Judge: Stephanie M. Bowick, Case: 24STCV14424, Date: 2025-03-17 Tentative Ruling

Case Number: 24STCV14424    Hearing Date: March 17, 2025    Dept: 19

NATURE OF PROCEEDINGS: DEFENDANTS’ MOTION TO COMPEL ARBITRATION AND STAY PROCEEDINGS.

 Tentative Ruling:  The Court denies the Motion to Compel Arbitration and Stay Proceedings.

  I.             BACKGROUND

On June 10, 2024, JACQUELINE MOTA and ELIZABETH MOTA-GALINDO (Plaintiffs) filed a Complaint against SAMEDAY INSURANCE SERVICES, INC. DBA AMAX INSURANCE and GREG FRONEK (Defendants).

On July 18, 2024, Plaintiffs filed a First Amended Complaint (FAC).

The FAC alleges the following claims:
(1) Constructive Discharge in Violation of Public Policy;
(2) Failure to Provide Meal and Rest Breaks;
(3) Failure to Reimburse Expenses and Losses Incurred in Discharging Duties;
(4) Failure to Pay Overtime;
(5) Failure to Pay Wages When Due and Waiting Time Penalties;
(6) Failure to Pay Minimum Wage in Violation of Labor Code §§ 1197, 1182.11 and 1182.12, and Wage Order No. 9;
(7) Failure to Pay Separately and Hourly at the Applicable Rate for Rest Breaks;
(8) Unfair Business Practices in Violation of Business and Professions Code § 17200;
(9) Violation of Labor Code § 1102.5;
(10) Failure to Provide Proper Wage Statements; and
(11) Injunctive Relief.

According to Plaintiffs’ allegations, during their employment with Defendants, they were subjected to years of wage-and-hour violations, a hostile work environment, and retaliatory conduct, which ultimately resulted in their constructive discharge in 2023.

Defendants now move to compel Plaintiffs to arbitrate the operative complaint, pursuant to a “Binding Arbitration Agreement and Jury and Class Action Waiver,” dated February 10, 2021.

II.            LEGAL STANDARD

Parties seeking to compel arbitration satisfy their initial burden by reciting the terms of the governing arbitration provision or by attaching a copy of the provision, unless there is a genuine dispute over authenticity that goes beyond merely contesting the preliminary showing. (See, e.g., Sprunk v. Prisma LLC (2017) 14 Cal.App.5th 785, 793.) The burden then shifts to the party opposing arbitration to prove any fact necessary to a defense against enforcement of arbitration. (Gatton v. T-Mobile USA, Inc. (2007) 152 Cal.App.4th 571, 579.)

When a court orders arbitration, it must stay the pending action until arbitration is completed in accordance with the order, or until an earlier time specified by the court. The stay may apply to a severable issue. (Code Civ. Proc., § 1281.4; Cruz v. PacifiCare Health Systems, Inc. (2003) 30 Cal.4th 303, 320.) A case may also be dismissed if all issues are subject to arbitration by agreement and the plaintiff has failed to pursue arbitration. (24 Hour Fitness, Inc. v. Superior Court (1998) 66 Cal.App.4th 1199, 1208; Charles J. Rounds Co. v. Joint Council of Teamsters (1971) 4 Cal.3d 888, 899; but see Kalai v. Gray (2003) 109 Cal.App.4th 768, 774, which questioned Charles J. Rounds, supra, on the issue of whether participating in litigation completely waives the right to compel arbitration.)

III.          ANALYSIS

A.   Superseding Arbitration Agreement

Plaintiffs assert, and present evidence, that the agreement referenced in the motion was superseded by a “Manager Employment Agreement” dated May 16, 2022, which Defendants’ motion does not address. 

An earlier agreement may be superseded by a subsequent arbitration contract containing an integration clause, depending on the contract language and circumstances reflecting the parties’ intent. (See Grey v. American Management Services (2012) 204 Cal.App.4th 803, 808; Williams v. Atria Las Posas (2018) 24 Cal.App.5th 1048, 1052; Oxford Preparatory Academy v. Edlighten Learning Solutions (2019) 34 Cal.App.5th 605, 612.)

“[A]rbitration agreements that do not specify a term of duration are terminable at will after a reasonable time has elapsed.” (Reigelsperger v. Siller (2007) 40 Cal.4th 574, 580.) In determining whether an agreement includes terms of duration, courts consider express terms, implications from the nature and circumstances of the contract, and generally construe agreements as terminable at will. (Zee Medical Distributors Association v. Zee Medical (2000) 80 Cal.App.4th 1, 10.)

Here, the opposing evidence shows integrated agreements that separately govern Plaintiffs’ employment before and after their promotions to managers. On or about May 2022, Jacqueline and Elizabeth were promoted to Branch Managers and required to sign a “First Amended and Restated Manager Employment Agreement,” effective May 16, 2022. (Opposition, 3:3-22.) Paragraph 6.3 of that agreement states it governs the “conditions of Manager’s employment with Company, and supersedes any prior or contemporaneous oral or written employment or contractor agreement or arrangement between the Parties.” (Emphasis added.)

Accordingly, the Court finds that the later agreement superseded the earlier one, which addressed the period before Plaintiffs became managers. It follows that Defendants cannot prevail on a motion based solely on the superseded agreement. (See Tanner M. Elder Decl., ¶ 2; Exhibit A [stating that on February 10, 2021, Plaintiffs signed Arbitration Agreements in exchange for continued employment].)

B.   Unconscionability

Plaintiffs contend that the arbitration provision in the 2022 agreement is unconscionable. They argue the agreements were presented during their employment as non-negotiable, Defendants failed to provide the IVAMS arbitration rules, the agreements require Plaintiffs to pay arbitration fees, the provisions lack mutuality by allowing the employer to pursue injunctive relief, and they fail to provide for a neutral arbitrator and adequate discovery. (Opposition, 1:18-27.)

Claims brought under the Fair Employment and Housing Act (FEHA) are subject to arbitration only if the agreement includes provisions ensuring arbitrator neutrality, adequate discovery, written decisions, and limits on costs. (O'Hare v. Municipal Resource Consultants (2003) 107 Cal.App.4th 267, 273; Fittante v. Palm Springs Motors, Inc. (2003) 105 Cal.App.4th 708, 716; Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, 96-121.)

To establish unconscionability, both procedural and substantive elements must be present. Procedural unconscionability involves oppression or surprise resulting from unequal bargaining power, while substantive unconscionability involves overly harsh or one-sided terms. (Cook v. University of Southern California (2024) 102 Cal.App.5th 312, 320.)

A compulsory pre-dispute arbitration agreement is not unenforceable merely because it is required as a condition of employment or offered on a “take it or leave it” basis. (Lagatree v. Luce, Forward, Hamilton & Scripps (1999) 74 Cal.App.4th 1105, 1127; accord Giuliano v. Inland Empire Personnel, Inc. (2007) 149 Cal.App.4th 1276, 1292.) However, an arbitration agreement imposed as a condition of employment, especially if it contains one-sided provisions, may be found unconscionable and unenforceable. (Martinez v. Master Protection Corp. (2004) 118 Cal.App.4th 107, 113-114; Fitz v. NCR Corp. (2004) 118 Cal.App.4th 702, 712-713, 721-725.)

Cases finding procedural unconscionability due to the failure to provide arbitration rules have typically involved situations where the unconscionability claim was connected to the content of those rules. (Baltazar v. Forever 21, Inc. (2016) 62 Cal.4th 1237, 1246.)

An arbitration provision is not unconscionable where it can be reasonably interpreted to allow the arbitrator to order additional discovery necessary for fair arbitration of the claims. (Ramirez v. Charter Communications, Inc. (2024) 16 Cal.5th 478, 540.) Additionally, parties in an arbitration proceeding under Code of Civil Procedure section 1281.2 retain discovery rights as provided by the Civil Discovery Act, subject to relevance and other statutory limitations. (Bouton v. USAA Casualty Ins. Co. (2008) 167 Cal.App.4th 412, 427.)

An arbitration agreement that exempts claims typically brought by employers, such as declaratory and injunctive relief, while restricting claims plaintiffs might bring, supports a finding of substantive unconscionability. (Samaniego v. Empire Today LLC (2012) 205 Cal.App.4th 1138, 1147-1148.) However, merely referencing the parties’ rights under Code of Civil Procedure section 1281.8—allowing either party to seek provisional injunctive relief during arbitration—does not amount to substantive unconscionability. (Baltazar v. Forever 21, Inc. (2016) 62 Cal.4th 1237, 1249.) In contrast, excluding injunctive relief altogether, beyond what is provided under section 1281.8, can render a provision unconscionable because such relief is more likely to be sought by employers. (Ramirez v. Charter Communications, Inc. (2024) 16 Cal.5th 478, 534-535.)

Employers may not impose arbitration costs on employees that they would not be required to pay in court litigation, including provisions that allow arbitrators to impose fees and costs on the losing party. (Wherry v. Award, Inc. (2011) 192 Cal.App.4th 1242, 1248.) To avoid a finding of unconscionability, an arbitration agreement must protect employees from unaffordable arbitration expenses. (Gutierrez v. Autowest, Inc. (2003) 114 Cal.App.4th 77, 92.) Some arbitration rules, such as those of the American Arbitration Association (AAA), provide for fee waivers or reduced costs to avoid unaffordable fees. (D.C. v. Harvard-Westlake School (2009) 176 Cal.App.4th 836, 862-863.)

A lack of “authentic informed choice” arising from unclear or biased explanations of an arbitration agreement can contribute to procedural unconscionability. (Gentry v. Superior Court (2007) 42 Cal.4th 443, 470 [finding nonexecutive employees may feel pressure not to opt out of arbitration agreements], overruled on other grounds by Marenco v. DirecTV LLC (2015) 233 Cal.App.4th 1409, 1421.) Where a moving party fails to show it informed the opposing party of a right to negotiate an arbitration agreement, no meaningful conflict in evidence is created merely by denying the agreement was nonnegotiable. (Htay Htay Chin v. Advanced Fresh Concepts Franchise Corp. (2011) 194 Cal.App.4th 704, 710.)

A court has discretion to refuse enforcement of an arbitration agreement if it finds the agreement is permeated by unconscionability, particularly where there is more than one unlawful provision and severance would require reforming the contract. (Ramirez v. Charter Communications, Inc. (2024) 16 Cal.5th 478, 547; Trivedi v. Curexo Technology Corp. (2010) 189 Cal.App.4th 387, 398 [affirming discretion to deny severance where agreement contained both an impermissible fee provision and an injunction exemption favoring the employer], disapproved on other grounds by Baltazar v. Forever 21, Inc. (2016) 62 Cal.4th 1237, 1248.)

In this case, Defendants have not addressed the 2022 arbitration agreement or the related arguments of unconscionability. Additionally, the motion fails to address all issues raised in the Opposition, including claims that the agreements were presented on a take-it-or-leave-it basis, that arbitration rules were not provided, and that there was a lack of mutuality. (Motion, pp. 8-9.)

In sum, the Opposition sets forth valid arguments that the superseding arbitration agreement is permeated with unconscionability. Accordingly, the Court finds that the agreement should not be enforced.

C.   Waiver

Plaintiffs argue that Defendants waived their purported right to arbitrate this matter, or to enforce the arbitration agreements, by actively litigating the case and requesting a jury trial. (Opposition, 1:17-19.) Defendants have not addressed the issue of waiver.

Under modern standards, California courts determine whether a party has waived the right to enforce an arbitration agreement by applying the same principles governing waiver of other contractual rights. Prejudice is no longer required to establish waiver. (Quach v. California Commerce Club, Inc. (2024) 16 Cal.5th 562, 569.)

Participation in litigation alone does not automatically waive a party’s right to later seek arbitration. However, the request to arbitrate must be made within a reasonable time. Continued litigation can justify a finding of waiver when, viewed as a whole, the party’s conduct is inconsistent with an intent to arbitrate. (Desert Regional Medical Center, Inc. v. Miller (2022) 87 Cal.App.5th 295, 316, 321.) For example, a defendant’s pursuit of demurrers does not necessarily constitute litigation on the merits for purposes of finding waiver of arbitration. (Groom v. Health Net (2000) 82 Cal.App.4th 1189, 1195.) However, a delay of four to six months in enforcing the right to arbitrate may support a waiver finding if the party acted inconsistently with an intent to arbitrate during that period. (Semprini v. Wedbush Securities, Inc. (2024) 101 Cal.App.5th 518, 527.)

Here, Defendants answered Plaintiffs’ Complaint on August 28, 2024. At the Case Management Conference on October 28, 2024, Defendants requested a jury trial and did not object when the Court set a trial date for April 21, 2026. (Lara Decl. ¶ 21, Ex. 13.) In total, Defendants waited seven months from the filing of Plaintiffs’ Complaint on June 10, 2024, before seeking arbitration.

Accordingly, Plaintiffs present arguments that support a finding of waiver of arbitration. (Opposition, 8:10-18.)

D.   Contractual Meet-and-Confer

Plaintiffs assert that Defendants failed to meet and confer or make a demand for arbitration as required by the operative 2022 agreements. (Opposition, 1:16-17.) Defendants have not addressed this issue.

“A condition precedent is either an act of a party that must be performed or an uncertain event that must occur before a contractual right accrues or a contractual duty arises.” (Platt Pacific v. Andelson (1993) 6 Cal.4th 307, 313 [citing, e.g., Civ. Code, § 1436]; accord Barroso v. Ocwen Loan Servicing, LLC (2012) 208 Cal.App.4th 1001, 1010.)

This issue is directly related to whether the later agreements superseded the earlier ones.

Because the Court has already found that they do, it concurs with Plaintiffs that meeting and conferring was a contractual condition precedent.

IV.          CONCLUSION

The Court denies the motion, for reasons set forth above.