Judge: Stuart M. Rice, Case: 24STCV14114, Date: 2025-03-25 Tentative Ruling
Case Number: 24STCV14114 Hearing Date: March 25, 2025 Dept: 1
Moving Party: Defendants Clearfreight, Inc.
Responding Party: Plaintiff Leonardo Valenzuela
Ruling: Motion
to compel arbitration is denied.
This is a wage and hour proposed class action. Plaintiff Leonardo Valenzuela (Plaintiff)
alleges that he and others were employed by defendant Clearfreight, Inc.
(Defendant) during which employment Defendant committed various violations of
labor law. Defendant moves to compel
Plaintiff’s claims to arbitration pursuant to an agreement he purportedly
signed.
Legal Standards
Code of Civil Procedure section 1281.2
states, in relevant part:¿
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….¿
“California law reflects a strong public
policy in favor of arbitration as a relatively quick and inexpensive method for
resolving disputes. To further that policy, section 1281.2 requires a trial
court to enforce a written arbitration agreement unless one of three limited
exceptions applies. Those statutory exceptions arise where (1) a party waives
the right to arbitration; (2) grounds exist for revoking the arbitration
agreement; and (3) pending litigation with a third party creates the
possibility of conflicting rulings on common factual or legal issues.” (Acquire
II, Ltd. v. Colton Real Estate Group¿(2013) 213 Cal.App.4th 959, 967,
citations omitted.)¿
“There is no public policy favoring
arbitration of disputes which the parties have not agreed to arbitrate.” (Engineers
& Architects Assn. v. Community Development Dept.¿(1994) 30 Cal.App.4th
644, 653.) Nevertheless, the strong public policy promoting private arbitration
of civil disputes gives rise to a presumption in favor of arbitrability and
compels the Court to construe liberally the terms of the arbitration agreement.
(Vianna v. Doctors’ Management Co.¿(1994) 27 Cal.App.4th 1186, 1189).¿
¿¿
“The petitioner bears the burden of
proving the existence of a valid arbitration agreement by the preponderance of
the evidence, and a party opposing the petition bears the burden of proving by
a preponderance of the evidence any fact necessary to its defense. In these
summary proceedings, the trial court sits as a trier of fact, weighing all the
affidavits, declarations, and other documentary evidence, as well as oral
testimony received at the court's discretion, to reach a final determination.”
(Giuliano v. Inland Empire Personnel, Inc.¿(2007) 149 Cal.App.4th 1276,
1284.)¿¿ The movant may bear this initial burden “by attaching a copy of
the arbitration agreement purportedly bearing the opposing party's signature.” (Iyere
v. Wise Auto Group (2023) 87 Cal.App.5th 747, 755 (Iyere);
Espejo v. Southern California Permanente Medical Group (2016) 246
Cal.App.4th 1047, 1060.) “At
this step, a movant need not ‘follow the normal procedures of document
authentication’ and need only ‘allege the existence of an agreement and support
the allegation as provided in [Rules of Court, Rule 3.1330].’” (Iyere, supra, 87 Cal.App.5th
at 755; Condee v. Longwood Management Corp. (2001) 88 Cal.App.4th
215, 219 (Condee).)
“The party opposing arbitration has the
burden of demonstrating that an arbitration clause cannot be interpreted to
require arbitration of the dispute. Nonetheless, this policy does not override
ordinary principles of contract interpretation. The contractual terms
themselves must be carefully examined before the parties to the contract can be
ordered to arbitration: Although [t]he law favors contracts for arbitration of
disputes between parties, there is no policy compelling persons to accept
arbitration of controversies which they have not agreed to arbitrate.” (Rice
v. Downs¿(2016) 247 Cal.App.4th 1213, 1223, citations and quotations
omitted.)¿¿¿
“A party seeking
to enforce an arbitration agreement has the burden of showing FAA
preemption.” (Lane v. Francis Capital
Management, LLC (2014) 224 Cal.App.4th 676, 687; see also Nixon v.
AmeriHome Mortgage Company, LLC (2021) 67 Cal.App.5th 934, 946
[“The party seeking to enforce the arbitration agreement also bears the burden
of establishing the FAA applies and preempts otherwise governing provisions of
state law or the parties’ agreement.”].)
Discussion
Plaintiff contends that the Agreement is not subject to the FAA, because he
falls within the transportation worker exemption, that under California law his
wage claims are exempt from arbitration under Lab. Code § 229, and that the
Agreement is void for unconscionability.
Because the unconscionability argument would void the agreement
regardless of the FAA’s application, the Court will address it first.
I.
Unconscionability
Unconscionability
is a valid defense to a petition to compel arbitration. (Sonic-Calabasas A,
Inc. v. Moreno (2013) 57 Cal.4th 1109, 1143 (Sonic-Calabasas A).)
State law governs the unconscionability defense. (Doctor’s Assocs., Inc. v.
Casarotto (1996) 517 US 681, 687.) The core concern of the
unconscionability doctrine is the “absence of meaningful choice on the part of
one of the parties together with contract terms which are unreasonably
favorable to the other party.” (Sonic-Calabasas A, Inc., 57 Cal.4th at
1145.) The unconscionability doctrine ensures that contracts—particularly
contracts of adhesion—do not impose terms that have been variously described as
overly harsh, unduly oppressive, so one-sided as to shock the conscience, or
unfairly one-sided. (Id.)
The prevailing
view is that procedural and substantive unconscionability must both be present
for a court to exercise its discretion to refuse to enforce a contract or
clause under the doctrine of unconscionability. (Armendariz v. Foundation
Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, 114 (Armendariz).)
But they need not be present in the same degree; the more substantively
oppressive the contract term, the less evidence of procedural unconscionability
is required to conclude that the term is unenforceable, and vice versa. (Ibid.) However, when there is no other indication of
oppression other than the adhesive aspect of an agreement, the degree of
procedural unconscionability is low. (Serpa v. California Surety
Investigations, Inc. (2013) 215 Cal.App.4th 695, 704 (Serpa).)
a. Procedural
Unconscionability
“A procedural unconscionability
analysis ‘begins with an inquiry into whether the contract is one of adhesion.’
[Citation.] An adhesive contract is
standardized, generally on a preprinted form, and offered by the party with
superior bargaining power ‘on a take-it-or-leave-it basis.’” (OTO, LLC v. Kho (2019) 8 Cal.5th 111,
126 (OTO).) “Arbitration
contracts imposed as a condition of employment are typically adhesive[.] The
pertinent question, then, is whether circumstances of the contract's formation
created such oppression or surprise that closer scrutiny of its overall
fairness is required.” (Ibid.) “Oppression occurs where a contract involves
lack of negotiation and meaningful choice, surprise where the allegedly
unconscionable provision is hidden within a prolix printed form.” (Ibid.)
Plaintiff establishes that the contract
was adhesive, as he had to sign it as a condition of employment. (Valenzuela Decl., ¶ 3.) Defendant does not deny this. Adhesion supplies a small amount of
procedural unconscionability. (Serpa,
supra, 215 Cal.App.4th at 704.)
Plaintiff further contends that the
Agreement is oppressive under Grand Prospect Partners, L.P. v. Ross Dress
for Less, Inc., (2015) 232 Cal.App.4th 1332. (See Id. at 1348 [“The circumstances
relevant to establishing oppression include, but are not limited to (1) the
amount of time the party is given to consider the proposed contract; (2) the
amount and type of pressure exerted on the party to sign the proposed contract;
(3) the length of the proposed contract and the length and complexity of the
challenged provision; (4) the education and experience of the party; and (5)
whether the party's review of the proposed contract was aided by an attorney.”]) Although Plaintiff conclusorily declares that
he had “little time to review the documents,” there is no indication this was a
result of Defendant’s conduct or any pressure from Defendant to sign the
documents. The Agreement is a clear,
concise, one-page document. (See Wiland
Decl., Ex. 1.) Although Plaintiff was
not represented by an attorney, he does have an associate’s degree. The Court does not find that the
circumstances of the Agreement’s execution were oppressive.
b.
Substantive Unconscionability
Substantive
unconscionability focuses on the actual terms of the agreement and evaluates
whether they create an overly harsh or one-sided result. (Armendariz, supra,
24 Cal.4th at 114.) Where provisions
of the arbitration contract are unconscionable, courts may sever or restrict
the operation of those provisions. (Id.
at 124.) Where the “central purpose of
the contract is tainted with illegality,” then severance is not appropriate and
the contract should be voided. (Ibid.) Where “multiple 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
[,]” voiding the contract rather than severing the unconscionable provisions is
appropriate. (Ibid.) “Although
procedural unconscionability alone does not invalidate a contract, its
existence requires courts to closely scrutinize the substantive terms ‘to
ensure they are not manifestly unfair or one-sided.’” (OTO, supra, 8 Cal.5th at
130.)
Plaintiff challenges several provisions in the Agreement, as well as some
provisions of a contemporaneously executed confidentiality agreement. Provisions in other contracts which also
govern the employment relationship executed contemporaneously with arbitration
agreements are properly considered as part of the unconscionability
analysis. (Alberto v. Cambrian
Homecare (2023) 91 Cal.App.5th 482, 490-491 (Alberto).) The Court will address each ground in turn.
1.
One-Year Statute of Limitations
The Agreement provides that the parties agree to submit disputes to binding
arbitration “within 1 year of the date the dispute first arose.” As illustrated in Ramirez v. Charter
Communications, Inc. (2024) 16 Cal.5th 500, such provisions may
be substantively unconscionable because they may require claims under the Fair
Employment and Housing Act (FEHA) to be arbitrated before the Department of
Fair Employment and Housing has completed its investigation of the claim. (Id. at 536.) The instant clause is indistinguishable from Ramirez,
where the statute of limitations in the agreement was also one year. (Ibid.) Defendant does not refute this argument, but
simply replies with general language from Ramirez that parties “may
agree…to shorten the limitations period applicable to a claim[,]” ignoring the
qualification that “the shortened limitations period must be reasonable” and
that the Supreme Court in Ramirez found the one-year limitation
unreasonable. (Ibid.)
The fact that the statute of limitations for FEHA claims may have been one
year at the time of the Agreement’s execution does not make it conscionable now,
nor does it mean that it necessarily would have been lawful had Ramirez been
decided on the one-year statute of limitations.
This is an unconscionable provision.
2.
Imposition of Arbitration Costs on Employee
“[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 110-111.) The Agreement provides that
“Employee and Clearfreight shall each bear their own costs for legal
representation at any such arbitration and the cost of the arbitrator, court
reporter, if any, and any incidental costs of arbitration.” (Willand Decl., Ex. 1.) Defendant does not dispute that this
provision is violative of Armendariz, stating that it is “incomplete”
but contends that “the arbitration has broad powers to award all remedies
supported by law which would include the costs of the arbitrator itself.” Under Armendariz, Plaintiff is not
required to bear any costs he would not bear in Court, win or lose. (Armendariz, supra, 24 Cal.4th
at 110-111.) The possibility that an
arbitrator would award the costs of the arbitration to Defendant no matter
what, despite contractual language to the contrary, is too remote to render
this provision conscionable. It is
unconscionable.
3.
Statutory Attorney Fees
As noted immediately supra, the Agreement requires the parties to
bear their own costs at arbitration. Such
provisions are unconscionable where they would deny the employee their rights
to statutory attorney fees. (See Carbajal
v. CWPSC, Inc. (2016) 245 Cal.App.4th 227, 250-251 (Carbajal).) Plaintiff’s claims for overtime compensation are
such claims. (See Lab. Code § 1194(a)
[employees suing for minimum wage or overtime compensation may recover attorney
fees].) Defendant responds that the
arbitrator may nonetheless award remedies supported by law, but this was the
case in Carbajal as well, and that did not save the agreement. (See Carbajal, supra, 245 Cal.App.4th
at 251 [finding that interpreting a provision that “the arbitrators will be
entitled to award all types of relief that would otherwise be available to the
parties in a court proceeding under State or Federal law” to allow fee-shifting
where the agreement provided that the parties would bear their own attorney
fees would be contrary to the parties’ stated intent.]) This provision is unconscionable.
4.
Non-Compete and Non-Solicitation Clauses in
Confidentiality Agreement
The confidentiality agreement, signed on the same day as the arbitration
agreement, provides:
Covenant of Non-Disclosure
[¶…¶] F. With reference to all such proprietary
information which has heretofore been disclosed and/or which will hereafter be
disclosed by Company to Employee or which Employee in the performance of
his/her employment may learn, and for a period of not less than 6 months after
the termination of his/her employment with the Company for any reason, Employee
agrees to keep said proprietary information in confidence and trust, to not
directly or indirectly disclose to any person or entity or use, disclose or
duplicate the proprietary information.
Covenant of Non-Competition and
Non-Solicitation
[¶…¶] B. For a period of not less than 6 months
following separation of employment with Company, Employee will not directly or
indirectly, neither alone or in association with others, endeavor to entice or
solicit or assist any organization to entice or solicit for hire or for
engagement as an independent contractor any person who was employed by the
Company or any of its affiliated companies at any time during the term of
Employee’s employment (provided, that this shall not apply to former employees
of the Company whose employment with Company or its affiliates has been
terminated for a period of one year or longer).
(Szmanda Decl., Ex. 2, p. 2.)
The definition of “proprietary information” in the confidentiality
agreement includes the following:
confidential information with respect to the business
and future plans of its customers, their addresses, contact parties, types of
goods imported or exported, manufacturing sources, points of
delivery/distribution, volume of business, product lines, sourcing, carriers,
routes of trade, delivery and distribution, truckers, bonds, buyers, agents,
rates,
classifications, special handling procedures,
prices and commodities; and the Company’s business policies and procedures,
including its customers, their business proprietary information, the Company’s
vendors, fee schedules, agents, pricing policies, profit margins, sources of
services, methods of doing business, lines of credit, and other financial
information, its trade secrets and other information that is owned by the
Company and regularly used in the operation of Company's business and that this
information constitutes the Company’s trade secrets.
(Szmanda Decl., Ex. 2, p. 1, ¶ 7.)
“[I]n California, covenants not to compete are void,” subject to certain
exceptions not relevant here. (Edwards
v. Arthur Andersen LLP (2008) 44 Cal.4th 937, 945.) This stems from Bus. & Prof. Code §
16600, which provides that “every contract by which anyone is restrained from
engaging in a lawful profession, trade, or business of any kind is to that
extent void” and that “[t]his section shall be read broadly, in accordance with
Edwards v. Arthur Andersen LLP (2008) 44 Cal.4th 937, to void the application
of any noncompete agreement in an employment context, or any noncompete clause
in an employment contract, no matter how narrowly tailored, that does not
satisfy an exception in this chapter.” (Id.
at subd. (a) and (b)(1).)
Defendant does not deny that the non-compete clause is unlawful but
contends that the non-solicitation clause was valid when Plaintiff executed the
Agreement in 2013. Even if that were so,
it certainly is not now. (See AMN
Healthcare, Inc. v. Aya Healthcare Services, Inc. (2018) 28 Cal.App.5th
923, 936-938 [finding non-solicitation of employees clause void, consistent
with Edwards].) Defendant offers
no authority for its position that a clause that was lawful when drafted but is
now unlawful may not be substantively unconscionable. These clauses are substantively
unconscionable.
5.
Non-Mutual Injunction Provision in the Confidentiality
Agreement
The confidentiality agreement provides that in the event of a breach of the
agreement, “Employee consents to Company obtaining an injunction prohibiting”
any such violation. (Szmanda Decl., Ex.
2, p. 3.) The confidentiality agreement
further provides:
In the event that Employee breaches the
foregoing obligations not to compete or otherwise uses or disseminates
Company’s trade secrets as defined herein, Employee acknowledges that Company
shall be entitled to injunctive relief and/or damages in the amount of the loss
or revenue and/or the unjust enrichment to others caused by the violation of
this agreement. In the event of a willful or malicious misappropriation of
Company’s trade secrets, the Company will seek additional damages. In the event
of any breach of this Agreement by Employee during his or her term of
employment, the Company will seek to recover compensation it paid to Employee
during the time of said breach.
Attorney’s Fees and Costs
In the event that suit or other action is
brought to enforce any of the provisions of this Agreement, the prevailing
party or parties shall be entitled to recover, in addition to such relief as
may be granted, an award as and for its actual attorneys’ fees and costs in
bringing such action and/or enforcing any decision or judgment granted therein.
Attorneys' fees and costs shall be determined by the court or arbitrator in such
litigation or in a separate action brought for that purpose and shall be deemed
to have accrued upon commencement of such lawsuit or action and shall be paid
whether or not such action is prosecuted to decision or judgment.
The provisions requiring consent to an injunction in favor of the employer
are highly similar to the situation in Alberto:
The Arbitration Agreement required Alberto to
arbitrate all of her claims against Cambrian.
But the Confidentiality Agreement allowed Cambrian to obtain—outside of
arbitration—an “immediate” injunction for Alberto's breach of Cambrian's
confidentiality requirements. Specifically, the Confidentiality Agreement
required Alberto to consent to an “order of an immediate injunction, without
bond, from any court of competent jurisdiction, enjoining and restraining”
Alberto from disclosing confidential or proprietary information. It allowed
Cambrian to obtain attorney fees if it prevailed on such an injunction. An
injunction enforcing Cambrian's confidentiality terms would, of course,
exclusively benefit Cambrian.
(Alberto, supra, 91 Cal.App.5th
at 492.)
While the provisions here do not require Plaintiff to waive a bond, they do
permit Defendant to recover actual attorney fees (whether or not reasonable)
even if the case is never brought to judgment.
Defendant does not reply to Plaintiff’s contentions, but simply cites
other portions of the arbitration agreement that permit both sides to obtain
injunctive relief. The issue is not that
only Defendant might be entitled to injunctive relief, it is that only
Defendant is relieved from the obligation to show irreparable harm, and only
Plaintiff must consent to injunctive relief sought by Defendant. These provisions are unconscionable. (Alberto, supra, 91 Cal.App.5th
at 492.)
6.
Unconscionability Summary
As set forth above, the arbitration agreement and confidentiality agreement
contain numerous unconscionable provisions, and the Court concludes that the
Agreement is permeated with unconscionability.
(See Alberto, supra, 91 Cal.App.5th at 495.) The Agreement is therefore void for
unconscionability, and it is unnecessary to consider whether the FAA applies to
it.
Conclusion
For the foregoing reasons, the Agreement is void for unconscionability, and
Defendant’s motion is denied. Plaintiff
to give notice.