Judge Michael P. Linfield, Case 22STCV25248 2022-10-19 Tentative Ruling

Judge: Michael P. Linfield, Case: 22STCV25248, Date: 2022-10-19 Tentative Ruling

Case Number: 22STCV25248 Hearing Date: October 19, 2022 Dept: 34

SUBJECT: Motion to Compel Arbitration

Moving Party: Defendant Key Toy, LLC

Resp. Party: Plaintiff Sylvia Rodriguez

The Court GRANTS Defendants’ Petition to Compel Arbitration. This matter is STAYED pending the conclusion of arbitration.

BACKGROUND:

On August 5, 2022, Plaintiff filed her Complaint.

On September 8, 2022, Defendant Key Toy, LLC filed its Motion to Compel Arbitration. Defendant concurrently filed Declarations in support of the motion.

On October 6, 2022, Plaintiff filed her Opposition to the motion. Plaintiff concurrently filed a Declaration in support of the motion.

On October 12, 2022, Defendant filed its Reply to the motion.

ANALYSIS:

I. Legal Standard for a Petition to Compel Arbitration

A. Statutes

“A written agreement to submit to arbitration an existing controversy or a controversy thereafter arising is valid, enforceable and irrevocable, save upon such grounds as exist for the revocation of any contract.” (Code Civ. Proc., § 1281.)

“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, unless it determines that:

(a) “The right to compel arbitration has been waived by the petitioner; or

(b) “Grounds exist for rescission 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. …

(d) “The petitioner is a state or federally chartered depository institution….”

(Code Civ. Proc., § 1281.2, subds. (a–d), rest of statute omitted for brevity.)

“If a court of competent jurisdiction, whether in this State or not, 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, rest of statute omitted for brevity.)

B. Common Law

“Under both federal and state law, arbitration agreements are valid and enforceable, unless they are revocable for reasons under state law that would render any contract revocable.” (Tiri v. Lucky Chances, Inc. (2014) 226 Cal.App.4th 231, 239, citations omitted.)

“When a party to an arbitration agreement challenges the agreement as unenforceable, we decide the issue based on the same state law standards that apply to contracts generally. The United States Arbitration Act (9 U.S.C. § 1 et seq.), commonly known as the Federal Arbitration Act, creates a presumption in favor of arbitrability and permits courts to refuse to enforce agreements to arbitrate only ‘upon such grounds as exist at law or in equity for the revocation of any contract’ (9 U.S.C. § 2). Similarly, title 9 of the Code of Civil Procedure (§ 1280 et seq.) expresses a strong public policy favoring the enforcement of valid agreements to arbitrate.” (Boghos v. Certain Underwriters at Lloyd’s of London (2005) 36 Cal.4th 495, 502, citations omitted.)

“Reasons that would render any contract revocable under state law include fraud, duress, and unconscionability.” (Tiri, supra, at 239, citations omitted.)

“The party seeking to compel arbitration bears the burden of proving by a preponderance of the evidence the existence of an arbitration agreement. The party opposing the petition bears the burden of establishing a defense to the agreement's enforcement by a preponderance of the evidence. In determining whether there is a duty to arbitrate, the trial court must, at least to some extent, examine and construe the agreement.” (Id.)

II. Discussion

A. The Arbitration Agreements

Defendant moves the Court to compel arbitration based on two arbitration agreements, the first allegedly signed by Plaintiff in 2011 and the second allegedly signed by Plaintiff in 2019. (Mot., p. 2; Decl. Heitzig, Exs. B, C.) Defendant’s Chief Financial Officer, Mollie Heitzig, averred that the 2019 arbitration agreement was stored as part of Plaintiff’s personnel file and indicates Plaintiff reviewed, acknowledged, and signed the arbitration agreement on November 7, 2019. (Decl. Heitzig, p. 3.)

Among other things, Plaintiff avers that “[a]t no point during my employment do I recall ever being made to sign an Arbitration Agreement.” (Decl. Rodriguez, ¶ 3.) Plaintiff also argues that because there are two arbitration agreements and Defendant presents the first arbitration agreement as part of its Motion, Defendant does not meet its burden to establish an enforceable arbitration agreement exists between the parties. (Opposition, p. 6:16–25.)

Defendant argues on Reply that it is undisputed that the arbitration agreements exist and that they bear Plaintiff’s signature. (Reply, p. 1.)

The Court agrees with Defendant. The evidence before the Court is that Plaintiff signed arbitration agreements in 2011 and 2019. The 2011 agreement appears to have a handwritten signature. (Decl. Heitzig, Ex. C.) The 2019 agreement appears to have a digital signature, with a date and time stamp. (Decl. Heitzig, Ex. B.) Furthermore, the 2019 agreement is clear: “This is the entire agreement between myself and the Company regarding arbitration and supersedes any and all prior agreements regarding this issue.” (Id. at ¶ 11.)

The Court also notes that Plaintiff did not deny signing either or both arbitration agreements; she simply stated that “I do not recall ever signing an Arbitration Agreement in person. Further I do not recall ever signing an online Arbitration Agreement.” (Rodriguez Declaration, ¶3.) As Defendant accurately states, “[n]owhere in Plaintiff’s Declaration does she actually contest that both Agreements bear her signature or that she actually signed them.” (Reply, p. 1:23-24.)

The Court concludes that Defendant has met its burden in proving the existence of an arbitration agreement. (Tiri, supra, at 239.) The Court finds that there is an arbitration agreement and that the parties signed it.

B. Minimum Requirements under Armendariz

1. Legal Standard

The Supreme Court of California has held that, in addition to unconscionability, an arbitration agreement relating to unwaivable statutory rights (such as those under the Fair Employment and Housing Act) has to meet five additional minimum requirements: (1) ensuring that the employee does not bear any costs above that which he or she would have to pay in court; (2) providing for adequate discovery; (3) providing for all types of relief that would otherwise be available in a non-arbitration forum; (4) requiring a written arbitration award and adequate judicial review; and (5) providing for a neutral arbitrator. (Armendariz v. Found. Health Psychcare Servs., Inc. (2000) 24 Cal.4th 83, 103–13, abrogated in part on other grounds by AT&T Mobility LLC v. Concepcion (2010) 565 U.S. 333.)

2. Analysis

As indicated below, the arbitration agreement meets each of the minimum requirements under Armendariz.

(1) Costs: “[Defendant] will pay the arbitrator’s fees and other costs relating to the arbitration forum but [Plaintiff] and [Defendant] will be responsible for [their] own costs for [their] attorneys’ fees should [they] choose to be represented by counsel, unless the arbitrator shifts one party’s costs and attorneys’ fees to the other party in accordance with applicable law.” (Decl. Heitzig, Ex. B, ¶ 8.)

(2) Discovery: “Any arbitration proceeding under this agreement shall proceed under and be governed by the Federal Arbitration Act, in conformity with the procedures of the California Arbitration Act . . . including section 1283.05 and all of the Act’s other mandatory and permissive rights to discovery.” (Id. at ¶ 7.)

(3) Remedies: “Resolution of all disputes shall be based solely upon the law governing the claims and defenses pleaded, and the arbitrator may not invoke any basis (including but not limited to, notions of ‘just cause’) other than such controlling law.” (Id.)

(4) Written award: “The arbitrator’s award(s) shall include the arbitrator’s written reasoned opinion.” (Id.)

(5) Neutral arbitrator: “At the beginning of any arbitration process under this agreement, [Plaintiff] and [Defendant] will need to select an arbitrator by mutual agreement. Such an arbitrator shall be a retired California Superior Court Judge, or another qualified and impartial person that [Plaintiff] and [Defendant] decide upon. … If [Plaintiff] and [Defendant] cannot agree on an alternative dispute resolution provider, an arbitrator will be appointed according to law.” (Id. at ¶ 6.)

The Court finds that the arbitration agreement meets each of the minimum requirements under Armendariz.

C. Unconscionability

1. Legal Standard

“Agreements to arbitrate may be invalidated if they are found to be unconscionable.” (Fitz v. NCR Corp. (2004) 118 Cal.App.4th 702, 713, citations omitted.)

“Unconscionability consists of both procedural and substantive elements. The procedural element addresses the circumstances of contract negotiation and formation, focusing on oppression or surprise due to unequal bargaining power. Substantive unconscionability pertains to the fairness of an agreement's actual terms and to assessments of whether they are overly harsh or one-sided. (Pinnacle Museum Tower Ass’n v. Pinnacle Mkt. Dev. (US), LLC (2012) 55 Cal.4th 223, 246, citations omitted.)

“‘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, at 114, italics in original [cleaned up].)

“Moreover, courts are required to determine the unconscionability of the contract ‘at the time it was made.’” (Sanchez, supra, at 920, quoting Civ. Code § 1670.5.)

“Unconscionability is ultimately a question of law.” (Patterson v. ITT Consumer Fin. Corp. (1993) 14 Cal.App.4th 1659, 1663, citation omitted.)

2. Analysis

Given that the 2019 arbitration agreement is the operative agreement, the Court shall discuss below to what extent that agreement is unconscionable.

Plaintiff argues that the arbitration agreement is procedurally and substantively unconscionable such that it is unenforceable.

As to procedural unconscionability, Plaintiff argues that the circumstances in forming the agreement had a high level of oppression because: (1) the agreement is two pages long and written in block paragraphs no larger than 8-point font; (2) the substance of the agreement is opaque; (3) Defendant never explained the significance of the terms of the agreement; (4) Plaintiff was not equipped with the knowledge or tools to understand the agreement; and (5) Plaintiff was not provided the agreement after signing it. (Opp’n, pp. 9–10.)

As to substantive unconscionability, Plaintiff argues that the agreement is substantively unconscionable because: (1) the agreement contains irreconcilably conflicts terms; (2) the agreement fails to attach arbitration rules; (3) the agreement fails to inform Plaintiff how to initiate her claims; and (4) the agreement fails to inform Plaintiff of discovery limitations. (Opp’n, pp. 10–13.)

Defendant argues that the arbitration agreement is neither substantively nor procedurally unconscionable. Specifically, Defendant argues: (1) the failure to physically attach the Federal Arbitration Act or California Arbitration Act to the agreement does not amount to procedural unconscionability; (2) nothing in the arbitration agreement suggests it was provided to Plaintiff on a “take it or leave it basis”; (3) the evidence shows the agreement was executed without oppression; (4) the agreements do not place any limitations on discovery; and (5) Plaintiff knowingly waived her rights to pursue her claims in court in two separate agreements executed on various dates. (Reply, pp. 5–10.)

The Court finds that the circumstances of contract formation render it procedurally unconscionable. The arbitration agreement was clearly a contract of adhesion proffered by the party with the vastly greater bargaining power. The small print and legalistic language of the agreement support a finding of procedural unconscionability. So does the inclusion of the “reminder” that Plaintiff’s employment is “at-will”; a not-so-subtle reminder that if Plaintiff did not sign the arbitration agreement, she could be fired.

However, the Court finds that the arbitration agreement is not substantively unconscionable. The actual terms of the arbitration agreement are not harsh or one-sided to either party. In addition, contrary to Plaintiff’s arguments, the arbitration agreement specifically informs Plaintiff how to initiate discovery; further, the agreements do not limit discovery. (Decl. Heitzig, Ex. B, ¶¶ 5, 7.) Moreover, the agreements do not contain conflicting terms. The fact that the arbitration rules were not attached to the agreement does not render it unconscionable.

Given that the Court has not found any substantive unconscionability, the Court cannot find the arbitration agreement to be unconscionable. (Armendariz, supra, at 114.)

“The party resisting arbitration bears the burden of proving unconscionability.” (Pinnacle at 247, citation omitted.) The Court concludes that Plaintiff has not met her burden of showing both procedural and substantive unconscionability under Armendariz.

D. Severability

“Civil Code section 1670.5 permits a court to determine that only a portion of a contract is unconscionable and to delete or amend that portion to make the remainder of the contract enforceable: ‘[T]he 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.’” (Fitz, supra, at 714, quoting Civ. Code, § 1670.5, subd. (a).)

Since the Court has not found the arbitration agreement to contain substantively unconscionable clauses, the Court does not consider severance here.

III. Conclusion

The Court GRANTS Defendants’ Petition to Compel Arbitration. This matter is STAYED pending the conclusion of arbitration.

The Court schedules a post-arbitration status conference for November 15, 2023. The parties are to file a Joint Status Conference Report 5 court days prior to the status conference hearing.