Case Number: 19STCV39650 Hearing Date: February 28, 2020 Dept: 47

Lawrence Homuth, et al. v. PSC Biotech Corp., et al.

PETITION TO COMPEL ARBITRATION

MOVING PARTY: Defendants PSC Biotech Corporation and Andrew John Clapham

RESPONDING PARTY(S): Plaintiffs Lawrence Homuth and Attila Ari

STATEMENT OF MATERIAL FACTS AND/OR PROCEEDINGS:

Plaintiffs were employees of Defendant PSC Biotech and allege Labor Code violations, wrongful constructive termination, retaliation and related claims.

Defendant moves to compel arbitration and to stay the case pending the outcome of the arbitration.

TENTATIVE RULING:

Defendant’s motion to compel arbitration is GRANTED.

The action is stayed pending conclusion of the arbitration.

Any and all future dates are advanced and vacated. A Status Conference/OSC re: Dismissal is set for March 1, 2021 at 8:30 a.m. If there are no appearances and/or the parties have not completed the arbitration without good cause, this case may be dismissed.

DISCUSSION:

Petition To Compel Arbitration

Defendants’ Evidentiary Objection

No. 1: SUSTAINED. Irrelevant. [Not to mention that the attached article is partially illegible.]

Existence of Arbitration Agreement

Under California law, arbitration agreements are valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract. (Blake v. Ecker (2001) 93 Cal.App.4th 728, 741 (overruled on other grounds by Le Francois v. Goel (2005) 35 Cal.4th 1094).) A party petitioning to compel arbitration has the burden of establishing the existence of a valid agreement to arbitrate, and the party opposing the petition has the burden of proving, by a preponderance of the evidence, any fact necessary to its defense. (Banner Entertainment, Inc. v. Superior Court (1998) 62 Cal.App.4th 348, 356-57.)

Defendants seek to compel arbitration based on agreements attached to Plaintiffs’ complaint, both of which provide:

If any dispute arises relating to your employment or its termination, the dispute will be referred to and resolved by binding arbitration before a neutral arbitrator. This means that there will be no trial before a judge or jury or hearing before any state or federal administrative body of any dispute relating to your employment by PSC or the termination of that employment. The arbitration will be held in Los Angeles, California and administered by the American Arbitration Association in accordance with that organization’s rules. The award of the arbitrator will be final and binding on all parties and may be enforced in any court having jurisdiction over the matter. The following types of disputes will not be required to be submitted to arbitration: (a) any claim for compensable injury under California’s Worker’s Compensation Law or (b) any claim based on or related to the Assignment of Inventions and confidentiality agreement between you and PSC. PSC will pay the costs of the arbitrator and the arbitration, but each party will be responsible for paying the legal fees and costs of their own attorney.

(Complaint, Exh. A, at p. 3; Exh. B, at pp. 3-4.)

Both agreements also ask the employee to “sign in the space marked for your signature to show your agreement to the terms contained in this letter.” (Id., Exh. A, at p. 4; Exh. B, at p. 4.) They also indicate that, by signing the letters, the employees “agree to be bound by PSC’s work rules and policies, which PSC reserves the right to add to or alter at any time, in its sole discretion.” (Ibid.)

Plaintiff Attila Ari signed the letter in the space, indicating agreement with its terms. (Id., Exh. B, at p. 4.) Plaintiff Larry Homuth’s letter is unsigned. (Id., Exh. A, at p. 4.) Defendants submitted new evidence of a letter signed by Larry Homuth with their reply, and if that letter were the only evidence of Plaintiff Larry Homuth’s agreement to the terms, Plaintiffs would be given additional time to respond to this new evidence. (Jay v. Mahaffey (2013) 218 Cal.App.4th 1522, 1538 [“[P]oints raised for the first time in a reply brief will ordinarily not be considered, because such consideration would deprive the respondent of an opportunity to counter the argument.”].) However, in their complaint, Plaintiffs allege that the agreements attached to the complaint, including Larry Homuth’s agreement attached as Exhibit A, “set forth the terms of the employment relationship between PSC and Plaintiffs.” (Complaint ¶ 35.) The complaint also alleges that the agreements “and all provisions contained therein are binding and enforceable agreements between Plaintiffs and PSC.” (Ibid.) (Emphasis added.) Because both parties agree on that point, Plaintiffs’ allegations that they entered into binding and enforceable agreements constitute judicial admissions. (Barsegian v. Kessler & Kessler (2013) 215 Cal.App.4th 446, 452 [“[F]acts to which adverse parties stipulate are judicially admitted.”].)

This evidence shows that both Plaintiffs agreed to submit claims relating to their employment or its termination to binding arbitration. Thus, the burden shifts to Plaintiffs to show that a valid arbitration agreement does not exist.

As to the existence of the agreements, Plaintiffs argue only that Defendants have not met their evidentiary burden because they relied upon an agreement that was not signed by Plaintiff Homuth and because they did not attempt to authenticate the agreements attached to the complaint with declarations of anyone with personal knowledge of the circumstances of their receipt or execution. As discussed above, this is not the case. Defendants’ have perhaps the strongest evidence of all: judicial admissions by Plaintiffs that the agreements are valid.

In addition, “[f]or purposes of a petition to compel arbitration, it is not necessary to follow the normal procedures of document authentication.” (Condee v. Longwood Management Corp. (2001) 88 Cal.App.4th 215, 218.) “[A]s a preliminary matter the court is only required to make finding of the agreement’s existence, not an evidentiary determination of its validity.” (Id. at 219.) Nor does the agreement attached to the motion have to be the original; a copy will suffice. (Cox v. Bonni (2018) 30 Cal.App.5th 287, 301.)

Accordingly, Defendants have met their burden of showing by a preponderance of the evidence that the parties entered into an arbitration agreement. The question remains, however, which of Plaintiffs’ claims are subject to arbitration and whether the agreements are enforceable (apart from Plaintiffs’ judicial admissions that they are).

Claims To Be Arbitrated

Plaintiffs alleges nine causes of action: (1) breach of contract; (2) breach of the implied covenant of good faith and fair dealing; (3) unpaid wages and waiting time penalties [Cal. Labor Code §§ 201 et seq.; (4) violation of Labor Code § 558.1; (5) breach of fiduciary duty; (6) retaliation [Labor Code § 1102.5]; (7) violation of Business & Professions Code § 17200; (8) accounting; and (9) wrongful termination in violation of public policy.

As discussed above, the parties’ agreement provides as follows:

If any dispute arises relating to your employment or its termination, the dispute will be referred to and resolved by binding arbitration before a neutral arbitrator. This means that there will be no trial before a judge or jury or hearing before any state or federal administrative body of any dispute relating to your employment by PSC or the termination of that employment. The arbitration will be held in Los Angeles, California and administered by the American Arbitration Association in accordance with that organization’s rules. The award of the arbitrator will be final and binding on all parties and may be enforced in any court having jurisdiction over the matter. The following types of disputes will not be required to be submitted to arbitration: (a) any claim for compensable injury under California’s Worker’s Compensation Law or (b) any claim based on or related to the Assignment of Inventions and confidentiality agreement between you and PSC. PSC will pay the costs of the arbitrator and the arbitration, but each party will be responsible for paying the legal fees and costs of their own attorney.

(Complaint, Exh. A, at p. 3; Exh. B, at pp. 3-4 (bold emphasis added).)

Plaintiffs’ causes of action for breach of contract, breach of the implied covenant of good faith and fair dealing, Labor Code violations, violation of Business & Professions Code § 17200, and an accounting are all “disputes relating to” their “employment,” and their claim for wrongful constructive termination is a claim “relating to . . . its termination.” Thus, all of Plaintiffs’ causes of action are within the scope of the agreement, and Plaintiffs do not argue otherwise. Nor do Plaintiffs argue that any of these causes of action are not arbitrable due to applicable public policy or other reasons.

The remaining question, then, is whether the agreements are unenforceable due to unconscionability.

Unconscionability

Plaintiffs argue that the agreements are unenforceable because they are both substantively and procedurally unconscionable.

Substantive Unconscionability

“A provision is substantively unconscionable if it ‘involves contract terms that are so one-sided as to “shock the conscience,” or that impose harsh or oppressive terms.’ [Citation.] The phrases ‘harsh,’ ‘oppressive,’ and ‘shock the conscience’ are not synonymous with ‘unreasonable.’ Basing an unconscionability determination on the reasonableness of a contract provision would inject an inappropriate level of judicial subjectivity into the analysis. ‘With a concept as nebulous as “unconscionability” it is important that courts not be thrust in the paternalistic role of intervening to change contractual terms that the parties have agreed to merely because the court believes the terms are unreasonable. The terms must shock the conscience.’ [Citations.]”

(Walnut Producers of California v. Diamond Foods, Inc. (2010) 187 Cal.App.4th 634, 647-648.)

Where a party seeks to arbitrate nonwaivable statutory civil rights in the workplace,[1] such as the Labor Code claims involved here, there are “five minimum requirements for the lawful arbitration of such rights” under a mandatory employment arbitration agreement:

Such an arbitration agreement is lawful if it “(1) provides for neutral arbitrators, (2) provides for more than minimal discovery, (3) requires a written award, (4) provides for all of the types of relief that would otherwise be available in court, and (5) does not require employees to pay either unreasonable costs or any arbitrators’ fees or expenses as a condition of access to the arbitration forum.

(Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal. 4th 83, 102.)

(1) Neutral arbitrators

The agreements provide that the arbitration will be conducted “before a neutral arbitrator.” (Complaint, Exh. A, at p. 3; Exh. B, at p. 4.) This requirement is satisfied.

(2) More than minimal discovery

“Adequate discovery is indispensable for the vindication of statutory claims. (Citation omitted.) “‘[A]dequate’ discovery does not mean unfettered discovery ….” (Citation omitted.) And parties may “agree to something less than the full panoply of discovery provided in Code of Civil Procedure section 1283.05.” (Citation omitted.) However, arbitration agreements must “ensure minimum standards of fairness” so employees can vindicate their public rights. (Citation omitted).” (Fitz v. NCR Corp. (2004) 118 Cal.App.4th 702, 715-16 (bold emphasis added).)

The agreement is silent as to discovery, but that means the right to adequate discovery is implied as a matter of law, to the extent that the AAA rules incorporated into the agreement do not already provide for adequate discovery:

Armendariz held that to the extent that the arbitration agreement was silent on these issues, these requirements must be implied as a matter of law. (Armendariz, supra, 24 Cal.4th at pp. 106, 107, 113 [interpreting an agreement to provide for adequate discovery, a written arbitration award, and the employer’s payment of arbitration costs].)

(Sanchez v. Western Pizza Enterprises, Inc. (2009) 172 Cal.App.4th 154, 176.) Thus, this requirement is satisfied.

(3) Written award

The agreement is silent as to a written award, and therefore the right to a written award is implied by the law, to the extent that the AAA rules do not already provide for it:

Armendariz held that to the extent that the arbitration agreement was silent on these issues, these requirements must be implied as a matter of law. (Armendariz, supra, 24 Cal.4th at pp. 106, 107, 113 [interpreted the agreement to provide for adequate discovery, a written arbitration award, and the employer’s payment of arbitration costs].)

(Sanchez, supra, 172 Cal.App.4th at 176.) Thus, this requirement is satisfied.

(4) All types of relief available in court

The agreement is silent as to the types of relief available, and therefore the right to all types of relief available in court will be implied, to the extent that the AAA rules do not already provide for these types of relief. (Ibid.) Thus, this requirement is satisfied.

(5) Does not require employee to pay unreasonable costs or any arbitrator’s fees or expenses as a condition to access to arbitration

The agreement provides that “PSC will pay the costs of the arbitrator and the arbitration.” (Complaint, Exh. A, at p. 3; Exh. B, at p. 4.) Thus, this requirement is satisfied.

As such, the Armendariz requirements are satisfied, and the agreement is not substantively unconscionable.

Procedural Unconscionability

Because Plaintiffs have not shown substantive unconscionability, the Court need not reach procedural unconscionability.

“‘To briefly recapitulate the principles of unconscionability, the doctrine has “‘both a “procedural” and a “substantive” element,’ the former focusing on ‘“oppression”’ or ‘“surprise”’ due to unequal bargaining power, the latter on ‘“overly harsh”’ … or ‘“one-sided”’ results.” [Citation.] The procedural element of an unconscionable contract generally takes the form of a contract of adhesion, “‘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.’” … [¶] Substantively unconscionable terms may take various forms, but may generally be described as unfairly one-sided.’ [Citation.]” (Citation omitted.)

“Under this approach, both the procedural and substantive elements must be met before a contract or term will be deemed unconscionable. Both, however, need not be present to the same degree. A sliding scale is applied so that ‘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.’ (Citations omitted.)

(Walnut Producers, supra, 187 Cal.App.4th at 645 (bold emphasis added).)

Even if the Court reached Plaintiffs’ claims of procedural unconscionability, Plaintiffs have only made a slight showing of procedural unconscionability, which would require a much stronger showing of substantive unconscionability than is possible here.

Plaintiffs argue that the agreement is procedurally unconscionable because it was a non-negotiated employment agreement, presented on a “take it or leave it” basis. This presents a minimal degree of procedural unconscionability:

“The procedural element of the unconscionability analysis concerns the manner in which the contract was negotiated and the circumstances of the parties at that time. [Citation.] The element focuses on oppression or surprise. [Citation.] ‘Oppression arises from an inequality of bargaining power that results in no real negotiation and an absence of meaningful choice.’ [Citation.] Surprise is defined as ‘“the extent to which the supposedly agreed-upon terms of the bargain are hidden in the prolix printed form drafted by the party seeking to enforce the disputed terms.”’ [Citation.]” (Citation omitted.)

Plaintiffs claim the Agreement is procedurally unconscionable because it is an adhesion contract. An adhesion contract is “a standardized contract … imposed upon the subscribing party without an opportunity to negotiate the terms.” (Citation omitted.) “The term signifies 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. [Citation.]” (Citation omitted.)

The California Supreme Court has consistently stated that “‘[t]he procedural element of an unconscionable contract generally takes the form of a contract of adhesion … .’ ” (Citations omitted.)

“Whether the challenged provision is within a contract of adhesion pertains to the oppression aspect of procedural unconscionability. A contract of adhesion is “imposed and drafted by the party of superior bargaining strength” and “relegates to the subscribing party only the opportunity to adhere to the contract or reject it.” (Citations omitted.) “[A]bsent unusual circumstances, use of a contract of adhesion establishes a minimal degree of procedural unconscionability notwithstanding the availability of market alternatives.” (Citation omitted.)

(Walnut Producers of California, supra, 187 Cal.App.4th at 645-646 (bold emphasis added).)

Plaintiffs also argue that they were pressured to sign the agreements within a short period with very little time to consider and seek advice as to them. This presents only a slight degree of procedural unconscionability, akin to failing to explain the meaning of the clause. (Nguyen v. Applied Medical Resources Corp. (2016) 4 Cal.App.5th 232, 249-250.) Moreover, “[a]n arbitration clause within a contract may be binding on a party even if the party never actually read the clause.” (Pinnacle Museum Tower Assn. v. Pinnacle Market Development (US), LLC (2012) 55 Cal.4th 223, 236.)

“It is well established, in the absence of fraud, overreaching or excusable neglect, that one who signs an instrument may not avoid the impact of its terms on the ground that he failed to read the instrument before signing it.”

. . .

Ordinarily, one who accepts or signs an instrument, which on its face is a contract, is deemed to assent to all its terms, and cannot escape liability on the ground that he has not read it.

(Randas v. YMCA of Metropolitan Los Angeles (1993) 17 Cal.App.4th 158, 163.)

Finally, Plaintiffs argue that the agreements are procedurally unconscionable because they incorporate the AAA rules but those rules were not provided to them. Courts have routinely found, however, that “failure to attach the AAA rules, standing alone, is insufficient grounds to support a finding of procedural unconscionability.” (Peng v. First Republic Bank (219 Cal.App.4th 1462, 1472.) At most, this “adds a bit” to the procedural unconscionability. (Zullo v. Superior Court (2011) 197 Cal.App.4th 477, 485.) Even in the case upon which Plaintiffs rely, Carbajal v. CWPSC, Inc. (2016) 245 Cal.App.4th 227, the failure to provide the AAA rules was considered only to rise to a “moderate” level, which, when combined with a moderate level of substantive unconscionability, rendered the agreement unconscionable. (Id. at 244, 253.) That case is distinguishable from this one, in which the Court has found no substantive unconscionability.

Plaintiffs also argue that the agreements are procedurally unconscionable because the AAA rules are one-sided for employers (though Plaintiffs state in their brief that these rules are “one-sided for employees”). (Oppo., at unnumbered page near the end of the brief.) This argument, however, relates to substantive unconscionability, not procedural unconscionability, and as discussed above, the agreements are not substantively unconscionable.

The Court finds that there is only a slight degree of procedural unconscionability in the agreement. Therefore, Plaintiffs would have had to demonstrate a great degree of substantive unconscionability under the sliding scale approach to render the agreement unenforceable. Because Plaintiffs have not done so, the Court finds that the arbitration agreement is enforceable.

Accordingly, Defendants’ motion to compel arbitration is GRANTED.

The action is stayed pending conclusion of the arbitration.

Any and all future dates are advanced and vacated. A Status Conference/OSC re: Dismissal is set for March 1, 2021 at 8:30 a.m. If there are no appearances and/or the parties have not completed the arbitration without good cause, this case may be dismissed.

Moving party to give notice, unless waived.

IT IS SO ORDERED.

Dated: February 28, 2020 ___________________________________

Randolph M. Hammock

Judge of the Superior Court

Any party may submit on the tentative ruling by contacting the courtroom via email at Smcdept47@lacourt.org by no later than 4:00 p.m. the day before the hearing. All interested parties must be copied on the email. It should be noted that if you submit on a tentative ruling the court will still conduct a hearing if any party appears. By submitting on the tentative you have, in essence, waived your right to be present at the hearing, and you should be aware that the court may not adopt the tentative, and may issue an order which modifies the tentative ruling in whole or in part.

[1] “Initially, we see no reason why Armendariz’s “particular scrutiny” of arbitration agreements should be confined to claims under FEHA. Rather, under the Supreme Court’s analysis, such scrutiny should apply to the enforcement of rights under any statute enacted ‘for a public reason.’” (Mercuro v. Superior Court (2002) 96 Cal.App.4th 167, 180.)