Judge Stephen P. Pfahler, Case Number: 24STCV08958, Date: 2024-10-29 Tentative Ruling

Judge: Stephen P. Pfahler, Case: 24STCV08958, Date: 2024-10-29 Tentative Ruling

Case Number: 24STCV08958 Hearing Date: October 29, 2024 Dept: 68

Dept. 68

Date: 10-29-24

Case #24STCV08598

Trial Date: Not Set

ARBITRATION

MOVING PARTY: Defendants, La Petite Academy, Inc.

RESPONDING PARTY: Plaintiffs, David Samano, et al.

RELIEF REQUESTED

Motion to Compel Arbitration

SUMMARY OF ACTION

Plaintiffs David Samano, Jessica Cardona, Andrea Horton, and Carrie Elkins were employees of Defendant La Petite Academy, Inc. Plaintiffs allege various forms of discriminatory, retaliatory and harassing conduct, as well as wage and hour violations.

On May 8, 2024, Plaintiffs filed a 21 cause of action 172 page complaint against Defendants for (1) Gender Discrimination in Violation Of FEHA; (2) Race/Color/National Origin Discrimination in Violation Of FEHA; (3) Age Discrimination In Violation Of FEHA; (4) Association Discrimination In Violation of FEHA; (5) Disability/Medical Condition Discrimination In Violation of FEHA; (6) Failure To Accommodate / Failure To Engage in An Interactive Process In Violation; (7) Hostile Work Environment In Violation Of FEHA; (8) Retaliation For Opposing Practices Forbidden by FEHA and for Requesting Accommodation in Violation of FEHA; (9) Failure to Do Everything Reasonably Necessary to Prevent Discrimination, Harassment and Retaliation from Occurring in Violation Oof FEHA; 10) Denial Of Breaks In Violation Of Labor Code Sections 226.7, 512 and Wage Orders; (1l) Failure To Pay Wages Including All Hours Worked, Overtime, Double Time And Minimum Wage; 12) Defamation; 13)Interference And Retaliation For Taking / Requesting Paid Sick Leave. (14) Interference and Retaliation for Taking / Requesting Kin Care; (15) Wrongful Termination / Adverse Employment Action In Violation Of Public Policy; (16) Negligent Hiring and Retention; 17) 1ntentional Infliction Of Emotional Distress; (18) Retaliation For Whistleblowing under California Labor Code 1102.5; (19) Violation of Business and Professions Code section 17200, et seq.; (20)1mproper Deductions and/or Failure To Provide Correct Itemized Wage Statements in Violation of Labor Code ) Sections 221 And 226 et seq.; and (21) Failure to Pay All Wages Owed at Ending Of Employment in Violation Of Labor Code Sections 201, 202 & 203. Defendant La Petite Academy answered the complaint on June 7, 2024.

RULING: Granted.

Evidentiary Objections to Declarations of Plaintiffs: Overruled.

· No stated basis for the objections on numbers 1-8, 13 & 16. Overruled, even if based on incorporation of prior or subsequently identified objections.

Defendant La Petite Academy, Inc. (La Petite) moves to compel arbitration on the complaint of plaintiffs David Samano, Jessica Cardona, Andrea Horton, and Carrie Elkins. Defendant moves to compel arbitration based on the “Arbitration Agreement.” Defendant maintains all claims are subject to arbitration under the terms of the agreement and under Federal Arbitration Act (FAA) rules. Plaintiffs in opposition challenge enforcement of the agreement on grounds of procedural and substantive unconscionability, denies FAA application, and contends exemptions to arbitration under the wage and hour and injunctive relief claims. Defendant in reply denies any unconscionability, reiterates the FAA, and maintains full enforceability.

The existence and execution of the agreements remain undisputed. [Declaration of Andrea Stapp Holland, Ex. A-D; Declaration of Nikki Staggs, Ex. 1; Declarations of David Samano, Jessica Cardona, Andrea Horton, and Carrie Elkins.] The extensive agreement provides for Federal Arbitration Act (FAA) governance over the agreement. La Petite, represents it operates as a subsidiary of La Petite Holdings, Inc., which is wholly owned by Michigan corporation Learning Care Group, Inc. La Petite some form of centralized operations between the California facility and Michigan, including curriculum development, educational materials, etc. for the purpose of maintaining nationwide continuity and consistency. [Holland Decl.] Plaintiffs challenge any interstate commerce functionality based on the assertion that the facility was targeted towards local childcare needs, the only facility identified as “First Flight Academy,” and a denial of the use of any centralized curriculum work materials.

“The court recognized the FAA's reach coincides with that of the commerce clause, and the FAA applies not only to the actual physical interstate shipment of goods but also contracts relating to interstate commerce.” (Basura v. U.S. Home Corp. (2002) 98 Cal.App.4th 1205, 1213–1214.) “The United States Supreme Court has identified ‘three categories of activity that Congress may regulate under its commerce power: (1) “the use of the channels of interstate commerce”; (2) “the instrumentalities of interstate commerce, or persons or things in interstate commerce, ...”; and (3) “those activities having a substantial relation to interstate commerce, ... i.e., those activities that substantially affect interstate commerce.”’” (Evenskaas v. California Transit, Inc. (2022) 81 Cal.App.5th 285, 293.) Courts engage in a “‘four-factor test for determining whether a regulated activity “substantially affects” interstate commerce.’ (Citation.) These considerations are: (1) whether the regulated activity is commercial/economic in nature; (2) whether an express jurisdictional element is provided in the statute to limit its reach; (3) whether Congress made express findings about the effects of the proscribed activity on interstate commerce; and (4) whether the link between the prohibited activity and the effect on interstate commerce is attenuated.” (U.S. v. Adams (9th Cir. 2003) 343 F.3d 1024, 1028.) The activity is clearly commercial in nature, with no cited jurisdictional limit or express congressional findings. The court also finds no prohibited activity involved.

The existence of a different location name, presumably created at least in part due to airport proximity, but still undisputably under the La Petite umbrella in no way undermines the relationship to Michigan. Furthermore, Plaintiffs’ denial of any use of materials provided by Michigan and conclusion of no engagement of interstate commerce activities will not constitute a demonstrated exclusion of corporate operations from engaging in interstate commerce. [Plaintiffs’ Decl., ¶¶ 11-12.] The court finds the operational structure of the subject facility sufficiently establishes interstate commerce, and therefore application of the FAA. (Hoover v. American Income Life Ins. Co. (2012) 206 Cal.App.4th 1193, 1207.)

Notwithstanding, barring a conflict supporting a preemption of a specific provision under FAA (see wage and hour exemption and injunction), the court adheres to the California standard for compelling arbitration in that FAA and California adhere to the same standards for review of arbitration agreements. The court finds no conflict with the FAA under the terms of the agreement. (Volt Information Sciences, Inc. v. Board of Trustees of Leland Stanford Junior University (1989) 489 U.S. 468, 477–479; Victrola 89, LLC v. Jaman Properties 8 LLC (2020) 46 Cal.App.5th 337, 346; see Adolph v. Uber Technologies, Inc. (2023) 14 Cal.5th 1104, 1119; Viking River Cruises, Inc. v. Moriana (2022) 142 S.Ct. 1906.)

“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.) “On petition of a party to an arbitration agreement alleging the existence of a written agreement to arbitrate a controversy and that a party thereto refuses to arbitrate such controversy, the court shall order the petitioner and the respondent to arbitrate the controversy if it determines that an agreement to arbitrate the controversy exists, unless it determines that: (a) The right to compel arbitration has been waived by the petitioner; or (b) Grounds exist for the revocation of the agreement.” (Code Civ. Proc., § 1281.2.)

The law creates a general presumption in favor of arbitration. 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. “‘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.) 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; Gamboa v. Northeast Community Clinic (2021) 72 Cal.App.5th 158, 164–165; 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.)

On the unconscionability arguments as a defense to enforcement of the agreement, Plaintiff relies on an adhesion contract position, as well as an issue with the potential joinder of any and all potential future claims. Defendant maintains the agreement is “substantively fair” because in that the terms comply with California standards, lacks circumstances of repression, and applies “equally to both parties.”

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.’” (Ibid.)

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.) A showing of procedural unconscionability will not invalidate an arbitration clause, but can lead to greater scrutiny under the substantive standard, thereby supporting invalidation. (Davis v. TWC Dealer Group, Inc. (2019) 41 Cal.App.5th 662, 674 accord OTO, L.L.C. v. Kho (2019) 8 Cal.5th 111, 129-130.)

Following Armendariz, California law offers further guidance into the adhesion contract circumstances (e.g. an agreement substantively presented as “take or it leave it” the circumstances of which potentially impose a disadvantage on the employee). “With respect to preemployment arbitration contracts, we have observed that ‘the economic pressure exerted by employers on all but the most sought-after employees may be particularly acute, for the arbitration agreement stands between the employee and necessary employment, and few employees are in a position to refuse a job because of an arbitration requirement.’” (OTO, L.L.C. v. Kho, supra, 8 Cal.5th at pp. 126-127 accord Armendariz v. Foundation Health Psychcare Services, Inc., supra, 24 Cal.4th at p. 115; Ramirez v. Charter Communications, Inc. (2024) 16 Cal.5th 478 [322 Cal.Rptr.3d 825, 837]; Hasty v. American Automobile Association of Northern California, Nevada & Utah (2023) 98 Cal.App.5th 1041, 1055-1056; Serafin v. Balco Properties Ltd., LLC (2015) 235 Cal.App.4th 165, 179-181; see Grand Prospect Partners, L.P. v. Ross Dress for Less, Inc. (2015) 232 Cal.App.4th 1332, 1351; Serpa v. California Surety Investigations, Inc. (2013) 215 Cal.App.4th 695, 705.)

While the basis of review exists, the burden still remains on the challenging party(ies) to establish the defense. (Rosenthal v. Great Western Fin'l Securities Corp., supra, 14 Cal.4th at pp. 413-414; Gamboa v. Northeast Community Clinic, supra, 72 Cal.App.5th at pp. 164–165; Hotels Nevada v. L.A. Pacific Ctr., Inc., supra, 144 Cal.App.4th at p. 758.) Plaintiffs essentially rely on a conclusion of unconscionability based on a vague lack of recall in seeing said document and limited time to review. The circumstances while demonstrating a certain pro forma onboarding process, the declarations lack sufficient support demonstrating true concern for time to review the document or consider alternatives. The court therefore finds no factual basis of support for the argument of unconscionability. (OTO, L.L.C. v. Kho, supra, 8 Cal.5th at pp. 126-127; Hasty v. American Automobile Association of Northern California, Nevada & Utah, supra, 98 Cal.App.5th 1041 [317 Cal.Rptr.3d at pp. 309-311]; Davis v. TWC Dealer Group, Inc. (2019) 41 Cal.App.5th 662, 674; Grand Prospect Partners, L.P. v. Ross Dress for Less, Inc., supra, 232 Cal.App.4th at p. 1349, 1352-1354.) “[A]lthough adhesion alone generally indicates only a low degree of procedural unconscionability, the potential for overreaching in the employment context warrants close scrutiny of the contract's terms.” (Ramirez v. Charter Communications, Inc., supra, 16 Cal.5th 478 [322 Cal.Rptr.3d at p. 838].) The court will consider the terms in context of the substantive unconscionability defense.

On substantive unconscionability, Plaintiffs specifically cites to the language in section I requiring arbitration for any “future” claims as well. Such specific conditions were recently and specifically addressed, where the court rejected such a clause based on the failure to factually establish the need for such a restriction. The court found the agreement lacked a “legitimate justification” for the broad relief sought. (Cook v. University of Southern California (2024) 102 Cal.App.5th 312, 324-325.) The court also found the third party beneficiary language supported the finding of substantive unconscionability. (Id. at p. 328.) The fee payment language also violates California standards. (Armendariz v. Foundation Health Psychcare Services, Inc., supra, 24 Cal.4th at pp. 110-111.)

Plaintiffs specifically take issue with Section I, which states in relevant part: “Other than as provided in this Agreement, Employee and the Company agree that any controversy, dispute, or claim that could otherwise be raised in court ("Covered Claim") that the Company has against Employee or the Employee has against the Company, its current or former officers, directors, members, employees, vendors, clients, customers, agents, parents, subsidiaries, affiliated companies, successors, or assigns, shall be settled exclusively by binding arbitration rather than in court. This Agreement does not preclude Employee from filing a charge with the Equal Employment Opportunity Commission or other governmental agency; however, it is the parties' intent that all claims between them covered by this Agreement are to be resolved through binding arbitration to the fullest extent permitted by federal law (and state law that is not preempted by federal law), not an administrative proceeding or court. If an arbitration award would be rendered ineffectual without provisional relief including, but not limited to, preliminary injunctions or temporary restraining orders, either party may request such relief from a court of competent jurisdiction to preserve the status quo pending arbitration. This Agreement applies prospectively only.”

“Covered Claims include, but are not limited to, claims for wages and other compensation, breach of contract, misappropriation of trade secrets or unfair competition, violation of public policy, wrongful termination; tort claims; claims for unlawful retaliation, discrimination and/or harassment; and claims for violation of any federal, state, or other government law, statute, regulation, or ordinance, such as, for example, claims under the Age Discrimination in Employment Act, the Americans with Disabilities Act; Title VII of the Civil Rights Act of 1964; the Equal Pay Act; the Fair Credit Reporting Act; the Fair Labor Standards Act; the Family and Medical Leave Act; the Pregnancy Discrimination Act; the Rehabilitation Act; Section 1981 through 1988 of Title 42 of the United States Code; and the Worker Adjustment and Retraining Notification Act.”

Plaintiffs distill the challenge to a single phrase and last two sentences. The Agreement applies to “any controversy, dispute, or claim that could otherwise be raised in court... The Agreement will remain in effect after termination of employment. By issuance of this Agreement, the Company agrees to be bound by it.” Plaintiff relies on the position that the enforceability beyond termination renders the contract not terminable at will, and therefore improperly open ended in duration and limiting. (Zee Medical Distributor Association, Inc. v. Zee Medical, Inc. (2000) 80 Cal.App.4th 1, 10; see Reigelsperger v. Siller (2007) 40 Cal.4th 574, 580.)

Plaintiffs’ argument finds support in that the open ended time frame of the agreement could include unrelated claims beyond the termination date. Defendant provides a valid counter argument however that the plain language of the agreement in fact contemplates the employment relationship only.

The court interprets the arbitration clause like any other contract, including determination of the intent of the parties and ambiguities. (Gravillis v. Coldwell Banker Residential Brokerage Co. (2006) 143 Cal.App.4th 761, 772.) “‘A contract must be so interpreted as to give effect to the mutual intention of the parties as it existed at the time of contracting, so far as the same is ascertainable and lawful.’ (Civ. Code, § 1636.) ‘The language of a contract is to govern its interpretation, if the language is clear and explicit, and does not involve an absurdity.’ (Civ. Code, § 1638.) ‘When a contract is reduced to writing, the intention of the parties is to be ascertained from the writing alone, if possible; subject, however, to the other provisions of this Title.” (Civ. Code, § 1639.) “The whole of a contract is to be taken together, so as to give effect to every part, if reasonably practicable, each clause helping to interpret the other.’ (Civ. Code, § 1641.) ‘A contract must receive such an interpretation as will make it lawful, operative, definite, reasonable, and capable of being carried into effect, if it can be done without violating the intention of the parties.’ (Civ. Code, § 1643.) ‘The words of a contract are to be understood in their ordinary and popular sense, rather than according to their strict legal meaning; unless used by the parties in a technical sense, or unless a special meaning is given to them by usage, in which case the latter must be followed.’ (Civ. Code, § 1644.) ‘However broad may be the terms of a contract, it extends only to those things concerning which it appears that the parties intended to contract.’ (Civ. Code, § 1648.) ‘Repugnancy in a contract must be reconciled, if possible, by such an interpretation as will give some effect to the repugnant clauses, subordinate to the general intent and purpose of the whole contract.’ (Civ. Code, § 1652.) ‘Stipulations which are necessary to make a contract reasonable, or conformable to usage, are implied, in respect to matters concerning which the contract manifests no contrary intention.’ (Civ. Code, § 1655.)”

(Siligo v. Castellucci (1994) 21 Cal.App.4th 873, 880–881.)

“A contract term should not be construed to render some of its provisions meaningless or irrelevant.” (Estate of Petersen (1994) 28 Cal.App.4th 1742, 1754 (footnote 4).) “A well-settled maxim states the general rule that ambiguities in a form contract are resolved against the drafter. (Citations.) But that is a general rule; it does not operate to the exclusion of all other rules of contract interpretation. It is used when none of the canons of construction succeed in dispelling the uncertainty.” (Oceanside 84, Ltd. v. Fidelity Federal Bank (1997) 56 Cal.App.4th 1441, 1448.)

The language of the agreement categorically and specifically limits the agreement to employment claims, without any open ended language supporting a true post employment binding arbitration restriction. The court therefore finds no basis of unconscionability under the recently presented open ended standard for certain form arbitration clauses. (Cook v. University of Southern California, supra, 102 Cal.App.5th at p. 324-325.)

On lack of mutuality, the court finds no support for this position. Plaintiffs maintain the same limitations are not applicable to Defendant. Again, the plain language of the clause identifies any and all employment claims brought by any party are strictly subject to the arbitration claim. (Armendariz v. Foundation Health Psychcare Services, Inc., supra, 24 Cal.4th at pp. 114-118.)

On the wage and hour claims, while Plaintiffs raise a valid defense regarding state claim exemption on certain wage and hour claims, FAA preemption on the subject matter precludes said exemption. “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; see see Kirby v. Immoos Fire Protection, Inc. (2012) 53 Cal.4th 1244, 1256-1257.) State law exclusions are preempted where Federal Arbitration Act (FAA) preemption occurs. (Carbajal v. CWPSC, Inc. (2016) 245 Cal.App.4th 227, 238; Hoover v. American Income Life Ins. Co. (2012) 206 Cal.App.4th 1193, 1207-1208; see Lane v. Francis Capital Management LLC (2014) 224 Cal.App.4th 676, 68-688.) Given the finding of FAA applicability, all claims are therefore preempted.

La Petite also challenges the injunctive relief claim within the nineteenth cause of action for Violation of Business and Professions Code section 17200. Such claims are also subject to FAA preemption (Ferguson v. Corinthian Colleges, Inc. (9th Cir. 2013) 733 F.3d 928, 930, 937.) The language of the agreement specifically excluding representative public injunction claims under section 17203 is not applicable to the instant motion. The claim is preempted.

Neither party addresses Section III of the agreement, which states: “Except as provided in Section II, the arbitrator shall have the exclusive authority to resolve any dispute relating to the arbitrability of any claim or the enforceability or formation of this Agreement (including all defenses to contract enforcement such as, for example, waiver and unconscionability). Enforcement of this Agreement may not be precluded or delayed on the grounds that ... (2) a party to this Agreement asserts arbitrable and non-arbitrable claims.” “There are two prerequisites for a delegation clause to be effective. First, the language of the clause must be clear and unmistakable. (Citation.) Second, the delegation must not be revocable under state contract defenses such as fraud, duress, or unconscionability.” (Tiri v. Lucky Chances, Inc. (2014) 226 Cal.App.4th 231, 242.) The agreement specifically allows the arbitrator to determine whether the claims are subject to arbitration or not. (Aanderud v. Superior Court (2017) 13 Cal.App.5th 880, 892-893.)

The court finds the action subject to arbitration without exemption due to FAA preclusion. In certain circumstances, the court can deny arbitration where a certain portion of the claims are not subject to arbitration thereby presenting a potential piecemeal or conflicting ruling. (Whaley v. Sony Computer Entertainment America, Inc. (2004) 121 Cal.App.4th 479, 485-486; Henry v. Alcove Investment, Inc. (1991) 233 Cal.App.3d 94, 101-102.) Given the unchallenged delegation clause, however, should Plaintiffs still continue to challenge the propriety of the scope of arbitration, the court can also order such consideration to the arbitrator pursuant to Section III. The court finds no conflict with FAA provisions preventing such a referral. (Cronus Investments, Inc. v. Concierge Services (2005) 35 Cal.4th 376, 394.)

The motion is therefore GRANTED in its entirety. The court stays the action. (Code Civ. Proc.,§ 1281.4.) The court will set an OSC re: Arbitration Status at the time of the hearing.

Defendant to give notice.