In this action for breach of contract, unlawful retaliation, discrimination, and harassment, Defendant City of Santa Clara (Defendant) petitions to compel arbitration based on a Severance and Release Agreement that Plaintiff Deanna Santana (Plaintiff) signed.

BACKGROUND

The original and still operative complaint alleges Plaintiff was employed as city manager from August 22, 2017 until early 2022. (Complaint at ¶ 18.) The Severance and Release Agreement was attached as exhibit C to Plaintiff’s original Employment Agreement with the City of Santa Clara. (Ibid.) Plaintiff signed the Severance and Release Agreement in March 2022. (Ibid.) The Severance and Release Agreement provides for a release of claims “which Ms. Santana has ever had, now has or holds, or hereafter can, shall or may have or hold against the City Released Parties, based on any claims or occurrences arising prior to the Effective Date of this Agreement (collectively ‘Released Claims’).” (Reuter Decl., Ex.

A at ¶ 7.) Released claims are defined as “all claims based upon, relating to or arising out of the City Manager’s employment with the City and/or the discontinuation of said employment, all claims in law, equity, contract and tort, and all claims under the California Constitution, [statutes including the California Fair Employment and Housing Act] . . . and all claims under any other federal, state, municipal, or other governmental statute, regulation, ordinance or order.” (Ibid.)

The Severance and Release Agreement contains an arbitration provision:

10. Interpretation of Agreement. Consistent with the existing Employment Agreement, in the event of a dispute between Ms. Santana and the City with respect to the interpretation of this Agreement or any alleged breach of this Agreement which cannot be settled amicably by the agreement of the parties, the dispute shall be submitted to a single arbitrator in accordance with the employment arbitration rules of the American Arbitration Association and the judgment upon the award shall be final, binding, and conclusive and may be entered in the highest court having jurisdiction. The prevailing party in any arbitration pursuant to this paragraph shall be entitled to recover its reasonable attorney’s fees and costs.

(Declaration of Sujata Reuter, Ex. A at ¶ 10.)

LEGAL STANDARD

At issue is whether there is a valid agreement to arbitrate, whether the scope of arbitration covers Plaintiff’s claims, and whether the arbitration provision is unconscionable.

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Under the Federal Arbitration Act, the court’s role is limited to determining “(1) whether a valid agreement to arbitrate exists, and if it does (2) whether the agreement 9

encompasses the dispute at issue.” (Chiron Corp. v. Ortho Diagnostic Systems, Inc. (9th Cir. 2000) 207 F.3d 1126, 1130.) To determine “whether a valid contract to arbitrate exists,” courts apply “ordinary state law principles that govern contract formation.” (Davis v. Nordstrom, Inc. (9th Cir. 2014) 755 F.3d 1089, 1093 [citations omitted]; see also Ingle v. Circuit City Stores, Inc. (9th Cir. 2003) 328 F.3d 1165, 1170.)

There is a Valid Arbitration Agreement

Defendant has met its burden of establishing the existence of an agreement to arbitrate by attaching the Severance and Release Agreement to its moving papers. (Reply at p. 1:8-9.) The complaint acknowledges Plaintiff signed the Severance and Release Agreement on March 8, 2022. (Complaint at ¶ 18.) “A party’s acceptance of an agreement to arbitrate may be express, as where a party signs the agreement.” (Mendoza v. Trans Valley Transport (2022) 75 Cal.App.5th 748, 777.) Plaintiff is bound by the terms of the agreement even if she claims to not have read them. “An arbitration clause within a contract may be binding on a party even if the party never actually read the clause.” (Pinnacle Museum Tower Assn v. Pinnacle Market Development (US), LLC (2012) 55 Cal.4th 223, 236.)

The Scope of the Arbitration Provision Covers Plaintiff’s Complaint

The Complaint refers to the Employment Agreement and the Severance and Release Agreement together as a single “Contract.” “The Contract, including the separation portion of the agreement shall be referred to herein as the ‘Contract.’” (Complaint at ¶ 18 [emphasis added].) Plaintiff’s breach of contract claim refers to the City’s “unlawful[] withholding earned wages (including leave balances) and benefits, and clawing back other compensation (e.g., CalPERS) that was owed and due to Ms. Santana, and had actually already been funded.” (Id. at ¶ 44.) The release pertains to all claims arising out of Plaintiff’s employment, whether in contract, tort, or statute. (Reuter Decl., Ex. A at ¶ 7.) That broad release appears to cover Plaintiff’s causes of action alleged in the Complaint. And any dispute about interpretation of that release is governed by the arbitration provision.

The Arbitration Provision is Not Unconscionable

“A contract is unconscionable if one of the parties lacked a meaningful choice in deciding whether to agree and the contract contains terms that are unreasonably favorable to the other party.” (OTO, L.L..C. v. Kho (2019) 8 Cal.5th 111, 125 (OTO).) Unconscionability has both procedural and substantive elements. (Armendariz Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, 114 (Armendariz); Jones v. Wells Fargo Bank (2003) 112 Cal.App.4th 1527, 1539 (Jones).) Both must appear for a court to invalidate a contract or one of its individual terms. (Armendariz, at p. 114; Mercuro v.

Superior Court (2002) 96 Cal.App.4th 167, 174.) But they need not be present in the same degree: “the more substantively oppressive the contract term, the less evidence of procedural unconscionability is required to come to the conclusion that the term is unenforceable, and vice versa.” (Armendariz, at p. 114.)

Procedural Unconscionability

“Procedural unconscionability focuses on the elements of oppression and surprise.” (Armendariz, supra, 24 Cal.4th at p. 114.) “Oppression arises from an inequality of bargaining power which results in no real negotiation and an absence of meaningful choice.” “Surprise involves the extent to which the terms of the bargain are hidden in a prolix printed form drafted by a party in a superior bargaining position.” (Davis v. TWC Dealer Group, Inc. (2019) 41 Cal.App.5th 662, 671 (Davis) [internal citation and quotation marks omitted].) “An adhesive contract is standardized, generally on a preprinted form, and offered by the part with superior bargaining power on a take-it-or-leave-it basis.” (OTO, supra, 8 Cal.5th at p. 126.)

The Severance and Release Agreement was not prominently displayed in the Employment Agreement. It was instead attached as exhibit C. (Opposition at p. 9:17-21; Declaration of Deanna Santana at ¶ 3, Ex. A.) It was not offered as a standalone agreement that is discernable to the weaker party. And the arbitration provision appears under the heading “Interpretation of the Agreement,” which does not suggest the clause has anything to do with arbitration. (Reuter Decl., Ex. A at ¶ 10; Santana Decl., Ex.

A: Ex. C at ¶ 10.) The arbitration terms are adhesive; they were drafted by Defendant (the party in the superior bargaining position) and offered on a take-it-or-leave-it basis. A contract of adhesion in the employment context adds a modest amount of procedural unconscionability and the amount of procedurally unconscionability is increased when the fact of an adhesion contract is combined with other issues. (Nguyen v. Applied Medical Resources Corp. (2016) 4 Cal.App.5th 232, 248.) The court finds a modest amount of procedural unconscionability.

Substantive Unconscionability

Substantive unconscionability focuses on the actual terms of the agreement and evaluates whether they create overly harsh or one-sided results. (Armendariz, supra, 24 Cal.4th at p. 114.) The court assesses whether the agreement reallocates risks in an objectively unreasonable or unexpected matter. (Jones, supra, 112 Cal.App.4th at p. 1539.) “In assessing substantive unconscionability, the paramount consideration is mutuality.” (Pinela v. Neiman Marcus Group, Inc. (2015) 238 Cal.App.4th 227, 241 [internal citation and quotation marks omitted].) Arbitration agreements are substantively unconscionable where they lack a “modicum of bilaterality,” “without at least some reasonable justification for such onesidedness based on ‘business realities.’” (Armendariz, supra, 24 Cal.4th at p. 117.)

Armendariz instructs that there are “five minimum requirements for the lawful arbitration of such rights pursuant to a mandatory employment arbitration agreement. Such an arbitration agreement is lawful if it ‘(1) provides for neutral arbitrators, (2) provides for more than minimal discovery, (3) requires a written award, (4) provides for all of the types of relief that would otherwise be available in court, and (5) does not require employees to pay either unreasonable costs or any arbitrators’ fees or expenses as a condition of access to the arbitration forum. Thus, an employee who is made to use arbitration as a condition of employment “effectively may vindicate [his or her] statutory cause of action in the arbitral forum.” ’ ” (Armendariz, supra, 24 Cal.4th at p. 102.)

These factors have been met. The agreement provides for a neutral arbitrator; the provision specifies that the dispute shall be submitted to a single arbitrator in accordance with the rules of the American Arbitration Association (AAA). (Reuter Decl, Ex. A at ¶ 10.) Defendant notes that AAA Rule 17 provides “[a]ny arbitrator shall be impartial and independent and shall perform their duties with diligence, and in good faith, and shall be 11

subject to disqualification for: . . . partiality or lack of independence.” (Declaration of Cheryl- Johnson Hartwell, Ex. B at Rule 17.) The AAA Rules allow for discovery. “The arbitrator shall manage any necessary exchange of information among the parties, including depositions, interrogatories, document production, or other means, with a view to achieving an efficient and economical resolution of the dispute while at the same time, promoting equality of treatment and safeguarding each party’s opportunity to fairly present its claims and defense.” (Id. at Rule 21.)

The AAA Rules also require a written award and provide that the arbitrator may grant any remedy in accordance with applicable law. (Id. at Rules 45, 46.) Furthermore, Plaintiff would not bear the costs of arbitration beyond the expense incurred in a court proceeding. (Johnson- Hartwell Decl., Ex. C [AAA Employment/Workplace Fee Schedule].) And the arbitration provision is bilateral; either party may seek to arbitrate their claims. (Reuter Decl., Ex. A at ¶ 10.)

The arbitration provision is not substantively unconscionable.

The petition to compel arbitration is GRANTED. This action is STAYED pending the outcome of arbitration. (Code Civ. Proc. § 1281.4; 9 U.S.C. § 3.) The court will hold a case status review regarding arbitration on January 21, 2027, at 11:00 a.m. in Department 10.

The court will prepare the order.