Serpa v.
Investigations
Filed 3/21/13 Serpa v. Cal. Surety Investigations CA2/7
California Rules of Court, rule 8.1115(a), prohibits courts
and parties from citing or relying on opinions not certified for publication or
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publication or ordered published for purposes of rule 8.1115
IN
THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND
APPELLATE DISTRICT
DIVISION
SEVEN
VALERIE SERPA,
Plaintiff and Respondent,
v.
CALIFORNIA SURETY
INVESTIGATIONS, INC., et al.,
Defendants and Appellants.
B237363
(Los Angeles
County
Super. Ct.
No. BC464218)
APPEAL from
an order of the Superior Court
of
County, Ruth Ann Kwan, Judge.
Reversed and remanded with directions.
Paul,
Plevin, Sullivan & Connaughton, Fred M. Plevin, Jeffrey P. Ames and Matthew
R. Jedreski for Defendants and Appellants, California Surety Investigations,
Inc., Two Jinn, Inc., Aladdin Bail Bonds and Peter Holdsworth.
Stevens,
Carlberg & McMillan and Daniel P. Stevens for Plaintiff and Respondent
Valerie Serpa.
__________________
>
California Surety Investigations (CSI), its employee
Peter Holdsworth and CSI’s parent company, Two Jinn, Inc., doing business as
Aladdin Bail Bonds (collectively CSI parties), appeal from the order denying
their motion to compel arbitration of
claims brought against each of them by Valerie Serpa for sexual harassment,
employment discrimination, wrongful termination in violation of public policy
and related causes of action. The CSI
parties contend the trial court erred in concluding the arbitration agreement
Serpa signed was unconscionable and, therefore, unenforceable. We reverse.
FACTUAL AND PROCEDURAL BACKGROUND
1. Serpa’s
Complaint
On June 24, 2011 Serpa filed a
complaint in Los Angeles County Superior Court alleging claims against the CSI
parties under the Fair Employment and
Housing Act (FEHA) for sexual harassment, gender discrimination,
retaliation and failure to prevent harassment and discrimination (Gov. Code,
§ 12940, subds. (a), (h), (j), (i), & (k)). Serpa’s complaint also included claims for
violation of the Family Rights Act (Gov. Code, § 12945.2) and wrongful
termination in violation of public policy.
2. The CSI
Parties’ Motion To Compel Arbitration
On August 9, 2011 the CSI parties moved to compel arbitration
contending Serpa had agreed at the inception of her employment as a bail bonds
investigator with CSI to arbitrate all claims arising out of her
employment. The motion was based on
three documents that were attached as exhibits:
(1) “Acknowledgment of Receipt of
Arbitration and Agreement to Arbitrate†(the arbitration agreement); (2) “Acknowledgment
of Receipt of Employee Handbookâ€; and (3) a copy of CSI’s employee
handbook.
a. The
arbitration agreement
The
arbitration agreement that Serpa signed provided, “I understand and agree that
if my employment is terminated or my employment status is otherwise changed or
if any other dispute arises concerning my employment and The Company and I
cannot resolve such dispute through informal internal efforts, I will submit
any such dispute (including, but not limited to wage and hour claims, claims of
unlawful discrimination based on race, sex, age, national origin, disability or
any other basis prohibited by law, but excluding claims which are required by
law to be resolved solely by a public agency, such as claims relating to
workers’ compensation or unemployment insurance) exclusively to binding
arbitration before a retired judge. I
further agree to abide by the procedures in The Company’s Arbitration
Policy. I have received a copy of the
Arbitration Policy that is located in the employee handbook.â€
b. The
employee handbook arbitration policy
Page three
of the employee handbook, under the bold-face-type heading “Arbitration
Agreement,†contains the company’s arbitration policy: “The Company has adopted an arbitration
policy, which provides for mandatory arbitration of all disputes arising out of
any employee’s employment at the Company, an employee’s termination of
employment or other change in employment status, which cannot be resolved by
informal internal resolution. By
accepting or continuing in employment with the Company, every employee agrees
to the following policy[:]
“If your
employment is terminated or your employment status is otherwise changed and you
believe that your rights were violated or if any other dispute arises
concerning your employment which you and the Company cannot resolve informally
and internally, you and the Company agree to submit the dispute (including, but
not limited to wage and hour claims and, claims of unlawful discrimination
based on race, sex, age, national origin, disability or any other basis
prohibited by law), exclusively to binding arbitration before a retired
judge. This Arbitration Policy
specifically excludes only those claims that are required by law to be heard
solely by a public agency such as worker’s compensation. . . . [¶] . . . [¶]
“You and
the Company shall each bear your own costs for legal representation at any such
arbitration. The Company will be
responsible for all costs associated with the arbitration (with the exception
of legal representation). . . .
“You and
the Company agree that if any court of competent jurisdiction declares that any
part of this Arbitration Policy or the Acknowledgment of Receipt of Arbitration
Policy and Agreement to Arbitration, which is being provided to you at the same
time, is illegal, invalid or unenforceable, such a declaration will not affect
the legality, validity or enforceability of the remaining parts of either
document, and the illegal, invalid, or unenforceable part will no longer be
part of either document.â€
name="_ftnref1" title="">[1]
The second
paragraph of page three of the handbook, under the heading “Right to Revise,â€
states, “The Company retains the right to revise, modify, or delete any
provision or policy in this Handbook, or the implementation of any provision or
policy, except for the policy of at-will employment, at any time.â€
c. Acknowledgment
of receipt of employee handbook
On the first day of her
employment, Serpa also received and signed a document entitled “Acknowledgment
of Receipt of Employee Handbook†in which she acknowledged reviewing a copy of
the handbook and agreed to abide by the terms and conditions of her employment
as stated in the handbook. This
acknowledgment form also stated, “I understand that any and all policies or
practices [in the handbook] can be changed at any time by employer. Employer reserves the right to change my
hours, wages and working conditions at any time. . . . I also understand that the employer reserves
the right to amend, modify, rescind, delete, supplement or add to the
provisions of the Handbook, as it deems appropriate from time to time in its
sole discretion.â€
3.
Serpa’s Opposition to the Motion
To Compel Arbitration
Serpa
opposed the motion to compel arbitration, asserting any agreement to arbitrate
was unconscionable. She argued the
agreement to arbitrate was part of an adhesion contract, lacked mutuality of
obligation and, because any part of the handbook, including the arbitration
policy, could be revised at any time by CSI, was illusory. In addition, Serpa argued the arbitration
agreement was substantively unconscionable because it required her to submit to
internal grievance procedures before pursuing arbitration, thus giving CSI a
“free peek†at her case, and deprived her of her statutory right under FEHA to
recover attorney fees if she prevailed on any of her FEHA claims (Gov. Code,
§ 12965, subd. (b)).
4. The
Trial Court’s Ruling Denying the CSI Parties’ Motion
The trial court denied the CSI
parties’ motion to compel arbitration, agreeing with Serpa that the agreement
was unconscionable. The court found the
agreement to arbitrate, considered alone and on its face, lacked mutuality
because it required Serpa to arbitrate her employment-related claims against
CSI but did not compel CSI to arbitrate its disputes with Serpa. It also concluded that, while the arbitration
policy expressed in the handbook and incorporated by reference into the
agreement to arbitrate appeared to make the facially unilateral agreement to
arbitrate bilateral, the bilateral nature of the agreement was actually
illusory because CSI could change the arbitration policy as stated in the
handbook at its sole discretion and without notice. Finding the offending nature of the agreement
could not be severed without rewriting the agreement, the court concluded the
agreement was unconscionable and unenforceable.
DISCUSSION
1. Public
Policy in Favor of Arbitration and Standard of Review
There is a strong public policy
in favor of arbitration. (
California (2003) 31 Cal.4th 1187, 1195 [recognizing strong federal and
state public policies favoring arbitration]; Moncharsh v. Heily & Blase (1992) 3 Cal.4th 1, 9;
(1997) 15 Cal.4th 951, 971-972.) Under both the Federal Arbitration
Act (FAA) and the California Arbitration Act (CAA), arbitration agreements are
valid, irrevocable and enforceable except upon grounds that exist for
revocation of the contract generally.
(See Armendariz v. Foundation
Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, 97-99 (
U.S. __ [131 S.Ct. 1740, 1746, 179 L.Ed.2d 742] [under § 2 of the FAA,
arbitration agreement is valid, irrevocable and enforceable “save upon such
grounds as exist at law or in equity for the revocation of any contractâ€]; Code
Civ. Proc., §§ 1281 [same]; 1281.2, subd. (b) [on petition of party to
arbitration agreement to arbitrate controversy with another party to agreement,
court must compel arbitration unless grounds exist for revocation of
agreement].)
Like any
other contract, an agreement to arbitrate is subject to revocation if the
agreement is unconscionable. (
Market Development (US)
§ 1670.5, subd. (a) [“[i]f 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
resultâ€].)
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. (
Cal.App.4th 1462, 1468-1469 (Roman);
Cal.App.4th 1138, 1144.)
2. Governing
Law on Unconscionability
Unconscionability has both
procedural and substantive elements. (
1469.) Although both must appear for a
court to invalidate a contract or one of its individual terms (
Cal.App.4th 466, 482 (Wayne)), they
need not be present in the same degree:
“[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.†(Armendariz, at p. 114; accord, Roman,
at p. 1470.)
Procedural
unconscionability focuses on the elements of oppression and surprise. (Pinnacle,
supra, 55 Cal.4th at p. 247; Roman,
supra, 172 Cal.App.4th at p. 1470; Wayne,
supra, 135 Cal.App.4th at pp. 480-481.)
“‘“‘Oppression arises from an inequality of bargaining power which
results in no real negotiation and an absence of meaningful choice. . . . Surprise involves the extent to which the
terms of the bargain are hidden in a “prolix printed form†drafted by a party
in a superior bargaining position.’â€â€™â€ (
167, 174 [“procedural unconscionability focuses on the oppressiveness of the
stronger party’s conductâ€]; Pinnacle,
at p. 247.)
Substantive
unconscionability focuses on the actual terms of the agreement and evaluates
whether they create an “‘“overly harshâ€â€™â€ or “‘“one-sidedâ€â€™ result†(Armendariz,
supra, 24 Cal.4th at p. 114; accord,
29 Cal.4th 1064, 1071 (Little)),
that is, whether contractual provisions reallocate risks in an objectively
unreasonable or unexpected manner. (
112 Cal.App.4th 1527, 1539.)
Substantive unconscionability “may take various forms,†but typically is
found in the employment context when the arbitration agreement is “one-sidedâ€
in favor of the employer without sufficient justification, for example, when
“the employee’s claims against the employer, but not the employer’s claims
against the employee, are subject to arbitration.†(Little,
at p. 1072; accord, Roman, supra, 172 Cal.App.4th
at pp. 1469-1470; see also Armendariz,
at p. 119 [“[i]t is unfairly one-sided for an employer with superior bargaining
power to impose arbitration on the employee as plaintiff but not to accept such
limitations when it seeks to prosecute a claim against the employee, without at
least some reasonable justification for such one-sidedness based on ‘business
realities’â€]; Kinney v. United HealthCare
Services, Inc. (1999) 70 Cal.App.4th 1322, 1330 [“‘[s]ubstantive
unconscionability’ focuses on the terms of the agreement and whether those
terms are ‘so one-sided as to “shock the conscienceâ€â€™â€].)
3. The
Trial Court Erred in Concluding the Agreement To Arbitrate Was
and Unenforceable
a. Procedural
unconscionability
It is well settled that adhesion
contracts in the employment context, that is, those contracts offered to
employees on a take-it-or-leave-it basis, typically contain some aspects of
procedural unconscionability. (See
arbitration contracts, the economic pressure exerted by employers on all but
the most sought-after employees may be particularly acute, for the arbitration
agreement stands between the employee and necessary employment, and few
employees are in a position to refuse a job because of an arbitration
agreementâ€]; Little, supra, 29 Cal.4th
at p. 1071 [same].)
The instant
agreement to arbitrate is no different.
It provides that, “by accepting or continuing in employment,†Serpa
agrees to the terms of the arbitration agreement. The parties presented neither evidence nor
argument that Serpa had any opportunity to negotiate the terms of the
agreement. Nonetheless, as we have
explained, this adhesive aspect of an agreement is not dispositive. (Roman,
supra, 172 Cal.App.4th at p. 1471 & fn. 2.) When, as here, there is no other indication
of oppression or surprise, “the degree of procedural unconscionability of an
adhesion agreement is low, and the agreement will be enforceable unless the
degree of substantive unconscionability is high.†(Ajamian
v. CantorCO2e (2012) 203 Cal.App.4th 771, 796; accord, Dotson v. Amgen, Inc. (2010) 181 Cal.App.4th 975, 981-982; see
generally Roman, at p. 1471,
fn. 2 [“[w]hen bargaining power is not grossly unequal and reasonable
alternatives exist, oppression typically inherent in adhesion contracts is
minimalâ€].)
title="">[4]
b. Substantive
unconscionability
The obligation to arbitrate is mutual
Serpa
contends the agreement to arbitrate is one-sided because it requires her to
submit claims against CSI to arbitration but does not require CSI to arbitrate
its claims against her: “I understand
and agree that if my employment is terminated or my employment status is
otherwise changed or any other dispute arises concerning my
employment . . . , I will submit any such dispute
exclusively to binding arbitration.†Were that the full extent of the
agreement, we would likely agree it lacked mutuality because it requires Serpa
to submit to arbitration “any such disputes†involving her employment without
imposing a similar obligation on CSI.
(See Armendariz,
[arbitration agreement that imposes obligation only on employee to arbitrate
employee’s claims lacks mutuality and is unconscionable]; Baltazar v. Forever 21, Inc.
(2012) 212 Cal.App.4th 221, 234.) In
this way, this document, at least on its face, is far different from that in
in which we held the words “I agree†did not vitiate an otherwise bilateral
obligation to arbitrate “all disputes and claims that might arise out of my
employment.†(Id. at pp. 1466-1467, 1471; see e.g., Nyulassy v. Lockheed Martin Corp. (2004) 120 Cal.App.4th 1267, 1273
[where arbitration obligation was triggered solely by employee’s objection to
company’s personnel decision, agreement lacked mutuality]; O’Hare v. Municipal Resource Consultants (2003) 107 Cal.App.4th
267, 271 [arbitration provision unilateral and unconscionable because language
providing “Any claim that you may have
arising out of or relating to this Agreement . . . shall be settled
by binding arbitration†imposed obligation to arbitrate only on employee,
not employer].)
title="">[5]
However, as
the trial court recognized, the agreement’s incorporation of the arbitration
policy in the employee handbook (see generally Boys Club of San Fernando Valley, Inc. v. Fidelity & Deposit Co. (1992)
6 Cal.App.4th 1266, 1271 [“[a]n agreement need not expressly provide for
arbitration, but may do so in a secondary document which is incorporated by
referenceâ€]; Chan v. Drexel Burnham
Lambert, Inc. (1986) 178 Cal.App.3d 632, 641 [same]) salvages the
agreement by establishing an unmistakable mutual obligation on the part of CSI
and Serpa to arbitrate “any dispute†arising out of her employment. (See Roman,
supra, 172 Cal.App.4th at pp. 1467, 1471 [agreement providing
“all disputes and claims arising out of†employment was bilateral because it
covered both employer’s and employee’s claims]; McManus v. CIBC World Markets Corporation (2003) 109 Cal.App.4th
76, 100 [agreement to arbitrate “‘[a]ll disputes arising out of your
employment’†created mutual obligation to arbitrate].)
ii. The
obligation to arbitrate is not illusory
Serpa
agrees the arbitration policy in the handbook establishes a bilateral
obligation to arbitrate but insists that mutual obligation is illusory because,
as both the handbook and the written acknowledgment of its receipt make clear,
CSI is authorized to alter the terms of any policy contained in the handbook at
its sole discretion and without notice.
(See Mattei v. Hopper (1958)
51 Cal.2d 119, 122 [an agreement is illusory if it leaves one party “free to
perform or to withdraw from the agreement at his own unrestricted
pleasureâ€].) This argument fails to
recognize the fundamental limit on CSI’s ability to alter the arbitration
agreement imposed by the covenant of good faith and fair dealing implied in
every contract.
The implied
covenant of good faith prevents one contracting party from “unfairly
frustrating the other party’s right to receive the benefits of the agreement
actually made.†(Guz v. Bechtel National, Inc.
(2000) 24 Cal.4th 317, 349; accord, American
Express Bank, FSB v. Kayatta (2010) 190 Cal.App.4th 563, 570.) Thus, it has long been the rule that a
provision in an agreement permitting one party to modify contract terms does
not, standing alone, render a contract illusory because the party with that
authority may not change the agreement in such a manner as to frustrate the
purpose of the contract. (See
38 Cal.3d 913, 923 [“‘where a contract confers on one party a discretionary
power affecting the rights of the other, a duty is imposed to exercise that
discretion in good faith and in accordance with fair dealing’â€]; see generally
23 Cal.4th 1, 16 [employer’s right to unilaterally modify employment
agreement does not make agreement illusory]; Badie v. Bank of America (1998) 67 Cal.App.4th 779, 787-788
[contracting party with unilateral right to modify contract does not have
“carte blanche to make any kind of change whatsoeverâ€; unilateral right to
modify, when limited by the implied covenant of good faith and fair dealing,
requires the party holding the power to affect the other party’s rights to
exercise it in a manner consistent with the reasonable contemplation of the
parties at the time of the contract].)
Application
of the implied covenant of good faith and fair dealing is no different in the
arbitration context. In
66 Cal.App.4th 1199 (24 Hour Fitness),
a former employee brought an action against the company, doing business as 24
Hour Nautilus, for sexual harassment and related torts. The employer moved to
compel arbitration based on an arbitration policy in its employee handbook,
which also contained a provision allowing the company to amend the handbook at
its sole discretion. The
plaintiff’s contention the unilateral right-to-amend provision made the
arbitration agreement illusory and thus unconscionable. Observing the parties to an arbitration
agreement, like any contract, are bound by the contract’s implied covenant of
good faith, the court explained, “Nautilus’s discretionary power to modify the
terms of the personnel handbook on [written] notice indisputably carries with
it the duty to exercise that right fairly and in good faith. [Citation.]
So construed, the modification provision does not render the contract
illusory.†(Id. at p. 1214.)
204 Cal.App.4th 1425 (Peleg) is not
to the contrary. In Peleg the employee of a department store asserted the arbitration
agreement he signed was illusory because the store retained the unilateral
right to amend, modify or revoke the agreement on 30 days’ advance written
notice, with the change to apply to any unfiled claim. (Id. at
p. 1437.) Citing 24 Hour Fitness, the Peleg court
observed, had the agreement to arbitrate simply authorized the department store
to make unilateral modifications, it would not be illusory under California law
because the implied covenant of good faith and fair dealing would preclude any
change that undermined the employee’s rights.
(Peleg, at pp.
1465-1466.) What made the agreement
problematic, in the court’s view, was that it expressly applied to unfiled
claims, including those that had accrued, thus potentially permitting the
employer to modify the agreement retroactively to frustrate the employee’s
rights in arbitration. Because the
agreement specifically allowed retroactive modifications, the implied covenant
could not be used to vary those express contract terms and limit the employee
to prospective amendments only. (
right fair and in good faith, it may not give rise to duties or obligations
that conflict with the agreement’s express termsâ€]; see Carma Developers (Cal.),
Inc. (1992) 2 Cal.4th 342, 374 [“the implied covenant of good faith is
read into contracts ‘in order to protect the express covenants or promises of
the contract, not to protect some general public policy interest not directly
tied to the contract’s purpose’â€].) Without the benefit of the implied covenant to
rein in and restrict the employer’s otherwise unilateral right to modify the
agreement to include unfiled claims, the court held the agreement to arbitrate
was illusory and invalid under California law.
(Peleg, at pp. 1464-1465.)
The
peculiar issue of retroactivity that concerned the court in
with that court’s implicit conclusion that modifications to arbitration
procedures affecting accrued claims would not be subject to the implied covenant
of good faith. (See Peleg, supra, 204 Cal.App.4th at pp. 1433, 1465.) Simply stated, under the analyses of both
faith and fair dealing is properly applied in this case and saves this
arbitration contract from being illusory.
(See 24 Hour Fitness,
see generally Civ. Code, § 1643 [if possible without violating the
parties’ unambiguous intent, a contract is interpreted so as to make it
“lawful, operative, definite, reasonable and capable of being carried into
effectâ€]; Pearson Dental Supplies v.
Superior Court (2010) 48 Cal.4th 665, 682 [whenever possible court
interprets contract in manner that is consistent with parties’ intent and
renders contract enforceable rather than void].)
Serpa
alternatively argues, and the trial court apparently agreed,
because the arbitration provision in that case permitted the employer to modify
the handbook’s policies only after giving the employee written notice, while in
the instant case the agreement can be modified by CSI to the employee’s
detriment without any notice. This
characterization of the agreement in 24 Hour
Fitness is questionable. No advance
notice was required; only written notice after the fact. (See 24 Hour
Fitness, supra, 66 Cal.App.4th at p. 1213 [Nautilus “reserves the right to
change any provision in this Handbook at any time for any reason without
advance notice†provided changes are made in a writing provided to employee].) In any event, when, as here, the agreement is
silent as to notice, implied in the unilateral right to modify is the
accompanying obligation to do so upon reasonable and fair notice. (See, e.g., Asmus v. Pacific Bell, supra, 23 Cal.4th at p. 16; see generally
334.) In sum, this is an even stronger
case than 24 Hour Fitness to conclude
the implied covenant of good faith and fair dealing limits the employer’s
authority to unilaterally modify the arbitration agreement and saves that
agreement from being illusory and thus unconscionable.
unconscionable but may be severed without vitiating the agreement to arbitrate
Serpa
contends the agreement to arbitrate is substantively unconscionable because, by
requiring the parties to bear their own attorney fees, it purports to deprive
Serpa of unwaivable statutory remedies available to her if she prevails on her
FEHA claims at the arbitration. (See
Gov. Code, § 12965, subd. (b); Chavez
v. City of Los Angeles (2010) 47 Cal.4th 970, 984 [FEHA’s
authorization of attorney fees is intended, among other things, to make it
easier for plaintiffs of limited means to pursue meritorious claims and thereby
encourage litigation of claims that are in the public interest];
124 & fn. 13 [agreement to arbitrate is substantively unconscionable when
it purports to deprive employee of unwaivable statutory rights and remedies
under FEHA]; Ajamian v. CantorCO2e, L.P.,
[arbitration agreement eliminating plaintiff’s statutory right to recover
attorney fees under Lab. Code if she prevailed on her overtime claim and
imposing on her obligation to pay reasonable attorney fees in event employer
prevailed was unconscionable; “‘[t]his violates Armendariz’â€].)
The
CSI parties, on the other hand, urge the requirement that each party bear her
or its own attorney fees is not substantively unconscionable; it simply applies
the “American rule†that, unless expressly provided in contract or statute,
each party to a litigation must pay its own attorney fees. (See Trope
v. Katz (1995) 11 Cal.4th 274, 278; see also Code Civ. Proc., § 1021
[absent contractual or statutory authority, each party bears own attorney
fees].) In those cases where attorney
fees are statutorily authorized, they argue, as in FEHA actions, the attorney
fee provision will be applied consistently with existing FEHA requirements. (Cf. Armendariz,
supra, 24 Cal.4th at p. 113 [absence of specific provisions on costs
in arbitration agreement is not ground for denying enforcement of arbitration
agreement; rather, agreement will be interpreted consistently with FEHA’s
requirements]; see generally Pearson
Dental Supplies, Inc. v. Superior
Court, supra, 48 Cal.4th at p. 682 [ambiguity in agreement should be
interpreted, whenever possible, in manner consistent with parties’ intent and
to make agreement valid rather than void].)
Had
the agreement to arbitrate been silent on the question of attorney fees, or
provided for the recovery of attorney fees in an appropriate circumstance or in
accordance with applicable law, we might agree with the CSI parties. However, the attorney fee provision is not
ambiguous. It expressly requires each
party to bear his, her or its own attorney fees regardless of the type of
action brought. It provides for this
approach even while expressly stating the agreement governs actions for
harassment and discrimination. For that
reason, the provision limiting the recovery of attorney fees is
unenforceable. (Armendariz, supra, 24 Cal.4th at p. 124.) That determination, however, does not vitiate
the underlying agreement to arbitrate.
When, as here, the arbitration agreement is not otherwise permeated by
unconscionability, the offending provision, which is plainly collateral to the
main purpose of the contract, is properly severed and the remainder of the
contract enforced. (See
1462; Armendariz, at p. 122
[although Civ. Code, § 1670.5 gives trial court some discretion whether to
sever the unconscionable provision or refuse to enforce entire agreement, it
also appears “to contemplate the latter course only when an agreement is
“‘permeated’ by unconscionabilityâ€]; Dotson
v. Amgen, Inc., supra, 181 Cal.App.4th at pp. 985-986 [same].)
iv. Language in the agreement contemplating internal efforts to resolve the
dispute before it is submitted to arbitration is not substantively
unconscionable
Relying on language in
1267, Serpa contends the agreement to arbitrate “requires†her to submit her
dispute informally to the company before seeking arbitration and thus unfairly
gives the CSI parties a “free peek†at her case. (See id.
at pp. 1282-1283 [given unilateral nature of agreement requiring only
employee to arbitrate his claims, the additional requirement that employee
submit claim to supervisors before seeking to arbitrate claims, while seemingly
laudable effort at informal resolution, was actually just an effort to obtain a
“free peek†at employee’s case].) The
agreement states that if the dispute “cannot be resolved through informal
internal efforts, I will submit†the claim to binding arbitration. “Informal internal efforts†are not defined
in the agreement or the handbook, and there is no reasonable basis to infer the
agreement requires anything other than some informal notice of a grievance
before proceeding to arbitration. This
case is thus far different from the provisions in Nyulassy, which the court found unacceptable primarily because it
was yet another employer-based mechanism in an agreement permeated by
unilateral provisions favoring the employer.
(Id. at p. 1283.) Moreover, to the extent the cited language is
anything other than precatory, a requirement that internal grievance procedures
be exhausted before proceeding to arbitration is both reasonable and laudable
in an agreement containing a mutual obligation to arbitrate. It plainly does not “shock the conscience†so
as to vitiate the arbitration agreement.
In sum, the agreement to arbitrate is not
unconscionable. To the extent the
agreement contains an attorney fee provision that purports to deprive Serpa of
her remedies under FEHA, that particular provision is properly severed, and the
remainder of the agreement to arbitrate is properly enforced.
DISPOSITION
The order denying the
CSI parties’ motion to compel arbitration is reversed. On remand the trial court is directed to
sever the offending attorney fee provision from the agreement and otherwise
grant the motion to compel arbitration.
The CSI parties are to recover their costs
on appeal.
PERLUSS,
P. J.
We
concur:
WOODS,
J.
JACKSON,
J.
similar severance provision also appears in the arbitration agreement.
trial court also found the attorney fee provision deprived Serpa of potentially
available remedies under FEHA, but determined that provision alone did not make
the agreement unconscionable because it could be severed without altering the
agreement.
