2018-00239649-CU-WT

Vicki DeHerrera vs. Entrepreneurial Ventures Inc

Nature of Proceeding: Petition to Compel Arbitration and Stay Action

Filed By: Grover, Margaret J.

Defendant Spring Communications Holding, Inc.’s petition to compel arbitration and stay action is granted.

In this employment action Plaintiff Vicki DeHerrera alleges causes of action for gender

and age discrimination in violation of FEHA in addition to causes of action for breach of contract, intentional misrepresentation and others.

Defendant seeks to compel this matter to arbitration pursuant to an arbitration agreement contained in the “GameStop C.A.R.E.S. Rules of Dispute Resolution Including Arbitration. (“CARES”). Plaintiff opposes the petition on the basis that the agreement is unconscionable and does not comply with Armendariz v. Foundation Health Psychare Services, Inc. (2000) 24 Cal.4th 83.)

Defendant has been operating as a GameStop subsidiary and utilizes C.A.R.E.S. C.A.R.E.S. provides that it is an agreement to arbitrate all workplace disputes or claims. (Smith Decl. Exh. A. CARES p. 2.) It is a multi-step dispute resolution procedure ending with binding arbitration before AAA. (Id. Exh. A. CARES) It is an “agreement to arbitrate pursuant to the Federal Arbitration Act, 9 U.S.C. Sections 1-14.” (Id. Exh. A. CARES p. 3.) In California, employees are given the option to opt out of CARES. (Id. Exh. CARES p. 15.) “A Covered Claim is any claim asserting the violation or infringement of a legally protected right, whether based on statutory or common law, brought by an existing or former employee or job applicant, arising out of or in any way relating to the employee’s employment, the terms or conditions of employment, or an application for employment…” (Id. Exh. A. CARES p. 4.) This includes discrimination, harassment and retaliation claims and claims related to employee pay, breach of contract, claims of wrongful termination, and common law claims including whistleblowing claims. (Id. Exh. A. CARES pp. 4-5.)

CARES provides that an arbitrator will be chosen from a list of seven neutral arbitrators from the AAA who have expertise in employment law. (CARES p. 10.) The parties are ach allowed strike arbitrators from the list until only one remains. (Id. p.

11.) With respect to the arbitration itself, the parties can require each other to provide relevant documents and answer written questions and ensure the attendance of witnesses at depositions upon request to the arbitrator. (Id. p. 12.) The arbitrator is permitted to decide the “form, amount and frequency” of discovery permitted before the hearing considering “the proof requirements imposed by the law on the party making the claim or defense. The parties’ desire for a quick and cost effective alternative to courtroom litigation. Any other factors the arbitrator believes appropriate.” (Id.) The discovery can take any form allowed by the Federal Rules of Civil Procedure “subject to any restrictions the arbitrator imposes to meet the objectives of the arbitration process.” (Id.) The employee is required to pay a $125 arbitration fee which is waived if State law does not allow the employee to pay any fee for participating in arbitration. (Id. p. 14.) The arbitrator is required to issue a written decision within 30 days of the close of the arbitration hearing. (Id.) The arbitrator is required to apply the State of federal substantive law that would be applied by a United States District Court sitting in California, and has no authority to “enlarge upon or add to, subtract from or disregard, or otherwise alter” the employee’s or Defendant’s rights under those laws. (Id.)

Here, there is no dispute regarding the existence of an arbitration agreement between the parties or that the claims in this lawsuit are covered by CARES. The only dispute is whether the agreement complies with Armendariz and/or is unconscionable.

Armendariz

At the outset, it bears noting that an arbitration agreement may be revoked on “such

grounds as exist for the revocation of any contract.” (Civ. Code § 1281.) Further, the Court may refuse to enforce any contract or any provision of a contract determined to be unconscionable. (Civ. Code § 1670.5.) “To be unenforceable, a contract must be both procedurally and substantively unconscionable, but the elements need not be present in the same degree.” (Gatton v. T-Mobil USA, Inc. (2007) 152 Cal.App.4th 571, 579; see also Mayers v. Volt Management Corp. (2012) 203 Cal.App.4th 1194, 1205-06.)

Plaintiff first argues, separate and distinct from her argument regarding unconscionability, that CARES fails to comply with Armendariz. When dealing with nonwaivable statutory rights, arbitration agreements encompassing those rights “must be subject to particular scrutiny.” (Armendariz, supra, 24 Cal.4th at 100.) “[A]n arbitration agreement cannot be made to serve as a vehicle for the waiver of statutory rights created by the FEHA.” (Id. at 101.) To that end, an arbitration agreement encompassing such rights must, at a minimum, provide for neutral arbitrators, provide for more than minimal 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 pay unreasonable costs or any arbitrators’ fees or expenses as a condition of access to the arbitration forum. (Armendariz, supra, 24 Cal.4th at 103-113.)

Plaintiff first argues that the agreement does not satisfy Armendariz’s requirement of “more than minimal” discovery. As set forth above, the agreement provides that the parties can require each other to provide relevant documents and answer written questions and ensure the attendance of witnesses at depositions upon request to the arbitrator. (CARES p. 12.) The arbitrator is permitted to decide the “form, amount and frequency” of discovery permitted before the hearing considering “the proof requirements imposed by the law on the party making the claim or defense. The parties’ desire for a quick and cost effective alternative to courtroom litigation. Any other factors the arbitrator believes appropriate.” (Id.) The discovery can take any form allowed by the Federal Rules of Civil Procedure “subject to any restrictions the arbitrator imposes to meet the objectives of the arbitration process.” (Id.) Plaintiff argues that this provision is insufficient because it provides only a vague right to discovery, does not grant any specific amount and requires the arbitrator’s permission. She complains that there is no guaranteed number of depositions allowed or written discovery requests and no information as to the basis for the arbitrator’s determination of what discovery is allowed.

While adequate discovery is required for vindication of statutory claims, “adequate discovery does not mean unfettered discovery.” (Mercuro v. Superior Court (2002) 96 Cal.App.4th 167, 184.) The parties may “agree to something less than the full panoply of discovery provided in Code of Civil Procedure section 1283.05.” (Armendariz, supra

, 24 Cal.4th at 105-106.) Armendariz recognized that “a limitation on discovery is one important component of the ‘simplicity, informality, and expedition of arbitration.’” (Id. at 106, fn. 11.) 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…” (Id. at 106.) The Court finds that the above discussed discovery provision satisfies this requirement. This provision is not like the provision in Fitz v. NCR Corp. (2004) 118 Cal.App.4th 702, 715 which limited discovery to two depositions of individuals and any experts expected to testify, and exchange of documents in advance of the hearing. Any additional discovery was only allowed unless the party seeking the discovery

could demonstrate that a fair hearing would be impossible. (Id. pp. 716-717.) The Fitz Court found that it would be impossible for the employee to satisfy the “impossible” standard for discovery above the two depositions. Here while the agreement may not grant a specific right to any amount of discovery, the agreement allows the parties to require each other to exchange documents, answer written questions and ensure the attendance of witnesses relevant to the dispute at deposition. This is consistent with Armendariz’s statement 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…” (Armendariz, supra, 24 Cal.4th at 106 [emphasis added].)

The Court is not persuaded by Plaintiff’s argument that the arbitrator could limit her to one deposition and that she will likely need numerous other deposition and written information from Defendant and there are no standards governing the arbitrator. Indeed, the arbitrator may decide the “form, amount, and frequency” of any discovery considering the proof requirements imposed by law on the party seeking the discovery. This means, that the arbitrator will consider, in addition to the parties desire for a streamlined process, Plaintiff’s burden of proof on her FEHA and any other statutory claims in determining discovery which is sufficient. Moreover the arbitrator is required to have expertise in employment law and will be familiar with what is required in employment law cases such as this one. In addition, discovery can take any form allowed by the Federal Rules of Civil Procedure. Further, the parties are permitted to bring, and the arbitrator is authorized to hear, motions to compel discovery. Unlike the employee in Fitz, Plaintiff here is provided with much more than minimal discovery and is not specifically limited to only two depositions and forced to meet an “impossible” standard to obtain any additional discovery. Plaintiff also argues that the discovery provision refers only to “relevant” documents which is not the appropriate standard under California law. First, Armendariz recognized that the parties can agree to less than full discovery and the discovery provision here complies with Armendariz. Moreover, “relevant” is not so limited as plaintiff may argue. In the discovery context, information is relevant “if it might reasonably assist a party in evaluating its case, preparing for trial, or facilitating a settlement. [citations omitted] Admissibility is not the test and information, unless privileged, is discoverable if it might reasonably lead to admissible evidence.” (Glenfed Development Corp. v. Superior Court (1997) 53 Cal.App.4th 1113, 1117; Lipton v. Superior Court (1996) 48 Cal.App.4th 1599, 1611-1612 [court’s emphasis].) “Relevant to the subject matter” is broader than relevancy to the issues which determine admissibility of evidence at trial/arbitration. Weil and Brown, Cal Prac. Guide: Civil Procedure Before Trial (TRG 2010) 18:66 citing Bridgestone-Firestone Inc. v. Sup. Ct. (1992) 7 CA4th 1384, 1392.

Plaintiff makes no other argument that CARES does not comply with Armendariz. Indeed, as described above, it provides for a neutral arbitrator, provides for a written award, allows for the same type of relief that can be obtained in court, and the employee is not required to pay any unreasonable costs (again the $125 arbitration fee is waived is State law does not allow the employee to pay for arbitration).

The Court rejects the claim that the agreement fails to comply with Armendariz.

Unconscionability

Plaintiff next argues that CARES is unconscionable.

Both procedural and substantive unconscionability must be present in order for a contract provision to be unenforceable under the unconscionability doctrine. (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; Mayers, supra, 203 Cal.App.4th at 1206.)

Here, Plaintiff argues that CARES is procedurally unconscionable because it was an adhesion contract presented on a “take it or leave it” basis (Armendariz, 24 Cal. 4th at p. 99), that she did not have adequate time to review the agreement and that she understood that her employment was premised on signing the agreement. (DeHerrera Decl. ¶¶ 4-7.) Plaintiff argues that while she did not opt out of CARES, she did not do so because the opt out provision is “buried” on the second to last page of the agreement. (Id. ¶ 8.) She also points to the provision in CARES that Defendant’s parent company retained the right to modify the agreement “from time to time” which constitute unfair surprise because the rules might change.

In the employment context, the inequality of bargaining power that exists between an employee and an employer is sufficient on its own to demonstrate the oppression required for a finding of procedural unconscionability in an employment contract presented on a take it or leave it basis. (Stirlen v. Supercuts, Inc. (1997) 51 Cal.App.4 th 1519, 1534.) “[I]n the case of preemployment arbitration contracts, the economic pressure exerted by the employer on all but the most sought after employees may be particularly acute, for the arbitration agreement stands between the employee and necessary employment, and few employees are in a position to refuse a job because of an arbitration agreement.” (Armendariz, supra, 24 Cal.4th at 114.) Here, however, Plaintiff had the opportunity to opt out of CARES. The Court would note, that Defendant’s citation in reply to Circuit City Stores, Inc. v. Najd (9th Cir. 2002) 294 F.3d 1104, 1109 for the proposition that there can be never be procedural unconscionability when the employee has the opportunity to opt out has been found unpersuasive by the California Supreme Court. (Gentry v. Superior Court (2007) 42 Cal.4th 443, 472 fn.

10.) Nevertheless, as explained below, Plaintiff has shown as most a low level of procedural unconscionability. Further, the conclusion that the Arbitration Agreement is an adhesion contract “heralds the beginning, not the end, of [the court’s] inquiry into its enforceability.” Mayers v. Volt Management Corp. (2012) 203 Cal.App.4th 1194, 1207. There are degrees of procedural unconscionability. Further, a consideration of the factors of “surprise and oppression” is also required. (Id. at 1207-08.)

To the extent that Plaintiff argues that she did not have an opportunity to review CARES, this is no basis to find the agreement unenforceable. An employee is “bound by the provisions of [an arbitration] agreement regardless of whether [he] read it or [was] aware of the arbitration clause when [he] signed the document.” (Brookwood v. Bank of America (1996) 45 Cal.App.4th 1667, 1673.) Case law has found that procedural unconscionability exists in circumstances where the employee cannot read English, requested Spanish translation of documents but were not given the translations were not given an opportunity to negotiate and understood they had to sign the documents in order to work and the applicable rules were not provided. ( Carmona v. Lincoln Millennium Car Wash, Inc. (2014) 226 Cal.App.4th74, 80-81; Samaniego v. Empire Today, LLC (2012) 205 Cal.App.4th 1138, 1145-1146.) But here, there is no evidence of an attempt to conceal or hide the content of any arbitration rules from Plaintiff.

While Plaintiff also argues that she did not opt out because the opt out provision was “buried” at the end of the agreement, the Court does not find that this adds much to the procedural unconscionability analysis. While the provision is on the second to last page of the agreement, it is not “buried.” It is in the same regular font size as the rest of the agreement and is contained under a specific paragraph titled “CALIFORNIA EMPLOYEES” set apart from other paragraphs.

As to the argument that Defendant’s parent company retained the right to modify the agreement, the Court also finds this adds little to the analysis. The subject provision provides that the rules can only be modified by giving 30 calendar days’ notice and any such modification shall be applied prospectively only. An arbitration initiated at the time of any announced change shall be completed pursuant to the procedure as it existed when the dispute was submitted. (Smith Decl. Exh. A. CARES p .4.) However, case law makes clear that, even a modification clause not providing for advance notice does not render an agreement illusory because the agreement also contains an implied covenant of good faith and fair dealing. (Peleg v. Neiman Marcus Group, Inc. (2012) 204 Cal.App.4th 1425, 1463-1464.) Other cases are in accord. ( Casas v. Carmax Auto Superstores California, LLC (2014) 224 Cal.App.4th 1233; 24 Hour Fitness, Inc. v. Superior Court (1998) 66 Cal.App.4th 1199.) Indeed, “[a]pplication of the implied covenant of good faith and fair dealing is no different in the arbitration context.” (Serpa v. California Surety Investigations, Inc. (2013) 215 Cal.App.4th 695, 706.) “[T]he implied covenant of good faith and fair dealing limits the employer’s authority to unilaterally modify the arbitration agreement and saves that agreement from being illusory and thus unconscionable.” (Id. at 708 [emphasis added].) The case relied upon by Plaintiff dealt with the arbitration rules of the Better Business Bureau which were not provided to the plaintiffs when they entered the agreement and which also limited the available damages and remedies and is inapposite. (Harper v. Ultimo (2003) 113 Cal.App.4th 1402.) Here the rules were provided to Plaintiff and as explained below they do not limit Plaintiff’s damages and remedies in any way. Plaintiff’s hypothetical claim that the applicable rules could be changed does not demonstrate any unconscionability.

Here the Agreement, which was presented in the context of an employment relationship was an adhesion contract, but there is no other indication of oppression or surprise. “[T]he degree of procedural unconscionability of an adhesion agreement is low, and the agreement will be enforceable unless the degree of substantive unconscionability is high.’” (Peng, supra, 219 Cal.App.4th at 1470 [citations omitted].)

As a result, even if the Court found some low degree of procedural unconscionability, Plaintiff was required to demonstrate a high level of substantive unconscionability which as explained below, she has not.

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; Malone v. Superior Court (2014) 226 Cal. App. 4th 1551, 1561).”A contract term is not substantively unconscionable when it merely gives one side a greater benefit.” Id. “Not all one-sided contract provisions are unenforceable; hence the various intensifiers in our formulations: ‘overly harsh,’ ‘unduly oppressive,’ unreasonably favorable.'” Baltazar, 62 Cal. 4th at 1245 (emphasis in original). California law is clear: “unconscionability requires a substantial degree of unfairness beyond ‘a simple old-fashioned bad bargain.”‘ Sonic-Calabasas A, Inc. v. Moreno, (2013) 57 Cal. 4th 1109, 1160.

Plaintiff first argues that CARES is substantively unconscionable because it unfairly limits employee rights under FEHA. To that end Plaintiff points to a provision in CARES limiting the time to initiate arbitration to “within 95 days after the date on the “Notice of Right-to-Sue” letter.” (CARES p. 7.) Plaintiff argues that this is shorter than the time allowed under California law with respect to FEHA claims because under FEHA an employee must file the administrative charge with the DFEH within one year of the discriminatory act and then must file a civil action within one year from the date the DFEH issues the right to sue letter. (Gov.t Code §§ 12960(d), 12965(b).) Case law has found that limits on the FEHA statute of limitations are unconscionable. (E.g. Martinez v. Master Protection Corp. (2004) 118 Cal.App.4th 107, 117.) However, even Plaintiff highlights the fact that CARES provides that any Notice of Intent to Arbitrate “must be received within the time period allowed by law applicable to the Covered Claim at issue, just as the requirement applies if you were proceeding in court. This is commonly referred to as a statute of limitations and is the period of time that is provided by law for bringing a claim” (CARES p. 8.) Thus, it appears that CARES simply incorporates the applicable statute of limitations applicable to the claim in dispute and does not shorten the limitations period. At most, the previous provision stating that arbitration must be initiated within 95 days of receiving the right to sue letter, which is shorter than the time allowed under California law, creates an ambiguity, which is read against the drafter. Victoria v. Superior Court (1985) 40 Cal.3d 734, 739, 745-747; Sandquist v. Lebo Automotive, Inc. (2016) 1 Cal. 5th 233,

248. In any event, the Court simply notes that the 95 day provision can easily be severed from the agreement to the extent it purports to shorten any statute of limitations under FEHA. Indeed, the agreement itself reflects the parties’ intent to sever any provision found by a Court to be invalid without affecting the validity of any other provision. (CARES p. 3.)

Plaintiff next argues that CARES lacks mutuality because it defines Covered Claims as claims that are most likely ones that employees have against employers but allows claims by the employer for violations of non-compete agreements and use or disclosure of trade secrets and confidential information to be brought in court. Agreements which require an employee to arbitrate most claims of interest yet exempt from arbitration most claims of interest of the employer have been found to be substantively unconscionable. (Mercuro v. Superior Court (2002) 96 Cal.App.4th 167, 175-176.) Substantive unconscionability manifests itself where the employer “required

the weaker parties—its employees—to arbitrate their most common claims while choosing to litigate in the courts its own claims against its employees.” (Id. at 176 [discussing an injunctive relief carve out involving intellectual property violations].) The Court rejects this argument. CARES defines Covered Claims as claims to remedy violation of non-compete/non-solicitation agreements or the use of trade secrets or confidential information. (CARES p. 5.) CARES specifically requires the employer to submit these claims to arbitration. Plaintiff’s argument is based on the provision in CARES which simply recognizes that either party is permitted to seek injunctive relief in aid or arbitration and in order to prevent the status quo pending arbitration and do not prevent such temporary relief to prevent violation of non-compete provisions or use of trade secrets, etc. “in advance of arbitration.” (CARES pp. 3-4.) On its face the injunctive relief carve-out applies equally to on both parties. (Chin v. Advanced Fresh Concepts Franchise Corp. (2011) 194 Cal.App.4th 704, 712 [carve out in arbitration provision permitting “a party” to go to court for “injunctive or other provisional relief” was not a one sided provision providing “a choice of forums [solely] for the claims of the stronger party’].) Moreover, as pointed out by Defendant in reply, California law allows litigants to apply for provisional remedies in connection with arbitration when the arbitration could be rendered ineffectual without such relief. (CCP § 1281.8(b).) The instant agreement is consistent with what is permitted under California law.

Finally, Plaintiff argues that CARES does not provide “clearly articulated” limits on attorney’s fees awards for FEHA claims. Plaintiff argues that under Armendariz, any fee-shifting provision must be set forth under “clearly articulated guidelines” indicating when fee-shifting is allowed. (Armendariz, supra, 24 Cal.4th at 111.) Under FEHA, a prevailing employee is generally entitled to fee whereas a prevailing employer is only entitled to fees is the action was brought or continued the action without an objective basis for believing it had potential merit. (Williams v. Chino Valley Indep. Fire Dist. (2015) 61 Cal.4th 97, 99-100.) The fee provision here states that “if the arbitrator rules in the Company’s favor on a claim under which fees and costs can be granted under law, then the arbitrator has the same authority as a judge to award reasonable attorneys’ fees and other costs to the Company.” (CARES p. 14.) It also states that “If the arbitrator rules in your favor on a claim under which fees and costs can be granted under law, then the arbitrator has the same authoirty as a judge to award reasonable attorneys’ fees and other costs to you.” Contrary to Plaintiff’s argument, this has the requisite “clearly articulated guidelines” because it makes clear that fees can only be awarded to an employer consistent with the applicable law. Thus, the arbitrator is only permitted to award fees in accordance with California law which in this case means that Plaintiff may be awarded attorney’s fees as a prevailing party but Defendant could only recover such fees in the event that it were determined that Plaintiff brought or continued the matter without an objective basis for believing it had potential merit. There is no danger that the arbitrator will award Defendant fees simply as a prevailing party. This provision is not substantively unconscionable.

Here, at most, Plaintiff has demonstrated a low level of procedural unconscionability and at most some potential substantive unconscionability as to the 95 day limit to initiate arbitration after receiving a Right to Sue letter. But as set forth above, the 95 day limit can easily be severed and once severed there is no other substantively unconscionable term. Given the Court’s interpretation of CARES such that it does not shorten the limitations period, it does not appear that severance is required. However, out of an abundance of caution the Court will sever the 95 day limit.

Given the above, the Court need not address the parties’ arguments regarding the

other State cases enforcing CARES.

In addition, as pointed out by Defendant, and not challenged in any manner by Plaintiff, Plaintiff’s claims against Defendant Entrepreneurial Ventures do not prevent her claims against Defendant being ordered to arbitration. Indeed, her claims against Entrepreneurial Ventures are premised on events occurring before she accepted employment with Defendant.

The petition is granted. Plaintiff’s claims against Defendant must be arbitrated in accordance with the parties’ agreement.

In addition, the Court grants Defendant’s request that the entire action be stayed pending arbitration. (CCP § 1281.4.)

Pursuant to CRC 3.1312 Defendant’s counsel shall prepare a formal order for the Court’s signature.