Trial court: San Francisco County Superior Court Trial judge: Hon. Peter J. Busch (San Francisco County Super. Ct. No. CGC-10-503339)
The opinion of the court was delivered by: Needham, J.
CERTIFIED FOR PUBLICATION
CantorCO2e, L.P. and Joshua Margolis appeal from an order denying their petition to compel arbitration of respondent's claims under the Federal Arbitration Act. (9 U.S.C. §§ 1-16.) They contend: (1) the arbitration panel, rather than the court, should have decided whether the arbitration provision in respondent's employment agreement was unconscionable; (2) respondent failed to establish that the arbitration provision was unconscionable, and any unconscionable portion of the provision should have been severed to permit the arbitration to proceed; and (3) alternatively, arbitration should have been compelled under the terms of an employee handbook.
We will affirm the order. Although the arbitration provision was broadly worded and indicated that arbitration might be conducted under the rules of an arbitration service that gives arbitrators the power to decide the validity of arbitration agreements, it did not provide clear and unmistakable evidence that the parties intended to delegate authority to the arbitrator, rather than to the court, to decide the threshold issue of whether the arbitration provision itself was unconscionable. The unconscionability issue was therefore for the court to decide. Furthermore, the provision was procedurally unconscionable and substantively unconscionable in more than one respect, such that the court did not abuse its discretion in concluding that the provision could not be saved by severing the offending terms. In addition, appellants failed to establish that arbitration should have been compelled under the employee handbook.
I. FACTS AND PROCEDURAL HISTORY
Appellant Joshua Margolis is Chief Executive Officer of appellant CantorCO2e, L.P. (CantorCO2e). In September 2006, CantorCO2e hired respondent Lena Ajamian as its San Francisco office manager.
In September 2006, Ajamian signed an annual acknowledgement and certification form, by which she acknowledged that she had read the Cantor Fitzgerald and eSpeed Policies and Procedures Manual.*fn1 Ajamian avers, however, that she signed this form with the understanding that it referred to an online compliance manual, and she had not seen the policies and procedures manual when she signed the acknowledgement.
The policies and procedures manual is a 65-page document that includes: an employee handbook containing, among many other things, a section entitled "Arbitration Agreement and Policy" ; a form by which the employee is to confirm receipt of the handbook and acknowledge that claims and disputes pertaining to its policies are subject to arbitration ; an arbitration agreement and policy, containing a line for the employee's signature ; and a confidentiality agreement and exhibits. Ajamian did not sign the acknowledgement of her receipt of the employee handbook and agreement to arbitrate. Nor did she sign the arbitration agreement and policy.
The arbitration agreement and policy provides that disputes "shall be submitted to and finally determined before a panel of arbitrators according to the American Arbitration Association's ('AAA') National Rules for the Resolution of Employment Disputes then in effect." It provides further, however, that where the employee and CantorCO2e have entered into a written employment agreement containing an arbitration provision, "the arbitration of any disputes" shall be "as set forth in [the] written employment agreement."*fn2
B. Promotion to Broker and Employment Agreement
In March 2007, Margolis promoted Ajamian from office manager to broker. In connection with her position as broker, she received and eventually signed an employment agreement containing an arbitration clause.
By June 2007, CantorCO2e provided Ajamian a proposed employment agreement that set forth the terms of her employment as a broker (Employment Agreement). The Employment Agreement raised Ajamian's annual base salary by approximately $20,000, indicated her eligibility to earn a discretionary bonus, and included a fixed term of employment for a minimum of two years.
Section 8 of the Employment Agreement sets forth an arbitration clause. It provides in part: "Any disputes, differences or controversies arising under this Agreement shall be settled and finally determined by arbitration before a panel of three arbitrators in New York, New York, according to the rules of the National Association of Securities Dealers, Inc. (or, at [CantoCO2e's] sole discretion, the American Arbitration Association or any other alternative dispute resolution organization) now in force and hereafter adopted and the laws of the state of New York then in effect."
The arbitration clause goes on to limit the relief that the parties, particularly the employee, may obtain: "The arbitrators shall make their award in accordance with and based upon all provisions of this Agreement[,] and judgment upon any award rendered by the arbitrators shall be entered in any court having jurisdiction thereof. However, it is understood and agreed that the arbitrators are not authorized or entitled to include as part of any award rendered by them, special, exemplary, punitive or statutory double (or other multiple) damages or amounts in the nature of special, exemplary, punitive or statutory double (or other multiple) damages regardless of the nature or form of the claim or grievance that has been submitted to arbitration, except that the arbitrators shall be authorized and entitled to include as part of any award rendered by them in favor of [CantorCO2e] Liquidated Damages (as herein defined) provided for in this Agreement."
Section 8 of the Employment Agreement further provides: "It is expressly agreed that arbitration as provided herein shall be the exclusive means for determination of all matters arising in connection with this Agreement and neither party hereto shall institute any action or proceeding in any court of law or equity other than to request enforcement of the arbitrators' award hereunder. The foregoing sentence shall be a bona fide defense to any action or proceeding instituted contrary to this Agreement."
Notwithstanding the arbitration clause, section 11 of the Employment Agreement anticipates that a court may make certain determinations: "In the event that an arbitration panel or court of competent jurisdiction shall determine that any covenant set forth in this Agreement is impermissibly broad in scope, duration or geographical area, or is in the nature of a penalty, then the parties intend that such panel or court should limit the scope, duration or geographical area of such covenant or reduce the amount of Liquidated Damages to the extent, and only to the extent, necessary to render such covenant reasonable and enforceable, and enforce the covenant as so limited." (Italics added.)
In addition, section 11 of the Employment Agreement provides that, at least in certain instances, the employee may be liable for CantorCO2e's attorney fees: "Employee agrees that if Employee brings an action, claim or proceeding against [CantorCO2e] . . . that relates to or implicates this Agreement, whether as to its validity, efficacy or otherwise, in the event that any of such Parties should prevail in such action, Employee shall pay the reasonable attorney's fees of such Party or Parties."
2. Execution of the Employment Agreement Without Negotiation
Ajamian told Margolis that she wanted to have the Employment Agreement reviewed by a lawyer, and he replied that was not a problem. It appears Ajamian had an attorney review the Employment Agreement on or about June 20, 2007.
Ajamian signed the Employment Agreement about six months later in December 2007. It is undisputed that the Employment Agreement was not the product of negotiation. As to how that came about, however, Ajamian and Margolis have different recollections.
According to Margolis, the Employment Agreement was not presented to Ajamian on a take-it-or-leave-it basis and she was never told it was nonnegotiable. Nonetheless, Ajamian never mentioned the arbitration clause to Margolis or attempted to negotiate it; nor did Ajamian's lawyer contact Margolis to negotiate the terms or send proposed revisions. Furthermore, Margolis never coerced or even required Ajamian to sign the Employment Agreement, although he did inform her that she would need to sign an Employment Agreement if she wanted to be a broker, earn the higher salary and bonus, and receive "greater job security." Once Ajamian finally signed the Employment Agreement, she appeared happy about its financial terms.*fn3
According to Ajamian, on the other hand, she told Margolis that she "wanted to cross out the arbitration agreement and a number of other sections" of the Employment Agreement and make the Employment Agreement provide for California law instead of New York law. Margolis replied that the company would not consider those changes and she would have to sign the Employment Agreement as-is by December 31, 2007, if she wanted her bonus and salary increase. Ajamian told Margolis that she felt uncomfortable signing the Employment Agreement, but when he said she had to sign it in order to receive her bonus and salary increase, she felt she had no choice and reluctantly signed it. Ajamian did not request any changes after Margolis said she had to sign it, because she understood from Margolis' statements that no changes would be permitted and he would look unfavorably on any such request.
C. Termination of Employment Agreement
On August 31, 2009, CantorCO2e provided written notice, pursuant to section 1 of the Employment Agreement, of its intent to terminate the Employment Agreement effective March 1, 2010.
Pursuant to section 4 of the Employment Agreement, on March 1, 2010, Ajamian remained in the employ of CantorCO2e as an at-will employee, the Employment Agreement no longer governed her employment, and "the terms of [her] employment, including, but not limited to [her] compensation, [were] governed by Company's policies then in effect . . .." By that time, Ajamian acknowledges, she had seen the handbook, which sets forth certain policies, including the company's arbitration policy. As mentioned, the Arbitration Agreement and Policy provides that disputes "shall be submitted to and finally determined before a panel of arbitrators according to the American Arbitration Association's ('AAA') National Rules for the Resolution of Employment Disputes then in effect."
Ajamian's employment with CantorCO2e ended April 16, 2010.
On September 8, 2010, Ajamian filed a complaint against appellants, asserting claims for sexual discrimination, sexual harassment, retaliation, failure to pay overtime (Lab. Code, §§ 510, 558), failure to provide rest breaks and meal breaks (Lab. Code, § 226.7), failure to keep accurate records or to provide required paystubs (Lab. Code, §§ 226, 226.3, 1174), failure to pay Ajamian all amounts due to her upon termination, and violation of Business & Professions Code section 17200. Some or all of these claims pertain to the time period from the commencement of her employment through her final termination date of April 16, 2010 - in other words, before, during and after the effective dates of the Employment Agreement.
In response to the complaint, CantorCO2e's attorney sent Ajamian's attorney a letter requesting that Ajamian stay or dismiss her lawsuit and submit the matter to binding arbitration before the American Arbitration Association (AAA). Ajamian's attorney replied that Ajamian would not agree to arbitrate because she did not sign the arbitration agreement included in the handbook and both that arbitration provision and the arbitration provision in the Employment Agreement were unconscionable.
1. Appellants' Petition to Compel Arbitration
CantorCO2e and Margolis filed a petition to compel arbitration pursuant to the terms of the Employment Agreement or, alternatively, the handbook. They contended, as they do here, that the question of the enforceability of the arbitration provision should be decided by the arbitrator, Ajamian could not establish procedural unconscionability, and any provisions that were substantively unconscionable could simply be severed.
Ajamian opposed the petition, contending that the court rather than the arbitrator was required to determine the issue and the arbitration provisions were unconscionable. In addition, she argued that, even if there were a clear and unmistakable delegation of authority to the arbitrator to decide the enforceability of the arbitration provision, such a delegation is itself unconscionable and unenforceable.
2. Trial Court's Denial of Petition
The court denied the petition to compel arbitration. By written order dated December 20, 2010, the court ruled: (1) Ajamian is not bound by the arbitration provision in the handbook; (2) the court, rather than the arbitration panel, determines whether the arbitration provision of the Employment Agreement is enforceable; (3) the arbitration clause in the Employment Agreement is unconscionable; (4) the damages limitation in the arbitration provision of the Employment Agreement is unlawful and "the attorneys' fee clause which the arbitration provision in the Employment Agreement would enforce is unconscionable;" and (5) the court would not sever the offending portions of the arbitration provision in order to save it.
Under federal as well as California law, there is a strong public policy favoring arbitration, but an accompanying foundational precept that claims should be arbitrated only to the extent the parties have agreed. (Granite Rock Co. v. International Brotherhood of Teamsters (2010) 130 S.Ct. 2847, 2856, 2859-2860 (Granite Rock).) To this end, arbitration agreements are valid, irrevocable, and enforceable, except upon grounds that exist for the revocation of a contract generally. (Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, 97-99, 114 (Armendariz).) One such ground is that the arbitration agreement is unconscionable. (Ibid.)
Appellants contend the court erred in denying the petition to compel arbitration on the ground of unconscionability. As mentioned, they urge: (1) the court should not have decided the issue, because the Employment Agreement delegated the determination of Ajamian's unconscionability contentions to the arbitration panel; (2) Ajamian did not establish that the arbitration provision was procedurally or substantively unconscionable; and (3) even if arbitration could not be compelled under the Employment Agreement, it should have been compelled under the arbitration provision in the Handbook. We address each contention in turn.
A. Who Should Decide Whether the Arbitration Agreement is Unconscionable?
Under the Federal Arbitration Act (FAA), Title 9 U.S.C. sec. 1-16, the enforceability of an arbitration agreement is ordinarily to be determined by the court.*fn4 The parties may agree in the arbitration provision, however, that the enforceability issue will be delegated to the arbitrator. (E.g., ...