Judge Stephen P. Pfahler, Case 22CHCV00377 2022-10-04 Tentative Ruling

On January 21, 2020, Plaintiff Jan Minkovich executed a written Executive Employment Agreement, whereby Plaintiff was to be employed as Senior Vice President of Operations and Acquisitions from January 1, 2020 through December 31, 2023 for Defendant Innovative Payment Solutions, Inc. On December 18, 2020, Plaintiff alleges termination of employment by Defendant William Corbet and Innovative Payment Solutions, Inc.

On May 26, 2022, Plaintiff filed a complaint for Breach of Contract, Nonpayment of Wages, Waiting Time Penalties, Failure to Indemnify Expenses, Violation of Business and Professions Code section 17200, and Wrongful Termination in Violation of Public Policy.

Defendants William Corbett and Innovative Payment Solutions, Inc. move to compel arbitration. Defendants cite to the arbitration provision in the employment agreement, and maintain all causes of action are subject to arbitration. Defendants conclude with an argument that Plaintiff equitably estopped from denying Defendants’ right to seek arbitration.[1]

Plaintiff in opposition presents two primary arguments. Plaintiff first contends Defendants waived any right to compel arbitration, due to the filing of the demurrer seeking adjudication of the argument denying the existence of any employment agreement with said arbitration agreement. Plaintiff next challenges the arbitration clause on grounds that the terms violate California law in that the demand for compliance with American Arbitration Association (AAA) Commercial Arbitration Rules and Mediation Procedures, which impose “unconscionable” fees on the Plaintiff for participation in arbitration.

Defendants in reply deny any waiver of their right to seek arbitration. Defendants also deny any violation of California law under either the delegation clause or unconscionability arguments. Defendants maintain that nothing in the rules requires Plaintiff to pay any costs, and Plaintiff misrepresents the rules. Finally, Defendants maintain that all claims are subject to arbitration. Defendants seemingly try to raise a Federal Arbitration preemption claim in order to preclude California law.

In a motion to compel arbitration, the moving party must prove by a preponderance of evidence the existence of the arbitration agreement and that the dispute is covered by the agreement. The burden then shifts to the resisting party to prove by a preponderance of evidence a ground for denial (e.g., fraud, unconscionability, etc.). (Rosenthal v. Great Western Fin'l Securities Corp. (1996) 14 Cal.4th 394, 413-414; Hotels Nevada v. L.A. Pacific Ctr., Inc. (2006) 144 Cal.App.4th 754, 758.) Any challenges to the formation of the arbitration agreement should be considered before any order sending the parties to arbitration. The trier of fact weighs all evidence, including affidavits, declarations, documents, and, if applicable, oral testimony to determine whether the action goes to arbitration. (Hotels Nevada v. L.A. Pacific Ctr., Inc., supra, 144 Cal.App.4th at p. 758.)

“‘Under “both federal and state law, the threshold question presented by a petition to compel arbitration is whether there is an agreement to arbitrate.”’” (Long v. Provide Commerce, Inc. (2016) 245 Cal.App.4th 855, 861.) “Private arbitration is a matter of agreement between the parties and is governed by contract law. (Platt Pacific, Inc. v. Andelson (1993) 6 Cal.4th 307, 313.)

“Mutual assent is required for there to be an enforceable agreement to arbitrate disputes. ‘ “[A]rbitration is a matter of contract and a party cannot be required to submit to arbitration any dispute which he has not agreed so to submit.”’ (Citations.) ‘The right to arbitration depends upon contract; a petition to compel arbitration is simply a suit in equity seeking specific performance of that contract. [Citations.] There is no public policy favoring arbitration of disputes which the parties have not agreed to arbitrate. [Citation.]’ (Citation.) [¶] In other words, mutual assent exists when a reasonable person would conclude from the outward conduct of the parties that there was mutual agreement regarding their intent to be bound. (Citation.) If such mutual intent to be bound into arbitration cannot be shown, arbitration will not be compelled. (Citation.) [¶] Regardless of how broad the terms of a contract are, the contract will only extend to those issues for which it appears that the parties intended to contract. (Citation.) The parties must agree on all material terms; otherwise, there is no meeting of the minds between the parties and thus, no contract is formed. (Citation.)”

It remains undisputed by the parties that the purported employment agreement with incorporated arbitration clause remains unsigned. Other than a conclusion of the existence of the agreement for purposes of establishing an existing arbitration agreement, Defendants present no substantive supported argument regarding assent to the agreement. As addressed in the standard, the moving party holds the burden to establish the existence of a valid, enforceable agreement. The court therefore also declines to make the arguments or findings regarding assent of any agreement for purposes of the instant motion. The motion is therefore denied on the basis of the failure to establish a valid, enforceable arbitration agreement. (Rosenthal v. Great Western Fin'l Securities Corp., supra, 14 Cal.4th at pp. 413-414; Hotels Nevada v. L.A. Pacific Ctr., Inc., supra, 144 Cal.App.4th at p. 758; See (St. Agnes Medical Center v. PacifiCare of California (2003) 31 Cal.4th 1187, 1199-1200 [“because arbitration is a matter of contract, a party cannot be required to submit to arbitration any dispute that it did not agree to so submit”]; Brodke v. Alphatec Spine Inc. (2008) 160 Cal.App.4th 1569, 1576.)

Even considering the existence of the arbitration agreement, the court finds the agreement violates the unconscionability standards. Unconscionability claims have both a “‘procedural’” and “‘substantive’” element. (Stirlen v. Supercuts, Inc. (1997) 51 Cal.App.4th 1519, 1531.) “‘Procedural unconscionability’” concerns the manner in which the contract was negotiated and the circumstances of the parties at that time. (Kinney v. United HealthCare Services, Inc. (1999) 70 Cal.App.4th 1322, 1329.) “‘The procedural element focuses on two factors: “oppression” and “surprise.” “Oppression” arises from an inequality of bargaining power which results in no real negotiation and an absence of meaningful choice. “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.’” (Stirlen v. Supercuts, Inc., supra, 51 Cal.App.4th at p. 1532.) “Substantive unconscionability” involves contracts leading to “‘“overly harsh”’” or “‘“one-sided”’” results.’” … “[U]nconscionability turns … on an absence of ‘justification “for it…” [and therefore] must be evaluated as of the time the contract was made.’” (Stirlen v. Supercuts, Inc. (1997) 51 Cal.App.4th 1519, 1532.)

In the employment context, a mandatory arbitration agreement is enforceable, if it “(1) provides for neutral arbitrators, (2) provides for more than minimal discovery, (3) requires a written award, (4) provides for all of the types of relief that would otherwise be available in court, and (5) does not require employees to pay either unreasonable costs or any arbitrators’ fees or expenses as a condition of access to the arbitration forum.” (Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, 102.) Required execution of an arbitration agreement as a condition of employment may constitute an unconscionable provision, where the contract lacks mutuality and/or imposes a disadvantage on the employee. (Armendariz v. Foundation Health Psychcare Services, Inc., supra, 24 Cal.4th at pp. 114-118; Little v. Auto Stiegler, Inc. (2003) 29 Cal.4th 1064, 1071-1072.)

Plaintiff specifically cites to AAA Commercial Arbitration and Mediation Procedures, which describe the fee payment requirements for arbitration. [Declaration of Pat Cullen, ¶7, Ex. B-C.] Section 9.5 of the agreement provides in relevant part: “In the event that Executive is the prevailing party in any arbitration or litigation under this Article… Company shall pay Executive’s attorneys’ fees and costs, including the compensation and expenses of the arbitrator, unless the arbitrator or the court determines that (a) Company has no liability in such Dispute, or (b) the action or claims by Executive are frivolous in nature. …”

While the provision substantially provides for the requirement of the payment of fees, the court considers the contingent possibility of a non-payment for fees upon the finding of non-liability and/or a “frivolous” claim violates the unconscionability provisions under California law. The purpose of the provision is equalize bargaining positions between the parties. A potential provision incentivizing potential arguments constitutes a potential collateral advantage, thereby undermining the public policy purpose of the provision. (Armendariz, supra, 24 Cal.4th at pp. 114-118; Little v. Auto Stiegler, Inc., supra, 29 Cal.4th at pp. 1071-1072.) The court finds this provision constitutes a second basis for denial.

Finally, Defendants fail to establish that the wage and hour causes of action are subject to arbitration. Labor Code section 229 prohibits arbitration for wage and hour claims. “Actions to enforce the provisions of this article for the collection of due and unpaid wages claimed by an individual may be maintained without regard to the existence of any private agreement to arbitrate.” (Lab. Code, § 229; Ware v. Merrill Lynch, Pierce, Fenner & Smith, Inc. (1972) 24 Cal.App.3d 35, 45.)

The court declines to consider the argument in reply regarding FAA preemption. Even if the court considered it, the court finds Defendants fail to establish application. Moving Defendants hold “the burden to demonstrate FAA coverage by declarations and other evidence.” (Hoover v. American Income Life Ins. Co. (2012) 206 Cal.App.4th 1193, 1207.) The court therefore finds no basis of preemption under California law. The motion is specifically and separately denied as to the wage and hour claims.

As for the Business and Professions Code section 17200 cause of action, although an argument can be made against arbitration, the cause of action as presented fails to qualify for the exemption. Claims seeking injunctive relief under Business and Professions Code section 17200 in fact are not subject to arbitration. (Cruz v. PacifiCare Health Systems, Inc. (2003) 30 Cal.4th 303, 315; Hoover v. American Income Life Ins. Co., supra, 206 Cal.App.4th at p. 1207.) The subject cause of action, however, only seeks restitution of wrongfully withheld wages, and nothing else. [Comp., ¶¶ 50-51.] “We therefore conclude that Cruz's actions for restitution and/or disgorgement, whether brought as an individual or as a class action, are arbitrable.” (Cruz v. PacifiCare Health Systems, Inc., supra, 30 Cal.4th at p. 320.) Regardless, for the reasons cited above, the court finds no basis compelling arbitration of the subject claim.

The motion is therefore denied in its entirety. Nothing in the subject ruling in any way binds the court on the impending demurrer regarding enforceability of the purported employment agreement. The court only finds that moving defendants insufficiently establish a basis compelling arbitration on multiple grounds.

[1]The court acknowledges Defendants’ request to consider the demurrer should the court find the arbitration agreement valid and enforceable, and Defendants intent in demurrer to challenge the validity of the agreement. The court previously considered the ex parte motion to concurrently set the motions, and instead elected to consider the arbitration provision first, with the demurrer left pending for a later date.