Kathleen McLaughlin vs Neptune Management Corp et al

Case Number

23CV02691

Case Type

Hearing Date / Time

Fri, 02/02/2024 - 10:00

Nature of Proceedings

Motion to Compel

Tentative Ruling

For the reasons set forth herein, Defendants’ Motion to Compel Arbitration is granted.  This action is ordered stayed pending the completion of arbitration.

Background:

This action commenced on June 22, 2023, by plaintiff Kathleen McLaughlin filing her verified complaint against defendants Neptune Society of America (“Neptune”), Trident Society (“Trident”), and SCI Shared Services (“SCI”) containing seven causes of action: (1) Recovery of Unpaid Overtime Wages; (2) Failure to Provide Meal Periods; (3) Failure to Provide Rest Periods; (4) Failure to Timely Furnish Accurate Itemized Wage Statements; (5) Violation of Labor Code section 203; (6) Unfair Business Practices; and (7) Disability Discrimination.

Plaintiff alleges that defendants are her former employers, and she was employed by them beginning approximately the end of 2018. Plaintiff held the position of location manager. Plaintiff was salaried and classified as exempt from overtime. Plaintiff alleges that she should not have been classified as exempt from overtime. Plaintiff also alleges that she was not provided proper meal periods, was not provided proper rest periods, and was not timely furnished accurate itemized wage statements. In addition, plaintiff alleges disability discrimination for failure to provide reasonable accommodation, and failure to engage in an interactive process, based on physical limitations related to contracting the Covid-19 virus.

Plaintiff was an employee of defendants between October 29, 2018 and March 11, 2021. (Crawford Dec., ¶ 7.)

On August 1, 2023, Trident and SCI filed their answer to the complaint admitting some of the allegations, denying some of the allegations, and setting forth 16 affirmative defenses. On October 19, 2023, Neptune filed its answer to the complaint also admitting some of the allegations, denying some of the allegations, and setting forth 16 affirmative defenses.

On November 1, 2023, defendants filed the present motion to compel arbitration and stay proceedings. Defendants argue that there is a valid written arbitration agreement between defendants and plaintiff.

Plaintiff filed her opposition on January 22, 2024. Plaintiff argues that arbitration of her claims is prohibited by Labor Code section 229, that defendants fail to carry their burden of establishing Federal Preemption, and that the arbitration agreements are unconscionable.

Analysis:

As an initial matter: In reply to plaintiff’s opposition, defendants ask the court to take judicial notice of a memorandum of points and authorities that was filed in Los Angeles County as well as a notice of entry of order in the same case. Another trial court’s statements or rulings . . . in an unrelated case has no bearing or precedential value to the present matter. (See Santa Ana Hospital Medical Center v. Belshe (1997) 56 Cal.App.4th 819, 831.) While defendants attempt to portray their submission of these documents as an attempt to help clarify typographical errors in plaintiff’s opposition, the documents were obviously provided as an attempt to influence the court. The court will not take judicial notice of the requested documents.

“California law, like federal law, favors enforcement of valid arbitration agreements.” (Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, 97.)

“Under both federal and California state law, arbitration is a matter of contract between the parties.” (Badie v. Bank of America (1998) 67 Cal.App.4th 779, 787.)

Arbitration agreements are valid and enforceable under both California and Federal Law. “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.” (Code Civ. Proc., § 1281.)

The arbitration agreement in question is contained in the Mutual Resolution Process Agreement (“MRPA”) and pertains to both employer and employee. (MRPA, p. 1.) “Covered Disputes include, but are not limited to, claims related to the Associate’s recruitment, background check, hire or non-hire, employment terms and conditions, wages and compensation, promotion or non-promotion, leaves of absence, benefits, and employment termination.” (MRPA, p. 3.) The MRPA goes on to list several other “covered disputes.” Plaintiff’s claims all fall within the listed covered disputes. The MRPA also sets forth the procedure for bringing a dispute to arbitration, the qualifications of any arbitrator, the location of arbitration, arbitration rules (with a link to the Employment Arbitration Rules and Procedures of JAMS), and a delegation clause.

1. Existence of the Arbitration Agreement.

The preliminary question that must be addressed is the existence of the arbitration agreement. Defendants have provided copies of a document titled Principles of Employment and Arbitration Procedures (“PEAP”). (Crawford Dec., ¶ 9 & Exh. A.) Plaintiff electronically signed the PEAP on both October 29, 2018, and November 6, 2018. (Crawford Dec., ¶¶ 9,10 & Exh. B.) In Spring of 2019, Neptune updated and replaced the PEAP arbitration agreement with the MRPA. (Crawford Dec., ¶ 11 & Exh. C.) On April 22, 2019, SCI and Neptune implemented a requirement that, as a condition of continued employment, all Neptune employees were required to agree to the updated material contained in the MRPA. (Crawford Dec., ¶ 14.) On April 29, 2019, plaintiff, using a unique login and password, logged in to the Workday program and electronically signed documents, including the MRPA. (Crawford Dec., ¶ 15.) Plaintiff would have had to check a box stating, “I Agree,” indicating that she had reviewed and agreed to the MRPA. (Crawford Dec., ¶ 16.)

In opposition, plaintiff does not dispute that she signed both the PEAP and the MRPA. Rather, she argues that California law bars enforcement of  the agreement to arbitrate plaintiff’s wage claims, that defendants fail to carry their burden to demonstrate that the FAA governs the agreement, and that the agreement is both procedurally and substantively unconscionable.

“General principles of contract law determine whether the parties have entered a binding agreement to arbitrate.” (Craig v. Brown & Root, Inc. (2000) 84 Cal.App.4th 416, 420.) “The party seeking arbitration bears the burden of proving the existence of an arbitration agreement, and the party opposing arbitration bears the burden of proving any defense, such as unconscionability.” (Pinnacle Museum Tower Assn. v. Pinnacle Market Development (US), LLC (2012) 55 Cal.4th 223, 236.)

“(a) An electronic record or electronic signature is attributable to a person if it was the act of the person. The act of the person may be shown in any manner, including a showing of the efficacy of any security procedure applied to determine the person to which the electronic record or electronic signature was attributable.

“(b) The effect of an electronic record or electronic signature attributed to a person under subdivision (a) is determined from the context and surrounding circumstances at the time of its creation, execution, or adoption, including the parties’ agreement, if any, and otherwise as provided by law.” (Civ. Code § 1633.9.)

“Civil Code section 1633.9, subdivision (a), governs the authentication of electronic signatures. It provides that an electronic signature may be attributed to a person if “ ‘it was the act of the person.’ ” (Civ. Code, § 1633.9, subd. (a).) Further, “ ‘[t]he act of the person may be shown in any manner, including a showing of the efficacy of any security procedure applied to determine the person to which the electronic record or electronic signature was attributable.’ ” (Ibid.) For example, a party may establish that the electronic signature was “ ‘the act of the person’ ” by presenting evidence that a unique login and password known only to that person was required to affix the electronic signature, along with evidence detailing the procedures the person had to follow to electronically sign the document and the accompanying security precautions. [Citations.]” (Bannister v. Marinidence Opco, LLC (2021) 64 Cal.App.5th 541, 545.)

Here, defendants have provided admissible evidence, through both the Crawford and Pellegrin Declarations, that SCI provides information technology to support both Neptune and Trident, that SCI provides a unique work email address and unique identification credentials for each Neptune or Trident employee, and that the employee uses the username to access network applications including the cloud-based software system called Workday. When an employee logs in to Workday for the first time, they are prompted to create their own private password with specific password requirements. Each login is tracked by Workday with an audit log which can be reviewed and exported. When a Neptune or Trident employee completes a task, such as electronically signing a document, Workday creates and maintains a timestamped log of the activity.

Defendants have provided screenshots of Workday account information for plaintiff and reports of plaintiff’s activity on Workday. They have provided documentation of exactly when plaintiff signed into Workday and signed documents including the PEAP and MRPA.

Applying general contact principles, defendants have met their burden of proving the existence of the arbitration agreement by providing a copy of the agreement and establishing that plaintiff electronically signed it.

 On the other hand, plaintiff does not deny signing it and does not dispute the authenticity of her electronic signature. In fact, plaintiff does not provide her declaration, at all, in support of her opposition to the motion to compel arbitration.

The fact of whether or not plaintiff read and understood the agreement is not dispositive. “An arbitration clause within a contract may be binding on a party even if the party never actually read the clause.” (Pinnacle Museum Tower Assn. v. Pinnacle Market Development (US), LLC, supra, 55 Cal.4th at p. 236.)

“The party seeking arbitration bears the initial burden of demonstrating the existence of an arbitration agreement. Once the moving party has satisfied its burden, the litigant opposing arbitration must demonstrate grounds which require that the agreement to arbitration not be enforced.” (Harris v. TAP Worldwide, LLC (2016) 248 Cal.App.4th 373, 380-381.)

As defendants have met their burden of demonstrating the existence of the agreement, the burden now shifts to plaintiff to demonstrate grounds which require that the agreement not be enforced.

2. Federal Arbitration Act.

Defendants argue that the FAA governs the arbitration agreement in that (1) the parties expressly consented for the FAA to govern the arbitration agreement, and (2) that the FAA applies because defendants regularly transact in interstate commerce.

“The party asserting the FAA bears the burden to show it applies by presenting evidence establishing the contract with the arbitration provision has a substantial relationship to interstate commerce.” (Carbajal v. CWPCS, Inc. (2016) 245 Cal.App.4th 227, 234.) “In determining whether the employment agreement involved interstate commerce, the parties’ subjective intent is not the determining factor. “ ‘[E]videncing a transaction involving commerce’ ” (9 U.S.C. § 2) simply means that “ ‘the ‘transaction’ in fact ‘involv[e]s’ interstate commerce, even if the parties did not contemplate an interstate commerce connection.’ ” [Citation.]” (Giuliano v. Inland Empire Personnel, Inc. (2007) 149 Cal.App.4th 1276, 1286.)

The United States Supreme Court has “interpreted the term ‘involving commerce’ in the FAA as the functional equivalent of the more familiar term ‘affecting commerce’—words of art that ordinarily signal the broadest permissible exercise of Congress’ Commerce Clause power. [Citation.]” (The Citizens Bank v. Alafabco, Inc. (2003) 539 U.S. 52, 56.) Under this broad interpretation, “application of the FAA [is not] defeated because the individual [transaction], taken alone, did not have a ‘substantial effect on interstate commerce.’ [Citation.] Congress’ Commerce Clause power ‘may be exercised in individual cases without showing any specific effect upon interstate commerce’ if in the aggregate the economic activity in question would represent ‘a general practice ... subject to federal control.’ [Citations.] Only that general practice need bear on interstate commerce in a substantial way. [Citations.]” (Id. at pp. 56-57.)

Although defendants argue that they “engage in business” ‘ “involving commerce” ’ by selling products that traveled or travel through interstate commerce and providing services, including visitation to their facilities, that involve persons that have traveled across state lines,” defendants have not provided any admissible evidence of the same. Defendants have failed to meet their burden to show that the FAA is applicable due to their involvement in interstate commerce.

However, the arbitration agreement contained in the MRPA provides: “The Parties agree that the Federal Arbitration Act (9 U.S.C., §1-16) governs the interpretation, enforcement and all proceedings pursuant to this Agreement and the Associate’s relationship with the Company and/or the Entities.” (Crawford Dec., ¶ 11 & Exh. C.)

In the absence of a substantial relationship to interstate commerce “the language of the Agreement, not an analysis of interstate commerce, dictates the applicable law.” (Valencia v. Smyth (2010) 185 Cal.App.4th 153, 179.)

Here, the parties entered into an agreement that any disputes will be determined by arbitration under the FAA. This agreement is sufficient to determine that the FAA is applicable to the arbitration.

Plaintiff argues that Labor Code section 229 prohibits arbitration of wage and hour claims. “In matters in which the FAA applies, it preempts Labor Code section 229, requiring arbitration of claims that otherwise could be resolved in court.” (Performance Team Freight Systems, Inc. v. Aleman (2015) 241 Cal.App.4th 1233, 1240.) Thus, arbitration is not barred by section 229.

3. Unconscionability.

Plaintiff argues that the arbitration agreement is unconscionable. Defendants argue that it is not and that the arbitrator should decide the issue of unconscionability due to a delegation clause.

First, the delegation clause is not “hidden” as plaintiff argues. (Opposition, p. 15, l. 14.) The delegation clause is clearly set forth in the MRPA at page 6. It states: “Any dispute as to arbitrability, including disputes about this Program’s enforceability, unconscionability, validity and applicability to a particular Covered Dispute must be resolved by the arbitrator in arbitration and not by the court.”

The language is clear and unambiguous. It applies to the employer as well as the employee.

As in Malone v. Superior Court (2014) 226 Cal.App.4th 1551, at 1570-1571: “The only evidence of procedural unconscionability in the instant case is that the arbitration agreement was in a contract of adhesion. This is some evidence of procedural unconscionability, which must be accompanied by a high showing of substantive unconscionability in order to result in the conclusion that the delegation clause is unenforceable. The only evidence of substantive unconscionability is that the clause is outside the reasonable expectation of the parties. Even if this is true, it is not sufficient to establish unconscionability in the instant case. The delegation clause is not inherently unfair--it is not unilateral; it does not provide for a biased decision maker. Moreover, the clause is clear and unmistakable, and it is not hidden in fine print in a prolix form. We are simply concerned with a clause which may have been outside the reasonable expectations of the party signing a contract of adhesion. This is not overly harsh or so one sided as to shock the conscience. The delegation clause is not unconscionable . . .”

The court finds that the delegation clause is valid and enforceable. The issue of unconscionability as to the remainder of the arbitration agreement is, as agreed, to be decided by the arbitrator. The parties are ordered to submit the matter to arbitration pursuant to the agreement. The matter will be stayed pending the completion of arbitration.