Humphrey v. Fallas/J.M. Sales
Case No: 16CV05843
Hearing Date: Tue Apr 03, 2018 8:30

Nature of Proceedings: Petition to Compel Arbitration

On December 28, 2016, plaintiff John Humphrey in propria persona filed a complaint against defendant Fallas/J.M. Sales (Fallas) for discrimination based on race and physical and mental disability, as well as retaliation. He filed a first amended complaint on September 19, 2017, alleging racial discrimination, physical/mental discrimination, and retaliation, in violation of Government Code sections 12940, subdivisions (a) and (i). Briefly, plaintiff was hired as manager of the Fallas store in Lompoc, and on May 28, 2014, he sustained an eye injury. On June 3, 2014, he suffered a seizure due to the eye injury “and latent” epilepsy. He suffered a second seizure at work on July 15, 2014. Two days later he was suspended with pay, and on August 12, 2014, he was informed that he was terminated. Plaintiff alleges he received a right to sue letter from the California Department of Fair Employment and Housing on December 28, 2015. Fallas filed an answer on December 7, 2017. Trial is scheduled for August 6, 2018.

On February 27, 2018, defendant Fallas filed a petition to compel arbitration pursuant to Code of Civil Procedure section 1281..4, asking the court to compel arbitration and either dismiss the operative pleading or stay the action pending resolution of the arbitration proceeding. Defendant contends that plaintiff agreed in writing to arbitrate in a document entitled “Problem Resolution Arbitration Agreement[,]” signed by both parties on April 11, 2013. This document reads in relevant part as follows: “In the unlikely event of a dispute or claim against [defendant], its employees or agents having anything to do with my application for employment, employment, or separation from employment with [defendant], I and the company agree that all such claims will be binding arbitration by a neutral arbitrator under the employment dispute rules of the American Arbitration Association [AAA] . . . . Examples of the dispute that I and the Company agree to submit to arbitration include, but are not limited to: claims for discrimination based on disability. . . , race . . ., or any other basis; sexual or other harassment; wrongful termination; breach of promise; defamation; and all other charges related to any aspect of my employment relationship with the [defendant].” Under the agreement, arbitration fees are to be paid by the defendant, although each side will bear its own costs unless statutory law provides otherwise. According to defendant, the court should grant the petition to compel all three claims from the first amended complaint because it has met the statutory requirements for arbitration under Code of Civil Procedure section 1281.2 (a valid arbitration agreement, all claims in the operative pleading fall within the scope of the agreement, and plaintiff refuses to arbitration), the AAA procedures meet the requirements of Armendariz v. Foundation Health Psychcare (2000) 24 Cal.4th 83, 91, and no exceptions to enforceability apply. Plaintiff has not filed opposition.

Preliminarily, the arbitration provision at issue does not indicate on its face whether it is governed by the Federal Arbitration Act (FAA) or the California Arbitration Act (CAA), and there is no choice of law provision (or at least defendant has not provided one). Defendant, however, relies on Code of Civil Procedure section 1281.2. It is settled that even when parties intend the FAA to apply for contract interpretation (and arguably the FAA does to the extent interstate commerce is involved), the parties do not displace the procedural provisions of the CAA (Valencia v. Smyth (2010) 185 Cal.App.4th 153, 178) of which Code of Civil Procedure section 1281.2 is a part. (Cronus Investments, Inc. v. Concierge Services (2005) 35 Cal.4th 376, 387.) More to the point, where the arbitration agreement is silent (without mentioning or alluding to the FAA or CAA, or any other state law provisions), as here, California procedure rules apply in California courts. (Los Angeles Unified School District v. Safety National Casualty Corporation (2017) 13 Cal.App.5th 471, 479; see also Judge v. Nijjar Realty, Inc. (2014) 232 Cal.App.4th 619, 632 [“[a]bsent an agreement by the parties to apply the procedural provisions of the FAA to their arbitration, federal procedural rules apply only where state procedural rules conflict with or defeat the rights Congress granted in the FAA”]; Valencia v. Smyth, supra, 185 Cal.App.4th at p. 174 [“the procedural provisions of the [California Arbitration Act] apply in California courts by default”].) The court will therefore apply California rules interpreting Code of Civil Procedure section 1281.2 to determine whether the petition should be granted or denied.

California law reflects a strong public policy in favor of arbitration as a relatively quick and inexpensive method for resolving disputes. (Lewis v. Fletcher Jones Motor Cars, Inc. (2012) 205 Cal.App.4th 436, 443.) Code of Civil Procedure section 1281.2 provides for trial court enforcement of private arbitration agreements as follows: “On 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 to arbitrate the controversy exists, unless it determines that: [¶] (a) The right to compel arbitration has been waived by the petitioner; or [¶] (b) Grounds exist for the revocation of the agreement.” (Code Civ. Proc., § 1281.2.) “Accordingly, in ruling on a petition to compel, the court must determine whether the parties entered into an enforceable agreement to arbitrate that reaches the dispute in question, construing the agreement to the limited extent necessary to make this determination. [Citation.] If such an agreement exists, the court must order the parties to arbitration unless arbitration has been waived or grounds exist to revoke the agreement. [Citation.]” (California Correctional Peace Officers Assn. v. State of California (2006) 142 Cal.App.4th 198, 204–205.) Thus, the party seeking arbitration bears the burden of proving the existence of an arbitration agreement by preponderance of the evidence, and the party opposing arbitration bears the burden of proving any defense by a preponderance of the evidence, such as waiver or unconscionability (Pinnacle Museum Tower Assn. v. Pinnacle Market Development (US), LLC (2012) 55 Cal.4th 223, 236; Rosenthal v. Great Western Fin. Securities Corp. (1996) 14 Cal.4th 394, 413; Engalla v. Permanente Medical Group, Inc. (1997) 15 Cal.4th 951, 972.) In the summary proceedings under Code of Civil Procedure section 1281.2, “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.” (Engalla, supra, at p. 972.)

Defendant has shown that both parties are signatories to an arbitration agreement, and thus are bound by it, with the agreement adequately authenticated by the declaration of Mark Gunn, Vice President of Human Resources for defendant. (Westra v. Marcus & Millichap Real Estate Investment Brokerage Co., Inc. (2005) 129 Cal.App.4th 759, 763; see also Condee v. Longwood Management Corp. (2001) 88 Cal.App.4th 215, 219 [a party can prove the existence of an arbitration agreement by attaching a copy of it to the petition to compel].) Further, there is evidence that plaintiff has essentially refused to arbitrate. Mr. Trevor Witt, defendant’s counsel, declares that he sent two letters– dated November 27 and December 27, 2017 – as well as a January 2, 2018 electronic mail, to plaintiff requesting arbitration pursuant to the signed agreement. Plaintiff apparently failed to respond in any way to defendant’s demand for arbitration. Attached to the petition are the letters and email as Exhibit B.

Defendant has also shown all three claims advanced in the first amended complaint fall within the scope of the arbitration clause, to the extent plaintiff’s allegations involve discharge of employment based discrimination and subsequent retaliation under the FEHA. The California Supreme Court has held that such statutory claims may be arbitrated, so long as the preemployment arbitration agreement “permits an employee to vindicate his or her statutory rights.” (Armendariz v. Foundation Health Psychcare Services, Inc., supra, 24 Cal.4th 83, 90.) Such vindication occurs when the arbitration agreement satisfies the following minimum requirements: (1) provides for a neutral arbitrator; (2) authorizes “more than minimal” discovery; (3) requires a written award; (4) authorizes the same type of relief available in court; and (5) limits the amount of fees the employee must pay to those commensurate with a court action. (Id. at p. 102.) The arbitration agreement on its face incorporates the rules of the AAA, including sections 9 (discovery), 12 (number, qualifications, and appointment of neutral arbitrator), 39b, 39c, and 39d (the award must be public, in writing, and allows arbitrator authority to grant any remedy available if filed in court), and 48 (interpretation and application of rules by the arbitrator), which has been held to satisfy Armendariz. (Nguyen v. Applied Medical Resources Corporation (2016) 4 Cal.App.5th 232 256 [arbitration provision fulfills Armendariz requirement by incorporating by reference the AAA rules, including paragraphs 12, 9, 39b, 39d and 48]; Lane v. Francis Capital Management, LLC (2014) 224 Cal.App.4th 676,-693 [discovery permitted by the AAA rules satisfies the requirements for arbitration of statutory claims].) The arbitration agreement expressly provides that defendant will pay all arbitrator’s fees. It also provides that “unless otherwise provided by law, each side will be responsible for attorney’s fees and costs” (meaning that if plaintiff prevails, and statutory fees under FEHA are appropriate, he will be entitled to them, and further, that a prevailing party will be entitled to certain costs per Code of Civil Procedure section 1033, et seq., as would be true in court). (See generally Aanderud v. Superior Court (2017 13 Cal.App.5th 880, 890 [it is the party opposing arbitration who bears the burden to show the arbitration provision cannot be interpreted to cover the claims in the complaint].) It appears, as is required by Armendariz, that the arbitration clause does not require plaintiff employee to pay any type of expense that the employee would not be required to bear if he or she were free to bring the action in court. (24 Cal.4th at pp. 110-111.)

There is no opposition, and thus, no claim by the nonmoving party that any basis for revocation exists, which under the above-mentioned authority would be his burden to show by a preponderance of evidence. (Code. Civ. Proc., 1281.2, subds. (a) [waiver]; (b) [other grounds exist for revocation of the agreement, such as unconscionability]; (c) [party to arbitration is subject to court action or special proceeding with a third party based on same transaction and there is risk of conflicting rulings]; and (d) [petitioner is state or federal chartered depository institution and applying written arbitration agreement to a consumer].) Out of an abundance caution, however, the court will address these grounds to see whether a colorable claim can be advanced.

Defendant is not a state or federal depository, and there is no evidence that plaintiff or defendant is a party to another action involving the same or series of related transactions that would give rise to conflicting rulings.

As for “waiver,” the term is used “as a shorthand statement of the conclusion that a contractual right to arbitration has been lost.” (Platt Pacific, Inc. v. Andelson (1993) 6 Cal.4th 307, 315.) In St. Agnes Medical Center v. Pacificare of California (2003) 31 Cal.4th 1187, the Supreme Court confirmed that a court may consider the following six factors in assessing a waiver claim: “ ‘ “(1) whether the party’s actions are inconsistent with the right to arbitrate; (2) whether ‘the litigation machinery has been substantially invoked’ and the parties ‘were well into preparation of a lawsuit’ before the party notified the opposing party of an intent to arbitrate; (3) whether a party either requested arbitration enforcement close to the trial date or delayed for a long period before seeking a stay; (4) whether a defendant seeking arbitration filed a counterclaim without asking for a stay of the proceedings; (5) “whether important intervening steps [e.g., taking advantage of judicial discovery proceedings not available in arbitration] had taken place”; and (6) whether the delay “affected, misled, or prejudiced” the opposing party.’ ” [Citation.]’ [Citations.]” (See also Oregel v. PacPizza, LLC (2015) 237 Cal.App.4th 342, 354–355.) “There is no fixed stage in a lawsuit beyond which further litigation waives the right to arbitrate. Rather, the court views the litigation as a whole in determining whether the parties’ conduct is inconsistent with a desire to arbitrate. [Citation.]” (Hoover v. American Income Life Ins. Co. (2012) 206 Cal.App.4th 1193, 1204.) “Because of the strong policy favoring arbitration, prejudice typically is found only where the petitioning party has unreasonably delayed seeking arbitration or substantially impaired an opponent’s ability to use the benefits and efficiencies of arbitrations. [Citation.]” (Id. at p. 1205.)

Plaintiff’s lawsuit was originally filed on December 28, 2016. Defendant was not served until after September 18, 2017, as reflected in a Case Management Conference minute order of that date. On September 19, 2017, plaintiff filed a first amended complaint, and sometime thereafter, defendant was served. Two months later, on November 27, 2017, defendant by letter asked plaintiff to comply with the arbitration agreement at issue, and did so again on December 21, 2017, and again in an email on January 2, 2018. The present petition was filed on February 27, 2018. There is nothing in this chronology that remotely suggests defendant’s actions were inconsistent with its right to arbitrate, that prejudicial intervening events have taken place, and/or that plaintiff was misled, affected, or otherwise prejudiced by defendant’s actions. On this record there was no “waiver.”

Defendant also preemptively claims that the arbitration agreement is not unconscionable as a basis for revocation. Unconscionability consists of two elements: procedural unconscionability and substantive unconscionability. (Stirlen v. Supercuts, Inc. (1997) 51 Cal.App.4th 1519, 1532-1533; see also Armendariz, supra, 24 Cal.4th at p. 114.) Both must be present for a court to exercise its discretion to refuse to enforce a contract under the doctrine of unconscionability. (Stirlen, at p. 1533.) They need not be present in the same degree, however. (Baltazar v. Forever 21, Inc. (2016) 1237, 1243-1244.) A sliding scale is invoked. 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. (Id. at p. 1244.)

Procedural unconscionability concerns the manner in which the contract was negotiated and the circumstances of the parties at that time. The relevant factors are oppression and surprise. Oppression arises from unequal bargaining power between the parties, and the absence of any meaningful choice of the weaker party. (Abramson v. Juniper Networks, Inc. (2004) 115 Cal.App.4th 638, 656.) It generally takes the form of a contract of adhesion, 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.” (Neal v. State Farm Ins. Cos. (1961) 188 Cal.App.2d 690, 694; see also Little v. Auto Stiegler, Inc. (2003) 29 Cal.4th 1064, 1071.) “Where an adhesive contract is oppressive, surprise need not be shown.” (Abramson, supra, at p. 656.) “Surprise” occurs where the allegedly unconscionable provision is hidden within a prolix printed form. (Morris v. Redwood Empire Bancorp (2005) 128 Cal.App.4th 1305, 1317.) Substantive unconscionability focuses on overly harsh or one-sided results. (Sanchez v. Valencia Holding Co., LLC (2015) 61 Cal.4th 899, 910; see Baltazar, supra, 62 Cal.4th at p. 1244 [terms cannot be “unreasonably favorable” to the more powerful party].)

A possible basis for procedural unconscionability (based on the record before the court), involves a contract of adhesion. Yet even if this court assumes the agreement was a contract of adhesion (i.e., a standardized contract, imposed by a party with superior bargaining strength, without negotiation and meaningful choice), “courts have consistently held that this fact alone is insufficient to invalidate an arbitration agreement.” (Lane, supra, 224 Cal.App.4th at p. 689.) An adhesion contract remains fully enforceable unless the provision falls outside the reasonable expectations of the weaker party or is unduly oppressive. Here, the arbitration agreement is a paragraph long, and contains no terms “hidden” in the form. (Ibid.) Based on the plain language, its application to plaintiff’s claims is clearly within the reasonable expectations of the parties. (Id. at p. 690.) There is no evidence of any sharp practices.

The only other possible basis for procedural unconscionability is defendant’s failure to attach a copy of the AAA rules (Employment Arbitration Rules and Mediation Procedures) to the arbitration agreement. This failure could be a factor where the failure would result in surprise to plaintiff. Here, however, as was true in Lane v. Francis Capital Management LLC, supra, “there could be no surprise, as the arbitration rules reference in the agreement were easily accessible to the parties — AAA rules are available on the Internet.” (224 Cal.App.4th at p. 692.) The arbitration agreement in fact incorporated the AAA rules therein, “and it did not modify” them. “In the absence of oppression or surprise, we decline to find the failure to attach a copy of the AAA rules rendered the agreement procedurally unconscionable.” (Ibid.) Lane seems applicable here. (See also Nguyen, supra, 4 Cal.App.5th at p. 249 [same].)

Further, even if the court assumes some procedural unconscionability is evident, there is nothing to show that terms are overly harsh or one-sided in favor of defendant. Our high court has made it clear that “the failure to attach the AAA rules” does not affect any consideration of substantive unconscionability. (Baltazar, supra, 62 Cal.4th at p. 1246.) The arbitration agreement makes clear that the parties mutually agreed to arbitrate all employment-related claims, and the illustrative list of claims subject to the agreement is just that. The critical terms apply to both sides equally. The terms do not seem unfair. The arbitration agreement should not be revoked on the ground of unconscionability.

For all of these reasons, the court will grant the petition to compel arbitration. Pursuant to Code of Civil Procedure section 1281.4, the court will also stay the present action until “an arbitration is had.” This matter will be placed on calendar for a Case Management Conference in six months for a status update on the arbitration.

Pursuant to California Rules of Court, 3.1308 (a)(1) and Santa Barbara County Superior Court Local Rule 1301(b), the court does not require a hearing; oral argument will be permitted only if a party notifies all other parties and the court by 4:00 p.m. (Department 2) the day before the hearing of the party’s intention to appear. This tentative ruling will become the ruling of the court if notice of intent to appear has not been given. If no hearing is held, plaintiff is directed to provide a new proposed order (containing all requirements noted above) for signature, with appropriate notice to defendant pursuant to California Rules of Court rule 3.1312, which will then be entered by the court.