Judge Kerry Bensinger, Case Number: 23STCV17236, Date: 2023-12-05 Tentative Ruling

On March 6, 2024, the Court of Appeal for the Second Appellate District issued an Alternative Writ of Mandate. The Court of Appeal commanded that the court “vacate that portion of [this] order of December 21, 2023 denying the motion for trial preference and thereafter make a new and different order referring the motion for trial preference to the neutral arbitrator.” The court intends to follow the commandment of the Court of Appeal. The court modifies Section I of this Order as written below. The court leaves unchanged Section II.

Plaintiff’s motion for trial preference is referred to the neutral arbitrator.

On July 24, 2023, Plaintiff, Haig Barsegian, filed a complaint against Defendant, Scan Health Plan, alleging causes of action for: (1) wrongful termination in violation of public policy; (2) disability discrimination: failure to accommodate in violation of Government Code section 12940(m); (3) disability discrimination: retaliation – failure to accommodate in violation of Government Code section 12940(m)(2); (4) disability discrimination – failure to engage in interactive process – Government Code section 12940(n); (5) retaliation in violation of Government Code section 12940(h); (6) failure to prevent discrimination and retaliation in violation of Government Code section 12940(k); and (7) Labor Code section 1102.5.

On August 24, 2023, Defendant filed this motion to compel arbitration and stay the proceedings.

The motion to compel arbitration, along with Plaintiff’s motion for trial preference, were heard on December 5, 2023. The Court issued a tentative ruling granting Defendant’s motion to compel arbitration. After oral argument, the Court took this matter under submission to consider whether the Federal Arbitration Act preempts a litigant’s right for trial preference.

California law incorporates many of the basic policy objectives contained in the Federal Arbitration Act, including a presumption in favor of arbitrability. (Engalla v. Permanente Medical Group, Inc. (1997) 15 Cal.4th 951, 971-72.) Under both the FAA and California law, arbitration agreements are valid, irrevocable, and enforceable, except on such grounds that exist at law or equity for voiding a contract. (Winter v. Window Fashions Professions, Inc. (2008) 166 Cal.App.4th 943, 947.) The petitioner bears the burden of proving the existence of a valid arbitration agreement by the preponderance of the evidence, the party opposing the petition then bears the burden of proving by a preponderance of the evidence any fact necessary to demonstrate that there should be no enforcement of the agreement, and the trial court sits as a trier of fact to reach a final determination on the issue. (Rosenthal v. Great Western Financial Securities Corp. (1996) 14 Cal.4th 394, 413.) The Court is empowered by Code of Civil Procedure section 1281.2 to compel parties to arbitrate disputes pursuant to an agreement to do so.

The court shall order the petitioner and the respondent to arbitrate the controversy if it determines that an agreement to arbitrate the controversy exists, unless it determines that:

(a) The right to compel arbitration has been waived by the petitioner; or
(b) Grounds exist for the revocation of the agreement.

(c) A party to the arbitration agreement is also a party to a pending court action or special proceeding with a third party, arising out of the same transaction or series of related transactions and there is a possibility of conflicting rulings on a common issue of law or fact. For purposes of this section, a pending court action or special proceeding includes an action or proceeding initiated by the party refusing to arbitrate after the petition to compel arbitration has been filed, but on or before the date of the hearing on the petition. This subdivision shall not be applicable to an agreement to arbitrate disputes as to the professional negligence of a health care provider made pursuant to Section 1295.

The party petitioning to compel arbitration under written arbitration agreement bears the burden of proving the existence of a valid arbitration agreement by a preponderance of the evidence, and party opposing petition must meet the same evidentiary burden to prove any facts necessary to its defense. The trial court acts as the trier of fact, weighing all the affidavits, declarations, and other documentary evidence. (Code Civ. Proc., § 1281.2; Provencio v. WMA Securities, Inc. (2005) 125 Cal.App.4th 1028, 1031.)

Defendant moves to compel arbitration and stay the proceedings in this matter. In opposition, Plaintiff argues the arbitration agreement is illegal, unconscionable and he should be allowed to rescind the contract.[1] Defendant responds that the FAA preempts application of Section 36, the contract is not illegal or unconscionable, and Plaintiff cannot rescind the contract. The Court begins with the underlying fundamentals and moves on to address the parties’ arguments.

Plaintiff was employed with Defendant as a Mental Health Specialist from on or about December 2, 2013 to April 4, 2022. (Rodriguez Decl., ¶ 6.) On December 19, 2019, Plaintiff signed an Arbitration Agreement wherein he agreed to arbitrate any claims that arose out of his employment with Defendant. (Rodriguez Decl., ¶ 6, Exh. A.) The Agreement is between Plaintiff and SCAN Group, its affiliates, and The SCAN Foundation (Id.) Defendant SCAN Health Plan is a wholly owned subsidiary and an affiliate of SCAN Group and is therefore also a party to the Arbitration Agreement. (Id., ¶ 12.) Pursuant to the Arbitration Agreement, Plaintiff and Defendant agreed to “binding individual arbitration.” (Id., Exh. C.) Specifically, Plaintiff and Defendant voluntarily agreed that:

I and SCAN Group, its affiliates, and The SCAN Foundation (“the Company”) agree to utilize binding individual arbitration to resolve all disputes that might arise out of or be related in any way to my employment by the Company. Such disputes include, but are not limited to, claims I might bring against the Company for wrongful termination, discrimination, harassment, retaliation, breach of contract, wage and hour violations, and torts such as invasion of privacy, assault and battery, or defamation. Such disputes also include claims that the Company might bring against me such as, for example, theft of money or trade secrets, breach of a confidentiality agreement, or breach of a contract. I and the Company each specifically waive our respective rights to bring such claims against the other in a court of law and to have a trial by jury.

As such, Defendant has shown that a valid agreement to arbitrate exists. Plaintiff does not present any arguments to the contrary.

The FAA applies to contracts that involve interstate commerce. (9 U.S.C. §§ 1, 2.) Because arbitration is a matter of contract, the FAA also applies if it is so stated in the agreement. (See Victrola 89, LLC v. Jaman Properties 8 LLC (2020) 46 Cal.App.5th 337, 355 (“[T]he presence of interstate commerce is not the only manner under which the FAA may apply. … [T]he parties may also voluntarily elect to have the FAA govern enforcement of the Agreement”].)

The FAA governs written arbitration agreements in the employment context. (Circuit City Stores, Inc. v. Adams (2001) 532 U.S. 105, 109, 113.) The FAA provides, “A written provision in any . . . contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract or transaction, or the refusal to perform the whole or any part thereof . . . shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.” (9 U.S.C. § 2.)

Here, the Arbitration Agreement states that “any arbitration proceeding under this agreement shall proceed under and be governed by the Federal Arbitration Act, in conformity with the procedures of the California Arbitration Act . . .” (Rodriguez Decl., ¶ 6, Exh. A.)

Plaintiff argues the motion to compel should be denied because Plaintiff has a nonwaivable, statutory right to a trial preference under Section 36.[2] The statute states, that if a preference motion is granted, “the court shall set the matter for trial not more than 120 days from that date.” (Code Civ. Proc. § 36, subd. (f).) Naturally, the statutory provision providing for an expedited trial conflicts directly with the agreed upon forum for disposition of the case – arbitration. Given this conflict, Defendant argues the FAA preempts application of Section 36 as applied in this case. Plaintiff does not address the preemption argument.

Defendant is correct, the FAA preempts application of Section 36 as applied here.

“The Supremacy Clause of the United States Constitution declares federal law to be ‘the supreme law of the land,’ and thereby empowers Congress to enact statutes that displace—in the vernacular, to preempt—‘contrary’ state laws.” (Gallo v. Wood Ranch USA, Inc. (2022) 81 Cal.App.5th 621, 635 (Gallo), citations omitted.) “Federal statutes can preempt state law in several ways. Congress can expressly preempt state law by using explicit “statutory language” to “define ... the extent to which its enactment[ ] pre-empt[s] state law.” (English v. General Electric Co. (1990) 496 U.S. 72, 78-79.) Congress can also preempt state law by implication, and courts have identified three mechanisms for such implied preemption; those mechanisms are known as “conflict preemption,” “obstacle preemption,” and “field preemption.” (Ibid.)

This case falls within the category of obstacle preemption. “Even if a state law does not single out arbitration agreements for outright prohibition or disfavored treatment, it still will be preempted by the FAA if it “stand[s] as an obstacle to the accomplishment of the FAA's objectives”; thus, the fact that a state law is generally applicable does not shield it from preemption. (Concepcion, supra, 563 U.S. at p. 343, 131 S.Ct. 1740; Lamps Plus, Inc. v. Varela (2019) ––– U.S. ––––, 139 S.Ct. 1407, 1418, 203 L.Ed.2d 636 (Lamps Plus) [“The general applicability of [a state law does] not save it from preemption under the FAA” if the rule “ ‘interferes with fundamental attributes of arbitration.’ ”].)” (Gallo, supra, at p. 640.)

To the extent Section 36 presents an implied obstacle to arbitration, the FAA preempts its application. (See AT&T Mobility LLC v. Concepcion (2011) 563 U.S. 333, 343 (Concepcion) [“States cannot require a procedure that is inconsistent with the FAA, even if it is desirable for unrelated reasons”]; see also Preston v. Ferrer (2008) 552 U.S. 346, 356 [Labor Code section giving Labor Commissioner exclusive original jurisdiction over certain disputes “conflict[ed] with the FAA’s dispute resolution regime” by “grant[ing] the Labor Commissioner exclusive jurisdiction to decide an issue that the parties agree to arbitrate”]; Sonic-Calabasas A, Inc. v. Moreno (2013) 57 Cal.4th 1109, 1124 (Sonic) [holding, in light of Concepcion, that FAA preempted a state law rule categorically prohibiting waiver of a “Berman hearing” (i.e., “a dispute resolution forum established by the Legislature to assist employees in recovering wages owed”) in a predispute arbitration agreement].); Nitro-Lift Technologies, L. L. C. v. Howard (2012) 568 U.S. 17, 21-22 [under the supremacy clause of the United States Constitution (art. VI, cl. 2), the FAA requires any conflicting state law to give way].).

Because application of Section 36 requires a trial to be set, it stands as an obstacle to arbitration. Indeed, application of Section 36 would foreclose arbitration entirely. The FAA preempts Section 36 as applied here.

Perhaps recognizing the merit of Defendant’s preemption argument, Plaintiff attacks the legality of the contract. As the High Court noted in Concepcion, “the final phrase of § 2 [of the FAA], however, permits arbitration agreements to be declared unenforceable ‘upon such grounds as exist at law or in equity for the revocation of any contract.’ This saving clause permits agreements to arbitrate to be invalidated by ‘generally applicable contract defenses, such as fraud, duress, or unconscionability,’ but not by defenses that apply only to arbitration or that derive their meaning from the fact that an agreement to arbitrate is at issue.” (Concepcion, supra, 563 U.S. at p. 339.) Thus, under the FAA, state courts may “decline to enforce arbitration clauses on the basis of generally applicable contract defenses, such as fraud, duress or unconscionability.” (Erickson v. Aetna Health Plans of California, Inc. (1999) 71 Cal.App.4th 646, 650-651 [cleaned up].)

Plaintiff begins by invoking the contractual defense of illegality. Plaintiff argues the contract is illegal and void because Section 36 is an unwaivable statutory right. Plaintiff’s argument leaps over the essential factual predicate to complete his argument – that the arbitration agreement required Plaintiff to waive his right to bring a preference motion. It did not. And, indeed, Plaintiff brought a preference motion. Moreover, Defendant does not argue that the arbitration agreement precludes Plaintiff from filing a preference motion. There is no language in the arbitration agreement requiring Plaintiff to waive his right to bring a preference motion. In short, Plaintiff’s argument that the contract is illegal, void, and unenforceable because Plaintiff had an unwaivable right to a trial preference is without merit. Plaintiff fails to identify anything illegal about the terms of the contract.[3]

Next Plaintiff raises the contractual defense of unconscionability. In general, 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, supra, 57 Cal.4th at p. 1133 [cleaned up].) In other words, the doctrine 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.” (Ibid.)

If unconscionable, the arbitration agreement is not a valid contract and therefore is unenforceable. (Armendariz, supra, 24 Cal.4th at p. 114.) Although both components of unconscionability must be present to invalidate an arbitration agreement, they need not be present in the same degree. (Id.) “ ‘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. 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.’ ” (Ibid.)

Procedural unconscionability has to do with matters relating to freedom of assent. (Kinney v. United Healthcare Servs. (1999) 70 Cal.App.4th 1322, 1329.) The procedural element focuses on two factors: oppression and surprise. (Id.) “Oppression” arises from an inequality of bargaining power which results in no real negotiation and an absence of meaningful choice. (Id.) “Surprise” involves the extent to which the supposedly agreed-upon terms of the bargain are hidden in the printed form drafted by the party seeking to enforce the disputed terms. (Id.)

A “contract of adhesion” creates some amount of procedural unconscionability – the term signifies a standardized contract, which, imposed and drafted by the party of superior bargaining strength, relegates to the subscribing party only the opportunity to adhere to the contract or reject it. (Neal v. State Farm Ins. Cos. (1961) 188 Cal.App.2d 690, 694.) In addition, a lack of effort to highlight the presence of an arbitration provision, such as through bold lettering, larger font, or capitalization, has been found to indicate procedural unconscionability. (See Higgins v. Superior Court (2006) 140 Cal.App.4th 1238.) However, when there is no other indication of oppression other than the adhesive aspect of an agreement, the degree of procedural unconscionability is low. (Serpa v. California Surety Investigations, Inc. (2013) 215 Cal.App.4th 695, 704.)

“[T]he fact that the arbitration agreement is an adhesion contract does not render it automatically unenforceable as unconscionable. Courts have consistently held that the requirement to enter into an arbitration agreement is not a bar to its enforcement.” (Serafin v. Balco Properties Ltd., LLC (2015) 235 Cal.App.4th 165, 179 (Serafin); see also Concepcion, supra, at pp. 346-47 [“the times in which consumer contracts were anything other than adhesive are long past”].)

Here, Plaintiff argues that the agreement is procedurally unconscionable because the agreement was drafted without input by Plaintiff, was presented on a take it or leave it basis, there is no evidence that the person issuing the arbitration agreement to Plaintiff was even qualified to explain the company’s arbitration provision, and Plaintiff had a limited time to review the agreement.

However, as explained above, the fact that it is an adhesion contract does not render it automatically unenforceable as unconscionable. Further, the requirement to enter into an arbitration agreement is not a bar to the agreement’s enforcement. (Serafin, supra, 235 Cal.App.4th at p. 179.) As such, the Court finds that there was a low degree of procedural unconscionability.

“The failure to attach a copy of the arbitration rules could be a factor supporting a finding of procedural unconscionability where the failure would result in surprise to the party opposing arbitration.” (Lane v. Francis Capital Management LLC (2014) 224 Cal.App.4th 676, 690.) In Lane, the Court concluded, “The failure to attach a copy of the arbitration rules could be a factor supporting a finding of procedural unconscionability where the failure would result in surprise to the party opposing arbitration.” (Id.) The Lane Court ultimately determined that “the failure to attach a copy of the AAA rules did not render the agreement procedurally unconscionable. There could be no surprise, as the arbitration rules referenced in the agreement were easily accessible to the parties—the AAA rules are available on the Internet.” (Id. at p. 691.)

Ultimately, determining whether an agreement is unconscionable requires evaluating “the totality of the agreement’s substantive terms as well as the circumstances of its formation to determine whether the overall bargain was unreasonably one-sided.” (Sonic, supra, 57 Cal.4th at p. 1146.)

Plaintiff has not stated he was surprised, and thus, this only provides a minimal showing of procedural unconscionability.

Assessing substantive unconscionability, courts generally focus on the terms of the agreement and look for terms that are overly harsh or one-sided such that they shock the conscience. (Nyulassy v. Lockheed Martin Corp. (2004) 120 Cal.App.4th 1267, 1281 (Nyulassy); see also Sanchez v. Valencia Holding Co., LLC (2015) 61 Cal.4th 899, 910-911 (clarifying various definitions—e.g., “shocks the conscience,” “unduly oppressive,” “unreasonable favorable” mean same thing).) The “paramount consideration” is mutuality of the obligation to arbitrate. (Nyulassy, 120 Cal.App.4th at pp. 1281, 1287.)

“Substantively unconscionable terms may take various forms, but may generally be described as unfairly one-sided. One such form, as in Armendariz, is the arbitration agreement’s lack of a modicum of bilaterality, wherein the employee’s claims against the employer, but not the employer’s claims against the employee, are subject to arbitration. [Citation.] Another kind of substantively unconscionable provision occurs when the party imposing arbitration mandates a post-arbitration proceeding, either judicial or arbitral, wholly or largely to its benefit at the expense of the party on which the arbitration is imposed. [Citation.] In determining unconscionability, our inquiry is into whether a contract provision was unconscionable at the time it was made. [Citation.]” (Sonic, supra, 57 Cal.4th at pp. 1133-34 [cleaned up].) “To state it simply: it is substantively unconscionable to require a consumer to give up the right to utilize the judicial system, while imposing arbitral forum fees that are prohibitively high.” (Id. at pp. 1144-45.)

Here, Plaintiff does not point to any terms of the agreement that are “overly harsh”, “one-sided”, or that “shocks the conscience.” Plaintiff does not demonstrate a lack of mutuality as in Armendariz “wherein the employee’s claims against the employer, but not the employer’s claims against the employee, are subject to arbitration.” (Armendariz, supra, 24 Cal.4th at p. 119.) Nor is this a case where Defendant, as the party imposing arbitration, is requiring a post-arbitration proceeding, wholly or largely to Defendant’s benefit at Plaintiff’s expense. (Little v. Auto Steigler, Inc. 29 Cal.4th 1064, 1071-72 (Little).) Instead, Plaintiff argues that Section 36 is an unwaivable, substantive, statutory right and it would be “unconscionable” to deprive him of that right. As discussed above, Plaintiff’s argument is factually flawed. Plaintiff did not waive his right to bring a preference motion. Nothing in the agreement prevents him from pursuing a preference motion. He can and he did. Plaintiff fails to point to any terms in the agreement that are substantively unconscionable.[4]

As such, Plaintiff has not shown any substantive unconscionability. Because both substantive and procedural components of unconscionability need to be present, Plaintiff has not shown the contract was unconscionable.

Plaintiff argues for rescission pursuant to Civil Code section 1689(b). Section 1689(b) states:

(1) If the consent of the party rescinding, or of any party jointly contracting with him, was given by mistake, or obtained through duress, menace, fraud, or undue influence, exercised by or with the connivance of the party as to whom he rescinds, or of any other party to the contract jointly interested with such party.

(2) If the consideration for the obligation of the rescinding party fails, in whole or in part, through the fault of the party as to whom he rescinds.

(3) If the consideration for the obligation of the rescinding party becomes entirely void from any cause.

(4) If the consideration for the obligation of the rescinding party, before it is rendered to him, fails in a material respect from any cause.

(5) If the contract is unlawful for causes which do not appear in its terms or conditions, and the parties are not equally at fault.

(6) If the public interest will be prejudiced by permitting the contract to stand.

Plaintiff argues he can rescind the arbitration agreement under Civil Code section 1689 if he shows that public interest will be prejudiced by permitting the contract to stand. Plaintiff argues enforcing this arbitration agreement will violate the public interest. Plaintiff also argues that the consideration is illusory.

However, Plaintiff fails to identify portions or specifics in the agreement that limit Plaintiff’s ability to seek an expedited arbitration hearing. Or to bring a preference motion. Moreover, Plaintiff fails to show that the consideration was illusory or that the public interest will be prejudiced by permitting the contract to stand.

If a court of competent jurisdiction, whether in this State or not, has ordered arbitration of a controversy which is an issue involved in an action or proceeding pending before a court of this State, the court in which such action or proceeding is pending shall, upon motion of a party to such action or proceeding, stay the action or proceeding until an arbitration is had in accordance with the order to arbitrate or until such earlier time as the court specifies.

Here, the Court will order this action to arbitration. Thus, Defendant’s motion to stay the action pending arbitration is granted.

Based on the foregoing, Defendant’s motion for trial preference is referred to the neutral arbitrator. Defendant’s motion to compel arbitration is GRANTED. The action is stayed as to all parties pending the arbitration. The Court sets a Status Conference re: Arbitration Status in nine months: August 15, 2024, at 9:00 a.m.

[1] Plaintiff’s arguments rest primarily on the claim he is entitled to a trial preference pursuant to CCP section 36. Given the Court’s ruling on the preference motion, Plaintiff’s opposition unravels. Nonetheless, for the sake of completeness, the Court proceeds alternatively and addresses Plaintiff’s arguments as if the preference motion were granted.

[2] Plaintiff spends the first seven pages of his opposition to the motion to compel repeating the arguments he made in his trial preference motion. The Court need not address these arguments again.

[3] The parties dispute the applicability of two cases. Defendant cites Laswell v. AG Seal Beach, LLC (2010) 189 Cal.App.4th 1399, for the proposition that even when a party has meritorious preference motion, the court will order the parties into arbitration where there is an enforceable arbitration agreement. Plaintiff counters with Vinokur v. Superior Court (1988) 198 Cal.App.3d 500, arguing that when a preference motion is granted it takes preference over a conflicting judicial arbitration statute. Neither case is on point. Vinokur is inapposite because it did not involve a contractual arbitration agreement. While Laswell is closer to the mark, the Appellate Court did not discuss issues of illegality, unconscionability, or preemption.

[4] Although counsel raises illegality, unconscionability and recission because these are generally applicable contractual defenses, these arguments lack merit for the reasons discussed herein. Because the arbitration agreement is enforceable, the matter circles back to where we began – preemption. And for the reasons stated above, Defendant’s preemption argument prevails.