Judge: Monica Bachner, Case: 22STCV18351, Date: 2023-04-17 Tentative Ruling

Case Number: 22STCV18351    Hearing Date: April 17, 2023    Dept: 71

Superior Court of California

County of Los Angeles

DEPARTMENT 71

TENTATIVE RULING

Defendant Northrop Grumman Systems Corporation’s motion to compel arbitration of Plaintiff Joseph Levine’s claims in this action is granted.  The case is stayed pending arbitration.  The matter is set for a status conference regarding arbitration on April 17, 2024, at 8:30 a.m.  The parties are ordered to file a joint status report five court days in advance of the hearing.

Defendant Northrop Grumman Systems Corporation (“Northrop”) (“Defendant”), erroneously sued as Northrop Grumman Corporation, moves for an order compelling arbitration of all claims asserted by Plaintiff Joseph Levine (“Levine”) (“Plaintiff”) in this action and staying the action pending completion of arbitration.  (Notice of Motion, pg. 2; C.C.P. §§1281.2, 1281.4; 9 U.S.C. §§1 et seq.)

Evidentiary Objections

Plaintiff’s 4/4/23 evidentiary objections to the Declaration of Sandra Kinderknecht (“Kinderknecht”) are overruled as to Nos. 1, 2, and 3.

Background

On June 3, 2022, Plaintiff filed the instant action for age, national origin, and religious discrimination under the Fair Employment and Housing Act (“FEHA”); hostile work environment harassment; failure to prevent discrimination; whistleblower retaliation; and wrongful termination in violation of public policy in connection with his employment with Defendant.  Defendant filed the instant motion to compel arbitration on November 30, 2022.  Plaintiff filed his opposition on April 4, 2023.  Defendant filed its reply on April 10, 2023.

In deciding a motion to compel arbitration, trial courts must first decide whether an enforceable arbitration agreement exists between the parties, and then determine the second gateway issue of whether the claims are covered within the scope of the agreement.  (See Omar v. Ralphs Grocery Co. (2004) 118 Cal.App.4th 955, 961.)  “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.  [Citation.]  In these summary proceedings, the trial court sits as a trier of fact, weighing all the affidavits, declarations, and other documentary evidence, as well as oral testimony received at the court’s discretion, to reach a final determination.  [Citation.]  No jury trial is available for a petition to compel arbitration. [Citation.]”  (Engalla v. Permanente Medical Group, Inc. (1997) 15 Cal.4th 951, 972; see also Chiron Corp. v. Ortho Diagnostic Systems, Inc. (9th Cir. 2000) 207 F.3d 1126, 1130 [“The court’s role under the [FAA] is therefore limited to determining (1) whether a valid agreement to arbitrate exists and, if it does, (2) whether the agreement encompasses the dispute at issue. [Citations.]”].)  The party opposing the petition to compel arbitration 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.) 

Accordingly, under both the FAA and California law, arbitration agreements are valid, irrevocable, and enforceable, except on such grounds that exist at law or equity for voiding a contract.  (Winter v. Window Fashions Professions, Inc. (2008) 166 Cal.App.4th 943, 947.)

A.  Arbitration Agreement

1.    The Arbitration Agreement is enforceable

Federal law provides for enforcement of this Arbitration Agreement. The Federal Arbitration Act, 9 U.S.C. §1, et seq. (“FAA”), establishes a strong federal policy in favor of arbitration of disputes where a written arbitration agreement exists. Section 2 of the FAA provides, in pertinent part that “[a] written provision . . . to settle by arbitration a controversy thereafter arising out of such contract . . .  shall be valid, irrevocable, and enforceable.”  (9 U.S.C. §2.)  The purpose of the FAA is to “reverse the longstanding judicial hostility to arbitration agreements.” (Gilmer v. Interstate/Johnson Lane Corp. (1991) 500 U.S. 20, 24.)  The FAA places arbitration agreements “on an equal footing with other contracts and [requires courts] to enforce them according to their terms.”  (AT&T Mobility, LLC v. Concepcion (2011) 563 U.S. 333, 339; see also Rent-A-Center West, Inc. v. Jackson (2010) 561 U.S. 63, 67 [“The FAA reflects the fundamental principle that arbitration is a matter of contract.”].)  The FAA will preempt not only a state law that “discriminat[es] on its face against arbitration,” but also a state law that “covertly accomplishes the same objective by disfavoring contracts that (oh so coincidentally) have the defining features of arbitration agreements.”  (Kindred Nursing Centers Limited Partnership v. Clark (2017) 137 S.Ct. 1421, 1426.)

The FAA restricts a court’s inquiry related to compelling arbitration to two threshold questions: (1) whether there was an agreement to arbitrate between the parties; and (2) whether the agreement covers the dispute.  (Howsam v. Dean Witter Reynolds, Inc. (2002) 537 U.S. 79, 84.)  Here, both criteria are satisfied. First, Plaintiff agreed to arbitration when parties entered into the “Agreement Regarding At-Will Employment, Arbitration of Disputes, Intellectual Property Rights, and Procurement Integrity” on July 25, 2016, that contained a valid and enforceable arbitration clause (“Arbitration Agreement”).  (Decl. of Kinderknecht ¶¶2-4, Exhs. A, C.) 

Plaintiff disputes that he signed the Arbitration Agreement, declares that he was not aware of the existence of the Arbitration Agreement at any point before or during the time he worked for Defendant, and argues that he did not agree to the validity of an electronic signature.  (Decl. of Levine ¶¶2-3.)   Plaintiff also argues the Arbitration Agreement is governed by the California Arbitration Act (“CAA”), not the FAA.  (Opposition, pg. 6.)

Defendant’s burden of proof to show the existence of an agreement to arbitrate is by a preponderance of the evidence.  (Rosenthal v. Great Western Financial Securities Corp. (1996) 14 Cal.4th 394, 413.)  Civil Code §1633.7 requires this Court give an electronic signature the same legal effect as a handwritten signature.  (Civ. Code §1633.7(a); Espejo v. Southern California Permanente Medical Group (2016) 246 Cal.App.4th 1047, 1061, citing Ruiz, 232 Cal.App.4th at pg. 843.)  “An electronic record or electronic signature is attributable to a person if it was the act of the person. The act of the person may be shown in any manner, including a showing of the efficacy of any security procedure applied to determine the person to which the electronic record or electronic signature was attributable.”  (Civ. Code §1633.9(a).)

Defendant has met its burden to show the signature on the arbitration agreement was signed by Plaintiff by a preponderance of the evidence.  (Ruiz v. Moss Brothers Auto Group, Inc. (2014) 232 Cal.App.4th 836, 843.)  Defendant submitted the sworn affidavit of Sandra Kinderknecht, who confirmed that: (1) each employee possesses a unique username and password, known only to them, (2) Plaintiff was required to use his unique login credentials to view the Arbitration Agreement provided by Defendant on the Taleo system, (3) Plaintiff was the only individual who could have accessed Taleo using his account, and (4) the date and time stamp included in the e-mail automatically generated by Plaintiff’s electronic signature reflect the date and time the signature was made.  (Decl. of Kinderknecht ¶¶2-3, Exh. B; Ruiz, 232 Cal.App.4th at pg. 844.)

The Arbitration Agreement is explicitly governed by the FAA.  (Decl. of Kinderknecht, Exh. B §4.)  Assuming, arguendo, the CAA rather than FAA governs the Arbitration Agreement, California law also favors arbitration for dispute resolution. The CAA, codified at C.C.P. §1281 et seq., provides, “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.”  (C.C.P. §1281; see also Grafton Partners L.P. v. Superior Court (2005) 36 Cal.4th 944, 955 [“[U]nlike predispute jury waivers, predispute arbitration agreements are specifically authorized by statute.”].) 

“California law, like federal law, favors enforcement of valid arbitration agreements.”  (Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, 97, 99.)  The public policy in favor of arbitration is so strong that California courts have held that an employee is “bound by the provisions of the [arbitration] agreement regardless of whether [he] read it or [was] aware of the arbitration clause when [he] signed the document.”  (Brookwood v. Bank of America (1996) 45 Cal.App.4th 1667, citing Macaulay v. Norlander (1992) 12 Cal.App.4th 1.)  The only prerequisite for a court to order arbitration is a determination that the parties have entered into an agreement to arbitrate the dispute.  (United Transportation Union v. Southern California Rapid Transit District (1992) 7 Cal.App.4th 804, 808.)  Thus, arbitration must be ordered “unless the agreement clearly does not apply to the dispute in question.” (Vianna v. Doctors’ Management Co. (1994) 27 Cal.App.4th 1186, 1189.)

Under the CAA, Defendant also proved the existence of an arbitration agreement with Plaintiff.  Defendant submitted evidence that on July 25, 2016, Plaintiff entered into an employment agreement that contained the relevant Arbitration Agreement.  (Decl. of Kinderknecht ¶¶2-4, Exhs. A, C.) 

2.    The Arbitration Agreement applies to Plaintiff’s claims

Plaintiff does not dispute that his claims against Defendant would be covered by the Arbitration Agreement.  (See Opposition.)  In fact, the Arbitration Agreement expressly states that covered claims include “[a]ny claim, controversy, or dispute, past present, or future . . . [w]hich in any way arises out of, relates to, or is associated with [Plaintiff’s] employment with [Defendant], the termination of [Plaintiff’s] employment” and covers claims for “[u]nlawful discrimination or harassment, including but not limited to discrimination or harassment based on race, sex, religion, national origin, age, disability, or any other status as protected and defined by applicable law; [u]nlawful retaliation; . . . [and] [a]ny violation of applicable federal, state, or local law, statute, ordinance, or regulation.”   (Decl. of Kinderknecht, Exh. B at pgs. 13-14.)  As such, Defendant met its burden of establishing the Arbitration Agreement covers the causes of action asserted in Plaintiff’s complaint.

Based on the foregoing, Defendant proved the existence of a valid Arbitration Agreement between the parties that is enforceable by Defendant and covers the claims asserted in Plaintiff’s Complaint. 

B. Unconscionability

“[P]rocedural 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.”  (Armendariz, 24 Cal.4th at pg. 102.)  Courts invoke a sliding scale 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, i.e., the more substantively oppressive the contract term, the less evidence of procedural unconscionability is required to conclude that the term is unenforceable, and vice versa.  (Id. at pg. 114.)  Plaintiff bears the burden of proving that the provision at issue is both procedurally and substantively unconscionable. 

1.    Procedural Unconscionability

“Procedural unconscionability focuses on the elements of oppression and surprise. [Citations] ‘Oppression arises from an inequality of bargaining power which results in no real negotiation and an absence of meaningful choice . . . Surprise involves the extent to which the terms of the bargain are hidden in a ‘prolix printed form’ drafted by a party in a superior bargaining position.’ [Citations.]”  (Roman v. Superior Court (2009) 172 Cal.App.4th 1462, 1469.)

Plaintiff argues the Arbitration Agreement is procedurally unconscionable because (1) the Arbitration Agreement was presented on a take-it-or-leave-it basis as a condition of employment in an adhesion contract; (2) Defendant presented the Arbitration Agreement to prospective new hires in a document containing only a hyperlink to Defendant’s Arbitration Program that contained the terms of arbitration; and (3) Defendant did not meaningfully provide employees, including Plaintiff, a copy of the JAMS or AAA arbitration rules, either of which could apply to the arbitration at the election of the party receiving the demand for arbitration.  (Opposition, pgs. 8-9.)

Procedural unconscionability “focuses on the unequal bargaining positions and hidden terms common in the context of adhesion contracts.”  (24 Hour Fitness, Inc. v. Superior Court (1998) 66 Cal.App.4th 1199, 1212-1213.)  Adhesion contracts are “fully enforceable . . . unless certain other factors are present which under established legal rules—legislative or judicial—operate to render it otherwise.”  (Id. at pgs. 819-820; Harper v. Ultimo (2003) 113 Cal.App.4th 1402, 1409 [adhesion alone does not render arbitration agreements unconscionable]; see also Armendariz, 24 Cal.4th at pg. 114; Lagatree v. Luce, Forward, Hamilton & Scripps, LLP (1999) 74 Cal.App.4th 1105 [discussing authorities upholding arbitration agreements contained in adhesion contracts].)

Plaintiff’s arguments that the Arbitration Agreement is procedurally unconscionable are unavailing.  First, while the Arbitration Agreement appears to be an adhesion contract, the terms of the Arbitration Agreement do not appear hidden or obscure, and the Arbitration Agreement was presented as a separate, stand-alone document.  (Decl. of Kinderknecht, Exhs. B, D, E.)  Second, Plaintiff’s argument that the inclusion of a hyperlink in the Arbitration Agreement renders the agreement unconscionable is unavailing because Plaintiff and new hires accessed the Arbitration Agreement electronically and provides an accessible and convenient means of accessing the terms of the agreement in an effort to reduce procedural unconscionability.  (See Decl. of Kinderknecht, Exh. A; Serafin v. Balco Properties Ltd., LLC (2015) 235 Cal.App.4th 165, 179 [“[W]here the arbitration provisions presented in a contract of adhesion are highlighted for the employee, any procedural unconscionability is ‘limited.’”], internal citations omitted.)  Here, unlike in Baltazar v. Forever 21, Inc., the hyperlink is not “artfully hidden” but rather incorporated by reference and readily electronically accessible to an applicant at two hyperlinks on page 6 of the employment contract.  (Decl. of Kinderknecht, Exh. A at §§2, 4; Baltazar v. Forever 21, Inc. (2016) 62 Cal.4th 1237, 1246.)  The Arbitration Agreement also states in bold, capital letters, “BY SIGNING THIS AGREEMENT, I AGREE TO SUBMIT ALL CLAIMS COVERED BY THE ARBITRATION PROGRAM TO FINAL AND BINDING ARBITRATION UNDER THAT PROGRAM. BY DOING THIS, I AM GIVING UP ANY RIGHT TO HAVE SUCH CLAIMS DECIDED BY A COURT OR JURY.”  (Decl. of Kinderknecht, Exh. A at §4.)  Third, Plaintiff’s argument that the Arbitration Agreement is unconscionable because the JAMS and AAA rules were not made available in the Arbitration Agreement is unavailing because, as Plaintiff concedes, the Arbitration Agreement included hyperlinks to the websites to view the rules.  (Decl. of Kinderknecht ¶¶3-4, Exhs. A, B; see Nguyen v. Applied Medical Research Corp. (2016) 4 Cal.App.5th 232, 249 [“[T]he failure to attach the applicable [arbitration] rules did not increase the procedural unconscionability of the application or its arbitration provision.”].)  Accordingly, Plaintiff’s duty to arbitrate was not hidden from him in a manner as to make him unaware of the Arbitration Agreement and its applicable rules.

Based on the foregoing, the Court finds the Arbitration Agreement is minimally procedurally unconscionable.  However, as discussed below, the Court finds the arbitration agreement is not substantively unconscionable. 

2.    Substantive Unconscionability

“Substantive unconscionability focuses on the actual terms of the agreement and evaluates whether they create ‘overly harsh’ or ‘‘one-sided’ results’ [Citations] that is, whether contractual provisions reallocate risks in an objectively unreasonable or unexpected manner.  [Citation] Substantive unconscionability ‘may take various forms,’ but typically is found in the employment context when the arbitration agreement is ‘one-sided’ in favor of the employer without sufficient justification, for example, when ‘the employee’s claims against the employer, but not the employer’s claims against the employee, are subject to arbitration.’ [Citations].”  (Roman, 172 Cal.App.4th at pgs. 1469-1470.)  In determining whether an arbitration agreement is unconscionable, the Court considers whether the agreement: (1) provides for a neutral arbitrator; (2) provides for reasonable discovery; (3) requires a written award; (4) provides for the same remedies that otherwise would be available in court; and (5) does not require employees to bear costs unique to arbitration.  (See Armendariz, 24 Cal.4th at pgs. 102-103.)

Plaintiff argues the Arbitration Agreement is substantively unconscionable because (1) it effectively allows the employer to choose the arbitration forum most favorable to it after an employee makes a claim; (2) it is ambiguous as to the discovery rules that govern; and (3) allows the employer to unilaterally modify the arbitration rules after the agreement has been executed.  (Opposition, pgs. 10-14.)

Plaintiff’s arguments that the Arbitration Agreement is substantively unconscionable are unavailing.  First, the Arbitration Agreement’s demand mechanism is not one-sided wholly favoring the employer.  Rather, the demand mechanism confirms that a written arbitration demand should identify the claims with the “same specificity as would be required if the claim was asserted in court” and provides that the arbitrator may require the moving party to present a more detailed statement of the claim.  (Decl. of Kinderknecht, Exhs. B at pgs. 6-7 of 12, D at pg. 5 of 8, E at pg. 4 of 7.)  The demand mechanism is not improper, one-sided, or substantively unconscionable and confirms that the same rules controlling timeliness and the specificity of claims brought in the court of law apply to demands to arbitrate under the agreement.  The employer’s ability to choose either JAMS or AAA at the time the demand for arbitration is made also does not render the provision wholly one-sided, as both tribunals are neutral dispute resolution forums.  Second, the Arbitration Agreement provides for adequate discovery by adopting both the JAMS and AAA discovery rules, which provide for adequate discovery.  (Decl. of Kinderknecht, Exhs. B at pg. 9 of 12, D at pg. 6 of 8, E at pg. 6 of 7; See AAA Rule 9 and JAMS Rule 17.)  Discovery is deficient where Arbitration Agreements are more restrictive than the AAA or JAMS rules, which is not the case here.  (See, e.g., Fitz v. NCR Corp. (2004) 118 Cal.App.4th 702, 718 [holding that arbitration agreement replaced the AAA’s discovery provisions with more restrictive ones expressly limiting parties to two depositions]; Mills v. Facility Solutions Group (2022) 84 Cal.App.5th 1035, 1060 [holding agreement that did not permit any written discovery exceeded the provisions of the AAA discovery rules and was unconscionable].)  Third, the Arbitration Agreement’s provision that permits modifications to the terms and conditions of the agreement does not render the agreement unconscionable.  The California Supreme Court holds modification clauses are permissible.  (Asmus v. Pacific Bell (2000) 23 Cal.4th 1, 16 [“[An unqualified right to modify or terminate the contract is not enforceable. But the fact that one party reserves the implied power to terminate or modify a unilateral contract is not fatal to its enforcement, if the exercise of the power is subject to limitations, such as fairness and reasonable notice.”].)  Plaintiff’s citation to Harris v. TAP Worldwide, LLC supports the validity of the modification clause. The Harris Court stated “[o]ur Supreme Court has held that an employer possesses the unilateral right to alter the terms of future employment.”  (Harris v. TAP Worldwide, LLC (2016) 248 Cal.App.4th 373, 387.)  Harris identified several cases since Asmus v. Pacific Bell holding the implied covenant of good faith and fair dealing limits the employer’s authority to unilaterally modify an arbitration agreement and therefore the implied covenant saves the arbitration agreement from being rendered illusory and thus unconscionable.  (Id. at pgs. 389-390.)

The Arbitration Agreement satisfies the requisite elements set forth in Armendariz to determine the Agreement is not substantively unconscionable.  First, the Arbitration Agreement provides for a neutral arbitrator; the Agreement states, “the parties will attempt to agree on a mutually acceptable arbitrator.” (Decl. of Kinderknecht, Exhs. B at pg. 6 of 12, D at pg. 2 of 8, E at pg. 5 of 7.)  Second, the Armendariz Court explicitly acknowledged an arbitrator’s authority to determine what constitutes sufficient discovery adequate to arbitrate an employee’s claims.  (Armendariz, 24 Cal.4th at pg. 106 [employees are “entitled to discovery sufficient to adequately arbitrate their statutory claim, including access to essential documents and witnesses, as determined by the arbitrator”].)  Here, the Arbitration Agreement states, “the arbitrator will have authority to decide any disputes regarding discovery . . . ,” and adopts the JAMS and AAA rules, as stated above. (Decl. of Kinderknecht, Exhs. B at pg. 9 of 12, D at pg. 6 of 8, E at pg. 6 of 7.)  Therefore, the parties remain entitled to conduct all relevant discovery.  Third, Under Armendariz, an employee cannot be required to pay any type of expense that the employee would not be required to bear if he or she were free to bring the action in court. (Armendariz, 24 Cal.4th at pgs. 110-111.)  Here, the Arbitration Agreement provides that the “expense of the arbitrator will be borne entirely by [Defendant].”  (Decl. of Kinderknecht, Exhs. B at pg. 8 of 12, D at pg. 6 of 8, E at pg. 5 of 7.)  Accordingly, Plaintiff would not be required to bear expenses he would not be required to bear if he were to bring the action in court.

Based on the evidence before the Court, the terms of the Arbitration Agreement do not create overly harsh or one-sided results, satisfying the requirements for a substantively conscionable agreement.  Based on the foregoing, the Court finds the Arbitration Agreement is not substantively unconscionable.

D.   Conclusion

Defendant’s motion to compel arbitration is granted. The case is stayed pending arbitration. The matter is set for a status conference regarding arbitration on April 17, 2024, at 8:30 a.m.  The parties are ordered to file a joint status report five court days in advance of the hearing.

Dated:  April _____, 2023

Hon. Daniel M. Crowley

Judge of the Superior Court