California Court of Appeals, Second District, First Division
Pub. order 6/24/13
APPEAL from an order of the Superior Court of Los Angeles County No. BC473673, Daniel J. Buckley, Judge.
Ogletree, Deakins, Nash, Smoak & Stewart, Beth A. Gunn and Jennifer L. Katz for Defendant and Appellant.
Kesluk & Silverstein, Douglas N. Silverstein, Lauren J. Morrison; The Rubin Law Corporation and Steven M. Rubin for Plaintiffs and Respondents.
MALLANO, P. J.
Plaintiffs filed this action against their former employer, alleging causes of action arising out of the termination of their employment. The employer filed a motion to compel arbitration pursuant to an arbitration provision contained in a document entitled, “Dispute Resolution Process” (DRP). When plaintiffs were hired, they signed an acknowledgement form stating they agreed to submit disputes to arbitration. They opposed the motion to compel arbitration on the ground that the arbitration provision in the DRP was unconscionable. The trial court ruled in plaintiffs’ favor and denied the motion. Defendant appealed.
We conclude the trial court erred. Although the arbitration agreement is procedurally unconscionable, none of its provisions is substantively unconscionable. We therefore reverse the order denying the motion to compel arbitration.
The facts and allegations in this appeal are taken from the complaint and the declarations and exhibits submitted in connection with the motion to compel arbitration.
On November 17, 2011, plaintiffs Alexis Leos and Jennifer Stucker (plaintiffs) filed this action against their former employer, Darden Restaurants, Inc. (Darden), alleging causes of action under the Fair Employment and Housing Act (FEHA) (Gov. Code, §§ 12900–12996) for sexual harassment, retaliation, failure to prevent harassment, and failure to investigate harassment. Plaintiffs asserted common law causes of action for constructive discharge in violation of public policy and wrongful termination in violation of public policy. They also sought declaratory relief to the effect that Darden’s arbitration provision was unenforceable.
B. Motion to Compel Arbitration
On February 22, 2012, Darden filed a motion to compel arbitration pursuant to the DRP, which consists of 14 pages. Under the DRP, the parties must seek to resolve a dispute through four steps. The first step is the “open door” approach, which obligates the employee to bring a “workplace concern or dispute” to the attention of management for possible resolution. If the open door approach does not resolve the workplace concern or dispute, an employee may submit the matter to “peer review, ” which requires that a dispute be presented to a panel of three employees. Each side is allowed 30 minutes to present its position to the panel, after which the panel issues a nonbinding decision. If either the employee or Darden is dissatisfied with the decision of the peer review panel, the dissatisfied party may request mediation within 30 days after the panel’s decision. Otherwise, the panel’s decision becomes final and binding. The third step, mediation, is conducted in accordance with the mediation rules of the American Arbitration Association (AAA). Darden will pay the costs and fees of the mediation service and the mediator. If the mediator, the employee, or Darden determines that further attempts to mediate the dispute are not “worthwhile, ” either the employee or Darden “can submit the matter to binding arbitration.” Darden “will pay the arbitrator’s fees and expenses, any costs for the hearing facility, and any costs of the arbitration service.” The arbitration “will be conducted according to the Employment Dispute Resolution Rules of the [AAA].”
Plaintiff Stucker commenced employment with Darden in January 2010. On January 27, 2010, she signed a “Dispute Resolution Process Acknowledgement, ” which stated: “I have received and reviewed the Dispute Resolution Process (DRP) booklet. This booklet contains the requirements, obligations, procedures and benefits of the DRP. I have read this information and understand and agree to the terms and conditions of the DRP. I agree as a condition of my employment, to submit any eligible disputes I may have to the company’s DRP and to abide by the provisions outlined in the DRP. I understand that this includes, for example, claims under state and federal laws relating to harassment or discrimination, as well as other employment-related claims as defined by the DRP. Finally, I understand that the company is equally bound to all of the provisions of the DRP.”
Plaintiff Leos was hired on or about March 3, 2010, and on the same day, signed a Dispute Resolution Process Acknowledgment that contained the same language as the one signed by Stucker.
Darden filed its motion to compel arbitration pursuant to the California Arbitration Act (Code Civ. Proc., §§ 1281.2, 1281.4). In its memorandum of points and authorities, Darden argued that the arbitration provision in the DRP satisfied the requirements set forth in Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83 (Armendariz).
Plaintiffs filed an opposition, asserting the arbitration provision was unconscionable. In their supporting declarations, plaintiffs stated that they signed the DRP acknowledgement “as a condition of my employment”; they had “no choice but to sign [the acknowledgement]” to obtain employment; they were told they had to sign the acknowledgement “whether I wanted to or not”; and they were “not able to negotiate the terms of the [DRP].”
The motion to compel arbitration was heard on April 11, 2012. Before the hearing, the trial court had prepared a tentative ruling denying the motion on the ground that the arbitration provision was unconscionable. At the conclusion of the hearing, the trial court adopted the tentative ruling as its order denying the motion.
Darden filed an appeal from the order. (See Code Civ. Proc., § 1294, subd. (a).)
“‘“Whether an arbitration provision is unconscionable is ultimately a question of law.”’... ‘On appeal, when the extrinsic evidence is undisputed, as it is here, we review the contract de novo to determine unconscionability.’” (Suh v. Superior Court (2010) 181 Cal.App.4th 1504, 1511–1512, citations omitted; accord, Mercuro v. Superior Court (2002) 96 Cal.App.4th 167, 174 (Mercuro).)
As a preliminary matter, the parties disagree as to whether the arbitration provision is governed by the Federal Arbitration Act (FAA) (9 U.S.C. §§ 1–16) or the California Arbitration Act (CAA) (Code Civ. Proc., §§ 1280–1294.2).
The FAA applies to a contract “evidencing a transaction involving commerce.” (9 U.S.C. § 2, italics added.) As explained in Hedges v. Carrigan (2004) 117 Cal.App.4th 578, the United States Supreme Court has “‘interpreted the term “involving commerce” in the [FAA] as the functional equivalent of the more familiar term “affecting commerce”—words of art that ordinarily signal the broadest permissible exercise of Congress’ Commerce Clause power.... Because the statute provides for “the enforcement of arbitration agreements within the full reach of the Commerce Clause, ”... it is perfectly clear that the [FAA] encompasses a wider range of transactions than those actually “in commerce”—that is, “within the flow of interstate commerce, ”...’... ‘Congress’ Commerce Clause power “may be exercised in individual cases without showing any specific effect upon interstate commerce” if in the aggregate the ...