Mendez v. WTMG CA3

Filed 2/2/23 Mendez v. WTMG CA3
NOT TO BE PUBLISHED
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not
certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for
publication or ordered published for purposes of rule 8.1115.
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
THIRD APPELLATE DISTRICT
(San Joaquin)
----
IGNACIO MENDEZ, C095759
Plaintiff and Respondent, (Super. Ct. No. STK-CV-
UOE-2021-0009144)
v.
WTMG, INC.,
Defendant and Appellant.
In this case, we consider the enforceability of an arbitration agreement under the
law of unconscionability. As a condition of employment, JaniTek Cleaning Solutions (a
trade name of WTMG, Inc.) required Ignacio Mendez to sign an arbitration agreement, a
confidentiality agreement, and several other documents. It also required Mendez to
watch a training video while he signed these documents. Mendez, who was unfamiliar
with the concept of arbitration, complied. Under the arbitration agreement, both JaniTek
and Mendez were generally required to arbitrate any disputes they had against one
another. But under the confidentiality agreement, JaniTek could sue Mendez in court in
1
certain circumstances, including, for instance, if he disclosed nonpublic information
about JaniTek or stole JaniTek’s property.
After Mendez challenged the arbitration agreement in court under the law of
unconscionability, the trial court agreed the arbitration agreement was unconscionable
and unenforceable. JaniTek appeals, raising three claims. First, it contends the trial court
should have issued a statement of decision explaining the factual and legal basis for its
decision. Second, it asserts the trial court wrongly found the arbitration agreement
unconscionable. And third, even if the agreement were unconscionable, it contends the
trial court should have severed the unconscionable provisions rather than declined to
enforce the agreement altogether. We are not persuaded by JaniTek’s arguments and we
affirm.
BACKGROUND
I
Factual Background
JaniTek employed Mendez as a janitor and a delivery coordinator from August
2019 to May 2021, with a starting wage of $13 an hour. On Mendez’s first day of work,
JaniTek provided him with a checklist listing over 120 items to be covered in his training,
including facility procedures, location of equipment, and cleaning techniques. JaniTek
told Mendez to sign the training checklist, along with over 15 other documents, while he
watched a training video. Mendez complied.
Two of the documents Mendez signed were an arbitration agreement and a
confidentiality agreement, both of which Mendez needed to sign as a condition of
employment and both of which used small font—8.5 point font, according to Mendez.
Under the arbitration agreement, the parties “agree[d] to arbitrate any dispute, claim, or
controversy that they may have against each other” arising from the employment
relationship. The only exceptions from arbitration concerned “disputes related to
2
workers’ compensation, unemployment insurance, or any claim not arbitrable pursuant to
federal or California law.”
The arbitration agreement allowed for discovery, including requests for production
of documents and inspection of property, up to three depositions per side (with more
permitted with the arbitrator’s permission), and up to 20 interrogatories per side. The
agreement generally required the parties to cover their own attorney fees, though it
allowed the arbitrator to award attorney fees to the prevailing party if permitted under
applicable state or federal law. At its close, the agreement discussed severance in the
event a court found any of its provisions unenforceable. It provided that the parties
agreed the “unenforceable part will no longer be part of this Agreement, and the
remaining provisions shall nevertheless remain in full force and effect, to the maximum
extent permitted by law.”
Under the confidentiality agreement, the parties agreed JaniTek could sue Mendez
in court in certain circumstances. Per the agreement, Mendez needed to (1) treat as
confidential all confidential, proprietary, trade secret, and nonpublic information relating
to JaniTek; (2) return all JaniTek property if asked or terminated; (3) delete all
confidential data about JaniTek stored on any personal device upon termination;
(4) refrain from uploading, downloading, installing, or removing programs or information
from JaniTek’s computers unless either necessary for the job or expressly authorized;
(5) refrain from soliciting any client or prospective client of JaniTek; and (6) refrain from
encouraging any JaniTek employee, contractor, or representative to leave the company.
Under the confidentiality agreement’s enforcement provision, “[a]ny disputes as to
the interpretation, breach or threatened breach, or enforcement of the terms of this
Agreement may be brought, at the option of the Company, in the Superior Court for the
County of Fresno, the Superior Court for the County of Merced, or in the United States
District Court, Eastern District of California.” The agreement also authorized
“immediate temporary and permanent injunctive relief” in the event of a breach or
3
threatened breach of its terms and, in any action to enforce its terms, entitled the
prevailing party to recover “attorneys’ fees, court costs, and other necessary expenses
incident to the action, in addition to any other relief to which that party is entitled.”
II
Procedural Background
In late 2021, Mendez sued WTMG, Inc., doing business as JaniTek, in San
Joaquin County Superior Court. In his complaint, as later amended, Mendez alleged
eight causes of action. One cause of action was under the Labor Code Private Attorneys
General Act of 2004 (Lab. Code, § 2698 et seq.) and concerned various alleged violations
of the Labor Code. The remaining seven causes of action were proposed class claims
based on JaniTek’s alleged failure to pay all wages due, to pay overtime, to reimburse
employees, to provide accurate wage statements, and to provide meal and rest breaks.
JaniTek moved to compel arbitration under the arbitration agreement. It
contended the trial court should enforce the arbitration agreement because its terms are
fair and because Mendez freely entered into it. To support the latter point, JaniTek
submitted a declaration from its former human resources coordinator. The former
employee conducted Mendez’s orientation when he started at JaniTek. She said she
explained to Mendez “the meaning and applicability of the various policies, including the
arbitration agreement,” and “did not limit and prohibit [Mendez] from taking the time he
wanted to review the arbitration agreement.”
Mendez opposed JaniTek’s motion and contended the arbitration agreement was
unconscionable and unenforceable. Disputing JaniTek’s characterization of the facts,
Mendez submitted his own declaration with a competing take on the facts. He stated that
on his first day of work JaniTek gave him a stack of documents, including the arbitration
agreement, and told him to sign them. JaniTek also required him to watch a training
video while he signed the documents. Mendez said he “did not understand what [he] was
signing” and, “[b]ecause of the number of documents . . . and the need to watch the
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training video, [he] was not able to read the arbitration agreement before [he] signed it.”
He added that he was not familiar with arbitration and no one explained the arbitration
agreement or its effects on his rights. He understood he needed to sign the documents to
work for JaniTek and was not told he could change the language in any of the documents.
Before the hearing on JaniTek’s motion, the trial court issued a tentative ruling
denying the motion. Agreeing with Mendez, the court found the arbitration agreement
unconscionable, both procedurally and substantively. Starting with procedural
unconscionability, it alluded to the unequal bargaining position of the parties—Mendez
was a low-level employee (a janitor), JaniTek was the employer. The court also
referenced other circumstances evidencing procedural unconscionability—Mendez was
required to sign the arbitration agreement and several other documents as a condition of
employment, he was given these documents while watching a training film, and he lacked
an opportunity to read the documents, ask questions, or change the language in the
documents. Turning to substantive unconscionability, the court found a lack of mutuality
because JaniTek, but not Mendez, could pursue claims in court. Finding
“unconscionability . . . permeates the entire contract,” the court found it impossible to
“remove the taint” of unconscionability and “void[ed] the entire agreement.”
At the hearing following the tentative ruling, JaniTek “requested a statement of
decision as neither party provided a court reporter for the hearing.” The court denied the
request but continued the matter to a later date to allow counsel time to schedule a court
reporter. After a hearing with a court reporter present, the court affirmed its tentative
opinion and issued an order denying JaniTek’s motion. It offered the same reasoning in
its tentative opinion, with one new ground for finding substantive unconscionability—the
arbitration agreement’s discovery rules were unfairly limited and could undermine
Mendez’s ability to present his case in arbitration.
5
JaniTek timely appealed. (See Code Civ. Proc., § 1294, subd. (a) [an aggrieved
party may appeal from an order denying a petition to compel arbitration].)1
DISCUSSION
I
Statement of Decision
JaniTek first contends we must reverse the trial court’s order because the court
wrongly refused to issue a statement of decision. We reject its argument.
Section 1291 provides the relevant standard for requesting a statement of decision
on a petition to compel arbitration. It requires a trial court to issue a statement of
decision if a party requests one “pursuant to Section 632.” (§ 1291.) Section 632, in
turn, requires a trial court to “issue a statement of decision explaining the factual and
legal basis for its decision as to each of the principal controverted issues at trial upon the
[timely] request of any party appearing at the trial.” It adds that “[t]he request for a
statement of decision shall specify those controverted issues as to which the party is
requesting a statement of decision.” (§ 632; see also Cal. Rules of Court, rule 3.1590(d)
[“The principal controverted issues must be specified in the request” for a statement of
decision].)
In this case, the record shows JaniTek made an oral request for a statement of
decision following the trial court’s tentative decision. But JaniTek never appears to have
“specif[ied] those controverted issues as to which [it] [wa]s requesting a statement of
decision,” as required under section 632. It instead, according to the trial court’s minute
order, simply “requested a statement of decision as neither party provided a court reporter
for the hearing.” The court denied the request but continued the matter to allow the
parties time to schedule a court reporter. The parties afterward arranged a court reporter
1 Undesignated statutory references are to the Code of Civil Procedure.
6
for the subsequent hearing on the motion, and JaniTek never again requested a statement
of decision.
Under these circumstances, we find JaniTek forfeited its right to a statement of
decision on all material, controverted issues. As section 632 makes explicit, “[t]he
request for a statement of decision shall specify those controverted issues as to which the
party is requesting a statement of decision.” (§ 632, italics added.) And as other courts
have explained, “a general, nonspecific request for a statement of decision does not
operate to compel a statement of decision as to all material, controverted issues.” (City of
Coachella v. Riverside County Airport Land Use Com. (1989) 210 Cal.App.3d 1277,
1292-1293; see also Conservatorship of Hume (2006) 140 Cal.App.4th 1385, 1394.)
Because JaniTek never identified any controverted issue to be addressed in a statement of
decision, it cannot now fault the trial court for failing to issue a statement of decision on
all material, controverted issues. (See City of Coachella, at p. 1292; Atari, Inc. v. State
Bd. of Equalization (1985) 170 Cal.App.3d 665, 674-675 [“section 632 requires a party
requesting a statement of decision to specify those controverted issues as to which it is
requesting a finding”; “[f]ailure to request findings on specific issues results in a waiver
as to those issues”].)
II
Unconscionability
JaniTek next challenges the trial court’s finding that the arbitration agreement was
both procedurally and substantively unconscionable. It contends the agreement was
neither procedurally unconscionable nor substantively unconscionable; and even if it
were, the trial court should have severed the unconscionable provisions rather than
declined to enforce the agreement altogether. We reject its arguments.
A. Background Principles
Arbitration agreements are “valid, enforceable and irrevocable, save upon such
grounds as exist for the revocation of any contract.” (§ 1281.) One ground for
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invalidating a contract is unconscionability, which is codified in Civil Code section
1670.5. (See Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24
Cal.4th 83, 114 (Armendariz).) That statute states: “If the court as a matter of law finds
the contract or any clause of the contract to have been unconscionable at the time it was
made the court may refuse to enforce the contract, or 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.” (Civ. Code, § 1670.5,
subd. (a).)
“The general principles of unconscionability are well established. A contract is
unconscionable if one of the parties lacked a meaningful choice in deciding whether to
agree and the contract contains terms that are unreasonably favorable to the other party.
[Citation.] Under this standard, the unconscionability doctrine ‘ “has both a procedural
and a substantive element.” ’ ” (OTO, L.L.C. v. Kho (2019) 8 Cal.5th 111, 125 (OTO).)
“ ‘Substantive unconscionability pertains to the fairness of an agreement’s actual terms
and to assessments of whether they are overly harsh or one-sided.’ ” (Ibid.) Procedural
unconscionability, in turn, pertains to the circumstances of contract negotiation and
formation, focusing on “oppression”—which occurs when the contract involves a lack of
negotiation and meaningful choice—and “surprise”—which occurs when the allegedly
unconscionable provision is hidden in the contract. (Ibid.; see id. at p. 126
[“ ‘ “ ‘Oppression occurs where a contract involves lack of negotiation and meaningful
choice, surprise where the allegedly unconscionable provision is hidden within a prolix
printed form’ ” ’ ”].)
Both procedural unconscionability and substantive unconscionability must be
present for a court to exercise its discretion to refuse to enforce a contract or clause under
the unconscionability doctrine. (Armendariz, supra, 24 Cal.4th at p. 114.) “But they
need not be present in the same degree” and are evaluated on “ ‘a sliding scale.’ ” (Ibid.)
Under this sliding scale, “ ‘[t]he more substantively oppressive the contract term, the less
8
evidence of procedural unconscionability is required to’ conclude that the term is
unenforceable. [Citation.] Conversely, the more deceptive or coercive the bargaining
tactics employed, the less substantive unfairness is required.” (OTO, supra, 8 Cal.5th at
pp. 125-126.) Ultimately, “[t]he overarching unconscionability question is whether an
agreement is imposed in such an unfair fashion and so unfairly one-sided that it should
not be enforced.” (Id. at p. 124.)
In reviewing a trial court’s application of the unconscionability doctrine, our
standard of review varies depending on the context. We review de novo a trial court’s
application of the law to undisputed facts. (Ghirardo v. Antonioli (1994) 8 Cal.4th 791,
799.) We also generally review de novo a trial court’s interpretation of a contract, as the
meaning of a contract is a question of law. (Parsons v. Bristol Development Co. (1965)
62 Cal.2d 861, 866.) But in the event the parties have offered conflicting extrinsic
evidence to aid in the contract’s interpretation, we review the trial court’s resolution of
that conflict for substantial evidence. (In re Marriage of Fonstein (1976) 17 Cal.3d 738,
746-747.) And to the extent the parties have offered conflicting evidence concerning the
circumstances of the contract’s formation, we will review the trial court’s resolution of
that conflict too for substantial evidence. (Dougherty v. Roseville Heritage Partners
(2020) 47 Cal.App.5th 93, 102.) Because, as covered above, JaniTek never properly
requested a statement of decision, we “must infer any finding to uphold the [trial court’s
order] that has substantial evidence in support in the . . . record.” (Smith v. City of Napa
(2004) 120 Cal.App.4th 194, 198-199.)
B. Procedural and Substantive Unconscionability
These principles in mind, we turn first to the question of procedural
unconscionability, which again, focuses on oppression and surprise.
Starting with oppression, JaniTek’s arbitration agreement was adhesive in nature.
Fitting the classic definition of an adhesion contract, it was written on a preprinted form
and offered by the party with superior bargaining power on a take-it-or-leave-it basis.
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(OTO, supra, 8 Cal.5th at p. 126 [describing adhesion contracts and noting “[a]rbitration
contracts imposed as a condition of employment are typically adhesive”].) That alone
evidences “ ‘a degree of procedural unconscionability.’ ” (Baltazar v. Forever 21, Inc.
(2016) 62 Cal.4th 1237, 1244.) As our Supreme Court has observed in discussing
mandatory arbitration agreements in the employment context, “ ‘the economic pressure
exerted by employers on all but the most sought-after employees may be particularly
acute, for the arbitration agreement stands between the employee and necessary
employment, and few employees are in a position to refuse a job because of an arbitration
requirement.’ ” (OTO, at p. 127.)
Other considerations further evidence oppression. Mendez was a low-level
employee earning near the minimum wage and unfamiliar with arbitration. (See OTO,
supra, 8 Cal.5th at pp. 126-127 [the party’s education and experience is relevant in
determining oppression]; see also State of California Dept. of Industrial Relations,
Industrial Welfare Commission, Minimum Wage Order MW-2019
[as of Feb. 2, 2023],
archived at [requiring a minimum wage between $11 and
$12 in 2019, depending on the employer’s size].) JaniTek presented the arbitration
agreement to Mendez on his first day of work, along with other employment-related
documents. (See OTO, at p. 127 [finding these details evidence oppression].) According
to Mendez, JaniTek neither explained the arbitration agreement’s contents nor its
significance. (See ibid. [finding these details evidence oppression].) Nor did it appear to
give Mendez any opportunity to review the agreement with counsel. It instead told him
to sign the agreement at the workplace on his first day at work. (See id. at pp. 126-127
[the party’s ability to review the proposed contract with an attorney is relevant in
determining oppression].) And it told him to sign the agreement at the same time he was
watching a training video, preventing him from giving the agreement his undivided
attention. These details together favor a finding of substantial oppression.
10
The evidence also supports a finding of surprise. The arbitration agreement was
written in a very small font—8.5 font, in Mendez’s telling. (See OTO, supra, 8 Cal.5th at
p. 128 [agreement’s small font supported a finding of surprise].) It was also one of two
distinct documents dealing with employment disputes that included conflicting language,
potentially leading to confusion and surprise. One of these agreements (the
confidentiality agreement) allowed suits in court on several topics, including, for
instance, to protect trade secrets; the other (the arbitration agreement) generally
prohibited suits in court on all topics, including, specifically, to protect trade secrets.
These conflicting agreements about the appropriate forum for resolving disputes
enhanced the prospects of confusion about the arbitration agreement’s significance,
particularly for a layperson like Mendez.
Considering this evidence of oppression and surprise together, we find the
arbitration agreement had a substantial degree of procedural unconscionability. We also
find that true even though JaniTek makes several points—some valid, some not—on the
topic of surprise. It first contends Mendez cannot establish surprise because he admitted
he never read the arbitration agreement. While we might have found this detail
meaningful had Mendez simply chosen not to read the agreement, Mendez’s allegations
are otherwise. He alleged he never read the agreement because JaniTek never afforded
him a sufficient opportunity to read it, not because of choice. And to the extent Mendez
is believed on this point (and the trial court did believe him), that only tends to strengthen
the finding of procedural unconscionability. (See Swain v. LaserAway Medical Group,
Inc. (2020) 57 Cal.App.5th 59, 69 [finding a degree of surprise when a party was given
“little time to review” the arbitration agreement].)
JaniTek also, on the topic of surprise, notes the arbitration agreement included a
clear title about its subject matter, was written in plain English, and included
capitalization, boldface type, and underlining to emphasize the need to arbitrate. That is
largely true, and we agree those facts are important and tend to diminish a finding of
11
surprise. But as noted, the agreement’s font was unusually small and its text was
inconsistent with the confidentiality agreement. Two documents might be written in
plain English, yet still be difficult to read because of small font and difficult to
understand because of inconsistencies. In the end, although we acknowledge not all facts
point to procedural unconscionability, we still find a substantial degree of procedural
unconscionability.
We turn next to the question of substantive unconscionability, which, again,
requires an evaluation of the fairness of the agreement’s terms. Because we find a
substantial degree of procedural unconscionability, we must “closely scrutinize the
substantive terms ‘to ensure they are not manifestly unfair or one-sided.’ ” (OTO, supra,
8 Cal.5th at p. 130.) “This analysis ‘ensures that contracts, particularly contracts of
adhesion, do not impose terms that have been variously described as “ ‘ “overly harsh”
’ ” [citation], “ ‘unduly oppressive’ ” [citation], “ ‘so one-sided as to “shock the
conscience” ’ ” [citation], or “unfairly one-sided” [citation].’ ” (Id. at pp. 129-130.)
Applying the requisite “close[] scrutin[y]” here, we find the arbitration agreement
and confidentiality agreement, considered together, are unfairly one-sided. Under the
arbitration agreement, again, the parties needed “to arbitrate any dispute, claim, or
controversy that they may have against each other” arising from the employment
relationship. But under the confidentiality agreement, JaniTek could sue Mendez in court
if he revealed any nonpublic information about JaniTek, failed to return JaniTek’s
property upon request or termination, failed to delete confidential data about JaniTek
from his personal devices upon termination, misused JaniTek’s computers, solicited any
client or prospective client of JaniTek, or encouraged any employee, contractor, or
representative to leave JaniTek. The confidentiality agreement also, among other things,
allowed the prevailing party in any action to enforce its terms to recover attorney fees.
Because of the confidentiality agreement’s terms, the parties faced different
obligations to arbitrate and different rights to attorney fees. Under the confidentiality
12
agreement, for instance, JaniTek could sue Mendez in court if he stole any of its property.
It could also obtain attorney fees if it succeeded on its claim. But should Mendez seek to
pursue the same type of claim against JaniTek, he would be limited to arbitration. And if
he prevailed on his claim, he would have no right to attorney fees. That is because, per
the arbitration agreement, the arbitrator could award attorney fees only if allowed under
applicable law; and per applicable law, a party cannot recover attorney fees in an action
for the recovery of personal property. (Le Fave v. Dimond (1956) 46 Cal.2d 868, 870.)
Under the confidentiality agreement, moreover, JaniTek could sue Mendez in court if,
among other things, he revealed any nonpublic information about JaniTek. And again, it
would be entitled to attorney fees if it prevailed. But should Mendez seek to pursue the
same type of claim against JaniTek, he would again be limited to arbitration. And should
he succeed on his claim, he would not necessarily be entitled to any attorney fees. (See
Civ. Code, §§ 56.20, subd. (c) [an employer generally cannot use or disclose medical
information about its employees], 56.35 [“a patient whose medical information has been
used or disclosed in violation of Section . . . 56.20 ” may recover up to $1,000 in attorney
fees, but only if the patient “has sustained economic or personal injury”].)
We find this lack of mutuality reveals a substantial degree of substantive
unconscionability. In creating the various exceptions to arbitration, JaniTek evidenced its
belief that the courts are the superior forum for resolving certain types of disputes. But to
the extent it held that belief, it should have acted even-handedly in affording access to the
courts—not simply reserved for itself the right to pursue claims in court. As our Supreme
Court has explained, “an arbitration agreement imposed in an adhesive context lacks
basic fairness and mutuality if it requires one contracting party, but not the other, to
arbitrate all claims arising out of the same transaction or occurrence or series of
transactions or occurrences.” (Armendariz, supra, 24 Cal.4th at p. 120.) That description
fits the agreement here. (See Davis v. Kozak (2020) 53 Cal.App.5th 897, 917 [finding
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substantively unconscionable an arbitration exception that only benefited the employer];
Swain v. LaserAway Medical Group, Inc., supra, 57 Cal.App.5th at pp. 72-73 [same].)
JaniTek raises three arguments to avoid a finding of substantive unconscionability,
but we find none persuasive. It first suggests all claims—both its claims and Mendez’s
claims—are subject to arbitration under the terms of the arbitration agreement. After all,
it notes, the arbitration agreement and the confidentiality agreement must be read
together and, per the arbitration agreement, all disputes between the parties must be
arbitrated, including disputes involving trade secrets. (Civ. Code, § 1642 [“Several
contracts relating to the same matters, between the same parties, and made as parts of
substantially one transaction, are to be taken together”].)
Although true the arbitration agreement generally requires all disputes between the
parties to be arbitrated, the confidentiality agreement specifically allows JaniTek to
pursue various claims in court. And because a specific term prevails over a general one
in the event of an inconsistency, we find the confidentiality agreement’s specific terms
allowing suit in court prevail over the arbitration agreement’s general terms requiring
arbitration. (§ 1859 [“in the construction of the instrument the intention of the parties, is
to be pursued, if possible; and when a general and particular provision are inconsistent,
the latter is paramount to the former”].) We also find this construction consistent with
the principle that a contract should be construed “so as to give effect to every part, if
reasonably practicable.” (Civ. Code, § 1641.) Under our reading, the arbitration
agreement and confidentiality agreement can largely be harmonized, with the
confidentiality agreement serving to carve out certain claims from the scope of the
arbitration agreement. But under JaniTek’s reading, the arbitration agreement simply
overrides the confidentiality agreement’s terms allowing suit in court, rendering those
terms meaningless. Consistent with general principles of contract interpretation, we find
it better to harmonize the two agreements to the extent possible rather than simply ignore
the confidentiality agreement’s explicit terms.
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Next, taking a different approach, JaniTek contends the carve-outs in the
confidentiality agreement are valid because they serve a legitimate business interest—
namely, they “serve the legitimate commercial need of protecting trade secrets.” In
making this argument, JaniTek invokes the principle that “if an employer does have
reasonable justification for the arrangement—i.e., a justification grounded in something
other than the employer’s desire to maximize its advantage based on the perceived
superiority of the judicial forum—such an agreement would not be unconscionable.”
(Armendariz, supra, 24 Cal.4th at p. 120.)
But because JaniTek raised this argument only in its reply brief and in a footnote
in its opening brief, we find the argument forfeited. (Holden v. City of San Diego (2019)
43 Cal.App.5th 404, 419-420 [courts need not address arguments made in footnotes];
Neighbours v. Buzz Oates Enterprises (1990) 217 Cal.App.3d 325, 335, fn. 8 [finding
forfeited an argument raised for the first time in a reply brief without good cause].) Even
had JaniTek properly raised the issue, moreover, we would still reject the argument.
Although JaniTek claims the confidentiality agreement’s provisions “serve the legitimate
commercial need of protecting trade secrets,” it never acknowledges that these provisions
cover far more than simply claims to protect trade secrets. Nor does it explain how it has
a legitimate business interest in granting itself, but not Mendez, the right to pursue
various claims in court.
Lastly, JaniTek contends the confidentiality agreement could be construed to do
nothing more than confirm the parties’ existing statutory right to seek injunctive relief in
court. It reasons that both parties already have the right to seek injunctive relief in court
under section 1281.8 and, if the confidentiality agreement were construed to allow only
injunctive relief, then the agreement would simply confirm the parties’ existing statutory
right. JaniTek bases its argument on the principle that “an arbitration agreement is not
substantively unconscionable simply because it confirms the parties’ ability to invoke
15
undisputed statutory rights.” (Baltazar v. Forever 21, Inc., supra, 62 Cal.4th at pp. 1247-
1248.)
We are unpersuaded. To start, although JaniTek claims both parties can seek
injunctive relief under section 1281.8, we question the applicability of that statute.
Section 1281.8 is part of the California Arbitration Act (§ 1280 et seq.). It permits parties
to arbitration to seek certain provisional remedies in court, including preliminary
injunctions, if “the award to which the applicant may be entitled may be rendered
ineffectual without provisional relief.” (§ 1281.8, subds. (a)-(b).) But according to the
arbitration agreement here, California law applies only if the Federal Arbitration Act (9
U.S.C. § 1 et seq.) “is not applicable.” And according to JaniTek, the Federal Arbitration
Act is applicable. Under JaniTek’s own argument, then, section 1281.8 (and the rest of
the California Arbitration Act) is not applicable in this case.
But even assuming section 1281.8 were applicable, JaniTek’s argument would still
fall short. Although JaniTek contends the confidentiality agreement could be construed
to allow only injunctive relief, we find differently. The agreement states: “Any disputes
as to the interpretation, breach or threatened breach, or enforcement of the terms of this
Agreement may be brought, at the option of the Company, in the Superior Court for the
County of Fresno, the Superior Court for the County of Merced, or in the United States
District Court, Eastern District of California.” It adds: “The prevailing party in any
action to enforce or interpret the terms of this Agreement, including any requests for
injunctive relief . . . , shall be entitled to recover from the other party reasonable
attorneys’ fees, court costs, and other necessary expenses incident to the action, in
addition to any other relief to which that party is entitled.” Per the agreement’s plain
terms, then, the agreement authorizes JaniTek to obtain injunctive relief, attorney fees
and costs, and “any other relief to which [it] is entitled”—not simply injunctive relief.
“Ultimately, the question is whether [Mendez], through oppression and surprise,
was coerced or misled into making an unfair bargain.” (OTO, supra, 8 Cal.5th at p. 136.)
16
We find he was. Mendez was required to sign the confidentiality agreement and the
arbitration agreement as a condition of employment on his first day of work. Together,
these agreements allow JaniTek to pursue a variety of claims against Mendez in court, yet
they allow Mendez to pursue these same types of claims through arbitration only. The
agreements also allow the award of attorney fees in suits JaniTek pursues in court, yet in
arbitration matters, they only permit attorney fee awards if allowed under applicable
law—which generally translates to no award of attorney fees. (See Essex Ins. Co. v. Five
Star Dye House, Inc. (2006) 38 Cal.4th 1252, 1258 [under California law, “parties
generally must pay their own attorney fees”].) Considering the coercive setting in which
this bargain was entered, we conclude it was sufficiently one-sided as to render the
arbitration agreement unenforceable.2
C. Severability
Having found the arbitration agreement unconscionable, we consider next the
propriety of severing the unconscionable language and enforcing the remainder of the
contract. (See Civ. Code, § 1670.5, subd. (a).) In performing this inquiry, “[c]ourts are
to look to the various purposes of the contract. 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.” (Armendariz, supra, 24 Cal.4th at p. 124.)
2 Mendez contends other facts further support a finding of unconscionability, including
the combined length of the arbitration agreement and confidentiality agreement
(nine pages), the alleged use of “legalese” (though he offers no examples), and the
alleged limited opportunity for discovery in the arbitration agreement. But because we
find the arbitration agreement unconscionable for the reasons covered, we need not
address whether these additional facts further evidence unconscionability.
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In this case, we find severance inappropriate. As covered above, our finding of
unconscionability focused on the arbitration agreement and the confidentiality agreement
considered together, with the former serving to require arbitration in general and the latter
serving to exempt many of JaniTek’s potential claims (though none of Mendez’s claims)
from arbitration. In creating this one-sided exemption from arbitration in its own favor,
JaniTek evidenced an effort to reserve for itself a perceived superior forum (the courts)
for vindicating many of its claims and to relegate Mendez to a perceived inferior forum
(arbitration) for vindicating his claims. Considering this unlawful intent behind the
agreements, we find the trial court did not abuse its discretion in concluding that the
arbitration agreement, as modified by the confidentiality agreement, was permeated by an
unlawful purpose. (See Armendariz, supra, 24 Cal.4th at p. 124 [finding the same when
“multiple defects indicate[d] 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 seeking a contrary finding, JaniTek attempts to focus our attention on the
arbitration agreement alone. Without mentioning the confidentiality agreement, it asserts
“the Arbitration Agreement’s central purpose is to allow the parties access to streamlined
arbitration procedures for all disputes either of them may lawfully submit to arbitration.”
But again, we cannot consider the arbitration agreement in isolation. We instead must
consider it together with the confidentiality agreement. (Civ. Code, § 1642 [“Several
contracts relating to the same matters, between the same parties, and made as parts of
substantially one transaction, are to be taken together”].) And considering these
documents together, we find the motivating force behind these agreements was not the
benign purpose JaniTek describes. It was instead the improper purpose to require
Mendez, but not JaniTek, to pursue all his potential claims in a perceived inferior forum.
JaniTek next proposes a potential means of saving the arbitration agreement. It
argues the trial court “should have stricken the first sentence of section 2 of the
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Confidentiality Agreement” rather than decline to enforce the arbitration agreement
altogether. The referenced sentence states: “Any disputes as to the interpretation, breach
or threatened breach, or enforcement of the terms of this Agreement may be brought, at
the option of the Company, in the Superior Court for the County of Fresno, the Superior
Court for the County of Merced, or in the United States District Court, Eastern District of
California.” JaniTek suggests that were this sentence struck, then it (like Mendez) would
be limited to pursuing its claims in arbitration—resolving any claim of unfair one-
sidedness.
But the referenced sentence is not the only one contemplating JaniTek’s ability to
sue Mendez in court. The confidentiality agreement elsewhere discusses JaniTek’s
ability (though not Mendez’s ability) to choose “one or more remedies” to enforce the
agreement’s terms and indicates JaniTek could pursue any remedy “existing at law or in
equity or by statute or otherwise.” The agreement also allows the prevailing party in any
action to enforce the agreement’s terms to recover “court costs.” Considering this
language, even if we were to strike the sentence explicitly authorizing JaniTek to sue
Mendez in court, we would still find the rest of the confidentiality agreement implicitly
contemplates the very same—JaniTek could sue Mendez in court. Striking the
referenced sentence, then, would not be enough to remove the unfair one-sidedness of the
confidentiality agreement.
Even if we ignored this other language, moreover, JaniTek’s argument would still
fall short for a more fundamental reason. To put the parties on equal footing, JaniTek
suggests we should sever the language in the confidentiality agreement allowing it to
pursue its claims in court. But doing so would undermine the combined central function
of the confidentiality agreement and the arbitration agreement—which, again, was to
require Mendez (but not JaniTek) to pursue all his potential claims in the perceived
inferior forum of arbitration. JaniTek may be willing, now that the employment
relationship has ended, to kill the confidentiality agreement in order to save the
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arbitration agreement. But even so, we cannot modify an agreement to defeat its central
purpose. (See 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”].)
DISPOSITION
The order is affirmed. Mendez is entitled to recover his costs on appeal. (Cal.
Rules of Court, rule 8.278(a).)
/s/
BOULWARE EURIE, J.
We concur:
/s/
MAURO, Acting P. J.
/s/
KRAUSE, J.
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