Judge Teresa A. Beaudet, Case 21STCV40016 2023-01-26 Tentative Ruling

Plaintiff Jane Doe (“Plaintiff”) filed this action against Defendants Clay Lacy Aviation, Inc. (“CLA”) and Steven Lee (“Lee”) (jointly, “Defendants”) on October 29, 2021.

In the Complaint, Plaintiff asserts causes of action for (1) sexual battery, (2) gender violence, (3) civil rights violation, (4) sexual harassment, (5) retaliation, (6) discrimination, (7) wrongful termination in violation of public policy, (8) wrongful termination, (9) failure to prevent harassment, discrimination, and retaliation, (10) intentional infliction of emotional distress, (11) negligent supervision and retention, and (12) declaratory and injunctive relief.

Defendants to arbitration and for an order staying the action until the completion of the arbitration. Plaintiff opposes.

On August 15, 2022, Lee filed a joinder to CLA’s motion to compel arbitration.

On June 23, 2022, the Court issued an Order continuing the hearing on the motion, and permitting Plaintiff to file and serve a surreply on or before July 7, 2022. On August 9, 2022, the Court issued an Order continuing the hearing on the motion again due to the voluminous number of objections. In its August 9, 2022 Order, the Court, inter alia, ordered the parties to meet and confer in a good faith effort to resolve and eliminate the objections and set a Hearing on Objections.

On August 18, 2022, the parties filed a Joint Statement Re: Parties’ Objections to Declarations on Defendant’s Motion to Compel Arbitration. On August 29, 2022, the Court issued a minute order following the Hearing on Objections which provides, inter alia, “[t]he parties have sufficiently reduced the objections so that the Court will rule on them along with the motion to compel arbitration.” The August 29, 2022 minute order also provides that “[t]he parties have agreed and the Court orders that the revised declarations in support of the reply and surreply and the revised declarations must be filed on or before 09/27/22. By that date, Plaintiff's counsel has agreed to deliver to Department 50, a compilation of all the operative moving, opposing, reply and surreply papers as well as copy of the Joint Statement re: Objections.”

The Court rules on the parties’ Joint Statement Re: Parties’ Objections to Declarations on Defendant’s Motion to Compel Arbitration as follows:

Objection No. 1: overruled but considered only for the purpose pertinent to the motion as identified by Plaintiff, namely the Defendant’s custom and practice regarding documentation.

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. Securities Corp. (1996) 14 Cal.4th 394, 413-414.)

Generally, on a petition to compel arbitration, the court must grant the petition unless it finds either (1) no written agreement to arbitrate exists; (2) the right to compel arbitration has been waived; (3) grounds exist for revocation of the agreement; or (4) litigation is pending that may render the arbitration unnecessary or create conflicting rulings on common issues. (Code Civ. Proc., § 1281.2); (Condee v. Longwood Management Corp. (2001) 88 Cal.App.4th 215, 218-219.)

“California has a strong public policy in favor of arbitration and any doubts regarding the arbitrability of a dispute are resolved in favor of arbitration.” (Coast Plaza Doctors Hospital v. Blue Cross of California (2000) 83 Cal.App.4th 677, 686.) “This strong policy has resulted in the general rule that arbitration should be upheld unless it can be said with assurance that an arbitration clause is not susceptible to an interpretation covering the asserted dispute.” (Ibid. [internal quotations omitted].) This is in accord with the liberal federal policy favoring arbitration agreements under the Federal Arbitration Act (“FAA”), which governs all agreements to arbitrate in contracts “involving interstate commerce.” (9 U.S.C. § 2, et seq.; Higgins v. Superior Court (2006) 140 Cal.App.4th 1238, 1247.)

CLA presents evidence that Plaintiff was hired by CLA on or about March 30, 2015. (Jung Decl., ¶ 4.) CLA indicates that Plaintiff was given a copy of CLA’s Mutual Arbitration Agreement (the “Mutual Arbitration Agreement”), and Plaintiff signed this Agreement on March 30, 2015. (Jung Decl., ¶ 5, Ex. A.)[1] The Mutual Arbitration Agreement provides in pertinent part as follows:

“Agreement to arbitrate: Designated Claims: The Employer and the Employee agree to

resolve through binding arbitration any disputes or claims having anything to do

with the employee’s application for employment, employment, or separation from

Arbitration Association (“AAA”) to the extent they do not conflict with this Agreement.” (Jung Decl., ¶ 5, Ex. A.)

CLA also asserts that the Mutual Arbitration Agreement extends to Lee despite the fact that he was not a signatory to the Mutual Arbitration Agreement. Plaintiff alleges that Lee was Plaintiff’s direct supervisor. (Compl., ¶ 4.) Plaintiff also alleges that Lee was “at all times relevant, acting in his capacity and within the course and scope as a managing agent of Defendant CLA and on its behalf.” (Compl., ¶ 14.) CLA indicates that “[i]t is well established that a nonsignatory beneficiary of an arbitration clause is entitled to require arbitration.” (Harris v. Superior Court (1986) 188 Cal.App.3d 475, 478.)

Plaintiff argues that she never entered into the Mutual Arbitration Agreement because the terms of the agreement were never disclosed to her. (Doe Decl., ¶ 8.) Plaintiff indicates that on March 30, 2015, she recalls being handed several signature pages to sign, which did not have accompanying documents or pages preceding the signature pages. (Doe Decl., ¶ 7.) Plaintiff also indicates that at the time of her execution of the signature page of the Mutual Arbitration Agreement, she was rushed and told that the documents she was signing were merely employee payroll and benefits documents. (Doe Decl., ¶ 9.)

In connection with the reply, CLA presents the Amended Declaration of Laura Jung, CLA’s current Vice President of Human Resources. (Amended Jung Decl., ¶ 1.) Ms. Jung asserts that “[i]n 2015, CLA’s custom and practice with new hires was to provide employees with paper copies of their New Employee Checklist and onboarding documents prior to their start date, which includes the Mutual Arbitration Agreement, employee handbook, IRS W-4 form, etc.” (Amended Jung Decl., ¶ 4.) Ms. Jung also states that CLA’s custom and practice is to give employees the entirety of any document they are given to sign, including the Mutual Arbitration Agreement, rather than only portions of documents or only signature pages. (Amended Jung Decl., ¶ 5.) In addition, Ms. Jung asserts that “[a]t the time of Plaintiffs hire, Plaintiff should have been provided with her New Employee Checklist and each and every page of all onboarding documents she was given to review and sign, including the Mutual Arbitration Agreement.” (Amended Jung Decl., ¶ 6.)

In her revised/amended supplemental declaration in support of the surreply, Plaintiff indicates that Ms. Jung never served as Plaintiff’s contact for initial hiring or transitioning. (Revised/Amended Suppl. Doe Decl., ¶ 8.) Plaintiff states that Ms. Jung was not there when Plaintiff received pages to sign, or when Plaintiff signed any of the documents. (Revised/Amended Suppl. Doe Decl., ¶ 8.) However, Plaintiff still acknowledges in her original declaration in support of her opposition to the motion that she executed the signature page of the Mutual Arbitration Agreement. (Doe Decl., ¶ 9.) Plaintiff’s revised/amended supplemental declaration also indicates that Plaintiff signed the documents. (Revised/Amended Suppl. Doe Decl., ¶ 8.) The Court notes that a party moving to compel arbitration can establish that an arbitration agreement exists simply by attaching a copy of the agreement to its petition without necessarily following the “normal procedures of document authentication.” (Espejo v. Southern California Permanente Medical Group (2016) 246 Cal.App.4th 1047, 1058); see also Condee v. Longwood Management Corp., supra, 88 Cal.App.4th at p. 219 [“A plain reading of the statute indicates that as a preliminary matter the court is only required to make a finding of the agreement’s existence, not an evidentiary determination of its validity.”].)

Further, Plaintiff does not dispute that the Mutual Arbitration Agreement covers the claims made in the Complaint. Therefore, the burden now shifts to Plaintiff to prove a ground for denial.

First, Plaintiff contends that the Mutual Arbitration Agreement is void because it was obtained through fraud. Plaintiff notes that “[g]enerally applicable contract defenses…may be applied to invalidate arbitration agreements without contravening the FAA or California law.” (OTO, L.L.C. v. Kho (2019) 8 Cal.5th 111, 125 [internal quotations omitted.) Plaintiff cites to CACI No. 335, which concerns “Affirmative Defense-Fraud.” Per CACI 335, a defendant must prove the following to show that no contract was created because the defendant’s consent was obtained by fraud: (1) that plaintiff made a fraudulent statement; (2) that plaintiff knew that the representation was not true; (3) that plaintiff made the representation to persuade defendant to agree to the contract; (4) that defendant reasonably relied on this representation; and (5) that defendant would not have entered into the contract if defendant had known that the representation was not true.

Plaintiff contends that fraud is established here because: (1) CLA represented that the documents being executed were related to employee payroll and benefits; (1) CLA knew that the representation was not true; (3) CLA made the representation to persuade or induce Plaintiff to unknowingly agree to the Mutual Arbitration Agreement; (4) Plaintiff reasonably relied on CLA’s false representation; and (5) Plaintiff would not have entered into the Mutual Arbitration Agreement if she had known that the representation was not true. Plaintiff indicates that at the time of her execution of the signature page of the Mutual Arbitration Agreement, she was rushed and told that the documents she was signing were merely employee payroll and benefits documents. (Doe Decl., ¶ 9.) Plaintiff indicates that she relied on that representation, and believed she was merely executing documents related to payroll and benefits so that she could become an employee. (Doe Decl., ¶¶ 9, 10.) Plaintiff also indicates that she was fresh out of college and that her only prior job experience was her college job. (Doe Decl., ¶ 11.) Plaintiff asserts that she had no reason to believe or understand that the documents she was signing were different than what CLA represented them to be. (Doe Decl., ¶ 11.)

CLA counters that Plaintiff is well-educated and capable of comprehending routine hiring documents. CLA notes that Plaintiff indicates she attended a four-year university and obtained a Bachelor of Science degree. (Doe Decl., ¶ 2.) But CLA does not address Plaintiff’s claim that she was told that the documents she was signing were merely employee payroll and benefits documents. CLA does not provide evidence, for instance, that Plaintiff was not told that the documents she was signing were merely employee payroll and benefits documents. CLA offers the conclusory statement that “[t]here was no fraud by CLA and Plaintiff cannot be believed.” (Amended Reply at p. 4:4-4:5.)

Plaintiff also asserts that CLA acted to conceal the Mutual Arbitration Agreement by not including page numbers in the agreement, by including the title “Mutual Arbitration Agreement” at the top of each page to induce the belief that the third page was the entire document, and by only providing the signature page for the agreement. (Opp’n at p. 7:6-10; see also Jung Decl., ¶ 5, Ex. A.) Plaintiff indicates that on March 30, 2015, she recalls being handed several signature pages to sign, which did not have accompanying documents or pages preceding the signature pages, as discussed above. (Doe Decl., ¶ 7.) CLA simply counters that Plaintiff “should have been provided with her New Employee Checklist and each and every page of all onboarding documents she was given to review and sign, including the Mutual Arbitration Agreement.” (Amended Jung Decl., ¶ 6, emphasis added.) CLA does not provide evidence from any person indicating that they were present when Plaintiff was purportedly provided with the entire Mutual Arbitration Agreement. CLA also does not address Plaintiff’s arguments concerning the lack of page numbers on the agreement or the fact that the title “Mutual Arbitration Agreement” was included at the top of each page of the agreement. Thus, it is plausible that an employee would not know that the signature page of the Mutual Arbitration Agreement was only one of three pages.

However, as discussed, CLA asserts that its custom and practice is to give employees the entirety of any document they are given to sign, including the Mutual Arbitration Agreement, rather than only portions of documents or only signature pages. (Amended Jung Decl., ¶ 5.) CLA also contends that “[o]n March 30, 2015, Plaintiff inputted information into and signed various documents…including, but not limited to the following: Mutual Arbitration Agreement, Non-Disclosure Agreement, New Employee Data Record, Direct Deposit Authorization Form (where she had to input her bank routing and account numbers), Employee Acknowledgment and Consent Regarding Use of and Access to Company-provided Electronic Resources Form, Handbook Acknowledgment Form, IRS W-4 form, and Photo Release Waiver Authorization and Release.” (Amended Jung Decl., ¶ 7, Ex. D.)

Plaintiff argues that the Mutual Arbitration Agreement is also procedurally unconscionable because CLA concealed the substantive provisions of the agreement from Plaintiff, rushed Plaintiff to execute it with other documents, and misrepresented the true contents of the document she was signing. Plaintiff asserts that “[a]ll documents were signed on the spot and within the span of approximately one to two minutes,” and that she “was given no time to question the documents, let alone give any careful review, and no opportunity to review the entirety of the documents nor the option to speak with an attorney.” (Doe Decl., ¶ 7.)

Procedural unconscionability concerns the manner in which the contract was negotiated and the parties’ circumstances at that time. It focuses on the factors of oppression or surprise. (Kinney v. United Healthcare Servs. (1999) 70 Cal.App.4th 1322, 1329¿¿.) “¿Oppression generally takes the form of a contract of adhesion, which, imposed and drafted by the party of superior bargaining strength, relegates to the subscribing party only the opportunity to adhere to the contract or reject it.¿” (¿¿Carmona v. Lincoln Millennium Car Wash, Inc. (2014) 226 Cal.App.4th 74, 84 [quotations and citations omitted]¿¿.) Surprise occurs “¿where the allegedly unconscionable provision is hidden within a prolix printed form.¿” (¿¿Pinnacle Museum Tower Assn. v. Pinnacle Market Development, LLC (2012) 55 Cal.4th 223, 247¿¿.)

CLA contends that the Mutual Arbitration Agreement is not procedurally unconscionable because Plaintiff was provided with the entire Mutual Arbitration Agreement and was given ample time to review the documents prior to signing them. As discussed, CLA asserts that Plaintiff should have been provided with every page of the Mutual Arbitration Agreement. (Amended Jung Decl., ¶ 6.) This is disputed by Plaintiff, as set forth above. Ms. Jung also asserts that she has “not seen anyone complete the onboarding process in 1-2 minutes and [does] not believe it is possible to be completed in 1-2 minutes.” (Jung Decl., ¶ 7.)

Plaintiff also asserts that the Mutual Arbitration Agreement is procedurally unconscionable because it is difficult to read and understand for a lay person fresh out of college, and that CLA’s “reference to the AAA Employment Arbitration Rules is akin to offering an employee a copy of the California Labor Code and asking the employee to figure it out.” (Opp’n at p. 10:6-8.) In the reply, CLA cites to Peng v. First Republic Bank (2013) 219 Cal.App.4th 1462, 1472, where the Court of Appeal found that “Plaintiff does not argue that there are any other provisions in the Agreement that would support a finding of procedural unconscionability. Nor does she identify any feature of the AAA rules that prevent fair and full arbitration. Thus, we find the failure to attach the AAA rules, standing alone, is insufficient grounds to support a finding of procedural unconscionability.”

Plaintiff also asserts that the Mutual Arbitration Agreement is substantively unconscionable. “¿Substantive unconscionability pertains to the fairness of an agreement’s actual terms and to assessments of whether they are overly harsh or one-sided. A contract term is not substantively unconscionable when it merely gives one side a greater benefit; rather, the term must be so one-sided as to shock the conscience.¿” (¿¿Carmona v. Lincoln Millennium Car Wash, Inc., supra, 226 Cal.App.4th at p. 85 [internal quotation and citation omitted]¿¿.)

Plaintiff asserts that she would be subject to a broad list of claims that must be arbitrated, which include “all other charges related to any aspect of the employee’s employment relationship with the Employer…” (Jung Decl., ¶ 5, Ex. A, ¶ 3.) However, claims not covered by the Mutual Arbitration Agreement include those involving “trade secrets, confidential, or proprietary information, theft, embezzlement, or misappropriation of any kind; or any criminal matters.” (Ibid.) Plaintiff asserts that “[t]he carve-out of the types of claims Defendant would most likely bring against employees in civil court establishes the utter lack of mutuality.” (Opp’n at p. 11:24-25.) “Substantive unconscionability is concerned not with a simple old-fashioned bad bargain, but with terms that are unreasonably favorable to the more powerful party. [T]he paramount consideration in assessing [substantive] conscionability is mutuality.” (Davis v. Kozak (2020) 53 Cal.App.5th 897, 910 [internal quotations and citations omitted].) “Courts have found a lack of sufficient mutuality where the agreement exempts from arbitration the types of claims an employer is likely to bring against an employee.” (Id. at p. 914.)

CLA asserts that Plaintiff’s argument concerning the foregoing excluded claims (involving trade secrets, confidential or proprietary information, theft, embezzlement, misappropriation, criminal matters) is moot because none of these claims are presented in this case and are not at issue. CLA also cites to Baltazar v. Forever 21, Inc. (2016) 62 Cal.4th 1237, 1248, where “Baltazar argue[d] that the arbitration agreement at issue [was] unfairly one-sided because it lists only employee claims as examples of the types of claims that are subject to arbitration.” The Baltazar Court disagreed, finding that “[t]he arbitration agreement at issue here makes clear that the parties mutually agree to arbitrate all employment-related claims: that is, any claim or action arising out of or in any way related to the hire, employment, remuneration, separation or termination of Employee. That provision clearly covers claims an employer might bring as well as those an employee might bring.” (Id. at p. 1249 [internal quotations omitted].) CLA asserts that here, the Mutual Arbitration Agreement provides that “[t]he Employer and the Employee agree to resolve through binding arbitration any disputes or claims having anything to do with the employee’s application for employment, employment, or separation from employment with the Employer,” such that the identification of excluded claims does not render the agreement unconscionable. (Jung Decl., ¶ 5, Ex. A, ¶ 2.)

Plaintiff also asserts that although the Mutual Arbitration Agreement provides that the parties may apply to any court for “preliminary injunctive or equitable relief,” CLA seeks to compel Plaintiff to arbitrate her own claim for injunctive and equitable relief. (Jung Decl., ¶ 5, Ex. A, ¶ 4.) But as CLA notes, the entirety of this provision provides that “[n]otwithstanding any other provisions of this Agreement, each party shall have the right, at any time after commencement of an arbitration proceeding hereunder, to apply to any court of competent jurisdiction for preliminary injunctive or equitable relief.” (Ibid., emphasis added.)

Plaintiff also argues that the Mutual Arbitration Agreement “has the effect of excluding retired judges who do not maintain a license to practice law as potential arbitrators, likely providing the advantage of leaving only licensed defense attorneys as possible arbitrators.” (Opp’n at p. 11:21-23.) But as CLA notes, the agreement merely provides that “[t]he designated claims will be settled by binding arbitration by a neutral arbitrator knowledgeable in employment disputes, licensed to practice law in the State of California, selected under the AAA rules.” (Jung Decl., ¶ 5, Ex. A, ¶ 5.) CLA asserts that considering the nuances of employment law, it is reasonable for the parties, not just CLA, to require an arbitrator who is knowledgeable in employment and is a licensed attorney.

Based on a consideration of the arguments and evidence presented by the parties, the Court would like to receive oral testimony regarding Plaintiff’s execution of the Mutual Arbitration Agreement.

The Court notes that pursuant to Cal. Rules of Court, Rule 3.1306, subdivision (a), “[e]vidence received at a law and motion hearing must be by declaration or request for judicial notice without testimony or cross-examination, unless the court orders otherwise for good cause shown.” The Court also notes that in Rosenthal v. Great Western Fin. Securities Corp., supra, 14 Cal.4th 394, 414, the California Supreme Court noted that “we agree that where--as is common with allegations of fraud such as are made here--the enforceability of an arbitration clause may depend upon which of two sharply conflicting factual accounts is to be believed, the better course would normally be for the trial court to hear oral testimony and allow the parties the opportunity for cross-examination. As the trial court here remarked, ‘it’s pretty difficult to weigh credibility without seeing the witnesses.’”

Cal. Rules of Court, Rule 3.1306, subdivision (b) provides that “[a] party seeking permission to introduce oral evidence, except for oral evidence in rebuttal to oral evidence presented by the other party, must file, no later than three court days before the hearing, a written statement stating the nature and extent of the evidence proposed to be introduced and a reasonable time estimate for the hearing. When the statement is filed less than five court days before the hearing, the filing party must serve a copy on the other parties in a manner to assure delivery to the other parties no later than two days before the hearing.”

Based on the foregoing, the Court continues the hearing on the instant motion to ___________________, 2023 at 10:00 a.m. The Court orders that at least 5 court days before the continued hearing date, Plaintiff is to file and serve a written statement stating the nature and extent of the evidence proposed to be introduced and a reasonable time estimate for the hearing. Defendant is to file and serve a similar statement at least 3 court days before the continued hearing date. Both parties are to identify the witness(es) who will testify and any documents they will rely upon. Courtesy copies of the statements must be delivered to Dept. 5 concurrently with filing. The parties must bring to the hearing three sets of any exhibits they intend to introduce into evidence.

[1]Plaintiff’s name has been redacted from the Mutual Arbitration Agreement in order to protect her privacy, as she filed this action under a pseudonym. (Jung Decl., ¶ 5.)

JANE DOE, Plaintiff, vs. CLAY LACY AVIATION, INC., et al., Defendants.	Case No.:	21STCV40016
	Hearing Date:	January 26, 2023
	Hearing Time:	10:00 a.m.
	[TENTATIVE] ORDER RE: MOTION TO COMPEL ARBITRATION OF DEFENDANT CLAY LACY AVIATION, INC.; JOINDER BY DEFENDANT STEVEN LEE TO DEFENDANT CLAY AVIATION, INC.’S, MOTION TO COMPEL ARBITRATION

Superior Court of California

County of Los Angeles

Department 50