Judge: Mark H. Epstein, Case: 23SMCV05544, Date: 2024-04-10 Tentative Ruling

Case Number: 23SMCV05544    Hearing Date: April 10, 2024    Dept: I

This is an unusual case.  The defense brings a motion to compel arbitration.  Plaintiff opposes.

Plaintiff contracted with defendant to provide treatment for her at a very difficult time in her life.  At least a fair reading of the complaint and the evidence demonstrates that she was in an emotionally vulnerable position at the time.  Plaintiff asserts that defendants promised that they could and would provide the treatment and therapy she needed to improve.  The fee was significant.

After arriving at defendants’ facility, the therapist in charge of plaintiff’s case was Muniz.  However, plaintiff alleges that he was hardly to be found and provided little or no actual therapy.  When she complained to management, she asserts that her complaints were ignored.  In addition, in part because she was allegedly ignored by Muniz, she received significant treatment from Rivera.  According to the complaint, Rivera engaged in sexual misconduct during and outside of the therapy sessions.  Plaintiff also alleges that management did nothing about that problem either.  She has brought suit.  Defendants ask the court to order the matter to arbitration pursuant to an arbitration clause in the contract plaintiff signed when admitted to the facility.

Plaintiff argues that, at least with regard to the sexual harassment and misconduct, the arbitration clause is unenforceable under 9 U.S.C. § 402.  That statute renders pre-litigation arbitration agreements unenforceable for events of sexual harassment occurring at the time the events here in question allegedly occurred.  Defendants do not really question this, although plaintiff anticipated that they might on the theory that plaintiff was not defendants’ employee.  The court considers the motion withdrawn as to those causes of action.

The court therefore DENIES the motion as it relates to Rivera’s alleged misconduct and any torts against any defendant arising therefrom.  The court agrees with plaintiff that section 402 is broad enough to cover not only the suit against the alleged sexual harasser, but also causes of action that are closely related to those allegations, which would include things like negligent supervision of Rivera.

The problem is the rest of the case.  Plaintiff does not allege any sexual misconduct by Muniz, and Muniz’s supervision does not appear to be tied to sexual misconduct allegations.  To hold otherwise would allow an unscrupulous plaintiff to elude an arbitration agreement by including a stray case within 402 even though the bulk of the case has nothing to do with sexual misconduct.  (Mera v. SA Hospitality Group, LLC (S.D.N.Y. 2023) 675 F.Supp.3d 442.)  Thus, it would seem that section 402 would not apply to those aspects of the case.  But it would not apply to the remainder, specifically the first and third causes of action.  If the court were to agree with the defense, it would mean that if the court grants the motion, this case would be severed; part of it being tried in court and part being arbitrated.  And, because section 402 reflects a strong public policy, the court would not be inclined to stay the court matter pending arbitration of the Muniz-related and other non-arbitrated claims.  In the court’s view, that is a close question.

But plaintiff alleges more.  She alleges that the arbitration agreement is unconscionable.  And that is a tougher question.  Plaintiff notes that the arbitration agreement was presented on a take-it-or-leave-it basis, making it a contract of adhesion.  Defendants suggest such is not the case.  Given the high price tag of their treatment, defendants suggest that plaintiff could shop around and did not need to accept their facility.  That might be, but the contract was still adhesive.  Further, defendants knew that plaintiff was in an extremely vulnerable position when she contacted them.  She was likely not able to consider the arbitration clause dispassionately and shop around for other facilities that did not insist on such a clause.  On balance, given the specific facts of this case, the court finds procedural unconscionability here.  But that is not enough; there must also be substantive unconscionability.  For that, plaintiff points to the limits on damages.  The contract limits damages and excludes any award for “losses, damages, costs or expenses for any special, indirect, incidental, consequential or punitive damages except as such limitation is prohibited by law.”

Damages limitations are not per se unconscionable.  They exist in many contracts.  But here, where therapy is being provided for an extremely vulnerable person, the court is not so sure than a contract of adhesion that limits damages so severely is proper.  There is some doubt as to what “special, indirect, incidental, [and] consequential” means.  It could mean that defendants are trying to protect themselves from a wage loss claim if the recovery takes too long.  But it could also be that they are trying to protect themselves from the harm caused by their own alleged misconduct to a vulnerable person.  And the court does not even know what “special” damages means in this context.  Does that mean that if defendants, through their misconduct, required plaintiff to seek treatment elsewhere, the cost of that treatment cannot be recovered?  That would seem unconscionable to the court given the nature of the services that defendants provide, plaintiff’s known emotional state when she signed up for treatment, and the allegations of deliberate misconduct.  If all of that is proven, the court believes it would be unconscionable for defendants’ liability to essentially be limited to a refund.  The same is true of consequential damages.  If plaintiff suffered emotionally due to Muniz’s alleged mistreatment and the company’s failure to do anything about it, is that consequential?  Further, the limit on punitive damages might or might not be permissible.  Of course, such a limit in a breach of contract cause of action would be permitted, or a negligence claim.  However, it is not clear that such is the actual limit attempted by the contract.  It is unclear to the court whether that would apply to Muniz’s alleged misconduct or the claim that defendants, when they persuaded plaintiff to treat with them, well knew that they were ill-equipped to provide therapy and that they would not be able to deliver on the promises they made (which is what plaintiff alleges).  Allegations like that sound in fraud and, if proven, could be sufficient given plaintiff’s emotional state at the time and that defendants were aware of that state to warrant punitive damages.  The court is not comfortable saying, under the unique circumstances of this case, that the broad damages limitation is proper.  And that is substantive unconscionability.

The court must also decide whether to exercise its discretion and simply strike the offending clause.  The court declines to do so here, again because of the odd facts of this case.  Essentially the defense is asking that the case be bifurcated—part being arbitrated and part being tried.  Doing it that way defeats just about all of the benefits of arbitration—there will not be a less expensive, speedy resolution of the case through private resolution.  In fact, it will be significantly more expensive—at least cost-wise—because the parties will need to pay all of the court costs and the arbitration costs as well.  Further, many of the witnesses will be the same, essentially requiring the same evidence to be heard in two fora.  But equally problematic, although the parts of the case dealing with sexual harassment may not be inextricably intertwined with the rest of the case, they are intertwined and (in the court’s view) related.  Rivera’s role was enhanced because Muniz allegedly did so poorly.  Management’s actions form a pattern (if true), which could be relevant to the arbitrated and non-arbitrated portions of the case.  The damages may be related: the fact that Muniz allegedly so badly failed might make the damages from Rivera’s alleged misconduct worse or vice versa.  And when one is talking about emotional distress (and we are), it may be hard or potentially arbitrary to disentangle what caused what distress.  So while the court might not find that the two part of the case are quite one and the same, neither are they hermetically sealed.  And the test is not inextricably intertwined, it is merely whether the causes of action relate to one another.  Given the lower standard, the court cannot enforce the arbitration provision, but frankly, even if the standard were “inextricably intertwined,” the court would deny the motion given the contract’s unconscionability.

Under all of the unusual facts of this case, the court believes that it is within its discretion to DENY the motion entirely.  The court is aware that this order is appealable.  The court will, therefore, STAY the matter until the time to appeal has expired or until any timely appeal is resolved.  That said, plaintiff may, of course, request the Court of Appeal to vacate the stay, which the court would be pleased to do.