Murrey v. Superior Court

Filed 1/30/23
CERTIFIED FOR PUBLICATION
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
FOURTH APPELLATE DISTRICT
DIVISION THREE
CASANDRA MURREY,
Petitioner,
v. G061329
THE SUPERIOR COURT OF ORANGE (Super. Ct. No. 30-2021-01191732)
COUNTY,
OPINION
Respondent;
GENERAL ELECTRIC COMPANY
et al.,
Real Parties in Interest.
Petition for extraordinary writ from an order of the Superior Court of
Orange County, Nathan R. Scott, Judge. Petition granted.
Hannemann Law Firm and Brian G. Hannemann; McNally Law Firm,
Bryan L. McNally and Kathleen Doherty for Petitioner.
Littler Mendelson, Gregory Iskander and Renee C. Feldman for Real Party
in Interest General Electric Company.
No appearance for Real Party in Interest Joseph P. Gorczyca, III.
In March 2022, President Joseph R. Biden signed the Ending Forced
Arbitration of Sexual Assault and Sexual Harassment Act of 2021 (the Act) (9 U.S.C.
§§ 401, 402), representing the first major amendment of the Federal Arbitration Act
(FAA) (9 U.S.C. § 1 et seq.) since its inception nearly 100 years ago. This legislation,
having bipartisan support, voids predispute arbitration clauses in cases, such as the one
before us now, involving sexual harassment allegations. We regret that this new
legislation does not apply retroactively to Casandra Murrey’s complaint filed in March
2021. Nevertheless, we will consider Murrey’s writ petition because the highly secretive
and one-sided provisions of her arbitration agreement make it both procedurally and
substantively unconscionable. The agreement is factually distinguishable from existing
case authority upholding employment adhesion contracts and exemplifies why the
legislature drafted House Bill No. 4445. We conclude the trial court erred by enforcing
an unconscionably void arbitration agreement.
FACTS
Murrey, a single, 46-year-old female, worked for General Electric
Company (GE) as a product sales specialist for ultrasound equipment. According to her
complaint, GE “is a multinational conglomerate” that in 2020 had a gross revenue of
$79.6 billion and employed over 200,000 people. The complaint alleged GE hired
Murrey in early 2018 and she was a “top performer.”
In 2019, GE hired Joseph P. Gorczyca, III. In January 2020, he became
Murrey’s direct supervisor, and he engaged in continuous sexual harassment in the
workplace with Murrey and others. Gorczyca apparently liked to talk about his sex life,
sexual acts, and made unwanted sexual advances. During an organized team dinner,
Murrey claimed Gorczyca groped her, and as she tried to walk away, Gorczyca stopped
her and tricked her into eating THC-laced chocolate. She eventually reported the
misconduct to GE and participated in a telephone interview with one of its human
resources (HR) employees. She alleged GE “never properly completed an immediate
2
[n]or appropriate investigation or took any . . . corrective action. Instead, [GE] later
informed [her] that Gorczyca was ‘no longer with the company.’” Thereafter, GE
“commenced an illegal pattern of retaliatory behavior against Murrey because [she]
engage[ed] in protective activity” that included “denying appropriate support for [her]
sales position” and refusing to promote her.
Murrey’s complaint contained causes of action for unlawful harassment
based on gender and sex, failure to prevent harassment, labor code violations, and
retaliation for opposing discrimination and harassment. In addition to emotional distress,
Murrey alleged she suffered substantial losses in earnings, bonuses, deferred
compensation, and other employment benefits.
Eight months after Murrey filed the complaint, GE filed a motion to compel
arbitration. In support of the motion, GE’s lead HR specialist Michelle Thayer submitted
a declaration explaining the company had an electronic onboarding system. GE sent all
new hires a “welcome e-mail” to the new hire’s personal e-mail address that contained a
link to GE’s electronic onboarding system/portal. GE’s welcome e-mail also provided
the new hire with a unique username and temporary password to access the onboarding
portal via the link. Next, new hires were prompted to create a new personal password of
their choosing. After selecting a new personal password, the new hire was directed to the
“GE Hire home page,” which contained several more links “to the tasks assigned to the
new hire.” Each document was assigned a separate task and the new hire signed
employment-related agreements using his or her electronic signature.
Thayer explained one task was to review an electronic copy of a document
titled “‘SOLUTIONS: An Alternative Dispute Resolution Procedure’” (Solutions
manual.) Another task was to review and electronically sign the “Acknowledgment
Conditions of Employment” (Acknowledgement). Based on this process and GE’s other
security measures, Thayer concluded Murrey’s electronic signature on the
Acknowledgment was made by Murrey.
3
Thayer attached to her declaration a copy of the 29-page Solutions manual.
The first page of this document explained: “Solutions provides The General Electric
Company (‘GE’ or ‘the Company’) and Covered Employees a fair, quick and efficient
process to resolve certain claims arising out of or related to their employment relationship
with the Company. [¶] This Procedure is not a guarantee of employment . . . [,] however,
[it] creates a binding obligation on Covered Employees and the Company for the
resolution of employment disputes.”
The Solutions manual offered the following summary of the procedures:
“Solutions is a structured dispute resolution procedure that consists of two internal levels
of review followed by, if necessary and applicable, outside mediation (Level III) and
arbitration (Level IV). Levels III and IV apply only to Covered Claims, as defined
herein. The levels of Solutions are in a logical sequence, and employees must complete
each level of the process before proceeding to the next level.”
The first two levels required the employee to meet with members of the
management team, and without the assistance of counsel, to discuss the dispute. Level III
(mediation), and Level IV (arbitration), mandated the employee use GE’s designated
dispute resolution organization (DRO) to resolve the dispute. For both mediation and
arbitration, the employee could be represented by an attorney.
The Solutions manual explained: “At Level IV, an external arbitrator
provides the employee and the Company with a binding decision on the merits of the
Covered Claim(s). Both mediation and arbitration under Levels III and IV will be
administered by a nationally recognized [DRO]. Employees may obtain information
regarding which DRO has been designated to handle proceedings at Level III and IV and
the DRO’s rules governing such proceedings from the Solutions Administrator or the
local HR manager.” No information was provided on how to find or contact the
Solutions administrator or the HR manager during the onboarding process. As will be
discussed anon, the Solutions manual offered confusing definitions about whether
4
Solutions was the name of an independent agency providing dispute resolution
administrative services, an entity affiliated with GE, or simply the name of an employee
handbook.
Specific details regarding the arbitration process and procedures will be
discussed in more detail in the analysis section of this opinion. Suffice it to say, the
Solutions manual noted the DRO’s rules “may be amended, without notice by the DRO”
and some of those standardized rules were superseded by GE’s “presumptive guidelines.”
GE’s guidelines (over four pages of the Solutions manual) set forth specific procedures
for all aspects of the arbitration proceedings, including initial disclosures, protective
orders, discovery limits, timing of discovery, requirements for expert witnesses,
discovery disputes, subpoenas, dispositive motions, pre-hearing motions, time restrictions
on the hearing, location rules, the number of attendees, the use of evidence, the
requirement of no more than five witnesses (including experts), the scope of the award
and limits on the arbitrator’s authority, and confidentiality of the decision. The discovery
guidelines section incorporated multiple subparts restricting discovery to no more than 20
interrogatories, 15 requests for documents, 15 requests for admission, and 3 depositions.
GE required the party requesting documents “shall bear the reasonable cost of
compliance with the request . . . .” GE mandated that the arbitrator control the duration
of the hearing “and shall seek to limit the length of the arbitration hearing to two 8-hour
days (16 hours total).”
Thayer also attached a copy of the two-page Acknowledgment. The first
line of this document told the new hire to read the contents as well as “the documents it
references carefully.” It noted the referenced documents could be reviewed on the eOffer
website. The Acknowledgment stated the new hire’s offer of employment was
“contingent upon your acceptance of the conditions of employment described below.”
Among the long list of contingencies, paragraph 1(g) stated the new hire must agree to
review and accept the dispute resolution procedures set forth in the Solutions manual.
5
GE argued there was a valid agreement to arbitrate Murrey’s dispute. It
added the FAA applied and Murrey’s claims were covered by the agreement. Murrey
opposed the motion, arguing the adhesion contract was procedurally and substantively
unconscionable. She argued the unconscionable terms could not be severed to make the
arbitration agreement enforceable. She submitted her declaration explaining how the
agreement was presented to her as a new hire. “During the onboarding process . . . I was
required to sign multiple documents within a short period of time. My hiring manager
. . . informed me that my future employment with GE was contingent upon me signing all
onboarding documents including a document entitled Solutions. When seeing all of the
onboarding documents, including Solutions, I felt pressured to sign quickly. I did not
understand the unfair and one-sided nature of GE’s Solutions process.”
The trial court granted the motion to compel arbitration. It reached the
following conclusions: (1) GE met its burden of showing the arbitration agreement
covered Murrey’s claims; (2) All of Murrey’s causes of action arose out of or were
connected with her employment; (3) Murrey met her burden showing procedural
unconscionability because it was a contract of adhesion; (4) “The omission of the
arbitrator provider or its rules does not add much. [Citations.]”; and (5) Murrey failed to
show a sufficient degree of substantive unconscionability to render the agreement
unenforceable. The court explained, the agreement allowed for limited judicial review,
permitted discovery, and authorized the arbitrator to award attorney fees to the prevailing
plaintiff. It severed one “minor” offensive provision shifting discovery costs to the
employee.
DISCUSSION
I. Retroactivity of the Act
The Act added two sections to the FAA. Section 401 of the Act defines
several terms relevant to interpreting its scope. First, it defined the two types of covered
agreements as follows: (1) predispute arbitration agreements are individual agreements
6
to arbitrate “a dispute that had not yet arisen at the time of making the agreement”; and
(2) predispute joint-action waivers are agreements prohibiting a plaintiff from
participating in a joint, class, or collective action in a judicial, arbitral, administrative, or
other forum. (9 U.S.C. § 401, subds. (1) & (2).)
Section 402, subdivision (a), of the Act describes its applicability, stating
that effective immediately, predispute arbitration agreements and joint-action waivers in
the context of sexual assault or harassment were no longer valid or enforceable. “[A]t the
election of the person alleging conduct constituting a sexual harassment dispute or sexual
assault dispute, or the named representative of a class or in a collective action alleging
such conduct, no predispute arbitration agreement or predispute joint-action waiver shall
be valid or enforceable with respect to a case which is filed under Federal, Tribal, or State
law and relates to the sexual assault dispute or the sexual harassment dispute.” (9 U.S.C.
§ 402, subd. (a).)
The Act’s language clearly establishes it was effective immediately.
Section 402, subdivision (a), unambiguously provided the Act applied “with respect to a
case filed under . . . State law and relates to the . . . sexual harassment dispute.” (Italics
added.) Although the Act applied to any cases filed after its enactment, there is some
debate about whether it matters when the underlying sexual harassment or assault took
place. One federal court has resolved this question in favor of employers, holding the
dispute or claim must arise after March 3, 2022, the date of the Act’s enactment.
(Steinberg v. Capgemini Am., Inc. (E.D.Pa. Aug. 16, 2022, Civ. A. No. 22-489) 2022
U.S.Dist. Lexis 146014, p. *6.) The court reached this conclusion by relying on a
marginal note to the Act which stated: “This Act, and the amendments made by this Act,
shall apply with respect to any dispute or claim that arises or accrues on or after the date
of enactment of this Act.” (Pub.L. No. 117-90, § 3, reprinted in notes foll. 9 U.S.C.
§ 401.)
7
On the other hand, one treatise proposes that because this marginal note is
not included in the Act, it should be interpreted “as merely clarifying that the Act is
inapplicable to claims already filed in arbitration.” (Laura Farley, Ending Forced
Arbitration: Understanding the New Federal Law That Prohibits Mandatory Arbitration
in Matters of Sexual Assault or Harassment (2022) 79 Bench & B. Minn. 26, 29.)
“Giving any further weight to this marginal note yields results that are unintelligible and
contrary to the purpose of this legislative effort. It is illogical to interpret the Act to
conclude that Congress intended that someone sexually assaulted at work on March 2,
2022, would be forced to bring their claim in arbitration, whereas someone sexually
assaulted the next day could pursue their claims in court.” (Ibid.)
While these arguments are thought-provoking, we need not consider the
issue because Murrey filed her case approximately one year before the Act was enacted.
“During debate, Congress clarified that the Act is retroactive ‘as to contracts currently
signed,’ but not to ‘cases currently pending.’” (Farley, supra, at 29.) In other words, the
Act is only applicable to cases filed after its enactment.
II. Enforceability of the Arbitration Agreement
“Article I, section 16 of the California Constitution provides: ‘Trial by jury
is an inviolate right and shall be secured to all . . . . In a civil cause a jury may be waived
by the consent of the parties expressed as prescribed by statute.’ ‘“The jury as a fact-
finding body occupies so firm and important a place in our system of jurisprudence that
any interference with its function in this respect must be examined with the utmost
care.”’ [Citations.] ‘“The denial of a trial by jury to one constitutionally entitled thereto
constitutes a miscarriage of justice and requires a reversal of the judgment.”’ [Citation.]”
(Mackovska v. Viewcrest Road Properties LLC (2019) 40 Cal.App.5th 1, 9; Hodge v.
Superior Court (2006) 145 Cal.App.4th 278, 283 [“A jury trial is an important
constitutional right that should be ‘“zealously guarded by the courts”’”].) “In other
contexts, courts have established rules of construction against waiver of this important
8
right. (Rodriguez v. Superior Court (2009) 176 Cal.App.4th 1461, 1467 [citation]
[‘“[T]he right to trial by jury is considered so fundamental that ambiguity in [a] statute
permitting such waivers must be ‘resolved in favor of according to a litigant a jury
trial’”’]; Badie v. Bank of America (1998) 67 Cal.App.4th 779, 804 [citation] [‘Where it
is doubtful whether a party has waived his or her constitutionally-protected right to a jury
trial, the question should be resolved in favor of preserving that right’].)” (Pillar Project
AG v. Payward Ventures, Inc. (2021) 64 Cal.App.5th 671, 680.)
Predispute arbitration agreements are specifically authorized by statute.
(Code Civ. Proc., § 1281 [“A written agreement to submit to arbitration an existing
controversy or a controversy thereafter arising is valid, enforceable and irrevocable, save
1
upon such grounds as exist for the revocation of any contract”].) Contracting parties can
voluntarily agree to waive their constitutional right to have their dispute resolved in a
judicial forum by a jury. However, courts asked to compel arbitration must keep in mind
that arbitration is “a voluntary means of resolving disputes, and this voluntariness has
been its bedrock justification.” (Armendariz v. Foundation Health Psychcare Services,
Inc. (2000) 24 Cal.4th 83, 115 (Armendariz).) The right to arbitration depends on the
enforceability of the party’s contract. Policies favoring the efficiency of private
arbitration “‘must sometimes yield to its fundamentally contractual nature’” and “we
must be particularly attuned to claims that employers with superior bargaining power
have imposed one-sided, substantively unconscionable terms” to an adhesive
preemployment arbitration contract. (Ibid.) Private arbitration must not become “‘an
instrument of injustice imposed on a “take it or leave it” basis.’” (Ibid.)
“As a starting point for our analysis, we review general principles of
unconscionability. ‘“One common formulation of unconscionability is that it refers to
‘“an absence of meaningful choice on the part of one of the parties together with contract
1
All further statutory references are to the Code of Civil Procedure, unless
otherwise indicated.
9
terms which are unreasonably favorable to the other party.”’ [Citation.] As that
formulation implicitly recognizes, the doctrine of unconscionability 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.]” (Baltazar
v. Forever 21, Inc. (2016) 62 Cal.4th 1237, 1243 (Baltazar).)
“‘“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.’ [Citation.]” (Baltazar, supra, 62 Cal.4th at pp. 1243-1244.)
“‘[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. . . . Ordinary contracts of adhesion, although
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.” [Citation.]’ [Citation.]
We have instructed that courts must be ‘particularly attuned’ to this danger in the
employment setting, where ‘economic pressure exerted by employers on all but the most
sought-after employees may be particularly acute.’ [Citation.]” (Baltazar, supra,62 Cal.4th at p. 1244.)
10
“‘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-sided as to
“shock the conscience”’” [citation], or “unfairly one-sided” [citation]. All of these
formulations point to the central idea that the 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.]’ [Citation.]” (Baltazar, supra,
62 Cal.4th at pp. 1244-1245.)
A. Procedural Unconscionability
The court concluded, and the parties do not dispute, Murrey’s arbitration
agreement was procedurally unconscionable because it was offered on a take-it-or-leave-
it basis. The unmodifiable electronic document was a contract of adhesion. Murrey’s
employment onboarding experience presented a higher degree of oppressiveness than
other situations where a new hire is provided copies of the agreement and given ample
time to review the documents, ask questions about the terms, or request a modification.
Murrey declared she had a short period of time to click boxes on her computer and
electronically sign forms acknowledging she received multiple lengthy documents. GE
did not present evidence refuting this claim, and the trial court overruled its objection to
this part of Murrey’s declaration.
11
1. Secretive DRO and Arbitration Rules
Murrey argues there was a greater degree of procedural unconscionability
in her case because GE did not provide her with a copy of the DRO’s arbitration rules,
which, according to the Solutions manual, governed any arbitration proceedings between
the parties. This omission, however, was but one small piece of a much larger secrecy
problem. GE also did not disclose the name of the arbitration provider or the location of
the proceedings. The amount of information withheld from Murrey in this case is what
sets it apart from those where a copy of the American Arbitration Association’s (AAA)
rules, or the Judicial Arbitration and Mediation Service’s (JAMS) rules, were omitted and
simply incorporated by reference.
As noted by our Supreme Court in Baltazar, “‘[N]umerous cases have held
that the failure to provide a copy of the arbitration rules to which the employee would be
bound supported a finding of procedural unconscionability.’ [Citation.] But in [those
cases] . . . the plaintiff’s unconscionability claim depended in some manner on the
arbitration rules in question. [Citations.] These cases thus stand for the proposition that
courts will more closely scrutinize the substantive unconscionability of terms that were
‘artfully hidden’ by the simple expedient of incorporating them by reference rather than
including them in or attaching them to the arbitration agreement. [Citation.]” (Baltazar,
supra, 62 Cal.4th at p. 1246.)
In the Baltazar case, the employer did not provide their new hire with a
copy of the AAA’s rules for arbitration but incorporated them by reference. (Baltazar,
supra, 62 Cal.4th at p. 1246.) The court determined the employee’s argument “might
have force if her unconscionability challenge concerned some element of the AAA rules
of which she had been unaware when she signed the arbitration agreement” but her claim
had nothing to do with the fairness of the AAA rules. (Ibid.) Accordingly, the court
determined the employer’s failure to attach the AAA rules would not “affect [the court’s]
consideration of [the employee’s] claims of substantive unconscionability.” (Ibid.)
12
More recently, an appellate court determined a plaintiff failed to show a
heightened degree of procedural unconscionability “with regard to the agreement’s non-
identification of a specific arbitration provider or the version of the arbitral rules that
would apply in a given dispute.” (Davis v. Kozak (2020) 53 Cal.App.5th 897, 910
(Davis).) However, that case is distinguishable on the key point that the agreement
designated AAA as the default arbitration provider and referred to the applicable rules as
being those the arbitration service agreed upon. (Id. at p. 904.) The defendant argued
there was no potential for surprise because in the event the parties disagreed on an
arbitrator, plaintiffs understood the AAA rules would apply. (Id. at p. 908.) The court
held the unconscionability for failure to identify the correct version of the AAA rules
depended “in some manner on the substantive unfairness of a term or terms” contained in
those variations. (Id. at p. 909.) In that case, plaintiff did “not contend that either the
2002 or the 2009 version of the AAA employment rules contained substantively
unconscionable terms.” (Ibid.)
The Davis court noted the case was distinguishable from Carbajal v.
CWPSC, Inc. (2016) 245 Cal.App.4th 227, 244, where the plaintiff was asked to sign the
agreement during her interview, and the employer’s representative admitted he did not
know which AAA rules applied. The court in Davis deemed it significant that the
plaintiff did not claim he was given insufficient time to consider the agreement or was
“otherwise unable to access the AAA rules at the time of contracting.” (Davis, supra,
53 Cal.App.5th at p. 909.)
Our case differs from Baltazar and Davis. GE’s agreement (1) failed to
identify the DRO provider it selected for Murrey’s work location, (2) failed to designate a
fallback set of accepted rules if the DRO changed, (3) failed to designate a location for
the arbitration; (4) failed to explain whether it knew at the time of contracting which
version of rules were applicable, and (5) failed to prove GE gave Murrey sufficient time
to consider the Solutions manual, inquire about the DRO, and access the arbitration rules
13
at the time of contracting. We conclude Murrey showed a heightened degree of
procedural unconscionability beyond the agreement’s adhesive nature.
GE argues the arbitration agreement did not keep secret the name of the
arbitration provider or the rules because the Solutions manual stated the employee
“simply had to ask either the Solutions Administrator or her local HR manager” for this
information. It points to page nine of the Solutions manual, which stated the following:
“For each location covered by Solutions, the Company has designated a DRO which shall
handle any and all [arbitrations] for employees based in such location. Employees may
obtain information regarding the DRO designated to handle their Covered Claims,
including the name and location of the DRO and the DRO’s current rules of procedure,
from the Solutions Administrator, or the local HR manager. Except as provided
otherwise by this Procedure, the mediation and arbitration . . . will be administered by the
designated DRO under its current rules for mediation and for arbitration, as may be
amended, without notice by the DRO.”
This provision does not persuade us that either the DRO’s name or
applicable rules were disclosed to Murrey (or were known to GE at the time of
contracting). The agreement does not specify how or when the DRO would be selected,
but clearly provides this decision belonged solely to GE. As a result, GE had the option
of selecting a different DRO for each location and finding companies most beneficial for
resolving a particular type of dispute. This provision also conferred a unilateral right to
change the DRO for any particular location without notice and for its benefit. Thus, we
have no reason to assume a new hire would be able to find the contact information for the
Solutions Administrator at her future location or her “local HR manager.” GE did not
present evidence showing this contact information was available during Murrey’s
electronic onboarding process or that she was given the time to ask about the DRO’s
name or applicable rules. As aptly stated by Murrey in her briefing, GE’s “scheme
epitomizes the very definition of secrecy.”
14
Most of GE’s briefing is premised on the factual assertion AAA was its
designated arbitration provider for Murrey’s location. It discusses a large body of legal
authority upholding agreements incorporating by reference AAA or JAMS rules.
(Serafin v. Balco Properties Ltd., LLC (2015) 235 Cal.App.4th 165, 180 [agreement told
plaintiff she could obtain arbitration rules from HR department or “‘directly from’” the
AAA]; Lane v. Francis Capital Management LLC (2014) 224 Cal.App.4th 676, 691-692
[failure to attach copy of AAA rules did not render agreement unconscionable, especially
when agreement specified “a particular set of AAA rules, and it did not modify those
rules in any manner”]; Peng v. First Republic Bank (2013) 219 Cal.App.4th 1462, 1472
[Because plaintiff “did not identify any feature of the AAA rules that prevent fair and full
arbitration” the failure to attach the AAA rules, standing alone, is insufficient grounds for
procedural unconscionability]; Bigler v. Harker School (2013) 213 Cal.App.4th 727, 737
2
[“absence of the AAA rules is of minor significance to our analysis”].) GE also
submitted a seven-page table demonstrating how many of GE’s rules sounded similar to
AAA’s generally accepted rules. However, the factual premise of all these contentions
lacks evidentiary support. We found no evidence showing GE verbally disclosed to
Murrey that AAA was its designated DRO, or that GE included this information in any of
the onboarding electronic documents. How was Murrey to know GE designated AAA
when she signed the contract?
2
GE does not cite to any cases where the agreement failed to state the name
of the designated DRO and also failed to mention or incorporate default DRO rules. We
note GE cited two unpublished federal cases that we considered. California Rules of
Court, rule 8.1115 generally does not permit citation of unpublished California cases, but
it does not prohibit citation of unpublished federal cases. (Cal. Rules of Court, rule
8.1115; Moss v. Kroner (2011) 197 Cal.App.4th 860, 875, fn. 6.) Both federal cases are
distinguishable because AAA or JAMS rules were specifically referenced in the
arbitration agreements. (Asher v. E! Entm’t TV, LLC, (C.D.Cal., Aug. 16, 2017,
CV 16–8919–RSWL–SSx) 2017 U.S.Dist. Lexis 131579, pp. *7-*9 (Asher) [JAMS];
Sullenberger v. Titan Health Corp. (E.D.Cal., May 20, 2009, CIV-S-08-2285 LKK GGH)
22009 U.S.Dist. Lexis 46586, pp. *22-*25 [AAA].)
15
The only reference in the record identifying AAA as the DRO was in GE’s
litigation counsel’s declaration submitted in support of the motion to compel arbitration.
She simply declared: “GE designated and utilizes the [AAA] as the ‘nationally
recognized [DRO]’ referenced in its GE’s Solutions procedure.” She supplied an
electronic link to the most recent version of AAA’s “employment rules.”
Counsel failed to provide any insight into GE’s DRO selection process or
confirm GE designated AAA before Murrey filed her lawsuit. GE had dozens of
arbitration agencies to choose from, and we have no reason to assume it had already
picked AAA when Murrey signed the contract. We find it telling that GE did not explain
why this information could not have been disclosed during Murrey’s onboarding process,
3
along with her personalized passwords, usernames, and various electronic documents.
GE’s counsel offered no justification for keeping the name of the designated DRO or the
3
Ironically, GE directed our attention to an unpublished federal district case
where an entertainment industry executive “agreed to be bound by ‘Solutions,’
NBCUniversal Media’s alternative dispute resolution (‘ADR’) program . . . .” (Asher,
supra, 2017 U.S.Dist. Lexis 131579, at p. *2.) Unlike the case before us, the executive in
Asher was represented by counsel when she negotiated her employment contract, and the
company’s “Solutions” procedures specified arbitration was to be “facilitated by JAMS,
the designated [DRO]” (Id. at p. *3.) The court was not concerned the employer “did not
attach the JAMS rules and required plaintiff to independently seek them out.” (Id. at
p.*8.) It reasoned that “[u]nder ‘Summary of the Solutions Procedure,’ employees may
ask the Solutions Administrator or the local HR manager” for this information. (Ibid.)
The court noted the Solutions administrator “was the representative present” when
plaintiff and her attorney negotiated and signed the agreement and they had ample
opportunity to ask him “about the DRO and the governing arbitration rules at that time.”
(Id. at p. *9, italics added.) In addition, there was evidence plaintiff signed employment
agreements twice in prior years and she had no issue with the lack of attached JAMS
rules. (Ibid.)
This case highlights how other companies using “Solutions” managed to
also disclose the designated DRO and named the applicable rules. GE clearly took
advantage of its superior bargaining position and kept Murrey in the dark about the rules
applying to her forced arbitration.
16
DRO’s rules hidden from new hires. We suspect the information was kept secret to give
GE the upper hand in selecting a favorable DRO.
In light of all of the above, we conclude case authority validating an
arbitration agreement incorporating AAA/JAMS rules is inapplicable here. GE did not
identify an arbitration provider, and its incorporation of an unnamed DRO’s rules are
meaningless, particularly when GE had the option of changing the DRO at any time.
Unlike the cases incorporating standardized AAA/JAMS rules, we cannot say with any
4
certainty the incorporated rules would not be surprising or oppressive in some way.
While AAA/JAMS rules are generally accepted as fair (even if difficult for the employee
to find), we found no authority upholding an agreement concealing both the rules and the
name of the arbitration provider. Moreover, we question the relevance of case authority
written when there were only two or three nationally recognized arbitration providers
available. Currently, there are numerous international, national, and state-based
arbitration providers, each offering different sets of rules and advertising different
5
specialties. For this reason, agreements giving only one party the authority to select the
DRO must be considered a substantively material term of the contract.
Here, Murrey’s preemployment adhesion contract granted her employer the
sole right to select, and also keep secret, the name of the DRO (and applicable rules).
“Given the lack of choice and the potential disadvantages that even a fair arbitration
4
As mentioned, the Solutions manual gave GE the luxury of time in
selecting an appropriate arbitration provider. Solutions Levels I and II required an
employee to submit her claims and engage in confidential proceedings with her
workplace manager and without legal representation. This process let GE determine the
exact nature of an employee’s dispute long before the case could progress to arbitration.
5
AAA and JAMS are not the only DRO options. For example, the American
Bar Association lists 21 different nationally recognized DROs and many others.
(See American Bar Association, ADR Organizations
.)
17
system can harbor for employees” (Armendariz, supra, 24 Cal.4th at p. 115), we conclude
this particular provision was highly unconscionable.
This conclusion also explains why the trial court’s reliance on HM DG, Inc.
v. Amini (2013) 219 Cal.App.4th 1100 (Amini), was misplaced. In that case, the
arbitration clause gave the parties three choices on how to jointly select an arbitrator “‘for
arbitration in accordance with the applicable United States Arbitration and Mediation
Rules of Arbitration.’” (Id. at p. 1104, italics omitted.) The court rejected the plaintiffs’
argument the agreement needed to identify a single method for selecting an arbitrator to
be valid. (Id. at p. 1107.) It explained section 1281.6 provided that if the method of
picking an arbitrator was not stated in the agreement, the parties could agree on a method
of selection, or the court will appoint an arbitrator. (Amini, supra, 219 Cal.App.4th at pp.
1107-1108.)
While this case supports GE’s legal theory that the absence of an arbitration
provider in the agreement does not render an agreement unconscionable, it does not
support upholding the agreement in the case before us. GE’s agreement specified a
single method for selecting an arbitration service: GE had the sole authority to designate
a preferred DRO for each of its locations. GE’s decision to keep the identity of the
predesignated DRO concealed from Murrey, while at the same time forcing her to
arbitrate her dispute, could not be remedied by section 1281.6.
2. Confusion About Applicable Rules
Another feature distinguishing this case from many others is the uncertainty
and confusion created by GE’s decision to incorporate its own set of arbitration rules, in
addition to incorporating the hidden DRO’s rules, while at the same time authorizing the
arbitrators to expand or limit GE’s set of rules. If we assume for the sake of argument
Murrey somehow could have learned the DRO rules mentioned in the Solutions manual
referred to AAA rules (during the onboarding process), we conclude the agreement was
18
still unconscionable. The agreement’s unclear, incomplete, and contradictory language
would fail to inform any reasonable person of the contract’s consequences.
We asked the parties to include in their briefing a discussion about whether
the agreement provided GE’s presumptive guidelines superseded the unnamed DRO’s
rules, and if so, what showing would be required to overcome the presumptive use of the
guidelines. Their responses clearly exemplify why Murrey had no chance of
understanding the terms of GE’s forced arbitration.
GE asserts its guidelines did not supersede the DRO’s rules and directs our
attention to several provisions it believed proved the agreement authorized the arbitrator
to decide what procedural and discovery rules would apply. First, it cited to the Solutions
manual’s section II, paragraph P (on p. 9), titled, “Rules of Administration for Mediation
and Arbitration.” This provision repeated GE had designated “a DRO” for arbitration
and the employee could asked about the “name and location of the DRO and the DRO’s
current rules of procedure, from the Solutions Administrator, or the local HR manager.”
The last sentence of the paragraph stated: “Except as provided otherwise by this
Procedure, the . . . arbitration of Covered Claims will be administered by the designated
DRO under its current rules for . . . arbitration, as may be amended, without notice by the
DRO.” (Italics added.) GE noted there was nothing in this paragraph requiring the
arbitrator to follow GE’s presumptive guidelines “over that of the AAA’s rules.”
GE also focused on a provision found seven pages later (on p. 16 of the
6
Solutions manual, section III, paragraph D, subsection 1, hereafter section III(D)(1)).
GE asserted that provision gave the arbitrator authority “to make reasonable alterations”
to the guidelines. Based on its reading of these two provisions, GE concluded the
agreement clearly let the arbitrator decide what rules applied, and therefore, it cannot be
6
For ease of reading, all future references to the Solutions manual will be
abbreviated in a similar manner.
19
said GE’s guidelines superseded the incorporated AAA rules. In essence, GE is arguing
one set of rules did not supersede the second set because the arbitrator could modify both
sets. This convoluted assertion does not help convince us the agreement fairly and
completely informed Murrey about the consequences of forced arbitration. The processes
and rules should be clear, conspicuous, and understandable so that there are no surprises.
Moreover, as Murrey aptly pointed out in her briefing, GE’s argument
ignores the first part of the sentence in section II(P) of the Solutions manual, which
stated, “Except as provided otherwise by this Procedure.” This language serves to
qualify the rest of the paragraph stating the DRO rules apply. The phrase “[e]xcept as
provided otherwise” plainly refers to 23 separate sections of text found on pages 16
through 23. Confusingly, some of these sections permit the arbitrator to consider altering
GE’s guidelines rather than falling back on the DRO’s rules. For example, the Solutions
manual provided that an arbitrator may increase or decrease the amount of discovery
permitted (section III(D)(6)), and “modify” the discovery guidelines “in consideration of
the interests of simplicity and expedition of arbitration balanced against the value of the
information in establishing a claim or defense” (section III(D)(6)(c)). Neither of these
provisions require the arbitrator to abandon the guidelines in favor of the DRO’s rules.
To the contrary, it appears that an arbitrator’s only choices are to accept or modify the
presumed guidelines. These provisions support the conclusion GE’s set of rules
superseded the DRO rules.
The only section we found that required the arbitrator to follow the DRO’s
rules was section III(D)(6)(viii) of the Solutions manual, which provided, “the arbitrator
shall have the authority to resolve any . . . disputes pursuant to the Rules of the DRO.”
Thus, the DRO rules supersede all other rules for discovery disputes. But because GE
did not disclose the DRO, there was no way of knowing if the discovery dispute rules
used by the unnamed DRO are fair.
20
GE called its arbitration rules “presumptive guidelines” rather than simply
“guidelines” or “rules.” Section III(D)(1)’s description of the guidelines only hint at why
they are presumptive. It provided as follows: “The Procedures below contain certain
guidelines on discovery and witnesses in an effort to further the interests of simplicity
and expedition of arbitration. These guidelines will apply unless the arbitrator determines
that they will prevent the party from obtaining information and/or presenting evidence
that will assist the party in proving a claim or defense, in which case the arbitrator shall
have authority to make reasonable alterations to such guidelines.” (Italics added.) The
Solutions manual does not explain how a party could rebut the presumed use of GE’s
7
guidelines in favor of less restrictive discovery.
Two cases are instructive on this point. In Fitz v. NCR Corp. (2004)
118 Cal.App.4th 702, 720 (Fitz), the court rejected an employer’s assertion that although
the agreement listed rules impermissibly denying fair discovery the agreement also
incorporated AAA rules that would ensure adequate discovery. The Fitz court
determined the two sets of rules were materially inconsistent and the employer could not
belatedly claim it intended the AAA rules to apply. (Id. at p. 721.) The court noted the
potential conflict created the possibility of legal battles and additional expense litigating
rule disputes. (Ibid.) Additionally, “there is also the very real potential for disparate
enforcement of the [employer’s employee-dispute resolution] policy terms, since
arbitrators may disagree on whether the policy’s limits on discovery are materially
inconsistent with AAA rules.” (Ibid.) “[The employer] deliberately replaced the AAA’s
7
It is interesting to note the Committee on the Judiciary in its report
supporting the new Act concluded “Forced arbitration . . . lacks many procedural
safeguards of the justice system.” (H.R.Rep. No. 117-234, 2d Sess., p. 5. (2022) (House
Report).) It focused on evidence and testimony showing “the company imposing
arbitration often selects the . . . arbitration provider creating a conflict of interest in which
the purportedly neutral arbitrator may be motivated by the prospect of obtaining repeat
business from the company rather that the desire to fairly assess the claim.” (House
Report, supra, at p 5, fns. omitted.)
21
discovery provision with a more restrictive one, and in so doing failed to ensure that
employees are entitled to discovery sufficient to adequately arbitrate their claims. [The
employer] should not be relieved of the effect of an unlawful provision it inserted in the
[employee-resolution] policy due to the serendipity that the AAA rules provide
otherwise. [Citation.]” (Ibid.)
In Harper v. Ultimo (2003) 113 Cal.App.4th 1402 (Harper), the court
reviewed a work contract that contained an arbitration provision incorporating the
arbitration rules of the Better Business Bureau (BBB). The court refused to enforce the
arbitration clause because the hidden BBB rules had a negative substantive impact on the
plaintiff’s claims. The surprise element of hiding the BBE rules was obvious: “Here is
the surprise: The customer must inevitably receive a nasty shock when he or she
discovers that no relief is available even if out and out fraud has been perpetrated, or
even if he or she merely wants to be fully compensated for damaged property.” (Id. at
p. 1406, italics added.) “Here is the oppression: The inability to receive full relief is
artfully hidden by merely referencing the [BBB] arbitration rules, and not attaching those
rules to the contract for the customer to review. The customer is forced to go to another
source to find out the full import of what he or she is about to sign—and must go to that
effort prior to signing.” (Ibid.) Importantly, the court noted that the arbitration rules of
the BBB “are not just procedural ones . . . . By limiting the scope of arbitral claims, the
[BBB] rules have the effect of substantively limiting the defendant’s exposure.” (Id. at
p. 1407.)
In the present case, Murrey cannot say if the rules GE failed to include with
the other electronic onboarding documents were unfairly one-sided because GE also kept
secret the name of the DRO generating those rules. There is a growing list of DROs
offering dispute resolution services, and we need not speculate that GE would have
picked one with rules generally accepted by case authority (like AAA or JAMS). The
court in Harper stated it was unacceptable for an arbitration agreement not to indicate
22
whether the arbitration would be conducted under the BBB’s rules as of the time of
contracting or at the time of arbitration. (Harper, supra, 113 Cal.App.4th at p. 1407.) It
stated, “Thus even a customer who takes the trouble to check the [BBB] arbitration rules
before signing the contract may be in for a preliminary legal battle in the event that
[BBB] arbitration rules were to become substantively less favorable in the interim.
Before the main battle commenced in arbitration, there would be a preliminary fight over
which set of arbitration rules governed—something which, at the very least, would add to
the customer’s legal expense. [Citation.]” (Ibid.) Similarly, GE’s Solutions manual did
not say what version of the undisclosed DRO’s rules would apply, but ominously stated
the DRO rules could change at any time. What if the undisclosed rules were to become
less favorable over time?
When an arbitration agreement, such as the one before us, has multiple
elements of procedural unconscionability, usually the next step is to closely “‘scrutinize
the substantive terms . . . to ensure they are not manifestly unfair or one-sided.’”
(Baltazar, supra, 62 Cal.4th at p. 1244.) Compounding the obvious problems created by
the Solutions manual claiming to follow two sets of rules was GE’s decision to only
identify one of them. We have no reason to conclude the missing set of rules was
acceptable.
3. Location of Arbitration
On page 20 of the Solutions manual, section III(D)(12) stated the following
information about the place of the arbitration hearing: “Unless the parties agree
otherwise, or the arbitrator directs otherwise, the parties shall use the DRO office nearest
to the employee’s work location to arbitrate the Covered Claims. If the DRO’s office is
unavailable, the DRO will arrange for the rental of an arbitration hearing room that is
mutually convenient.” This provision is a complicated way of saying the location of your
arbitration will be a surprise.
23
In Patterson v. ITT Consumer Financial Corp. (1993) 14 Cal.App.4th
1659, plaintiff borrowers were not given a copy of the arbitration rules, but the court did
not rely on this fact when concluding the agreement was procedurally unconscionable.
The court determined the arbitration agreement was invalid because (1) it was an
adhesion contract, (2) the arbitration rules were unclear as to the hearing’s location, (3)
California consumers would not expect that arbitration would take place in Minnesota,
and (4) the likely result of the procedures was to deny California consumers a
“participatory hearing.” (Id. at pp. 1664-1666.)
GE’s rules do not suggest an out-of-state venue but vaguely promise to
select the nearest available venue suitable to an unidentified DRO. Thus, there was no
guarantee the arbitration would be close to Murrey’s home or workplace. Forced
arbitration at a location in Northern California for an employee living in Southern
California would be unreasonable, and unanticipated. “Substantive unconscionability
may be shown if the disputed contract provision falls outside the nondrafting party’s
reasonable expectations. [Citation.]” (Parada v. Superior Court (2009) 176 Cal.App.4th
1554, 1573.)
We acknowledge this provision may have been reasonable if GE had
designated a specific DRO with offices near Murrey’s workplace. Alternatively, GE
could have drafted more specific terms guaranteeing the location would not unfairly
burden the employee, such as including a default maximum distance from the employee’s
workplace or home. As written, the potential for a surprisingly harsh term heightens the
level of procedural unconscionability of the agreement.
B. Substantive Unconscionability
The legal term substantive unconscionability focuses on overly harsh or
one-sided results. (Armendariz, supra, 24 Cal.4th at p. 114.) In evaluating substantive
unconscionability, courts often look to whether the arbitration agreement meets certain
minimum levels of fairness. In Armendariz, our Supreme Court instructed that, at a
24
minimum, a mandatory employment arbitration agreement must (1) provide for neutral
arbitrators, (2) provide for more than minimal discovery, (3) require a written award that
permits limited judicial review, (4) provide for all of the types of relief that would
otherwise be available in court, and (5) require the employer to pay the arbitrator’s fees
and all costs unique to arbitration. (Id. at pp. 102-103.) “Elimination of or interference
with any of these basic provisions makes an arbitration agreement substantively
unconscionable.” (Wherry v. Award, Inc. (2011) 192 Cal.App.4th 1242, 1248.)
1. Requiring Murrey to Pay Costs Unique to Arbitration
The Solutions manual, section III(D)(6)(c)(ii), required each party to bear
the “reasonable cost of compliance” with discovery requests. The court severed this
provision as “imposing an obligation beyond the Discovery Act.” (See Armendariz,
supra, 24 Cal.4th at p. 113 [required an employer to pay “all types of costs that are
unique to arbitration”].) In its briefing, GE does not dispute this provision was
substantively unconscionable.
2. Default Discovery Limitations
Our Supreme Court held a mandatory employment arbitration agreement
must provide for more than minimal discovery. (Armendariz, supra, 24 Cal.4th at
p. 102.) Employees “are at least entitled to discovery sufficient to adequately arbitrate
their statutory claim, including access to essential documents and witnesses.” (Id. at p.
106.) Parties can agree to limitations on discovery, but an arbitration agreement must
“‘“ensure minimum standards of fairness” so employees can vindicate their public
rights.’” (Baxter v. Genworth North America Corp. (2017) 16 Cal.App.5th 713, 727
(Baxter).)
GE’s presumptive guidelines set default limitations on discovery. In
advance of the Level I meeting, and by request to the Solutions administrator, an
employee could access documents from his or her personnel and medical files in GE’s
possession. However, an employee was not entitled to engage in the discovery process
25
until reaching the arbitration level of Solutions. Of course, by this time GE had three
stages of dispute resolution proceedings to gain a full understanding of the employee’s
evidence and all aspects of his or her complaints.
The Solutions manual’s default discovery provisions limited each party to
three depositions and “20 separately numbered interrogatories . . . [s]ubparts to
interrogatories will count as separate interrogatories.” In addition, each party was
restricted to 15 requests for documents and 15 requests for admissions. The agreement
called for an abbreviated discovery exchange schedule by mandating “the arbitration
hearing to occur no later than 180 calendar days after the appointment of the arbitrator.”
While superficially neutral, these discovery restrictions only favor GE.
“Employment disputes are factually complex, and their outcomes ‘are often determined
by the testimony of multiple percipient witnesses, as well as written information about
the disputed employment practice.’ [Citation.] Seemingly neutral limitations on
discovery in employment disputes may be nonmutual in effect. ‘“This is because the
employer already has in its possession many of the documents relevant to an employment
discrimination case as well as having in its employ many of the relevant witnesses.”’
[Citation.]” (Baxter, supra, 16 Cal.App.5th at pp. 727-728 [holding “default limitations
on discovery are almost certainly inadequate to permit [the employee] to fairly pursue her
claims”].)
GE does not defend its rules limiting discovery. Instead, it asserts the
agreement can be upheld because the rules allowed the arbitrator to expand or limit
8
discovery. True, Solutions gave the arbitrator the discretion to further restrict discovery,
or order more, depending “on the facts of the particular claim” keeping in mind “the
8
Alternatively, GE argues the agreement incorporated the AAA rules, which
provided for adequate discovery. It cites to legal authority holding these rules are not
unconscionable. We need not address this argument because GE did not prove the
agreement incorporated any specific arbitration agency’s rules.
26
expedited nature of arbitration” and what the arbitrator “considers necessary for a full and
fair exploration of the issue.” GE correctly points out that these are some of the same
words used by the AAA’s discovery rules, which have been upheld in multiple cases.
But as discussed, GE did not simply incorporate by reference AAA’s discovery rules or,
more importantly, adopt all relevant parts of the AAA rules.
The AAA employment dispute discovery rules provides in full: “The
arbitrator shall have the authority to order such discovery, by way of deposition,
interrogatory, document production, or otherwise, as the arbitrator considers necessary to
a full and fair exploration of the issues in dispute, consistent with the expedited nature of
arbitration.” Thus, an AAA arbitrator is not required to start with the presumption three
depositions and a handful of written discovery was what the parties bargained for. The
AAA arbitrator is not told certain rules limiting discovery “will apply” unless the
arbitrator finds a reason to modify them. An AAA arbitrator is permitted to following the
broadly written AAA discovery rules without having to worry if those rules conflict with
or were superseded by 23 paragraphs of confusing presumptive guidelines. Because GE
borrowed some but not all of the language used by the AAA’s discovery rules, the cases
9
it cites upholding the AAA rules are inapt.
Murrey explains the default discovery allowed by the terms of the
agreement were low, placing on her a greater burden to justify the additional discovery
9
The trial court concluded the Solutions manual’s arbitration provisions
were acceptable because GE permitted discovery subject to the arbitrator’s discretion.
The court cited to two cases holding courts must presume arbitrators will follow their
company’s rules. However, those cases both involved arbitration agreements
incorporating AAA rules. In Lane v. Francis Capital Management LLC (2014)
224 Cal.App.4th 676, the court upheld an agreement containing no express provision for
discovery because the agreement incorporated AAA rules. The court in Roman v.
Superior Court (2009) 172 Cal.App.4th 1462, held AAA discovery rules satisfied the
Armendariz discovery requirements. In contrast, here the Solutions manual incorporated
an unidentified DRO’s rules and confusingly required that the arbitrator follow a different
set of guidelines regarding the arbitration proceedings.
27
she anticipated would be needed to successfully prove workplace sexual harassment and
retaliation claims. She asserts the typical “‘me too’” evidence will require multiple
nonparty depositions and extensive law and motion. Murrey’s complaint contains 10
complex causes of action requiring different types of documentary evidence related to
GE’s alleged workplace retaliatory tactics. We agree with Murrey, the default level of
discovery provided for in the arbitration agreement appear to be inadequate to vindicate
her rights.
We recognize there is case authority holding courts should assume an
“arbitrator will operate in a reasonable manner in conformity with the law. [Citations.]”
(Dotson v. Amgen, Inc. (2010) 181 Cal.App.4th 975, 984.) But under the circumstances
presented here, it is reasonable to conclude certain terms of the arbitration agreement
appear to constrain an arbitrator’s ability to expand discovery by imposing confusing
“presumptions” that favor limiting discovery. An arbitrator could reasonably infer he or
she would need to overcome the “presumption” for using GE’s designated rules and the
Solutions manual does not clarify who has that burden of proof. Moreover, due to the
mix of unclear and contradictory rules, Murrey will likely have to expend unnecessary
time, effort, and money litigating discovery with GE because the governing procedures
were confusing. For the above reasons, we conclude the discovery limitations in the
agreement are substantively unconscionable.
3. Other Unconscionable Provisions
As part of our order to show cause, we asked the parties to address several
issues in their briefing that were not raised by Murrey in the trial court. GE maintains
that it is unfair for this court to consider additional unconscionability legal theories for
the first time on appeal, and likewise we should not consider any additional legal issues
28
10
as part of our writ review. However, unlike the cases GE cited, our inquiry was limited
to legal issues where there was no conflict in the extrinsic evidence presented below and
GE was given a fair opportunity to consider and submit briefing. “Whether an arbitration
provision is unconscionable is ultimately a question of law. [Citations.]” (Higgins v.
Superior Court (2006) 140 Cal.App.4th 1238, 1250.) Accordingly, we review a trial
court determination of the validity of an agreement to arbitrate de novo. (Parada v.
Superior Court (2009) 176 Cal.App.4th 1554, 1567.) We have discretion to consider
new legal arguments on appeal that present a question of law to be applied to undisputed
facts. (RN Solution, Inc. v. Catholic Healthcare West (2008) 165 Cal.App.4th 1511,
1518.)
a. Unfairly Excluded Claims
The Solutions manual section II(I) explained the parties were agreeing to
arbitrate all claims arising from or related to employment, compensation, employment
actions, claims of discrimination, whistleblowing, breach of contract, and tort claims.
“Thus the agreement compels arbitration of the claims employees are most likely to
bring” against his or her employer. (Mercuro v. Superior Court (2002) 96 Cal.App.4th
167, 176 (Mercuro).) The Solutions manual section II(J) expressly excluded
“[i]ntellectual property claims (for example, and without limitation, those relating to
patents, trademarks and copyrights) . . . .” Thus, the “agreement exempts from arbitration
[a type of claim an employer] is most likely to bring against its employee.” (Ibid.)
10
We note GE raised this contention in a footnote and only supplied this court
with citations to appeals, not writ petitions. Its legal analysis of this challenge was
sparse. Indeed, none the cases cited concerned the validity of an arbitration agreement or
a court conducting a de novo review of a purely legal issue. Moreover, unlike the cases
cited by GE, the plaintiff in this case raised the legal issue of unconscionability below. In
conducting our de novo review, we discovered Murrey only scratched the surface. We
would be remiss not to examine the full depth of the issue, particularly because we must
also consider, de novo, if the unconscionability permeated the entire agreement.
29
“In Armendariz, the court observed substantive unconscionability may
manifest itself if the form of ‘an agreement requiring arbitration only for the claims of the
weaker party but a choice of forums for the claims of the stronger party.’ This is what we
have here: [The employer] requires the weaker parties — its employees — to arbitrate
their most common claims while choosing to litigate in the courts its own claims against
its employees.” (Mercuro, supra, 96 Cal.App.4th at p. 176, fn. omitted.) The lack of
mutuality as to arbitrable claims together with other one-sided terms discussed above,
adds to this agreement’s substantive unconscionability.
b. Solutions’ Dual Representation
We asked the parties to brief whether Solutions’ representation of both
parties in arbitration proceedings created a conflict of interest. It was unclear whether
Solutions was intended to be the name of an independent third-party entity providing
dispute resolution administrative services or simply the name of GE’s arbitration manual.
For example, the first sentence of the manual stated, “Solutions provides [the parties] a
fair, quick, and efficient process . . . .” This sentence implies Solutions, not GE, provides
a process for GE’s employees. What followed this sentence did not clarify matters. The
next section, titled “Summary of the Solutions Procedure,” explains employees are
“encouraged to resolve issues informally” through discussions with GE management or
HR, and if these internal efforts failed “an employee may submit his or her concern to
Solutions.” Thus, employees are advised to try resolving matters directly with GE before
turning to Solutions, which could mean Solutions was something different from GE.
Confusing matters further was that Solutions’ protocols revisited the idea of having the
employee meet with management for several internal levels of review. The Solutions
manual does not explain how these meetings would differ from the ones initiated by the
employee other than they would be scheduled and overseen by a Solutions administrator,
again suggesting Solutions was an independent agency.
30
GE argues the Solutions administrator was nothing more than a liaison
between GE and the DRO. This contention is not supported by the Solution
administrator’s job duties listed in the manual, which describe tasks beyond mere clerical
work. Moreover, the Solutions manual repeatedly differentiates between the Solutions
administrator and HR representatives working for GE (who presumably could also handle
DRO clerical tasks). It is curious the Solutions manual does not include a job description
for GE’s HR employees also involved in dispute resolution.
The Solutions manual (section II(H)) provides that in addition to scheduling
meetings between the parties, and recordkeeping, the Solutions administrator is
responsible for “process[sing] requests for production of information.” The act of
processing could be broadly defined to include not only delivering but also having a hand
in deciding what discovery will be disclosed. Another listed job duty was to coordinate
“the receipt and processing of employees’ claims with managers and with HR
representatives.” Again, designating the Solutions administrator as the party responsible
for “processing claims” for the employee could commonly be understood as meaning
representation of that party’s interests. After all, Solutions forbids employees having
their attorneys present at the meetings and hearings in Levels I through III. For the same
reasons an attorney cannot concurrently represents two clients, there is an obvious
conflict of interests if the Solutions administrator was offering more than clerical
assistance for both parties. An employee reading the Solutions manual could easily be
misled to conclude the Solutions administrator was there to play a greater role in all the
required dispute resolution levels. It is unclear whether the Solutions administrator
would be a neutral participant in all the proceedings.
c. Time Limit on Hearing and Limit on Witnesses
GE’s agreement limited arbitration to 16 hours (two days). To expedite
matters, the agreement provides “neither party may call more than [five] witnesses,
including expert witnesses, during the presentation of its case-in-chief.”
31
Although not per se unconscionable, these restrictions clearly favor GE.
Murrey’s 10 causes of action are factually complicated and difficult to prove. Murrey
will likely require more than two days to present her evidence. Case authority holds
these kinds of provisions are not unconscionable because we should presume the
arbitrator will extend the deadline or allow more witnesses if necessary. (Baxter, supra,
16 Cal.App.5th at pp. 735-736.) However, this is not a typical arbitration agreement. As
discussed in our analysis of the discovery limits, GE incorporated two sets of rules into
this agreement. Unlike AAA rules conferring broad discretion to arbitrators to afford the
parties a full and fair hearing on the dispute, GE’s presumptive guidelines superseded
many of the DRO’s rules. Due to the mix of confusing rules, it is highly foreseeable
there will be delays and additional expenses while sorting out whether Murrey can have
additional time and/or witnesses at the arbitration.
Moreover, the landscape of arbitration law is evolving. The Congressional
Judicial Committee concluded there must be an end to forced arbitration of sexual
harassment lawsuits: “[F]orced arbitration has transferred the rights of workers and
consumers to a secretive, closed, and private system designed by corporate interests to
evade oversight and accountability.” (House Report, supra, at p. 6)
d. Confidentiality
Murrey was obligated to sign a strict confidentiality agreement regarding
the required internal meetings with GE and mediation proceedings. The confidentiality
clause regarding arbitration proceedings was less restrictive: Murrey was forced to agree
she would not “publish or disseminate” the arbitration award. In case authority, our
Supreme Court has determined a confidentiality provision in an arbitration agreement is
not per se unconscionable when it is based on a legitimate commercial need (such as to
protect trade secrets or proprietary information). (Baltazar, supra, 62 Cal.4th at p. 1250.)
GE has not identified a commercial need for the proceedings to remain confidential.
However, it cites to two appellate decisions holding there was nothing unreasonable or
32
prejudicial about a confidentiality provision “‘with respect to the parties themselves.’”
(Sanchez v. Carmax Auto Superstores California, LLC (2014) 224 Cal.App.4th 398, 408;
Woodside Homes of Cal., Inc. v. Superior Court (2003) 107 Cal.App.4th 723, 732
[rejecting a claim of public interest in open arbitration proceedings does not make a
provision substantively unconscionable].)
We do not find these two cases persuasive in the context of a workplace
sexual harassment complaint. The notion that courts should condone requirements
keeping the outcome of forced arbitration proceedings confidential is out of step with
federal and sister state case authority. The Ninth Circuit recognized that although
confidentiality provisions are facially neutral, they usually favor companies over
individuals. (See Ting v. AT&T (9th Cir. 2003) 319 F.3d 1126, 1151-1152 [discussing
“‘repeat player’ effect” putting companies in a superior legal posture for future arbitration
proceedings].) And as explained by the Supreme Court of Washington, “the effect of this
confidentiality provision is harsh and blatantly benefits only [an employer] because it
‘serves no purpose other than to tilt the scales of justice in favor of the employer by
denying access to any information about other claims against the employer to other
potential victims of discrimination.’” (Zuver v. Airtouch Communications, Inc. (2004)
153 Wash. 2d 293, 313-314 [103 P.3d 753, 765] (Zuver).)
Recently, the United States Congress held two lengthy hearings in 2021 and
listened to compelling testimony by numerous sexual harassment/assault victims. (House
Report, supra, at pp. 11-12) Although the Act is not applicable to this case, each victim’s
testimony tangibly illustrated the negative impact of confidentiality clauses. The
secretive nature of arbitration blocked their ability to seek justice and shielded the
misconduct of employers. “Unlike the judicial system — in which courts’ decisions are
generally public and, by building on precedent, cumulative create a body of law — the
results of arbitration disputes are often kept secret. . . . [A] coalition of state attorneys
general — representing all 50 states, the District of Columbia and several U.S.
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territories – have . . . noted arbitration’s required ‘veil of secrecy’ applies to workplace
sexual harassment claims, which may prevent similarly situated persons from learning of
illegal conduct and seeking relief. The coalition referred to this phenomenon as a
‘culture of silence that protects perpetrators at the cost of their victims.’” (House Report,
supra, at pp. 5-4, fns. omitted.) Congress and President Biden were convinced the Act
was necessary due to growing evidence the secretive nature of arbitration was fostering
“the growth of office cultures that ignore harassment and retaliate against those who
report it, prevent future victims from being warned about dangerous companies and
individuals, and create incentives for the corporate protection of rapists and other serial
harassers.” (House Report, supra, p. 4.)
GE’s confidentiality provision serves no purpose other than to benefit GE.
Future employees cannot take advantage of findings in past arbitrations or prove a pattern
of discrimination and/or retaliation. Solutions expressly provides an arbitrator cannot
include in the award any requirement that GE change or revise its policies, procedures,
rules and/or practices. In addition, “keeping past findings secret undermines an
employee’s confidence in the fairness and honesty of the arbitration process and thus
potentially discourages that employee from pursuing a valid discrimination claim.”
(Zuver, supra, 153 Wash. 2d at pp. 313-314.) Therefore, we hold that this confidentiality
provision added to this agreement’s substantively unconscionability.
III. Severance Question
GE argues that if this court finds any provision is unconscionable the
agreement should be enforced without that provision. It cites to several cases holding an
agreement is not necessarily permeated by unconscionability or illegality if more than
one clause is unconscionable. It points to some federal cases supporting the severability
of three or more unconscionable provisions. (Turng v. Guaranteed Rate, Inc. (N.D.Cal.
2019) 371 F.Supp.3d 610, 633.) There is no magic number of unconscionable provisions
that will preclude a court from deeming the entire agreement unenforceable. “If the
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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.” (Armendariz, supra,
24 Cal.4th at p. 124.)
“‘“Whether a contract is entire or separable depends upon its language and
subject matter, and this question is one of construction to be determined by the court
according to the intention of the parties.”’” (Armendariz, supra, 24 Cal.4th at p. 122.)
The arbitration agreement in Armendariz included an unlawful damages limitation and an
unconscionably unilateral provision requiring the arbitration of only the employee’s
claims against the employer. (Id. at p. 124.) Our Supreme Court concluded: “[s]uch
multiple defects indicate 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. In other words, given the multiple unlawful provisions, the trial
court did not abuse its discretion in concluding that the arbitration agreement is
permeated by an unlawful purpose. [Citation.]” (Ibid.) The court in Armendariz also
stated that the unconscionable provisions could only be removed from the agreement
through reformation and augmentation of the agreement, which was not permitted. (Id. at
pp. 124-125.) It reasoned this conclusion indicated that the arbitration agreement was
permeated by unconscionability. (Ibid.) The court invalidated the entire arbitration
agreement. (Ibid.)
The arbitration agreement in this case contained a high degree of procedural
unconscionability. If these provisions had not been challenged in litigation, Murrey
would have been at a significant disadvantage during arbitration. There were also
multiple substantively unconscionable provisions, some of which would require us to
substantially rewrite the agreement to remove the offending provisions, which we cannot
do. (Armendariz, supra, 24 Cal.4th at pp. 124-125.) When we consider the procedural
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and substantively unconscionable provisions together, they indicate a concerted effort to
impose on an employee a forum with distinct advantages for the employer. As in
Armendariz, we conclude “the arbitration agreement is permeated by an unlawful
purpose.” (Id. at p. 124.) Accordingly, we vacate the court’s order granting the motion
to compel arbitration.
DISPOSITION
Let a peremptory writ of mandate issue directing the respondent court to
vacate the order compelling arbitration and enter a new order denying the motion. The
stay previously granted by the court is dissolved. Petitioner shall recover her costs on
appeal. (Cal. Rules of Court, rule 8.493(a)(1)(A).)
O’LEARY, P. J.
WE CONCUR:
BEDSWORTH, J.
MARKS, J.*
*Judge of the Orange County Superior Court, assigned by the Chief Justice pursuant to
article VI, section 6 of the California Constitution.
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