Case Number: BC702263 Hearing Date: January 03, 2019 Dept: 14

MADRIGAL V. HONG HOLDINGS, LLC

MOTION TO COMPEL ARBITRATION, STRIKE CLASS ACTION ALLEGATIONS, AND STAY PROCEEDINGS

TENTATIVE RULING

Grant motion to compel arbitration; sever the provision of the Arbitration Agreement requiring a pro rata split of arbitration fees and prohibiting recovery of costs under CCP §1032 (incorporating the ARC rules), and require that Defendant pay all costs of arbitration over and above those costs Plaintiff would have otherwise been required to pay if the case proceeded in Court; strike the class allegations; stay prosecution of the PAGA and UCL claims, pending completion of the arbitration proceedings; set a ninety (90) day non-appearance date (Monday, March 4) to update the Court on the progress of the mediation

DISCUSSION

I. Background

This is a putative wage-and-hour class action. Plaintiff Miguel Madrigal alleges that he was employed by Defendant as a truck driver from June 26, 2016 until his termination on May 12, 2017. [First Amended Complaint (“FAC”), ¶10.] Plaintiff alleges that during his employment with Defendants, Plaintiff was transporting hazardous materials, such as fuel and diesel. [FAC, ¶11.] As a result, he was allegedly required to attend to the truck at all times (thus, he was required to remain on duty at all times). [Id.] Defendants also allegedly told Plaintiff “don’t ever leave these trucks unattended,” or words to that effect. [Id.] When Plaintiff asked about opportunities to eat during his shift, Defendants told Plaintiff that if he left the truck unattended, he would be terminated. [Id.] As a result, Plaintiff alleges that could not be relieved of his work duties to take a duty-free meal period. [Id.]

Plaintiff also never allegedly received a second meal period when working more than 10 hours in a shift. [FAC, ¶12.] Plaintiff alleges that he regularly worked approximately 12 or more hours each shift, approximately 5 days per week. [Id.] However, Defendants allegedly failed to provide second meal periods to Plaintiff and failed to pay him premium payments in lieu thereof. [Id.] For the same reasons that Plaintiff was required to monitor the truck at all times, Plaintiff avers that he also did not receive any duty-free rest periods during his employment with Defendants, or premium payments in lieu thereof. [FAC, ¶13.]

Further, Plaintiff alleges that he was required to use his cellular phone when performing work duties, a cost which Defendant did not reimburse. [FAC, ¶20.] Plaintiff allegedly was not paid waiting time (which could be between 1 and 1.5 hours during a shift). [FAC, ¶21.] Defendant allegedly improperly withheld wages that Plaintiff and other employees earned, and Defendants failed to provide accurate itemized wage statements to Plaintiff and members of the class. [FAC, ¶¶22, 23.]

Based on these allegations and the other allegations set forth in the FAC, Plaintiff alleges the following causes of action: 1. Failure to Provide Rest and Meal Periods [Labor Code §512]; 2. Failure to Indemnify Expenses [Labor Code §2802]; 3. Failure to Pay All Wages [Labor Code § §204, 510]; 4. Failure to Provide Accurate Itemized Statement [Labor Code §226]; 5. Waiting Time Penalties [Labor Code §203]; 6. Unfair Business Practices [Business & Professions Code §17200, et seq.]; and 7. Violation of the Private Attorneys General Act of 2004 [Labor Code § 2698, et seq.]. Plaintiff alleges these claims on behalf of the following putative classes:

a. All current and former employees of Defendants who worked in the State of California (“Class Complainants”), who were denied duty-free meal periods and who were not paid one additional hour of pay at the employee’s regular rate for each day that a duty-free meal period was not provided, from April 30, 2014 to the final disposition of this action (the “Class Period”);

b. All current and former employees of Defendants who worked in the State of California (“Class Complainants”) who were denied second meal periods and who were not paid one additional hour of pay at the employee’s regular rate for each day that a second meal period was not provided, from April 30, 2014 to the final disposition of this action (the “Class Period”);

c. All current and former employees of Defendants who worked in the State of California (“Class Complainants”) who were denied duty-free rest periods and who were not paid one additional hour of pay at the employee’s regular rate for each day that a duty-free rest period was not provided, from April 30, 2014 to the final disposition of this action (the “Class Period”); and

d. All current and former employees of Defendants who worked in the State of California (“Class Complainants”) who were not reimbursed for purchasing a cellular phone and/or for data expenses incurred as a result of using their personal cellular telephones in discharge of their work duties, from April 30, 2014 to the final disposition of this action (the “Class Period”).

e. All current and former employees of Defendants who worked in the State of California (“Class Complainants”) who were not paid for all hours worked (at a regular rate of pay, overtime rate of pay, or double-time rate of pay), from April 30, 2014 to the final disposition of this action (the “Class Period”).

f. All current and former employees of Defendants who worked in the State of California (“Class Complainants”) whose earned wages were unlawfully withheld, from April 30, 2014 to the final disposition of this action (the “Class Period”). [FAC, ¶7.3]

Defendant moves to compel arbitration of Plaintiff’s claims, and seeks an order dismissing the class claims and staying the action pending completion of the arbitration.

II. Motion to Compel Arbitration

a. Applicability of FAA

The FAA provides for enforcement of arbitration provisions in any contract “‘evidencing a transaction involving commerce.’” California Practice Guide, Alternative Dispute Resolution, ¶5:50 (The Rutter Group 2018) (citing 9 USC §2; Rent-A-Center West, Inc. v. Jackson (2010) 130 S.Ct. 2772, 276; Rogers v. Royal Caribbean Cruise Line (9th Cir. 2008) 547 F.3d 1148, 1153-1154).

The term “involving commerce” is functionally equivalent to “affecting commerce” and “signals an intent to exercise Congress’ commerce power to the full.” California Practice Guide, Alternative Dispute Resolution, ¶5:50.1 (The Rutter Group 2018) (citing Allied-Bruce Terminix Cos., Inc. v. Dobson (1995) 513 U.S. 265, 277 (emphasis added by Rutter Guide).

The words “evidencing a transaction” “mean only that the transaction must turn out, in fact, to involve interstate commerce. i.e., the parties need not have intended any interstate activity when they entered into the contract.” California Practice Guide, Alternative Dispute Resolution, ¶5:50.2 (The Rutter Group 2018) (citing Allied-Bruce Terminix Cos., Inc. v. Dobson, supra, 513 U.S. at 277; Shepard v. Edward Mackay Enterprises, Inc. (2007) 148 Cal.App.4th 1092, 1097). Additionally, the dispute need not arise from the particular part of the transaction involving interstate commerce. The FAA applies if the underlying transaction as a whole involved interstate commerce. Shepard v. Edward Mackay Enterprises, Inc., supra, 148 Cal.App.4th at 1101. A party seeking to enforce an arbitration agreement has the burden of showing FAA preemption. See Lane v. Francis Capital Management, LLC (2014) 224 Cal.App.4th 676, 687 (citing Woolls v. Superior Court (2005) 127 Cal.App.4th 197, 211).

The party claiming that the contract involves interstate commerce and that the FAA preempts state law has the burden of proof. California Practice Guide, Alternative Dispute Resolution, ¶5:51.1 (The Rutter Group 2018) (citing Woolls v. Sup.Ct. (Turner), supra, 127 Cal.App.4th at 211-214; Shepard, supra, 148 Cal.App.4th at 1101). However, when no evidence is offered, the wording of the agreement, not the interstate commerce analysis, determines applicable law. Valencia v. Smyth (2010) 185 Cal.App.4th 153, 179.

Defendant Conico has not introduced any evidence demonstrating that it is engaged in interstate commerce. However, the “Employee Acknowledgement of Employement [sic] Policies and Binding Arbitration Agreement” [Exhibit 2 to the Declaration of John S. Cha in Support of Motion (the “Arbitration Agreement)] states that “[t]he Parties mutually consent to the resolution by final and binding arbitration of all claims or controversies (‘claims’) arising out of Employee’s recruitment, employment or termination of employment, that the Company may have against Employee or that Employee may have against the Company and/or against its officers, directors, employees or agents pursuant to the Federal Arbitration Act.” Given the wording of the agreement, the parties agreed that the agreement would be conducted pursuant to the FAA. Plaintiff has not contested the applicability of the FAA in his opposition to the motion.

b. Agreement to Arbitrate

As the party moving for arbitration, the burden is on Defendant Conico to prove, by a preponderance of the evidence, that an agreement to arbitrate exists with Plaintiff Madrigal. The arbitration agreement provides in pertinent part as follows:

The Parties mutually consent to the resolution by final and binding arbitration of all claims or controversies (“claims”) arising out of Employee’s recruitment, employment or termination of employment, that the Company may have against Employee or that Employee may have against the Company and/or against its officers, directors, employees or agents pursuant to the Federal Arbitration Act. Final and binding arbitration shall provide the sole and exclusive remedy and forum for all such claims. The claims covered by this Agreement include, but are not limited to, claims for wages or other compensation due; claims for breach of any contract or covenant (express or implied); tort claims; claims for wrongful termination; claims for discrimination (including, but not limited to, race, gender, religion, national origin, sexual orientation, age, marital status, medical condition or disability) or harassment; claims for benefits (except where an employee benefit or pension plan specifies that its claims procedure shall culminate in a dispute resolution procedure different from this one), and claims for violation of any federal, state, local or other governmental law, statute, regulation, or ordinance, except for claims specifically excluded in the next paragraph.

This Agreement does not cover claims Employee may have for workers’ compensation or unemployment compensation benefits or disputes covered by a collective bargaining agreement. Also not covered are claims for injunctive and/or other equitable relief for unfair labor practices, such as picketing or strikes, or unfair competition and/or the use and/or unauthorized disclosure of trade secrets, proprietary and/or confidential information, as to which the Parties may seek and obtain relief from a court of competent jurisdiction.

The Company and Employee agree to give up their respective rights to have the above-mentioned claims decided in a court of law before a jury, and instead are accepting the use of final and binding arbitration.

The arbitration procedure specified in this Agreement shall be applicable only to judicially cognizable claims, and not to any claim that in the absence of this Agreement would not be judicially cognizable. [Cha Decl., Ex. 2, Arbitration Agreement at 1 (emphasis in original).]

The parties agreed to select Alternative Resolution Centers (“ARC”) as its primary provider for arbitration services. Further, the agreement states that “[i]f the amount in controversy, if any, is under $50,000, the Parties agree to use ARC’s ‘low cost arbitration’ service.” [Arbitration Agreement at 1.] The agreement also states that “[i]f ARC is unable to provide a venue for the arbitration within 60 miles of the Employee’s last place of employment with the Company, the parties select the American Arbitration Association (‘AAA’) as the alternate provider.”

The above provisions indicate an agreement exists between Plaintiff Madrigal and Defendant Conico. Plaintiff agreed to have resolved through arbitration “all claims or controversies (“claims”) arising out of Employee’s recruitment, employment or termination of employment,” which include “claims for wages or other compensation due; claims for breach of any contract or covenant (express or implied); tort claims; claims for wrongful termination” and, with some exceptions, “claims for violation of any federal, state, local or other governmental law, statute, regulation, or ordinance[.]” The wage-and-hour claims alleged in the FAC decidedly fall within those claims Plaintiff agreed to arbitrate. Plaintiff’s printed name and signature appear at the bottom of the agreement, with an indicated signing date of June 20, 2016.

For all of these reasons, the Court should find that an arbitration agreement exists between Defendant and Plaintiff Madrigal.

c. Unconscionability

Unconscionability in the arbitration context is something that denies “minimum levels of integrity” to the process. Graham v. Scissor-Tail (1981) 28 Cal.3d 807, 820. “[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.” Armendariz v. Foundation Health Psychcare Servs. (2000) 24 Cal.4th 83, 114. If both elements of unconscionability are present, the Court must decline to enforce the arbitration agreement. Id. The Armendariz court also noted, however, that substantive and procedural unconscionability need not be present to the same degree, and that a “sliding scale” is invoked (i.e., the more substantively unconscionable the contract term, the less evidence of procedural unconscionability need be shown, and vice-versa). Id.

Parties opposing arbitration have the burden to prove any fact necessary to a defense to enforcement. Gatton v. T-Mobile USA, Inc. (2007) 152 Cal.App.4th 571, 579. In this case, the burden to demonstrate unconscionability falls on Plaintiff Madrigal.

(1) Procedural unconscionability

Plaintiff Madrigal argues the Conico arbitration agreement is procedurally unconscionable on grounds that it was a contract of adhesion presented on a take-it-or-leave-it basis, on grounds that it failed to provide a copy of the applicable arbitration rules, and on grounds that Defendant failed to provide Plaintiff with sufficient time to review the agreement.

“Procedural unconscionability” concerns the manner in which the contract was negotiated and the parties’ circumstances at that time. It focuses on the factors of “oppression or surprise due to unequal bargaining power. California Practice Guide, Alternative Dispute Resolution, ¶5:150.5a (The Rutter Group 2018) (citing Baltazar v. Forever 21, Inc. (2016) 62 Cal.4th 1237, 1243; Kinney v. United HealthCare Services, Inc. (1999) 70 Cal.App.4th 1322, 1329; Sanchez v. Western Pizza Enterprises, Inc. (2009) 172 Cal.App.4th 154, 173).

“The oppression component arises from an inequality of bargaining power … and an absence of real negotiation or a meaningful choice on the part of the weaker party.” Kinney v. United HealthCare Services, Inc., supra, 70 CA4th at 1329. “When the weaker party is presented the clause and told to ‘take it or leave it’ without the opportunity for meaningful negotiation, oppression, and therefore procedural unconscionability, are present.” Szetela v. Discover Bank (2002) 97 Cal.App.4th 1094, 1100; Martinez v. Master Protection Corp. (2004) 118 Cal.App.4th 107, 114; Ingle v. Circuit City Stores, Inc. (9th Cir. 2003) 328 F3d 1165, 1171-1172 (applying Calif. law).

Oppression also arises when the arbitration agreement fails to disclose or at least incorporate by reference the arbitration rules. Particularly, such agreements might be procedurally unconscionable if the employee is not provided a copy of the rules in advance, because the employee is forced to go to another source to learn the full ramifications of the arbitration agreement. California Practice Guide, Alternative Dispute Resolution, ¶5:150.5j (The Rutter Group 2018) (referencing Baltazar v. Forever 21, Inc. (2016) 62 Cal.4th 1237, 1246 – employee’s unconscionability claim had nothing to do with employer’s failure to attach AAA rules); Trivedi v. Curexo Technology Corp. (2010) 189 Cal.App.4th 387, 393 (disapproved on other grounds in Baltazar v. Forever 21, Inc., supra, 62 Cal.4th at 1248); Fitz v. NCR Corp., supra, 118 Cal.App.4th at 721; Harper v. Ultimo (2003) 113 Cal.App.4th 1402, 1406-1407.) “[C]ourts will more closely scrutinize the substantive unconscionability of terms that were ‘artfully hidden’ by the simple expedient of incorporating them by reference rather than including them in or attaching them to the arbitration agreement.” Baltazar v. Forever21, Inc., supra, 62 Cal.4th at 1246.

The surprise component usually involves the extent to which supposedly agreed-upon terms are buried in an overly complex printed form. California Practice Guide, Alternative Dispute Resolution, ¶5:150.5c (The Rutter Group 2018) (referencing Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83; Little v. Auto Stiegler, Inc. (2003) 29 Cal.4th 1064, 1071; Patterson v. ITT Consumer Fin’l. Corp. (1993) 14 Cal.App.4th 1659, 1664). “Surprise is ‘a function of the disappointed reasonable expectations of the weaker party.’” California Practice Guide, Alternative Dispute Resolution, ¶5:150.5c (The Rutter Group 2018) (referencing Harper v. Ultimo, supra, 113 Cal.App.4th at 1406 and Higgins v. Sup.Ct. (Disney/ABC Int’l. Television, Inc.) (2006) 140 Cal.App.4th 1238, 1252-1253).

While the mere fact an adhesion contract is involved does not per se render the arbitration clause unenforceable (see California Practice Guide, Alternative Dispute Resolution, ¶5:146 (The Rutter Group 2018), an adhesive contract is one factor the Court may consider in deciding the degree of procedural unconscionability. See Carmona v. Lincoln Millennium Car Wash, Inc. (2014) 226 Cal.App.4th 74, 84.

With respect to oppression, it is evident that Plaintiff was in a weaker bargaining position in relation to Defendant. The agreement was presented on a take-it-or-leave-it basis, and there does not appear to have been any opportunity for negotiation. Plaintiff states that on or about June 20, 2016, during his interview and hiring, Mike Goldberg (one of the managers at Hong Holdings) presented a stack of documents of approximately 50 pages, which included an arbitration agreement. [Madrigal Decl., ¶3.] Madrigal states that Goldberg sat approximately one foot away from him, leaning over him to ensure that he signed every document requiring a signature, including the arbitration agreement. [Madrigal Decl., ¶4.] Madrigal says that as he signed each document in the stack, he observed Mr. Goldberg take them away from him one by one and keep them in a folder. [Id.]

According to Plaintiff Madrigal, Goldberg told him that he was required to sign every document, including the arbitration agreement, if he intended on working for Hong Holdings. [Madrigal Decl., ¶5.] Madrigal says that Goldberg also told him that, “the faster we get this done, the faster we get you out of here,” or words to that effect, which Madrigal understood to mean that he would be able to work only after he signed the documents presented to him. [Madrigal Decl., ¶6.]

This evidence demonstrates that a significant amount of oppression was involved. For all intents and purposes, Plaintiff had no meaningful choice to negotiate the signing of the arbitration agreement. His declaration states that the agreement was presented on a take-it-or-leave-it-basis, and that he was pressured into signing it (by virtue of Mr. Goldberg “leaning over him” and urging him to sign all of the documents quickly).

Madrigal says that Goldberg did not explain to him the terms of the arbitration agreement, and no one provided him the AAA Employment Arbitration Rules or the ARC Arbitration Rules, which are referenced in the arbitration agreement. [Madrigal Decl., ¶¶8-9.] Here, the Arbitration Agreement provides that “[i]nformation and the Arbitration Rules for ARC is available through its website at http://www.arc4adr.com/rulesforms.html or by contacting ARC at (310) 284-8224. For AAA, the Parties will follow AAA’s Employment Arbitration Rules which may be obtained through AAA’s website at www.adr.org or by contacting AAA at (800) 778-7879.” [Arbitration Agreement at 1.] Further, the agreement specifically states that the employee may request a copy of the applicable rules from the Company’s Human Resource Manager. [Id.] Given that the agreement does reference the URLs for the respective ARC and AAA Rules, and informs the employee that he or she may obtain a copy of the rules from Human Resources, this provision is not procedurally unconscionable.

As to the surprise element, there is no evidence that the Arbitration Agreement was hidden in a prolix printed form. To the contrary, the Arbitration Agreement was a stand-alone agreement. There is no surprise present here.

In sum, there is significant evidence of procedural unconscionability present, by virtue of the take-it-or-leave-it nature of the agreement, by virtue of fact that it is an adhesive contract, and through the manner by which Plaintiff’s signature was procured by Mr. Goldberg. This requires a finding that the agreement is procedurally unconscionable.

b. Substantive Unconscionability

“No precise definition of substantive unconscionability can be proffered. Cases have talked in terms of ‘overly harsh’ or ‘one-sided’ results. [Citations.] One commentator has pointed out, however, that ‘. . . unconscionability turns not only on a ‘one-sided’ result, but also on an absence of ‘justification’ for it.’ [citation], which is only to say that substantive unconscionability must be evaluated as of the time the contract was made. [Citation.] The most detailed and specific commentaries observe that a contract is largely an allocation of risks between the parties, and therefore that a contractual term is substantively suspect if it reallocates the risks of the bargain in an objectively unreasonable or unexpected manner.” A & M Produce Co. v. FMC Corp., supra, 135 Cal. App. 3d at 487. “In assessing substantive unconscionability, the ‘paramount consideration’ is mutuality of the obligation to arbitrate.” California Practice Guide, Alternative Dispute Resolution, ¶5:150.5m (The Rutter Group 2018) (referencing Nyulassy v. Lockheed Martin Corp. (2004) 120 Cal.App.4th 1267, 1287; see also Pinela v. Neiman Marcus Group, Inc. (2015) 238 Cal.App.4th 227, 241).

Further, pursuant to Armendariz and a line of other authorities, claims brought under the Fair Employment and Housing Act (FEHA) are subject to arbitration if there are provisions for arbitrator neutrality, discovery, written decisions, and expense limits. O’Hare v. Municipal Resource Consultants (2003) 107 Cal. App. 4th 267, 273; Fittante v. Palm Springs Motors, Inc. (2003) 105 Cal. App. 4th 708, 716; Armendariz v. Foundation Health Psychcare Services, Inc., supra, 24 Cal.4th at 96-121; Craig v. Brown & Root, Inc. (2000) 84 Cal.App.4th 416, 422-23; Blake v. Ecker (2001) 93 Cal.App.4th 728, 433, overruled in part on other grounds by Le Francois v. Goel (2005) 35 Cal.4th 1094. This rule has also been extended to non-FEHA employment claims. Mercuro v. Sup. Ct. (2002) 96 Cal. App. 4th 167, 180 n. 26 (Armendariz scrutiny also applies to non-FEHA employment claims).

(1) Armendariz benchmarks are satisfied

Turning to the Armendariz “substantive unconscionability” benchmarks first, the agreement, as noted above, states arbitration is to be held under the employment rules of ARC as the primary provider for arbitration services (for claims that do not exceed $50,000). Further, the agreement states that “[i]f the amount in controversy, if any, is under $50,000, the Parties agree to use ARC’s ‘low cost arbitration’ service.” [Arbitration Agreement at 1.] The agreement also states that “[i]f ARC is unable to provide a venue for the arbitration within 60 miles of the Employee’s last place of employment with the Company, the parties select the American Arbitration Association (‘AAA’) as the alternate provider.”

With regard to the first Armendariz benchmark, the ARC Arbitration Rules states that ARC “shall maintain a special panel of neutrals qualified to serve as arbitrators.” [See ARC Rules, https://www.arc4adr.com/forms/arbitration_rules.pdf (site visited December 19, 2018).] Similarly, the AAA rules require neutral arbitrator to have “no personal or financial interest in the results of the proceeding in which they are appointed and shall have no relation to the underlying dispute or to the parties or their counsel that may create an appearance of bias.” [AAA Employment Rules, https://www.adr.org/sites/default/files/EmploymentRules_Web_0.pdf (site visited December 19, 2018).] This first benchmark is satisfied.

The second Armendariz benchmark is whether, in fact, Plaintiff’s discovery rights are protected. Armendariz held that employees “are at least entitled to discovery sufficient to adequately arbitrate their statutory claim, including access to essential documents and witnesses, as determined by the arbitrator(s) and subject to limited judicial review pursuant to Code of Civil Procedure section 1286.2.” Armendariz, 24 Cal.4th at 106. Adequate discovery does not mean “unfettered” discovery, and an arbitration agreement may require something less than the full panoply of discovery provided in the CAA. See Armendariz, 24 Cal.4th at 105-106; Mercuro v. Superior Court (2002) 96 Cal.App.4th 167, 184; Baxter v. Genworth North America Corp. (2017) 16 Cal.App.5th 713, 727.

Per the instant Arbitration Agreement, discovery “will be limited to the rules for Economic Litigation as set forth in California Code of Civil Procedure section 94.” Further, the arbitrator may, with a showing of good cause by either party, allow additional discovery. CCP §94, in turn, allows each adverse party to use the following form of discovery:

(a) Any combination of 35 of the following:

(1) Interrogatories (with no subparts) under Chapter 13 (commencing with Section 2030.010) of Title 4 of Part 4.

(2) Demands to produce documents or things under Chapter 14 (commencing with Section 2031.010) of Title 4 of Part 4.

(3) Requests for admission (with no subparts) under Chapter 16 (commencing with Section 2033.010) of Title 4 of Part 4.

(b) One oral or written deposition under Chapter 9 (commencing with Section 2025.010), Chapter 10 (commencing with Section 2026.010), or Chapter 11 (commencing with Section 2028.010) of Title 4 of Part 4. For purposes of this subdivision, a deposition of an organization shall be treated as a single deposition even though more than one person may be designated or required to testify pursuant to Section 2025.230.

(c) Any party may serve on any person a deposition subpoena duces tecum requiring the person served to mail copies of documents, books, or records to the party’s counsel at a specified address, along with an affidavit complying with Section 1561 of the Evidence Code.

The party who issued the deposition subpoena shall mail a copy of the response to any other party who tenders the reasonable cost of copying it.

(d) Physical and mental examinations under Chapter 15 (commencing with Section 2032.010) of Title 4 of Part 4.

(e) The identity of expert witnesses under Chapter 18 (commencing with Section 2034.010) of Title 4 of Part 4.

Plaintiff argues that the instant arbitration agreement impermissibly restricts his ability to conduct adequate discovery for his claims, since CCP §94 applies only to limited civil cases under CCP §91(a). However, as noted above, Armendariz does not require unfettered discovery; it requires only that discovery required to adequately arbitrate the claim. The discovery set forth under CCP §94, while decidedly less than what the Discovery Act would require, still would be sufficient to arbitrate the claim. Moreover, as the agreement specifically states, these discovery limitations can be expanded by the arbitrator based on a showing of good cause. Accordingly, the second Armendariz benchmark on discovery is satisfied.

The third Armendariz benchmark is satisfied by the provision in the agreement requiring the arbitrator “to prepare and submit a written findings and award within 30 days following the arbitration.”

The fourth Armendariz benchmark requires limits on expenses. The Arbitration Agreement itself is silent on expenses. However, ¶22 of the ARC Rules states in applicable part that “[u]nless modified by prior agreement of the parties, counsel and/or claims representatives, each party shall bear his/her pro rata share of the arbitration fees.” [ARC Arbitration Rules, ¶22.] Further, “[e]ach party shall pay its own attorney fees, witness fees, and other expenses incurred for its own benefit, unless otherwise provided by contract, or by statute other than CCP sec. 1032 et seq. Except where the parties specifically agree to the contrary, allowable costs under CCP sec. 1032 et seq. shall not be awarded to the prevailing party, but shall be borne by the party incurring them.” [Id.]

“[I]n cases where an employer requires an employee to arbitrate his or her claims, including statutory claims, the agreement must be interpreted, in the absence of any express terms to the contrary, to require the employer to pay any unusual costs associated with arbitration, such as the arbitrator’s fees, such as payment of the arbitrator’s fees and room rental—equivalent to paying a judge’s salary and courtroom costs—which are not imposed directly on litigants in state or federal courts. See 6 Cal. Jur. 3d Arbitration and Award § 97 (referencing Fittante v. Palm Springs Motors, Inc. (2003) 105 Cal.App.4th 708). Here, the fact that 1) ARC Arbitration Rules require a pro rata share of arbitration fees (given the absence of any agreement to the contrary); and 2) each party is required to bear his or her own costs, regardless of whether the party prevails in arbitration, do not comport with the fourth Armendariz benchmark. This provision therefore stands as evidence of substantive unconscionability.

For these reasons, all of the Armendariz benchmarks are satisfied, with the exception of the expense limit provision, which is substantively unconscionable.

(2) Mutuality

Armendariz requires the arbitration agreement include a “modicum of bilaterality.” Armendariz, supra, 24 Cal.4th at 117. The Armendariz court noted that “[g]iven the disadvantages that may exist for plaintiffs arbitrating disputes, it is unfairly one-sided for an employer with superior bargaining power to impose arbitration on the employee as plaintiff but not to accept such limitations when it seeks to prosecute a claim against the employee, without at least some reasonable justification for such one-sidedness based on ‘business realities.’” Armendariz, 24 Cal.4th at 117. See also Delmore v. Ricoh Americas Corp. (N.D. Cal. 2009) 667 F.Supp.2d 1129, 1138

The Arbitration Agreement states in pertinent part that the parties mutually consent to resolution by final and binding arbitration of all claims or controversies arising out of Employee’s recruitment, employment, or termination of employment that the Company may have against Employee, or that Employee may have against the Company and/or against its officers, directors, employees or agents pursuant to the Federal Arbitration Act. The agreement specifically carves out claims for workers’ compensation or unemployment compensation benefits or disputes covered by a CBA; or injunctive and/or other equitable relief for unfair labor practices, or unfair competition, and/or the use and/or unauthorized disclosure of trade secrets, proprietary and/or confidential information. [Arbitration Agreement at 1.] There is nothing in the Agreement which carves out any right by Defendant to bring claims arising out of Plaintiff’s employment in court. It is apparent that the agreement imposes on both parties a mutual obligation to arbitrate disputes.

Conclusion on Unconscionability

Here, the evidence before the Court shows the agreement is procedurally unconscionable, and that the agreement contains one substantively unconscionable provision with respect to expense limits. Generally, when an arbitration agreement contains a single term in violation of public policy, that term will be severed and the rest of the arbitration agreement enforced. 6 Cal. Jur. 3d Arbitration and Award § 49 (referencing Gentry v. Superior Court (2007) 42 Cal. 4th 443), cert. denied, (2008) 552 U.S. 1296). The Court severs the incorporated provision from the ARC rules requiring a pro rata split of arbitration fees and prohibiting recovery of costs under CCP §1032, and enforce the remainder of the Arbitration Agreement. Since both procedural and substantive unconscionability must be present to render the agreement unconscionable (and thus, unenforceable), and since the Court can sever the one substantively unconscionable provision, the Arbitration Agreement is not be deemed unconscionable.

d. Class Waiver

In AT&T Mobility LLC v. Concepcion, supra, 131 S.Ct. 1740, the U.S. Supreme Court essentially reversed Discover Bank v. Superior Court (2005) 36 Cal.4th 148. The Court commented that “[t]he overarching purpose of the FAA, evident in the text of §§ 2, 3, and 4, is to ensure the enforcement of arbitration agreements according to their terms so as to facilitate streamlined proceedings. Requiring the availability of classwide arbitration interferes with fundamental attributes of arbitration and thus creates a scheme inconsistent with the FAA.” Concepcion, 131 S.Ct. at 1748. Significantly, the arbitration provision in that case specifically required a waiver of any class arbitration claims.

Concepcion referenced Stolt-Nielsen S.A. v. AnimalFeeds Int’l. Corp. (2010) 130 S.Ct. 1758. In Stolt-Nielsen, the Supreme Court held in pertinent part that “a party may not be compelled under the FAA to submit to class arbitration unless there is a contractual basis for concluding that the party agreed to do so.” Stolt-Nielsen, 130 S.Ct. at 1775 (emphasis in original). See also Kinecta Alternative Financial Solutions, Inc. v. Sup.Ct. (2012) 205 Cal.App.4th 506, 517.

Here, the arbitration agreement provides that the parties “agree to bring any claim or action which falls under the subject matter or this Agreement in an individual capacity and not as a class member or class representative.” [Arbitration Agreement at 2.] There is no contractual basis for concluding that Defendant agreed to class arbitration. As this provision demonstrates, the parties affirmatively agreed that all claims must be brought in Plaintiff’s individual capacity. As such, there is no basis for finding any right to bring a class claim here.

Further, this is an appropriate decision for the Court to make, as opposed to the arbitrator. The Court of Appeal has determined that the question whether an arbitration agreement permits class and/or representative arbitration is a gateway issue, and is thus reserved “‘for judicial determination [u]nless the parties clearly and unmistakably provide otherwise.’[Citation.]” Garden Fresh Restaurant Corp. v. Superior Court (2014) 231 Cal.App.4th 678, 689.

In Sandquist v. Lebo Automotive, Inc. (2016) 1 Cal.5th 233, the California Supreme Court held that an employment-related arbitration provision that did not specify whether the availability of class arbitration was to be resolved by a court or an arbitrator had to be interpreted against the employer as the drafter pursuant to Civil Code §1654. The Supreme Court reasoned that “under state law as under federal law, when the allocation of a matter to arbitration or the courts is uncertain, [courts] resolve all doubts in favor of arbitration. [Citations.] All else being equal, this presumption tips the scales in favor of allocating the class arbitration availability question to the arbitrator.” Sandquist, 1 Cal.5th at 247. Sandquist noted that under state law as under federal law, when the allocation of a matter to arbitration or the courts is uncertain, courts resolve all doubts in favor of arbitration. Id. Moreover, ambiguities in written agreements are to be construed against drafters. Id. (Referencing Civil Code §1654 and Rest. 2nd Contracts, §206). This general principle of contract interpretation, Sandquist reasoned, applies equally to the construction of arbitration provisions. Sandquist at 248.

The Sandquist court noted that the defendant, Lebo Automotive, “could have written the description of matters within the arbitrator’s purview less comprehensively. It could have prepared an arbitration provision that explicitly addressed any unstated desire to have the availability of class arbitration resolved by a court, notwithstanding the otherwise broad and all-encompassing language of the class identifying matters for the arbitrator.” Sandquist at 248 (emphasis added). However, the Sandquist court noted that Lebo did not do so, and concluded that as a matter of state contract law, the parties’ arbitration provisions allocated the decision on the availability of class arbitration to the arbitrator, rather than reserving it for a court.

Ultimately, the Sandquist court, in accordance with the plurality in Green Tree Financial Corp. v. Bazzle (2003) 539 U.S. 444, held “that the determination whether a particular agreement allows for class arbitration is precisely the kind of contract interpretation matter arbitrators regularly handle. Along with the Green Tree plurality, we find nothing in the FAA or its underlying policies to support the contrary presumption, that this question should be submitted to a court rather than an arbitrator unless the parties have unmistakably provided otherwise.” Sandquist at 260.

Here, the class arbitrability issue is an appropriate determination for this Court to make, given the agreement’s plain intent to bar any right to bring class claims. Accordingly, arbitration is compelled on an individual, non-class basis.

Plaintiff argues that the agreement also purports to require arbitration of the PAGA claim. An arbitration agreement that requires an employee, as a condition of employment, to give up the right to bring representative PAGA actions in any forum is contrary to public policy and unenforceable as a matter of state law. Iskanian v. CLS Transp. Los Angeles, LLC (2014) 59 Cal.4th 348, 384. Here, however, as noted above, the parties “agree to bring any claim or action which falls under the subject matter or this Agreement in an individual capacity and not as a class member or class representative.” [Arbitration Agreement at 2 (emphasis added).]

The PAGA claim in the First Amended Complaint, however, is not brought as a class claim; instead, it has been brought as a representative action. Specifically, ¶72 of the FAC alleges that “Plaintiff and other aggrieved employees seek penalties based upon the factual allegations of this Complaint, on behalf of themselves, all other aggrieved employees, and the State as provided by Labor Code section 2699(i).” [FAC, ¶72 (emphasis added).] Thus, the arbitration provision prohibiting an employee from serving as a “class representative” cannot be read to bar the instant PAGA representative claim (and does not constitute an unconscionable provision). The PAGA representative claim, in any event, would remain viable pursuant to Iskanian.