Filed 10/20/26 Hidey v. The Caprock Group, LLC CA4/3
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IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
FOURTH APPELLATE DISTRICT
DIVISION THREE
DORIS JEAN HIDEY,
Plaintiff and Respondent, G065874
v. (Super. Ct. No. 30-2024-01436772)
THE CAPROCK GROUP, LLC, OPINION
et al.,
Defendants and Appellants.
Appeal from an order of the Superior Court of Orange County,
Andre De La Cruz, Judge. Affirmed.
Stoel Rives, Thomas A. Woods and Michelle J. Rosales for
Defendants and Appellants.
Smith LC, John S. Clifford and Nathaniel J. Tarvin for Plaintiff
and Respondent.
Doris Jean Hidey sued Gregory Mech and The Caprock Group,
LLC (Caprock) for multiple causes of action relating to allegedly improper
management fees charged on her investment account with Caprock.
Defendants moved to compel arbitration based on the arbitration provision in
the investment advisor agreement (the agreement) that Hidey signed when
she retained Caprock’s services. The trial court declined to order arbitration
because it found the agreement was unconscionable. We affirm.
BACKGROUND
Hidey filed a complaint against Caprock and Mech (defendants)
for unfair competition, fraud, negligent misrepresentation, breach of contract,
financial elder abuse, and accounting. Defendants moved to compel
arbitration pursuant to paragraph 19 of the agreement, which stated as
follows: “19. Mediation/Arbitration. Excepting matters for injunctive relief,
any claim or controversy arising out of, or relating to, the Agreement,
including, without limitation, the Advisor’s performance or interpretation of
the Agreement, shall be settled either by mediation instituted at the request
of either party, or if not resolved by mediation, by binding arbitration in
Boise, Idaho. Arbitration proceedings may be commenced by either party
after giving the other party written notice thereof and proceeding thereafter
in accordance with the Securities Arbitration Rules of the American
Arbitration Association [(AAA)]; provided, however, that the arbitrators shall
be required to render a reasoned award stating with particularity the
grounds for their decision and further provided that the arbitrators shall
have no authority to award punitive, exemplary or other extraordinary
damages. The parties hereby waive all rights to obtain punitive damages in
connection with any dispute arising under this Agreement. The arbitrator’s
award in any such arbitration shall be final and binding, and judgment upon
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such award may be enforced by any court of competent jurisdiction, subject
only to vacation or modification as permitted by law.”
Hidey opposed arbitration on unconscionability grounds, arguing
that the agreement was procedurally and substantively unconscionable. In
support of her opposition, Hidey averred that she signed the agreement at
Mech’s office on November 7, 2016. Hidey thought Mech and Caprock were
offering the agreement on a take-it-or-leave-it basis, and that if she did not
sign it as-is, Mech would not be her investment advisor. Mech told her that
the agreement contained “administrative” provisions, but, according to Hidey,
Mech did not offer her time to review the agreement or go over the so-called
administrative provisions in detail.1 Hidey also argued the offending
provisions could not be severed from the agreement without the court
essentially rewriting it.
The trial court denied the motion to compel arbitration,
determining the arbitration provision to be unconscionable. Defendants
timely appealed.
DISCUSSION
Defendants argue that the trial court erred in its assessment of
the unconscionability issue, and that Hidey did not meet her burden to show
the agreement was unconscionable. We disagree.
I.
STANDARD OF REVIEW
An “unconscionability determination, absent conflicting extrinsic
evidence, is [a] question of law subject to de novo review. [Citation.]
1 Mech disputed this description of the circumstances
surrounding the signing of the agreement.
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‘“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.’”’ (Nguyen v. Applied Medical
Resources Corp. (2016) 4 Cal.App.5th 232, 247.) “‘[W]e are not bound by the
trial court’s rationale [for denying arbitration], and thus may affirm the
denial on any correct legal theory supported by the record, even if the theory
was not invoked by the trial court.’” (Bautista v. Fantasy Activewear, Inc.
(2020) 52 Cal.App.5th 650, 655.)
II.
PETITION TO COMPEL ARBITRATION
“Under [Code of Civil Procedure] section 1281.2, one party to a
written arbitration agreement may petition the court to compel other parties
to arbitrate a dispute that is covered by their agreement. [Citation.] This
section creates a summary proceeding for resolving such petitions. The
petitioner bears the burden of proving the existence of a valid arbitration
agreement by a preponderance of the evidence. The party opposing the
petition must meet the same evidentiary burden to prove any facts necessary
to its defense. The trial court acts as the trier of fact, weighing all the
affidavits, declarations, and other documentary evidence.” (Provencio v. WMA
Securities, Inc. (2005) 125 Cal.App.4th 1028, 1030–1031.) While the
arbitration agreement in this case appears to be governed by federal law,
California statutory procedures may be used to enforce it. (See Rosenthal v.
Great Western Fin. Securities Corp. (1996) 14 Cal.4th 394, 410 (Rosenthal).)
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A. Agreement to Arbitrate
In deciding a motion to compel arbitration, the trial court must
first determine whether an agreement to arbitrate the controversy exists.
(Code Civ. Proc.,2 § 1281.2.) “The party requesting arbitration bears the
burden of proving the existence of an agreement to arbitrate a particular
controversy. [Citation.] ‘Doubts are resolved in favor of arbitration.’” (San
Francisco Police Officers’ Assn. v. San Francisco Police Com. (2018)
27 Cal.App.5th 676, 683.)
Paragraph 19 of the agreement, which was attached to the
complaint, clearly states that “any claim or controversy arising out of, or
relating to, the Agreement . . . shall be settled . . . if not resolved by
mediation, by binding arbitration . . . .” This is a broad provision
encompassing Hidey’s claim that defendants improperly charged
management fees for non-Caprock-managed assets. Thus, defendants met
their burden to show the existence of an agreement to arbitrate.
B. Unconscionability
Once the court concludes an agreement to arbitrate exists, it
must order the parties to arbitrate the matter unless it finds one of four
conditions exists, three of which would be potentially applicable here: (1) the
right to compel arbitration has been waived; (2) there are grounds to rescind
the agreement; or (3) there is a third party involved in related proceedings
which could create conflicting rulings. (See § 1281.2, subds. (a)–(c).) The party
opposing arbitration “bears the burden of establishing a defense to the
2 All undesignated statutory references are to the Code of Civil
Procedure.
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agreement's enforcement by a preponderance of the evidence.” (Tiri v. Lucky
Chances, Inc. (2014) 226 Cal.App.4th 231, 239.)
Hidey argued that the arbitration provision was unconscionable
and therefore unenforceable. “‘[U]nconscionability has both a “procedural”
and a “substantive” element,’ the former focusing on ‘“oppression”’ or
‘“surprise”’ due to unequal bargaining power, the latter on ‘“overly harsh”’ or
‘“one-sided”’ results. [Citation.] ‘The prevailing view is that [procedural and
substantive unconscionability] must both be present in order for a court to
exercise its discretion to refuse to enforce a contract or clause under the
doctrine of unconscionability.’ [Citation.] But they need not be present in the
same degree. ‘Essentially a sliding scale is invoked which disregards the
regularity of the procedural process of the contract formation, that creates
the terms, in proportion to the greater harshness or unreasonableness of the
substantive terms themselves.’ [Citations.] 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.” (Armendariz v. Foundation Health Psychcare
Services, Inc. (2000) 24 Cal.4th 83, 114 (Armendariz).)
1. Procedural Unconscionability
The procedural unconscionability inquiry requires an assessment
of the circumstances of the contract negotiation and formation and whether
they involved oppression and surprise. “‘“‘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.’”’”
(OTO, L.L.C. v. Kho (2019) 8 Cal.5th 111, 126 (OTO).) “‘[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
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procedural unconscionability. . . . Contracts of adhesion that involve surprise
or other sharp practices lie on the other end of the spectrum.’” (Baltazar v.
Forever 21, Inc. (2016) 62 Cal.4th 1237, 1244, ellipses in original (Baltazar).)
“‘[C]ircumstances relevant to establishing oppression include, but
are not limited to (1) the amount of time the party is given to consider the
proposed contract; (2) the amount and type of pressure exerted on the party
to sign the proposed contract; (3) the length of the proposed contract and the
length and complexity of the challenged provision; (4) the education and
experience of the party; and (5) whether the party’s review of the proposed
contract was aided by an attorney.’” (OTO, supra, 8 Cal.5th at pp. 126–127.)
Hidey’s showing on these points is meager. While the arbitration provision is
located on page six of a seven-page document, it is not in small or illegible
font. The words “mediation” and “arbitration” are in boldface type.
We disagree with the trial court that the agreement was
adhesive. “An adhesive contract is standardized, generally on a preprinted
form, and offered by the party with superior bargaining power ‘on a take-it-
or-leave-it basis.’” (OTO, supra, 8 Cal.5th at p. 126.) Hidey averred in her
declaration that she visited Mech at his office. Having decided to retain his
services, she signed the agreement. She claimed, however, that she signed it
on a take-it-or-leave-it basis because “Mech would not act as [her] investment
advisor” if she did not. Hidey cited to Hasty v. American Automobile Assn. etc.
(2023) 98 Cal.App.5th 1041, 1055–1056 to support her argument, but that
case involved an arbitration agreement imposed as a condition of
employment. (Id. at p. 1046.) Such contracts are “typically adhesive.” (OTO,
at p. 126.)
In contrast, Hidey was a high-net-worth business owner seeking
to invest proceeds from her business. She was in a much more equal
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bargaining position to Mech. This is so even if Mech told her the contract
contained “administrative” provisions. “[I]t is generally unreasonable . . . to
neglect to read a written agreement before signing it. One party’s making of
such an assurance does not, by itself, deprive the other party to a prospective
contract of the reasonable opportunity to discover the character and essential
terms of the agreement.” (Rosenthal, supra, 14 Cal.4th at p. 424.)
Moreover, the agreement expressly provided Hidey had the right
to terminate the agreement without incurring any fees or other penalty
within five business days after entering into the agreement. Hidey did not
claim Mech prevented her from reviewing the contract prior to signing. She
did not claim she ever asked questions, asked for more time to review the
document, or asked to have it reviewed by an attorney. As an entrepreneur
and experienced investor, she could reasonably be expected to take such
steps.
The arbitration provision stated that the proceedings would be
governed in accordance with the “Securities Arbitration Rules of the
American Arbitration Association.”3 Hidey argued that there was an element
of surprise because the designated arbitration rules were not attached to the
agreement, and she did not have an opportunity to review those rules or to
learn that the rules did not provide for basic discovery rights.
3 Hidey argued that the Securities Arbitration Rules of the AAA
were not separate rules but were a set of six supplemental rules
(supplementary procedures) to be applied to the AAA Commercial Arbitration
Rules. Hidey’s counsel also argued to the trial court that the supplementary
procedures did not appear to be current in 2025. There was no argument that
these rules were not current in 2016 when Hidey signed the agreement.
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Defendants did not dispute that the applicable arbitration rules
were not provided to Hidey at the time she signed the agreement. Instead,
defendants argued they need not have provided them, citing Baltazar, supra,
62 Cal.4th at page 1246. Baltazar held that the failure to attach arbitration
rules does not factor into procedural unconscionability unless the
unconscionability claim “depend[s] in some manner on the arbitration rules
in question.” (Id. at p. 1246.)
But here, Hidey’s unconscionability claim did depend on the
arbitration rules in question. Specifically, she argued that the arbitration
rules were substantively unconscionable because they eliminated her right to
discovery, increased the costs of arbitration by requiring seating a panel of
three arbitrators with the costs to be borne equally by the parties, required
the arbitrators to render a reasoned award, and provided that the arbitrators
had no authority to award punitive, exemplary, or other extraordinary
damages. Therefore, we conclude that there is a small amount of procedural
unconscionability.
2. Substantive Unconscionability
“‘[A] finding of procedural unconscionability does not mean that a
contract will not be enforced, but rather that courts will scrutinize the
substantive terms of the contract to ensure they are not manifestly unfair or
one-sided.’” (Baltazar, supra, 62 Cal.4th at p. 1244.) “Substantive
unconscionability examines the fairness of a contract’s terms.” (OTO, supra,
8 Cal.5th at p. 129.) “Unconscionable terms ‘“impair the integrity of the
bargaining process or otherwise contravene the public interest or public
policy”’ or attempt to impermissibly alter fundamental legal duties.
[Citation.] They may include fine-print terms, unreasonably or unexpectedly
harsh terms regarding price or other central aspects of the transaction, and
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terms that undermine the nondrafting party’s reasonable expectations.” (Id.
at p. 130.)
The court in Baltazar stated: “‘Not all one-sided contract
provisions are unconscionable; hence the various intensifiers in our
formulations: “overly harsh,” “unduly oppressive,” “unreasonably favorable.”
[Citation.] . . . [¶] . . . 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.’” (Baltazar, supra, 62 Cal.4th at
p. 1245.)
When, “the degree of procedural unconscionability of an adhesion
agreement is low, . . . the agreement will be enforceable unless the degree of
substantive unconscionability is high.” (Ajamian v. CantorCO2e, L.P. (2012)
203 Cal.App.4th 771, 796 (Ajamian).) Here, the degree of substantive
unconscionability is high. Hidey argued the following aspects of the
agreement were substantively unconscionable: (1) the Idaho forum selection
clause, (2) the use of Securities Arbitration Rules of the AAA that limited
discovery and required three arbitrators, and (3) the waiver of punitive
damages. We disagree with the trial court as to the Securities Arbitration
Rules, but we agree with its analysis of the other two aspects of the
agreement.
The Securities Arbitration Rules were not unconscionable. Hidey
asserted that Rule R-23 in the AAA Commercial Rules limited discovery.
That rule authorizes the exchange of documents in discovery and gives the
arbitrator authority to manage “any necessary exchange of information
among the parties with a view to achieving an efficient and economical
resolution of the dispute, while at the same time promoting equality of
treatment and safeguarding each party’s opportunity to fairly present its
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claims and defenses.” Parties to an arbitration clause can agree to something
less than the full panoply of discovery provided in the Code of Civil
Procedure. (Armendariz, supra, 24 Cal.4th at pp. 105–106.) The agreement
gave the arbitrator the authority to compel discovery and was not
substantively unconscionable. (Ramirez v. Charter Communications, Inc.
(2024) 16 Cal.5th 478, 507 (Ramirez).)
However, the agreement’s forum selection clause requiring
arbitration in Boise, Idaho was substantively unconscionable.4
“Unconscionable provisions include those ‘that seek to negate the reasonable
expectations of the nondrafting party.’” (Magno v. The College Network, Inc.
(2016) 1 Cal.App.5th 277, 288 (Magno).) The forum selection clause did just
that.
Hidey entered into a contract in California with a financial
advisor with an office in Newport Beach, close to her residence in California.
She could not reasonably expect that she might have to arbitrate in Boise,
Idaho before three arbitrators. (See Magno, supra, 1 Cal.App.5th at p. 289;
Parada v. Superior Court (2009) 176 Cal.App.4th 1554, 1573.) The fact that
Hidey purchased a property in Idaho years later does not negate those
reasonable expectations at the time she entered into the agreement. (See
Ramirez, supra, 16 Cal.5th at p. 493 [“‘[W]hether a contract is . . .
unconscionable . . . is determined with reference to the time when the
contract was made and cannot be resolved [in] hindsight’”].)
4 The agreement not only required arbitration to occur in Boise,
Idaho, but it also provided “[t]o the extent Federal law does not apply to this
Agreement, it shall be construed in accordance with the laws of the State of
Idaho.”
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We also take issue with the provision’s waiver of punitive
damages. “All contracts which have for their object, directly or indirectly, to
exempt any one from responsibility for his own fraud, or willful injury to the
person or property of another, or violation of law, whether willful or
negligent, are against the policy of the law.” (Civ. Code, § 1668.) As the party
in charge of managing Hidey’s investments, it is more likely that a punitive
damages waiver would benefit defendants. (See Pardee Construction Co. v.
Superior Court (2002) 100 Cal.App.4th 1081, 1091.) The waiver is also
substantively unconscionable because it prohibits Hidey from pursuing the
full panoply of damages she would be able to pursue in court. (See Lange v.
Monster Energy Co. (2020) 46 Cal.App.5th 436, 448–449 (Lange).)
C. Severability
“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).) We review the trial court’s decision on severability
for abuse of discretion. (See Armendariz, supra, 24 Cal.4th at p. 124; Lange,
supra, 46 Cal.App.5th at p. 453.)
“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 . . . arbitration agreement
can be considered permeated by unconscionability if it “contains more than
one unlawful provision.”’” (Id. at p. 803.) Here, multiple unconscionable terms
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weighed against severance. (See Lhotka v. Geographic Expeditions, Inc.
(2010) 181 Cal.App.4th 816, 826.) The trial court did not abuse its discretion
in declining to sever the unconscionable provisions.
DISPOSITION
The order denying defendants’ motion to compel arbitration is
affirmed. Respondent shall recover her costs on appeal.
SERVINO, J.
WE CONCUR:
MOTOIKE, P. J.
MOORE, J.
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