Judge Lynne M. Hobbs, Case Number: 23STCV25746, Date: 2024-10-30 Tentative Ruling

Judge: Lynne M. Hobbs, Case: 23STCV25746, Date: 2024-10-30 Tentative Ruling

Case Number: 23STCV25746 Hearing Date: October 30, 2024 Dept: 61

HOSSEIN FATHI vs JM EAGLE MANUFACTURING COMPANY

TENTATIVE

Defendant JM Eagle Manufacturing Company’s Motion to Compel Arbitration is GRANTED.

The action is stayed pending arbitration. Parties are ordered to appear at status conferences re arbitration.

Judicial Assistant to calendar a status conference re arbitration in 180 days.

Defendant to provide notice.

DISCUSSION

I. OBJECTIONS

Defendant JM Eagle Manufacturing’s objections to the declaration of Plaintiff Hossein Fathi are OVERRULED, as Plaintiff testifies only to the circumstances of the agreement’s execution, testimony for which he presents foundation as it is in his personal knowledge.

II. MOTION TO COMPEL ARBITRATION

On petition of a party to an arbitration agreement to arbitrate a controversy, a court must order the petitioner and respondent to arbitrate the controversy if it determines the arbitration agreement exists, unless (1) the petitioner has waived its right to arbitrate; (2) grounds exist for the revocation of the agreement; or (3) “[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.” (Code Civ. Proc., § 1281.2.)

“[T]he party moving to compel arbitration bears the burden of establishing the existence of a preponderance of the evidence any fact necessary to its defense. The role of the trial court is to sit as a trier of fact, weighing any affidavits, declarations, and other documentary evidence, together with oral testimony received at the court's discretion, to reach a determination on the issue of arbitrability.” (Hotels Nevada v. L.A. Pacific Center, Inc. (2006) 144 Cal.App.4th 754, 758.)

Defendant JM Eagle Manufacturing Company (Defendant) moves to compel arbitration of Plaintiff Hossein Fathi’s (Plaintiff) claims for employment discrimination and retaliation, based on an arbitration agreement contained in a document entitled “Non-Disclosure Invention Assignment and Arbitration Agreement.” (Merritt Decl. Exh. A.) The arbitration provision applies to “all claims or controversies arising out of or relating to Employee’s employment, the termination thereof, or otherwise arising between Employee and JM.” (Id. at § 15.)

Plaintiff argues that the arbitration agreement is unconscionable, as it is a contract of adhesion presented to an employee by their employer on a take-it-or-leave-it basis, as a condition of Plaintiff’s employment. (Fathi Decl. ¶¶ 4–7.) Plaintiff also argues that the agreement is substantively unconscionable because a provision allows Defendant to seek equitable relief on favorable terms, fails to provide for adequate discovery, and imposes costs and fees in contradiction to what is mandated by FEHA. (Opposition at pp. 7–14.)

“Unconscionability requires a showing of both procedural unconscionability and substantive unconscionability.” (Ajamian v. CantorCO2e, L.P. (2012) 203 Cal.App.4th 771, 795.) Arbitration contracts presented to employees on a take-it-or-leave-it basis are at least minimally procedurally unconscionable. (See Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, 113.) The agreement here is one of adhesion presented to Plaintiff by Defendant as a mandatory condition of employment, as indicated by the terms of the employment agreement itself. (Merritt Decl. Exh. A.) The agreement is therefore procedurally unconscionable.

“[T]he paramount consideration in assessing [substantive] conscionability is mutuality.” (Carmona v. Lincoln Millennium Car Wash, Inc. (2014) 226 Cal.App.4th 74, 85.) “Given the disadvantages that may exist for plaintiffs arbitrating disputes, it is unfairly one-sided for an employer with superior bargaining power to impose arbitration on the employee as plaintiff but not to accept such limitations when it seeks to prosecute a claim against the employee, without at least some reasonable justification for such one-sidedness based on ‘business realities.’” (Id. at pp. 85–86.)

Here, the arbitration agreement does not “restrict either JM or Employee from seeking equitable relief, including injunctive relief, from any court having competent jurisdiction for violations of this agreement or any applicable law.” (Merritt Decl. Exh. A, § 15.) Thus far, the agreement is mutual in its obligations.

But Plaintiff rightly points to another provision in the agreement stating as follows:

Equitable Relief. Employee expressly agrees and understands that any breach by Employee of this Agreement will result in irreparable harm to JM, and that the damages flowing from such breach cannot be adequately measured in monetary terms. Employee further expressly acknowledges that the remedy at law for any breach by Employee of this Agreement will be inadequate. Accordingly, it is agreed that JM shall be entitled, among other remedies, to immediate equitable relief, from a court having jurisdiction over the matter including a temporary restraining order, preliminary injunction and permanent injunction for any such breach or threatened breach. The party prevailing in any such action or proceeding shall be paid all reasonable attorneys’ fees by the other party as well as costs. (Merritt Decl. Exh. A, § 4.)

This provision lacks mutuality and is unconscionable. While a provision in an arbitration agreement allowing an employer to seek equitable relief in court for violations of a non-disclosure agreement is not necessarily unconscionable, it becomes unconscionable “when it authorizes the stronger party to obtain injunctive relief without establishing all of the essential elements for the issuance of an injunction.” (Lange v. Monster Energy Company (2020) 46 Cal.App.5th 436, 451.) That is precisely what the above provision permits. An employee seeking equitable relief in court pursuant to the agreement would be required to prove all elements required for such relief, while the above provision allows the employer to claim that the elements of irreparable harm are already established. Thus this provision is substantively unconscionable.

Plaintiff’s argument with respect to the lack of discovery provisions in the agreement is less persuasive. Without such a provision, the agreement may nonetheless be interpreted to imply a requirement of adequate discovery to vindicate the employee’s claims. “We further infer that when parties agree to arbitrate statutory claims, they also implicitly agree, absent express language to the contrary, to such procedures as are necessary to vindicate that claim.” (Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, 106.)

Plaintiff cites the incorporated JAMS arbitration rules, which guarantee the parties one deposition of the opposing party, and requires exchange of written documents, without provision for interrogatories. (Opposition at pp. 12–13; JAMS Employment Arbitration Rule 17.) However, the rule does not suggest that parties are limited to this default discovery. The rule provides for the exchange of “all non-privileged and other information, . . . relevant to the dispute or claim,” making clear that the initial exchange of documents is mandated “without limitation.” (JAMS Rule 17.) The arbitrator is authorized to modify these discovery obligations at the preliminary conference, and the provision expressly permits the arbitrator to authorize additional depositions, as well as resolve other discovery “disputes.” (Ibid.) “Normally, we assume the arbitrator will act reasonably and in conformity with the law.” (Ramirez v. Charter Communications, Inc. (2024) 16 Cal.5th 478, 506.)

Plaintiff’s argument as to the fees and costs provision is also unpersuasive, for the arbitration agreement, even as it states that the parties are to equally bear “the costs for the arbitration,” also states that no such burden shall be placed on the employee if doing so “would invalidate this agreement or would otherwise be contrary to the law as it exists at the time of the arbitration.” (Merritt Decl. Exh. A, § 15.) This qualifying language spares the contract from an interpretation mandating the employee bear the costs of arbitration to vindicate their statutory rights. (See Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, 110–111.)

Plaintiff finally argues that the agreement also contains a non-compete or non-solicitation clause in violation of California law. (Opposition at p. 14.) But this substantive term has little effect on the dispute resolution process envisioned in the arbitration agreement, and accordingly has little bearing on the unconscionability of that agreement.

The court has thus found one substantively unconscionable provision in the parties’ arbitration agreement. This does not necessarily warrant denial of the motion, because unconscionable provisions may be severed from the agreement, and the agreement enforced, under certain circumstances:

A trial court has the discretion to refuse to enforce an agreement as a whole if it is permeated by the unconscionability. The overarching inquiry is whether the interests of justice would be furthered by severance. If the central purpose of a contractual provision, such as an arbitration agreement, is tainted with illegality, then the provision as a whole cannot be enforced. If the illegality is collateral to the main purpose of the contractual provision, and can be severed or restricted from the rest, then severance is appropriate. (Carmona v. Lincoln Millennium Car Wash, Inc. (2014) 226 Cal.App.4th 74, 90, internal quotation marks, citations, and alterations omitted.) “When an arbitration agreement contains multiple unconscionable provisions, such multiple defects indicate a systematic effort to impose arbitration on an employee not simply as an alternative to litigation, but as an inferior forum that works to the employer's advantage.” (Ibid, internal quotation marks and alterations omitted.)

Here, the court has identified one unconscionable aspect of the agreement: that permitting the employer a lesser burden when it seeks equitable relief against the employee for violations of the agreement, a benefit not conferred upon the employee. Although this represents a lack of mutuality, such a provision is readily severable, from the rest of the agreement, allowing the arbitration to take place on the equal playing field provided in the body of that provision. This resolution is in keeping with the rest of the agreement, which includes a severability provision, preferring the severance of particular clauses to the invalidation of the whole agreement. (Merritt Decl. Exh. § 7.)

The Court severs that provision from the arbitration agreement.

The motion is therefore GRANTED.