Murillo vs. Merical, LLC

All requests for judicial notice are granted.

GROUNDS FOR RULING

I. Existence of Agreement

A. 2023 Agreement

Defendant first seeks to enforce a purported 2023 arbitration agreement with Plaintiff. In support of its argument, it offers the declaration of Martin Zhao, a lead product manager for ADP, the third-party provider of Defendant’s online human resources service, a software application called “WFN.” He explains that ADP clients like Defendant can upload documents to WFN for employees to review and acknowledge. When a document is assigned to an employee, he or she must log into WFN using an employee-created user ID and password.

The employee then selects the assigned document for viewing in the WFN portal. (Zhao Decl. ¶¶ 4-6.) Once the employee views the document, an acknowledgment checkbox becomes available “with the [client’s] acknowledgement message.” (Id. ¶ 6.) When the employee checks the box, a record is created that captures time of acknowledgement and associated user ID. (Id. ¶ 7.) The records here show that on June 28, 2023, a user logged in with Plaintiff’s credentials acknowledged a policy document titled “G05_Merical California Dispute Resolution Agreement.” (Id.

Ex. A.) The document itself, the purported arbitration agreement, is Exhibit B

to the Zhao Declaration.

Plaintiff argues he acknowledged the 2023 agreement, but he never signed it. He further argues the 2023 agreement, by its own terms, requires a signature to be effective. (See Zhao Decl. Ex. B at p. 3 (“MY SIGNATURE BELOW CONFIRMS THE FACT THAT I HAVE READ, UNDERSTAND, AND VOLUNTARILY AGREE TO BE LEGALLY BOUND TO ALL OF THE ABOVE TERMS.”).) As a result, the 2023 “agreement” was never formed.

Relying on the Uniform Electronic Transactions Act (UETA), Civ. Code § 1633.1 et seq., Defendant argues Plaintiff signed the agreement by electronically acknowledging it. Defendant quotes Civ. Code § 1633.7(d) as providing, “If a law requires a signature, an electronic [acknowledgement] satisfies the law.” (Mot. at p. 9 (alteration in original).) This is not what the statute provides. Rather, the statute provides, “If a law requires a signature, an electronic signature satisfies the law.” (Civ. Code § 1633.7(d) (emphasis added).) The question is not whether an electronic acknowledgment satisfies the UETA. The question is whether Plaintiff’s electronic acknowledgment of the 2023 agreement is the equivalent of an electronic signature.

Defendant relies on Civ. Code § 1633.9(a), which provides, “An electronic record or electronic signature is attributable to a person if it was the act of the person. The act of the person may be shown in any manner, including a showing of the efficacy of any security procedure applied to determine the person to which the electronic record or electronic signature was attributable.” Again, there appears to be no doubt that Plaintiff created the electronic record of his acknowledgment. The question is whether that counts as the signature required by the 2023 agreement’s own terms.

In this regard, Civ. Code § 1633.9(b) provides, “The effect of an electronic record or electronic signature attributed to a person under subdivision (a) is determined from the context and surrounding circumstances at the time of its creation, execution, or adoption.” As noted above, Zhao testifies that once an employee views a document, an acknowledgment checkbox becomes available with the client’s (here, Defendant’s) acknowledgment message. It appears, however, that none of Defendant’s supporting declarations includes a copy of this acknowledgment message.

If the message had said, “By checking this box, I acknowledge and agree to the policy,” the context would show that Plaintiff had agreed to the 2023 agreement by acknowledging it. On the other hand, if the message had said, “By checking this box, I acknowledge that I have viewed the policy,” the context would show only that Plaintiff had viewed the policy.

With Plaintiff focusing specifically on the difference between acknowledgment and agreement, the lack of the acknowledgement message in the record is a serious problem for Defendant.

Defendant, as the party moving to compel arbitration, bears the burden of showing by a preponderance of the evidence that an agreement to arbitrate exists. With respect to the 2023 agreement, it has not met that burden.

B. 2016 Agreement

Defendant next seeks to enforce a purported 2016 arbitration agreement with Plaintiff. (Arvizu Decl. Ex. E (hereafter “2016 Agreement”).) This agreement, unlike the purported 2023 agreement, bears a physical signature. Plaintiff testifies that he has no memory of signing the 2016 agreement, but he admits that the signature “appears to be mine.” (Murillo Decl. ¶ 12.) The Court therefore finds Defendant has proven the existence of the 2016 Agreement.

II. Terms of 2016 Agreement and Applicable Law Defendant’s Chief Human Resources and Compliance Officer, Nicole Arvizu, testifies that Defendant is a health supplement manufacturer. It sells products to retail businesses and multi-level marketing customers nationwide. It has manufacturing facilities in California and Utah. It purchases raw materials for its products from vendors nationwide. (Arvizu Decl. ¶ 3.) Based on this showing, which is uncontested by Plaintiff, the Court concludes the FAA applies to the 2016 Agreement.

The 2016 agreement requires arbitration of “Any claims or controversies arising out of Employee’s employment,” including claims for “violation of federal wage and hour laws or the California Labor Code or Wage Orders.” (2016 Agreement at p. 1.) It contains a severability clause. (Id. at p. 2.) The agreement is silent as to the availability of classwide arbitration.

II. Waiver of 2016 Agreement

Plaintiff first argues Defendant has waived the right to enforce the 2016 Agreement. “[I]n determining whether a party to an arbitration agreement has lost the right to arbitrate by litigating the dispute, a court should treat the arbitration agreement as it would any other contract, without applying any special rules

based on a policy favoring arbitration.” (Quach v. California Commerce Club, Inc. (2024) 16 Cal.5th 562, 583.) “To establish waiver under generally applicable contract law, the party opposing enforcement of a contractual agreement must prove by clear and convincing evidence that the waiving party knew of the contractual right and intentionally relinquished or abandoned it.” (Id., at p. 584.)

Plaintiff was employed by Defendant from October 2016 to April 2025. (Murillo Decl. ¶ 2.) As such, he is a member of the proposed class in a related action, Contreras v. Merical, LLC, OCSC No. 21- 01214079. (Pl.’s RJN, Ex. A, at ¶ 13.) Defendant moved to compel individual arbitration of the plaintiff’s claims in Contreras based on the same 2016 Agreement at issue here. The plaintiff opposed that motion. Before the motion was decided, the parties reached a classwide settlement, and Defendant withdrew its motion. (Pl.’s RJN, Exs. C-E.) On April 9, 2026, Judge McCormick granted preliminary approval to the Contreras settlement. (Pl.’s RJN, Ex. B.) The final approval hearing is scheduled for August 13, 2026, one day before the hearing on this motion.

Plaintiff argues that by moving to compel individual arbitration under the 2016 Agreement in Contreras, then abandoning that motion in favor of settling Contreras on a classwide basis, Defendant has waived the ability to enforce the 2016 Agreement as to all members of the Contreras class. And since Plaintiff is a member of the Contreras class, Defendant cannot enforce the 2016 Agreement against him.

This argument ignores the language of the Contreras settlement agreement. It provides: “[N]othing in this Agreement or in the Preliminary Approval or Order Granting Final Approval shall be deemed a waiver of Defendant’s right to enforce the arbitration agreements of Class Members or Aggrieved Employees in the future.” (Pl.’s RJN, Ex. B, at Ex. 1 thereto, § II.F.) As between Defendant and members of the Contreras class, the parties in Contreras agreed Defendant’s conduct was not a waiver of the right to compel arbitration in the future. Plaintiff, a member of the Contreras class, is bound by that agreement. Moreover, an express reservation of the right to compel arbitration in the future is not clear and convincing evidence of intentional waiver. Accordingly, Defendant has not waived the ability to enforce the 2016 Agreement.

III. Unconscionability of 2016 Agreement

Plaintiff contends the 2016 Agreement is unconscionable, and therefore unenforceable. “‘The prevailing view is that [procedural

and substantive unconscionability] must both be present in order for a court to exercise its discretion to refuse to enforce a contract or clause under the doctrine of unconscionability.’ [Citation.] But they need not be present in the same degree.

‘Essentially a sliding scale is invoked which disregards the regularity of the procedural process of the contract formation, that creates the terms, in proportion to the greater harshness or unreasonableness of the substantive terms themselves.’” (Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, 114.)

A. Procedural Unconscionability

“A procedural unconscionability analysis ‘begins with an inquiry into whether the contract is one of adhesion.’ [Citation.] An adhesive contract is standardized, generally on a preprinted form, and offered by the party with superior bargaining power ‘on a take-it-or-leave-it basis.’ [Citations.] Arbitration contracts imposed as a condition of employment are typically adhesive . . . .” (OTO, L.L.C. v. Kho (2019) 8 Cal.5th 111, 126.)

The 2016 Agreement is adhesive. It was offered on a preprinted form with signature blanks. Furthermore, Defendant concedes Plaintiff’s signature was required as a condition of employment. (Reply at p. 7 (“[N]either the employer’s requirement to sign, nor Plaintiff’s alleged failure to read the 2016 Arbitration Agreement, is an obstacle to enforcement.”).) As a result, the 2016 Agreement is procedurally unconscionable.

Plaintiff contends the unconscionability is heightened by the circumstances of its execution. He testifies he was handed a stack of documents, that a human resources employee told him where to sign them, and that he was not given enough time to read the documents before signing them. If he had wanted to read the documents, he would have needed to take them home, and no one offered him the chance to take them home. Nor did anyone explain the documents to him. (Murillo Decl. ¶¶ 5-11.)

The Court disagrees that these facts show heightened unconscionability. Plaintiff testifies that he would have needed to take the documents home to have time to review them, but he never testifies that he asked for the chance to take them home and was denied. In contrast, Defendant’s former President, Jeffrey Stallings, testifies that it was standard company practice at the time to give employees the time necessary to review

documents before signing. (Stallings Decl. ¶ 3.)

In short, the Court finds the 2016 Agreement procedurally unconscionable, but no more so than in the usual employment case.

B. Substantive Unconscionability

Plaintiff contends the 2016 Agreement is substantively unconscionable in four ways.

First, it contains a prevailing party fee clause: “With the exception of the arbitration fees and costs, each party to the arbitration shall pay his/her/its own costs, attorneys’ fees and witness fees, if any, however, the prevailing party shall be entitled to an award of his/her/its attorneys’ fees and costs (excluding arbitration fees and costs).” (2016 Agreement at p. 2.) This is contrary to the feeshifting provisions of Labor Code §§ 218.5 and 1194. It is therefore unconscionable. Defendant’s willingness to pay its own fees (see Arvizu Decl. ¶ 14) is irrelevant. Unconscionability is determined at the time a contract is made. (Civ. Code § 1670.5(a).)

Second, it provides: “Should either party pursue any other legal or administrative action against the other regarding any matter subject to this arbitration clause, the other party shall be entitled to recover its costs, including reasonable attorneys’ fees, incurred in defending such legal or administrative action.” (2016 Agreement at p. 2.) As Plaintiff points out, “an employee who mistakes the forum pays his employer’s fees for the mistake.” (Opp. at p. 10.) Moreover, it contravenes the fee-shifting provisions of the Labor Code. This provision also is unconscionable.

Third, Plaintiff argues the 2016 Agreement forecloses review of legal error. The 2016 Agreement provides: “The [arbitrator’s] decision is final and binding, and there is no direct appeal from the decision on the grounds of error in the application of law.” (2016 Agreement at p. 2.) But as Defendant points out in reply, the 2016 Agreement also provides: “The decision may be judicially enforced (confirmed, corrected or vacated) pursuant to California Code of Civil Procedure Section 1285 et seq.” (Ibid.) This allows for judicial review of the arbitrator’s award under the California Arbitration Act. Plaintiff cites no authority holding that arbitration agreements must provide for direct appeals of an arbitrator’s award, nor that an arbitrator’s award must be reviewable for mere error in the application of law. This provision

is not unconscionable.

Fourth, Plaintiff argues the 2016 Agreement is unconscionably non-mutual. Specifically, he complains that the 2016 Agreement allows Defendant to seek equitable relief from a court (1) under CCP §§ 527.6 and 527.8 and (2) under the Uniform Trade Secrets Act (2016 Agreement at p. 1), while requiring employees to arbitrate the claims they are most likely to bring. This argument is flawed for two reasons. First, Plaintiff omits the beginning of the carve-out, which excludes workers’ compensation and unemployment claims from arbitration.

These claims are most likely to be brought by employees, not employers. Second, employees are allowed to seek restraining orders just as employers are. (See CCP § 527.6(a)(1) (allowing “a person who has suffered harassment” to seek a restraining order).) Plaintiff makes no showing that employers are more likely to seek such restraining orders than employees. Plaintiff is correct about the non-mutuality of interim relief on trade secret claims, but interim relief on such claims is routinely exempted from arbitration without creating substantive unconscionability.

C. Severability

As noted above, the 2016 Agreement contains a severability clause. Exercising its discretion, the Court concludes severing the two unconscionable fee provisions is proper. The central purpose of the 2016 Agreement is to require arbitration of nearly all disputes between the parties. The fee provisions, while unconscionable, are ancillary to that purpose. Severing them removes any unconscionability from the 2016 Agreement, and the remainder of the 2016 Agreement can be enforced as written.

IV. Class Claims and Further Proceedings

Again, the 2016 Agreement is silent on classwide arbitration. However, because the FAA applies, “a party may not be compelled . . . to submit to class arbitration unless there is a contractual basis for concluding that the party agreed to do so.” (Stolt-Nielsen S.A. v. AnimalFeeds International Corp. (2010) 559 U.S. 662, 684.) The 2016 Agreement’s silence means classwide arbitration is unavailable. Plaintiff’s class claims are therefore dismissed without prejudice, and he is ordered to arbitrate his claims on an individual basis. 6 Nubia vs. Caremeridian, LLC.

2025-01533125 Defendant’s Motion to Compel Arbitration

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