Ahmed v. Volkswagen Group of America, Inc. CA1/2

Opinion

Filed 9/18/26 Ahmed v. Volkswagen Group of America, Inc. CA1/2 NOT TO BE PUBLISHED IN OFFICIAL REPORTS California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

FIRST APPELLATE DISTRICT

DIVISION TWO

SALEH AHMED, Plaintiff and Respondent, A172716 v. VOLKSWAGEN GROUP OF (San Mateo County Super. Ct. AMERICA, INC., et al. No. 24-CIV-01208) Defendants and Appellants.

Plaintiff Saleh Ahmed sued defendants Volkswagen Group of America, Inc. (Volkswagen) and Dako Resources, LLC (Dako) (together, defendants), and defendants moved to compel arbitration. Plaintiff did not dispute that he signed an arbitration agreement, but he argued the agreement is unconscionable. Defendants responded that the arbitration agreement contains a delegation clause, so whether the arbitration agreement as a whole is invalid due to unconscionability is a question for the arbitrator. The trial court denied the motion to compel, finding both the delegation clause and the arbitration agreement unconscionable. We conclude that the delegation clause itself is not unconscionable and, therefore, whether the arbitration agreement is unconscionable is for the arbitrator to determine. Accordingly, we reverse.

1 FACTS AND PROCEDURAL ACKGROUND Dako is a contract staffing agency; it employs workers who are assigned to work at Dako’s corporate clients, including Volkswagen. In June 2022, Dako hired plaintiff to work as a telematics test engineer at Volkswagen in California. As part of the onboarding process, plaintiff was required to sign employment and arbitration agreements, which he did on June 13, 2022. The arbitration agreement, a six-page document titled “Agreement to Arbitrate,” includes 28 numbered paragraphs with headings “1. Introduction,” “2. Effective Date,” and so on. Paragraph 13. “Governing Law” provides that arbitration “shall be conducted in accordance with the Federal Arbitration Act (‘FAA’) [(9 U.S.C. § 2)] . . . .” Plaintiff was an employee of Dako until October 2023. In 2024, plaintiff brought this putative class action, alleging defendants failed to pay employees for all hours worked, failed to provide meal and rest periods, and failed to timely pay wages at termination of employment (among other things). Plaintiff claimed various Labor Code violations. Dako filed a motion to compel arbitration, and Volkswagen later joined in Dako’s motion. Opposing defendants’ motion, plaintiff argued the arbitration agreement “is irredeemably unconscionable.”1 (Capitalization and bolding 1 Unconscionability is “a valid defense to a petition to compel arbitration.” (Sonic-Calabasas A, Inc. v. Moreno (2013) 57 Cal.4th 1109, 1142.) “A contract is unconscionable if one of the parties lacked a meaningful choice in deciding whether to agree [procedural unconscionability] and the contract contains terms that are unreasonably favorable to the other party [substantive unconscionability].” (OTO, L.L.C. v. Kho (2019) 8 Cal.5th 111, 125 (OTO).) A party seeking to avoid arbitration under the defense of 2 omitted.) He argued the arbitration agreement is procedurally unconscionable because it was offered on a “ ‘take-it-or-leave-it’ ” basis, and he asserted that “substantive unconscionability plagues the [employment and arbitration] agreements to an egregious degree,” noting the arbitration agreement lacks mutuality and includes “improper fee provisions.” (Bolding omitted.) In reply, Dako argued the arbitration agreement contains an enforceable delegation clause and, consequently, “challenges of unconscionability must be decided by the arbitrator.” (Capitalization and bolding omitted.) Dako cited the last sentence of paragraph 4 of the arbitration agreement as the delegation clause. Paragraph 4 provides: “4. Agreement to Arbitrate. Any and all covered claims (as defined in 8 below) that individual has or may in the future have against either employer or Volkswagen shall be exclusively submitted to and only resolved by final and binding arbitration administered by JAMS pursuant to its employment arbitration rules and procedures (the ‘JAMS Rules’). All arbitration proceedings shall be confidential except to the extent otherwise prohibited by applicable law. The arbitrator shall have the exclusive authority to rule on the scope of the arbitrator’s jurisdiction, including any and all issues of procedural and/or substantive arbitrability.” (Italics added.)2 unconscionability must show “[b]oth procedural and substantive unconscionability.” (Ibid.) 2 In a footnote in its opening brief, Dako requests we take judicial notice of “JAMS Minimum Standard No. 7.” We do not consider this request because Dako did not “file[] a separate motion in this court seeking judicial notice” in compliance with California Rules of Court, rule 8.252(a). (United Teachers of Los Angeles v. Los Angeles Unified School Dist. (2012) 54 Cal.4th 504, 528 [“we will not consider a judicial notice motion . . . unless a party files 3 The trial court denied the motion to compel arbitration. The court found the one-sentence delegation clause “clear and unmistakable” but declined to enforce it. The court found the delegation clause procedurally unconscionable because plaintiff was required to sign the arbitration agreement as a condition of employment, and it found the delegation clause substantively unconscionable because the agreement to arbitrate covers claims plaintiff has against defendants but does not cover claims defendants might have against plaintiff. The court reasoned: “The subject delegation clause is part of § 4 which states that the agreement to arbitrate refers to Plaintiff’s claims against Dako/Volkswagen, but does not encompass[] Dako/Volkswagen’s claims against Plaintiff. Therefore, it is impossible to conclude the delegation clause is mutual, and this Court emphasizes the substantive unconscionability with respect to not only the covered claims but also the delegation clause itself.” The court similarly found the arbitration agreement as a whole “unenforceable due to lack of mutuality.” DISCUSSION On appeal, both defendants contend the delegation clause is enforceable, so plaintiff’s claim that the arbitration agreement is unconscionable must be decided by an arbitrator. Dako further argues that even if the delegation clause is not enforced, the trial court erred in finding the arbitration agreement unconscionable. A. Standard of Review “The party seeking arbitration bears the burden of proving the existence of an arbitration agreement, and the party opposing arbitration a separate motion in this court seeking judicial notice”].) In any event, it is unnecessary to our decision.

4 bears the burden of proving any defense, such as unconscionability.” (Pinnacle Museum Tower Assn. v. Pinnacle Market Development (US), LLC (2012) 55 Cal.4th 223, 236.) When “the evidence is not in conflict, we review the trial court’s denial of arbitration de novo.” (Ibid.) “We review the trial court’s findings of disputed fact for substantial evidence; we review its finding of unconscionability based on those facts de novo.” (Gostev v. Skillz Platform, Inc. (2023) 88 Cal.App.5th 1035, 1047 (Gostev).) B. Enforceability of the Delegation Clause 1. The Law on Delegating Arbitrability Issues to an Arbitrator “The usual presumption is that a court, not an arbitrator, will decide in the first instance whether a dispute is arbitrable.” (Gostev, supra, 88 Cal.App.5th at p. 1048.) But “parties can agree to arbitrate ‘gateway’ questions of ‘arbitrability,’ such as whether the parties have agreed to arbitrate or whether their agreement covers a particular controversy.” (Rent- A-Center, West, Inc. v. Jackson (2010) 561 U.S. 63, 68–69 (Rent-A-Center).)3 An agreement within an arbitration agreement “to delegate to the arbitrator, instead of a court, questions regarding the enforceability of the agreement” is often referred to as a “delegation clause.” (Tiri v. Lucky Chances, Inc. (2014) 226 Cal.App.4th 231, 241, 238 (Tiri); e.g., Aanderud v. Superior Court (2017) 13 Cal.App.5th 880, 884; Malone v. Superior Court (2014) 226 Cal.App.4th 1551, 1555 (Malone).) “[A] delegation clause—nested within the larger arbitration agreement—must be viewed as an independent (‘severable’) contract.” (Nielsen Contracting, Inc. v. Applied Underwriters, Inc. (2018) 22 Cal.App.5th 3 We note that Rent-A-Center, supra, 561 U.S. at page 65, was decided under the FAA. Ahmed does not dispute that the FAA governs the arbitration agreement in this case.

5 1096, 1108 (Nielsen), citing Rent-A-Center, supra, 561 U.S. at pp. 70–71.) “[A]s with any independent contract, the court must resolve specific challenges to the delegation clause,” but “an argument that the arbitration agreement or the underlying contract is unenforceable is not sufficient” to render the delegation clause unenforceable. (Nielsen at p. 1108, citing Rent- A-Center, supra, 561 U.S. at pp. 71–76.) If the court finds that the delegation clause within the arbitration agreement is valid, then the delegation clause is enforced, and an arbitrator—not the court—decides contract defenses directed at elements of the agreement other than the delegation clause, such as “whether the arbitration agreement as a whole . . . is unconscionable.” (Tiri, supra, 226 Cal.App.4th at pp. 238–239 [“As a result of our conclusion that the delegation clause is valid, we leave to the arbitrator the question whether the arbitration agreement as a whole, or any of its other severable provisions, is unconscionable”].) Thus, our initial task in this case is to determine whether the delegation clause—considered by itself as an independent contract—is an enforceable agreement. “There are two prerequisites for a delegation clause to be effective. First, the language of the clause must be clear and unmistakable. (Rent-A- Center, supra, 561 U.S. at p. 69, 70, fn. 1.) Second, the delegation must not be revocable under state contract defenses such as fraud, duress, or unconscionability.” (Tiri, supra, 226 Cal.App.4th at p. 242.) 2. The Delegation Clause by Itself is Not Unconscionable The delegation clause in this case is the last sentence of paragraph 4 of the arbitration agreement: “The arbitrator shall have the exclusive authority to rule on the scope of the arbitrator’s jurisdiction, including any and all issues of procedural and/or substantive arbitrability.”

6 Plaintiff does not dispute that this delegation clause meets the first requirement of showing “clear and unmistakable evidence that the parties intended to delegate arbitrability issues to an arbitrator.” (Tiri, supra, 226 Cal.App.4th at p. 244.) “We see no reason to disagree with the parties’ tacit understanding that the delegation clause here was clear.” (Id. at p. 242.) The only contested issue is whether the delegation clause is unconscionable and, therefore, unenforceable. As we have mentioned, “the unconscionability doctrine ‘ “has both a procedural and a substantive element.” ’ ” (OTO, supra, 8 Cal.5th at p. 125.) “ ‘The procedural element addresses the circumstances of contract negotiation and formation, focusing on oppression or surprise due to unequal bargaining power. [Citations.] Substantive unconscionability pertains to the fairness of an agreement’s actual terms and to assessments of whether they are overly harsh or one-sided.’ [Citation.] [¶] Both procedural and substantive unconscionability must be shown for the defense to be established, but ‘they need not be present in the same degree.’ ” (Ibid.) a. Procedural Unconscionability “A procedural unconscionability analysis ‘begins with an inquiry into whether the contract is one of adhesion.’ [Citation.] An adhesive contract is standardized, generally on a preprinted form, and offered by the party with superior bargaining power ‘on a take-it-or-leave-it basis.’ [Citations.] Arbitration contracts imposed as a condition of employment are typically adhesive.” (OTO, supra, 8 Cal.5th at p. 126.) “ ‘Ordinary contracts of adhesion, although . . . indispensable facts of modern life . . ., contain a degree of procedural unconscionability even without any notable surprises.’ ” (Baltazar v. Forever 21, Inc. (2016) 62 Cal.4th 1237, 1244.)

7 Substantial evidence supports the trial court’s finding that the delegation clause within the arbitration agreement is a contract of adhesion. The six-page arbitration agreement appears to be a pre-printed form, and paragraph 27 expressly provides that the employee understands that the arbitration agreement, which includes the delegation clause, “is a condition of employment with Employer or assignment to Volkswagen.” Dako’s human resources witness declared that the arbitration agreement and employment agreement are among the “necessary onboarding documents” that all “employee candidates” sign. On this record, the trial court reasonably could find that the delegation clause is procedurally unconscionable because it is part of a contract of adhesion. We are not persuaded by Dako’s argument that there is no procedural unconscionability because plaintiff signed the arbitration agreement as “the result of a negotiation of terms between the parties that were acceptable to [plaintiff].” In Tiri, the Court of Appeal found an arbitration agreement adhesive despite “statements by [the employer defendant]’s human-resources manager that [plaintiff] Tiri was never told that the agreement was nonnegotiable and that Tiri never proposed changes.” (Tiri, supra, 226 Cal.App.4th at p. 245.) The court found this evidence “fell far short of demonstrating an arm’s-length bargaining transaction,” and noted, “Tellingly, the manager did not say that the agreement was actually negotiable, that [the employer] offered to negotiate, or that [the employer] would have considered proposed changes. Under these circumstances, we have no difficulty concluding that the arbitration agreement was a contract of adhesion.” (Ibid.) Similarly, in this case, nothing suggests the terms of the arbitration agreement were up for negotiation. To the contrary, a Dako employee explained that a Volkswagen recruiter “insisted that Dako use its 8 own [that is, Volkswagen’s] arbitration agreement, which has clearer provisions making Volkswagen a third-party to the Arbitration Agreement between Dako and Plaintiff,” strongly suggesting that its terms, including the delegation clause, were non-negotiable. b. Substantive Unconscionability “Substantive unconscionability examines the fairness of a contract’s terms. This analysis ‘ensures that contracts, particularly contracts of adhesion, do not impose terms that have been variously described as “ ‘ “overly harsh” ’ ” [citation], “ ‘unduly oppressive’ ” [citation], “ ‘so one-sided as to “shock the conscience” ’ ” [citation], or “unfairly one-sided.” ’ ” (OTO, supra, 8 Cal.5th at pp. 129–130.) “[L]ack of mutuality in an arbitration agreement is a hallmark of substantive unconscionability.” (Santana v. Studebaker Health Care Center, LLC (2026) 120 Cal.App.5th 1, 22.) In the context of an arbitration agreement, “if an agreement singles out certain claims for arbitration, there must be ‘mutuality,’ ” meaning “[t]he agreement cannot require ‘one contracting party, but not the other, to arbitrate all claims arising out of the same transaction or occurrence or series of transactions or occurrences.’ [Citations.] Instead, a ‘ “modicum of bilaterality” ’ is required.” (Ramirez v. Charter Communications, Inc. (2024) 16 Cal.5th 478, 495.) Here, the trial court found the delegation clause substantively unconscionable on the ground that it “is part of” paragraph 4 of the arbitration agreement, “which states that the agreement to arbitrate refers to Plaintiff’s claims against Dako/Volkswagen, but does not encompass[] Dako/Volkswagen’s claims against Plaintiff.” Based on the lack of mutuality in the obligation to arbitrate claims, the court found, “it is impossible to conclude the delegation clause is mutual.”

9 Defendants contend the trial court erred in relying on terms of the arbitration agreement other than the delegation clause itself in its unconscionability analysis.4 This contention has merit. A delegation clause within an arbitration agreement is treated “as a separate agreement to arbitrate solely the issues of enforceability.” (Malone, supra, 226 Cal.App.4th at p. 1559, italics added; accord Nielsen, supra, 22 Cal.App.5th at p. 1108 [“a delegation clause . . . must be viewed as an independent (‘severable’) contract”].) “For this reason, 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 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).” (Malone, at pp. 1559–1560.)

4 Dako argues, “[T]he delegation clause must be analyzed apart from the alleged unconscionability of the Arbitration Agreement.” Volkswagen argues, “[A]n opposing party presented with an agreement to arbitrate containing a delegation clause must specifically challenge the latter,” and it is insufficient to raise “a challenge only to the broader agreement since the delegation clause and broader agreement to arbitrate are distinct agreements.”

10 In this case, plaintiff’s claim of lack of mutuality is directed to the arbitration agreement as a whole. Viewing the one-sentence delegation clause as its own separate contract, however, we see no lack of mutuality. Its specification that the arbitrator has “the exclusive authority to rule on the scope of the arbitrator’s jurisdiction, including any and all issues of procedural and/or substantive arbitrability” does not single out one party. Instead, any party is required to submit to the arbitrator issues of arbitrability, and any party can enforce the delegation clause. (See, e.g., Malone, supra, 226 Cal.App.4th at p. 1564 [where the delegation clause applies to both parties, “it is clear that the delegation clause is not one sided, and it is therefore not substantively unconscionable due to a lack of bilaterality”]; Tiri, supra, 226 Cal.App.4th at pp. 246–247 [“The delegation clause here does not lack mutuality because [plaintiff] Tiri and [defendant] Lucky Chances are bound by it equally”].) We reject plaintiff’s argument that the delegation clause cannot be read “independently from the preceding language in the very same section/paragraph.” In fact, a court “must” view a delegation clause “as an independent (‘severable’) contract.” (Nielsen, supra, 22 Cal.App.5th at p. 1108; see Rent-A-Center, supra, 561 U.S. at pp. 71–72 [a delegation clause is severable from the remaining arbitration agreement; therefore, unless the plaintiff “challenged the delegation provision specifically,” the delegation clause must be treated as valid and enforced “leaving any challenge to the validity of the [arbitration a]greement as a whole for the arbitrator”].) Plaintiff also asserts, “[T]he same lack of mutuality plagues both the entire agreement as well as the delegation clause specifically.” But, as we have explained, the delegation clause, by itself, binds the parties equally.

11 3. Conclusion Plaintiff has failed to show that the delegation clause, as opposed to the arbitration agreement as a whole, is substantively unconscionable. We conclude the delegation clause is valid, and therefore the trial court should have granted the motion to compel arbitration. “[I]t will be for the arbitrator to consider the conscionability of the agreement as a whole.” (Tiri, supra, 226 Cal.App.4th at p. 250.) We express no view on that issue. DISPOSITION The order denying defendants’ motion to compel arbitration is reversed. The parties shall bear their own costs on appeal.

12 _________________________ Miller, J.

WE CONCUR:

_________________________ Stewart, P. J.

_________________________ Desautels, J.

A172716, Ahmed v. Volkswagen Group of America, Inc. et al.