Betancourt v. Transportation Brokerage Specialists, Inc.

Filed 3/29/21
CERTIFIED FOR PARTIAL PUBLICATION *
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
FIRST APPELLATE DISTRICT
DIVISION THREE
JOSUE BETANCOURT et al.,
Plaintiffs and Respondents, A159528
v.
TRANSPORTATION BROKERAGE (Marin County Super. Ct.
SPECIALISTS, INC., No. CIV-1803938)
Defendant and Appellant.
Defendant Transportation Brokerage Specialists, Inc. appeals from a
trial court order denying its motion to (1) compel plaintiff Josue Betancourt
to arbitrate his individual claims pursuant to the arbitration provision in his
employment agreement; and (2) dismiss or strike his class claims pursuant to
the class action waiver also contained in the employment agreement.
In its order, the trial court applied California law after finding that
plaintiff was exempt from Federal Arbitration Act (9 U.S.C. § 1 et seq.) (FAA)
coverage because he was a transportation worker engaged in interstate
commerce. The trial court then denied defendant’s motion to dismiss or
* Pursuant to California Rules of Court, rules 8.1105(b) and 8.1110, this
opinion is certified for publication with the exception of the following portions
of the Discussion: Section II. Class Action Waiver; Section III. Severability of
Class Action Wavier; Section IV. Unconscionability; and Section V. Section
229 Defense.
1
strike plaintiff’s class claims after finding that the class action waiver was
unenforceable. The trial court also denied defendant’s motion to compel
arbitration of plaintiff’s individual claims, concluding that the unenforceable
class action waiver rendered the arbitration agreement unenforceable. On
appeal, defendant challenges the trial court’s findings on FAA inapplicability,
unenforceability of the class action waiver, and unenforceability of the
arbitration agreement.
We agree with the trial court that plaintiff is exempt from FAA
coverage. We also agree that the class action waiver is unenforceable under
California law, and affirm the trial court’s order denying the motion to
dismiss or strike plaintiff’s class claims. We reverse, in part, that portion of
the trial court order denying the motion to compel arbitration of plaintiff’s
individual claims and remand for further consideration consistent with this
opinion, as the trial court improperly found the arbitration agreement
unenforceable in its entirety rather than severing the class action waiver
provision from the remainder of the employment agreement.
FACTUAL AND PROCEDURAL BACKGROUND
Plaintiff worked as a delivery driver for defendant from approximately
February 2017 to May 2018. Defendant describes itself as a “last-mile”
delivery company whose primary client was online retailer Amazon.com Inc.
(Amazon). 1 According to defendant’s Chief Operations Officer (COO),
Amazon accounted for 99.5% of defendant’s overall business and 100% of its
business in 2016 and 2017.
1 In its opening brief, defendant represents that Amazon “ended its
contract with TBS in early 2020 and no longer utilizes the services of TBS.”
2
A. Arbitration Agreement
At the start of his employment, plaintiff signed an At-Will
Employment, Non-Disclosure, Non-Solicitation, Class-Action Waiver and
Arbitration Agreement (Agreement).
Section 6 of the Agreement is entitled “Arbitration” and provides, in
relevant part: “Any controversy, dispute or claim between the employee and
the Company, or its officers, agents or other employees, shall be settled by
binding arbitration, at the request of either party.” (Emphasis in original.)
Section 6 also states: “Both Company and Employees understand that
by using arbitration to resolve disputes they are giving up any right
that they may have to a judge or jury trial with regard to all issues
concerning employment. The decision of the arbitrator shall be
binding and conclusive on the parties and cannot be reviewed for
error of law or legal reasoning of any kind. Judgment upon the
reward rendered by the arbitrator may be entered in any court
having proper jurisdiction.” (Emphasis in original.)
Section 7 of the Agreement is entitled “Class Action Waiver” and
provides, in relevant part: “Any Claim must be brought in the respective
party’s individual capacity, and not as a plaintiff or class member in any
purported class, collective, representative, multiple plaintiffs, or similar
proceeding (‘Class Action’). The parties expressly waive any ability to
maintain any Class Action in any forum.” (Emphasis in original.)
Section 11 of the Agreement is entitled “Severability” and states: “If
any term, covenant or condition of this Agreement or the application thereof
to any person or circumstance is determined to be invalid or unenforceable,
the remainder of the Agreement will not be affected thereby, and will
continue to be valid and enforceable to the fullest extent permitted by law.”
3
(Emphasis in original.) This section also provides that, within 10 days of
signing the Agreement, an employee can mail a written, notarized statement
“requesting that either or both of the [arbitration and class action waiver]
clauses be revoked.”
B. Complaint
Plaintiff filed suit against defendant, asserting eight causes of action:
(1) failure to provide meal and rest periods (Labor Code §§ 226.7, 512); 2
(2) failure to furnish accurate wage statements (§§ 226, 1174, 1174.5);
(3) failure to pay all wages when due and waiting time penalties (§§ 201–204,
1194); (4) failure to reimburse for business expenses (§ 2802); (5) violation of
California’s Unfair Competition Law (Bus. & Prof. Code § 17200) (UCL);
(6) violation of the Private Attorneys General Act (§ 2698 et seq.) (PAGA);
(7) unlawful retaliation (§ 1102.5); and (8) wrongful termination in violation
of public policy.
The first six causes of action were brought on behalf of plaintiff and a
putative class of defendant’s delivery drivers, agents and employees. The
seventh and eighth causes of action (for unlawful retaliation and wrongful
termination) were brought on behalf of plaintiff in his individual capacity.
C. Defendant’s Motion
Defendant filed a motion to compel arbitration of plaintiff’s individual
claims, dismiss or strike the class claims pursuant to the class action waiver
in the Agreement, and stay the PAGA claim pending resolution of the claims
at arbitration. Defendant argued that (1) the FAA applied to the Agreement,
as the FAA’s exemption for transportation workers engaged in interstate
commerce was inapplicable to plaintiff; (2) the class action waiver was
2 Unless otherwise indicated, all further section references will be to the
Labor Code.
4
enforceable; and (3) there were no grounds—including, in particular,
unconscionability—to preclude enforcement of the arbitration agreement.
In July 2019, the trial court issued a tentative ruling, held the initial
hearing on the motion, and ordered limited discovery on the issue of
interstate commerce. The parties then submitted supplemental briefing.
Plaintiffs’ supplemental briefing included, among other things, declarations
from plaintiff and four putative class members, as well as an attorney
declaration estimating the potential recovery for plaintiff and these putative
class members. A second hearing took place in early December 2019, at
which time defense counsel requested a statement of decision.
D. Trial Court’s Ruling on Motion
On December 31, 2019, the trial court issued its statement of decision
denying the motion. The trial court first found defendant had met its burden
to demonstrate the existence of an agreement to arbitrate, and thus the
burden shifted to plaintiff to prove a ground to deny enforcement of the
agreement. The trial court then adopted its finding from its July 2019
tentative ruling that the FAA was inapplicable because plaintiff was engaged
in interstate commerce.
The trial court then found the class action waiver unenforceable under
the four-factor test from Gentry v. Superior Court (2007) 42 Cal.4th 443(Gentry). First, the potential individual recovery was small because the
estimated range of awards varied from $16,376 to $36,512 per employee.
Second, the declarations of plaintiff and the putative class members showed
that the employees would not have been willing to bring a lawsuit during
their employment because of fear of retaliation, as they had experienced and
witnessed retaliation. Third, the declarations demonstrated that absent class
members may have been ill informed of their rights, as plaintiff and the
5
putative class members attested that they were unaware of their rights
during employment, and were unable to take breaks because of their tight
schedules but were still forced to indicate on their timecards that they had
taken those breaks. Fourth, there were real world obstacles to the
vindication of employee’s rights, as “ ‘the instant case involves precisely the
sort of arbitration agreement with a class action waiver entered as a
condition of employment by low-wage, limited-information employees in
vulnerable, at-will employment environments[.]’ ” (Garrido v. Air Liquide
Industrial U.S. LP (2015) 241 Cal.App.4th 833, 847 (Garrido).)
Based on the trial court’s analysis of the Gentry factors, it concluded
that both the class action waiver and the arbitration provision were not
enforceable. Hence, it denied the motion as to both (1) arbitration of
plaintiff’s individual claims, and (2) dismissal or striking of the class claims.
The trial court noted that, although “not necessary” to its denial, it had
considered plaintiff’s arguments as to procedural and substantive
unconscionability of the Agreement. In the July 2019 tentative ruling, the
trial court found that plaintiff had met his burden on procedural
unconscionability, showing “some level of oppression with regard to the
manner in which the agreement was presented and signed,” and “at least a
small degree” of surprise involved. The trial court then found one
substantively unconscionable provision (preventing judicial review for error
of law or legal reasoning of any kind), but determined that it could be
severed. Thus, the trial court concluded that the Agreement, as a whole, was
not unconscionable. The trial court expressly adopted this reasoning as part
of its statement of decision, “[t]o the extent relevant to a review of the court’s
denial[.]”
6
The trial court declined, however, to address plaintiff’s defense to the
motion that he had stated claims for the collection of due and unpaid wages,
and that section 229 prohibits the arbitration of those claims. The statement
of decision also did not address plaintiff’s PAGA claim.
Defendant timely appealed.
DISCUSSION
Defendant argues that the order denying its motion should be reversed
for five reasons. First, defendant argues that the trial court erred in finding
that plaintiff is exempt from FAA coverage as a transportation worker
engaged in interstate commerce. Second, defendant argues that even if the
FAA does not apply, the trial court erred in finding that the class action
waiver was unenforceable under California law. Third, defendant argues
that even if the class action waiver was unenforceable, the trial court erred in
finding that the class action waiver rendered the entire arbitration agreement
unenforceable. Fourth, defendant argues that the arbitration agreement
should be enforced because it was not unconscionable. Fifth, defendant
argues that there are no other grounds to deny its motion to compel
arbitration of plaintiff’s individual claims because section 229 does not apply
to those claims. We address each argument in turn.
I. FAA EXEMPTION
The FAA was enacted by Congress in 1925 as “a response to hostility of
American courts to the enforcement of arbitration agreements, a judicial
disposition inherited from then-longstanding English practice.” (Circuit City
Stores, Inc. v. Adams (2001) 532 U.S. 105, 111 (Circuit City).) Section 2 of the
FAA provides that contracts “evidencing a transaction involving commerce”
and containing arbitration provisions “shall be valid, irrevocable, and
7
enforceable, save upon such grounds as exist at law or in equity for the
revocation of any contract.”
Section 1 of the FAA, however, provides a limited exemption from FAA
coverage to “contracts of employment of seamen, railroad employees, or any
other class of workers engaged in foreign or interstate commerce.” (9 U.S.C.
§ 1.) In Circuit City, the United States Supreme Court concluded that the
catchall clause in section 1—“any other class of workers engaged in foreign or
interstate commerce”—does not refer to all workers involved in foreign or
interstate commerce, but rather only to “transportation workers.” (Circuit
City, supra, 532 U.S. at p. 119.) Circuit City reasoned that such an
interpretation was consistent with “Congress’ demonstrated concern with
transportation workers and their necessary role in the free flow of goods,”
which “explains the linkage to the two specific, enumerated types of workers
identified in the preceding portion of the sentence.” (Id. at p. 121.) Circuit
City did not, however, elaborate on what job types or duties would qualify an
employee as a “transportation worker” under this catchall. (Id. at p. 119.)
In the wake of Circuit City, courts have grappled whether particular
employees can be defined as a “transportation worker” under the FAA
exemption. Such questions require a case-by-case factual determination,
with the party opposing the motion to compel arbitration bearing the burden
to demonstrate that the exemption applies. (Muller v. Roy Miller Freight
Lines, LLC (2019) 34 Cal.App.5th 1056, 1069 (Muller); Performance Team
Freight Systems, Inc. v. Aleman (2015) 241 Cal.App.4th 1233, 1241.) As FAA
applicability is a question of law, we review the trial court’s determination de
novo. (Garrido, supra, 241 Cal.App.4th at p. 839.)
Nieto v. Fresno Beverage Co., Inc. (2019) 33 Cal.App.5th 274 (Nieto) is
instructive here. In Nieto, the appellate court concluded that a beverage
8
delivery driver who only made intrastate deliveries still fell within the
exemption. (Id. at p. 284.) The beverages, including some manufactured out-
of-state, were sent first to an in-state warehouse and held for a short period
of time, and then picked up by the driver and delivered to customers. (Ibid.)
Accordingly, Nieto reasoned that the driver’s deliveries “were essentially the
last phase of a continuous journey of the interstate commerce” for the out-of-
state beverages to reach their destination to customers. (Ibid.) Nieto thus
concluded that the driver was exempt from FAA coverage because he was
“engaged in interstate commerce through his participation in the
continuation of the movement of interstate goods to their destinations.”
(Ibid.)
Defendant makes five arguments as to why Nieto should not be applied
here, none of which we find persuasive. First, defendant contends that
federal courts have rejected the “flow of interstate commerce” standard in
Nieto, instead relying on whether the driver actually traveled out of state.
Defendant cites, for example, district court cases holding that drivers for food
delivery services like DoorDash and Caviar do not qualify under the FAA
exemption because they do not physically cross state lines. (Magana v.
DoorDash, Inc. (N.D. Cal. 2018) 343 F.Supp.3d 891, 899; Levin v. Caviar, Inc.
(N.D. Cal. 2015) 146 F.Supp.3d 1146, 1152 (Levin).) We find these cases
factually distinguishable, and entirely consistent with the “flow” analysis in
Nieto: as Levin explained, prepared meals from local restaurants are not a
type of good that is “ ‘indisputably’ part of the ‘stream of commerce.’ ” (Levin,
supra, 146 F.Supp.3d at p. 1153.) Unlike out-of-state goods that stop briefly
at a warehouse before reaching their destination to the customer, any
interstate journey of an ingredient used to prepare restaurant food ends
when it reaches its customer: the restaurant.
9
Second, defendant argues that we must adopt a bright-line rule—that
drivers must physically cross state lines to qualify under the exemption—to
avoid “complex and extremely unpredictable” enforcement of arbitration
agreements under the Nieto standard. As a preliminary matter, defendant’s
notion of an “easily administrable, bright-line rule is illusory.” (Waithaka v.
Amazon.com, Inc. (1st Cir. 2020) 966 F.3d 10, 25 (Waithaka).) Under such a
rule, parties would still litigate over the frequency of crossing and the
percentage of overall employees in a class of drivers who would need to cross
in order to satisfy the exemption. Moreover, by not expanding on the
definition of “transportation workers,” Circuit City left the lower courts with
a “line-drawing conundrum” to assess which employees meet the definition.
(Waithaka, supra, 966 F.3d at p. 25.) “Suffice it to say there is no agreed-
upon bright-line rule on who falls within the section 1 exemption.” (Muller,
supra, 34 Cal.App.5th at p. 1064.) We thus decline to adopt one here.
Third, defendant argues that Nieto improperly analogized the language
of the FAA exemption to the language of the Fair Labor Standards Act
(FLSA), which covers individual workers “engaged in commerce or in the
production of goods for commerce.” (29 U.S.C. § 203, subd. (s)(1).) We
disagree with this characterization of Nieto, as its only references to FLSA
are contained in its summary of the Levin analysis. (Nieto, supra, 33
Cal.App.5th at p. 283–284.)
Fourth, defendant contends that Nieto was “questioned” by Muller.
Again, we disagree with defendant’s characterization: as in Nieto, Muller
concluded that a driver who did not personally cross state lines was exempt
from FAA coverage because he played an integral role in transporting out-of-
state goods “during part of their journey to their ultimate destination.”
(Muller, supra, 34 Cal.App.5th at p. 1069.)
10
Fifth, defendant argues that even if the standard from Nieto is proper,
its conclusion is inapposite here because the interstate nature of the goods
delivered by plaintiff was based on “unfounded conjecture and speculation.”
We are not persuaded. Here, plaintiff presented testimony from defendant’s
COO that Amazon accounted for 99.5% of defendant’s overall business and
100% of its business in 2016 and 2017. He testified that defendant’s drivers
did “last-mile delivery” for Amazon, which he defined as “the last stop of a
retail transaction.” Drivers would go out to Amazon’s “giant warehouses,”
load their vans with packages, and then deliver them to Amazon customers.
The drivers were thus “doing the deliveries to the end person, the retail last
mile.” Plaintiff similarly attested that his primary job duties were picking up
packages from Amazon warehouses and delivering them to Amazon
customers. He attested: “Based on [his] personal observations, the packages
could have originated from anywhere in the United States or even foreign
countries.” Plaintiff presented evidence that in 2017, Amazon was already
shipping more than five billion items worldwide. At that time, over 300,000
small and medium-sized business in every state in the United States had
started selling on Amazon, and Amazon’s global selling program (enabling
business to sell products across national borders) had grown by over 50%.
Nothing in the record suggests that the Amazon goods delivered by plaintiff
originated only in California, such that he was making purely intrastate
deliveries. We conclude that plaintiff met his burden to demonstrate that he
was “engaged in interstate commerce through his participation in the
continuation of the movement of interstate goods to their destinations.”
(Nieto, supra, 33 Cal.App.5th at p. 284.)
Our conclusion is consistent with the two federal cases involving
Amazon last-mile delivery drivers and the FAA exemption. (Rittmann v.
11
Amazon.com, Inc. (9th Cir. 2020) 971 F.3d 904 (Rittmann); Waithaka, supra,
966 F.3d 10.) In Rittmann, the Ninth Circuit explained that Amazon
packages do not “ ‘come to rest’ at Amazon warehouses, and thus the
interstate transactions do not conclude at those warehouses. The packages
are not held at warehouses for later sales to local retailers; they are simply
part of a process by which a delivery provider transfers the packages to a
different vehicle for the last mile of the packages’ interstate journeys.”
(Rittmann, supra, 971 F.3d at p. 916.) Thus, Rittmann concluded that
Amazon last-mile delivery drivers are “engaged in interstate commerce”
because their “transportation of goods wholly within a state are still a part of
a continuous interstate transportation[.]” (Ibid.) In Waithaka, the First
Circuit similarly concluded that Amazon last-mile delivery workers “who
haul goods on the final legs of interstate journeys” are transportation workers
engaged in interstate commerce “[b]y virtue of their work transporting goods
‘within the flow of interstate commerce[.]’ ” (Waithaka, supra, 966 F.3d at p.
26, quoting Circuit City, supra, 532 U.S. at p. 118.)
In sum, we conclude that plaintiff is exempt from FAA coverage as a
transportation worker engaged in interstate commerce under section 1 of the
FAA.
II. CLASS ACTION WAIVER
Defendant argues that, even if the FAA does not apply, the trial court
erred in finding that the class action waiver was unenforceable under
California law. In Gentry, the California Supreme Court concluded that class
arbitration waivers should not be enforced if a trial court determines, based
on a four-factor test, that class arbitration “would be a significantly more
effective way of vindicating the rights of affected employees than individual
arbitration.” (Gentry, supra, 42 Cal.4th at p. 444.) Defendant argues that
12
the class action waiver is enforceable here because (1) Gentry is no longer
good law; and (2) even if it is still good law, its four factors support
enforcement of the waiver. We address each argument in turn.
A. Gentry
Defendant cites Iskanian v. CLS Transportation Los Angeles, LLC
(2014) 59 Cal.4th 348, 366 for its argument that Gentry is no longer good law.
We disagree. Iskanian concluded only that the Gentry rule is preempted by
the FAA; it did not go further to invalidate Gentry under California law.
(Garrido, supra, 241 Cal.App.4th at p. 837–838.) Given our conclusion that
plaintiff is exempt from the FAA, the Gentry rule remains applicable. (Ibid.)
B. Gentry Factors
Defendant argues next that, even assuming Gentry is still good law, the
trial court erred in its evaluation of the four Gentry factors: (1) the modest
size of the potential individual recovery; (2) the potential for retaliation
against class members; (3) the fact that absent class members may be ill
informed about their rights, and (4) other real world obstacles to the
vindication of class members’ rights. (Gentry, supra, 42 Cal.4th at p. 450.)
We review the trial court’s findings under each factor for substantial
evidence, and its ultimate determination on enforceability of the class action
waiver for abuse of discretion. (Muro v. Cornerstone Staffing Solutions, Inc.
(2018) 20 Cal.App.5th 784, 790 (Muro).)
On the first factor, the trial court relied on an attorney declaration
estimating the potential individual recovery of plaintiff and four putative
class members between $16,376 to $36,512. Attorney declarations presenting
such estimates, and awards as large as $37,000, have been found to satisfy
the first Gentry factor. (Garrido, supra, 241 Cal.App.4th at p. 846; Muro,
supra, 20 Cal.App.5th at p. 793.)
13
On the second factor, the trial court found that the plaintiff and
putative class member declarations showed that they would not have been
willing to bring a lawsuit during their employment because of fear of
retaliation, as they had experienced and witnessed retaliation. Comparable
evidence has been found adequate to satisfy the second Gentry factor.
(Garrido, supra, 241 Cal.App.4th at p. 846 [where plaintiff’s declaration
stated that he would not have been willing to bring a lawsuit during his
employment out of fear of retaliation]; Muro, supra, 20 Cal.App.5th at p. 794
[where plaintiff’s declaration stated that he did not feel realistically able to
bring a lawsuit during his employment for fear he would be fired or retaliated
against].)
On the third factor, the trial court found that the declarations showed
absent class members may be poorly informed of their rights, as plaintiff and
the putative class members attested that they were unaware of their rights
during employment; in addition, they were unable to take breaks but forced
to falsely indicate on their timecards that they had taken breaks. Citing
similar evidence, Garrido concluded that “the trial court could reasonably
infer that absent class members may be ill informed of their rights.”
(Garrido, supra, 241 Cal.App.4th at p. 846.)
Fourth, the trial court found that there were real world obstacles to the
vindication of employee’s rights, as “ ‘the instant case involves precisely the
sort of arbitration agreement with a class action waiver entered as a
condition of employment by low-wage, limited-information employees in
vulnerable, at-will employment environments[.]’ ” (Garrido, supra, 241
Cal.App.4th at p. 847.) While defendant argues that the “opt-out” provision
in section 11 of the Agreement defeats this fourth factor, it cites no authority
for this position. In any event, we do not find the argument persuasive:
14
(1) plaintiff attested he was not provided the opportunity to read, review, or
understand the Agreement, let alone informed that any of the terms were
negotiable; (2) the provision was contained in the severability section, not the
arbitration section, of the Agreement; and (3) the provision only states that
the employee may request revocation of the class action and/or arbitration
clauses.
In sum, the trial court’s determinations on the four Gentry factors were
supported by substantial evidence, and the trial court did not abuse its
discretion in concluding that the class action waiver was unenforceable under
California law, and denying defendant’s motion to dismiss or strike the class
claims. (Muro, supra, 20 Cal.App.5th at p. 790.)
III. SEVERABILITY OF CLASS ACTION WAIVER
Defendant argues that, even if the class action waiver were
unenforceable, the trial court erred in denying its motion to compel
arbitration of plaintiff’s individual claims by finding that the waiver rendered
the entire arbitration agreement unenforceable. We agree. In general, when
an arbitration agreement contains an unenforceable class action waiver, the
class action waiver should be severed so that the rest of the arbitration
agreement may be enforced. (Gentry, supra, 42 Cal.4th at p. 466.) Gentry
explained the reasoning for this general rule: “We believe that severance is
particularly appropriate in the case of class arbitration waivers because,
unlike limitations on remedies or other limitations that are invalid on their
face . . . such waivers will only be invalidated after the proper factual
showing[.]” (Ibid.) Plaintiffs offer no basis to depart from the general rule to
sever the unenforceable class action waiver. On the contrary, as the class
action waiver is contained in a separate section of the Agreement, it can be
severed such that the arbitration provisions are left intact. (Little v. Auto
15
Stiegler, Inc. (2003) 29 Cal.4th 1064, 1075.) We thus conclude that the trial
court should have severed the class action waiver provision from the
remainder of the Agreement.
Upon severing the unenforceable class action waiver, the trial court
should have then determined whether there exists a ground to invalidate the
arbitration agreement, and whether there is any other defense to the motion
to compel arbitration of plaintiff’s individual claims. (Gentry, supra, 42
Cal.4th at p. 466.) These further determinations were required because
plaintiff asserted two claims in his individual capacity: (1) unlawful
retaliation; and (2) wrongful termination. Where an action asserts only class
claims and the motion to compel seeks only individual arbitration, a finding
that the class action waiver is unenforceable—regardless of its severability—
may be dispositive. (E.g., Garrido, supra, 241 Cal.App.4th at p. 847 [denying
motion to compel individual arbitration after finding class action waiver
unenforceable, as neither party indicated an intent or willingness to engage
in class arbitration].) Here, because plaintiff asserted two individual claims,
the enforceability of the severable class action waiver is not dispositive of
defendant’s motion to compel arbitration of these individual claims.
In opposing the motion to compel arbitration of these individual claims,
plaintiff argued that the arbitration agreement was unenforceable because it
was unconscionable. The parties contend that the trial court did not “rule” on
the question of whether or not the agreement was unconscionable. In its
statement of decision, however, the trial court explicitly stated that it had
considered plaintiff’s unconscionability arguments as part of its July 2019
tentative ruling, and adopted the reasoning set forth in that tentative as part
of its statement of decision. Accordingly, we turn next to the issue of
unconscionability.
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IV. UNCONSCIONABILITY
“The general principles of unconscionability are well established.”
(OTO, L.L.C. v. Kho (2019) 8 Cal.5th 111, 125 (OTO).) Unconscionability has
both a procedural and a substantive element. (Ibid.) Procedural
unconscionability “ ‘addresses the circumstances of contract negotiation and
formation, focusing on oppression or surprise due to unequal bargaining
power.’ ” (Ibid.) “ ‘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.) Both elements must be proven, but are
evaluated on a sliding scale: “the more substantively oppressive the contract
term, the less evidence of procedural unconscionability is required to come to
the conclusion that the term is unenforceable, and vice versa.” (Armendariz
v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, 114
(Armendariz).)
“On appeal from the denial of a motion to compel arbitration,
‘[u]nconscionability findings are reviewed de novo if they are based on
declarations that raise “no meaningful factual disputes.” ’ ” (Lhotka v.
Geographic Expeditions, Inc. (2010) 181 Cal.App.4th 816, 820.) “ ‘However,
where an unconscionability determination “is based upon the trial court’s
resolution of conflicts in the evidence, or on the factual inferences which may
be drawn therefrom, we consider the evidence in the light most favorable to
the court’s determination and review those aspects of the determination for
substantial evidence.” ’ ” (Id. at pp. 820–821.)
A. Procedural Unconscionability
Procedural unconscionability “begins with an inquiry into whether the
contract is one of adhesion.” (Armendariz, supra, 24 Cal.4th at p. 113.) “An
adhesive contract is standardized, generally on a preprinted form, and offered
17
by the party with superior bargaining power ‘on a take-it-or-leave-it basis.’ ”
(OTO, supra, 8 Cal.5th at p. 126.) “The pertinent question, then, is whether
circumstances of the contract’s formation created such oppression or surprise
that closer scrutiny of its overall fairness is required.” (Ibid.) Oppression
occurs “ ‘where a contract involves lack of negotiation and meaningful
choice’ ” and surprise involves the extent to which “ ‘the allegedly
unconscionable provision is hidden within a prolix printed form.’ ” (Ibid.)
“Arbitration contracts imposed as a condition of employment are typically
adhesive,” and thus we must be “ ‘particularly attuned’ ” to the danger of
oppression and overreaching in this context. (Id. at pp. 126–127.)
Here, the Agreement is a form contract with spaces for the employee’s
name, initials, and signature. In his declaration, plaintiff attested that the
agreement was presented to him “as a condition of [his] employment” along
with a stack of other new hire documents, and that he was “unaware” that
the Agreement included an arbitration provision. He further attested that he
was “not provided with an opportunity to read, review, or understand” the
Agreement, and was never informed that “any terms could be negotiated.”
We thus conclude that there was sufficient evidence to support the trial
court’s findings that the arbitration agreement was a contract of adhesion
involving some level of oppression, and at least a small degree surprise.
Defendant’s argument to the contrary is not persuasive. Defendant
relies on the same argument it made on the class action waiver: that the
arbitration agreement is not procedurally unconscionable because there is an
“opt-out” provision in section 11 of the Agreement. We reject this argument
for the same reasons described above.
18
B. Substantive Unconscionability
Substantive unconscionability arises when a contract imposes unduly
harsh or one-sided results. (Armendariz, supra, 24 Cal.4th at p. 114.) “In
assessing substantive unconscionability, the paramount consideration is
mutuality.” (Abramson v. Juniper Networks, Inc. (2004) 115 Cal.App.4th 638,
664.) Here, the trial court found that the Agreement provides for mutuality
as “[a]ny controversy, dispute or claim between the employee and the
Company, or its officers, agents or other employees, shall be settled by
binding arbitration, at the request of either party.” We conclude that there
was substantial evidence to support the trial court’s finding.
Beyond mutuality, “courts often look to whether the agreement meets a
minimum level of fairness based on the factors set forth in Armendariz.”
(Davis v. Kozak (2020) 53 Cal.App.5th 897, 910.) These factors include
whether the arbitration agreement: “ ‘(1) provides for neutral arbitrators,
(2) provides for more than minimal discovery, (3) requires a written award,
(4) provides for all of the types of relief that would otherwise be available in
court, and (5) does not require employees to pay either unreasonable costs or
any arbitrators’ fees or expenses as a condition of access to the arbitration
forum.’ ” (Armendariz, supra, 24 Cal.4th at p. 102.)
Here, the trial court found that the first, second, fourth, and fifth
Armendariz factors were met. As to the first factor, the Agreement requires
mutual agreement for selection of an arbitrator, and sets forth a process to
exchange lists and alternatively strike names if the parties cannot agree. As
to the second factor, the Agreement provides that both parties are entitled to
conduct “reasonable discovery,” including depositions, requests for document,
and requests for interrogatories. As to the fourth factor, the arbitrator is
permitted to award remedies in law or equity, as “requested by the parties
19
and allowed by law.” As to the fifth factor, the Agreement provides that
defendant will pay for the arbitrator, as well as “other incidental costs of
arbitration that would not be incurred in a court proceeding[.]” Hence, there
was substantial evidence to support the trial court’s findings on these factors.
(Armendariz, supra, 24 Cal.4th at p. 102.)
As to the third factor, the trial court found it problematic that the
arbitrator’s decision “cannot be reviewed for error of law or legal
reasoning of any kind.” As Armendariz explained: “ ‘[A]lthough judicial
scrutiny of arbitration awards necessarily is limited, such review is sufficient
to ensure that arbitrators comply with the requirements of the statute’ at
issue.” (Armendariz, supra, 24 Cal.4th at p. 106, quoting Shearson/American
Express Inc. v. McMahon (1987) 482 U.S. 220, 232.) Moreover, “judicial
review may be appropriate when ‘granting finality to an arbitrator’s decision
would be inconsistent with the protection of a party’s statutory rights.’ ”
(Ibid., quoting Moncharsh v. Heily & Blase (1992) 3 Cal.4th 1, 32.) We
conclude that there was also substantial evidence to support the trial court’s
finding on this third factor. (Armendariz, supra, 24 Cal.4th at p. 102.)
C. Severability of Provision Regarding Judicial Review
Despite its finding on the third Armendariz factor, the trial court
ultimately concluded that the Agreement was not unconscionable as a whole
because the provision regarding judicial review could be severed.
When unconscionability is shown, the trial court has discretion to
“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).) We review the trial court’s decision to sever the
provision for abuse of discretion. (Armendariz, supra, 24 Cal.4th at p. 124.)
20
In Armendariz, the California Supreme Court explained that the trial
court’s discretion to refuse to enforce an entire agreement based on
unconscionability is reserved for instances when the agreement is
“permeated” by unconscionability. (Armendariz, supra, 24 Cal.4th at p. 122.)
Here, the trial court found no other unconscionable provisions in the
Agreement. We thus conclude that the trial court did not abuse its discretion
in severing the provision prohibiting review of legal error. 3
V. SECTION 229 DEFENSE
Defendant argues that, as the arbitration agreement is not
unconscionable, there are no other grounds to deny its motion to compel
arbitration of plaintiff’s individual claims. Specifically, defendant argues:
“There is no dispute that California law permits Betancourt’s individual
claims for retaliation and wrongful termination to be subject to arbitration,
as Section 229 is inapplicable to those claims.” Section 229 provides:
“Actions to enforce the provisions of this article for the collection of due and
unpaid wages claimed by an individual may be maintained without regard to
the existence of any private agreement to arbitrate.” This exemption from
arbitration is analyzed on a claim-by-claim basis. (Lane v. Francis Capital
Management LLC (2014) 224 Cal.App.4th 676, 684 [directing trial court to
At oral argument, plaintiffs argued that the trial court’s findings on
3
unconscionability, coupled with “Gentry unconscionability,” could have
afforded it with discretion to refuse to enforce the agreement as
unconscionable. Plaintiffs took a contrary position in their brief, however,
accusing defendant of improperly confusing the unconscionability test with
the Gentry factors. We agree that the test on unconscionability of a contract
or a contract term is separate from the Gentry test on enforceability of a class
action waiver. (Arguelles-Romero v. Superior Court (2010) 184 Cal.App.4th
825, 836–837 [explaining that “the Supreme Court has established two
separate tests which should be considered separately”].)
21
stay proceedings on one cause of action as exempt under section 229 and
compel remaining causes of action to arbitration].)
We agree that plaintiff has not asserted the section 229 defense for
either of his two individual claims. Instead, plaintiff argues that the section
229 defense applies to his first cause of action for failure to provide meal and
rest periods, because he seeks “30 minutes of time they worked during their
meal break.” This first cause of action, however, is asserted as a class claim.
As defendant only moved to compel plaintiff’s individual claims, not his class
claims, we need not address this section 229 defense.
DISPOSITION
The order on defendant’s motion is reversed, as to that portion denying
the motion to compel arbitration of plaintiff’s individual claims for unlawful
retaliation and wrongful termination. The order is otherwise affirmed.
On remand, the trial court must sever the class action waiver and
determine whether to order arbitration of plaintiff’s individual claims for
unlawful retaliation and wrongful termination pursuant to Code of Civil
Procedure section 1281.2. 4
4 At oral argument, defendant requested that we (1) order arbitration of
plaintiff’s claims for unlawful retaliation, wrongful termination, and violation
of the UCL; and (2) instruct the court to stay non-arbitrable claims pending
the outcome of arbitration. Both parties also requested, for the first time on
appeal, that we provide some instruction to the trial court that classwide
arbitration is not permitted because defendant’s motion to compel only
sought arbitration of plaintiff’s individual claims, and the parties did not
agree to classwide arbitration.
We reject these requests. As to plaintiff’s UCL claim, it was asserted as
a class claim and thus is not covered by defendant’s motion to compel
arbitration of plaintiff’s individual claims. As to plaintiff’s unlawful
retaliation and wrongful termination claims, we reject the request to order
arbitration to preserve the trial court’s discretion to determine whether to
22
order arbitration of those two claims under Code of Civil Procedure section
1281.2. As to the instruction against classwide arbitration, we reject the
request as unnecessary because defendant only moved to compel arbitration
of plaintiff’s individual claims.
23
_________________________
Petrou, J.
WE CONCUR:
_________________________
Fujisaki, Acting P.J.
_________________________
Jackson, J.
Betancourt et al., v. Transportation Brokerage Specialists, Inc./A159528
24
Trial Court: Marin County Superior Court
Trial Judge: Hon. Stephen P. Freccero
Counsel: Hersh & Hersh, Mark E. Burton for Plaintiff and
Respondent.
Roxborough, Pomerance, Nye & Adreani, Drew E.
Pomerance and Trevor R. Witt for Defendant and
Appellant.
25