Judge: Monica Bachner, Case: 22STCV21848, Date: 2023-04-21 Tentative Ruling

Case Number: 22STCV21848    Hearing Date: April 21, 2023    Dept: 71

Superior Court of California

County of Los Angeles

DEPARTMENT 71

TENTATIVE RULING

Defendants THC Design, LLC, 1346 LA, LLC, 1333 GRO, LLC, 1350 LA, LLC, 1400 LA, LLC, 1429 LA, LLC, 1512 LA, LLC, and 3001 LA, LLC’s motion to compel arbitration of Plaintiff William McKenna’s claims in this action is granted. The case is stayed pending arbitration.

The Court sets a status conference for April 21, 2024, at 8:30 a.m.  The parties are directed to submit a joint statement five calendar days in advance, apprising the Court of the status of the arbitration.

Defendants THC Design, LLC (“THC Design”), 1346 LA, LLC (“1346 LA”), 1333 GRO, LLC (“1333 GRO”), 1350 LA, LLC (“1350 LA”), 1400 LA, LLC (“1400 LA”), 1429 LA, LLC (“1429 LA”), 1512 LA, LLC (“1512 LA”), and 3001 LA, LLC (“3001 LA”) (collectively, “Defendants”) move for an order compelling arbitration of all claims asserted by Plaintiff William McKenna (“McKenna”) (“Plaintiff”) and staying the action pending completion of arbitration.  (Notice of Motion, pgs. 1-2; C.C.P. §§1281, 1281.2.) 

Background

On July 6, 2022, Plaintiff filed the instant action for wrongful termination and employment retaliation pursuant to Labor Code §1102.5, and Labor Code §§201-203 against Defendants and non-moving Defendant Rare Transports, LLC (“Rare Transports”) in connection with Defendants’ February 9, 2022, wrongful termination of Plaintiff’s employment because Plaintiff opposed Defendants’ alleged illegal mushroom operations and Plaintiff refused to engage in alleged illegal excise tax evasion.  (Complaint ¶¶29-36.)  Defendants filed the instant motion on September 29, 2022.  On November 21, 2022, Defendants filed a motion for continuance of the instant motion.  On April 10, 2023, Plaintiff has filed an opposition.  On April 14, 2023, Defendants filed their reply.

Motion to Compel Arbitration

A.  Arbitration Agreement

1.     The Arbitration Agreement is enforceable

California law favors arbitration for dispute resolution. The California Arbitration Act (“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.)

Defendants proved the existence of an arbitration agreement with Plaintiff.  Defendant submitted evidence that on June 21, 2021, Plaintiff signed THC Design’s Employment Offer, which included a clause “Arbitration and Class Action Waiver”) (“Arbitration Agreement”), which provides:

You and the Company agree to submit to mandatory binding arbitration and all claims arising out of or related to your employment with the Company and the termination thereof, including, but not limited to claims for unpaid wages, wrongful termination, torts, stock or stock options or other ownership interest in the Company, and/or discrimination (including harassment) based on any federal, state or local ordinance, statute, regulation or constitutional provision, except that each party may, at its, his or her option, seek injunctive relief in court related to the improper use, disclosure or misappropriation of a party’s private, proprietary, confidential or trade secret information. . ..

(Decl. of Coburn ¶¶3, 5, Exh. A.)  Pursuant to C.C.P. §1281.2, Defendants demonstrate they made a formal demand for arbitration, which Plaintiff refused.  (Decl. of Belilove ¶2, Exh. B.)  Defendant concedes that he signed the offer letter but argues the arbitration provision was embedded in a multipage document and the page of the offer letter that Plaintiff signed did not contain any reference to arbitration.  (Opposition, pg. 5; Decl. of McKenna ¶¶2-3.)  Defendant’s argument that he did not assent to signing the arbitration agreement because it was hidden is unavailing.  The offer letter containing the arbitration agreement was only three pages and included a clause about parties’ consent to arbitrate in all-caps, indicating that Plaintiff consented to arbitration.  (Decl. of Coburn, Exh. A at pg. 2.)  Based on the foregoing, Defendants proved the existence of a valid Arbitration Agreement that is enforceable by Defendants.

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 provision was embedded in Plaintiff’s offer letter and Plaintiff did not understand that in signing the offer letter he was agreeing to arbitrate his claims, and (2) the arbitration agreement was presented on a take-it-or-leave-it basis.  (Opposition, pg. 6; Decl. of McKenna ¶¶2-4.)

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.)  Although standard employment agreements offered on a “take it or leave it” basis are generally considered contracts of adhesion, this alone is not enough to equate to unconscionability.  (See Graham v. Scissor-Tail, Inc. (1981) 28 Cal.3d 807, 817-819 [“To describe a contract as adhesive in character is not to indicate its legal effect. It is, rather, ‘the beginning and not the end of the analysis insofar as enforceability of its terms are concerned.’”].)  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 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 114; Lagatree v. Luce, Forward, Hamilton & Scripps, LLP (1999) 74 Cal.App.4th 1105 [discussing many authorities upholding arbitration agreements contained in adhesion contracts].)

As stated in the Court’s discussion of enforceability, the terms of the Arbitration Agreement do not appear hidden or obscure, are included in a separate and clearly defined section of the employment offer and includes a statement in all caps indicating subject to the arbitration agreement, “THE PARTIES HEREBY WAIVE ANY RIGHTS THEY MAY HAVE TO TRIAL BY JURY IN REGARD TO ARBITRATE CLAIMS. THE PARTIES FURTHER WAIVE ANY RIGHTS THEY MAY HAVE TO PURSUE OR PARTICIPATE IN A CLASS ACTION OR COLLECTIVE ACTION PERTAINING TO ANY ARBITRABLE CLAIMS BETWEEN YOU AND THE COMPANY.”  (Decl. of Coburn, Exh. A.)  Accordingly, the Arbitration Agreement’s duty to arbitrate was not hidden from Plaintiff in a manner as to make him unaware of the agreement to arbitrate.

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 the agreement is silent about the “forum would replace Plaintiff’s right to a jury trial, what process would replace jury trial procedures, what rules would govern, who would be the decisionmaker, how the decisionmaker would be selected, and any parameters for the decisionmaker’s ruling and how it would issue.”  (Opposition, pg. 7.)

The Arbitration Agreement satisfies enough of the requisite elements set forth in Armendariz to determine the Agreement is not substantively unconscionable.  First, while the Arbitration Agreement does not explicitly provide for a neutral arbitrator, the Agreement’s silence as to a specific neutral does not limit their ability to select a neutral arbitrator.  (See Decl. of Coburn, Exh. A.)  Further, Plaintiff does not cite specific authority indicating the absence of a provision for a neutral arbitrator therefore limits the parties to select a specific neutral and render the agreement substantively unconscionable.  Second, the court in Armendariz 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 is silent as to the issue of discovery; therefore, the parties remain entitled to conduct all relevant discovery.  (See Decl. of Coburn, Exh. A.)  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 is silent with regards to the employee’s obligation to bear costs specific to the arbitration process, including the compensation of the Arbitrator and all administrative expenses, and therefore does not obligate the Plaintiff to any additional expenses he would not be required to bear in court.  (See Decl. of Coburn, Exh. A.)

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.

C.    Stay of Current Action

Pursuant to C.C.P. §1281.4, if an application has been made to a court involving order to arbitrate a controversy and such application is undetermined, the court where the application is pending shall, upon motion of a party to the action, stay the action until the application for an order to arbitrate is determined.  (C.C.P. §1281.4.)

Accordingly, this case is stayed pending arbitration.

D.   Conclusion

Defendants’ motion to compel arbitration is granted.  The case is stayed pending arbitration. The Court sets a status conference for April 17, 2024, at 8:30 a.m.  The parties are directed to submit a joint statement five calendar days in advance, apprising the Court of the status of the arbitration.

Dated:  April _____, 2023

Hon. Daniel M. Crowley