Opinion
1:21-CV-1555 JLT CDB
05-11-2023
LYNN RUIZ, Plaintiff v. CONDUENT COMMERCIAL SOLUTIONS, LLC, and DOES 1-50, inclusive, Defendant
ORDER GRANTING DEFENDANT'S MOTION TO COMPEL ARBITRATION
(DOC. 6)
This is a putative class action lawsuit brought by Lynn Ruiz against her current employer Conduent Commercial Solutions, LLC. CCS removed this case from the Kern County Superior Court. Ruiz alleges two claims under California law: Labor Code § 28021 and the Unfair Competition Law (Cal. Bus. & Prof. Code § 17200). CCS seeks to compel the action to arbitration. For the reasons that follow, Defendants' motion is GRANTED, and the case will be stayed.
This provision requires an employer to “indemnify his or her employee for all necessary expenditures or losses incurred by the employee in direct consequence of the discharge of his or her duties, or of his or her obedience to the directions of the employer . . .” Cal. Lab. Code § 2802(a).
FACTUAL BACKGROUND
Ruiz was hired to work for CCS in May 2019 as a customer care representative. CCS is a wholly owned subsidiary of Conduent Business Services, LLC. CBS and CCS provide a full range of outsourcing services and solutions to businesses. Ruiz applied for a position on-line on May 7, 2019.
As part of the on-line application process, Ruiz was required to click a box that stated: “I agree to the terms of this Agreement and to be bound by the [CBS] Dispute Resolution Plan and Rules.” This box appeared under the heading “Dispute Resolution Plan Consent.” A pop-up appeared on Ruiz's screen that contained the Dispute Resolution Plan. Ruiz declared that the DRP appeared to be many pages long and in small print. The DRP was entitled “The Conduent Business Services, LLC Dispute Resolution Plan & Rules.” In relevant part, the DRP provides:
1. Purposes and Construction
The DRP is designed to provide a program for the quick, fair, accessible, and inexpensive resolution of all Disputes, as defined hereafter, between the Company and [CBS] Employees and Applicants for employment, including but not limited to those Disputes related to or arising out of a current, former or potential employment relationship with [CBS]. The DRP is intended to create an exclusive and mandatory procedural mechanism for the final resolution of all Disputes falling within its terms. It is not intended to either abridge or enlarge substantive rights available under applicable law, provided however that the Parties forgo any right they may have to trial by court (including a jury trial) on matters relating in any way to any Dispute . . . The DRP should be interpreted in accordance with these purposes.
2. Definitions
.....
D. “Company” means Sponsor and every subsidiary (first tier and downstream) of Sponsor, every parent corporation or affiliate, predecessor, and all of their directors, officers, employees . . .
E. “Dispute” means all legal and equitable claims, demands, and controversies, of whatever nature or kind, whether in contract, tort, under statute, regulation, or ordinance, or some other law, between persons (which include Employees, Applicants and the Company) bound by the DRP or by an agreement to resolve Disputes under the DRP, or between a person bound by the DRP and a person or entity otherwise entitled to its benefits, including, but not limited to, any matters with respect to: ...
2. The employment . . . of an Employee, including but not limited to the terms, conditions, or termination of such employment with [CBS];
3. Employee benefits or incidents of employment with the Company (except for claims under an employee benefit or pension plan . . .); ...
7. Any other matter related to or concerning the relationship
between the Applicant and the Company and/or the Employee and the Company alleging violation of any federal, state, or other governmental law, statute, regulation, or ordinance, or common law, or contract violation . . . ...
G. “Employee” means any person who is or has been in the employment of [CBS] on or after the Effective Date of the DRP . . . ...
L. “Sponsor” means [CBS].
M. “Conduent Business Services” means [CBS], its subsidiaries, and/or their predecessors. ...
4. Resolution of Disputes
...
B. All Disputes not otherwise resolved by the Parties shall be finally and conclusively resolved through arbitration under this DRP, instead of through trial before a court (including a jury trial). The Parties forego any right they may have to a bench trial or a jury trial on a Dispute.
C. (i) To the extent allowed under the law, each Dispute not otherwise resolved by the Parties shall be arbitrated on an individual basis. Except for Disputes asserted by named plaintiffs or putative plaintiffs in a class, collective, consolidated or representative action pending in court before the Effective Date, neither an Employee nor the Company may initiate or participate in a Dispute on a class, collective, or consolidated basis, or in a representative capacity on behalf of other persons or entities that are claimed to be similarly situated. An applicant may not participate in a class, collective, consolidated or representative Dispute that has been filed against the Company before the Applicant's first day of employment. The arbitrator shall have no authority to arbitrate a Dispute as a consolidated, class, collective or representative action. ...
6. Amendment
The DRP may be amended by Sponsor at any time by giving at least thirty (30) days' notice to current Employees, provided however that no amendment shall apply to a Dispute that was made known to the Company prior to the time the amendment becomes effective. The version of the DRP that was in effect with respect to a particular Applicant or Employee on the date of the Employee's claim was made known to the Company shall apply to that Applicant or Employee's dispute.
7. Termination
The DRP may be terminated by Sponsor at any time by giving at least thirty (30) days' notice of termination to current Employees. However, termination shall not apply to a Dispute that accrued or became known to the Company prior to the effective date of termination.
8. Applicable Law
Except to the extent, if any, that federal law requires the application of state law, [the Federal Arbitration Act] and federal law, including federal procedural law . . . shall apply to the DRP, and any proceedings under the DRP . . . In any case in which the arbitrator must make a decision as to applicable law, the arbitrator's authority to decide the applicable law should be guided and determined by the law that would be applied by a U.S. District Court sitting at the place of the arbitration hearing . . . ...
10. Exclusive Remedy
Unless otherwise required by law, proceedings under the DRP shall be the exclusive method by which Disputes are resolved. Arbitration under the DRP shall be final and binding, subject only to review as provided for in the [Federal Arbitration Act].” ...
11. Severability
The terms of the DRP are severable . . . Where possible, consistent with the purposes of the DRP, any otherwise invalid provision or term of the DRP may be reformed and, as reformed, enforced.Doc. 6-2 (“Odle Dec.”) at Ex. 1. Additionally, under the “Conduent Business Services Dispute Resolution Rules” section of the DRP, the DRP required that arbitration be performed by either AAA or JAMS. See id. This section further provided that “[t]o the extent consistent with the DRP, the arbitrator is expected to apply the Federal Rules of Civil Procedure to arbitration proceedings governed by the DRP.” Id. At no point does the DRP identify CCS by name.
The application required applicants to agree to the terms of the DRP in order to be considered for employment. Ruiz did not have the option of opting out of the DRP. Ruiz believed that by clicking the box, the DRP would only apply to her application, not to her actual employment, and that the DRP would only apply if CBS was her employer. Ruiz clicked the box to accept the DRP.
Ruiz was offered a position by CCS the same day she submitted her application. The offer letter in part stated that “Conduent may change any term or condition of your employment at will; with or without cause or notice.”
Ruiz was also provided additional paperwork as part of her employment, which was to be completed no later than June 2, 2019. The first document, an “Offer Acknowledgment Form,” identified CCS as her employer. This form also stated that the “Company may change any term or condition of your employment at will; with or without cause or notice.” Ruiz also received an “Acknowledgment of Dispute Resolution” (“ADRP”). The ADRP's provisions mirrored the DRP, Cf. Odle Dec. Ex. 1 with Odle Dec. Ex. 4, and expressly incorporated the entirety of the DRP. See Odle Dec. Ex. 4 at p.8. In part, the ADRP: (1) requires submission of all disputes (as defined by the DRP) relating to, concerning, or arising out of Ruiz's employment with “Conduent,” (2) waived the right to a bench or jury trial, (3) waived the right to initiate or participate in arbitration of a dispute on a class, collective, consolidated, or representative basis, (4) gave “Conduent” the right to unilaterally modify or terminate the ADRP or the DRP by providing 30 days' notice provided that no modification would apply to a dispute that was made known to “Conduent” prior to modification and no termination would apply to a claim that accrued prior to termination of the ADRP or the DRP; (5) explained that references to “Conduent” included CBS and all of its subsidiaries; (6) contained a severability provision; (7) stated that acceptance of the ADRP was a condition of employment; and (8) stated that Ruiz's failure to sign the ADRP, or any attempt to reject the ADRP or the DRP, would not preclude enforcement of the DRP. See Odle Dec. Ex. 4. Ruiz electronically signed the ADRP on May 7, 2019 and believed that it was an agreement between herself and only CBS. Ruiz did not believe that the ADRP would involve any other company because she believed that only CBS was identified. Ruiz was not informed that CCS was a subsidiary of CBS.
Ruiz was never provided the arbitration rules of the AAA or JAMS by CCS or CBS. Ruiz was never given the opportunity to negotiate any terms of the arbitration agreements. CCS never explained the DRP or ADRP to Ruiz, and she did not know what arbitration was when she signed the agreements. Ruiz understood that CCS could change its policies, including the ADRP and the DRP, at any point, with or without notice. Ruiz also believed that, per a Policies Acknowledgement statement that she signed, it was her responsibilities to hunt down changes because CCS would not inform her of policy changes. The Policies Acknowledgment statement in part read: “I understand that changes to the policies may occur periodically (with or without notice) and it is my responsibility to keep informed of any changes.” Odle Dec. Ex. 5.
During her employment with CCS, Ruiz and other employees worked from home. CCS provided laptops to Ruiz and other employees to complete their work at home for the benefit of CCS. CCS did not reimburse Ruiz and other employees for their reasonable business expenses, including use of personal cellphones, personal internet, and electricity. CCS's failure to reimburse allegedly violated Labor Code § 2802 and was an “unlawful act” under the UCL.
LEGAL FRAMEWORK
The Federal Arbitration Act provides that written agreements to arbitrate disputes arising out of transactions involving interstate commerce “shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.” 9 U.S.C. § 2; Zoller v. GCA Advisors, LLC, 993 F.3d 1198, 1201 (9th Cir. 2021). Further, the FAA permits a party “aggrieved by the alleged . . . refusal to arbitrate” to petition any federal district court for an order compelling arbitration. 9 U.S.C. § 4; Van Dusen v. United States Dist. Court for the Dist. of Ariz., 654 F.3d 838, 842 (9th Cir. 2011). When a party moves to compel arbitration, a district court's role is limited “to determining (1) whether a valid agreement to arbitrate exists and, if it does, (2) whether the agreement encompasses the dispute at issue.” Johnson v. Walmart Inc., 57 F.4t h 677, 680 (9th Cir. 2023) (quoting Chiron Corp. v. Ortho Diagnostic Sys., Inc., 207 F.3d 1126, 1130 (9th Cir. 2000)). If the answer to both questions is ‘yes,' the district court must enforce the arbitration agreement in accordance with its terms; there is no place for discretion by the district court. Revitch v. DIRECTV, LLC, 977 F.3d 713, 716 (9th Cir. 2020). Thus, “courts should order arbitration of a dispute only where the court is satisfied that neither the formation of the parties' arbitration agreement nor (absent a valid provision specifically committing such disputes to an arbitrator) its enforceability or applicability to the dispute is in issue.” Granite Rock Co. v. International Bhd. Of Teamsters, 561 U.S. 287, 299 (2010); Revitch, 977 F.3d at 716. Doubts concerning the scope of an arbitration clause are resolved in favor of arbitration, but no presumption exists concerning whether an agreement to arbitrate was made. Johnson, 57 F.4th at 680-81. “When determining whether parties have agreed to submit to arbitration, courts apply state-law principles of contract formation and interpretation.” Suski v. Coinbase, Inc., 55 F.4th 1227, 1230 (9th Cir. 2022). The party seeking to compel arbitration bears the burden of proving by a preponderance of the evidence that the parties formed an agreement to arbitrate. Reichert v. Rapid Invs., Inc., 56 F.4t h 1220, 1227 (9th Cir. 2022); Knutson v. Sirius XM Radio Inc., 771 F.3d 559, 565 (9th Cir. 2014).
DEFENDANTS' MOTION
As initial matter, the parties are somewhat unclear regarding the nature of the DRP and the ADRP. At some points, the parties' briefing suggests that these are two separate agreements, but at other points, the briefing suggests that there is a single agreement to arbitrate. After review, it appears to the Court that the ADRP is both a synopsis of the DRP and a second acknowledgment that the employee and the company are bound by the DRP. The Court sees no inconsistencies between the DRP and the ADRP, and the parties identify none. Therefore, for purposes of this motion, the Court will read the DRP and the ADRP as constituting a single unified agreement to arbitrate, which the Court will refer to as the “UDRP,” i.e., Unified Dispute Resolution Program.
The Court notes that even if the DRP and the ADRP are two separate agreements, the terms are materially identical, and the result of the motion would not change - arbitration would still be ordered.
Defendant's Arguments
CCS argues that there is a binding arbitration agreement between itself and Ruiz that covers Ruiz's claims. CCS avers that Ruiz agreed through the UDRP to submit her claims against CCS to binding arbitration. The UDRP applies to CCS as a subsidiary of CBS and was signed electronically by Ruiz either during the application process or during the employment process. The UDRP requires Ruiz and CCS to arbitrate their disputes against each other, which shows mutual consideration. Furthermore, though CCS has the right to amend or terminate the DRP, it may only do so on the thirty days' notice and only prospectively, which prevents CCS from avoiding its obligation to arbitrate disputes. CCS argues that the UDRP uses broad language that covers disputes regarding Ruiz's employment and the terms of employment, as well as any violations of state law by CCS. Because Ruiz is alleging claims under the Labor Code and the UCL based on a failure to reimburse business related personal phone, internet, and electric costs, these claims are covered by the UDRP.
CCS also argues that Ruiz has waived her right to initiate or participate in a class action. Despite this waiver, Ruiz brings a purported class action. In light of the DRP's plain prohibition against the arbitration of a class claim on behalf of others, Ruiz should be compelled to resolve her dispute on an individual basis in arbitration.
Plaintiff's Opposition
Ruiz argues that CCS's motion should be denied for several reasons.
First, the general rule is that one must be a party to an arbitration agreement to be bound by it or to invoke it. Ruiz argues that CCS is her employer and is not a signatory to the UDRP. The UDRP applies to CBS. There no facts alleged in the Complaint, such as CCS and CBS being joint employers, that would justify CCS enforcing the UDRP as a non-signatory. Moreover, based on the language of the UDRP, Ruiz argues that she believed that the UDRP applied only to CBS and not to her employer, CCS. Therefore, there is no basis for CCS to enforce the UDRP.
Second, and alternatively, the UDRP is unenforceable because it is illusory. An employer's unrestricted right to amend, modify, or terminate an arbitration agreement at any time renders the agreement illusory and unenforceable. The UDRP gave CCS, but not employees, the right to modify and terminate. Further, while the UDRP purport to force CCS to provide 30 days' notice, other documents given to Ruiz explained that CCS had the right to unilaterally change policies without notice. When read together, the other acknowledgments signed by Ruiz are contradictory to the UDRP. Because ambiguities are resolved against the drafter, the ambiguity must be resolved to make the UDRP illusory and unenforceable.
Third, the UDRP is unconscionable. In terms of procedural unconscionability, the UDRP is a contract of adhesion. Ruiz argues that she could not refuse to sign and could not negotiate any terms. Rather, she had to accept the UDRP as a condition of employment. Further, the UDRP fails to provide all the AAA and JAMS rules governing the arbitration process. These two considerations create a high degree of procedural unconscionability. In terms of substantive unconscionability, there are several problematic aspects of the UDRP. First, CCS is not a party to the UDRP, which makes it is substantively unconscionable for CCS to invoke the UDRP's terms. Second, and relatedly, only Ruiz and not CCS is required to arbitrate potential claims and only Ruiz is required to sign the agreements. Third, CCS's unrestricted unilateral right to modify or terminate the UDRP is substantively unconscionable because the clauses render the UDRP illusory. Fourth, the UDRP contains waivers of representative claims, i.e., California Private Attorneys General Act (“PAGA”) (Cal. Civ. Code § 2699) claims. Courts recognize that these waivers are substantively unconscionable. Fifth, and finally, the UDRP leaves discovery to the discretion of the arbitrator, who could then improperly limit discovery. Courts recognize that arbitration agreements that unduly limit discovery are substantively unconscionable. Taken together, the procedurally and substantively unconscionable provisions of the UDRP are sufficient to decline enforcement and are too numerous to be saved through severance.
Discussion
As an initial matter, there is no dispute regarding the scope of UDRP. The ADRP covers all “disputes” (as defined by the DRP) “arising out of, relating to, or concerning [Ruiz's] employment with “Conduent,” or the terms and conditions of employment with “Conduent.” See Odle Dec. Ex. 4. Similarly, the DRP is intended to resolve all “disputes” between the “Company” and CBS employees “arising out of a current . . . relationship with CBS.” Id. at Ex. 1. The terms “arising out of' or “relating to” are broad terms. Cape Flattery Ltd. v. Titan Mar., LLC, 647 F.3d 914, 922 (9th Cir. 2011). Moreover, “disputes” is broadly defined to include legal and equitable claims, including statutory or common law claims, with respect to the terms and conditions of employment and employee benefits or incidents of employment. See Odle Dec. Ex. 1. Given these considerations, the claims in the Complaint, which are based on the failure by CCS to reimburse Ruiz for business related personal expenditures are clearly “disputes” as defined by the UDRP that “arise out of' or “relate to” Ruiz's employment, benefits, and terms and conditions of her employment. Instead of “scope,” the issues raised by Ruiz to avoid arbitration involve contract formation and the validity of the UDRP.
1. Formation
Ruiz argues that there is no valid agreement to arbitrate between her and CCS because CCS did not sign the UDRP and because the UDRP being illusory. The Court will address each argument separately.
a. Non-Signatory CCS
Ruiz is correct that, generally, an entity must be a party to an arbitration agreement to be bound by the agreement or to invoke it. See Garcia v. Pexco, LLC, 11 Cal.App.5th 782, 785 (2017); Westra v. Marcus & Millichap Real Estate Investment Brokerage Co., 129 Cal.App.4th 759, 763 (2005); see also Cohen v. TNP 2008 Participating Notes Program, LLC, 31 Cal.App.5th 840, 856 (2019) (“Someone who is not a party to a contractual arbitration provision generally lack standing to enforce it.”). However, the Court cannot agree that CCS is not a party to the UDRP.
The DRP indicates that it is an agreement between applicants and employees, including Ruiz, and the “Company,” the “Sponsor,” and CBS. See Odle Dec. Ex. 1. As quoted above, “Company” is defined as the “Sponsor and every subsidiary (first tier and downstream) of Sponsor . . .” Id. In turn, “Sponsor” is defined to be CBS. Id. Finally, CBS is defined as CBS and its subsidiaries and/or their predecessors. Id. From these definitions, “Company,” “Sponsor,” and CBS are different ways of referring to the same entities - CBS and its subsidiaries. Similarly, the ADRP indicates that it is an agreement between Ruiz and “Conduent” and expressly states that “I understand that references in this [ADRP] to Conduent include all Conduent Business Services and its subsidiaries . . .” Odle Dec. Ex. 4. That is, the ADRP's reference to “Conduent” means CBS and its subsidiaries. Because the UDRP's constituent parts each expressly stated that all relevant references to CBS, Conduent, Sponsor, or Company is to mean CBS and its subsidiaries, all obligations and powers under the UDRP run to Ruiz, CBS, and CBS's subsidiaries. Although there is not a signature block for CCS or CBS in the UDRP, the language and defined terms make it clear that CBS and CBS's subsidiaries are parties to the agreement/policy. Cf. Reigelsperger v. Siller, 40 Cal.4th 574, 579 (2007) (holding that lower court ruling was contrary to the plain language of the arbitration contract); AIU Ins. Co. v. Superior Ct., 51 Cal.3d 807, 822 (1990) (explaining that, pursuant Cal. Civ. Code §§ 1638 and 1644, the clear and explicit meaning of a contractual provision, interpreted in the ordinary and popular sense unless used in a special or technical sense, controls judicial interpretation). Because there is no dispute that CCS is a wholly owned subsidiary of CBS, CCS is a party to the UDRP.
Ruiz cites no authority that would invalidate either the UDRP as a whole, or the DRP and ADRP individually, as between herself and CCS merely because CCS is not explicitly identified by name. As discussed above, the plain language of the UDRP shows that it is the policy of CBS and all of CBS's subsidiaries. A reasonable person reading these agreements would understand that the UDRP does not apply to CBS alone. See AIU Ins., 51 Cal.3d at 822. Moreover, considering that CCS's name is similar to CBS's name, that CBS's name appeared in documents associated with both the application and employment process, and that Ruiz was required to acknowledge the ADRP (which incorporated the DRP by reference) after being told that CCS would be her employer, these facts all point to the conclusion that CCS was either a subsidiary of CBS or had some connection to CBS such that CCS would be relying on the UDRP. Given the express language of the UDRP, as well as the context in which Ruiz viewed, acknowledged, and accepted the DRP and the ADRP, it is unreasonable to conclude that the UDRP would apply to CBS alone. It makes no sense for an employer to make an employee sign an arbitration agreement that does not actually apply to the employer, even though the agreement is meant to cover disputes arising out of the employment relationship. In sum, the Court rejects Ruiz's argument that CCS is not a party to the UDRP.
b. Illusory Contract
A contract will be held to be unenforceable as illusory when one of the parties has the unfettered or arbitrary right to modify or terminate the agreement or assumes no obligations under the contract. See State Farm Gen. Ins. Co. v. Watts Regulator Co., 17 Cal.App.5th 1093, 1103 (2017); Harris v. TAP Worldwide, LLC, 248 Cal.App.4th 373, 385 (2016); see also Asmus v. Pacific Bell, 23 Cal.4th 1, 15-16 (2000).
The Court does not find that the UDRP is illusory. It is true that only CCS (or CBS) has the authority to modify or terminate the UDRP. However, before modification or termination can occur, CCS is required to give Ruiz 30 days' notice. See Odle Dec. Exs. 1, 4. Furthermore, the modification will not affect any “disputes” made known to CCS before the modification takes effect, and termination will not affect “disputes” that either accrued or were made known to CCS before the termination takes effect. See id. In other words, once CCS gives an employee 30 days' notice of a modification to, or termination of, the UDRP, to preserve the existing agreement, the employee need only tell CCS about a “dispute” before the modification or termination takes effect. These are limits on CCS's ability to modify or terminate the UDRP. The California Supreme Court has recognized that “the fact that one party reserves the implied power to terminate or modify a unilateral contract is not fatal to its enforcement, if the exercise of that power is subject to limitation, such as fairness and reasonable notice.” Asmus, 23 Cal.4th at 16; Harris, 248 Cal.App.4th at 388; cf. Casas v. Carmax Auto Superstores Cal., LLC, 224 Cal.App.4th 1233, 1236 (2014). Moreover, the implied covenant of good faith and fair dealing applies to discretionary clauses like the UDRP's modification and termination clauses. See Harris, 248 Cal.App.4th at 388; Peng v. First Republic Bank, 219 Cal.App.4th 1462, 1473-74 (2013); Serpa, 215 Cal.App.4th at 708; 24 Hour Fitness v. Superior Ct., 66 Cal.App.4th 1199, 1214 (1998). The covenant of good faith and fair dealing prevents CCS or CBS from unilaterally exercising their discretionary authority of modification or termination in such a manner as to frustrate the purpose of the UDRP, and thus, prevents the UDRP from being deemed illusory. See Harris, 248 Cal.App.4th at 388; Peng, 219 Cal.App.4th at 1473-74; Serpa, 215 Cal.App.4th at 708; 24 Hour Fitness, 66 Cal.App.4th at 1214; see also Fuentes v. Empire Nissan, Inc., __ Cal.App.5th __, 2023 Cal.App.LEXIS 310, *24 (2023). Therefore, the express limits within the UDRP's modification and termination provisions, combined with the limitations imposed by the implied covenant of good faith and fair dealing, are sufficient to show that the UDRP is not illusory.
As Ruiz correctly points out, at least one California court has held that an agreement to arbitrate is illusory if the employer can make unilateral modifications. Sparks v. Vista Del Mar Child & Family Services, 207 Cal.App.4th 1511, 1523 (2012). Sparks, however, has been distinguished and criticized on this point. See Harris, 248 Cal.App.4th at 386-90; Casas v. Carmax Auto Superstores Cal., LLC, 224 Cal.App.4th 1233, 1236 (2014); Serpa v. California Surety Investigations, Inc., 215 Cal.App.4th 695, 708 (2013). In fact, the same appellate district that decided Sparks reconsidered it and found to the contrary in light of Asmus and subsequent disagreement from other courts of appeal. See Harris, 248 Cal.App.4th at 390. Given the Court's above analysis, as well as Harris's disavowing of Sparks, the Court declines to follow Sparks.
Ruiz argues that other documents (the offer letter/the offer acknowledgment and the policies acknowledgment) state that CCS's policies may be changed at any time without notice, which means that there are no limits on the ability of CCS to change the terms of the UDRP. Ruiz is correct that CCS has represented that it can change its policies without notice. However, those are general statements that are not specific to any individual policy, particularly the UDRP. In contrast, the UDRP contains specific modification and termination provisions that apply only to that agreement/policy. See Odle Dec. Exs. 1, 4. Under California law, it is the specific modification and termination provisions contained within the UDRP that govern and control any modifications or terminations of that agreement/policy, not the general statements identified by Ruiz in other documents. See Harris, 248 Cal.App.4th at 386-87. Thus, as acknowledged by CCS in its reply, see Doc. No. 12 at 4:23-5:6, the generalized statements of CCS's ability to change policies without notice has no application to the UDRP. See Harris, 248 Cal.App.4th at 386-87. Thus, the UDRP is not unenforceable as illusory.
2. Unconscionability
Unconscionability is a recognized basis to invalidate an arbitration agreement. See Lim v. TForce Logistics, LLC, 8 F.4th 992, 999 (9th Cir. 2021); Poublon v. C.H. Robinson Co., 846 F.3d 1251, 1259 (9th Cir. 2017). The party opposing arbitration has the burden of establishing that an arbitration agreement is unconscionable. See Lim, 8 F.4th at 999; Poublon, 974 F.3d at 1060. State law determines whether an agreement is invalid due to unconscionability. See Shivkov v. Artex Risk Sols., Inc., 974 F.3d 1051, 1059 (9th Cir. 2020); Kilgore v. KeyBank Nat'l Ass'n, 718 F.3d 1052, 1058 (9th Cir. 2013). Under California law, unconscionability has a procedural element and a substantive element. See OTO, LLC v. Kho, 8 Cal.5th 111, 125 (2019); Iyere, 87 Cal.App.5th at 759; see also Lim, 8 F.4th at 1000-01; Poublon, 846 F.3d at 1260-61. The procedural element addresses the circumstances of contract negotiation and formation, focusing on oppression and surprise due to unequal bargaining power, while the substantive element pertains to the fairness of an agreement's actual terms and to assessments of whether they are overly harsh or one-sided. OTO, 8 Cal.5th at 125; see Lim, 8 F.4th at 1000-01; Poublon, 846 F.3d at 1260-61; Iyere, 87 Cal.App.5th at 759. While both the procedural and substantive elements must be present to establish unconscionability, they need not be present in the same degree. Lim, 8 F.4th at 1000; Poublon, 846 F.3d at 1260; OTO, 8 Cal.5th at 125; Baltazar v. Forever 21, Inc., 62 Cal.4th 1237, 1243 (2016). There is essentially a “sliding scale” that applies, and the more one element is present, the less present the other element need be. See Lim, 8 F.4th at 1000; Poublon, 846 F.3d at 1260; OTO, 8 Cal.5th at 125-26; Baltazar, 62 Cal.4th at 1243-44; Iyere, 87 Cal.App.5th at 759.
a. Procedural Unconscionability
The procedural unconscionability analysis begins by determining whether the agreement is a contract of adhesion, which is a standardized contract offered by the party with superior bargaining power on a take-it-or-leave-it basis. OTO, 8 Cal.5th at 126; see also Lim, 8 F.4th at 1000-01; Poublon, 846 F.3d at 1260-61. If a contract is one of adhesion, courts must assess whether the circumstances of the contract's formation created such oppression or surprise that closer scrutiny of the contract's overall fairness is required. See OTO, 8 Cal.5th at 126. “Oppression occurs where a contract involves lack of negotiation and meaningful choice, surprise where the allegedly unconscionable provision is hidden within a prolix printed form.” Id. Employment contracts are typically contracts of adhesion. Id. However, “if an employee must sign a non-negotiable employment agreement as a condition of employment but ‘there is no other indication of oppression or surprise,' then ‘the agreement will be enforced unless the degree of substantive unconscionability is high.'” Poublon, 846 F.3d at 1261 (citation omitted).
There is no dispute that the UDRP is a contract of adhesion. Ruiz was required to sign as a condition of employment and had not ability to opt out or renegotiate the UDRP's terms. This is sufficient to show at least some procedural unconscionability. See Poublon, 846 F.3d at 1261-62; Ramirez v. Charter Communications, Inc., 75 Cal.App.5th 365, 373 (2022).
Ruiz contends that although the UDRP references JAMS and the AAA, the rules of those institutions is not provided, which is procedurally unconscionable. The Court disagrees. In Baltazar, the California Supreme Court found that its procedural unconscionability analysis was unaffected by the fact that the defendant did not provide a copy of the AAA rules to the plaintiff. See Baltazar, 62 Cal.4th at 1246. Baltazar left open the possibility that there may be procedural unconscionability based on “artfully hidden” terms within documents incorporated by reference, including terms hidden within an arbitrator's rules. See id. However, like the plaintiff in Baltazar, Ruiz does not identify any applicable rule of either the AAA or JAMS that is somehow surprising or unconscionable. Therefore, the fact that CCS did not provide Ruiz with copies of the AAA or JAMS rules does not show any additional procedural unconscionability. See id. Thus, there is a degree of procedural unconscionability because the UDRP is a contract of adhesion.
b. Substantive Unconscionability
Substantive unconscionability examines the fairness of a contract's terms and is concerned about terms that are unreasonably favorable to the more powerful party. Lim, 8 F.4th at 1001-02; OTO, 8 Cal.5th at 129. “Unconscionable terms impair the integrity of the bargaining process or otherwise contravene the public interest or a public policy or attempt to impermissibly alter fundamental legal duties. They may include fine-print terms, unreasonably or unexpectedly harsh terms regarding price or other central aspects of the transaction, and terms that undermine the nondrafting party's reasonable expectations.” OTO, 8 Cal.5th at 130 (quoting Sonic-Calabasas A, Inc. v. Moreno, 57 Cal.4th 1109, 1145 (2013)); see Gostev v. Skillz Platform, Inc., 88 Cal.App.5th 1035, 1054 (2023). “Substantive terms that, in the abstract, might not support an unconscionability finding take on greater weight when imposed by a procedure that is demonstrably oppressive.” OTO, 8 Cal.5th at 130.
Ruiz argues that the UDRP is unconscionable because it: (1) permits non-signatory CCS to force arbitration; (2) lacks mutuality because it permits CCS to invoke arbitration against Ruiz, but not vice versa; (3) is illusory because of CCS's unilateral ability to modify or terminate the agreement; (4) improperly limits discovery, and (5) contains an unlawful PAGA waiver. The Court will address each point separately.
(i) Non-Signatory
Ruiz's argument that it is unconscionable to permit CCS as a non-signatory to invoke the UDRP is unpersuasive for two reasons. First, California recognizes exceptions to the general rule that non-parties/non-signatories cannot invoke and enforce an arbitration agreement. See Westra, 129 Cal.App.4th at 765. Thus, there is nothing per se unconscionable about a non-signatory having the ability to enforce an arbitration agreement. Second, and more importantly, the Court has concluded that the UDRP is an agreement by and policy of CBS and all of its subsidiaries, including CCS. Therefore, by the terms of the UDRP itself, CCS is a party to the UDRP. Ruiz's contention to the contrary is inaccurate.
(ii) Non-Mutuality in Application
The Court understands Ruiz to argue that, if CCS is granted the ability to compel arbitration against Ruiz despite being a non-signatory, then Ruiz will not have the ability to compel arbitration against CCS. This argument is specious. As explained above, every time that the UDRP used the term “Company,” “CBS,” “Sponsor,” or “Conduent,” the UDRP was referring to CBS and its subsidiaries, including CCS. Further, the definition of “dispute” includes claims between parties to the UDRP without reference to which party is asserting the claim/dispute. Thus, per the express terms of the UDRP, both Ruiz and CCS as CBS's subsidiary can force arbitration of any “dispute” that they may have against each other. That is, Ruiz can force CCS to arbitrate, and CCS can force Ruiz to arbitrate.
(iii) Illusory Terms
Ruiz reiterates her argument that the UDRP's modification and termination clauses are illusory terms, and as illusory terms, are unconscionable. For the reasons discussed above, the terms are not illusory. Thus, the modification and termination clauses are not substantively unconscionable. See Peng, 219 Cal.App.4th at 1474.
(iv) Limitations on Discovery
In pertinent part, the UDRP states that the “arbitrator shall have discretion to determine the form, amount and frequency of discovery by the Parties,” and “[d]iscovery may take any form permitted by the Federal Rules of Civil Procedure, as amended from time to time, subject to any restrictions imposed by the arbitrator.” Odle Dec. Ex. 4. Ruiz argues that the UDRP does not adequately address discovery, but instead leaves discovery in the hands of the arbitrator who could impose improper limits.
Certain limitations on discovery in the arbitration process is an appropriate method of streamlining the arbitration process - the full panoply of judicial discovery is not required. See Armendariz v. Foundation Health Psychcare Services, Inc., 24 Cal.4th 83, 105-06 (2000); Epstein v. Vision Service Plan, 56 Cal.App.4th 223, 246 (2020); Sanchez v. Carmax Auto Superstores Cal., LLC, 224 Cal.App.4th 398, 404 (2014); Martinez v. Master Protection Corp., 118 Cal.App.4th 107, 118 (2004). Having limits on discovery is a hallmark of arbitration, and the mere fact that there are limits does not make an arbitration agreement per se substantively unconscionable. See Coast Plaza Doctors Hosp. v. Blue Cross of Cal., 83 Cal.App.4th 677, 68990 (2000). As long as the limited discovery procedures adequately allow a plaintiff to vindicate her rights, the limited discovery is not unconscionable. See Armendariz, 24 Cal.4th at 105-06; Sanchez, 224 Cal.App.4th at 404; Martinez, 118 Cal.App.4th at 118-19. To show substantive unconscionability, the plaintiff must show that the discovery procedures are inadequate under the circumstances of her case. See Ramirez, 75 Cal.App.5th at 385; Sanchez, 224 Cal.App.4th at 405; Martinez, 118 Cal.App.4th at 118-19.
In this case, the UDRP contain no express limits or prohibitions of any kind on discovery. Instead, it gives the arbitrator substantial discretion regarding the form, amount, and type of discovery that should occur. The terms of the UDRP reasonably show, through both its general application of the Federal Rules of Civil Procedure as well as the discovery provisions' express references to discovery under the Federal Rules of Civil Procedure, that the arbitrator is to be guided by the discovery provisions of the Federal Rules of Civil Procedure. Moreover, since it is presumed that an arbitrator “will operate in a reasonable manner in conformity with the law,” Murrey v. Superior Ct., 87 Cal.App.5th 1223, 1250 (2023); Torrecillas v. Fitness Int'l, LLC, 52 Cal.App.5th 485, 497 (2020); Dotson v. Amgen, Inc., 181 Cal.App.4th 975, 984, 986 (2010), the Court assumes that the arbitrator will be aware that the law requires adequate discovery and that his or her discovery decisions will be guided by California law and the discovery provisions of the Federal Rules of Civil Procedure. See Dotson, 181 Cal.App.4th at 984, 986.
Importantly, Ruiz does not explain how the discovery provisions of the UDRP will be inadequate for her to vindicate her claims. Indeed, Ruiz's claims appear to be straightforward, and it is not clear what discovery Ruiz would need, that she cannot obtain in the arbitration process, to vindicate her statutory rights. Ruiz claims a violation of Labor Code § 2802 and a derivative UCL claim. Ruiz claims that she was never reimbursed by CCS for business related expenses that she had to pay personally. Ruiz should have access to the documentation for the expenses that she incurred, be able to explain why they were business related, be able to explain why she is entitled to reimbursement, and state that she was never reimbursed. This would seem to be all that is necessary to demonstrate an entitlement to relief under § 2802; additional information or evidence in CCS's possession would seem to be unnecessary. See Cal. Lab. Code § 2802(a). Therefore, Ruiz has failed to show how the UDRP's discovery provisions are substantively unconscionable in her circumstances. Ramirez, 75 Cal.App.5th at 385; Sanchez, 224 Cal.App.4th at 405; Martinez, 118 Cal.App.4th at 118-19. Thus, Ruiz has failed to show that the UDRP's discovery provisions are substantively unconscionable.
The Court recognizes that the Complaint makes class action allegations, as well as PAGA allegations. As discussed below, the class action allegations will be dismissed, the “individual PAGA claim” will be sent to arbitration, and the “representative PAGA claim” will remain stayed in this case.
(v) PAGA Waiver
PAGA permits an aggrieved employee, on behalf of himself and other current or former aggrieved employees, and as a proxy on behalf of the State of California, to bring suit to recover various statutory penalties provided under the California Labor Code. See Cal. Lab. Code § 2699(a); Viking River Cruises, Inc. v. Moriana, 142 S.Ct. 1906, 1916 (2022); Arias v. Superior Ct., 46 Cal.4th 969, 980-81, 986 (2009). Due to FAA preemption, a PAGA claim can be divided into individual and non-individual claims through an agreement to arbitrate. See Viking River, 142 S.Ct. at 1924. A PAGA claim that is based on Labor Code violations that a plaintiff personally suffered (often called an “individual PAGA claim”) may be sent to arbitration. See Viking River, 142 S.Ct. at 1924-25; Piplack v. In-N-Out Burgers, 88 Cal.App.5th 1281, 1287-88 (2023); Galarsa v. Dolgen Cal., LLC, 88 Cal.App.5th 639, 648-52 (2023); Mills v. Facility Solutions Grp., Inc., 84 Cal.App.5th 1035, 1063 (2022). A PAGA claim that is based on an employee's ability to recover for Labor Code violations suffered by other aggrieved employees (often called a “representative PAGA claim”) cannot be waived by an arbitration agreement because to do so violates California public policy. See Viking River, 142 S.Ct. at 1924-25; Piplack, 88 Cal.App.5th at 1287-88; Galarsa, 88 Cal.App.5th at 648-52; Mills, 84 Cal.App.5th at 1063.
An “aggrieved employee” is “any person who was employed by the alleged violator and against whom one or more of the alleged [Labor Code] violations was committed.” Cal. Lab. Code § 2699(c).
The UDRP waives Ruiz's right to initiate or participate in any representative action. See Odle Dec. Exs. 1, 4. This is a broad waiver that appears to capture representative PAGA claims. See id. Such a waiver would be invalid as contrary to California's public policy. See Viking River, 142 S.Ct. at 1924-25; Piplack, 88 Cal.App.5th at 1287-88; Galarsa, 88 Cal.App.5th at 64852; Mills, 84 Cal.App.5th at 1063.
In reply, however, CCS states that the UDRP through § 2(E) of the DRP provides that “[d]isputes do not include, and the DRP does not apply to, claims . . . (3) where application of the DRP is otherwise prohibited by law.” Odle Dec. Ex. 1. CCS argues that if the law prohibits waivers of PAGA representative claims, then the UDRP does not apply to PAGA representative claims by the plain language of § 2(E). The Court has considered the quoted section of the UDRP (which is part of the definition of “Dispute” in the DRP) and finds that CCS's argument and interpretation is reasonable. Waivers of the ability to bring PAGA representative claims are unlawful. Therefore, the Court accepts CCS's interpretation and finds that PAGA representative claims are specifically exempted from the UDRP's waiver provisions through application of § 2(E) of the DRP, Viking River, Piplack, Galarsa, and Mills. Since PAGA representative claims are not subject to the UDRP's waiver provision, there is no substantive unconscionability.
Alternatively, utilizing the UDRP's severance clause to sever the aspect of the UDRP that attempts to prohibit Ruiz from pursuing a representative PAGA claim is proper. The waiver of a representative PAGA claim is the only aspect of the UDRP that Ruiz has shown to be substantively unconscionable. Severing this single aspect of the UDRP, which affects a single statutory claim, maintains the central purpose of the UDRP and allows the remainder of the UDRP to be enforced. See Viking River, 142 S.Ct. at 1925; Little v. Auto Stiegler, Inc., 29 Cal.4th 1064, 1076 (2003).
3. Class Action Waiver
The UDRP requires that all covered claims be submitted and arbitrated on an individual basis and expressly waives Ruiz's rights to initiate or participate in class actions. See Odle Dec. Exs. 1, 4. An arbitration agreement may contain an enforceable waiver that waives the right to initiate or participate in a class action. See AT&T Mobility v. Concepion, 563 U.S. 333, 351 (2011); Dhaliwal, 2023 U.S. Dist. LEXIS 45492 at *20, *24; Mills, 84 Cal.App.5th at 1062; Evenskaas v. California Transit, Inc., 81 Cal.App.5th 285, 290, 297-98 (2022). Apart from arguing that the UDRP as a whole is unconscionable, Ruiz does not contend that the class action waiver is unenforceable or somehow inapplicable. Therefore, the Court will give effect to the UDRP's class action waiver and dismiss all of Ruiz's class claims. See Concepion, 563 U.S. at 351; Dhaliwal, 2023 U.S. Dist. LEXIS 45492 at *24; Evenskaas, 81 Cal.App.5th at 297-98.
4. PAGA Claim
There is an ambiguity in the Complaint regarding the presence of a PAGA claim. Though the body of the Complaint does not mention PAGA, the prayer requests statutory and civil penalties and attorneys' fees under Labor Code § 2699, which is a provision of PAGA, and requests certification of all causes of action as a class action “except for any [PAGA] cause of action.” The first cause of action alleges a violation of Labor Code § 2802, which is a sufficient statutory predicate for a PAGA claim. See Whitlach v. Premier Valley, 86 Cal.App.5th 673, 704 (2022). Given the language of the prayer, as well as the § 2802 cause of action, it is uncertain whether Ruiz is attempting to allege a PAGA claim.
As discussed above, an individual PAGA claim is subject to arbitration. To the extent that Ruiz is attempting to bring an “individual PAGA claim,” that claim will be sent to arbitration. See Viking River, 142 S.Ct. at 1924-25; Piplack, 88 Cal.App.5th at 1287-88; Galarsa, 88 Cal.App.5th at 648-52; Mills, 84 Cal.App.5th at 1063. However, the “representative PAGA claim” is not subject to waiver, see id., but the UDRP mandates that all “disputes” be arbitrated on an individual basis. See Odle Dec. Ex. 1; cf. Viking River, 142 S.Ct. at 1924-25.
Once the Viking River majority divided the PAGA claim, it examined California law and held that severing the individual PAGA claim resulted in the loss of the plaintiff's standing to pursue a representative PAGA claim. Citing Kim v. Reins Int'l, 9 Cal.5th 73 (2020), Viking River explained: “When an employee's own dispute is pared away from a PAGA action, the employee is no different from a member of the general public, and PAGA does not allow such persons to maintain suit. As a result, [plaintiff] lacks statutory standing to maintain her [representative claims], and the correct course is to dismiss her remaining claims.” Viking River, 142 S.Ct. at 1925. In her concurring opinion, Justice Sotomayor noted that the dismissal of the representative PAGA claim was based on the Supreme Court's reading of California law, and that if the understanding was wrong, “California courts, in an appropriate case, will have the last word.” Id. (Sotomayor, J., concurring).
Since Viking River was issued, at least two California appellate courts have concluded that Viking River's understanding of California law is incorrect. See Piplack, 88 Cal.App.5th at 129093; Galarsa, 88 Cal.App.5th at 652-55. Additionally, the California Supreme Court is currently considering PAGA standing requirements in the context of Viking River. See Adolph v. Uber Techs., Inc., No. S274671, 2022 Cal. LEXIS 5021. Considering the pendency of Adolph, and the reasoning of Piplack and Galarsa, the Court finds that the appropriate course is to stay the pendency of Ruiz's representative PAGA claim. Dhaliwal, 2023 U.S. Dist. LEXIS 45492 at *24; Valencia v. Mattress Firm, Inc., 2023 U.S. Dist. LEXIS 26863, *10 (N.D. Cal. Feb. 16, 2023).
4. Conclusion
CCS has moved to compel arbitration of Ruiz's claims. As discussed above, the UDRP is a valid arbitration agreement between CCS and Ruiz, and the Labor Code § 2802, UCL, and individual PAGA claims are within the scope of the UDRP. Under these circumstances, the Court must grant CCS's motion and order the parties to arbitration. Further, given the validity of the UDRP and Ruiz's failure to address the class action waiver provision of the UDRP, the Court will dismiss all class claims in the Complaint. Finally, the Court will stay this matter, including the PAGA representative claim, pending the California Supreme Court's resolution of Adolph.
ORDER
Accordingly, IT IS HEREBY ORDERED that:
1. Defendant's motion to compel arbitration (Doc. No. 6) is GRANTED.
2. Plaintiff's class action claims are DISMISSED.
3. The parties SHALL SUBMIT all remaining claims pending in this matter to arbitration in accordance with the UDRP, except for Plaintiff's representative PAGA claim. Within three days, Ruiz SHALL file a “notice of clarification,” which explains whether she is asserting PAGA claims in the Complaint .
4. Plaintiff's representative PAGA claim shall remain pending in this Court until the California Supreme Court issues a decision in Adolph v. Uber Techs., Inc.
5. Within 30 days of issuance of the decision in Adolph v. Uber Techs., Inc., the parties shall file a notice of decision regarding Adolph, a joint request to lift the stay, and either a joint status report or stipulation regarding how the case should proceed in light of the Adolph decision; and
The failure of the parties to comply with this notice requirement will result in sanctions and/or dismissal.
6. The Clerk shall STAY this case.
IT IS SO ORDERED.