Quinoz v. Empire Today
Filed 3/22/13 Quinoz v. Empire Today CA1/5
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 This opinion has not been certified for
publication or ordered published for purposes of rule 8.1115
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
FIRST APPELLATE DISTRICT
DIVISION FIVE
GERMAN QUINONEZ,
Plaintiff and Respondent, A134448
v. (
Mateo
Super.
Ct.
No. CIV493996)
EMPIRE TODAY, LLC,
Defendant and Appellant.
____________________________________/
German Quinonez filed a putative class
action against Empire Today, LLC (Empire), a national flooring and window
treatment business, alleging various Labor Code violations. Empire moved to dismiss for improper venue
or, in the alternative, to compel arbitration pursuant to a form subcontractor
agreement Quinonez signed. The trial
court denied the motion. Among other
things, the court concluded the arbitration provision in the agreement was
procedurally and substantively unconscionable.
Empire appeals. It contends: (1) the Illinois choice of law
provision is enforceable; (2) it has standing to enforce the arbitration
provision; (3) the arbitration provision is enforceable under Illinois and
(2011) ___ U.S. ___ [131 S.Ct. 1740] (Concepcion);
(4) the court erred by refusing to sever the allegedly unconscionable
provisions from the remainder of the agreement; and (5) the court erroneously
concluded Empire failed to prove the agreement was “the actual agreement.â€
We issued a notice pursuant to
California Rules of Court, rule 8.276 informing counsel for Empire that we were
considering imposing sanctions on our own motion on the grounds that the appeal
is frivolous and that counsel failed to comply with its ethical duty to call
our attention to law unfavorable to Empire’s position, specifically,
205 Cal.App.4th 1138 (Samaniego). Counsel for Empire responded to the
notice. We decline to impose sanctions
on our own motion.
We affirm.
FACTUAL AND PROCEDURAL
BACKGROUND
The
Subcontractor Installer Agreement
In November 2006, Quinonez entered
into a subcontractor installer agreement (Agreement) with CA West Flooring,
Inc. (CA West Flooring).
name="_ftnref1" title="">[1] The Agreement refers to CA West Flooring as
“Empire†and is 11 single-spaced pages of small-font print. It contains a forum selection clause
providing “[t]his Agreement shall be governed by, and construed in accordance
with, the laws of Illinois and the parties agree
jurisdiction and venue for any actions hereunder shall reside within the State
of Illinois.†The Agreement also includes a unilateral
fee-shifting provision requiring the subcontractor to pay attorney fees Empire
might incur to “enforce any of its rights hereunder or to collect any amounts
due. Subcontractor shall pay Empire for
all costs and expenses incurred including attorneys fees as well as interest on
the amounts due. . . .â€
One provision of the Agreement requires the
subcontractor to “waive[ ] all right[s] to file a Mechanic’s Lien†and provides
remedies for Empire if the subcontractor does so:
“4. The
Subcontractor hereby waives all right to file a Mechanic’s Lien and agrees that
no Mechanic’s Lien or any other form of lien shall be filed against the
property of any Customer of Empire or in the name of any subcontractor,
material men or laborers employed by the subcontractor for any work or
materials furnished in connection with performance of work under this
Agreement. . . . In the event any attachment is levied or lien
filed against any property of Empire or its Customers by reason of any act or
omission or any alleged act or omission of subcontractor or its agents, then
Empire shall have the right, . . . to take any and all steps
necessary to release such attachments or lien, and Subcontractor shall be
responsible for the payment to Empire or its Customers by reason thereof; plus
interest thereof at the maximum rate permitted by law.â€
The Agreement requires the
subcontractor to maintain an “escrow account†and describes the uses for such
an account:
“5. As
part of this Agreement, the Subcontractor agrees to maintain an escrow account
with Empire in the amount of Fifteen Hundred Dollars ($1,500.00). Such monies shall be used for the remedying
of failures, breaches, or substandard work relating to Customer claims, in the
event the Subcontractor fails to remedy the same, including faulty
installation, damage to Customer’s property, and product damage due to
identifiable installation related causes, such as scratches, cuts, impact, etc.
To establish and maintain the Subcontractor’s escrow account, 5% of the
Subcontractor’s fee shall be withheld by Empire until $1,500.00, or such other
amount as reasonably determined in Empire’s sole opinion to be necessary to
safeguard Empire’s interests, has been accumulated excluding interest. All unused monies in the escrow account shall
be returned to the Subcontractor ninety (90) days after termination of this
Agreement if at that time there are no pending claims.
“8. The
Subcontractor agrees to warranty its installation workmanship against defects
for a period of one year on all products installed. The Subcontractor shall promptly correct any
work found, by Empire or its Customers, to be substandard, or at Empire’s
option, Empire may employ others to correct said work and deduct from the
Subcontractors escrow account all costs incurred.
“10. Subcontractor agrees to indemnity Empire and to hold it harmless
from any claim, demand, or suit. . . . In addition to all other rights and remedies
available to it at law or in equity, Empire shall have the right to use the
funds withheld pursuant to this Agreement to pay all obligations of
Subcontractor under this paragraph.â€
The arbitration provision is set forth in the 34th and
final section on pages 9 and 10 of the Agreement. It provides:
“34. Empire
and Subcontractor agree that any and all disputes, claims or controversies
(hereafter referred to as a ‘claim’) arising under or relating to this Agreement,
. . . may, at the option of either Empire or Subcontractor, be
adjudicated by final and binding arbitration under one arbitrator in accordance
with the Commercial Dispute Resolution Rules of the American Arbitration
Association in effect at the time the demand for arbitration is made.
“Any arbitration proceeding brought under
this Agreement, and any award, finding or verdict of or from such proceeding
shall remain confidential between the parties and shall not be made public.
Subcontractor agrees that Subcontractor will assert a Claim only on behalf of
Subcontractor’s own self and that Subcontractor will not assert a Claim on
behalf of, or as a member of, a class or group in either an arbitration
proceeding or in any other forum or action.
Empire and Subcontractor shall allow and participate in discovery in
accordance with the Federal Rules of Civil Procedure for a limited period of
ninety (90) days after the filing of the answer or other responsive
pleading. Unresolved discovery disputes
may be brought to the attention of, and may be disposed by, the
arbitrator. [E]ither Empire or
Subcontractor may bring an action in any court of competent jurisdiction, if
necessary, to compel arbitration under this provision, to obtain preliminary
relief in support [of] a claim to be adjudicated by arbitration, or to enforce
an arbitration award. A judgment upon
any award rendered by the arbitrator may be entered in any court having
jurisdiction. If any term or clause of
this arbitration is found to be unenforceable or in violation of applicable
state law, Empire and Subcontractor shall treat this arbitration agreement as
if that term or clause did not exist, and the remainder of this arbitration
agreement shall remain in full force and effect.
BOTH EMPIRE AND SUBCONTRACTOR
ARE HEREBY AGREEING TO ARBITRATION, IF CHOSEN, RATHER THAN LITIGATION OR SOME
OTHER MEANS OR DISPUTE RESOLUTION, TO ADDRESS THEIR GRIEVANCES OR ALLEGED
GRIEVANCES WITH THE EXPECT[ATION] THAT THIS RESOLUTION PROCESS MAY BE MORE
COST-EFFECTIVE AND EXPEDIENT FOR THE [PA]RTIES THAN LITIGATION. BY ENTERING INTO THIS AGREEMENT AND THE
ARBITRATION PROVISIONS OF THIS SECTION, BOTH PARTIES ARE GIVING UP THEIR
CONSTITUTIONAL RIGHT TO HAVE ANY DISPUTE DECIDED IN A COURT OF LAW BEFORE A
JURY, AND INSTEAD ARE ACCEPTING THE USE OF ARBITRATION, IF CHOSEN, OTHER THAN
AS SET FORTH IMMEDIATELY BELOW. [¶] THE PARTIES AGREE THAT DUE TO THE POSSIBLE
IMMEDIATE AND IRREPARABLE HARM FROM A VIOLATION OF THE RESTRICTIVE COVENANT
SECTIONS OF THIS AGREEMENT, THESE ARBITRATION REQUIREMENTS SHALL NOT APPLY TO
ANY NON-COMPETE, NON-SOLICITATION OR NON-DISCLOSURE PROVISIONS, RIGHTS, AND
LEGAL REMEDIES CONTAINED ELSEWHERE IN THIS AGREEMENT.â€
The initials “G.Q.†appear at the
bottom of each page of the Agreement.
The rules of the American Arbitration Association were not attached to
the Agreement Quinonez signed.
The Lawsuit
Quinonez worked as a carpet installer and a “helperâ€
for Empire from November 2006 to December 2008.
He claims he was fired after informing Empire he worked “on a job
removing carpet flooring where there was a great deal of asbestos.â€
In April 2010, Quinonez filed a putative class action
against Empire on behalf of similarly situated individuals.
with various wage and hour laws by: (1) misclassifying individuals as
independent contractors rather than employees; (2) failing to pay overtime
wages and wages due upon termination of employment; (3) provide meal periods or
a premium for missed meal periods; and (4) provide wage statements. (Lab. Code, §§ 201, 226.7, 226, 510, Bus.
& Prof. Code, § 17200.)
name="_ftnref3" title="">[3]
Empire answered the complaint and
then removed the case to the Federal District Court for the Northern District
of California. A few months later,
Empire moved to dismiss or transfer the case to Illinois pursuant to the
Agreement’s forum selection clause or, in the alternative, to compel
arbitration. The district court denied
the motion. It determined the forum
selection clause did not apply to the dispute and applied California law to
evaluate the validity of the arbitration clause in the Agreement. The court concluded the arbitration provision
was invalid because the “class action waiver clause conflicts with California
law†and because it “denies plaintiff, and others, an opportunity to exercise
their legal rights.†The court declined
to sever the agreement to remove the “unenforceable provision.â€
Empire appealed to the Ninth Circuit Court of Appeals
(Ninth Circuit) but later moved to remand the case to the San Mateo County
Superior Court after Quinonez conceded the amount in controversy did not
satisfy the jurisdictional threshold in the Class Action Fairness Act. The Ninth Circuit granted the motion and
remanded the case to the superior court.
The Denial of Empire’s Motion to Dismiss or Stay the Action and Compel
Arbitration
In June 2011, Empire moved to dismiss for improper
venue or, in the alternative, to stay the action and compel arbitration. Empire argued Quinonez agreed to litigate the
dispute in Illinois pursuant to the Agreement’s forum selection clause. In the alternative, Empire moved to enforce
the parties “agreement to arbitrate†their disputes under both Illinois and
California law, claiming the arbitration provision was not unconscionable. In support of the motion, Empire submitted a
copy of the Agreement and the declaration of Mario Lopez, an install manager
for Empire.
In his declaration, Lopez averred he is “familiar with
. . . the process of contracting with installers to perform flooring
and window installation work†for Empire Carpets, a wholly-owned subsidiary of
Empire. Lopez described the process he
uses when he contracts with installers: he provides them with a “lengthyâ€
application packet that includes the Agreement and “advise[s] the potential
installers that they can take it home to review and complete or they can review
and complete the application packet in the office, whichever they prefer.†Lopez “encourage[s] them to take it home so
that they have more time to review the materials. . . .†Lopez then reviews the application packet
with potential installers and answers their questions. According to Lopez, “potential installers are
given an unlimited amount of time to ask questions and to consider and complete
the paperwork, including the Agreement.â€
Lopez reviews the completed application with the potential
installer.
Lopez continued: “[i]f the potential installers have
comments to the terms of the Agreement, [he is] open to negotiating those
terms, subject to the approval of Empire’s Market Support Group, and, if an
agreement is reached, the potential installer can be engaged as a subcontractor
for Empire.†Finally, Lopez averred he
knows Quinonez “as he was an installer in the San Francisco Market. Mr. Quinonez was contracted . . .
pursuant to [the] . . . [A]greement to install carpet in
approximately November 2006.†According
to Lopez, Quinonez spoke English “well enough to communicate†with him.
Quinonez opposed Empire’s
motion. Quinonez contended the forum selection
clause was unenforceable and that California law applied to the dispute. He further argued the arbitration agreement
was procedurally and substantively unconscionable under both California and
Illinois law. In support of the motion,
counsel for Quinonez submitted a declaration averring Quinonez’s damages were
approximately $22,000. Quinonez also
submitted a declaration averring: (1) Spanish is his first language and he
speaks “very little English[;]†(2) he resides in California, has never been to
Illinois, has “very limited means[,]†and a current monthly income of $800; and
(3) transferring the case to Illinois “would effectively deprive†him of the
opportunity to “pursue [his] claims.â€
Quinonez further averred that when he was hired as an installer, he was
“required to execute a form Subcontractor Installer Agreement, whereupon [he]
was supposed to simply fill in [his] personal information on the first page and
sign and initial the Agreement. The
Agreement was presented [to him] as a take-it-or-leave-it contract, and there
was no negotiation whatsoever about the terms of the Agreement.†The declaration was translated from English
to Spanish for Quinonez.
Finally, Quinonez filed a request for judicial notice
attaching, among other things, the district court’s order denying Empire’s
motion to dismiss or compel arbitration and the trial court’s order denying
Empire’s motion to dismiss or compel arbitration in Samaniego, supra, 205 Cal.App.4th 1138.
Following a lengthy hearing, the court denied Empire’s
motion. In a 22-page written order, the
court determined Empire failed to demonstrate it was an intended third party
beneficiary of the Agreement. It also
concluded the forum selection clause “[did] not require dismissal or change of
venue†because, among other things, the lawsuit sought relief pursuant to
California statutes and Quinonez’s claims were not “founded upon a written
contract.†Next, the court determined
the Agreement was “[a] contract of adhesion†and was procedurally unconscionable
under California law because “[t]here was no negotiation of the . . .
Agreement or the arbitration provisions thereof. There was clearly unequal bargaining power
between the manual laborer and the corporate ‘employer.’ The Spanish-speaking [p]laintiff was
presented with the lengthy English form contract, in tiny print, and required
to fill in the blanks and sign it — without negotiation.â€
The court further concluded the Agreement was
substantively unconscionable under California law because it was “one-sided, in
effect, as to the remedies available to the parties, as compared to the option
of arbitration.†It explained, “[t]he
bottom line is that the employing entity retains the rights to bring lawsuits
against the Subcontractor/employee and/or to have monetary self-help from the
mandatory escrow fund, as to any claims that conceivably would arise in this
relationship, but the Subcontractor/employee’s claims can be forced into
arbitration (with no right to lawsuit and no self-help remedies).†The court also determined the arbitration
agreement was unconscionable under Illinois law. Finally, the court declined to sever the
unenforceable provisions because “[t]he arbitration provision has multiple
unconscionability problems involving multiple provisions.â€
DISCUSSION
I.
of Review
“On appeal
from the denial of a motion to compel arbitration, ‘[u]nconscionability
findings are reviewed de novo if they are based on declarations that raise ‘no
meaningful factual disputes.’
[Citation.] 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.†[Citation.] The ruling on severance is reviewed for abuse
of discretion.’ [Citations.] 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. [Citations.]â€
(Samaniego, supra, 205
Cal.App.4th at p. 1144.) We also review
the issue of Empire’s standing to enforce the arbitration provision de
novo. (Molecular Analytical Systems v. Ciphergen Biosystems, Inc. (2010)
186 Cal.App.4th 696, 708.)
II.
Agreement,
Agreement is Unenforceable
The court
determined that Empire, a nonparty to the Agreement, failed “to demonstrate by
a preponderance of the evidence that it [was] a third party beneficiary of the
Agreement. . . .â€
name="_ftnref5" title="">[5]
On appeal, Empire contends it has
standing to compel arbitration as a third-party beneficiary of the
Agreement. It also claims “Quinonez is
equitably estopped from asserting claims against Empire while repudiating the
Agreement.†We assume for purposes of
argument that Empire is a third-party beneficiary of the Agreement, but we
conclude the arbitration provision is unenforceable because it is procedurally
and substantively unconscionable.
“California
law on unconscionability is well established.
[U]nconscionability has generally been recognized to include an absence
of meaningful choice on the part of one of the parties together with contract
terms which are unreasonably favorable to the other party. [Citation.]
Phrased another way, unconscionability has both a procedural and a
substantive element. [Citation.] The procedural element requires oppression or
surprise. [Citation.] 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. [Citation.]
The substantive element concerns whether a contractual provision
reallocates risks in an objectively unreasonable or unexpected manner. [Citation.]
Under this approach, both the procedural and substantive elements must
be met before a contract or term will be deemed unconscionable. Both, however, need not be present to the
same degree. A sliding scale is applied
so that 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.
[Citations.]†(
1144-1145, internal quotations omitted, quoting Lhotka v. Geographic Expeditions, Inc. (2010) 181 Cal.App.4th 816,
821 (Lhotka).)
The
Agreement is Procedurally Unconscionable
In its opening brief, Empire relies on Lopez’s declaration
and contends the arbitration provision is not procedurally unconscionable
because Quinonez had “unlimited time to review the Agreement, had ample
opportunity to bargain, was walked through the Agreement’s specific terms, and
was welcome to keep a copy of the Agreement.â€
This argument fails for two reasons. First, it is based on a complete
mischaracterization of Lopez’s declaration.
In his declaration, Lopez described his general practice of providing
“potential installers†with subcontractor installer agreements. Lopez did not aver he took any particular
action with Quinonez. Lopez did not — as
Empire contends — aver he gave Quinonez
“an ‘unlimited’ amount of time to review the Agreement†and complete it, nor
did Lopez state he reviewed the Agreement with Quinonez and informed him that
he could “add provisions to, remove provisions from, or otherwise alter
provisions in the Agreement . . . .’†In fact, Lopez’s declaration says remarkably
little about Quinonez. In the final
paragraph of his declaration, Lopez stated only: (1) he “knows†Quinonez
because he “was an installer in the San Francisco Market. Mr. Quinonez was contracted with pursuant to
a written subcontractor agreement . . . in approximately November
2006[;]†and (2) Quinonez could communicate with him in English.
Empire’s
claim that it is not at fault for Quinonez’s apparent failure to read the
Agreement or “attempt negotiation†fails.
In the trial court, Quinonez averred Spanish is his first language and
that he speaks “very little English.â€
Quinonez further averred that when he was hired as an installer, he was
“required to execute a form Subcontractor Installer Agreement, whereupon [he]
was supposed to simply fill in [his] personal information on the first page and
sign and initial the Agreement. The
Agreement was presented [to him] as a take-it-or-leave-it contract, and there
was no negotiation whatsoever about the terms of the Agreement.†Considering— as we must — the evidence in the light most favorable to
the court’s determination, we conclude Quinonez was not presented with an
opportunity to negotiate the Agreement.
(Murphy v. Check ‘N Go of
California, Inc. (2007) 156 Cal.App.4th 138, 144 [reviewing trial court’s
determination of unconscionability in the light most favorable to trial court’s
determination].)
Second,
Empire’s argument lacks support in case law.
As it did unsuccessfully in Samaniego,
Empire relies primarily on Roman v.
Superior Court (2009) 172 Cal.App.4th 1462, where the appellate court
concluded an employment contract was not procedurally unconscionable because it
“was not buried in a lengthy employment agreement. Rather, it was contained on the last page of
a seven-page employment application, underneath the heading ‘Please Read
Carefully, Initial Each Paragraph and Sign Below.’ It was set forth in a separate, succinct
(four-sentence) paragraph that Roman initialed, affirming she had seen
it.†(Id. at p. 1471; see also Samaniego,
supra, 205 Cal.App.4th at p. 1145.)
As in Samaniego, Empire’s reliance
on Roman is misplaced. Here and in contrast to Roman, the arbitration clause is on the last two pages of a densely
worded, single-spaced contract printed in small typeface. And unlike Roman, the arbitration provisions here were not set out in a separate
section or flagged with a heading, and Quinonez did not initial them.
v. Superior Court (2006) 140 Cal.App.4th 1238, 1252-1253 [arbitration
provision unconscionable where it appeared near the end of a long,
single-spaced document and was not highlighted or separately initialed].)
Before oral argument, Empire
brought our attention to Flores v. West
Covina Auto Group, LLC (2013) 212 Cal.App.4th 895 (Flores), a case published after Empire filed its reply brief. In Flores,
plaintiff automobile buyers brought a class action against a dealership and
repair facility for, among other things, violations of the Consumer Legal
Remedies Act, and the Unfair Competition Law.
The trial court granted the defendants’ petition to compel arbitration,
concluding there was “‘no substantive unconscionability.’†On appeal, the plaintiffs argued the
arbitration clause was “unenforceable as unconscionable.†(Flores,
supra, 212 Cal.App.4th at pp. 905, 918.)
The Second
Appellate District disagreed and affirmed.
It held the arbitration clause presented only a “low degree of
procedural unconscionability.†(
921.) The Flores court noted the plaintiffs submitted declarations in
opposition to the petition to compel arbitration stating they: (1) were given a
stack of documents and told to sign or initial them; (2) did not have an
opportunity to negotiate the terms of the sales contract and were presented
with the contract on a take-it-or-leave-it basis; (3) felt rushed into signing
the documents; (4) did not realize the sales contract had a second, back side
with additional terms, including the arbitration clause; and (5) did not have
the opportunity to sign a contract without an arbitration clause or to use a
computer to download information about arbitration organizations, including
their procedures or rules. (
The
that the primary buyer “acknowledged†at her deposition that she had the
opportunity to thoroughly read the sales contract before signing it. (Flores,
supra, 212 Cal.App.4th at p. 920.)
In addition, the cobuyer testified the primary buyer “guided him through
the contract and told him where to sign,†including a line below the following
paragraph: “‘YOU AGREE TO THE TERMS OF THIS CONTRACT. YOU CONFIRM THAT BEFORE YOU SIGNED THIS
CONTRACT, WE GAVE IT TO YOU, AND YOU WERE FREE TO TAKE IT AND REVIEW IT. YOU ACKNOWLEDGE THAT YOU HAVE READ BOTH SIDES
OF THE CONTRACT, INCLUDING THE ARBITRATION CLAUSE ON THE REVERSE SIDE, BEFORE
SIGNING BELOW. YOU CONFIRM THAT YOU RECEIVED A COMPLETELY FILLED–IN COPY WHEN
YOU SIGNED IT.’†(Id. at pp. 920-921.)
The Flores court concluded the contract “represented a degree of
procedural unconscionability at the low end of the spectrum†because the
plaintiffs “did did not have the opportunity to negotiate the terms of the
contract and it was presented to them as a take-it-or-leave-it
proposition. That it was a contract of
adhesion establishes this low degree of procedural unconscionability.†(Flores,
supra, 212 Cal.App.4th at p. 921.)
The court, however, determined the contract was “at the low end of the
spectrum†of procedural unconscionability because the plaintiffs should not
have been surprised by the arbitration clause.
According to the court, “arbitration is a common means of dispute
resolution in this day and age and cannot fairly be said to defeat the
reasonable expectations of consumers.â€
In addition, the Flores court
explained, “the clause cannot fairly be described as hidden or inconspicuous
within a prolix form. The contract
itself is only one page with two sides.
The form points out the existence of the arbitration clause on the front
side in all capital letters, directly above the signature lines for the buyer
and cobuyer. The arbitration clause is
highlighted on the back in that it is outlined with a large box, by far the
largest box of the three boxed-in provisions on the page. The provision’s boldface, all capital heading
further highlights it.†(
The Flores court’s conclusion on procedural unconscionability is
distinguishable. Unlike the plaintiffs
in Flores, Quinonez did not — and
could not — read the contract before signing it. And in contrast to Flores, the Agreement was not two pages, but 11 single-spaced pages
of small-font print. The arbitration
clause was buried at the end of the Agreement — in the 34th section on the
final pages of the Agreement. And in
contrast to Flores, the arbitration
clause was not highlighted in any meaningful way.
Gutierrez
v. Autowest, Inc. (2003) 114 Cal.App.4th 77 is instructive (
in an automobile lease was procedurally unconscionable because the “lease was
presented to plaintiffs for signature on a ‘take it or leave it’ basis. Plaintiffs were given no opportunity to
negotiate any of the preprinted terms in the lease. The arbitration clause was particularly
inconspicuous, printed in eight-point typeface on the opposite side of the
signature page of the lease. [The
plaintiff] was never informed that the lease contained an arbitration clause,
much less offered an opportunity to negotiate its inclusion within the lease or
to agree upon its specific terms. He was
not required to initial the arbitration clause.†(Id.
at p. 89.)
Here as in Gutierrez, Quinonez was presented with the Agreement on a “take-it
or leave it†basis. As the trial court
concluded, “[t]here was no negotiation of the subject Agreement or the
arbitration provisions,†and there was “clearly unequal bargaining power
between the manual laborer and the corporate ‘employer.’ The Spanish-speaking Plaintiff was presented
with the lengthy English form contract, in tiny print, and required to fill in
the blanks and sign it — without negotiation.â€
Substantial evidence supports this conclusion and, as a result, the
trial court properly determined the Agreement was procedurally unconscionable.
The
Agreement is Substantively Unconscionable
Empire contends the court erred by
concluding the arbitration provision was substantively unconscionable. According to Empire, the arbitration
provision is “entirely fair†because Quinonez: (1) does not have to pay the
costs of the arbitration; (2) does not have to travel to participate in the
arbitration; and (3) is able to recover attorney fees. We are not persuaded.
“‘[S]ubstantive
unconscionability focuses on the one-sidedness of the contract terms. In the context of an arbitration agreement,
the agreement is unconscionable unless there is a ‘“modicum of bilateralityâ€â€™
in the arbitration remedy.
[Citations.] ‘Although parties
are free to contract for asymmetrical remedies and arbitration clauses of
varying scope, . . . the doctrine of unconscionability limits the
extent to which a stronger party may, through a contract of adhesion, impose
the arbitration forum on the weaker party without accepting that forum for
itself.’ [Citation.]†(Flores
v. Transamerica HomeFirst, Inc. (2001) 93 Cal.App.4th 846, 853 (
There are numerous one-sided
provisions in the Agreement. First, it
requires the subcontractor to deposit at least $1,500 into an escrow account
controlled by Empire and allows Empire to deduct amounts from the
subcontractor’s pay. Second, the
Agreement requires the subcontractor to waive his or her right to file a
mechanic’s lien. Third, the Agreement
requires Quinonez to pay attorney fees incurred by Empire, but imposes no such
reciprocal obligation on Empire. (
1147 [identical requirement requiring plaintiffs to pay Empire’s attorney fees
“contribute[d] to a finding of unconscionabilityâ€].) Finally, — and as in Samaniego — “the Agreement exempts from the arbitration requirement
claims typically brought by employers—namely, those seeking declaratory and preliminary
injunctive relief to protect Empire’s proprietary information and
noncompetition/nonsolicitation provisions—while restricting to arbitration any
and all claims plaintiffs might bring.â€
(Id. at p. 1147; cf.
[agreement not substantively unconscionable where arbitration provision allowed
both parties to seek self-help remedies in small claims court without waiving
the right to arbitration].)
At oral argument, counsel argued
unconscionable provisions in the agreement at issue in that case — specifically
a shortened six-month limitations period and one-sided attorney fee provision
in Empire’s favor — are not present in the Agreement. This argument misses the point for two
reasons. First, the agreements in both
cases restrict the plaintiffs’ self-help remedies. Second, the Agreement contains several
one-sided provisions. The absence of a
shortened statute of limitations and a one-sided attorney fee provision does nothing
to diminish the fact that the Agreement does “not display a modicum of
bilaterality.†(Transamerica, supra, 93 Cal.App.4th at p. 854.) Here as in Samaniego, “the multiple one-sided provisions in the Agreement,
considered together,†exhibit a “strong indicia of substantive
unconscionability.†(
1148.) As a result, the court properly
concluded the Agreement was substantively unconscionable.
III.
Law Applies
Empire
contends Illinois law governs the enforceability of the arbitration clause
because the Agreement contains a choice of law provision providing, “[t]his
Agreement shall be governed by, and construed in accordance with, the laws of
Illinois[.]†Empire contends the trial
court erred when it declined to enforce this clause and applied California law
when deciding the motion to compel arbitration.
Relying on Nedlloyd Lines B.V. v. Superior Court (1992) 3 Cal.4th 459, 464-465
(Nedlloyd), Empire claims the
choice-of-law clause must be “construed broadly†to encompass plaintiffs’
claims. The problem with this argument
is that it was rejected in Samaniego,
supra, 205 Cal.App.4th at page 1138, where our colleagues in Division Three
concluded “Empire’s reliance on Nedlloyd
misses the mark. There, the Supreme
Court explained that ‘[u]nder Nedlloyd,
. . . the weaker party to an adhesion contract may seek to avoid
enforcement of a choice-of-law provision therein by establishing that
“substantial injustice†would result from its enforcement [citation] or that
superior power was unfairly used in imposing the contract [citation]
[indicating that evidence of unfair use of bargaining power may defeat
enforcement of a forum-selection clause contained in an adhesion
contract].’ [Citation.] Thus, ‘“[a] choice-of-law provision, like any
other contractual provision, will not be given effect if the consent of one of
the parties to its inclusion in the contract was obtained by improper means,
such as by misrepresentation, duress, or undue influence, or by mistake. Whether such consent was in fact obtained by
improper means or by mistake will be determined by the forum in accordance with
its own legal principles. . . . Choice-of-law provisions
contained in [adhesion] contracts are usually respected. Nevertheless, the forum will scrutinize such
contracts with care and will refuse to apply any choice-of-law provision they
may contain if to do so would result in substantial injustice to the
adherent.â€â€™ [Citation.]†(Samaniego,
supra, 205 Cal.App.4th at p. 1148, quoting Washington Mutual Bank v. Superior Court (2001) 24 Cal.4th 906,
917-918 & fn. 6.) The
same factors that render the arbitration provision unconscionable warrant the
application of California law.†(
1149.)
In its
opening and reply briefs, Empire did not contend Samaniego was wrongly decided.
In fact, Empire did not cite Samaniego
at all. In its response to the
California Rules of Court, rule 8.276 notice, counsel for Empire claimed “the
choice-of-law provision is distinguishable†because the “two cases have very
different factual records and materially different agreements.†We disagree.
The circumstances surrounding the formation of the Agreement are similar
in both cases, and the agreements in both cases contain several one-sided,
substantively unconscionable provisions.
As in Samaniego, the factors
that render the Agreement unconscionable warrant the application of California
law. (Samaniego, supra, 205 Cal.App.4th at p. 1148.)
IV.
Argument Regarding Concepcion Has No Merit
Empire
contends the
Supreme Court’s decision in Concepcion, supra,
131 S.Ct. 1740 “dispels any doubt about the enforceability of [the] arbitration
provisions.†According to Empire,
Arbitration Act (FAA) to “preempt[ ] each unconscionability-based rationale the
Superior Court provided for invalidating the arbitration provision here.â€
The problem with this argument is
that it is identical to the argument made by Empire and rejected by our
colleagues in Samaniego, supra, 205
Cal.App.4th at pages 1150-1151. Empire
does not contend Samaniego’s
rationale on this point was flawed. We
agree with Samaniego and conclude
state law continues to govern the unconscionability defense after
“‘[g]enerally applicable contract defenses . . . such as unconscionability,
may be applied to invalidate arbitration agreements without contravening’ the
FAA.†(Pinnacle Museum Tower Assn. v. Pinnacle Market Development (
246-250, quoting Doctor’s Associates, Inc. v. Casarotto (1996) 517 U.S. 681,
687.) Put another way, “the California
Supreme Court has not held that unconscionability is no longer a viable defense
to enforcement of an arbitration agreement.
Rather, since Concepcion, the
court has found the FAA applied in a construction defect dispute and proceeded
to analyze whether the arbitration clause was unconscionable under California
law, all without reference to Concepcion.†(Flores,
supra, 212 Cal.App.4th at p. 919; see
also Sparks v. Vista Del Mar Child &
Family Services (2012) 207 Cal.App.4th 1511, 1519 [“Concepcion did not eliminate state law unconscionability as a
defense to the enforcement of arbitration agreements subject to the Federal
Arbitration Actâ€]; see also Natalini v.
Import Motors, Inc. (2013) 213 Cal.App.4th 587, 595 [rejecting an argument
similar to the one Empire makes here
and noting “the impact of Concepcion
is before the California Supreme Court in [a] car purchase agreement
arbitration provision case, Sanchez v.
Valencia Holding Co.
. . . , S199119â€]; Flores,
at p. 912 [“the defense of unconscionability to terms other than class
arbitration waivers survives Concepcionâ€].)
V.
Court Did Not Err by Refusing to Sever the Agreement
As noted
above, the court declined to sever the unconscionable provisions of the
Agreement and enforce arbitration. It
concluded severance was not appropriate notwithstanding the Agreement’s
severance clause because “there is extensive interplay between the arbitration
clause and the other provisions of the Agreement maximizing the remedies and
rights of CA West Flooring . . . while subtracting and minimizing the
remedies and rights of [Quinonez]. The
arbitration provision has multiple unconscionability problems involving multiple
provisions.â€
Empire’s final argument is the
court erred by refusing to sever “any supposedly unconscionable terms†and
otherwise enforce arbitration. We
disagree. “When an arbitration agreement
is ‘permeated’ by unconscionability[,] the decision whether to sever the
objectionable clauses or refuse to compel arbitration is within the trial
court’s exercise of discretion.
[Citations.]†(
1149.) “‘An 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 . . . not simply as an alternative to
litigation, but as an inferior forum that works to the [stronger party’s]
advantage.†[Citations.] “The overarching inquiry is whether ‘“the
interests of justice . . . would be furtheredâ€â€™ by severance.â€â€™ (Ibid, quoting
Lhotka, supra, 181 Cal.App.4th at p. 826.)
Here, the court did not abuse its
discretion by concluding severance would not serve the interests of
justice. The authorities cited by
Empire, including Gutierrez, supra, 114
Cal.App.4th 77, and McManus v. CIBC World
Markets Corp. (2003) 109 Cal.App.4th 76 (McManus) do not alter our conclusion. In Gutierrez,
the “plaintiffs did not argue that any aspect of the arbitration agreement,
aside from the costs provision, was unconscionable.†As a result, we concluded plaintiffs “waived
any argument that multiple defects exist in the arbitration agreement
precluding severance.†(
93.) Here, there was no such
waiver. McManus is similarly inapposite.
There, the court determined only one provision — one requiring the
payment of fees — was unconscionable. As
the court explained, “with the exception of the cost provision, the arbitration
agreements are otherwise enforceable.
The arbitration agreements are not so ‘permeated’ with unconscionable
provisions that cannot be saved.†(
102, quoting Armendariz v.
(2000) 24 Cal.4th 83, 122-125.) As such,
the court properly declined to sever the Agreement.
Having
reached the conclusion that the Agreement is procedurally and substantively
unconscionable and that the court properly declined to sever it, we need not address
Empire’s argument that the court erred by concluding it failed to establish a
foundation for the Agreement. We note,
however, that “[f]or purposes of a petition to compel arbitration, it is not
necessary to follow the normal procedures of document authentication. ‘[T]he court shall order the petitioner and
the respondent to arbitrate the controversy if it determines that an agreement
to arbitrate the controversy exists. . . .’ [Citation.] The statute does not require the petitioner
to introduce the agreement into evidence.
A plain reading of the statute indicates that as a preliminary matter
the court is only required to make a finding of the agreement’s existence, not
an evidentiary determination of its validity.â€
(Condee v. Longwood Management Corp.
(2001) 88 Cal.App.4th 215, 218-219, citing Code Civ. Proc., § 1281.2.)
DISPOSITION
The order
denying motion to dismiss for improper venue or to stay and compel arbitration
is affirmed. Quinonez is awarded costs
on appeal.
_________________________
Jones,
P.J.
We concur:
_________________________
Needham, J.
_________________________
Bruiniers, J.
claims CA West Flooring is a subcontractor of an entity it calls “Empire
Carpets California Limited Partnership.â€
Empire does not describe its relationship with CA West Flooring or with
Empire Carpets California Limited, nor does Empire cite any evidence supporting
this claim.
apparently dismissed CA West Flooring as a defendant and sued it in a separate
action, Quinonez v. CA West Flooring,
Inc., San Mateo Superior Court (No. CIV4992076). According to Quinonez’s attorney, CA West
Flooring was “in default†in that action as of September 2011.
