Hovis v. Homeaglow, Inc.

• Court: District Court, S.D. California
• Decided: August 4, 2023
• Docket: 3:23-cv-00045
• Status: Unknown

Opinion

8 UNITED STATES DISTRICT COURT 9 SOUTHERN DISTRICT OF CALIFORNIA

10 MARIE HOVIS, an individual;

11 GENARO MENDOZA, an individual, Case No.: 3:23-cv-00045-BTM-WVG on behalf of themselves and all others 12 similarly situated 13 Plaintiffs, ORDER TO COMPEL vs. 14 ARBITRATION, STAY PROCEEDINGS AND GRANTING 15 HOMEAGLOW, INC., a Delaware MOTION TO DISMISS corporation, and DOES 1 through 100, 16 Defendants. 17 Defendant Homeaglow, Inc., (“Defendant”) has filed a motion to compel 18 arbitration, stay court proceedings pending arbitration and dismiss class claims. For 19 the reasons set forth herein, the Court GRANTS the motion. 20 21 22 I. BACKGROUND 23 Plaintiffs Marie Hovis (“Hovis”) and Genaro Mendoza (“Mendoza”) have 24 filed a Class Action Complaint against Defendant, Homeaglow Inc., a cleaning 25 service application. Plaintiffs were required to register and create a profile on the 26 Defendant’s application, which involved completing nine steps. ECF No. 17, at 2. 27 To finalize their account, the Plaintiffs had to sign a “take-it-or-leave-it Contractor 28 Agreement,” that included a “Binding Arbitration Provision” (“BAP”). Id. 1 The BAP in the Contractor Agreement provided by the Defendant sets forth 2 the circumstances under which parties must arbitrate as a single claimant in case of 3 a dispute. ECF Nos. 11, Ex. C, at 6-7. In November 2020, Plaintiff Hovis created 4 an account with Homeaglow and accepted the Contractor Agreement one minute 5 after finalizing her account. ECF No. 17, at 4. Furthermore, Hovis accepted 6 amended versions of the Contractor Agreements in April 2022 and August 2022. Id. 7 In August 2021, Plaintiff Mendoza created an account with the Defendant and also 8 accepted the Contractor Agreement in April 2022 one minute after finalizing his 9 account. Id. Additionally, Mendoza accepted the updated version of the Contractor 10 Agreement in August 2022. Id. The Defendant seeks to enforce the updated 11 Contractor Agreement from August 2022 as it is the most recent version, and both 12 Plaintiffs have accepted it. Id. at 3. That provision provides: Binding Arbitration Provision: The parties recognize that 13 disputes may arise between the Service Provider and Homeaglow or 14 their related parties, and that those disputes may or may not be related to the Service Provider’s services under this Agreement. In order to 15 gain the benefits of a speedy, less formal, impartial, final and binding 16 procedure to resolve such disputes, all such disputes will be resolved by means of binding arbitration as set forth below. 17

18 ECF No. 11, Ex. C, at 6. 19 The Plaintiffs’ Complaint asserts the following causes of action against 20 Defendant: (1) Failure to Reimburse Expenses [Lab. Code, § 2802]; (2) Failure to 21 Provide Accurate Wage Statements [Lab. Code, § 226]; (3) Failure to Pay Overtime 22 [Lab. Code, § 510]; (4) Failure to Provide Meal Periods [Lab. Code, § 226.7]; (5) 23 Failure to Provide Rest Breaks [Lab. Code, § 226.7]; (6) Failure to Pay Contractual 24 Wages [Lab. Code, § 223]; (7) Coerced Patronage [Lab. Code, § 450]; (8) Unlawful 25 Deduction from Wages, in the Alternative [Lab. Code, § 221]; (9) Breach of 26 Contract, in the Alternative; and (10) Unfair Business Practices [Bus. & Prof. Code, 27 §·17200 et. seq.]. 28 1 On March 10, 2023, the Defendant filed a motion to compel arbitration and 2 dismiss class claims. ECF No. 20, at 1. 3 The Defendant argues that the issue of the validity and enforceability of the 4 BAP has been delegated to the arbitrator as agreed to by the parties (ECF No. 11, 5 Ex. C, at 6), and therefore, the Court should not decide whether the BAP is binding 6 on the Plaintiffs and enforceable. The delegation provision provides: Except as specifically set forth in this Arbitration Provision, only 7 an arbitrator, and not any federal, state, or local court or agency, shall 8 have exclusive authority to resolve any dispute arising out of or relating to the interpretation, applicability, validity, breach, enforceability, or 9 formation of this Arbitration Provision, including without limitation 10 any claim that all or part of this Arbitration Provision is void or voidable. An arbitrator shall also have exclusive authority to resolve all 11 threshold arbitrability issues. 12 ECF No. 11, Ex. C, at 7. 13 The delegation is binding and effective only if Plaintiffs are bound to it and it 14 is legally effective. See Rent-A-Center, West, Inc. v. Jackson, 561 U.S. 63 (2010). 15 Therefore, the Court will examine those issues. 16 The Plaintiffs contend that the delegation provision is part of an 17 unconscionable BAP. While the Court must focus on the validity of the delegation 18 provision, Plaintiffs can rely on the other provisions to argue that the delegation is 19 unconscionable. Holley-Gallegly v. TA Operating, LLC, ___F.4th___ No. 22-55950, 20 at 9-10 (9th Cir. July 21, 2023). 21

22 II. LEGAL STANDARD 23 24 The Federal Arbitration Act (“FAA”) provides that agreements to arbitrate 25 are “valid, irrevocable, and enforceable, save upon such grounds as exist at law or 26 in equity for the revocation of any contract.” 9 U.S.C. § 2. The FAA’s purpose is to 27 “ensur[e] that private arbitration agreements are enforced.” Mortensen v. Bresnan 28 Commc'ns, LLC, 722 F.3d 1151, 1159 (9th Cir. 2013). Grounds for declaring an 1 arbitration agreement unenforceable are determined by “ordinary state-law 2 principles that govern the formation of contracts.” First Options of Chicago, Inc. v. 3 Kaplan, 514 U.S. 938, 944 (1995); Circuit City, Inc. v. Adams, 279 F.3d 889, 892 4 (9th Cir. 2002). California has a strong public policy in favor of arbitration as an 5 expeditious and cost-effective way of resolving disputes. Mission Viejo Emergency 6 Med. Associates v. Beta Healthcare Grp., 197 Cal. App. 4th 1146, 1153 (2011). 7 Although public policy favors arbitration, courts will not compel arbitration where 8 it was not agreed to. United Steelworkers of Am. v. Warrior & Gulf Navigation Co., 9 363 U.S. 574, 582 (1960) (“[A]rbitration is a matter of contract and a party cannot 10 be required to submit to arbitration any dispute which he has not agreed so to 11 submit.”); Kemper v. Schardt, 143 Cal. App. 3d 557, 559 (1983). Agreement, 12 therefore, is a statutory prerequisite to the validation of an arbitration provision, and 13 the movant must prove the existence of such agreement by a preponderance of the 14 evidence. See Rosenthal v. Great W. Fin. Sec. Corp., 14 Cal. 4th 394, 413 (1996). 15 In California, an arbitration agreement may be either express or implied in fact. 16 Pinnacle Museum Tower Ass’n v. Pinnacle Mktg. Dev. (U.S.) LLC, 55 Cal. 4th 223, 17 236 (2012). 18 19 III. DISCUSSION 20 Defendant moves to compel arbitration pursuant to the contractual BAP. 21 Plaintiffs oppose the motion, arguing (a) that no agreement was made to bind 22 Plaintiffs to the BAP, and (b) that the BAP is unconscionable, rendering the 23 arbitration agreement unenforceable. 24 A. Plaintiffs are Bound by the Binding Arbitration Provision’s 25 Delegation 26 In order to proceed with arbitration, the Court must decide “whether a valid 27 agreement to arbitrate exists.” Norcia v. Samsung Telecommunications Am., LLC, 28 1 845 F.3d 1279, 1238 (9th Cir. 2017). Plaintiffs assert that there was not an 2 agreement binding Plaintiffs to the BAP as “there must be ‘clear and unmistakable’ 3 evidence that the parties agreed to delegate to the arbitrator.” ECF No. 17, at 8. 4 Additionally, Plaintiffs argue that the August 2022 Contract Agreement was lengthy 5 as it was 26 pages with a 12-point font, and that the Arbitration Provision was not 6 mentioned until page 18. Id. at 4. Defendant asserts that there was mutual consent. 7 Defendant provided the Court with the August 2022 Contract Agreement, including 8 a class action waiver and description of relevant claims in the BAP. See ECF No. 9 11, Ex. C, at 6-7. Although the Contract Agreement was lengthy, this does not 10 dismiss the fact that there was a BAP within the Agreement. Plaintiffs accepted the 11 Contract Agreement within one minute of creating their profiles and did not read 12 over it. Overall, Plaintiff Hovis encountered the Contractor Agreement three times, 13 while Plaintiff Mendoza encountered it twice. Specifically, Plaintiff Hovis did not 14 even remember accepting a Contract Agreement with Defendant, which indicates 15 that she did not have intent to read over the Agreement. However, this does not 16 mean a valid contract does not exist. By accepting the agreement, Plaintiffs agreed 17 to a class action waiver, and compelled arbitration including the delegation. See 18 ECF No. 11, at 14. The Court finds that there is a sufficient delegation in the BAP 19 as it is clear and unmistakable. 20 Additionally, Plaintiff Hovis claims that she never understood that arbitration 21 was the exclusive process to resolve her claims. Even if that is so, Plaintiff remains 22 bound by the arbitration delegation clause because a mere misunderstanding or a 23 failure to read the contract does not excuse a party from its terms. Pinnacle Museum 24 Tower Assn. v. Pinnacle Mkt. Dev. (US), LLC, 55 Cal. 4th 223, 236 (2012) (“An 25 arbitration clause within a contract may be binding on a party even if the party never 26 actually read the clause.”); see also Bauer v. Jackson, 15 Cal. App. 3d 358, 370 27 (1971) (“[W]hen a person with capacity of reading and understanding an instrument 28 1 signs it, he may not, in the absence of fraud, imposition or excusable neglect, avoid 2 its terms on the ground he failed to read it before signing it.”). 3 Based on the above, the Court finds that an agreement to delegate the issue of 4 arbitration to the arbitrator existed between the parties. The arbitration delegation 5 clause is therefore enforceable unless it is unconscionable. 6 B. Unconscionability 7 “Under California law, courts may refuse to enforce any contract found ‘to 8 have been unconscionable at the time it was made,’ or may ‘limit the application of 9 any unconscionable clause.” AT&T Mobility LLC v. Concepcion, 563 U.S. 333, 340 10 (2011). An arbitration agreement is unenforceable if it is procedurally and 11 substantively unconscionable. See Davis v. O'Melveny & Myers, 485 F.3d 1066, 12 1072 (9th Cir. 2007). Courts use a sliding scale approach: “the more substantively 13 oppressive the contract term, the less evidence of procedural unconscionability is 14 required to come to the conclusion that the term is unenforceable, and vice versa.” 15 Id. at 1072. See also Armendariz v. Found. Health Psychcare Servs., Inc., 24 Cal. 16 4th 83, 114 (2000). 17 1. Procedural Unconscionability 18 Plaintiffs argue that the BAP is a contract of adhesion that is procedurally 19 unconscionable. Procedural unconscionability concerns the manner in which the 20 contract was negotiated and the respective circumstances of the parties at that time, 21 focusing on the level of oppression and surprise involved in the agreement. 22 Chavarria v. Ralphs Grocery Co., 733 F.3d 916, 922 (9th Cir. 2013). For 23 oppression to be present, there must be an inequality of bargaining power that results 24 in no real negotiation and “an absence of meaningful choice.” A & M Produce Co. 25 v. FMC Corp., 135 Cal. App. 3d 473, 486 (1982). “An adhesion contract is a 26 standardized contract which is imposed on a party of weaker bargaining strength on 27 a take-it or leave-it basis.” Ontiveros v. DHL Express (USA), Inc., 164 Cal.App.4th 28 1 525538 (N.D. Cal. 2012) (finding an arbitration agreement to be procedurally 2 unconscionable, noting, inter alia, that there is an element of surprise where an 3 employee had “no reasonable opportunity to read or review the DRP.”). 4 Plaintiffs point out that the Defendant drafted the contract in its entirety, and 5 that the contract was presented to them on a “take it or leave it” basis and that signing 6 the acknowledgement form was a condition of their employment. It’s true that due 7 to these circumstances, the Plaintiffs had no bargaining power or opportunity to 8 negotiate the terms of their employment. Additionally, Plaintiffs allege that the 9 arbitration provision was not adequately explained to Plaintiffs, but regardless, 10 Plaintiffs were not in an economic position to decline employment on the basis of 11 such a provision. Furthermore, the Plaintiffs were never given the opportunity to 12 opt out of the arbitration provision. These assertions evidence a high degree of 13 procedural unconscionability concerning the negotiation of and assent to the contract 14 under California law. See O'Melveny & Myers, 485 F.3d at 1075 (holding that where 15 an employee is facing an employer with overwhelming bargaining power that has 16 drafted an arbitration clause, and presented it to the employee on a take-it-or-leave- 17 it basis, the clause is procedurally unconscionable); Martinez v. Master Prot. Corp., 18 118 Cal. App. 4th 107, 114 (2004) (“An arbitration agreement that is an essential 19 part of a “take it or leave it” employment condition, without more, is procedurally 20 unconscionable.”); Aral v. EarthLink, Inc., 134 Cal. App. 4th 544, 557 (2005) 21 (stating that there is “quintessential procedural unconscionability” where an 22 arbitration agreement is presented on a take-it-or-leave-it basis with no opportunity 23 to opt out); Kanbar v. O’Melveny & Myers, 849 F. Supp. 2d 902, 909 (N.D. Cal. 24 2011). 25 Therefore, based on the record and relevant precedents, the Court determines 26 that the BAP’s delegation to the arbitrator to decide whether the BAP was binding 27 and enforceable was procedurally unconscionable given the circumstances here. 28 1 2 2. Substantive Unconscionability 3 A provision is substantively unconscionable if it involves terms that are “so 4 one-sided as to ‘shock the conscience,’ or that impose harsh or oppressive terms.” 5 Morris v. Redwood Empire Bancorp, 128 Cal. App. 4th 1305, 1322 (2005). 6 Substantively unconscionable terms may take various forms but may generally be 7 described as unfairly one-sided. Little v. Auto Stiegler, Inc., 29 Cal. 4th 1064, 1071 8 (2003). To be valid, at minimum the arbitration agreement must require a neutral 9 arbitrator, adequate discovery, and a written decision sufficient to allow judicial 10 review. Wherry v. Award, Inc., 192 Cal. App. 4th 1242, 1248 (2011). Plaintiffs argue that the BAP is substantively unconscionable due to various 11 reasons, such as the reduction of their discovery rights, the shortening of relevant 12 statutory periods, the waiver of a jury trial, the requirements to share the arbitrator’s 13 fees and the provision for single-claimant arbitration. However, the BAP actually 14 supports the appointment of a neutral arbitrator, guarantees adequate discovery with 15 opportunity to seek more, ensures a written award, does not limit the availability of 16 statutory remedies, and the Defendant covers the payment of filing fees, as well as 17 the fees and cost of the Arbitrator “provided, however, that if the Service Provider 18 is the Claimant, the Service Provider will contribute an amount equal to the filing 19 fee to initiate a claim in the court…”. ECF No. 11, at 17. Defendant’s BAP does not 20 impose ‘conscience shocking one-sided’ and or harsh or oppressive terms. Unlike 21 Armendariz, where their BAP was substantively unconscionable as it “requires only 22 23 employees to arbitrate their wrongful termination claims against the employer but 24 does not require the employer to arbitrate claims it may have against the employees.” 25 Armendariz, 24 Cal. 4th at 116. 26 Upon examination of the BAP’s delegation provision, the Court agrees with 27 the Defendant that it is not substantively unconscionable because there are not 28 ‘conscience shocking one-sided’ and or harsh or oppressive terms. The Court finds 1 that the Plaintiffs have established procedural unconscionability but have failed to prove substantive unconscionability. In order to contest the validity of the 2 delegation, the Plaintiffs are required to establish both procedural and substantive 3 unconscionability. Thus, the Court holds that the BAP’s delegation to the arbitrator 4 of all issues relating to the enforceability of the BAP is valid and enforceable. 5

6 C. Motion to Dismiss Class Action Claims 7 Arbitration agreements and class action waivers are required to be enforced 8 under the FAA. Epic Systems Corp. v. Lewis, ___ U.S. ___, 138 S. Ct. 1612, 1632 9 (2018); see Viking River Cruises, Inc. v. Moriana, ___ U.S. ___, 142 S. Ct. 1906, 10 1922 (2022). The August 2022 Agreement provides: 11 12 Single-Claimant Arbitration Only: Homeaglow and Service Provider mutually agree that by entering into this Arbitration Provision, both 13 waive their right to have any dispute or claim brought, heard or 14 arbitrated as a class action, collective or representative action.

15 ECF No. 11, Ex. C, at 7. 16 Based on the language of the BAP, each claimant must bring their dispute 17 individually against the Defendant. By accepting this agreement, the Plaintiffs 18 consented to independently arbitrate their causes of action and thus cannot be class 19 members. Accordingly, the Court agrees with Defendant that the Plaintiffs cannot 20 be class members. Therefore, the Court dismisses the class action claims. 21 22 IV. CONCLUSION 23 For the reasons discussed above, Defendant’s motion to compel arbitration, 24 stay proceedings and dismiss class claims is GRANTED. The arbitration 25 agreement’s delegation to the arbitrator is valid. ECF No. 11, at 5. The arbitrator 26 will decide all matters delegated to them. The Court stays this case until further 27 notice. The parties shall forthwith initiate further proceedings under the arbitration 28 1 ||clause. Delays without good cause by the Plaintiffs will result in dismissal of this 2 Delays without good cause by Defendant will be deemed a waiver of 3 || arbitration proceedings under the contract. 4 The Court will hold a status conference on Thursday, January 4, 2024, at 2 5 in Courtroom 15B. Either party may seek sanctions at any time prior to the 6 || status conference based on delay without good cause. 7 The Plaintiffs’ request for judicial notice (ECF No. 17, at 4) is DENIED. See 8 || Bebber v. Dignity Health, 2022 WL 4080956, at 4 (E.D. Cal. Sep. 6, 2022); Mitchell 9 Tillet, 715 Fed. Appx. 741, 742 n.1 (9th Cir. 2018). 10 The class action claims are dismissed without prejudice. 1] IT IS SO ORDERED. 12 Dated: August 4, 2023 j _ 13 Honorable Barry Ted Moskov 14 United States District Judge 15 16 17 18 19 20 21 22 23 24 25 26 27 28