Judge Ralph C. Hofer, Case Number: 23GDCV00761, Date: 2023-09-29 Tentative Ruling

Plaintiff Anurag Gupta alleges that defendant LegalZoom.com, Inc. (LegalZoom) employed plaintiff as Head (Senior Director) of Corporate Financial Planning and Analysis (FP&A) from approximately September 2020 to approximately April 16, 2021. Plaintiff alleges that plaintiff is an Indian immigrant to the United States who speaks English with an accent and was recruited by defendant to apply for the position while plaintiff was Head of Corporate FP&A at Walmart eCommerce, with unvested stock options valued at $300,000. Plaintiff alleges that during the interview process, defendant’s executives emphasized defendant’s potential compensation package for plaintiff, which included discussion of an imminent initial public offering (IPO), and when plaintiff relayed he had unvested stock options in his current employer, defendants emphasized to plaintiff that defendant’s equity was expected to grow at least three to four times after the imminent IPO.

Plaintiff alleges that in April of 2021, plaintiff’s employment was terminated due to a “restructure.” Only two Finance department employees were let go at this time, with their departure being announced in the same e-mail, plaintiff and the Segment Finance Director, another Asian colleague who also speaks English with an accent. Plaintiff alleges that at the same time, defendant hired three males of white European descent, with four direct reports to the CFO now being white males, and did not consider plaintiff for the new positions, including one for which he was well-qualified.

Two months after plaintiff’s termination, and less than a year after plaintiff had been recruited and turned down other opportunities at other companies pursuing IPOs, LegalZoom had a successful market debut on June 30, 2021, with LegalZoom’s stock closing up 35% from its initial offering price. Plaintiff alleges that his work was essential to that success.

The complaint alleges causes of action for National Origin, Race and Ancestry Discrimination, Wrongful Termination in Violation of Public Policy, Breach of Implied Covenant of Good Faith and Fair Dealing, Breach of Implied-in-Fact Contract, Intentional Misrepresentation, Negligent Misrepresentation, Negligent Hiring, Supervision, and Retention, Unjust Enrichment, and Violation of Business & Professions Code section 17200, et seq.

“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:

There is a strong public policy in favor of arbitration of disputes and any doubts concerning the scope of arbitrable disputes should be resolved in favor of arbitration. Moncharsh v. Heily & Blase (1992) 3 Cal.4th 1, 9 (“courts will ‘indulge every intendment to give effect to such proceedings.’”) (quotation omitted). “[A]rbitration agreements should be liberally interpreted, and arbitration should 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, quoting Weeks v. Crow (1980) 113 Cal.App.3d 350, 353.

In this case, defendant indicates that plaintiff was employed by LegalZoom pursuant to an Employment Agreement which included an arbitration clause. Defendant submits an Employment Agreement executed by plaintiff with an effective date of September 21, 2020, which includes an Arbitration clause and attaches a California Dispute Resolution and Arbitration Agreement. [Orozco Decl. ¶ 3, Ex. A, para. 11, Ex. C].

“11. ARBITRATION AND EQUITABLE RELIEF. The Employee has reviewed, understands, and agrees to abide by the California Dispute Resolution and Arbitration Agreement attached as Exhibit C and incorporated herein by reference. The California Dispute Resolution and Arbitration Agreement shall survive the termination of this Agreement.”

“Arbitrable disputes by an employee are those claims that are made within the applicable statute of limitations and that arise out of, or are related to, (i) a claim of employment discrimination (including, but not limited to, discriminatory retaliation, and discriminatory or sexual harassment); (ii) a claim of wrongful or unlawful termination of employment, including claims of constructive discharge; (iii) a claim for wages or other compensation; (iv) a tort claim or any other claim in which punitive damages or emotional distress damages could be awarded that arose out of, or is related to, the employment relationship; (v) a claim related in any way to the employment relationship and not otherwise prohibited by law; and/or (vi) a claim that is related in any manner to the claims described in (i) through (v) of this paragraph, whether based on a statute, public policy, or otherwise. Arbitrable disputes by the Company are those claims against an employee that are made within the applicable statute of limitations and that arise out of, or are related to, the employment relationship.

“Arbitration pursuant to this Arbitration Procedure shall be the exclusive remedy for resolving any such arbitrable disputes, and the parties mutually waive their right to a trial before a judge or jury in federal or state court in favor of arbitration under this Arbitration Procedure. Otherwise, the rights of the parties under this Arbitration Procedure shall be the same as those available to them in a court of competent jurisdiction. The decision of the arbitrator shall be final and binding on all parties.”

Defendant argues that this provision clearly applies to the controversy raised by plaintiff’s complaint. It does appear from a review of the broad language that this complaint consists of claims that arise out of or are related to, claims of employment discrimination, wrongful or unlawful termination, tort claims based in fraud and negligent hiring, and other claims related to the employment relationship.

Plaintiff appears to object to the failure to properly authenticate the Employment Agreement or attached Arbitration Agreement, as plaintiff has filed separate objections pointing out that the document is submitted by a declaration by counsel for defendant, who would have no personal knowledge as to the authenticity of the document. The declaration is by counsel of record for defendant, and states, “Attached as Exhibit A is a true and correct copy of the Arbitration Agreement that plaintiff entered into with LegalZoom in connection with his employment.” [See Orozco Decl., para. 3]. There are no facts stated concerning counsel’s personal knowledge of the facts surrounding the execution of or origin of the documents, such as that counsel was present when the documents were signed or is in a position within defendant LegalZoom to have been a custodian of records.

Under Evidence Code section 702 (a), except for in connection with expert witness opinion testimony, “the testimony of a witness concerning a particular matter is inadmissible unless he has personal knowledge of the matter. Against a party’s objection, such personal knowledge must be shown before the witness may testify concerning the matter.”

“In determining whether an enforceable arbitration agreement exists, the initial burden is on the party petitioning to compel arbitration. “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.” (Rosenthal v. Great Western Fin. Securities Corp., supra, 14 Cal.4th at p. 413; see Engalla v. Permanente Medical Group (1997) 15 Cal.4th 951, 972 [64 Cal. Rptr. 2d 843, 938 P.2d 903].) Once the petitioner has met that burden, the burden shifts to the party opposing arbitration, to “produc[e] evidence of, and prov[e] by a preponderance of the evidence, any fact necessary to the defense.” (Rosenthal v. Great Western Fin. Securities Corp., supra, 14 Cal.4th at p. 413.”

Under federal law as well, the moving party to compel enforcement of an arbitration agreement bears the burden of establishing the existence of a valid agreement to arbitrate and that the agreement encompasses the dispute at issue, while the opposing party bears the party of establishing any defenses to enforceability. Sanfilippo v. Tinder, Inc. (C.D. Cal. 2018) 2018 WL 6681197, 2.

However, there is case law under which it is suggested that the procedures of document authentication are relaxed in connection with establishing the existence of an arbitration agreement. In Condee v. Longwood Management Corp. (2001) 88 Cal.App.4th 215, 218, the court of appeal found that the trial court had improperly denied a petition to compel arbitration on the ground that the purported arbitration agreement had not been properly authenticated. However, the court of appeal in Condee observed that, “In this case, although no evidence was ever introduced to verify the signature’s authenticity, it was never challenged.” Condee, at 218. The case also involved a situation where the trial court had denied a proffer of a declaration of a custodian of records which purported to authenticate the agreement. Condee, at 217. Similarly, the Second District observed in Gamboa v. Northeast Community Clinic (2021) 72 Cal.App.5th 158, 165, that if the moving party submits an unauthenticated agreement to meet its prima facie burden, “and the opposing party does not dispute the existence of the arbitration agreement,” then nothing more is required on the initial burden.

In addition, plaintiff in opposition submits what plaintiff authenticates as “a true and correct copy of the executed employment agreement,” including Exhibit C, which appears to be the same document submitted by defendant, only plaintiff’s document includes page numbers. [Gupta Decl., para. 10, Ex. 10]. Plaintiff concedes, “I signed each place it was indicated in the DocuSign that I received.” [Gupta Decl., para. 10]. Plaintiff then affirmatively relies on the various signatures, format, and contractual language in support of arguments that the Arbitration Agreement was not validly entered, and is unconscionable.

Plaintiff’s objections accordingly are noted, but the court, in light of these factors, nevertheless will consider the Arbitration Agreement documents objected to be based on the relaxed authentication standard applied under case law, and the waiver implied by plaintiff’s own authentication of the same documentation and plaintiff’s reliance on that documentation by plaintiff in the opposition.

Plaintiff appears to argue that the Arbitration Agreement was not validly executed because plaintiff had accepted his offer of employment without having seen the employment agreement which he was told he would be required to sign, and that he felt he had no choice but to sign the employment agreement containing the unexpected Arbitration Agreement in order to begin working at LegalZoom. [Gupta Decl., paras. 9-13].

As argued by defendant, with respect to the formation of a contract, there is no dispute that there was adequate consideration for the agreement on the part of defendant if plaintiff accepted the terms and offer and acceptance is satisfied here because plaintiff admits that he reviewed and signed the agreement. Defendant cites Second District case law under which it is held that a valid signature alone is sufficient to establish acceptance of an offer in connection with an arbitration agreement. Cisneros Alvarez v. Altamed Health Serv. Corp. (2021) 60 Cal.App.5th 572, 584.

To the extent plaintiff argues that LegalZoom did not give plaintiff the opportunity to voluntarily and informatively agree to arbitration and waive his right to a jury trial, as set forth above, the Arbitration Agreement which plaintiff executed separately in connection with his Employment Agreement included clear language that “the parties mutually waive their right to a trial before a judge or jury in federal or state court in favor of arbitration under this Arbitration Procedure.” [Ex. A, Ex. C, “Arbitration Procedure”].

What plaintiff appears to be arguing is not that the arbitration agreement was not validly executed and knowingly entered into by a person who read and understood what he was signing, but that the circumstances of the execution of the documentation give rise to an argument that there was a higher level of procedural unconscionability in connection with plaintiff feeling he had no choice in executing the agreement.

To successfully establish unconscionability, a party must show that an arbitration agreement was both procedurally and substantively unconscionable. Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, 114. It is the burden of the party attempting to establish the unconscionability of an arbitration agreement to introduce sufficient evidence to establish unconscionability. Arguelles-Romero v. Superior Court (2010, 2nd Dist.) 184 Cal.App.4th 825, 843.

“We explained the judicially created doctrine of unconscionability in Scissor-Tail, supra, 28 Cal.3d 807. Unconscionability analysis begins with an inquiry into whether the contract is one of adhesion. (Id. at pp. 817-819.) “The term [contract of adhesion] signifies a standardized contract, which, imposed and drafted by the party of superior bargaining strength, relegates to the subscribing party only the opportunity to adhere to the contract or reject it.” (Neal v. State Farm Ins. Cos. (1961) 188 Cal.App.2d 690, 694 [10 Cal.Rptr. 781].) If the contract is adhesive, the court must then determine whether “other factors are present which, under established legal rules-legislative or judicial-operate to render it [unenforceable].” (Scissor-Tail, supra, 28 Cal.3d at p. 820, fn. omitted.)”

“As explained in A & M Produce Co., supra, 135 Cal.App.3d 473, “unconscionability has both a 'procedural' and a 'substantive' element,” the former focusing on “ 'oppression' ” or “ 'surprise' ” due to unequal bargaining power, the latter on “ 'overly harsh' ” or “ 'one-sided' ” results. (Id. at pp. 486-487.) “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.” (Stirlen v. Supercuts, Inc., supra, 51 Cal.App.4th at p. 1533 (Stirlen).) 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.” (15 Williston on Contracts (3d ed. 1972) § 1763A, pp. 226-227; see also A & M Produce Co., supra, 135 Cal.App.3d at p. 487.) 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.”

With respect to procedural unconscionability, plaintiff argues that with respect to the transaction by which plaintiff accepted his employment, plaintiff was made an offer of employment, which he was pressured to swiftly accept, and which was conditioned on the execution of a standard employment agreement, which plaintiff had been advised included, for example, confidentiality provisions, but that plaintiff was not advised that the Employment Agreement included an Arbitration Agreement.

It is recognized that preemployment arbitration contracts are generally adhesive, imposed on employees as a condition of employment with no opportunity to negotiate, and accompanied by the economic pressure of agreement standing between the employee and necessary employment. Armendariz, at 114-115.

Plaintiff here submits his own declaration in which he explains the process by which he came to execute the Employment Agreement, and to also separately sign the Arbitration Agreement attached to the Employment Agreement. Specifically, plaintiff indicates that on August 28, 2020, “I received and accepted a written offer of employment from LegalZoom.” [Gupta Decl., para 6]. The letter attached includes the following language, “As a condition of your employment with the Company, you will be required to sign a standard employment agreement, which includes confidentiality and non-solicitation provisions.” [Gupta Decl., Ex. A, p. 2]. There is no mention of an arbitration provision or agreement in the letter, which plaintiff signed and returned. [Id.]

On September 8, plaintiff reached out to the LegalZoon recruiting professional who had informed plaintiff that he had passed the background check about the next steps in the process, and was told that the employment agreement had been received, and would be sent along shortly, and that “with this document, there will be nothing further needed on your end.” [Gupta Decl., paras. 8-9, Ex. C]. Plaintiff indicates that on that date LegalZoom sent, via DocuSign, the standard employment agreement for plaintiff to execute. [Gupta Decl., para. 10, Ex. D]. Plaintiff states:

12. Since I had already agreed to and signed the August 28, 2020 offer letter and my point of contact had indicated that nothing further was needed from me, I had no choice, in my opinion, but to follow through and sign the employment agreement when I received it in order to begin working at LegalZoom.

14. Having already agreed to the terms of the offer letter and withdrawn from consideration for other positions, I wanted to make sure that I was signing everything correctly. To that end, when I came across a blank signature for which there was no option to sign, I reached out to the LegalZoom recruiting professional with whom I had been working with to make sure I was signing in the right places.”

It appears that the argument is that because plaintiff had not been advised in connection with the offer letter of any arbitration agreement, was expected to execute all parts of the Employment Agreement to secure his employment, and was faced with a situation with a DocuSign document which required signatures at certain places in order to have fully executed the document, plaintiff was placed in the position of having no choice but to accept and execute the Employment Agreement containing the arbitration provision and the Arbitration Agreement.

Plaintiff cites to Serpa v. California Surety Investigations, Inc. (2013) 215 Cal.App.4th 695, in which the Second District reversed the trial court’s order denying an employer’s motion to compel arbitration, and observed in connection with a preemployment arbitration agreement offered as a term of employment:

“The parties presented neither evidence nor argument that [the employee] had any opportunity to negotiate the terms of the agreement. Nonetheless, as we have explained, this adhesive aspect of an agreement is not dispositive. (Roman, supra, 172 Cal.App.4th at p. 1471 & fn. 2, 92 Cal.Rptr.3d 153.) When, as here, there is no other indication of oppression or surprise, “the degree of procedural unconscionability of an adhesion agreement is low, and the agreement will be enforceable unless the degree of substantive unconscionability is high.” (Ajamian v. CantorCO2e (2012) 203 Cal.App.4th 771, 796, 137 Cal.Rptr.3d 773; accord, Dotson v. Amgen, Inc. (2010) 181 Cal.App.4th 975, 981-982, 104 Cal.Rptr.3d 341; see generally Roman, at p. 1471, fn. 2, 92 Cal.Rptr.3d 153[“[w]hen bargaining power is not grossly unequal and reasonable alternatives exist, oppression typically inherent in adhesion contracts is minimal”].)4

“Roman contends the arbitration agreement was procedurally unconscionable because it was part of a contract of adhesion, that is, it was contained in a preprinted form prepared by the employer and presented to Roman on a take-it-or-leave-it basis with no opportunity to negotiate. The Supreme Court has acknowledged that adhesion contracts in the employment context typically contain some measure of procedural unconscionability. (See, e.g., Armendariz, supra, 24 Cal.4th at p. 115, 99 Cal.Rptr.2d 745, 6 P.3d 669 [“[i]n the case of preemployment arbitration contracts, the economic pressure exerted by employers on all but the most sought-after employees may be particularly acute, for the arbitration agreement stands between the employee and necessary employment, and few employees are in a position to refuse a job because of an arbitration requirement”]; accord, Little, supra, 29 Cal.4th at p. 1071, 130 Cal.Rptr.2d 892, 63 P.3d 979.)

Here, there is no dispute that the arbitration agreement was part of an adhesion contract. Nonetheless, whatever procedural unfairness is inherent in an adhesion agreement in the employment context, it was limited in this case. The arbitration provision was not buried in a lengthy employment agreement. Rather, it was contained on the last page of a seven-page employment application, underneath the heading “Please Read Carefully, Initial Each Paragraph and Sign Below.” It was set forth in a separate, succinct (four-sentence) paragraph that Roman initialed, affirming she had seen it. (Cf. Higgins v. Superior Court (2006) 140 Cal.App.4th 1238, 1252–1253, 45 Cal.Rptr.3d 293 (Higgins ) [procedural unconscionability high when arbitration provision was buried in 24–page, single-spaced document and, “[a]lthough petitioners were required to place their initials in boxes adjacent to six other paragraphs, no box [for initials] appeared next to the arbitration provision”].)

In any event, whatever measure of procedural unconscionability may be present in this case involving an adhesive employment agreement between parties with unequal bargaining power, procedural unconscionability alone does not render an agreement unenforceable. There must also be some measure of substantive unconscionability. (Little, supra, 29 Cal.4th at p. 1071, 130 Cal.Rptr.2d 892, 63 P.3d 979; Armendariz, supra, 24 Cal.4th at p. 114, 99 Cal.Rptr.2d 745, 6 P.3d 669.)

Defendant argues there is no procedural unconscionability here in the form of oppression or surprise, focusing on the documents plaintiff signed, which are clear and plain in their terms, formatted with bold print, headings, and readable font, and hide nothing from plaintiff to support an argument plaintiff was surprised. The documents do include the language quoted above, clearly waiving the right to a jury trial. Plaintiff argues that such language is buried in paragraph 6 of the arbitration procedures section, but this does not appear to be oppressive or invite surprise. The matter does not appear to fit within the case law relied upon by plaintiff, where it was recognized that significant oppression appeared from the document itself, in addition to the manner of its presentation. See OTO, L.L.C. v. Kho (2019) 8 Cal. 5th 111, 128 (document written “in extremely small font,” and “the sentences are complex, filled with statutory references and legal jargon.”)

Defendant argues that its arguments concerning this lack of surprise or oppression apply with particular force here because plaintiff was highly educated, about to assume a Senior Director level position at LegalZoom, so cannot credibly argue he was surprised by any of the terms which he reviewed and to which he agreed.

As quoted above, plaintiff indicates in his declaration that despite the pressure to complete the DocuSign process in connection with the Employment Agreement, plaintiff in fact paused in the process to direct a question to defendant’s recruiting professional regarding the execution of the document and the requirements of the process. [Gupta Decl., para. 14]. The email attached shows that plaintiff Gupta inquired about a signature portion that did not have a live Docu sign on it, and asked if it was okay if that was not signed. The response was that the page was one on which a signature would be required when leaving the company. [Gupta Decl., Ex. E]. It accordingly appears that plaintiff recognized that he had an avenue for asking questions about the process. It is not clear why he did not ask if he could opt out of the arbitration agreement, as he now indicates he would have if given an option. [See Gupta Decl., para. 16]. That email, referring to plaintiff’s “recruiters,” as well as the balance of plaintiff’s declaration explaining the process of plaintiff pursuing employment with defendant while also pursuing other employment with companies seeking IPO assistance, suggests that plaintiff was possibly uniquely positioned as a prospective employee who was not without potential bargaining power here. [See Gupta Decl., paras. 4, 7, 14, Ex. E].

However, defendant has not indicated that plaintiff was not in fact required to execute all portions of the “standard” Employment Agreement plaintiff reasonably believed he had already agreed to enter by executing the letter offer, and the use of the DocuSign mechanism for finalizing the transaction lends support to the take-it-or-leave-it nature of the agreement in the employment context. Neither side has cited case law addressing the effect of a DocuSign situation on the unconscionability analysis.

“This Arbitration Procedure shall be governed by the Federal Arbitration Act and the Arbitration Act of the state where the Employee's primary office is located, California or Texas[.] This Addendum may be enforced and administered by a court of competent jurisdiction through the filing of a petition to compel arbitration; confirm, vacate, or modify an arbitration award; or otherwise pursuant to the Federal Arbitration Act, the arbitration laws of the state in which the company is located or a combination of the two.”

Plaintiff argues that this language does not specify what a “combination of two” sets of law would mean, and that knowing whether federal or California law applies is important in this matter as federal and California law differ, for instance, as to the circumstances in which an arbitration award may be vacated. Specifically, federal law allows for the vacating of an award “where there was evident partiality or corruption of the arbitrators,” while California law does not list “evident partiality” among the grounds for vacating an award. See 9 USC section 10 (a)(2), CCP section 1286.2.

Plaintiff relies on Carbajal v. CWPSC, Inc. (2016) 245 Cal.App.4th 227, in which the court of appeal found an arbitration provision in an employment contract procedurally unconscionable because the provision required the parties to arbitrate their disputes under AAA rules, but did not identify which of the AAA’s many rules would apply, the employer failed to provide the employee with a copy of the rules it believed applied, and required the employee to sign the agreement without telling the employee where she could find the governing rules or giving her an opportunity to determine which rules would apply. Carbajal, at 233-234.

The court of appeal noted, “The Agreement’s procedural unconscionability…rises to a moderate level because the Agreement requires [the employee] to arbitrate her claims ‘in accordance with the rules of the [AAA]’ without identifying which of AAA’s nearly 100 sets of active rules will apply.” Carbajal, at 244.

Defendant argues that the Arbitration Agreement is in fact not procedurally unconscionable because it permits plaintiff to choose between an arbitration with JAMS or an arbitration with the AAA, and that although the text of the rules governing those proceedings is not included in the Agreement, both sets of rules are readily accessible to plaintiff.

Defendant relies on Lane v. Francis Capital Management, LLC (2014) 224 Cal.App.4th 676, in which the Second District found that the trial court had erred in denying a motion to compel arbitration as to certain causes of action on the ground of unconscionability. The Second District rejected an argument that the failure to attach a copy of referenced AAA Rules was insufficient to establish procedural unconscionability as follows:

“Similarly, in Fitz v. NCR Corp. (2004) 118 Cal.App.4th 702, 13 Cal.Rptr.3d 88 (Fitz ), the arbitration provision in the employment agreement allowed a different and separate written policy to limit the discovery permitted under AAA rules, yet the employer did not disclose that policy to its employees. (Id. at pp. 721–723, 13 Cal.Rptr.3d 88.) In addition, the appellate court found not only that the arbitration agreement was a contract of adhesion, but that there was a “high degree of oppressiveness.” (Id. at p. 722, 13 Cal.Rptr.3d 88.) As Fitz and the preceding cases show, the failure to attach the arbitration rules was of “minor significance to [the courts'] analysis” of procedural unconscionability. (Bigler v. Harker School (2013) 213 Cal.App.4th 727, 737, 153 Cal.Rptr.3d 78 [finding no procedural unconscionability despite failure to provide a copy of AAA rules].)

Here, we conclude the failure to attach a copy of the AAA rules did not render the agreement procedurally unconscionable. There could be no surprise, as the arbitration rules referenced in the agreement were easily accessible to the parties—the AAA rules are available on the Internet. (See Boghos v. Certain Underwriters at Lloyd's of London (2005) 36 Cal.4th 495, 505, fn. 6, 30 Cal.Rptr.3d 787, 115 P.3d 68 [full, up-to-date text of AAA rules is available on AAA's Internet site] ). In addition, Lane—a formerly well-paid professional analyst—does not appear to lack the means or capacity to locate and retrieve a copy of the referenced rules. Finally, the arbitration agreement at issue clearly specified a particular set of AAA rules, and it did not modify those rules in any manner. In the absence of oppression or surprise, we decline to find the failure to attach a copy of the AAA rules rendered the agreement procedurally unconscionable. (Cf. Dotson v. Amgen, Inc. (2010) 181 Cal.App.4th 975, 981, 104 Cal.Rptr.3d 341 [“Dotson is not an uneducated, low-wage employee without the ability to understand that he was agreeing to arbitration. He was the opposite—a highly educated attorney, who knowingly entered into a contract containing an arbitration provision in exchange for a generous compensation and benefits package. In such circumstances, the courts have found a minimum degree of procedural unconscionability.”].)

“In Lane, the Court of Appeal concluded the failure to attach a copy of the governing AAA rules did not render the arbitration agreement procedurally unconscionable because the rules were available on the Internet, the employee was a sophisticated business person with the capacity to locate the rules, and the arbitration agreement “clearly specified a particular set of AAA rules” without modifying them. (Lane, supra, 224 Cal.App.4th at pp. 691–692, 168 Cal.Rptr.3d 800.) None of those factors are present here. Although AAA's rules are available online, Carbajal could not access them before signing the Agreement because she was not given time to do so and CW Painting did not “clearly specif[y]” which set of rules governed.”

The problem here has two components. First, there is confusion generated by the language concerning which law will be applied, federal or California state law, regardless of the issue with respect to the arbitration rules. Second, as plaintiff points out, and which is evident to the court from a reading of the language, that the court itself would be hard pressed to understand which law to apply should a conflict, such as the conflict concerning the partiality of the arbitrator, arise.

With respect to the arbitration rules to be applied, there is no mention of under which rules the arbitration will be conducted. The Arbitration Agreement states that if the parties are unable to choose an arbitrator within 30 days of a written notice of intent to arbitrate, “the party that initiated arbitration shall, within 15 days, request that a JAMS or AAA office located in the city in which the Company is located provide the parties with a list of seven retired judges for the JAMS or AAA employment list of arbitrators.”

There is no mention of what rules would apply. This situation is accordingly not a case like Lane, where the arbitration agreement clearly specified a particular set of AAA rules, but a case like Carbajal, where the agreement does not clearly specify a particular set of rules, and the failure to identify rules prevents the employee from reviewing them before signing the arbitration agreement, or knowingly agreeing to their provisions.

While defendant argues that this breadth of choice afforded plaintiff between JAMs and AAA undermines any procedural unconscionability argument, it is not clear which of the numerous AAA rules would be applied, or which JAMS rules would apply. Moreover, since the party “that initiated arbitration” is the party permitted to choose, it would appear in this case, and most cases where the employer seeks to enforce an arbitration agreement, that the employer would have the choice, not the employee. This posture appears to be another aspect of the agreement improperly tilting in favor of the employer.

Overall, plaintiff here has established at least a moderate level of procedural unconscionability, based on the adhesive nature of the contract, combined with the circumstances of its execution, the language concerning the applicable law to be applied, and the failure to specify the arbitration rules to be applied to permit the employee to locate and evaluate them.

“Substantive unconscionability addresses the fairness of the term in dispute. Substantive unconscionability ‘traditionally involves contract terms that are so one-sided as to “shock the conscience,” or that impose harsh or oppressive terms.’ ” (Szetela v. Discover Bank, supra, 97 Cal.App.4th at p. 1100, 118 Cal.Rptr.2d 862.)

“If the parties are unable to agree on the selection of an arbitrator within the 30-day period, the party that initiated arbitration shall, within 15 days, request that a JAMS or AAA office located in the city in which the Company is located provide the parties with a list of seven retired judges from the JAMS or AAA employment list of arbitrators. The parties shall alternately strike names, with the party initiating the arbitration striking first. The remaining judge shall serve as the arbitrator.”

As discussed above, this provision appears to favor an employer who initiates arbitration through a procedure such as that here, where it obtains a court order compelling arbitration, in connection with choosing between JAMS and AAA. This procedure for selecting from the lists provided by those entities, if voluntarily initiated by the employer would in fact have the initiating party exercise the first, third and fifth strike against a neutral, leaving the sixth and final strike to be exercised by the other party. This situation could be construed as unfairly favoring the non-initiating party. No legal authority is cited, and it is not clear that this result would consistently tip the scale in the employer’s favor, or otherwise lack mutuality.

Plaintiff also argues that the Agreement includes a term which lacks mutuality by carving out an exception to proceeding in arbitration if it is determined that an action could proceed on a class or collective basis despite the class action waiver in the Agreement. That provision states:

“In the event the foregoing waiver to proceed in arbitration on a class, collective, or representative basis is found to be unenforceable or contrary to law, then any claim brought on such basis must be filed in a court of competent jurisdiction, and such court, and not an arbitrator, shall be the exclusive forum for such claims.”

This result does appear to permit the employer to slip out of the arbitration process in connection with a class or representative action, which would only be brought by the employees, if the waiver proves unenforceable, which exception the employer would have a disproportionate interest in pursuing. This outcome appears to present a practical lack of mutuality with respect to this term of the Agreement.

In Abramson v. Juniper Networks, Inc. (2004) 115 Cal.App.4th 638, the court of appeal reversed a trial court's granting of a motion to compel arbitration, finding that an arbitration agreement which carved out certain remedies for resolution by both parties through litigation was operationally non-mutual where the carve out addressed only the employee's breach of covenants designed to protect only the employer's interests. Abramson, at 665. The court finds that this provision poses substantive unconscionability.

“Arbitration is intended to provide a less time-consuming, less expensive, and less complicated means of settling employment-related disputes. Discovery may be initiated by the parties after the selection of the arbitrator and may be initiated without first obtaining permission from the arbitrator. In the event of a dispute regarding discovery either party may ask the arbitrator to determine what discovery is appropriate under the circumstances or adequate for the prosecution or defense of the claims. However, under no circumstances will discovery be permitted that is broader than that which is allowed by the applicable procedural rules of the state in which the Company is located. The arbitrator may issue subpoenas to compel the testimony of third-party witnesses or the production of documents.”

While case law has recognized that scope of discovery can be defined by, for example, AAA rules referenced in the arbitration agreement, as discussed above, there have been no arbitration rules specified in this particular Arbitration Agreement. See Lane, at 692: (“The agreement incorporated the rules of the AAA, which give the arbitrator the authority “ ‘to order such discovery, by way of deposition, interrogatory, document production, or otherwise, as the arbitrator considers necessary to a full and fair exploration of the issues in dispute, consistent with the expedited nature of arbitration.’”)

Defendant argues that the Agreement lets the arbitrator determine what discovery is adequate if the parties disagree, and that a limitation on discovery is not unconscionable if the agreement allows the arbitrator the power to grant further discovery. Defendant cites to Dotson v. Amgen, Inc. (2010) 181 Cal.App.4th 975, in which the Second District found that a discovery limitation in the Agreement in that case was no different from the AAA rule approved of, as discussed above.

“‘Each party shall have the right to take the deposition of one individual and any expert witness designated by the other party. Each party also shall have the right to make requests for production of documents to any party. The subpoena right specified below in Paragraph 4[‘[e]ach party shall have the right to subpoena witnesses and documents for the arbitration’] shall be applicable to discovery pursuant to this paragraph. Additional discovery may be had where the Arbitrator selected pursuant to this Agreement so orders, upon a showing of need.’”

Defendant argues that since in this case the agreement similarly allows the arbitrator to allow additional discovery, the discovery provision is appropriate. However, in Dotson there was at least some discovery procedures designated, unlike in the Agreement here, which specifies no discovery methods at all. The provision presents substantive unconscionability with respect to whether the Arbitration Agreement provides for adequate discovery.

“To the extent required by law, and only to this extent, the Company shall pay all costs uniquely attributable to arbitration, including the administrative fees and costs of the arbitrator. Otherwise, the Company and the Employee shall split the arbitration fees. Each side shall pay that side’s own costs and attorney fees, if any, unless the arbitrator rules otherwise. If the applicable law affords the prevailing party’s attorney fees and costs then the arbitrator shall apply the same standards a court would apply to award such fees and costs.”

This provision is sufficient to limit the costs as required under Armendariz. In Little v. Auto Steigler (2003) 29 Cal.4th 1064, the Supreme Court considered a fee sharing provision and specifically instructed a trial court on remand of an order compelling arbitration that the new order "should require the employer to pay in this case 'all types of costs that are unique to arbitration.'" Little, at 1085, quoting Armendariz. This language is employed here, and the provision is not unconscionable.

Defendant relies on Davis v. O'Melveny & Meyers, 485 F.3d 1066, 1078 (9th Cir. 2007) (overruled on other grounds in Kilgore v. KeyBank, Nat. Ass'n (9th Cir. 2012) 673 F.3d 947, 960), in which the Ninth Circuit, applying California law, found that a confidentiality provision favored the employer and was broad enough to give rise to unconscionability. The Ninth Circuit, following the reasoning of a previous Ninth Circuit case applying California law, noted that “even facially mutual confidentiality provisions can effectively lack mutuality and therefore be unconscionable.” Davis, at 1078. The Ninth Circuit stated the reasoning:

“Thus, [the employer] has placed itself in a far superior legal posture by ensuring that none of its potential opponents have access to precedent while, at the same time, [the employer] accumulates a wealth of knowledge on how to negotiate the terms of its own unilaterally crafted contract. Further, the unavailability of arbitral decisions may prevent potential plaintiffs from obtaining the information needed to build a case of intentional misconduct or unlawful discrimination against [the employer].”

The confidentiality provision here appears broad and vague as to its scope with respect to plaintiff’s confidentiality obligations in connection with the arbitration, so that there is a similar risk that plaintiff here will be prevented from obtaining information needed to build his case, or of other similarly situated parties to do so, when at least one other similarly situated individual is referred to in the complaint itself. Plaintiff argues reasonably that the provision is not easily understandable and may be interpreted as prohibiting plaintiff from performing such necessary tasks as talking to other employees about plaintiff’s claims. In a lawsuit of this nature, information necessarily exists which can only be obtained from employees or former employees or other witnesses, particularly those who can authenticate and explain company documents, to which the confidential arbitration claims and information would be necessarily disclosed.

Plaintiff has accordingly established that there are provisions of the Agreement which give rise to substantive unconscionability, including the term that permits the employer to slip out of arbitration in the event the waiver to proceed in arbitration on a class, collective, or representative basis is found to be unenforceable or contrary to law, the provision with respect to permitted discovery, and the confidentiality provision.

"Courts are to look to the various purposes of the contract. If the central purpose of the contract is tainted with illegality, then the contract as a whole cannot be enforced. If the illegality is collateral to the main purpose of the contract, and the illegal provision can be extirpated from the contract by means of severance or restriction, then such severance and restriction are appropriate."

“In the event that any paragraph or provision within a paragraph of this Arbitration Procedure is determined to be illegal or unenforceable such determination shall not affect the validity or enforceability of the remaining paragraphs or provisions within a paragraph, all of which shall remain in full force and effect. If necessary, to effectuate the intent of the parties to resolve the specified disputes through arbitration, a court of competent jurisdiction should reform this Arbitration Procedure.”

The provision concerning class or representative actions in theory could be severed from the Agreement. However, the discovery provision could not be severed without including in the Agreement appropriate language preserving the right to sufficient discovery, so that severance would not be an option. The confidentiality provision would also require revision to reach acceptability, and, as the Ninth Circuit observed in Davis, in connection with concessions by the employer concerning the terms of the confidentiality clause, “‘No existing rule of contract law permits a party to resuscitate a legally defective contract merely by offering to change it.’ As written the terms are too broad and implicate Ting’s concerns.” Davis, at 1079, quoting Armendariz, at 697.

The terms here are also overly broad and implicate Ting’s concerns. Under the circumstances, the substantively unconscionable terms cannot be severed. Moreover, the terms which support a finding of procedural unconscionability, including the language concerning the applicable law to be applied, and the failure to specify the arbitration rules to be applied to permit the employee to locate and evaluate them, cannot be severed, rewritten, clarified or supplied by the court.

The court finds that the level of procedural unconscionability here, combined with the substantive unconscionable terms, warrants a finding that plaintiff has established that the Arbitration Agreement may not be enforced due to the existence of both procedural and substantive unconscionability.

If the court were to determine at the hearing that the Arbitration Agreement is enforceable and not unconscionable, defendant seeks that the court dismiss the action. As pointed out in the opposition, ordinarily, there will be a request to stay the action pending resolution of the arbitration, pursuant to CCP § 1281.4, under which where the court has ordered arbitration of a controversy in an action, the court:

Plaintiff indicates that if an arbitration is ordered, plaintiff intends to seek a stay. If this tentative ruling should change, and the parties are ordered to arbitration, the action will be ordered stayed pending completion of the arbitration and the request to dismiss is denied. This comment is advisory only. The Court does not anticipate that it will change its ruling denying defendant’s motion to compel arbitration.

Plaintiff has established that the Arbitration Agreement was entered into under circumstances showing procedural unconscionability, including the adhesive nature of the contract, combined with the circumstances of its execution, the language concerning the applicable law to be applied, and the failure to specify the arbitration rules to be applied to permit the employee to locate and evaluate them.

Plaintiff has also established that the Arbitration Agreement also includes several terms evidencing substantive unconscionability, including a term that permits the employer to slip out of arbitration in the event the waiver to proceed in arbitration on a class, collective, or representative basis is found to be unenforceable or contrary to law, an insufficient provision with respect to permitted discovery, and an overly broad confidentiality provision.

Objections Nos. 3 and 4 are OVERRULED, and the Court has considered the documentation submitted as Exhibit A, based on the relaxed authentication standard applied under case law, and the waiver implied by plaintiff’s authentication of virtually identical documentation in the opposition, and plaintiff’s reliance in the opposition papers on the details and terms of the submitted documents.