Judge: Michael P. Linfield, Case: 23STCV15627, Date: 2023-12-08 Tentative Ruling
Case Number: 23STCV15627 Hearing Date: December 8, 2023 Dept: 34
SUBJECT: Motion to Compel Arbitration, and Stay
or Dismiss Proceedings
Moving Party: Defendant
Do & Co Los Angeles, Inc.
Resp. Party: Plaintiff Adolfo Agundez
The Motion to compel arbitration is DENIED.
BACKGROUND:
On July 5, 2023,
Plaintiff Adolfo Agundez filed his Complaint against Defendant DO & CO Los
Angeles, Inc. on causes of action arising from Plaintiff’s employment by
Defendant.
On November 6, 2023,
Defendant filed its Motion to Compel Arbitration, and Stay or Dismiss
Proceedings. In support of its Motion, Defendant concurrently filed: (1)
Memorandum of Points and Authorities; (2) Declaration of Alexander Kappner; (3)
Declaration of Rod Mercado; (4) Request for Judicial Notice; (5) Proposed Order;
and (6) Proof of Service.
On November 27, 2023,
Plaintiff filed his Opposition to the Motion. In support of his Opposition,
Plaintiff concurrently filed Declaration of Adolfo Agundez.
On December 4, 2023,
Defendant filed its Reply regarding the Motion. In support of its Reply,
Defendant concurrently filed: (1) Declaration of Rod Mercado; and (2) Proof of
Service.
ANALYSIS:
I.
Request
for Judicial Notice
Defendant requests that the Court take
judicial notice of: (1) the Rules and Procedure for Judicial Arbitration and
Mediation Services (“JAMS”); and (2) the Minimum Standards of Procedural
Fairness for JAMS.
The
Court DENIES judicial notice to these items. These items are not judicially
noticeable.
II.
Legal
Standard
“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
makes certain determinations].” (Code Civ. Proc., § 1281.2.)
“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. . . . Reasons that would render any
contract revocable under state law include fraud, duress, and
unconscionability.” (Tiri v. Lucky Chances, Inc. (2014) 226 Cal.App.4th
231, 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.” (Tiri,
supra, at p. 239.)
III. Discussion
A. The
Arbitration Agreement
Defendant submits a document titled “Binding
Arbitration Agreement Including Class Action Waiver” (“Arbitration Agreement”).
(Decl. Mercado, Exh. A.) The Arbitration Agreement is purportedly signed by
both Plaintiff and Defendant’s agent on January 30, 2019. (Id. at p.
11.)
The following are the relevant portions of the
Arbitration Agreement.
To provide for more expeditious resolution of certain
employment-related disputes that may arise between DO & CO Los Angeles,
Inc. and you, an employee or applicant, DO & CO Los Angeles, Inc. requests
that you agree to this BINDING ARBITRATION AGREEMENT INCLUDING CLASS ACTION
WAIVER (the “Agreement’”). For certain disputes between you and DO & CO Los
Angeles, Inc., this Agreement provides dispute resolution procedures including
arbitration that do not involve any judge or a jury. Accordingly, by entering
into this Agreement, you and DO & CO Los Angeles, Inc., the Parties to this
Agreement, agree that disputes subject to the Agreement will NOT BE HEARD BY A
JUDGE OR IN A COURT OF LAW, and accordingly CANNOT BE TRIED TO A JURY.
[¶]
In agreeing to submit certain employment-related
disputes for resolution by binding individual arbitration, you acknowledge that
this Agreement is bargained for in exchange for your opportunity to be
considered for starting or continuing at-will employment as a DO & CO Los
Angeles, Inc. employee, and for more expeditious resolution of employment
disputes. In exchange for your agreement to submit these disputes to binding
arbitration, DO & CO Los Angeles, Inc. likewise agrees to the use of
arbitration as the exclusive forum for resolving employment disputes covered by
this Agreement.
[¶]
Hence, the parties shall be PRECLUDED FROM BRINGING
OR RAISING IN COURT OR IN ANY OTHER FORUM any dispute that was or could have
been brought or raised under the procedures set forth in this Agreement.
[¶]
2. (Final And Binding Arbitration): Any dispute,
controversy or claim arising out of, or relating to your employment
relationship with DO & CO Los Angeles, Inc. or any application for such
employment relationship, or any termination of such employment relationship,
unless specifically excluded pursuant to this Agreement, must be submitted for
final and binding resolution by a single, private and impartial arbitrator. The
arbitrator shall be jointly selected by you and DO & CO Los Angeles, Inc.
according to the JAMS Rules (see Section 4(e) (i)).
[¶]
4.
(Procedures):
a. Claims Covered: This Agreement to submit to
individual, binding arbitration:
i. Covers any dispute concerning the arbitrability of
any such controversy or claim;
ii. Includes, but is not limited to, any claim that
could be asserted in court or before an administrative agency or claims for
which the employee or applicant has an alleged cause of action, including,
without limitation claims for breach of any contract or covenant (express or
implied), including any employment contract or covenant; claims for wages or
other compensation due; tort claims; claims for discrimination (including, but
not limited to, discrimination based on sex, pregnancy, race, national or
ethnic origin, age, religion, creed, marital status, sexual orientation, mental
or physical disability or medical condition or other characteristics protected
by statute); claims for retaliation or harassment; claims for wrongful
discharge; violations of the Family and Medical Leave Act (FMLA); claims for
violations of confidentiality or breaches of trade secrets; and claims for
violation of any federal, state or other governmental law, statute, regulation
or ordinance, and whether based on statute or common law; and
iii. Covers all such claims, whether made against DO
& CO Los Angeles, Inc., or against any of its parent, subsidiary, or
affiliated entities, or against its individual officers or directors (in an
official or personal capacity).
b. Claims Not Covered: Claims Covered by this
Agreement, even if they would otherwise fall under subsection a), do not
include:
i. Claims for workers' compensation benefits;
ii. Claims for unemployment compensation benefits;
iii. Claims under the National Labor Relations Act
(NLRA), as amended;
iv. Claims based upon any employee benefits or
welfare plan that contains a dispute resolution procedure that is inconsistent
with this Agreement;
[¶]
d. Informal Efforts: You and DO & CO Los Angeles,
Inc. agree to make good faith efforts at resolving any dispute internally on an
informal basis. If the Parties cannot resolve their dispute through informal
efforts, the dispute shall be submitted to final and binding arbitration under
the terms of this Agreement.
e. Binding Arbitration:
i. Applicable Rules: Arbitration under this Agreement
shall be final, binding and confidential, and shall be conducted and
administered by JAMS under its Employment Arbitration Rules & Procedures,
as effective July 1, 2014, and subject to the JAMS Policy on Employment
Arbitration Minimum Standards of Procedural Fairness, as effective July 15,
2009. Both documents are collectively referred to as the “JAMS Rules” in this
Agreement. The JAMS Rules are incorporated into this Agreement by reference.
If, at the time of the commencement of arbitration, a more current revision of
any document that is part of the JAMS Rules has been promulgated by JAMS, you
may elect for the arbitration to be conducted under the most current revision
of the JAMS Rules, in which case all references to the JAMS Rules in this Agreement
shall refer to such most current revision. This election must be made by you in
writing at the time you first file a claim or counterclaim. Any conflict
between the JAMS Rules and the provisions in this Agreement shall be resolved
in favor of those in this Agreement.
[¶]
iii. Discovery in Arbitration: Each party shall have
the right to take the deposition of one individual and of each expert witness
designated by the other party. Each party shall further be entitled to
production of relevant documents and things, and timely identification of fact
and expert witnesses, as further provided in the JAMS Rules. Additional
discovery may be had where the arbitrator pursuant to the JAMS Rules so orders,
upon a showing of need. The arbitrator shall have the authority to allow for
appropriate discovery and exchange of information before a hearing, including,
but not limited to, production of paper and electronic documents, production of
things, information requests, depositions and subpoenas.
[¶]
g. Arbitration Costs: DO & CO Los Angeles, Inc.
will pay the arbitrator's fees and expenses. DO & CO Los Angeles, Inc. will
also pay the JAMS administrative fees for arbitration, including all filing
fees, except that in arbitration cases filed by you against DO & CO Los
Angeles, Inc., a filing fee of $ 181, or any such lower amount as allowed under
the JAMS Rules, is to be paid by you. You may request a waiver of the filing
fee from JAMS pursuant to California Code of Civil Procedure Section 1284.3. If
you are unsuccessful in obtaining a filing fee waiver, but nevertheless believe
that paying the filing fee would cause you hardship, you agree to notify DO
& CO Los Angeles, Inc. of this fact. DO & CO Los Angeles, Inc. may
then, in its discretion, pay the filing fee on your behalf.
[¶]
5. (Severability): In the event any portion of this
Agreement is found to be unenforceable or illegal, it can be severed, and the
other provisions will remain in full force and effect.
[¶]
By providing your signature below, you indicate your
assent to this Agreement. By the provision of the signature of the DO & CO
Los Angeles, Inc. Official named below, DO & CO Los Angeles, Inc. indicates
its assent to this Agreement. Both Parties understand that by entering into
this Agreement, both are giving up any constitutional or statutory right they
may possess to have covered claims decided in a court of law, by a judge or a
jury, or as part of a class or representative proceeding.
(Decl. Mercado, Exh. A.)
B. The
Parties’ Arguments
Defendant moves the Court to compel Plaintiff’s
claims to arbitration and stay or dismiss proceedings before the Court.
(Motion, p. 7:10–11, 7:22–26.)
Defendant argues: (1) that the Federal
Arbitration Act (FAA) requires arbitration of Plaintiff’s claims pursuant to
the Arbitration Agreement; (2) that even under the California Arbitration Act
(CAA) the Arbitration Agreement should be enforced; (3) that the Court should
sever any provision of the Arbitration agreement that it deems unenforceable;
and (4) that Plaintiff’s claims should be stayed or dismissed pending the
completion of arbitration. (Motion, pp. 5:6–7, 5:19, 6:12–13, 7:1–2, 7:10–11.)
Plaintiff disagrees, arguing that the
Arbitration Agreement is unenforceable because it is procedurally and
substantively unconscionable. (Opposition, pp. 4:2–4, 4:27, 5:12–13, 6:24–25,
8:1, 8:11, 8:24–25.)
In its Reply, Defendant responds to the
arguments about unconscionability.
C. Whether
an Arbitration Agreement Exists
The evidence presented to the Court supports a
determination that there is an arbitration agreement.
The
purported Arbitration Agreement has been sufficiently authenticated by
Declarant Rod Mercado, who is the Human Resources Director for Defendant and is
Defendant’s custodian of records of all current and prior employee files.
(Decl. Mercado, ¶ 2–3.)
The Arbitration Agreement appears to be
electronically signed by both Plaintiff and Defendant’s agent on January 30,
2019. (Decl. Mercado, Exh. A, p. 11.)
Plaintiff does not claim that he did not sign the
Arbitration Agreement. Rather, he declares that he does not recall seeing,
reading, or signing the Arbitration Agreement, and that he has never previously
seen the Arbitration Agreement. (Decl. Agundez, ¶ 4.) He further declares that
he is a native Spanish speaker, that his limited schooling was completed in
Mexico, that he has limited ability to speak and read in English, that he was
not provided with a Spanish version of the Arbitration Agreement, that he was not
advised to seek advice from an attorney regarding the contents of the
Arbitration Agreement, and that Defendant did not explain to him anything about
the Arbitration Agreement or the rights involved. (Decl. Agundez, ¶¶ 3–7.)
Based on the evidence submitted, Defendant has met
its burden to show that an arbitration agreement exists.
D. 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
v. Found. Health Psychcare Servs., Inc. (2000) 24 Cal.4th 83, 114, [cleaned
up], italics in original, abrogated in part on other grounds by AT&T
Mobility LLC v. Concepcion (2010) 565 U.S. 333.).)
“The party resisting arbitration bears the burden of proving
unconscionability.” (Pinnacle, supra, 55 Cal.4th at p.
247, citation omitted.)
“Moreover, courts are required to determine the unconscionability of
the contract ‘at the time it was made.’” (Sanchez v. Valencia Holding Co.,
LLC (2015) 61 Cal.4th 899, 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. Procedural
Unconscionability
a.
Legal Standard
“[P]rocedural unconscionability requires
oppression or surprise. Oppression occurs where a contract involves lack of
negotiation and meaningful choice, surprise where the allegedly unconscionable
provision is hidden within a prolix printed form.” (Pinnacle, supra,
55 Cal.4th at p. 247 [cleaned up].)
“The procedural element of an
unconscionable contract generally takes the form of a contract of adhesion . .
. .” (Little v. Auto Stiegler, Inc. (2003) 29 Cal.4th 1064, 1071.)
b.
Discussion
Plaintiff argues that the Arbitration Agreement is procedurally
unconscionable.
Defendant argues: (1) Plaintiff cannot
avoid the Arbitration Agreement merely because he did not read it; (2) the
nature and key implications of the Arbitration Agreement were clearly and
conspicuously stated on the Arbitration Agreement; and (3) Plaintiff has
sufficient English proficiency to understand the Arbitration Agreement. (Reply,
pp. 2:5–6, 3:22–24, 4:7–8.)
The Court finds that this Arbitration Agreement is a contract of
adhesion and is procedurally unconscionable.
“Absent unusual
circumstances, a contract offered on a take-it-or-leave-it is deemed adhesive,
and a commercial transaction conditioned on a party’s acceptance of such a
contract is deemed procedurally unconscionable.” (Vasquez v. Greene Motors,
Inc. (2013) 214 Cal.App.4th 1172, 1184; Sanchez v. Valencia
Holding Co., LLC (2011) 201 Cal.App.4th 74, 90; Gutierrez v. Autowest,
Inc. (2003) 114 Cal.App.4th 77.)
The Arbitration Agreement is a classic
take-it-or-leave-it contract of adhesion. Defendant did not give Plaintiff a
meaningful choice or opportunity to negotiate the document. Had Plaintiff
refused to sign the Arbitration Agreement, he would not have been hired. The arbitration agreement itself indicates
that signing the arbitration provision is a pre-condition for even being
considered for employment. According
to the arbitration agreement itself, the employee must sign the agreement “in
exchange for your opportunity to be considered for starting or continuing
at-will employment as a DO & CO Los Angeles, Inc. employee. . . .” (Arbitration Agreement, Decl. Mercado, Exh. A.) This is
confirmed by Defendant’s in-house counsel, who declares that “[a]cceptance of such
arbitration agreement in writing is a pre-condition to be considered for any
employment at Defendant.” (Kappner Decl., ¶ 7.)
“[F]ew employees are in a position to refuse a job because of
an arbitration requirement.” (Armendariz v. Foundation Health Psychcare
Services, Inc. (2000) 24 Cal.4th 83, 115.)
“Because plaintiff was required to sign the
Agreement as a condition of employment, was unable to negotiate the terms of
the Agreement, and had no meaningful choice in the matter, the Agreement was
oppressive and procedurally unconscionable.”
(Baltazar v. Forever 21, Inc. (2012) 212 Cal.App.4th 221, 234.)
Furthermore, given Plaintiff’s limited ability to speak and read
English, Defendant’s failure to adequately explain the Arbitration Agreement,
give Defendant a Spanish-language copy of the Arbitration Agreement, or give
Defendant the time to consider the Arbitration Agreement by taking it to a
lawyer (or at least someone who is proficient in reading English) add to the
procedural unconscionability here.
The Court recognizes that Plaintiff does not appear to be credible
in his denial of understanding written English; after all, Plaintiff’s declaration is written in English. (See
Agundez Declaration.)
Nonetheless, it is clear to the Court
that the Arbitration Agreement is procedurally unconscionable.
3. Substantive
Unconscionability
a.
Legal Standard
“Substantive unconscionability
focuses on overly harsh or one-sided results. In assessing substantive unconscionability, the paramount
consideration is mutuality.” (Fitz, supra, 118 Cal.App.4th at p.
723 [cleaned up].)
b.
Discussion
Plaintiff argues that the Arbitration Agreement is substantively
unconscionable, pointing to: (1) the limits on discovery; and (2) the
requirement on informal resolution before submitting to arbitration.
(Opposition, pp. 4:27, 5:12–13, 6:24–25.)
Defendant disagrees, arguing: (1) the reconciliation clause does
not render the Arbitration Agreement unconscionable; and (2) the Arbitration
Agreement’s discovery rules are not unconscionable. (Reply, pp. 5:6–7, 6:7–8.)
There are multiple provisions in the Arbitration Agreement that
appear to create overly harsh or one-sided results. For example, the Arbitration
Agreement contains the following provisions:
· “You and DO & CO Los Angeles, Inc. agree to make
good faith efforts at resolving any dispute internally on an informal basis. If
the Parties cannot resolve their dispute through informal efforts, the dispute
shall be submitted to final and binding arbitration under the terms of this
Agreement.” (Arbitration Agreement, §4(e)
·
“Each party shall have the right to take
the deposition of one individual and of each expert witness designated by the
other party. Each party shall further be entitled to production of relevant
documents and things, and timely identification of fact and expert witnesses,
as further provided in the JAMS Rules. Additional discovery may be had where
the arbitrator pursuant to the JAMS Rules so orders, upon a showing of need.
The arbitrator shall have the authority to allow for appropriate discovery and
exchange of information before a hearing, including, but not limited to, production
of paper and electronic documents, production of things, information requests,
depositions and subpoenas.” (Arbitration
Agreement, § 4(e)(iii).)
·
“DO & CO Los Angeles, Inc. will pay
the arbitrator's fees and expenses. DO & CO Los Angeles, Inc. will also pay
the JAMS administrative fees for arbitration, including all filing fees, except
that in arbitration cases filed by you against DO & CO Los Angeles, Inc., a
filing fee of $ 181, or any such lower amount as allowed under the JAMS Rules,
is to be paid by you. You may request a waiver of the filing fee from JAMS
pursuant to California Code of Civil Procedure Section 1284.3. If you are
unsuccessful in obtaining a filing fee waiver, but nevertheless believe that
paying the filing fee would cause you hardship, you agree to notify DO & CO
Los Angeles, Inc. of this fact. DO & CO Los Angeles, Inc. may then, in its
discretion, pay the filing fee on your behalf.”
(Arbitration Agreement, § 4(g).)
An informal discussion can produce results that are
overly harsh or one-sided to employees. (See Nyulassy v. Lockheed Martin
Corp. (2004) 120 Cal.App.4th 1267, 1282–1283.) Furthermore, without a
neutral mediator present, it “suggests that defendant would receive a ‘free
peek’ at plaintiff’s cause, thereby obtaining an advantage if and when
plaintiff were to later demand arbitration.” (Ibid.)
As to the limits on discovery, it is true that Courts
of Appeal have upheld arbitration provisions that limit the right of discovery
to one deposition, with further depositions allowable by a showing of need.
(See, e.g., Dotson v. Amgen, Inc. (2010) 181 Cal.App.4th 975, 982–985.)
This is because the Court must “assume that the arbitrator will operate in a
reasonable manner in conformity with the law.” (Ibid.)
However, other Courts of Appeal have noted that such
a provision can add to the substantive unconscionability of an arbitration
agreement. (See, for example, Martinez v. Master Protection Corp. (2004)
118 Cal.App.4th 107, 118–119 [“Nevertheless, considered against the backdrop of
the other indisputably unconscionable provisions, the limitations on discovery
do, in our view, compound the one-sidedness of the arbitration agreement.”].)
Here,
the limitations on depositions are likely to have overly harsh or one-sided
results. “While superficially neutral, the
discovery restrictions favor defendants. Employment disputes are factually
complex, and their outcomes are often determined by the testimony of multiple
percipient witnesses, as well as written information about the disputed
employment practice. Seemingly neutral limitations on discovery in employment
disputes may be nonmutual in effect. This is because the employer already has
in its possession many of the documents relevant to an employment . . . case as
well as having in its employ many of the relevant witnesses.” (De Leon v. Pinnacle Property Management
Services, LLC (2021) 72 Cal.App.5th 476, 487 [cleaned up].)
Finally, the Arbitration Agreement requires Plaintiff to pay the arbitral
filing fee. If JAMS does not agree to reduce its fee, “DO & CO Los
Angeles, Inc. may then, in its discretion, pay the filing fee on your
behalf.” (Arbitration Agreement, 4(g).) In other words, the Arbitration Agreement
gives the employer – at its sole discretion – the choice of whether or not to
pay the Plaintiff’s arbitration filing fees.
But Plaintiff has already paid
the costs of litigating this matter in Court. Plaintiff should not have to pay
again in order to initiate arbitration – an arbitration that only the Company
wants.
“Where an ‘arbitration
agreement contains more than one unlawful provision,’ that factor weighs
against severance.” (Penilla v. Westmont Corp. (2016) 3 Cal.App.5th 205,
222, quoting Armendariz, supra, 24 Cal.4th at pp. 124–125.) “[U]pholding this type of agreement
with multiple unconscionable terms would create an incentive for an employer to
draft a onesided arbitration agreement in the hope employees would not
challenge the unlawful provisions, but if they do, the court would simply
modify the agreement to include the bilateral terms the employer should have included
in the first place.” (Mills v.
Facility Solutions Group, LLC (2022) 84 Cal.App.5th 1035, 1045.)
The
Court finds that substantive unconscionability permeates the document. Choosing to sever multiple clauses would
encourage the drafters of arbitration agreements to include as many
unconscionable clauses as possible, knowing Courts may catch some but not all
of them.
The Court finds that the Arbitration Agreement is substantively
unconscionable.
The Arbitration Agreement is both
procedurally unconscionable and substantively unconscionable. The arbitration agreement
is procedurally unconscionable because it was a take-it-or-leave-it contract of
adhesions. The arbitration agreement is substantively
unconscionable containing multiple substantively unconscionable provisions.
IV.
Conclusion
The Motion to compel arbitration is DENIED.