Lorenzo Sibley v. PAQ, Inc.

(Leeper v. Shipt (2025) 566 P.3d 234.)

In granting review of CRST, the Supreme Court deferred further action in the case pending “consideration and disposition of related issues in Leeper v. Shipt.” (CRST Expedited v. S.C. (2024) 574 P.3d 1166.) The Supreme court denied requests to depublish Leeper and CRST.

Plaintiff also argues that the arbitration agreement is unconscionable and should not be enforced. Defendant asserts that the agreement is fully enforceable.

I. Legal Standard

“In determining whether parties have agreed to arbitrate a dispute, [courts] apply general state-law principles of contract interpretation, while giving due regard to the federal policy in favor of arbitration by resolving ambiguities as to the scope of arbitration in favor of arbitration.” (Mundi v. Union Sec. Life Ins. Co. (9th Cir. 2009) 555 F.3d 1042, 1044.) There is no public policy that favors arbitrating issues the parties did not agree to arbitrate--a foundational principle of the FAA is that arbitration is a matter of consent. (Ford Motor Warranty Cases (2023) 89 Cal.App.5th 1324, 1331.)

Courts will not enforce an arbitration agreement that is unconscionable. (De Leon v. Pinnacle Property Management Services, LLC (2021) 72 Cal.App.5th 476, 484.) There are procedural and substantive elements to the doctrine of unconscionability, with the procedural element focusing on oppression due to unequal bargaining power, and the substantive element focusing on overly harsh or one-sided results. Both procedural and substantive unconscionability are required to find an arbitration provision unenforceable, although the degree necessary is determined on a sliding scale. The more substantively oppressive an arbitration clause, the less evidence of procedural unconscionability is needed to find it unenforceable. (Id.)

II. Did the Parties Agree to Arbitrate the Claim Alleged by Plaintiff?

The Court in Rodriguez v. Packers Sanitation Services LTD., LLC (2025) 109 Cal.App.5th 69 [review granted “pending consideration and disposition of related issues in Leeper v. Shipt”] (Rodriguez), analyzed the holding in Leeper and found it unpersuasive, arguing as follows:

[W]ithout analyzing the plaintiff’s complaint, the Leeper court concluded the plaintiff’s complaint included an individual PAGA claim. (Id. at p. 1012, 328 Cal.Rptr.3d 632.) It reversed the trial court’s order with directions to issue a new order “compelling the parties to arbitrate [the plaintiff’s] individual PAGA claim and staying litigation of the representative [i.e., non-individual] PAGA claim.” (Id. at p. 1013, 328 Cal.Rptr.3d 632.)

We do not believe this logic withstands scrutiny. In essence, Leeper decided that (1) under Labor Code section 2699, subdivision (a), an individual PAGA claim is a necessary component of a PAGA action; therefore, (2) all PAGA actions, including the complaint under consideration, included an individual PAGA claim. But the second conclusion does not follow from the first. In other words, even if we were to agree with Leeper’s interpretation of Labor Code section 2699, subdivision (a)—a question we reserve for another day—just because a PAGA

action must include an individual PAGA claim does not mean any particular complaint brought under the auspices of PAGA does contain one. It means that a PAGA complaint should contain an individual PAGA claim, not that it does. Plaintiffs commonly file complaints that do not conform to statutory requirements. For that reason, specific procedural provisions exist to deal with that scenario. (See, e.g., Code Civ. Proc., § 436, subd. (b) [authorizing trial court to “[s]trike out all or any part of any pleading not drawn or filed in conformity with the laws of this state”].)

Further, Leeper ruled that the plaintiff’s complaint “necessarily” included an individual PAGA claim and reached this conclusion without considering the allegations of the complaint itself. We find this problematic as well. By ruling in this fashion, the Leeper court appeared to insert into the plaintiff’s complaint a missing claim. But in our legal system it is the plaintiff, not the court, who is responsible for prosecuting a civil action. (Code Civ. Proc., § 30.) And the complaint in a civil action “serves to frame and limit the issues.” (Committee on Children's Television, Inc. v.

General Foods Corp. (1983) 35 Cal.3d 197, 211–212, 197 Cal.Rptr. 783, 673 P.2d 660.) The Leeper court overlooked these principles by construing Labor Code section 2699, subdivision (a) as requiring an individual PAGA claim, and not only declaring that the complaint “necessarily” included such a claim but also requiring the plaintiff to arbitrate a claim she had never chosen to assert.

Instead, we are of the view that where, as here, the defendant brings a motion to compel arbitration and the parties dispute whether the complaint includes arbitrable individual PAGA claims, the court should resolve the dispute by examining the complaint. A motion to compel arbitration “is simply a suit in equity seeking specific performance of a contract.” (Aanderud v. Superior Court (2017) 13 Cal.App.5th 880, 890, 221 Cal.Rptr.3d 225.) On a motion to compel arbitration, the court is required to determine whether the plaintiff has asserted claims that fall within the parties’ arbitration agreement. (Aanderud, at p. 890, 221 Cal.Rptr.3d 225; EFund Capital Partners v.

Pless (2007) 150 Cal.App.4th 1311, 1321, 59 Cal.Rptr.3d 340; Buckhorn v. St. Jude Heritage Medical Group (2004) 121 Cal.App.4th 1401, 1406, 18 Cal.Rptr.3d 215.) And “no dispute may be ordered to arbitration unless it is within the scope of the arbitration agreement.” (Titolo v. Cano (2007) 157 Cal.App.4th 310, 317, 68 Cal.Rptr.3d 616.) If the plaintiff’s complaint asserts no individual PAGA claim, there is no existing dispute over his or her right to obtain an individual PAGA remedy, and he or she cannot properly be ordered to arbitrate such a claim.

Therefore, if on a motion to compel arbitration the court examines the complaint and determines it does not allege an individual PAGA claim, the court should decline to compel any such claim to arbitration.

(Rodriguez, supra, 109 Cal.App.5th 69, 79–80.)

Neither Defendant nor the court in Leeper cite authority for compelling arbitration of an implied claim not alleged by the plaintiff. Absent a ruling by the Supreme Court that every PAGA action

necessarily includes both individual and non-individual PAGA claims, regardless of whether the complaint specifically alleges individual claims, this Court must rely on existing law which does not allow a judicial re-writing of a party’s pleadings.

Whether Plaintiff must allege an individual PAGA claim to maintain a representative PAGA claim is not before the Court and the Leeper opinion fails to show any basis for implying a cause of action that has not been pled.

Further, the arbitration agreement in this case concedes that an employee may bring a representative PAGA action without asserting an individual PAGA claim by stating as follows:

With respect to claims under the California Private Attorneys General Act, You and PAQ agree to arbitrate PAGA claims on an individual basis only. Therefore, any claim by You under PAGA to recover on your own behalf for civil penalties or other individual relief (“Individual PAGA Claims”) under PAGA (as opposed to a representative claim for civil penalties or other representative relief under PAGA (“Representative PAGA Claims”) must be arbitrated and is a Covered Claim under this Agreement.

(Phibbs Dec., Ex. A.)

Defendant has failed to show the existence of an arbitration agreement applicable to the representative PAGA claim in Plaintiff’s complaint.

III. Is the Arbitration Agreement Unconscionable?

A. Procedural Unconscionability

Procedural unconscionability begins with an inquiry as to whether the arbitration agreement is a contract of adhesion. (Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, 113 (Armendariz).) A contract of adhesion is a standardized agreement drafted by the party with superior bargaining strength which the other party must sign or reject. (Id.). In the employment context, “‘the economic pressure exerted by employers on all but the most soughtafter employees may be particularly acute, for the arbitration agreement stands between the employee and necessary employment, and few employees are in a position to refuse a job because of an arbitration requirement.’” (Carmona v. Lincoln Millennium Car Wash, Inc. (2014) 226 Cal.App.4th 74, 84 [citations omitted].)

Unconscionability occurs where the circumstances of the contract’s formation created such oppression or surprise that overall fairness must be scrutinized. (OTO, L.L.C. v. Kho (2019) 8 Cal.5th 111, 126 (OTO).) “The circumstances relevant to establishing oppression include, but are not limited to (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.” (Id. at 126-127 [citation omitted].)

Here, the agreement states, “Your acceptance of this Agreement is a condition of your employment and/or continued employment with PAQ.” (Phibbs Dec., Ex. A.)

Plaintiff declares that he was required to sign the arbitration agreement as part of the onboarding process before he could begin working for Defendant. Defendant required him to access many documents including the arbitration agreement by logging onto a website with his personal cell phone and the small screen made it difficult to read and understand the documents. A human resources person assisted Plaintiff by telling him to scroll and then pointing to each place that needed a signature. The process was so fast Plaintiff was not able to review or read what he was signing. (Declaration of Lorenzo Sibley (Sibley Dec.), ¶ 4.)

Plaintiff also declares that he did not prepare any part of the agreement and was not given a chance to ask questions or an opportunity to change any of the documents but was told to complete all of the documents so he could begin work immediately. (Sibley Dec., ¶ 4.) Plaintiff’s highest level of education is ninth grade, and he has never had any legal training or familiarity with the intricacies and limitations of arbitration agreements. (Sibley Dec., ¶ 5.)

Defendant offers no evidence to refute Plaintiff’s description of how the arbitration agreement was presented and signed. The Declaration of Kimberly Phibbs, Defendant’s Vice President of Human Resources, merely recites Defendant’s normal procedures but offers no evidence that those procedures were followed when Plaintiff was directed to scroll through documents and sign where the human resources person pointed. Ms. Phibbs does not state that she spoke with Plaintiff or observed another representative discussing the documents with him.

There is no evidence contradicting Plaintiff’s declaration that he was rushed in signing the documents, was not allowed to negotiate or ask questions, and understood signing the documents was required to start employment. (See, Avery v. Integrated Healthcare Holdings, Inc. (2013) 218 Cal. App. 4th 50, 64 [employee testimony constitutes substantial evidence arbitration agreement was not properly presented where there is no first-hand evidence to the contrary].)

There are degrees of procedural unconscionability, and a procedurally unconscionable contract may still be enforced, but “courts will scrutinize the substantive terms of the contract to ensure they are not manifestly unfair or one-sided.” (Baltazar v. Forever 21, Inc., 62 Cal. 4th 1237, 1244.)

Here, the Court finds moderate to significant procedural unconscionability.

B. Substantive Unconscionability

Plaintiff argues that arbitration agreement is substantively unconscionable in the following three respects: (1) indefinite duration; (2) fees and costs awards in violation of labor law; (3) improper delegation to arbitrator of enforcement determinations.

1. Duration

Plaintiff asserts Cook v. University of Southern California (2024) 102 Cal.App.5th 312 (Cook) as authority that the agreement is for an indefinite duration. However, the agreement in Cook expressly stated that it would “survive the termination of Employee’s employment and may only

be revoked or modified in a written document that expressly refers to the ‘Agreement to Arbitrate Claims’ and is signed by the President of the University.” (Cook, supra, 102 Cal.App.5th at 317 [emphasis added].) Here, the agreement states, “This Agreement will survive the termination of Your employment with PAQ.” It does not provide a duration.

A contract that is silent as to duration is not of indefinite duration. If the court determines a contract has no language specifying duration and duration is not implied by the nature of the contract and the circumstances surrounding it, then the court will impose a judicially determined “reasonable time” limitation. (Consolidated Theatres, Inc. v. Theatrical Stage Emp. Union, Local 16 (1968) 69 Cal.2d 713, 731; Caskey v. California State Automobile Association (2010) 189 Cal. App. 4th 947, 966–67.)

Neither the Agreement nor the nature of the Agreement and circumstances surrounding it imply a termination date. Accordingly, the Agreement will terminate after a reasonable time. No unconscionability arises from the lack of a termination date.

2. Fee Shifting

The Labor Code includes fee shifting statutes that allow, in some instances, an employee to recover attorney fees where the employer may not. Plaintiff argues that the following language in the agreement undermines those statutes: “You and PAQ will pay their own attorneys’ fees and costs, if any; provided that if either You or PAQ prevail on a claim that allows for recovery of attorneys’ fees or costs pursuant to applicable law, statute, or contract, the arbitrator may award reasonable attorneys’ fees and costs consistent with applicable law.” (Opposition, p. 19, lns. 20-23.)

Defendant argues that the quoted language is not unconscionable, because it is qualified, in that it only allows the arbitrator to award fees and costs to a party “pursuant to applicable law, statute, or contract.” By including contractual fees and costs the clause is unconscionable because it violates Labor Code fee shifting statutes.

The clause also appears to violate Labor Code section 1194, subdivision (a), which provides that a prevailing employee “is entitled” to recover reasonable legal fees and costs. Since the arbitration agreement allows the arbitrator to award fees and costs pursuant to “contract” and the contract says the arbitrator “may” award fees to the prevailing party it violates Labor Code section 1194. Further, by suggesting the employee may have to pay the employer’s legal fees and costs, the provision might improperly discourage an employee from pursuing valid labor law claims.

The substantive unconscionability of the fees and costs clause is, however, minor because courts have authority to vacate or correct arbitration awards that grant fees to an employer or fail to award fees to a prevailing employee in violation of labor law. (Ling v. P.F. Chang's China Bistro, Inc. (2016) 245 Cal.App.4th 1242, 1258, disapproved on other grounds [both the CAA and the FAA recognize this exception to the general rule that courts cannot correct arbitration awards for errors in law].)

3. Delegation Clause

The agreement states under the heading “Arbitration Rules,” “Unless applicable law requires otherwise, the arbitrator will have the authority to determine the enforceability of this Agreement as well as whether a claim is arbitrable, both of which will be decided under the Federal Arbitration Act.” Plaintiff argues that this delegation clause is unconscionable. While Plaintiff has established procedural unconscionability in the execution of the delegation clause, he has not identified any substantive unconscionability in either the language of the delegation clause or its interpretation in conjunction with other parts of the agreement.

To be enforceable, the language of a delegation clause must be clear and unmistakable, and it must not be revocable under state contract defenses to enforcement, including unconscionability. (Pinela v. Neiman Marcus Group, Inc., (2015) 238 Cal.App.4th 227, 239–40 (Pinela).) This “heightened standard” is a rule of interpretation based on the parties’ expectations considering the language and circumstances. “In ‘circumstance[s] where contracting parties would likely have expected a court to have decided the gateway matter [of arbitrability],’ [citation], we assume that is what they agreed to. Thus, ‘[u]nless the parties clearly and unmistakably provide otherwise, the question of whether the parties agreed to arbitrate is to be decided by the court, not the arbitrator.’ ” (Ibid. [citations omitted].)

Here, the language of the delegation clause is vague and unclear in stating “unless applicable law requires otherwise.” At best the parties agreed that an arbitrator might determine enforceability if there is no law requiring otherwise.

Further, a delegation clause is not clear and unmistakable where the arbitration agreement includes a severance clause which indicates a court may decide enforceability of any part of the agreement. (Pinela, supra at 240 [citing Peleg v. Neiman Marcus Group, Inc. (2012) 204 Cal.App.4th 1425, 1442-1443 (Peleg).) The arbitration agreement in this case has language in the severance clause, i.e., “If a court or arbitrator decides that any part of this Agreement is unenforceable, ...”; that is similar to the language of the severance clauses in Pinela and Peleg which rendered the delegation clause unenforceable.

The Court finds that the delegation clause is not enforceable because it is not clear and unmistakable.

IV. Does Unconscionability or Unenforceability of Clauses Invalidate the Agreement?

Civil Code section 1670.5, subdivision (a) provides: “If the court as a matter of law finds the contract or any clause of the contract to have been unconscionable at the time it was made the court may refuse to enforce the contract, or it may enforce the remainder of the contract without the unconscionable clause, or it may so limit the application of any unconscionable clause as to avoid any unconscionable result.” A court’s refusal to enforce an arbitration agreement is limited to situations where the agreement is permeated by unconscionability. (Farrar v. Direct Commerce, Inc., (2017) 9 Cal.App.5th 1257, 1273.)

Here, unconscionability in the fees and costs clause does not permeate the entire agreement. Nor does the unenforceability of the delegation clause invalidate the agreement. The agreement includes a severability clause which states, “If a court or arbitrator decides that any part of this Agreement is unenforceable, You and PAQ agree that the remaining parts of the Agreement will be given full force and effect without regard for the unenforceable provision(s).” The fees and costs and delegation clauses can be severed without compromising the parties’ rights and obligations under the agreement.

V. Ruling

Defendant’s motion to compel arbitration is denied because the claim alleged in Plaintiff’s representative PAGA complaint is expressly excluded by the terms of the arbitration agreement.

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