Leos v. Darden Restaurants CA2/1

Filed 6/4/13 Leos v. Darden Restaurants CA2/1
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
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 This opinion has not been certified for publication or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
SECOND APPELLATE DISTRICT
DIVISION ONE
ALEXIS LEOS et al., B241630
Plaintiffs and Respondents, (Los Angeles County
Super. Ct. No. BC473673)
v.
DARDEN RESTAURANTS, INC.,
Defendant and Appellant.
APPEAL from an order of the Superior Court of Los Angeles County, Daniel J.
Buckley, Judge. Reversed with directions.
Ogletree, Deakins, Nash, Smoak & Stewart, Beth A. Gunn and Jennifer L. Katz for
Defendant and Appellant.
Kesluk & Silverstein, Douglas N. Silverstein, Lauren J. Morrison; The Rubin Law
Corporation and Steven M. Rubin for Plaintiffs and Respondents.
__________________________________________
Plaintiffs filed this action against their former employer, alleging causes of action
arising out of the termination of their employment. The employer filed a motion to compel
arbitration pursuant to an arbitration provision contained in a document entitled, ―Dispute
Resolution Process‖ (DRP). When plaintiffs were hired, they signed an acknowledgement
form stating they agreed to submit disputes to arbitration. They opposed the motion to
compel arbitration on the ground that the arbitration provision in the DRP was
unconscionable. The trial court ruled in plaintiffs‘ favor and denied the motion.
Defendant appealed.
We conclude the trial court erred. Although the arbitration agreement is
procedurally unconscionable, none of its provisions is substantively unconscionable. We
therefore reverse the order denying the motion to compel arbitration.
I
BACKGROUND
The facts and allegations in this appeal are taken from the complaint and the
declarations and exhibits submitted in connection with the motion to compel arbitration.
A. Complaint
On November 17, 2011, plaintiffs Alexis Leos and Jennifer Stucker (plaintiffs) filed
this action against their former employer, Darden Restaurants, Inc. (Darden), alleging
causes of action under the Fair Employment and Housing Act (FEHA) (Gov. Code,
§§ 12900–12996) for sexual harassment, retaliation, failure to prevent harassment, and
failure to investigate harassment. Plaintiffs asserted common law causes of action for
constructive discharge in violation of public policy and wrongful termination in violation
of public policy. They also sought declaratory relief to the effect that Darden‘s arbitration
provision was unenforceable.
B. Motion to Compel Arbitration
On February 22, 2012, Darden filed a motion to compel arbitration pursuant to the
DRP, which consists of 14 pages. Under the DRP, the parties must seek to resolve a
dispute through four steps. The first step is the ―open door‖ approach, which obligates the
employee to bring a ―workplace concern or dispute‖ to the attention of management for
2
possible resolution. If the open door approach does not resolve the workplace concern or
dispute, an employee may submit the matter to ―peer review,‖ which requires that a dispute
be presented to a panel of three employees. Each side is allowed 30 minutes to present its
position to the panel, after which the panel issues a nonbinding decision. If either the
employee or Darden is dissatisfied with the decision of the peer review panel, the
dissatisfied party may request mediation within 30 days after the panel‘s decision.
Otherwise, the panel‘s decision becomes final and binding. The third step, mediation, is
conducted in accordance with the mediation rules of the American Arbitration Association
(AAA). Darden will pay the costs and fees of the mediation service and the mediator. If
the mediator, the employee, or Darden determines that further attempts to mediate the
dispute are not ―worthwhile,‖ either the employee or Darden ―can submit the matter to
binding arbitration.‖ Darden ―will pay the arbitrator‘s fees and expenses, any costs for the
hearing facility, and any costs of the arbitration service.‖ The arbitration ―will be
conducted according to the Employment Dispute Resolution Rules of the [AAA].‖
Plaintiff Stucker commenced employment with Darden in January 2010. On
January 27, 2010, she signed a ―Dispute Resolution Process Acknowledgement,‖ which
stated: ―I have received and reviewed the Dispute Resolution Process (DRP) booklet.
This booklet contains the requirements, obligations, procedures and benefits of the DRP.
I have read this information and understand and agree to the terms and conditions of the
DRP. I agree as a condition of my employment, to submit any eligible disputes I may have
to the company‘s DRP and to abide by the provisions outlined in the DRP. I understand
that this includes, for example, claims under state and federal laws relating to harassment
or discrimination, as well as other employment-related claims as defined by the DRP.
Finally, I understand that the company is equally bound to all of the provisions of the
DRP.‖
Plaintiff Leos was hired on or about March 3, 2010, and on the same day, signed a
Dispute Resolution Process Acknowledgment that contained the same language as the one
signed by Stucker.
3
Darden filed its motion to compel arbitration pursuant to the California Arbitration
Act (Code Civ. Proc., §§ 1281.2, 1281.4). In its memorandum of points and authorities,
Darden argued that the arbitration provision in the DRP satisfied the requirements set forth
in Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal. 4th 83(Armendariz).
Plaintiffs filed an opposition, asserting the arbitration provision was
unconscionable. In their supporting declarations, plaintiffs stated that they signed the DRP
acknowledgement ―as a condition of my employment‖; they had ―no choice but to sign [the
acknowledgement]‖ to obtain employment; they were told they had to sign the
acknowledgement ―whether I wanted to or not‖; and they were ―not able to negotiate the
terms of the [DRP].‖1
The motion to compel arbitration was heard on April 11, 2012. Before the hearing,
the trial court had prepared a tentative ruling denying the motion on the ground that the
arbitration provision was unconscionable. At the conclusion of the hearing, the trial court
adopted the tentative ruling as its order denying the motion.
Darden filed an appeal from the order. (See Code Civ. Proc., § 1294, subd. (a).)
II
DISCUSSION
―‗―Whether an arbitration provision is unconscionable is ultimately a question of
law.‖‘ . . . ‗On appeal, when the extrinsic evidence is undisputed, as it is here, we review
1 On appeal, Darden contends the trial court erroneously overruled two of its
objections to the statements in plaintiffs‘ declarations. Darden objected to the statement, ―I
never had a chance to review these documents before signing them.‖ We do not rely on
that statement so the trial court‘s ruling, even if wrong, is harmless. Darden also made
boilerplate objections to the statement, ―I was told that I had to sign this agreement,
whether I wanted to or not.‖ The trial court properly overruled Darden‘s objection to this
statement; it does not lack foundation or personal knowledge, is not conclusory, and falls
within a hearsay exception for party admissions or authorized statements. (See Evid.
Code, §§ 1220, 1222.)
4
the contract de novo to determine unconscionability.‘‖ (Suh v. Superior Court (2010)
181 Cal. App. 4th 1504, 1511–1512, citations omitted; accord, Mercuro v. Superior Court
(2002) 96 Cal. App. 4th 167, 174 (Mercuro).)
As a preliminary matter, the parties disagree as to whether the arbitration provision
is governed by the Federal Arbitration Act (FAA) (9 U.S.C. §§ 1–16) or the California
Arbitration Act (CAA) (Code Civ. Proc., §§ 1280–1294.2).
The FAA applies to a contract ―evidencing a transaction involving commerce.‖
(9 U.S.C. § 2, italics added.) As explained in Hedges v. Carrigan (2004) 117 Cal. App. 4th
578, the United States Supreme Court has ―‗interpreted the term ―involving commerce‖ in
the [FAA] as the functional equivalent of the more familiar term ―affecting commerce‖—
words of art that ordinarily signal the broadest permissible exercise of Congress‘
Commerce Clause power. . . . Because the statute provides for ―the enforcement of
arbitration agreements within the full reach of the Commerce Clause,‖ . . . it is perfectly
clear that the [FAA] encompasses a wider range of transactions than those actually ―in
commerce‖—that is, ―within the flow of interstate commerce,‖ . . .‘ . . . ‗Congress‘
Commerce Clause power ―may be exercised in individual cases without showing any
specific effect upon interstate commerce‖ if in the aggregate the economic activity in
question would represent ―a general practice . . . subject to federal control.‖ . . . Only that
general practice need bear on interstate commerce in a substantial way.‘‖ (Hedges v.
Carrigan, at pp. 585–586, citations omitted.)
In Woolls v. Superior Court (2005) 127 Cal. App. 4th 197, the Court of Appeal
addressed whether the FAA governed a dispute between a homeowner renovating his
single family home and the contractor retained to perform the work. The Court of Appeal
stated: ―Because [the contractor] has not presented a factual record to establish [that the
parties‘ agreement involves interstate commerce], his reliance on Hedges v. Carrigan[,
supra,] 117 Cal. App. 4th 578 is misplaced. Hedges found an agreement to purchase a
single family residence ‗was a contract which evidenced a transaction ―involving
commerce‖ within the meaning of [the FAA].‘ . . . There, the evidence showed, ‗[t]he
anticipated financing involved the use of a . . . Federal Housing Administration home loan
5
which is subject to the jurisdiction of the United States Department of Housing and Urban
Development headquartered in Washington, D.C. Further, the various copyrighted forms
used by the parties and their brokers could only be utilized by members of the National
Association of Realtors.‘ . . . [¶] Unlike the showing made in cases such as . . . Hedges,
[the contractor] has not presented any facts to show the instant transaction involved
interstate commerce. This case is akin to Steele v. Collagen Corp. (1997) 54 Cal. App. 4th
1474, 1490, wherein the party asserting [the application of the FAA] ‗made no attempt to
establish its actions‘ fell within the ambit of federal law. We conclude [the contractor]
failed to meet his burden of establishing the FAA [applies] . . . .‖ (Woolls v. Superior
Court, at pp. 213–214, citations omitted; see Hoover v. American Income Life Ins. Co.
(2012) 206 Cal. App. 4th 1193, 1207 [party seeking to compel arbitration has burden of
proving that underlying agreement involves interstate commerce]; Shepard v. Edward
Mackay Enterprises, Inc. (2007) 148 Cal. App. 4th 1092, 1099–1101 [discussing whether
FAA applies in context of real estate transactions].)
In the present case, the DRP recited that it ―is governed by the Federal Arbitration
Act or whatever state law is required to authorize and/or enforce the arbitration.‖ (Italics
added.) Without evidentiary support, the DRP stated that it ―is used throughout the United
States.‖ Although Darden contends in its opening brief that it is ―doing business in all 50
states and around the world, in the operation of a restaurant—which involved numerous
interstate transactions as part of [plaintiffs‘] day-to-day job duties,‖ Darden‘s citations to
the record do not support that contention. Further, Darden‘s motion to compel arbitration
was brought pursuant to the CAA. Because the DRP does not unequivocally state that it is
governed by the FAA, and Darden has not offered any evidence that plaintiffs‘
employment or any relevant transaction involved interstate commerce, we conclude that
the CAA governs this case. We note, however, that regardless of whether the FAA or the
CAA applies, we would reach the same conclusion: The arbitration provision is not
substantively unconscionable and is therefore enforceable.
6
A. Doctrine of Unconscionability
―In 1979, the Legislature enacted Civil Code section 1670.5, which codified the
principle that a court can refuse to enforce an unconscionable provision in a contract. . . .
As section 1670.5, subdivision (a) 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.‘ Because unconscionability is a reason for refusing
to enforce contracts generally, it is also a valid reason for refusing to enforce an arbitration
agreement under [the CAA], which . . . provides that arbitration agreements are ‗valid,
enforceable and irrevocable, save upon such grounds as exist for the revocation of any
contract.‘ The United States Supreme Court, in interpreting the same language found in
section 2 of the FAA (9 U.S.C. § 2), recognized that ‗generally applicable contract
defenses, such as fraud, duress, or unconscionability, may be applied to invalidate
arbitration agreements . . . .‘ . . .
―. . . ‗[U]nconscionability has both a ―procedural‖ and a ―substantive‖ element,‘ the
former focusing on ‗―oppression‖‘ or ‗―surprise‖‘ due to unequal bargaining power, the
latter on ‗―overly harsh‖‘ or ‗―one-sided‖‘ results. . . . ‗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.‘ . . . But they need not be present in the same degree. . . . [T]he more
substantively oppressive the contract term, the less evidence of procedural
unconscionability is required to come to the conclusion that the term is unenforceable, and
vice versa.‖ (Armendariz, supra, 24 Cal.4th at p. 114, citations omitted; accord, Bruni v.
Didion (2008) 160 Cal. App. 4th 1272, 1288–1289.) ―The party resisting arbitration bears
the burden of proving unconscionability.‖ (Pinnacle Museum Tower Assn. v. Pinnacle
Market Development (US), LLC (2012) 55 Cal. 4th 223, 247.)
―‗The procedural element of unconscionability focuses on two factors: oppression
and surprise. . . . ―‗Oppression‘ arises from an inequality of bargaining power which results
7
in no real negotiation and ‗an absence of meaningful choice.‘‖ . . . ―‗Surprise‘ involves the
extent to which the supposedly agreed-upon terms of the bargain are hidden in a prolix
printed form drafted by the party seeking to enforce the disputed terms.‖ . . .‘‖ (Bruni v.
Didion, supra, 160 Cal.App.4th at p. 1288.)
―Of course, simply because a provision within a contract of adhesion is not read or
understood by the nondrafting party does not justify a refusal to enforce it. The
unbargained-for term may only be denied enforcement if it is also substantively
unreasonable. . . . Substantive unconscionability focuses on whether the provision is overly
harsh or one-sided and is shown if the disputed provision of the contract falls outside the
‗reasonable expectations‘ of the nondrafting party or is ‗unduly oppressive.‘ . . . Where a
party with superior bargaining power has imposed contractual terms on another, courts
must carefully assess claims that one or more of these provisions are one-sided and
unreasonable.‖ (Gutierrez v. Autowest, Inc. (2003) 114 Cal. App. 4th 77, 88, citations
omitted.)
―Substantive unconscionability pertains to the fairness of an agreement‘s actual
terms and to assessments of whether they are overly harsh or one-sided. . . . A contract
term is not substantively unconscionable when it merely gives one side a greater benefit;
rather, the term must be ‗so one-sided as to ―shock the conscience.‖‘‖ (Pinnacle Museum
Tower Assn. v. Pinnacle Market Development (US), LLC, supra, 55 Cal.4th at p. 246,
citations omitted, italics added.) Simply put, the contract term must be either (1) overly
harsh or (2) so one-sided as to shock the conscience. (See id. at p. 248, citing 24 Hour
Fitness, Inc. v. Superior Court (1998) 66 Cal. App. 4th 1199, 1213 [―substantive element
. . . traditionally involves contract terms that are so one-sided as to ‗shock the conscience,‘
or that impose harsh or oppressive terms‖ (italics added)].)
B. Procedural Unconscionability
Because plaintiffs were required to sign the DRP acknowledgement as a condition
of employment, were unable to negotiate the terms of the DRP, and had no meaningful
choice in the matter, the DRP was oppressive and procedurally unconscionable. (See
Ajamian v. CantorCO2e, L.P. (2012) 203 Cal. App. 4th 771, 796; Martinez v. Master
8
Protection Corp. (2004) 118 Cal. App. 4th 107, 114.) But the arbitration provision was not
―‗―hidden in a prolix printed form‖‘‖ (Bruni v. Didion, supra, 160 Cal.App.4th at p. 1288,
italics added) and therefore did not involve an element of surprise. On the contrary, the
arbitration provision was prominently featured as part of the DRP, and the DRP was a
stand-alone agreement that addressed only one subject: the use of alternative dispute
resolution in lieu of a civil suit.
C. Substantive Unconscionability
Plaintiffs contend the arbitration provision is substantively unconscionable in five
respects. We discuss them in turn.
1. Employer’s Right to Modify the DRP
The DRP states that it ―may be updated from time to time as required by law.‖
Plaintiffs contend this clause renders the entire arbitration provision illusory and
unenforceable or, in the alternative, constitutes an unconscionable clause itself. We
disagree with both contentions.
As plaintiffs correctly point out, ―‗[A]n arbitration agreement allowing one party the
unfettered right to alter the arbitration agreement‘s existence or its scope is illusory,‘‖
quoting Dumais v. American Golf Corp. (10th Cir. 2002) 299 F.3d 1216, 1219. (Italics
added.) Plaintiffs also argue ―[t]he fact that Darden reserves the right to alter, amend, or
modify the DRP at its sole and absolute discretion at any time with or without notice
creates no real promise, and therefore, insufficient consideration to support an enforceable
agreement to arbitrate,‖ citing Floss v. Ryan’s Family Steak Houses, Inc. (6th Cir. 2000)
211 F.3d 306, 315–316. And in Ingle v. Circuit City Stores, Inc. (9th Cir. 2003) 328 F.3d
1165, the court of appeals stated: ―By granting itself the sole authority to amend or
terminate the arbitration agreement, [the employer] proscribes an employee‘s ability to
consider and negotiate the terms of her contract. Compounded by the fact that this contract
is adhesive in the first instance, this provision embeds its adhesiveness by allowing only
[the employer] to modify or terminate the terms of the agreement. Therefore, we conclude
that the provision affording [the employer] the unilateral power to terminate or modify the
contract is substantively unconscionable.‖ (Id. at p. 1179, fn. omitted.)
9
But under California law, an employer‘s unilateral right to modify an arbitration
provision is not unfettered; it is subject to the limitations imposed by the covenant of good
faith and fair dealing. In 24 Hour Fitness, Inc. v. Superior Court, supra, 66 Cal. App. 4th
1199 (24 Hour Fitness), a female employee of 24 Hour Fitness, Inc., doing business as
24 Hour Nautilus (Nautilus), filed suit against her employer and several male employees,
alleging sexual harassment. Nautilus and the individual defendants filed motions for
summary judgment and summary adjudication, seeking to establish that the employee had
to arbitrate her claim as mandated by the ―Arbitration of Disputes‖ section of Nautilus‘s
―Personnel Handbook.‖ A separate document entitled, ―Employment Arbitration
Procedure Manual,‖ was incorporated by reference into the Personnel Handbook.
The employee opposed the motions on the ground that the Personnel Handbook was
illusory because Nautilus could amend it at anytime. The handbook contained a provision
stating: ―‗I acknowledge that Nautilus reserves the right to change any provision in this
Handbook at any time for any reason without advance notice. Though Nautilus can make
changes, I understand that nothing in this Handbook can be modified or deleted, nor
anything added, in any way by oral statement or practice. Only the President of Nautilus
can change this Handbook and the change must be in writing. If Nautilus makes any
material changes, it will give me a copy of them.‘‖ (24 Hour Fitness, supra,
66 Cal.App.4th at pp. 1213–1214.) When hired, the employee had signed an
acknowledgment form, reciting that she had received and read the handbook and had also
agreed to arbitrate all claims as provided in the arbitration procedure manual. (Id. at
p. 1205.) The trial court denied the defendants‘ motions. All parties sought writ relief.
In reversing the trial court as to all but one defendant, the Court of Appeal
concluded that the modification provision was not illusory, saying in part: ―‗―[W]here the
contract specifies performance the fact that one party reserves the power to vary it is not
fatal if the exercise of the power is subject to prescribed or implied limitations such as the
duty to exercise it in good faith and in accordance with fair dealings.‖‘ . . . Nautilus‘s
discretionary power to modify the terms of the personnel handbook [by written] notice
indisputably carries with it the duty to exercise that right fairly and in good faith. . . . So
10
construed, the modification provision does not render the contract illusory.‖ (24 Hour
Fitness, supra, 66 Cal.App.4th at p. 1214, citations omitted; accord, Martinez v. Scott
Specialty Gases, Inc. (2000) 83 Cal. App. 4th 1236, 1246.)
In Peleg v. Neiman Marcus Group, Inc. (2012) 204 Cal. App. 4th 1425, we held that,
under California law, an arbitration agreement is illusory and thus unenforceable if an
employer‘s unilateral modifications apply where an employee‘s claims have already
accrued or are known to the employer. We also discussed the application of the covenant
of good faith and fair dealing, stating: ―A unilateral modification provision that is silent as
to whether contract changes apply to claims, accrued or known, is impliedly restricted by
the covenant [of good faith and fair dealing] so that changes do not apply to such claims.
Under this analysis, the arbitration agreement in 24 Hour Fitness is not illusory. If,
however, a modification provision expressly addresses whether contract changes apply to
claims that have accrued or are known to the employer, the covenant cannot create implied
terms that contradict the express language. . . . An arbitration agreement that expressly
exempts all claims, accrued or known, from contract changes is valid and enforceable
without resort to the covenant. If, on the other hand, an arbitration agreement expressly
applies a contract change to such claims, the covenant cannot vary the plain language, and
the agreement is illusory.‖ (Id. at p. 1465.)
The modification clause in this case does not grant Darden an unfettered right to
change the terms of the arbitration provision. Rather, Darden reserves the right to modify
the arbitration provision ―as required by law.‖ In our view, the modification clause is
neither overly harsh or so one-sided as to shock the conscience. We fail to understand how
a clause permitting a modification as required by law can itself be unlawful. If a particular
modification is required by law, then the change is necessary to avoid the very result that
plaintiffs seek here—the invalidation of the arbitration provision. An employer should not
be bound in perpetuity by the terms of an existing arbitration provision if a judicial
decision or statute renders the provision invalid in some respect.
Plaintiffs assert that the modification clause permits Darden to require that only
employee claims be submitted to arbitration, exempting its own claims from the arbitration
11
process. But that type of modification would not be required by law. On the contrary, it
would be unlawful. (See, e.g., Armendariz, supra, 24 Cal.4th at pp. 115–118.) It would
also be inconsistent with the covenant of good faith and fair dealing. Thus, to be lawful, an
arbitration provision must require that both sides submit their respective disputes to
arbitration. (Ibid.) Here, the DRP states that it is ―the sole means for resolving covered
employment-related disputes, instead of court actions. Disputes eligible for DRP must be
resolved only through DRP, with the final step being binding arbitration heard by an
arbitrator. This means DRP-eligible disputes will NOT BE RESOLVED BY A JUDGE
OR JURY. Neither the Company nor the Employee may bring DRP-eligible disputes to
court. The Company and the Employee waive all rights to bring a civil court action for
these disputes.‖ (Italics added.)
The DRP exempts certain types of claims from arbitration: claims for workers‘
compensation or unemployment insurance benefits; claims ―that by law cannot be
subjected to mandatory arbitration‖; and claims regarding wage scales, employee benefits,
work rules, food quality, service standards, or company policies and procedures unless the
dispute is ―brought pursuant to a specific federal or state statute, or other applicable legal
standard.‖ In light of these exemptions, the DRP uses the term ―DRP-eligible disputes‖ to
refer to claims not falling within one of the exemptions.
In sum, the clause granting Darden the right to modify the arbitration provision in
accordance with the law does not render arbitration illusory; employees and Darden are
both required to submit DRP-eligible claims to arbitration. Nor is the modification clause
substantively unconscionable.
2. Limitations on Discovery and the Arbitration Hearing
Plaintiffs challenge three clauses in the DRP‘s arbitration provision that govern
discovery and the arbitration hearing. First, ―[t]he arbitrator has the authority to authorize
reasonably needed discovery in addition to that provided by the American Arbitration
12
Association Rules.‖ (Italics added.)2 Second, ―[t]he arbitration hearing will start no later
than ninety (90) days following the date of the selection of the arbitrator. However, the
selected arbitrator may extend the hearing date if good cause is shown by either party.‖
And third, ―[t]he arbitrator has the authority to set the duration of the hearing after
conferring with both parties. Typically, the arbitration hearing shall last no longer than
two (2) days. Complex cases may require additional time. The Employee and the
Company representative will each have one (1) day to present their side of the dispute.
The arbitrator may, for good cause, extend the duration of the hearing and adjust the timing
of the presentations. Also, the arbitrator may extend the hearing and any related discovery
to whatever extent is necessary to meet any applicable legal requirements.‖
As a federal district court has explained in deciding the validity of these same
clauses: ―Plaintiff contends that the provisions concerning discovery and the duration of
the hearing hinder his ability to vindicate his statutory rights and therefore fail to satisfy
Armendariz. Specifically, Plaintiff argues, the arbitration agreement does not allow for
adequate time for discovery, because it provides that the arbitration hearing start no later
than 90 days following the selection of the arbitrator. He also argues that it does not allow
adequate time for the duration of the hearing, which is set at two days. Both of these time
limitations are subject to change by the arbitrator, for good cause. . . . These limitations,
according to Plaintiff, present unconscionable barriers to the vindication of his rights
because as the plaintiff, he will require more time for discovery and more time to present
his case at arbitration compared to the [employer]. Moreover, the provision allowing the
arbitrator to adjust the schedule for good cause is inadequate, Plaintiff contends, because
he would have to file an ‗expensive‘ motion for such relief from the arbitrator
(presumably, attorneys‘ fees).
2 The AAA rules state: ―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.‖
13
―Plaintiff‘s arguments are unpersuasive. One of the benefits of arbitration is that it
generally allows parties to reach a resolution on the merits more quickly than is possible in
court. Thus, California courts do not by any means require that an arbitration agreement
permit ‗unfettered discovery.‘ Mercuro[, supra,] 96 Cal.App.4th [at] 184. Parties may
certainly ‗agree to something less than the full panoply of discovery provided in [a civil
action].‘ Armendariz, 24 Cal.4th at 105-06.[3]
―Courts have upheld more stringent limitations on discovery. In a case that Plaintiff
himself cites for a different point, the arbitration agreement limited the parties to three
depositions and an aggregate of 30 discovery requests of any kind, with additional
discovery requests to be granted only upon a showing of good cause. Mercuro, [supra,]
96 Cal.App.4th at 182. Yet the court rejected plaintiff‘s argument that these limitations
were unconscionable . . . .‘ Id. at 183.
―Something more than Plaintiff‘s speculative assertions about his ability to
vindicate his rights is needed to invalidate agreed-to discovery rules. Mercuro and other
cases make clear that whether limitations on discovery violate the principles in Armendariz
depends on the complexity of the claims, the nature of proof required, the precise
discovery that the arbitration agreement does permit, and the burdens that the agreement
imposes on the party who seeks to exceed the limits. See Ontiveros v. DHL Exp. (USA),
Inc. [(2008)] 164 Cal. App. 4th 494, 512 (invalidating provision limiting depositions to one
individual and any expert witness designated by another party because plaintiff would need
to take at least 15 to 20 depositions and the arbitration agreement‘s ‗substantial need‘
standard imposed too high a burden on plaintiff); Fitz v. NCR Corp. [(2004)]
118 Cal. App. 4th 702, 717-18 (invalidating limitation on number of depositions because
3
Under the CAA, the parties have the same right to discovery as in a civil action.
(See Code Civ. Proc., § 1283.05, subd. (a); id., §§ 1985–1997 [addressing use of
subpoenas]; id., §§ 2016.020–2036.050 [addressing methods of discovery in civil actions].)
14
plaintiff demonstrated that a standard of ‗compelling need‘ unfairly required parties to
demonstrate that a fair hearing would be ‗impossible‘ without additional discovery).
―Plaintiff has cited no authority finding presumptive time limits on discovery and
the duration of the hearing, such as the limits in the DRP, to be unconscionable . . . . Nor
has he shown how the discovery provision in the DRP would necessarily prevent him from
vindicating his statutory rights in his particular case. Therefore, the Court finds that the
minimum requirement of adequate discovery has been met.‖ (Rutter v. Darden
Restaurants, Inc. (C.D.Cal., Nov. 18, 2008, No. CV 08-6106 AHM) 2008 WL 4949043,
pp. *5–*6, citation omitted, some italics added.)
―[A]rbitration is meant to be a streamlined procedure. Limitations on discovery . . .
is one of the ways streamlining is achieved. In Armendariz, the [Supreme Court] stated
that the parties were entitled to discovery sufficient to vindicate their claims. . . . The court
also acknowledged that discovery limitations are an integral and permissible part of the
arbitration process. . . . Armendariz specifically recognized that parties may agree to
something less than the full panoply of discovery permitted [in civil actions].‖ (Dotson v.
Amgen, Inc. (2010) 181 Cal. App. 4th 975, 983, citations omitted.)
―[I]n Roman [v. Superior Court (2009) 172 Cal. App. 4th 1462], our colleagues in
Division Seven pointed out that the rules of the American Arbitration Association (AAA)
give the arbitrator authority to limit discovery and ‗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.‘ . . . The Court of Appeal rejected the argument that the
[AAA discovery] provision was unconscionable because it unfairly delegates to the
arbitrator the absolute discretion to deny depositions, contrary to the rules of civil
discovery . . . . The Court [of Appeal] said: ‗In Armendariz, . . . the Supreme Court
rejected an employee‘s similar claim that a purportedly inadequate provision for discovery
in an arbitration agreement was a proper ground for denying arbitration of their FEHA
claims. Although the [Supreme] Court observed ―some discovery is often necessary for
vindicating a FEHA claim‖ . . . , it held ―whether or not the employees in this case are
15
entitled to the full range of discovery provided in [civil actions], they are at least entitled to
discovery sufficient to adequately arbitrate their statutory claim, including access to
essential documents and witnesses, as determined by the arbitrator(s) . . . .‖ . . .‘ . . . . The
[Court of Appeal] concluded: ‗There appears to be no meaningful difference between the
scope of discovery approved in Armendariz and that authorized by the AAA employment
dispute rules . . . .‘‖ (Dotson v. Amgen, Inc., supra, 181 Cal.App.4th at pp. 983–984,
citations & fn. omitted.) As noted, the AAA employment dispute rules apply under the
DRP, and the arbitrator is authorized to permit discovery in addition to what the AAA
rules provide.
Here, plaintiffs ―assume[] that the arbitrator would not be fair in determining
whether additional [discovery was] needed. . . . Indeed, it is quite the opposite. We assume
that the arbitrator will operate in a reasonable manner in conformity with the law.‖
(Dotson v. Amgen, Inc., supra, 181 Cal.App.4th at p. 984.) Unlike the discovery
limitations in Ontiveros v. DHL Exp. (USA), Inc., supra, 164 Cal. App. 4th 494, and Fitz v.
NCR Corp., supra, 118 Cal. App. 4th 702 (Fitz), ―the discovery provision in this case does
not require a showing of ‗substantial‘ or ‗compelling‘ need . . . to grant further discovery.‖
(Dotson, at p. 984.) ―[T]he agreement allows for ‗[e]ither party [to] apply to the arbitrator
for further discovery‘ upon a showing of [good] cause. . . . Thus, the discovery provision is
not substantively unconscionable.‖ (Abeyrama v. J.P. Morgan Chase Bank (C.D.Cal.,
June 22, 2012, No. CV12-00445 DMG) 2012 WL 2393063, p. *4.)
In short, because the DRP‘s limitations on discovery, the timing of the hearing, and
the length of the hearing are subject to change upon the arbitrator‘s determination of good
cause, the limitations do not render the arbitration provision unconscionable.
3. Cost of Reporter’s Transcript
Under the DRP, ―the Employee may choose to arrange for a court reporter at [his or
her] own cost.‖ Plaintiffs contend this clause unfairly burdens them with arbitration
expenses. We disagree. Under Armendariz, an employer in an FEHA action must ―pay all
types of costs that are unique to arbitration.‖ (Armendariz, supra, 24 Cal.4th at p. 113,
italics added.) The cost of a reporter‘s transcript is not that type of expense. Even if
16
plaintiffs‘ causes of action were adjudicated in a judicial forum, plaintiffs would have to
pay for a reporter‘s transcript; the employer would not be required to obtain a reporter‘s
transcript on the employees‘ behalf. As provided by the California Rules of Court, ―If the
services of an official court reporter are not available for a hearing or trial in a civil case, a
party may arrange for the presence of a certified shorthand reporter to serve as an official
pro tempore reporter. It is that party’s responsibility to pay the reporter’s fee for
attendance at the proceedings, but the expense may be recoverable as part of the costs, as
provided by law.‖ (Cal. Rules of Court, rule 2.956(c), italics added.)
Because an employee would have to pay for a reporter‘s transcript in a civil action,
Darden may impose the same cost requirement in an arbitration proceeding without
running afoul of Armendariz or the doctrine of unconscionability.
4. Availability of Provisional Relief
The arbitration provision in the DRP states: ―The arbitrator has the same authority
as a court of law to grant requested relief; this would include relief requested regarding
temporary restraints and preliminary injunctive remedies. However, this provision does
not prevent either the Employee or the Company from requesting available temporary or
preliminary injunctive remedies from an appropriate court, provided that the request does
not remove the dispute from final resolution by the arbitrator. The request for temporary
or preliminary injunctive remedies does not waive the requesting party‘s right to arbitrate
claims covered by the DRP.‖ Plaintiffs argue that, because of this language, the arbitration
provision lacks mutuality and is not bilateral. In other words, the arbitration provision
exempts the causes of action that Darden would be likely to bring. We conclude
otherwise.
The CAA contains a provision similar to the one in the DRP. Section 1281.8,
subdivision (b) (section 1281.8(b)) of the CAA provides: ―A party to an arbitration
agreement may file in the court in the county in which an arbitration proceeding is
pending, or if an arbitration proceeding has not commenced, in any proper court, an
application for a provisional remedy in connection with an arbitrable controversy, but only
upon the ground that the award to which the applicant may be entitled may be rendered
17
ineffectual without provisional relief.‖ (Code Civ. Proc., § 1281.8, subd. (b), italics
added.) The CAA defines ―provisional remedy‖ to include ―[p]reliminary injunctions and
temporary restraining orders.‖ (Id., § 1281.8, subd. (a)(3).) Section 1281.8(b) ―‗was
enacted primarily to allow a party to an arbitration [or subject to an arbitration agreement]
to obtain provisional judicial remedies without waiving the right to arbitrate, as some early
cases had suggested.‘‖ (Stirlen v. Supercuts, Inc. (1997) 51 Cal. App. 4th 1519, 1537
(Stirlen).)
In Stirlen, supra, 51 Cal. App. 4th 1519, the employer exempted from arbitration
―‗[a]ny action initiated by the Company seeking specific performance or injunctive or
other equitable relief in connection with any breach or violation of [its intellectual
property rights].‘‖ (Stirlen, at p. 1528, italics added; see Mercuro, supra, 96 Cal.App.4th
at pp. 177–178 [discussing Stirlen].) The arbitration agreement also limited the parties‘
remedies to ―‗a money award not to exceed the amount of actual damages for breach of
contract‘‖ and excluded ―‗any other remedy at law or in equity, including but not limited to
other money damages, exemplary damages, specific performance, and/or injunctive
relief.‘‖ (Stirlen, at p. 1529.)
The Court of Appeal concluded that the agreement‘s lack of mutuality was
unconscionable, explaining: ―One of the most significant discrepancies, of course, is the
unilateral restriction on employee remedies and the nature of the rights employees are
deprived of in this manner. While [the employer] is deprived of no common law or
statutory remedies that may be available to it under [the intellectual property provisions] of
the employment contract, remedies available to employees in employment disputes are
severely curtailed. Not only are employees denied punitive damages for tort claims, they
are also denied relief for statutory claims . . . . [The employer‘s] arbitration clause not only
deprives employees of the exemplary damages and equitable relief available under [some]
federal statutes, but deprives them as well of the reasonable attorney fees, including
litigation expenses, and costs, that prevailing parties can obtain under those statutes. . . .
The only remedy left to employees—actual damages for breach of contract—may bear no
relation whatsoever to the extent of the wrong and the magnitude of the injuries suffered at
18
the hands of the employer. This would amount to denial of the underlying cause of action,
which would be preserved in name only.‖ (Stirlen, supra, 51 Cal.App.4th at pp. 1539–
1540.)
The court continued: ―The mandatory arbitration requirement can only realistically
be seen as applying primarily if not exclusively to claims arising out of the termination of
employment, which are virtually certain to be filed against, not by, [the employer]. [The
employer] identifies no provision of the employment contract and no statute likely to give
rise to a claim [it] would be compelled to submit to arbitration. The only ‗employment
disputes‘ likely to be initiated by [the employer]—such as claims that an employee violated
a non-competition agreement or divulged confidential information—need not be arbitrated.
[¶] . . . [¶] In short, the arbitration clause provides the employer more rights and greater
remedies than would otherwise be available and concomitantly deprives employees of
significant rights and remedies they would normally enjoy.‖ (Stirlen, supra,
51 Cal.App.4th at pp. 1540–1542, italics added.)
In Mercuro, supra, 96 Cal. App. 4th 167, ―[t]he arbitration agreement specifically
cover[ed] claims for breach of express or implied contracts or covenants, tort claims,
claims of discrimination based on race, sex, age or disability, and claims for violation of
any federal, state or other governmental constitution, statute, ordinance, regulation or
public policy. Thus the agreement [required] arbitration of the claims employees [were]
most likely to bring against [the employer]. On the other hand, the agreement specifically
exclude[d] ‗claims for injunctive and/or other equitable relief for intellectual property
violations, unfair competition and/or the use and/or unauthorized disclosure of trade
secrets or confidential information . . . .‘ Thus the agreement exempt[ed] from arbitration
the claims [the employer was] most likely to bring against its employees.‖ (Id. at pp. 175–
176, italics added.) The Court of Appeal concluded that the lack of mutuality rendered the
arbitration agreement unconscionable. (Id. at p. 179; see Martinez v. Master Protection
Corp. (2004) 118 Cal. App. 4th 107, 114–115 [arbitration agreement lacked mutuality and
was unconscionable because it exempted employer‘s claims for unfair competition and
unauthorized disclosure of trade secrets or confidential information].)
19
In Fitz, supra, 118 Cal. App. 4th 702, an employer informed its employees about a
new arbitration policy by sending them a brochure. A letter accompanying the brochure
stated that ―the new policy would be used to settle concerns over almost anything at work,
ranging from disagreements over assignments to perceived discriminatory treatment.‖ (Id.
at p. 708.) But the arbitration policy ―was not to be used ‗to resolve disputes over
confidentiality/non-compete agreements or intellectual property rights.‘‖ (Id. at p. 709,
italics added.) Relying on Stirlen, supra, 51 Cal.App.4th at pages 1528 and 1537 (see Fitz,
at pp. 723–724), the Court of Appeal in Ftiz concluded that the lack of mutuality was
unconscionable, saying: ―An agreement may be unfairly one-sided if it compels arbitration
of the claims more likely to be brought by the weaker party but exempts from arbitration
the types of claims that are more likely to be brought by the stronger party. . . . [¶] . . .
[¶] [The employer] asserts that the [arbitration] policy is ‗completely bilateral‘ because the
policy does not carve out particular types of claims where employees are required to
arbitrate, but the company is permitted to seek redress for the same claim in a judicial
forum. . . . [The employer] states that both the company and [an employee] may submit
disputes regarding noncompete agreements and intellectual property rights to the courts.
Though [the employer] cites cases where employees have filed actions against employers
over noncompete agreements and intellectual property claims, it is far more often the case
that employers, not employees, will file such claims. . . .
―The [arbitration] policy is unfairly one-sided because it compels arbitration of the
claims more likely to be brought by [an employee], the weaker party, but exempts from
arbitration the types of claims that are more likely to be brought by [the employer], the
stronger party. . . . [¶] The [arbitration] policy fails to overcome the Armendariz threshold,
which states that arbitration agreements imposed in adhesive contexts lack basic fairness if
they require one party but not the other to arbitrate all claims arising out of the same
transaction or occurrence. . . . For example, in a wrongful termination dispute where the
employee claims age discrimination and [the employer] argues the employee was fired for
divulging trade secrets to a competitor, the employee is required to arbitrate her claim
20
while [the employer] is permitted to [proceed in a judicial forum].‖ (Fitz, supra,
118 Cal.App.4th at pp. 724–725, citation omitted.)
We agree with Stirlen, Mercuro, and Fitz but not with the analysis of mutuality in
Trivedi v. Curexo Technology Corp. (2010) 189 Cal. App. 4th 387 (Trivedi). There, an
employer-employee arbitration agreement provided in part: ―‗[P]rovisional injunctive
relief may, but need not, be sought in a court of law while arbitration proceedings are
pending, and any provisional injunctive relief granted by such court shall remain effective
until the matter is finally determined by the Arbitrator.‘‖ (Trivedi, at p. 396.) The Court of
Appeal concluded that the language authorizing provisional injunctive relief was
coextensive with section 1281.8(b) of the CAA. (Trivedi, at pp. 396–397.) Nevertheless,
the court found the clause unconscionable, reasoning that ―allowing the parties access to
the courts only for injunctive relief favors [the employer], because it is ‗more likely that
. . . the employer[] would seek injunctive relief.‘ While the trial judge did not cite
authority supporting this conclusion, it is not a novel or unsupportable proposition.‖ (Id. at
p. 397.) The Court of Appeal cited Mercuro and Fitz as support for the trial court‘s
conclusion. (Ibid.)
We decline to follow Trivedi for three reasons. First, Mercuro and Fitz do not
suggest that an arbitration clause similar to section 1281.8(b) is unconscionable. Both of
those cases stand for the proposition that an arbitration agreement is unconscionable if it
exempts claims likely to be brought by an employer but requires arbitration of claims
likely to brought by an employee. Although the unconscionable provision in Mercuro
authorized the parties to seek injunctive relief in a judicial forum, it permitted that type of
relief only for claims the employer was likely to bring: ―‗intellectual property violations,
unfair competition and/or the use and/or unauthorized disclosure of trade secrets or
confidential information.‘‖ (Mercuro, supra, 96 Cal.App.4th at p. 176.) Similarly, in Fitz,
the unconscionable agreement exempted from arbitration the type of claims only an
employer would bring: ―‗disputes over confidentiality/non-compete agreements or
intellectual property rights.‘‖ (Fitz, supra, 118 Cal.App.4th at p. 709.) Here, the
arbitration provision does not exempt from arbitration any claims that Darden is more
21
likely to pursue, and the provision allowing the parties to obtain provisional remedies in
court is not tied to any type of claim.
Second, we cannot say that Darden is more likely to seek injunctive relief than an
employee. In the present case, for example, the complaint alleges six causes of action.
Four of those causes of action are based on the FEHA, which authorizes an employee to
seek injunctive relief. (See Gov. Code, § 12965, subd. (c)(3); Aguilar v. Avis Rent A Car
System, Inc. (1999) 21 Cal. 4th 121, 131–132.) Further, as Stirlen pointed out, the Age
Discrimination in Employment Act of 1967 (29 U.S.C. §§ 621–634) expressly permits an
employee to seek ―equitable relief‖ (id., §§ 626(c)(2), 633a(c)), and, under the public
accommodation provisions of the Americans with Disabilities Act of 1990 (42 U.S.C.
§§ 12101–12213), injunctive relief is available (id., § 12188(a)(2)). (See Stirlen, supra,
51 Cal.App.4th at p. 1540.) In addition, Title VII of the Civil Rights Act of 1964
(42 U.S.C. §§ 2000e to 2000e-4) also authorizes injunctive relief (id., § 2000e-5(g)(1)).
Third, because the DRP is subject to the CAA, section 1281.8(b) would apply
regardless of the analogous provision in the DRP. Put another way, an arbitration
agreement governed by the CAA permits a party to seek provisional remedies, such as a
preliminary injunction, in court even if the arbitration provision does not expressly
authorize the parties to seek such relief. This is so because, as noted, section 1281.8(b) is
part of the CAA. We fail to see how the provisional relief clause in the DRP is
unconscionable given that section 1281.8(b) would be read into the DRP in any event. We
are aware of no authority for the proposition that a right conferred by the CAA may be
unconscionable.
It follows that the DRP‘s provisional remedy language is neither overly harsh nor so
one-sided as to shock the conscience.
5. Prohibition of Class and Collective Actions
The DRP provides: ―The arbitrator will have no right or authority to hear or rule on
any dispute brought by any person as a class action, collective action or on behalf of any
other person or entity . . . . The arbitrator has no jurisdiction to certify any group of current
22
or former employees, or applicants for employment, as a class or collective action in any
arbitration proceeding.‖
Plaintiffs challenge this prohibition on the ground that it conflicts with the National
Labor Relations Act (29 U.S.C. §§ 151–168) as interpreted in D.R. Horton (2012)
357 NLRB No. 184. We reject plaintiffs‘ argument for two reasons. First, they have not
brought a class action or a collective action. Rather, this is an action by two individuals
seeking relief for themselves only. Because the DRP‘s prohibition of class and collective
actions has no effect on plaintiffs‘ ability to pursue their claims as pleaded, the purported
unconscionability of that prohibition is irrelevant in this case. Second, we agree with other
Courts of Appeal that D.R. Horton does not invalidate class or collective action waivers in
an arbitration agreement. (See Truly Nolen of America v. Superior Court (2012)
208 Cal. App. 4th 487, 514–515; Nelsen v. Legacy Partners Residential, Inc. (2012)
207 Cal. App. 4th 1115, 1132–1134.)
For the first time on appeal, plaintiffs argue that the DRP‘s prohibition of class and
collective actions is invalid under Gentry v. Superior Court (2007) 42 Cal. 4th 443. This
argument fails for three reasons. First, as with plaintiffs‘ contention based on D.R. Horton,
the question of whether Gentry invalidates a class or collective action waiver is irrelevant
in a case brought on an individual basis. Second, because plaintiffs did not rely on Gentry
in the trial court, we decline to address whether Gentry was overruled by AT&T Mobility
LLC v. Concepcion (2011) 563 U.S. ___ [131 S. Ct. 1740]. (See Premier Medical
Management Systems, Inc. v. California Ins. Guarantee Assn. (2008) 163 Cal. App. 4th 550,
564 [argument not raised in trial court is forfeited on appeal]; Perez v. Grajales (2008)
169 Cal. App. 4th 580, 591–592 [same].) And third, plaintiffs have not made the
evidentiary showing required by Gentry to invalidate a class or collective action waiver.
(See Gentry, at pp. 457–463.)
In sum, the DRP‘s arbitration provision is not substantively unconscionable, and the
trial court therefore erred in denying the motion to compel arbitration. Any request for
appellate attorney fees should be presented in the first instance to the trial court on remand.
(See Cal. Rules of Court, rule 3.1702(a), (c).)
23
III
DISPOSITION
The order is reversed, and, on remand, the trial court shall enter a new order
granting the motion to compel arbitration. Appellant is entitled to costs on appeal.
NOT TO BE PUBLISHED.
MALLANO, P. J.
We concur:
ROTHSCHILD, J.
CHANEY, J.
24