Judge Randolph M. Hammock, Case 22STCV13349 2022-09-14 Tentative Ruling

Judge: Randolph M. Hammock, Case: 22STCV13349, Date: 2022-09-14 Tentative Ruling

This is an employment dispute. As part of its bid to secure an insurance services contract with the County of Los Angeles, Defendant Tetra Tech hired Plaintiff Leo Goldberg as a public insurance adjuster. Defendant used Plaintiff’s name and license to obtain the contract, but then utilized less expensive, unlicensed employees to conduct the work. Plaintiff alleges Defendants failed to give him work, never paid him, but kept him on staff just to use his license—all the while, Defendant falsely assured Plaintiff that the project had not started. Plaintiff now brings this action for (1) breach of oral contract, (2) breach of written contract, (3) breach of implied covenant of good faith and fair dealing, (4) common count – implied contract, (5) fraud – false promise, (6) fraud – intentional misrepresentation, (7) failure to pay timely wages in violation of Cal. Labor Code section 204, and (8) violation of Cal. Bus. & Prof. Code section 17200, et seq.

“[T]he petitioner bears the burden of proving the existence of a valid arbitration agreement by the preponderance of the evidence . . . .” (Giuliano v. Inland Empire Personnel, Inc. (2007) 149 Cal.App.4th 1276, 1284). “In determining whether an arbitration agreement applies to a specific dispute, the court may examine only the agreement itself and the complaint filed by the party refusing arbitration [citation]. The court should attempt to give effect to the parties' intentions, in light of the usual and ordinary meaning of the contractual language and the circumstances under which the agreement was made.” (Weeks v. Crow (1980) 113 Cal.App.3d 350, 353). “Doubts as to whether an arbitration clause applies to a particular dispute are to be resolved in favor of sending the parties to arbitration. The court should order them to arbitrate unless it is clear that the arbitration clause cannot be interpreted to cover the dispute.” (California Correctional Peace Officers Ass'n v. State (2006) 142 Cal.App.4th 198, 205).

“[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.” (Giuliano v. Inland Empire Personnel, Inc. (2007) 149 Cal.App.4th 1276, 1284).

“If a court of competent jurisdiction, whether in this State or not, has ordered arbitration of a controversy which is an issue involved in an action or proceeding pending before a court of this State, the court in which such action or proceeding is pending shall, upon motion of a party to such action or proceeding, stay the action or proceeding until an arbitration is had in accordance with the order to arbitrate or until such earlier time as the court specifies. . . .” (CCP § 1281.4.)

When considering if waiver occurred in the context of arbitration, courts consider “(1) whether the party's actions are inconsistent with the right to arbitrate; (2) whether ‘the litigation machinery has been substantially invoked’ and the parties ‘were well into preparation of a lawsuit’ before the party notified the opposing party of an intent to arbitrate; (3) whether a party either requested arbitration enforcement close to the trial date or delayed for a long period before seeking a stay; (4) whether a defendant seeking arbitration filed a counterclaim without asking for a stay of the proceedings; (5) ‘whether important intervening steps [e.g., taking advantage of judicial discovery procedures not available in arbitration] had taken place’; and (6) whether the delay ‘affected, misled, or prejudiced’ the opposing party.” [Citations]. (Iskanian, 59 Cal. 4th at 375).

These factors, however, do not point to an automatic waiver, per se. In fact, Defendant’s actions have been wholly consistent with seeking arbitration. Defendant’s answer asserted arbitration as an affirmative defense. In addition, it was Plaintiff, not Defendant, that served discovery. Merely responding to Plaintiff’s discovery is not invoking “the litigation machinery.” Finally, a three-month delay is insignificant and does not weigh heavily to waiver. Indeed, courts have found that significantly longer delays did not amount to waiver. (See Khalatian v. Prime Time Shuttle, Inc. (2015) 237 Cal. App. 4th 651, 663 [a 14-month period from the filing of the original complaint to the filing of the motion to compel was insufficient to support waiver].)

The parties dispute whether the Federal Arbitration Act (“FAA”) applies in this case. The United States Supreme Court has broadly interpreted the FAA. Under this interpretation, the statute is to be read “as insisting that the ‘transaction’ in fact ‘involve’ interstate commerce, even if the parties did not contemplate an interstate commerce connection.” (Allied-Bruce Terminix Companies, Inc. v. Dobson (1995) 513 U.S. 265, 28). “The statute's language, background, and structure establish that section 2's ‘involving commerce’ words are the functional equivalent of the phrase ‘affecting commerce,’ which normally signals Congress' intent to exercise its commerce power to the full[.]” (Id. at p. 265.) “Congress Commerce Clause power ‘may be exercised in individual cases without showing any specific effect upon interstate commerce’ if in the aggregate the economic activity in question would represent ‘a general practice ... subject to federal control.’ [Citations.] Only that general practice need bear on interstate commerce in a substantial way.” (Citizens Bank v. Alafabco, Inc. (2003) 539 U.S. 52, 56-57.)

An arbitration clause is governed by the FAA if the agreement is a contract “evidencing a transaction involving commerce.” (9 U.S.C. § 2.) Courts “broadly construe” this phrase, because the FAA “embodies Congress’ intent to provide for the enforcement of arbitration agreements within the full reach of the Commerce Clause.” (Giuliano v. Inland Empire Pers., Inc. (2007) 149 Cal.App.4th 1276, 1286.)

Plaintiff argues that California law, and not the FAA, should govern this case, “because it involves the existence of a purely intrastate employment relationship, with little to no nexus to interstate commerce.” (Opp. 4: 15-17.) Plaintiff relies on the case of Hoover v. Am. Income Life Ins. Co. (2012) 206 Cal. App. 4th 1193. There, the Court addressed whether statutory wage claims were subject to arbitration under the FAA. The employee opposing arbitration “was a California resident who sold life insurance policies.” (Id.) She “was not an employee of a national stock brokerage firm or the employee of a member of a national stock exchange.” (Id.) Moreover, the employee “did not work in other states or engage in multimillion dollar loan activity that affected interstate commerce.” (Id.) Even though her employer was based in Texas, the Court found “there was no evidence in the record establishing that the relationship between [employee] and [employer] had a specific effect or ‘bear[ing] on interstate commerce in a substantial way.’” (Id. at 1209 [citing Citizens Bank v. Alafabco, Inc. (2003) 539 U.S. 52, 56–57].) Under these circumstances, the court held the FAA did not apply.

Plaintiff contends that like Hoover, he “work[ed] solely in California,” and on a Public Works Contract from the Woolsey Fire, which also occurred solely in California. (Opp. 5: 11-15.) Thus, his “employment involved commerce solely within California.” (Id. 5: 11-12.) Plaintiff also says the bidding process required Defendant to employ insurance adjusters with California licenses.

Defendant counters that it operates in interstate commerce “by providing its consulting, engineering, and program management services throughout the country and internationally.” (Renta Decl. ¶ 13.) And “[a]s a Public Insurance Adjuster hired on for the Woolsey Fire project, Goldberg’s employment revolved around these transactions made in interstate commerce.” (Mot. 4: 19-21.) In its Reply brief, Defendant also argues it “leveraged both statewide and out of state resources to manage the Woolsey Fire project,” and coordinated with, and received funding from, the Federal Emergency Management Agency (“FEMA”). (Renta Supp. Decl. ¶¶ 14-15.) Finally, Defendant “recruited employees like Goldberg through its Disaster Response Division,” which is based in Florida. (Id. 2: 25-26.)

On these facts, the court finds Defendant has met its burden to show the aggregate economic activity “bear[s] on interstate commerce in a substantial way.” (Alafabco, supra, 539 U.S. at p. 57.) Unlike in Hoover—in which the Defendant engaged in primarily intrastate activity—Defendant here has shown it provides services around the country, uses out of state resources, and receives federal funding. Accordingly, the FAA governs.

Even assuming, however, that the FAA does not apply, Plaintiff fails to address why the agreement would be unenforceable under California law. [FN 1] Through the California Arbitration Act (Code Civ. Proc., § 1280 et seq.), “the Legislature has expressed a ‘strong public policy in favor of arbitration as a speedy and relatively inexpensive means of dispute resolution.’ ” (Moncharsh v. Heily & Blase (1992) 3 Cal.4th 1, 9, 10.) An agreement to submit disputes to arbitration “is valid, enforceable and irrevocable, save upon such grounds as exist for the revocation of any contract.” (See Code Civ. Proc., § 1281; see also OTO, L.L.C. v. Kho (2019) 8 Cal. 5th 111, 125 [noting “California law strongly favors arbitration”].)

California has a strong public policy in favor of arbitration as an expeditious and cost-effective way of resolving disputes. “Even so, parties can only be compelled to arbitrate when they have agreed to do so.” (Avila v. S. California Specialty Care, Inc. (2018) 20 Cal. App. 5th 835, 843.) “The party seeking to compel arbitration bears the burden of proving the existence of a valid arbitration agreement.” (Id.) An arbitration agreement is a contractual agreement. “General contract law principles include that ‘[t]he basic goal of contract interpretation is to give effect to the parties’ mutual intent at the time of contracting. [Citations.] ... The words of a contract are to be understood in their ordinary and popular sense.” [Citations.] (Garcia v. Expert Staffing W., 73 Cal. App. 5th 408, 412–13.)

Pursuant to this Binding Mutual Agreement to Arbitrate (“Agreement”), I agree that to the fullest extent allowed by law, any controversy, claim or dispute between me and Tetra Tech, Inc., and/or any of its related entities, holding companies, parents, subsidiaries, divisions, officers, shareholders, directors, employees, agents, insurers, vendors, customers, predecessors, successors, and assigns (collectively, “Company”) will be submitted to final and binding arbitration as the sole and exclusive remedy, regardless of whether the dispute is initiated by Company or me.

The mutual Agreement to arbitrate is broad, and covers the claims brought by Plaintiff here. In opposition, Plaintiff contends that the agreement is “boilerplate” and that he “did not have a meaningful opportunity to review” it. (Opp. 7: 6-9.) Plaintiff also argues that Defendant did not advise him the Agreement was voluntary, or that he could review the Agreement with an attorney.

Even assuming this to be true, however, Plaintiff cites no authority suggesting this would invalidate the existence of an agreement to arbitrate. If anything, this would appear to go to the issue of procedural unconscionability, discussed below. Moreover, Plaintiff’s argument that the Agreement lacks consideration lacks merit. The Agreement here is mutual, requiring both parties to arbitrate their disputes. Where “the parties made mutual, obligating promises to arbitrate,” the agreement is not void for lack of consideration. (Garner v. Inter-State Oil Co. (2020) 52 Cal. App. 5th 619, 625.)

Plaintiff argues that even if an agreement to arbitrate exists, it should be disregarded based on principles of unconscionability. 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. (Sanchez v. Valencia Holding Company, LLC (2015) 61 Cal.4th 899, 910.) Under California law, an arbitration agreement must be in some measure both procedurally and substantively unconscionable in order for the agreement to be unenforceable. (Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, 114; De La Torre v. CashCall, Inc. (2018) 5 Cal.5th 966, 982.) “But they need not be present in the same degree. . . . [T]he more substantively oppressive the contract term, the less evidence of procedural unconscionability is required to come to the conclusion that the term is unenforceable, and vice versa.” (Armendariz, supra, 24 Cal.4th at p. 114.)

Plaintiff argues the agreement is procedurally unconscionable because it was a contract of adhesion. “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.” [Citation]. (Id. at 113). Plaintiff also argues that Defendant never advised him the agreement was voluntary.

However, Defendant presents evidence that Plaintiff had been given notice of the Agreement via email approximately six-months prior to the date he signed it. (See Renta Decl. 7, 9; Renta Supp. Decl., Exhs. A&B.) This implies Plaintiff had more than adequate time to review the document, and that it was not a mandatory condition of his employment. Moreover, aside from Plaintiff’s vague assertions, there is nothing to suggest the agreement was mandatory. Therefore, the case is distinguishable from Murphy v. Check ‘N’ Go of California, Inc. (2007) 156 Cal. App. 4th 138, 144-45, in which “the terms [of the agreement] were never explained to [the plaintiff],…she was never told that the agreement was optional or negotiable, …[and] Defendant submitted no evidence to the contrary.” (Emphasis added.) Finally, Defendant’s failure to attach the arbitration rules is of little consequence. (See Peng v. First Republic Bank (2013) 219 Cal. App. 4th 1462, 1472 [“failure to attach the AAA rules, standing alone, is insufficient grounds to support a finding of procedural unconscionability”].)

Considering the above, the “take it or leave it” nature of the agreement here is sufficient to establish “some degree of procedural unconscionability.” (Sanchez v. Valencia Holding Co., LLC (2015) 61 Cal.4th 899, 915). However, it does not exceed that found in the vast majority of agreements to arbitrate between employers and employees. This only means the substantive terms of the agreement must be scrutinized to ensure they are not manifestly unfair or one-sided. (Id.)

In Armendariz, the California Supreme Court outlined five elements that must be present in an arbitration agreement in order to avoid substantive unconscionability. (24 Cal.4th at p. 102.) Armendariz factor 1 requires that the agreement provide for a “neutral arbitrator[].” (Id.) Armendariz factor 2 and 3 requires that the arbitration agreement “provide for more than minimal discovery” and that the arbitrator issue a written opinion. (Id.) Armendariz factor 4 requires that the agreement provide for all the types of relief that would otherwise be available in court. (Id.) Finally, Armendariz factor 5 provides that the agreement must not “require employees to pay either unreasonable costs or any arbitrators’ fees or expenses as a condition of access to the arbitration forum.” (Id.)

Plaintiff contends that the agreement here limits his discovery, in violation of Armendariz. The Agreement incorporates the JAMS rules for discovery, however, and Plaintiff does not discuss how or why these rules would leave him with inadequate means of discovery. Based on these facts, Plaintiff has not demonstrated any substantive unconscionability.

Any party may submit on the tentative ruling by contacting the courtroom via email at Smcdept49@lacourt.org by no later than 4:00 p.m. the day before the hearing. All interested parties must be copied on the email. It should be noted that if you submit on a tentative ruling the court will still conduct a hearing if any party appears. By submitting on the tentative you have, in essence, waived your right to be present at the hearing, and you should be aware that the court may not adopt the tentative, and may issue an order which modifies the tentative ruling in whole or in part.