Judge: Robert S. Draper, Case: 22STCV08031, Date: 2022-08-09 Tentative Ruling

Case Number: 22STCV08031    Hearing Date: August 9, 2022    Dept: 78

Superior Court of California 

County of Los Angeles 

Department 78 

Defendants’ Motion to Compel Arbitration is GRANTED. All future proceedings are stayed pending arbitration.

FACTUAL BACKGROUND 

This is an action for wrongful termination and employment discrimination. The Complaint alleges as follows. Plaintiff Joanne U. Castillo (“Plaintiff”) was employed by Defendant William M. Dorfman, D.D.S. (“Dorfman”) for 14 years. (Compl. ¶ 1.) Plaintiff witnessed illegal conduct on multiple occasions while employed there. (Compl. ¶ 14.) Plaintiff complained to Dorfman about her concerns, but they went unaddressed. (Compl. ¶ 19.) Plaintiff informally told Dorfman’s attorney, Barry Kaufman (“Kaufman”), about her concerns. (Compl. ¶ 21.) In response to her numerous complaints, Dorfman retaliated against Plaintiff, first by giving her fewer work shifts, then, eventually, by terminating her. (Compl. ¶¶ 24, 30.)

PROCEDURAL HISTORY

On March 4, 2022, Plaintiff filed the Complaint asserting 14 causes of action:

1.    Retaliation in Violation of Labor Code;

2.    Discrimination in Violation of FEHA;

3.    Harassment in Violation of FEHA;

4.    Retaliation in Violation of FEHA;

5.    Failure to Prevent Discrimination, Harassment, Retaliation;

6.    Wrongful Discharge in Violation of Public Policy;

7.    Defamation;

8.    Intentional Infliction of Emotional Distress;

9.    Failure to Permit Inspection or Copying of Payroll Records in Violation of Labor Code § 226;

10. Failure to Provide Meal Periods in Violation of Labor Code;

11. Failure to Authorize and Permit Rest Periods in Violation of Labor Code;

12. Knowing and Intentional Failure to Comply with Itemized Employee Wage Statement Provisions in Violation of Labor Code;

13. Failure to Timely Pay Wages Due at Termination in Violation of Labor Code; and

14. Unfair Competition.

On April 28, 2022, Defendants filed the instant Motion to Compel Arbitration.

On June 20, 2022, Plaintiff filed an Opposition.

On June 24, 2022, Defendants filed a Reply.

DISCUSSION 

I.               REQUEST FOR JUDICIAL NOTICE

The court may take judicial notice of “official acts of the legislative, executive, and judicial departments of the United States and of any state of the United States,” “[r]ecords of (1) any court of this state or (2) any court of record of the United States or of any state of the United States,” and “[f]acts and propositions that are not reasonably subject to dispute and are capable of immediate and accurate determination by resort to sources of reasonably indisputable accuracy.” (Evid. Code § 452, subds. (c), (d), and (h).)

Here, Plaintiff requests Judicial Notice of:

1.    Complaint for Damages and Equitable Relief, filed in Los Angeles Superior Court, in the case entitled William M. Dorfman, D.D.S. v. Patti Cantor, et al., Case No. BC 602388. (Ex. A.)

Plaintiff’s request is GRANTED.

II.             MOTION TO COMPEL ARBITRATION

Defendants move the Court to compel arbitration.

A.   Procedure

Procedurally, a motion to compel arbitration or stay proceedings must state verbatim the provisions providing for arbitration or must have a copy of them attached. (Cal. Rules of Court, Rule 3.1330.) Defendants provide a copy of the Confidentiality, Non-Disclosure, Non-Competition and Employment Agreement (the “Agreement”) which contains an Arbitration Provision (the “Provision”). (Beltran Decl. ¶ 3, Ex. A.) A party seeking to compel arbitration must “plead and prove a prior demand for arbitration under the parties’ arbitration agreement and a refusal to arbitrate under the agreement.” (Mansouri v. Superior Court (2010) 181 Cal.App.4th 633, 640-41.) Defendant has not met and conferred with Plaintiff, nor provided proof of a prior informal demand for arbitration. However, Defendants argue that this requirement is waived as Plaintiff’s “filing of a lawsuit rather than commencing arbitration proceedings as required by the [Arbitration Agreement] affirmatively establishes [Castillo’s] refusal to arbitrate the controversy.” (Motion at p. 5; quoting Hyundai Amco America, Inc. v. S3H, Inc., (2014) 232 Cal.App.4^th 572, 577.) The Court finds that Defendants’ failure to seek informal resolution prior to filing the instant motion is excused under Hyundai but encourages Defendants’ Counsel to seek such informal resolution before filing motions to compel moving forward.

B.   Generally

California law reflects a strong public policy in favor of arbitration as a relatively quick and inexpensive method for resolving disputes. To further that policy, California Code of Civil Procedure section 1281.2 requires a trial court to enforce a written arbitration agreement unless one of three limited exceptions applies. Those statutory exceptions arise where (1) a party waives the right to arbitration; (2) grounds exist for revoking the arbitration agreement; and (3) pending litigation with a third party creates the possibility of conflicting rulings on common factual or legal issues.” (Acquire II, Ltd. v. Colton Real Estate Group (2013) 213 Cal.App.4th 959, 967 [citations omitted]; Code Civ. Proc. § 1281.2.)

In deciding a petition to compel arbitration, trial courts must decide first whether an enforceable arbitration agreement exists between the parties, and then determine the second gateway issue whether the claims are covered within the scope of the agreement. (Omar v. Ralphs Grocery Co. (2004) 118 Cal.App.4th 955, 961.) The party seeking arbitration has the “burden of proving the existence of a valid arbitration agreement by a preponderance of the evidence, while a party opposing the petition bears the burden of proving by a preponderance of the evidence any fact necessary to its defense.” (Ruiz v. Moss Bros. Auto Group, Inc. (2014) 232 Cal.App.4th 836, 842.) The trial court “sits as the trier of fact, weighing all the affidavits, declarations, and other documentary evidence, and any oral testimony the court may receive at its discretion, to reach a final determination.” (Id.) General principles of contract law govern whether parties have entered a binding agreement to arbitrate. (Pinnacle Museum Tower Assn. v. Pinnacle Market Development (US), LLC (2012) 55 Cal.4th 223, 236; see also Winter v. Window Fashions Professions, Inc. (2008) 166 Cal.App.4th 943, 947.) 

C.  Federal Arbitration Act or California Arbitration Act

As an initial matter, the parties dispute whether the arbitration agreement is governed by the Federal Arbitration Act (“FAA”) or California Arbitration Act (“CAA”).  

Defendants argue that the level of interstate commerce present in the employment relationship more than satisfies the level needed for the FAA to apply. (Motion at p. 6; Beltran Decl. ¶¶ 4-5.) In response, Plaintiff notes that the Agreement specifically states that the terms are to be “Governed by, and construed in accordance with, the laws of the state of California without regard to choice of law provisions.” (Beltran Decl, Ex. A at p. 3.) Additionally, Defendants argue that Plaintiff has not provided sufficient evidence of the employment relationship’s affect on interstate commerce for the FAA to govern.

A forum can only apply its own law (Reich v. Purcell (1967) 67 Cal.2d 551, 553), and generally speaking California forums apply California law on arbitration agreements in ruling on a motion to compel arbitration. To argue that the FAA applies from the outset begs the very question the Court is being asked to decide. When parties approach a California court with a contract of any type, the court’s initial inquiries are who entered the contract, what the terms are, and whether there are any defects in or defenses to contract formation. To make these determinations, the court applies California law. Only after the court determines that the parties properly entered a valid contract under California law does that court then proceed to hold the parties to the terms they agreed to, including terms that specify that arbitration is subject to the FAA. (See Thomas v. Westlake (2012) 204 Cal.App.4th 605, 614, fn. 7 [“Even when the Federal Arbitration Act applies, state law governs such matters as who is bound by and who may enforce an arbitration agreement”]; Arthur Andersen LLP v. Carlisle (2009) 556 U.S. 624, 630-631 [state law is applicable to determine which contracts are binding and enforceable under the FAA “if¿that law arose to govern issues concerning the validity, revocability, and enforceability of contracts generally”]; In re Gateway LX6810 Computer Products Litigation (C.D. Cal. July 21, 2011) No. SACV 10-1563-JST (JEMx), 2011 WL 3099862, at *1 [“Arbitration agreements may ‘be invalidated by generally applicable contract defenses, such as fraud, duress, or unconscionability, but not by defenses that apply only to arbitration or that derive their meaning from the fact that an agreement to arbitrate is at issue’”] (quoting AT&T Mobility LLC v. Concepcion (2011) 563 U.S. 333, 339.) Once these threshold issues are determined by the state court using the state court’s own law, then and only then does the Court proceed to follow the instructions in the contract (such as the instruction to proceed under FAA standards). 

Accordingly, the Court will review Defendants’ Motion to Compel Arbitration using California law.

D.  Existence of a Valid Arbitration Agreement

Defendants argue that Plaintiff entered into a valid arbitration agreement when she signed the Agreement containing the Provision on August 31, 2015. (Bertran Decl. ¶ 2; Ex. A.) 

The Provision states, in its entirety:

Arbitration. The exclusive method for resolving any controversy or claim concerning or arising out of or related to this Agreement or the services provided by EMPLOYEE to DR. DORFMAN shall be by final and binding arbitration filed with the American Arbitration Association, JAMS, LLC, or any professional arbitrator to whom the parties may mutually agree. The arbitration shall be held before a single arbitrator in Los Angeles, California, upon the initiation by a party hereto by a written notice to the other party demanding arbitration and specifying the controversy or claim to be arbitrated. The initial cost of the arbitration shall be borne by the party asserting the covered claim, subject to reallocation by the arbitrator in conformity with all applicable laws. Excepting any actions for provisional remedies like injunctive relief, the arbitrator shall have the power to award any and all remedies and relief whatsoever that is deemed appropriate under the circumstances, including without limitation, money damages and equitable relief. The parties shall have the right to take discovery and the arbitration procedures shall be those established by the AAA, JAMS or the arbitrator to whom the parties have agreed. The written decision of the arbitrator shall be a reasoned award and shall be binding and conclusive on the parties thereto. Said award shall be enforceable as provided by the laws of the State of California, and judgment on the award may be entered by any courts having jurisdiction thereof. (Beltran Decl., Ex. A at p. 4.)

By attaching the Agreement containing a valid arbitration provision to their Motion, Defendants have met their initial burden of proving by a preponderance of evidence the existence of a valid arbitration agreement. Accordingly, the burden now shifts to Plaintiff to prove, by a preponderance of the evidence, any fact necessary to her defense.

E.   Plaintiff’s Defense to Enforcement

Plaintiff makes several arguments for why the Provision is not an enforceable contract.

1.    Unconscionability

First, Plaintiff argues that the Provision is unenforceable as it “is permeated with both procedural and substantive unconscionability.” (Opposition at p. 11.)

Commonly formulated, unconscionability refers to the “absence of meaningful choice on the part of one of the parties together with the contract terms which are unreasonably favorable to the other party. [Citations.]” (Sonic-Calabasas A, Inc. v. Moreno (2013) 57 Cal.4th 1109, 1145.) 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.) “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 v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, 114.) 

a.    Procedural Unconscionability

Procedural unconscionability primarily relates to freedom of assent. (Stirlen v. Supercuts (1997) 51 Cal.App.4th 1519, 1530-33.)  The procedural element focuses on two factors: oppression and surprise.  (Id.)  “Oppression” arises from an inequality of bargaining power which results in no real negotiation and an absence of meaningful choice. (Id.) “Surprise” involves the extent to which the supposedly agreed-upon terms of the bargain are hidden in the printed form drafted by the party seeking to enforce the disputed terms. (Id.) 

First, Plaintiff argues that the Provision was procedurally unconscionable because Plaintiff had no meaningful opportunity to negotiate the terms of the Agreement, and because the Agreement was provided to Plaintiff as a take it or leave it employment condition. (Castillo Decl. ¶¶ 2-4.) Plaintiff argues that the Agreement does not contain an opt-out clause, and that Defendants never affirmatively informed Plaintiff that she had a choice in whether to execute the Agreement. (Ibid.)

Defendants argue that Plaintiff was, in fact, given the opportunity to take the contact home with her, and to review it. (Beltran Decl., ¶ 3.) Additionally, Defendants argue that Plaintiff could have declined to agree to the arbitration provision and would have still been hired. (Ibid.)

Because the Agreement does not contain any language indicating that Plaintiff was free to decline the Provision, or that she was free to take the Agreement home to consider it, the Court will, for the purposes of this Motion, consider it an adhesion contract.

The mere fact that an arbitration agreement was adhesive typically does not, without more, support a finding of procedural unconscionability. (Roman v. Superior Court (2009) 172 Cal.App.4th 1462, 1471, n.2.)

Next, Plaintiff argues that the Agreement was procedurally unconscionable because the Provision was hidden within a prolix printed form. (Motion at p. 3.) The Provision was included in a five-page agreement preceded by the word Arbitration capitalized and underlined. (Beltran Decl., Ex. A at p. 4.) There is no reason to believe that the Provision was hidden from Defendant or that it was not immediately accessible to her upon first review; therefore, the Court does not consider this element as contributing to procedural unconscionability.

Finally, Plaintiff argues that the Provision was procedurally unconscionable because Defendants did not provide Plaintiff with the arbitration rules. Indeed, the Provision indicates that “arbitration rules shall be those established by the AAA, JAMS or the arbitrator to whom the parties have agreed” and does not contain the content of those rules, or direction on where they may be found. This is a factor of procedural unconscionability. (Subcontracting Concepts (CT), LLC v. De Melo (2019) 34 Cal.App.5^th 201, 210.)

Because the Provision was contained in an adhesion contract, and because the Provision did not contain the relevant rules or an indication of where they may be found, the Court finds that there exists low to medium procedural unconscionability in the Agreement.

b.    Substantive Unconscionability

Substantive unconscionability focuses “on ‘overly harsh’ or ‘one-sided’ results. [Citation.]” (Armendariz, supra, 24 Cal.4th at p. 114; see also Sanchez v. Valencia Holding Co., LLC (2015) 61 Cal.4th 899, 910-911 [terms that are “unduly oppressive” or “unfairly one-sided” are unconscionable].) In Armendariz, the California Supreme Court outlined five elements that must be present in an arbitration agreement to avoid substantive unconscionability. (Id. at p. 102.) 

Armendariz factor 1 requires that the agreement provide for a “neutral arbitrator[].” (Ibid.) 

Armendariz factor 2 requires that the arbitration agreement “provide for more than minimal discovery.” (24 Cal.4th at p. 102.) 

Armendariz factor 3 requires the arbitrator to issue a written opinion (24 Cal.4th at p. 102). 

Armendariz factor 4 requires that the agreement provide for all the types of relief that would otherwise be available in court. (24 Cal.5th at p. 102.) 

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.” (24 Cal.5th at p. 102.) 

Here, Plaintiff argues that the Agreement lacks mutuality as the Agreement contains provisions allowing Defendants to obtain injunctive relief for any breach of the Confidentiality Agreement, and that Defendants may recover $10,000 in liquidated damages for any violation of the Confidentiality Agreement. (Beltran Decl., ¶ 3, Ex. A.)

However, as Defendants note, these provisions are not part of the Arbitration Agreement, and therefore do not affect that agreement’s mutuality. Defendants argue that, should they want to act on the liquidated damages provision, they would need to do so through arbitration. (Motion at p. 5.) Additionally, Defendants note that Plaintiff maintains her right to seek injunctive relief pursuant to CCP section 1281.8(b), which allows for “a party to an arbitration agreement [to] file in the court in the county in which an arbitration proceeding is pending, or if an arbitration proceeding has not commenced, in any proper court, an application for a provisional remedy in connection with an arbitrable controversy…”

Accordingly, the Court finds that the injunctive relief and liquidated damages provisions of the Agreement do not affect the mutuality of the Agreement to Arbitrate.

Next, Plaintiff notes that provision nine of the confidentiality Agreement states “the prevailing party in any proceeding brought to enforce any provision of this Agreement or to recover for an breach thereof shall be entitled to recover the reasonable fees, expenses, and costs of his counsel, plus all other costs and expenses of such proceeding.” Plaintiff argues that this facially violates the Fair Employment and Housing Act (“FEHA”), which requires that “a prevailing [Respondent] shall not be awarded fees and costs unless the court finds that the action was frivolous, unreasonable, or groundless when brought, or the plaintiff continued to litigate after it clearly became so.” (Cal. Gov. Code § 12965(b).) Indeed, Plaintiff notes that Defendants have already filed an arbitration claim demanding attorney fees for the cost of the instant motion. (Javanmardi Decl., Ex. 1.)

In response, Defendants argue that the attorney shifting fees are not part of the Arbitration Provision, and therefore do not affect its conscionability. Additionally, Defendants state that they will agree to dismiss the arbitration request for attorney fees if the Court deems it necessary.

In Armendariz, the Court held that “a mandatory employment arbitration agreement that contains within its scope the arbitration of FEHA claims impliedly obliges the employer to pay all types of costs that are unique to arbitration.” (Armendariz at p. 113.) Applying that principle here, the instant motion will be granted only on the condition that Defendants agree to pay all the arbitration fees, and to dismiss their claim for attorney fees.

Finally, Plaintiff argues that the Confidentiality Agreement contains several other illegal provisions, including a non-compete contract that is not enforceable in California, and a non-solicitation provision which precludes Plaintiff from providing Defendants’ patients services substantially similar to Defendants’ services for five years.

Defendants argue that these provisions can be severed in the interest of justice.

Both case law and statute instruct courts on how to determine if an unconscionable provision is severable. Civil Code section 1670.5, subdivision (a)¿is a statute that provides general guidance regarding the severability of contract provisions: 

“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.” 

The Court of Appeal in Armendariz, in determining whether an unconscionable provision in an employment contract was severable, elaborated: 

“Two reasons for severing or restricting illegal terms rather than voiding the entire contract appear implicit in case law. The first is to prevent parties from gaining underserved benefit or suffering undeserved detriment as a result of voiding the entire agreement. . . . Second, more generally the doctrine of severance attempts to conserve a contractual relationship if to do so would not be condoning an illegal scheme. [Citations.] The overarching inquiry is whether ‘“the interests of justice ... would be furthered”’ by severance. [Citation.]” (24 Cal.4th at pp. 123-124.) 

Here, the non-compete and non-solicitation provisions are contrary to California law and unenforceable. However, they have little to no affect on the Arbitration Provision and are not relevant to the current discussion. Accordingly, the Court severs these provisions from the Agreement.

With these unenforceable provisions severed, and conditional on Defendants’ agreement to shoulder the costs of arbitration and to dismiss their request for attorney fees, the Court finds that the Provision contains minimal substantive unconscionability, and is therefore enforceable.

F.   Does the Provision Cover the Dispute?

Finally, Plaintiff argues that, even if the Court finds the Provision to be enforceable, it does not cover the instant dispute. Plaintiff notes that the stated purpose of the Agreement is “to protect and preserve DR. DORFMAN’S relationships with his Patients and to protect and preserve DR. DORFMAN’S confidential and proprietary information. (Beltran Decl., Ex. A.) Additionally, Plaintiff notes that the Provision states that “[t]he exclusive method for resolving any controversy or claim concerning or arising out of or related to this agreement or services provided by EMPLOYEE to DR. DORFMAN shall be by final and binding arbitration. (Ibid.)

Plaintiff argues that the addition of “services provided by EMPLOYEE to DR. DORFMAN” is too vague to provide clarity and does not indicate that illegal employment practices will be covered by the Provision.

However, the Arbitration Agreement was included in a larger agreement titled “Confidentiality, Non-Disclosure, Non-Competition and Employment Agreement.” (Beltran Decl., Ex. A; emphasis added.) By its plain language, an arbitration agreement found in an employment agreement that explicitly states that its provisions cover services provided by the employee to the employer evinces an intent to cover claims arising from the employment relationship. Accordingly, the Court finds that the instant dispute is covered by the Arbitration Agreement.

Therefore, Defendants’ Motion to Compel Arbitration is GRANTED conditional on Defendants covering the cost of arbitration and dismissing their request for attorney fees.

DATED: August 9, 2022 

____________________________

Hon. Robert S. Draper 

Judge of the Superior Court