Item 11 2018-00225195-CU-WT

Sheri Albers vs. Virtual Radiologic Professionals, LLC

Nature of Proceeding: Motion to Compel Arbitration

Filed By: Linehan, Jessica L.

Defendant Virtual Radiologic Professionals, LLC’s motion to compel arbitration is denied.

In this action Plaintiff Sheri Albers alleges causes of action for Whistle Blower Retaliation under Business & Professions Code §§ 501(c) and 2056(c), Whistle Blower Retaliation under Health & Safety Code § 1278.5(a), Breach of Contract, in addition to numerous wage and hour claims under the Labor Code. Plaintiff alleges that she is a radiologist that negotiated to work on Defendant’s staff. She alleges that she indicated that she was not competent to read certain studies and that the parties’ agreement indicated that Plaintiff would only perform three types of nuclear reads. She alleges that when she began to complete paperwork to obtain privileges to work at hospitals, she noticed that Defendant overrepresented her level of expertise and even altered paperwork that she submitted. She alleges that she began refusing to sign paperwork because it was a fraud on Defendant’s hospital clients. She alleges that Defendant improperly terminated her for refusing to cooperate in completing the paperwork despite her objections that the paperwork was inaccurate. She also claims that Defendant improperly classified her as an independent contractor.

Defendant moves to compel arbitration of the dispute pursuant to an arbitration agreement. Plaintiff opposed the motion on the basis that the arbitration contains an invalid provision requiring arbitration in Minnesota under Minnesota law and that the arbitration agreement as a whole is unconscionable and unenforceable. Defendant has apparently initiated arbitration in Minnesota.

The arbitration provision in the parties’ “Independent Physician Agreement” (“IPA”) states that: “Any dispute, claim, or controversy arising out of or related to this Agreement will be resolved by binding arbitration by a single arbitrator knowledgeable in physician contracting and healthcare matters, conducted in Minneapolis, Minnesota; mutual selection of the arbitration and the arbitration process will be conducted according to the Commercial Arbitration Rules of the American Arbitration Association. Notwithstanding the foregoing, each party shall be entitled to seek injunctive relief in

any court of competent jurisdiction pending such arbitration. Judgment upon the arbitration award shall be final, binding, and conclusive and may be entered in any court having jurisdiction.” (Schmugge Decl. Exh. A ¶ 27.) The agreement also contains a “Class Action Waiver” purporting to waive the ability of Plaintiff to participate as a class representative or a private attorney general.

Here, there is no dispute that the claims in the FAC are within the scope of the arbitration provision. Instead, the dispute focuses solely on whether the provision is enforceable.

Plaintiff first argues that the forum selection clause in the IPA is invalid pursuant to Labor Code § 925. Labor Code § 925 prohibits an employer from requiring an employee who primarily resides and works in California to agree to a provision that would either: “(1) Require the employee to adjudicate outside of California a claim arising in California. (2) Deprive the employee of the substantive protection of California law with respect to a controversy arising in California.” (Labor Code § 925

(a).) “Any provision of a contract that violates subdivision (a) is voidable by the employee, and if a provision is rendered void at the request of the employee, the matter shall be adjudicated in California and California law shall govern the dispute.” (Id. § 925(b).) This section applies to arbitrations. (Id. § 925(d).) The section applies to contracts that were “entered into, modified, or extended on or after January 1, 2017.” While the parties entered the IPA in 2016, it was amended effective January 1, 2017. (Schmugge Decl. Exh. B.) Plaintiff argues that despite the language in the IPA indicating that she was an independent contractor, she nevertheless is an employee such that Labor Code § 925 applies.

Here, the Court declines to engage in determining whether or not Plaintiff is an independent contractor or an employee on this motion as doing so would result in the Court essentially determining one of the dispositive issues in this action on a motion to compel arbitration. As seen below, the Court’s decision on the instant motion does not hinge on such a distinction as the Court concludes that the arbitration is unconscionable and therefore unenforceable.

Parenthetically, it bears noting, however, that “[a] forum-selection provision] will be disregarded if it is the result of overreaching or of the unfair use of unequal bargaining power or if the forum chosen by the parties would be a seriously inconvenient one for the trial of the partic[u]lar action.” (Rest.2d, Conf. of Laws, § 80, com. a.; Cal-State Business Products & Services, Inc. v. Ricoh, (1993) 12 Cal. App. 4th 1666, 1679. )

While Defendant states that the FAA governs the arbitration agreement, the Supreme Court made clear that the FAA preserves “generally applicable contract defenses” for example whether a contract was formed in the first instance (AT&T Mobility LLC v.

Concepcion (2011) 131 S.Ct. 1740, 1748, 1753.) In addition, the doctrine of unconscionability still applies and state law determines whether an agreement is unconscionable. (Doctor’s Assoc., Inc. v. Casarotto (1996) 517 U.S. 681, 687.) Indeed, Concepcion reaffirmed that the FAA does not preempt generally applicable contract defenses, such as fraud, duress, or unconscionability. (Concepcion, 131 S. Ct. at p. 1746.) Under the FAA, these defenses may provide grounds for invalidating an arbitration agreement if they are enforced evenhandedly and do not interfere with fundamental attributes of arbitration. (Id. at p. 17480; see also Sonic-Calabasas A, Inc. v. Moreno (2013) 57 Cal. 4th 1109, 1143-1145.) Thus, the fact that the FAA may apply to the IPA does not preclude the Court from declining to enforce the arbitration

provision if it concludes it is unconscionable.

Unconscionability 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. 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. (Parada v. Superior Court (2009) 176 Cal.App.4th 1554, 1570.) “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 contract formation, that creates the terms, in proportion to the greater harshness or unreasonableness of the substantive terms themselves.’ In other words, 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.” (Armendariz v. Foundation Health Psychare Services, Inc. (2000) 24 Cal.4th at 114.)

Procedural Unconscionability

The procedural aspect of unconscionability “concerns the manner in which the contract was negotiated and the circumstances of the parties at that time. [citations omitted] It focuses on factors of oppression and surprise. [citations omitted] The oppression component arises from an inequality of bargaining power of the parties to the contract and an absence of real negotiation or a meaningful choice on the part of the weaker party.’ [citations omitted]” (Morris v Redwood Empire Bancorp (2005) 128 Cal.App.4th at 1305, 1319.)

Here, Plaintiff argues that the arbitration agreement is procedurally unconscionable because it was presented on a take it or leave it basis and she was not provided a copy of the arbitration rules. She also argues that she was not given a chance to make any informed decision regarding the agreement because it stated that Minnesota law applied to any dispute yet she had no opportunity to consult with a Minnesota employment lawyer at the time she signed the agreement.

“Ordinary contracts of adhesion, although they are indispensable facts of modern life that are generally enforced [citations omitted] contain a degree of procedural unconscionability even without any notable surprises, and ‘bear within them the clear danger of oppression and overreaching.’” (Baltazar v. Forever 21, Inc. (2016) 62 Cal.4 th 1237, 1244.) Plaintiff declares that in negotiating the IPA with Defendant she was under the belief that the arbitration provision was something that she was required to accept in order to work with Defendant and was not informed that it was optional or could be negotiated away. (Albers Decl. ¶ 9.)

Procedural unconscionability may also be present where the relevant arbitration rules are not provided, at least where the unconscionability claim depends to some degree on the arbitration rules in question. (Baltazar, supra, 62 Cal.4th at 1246.) Here, while the IPA refers to AAA’s Commercial Arbitration Rules, Plaintiff declares that she was not provided a copy of the rules or informed where she could access them. (Albers Decl. ¶ 9.) As seen below, part of her substantive unconscionability claim hinges on the discovery permitted under those rules in addition to payment of arbitrator fees under those rules. Thus, given that the Plaintiff’s substantive unconscionability challenge depends in part on the relevant rules, the failure to provide a copy of the rules adds a degree of procedural unconscionability. This is true, even though as

Defendant points out in reply, that the AAA Commercial Rules were available “online”.

In addition, the inclusion of the choice of law provision also adds to the procedural unconscionability analysis. To that end procedural unconscionability has been found where an arbitration agreement included a choice of law provision indicating that the agreement would be governed by Texas law except where federal claims were involved and then Fifth Circuit Law would apply. (Pinela v. Neiman Marcus Grp., Inc. (2015) 238 Cal.App.4th 237, 243-244.) “Without going to the expense of hiring a lawyer-not just any lawyer, but a Texas lawyer skilled in the intricacies or abritrability, with the choice of law overlay presented here-and then having sufficient time to seek and obtain legal advice from that lawyer, Pinela was not in a position to make an informed assessment of the consequences of agreeing to delegate all questions concerning the ‘applicability, meaning, scope [or] enforceability’ of the Agreement to the arbitrator. Although the delegation clause was not hidden from him, it might as well have been.” (Id. at 244.) While Plaintiff is not unsophisticated (she is a doctor), she is not an attorney and she declared that she did not know a Minnesota attorney at the time she entered the IPA with Defendant. (Albers Decl. ¶ 10.)

In short, the Court concludes that Plaintiff has demonstrated a level of procedural unconscionability.

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.’” ( Parada, supra, 176 Cal.App.4th at 1573.”)

Here, Plaintiff argues that the arbitration agreement contains numerous provisions which render it substantively unconscionable. To that end, she argues that the provision that requires the arbitration to take place in Minnesota pursuant to Minnesota law is unconscionable. The Court agrees. The forum selection clause of a Minnesota forum is not in and of itself grounds for revocation of the arbitration agreement. “Forum selection clauses are important in facilitating national and international commerce, and as a general rule should be welcomed.” (Wimsatt v. Beverly Hills Weight etc. Internat., Inc. (1995) 32 Cal. App. 4th 1511, 1523.)

Thus, forum selection clauses are generally valid and enforced unless enforcement would be unreasonable. (Intershop Communications AG v. Superior Court (2002) 104 Cal.App.4th 191, 198.) Here, not only does the arbitration provision call for arbitration in Minnesota, but it also calls for application of Minnesota law. A forum selection clause will be enforced regardless of the inherent additional expense and inconvenience of litigating in a distant forum, unless it can be shown that enforcement is unreasonable. (Smith, Valentino & Smith, Inc. v. Superior Court (1976) 17 Cal.3d 491, 495-496; Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 12-19.) However, where a lawsuit involves unwaivable statutory rights, the burden is on the party seeking to enforce the choice of law provision to demonstrate that the chosen forum would not diminish any unwaivable rights. (Verdugo v. Aliiantgroup, L.P. (2015) 237 Cal.App.4th 147-148.) This principle applies when the plaintiff, as Plaintiff does here, alleges Labor Code claims. (Id.) To that end, the party seeking to enforce the choice of law provision must demonstrate that the foreign forum does not contravene California’s public policy and provides the same or greater rights than California or the foreign forum will apply California law on the claims at issue. (Id. at 157; Swenson v. T-Mobile United States, Inc., (2006) 415 F. Supp. 2d 1101, 1104.) No such showing is made

here by Defendant. In fact, Defendant has not even discussed Minnesota law.

The Court is aware of Defendant’s repeated contentions that the IPA provides that the parties created an independent contractor relationship as opposed to an employment relationship and thus none of the Labor Code sections apply. But Plaintiff has alleged that she was misclassified and thus entitled to the protections of the Labor Code. If she ultimately proves here claims, then she is entitled to the unwaivable protections of the Labor Code. As already discussed above, the Court will not resolve Plaintiff’s status on this motion.

Moreover, Plaintiff has claims that do not depend on whether she was an employee or an independent contractor. To that end, she has a claim for Whistleblower Retaliation in violation of Health & Safety Code § 1278.5 which is not limited to employees.

Enforcement of choice of forum provisions will be denied “if it would violate a strong California public policy…[or] ‘result in an evasion of…a statute of the forum protecting its citizens.’” (Hall v. Superior Court (1983) 150 Cal.App.3d 411, 416-417 [citations omitted].) Health & Safety Code § 1278.5 specifically states: “The Legislature finds and declares that it is the public policy of the State of California to encourage patients, nurses, members of medical staff , and other health care workers to notify government entities of suspected unsafe patient care and conditions. The Legislature encourages this reporting in order to protect patients and in order to assist those accreditation and government entities charged with ensuring that health care is safe.” (Health & Safety Code § 1278.5(a).) Enforcement of the Minnesota choice of forum/law provision would result in evasion of Health & Safety Code § 1278.5 which is a statute enacted for a public purpose to protect California citizens.

The Court thus concludes that the Minnesota choice of forum/law provision is substantively unconscionable. Application of that provision would deprive Plaintiff of, at a minimum, the protection of Health & Safety Code § 1278.5 in addition to potentially depriving her of the protection of the Labor Code in the event it is ultimately determined that she was an employee. “Because the effect of transferring the case to Nevada would have been to strip the plaintiffs of statutory protections guaranteed them under California law, the mere potential that those protections might be undermined was enough to justify refusing enforcement of the Nevada forum selection clause.” ( Pinela, supra, Cal.App.4th at 249 [discussing Hall, supra, 150 Cal.App.3d at 418-419] [emphasis in original].)

In addition, Plaintiff argues that the agreement fails to comply with Armendariz. The Court agrees. When dealing with nonwaivable statutory rights, arbitration agreements encompassing those rights “must be subject to particular scrutiny.” (Armendariz, supra, 24 Cal.4th at 100.) To that end, an arbitration agreement encompassing such rights “must, at a minimum, provide for neutral arbitrators, adequate discovery, a written award subject to limited judicial review, the same types of relief which would be available from a court, and the employees must not be required to bear any type of expense they would not be required to bear if their claims were brought in a court.” ( Armendariz, supra, 24 Cal.4th at 103-113.)

While Armendariz dealt with FEHA claims, its standards have been extended to various statutory claims, including Labor Code violations. (Mercuro, supra, 96 Cal.App.4th at 180; see also Samaniego v. Empire Today, LLC (2012) 205 Cal.App.4th 1138, 1147 [discussing the Armendariz factors in connection with statutory wage and hour claims].) It has also been held to apply to other non-FEHA claims implicating public policy such as Tameny claims. (Little v. Auto Stiegler, Inc. (2003) 29 Cal.4th

1064, 1077.) Here, Plaintiff sets forth Labor Code wage and hour claims, a Tameny claim and also Whistleblower Retaliation claims, including one under Health & Safety Code § 1278.5 whose public policy is explicitly set forth in the text of the statute.

Here, the arbitration provision calls for arbitration pursuant to the AAA Commercial Rules. First, the Commercial Rules only appear to provide for an exchange of documents and no general right to discovery. (Acero Decl. Exh. B.) Further, depositions only appear to be available if the case qualifies as a “Large, Complex Commercial Dispute[ ].” Further, even in such disputes depositions are only permitted “[i]n exceptional cases, at the discretion of the arbitrator, upon good cause shown and consistent with the expedited nature of arbitration, the arbitrator may order depositions to obtain the testimony of a person who may possess information determined by the arbitrator to be relevant and material to the outcome of the case.” (Id. Exh. B., p.38, Rule L-3(f).) The Court finds that this limited discovery is not sufficient. “[T]he permitted amount of discovery is so low while the burden for showing a need for more discovery is so high that plaintiff’s ability to prove her claims would be unlawfully thwarted by the discovery provision in the agreement.” (Ontiveros v. DHL Express (USA), Inc. (2008) 164 Cal.App.4th 494, 513.) Defendant’s reply fails to address the limited discovery under the AAA Commercial Rules.

In addition, certain of Plaintiff’s claims are pursuant to statutes which provide for mandatory attorney’s fees. (E.g. CCP § 1278.5(a).) However, as discussed above, the arbitration agreement calls for application of Minnesota law. Further the AAA Commercial Rules provide that the arbitrator “may apportion such fees, expenses, and compensation among the parties in such amounts as the arbitrator determines is appropriate.” (Acero Decl. Exh. B. p. 28, Rule R-47(c).) In addition, arbitrator fees “shall be borne equally by the parties, unless they agree otherwise or unless the arbitrator in the award assesses such expenses or any part thereof against any specified party or parties.” (Id. p. 30 Rule 54.) The arbitrator is empowered to impose these arbitration fees, fees which are unique to arbitration and which would not be required in a court action. The fact that the arbitrator may have discretion to award the fees does not shield the provision from attack, especially, where, as here, there is no language in the arbitration agreement of in the AAA Commercial Rules indicating that the arbitrator can only award fees and costs consist with Armendariz. (Wherry v. Award, Inc. (2011) 192 Cal.App.4th 1242, 1249.) While Defendant’s reply points out that California courts do not prohibit employees from sharing in any costs of arbitration, just unreasonable costs, arbitrator fees in the context of this dispute could very well run in the thousands of dollars and be unreasonable.

Further the arbitration provision in the IPA also contains a PAGA waiver as it specifically states that Plaintiff is waiving the right to pursue claims “as a private attorney general…” (Schmugge Decl. Exh. A ¶ 27(c).) This provision is invalid. “We conclude that where, as here, an employment agreement compels the waiver of representative claims under PAGA, it is contrary to public policy and unenforceable as a matter of state law.” (Iskanian v. CLS Transportation Los Angeles, LLC (2014) 59 Cal.4th 348, 384.)

The Court again is cognizant of Defendant’s repeated arguments that Plaintiff was an independent contractor not an employee. But again, as discussed above, the analysis with respect to unconscionability is not dependent on any such distinction. As emphasized above, Plaintiff has claims for statutory violations of Health & Safety Code § 1278.5 which are not limited to employees and the Armendariz requirements apply

with respect to important statutory rights. Further, in the context of analyzing unconscionability of an arbitration provision under Armendariz, “[t]hat plaintiffs are independent contractors and not employees makes no difference in this context
.” (Wherry, supra, 192 Cal.App.4th at 1249 [emphasis added].)

As a result, the Court concludes that Plaintiff has demonstrated both procedural and substantive unconscionability.

Based on the above, specifically, the existence of the Minnesota choice of forum/law provision, the limits on discovery under the AAA Commercial Rules, the potential imposition of arbitrator fees and deprivation of mandatory attorneys’ fee under the AAA Commercial Rules, and the PAGA waiver, the Court finds that a significant level of substantive unconscionability is present. Together with the procedural unconscionability, the Court concludes that the entire arbitration provision in the IPA is unconscionable. Given the numerous instances of unconscionability, the Court declines to sever any portion of the agreement, even though as pointed out by Defendant in reply, the IPA has a severance clause. This might be persuasive if there were a single instance of unconscionability. Here, however, there are numerous instances of unconscionability. The arbitration provision is “permeated with unconscionability and will not be enforced.” (Ontiveros, surpa, 164 Cal.App.4th at 515.) Indeed, the agreement is permeated by unconcscionability and “[s]uch multiple defects indicate a systematic effort to impose arbitration on an employee not simply as an alternative to litigation, but as an inferior forum that works to the employer’s advantage.” (Arrmendariz, supra, 24 Cal.4th 124.) If the Court were to sever the provisions regarding the choice of forum/law, the application of the AAA Commercial Rules regarding discovery and fees, and the PAGA waiver, it would essentially be re-writing the parties’ agreement.

While Defendant argues that the parties agreed to the AAA Commercial Rules and Plaintiff cannot now force a different set of rules to govern the dispute, Plaintiff has shown that application of the chosen rules to the instant dispute between the parties would be unconscionable. Further, Defendant’s citation to two unpublished cases in which it argues the Court affirmed arbitration awards made under the AAA Commercial Rules in similar cases is impermissible. “[A]n opinion of a California Court of Appeal or superior court appellate division that is not certified for publication or ordered published must not be cited or relied upon by a court or party in any other action.” (CRC Rule 8.1115.)

Defendant also argues that the doctrine of forum non conveniens provides a basis for this Court to compel arbitration in Minnesota. (Mot. 9:2-12:7.) This argument is rejected. Defendant did not make a formal motion pursuant to CCP § 410.30. Indeed, the notice of motion only refers to CCP § 1281.2 and makes no mention of § 410.30. On this basis alone the Court declines to consider this argument. In any event, even if the Court considered such an argument, it would have to be denied for the sole basis that at least in connection with the instant motion, Defendant did not show that Minnesota law would not diminish any unwaivable rights. (Verdugo, supra, 237 Cal.App.4th at 157.)

The Court declines Plaintiff’s request in opposition for injunctive relief pursuant to Labor Code § 925. As discussed above, this Court is not on this motion determining whether Plaintiff is an employee or an independent contractor and thus makes no ruling on the ultimate applicability of Labor Code § 925. Further, a request for

injunctive relief cannot be made in opposition to a motion. Nor will the Court order the pending arbitration in Minnesota stayed or ended. Again, such a request cannot be made in opposition to a motion to compel.

Defendant’s reference to a 2014 decision from the Los Angeles Superior Court which it claims enforced the same arbitration provision on a motion to compel is irrelevant to this Court’s decision. This Court is not bound by another trial court’s decision.

As a result, Defendant’s motion to compel arbitration is denied.