Judge: Jon R. Takasugi, Case: 23STCV22578, Date: 2024-03-05 Tentative Ruling

Case Number: 23STCV22578    Hearing Date: March 5, 2024    Dept: 17

Superior Court of California

County of Los Angeles

DEPARTMENT 17

TENTATIVE RULING

Defendants’ motion to compel arbitration is DENIED.

            On 9/19/2023, Plaintiff Andrea De La Cerda (Plaintiff) filed suit against Scorpion Enterprises, LLC, Scorpion Design, LLC, and Scorpion Design, Inc. (collectively, Defendants), alleging: (1) FEHA discrimination based on sex/gender; (2) failure to accommodate; (3) failure to engage in timely and good faith interactive process; (4) retaliation; (5) harassment based on disability and sex/gender; (6) failure to prevent; (7) whistleblower retaliation; (8) violations of California Fair Pay Act; and (9) wrongful discharge in violation of Public Policy.

            On 1/22/2024, Defendants moved to compel Plaintiff to arbitrate her Complaint.

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 submitted evidence that Plaintiff signed the Company’s Arbitration and Mediation Agreement (Agreement) on May 16, 2019 at the start of her employment.

            In opposition, Plaintiff does not dispute signing the agreement.

B.    Covered Claims

Plaintiff argues that her claims are not subject to arbitration based on the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act  (EFAA). The EFAA which amended the Federal Arbitration Act (“FAA”) effective March 3, 2022, provides that at the election of a person alleging “conduct constituting a sexual harassment dispute,” an otherwise valid arbitration agreement becomes unenforceable “with respect to a case which is filed under…state law and relates to…the sexual harassment dispute.” (9 U.S.C. Section 402(a).)

Plaintiff argues that the EFAA applies to all of Plaintiff’s claims because “this case involves a “pre-dispute arbitration agreement,” involves a dispute that arose after the Act’s effective date, and alleges “conduct constituting sexual harassment.” (3: 14-15.)

In opposition, Defendants argue that the EFAA does not apply to Plaintiff’s claims because the alleged sexual harassment took place before March 3, 2022 and EFAA only applies to disputes involving “sexual harassment” and “sexual assault” effective on or after March 3, 2022. Moreover, Defendants argue that Plaintiff’s factual allegations related to alleged “sexual harassment” are insufficient to bring her claims into the purview of the EFAA.

After review, the Court finds that Plaintiff’s sexual/gender harassment claims fall within the scope of the EFAA. However, the Court finds that her remaining non-gender/sex harassment claims (disability discrimination, failure to accommodate, failure to engage in the interactive process, retaliation, disability harassment, failure to prevent discrimination and/or retaliation, whistleblower retaliation, violation of the California Fair Pay Act, and wrongful discharge) should be bifurcated and are still subject to the arbitration clause.

      This is for several reasons.

While Defendant disputes that Plaintiff experienced sexual/gender-based harassment after March 3, 2022, Plaintiff alleges harassment through the end of her employment in August 2022, well after the Act’s effective date. The Court accepts well-pled allegations as true at the pleading stage, and thus factual determinations as to whether or not Plaintiff, in fact, experienced sexual harassment after March 3, 2022 is not properly made at this stage in the proceedings.

However, under the EFAA, a “sexual harassment dispute” is a “dispute relating to conduct that is alleged to constitute sexual harassment under applicable…State law.”   Here, Plaintiff alleges sex discrimination, retaliation, and disability-based claims which do not fall within the meaning of a sexual harassment dispute. Moreover, Plaintiff argues that the claims cannot be split arguing “[W]here a claim in a case alleges ‘conduct constituting a sexual harassment dispute’ as defined, the EFAA, at the election of the party making such an allegation, makes pre-dispute arbitration agreements unenforceable with respect to the entire case relating to that dispute.” (Johnson v. Everyrealm, Inc. (S.D.N.Y. 2023) 657 F.Supp.3d 535, 561.) However, the language holding that the arbitration agreement is unenforceable with respect “to the entire case” is followed by the phrase “relating that dispute,” thereby connecting the scope of the unenforceability directly to its relation to the sexual harassment dispute.

Indeed, Plaintiff implicitly concedes that the claims must arise out of the same facts and circumstances underlying the sex harassment claim by citing to Turner v. Tesla, Inc. (N.D. Cal. 2023) 2023 WL 6150805, *7-8. There, Turner held that the claims all arose out of the same facts and circumstances underlying the sex harassment claim, such that they were all within the scope of the EFAA. In Mera v. SA Hosp. Grp., LLC (S.D.N.Y. 2023) 2023 WL 3791712, the Court split the plaintiff’s wage and hour claims with the sex harassment claims, sending the former to arbitration but not the latter. In Mera, the court relied on the lack of factual nexus between the claims being split (“Since Plaintiff’s wage and hour claims…do not relate in any way to the sexual harassment dispute, they must be arbitrated…”).

      Here, Plaintiff alleges that she was discriminated against based on an unnamed disability by being denied the accommodation of a finite leave of absence. Plaintiff also alleges that “that she complained of sex and gender disparities, discrimination, and harassment, reported her disability, requested reasonable accommodation for her disability, and was on an approved medical leave of absence when Defendants fired her.” (Complaint ¶ 57.) The Court finds a lack of nexus between Plaintiff’s sexual/gender-based harassment claims and the remainder of her claims, and finds these latter claims do not arise out of the same facts and circumstances as the sex harassment claim.

Given that Defendants have established by a preponderance of the evidence that an arbitration agreement exists, and that a portion of 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 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

Plaintiff argues that the arbitration agreement is procedurally unconscionable because it is an adhesion contract.

Where pre-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 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 1071; Ajamian, supra, 203 Cal.App.4th at 796.)

B.    Substantive Unconscionability

Plaintiff argues the Agreement is substantively unconscionable because: (1) it is not mutual; (2) it allows for Defendants to recover costs; (3) it improperly alters FEHA’s attorney fees shifting standard; (4) it alters the statute of limitations for bringing employment claims; (5) it requires confidentiality; (6) it includes illegal non-solicitation provisions; (7) it precludes administrative filings; (8) it requires Plaintiff to provide a “free peek” to Defendants before initiating arbitration; and (9) the agreement requires mediation between arbitration, but Defendants have refused to mediate.

As to the first contention, the Court agrees this provision is substantively unconscionable. The “claims covered” section lists only claims “…for which the employee has an alleged cause of action…” (Agreement para. 1(a)(ii) (Emphasis Added).) And then in the “claims not covered” section, the agreement excludes from arbitration claims brought “…by the Company for injunctive or other equitable relief, including without limitation claims for unfair competition and the use or unauthorized disclosure of trade secrets or confidential information, for which the Company may seek and obtain relief from a court of competent jurisdiction.” (Agreement para. 1(b)(iv).) Moreover, the parties’ Employment Agreement executed in the same packet on onboarding materials as the arbitration agreement (and therefore part of the same transaction), specifically allows Defendant to sue Plaintiff in “a court of competent jurisdiction,” for an injunction or for specific performance.

As to the second contention, the Court agrees this provision is substantively unconscionable. The agreement provides, at paragraph 1(f)(ii): “The Company agrees to advance all of the JAMS administrative fees and the arbitrator's fees and expenses at the outset of the dispute resolution process, subject to reimbursement in the event the Company prevails on its claims and/or defenses.” (Emphasis Added.). This reimbursement provision is inconsistent with California law and cannot be enforced. In FEHA cases, a prevailing defendant can only be awarded costs (and fees) if the court finds the action was “objectively without foundation when brought, or the plaintiff continued to litigate after it clearly became so.” (Williams v. Chino Valley Indep. Fire Dist. (2015) 61 Cal.4th 97, 115.)

            As to the third provision, the Court agrees this provision is substantively unconscionable. The Agreement provides “[a]ll other costs and expenses associated with the arbitration, including, without limitation, each party's respective attorneys' fees, shall be borne by the party incurring the expense.” (Raphael Decl. Ex. A, para.1(f)(ii)). As such, the agreement expressly states that each party will bear their own attorneys’ fees.

However, FEHA is clear that a prevailing Plaintiff is entitled to recover her fees. (Cal. Gov. §12965(b).) “[A]n arbitration agreement cannot be made to serve as a vehicle for the waiver of statutory rights created by the FEHA.” (Armendariz, supra, 24 Cal.4th at 101.) In Trivedi, the Court found that a clause which allowed the “prevailing party” to recover attorneys’ fees was substantively unconscionable because it improperly allowed the defendant to recover fees. (Trivedi v. Curexo Technology Corp. (2010) 189 Cal.App.4th 387, 393-395.)

As to the fourth provision, the Court agrees this provision is substantively unconscionable. The Agreement’s Time Limits and Procedures section provides that “The aggrieved party must give written notice of any claim to the other party as soon as possible after the aggrieved first knew or should have known of the facts giving rise to the claim.” (Raphael Decl., Ex. A, para. 1(f)). “As soon as possible” is not only vague, such that it leaves uncertain just how long the employer will contend is too long to give notice of claims, but it is also inconsistent with the established statutory time periods to bring claims; e.g., the three years an employee has to file charges with the California Civil Rights Department, one year to file thereafter once a right to sue notice is obtained (four years in total, maximum), and other one, two, or three year statutes that typically apply in employment law matters. Courts routinely hold that unreasonably shortened limitations periods are not enforceable, and here the Court finds the uncertain time frames presented here to be unconscionable. (See, e.g., Baxter v. Genworth (2017) 16 Cal.App.5th 713; Ellis v. US Security Associates (2014) 224 Cal.App.4th 1213, 1225.)

            As to the fifth provision, the Court agrees this provision is substantively unconscionable. The agreement says: “[t]he arbitration will be conducted under the JAMS Employment Rules & Procedures (“Rules”) with the additional proviso that the Procedure shall be conducted on a confidential basis.” (Raphael Decl., Ex. A, para. 1(e).) In Hasty, the court held that confidentiality is permissible only where there is a legitimate commercial need, but here no such thing has been established. Hasty held that confidentiality “benefits only the [employer] with respect to harassment, retaliation, and discrimination claims, such as the claims here, and is thus substantively unconscionable.” (Hasty v. AAA (2023) 98 Cal.App.5th 1041.) Here, Defendant has not articulated any legitimate commercial need for confidentiality, and would appear to only benefit Defendant. Employees must be able to gather witness testimony from third parties, establish pattern and practice evidence, and otherwise investigate the claims at issue; confidentiality requirements puts up unfair roadblocks in this process.

            As to the sixth provision, the Court agrees this provision is substantively unconscionable. The Employment Agreement contains an illegal restraint on trade in violation of California public policy.

            As to the seventh provision, the Court agrees this provision is substantively unconscionable. The agreement purports to prevent Plaintiff from filing with appropriate administrative agencies charges relating to her employment. Paragraph 1(a)(ii) of the agreement provides that its scope: “[i]ncludes, but is not limited to, any claim that could be asserted in court or before an administrative agency or…” “A waiver of administrative remedies and relief, hidden in an arbitration agreement, is overly harsh and shocks the conscience.” (Hasty, supra, 98 Cal.App.5th 1041; EEOC v. Waffle House, Inc. (2002) 534 U.S. 279 [Supreme Court emphasizing importance of allowing agencies to pursue employment matters].) The EEOC has also stated its position as follows: “an employer may not interfere with the protected rights of employees to file a charge or participate in any manner in any investigation, hearing, or proceeding under the laws enforced by EEOC.” (EEOC Notice No. 915.002, “Enforcement Guidance on non-waivable rights under Equal Employment Opportunity Commission (EEOC) enforced statutes.”)

            As to the eighth provision, the Court agrees this provision is substantively unconscionable. Defendants’ Agreement requires Plaintiff to first attempt to resolve the matter “internally through management channels” before initiating arbitration. (Agreement, second intro paragraph.) At paragraph 1(c), it provides

As a prerequisite for submitting an employment dispute to mediation and, if necessary, arbitration, both you and the Company agree to make good faith efforts at resolving any dispute internally on an informal basis through management channels appropriate to that particular dispute. This will include notifying the human resources department and/or the president of the company, to determine if any informal resolution can be obtained prior to proceeding through this alternative dispute resolution process....

            (emphasis added.)

Requiring Plaintiff to submit to an employer-controlled dispute resolution mechanism (i.e., one without a neutral mediator) suggests that Defendants would receive a “free peek” at Plaintiff’s case, thereby obtaining an advantage when Plaintiff later demands arbitration. (Nyulassy v. Lockheed Martin Corp. (2004) 120 Cal. App. 4th 1267, 1283). The dangers of allowing an employer to enjoy a “free peek” at an employee’s case were elaborated on in McKinney v. Bonilla (S.D. Cal., 2010) 2010 WL 2817179, where the court explained that the procedure “imposes no burden on Defendant while requiring Plaintiff to reveal the details of his case” before a neutral was involved. (Ibid.) McKinney discusses another consideration—that the agreement provided a series of hurdles to be cleared so that only the most persistent employees will ever reach a decision maker outside of the company.” (Ibid.) Here, the agreement requires a meeting with internal management (HR and/or the President), then mediation (see the section argued below), and only then can an employee reach arbitration.

            Finally, as to the ninth provision, the agreement makes clear that mediation is a prerequisite to initiating arbitration (“…must be submitted for non-binding mediation…”). (Agreement, para. 1(d).) Defendant has refused to participate in mediation. The Court agrees with Plaintiff that should not be able to pick and choose the portions of the Agreement they wish to enforce.

            Taken together, the Court finds that the unconscionable terms cannot be severed from the agreement. “The overarching inquiry is whether ‘the interests of justice . . . would be furthered’ by severance.” (Armendariz v. Foundation Health Psychcare Servs. (2000) 24 Cal.4th 83, 124). However, “[i]f the central purpose of the contract is tainted with illegality, then the contract as a whole cannot be enforced . . .” (Id.) When more than one clause is deemed unconscionable, “[s]uch multiple defects indicate a systemic effort to impose arbitration on an employee . . . as an inferior forum that works to the employer’s advantage.” (Id.) Severance is not appropriate when the “court would have to, in effect, reform the contract, not through severance or restriction, but by augmenting it with additional terms.”

            Here, in order to create a valid Agreement, the Court would have to strike or amend over eight provisions, and thus would be effectively carving up the Agreement in order to salvage it. Such reform effects are not appropriate, nor would the interests of justice be served by such an effort.

Given the finding of a degree of procedural unconscionability, and high substantive unconscionability, the Court finds that the arbitration agreement is unenforceable. (Ajamian, supra, Cal.App.4th at 796.)

            Based on the foregoing, Defendants’ motion to compel arbitration is denied.

It is so ordered.

Dated:  March    , 2024

   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.  For more information, please contact the court clerk at (213) 633-0517.