Minkovich v. Corbett CA2/1 ( 2024 )

Filed 2/27/24 Minkovich v. Corbett CA2/1
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
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IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION ONE
JAN MINKOVICH, B324319
Plaintiff and Respondent, (Los Angeles County
Super. Ct. No. 22CHCV00377)
v.
WILLIAM D. CORBETT et al.,
Defendants and Appellants.
Appeal from order of the Superior Court of Los Angeles
County, Stephen P. Pfahler, Judge. Reversed.
Ellenoff Grossman & Schole, Eric Landau and Travis Biffar
for Defendants and Appellants.
The Cullen Law Firm and Paul T. Cullen for Plaintiff and
Respondent.
______________________________
This appeal arises out of an employment-related action filed
by Jan Minkovich against Innovative Payment Solutions, Inc., a
digital payment services company, and its chief executive officer,
William Corbett (collectively, IPSI).
Although the parties disagree concerning the precise nature
of their relationship, IPSI concedes that Minkovich “worked for
IPSI for a brief period of time.” Minkovich contends that he
performed work for IPSI throughout 2020 in reliance on the terms
set forth in a written employment agreement, and that IPSI failed
to pay him in accordance with that agreement. The agreement
bears Minkovich’s signature, but no signature from any IPSI
representative.
The agreement contains an arbitration provision that
requires the parties to arbitrate any disputes “arising under,
based on or relating to [the] agreement.” (Capitalization omitted.)
The arbitration provision provides further that any such disputes
shall be governed by the American Arbitration Association’s (AAA)
commercial arbitration rules, which purport to delegate to the
arbitrator any questions concerning the validity of the arbitration
provision itself.
Notwithstanding the arbitration provision, Minkovich sued
IPSI in the superior court seeking to recover allegedly unpaid wages
and other damages. In response, IPSI moved to compel arbitration.
The superior court denied IPSI’s motion, finding the arbitration
provision unconscionable.
The court did not, however, address IPSI’s argument that,
because the arbitration provision incorporates by reference the
AAA’s commercial arbitration rules, it contains a “delegation
clause” vesting the arbitrator with exclusive jurisdiction to
determine the arbitration provision’s validity. IPSI now asks
us to reverse the order denying its motion to compel arbitration,
2
urging that the superior court improperly ignored the delegation
clause and invaded the province of the arbitrator when it found
the arbitration provision unconscionable. We agree. Accordingly,
we reverse and instruct the trial court, upon remand, to compel to
arbitration the parties’ dispute regarding the enforceability of the
arbitration agreement.
FACTUAL SUMMARY AND PROCEDURAL HISTORY1
Minkovich contends that on January 21, 2020, he entered
into a written executive employment agreement with IPSI. The
agreement provides that Minkovich shall serve as IPSI’s senior
vice president of operations and acquisition from January 1, 2020
through December 31, 2023, in exchange for an annual base salary
of $120,000, in addition to other compensation. The agreement
contains an arbitration provision that provides in relevant part:
“At the option of [IPSI] or [Minkovich], and to the extent
permitted by applicable law, any dispute, controversy or question
arising under, based on or relating to this agreement, or any breach
or failure to comply with the terms hereof . . . , shall be finally and
exclusively resolved by binding arbitration administered by the
[AAA] under its Commercial Arbitration Rules.”
The AAA’s commercial arbitration rules, in turn, vest the
arbitrator with “the power to rule on his or her own jurisdiction,
including any objections with respect to the existence, scope, or
validity of the arbitration agreement or to the arbitrability of any
claim or counterclaim, without any need to refer such matters first
to a court.” The rules provide further that “[t]he arbitrator shall
have the power to determine the existence or validity of a contract
1 We summarize here only the facts and procedural history
relevant to our resolution of this appeal.
3
of which an arbitration clause forms a part. Such an arbitration
clause shall be treated as an agreement independent of the other
terms of the contract. A decision by the arbitrator that the contract
is null and void shall not for that reason alone render invalid the
arbitration clause.”
Although the employment agreement bears Minkovich’s
signature, it bears no signature on behalf of IPSI. Minkovich
contends he nonetheless performed work for IPSI from January 1
through December 20, 2020 in reliance on the agreement’s terms,
and that IPSI failed to pay certain of the wages and other amounts
allegedly owed under the agreement. He contends further that,
on December 18, 2020, when he “complained . . . about [IPSI’s]
persistent failure to pay his wages and to sign the [employment]
agreement . . . , he was immediately terminated via text message
by Corbett.” (Capitalization omitted.)
On May 26, 2022, Minkovich filed suit against IPSI in the
Los Angeles County Superior Court, asserting causes of action for
(1) breach of contract, (2) nonpayment of wages, (3) waiting time
penalties, (4) failure to indemnify expenses, (5) violation of Business
and Professions Code section 17200, and (6) wrongful termination.
The complaint sought in excess of $1 million in damages.
IPSI responded to the complaint by filing a demurrer and
a separate motion to compel arbitration. In the demurrer, IPSI
argued that Minkovich’s breach of contract claim fails because
IPSI never signed the employment agreement, and the agreement’s
terms therefore are unenforceable.2 IPSI argued in the alternative
in its motion to compel that, if the court overruled the demurrer,
2 On December 12, 2023, we granted Minkovich’s motion
to augment the record on appeal with a copy of IPSI’s demurrer.
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the court must compel arbitration pursuant to the agreement’s
arbitration provision. In particular, IPSI argued that, by virtue
of its incorporation of the AAA’s commercial arbitration rules,
the arbitration provision contains a delegation clause pursuant to
which the parties agreed to reserve for the arbitrator “all questions
regarding the validity and enforceability of the alleged agreement.”
Minkovich opposed IPSI’s motion, arguing that (1) IPSI had
waived its right to compel arbitration by purportedly denying the
existence of the employment agreement in its demurrer, and (2) the
arbitration agreement is unconscionable because it fails to afford
Minkovich the opportunity for adequate discovery and purports
to require him to pay unconscionable arbitration fees. In addition,
Minkovich argued that various provisions of the California Labor
Code prohibit arbitration of his claims. Minkovich did not,
however, challenge IPSI’s contention that, by incorporating the
AAA’s commercial arbitration rules, the agreement delegates to the
arbitrator any disputes concerning the validity and enforceability of
the arbitration provision.
In reply, IPSI argued that it denied in its demurrer only
the enforceability, rather than the existence, of the employment
agreement. It argued further that, under both California and
federal law, Minkovich’s failure to mount a specific challenge to the
delegation clause divested the superior court of jurisdiction to rule
on the validity of the arbitration provision as a whole. IPSI also
asserted that the Federal Arbitration Act (FAA) preempts certain
limits on arbitration imposed by the California Labor Code.
The superior court held a hearing on IPSI’s motion and
then took the matter under submission. It subsequently issued
a written order denying the motion. In the order, the court
“accept[ed] the existence of the [employment] agreement [and
its embedded arbitration provision] for purposes of the . . . motion”
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due to Minkovich’s failure to make “any specific argument
challenging the existence of the unsigned agreement, and the
apparent acceptance of the terms through the commencement
of the employment relationship.” The court then concluded that
the arbitration provision “violates the unconscionability standards”
because it allows for “the contingent possibility” that Minkovich
might be required to pay arbitration fees. The court found further
that IPSI had “fail[ed] to establish that [Minkovich’s] wage and
hour causes of action are subject to arbitration,” in light of Labor
Code section 229.3 Finally, the court declined to consider IPSI’s
argument that the FAA preempts section 229. The court’s written
ruling did not address IPSI’s contention that the delegation clause
in the arbitration provision permitted only an arbitrator—and not
the superior court—to rule on the arbitration provision’s validity.
IPSI timely appealed.
DISCUSSION
A. Standard of Review
“ ‘ “If the court’s order [denying arbitration] is based on a
decision of fact, then we adopt a substantial evidence standard.
[Citations.] Alternatively, if the court’s denial rests solely on a
3 Unless otherwise specified, all statutory references are
to the Labor Code.
Section 229 provides: “Actions to enforce the provisions
of this article for the collection of due and unpaid wages claimed
by an individual may be maintained without regard to the existence
of any private agreement to arbitrate. This section shall not apply
to claims involving any dispute concerning the interpretation or
application of any collective bargaining agreement containing such
an arbitration agreement.” (§ 229.)
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decision of law, then a de novo standard of review is employed.” ’
[Citation.]” (Fleming v. Oliphant Financial, LLC (2023) 88
Cal.App.5th 13, 18.)
B. Legal Principles Governing Enforcement of
Delegation Clauses in Arbitration Agreements
“California and federal law both favor enforcement of
valid arbitration agreements.” (Aanderud v. Superior Court (2017)
13 Cal.App.5th 880, 889 (Aanderud).) “ ‘When deciding whether the
parties agreed to arbitrate a certain matter (including arbitrability),
courts generally . . . should apply ordinary state-law principles that
govern the formation of contracts.’ [Citation.] Thus, an arbitration
agreement is governed by contract law and is construed like other
contracts to give effect to the intention of the parties.” (Id. at
p. 890.) “ ‘[A]ny doubts regarding the arbitrability of a dispute
are resolved in favor of arbitration.’ [Citation.]” (Ibid.)
“It has long been settled that when parties have agreed
to arbitration, challenges to the validity of the underlying contract,
including contract defenses such as fraud in the inducement or
illegality, are for the arbitrator to decide. [Citations.] This is
because the arbitration clause is viewed as separate from the
underlying contract. [Citation.] Thus, allegations that the
main contract is unlawful or unconscionable do not affect the
enforceability of the arbitration clause.” (Nielsen Contracting,
Inc. v. Applied Underwriters, Inc. (2018) 22 Cal.App.5th 1096,
1107–1108 (Nielsen).) “However, challenges to the validity of the
arbitration clause itself are generally resolved by the court in the
first instance.” (Id. at p. 1108, citing Rent-A-Center, West, Inc. v.
Jackson (2010) 561 U.S. 63, 71.)
“An exception to this rule applies when the parties have
clearly and unmistakably agreed to delegate questions regarding
the validity of the arbitration clause to the arbitrator.” (Nielsen,
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supra, 22 Cal.App.5th at p. 1108.) “ ‘There are two prerequisites
for [such] a delegation clause to be effective. First, the language
of the clause must be clear and unmistakable. [Citation.] Second,
the delegation must not be revocable under state contract defenses
such as fraud, duress, or unconscionability.’ ” (Aanderud, supra, 13
Cal.App.5th at p. 892; accord, Mendoza v. Trans Valley Transport
(2022) 75 Cal.App.5th 748, 773.)
The first requirement “reflects a ‘heightened standard
of proof ’ that reverses the typical presumption in favor of the
arbitration of disputes.” (Aanderud, supra, 13 Cal.App.5th
at p. 892, italics omitted.) The second requirement does not
necessitate the court reviewing the enforceability of the delegation
clause in all cases before it sends questions of arbitrability to the
arbitrator. Rather, a court need only consider this issue when a
party challenges the enforceability, under state contract law, of
the delegation clause specifically, as opposed to challenging the
enforceability of the agreement or arbitration agreement as a
whole. (See Malone v. Superior Court (2014) 226 Cal.App.4th
1551, 1559–1560 (Malone).) This is because “[d]elegation clauses
have the potential to create problems of circularity. For example,
suppose an arbitration agreement delegates the issue of
enforceability to the arbitrator. If the arbitrator concludes that
the arbitration agreement is, in fact, not enforceable, this would
mean that the entire agreement, including the delegation clause,
is unenforceable—a finding that would undermine the arbitrator’s
jurisdiction to make that finding in the first place.” (Id. at p. 1559.)
Accordingly, courts treat a delegation clause “as a separate
agreement to arbitrate solely the issues of enforceability” (ibid.),
meaning that, “when a party is claiming that an arbitration
agreement is unenforceable, it is important to determine whether
the party is making a specific challenge to the enforceability of
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the delegation clause or is simply arguing that the agreement as
a whole is unenforceable. If the party’s challenge is directed to the
agreement as a whole—even if it applies equally to the delegation
clause—the delegation clause is severed out and enforced; thus, the
arbitrator, not the court, will determine whether the agreement is
enforceable. In contrast, if the party is making a specific challenge
to the delegation clause, the court must determine whether the
delegation clause itself may be enforced (and can only delegate the
general issue of enforceability to the arbitrator if it first determines
the delegation clause is enforceable).” (Id. at pp. 1559–1560.)
C. The Superior Court Erred in Its Ruling on the
Validity of the Delegation Provision
IPSI contends the superior court erred by “addressing and
deciding whether the arbitration provisions of the employment
agreement were unconscionable when the parties clearly and
unmistakably delegated that determination to the arbitrator.”
In order to assess this argument, we must determine whether the
two requirements outlined above have been met. If they have been,
then the delegation clause was enforceable, and the court erred in
deciding the threshold question of arbitrability.
As to the first requirement of clear and unmistakable intent,
IPSI points to the language in the arbitration provision obligating
the parties to resolve any dispute relating to the agreement through
arbitration under the AAA’s commercial arbitration rules. Those
rules afford the arbitrator “the power to rule on his or her own
jurisdiction, including any objections with respect to the existence,
scope, or validity of the arbitration agreement . . . without any need
to refer such matters first to a court.”
IPSI cites several appellate court decisions holding that “[a]n
arbitration provision’s reference to, or incorporation of, arbitration
rules that give the arbitrator the power or responsibility to decide
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issues of arbitrability may constitute clear and unmistakable
evidence the parties intended the arbitrator to decide those
issues.” (Aanderud, supra, 13 Cal.App.5th at pp. 892–893;
Zhang v. Superior Court (2022) 85 Cal.App.5th 167, 180–181,
review granted Feb. 15, 2023, S277736 [“ ‘[w]here the contract
provides for arbitration in conformance with rules that specify
the arbitrator will decide the scope of his or her own jurisdiction,
the parties’ intent is clear and unmistakable, even without a
recital in the contract that the arbitrator will decide any dispute
over arbitrability,’ ” capitalization omitted]; Rodriguez v. American
Technologies, Inc. (2006) 136 Cal.App.4th 1110, 1123 [“[b]y
incorporating [the AAA’s construction industry rules] into their
agreement, the parties clearly evidenced their intention to accord
the arbitrator the authority to determine issues of arbitrability”];
Dream Theater, Inc. v. Dream Theater (2004) 124 Cal.App.4th 547,
549 (Dream Theater) [“the parties state a clear and unmistakable
agreement that the arbitrator will decide whether the dispute is
subject to arbitration when they incorporate into their agreement
the AAA commercial arbitration rules which specify the arbitrator
will decide arbitrability, and nothing in the parties’ agreement
excludes from the jurisdiction of the arbitrator the decision whether
the dispute must be submitted to arbitration,” capitalization
omitted].) We recognize that some courts have reached the opposite
conclusion, particularly in the context of employment disputes.
(See, e.g., Beco v. Fast Auto Loans, Inc. (2022) 86 Cal.App.5th
292, 305 [“[i]n the employment context, and especially under the
facts here, we find that incorporation [of the AAA’s employment
dispute arbitration rules] by reference does not meet the clear and
unmistakable test”]; Aanderud, supra, 13 Cal.App.5th at p. 893,
fn. 2 [collecting cases in which courts “have held that the mere
incorporation of arbitration rules into an arbitration agreement,
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absent other evidence of the parties’ intent, is insufficient to show
a clear and unmistakable agreement to have arbitrators decide
their own jurisdiction”].) These decisions distinguish contrary
authority IPSI cites as “involv[ing] commercial matters and parties
of relative sophistication” (Beco, supra, at p. 305) and often focus
on the employment contract at issue being one of adhesion. (See
Ajamian v. CantorCO2e, L.P. (2012) 203 Cal.App.4th 771, 790
[“reference to AAA rules does not give an employee, confronted
with an agreement she is asked to sign in order to obtain or keep
employment, much of a clue that she is giving up her usual right
to have the court decide whether the arbitration provision is
enforceable”]; accord, Beco, supra, at p. 305.) We conclude the
circumstances presented by the instant case are more like the
circumstances at issue in the authority IPSI cites than those
at issue in the employment dispute cases reaching a contrary
conclusion. As a vice president, Minkovich is a party of relative
sophistication, and nothing in the record suggests the employment
agreement at issue here was a contract of adhesion or that the
circumstances under which the parties executed the agreement
otherwise factually distinguish it from the cases on which IPSI
relies.4 Thus, under the authority IPSI cites, we conclude that
4 Nor does Minkovich argue that IPSI’s authorities are
otherwise distinguishable. Rather, Minkovich argues that we
should ignore the delegation clause because it appears in AAA’s
rules governing commercial matters, rather than employment
disputes, and because the clause “does not specifically say that
the arbitrator has exclusive jurisdiction . . . over the enforceability
of the agreement and deciding whether the entire agreement is
unconscionable.” But—like its commercial arbitration rules—the
AAA’s employment arbitration rules vest the arbitrator with
“the power to rule on his or her own jurisdiction, including any
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by incorporating the AAA’s commercial arbitration rules, the
parties clearly and unmistakably agreed to reserve questions
concerning the validity of the arbitration agreement for the
arbitrator. The first requirement for enforcing the delegation
provision is therefore satisfied.
To assess whether the second requirement for enforcing
a delegation clause has been met, we must consider whether
Minkovich mounted “a specific challenge to the enforceability
of [that] delegation clause or [was] simply arguing that the
agreement as a whole is unenforceable.” (Malone, supra, 226
Cal.App.4th at p. 1559.) If the latter, the superior court lacked
authority to rule, as it did, that the entirety of the arbitration
provision is unconscionable. (Id. at pp. 1159–1560; Nickson v.
Shemran, Inc. (2023) 90 Cal.App.5th 121, 132 [“under Rent-A-
Center, ‘ . . . [i]f the . . . challenge is directed to the agreement as
a whole—even if it applies equally to the delegation clause—the
delegation clause is . . . enforced . . . [and] the arbitrator, not the
court, will determine whether the agreement is enforceable’ ”];
Aanderud, supra, 13 Cal.App.5th at p. 895 [“[w]hen determining
whether a delegation clause is unconscionable, any claim of
unconscionability must be specific to the delegation clause”].)
Minkovich does not dispute that he failed to raise any specific
objections with respect to the existence, scope or validity of the
arbitration agreement.” This language is sufficient under the
authority IPSI cites. (See Dream Theater, supra, 124 Cal.App.4th
at p. 549 [involving portion of AAA’s commercial arbitration rules
providing that arbitrator shall have “ ‘the power to rule on his
or her own jurisdiction, including any objections with respect to
the existence, scope or validity of the arbitration agreement’ ”].)
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challenge to the delegation clause before the superior court.
Accordingly, this second requirement is also satisfied.
Minkovich contends that IPSI is judicially estopped
from seeking to enforce the arbitration provision because IPSI
purportedly disclaimed in its demurrer the existence of the written
employment agreement with Minkovich. The record, however,
does not support Minkovich’s assertion. He is correct that the
following heading (which IPSI characterizes as a “mistake”) appears
in IPSI’s demurrer: “No Written Employment Agreement Exists.”
But immediately below that heading, IPSI concedes the physical
existence of the employment agreement and argues merely that
it is unenforceable because it is unsigned. IPSI similarly conceded
“the physical existence of the [agreement]” in its motion to compel
arbitration before the superior court and reiterates this concession
on appeal. Finally, Minkovich fails to support his contentions with
any legal authority, and we therefore need not address them in any
further detail. (See Crestmar Owners Assn. v. Stapakis (2007) 157
Cal.App.4th 1223, 1232.)
Accordingly, we conclude the two requirements for enforcing
the arbitration agreement’s delegation clause have been satisfied.
The superior court erred in disregarding the delegation clause and
ruling on the validity of the arbitration agreement.5
5 In light of our conclusion, we need not address IPSI’s
remaining contentions, including that (1) the superior court failed
to find the arbitration provision procedurally unconscionable,
(2) the provision is neither procedurally nor substantively
unconscionable, (3) the court erred in its FAA preemption analysis,
and (4) the court misinterpreted the jurisdictional reach of
section 229.
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DISPOSITION
We reverse the superior court’s October 4, 2022 order denying
IPSI’s motion to compel arbitration and vacate all findings in the
order concerning the validity and scope of the arbitration provision.
Upon remand, the court shall issue a new order compelling to
arbitration the parties’ dispute regarding the enforceability of the
arbitration clause.
Appellants are awarded their costs on appeal.
NOT TO BE PUBLISHED.
ROTHSCHILD, P. J.
We concur:
CHANEY, J.
BENDIX, J.
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