MITCHELL vs SUMMIT FUNDING, INC, et al.

24CV002348: MITCHELL vs SUMMIT FUNDING, INC, et al. 11/05/2024 Hearing on Motion to Compel Arbitration in Department 54

Tentative Ruling

Defendants’ Notice of Motion does not provide notice of the Court’s tentative ruling system, as required by Local Rule 1.06(D). Defendants’ counsel is directed to contact opposing counsel forthwith to advise counsel of Local Rule 1.06 and the Court’s tentative ruling procedure. If Defendants’ counsel is unable to contact opposing counsel prior to the hearing, Defendants’ counsel shall be available at the hearing, in person or remotely (telephonically or by video conference via Zoom as stated in the notice to today’s tentative rulings), in the event opposing counsel appears without following the procedures set forth in Local Rule 1.06(B).

Defendants Summit Funding, Inc. and Todd Scrima’s (“Defendants”) Motion to Compel Arbitration is ruled upon as follows.

Factual Background

This action arises from the employment of Plaintiff by Defendant Summit Funding, Inc. Plaintiff alleges that as part of his employment, he was instructed to recruit personnel, specifically from Defendants’ competitor. Plaintiff recruited employees from Movement Mortgage, LLC. One of these employees maintained his employment with Movement Mortgage after he signed his employment documents with Defendants. This employee continued to access Movement Mortgage’s confidential and proprietary information, which he disclosed to Defendants. Movement Mortgage filed a complaint for injunctive relief and damages based in misappropriation of Movement Mortgage’s trade secrets. (Complaint, Ex. C.)

Plaintiff advised Defendants of his desire not to engage in this business strategy, that such conduct is illegal, and that they should not be instructing their employees to engage in such wrongful conduct. Defendants instructed Plaintiff to continue recruiting employees from Movement Mortgage. Plaintiff emailed Defendants’ in-house counsel, advising of the illegality involved. Counsel disregarded Plaintiff’s advice. Ultimately, Plaintiff informed Defendants that he was resigning from his position, following a severance period. Approximately a week later, Defendants locked Plaintiff out of his email and informed him that his employment was terminated.

Plaintiff’s complaint alleges eleven causes of action for violation of Labor Code, Government Code, and Business and Profession Code sections, as well as wrongful termination, emotional distress, contract-based claims, and negligent hiring/supervision/retention.

24CV002348: MITCHELL vs SUMMIT FUNDING, INC, et al. 11/05/2024 Hearing on Motion to Compel Arbitration in Department 54

Defendants argue that as part of his employment, Plaintiff signed an arbitration agreement (“Agreement”) on December 30, 2022. (Satterlee Decl., ¶ 8, Ex. B.) Defendants now seek to compel arbitration based on it. Plaintiff opposes, arguing that Defendants have failed to show that Plaintiff signed the Agreement, and thus it is not enforceable.

Legal Standard

California law, like federal law, favors enforcement of valid arbitration agreements. (Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, 97; accord, Aanderud v. Superior Court (2017) 13 Cal.App.5th 880, 889.) Under California law, a party to an arbitration agreement may seek a court order compelling the parties to arbitrate a dispute covered by the agreement. (Code Civ. Proc., § 1281.2.) A written agreement to submit a controversy to arbitration is valid and enforceable consistent with standard contract principles. There is a strong public policy favoring the enforcement of arbitration agreements. (Code Civ. Proc., §1281; Madden v. Kaiser Foundation Hospitals (1976) 17 Cal.3d 699, 706.)

The moving party “bears the burden of proving the existence of an arbitration agreement by a preponderance of the evidence, and the party opposing arbitration bears the burden of proving by a preponderance of the evidence any defense, such as unconscionability.” (Serafin v. Balco Properties Ltd., LLC (2015) 235 Cal.App.4th 165, 172-173, quoting Peng v. First Republic Bank (2013) 219 Cal.App.4th 1462, 1468; Engalla v. Permanente Medical Group, Inc. (1997) 15 Cal.4th 951, 972 [internal citations and quotation omitted].) General principles of contract law govern arbitration agreements. (Serafin, supra, 235 Cal.App.4th at p. 173.)

The Court must grant a petition to compel arbitration if it determines that the parties agreed to arbitrate the controversy, unless it determines that: (a) the petitioner waived the right to compel arbitration; (b) grounds exist to revoke the agreement; or, (c) a party to the arbitration agreement is also a party to a pending court action or special proceeding with a third party, arising out of the same transaction or series of related transactions and there may be conflicting rulings on a common issue of law or fact. (Code Civ. Proc., § 1281.2; Rosenthal v. Great Western Fin. Securities Corp. (1996) 14 Cal.4th 394, 413.)

Discussion

Plaintiff first argues that because the offer letter provided to Plaintiff by Defendants does not refer to any arbitration agreement, Defendants cannot meet their burden to prove the existence of an arbitration agreement. The offer letter, which was signed after the Agreement and the employee handbook, states that it supersedes any previous

SUPERIOR COURT OF CALIFORNIA COUNTY OF SACRAMENTO

24CV002348: MITCHELL vs SUMMIT FUNDING, INC, et al. 11/05/2024 Hearing on Motion to Compel Arbitration in Department 54

agreements, and thus voids the arbitration agreement.

Plaintiff purportedly signed the Agreement on December 30, 2022. (Satterlee Decl., ¶ 8, Ex. B.) Defendant Summit sent Plaintiff the offer letter dated March 14, 2023. (Mitchell Decl., ¶ 6, Ex. 3.) The offer letter states:

The terms contained in this letter shall: (a) expire within thirty (30) days of the date first written above; or (b) be memorialized upon execution by you and Summit of an Employment Agreement, whichever is the first to occur. This letter shall supersede any previous arrangements; both verbal and written. (Ex. 3, p. 2.)

As Plaintiff did not sign the offer letter and Defendants do not identify any other agreement signed by both parties which purports to render the Agreement moot, the Court construes Plaintiff’s argument as one of waiver.

As Defendants indicate and Plaintiff does not contest, any arbitration is governed by the FAA. “Courts have recognized that where the FAA applies, whether a party has waived the right to arbitrate is a matter of federal, not state, law.” Until recently, the waiver test under the FAA requires the party asserting waiver to show “knowledge of an existing right to compel arbitration; (2) acts inconsistent with that existing right; and (3) prejudice to the party opposing arbitration resulting from such inconsistent acts.” (U.S. v.

Park Place Associates, Ltd. (9th Cir. 2009) 563 F.3d 907, 921.) However, the United States Supreme Court recently held that a showing of prejudice is not required to demonstrate waiver under the FAA. (Morgan v. Sundance, Inc. (2022) 142 S.Ct. 1708.) Morgan held that under the FAA, a court is not permitted to condition a waiver of the right to arbitration “on a showing of prejudice.” (Id. at p. 1713.) Morgan reiterated that the FAA's “policy favoring arbitration...is merely an acknowledgment of the FAA's commitment to overrule the judiciary's longstanding refusal to enforce agreements to arbitrate and to place such agreements upon the same footing as other contracts.” (Ibid.)

Stated differently, the policy makes “arbitration agreements as enforceable as other contracts, but not more so.” (Ibid. [citation omitted].) By conditioning a waiver of the right to arbitrate on a finding of prejudice which is not required for any other contractual right, the Supreme Court held that courts had created an arbitration-specific procedural rule in favor of arbitration. Instead, under the FAA, the test for waiver “stripped of its prejudice requirement” focuses on the conduct of the party seeking arbitration to determine whether that party “knowingly relinquish[ed] the right to arbitrate by acting inconsistently” with the right to arbitrate. (Id. at p. 1714.)

In determining waiver, a court can consider “(1) whether the party's actions are inconsistent with the right to arbitrate; (2) whether ‘the litigation machinery has been substantially invoked’ and the parties ‘were well into preparation of a lawsuit' before the

SUPERIOR COURT OF CALIFORNIA COUNTY OF SACRAMENTO

24CV002348: MITCHELL vs SUMMIT FUNDING, INC, et al. 11/05/2024 Hearing on Motion to Compel Arbitration in Department 54

party notified the opposing party of an intent to arbitrate; (3) whether a party either requested arbitration enforcement close to the trial date or delayed for a long period before seeking a stay; (4) whether a defendant seeking arbitration filed a counterclaim without asking for a stay of the proceedings; (5) ‘whether important intervening steps [e.g., taking advantage of judicial discovery procedures not available in arbitration] had taken place’; and (6) whether the delay ‘affected, misled, or prejudiced’ the opposing party.” (Peterson v. Shearson/American Express, Inc. (10th Cir. 1988) 849 F.2d 464, 467-468.) The Court would note that this test stated in Peterson is essentially the same as the test under California law for waiver determinations in the arbitration context. (St. Agnes Medical Center v. PacifiCare (2003) 31 Cal.4th 1187, 1196.)

The Court is not convinced that a single, unilateral letter which makes no reference to arbitration is sufficient to show waiver of Defendants’ arbitration rights. The offer letter pertains to the terms of Plaintiff’s perspective employment, and makes no reference to arbitration or potential civil suit. In the context of an offer of employment, the language pertaining to prior arrangements reasonably pertains to general employment terms and salary, as opposed to the specific terms of the Agreement.

Plaintiff next argues that the audit trail provided by Defendants does not show that Plaintiff signed the Agreement. The audit trail shows that Plaintiff signed the employee handbook, but the employee handbook does not include or reference the Agreement. Further, Plaintiff attests that he does not recall signing the Agreement. (Mitchell Decl., ¶¶ 6, 8.)

Because Defendant established the existence of the arbitration agreement, it met its initial burden. As found in Condee v. Longwood Management Corp. (2001) 88 Cal.App.4th 215, 218, in the context of a petition to compel arbitration, “it is not necessary to follow the normal procedures of document authentication.” “[A]s a preliminary matter the court is only required to make a finding of the agreement's existence, not an evidentiary determination of its validity.” Thus, by attaching a copy of the Agreement to their motion, Defendants satisfied their initial burden of establishing the existence of an arbitration agreement. (Ibid.; accord Espejo v.

Southern California Permanente Medical Group (2016) 246 Cal.App.4th 1047, 1058.) Defendants are only required to establish that the signature is authentic upon Plaintiff challenging the validity of the signature in his opposition. (Espejo, supra, 246 Cal.App.4th at p. 1060.) In Espejo, the plaintiff challenged the validity of his electronic signature by submitting a declaration stating that he did not recall signing the agreement and did not believe he signed the agreement.

Here, by calling into question his signature, the Plaintiff has shifted the burden to Defendants to show “by a preponderance of the evidence that the electronic signature was authentic.” (Id., at p. 1059.) On reply, Defendants argue that while the audit log

SUPERIOR COURT OF CALIFORNIA COUNTY OF SACRAMENTO

24CV002348: MITCHELL vs SUMMIT FUNDING, INC, et al. 11/05/2024 Hearing on Motion to Compel Arbitration in Department 54

does not explicitly reference the Agreement, it was Defendants’ practice to upload arbitration agreements with employee handbooks to be signed contemporaneously. (Satterlee Decl., ¶ 11.)

The Court is not convinced that a statement regarding Defendants’ standard practices is sufficient to show the validity of Plaintiff’s signature. Defendants’ evidence of a valid arbitration agreement submitted with its moving papers is insufficient at the third step of the burden-shifting process described in Espejo, supra. As Plaintiff points out, Defendants have presented no evidence validating Plaintiff's signature on the Agreement or showing that Plaintiff was even given the agreement in December of 2022.

Further, Mr. Satterlee has not established any foundation or personal knowledge that would permit him to testify as to the validity of the Agreement. Additionally, Defendants have not submitted any additional evidence on reply establishing the existence of a valid arbitration agreement between the parties.

Accordingly, Defendants’ motion to compel arbitration is DENIED.

The minute order is effective immediately. No formal order pursuant to California Rules of Court, rule 3.1312 or further notice is required.

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SUPERIOR COURT OF CALIFORNIA COUNTY OF SACRAMENTO

24CV002348: MITCHELL vs SUMMIT FUNDING, INC, et al. 11/05/2024 Hearing on Motion to Compel Arbitration in Department 54

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