Judge Upinder S. Kalra, Case Number: 24STCV08388, Date: 2024-08-27 Tentative Ruling

MOVING PARTY: Defendants Arakelian Enterprises, Inc dba Athens Services, Michael Arakelian, Adam Arakelian, Ron Arakelian, and Gary Clifford

On April 3, 2024, Plaintiff Brian Johsz (Plaintiff) filed a Complaint against Defendants Arakelian Enterprises, Inc. dba Athens Services, Michael Arakelian, Adam Arakelian, Ron Arakelian III, and Gary Clifford (Defendants) with seven causes of action for: (1) Unlawful Retaliation (Cal. Labor Code § 1102.5); (2) Unlawful Retaliation (Cal. Gov. Code § 12940 et seq.); (3) Unlawful Harassment (Cal. Gov. Code § 12940(j)); (5) Unlawful Competition/Business Practices (Cal. Bus & Prof Code § 17200 et seq.); (5) Wrongful Termination in Violation of Public Policy; (6) Failure to Provide Employee File (Cal. Labor Code § 1198.5); and (7) Declaratory Relief.

According to the Complaint, Plaintiff worked for Defendants from 2014 until he was wrongfully terminated in March of 2023. Plaintiff also alleges that he was elected to the Chino Hills’ City Council in 2017 and continues to serve there to this date. Plaintiff further alleges that Defendants sought a valuable trash hauling contract from Chino Hills while Plaintiff was serving as its Mayor and/or City Council Member, including pressuring Plaintiff to influence the bidding process to unethically obtain the contract. Plaintiff alleges that Defendants retaliated against him and ultimately wrongfully terminated his employment due to his unwillingness to help Defendants obtain the trash hauling contract from Chino Hills.

On June 7, 2024, Defendants filed a Motion to Compel Arbitration and Stay Action.

On August 14, 2024, Plaintiff filed oppositions to both motions. On August 20, Defendants filed replies for both motions.

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.)¿¿¿

Under Code of Civil Procedure section 128.7 subdivision (b), by filing a pleading, an attorney certifies, “to the best of [their] knowledge, information, and belief, formed after an inquiry reasonable under the circumstances,” that the pleading meets all of the following conditions:¿¿¿

1. It is not being presented primarily for an improper purpose, such as to harass or to cause unnecessary delay or needless increase in the cost of litigation.¿

2. The claims, defenses, and other legal contentions therein are warranted by existing law or by a nonfrivolous argument for the extension, modification, or reversal of existing law or the establishment of new law.¿

3. The allegations and other factual contentions have evidentiary support or, if specifically, so identified, are likely to have evidentiary support after a reasonable opportunity for further investigation or discovery.¿

4. The denials of factual contentions are warranted on the evidence or, if specifically, so identified, are reasonably based on a lack of information or belief.¿¿

Under section¿128.7, a¿court¿may¿impose sanctions if it concludes a pleading was filed for an improper purpose or was indisputably without merit, either legally or factually.¿¿(Bucur v. Ahmad¿(2016) 244 Cal.App.4th 175, 189-190.)¿A claim is factually frivolous if it is “not well grounded in fact” and is legally frivolous if it is “not warranted by existing law or a good faith argument for the extension, modification, or reversal of existing law. [Citation.]”¿(Ibid.)¿“In either case, to obtain¿sanctions, the moving party must show the party's conduct in asserting the claim was objectively unreasonable. [Citation.]”¿¿(Ibid.)¿“A claim is objectively unreasonable if ‘any reasonable attorney would agree that [it] is totally¿and completely without merit.’”¿¿(Id. citing In re Marriage of Flaherty (1982) 31 Cal.3d 637, 650.)¿

Under section 128.5, “[a] trial court may order a party, the party’s attorney, or both, to pay the reasonable expenses, including attorney’s fees, incurred by another party as a result of actions or tactics, made in bad faith, that are frivolous or solely intended to cause unnecessary delay.” Actions or tactics include “filing and service of a complaint.” (Civ. Code Proc., § 128.5, subd. (b)(1).) “‘Frivolous’ means totally and completely without merit or for the sole purpose of harassing an opposing party.” (Civ. Code Proc., § 128.5, subd. (b)(2).) “Whether sanctions are warranted [under section 128.5] depends on an evaluation of all the circumstances surrounding the questioned action. [Citation.]’ [Citation.]” (Wallis v. PHL Associates, Inc. (2008) 168 Cal.App.4th 882, 893.)¿

“[A]s with [Federal] Rule 11 (28 U.S.C) sanctions, Code of Civil Procedure section 128.7 sanctions¿should be made with restraint, [citation] and are not mandatory¿even if a claim is frivolous.”¿ (Peake v. Underwood¿(2014) 227 Cal.App.4th 428, 448, as modified on denial of reh'g (July 17, 2014).)¿¿¿

“The award of sanctions for a frivolous action [or tactic] under Code of Civil Procedure section 128.5 is within the sound discretion of the trial court. [Citation.]’” (Wallis v. PHL Associates, Inc., supra, 168 Cal.App.4th at p. 893.)¿

This court is unaware of any legal authority which requires a court to rule on evidentiary objections on a motion, except as to a motion for summary motion/adjudication [CCP § 437c (q)] or a special motion to strike (CCP § 425.16 (b)(2); see also, Sweetwater Union High School Dist. v. Gilbane Building Co. (2019) 6 Cal.5th 931, 947-949.) As such, this court respectfully declines to rule on any of these objections. This court is well aware of the rules of evidence, and to how much weight, if any, should be given to any of the proposed evidence.

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, Defendants met their initial burden because they attached a copy of the April 26, 2017 Mutual Arbitration Agreement (MAA) with Plaintiff’s signature. (Declaration of Adriana Ortiz (Ortiz Decl.) ¶ 6, Exhibit A.) There are two prior arbitration agreements Plaintiff signed: one in 2014 and another in 2015.[1] (Ortiz Decl., Exhibits D & I.) However, the substantive terms of these agreements are the same.[2] As such, the 2017 MAA is the operative agreement. (Frangipani v. Boecker (1998) 64 Cal.App.4th 860, 863 [later contract with substantively identical terms supersedes the prior contract.])

“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 does not challenge the signature. (Declaration of Brian Johsz (Johsz Decl.) ¶¶ 9-10.)

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 Defendants have established that an Arbitration Agreement exists.¿¿¿

Defendants contend the MAA covers the subject dispute because Plaintiff filed an employment action that is not otherwise excluded by the MAA. Plaintiffs argue the MAA is unenforceable and does not cover this dispute because the dispute is rooted in the unlawful activity of attempting to bribe a public official.

Here, the MAA applies to the instant dispute.[3] First, the MAA states it covers “any grievance, claim, complaint or dispute that cannot be resolved informally between the Parties that relates in any way to the Parties’ employment relationship, whether based in contract, tort, statute, fraud, misrepresentation or any other legal theory” including “wrongful termination” and “claims for violation of any federal, state, or other governmental law, statute, regulation, or ordinance” and does not cover clams that “as a matter of law, the Parties cannot agree to arbitrate.” (Ortiz Decl., Exhibit A, ¶¶ 4-7.) While Plaintiff argues that his Complaint is for unlawful conduct outside the scope of the MAA, reviewing the Complaint shows his claims are rooted in Labor Code and Government Code violations of his employment. Indeed, Plaintiff alleges that Chino Hills’ “decision to select a competitor – which Plaintiff had no control over and couldn’t be involved with – plus Plaintiff’s refusal to exercise improper influence on same – nonetheless became the genesis of a clear program and plan at Athens in 2022 and 2023 to retaliate against Plaintiff, harass him, and undertake negative acts toward his employment.” (Complaint ¶ 29, lines 18-22.) While Plaintiff includes claims that Defendants sought to improperly influence the bidding process to obtain the trash hauling contract from Chino Hills, that is not the crux of Plaintiff’s Complaint. Contrary to Plaintiff’s assertion, he is alleging retaliation by his employer, not that his employer bribed him as a public official.

Plaintiff argues that the court should not compel arbitration because the MAA violates public policy and other laws.[4]

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 argues that he needed to accept the MAA or he would be terminated. (Johsz Decl. ¶10.) Plaintiff also argues that now, upon reviewing the agreements today, he does not understand them.[5] (Ibid.) 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.)¿

Here, the MAA meets the Armendariz factors. First, it provides for an arbitrator to be selected “pursuant to the procedures set forth in Paragraph 10 of the ADR Services Arbitration Rules” which provide for a neutral arbitrator. (Ortiz Decl., Exhibit A, ¶ 11; ADR Services Arbitration Rules (ADR Rules), Rule 11.[6]) Second, the MAA provides for discovery as allowed by the ADR Rules which does not limit discovery. (Ortiz Decl., Exhibit A, ¶ 12; ADR Rules, Rule 21.) Third, the MAA provides for a written award. (Ortiz Decl., Exhibit A, ¶ 13.) Fourth, while the MAA does not explicitly say it affords all types of relief otherwise available in court, it does state the Arbitration “shall apply the substantive state and federal law applicable to the claim(s) asserted, as well as the law of remedies, if applicable.” (Ibid.) An inference from the plain reading of this clause is that the parties may seek the same remedies in arbitration as in court. Fifth, the Employer pays all arbitration fees, except for initial filing fee, for arbitrations concerning statutory violations and the parties split the arbitration fee for non-statutory claims. (Ortiz Decl., Exhibit A, ¶ 16.) Finally, Plaintiff does not actually argue the MAA violates the Armendariz factors.

Therefore, the MAA is not so substantively unconscionable that it is unenforceable.

“Section 128.7 provides for a 21-day period during which a party may avoid sanctions by withdrawing the offending pleading or other document. [Citations].”¿ (Bucur v. Ahmad, supra, 244 Cal.App.4th at p. 190.)¿ “If a party does not take advantage of the [21-day] safe harbor period by withdrawing a frivolous filing, a court has broad discretion to impose sanctions.”¿ (Id.)

Here, Defendants served Plaintiff with notice of this motion July 1, 2024, by U.S. Mail and electronic mail.¿ (Notice of Motion, Proof of Service.) Plaintiffs had 21 calendar days plus 5 calendar days (and continued to the next business day), until July 29, 2024, to withdraw the Complaint to avoid sanctions. (CCP § 1013(a).) However, Plaintiffs did not withdraw the Complaint by that time.¿¿

Accordingly, Plaintiffs are not protected from sanctions by the 21-day safe harbor rule.

Defendants contend that Plaintiff improperly filed the Complaint because there is an unambiguous and enforceable arbitration agreement. Plaintiff argues that filing the Complaint was not in bad faith and that sanctions are not warranted. The court agrees.

Notably, Plaintiff exercised his right under the MAA for the court to determine applicability of the MAA to the instant dispute.[7] (Ortiz Decl. to MTC Arb, Exhibit A, ¶ 16.) While Plaintiff was not ultimately able to persuade the court, his arguments were well reasoned and there is no evidence that they were brought solely for the improper purpose of harassing Defendants. Additionally, CCP § 1281 et seq does not contemplate a sanction award for a party who unsuccessfully brings or opposes a motion to compel arbitration.

[1] There is also an agreement to arbitrate claims “that arise[] out of or pertain[] to [the] offer letter” which by its terms is limited to the offer letter. (Ortiz Decl., Exhibit B.)

[2] Plaintiff’s reliance on Alberto v. Cambrian Homecare (2023) 91 Cal.App.5th 482 is misplaced. The MAA signed in 2017 was not part of the same transaction or occurrence as the 2014 Trade Secret Agreement. As such, its terms do not permeate the MAA.

[3] The MAA applies to all Defendants because it includes “disputes Employee may have against the Employer or against its officers, directors, supervisors, managers, employees, or agents in their capacity as such or otherwise . . . .” (Ortiz Decl., Exhibit A, ¶ 5.)

[4] The court is not persuaded by this argument. Without developing it further, Plaintiff’s Complaint is about his employment with Defendants.

[5] The court is not persuaded by this assertion because, among other things, Plaintiff states he has had “significant prior jobs in politics/government” since the early 2000s. (Johsz Decl. ¶ 2.)

[6] The court notes that ADR Services only has archived rules up to 2017 available for review. In this instance, the specificity of the MAA shows that it contemplated the rule entitled “Arbitrator Selection and Appointment” which has been Rule 11 since 2017. The court here refers to the most current rules.

[7] Defendants’ insistence that Plaintiff’s exercising this unequivocal contractual term is frivolous undermines their concurrent claim that the MAA is not unconscionable. Defendants are not permitted to wield the MAA to suit their needs. This violates mutuality of the agreement and would render it unenforceable – a result that the court does not believe Defendants seek.