Judge: Mel Red Recana, Case: 23STCV27921, Date: 2024-11-21 Tentative Ruling

All rulings shown here are TENTATIVE ONLY, and thus oral argument WILL be heard. All Counsel are still required to attend.

Case Number: 23STCV27921    Hearing Date: November 21, 2024    Dept: 45

Superior Court of California

County of Los Angeles

Hearing date:              November 21, 2024

Moving Party:             Defendant Treetop Industries, LLC dba Canopy Management LLC

Responding Party:      Plaintiff Goli Sufi   

Motion to Compel Arbitration and Stay Action

The Court has considered the moving and opposition papers. No reply papers were filed.

The motion is DENIED.

Background

            This is an action arising from an alleged wrongful termination and other wrongful actions taken against Plaintiff Goli Sufi (“Plaintiff”) during her employment as an account executive. On November 14, 2023, Plaintiff filed a Complaint against Defendant Treetop Industries, LLC dba Canopy Management LLC (“Defendant”) and DOES 1 through 10, inclusive, alleging causes of action for: (1) discrimination based on gender in violation of Gov. Code § 12940(a); (2) harassment based on gender in violation of Gov. Code § 12940(j); (3) retaliation in violation of FEHA; (4) failure to prevent discrimination and harassment in violation of Gov. Code § 12940(k); (5) whistleblower retaliation under Lab. Code § 1102.5; (6) wrongful termination in violation of public policy; (7) violation of the California Equal Pay Act; and (8) retaliation in violation of the California Equal Pay Act.

            On April 9, 2024, Defendant filed an Answer to the Complaint.

            On October 25, 2024, Defendant filed the instant Motion to Compel Arbitration and Stay Action. Defendant seeks an order compelling Plaintiff to submit all her claims to binding arbitration and to stay this action pending the outcome of arbitration. The motion was not filed with a proof of service. As such, the Court is unable to ascertain when Plaintiff was served with the motion. Defendant is reminded to file all papers with the required proof of service.

The motion is made on the grounds that “Plaintiff agreed to submit her claims to binding arbitration pursuant to the Dispute Resolution Policy (“Policy”) set forth in Defendant’s 2022 Employee Handbook (“Handbook”). Plaintiff agreed to abide by the terms of the Policy when she signed the Handbook’s Acknowledgement of Receipt (“Acknowledgement”) on December 20, 2022, but failed to do so by filing this lawsuit.” (Not. of Mot. at p. 2:9-13.)

            On November 7, 2024, Plaintiff filed and served an opposition to the motion.

            As of November 15, 2024, no reply brief has been filed. Any reply brief was required to have been filed and served at least five court days prior to the hearing. (Code Civ. Proc., § 1005, subd. (b).)   

Legal Standard

            Under the FAA, “any arbitration agreement within its scope shall be valid, irrevocable, and enforceable.” (Chiron Corp. v. Ortho Diagnostic Systems, Inc. (9th Cir. 2000) 207 F.3d 1126, 1130.) An arbitration agreement that is subject to the FAA will be enforced if the following two factors are satisfied: (1) a valid agreement to arbitrate exists; and (2) the arbitration agreement encompasses the dispute at issue. (Ibid.) If both factors are met, the court must “enforce the arbitration agreement in accordance with its terms.” (Ibid.)  

“If any suit or proceeding be brought in any of the courts of the United States upon any issue referable to arbitration under an agreement in writing for such arbitration, the court in which such suit is pending, upon being satisfied that the issue involved in such suit or proceeding is referable to arbitration under such an agreement, shall on application of one of the parties stay the trial of the action until such arbitration has been had in accordance with the terms of the agreement, providing the applicant for the stay is not in default in proceeding with such arbitration.” (9 U.S.C. § 3.)  

            The Federal Arbitration Act (“FAA”) applies to any contract evidencing a transaction involving interstate commerce which contains an arbitration clause. (Wolls v. Superior Court (2005) 127 Cal.App.4th 197, 211.) Section 2 of the FAA provides that arbitration provisions shall be enforced, save upon grounds as exist at law or in equity for the revocation of any contract. (Ibid.) A state court may refuse to enforce an arbitration clause on the basis of generally applicable contract defenses, such as fraud, duress, or unconscionability. (Ibid.) A state court, however, may not defeat an arbitration clause by applying state laws applicable only to arbitration provisions. (Ibid.)

For the FAA to apply, a contract must involve interstate commerce. (Ibid.) When it applies, the FAA preempts any state law rule that stands as an obstacle to the accomplishment of the FAA’s objectives. (Carbajal v. CWPSC, Inc. (2016) 245 Cal.App.4th 227, 238.) A party asserting FAA preemption bears the burden to present evidence establishing a contract with the arbitration provision affects interstate commerce, and the failure to do so renders the FAA inapplicable. (Ibid.) Evidence must be presented, in the form of declarations or other evidence, that establishes that the contract affects interstate commerce.  (Ibid.) “[S]ince arbitration is a matter of contract, the FAA also applies if it is so stated in the agreement.” (Davis v. Shiekh Shoes, LLC (2022) 84 Cal.App.5th 956, 963.)

“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.”  (Code Civ. Proc. § 1281.2, subds. (a), (b).) Thus, in assessing a motion to compel arbitration, the moving party “bears the burden of proving the existence of a valid arbitration agreement by a preponderance of the evidence, and a party opposing the [motion] bears the burden of proving by a preponderance of the evidence any fact necessary to its defense.” (Giuliano v. Inland Empire Personnel, Inc. (2007) 149 Cal.App.4th 1276, 1284, citation omitted.)

“If a court of competent jurisdiction . . . has ordered arbitration of a controversy which is an issue involved in an action or proceeding pending before a court of this State, the court in which such action or proceeding is pending shall, upon motion of a party to such action or proceeding, stay the action or proceeding until an arbitration is had in accordance with the order to arbitrate or until such earlier time as the court specifies.” (Code Civ. Proc., § 1281.4.) 

Discussion  

            The Existence of an Agreement to Arbitrate

            The right to arbitration depends upon contract; a petition to compel arbitration is simply a suit in equity seeking performance of that contract. (Engineers & Architects Assn. v. Community Development Dept. (1994) 30 Cal.App.4th 644, 653.) There is no public policy favoring arbitration of disputes which the parties have not agreed to arbitrate. (Ibid.) The FAA does not force parties to arbitrate when they have not agreed to do so. (Cronus Investments, Inc. v. Concierge Services (2005) 35 Cal.4th 376, 385.)

a.       Evidence in Support of the Motion

In support of the motion, Haley Burt (“Burt”), who is the Chief Operations Officer for Defendant and oversees Defendant’s company-wide human resources operations, declares that Plaintiff received the Handbook and Acknowledgement for her signature. (Burt Decl. ¶¶ 4, 6; Ex. 2.) The Handbook contains a policy titled Dispute Resolution Policy (the “Policy”), which can be found at pages 16 through 18 therein, and Plaintiff electronically signed the Acknowledgement on December 20, 2022. (Burt Decl., ¶ 5; Ex. 1.)

The Policy states, in relevant part, the following:

To the extent permitted by applicable law, all employees of the Company agree to first seek to mediate any dispute with the Company with a mediator from the American Arbitration Association or similar organization trained and experienced in employment disputes. If mediation is not successful, both the Company and the employee agree to submit their dispute to arbitration. The arbitrator will be chosen from a panel presented by the American Arbitration Association or such other organization as is acceptable to both parties. The cost of the arbitrator will be split between the Company and the employee. Each party will be responsible for its own attorney or other related fees. Both the Company and the employee acknowledge that by agreeing to arbitrate, each gives up its right to litigate their employment dispute in court or to submit it to a jury. The decision of the arbitrator is final and binding.

However, either party may seek to have a court of competent jurisdiction enforce an arbitration award. In addition, the Company retains the right to seek injunctive relief or other relief in the case of misappropriation of trade secrets or other confidential information, or any other action by an employee which might reasonably be expected to lead to irreparable harm to the Company.”

(Burt Decl., Ex. 2 at p. 16.)

The Policy states that if the four-step grievance procedure set forth therein is

unsuccessful, and Plaintiff requests final and binding arbitration of a grievance, “[t]he parties will choose an arbitrator” from a list of prospective arbitrators provided by the Federal Mediation and Conciliation Service or the American Arbitration Association. (Burt Decl., Ex. 2 at p. 18.) If the parties cannot agree on an arbitrator, the AAA will appoint an arbitrator to hear the case. (Burt Decl., Ex. 2 at p. 18.) “All fees or expenses of arbitration, including, without limitation, the arbitrator’s fees and expenses, and rental of a venue for the arbitration, if necessary, shall be borne equally by the parties.” (Burt Decl., Ex. 2 at p. 18.) “Arbitration is the exclusive forum for resolution of discipline and discharge cases . . . .” (Burt Decl., Ex. 2 at p. 18.)

            Defendant’s counsel, Adriana Cara (“Cara”), states that the parties engaged in mediation before the Hon. Zaven Sinanian (Ret.) of Signature Resolution, however, the parties were unable to settle the matter. (Cara Decl. ¶ 7.)

b.      Evidence in Opposition to the Motion

In opposition to the motion, Plaintiff relevantly states that no one explained to her the

contents of the Handbook. (Sufi Decl. ¶ 4.) Plaintiff was under the impression that she needed to complete the onboarding documents and agree to all polices and agreements to proceed with her employment. (Sufi Decl. ¶¶ 2, 3.) Defendant’s offer letter made clear that her employment was contingent upon her acceptance and execution of all company polices and agreements. (Sufi Decl. ¶ 4.) Plaintiff has no recollection of signing any documents on December 20, 2022. (Sufi Decl. ¶ 5.) Plaintiff indicates that no one explained to her what arbitration was or the consequences resulting from accepting an arbitration agreement. (Sufi Decl. ¶ 6.) Plaintiff did not have any opportunity to negotiate any terms regarding arbitration. (Sufi Decl. ¶ 6.)

c.       Analysis

The Court finds that Defendant has met its burden in showing the existence of an

agreement to arbitrate. While Plaintiff states that she does not recall signing any documents on December 20, 2022, Plaintiff does not unequivocally state that she did not sign the Policy.

            Thus, under the FAA and California law, Defendant has met its burden in showing the existence of an agreement to arbitrate. Defendant has shown by a preponderance of the evidence that an agreement to arbitrate exists.  

            Coverage of Claims Alleged

            The Court finds that the Policy covers the claims asserted in this action as any dispute with Defendant is subject to arbitration. (Burt Decl., Ex. 2 at p. 17.)  

            Applicability of the FAA

            The Court also finds that the FAA applies to the Policy as Defendant offers various services across state lines. (Burt Decl. ¶ 2.)

            The Policy is Unenforceable Under the EFAA

            Plaintiff argues that the Policy is unenforceable under the Ending Forced Arbitration Act (“EFAA”). Defendant did not file a reply brief and therefore presents no argument or authority to rebut such contention.  

            Applicable Law

            “Chapter 4 of the FAA, referenced in Section 2, was added by the EFAA, which became effective on March 3, 2022.” (Liu v. Miniso Depot CA, Inc. (2024) 326 Cal.Rptr.3d 286, 292 (Liu).) “Notwithstanding any other provision of this title, at the election of the person alleging conduct constituting a sexual harassment dispute . . ., no predispute arbitration agreement or predispute joint-action waiver shall be valid or enforceable with respect to a case which is filed under Federal, Tribal, or State law and relates to the . . . sexual harassment dispute.” (Ibid.) A “predispute arbitration agreement [is] any agreement to arbitrate a dispute that [has] not yet arisen at the time of the making of the agreement.” (Ibid.) Under the EFAA, a “sexual harassment dispute” is defined as “a dispute relating to conduct that is alleged to constitute sexual harassment under applicable Federal, Tribal, or State law.” (Ibid.) “[T]he applicability of the EFAA is governed by federal law and is to be decided by a court, as opposed to an arbitrator.” (Ibid.) “Under the EFAA, if a plaintiff’s action relates to . . . the sexual harassment dispute, then, at the plaintiff’s election, the arbitration agreement is not valid or enforceable with respect to the entire case/action.” (Ibid.)

            “FEHA’s prohibition against sexual harassment includes protection from a broad range of conduct, ranging from expressly or impliedly conditioning employment benefits on submission to or tolerance of unwelcome sexual advances, to creation of a work environment that is hostile or abusive on the basis of sex.” (Lewis v. City of Benicia (2014) 224 Cal.App.4th 1519, 1524.) Sexual harassment does not need to involve unwelcome sexual advances and may be shown where a hostile work environment is created. (Accardi v. Superior Court (1993) 17 Cal.App.4th 341, 348.) “A cause of action on this theory is stated where it is alleged that an employer created a hostile environment for an employee because of that employee’s sex.” (Mogilefsky v. Superior Court (1993) 20 Cal.App.4th 1409, 1415.)

            Analysis

            The Court finds that the Complaint sets forth allegations involving a sexual harassment dispute. For instance, Plaintiff alleges that she was discriminated against based on her sex/gender. (Compl. ¶ 13.) Plaintiff alleges that she was subject to disparate treatment compared to her male counterparts. (Compl. ¶ 14.) Plaintiff alleges that her male peers received preferential treatment such as lower quotas and higher pay. (Compl. ¶ 16.) Plaintiff alleges that she was severely harassed by Defendant, and such harassment altered the conditions of her employment by creating an abusive work environment. (Compl. ¶ 44.) Plaintiff alleges that such harassment was due to her gender. (Compl. ¶ 45.) Thus, Plaintiff has alleged that she experienced a hostile work environment due to her sex/gender.

            Given that the Complaint alleges acts that constitute a sexual harassment dispute under the EFAA, Plaintiff’s entire case is exempted from arbitration under the EFAA. (Liu, supra, 326 Cal.Rptr.3d 286, 288 (“the plain language of the EFAA exempts a plaintiff’s entire case from arbitration where the plaintiff asserts at least one sexual harassment claim subject to the act.”).)

Unconscionability

The inquiry into unconscionability consists of two prongs: A contract will be revoked if it is both procedurally unconscionable and substantively unconscionable. (Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, 114.) Procedural and substantive unconscionability need not be present to the same degree, with the test operating on a “sliding scale”: “[T]he 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.” (Ibid.)

“‘Procedural unconscionability’ concerns the manner in which the contract was negotiated and the circumstances of the parties at that time.  It focuses on the factors of oppression and surprise. The oppression component arises from an inequality of bargaining power of the parties to the contract and an absence of real negotiation or a meaningful choice on the part of the weaker party. The component of surprise arises when the challenged terms are ‘hidden in a prolix printed form drafted by the party seeking to enforce them.’” (Nyulassy v. Lockheed Martin Corp. (2004) 120 Cal.App.4th 1267, 1281, citations omitted.)       

Substantive unconscionability focuses on the terms of the agreement and whether those terms are “so one sided as to “’shock the conscience.’” (Kinney v. United Healthcare Services, Inc., supra, 70 Cal. App.4th 1329, 1330.)  The California Supreme Court in Armendariz set forth five minimum requirements in requiring that arbitration agreements in the employer-employee context must provide for: (1) neutral arbitrators; (2) more than minimal discovery; (3) a written award; (4) all types of relief that would otherwise be available in court; and (5) no additional costs for the employee beyond what the employee would incur if he or she were bringing the claim in court.  (Fitz v. NCR Corp. (2004) 118 Cal.App.4th 702, 712-713.)

The Court finds that the Policy is procedurally unconscionable. Plaintiff has stated that she was required to agree to the Policy as a condition of employment and lacked any opportunity to negotiate. (Sufi Decl. ¶¶ 4, 6.) All employment agreements contain a low level of procedural unconscionability. (Lange v. Monster Energy Company (2020) 46 Cal.App.5th 436, 447.) Additionally, the Court notes that, although purporting to apply the AAA rules, the Policy did not provide a link to where Plaintiff could access the AAA rules. Further, Defendant does not indicate that the AAA rules were attached to the Policy. (Ali v. Daylight Transport, LLC (2020) 59 Cal.App.5th 462, 478 (finding procedural unconscionability where AAA rules were not included in the arbitration provision or attached to the arbitration agreement).)

The Court also finds that the Policy is substantively unconscionable because the Policy states, on its face, that the parties will equally share the costs of arbitration. (Ali v. Daylight Transport, LLC, supra, 59 Cal.App.5th 462, 478 (finding substantive unconscionability where arbitration agreement required respondents to bear half the costs of arbitration).) Moreover, the Court notes that the Policy allows Defendant the ability to unilaterally modify the Policy at any time. Critically, the Policy allows a one-sided provision of Defendant having the option to seek injunctive relief from the Court for certain claims; however, Plaintiff cannot seek injunctive relief. (Id. at p. 477 (finding substantive unconscionability where arbitration agreement permitted defendant to seek a provisional remedy from the court but precluded plaintiff from seeking the same remedy).)

Therefore, the Court finds that the arbitration agreement is unconscionable.

The Court does not find that severance is appropriate as the Policy contains numerous elements of unconscionability. (Civ. Code § 1670.5(a).)

Thus, the Court DENIES Defendant’s motion to compel arbitration.

It is so ordered.

Dated: November 21, 2024

_______________________

MEL RED RECANA

Judge of the Superior Court