Judge: Joseph Lipner, Case: 23STCV00369, Date: 2024-02-08 Tentative Ruling

Case Number: 23STCV00369    Hearing Date: February 8, 2024    Dept: 72

SUPERIOR COURT OF CALIFORNIA

COUNTY OF LOS ANGELES

DEPARTMENT 72

TENTATIVE RULING

Defendant iKrusher, Inc. (“Defendant”) moves for an order compelling Plaintiff Luis Ramirez to arbitrate his claims against Defendant and staying this action pending the outcome of arbitration.

The Court DENIES Defendant’s motion.

Background

This action arises out of Plaintiff’s employment with Defendant.

Plaintiff was hired by Defendant on May 2, 2022 as a national director of sales. During Plaintiff’s employment, one of Defendant’s retail stores was allegedly robbed twice at gunpoint. Plaintiff allegedly complained about unsafe working conditions related to the two robberies. On May 18, 2022, Defendant terminated Plaintiff’s employment.

Plaintiff filed this action on January 9, 2023, raising claims for (1) retaliation in violation of Labor Code, section 1102.5; (2) retaliation in violation of Labor Code, section 6310; and (3) wrongful termination in violation of public policy.

On January 12, 2024, Defendant filed this instant motion. Plaintiff filed an opposition and Defendant filed a reply.

Evidentiary Objections

            The Court overrules Plaintiff’s evidentiary objections.

Discussion

The Arbitration Provision

Plaintiff’s employment agreement contains a provision that reads as follows:

12. Arbitration. The parties agree that any controversy or claim arising out of or relating to this Agreement, or any dispute arising out of the interpretation or application of this Agreement, shall be resolved by binding arbitration before a retired Superior Court Judge and shall be conducted in accordance with the provisions of the California Arbitration Act and the California Code of Civil Procedure. Notwithstanding the foregoing, Employer shall have the right to obtain a temporary restraining order or preliminary injunction to enforce its rights under Sections 9 - 11 of this Agreement to protect its rights until such time as an arbitrator makes a final decision.

(Goden Decl. Exh. A at p. 8, ¶ 14 (the “Arbitration Provision”).)

The provision, on its face, provides for the mandatory arbitration of all disputes arising out of the employment agreement. Thus, the Arbitration Provision appears to cover the instant dispute.

Mutual Assent

The employment agreement contains a signature at the end under Plaintiff Luis Ramirez’s name. (Goden Decl. Exh. A at p. 10.)

Plaintiff avers that he does not recall signing an arbitration agreement or having one explained to him at any time during his employment. (Ramirez Decl. ¶¶ 3-6.) However, Paul Goden, a Human Resources and Compliance Manager for Defendant, avers that he is familiar with Plaintiff’s signature and recognizes the signature under Plaintiff’s name as Plaintiff’s based on comparison with other examples of Plaintiff’s signature found on other onboarding documents, including Plaintiff’s Emergency Contact Form, Employment Application, and Notice to Employer per Labor Code Section 2810.5. (Goden Decl. ¶ 9.) Thus, it appears that Plaintiff did in fact assent to the Arbitration Provision.

Unconscionability

“‘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 (Armendariz).)

Procedural Unconscionability

“‘Procedural unconscionability’ concerns the manner in which the contract was negotiated and the circumstances of the parties at that time. It focuses on factors of oppression and surprise. The oppression component arises from an inequality of bargaining power of the parties to the contract and an absence of real negotiation or a meaningful choice on the part of the weaker party. The component of surprise arises when the challenged terms are ‘hidden in a prolix printed form drafted by the party seeking to enforce them.’” (Nyulassy v. Lockheed Martin Corp. (2004) 120 Cal.App.4th 1267, 1281.)

Where a contract of adhesion includes the unequal bargaining power of contracting parties, with the weaker party's inability to negotiate, this may indicate procedural unconscionability in the form of oppression. (See Thompson v. Toll Dublin, LLC (2008) 165 Cal.App.4th 1360, 1372.) “The term ‘adhesion contract' refers to standardized contract forms offered to consumers of goods and services on essentially a ‘take it or leave it' basis without affording the consumer a realistic opportunity to bargain and under such conditions that the consumer cannot obtain the desired product or services except by acquiescing in the form contract. [Citations.] The distinctive feature of a contract of adhesion is that the weaker party has no realistic choice as to its terms. [Citations.]” (Wheeler v. St. Joseph Hospital (1976) 63 Cal.App.3d 345, 356.) 

“[A] compulsory pre-dispute arbitration agreement is not rendered unenforceable just because it is required as a condition of employment or offered on a ‘take it or leave it’ basis.” (Lagatree v. Luce, Forward, Hamilton & Scripps (1999) 74 Cal. App. 4th 1105, 1127.) However, the fact that an arbitration agreement is mandatory for employment may be a factor in determining that it is procedurally unconscionable. (See, e.g., Trivedi v. Curexo Technology Corp. (2010) 189 Cal.App.4th 387, 393; Armendariz, supra, 24 Cal.4th at pp. 114-115.) Where a contract of adhesion includes the unequal bargaining power of contracting parties, with the weaker party's inability to negotiate, this may indicate procedural unconscionability in the form of oppression. (See Thompson v. Toll Dublin, LLC (2008) 165 Cal.App.4th 1360, 1372.)

“Ordinarily when a person with capacity of reading and understanding an instrument signs it, he may not, in the absence of fraud, imposition or excusable neglect, avoid its terms on the ground he failed to read it before signing it.” (Ramirez v. Superior Court (1980) 103 Cal.App.3d 746, 754 [internal quotation marks omitted].)

Here, the Arbitration Provision was presented as a contract of adhesion on which Plaintiff’s employment was conditioned. As discussed above, this creates a slight, but extant, degree of procedural unconscionability.

Substantive Unconscionability

Substantive unconscionability focuses on the actual terms of the agreement and evaluates whether they create overly harsh or one-sided results as to shock the conscience. (Suh v. Superior Court (2010) 181 Cal.App.4th 1504, 1515.) The paramount consideration in assessing substantive unconscionability is mutuality. (Carmona, supra, 226 Cal.App.4th at p. 85.)

In Armendariz, the California Supreme Court held that a mandatory pre-dispute arbitration agreement requiring arbitration of unwaivable statutory rights must provide for the following: (1) a neutral arbitrator; (2) adequate discovery; (3) availability of all types of relief that are otherwise available in court; (4) a written decision that will permit a limited form of judicial review; and (5) a provision that the employer must pay for the arbitrator’s fees and all costs unique to arbitration. (Armendariz, supra, 24 Cal.4th at p. 102.

Here, the Arbitration Provision provides that arbitration will be conducted in accordance with the California Arbitration Act (“CAA”) and the California Code of Civil Procedure. This incorporation resolves three of the four requirements. Code of Civil Procedure, section 1282, subd. (a) provides that arbitrations shall be by a single neutral arbitrator. Code of Civil Procedure,, section 1283.05, subd. (a) provides for discovery in arbitration actions as if the action were pending before a superior court. Neither the CAA nor the Code of Civil Procedure place limits on available remedies in arbitration. In fact, Code of Civil Procedure, section 1283.4 states that the arbitrator’s ruling “shall include a determination of all the questions submitted to the arbitrators the decision of which is necessary in order to determine the controversy.” (Ibid.) Finally, Code of Civil Procedure, section 1283.4 states that arbitration decisions must be in writing and include a determination of all questions necessary to the decision. Thus, the first four Armendariz requirements are satisfied.

Plaintiff argues that Defendant cannot rely on these provisions to answer a charge of unconscionability because they were not stated explicitly in the text of the Arbitration Provision. However, this argument only carries water when the hidden provisions are the ones that are challenged. (Baltazar v. Forever 21, Inc. (2016) 62 Cal.4th 1237, 1246.) Where the provisions incorporated by reference make an arbitration agreement more conscionable, it cannot be said that they perversely require a finding of unconscionability.

However, the fifth Armendariz requirement creates a problem for Defendant. Code of Civil Procedure, section 1284.2 provides that “each party to the arbitration shall pay his pro rata share of the expenses and fees of the neutral arbitrator, together with other expenses of the arbitration incurred or approved by the neutral arbitrator[.]” (Ibid.) This provision does conflict with the requirements of Armendariz.

Defendant argues that Armendariz, in holding that employers must bear arbitration costs, resolves this problem by automatically preventing an arbitration agreement from requiring that an employee pay. It relies on the court’s conclusion “that when 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.” (Armendariz, supra, 24 Cal.4th at pp. 110-111.) Defendant’s characterization of Armendariz as creating a legally implied contract term for employer payment of arbitration fees ignores the language in the paragraph immediately preceding it: “we conclude the imposition of substantial forum fees is contrary to public policy, and is therefore grounds for invalidating or revoking an arbitration agreement and denying a petition to compel arbitration[.]” (Id. at p. 110.) Armendariz created a rule of contractual enforceability, not a rule of contractual interpretation. That a contract would be unenforceable without reading a certain term into it does not cause the law to read that term in; rather, contracts are interpreted consistent with their natural language.

Here, Defendant’s Arbitration Provision contained a provision that was not only hidden, but provided that the employee would pay their pro rata share of the arbitration expenses. Armendariz leaves no doubt that such a provision is grounds for invalidating the arbitration provision. Thus, the Arbitration Provision is substantively unconscionable.

There are further grounds for finding the Arbitration Provision unconscionable. The provision includes carveouts for injunctive relief sought by Defendant only. Where an arbitration agreement “exempts from the arbitration requirement claims typically brought by employers—namely, those seeking declaratory and preliminary injunctive relief to protect Empire's proprietary information and non-competition/non-solicitation provisions—while restricting to arbitration any and all claims plaintiffs might bring[,]” the agreement “exhibits strong indicia of substantive unconscionability.” (Samaniego v. Empire Today LLC (2012) 205 Cal.App.4th 1138, 1147.) Thus, the lack of mutuality of remedies is an alternate basis for finding a great degree of substantive unconscionability.

Conclusion on Unconscionability

Because there is a slight degree of procedural unconscionability and a great degree of substantive unconscionability, the Court finds the Arbitration Provision as a whole unconscionable. As such, the provision is not enforceable. The Court therefore denies Defendant’s motion.