Judge: Matthew C. Braner, Case: 37-2023-00016392-CU-WT-CTL, Date: 2023-08-11 Tentative Ruling

SUPERIOR COURT OF CALIFORNIA,

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HALL OF JUSTICE

TENTATIVE RULINGS - August 10, 2023

08/11/2023  09:00:00 AM  C-60 COUNTY OF SAN DIEGO

JUDICIAL OFFICER:Matthew C. Braner

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Civil - Unlimited  Wrongful Termination Discovery Hearing 37-2023-00016392-CU-WT-CTL WHEELER VS BALDWIN & SONS LLC [IMAGED] CAUSAL DOCUMENT/DATE FILED:

Defendants Baldwin & Sons, LLC and Insperity PEO Services, LP's motion to compel arbitration is DENIED.

As the party seeking to compel arbitration, Defendant Baldwin & Sons has the burden of proving by a preponderance of the evidence the existence of an arbitration agreement. (Tiri v. Lucky Chances, Inc.

(2014) 226 Cal.App.4th 231, 239.) Plaintiff James Wheeler does not dispute he signed Defendant's employment contract, which included an arbitration provision. Rather, Plaintiff claims the agreement is unenforceable because it was not countersigned by one of Defendant's principals. This argument is unavailing; Plaintiff's employment contract is with Baldwin & Sons, the parent company, not Baldwin Asset Management, the company whose handbook Plaintiff attached. In any case, even if the handbook applied to the parent company, it is inadmissible parol evidence because the agreement on its face is unambiguous.

Plaintiff next contends the employment contract is both substantively and procedurally unconscionable.

As the party opposing arbitration, Plaintiff has the burden of establishing, by a preponderance of the evidence, a defense to the agreement's enforcement. (Tiri v. Lucky Chances, Inc., supra, 226 Cal.App.4th at p. 239.) 'Because unconscionability is a reason for refusing to enforce contracts generally, it is also a valid reason for refusing to enforce an arbitration agreement[.]' (Armendariz v. Foundation Health Psychcare Services, Inc. 24 Cal.4th 83, 114.) Unconscionability has both a 'procedural' element, focusing on oppression or surprise due to unequal bargaining power, and a 'substantive' element, focusing on 'overly harsh' or 'one-sided'' results. (Id.) Although both procedural and substantive unconscionability must be present to render a contract unenforceable, they need not be present in the same degree. (Id.) Procedural Unconscionability Procedural unconscionability focuses on the elements of oppression and surprise. (See Roman v. Superior Court (2009) 172 Cal.App.4th 1462, 1469.) 'Oppression arises from an inequality of bargaining power which results in no real negotiation and an absence of meaningful choice . . . surprise involves the extent to which the terms of the bargain are hidden in a 'prolix printed form' drafted by a party in a superior bargaining position.' (Id.) Here, Defendant's pre-printed contract is not a proposal but rather a complete integrated agreement that Plaintiff had to sign or not sign (i.e., it was 'take it or leave it'). It is well settled that adhesion contracts in the employment context, that is, those contracts offered to employees on a take-it-or-leave-it basis, typically contain some aspects of procedural unconscionability.

(See Sanchez v. Valencia Holding Co., LLC (2015) 61 Cal.4th 899, 915 ['[T]he adhesive nature of the Calendar No.: Event ID:  TENTATIVE RULINGS

2988413  13 CASE NUMBER: CASE TITLE:  WHEELER VS BALDWIN & SONS LLC [IMAGED]  37-2023-00016392-CU-WT-CTL contract is sufficient to establish some degree of procedural unconscionability.'].) As the Supreme Court repeatedly has explained, 'in the case of preemployment arbitration contracts, 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.' (Carbajal v. CWPSC, Inc. (2016) 245 Cal.App.4th 227, 243 [citing Armendariz, supra, 24 Cal.4th at p. 115].) This take it or leave it situation is exacerbated by the contract's last sentence, which states that Plaintiff needed to sign the 'form,' (which itself suggests the contract was pro forma) no later than September 4, 2019. Although this is clearly a misprint, given that the contract is dated September 18, 2023, to the layman employee, the admonition to sign by a date already well past could be taken as an injunction to sign post haste, as Plaintiff did. Moreover, Defendant presents no evidence of how much time Plaintiff had to read and consider the terms of the contract.

Plaintiff also points to Defendant's failure to attach a copy of the JAMS arbitration rules as further evidence of procedural unconscionability. He cites several cases holding the failure to attach the rules is unconscionable. (See Trivedi v. Curexo Technology Corp. (2010) 189 Cal.App.4th 387, 393; Carlson v. Home Team Pest Defense, Inc. (2015) 239 Cal.App.4th 619, 632; Fitz v. NCR Corp. (2004) 118 Cal.App.4th 702, 721; Harper v. Ultimo (2003) 113 Cal.App.4th 1402, 1406–1407; Gutierrez v. Autowest, Inc., (2003) 114 Cal.App.4th 77, 84, 89; Patterson v. ITT Consumer Financial Corp. (1993) 14 Cal.App.4th 1659, 1665.) Some of these cases do rely on the employer's simple failure to include the arbitration rules as an instance of procedural unconscionability where the prospective employee must go to another source to review the rules. But the failure to include the rules is more relevant if any rules unfairly disadvantage the employee. As discussed below, in at least two respects the JAMS rules are unfavorable to Plaintiff. Consequently, Plaintiff has shown the employment contract is procedurally unconscionable.

Substantive Unconscionability 'Substantive unconscionability pertains to the fairness of an agreement's actual terms and to assessments of whether they are overly harsh or one-sided.' (OTO, L.L.C. v. Kho (2019) 8 Cal.5th 111, 125.) A contractual provision is not substantively unconscionable simply because it provides one side a greater benefit. The party with the greater bargaining power is permitted to require contractual provisions that provide it with additional protections if there is a legitimate commercial need for those protections, but the stronger party may not require additional protections merely to maximize its advantage over the weaker party. (See Carbajal, supra, 245 Cal.App.4th at p. 248 [citing Sanchez, supra, 61 Cal.4th at pp.

911–912]; Armendariz, supra, 24 Cal.4th at pp. 117–118.) 'As has been recognized 'unconscionability turns not only on a 'one-sided' result, but also on an absence of 'justification' for it.' (Armendariz, supra, 24 Cal.4th at pp. 117–118.) Plaintiff argues his employment contract is substantively unconscionable because it fails to satisfy several of the factors described in Armendariz. (Armendiraz, supra, 24 Cal.4th at pp. 102–113.) First, the arbitration clause states that the prevailing party as determined by the arbitrator will be entitled to recover costs and expenses including reasonable attorney's fees. Here, Plaintiff has alleged causes of action under the California Labor Code and the Fair Employment and Housing Act, both of which award reasonable attorney's fees and costs to the prevailing party, but limit an award to the employer to situations in which the lawsuit was frivolous. (See Gov. Code, §§ 12900, 12965.) Defendant counters by arguing that the phrase 'in accordance with California Law' means that the arbitrator will comply with both FEHA and the Labor Code. But that is not what the arbitration clause says. Absent a clear understanding of the intricacies of California Labor law, a layperson would understand this simple phrase to mean they may have to pay attorney's fees and costs, which tends to discourage and inhibit a layperson's pursuit of their rights to a fair arbitration.

Plaintiff also maintains that the arbitration clause does not inform the employee that the employer, and Calendar No.: Event ID:  TENTATIVE RULINGS

2988413  13 CASE NUMBER: CASE TITLE:  WHEELER VS BALDWIN & SONS LLC [IMAGED]  37-2023-00016392-CU-WT-CTL not the employee, must pay all arbitration fees and costs unique to arbitration. In fact, the JAMS arbitration rules state that each party will pay fees and costs on a pro-rata basis. Defendant attempts to address this issue by pointing out that JAMS will act in accordance with California Law, that the contract does not expressly require Plaintiff to pay for arbitration, and that Defendant will in fact pay for it.

However, the contract does suggest, if not outright state, that employees will pay a portion of the fees.

Defendant's representation is also contrary to JAMS's own rules, and considering that it was made in Defendant's Reply papers, hardly seems binding. Moreover, the court is concerned that Defendant uses the phrase 'in accordance with California Law' not as protection for the employee, but rather to obfuscate and conceal its obligations.

Additionally, the JAMS rules place substantial limits on discovery. Each party is entitled to just one deposition and must seek permission from the Arbitrator for additional depositions. In Fitz v. NCR Corp., supra, 118 Cal.App.4th 702, the court found that limiting the employee to two depositions unfairly advantaged the employer because the employer was likely to have most of the relevant information readily at hand, and because of the inherent 'complexity of employment disputes, the outcomes of which are often determined by the testimony of multiple percipient witnesses, as well as written information about the disputed employment practice.' (Id. at p. 717.) Finally, Defendant suggests (in a footnote) the court could simply sever the offending portions arbitration clause. But this arbitration clause is permeated with terms that are procedurally and substantively unconscionable. Defendant should have exercised caution, given the take it or leave it problems inherent in adhesive employment contracts. Instead, Defendant exacerbated the problems by failing to include the JAMS rules, which include multiple substantively unconscionable provisions, and by including misleading language concerning fees and costs. The court therefore finds that the agreement is 'unsalvageable through severance of the unconscionable terms.' (Armendariz, supra, 25 Cal.4th at p. 124.) Accordingly, the motion to compel arbitration is denied, and the request to include Defendant Inspirity under principles of equitable estoppel is denied as moot.

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