Judge: Salvatore Sirna, Case: 22PSCV01215, Date: 2023-03-01 Tentative Ruling

Case Number: 22PSCV01215    Hearing Date: March 1, 2023    Dept: G

Defendant Universal Bank’s Motion to Compel Arbitration and for Immediate Dismissal or, in the Alternative, Stay of Judicial Proceedings

Respondent: Plaintiff Ryan Bieggar

TENTATIVE RULING

Defendant Universal Bank’s Motion to Compel Arbitration is GRANTED and proceedings are STAYED pending the outcome of arbitration.

BACKGROUND

This is an employment action. On July 19, 2019, Plaintiff Ryan Bieggar was hired by Defendant Universal Bank as a Vice President/Business Banking Relationship Manager. According to the job offer letter, Defendant promised to pay Plaintiff $90,000 annually plus commission. From August 2019 to February 2022, Plaintiff serviced an estimated $64,975,500 in loans. However, despite complaints from Plaintiff to Plaintiff’s direct supervisor, the CFO, Defendant allegedly never paid any commission to Plaintiff. Plaintiff also alleges Defendant fraudulently changed pay periods and caused Plaintiff’s pay per pay period to decrease below the amount in Plaintiff’s employment agreement. Plaintiff resigned from employment with Defendant on February 10, 2022.

On October 11, 2022, Plaintiff filed a complaint against Defendant and Does 1-20, alleging the following causes of action: (1) breach of contract, (2) fraud-intentional misrepresentation, (3) failure to pay wages, (4) waiting time penalty for nonpayment of wages (Labor Code section 203), (5) failure to furnish accurate and itemized wage statement (Labor Code section 226, subdivision (e)), (6) failure to produce payroll records (Labor Code section 226, subdivision (f)), (7) violation of Business and Professions Code section 17200 for unlawful and unfair fraudulent acts, (8) fraud-concealment, (9) fraud-false promise, and (10) negligent misrepresentation.

On January 5, 2023, Defendant filed an answer to Plaintiff’s complaint. On January 18, Plaintiff demurred to Defendant’s answer. On January 23, Defendant filed the present motion.

A hearing on the motion and case management conference are set for March 1, 2023. A hearing on a motion to stay proceedings is also set for March 22.

REQUEST FOR JUDICIAL NOTICE

In support to the Defendant’s motion to compel arbitration, Defendant has requested the court take judicial notice of filings in an unrelated case before the Superior Court of California, County of Orange. Pursuant to Evidence Code section 452, subdivision (d), the court may take judicial notice of state court records. The court DENIES Defendant’s request for judicial notice of another trial court’s records and decisions as they are neither precedent nor binding authority for this court. (B.F. v. Superior Court (2012) 207 Cal.App.4th 621, 627, fn. 2.)

EVIDENTIARY OBJECTIONS

Plaintiff’s evidentiary objections to Defendant’s request for judicial notice are MOOT as the court has denied Defendant’s request. As to Plaintiff’s other evidentiary objections, the court OVERRULES Plaintiff’s objection to 7, 8, 9, 10, 11, 12, 13, 14, 15, 16, 17, and 18.

The court declines to rule on Defendant’s objections as Defendant failed to properly number them pursuant to Rule 3.1354, subdivision (b) of the California Rules of Court.

ANALYSIS

Defendant argues Plaintiff’s complaint is subject to a valid and binding arbitration agreement. For the following reasons, the court agrees.

Legal Standard

“A written agreement to submit to arbitration an existing controversy or a controversy thereafter arising is valid, enforceable and irrevocable, save upon such grounds as exist for the revocation of any contract.” (Code Civ. Proc., § 1281.)¿ The court must grant a petition to compel arbitration unless it finds no written agreement to arbitrate exists, the right to compel arbitration has been waived, grounds exist for revocation of the agreement, or litigation is pending that may render the arbitration unnecessary or create conflicting rulings on common issues.¿ (Code Civ. Proc., § 1281.2.) A petition to compel arbitration functions as a motion. (Code Civ. Proc., § 1290.2.)

“[T]he moving party bears the burden of producing ‘prima facie evidence of a written agreement to arbitrate the controversy.’” (Gamboa v. Northeast Community Clinic (2021) 72 Cal.App.5th 158, 165 (Gamboa).) Once the court finds an arbitration agreement exists, the opposing party bears the burden of establishing a defense to enforcement by preponderance of the evidence. (Rosenthal v. Great Western Fin. Securities Corp. (1996) 14 Cal.4th 394, 413.) In interpreting an arbitration agreement, courts apply the same principles used to interpret contractual provisions with the fundamental goal of giving effect to the parties’ mutual intentions and applying contractual language if clear and explicit. (Valencia v. Smyth (2010) 185 Cal.App.4th 153, 177.) Because public policy strongly favors arbitration, “any doubts regarding the arbitrability of a dispute are resolved in favor of arbitration.” (Coast Plaza Doctors Hosp. v. Blue Cross of California (2000) 83 Cal.App.4th 677, 686.)

Existence of an Arbitration Agreement

Under the Federal Arbitration Act (FAA), the court’s role “is limited to determining (1) whether a valid agreement to arbitrate exists and, if it does, (2) whether the agreement encompasses the dispute at issue.” (Philadelphia Indemnity Ins. Co. v. SMG Holdings, Inc. (2019) 44 Cal.App.5th 834, 840, quoting U.S. ex rel. Welch v. My Left Foot Children’s Therapy, LLC (9th Cir. 2017) 871 F.3d 791, 796.)

In this case, Defendant claims Plaintiff entered into a binding arbitration agreement on August 12, 2019, as part of Plaintiff’s onboarding paperwork and provided a copy of the arbitration agreement. (Islas Decl., ¶ 5, Ex. E.) Plaintiff does not contest the existence of the arbitration agreement but instead argues against its enforceability. Plaintiff also contests the applicability of the FAA, arguing the FAA does not apply because Defendant failed to establish Plaintiff’s position involved interstate commerce.

The¿FAA¿applies to contracts that involve interstate commerce (9 U.S.C. §§ 1,¿2), but since arbitration is a matter of contract, the¿FAA¿also applies if it is so stated in the agreement.  (See¿Victrola 89, LLC v. Jaman Properties 8 LLC¿(2020) 46 Cal.App.5th 337, 355 [“[T]he presence of interstate commerce is not the only manner under which the¿FAA¿may apply. … [T]he parties may also voluntarily elect to have the¿FAA¿govern enforcement of the Agreement”].) Here, the arbitration agreement clearly states, “This Arbitration Agreement shall be governed by the Federal Arbitration Act.” (Islas Decl., Ex. E, ¶ 7.) Thus, because the parties have agreed to the arbitration agreement being governed by the FAA, Plaintiff’s interstate commerce argument is unavailing.

Accordingly, the court finds an arbitration agreement exists and applies to the present action.

Unconscionability

“Under both federal and state law, arbitration agreements are valid and enforceable, unless they are revocable for reasons under state law that would render any contract revocable” including “fraud, duress, and unconscionability.” (Tiri v. Lucky Chances, Inc. (2014) 226 Cal.App.4th 231, 239.) In this case, Plaintiff contends the arbitration agreement is unenforceable due to procedural and substantive unconscionability.

“‘[U]nconscionability 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 (Armendariz), quoting A & M Produce Co. v. FMC Corp. (1982) 135 Cal.App.3d 473, 486-487.) While both elements must be present to prevent enforcement, courts evaluate them as a sliding scale in that “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.” (Ibid.)

Procedural Unconscionability

Plaintiff maintains the arbitration agreement is procedurally unconscionable because it is a contract of adhesion and failed to provide a copy of arbitration rules.

First, Plaintiff claims the arbitration agreement was a contract of adhesion because it was provided “on a take it or leave basis.” However, when “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.’” (Serpa v. California Surety Investigations, Inc. (2013) 215 Cal.App.4th 695, 704, quoting Ajamian v. CantorCO2e (2012) 203 Cal.App.4th 771, 796.) In this case, Plaintiff contends a “high level of oppressiveness” exists because Plaintiff was not given an opportunity to have legal counsel review the agreement and was told to quickly complete the documents. (Bieggar Decl., ¶ 2-4.)

The court finds this contention is without merit as the agreement explicitly allowed Plaintiff the opportunity to opt-out of the agreement, stating as follows:

“To opt out, you must notify Insperity of your intention to opt out within thirty (30) days of your first receipt of this Arbitration Agreement. If you choose to opt-out, you must sign an opt-out form that is available at https://service.insperity.com/service-technology/10968 Opt Out Mutual Arbitration Agreement.pdf and email it back to optoutnotice@insperity.com. Unless and until you opt-out as provided in this paragraph, the dispute resolution procedures described in this Arbitration Agreement apply to all Covered Claims. You will not be subject to any adverse employment action as a consequence of opting out.” (Islas Decl., Ex. E, ¶ 2.)

Because the arbitration agreement explicitly provided a procedure for Plaintiff to reject it and promised no adverse consequences, Plaintiff cannot claim a high level of oppressiveness exists. While Plaintiff cites to Gentry v. Superior Court (2007) 42 Cal.4th 443, abrogated on other grounds, that decision merely held the presence of an opt-out agreement does eliminate procedural unconscionability as the “freedom to choose whether or not to enter a contract of adhesion is a factor weighing against a finding of procedural unconscionability.” (Id., at p. 470.)

While Plaintiff claims the arbitration agreement was not explained to Plaintiff and that there would have been no way for Plaintiff to opt-out, Plaintiff also claims to not remember whether Plaintiff executed the arbitration agreement or received a copy. (Bieggar Decl., ¶ 4.) Thus, given the presence of an opt-out clause, the amount of any procedural unconscionability is low.

Second, Plaintiff claims the arbitration agreement only provided a link to arbitration rules and failed to provide a copy. In Carbajal v. CWPSC, Inc. (2016) 245 Cal.App.4th 227 (Carbajal), the court noted failure to provide a copy of the arbitration rules supports a finding of procedural unconscionability. (Id., at p. 244-245.) However, our supreme court clarified that “the failure to provide a copy of the arbitral rules, standing alone, does not heighten the degree of procedural unconscionability” as a proper inquiry looks at the actual rules in question. (Davis v. Kozak (2020) 53 Cal.App.5th 897, 909, citing Baltazar Forever 21, Inc. (2016) 62 Cal.4th 1237, 1246.) Here, while Plaintiff claims the failure to attach a copy “hides the full rules and ramifications” from Plaintiff, Plaintiff does not identify any substantive unconscionability in these rules. Thus, Defendant’s failure to provide a copy of the arbitration rules only amounts to a low degree of procedural unconscionability.

Substantive Unconscionability

Plaintiff argues the arbitration agreement is substantively unconscionable because (1) it carves out injunctive relief and omits the requirement of a bond, (2) compels mediation, (3) waives or limits the right to collect attorney fees, (4) disallows adequate discovery, (5) attempts to delegate authority to an arbitrator, (6) imposes costs and fails to limit arbitrator’s discretion, and (7) requires confidentiality.

Injunctive Relief

First, Plaintiff maintains the arbitration agreement is substantively unconscionable because it carves out injunctive relief and omits requirement of a bond.

“[C]ourts repeatedly have found an employer-imposed arbitration agreement to be substantively unconscionable when it requires the employee to arbitrate the claims he or she is mostly likely to bring, but allows the employer to go to court to pursue the claims it is most likely to bring.” (Carbajal, supra, 245 Cal.App.4th at p. 248.) Because “‘it is far more likely’ the employer will seek injunctive relief in court to stop an employee from breaching a nondisclosure or noncompetition agreement than the employee will seek injunctive relief in aid of his or her claims for wrongful termination, illegal discrimination, or unpaid wages,” such clauses are often found to be substantively unconscionable. (Id., at p. 249, quoting Trivedi v. Curexo Technology Corp. (2010) 189 Cal.App.4th 387, 396-397.)

In this case, the arbitration agreement includes a clause that allows either Plaintiff or Defendant to obtain temporary or preliminary injunctive relief from a court in connection with an arbitrable controversy. (Islas Decl., Ex. E, ¶ 1(C).) Thus, the court finds this clause to be substantively unconscionable. While Defendant argues Baltazar v. Forever 21, Inc. (2016) 62 Cal.4th 1237 (Baltazar) is controlling here, Baltazar held an injunctive relief carve-out clause was not substantively unconscionable because it merely restated a statutory provision for injunctive relief pursuant to the California Arbitration Act (CAA). (Id., at p. 1246-1247.) However, unlike Baltazar, this case involves the FAA, not the CAA.

Mediation Requirement

Second, Plaintiff argues the arbitration agreement is substantively unconscionable because it erects a barrier to litigation by mandating mediation and fails to toll statute of limitations for exhausting administrative remedies.

In arguing mandatory mediation is substantively unconscionable, Plaintiff relies on Nyulassy v. Lockheed Martin Corp. (2004) 120 Cal.App.4th 1267 (Nyulassy) and Pokorny v. Quixstar, Inc. (9th Cir. 2010) 601 F.3d 987 (Pokorny). In Nyulassy, a clause requiring an employee to submit to an “employer-controlled dispute resolution mechanism (i.e., one without a neutral mediator)” was a reason for finding substantive unconscionability. (Nyulassy, supra, 120 Cal.App.4th at p. 1282-1283.) In Pokorny, the Ninth Circuit also held a similar defendant-controlled dispute resolution mechanism was substantively unconscionable, noting it also only applied to the plaintiffs. (Pokorny, supra, 601 F.3d at p. 998-999.)

In contrast, the mediation requirement in this case applies to any party invoking binding arbitration and allows for the parties to agree on a mediator. (Islas Decl., Ex. E, ¶ 1(E).) Unlike Nyulassy and Pokorny, this is not a case where only one side is required to mediate in front of an employer-controlled mediation mechanism. While the agreement does not toll the time for exhausting administrative remedies, it does toll the time for statutes of limitation. (Islas Decl., Ex. E, ¶ 1(E).) And as Defendants notes, nothing in the agreement prevents Plaintiff from pursuing administrative remedies before or during mediation. Thus, the court finds this mediation requirement is not substantively unconscionable.

Attorney Fees

Third, Plaintiff contends the arbitration agreement is substantively unconscionable because it limits Plaintiff’s right to collect attorney fees.

However, Plaintiff’s contention fails because Plaintiff has misread the arbitration agreement. The agreement states “Each party will pay the fees for his/her or its own attorneys, subject to any remedies to which that party may later be entitled under applicable law.” (Islas Decl., Ex. E, ¶ 1(H).) The agreement further provides that “If a jurisdiction requires a different allocation of fees and costs in order for this Arbitration Agreement to be enforceable, then such law shall be followed, and any disputes in this regard will be decided by the Arbitrator.” (Islas Decl., Ex. E, ¶ 1(H).) Neither of these clauses states a party’s right to collect attorney fees is waived or barred. Furthermore, they clarify that the attorney fee allocation in this agreement is subject to any remedy or fee allocation requirement as established by law. Thus, the court finds there is no substantive unconscionability with regards to this provision.

Discovery

Fourth, Plaintiff maintains the arbitration agreement is substantively unconscionable because it does not allow for adequate discovery.

Because arbitration is meant to be streamlined, “discovery limitations are an integral and permissible part of the arbitration process.” (Dotson v. Amgen, Inc. (2010) 181 Cal.App.4th 975, 983, citing Armendariz, supra, 24 Cal.4th at p. 105-106.) At a minimum, parties “are at least entitled to discovery sufficient to adequately arbitrate their statutory claim, including access to essential documents and witnesses, as determined by the arbitrator(s) . . . .” (Armendariz, supra, 24 Cal.4th at p. 106.)

In this case, the parties have the right to take depositions of two individual fact witnesses and any expert witness designated by the other party, to propound requests for production of documents, and to subpoena witnesses and documents. (Islas Decl., Ex. E, ¶ 1(G)(v).) Furthermore, parties may agree to conduct additional discovery or petition the arbitrator to allow additional discovery if the arbitrator determines additional discovery is warranted. (Islas Decl., Ex. E, ¶ 1(G)(v).) In maintaining a limit to two depositions is insufficient and unconscionable, Plaintiff cites to Fitz v. NCR Corp. (2004) 118 Cal.App.4th 702 (Fitz). However, Fitz did not create a rule that two depositions is insufficient discovery for an employment case. Rather, Fitz looked at the discretion afforded to the arbitrator and held it was “an inadequate safety valve” as in that case, the arbitrator was only allowed to permit additional discovery if a fair hearing otherwise was “impossible.” (Id., at p. 717.)

Unlike Fitz, the arbitration agreement here does not provide the same restriction on the arbitrator’s ability to allow additional discovery, as the standard here is “whether additional discovery is warranted by the circumstances of a particular case.” The court finds this standard does not restrict Plaintiff’s right to discovery that is sufficient for the Plaintiff to adequately arbitrate Plaintiff’s claims. Accordingly, the arbitration agreement’s limitations on discovery are not substantively unconscionable.

Authority of Arbitrator

Fifth, Plaintiff argues the arbitration agreement is substantively unconscionable because it delegates authority to determine unconscionability to the arbitrator.

“A provision delegating authority to the arbitrator to resolve questions of unconscionability is itself unconscionable.” (Baxter v. Genworth North America Corp. (2017) 16 Cal.App.5th 713, 732; see also Pinela v. Neiman Marcus Group, Inc. (2015) 238 Cal.App.4th 227, 254.) In this case, the agreement states “The Arbitrator, and not any federal, state, or local court, or agency, shall have exclusive authority to resolve any dispute relating to the validity, applicability, enforceability, unconscionability, or waiver of this Arbitration Agreement.” (Islas Decl., Ex. E, ¶ 1(A).) Thus, the court finds this provision substantively unconscionable, to the extent it claims only the arbitrator can determine the arbitration agreement’s unconscionability.

Costs

Sixth, Plaintiff contends the arbitration agreement is substantively unconscionable because it imposes arbitration costs on Plaintiff, including a filing fee and other administrative fees.

“[W]hen an employer imposes mandatory arbitration as a condition of employment, the arbitration agreement or arbitration process cannot generally require the employee to bear any type of expense that the employee would not be required to bear if he or she were free to bring the action in court.” (Armendariz, supra, 24 Cal.4th at p. 110-111.)

In this case, the arbitration agreement requires the claimant to pay a filing fee of $300 or “an amount equal to the applicable filing fee had the claim been brought in a court of law, whichever is less.” (Islas Decl., Ex. E, ¶ 1(H).) Thus, by its plain language, the agreement does not require Plaintiff to pay any filing fee that is greater than what Plaintiff would pay if Plaintiff filed a court action. While Plaintiff cites to Mills v. Facility Solutions Group, Inc. (2022) 84 Cal.App.5th 1035, the issue in that case was not that the arbitration agreement imposed a filing fee but that the filing fee could not be awarded as a cost to the prevailing party. (Id., at p. 1053.) In contrasted as noted previously, the arbitration agreement allows for a different allocation of fees and costs if required by law. (Islas Decl., Ex. E, ¶ 1(H).)

Plaintiff also points a series of costs imposed by AAA rules. However, the arbitration agreement makes clear that even if Plaintiff is the claimant, Defendant will cover all arbitrator fees and arbitration fees after Plaintiff pays the initial filing fee. (Islas Decl., Ex. E, ¶ 1(H).) Thus, Plaintiff’s contentions are without merit and these provisions are not substantively unconscionable.

Confidentiality

Seventh and last, Plaintiff maintains the arbitration agreement is substantively unconscionable because AAA rules deem the arbitration and arbitration award confidential. However, provisions requiring confidentiality are not unconscionable to the parties themselves. (Sanchez v. Carmax Auto Superstores California, LLC (2014) 224 Cal.App.4th 398, 408; see also Poublon v. C.H. Robinson Company (9th Cir. 2017) 846 F.3d 1251, 1266.) Thus, the court rejects this argument as well.

Severance

“[I]f a trial court concludes that an arbitration agreement contains unconscionable terms, it then ‘must determine whether these terms should be severed, or whether instead the arbitration agreement as a whole should be invalidated.’” (Lange v. Monster Energy Company (2020) 46 Cal.App.5th 436, 452-453 (Lange), quoting Gentry v. Superior Court (2007) 42 Cal.4th 443, 472-473.) When an arbitration agreement is permeated by unconscionability to the extent that its “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,” courts can refuse to compel arbitration. (See Armendariz, supra, 24 Cal.4th at p. 124-125.) While the presence of more than one unconscionable provision in an agreement can suggest the agreement is permeated by unconsionablity, it does not automatically make the agreement unconscionable. (Lange, supra, 46 Cal.App.5th at p. 454.)

Here, the court finds the carve-out provision for injunctive relief and provision allowing the arbitrator to arbitrate the arbitration agreement’s unconscionability are unconscionable provisions. Nonetheless, as a whole, the court does not find the arbitration agreement is otherwise permeated by unconscionability. Accordingly, the two unconscionable provisions mentioned above are severed from the agreement and the court finds it is otherwise enforceable.

Waiver

While Plaintiff claims Defendant waived the right to arbitration, Plaintiff does not explain how Defendant’s actions in this case demonstrate waiver and instead vaguely asserts “[h]ere, as shown above, Defense has waived their right to arbitration and initiated the litigation engine.” (Opposition, p. 16:23-25.) It is unclear to the court how Defendant “initiated the litigation engine” when it was Plaintiff who filed this action. Accordingly, because Plaintiff bears the burden of establishing a defense to enforcement of an arbitration agreement, the court finds no merit in this argument.       

CONCLUSION

Based on the foregoing, Defendant’s motion to compel arbitration is GRANTED. This action is STAYED pending completion of arbitration.¿