Filed 2/26/16
CERTIFIED FOR PUBLICATION
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
FOURTH APPELLATE DISTRICT
DIVISION THREE
MARTHA CARBAJAL,
Plaintiff and Respondent, G050438
v. (Super. Ct. No. 30-2013-00675702)
CWPSC, INC., OPINION
Defendant and Appellant.
Appeal from an order of the Superior Court of Orange County, Kim Garlin
Dunning, Judge. Affirmed.
Ogletree, Deakins, Nash, Smoak & Stewart, Rafael G. Nendel-Flores and
Seth E. Ort for Defendant and Appellant.
Trush Law Office, James M. Trush; Perona, Langer, Beck, Serbin,
Mendoza & Harrison, Ellen R. Serbin, Todd H. Harrison and Brennan S. Kahn for
Plaintiff and Respondent.
* * *
Defendant and appellant CWPSC, Inc. (CW Painting) appeals the trial
court’s order denying its motion to compel its former employee, plaintiff and respondent
Martha Carbajal, to arbitrate her wage and hour claims under the arbitration provision in
her employment agreement. The trial court denied the motion because it found the
arbitration provision was both procedurally and substantively unconscionable. We agree
with the trial court.
The arbitration provision is procedurally unconscionable because it is part
of an adhesion contract CW Painting imposed on Carbajal as a term of her employment.
Moreover, although the arbitration provision required the parties to arbitrate their
disputes under the American Arbitration Association’s (AAA) rules, the provision did not
identify which of AAA’s many different rules would apply, CW Painting failed to
provide Carbajal with a copy of the rules it believed applied, and CW Painting required
Carbajal to sign the agreement without telling her where she could find the governing
rules or giving her an opportunity to determine which rules would apply.
The arbitration provision is substantively unconscionable because it allows
CW Painting to obtain injunctive relief in court while requiring Carbajal to seek relief
through arbitration, it waives the statutory requirement that CW Painting post a bond or
undertaking to obtain injunctive relief, and it effectively waives Carbajal’s statutory right
to recover her attorney fees if she prevails on her Labor Code claims.
Contrary to CW Painting’s contention, the trial court was not required to
sever these unconscionable terms and enforce the remainder of the arbitration provision.
A trial court has discretion to deny enforcement of an arbitration agreement when the
existence of multiple unconscionable terms permeates the entire agreement. The record
supports the trial court’s exercise of its discretion.
Finally, we reject CW Painting’s contention the Federal Arbitration Act
(9 U.S.C. § 1 et seq.; FAA) governs. The party asserting the FAA bears the burden to
show it applies by presenting evidence establishing the contract with the arbitration
2
provision has a substantial relationship to interstate commerce, but CW Painting failed to
timely present such evidence.
I
FACTS AND PROCEDURAL HISTORY
CW Painting provides residential painting services for homeowners. It
hires college students as “interns” to sell its services and manage its painting crews. In
November 2011, Carbajal was a student at the University of California, San Diego when
CW Painting made an on-campus solicitation for new interns. After the presentation,
CW Painting accepted her into its internship program. During her interview,
CW Painting asked Carbajal to sign the “2012 Season Employment Agreement – CWP
Intern” (Agreement), but no one explained its provisions to her.
Under the heading “LET’S TALK IT OUT,” the Agreement included an
arbitration provision that required Carbajal and CW Painting “to submit any and all
disputes to final and binding arbitration in accordance with the rules of the [AAA].” The
arbitration provision had a class action waiver that required Carbajal to arbitrate any
claims she asserted on an individual basis, and prohibited the arbitrator from “enter[ing]
an award or otherwise provid[ing] relief on a class, collective or representative basis.”
The same paragraph also provided that Carbajal and CW Painting “specifically retain a
right to appeal in a court of competent jurisdiction any determination or award of an
arbitrator made in contravention of this section, including without limitation, a
determination (i) that a claim may proceed as a class, collective, or representative action;
or (ii) that awards relief on a class, collective, or representative basis. In such appeal, the
standard of review to be applied to the arbitrator’s decision shall be the same as that
applied by an appellate court reviewing a decision of a trial court sitting without a jury.”
The arbitration provision further provided, “The costs of arbitration will be
shared equally by [Carbajal] and [CW Painting]; however, if the law expressly requires
3
[CW Painting], as the employer, [to] bear the entire cost of arbitration then
[CW Painting] will then pay the entire cost.” Finally, the provision required Carbajal and
CW Painting to be “responsible for your own attorneys’ fees.”
The Agreement also required Carbajal to keep CW Painting’s trade secrets
and other information confidential and required her to use that information exclusively
for CW Painting’s benefit. If Carbajal breached these obligations, the Agreement
included a liquidated damages provision that required her to “pay to [CW Painting],
immediately upon demand, the sum of ten thousand dollars ($10,000.00) per breach.”
The Agreement further provided that Carbajal “agrees that, in addition to the foregoing
remedy, if [Carbajal] breaches any of [the confidentiality or exclusive use provisions,
CW Painting] will have the right to obtain an injunction from a court of competent
jurisdiction restraining such breach or threatened breach and a right to specific
performance of any such provision of this Agreement. [Carbajal] further agrees that no
bond or other security shall be required in obtaining such equitable relief.”
(Capitalization omitted.)
After attending an orientation and two-day training seminar, Carbajal began
working for CW Painting in February 2012. In May 2012, CW Painting informed
Carbajal it was missing some of her employment documents, including page two of the
Agreement, which contained the arbitration, liquidated damages, and injunctive relief
provisions described above. CW Painting e-mailed the documents to Carbajal, who
signed and returned them to CW Painting as instructed.
Carbajal quit in August 2012, and filed this class action against
CW Painting approximately a year later. The operative first amended complaint alleges
the following clams on behalf of all similarly situated interns: (1) recovery of unpaid
wages; (2) failure to provide meal periods; (3) failure to provide paid rest periods;
(4) illegal deductions from wages; (5) failure to provide accurate itemized wage
statements; (6) failure to compensate for business expenses; (7) failure to timely pay
4
wages upon separation; (8) “declaratory relief – fraud in inducement, void and
unenforceable agreement”; and (9) unfair business practices. (Capitalization omitted.)
CW Painting asked Carbajal to submit her claims to arbitration on an
individual basis as the Agreement required, but Carbajal refused and sent CW Painting a
notice purporting to rescind the Agreement because CW Painting had never signed it.
Based on Carbajal’s refusal, CW Painting filed a motion to compel her to arbitrate her
claims on an individual basis. CW Painting argued the Agreement was enforceable and
governed by the FAA, which preempts all California statutes and case law invalidating
class action waivers or otherwise limiting the enforceability of the parties’ arbitration
agreement.
Carbajal opposed the motion, arguing (1) no enforceable arbitration
agreement existed because CW Painting never signed the Agreement; (2) the FAA does
not apply because CW Painting failed to present any evidence showing the Agreement
involved interstate commerce; (3) Labor Code section 229 invalidates any private
agreement to arbitrate Labor Code claims for unpaid wages; and (4) the Agreement’s
arbitration provision is procedurally and substantively unconscionable. CW Painting
filed a reply brief arguing the FAA applied because Carbajal’s duties bore a substantial
relationship to interstate commerce. In support, CW Painting submitted new declarations
from one of its officers and a supplier stating many of the materials CW Painting used in
its painting business were shipped from other states.
The trial court denied the motion. In its order, the court simply stated the
motion was denied “on the basis that the court finds that the subject Employment
Agreement is procedurally and substantively unconscionable.” Neither party requested a
statement of decision, and the trial court provided no further explanation of its ruling.
This appeal followed.
5
II
DISCUSSION
A. Standard of Review
“‘Unconscionability is ultimately a question of law for the court.’
[Citations.] ‘However, numerous factual issues may bear on that question. [Citation.]
Where the trial court’s determination of unconscionability 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.’
[Citation.] If there are no material conflicts in the evidence bearing on the issue of
unconscionability, our review is de novo.” (The McCaffrey Group, Inc. v. Superior Court
(2014) 224 Cal.App.4th 1330, 1347 (McCaffrey); see Serafin v. Balco Properties Ltd.,
LLC (2015) 235 Cal.App.4th 165, 178 (Serafin).)
When a trial court denies a motion to compel arbitration, a party may
request the court to provide a statement of decision explaining the factual and legal basis
for its decision. (Code Civ. Proc., § 1291; Acquire II, Ltd. v. Colton Real Estate Group
(2013) 213 Cal.App.4th 959, 970 (Acquire II); Metis Development LLC v. Bohacek
(2011) 200 Cal.App.4th 679, 687 [“the Legislature intended to require the trial court to
issue a statement of decision, upon proper request under [Code of Civil Procedure]
section 632, when denying a petition to compel arbitration”].) No statement of decision
is required if the parties fail to request one. (Acquire II, at p. 970.)
“A party’s failure to request a statement of decision when one is available
has two consequences. First, the party waives any objection to the trial court’s failure to
make all findings necessary to support its decision. Second, the appellate court applies
the doctrine of implied findings and presumes the trial court made all necessary findings
supported by substantial evidence. [Citations.] This doctrine ‘is a natural and logical
6
corollary to three fundamental principles of appellate review: (1) a judgment is presumed
correct; (2) all intendments and presumptions are indulged in favor of correctness; and
(3) the appellant bears the burden of providing an adequate record affirmatively proving
error.’” (Acquire II, supra, 213 Cal.App.4th at p. 970.) Here, neither CW Painting nor
Carbajal requested a statement of decision.
Moreover, “[e]ven if the record demonstrates that the trial court
misunderstood or misapplied the law, the ruling must be affirmed if it is supported by any
legal theory. [Citation.] ‘Because we review the correctness of the order and not the
court’s reasons, we will not consider the court’s oral comments or use them to undermine
the order ultimately entered.’ [Citation.] If the decision itself is correct, there can be no
prejudicial error from incorrect logic or reasoning.” (Hoover v. American Income Life
Ins. Co. (2012) 206 Cal.App.4th 1193, 1201 (Hoover).)
B. CW Painting Failed to Establish the FAA Applies
As a threshold matter, CW Painting contends the FAA governs the
Agreement and the motion to compel arbitration. We disagree.
The FAA “‘“is a congressional declaration of a liberal federal policy
favoring arbitration agreements, notwithstanding any state substantive or procedural
policies to the contrary. . . .” . . . “[I]n enacting [the FAA], Congress declared a national
policy favoring arbitration and withdrew the power of the states to require a judicial
forum for the resolution of claims which the contracting parties agreed to resolve by
arbitration.”’” (Malone v. Superior Court (2014) 226 Cal.App.4th 1551, 1565, quoting
Perry v. Thomas (1987) 482 U.S. 483, 489.)
“The ‘principal purpose’ of the FAA is to ‘ensur[e] that private arbitration
agreements are enforced according to their terms.’” (AT&T Mobility LLC v. Concepcion
(2011) 563 U.S. 333, 344.) When it applies, the FAA preempts any state law rule that
“‘stands as an obstacle to the accomplishment of the FAA’s objectives.’” (Iskanian v.
7
CLS Transportation Los Angeles, LLC (2014) 59 Cal.4th 348, 384, quoting AT&T
Mobility, at p. 343.)
The FAA applies to any “contract evidencing a transaction involving
commerce” that contains an arbitration provision. (9 U.S.C. § 2; Khalatian v. Prime
Time Shuttle, Inc. (2015) 237 Cal.App.4th 651, 657.) “[T]he phrase ‘“involving
commerce”’ in the FAA is the functional equivalent of the term ‘“affecting commerce,”’
which is a term of art that ordinarily signals the broadest permissible exercise of
Congress’s commerce clause power.” (Shepard v. Edward Mackay Enterprises, Inc.
(2007) 148 Cal.App.4th 1092, 1097 (Shepard), citing Citizens Bank v. Alafabco, Inc.
(2003) 539 U.S. 52, 55.) Accordingly, “although Congress’s power to regulate
commerce is broad, it does have limits. . . . [A] relatively trivial impact on interstate
commerce cannot be used as an excuse for broad regulation of state or private activities.”
(Shepard, at p. 1099.)
Applying these principles, the United States Supreme Court has identified
“three categories of activity that Congress may regulate under the commerce power:
(1) the channels of interstate commerce, (2) the instrumentalities of interstate commerce
and persons or things in interstate commerce, and (3) those activities having a substantial
relation to interstate commerce.” (Shepard, supra, 148 Cal.App.4th at p. 1098, citing
United States v. Lopez (1995) 514 U.S. 549, 558-559.)
The party asserting FAA preemption bears the burden to present evidence
establishing a contract with the arbitration provision affects one of these three categories
of activity, and failure to do so renders the FAA inapplicable. (Lane v. Francis Capital
Management LLC (2014) 224 Cal.App.4th 676, 687 (Lane); Hoover, supra,
206 Cal.App.4th at p. 1207; Woolls v. Superior Court (2005) 127 Cal.App.4th 197, 211
(Woolls); cf. Shepard, supra, 148 Cal.App.4th at p. 1101.)
For example, in Lane, an employee brought a wage and hour lawsuit and
the defendant employer moved to compel arbitration under an arbitration agreement the
8
employee signed when she was hired. The employee opposed the motion, arguing Labor
Code section 229 prevented enforcement of any agreement requiring an employee to
arbitrate Labor Code wage and hour claims.1 In response, the employer asserted the FAA
preempted Labor Code section 229. (Lane, supra, 224 Cal.App.4th at pp. 680-682.) The
Lane court rejected the employer’s FAA preemption argument, explaining the employer
failed to establish the contract affected interstate commerce because the employer failed
to submit any declarations or other evidence showing the nature of the employer’s
business or the scope of the employee’s work. (Lane, at p. 688; see Woolls, supra,
127 Cal.App.4th at pp. 213-214 [FAA did not apply because party asserting preemption
failed to “present[] any facts to show the instant transaction involved interstate
commerce”]; Hoover, supra, 206 Cal.App.4th at pp. 1207-1208 [same]; cf. Shepard,
supra, 148 Cal.App.4th at pp. 1100-1101 [FAA applied because party asserting
preemption presented evidence showing materials involved in transaction were shipped
from other states].)
Here, CW Painting claimed the FAA applied, but it presented no evidence
to establish any connection to interstate commerce. Indeed, CW Painting presented
nothing about the nature of its business or Carbajal’s work that showed any connection
with interstate commerce. Carbajal’s complaint shows she worked for CW Painting in
California serving California customers. Accordingly, CW Painting failed to meet its
burden to show the FAA applied.
CW Painting contends it had no burden to produce any evidence
establishing an interstate commerce connection because Carbajal’s opposition established
that connection by admitting she made frequent phone calls to customers and used a
facsimile machine to return the second copy of the Agreement she signed in May 2012.
1 Labor Code section 229 states, “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.”
9
According to CW Painting, telephones are instruments of interstate commerce and
establish the requisite connection with interstate commerce. To support this contention
CW Painting cites two U.S. District Court cases, Makarowski v. AT & T Mobility, LLC
(C.D.Cal. 2009) 2009 WL 1765661 (Makarowski), and Maye v. Smith Barney Inc.
(S.D.N.Y. 1995) 897 F.Supp. 100 (Maye). We find this argument and these two
nonprecedential cases unpersuasive.
In Makarowski, a customer sued her cell phone provider alleging a variety
of consumer claims and the provider moved to compel arbitration based on an arbitration
provision in the customer’s contract. (Makarowski, supra, 2009 WL 1765661, *1.) In an
unpublished decision, the District Court found the FAA applied and granted the motion.
Without analysis, the court concluded the telephone services the defendant provided
involved interstate commerce because “‘telephones, even when used intrastate, are
instrumentalities of interstate commerce.’” (Makarowski, at p. *3.)
Makarowski is readily distinguishable. The contract at issue in that case
had a substantial relationship to interstate commerce because it involved using a channel
or instrumentality of interstate commerce (the phone lines) to provide a service (cellular
telephone service). In contrast, the Agreement does not have a substantial relationship to
interstate commerce because its subject matter (residential painting services) does not
involve a channel or instrumentality of interstate commerce and CW Painting failed to
present evidence establishing any other substantial relationship to interstate commerce.
Carbajal’s intrastate use of a telephone to speak with some customers is at most a trivial
connection to interstate commerce, especially where there is no other relationship
between the Agreement and interstate commerce. (See Shepard, supra, 148 Cal.App.4th
at pp. 1098-1099.)
Maye likewise is readily distinguishable. There, an assistant purchasing
agent sued his employer, Smith Barney, for illegal discrimination. The District Court
granted the employer’s motion to compel arbitration based on the employee’s arbitration
10
agreement. (Maye, supra, 897 F.Supp. at pp. 102-104.) The court concluded the FAA
applied because the employer presented evidence showing the employee’s duties
included using the mail, telephones, and other instrumentalities of interstate commerce to
receive and place orders across state lines. (Maye, at p. 105.) Here, there is no evidence
showing Carbajal had any contact or involvement with anyone in another state.
As further support for the argument using phone lines, even intrastate,
establishes the requisite connection to interstate commerce, CW Painting points to federal
wire fraud statutes that make it a federal crime to use phone lines to commit certain
frauds. This argument misses the point. Those federal statutes have the necessary
connection to interstate commerce because they regulate a channel or instrumentality of
interstate commerce by making it a crime to use the phone lines to commit certain frauds.
In contrast, the FAA does not per se regulate channels or instrumentalities of interstate
commerce but rather has the requisite connection to interstate commerce when the subject
matter of a contract containing an arbitration agreement either involves a channel or
instrumentality of interstate commerce or otherwise has a substantial relationship to
interstate commerce. The evidence here does not show painting a house involves a
channel or instrumentality of interstate commerce, and simply using phone lines intrastate
to follow up with customers is not a substantial relationship to interstate commerce.
CW Painting also contends it met its burden to show the FAA applied
because it presented evidence with its reply brief showing many of the supplies Carbajal
used to market and perform residential painting services were purchased and shipped
from other states. “The general rule of motion practice, which applies here, is that new
evidence is not permitted with reply papers. . . . ‘[T]he inclusion of additional
evidentiary matter with the reply should only be allowed in the exceptional case . . .’ and
if permitted, the other party should be given the opportunity to respond.” (Jay v.
Mahaffey (2013) 218 Cal.App.4th 1522, 1537-1538.) Whether to accept new evidence
with the reply papers is vested in the trial court’s sound discretion, and we may reverse
11
the trial court’s decision only for a clear abuse of that discretion. (Alliant Ins. Services,
Inc. v. Gaddy (2008) 159 Cal.App.4th 1292, 1308; see Jay, at p. 1538.)
Carbajal objected to the new evidence on this ground, and we presume the
trial court sustained that objection because the court did not continue the hearing to allow
Carbajal to respond and neither party requested a statement of decision. (See Acquire II,
supra, 213 Cal.App.4th at p. 970 [appellate court must presume trial court made all
findings necessary to support its decision when parties fail to request statement of
decision].) CW Painting nonetheless contends it properly submitted the new evidence
with the reply because Carbajal did not challenge the FAA’s applicability until her
opposition to the motion to compel. Not so. CW Painting’s moving papers argued the
FAA applied, and therefore it was required to present evidence to support its claim. The
new evidence was not simply evidence responding to a new issue Carbajal raised; rather,
it was evidence on an issue CW Painting raised, but failed to establish, in its moving
papers.2
We conclude CW Painting did not meet its burden to show the FAA
applied, and therefore its arguments the FAA preempts California statutes or case law
lack merit.
2 Along the same lines, CW Painting contends it was not required to present
evidence with its moving papers to show the FAA applied because Carbajal’s declaratory
relief cause of action regarding the Agreement’s enforceability did not put the FAA’s
applicability at issue. In support, CW Painting cites cases holding a party moving for
summary judgment need only present evidence on the issues framed by the pleadings.
(See, e.g., Laabs v. City of Victorville (2008) 163 Cal.App.4th 1242, 1258 & fn. 7.)
These cases are irrelevant. We are not presented with a summary judgment motion
challenging whether a plaintiff can establish his or her causes of action. Instead, we are
presented with a motion to compel Carbajal to submit her claims to contractual
arbitration.
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C. The Trial Court Properly Found the Arbitration Agreement to be Unconscionable
1. The Unconscionability Doctrine
“‘Unconscionability is a judicially created doctrine, which the Legislature
codified in 1979.’” (Nyulassy v. Lockheed Martin Corp. (2004) 120 Cal.App.4th 1267,
1280.) Civil Code section 1670.5 provides, “If the court as a matter of law finds the
contract or any clause of the contract to have been unconscionable at the time it was
made the court may refuse to enforce the contract, or it may enforce the remainder of the
contract without the unconscionable clause, or it may so limit the application of any
unconscionable clause as to avoid any unconscionable result.” (Civ. Code, § 1670.5,
subd. (a).) The doctrine applies to arbitration agreements, even those governed by the
FAA. (Sanchez v. Valencia Holding Co., LLC (2015) 61 Cal.4th 899, 912 (Sanchez);
Peng v. First Republic Bank (2013) 219 Cal.App.4th 1462, 1469 (Peng).)
“Unconscionability has procedural and substantive aspects. [Citation.]
‘Both procedural and substantive unconscionability must be present before a court can
refuse to enforce an arbitration provision based on unconscionability. However, the two
elements need not be present in the same degree.’ [Citation.] Courts use a ‘“sliding
scale”’ approach in assessing the two elements. [Citation.] ‘In other words, the more
substantively oppressive the contract term, the less evidence of procedural
unconscionability is required to come to the conclusion that the term is unenforceable,
and vice versa.’” (Abramson v. Juniper Networks, Inc. (2004) 115 Cal.App.4th 638,
655-656 (Abramson); see Serafin, supra, 235 Cal.App.4th at p. 178; Serpa v. California
Surety Investigations, Inc. (2013) 215 Cal.App.4th 695, 702-703 (Serpa).)
This sliding scale approach “requires a court to examine the totality of the
agreement’s substantive terms as well as the circumstances of its formation to determine
whether the overall bargain was unreasonably one-sided.” (Sonic-Calabasas A, Inc. v.
Moreno (2013) 57 Cal.4th 1109, 1146 (Sonic).) “The ultimate issue in every case is
whether the terms of the contract are sufficiently unfair, in view of all relevant
13
circumstances, that a court should withhold enforcement.” (Sanchez, supra, 61 Cal.4th at
p. 912.)
2. Procedural Unconscionability
Carbajal contends the Agreement’s arbitration provision is procedurally
unconscionable because it is an adhesion contract that fails to identify which of AAA’s
many different rules govern the arbitration. Carbajal also asserts CW Painting failed to
provide her with a copy of the governing rules or give her an opportunity to review any
rules before requiring her to sign the Agreement. We agree these factors make the
Agreement unconscionable.
Procedural unconscionability “addresses the circumstances of contract
negotiation and formation, focusing on oppression or surprise due to unequal bargaining
power.” (Pinnacle Museum Tower Assn. v. Pinnacle Market Development (US), LLC
(2012) 55 Cal.4th 223, 246 (Pinnacle Museum Tower).) “‘“‘“Oppression arises from an
inequality of bargaining power which results in no real negotiation and an absence of
meaningful choice. . . . Surprise involves the extent to which the terms of the bargain are
hidden in a ‘prolix printed form’ drafted by a party in a superior bargaining position.”’”’”
(Serpa, supra, 215 Cal.App.4th at p. 703.) “[P]rocedural unconscionability requires
either oppression or surprise.” (McCaffrey, supra, 224 Cal.App.4th at p. 1349, italics
omitted; see Abramson, supra, 115 Cal.App.4th at p. 663.) Both are not required.
“It is well settled that adhesion contracts in the employment context, that is,
those contracts offered to employees on a take-it-or-leave-it basis, typically contain some
aspects of procedural unconscionability.” (Serpa, supra, 215 Cal.App.4th at p. 704;
see Sanchez, supra, 61 Cal.4th at p. 915 [“the adhesive nature of the contract is sufficient
to establish some degree of procedural unconscionability”].) As the Supreme Court
repeatedly has explained, “in the case of preemployment arbitration contracts, the
economic pressure exerted by employers on all but the most sought-after employees may
14
be particularly acute, for the arbitration agreement stands between the employee and
necessary employment, and few employees are in a position to refuse a job because of an
arbitration requirement.” (Armendariz v. Foundation Health Psychcare Services, Inc.
(2000) 24 Cal.4th 83, 115 (Armendariz); Little v. Auto Stiegler, Inc. (2003) 29 Cal.4th
1064, 1071; see Sanchez, supra, 61 Cal.4th at p. 919.)
The Agreement and its arbitration provision therefore contain at least some
degree of procedural unconscionability because it is undisputed the Agreement is an
adhesion contract in the employment context. CW Painting was an employer with
superior bargaining power and the arbitration provision is part of a standardized,
preprinted form CW Painting requires all of its interns to sign. Carbajal had to sign the
Agreement if she wanted to work for CW Painting. Indeed, after she had started
working, Carbajal received a phone call from CW Painting informing her some of the
paperwork required for her to continue working was missing, including page two of the
Agreement (which includes the arbitration provision), and she must sign and return a new
copy. To establish procedural unconscionability, Carbajal was not required to show she
attempted to negotiate the terms of the Agreement because the imbalance of bargaining
power is apparent from the relationship between the parties. CW Painting was an
employer and Carbajal was one of many college students seeking a job with
CW Painting; she was not a highly sought-after employee. (See Sanchez, supra,
61 Cal.4th at p. 914 [“in the context of consumer contracts, we have never required, as a
prerequisite to finding procedural unconscionability, that the complaining party show it
tried to negotiate standardized contract provisions”].)
By itself, CW Painting’s Agreement and arbitration provision establish only
a modest degree of procedural unconscionability. (Serpa, supra, 215 Cal.App.4th at
p. 704 [“When . . . there is no other indication of oppression or surprise, ‘the degree of
procedural unconscionability of an adhesion agreement is low’”].) The Agreement’s
procedural unconscionability, however, rises to a moderate level because the Agreement
15
requires Carbajal to arbitrate her claims “in accordance with the rules of the [AAA]”
without identifying which of AAA’s nearly 100 different sets of active rules will apply.
Before requiring Carbajal to sign the Agreement, CW Painting did not provide Carbajal a
copy of the rules it thought would govern, tell her where she could find a copy of the
rules, offer to explain the arbitration provision, or give her an opportunity to review any
rules.3 Moreover, when Carbajal deposed CW Painting’s person most knowledgeable
about the Agreement and its arbitration provision, the designated person could not
identify which set of AAA rules applied even when he was provided with a list of AAA’s
active and archived rules.
“‘Numerous cases have held that the failure to provide a copy of the
arbitration rules to which the employee would be bound, supported a finding of
procedural unconscionability.’” (Samaniego v. Empire Today, LLC (2012)
205 Cal.App.4th 1138, 1146 (Samaniego); Trivedi v. Curexo Technology Corp. (2010)
189 Cal.App.4th 387, 393-394 (Trivedi); see Carlson v. Home Team Pest Defense, Inc.
3 The evidence is conflicting and ambiguous on whether CW Painting
required Carbajal to sign the Agreement during her interview or she merely chose to do
so. CW Painting’s Vice President Derek Jorgensen declared he interviewed Carbajal on
November 21, 2011, reviewed the Agreement and its arbitration provision with her, and
gave her the option to sign and return the Agreement later, but she chose to sign the
Agreement during the interview. Jorgensen, however, testified at his deposition that he
did not specifically recall interviewing Carbajal. Carbajal declared a woman named
Tiffany interviewed her, not Jorgensen, because he was interviewing another student at
the time. Carbajal asserted no one explained the Agreement’s arbitration provision to her
before requiring her to sign it.
We must resolve all conflicts in the evidence and draw every reasonable inference
to support the trial court’s ruling. (McCaffrey, supra, 224 Cal.App.4th at p. 1347.)
Because neither side requested a statement of decision, we also must presume the court
made all necessary findings supported by substantial evidence. (Acquire II, supra,
213 Cal.App.4th at p. 970.) We therefore presume the trial court found CW Painting
required Carbajal to sign the Agreement at the time of her interview without explaining it
to her or giving her the opportunity to identify and review the governing AAA rules.
16
(2015) 239 Cal.App.4th 619, 631-633 (Carlson); Carmona v Lincoln Millennium Car
Wash, Inc. (2014) 226 Cal.App.4th 74, 84-85 (Carmona); Zullo v. Superior Court (2011)
197 Cal.App.4th 477, 485-486 (Zullo).) As each of these cases explained, the failure to
provide a copy of the governing rules “contributes to oppression because the employee
‘is forced to go to another source to find out the full import of what he or she is about to
sign and must go to that effort prior to signing.’” (See, e.g., Carmona, at p. 84.) The
level of oppression is increased when, as here, the employer not only fails to provide a
copy of the governing rules, but also fails to clearly identify which rules will govern so
the employee could locate and review them. (See Zullo, at p. 486, fn. 3 [“oppressive
nature of the agreement” increased because AAA rules identified in arbitration agreement
did not exist]; Carlson, at p. 633 [“the failure to disclose the terms of arbitration and the
applicable rules also constitute surprise”].)
CW Painting contends “recent California Court of Appeal opinions have
rejected the notion that a failure to attach the AAA rules creates procedural
unconscionability.” (See Lane, supra, 224 Cal.App.4th at pp. 691-692; Peng, supra,
219 Cal.App.4th at p. 1472; Bigler v. Harker School (2013) 213 Cal.App.4th 727, 737
(Bigler).) CW Painting overstates the holding of these opinions, and they nonetheless are
distinguishable.
In Lane, the Court of Appeal concluded the failure to attach a copy of the
governing AAA rules did not render the arbitration agreement procedurally
unconscionable because the rules were available on the Internet, the employee was a
sophisticated business person with the capacity to locate the rules, and the arbitration
agreement “clearly specified a particular set of AAA rules” without modifying them.
(Lane, supra, 224 Cal.App.4th at pp. 691-692.) None of those factors are present here.
Although AAA’s rules are available online, Carbajal could not access them before
signing the Agreement because she was not given time to do so and CW Painting did not
“clearly specif[y]” which set of rules governed. Regardless, it is patently unreasonable
17
for CW Painting to claim Carbajal could have obtained the applicable rules from AAA
when CW Painting’s person most knowledgeable about the Agreement and arbitration
provision could not identify which set of AAA rules applied. Moreover, Carbajal was a
college student, not a sophisticated business person.
Similarly, in Peng, the Court of Appeal concluded “the failure to attach the
AAA rules, standing alone, [was an] insufficient ground[] to support a finding of
procedural unconscionability” because the employee opposing arbitration did not
“identify any feature of the AAA rules that [would] prevent fair and full arbitration.”
(Peng, supra, 219 Cal.App.4th at p. 1472, italics added.) Here, CW Painting’s failure to
provide a copy or even identify the governing rules is not the sole basis for finding the
agreement to be procedurally unconscionable; it is merely one factor contributing to that
conclusion. Moreover, the employer in Peng gave the employee 25 days to review the
arbitration agreement, but CW Painting had Carbajal sign the Agreement during her
interview. Neither Peng nor CW Painting explains how requiring an employee to sign an
arbitration agreement without disclosing all of its terms does not amount to both
oppression and surprise.
Finally, contrary to CW Painting’s contention, Bigler supports the
conclusion that CW Painting’s failure to provide a copy or otherwise identify the
governing AAA rules contributed to the Agreement’s procedural unconscionability. In
Bigler, the Court of Appeal acknowledged the failure to provide a copy of the governing
AAA rules was a factor contributing to procedural unconscionability, but concluded it
was “of minor significance to our analysis” because the contract at issue was not an
adhesion contract and the plaintiff seeking to avoid arbitration could have negotiated the
arbitration provision. (Bigler, supra, 213 Cal.App.4th at p. 737.) Those facts are not
present here.
CW Painting contends its failure to specify which set of AAA’s rules would
apply does not render the arbitration provision procedurally unconscionable because
18
AAA’s “Employment Arbitration Rules and Mediation Procedures” clarify any
ambiguity by stating they govern all employment disputes unless the parties’ arbitration
agreement specifies another set of rules. We disagree. The question is not whether the
Agreement’s arbitration provision is ambiguous. Rather, the question is whether the
failure to provide a copy of or otherwise designate the governing rules amounts to
surprise or oppression so as to create some degree of procedural unconscionability.
The two cases CW Painting cites to support its contention are readily
distinguishable. These cases relied on similar provisions in other alternative dispute rules
to resolve conflicts over which version of a particular set of rules applied, for example,
the 2000 or the 2002 version of the same rules. Neither case was called upon to
determine whether the underlying arbitration provision was procedurally unconscionable
for failing to designate the governing rules. (See Evans v. Centerstone Development Co.
(2005) 134 Cal.App.4th 151, 158; Lucas v. Gund, Inc. (2006) 450 F.Supp.2d 1125,
1131-1132.) To support its theory, CW Painting would have had to identify the
Employment Arbitration Rules and Mediation Procedures as the governing rules at some
point, but CW Painting’s person most knowledge conceded even he did not know which
AAA rules applied under the Agreement’s arbitration provision.
Accordingly, we conclude the Agreement has a moderate level of
procedural unconscionability based on its adhesive nature, the employment context in
which it arose, its failure to identify the governing AAA rules, and CW Painting’s failure
to provide Carbajal with a copy of the governing rules or the opportunity to review any
rules before she was required to sign the Agreement. (Cf. Serafin, supra,
235 Cal.App.4th at pp. 179-181 [adhesive arbitration provision in employment agreement
gave rise to only minimal degree of procedural unconscionability because agreement
identified governing AAA rules and informed employee where to obtain copy].)
19
3. Substantive Unconscionability
Carbajal contends the Agreement is substantively unconscionable because
it (1) allows CW Painting to seek injunctive relief in court while limiting her relief to
arbitration; (2) allows CW Painting to obtain injunctive relief without posting a bond or
other security; (3) waives her statutory right to recover attorney fees if she prevails on her
Labor Code claims; and (4) provides CW Painting a unilateral right to appeal any relief
or determination an arbitrator makes in contravention of the Agreement’s class action
waiver. We agree the first three of these characteristics renders the Agreement’s
arbitration provision substantively unconscionable.
“The substantive element of unconscionability ‘pertains to the fairness of
an agreement’s actual terms and to assessments of whether they are overly harsh or
one-sided.’ [Citation.] This includes consideration of the extent to which the disputed
term is outside the reasonable expectation of the nondrafting party or is unduly
oppressive.” (McCaffrey, supra, 224 Cal.App.4th at pp. 1349-1350; see Zullo, supra,
197 Cal.App.4th at p. 484 [“A contractual term is substantively suspect if, viewed at the
time the contract was formed, it allocates the risks in an unreasonable or unexpected
manner”]; Serpa, supra, 215 Cal.App.4th at p. 703.)
“It has long been recognized that substantive unconscionability is not
susceptible to ‘precise definition’” (Sonic, supra, 57 Cal.4th at p. 1163), and therefore our
courts have used a wide variety of expressions to describe contractual provisions that are
substantively unconscionable, including “‘“‘“overly harsh”’” [citation], “‘unduly
oppressive’” [citation], “‘so one-sided as to “shock the conscience”’” [citation], or
“unfairly one-sided” [citation]’” (Sanchez, supra, 61 Cal.4th at pp. 910-911). Our
Supreme Court recently clarified that “these formulations . . . all mean the same thing.”
(Id. at p. 911.) The essential notion they each capture is “‘that unconscionability requires
a substantial degree of unfairness beyond “a simple old-fashioned bad bargain.”’” (Ibid.,
italics omitted; see Sonic, at p. 1145 [“the unconscionability doctrine is concerned not
20
with ‘a simple old-fashioned bad bargain’ [citation], but with terms that are
‘unreasonably favorable to the more powerful party’”].)
A contractual provision is not substantively unconscionable simply because
it provides one side a greater benefit. The party with the greater bargaining power is
permitted to require contractual provisions that provide it with additional protections if
there is a legitimate commercial need for those protections, but the stronger party may
not require additional protections merely to maximize its advantage over the weaker
party. (Sanchez, supra, 61 Cal.4th at pp. 911-912; Armendariz, supra, 24 Cal.4th at
pp. 117-118; see Carmona, supra, 226 Cal.App.4th at pp. 85-86.) “As has been
recognized ‘“unconscionability turns not only on a ‘one-sided’ result, but also on an
absence of ‘justification’ for it.”’” (Armendariz, at pp. 117-118; see Carmona, at p. 86.)
“Given the disadvantages that may exist for plaintiffs arbitrating disputes, it
is unfairly one-sided for an employer with superior bargaining power to impose
arbitration on the employee as plaintiff but not to accept such limitations when it seeks to
prosecute a claim against the employee, without at least some reasonable justification for
such one-sidedness based on ‘business realities.’ . . . If the arbitration system established
by the employer is indeed fair, then the employer as well as the employee should be
willing to submit claims to arbitration. Without reasonable justification for this lack of
mutuality, arbitration appears less as a forum for neutral dispute resolution and more as a
means of maximizing employer advantage.” (Armendariz, supra, 24 Cal.4th at
pp. 117-118; see Carmona, supra, 226 Cal.App.4th at p. 86.)
Applying these standards, courts repeatedly have found an
employer-imposed arbitration agreement to be substantively unconscionable when it
requires the employee to arbitrate the claims he or she is mostly likely to bring, but
allows the employer to go to court to pursue the claims it is most likely to bring.
(Carlson, supra, 239 Cal.App.4th at p. 634; Serafin, supra, 235 Cal.App.4th at p. 181;
Carmona, supra, 226 Cal.App.4th at p. 87.)
21
For example, in Trivedi, the employer-imposed arbitration provision
required both the employee and the employer to submit all claims between them to
arbitration, but included a carve-out provision that allowed either party to seek injunctive
relief in court. Although on its face the provision applied to both the employer and the
employee, the Trivedi court found it to be substantively unconscionable because its effect
was to exclude from arbitration only claims the employer was likely to bring. As the
Court of Appeal explained, “it is far more likely” the employer will seek injunctive relief
in court to stop an employee from breaching a nondisclosure or noncompetition
agreement than the employee will seek injunctive relief in aid of his or her claims for
wrongful termination, illegal discrimination, or unpaid wages. (Trivedi, supra,
189 Cal.App.4th at pp. 396-397; see Carlson, 239 Cal.App.4th at pp. 634-635 [arbitration
agreement substantively unconscionable because it included carve-out provision allowing
employer to seek injunctive and other equitable relief in court]; Samaniego, supra,
205 Cal.App.4th at pp. 1147-1148 [same]; Martinez v. Master Protection Corp. (2004)
118 Cal.App.4th at p. 115 [same]; Abramson, supra, 115 Cal.App.4th at p. 665 [same];
Mercuro v. Superior Court (2002) 96 Cal.App.4th 167, 176 [same].)
Here, the Agreement is substantively unconscionable on its face because it
requires Carbajal to arbitrate “any and all disputes” she has with CW Painting, but it
authorizes CW Painting to “obtain an injunction from a court of competent jurisdiction”
to restrain Carbajal from breaching the Agreement’s nondisclosure and exclusive use
provisions. CW Painting offers no justification for this blatantly one-sided provision.4
4 Carbajal contends the same paragraph of the Agreement that contains the
injunctive relief carve-out also includes carve-outs allowing CW Painting to recover
liquidated damages and seek specific performance in court. We do not read the
paragraph that broadly. Although the paragraph authorizes CW Painting to recover
liquidated damages if Carbajal breaches her nondisclosure and exclusive use obligations,
and also allows CW Painting to seek specific performance of those same provisions, the
paragraph does not state it may seek those remedies in court. In contrast, the paragraph
22
(See Zullo, supra, 197 Cal.App.4th at p. 487 [“If an employer does have reasonable
justification for a one-sided arrangement, the lack of mutuality would not be
unconscionable. But without such justification, ‘we must assume that it is’”].)
Rather than justify the injunctive relief carve-out provision, CW Painting
contends the arbitrator must decide whether Carbajal’s objection has merit, not the court
on a motion to compel arbitration. According to CW Painting, Carbajal’s objection
challenges the enforceability of the Agreement as a whole because the injunctive relief
carve-out is set forth in a separate section of the Agreement apart from the arbitration
provision. (See Phillips v. Sprint PCS (2012) 209 Cal.App.4th 758, 774.) We are not
persuaded. Carbajal does not dispute or challenge CW Painting’s right to seek injunctive
relief to stop an actual or threatened breach of the Agreement’s nondisclosure or
exclusive use provisions. Instead, Carbajal contends the carve-out provision allowing
CW Painting to seek that relief in court while she is required to seek all relief from an
arbitrator is substantively unconscionable. The foregoing authorities support that
contention.
CW Painting also contends the injunctive relief carve-out is not
substantively unconscionable because it does not provide CW Painting with any rights
beyond those already granted to both CW Painting and Carbajal by the California
Arbitration Act (Code Civ. Proc., § 1280 et seq.). According to CW Painting, Code of
Civil Procedure section 1281.8 allows it to seek injunctive relief from a court “both
before and while arbitration is pending,” and therefore the carve-out provision grants
CW Painting no new rights. (Italics omitted.) The injunctive relief carve-out provision,
however, allows CW Painting to seek broader relief in court than the cited code section.
Code of Civil Procedure section 1281.8, subdivision (b), only authorizes a party to an
states CW Painting “will have the right to obtain an injunction from a court of competent
jurisdiction.” (Italics added.)
23
arbitration agreement to seek a preliminary injunction or other provisional remedy “upon
the ground that the award to which the applicant may be entitled may be rendered
ineffectual without provisional relief.” In contrast, the injunctive relief carve-out broadly
authorizes CW Painting to seek any type of injunctive relief in court, including a
permanent injunction.
The injunctive relief carve-out provision creates further substantive
unconscionability because it waives the requirement that CW Painting post a bond to
obtain an injunction or other equitable relief. Although a bond is not required to obtain a
permanent injunction following a judgment on the merits (Shahen v. Superior Court
(1941) 46 Cal.App.2d 187, 189), Code of Civil Procedure section 529 requires a party
seeking a preliminary injunction to post a bond or other undertaking to cover any
damages the enjoined party may suffer if it later is determined the injunction was
erroneously granted (ABBA Rubber Co. v. Seaquist (1991) 235 Cal.App.3d 1, 10). “[A
preliminary] injunction does not become effective until an undertaking is required and
furnished.” (Ibid.) An arbitration provision lacks mutuality and is substantively
unconscionable when it authorizes the stronger party to obtain injunctive relief without
establishing all of the essential elements for the issuance of an injunction. (See Carmona,
supra, 226 Cal.App.4th at p. 89 [arbitration provision was substantively unconscionable
because it allowed employer to obtain injunctive relief without establishing irreparable
harm].)
The Agreement’s arbitration provision also is substantively unconscionable
because it requires the parties to bear their own attorney fees, but many of Carbajal’s
statutory wage claims would entitle her to recover her attorney fees if she prevails.
(See Lab. Code, §§ 218.5, subd. (a) [attorney fees recoverable in successful action for
nonpayment of wages]; 226, subd. (e) [attorney fees recoverable in successful action for
failure to provide itemized wage statement]; 1194, subd. (a) [attorney fees recoverable in
successful action for minimum and overtime wages]; 2802 [attorney fees recoverable in
24
successful indemnity action for reimburse of business expenses].) At a minimum,
Carbajal would be entitled to recover her attorney fees if she prevailed on her first cause
of action for unpaid wages, fourth cause of action for illegal deductions from wages, fifth
cause of action for failure to provide accurate itemized wage statements, and sixth cause
of action for failure to compensate for business expenses. (See Kirby v. Immoos Fire
Protection, Inc. (2012) 53 Cal.4th 1244, 1248 [Lab. Code §§ 218.5 & 1194 do not
authorize employees to recover attorney fees on claims for failure to provide meal and
rest periods].)
Several courts have held an arbitration provision is substantively
unconscionable when it purports to deprive an employee of his or her statutory right to
recovery attorney fees if the employee prevails on a Labor Code claim for unpaid wages
and other benefits, or on a discrimination claim under the Fair Employment and Housing
Act (Gov. Code, § 12940 et seq.; FEHA). (Ajamian v. CantorCO2e, L.P. (2012)
203 Cal.App.4th 771, 799-800 (Ajamian) [arbitration provision substantively
unconscionable because it stripped employee of right to recover attorney fees on
Lab. Code claims and potentially required employee to pay employer’s attorney fees];
Serafin, supra, 235 Cal.App.4th at pp. 183-184 [arbitration provision substantively
unconscionable because it required employer and employee to bear own attorney fees and
thereby denied employee statutory right to recover attorney fees if she prevailed on
FEHA claims]; Serpa, supra, 215 Cal.App.4th at pp. 709-710 [same]; see also Wherry v.
Award, Inc. (2011) 192 Cal.App.4th 1242, 1249; Trivedi, supra, 189 Cal.App.4th at
pp. 394-395.)
CW Painting contends this provision on attorney fees is not substantively
unconscionable because the Agreement’s arbitration provision also provides, “The
arbitrators will be entitled to award all types of relief that would otherwise be available to
the parties in a court proceeding under State or Federal law.” According to CW Painting,
the rules of contractual interpretation require us to read these two provisions together so
25
as to require each party to be responsible for their own attorney fees unless a statute
otherwise allows the prevailing party to recover its attorney fees. (See Civ. Code,
§§ 1643, 3541.) We disagree and find this proffered interpretation to be contrary to the
parties’ intent as expressed in the arbitration provision’s clear and unambiguous
language. (See Boston LLC v. Juarez (2015) 240 Cal.App.4th Supp. 28, 34 [“‘[i]f
contractual language is clear and explicit, it governs’”].)
The arbitration provision’s plain language requires the parties to be
responsible for their own attorney fees without any exceptions. Nothing in the
provision’s language suggestions the parties intended to limit or qualify this provision by
also granting the arbitrators broad authority to award all types of relief authorized by law.
“[W]hen there are conflicting clauses the more specific clause controls the more general.”
(Rebolledo v. Tilly’s, Inc. (2014) 228 Cal.App.4th 900, 920.) CW Painting may not avoid
the consequences of its deliberate choice to limit its employees’ statutory right to attorney
fees by advancing an interpretation contrary to the plain language of the arbitration
agreement it drafted. Indeed, other courts have rejected similar arguments seeking to
avoid the conclusion that an arbitration provision that alters a party’s statutory right to
attorney fees is substantively unconscionable. (Serpa, supra, 215 Cal.App.4th at
pp. 709-710 [rejecting contention arbitration provision was not substantively
unconscionable because arbitrator could reject plain language of term requiring parties to
bear their own attorney fees and instead award fees consistent with FEHA]; Trivedi,
supra, 189 Cal.App.4th at pp. 395-396 [rejecting contention that arbitration provision
was not substantively unconscionable because AAA rules allowed arbitrator to award
attorney fees consistent with applicable law despite contrary term in arbitration
provision].)
To support its contention to the contrary, CW Painting cites an unpublished
U.S. District Court case that fails to address any of the foregoing California state court
decisions. (Fouts v. Milgard Mfg. (N.D.Cal. 2012) 2012 WL 1438817, *4.) Instead, the
26
Fouts court cites a single California case for the following proposition: “A provision that
both sides bear the cost of their own attorney’s fees ‘merely restates the “American rule”
of general applicability’ and ‘t[akes] nothing away from’ either party.” (Ibid., quoting
Woodside Homes of Cal., Inc. v. Superior Court (2003) 107 Cal.App.4th 723, 731.)
Woodside, however, did not involve a party with a statutory right to recover attorney fees,
and therefore it does not support the Fouts court’s conclusion that a provision requiring
the parties to bear their own attorney fees did not substantively harm a party who had a
statutory right to attorney fees. We decline to follow Fouts.5
Carbajal contends the Agreement’s arbitration provision also is
substantively unconscionable because it grants CW Painting a unilateral right to appeal if
the arbitrator awards class relief in contravention of the provision’s class action waiver.
CW Painting responds the appeal term is not unconscionable because it grants both
Carbajal and CW Painting the right to appeal any ruling or decision the arbitrator makes
in contravention of the arbitration provision’s terms. We need not resolve this dispute
5 CW Painting also cites Pinnacle Museum Tower, claiming it stands for the
proposition that “[a] provision stating that each side would bear their own attorney fees
and costs [was] not unconscionable w[h]ere [an] agreement also provided that the
arbitrator ‘is authorized to provide all recognized remedies available at law or in equity
for any cause of action.’” CW Painting overstates the holding. Pinnacle Museum Tower
was a construction defect action by a homeowners association against a developer.
(Pinnacle Museum Tower, supra, 55 Cal.4th at pp. 231-233.) The governing CC&R’s
included an arbitration provision that required each side to “‘bear its own attorney’s fees
and costs (including expert witness costs) in the arbitration.’” The association claimed
this provision was substantively unconscionable because it prevented the association
from recovering the full measure of its damages by forcing it to bear its own expert
witness costs. The Supreme Court rejected this argument, explaining this provision
simply addressed costs by requiring each side to bear its own expert witness costs in the
arbitration. It did not prevent the association from recovering expert fees it incurred to
investigate the construction defects and that would be recoverable as damages under the
governing law. (Id. at p. 249.) Pinnacle Museum Tower in inapplicable because it did
not involve the impact of an attorney fee provision on a statutory right to recover attorney
fees as a prevailing party.
27
because the appeal term does not render the arbitration provision substantively
unconscionable even if we adopt Carbajal’s interpretation.
Under Carbajal’s interpretation the term simply grants CW Painting a right
it already has. Code of Civil Procedure section 1286.2 requires a court to vacate an
arbitration award if the court determines the arbitrator exceeded his or her powers and the
award cannot be corrected without affecting the merits of the decision. An arbitrator
exceeds his or her powers when granting a remedy expressly forbidden by the parties’
arbitration agreement. (O’Flaherty v. Belgum (2004) 115 Cal.App.4th 1044, 1055-1056,
1061 [trial court erred in failing to vacate arbitration award that ordered defaulting
partners in a partnership dispute to forfeit their capital accounts when partnership
agreement prohibited such relief].) Here, the arbitration provision states, “the arbitrator
shall have no authority or jurisdiction to enter an award or otherwise provide relief on a
class, collective or representative basis.” If the arbitrator awarded any form of class
relief, CW Painting would be entitled to challenge the award in court and have it set aside
regardless of whether the Agreement’s arbitration provision included the appeal term
Carbajal challenges. The appeal term therefore does not increase the arbitration
provision’s substantive unconscionability.
Based on the injunctive relief carve-out provision, the waiver of the
injunction bond requirement, and the waiver of Carbajal’s statutory right to recover
attorney fees on her Labor Code claims, we conclude the Agreement’s arbitration
provision presents a moderate level of substantive unconscionability. When that
substantive unconscionability is combined with the moderate level of procedural
unconscionability discussed above, the Agreement’s arbitration provision is
unenforceable. (See Trivedi, supra, 189 Cal.App.4th at pp. 392-397 [arbitration
provision unenforceable based on procedural unconscionability arising from adhesive
nature of agreement as mandatory part of employment relationship and employer’s
failure to provide copy of governing AAA rules, and substantive unconscionability
28
arising from provisions authorizing only employer to seek injunctive relief in court and
limiting employee’s statutory right to recover attorney fees].)
D. The Trial Court Did Not Abuse Its Discretion in Declining to Sever the
Unconscionable Provisions
CW Painting contends the trial court erred by refusing to sever the terms it
found to be substantively unconscionable. According to CW Painting, the court should
have enforced the Agreement’s arbitration provision after severing any unconscionable
terms. We disagree.
Under Civil Code section 1670.5, subdivision (a), a trial court has
discretion to “‘refuse to enforce the contract as a whole if it is permeated by the
unconscionability, or it may strike any single clause or group of clauses which are so
tainted or which are contrary to the essential purpose of the agreement, or it may simply
limit unconscionable clauses so as to avoid unconscionable results.’” (Armendariz,
supra, 24 Cal.4th at p. 122; see Carlson, supra, 239 Cal.App.4th at p. 639.)
“‘An employment arbitration agreement can be considered permeated by
unconscionability if it “contains more than one unlawful provision. . . . Such multiple
defects indicate a systematic effort to impose arbitration on an employee not simply as an
alternative to litigation, but as an inferior forum that works to the employer’s
advantage.”’” (Ajamian, supra, 203 Cal.App.4th at p. 803; see Carlson, supra,
239 Cal.App.4th at p. 639.) “‘“The overarching inquiry is whether ‘“the interests of
justice . . . would be furthered”’ by severance.”’” (Carlson, at p. 639; Carmona, supra,
226 Cal.App.4th at p. 90.)
Here, the Agreement contains three substantively unconscionable terms:
the injunctive relief carve-out, the waiver of the injunction bond requirement, and the
waiver of Carbajal’s statutory right to recover attorney fees on her Labor Code claims.
These provisions support the finding the Agreement’s arbitration provision was
permeated with unconscionability, and therefore we conclude the trial court did not abuse
29
its discretion by refusing to sever these terms and enforce the remainder of the arbitration
provision. (See, e.g., Armendariz, supra, 24 Cal.4th at p. 124 [no abuse of discretion in
refusing to sever where two aspects of arbitration agreement were substantively
unconscionable]; Trivedi, supra, 189 Cal.App.4th at pp. 397-398 [same].) In Trivedi, the
Court of Appeal reached the same conclusion based on substantively unconscionable
terms that were virtually identical to those present here. (Trivedi, at pp. 397-398 [trial
court did not abuse discretion in refusing to sever arbitration agreement’s substantively
unconscionable terms that allowed only employer to seek injunctive relief in court and
limited employee’s statutory right to recover attorney fees on Lab. Code wage and hour
claims].)
Because we affirm the trial court’s ruling based on unconscionability, we
do not address Carbajal’s additional contentions that Labor Code section 229 precludes
arbitration of her Labor Code claims, and CW Painting cannot enforce the Agreement
because CW Painting never signed it.
III
DISPOSITION
The order is affirmed. Carbajal shall recover her costs on appeal.
ARONSON, J.
WE CONCUR:
BEDSWORTH, ACTING P. J.
IKOLA, J.
30