Magno v. The College Network CA4/1

Filed 6/14/16 Magno v. The College Network CA4/1
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for
publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication
or ordered published for purposes of rule 8.1115.

COURT OF APPEAL, FOURTH APPELLATE DISTRICT

DIVISION ONE

STATE OF CALIFORNIA

BERNADETTE MAGNO et al., D067687

Plaintiffs and Respondents,

v. (Super. Ct. No. 37-2014-00003057-
CU-FR-CTL)
THE COLLEGE NETWORK, INC.,

Defendant and Appellant.

APPEAL from an order of the Superior Court of San Diego County, Joel M.

Pressman, Judge. Affirmed.

Reich Radcliffe & Hoover, Adam T. Hoover and Richard J. Radcliffe, for

Defendant and Appellant.

Law Offices of Hannah J. Bingham and Hannah J. Bingham; Scott A. Savary for

Plaintiffs and Respondents.

The College Network, Inc. (TCN) appeals from an order denying its motion to

compel arbitration of a consumer fraud and breach of contract action brought by
Plaintiffs Bernadette Magno, Rosanna Garcia, and Sheree Rudio. TCN argues the

arbitration provision in Plaintiffs' purchase agreements is valid and enforceable and

contends the trial court erred when it ruled the provision unconscionable. Alternatively,

TCN argues that if the forum selection clause is unconscionable, the court abused its

discretion in voiding the arbitration provision altogether rather than severing the

objectionable provisions and enforcing the remainder. We conclude the trial court

correctly determined the arbitration provision to be procedurally and substantively

unconscionable and did not abuse its discretion in voiding it in its entirety.

FACTUAL AND PROCEDURAL BACKGROUND

TCN is an Indiana-based company with customers nationwide. In 2012, TCN's

California sales representative visited Plaintiffs' homes in San Diego County to

encourage them to enroll in TCN's distance-learning partnership with Indiana State

University (ISU) and California State University (CSU). Plaintiffs, all California

residents, were Licensed Vocational Nurses (LVNs) who sought to become Registered

Nurses (RNs) in California. TCN's representative told Plaintiffs they could complete

much of their necessary coursework for a B.S. degree in nursing online through ISU's

distance-learning program and complete their clinical training through CSU. TCN's

representative told Plaintiffs the program would allow them to obtain B.S. degrees in

nursing from ISU and qualify to take the RN examination offered by the California Board

of Registered Nursing.

The program involved three phases. First, Plaintiffs would satisfy their general

education and prerequisite requirements through TCN online to qualify for admission

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into ISU's LVN to B.S. in nursing program. Next, Plaintiffs would apply for admission at

ISU. Thereafter, Plaintiffs would complete their course requirements online through ISU

and complete their clinical training through CSU.

Plaintiffs executed purchase agreements with TCN. Each purchase agreement was

a two-sided, 11 x 14 carbon paper form. On the front side of the form, TCN's sales

representative inserted information in the blank spaces provided for each Plaintiff's name,

contact information, date, and purchase price. By executing the purchase agreements,

Plaintiffs acknowledged having read, understood, and agreed to the terms on both sides

of the agreement. The back side of the purchase agreement contained several preprinted

terms. One of the terms was an arbitration provision, which stated:

"GOVERNING LAW AND DISPUTE RESOLUTION

"Any and all disputes, claims or controversies (Claims) arising from,
out of, or relating to this Agreement, or the relationships between
Buyer and TCN which result from this Agreement, or the breach,
termination, enforcement, interpretation or validity thereof, shall be
determined, confidentially, by binding arbitration in Marion County,
Indiana, before one neutral arbitrator selected by TCN, and with the
consent of Buyer (and no other person), which consent shall not be
unreasonably withheld; provided, however, that either party may
assert an action in small claims court. Any arbitration or small
claims action (including any appeal if allowed) shall be conducted
between Buyer and TCN only (and only in Buyer's individual
capacity), and shall not resolve, seek to resolve, nor purport to
resolve any disputes, claims, or controversies of any person other
than Buyer and TCN. This agreement to arbitrate shall not preclude
either Buyer or TCN from seeking provisional remedies in aid of
arbitration from a court of appropriate jurisdiction.

"This Agreement shall, notwithstanding any conflicts of laws, be
governed by the laws of Buyer's state of residence when executed by
Buyer, and any applicable federal laws; provided, however, Buyer
and TCN agree and understand that their decision and agreement to

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 arbitrate shall be governed by the Federal Arbitration Act, 9 U.S.C.
§ 1 et seq. The arbitration proceeding may be conducted
telephonically or videographically. Any demand for arbitration must
be served on the other party (and any small claims action must be
filed) within one year of the date any Claims accrue. TCN shall
notify Buyer of the arbitrator selected (for Buyer's consent) within
30 days. The arbitrator will adhere to the terms of this arbitration
agreement. If TCN and Buyer do not agree otherwise, the rules for
the conduct of the arbitration shall be determined by the arbitrator.
Judgment may be entered on the award in any court having
jurisdiction.

"Buyer shall be required to advance no more than $250 for the
arbitration filing fee and arbitrator's fee. However, the arbitrator
may, in the award, allocate, and order reimbursement of all or part of
the costs of arbitration, including fees of the arbitrator and the
reasonable attorneys' fees to the prevailing party."

In their first year of study, Plaintiffs learned they would not be eligible for formal

admission into ISU. Plaintiffs requested refunds from TCN, but TCN refused to provide

them.

Plaintiffs sued TCN in February 2014, seeking equitable and monetary relief.

Plaintiffs' Second Amended Complaint, filed in October 2014, asserted statutory claims

under the Consumer Legal Remedies Act (Civ. Code, §§ 1750 et seq.) and Unfair

Competition Law (Bus. & Prof. Code, §§ 17200 et seq.) and common law

misrepresentation and breach of contract claims. Plaintiffs alleged that in 2012,

following an investigation into the clinical component of the program at CSU, ISU had

suspended enrollment into its LVN to B.S. in nursing program. Plaintiffs alleged TCN

and other defendants concealed this information and misrepresented that enrolling in the

program would enable Plaintiffs to qualify for entrance into ISU's nursing program.

Plaintiffs alleged each of them had paid program deposits and loan payments based on

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these representations. Plaintiffs requested compensatory damages and injunctive,

declaratory, and equitable relief.

In December 2014, TCN moved to compel arbitration. Plaintiffs opposed TCN's

motion, arguing the arbitration provision in the purchase agreement was unconscionable

and therefore unenforceable. Each Plaintiff submitted a declaration describing the

circumstances of TCN's sales pitch and contract execution. TCN did not submit any

evidence, but it filed objections to certain representations in Plaintiffs' declarations.

The trial court issued a tentative ruling prior to the hearing, granting TCN's motion

to compel arbitration. However, on December 31, 2014, following oral argument, the

court denied TCN's motion to compel, overruling most of TCN's evidentiary objections

and finding the arbitration provision procedurally and substantively unconscionable.

TCN timely appealed.

DISCUSSION

TCN challenges the denial of its motion to compel arbitration. As we explain, we

conclude the trial court properly found the arbitration provision in TCN's purchase

agreement to be procedurally and substantively unconscionable, and therefore

unenforceable.

I.

Standard of Review

"Absent conflicting extrinsic evidence, the validity of an arbitration clause,

including whether it is subject to revocation as unconscionable, is a question of law

subject to de novo review." (Serpa v. California Surety Investigations, Inc. (2013) 215

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Cal.App.4th 695, 701-702.) " '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." ' " (Lhotka v. Geographic Expeditions, Inc. (2010) 181

Cal.App.4th 816, 820-821 (Lhotka); see Gutierrez v. Autowest, Inc. (2003) 114

Cal.App.4th 77, 89 (Gutierrez).) We review the trial court's ruling on severance of an

unconscionable provision for abuse of discretion. (Lhotka, at p. 821; Armendariz v.

Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, 122 (Armendariz).)

"In keeping with California's strong public policy in favor of arbitration, any doubts

regarding the validity of an arbitration agreement are resolved in favor of arbitration."

(Lhotka, supra, at p. 821.)

II.

Unconscionability

In signing the purchase agreements with TCN, Plaintiffs agreed to submit "[a]ny

and all disputes, claims, or controversies" to binding arbitration governed by the Federal

Arbitration Act (FAA). The FAA reflects a " 'liberal federal policy favoring

arbitration,' " and the " 'fundamental principle that arbitration is a matter of contract.' "

(AT&T Mobility LLC v. Concepcion (2011) 563 U.S. 333, 339 (Concepcion).) California

courts favor arbitration "as a voluntary means of resolving disputes, and this

voluntariness has been its bedrock justification." (Armendariz, supra, 24 Cal.4th at

p. 115.) As a result, arbitration agreements are valid, irrevocable, and enforceable except

6
on grounds that exist for revocation of contracts more generally, such as fraud, duress, or

unconscionability. (Concepcion, supra, at p. 339; 9 U.S.C. § 2; Code Civ. Proc., § 1281;

Sanchez v. Valencia Holding Co. (2015) 61 Cal.4th 899, 912-913 (Valencia); Sonic-

Calabasas A., Inc. v. Moreno (2013) 57 Cal.4th 1109, 1142 (Sonic II).)1 Courts must

consider whether an agreement was "unconscionable at the time it was made." (Civ.

Code, § 1670.5, subd. (a); Valencia, supra, at p. 920.) Because unconscionability is a

contract defense, the party asserting it bears the burden of proof. (Valencia, supra, at

p. 911.)

Unconscionability consists of both procedural and substantive elements.

(Pinnacle Museum Tower Assn. v. Pinnacle Market Development (US), LLC (2012) 55

Cal.4th 223, 246 (Pinnacle).) 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 present for a court to refuse to enforce an

arbitration agreement. (Valencia, supra, 61 Cal.4th at p. 910.) However, the elements do

1 In Concepcion, the United States Supreme Court disapproved of California
authority holding class action waivers in consumer form contracts per se unconscionable.
As Concepcion explained, even if a state law applies evenly to all contracts, the FAA
preempts the law if, as applied, it interferes with the fundamental attributes of arbitration
such as lower costs, greater efficiency, and speed. (Concepcion, supra, 563 U.S. at
pp. 344, 348, 352.) Following Concepcion, the California Supreme Court reaffirmed that
unconscionability remains a potentially viable defense to a motion to compel arbitration.
(Sonic II, supra, 57 Cal.4th at pp. 1142-1143, 1145; Valencia, supra, 61 Cal.4th at p.
912.)
7
not need to be present in the same degree and are evaluated on a " 'sliding scale.' " (Ibid.)

" '[T]he more substantively oppressive the contract term, the less evidence of procedural

unconscionability is required to come to the conclusion that the term is unenforceable,

and vice versa.' " (Ibid.) "The ultimate issue in every case is whether the terms of the

contract are sufficiently unfair, in view of all relevant circumstances, that a court should

withhold enforcement." (Id. at p. 912.)2

A. Procedural Unconscionability

Procedural unconscionability pertains to the making of the agreement and requires

oppression or surprise. (Pinnacle, supra, 55 Cal.4th at p. 247; Ajamian v. CantorCO2e,

L.P. (2012) 203 Cal.App.4th 771, 795 (Ajamian).) " ' " 'Oppression occurs where a

contract involves lack of negotiation and meaningful choice, surprise where the allegedly

unconscionable provision is hidden within a prolix printed form.' " ' " (Pinnacle, supra,

at p. 247.) " '[T]here are degrees of procedural unconscionability. At one end of the

spectrum are contracts that have been freely negotiated by roughly equal parties, in which

there is no procedural unconscionability. . . . Contracts of adhesion that involve surprise

2 At the outset, we reject TCN's argument that the trial judge denied TCN's motion
to compel arbitration because he was biased against arbitration. TCN argues the court's
tentative ruling granting TCN's motion to compel suggests its later ruling was motivated
by bias. Certainly, the court's rejection of its earlier tentative ruling after oral argument
does not demonstrate bias. "A tentative ruling is just that, tentative." (Guzman v. Visalia
Community Bank (1999) 71 Cal.App.4th 1370, 1378.) "[A] trial court's tentative ruling is
not binding on the court; the court's final order supersedes the tentative ruling."
(Silverado Modjeska Recreation and Parks Dist. v. County of Orange (2011) 197
Cal.App.4th 282, 300.) There is nothing in the record to suggest the ruling was
motivated by bias. At oral argument, the court recognized the parties' right to contract for
arbitration and took the matter under submission to weigh the interests at stake.
8
or other sharp practices lie on the other end of the spectrum.' " (Baltazar v. Forever 21,

Inc. (2016) 62 Cal.4th 1237, 1244 (Baltazar).)

The trial court found procedural unconscionability based on evidence Plaintiffs

were young, were rushed through the signing process, had no ability to negotiate, did not

see the arbitration language "buried on the back page of the preprinted carbon paper

forms," and did not separately initial the arbitration clause. The trial court also found

procedural unconscionability based on TCN's manner of presenting the program to

Plaintiffs.

Substantial evidence supports the trial court's factual findings. Plaintiffs submitted

declarations stating they did not consider themselves "sophisticated or educated at a high

level," had no "college degree or any college courses to speak of," and had "difficulty

with many of the legal terms in the documents presented" by TCN's sales representative.

Plaintiffs said the process "went by in a blur," with TCN's sales representative filling out

documents while talking to Plaintiffs about the program. TCN's representative described

the program, told Plaintiffs they would be eligible to sit for the RN examination, and told

Plaintiffs "how everything would be fine and to simply sign here and there." The

representative told Plaintiffs they "could get a discount by signing up right away" and did

not give Plaintiffs an opportunity to sit and read the documents. Plaintiffs stated they

were unaware of the arbitration provision on the back page of the preprinted carbon paper

form until after filing their lawsuit.

On appeal, TCN describes Plaintiffs as "educated and skilled nurses" with LVN

licenses. TCN argues each Plaintiff had sufficient education and technical training to

9
read and consider the purchase agreements, whether during the meeting with the sales

representative or in the days thereafter, and that Plaintiffs' version of events is "not

credible." However, TCN presented no evidence to contradict Plaintiffs' declarations

before the trial court. TCN filed objections to some of the representations in Plaintiffs'

declarations but did not submit declarations or evidence of its own. The trial court

sustained only one of TCN's evidentiary objections, striking for lack of foundation

Plaintiffs' representations as to TCN's wealth and size. We accept the trial court's

credibility determinations and do not reweigh the evidence on appeal. (Betz v. Pankow

(1993) 16 Cal.App.4th 919, 923.)

Moreover, TCN does not dispute that the arbitration provision lies within a

two-page document, the "front and back of an 11 x 14 carbon copy form." The

arbitration provision lies within the section labeled, "Governing Law and Dispute

Resolution," one of 13 sections preprinted in small font on the back side of the purchase

agreement. It is not set apart in a separate box and did not require Plaintiffs to initial next

to the language. Whereas TCN's sales representative circled, underlined, and added

arrows and text next to provisions on the front page and on other documents Plaintiffs

signed, there are no annotations on the page containing the arbitration provision.

This uncontroverted evidence supports the finding of procedural

unconscionability. The arbitration agreement is an adhesion contract; it lies within a

standardized form drafted and imposed by a party with superior bargaining strength,

leaving Plaintiffs with only the option of adhering to the contract or rejecting it.

(Armendariz, supra, 24 Cal.4th at p. 113.) The rushed nature of Plaintiffs' contract

10
negotiation, TCN's encouragement to sign up right away for a discount, and the unequal

bargaining power between Plaintiffs and TCN indicate a high degree of procedural

unconscionability. (See Higgins v. Superior Court (2006) 140 Cal.App.4th 1238, 1252-

1253 (Higgins) [high degree of procedural unconscionability where arbitration clause was

in a paragraph near the end of a lengthy single-spaced document drafted by sophisticated

defendants and signed by young and unsophisticated plaintiffs who had no opportunity to

negotiate]; Gutierrez, supra, 114 Cal.App.4th at p. 89 [arbitration clause on preprinted

automobile lease that was "particularly inconspicuous" and not negotiated or separately

initialed supported procedural unconscionability]; cf. Baltazar, supra, 62 Cal.4th at

p. 1245 [procedural unconscionability limited where plaintiff knew about arbitration

provision in her employment agreement and was not manipulated into signing it]; Serafin

v. Balco Properties Ltd., LLC (2015) 235 Cal.App.4th 165, 179 ["where the arbitration

provisions presented in a contract of adhesion are highlighted . . . , any procedural

unconscionability is 'limited' "].)

As TCN points out, each Plaintiff signed the verification on the first page of the

purchase agreement attesting she read and understood both pages of the agreement. In

addition, the purchase agreements allowed each Plaintiff to cancel the agreement within

five business days. "This language, although relevant to our inquiry, does not defeat the

otherwise strong showing of procedural unconscionability." (Higgins, supra, 140

Cal.App.4th at p. 1253 [considering effect of similar clause].)

TCN cites language in Valencia that the drafting party in a consumer contract

"was under no obligation to highlight the arbitration clause of its contract, nor was it

11
required to specifically call that clause to [the nondrafting party's] attention." (Valencia,

supra, 61 Cal.4th at p. 914.) However, the Supreme Court found procedural

unconscionability in that case despite the consumer's failure to read the arbitration clause

in his purchase agreement. (Id. at pp. 914-915.) The quoted language merely stands for

the established principle that "simply because a provision within a contract of adhesion is

not read or understood by the nondrafting party does not justify a refusal to enforce it.

The unbargained-for term may only be denied enforcement if it is also substantively

unreasonable." (Gutierrez, supra, 114 Cal.App.4th at p. 88.) Consequently, Valencia

also addressed whether the arbitration clause was substantively unconscionable.

(Valencia, at p. 915.) Following that approach, we turn to substantive unconscionability.

B. Substantive Unconscionability

The substantive element looks to the actual terms of the parties' agreement to

"ensure[] that contracts, particularly contracts of adhesion, do not impose terms that have

been variously described as ' " 'overly harsh' " ' [citation], ' "unduly oppressive" '

[citation], ' "so one-sided as to 'shock the conscience' " ' [citation], or 'unfairly one-

sided[.]' " (Sonic II, supra, 57 Cal.4th at p. 1145.) These formulations "all mean the

same thing." (Valencia, supra, 61 Cal.4th at p. 911.) Substantive unconscionability " 'is

concerned not with "a simple old-fashioned bad bargain" [citation], but with terms that

are "unreasonably favorable to the more powerful party[.]" ' " (Ibid.) "The substantive

component of unconscionability looks to whether the contract allocates the risks of the

bargain in an objectively unreasonable or unexpected manner." (Patterson v. ITT

Consumer Financial Corp. (1993) 14 Cal.App.4th 1659, 1664 (Patterson).) While

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private arbitration may resolve disputes faster and cheaper than judicial proceedings, it

" 'may also become an instrument of injustice imposed on a "take it or leave it" basis.' "

(Armendariz, supra, 24 Cal.4th at p. 115.) " 'The courts must distinguish the former from

the latter, to ensure that private arbitration systems resolve disputes not only with speed

and economy but also with fairness.' " (Ibid.)

The trial court found substantive unconscionability based on the arbitration

provision's forum selection clause. The arbitration provision required young

college-aged students to travel from San Diego, California to Marion County, Indiana to

arbitrate their claims against a company that solicited their business in California. The

court determined requiring Plaintiffs to travel to Indiana, or even to arrange to appear

through video, would work a severe hardship on Plaintiffs and unfairly benefit TCN by

effectively preventing Plaintiffs from asserting their claims.

TCN argues this was error. TCN contends the arbitration provision is "fair,

neutral, and in many instances deferential" to Plaintiffs. For example, TCN argues the

provision permits Plaintiffs to participate by telephone or video; provides that the laws of

the buyer's state (here, California) apply; requires Plaintiffs to advance no more than

$250 for the arbitrator's filing and arbitrator's fee; allows Plaintiffs to withhold consent to

TCN's choice of arbitrator; allows Plaintiffs and TCN to agree on the respective rules of

arbitration; sets no limit on the amount the arbitrator may award; and permits Plaintiffs to

pursue remedies in California small claims court. We conclude the trial court properly

found the agreement to arbitrate to be substantively unconscionable.

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 As the trial court determined, the arbitration provision's forum selection clause is

substantively unconscionable. Unconscionable provisions include those "that seek to

negate the reasonable expectations of the nondrafting party." (Valencia, supra, 61

Cal.4th at p. 911.) There is nothing in the record to suggest Plaintiffs reasonably could

have expected at the time of contracting that they would be required to resolve any

disputes in Indiana. A TCN sales representative visited Plaintiffs' homes in California

and enrolled them in a program that would purportedly enable them to become licensed

nurses in California, through a partnership between Indiana and California colleges.

Although TCN is based in Indiana, it solicited Plaintiffs' business in California through a

California-based sales representative. Arbitration in Indiana would not have been in

Plaintiffs' reasonable expectations, and the forum selection provision renders the

agreement to arbitrate substantively unconscionable. (See Patterson, supra, 14

Cal.App.4th at p. 1665 ["While arbitration per se may be within the reasonable

expectation of most consumers, it is much more difficult to believe that arbitration in

Minnesota would be within the reasonable expectation of California consumers."];

Lhotka, supra, 181 Cal.App.4th at p. 825 ["plaintiffs, residents of Colorado, were

required to mediate and arbitrate in San Francisco—all but guaranteeing . . . that any

recovery plaintiffs might obtain would be devoured by the expense they incur in pursuing

their remedy"]; Bolter v. Superior Court (2001) 87 Cal.App.4th 900, 909 (Bolter) ["it is

simply not a reasonable or affordable option for [small business-owner plaintiffs] to

abandon their offices for any length of time to litigate a dispute several thousand miles

away"].)

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 That Plaintiffs could participate in arbitration proceedings by phone or video does

not change the outcome. Plaintiffs must choose whether to incur significant expenses to

pursue their claims in an unreasonable forum or to appear remotely, foregoing the ability

to testify in person, while TCN, a company that solicited business in California,

participates in proceedings in its own backyard. We agree with the trial court that "even

arranging to appear through video as allowed in the agreement . . . would unfairly benefit

[TCN]." Absent reasonable justification for this arrangement, "arbitration appears less as

a forum for neutral dispute resolution and more as a means of maximizing [the stronger

party's] advantage." (Armendariz, supra, 24 Cal.4th at p. 118.) "Arbitration was not

intended for this purpose." (Ibid.; see Comb v. PayPal, Inc. (N.D.Cal. 2002) 218

F.Supp.2d 1165, 1177 ["Limiting venue to PayPal's backyard appears to be yet one more

means by which the arbitration clause serves to shield PayPal from liability instead of

providing a neutral forum in which to arbitrate disputes."].)

The analysis is also not changed by the fact Plaintiffs could pursue remedies in

California small claims court. "Presenting a consumer litigant who has suffered a small

monetary loss with the Hobson's choice of litigation in a distant forum and the limited

relief available in small claims court does not cure the problem. Small claims courts do

not provide the panoply of relief available in court or before an arbitrator, such as

punitive damages and attorney fees. . . . The possibility of redress in small claims court

does not persuade us that a patently unreasonable forum selection clause should be

enforced." (Aral v. EarthLink, Inc. (2005) 134 Cal.App.4th 544, 562 (Aral).)

15
 TCN cites Carnival Cruise Lines v. Shute (1991) 499 U.S. 585 (Carnival), which

upheld a forum selection clause requiring Washington State residents to pursue litigation

in Florida. TCN contends Carnival compels the conclusion that forum selection in

Indiana is not unconscionable. We disagree.

In Carnival, Washington residents bought tickets from a Florida company to take

a cruise from California to Mexico. (Carnival, supra, 499 U.S. at pp. 587-588.) In suing

Carnival Cruise Lines in Washington for personal injury, the plaintiffs conceded they had

notice of the forum selection clause in their purchase contracts requiring litigation in

Florida. (Id. at p. 595.) The Supreme Court held the forum selection clause was

enforceable. (Ibid.)

Here, by contrast, substantial evidence supports the trial court's finding that

Plaintiffs were unaware of the arbitration provision altogether, much less its forum

selection in Indiana. Further, Carnival emphasized that "forum-selection clauses

contained in form passage contracts are subject to judicial scrutiny for fundamental

fairness." (Carnival, supra, 499 U.S. at p. 595.) Unlike Carnival, "this dispute [is] an

essentially local one inherently more suited to resolution in the State of [California] than

in [Indiana]." (Cf. Carnival, supra, at p. 594; see Aral, supra, 134 Cal.App.4th at p. 561

[distinguishing Carnival and holding a provision requiring California consumers to

arbitrate claims in Georgia "unreasonable as a matter of law"].)

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 In addition to the forum selection clause, there are other indicia of substantive

unconscionability.3 The arbitration provision allows TCN to select the arbitrator.

Although Plaintiffs can withhold consent to TCN's choice, consent "shall not be

unreasonably withheld." Unlike agreements requiring an arbitrator to be selected from a

neutral arbitration service, the parties' arbitration provision contains no assurances of

neutrality. At the hearing on TCN's motion to compel, Plaintiffs' counsel argued he

would have no way to assess whether the arbitrator TCN selected would be biased. We

agree that the arbitrator selection procedure renders the arbitration provision

substantively unconscionable. (See Sonic II, supra, 57 Cal.4th at p. 1152 ["an adhesive

agreement that gives the [drafting party] the right to choose a biased arbitrator is

unconscionable"], citing Graham v. Scissor-Tail, Inc. (1981) 28 Cal.3d 807, 826-827.)

For example, in Pinela v. Neiman Marcus Group, Inc. (2015) 238 Cal.App.4th

227, a California employee of a Texas-based company sued under California wage-and-

hour laws. The company moved to compel arbitration. The employment agreement

limited the pool of potential arbitrators to individuals who resided in Texas and were

licensed to practice law in Texas. (Id. at p. 253.) Although employees were allowed to

participate in choosing an arbitrator, they could not suggest candidates who were licensed

in California and experienced in California wage-and-hour law. (Ibid.) The court

rejected this selection procedure as unconscionable, holding there was "no rational

3 The trial court premised its finding of substantive unconscionability on the forum
selection clause alone. However, we exercise our independent judgment as to the legal
effect of undisputed facts. (Lhotka, supra, 181 Cal.App.4th at p. 820.)
17
justification to limit the potential pool of arbitrators in this fashion" in a California wage-

and-hour dispute. (Ibid.) The court concluded the arbitrator selection procedure had "no

apparent justification other than to tilt the scale of arbitral justice to one side's

advantage"—i.e., the Texas-based employer. (Ibid.) Here, the selection procedure is

arguably even more one-sided because it allows Indiana-based TCN to unilaterally select

an arbitrator and limits Plaintiffs to providing or "reasonably" withholding consent.

Therefore, here, as in Pinela, the arbitrator selection procedure is further indication of

unconscionability.

The arbitration provision's shortened limitations period provides another indicator

of substantive unconscionability. The provision requires claims to be filed within one

year of accrual. By contrast, Plaintiffs' Unfair Competition Law claims are subject to a

four-year statute of limitations (Bus. & Prof. Code, § 17208), and their Consumer Legal

Remedies Act claims are subject to a three-year statute of limitations (Civ. Code,

§ 1783). An arbitral limitations period that is shorter than the otherwise applicable period

is one factor that supports a finding of substantive unconscionability. (Nyulassy v.

Lockheed Martin Corp. (2004) 120 Cal.App.4th 1267, 1283, fn. 12 ["the shortened

limitations period . . . is one factor leading us to hold that the contract is substantively

unconscionable"]; Samaniego v. Empire Today, LLC (2012) 205 Cal.App.4th 1138, 1145

[same].)

Thus, we agree with the trial court that the arbitration provision in TCN's purchase

agreement is so one-sided as to be substantively unconscionable. Combined with the

18
high degree of procedural unconscionability, the arbitration provision as drafted is

unconscionable and, therefore, unenforceable.

III.

Severability

If an agreement to arbitrate is unconscionable, "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 trial court declined to

sever unconscionable terms from the parties' arbitration provision. Concluding it could

not do so without, in effect, rewriting the arbitration provision, the court voided the entire

provision.

We review the trial court's decision on severability for abuse of discretion.

(Armendariz, supra, 24 Cal.4th at p. 122; Lhotka, supra, 181 Cal.App.4th at p. 821.) "In

deciding whether to sever terms rather than to preclude enforcement of the provision

altogether, the overarching inquiry is whether the interests of justice would be furthered

by severance; the strong preference is to sever unless the agreement is 'permeated' by

unconscionability." (Ajamian, supra, 203 Cal.App.4th at p. 802.)

An agreement to arbitrate is considered "permeated" by unconscionability where it

contains more than one unconscionable provision. (Armendariz, supra, 24 Cal.4th at

p. 124.) "Such multiple defects indicate a systematic effort to impose arbitration on [the

nondrafting party] not simply as an alternative to litigation, but as an inferior forum that

works to the [drafting party's] advantage." (Ibid.) An arbitration agreement is also

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deemed "permeated" by unconscionability if "there is no single provision a court can

strike or restrict in order to remove the unconscionable taint from the agreement." (Id. at

pp. 124-125.) If "the court would have to, in effect, reform the contract, not through

severance or restriction, but by augmenting it with additional terms," the court must void

the entire agreement. (Id. at p. 125.)

As we explained above, the arbitration provision contains multiple unconscionable

terms. Some, such as the forum selection in Indiana, may be easy to sever. (See, e.g.,

Bolter, supra, 87 Cal.App.4th at p. 911 [severing unconscionable forum selection

clause].) However, other terms, such as the arbitrator selection procedure, can only be

remedied by re-writing the parties' agreement to arbitrate. That is not a proper court

function. (Armendariz, supra, 24 Cal.4th at p. 125 ["Because a court is unable to cure

this unconscionability through severance or restriction, and is not permitted to cure it

through reformation and augmentation, it must void the entire agreement."].)4 Therefore,

the trial court did not abuse its discretion in voiding the entire arbitration agreement

rather than severing unconscionable terms. (See Ajamian, supra, 203 Cal.App.4th at

pp. 803-804 [no abuse of discretion in voiding entire arbitration provision where there

were multiple unconscionable terms that could not be cured by severence]; Lhotka, supra,

181 Cal.App.4th at p. 826 [multiple unconscionable terms weighed against severance].)

4 TCN's counsel made the same point below, arguing the trial court lacked power to
insert terms into the parties' arbitration provision. TCN is correct, however, that it never
argued that severance of the forum selection clause would require the court to rewrite the
provision.
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 DISPOSITION

The order denying TCN's motion to compel arbitration is affirmed. Plaintiffs

Bernadette Magno, Rosanna Garcia, and Sheree Rudio shall recover their costs on appeal.

McCONNELL, P. J.

WE CONCUR:

NARES, J.

O'ROURKE, J.

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