Judge Upinder S. Kalra, Case Number: 23STCV23723, Date: 2024-02-20 Tentative Ruling

On September 29, 2023, Plaintiff Kevin Hickey (Plaintiff) filed a Complaint against Defendant Transform Sears Home Services LLC with five causes of action for: (1) Discrimination in Violation of the FEHA; (2) Failure to Accommodate in Violation of the FEHA; (3) Failure to Engage in the Interactive Process in Violation of the FEHA; (4) Retaliation in Violation of the FEHA; and (5) Failure to Prevent in Violation of the FEHA.

According to the Complaint, Plaintiff worked for Defendant from December 2020 until August 2021 as a service technician. He alleges Defendant wrongfully terminated him. Plaintiff alleges that due to a disability, he requested a leave of absence from April 26, 2021 to June 21, 2021 and subsequently requested an extension until August 2021 to undergo surgery.

On January 23, 2024, Defendant filed the instant Motion to Compel Arbitration. On February 5, 2024, Plaintiff filed an opposition. On February 9, 2024, Defendant filed a reply.

The court grants Defendant’s request for judicial notice as to Exhibits 1 through 3. (Evid. Code § 452(d), (h); See Kalnoki v. First American Trustee Servicing Solutions, LLC (2017) 8 Cal.App.5th 23,37.)

Under California law, the trial court has authority to compel arbitration pursuant to CCP §1281.2 where a written agreement for such arbitration exists and one of the parties refuses to arbitrate.¿ Specifically, the statute provides that, “[o]n 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 arbitrate the controversy exists.”¿ The statute further sets forth four grounds upon which the trial court may refuse to compel arbitration: (a) the right to compel arbitration was waived, (b) recission of the agreement, (c) there is a pending action or special proceeding with a third party, arising out of the same transaction; and (d) petitioner is a state or federally chartered depository institution.¿

“[T]he petitioner bears the burden of proving the existence of a valid arbitration agreement by the preponderance of the evidence . . . .”¿¿(Giuliano v. Inland Empire Personnel, Inc.¿(2007) 149 Cal.App.4th 1276, 1284¿(Guiliano).)¿“In determining whether an arbitration agreement applies to a specific dispute, the court may examine only the agreement itself and the complaint filed by the party refusing arbitration [citation]. The court should attempt to give effect to the parties' intentions, in light of the usual and ordinary meaning of the contractual language and the¿circumstances under which the agreement was made.”¿¿(Weeks v. Crow¿(1980) 113 Cal.App.3d 350, 353.)¿ “To determine whether a contractual arbitration clause requires arbitration of a particular controversy, the controversy is first identified and the issue is whether that controversy is within the scope of the contractual arbitration clause.”¿¿(Titolo¿v. Cano¿(2007) 157 Cal.App.4th 310, 316.)¿ “Doubts as to whether an arbitration clause applies to a particular dispute are to be resolved in favor of sending the parties to arbitration. The court should order them to arbitrate unless it is clear that the arbitration clause cannot be interpreted to cover the dispute.”¿¿(California Correctional Peace Officers¿Ass'n¿v. State¿(2006) 142 Cal.App.4th 198, 205.)

“[A] party opposing the petition bears the burden of proving by a preponderance of the evidence any fact necessary to its defense. [Citation.] 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, supra, at p. 1284.)¿¿

In determining the enforceability of an arbitration agreement, the court considers “two ‘gateway issues’ of arbitrability: (1) whether there was an agreement to arbitrate between the parties, and (2) whether the agreement covered the dispute at issue.”¿ (Omar v. Ralphs Grocery Co. (2004) 118 Cal.App.4th 955, 961 (Omar).)¿¿¿¿¿

The moving party can meet its initial burden of proving the existence of an arbitration agreement by attaching a copy of the Agreement to this motion bearing the signature of the opposing party. (See Bannister v. Marinidence Opco, LLC (2021) 64 Cal.App.5th 541, 541-543 [“The party seeking arbitration can meet its initial burden by attaching to the petition a copy of the arbitration agreement purporting to bear the¿respondent's signature.”].) Alternatively, the moving party can meet its initial burden by setting forth the agreement’s provisions in the motion. (See Cal. Rules of Court, rule 3.1330; see also Condee v. Longwood Management Corp. (2001) 88 Cal.App.4th 215, 219.)

Here, Defendant met their initial burden because they attached a copy of the Mutual Arbitration Agreement (MAA) with Plaintiff’s electronic signature. (Declaration of Sandra Quinn (Quinn Decl.) ¶¶ 10, 11, Exhibits A, B.) Both California and Federal law provides that electronic signatures on arbitration agreements are valid. The California Uniform Electronic Transactions Act (“UETA”) indicates that an electronic signature has the same legal effect as handwritten signature.

“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.” (Gamboa v. Northeast Community Clinic (2021) 72 Cal. App. 5th 158,165 (Gamboa).) The evidence must be sufficient to create a factual dispute to shift the burden back to the arbitration proponent who retains the ultimate burden of proving, by a preponderance of the evidence, the authenticity of the signature. (Iyere v. Wise Auto Group (2023) 87 Cal.App.5th 747, 755 (Iyere).)

Here, Plaintiff argues that Defendant did not provide evidence that Plaintiff actually received the MAA or acknowledged receipt of it with a unique, verifiable signature.

Once Plaintiff challenges the validity of the signature, “defendants were then required to establish by a preponderance of the evidence that the signature was authentic.” (Espejo v. Southern California Permanente Medical Group (2016) 246 Cal.App.4th 1047, 1060 (Espejo).) Espejo dealt with an electronic signature. In Espejo, the supplemental declaration of the systems consultant provided the necessary information to establish the authenticity of the document, specifically how the unique username and password were only accessible to that specific individual. (Id. at 1062). In Gamboa, in contrast, the trial court determined the employer failed to sustain its burden of proof because it presented no admissible evidence rebutting the employee’s claim denying remembering signing any arbitration document. (Gamboa, supra, 72 Cal.App.5th at 169.) The Gamboa panel found no error in the trial court’s order.

Here, unlike Gamboa, Defendant provided admissible evidence meeting its burden. For example, Defendant presented declarations from Sandra Quinn, Senior Director, PeopleOps, who is personally familiar and has responsibility over Payroll, HR Systems, Payroll finance and HR Shared Services, and access to personnel records of current and former employees. (Quinn Decl. ¶¶ 2, 4.) Just like in Espejo, where the defendant provided a declaration that discussed the “steps an applicant would have to take to place his or her name on the signature line of the employment agreement,” (Espejo, supra, 246 Cal.App.4th at 1062), Quinn provided sufficient detail attesting to the authenticity of the password protected electronic signature. Namely, Plaintiff needed to use his email address and a unique password to access Brass Ring to complete the employment application, and, while on Brass Ring authorized electronic signatures by using the last four digits of his SSN and clicking “I Accept.” (Quinn Decl. ¶¶ 7, 8, Exhibit A.) Plaintiff did not challenge completing this process. (Hickey Decl. ¶ 4.) Additionally, the employment offer letter reiterated the existence of the MAA and indicated it would be sent to Plaintiff to review and sign if he had not already done so in the job application process. (Quinn Decl., Exhibit C.) In sum, Defendant provided credible evidence that Plaintiff was the only person able to access his login credentials to review and acknowledge receipt of the MAA and related documents. (Quinn Decl. ¶¶ 10, 11, 15, Exhibits A, B, D.)

Thus, the court finds that Moving Defendants have met their burden by a preponderance of the evidence establishing the existence of a valid agreement between the parties.

Therefore, the Defendant has established that the Arbitration Agreement exists.

Defendant contends the MAA covers the subject dispute because Plaintiff filed an employment action that is not otherwise excluded by the MAA. Plaintiff did not directly oppose this argument.

Here, the MAA applies to the instant dispute. First, the MAA states it covers “a legal claim under any federal, state or local statute, ordinance, regulation or common law doctrine regarding or relating to your employment, the terms and conditions of your employment, or any termination of employment . . . .” unless specifically carved out. (Quinn Decl., Exhibit B.) Plaintiff’s claim against Defendant concerns his employment with them and is not otherwise carved out.

Plaintiff argues that the court should not compel arbitration because the MAA is unconscionable.

Once it is determined that a valid arbitration agreement exists, the burden shifts to the opposing party to “prove by a preponderance of the evidence any defense to the petition.” (Lacayo v. Catalina Restaurant Group Inc. (2019) 38 Cal.App.5th 244, 257, review denied (Nov. 13, 2019)).¿

In Armendariz, the California Supreme Court stated that when determining whether an arbitration agreement was unconscionable, there is both a procedural and a substantive element. (Armendariz v. Foundation Health Psychcare Service, Inc. (2000) 24 Cal.4th 82, 114 (Armendariz)).¿¿

Defendant contends there is no procedural unconscionability because Plaintiff was presented with a conspicuous title of the agreement so there are no elements of surprise or oppression. Plaintiff argues there is substantial procedural unconscionability because the MAA is an adhesion contract.

Courts determine whether an agreement is procedurally unconscionable by looking at surprise and oppression. Oppression is an “inequality of bargaining power, when one party has no real power to negotiate or a meaningful choice. Surprise occurs when the allegedly unconscionable provision is hidden.” (Carmona v. Lincoln Millennium Car Wash, Inc.¿(2014) 226 Cal.App.4th 74, 84 (Carmona).) Examples of contracts that are procedurally unconscionable are contracts of adhesion, which is 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.” (Armendariz, supra, at p. 113). “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. (OTO, L.L.C. v. Kho (2019) 8 Cal.5th 111, 126-27 (OTO).)

Here, while this may have been a contract of adhesion, as most employment contracts are, this alone does not mean the whole agreement is procedurally unconscionable. “When arbitration is a condition of employment, there is inherently economic pressure on the employee to accept arbitration. This alone is a fairly low level of procedural unconscionability.” (Cisneros Alvarez v. Altamed Health Services Corporation (2021) 60 Cal.App.5th 572, 591). Plaintiff’s only argument is that he needed to accept the MAA or he would be denied the job. (Opp. 12:21-25.) There are no other arguments supporting procedural unconscionability.

Plaintiff argues the MAA is substantively unconscionable because it does not provide for adequate discovery, does not provide for all remedies, and lacks mutuality because Defendant could terminate the MAA but Plaintiff could not. Defendant argues that the MAA meets the Armendariz factors and the MAA is mutual.

“Substantive unconscionability pertains to the fairness of an agreement's actual terms and to assessments of whether they are overly harsh or one-sided.” (Carmona, supra, at p. 85). There are five minimum substantive requirements to an enforceable arbitration agreement: (1) neutral arbitrators, (2) more than minimal discovery, (3) written award sufficient for judicial review, (4) all types of relief otherwise available in court, and (5) no unreasonable costs or fees as a condition of access. (Armendariz, supra, at p.102.) When there is little procedural unconscionability, a party opposing arbitration must show substantial substantive unconscionability. (Id. at 114.)

Plaintiff relies on Fitz v. NCR Corp. (2004) 118 Cal.App.4th 702, 716 (Fitz) and Baxter v. Genworth North America Corp. (2017) 16 Cal.App.5th 713, 728 (Baxter) to support their position. In Fitz the court found that while the rules of the American Arbitration Association was incorporated, the employer deliberately modified “the rules of discovery to its advantage” by limiting the arbitrator’s discretion to expand discovery only upon a showing of a compelling need. (Fitz, supra, at p. 719.)[1] Ultimately, the Fitz court found that the arbitration agreement’s limitation on discovery and on the arbitrator’s discretion rendered the agreement unconscionable. (Fitz, supra, at pp. 716-719.) In Baxter, the agreement limited document production to the employee’s personnel and medical files, allowed up to 10 interrogatories including subparts, five document requests, and two depositions for no more than nine hours. (Baxter, supra, at p. 727.) Moreover, the arbitrator could order additional discovery on a showing of “good and sufficient cause.” (Ibid.) The Baxter Court concluded the that the limits on discovery and the showing need to expand discovery made the arbitration agreement unconscionable. (Ibid.)

Here, the MAA similarly placed significant limitations on discovery as follows: one interrogatory, 25 request for product of documents and a total of 16 hours of deposition. (Quinn Decl., Exhibit B.)[2] Moreover, “absent a showing of compelling need, the parties shall engage only in limited discovery.” (Quinn Decl., Exhibit B.)In addition, the arbitrator could order the employee to advance the costs of additional discovery.[3] (Quinn Decl., Exhibit B.)

In many respects the default discovery is even less than what was authorized in both Fitz and Baxter [4]and the standard for additional discovery is more demanding than the criticized standard in Baxter, and equally as onerous as the Fitz “compelling” need burden. The Court also compared the original JAMS discovery rules to the modified rules created by Defendant in the MAA. There simply is no comparison. The JAMS rules allow for liberal and probing discovery and afford tremendous discretion to the arbitrator to expand the scope of discovery. The Court finds that while the MAA incorporated the JAMS rules, just like the employer in Fitz, Defendant here deliberately modified “the rules of discovery to its advantage.” Moreover, similar to Fitz, the Court finds that the “compelling” burden on the arbitrator to expand discovery is so high, and the default amount of discovery is so low, that an employee is likely to be unable to make the requisite showing to compel additional necessary discovery. (Fitz at pp. 717-718.) Thus, the court agrees with Defendants that the MAA is substantively unconscionable because of the unreasonable limitations on discovery.

Lastly, severing the offending provisions of the MAA, for the same policy reasons as articulated in Fitz, “would not be consistent with the reasons for severing objectionable terms as identified by the California Supreme Court.” (Fitz at p. 727.)

Accordingly, the MAA is so substantively unconscionable that it is unenforceable.[5]

[1] The agreement limited discovery as follows:

“To prepare for the arbitration hearing, both NCR and the employee have the right to take the sworn deposition statements of two individuals and, in addition, any expert witnesses expected to testify at the hearing. All documents to be used as exhibits and a list of all potential witnesses will be exchanged at least two weeks in advance of the hearing. No other ‘discovery’ (i.e., depositions or demands for documents/information ) will be permitted unless the arbitrator finds a compelling need to allow it. In determining whether a compelling need exists, the arbitrator will balance the interests of fairness and expediency; the arbitrator will only override the goal of achieving a prompt and inexpensive resolution to the dispute if a fair hearing is impossible without additional discovery.” (Fitz at p. 709, Italics added.)

[2]The Court takes judicial notice of the FRCP. The Court examined FRCP, 33, 34, and 30 that are referenced in the MAA. The citation in the MAA to the FRCP is only on how the discovery requests are to be formatted. To be sure, the FRCP do not have the same significant limits on the quantity of discovery as in the MAA.

[3]Shifting discovery costs to the employee is substantively unconscionable. (Murrey v. Superior Ct. (2023) 87 Cal. App. 5th 1223, 1248 (Murrey).)

[4] This discovery was even less than in Murrey where the Court found the default limit of three depositions, 20 interrogatories, 15 requests for documents and 15 requests for admissions to be insufficient. (Murrey at pp. 1248-1249.)

[5]As to mutuality, the Court rejects Plaintiff’s challenge. The MAA provides that “both Transformco and you are waiving the right to a trial before a judge or jury in federal or state court in favor of arbitration.” (Ibid.) Plaintiff’s argument that Defendant could unilaterally terminate the MAA is not well taken. The clause specifically states: “Transformco may change or terminate this agreement after giving you 60 days’ written or electronic notice, but such change or termination shall not apply to a pending claim nor to any claim that accrued or was known to you prior to the amendment, except as may be required by applicable law.” (Quinn Decl., Exhibit B, Clause 7 (emphasis added).) As phrased, then, this clause preserves Defendant’s right to terminate the MAA in the future but not for already-existing claims. As to collateral estopell, there was no factual or finding by the Court. Nor did Plaintiff take to different factual or legal position. Rather, there was an agreement to enter into arbitration in a separate cause of action, in a separate proceeding in a different court.