Judge: Lynne M. Hobbs, Case: 24STCV26537, Date: 2025-03-03 Tentative Ruling

Case Number: 24STCV26537    Hearing Date: March 3, 2025    Dept: 61

DAMIEN NAVARRO vs OUTFEST, et al.

Tentative:

Defendants Outfest, Inc., Alexis Fish, Valerie Stadler, and Zackery Alexzander Stephens’ Motion to Compel Arbitration is GRANTED.

Moving party to provide notice.

Analysis:

I. 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 valid agreement to arbitrate, and the party opposing arbitration bears the burden of proving by 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.)

Defendants Outfest, Inc., Alexis Fish, Valerie Stadler, and Zackery Alexzander Stephens (Defendants) move to compel arbitration of Plaintiff Damien Navarro’s (Plaintiff) claims, based on an arbitration agreement executed by Plaintiff on August 3, 2021. (Stadler Decl. Exh. A.) The agreement applies to “[a]ny controversy, dispute or claim between you and the Company or its officers, agents, or other employees.” (Stadler Decl. Exh. B.)

Plaintiff in opposition argues that the contract is an unenforceable contract of adhesion that lacks mutuality both in its scope and in its express exemption for claims likely to be brought by the company. (Opposition at pp. 3–8.)

“Unconscionability requires a showing of both procedural unconscionability and substantive unconscionability.” (Ajamian v. CantorCO2e, L.P. (2012) 203 Cal.App.4th 771, 795.) “The oppression that creates procedural unconscionability arises from an inequality of bargaining power that results in no real negotiation and an absence of meaningful choice.” (Grand Prospect Partners, L.P. v. Ross Dress for Less, Inc. (2015) 232 Cal.App.4th 1332, 1347–1348.) “Substantive unconscionability is not susceptible of precise definition. It appears the various descriptions—unduly oppressive, overly harsh, so one-sided as to shock the conscience, and unreasonably favorable to the more powerful party—all reflect the same standard. Substantive unconscionability is not concerned with a simple old-fashioned bad bargain.” (Id. at p. 1349, citations omitted.)

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 arbitration agreement here is drafted and presented by Defendant Outfest to Plaintiff (the “you” of the contract) expressly in consideration of his employment with Outfest. (Stadler Decl. Exh. B.) Defendants argue that Plaintiff possessed bargaining power, as he was hired for the Executive Director position, and negotiated his employment agreement at arms-length with Defendant Outfest, and further that the arbitration agreement, also sent to his attorney, could also have been negotiated if he chose. (Stadler Decl. ¶¶ 8–9.) But Plaintiff denies that he had an attorney at that time. (Navarro Decl. ¶¶ 5–7.) And although Defendants present an email indicating what are evidently negotiated terms of a new employment agreement, these terms relate to payment and length of the term of employment, and there is no evidence of negotiation of the arbitration terms. (Supp. Stadler Decl. Exh. A.) The agreement is thus at least minimally unconscionable.

The agreement is not, however, substantively unconscionable for permitting the arbitration of claims against Defendant’s “officers, agents, or other employees,” as Plaintiff argues. (Opposition at p. 6.) The case that Plaintiff identifies in support of his argument, Cook v. University of Southern California (2024) 102 Cal.App.5th 312), addressed an arbitration provision that required arbitration of all claims asserted by an employee, “whether or not arising out of Employee’s University employment,” and enforceable by “he University or any of its related entities, including but not limited to faculty practice plans, or its or their officers, trustees, administrators, employees or agents, in their capacity as such or otherwise.” (Id. at p. 317.) The court found a lack of mutuality in this clause, noting that the university had drafted an agreement that could be enforced by “broad swaths of third-party beneficiaries only in favor of USC without any showing of justification for this one-sided treatment.” (Id. at p. 326–327.) The court upheld a finding that this provision, sweeping in a “broadly defined” class of “related entities,” lacked mutuality, because the university employer had offered “[n]o explanation” as to why an employee “should be required to give up the ability to ever bring claims in court against a USC employee that are unrelated to USC or her employment there.” (Id. at p. 327.) Cook did not hold for the proposition that all agreements permitting arbitration of employment-related claims against the agents of an employer were unconscionable. As such, there is no unconscionability here.

Plaintiff has, however, identified one unconscionable provision: that exempting from arbitration, among other types of cases, “a court action seeking injunctive relief related to any restrictive covenants, such as non-solicitation or non-disclosure restrictions.” (Stadler Decl. Exh. A.) Similar provisions have been held unconscionable because restrictive covenants are most likely to be enforced by the employer against the employee, meaning the clause at issue preserves for the employer a limited remedy in court while the employee is consigned to arbitration: “The . . . policy is unfairly one-sided because it compels arbitration of the claims more likely to be brought by [the employee], the weaker party, but exempts from arbitration the types of claims that are more likely to be brought by [the employer], the stronger party.” (Fitz v. NCR Corp. (2004) 118 Cal.App.4th 702, 725.)

Defendants’ arguments in support of the clause misconstrue Plaintiff’s position. Plaintiff does not contend that the agreement is unconscionable for permitting injunctive relief — it allows both parties to obtain “temporary equitable relief in aid of arbitration” (Stadler Decl. Exh. A) — but because it specifically exempts from arbitration “court action[s]” in which injunctive relief is sought for the violation of restrictive covenants, claims most likely to be brought by employers. (Reply at p. 12.) The provision is thus substantively unconscionable.

It is, however, severable from the wider agreement:

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, although Plaintiff has identified some procedural unconscionability, it is at a low level, given his high position within the company, his evident ability to negotiate other terms of his employment agreement, and his admission in the Complaint that his assumption of the executive director position involved “a significant cut in pay to take on this public service position.” (Complaint ¶ 12.) Plaintiff identifies one discrete clause that is substantively unconscionable, and the agreement is not permeated with unconscionability. The agreement indeed contains a severability clause. (Stadler Decl. Exh. A.)

The motion is therefore GRANTED.