Ladioray v. Longs Drug Stores California

Background

Mary Grace Ladioray originally filed this lawsuit in Alameda County Superior Court. She alleges five violations of the California Fair Employment and Housing Act (FEHA), wrongful termination, negligent hiring/supervision/retention, and intentional infliction of emotional distress (IIED) arising from her employment and termination at a CVS Pharmacy. The FEHA and wrongful-termination claims run against three CVS-affiliated defendants — Longs Drug Stores California, L.L.C., CVS Pharmacy, Inc., and CVS Health Solutions, LLC (collectively, the "CVS Defendants"). The IIED claim runs against the CVS Defendants and also against two individual supervisors, Austin Huang and Dale Larson, both California citizens. Ladioray herself is a California citizen. Neither Huang nor Larson had been served or appeared as of the date of this order.

The CVS Defendants removed the case to federal court under 28 U.S.C. § 1332(a) (diversity jurisdiction, which requires the parties to be citizens of different states and the amount in controversy to exceed $75,000). They acknowledged Huang and Larson are California citizens — the same state as Ladioray — which ordinarily would destroy diversity and require remand. However, CVS Defendants argued that Huang and Larson were fraudulently joined: i.e., added solely to defeat federal jurisdiction, without any real prospect of a successful claim against them.

Ladioray moved to remand the case to state court. CVS Defendants separately moved to compel arbitration under an arbitration policy Ladioray allegedly agreed to during her employment.

Motion to Remand

Fraudulent Joinder Standard. Under the fraudulent joinder doctrine, a non-diverse defendant's citizenship may be disregarded if there is no possibility that a state court would find the plaintiff stated a valid cause of action against that defendant. The removing party bears a "particularly heavy burden" to establish fraudulent joinder. Remand is required if any such possibility exists.

IIED Claim Against Huang. Ladioray alleged that Huang, her supervisor, instructed her to keep working by taking Advil and wearing a back support belt after a workplace injury, and that he failed to report her injury to CVS for over a month. The court found these allegations described standard personnel management activity. Under California law, even if a supervisor's management actions are improperly motivated, they do not rise to the level of "extreme and outrageous conduct" — conduct so extreme it exceeds all bounds tolerated in a civilized community — required for an IIED claim. The court cited Janken v. GM Hughes Electronics, 46 Cal. App. 4th 55 (Ct. App. 1996).

IIED Claim Against Larson. Ladioray alleged that Larson informed her that CVS could not identify a reasonable accommodation and told her she was terminated. The court similarly found this to be personnel management activity that does not support an IIED claim.

Ladioray's Counter-Arguments. Ladioray pointed to cases holding that deceptive or other conduct by a supervisor outside properly delegated management authority could support an IIED claim. The court acknowledged those cases but found no such extreme conduct alleged in the complaint. On reply, Ladioray stated only in general terms that "further amendment could provide additional detail," without identifying specific facts she could add. The court found this insufficient.

Result. The court found no possibility that a California state court would find Ladioray stated an IIED claim against Huang or Larson. Both individual defendants were fraudulently joined, their citizenship is disregarded, and complete diversity exists. The motion to remand — including the associated request for attorneys' fees — was denied. The court did not reach CVS Defendants' separate argument about the California Workers' Compensation Act.

Motion to Compel Arbitration

Applicability of the Federal Arbitration Act (FAA)

Ladioray argued the FAA, the federal law governing arbitration agreements in commercial contracts, does not apply because her employment did not "involve interstate commerce." The court rejected this argument, finding that because CVS is engaged in interstate commerce, Ladioray's employment with CVS falls within the FAA's scope.

Formation of an Agreement to Arbitrate

Defendants presented evidence that on March 23, 2018, Ladioray completed a training course using her unique employee credentials and password. The training required her to (1) click into the CVS Health Colleague Guide to Arbitration and the Arbitration Policy, and (2) electronically sign an acknowledgment that she would be bound by the arbitration policy unless she opted out within 30 days. Ladioray did not opt out.

Ladioray submitted a declaration stating she did not recall ever seeing or receiving the arbitration documents or signing them. The court found this lack of recollection insufficient to create a genuine factual dispute (a real dispute of material fact) in the face of CVS's contemporaneous business records and sworn declarations from individuals with knowledge explaining that the training could only be accessed with unique employee credentials and required affirmative confirmation of the acknowledgment. The court noted that Ladioray did not expressly deny agreeing — she only said she could not remember.

Ladioray also argued no agreement was formed because she never agreed to conduct the transaction electronically. The court rejected this, citing evidence that Ladioray was informed her click of the "Yes" button created a legally binding electronic signature, and finding this context sufficient to establish consent to the electronic transaction.

Delegation Clause

Ladioray argued the arbitration agreement is both procedurally and substantively unconscionable (i.e., unfair in how it was formed and in its terms). The court declined to reach these arguments. The arbitration agreement incorporated the American Arbitration Association (AAA) Employment Arbitration Rules, which include a "delegation clause" — a provision giving the arbitrator, not the court, authority to decide questions of arbitrability (whether claims must be arbitrated at all), including challenges to the agreement's existence, scope, and validity. The Ninth Circuit has held that incorporation of AAA rules into an arbitration agreement constitutes clear and unmistakable intent to delegate arbitrability to the arbitrator. See Brennan v. Opus Bank, 796 F.3d 1125 (9th Cir. 2015).

Ladioray did not separately challenge the delegation clause itself as unconscionable — she did not explain how having an arbitrator decide arbitrability was itself unconscionable, which the court noted she would have been required to do under Holley-Gallegly v. TA Operating, LLC, 74 F.4th 997 (9th Cir. 2023). Accordingly, the unconscionability arguments were reserved for the arbitrator to decide.

Disposition

The Motion to Remand is denied. The Motion to Compel Arbitration is granted. The case is stayed (put on hold) pending the outcome of arbitration proceedings. The parties must file a joint status report every 180 days and within 14 days of the conclusion of arbitration; the first status report is due March 2, 2027.