Sandeep Pal v. Denodo Technologies Inc.

Lavely & Singer Professional Corp. (2014) 230 Cal.App.4th 1, 6, fn. 7 [taking judicial notice of the JAMS Rules]; Boghos v. Certain Underwriters at Lloyd’s of London (2005) 36 Cal.4th 495, 505, fn. 6 [taking judicial notice of the American Arbitration Association’s commercial arbitration rules pursuant to Evidence Code section 452, subdivision (h)].)

LEGAL STANDARD

The Agreement provides that arbitration shall be conducted “pursuant to the Federal Arbitration Act (9 U.S.C. sec. 1 et seq.) (the ‘FAA’).” (Declaration of Andrea Vazquez Carballa [“Carballa Decl.”], Ex. A at ¶ 11(A).) Furthermore, “[e]mployment contracts, except for those covering workers engaged in transportation, are covered by the FAA.” (EEOC v. Waffle House (2002) 534 U.S. 279, 289.) Under the FAA, the 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.” (Chiron Corp. v.

Ortho Diagnostic Systems, Inc. (9th Cir. 2000) 207 F.3d 1126, 1130.) To determine “whether a valid contract to arbitrate exists,” courts apply “ordinary state law principles that govern contract formation.” (Davis v. Nordstrom, Inc. (9th Cir. 2014) 755 F.3d 1089, 1093 [citations omitted]; see also Ingle v. Circuit City Stores, Inc. (9th Cir. 2003) 328 F.3d 1165, 1170.)

ANALYSIS4 The parties entered into a valid agreement to arbitrate. Defendant has attached a copy of the Agreement containing the arbitration provisions electronically signed by Plaintiff on April 29, 2025. (Carballa Decl. at ¶ 3, Exs. A, B.) (Gamboa v. Northeast Community Clinic (2021) 72 Cal.App.5th 158, 165 [noting that it is a moving party’s burden to produce prima facie evidence of an agreement to arbitrate by attaching the agreement to the motion].) Plaintiff’s electronic signature has the same legal effect as a handwritten signature and is express acceptance of an agreement to arbitrate. (Espejo v.

Southern California Permanente Medical Group (2016) 246 Cal.App.4th 1047, 1060; Mendoza v. Trans Valley Transport (2022) 75 Cal.App.5th 748, 777.) Defendant has set forth the procedures undertaken to authenticate Plaintiff’s signature in the Declaration of Andrea Vasquez Carballa. Ms. Carballa attaches a copy of the DocuSign Certificate of Completion Defendant received upon Plaintiff’s execution of the Agreement as Exhibit B. Plaintiff does not dispute that he signed the Agreement. To the extent Plaintiff argues he did not understand the legal significance of the Agreement when he signed it, “[a]n 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 (2012) 55 Cal.4th 223, 236.) The general rule is that “one who assents to a contract is bound by its provisions and cannot complain of unfamiliarity with the language.” (Harris v. TAP Worldwide, LLC (2016) 248 Cal.App.4th 373, 383.)

Additionally, the scope of the arbitration provisions cover Plaintiff’s claims. The arbitration provisions apply to “any and all controversies claims, or disputes that I may have with the company . . . arising out of, relating to, or resulting from my employment or relationship with the company, including any breach of this agreement . . . .” (Carballa Decl., Ex. A at ¶ 11(A).) The specific claims that are subject to arbitration include in relevant part, “any and all common law and/or statutory claims under local, state, or federal law, including but not limited to claims under . . . the California Fair Employment and Housing Act . . . and claims of harassment, discrimination, retaliation, wrongful termination, and breach of contract.” (Ibid.)

As noted above, Plaintiff’s claims allege violations of the California Fair Employment and Housing Act for discrimination, failure to prevent discrimination, retaliation, and wrongful termination in violation of public policy. Plaintiff’s claims squarely fall within the scope of the arbitration provisions.

Plaintiff challenges the enforceability of the arbitration provisions by arguing that it is unconscionable. The party challenging a contractual arbitration provision bears the burden of proving that it is both procedurally and substantively unconscionable. (OTO, L.L.C. v. Kho (2019) 8 Cal.5th 111, 126 (OTO).) This may be done on a sliding scale, where the more substantively oppressive the contract term, the less evidence of procedural unconscionability is required, and vice versa. (Id. at pp. 125-126.) Nevertheless, both must be shown. Procedural unconscionability focuses on oppression or surprise to the “weaker” party based on unequal bargaining power, whereas substantive unconscionability focuses on the terms of the agreement and whether they are overly harsh or one-sided. (OTO, supra, 8 Cal.5th at pp. 125- 129.)

4 Defendant argues “[a]ny argument against enforcement of the Agreement based on Assembly Bill 51 or Labor Code section 432.6 is misplaced, however, because the Federal Arbitration Act (9 U.S.C. section 1 et seq.; ‘the FAA’) wholly preempts Assembly Bill 51 and Labor Code section 432.6 to the extent that it applies to arbitration agreements.” (Mtn. to Compel Arbitration at p. 8:1-4.) Plaintiff does not make any arguments to this effect, and the Court declines to reach the issue.

Defendant is incorrect that the validity of an arbitration provision is determined by an arbitrator. “[O]rdinarily, a court must decide whether there is a valid agreement to arbitrate between the parties. Hence, if the party resisting arbitration is claiming that the arbitration clause itself is unconscionable, a court must decide this claim.” (Bruni v. Didion (2008) 160 Cal.App.4th 1272, 1290 (Bruni).) Moreover, paragraph 11(A) provides: “To the fullest extent permitted by law, I also agree to arbitrate any and all disputes arising out of or relating to the interpretation or application of this agreement to arbitrate, but not disputes about the enforceability, revocability, or validity of this agreement to arbitrate or its requirement that I bring any arbitration proceeding only in my individual capacity.”

Thus, it is within the Court’s purview to consider whether the arbitration provisions within the Agreement are procedurally and substantively unconscionable.

Procedural Unconscionability The circumstances that the court examines to determine whether there was “oppression” in the signing of an agreement generally include: “ ‘(1) the amount of time the party is given to consider the proposed contract; (2) the amount and type of pressure exerted on the party to sign the proposed contract; (3) the length of the proposed contract and the length and complexity of the challenged provision; (4) the education and experience of the party; and (5) whether the party’s review of the proposed contract was aided by an attorney.’” (OTO, supra, 8 Cal.5th at pp. 126-127 [quoting (Grand Prospect Partners, L.P. v. Ross Dress for Less, Inc. (2015) 232 Cal.App.4th 1332, 1348].)

The arbitration provisions here are embedded within a 15-page agreement addressing other terms unrelated to arbitration. However, in contrast to the other terms, the arbitration provisions are capitalized with the specific claims subject to arbitration in bold. (Cf. Higgens v. Superior Court (2006) 140 Cal.App.4th 1238, 1250-1251 [noting that procedural unconscionability has been found where the presence of an arbitration provision has not been distinguished through bold lettering, larger font, or capitalization].)

Plaintiff maintains he did not know he could negotiate the terms of the Agreement or consult with an attorney. (Declaration of Sandeep Pal at ¶ 5.) Nevertheless, while Plaintiff was required to sign the Agreement as a condition of employment, “the cases uniformly agree that a compulsory predispute arbitration agreement is not rendered unenforceable just because it is required as a condition of employment or offered on a ‘take it or leave it’ basis.” (Lagatree v. Luce (1999) 74 Cal.App.4th 1105, 1127.)

This type of contract of adhesion in the employment context adds a modest amount of procedural unconscionability and, the amount of procedural unconscionability is increased when the fact of an adhesion contract is combined with other issues. (See Nguyen v. Applied Medical Resources Corp. (2016) 4 Cal.App.5th 232, 248.) Given the Agreement’s adhesive nature, Plaintiff’s inability to negotiate the terms, and the presentation of the arbitration provisions within a prolix printed form, the Court concludes that an average degree of procedural unconscionability exists.

Substantive Unconscionability Substantive unconscionability focuses on the actual terms of the agreement and evaluates whether they create overly harsh or one-sided results. (Armendariz Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, 114 (Armendariz).) The court assesses whether the agreement reallocates risks in an objectively unreasonable or unexpected matter. (Jones v. Wells Fargo Bank 112 Cal.App.4th 1527, 1539.) “In assessing substantive unconscionability, the paramount consideration is mutuality.” (Pinela v. Neiman Marcus

Group, Inc. (2015) 238 Cal.App.4th 227, 241 [internal citation and quotation marks omitted].) Arbitration agreements are substantively unconscionable where they lack a “modicum of bilaterality,” “without at least some reasonable justification for such onesidedness based on ‘business realities.’” (Armendariz, supra, 24 Cal.4th at p. 117.)

Armendariz instructs that there are “five minimum requirements for the lawful arbitration of such rights pursuant to a mandatory employment arbitration agreement. Such an arbitration agreement is lawful if it ‘(1) provides for neutral arbitrators, (2) provides for more than minimal discovery, (3) requires a written award, (4) provides for all of the types of relief that would otherwise be available in court, and (5) does not require employees to pay either unreasonable costs or any arbitrators’ fees or expenses as a condition of access to the arbitration forum. Thus, an employee who is made to use arbitration as a condition of employment “effectively may vindicate [his or her] statutory cause of action in the arbitral forum.” ’ ” (Armendariz, supra, 24 Cal.4th at p. 102.)

The arbitration provisions satisfy these factors. As Defendant notes, the arbitration provisions adopt and incorporate the JAMS Rules. (Carballa Decl., Ex. A at ¶ 11(B).) Rule 7 of the JAMS Rules provides that arbitration shall be conducted by a neutral arbitrator. (Defendant’s Request for Judicial Notice [“RJN”], Ex. A at p. 6.) Discovery is permitted under Rule 17 of the JAMS Rules. (Id. at pp. 9-10.) The arbitration provisions further require the arbitrator to administer proceedings pursuant to the California Civil Discovery Act. (Carballa Decl., Ex.

A at ¶ 11(B).) Rule 24(h) of the JAMS Rules requires the arbitrator to issue a written award regarding the disposition of each claim. (Defendant’s RJN, Ex. A at p. 13.) The arbitration provisions do not impose unreasonable costs on Plaintiff and provide, “I understand that the company will pay for any administrative or hearing fees charged by the arbitrator or JAMS except that I shall pay any filing fees associated with any arbitration that I initiate, but only so much of the filing fees as I would have instead paid had I filed a complaint in a court of law that would have had jurisdiction over such complaint.” (Carballa Decl., Ex.

A at ¶ 11(B).) The Agreement, therefore, complies with Armendariz.

Plaintiff, however, argues that the Agreement is substantively unconscionable based on his reading of Cook v. University of Southern California (2024) 102 Cal.App.5th 312 (Cook). In Cook, the Second District Court of Appeal upheld the trial court’s denial of a motion to compel arbitration because of the (1) broad scope of the agreement, (2) the infinite duration, and (3) the lack of mutuality in the claims that were covered by the agreement. (Cook, supra, 102 Cal.App.5th at p. 321.) With respect to the broad scope, the agreement required the arbitration of “all claims” whether or not arising out of the employment relationship between the parties. (Ibid.)

The court noted that employment contracts can provide a “margin of safety” to the party with the superior bargaining power as long as there is a legitimate commercial need for doing so that is explained in the contract itself. (Cook, supra, 102 Cal.App.5th at p. 324.) The agreement there did not explain the justification and the court held that the trial court did not err in holding that the broad scope was substantively unconscionable. (Id. at pp. 324-325.)

As for the infinite duration, the agreement purported to survive indefinitely following the employee’s termination unless modified by a written document signed by the president of the university. (Cook, supra, 102 Cal.App.5th at p. 325.) The court held that this amounted to an express term of duration and did not establish that the agreement was terminable at will. (Ibid.) The court upheld the trial court’s finding of substantive unconscionability on the

grounds that plaintiff could be ordered to arbitrate any injuries she suffered related to USC or its related entities for the rest of her life. (Cook, supra, 102 Cal.App.5th at pp. 318, 325.) Finally, the court found that the agreement lacked mutuality because the plaintiff was required to arbitrate any claims she had with USC’s related entities or agents, but they were not required to arbitrate their claims with her. (Id. at pp. 326-327.) The court noted, “[t]he plain language of the arbitration agreement thus provides a significant benefit to USC’s related entities without any reciprocal benefit to Cook.” (Id. at p. 328.)

Plaintiff argues the arbitration provisions here are similar to the one in Cook and should be found substantively unconscionable. First, Plaintiff argues the arbitration provisions are similar to the one in Cook in that they survive for an infinite duration. Like Cook, the Agreement here provides “[n]o modification of or amendment to this Agreement, nor any waiver of rights under this Agreement, will be effective unless in a writing signed by the President or CEO of the Company and me.” (Cabralla Decl., Ex.

A at ¶ 12(F).) The Agreement also provides, “[t]he rights and obligations of the parties to this Agreement will survive termination of my employment with the Company.” (Id. at ¶ 12(G).) Thus, the Agreement here includes an express term of duration and is not terminable at will. Plaintiff could be forced to arbitrate any claims she has against Defendant for matters arising after his employment has terminated indefinitely. This is especially true considering the arbitration provisions apply to any other relationship Plaintiff may have with Defendant unrelated to his employment, as explained below.

Accordingly, the Court finds this term unconscionable.

Second, Plaintiff argues the arbitration provisions apply to all disputes with Defendant, including disputes as to any employee, officer, director, trustee, or benefit plan that arise out of or relate to his relationship with Defendant. (Opposition at pp. 6:21-7:3.) Like Cook however, the arbitration provisions do not provide that employees, officers, or directors must also arbitrate their disputes with Plaintiff. Thus, the arbitration provisions lack mutuality in this regard. As for the scope of the arbitration provisions, they are overbroad.

The arbitration provisions provide that they apply to any claim or dispute “arising out of, relating to, or resulting from my employment or relationship with the company, or the termination of my employment or relationship with the company[.]” (Cabralla Decl., Ex. A at ¶ 11(A).) It is unclear what other relationship the parties may have apart from an employment one. As noted in Cook, employment contracts can provide a “margin of safety”, so long as a legitimate commercial need for doing so is explained in the contract itself. (Cook, supra, 102 Cal.App.5th at p. 324.)

Defendant provides no explanation for why the term “or relationship” is necessary. The inclusion of “or relationship” thus appears superfluous. The Court finds the scope of the arbitration provisions to be substantively unconscionable.

Lastly, Plaintiff argues the Agreement provides benefits not afforded to Plaintiff. Specifically, the indemnity clause in paragraph 4(B) of the Agreement requires Plaintiff to indemnify Defendant for any liabilities incurred resulting from any breach of obligations owed by Plaintiff to a third party but does not require the same of Defendant. Employers are required to indemnify employees for expenses incurred during “the discharge of his or her duties.” (Lab. Code § 2802, subd. (a).) That provision cannot be waived. (Lab Code § 2804; accord Edward v.

Arthur Anderson LLP (2008) 44 Cal.4th 937, 951-952.) “Section 2802 thus requires an employer to indemnify an employee who is sued by third persons for conduct in the course and scope of his or her employment, including paying any judgment entered and attorney’s fees and costs incurred in defending the action. [Citations.] As long as the employee is acting within the course and scope of his or her employment, the right to

indemnity is not dependent upon a finding that the underlying action was unfounded.” (Cassady v. Morgan, Lewis, & Bockius LLP (2006) 145 Cal.App.4th 220, 230.) Thus, paragraph 4(B) lacks mutuality and runs afoul of Labor Code section 2802 by shifting the obligation to indemnify on Plaintiff. The Agreement is, therefore, unconscionable in this respect.

The Unconscionable Terms are Not Severable

“[W]hether to sever is within the trial court’s discretion.” (Navas v. Fresh Venture Foods, LLC (2002) 85 Cal.App.5th 626, 636-637.) “ ‘In deciding whether the sever terms rather than to preclude enforcement of the provision altogether, the overarching inquiry is whether the interests of justice would be furthered by severance; the strong preference is to sever unless the agreement is “permeated” by unconscionability.’ [Citation.] [¶] An agreement to arbitrate is considered ‘permeated’ by unconscionability where it contains more than one unconscionable provision. [Citation.] ‘Such multiple defects indicate a systemic effort to impose arbitration on [the nondrafting party] not simply as an alternative to litigation, but as an inferior forum that works to the [drafting party’s] advantage.’ [Citation.]

An arbitration agreement is also deemed ‘permeated’ by unconscionability if ‘there is no single provision a court can strike or restrict in order to remove the unconscionable taint from the agreement.’ [Citation.] If ‘the court would have to in effect, reform the contract, not through severance or restriction, but by augmenting it with additional terms,’ the court must void the entire agreement.” (Mango v. The College Network, Inc. (2016) 1 Cal.App.5th 277, 292.) (De Leon v. Pinnacle Property Management Services, LLC (2021) 72 Cal.App.5th 476, 492- 493.)

Defendant argues the Court can “sever or limit the application of the unconscionable clause and enforce the remainder of the Agreement.” (Mtn. to Compel Arbitration at p. 7:8-9.) Plaintiff maintains severance is improper because the Agreement is substantively unconscionable on several grounds. (Opposition at p. 9:1-6.) Indeed, the Court has found multiple terms unconscionable. In Cook, the court affirmed the trial court’s judgment on severability because it was based on the fact that multiple provisions were unconscionable and that the central purpose of the agreement was for the parties to arbitrate all disputes with each other for an indefinite period of time, including those against third parties. (Cook, supra, 102 Cal.App.5th at pp. 328-330.)

Likewise, here the central purpose of the arbitration provisions is for the parties to arbitrate all disputes with each other, including those arising outside of Plaintiff’s employment, for an indefinite period of time. Even if the Court were to sever the portion referring to “or relationship”, it would not change the fact that only Plaintiff is required to arbitrate against any employees, officers, or directors but not vice versa. It would not make sense to sever this portion of the arbitration provisions because as Defendant notes, “[i]ncluding claims against Denodo personnel within the scope of the arbitration agreement is reasonable and necessary because a corporation can only act through its agents.” (Reply at p. 5:21-22.)

However, to make this term mutual would require the Court to re-write the Agreement. Given the average degree of procedural unconscionability and considerable degree of substantive unconscionability, the Court finds the arbitration provisions unconscionable and inseverable. Accordingly, the arbitration provisions are not enforceable.

For these reasons, the Court DENIES the motion to compel arbitration.

DISPOSITION

The motion to compel arbitration is DENIED.

The Court will prepare the Order.

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