Judge Thomas D. Long, Case 22STCV03222 2023-04-13 Tentative Ruling

On January 26, 2022, Plaintiff Dylan Anderson filed this action against Defendants The HWood Group, LLC, The Nice Guy, LLC, West Beverly Group, LLC, Change the Channel, LLC, Beverly Sherbourne, LLC, and Sunset Hotel F&B, LLC (collectively, “Defendants”). The Complaint asserts individual claims and seeks civil penalties under the Private Attorneys General Act (“PAGA”) due to Defendants’ violations of the Labor Code.

On November 21, 2022, Defendant filed a motion to compel arbitration of Plaintiff’s individual claims and dismiss Plaintiff’s complaint.

When seeking to compel arbitration of a plaintiff’s claims, the defendant must allege the existence of an agreement to arbitrate. (Condee v. Longwood Management Corp. (2001) 88 Cal.App.4th 215, 219.) The burden then shifts to the plaintiff to prove the falsity of the agreement. (Ibid.) After the Court determines that an agreement to arbitrate exists, it then considers objections to its enforceability. (Ibid.) The Court must grant a motion to compel arbitration unless the defendant has waived the right to compel arbitration or if there are grounds to revoke the arbitration agreement. (Ibid.; Code Civ. Proc., § 1281.2.)

Under the Federal Arbitration Act (“FAA”), an agreement to arbitrate “shall be valid, irrevocable, and enforceable.” (9 U.S.C. § 2). The United States Supreme Court has broadly interpreted the FAA. Under this interpretation, the statute is to be read “as insisting that the ‘transaction’ in fact ‘involve’ interstate commerce, even if the parties did not contemplate an interstate commerce connection.” (Allied-Bruce Terminix Companies, Inc. v. Dobson (1995) 513 U.S. 265, 28). “The statute’s language, background, and structure establish that section 2’s ‘involving commerce’ words are the functional equivalent of the phrase ‘affecting commerce,’ which normally signals Congress’ intent to exercise its commerce power to the full[.]” (Id. at p. 265.) “Congress Commerce Clause power ‘may be exercised in individual cases without showing any specific effect upon interstate commerce’ if in the aggregate the economic activity in question would represent ‘a general practice ... subject to federal control.’ [Citations.] Only that general practice need bear on interstate commerce in a substantial way.” (Citizens Bank v. Alafabco, Inc. (2003) 539 U.S. 52, 56-57.)

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 Personnel, Inc. (2007) 149 Cal.App.4th 1276, 1286.)

Defendants contend that they purchase goods, produce, materials, services, and supplies internationally and throughout the United States. (Overgard Decl., ¶ 10.) Defendants further contend that they use interstate communication networks, including the U.S. mail, the internet, and cellular phones to run their business operations. (Overgard Decl., ¶ 10.) Defendants further contend the arbitration agreement between the parties in this matter (the “Arbitration Agreement”) provides that any disputes thereunder are to be decided in accordance with the FAA. (Overgard Decl., Ex. A, preamble paragraph.) Plaintiff does not dispute that this Arbitration Agreement is governed by the FAA. Accordingly, the FAA governs this Arbitration Agreement.

Defendants have attached an arbitration agreement to their motion, i.e., the Arbitration Agreement. (Overgard Decl., Ex. A.) The Arbitration Agreement provides that disputes relating to Plaintiff’s employment are to be handled through binding arbitration. (Overgard Decl., Ex. A, ¶ 1.) Plaintiff also appears to have digitally signed the Arbitration Agreement. (Overgard Decl., Exs. A, B.) Defendants have met their moving burden. The burden now shifts to Plaintiff to challenge the validity of the Arbitration Agreement.

Plaintiff does not dispute that he signed the Arbitration Agreement. (See Anderson Decl., ¶¶ 3-6.) Plaintiff instead contends that the Arbitration Agreement is unenforceable on grounds of unconscionability.

C. The Arbitration Agreement Should Not Be Invalidated Due to Unconscionability.

“[P]rocedural and substantive unconscionability must both be present in order 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, 102 (Armendariz).) The courts invoke a sliding scale which disregards the regularity of the procedural process of the contract formation, that creates the terms, in proportion to the greater harshness or unreasonableness of the substantive terms themselves, i.e., 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. (Id., at p. 114.) Plaintiff bears the burden of proving that the provision at issue is both procedurally and substantively unconscionable.

Procedural unconscionability focuses on the elements of oppression and surprise. [Citations] ‘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 terms of the bargain are hidden in a ‘prolix printed form’ drafted by a party in a superior bargaining position.’ [Citations]” (Roman v. Superior Court (2009) 172 Cal.App.4th 1462, 1469.)

Plaintiff contends the Arbitration Agreement is procedurally unconscionable because it was given on a take-it-or-leave-it basis and he had no opportunity to review or negotiate the agreement. The Court also notes that the Arbitration Agreement expressly conditions employment or continued employment on its execution. (Overgard Decl., Ex. A [“As a condition of and in consideration for my employment and/or continued employment with Beverly Sherbourne, LLC dba Delilah…”]) While a contract of adhesion by itself can be a finding of procedural unconscionability, that by itself is not necessarily sufficient to support a finding of unconscionability. (Baxter v. Genworth North America Corp. (2017) 16 Cal.App.5th 713,723). Therefore, Plaintiff will need to establish more than the existence of an adhesion contract to render the Arbitration Agreement unenforceable. (Baxter v. Genworth North America Corp. (2017) 16 Cal.App.5th 713,723).

“Substantive unconscionability focuses on the actual terms of the agreement and evaluates whether they create ‘overly harsh’ or ‘‘one-sided’ results’ [Citations] that is, whether contractual provisions reallocate risks in an objectively unreasonable or unexpected manner. [Citation] Substantive unconscionability ‘may take various forms,’ but typically is found in the employment context when the arbitration agreement is ‘one-sided’ in favor of the employer without sufficient justification, for example, when ‘the employee’s claims against the employer, but not the employer’s claims against the employee, are subject to arbitration.’ [Citations]” (Roman, supra, 172 Cal.App.4th at pp. 1469-1470.)

Plaintiff contends that the Arbitration Agreement is substantively unconscionable because it carves out claims for Defendants, it gives Defendants a “free peek” at Plaintiff’s claims, it contains an improper confidentiality clause, it does not provide for judicial review, and it does not provide for a neutral arbitrator. The Court is not persuaded the Arbitration Agreement is substantively unconscionable.

First, the exceptions to the scope of the Arbitration Agreement are not one-sided carveouts that only benefit Defendants. It specifically excludes workers compensation and unemployment compensation claims from its scope, non-arbitrable claims, claims under benefit plans, and claims by either party for declaratory or injunctive relief. (Overgard Decl., Ex. A, ¶ 1.) It is unclear how carving out such claims would only benefit Defendants.

Second, the Nyulassy case that Plaintiff cites did not hold that the “free peek” was categorically unconscionable. It found substantive unconscionability when that factor was combined with other factors. (Nyulassy v. Lockheed Martin Corp. (2004) 120 Cal.App.4th 1267, 1282-83.) That provision was from a contract that unilaterally required only the plaintiff to arbitrate all employment related claims, (Id.), whereas that is not the case here. The Arbitration Agreement provides that both parties are to arbitrate all employment related disputes. (Overgard Decl., Ex. A, ¶ 1.) Additionally, this purported “free peek” provision goes both ways, so Plaintiff could equally have been the one to get such a “free peek” if Defendants had been the ones to initiate this action. (Overgard Decl., Ex. A, ¶ 3.)

The agreement in Nyulassy also shortened the time limit for all of the plaintiff’s claims, in some instances by three and a half years. (Nyulassy, supra, 120 Cal.App.4th at p. 1283). Here, the Arbitration Agreement only states that claims requiring filing with government agencies or within the statute of limitations need to be filed within the timelines prescribed by such agencies or statutes. (Overgard Decl., Ex. 1, ¶ 3.)

Third, the case Plaintiff cited to regarding confidentiality clauses is inapplicable here because that case involved a major transnational corporation, i.e., AT&T, who was a “repeat player” with arbitrations. (Ting v. AT&T (9th Cir. 2003) 319 F.3d 1126, 1152.) Plaintiff has not presented any evidence to show that Defendants are a repeat player. Additionally, that is a federal case. A California case that addresses this issue is Sanchez v. Carmax Auto Superstores California, LLC (2014) 224 Cal.App.4th 398, 482, which held that a confidentiality provision was not unconscionable.

Fourth, Plaintiff’s argument regarding lack of judicial review is without merit. The Arbitration Agreement provides that the arbitrator shall submit with the award a written opinion, which includes findings of fact and conclusions of law. (Overgard Decl., Ex. A, ¶ 9.) This satisfies Armendariz, which provided that, “in order for such judicial review to be successfully accomplished, an arbitrator in an FEHA case must issue a written arbitration decision that will reveal, however briefly, the essential findings and conclusions on which the award is based.” (Armendariz, supra, 24 Cal.4th at p. 107.)

Fifth, Plaintiff’s claim regarding inability to pick a neutral arbitrator is also unsupported. The Arbitration Agreement provides that parties will mutually choose a single arbitrator from the AAA’s Employment Dispute Resolution Roster. (Overgard Decl., Ex. A, ¶ 4.)

Therefore, the Court does not find that the Arbitration Agreement is unenforceable on grounds of unconscionability.

D. Plaintiff’s Individual Claims Must Be Arbitrated, But Plaintiff’s Representative Claim Must Be Litigated, Not Dismissed.

“PAGA provides no mechanism to enable a court to adjudicate non-individual PAGA claims once an individual claim has been committed to a separate proceeding. Under PAGA’s standing requirement, a plaintiff can maintain non-individual PAGA claims in an action only by virtue of also maintaining an individual claim in that action. See Cal. Lab. Code Ann. §§ 2699(a), (c). When an employee’s own dispute is pared away from a PAGA action, the employee is no different from a member of the general public, and PAGA does not allow such persons to maintain suit.” (Viking River Cruises, Inc. v. Moriana (2022) 142 S.Ct. 1906, 1925 (Viking River Cruises).)

However, in Viking River Cruises, the Supreme Court also recognized that this is ultimately an issue of state law. The Court of Appeal recently “conclude[d] that a plaintiff is not stripped of standing to pursue non-individual PAGA claims simply because his or her individual PAGA claim is compelled to arbitration.” (Million Seifu v. Lyft, Inc. (Cal. Ct. App., Mar. 30, 2023, No. B301774) 2023 WL 2705285, at p. *1 (Seifu).) Like the plaintiff in Seifu, Plaintiff alleges that he was employed by Defendant and that one or more alleged Labor Code violations were committed against him, and thus he is an “aggrieved” employee within the meaning of PAGA with standing to assert PAGA claims on behalf of himself and other employees. (See Seifu, supra, 2023 WL 2705285, at p. *6; see also Nickson v. Shemran, Inc. (Cal. Ct. App., Apr. 7, 2023, No. D080914) 2023 WL 2820860, at *7.)

The California Supreme Court is also set to decide the issue in Adolph v. Uber Technologies, Case No. S274671 (Adolph). The California Supreme Court granted review on July 20, 2022, and on August 1, 2022, it limited the issue to be briefed as: “Whether an aggrieved employee who has been compelled to arbitrate claims under the Private Attorneys General Act (PAGA) that are ‘premised on Labor Code violations actually sustained by’ the aggrieved employee [citations] maintains statutory standing to pursue ‘PAGA claims arising out of events involving other employees’ [citation] in court or in any other forum the parties agree is arbitrable.” The case is fully briefed, but oral argument has not yet been set.

Accordingly, Defendant’s request to dismiss the representative PAGA claim is denied. (See Motion at pp. 9-10.) This denial is without prejudice to the filing of a new motion following the opinion in Adolph, if the California Supreme Court decides the issue differently.

Instead, the Court will stay Plaintiff’s representative claim (part of the eleventh cause of action) pending completion of arbitration of Plaintiff’s individual claims. (See Gregg v. Uber Technologies, Inc. (Cal. Ct. App., Mar. 24, 2023, No. B302925) 2023 WL 2624590, at pp. *10-11.)

The entire action is STAYED pending the conclusion of the arbitration proceedings.

A Status Conference Re: Arbitration is scheduled for October 13, 2023 at 8:30 AM in Department 48 at Stanley Mosk Courthouse.

Parties who intend to submit on this tentative must send an email to the Court at SMCDEPT48@lacourt.org indicating intention to submit. Parties intending to appear are encouraged to appear remotely and should be prepared to comply with Dept. 48’s new requirement that those attending court in person wear a surgical or N95 or KN95 mask.

Hon. Thomas D. Long

Judge of the Superior Court