Judge Theresa M. Traber, Case Number: 23STCV21363, Date: 2024-05-20 Tentative Ruling

Judge: Theresa M. Traber, Case: 23STCV21363, Date: 2024-05-20 Tentative Ruling

Case Number: 23STCV21363 Hearing Date: May 20, 2024 Dept: 47

Tentative Ruling

Judge Theresa M. Traber, Department 47

HEARING DATE: May 20, 2024 TRIAL DATE: NOT SET

CASE: Gabriela Cortez v. Burberry Limited, et al.

CASE NO.: 23STCV21363

MOTION TO COMPEL ARBITRATION AND STAY PROCEEDINGS

MOVING PARTY: Defendants Burberry Limited and Ana Fragoso

RESPONDING PARTY(S): Plaintiff Gabriela Cortez

STATEMENT OF MATERIAL FACTS AND/OR PROCEEDINGS:

This is an employment discrimination action that was filed on September 6, 2023. Plaintiff alleges that she was harassed for taking maternity leave and terminated for complaining about her mistreatment.

Defendants move to compel arbitration of Plaintiff’s claims.

TENTATIVE RULING:

Defendants’ Motion to Compel Arbitration is DENIED.

DISCUSSION:

Defendants move to compel arbitration of Plaintiff’s claims.

Plaintiff’s Evidentiary Objections

Plaintiff raises several evidentiary objections to the Declaration of Nicola Internullo in support of the Motion. The Court rules on these objections as follows:

Objection No. 1: OVERRULED. Not a legal conclusion. The statement itself lays foundation by explaining the matters which are in the witness’s personal knowledge.

Objection No. 2: OVERRULED. Statement does not require authentication. Does not lack foundation. This statement is not hearsay and is not speculative.

Objection No. 3: OVERRULED. Statement does not require authentication. Does not lack foundation. Not hearsay nor speculation. Not an expert opinion.

Objection No. 4: OVERRULED. Plaintiff does not explain how the document is incomplete. Exhibit does not lack authentication nor foundation, is not a legal conclusion, and is not hearsay.

Objection No. 5: OVERRULED. Statement does not require authentication. Does not lack foundation. Not hearsay nor speculation. Not an expert opinion. Vagueness is not a valid objection in this context.

Objection No. 6: OVERRULED. Exhibit does not lack authentication nor foundation, is not a legal conclusion, and is not hearsay, nor is it an expert opinion.

Objection No. 7: OVERRULED. Statement does not require authentication. Does not lack foundation. Not hearsay nor speculation. Not an expert opinion. Vagueness is not a valid objection in this context.

Objection Nos. 8-9: OVERRULED. Statement does not require authentication. Does not lack foundation. Not hearsay nor speculation. Not an expert opinion. Vagueness is not a valid objection in this context.

Plaintiff’s Overlength Opposition Brief

Plaintiff’s opposition brief is 16 pages in length, discounting front matter and the tables of contents and authorities. California Rule of Court 3.1113(d) states that a responding memorandum is limited to 15 pages, unless permission to file an overlength brief is obtained pursuant to subdivision (e). (Cal. Rules of Court 3.1113(d)-(e).) Notwithstanding Defendants’ objections, the Court does not consider a single overlength page of argument to be a prejudicial violation of this rule. The Court will therefore exercise its discretion to consider the entire opposition.

Existence of an Arbitration Agreement

Under California law, arbitration agreements are valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract. (Blake v. Ecker (2001) 93 Cal.App.4th 728, 741 (overruled on other grounds by Le Francois v. Goel (2005) 35 Cal.4th 1094).) A party petitioning to compel arbitration has the burden of establishing the existence of a valid agreement to arbitrate, and the party opposing the petition has the burden of proving, by a preponderance of the evidence, any fact necessary to its defense. (Banner Entertainment, Inc. v. Superior Court (1998) 62 Cal.App.4th 348, 356-57.)

As to the burden of production, rather than persuasion, on such a motion, courts have articulated a three-step burden shifting process:

First, the moving party bears the burden of producing “prima facie evidence of a written agreement to arbitrate the controversy.” [citation] The moving party “can meet its initial burden by attaching to the [motion or] petition a copy of the arbitration agreement purporting to bear the [opposing party’s] signature.” [citation] Alternatively, the moving party can meet its burden by setting forth the agreement’s provisions in the motion. [citations] For this step, “it is not necessary to follow the normal procedures of document authentication.” [citation] If the moving party meets its initial prima facie burden and the opposing party does not dispute the existence of the arbitration agreement, then nothing more is required for the moving party to meet its burden of persuasion.

If the moving party meets its initial prima facie burden and the opposing party disputes the agreement, then in the second step, the opposing party bears the burden of producing evidence to challenge the authenticity of the agreement. [citation] The opposing party can do this in several ways. For example, the opposing party may testify under oath or declare under penalty of perjury that the party never saw or does not remember seeing the agreement, or that the party never signed or does not remember signing the agreement. [citations]

If the opposing party meets its burden of producing evidence, then in the third step, the moving party must establish with admissible evidence a valid arbitration agreement between the parties. The burden of proving the agreement by a preponderance of the evidence remains with the moving party. [citation].

(Gamboa v. Northeast Community Clinic (2021) 72 Cal.App.5th 158, 165-66.) An electronic record or signature is attributable to a person if it was the act of the person. (Civ. Code § 1633.9(a).) The act of the person may be shown in any manner. (Id.) As described by the Court of Appeal, “the burden of authenticating an electronic signature is not great.” (Ruiz v. Moss Bros. Auto Group, Inc. (2014) 232 Cal.App.4th 836, 844.)

Defendants have provided a copy of an “Arbitration Policy/Agreement” which appears to bear Plaintiff’s electronic signature dated April 5, 2018. (Declaration of Nicola Internullo ISO Mot. Exh. A.) Defendants also present electronic records showing that Plaintiff received the document via email and signed it on that date. (Internullo Decl. ¶¶4-6, Exh. B.)

Plaintiff argues that there is no evidence of a valid contract to arbitrate because there was no mutual assent between the parties, insofar as the timestamps of Defendants’ records show that Plaintiff signed the document 14 seconds after opening it. (Internullo Decl. Exh. B.) Thus, Plaintiff argues, it was not possible to read the document in that time. That said, Plaintiff’s failure to read the contract is not a barrier to contract formation. (Iyere v. Wise Auto Grp. (2023) 87 Cal. App. 5th 747, 759 [“It is hornbook law that failing to read an agreement before signing it does not prevent formation of a contract”].) The Court therefore finds that Defendants have demonstrated that Plaintiff signed an agreement to arbitrate.

Applicability of FAA

Defendants argue that the FAA governs the arbitration agreement at issue.

An arbitration clause is governed by the FAA if the agreement is a contract “evidencing a transaction involving commerce.” (9 U.S.C. § 2.) Courts “broadly construe” this phrase, because the FAA “embodies Congress’ intent to provide for the enforcement of arbitration agreements within the full reach of the Commerce Clause.” (Giuliano v. Inland Empire Pers., Inc. (2007) 149 Cal.App.4th 1276, 1286.)

Here, the Agreement expressly states that “interpretation and enforcement of this Agreement shall be governed by the [FAA].” (Internullo Decl., ¶ 4, Exh. A p. 4.) Plaintiff argues in opposition that the Federal Arbitration Act does not apply to this matter because Defendants were not engaged in interstate commerce. This argument is not relevant where, as here, the parties expressly agreed that the FAA is the governing law. The Court therefore finds that the Federal Arbitration Act applies to this agreement.

Scope of the Arbitration Agreement

Defendants contend that the scope of the Arbitration Agreement covers Plaintiff’s substantive claims. Plaintiff does not dispute this contention.

“The scope of arbitration is a matter of agreement between the parties.” (See, e.g., Ericksen, Arbuthnot, McCarthy, Kearney & Walsh, Inc. v. 100 Oak Street (1983) 35 Cal.3d 312, 323.) “A party can be compelled to arbitrate only those issues it has agreed to arbitrate.” (Perez v. U-Haul Co. of California (2016) 3 Cal.App.5th 408, 419.)

As it is undisputed that the Agreement covers Plaintiff’s claims, the Court adopts the agreement of the parties as to the scope of the agreement.

Third-Party Right to Compel Arbitration

Defendants argue that Defendant Fragoso is also entitled to compel arbitration as an intended third-party beneficiary.

“Someone who is not a party to a contractual arbitration provision generally lacks standing to enforce it.” (Cohen v. TNP 2008 Participating Notes Program, LLC (2019) 31 Cal. App. 5th 840, 856 [Citations omitted].) A nonsignatory may enforce an arbitration provision “where they are intended third party beneficiaries or are assigned rights under the contract.” (Ibid. [Citations omitted].) This enforcement right is “in Civil Code section 1559, which provides: ‘A contract, made expressly for the benefit of a third person, may be enforced by him at any time before the parties thereto rescind it.’” (San Diego Hous. Comm'n v. Indus. Indem. Co. (2002) 95 Cal. App. 4th 669, 685.) “It is well settled, however, that Civil Code section 1559 excludes enforcement of a contract by persons who are only incidentally or remotely benefited by the agreement. [Citations.] The Supreme Court has held: ‘A third party should not be permitted to enforce covenants made not for his benefit, but rather for others. He is not a contracting party; his right to performance is predicated on the contracting parties' intent to benefit him. [Citations.]’” (Harper v. Wausau Ins. Co. (1997) 56 Cal. App. 4th 1079, 1087.)

The California Supreme Court addressed the circumstances when a nonsignatory has standing to assert rights under a contract as a third-party beneficiary in Goonewardene v. ADP, LLC (2019) 6 Cal.5th 817. Under Goonewardene, a non-party to a contract is a third party beneficiary if demonstrates “not only (1) that it is likely to benefit from the contract, but also (2) that a motivating purpose of the contracting parties is to provide a benefit to the third party, and further (3) that permitting the third party to [assert rights under the contract] against a contracting party is consistent with the objectives of the contract and the reasonable expectations of the contracting parties.” (Id., at p. 821.)

Here, the Arbitration Agreement expressly states that “[t]he disputes covered under this Agreement include any dispute between an employee and any other person where: (1) the employee seeks to hold the Company liable on account of the other person’s conduct or (2) the other person is also covered by this Agreement and the dispute arises from or relates to employment, including termination from employment, with the Company.” (Internullo Decl. Exh. A. p.1.) This language plainly establishes all three Goonewardene factors on its face since Plaintiff’s claims against Defendant Fragoso arise entirely out of their relationship as fellow employees of the same company. (See generally, Complaint.) Defendant Fragoso is therefore likewise entitled to enforce the arbitration agreement as a third-party beneficiary.

Waiver

Plaintiff argues in opposition that Defendants waived the right to compel arbitration by removing this case to federal court and filing an answer to the Complaint.

“As with any other contractual right, the right to arbitration may be waived.” (Chase v. Blue Cross of California (1996) 42 Cal.App.4th 1142, 1151 [citing Code Civ. Proc. § 1281.2(a)].) “A party seeking to prove waiver of a right to arbitration must demonstrate (1) knowledge of an existing right to compel arbitration; (2) acts inconsistent with that existing right; and (3) prejudice to the party opposing arbitration.” (Hoover v. American Income Life Ins. Co. (2012) 206 Cal.App.4th 1193, 1203.) Further, a petition to compel arbitration "should be brought within a reasonable time." (Zamora v. Lehman (2010) 186 Cal.App.4th 1, 17.) What constitutes a “reasonable time” is a question of fact depending on the situation of the parties, the nature of the transaction, the facts of the case, and any prejudice suffered by the opposing party. (See, e.g., Spear v. California State Auto. Ass'n (1992) 2 Cal.4th 1035, 1043.)

Here, Plaintiff cites no authority standing for the position that removal to federal court and filing of an answer constitute acts inconsistent with a right to compel arbitration. Plaintiff has thus failed to carry her substantiate this objection.

Exclusion of Sexual Harassment Claims from Arbitration

Plaintiff also opposes arbitration arguing her claims for sexual harassment are excluded under the recent amendments to the Federal Arbitration Act.

On March 3, 2022, the President signed the “Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act of 2021” into law. (Pub. L. No. 117-90, 136 Stat. 26, codified in 9 U.S.C. §§ 401, 402.) The effect of this provision is to preclude arbitration of disputes relating to conduct alleged to be sexual harassment under applicable law, including state law. (9 U.S.C. §§ 401, 402.) Section 3 of the Act states that it applies “to any dispute or claim that arises on or after the date of enactment of this Act.” (Pub. L. No. 117-90, 136 Stat. 26 § 3.) Under the Fair Employment and Housing Act, claims accrue when the adverse employment action occurs and the claimant suffers an injury. (McCaskey v. California State Auto Assn. (2010) 189 Cal.App.4th 947, 997.) The Complaint alleges Plaintiff was terminated on March 29, 2021, and the final instance of allegedly injurious conduct occurred in April 2021, notwithstanding the conclusory allegation of a continuing injury by failing to rehire Plaintiff. (Complaint ¶ 15p-u.) Thus, as alleged, Plaintiff’s claim accrued at the latest in April 2021, before the amendments were enacted. Therefore, these provisions do not apply to this dispute.

Unconscionability

Plaintiff’s final argument is that the agreement is unenforceable because it is unconscionable.

1. Procedural Unconscionability

“‘To briefly recapitulate the principles of unconscionability, the doctrine has “‘both a “procedural” and a “substantive” element,’ the former focusing on ‘“oppression”’ or ‘“surprise”’ due to unequal bargaining ¿power, the latter on ‘“overly harsh”’ … or ‘“one-sided”’ results.” [Citation.] The procedural element of an unconscionable contract 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.’” … [¶] Substantively unconscionable terms may take various forms, but may generally be described as unfairly one-sided.’ [Citation.]” (Citation omitted.)

“Under this approach, both the procedural and substantive elements must be met before a contract or term will be deemed unconscionable. Both, however, need not be present to the same degree. A sliding scale is applied so that ‘the more substantively oppressive the contract term, the less evidence of procedural unconscionability is required to come to the conclusion that the term is unenforceable, and vice versa.’ (Citations omitted.)

(Walnut Producers of California v. Diamond Foods, Inc. (2010) 187 Cal.App.4th 634, 645 (bold emphasis added).)

Plaintiff argues that the agreement is procedurally unconscionable because it is a contract of adhesion. This argument presents only minimal unconscionability:

“The procedural element of the unconscionability analysis concerns the manner in which the contract was negotiated and the circumstances of the parties at that time. [Citation.] The element focuses on oppression or surprise. [Citation.] ‘Oppression arises from an inequality of bargaining power that results in no real negotiation and an absence of meaningful choice.’ [Citation.] Surprise is defined as ‘“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.”’ [Citation.]” (Citation omitted.)

Plaintiffs claim the Agreement is procedurally unconscionable because it is an adhesion contract. An adhesion contract is “a standardized contract … imposed upon the subscribing party without an opportunity to negotiate the terms.” (Citation omitted.) “The term signifies a standardized contract, 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. [Citation.]” (Citation omitted.)

The California Supreme Court has consistently stated that “‘[t]he procedural element of an unconscionable contract generally takes the form of a contract of adhesion … .’ ” (Citations omitted.)

“Whether the challenged provision is within a contract of adhesion pertains to the oppression aspect of procedural unconscionability. A contract of adhesion is “imposed and drafted by the party of superior bargaining strength” and “relegates to the subscribing party only the opportunity to adhere to the contract or reject it.” (Citations omitted.) “[A]bsent unusual circumstances, use of a contract of adhesion establishes a minimal degree of procedural unconscionability notwithstanding the availability of market alternatives.” (Citation omitted.)

(Walnut Producers of California, supra, 187 Cal.App.4th at 645-46 [bold emphasis added].) Thus, even accepting Plaintiff’s argument as true, this would establish only a minimum of procedural unconscionability.

Second, Plaintiff argues that the Agreement is unconscionable because Defendants did not provide Plaintiff with the rules which would govern the arbitration. Although Plaintiff describes this argument as showing substantive unconscionability, failure to provide arbitration rules or specify where they might be found is, instead, evidence of procedural unconscionability. (See, e.g., Carbajal v. CWPSC, Inc. (2016) 245 Cal.App.4th 227, 244-46.) However, the failure to attach arbitration rules is not sufficient to support a finding of procedural unconscionability on its own. (Peng v. First Republic Bank (2013) 219 Cal.App.4th 1462, 1472.) Here, the Arbitration Agreement states:

Claims shall be resolved through binding arbitration to be administered by the American Arbitration Association (the “AAA”), in accordance with its Employment Arbitration Rules and Mediation Procedures (the “AAA Rules”) then in effect, except as otherwise modified herein. The AAA Rules may be found on the AAA’s website: www.adr.org

(Internullo Decl. Exh. A. p.3.) Plaintiff states she was not given a copy of the rules. (Declaration of Gabriela Cortez ISO Opp. ¶ 7.) Moreover, as Plaintiff observes, the link provided merely goes to the AAA’s primary webpage, not directly to the governing rules. (See Hasty v. American Automobile Assn. (2023) 98 Cal.App.5th 1041, 1061 [stating that a non-functional hyperlink accompanying a statement that arbitration shall be conducted in accordance with the applicable rules “then in effect” supports a finding of unconscionability].) Generally, however, a challenge based on the failure to provide arbitration rules must also point to some deficiency or element of the rules of which Plaintiff was unaware. (Baltazar v. Forever 21, Inc. (2016) 62 Cal. 4th 1237, 1246.) Here, as in Baltazar, Plaintiff offers no such contention.

Third, Plaintiff contends that the agreement is unconscionable because arbitration presents advantages for an employer who repeatedly appears before the same group of arbitrators. Plaintiff relies on a selective quotation from Mercuro v. Superior Court (2002) 96 Cal.App.4th 167, in which the Court of Appeal described these advantages. (Mercuro v. Superior Court (2002) 96 Cal.App.4th 167, 178-79.) As Defendants point out in reply, however, the portion of this authority which Plaintiff omitted expressly states that the “repeat player effect” has never been held to render an arbitration agreement unconscionable per se. (Id. at 178.) The Mercuro Court also expressly declined to so hold. (Id. at 179.)

The Court therefore finds that Plaintiff has not demonstrated more than minimal procedural unconscionability.

2. Substantive Unconscionability

Plaintiff argues that the agreement is substantively unconscionable. As Plaintiff has shown only a minimal level of procedural unconscionability, Plaintiff bears a higher burden to demonstrate substantive unconscionability.

“A provision is substantively unconscionable if it ‘involves contract terms that are so one-sided as to “shock the conscience,” or that impose harsh or oppressive terms.’ [Citation.] The phrases ‘harsh,’ ‘oppressive,’ and ‘shock the conscience’ are not synonymous with ‘unreasonable.’ Basing an unconscionability determination on the reasonableness of a contract provision would inject an inappropriate level of judicial subjectivity into the analysis. ¿‘With a concept as nebulous as “unconscionability” it is important that courts not be thrust in the paternalistic role of intervening to change contractual terms that the parties have agreed to merely because the court believes the terms are unreasonable. The terms must shock the conscience.’ [Citations.]”

(Walnut Producers of California v. Diamond Foods, Inc. supra, 187 Cal.App.4th at pp. 647-648.)

An agreement is not substantively unconscionable in the context of an employment discrimination claim 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. Thus, an employee who is made to use arbitration as a condition of employment "effectively may vindicate [his or her] statutory cause of action in the arbitral forum.’ "

(Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, 102.)

Plaintiff first argues that the agreement does not provide for adequate discovery because the agreement only states that “Discovery will be governed by the Federal Rules of Civil Procedure.” (Internullo Decl. Exh. A. p.3.) Plaintiff claims that this provision is unacceptably vague. The Court disagrees. This provision is a plain statement that Plaintiff will enjoy the full scope of discovery under the Federal Rules of Civil Procedure. That is manifestly more than minimal discovery.

Plaintiff next argues that the agreement does not allow for judicial review of the written arbitration award. This claim is specious. Judicial review of arbitration awards is governed by the Federal Arbitration Act and the California Arbitration Act. (9 U.S.C. §§ 9-13; Code Civ. Proc. § 1285 et seq.)

Third, Plaintiff argues that the agreement is substantively unconscionable because it contains a confidentiality provision. The full confidentiality provision states:

All proceedings and documents prepared in connection with any arbitration pursuant to this Agreement shall be confidential and, unless otherwise required by law, shall not be disclosed to any other person other than the parties, their counsel, witnesses, expert, and the arbitrator(s). The results of the arbitration, unless otherwise agreed to by the parties, are confidential and may not be disclosed, made public, or reported to any person or entity, except as otherwise required by law, or the extent necessary in connection with judicial review of the final written decision.

(Internullo Decl. Exh. A. p 4.)

Confidentiality provisions are not per se unconscionable if they are based on a legitimate commercial need. (Baltazar v. Forever 21, Inc., supra, 62 Cal.4th at 1250.) Here, however, Defendant identifies no commercial need for a confidentiality provision. Moreover, in Hasty, the Court of Appeal stated categorically that confidentiality provisions are substantively unconscionable in the context of harassment, discrimination, and retaliation claims because they only serve to benefit the employer. (Hasty, supra, 98 Cal.App.5th at 1062.) The Hasty Court reasoned: “Future employees cannot take advantage of findings in past arbitrations or prove a pattern of discrimination and/or retaliation.... In addition, ‘keeping past findings secret undermines an employee's confidence in the fairness and honesty of the arbitration process and thus potentially discourages that employee from pursuing a valid discrimination claim.” (Hasty, supra, 98 Cal.App.5th at 1062, quoting Murrey v. Superior Court (2023) 87 Cal.App.5th 1223, 1254.) Under this binding authority, the confidentiality provision is substantively unconscionable.

Further, as Plaintiff argues, the agreement also contains a waiver of class, collective, and representative actions other than Private Attorney General Act claims and requires that all claims must be brought in Plaintiff’s individual capacity. (Internullo Decl. Exh. A. p.1.) As the Court of Appeal has repeatedly found, these provisions “can be fairly read to limit only the employee’s rights.” (Hasty, supra, 98 Cal.App.5th at 1062-63; see also Navas v. Fresh Venture Foods, LLC (2022) 85 Cal.App.5th 626, 636.) Plaintiff has thus demonstrated that the agreement has multiple unconscionable provisions.

Although the Court is empowered to sever unconscionable provisions of a contract, the Court has discretion to refuse to enforce the contract in its entirety. (Civ. Code § 1670.5(a).) It is not an abuse of discretion for the Court to refuse to enforce an arbitration agreement which contains multiple unconscionable terms. (Armendariz, supra, 24 Cal.4th at 124.) As Plaintiff has identified multiple substantively unconscionable provisions and demonstrated some minimal procedural unconscionability, that discretion is exercised here.

The Court therefore finds that Plaintiff has shown that the agreement is permeated with substantive unconscionability and is unconscionable on the whole. Defendants are therefore not permitted to enforce the Arbitration Agreement.

CONCLUSION:

Accordingly, Defendants’ Motion to Compel Arbitration is DENIED.

Moving Parties to give notice.

IT IS SO ORDERED.

Dated: May 20, 2024 ___________________________________

Theresa M. Traber

Judge of the Superior Court

Any party may submit on the tentative ruling by contacting the courtroom via email at Smcdept47@lacourt.org by no later than 4:00 p.m. the day before the hearing. All interested parties must be copied on the email. It should be noted that if you submit on a tentative ruling the court will still conduct a hearing if any party appears. By submitting on the tentative you have, in essence, waived your right to be present at the hearing, and you should be aware that the court may not adopt the tentative, and may issue an order which modifies the tentative ruling in whole or in part.