Judge: Martha K. Gooding, Case: 2022-01255765, Date: 2022-09-26 Tentative Ruling

1) Motion to Compel Arbitration

 

2) Case Management Conference

 

The Motion by Defendant Sillage LLC for an order compelling Plaintiff Helen Jones (“Plaintiff”) to arbitrate her claims against it in this action is GRANTED. 

 

The Court orders arbitration pursuant to the provisions in Plaintiff’s employment agreement, with the exception that the Court severs the provision limiting the arbitrator’s authority to award punitive damages.  [See Yu Decl., Ex. A (Employment Agreement) at §10.E.] These proceedings are stayed pending completion of the arbitration.

 

The Court did not consider the unauthenticated exhibit attached to Defendant’s reply brief.

 

Code Civ. Proc. § 1281.2 provides, inter alia:

 

“On petition of a party to an arbitration agreement alleging the existence of a written agreement to arbitrate a controversy and that a party thereto refuses to arbitrate such controversy, 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.

(c)  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. …”

 

(Emphasis added.) 

 

“‘[W]hen a petition to compel arbitration is filed and accompanied by prima facie evidence of a written agreement to arbitrate the controversy, the court itself must determine whether the agreement exists and, if any defense to its enforcement is raised, whether it is enforceable.  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.  If the party opposing the petition raises a defense to enforcement--either fraud in the execution voiding the agreement, or a statutory defense of waiver or revocation (see § 1281.2, subds. (a), (b))--that party bears the burden of producing evidence of, and proving by a preponderance of the evidence, any fact necessary to the defense.’”  Hotels Nevada v. L.A. Pacific Center, Inc. (2006) 144 Cal. App. 4th 754, 761, quoting Rosenthal v. Great Western Fin. Securities Corp. (1996) 14 Cal. 4th 394, 413. 

 

While there is a policy in favor of arbitration and doubts are to be resolved in favor of arbitration, there is no public policy in favor of compelling persons to accept arbitration of controversies they have not agreed to arbitrate.  Id. at 739; Mitri v. Arnel Management Co. (2007) 157 Cal. App. 4th at 1170; Greenspan v. LADT, LLC. (2010) 185 Cal. App. 4th 1413, 1437.  As a general rule, a party cannot be compelled to arbitrate a dispute that he or she has not agreed to resolve by arbitration.  Buckner v. Tamarin (2002) 98 Cal. App. 4th 140, 142; Benasra v. Marciano (2001) 92 Cal. App. 4th 987, 990 (“The strong public policy in favor of arbitration does not extend to those who are not parties to an arbitration agreement, and a party cannot be compelled to arbitrate a dispute that he has not agreed to resolve by arbitration”). 

 

Consequently, the first step in determining whether to grant a motion to compel contractual arbitration is to determine whether there was, in fact, an agreement to arbitrate the pending dispute. 

 

          Defendant Has Shown the Existence of an Agreement.

 

Here, there was an agreement to arbitrate that encompasses the claims at issue here.  It is undisputed Plaintiff signed the employment agreement with the arbitration provision.  Plaintiff does not contend she did not know what she was signing.

 

Rather, Plaintiff’s defense against the arbitration agreement she signed is her contention that it is unconscionable.

 

Is the Arbitration Agreement Unenforceable for Unconscionability?

 

Unconscionability is one ground on which a court may refuse to enforce a contract, including an arbitration agreement.  Civ. Code §1670.5.  Whether a provision is unconscionable is a question of law.  Civ. Code §1670.5(a); Flores v. Transamerica (2001) 93 Cal. App. 4th 846, 851.

 

The core concern of unconscionability doctrine is the 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, 1145.

“If the court as a matter of law finds the contract or any clause of the contract to have been unconscionable at the time it was made the court may refuse to enforce the contract, or it may enforce the remainder of the contract without the unconscionable clause, or it may so limit the application of any unconscionable clause as to avoid any unconscionable result.”  Civ. Code §1670.5(a); Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal. 4th 83, 122.  The absence of a severability clause is irrelevant to the determination whether the offensive provisions are “severable” for purposes of unconscionability analysis.  Severability is decided as a matter of state law.  Terminix Int’l Co., LP v. Palmer Ranch Ltd. Partnership (11th Cir. 2005) 532 F.3d 1327, 1331.

 

Unconscionability has both a procedural and a substantive element:  the procedural element focuses on the existence of oppression or surprise, and the substantive element focuses on overly harsh or one-sided results.  Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal. 4th 83, 114. 

 

To be unenforceable, a contract must be both procedurally and substantively unconscionable, but the elements need not be present in the same degree.  The analysis employs a sliding scale:  “…the more substantively oppressive 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. Foundation Health Psychcare Services, Inc. (2000) 24 Cal. 4th 83, 114; Mercuro v. Superior Court (2002) 96 Cal. App. 4th 167, 174-75.   

 

Procedural Unconscionability

 

Procedural unconscionability concerns the manner in which the contract was negotiated and the parties’ circumstances at that time.  It focuses on the factors of oppression or surprise.  Kinney v. United HealthCare Services, Inc. (1999) 70 Cal. App. 4th 1322, 1329.

 

Procedural unconscionability is often found in contracts of adhesion – i.e. standardized contracts which, imposed and drafted by the party of superior bargaining strength, relegate to the subscribing party only the opportunity to adhere to the contract or to reject it.  Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal. 4th 83, 113.  “When the weaker party is presented the clause and told to take it or leave it without the opportunity for meaningful negotiation, oppress, and therefore procedural unconscionability, are present.”  Szetela v. Discover Bank (2002) 97 Cal. App. 4th 107, 114.  See also Lhotka v. Geographic Expeditions, Inc. (2010) 181 Cal. App. 4th 816, 821-24 (finding take it or leave it contract for recreational activity procedurally unconscionable even though activity not a “necessity”).  A “meaningful opportunity to negotiate or reject the terms of a contract requires, at a minimum, that a party have reasonable notice of the opportunity to negotiate or reject the terms of the contract and an actual, meaningful, and reasonable choice to exercise that discretion.  Circuit City Stores, Inc. v. Mantor (9th Cir. 2003) 335 F. 3d 1101, 1106.

 

“Oppression arises from an inequality of bargaining power which results in no real negotiation and an absence of meaningful choice.”  Crippen v. Central Valley RV Outlet (2004) 124 Cal. App. 4th 1159, 1165 (citation omitted).  “When the weaker party is presented the clause and told to ‘take it or leave it’ without the opportunity for meaningful negotiation, oppression, and therefore procedural unconscionability, are present.”  Szetela v. Discover Bank (2002) 97 Cal. App. 4th 1094, 1100 (citation omitted). 

 

Contracts of adhesion in the employment context that are offered on a take-it-or-leave-it basis typically contain some aspect of procedural unconscionability.  See Tiri v. Lucky Chances, Inc. (2014) 226 Cal. App. 4th 231, 245 (“In the employment context, ‘the economic pressure exerted by employers on all but the most sought-after employees may be particularly acute, for the arbitration agreement stands between the employee and necessary employment, and few employees are in a position to refuse a job because of an arbitration requirement.’”).

Surprise usually involves supposedly agreed-upon terms buried in complex documentation.  Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal. 4th 83, 114.

 

Here, there is some degree of procedural unconscionability simply on the basis that the arbitration agreement is, in the employment context, an adhesion agreement.  The presumption was explained by the Court in Ajamian v. CantorCO2e, LP (2012) 203 Cal. App. 771, 796:

 

“The finding that the arbitration provision was part of a nonnegotiated employment agreement establishes, by itself, some degree of procedural unconscionability.  It was an adhesion contract, because it was based on a standardized form, drafted and imposed by a party of superior bargaining strength … [however] where there is no other indication of oppression or surprise, the degree of procedural unconscionability of an adhesion agreement is low.”

 

The fact of an adhesion contract, alone, does not render the arbitration clause unenforceable.  Carmona v. Lincoln Millenium Car Wash, Inc. (2014) 226 Cal. App. 4th 74, 84 n. 4.  But it does establish at least a limited degree of procedural unconscionability.  Id.; Nguyen v. Applied Medical Resources Corporation (4/3 2016) 4 Cal. App. 5th 232, 248-50.

 

Plaintiff contends the arbitration agreement was “buried” in the employment agreement.  But the employment agreement is just over six pages, with the separate sections clearly delineated.  Moreover, it was presented as a binding agreement – not simply an acknowledgement of receipt an employee manual – so the need to read the agreement before signing was apparent.

 

Plaintiff also argues she was not given an opportunity to ask questions.  But Yu disputes that.  Further, he testifies that Plaintiff returned the signed agreement several hours after he sent it to her.  So it appears Plaintiff had the opportunity to review the agreement.  Plaintiff does not provide any facts to support her contention she was not given an opportunity to ask question or identify what questions she would have asked.

 

Plaintiff also objects that ADR Services’ arbitration rules were not attached to the agreement.  But the agreement includes the website where the rules could be reviewed.  Plaintiff does not declare she could not access the website, or that she did not have time to do so.  Again, it appears Plaintiff did have time.

 

The Court therefore finds that Plaintiff has shown limited procedural unconscionability because the agreement was a non-negotiated employment agreement.

 

Substantive Unconscionability

 

[S]ubstantive unconscionability focuses on the one-sidedness of the contract terms. In the context of an arbitration agreement, the agreement is unconscionable unless there is a “ ‘modicum of bilaterality’ ” in the arbitration remedy.  [Citation.]  “Although parties are free to contract for asymmetrical remedies and arbitration clauses of varying scope, ... the doctrine of unconscionability limits the extent to which a stronger party may, through a contract of adhesion, impose the arbitration forum on the weaker party without accepting that forum for itself.”  [Citation.]

 

Flores v. Transamerica HomeFirst, Inc. (2001) 93 Cal. App. 4th 846, 854.

To be substantively unconscionable, contract terms must be “unduly harsh, oppressive, or one-sided.”  Sanchez v. Carmax Auto Superstores California, LLC (2014) 224 Cal. App. 4th 398, 403.

 

Plaintiff contends the arbitration agreement lacks mutuality because only her obligation to arbitrate survives termination of the employment agreement, not Defendants.  [See Opp. at 9.]

 

Section 9 of the Agreement states that “Upon termination of this Agreement for any reason, all obligations, of the Employee and Employer, pursuant to this Agreement, shall terminate; provided, however, the Employee’s obligations pursuant to Sections 7 and 8 of this Agreement and the arbitration provision in this Employment Agreement (in Section 10), shall continue for an indefinite period…”

 

The Court does not interpret this provision as providing that only Plaintiff’s obligation under section 10 continue.  “Employee’s obligations” is directed at sections 7 and 8, which makes sense because those sections describe the employee’s obligation to keep information confidential and her restrictive covenants.  Section 10, on the other hand, applies to both employee and employer and its continuing viability is not restricted to the employee.

 

Arbitration Clauses in the Employment Context

Mandatory arbitration clauses in employment contracts are enforceable if they provide essential fairness to the employee.  Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal. 4th 83, 90-911.  Where the employee claims discrimination in violation of the Fair Employment and Housing Act (FEHA, Gov. C. § 12940 et seq.), those elements of essential fairness include:

·         a neutral arbitrator;

·         adequate discovery;

·         all types of relief otherwise available in court;

·         a written arbitration award that permits limited judicial review; and

·         limits on arbitration costs and fees (in arbitration of FEHA claims, employer must pay all costs unique to arbitration).

Armendariz v. Foundation Health Psychcare Services, Inc., supra, 24 Cal. 4th at 102, 118; Pearson Dental Supplies, Inc. v. Superior Court (2010) 48 Cal. 4th 665, 677; see also Craig v. Brown & Root, Inc. (2000) 84 Cal. App. 4th 416, 422 (fidning$50 arbitration cost to employee acceptable).

An arbitration agreement that fails to provide for all types of relief that would be available in court is substantively unconscionable.  See Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal. 4th 83, 116.  FEHA provides for attorney’s fees to the prevailing plaintiff.

A provision requiring each party to bear its own attorney fees, thereby impliedly waiving the employee's right to statutory fees, is substantively unconscionable and may be severed to allow enforcement of the remainder of the agreement—unless the agreement has multiple unlawful provisions. See Serafin v. Balco Properties Ltd., LLC (2015) 235 Cal. App. 4th 165, 184-185 (finding court should sever unconscionable provision unless agreement so permeated by unconscionability it cannot be cured by severance); Carbajal v. CWPSC, Inc. (2016) 245 Cal. App. 4th 227, 253-54 (finding severance not required if unconscionability permeates agreement).

Further, cost-splitting provisions for arbitration of FEHA claims are substantively unconscionable under California law. “When an employer imposes mandatory arbitration as a condition of employment, the arbitration agreement or arbitration process cannot generally require the employee to bear any type of expense that the employee would not be required to bear if he or she were free to bring the action in court.”  Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal. 4th 83, 110-11; Ontiveros v. DHL Express (USA), Inc. (2008) 164 Cal. App. 4th 494, 510-11.

The arbitration provision at issue here expressly provides that the employer, Defendant, will pay the costs of arbitration. 

 

The agreement also provides for discovery pursuant to Code Civ. Proc. § 1283.05. 

 

The arbitration provision does, however, limit the relief available in its provision that the arbitrator will not have the power to award punitive damages. This discrete portion of the arbitration agreement is not enforceable against Plaintiff under Armendariz.  But rather than refuse to enforce the entire arbitration agreement, the court may sever this provision.  Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, 124; Lennar Homes of California, Inc. v. Stephens (2014) 232 Cal.App.4th 673, 688.

 

In short, except for the punitive damages provision, the arbitration agreement is not substantively unconscionable.  The Court therefore severs the punitive damages provision and grants the motion to compel arbitration.

 

This action is stayed pending conclusion of the arbitration.  The Court sets an ADR Review Hearing for April 17, 2023 at 9:00 a.am. in Department C31.

 

Defendant is ordered to give notice.