APPEAL from a judgment of the Superior Court of Los Angeles County. Michael Johnson, Judge. (Los Angeles County Super. Ct. No. BC448343)
The opinion of the court was delivered by: Rubin, J.
CERTIFIED FOR PUBLICATION
Reversed and remanded with directions.
Leasa Compton appeals from the order granting the petition by her former employer, American Management Services, to compel arbitration of Compton's class action complaint for violations of Labor Code provisions governing the payment of wages. Treating her appeal from this non-appealable order as a petition for writ of mandate, we conclude that the arbitration agreement she signed as a condition of obtaining employment was unconscionable. We therefore reverse the trial court's order granting the petition to compel arbitration and direct the trial court to enter a new order denying the petition.
FACTS AND PROCEDURAL HISTORY
In February 2006, Leasa Compton applied for the job of property manager with American Management Services, California, Inc.*fn1 In order to have her application considered, Compton was required to, and did, sign an agreement that called for arbitration of various disputes that might arise between her and AMS, and that also barred arbitration of class claims. Compton was hired in March 2006 and worked for AMS until August 2009.
In October 2010 Compton filed a class action complaint against AMS in superior court, alleging that AMS violated various Labor Code provisions governing the payment of minimum and overtime wages, rest and meal breaks, and reimbursement of expenses. AMS removed the action to the federal district court in November 2010, and filed an answer in December 2010 that did not raise arbitration as an affirmative defense. AMS then propounded special interrogatories on Compton, which she never answered because the district court remanded the action to state court in February 2010.
After remand to the superior court, AMS propounded more discovery requests, including form and special interrogatories, document production requests, and requests for admission. Compton objected to nearly all these discovery requests and provided few substantive responses. On April 27, 2011, the United States Supreme Court issued its decision in AT&T Mobility, LLC v. Concepcion (2011) ___ U.S. ___, 131 S.Ct. 1740 (Concepcion), which overruled the California Supreme Court's decision in Discover Bank v. Superior Court (2005) 36 Cal.4th 148 (Discover Bank). The Discover Bank court had held that provisions in certain consumer contracts of adhesion that barred arbitration or litigation of class-wide claims were unconscionable and therefore unenforceable. Concepcion held that for consumer contracts with arbitration provisions subject to the Federal Arbitration Act (9 U.S.C. § 1, et seq. (FAA)), the mere presence of a ban on class-wide claims did not render such provisions unenforceable.*fn2
Five days after Concepcion was decided, counsel for AMS sent Compton's counsel a copy of the arbitration agreement Compton had signed. During May of 2011, counsel for AMS exchanged e-mails with Compton's lawyers, contending that Concepcion had changed the law in a way that removed the obstacles to arbitration that Discover Bank had erected. When Compton refused to submit her individual dispute, and not class claims, to arbitration, AMS filed a petition to compel arbitration in July 2011.
AMS's petition to compel arbitration was predicated on the theory that the California Supreme Court's decisions in Discover Bank and Gentry v. Superior Court (2007) 42 Cal.4th 443 (Gentry) had previously barred class arbitration waivers like the one in Compton's arbitration agreement.*fn3 AMS contended that it could not seek to enforce the arbitration agreement's ban on class action claims, and thereby require Compton to arbitrate only her individual claims, until after Concepcion was decided. Compton opposed the petition on two grounds. First, AMS waived its right to arbitrate by waiting too long to enforce it. Second, the provision was unconscionable because it was one-sided and allowed AMS to litigate in court claims that were important to it.
2. The Arbitration Agreement and Rules
Job applicants at AMS were provided with an eight-page arbitration agreement stating in short that no application would be considered until the applicant agreed to be bound by the company's arbitration program. The agreement said that AMS "has implemented an arbitration procedure to provide quick, fair, final and binding resolution of employment-related legal claims." Prospective employees signing the agreement had three days to withdraw their consent in writing by stating that they no longer sought employment with AMS. The agreement said that applicants had to read and sign the agreement, and that their signature would also acknowledge receipt of arbitration rules, which were provided in a separate document. The agreement stated that applicants should familiarize themselves with the rules, and that they were allowed to take the agreement and rules with them, and could then sign and return them at a later date if they wished.
The agreement also said that the applicant would submit to arbitration any and all claims arising out of his employment with AMS, and then listed by way of example claims arising under common law or federal, state, and local statutes, including age discrimination, civil rights, and disability protection statutes. AMS stated that it would also arbitrate such claims.
The arbitration rules specified which claims were, or were not, subject to arbitration: "Except as otherwise limited herein, any and all employment-related legal disputes, controversies, or claims arising out of, or relating to, an Employee's application or candidacy for employment . . . with [AMS] shall be settled exclusively by final and binding arbitration before a neutral, third-party Arbitrator selected in accordance with these [rules]. Arbitration shall apply to any and all such disputes, controversies or claims whether asserted against [AMS] and/or against any employee, officer, alleged agent, director or affiliate in their capacity as such or otherwise. All employment-related claims that [AMS] may have against an Employee also must be resolved via the arbitration process described therein."
The next paragraph describes without limitation the types of claims that were subject to arbitration. These included claims under "the Age Discrimination in Employment Act (ADEA) . . . , Title VII of the Civil Rights Act of 1964, as amended, including the amendments of the Civil Rights Act of 1991, the Americans With Disabilities Act (ADA), the Fair Labor Standards Act (FLSA), 42 U.S.C. [section] 1981, . . . the Employee Polygraph Protection Act, the Employee Retirement Income Security Act (ERISA), state discrimination statutes, and/or common law regulating employment termination. This also includes any claim you may have under contract or tort law; including, but not limited to, claims for malicious prosecution, sexual harassment, wrongful discharge, wrongful arrest/wrongful imprisonment, intentional/negligent infliction of emotional distress or defamation."
The next paragraph specifies those claims not covered by the arbitration agreement: "Claims by Employees for state employment insurance (e.g., unemployment compensation, workers' compensation, worker disability compensation) are not subject to arbitration. Claims still may be filed with administrative agencies such as the National Labor Relations Board, the Equal Employment Opportunity Commission or the appropriate state agency. However, participants in the [arbitration program] may not bring or participate in any lawsuit arising out of such a claim. Likewise, if the Equal Employment Opportunity Commission or some other administrative agency files a lawsuit in the courts against [AMS], the Employee cannot participate in the lawsuit as a party. Instead, as stated above, the Employee must pursue any and all personal claims against [AMS] through arbitration. Statutory or common law claims raised by Employees alleging that [AMS] retaliated or discriminated against an Employee for filing an administrative claim or for participating in such a claim in any manner shall also be subject to arbitration.
"Not subject to arbitration are claims by [AMS] for injunctive and/or equitable relief for unfair competition and/or the use and/or unauthorized disclosure of trade secrets or confidential information. The Employee acknowledges and agrees that [AMS] may seek and obtain relief from a court of competent jurisdiction."
Unless all parties consent in writing, "the Arbitrator shall not consolidate claims of different employees into one proceeding. Each arbitration proceeding shall cover the claims of only one Employee. Unless the parties mutually agree, the . . . arbitrator has no authority to adjudicate a 'class action.' "
Under the arbitration rules, a request to arbitrate a dispute "shall be submitted not later than one year after the date on which the Employee knew, or through reasonable diligence should have known, of the facts giving rise to the Employee's claim(s)." (Original boldface.) The failure to do so constitutes a waiver of that dispute as to the employee. However, the one year time limit does "not affect tolling doctrines under applicable state laws or the employee's ability to arbitrate continuing violations." No such time limit is expressly prescribed for claims by AMS against an employee, however.*fn4 This is consistent with the arbitration agreement, which states that employees must file arbitration claims within one year of the date they learned, or should have learned, that their legal rights were violated. As with the arbitration rules, the arbitration agreement does not impose an express time limit on claims by AMS against an employee.
Under the arbitration rules, AMS and the employee participate equally in the selection of a neutral arbitrator. The arbitration rules provide for discovery, limiting the parties to one set of 20 interrogatories, including subparts, and three depositions. The arbitrator has discretion to permit additional discovery upon a showing of substantial need, so long as the extra discovery is not overly burdensome or causes undue delay. The arbitrator must issue a written decision that briefly states the reasons for his award. AMS will advance the costs of arbitration, and the employee's share of the costs may not exceed $100. The arbitrator has the authority to award attorney's fees in accordance with applicable law. If no award is made, each party bears its own legal costs. The award is final and binding as to both parties, but either party may appeal the arbitrator's decision in accordance with the FAA.
The arbitration agreement and rules were formatted legibly, in an easy-to-read font size, with provisions separated into paragraphs and arranged by subheadings.
3. Evidence Before the Trial Court
As part of its petition to compel arbitration, AMS submitted the declaration of its lawyers, along with supporting evidence, concerning its contact with counsel for Compton reagrding arbitration in the days and weeks after Concepcion was decided. In order to support its claim that the arbitration agreement was covered under the FAA, an AMS vice president, along with the company's chief administrative officer, submitted declarations attesting to the company's nationwide presence and activities. The CAO's declaration also authenticated the arbitration agreement and rules, along with Compton's signed copy of the agreement. According to the CAO's declaration, "[a]s a prerequisite to a potential applicant filling out a job application with [AMS], [AMS] requires the applicant to carefully review [the arbitration agreement and the arbitration rules], which are incorporated by reference into the Agreement - and to sign the Agreement."
Compton submitted an opposition declaration that described how she was presented with the arbitration agreement and rules. According to Compton, when she applied for a job with AMS, she met with Paula Palento, who Compton believed was an administrative assistant for the company. Palento provided Compton "with approximately twenty . . . standard employment forms to sign at that time. I was required to sign all of these forms in her presence, and was given no time to review any of these forms because she was in a hurry to have them signed and submitted to corporate. So, I could not take the time to read these forms, they were not explained to me, and I was not able to ask questions about any of these forms. I now understand that, among those many forms Ms. Palento put in front of me, was a document that [AMS] is now saying requires me to agree to arbitrate . . . ."
Compton declared that nobody at AMS either called her attention to the arbitration agreement or explained the agreement to her before requiring her to sign it. She was not told that she was free to reject the terms of the arbitration agreement, and was not allowed or given the chance to negotiate or change the terms before signing. She "felt compelled to sign the form because it was given to me along with all of the other required forms for employment with [AMS] and I felt that failing to sign the form might prevent me from getting the job at [AMS]." According to Compton's declaration, she was not fully aware of her legal rights should there ever be a dispute with AMS, and did not know she was waiving her right to sue AMS in court if need be. Had she known, Compton stated, she would not have signed the agreement.
In its reply points and authorities, AMS did not respond to Compton's declaration. Instead, it submitted only the declaration of counsel and supporting exhibits in connection with its argument that Compton had not been prejudiced by any delay in demanding arbitration because her discovery responses consisted of mostly objections and a few insufficient answers.
4. The Trial Court's Decision
After hearing argument and taking the matter under submission, the trial court issued a written ruling that granted AMS's petition to compel arbitration. The trial court first found that AMS had not waived its right to arbitrate because, until Concepcion was decided, Discover Bank and Gentry both held "that an arbitration agreement with a class action waiver cannot be compelled into arbitration."*fn5 Because AMS acted promptly to assert its rights once Concepcion was decided, the trial court ruled that no waiver occurred. The trial court also found that Compton had not been prejudiced by any delay in seeking arbitration because AMS's discovery requests were propounded before Concepcion, and because Compton's discovery responses "were neither substantive nor revealing."
The trial court also found that the arbitration agreement was not unconscionable. Relying on Lagatree v. Luce, Forward, Hamilton & Scripps (1999) 74 Cal.App.4th 1105 (Lagatree), the trial court rejected Compton's contention that the agreement was procedurally unconscionable because it was presented on a "take it or leave it" basis. This finding also relied on provisions in the agreement that described the terms, gave her the opportunity to seek independent advice, and incorporate "standard arbitration rules and procedures . . . ." The trial court also rejected Compton's contention that the agreement was substantively unconscionable because its allowance for litigation by AMS in some circumstances was one-sided. According to the trial court, these concerns were "largely hypothetical, because none of the excluded areas have any bearing on her rights or claims in this case. To the extent [Compton] is concerned about some form of equitable or injunctive relief, it is permitted as an adjunct remedy under [Code of Civil Procedure section] 1281.8."
Compton contends that we should reverse the trial court's order for three reasons: (1) a recent decision of the National Labor Relations Board finds that the ability to bring class actions or arbitrations is a protected concerted activity under federal labor law, which takes precedence over Concepcion - which was a consumer contracts case - and the FAA; (2) AMS waived its right to compel arbitration; and (3) the arbitration agreement is unenforceable because it is unconscionably one-sided. Because we affirm on this last ground, we do not discuss the other two raised by Compton.
Under both the FAA and the CAA there is a strong public policy in favor of arbitration. (Brown v. Wells Fargo Bank, N.A. (2008) 168 Cal.App.4th 938, 953-954.) Doubts regarding the validity of an arbitration agreement generally are resolved in favor of arbitration. (Coast Plaza Doctors Hospital v. Blue Cross of California (2000) 83 Cal.App.4th 677, 686.) Under the FAA, however, arbitration agreements may be invalidated under generally applicable contract defenses. (9 U.S.C. § 2.)
Because unconscionability is a contract defense, Compton bore the burden of proving the arbitration provision was unenforceable on that ground. (Chin v. Advanced Fresh Concepts Franchise Corp. (2011) 194 Cal.App.4th 704, 708.) Unconscionability is a question of law that we review independently when there are no meaningful factual disputes in the evidence. We review the trial court's resolution of disputed facts under the substantial evidence standard. When the trial court does not make express findings, we infer that it made every factual finding necessary to support its order, and review those implied findings for substantial evidence. (Ibid.)
1. Although the Order Compelling Arbitration Was Not Appealable,
We Elect to Treat the Appeal As A Petition For Writ of Mandate
An order compelling arbitration is not appealable. (Elijahjuan v. Superior Court (2012) 210 Cal.App.4th 15, 19.) The parties argue over whether this matter is appealable under the "death knell" doctrine, which applies when an order effectively terminates a class action. Rather than parse the case law on that issue, we conclude that we have jurisdiction to treat this non-appealable order as a petition for writ of mandate in this unusual case because: (1) the unconscionability issue is one of law based on undisputed facts and has been fully briefed; (2) the record is sufficient to consider the issue and it appears that the trial court would be only a nominal party; (3) if we were to dismiss the appeal, and the ultimate reversal of the order is inevitable, it would come in a post-arbitration award after the substantial time and expense of arbitrating the dispute; and (4) as a result, dismissing the appeal would require the parties to arbitrate nonarbitrable claims and would be costly and dilatory. (Id. at pp. 19-20; Phillips v. Sprint PCS (2012) 209 Cal.App.4th 758, 767-768.)
2. General Principles of the Unconscionability Defense
A written agreement to submit a dispute to arbitration is valid, enforceable, and irrevocable, except "upon such grounds as exist for the revocation of any contract." (Code Civ. Proc., § 1281.) When one party to a written arbitration agreement refuses to submit to arbitration a dispute covered by the agreement, the other party may petition the court to compel arbitration unless the court determines that the right to compel arbitration has been waived by the petitioner, or grounds exist for revocation of the agreement. (Code Civ. Proc., § 1281.2, subds. (a), (b).)
Unconscionability is a defense to the enforcement of an entire contract, or particular provisions of a contract, including agreements to arbitrate disputes. (Civ. Code, § 1670.5, subd. (a).)*fn6 Although Compton concedes that her employment contract is governed by the FAA, the unconscionability defense is still available under section 2 of that act.*fn7 (9 U.S.C. § 2; Samaniego v. Empire Today LLC (2012) 205 Cal.App.4th 1138, 1150.)
The defense of unconscionability has two components - procedural unconscionability and substantive unconscionability. The procedural component generally occurs in adhesion contracts that were drafted by the party with superior bargaining strength and are presented on a take it or leave it basis. This inquiry focuses on oppression or surprise due to unequal bargaining power. The substantive component turns on whether the terms are overly harsh or one-sided. (Gentry, supra, 42 Cal.4th at pp. 468-469.) Both must be present, but not in the same degree. Instead, a sliding scale is employed, and the greater the presence of one component of unconscionability, the less of the other there need be in order to determine that a contract is not enforceable. (Id. at p. 469.)
3. The AMS Arbitration Agreement Was Substantively Unconscionable
A. The Agreement Is Unconscionably One-Sided
(i) Overview of the Law Regarding Bilaterality
The element of substantive unconscionability involves an inquiry into whether the contract terms are unfairly one-sided. (Gentry, supra, 42 Cal.4th at p. 479.) The ...