Judge: Stephen P. Pfahler, Case: 24STCV10748, Date: 2024-11-05 Tentative Ruling

Case Number: 24STCV10748    Hearing Date: November 5, 2024    Dept: 68

Dept. 68

Date: 11-5-24

Case #24STCV10748

Trial Date: Not Set

ARBITRATION

MOVING PARTY: Defendants, City Fibers, Inc.

RESPONDING PARTY: Plaintiff, Carlos Chavez

RELIEF REQUESTED

Motion to Compel Arbitration

SUMMARY OF ACTION

Plaintiff Carlos Chavez began employment with Defendant City Fibers, Inc. in 1992. In May 2023, Plaintiff suffered from diabetes complications, thereby leading to a toe amputation, and required a work absence. Plaintiff took leave under the Family Medical Leave Act. When Plaintiff sought to return to work, Plaintiff was told the position was no longer available.

On April 30, 2024, Plaintiff filed a complaint for 1. FEHA Disability Discrimination 2. Retaliation in Violation of FEHA 3. Failure to Engage in the Interactive Process 4. Failure to Accommodate. Defendant answered the complaint on June 3, 2024.

RULING: Granted.

Defendant City Fibers, Inc. move to compel arbitration on the complaint filed by Plaintiff Carlos Chavez. Defendant maintains all claims are subject to arbitration under the terms of two separate agreements—one agreement executed during employment, and the second a settlement agreement. Defendant denies any unconscionability. Plaintiff in opposition challenges enforcement of the agreement on grounds of the lack of an ability to enforce the agreement due to unconscionable practices in presenting the agreement to Plaintiff, a limited in literacy adult, without any opportunity to seek assistance from his daughter or a lawyer. Plaintiff also alleges the terms are unconscionable, due to the preselected arbitration service. Defendant in extensive reply also denies any unconscionability, and maintains Plaintiff accepted the agreement upon signing it.

The first arbitration policy was implemented in 2019, and presented to all employees. The “Mutual Arbitration Policy” agreement was presented in both English and Spanish versions, with meetings regarding the agreement in either English or Spanish as well. Defendant represents employees were given the option of reviewing the agreements and not required to sign at the time of the meeting. Defendant states Plaintiff executed the Spanish language version of the agreement on January 19, 2019. [Declaration of Brett Jones.]

In February 2019, non-exempt employees, like Plaintiff, were offered a settlement due to a pending “putative class action” against the company, which led to an agreed upon payment in exchange for a release. Plaintiff signed the English version of this agreement, and was paid the net sum of $2,002.26. [Jones Decl.]

Plaintiff acknowledges signing the settlement agreement itself, and only states no recall to executing the preceding arbitration agreement. [Ex. D: Declaration of Carlos Chavez.] The court finds the undisputed Spanish language version of the arbitration agreement was also signed [Jones Decl.], notwithstanding the defenses to entry into the agreements addressed below.

The court first addresses the parties’ dispute as to the application of the Federal Arbitration Act (FAA). The MAP provides the FAA shall govern arbitration. Plaintiff again challenges enforcement under the FAA due to lack of a validly executed agreement, but additionally maintains Defendant insufficiently establishes interstate commerce.

Defendant represents engaging in interstate commerce and therefore contend FAA rules govern. [Jones Decl.] Plaintiff relies on a challenge to the sufficiency of the Jones declaration and Plaintiff’s own declaration regarding the lack of any direct engagement with interstate commerce simply based on the operation of a forklift, as the basis for challenging FAA preemption. [Chavez Decl.].

Paragraph two of the Jones declaration states: “City Fibers is a recycling business that collects, sorts, and resells manufactured waste from businesses across Southern California. This waste includes papers, plastics, metals, and other such recyclable materials. City Fibers sells the waste to customers across the United States and abroad, after which its customers recycle or repurpose the materials into different products. In connection with its business, City Fibers uses purchased equipment and leased vehicles that are made outside of California.”

“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 represented nationwide distribution of recycled products from the 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.) The activity is clearly commercial in nature, with no cited jurisdictional limit or express congressional findings. The court also finds no prohibited activity involved.

Notwithstanding, barring a conflict supporting a preemption of a specific provision under FAA, 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 in reviewing the contract formation defenses. (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.)

The court finds the MAP agreement covers the disputed claims. The submitted copy of the settlement agreement is illegible, and therefore not relied upon. The burden now shifts to the challenging party 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.)

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.)

Cases addressing unconscionability offer guidance on the standard of the employment adhesion contract—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.)

Plaintiff essentially relies on an assertion of unconscionability based on a “deception and concealment” as to the terms of the agreement given the literacy limitations of Plaintiff, notwithstanding the vague lack of recall in seeing said MAP document. The unchallenged declaration of Jones establishes Spanish language presentation and an offer to allow time for review, if requested. The lack of recall in an of itself lacks any form of evidence sufficient to establish a finding of oppressive circumstances. Continued employment by Plaintiff can constitute a basis for a finding of acceptance of the arbitration agreement. (See Gorlach v. Sports Club Co. (2012) 209 Cal.App.4th 1497, 1508 accord Craig v. Brown & Root, Inc. (2000) 84 Cal.App.4th 416, 420-421.)

The circumstances while demonstrating a large group process as part of the enrollment of all non-exempt employees, still lacks sufficient support demonstrating actual true concern for time to review the document or consider alternatives. The court therefore finds no factual basis of support for the argument of procedural 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.)

Asuming a degree of procedural unconscionability however, the court will consider the terms in context of the substantive unconscionability defense. “[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].)

Nothing in the opposition offers any challenge to the completeness of the terms in the Spanish language version of the MAP. The Chavez declaration offers no challenge to the representation that Christina Jones explained the agreement in Spanish at the time of execution. Again, Chavez lacks any recall of signing said first agreement, notwithstanding the evidence of the document. (Carmona v. Lincoln Millennium Car Wash, Inc. (2014) 226 Cal.App.4th 74, 84-86.) Chavez only addresses the settlement agreement, and relies on the lack of explanation of said terms waiving a jury trial and compelling arbitration, and maintains American Arbitration Association (AAA) were not attached to the MAP, with only “generic reference” to AAA. (Trivedi v. Curexo Technology Corp. (2010) 189 Cal.App.4th 387, 392 disapproved of by Baltazar v. Forever 21, Inc. (2016) 62 Cal.4th 1237 on unrelated grounds.)

Plaintiff fails to identify any and all of the exact offending language. The court cites to certain provision referencing AAA: “The Employment Arbitration Rules of the American Arbitration Association (“AAA”) in place at the time of the dispute will govern the procedures to be used in arbitration, unless you and the Company agree otherwise in writing. The current version of those Rules is available for you to review at www.adr.org and you may also request a copy from the Company. [¶¶] A neutral party, the American Arbitration Association (“AAA”), runs the proceedings, which are held privately. Since 1926, AAA has handled many thousands of cases. Though arbitration is much less formal than a court trial, it is an orderly proceeding, governed by rules of procedure and legal standards of conduct. The arbitrator’s responsibility is to determine whether the Company’s policies and procedures and applicable law have been complied with in the matter submitted for arbitration. The arbitrator shall render a written decision on the matter within 30 days after the arbitration hearing is concluded and post-hearing briefs, if any, are submitted. [¶¶] “If you would like to receive or review a copy of the AAA Rules, in either English or Spanish, please request a copy or visit the website www.adr.org.”

The agreement provides other references explaining the process, and directs Plaintiff to a copy, as shown in the last paragraph. While extrinsic reference can arguably constitute a basis for challenge, the opposition lacks any substantive support for this position. Baltazar v. Forever 21, Inc., supra, 62 Cal.4th at p. 1246.) The court therefore finds no basis of substantive unconscionability on this outlier cited case.

Finally, Plaintiff offers challenge on the “repeat player effect.” The position appears to suggest that use of ADR and adherence to AAA rules will lead to a more favorable outcome for the employer, as a repeat customer of said services. (Haas v. County of San Bernardino (2002) 27 Cal.4th 1017, 1030.) While the court acknowledges the doctrine, the general statement lacks any evidentiary support. The court declines to find an entire organization biased based on accusation. Plaintiff may raise potential concerns to any individually appointed arbitrator, but the court will not outright reject the organization based on the mere raising of the concern. (Id. at pp. 1031-1033; Mercuro v. Superior Court (2002) 96 Cal.App.4th 167, 178-179.)

The court again finds no substantively unconscionable terms with the MAP. The court therefore finds no factual basis of support for the argument of unconscionability. The action is subject to arbitration. The motion is GRANTED in its entirety. The court stays the action. (Code Civ. Proc.,§ 1281.4.)

The participating parties are therefore ordered to select an individual arbitrator within the agreed upon organization. If the parties cannot agree on an arbitrator, the court orders the parties to submit a list of one to two arbitrators from each party, where the court will select the individual. The parties have 30 days from the date of this order to begin the selection process, with any proposed list due the day after the lapse of the 30-day period. (Code Civ. Proc., § 1281.6.)

The court will concurrently conduct the case management conference, and set an OSC re: Arbitration Status.

Defendant to provide notice.