Judge: William D. Claster, Case: 23-01320695, Date: 2023-08-11 Tentative Ruling
Defendants Magnit, LLC and Edwards Lifesciences Corporation's Notice of Motion and Motion to Compel Arbitration of Plaintiff's Individual Claims and Strike and/or Dismiss Class Claims (ROA #19)
Defendants Magnit, LLC and Edwards Lifesciences Corporation move to compel arbitration of Plaintiff Luis Gerardo Estrada’s individual claims and to dismiss or strike his class claims. For the reasons set forth below, the Court is inclined to grant the motion. However, because Plaintiff has not had an opportunity to address the evidence that Magnit is the successor by merger to Pro Unlimited, Inc., the Court, upon the request of Plaintiff, will continue the motion to September 15, 2023 at 9:00 a.m. in Department CX104 to allow Plaintiff to file the supplemental brief discussed below regarding the relationship between Magnit and PRO Unlimited, Inc. The supplemental brief, which should be limited to this single issue, shall be due on or before September 6, 2023.
For the parties’ benefit, the Court includes the analysis of how it intends to rule on the motion assuming the Court finds Magnit is indeed PRO Unlimited’s successor by merger.
PRELIMINARY MATTERS
The Court will consider Plaintiff’s untimely opposition. Defendants are not prejudiced because they had adequate time to prepare a reply and supporting declarations that address all points raised in the opposition.
Plaintiff’s objection to the declaration of La’Quita Morrow is SUSTAINED to the extent Morrow testifies that Plaintiff signed the arbitration agreement and is otherwise OVERRULED.
GROUNDS FOR RULING
I. Rational for Allowing Supplemental Briefing upon Plaintiff’s Request
A. Standard for Proving Existence of Agreement to Arbitrate
In California courts, the moving party always bears the burden of proving the existence of an arbitration agreement by the preponderance of the evidence. (Gamboa v. Northeast Community Clinic (2021) 72 Cal.App.5th 158, 164.) But the burden of production shifts in a three-step process. (Id., at p. 165.) “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.’” (Ibid.)
“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.” (Ibid.)
“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.” (Id., at pp. 165-166.)
B. Step One: Prima Facie Evidence of Existence to Arbitrate
Defendants submit the declaration of La’Quita Morrow, a Client Services Consultant for Magnit. She declares that Plaintiff was employed by Magnit in order to provide services to Magnit’s client, Edwards. (Morrow Decl. ¶ 6.) She declares that Exhibit A to her declaration is the arbitration agreement at issue.
Exhibit A, and “Arbitration Policy and Agreement,” defines the parties as “the undersigned Employee” and “PRO Unlimited, Inc., its officers, directors, members, partners, owners, agents, employees, parents, subsidiaries, and affiliated companies (collectively referred to herein as ‘the Company’).” (Agreement § 1.) The agreement is purportedly signed by Plaintiff and dated April 6, 2022.
Morrow does not explain who PRO Unlimited is or its relationship to Magnit or Edwards. Defendants thus fail to meet their step one burden. They have put on prima facie evidence of an agreement to arbitrate with PRO Unlimited, but not of an agreement to arbitrate with Magnit or Edwards. Plaintiff seizes on this discrepancy in opposition, and he argues that Defendants should not be allowed to fill any gaps on reply.
In reply, Defendants offer the declaration of Magnit’s EVP of Finance and Chief Accounting Officer, Teresa Golio. Golio testifies that in September 2022, PRO Unlimited, Inc. merged into Magnit, LLC, with Magnit, LLC as the surviving party. Magnit retained PRO Unlimited’s old FEIN. (Golio Decl. ¶ 3.) Attached to Golio’s declaration are documents filed with the New York Secretary of State reflecting the merger.
Defendants argue this evidence may be considered because the procedure for proving the existence of an arbitration agreement contemplates the introduction of evidence after the opposing party offers its own evidence at step two. But the three-step burden-shifting framework allows the moving party to submit reply evidence to meet its step three burden. If the burden never shifts to the non-moving party in the first place, there is no role for reply evidence to play. Absent step one evidence of the relationship between Magnit/Edwards and PRO Unlimited, Defendants have only put on evidence of an agreement that, by its terms, has nothing to do with them.
That said, while Plaintiff is correct that consideration of reply evidence in this circumstance would be a denial of due process, Plaintiff’s right to due process can be vindicated by giving him the chance to file a surreply to the additional evidence on the PRO Unlimited issue. The Court will therefore permit Plaintiff to file a surreply of no more than five pages (plus any supporting evidence) addressing Defendants’ reply evidence that Magnit is the successor by merger to PRO Unlimited. The brief should not address any other issues. Defendants will not be permitted to file a response to the surreply.
II. Further Analysis
For the benefit of the parties, the Court offers the following comments, all of which assume for the sake of argument that Magnit is indeed PRO Unlimited’s successor by merger.
A. Remainder of Agreement to Arbitrate Analysis
1. Step Two: Contesting Existence of the Agreement
Assuming Magnit is PRO Unlimited’s successor by merger, this is sufficient to meet Defendants’ step one burden for proving the existence of an agreement to arbitrate. The burden therefore shifts to Plaintiff to put on evidence of the agreement’s nonexistence.
Plaintiff meets his shifted burden. He testifies (1) that when he was hired, he was given a “stack of documents” to sign, and (2) he has no recollection of signing an arbitration agreement, on paper or electronically. (Estrada Decl. ¶¶ 5, 7.) Plaintiff’s testimony that he was given a “stack of documents” implies paper onboarding documents, not electronically signed documents like the purported agreement to arbitrate. And Plaintiff’s lack of recollection that he signed an agreement tracks what Gamboa says is sufficient to meet his step two burden.
2. Step Three: Proving Existence of the Agreement
The burden therefore shifts back to Defendants. They offer the declaration of Melanie Wexler, Senior Manager of Internal Audit and Compliance. Wexler has worked for Magnit since November 2021, before Plaintiff claims he was hired. (Wexler Decl. ¶ 2.) She is responsible for managing the SterlingOne software Magnit uses to onboard contingent workers (i.e., those staffed at other companies). (Id. ¶ 4.) As such, she has knowledge of the procedures new contingent workers use to electronically onboard. (Id. ¶ 5.)
She explains that all new hires receive automatic emails to their personal email address inviting them to access SterlingOne and create a password of their choosing. The access email is sent only to the new hire. If a new hire forgets his or her password, SterlingOne must reset the new hire’s profile to allow creation of a new password. Only SterlingOne can reset a password. Magnit has no access to new hires’ passwords, nor does Magnit have the ability to reset passwords. (Id. ¶ 5.) All new hires are required to acknowledge the arbitration agreement electronically on SterlingOne. They are given the opportunity to review the agreement, following which a separate window prompts them to consent to use of electronic signature, and they are prompted to sign the agreement. (Id. ¶ 6.) Only the new hire can access documents and sign them. (Id. ¶ 7.) The onboarding process is done offsite. New hires review and sign all relevant documents at a location and time of their choosing. (Id. ¶ 8.) Each signed arbitration agreement is electronically stored by SterlingOne, along with the signature ID number generated when the new hire signs. (Id. ¶ 9.)
In this case, SterlingOne records indicate that an invitation email was sent to Plaintiff at the email address gestrada346@yahoo.com. Without creating a password, Plaintiff could not have completed the paperwork and begun work with Magnit or his assignment at Edwards. (Id. ¶ 10.) Here, SterlingOne records indicate that numerous onboarding documents were signed by someone at Plaintiff’s SterlingOne account on April 6, 2022 from a computer with the IP address 10.61.208.239, including the arbitration agreement. (Id. ¶ 11.)
The Court believes Defendants have proven the authenticity of Plaintiff’s electronic signature, and thus the existence of an agreement to arbitrate, by a preponderance of the evidence. Wexler, whose tenure predates Plaintiff, testifies that Magnit onboards all its new hires electronically, and she describes the process in considerable detail, including the steps taken to ensure that only a new hire can access the onboarding documents for signature. The Court believes her testimony is more credible than Plaintiff’s testimony that he was given only paper documents to sign. Given Wexler’s testimony about how Magnit and the SterlingOne system ensure only a new hire can access documents, the Court also believes that Plaintiff signed the agreement regardless of whether he recalls doing so. Under Espejo v. Southern California Permanente Medical Group (2016) 246 Cal.App.4th 1047, 1060-1063, this is sufficient for Defendants to meet their burden.
B. Whether the Agreement Covers Edwards
Assuming Magnit is party to the agreement as PRO Unlimited’s successor by merger, this still leaves the question of whether Edwards can move to compel arbitration. It can.
Plaintiff alleges Magnit and Edwards are agents of one another. (Compl. ¶ 6.) That is, Edwards is allegedly Magnit’s agent. As Defendants point out in reply, the California Supreme Court has held that if a signatory principal is subject to an arbitration agreement, its non-signatory agents are as well. (See Dryer v. Los Angeles Rams (1985) 40 Cal.3d 406, 418 [“If, as the complaint alleges, the individual defendants, though not signatories, were acting as agents for the Rams, then they are entitled to the benefit of the arbitration provisions.”].) If Magnit is party to the agreement, Edwards may move to compel arbitration as Magnit’s alleged agent.
C. Terms of Agreement
The agreement provides: “the Parties mutually agree to the resolution by binding arbitration of all claims or causes of action that the Employee may have against the Company or any of its clients for whom Employee performed work, or the Company against Employee which could be brought in a court of a law.” (Agreement § 2.) This includes “claims for violation of any . . . statute,” specifically including “the California Labor Code.” All claims brought by Plaintiff are covered by the agreement.
The agreement contains a class and collective action waiver. (Agreement § 4.)
D. Enforceability of Agreement
1. Application of FAA/Preemption
Defendants contend the FAA applies, so any California law to the contrary is preempted. Section 9 of the agreement provides, “The interpretation and enforceability of this Agreement shall be governed by the Federal Arbitration Act.” They put on no evidence that Plaintiff’s employment has any connection to interstate commerce.
Plaintiff seizes on this lack of evidence to argue the FAA is inapplicable, meaning California law (particularly Labor Code § 229’s guarantee that wage-and-hour claims may be brought in court) governs.
In reply, Defendants argue no such evidence is necessary. Because the parties agreed the FAA would govern interpretation and enforceability of the agreement, the FAA governs regardless of any interstate commerce concerns. They cite several cases for this proposition, notably Victrola 89, LLC v. Jaman Properties 8 LLC (2020) 46 Cal.App.5th 337. Victrola was a construction defect case. Victrola argued that pursuant to CCP § 1298.7, the case was not arbitrable. (That statute provides: “In the event an arbitration provision is included in a contract or agreement covered by this title, it shall not preclude or limit any right of action . . . to which Section 337.1 or 337.15 is applicable.” Sections 337.1 and 337.15 provide limitations periods for construction defect actions.)
The arbitration agreement in Victrola provided, “Enforcement of this agreement to arbitrate shall be governed by the Federal Arbitration Act.” (46 Cal.App.5th at p. 343.) Victrola argued that despite this language, the FAA was inapplicable because Jaman failed to present any evidence the parties’ contract involved interstate commerce. The Court of Appeal disagreed: “But the presence of interstate commerce is not the only manner under which the FAA may apply. As discussed above, the parties may also voluntarily elect to have the FAA govern enforcement of the Agreement, as they did here. This incorporation of the FAA prevents Victrola from using Section 1298.7 as an escape hatch from the parties’ agreement to arbitrate.”
The same result would hold here. Defendants need not put on any evidence of interstate commerce so long as the agreement expressly provides that enforcement is governed by the FAA. This agreement so provides. As a result, any state law contrary to the FAA would be preempted.
2. Unconscionability
“‘The prevailing view is that [procedural 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.’ (Citation.) But they need not be present in the same degree. ‘Essentially a sliding scale is invoked 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.’ (Citation.)” (Armendariz v. Foundation Health Psychare Services, Inc. (2000) 24 Cal.4th 83, 114.)
As to procedural unconscionability, there is no real dispute the arbitration agreement was a take-it-or-leave-it condition of employment. As a result, there is some procedural unconscionability.
But substantive unconscionability must also be present. Plaintiff argues the arbitration agreement is non-mutual, and the non-mutuality cannot be cured by severance. But he never identifies a single term of the agreement he contends is non-mutual. With good reason: the agreement covers “all claims or causes of action that the Employee may have against the Company or any of its clients for whom Employee performed work, or the Company against Employee which could be brought in a court of a law.” (Agreement § 2.) This is a mutual agreement as between Plaintiff and “the Company,” assuming Magnit is indeed PRO Unlimited’s successor by merger. Because Edwards is allegedly Magnit’s agent, the agreement is also mutual as between Edwards and Plaintiff. Accordingly, the agreement is not substantively unconscionable.
E. Further Proceedings
Assuming Magnit is PRO Unlimited’s successor by merger, the Court intends to order the case to individual arbitration, dismiss the class claims per the class and collective action waiver, and stay the case pending completion of arbitration. In such a case, an arbitration review hearing will take place on February 29, 2024 at 8:30 a.m. in Department CX-104.