Judge: Mark A. Young, Case: 23SMCV01158, Date: 2023-12-08 Tentative Ruling
Case Number: 23SMCV01158 Hearing Date: December 8, 2023 Dept: M
CASE NAME: Barnes, et
al., v. California Landmark Group, et al.
CASE NO.: 23SMCV01158
MOTION: Petition/Motion
to Compel Arbitration
HEARING DATE: 12/8/2023
Legal
Standard
Under California and federal law,
public policy favors arbitration as an efficient and less expensive means of
resolving private disputes. (Moncharsh
v. Heily & Blase (1992)
3 Cal.4th 1, 8-9; AT&T Mobility
LLC v. Concepcion (2011) 563 U.S. 333, 339.) Accordingly, whether an
agreement is governed by the California Arbitration Act (“CAA”) or the Federal
Arbitration Act (“FAA”), courts resolve doubts about an arbitration agreement’s
scope in favor of arbitration. (Moncharsh, supra, 3 Cal.4th at 9;
Comedy Club, Inc. v. Improv West
Assocs. (9th Cir. 2009) 553 F.3d 1277, 1284; see also Engalla v. Permanente Med. Grp., Inc.
(1997) 15 Cal.4th 951, 971-972 [“California law incorporates many of the basic
policy objectives contained in the Federal Arbitration Act, including a
presumption in favor of arbitrability [citation] and a requirement that an
arbitration agreement must be enforced on the basis of state law standards that
apply to contracts in general”].) “[U]nder both the FAA and California law,
‘arbitration agreements are valid, irrevocable, and enforceable, save upon such
grounds as exist at law or in equity for the revocation of any contract.’ ” (Higgins v. Superior Crout (2006) 140 Cal.App.4th 1238, 1247.)
“Code of
Civil Procedure section 1281.2 requires a trial court to grant a petition to
compel arbitration if the court determines that an agreement to arbitrate the
controversy exists.” (Avery v.
Integrated Healthcare Holdings, Inc. (2013) 218 Cal.App.4th 50, 59,
quotations omitted.) Accordingly, “when presented with a petition to compel
arbitration, the court’s first task is to determine whether the parties have in
fact agreed to arbitrate the dispute.” (Ibid.) A petition to compel arbitration is in essence a suit in equity
to compel specific performance of a contract. (Id. at 71.) As with any other specific performance claim, “a
party seeking to enforce an arbitration agreement must show the agreement’s
terms are sufficiently definite to enable the court to know what it is to
enforce.” (Ibid. [internal citations omitted].) “Only
the valid and binding agreement of the parties, including all material terms
well-defined and clearly expressed, may be ordered specifically performed.” (Ibid.) An arbitration agreement “must be so interpreted as to give
effect to the mutual intention of the parties as it existed at the time of
contracting, so far as the same is ascertainable and lawful.” (Civ. Code, §
1636.) The language of the contract governs its interpretation if it is clear
and explicit. (Civ. Code, § 1368.) If uncertainty exists, “the language of a
contract should be interpreted most strongly against the party who caused the
uncertainty to exist.” (Civ. Code, § 1654.)
The party
seeking to compel arbitration bears the burden of proving the existence of a
valid arbitration agreement by the preponderance of the evidence. (Engalla v. Permanente Medical Group, Inc.
(1997) 15 Cal.4th 951, 972.) It would then be plaintiff’s burden, in opposing
the motion, to prove by a preponderance of the evidence any fact necessary to her
opposition. (See Ibid.) “In these
summary proceedings, the trial court sits as a trier of fact, weighing all the
affidavits, declarations, and other documentary evidence, as well as oral
testimony received at the court’s discretion, to reach a final determination.” (Ibid.)
EVIDENTIARY ISSUES
Plaintiff’s objections are OVERRULED.
Analysis
Defendants California
Landmark Group, YLD West LA, LLC, CLG Vermont Holdings LLC, CLG Woodland Plaza,
LLC, and CLG Gower, LLC, assert that the instant claims are required to go to
arbitration because Plaintiffs Daniel Barnes and Real Estate Ventures LLC
signed an agreement with an arbitration provision covering their claims.
As with any contract, mutual assent
or consent is necessary for the formation of a valid arbitration agreement.
(Civ. Code, §§ 1550, 1565.) “Consent is not mutual, unless the parties all
agree upon the same thing in the same sense.” (Civ. Code, § 1580.) The moving
party bears the initial burden of showing the existence of an agreement to
arbitrate by a preponderance of the evidence. (Mitri v. Arnel Mgmt. Co. (2007) 157 Cal.App.4th 1164, 1169
[“Because the existence of the agreement is a statutory prerequisite to
granting the petition, the petitioner bears the burden of proving its existence
by a preponderance of the evidence.”].)
There is no dispute that Defendants’
cited arbitration provision applies to the claim at hand. The Agreement states,
in relevant part:
Any controversy or claim arising
out of or relating to your employment shall be resolved by binding arbitration
in accordance with the Employment Arbitration Rules of the American Arbitration
Association, at an arbitration in Los Angeles County, California, before a
single arbitrator. The parties agree to pursue any and all claims individually
and waive any rights they may have to pursue said claims as a part of any class
or collective action. In that regard, the parties agree that the arbitrator
shall have no authority or jurisdiction to hear class or collective claims. To
ensure timely resolution of disputes, the party initiating arbitration must do
so within the statute of limitations (deadline for filing) provided by
applicable law pertaining to the claim. The failure to initiate arbitration
within this time limit will bar any such claim. This provision is not intended
to require arbitration of claims that, under the law at the time of the
dispute, cannot be arbitrated. The arbitration shall be governed by the state
law or federal law applicable to each specific claim brought, in primary
conformity with the Federal Arbitration Act, 9 U.S.C. § 1 et seq. and,
secondly, any state arbitration act. The parties agree to keep confidential,
and will not disclose to any person, except as otherwise required by law, the
existence of any controversy covered by this dispute resolution process, the
referral of any such controversy to arbitration or the status or resolution
thereof.
(Kahan Decl., ¶ 5, Ex. A ¶ 12, emphasis added.)
Plaintiffs do not dispute that they
signed and agreed to the above Agreement as a part of their employment with
Defendants. Plaintiffs only argue that the confidentiality provision highlighted
above renders the entire agreement unconscionable.
Procedural Unconscionability
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-Calabasas A, Inc. v. Moreno
(2013) 57 Cal.4th 1109, 1133.) It consists of both 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.) Although both components of unconscionability must be present to
invalidate an arbitration agreement, they need not be present in the same
degree. (Armendariz v. Found Health
Psychcare Servs., Inc. (2000) 24 Cal.4th 83, 114.) “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. [Citations.] 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.) “The party resisting arbitration
bears the burden of proving unconscionability.” (Pinnacle Museum Tower Assn. v. Pinnacle Market Dev. (US), LLC
(2012) 55 Cal.4th 223, 247.)
Plaintiffs do not demonstrate that
there was any procedural unconscionability in the formation of the Agreement. Simply
put, the record has no facts suggesting surprise or oppression. Courts
recognize that employment contracts generally have a degree of procedural
unconscionability due to their adhesive nature. (See Baltazar v. Forever 21 Inc. (2016)
62 Cal.4th 1237, 1246; [courts do not recognize that “adhesive” arbitration
agreements in the employment context establish a high degree of
procedural unconscionability absent “surprise or other sharp practices”]; see
also Nguyen v. Applied Medical Resources Corp. (2016) 4
Cal.App.5th 232, 248; [the fact that an arbitration agreement is presented as a
“take-it-or-leave-it” contract of adhesion in the employment context alone only
establishes a modest degree of procedural unconscionability].) However,
the context of this employment agreement differs dramatically from those
discussed in caselaw. This action involves an employment contract for an
executive position. (Compl., ¶ 9 [Plaintiffs would serve as defendants’ Vice
President].) Defendants’ unrebutted evidence shows Plaintiffs exercised
significant bargaining power during negotiations for this contract, and had a
meaningful choice in specific terms of the arbitration provision itself. On
November 12, 2020, Defendants sent an offer letter to Plaintiff via email,
which contained the binding arbitration provision. (Kahan Decl., ¶ 4.) Barnes
informed Defendants that he reviewed the Agreement with counsel. (Id.) Barnes
returned his offer of employment with redlines and substantial suggestions/edits
to the arbitration provision. (Id.) After an exchange of multiple drafts of his
offer of employment, on November 30, 2020, Barnes signed the Arbitration
Agreement on behalf of himself and DB. (Id., ¶¶ 4-5.) On this record, the Court
cannot conclude that this was a typical, adhesive employment contract. Thus, there
is no degree of procedural unconscionability present.
Plaintiffs otherwise fail to show
any other facts in support of procedural unconscionability. Without the
necessary factor of procedural unconscionability, Plaintiffs cannot
prevail on an unconscionability defense without such a showing, no matter how substantively
unconscionable the arbitration agreement provision.
Substantive Unconscionability
Plaintiffs cite to one term within
the arbitration agreement which they contend renders the agreement
unconscionable—the confidentiality provision. It states in relevant part:
The parties agree to keep
confidential, and will not disclose to any person, except as otherwise required
by law, the existence of any controversy covered by this dispute resolution
process, the referral of any such controversy to arbitration or the status or
resolution thereof.
(Kahan Decl., ¶ 5, Ex. A ¶ 12.) Plaintiffs argue that the
confidentiality provision is too broad, as it would require Plaintiffs to keep
the entire arbitration and even the existence of the controversy itself
completely confidential. Plaintiffs reason that this confidentiality provision
unfairly benefits Defendants by interfering with Plaintiff’s ability to prepare
for trial, as Plaintiffs could not conduct informal investigations or
ask third parties for evidence regarding the claims or affirmative defenses.
To an extent, the Court agrees that
that the confidentiality provision itself has some unfairness to it. Caselaw
has held that similar provisions generally provide an unfair advantage to
employers during arbitration. That said, in the context of this employment dispute,
the confidentiality provision alone is insufficient. All of Plaintiffs’
cited authority would require the Court to find some degree of procedural
unconscionability prior to finding the entire arbitration agreement
unconscionable. (Murrey v. Sup. Ct. (2023) 87 Cal.App.5th 1223; Davis
v. O'Melveny & Myers (9th Cir. 2007) 485 Fed.3d 1066; Pokorny v.
Quixstar, Inc. (2010) 601 F.3d 987 1002; Ting v. AT&T (9th Cir.
2003) 319 F.3d 1126.) Further, each authority unambiguously states that a
confidentiality provision in an arbitration agreement is not per se
unconscionable. (Murrey, supra, 87 Cal.App.5th at 1253; Davis, supra,
485 Fed.3d at 1079.)
In Murrey, the Court of
Appeal reversed a trial court’s order granting an employer’s motion to compel
arbitration because the arbitration provision had a confidentiality provision
that gave the employer an unfair advantage in litigation. (See Murrey, supra,
87 Cal.App.5th at 1253-1254.) However, Murrey is distinguishable on
multiple grounds. First, there were multiple other unconscionable terms which
infected the entire contract. The provisions in Murrey: 1) failed to
identify the DRO provider it selected for Murrey's work location, (2) failed to
designate a fallback set of accepted rules if the DRO changed, (3) failed to
designate a location for the arbitration, (4) failed to explain whether it knew
at the time of contracting which version of rules were applicable, and (5)
failed to give Murrey sufficient time to consider the terms. (Id. at
1239-1240.) The Murrey court found that these issues made the terms
illusory—the employer had the sole authority to designate a preferred DRO for
each of its locations, while at the same time authorizing the arbitrators to
expand or limit the set of rules. (Ibid.) Further, the Murrey
agreement required him to pay unique costs to arbitration, imposed severe
discovery limitations, limited the hearing on the merits, created conflicts of
interest between the supposed third-party dispute organization and the
employer, unfairly excluded claims that an employee might bring, and
contained a confidentiality provision substantially similar to the provision at
issue. (Id. at 1247-1252.) The Murrey court only found that the confidentiality
provision added to agreement's substantive unconscionability but did suggest
that the term alone rendered the contract unenforceable.
Murrey also discussed that
the confidentiality provision applied to a workplace sexual harassment and
retaliation action, which would violate public policy. The Murrey Court
explained that, in the context of a workplace sexual harassment, “[t]he notion
that courts should condone requirements keeping the outcome of forced
arbitration proceedings confidential is out of step with federal and sister
state case authority.” (Id. at 1254.) Confidentiality provisions like
this “blatantly benefits only [an employer] because it serves no purpose other
than to tilt the scales of justice in favor of the employer by denying access
to any information about other claims against the employer to other potential
victims of discrimination.” (Id.) Confidentiality provisions therefore put
employers into a superior position for future arbitration hearings regarding
similar issues, since future employees cannot take advantage of findings in
past arbitrations or prove a pattern of discrimination and/or retaliation,
while the employer retains a wealth of knowledge on how to litigate actions by
successive employees. (Id. at 1255; see Ting, supra, 319 F.3d at 1151-1152
[discussing “repeat player” effect].) Here, there are no equal public policies
at play. This is an isolated breach of contract dispute between a former Vice
President and his employer regarding his severance compensation. There are no
allegations of harassment, discrimination or patterns thereof. It is therefore unlikely
that other employees of Defendants would benefit from an open arbitration
record the same way as in Murrey or the other cited cases.
As
there is no procedural unconscionability, and there is no high degree of
substantive unconscionability, the subject Agreement is not unconscionable.
Conclusion
Defendants meet their burden to
demonstrate the existence of an arbitration agreement between the parties that
covers the claims. Plaintiffs, in turn, fail to demonstrate that the agreement
is unconscionable. Defendants’ motion is therefore GRANTED and the Court orders
Plaintiff’s claims to arbitration, as discussed above. The entire action is
STAYED pending the completion of the arbitration. (CCP § 1281.4.) The Court sets a status conference re
arbitration for December 12, 2024, at 8:30 a.m.