Thelma Aristondo vs Kmart Corp
Case No: 18CV03269
Hearing Date: Wed Oct 17, 2018 9:30

Nature of Proceedings: Compel Arbitration

Tentative Ruling: The court denies the petition of defendants Kmart Corporation and Sears Holdings Management Corporation to compel arbitration and stay action.

Background: On September 28, 2018, plaintiff Thelma Aristondo filed her complaint against her former employer Kmart Corporation (“Kmart”); Sears Holdings Management Corporation (erroneously sued as Sears Holdings, Inc., hereinafter “Sears”), owner of Kmart; and Marilyn Mauricio, one of plaintiff’s supervisors when she worked at Kmart. Plaintiff alleges:

Plaintiff was hired in 2004 as a sales floor associate at the Kmart store in Goleta making $8/hr. [Complaint ¶14] She was promoted to soft lines lead associate and paid $14/hr with benefits. [¶15] Plaintiff suffered a work place injury on February 19, 2016. [¶16] When plaintiff’s injury healed, she returned to work but was assigned to the jewelry lead associate position and then to a credit card position. She was not permitted to return to her position as soft lines lead. [¶17] Plaintiff was forced to use her lunch break to attend doctor and physical therapy appointments. She was not permitted to use available sick time, nor was her need to attend doctors and physical therapy sessions reasonably accommodated by her employer. [¶18] On January 11, 2018, plaintiff was terminated, ostensibly because her position had been eliminated. There was no process to accommodate plaintiff’s injury. There was no discussion of what type of work she could do, even though she was well accomplished in three roles on the Kmart sales floor. [¶19] At the time of her termination, there was a “WE ARE HIRING” sign displayed outside the Goleta Kmart store. [¶20] Mauricio harassed plaintiff based on her injury. [¶21]

The causes of action in the complaint are: 1) employment discrimination based on physical disability, 2) employment discrimination based on medical condition, 3) employment discrimination based on race and/or ethnicity, 4) failure to accommodate disability, 5) violation of the California Family Rights Act, 6) failure to engage in the interactive process in violation of the Fair Employment and Housing Act (“FEHA”), 7) harassment (FEHA), 8) common law harassment on the basis of disability, medical condition, race, and/or ethnicity, 9) failure to prevent discrimination and harassment (FEHA), 10) retaliation in violation of FEHA, 11) retaliation in violation of public policy, 12) discrimination, harassment, and retaliation in violation of Labor Code § 132a, 13) wrongful termination in violation of public policy. Plaintiff does not indicate against which defendants she asserts the twelfth cause of action. Plaintiff asserts all other causes of action against Kmart and Sears and she asserts the seventh, eighth, tenth, and eleventh causes of action against all defendants.

There is no proof of service indicating that defendant Marilyn Mauricio has been served. A CMC is scheduled for October 29, 2018.

Petition: Kmart and Sears (“petitioners”) petition to compel arbitration based on a contractual arbitration provision in the Arbitration Policy/Agreement between plaintiff and defendants and for a stay of the action pending arbitration. Plaintiff opposes the petition.

1. Notes on Pleadings: Neither party complies with CRC 3.1113(h), which provides: ““The pages of a memorandum must be numbered consecutively beginning with the first page and using only Arabic numerals (e.g., 1, 2, 3). The page number may be suppressed and need not appear on the first page.” (CRC 3.1111(h).)

Petitioner’s memorandum in support of the petition begins with the title page numbered Arabic #1, the tables are then Arabic ##1-6, and the points and authorities begin again with Arabic #1. Plaintiff’s opposition begins with the title page with Arabic #1, then numbers the tables Roman ##I-II, then starts with p. 2 as the first page of the memorandum. This made it difficult for the court to locate pages in the electronically filed pleading that correspond to the pages listed in the table of contents.

Petitioner’s memorandum of points and authorities exceeds the 15 pages maximum length mandated by CRC 3.1113(d) by a full three pages.

2. Objections to Evidence: Petitioners object to portions of plaintiff’s declaration.

Objection #1: In ¶8 of her declaration, plaintiff says she does not recall agreeing to submit all employment disputes to arbitration. Petitioners say this is irrelevant to her acknowledgement of the arbitration agreement and is an impermissible legal conclusion and opinion. Her statement is simply that she does not recall agreeing, not that she did not agree. The statement is relevant and not a legal conclusion or opinion. Overruled.

#2: Similarly, in ¶14, plaintiff says she does not believe she signed or otherwise agreed to submit all her employment disputes to arbitration. This is a statement of her belief and not a legal conclusion or opinion. She has personal knowledge of her beliefs. Overruled.

#3: In ¶15, plaintiff says she has reviewed the policies Kmart contends she acknowledged and she does not know whether these policies correspond to anything presented at the employee meeting in April 2012. This is a statement of her knowledge and state of mind. It is not a legal conclusion or opinion and she has personal knowledge of the statement. Overruled.

#4: In ¶16, plaintiff says: “At no time did I knowingly waive my right to a jury trial for claims against my employer.” This is a legal conclusion. Sustained.

#5: In ¶18, plaintiff says: “I know of two other employees of Kmart who were compelled to sign these agreements even though they did not understand them.” This is hearsay and speculation. Sustained.

#6: In ¶19, plaintiff says: “I believe I had to sign the agreement in order to keep my job.” As a statement of her belief, it is not a legal conclusion or opinion and is not speculative. Overruled.

3. Facts: Petitioners present facts in the declaration of Laura Novak, the Manager of Administrative Operations in Sears’s Legal Department. In April, 2012, Kmart introduced an Arbitration Policy/Agreement (the “agreement”), under which participating employees and Kmart each waive the right to pursue employment-related claims in court, agreeing instead to submit such disputes to binding arbitration. [Laura Novak Dec. ¶5, Exhibit A] The agreement noted, in boldface type, that the employee should read it carefully and that arbitration replaces the right of both parties to go to court, including the right to have a jury decide the parties’ claims. [Id. ¶6, Exhibit A] The agreement also stated, in boldface type:

“If Associate does not wish to be bound by the Agreement, Associate must opt out by following the steps outlined in this Agreement within 30 days of receipt of this Agreement. Failure to opt out within the 30-day period will demonstrate Associate’s intention to be bound by this Agreement and Associate’s agreement to arbitrate all disputes arising out of or related to Associate’s employment as set forth below.” [Id.]

In 2012, Kmart employees (including plaintiff) participated in online training and acknowledged receipt of the Arbitration Agreement using Kmart’s “My Personal Information” (“MPI”) online portal. [Id. ¶7] Employees log into the MPI portal using a unique Enterprise ID and Password. Once logged into the MPI portal, employees may print any documents or pages viewed in the portal using Kmart-owned equipment and supplies and at no cost to the employee. [Id. ¶8] The pages viewed by an employee included links to the agreement in PDF and text formats, an opt-out form, and acknowledgement of receipt of the agreement. The descriptions of these links are in English with no Spanish translation. [Id. Exhibit B, third page] Novak says there is a link to a Spanish version of the agreement, though that does not appear on Exhibit B—the screenshots. [Id. ¶9] After reviewing the agreement and opt-out form, the MPI portal asks employees to acknowledge their receipt of the agreement by clicking on the “Acknowledge receipt of the Arbitration Policy/Agreement” link. [Id. ¶10] When employees click on that link, they get this message: “By clicking below, I acknowledge that I have reviewed and agree to the terms and conditions set forth in the Arbitration Policy/Agreement. I also understand that I may change my mind and opt out of the Agreement within 30 days of today’s date by returning the Arbitration Policy/Agreement Opt Out form located at the end of the Agreement.” [Id. ¶11, Exhibit B, fourth page]

Once an employee completes the acknowledgement in the MPI portal, Kmart’s Human Resources Management System, called “Peoplesoft,” is updated to reflect the employee’s receipt and acknowledgement of the agreement. [Id. ¶12] The PeopleSoft system is updated to reflect an employee’s decision to opt out of the Arbitration Agreement. [Id. ¶16]

Plaintiff received and reviewed the agreement as part of the launch of the agreement and, on April 10, 2012, she acknowledged receipt of the agreement by clicking “Yes” and “Submit” on the agreement’s acknowledgement page. [Id. ¶¶18, 19, Exhibit D] Plaintiff did not opt out of the agreement. [Id. ¶21]

There are two documents in plaintiff’s personnel file that appear to be handwritten in English by plaintiff, one relating to a workplace injury and one appears to be a schedule request. [Novak Dec. ¶22] Petitioners do not provide copies of these documents, nor do they describe the extent of the writing.

Plaintiff is a native of Guatemala. Her ability to speak, read, and write in English is very limited but she is fluent in Spanish. [Plaintiff Dec. ¶3] In 2012, plaintiff was directed to leave the sales floor and attend a meeting. [Id. ¶5] During this meeting, she was told to use a computer and was told to accept something and to go back to work immediately. Her recollection is that this meeting was conducted in English and the computer screen was in English. The meeting was very brief. [Id. ¶6] Plaintiff has reviewed agreement in Spanish and has seen the English language version. She has no recollection of seeing this document in English or Spanish before her attorney showed it to her. [Id. ¶7] At the time of the meeting, there was no time provided to review the agreement. [Id. ¶9]

Plaintiff says she did not have any opportunity to negotiate the terms of the agreement. [Id. ¶10] Plaintiff never was given any set of rules that would have governed or controlled any arbitration. [Id. ¶12] She was never told anything about who would pay for an arbitration. [Id. ¶12] She did not have any opportunity to consult with an attorney about the agreement. [Id. ¶13] Plaintiff felt pressured to sign the document at the time of the meeting and believed she had to sign it in order to keep her job. [Id. ¶¶17, 18]

After plaintiff commenced this action, counsel for petitioners contacted plaintiff’s counsel to see if plaintiff would stipulate to arbitration. [Haven Claytor Dec. ¶2, Exhibit A] Plaintiff refused to submit the dispute to arbitration. [Id. ¶¶5, 6]

4. Analysis: Petitioners petition to compel arbitration under both the Federal Arbitration Act (FAA — 9 U.S.C. § 1, et seq.) and California law. CCP § 1281.2 provides that, if one of the parties to a written arbitration agreement refuses to arbitrate a dispute covered by the agreement, the court, on petition, can order the parties to arbitration. CCP § 1281 provides: “A written agreement to submit to arbitration an existing controversy or a controversy thereafter arising is valid, enforceable and irrevocable, save upon such grounds as exist for the revocation of any contract.” 9 U.S.C. § 2 provides that a “contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract or transaction … shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.”

The parties do not disagree that the claims in plaintiff’s complaint are subject to the arbitration agreement. Nor do they disagree that federal and California law favor arbitration. They differ on the question of whether plaintiff and petitioners entered into a valid and enforceable arbitration agreement.

“[U]nder both federal and 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.” (Armendariz v. Found. Health Psychcare Servs., Inc., 24 Cal.4th 83, 98 (2000) (“Armendariz”).) The FAA “permits agreements to arbitrate to be invalidated by ‘generally applicable contract defenses, such as fraud, duress, or unconscionability,’ but not by defenses that apply only to arbitration or that derive their meaning from the fact that an agreement to arbitrate is at issue.” (AT&T Mobility LLC v. Concepcion, 563 U.S. 333, 339 (2011) [citations omitted].) In FAA cases, federal courts determine the enforceability of arbitration agreements under the applicable state law. (Id., applying Armendariz.)

“[U]nconscionability 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. 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. 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, 24 Cal.4th at 114 [internal quotations and citations omitted].)

a. Adhesion Contract and Procedural Unconscionability: In applying principles of unconscionability, the court must first determine whether the arbitration agreement is adhesive. (Armendariz, 24 Cal.4th at 114.) “Procedural unconscionability turns on adhesiveness-a set of circumstances in which the weaker or ‘adhering’ party is presented a contract drafted by the stronger party on a take it or leave it basis. To put it another way, procedural unconscionability focuses on the oppressiveness of the stronger party’s conduct.” (Mercuro v. Superior Court, 96 Cal.App.4th 167, 174 (2002).)

This was not the typical pre-employment arbitration agreement that “stands between the employee and necessary employment” discussed in Armendariz. (Armendariz, 24 Cal.4th at 115.) Plaintiff was already employed and nothing in the MPI portal indicates she will no longer be employed in the event she did not agree to arbitration. Nor was Kmart’s agreement on its face a “take it or leave it” agreement. There was a 30-day opt out provision with an opt-out form identified just below the links to the agreement and just above the link for acknowledging receipt of the agreement. The Ninth Circuit has held that “an arbitration agreement was not procedurally unconscionable, in large part because it contained an opt-out provision allowing the plaintiff to reject the arbitration program within 30 days of signing the contract. … We further held that 30 days was an ‘ample opportunity to investigate any provisions [the plaintiff] did not understand before deciding whether to opt out of [the] arbitration program.’” (Kilgore v. KeyBank, Nat. Ass’n, 673 F.3d 947, 963 (9th Cir. 2012), citing Circuit City Stores, Inc. v. Ahmed, 283 F.3d 1198, 1200 (9th Cir. 2002).)

The opt-out form link on the MPI portal has the following language visible without clicking on the link: “Action is required to protect your legal rights to sue the Company in court and/or to participate in any way in a class action, collective action or representative action.” [Novak Dec. Exhibit B, second page] Plaintiff acknowledged receipt of the agreement. [Novak Dec. ¶19, Exhibit D] The acknowledgement page of the MPI portal contains the language quoted above indicating agreement to the terms of the arbitration agreement and the opportunity to opt out within 30 days. [Novak Dec. Exhibit B, fourth page] That plain language indicates agreement to arbitration and the opportunity to opt out.

Although she states that the meeting where she was presented with the MPI portal was rushed, plaintiff does not say she did not see this advisement and it appears she could not have completed the acknowledgement without seeing it. Plaintiff does not say whether she saw or understood the advisement. She says that her ability to read and write in English is very limited. [Plaintiff Dec. ¶3] All the words on the MPI portal related to the agreement are in English only, so a Spanish speaker/reader would not be alerted to the contents of the agreement and would not be able to navigate to a Spanish version of the agreement. (As noted above, on the screenshots provided, the court could not find any link, in Spanish or English, to a Spanish translation in the screenshots provided.)

The presentation of plaintiff’s opposition to the petition does not make plaintiff’s familiarity or lack of familiarity with English readily apparent. Her declaration is in English. She did not sign a declaration in Spanish and does not say she had translation help to understand her declaration. Nevertheless, the court will take plaintiff at her word.

For a Spanish-speaker, an employer’s instruction to leave the sales floor and attend a meeting, use a computer to view screens entirely in English, accept something, and go back to work immediately is a strong indication of an adhesion contract and procedural unconscionability. Petitioners provide no testimony from anyone who actually attended the meeting at which plaintiff was presented the arbitration agreement. All we have is plaintiff’s declaration and she does not indicate an environment conducive to absorbing and understanding an arbitration agreement. Plaintiff was not given time in that meeting sufficient to read a document the size of the arbitration agreement, even if she had navigated to a Spanish version of the agreement.

b. Substantive Unconscionability: Given the extent of procedural unconscionability, there need not be substantial evidence of substantive unconscionability. Nevertheless, there are elements of substantive unconscionability.

“Adequate discovery is indispensable for the vindication of statutory claims.” (Fitz v. NCR Corp., 118 Cal.App.4th 702, 715 (2004).) Adequate discovery “does not mean unfettered discovery,” but “arbitration agreements must ‘ensure minimum standards of fairness’ so employees can vindicate their public rights.” (Id. [citations omitted].) Petitioners stress JAMS Rules for arbitration and suggest they provide adequate discovery.

First, JAMS Rules do not necessarily apply. “If the parties have not agreed upon an arbitrator within 30 days of service of the arbitration demand, then Company will file the initiating party’s demand with JAMS.” [Agreement ¶6(a)] So, if the parties agree to some non-JAMS arbitrator, she/he is not bound by JAMS Rules. This is recognized elsewhere in the agreement: “If the arbitration is being administered by JAMS then the arbitration shall be conducted according to JAMS Employment Arbitration Rules & Procedures effective July 15, 2009.” [Agreement ¶7] The key word there is “if.”

Second, even under JAMS Rules, there is not adequate discovery in a FEHA case. JAMS Rule 17 provides for informal exchange of documents and only guarantees a single deposition per side. It is up to the discretion of the arbitrator to allow more.

It is also not clear if an employee has to pay the arbitrator’s fees. The agreement provides: “If applicable law requires Company to pay the Arbitrator’s fees, then Company will pay such fees; otherwise, payment of fees shall be governed by the rules of the organization that administers the arbitration. Where the arbitration is conducted by an organization or arbitrator that does not have rules pertaining to the payment of fees, the Company shall pay the arbitrator’s fees.” [Agreement ¶6(c)]

Applicable law only requires an employer to pay the costs associated with arbitration when the employer imposes mandatory arbitration as a condition of employment. (Armendariz, 24 Cal.4th at 110.) JAMS Rule 31(c), assuming it applies, provides the same: “If an Arbitration is not based on a clause or agreement that is required as a condition of employment, the Parties are jointly and severally liable for the payment of JAMS Arbitration fees and Arbitrator compensation and expenses.” Petitioner has stressed that its arbitration agreement is not a condition of employment because of the opt-out clause. So, it is disingenuous for petitioner to suggest that the employee will not have to pay arbitration fees.

c. Conclusion: There is substantial evidence of procedural unconscionability in the manner in which petitioners imposed the arbitration agreement on plaintiff. There is also evidence of substantive unconscionability. The court concludes the parties did not enter into a valid and enforceable arbitration agreement.

5. Order: The court denies the petition of defendants Kmart Corporation and Sears Holdings Management Corporation to compel arbitration and stay action.