Ramirez v. Charter Communications, Inc. ( 2022 )

Filed 2/18/22
CERTIFIED FOR PUBLICATION
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION FOUR
ANGELICA RAMIREZ, B309408
Plaintiff and Respondent, (Los Angeles County
Super. Ct. No. 20STCV25987)
v.
CHARTER COMMUNICATIONS,
INC.,
Defendant and Appellant.
APPEAL from a judgment of the Los Angeles County Superior
Court. David J. Cowan, Judge. Affirmed.
Hill, Farrer & Burrill, James A. Bowles and Casey L. Morris for
Defendant and Appellant.
Panitz Law Group and Eric A. Panitz for Plaintiff and
Respondent.
Plaintiff Angelica Ramirez and defendant Charter
Communications, Inc. (Charter) are parties to an arbitration
agreement. After Charter terminated Ramirez’s employment, Ramirez
filed suit alleging claims under the Fair Employment and Housing Act
(Gov. Code, § 12940, et. seq.; FEHA)1 against Charter, and Charter filed
a motion to compel arbitration. Finding the arbitration agreement
unconscionable, the trial court denied Charter’s motion, and Charter
appealed. On appeal, Charter contends the trial court erred in
concluding the arbitration agreement is unconscionable and in refusing
to sever any provisions the court considered unconscionable.
We affirm the trial court’s order denying the motion to compel
arbitration (though we disagree with certain particulars of the trial
court’s reasoning). In affirming, we also disagree with Patterson v.
Superior Court (2021) 70 Cal.App.5th 473 (Patterson), which considered
the enforceability of a provision in the same arbitration agreement at
issue here that awards attorney fees to the prevailing party on a motion
to compel arbitration. After concluding that the provision is not
enforceable as written, the court in Patterson incorporated an implied
term bringing the provision into accord with the asymmetrical attorney
fee standard of FEHA under section 12965, subdivision (c)(6) (a
prevailing defendant is entitled to attorney fees only if the employee’s
action was frivolous, unreasonable, or groundless.)2 With that implied
1 All undesignated section references are to the Government Code.
2 Effective January 1, 2022, the Legislature renumbered former
subdivision (b) of Government Code section 12965 as current subdivision
2
term, the court in Patterson found the provision enforceable. As we
explain in detail below, we disagree with Patterson’s analysis and find
the provision unconscionable.
FACTUAL AND PROCEDURAL BACKGROUND
In 2017, Charter created a program for resolving and ultimately
arbitrating employment-related disputes, called Solution Channel. All
individuals applying for a position with Charter were required to agree
to participate in Solution Channel as well as agree to Charter’s mutual
arbitration agreement (arbitration agreement). Individuals who
applied and received an offer from Charter were then required to
complete a web-based onboarding process as a condition of employment.
Prospective employees were prompted to review and accept various
policies and agreements, including the arbitration agreement and the
Solution Channel program guidelines (guidelines).
After agreeing to submit all employment-related disputes with
Charter to arbitration, Ramirez was hired as an employee in July 2019.
In May 2020, Charter terminated Ramirez. In July 2020, Ramirez filed
suit, alleging multiple causes of action under FEHA and wrongful
discharge in violation of public policy.
Charter filed a motion to compel arbitration and sought attorney
fees in connection with its motion pursuant to the arbitration
agreement. In opposition, Ramirez argued that the arbitration
(c)(6). (Stats. 2021, ch. 278, § 7.) The language of this subdivision was left
unaltered.
3
agreement was procedurally unconscionable because it was a contract of
adhesion. She argued the agreement was substantively unconscionable
for several reasons, including that it shortened the statute of
limitations, broadened the employer’s ability to recover attorney fees
against an employee, unduly limited discovery, and favored the
employer in defining the scope of the claims covered. She also argued
that because unconscionability permeated the agreement, severance
was not permissible. Lastly, Ramirez contended Charter was not
entitled to attorney fees and in any event, the request for fees was itself
substantially unconscionable. Charter responded that the arbitration
agreement’s terms were not unconscionable and, even if specific terms
were unconscionable, the trial court should sever them and enforce the
parties’ agreement to arbitrate.
Prior to the hearing on the motion, the court issued a tentative
ruling granting Charter’s motion to compel. The tentative ruling found
that there was minimal procedural unconscionability from the adhesive
nature of the contract, and two points of substantive
unconscionability—the restriction on timing for arbitration of FEHA
claims and the remedy provision for prevailing party fees—were
severable. The tentative ruling denied Charter’s request for attorney
fees in connection with the motion to compel pursuant to the arbitration
agreement.
At the November 16, 2020 hearing, counsel for Ramirez noted that
in the tentative ruling the court “found minimal procedural
unconscionability because there was a forced arbitration agreement as a
condition of employment.” But there were in fact three, not two, points
4
of substantive unconscionability that were part of the tentative: the
restriction on timing for arbitration of FEHA claims; the remedy
provision for prevailing party fees; and the attorney fee provision
regarding a party bringing a successful motion to compel. Counsel
further argued the arbitration agreement lacked mutuality and that the
90 days to complete discovery was also substantively unconscionable.
Counsel emphasized that unconscionability must be analyzed at the
time the parties entered into the agreement, instead of at the time of
Ramirez’s lawsuit. In response, counsel for Charter argued the
agreement was not substantively unconscionable. However, severance
would be appropriate as the disputed terms do not specifically affect
Ramirez. The court took the matter under submission.
On November 25, 2020, the court issued a final written ruling
denying Charter’s motion to compel. The court noted that it was
undisputed the arbitration agreement was an adhesion contract as a
mandatory condition of employment. However, adhesion alone
establishes only a minimum degree of procedural unconscionability.
But the court further found the agreement was substantively
unconscionable because it shortened the statute of limitations for FEHA
claims, failed to restrict attorney fee recovery to only frivolous or bad
faith FEHA claims (contrary to FEHA), and impermissibly provided for
an interim fee award for a party successfully compelling arbitration.
The court did not find the limited discovery or the exclusion of certain
claims under the agreement substantially unconscionable. The court
concluded the arbitration agreement is “permeated with
unconscionability” and therefore, severance was improper.
5
Charter filed a timely notice of appeal.
DISCUSSION
Charter contends the trial court erred in denying its motion to
compel because the arbitration agreement is neither procedurally nor
substantively unconscionable. And even if it were, the trial court
should have severed the substantively unconscionable provisions,
upheld the agreement, and ordered the parties to arbitration. Ramirez
responds that the arbitration agreement is procedurally and
substantively unconscionable and the trial court’s decision to find the
entire agreement unconscionable, rather than severing the
unconscionable provisions, should not be disturbed on appeal.
We conclude the arbitration agreement was a contract of adhesion,
which establishes a minimal degree of procedural unconscionability.
We further conclude the agreement contained a high degree of
substantive unconscionability based on the restriction of the statute of
limitations for FEHA claims, the provision granting an award of
attorney fees for a prevailing party in compelling arbitration, the lack of
mutuality, and the limitation on discovery. Therefore, we hold the
arbitration agreement is permeated by unconscionability and cannot be
enforced.
A. Standard of Review and Applicable Law
An order denying a motion to compel arbitration is appealable.
(Code Civ. Proc., § 1294, subd. (a).) “Standards of review of orders on a
motion to compel arbitration are not uniform. [Citation.] Generally, if
6
the trial court’s order rests on a factual determination, the appellate
court adopts a substantial evidence standard. If the court’s decision
rests solely on an interpretation of law, then we employ the de novo
standard of review. [Citation.]” (Contreras v. Superior Court (2021) 61
Cal.App.5th 461, 468.)
A written agreement to submit a controversy to arbitration is
valid and enforceable, absent a reason under state law, such as
unconscionability, that would render any contract revocable. (Code Civ.
Proc., § 1281; Armendariz v. Foundation Health Psychcare Services, Inc.
(2000) 24 Cal.4th 83, 114 (Armendariz); Sandoval-Ryan v. Oleander
Holdings LLC (2020) 58 Cal.App.5th 217, 222.) “The party seeking to
compel arbitration bears the burden of proving the existence of an
arbitration agreement, while the party opposing the petition bears the
burden of establishing a defense to the agreement’s enforcement.
[Citation.]” (Aanderud v. Superior Court (2017) 13 Cal.App.5th 880,
890; Civ. Code, § 1670.5, subd. (a) [“If the court as a matter of law finds
the contract or any clause of the contract to have been unconscionable
at the time it was made the court may refuse to enforce the contract”].
The doctrine of unconscionability has both a procedural and a
substantive element. (Baltazar v. Forever 21, Inc. (2016) 62 Cal.4th
1237, 1243–1244 (Baltazar).) “‘[T]he former focus[es] on “‘oppression’”
or “‘surprise’” due to unequal bargaining power, the latter on “‘overly
harsh’” or “‘one-sided’” results.’ [Citation.]” (Little v. Auto Stiegler, Inc.
(2003) 29 Cal.4th 1064, 1071.) But the two elements need not exist to
the same degree. The more one is present, the less the other is
7
required. (Armendariz, supra, 24 Cal.4th at p. 114 [unconscionability is
measured on a sliding scale in which greater procedural
unconscionability requires less substantive unconscionability, and vice
versa].)
If a court finds a clause within a contract to have been
unconscionable at the time it was made, the court may refuse to enforce
the contract, or instead sever the unconscionable clause and enforce the
remainder of the contract. (Civ. Code, § 1670.5, subd. (a); Armendariz,
supra, 24 Cal.4th at p. 122; Davis v. Kozak (2020) 53 Cal.App.5th 897,
905 (Davis).) “We review a trial court’s order declining to sever the
unconscionable provisions from an arbitration agreement for abuse of
discretion.” (Lange v. Monster Energy Co. (2020) 46 Cal.App.5th 436,
453, citing Armendariz, supra, 24 Cal.4th at p. 124.)
B. Procedural Unconscionability
“A procedural unconscionability analysis ‘begins with an inquiry
into whether the contract is one of adhesion.’ [Citation.] An adhesive
contract is standardized . . . 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, LLC v. Kho (2019) 8 Cal.5th 111, 126.)
Here, it is undisputed that the arbitration agreement is an adhesion
contract because it was a mandatory condition of employment.
“[T]he adhesive nature of the contract is sufficient to establish
some degree of procedural unconscionability.” (Sanchez v. Valencia
8
Holding Co., LLC (2015) 61 Cal.4th 899, 915; Alvarez v. Altamed Health
Services Corp. (2021) 60 Cal.App.5th 572, 591 [adhesion “alone is a
fairly low level of procedural unconscionability”].) “However, the fact
that the arbitration agreement is an adhesion contract does not render
it automatically unenforceable as unconscionable. Courts have
consistently held that the requirement to enter into an arbitration
agreement is not a bar to its enforcement. [Citations.]” (Serafin v.
Balco Properties Ltd., LLC (2015) 235 Cal.App.4th 165, 179.) Rather, it
is “‘the beginning and not the end of the analysis insofar as
enforceability of its terms is concerned.’ [Citation.]” (Graham v.
Scissor-Tail, Inc. (1981) 28 Cal.3d 807, 819.) When, as here, the degree
of procedural unconscionability is low, the agreement must be enforced
unless the degree of substantive unconscionability is high. (Serpa v.
California Surety Investigations, Inc. (2013) 215 Cal.App.4th 695, 704;
accord, Dotson v. Amgen, Inc. (2010) 181 Cal.App.4th 975, 981–982.)
C. Substantive Unconscionability
Charter contends the trial court erroneously found the arbitration
agreement substantively unconscionable based on the restriction on the
statute of limitations for FEHA claims, the provision granting the
prevailing party in the arbitration any remedy (including attorney fees)
available under applicable law, and a separate provision granting
attorney fees in connection with a successful motion to compel
arbitration. We conclude the trial court’s analysis was correct as to the
restriction on the statute of limitations and the attorney fee provision
9
on a motion to compel arbitration. We conclude the trial court was
incorrect as to the remedy provision for a prevailing party in the
arbitration, the limitations on discovery, and the mutuality of the
agreement.
1. Restriction on Statute of Limitations
“While parties to an arbitration agreement may agree to shorten
the applicable limitations period for bringing an action, a shortened
limitations period must be reasonable. [Citation.] “‘A contractual
period of limitation is reasonable if the plaintiff has a sufficient
opportunity to investigate and file an action, the time is not so short as
to work a practical abrogation of the right of action, and the action is
not barred before the loss or damage can be ascertained.’” [Citation.]”
(Baxter v. Genworth North America Corp. (2017) 16 Cal.App.5th 713,
731 (Baxter).)
At the time the arbitration agreement was executed, a FEHA
administrative claim had to be filed with the Department of Fair
Employment and Housing (DFEH) within one year of the employer’s
discriminatory act. (Baxter, supra, 16 Cal.App.5th at p. 730; see also
Civ. Code, § 1670.5, subd. (a); O’Hare v. Municipal Resources
Consultants ( 2003) 107 Cal.App.4th 267, 281 [“a judicial determination
of unconscionability focuses on whether the contract or any of its
provisions were ‘unconscionable at the time it was made’”].)3 Further,
3 Effective January 1, 2020, the Legislature “enlarge[d] the time for
filing a [FEHA] claim [from one] to three years from the date of the
10
under the law as it existed at the time of execution of the agreement (as
now), DFEH had up to one year from the filing of the administrative
claim to complete its investigation and issue a “right-to-sue” letter (Gov.
Code, § 12965, subd. (c)(1)(A)), and a lawsuit alleging FEHA claims had
to be filed within one year of the issuance of the “right-to-sue” letter.
(Gov. Code, §§ 12960, subd. (f)(1)(B), 12965, subd. (c)(1)(C).) Thus,
factoring in the time limit for an employee to file a claim with DFEH
and for DFEH to investigate and respond to the claim, the outside limit
to file a FEHA lawsuit under the law as it existed when the arbitration
agreement was executed could have been as long as three years.
Section E of the arbitration agreement provides, in pertinent part:
“The aggrieved party must give written notice of the claim, in the
manner required by this Agreement, within the time limit established
by the applicable statute of limitations for each legal claim being
asserted. To be timely, any claim that must be filed with an
administrative agency or body as a precondition or prerequisite to filing
the claim in court, must be filed with Solution Channel within the time
period by which the charge, complaint or other similar document would
have had to be filed with the agency or other administrative body.”4
challenged conduct.” (Brome v. Dept. of the California Highway Patrol (2020)
44 Cal.App.5th 786, 793, fn. 2; see Gov. Code, § 12960, subd. (e)(5).)
4 Charter conveniently omits in its briefing and at oral argument the fact
that the guidelines provided an identical timetable for filing a claim with
Solution Channel as Section E of the arbitration agreement. The guidelines
stated the statute of limitations was “[t]he period of time during which the
law allows an individual or entity to pursue a particular type of claim. . . .
Also, to be timely, any claim that must be filed with an administrative agency
11
Under this provision of the arbitration agreement, the period
within which an employee must make a FEHA claim is one year, the
applicable statutory period under FEHA for filing an administrative
claim with DFEH. (See Baxter, supra, 16 Cal.App.5th at p. 730.) But
as we have noted, FEHA grants DFEH up to one year to investigate and
issue a “right-to-sue” letter (Gov. Code, § 12965, subd. (c)(1)(A)), and
grants the employee one year after the “right-to-sue” letter to file an
action in court (Gov. Code, §§ 12960, subd. (f)(1)(B), 12965, subd.
(c)(1)(C)).
The practical effect of the arbitration agreement is therefore
twofold: it cuts the period that would otherwise apply to file a FEHA
action in court by as much as two years, and (given that DFEH has up
to one year to investigate and issue a “right-to-sue” letter), it makes it
possible that the employee will be compelled to arbitrate before DFEH
has completed its investigation and issued a “right-to-sue” letter.
Therefore, we agree with the trial court that reducing the period within
which a FEHA claim may be brought from three years to one is
substantively unconscionable, as it substantially conflicts with the
statutorily sanctioned period for vindicating statutory rights under
FEHA. (See Ellis v. U.S. Security Associates (2014) 224 Cal.App.4th
1213, 1223 [employment discrimination claims are already subject to
or body as a precondition or prerequisite to filing the claim in court, must be
filed with Solution Channel within the time period by which the charge,
complaint or similar document would have had to be filed with the agency or
other administrative body.”
12
shortened statutes of limitation]; Baxter, supra, 16 Cal.App.5th at pp.
730–732 [finding substantively unconscionable a shortened limitation
period of one year for FEHA claims when, under then-current law, the
outside limit to file a lawsuit under FEHA was as long as three years].)5
Charter notes that Ramirez sought an immediate “right-to-sue”
from the DFEH and filed suit within one year of its accrual. Therefore,
Charter contends that Ramirez was not forced to forfeit her right to a
DFEH investigation because of the arbitration agreement. How
Ramirez chose to enforce her claims does not affect the
unconscionability analysis, which generally looks to an agreement “at
the time it was made.” (See Civ. Code, § 1670.5, subd. (a).)
Furthermore, “protections under FEHA are for the benefit of the entire
public, not just [a particular employee]. Thus, a mandatory arbitration
provision required as part of an employment relationship cannot waive
the statutory rights. [Citation.]” (Wherry v. Award, Inc. (2011) 192
Cal.App.4th 1242, 1249; see also Armendariz, supra, 24 Cal.4th at p.
101 [“it is evident that an arbitration agreement cannot be made to
5 Charter relies on a federal district court case, Greer v. Sterling
Jewelers, Inc. (E.D. Cal. July 10, 2018, case No. 1:18-cv-480) 2018 WL
3388086, to support its contention that similar provisions have been upheld
by courts. We conclude the relevant provision in Greer is factually
distinguishable. The provision in Greer stated, “[u]nless prohibited by law, a
demand [for arbitration] must be made . . . no later than one (1) year after
the alleged unlawful conduct occurred.” (Id. at p. 5.) Unlike the case at bar,
the clause within the agreement that prevents shortening a statute of
limitations where “prohibited by law” saved the agreement from being
rendered unconscionable. (Ibid.) There is no similar savings clause in the
arbitration agreement here.
13
serve as a vehicle for the waiver of statutory rights created by the
FEHA”].)
2. Remedy Provision for a Prevailing Party
A prevailing defendant in a FEHA case may recover attorney fees
and costs only if the plaintiff’s action was “frivolous, unreasonable, or
groundless when brought, or the plaintiff continued to litigate after it
clearly became so.” (Gov. Code, § 12965, subd. (c)(6); see Chavez v. City
of Los Angeles (2010) 47 Cal.4th 970, 985.) The Solution Channel
program guidelines provide: “At the discretion of the arbitrator, the
prevailing party may recover any remedy that the party would have
been allowed to recover had the dispute been brought in court.”6
Charter contends the trial court misinterpreted this provision as
allowing a prevailing defendant to recover attorney fees if a plaintiff’s
FEHA claims fail but were not frivolous. We agree that the trial court
misinterpreted the provision.
The provision at issue entitles a prevailing party to a remedy,
such as attorney fees, only if the party would be entitled to that remedy
6 The arbitration agreement and the Solution Channel program
guidelines also provide that Charter will pay administrative expenses and
the arbitrator’s fees, but all other costs, fees and expenses, “including without
limitation each party’s attorneys’ fees, will be borne by the party incurring
the costs, fees and expenses.” Although not raised by the parties and
therefore not a basis for a finding of substantive unconscionability, we
observe this provision requiring each party to bear its own attorney fees
deprives an employee of his or her statutory right to recover attorney fees if
the employee prevails on a FEHA claim. (See Carbajal v. CWPSC, Inc.
(2016) 245 Cal.App.4th 227, 251.)
14
if the dispute had been litigated in court. In court, a prevailing
defendant in a FEHA case is entitled to an award of attorney fees only
if the plaintiff’s action was frivolous, unreasonable, or groundless. (Gov.
Code, § 12965, subd. (c)(6).) Thus, in a FEHA case the arbitration
agreement’s remedy provision entitles Charter to attorney fees only in
compliance with, not in violation of, FEHA: if the plaintiff’s action was
frivolous, unreasonable, or groundless. Therefore, we conclude the
remedy provision in the arbitration agreement is not substantively
unconscionable. 7
3. Interim Award of Attorney Fees Under Paragraph K
Paragraph K of the arbitration agreement provides in relevant
part: “The parties agree and acknowledge . . . that the failure or refusal
of either party to submit to arbitration as required by this Agreement
will constitute a material breach of this Agreement. If any judicial
action or proceeding is commenced in order to compel arbitration, and if
arbitration is in fact compelled or the party resisting arbitration
submits to arbitration following the commencement of the action or
proceeding, the party that resisted arbitration will be required to pay
the other party all costs, fees and expenses that they incur in
7 In finding the attorney fee provision in the arbitration agreement
substantively unconscionable, the trial court relied on Trivedi v. Curexo
Technology Corp. (2010) 189 Cal.App.4th 387 (Trivedi), disapproved on
another ground in Baltazar, supra, 62 Cal.4th 1237. But the attorney fee
provision invalidated in Trivedi involved a mandatory award of attorney fees
to the prevailing party, in violation of the FEHA standard. (Id. at pp. 394–
395.) It is thus distinguishable.
15
compelling arbitration, including, without limitation, reasonable
attorneys’ fees.”
Charter contends that the trial court erred in concluding that
paragraph K, which awards attorney fees to the prevailing party on a
motion to compel arbitration, is substantively unconscionable. We
disagree, and in the process also disagree with Patterson, supra, 70
Cal.App.5th 473, which (after concluding that the paragraph K as
written is not enforceable) made it enforceable by implying a term that
incorporates the FEHA asymmetrical rule of attorney fees (i.e., a
prevailing defendant in a FEHA action can recover attorney fees only if
the action was frivolous, unreasonable, or groundless), thereby bringing
paragraph K into compliance with FEHA.
In Patterson, supra, 70 Cal.App.5th 473, our colleagues in Division
Seven considered paragraph K in a procedural posture different than
the present case. That is, the court in Patterson did not consider (as do
we) the question of unconscionability in connection with a motion to
compel arbitration. Rather, the court considered the enforceability of
paragraph K in a mandate proceeding after the trial court had granted
Charter’s motion to compel arbitration of an employee’s FEHA action
and awarded Charter its attorney fees under paragraph K for the
successful motion. (Id. at pp. 478–480.)
On the employee’s petition for a writ of mandate to vacate the
attorney fees award, our colleagues in Patterson reasoned that Charter
was entitled to its attorney fees under paragraph K “to the extent not
otherwise prohibited or limited by FEHA.” (Patterson, supra, 70
Cal.App.5th at p. 486.) They also concluded that an employee may not
16
be required to waive the asymmetric FEHA attorney fee standard. (Id.
at p. 488.) That standard, as previously noted, allows a prevailing
defendant to recover attorney fees only if the plaintiff’s action was
frivolous, unreasonable, or groundless. (Gov. Code, § 12965, subd.
(c)(6).)
Consistent with this analysis, the court in Patterson concluded
that the attorney fee clause as written violated the employee’s rights
under FEHA: “Permitting Charter to recover its attorney fees for a
successful motion to compel arbitration in a pending FEHA lawsuit
without a showing the plaintiff's insistence on a judicial forum to
determine his or her claims was objectively groundless . . . denies the
plaintiff the rights guaranteed by section 12965[(c)(6)] with a
corresponding chill on access to the courts for any employee or former
employee who has an arguably meritorious argument that the Charter
arbitration agreement is unenforceable. Even with a strong claim of
unconscionability, an employee might not pursue it and risk a
substantial award of attorney fees before arbitration begins.”
(Patterson, supra, 70 Cal.App.5th at p. 489.)
Nonetheless, the court rejected the employee’s request to hold the
clause unenforceable. Invoking “the strong public policy favoring
arbitration” and the requirement that provisions in a contract be
construed (where reasonable) in a manner that render them legal
rather than void, the court “construe[d] the prevailing party fee
provision in the arbitration agreement to impliedly incorporate the
FEHA asymmetric rule for awarding attorney fees and costs.”
(Patterson, 70 Cal.App.5th at p. 490.) Thus, the court vacated the
17
attorney fee award and remanded the case to the trial court to hold a
hearing to determine whether, under the FEHA standard, the
employee’s opposition to the motion to compel arbitration was frivolous,
unreasonable, or groundless.
We agree with Patterson that paragraph K as written is
unenforceable as being in violation of FEHA. We respectfully disagree,
however, with our colleagues’ analysis incorporating the FEHA attorney
fee rule, thereby making the provision enforceable.
We begin the relevant language of the clause. A party’s “failure or
refusal . . . to submit to arbitration as required by this Agreement” is a
“material breach.” Further, “[i]f a judicial . . . proceeding is commenced
in order to compel arbitration” (such as an employer’s motion to compel
arbitration) “and if arbitration is in fact compelled” (i.e., the motion is
granted), “the party that resisted arbitration” (i.e., the employee who
opposed the motion to compel arbitration) “will be required to pay” (i.e.,
without qualification) “the other party” (i.e., the employer) “all costs,
fees and expenses that they incur in compelling arbitration, including,
without limitation, reasonable attorneys’ fees.” We find this language
unambiguous. There is no room to vary the terms by interpretation.
Whereas ambiguous terms in an arbitration agreement should be
construed, where reasonable, in favor of legality, “[i]f contractual
language is clear and explicit, it governs. [Citation.]” (Bank of the West
v. Superior Court (1992) 2 Cal.4th 1254, 1264; see Civ. Code, § 1643 [“A
contract must receive such an interpretation as will make it lawful,
operative, definite, reasonable, and capable of being carried into effect,
if it can be done without violating the intention of the parties” (italics
18
added)]; cf. Serpa v. California Surety Investigations, Inc., supra, 215
Cal.App.4th at p. 709 [holding an attorney fee provision in an
arbitration agreement was not ambiguous as it “expressly requires each
party to bear his, her or its own attorney fees”].) Thus, we disagree
with Patterson that standard rules of contract interpretation support its
analysis.
Further, the policy favoring arbitration does not permit the court
to add an interpretive gloss to unambiguous provisions. Patterson cited
two decision as supporting its authority to modify paragraph K by
incorporating the FEHA attorney fee standard. In each, Pearson Dental
Supplies, Inc. v. Superior Court (2010) 48 Cal.4th 665, 682 (Pearson),
and Roman v. Superior Court (2009) 172 Cal.App.4th 1462, 1473
(Roman), the appellate court interpreted ambiguous language in the
arbitration agreement and invoked the policy favoring arbitration as a
reason to construe the language in a manner that rendered it legal.
In Pearson, the language at issue declared the intention of the
parties to the employment arbitration agreement “‘to avoid the
inconvenience, cost, and risk that accompany formal administrative or
judicial proceedings.’” The employee argued that the language
declaring an intent “to avoid” the listed negative characteristics of
“formal administrative . . . proceedings” precluded the employee from
seeking administrative remedies for violations of FEHA. (48 Cal.4th at
p. 680.)
Our Supreme Court concluded that the provision was merely a
statement of purpose and did not actually preclude the plaintiff from
19
pursuing any administrative remedy; and even if the agreement were
understood to preclude “formal administrative proceedings,” it would
not be unlawful in all possible applications. (Pearson, supra, 48 Cal.4th
at p. 682.)
The court then reasoned: “When an arbitration provision is
ambiguous, we will interpret that provision, if reasonable, in a manner
that renders it lawful, both because of our public policy in favor of
arbitration as a speedy and relatively inexpensive means of dispute
resolution, and because of the general principle that we interpret a
contractual provision in a manner that renders it enforceable rather
than void. [Citations.]” (Pearson, supra, 48 Cal.4th at p. 682, italics
added.) The court then interpreted the language in question “as stating
an intention to lawfully preclude or restrict the parties to the
arbitration agreement from submitting their claims for adjudication to
an administrative entity such as the Labor Commissioner, at least to
the extent set forth by the United States Supreme Court in [Preston v.
Ferrer (2008) 552 U.S. 346, 360]. We therefore conclude that the
inclusion of a provision limiting resort to an administrative forum does
not render the arbitration agreement unconscionable or unenforceable.”
(Ibid.)
Similarly, Roman involved language in an arbitration agreement
that was treated as ambiguous under the circumstances. In Roman, the
employee signed a mandatory predispute agreement containing an
arbitration clause that provided: “‘I agree, in the event I am hired by
the company, that all disputes and claims that might arise out of my
20
employment with the company will be submitted to binding
arbitration.’” (Roman, supra, 172 Cal.App.4th at p. 1466, italics added.)
Although the rest of the agreement was bilateral, the employee argued
that the “I agree” language manifested only a unilateral obligation to
arbitrate. (Ibid.) Assuming the language of the arbitration provision
was ambiguous, the appellate court noted the public policy favoring
arbitration and the requirement that the court interpret ambiguous
provisions in a manner that renders them legal rather than void. (Id. at
p. 1473.) Under these rules, the court held that the “mere inclusion of
the words ‘I agree’ by one party in an otherwise mutual arbitration
provision [does not] destroy[] the bilateral nature of the agreement.”
(Ibid.)
On examination, we do not agree that these cases support our
Patterson colleagues’ interpretation of paragraph K. These decisions
apply standard rules of contract interpretation to ambiguous terms. As
we have observed, the language at issue in paragraph K is not
ambiguous; it leaves no reasonable basis for an interpretation in
variance with the plain meaning.
Our colleagues in Patterson also found that incorporating the
FEHA asymmetrical rule of attorney fees into paragraph K by
implication was “precisely the course followed by the Supreme Court in”
Armendariz, supra, 24 Cal.4th at page 113, where the Supreme Court
incorporated into the arbitration agreement a term imposing on the
employer the sole duty to pay arbitration costs in employer-compelled
21
arbitration. (70 Cal.App.5th at p. 490.) We respectfully disagree that
Armendariz supports the analysis in Patterson.
In Armendariz, the arbitration agreement compelled the employee
to arbitrate employment claims and stated that the employee “‘agree[d]
to submit any such matter to binding arbitration pursuant to the
provisions of title 9 of Part III of the California Code of Civil Procedure,
commencing at section 1280 et seq.’” (Armendariz, supra, 24 Cal.4th at
p. 92.)8 The agreement did not have a specific provision defining who
would pay the costs of the arbitration. Thus, it was governed by the
default cost-sharing scheme of Code of Civil Procedure section 1284.2,
which provides: “Unless the arbitration agreement otherwise provides or
the parties to the arbitration otherwise agree, each party to the
arbitration shall pay his pro rata share of the expenses and fees” of the
arbitration. (Italics added.)9
8 The clause stated in relevant part: “‘I agree as a condition of my
employment, that in the event my employment is terminated, and I contend
that such termination was wrongful or otherwise in violation of the
conditions of employment or was in violation of any express or implied
condition, term or covenant of employment, whether founded in fact or in law,
including but not limited to the covenant of good faith and fair dealing, or
otherwise in violation of any of my rights, I and Employer agree to submit
any such matter to binding arbitration pursuant to the provisions of title 9 of
Part III of the California Code of Civil Procedure, commencing at section
1280 et seq. or any successor or replacement statutes.’” (24 Cal.4th at p. 92.)
9 Civil Code section 1284.2 provides in full: “Unless the arbitration
agreement otherwise provides or the parties to the arbitration otherwise
agree, each party to the arbitration shall pay his pro rata share of the
expenses and fees of the neutral arbitrator, together with other expenses of
the arbitration incurred or approved by the neutral arbitrator, not including
22
The court in Armendariz agreed with the employees that applying
this default provision would impose “substantial forum fees . . . contrary
to public policy, and is therefore grounds for invalidating or revoking an
arbitration agreement and denying a petition to compel arbitration
under Code of Civil Procedure sections 1281 and 1281.2.” (Armendariz,
supra, 24 Cal.4th at p. 110.) With these concerns in mind, the court
promulgated the rule that “when an employer imposes mandatory
arbitration as a condition of employment, the arbitration agreement or
arbitration process cannot generally require the employee to bear any
type of expense that the employee would not be required to bear if he or
she were free to bring the action in court.” (Id. at pp. 110–111, italics
omitted.)
The court later analyzed whether the rule requiring the employer
to pay the costs of arbitration was inconsistent with the default cost-
sharing scheme of Code of Civil Procedure section 1284.2 (i.e., unless
the arbitration agreement provides otherwise, each party pays a pro
rata share). The court found no inconsistency: the agreement to submit
a FEHA claim to arbitration “is implicitly an agreement to abide by the
substantive remedial provisions of the [FEHA] statute,” which (the
court found) forbids sharing of costs. (Armendariz, supra, 24 Cal.4th at
p. 112.) Further, the court found “little reason to believe that the
Legislature that passed Code of Civil Procedure section 1284.2
contemplated a situation in which the intended beneficiary of such an
counsel fees or witness fees or other expenses incurred by a party for his own
benefit.”
23
antidiscrimination statute would be compelled to pay large arbitration
costs as a condition of pursuing a discrimination claim. Thus, we
construe the FEHA as implicitly prohibiting such costs, a prohibition
which the default provisions of section 1284.2 do not displace.” (Id. at
pp. 112–113.)
The court then concluded: “We therefore hold that a mandatory
employment arbitration agreement that contains within its scope the
arbitration of FEHA claims impliedly obliges the employer to pay all
types of costs that are unique to arbitration. Accordingly, we interpret
the arbitration agreement in the present case as providing, consistent
with the above, that the employer must bear the arbitration forum
costs. The absence of specific provisions on arbitration costs would
therefore not be grounds for denying the enforcement of an arbitration
agreement.” (Armendariz, supra, 24 Cal.4th at p. 113.)
From our discussion of Armendariz, we conclude that it does not
support the reasoning in Patterson. In Armendariz, the agreement had
no provision governing costs, and the court was not called upon to
interpret one. Thus, the Supreme Court did not make the arbitration
agreement enforceable by grafting an implied cost sharing term onto an
express provision governing costs. Rather, as a matter of public policy
and statutory interpretation, the court imposed an implied provision
(the employer must bear the costs of employer-compelled arbitration) in
place of the default cost provision of Code of Civil Procedure 1284.2
(arbitration costs must be shared pro rata by the parties), which would
have applied because the agreement did not have an express cost
provision. The import of the court’s holding was, therefore, that “[t]he
24
absence of specific provisions on arbitration costs would . . . not be
grounds for denying the enforcement of an arbitration agreement.”
(Armendariz, supra, 24 Cal.4th at p. 113, italics added.)
In short, we disagree that Armendariz supports the holding in
Patterson that paragraph K, which is (as Patterson acknowledges)
unenforceable as written, can be saved by impliedly incorporating the
FEHA asymmetrical attorney fee standard into its unambiguous
language. We therefore conclude, as did the trial court, that paragraph
K is unconscionable.
4. Other Terms of the Arbitration Agreement
a. Mutuality
Ramirez contends the trial court erred in rejecting her argument
that the arbitration agreement lacked mutuality by excluding claims
likely to be brought by an employer. “An agreement may be unfairly
one-sided if it compels arbitration of the claims more likely to be
brought by the weaker party but exempts from arbitration the types of
claims that are more likely to be brought by the stronger party.
[Citations.]” (Fitz v. NCR Corp. (2004) 118 Cal.App.4th 702, 724 (Fitz).)
The arbitration agreement specifically covers claims “related to
pre-employment, employment, employment termination or post-
employment-related claims, whether the claims are dominated as tort,
contract, common law, or statutory claims,” including without limitation
claims for: collection of overpaid wages and commissions; damage to or
loss of Charter property; recovery of unauthorized charges on company
credit card; whistleblowers; unlawful termination; unlawful failure to
25
hire or failure to promote; violations of wage and hour laws; unlawful
discrimination or harassment; unlawful retaliation; violations under the
federal Medical Leave Act, Americans with Disabilities Act, Sarbanes-
Oxley Act, and Occupational Safety and Health Administration. The
arbitration agreement also covers “all disputes, claims, and
controversies set forth . . . above, whether made against Charter, or any
of its subsidiaries, parent, or affiliated entities, or its individual officers,
directors, shareholders, agents, managers, or employees (in an official
or personal capacity, if such claim against the employee arises from or
in any way relates to . . . pre-employment or employment relationship
with Charter).”
On the other hand, the arbitration agreement specifically excludes
“claims for injunctive or other equitable relief related to unfair
competition and the taking, use or unauthorized disclosure of trade
secrets or confidential information.” The agreement further excludes
claims: arising under separate or severance agreements or non-compete
agreements; for theft or embezzlement or any other criminal conduct;
and over the validity of any party’s intellectual property rights.
We agree with Ramirez and conclude that the arbitration
agreement is unfairly one-sided because it compels arbitration of the
claims more likely to be brought by an employee, the weaker party, but
exempts from arbitration the types of claims that are more likely to be
brought by an employer, the stronger party.
The decision in Mercuro v. Superior Court (2002) 96 Cal.App.4th
167 (Mercuro) is instructive. In Mercuro, the Court of Appeal held the
arbitration agreement covered “some employment-related claims
26
including employment discrimination but excluded others such as . . .
equitable relief for unfair competition, unauthorized disclosure of trade
secrets or violation of intellectual property rights” to be unfairly one-
sided in favor of the employer. (Id. at p. 172.) The court noted that an
employee terminated for stealing trade secrets would have to arbitrate
his or her wrongful termination claim, but the employer could avoid
arbitration by simply requesting injunctive or declaratory relief. (Id. at
p. 176.) The court concluded that the agreement compelled “arbitration
of the claims employees are most likely to bring” but exempted “from
arbitration the claims [the employer] is most likely to bring against its
employees.” (Ibid.) As such, it was unconscionably one-sided.
Charter points out that the agreement here excludes certain
claims significant to employees such as claims for workers’
compensation, unemployment benefits, and severance/noncompete
agreements. “These exceptions do not turn what is essentially a
unilateral arbitration agreement into a bilateral one. Workers’
compensation and unemployment benefits are governed by their own
adjudicatory systems; neither is a proper subject matter for
arbitration.” (Mercuro, supra, 96 Cal.App.4th at p. 176.) And claims
arising out of a severance or noncompete agreement are most likely to
be brought by the employer, not the employee. (See Fitz, supra, at p.
725 [“it is far more often the case that employers, not employees, will
file [actions over noncompete agreements]”.)
In support of the trial court’s finding, Charter further contends
none of the excluded claims are at issue in Ramirez’ case. However, the
unconscionability analysis evaluates whether the agreement is bilateral
27
“at the time it was made” rather than as applied to specific plaintiff.
(See Civ. Code, § 1670.5, subd. (a); see generally, Fitz, supra, 118
Cal.App.4th 702.)
b. Discovery Limitation
The arbitration agreement states that the arbitration will be
conducted “pursuant to the Solution Channel Program Guidelines.”
The guidelines in turn provide that “[t]he parties will have 90 days to
exchange information and take depositions.” Each party will be
permitted to take up to four depositions, 20 total interrogatories
(including subparts), and 15 total requests for documents to the other
party. In addition, “[a]ny disagreements regarding the exchange of
information or depositions will be resolved by the arbitrator to allow a
full and equal opportunity to all parties to present evidence that the
arbitrator deems material and relevant to the resolution of the dispute.”
Ramirez contends that the trial court erred in finding that the
limitations on discovery were not substantively unconscionable. We
agree.
“Adequate discovery is indispensable for the vindication of
statutory claims. [Citation.]” (Fitz, supra, 118 Cal.App.4th at p. 715.)
But adequate discovery does not mean unfettered discovery. (Ibid.)
The parties may agree to something less than the full panoply of
discovery available in California’s discovery statutes. (Armendariz,
supra, 24 Cal.4th at pp. 105–106.) Nonetheless, “arbitration
agreements must ‘ensure minimum standards of fairness’ so employees
can vindicate their public rights. [Citation.]” (Fitz, supra, at p. 716.)
28
Generally, unconscionability is determined “at the time [the agreement]
was made” (Civ. Code, § 1670.5), yet courts have consistently assessed
unconscionability for limitations on discovery as applied to a particular
plaintiff (Sanchez v. Carmax Auto Superstores California, LLC (2014)
224 Cal.App.4th 398, 404–405 (Sanchez)).
“In striking the appropriate balance between the desired
simplicity of limited discovery and an employee’s statutory rights,
courts assess the amount of default discovery permitted under the
arbitration agreement, the standard for obtaining additional discovery,
and whether the plaintiffs have demonstrated that the discovery
limitations will prevent them from adequately arbitrating their
statutory claims. [Citation.]” (Davis, supra, 53 Cal.App.5th at pp. 910–
911.)
Ramirez argues that the limitation of discovery in and of itself
denies her a reasonable opportunity to prove her statutory claims.
However, as observed by the trial court, “[l]imited discovery rights are
the hallmark of arbitration” (Coast Plaza Doctors Hospital v. Blue Cross
of California (2000) 83 Cal.App.4th 677, 790) and there must be some
showing of inadequacy under the circumstances of the case (Sanchez,
supra, 224 Cal.App.4th at p. 405).
Although limitations on discovery are generally permitted, we
conclude that Ramirez met her burden in the trial court of showing
inadequacy in the discovery limitations of Charter’s agreement. In the
trial court, Ramirez estimated (with no dispute from Charter) that she
would need to take at least seven depositions: her former supervisor,
29
the Human Resources (HR) person, the four people hired by her former
supervisor during her pregnancy leave, and the person(s) most
knowledgeable at Charter regarding its HR and pregnancy leave
policies and procedures. Therefore, Ramirez demonstrated (with no
rebuttal from Charter) that the guidelines’s limitation on depositions
(four) is inadequate to permit Ramirez fair pursuit of her claims (which
requires at least seven depositions). (Davis, supra, 53 Cal.App.5th at
pp. 913–914.)
Charter contends that the guidelines’s provision allowing the
arbitrator to resolve “[a]ny disagreements regarding the exchange of
information or depositions,” is tantamount to providing the arbitrator
authority to order additional depositions.10 But resolving
“disagreements” between the parties “regarding . . . depositions” cannot
reasonably be construed to include the authority to increase the number
of depositions permitted by the guidelines. Rather, it reasonably
10 In the trial court, Charter did not contend that this provision permitted
the arbitrator to grant additional discovery. Rather, Charter contended, and
the trial court found, that the arbitration agreement incorporated the AAA
rules, which granted discretionary authority to the arbitrator to order
additional discovery. (Roman, supra, 172 Cal.App.4th at p. 1475 [under AAA
rules, the arbitrator has authority to order “‘such discovery, by way of
deposition, interrogatory, document production, or otherwise’”].) Charter
does not resurrect this argument on appeal. In any event, we agree with
Ramirez that the arbitration agreement and the guidelines fail to incorporate
the AAA rules. The only reference to the AAA rules in either document is in
relation to the selection of an arbitrator, and Charter’s obligation to pay the
AAA administrative fees. In fact, the arbitration agreement clearly stated
the applicable rules in paragraph I: “Arbitration hearings will be conducted
pursuant to the Solution Channel Program Guidelines.”
30
appears to refer only to the “disagreements” between the parties
regarding the four depositions permitted by the guidelines, things like
the identity of persons sought to be deposed, objections made during
depositions, and the dates, location, and duration of depositions.
It is true that Ramirez does not explain with any particularity
why the limitations on written discovery (20 total interrogatories,
including subparts, and 15 total requests for documents) are
inadequate. Nor does she demonstrate any need for a longer period of
discovery than the 90-day limit in the guidelines. However, we
conclude the limitation on depositions is sufficient to show substantive
unconscionability. Under the deposition limit, Ramirez would be
deprived of the opportunity to prepare her case because of her inability
to depose three of the minimum seven necessary witnesses. That, we
conclude, would not provide her a fair opportunity to present her case.
D. Severance
Charter contends severance is appropriate, and the court abused
its discretion by failing to sever the unconscionable provisions. We
affirm the denial of severance.
“An unconscionable contractual term may be severed and the
resulting agreement enforced, unless the agreement is permeated by an
unlawful purpose, or severance would require a court to augment the
agreement with additional terms. [Citation.]” (Penilla v. Westmont
Corp. (2016) 3 Cal.App.5th 205, 223.) Severance may be properly
denied when the agreement contains more than one unconscionable
provision, and “‘there is no single provision a court can strike or restrict
31
in order to remove the unconscionable taint from the agreement.’
[Citation.]” (Baxter, supra, 16 Cal.App.5th at p. 738.)
Here, we conclude that the limitations period for bringing a FEHA
claim under the agreement, the provision granting an award of attorney
fees for a prevailing party in moving to compel arbitration (paragraph
K), the lack of mutuality, and the limitation on discovery (specifically,
depositions) are substantively unconscionable. In so concluding, we
have disagreed with the trial court’s findings that the arbitration
agreement did not lack mutuality and the limitation on discovery was
reasonable. We also set aside the trial court’s conclusion that the
remedy provision in the arbitration agreement (as applied to prevailing
party attorney fees) is substantively unconscionable.
Although we find that the trial court erred on these two points, we
do not find the errors prejudicial with respect to whether the
unconscionable provisions should be severed. Given the multiple
defects we have found that work to Ramirez’s distinct disadvantage, it
is not reasonably probable that the trial court would have reached a
different decision regarding severability had the errors not been
committed. (People v. Watson (1956) 46 Cal.2d 818, 836.) And given
that we have found the agreement permeated by significant
unconscionable terms, a denial of severance is entirely reasonable.11
11 We note in particular that it does not appear that severing the
unconscionable limitation on depositions is possible. The arbitration
agreement does not provide the arbitrator discretion, apart from the power
conferred by the agreement, to order additional discovery. Thus, it is not at
all clear on what authority the arbitrator could order any depositions.
32
DISPOSITION
The trial court’s order denying Charter’s motion to compel
arbitration is affirmed. Ramirez is entitled to her costs on appeal.
CERTIFIED FOR PUBLICATION
WILLHITE, J.
We concur:
MANELLA, P. J.
COLLINS, J.
33