Vijayan Streedharan v. Stanley Industrial & Automotive, LLC

• Court: District Court, C.D. California
• Decided: September 27, 2022
• Docket: 5:22-cv-00322
• Status: Unknown

Opinion

Case 5:22-cv-00322-MEMF-KS Document 32 Filed 09/27/22 Page 1 of 33 Page ID #:855

1 O 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 CENTRAL DISTRICT OF CALIFORNIA 10 Case No.: 5:22-cv-0322-MEMF (KSx) 11 VIJAYAN STREEDHARAN, an individual, on

behalf of himself and all other similarly 12 situated, ORDER DENYING DEFENDANT’S MOTION FOR JUDGMENT ON THE 13 Plaintiff, PLEADINGS OR, ALTERNATIVELY, TO COMPEL ARBITRATION [ECF NO. 14] 14 v.

16 STANLEY INDUSTRIAL & AUTOMOTIVE, LLC (doing business as “MAC TOOLS”), a 17 Delaware corporation and DOES 1 through 100, inclusive, 18 Defendants. 19

21 Before the Court is Defendant Stanley Industrial & Automotive, LLC’s Motion for Judgment 22 on the Pleadings or, Alternatively, to Compel Arbitration. ECF No. 14. The Court held oral 23 argument on this matter on August 18, 2022. For the reasons stated herein, the Court hereby 24 DENIES the Motion for Judgment on the Pleadings or, Alternatively, to Compel Arbitration. 25 / / / 26 / / / 27 / / / 28 / / /

1 Case 5:22-cv-00322-MEMF-KS Document 32 Filed 09/27/22 Page 2 of 33 Page ID #:856

1 BACKGROUND 2 I. Factual Background1 3 Defendant Stanley Industrial & Automotive, LLC, is a Delaware limited liability company that 4 does business as “Mac Tools” (hereinafter “Mac Tools”). Compl. ¶ 8. Mac Tools is a subsidiary of 5 Stanley Black & Decker, Inc., a Connecticut Corporation which “is the number one worldwide 6 company for tools and storage.” Id. ¶ 10. Mac Tools “manufactures and distributes tools and related 7 products like tool boxes [sic] and service equipment” and “sells Products to mechanics, technicians, 8 and other service professionals as well as businesses providing these services.” Id. ¶ 14. One of the 9 ways Mac Tools distributes its products is through “Distributors” or “Franchisees.” Id. ¶ 15. 10 Distributors operate vehicles or “mobile stores” that display Mac Tools brands and marks. Id. 11 Distributors “must purchase and operate a mobile vehicle [] stocked with Products within a Mac 12 Tools-assigned geographic territory or route.” Id. ¶ 3. 13 Plaintiff Vijayan Streedharan (“Streedharan”) worked as Mac Tools Franchisee/Distributor2 in 14 California beginning in 2019. Id. ¶ 7. Mac Tools exerts “vast control[] over” Distributors but 15 “attempts to classify these workers as ‘independent contractors.’” Id. ¶ 2. In doing so, “Mac Tools 16 cheats these individuals out of protections provided by [] California law such as overtime pay and 17 reimbursement of business expenses.” Id. ¶ 3. Among other things, the mobile stores may only be 18 used to operate the distributorship and “may not be altered without Mac Tools’s express approval.” 19 Id. ¶ 15. Mac Tools controls the customer lists, reserves the right to set prices of products sold to 20 Distributors and functionally sets the price of products to end-purchasers based on the company’s 21 online catalogues, flyers, and website. Id. ¶¶ 19, 20. Mac Tools requires that Distributors “personally 22 work full-time to diligently promote, market, and increase the sale of Products as well as [the] Mac 23 Tools’s customer base.” Id. ¶ 18. Distributors “pay for the right to work for Mac Tools” by 24 25 26 27 1 Unless otherwise indicated, the following factual background is derived from the Complaint. ECF No. 1-1, (“Compl.”). 28 2 The Complaint uses the terms “Franchisee” and “Distributor” interchangeably.

2 Case 5:22-cv-00322-MEMF-KS Document 32 Filed 09/27/22 Page 3 of 33 Page ID #:857

1 providing non-refundable initial fees, annual fees, paying costs to attend mandatory out-of-state 2 training, and paying restock fees on returned merchandise. Id. ¶ 28. 3 Distributors sign contracts with Mac Tools that classify Distributors as independent contractors. 4 Id. ¶ 24. On June 28, 2018, Streedharan received a Franchise Disclosure Document (“FDD”) from 5 Mac Tools that included a copy of the Mac Tools’s Franchise Agreement, an addendum to the 6 Franchise Agreement, and an addendum to the FDD. ECF No. 21, Declaration of Vijayan 7 Streedharan (“Streedharan Decl.”) ¶ 3; ECF No. 14-1, Declaration of Cory D. Catignani (“Catignani 8 Decl.), ¶ 5, Ex. 1. The addendum to the Franchise Agreement and the FDD and its addendum 9 included language that indicates that some of its provisions may be unenforceable under California 10 law. Streedharan Decl. ¶ 2. On August 21, 2018, Streedharan executed the Mac Tools Franchise 11 Agreement and an Addendum to Mac Tools Franchise Agreement for the State of California. 12 Streedharan Decl. ¶ 3; Catignani Decl., ¶ 5, Ex. 1. Streedharan also executed a Guaranty of Payment 13 and Performance of an Entity Mac Tools Franchisee. Streedharan Decl. ¶ 4. 14 Section 19.2 of the Franchise Agreement sets out a dispute resolution process. 15 19.2 Resolution of Disputes. Except with respect to the enforcement of the patties' 16 rights and remedies under (i) any promissory note executed by you in Mac Tools' 17 favor and/or under any security agreement between the parties, or (ii) any promissory note executed by you in favor of a third party and/or under any security 18 agreement between you and a third party, either of which promissory note and/or security agreement is assigned to Mac Tools by such third party, as to which the 19 procedures specified in this Section 19.2 shall not apply, the procedures specified 20 in this Section 19.2 are the only procedures for the resolution of any and all controversies, disputes or claims of any nature whatsoever arising out of or related 21 to this Agreement or any other agreement between you and Mac Tools, including the breach, termination or validity of any such agreement, or the relationship 22 between you and Mac Tools and/or the operation of the Mac Tools Business and including any and all controversies, disputes or claims of any nature against Mac 23 Tools by anyone claiming through you. However, before or during the time that 24 you and Mac Tools follow these procedures, either you or Mac Tools can go to the appropriate court to get a preliminary injunction or other preliminary judicial relief 25 if you or Mac Tools reasonably believes that such a step is necessary to avoid irreparable damage or harm. Even if either you or Mac Tools takes such action, you 26 and Mac Tools will continue to participate in good faith in the procedures specified in this Article 19. Notwithstanding anything in Section 19 to the contrary, without 27 obligation to pursue the negotiation, mediation or arbitration described herein, Mac 28 Tools shall at all times have the right to seek from an appropriate court replevin or similar orders, as Mac Tools reasonably believes such order(s) are necessary.

3 Case 5:22-cv-00322-MEMF-KS Document 32 Filed 09/27/22 Page 4 of 33 Page ID #:858

1 ECF No. 14-2, pg. 32. Section 19.2 subsection (d) provides: 2 (d) Arbitration. If the matter has not been resolved pursuant to mediation within 3 60 business days of the initiation of such procedure, or if either party will not 4 participate in a mediation, the controversy shall be settled by arbitration by a sole arbitrator in accordance with the then-effective JAMS Comprehensive Arbitration 5 Rules and Procedures. Any arbitrator shall be mutually elected by you and Mac Tools or, if you and Mac Tools cannot agree, by JAMS, The Resolution Experts in 6 accordance with the then-effective JAMS Comprehensive Arbitration Rules and 7 Procedures. The arbitrator is not empowered to and shall not, award punitive, exemplary, indirect, special consequential or incidental damages or any other 8 damages in excess of actual direct damages or in excess of any limit on direct damages set forth in this Agreement, whichever is lower. Unless the parties agree 9 otherwise in writing, the place of arbitration shall be at the JAMS Resolution Center in New York, New York. The arbitration shall be governed by the Federal 10 Arbitration Act, 9 U.S.C. §§ 1-16. Courts of the State of Ohio or the United States 11 District Court for the Southern District of Ohio will have sole jurisdiction over enforcement of arbitration and/or enforcement of the Agreement. Judgment upon 12 the award rendered by the arbitrator may be entered by any state or federal court in Ohio having jurisdiction thereof. If either party is required to compel arbitration, 13 that party shall be reimbursed for the costs and expenses incurred in connection therewith. 14

15 ECF No. 14-2, pg. 33. 16 The Franchise Agreement and its addendum were presented to Streedharan on a “take-it-or- 17 leave-it” basis with no opportunity to negotiate its terms. Id. ¶ 5. 18 II. Procedural History 19 On November 24, 2021, Streedharan filed a class action against Mac Tools in the Superior Court 20 of California, County of San Bernardino, asserting seven causes of action: (1) failure to reimburse 21 expenses; (2) unlawful deductions from wages; (3) failure to pay overtime; (4) failure to provide 22 meal breaks; (5) failure to provide rest breaks; (6) failure to pay wages when due; and (7) unfair 23 competition. See generally Compl. On February 21, 2022, Mac Tools filed a Notice of Removal, and 24 this case was removed to federal court. ECF No. 1 (“Notice of Removal”). On February 28, 2022, 25 Mac Tools filed an Answer to the Complaint. ECF No. 9. On April 8, 2022, Mac Tools filed the 26 instant Motion for Judgment on the Pleadings, or Alternatively, to Compel Arbitration. ECF No. 14 27 (“Motion” or “Mot.”). Mac Tools seeks a full order granting judgment on the pleadings on the 28 grounds that Streedharan was not its employee and therefore he lacks standing to bring employment-

4 Case 5:22-cv-00322-MEMF-KS Document 32 Filed 09/27/22 Page 5 of 33 Page ID #:859

1 related claims. Mot. at 2. Mac Tools also moves, in the alternative, to compel arbitration pursuant to 2 the arbitration provisions located in the Franchise Agreement (“Arbitration Agreement”). Id. at 2–3. 3 Streedharan filed an opposition on June 9, 2022. ECF No. 21 (“Opp’n”). Mac Tools filed its Reply 4 on June 16, 2022. ECF No. 22 (“Reply”). A hearing on the Motion was held on August 18, 2022. 5 REQUEST FOR JUDICIAL NOTICE 6 I. Applicable Law 7 A court may take judicial notice of facts not subject to reasonable dispute where the facts “(1) 8 [are] generally known within the trial court’s territorial jurisdiction; or (2) can be accurately and 9 readily determined from sources whose accuracy cannot reasonably be questioned.” Fed. R. Evid. 10 201(b). Under this standard, courts may take judicial notice of “undisputed matters of public record,” 11 but generally may not take judicial notice of “disputed facts stated in public records.” Lee v. City of 12 Los Angeles, 250 F.3d 668, 690 (9th Cir. 2001), overruled on other grounds by Galbraith v. Cnty. of 13 Santa Clara, 307 F.3d 1119, 1125–26 (9th Cir. 2002). The Ninth Circuit has recognized public 14 records, including documents on file in federal or state court, as appropriate for judicial notice. See, 15 e.g., Harris v. County of Orange, 682 F.3d 1126, 1132–33 (9th Cir. 2012); United States v. Black, 16 482 F.3d 1035, 1041 (9th Cir. 2007). 17 II. Discussion 18 Streedharan requests this Court take judicial notice of an Order Granting Motion to Strike in a 19 case arising out of the Superior Court of California, County of Alameda. ECF No. 21-3. As this 20 Order was submitted in a state court proceeding, it is a matter of public record. The Court GRANTS 21 Streedharan’s request as court records are appropriate for judicial notice. 22 MOTION FOR JUDGMENT ON THE PLEADINGS 23 I. Applicable Law 24 Rule 12(c) of the Federal Rules of Civil Procedure provides that “[a]fter the pleadings are 25 closed—but early enough not to delay trial—a party may move for judgment on the pleadings.” Fed. 26 R. Civ. P. 12(c). “Judgment on the pleadings is properly granted when, accepting all factual 27 allegations in the complaint as true, there is no issue of material fact in dispute, and the moving party 28 is entitled to judgment as a matter of law.” Chavez v. United States, 683 F.3d 1102, 1108 (9th Cir.

5 Case 5:22-cv-00322-MEMF-KS Document 32 Filed 09/27/22 Page 6 of 33 Page ID #:860

1 2012) (internal quotation marks omitted). A court must construe all factual allegations in the 2 pleadings in the light most favorable to the non-moving party. Fleming v. Pickard, 581 F.3d 922, 3 925 (9th Cir. 2009). 4 A motion under Rule 12(c) is considered “functionally identical” to a motion under Rule 5 12(b)(6). Lyon v. Chase Bank USA, N.A., 656 F.3d 877, 883 (9th Cir. 2011) (citing Dworkin v. 6 Hustler Magazine Inc., 867 F.2d 1188, 1192 (9th Cir. 1989)). The key difference between these two 7 motions is just the timing of the filing. See Dworkin, 867 F.2d at 1192. Accordingly, judgment on 8 the pleadings should be entered when a complaint does not plead “enough facts to state a claim to 9 relief that is plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). A claim is 10 factually plausible when “the plaintiff pleads factual content that allows the court to draw the 11 reasonable inference that the defendant is liable for the misconduct alleged.” Ashcroft v. Iqbal, 556 12 U.S. 662, 678 (2009). 13 II. Discussion 14 Mac Tools moves for judgment on the pleadings as to all of Streedharan’s claims on the sole 15 grounds that Streedharan failed to sufficiently allege that Mac Tools was his employer. Mot. at 2. 16 For the reasons set forth below, the Court concludes that the Complaint sufficiently alleges an 17 employment relationship. 18 A. Applicable Employment Tests Under California Law. 19 The parties dispute what test applies to determine whether an employment relationship exists 20 between Mac Tools and Distributors. Compare Mot. at 6–10 with Opp’n at 7–16. 21 Until 2018, courts in California generally applied the common law test set out in S.G. Borello 22 & Sons, Inc. v. Dep’t of Industrial Relations (“Borello”), 48 Cal.3d 341 (1989) to determine where 23 an individual was an employee or an independent contractor. Under the common law, “[t]he 24 principal test of an employment relationship is whether the person to whom service is rendered has 25 the right to control the manner and means of accomplishing the result desired.” Id. at 350 (quoting 26 Tieberg v. Unemployment Ins. App. Bd., 2 Cal.3d 943 (1970)) (alteration in original). 27 Then in 2018, the California Supreme Court established the three-factor ABC test to 28 determine whether a worker should be classified as an employee or independent contractor for the

6 Case 5:22-cv-00322-MEMF-KS Document 32 Filed 09/27/22 Page 7 of 33 Page ID #:861

1 purposes of California wage orders.3 Dynamex Operations W. v. Superior Ct., (“Dynamex”) 4 2 Cal.5th 903, 944–63 (2018). The California Supreme Court held that workers were presumed to be 3 employees unless the hiring entity could establish all of the following three factors: (A) that the 4 worker is free from the control and direction of the hiring entity in connection with the performance 5 of the work, both under the contract for the performance of the work and in fact; and (B) that the 6 worker performs work that is outside the usual course of the hiring entity’s business; and (C) that the 7 worker is customarily engaged in an independently established trade, occupation, or business of the 8 same nature as the work performed (the “ABC test”). Id. at 957; see id. at 950 n. 20 (“This standard, 9 whose objective is to create a simpler, clearer test for determining whether the worker is an 10 employee or an independent contractor, presumes a worker hired by an entity is an employee and 11 places the burden on the hirer to establish that the worker is an independent contractor”) (emphasis 12 added). 13 Shortly after the Dynamex decision, the California legislature codified the ABC test and 14 expanded it to apply, not only to wage orders, but more broadly to the Labor Code and 15 Unemployment Insurance Code. See Cal. Lab. Code §§ 2775 et seq. This extension of the ABC test 16 “was prospective, with an effective date of January 1, 2020.” Lawson v. Grubhub, Inc., 13 F.4th 908, 17 912 (9th Cir. 2021) (citing Cal. Lab. Code § 2785(c)). 18 19 20 3 Wage orders are industry-specific rules promulgated by the Industrial Welfare Commission. “The Industrial Welfare Commission (IWC) is the state agency empower to formulate wage orders governing employment in 21 California. The Legislature defunded the IWC in 2004, however its wage orders remain in effect.” Murphy v. Kenneth Cole Productions, Inc., 40 Cal.4th 1094, 1102 n. 4 (citations omitted). “Martinez [v. Combs, 49 22 Cal.4th 35 (2010)] held that ‘[t]o employ . . . under the IWC’s definition, has three alternative definitions. It means: (a) to exercise control over the wages, hours, or working conditions, or (b) to suffer or permit to work, 23 or (c) to engage, thereby creating a common law employment relationship.’” Hill v. Walmart Inc., 32 F.4th 24 811, 819-20 (9th Cir. 2022). The California Supreme Court in Dynamex established the ABC test as the manner for determining whether the “suffer or permit to work” standard had been met. Id. “Dynamex was 25 clear that it ‘address[ed] only’ the issue of how to distinguish between employees and independent contractors ‘with regard to those claims that derive directly from the obligations imposed by [a] wage order.’” Bowerman 26 v. Field Asset Servs., Inc., 39 F.4th 652, 664 (9th Cir. 2022) (citations omitted). “Dynamex further suggested that its holding should not extend beyond that context, by describing the ABC test as a ‘distinct standard that 27 provides broader coverage of workers with regard to the very fundamental protections afforded by wage and hour laws and wage orders,’ given ‘the [Industrial Welfare Commission’s] determination that it is appropriate 28 to apply a distinct and particularly expansive definition of employment regarding obligations imposed by a wage order.’” Id.

7 Case 5:22-cv-00322-MEMF-KS Document 32 Filed 09/27/22 Page 8 of 33 Page ID #:862

1 Here, Streedharan alleges that he began working for Mac Tools in 2019 and he seeks to 2 represent a class of Distributors for a period of four years prior to November 24, 2021. Compl. ¶¶ 7, 3 32. Streedharan also appears to assert both claims arising from California wage orders and claims 4 arising from the California Labor Code. As such, Labor Code section 2775 will not govern the 5 claims arising before January 2020—its effective date. This presents a question as to which test, 6 Borello or Dynamex, will govern Streedharan’s claims. If Streedharan’s claims arise from a wage 7 order, Dynamex will apply to determine whether he and other Distributors were Mac Tools’s 8 employees or independent contractors. If Streedharan’s claims do not arise from a wage order, the 9 common law Borello test will apply to determine whether he and other Distributors were Mac 10 Tools’s employees or independent contractors. See Bowerman, 39 F.4th at 665 (concluding the 11 Borello test governed expense reimbursement claims not based on a California wage order). During 12 oral argument Streedharan’s counsel clarified Streedharan’s position that each of his alleged claims 13 are rooted in California Wage Order No. 1 and therefore the ABC test set out in Dynamex should 14 govern whether Streedharan is an employee of Mac Tools. In its Motion, Mac Tools addresses 15 neither Dynamex nor Borello; instead Mac Tools relies on other tests to support its position that there 16 was no employment relationship. Thus, the parties have not fully briefed the question regarding 17 whether the tests as set out in Borello or in Dynamex should govern Streedharan’s claims. 18 Nevertheless, it is not necessary for the Court to determine at this stage which claims are governed 19 by Dynamex and which are governed by Borello because Streedharan has alleged a plausible 20 employment relationship under both tests. 21 However, because Mac Tools relies on other tests to support its position that there was no 22 employment relationship, before the Court addresses the application of Dynamex or Borello to the 23 allegations in the Complaint, the Court will first address these alternative arguments raised by Mac 24 Tools. 25 26 27 28

8 Case 5:22-cv-00322-MEMF-KS Document 32 Filed 09/27/22 Page 9 of 33 Page ID #:863

1 i. Streedharan executed the franchise agreement on behalf of an LLC4 2 Mac Tools first contends that it did not enter into a Franchise Agreement with Streedharan, 3 but rather it entered into an agreement with Streedharan’s business—FLM Enterprises, LLC. Mot. at 4 6–7. Therefore, Streedharan cannot be a “direct employee” of Mac Tools and to the extent 5 Streedharan is an employee at all “he is only an employee of his own company, the actual 6 franchisee.” Id. at 7. However, under the Franchise Agreement “you” and “your” are defined as the 7 persons who executed the agreement. The Franchise Agreement further provides that “[i]f the party 8 signing . . .is a . . . limited liability company, . . . ‘you’ and ‘your’ shall refer to such entity and shall 9 also refer to the natural person signing below on behalf of such entity[.]” Additionally, the Franchise 10 Agreement states that 11 YOUR APPOINTMENT AS A MAC TOOLS FRANCHISEE IS BASED ON 12 MAC TOOLS’ ASSESSMENT OF INDIVIDUAL(S) SIGNING THIS 13 AGREEMENT, EVEN IF SIGNING ON BEHALF OF A CORPORATION OR OTHER LEGAL ENTITY, AND MAC TOOLS' UNDERSTANDING THAT 14 SUCH INDIVIDUAL(S) WILL BE THE INDIVIDUAL(S) OVERSEEING OPERATION OF THE MAC TOOLS BUSINESS. MAC TOOLS WILL HAVE 15 THE RIGHT TO TERMINATE THIS AGREEMENT IN THE EVENT SUCH 16 INDIVIDUAL(S) CEASE TO OVERSEE OPERATION OF THE MAC TOOLS BUSINESS. 17

18 19 No. 14-2, pgs. 1, 35. As such, the agreement contemplates that an individual, like Streedharan, 20 would be bound by its terms even if the individual executed the agreement on behalf of a business 21 entity. 22 23 4 “[J]udgment on the pleadings is improper when the district court goes beyond the pleadings to resolve an issue; such a proceeding must properly be treated as a motion for summary judgment.” Hal Roach Studios, 24 Inc. v. Richard Feiner and Co., Inc., 896 F.2d 1542, 1550 (9th Cir. 1989); see Fed. R. Civ. P. 12(d). “A court may, however, consider certain materials—documents attached to the complaint, documents incorporated by 25 reference in the complaint, or matters of judicial notice—without converting the motion to dismiss into a motion for summary judgment.” United States v. Ritchie, 342 F.3d 903, 908 (9th Cir. 2003) (reviewing a Rule 26 12(b)(6) motion). Here, Streedharan references executing the Franchise Agreement in his Complaint. Compl. ¶¶ 18, n. 1, 24. Streedharan also does not dispute that the Franchise Agreement Defendant refers to in its 27 Motion relates to the parties’ relationship, the classification of which forms the basis of his claims. See Opp’n at 6 n. 6. Accordingly, the Court finds the Franchise Agreement is incorporated by reference into the 28 Complaint.

9 Case 5:22-cv-00322-MEMF-KS Document 32 Filed 09/27/22 Page 10 of 33 Page ID #:864

1 Moreover, Mac Tools has not cited to any authority indicating that an individual cannot be 2 deemed an employee because he executed an agreement with the putative employer on behalf of his 3 business entity. A review of relevant caselaw indicates that the existence of a business entity is one 4 factor that is considered, but it is not dispositive in determining whether an individual is an 5 independent contractor rather than an employee. 6 In his Opposition, Streedharan relies on Ruiz v. Affinity Logistics, Corp., 754 F.3d 1093 (9th 7 Cir. 2014). Although Ruiz concerns a different procedural stage than the present litigation, the Court 8 finds its reasoning persuasive. There, the Ninth Circuit reversed a district court’s judgment finding 9 that a group of truck drivers were independent contractors after a bench trial. Id. at 1096. The drivers 10 were required to obtain “a fictious business name, a business license, and a commercial checking 11 account” as part of an attempt to ensure the drivers became independent contractors. Id. The putative 12 employer advised the drivers on how to complete the necessary forms, and “went as far as to 13 complete the form for [plaintiff], leaving only the spaces for his signature blank.” Id. The Ninth 14 Circuit applied the common law test set out in Borello, to determine whether the drivers were 15 employees or independent contractors. Id. at 1099. The fact that the drivers had formed their own 16 business was only one factor balanced in the analysis, and the Ninth Circuit held that the district 17 court “clearly erred by not giving enough weight to the fact that Affinity required drivers to create 18 these businesses as a condition of employment.” Id. at 1103–04. However, the Court went on to note 19 “in the real world, these businesses were in name only. The drivers’ only business was with Affinity 20 because the drivers could not use their trucks for any purpose other than their work for Affinity.” Id. 21 In Bowerman, the Ninth Circuit reversed a district court’s grant of partial summary judgment 22 for a class finding the class had been misclassified as independent contractors under the test set out 23 in Borello and the putative employer was liable for unpaid overtime and business expenses. 39 F.4th 24 at 657–58. There, the putative employer, FAS, was in the business of pre-foreclosure property 25 preservation but did not itself perform the services for clients. Instead, it contracted with vendors to 26 perform those services. Id. at 657. Some of these vendors were sole proprietors, and others were 27 corporations. Id. Some vendors brought a class action asserting FAS misclassified them as 28 independent contractors and sought unpaid overtime wages and reimbursement for business

10 Case 5:22-cv-00322-MEMF-KS Document 32 Filed 09/27/22 Page 11 of 33 Page ID #:865

1 expenses. Id. Several issues were raised on appeal, including whether Borello or Dynamex applied to 2 the claims. Id. at 661. After determining the plaintiffs’ overtime claims were governed by Dynamex 3 and not Borello, the Ninth Circuit rejected FAS’s argument that the overtime claims were “joint 4 employment” claims and that Dynamex did not extend to the joint employment context. Id. at 665. 5 The Ninth Circuit opined that the sole proprietors have no putative employer other than FAS 6 because, in part, the legal entity is not separate from the individual owner. Id. The Court instructed 7 that on remand, the district court “may consider the joint employment issue in the first instance for 8 class members who own or operate LLCs or corporations, which are distinct legal entities.” Id. As 9 such, like Ruiz, the existence of a separate entity was not dispositive, but part of the overall inquiry 10 into whether there existed an employment relationship. 11 Also notable is the California Legislature’s retroactive “business-to-business” exception to 12 Dynamex’s ABC test under California Labor Code section 2776. See also Cal. Lab. Code § 2785. 13 “Under that exception, ‘the holding in Dynamex do[es] not apply to a bona fide business-to-business 14 contracting relationship . . . [i]f an individual acting as a sole proprietor, or a business entity formed 15 as a partnership, limited liability company, limited liability partnership, or corporation (‘business 16 service provider’) contracts to provide services to another such business.’” Bowerman, 39 F.4th at 17 671. “Instead, ‘the determination of employee or independent contractor status of the business 18 services provider shall be governed by Borello, if the contracting business demonstrates that [each of 19 twelve] criteria [is] satisfied.’” Id.; see Cal. Lab. Code § 2776. In this legislative exception, the mere 20 existence of a business entity is not dispositive. Even where the requirements of the section are 21 satisfied, the common law Borello test still applies to determine whether an individual is an 22 employee or independent contractor. 23 In light of the above, whether Mac Tools entered into a Franchise Agreement with 24 Streedharan personally, or his business, is a fact to consider in determining whether there was an 25 employment relationship. It is not dispositive in demonstrating that there was not an employment 26 relationship. As the Complaint alleges, Mac Tools controls the list of customers Distributors can 27 service and “subject to very limited exceptions, Distributors may only carry Mac Tools’s products.” 28 Compl. ¶¶ 19–20. Thus, Streedharan plausibly and sufficiently alleges at this stage that even if the

11 Case 5:22-cv-00322-MEMF-KS Document 32 Filed 09/27/22 Page 12 of 33 Page ID #:866

1 Distributors had established their own entities, their only business was to sell Mac Tools’s products 2 to Mac Tools’s customers. 3 ii. Mac Tools is not a joint employer or the “hiring entity” 4 Mac Tools also contends that Streedharan has not adequately alleged that it was an employer 5 under a joint employer theory. Mot. at 7. In response, Streedharan asserts that the joint employer 6 caselaw does not apply, but rather the Dynamex test applies. Opp’n at 15–16. Mac Tools responds 7 that the test set out in Dynamex does not apply because Mac Tools is not a “hiring entity” and did 8 not “hire” Streedharan. Reply at 1–2. 9 In Mejia et al. v. Roussous Construction, Inc., 76 Cal. App. 5th 811 (2022), the California Court 10 of Appeals reversed a verdict for the putative employer where the trial court instructed the jury that 11 before the Dynamex ABC test applied, plaintiff must first establish that they were hired either by the 12 putative employer or the putative employer’s agent. Id. at 814. The Court of Appeals held this 13 instruction was error and reversed for a new trial. Id. The Court of Appeals reasoned that the 14 Dynamex court did not intend to impose a threshold hiring entity requirement, the use of the phrase 15 “hiring entity” was meant to be a neutral term and imposing a hiring entity requirement would “run 16 counter to the intent of California wage and hour laws.” Id. at 818–20; see also People v. Uber 17 Technologies, Inc., 56 Cal.App.5th 266, 288 (2020) (rejecting hiring entity test). As such, 18 Streedharan need not establish that Mac Tools was a “hiring entity” in order to for the ABC test and 19 presumption set out in Dynamex to apply. 20 The Court of Appeals also rejected the putative employer’s attempt to rely on joint employer 21 caselaw. Mejia, 76 Cal.App.5th at 820–822. There the putative employer relied on two cases that 22 declined to apply Dynamex to joint employer liability claims. Id. at 820; see Henderson v. Equilon 23 Enterprises, LLC, 40 Cal.App.5th 1111 (2019); Curry v. Equilon Enterprises, LLC, 23 Cal.App.5th 24 289 (2018). The Court of Appeals held that these cases were inapposite because where plaintiffs 25 assert a joint employer relationship, different policy considerations are at issue than those which 26 Dynamex was aimed at addressing. “Dynamex was concerned with the problem of business misclassifying workers as 27 independent contractor[s]” to obtain economic advantages—concerns not present 28 with a joint employer claim, where “the worker is an admitted employee of a

12 Case 5:22-cv-00322-MEMF-KS Document 32 Filed 09/27/22 Page 13 of 33 Page ID #:867

primarily employer, and is subject to the protection of applicable labor laws and 1 wage orders.” 2 Id. at 820 (quoting Henderson, 40 Cal.App.5th at 1127–28). The Court of Appeals held that this case 3 was not a joint employment case because “Plaintiffs are not admitted employees of a primarily 4 employer: plaintiffs maintain they were solely Roussos employees, and the 5 supervisors/subcontractors maintain plaintiffs were not their employees.” Id. at 821. “And by all 6 accounts, plaintiffs were not provided the protections due [to] employees.” Id. As such, this was not 7 the case were the Dynamex policy considerations were inapplicable but “[r]ather, this case [went] to 8 the heart of the Dynamex question: were plaintiffs properly classified as independent contractors?” 9 Id. 10 Here, the attempt by Mac Tools to rely on joint employer case law at this stage suffers the same 11 defects. Mac Tools relies on the assumption that FLM Enterprises, LLC is Streedharan’s primary 12 admitted employer. But Streedharan maintains that Mac Tools misclassified Distributors like himself 13 as independent contractors and that Distributors were not provided the protections due to employees. 14 Compl. ¶¶ 2, 8. There is no admitted employer. Like the Court of Appeals held in Mejia, this case 15 goes “to the heart of the Dynamex question”: were Distributors properly classified as independent 16 contractors? See Mejia, 76 Cal.App.5th at 821. 17 Accordingly, the Court will assess whether Streedharan has plausibly alleged an employment 18 relationship under the tests set out in Borello and Dynamex. 19 B. Under Dynamex, Streedharan Is Presumed to Be An Employee. 20 Under Dynamex, the burden is on the putative employer to demonstrate that the worker is an 21 independent contractor, and the putative employer’s inability to show any one of the factors means 22 that the worker shall be considered an employee. See Hill, 32 F.4th at 819 (“[The ABC test] 23 presumes the existence of an employer-employee relationship ‘[u]nless the hiring entity establishes’ 24 all three [factors]”) (citing Dynamex, 4 Cal. 5th at 964). 25 To the extent that Dynamex applies to Streedharan’s claims, on a motion for judgment on the 26 pleadings Streedharan need only properly allege that he worked for the putative employer. See 27 Veasman v. Nuance Commc’ns, Inc., Case No. 21-cv-08423-MEMF (ASx), 2022 WL 2964411, at *6 28 (C.D. Cal. June 29, 2022) (“where a plaintiff has properly alleged that he worked for an entity—as

13 Case 5:22-cv-00322-MEMF-KS Document 32 Filed 09/27/22 Page 14 of 33 Page ID #:868

1 Veasman has—he need not do more to allege that he is not an independent contractor. That would 2 turn the presumption under California law on its head.”) 3 Here, Streedharan has alleged that Distributors, like himself, contract directly with Mac 4 Tools and provide services that benefit Mac Tools. Compl. ¶¶ 18, n. 1, 24. Specifically, Streedharan 5 alleges that he performed work for Mac Tools as a franchisee and that “Mac tools strictly controls 6 and regulates Distributors.” Id. ¶ 17. Streedharan claims, among other things, that Mac Tools 7 requires Distributors to: “follow the terms of Mac Tools’s onerous Agreement and Mac Tools’[s] 8 Confidential Field Operations Manual, along with other written instructions,” “make weekly in- 9 person costumer calls to Mac Tools’s list of customers at their worksite,” “make customer 10 deliveries,” “and maintain Mac Tools’s inventory levels.” Id. ¶ 17. Distributors must “maintain 11 minimum purchase requirements, provide post-purchase product support and maintenance, meet 12 Mac Tool[s’s] collection requirements, and use Mac Tools’s required computer programs . . . .” Id. 13 According to Streedharan, “being a Franchisee is a full-time job” and Mac Tools requires that 14 Distributors personally “work full-time to diligently promote, market, and increase the sale of” Mac 15 Tools products and Mac Tools’s customer base. Id. ¶ 18. Mac Tools also reserves the right to “add or 16 modify” the list of customers or “stops” that a Distributor must service. Id. ¶ 19. 17 Streedharan goes even further by also alleging facts to indicate the non-existence of one of 18 the Dynamex factors, specifically that the work Distributors perform is not outside the usual course 19 of business for Mac Tools. As alleged “Mac Tools manufactures and distributes tools and related 20 products like tool boxes [sic] and service equipment” and “sells Products.” Id. ¶ 14. Distributors are 21 not the only avenue in which Mac Tools sells its products; as alleged, “Mac Tools also sells and 22 distributes its products through non-mobile channels like ecommerce (i.e. online) and commercial 23 sales representatives (that Mac Tools recognizes as employees).” Id. ¶ 16. Thus, these facts 24 sufficiently allege the non-existence of Prong B—selling Mac Tools Products was not outside the 25 usual course of Mac Tools’s business. Mac Tools attempts to dispute this by merely asserting that 26 Mac Tools “is in the business of manufacturing tools, selling franchises, and selling to franchisees.” 27 Reply at 3. However, Streedharan’s well-pleaded facts must be taken as true at this stage. 28

14 Case 5:22-cv-00322-MEMF-KS Document 32 Filed 09/27/22 Page 15 of 33 Page ID #:869

1 C. Employment Relationship Under the Borello test. 2 Under Borello, “[w]hile the right to control is the most important factor, it is not the only 3 one.” Hill, 32 F.4th at 818. “Rather, Borello instructs courts to consider the following ‘secondary 4 indicia’ to determine ‘the nature of a service relationship:’” (a) whether the one performing services is engaged in a distinct occupation or 5 business; (b) the kind of occupation, with reference to whether, in the locality, the 6 work is usually done under the direction of the principal or by a specialist without supervision; (c) the skill required in the particular occupation; (d) whether the 7 principal or the worker supplies the instrumentalities, tools, and the place of work for the person doing the work; (e) the length of time for which the services are to 8 be performed; (f) the method of payment, whether by the time or by the job; (g) 9 whether or not the work is a part of the regular business of the principal; and (h) whether or not the parties believe they are creating the relationship of employer- 10 employee. 11 Id. (internal citations omitted). 12 To the extent that the Borello test applies to Streedharan’s claims, he has sufficiently alleged 13 an employment relationship at this stage as Complaint properly alleges that Mac Tools exuded 14 control over the manner and means by which Distributors are to accomplish sales. Streedharan also 15 alleges the existence of certain secondary indicia. For example, Streedharan alleges that “Mac Tools 16 also sells and distributes its products through non-mobile channels like ecommerce (i.e. online) and 17 commercial sales representatives (that Mac Tools recognizes as employees)” indicating neither are 18 performing services in a distinct occupation or business. Streedharan alleges that Mac Tools 19 monitors Distributor’s performance and their work is overseen by District Managers, indicating this 20 is not the type of work done by a specialist without supervision. Id. ¶ 26. Along these lines, 21 Streedharan also alleges that Distributors must attend mandatory training before and after they are 22 “hired.” Id. ¶ 21. As alleged, Mac Tools effectively controls where the work is performed by 23 controlling “both the list of customers [that] Distributors must service and the customers that may be 24 added to a Distributor’s territory.” Id. ¶ 19. Indeed, selling to customers that are not on Mac Tools’s 25 list of customers or within the Franchisee territory, is grounds to terminate Distributors. Id. ¶ 25. 26 Streedharan also alleges facts to indicate that Mac Tools provides the instrumentalities to perform 27 the work in that Distributors are required “to only sell Products to those on the Distributor’s assigned 28 list of stops” and “subject to very limited exceptions, Distributors may only carry Mac Tools’[s]

15 Case 5:22-cv-00322-MEMF-KS Document 32 Filed 09/27/22 Page 16 of 33 Page ID #:870

1 products.” Id. ¶ 20. Additionally, Mac Tools “reserves the right to set the price for products sold to 2 Distributors” and then “functionally sets the price of Products that end-purchasers pay based on Mac 3 Tools online catalogues, flyers, and the Mac Tools website.” Id. ¶ 20. 4 Counsel for Mac Tools asserted during oral argument that the facts in Streedharan’s 5 complaint merely illustrate a Franchise relationship. But that does not mean these facts do not 6 illustrate an employment relationship under California law. Streedharan need only assert a plausible 7 claim for relief at this stage, which he has done here by sufficiently alleging facts to indicate that 8 even under the common law Borello test, Distributors were treated as employees of Mac Tools. 9 D. Streedharan Has Standing. 10 Finally, Mac Tools contends that Streedharan lacks standing because he was not an 11 employee. Mot. at 10. “Standing to sue is a doctrine rooted in the traditional understanding of a case 12 or controversy.” Spokeo, Inc. v. Robins, 136 S. Ct. 1540, 1547 (2016). Thus, this doctrine limits the 13 group of litigants allowed to maintain a lawsuit in federal court to seek redress for a legal wrong. See 14 Valley Forge Christian Coll. v. Am. United for Separation of Church and State, Inc., 454 U.S. 464, 15 472–73 (1982). Case law clearly establishes that the “irreducible constitutional minimum of standing 16 contains three elements.” Lujan v. Defenders of Wildlife, 504 U.S. 555, 560 (1992). These elements 17 are that the plaintiff must have “(1) suffered an injury in fact, (2) that is fairly traceable to the 18 challenged conduct of the defendant, and (3) that is likely to be redressed by a favorable judicial 19 decision.” Spokeo, 136 S. Ct. at 1547 (citation omitted). “Where, as here, a case is at the pleading 20 stage, the plaintiff must clearly allege facts demonstrating each element.” Id. at 1547 (internal 21 quotation marks and citations omitted). 22 As established above, Streedharan has sufficiently alleged an employment relationship. 23 According to Streedharan, Mac Tools misclassified him and other Distributors as independent 24 contractors, while treating them as employees, precluding them from obtaining the benefits afforded 25 to employees under California law. See generally Compl. As such, Streedharan’s alleged injuries are 26 directly traceable to Mac Tools’s conduct and are likely to be redressed should he prevail. 27 For the foregoing reasons, the Court DENIES Mac Tools’s Motion for Judgment on the 28 Pleadings.

16 Case 5:22-cv-00322-MEMF-KS Document 32 Filed 09/27/22 Page 17 of 33 Page ID #:871

1 MOTION TO COMPEL ARBITRATION 2 I. Applicable Law 3 Under Section 2 of the Federal Arbitration Act (“FAA”), arbitration clauses in contracts “shall be 4 valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the 5 revocation of any contract.” 9 U.S.C. § 2. The FAA reflects the “fundamental principle that 6 arbitration is a matter of contract.” AT&T Mobility LLC v. Concepcion, 563 U.S. 333, 339 (2011) 7 (quoting Rent-A-Center, West, Inc. v. Jackson, 561 U.S. 63, 67 (2010)). “If an ordinary procedural 8 rule—whether of waiver or forfeiture or what-have-you—would counsel against enforcement of an 9 arbitration contract, then so be it. The federal policy is about treating arbitration contracts like all 10 others, not about fostering arbitration.” Morgan v. Sundance, Inc., 142 S. Ct. 1708, 1713 (2022). In 11 determining whether to compel arbitration, the court must consider two gateway factors: (1) whether 12 there is an agreement to arbitrate between the parties; and (2) whether the agreement covers the 13 dispute. Brennan v. Opus Bank, 796 F.3d 1125, 1130 (9th Cir. 2015) (quoting Howsam v. Dean 14 Witter Reynolds, Inc., 537 U.S. 79, 84 (2002)). Moreover, arbitration agreements may be invalidated 15 by “generally applicable contract defenses, such as fraud, duress, or unconscionability, but not by 16 defenses that apply only to arbitration or that derive their meaning from the fact that an agreement to 17 arbitrate is at issue.” Concepcion, 563 U.S. at 343 (internal quotation marks omitted) (citing 18 Doctor’s Assoc., Inc. v. Casarotto, 517 U.S. 681, 687 (1996)). The Act “leaves no place for the 19 exercise of discretion by a district court, but instead mandates that district courts shall direct the 20 parties to proceed to arbitration on issues as to which an arbitration agreement has been signed.” 21 Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213, 218 (1985). 22 II. Discussion 23 Mac Tools seeks to compel the entire action to binding arbitration pursuant to the arbitration 24 provisions located in the Franchise Agreement. Mot. at 10-18. The Motion also seeks to stay or 25 dismiss the action pending arbitration under 9 U.S.C. § 3. Mot. at 18-19. Streedharan contends that 26 the Arbitration Agreement cannot be enforced because there was no mutual assent to arbitrate, Mac 27 Tools waived its right to arbitrate, the arbitration clause does not encompass his claims, and the 28 clause is unconscionable under California law. Opp’n at 7.

17 Case 5:22-cv-00322-MEMF-KS Document 32 Filed 09/27/22 Page 18 of 33 Page ID #:872

1 A. A Valid Arbitration Agreement Exists. 2 i. Mutual Assent 3 “In California, [g]eneral principles of contract law determine whether the parties have 4 entered a binding agreement to arbitrate.” Pinnacle Museum Tower Ass’n. v. Pinnacle Mkt. Dev. 5 (US), LLC, 55 Cal.4th 223, 236 (2012) (internal quotations omitted).5 The burden is on the party 6 seeking arbitration to prove the existence of an arbitration agreement by a preponderance of the 7 evidence. Rosenthal v. Great W. Fin. Sec. Corp., 14 Cal.4th 394, 397 (1996). “An essential element 8 of any contract is the consent of the parties, or mutual assent.” Donovan v. RRL Corp., 26 Cal. 4th 9 261, 270 (2001), as modified (Sept. 12, 2001). And “[m]utual assent is determined under an 10 objective standard applied to the outward manifestations or expressions of the parties, i.e., the 11 reasonable meaning of their words and acts, and not their unexpressed intentions or understandings.” 12 Serafin v. Balco Properties Ltd., LLC, 235 Cal. App. 4th 165, 173 (2015). 13 Although Streedharan admits to signing the Franchise Agreement, Streedharan Decl. ¶ 3, , he 14 nonetheless disputes its validity. Streedharan contends that there was no meeting of the minds 15 because the Franchise Agreement addendum and an addendum to the FDD include disclaimer 16 language which undermines the enforceability of the Arbitration Agreement. Opp’n at 18-19. 17 Streedharan points to the following language in the addendum to the FDD: 18 The Franchise Agreement requires you to participate in non-binding mediation 19 and binding arbitration with New York, New York as the forum. This provision 20 may not be enforceable under California Law. The Franchise Agreement requires that the courts of the state of Ohio or the United States District Court for 21 the Southern District of Ohio will have sole jurisdiction over enforceable of the arbitration and/or enforceable of the Franchise Agreement. This provision may not 22 be enforceable under California law.

23 Streedharan Decl. ¶ 2, Ex. B (emphasis in original). At oral argument Streedharan’s attorney asserted 24 that Streedharan’s argument rested on the language in the FDD addendum. However, in his 25 26

27 5 Despite the agreement calling for Ohio law to apply, the parties do not dispute that California law governs the Court’s interpretation of whether there is a valid arbitration agreement and whether it is enforceable. See 28 Mot. at 13; Opp’n at 16.

18 Case 5:22-cv-00322-MEMF-KS Document 32 Filed 09/27/22 Page 19 of 33 Page ID #:873

1 opposition Streedharan also points to the following language located in the addendum to the 2 Franchise Agreement, modifying section 19.2(d) which addresses “arbitration”: 3 THIS AGREEMENT REQUIRES NEW YORK, NEW YORK AS THE 4 FORUM FOR MEDIATION. THIS PROVISION MAY NOT BE 5 ENFORCEABLE UNDER CALIFORNIA LAW.

6 THIS AGREEMENT REQUIRES NEW YORK, NEW YORK AS THE FORUM FOR ARBITRATION. THIS PROVISION MAY NOT BE 7 ENFORCEABLE UNDER CALIFORNIA LAW. 8 THIS AGREEMENT REQUIRES OHIO AS THE FORUM FOR 9 PERMITTED LITIGATION. THIS PROVISION MAY NOT BE ENFORCEABLE UNDER CALIFORNIA LAW. 10 11 ECF No. 14-2; see Opp’n at 19. 12 Relying on Winter v. Window Fashions Professionals, Inc., 166 Cal.App.4th 943 (2008), 13 Streedharan contends that when the arbitration agreement disclaims enforceability there is no 14 meeting of the minds. Opp’n at 18. In Winter, the California court of appeals affirmed a trial court’s 15 decision invalidating an arbitration agreement located in a franchise agreement. Id. at 950. The 16 franchise agreement executed between the parties provided that binding arbitration would be 17 conducted in Texas. Id. at 946. However, another document that was also provided to the 18 franchisee—a Uniform Franchise Offering Circular (“UFOC”)—had the following language: 19 The franchise agreement requires binding arbitration. The arbitration will occur at 20 Dallas County, Texas with the costs being borne by the losing party. This provision 21 may not be enforceable under California law.

22 The franchise agreement requires application of the laws of the forum of Texas. This provision may not be enforceable under California law. 23 24 Id. at 946, 950. After a dispute arose, the franchisee filed a complaint to rescind the franchise 25 agreement and asserted other contract related claims. Id. The trial court, relying on Laxmi 26 Investments, LLC v. Golf USA, 193 F.3d 1095 (9th Cir. 1999) denied the franchisors’ petition to 27 compel arbitration concluding there was no meeting of the minds and, even if there was, the clause 28

19 Case 5:22-cv-00322-MEMF-KS Document 32 Filed 09/27/22 Page 20 of 33 Page ID #:874

1 was unconscionable. Winter, 166 Cal.App.4th at 950. The California Court of Appeals affirmed 2 holding there was no meeting of the minds as the entire agreement to arbitrate. Id. 3 In Laxmi, the plaintiff franchisee purchased a franchise from the defendant franchisor, an 4 Oklahoma corporation, and opened the franchise in California. Laxmi Investments, LLC, 193 F.3d at 5 1096. The UFOC advised the franchisee that the franchise agreement’s provision—which required 6 binding arbitration would take place outside California—might not be enforceable under California 7 law. Id. After a dispute arose, the franchisee requested that arbitration take place in California 8 despite the franchise agreement’s terms calling for Oklahoma as the forum for arbitration. Id. The 9 district court held that arbitration must proceed in Oklahoma. Id. On appeal the Ninth Circuit 10 reversed and held that the parties never clearly agreed to a forum outside of California. Id. at 1097. 11 Accordingly, the Ninth Circuit invalidated only the forum selection provision and not the entire 12 arbitration agreement. Id. 1097. Thus, the holding in Winter—invalidating the entire arbitration 13 agreement because of the UFOC’s disclaimer language—effectively expanded the holding in Laxmi, 14 which limited its holding to invalidating the forum selection provision only. 15 The Ninth Circuit had occasion to address Winter’s holding in Nygaard v. Prop. Damage 16 Appraisers, Inc., 779 Fed. App’x 474, 476 (9th Cir. 2019), reh’g denied (Aug. 27, 2019). In 17 Nygaard, the Ninth Circuit affirmed a district court’s denial of a motion to compel arbitration. Id. at 18 475. There, an addendum to a franchise agreement stated the following: 19 [1] The Agreement requires binding arbitration. [2] The arbitration will occur at the 20 PDA’s corporate headquarters in Fort Worth, Texas, before a sole arbitrator agreed 21 to by the parties and selected from the panel of arbitrators of the American Arbitration Association, with the costs being borne by the losing party. [3] This 22 provision may not be enforceable under California law. [4] Prospective franchisees are encouraged to consult private legal counsel to determine the applicability of 23 California and federal laws (such as Business and Professions Code Section 20040.5, Code of Civil Procedure Section 1281, and the Federal Arbitration Act) 24 to any provisions of the Franchise Agreement restricting venue to a forum outside 25 of the State of California.

26 27 28

20 Case 5:22-cv-00322-MEMF-KS Document 32 Filed 09/27/22 Page 21 of 33 Page ID #:875

1 Nygaard v. Prop. Damage Appraisers, Inc., No. 16-CV-02184-VC, 2017 WL 8793228, at *2 (E.D. 2 Cal. Dec. 28, 2017), aff’d, 779 Fed. App’x 474 (9th Cir. 2019). Relying on Winter, the district court 3 invalidated the entire arbitration agreement, and the Ninth Circuit affirmed, reasoning: 4 [w]e are bound by the California Court of Appeal’s decision in [Winter.] In a case 5 containing the same language at issue here—a venue selection clause containing 6 the phrase “[t]his provision may not be enforceable under California law”—Winter invalidated an entire arbitration provision because there was no meeting of the 7 minds. No California court has issued a decision contrary to Winter. . . .We are not “convinced that the California Supreme Court would reject” Winter; therefore, we 8 are bound to follow it. 9 Nygaard, 79 App’x at 476 (internal citations omitted). The Ninth Circuit went on to state that the 10 language here was not merely included in the UFOC, but the addendum to the franchise agreement, 11 which “itself was signed and executed on the same date as the franchise agreement.” The fact that 12 the parties “included the language voluntarily, rather than as required by law [made] the case to 13 follow Winter that much stronger.” Id. 14 This case is distinguishable from Winter and Nygaard. First, unlike Winter which involved 15 the disclaimer language present in only the UFOC, here the addendum to the Franchise Agreement 16 and the addendum to the FDD includes disclaimer language. The disclaimer language in the 17 addendum to the FDD follows a sentence referring not to mediation or arbitration generally, but 18 specifically the forum for arbitration or mediation. Streedharan Decl. ¶ 2, Ex. B (“The Franchise 19 Agreement requires you to participate in non-binding mediation and binding arbitration with New 20 York, New York as the forum. This provision may not be enforceable under California Law.”) 21 Second, the disclaimer language in the addendum to the Franchise Agreement, which is the 22 document that was executed, refers clearly to the forum selected for arbitration. It provided that 23 “THIS AGREEMENT REQUIRES NEW YORK, NEW YORK AS THE FORUM FOR 24 ARBITRATION. THIS PROVISION MAY NOT BE ENFORCEABLE UNDER 25 CALIFORNIA LAW.” In Nygaard, the phrase “this provision” as stated in the addendum was 26 27 28

21 Case 5:22-cv-00322-MEMF-KS Document 32 Filed 09/27/22 Page 22 of 33 Page ID #:876

1 interpreted by the district court to apply to the entire arbitration agreement.6 Nygaard, 2017 WL 2 8793228, at *2 (“The best reading of this paragraph is one in which ‘[t]his provision’ refers to the 3 arbitration provision in its entirety, not merely one aspect of it”). In contrast, the best reading of the 4 phrase “[t]his provision” in both the addendum to the FDD and the addendum to the Franchise 5 Agreement is one in which it is refers to New York being the forum for arbitration. The Court does 6 not conclude that the disclaimer language should be read as invalidating the entire agreement to 7 arbitrate. 8 ii. Waiver 9 “Under federal law, waiver is ‘the intentional relinquishment or abandonment of a known 10 right.’” Morgan., 142 S. Ct. at 1713 (citations omitted). Recently, the Supreme Court held that 11 “prejudice is not a condition of finding that a party waived its right to . . . compel arbitration under 12 the [Federal Arbitration Act].” Id. at 1714; cf. Newirth by & through Newirth v. Aegis Senior 13 Communities, LLC, 931 F.3d 935, 940 (9th Cir. 2019) (requiring the showing of prejudice). 14 Accordingly, to show waiver, a party need only show that the other party knew of its contractual 15 right to arbitration if it knew of the right and acted inconsistently with that right. See Id. at 1713-14. 16 “[A] party acts inconsistently with exercising the right to arbitrate when it (1) makes an intentional 17 decision not to move to compel arbitration and (2) actively litigates the merits of a case for a 18 prolonged period of time in order to take advantage of being in court. Newirth by & through 19 Newirth, 931 F.3d at 941. 20 Streedharan contends that Mac Tools waived its right to arbitrate because it moved to compel 21 arbitration only if its motion for judgment on the pleadings was denied. Opp’n at 19. However, Mac 22 Tools moved for judgment on the pleadings, or alternatively, to compel arbitration in the same filing. 23 As such, Mac Tools did not wait a prolonged period of time to move to compel arbitration. 24 Moreover, Mac Tools also challenged Streedharan’s standing under Article III of the Constitution, 25 26

27 6 The Ninth Circuit did not address the district court’s interpretation of “this provision” in its memdispo. 28 Accordingly, it is not clear that this was a basis for its decision to affirm the district court’s ruling.

22 Case 5:22-cv-00322-MEMF-KS Document 32 Filed 09/27/22 Page 23 of 33 Page ID #:877

1 which is a threshold issue to litigating in federal court. See Horne v. Flores, 557 U.S. 433, 445 2 (2009). The Court is unconvinced that this operates as waiver. 3 B. The Arbitration Agreement Encompasses Streedharan’s Claims. 4 Streedharan also argues that the Arbitration Agreement does not cover his claims. Opp’n at 5 20-21. In doing so, he focuses only on the language “arising out of or relating to the agreement.” Id. 6 However, the Court does not read the agreement so narrowly. The agreement calls for arbitration to 7 govern “any and all controversies, disputes or claims of any nature whatsoever arising out of or 8 related to this Agreement or any other agreement between you and Mac Tools, including the breach, 9 termination or validity of any such agreement, or the relationship between you and Mac Tools and/or 10 the operation of the Mac Tools Business and including any and all controversies, disputes or claims 11 of any nature against Mac Tools by anyone claiming through you.” ECF No. 14-2 at 32 (emphasis 12 added). The language is broad enough to encompass all of Streedharan’s claims, which arise out of 13 the alleged misclassification of Distributors (i.e. the relationship between him and Mac Tools). 14 C. The Arbitration Agreement is Unconscionable. 15 Streedharan contends that the arbitration agreement is procedurally and substantively 16 unconscionable and therefore unenforceable. Opp’n at 21–25. Under California law, the party 17 resisting arbitration bears the burden of proving unconscionability. Pinnacle Museum Tower Assn., 18 55 Cal.4th at 247. “[A] contract must be both procedurally and substantively unconscionable to be 19 rendered invalid.” Chavarria v. Ralphs Grocery Co., 733 F.3d 916, 922 (9th Cir. 2013) (citing 20 Armendariz v. Found. Health Psychcare Servs., Inc., 24 Cal.4th 83, 114 (2000)). Procedural 21 unconscionability “concerns the manner in which the contract was negotiated and the respective 22 circumstances of the parties at that time, focusing on the level of oppression and surprise involved in 23 the agreement.” Id. (citing Ferguson v. Countrywide Credit Indus., Inc., 298 F.3d 778, 783 (9th Cir. 24 2002); A&M Produce Co. v. FMC Corp., 186 Cal. Rptr. 114, 121–22 (1982)). On the other hand, 25 substantive unconscionability considers whether an agreement is “unjustifiably one-sided to such an 26 extent that it ‘shocks the conscience.’” Id. at 923. To assess whether a provision is unconscionable, 27 courts employ a “sliding scale” approach, requiring less procedural unconscionability where the 28

23 Case 5:22-cv-00322-MEMF-KS Document 32 Filed 09/27/22 Page 24 of 33 Page ID #:878

1 terms are more substantively oppressive, and less substantive unconscionability where the terms are 2 more procedurally oppressive. Armendariz, 24 Cal. 4th at 114. 3 i. The Arbitration Agreement Has Some Procedural Unconscionability 4 Streedharan argues that the Arbitration Agreement is procedurally unconscionable because it 5 is a contract of adhesion: the agreement was presented to him on a take-it-or-leave-it basis, where he 6 had no opportunity to negotiate its terms and it was drafted by Mac Tools, who holds superior 7 bargaining power. Opp’n at 22. Streedharan argues that the following elements also support a 8 finding of procedural unconscionability: Mac Tools did not provide a copy of the rules governing 9 arbitration or explain to Streedharan how to obtain them; the arbitration rules may change; and the 10 arbitration clause appears on page 32 in a single-spaced 37-page document without any separate 11 signature or initial. Id. Mac Tools contends that there is no procedural unconscionability because 12 Streedharan acknowledged and represented to Mac Tools in writing that he had 14 days to review 13 and consult with counsel, the arbitration provision is in normal size type, and Streedharan was 14 educated and owned his own business. Reply at 7. 15 “Procedural unconscionability exists when the stronger party drafts the contract and presents 16 it to the weaker party on a ‘take-it-or-leave-it’ basis.” Serafin v. Balco Properties Ltd., LLC, 235 Cal. 17 App. 4th 165, 179 (2015). However, courts have consistently held that the fact that the arbitration 18 agreement is an adhesion contract does not render it automatically unenforceable as unconscionable. 19 See, e.g., Sanchez v. Carmax Auto Superstores California, LLC, 224 Cal. App. 4th 398, 402 (2014) 20 (“[T]hat the agreement is required does not make it unenforceable, absent other factors.”); Lagatree 21 v. Luce, Forward, Hamilton & Scripps, 74 Cal. App. 4th 1105, 1127 (1999) (“[T]he cases uniformly 22 agree that a compulsory predispute arbitration agreement is not rendered unenforceable just because 23 it is required as a condition of employment or offered on a ‘take it or leave it’ basis.”). 24 Here, Streedharan declares that the agreement was presented to him on a take-it-or-leave it 25 basis. Streedharan Decl. ¶ 5. As alleged Mac Tools is a subsidiary to a public traded company that 26 operates as “the worldwide leader in tools and storage.” Compl. ¶ 10. In contrast, Streedharan 27 declares that he has an Associate’s degree in automotive technology. Streedharan Decl. ¶ 9. He 28 further asserts that he established FLM Enterprises, LLC for the sole function of performing work

24 Case 5:22-cv-00322-MEMF-KS Document 32 Filed 09/27/22 Page 25 of 33 Page ID #:879

1 for Mac Tools. Id. ¶ 8. Otherwise, Streedharan asserts he has worked as an hourly employee for 2 Lowes and now the Department of Motor Vehicles. Id. ¶ 10. Streedharan further asserts that he did 3 not have the opportunity to negotiate the terms of the agreement and did not have an attorney review 4 the agreement, nor did he consult an attorney before signing. Id. ¶ 5. Mac Tools did not offer any 5 competing declarations addressing how the agreement was presented to Streedharan. As such, 6 Streedharan has established that the arbitration agreement within the Franchise Agreement has some 7 degree of procedural unconscionability because it is a contract of adhesion. 8 ii. The Arbitration Agreement is Substantively Unconscionable 9 Streedharan contends that the arbitration agreement has a high degree of substantive 10 unconscionability because: there exists a one-way statute of limitations clause; the arbitration 11 agreement limits damages that can be recovered; the arbitration agreement imposes costs on 12 Streedharan not permitted in court; the JAMS rules referenced limit discovery; and the Ohio choice- 13 of-law clause “attempts to strip away unwaivable rights” and the New York forum selection clause 14 “impose[s] significant hardships on the weaker party[.]” Opp’n at 23-25. 15 “An arbitration provision is substantively unconscionable if it is ‘overly harsh’ or generates 16 ‘one-sided’ results.” Nagrampa v. MailCoups, Inc., 469 F.3d 1257, 1281-82 (9th Cir. 2006) 17 (analyzing arbitration provision in franchise agreement) (citations omitted). “California law requires 18 an arbitration agreement have a ‘modicum of bilaterality,’ and arbitration provisions that are 19 ‘unfairly one-sided’ are substantively unconscionable.” Id. at 1282 (citing to Armendariz, 24 Cal.4th 20 at 117, and Little v. Auto Stiegler, Inc., 29 Cal.4th 1064, 1071 (2003)). 21 1. One-way statute of limitations 22 Section 19.2 (f) of the Arbitration provisions states: (f) Claims Must Be Brought in One Year. Except with respect to the 23 enforcement of the parties’ rights and remedies under (i) any promissory note 24 executed by you in Mac Tools’ favor and/or under any security agreement between the parties, or (ii) any promissory note executed by you in favor of a third party 25 and/or under any security agreement between you and a third party, as to which the limitation provided by this Section 19.2(f) shall not apply, any and all claims, 26 controversies and other disputes arising out of or relating to the Agreement, the relationship between you and Mac Tools or your operation of the Mac Tools 27 Business, brought by any party hereto against the other, shall be commenced within 28

25 Case 5:22-cv-00322-MEMF-KS Document 32 Filed 09/27/22 Page 26 of 33 Page ID #:880

one (1) year from the occurrence of the facts giving rise to such claims or disputes, 1 or such claim or dispute shall be barred. 2 3 ECF No. 14-2, pg. 33. The Court agrees that this provision is unconscionable. Many of 4 Streedharan’s claims arising from the California labor code have longer statute of limitations. See De 5 Leon v. Pinnacle Property Management Services, LLC, 72 Cal.App.5th 476, 486-87 (2021) 6 (collecting cases). Additionally, it is unfairly one-sided in that Mac Tools is free to sue Streedharan 7 at any time for money damages arising from any security agreements between them.7 8 2. Fee-shifting 9 The arbitration agreement does not include cost provisions. However, the agreement provides 10 that “the controversy shall be settled by arbitration by a sole arbitrator in accordance with the then- 11 effective JAMS Comprehensive Arbitration Rules and Procedures.” ECF No. 14-2, pg. 33. 12 Streedharan submitted to the Court the JAMS’ Comprehensive Arbitration Rules & Procedures. ECF 13 No. 21-2, Declaration of Shaun Markley (“Markley Decl.”) ¶ 3, Ex. D. Under Rule 31 “[e]ach Party 14 shall pay its pro rata share of JAMS fees and expenses set forth in the JAMS fee schedule in effect at 15 the time of commencement of the Arbitration, unless the Parties agree on a different allocation of 16 fees and expenses.” Id. Parties are also “jointly and severally liable for the payment of JAMS 17 arbitration fees and Arbitrator compensation and expenses.” Id. This impermissibly imposes the 18 “type of expense that [Streedharan] would not be required to bear if he [] were free to bring the 19 action in court.” Armendariz, 24 Cal.4th at 110-11. 20 In response, Mac Tools contends that “JAMS fee schedule limits any fees born by Plaintiff to 21 $400” and that it “must bear all other costs[.]” Reply at 8. In support of this contention, Mac Tools 22 submits a sworn declaration and emails with JAMS related to fees and employment disputes. ECF 23 No. 22-1, Declaration of Mitchell A. Tobias (“Tobias Decl.”), ¶ 4–5, Exs. 1-2. Mac Tools contends 24 that a JAMS case manager explained to it, in a prior action involving similar claims as presented 25 here, that JAMS determines whether their Employment Arbitration Minimum Standards of 26

27 7 Indeed, Mac Tools concedes that this term is not enforceable. See Reply at 8. It requests this term should be 28 severed and contends that it does not affect the enforceability of the entire Arbitration Agreement. Id.

26 Case 5:22-cv-00322-MEMF-KS Document 32 Filed 09/27/22 Page 27 of 33 Page ID #:881

1 Procedural Fairness (“JAMS Employment Standards”)8 apply based on a review of the demand for 2 Arbitration. Id. ¶ 4, Ex. 1. In this prior action, JAMS determined the Employment Standards applied. 3 Thus, according to Mac Tools, the determination that the Employment Standards applied in this prior 4 action indicates that “any disagreement with JAMS’ determination of whether an arbitration involves 5 an employment-related dispute is irrelevant[.]” Id. ¶ 5. The Court is not convinced. 6 In Lim, the Ninth Circuit affirmed a district court’s finding that a delegation clause was 7 unconscionable, in part because the agreement required plaintiff to pay half the arbitration fees, 8 “including with respect to the gateway issue of arbitrability[.]” 8 F.4th at 1003. Even though the 9 AAA Commercial Arbitration Rules permitted the arbitrator to excuse plaintiff from paying the 10 arbitration fees upon showing of substantial hardship, the district court reasoned that “[t]here was no 11 assurance that such relief would be granted.” Id. Thus, the Ninth Circuit affirmed holding “the 12 district court correctly concluded the cost-shifting provision, as applied to the delegation clause, was 13 unconscionable.” Id. Similarly, here, there is no assurances that JAMS Employment Standards 14 would apply in this case merely because JAMS determined those rules applied to a prior case 15 involving similar claims. See Tobias Decl. ¶ 5. The agreement calls for JAMS’ Comprehensive 16 Arbitration Rules & Procedures. Moreover, “after-the-fact” willingness to bear the costs of 17 arbitration, “[to change a provision of an arbitration agreement so it conforms to law] does not 18 change the fact that the arbitration agreement as written is unconscionable and contrary to public 19 policy.” O’Hare v. Mun. Res. Consultants, 107 Cal. App. 4th 267, 280 (2003) (citations omitted). 20 3. Limit on remedies 21 The agreement seeks to limit the parties’ recovery to “actual damages.” In section 19.2 (d) 22 “Arbitration” it provides in part that the “arbitrator is not empowered to and shall not, award 23 punitive, exemplary, indirect, special, consequential or incidental damages or any other damages in 24 excess of actual direct damages or in excess of any limit on direct damages set forth in this 25 26

27 8 According to Mac Tools, under the JAMS Employment standards, “the only fee that an employee may be 28 required to pay is the initial JAMS Case Management Fee” of $400. Tobias Decl., ¶¶ 4, 7.

27 Case 5:22-cv-00322-MEMF-KS Document 32 Filed 09/27/22 Page 28 of 33 Page ID #:882

1 Agreement, which is lower.” ECF No. 14-2, at pg. 33. Further, section 20 of the Franchise 2 Agreement provides the following “Waiver of Damages” language: 3 20.1 Waiver. You and Mac Tools hereby waive to the fullest extent permitted by 4 law any right to or claim of any punitive, exemplary, indirect, special, consequential 5 or incidental damages against the other.

6 20.2 Limitation to Actual Damages. You and Mac Tools agree that, in the event of a dispute or claim with or against the other, each party shall be limited to the 7 recovery of any actual direct damages sustained by it, subject to any limit on direct 8 damages set forth in this Agreement.

9 20.3 No Attempt to Collect. Neither you nor Mac Tools will accept or attempt to collect through the courts or otherwise any punitive, exemplary, indirect, 10 consequential or incidental damages from the other even if such damages are entered, ordered or awarded by the arbitrator despite the agreement between you 11 and Mac Tools to the contrary. 12 ECF No. 14-2, at pg. 34. 13 “A damages limitation may be unconscionable if it contravenes public policy by limiting 14 remedies available in the statute under which a plaintiff proceeds, or if it is one-sided.” Chin v. 15 Advanced Fresh Concepts Franchise Corp., 194 Cal. App. 4th 704, 712 (2011) (reversing denial of 16 franchisor’s motion to compel arbitration) (citing Armendariz, 24 Cal.4th at 103-04). The provisions 17 above suggest a degree of substantive unconscionability because they would limit Streedharan’s 18 ability to recover remedies, such as statutory penalties available under the California Labor Code. 19 See Subcontracting Concepts (CT), LLC v. De Melo, 34 Cal.App.5th 201, 213 (2019) (finding 20 arbitration clause that limited arbitrator’s authority to award “actual monetary damages only” was 21 substantively unconscionable.) 22 Mac Tools asserts that because the waiver in section 20.1 includes the language “to the 23 fullest extent permitted by law” that the arbitration provisions do not limit damages available relying 24 on Castillo v. CleanNet USA, Inc., 358 F.Supp.3d 912 (N.D. Cal. 2018). Reply at 8. There the 25 district court found that a punitive damages waiver in a franchise agreement’s arbitration provision 26 was capable of two interpretations because of the language “to the fullest extent permitted by law.” 27 28

28 Case 5:22-cv-00322-MEMF-KS Document 32 Filed 09/27/22 Page 29 of 33 Page ID #:883

1 Castillo, 358 F.Supp.3d at 946. Applying the doctrine of contra proferentem9—construing the 2 ambiguity in favor of the non-drafting party—the court concluded that the arbitration agreement did 3 not deprive the plaintiff of his statutory remedies which could not be waived under California law. 4 Id. 5 However, Mac Tools’s narrow reading of one section, ignores the clear language in the 6 remainder of the agreement that aims to limit remedies. ECF No. 14-2, at pg. 33–34 (the arbitrator 7 “is not empowered to and shall not, award punitive, exemplary, indirect, special, consequential or 8 incidental damages or any other damages in excess of actual direct damages”); (“Neither you nor 9 Mac Tools will accept or attempt to collect through the courts or otherwise any punitive, exemplary, 10 indirect, consequential or incidental damages from the other even if such damages are entered”); 11 (“You and Mac Tools agree that, in the event of a dispute or claim with or against the other, each 12 party shall be limited to the recovery of any actual direct damages sustained by it”). Thus—even 13 assuming section 20.1 can be interpreted to mean Streedharan did not waive his remedies under the 14 California Labor Code—under the agreement as drafted, the arbitrator is not empowered to award 15 such remedies and Mac Tools and Streedharan agrees not to accept or attempt to collect such 16 remedies. 17 4. Choice-of-law and forum selection clauses 18 Streedharan contends the forum selection clause and the choice-of-law clause are 19 unconscionable. Opp’n at 24-25. Mac Tools asserts that these clauses are “inapplicable” because it 20 concedes that California substantive law will apply and “a mutually agreeable forum will need to be 21 selected.” Reply at 9. 22 23 24 9 In 2019, the Supreme Court held in Lamps Plus, Inc. v. Varela, 139 S. Ct. 1407 (2019) that “[t]he doctrine of contra proferentem cannot substitute for the requisite affirmative “contractual basis for concluding that the 25 part[ies] agreed to [class arbitration].” Id. at 1419 (citations omitted). As such, the “ambiguities about the scope of arbitration must be resolved in favor of arbitration.” Id. at 1418; see also W. Bagel Co., Inc. v. 26 Superior Ct. of Los Angeles Cnty., 66 Cal. App. 5th 649, 668 (2021) (holding trial court erred in applying contra proferentem to determine where parties agreed to binding or non-binding arbitration). 27

29 Case 5:22-cv-00322-MEMF-KS Document 32 Filed 09/27/22 Page 30 of 33 Page ID #:884

1 In Lim, the party seeking to compel arbitration argued that it would waive certain provisions 2 at issue “by paying all the admirative costs of arbitration, not enforcing the venue clause, and 3 arbitrating the claims in Southern California.” 8 F.4th at 1004. However, the Ninth Circuit held that 4 a district court “correctly recognized that waiving unconscionable elements of a delegation clause 5 does not change the analysis of whether the delegation clause, as drafted, is unconscionable.” Id. “To 6 conclude otherwise would incentivize drafters to overreach based on the assumption they could 7 simply waive unconscionable terms when faced with litigation.” Id. Accordingly, Defendant’s 8 concessions or offers to waive the choice-of-law or forum selection provisions do not necessarily 9 mean that, as drafted, the agreement is not unconscionable. See Armendariz, 24 Cal.4th at 125 10 (“whether an employer is willing, now that the employment relationship has ended, to allow the 11 arbitration provision to be mutually applicable, or to encompass the full range of remedies, does not 12 change the fact that the agreement as written is unconscionable and contrary to public policy.”) 13 As already addressed above, the choice-of-law and forum selection clauses are invalid for 14 lack of meeting of the minds due to the disclaimer language providing “THIS PROVISION MAY 15 NOT BE ENFORCEABLE UNDER CALIFORNIA LAW.” ECF No. 14-2. Streedharan had no 16 reason to believe that Mac Tools would enforce these clauses. Winters, 166 Cal.App.4th at 950, 17 Laxmi, 193 F.3d at 1097; see also Nagrampa, 469 F.3d at 1292 (“The misleading language of the 18 offering circular, as well as MailCoups’s institution of proceedings in California, lead us to conclude 19 that [franchisee] had no reasonable expectation that arbitration would take place in Boston.”). 20 Moreover, the clause designating New York as the forum for arbitration is otherwise 21 unconscionable. “Our court of appeals has found that designating a forum ‘so prohibitively costly to 22 [a plaintiff] that [he would be] precluded from participating in the proceeding,’ such as designating 23 Boston, while the plaintiff lives in California, is unenforceable, particularly in light of procedural 24 unconscionability.” Saravia v. Dynamex, Inc., 310 F.R.D. 412, 421 (N.D. Cal. 2015) (citing 25 Nagrampa, 469 F.3d at 1289); see also Lim, 8 F.4th at 1002 (affirming district court’s finding that 26 Texas venue provision, viewed alongside cost-splitting, and fee-shifting, in delegation clause was 27 “prohibitively costly” and substantively unconscionable). 28

30 Case 5:22-cv-00322-MEMF-KS Document 32 Filed 09/27/22 Page 31 of 33 Page ID #:885

1 Here, Streedharan is a resident of California. Compl. ¶ 7. Streedharan declares that he lost 2 $50,000 while working with Mac Tools and has limited resources. Streedharan Decl. ¶ 10. He 3 further asserts that given his current earnings and general financial resources it would be a 4 significant hardship to litigate claims against Mac Tools in New York “given the expense of travel 5 and being away from home over the course of the trial or other case-related proceedings.” Id. ¶ 11. 6 Designating New York has the forum to arbitrate disputes benefits Mac Tools, a Delaware limited 7 liability company whose principal place of business is in Ohio, Compl. ¶ 8, and would be 8 prohibitively costly for Streedharan. See Nagrampa, 469 F.3d at 1292 (holding forum selection 9 clause was substantively unconscionable because it was “part of a contract of adhesion, it was not 10 entered into freely and voluntarily”; franchisee was “provided inadequate notice in the offering 11 circular because the circular contained misleading language creating the reasonable expectation that 12 it would not be enforced” and “considering the respective circumstances of the parties, the ‘place 13 and manner’ requirements are unduly oppressive and harsh upon [franchisee] who had no bargaining 14 power.”). 15 iii. Severability 16 Mac Tools argues to the extent the Court finds any provision of the Arbitration Agreement 17 unconscionable, it should sever the unconscionable portions. Reply at 9. Streedharan asserts that the 18 Arbitration Agreement is permeated with unconscionability and should not be enforced. Opp’n at 25. 19 “A trial court has the discretion to refuse to enforce an agreement as a whole if it is permeated 20 by the unconscionability.” Carmona v. Lincoln Millennium Car Wash, Inc., 226 Cal. App. 4th 74, 90 21 (2014). The California Supreme Court has indicated that “multiple defects indicate a systematic 22 effort to impose arbitration on an employee not simply as an alternative to litigation, but as an 23 inferior forum that works to the employer’s advantage.” Armendariz, 24 Cal.4th at 124. “An 24 arbitration agreement permeated by unconscionability, or one that contains unconscionable aspects 25 that cannot be cured by severance, restriction, or duly authorized reformation, should not be 26 enforced.” Id. In determining whether the entire agreement is tainted by the unconscionable 27 provisions, courts consider two factors: (1) whether “the agreement contains more than one 28 objectionable term” and (2) whether “there is no single provision a court can strike or restrict in

31 Case 5:22-cv-00322-MEMF-KS Document 32 Filed 09/27/22 Page 32 of 33 Page ID #:886

1 order to remove the unconscionable taint from the agreement.” Poublon v. C.H. Robinson Co., 846 2 F.3d 1251, 1273 (9th Cir. 2017). 3 Here there are multiple unconscionable provisions—the one-way statute of limitations, the forum 4 selection provision, the incorporation of JAMS rules regarding fee sharing, and the limit on available 5 remedies. Mac Tools asserts that JAMS will apply its Employment Standards despite the arbitration 6 provisions language calling for “the then-effective JAMS Comprehensive Arbitration Rules and 7 Procedures.” ECF No. 14-2, pg. 33. Counsel for Mac Tools also asserted during oral argument that 8 Mac Tools will simply not enforce the remaining objectionable provisions. In essence, what Mac 9 Tools would have this Court do is not just sever one objectionable provision but several and rewrite 10 the provision currently calling for JAMS Comprehensive Arbitration Rules and Procedures 11 altogether—a task this Court is not empowered to do. 12 Moreover, the existence of these multiple defects “indicate a systemic effort to impose 13 arbitration” as an inferior forum that works to Mac Tools’s advantage. Armendariz, 24 Cal.4th at 14 124. To remove the unconscionable taint, several provisions would need to be severed, not simply 15 one provision. As such the agreement is permeated with unconscionability and should not be 16 enforced. See Lim, 8 F.4th at 1006 (“given the pervasive unconscionability of the delegation clause 17 based on multiple unconscionable provisions—the cost-splitting, fee-shifting, and Texas venue 18 provisions—the district court did not abuse its discretion by not severing those unconscionable 19 terms”); Davis v. Kozak, 53 Cal. App. 5th 897, 918 (2020) (affirming trial court’s decision to not 20 enforce arbitration agreement that suffered multiple defects that worked to employer’s advantage); 21 Carmona, 226 Cal. App. 4th at 90 (affirming trial court’s decision not to enforce arbitration 22 agreement that suffered from multiple defects demonstrating a systemic lack of mutuality that 23 favored the employers.) 24 For the foregoing reasons, the Court DENIES Mac Tools’s motion in the alternative to 25 compel arbitration. 26 27 28

32 Case 5:22-cv-00322-MEMF-KS Document 32 Filed 09/27/22 Page 33 of 33 Page ID #:887

1 CONCLUSION 2 For the reasons stated above, the Court DENIES Mac Tools’s Motion for Judgment on the 3 Pleadings, or Alternatively to Compel Arbitration in its entirety. 4 IT IS SO ORDERED. 5 6 Dated: September 27, 2022 ___________________________________ 7 MAAME EWUSI-MENSAH FRIMPONG 8 United States District Judge 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28