Judge Lynette Gridiron Winston, Case Number: 24PSCV01688, Date: 2025-01-28 Tentative Ruling

Judge: Lynette Gridiron Winston, Case: 24PSCV01688, Date: 2025-01-28 Tentative Ruling

Defendants Costco Wholesale Corporation and Sunrun Installation Services, Inc.’s Motion to Compel Arbitration

The Court GRANTS Defendants’ motion to compel arbitration and hereby STAYS this action pending completion of the arbitration.

Defendants are ordered to give notice of the Court’s ruling within five calendar days of this order.

This is a solar panel installation dispute. On May 24, 2024, plaintiff Santosh Verma (Plaintiff) filed this action against defendants Sunrun Installation Services, Inc. (Sunrun), Costco Wholesale Corporation (Costco) (collectively, Defendants), and Does 1 to 20, alleging causes of action for breach of contract and general negligence.

On December 27, 2024, Defendants moved to compel arbitration. On January 14, 2025, Plaintiff opposed the motion. On January 21, 2025, Defendants replied.

Parties may be compelled to arbitrate a dispute upon the court finding that: (1) there was a valid agreement to arbitrate between the parties; and (2) said agreement covers the controversy or controversies in the parties’ dispute.¿(Omar v. Ralphs Grocery Co. (2004)¿118 Cal.App.4th 955, 961.) A party moving to compel arbitration has the burden of establishing the existence of a valid agreement to arbitrate and the party opposing the petition has the burden of proving, by a preponderance of the evidence, any fact necessary to its defense. (Banner Entertainment, Inc. v. Superior Court¿(1998) 62 Cal.App.4th 348, 356-357.) A party seeking to compel arbitration meets their initial burden of establishing the existence of a valid arbitration agreement by attaching a copy purporting to bear the opposing party’s signature to the motion or petition to compel arbitration. (Espejo v. Southern California Permanente Medical Group (2016) 246 Cal.App.4th 1047, 1060 (Espejo).

“California has a strong public policy in favor of arbitration and any doubts regarding the arbitrability of a dispute are resolved in favor of arbitration.” (Coast Plaza Doctors Hospital v. Blue Cross of California (2000) 83 Cal.App.4th 677, 686.) “This strong policy has resulted in the general rule that arbitration should be upheld unless it can be said with assurance that an arbitration clause is not susceptible to an interpretation covering the asserted dispute.” (Ibid. [internal quotations omitted].) This is in accord with the liberal federal policy favoring arbitration agreements under the Federal Arbitration Act (FAA), which governs all agreements to arbitrate in contracts involving interstate commerce. (9 U.S.C. § 2, et seq.; Higgins v. Superior Court (2006) 140 Cal.App.4th 1238, 1247.)

FAA v. CAA

“[T]he FAA's procedural provisions do not apply unless the contract contains a choice-of-law clause expressly incorporating them. [T]he question is not whether the parties adopted the CAA’s procedural provisions: The state's procedural statutes apply by default because Congress intended the comparable FAA sections to apply in federal court. The question, therefore, is whether the parties expressly incorporated the FAA’s procedural provisions into their agreements.” (Victrola 89, LLC v. Jaman Properties 8 LLC (2020) 46 Cal.App.5th 337, 345, internal citations omitted and italics in original (Victrola 89).) “[P]revious cases have held that when an arbitration agreement provides that its ‘enforcement’ shall be governed by California law, the [CAA] governs a party's motion to compel arbitration. It follows that when an agreement provides that its ‘enforcement’ shall be governed by the FAA, the FAA governs a party's motion to compel arbitration.” (Id., at p. 346.)

The Arbitration Agreement (as defined below) does not state that its enforcement is governed by the FAA. (Motion, Ex. A.) [1] Accordingly, the CAA applies by default and governs this motion to compel arbitration. (Victrola 89, supra, 46 Cal.App.5th at pp. 345-346.)

Defendants seek to compel arbitration based on language in the underlying solar panel installation agreement that forms the basis of this action (the Arbitration Agreement). (Motion, Ex. A.) That language provides that, “[u]nless legally prohibited, you and we mutually agree to settle any Dispute related to this contract in good faith via mediation… If we cannot settle within 60 days of the initial mediation session, either party may elect to require to resolve our Dispute via binding arbitration.” (Motion, Ex. A, pp. 35-36 of pdf, bold in original.) The Arbitration Agreement also provides that it, “governs all disputes that would usually be decided in a court and are between us (or any Related Party) and you, including without limitation all claims related to or arising out of this Agreement, the System or our relationship with you…” (Motion, Ex. A, p. 35 of pdf.) By having attached a copy of the Arbitration Agreement to the motion, Defendants have met their initial burden. (Condee v. Longwood Mgmt. Corp. (2001) 88 Cal.App.4th 215, 218-219.) The burden now shifts to Plaintiff to challenge the validity of the Arbitration Agreement.

Plaintiff does not dispute the existence of the Arbitration Agreement, but instead contends that it does not cover all claims at issue in this case. Plaintiff contends Sunrun has not elected to mediate first, so Sunrun cannot proceed to arbitration. Plaintiff contends negligence claims are outside the scope of the Arbitration Agreement, and that the Arbitration Agreement does not have anything regarding choice of law. Plaintiff also contends he is a senior and that his elder abuse claim is not covered by the Arbitration Agreement.

In reply, Defendants contend the issue of arbitrability is for the arbitrator to decide, according to the terms of the Arbitration Agreement. Defendants further contend that Plaintiff’s claims fall within the scope of the Arbitration Agreement, as they arise out of the underlying solar panel installation agreement.

The Court finds the Arbitration Agreement covers Plaintiff’s claims for purposes of this motion to compel arbitration. The Court declines to consider Defendants’ arguments regarding delegation of arbitrability of claims to the arbitrator because that argument was not raised in the moving papers. (See Jay v. Mahaffey (2013) 218 Cal.App.4th 1522, 1537-1538 [new arguments generally not permitted in reply papers unless they are responsive to arguments raised in the opposition or the hearing is continued to permit the opposing party an opportunity to respond to the new arguments].) Defendants’ moving papers raised the issue of whether Plaintiff’s claims fall within the scope of the Arbitration Agreement. (Motion, 6:5-7:9.) Defendants could have included the delegation argument then but did not do so. If the Court were to consider the delegation argument, the Court would need to continue the hearing on the motion to permit Plaintiff an opportunity to respond to these arguments since they raise new issues. (Jay v. Mahaffey, supra, 218 Cal.App.4th at pp. 1537-1538.) To be clear, the Court is not ruling one way or the other regarding the purported delegation to the arbitrator, but will leave that issue to the parties to address in the arbitration itself.

With respect to the scope of the Arbitration Agreement, its language clearly indicates its intent to cover “the broadest reasonable meaning,” and that it includes “all claims related to or arising out of this Agreement.” (Motion, Ex. A, p. 35 of pdf.) The words “arising out of” are broad and generally understood to mean anything having a “minimal causal connection or incidental relationship. [Citations.]” (Acceptance Ins. Co. v. Syufy Enterprises (1999) 69 Cal.App.4th 321, 328.) Plaintiff’s negligence claim clearly has a minimal causal connection to the underlying solar panel purchase and installation agreement because Plaintiff’s claims against both Defendants are based on their alleged failures in connection with the installation of solar panels. (Compl., ¶¶ BC-1 – BC-5, GN-1.)

Second, contrary to Plaintiff’s assertion, the complaint does not allege a cause of action for elder abuse. (See generally, Compl.) Thus, whether Plaintiff is a senior and whether the Arbitration Agreement covers Plaintiff’s unalleged elder abuse claim are irrelevant.

Third, the Court finds Plaintiff’s argument regarding the failure to mediate disingenuous and unavailing. The condition of mediation before proceeding to arbitration is bilateral in the Arbitration Agreement. (Motion, Ex. A, p. 34.) Plaintiff has not presented any evidence of Plaintiff having first attempted to mediate before filing this lawsuit. Plaintiff cannot blame Defendants for their alleged failure to mediate as a basis for avoiding arbitration when Plaintiff did not first attempt to mediate either. To permit otherwise would enable Plaintiff to benefit from his own wrongdoing, which is improper. (Civ. Code, § 3517 [“No one can take advantage of their own wrong”].)

“[U]nder both federal and California decisional authority, a nonsignatory defendant may invoke an arbitration clause to compel a signatory plaintiff to arbitrate its claims when the causes of action against the nonsignatory are ‘intimately founded in and intertwined’ with the underlying contract obligations.” (Boucher v. Alliance Title Co., Inc. (2005) 127 Cal.App.4th 262, 271 (Boucher); see Goldman v. KPMG LLP (2009) 173 Cal.App.4th 209, 217-218.)

Plaintiff contends that Costco is not a related party and that there is nothing in the underlying agreement regarding joining non-signatories. Plaintiff also contends Costco has not shown that Plaintiff’s claims against it arise from the underlying agreement, that Costco has a close relationship with Sunrun or Plaintiff, or that Costco’s nature was known to Plaintiff at the time of contracting.

In reply, Defendants contend that Costco must be dismissed as a party because Plaintiff’s claims have no connection to Costco, as Plaintiff signed no agreement with Costco and Plaintiff admits not knowing Costco’s role when entering into the underlying agreement.

Whether Costco needs to be dismissed from this action is not relevant to this motion. The issue is whether Costco as a non-party to the Arbitration Agreement can move to compel arbitration based on that same agreement. As such, the Court reiterates that Plaintiff’s claims against Costco arise out of the underlying solar panel purchase and installation agreement, as Plaintiff is suing both Defendants based on the purchase and installation of solar panels provided for under that agreement. Plaintiff’s claims against Costco are “intimately founded in and intertwined” with the underlying contractual obligations. (Boucher, supra, 127 Cal.App.4th at p. 271.) Plaintiff cannot enjoy the benefit of suing both Defendants based on matters arising out of the underlying solar panel purchase and installation agreement but then avoid the burden of that same agreement. (NORCAL Mut. Ins. Co. v. Newton (2000) 84 Cal.App.4th 64, 84.)

Accordingly, Plaintiff is equitably estopped from disputing Costco’s right to move to compel arbitration.

“[P]rocedural 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.” (Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, 102 (Armendariz).) The courts invoke a sliding scale 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, i.e., the more substantively oppressive the contract term, the less evidence of procedural unconscionability is required to conclude that the term is unenforceable, and vice versa. (Id. at p. 114.) Plaintiff bears the burden of proving that the provision at issue is both procedurally and substantively unconscionable.

“Procedural unconscionability focuses on the elements of oppression and surprise. [Citations] ‘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.’ [Citations]” (Roman v. Superior Court (2009) 172 Cal.App.4th 1462, 1469.)

Plaintiff contends he had no say in what was made part of the underlying agreement, and that he did not have any opportunity to read it, change it, or consult with an attorney before signing it. He also contends he did not understand all of the language and information contained in the underlying agreement, and that he was not told about the limitations or parameters of arbitration.

Defendants contend the Arbitration Agreement is not procedurally unconscionable because Plaintiff failed to allege such procedural issues in the complaint. Defendants concede that the Arbitration Agreement is an adhesion contract, but contend that alone is insufficient to render it unconscionable. Defendants also contend that Plaintiff does not allege that Sunrun prevented him from asking about the contract terms before agreeing to those terms, as the underlying agreement contains a 10-day right to cancel.

The Court does find Plaintiff has presented some evidence of procedural unconscionability, such as not being given an opportunity to read the agreement or negotiate terms before signing it. (Verma Decl., ¶ 4.) But, the Court does not find this to be enough. Plaintiff’s declaration is rather terse and conclusory regarding the circumstances of not having been given any opportunity to read the agreement. (See Verma Decl., ¶ 4.) Also, failure to understand the terms of the contract is not evidence of unconscionability. (Verma Decl., ¶ 6; see Larrus v. First Nat. Bank of San Mateo Cnty. (1954) 122 Cal.App.2d 884, 889 [ignorance of terms is no defense to enforcement].) Nor does the lack of explanation by anyone regarding the effects of these terms constitute procedural unconscionability. (See ibid.) Additionally, Defendants correctly contend that an adhesion contract by itself is not dispositive of the issue of procedural unconscionability. (Peng v. First Republic Bank (2013) 219 Cal.App.4th 1462, 1470.)

Thus, Plaintiff will need to demonstrate a substantial amount of substantive unconscionability to avoid the enforcement of the Arbitration Agreement. (See Armendariz, supra, 24 Cal.4th at p. 114.)

“Substantive unconscionability focuses on the actual terms of the agreement and evaluates whether they create ‘overly harsh’ or ‘‘one-sided’ results’ [Citations] that is, whether contractual provisions reallocate risks in an objectively unreasonable or unexpected manner. [Citation] 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, for example, when ‘the employee’s claims against the employer, but not the employer’s claims against the employee, are subject to arbitration.’ [Citations]” (Roman, supra, 172 Cal.App.4th at pp. 1469-1470.)

Plaintiff contends the Arbitration Agreement is unconscionable because it limits discovery rights, there is no right to a jury trial, and decisions are final and unappealable.

Defendants argue that the Arbitration Agreement is not substantively unconscionable, as its terms apply equally to both parties and it uses layman’s terms. Defendants contend there is nothing to show that the requirement to arbitrate disputes is unfair or that it would be more expensive than litigation in court, and notes that the Arbitration Agreement provides Defendants cover the cost of arbitration proceedings regardless of who prevails. Defendants also contend arbitration is highly favored.

The Court finds Plaintiff has not submitted sufficient evidence of substantive unconscionability here. The most Plaintiff has demonstrated is that the Arbitration Agreement indicates discovery is limited. (Motion, Ex. A, p. 34; see Murrey v. Superior Ct. (2023) 87 Cal.App.5th 1223, 1248 [discovery limitation provision in arbitration agreement found unconscionable].) However, the Arbitration Agreement provides very little explanation as to what it means that discovery is limited, and does not show how it is one-sided or unduly favors Defendants. (Motion, Ex. A, p. 34 of pdf; see Murrey v. Superior Ct., supra, 87 Cal.App.5th at p. 1248.) Also, arbitration necessarily involves a waiver of a right to a jury trial and limits judicial review. (Prima Donna Dev. Corp. v. Wells Fargo Bank, N.A. (2019) 42 Cal.App.5th 22, 35.) Such waiver and limitation are not unconscionable when they stem from the nature of the arbitration itself, which is the case here. (Id. at pp. 43-44; Motion, Ex. A, pp. 34-37 of pdf.)

Accordingly, the Court does not find the Arbitration Agreement unenforceable based on unconscionability.

The Court GRANTS Defendants’ motion to compel arbitration and hereby STAYS this action pending completion of the arbitration.

Defendants are ordered to give notice of the Court’s ruling within five calendar days of this order.

[1] The Court notes that the Arbitration Agreement is actually attached as Exhibit A to the memorandum of points and authorities, and not to Kelley Molton’s declaration as stated therein. (See Molton Decl., ¶ 6; Motion, Ex. A.)