Judge Upinder S. Kalra, Case Number: 24STCV25838, Date: 2025-05-08 Tentative Ruling

1. An Order compelling Plaintiff’s claims against Defendant to arbitration pursuant to CCP § 1281.2.[1]

On October 4, 2024, Plaintiff Joseph Lionetti (Plaintiff) filed a Complaint against Defendant Howard’s Appliances, Inc. (Defendant) with six causes of action for: (1) Discrimination in Violation of the Fair Employment and Housing Act (FEHA); (2) Harassment in Violation of the FEHA; (3) Retaliation in Violation of the FEHA; (4) Failure to Take Reasonable Steps to Prevent Harassment, Discrimination, and/or Retaliation; (5) Retaliation in Violation of California Labor Code Section 1102.5; and (6) Wrongful Employment Actions in Violation of Public Policy.

According to the Complaint, Plaintiff was hired by Defendant as a store manager on or about April 1, 2019. Plaintiff alleges that he disclosed his experience with gender dysphoria during a September 2022 Zoom work meeting and Defendant’s management began punitively scrutinizing his performance as a result. Plaintiff further alleges that he complained to HR, the President, and COO which resulted in a demotion. Plaintiff alleges that despite informing HR and the CEO that he did not intent to resign even though he did not feel safe as a bisexual worker, HR nonetheless terminated his employment on November 3, 2023.

On February 7, 2025, Defendant filed the instant motion to compel arbitration. On April 23, 2025, Plaintiff filed an opposition. A Reply was filed at 7:49 PM on May 1, 2025.

The Federal Arbitration Act (“FAA”), while a federal statute, applies in California courts and requires state courts to enforce arbitration agreements as required by the federal common law developed under the FAA. (See Southland Corp. v. Keating (1984) 465 U.S. 1, 15-16 (Southland Corp.); Broughton v. Cigna Healthplans (1999) 21 Cal.4th 1066, 1074-78, superseded by statute on another ground as stated in Ferguson v. Corinthian Colleges, Inc. (9th Cir. 2013) 733 F.3d 928, 937.).) The FAA preempts and invalidates state law and state judicial decisions that disfavor arbitration or require arbitration provisions to pass higher scrutiny. (Southland Corp., supra, at p. 12; Perry v. Thomas (1987) 482 U.S. 483, 490.) If the parties designate the FAA applies, then California arbitration law is preempted. (See, e.g., Rodriguez v. American Techs., Inc. (2006) 136 Cal.App.4th 1110, 1121-1122.)¿However, courts have found that where the FAA is found not to apply, the California Arbitration Act (Code Civ. Proc. § 1280 et seq.) applies. (See Valencia v. Smyth (2010) 185 Cal.App.4th 153, 178 (Valencia).)¿¿

¿A court’s inquiry is limited to a determination of (1) whether a valid arbitration agreement exists and (2) whether the arbitration agreement covers the dispute. (9 U.S.C. § 4; Chiron Corp. v. Ortho Diagnostics Systems, Inc. (9th Cir. 2000) 207 F.3d 1126, 1130; Howsam v. Dean Witter Reynolds, Inc. (2002) 537 U.S. 79, 84; see Simula, Inc. v. Autoliv, Inc. (9th Cir. 1999) 175 F.3d 716, 720 [if the finding is affirmative on both counts the FAA requires the Court to enforce the arbitration agreement in accordance with its terms]; see Omar v. Ralphs Grocery Co. (2004) 118 Cal.App.4th 955, 961 [In determining the enforceability of an arbitration agreement, the court first 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”] Lacayo v. Cataline Restaurant Group Inc. (2019) 38 Cal.App.5th 244, 257 (Lacayo) [Where moving party meets initial burden, “the party opposing arbitration must prove by a preponderance of the evidence any defense to the petition”].)¿¿

“An order to arbitrate the particular grievance should not be denied unless it may be said with positive assurance that the arbitration clause is not susceptible of an interpretation that covers the asserted dispute.” (United Steelworkers of America v. Warrior & Gulf Navigation Co. (1960) 363 U.S. 574, 582-583.)¿¿¿

¿Moreover, the general rule is that the FAA governs all agreements to arbitrate in contracts “involving interstate commerce.” (Higgins v. Superior Court (2006) 140 Cal.App.4th 1238, 1247.) The term “involving” commerce “is broad and is indeed the functional equivalent of “affecting’ commerce.” (Allied-Bruce Terminix Companies, Inc. v. Dobson (1995) 513 U.S. 265, 273-274.) The U.S. Supreme Court has held that this broad interpretation includes employment contracts. (See Circuit City Stores v. Adams (2001) 532 U.S. 105, 106.) The defendant bears the burden of proving applicability of the FAA by showing that its activities constitute interstate commerce. (Hoover v. Am. Income Life Ins. Co. (2012) 206 Cal.App.4th 1193, 1207.) Failure to demonstrate that the employment agreement affects interstate commerce renders the FAA inapplicable. (See Lane v. Francis Capital Management LLC (2014) 224 Cal.App.4th 676, 687-688 (Lane); Woolls v. Superior Court (2005) 127 Cal.App.4th 197, 212.)¿¿

Even where the FAA governs the interpretation of arbitration clauses, California law governs whether an arbitration agreement has been formed in the first instance. (Baker v. Osborne Development Corp. (2008) 159 Cal.App.4th 884, 893.)¿¿

As a threshold matter, the court finds that the FAA applies to this agreement because the parties expressly contracted that it would do so. (Juarez Decl., Exhibit B, Mutual Arbitration Agreement (MAA) para. 5.)

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 its burden proving that an agreement exists. Notably, they attached a copy of the MAA signed by Plaintiff to their motion. (Juarez Decl., Exhibit B.) Plaintiff does not challenge his physical signature.

Here, the MAA applies to the subject dispute. As noted above, Plaintiff’s Complaint is based on alleged unlawful employment discrimination and actions leading to his wrongful termination that violate FEHA and public policy. (See generally, Complaint.) The MAA covers claims for “discrimination or harassment, including, but not limited to, alleged violation of any federal or state civil rights laws . . . based on charges of discrimination or harassment on account of . . . sexual orientation . . . or any other discrimination or harassment prohibited by such laws . . . and claims for violation of any federal, state, or other governmental law . . . .” (Juarez Decl., Exhibit B, MAA para. 1.) Additionally, Plaintiff does not challenge that the MAA would apply to this dispute.

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)).¿¿¿

Plaintiff argues that the MAA is procedurally unconscionable because it is a contract of adhesion despite purporting to say otherwise. Indeed, Plaintiff argues that the only change he made to the MAA was to delete language indicating that he voluntarily accepted the MAA. Defendant contended in their motion and again on reply that the MAA is not procedurally unconscionable and minimally if so.

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, there is minimal procedural unconscionability. “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). As such, Plaintiff’s argument that he had no choice but to sign the MAA to keep working for Defendant is well taken. (Lionetti Decl. ¶ 4.) However, there is no other evidence of procedural unconscionability.

Plaintiff argues that the MAA is substantively unconscionable because it lacks mutuality, cannot be saved via severance, and as such is unenforceable.[2] Defendant contended in its brief, and in its reply, that the MAA meets the Armendariz factors and is thus not 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.” (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.)¿

The court rejects Plaintiff’s argument that the MAA lacks mutuality. First, the MAA opens by stating: “Howard’s . . . and Lionetti . . . voluntarily agree to the resolution by arbitration of all claims, disputes, and/or controversies . . .that Company may have against Employee or that Employee may have against Company . . . .” (Juarez Decl., Exhibit B, MAA para. 1.) Second, Ramirez v. Charter Communications, Inc. is factually distinct to the case here. ((2024) 16 Cal.5th 478 (Ramirez)). Notably, in Ramirez, the Supreme Court found that the arbitration agreement lacked mutuality because the included claims were predominantly brought by employees and the excluded claims (such as breach of contract and injunctive relief) were typically brought by employers. (Ramirez, supra, 16 Cal.5th at p. 495-496.) Indeed, the Court reminded the parties that “[i]n the absence of justification, [courts] assume the agreement is unconscionable.” (Id. at p. 496.) Here, despite Plaintiff’s argument otherwise, the MAA is simply not the same as the Ramirez agreement. In fact, the MAA incudes “claims for breach of any contract or covenant” by Defendant to be arbitrated and excludes claims that “Company or Employee may have for injunctive relief” from arbitration. (Juarez Decl., Exhibit B, MAA para. 1, 3.) Clearly, this is not imposing arbitration on Plaintiff without accepting that forum for itself. (Ramirez, supra, 16 Cal.App. 5th at p. 495-496.) The MAA is therefore mutual.

The MAA otherwise meets the Armendariz factors. It provides: (1) an arbitrator “selected by mutual agreement” of the parties (MAA para. 6)[3]; (2) “a reasonable amount of discovery guided by the Federal Rules of Civil Procedure” with discovery disputes to be decided by the arbitrator (MAA para. 7.); (3) “a written opinion and award” which “shall include factual findings and the reasons upon which the award is based” (MAA para. 9); (4) the arbitrator “has authority to award all remedies and relief that would otherwise have been available if the claim had been brought by way of a civil complaint in court” (MAA para. 7); and (5) Defendant bears the arbitrator’s cost “and other incidental costs of arbitration” (MAA para. 10).[4] (Juarez Decl., Exhibit B.)

Thus, the court GRANTS Defendant’s motion to compel arbitration and stay action pending arbitration.

[1] Defendant requests a stay of proceedings in their motion but not in their notice. Plaintiff did not challenge any stay should the court order this case to arbitration.

[2] Plaintiff identified Sections 1, 3, and 16 of the MAA as the offending provisions. (Opp. 2:18-20.) Those sections are the paragraphs entitled: “Voluntary Mutual Agreement to Arbitrate Claims;” “Claims Not Covered by the Agreement;” and “Voluntary Agreement.” (Juarez Decl., Exhibit B, MAA.)

[3] Whether JAMS will allow the parties to use their arbitrator list without also providing arbitration administration services was not briefed by the parties and is outside the scope of this ruling.

[4] The court notes that the arbitrator also has the power to award attorneys’ fees as permitted under federal or state law. (MAA para. 10.) There is no explicit carve out for FEHA claims which, as the parties are no doubt aware, does not allow a defendant to recover attorneys fees unless the court (or arbitrator) finds it was frivolous or brought in bad faith. (Williams v. Chino Valley Independent Fire Dist. (2015) 61 Cal.4th 97, 115.)