Lange v. Monster Energy Co. ( 2020 )

Filed 3/12/20
CERTIFIED FOR PUBLICATION
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION ONE
GERALD LANGE, B294091
Plaintiff and Respondent, (Los Angeles County
Super. Ct. No. BC697115)
v.
MONSTER ENERGY
COMPANY,
Defendant and Appellant.
APPEAL from an order of the Superior Court of Los
Angeles County, Teresa A. Beaudet, Judge. Affirmed.
Shook, Hardy & Bacon, Frank C. Rothrock, Laura M.
Booth, and Victoria P. McLaughlin for Defendant and Appellant.
Berenji Law Firm, Shadie L. Berenji, and Brittanee A.
Marksbury for Plaintiff and Respondent.
____________________________
Monster Energy Company appeals from a trial court order
denying its motion to compel arbitration. The trial court
concluded that the parties’ arbitration agreement was so
permeated with unconscionability that it could not remove the
unconscionability merely by severing. The trial court based that
conclusion on two independent grounds: that the existence of
more than one unconscionable provision in the arbitration
agreement precluded severance, and that merely severing
provisions would not eliminate the unconscionability. We
disagree with the trial court’s conclusion that the existence of
more than one unconscionable provision precludes severance.
But Monster did not address the trial court’s alternative basis for
its order. We have undertaken an independent unconscionability
analysis and we reach the same conclusion the trial court
reached. We affirm.
BACKGROUND
Monster hired Gerald Lange as a Monster Ambassador in
October 2006. When he was hired, Lange signed an employment
agreement that contained the following arbitration clause:
“4. Arbitration of Disputes/Litigation
“4.1 Any controversy or claim arising out of or
relating to this Agreement or the breach thereof or any
agreement entered into between the Company and you or
otherwise arising out of your employment or the termination of
that employment (including without implication of limitation any
claims of unlawful employment discrimination whether based on
age or otherwise) defamation, invasion of privacy, infliction of
emotional distress, unlawful harassment, including similar
claims such as, without limitation, claims arising under the
California Fair Employment and Housing Act [(FEHA)], the
2
Americans with Disabilities Act, Title VII of the Civil Rights Act
of 1964, the Age Discrimination in Employment Act, the
California Labor Code and Equal Pay Act, the Rehabilitation Act
of 1974, the Employee Retirement Income and Security Act and
any and all other contractual, tort, legal, equitable and statutory
claims that may be lawfully submitted to arbitration, either by or
against the Company shall, to the fullest extent permitted by
law, be settled by binding arbitration conducted by
JAMs/Endispute (‘JAMS’) in accordance with JAMS
Comprehensive Arbitration Rules and Procedures (the ‘Rules’)
applicable to employment disputes, in Orange County, California.
Except as expressly allowed by the Statutory Claims as defined
below, the arbitrator shall have no authority to award punitive or
exemplary damages or any other amount for the purpose of
imposing a penalty. Judgment upon the award rendered by the
arbitrator may be entered in any court having jurisdiction.
“4.2 For any claims brought under [FEHA], Title
VII of the Civil Rights Act of 1964, or any other local, state or
federal statu[t]es (‘Statutory Claims’) (a) the substantive and
remedial provisions applicable to the Statutory Claims shall be
available to any party required to arbitrate Statutory Claims
under this Agreement; (b) if the Rules do not already provide,
either party submitting a Statutory Claim to arbitration shall be
entitled to the full range of discovery provided under California
Code of Civil Procedure section 1283.05; (c) you shall not be
required to pay unreasonable costs or any of the arbitrator’s fees
or expenses; and (d) the arbitrator must also issue a written
award setting forth the essential findings and conclusions on
which the award is based.
3
“4.3 Notwithstanding the forgoing, these provisions
shall not preclude either party from pursuing a court action for
the sole purpose of obtaining a temporary restraining order or a
preliminary injunction in circumstances in which such relief is
appropriate, provided that any other relief shall be pursued
through an arbitration proceeding pursuant to this Agreement.
“4.4 Without in any way detracting from the intent
and obligation of the Company and you to arbitrate all disputes
and controversies between them in accordance with the above
provisions, in the event that any controversy or claim is
determined in a court of law, both you and the Company hereby
irrevocably waive any and all rights to trial by jury in any legal
proceeding arising out of or relating to this Agreement, the
breach thereof or the employee’s employment or other business
relationship. Except as otherwise required by law, both you and
the Company hereby specifically waive any claims for punitive or
exemplary damages or for any other amounts awarded for the
purposes of imposing a penalty.
“MAKE SURE THAT YOU HAVE READ AND UNDERSTAND
THE FOREGOING. YOU AGREE TO WAIVE THE RIGHT TO
A JURY AND TO SUBMIT DISPUTES ARISING OUT OF OR
RELATED TO THIS AGREEMENT OR YOUR EMPLOYMENT
TO NEUTRAL, BINDING ARBITRATION.”
Lange initialed in a designated space next to the last
paragraph.
The employment agreement’s paragraph 3 provided that
“all the terms and conditions contained in the Employee
Proprietary Information, Confidentiality, Intellectual Property
and Non-Solicitation Agreement [(PIA)] attached [to the
4
employment agreement] are incorporated herein . . . .” The PIA
contained the following clause:
“14. Equitable Remedies. Employee acknowledges that
irreparable injury will result to Company from Employee’s
violation of any of the terms of this Agreement. Employee
expressly agrees that Company shall be entitled, in addition to
damages and any other remedies provided by law, to an
injunction or other equitable remedy respecting such violation or
continued violation, without the necessity of a bond or similar
undertaking. Employee agrees to submit himself or herself to the
jurisdiction of the Courts of the State of California, County of San
Diego, in any proceeding to enforce the terms of this Agreement.”
On November 14, 2017, Monster terminated Lange.
On March 7, 2018, Lange sued Monster alleging causes of
action for disability discrimination under FEHA, failure to
engage in the interactive process, failure to provide reasonable
accommodations, failure to prevent discrimination, and wrongful
termination in violation of public policy. In response, Monster
filed a motion to compel arbitration. The trial court heard
argument on Monster’s motion on July 11, 2018. At the July 11
hearing, the trial court requested supplemental briefing from the
parties on two issues, one of which was “whether the problematic
aspects of the arbitration agreement (punitive damages, costs,
and the Proprietary Information Agreement) can or should be
severed.” The trial court again heard argument on November 7,
2018 and denied Monster’s motion to compel arbitration.
In its order denying the motion to compel arbitration, the
trial court concluded that the arbitration agreement contained a
low level of procedural unconscionability. The trial court
concluded that the arbitration agreement’s provision “requiring
5
[Lange] to waive punitive damages as a remedy for all
nonstatutory claims” was substantively unconscionable. The
trial court also concluded that the PIA’s “Equitable Remedies”
section made the arbitration agreement one that “carves out
claims arising out of a confidentiality agreement,” and that such
an agreement “can be considered substantively unconscionable.”
The trial court concluded that the unconscionable
provisions could not be severed from the parties’ contract. The
trial court wrote: “Finally, with regard to the severability of any
of the above provisions, [Lange] contends that the [employment]
agreement is so permeated with unconscionability that
severability would not be appropriate. The [trial court] finds that
there are two terms that are substantively unconscionable. The
first is the provision requiring [Lange] to waive punitive damages
as a remedy for all nonstatutory claims; the second is the
provision excepting from arbitration claims to enforce the [PIA].
“Severance is inappropriate when the arbitration
agreement contains ‘more than one unlawful provision’ and when
‘there is no single provision a court can strike or restrict in order
to remove the unconscionable taint from the agreement.’
[Citation.] In the instant case, there is more than one unlawful
provision. . . .
“In light of the existence of two substantively
unconscionable provisions and the inability to address the [PIA]
issues by simply carving out a clause (i.e., paragraph 3 of the
letter agreement is separate from the arbitration provision in
paragraph 4 of the letter agreement, and the parties did
separately enter into that agreement, thereby precluding a
carveout that would purportedly eliminate the unconscionability),
6
the [trial court] finds that the arbitration agreement is
permeated with a high degree of substantive unconscionability.”
Monster filed a timely notice of appeal.
DISCUSSION
“California law . . . favors enforcement of valid arbitration
agreements.” (Armendariz v. Foundation Health Psychcare
Services, Inc. (2000) 24 Cal. 4th 83, 97 (Armendariz).) “[U]nder
California law . . . , an arbitration agreement may only be
invalidated for the same reasons as other contracts.” (Id. at p.
98; Code Civ. Proc., § 1281.) Unconscionability in a contract is
one reason a court may decline enforcement. (See Farrar v.
Direct Commerce, Inc. (2017) 9 Cal.App.5th 1257, 1265 (Farrar).)
“The rules governing the role of the court in interpreting a
written instrument are well established. The interpretation of a
contract is a judicial function. [Citation.] In engaging in this
function, the trial court ‘give[s] effect to the mutual intention of
the parties as it existed’ at the time the contract was executed.
[Citation.] Ordinarily, the objective intent of the contracting
parties is a legal question determined solely by reference to the
contract’s terms.” (Wolf v. Walt Disney Pictures & Television
(2008) 162 Cal. App. 4th 1107, 1125-1126.) “When the contract
has been ‘reduced to writing,’ the parties’ intention ‘is to be
ascertained from the writing alone, if possible,’ subject to other
rules of interpretation.” (Rodriguez v. Oto (2013) 212 Cal. App. 4th
1020, 1028.)
A. Unconscionability
“Unconscionability is ultimately a question of law, which
we review de novo when no meaningful factual disputes exist as
to the evidence.” (Chin v. Advanced Fresh Concepts Franchise
Corp. (2011) 194 Cal. App. 4th 704, 708; Pinnacle Museum Tower
7
Assn. v. Pinnacle Market Development (US), LLC (2012) 55
Cal. 4th 223, 236.)
“ ‘[U]nconscionability has both a “procedural” and a
“substantive” element,’ the former focusing on ‘ “oppression” ’ or
‘ “surprise” ’ due to unequal bargaining power, the latter on
‘ “overly harsh” ’ or ‘ “one-sided” ’ results. [Citation.] ‘The
prevailing view is that [procedural and substantive
unconscionability] must both be present in order for a court to
exercise its discretion to refuse to enforce a contract or clause
under the doctrine of unconscionability.’ [Citation.] But they
need not be present in the same degree. ‘Essentially a sliding
scale is invoked which disregards the regularity of the procedural
process of the contract formation, that creates the terms, in
proportion to the greater harshness or unreasonableness of the
substantive terms themselves.’ [Citations.] In other words, the
more substantively oppressive the contract term, the less
evidence of procedural unconscionability is required to come to
the conclusion that the term is unenforceable, and vice versa.”
(Armendariz, supra, 24 Cal.4th at p. 114.)
1. Procedural Unconscionability
“ ‘[A] finding of procedural unconscionability does not mean
that a contract will not be enforced, but rather that courts will
scrutinize the substantive terms of the contract to ensure they
are not manifestly unfair or one-sided. [Citation.] . . . [T]here are
degrees of procedural unconscionability. At one end of the
spectrum are contracts that have been freely negotiated by
roughly equal parties, in which there is no procedural
unconscionability. . . . Contracts of adhesion that involve
surprise or other sharp practices lie on the other end of the
spectrum. [Citation.] Ordinary contracts of adhesion, although
8
they are indispensable facts of modern life that are generally
enforced [citation], contain a degree of procedural
unconscionability even without any notable surprises, and “bear
within them the clear danger of oppression and overreaching.” ’ ”
(Baltazar v. Forever 21, Inc. (2016) 62 Cal. 4th 1237, 1244
(Baltazar).)
The trial court concluded that the arbitration agreement,
which was contained in an offer letter from Monster to Lange
that became Lange’s employment agreement with his signature,
represented a low level of procedural unconscionability. Lange
raised the same contentions in the trial court as here. He
contends here that the agreement represents a moderate (rather
than low) level of procedural unconscionability for the three
reasons he restates from his trial court arguments: (1) the
arbitration agreement is an adhesion contract; (2) the arbitration
agreement was inconspicuous; and (3) Monster failed to attach or
otherwise include the governing arbitration rules.
We reach the same conclusion the trial court reached. The
arbitration agreement constitutes a little more than a third of the
entire three and a quarter page employment agreement. It is an
adhesive contract, as are most employment agreements; “few
employees are in a position to refuse a job because of an
arbitration agreement.” (Armendariz, supra, 24 Cal.4th at p.
115.) But the arbitration agreement was conspicuous.
Arbitration commanded a more significant amount of space in the
short employment agreement than did any other subject. And
Lange placed his initials at the end of a double-spaced, all
capital-letter paragraph that stated: “MAKE SURE THAT YOU
HAVE READ AND UNDERSTAND THE FOREGOING. YOU
AGREE TO WAIVE THE RIGHT TO A JURY AND TO SUBMIT
9
DISPUTES ARISING OUT OF OR RELATED TO THIS
AGREEMENT OR YOUR EMPLOYMENT TO NEUTRAL,
BINDING ARBITRATION.”
Lange has also failed to persuade us that the agreement is
made more procedurally unconscionable by Monster’s failure to
attach the “JAMS Comprehensive Arbitration Rules and
Procedures” referenced in the arbitration agreement. Addressing
a very similar argument, the Supreme Court in Baltazar said,
“Baltazar’s argument . . . might have force if her
unconscionability challenge concerned some element of the . . .
rules of which she had been unaware when she signed the
arbitration agreement. But her challenge to the enforcement of
the agreement has nothing to do with the . . . rules; her challenge
concerns only matters that were clearly delineated in the
agreement she signed. Forever 21’s failure to attach the . . . rules
therefore does not affect our consideration of Baltazar’s claims of
substantive unconscionability.” (Baltazar, supra, 62 Cal.4th at p.
1246.) While Lange’s arguments in the trial court discussed
JAMS rules that he contended were substantively
unconscionable, those contentions were not briefed here. Because
none of Lange’s substantive unconscionability arguments here
has anything to do with the JAMS rules applicable to the parties’
dispute, we agree that Monster’s failure to attach those rules
does not bear on the arbitration agreement’s procedural
unconscionability.
Lange cannot reasonably argue that he was surprised by
the existence of an arbitration agreement or its terms. Monster
made no attempt to hide the arbitration agreement, and Lange
indicated with his initials that he had read and understood the
arbitration agreement. The agreement was adhesive, but
10
represents no surprise and no more than the low level of
procedural unconscionability contained in any employment
agreement for an employee not in a “position to refuse a job
because of an arbitration agreement.” (Armendariz, supra, 24
Cal.4th at p. 115.)
2. Substantive Unconscionability
While procedural unconscionability “addresses the
circumstances of contract negotiation and formation, focusing on
oppression and surprise due to unequal bargaining power,”
substantive unconscionability “pertains to the fairness of the
agreement’s actual terms.” (Von Nothdurft v. Steck (2014) 227
Cal. App. 4th 524, 535.) “Cases have talked [of substantive
unconscionability] in terms of ‘overly harsh’ or ‘one-sided’ results.
[Citations.] One commentator has pointed out, however, that ‘. . .
unconscionability turns not only on a “one-sided” result, but also
on an absence of “justification” for it[ ]’ [citation], which is only to
say that substantive unconscionability must be evaluated as of
the time the contract was made. [Citation.] The most detailed
and specific commentaries observe that a contract is largely an
allocation of risks between the parties, and therefore that a
contractual term is substantively suspect if it reallocates the
risks of the bargain in an objectively unreasonable or unexpected
manner.” (A & M Produce Co. v. FMC Corp. (1982) 135
Cal. App. 3d 473, 487.)
Our Supreme Court considered substantive
unconscionability in detail in Sonic-Calabasas A, Inc. v. Moreno
(2013) 57 Cal. 4th 1109, 1145. “The unconscionability doctrine
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-
11
sided as to ‘shock the conscience’ ” ’ [citation], or ‘unfairly one-
sided’ [citation]. All of these formulations point to the central
idea that unconscionability doctrine is concerned not with ‘a
simple old-fashioned bad bargain’ [citation], but with terms that
are ‘unreasonably favorable to the more powerful party’ [citation].
These include ‘terms that impair the integrity of the bargaining
process or otherwise contravene the public interest or public
policy; terms (usually of an adhesion or boilerplate nature) that
attempt to alter in an impermissible manner fundamental duties
otherwise imposed by the law, fine-print terms, or provisions that
seek to negate the reasonable expectations of the nondrafting
party, or unreasonably and unexpectedly harsh terms having to
do with price or other central aspects of the transaction.’
[Citation.]” (Ibid.; also Sanchez v. Valencia Holding Co., LLC
(2015) 61 Cal. 4th 899, 910-911.)
Lange contends that the arbitration agreement is
substantively unconscionable in five ways. We address them in
turn.
a. Punitive Damages Waiver
The arbitration agreement states: “Except as expressly
allowed by the Statutory Claims as defined below, the arbitrator
shall have no authority to award punitive or exemplary damages
or any other amount for the purpose of imposing a penalty.” In
another section—facially applicable only “in the event that any
controversy or claim is determined in a court of law”—the
agreement provides: “Except as otherwise required by law, both
you and the Company hereby specifically waive any claims for
punitive or exemplary damages or for any other amounts
awarded for the purposes of imposing a penalty.” Lange
12
contends—and the trial court agreed—that the agreement’s
punitive damages waiver is substantively unconscionable.
As the trial court explained, “the provision requiring
[Lange] to waive punitive damages as a remedy for all
nonstatutory claims is substantively unconscionable” because an
employee “seeking to arbitrate a Tameny claim should have the
benefit of . . . ‘the availability of damages remedies equal to those
available in a Tameny suit brought in court, including punitive
damages . . . .”1 (Quoting Little v. Auto Stiegler, Inc., supra, 29
Cal.4th at p. 1081.) The waiver of punitive damages as a remedy
for all nonstatutory claims, then, is substantively unconscionable
regardless of its mutuality.2
b. PIA Equitable Remedies Clause
Three of Lange’s substantive unconscionability arguments
stem from the Equitable Remedies Clause in the PIA. The
employment agreement’s paragraph 3 incorporates “all the terms
1 “In Tameny v. Atlantic Richfield Co. (1980) 27 Cal. 3d 167,
178 . . . , [the Supreme Court] recognized that although
employers have the power to terminate employees at will, they
may not terminate an employee for a reason that is contrary to
public policy.” (Little v. Auto Stiegler, Inc. (2003) 29 Cal. 4th
1064, 1076.) A Tameny claim is a nonstatutory claim for
wrongful termination in violation of public policy.
2 Monster contends that the words “[e]xcept as otherwise
required by law” in the second punitive damages waiver—the one
implicated only “in the event that any controversy or claim is
determined in a court of law,” saves the first punitive damages
waiver from an unconscionability finding. Monster has not
forcefully asserted the argument here, and we do not analyze it
other than to say the argument is not supported by the
contractual language.
13
and conditions contained in the” PIA into the employment
agreement. The PIA’s Equitable Remedies clause states:
“Employee acknowledges that irreparable injury will result to
Company from Employee’s violation of any of the terms of this
Agreement. Employee expressly agrees that Company shall be
entitled, in addition to damages and any other remedies provided
by law, to an injunction or other equitable remedy respecting
such violation or continued violation, without the necessity of a
bond or similar undertaking. Employee agrees to submit himself
or herself to the jurisdiction of the Courts of the State of
California, County of San Diego, in any proceeding to enforce the
terms of this Agreement.” Lange asserts that the entire provision
constitutes an unconscionable one-sided carveout, that the waiver
of a showing of irreparable injury is unconscionable, and that the
waiver of an injunction bond or undertaking is unconscionable.
i. One-Sided Carveout
Lange first contends that the Equitable Remedies clause
constitutes a one-sided carveout provision that renders the
arbitration agreement essentially illusory as to Monster.
Monster counters that incorporation of the PIA into the
employment agreement subjects the PIA to the arbitration
agreement.
“Several contracts relating to the same matters, between
the same parties, and made as parts of substantially one
transaction, are to be taken together.” (Civ. Code, § 1642.) The
PIA contains no arbitration provision. The arbitration
agreement, on the other hand, does provide in paragraph 4.3 for
“a court action for the sole purpose of obtaining a temporary
restraining order or a preliminary injunction in circumstances in
which such relief is appropriate, provided that any other relief
14
shall be pursued through an arbitration proceeding pursuant to
this Agreement.” The two equitable remedies clauses—the
arbitration agreement’s paragraph 4.3 and the PIA’s Equitable
Remedies clause—are not mutually exclusive. Nor is the
arbitration agreement’s equitable remedies provision one-sided; it
expressly allows “either party” to seek a temporary restraining
order or preliminary injunction in court “in circumstances in
which such relief is appropriate.” The PIA’s Equitable Remedies
clause does no more than express a set of circumstances under
which equitable relief may be appropriate and create procedural
delimitations applicable exclusively in those circumstances.
On its face, the PIA’s Equitable Remedies clause does not
apply broadly to every dispute the parties may encounter, nor
does it modify the terms of the employment agreement or its
arbitration agreement. It applies only internally to the PIA, and
even then its entire function is to define rights and
responsibilities between the parties should they litigate issues
covered by the PIA.
While the PIA’s Equitable Remedies clause lacks
mutuality, the “reasonable justification for this lack of mutuality”
is evident on the face of the PIA. The PIA was created for the
purpose of protecting Monster’s “confidential and proprietary
information.” In the PIA, Lange acknowledged that Monster
“enjoys a competitive advantage as a result of its compilation,
possession[,] and use of the Proprietary Information, and that
[Monster] would suffer competitive harm if the Proprietary
Information became known to others outside the Company.”
In Stirlen v. Supercuts, Inc. (1997) 51 Cal. App. 4th 1519,
1536, the court explained that “a contract can provide a ‘margin
of safety’ that provides the party with superior bargaining
15
strength a type of extra protection for which it has a legitimate
commercial need without being unconscionable.” In its entirety,
the PIA is a “margin of safety” for Monster against the possibility
that employees will purloin proprietary information and use it
against the company. That the PIA contains an equitable
remedies provision does not release the PIA from the force of the
parties’ arbitration agreement. And that the PIA’s equitable
remedies provision is not inconsistent with the employment
agreement’s equitable remedies provision reinforces that the two
may be read in harmony.
Lange also asserts that the Equitable Remedies clause’s
reference to damages renders it unconscionable; Lange reads the
clause to allow Monster damages where Lange would not be so
entitled. We disagree with Lange’s interpretation. The sentence
Lange challenges states: “Employee expressly agrees that
Company shall be entitled, in addition to damages and any other
remedies provided by law, to an injunction or other equitable
remedy respecting such violation or continued violation, without
the necessity of a bond or similar undertaking.” We address the
remainder of the sentence below, but note that the reference to
“damages” in the Equitable Remedies clause is a general
reference to other remedies to which Monster may be entitled,
and not an investiture of remedies not otherwise available. In
context, the clause’s reference to damages does not itself create
unconscionability.
We will not find the PIA’s Equitable Remedies clause
substantively unconscionable based on a lack of mutuality; the
PIA is itself a “margin of safety” for which Monster has a
legitimate commercial need. (See Stirlen, supra, 15 Cal. App. 4th
16
at p. 1536.) The clause is, however, unconscionable for other
reasons we discuss below.
ii. Waiver of Injunction Bond & Assumption
of Irreparable Injury
Lange contends that injunctive relief provisions that waive
a bond and waive the requirement that a party show irreparable
harm are substantively unconscionable. Monster argues that
these are merely provisions which provide Monster with a
commercially justifiable “margin of safety.” We agree with
Lange.
“An arbitration provision lacks mutuality and is
substantively unconscionable when it authorizes the stronger
party to obtain injunctive relief without establishing all of the
essential elements for the issuance of an injunction.” (Carbajal v.
CWPSC, Inc. (2016) 245 Cal. App. 4th 227, 250.) As we have
explained, the PIA is, in its entirety, a “margin of safety” for
Monster, and for which it has a legitimate commercial need. But
Monster has articulated—and we can discern—no legitimate
commercial need for the specific provisions in the PIA granting it
predispute relief from having to “establish[ ] all of the essential
elements for the issuance of an injunction.” (Ibid.)
c. Jury Trial Waiver
The parties’ arbitration agreement contains the following
language in paragraph 4.4: “Without in any way detracting from
the intent and obligation of the Company and you to arbitrate all
disputes and controversies between them in accordance with the
above provisions, in the event that any controversy or claim is
determined in a court of law, both you and the Company hereby
irrevocably waive any and all rights to trial by jury in any legal
proceeding arising out of or relating to this Agreement, the
17
breach thereof or the employee’s employment or other business
relationship. Except as otherwise required by law, both you and
the Company hereby specifically waive any claims for punitive or
exemplary damages or for any other amounts awarded for the
purposes of imposing a penalty.” Lange put his initials next to
the next paragraph, which states in part in all capital letters,
“YOU AGREE TO WAIVE THE RIGHT TO A JURY AND TO
SUBMIT DISPUTES ARISING OUT OF OR RELATED TO THIS
AGREEMENT OR YOUR EMPLOYMENT TO NEUTRAL,
BINDING ARBITRATION.”
Lange contends that the agreement’s jury trial waiver is
substantively unconscionable. Monster responds that the jury
waiver was an inherent component of the parties’ agreement to
resolve disputes through arbitration and is, therefore, not
unconscionable.
Lange and Monster are not arguing about the same jury
trial waiver. While Monster refers to a jury trial waiver inherent
in arbitration agreements, Lange’s argument is focused on the
jury trial waiver preceded by the words “in the event that any
controversy or claim is determined in a court of law.” And that
jury trial waiver is not susceptible to any interpretation other
than as an unconscionable predispute jury trial waiver. (See
Grafton Partners v. Superior Court (2005) 36 Cal. 4th 944, 961.)
B. Severance of Unconscionable Provisions
As the trial court did, we have found substantive
unconscionability in the parties’ arbitration agreement and
related provisions. Civil Code section 1670.5, subdivision (a)
states that “[i]f 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, or
18
it may enforce the remainder of the contract without the
unconscionable clause, or it may so limit the application of any
unconscionable clause as to avoid any unconscionable result.”3
The Supreme Court has interpreted this provision to mean that if
a trial court concludes that an arbitration agreement contains
unconscionable terms, it then “must determine whether these
terms should be severed, or whether instead the arbitration
agreement as a whole should be invalidated.” (Gentry v. Superior
Court (2007) 42 Cal. 4th 443, 472-473, abrogated on other grounds
as recognized in Iskanian v. CLS Transportation Los Angeles,
LLC (2014) 59 Cal. 4th 348, 360.) “[T]he strong legislative and
judicial preference is to sever the offending term and enforce the
balance of the agreement: Although ‘the statute appears to give a
trial court discretion as to whether to sever or restrict the
unconscionable provision or whether to refuse to enforce the
entire agreement[,] . . . it also appears to contemplate the latter
course only when an agreement is “permeated” by
unconscionability.’ ” (Roman v. Superior Court (2009) 172
Cal. App. 4th 1462, 1477-1478, quoting Armendariz, supra, 24
Cal.4th at p. 122; Dotson v. Amgen, Inc. (2010) 181 Cal. App. 4th
975, 986.)
3 The Legislative Committee Comments to Civil Code
section 1670.5 state: “Under this section the court, in its
discretion, may refuse to enforce the contract as a whole if it is
permeated by the unconscionability, or it may strike any single
clause or group of clauses which are so tainted or which are
contrary to the essential purpose of the agreement, or it may
simply limit unconscionable clauses so as to avoid unconscionable
results.” (Legis. Com., com. on Assem. Bill No. 510 (1979-1980
Reg. Sess.) reprinted at 8 West’s Ann. Civ. Code (2011 ed.) foll. §
1670.5, p. 75, italics added.)
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We review a trial court’s order declining to sever the
unconscionable provisions from an arbitration agreement for
abuse of discretion. (See Armendariz, supra, 24 Cal.4th at p.
124.) “All exercises of discretion must be guided by applicable
legal principles, however, which are derived from the statute
under which discretion is conferred. [Citation.] If the court’s
decision is influenced by an erroneous understanding of
applicable law or reflects an unawareness of the full scope of its
discretion, the court has not properly exercised its discretion
under the law. [Citation.] Therefore, a discretionary order based
on an application of improper criteria or incorrect legal
assumptions is not an exercise of informed discretion and is
subject to reversal.” (Farmers Ins. Exchange v. Superior Court
(2013) 218 Cal. App. 4th 96, 106.)
The major premise of Monster’s primary contention on
appeal is that the trial court concluded that because the parties’
agreement contains more than a single unconscionable provision,
it had no discretion to sever those provisions. Monster argues
that this is an incorrect legal standard the trial court relied on to
reach its discretionary determination that the parties’ arbitration
agreement was permeated by unconscionability.
Citing Farrar, the trial court here stated that “[s]everance
is inappropriate when the arbitration agreement contains ‘more
than one unlawful provision’ and when ‘there is no single
provision a court can strike or restrict in order to remove the
unconscionable taint from the agreement.’ ” The trial court’s
statements at the July 11, 2018 hearing on Monster’s motion
further clarify its understanding. The trial court said, “the court
did address the notion of severance, but unfortunately you’ve got
more than one problem here. And under the current
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interpretations, we’re not really allowed to start reforming the
whole document when it requires more than one change.” (Italics
added.) Later at that same hearing, the trial court said, “you
know, the way I came out in the end on the [unconscionability of
the PIA clause], if this was the only problem, I think we could
sever it based on the arguments you made . . . . But, like I said
before, the problem is you’ve got too many items to sever here.”
No authority supports the trial court’s conclusion that any
more than a single unconscionable provision in an arbitration
agreement precludes severance.4 “An arbitration agreement can
be considered permeated by unconscionability if it ‘contains more
than one unlawful provision . . . .’ ” (Trivedi v. Curexo Technology
Corp. (2010) 189 Cal. App. 4th 387, 398, italics added, disapproved
of on other grounds by Baltazar, supra, 62 Cal.4th at p. 1248.)
That is because multiple unconscionable clauses serve as
evidence of “a systematic effort to impose arbitration on an
employee not simply as an alternative to litigation, but as an
inferior forum that works to the employer’s advantage.”
(Armendariz, supra, 24 Cal.4th at p. 124.) But the presence of
multiple unconscionable clauses is merely one factor in the trial
court’s inquiry; it is not dispositive. (See ibid.) That an
agreement can be considered permeated by unconscionability if it
4 Farrar does not support the proposition for which the trial
court cited it. In Farrar, the court concluded that a single
provision was unconscionable and it could be severed. There
were not multiple unconscionable provisions at issue, and the
court did not conclude that more than a single unconscionable
provision would preclude severability. (Farrar, supra, 9
Cal.App.5th at pp. 1274-1275.)
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contains more than one unlawful provision does not compel the
conclusion that it must be so.5
Armendariz outlines the contours of the trial court’s
inquiry. “Courts are to look to the various purposes of the
contract,” the Supreme Court said. (Armendariz, supra, 24
Cal.4th at p. 124.) “If the central purpose of the contract is
tainted with illegality, then the contract as a whole cannot be
enforced. If the illegality is collateral to the main purpose of the
contract, and the illegal provision can be extirpated from the
contract by means of severance or restriction, then such
severance and restriction are appropriate.” (Ibid.)
We agree with the trial court’s conclusion that it is not
allowed to “start reforming the whole document . . . .” But the
trial court is not empowered to reform the parties’ contract
anyway (except under limited circumstances not present here).
(Armendariz, supra, 24 Cal.4th at p. 125; Kolani v. Gluska (1998)
64 Cal. App. 4th 402, 407-408.) Armendariz focused on whether
the trial court could “strike or restrict” unconscionable provisions
to “remove the unconscionable taint from the agreement.”
(Armendariz, at pp. 124-125.) The Supreme Court concluded that
the trial court in that instance “would have to, in effect, reform
the contract, not through severance or restriction, but by
augmenting it with additional terms.” (Ibid., italics added.)
5 Lange cites on a variety of appellate cases wherein the
presence of multiple substantively unconscionable terms have
been found sufficient to support a trial court’s conclusion that the
contract was permeated with unconscionability. None of those
cases, however, determined that the presence of multiple
substantively unconscionable terms required the trial court to so
conclude.
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The Ninth Circuit considered the question before us in
Poublon v. C.H. Robinson Company (9th Cir. 2017) 846 F.3d
1251, 1273. There, as here, a party argued that “an agreement is
necessarily permeated by unconscionability if more than one
clause in the agreement is unconscionable or illegal.” (Ibid.) The
court responded: “We disagree; California courts have not
adopted such a per se rule.” (Ibid.) The court there noted, as we
have, that the presence of more than one substantively
unconscionable term “is only one of the relevant factors” in the
trial court’s severability inquiry. (Ibid.) “In each case” regarding
severance, the Ninth Circuit said, “the dispositive question is
whether ‘the central purpose of the contract’ is so tainted with
illegality that there is no lawful object of the contract to enforce.”
(Ibid.) We agree.
We return, however, to the major premise of Monster’s
primary contention on appeal—that the trial court based its
ruling entirely on its incorrect understanding of the law. We do
not read the trial court’s ruling as Monster does. The trial court
appears to have based its ruling on two alternative grounds; that
there was more than a single unconscionable term in the
arbitration agreement and that one of those terms so permeated
the arbitration agreement with unconscionability that the trial
court could discern no reasonable means of severance that would
remedy the unconscionability. While we agree with Monster that
the trial court relied on an erroneous understanding of applicable
law regarding the number of unconscionable provisions that may
render an arbitration agreement irreparable by severance, there
has been no argument here about the alternative ground for the
ruling. Consequently, we cannot conclude the trial court abused
its discretion when it denied Monster’s motion. Indeed, we agree
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with the trial court that the parties’ arbitration agreement is
permeated with too high a degree of unconscionability for
severance to rehabilitate.
DISPOSITION
The trial court’s order is affirmed. Lange is entitled to
costs on appeal.
CERTIFIED FOR PUBLICATION
CHANEY, Acting P. J.
We concur:
BENDIX, J.
WEINGART, J.*
*Judge of the Los Angeles Superior Court, assigned by the
Chief Justice pursuant to article VI, section 6 of the California
Constitution.
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