directors, or employees, which arise from the employment relationship between Employee and Employer or the termination thereof. Claims covered by this Agreement include, but are not limited to: claims of employment discrimination, retaliation, and harassment under Title VIl of the Civil Rights Act, as amended; the California Fair Employment & Housing Act; the Age Discrimination in Employment Act, as amended; the Americans with Disabilities Act; 42 U.S.C. § 1981; the Employment Retirement Income Security Act; the California Labor Code, including any claims brought by the Employee related to wages; breach of employment contract or the implied covenant of good faith and fair dealing; wrongful discharge; or tortious conduct (whether intentional or negligent) including defamation, misrepresentation, fraud, infliction of emotional distress, but excluding claims for workers' compensation benefits to remedy work-related injury or illness. The parties understand and agree that they are waiving their right to bring such claims to court, including the right to a jury trial.

(Valentine Decl., Exh. 1.)

Plaintiff’s seven causes of action arise out of the employment relationship, and thus fall within the scope of the arbitration agreement.

Given that Defendants have established by a preponderance of the evidence that an arbitration agreement exists, and that Plaintiff’s claims are covered by that agreement, the burden shifts to the Plaintiff to establish that the arbitration clause should not be enforced. (Pinnacle Museum Tower Assn. v. Pinnacle Market Development (US), LLC (2012) 55 Cal.4th 223, 236. (Pinnacle).)

II.               Plaintiff’s Burden

The party opposing arbitration bears the burden of proving, by a preponderance of the evidence any defense, such as unconscionability or duress. (Pinnacle, supra, 55 Cal.4th at p. 236.) Here, Plaintiff argues the arbitration agreement is invalid because it is unconscionable.

“Unconscionability has both procedural and substantive elements. Although both must appear for a court to invalidate a contract or one of its individual terms, they need not be present in the same degree: ‘[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.’”  (Roman v. Superior Court (2009) 172 Cal.App.4th 1462, 1469. (Roman).) Where the degree of procedural unconscionability is low, “the agreement will be enforceable unless the degree of substantive unconscionability is high.” (Ajamian v. CantorCO2e (2012) 203 Cal.App.4th 771, 796 (Ajamian).)

A.    Procedural Unconscionability

“Procedural unconscionability focuses on the elements of 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 terms of the bargain are hidden in a ‘prolix printed form’ drafted by a party in a superior bargaining position.’” (Roman, supra, 172 Cal.App.4th at p. 1469.)

            Plaintiff argues that the arbitration agreement is procedurally unconscionable because: (1) it is an adhesion contract; (2) it doesn’t incorporate the applicable rules; and (3) the agreement was presented along with a stack of other documents before her shift.

I.                   Adhesion Contract

Where employment adhesion contracts are involved, a degree of procedural unconscionability is always present. This is because, “the arbitration agreement stands between the employee and necessary employment, and few employees are in a position to refuse a job because of an arbitration agreement.” (Little v. Auto Stiegler, Inc. (2003) 29 Cal.4th 1064, 1071 (Little).)  However, where “there is no other indication of oppression or surprise, the degree of procedural unconscionability of an adhesion agreement is low, and the agreement will be enforceable unless the degree of substantive unconscionability is high.” (Ajamian, supra, 203 Cal.App.4th at p. 796.)

Therefore, while Plaintiff is correct that including the arbitration clause within a contract of adhesion indicates a degree of procedural unconscionability, there must be other indications of oppression or surprise to render the agreement unenforceable. (Little, supra, 29 Cal.4th at p.1071; Ajamian, supra, 203 Cal.App.4th at p. 796.)

II.                Copy of the Arbitration Rules

As additional evidence of procedural unconscionability, Plaintiff points to Defendants’ failure to attach a copy of the applicable rules to the Arbitration Agreement. Plaintiff also notes that the link to the rules provided in the agreement is broken. However, the arbitration agreement clearly states that arbitration is according to the rules of the AAA. As such, Plaintiff is in possession of all necessary facts to locate the applicable rules online. While the broken link impedes this process, arbitration agreements need not provide a direct url link. Rather, it is sufficient that an agreement indicate where the rules may be accessed. Thus, while the agreement does not include the rules, it provides information from which the rules could have been accessed and reviewed. 

Without more, the Court concludes that Defendants’ failure to directly attach a copy of the applicable arbitration rules or include a viable direct link to the rules does not amount to procedural unconscionability.

III.             Presentation of Agreement

Plaintiff argues that the agreement was procedurally unconscionable because “Plaintiff was rushed to sign the arbitration provision, which was buried in a stack of 50 other pages, along with over 20 other signatures, before she began her shift on her first day of work, at 6:00 AM.” (Opp., 10: 13-15.)

            However, Plaintiff does not state that she was actually deprived an opportunity to review the documents, that she asked for more time to review the documents, or that she was misled as to the contents of the document. Moreover, the agreement was presented in a pre-employment context.

As such, the circumstances in which Plaintiff signed are markedly different from those presented in a case like OTO, L.L.C., v. Kho (2019) 447 P.3d 680, 720. In OTO, the court found evidence of “substantial oppression” where the plaintiff, who did not speak English as a first language, was approached at his workstation by a human resources “porter” three years after beginning his employment, and “asked him to sign several documents. [Plaintiff] was required to sign them immediately and returned them to the porter, who waited in the workstation.” The Court note that , the economic pressure to accept an arbitration to keep one’s job is far greater than in a pre-employment context because “[e]mployees who have worked in a job for a substantial length of time have likely come to rely on the benefits of employment. For many, the sudden loss of a job may create major disruptions, including abrupt income reduction and an unplanned reentry into the job market.” (Id. at p. 727.) 

Because Plaintiff has shown no other indication of oppression or surprise outside of the existence of an employment adhesion agreement, the agreement will be enforceable unless Plaintiff can demonstrate a high degree of substantive unconscionability. (Ajamian, supra, Cal.App.4th at p. 796.)

B.    Substantive Unconscionability

Plaintiff argues that the agreement is substantively unconscionable because it: (1) improperly allocates costs of arbitration; (2) limits available remedies; (3) establishes the AAA as the default arbitration provider; and (4) it attempts to shorten the statute of limitations.

“Substantive unconscionability focuses on the actual terms of the agreement and evaluates whether they create ‘overly harsh’ or ‘‘one-sided’ results,’ that is, whether contractual provisions reallocate risks in an objectively unreasonable or unexpected manner.” (Roman, supra, 172 Cal.App.4th at pp. 1469-1470.) Substantive unconscionability ‘may take various forms,’ but typically is found in the employment context when the arbitration agreement is ‘one-sided,’ in favor of the employer without sufficient justification. (Ibid.) Common examples of substantive unconscionability include “when ‘the employee's claims against the employer, but not the employer's claims against the employee, are subject to arbitration’” (ibid), or when employees are required to pay excessive fees to gain access to the administrative forum. (Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, 90-91 (Armendariz).)

“Where appropriate, courts have discretion to sever or limit the application of unconscionable provisions and enforce the remainder of an arbitration agreement under Civil Code section 1670.5, subdivision (a).” (Ramos, supra, 28 Cal.App.5th at p. 1065.) Circumstances in which severability can be appropriate include where the unconscionability can be cured by striking the offending clause or clauses. (Id. at p. 1069.)

I.                   Allocation of Arbitration Costs

Plaintiff argues that the agreement is substantively unconscionable because the agreement is silent on who will pay arbitration fees. However, California law is clear that “[w]hen an employer imposes mandatory arbitration as a condition of employment, the arbitration agreement or arbitration process cannot generally require the employee to bear any type of expense that the employee would not be required to bear if he or she were free to bring the action in court.” (Martinez v. Master Protection Corp. (2004) 118 Cal.App.4th 107, 115-116, citing Armendariz, supra, 24 Cal.4th at p. 110-111.)

            There is nothing in the arbitration agreement language that disrupts this expectation. The arbitration agreement provides that the employer will pay for the arbitrator’s fee, “as well as any room or other charges assessed by the AAA.” While Plaintiff argues that the agreement does not expressly provide that all arbitration-related costs will be borne by the employer, Defendants are expected to comply with California’s legal requirements for cost allocation in arbitration. 

II.                Limitation on Available Remedies

Plaintiff argues that the agreement is substantively unconscionable because it attempts to limit Plaintiff’s available remedies. However, the agreement expressly provides: “The arbitrator shall have the power to award any type of legal or equitable relief that would be available in a court of competent jurisdiction including, but not limited to attorney’s fees and punitive damages when such damages and fees are available under the applicable statute and/or judicial authority.” (Valentine Decl., Exh. 1.)

III.             AAA as Forum

Plaintiff argues that the agreement is substantively unconscionable because it selects the AAA as the default arbitration forum. This is standard practice in the drafting of arbitration agreements, and tellingly, Plaintiff does not cite any caselaw wherein a Court found evidence of substantive unconscionability on this basis.

IV.             Statute of Limitations

Plaintiff argues that the agreement is substantively unconscionable because it requires that Plaintiff demand arbitration within the statute of limitations applicable to his claims but, if there is no such statute of limitations, within one year of the conduct giving rise to the claim.

The Court agrees that Defendant may not create its own statute of limitations. However, such a provision can easily be severed from the arbitration agreement without fundamentally altering the parties’ agreement regarding the scope of arbitration and the powers of the arbitrators to provide relief. (Ramos, supra, 28 Cal.App.5th at p. 1065.)

Conclusion

While Plaintiff presented evidence of procedural unconscionability, Plaintiff has not presented any evidence of substantive unconscionability which cannot be severed from the agreement. As such, the Court finds the agreement to enforceable.

Based on the foregoing, Defendant’s motion to compel arbitration is granted, and this proceeding is stayed pending the completion of arbitration. The statute of limitations provision is ordered severed from the agreement.

It is so ordered.

Dated:  March    , 2023

   Hon. Jon R. Takasugi
   Judge of the Superior Court

Parties who intend to submit on this tentative must send an email to the court at smcdept17@lacourt.org by 4 p.m. the day prior as directed by the instructions provided on the court website at www.lacourt.org.  If a party submits on the tentative, the party’s email must include the case number and must identify the party submitting on the tentative.  If all parties to a motion submit, the court will adopt this tentative as the final order.  If the department does not receive an email indicating the parties are submitting on the tentative and there are no appearances at the hearing, the motion may be placed off calendar. 

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