Articles

Jennifer BELLARDINE, Plaintiff/Respondent,
v.
APPLEONE EMPLOYMENT SERVICES AND JUDY ANZALDO, Defendants/Appellants
B127234 (Super. Ct. No. BC194785) 2nd Appellate Dist., Div. 7 (unpublished)
APPEAL from an order of the Superior Court of Los Angeles County, Madeleine I. Flier, Judge.

Affirmed in favor of Plaintiff/Respondent.

Toni J. Jaramilla for Plaintiff and Respondent

Defendants appeal from an order denying their motion to compel plaintiff to arbitrate her claims against them for sexual harassment and discrimination, wrongful termination, and other torts. The principal issue on appeal is whether the trial court erred in concluding that the arbitration clause of the instant employment agreement was unconscionable and unenforceable.

FACTUAL AND PROCEDURAL BACKGROUND

Plaintiff Jennifer Bellardine was employed as an office coordinator and then account executive with defendant AppleOne Employment Services from April 1997 to October 1997, when her employment was allegedly abruptly terminated in retaliation for her exercising her legal rights to protest sexual harassment and discrimination in the workplace. Bellardine alleges that during her employment she was subjected to, and complained about, the following conduct by her supervisor, defendant Judy Anzaldo: vulgar and explicit sexual comments and advances, intrusive probing into her sex life, leering, grabbing her buttocks, and sexually offensive computer screen images. In July 1998, Bellardine filed a complaint against AppleOne and Anzaldo for, inter alia, sex discrimination and harassment in violation of the Fair Employment and Housing Act (Gov. Code, § 12940, subd. (b)), wrongful termination in violation of public policy, intentional and negligent infliction of emotional distress, and assault and battery.

In August 1998, defendants AppleOne and Anzaldo filed a motion to compel arbitration pursuant to the parties’ written agreement. According to AppleOne’s chief financial officer, AppleOne prepared and maintained Bellardine’s employment agreement in the normal course of its business; it is the custom and practice of AppleOne to have all new employees review and execute the employment agreement.

Paragraph (5) of the agreement provides: “AppleOne and you [Bellardine] agree that the breach of this Agreement, including its covenants could not reasonably or adequately be compensated in damages in an action at law and that AppleOne shall be entitled to injunctive relief which may include, but shall not be limited to, restraining you from rendering any service that would breach this Agreement. However, this does not limit AppleOne to seeking injunctive relief to specifically compel you to perform your obligations, and AppleOne does not waive any other remedies and damages available.”

Paragraph (6) of the agreement provides: “Arbitration—Any controversy or claim arising out of or arising from or relating to in any way to 1) post-termination conduct, 2) the terms and conditions of your employment, or 3) your termination from employment by AppleOne, except for the seeking of injunctive relief to enforce any specific term of this Agreement, shall be settled by arbitration in accordance with the rules of the California Arbitration Act, Sections 1280 through 1294.2 of the California Code of Civil Procedure. Each party shall appoint one person to hear and determine the dispute, and if they are unable to agree, then the two person so chosen shall select a third impartial arbitrator whose decision shall be final and conclusive upon both parties. The cost of arbitration shall be borne by the losing part, or in such proportion as the arbitrators shall decide.”

AppleOne argued that the allegations of Bellardine’s complaint fell squarely within the arbitration clause of the employment agreements and the court should order the matter to arbitration; the instant arbitration clause does not deprive Bellardine of any remedies, but designates arbitration as the parties’ chosen method of dispute resolution.

In opposition to the motion, Bellardine argued that (1) enforcing arbitration agreements with respect to statutory civil rights claims is public policy; (2) even if a judicial forum for statutory civil rights claims can be waived, there must be a knowing waiver, which did not exist here; (3) the instant arbitration clause cannot be construed to apply discrimination, retaliation, and sexual harassment, which are not “terms and conditions” of employment; and (4) the arbitration agreement is an unconscionable contract of adhesion and unenforceable. Bellardine submitted her declaration stating that she signed the employment agreement when she was hired as an officer coordinator for AppleOne; the arbitration clause was placed in small nondescript print, in the middle of a densely filled page of information; she did not recall discussing the arbitration clause with anyone at AppleOne; the clause was not pointed out nor explained to her; she does not recall being given a copy of the agreement; she was required to sign the agreement in order to continue her employment with AppleOne; she felt that she had not choice but to sign the agreement in order to keep her job; when she signed the agreement, she was not aware she was giving up her rights to potential claims of sexual harassment and discrimination, or other state or federal civil rights claims, in a judicial forum; she was not aware she was also waiving her right to jury trial; AppleOne was her first full-time employment experience, and she was 19 years old when she began working for AppleOne.

AppleOne filed a reply memorandum wherein it contended that Bellardine failed to establish that the Legislature, in enacting the Fair Employment and Housing Act (FEHA), intended to preclude arbitration of claims thereunder,; that Bellardine knowingly waived her rights to a judicial forum by signing the agreement, and there is no requirements that it explain the terms of the Agreement, which are clear and expressly provide for the arbitration of disputes arising out of the termination of employment. With respect to the issue of unconscionably, AppleOne argued that the terms of the agreement were within Bellardine’s reasonable expectations and that the arbitration provision is mutual, not unfairly favoring only one party to the contract. AppleOne also maintained that under the terms of the arbitration agreement, neither party had the right to conduct discovery. (1)

Section 1283.05 of the Code of Civil Procedure sets out procedures for discovery and depositions in arbitration; section 1283.1, subdivision (a), provides that the discovery provisions of section 1283.5 must be deemed to be incorporated into and made a part of every agreement to arbitrate a dispute involving injury to, or death of, a person caused by the wrongful act or neglect of another; subdivision (b) of section 1283.1 provides that the statutory discovery provision of section 1283.05 is incorporated into any other type of arbitration agreement only if the parties by their agreement to provide.

The instant lawsuit, for the most par, contains wrongful termination causes of action not involving any personal injury or death. Inasmuch as the agreement does not expressly provide for any discovery, and it does not expressly adopt the provisions of section 1283.05 or exclude the applicability of section 1283.1, we agree with AppleOne’s contention in the trial court that in arbitration under the agreement, neither party has the same discovery rights as in a civil action in a judicial forum.

In its briefs on appeal, AppleOne changes its tack, and argues that the agreement allows the parties discovery because section 1283.05 is incorporated into the contract; AppleOne fails, however, to address the effect of the incorporation of section 1283.1 as well into the instant contract. AppleOne also fails to discuss the differences between the kinds of discovery afforded under section 1283.05 and that afforded civil litigants in a judicial forum, and how that might impact the type of claims asserted by Bellardine here. In any event, we need not resolve on this appeal the issue of whether, and what kind of discovery, is afforded to the parties under the instant Agreement.

(a). Although the parties’ briefs address the issues of whether public policy permits pre-dispute waiver of a judicial forum for statutory claims under the FEHA, and whether a “knowing waiver requirement” exists as to sex discrimination claims under FEHA, we need not address such issues. We affirm the order on the ground that the trial court correctly concluded that the instant arbitration provisions are unenforceable under the unconscionability doctrine of Civil Code section 1670.5.

I. STANDARD OF REVIEW

Civil Code section 1670.5, subdivision (a), provides: “If 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 unconscionable clause as to avoid any unconscionable result.” The Legislature enacted Civil Code section 1670.5 in 1979, and “thereby adopted the doctrine of unconscionability enunciated in section 2-302 of the Uniform Commercial Code, except that section 1670.5 applies to all contracts, not just those for the sale of goods.(Stirlen v. Supercuts, Inc. (1997) 51 Cal.App.4th 1410, 1530-1531.)

“The determination of the validity of an arbitration clause, which may be made only ‘upon such grounds as exist for the revocation of any contract’ (Code Civ. Proc., § 1281), ‘is solely a judicial function unless it turns upon the credibility of extrinsic evidence; accordingly, an appellate court is not bound by a trial court’s construction of a contract based solely upon the terms of the instrument without the aid of evidences.’ [Citation.] Thus, in cases such as this, in which extrinsic evidence was not presented ‘[d]eterminations of arbitrability, like the interpretation of any contractual provision, are subject to de novo review.’ [Citation}” (Stirlen v. Supercuts, Inc., supra, 51 Cal.App.4th at p. 1527; fns. omitted.) When the validity of an arbitration clause turns on a factual determination, the standard on appeal is whether there is substantial evidence to support the trial court’s finding. (Id. at p. 1527, fn.2.)

“In Graham v. Scissor-Tail, Inc. (1981) Cal.3d 807, the California Supreme Court addressed the criteria for determining whether an arbitration clause set forth in an adhesion contract is unenforceable on grounds of unconscionability pursuant to common law.” (Kinney v. United HealthCare Services, Inc. (1999) 70 Cal.App.4th 1322.) unconscionability 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. (Stirlen v. Supercuts, Inc., supra, 51 Cal.App.4th at p. 1531.) Phrased another way, unconscionability has both a procedural and a substantive element. (Ibid.) The procedural element focuses on two factors: oppression and surprise. (Id. at p. 1532. “The oppression component arises from an inequality of bargaining power of the parties to the contract and an absence of real negotiation or meaningful choice of the part of the weaker party.” (Kinney v. United HealthCare Services., supra, 70 Cal.App.4th 1 at p. 1329.

The fact that an employee knows or is on notice of a general requirement that her claims had to be pursued in arbitration rather than in some other forum does not preclude a finding that the arbitration provision is nonetheless procedurally unconscionable. (Kinney v. United HealthCare Services, Inc. (1999) 70 CAl.App.4th 1322, 1330.)

“‘Substantive unconscionability’ focuses on the terms of the agreement and whether those terms are ‘so one-sided as to “shock the conscience.”‘” (Kinney v. United HealthCare Services, Inc., supra 70 Cal.App.4th at p. 1330.) A contract term is substantively suspect if it reallocates the risks of the bargain in an objectively unreasonable or unexpected manner. (Stirlen v. Supercuts, Inc., supra, 51 Cal.App.4th at p. 1532.) “‘But not all unreasonable risk allocations are unconscionable; rather enforceability of the clause is tied to the procedural aspects of unconscionability …such that the greater the unfair surprise or inequity of bargaining power, the less unreasonable the risk reallocation which will be tolerated.'” (Ibid.) A unilateral obligation to arbitrate has been held to be substantively unconscionable. (Kinney v. United HealthCare Services, Inc., supra.70 Cal.App.4th at p. 1332.)

II. PROCEDURAL UNCONSCIONABILITY

Inasmuch as the evidence concerning the circumstances of the parties at the time Bellardine executed the employment agreement is undisputed, we conclude that such evidence is sufficient to establish procedural unconscionability because Bellardine had no opportunity to negotiate the terms of the arbitration clauses. According to Bellardine’s declaration, and reasonable inferences therefrom, she was required to sign the agreement as a condition of her continued employment, she was not given a copy of the agreement, the arbitration provisions were not pointed out to her and were in nondescript print in a densely printed page, and she was unaware she was giving up her rights to pursue any discrimination or civil rights claims in a judicial forum.

Under similar circumstances, other courts have found procedural unconscionability involving more sophisticated and experienced employees than Bellardine. In Stirlen v. Supercuts, Inc., supra, 51 Cal.App.4th 1519, Supercuts fired its chief financial officer, Stirlen, because it believed that his accounting analysis led to lower stock earnings. Supercut sought to arbitrate the wrongful termination dispute pursuant to its binding arbitration agreement with Stirlen. The court deemed the Stirlen arbitration agreement to be procedurally unconscionable and unenforceable even though Stirlen was a successful, sophisticated corporate executive whom Supercuts had sought out and hired away from another highly paid positions at a major corporation by offering generous bonuses. The court pointed out, “Stirlen does not even arguably possess the bargaining strength of the plaintiff in [Graham v. Scissor-Tail, Inc., supra, 28 Cal.3d 807], Bill Graham, who was the dominant rock music impresario of his generation…¶ In the present case Stirlen appears to have had no realistic ability to modify the terms of the employment contract. Undisputed evidence shows that the terms of the contract were presented to him after he accepted employment and were described at standard provisions that were not negotiable.” (51 Cal.App.4th at pp. 1533-1534).

The circumstances in the instant case are also sufficient to establish the element of surprise in that the arbitration provision was not expressly brought to Bellardine’s attention at the time she was asked to execute the agreement and she was not given a copy of the employment agreement, which was retained by AppleOne. In light of the fact that the circumstances involving the negotiation of the agreement are similar to those in Kinney and Stirlen, we conclude that the procedural element of unconscionability is present in this case.

III. SUBSTANTIVE UNCONSCIONABILITY

Although the instant arbitration clause does not on its face purport to be a “unilateral obligation to arbitrate” like the clause in Kinney, (2) we conclude that the right of access to a judicial forum is sufficiently one-sided in favor of AppleOne and the arbitration provisions are sufficiently oppressive so as to be substantively unconscionable.

We disagree with appellants’ claim that paragraph (6) of the agreement gives Bellardine the same rights to seek injunctive relief in a judicial forum as are given to AppleOne. Paragraph (5) of the agreement expressly entitles only AppleOne to injunctive relief. Paragraph (6) — while requiring arbitration of claims arising from or relating to post-termination conduct, terms and conditions of employment, and termination from employment — excludes from arbitration “seeking of injunctive relief to enforce any specific term of this Agreement.”

Paragraph (2) of the agreement sets out the terms and conditions to which the employee agrees. Paragraph (2)(a) requires the employee to devote her entire productive time, ability and attention to the business of AppleOne during her employment and to refrain from engaging in any other competitive business activity during the course of employment; paragraph (2)(a) obligates the employee to comply with the Employee Handbook, which the employee agrees can be modified at any time by AppleOne; paragraphs (2)(c) through (2)(f) deal with employee’s obligations to protect the confidential and propriety information and trade secrets of AppleOne, and the obligation not to induce AppleOne’s employees to terminate employment with AppleOne; the foregoing obligations apply both during the term of employment and for a one-year period thereafter.

Paragraph (3) deals with payment for services, including the calculation and payment of commissions. None of the other 10 paragraphs deal with specific rights or benefits afforded the employee, or obligations imposed on the employer by agreement or by operation of law.

The instant agreement thus contains many more specific provisions dealing with the protection of AppleOne’s interest than the interest of the employee. For example, although the employee may have statutory and common law rights to be free of discrimination and harassment, these interest are not subject to the exclusion from arbitration set out in paragraph (6). (3) Accordingly, the agreement preserves AppleOne’s right to seek injunctive relief in a judicial forum in order to enforce many specific provisions dealing with protection of certain interests which it deems important; on the other hand, the agreement, by failing to include very many specific provisions dealing with employee rights or concerns, does not afford the employee similar judicial relief to protect her interests.

In the instant agreement, AppleOne thus used its superior bargaining strength to afford itself extra protection. A similar situation was discussed by the court in Stirlen, where the agreement reserved to the employer the right to seek injunctive or other equitable relief in a judicial forum, while obligating the employee to arbitrate any dispute arising out of employment and termination of employment, and limiting the remedy in such arbitration to a money award not to exceed the amount of actual damages for breach of contract, and excluding exemplary or punitive damages. (See 51 Cal.App.4th at pp. 1528-1529.)

“We agree a contract can provide a ‘margin of safety’ that provides the party with superior bargaining strength a type of extra protection for which it has a legitimate commercial need without being unconscionable. [Citation.] However, unless the ‘business realities’ that created the special need for such an advantage are explained in the contract itself, which is not the case here, it must be factually established…[¶] Supercuts failed to provide the trial court evidence of the ‘business realities’ it now relies upon because it was unwilling to concede during the proceedings below that it had any advantage under the arbitration clause that needed to be justified. This evidentiary deficiency can be overlooked, however, because the ‘business realities’ belatedly claimed to justify the many advantages Supercuts enjoys under the arbitration clause would not provide such justification even if they had been factually established. [¶] The forms of emergency judicial relief Supercuts asserts it must have are available to a party compelled to arbitrate a dispute…'[Code of Civil Procedure section 1281.8] was enacted primarily to allow a party to an arbitration [or subject to an arbitration agreement] to obtain provisional remedies without waiving the right to arbitrate, as some early cases had suggested. [Citations.] The unilateral right to litigate rather than arbitrate claims therefore cannot be justified by the need for provisional remedies. Furthermore, justification would be lacking even if Supercuts could show that its legitimate dispute resolution needs could not always be met through arbitration, for that is also true with respect to employee claims.” (Stirlen v. Supercuts, Inc., supra, 51 Cal.App.4th at pp. 1536-1537; fns. Omitted) As in Stirlen, AppleOne failed to provide any evidence showing a legitimate commercial need for the broad access to a judicial forum which it provided for itself by virtue of paragraphs (2), (5) and (6) of the agreement, but which access was virtually denied to its employees by virtue of the fact that the agreement did not contain very many express terms dealing with employee rights. Thus, while the agreement afforded the employee the right to a judicial forum for claims seeking “injunctive relief to enforce any specific term of the Agreement,” as a practical matter, there were very few terms in the agreement dealing with employee concerns. Aside from the payment of salary and commissions, there are virtually no specific terms of the agreement which deal with the rights and interests of the employees, which rights are set out in many state and federal statutes. (See, e.g., fn. 2, ante.)

Thus, the arbitration clauses of the agreement afford AppleOne certain advantages, i.e., the right to litigate virtually all employment matters which it deemed important, such as protection of its trade secrets and proprietary and confidential information. Yet, the employee is relegated to the limited rights and relief available in arbitration when making her own claims. “The party who is required to submit his or her claims to arbitration forgoes the right, otherwise guaranteed by the federal and state Constitutions, to have those claims tried before a jury. [Citations.] Further, except in extraordinary circumstances, that party has no avenue of review for an adverse decision, even if that decision is based on an error of fact or law that appears on the face of the ruling and results in substantial injustice to that party.” (Kinney v. United HealthCare Services, Inc., supra, 70 Cal.App.4th at p. 1332.)

The instant arbitration clause, as in Stirlen, “can only realistically be seen as applying primarily if not exclusively to claims arising out of the termination of employment, which ware virtually certain to be filed against, not by Supercuts. Supercuts identifies no provision of the employment contract and no statute likely to give rise to a claim Supercuts would be compelled to submit to arbitration. The only ’employment disputes’ likely to initiated by Supercuts–such as claims that an employee violated a non-competition agreement or divulged confidential information–need not be arbitrated.” (Stirlen v. supercuts, Inc., supra, 51 Cal.App.4th at pp. 1540-1541.)

For example, the provision in paragraph (6) of the instant agreement provides for arbitration of “post-termination conduct,” yet this provision most likely would be applied to issues involving confidential and proprietary information, and any claim asserted by AppleOne with respect to this issue would most likely entail injunctive relief, and thus fall within the exception to those matters which must be arbitrated. Accordingly, although the instant agreement contains different language than the agreement in Stirlen, it is still one-sided and oppressive in that virtually all important employment claims asserted by AppleOne would most likely be subject to litigation, which virtually all of the employee’s claims against AppleOne would most likely be subject to arbitration.

Because the terms of the instant agreement unreasonably favor AppleOne, and would most likely have the practical effect of creating a unilateral obligation to arbitrate, we conclude that the agreement is substantively unconscionable. As acknowledged by the court in Kinney v. United HealthCare Services, Inc., supra, 70 Cal.App.4th 1322: “Although there is a strong public policy favoring arbitration…, ‘[t]hat policy is manifestly undermined by provisions in arbitration clauses which seek to make the arbitration process itself an offensive weapon in one party’s arsenal.’ [Citation.] A review of [defendant’s] arbitration policy reflects just such an attempt here and the principles of equity that underlie the enforcement of arbitration agreements will not compel such a result.” (Id. at p.1332.)

For all of the foregoing reasons, we conclude that the trail court properly deemed the instant agreement void and unenforceable, and denied the motion to compel arbitration. In light of the rationale of our affirmance, we need not resolve other issues raised by the parties.

DISPOSITION

The order is affirmed. Respondent is entitled to costs on appeal.

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

We concur:
Johnson, J.
Lillie, P.J.
Woods, J.

(1) The instant employment agreement incorporates by reference, “Sections 1280 through 1294.2 of the California Code of Civil Procedure.”

After argument on the motion, the trail court took it under submission. By minute order of October 19, 1998, the court denied the motion, stating: “The arbitration clause is ‘unduly hard, oppressive, and one-sided.’ It does not apply equally to employee and employer, does not allow the same discovery procedures that are available in a civil action, and creates an imbalance in the remedies available to employee and employer respectively. [¶] Specifically, by its terms, the Employment Agreement compels all employee claims to arbitration but allows employer to seek injunctive relief and ‘other remedies and damages available’ in a judicial forum. (See paragraphs 5 and 6 of the Employment Agreement.)”

AppleOne and Anzaldo field notice of appeal from the October 19, 1998, order. The order is appealable pursuant to Code of Civil Procedure section 1294, subdivision (a). Although the parties’ briefs address the issues of whether public policy permits a predispute waiver of a judicial forum for statutory claims under the FEHA , and whether a “knowing waiver requirement” exists as to sex discrimination claims under the FEHA, we need not address such issues. We affirm the order on the ground that the trial court correctly concluded that the instant arbitration provisions are unenforceable under the unconscionability doctrine of Civil Code section 1670.5. (2) In Kinney, the employee was required to arbitrate “‘all employment related disputes which are based on a legal claim,'” and included “‘a claim under any federal, state or local statue, regulation or common law doctrine regarding or relating to employment discrimination, terms and conditions of employment, or termination of employment including, but not limited to the following: Title VII of the Civil Rights Act of 1964, the Civil Rights Act of 1966, the Civil Rights Act of 1991, the Age Discrimination in Employment Act, the Rehabilitation Act of 1973, the Americans with Disabilities Act, the Employee Retirement Income Security Act of 1974, and all applicable amendments; state human rights or fair employment practices laws; breach of contract, promissory estoppel, or any other contract theory; and defamation, employment negligence, or any other tort theory.'” (Kinney v. United HealthCare Services, Inc., Supra, 70 Cal.App.4th at pp. 1325-1326.) On the other hand, the employer was not required to initiate the arbitration process in regard to any dispute, and was not required to follow the steps of either the internal dispute review procedure or the arbitration policy before implementing ‘”any disciplinary action, or before asserting any claim, demand or action against the employee for breach of any restrictive covenant, wrongful disclosure of confidential information, or any other actions which may constitute a breach of contract, a breach of [employer’s] Code of Conduct, a breach of common law duty, or a breach or violation of either civil or criminal law.'” (Id. at p. 1326.) (3) We need to decide whether paragraph (6) of the instant agreement would require arbitration of common law and statutory claims for discrimination and/or harassment. Assuming arguendo that appellants are correct and that such claims would be subject to arbitration in the first instance, such claims would not fall within the exception to arbitration set out in paragraph (6) because no specific term of the agreement deals with such statutory and common law rights of employees.

DAILY APPELLATE REPORT Friday, October 8, 1999 ORDER

Review granted/Cite as 1999 Daily Journal D.A.R. 10530

JENNIFER BELL BELLARDINE, Respondent
v.
APPLEONE EMPLOYMENT SERVICES, Appellant
No. S080681
C.A. 2nd Div. 7, No. B127234
California Supreme Court
Filed October 6, 1999

Petition for review GRANTED. Further action is this matter in deferred pending consideration and disposition of a related issued in Armendariz v. Foundation Health Psychcare Services, Inc., S075942 (see. Cal. Rules of Court, rule 29.2(c), or pending further order of the court. Submission of additional briefing, pursuant to California Rules of Court, rule 29.3 is deferred pending further order of the court.

George, Chief Justice
Mosk, Associate Justice
Kennard, Associate Justice
Baxter, Associate Justice
Werdegar, Associate Justice
Chin, Associate Justice
Brown, Associate Justice