Case Name: Barbara Roth vs Supernova Spirits, Inc. et al.
Case No.: 17CV308528

The motion to compel arbitration by Defendants Supernova Spirits, Inc. and Vijay Caveripakkam (“Defendants”) came on for hearing on August 1, 2017, was taken under submission, and continued to August 22, 2017 for the Court to announce its decision.

“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.” (Armendariz v. Foundation Health Psychcare Services [“Armendariz”] (2000) 24 Cal.4th 83, 114 [internal citation and quotation marks omitted].)

The motion to compel arbitration is DENIED, as the Court finds that the agreement in question is both procedurally and substantively unconscionable. The Court does not agree that the unconscionability analysis only applies to a strict employee/ employer or consumer context, as many cases apply the same analysis in other contexts. Moreover, the agreement in question provides for a contractual relationship that more generally resembles employment, than a “commercial” contract as Defendant argues.

As to procedural unconscionability, the Court finds the testimony of Plaintiff Barbara Roth (“Plaintiff”) that she did not see the full Services Agreement that contained the arbitration clause until shortly before she signed it, to be credible, and that the body of the Services Agreement was prepared by Defendants without negotiation by or input from Plaintiff. The Court does not find Defendants’ evidence, that the parties discussed the arbitration clause at length, to be credible. It is apparent from the emails provided to the Court that the only negotiations between the parties centered on the compensation arrangements, which are found in Exhibit A to the Services Agreement. These emails support the evidence presented by Plaintiff. Moreover, it is notable that Defendants do not provide the Court with any attachments referenced in the emails, and the Court can infer from this omission that it would be clear that the full agreement was not provided to Plaintiff until shortly before the agreement was signed in October. Plaintiff argues that the arbitration agreement is both procedurally and substantively unconscionable because it fails to provide a copy of the relevant AAA rules that will govern the arbitration, requires her to pay attorney fees and the costs of arbitration, does not clearly identify the arbitration provision, and does not advise Plaintiff that she was giving up her right to a jury trial. Although Plaintiff initialed all of the pages of the Exhibit A, Plaintiff apparently was not required to and did not initial any of the pages of the Services Agreement, including the page containing the two separate arbitration-related clauses. The arbitration provisions are buried within and are in the same font as the rest of the agreement; critical provisions are contained in different paragraphs (12 and 15); and the Services Agreement does not advise Plaintiff that she was waiving her right to jury trial.
All of these factors lead to the finding that Plaintiff would be legitimately surprised by the arbitration provisions and the arbitration agreement is procedurally unconscionable.

“Substantive unconscionability” focuses on the one-sidedness or overly harsh effect of the contract term or clause. (See Ajamian v. CantorCO2E (2012) 203 Cal.App.4th 771, at 798 (“Substantive unconscionability arises when a contract imposes unduly harsh, oppressive, or one-sided terms. (Armendariz, supra, 24 Cal.4th at p. 113 [provision in adhesion contract will not be enforced if it “ ‘does not fall within the reasonable expectations of the weaker or “adhering” party’ ” or if, in context, it is unduly oppressive or unconscionable]”.)
Plaintiff argues that the arbitration agreement is substantively unconscionable because it fails to provide a copy of the relevant AAA rules that will govern the arbitration, and requires her to pay attorney fees and the arbitration costs. (See Ajamian, supra, 203 Cal. App.4th at 798 (“Substantive unconscionability arises when a contract imposes unduly harsh, oppressive, or one-sided terms. (Armendariz, supra, 24 Cal.4th at p. 113 [provision in adhesion contract will not be enforced if it “ ‘does not fall within the reasonable expectations of the weaker or “adhering” party’ ” or if, in context, it is unduly oppressive or unconscionable]”.) Even if Plaintiff could be subject to a prevailing party attorney fees clause even without arbitration, obligating Plaintiff to pay the costs of arbitration imposes a much greater burden on the Plaintiff to pursue her claims, and the Court finds this to be unduly oppressive. Defendants’ failure to provide the relevant AAA rules prevents the Court from considering in what ways the arbitration clause would force Plaintiff to give up rights she would have if she litigates in California state court. The Court declines to assume the provisions of the relevant AAA rules, as the moving party did not provide them to the Court or ask the Court to take judicial notice, and Defendants have not explained why the “basic AAA Rules for Commercial Arbitration” are the same thing as AAA rules for “service agreement disputes,” the actual language found in the Service Agreement. (See Ajamian, supra, 203 Cal.App.4th at 798; Armendariz, supra, 24 Cal.4th at pp. 110-111, 113.)