Judge Mark V. Mooney, Case 20STCV18085 2022-10-20 Tentative Ruling

Judge: Mark V. Mooney, Case: 20STCV18085, Date: 2022-10-20 Tentative Ruling

Case Number: 20STCV18085 Hearing Date: October 20, 2022 Dept: 68

GABRIEL, ET AL. VS. PIXELOGIC MEDIA PARTNERS, LLC, 20STCV18085

MOTION TO COMPEL ARBITRATION AND DISMISS/STAY ACTION

Background

On May 12, 2020, Plaintiffs filed this action. They subsequently filed a Second Amended Complaint for Damages against Defendant on November 4, 2020. The SACC asserts a cause of action under the Private Attorneys General Act. On August 12, 2022, Defendant filed the instant motion to compel arbitration. Plaintiffs oppose Defendant’s motion.

Discussion

I. Motion to Compel Arbitration

Defendant has moved to compel arbitration as to Plaintiffs’ individual PAGA claims. (Motion at p. 2.)

California law incorporates many of the basic policy objectives contained in the Federal Arbitration Act, including a presumption in favor of arbitrability. (Engalla v. Permanente Medical Group, Inc. (1997) 15 Cal.4th 951, 971-972.) The petitioner bears the burden of proving the existence of a valid arbitration agreement by the preponderance of the evidence. The party opposing the petition then bears the burden of proving by a preponderance of the evidence any fact necessary to demonstrate that there should be no enforcement of the agreement, and the trial court sits as a trier of fact to reach a final determination on the issue. (Rosenthal v. Great Western Financial Securities Corp. (1996) 14 Cal.4th 394, 413.) The Court is empowered by Code of Civil Procedure section 1281.2 to compel parties to arbitrate disputes pursuant to an agreement to do so.

Code of Civil Procedure § 1281.2 states that:

“The court shall order the petitioner and the respondent to arbitrate the controversy if it determines that an agreement to arbitrate the controversy exists, unless it determines that:

(a) The right to compel arbitration has been waived by the petitioner; or

(b) Grounds exist for the revocation of the agreement. * * * ”

(Code Civ. Proc., § 1281.2.)

The party petitioning to compel arbitration under written arbitration agreement bears the burden of proving the existence of a valid arbitration agreement by a preponderance of the evidence, and party opposing petition must meet the same evidentiary burden to prove any facts necessary to its defense. The trial court acts as the trier of fact, weighing all the affidavits, declarations, and other documentary evidence. (Code Civ. Proc., § 1281.2; Provencio v. WMA Securities, Inc., 125 Cal.App.4th 1028, 1031.)

A. Existence of an Agreement

Under California law, arbitration agreements are valid, irrevocable, and enforceable, except on such grounds that exist at law or equity for voiding a contract. (Winter v. Window Fashions Professions, Inc. (2008) 166 Cal.App.4th 943, 947.) The party moving to compel arbitration must establish the existence of a written arbitration agreement between the parties. (Code of Civ. Proc. § 1281.2.) In ruling on a motion to compel arbitration, the court must first determine whether the parties actually agreed to arbitrate the dispute, and general principles of California contract law help guide the court in making this determination. (Mendez v. Mid-Wilshire Health Care Center (2013) 220 Cal.App.4th 534, 541.)

Once petitioners allege that an arbitration agreement exists, the burden shifts to respondents to prove the falsity of the purported agreement, and no evidence or authentication is required to find the arbitration agreement exists. (See Condee v. Longwood Mgt. Corp. (2001) 88 Cal.App.4th 215, 219.) However, if the existence of the agreement is challenged, "petitioner bears the burden of proving [the arbitration agreement's] existence by a preponderance of the evidence." (Rosenthal v. Great Western Fin. Securities Corp. (1996) 14 Cal.4th 394, 413. See also Espejo v. Southern California Permanente Medical Group (2016) 246 Cal.App.4th 1047, 1058-1060.)

“With respect to the moving party's burden to provide evidence of the existence of an agreement to arbitrate, it is generally sufficient for that party to present a copy of the contract to the court. (See Condee v. Longwood Management Corp. (2001) 88 Cal.App.4th 215, 218); see also Cal. Rules of Court, rule 3.1330 [“A petition to compel arbitration or to stay proceedings pursuant to Code of Civil Procedure sections 1281.2 and 1281.4 must state, in addition to other required allegations, the provisions of the written agreement and the paragraph that provides for arbitration. The provisions must be stated verbatim or a copy must be physically or electronically attached to the petition and incorporated by reference”].) Once such a document is presented to the court, the burden shifts to the party opposing the motion to compel, who may present any challenges to the enforcement of the agreement and evidence in support of those challenges. [Citation]” (Baker v. Italian Maple Holdings, LLC (2017) 13 Cal.App.5th 1152, 1160.)

Here, Defendant has met its initial burden of showing that an arbitration agreements exist with Defendants. (Williams Decl., ¶¶ 6-9; Exs. J, K.) The arbitration agreements provided by Defendant contain signatures from Plaintiffs.

Plaintiffs do not dispute the existence of the arbitration agreements or that they signed the agreements. Instead, Plaintiffs argue that the agreements are unenforceable due to unconscionability. (Opposition at p. 5.)

Based on the foregoing, because Defendant has proven the existence of the arbitration agreements, the Court proceeds to analyze whether the arbitration agreements are enforceable.

B. Unconscionability

Plaintiffs argue that the arbitration agreements should not be enforced because they are unconscionable. (Opposition at pp. 5-9.)

To satisfy conscionability requirements, an arbitration agreement must provide for the selection of a neutral arbitrator, allows both parties to “take all reasonable discovery provided by law;” gives the arbitrator the authority to “provide any relief available in a court of law or equity;” requires the arbitration decision to be in “writing setting forth…findings by fact and conclusion of law;” and the arbitration fees to be paid by Defendant. (See Armendariz v. Found Health Psychcare Services, Inc. (2000) 24 Cal.4th 83.) The arbitration agreements in this case satisfy these requirements. (Williams Decl., ¶¶ 6-9; Exs. J, K.)

Further, an arbitration agreement is unenforceable if it is both procedurally and substantively unconscionable. (OTO, L.L.C. v. Kho (2019) 8 Cal.5th 111, 125; Sanchez v. Valencia Holding Co., LLC (2015) 61 Cal.4th 899, 910.) But procedural and substantive unconscionability need not be present in the same degree. (OTO, supra, 8 Cal.5th at 125.) Courts use a “sliding scale” approach—“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.” (Armendariz v. Found Health Psychcare Services, Inc., supra, 24 Cal.4th at 114.) Under general contract principles, unconscionability has both a procedural and substantive element, with the former focusing on oppression or surprise due to unequal bargaining power, and the latter focusing on overly harsh or one-sided rules. (Id.) Both procedural and substantive unconscionability must be present in order for a court to exercise its discretion to refuse to enforce a contract on the basis of unconscionability. (Stirlen v. Supercuts, Inc. (1997) 51 Cal.App.4th 1519, 1533.)

i. Procedural Unconscionability

“Procedural unconscionability pertains to the making of the agreement; it focuses on the oppression that arises from unequal bargaining power and the surprise to the weaker party that results from hidden terms or the lack of informed choice.” (Ajamian v. CantorCO2e, L.P. (2012) 203 Cal.App.4th 771, 795.)

An adhesion contract does not per se render an arbitration agreement unenforceable. (Graham v Scissor-Tail, Inc. (1981) 28 Cal.3d 807, 817 [“A compulsory predispute arbitration agreement is not rendered unenforceable just because it is required as a condition of employment.”]; Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, 113; Lagatree v. Luce, Forward, Hamilton, & Scripps (1999) 74 Cal.App.4th 1105, 1127 [“a compulsory predispute arbitration agreement is not rendered unenforceable just because it is . . . offered on a ‘take it or leave it’ basis”].)

California courts routinely enforce adhesive, “take-it-or-leave-it” arbitration agreements. (Diaz v. Sohnen Enterprise (2019) 34 Cal.App.5th 126 129 [reversing trial court’s denial of employer’s motion to compel arbitration where the trial court found the agreement was a “take-it or leave-it contract… [with] no meeting of the minds”]; Sanchez v. Carmax Auto Superstores California, LLC (2014) 224 Cal.App.4th 398, 403 [enforcing an employer’s arbitration agreement and holding that its adhesive nature was evidence of only “some degree of procedural unconscionability”].) In any event, adhesion establishes only a “low” degree of procedural unconscionability. (Serpa v. California Sur. Investigations, Inc. (2013) 215 Cal.App.4th 695, 704.) And even if the contract is adhesive, that finding, standing alone, cannot prevent enforcement of the agreements if there is no evidence of “surprise or other sharp practices” by Defendant. (Baltazar v. Forever 21, Inc. (2016) 62 Cal.4th 1237, 1245 [“[t]he adhesive nature of the employment contract requires us to be ‘particularly attuned’ to her claim of unconscionability [citation], but we do not subject the contract to the same degree of scrutiny as ‘[c]ontracts of adhesion that involve surprise or other sharp practices.’”]; Serafin v. Balco Props. Ltd., LLC (2015) 235 Cal.App.4th 165, 179 [“the fact that the arbitration agreement is an adhesion contract does not render it automatically unenforceable as unconscionable”].)

Here, Plaintiffs argue that the arbitration agreements are procedurally unconscionable because they allege that the agreements were a condition of their employment and were offered on a take-it-or-leave-it basis. (Opposition at pp. 7-8.) Defendant claims that the agreements at issue were not contracts of adhesion because employees are free to negotiate the terms of their offer letter. (Williams Decl. ¶ 5.) However, even if the arbitration agreements were being offered on a take-it-or-leave-it basis, that is not enough to render the agreements procedurally unenforceable. There is no evidence of surprise in this case, and even if the agreements are adhesive, that offers only a low degree of procedural unconscionability and is not enough to prevent enforcement of the agreements.

Accordingly, the Court finds that there is no procedural unconscionability sufficient to bar enforcement of the arbitration agreements.

ii. Substantive Unconscionability

Substantive unconscionability focuses on the actual terms of the agreement and evaluates whether the terms create overly harsh or one-sided results as to shock the conscience. (Suh v. Superior Court (2010) 181 Cal.App.4th 1504, 1515.)

Plaintiffs argue that the arbitration agreements are substantively unconscionable because they fail to have provisions for adequate discovery, and the repeat player effect gives Defendant an unfair advantage. (Opposition at pp. 5-7.)

a. Provisions for Adequate Discovery

Plaintiffs argue that the arbitration agreements do not have provisions for adequate discovery and limit the discovery process. (Opposition at p. 6.) However, as Defendant points out, that is not the case. (Reply at pp. 3-4.) The arbitration agreements do not limit discovery in any way. (Williams Decl., ¶¶ 6-9; Exs. J, K.) The agreements provide for discovery based on the provisions of CCP §§ 1280 et seq., which make up the California Arbitration Act and delineate the scope of discovery during arbitration.

Therefore, the arbitration agreements provide for adequate discovery.

b. Repeat Player Effect

Plaintiffs allege that the arbitration agreements are substantively unconscionable because they may be prone to the repeat player effect. (Opposition at pp. 6-7.) Defendant argue that this is not the case because the agreements provide for a neutral arbitrator, and Plaintiffs have not put forth any evidence showing that Defendant would be a repeat player. (Reply at p. 4.) The agreements do provide for a neutral arbitrator. (Williams Decl., ¶¶ 6-9; Exs. J, K.)

Therefore, the arbitration agreements are not prone to the repeat player effect and are not unenforceable due to substantive unconscionability.

C. Conclusion Regarding Motion to Compel Arbitration

Accordingly, Plaintiffs have not met their burden showing that the arbitration agreements are unenforceable due to unconscionability. Therefore, the agreements are enforceable, and Defendant’s motion to compel arbitration as to Plaintiffs’ individual PAGA claims is granted.

II. Motion to Dismiss Plaintiffs’ Representative PAGA Complaints

Defendants have requested that the Court dismiss Plaintiffs’ representative PAGA claims based on the recent U.S. Supreme Court (SCOTUS) ruling in Viking River Cruises, Inc. v. Moriana. Plaintiffs, in opposition, have asked the Court to find that they retain their standing for representative PAGA claims and that the action on the representative claims should be stayed pending the resolution of Plaintiffs’ individual claims.

A. Representative PAGA Claims

Defendant’s request to dismiss Plaintiffs’ representative PAGA claims is based on the Supreme Court’s ruling in Viking River Cruises, Inc. v. Moriana. In that case, SCOTUS stated that “PAGA provides no mechanism to enable a court to adjudicate non-individual PAGA claims once an individual claim has been committed to a separate proceeding. Under PAGA's standing requirement, a plaintiff can maintain non-individual PAGA claims in an action only by virtue of also maintaining an individual claim in that action. See Cal. Lab. Code Ann. §§ 2699(a), (c). When an employee's own dispute is pared away from a PAGA action, the employee is no different from a member of the general public, and PAGA does not allow such persons to maintain suit.” (Viking River Cruises, Inc. v. Moriana (2022) 142 S.Ct. 1906, 1925.) Defendant maintains that because Plaintiffs individual matters have been pared away as separate arbitration proceedings, then they can no longer maintain their causes of action for representative PAGA claims.

Defendant asserts that this comes down to a matter of preemption. (Reply at p. 9.) Because the state statute, PAGA, conflicts with the FAA, then SCOTUS has the final say on what happens. (See Perry v. Thomas (1987) 482 U.S. 483, 492-493.) While this is typically true, in J. Sotomayor’s concurrence to the majority opinion, she opines that SCOTUS came to its conclusion based on its understanding of California law and guidance from California state courts, which conclusion by the Court may be erroneous. (Viking River Cruises, supra, 142 S.Ct. at 1925.) She further reasons that California courts, in an appropriate case, could have the last word, or the California legislature could modify the statutory standing under PAGA within state and federal constitutional limits. (Id. at 1925-1926.)

The question of standing to assert a representative PAGA claim when an individual’s PAGA claim has been separately adjudicated is a question of interpreting California law. At present the question remains an open question, notwithstanding the United States Supreme Court’s suggestion that standing would not exist once the individual’s claims have been adjudicated. Therefore dismissal of the representative PAGA claim at this time is not justified.

B. Plaintiffs’ Request for a Stay

Plaintiffs have requested that this Court issue a stay on the matter of their representative PAGA claims pending the resolution of Plaintiffs’ individual PAGA claims. (Opposition at p. 13.) That is a sound suggestion. This Court shall stay this action and make a decision on representative PAGA claims in the future, likely after the California Supreme Court’s decision in Adolph v. Uber Technologies, S274671. Dismissing Plaintiffs’ representative PAGA claims prior to a decision in Adolph may lead to unnecessary litigation.

Accordingly, this Court defers its decision on a dismissal of Plaintiffs’ representative PAGA claims until resolution of Plaintiffs’ individual PAGA claims or until the California Supreme Court’s decision in Adolph, whichever comes first.

Conclusion Regarding Representative PAGA Claims

Defendant’s motion to compel arbitration as to the individual PAGA claims is granted. The case is stayed pending arbitration of those matters. (Code Civ. Proc. §§ 1281.4, 1292.6.) The Court defers its decision on Defendant’s motion to dismiss Plaintiffs’ representative PAGA claims until resolution of Plaintiffs’ individual PAGA claims or until the California Supreme Court’s decision in Adolph, whichever comes first. At that point in time the Court contemplates that a status conference shall be in order to determine how best to proceed with the representative PAGA action.