Opinion
G060457
09-27-2022
ALICIA MACIAS CONTRERAS, Plaintiff and Respondent, v. GOODWILL INDUSTRIES OF ORANGE COUNTY et al., Defendants and Appellants.
Rutan & Tucker, Edson K. McClellan and Kimberly A. Nayagam for Defendants and Appellants. Lara & Luna, Edward Lara, Linda Luna Lara, and Dean Chhim for Plaintiff and Respondent.
NOT TO BE PUBLISHED
Appeal from an order of the Superior Court of Orange County, No. 30-2021-01178479, Nathan R. Scott, Judge. Reversed and remanded with directions.
Rutan & Tucker, Edson K. McClellan and Kimberly A. Nayagam for Defendants and Appellants.
Lara & Luna, Edward Lara, Linda Luna Lara, and Dean Chhim for Plaintiff and Respondent.
OPINION
SANCHEZ, J.
Defendants Goodwill Industries of Orange County, California (Goodwill), Salvador Alcaraz, and Jose Perez appeal from an order denying their motion to compel arbitration. The court denied defendants' motion to compel arbitration because it determined the arbitration agreement was procedurally and substantively unconscionable. As to the former, the court suggested the arbitration agreement was unconscionable because plaintiff Alicia Macias Contreras was required to sign the agreement as a precondition to her employment and the agreement failed to attach the applicable JAMS employment arbitration rules and Procedures (JAMS rules). As to the latter, the court held the agreement was substantively unconscionable because it contained an unfair attorney fees provision and because of its limits on discovery.
On appeal, defendants contend the arbitration agreement had minimal procedural unconscionability and no substantively unconscionable provisions. They alternatively claim the court erred by failing to sever any unconscionable provisions. For the reasons below, we agree the court erred. While the arbitration agreement is a contract of adhesion, it is not substantively unconscionable. We accordingly reverse the order and remand to the court with directions to enter a new order granting defendants' motion to compel arbitration.
FACTS
The Arbitration Agreement
Plaintiff initially worked for Goodwill as a temporary employee through a staffing agency. In February 2018, Goodwill subsequently offered plaintiff a permanent position as a used goods processor. At that time, plaintiff signed a Spanish version of Goodwill's mutual agreement to arbitrate claims (the Arbitration Agreement), which was a precondition to employment.
The Arbitration Agreement was two and a half pages and provided that plaintiff and Goodwill mutually agreed to arbitrate "any and all claims or controversies that arise in any way, that relate or are associated with [plaintiff's] employment . . . with [Goodwill] or with the termination of said hiring." Covered claims included "claims due to discrimination or harassment, including, but not limited to, discrimination or harassment based on . . . physical or mental disability, health condition or sexual orientation; and claims based on the violation of any constitution, statute, ordinance or federal, state or governmental regulation
Among other things, the Arbitration Agreement stated: "Any arbitration shall be conducted before a JAMS arbitrator under the Employment Arbitration Regulations and Procedures (the 'Regulations') of JAMS then in effect. You may obtain a copy of the Regulations from the Company both physically and on the JAMS website, www.jamsadr.com. JAMS has previously kept the Regulations at this address: http://www.jamsadr.com/rules-employment-arbitration. The arbitration will be held in Orange County, California, and the Employee and the Company consent to jurisdiction in California and venue in Orange County."
The Arbitration Agreement also included the following attorney fees provision, which is central to this appeal: "Each party shall pay its own expenses for legal representation, provided, however, that if either party prevails on a claim that entitles the prevailing party to attorneys' fees and/or costs, the Arbitrator may award reasonable fees and/or costs to the prevailing party in accordance with such claim."
Immediately after the attorney fees provision, the Arbitration Agreement stated: "The Arbitrator shall have the authority to order such finding through deposition, interrogatories, documentary production or otherwise, as the Arbitrator deems necessary for the full and fair exploration of the issues in controversy, consistent with the expedited nature of arbitration."
Finally, the Arbitration Agreement stated it was governed by the Federal Arbitration Act (9 U.S.C. § 1 et seq.) and included the following severability provision: "If any part or provision herein were found to be void or unenforceable, said part or provision shall be deemed separate and severed from the rest of the Agreement, whose validity shall not be affected."
Plaintiff's Complaint
In January 2021, plaintiff filed a complaint against defendants and Landmark Services, Inc., which is not a party to this appeal. The complaint alleged plaintiff sustained occupational injuries requiring her to seek reasonable accommodations from Goodwill. She also requested leave to care for her ailing husband. Among other things, the complaint alleged plaintiff was discriminated against due to her disability and suffered harassment from her supervisors, including defendants Alcaraz and Perez.
Given these allegations, the complaint asserted causes of action for: (1) employment discrimination on the basis of disability and medical condition; (2) failure to accommodate disability; (3) failure to engage in the interactive process; (4) retaliation for exercising rights under the California Fair Employment and Housing Act (FEHA) (Gov. Code, § 12900 et seq.); (5) harassment; (6) discrimination for association with a member of a protected class; (7) failure to prevent discrimination, harassment, and retaliation in violation of FEHA; (8) violation of the California Family Rights Act (CFRA); (9) retaliation for exercising rights under the CFRA; (10) wrongful termination in violation of public policy; (11) declaratory relief; and (12) injunctive relief.
All further statutory references are to the Government Code.
Defendants' Motion to Compel Arbitration and the Court's Order
In March 2021, defendants filed a motion to compel arbitration contending plaintiff's claims were subject to the Arbitration Agreement. After a hearing on the motion, the court invited the parties to file supplemental briefs addressing whether the attorney fees provision was unconscionable. The parties filed their respective supplemental briefs.
In June 2021, the court denied defendants' motion and found the Arbitration Agreement was unconscionable. The court's order did not address procedural unconscionability, but a prior tentative ruling noted the Arbitration Agreement was procedurally unconscionable "at least minimally, because it [was] a contract of adhesion that omitted the arbitration rules."
With respect to substantive unconscionability, the court found the attorney fees provision and discovery limitations were unconscionable. First, relying on the attorney fees provision, the court held "defendants were bargaining to both avoid incurring a substantial attorney-fee liability if they lost and gain the right to seek a substantial attorney-fee award if they prevailed against non-frivolous claims." The court concluded the attorney fees provision upsets FEHA's legislative purpose of protecting a plaintiff's access to justice. Second, the court noted the applicable JAMS rules only allowed one deposition and did not authorize any interrogatories or requests for admission. Relying on the Arbitration Agreement, the court also emphasized the agreement only allowed discovery that "'the Arbitrator deems necessary.'" Given plaintiff's FEHA claims, the court held plaintiff would "reasonably need more discovery than that guaranteed by the JAMS rules."
Finally, the court held the two unconscionable provisions could not be severed from the Arbitration Agreement. With respect to the attorney fees provision, the court emphasized: "Severing the . . . clause deprives the arbitrator of authority to award attorney fees to a prevailing plaintiff. Saving the clause requires rewriting it, which the court declines to do." The court also reasoned that severing the provision would unjustly reward defendants and encourage employers to include these provisions in their arbitration agreements. Given the Arbitration Agreement's discovery limitations, the court further found the "multiple unconscionable provisions weigh[ed] against severance."
Defendants timely appealed.
DISCUSSION
Defendants contend the court erred by finding the Arbitration Agreement was unconscionable and thus unenforceable. According to defendants, the Arbitration Agreement has minimal procedural unconscionability and no substantive unconscionability. They alternatively claim the court erred by failing to sever any unconscionable provisions. The Arbitration Agreement has a modest degree of procedural unconscionability but no substantively unconscionable provisions. We agree with defendants as to their contentions regarding procedural and substantive unconscionability. As we find no substantive unconscionability, we do not reach the issue of whether the trial court should have severed any provisions.
We review the court's ruling on unconscionability de novo to the extent it is based on a pure question of law. If the court's determination of unconscionability is based upon its resolution of conflicts in the evidence or on the factual inferences that may be drawn therefrom, we review those aspects of the determination for substantial evidence. (Carbajal v. CWPSC, Inc. (2016) 245 Cal.App.4th 227, 236-237.)
Unconscionability
While California and federal law favor the enforcement of valid arbitration agreements, courts will not enforce an arbitration agreement that is unconscionable. (Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, 96-99 (Armendariz).) Unconscionability "'"refers to '"absence of meaningful choice on the part of one of the parties together with contract terms which are unreasonably favorable to the other party."' [Citation.] As that formulation implicitly recognizes, the doctrine of unconscionability has both a procedural and a substantive element, the former focusing on oppression or surprise due to unequal bargaining power, the latter on overly harsh or one-sided results."'" (Baltazar v. Forever 21, Inc. (2016) 62 Cal.4th 1237, 1243 (Baltazar).)
"Both procedural and substantive unconscionability must be present before an arbitration provision is rendered unenforceable on unconscionability grounds, but '"'they need not be present in the same degree.'"' [Citation.] Courts invoke a sliding scale in which '"the 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."' [Citation.] '"The ultimate issue in every case is whether the terms of the contract are sufficiently unfair, in view of all relevant circumstances, that a court should withhold enforcement."'" (De Leon v. Pinnacle Property Management Services, LLC (2021) 72 Cal.App.5th 476, 485-486.)
A. Procedural Unconscionability
Procedural unconscionability may be proven by showing oppression or surprise. (Pinnacle Museum Tower Assn. v. Pinnacle Market Development (US), LLC (2012) 55 Cal.4th 223, 246-247.) Oppression "is present when a party has no meaningful opportunity to negotiate terms or the contract is presented on a take-it-or-leave-it basis." (Wherry v. Award, Inc. (2011) 192 Cal.App.4th 1242, 1246 (Wherry).) Surprise arises when terms of the bargain are hidden in a verbose, pre-printed form drafted by the party in the superior bargaining position. (Carbajal v. CWPSC, Inc., supra, 245 Cal.App.4th at p. 243.)
As discussed ante, the court's order did not address procedural unconscionability, but the tentative ruling noted the Arbitration Agreement was procedurally unconscionable "at least minimally, because it [was] a contract of adhesion that omitted the arbitration rules." We agree.
1. Oppression
With respect to the oppression element of procedural unconscionability, defendants concede the Arbitration Agreement was unconscionable as a contract of adhesion. But they argue the Arbitration Agreement had minimal procedural unconscionability.
Here, there is no dispute the Arbitration Agreement was imposed as a condition of employment with no negotiations or meaningful choice. Defendant Perez, Goodwill's vice-president of human resources, submitted a declaration stating employees are required to sign an arbitration agreement as a condition of their employment. Goodwill provides an English version of the Arbitration Agreement unless the employee requests a Spanish version. Consistent with this practice, plaintiff was required to sign the Arbitration Agreement. She ultimately signed a Spanish version of the Arbitration Agreement. In her declaration, plaintiff stated she was born in Mexico and spoke very little English. She had no recollection of ever seeing, reviewing, or receiving the Arbitration Agreement. She also had never heard of the term "arbitration" or been informed about what arbitration entailed. She further stated her "onboarding process" was "rushed" so she "was not given a chance to properly view the documents . . . presented to [her] for signature." Considering this evidence, the Arbitration Agreement had some degree of procedural unconscionability. (Martinez v. Master Protection Corp. (2004) 118 Cal.App.4th 107, 114 (Martinez) ["An arbitration agreement that is an essential part of a 'take it or leave it' employment condition, without more, is procedurally unconscionable"].)
Plaintiff argues additional facts demonstrate oppression. She claims she was unable to seek consultation with legal counsel because a Goodwill representative remained with her as she signed the Arbitration Agreement. She further suggests she was never given an opportunity to review the documents she signed. Defendants urge us to disregard these arguments because plaintiff did not raise them in the trial court proceedings. We need not address the forfeiture issue because plaintiff's arguments are not supported by the record. Plaintiff's declaration does not indicate whether she was prevented from seeking legal counsel, and Perez's declaration does not state a Goodwill representative remained with plaintiff when she signed the Arbitration Agreement. There likewise is no evidence of whether Goodwill allowed plaintiff to review the Arbitration Agreement. Plaintiff's declaration merely states the onboarding process was "rushed" so she could not "properly view" the documents. Because plaintiff's arguments are not supported by the record, we do not consider these arguments.
2. Surprise
Surprise may be found where "the agreement appears to have been drafted with an aim to thwart, rather than promote, understanding." (OTO, L.L.C. v. Kho (2019) 8 Cal.5th 111, 129.) That arbitral rules are not attached to an arbitration agreement, standing alone, does not increase the degree of procedural unconscionability. (Baltazar, 62 Cal.4th at p. 1246; Lane v. Francis Capital Management LLC (2014) 224 Cal.App.4th 676, 691 [finding no surprise where arbitration rules were easily accessible to the parties and the employee was a sophisticated businessperson].) But the lack of arbitral rules attached to an agreement may support a finding of procedural unconscionability where the claim "depended in some manner on the arbitration rules in question." (Baltazar, at p. 1246; see Davis v. Kozak (2020) 53 Cal.App.5th 897, 909 ["a viable claim of procedural unconscionability for . . . failure to attach the rules . . . depends in some manner on the substantive unfairness of a term . . . contained within . . . the rules"].)
Defendants contend there is no evidence of surprise even though the Arbitration Agreement does not attach a copy of the JAMS Employment Arbitration Regulations and Procedures. They emphasize the Arbitration Agreement identifies the Web site address where the rules can be found and also permits an employee to request a copy of the rules from Goodwill. We agree this does not, of itself, render the Arbitration Agreement unconscionable. As discussed infra, plaintiff challenges the substantive unfairness of the discovery terms contained in the JAMS rules. While this typically would increase the level of procedural unconscionability, the discovery limits in the instant case are not substantively unconscionable. But there was an element of surprise because a Spanish version of the JAMS rules was not easily accessible to plaintiff. (Lane v. Francis Capital Management LLC, supra, 224 Cal.App.4th at p. 690 ["The failure to attach a copy of arbitration rules could be a factor supporting a finding of procedural unconscionability where the failure would result in surprise to the party opposing arbitration"].)
Plaintiff adds that the Arbitration Agreement is ambiguous because it refers to the JAMS rules "then in effect." She contends it is unclear if this "mean[s] that the parties agree to the rules in effect at the time that the [Arbitration Agreement] was purportedly signed, or, the rules in effect at the time the dispute is submitted to arbitration." Contrary to plaintiff's assertion, the Arbitration Agreement clearly states arbitration would be conducted by the operative rules in effect at the time of the arbitration. The Arbitration Agreement provides in pertinent part: "Arbitration shall be conducted . . . under the Employment Arbitration Regulations and Procedures . . . of JAMS then in effect." Plaintiff argues she could not agree to uncertain terms that did not exist at the time of signing. While this adds slightly to the surprise element, it is not enough, on its own, to invalidate the Arbitration Agreement. We note both sides run the risk that the Regulations and Procedures might change in a way that is less favorable to them at the time of the arbitration.
Finally, plaintiff claims there are additional facts demonstrating surprise. She notes the fifth sentence of the Arbitration Agreement is 13 lines long. She also relies on the following provision in the Arbitration Agreement: "The Employee's request to arbitrate must be addressed to the President of the Company at the Company's principal place of business." She argues the Arbitration Agreement fails to provide the employee with Goodwill's principal place of business or the president's name. We need not address these arguments because plaintiff failed to raise them below. While the forfeiture rule does not apply when the new theory is a pure question of law with no factual disputes, we exercise our discretion to excuse forfeiture "rarely and only in cases presenting an important legal issue." (In re S.B. (2004) 32 Cal.4th 1287, 1293; see Prima Donna Development Corp. v. Wells Fargo Bank, N.A. (2019) 42 Cal.App.5th 22, 42-43.)
For the foregoing reasons, plaintiff's evidence of oppression and surprise establishes a modest degree of procedural unconscionability. Still, we must determine if the Arbitration Agreement is substantively unconscionable.
B. Substantive Unconscionability
Substantive unconscionability examines the fairness of an agreement's terms. (Pinnacle Museum Tower Assn. v. Pinnacle Market Development (US), LLC, supra, 55 Cal.4th at p. 246.) "This analysis 'ensures that contracts, particularly contracts of adhesion, do not impose terms that have been variously described as "'"overly harsh""" [citation], '"unduly oppressive'" [citation], '"so one-sided as to "shock the conscience""" [citation], or "unfairly one-sided" [citation]." (OTO, L.L.C v. Kho, supra, 8 Cal.5th at pp. 129-130.)
In evaluating substantive unconscionability, courts often consider whether the arbitration agreement meets certain minimum levels of fairness. In Armendariz, our Supreme Court instructed that, at a minimum, a mandatory employment arbitration agreement must (1) provide for neutral arbitrators, (2) provide for more than minimal discovery, (3) require a written award that permits limited judicial review, (4) provide for all of the types of relief that would otherwise be available in court, and (5) require the employer to pay the arbitrator's fees and all costs unique to arbitration. (Armendariz, supra, 24 Cal.4th at p. 102.) "Elimination of or interference with any of these basic provisions makes an arbitration agreement substantively unconscionable." (Wherry, supra, 192 Cal.App.4th at p. 1248.)
Although the trial court did not address each of the above factors, it found one of the requirements lacking because the discovery provided for was, in its view, inadequate. The court also found the attorney fees provision was unconscionable. We disagree on both counts.
1. Attorney Fees Provision
"[E]ach party to a lawsuit ordinarily pays its own attorney fees." (Mountain Air Enterprises, LLC v. Sundowner Towers, LLC (2017) 3 Cal.5th 744, 751.) But in FEHA cases, "the court, in its discretion, may award to the prevailing party . . . reasonable attorney's fees and costs . . . except that . . . a prevailing defendant shall not be awarded fees and costs unless the court finds the action was frivolous, unreasonable, or groundless when brought, or the plaintiff continued to litigate after it clearly became so." (§ 12965, subd. (c)(6); see Williams v. Chino Valley Independent Fire Dist. (2015) 61 Cal.4th 97, 115.)
Here, the Arbitration Agreement included the following attorney fees provision: "Each party shall pay its own expenses for legal representation, provided, however, that if either party prevails on a claim that entitles the prevailing party to attorneys' fees and/or costs, the Arbitrator may award reasonable fees and/or costs to the prevailing party in accordance with such claim." (Italics added.) The court found this provision was unconscionable by "[t]urning the tables on FEHA's attorney-fee allocation." The court reasoned, "Defendants were bargaining to both avoid incurring a substantial attorney-fee liability if they lost and gain the right to seek a substantial attorney-fee award if they prevailed against non-frivolous claims."
Defendants disagree, claiming the court misinterpreted the attorney fees provision. They contend the "provision can only be read to mean that, if a legal claim would entitle a prevailing party to recover attorneys' fees and costs, then the prevailing party may recover reasonable fees and costs as provided by that claim . . . ." If defendants prevail on a FEHA claim, they argue the arbitrator could award fees in accordance with that FEHA claim-i.e., only if the action was "frivolous, unreasonable, or groundless when brought, or the plaintiff continued to litigate after it clearly became so." (§ 12965, subd. (c)(6).)
We agree with defendants' interpretation. The attorney fees provision in the Arbitration Agreement clearly states the arbitrator may award fees in accordance with a claim that entitles the prevailing party to fees or costs. Given this qualifying language, the provision ensures any attorney fees will be awarded in line with FEHA standards. In other words, a prevailing plaintiff could recover attorney fees unless special circumstances would render the award unjust, but a prevailing defendant could recover attorney fees only if the plaintiff's action was frivolous, unreasonable, without foundation, or brought in bad faith. (§ 12965, subd. (c)(6); see Chavez v. City of Los Angeles (2010) 47 Cal.4th 970, 985.)
Relying on Wherry, supra, 192 Cal.App.4th 1242, plaintiff argues the Arbitration Agreement should "specifically provide that costs and fees should be awarded 'consistent with . . . Armendariz' and [defendants] can only recover costs and fees if they prevail on a showing that [plaintiff's] claims are frivolous, unreasonable, without foundation, or brought in bad faith." But the Wherry court never set forth the attorney fees provision it found substantively unconscionable. The court merely concluded the relevant attorney fees provision violated Armendariz because it allowed the prevailing party to recover attorney fees "without any limitation for a frivolous action or one brought in bad faith." (Wherry, supra, 192 Cal.App.4th at p. 1249.) Wherry is distinguishable because the attorney fees provision in that case permitted the recovery of attorney fees with no limitations. Here, the attorney fees provision included qualifying language-"if either party prevails on a claim that entitles the prevailing party to attorneys' fees and/or costs, the Arbitrator may award reasonable fees and/or costs to the prevailing party in accordance with such claim." (Italics added.) This language ensures compliance with Armendariz's requirement that "the arbitration agreement . . . cannot generally require the employee to bear any type of expense that the employee would not be required to bear if he or she were free to bring the action in court." (Armendariz, supra, 24 Cal.4th at pp. 110-111.)
For the foregoing reasons, the attorney fees provision is not unconscionable.
2. Discovery Limitations
"Limitations on discovery, including the number of depositions, is one of the ways" arbitration can provide for a streamlined procedure to resolve disputes. (Dotson v. Amgen, Inc. (2010) 181 Cal.App.4th 975, 983 (Dotson).) But "[a]dequate discovery is indispensable for the vindication of statutory claims." (Fitz v. NCR Corp. (2004) 118 Cal.App.4th 702, 715 (Fitz).) "In striking the appropriate balance between the desired simplicity of limited discovery and an employee's statutory rights, courts assess the amount of default discovery permitted under the arbitration agreement, the standard for obtaining additional discovery, and whether the plaintiffs have demonstrated that the discovery limitations will prevent them from adequately arbitrating their statutory claims." (Davis v. Kozak, supra, 53 Cal.App.5th at pp. 910-911.)
Here, the Arbitration Agreement incorporated the JAMS rules. JAMS rule No. 17 provides that the parties must voluntarily exchange nonprivileged documents and identify witnesses and experts along with any expert reports. The parties also have a continuing obligation to supplement their disclosures as new information is discovered. With respect to depositions, each party "may take at least one deposition . . . ." (Italics added.) The parties "shall attempt to agree on the number, time, location, and duration of the deposition(s)." If they cannot reach an agreement, "the Arbitrator shall determine these issues, including whether to grant a request for additional depositions, based upon the reasonable need for the requested information, the availability of other discovery and the burdensomeness of the request on the opposing Parties and the witness." (Italics added.)
Plaintiff contends she needs more discovery than what is allowed under the JAMS rules because the complaint alleges 12 causes of action against four different parties. She emphasizes the complaint described "multiple work-related injuries," "multiple transfers to multiple stores," and "multiple supervisors." She adds that she had to care for her ailing husband. Based on these allegations, she concludes she needs multiple depositions, documents, worker's compensation records, and third-party discovery from medical companies and doctors to pursue her FEHA claims.
While plaintiff's concern over the discovery limits is not unreasonable, she submitted no evidence that the JAMS rules would prevent her from vindicating her rights. Neither she nor her counsel submitted a declaration indicating the specific discovery plaintiff needs or how many depositions, document requests, and interrogatories are necessary. Instead, plaintiff generally argues she needs additional discovery to pursue her claims given the complexity of her allegations. "Arguments are not evidence." (Torrecillas v. Fitness Internat., LLC (2020) 52 Cal.App.5th 485, 497.) "[I]t [is] not sufficient simply to claim that the discovery limitations [are] unconscionable in the abstract." (Baxter v. Genworth North America Corp. (2017) 16 Cal.App.5th 713, 729.) "It [is] necessary to make a factual showing that the discovery limitations would as a practical matter thwart the employee's ability to prove his or her particular claims." (Ibid.; see Torrecillas, at p. 497 [discovery provision was not unconscionable where party submitted no evidence the discovery limits created barriers to his claims]; Sanchez v. Carmax Auto Superstores California, LLC (2014) 224 Cal.App.4th 398, 404 [same].)
Regardless, plaintiff incorrectly assumes she is limited to depositions. The Arbitration Agreement authorizes the arbitrator to grant more than just depositions. Indeed, the Arbitration Agreement states: "The Arbitrator shall have the authority to order such finding through deposition, interrogatories, documentary production or otherwise, as the Arbitrator deems necessary for the full and fair exploration of the issues in controversy, consistent with the expedited nature of arbitration." (Italics added.) While the JAMS rules only address the arbitrator's authority to grant additional depositions, the Arbitration Agreement broadens the arbitrator's discretion. JAMS rule No. 2 provides that the parties "may agree on any procedures not specified herein or in lieu of these Rules" and the party-agreed procedures "shall be enforceable as if contained in these Rules." Because the procedures in the Arbitration Agreement govern, plaintiff is entitled to depositions, interrogatories, requests for production of documents, and possibly more if the discovery is necessary.
The Arbitration Agreement does not specify what "such finding" means when addressing the arbitrator's discretion. Given the context of the entire provision and the parties' arguments regarding the provision, it appears the "finding" refers to a reasonable need for more discovery.
We also separately note plaintiff does not cite any authority, and we are aware of none, finding default discovery under the relevant JAMS rules to be substantively unconscionable. In Dotson, supra, 181 Cal.App.4th 975, the employment arbitration agreement at issue restricted discovery to the deposition of one individual and any expert witnesses and document requests, absent a showing of need. (Dotson, at pp. 982-985.) The Dotson court found this provision was not unconscionable given the arbitrator's broad discretion to authorize additional discovery. (Id. at pp. 984-985.) In Martinez, supra, 118 Cal.App.4th 107, the employment arbitration agreement included a more stringent provision limiting discovery to one deposition and a single document request, absent a showing of "'substantial need.'" (Id. at p. 118.) The court found this provision did not prevent the employee from vindicating his rights. (Id. at pp. 118-119.) However, the court acknowledged the discovery limitations "compound[ed] the one-sidedness of the arbitration agreement" when "considered against the backdrop of the other indisputably unconscionable provisions." (Id. at p. 119.)
Like the discovery provision in Dotson, the JAMS rules provide the arbitrator with broad discretion to authorize additional depositions based upon the low threshold of "reasonable need." We must "assume that the arbitrator will operate in a reasonable manner in conformity with the law." (Dotson, supra, 181 Cal.App.4th at p. 984.) Unlike the agreement in Martinez, the Arbitration Agreement in the instant case contains no other unconscionable provisions. We accordingly cannot conclude the discovery limitations "compound[ed] the one-sidedness of the . . . agreement." (Martinez, supra, 118 Cal.App.4th at p. 119.)
Plaintiff's reliance on Fitz, supra, 118 Cal.App.4th 702 and Ontiveros v. DHL Express (USA), Inc. (2008) 164 Cal.App.4th 494 (Ontiveros), abrogated on other grounds as recognized by Pinela v. Neiman Marcus Group, Inc. (2015) 238 Cal.App.4th 227, is misplaced. In Fitz, the arbitration agreement limited discovery to two depositions, expert depositions, and an exchange of exhibits and witnesses two weeks before the arbitration. (Fitz, at p. 709.) The agreement also stated: "'No other "discovery" (i.e., depositions or demands for documents/information) will be permitted unless the arbitrator finds a compelling need to allow it. In determining whether a compelling need exists, the arbitrator will balance the interests of fairness and expediency; the arbitrator will only override the goal of achieving a prompt and inexpensive resolution to the dispute if a fair hearing is impossible without additional discovery.'" (Ibid., some original italics omitted.) The employee estimated she would need eight to 10 depositions. (Id. at p. 717.) In finding the discovery provision was unconscionable, the court emphasized the arbitrator's discretion was an "inadequate safety valve" given the "'impossibility'" standard needed to justify more discovery. (Ibid.)
In Ontiveros, supra, 164 Cal.App.4th 494, the arbitration agreement limited the parties to one deposition, expert depositions, and requests for production of documents. (Ontiveros, at p. 511.) Additional discovery was allowed "'only where the Arbitrator . . . so orders, upon a showing of substantial need.'" (Ibid.) The employee estimated she would need at least 15 to 20 depositions. (Id. at p. 513.) The court concluded, "[T]he permitted amount of discovery is so low while the burden for showing a need for more discovery is so high that plaintiff's ability to prove her claims would be unlawfully thwarted by the discovery provision in the agreement." (Ibid.)
Both Fitz and Ontiveros dealt with different standards for obtaining additional discovery. Unlike the agreements in those cases, the Arbitration Agreement does not require a showing of compelling or substantial need to obtain additional discovery. Instead, the applicable JAMS rules allow the arbitrator to grant additional depositions based upon reasonable need, which is a less onerous showing. The Arbitration Agreement similarly states the arbitrator can grant additional discovery that is necessary.
Plaintiff claims the standard for obtaining additional discovery as stated in the Arbitration Agreement conflicts with the standard in the JAMS rules. She relies on the following provision in the Arbitration Agreement: "The Arbitrator shall have the authority to order such finding through deposition, interrogatories, documentary production or otherwise, as the Arbitrator deems necessary for the full and fair exploration of the issues in controversy, consistent with the expedited nature of arbitration." (Italics added.) According to plaintiff, the "deems necessary" standard conflicts with the "reasonable need" standard contained in the JAMS rules. She suggests neither standard ensures she can adequately pursue her FEHA claims. Not true. There is no adverse material inconsistency between the two provisions. A simple showing of "need" is all that is required for additional discovery. (Roman v. Superior Court (2009) 172 Cal.App.4th 1462, 1475-1476 [provision in [the American Arbitration Association] rules authorizing arbitrator to order discovery he or she considers "necessary" was conscionable].)
Finally, plaintiff argues she is disadvantaged by the following JAMS requirement: "[The parties] shall complete an initial exchange of . . . names of individuals whom they may call as witnesses . . . names of all experts who may be called to testify . . . together with each expert's report, which may be introduced . . . within twenty-one (21) calendar days after all pleadings or notice of claims have been received." While the parties have to complete this initial exchange within 21-days, they have a continuing obligation to disclose documents, information, witnesses, and experts. Thus, contrary to plaintiff's suggestion, she is not limited to the witnesses or experts identified within the initial 21-days.
For the foregoing reasons, plaintiff has not met her burden of showing the Arbitration Agreement is substantively unconscionable. Because there is no substantive unconscionability, the Arbitration Agreement is enforceable, and the court erred by denying defendants' motion to compel arbitration.
DISPOSITION
The order is reversed, and the matter is remanded to the court with directions to enter a new order granting defendants' motion to compel arbitration. Defendants shall recover their costs incurred on appeal.
I CONCUR: MARKS, J. [*]
GOETHALS, J., dissenting:
I dissent. While I agree with much of the majority's analysis, I disagree with my colleagues' conclusion that the trial judge erred when he found Goodwill's Mutual Agreement to Arbitrate Claims (the Arbitration Agreement) was both procedurally and substantively unconscionable and therefore refused to enforce it.
I find the Arbitration Agreement to be procedurally unconscionable in that it was a contract of adhesion. My colleagues and both parties agree with this conclusion. Plaintiff Alicia Macias Contreras was placed into a "take it or leave it" situation when the Arbitration Agreement was presented to her. As was the case in Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, 115 (Armendariz): "It was imposed on employees as a condition of employment and there was no opportunity to negotiate." If Contreras wanted to work at Goodwill Industries of Orange County, California, she had no choice other than to sign the Arbitration Agreement that was presented to her. Procedurally speaking, this was a contract of adhesion.
I also find the agreement to be substantively unconscionable in two respects. First, the costs and attorney fees provision is unconscionable: "Each party shall pay its own expenses for legal representation, provided, however, that if either party prevails on a claim that entitles the prevailing party to attorneys' fees and/or costs, the Arbitrator may award reasonable fees and/or costs to the prevailing party in accordance with such claim."
During oral argument, appellants' counsel characterized this term as superfluous, and suggested it was included in the Arbitration Agreement to protect employees like Contreras. I am not convinced. I understand that, although this term may not technically permit Goodwill to recover attorney fees from Contreras if it prevails at the arbitration, this would not be apparent to any average lay person. As the trial judge observed in his ruling: "The attorney-fee provision is . . . a uniquely significant contract term. By including the unconscionable attorney-fee provision, defendants were bargaining to both avoid incurring a substantial attorney-fee liability if they lost and gain the right to seek a substantial attorney-fee award if they prevailed against non-frivolous claims. This upsets [the California Fair Employment and Housing Act's] legislative purpose to encourage and protect plaintiff's access to justice." The trial judge found this provision to be substantively unconscionable. After examining the issue de novo, I agree with his analysis.
Next, the trial court found the Arbitration Agreement's discovery provision also to be substantively unconscionable. Once again, I agree. My de novo analysis is guided by Armendariz. "The denial of adequate discovery in arbitration proceedings leads to the de facto frustration of the employee's statutory rights." (Armendariz, supra, 24 Cal.4th at p. 104.) "Adequate discovery is indispensable for the vindication of [the California Fair Employment and Housing Act] claims." (Ibid.) "California has made clear that a court must balance the 'desirable simplicity' of limiting discovery with employees' need for discovery 'sufficient to adequately arbitrate their statutory claim, including access to essential documents and witnesses, as determined by the arbitrator(s) and subject to limited judicial review." (Poublon v. C.H. Robinson Co. (9th Cir. 2017) 846 F.3d 1251, 1270; see Armendariz, supra, at p. 106.)
Here, although Contreras failed to itemize for the trial court her specific discovery needs above and beyond the "one deposition" provided for in the Arbitration Agreement, I believe the need for additional discovery is patently apparent given the nature of the complaint and the number of causes of action contained therein.
The Civil Code gives a trial court three options when it finds itself in the position presented here: "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 contract without the unconscionable clause, or it may so limit the application of any unconscionable clause as to avoid any unconscionable result." (Civ. Code, § 1670.5, subd. (a).)
In Armendariz, our Supreme Court quoted the Legislative Committee's comment on Civil Code section 1670.5, as it interpreted the statute: "Under this section the court, in its discretion may refuse to enforce the contract as a whole if it is permeated by the unconscionability, or it may strike any single clause or group of clauses which are so tainted or which are contrary to the essential purpose of the agreement." (Armendariz, supra, 24 Cal.4th at p. 122.) Appellants have failed to demonstrate that the trial court, in declining to sever the unconscionable terms of this agreement, abused its discretion.
I will end with this observation. In Armendariz, the Supreme Court addressed the employer-employee dynamic that is typically involved in the creation of employment agreements like the one at issue here: "in the case of preemployment 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 requirement." (Armendariz, supra, 24 Cal.4th at p. 115.)
Keeping that dynamic in mind, I am troubled in this case, as I have been troubled in the past, by a scenario in which the parties and the court agree that the Arbitration Agreement at issue is unconscionable. Appellants nonetheless ask us to enforce the contract. Armendariz and its progeny direct us to employ "a sliding scale" in such cases to determine whether or not the flawed agreement remains enforceable. "[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, supra, 24 Cal.4th at p. 114.)
Words matter; they have meanings. The Merriam-Webster Dictionary defines "unconscionable" thusly: "shockingly unfair, harsh, or unjust." (Webster's 3d New Internat. Dict. (2002) p. 2486.) We regularly presume the Legislature understands the meaning of the words it includes in California statutes, which, given the foregoing definition, may explain why the Legislature enacted Civil Code section 1670.5, subdivision (a), which authorizes a court to "refuse to enforce" a contract it finds unconscionable. I would affirm the trial court's order.
[*]Judge of the Orange Superior Court, assigned by the Chief Justice pursuant to article VI, section 6 of the California Constitution.