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Judge: Melissa R. Mccormick, Case: "Hoover v. Reagan Street Surgery Center, LLC, et al.", Date: 2023-05-18 Tentative Ruling

Defendants Reagan Street Surgery Center, LLC, Los Alamitos Medical Center, Inc., Tenet Healthsystem Medical, Inc., Tenet Healthcare Corporation, United Surgical Partners International, Inc., Walter Topp III, Lydia Maldonado, and Carol Hood’s Motion to Compel Arbitration

The right to arbitration depends upon contract; a petition to compel arbitration is simply a suit in equity seeking specific performance of that contract. Little v. Pullman (2013) 219 Cal.App.4th 558, 565. The petitioner bears the burden of proving the existence of a valid arbitration agreement by the preponderance of the evidence, and a party opposing the petition bears the burden of proving by a preponderance of the evidence any fact necessary to its defense. Id.

Defendants contend Hoover signed an arbitration agreement “as part of Plaintiff’s onboarding experience.” Coker Decl. ¶ 3. The alleged arbitration agreement is a one-page, five-paragraph document entitled “Acknowledgement.” The Acknowledgment states:

“In addition, I acknowledge that I have received a hard copy of the Tenet Fair Treatment Process. Except to the extent that any applicable collective bargaining agreement provided otherwise, I hereby voluntarily agree to use the Company's Fair Treatment Process and to submit to final and binding arbitration of any and all claims and disputes that are related in any way to my employment or the termination of my employment with Tenet. I understand that final and binding arbitration will be the sole and exclusive remedy for any such claim or dispute against Tenet or its parent, subsidiary or affiliated companies or entities, and each of its and/or their employees, officers, directors or agents, and that, by agreeing to the use of arbitration to resolve my dispute, both the Company and I agree to forego any right we each may have had to a jury trial on issues covered by the Fair Treatment Process. I also agree that such arbitration will be conducted before an experienced arbitrator chosen by me and the Company, and will be conducted under the Federal Arbitration Act and the procedural rules of the American Arbitration Association (‘AAA’). . . .

“[T]he Company further agrees that if I submit a request for binding arbitration, my maximum out-of-pocket expenses for the arbitrator and the administrative cost of the AAA will be an amount equal to one day’s pay (if I am an exempt employee) or eight times my hourly rate of pat (if I am a non-exempt employee) or a mandated cap, if lower, and that the Company will pay all of the remaining fees and administrative costs of the arbitrator and the AAA. I further acknowledge that this mutual agreement to arbitrate may not be modified or rescinded except in writing by both me and the Company.”

The Fair Treatment Process (FTP) document is 15 pages long. The “Dispute Resolution Process” in the FTP describes a five-step process that “an employee generally must follow to obtain a resolution of problem, concern or dispute”: (1) obtain an FTP Dispute Resolution Form from the Human Resources Department, complete the form, and submit the form to the employee’s supervisor “to initiate the FTP”; (2) “take the problem or dispute to the Department Head usually within seven working days of receipt” of a response from the supervisor; (3) “take the problem or dispute to a member of the Facility’s Administration office for reconsideration”; (4) “request that the problem or dispute be submitted to the FTP Committee, usually within seven working days of receipt of the Facility Administration response”; and (5) “[i]f the employee does not accept the decision of the FTP Committee in Step 4, then the employee has the right to submit the problem or dispute to final and binding arbitration.”

The FTP contains additional provisions about how an employee initiates an arbitration. To begin arbitration, the employee must obtain and complete an arbitration request form from the human resources department. That form “will serve to confirm the employee’s and the Company's prior mutual agreement to submit the dispute to final and binding arbitration.” The FTP states that arbitrations under the FTP will be governed by the Federal Arbitration Act (FAA), and that “the applicable Employment Dispute Resolution rules of the AAA will govern the procedures to be used in [the] arbitration[ ], unless the parties have agreed otherwise.” Discovery is to be conducted “in accordance with the Employment Dispute Resolution rules of the AAA,” and the arbitrator shall have the authority to order discovery sufficient to enable “a full and fair exploration of the issues in dispute consistent with the expedited nature of arbitration.”

Hoover’s complaint alleges several causes of action pursuant to the Fair Employment and Housing Act (FEHA), wrongful termination, Labor Code violations, and other causes of action arising out of her employment. Defendants argue Hoover’s claims are subject to the arbitration agreement described above. Hoover agrees she signed the Acknowledgement and states she was provided with the FTP as part of her onboarding process. Hoover Decl. ¶¶ 3-4. Hoover contends the arbitration agreement is procedurally and substantively unconscionable.

A court may decline to enforce an arbitration agreement if the agreement is unconscionable. Civ. Code § 1670.5(a); Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, 114, abrogated in part on another ground in AT & T Mobility LLC v. Concepcion (2011) 563 U.S. 333, 340. Arbitration agreements governed by the FAA are subject to unconscionability analysis. Samaniego v. Empire Today, LLC (2012) 205 Cal.App.4th 1138, 1150; see also OTO, LLC v. Kho (2019) 8 Cal.5th 111, 125 (“‘“[G]enerally applicable contract defenses, such as . . . unconscionability, may be applied to invalidate arbitration agreements without contravening” the FAA’ or California law.”).

“‘[U]nconscionability has both a “procedural” and a “substantive” element,’ the former focusing on ‘“oppression”’ or ‘“surprise”’ due to unequal bargaining power, the latter on ‘“overly harsh”’ or ‘“one-sided”’ results. [Citation.] ‘The prevailing view is that [procedural and substantive unconscionability] must both be present in order for a court to exercise its discretion to refuse to enforce a contract or clause under the doctrine of unconscionability.’ [Citation.] But they need not be present in the same degree. . . . [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.” Armendariz, 24 Cal.4th at 114.

“‘“Procedural unconscionability” concerns the manner in which the contract was negotiated and the circumstances of the parties at that time. [Citation.] It focuses on factors of oppression and surprise. [Citation.] 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.’” Morris v. Redwood Empire Bancorp (2005) 128 Cal.App.4th 1305, 1319.

The arbitration agreement here is a contract of adhesion. Defendants do not argue Hoover could have negotiated or changed the terms of the Acknowledgement or the FTP. Some modest degree of procedural unconscionability may be presumed in non-negotiated, adhesive employment contracts, but the fact of an adhesion contract alone does not render an agreement unconscionable. See Nguyen v. Applied Med. Resources Corp. (2016) 4 Cal.App.5th 232, 248-50.

Hoover argues surprise and oppression are also present. Hoover states in her declaration that she understood the Acknowledgment to be “an acknowledgment as to the Employee Handbook only.” Hoover Decl. ¶ 3. Hoover states that “[a]t no time was [she] made aware that [she] was signing an arbitration agreement.” Id. Hoover further states that the FTP was provided to her “as a condition of [her] employment during [her] onboarding process,” and that she “was required to agree to the FTP, as presented, without a meaningful opportunity to review the FTP.” Id. ¶ 4. The text of the one-page Acknowledgement, which states an agreement “to submit to final and binding arbitration of any and all claims and disputes” related to her employment, undermines Hoover’s statement in her declaration that she did not understand the Acknowledgment to include an arbitration agreement. That said, defendants have not presented any evidence disputing Hoover’s description of the presentation of the Acknowledgment and the FTP, including that the FTP was provided to Hoover as a condition of her employment and without a meaningful opportunity to review it. Hoover has demonstrated oppressive circumstances in the presentation of the arbitration agreement, and thus further procedural unconscionability.

Defendants do not dispute that Hoover did not receive a copy of the arbitration rules that would govern any AAA arbitration. The Acknowledgement refers to “the procedural rules of the [AAA],” and the FTP refers to “the Employment Dispute Resolution rules of the AAA,” but neither document attaches a copy of the AAA rules or provides a website address or other information about where the rules can be found. Appellate courts have found a failure to attach a copy of the AAA rules does not render an arbitration agreement procedurally unconscionable because the rules are available on the internet. See, e.g., Lane v. Francis Capital Mgmt., LLC (2014) 224 Cal.App.4th 676, 691 (“Here, we conclude the failure to attach a copy of the AAA rules did not render the agreement procedurally unconscionable. There could be no surprise, as the arbitration rules referenced in the agreement were easily accessible to the parties—the AAA rules are available on the Internet.”).

Hoover argues the Acknowledgement and the FTP contradict each other with respect to the rules to be applied in arbitration because the Acknowledgment states the arbitration will be conducted under the AAA “procedural rules,” and the FTP states the arbitration will be conducted under the AAA “Employment Dispute Resolution rules . . . unless the parties have agreed otherwise.” The addition of the phrase “unless the parties have agreed otherwise” does not render the documents contradictory on this point.

Based on its adhesive nature and the oppressive circumstances of its presentation, the arbitration agreement has a moderate degree of procedural unconscionability. A finding of procedural unconscionability does not mean that a contract will not be enforced, however, but rather that courts will scrutinize the substantive terms of the contract to ensure they are not manifestly unfair or one-sided. Sanchez v. Valencia Holding Co., LLC (2015) 61 Cal.4th 899, 915.

While procedural unconscionability focuses on how the agreement was obtained and executed, “[s]ubstantive unconscionability focuses on whether the provision is overly harsh or one-sided and is shown if the disputed provision of the contract falls outside the ‘reasonable expectations’ of the nondrafting party or is ‘unduly oppressive.’” Gutierrez v. Autowest, Inc. (2003) 114 Cal.App.4th 77, 88. “Substantively unconscionable terms may take various forms, but may generally be described as unfairly one-sided.” Little v. Auto Stiegler, Inc. (2003) 29 Cal.4th 1064, 1071. “Where a party with superior bargaining power has imposed contractual terms on another, courts must carefully assess claims that one or more of these provisions are one-sided and unreasonable.” Gutierrez, 114 Cal.App.4th at 88. “[T]he paramount consideration in assessing [substantive] conscionability is mutuality.” Abramson v. Juniper Networks, Inc. (2004) 115 Cal.App.4th 638, 657.

Hoover argues the modification provisions of the Acknowledgement and the FTP render the arbitration agreement substantively unconscionable. The Acknowledgment states: “I also understand that the Company may change, rescind or add to any of the policies, benefits or practices described in the Employee Handbook, except . . . the Mutual Agreement to Arbitrate referred to below, in its sole and absolute discretion, with or without prior notice.” The FTP states: “Modification to the FTP: The Company will not modify or change the agreement between the Company and its employees to use final and binding arbitration to resolve employment-related disputes, without notifying and obtaining the consent of employees to such changes. However, the Company may change or modify the FTP procedures from time-to-time without advance notice and without the consent of employees.”

Defendants argue the FTP modification provision does not permit defendants to modify “the Arbitration Agreement itself.” That is not entirely clear from these provisions. The Acknowledgment states defendants “may change, rescind or add to any of the policies, benefits or practices described in the Employee Handbook,” other than “the Mutual Agreement to Arbitrate referred to below” in the Acknowledgment. The FTP provision states defendants “will not modify or change the agreement between the Company and its employees to use final and binding arbitration.” The Acknowledgment modification provision does not refer to the FTP, and, if the FTP is part of the Employee Handbook (neither party presented evidence on this point), the Acknowledgement modification provision indicates defendants may change, inter alia, the arbitration policies and practices described in the FTP without notice or employee consent. The FTP modification provision states defendants cannot change the agreement to use arbitration, but does not prohibit defendants from changing the arbitration procedures and policies described in the FTP without notice or employee consent. (While not dispositive here because defendants state they are “waiving” the requirement that Hoover comply with the four pre-arbitration steps (Brief at 9 n.1), only employees must undertake the pre-arbitration steps. Defendants do not dispute that they retain the ability to change the pre-arbitration steps in the FTP without notice or employee consent.) The lack of mutuality in the ability to change arbitration policies and procedures renders the agreement substantively unconscionable.

Hoover’s claims that the agreement subjects her to “unusual arbitration fees” and does not provide for adequate discovery lack merit. Nothing in the agreement prevents an arbitrator from awarding attorneys’ fees to a prevailing plaintiff if authorized by law. The FTP states that the arbitrator “has the authority to award any remedy that would have been available to the employee had the employee litigated the dispute in court under applicable law.” Nor does the agreement impermissibly limit discovery. The FTP states that discovery shall be conducted in accordance with the Employment Dispute Resolution rules of the AAA, and that the arbitrator shall have the authority to order discovery sufficient to enable “a full and fair exploration of the issues in dispute consistent with the expedited nature of arbitration.” The phrase “consistent with the expedited nature of arbitration” does not impermissibly limit the number of depositions Hoover may take.

As discussed above, both procedural and substantive unconscionability are present. The unconscionable terms cannot be severed because the unconscionable terms are not collateral to the main purpose of the agreement, i.e., compelling arbitration of disputes between Hoover and defendants arising out of Hoover’s employment pursuant to the policies and procedures in the FTP. See Armendariz, 24 Cal.4th at 124. Accordingly, the court declines to enforce the arbitration agreement.

Hoover’s evidentiary objections to the Coker Declaration are overruled.

Hoover’s request for judicial notice of two unpublished appellate court decisions is denied.

The trial remains scheduled for July 29, 2024 at 9:00 a.m. in Department C13.

Hoover to give notice.