Judge: Michael E. Whitaker, Case: 23SMCV03190, Date: 2023-11-07 Tentative Ruling

Case Number: 23SMCV03190    Hearing Date: November 7, 2023    Dept: 207

TENTATIVE RULING

MOTION

On July 14, 2023, Plaintiff James De Lisle (“Plaintiff”) filed a complaint against Defendant Triwest Multifamily Investments, LLC (“Defendant”) alleging claims for 1) Failure To Pay Wages; 2) Failure To Pay Wages Upon Termination; 3) Breach Of Contract; 4) Breach Of The Covenant Of Good Faith And Fair Dealing; 5) Wrongful Termination In Violation Of Public Policy; 6) Intentional Misrepresentation; 7) Negligent Misrepresentation; 8) Fraudulent Inducement Of Contract; and 9) Accounting. 

Defendant moves to compel Plaintiff to arbitrate the claims.  Plaintiff opposes the motion and Defendant replies.

LEGAL STANDARDS – MOTION TO COMPEL ARBITRATION

            “[T]he advantages of arbitration include a presumptively less costly, more expeditious manner of resolving disputes.  It follows a party to a valid arbitration agreement has a contractual right to have its dispute with another party to the contract resolved quickly and inexpensively.”  (Henry v. Alcove Investment, Inc. (1991) 233 Cal.App.3d 94, 99–100 [cleaned up].)  Thus, “on petition of a party to an arbitration agreement alleging the existence of a written agreement to arbitrate a controversy and that a party to the agreement refuses to arbitrate that 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.”  (Code Civ. Proc., § 1281.2; see also

EFund Capital Partners v. Pless (2007) 150 Cal.App.4th 1311, 1320 [the language in section 1281.2 compelling arbitration is mandatory].) The right to compel arbitration exists unless the court finds that the right has been waived by a party’s conduct, other grounds exist for revocation of the agreement, or where a pending court action arising out of the same transaction creates the possibility of conflicting rulings on a common issue of law or fact.  (Code Civ. Proc., § 1281.2, subds. (a)-(c).)    

            “On a petition to compel arbitration, the trial court must first determine whether an agreement to arbitrate the controversy exists.  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.  The party seeking arbitration can meet its initial burden by attaching to the petition a copy of the arbitration agreement purporting to bear the respondent's signature.”  (Bannister v. Marinidence Opco, LLC (2021) 64 Cal.App.5th 541, 543-544 [cleaned up].)  The party seeking to compel arbitration must also “plead and prove a prior demand for arbitration and a refusal to arbitrate under the agreement.”  (Mansouri v. Superior Court (2010) 181 Cal.App.4th 633, 640-641.) 

            And while the moving party on a motion to compel arbitration “bears the burden of proving the existence of a valid arbitration agreement by a preponderance of the evidence, [a] party opposing the petition bears the burden of proving by a preponderance of the evidence any fact necessary to its defense.  The trial court sits as the trier of fact, weighing all the affidavits, declarations, and other documentary evidence, and any oral testimony the court may receive at its discretion, to reach a final determination.”  (Ruiz v. Moss Bros. Auto Group, Inc. (2014) 232 Cal.App.4th 836, 842 [cleaned up]; see also Pinnacle Museum Tower Assn. v. Pinnacle Market Development (US), LLC (2012) 55 Cal.4th 223, 236 [“The party seeking arbitration bears the burden of proving the existence of an arbitration agreement, and the party opposing arbitration bears the burden of proving any defense, such as unconscionability”].) 

ANALYSIS

1.      ENFORCEABLE ARBITRATION AGREEMENTS

Defendant has produced evidence that Plaintiff signed an employment offer letter from Defendant that contained the following language:

Arbitration. You and the Company agree that any and all claims or controversies whatsoever (whether arising in tort or contract and whether arising under statute or common law) brought by you or the Company, arising out of or in any way relating to your employment will be submitted to binding arbitration in Los Angeles County, California, before a sole arbitrator selected from Judicial Arbitration and Mediation Services, Inc., or its successor (“JAMS”), or if JAMS is no longer able to supply the arbitrator, such arbitrator will be selected from the American Arbitration Association, and such arbitration will be conducted in accordance with the provisions of California Code of Civil Procedure §§ 1280 et seq. as the exclusive forum for the resolution of such dispute. At the conclusion of the arbitration, the Arbitrator will issue a written decision that sets forth the essential findings and conclusions upon which the Arbitrator's award or decision is based. Any award or relief granted by the Arbitrator hereunder will be final and binding on the parties hereto and may be enforced by any court of competent jurisdiction. The parties expressly acknowledge and agree that they are hereby waiving any rights to trial by jury. The parties agree that the Company will be responsible for payment of the forum costs of any arbitration hereunder, including the Arbitrator's fee. The parties further agree that in any proceeding to enforce the terms of this letter, the prevailing party will be entitled to its or his reasonable attorneys' fees and costs (other than forum costs associated with the arbitration) incurred by it or him in connection with resolution of the dispute in addition to any other relief granted. Notwithstanding any provision to the contrary, the parties intend that any arbitration be pursued by the party in an individual capacity and neither party shall proceed or attempt to proceed as a named plaintiff or class member in any purported class or representative proceeding.

(Overend Decl. ¶ 7 and Ex. 1 thereto [emphasis original].)

            Defendant therefore contends that there is a valid, binding, and enforceable arbitration agreement between the parties that covers the dispute at issue.  Defendant further contends that the Federal Arbitration Act (“FAA”) applies to the dispute, because it involves interstate commerce.

Plaintiff does not deny the existence of the arbitration agreement, nor does Plaintiff disagree that the arbitration provision covers the instant dispute.  Rather, Plaintiff argues that the FAA does not apply to this arbitration agreement, and the agreement is unconscionable under California law.

a.       FAA

“By its terms, the FAA provides for the enforcement of arbitration provisions in any contract evidencing a transaction involving interstate commerce.”  (Victrola 89, LLC v. Jaman Properties 8 LLC (2020) 46 Cal.App.5th 337, 346.) 

Defendant contends the arbitration agreement involves interstate commerce, and is covered by the FAA, because Defendant “is a real estate investment firm focused on multifamily investments throughout the United States, including California, New Mexico, Georgia, Tennessee, and Florida.”  (Overend Decl. ¶ 5.)  Defendant also points out that Plaintiff’s job title, as indicated on the offer letter, is “Vice President of Asset Management.”  (Overend Decl. ¶ 7 and Ex. 1 thereto.)[1] 

Therefore, as “Vice President of Asset Management” for “a real estate investment firm focused on multifamily investments throughout the United States, including California, New Mexico, Georgia, Tennessee, and Florida” the Court finds the employment agreement containing the arbitration provision does involve interstate commerce, and is therefore covered by the FAA.

b.      PRE-EMPTION

            Although the FAA applies, courts must still determine whether there exist state law grounds, such as unconscionability, invalidating the arbitration agreement under general state contract law principles.  (See 9 U.S.C. § 2.) 

            Defendant argues that the United States Supreme Court held in AT&T Mobility v. Concepcion (2011) 563 U.S. 333 (hereinafter “Concepcion”) that California’s unconscionability analysis, as provided for in Armendariz v. Foundation Health Psychcare Svcs., Inc. (2000) 24 Cal.4th 83 (hereinafter “Armendariz”) is preempted by the FAA.

            The Court disagrees.  Concepcion held that California’s Discover Bank rule, which invalidates as unconscionable class-action waivers in the increasingly commonplace contracts of adhesion, is preempted by the FAA’s strong policy favoring arbitration.  It does not hold, as Plaintiff contends, that the Armendariz unconscionability framework is preempted by the FAA.  Moreover, the Supreme Court has since clarified that “state courts may continue to enforce unconscionability rules that do not interfere with fundamental attributes of arbitration” like the Discover Bank rule did, or like another California rule that categorically invalidated as unconscionable arbitration agreements that waived Berman hearings in employment agreements.  (Sonic-Calabasas A, Inc. v. Moreno (2013) 57 Cal.4th 1109, 1124-45.)  Specifically, an arbitration provision in an employment agreement still “may be unconscionable if it is otherwise unreasonably one-sided in favor of the employer.”  (Ibid.)

            Thus, the fact that the FAA governs the arbitration agreement does not mean the unconscionability analysis is preempted.

c.       UNCONSCIONABILITY

“Unconscionability is ultimately a question of law for the court.”  (Flores v. Transamerica Homefirst, Inc. (2001) 93 Cal.App.4th 846, 851.)  “However, numerous factual issues may bear on that question.” (Gutierrez v. Autowest, Inc. (2003) 114 Cal.App.4th 77, 89.)  As such, Plaintiff must show two elements to establish the unconscionability defense: (1) procedural unconscionability, which focuses on the manner in which the contract was negotiated, and (2) substantive unconscionability, which concerns whether the contract’s terms are unreasonably one-sided. (Armendariz, supra, 24 Cal.4th at p.. 113-115.)

            “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. But they need not be present in the same degree. Essentially a sliding scale is invoked which disregards the regularity of the procedural process of the contract formation, that creates the terms, in proportion to the greater harshness or unreasonableness of the substantive terms themselves.  In other words, 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, supra, 24 Cal.4th at p. 114 [cleaned up].) 

                                                                          i.      PROCEDURAL UNCONSCIONABILITY

Procedural unconscionability examines 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.)  Preprinted forms buried within a volume of documents offered on a “take or leave it basis” evidence a high degree of procedural unconscionability.  (See Dougherty v. Roseville Heritage Partners (2020) 47 Cal.App.5th 93, 102-104 (hereafter, Dougherty).)  Most consumer contracts are adhesive and therefore present some procedural unconscionability. (Sanchez v. Valencia Holding Co., LLC (2015) 61 Cal.4th 899, 915, (hereafter, Sanchez).)  “[A] finding of procedural unconscionability does not mean that a contract will not be enforced, but rather that courts will scrutinize the substantive terms of the contract to ensure they are not manifestly unfair or one-sided.”  (Ibid.)  

Plaintiff argues the arbitration clause in the employment offer letter is procedurally unconscionable because the fact that Plaintiff “was never told he could not ask for changes to the Arbitration Provision and was free to speak to whomever he wished regarding the Arbitration Provision” (Overend Decl. ¶ 10) does not establish that Plaintiff could have actually asked to change the arbitration provision.  (Opp. at p. 4.)  Plaintiff further contends that when Plaintiff requested his personnel file from Defendant, Defendant inadvertently supplied Plaintiff with an unsigned copy of an offer letter for an “Andrew Brown” (not Plaintiff) for the position of Asset Manager (as opposed to Vice President of Asset Management) that contained the same arbitration provision, demonstrating that the provision is “standard,” which is also what Defendant represented to Plaintiff.  (Ex. C to Lake Decl.; De Lisle Decl. ¶¶ 2-3.)

The Court disagrees with Plaintiff’s arguments.  This is not a form consumer contract offered to Plaintiff on a “take-it-or-leave-it” basis.  Rather, this is a personalized employment offer letter for the role of Vice President of Asset Management.  There is no evidence suggesting that Plaintiff, in negotiating for an executive role at the company, could not have similarly negotiated the terms of the arbitration provision.

Moreover, the mere fact that Defendant has and uses a standard arbitration provision does not in itself mean that the terms were incapable of negotiation.  Common sense dictates that a company would generally use the same standard, preferred arbitration provision, unless an alteration were specifically requested and appropriate.

Therefore, the Court finds that the arbitration provision is not procedurally unconscionable.[2]

CONCLUSION

            In conclusion, the Court finds Defendant has met its burden to compel arbitration, and the Court specifically finds that the arbitration agreement between Plaintiff and Defendant is valid and enforceable.  Therefore, the Court grants the motion to compel arbitration.  The Court further orders this action stayed, pending the resolution of the parties’ arbitration proceeding.

            Further, the Court vacates the Case Management Conference set on January 16, 2024 and sets a Status Conference re Completion of Arbitration on May 6, 2024 at 8:30 A.M. in Department 207.  In addition, the Court orders the parties to file and serve a joint report regarding the status of the arbitration no later than 5 court days before the scheduled status conference. 

Defendant shall give notice of the Court’s ruling and file a proof of service of such.

DATED:  November 7, 2023                                                  ___________________________

                                                                                          Michael E. Whitaker

                                                                                          Judge of the Superior Court