Judge: Robert B. Broadbelt, Case: 23STCV18030, Date: 2024-04-25 Tentative Ruling

Case Number: 23STCV18030    Hearing Date: April 25, 2024    Dept: 53

Superior Court of California

County of Los Angeles – Central District

Department 53

MOVING PARTY:                 Defendant The Ritz-Carlton Hotel Company, LLC

RESPONDING PARTY:        Plaintiff Sharleyne Martin, on behalf of all aggrieved employees

Motion to Compel Individual Arbitration and to Dismiss Action

The court considered the moving, opposition, and reply papers filed in connection with this motion.

REQUEST FOR JUDICIAL NOTICE

The court denies defendant The Ritz-Carlton Hotel Company, LLC’s request for judicial notice of various unpublished superior court orders.  (Cal. Rules of Ct., rule 8.1115.)

DISCUSSION

Defendant The Ritz-Carlton Hotel Company, LLC (“Defendant”) moves the court for an order (1) compelling plaintiff Sharleyne Martin (“Plaintiff”) to submit her individual claims under the Private Attorney General Act of 2004 (Lab. Code, § 2968, et seq.) (“PAGA”) to binding arbitration, and (2) staying the non-individual PAGA claims pending completion of arbitration.

1.     Existence of Written Agreement to Arbitrate

A written provision in any contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.¿ (9 U.S.C. § 2.)¿ The Federal Arbitration Act (9 U.S.C. § 1 et seq.) (“FAA”) requires courts to direct parties to proceed to arbitration on issues covered by an arbitration agreement upon a finding that the making of the arbitration agreement is not in issue.¿ (9 U.S.C. § 4; Chiron Corp. v. Ortho Diagnostic Sys. (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.”¿ (Chiron Corp., supra, 207 F.3d at p. 1130.)¿ The FAA reflects “both a ‘liberal federal policy favoring arbitration,’ [citation], and the ‘fundamental principle that arbitration is a matter of contract,’ [citation].”¿ (AT&T Mobility LLC v. Concepcion (2011) 563 U.S. 333, 339.)¿¿ 

“‘ “The party seeking to compel arbitration bears the burden of proving the existence of an arbitration agreement, while the party opposing the petition bears the burden of establishing a defense to the agreement’s enforcement.” ’”¿ (Beco v. Fast Auto Loans (2022) 86 Cal.App.5th 292, 302.)¿ To determine the existence of an agreement, the court uses “a three-step burden-shifting process.”  (Iyere v. Wise Auto Group (2023) 87 Cal.App.5th 747, 755.)  “The arbitration proponent must first recite verbatim, or provide a copy of, the alleged agreement.  [Citations.]  A movant can bear this initial burden ‘by attaching a copy of the arbitration agreement purportedly bearing the opposing party’s signature.’”  (Ibid. [internal citations omitted].)  “If the movant bears its initial burden, the burden shifts to the party opposing arbitration to identify a factual dispute as to the agreement’s existence . . . .”  (Ibid.)  If the opposing party meets its burden to “submit sufficient evidence to create a factual dispute” as to the existence of the agreement, the burden shifts back to the arbitration proponent, who retains the ultimate burden of proving its existence by a preponderance of the evidence.  (Ibid.; Gamboa v. Northeast Community Clinic (2021) 72 Cal.App.5th 158, 165-166.) 

First, the court finds that Defendant has met its burden to show that the arbitration agreement that is the subject of this motion is governed by the substantive provisions of the FAA.  (Evenskaas v. California Transit, Inc. (2022) 81 Cal.App.5th 285, 292 [“The party asserting the FAA applies to an agreement has ‘the burden to demonstrate FAA coverage by declarations and other evidence’”] [internal citation omitted].)  Defendant has submitted (1) the arbitration agreement, which expressly states that “arbitration under this Agreement is governed by the Federal Arbitration Act,” and (2) evidence establishing that Defendant “engages in transactions involving interstate commerce on a daily basis as it provides lodging to guests which include international and out of state business travelers and tourists, including at its Marina del Rey property.”  (McCarron Decl., Ex. A, Employee agreement, p. 20; McCarron Decl., ¶ 9; Victrola 89, LLC v. Jaman Properties 8 LLC (2020) 46 Cal.App.5th 337, 345 [parties may adopt FAA], 346 [FAA provides for the enforcement of arbitration agreements in contracts evidencing a transaction involving interstate commerce].)  Thus, the court finds, and Plaintiff does not appear to dispute, that the FAA applies.

Second, the court finds that Defendant has met its burden of producing prima facie evidence of an arbitration agreement between it and Plaintiff.

Defendant has submitted a copy of “The Ritz-Carlton Employee Agreement” (the “Agreement”), which purports to bear Plaintiff’s signature.  (McCarron Decl., Ex. A, Agreement, p. 20.)  The arbitration provision set forth in the Agreement states that it “is an agreement between [Plaintiff] and [Defendant] through which [Defendant] and [Plaintiff] agree to submit to final and binding arbitration all legal and/or equitable claims one may have against the other, including claims related in any way to [Plaintiff’s] employment or the separation of [her] employment with [Defendant], except those claims that are expressly excluded from the scope of this Agreement.”  (Ibid.)  The arbitration provision further explains that Plaintiff must pursue arbitration to assert a covered claim against Defendant “based on any violation of statutory or common law, including but not limited to:  . . . wage claims . . . and claims for violation of any federal, state, local or other governmental law, constitution, statute, regulation, or ordinance. . . .”  (Ibid.)

Thus, the court finds that Defendant has submitted evidence of an arbitration agreement between it and Plaintiff.  The court also finds that the arbitration provision in the Agreement encompasses the wage and hour claims alleged in Plaintiff’s Complaint because (1) the Agreement defines covered claims to include “wage claims” and claims asserting violations of any state law, and (2) Plaintiff has alleged that Defendant did not pay overtime wages and all wages due upon the end of employment in violation of Labor Code sections 510, 201, and 202.  (McCarron Decl., Ex. A, Agreement, p. 20; Compl., ¶¶ 13-16, 18.)

Third, the court finds that Plaintiff has not met her burden to identify a factual dispute as to the existence of the Agreement.  Plaintiff has not argued that she did not sign the Agreement, nor has she presented other evidence disputing its authenticity.

Thus, the court finds that Defendant has shown that there exists an agreement to arbitrate the controversy alleged in Plaintiff’s Complaint.

2.     Unconscionability

Plaintiff contends that the arbitration provision in the Agreement is unconscionable and therefore unenforceable.

“‘[A]greements to arbitrate [may] be invalidated by “generally applicable contract defenses, such as fraud, duress, or unconscionability.” ’”¿ (Beco, supra, 86 Cal.App.5th at p. 302.)¿ “The burden of proving unconscionability rests upon the party asserting it.”¿ (OTO, L.L.C. v. Kho (2019) 8 Cal.5th 111, 126 (Kho).)¿ “Unconscionability entails an absence of meaningful choice on the part of one of the parties together with contract terms which are unreasonably favorable to the other party.”¿ (Iyere, supra, 87 Cal.App.5th at p. 759 [internal quotations omitted].)¿ It “‘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.”¿ (Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, 114 [citations omitted].)¿ “As a matter of general contract law, California courts require both procedural and substantive unconscionability to invalidate a contract.”¿ (Torrecillas v. Fitness International, LLC (2020) 52 Cal.App.5th 485, 492 (Torrecillas).)¿ Courts “apply a sliding scale, meaning if one of these elements is present to only a lesser degree, then more evidence of the other element is required to establish overall unconscionability.¿ In other words, if there is little of one, there must be a lot of the other.”¿ (Ibid.)¿¿¿ 

i.                 Procedural Unconscionability

“Procedural unconscionability pertains to the making of the agreement . . . .”¿ (Ajamian v. CantorCO2e, L.P. (2012) 203 Cal.App.4th 771, 795.)¿ It “‘“focuses on two factors: ‘oppression’ and ‘surprise.’¿ [Citations.]¿ ‘Oppression’ arises from an inequality of bargaining power which results in no real negotiation and ‘an absence of meaningful choice.’ [Citations.]¿ ‘Surprise’ involves the extent to which the supposedly agreed-upon terms of the bargain are hidden in the prolix printed form drafted by the party seeking to enforce the disputed terms.”’”¿ (Zullo v. Superior Court (2011) 197 Cal.App.4th 477, 484 [citations omitted].)¿¿¿¿¿¿ 

1.     Oppression

As set forth above, “[o]ppression occurs where a contract involves lack of negotiation and meaningful choice . . . .”  (Kho, supra, 8 Cal.5th at p. 126 [internal quotations and citations omitted].)  “Oppression generally ‘takes the form of a contract of adhesion, “‘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.]”¿ (Carmona v. Lincoln Millennium Car Wash, Inc. (2014) 226 Cal.App.4th 74, 84 (Carmona).)  “‘The circumstances relevant to establishing oppression include, but are not limited to (1) the amount of time the party is given to consider the proposed contract; (2) the amount and type of pressure exerted on the party to sign the proposed contract; (3) the length of the proposed contract and the length and complexity of the challenged provision; (4) the education and experience of the party; and (5) whether the party’s review of the proposed contract as aided by an attorney.’”  (Kho, supra, 8 Cal.5th at pp. 126-127.)  

The court finds that Plaintiff has shown that the Agreement was offered to her as a condition of her employment and therefore has shown that the Agreement, including the arbitration agreement set forth therein, is a contract of adhesion.  (Martin Decl., ¶ 4 [the Agreement “was a document presented to [Plaintiff] for mandatory signature by Defendant as a condition of [her] employment”].)  The court finds that Plaintiff has established a low level of procedural unconscionability due to the adhesive nature of the Agreement.  (Fisher v. MoneyGram Intern., Inc. (2021) 66 Cal.App.5th 1084, 1095 [“An adhesive contract does . . . establish at lease some degree of procedural unconscionability”].)

2.     Surprise

As discussed above, “[s]urprise is when a prolix printed form conceals the arbitration provision.”¿ (Torrecillas, supra, 52 Cal.App.5th at p. 493; Fisher, supra, 66 Cal.App.5th at p. 1095 [“Surprise involves the extent to which ‘the supposedly agreed-upon terms of the bargain are hidden in the prolix printed form drafted by the party seeking to enforce the disputed terms’”].) 

Plaintiff contends that surprise exists because the “crux” of the arbitration agreement was hidden in a large number of other employment-related documents.  (Martin Decl., ¶ 4 [stating that the Agreement was presented to her “alongside dozens, if not hundreds, of additional employment related documents”].)  The court agrees that surprise exists here.

The Agreement consists of 20 pages, and although arbitration is discussed and explained on pages 11 through 15, those pages do not expressly state that the employee (here, Plaintiff) is entering into a binding arbitration agreement with Defendant.  (McCarron Decl., Ex. A, Agreement, pp. 11-15.)  Instead, those pages (1) define arbitration, (2) explain how to request arbitration, (3) set forth the selection process of an arbitrator, (4) define the claims covered by the agreement, and (5) explain part of the arbitration proceedings (such as discovery and presentation of testimony).  (Ibid.)  Although an agreement is referred to in certain of those pages, the full agreement to arbitrate is set forth at the end of the Agreement, on the 20th page.  (McCarron Decl., Ex. A, Agreement, p. 20.)  The court also notes that (1) the font of the arbitration provision is smaller than the font used in the preceding portions of the Agreement, and (2) the text of the arbitration provision is denser than the preceding portions of the Agreement, in that the page containing the arbitration provision appears to use a narrower righthand margin and fewer spaces between the paragraphs.  (McCarron Decl., Ex. A, Agreement, pp. 3-15, 20.)

Thus, the court finds that, because the arbitration provision was (1) included on the last page of a 20-page employee agreement and (2) used smaller font and denser spacing between the paragraphs, there exists surprise.  (Hasty v. American Automobile Assn. etc. (2023) 98 Cal.App.5th 1041, 1056 [surprise occurs when an arbitration agreement is written in small font with visually impenetrable paragraphs].)

The court finds that Plaintiff has established a moderate level of procedural unconscionability based on (1) the adhesive nature of the Agreement, and (2) the format in which the agreement to arbitrate was presented to Plaintiff.

ii.               Substantive Unconscionability

“‘Substantive unconscionability pertains to the fairness of an agreement’s actual terms and to assessments of whether they are overly harsh or one-sided.¿ [Citations.]¿ A contract term is not substantively unconscionable when it merely gives one side a greater benefit; rather, the term must be “so one-sided as to ‘shock the conscience.’”’”¿ (Carmona, supra, 226 Cal.App.4th at p. 85.)¿ “‘“[T]he paramount consideration in assessing [substantive] unconscionability is mutuality.”’”¿ (Ibid.)¿¿¿ 

First, the court finds that Plaintiff has shown that the arbitration agreement lacks mutuality.

On the page containing the arbitration provision (entitled “Acknowledgment of Agreement”), there is a provision that states as follows:  “Upon the successful completion of my Introductory Period, I [i.e., the employee] will receive the rights and benefits in this Agreement.”  (McCarron Decl., Ex. A, Agreement, p. 20.)  However, the Agreement does not include a similar provision as to Defendant.  The court notes that, in reply, Defendant argues that “[n]one of the[] post Introductory Period benefits have anything to do with the bilateral nature of the arbitration provision.”  (Reply, p. 8:23-24.)  The court disagrees.  The provision set forth above is included in the Agreement’s arbitration provision and does not specify that the right to compel or bring claims in arbitration is not included in the “rights and benefits of” the Agreement.  (McCarron Decl., Ex. A, Agreement, p. 20.)

Because (1) the right to arbitration is included in the Agreement, (2) Plaintiff is only permitted to “receive the rights and benefits in this Agreement” upon the completion of the Introductory Period, which includes the right to compel arbitration, and (3) Defendant is permitted to receive the rights and benefits of the Agreement as of the date of its execution, the court finds that the arbitration provision is one-sided and therefore substantively unconscionable.

Second, the court finds that the provisions requiring the waiver of the ability to bring representative claims are substantively unconscionable.

The Agreement sets forth the following waiver:  “You and [Defendant] expressly waive any right with respect to any Covered Claims to submit, initiate, or participate in a representative capacity, or as a plaintiff, claimant, or member in a class, collective action, representative and/or joint action, regardless of whether the action is filed in arbitration or in court.”  (McCarron Decl., Ex. A, Agreement, p. 15.)  Above the signature line on the page containing the arbitration provision, there is further language stating that, by signing the agreement, Plaintiff understands and agrees that she is “waiving . . . the ability to bring a class or other aggregated claim . . . .”  (Id. at p. 20.)  However, “a predispute categorical waiver of the right to bring a PAGA action is unenforceable . . . .”  (Adolph v. Uber Technologies, Inc. (2023) 14 Cal.5th 1104, 1117.)  Defendant does not dispute this point.  (Reply, p. 9:21-23 [“it is true that a wholesale PAGA waiver is unenforceable . . . .”].)

Thus, the court finds that the waiver provisions violate California public policy, are unenforceable, and therefore are substantively unconscionable.

The court therefore finds that Plaintiff has established a high level of substantive unconscionability based on (1) the lack of mutuality in the provision delaying Plaintiff’s ability to “receive the rights and benefits” of the arbitration agreement in the Agreement without similarly delaying Defendant’s ability to receive those rights and benefits, and (2) the predispute waivers of the right to bring representative actions.

The court further finds that these provisions cannot be severed under the terms of the Agreement.  The court acknowledges, as Defendant has pointed out, that the Agreement includes the following severability provision:  “The terms of the arbitration component of this Agreement are severable.”  (McCarron Decl., Ex. A, Agreement, p. 20.)  However, this provision is expressly directed to the severability of terms set forth in “the arbitration component” of the Agreement.  (Ibid. [emphasis added].)  Defendant has not shown that the (1) waiver of Plaintiff’s right to bring a representative action, or (2) provision delaying Plaintiff’s ability to receive the rights and benefits of the entire Agreement are set forth only in the “arbitration component” of the Agreement.  (McCarron Decl., Ex. A, Agreement, pp. 15 [waiver of right to bring representative action], 3 [additional provision specifying that Plaintiff will not receive the rights and benefits of the Agreement until completion of the Introductory Period].)

 The court also finds it appropriate, and exercises its discretion, to decline to sever the substantively unconscionable provisions of the Agreement.

“If the court as a matter of law finds the contract or any clause of the contract to have been unconscionable at the time it was made the court may refuse to enforce the contract, or it may enforce the remainder of the contract without the unconscionable clause, or it may so limit the application of any unconscionable clause as to avoid any unconscionable result.”  (Civ. Code, § 1670.5, subd. (a).)  “The trial court has discretion under [section 1670.5] to refuse to enforce an entire agreement if the agreement is permeated by unconscionability.”  (Gostev v. Skillz Platform, Inc. (2023) 88 Cal.App.5th 1035, 1062 [internal quotations and citations omitted].)  “The overarching inquiry is whether the interests of justice . . . would be furthered by severance.”  (Beco, supra, 86 Cal.App.5th at p. 313 [internal quotations and citations omitted].)

Here, the court finds that the Agreement is permeated by unconscionability.  As set forth above, there are two provisions in the Agreement that, in showing a lack of mutuality and requiring a waiver of Plaintiff’s right to bring a representative action, establish a high level of substantive unconscionability.  “‘Such multiple defects indicate a systematic effort to impose arbitration on an employee not simply as an alternative to litigation, but as an inferior forum that works to the employer’s advantage.’”  (Beco, supra, 86 Cal.App.5th at p. 313; Navas v. Fresh Venture Foods, LLC (2022) 85 Cal.App.5th 626, 637 [“Given the number of challenged provisions, the court could reasonably find severance was not an acceptable option”].)  

Thus, the court finds that severance would not serve the interests of justice and therefore exercises its discretion (1) to decline to sever the unconscionable provisions and (2) to refuse to enforce the Agreement and the arbitration provision therein.  (Civ. Code, § 1670.50, subd. (a).)

The court therefore denies Defendant’s motion to compel arbitration and dismiss action.

ORDER

            The court denies defendant The Ritz-Carlton Hotel Company, LLC’s motion to compel arbitration and dismiss action.

            The court orders defendant The Ritz-Carlton Hotel Company, LLC to file an answer to the Complaint within 10 days of the date of this order.    

            The court orders plaintiff Sharleyne Martin to give notice of this ruling.

IT IS SO ORDERED.

DATED:  April 25, 2024

_____________________________

Robert B. Broadbelt III

Judge of the Superior Court