Emil Shahtout v. California Psychcare, Inc.

Opinion

Case 5:21-cv-00308-JWH-SHK Document 56 Filed 01/25/22 Page 1 of 23 Page ID #:446

1 O 2 3 4 5 6 7 10 11 EMIL SHAHTOUT, by and through Case No. 5:21-cv-00308-JWH-SHKx his guardian ad litem, SOUHILA MEMORANDUM OPINION AND 13 Plaintiff, ORDER GRANTING DEFENDANT IRC’S MOTION TO DISMISS [ECF 14 v. No. 43] AND DENYING THE PSYCHCARE DEFENDANTS’ 15 CALIFORNIA PSYCHCARE, INC.; MOTION TO COMPEL BINDING INLAND REGIONAL CENTER; ARBITRATION [ECF No. 44] 16 DAVID OCHOA, in his individual capacity; 17 MAXWELL CARRIER, in his individual capacity; and 18 DOES 1-10, inclusive,

19 Defendants.

20 21 22 23 24 25 26 27 28 Case 5:21-cv-00308-JWH-SHK Document 56 Filed 01/25/22 Page 2 of 23 Page ID #:447

1 Plaintiff Emil Shahtout is a young man with Autism Spectrum Disorder. 2 In connection with his condition, Shahtout received services from Defendants 3 Inland Regional Center (“IRC”) and California Psychcare, Inc. Shahtout 4 alleges that two California Psychcare employees intentionally and unlawfully 5 battered and assaulted him. IRC now argues that Shahtout failed to exhaust his 6 administrative remedies before filing this action, and California Psychcare 7 contends that the Court should compel binding arbitration. 8 Specifically, the Court addresses the following two motions: 9  the motion of Defendant IRC to dismiss Shahtout’s second amended 10 complaint of with respect to IRC;1 and 11  the motion of Defendants California Psychcare, David Ochoa, and 12 Maxwell Carrier (the “Psychcare Defendants”) to compel binding 13 arbitration.2 14 The Court finds those matters appropriate for resolution without a hearing. See 15 Fed. R. Civ. P. 78; L.R. 7-15. After considering the papers filed in support and in 16 opposition,3 for the reasons explained below, the Court orders that (1) IRC’s 17 Motion to Dismiss is GRANTED; and (2) the Psychcare Defendants’ 18 Arbitration Motion is DENIED. 19 20 21 1 Def.’s Motion to Dismiss Case as to Inland IRC (the “Motion to 22 Dismiss”) [ECF No. 43]. 23 2 Defs.’ Motion to Compel Arbitration (the “Arbitration Motion”) [ECF No. 44]. 24 3 The Court considered the following papers: (1) Second Am. Compl. (the “Amended Complaint”) [ECF No. 40]; (2) the Motion to Dismiss (including its 25 attachments); (3) Pl.’s Opp’n to the Motion to Dismiss (the “MTD Opposition”) [ECF No. 49]; (4) Def.’s Reply in Supp. of the Motion (the 26 “MTD Reply”) [ECF No. 52]; (5) the Arbitration Motion; (6) Suppl. to the Arbitration Motion [ECF No. 46]; (7) Pl.’s Opp’n to the Arbitration Motion 27 (the “Arbitration Opposition”) [ECF No. 50] (including its attachment); and (8) Defs.’ Reply in Supp. of the Arbitration Motion (the “Arbitration Reply”) 28 [ECF No. 53]. -2- Case 5:21-cv-00308-JWH-SHK Document 56 Filed 01/25/22 Page 3 of 23 Page ID #:448

2 A. Procedural Background 3 Shahtout commenced this action in February 2021,4 and he filed the 4 operative Amended Complaint in June.5 IRC filed its Motion to Dismiss in July, 5 and the Psychcare Defendants filed their Arbitration Motion the same day. Both 6 motions are fully briefed. 7 B. Factual Background 8 1. Shahtout’s Allegations 9 This case involves a series of allegations pertaining to certain service 10 providers’ assault of a young man who has Autism Spectrum Disorder. 11 Shahtout alleges claims for relief for: (1) violations of Title III of the 12 Americans with Disabilities Act of 1990, 42 U.S.C. §§ 12182(a), et. seq. (the 13 “ADA”); (2) retaliation under the ADA; (3) violations of Section 504 of the 14 Rehabilitation Act of 1973, 29 U.S.C. §§ 794, et. seq. (the “Rehabilitation Act”); 15 (4) retaliation under the Rehabilitation Act; (5) violation of the Unruh Civil 16 Rights Act, Cal. Civ. Code §§ 51, et. seq. (the “Unruh Act”); (6) violation of 17 Cal. Gov’t Code § 11135; (7) battery; (8) assault; (9) intentional infliction of 18 emotional distress; (10) negligence; (11) negligent supervision; and 19 (12) negligent hiring and retention.6 The facts as alleged in the Amended 20 Complaint are as follows: 21 Shahtout is a 22-year-old man with Autism Spectrum Disorder and 22 Intellectual Disability (Moderate).7 Shahtout is qualified as an individual with a 23 disability under the ADA and the Unruh Act, and he is eligible for regional 24 25

26 4 See Compl. [ECF No. 1]. Unless otherwise noted, all dates are in 2021. 5 See Amended Complaint. 27 6 See id. 28 7 Id. at ¶ 21. -3- Case 5:21-cv-00308-JWH-SHK Document 56 Filed 01/25/22 Page 4 of 23 Page ID #:449

1 center services.8 In 2008, Shahtout’s case was transferred to IRC.9 IRC is a 2 non-profit agency that provides support to people with intellectual disabilities.10 3 IRC contracts with California Psychcare, one of California’s largest 4 service providers for people with Autism and other developmental disabilities.11 5 Through that contract, California Psychcare provides regional center services to 6 consumers throughout the Inland Empire.12 From March 2018 through June 7 2019, Shahtout received regional center services from California Psychcare.13 8 Ochoa and Carrier are California Psychcare employees who provided services at 9 Shahtout’s home on February 19, 2019, from 1:00 p.m. to 9:00 p.m.14 10 While at Shahtout’s home, Carrier threw Shahtout to the floor, and— 11 along with Ochoa—dragged Shahtout approximately 30 feet to a different 12 room.15 Carrier then forcibly restrained Shahtout, disrupting his breathing and 13 causing his face to turn red.16 Carrier also struck Shahtout on the side of the 14 head.17 Much of this incident was caught on camera.18 15 Following this incident, Carrier and Ochoa were removed from 16 Shahtout’s case.19 They were not, however, terminated from California 17 Psychcare.20 18

19 8 Id. at ¶¶ 4 & 5. 20 9 Id. at ¶ 6. 10 Id. at ¶ 12. 21 11 Id. at ¶ 8. 22 12 Id. at ¶ 9. 23 13 Id. at ¶ 7. 14 Id. at ¶ 24. 24 15 Id. at ¶ 26. 25 16 Id. at ¶ 28. 26 17 Id. at ¶ 29. 18 See, e.g., id. at ¶ 27. 27 19 Id. at ¶ 31. 28 20 Id. -4- Case 5:21-cv-00308-JWH-SHK Document 56 Filed 01/25/22 Page 5 of 23 Page ID #:450

1 In April 2019, Shahtout’s mother and guardian, Souhila Shahtout, 2 communicated with IRC and California Psychcare regarding the abuse that 3 Shahtout endured.21 On April 23, she showed IRC Case Service Coordinator 4 Cathy Brubaker videos of the incident.22 California Psychcare subsequently 5 prepared a Special Incident Report, which indicated that Shahtout experienced 6 physical restraint/abuse.23 However, Brubaker did not report the incident to 7 Adult Protective Services (“APS”),24 despite IRC’s zero-tolerance policy 8 regarding abuse and IRC’s duty to report any instance of an employee abusing a 9 consumer.25 10 Shahtout’s mother showed the video of the incident to Shahtout’s teacher 11 from Lake Elsinore School District.26 The teacher reported the incident to APS 12 on May 22, 2019.27 The APS report was cross-reported to IRC.28 Despite 13 receiving the report, IRC did not launch “an immediate, thorough, and 14 independent investigation,” as required by IRC’s contract with the State.29 15 Eight days later, California Psychcare transmitted a letter to Shahtout’s 16 mother informing her that California Psychcare would no longer provide 17 services to Shahtout.30 According to California Psychcare, the reasons for 18 terminating its services to Shahtout were “due to barriers in maintaining 19 consistent staff and Emil’s current/future needs falling outside the scope of 20 21 21 Id. at ¶ 34. 22 22 Id. 23 23 Id. at ¶ 35. 24 Id. at ¶ 36. 24 25 Id. at ¶ 20. 25 26 Id. at ¶ 37. 26 27 Id. at ¶ 38. 28 Id. at ¶ 39. 27 29 Id. 28 30 Id. at ¶ 41. -5- Case 5:21-cv-00308-JWH-SHK Document 56 Filed 01/25/22 Page 6 of 23 Page ID #:451

1 SIT’s [i.e., Specialized Individual Training] practice.”31 California Psychcare 2 advanced that justification despite the facts that Shahtout’s needs and disability 3 had not changed32 and that California Psychcare had already provided services to 4 Shahtout for more than a year.33 Shahtout alleges that California Psychcare 5 terminated Shahtout’s services “in retaliation for the APS report and 6 investigation[.]”34 7 As a result of California Psychcare’s decision to terminate Shahtout’s 8 services, and despite Shahtout’s mother’s best efforts to find replacement care, 9 Shahtout did not receive the services to which he was legally entitled for several 10 months.35 11 On July 16, 2019, Shahtout filed a complaint with the State of California 12 Health and Human Services Agency-Department of Developmental Services, 13 pursuant to Cal. Welf. & Inst. Code § 4731.36 A copy of Shahtout’s complaint 14 was forwarded to IRC, which ultimately prompted IRC to investigate the 15 allegations of abuse against the California Psychcare employees.37 16 After conducting its investigation, IRC determined the following: 17 Emil Shahtout was unnecessarily restrained, the physical restraints 18 did not follow best practices principles for the use of physical 19 interventions, there was no emergency situation that required Emil 20 to be held on the floor for prolonged periods of time, and [California 21 Psychcare] did not comply with WIC Section 4502(b)(8) or their 22 23 31 Id. at ¶ 42. 24 32 Id. 25 33 Id. at ¶ 7. 26 34 Id. at ¶ 41. 35 Id. at ¶ 43. 27 36 Id. at ¶ 44. 28 37 Id. -6- Case 5:21-cv-00308-JWH-SHK Document 56 Filed 01/25/22 Page 7 of 23 Page ID #:452

1 Program Design when staff physically restrained Emil to mitigate 2 Emil’s aggressive behavior.38 3 Since the incident, Shahtout has experienced tics and other physical 4 symptoms that might be a result of the alleged abuse.39 The presence of those 5 tics caused a surgeon to cancel a scheduled operation that was intended to 6 improve Shahtout’s mobility issues.40 In addition, Shahtout is no longer able or 7 willing to engage in numerous physical and social activities that he enjoyed 8 before the incident.41 Finally, Shahtout developed severe fears associated with 9 the incident.42 For example, Shahtout still has nightmares about the incident 10 and wakes up yelling “David is closed!” or “Max is closed!”43 11 2. Arbitration Agreement 12 According to her declaration, in December 2017, Souhila44 and her son 13 were in desperate need of services.45 When Souhila enrolled with California 14 Psychcare, she received a large packet of papers—which included an Arbitration 15 Agreement—to complete and sign for Shahtout to receive services.46 No one 16 told Souhila that the paperwork included an Arbitration Agreement nor that she 17 was waiving her son’s right to file a lawsuit against California Psychcare.47 18 Similarly, no one told Souhila what “BHT Malpractice” means, nor did anyone 19 20 38 Id. at ¶ 46. 21 39 Id. at ¶ 49. 22 40 Id. 41 Id. at ¶ 50. 23 42 Id. at ¶ 51 24 43 Id. 25 44 The Court refers to Ms. Shahtout by her first name to avoid confusion; no disrespect is intended. 26 45 Decl. of Souhila Shahtout in Supp. of the Opposition (the “Souhila Declaration”) [ECF No. 50-1] ¶ 3. 27 46 Id. at ¶¶ 3 & 6. 28 47 Id. at ¶¶ 9 & 12. -7- Case 5:21-cv-00308-JWH-SHK Document 56 Filed 01/25/22 Page 8 of 23 Page ID #:453

1 advise her regarding the legal significance of the Arbitration Agreement.48 2 Souhila did not feel that she could negotiate the terms of the California 3 Psychcare agreement; she believed that needed to sign the paperwork presented 4 to her in order for her son to receive services.49 5 The Arbitration Agreement provides that: 6 All disputes arising out of or in relation to this agreement to provide 7 BHT shall first be referred to mediation, before, and as a pre- 8 condition of, the initiation of arbitration. The mediator shall be a 9 neutral third party chosen by agreement. The cost of such 10 mediation, if any, shall be split equally, unless otherwise agreed. In 11 the event that mediation is unsuccessful, any unresolved controversy 12 related to this agreement should be submitted to and settled by 13 binding arbitration in accordance with the rules of the American 14 Arbitration Association in effect at the time the demand for 15 arbitration is filed. The prevailing party in arbitration or collection 16 proceedings shall be entitled to recover a reasonable sum for 17 attorney's fee. If any provision of this arbitration agreement is held 18 invalid or unenforceable, the remaining provisions shall remain in 19 full force and shall not be affected by the invalidity of any other 20 provision.50 21 22 48 Id. at ¶¶ 10 & 11. Neither the Arbitration Motion nor its attachments 23 define “BHT.” That omission adds power to Souhila’s declaration that she does not know what BHT stands for and that nobody explained the term to her. 24 Souhila Declaration ¶ 10. 25 49 Id. at ¶ 9. 50 Decl. of Rita R. Kanno in Supp. of the Motion (the “Kanno Declaration”) 26 [ECF No. 44] ¶ 2 & Ex. 1 (the “Arbitration Agreement”). The Psychcare Defendants failed to file their declaration and exhibits as attachments to their 27 Arbitration Opposition, in violation of this Court’s Local Rules. See L.R. 11-5.2. The Court admonishes Defendants and their counsel henceforth to comply 28 assiduously with the Local Rules. -8- Case 5:21-cv-00308-JWH-SHK Document 56 Filed 01/25/22 Page 9 of 23 Page ID #:454

2 A. Rule 12(b)(1)—Lack of Subject-Matter Jurisdiction 3 As the party seeking to invoke the federal court’s jurisdiction, plaintiffs 4 have the burden of alleging specific facts sufficient to prove Article III standing. 5 Lujan v. Defenders of Wildlife, 504 U.S. 555, 560–61 (1992). Where a party lacks 6 standing, Rule 12(b)(1) allows a party to move for dismissal based on lack of 7 subject matter jurisdiction. Fed. R. Civ. P. 12(b)(1). Plaintiffs bear the burden 8 of demonstrating standing “for each claim” and “for each form of relief” that 9 they seek. DaimlerChrysler Corp. v. Cuno, 547 U.S. 332, 342, 352 (2006) 10 (internal citations and quotations omitted). The court should dismiss an action 11 where the face of the complaint does not demonstrate a basis for standing. See 12 Warren v. Fox Family Worldwide, Inc., 328 F.3d 1136, 1139 (9th Cir. 2003); 13 Fed. R. Civ. P. 8(a) & 12(b)(1). 14 B. Rule 12(b)(6)—Failure to State a Claim 15 A motion to dismiss under Rule 12(b)(6) tests the legal sufficiency of the 16 claims asserted in a complaint. Navarro v. Block, 250 F.3d 729, 732 (9th Cir. 17 2001). In ruling on a Rule 12(b)(6) motion, “[a]ll allegations of material fact are 18 taken as true and construed in the light most favorable to the nonmoving party.” 19 Am. Family Ass’n v. City & County of San Francisco, 277 F.3d 1114, 1120 (9th Cir. 20 2002). Although a complaint attacked by a Rule 12(b)(6) motion “does not need 21 detailed factual allegations,” a plaintiff must provide “more than labels and 22 conclusions.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007). 23 To state a plausible claim for relief, the complaint “must contain 24 sufficient allegations of underlying facts” to support its legal conclusions. Starr 25 v. Baca, 652 F.3d 1202, 1216 (9th Cir. 2011). “Factual allegations must be 26 enough to raise a right to relief above the speculative level on the assumption 27 that all the allegations in the complaint are true (even if doubtful in fact) . . . .” 28 Twombly, 550 U.S. at 555 (citations and footnote omitted). Accordingly, to -9- Case 5:21-cv-00308-JWH-SHK Document 56 Filed 01/25/22 Page 10 of 23 Page ID #:455

1 survive a motion to dismiss, a complaint “must contain sufficient factual matter, 2 accepted as true, to state a claim to relief that is plausible on its face,” which 3 means that a plaintiff must plead sufficient factual content to “allow[] the Court 4 to draw the reasonable inference that the defendant is liable for the misconduct 5 alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (internal quotation marks 6 omitted). A complaint must contain “well-pleaded facts” from which the Court 7 can “infer more than the mere possibility of misconduct.” Id. at 679. 8 C. Rule 15(a)—Leave to Amend 9 A district court “should freely give leave when justice so requires.” 10 Fed. R. Civ. P. 15(a). The purpose underlying the liberal amendment policy is to 11 “facilitate decision on the merits, rather than on the pleadings or 12 technicalities.” Lopez v. Smith, 203 F.3d 1122, 1127 (9th Cir. 2000). Therefore, 13 leave to amend should be granted unless the Court determines “that the 14 pleading could not possibly be cured by the allegation of other facts.” Id. 15 (quoting Doe v. United States, 8 F.3d 494, 497 (9th Cir. 1995)). 16 D. Arbitration 17 Pursuant to the Federal Arbitration Act (the “FAA”), “[a] written 18 provision in any . . . contract evidencing a transaction involving commerce to 19 settle by arbitration a controversy thereafter arising out of such contract . . . shall 20 be valid, irrevocable, and enforceable, save upon such grounds as exist at law or 21 in equity for the revocation of any contract.” 9 U.S.C. § 2. While the FAA 22 reflects a “liberal federal policy favoring arbitration,” AT & T Mobility v. 23 Concepcion, 563 U.S. 333, 339 (2011) (quoting Moses H. Cone Memorial Hosp. v. 24 Mercury Const. Corp., 460 U.S. 1, 24 (1983)), “arbitration is a matter of contract 25 and a party cannot be required to submit to arbitration any dispute which he has 26 not agreed so to submit,” United Steelworkers v. Warrior & Gulf Navigation Co., 27 363 U.S. 574, 582 (1960). “Because the FAA mandates that ‘district courts 28 shall direct the parties to proceed to arbitration on issues as to which an -10- Case 5:21-cv-00308-JWH-SHK Document 56 Filed 01/25/22 Page 11 of 23 Page ID #:456

1 arbitration agreement has been signed,’ the FAA limits courts’ involvement to 2 ‘determining (1) whether a valid agreement to arbitrate exists and, if it does, 3 (2) whether the agreement encompasses the dispute at issue.’” Cox v. Ocean 4 View Hotel Corp., 533 F.3d 1114, 1119 (9th Cir. 2008) (internal citations and 5 emphasis omitted) (quoting Chiron Corp. v. Ortho Diagnostic Sys., Inc., 207 F.3d 6 1126, 1131 (9th Cir. 2000)). 7 In evaluating the validity of an arbitration agreement, federal courts 8 “apply ordinary state-law principles that govern the formation of contracts,” 9 Ingle v. Circuit City Stores, Inc., 328 F.3d 1165, 1170 (9th Cir. 2003) (quoting First 10 Options of Chi., Inc. v. Kaplan, 514 U.S. 938, 944 (1995)), “while giving due 11 regard to the federal policy in favor of arbitration by resolving ambiguities as to 12 the scope of arbitration in favor of arbitration,” Mundi v. Union Sec. Life Ins. Co., 13 555 F.3d 1042, 1044 (9th Cir. 2009) (quoting Wagner v. Stratton Oakmont, Inc., 14 83 F.3d 1046, 1049 (9th Cir. 1996)). 16 A. Motion to Dismiss 17 Of his 12 claims for relief in this action, Shahtout asserts the following 18 seven against IRC: (1) violation of Title III of the ADA;51 (2) violation of the 19 Rehabilitation Act;52 (3) violation of the Unruh Act;53 (4) violation of 20 Cal. Gov’t Code §§ 11135, et seq.;54 (5) negligence;55 (6) negligent supervision;56 21 and (7) negligent hiring and retention.57 Through its Motion to Dismiss, IRC 22 seeks the dismissal of those seven claims. 23 51 Amended Complaint ¶¶ 52-66. 24 52 Id. at ¶¶ 79-89. 25 53 Id. at ¶¶ 100-112. 26 54 Id. at ¶¶ 113-119. 55 Id. at ¶¶ 142-148. 27 56 Id. at ¶¶ 149-155. 28 57 Id. at ¶¶ 156-167. -11- Case 5:21-cv-00308-JWH-SHK Document 56 Filed 01/25/22 Page 12 of 23 Page ID #:457

1 IRC argues that Shahtout failed to exhaust his administrative remedies 2 and that the Court therefore lacks jurisdiction to hear this case.58 Shahtout 3 counters that (1) failure to exhaust is an affirmative defense and should not be 4 decided on a motion to dismiss;59 and (2) regardless, he did exhaust his 5 administrative remedies.60 6 IRC is a non-profit agency established by the Lanterman Act, 7 Cal. Welf. & Inst. Code §§ 4500-4905.2.61 “The Lanterman Act provides a 8 specified procedure for any issues arising from services rendered thereunder.” 9 Bouslog v. Care Options Mgmt. Plans and Supportive Services, LLC, 459 10 F. Supp. 3d 1281, 1284 (N.D. Cal. 2020) (citing Cal. Welf. & Inst. Code 11 §§ 4706, 4710.5–4710.9, 4711.5, & 4712.5); see also Conservatorship of Whitley, 12 155 Cal. App. 4th 1447, 1459 (2007) (“the Lanterman Act guarantees an 13 applicant for or recipient of services or his or her representative ‘who is 14 dissatisfied with any decision or action of the service agency’ the right to an 15 administrative fair hearing”). This procedure is known as the Fair Hearing 16 Process. Id. 17 When claims are asserted against service providers with respect to a 18 consumer’s individual program plan (“IPP”), courts lack jurisdiction until a 19 plaintiff has exhausted the Fair Hearing Process. See Bouslog, 459 F. Supp. 3d at 20 1286 (dismissing a similar complaint, which alleged violations of the ADA, the 21 Rehabilitation Act, Cal. Gov’t Code § 11135, and the Unruh Act, as well as 22 negligence, for failure to exhaust); see also Kimiko v. Alta California Regional 23 Center, 2020 WL 6146451, at *5 (E.D. Cal. Oct. 20, 2020) (dismissing claims for 24 violations of the Unruh Act and the Rehabilitation Act for failure to exhaust). 25

26 58 See Motion to Dismiss 3:21-6:24. 59 MTD Opposition 6:26-7:4. 27 60 Id. at 8:7-10:19. 28 61 See, e.g., Amended Complaint ¶ 12; Motion to Dismiss 3:22-23. -12- Case 5:21-cv-00308-JWH-SHK Document 56 Filed 01/25/22 Page 13 of 23 Page ID #:458

1 Shahtout denies that exhaustion is required.62 Moreover, he argues that 2 even if it is required, he did exhaust his administrative remedies.63 Shahtout 3 contends that he was not required to complete the Lanterman Act’s Fair 4 Hearing Process, but was instead required merely to satisfy its Consumer 5 Complaint Process.64 6 Shahtout concedes that the Fair Hearing Process is the proper 7 administrative remedy if “one disagrees with the nature, scope, or amount of 8 services that are being offered by the regional center,” but he argues that he 9 need not undergo that process in this instance because “it can only be filed if 10 one is appealing a decision of the regional center about the services they are 11 requesting or receiving.”65 IRC counters that Shahtout’s claims against it are 12 related to its IPP services and are therefore expressly subject to the Fair Hearing 13 Process.66 The Court agrees with IRC. 14 Shahtout’s claims against IRC are directly related to the services that he 15 did and did not receive pursuant to his IPP. As discussed above and as explained 16 by district courts in this Circuit in Bouslog and Kimiko, Shahtout must first 17 exhaust the Fair Hearing Process before litigating a claim in this Court. 18 Accordingly, Shahtout’s claims against IRC are DISMISSED for lack of 19 jurisdiction. 20 B. Motion to Compel Arbitration 21 The Psychcare Defendants argue that the Arbitration Agreement requires 22 Shahtout to submit his claims to arbitration.67 In his Arbitration Opposition, 23 24 62 MTD Opposition 6:26-7:4. 25 63 Id. at 8:5-10:19. 26 64 Id. 65 Id. at 8:13-18. 27 66 MTD Reply 5:22-24. 28 67 See, e.g., Arbitration Motion 1:3-4. -13- Case 5:21-cv-00308-JWH-SHK Document 56 Filed 01/25/22 Page 14 of 23 Page ID #:459

1 Shahtout responds that the Court should not compel arbitration because 2 (1) Ochoa and Carrier are not parties to the Arbitration Agreement; (2) the 3 Arbitration Agreement is invalid because it fails to comply with California law 4 (specifically, Cal. Bus. & Prof. Code § 4999.20); and (3) the Arbitration 5 Agreement is substantively and procedurally unconscionable, and, therefore, it 6 cannot be enforced.68 Because the Court finds that the Arbitration Agreement is 7 unconscionable under California law, it addresses only that argument. 8 In California, courts may refuse to enforce contracts that they find 9 unconscionable. Cal. Civ. Code § 1670.5(a). Alternatively, courts may sever the 10 unconscionable clause or limit its application. Id. “[U]nconscionability has 11 both a procedural and a substantive element[.]” Armendariz v. Found. Health 12 Psychcare Servs., Inc., 24 Cal. 4th 83, 114 (2000) (internal quotations omitted). 13 Procedural unconscionability focuses on “oppression or surprise due to unequal 14 bargaining power[.]” Id. (internal quotations omitted). Substantive 15 unconscionability addresses whether a contract yields “overly harsh or one- 16 sided results.” Id. (internal quotations omitted). 17 To find a contract unconscionable, a court applying California law must 18 determine that the contract is both procedurally and substantively 19 unconscionable. Id. However, procedural and substantive unconscionability 20 “need not be present in the same degree.” Id. “Essentially a sliding scale is 21 invoked which disregards the regularity of the procedural process of the contract 22 formation, that creates the terms, in proportion to the greater harshness or 23 unreasonableness of the substantive terms themselves.” Id. (internal quotation 24 omitted). The Court addresses both substantive and procedural 25 unconscionability below. 26 27

28 68 See, e.g., Arbitration Opposition 1:2-11. -14- Case 5:21-cv-00308-JWH-SHK Document 56 Filed 01/25/22 Page 15 of 23 Page ID #:460

1 1. Substantive Unconscionability 2 Shahtout argues that the Arbitration Agreement is substantively 3 unconscionable because it (1) lacks bilaterality; (2) forces Shahtout to split the 4 cost of a mandatory mediation and the costs of arbitration; and (3) contains an 5 unenforceable fee-shifting provision.69 6 a. Bilaterality 7 In California, mandatory arbitration agreements must possess “some 8 ‘modicum of bilaterality’” to be enforceable. Cir. City Stores, Inc. v. Adams, 279 9 F.3d 889, 893 (9th Cir. 2002) (quoting Armendariz, 22 Cal. 4th at 117). In 10 Armendariz, the California Supreme Court held that an arbitration agreement 11 that imposed arbitration requirements on employees but not employers was 12 unenforceable. Armendariz, 22 Cal. 4th at 117-18. The Court found that while 13 “parties are free to contract for asymmetrical remedies and arbitration clauses of 14 varying scope . . . the doctrine of unconscionability limits the extent to which a 15 stronger party may, through a contract of adhesion, impose the arbitration forum 16 on the weaker party without accepting that forum for itself.” Id. at 118; see also 17 Kinney v. United HealthCare Servs., Inc., 70 Cal. App. 4th 1322, 1332 (1999) 18 (“Faced with the issue of whether a unilateral obligation to arbitrate is 19 unconscionable, we conclude that it is. The party who is required to submit his 20 or her claims to arbitration foregoes the right, otherwise guaranteed by the 21 federal and state Constitutions, to have those claims tried before a jury.”). 22 Shahtout argues persuasively that the Arbitration Agreement is one-sided 23 because it binds only Shahtout. To support that argument, Shahtout points out 24 that the Arbitration Agreement relates only to the “agreement to provide BHT” 25 and “ANY ISSUE RELATED TO BHT MALPRACTICE[.]”70 In their 26 27 69 Id. at 13:1-16:23. 28 70 Arbitration Opposition 13:21-26. -15- Case 5:21-cv-00308-JWH-SHK Document 56 Filed 01/25/22 Page 16 of 23 Page ID #:461

1 Arbitration Reply, the Psychcare Defendants cite no authority to suggest that 2 the Arbitration Agreement has the “modicum of bilaterality” required under 3 California law.71 Instead, the Psychcare Defendants simply dismiss the 4 argument as “erroneous” and contend that the lack of mutuality fails to “shock 5 the conscious[.]”72 The Psychcare Defendants effectively concede that the 6 Arbitration Agreement lacks bilaterality. 7 b. Cost-Splitting 8 Shahtout maintains that the Arbitration Agreement forces Shahtout to 9 split the costs of mediation and arbitration and is therefore unconscionable.73 10 The Court agrees. 11 Shahtout argues, and the Psychcare Defendants do not deny in their 12 Arbitration Reply, that the Arbitration Agreement’s silence with respect to 13 arbitration costs triggers the default rule of arbitration.74 The default rule is that 14 administrative costs of arbitration are split equally and that legal costs are borne 15 individually. See Cal. Civ. P. Code § 1284.2 (“[u]nless the arbitration 16 agreement otherwise provides or the parties to the arbitration otherwise agree, 17 each party to the arbitration shall pay his pro rata share of the expenses and fees 18 of the neutral arbitrator, together with other expenses of the arbitration incurred 19 or approved by the neutral arbitrator, not including counsel fees or witness fees 20 or other expenses incurred by a party for his own benefit”). In addition, the 21 Arbitration Agreement provides that the mediation cost “shall be split equally, 22 unless otherwise agreed.”75 23 24

25 71 See Arbitration Reply 8:20-25. 26 72 Id. at 8:20-21. 73 Arbitration Opposition 15:5-16:23. 27 74 Id. at 15:20-21. 28 75 Arbitration Agreement. -16- Case 5:21-cv-00308-JWH-SHK Document 56 Filed 01/25/22 Page 17 of 23 Page ID #:462

1 California courts have found some cost-splitting provisions of arbitration 2 agreements to be unconscionable. In Armendariz, for example, the California 3 Supreme Court found that a cost-splitting provision in an employment 4 agreement “poses a significant risk that employees will have to bear large costs 5 to vindicate their statutory right against workplace discrimination, and therefore 6 chills the exercise of that right.” Armendariz, 24 Cal. 4th at 110.76 The Ninth 7 Circuit has held similarly. See Circuit City, 279 F.3d at 894 (arbitration 8 agreement “also requires the employee to split the arbitrator’s fees with Circuit 9 City. This fee allocation scheme alone would render an arbitration agreement 10 unenforceable.”). 11 Courts have also found cost-shifting provisions unconscionable in 12 contexts beyond employment agreements. In Ting v. AT&T, 319 F.3d 1126 (9th 13 Cir. 2003), the Ninth Circuit found that a cost-splitting provision between a 14 telecommunications company and its customers was unconscionable because “it 15 imposes on some consumers costs greater than those a complainant would bear 16 if he or she would file the same complaint in court.” Id. at 1151. Moreover, even 17 though that agreement had nothing to do with employment relations, the court 18 found that it was “indistinguishable” from the agreement in Circuit City with 19 respect to cost-splitting. Id.; see also Acorn v. Household Int’l, Inc., 211 20 F. Supp. 2d 1160, 1174 (N.D. Cal. 2002) (finding cost splitting agreement 21 between lender and borrower unconscionable and holding that a “party 22 imposing arbitration may not impose any type of cost not incident to a judicial 23 action”). 24 25

26 76 Because the Armendariz court found that “the imposition of substantial forum fees is contrary to public policy, and is therefore grounds for invalidating 27 or revoking an arbitration agreement and denying a petition to compel arbitration” it held that “the cost issues should be resolved not at the judicial 28 review stage but when a court is petitioned to compel arbitration.” Id. -17- Case 5:21-cv-00308-JWH-SHK Document 56 Filed 01/25/22 Page 18 of 23 Page ID #:463

1 In their Arbitration Reply, the Psychcare Defendants cite no authority 2 rebutting the argument that a cost-splitting provision such as the one at issue 3 here is unconscionable. Instead, the Psychcare Defendants rely on the general 4 proposition that “parties are free to contract as they see fit and their agreements 5 should be honored and upheld.”77 Volt Info. Scis., Inc. v. Bd. of Trustees of Leland 6 Stanford Junior Univ., 489 U.S. 468, 479 (1989) (“parties are generally free to 7 structure their arbitration agreements as they see fit”). In relying solely on that 8 argument, the Psychcare Defendants miss the mark. The Psychcare Defendants 9 overlook that courts still “apply ordinary state-law principles that govern the 10 formation of contracts” to arbitration agreements. Ingle, 328 F.3d at 1170. 11 Additionally, the Psychcare Defendants ignore that Armendariz, Circuit City, 12 Ting, and Acorn were all decided after Volt, which is the only authority that they 13 cite in rebuttal to the argument that the cost-splitting provision is 14 unconscionable. The courts in those cases understood the general principle that 15 parties are free to structure arbitration agreements as they see fit, but, 16 nevertheless, those courts found the agreements before them unconscionable. 17 The Court therefore finds that the cost-splitting provision is substantively 18 unconscionable. 19 c. Fee-Shifting 20 “When parties agree to resolve statutory claims through arbitration, it is 21 reasonable to infer that they consent to abide by the substantive and remedial 22 provisions of the statute.” Broughton v. Cigna Healthplans of California, 21 23 Cal. 4th 1066, 1087 (1999). Arbitration agreements must therefore allow parties 24 to vindicate fully their statutory cause of action in the arbitral forum. See id. 25 When arbitration cannot allow parties to enforce their statutory rights, 26 therefore, the relief that is not allowed in arbitration “should be decided in a 27

28 77 Arbitration Reply 8:15-16. -18- Case 5:21-cv-00308-JWH-SHK Document 56 Filed 01/25/22 Page 19 of 23 Page ID #:464

1 judicial forum.” Id. at 1088; see also Graham Oil Co. v. ARCO Prod. Co., a Div. 2 of Atl. Richfield Co., 43 F.3d 1244, 1247 (9th Cir. 1994), as amended (Mar. 13, 3 1995) (“However, the fact that franchisees may agree to an arbitral forum for the 4 resolution of statutory disputes in no way suggests that they may be forced by 5 those with dominant economic power to surrender the statutorily-mandated 6 rights and benefits that Congress intended them to possess.”). 7 Shahtout argues that the provision of the Arbitration Agreement that 8 entitles the “prevailing party in arbitration or collection proceedings . . . to 9 recover a reasonable sum for attorney’s fee” negates the fee-shifting provision 10 of the ADA and the Unruh Civil Rights Act intended to allow plaintiffs to 11 pursue their civil rights claims.78 12 Neither party cites case law addressing whether an arbitration agreement 13 that includes a fee-shifting provision involves the surrender of statutorily- 14 manded rights and benefits that the legislature intended parties to possess. 15 Shahtout does not even cite the specific provisions of the ADA or the Unruh 16 Civil Rights Act to which he refers. Because the Court has already found that 17 the cost-splitting provision renders the Arbitration Agreement substantively 18 unconscionable and that it lacks bilaterality, and because the briefing from both 19 sides on the fee-shifting issue is inadequate, the Court need not rule on whether 20 the Arbitration Agreement’s fee shifting provision is likewise unconscionable. 21 2. Procedural Unconscionability 22 Shahtout argues that the Arbitration Agreement is procedurally 23 unconscionable because it is a contract of adhesion that Souhila neither read nor 24 understood. In addition, Shahtout argues that the Arbitration Agreement is 25 procedurally unconscionable because it does not provide adequate notice of 26 27

28 78 Arbitration Opposition 14:22-25; see also Arbitration Agreement. -19- Case 5:21-cv-00308-JWH-SHK Document 56 Filed 01/25/22 Page 20 of 23 Page ID #:465

1 which rules would govern arbitration. The Court agrees with Shahtout and 2 addresses each issue in turn. 3 a. Contract of Adhesion 4 The Psychcare Defendants argue that whether Souhila read or understood 5 the contract before she signed it is irrelevant.79 To support that argument, the 6 Psychcare Defendants cite Bolanos v. Khalatian, 231 Cal. App. 3d 1586 (1991). In 7 that case, the court observed that the “general rule” is “that one who signs an 8 agreement cannot avoid its terms on the ground that he failed to read it[.]” Id. 9 at 1590. The Psychcare Defendants ignore, however, that that “general rule” 10 does not apply to contracts of adhesion. Id. As a threshold matter, therefore, 11 the Court first addresses whether the Arbitration Agreement is a contract of 12 adhesion—an issue on which the parties disagree.80 13 “A contract of adhesion is a standardized contract that is imposed and 14 drafted by the party of superior bargaining strength and relegates to the other 15 party only the opportunity to adhere to the contract or reject it.” Higgins v. 16 Superior Ct., 140 Cal. App. 4th 1238, 300 (2006), as modified (July 10, 2006) 17 (internal quotations omitted). 18 The first issue is whether the drafting party—in this instance, California 19 Psychcare—had superior bargaining power. Id. The Psychcare Defendants 20 argue that Shahtout and his mother “had the ultimate position of strength” 21 because they “could have rejected the Agreement without any adverse 22 consequence[.]”81 That blithe assertion lacks any supporting evidence. 23 According to Souhila’s sworn declaration, in December 2017 she was “in 24 desperate need of services” because, without services, she could not depart the 25 26 79 Arbitration Motion 6:19-26. 27 80 Compare Arbitration Reply 6:22-28 with Arbitration Opposition 18:3-19:2. 28 81 Arbitration Reply 6:24-27. -20- Case 5:21-cv-00308-JWH-SHK Document 56 Filed 01/25/22 Page 21 of 23 Page ID #:466

1 house and leave Shahtout alone.82 One’s inability to leave one’s house is 2 without a doubt an “adverse consequence.” Accordingly, the Court finds that 3 the Psychcare Defendants were in a superior bargaining position. 4 The second issue is whether the Psychcare Defendants relegated 5 Shahtout “only the opportunity to adhere to the contract or reject it.” Id. The 6 Psychcare Defendants effectively concede this issue when they state that 7 Shahtout’s only choice was the “right to say ‘no’ to the Agreement[.]”83 8 Accordingly, the Court finds that the Arbitration Agreement is a contract of 9 adhesion. 10 In view of that finding, “the general rule, that one who signs an agreement 11 cannot avoid its terms on the ground that he failed to read it,” Bolanos, 231 12 Cal. App. 3d at 1590, is not applicable. Accordingly, in deciding whether the 13 Arbitration Agreement is unconscionable, the Court considers Souhila’s 14 admission that she neither read nor understood the Arbitration Agreement 15 before signing it, which weighs in favor of procedural unconscionability.84 16 b. Arbitration Rules 17 Arbitration Agreements must provide “adequate notice of applicable 18 rules” for arbitration. Fitz v. NCR Corp., 118 Cal. App. 4th 702, 721 (2004). In 19 Fitz, for example, the court found an arbitration agreement unenforceable 20 because it failed to specify which American Arbitration Association (the 21 “AAA”) rules applied to the agreement. Id. The court in Harper v. Ultimo, 113 22 Cal. App. 4th 1402 (2003), reached a similar conclusion. In that case, the court 23 refused to enforce an agreement because the agreement did not specify which 24 arbitration rules of the Better Business Bureau would be used pursuant to the 25 agreement. Id. at 1406 (“Here is the oppression: The inability to receive full 26 82 Souhila Declaration ¶ 3. 27 83 Arbitration Reply 7:2-4. 28 84 Souhila Declaration ¶¶ 6-12. -21- Case 5:21-cv-00308-JWH-SHK Document 56 Filed 01/25/22 Page 22 of 23 Page ID #:467

1 relief is artfully hidden by merely referencing the Better Business Bureau 2 arbitration rules, and not attaching those rules to the contract for the customer 3 to review. The customer is forced to go to another source to find out the full 4 import of what he or she is about to sign—and must go to that effort prior to 5 signing.” (emphasis in original)). 6 Here, the Court finds the Arbitration Agreement’s rules provision to be 7 indistinguishable from the those in Fitz and Harper. The Arbitration Agreement 8 provides that arbitration must take place “in accordance with the rules of the 9 American Arbitration Association in effect at the time the demand for 10 arbitration is filed.”85 At the time that the Opposition was filed, the AAA’s 11 website included 55 different categories of rules for various matters.86 The 12 Arbitration Agreement does not indicate which set of rules would apply, and the 13 Psychcare Defendants provide no argument to the contrary in their Arbitration 14 Reply. The Court finds that the Arbitration Agreement’s failure to provide 15 notice of the rules applicable for the arbitration weighs in favor of a finding of 16 procedural unconscionability. 17 The Court finds that the Arbitration Agreement is both procedurally and 18 substantively unconscionable. Accordingly, the Arbitration Motion is 21 For the foregoing reasons, the Court hereby ORDERS as follows: 22

23 85 Arbitration Agreement. 86 Shahtout cites the “Rivers Declaration” in his Arbitration Opposition 24 when asserting that fact. See Arbitration Opposition 19:23. No such declaration exists. The Court assumes that this is an error on Shahtout’s part. 25 Nevertheless, the assertion that there are a multitude of possible rules is easily confirmable by visiting the AAA’s website at https://www.adr.org/active-rules. 26 The Court takes judicial notice of that fact sua sponte. See Bryan v. City of Carlsbad, 297 F. Supp. 3d 1107, 1115 (S.D. Cal. 2018) (“[t]he Court may take 27 judicial notice sua sponte”); see also Fed. R. Evid. 201 (a district court may “take judicial notice on its own” and can take judicial notice of facts that are 28 “not subject to reasonable dispute”). -22- Case 5:41-cv-00308-JWH-SHK Document 56 Filed 01/25/22 Page 23 of 23 Page ID #:468

1 1. IRC’s Motion to Dismiss is GRANTED, and Shahtout’s seven 2 claims against IRC are DISMISSED for lack of jurisdiction. 3 2. The Psychcare Defendants’ Arbitration Motion is DENIED. 4 3. The Psychcare Defendants are DIRECTED to file their Answer to 5 Shahtout’s Amended Complaint no later than February 11, 2022. : MUHA §|| Dated: January 25, 2022 ° 9 SRITED SERTES DISTRICT JUDGE 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 -23-