Opinion
B298744
08-31-2020
CARLOS A. HERRERA, Plaintiff and Respondent, v. GARDENA BAKING COMPANY et al., Defendants and Appellants.
Littler Mendelson, D. Chad Anderton, Tracy R. Williams, and Charles Cannizzaro for Defendants and Appellants. Javier Garibay for Plaintiff and Respondent.
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115. (Los Angeles County Super. Ct. No. 18STCV00889) APPEAL from an order of the Superior Court of Los Angeles County, Barbara A. Meiers, Judge. Reversed and remanded with directions. Littler Mendelson, D. Chad Anderton, Tracy R. Williams, and Charles Cannizzaro for Defendants and Appellants. Javier Garibay for Plaintiff and Respondent.
INTRODUCTION
Respondent Carlos A. Herrera worked as a baker, first for appellant Monarca, Inc. (Monarca), then for its wholly owned subsidiary, appellant Gardena Baking Company (Gardena). He signed an arbitration agreement with both companies.
In October 2018, Herrera sued appellants for employment-related claims and appellants moved to compel arbitration. Herrera opposed, admitting he had signed the arbitration agreements, but arguing they were unenforceable due to unconscionability, in part because they were written in English (which he does not understand), and no one explained their substance to him.
The trial court denied appellants' motion without explanation. However, the court's comments during the hearing on the motion reflect its general concern with enforcing arbitration agreements in the employment context, and its specific concern with the purported unconscionability of the agreements at issue here; these are also the issues discussed in the parties' briefs.
Specifically, appellants argue the court was impermissibly biased against arbitration and erred in finding the agreements unenforceable due to unconscionability. Herrera counters that the agreements were procedurally unconscionable because: (a) they were adhesive; (b) no one explained the substance of the agreements to him; (c) he did not receive a copy of the applicable arbitration rules; and (d) he was unable to read the language in which they were written. He argues they were substantively unconscionable because his employers had the unilateral right to modify or terminate them.
Rather than address appellants' argument that the court was biased against arbitration, Herrera instead argues nothing demonstrates the court was biased against appellants.
The court's order denying arbitration shed no light on its reasoning. We infer from the court's comments at the hearing that it denied appellants' motion on the ground of unconscionability and thus do not address whether the court exhibited an impermissible bias against arbitration. We conclude the agreements are not unenforceable due to unconscionability, because while there is a moderate level of procedural unconscionability, there is little substantive unconscionability. Therefore, we reverse the court's order denying appellants' motion, and direct the court to enter a new order granting the motion.
STATEMENT OF RELEVANT FACTS
A. The Parties
Monarca wholly owns Gardena and appellant La Monarca IV LLC, and is an owner and managing member of appellants La Monarca V LLC and La Monarca VI LLC. Appellants Alfredo Livas and Jose Ricardo Cervantes are, respectively, the Chief Financial Officer and Chief Executive Officer of both Monarca and Gardena.
In 2008 or 2009, Monarca hired Herrera as a baker. In August 2017, he became employed by Gardena as head baker. In total, he worked for Monarca and Gardena for approximately ten years.
B. Herrera Signs Two Substantively Identical Arbitration Agreements
In July 2016, while Herrera was still employed by Monarca, the company implemented Zenefits, a web-based human resources platform to transmit policies and forms to employees. Zenefits required employees to create a username and password to log on to its site; from there, they could review and electronically sign policies and acknowledgements. On July 26, 2016, in Monarca's offices, Monarca personnel assisted Herrera in creating a username and password for Zenefits, and downloading a standalone arbitration agreement for him to sign. Herrera claims he cannot read English and did not know what he was signing, only that he was required to sign the agreement to continue working at Monarca. While Herrera was given no time limit to review the agreement, he received neither a Spanish translation nor an explanation as to its content; nor did he ask for either. When Herrera became employed by Gardena in 2017, he repeated the same process, electronically signing a standalone arbitration agreement with his employer's help, without understanding what he was signing, and neither asking for nor being provided a copy of the agreement in Spanish or an explanation as to what he was signing.
Herrera also declared that most of the recipes he worked with were written in Spanish, that the names of the breads he was to make were in Spanish, and that his employers specialized in making Spanish breads. Submitted as part of Herrera's declarations was a declaration from his attorney, swearing under penalty of perjury that he translated the declarations from English to Spanish for Herrera, and Herrera understood and agreed with their contents.
The portions of the arbitration agreements relevant to the appeal are identical:
-The "Arbitration Provision" is governed by the Federal Arbitration Act, while the "Agreement" -- an undefined term -- is governed by California law.
-The arbitrator would be selected by mutual agreement of the parties or, if the parties were unable to agree, would be a JAMS arbitrator. If a JAMS arbitrator were used, the JAMS Streamlined Arbitration Rules & Procedures would apply to the extent those rules did not conflict with the agreement. A link to the JAMS rules was included in the agreement.
-Employees would "not be required to bear any type of fee or expense that [they] would not be required to bear if [they] had filed the action in a court of law."
-In a section entitled "Entire Agreement," the agreements provided they could "be modified in writing only, duly executed by the Employee and an officer of the Company." (Underscoring omitted.)
-In a section entitled "Acknowledgment of Receipt of Arbitration Agreement" (the Acknowledgment), the signer attested to receipt, review, and understanding of the agreements, and that the employer "may change, rescind, or delete this agreement from time to time, at its sole and absolute discretion, with or without prior notice."
Because we conclude that under both the Federal Arbitration Act (FAA) and the California Arbitration Act (CAA), unconscionability is analyzed under state law, we need not resolve these seemingly contradictory provisions to determine whether the FAA or CAA applies.
According to its website, "JAMS is the world's largest private alternative dispute resolution (ADR) provider." (About Us <https://www.jamsadr.com/about/> [as of Aug. 24, 2020].)
The agreements contained no specific duration.
C. Herrera Files a Complaint; Appellants Move to Compel Arbitration
In October 2018, Herrera filed a complaint against appellants with nine causes of action, alleging Labor Code violations, breach of contract, and unfair competition. In March 2019, appellants filed a motion to compel arbitration. Herrera opposed the motion, arguing in part that the agreements were unenforceable due to unconscionability, and submitting a declaration stating that he did not read or speak English. The declaration also stated he had worked for his employers -- a company that specialized in making Spanish breads, with baking instructions largely in Spanish -- for ten years. Appellants replied and Herrera filed a sur-reply to which appellants objected.
Herrera also argued that due to his inability to read the agreement and his employers' failure to explain its contents, he did not consent to the agreements, and therefore no contracts were formed. Because the court gave no indication it considered this argument, and Herrera does not renew it on appeal, we express no opinion as to its merits.
At the hearing on the motion to compel, the court initially expressed skepticism about the fairness of enforcing arbitration agreements in employment settings, stating:
"Over time I have become more and more concerned about these arbitration agreements in an employment setting.
"I know there is this great preference for arbitration, but it's a preference that I think has become misplaced because it used to be that arbitration was supposed to be advantageous because you would get a speedier trial and it would be less expensive. None of that is true any longer.
"[Arbitration agreements in the employment context] are not like any other contract. They involve an element of duress
that is severe. [¶] Jobs don't grow on trees anymore. [¶] It's like holding a knife to somebody's throat and saying, 'your money or your life.' I mean, people need jobs, and they are not easy to come by, and a whole family's welfare depends upon that job, and you say 'well, this is like any other contract.'"However, the court admitted that despite its personal feelings, it found itself "up against case law" and that it did not think there was "any way to get around where the law is on this subject." The court later stated that if Herrera had not received a copy of the agreements, the court "would be strongly inclined to deny the motion," and invited Herrera to file a supplemental declaration to that effect.
Several minutes later, the court wavered on the importance of Herrera's receipt of a copy of the agreement, stating, "I'm also thinking . . . about whether . . . it really [makes] a difference if he was given a copy because you are talking about a copy after the fact . . . . So what good does the copy do him after the fact? He can go home and find out something that he never wanted to sign, but he's already signed it."
Later in the hearing, the court agreed that an employer's unilateral authority to terminate or modify the agreements would be a factor counting toward unconscionability. The court also stated its belief that Herrera's employers knew he did not understand English. At the conclusion of the hearing, the court took the matter under submission, gave appellants ten days to file a response to Herrera's sur-reply (which the court said it would consider), and gave both parties ten days to file a declaration regarding whether Herrera received a copy of the arbitration agreement. Appellants subsequently filed a response to the sur-reply, and submitted a declaration stating all employees could log on to Zenefits to print a copy of the arbitration agreements. Herrera submitted a declaration stating he had never received a physical copy of the arbitration agreements.
The court denied the motion to compel arbitration. Its minute order stated only that the "Motion to Compel Arbitration filed by [appellants] on 03/26/2019 is Denied." Appellants timely appealed.
DISCUSSION
It is well settled that "if the record is silent, we must presume the trial court fully discharged its duty to consider all of the relevant statutory factors and made all of the factual findings necessary to support its decision for which there is substantial evidence." (Brewer v. Carter (2013) 218 Cal.App.4th 1312, 1320; see also Indio Police Command Unit Assn. v. City of Indio (2014) 230 Cal.App.4th 521, 54 ["when the record is silent, we infer all findings necessary to support the order"].)
"'On appeal from the denial of a motion to compel arbitration, "we review the arbitration agreement de novo to determine whether it is legally enforceable, applying general principles of California contract law."' (Baker v. Osborne Development Corp. (2008) 159 Cal.App.4th 884, 892 .) Thus, unconscionability is a question of law we review de novo. (Ibid.) To the extent the trial court's determination on the issue turned on the resolution of contested facts, we would review the court's factual determinations for substantial evidence. (Ibid.)" (Carmona v. Lincoln Millennium Car Wash, Inc. (2014) 226 Cal.App.4th 74, 82 (Carmona).)
As noted, the trial court's order denying the motion to compel did not explain the court's reasoning. Based on the court's comments at the hearing, however, we infer it found the agreements unenforceable due to unconscionability. Accordingly, we consider below: (a) the facts before the court, the factual findings it impliedly made, and whether substantial evidence supports those findings; and (b) whether, based on the facts before the court, the trial court erred in finding the arbitration agreements unenforceable due to unconscionability.
A. Facts Before the Court
The parties disputed Herrera's proficiency in English, and his employers' knowledge thereof. At the hearing, the court stated its belief that Herrera's employers knew he did not understand English. Furthermore, Herrera filed a declaration stating he does not read or speak English, and that he had worked for his employers -- a company that specialized in making Spanish breads, with baking instructions largely in Spanish -- for ten years. We conclude the court found that appellants knew Herrera did not understand English, and that this finding is supported by substantial evidence.
The other factual issues brought to the court's attention were undisputed:
-Herrera was told he needed to sign the agreements in order to continue working.
-Herrera admitted signing the agreements, but did so at his employers' offices, with their help.
-No one gave Herrera a translated version of the agreements or explained their substance to him; nor did he ask for either.
-Herrera never received a copy of the agreements, though the Zenefits program permitted employees to print a copy of the agreements.
B. Enforceability of the Agreements
While appellants claim the agreements are governed by the FAA, "generally applicable contract defenses, such as fraud, duress, or unconscionability, may be applied to invalidate arbitration agreements without contravening § 2" of the FAA. (Doctor's Assocs. v. Casarotto (1996) 517 U.S. 681, 687.) "[U]nconscionability remains a valid defense to a petition to compel arbitration" and state courts may "enforce unconscionability rules that do not 'interfere[] with fundamental attributes of arbitration.'" (Sonic-Calabasas A, Inc. v. Moreno (2013) 57 Cal.4th 1109, 1124, 1142.) "As the FAA contemplates in its savings clause (9 U.S.C. § 2), courts may examine the terms of adhesive arbitration agreements to determine whether they are unreasonably one-sided." (Id. at 1145.)
"The party resisting arbitration bears the burden of proving unconscionability. [Citations.] Both procedural unconscionability and substantive unconscionability must be shown, but 'they need not be present in the same degree' and are evaluated on '"a sliding scale."' [Citation.] '[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.'" (Pinnacle Museum Tower Assn. v. Pinnacle Market Development (US), LLC (2012) 55 Cal.4th 223, 247 (Pinnacle); see also OTO, L.L.C. v. Kho (2019) 8 Cal.5th 111, 125-126 [same].) "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." (Sanchez v. Valencia Holding Co., LLC (2015) 61 Cal.4th 899, 912 (Sanchez).)
1. The Agreements Have a Moderate Level of Procedural Unconscionability
"'Procedural unconscionability focuses on oppression or unfair surprise . . . .'" (Penilla v. Westmont Corp. (2016) 3 Cal.App.5th 205, 214 (Penilla).) Herrera argues the agreements are procedurally unconscionable because: (a) they were adhesive; (b) no one explained their substance to him; (c) no one gave him a copy of the arbitration rules; and (d) the agreements were written in a language he did not understand. We address each contention in turn.
(a) The Agreements Are Adhesive
An arbitration agreement is adhesive when it is "imposed on employees as a condition of employment and there was no opportunity to negotiate." (Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, 115.) While the parties do not dispute the arbitration agreements were adhesive, requiring an employee to agree to arbitration as a condition of employment does not render the agreement automatically unenforceable. (Carmona, supra, 226 Cal.App.4th at 84, fn. 4 ["'a predispute arbitration agreement is not invalid merely because it is imposed as a condition of employment. . . . [T]he mandatory nature of an arbitration agreement does not, by itself, render the agreement unenforceable'"].) "But the adhesive nature of a contract is one factor the courts may consider in determining the degree of procedural unconscionability." (Ibid.)
(b) Appellants Had No Duty to Explain the Agreements to Herrera
Without citation to authority, Herrera argues it was procedurally unconscionable for appellants not to explain the substance of the arbitration agreements to him, despite his failure to request such explanation. "'No law requires that parties dealing at arm's length have a duty to explain to each other the terms of a written contract, particularly where, as here, the language of the contract expressly and plainly provides for the arbitration of disputes arising out of the contractual relationship. [Citation.] Reliance on an alleged misrepresentation [or, by extension of reasoning, a unilateral mistake not encouraged or fostered by the other party,] is not reasonable when plaintiff could have ascertained the truth through the exercise of reasonable diligence. [Citation.] Reasonable diligence requires the reading of a contract before signing it. A party cannot use his own lack of diligence to avoid an arbitration agreement. [Citation.]'" (Brookwood v. Bank of America (1996) 45 Cal.App.4th 1667, 1674; accord, Harris v. TAP Worldwide, LLC (2016) 248 Cal.App.4th 373, 383 [finding "irrelevant" that a party had "either chose[n] not to read or take the time to understand" provisions providing for arbitration, and reversing the trial court's denial of a motion to compel arbitration].) Because nothing in the record shows Herrera engaged in reasonable diligence to discover the nature of the agreements he signed -- i.e., by either requesting a translation of what he was signing, or asking someone to explain it to him -- we find no procedural unconscionability in his employers' failure to explain the agreements to him.
(c) Failing to Provide a Copy of the Rules Did Not Render the Agreements Unconscionable
Herrera argues that failing to provide a copy of the arbitration rules supports a finding of procedural unconscionability. Preliminarily, we note that "failure to attach the [arbitration] rules, standing alone, is insufficient grounds to support a finding of procedural unconscionability." (Peng v. First Republic Bank (2013) 219 Cal.App.4th 1462, 1472 (Peng).) In any case, our Supreme Court has held that when an employer "'artfully hid[es]' [the arbitration rules] by the simple expedient of incorporating them by reference rather than including them in or attaching them to the arbitration agreement," this warrants a closer scrutiny of the agreement's substantive unconscionability only when the party's challenge to arbitration "concerned some element of the [arbitration] rules of which [the party] had been unaware when she signed the arbitration agreement." (Baltazar v. Forever 21, Inc. (2016) 62 Cal.4th 1237, 1246.) Here, Herrera's challenge has nothing to do with the rules of arbitration. Accordingly, we perceive no unconscionability from his employers' failure to include a physical copy of those rules.
(d) Herrera's Inability to Read the Contract Supports a Finding of a Moderate Level of Procedural Unconscionability
In general, a party need not read an agreement to be bound by it. (Pinnacle, supra, 55 Cal.4th at 236 ["An arbitration clause within a contract may be binding on a party even if the party never actually read the clause"]; accord, Ramos v. Westlake Services LLC (2015) 242 Cal.App.4th 674, 687 ["the fact that [plaintiff] signed a contract in a language he may not have completely understood would not bar enforcement of the arbitration agreement. If [plaintiff] did not speak or understand English sufficiently to comprehend the [contract], he should have had it read or explained to him"]; 1 Williston on Contracts (4th ed. 2007) § 4:19 ["when one who is ignorant of the language in which a document is written . . . executes a writing proposed as a contract under a mistake as to its contents[, s]uch a person is bound, in the absence of fraud, if the person does not require the document to be read to him" (fns. omitted)].) Nonetheless, whether a party is able to read an agreement is a factor that courts have considered in determining whether an agreement is procedurally unconscionable.
In Subcontracting Concepts (CT), LLC v. De Melo (2019) 34 Cal.App.5th 201 (De Melo), the court upheld the trial court's finding (conceded by the appellants) of a "'"moderate level" [of] procedural unconscionability'" based on three factors: (1) the agreement was adhesive; (2) "respondent, who was not fluent enough in English to fully understand legal documents written in English, did not understand what arbitration was and no one explained to him the meaning of any of the 27 clauses in the five-page Agreement, including the arbitration clause," which was clause 26 of 27; and (3) the agreement did not state the rules governing the arbitration, nor was the signer provided a copy of the rules. (De Melo, supra, 34 Cal.App.5th at 205, 210-211.)
The instant case, like De Melo, involves an adhesion contract and a signer who did not understand the arbitration agreement due to a language barrier. But unlike in De Melo, the arbitration clause here is not clause 26 of 27 -- it is the entire agreement -- and there is both a reference to the arbitration rules, and a link provided to those rules. On these facts, we find, at most, only a "moderate level" of procedural unconscionability.
In support of his argument that the agreements are unenforceable due to procedural unconscionability, Herrera cites Carmona and our own decision in Penilla. Both cases are distinguishable. In Carmona, our colleagues in Division Eight found an arbitration agreement procedurally unconscionable where it was an adhesion contract, the employer failed to provide the applicable arbitration rules, neither the agreement nor anyone else explained what arbitration was, and some of the plaintiffs had only a few minutes to review the agreement. (Carmona, supra, 226 Cal.App.4th at 84-85.) The appellate court emphasized, however, that "[w]hat elevates this case to a high degree of procedural unconscionability . . . is the element of surprise regarding a key clause—the enforceability clause." (Id. at 85.) The enforceability clause essentially permitted the employer to ignore arbitration, and granted the employer the exclusive right to recover fees. (Id. at 80.) Carmona found that the employers "hid the enforceability clause and the entire confidentiality subagreement by failing to translate that portion of the agreement into Spanish." (Id. at 85.) The court concluded that "with both oppression and surprise present," the arbitration agreement was procedurally unconscionable. (Ibid.) Thus, while Carmona considered adhesion and inability to read the language of the agreement as factors indicating procedural unconscionability, what elevated the agreement to an unacceptable level of procedural unconscionability was an element of deceit and surprise not present here.
In Penilla, this court found that nonproficiency in English coupled with lack of explanation or a translated document, in addition to insufficient time to review, were "facts supporting a finding of procedural unconscionability." (Penilla, supra, 3 Cal.App.5th at 216.) In our case, Herrera does not dispute he was given no time limit in which to review -- or ask about -- the agreements, and that he neither requested a translated version of what he signed nor sought an explanation. Moreover, Penilla contained several other factors supporting a finding of procedural unconscionability not present here: the failure to disclose prohibitively expensive arbitration fees, an arbitration clause that was confusing and sometimes contradictory regarding its scope, and a failure of the defendants to draw attention to the arbitration provision. (Id. at 217-218.) By contrast, the agreements here provide that employees will "not be required to bear any type of fee or expense that [they] would not be required to bear if [they] had filed the action in a court of law," the scope of the arbitration provision is not confusing, and, given that the entire agreement relates to arbitration, appellants cannot be accused of failing to draw Herrera's attention to the fact that the agreements provided for the arbitration of disputes.
Appellants' cases are also distinguishable. (Bolanos v. Khalatian (1991) 231 Cal.App.3d 1586, 1590 [plaintiff cannot avoid arbitration where agreement was not adhesive, and her declaration failed to state she was unable to read the agreement]; Randas v. YMCA of Metropolitan Los Angeles (1993) 17 Cal.App.4th 158, 163 [plaintiff bound by arbitration agreement despite being unable to read English where there was no indication defendant knew of her inability to read English]. Here, the agreements were adhesive and the trial court impliedly found appellants knew of Herrera's inability to understand English.
Because we find the agreements contain a moderate level of procedural unconscionability, we now analyze whether they are substantively unconscionable as well.
2. The Agreements Have Little Substantive Unconscionability
Substantive unconscionability focuses on whether the terms of an agreement are overly harsh, unduly oppressive, or so one-sided as to shock the conscience. (Sanchez v. Valencia Holding Co., supra, 61 Cal.4th at 910.) On appeal, Herrera's sole basis for contending the agreements are substantively unconscionable is that the Acknowledgment provided Herrera's employers the right to terminate or modify the agreements in any way at any time, without affording Herrera the same right. As explained below, we conclude that: (a) the agreements prohibit any modifications without express, mutual assent; (b) a unilateral right to modify the agreements would not be substantively unconscionable because any modification would be subject to the covenant of good faith and fair dealing; and (c) in this case, both parties had the right to terminate the agreement.
(a) Modification of the Agreements Is Subject to Mutual Assent
Each agreement contains two seemingly contradictory provisions regarding modification and termination. First, under a section entitled "Entire Agreement," each agreement states it may "be modified in writing only, duly executed by the Employee and an officer of the Company." However, the Acknowledgment provides the employer "may change, rescind, or delete this agreement from time to time, at its sole and absolute discretion, with or without prior notice." On appeal, Herrera focuses on the "Acknowledgment" language, while ignoring the "Entire Agreement" language, to argue the agreements gave his employers the right to modify the agreements in any manner without affording Herrera the same right. Appellants counter that the "Entire Agreement" language is more specific, and therefore prevails over the "Acknowledgment" language.
We find both arguments unpersuasive. Herrera may not disregard the "Entire Agreement" language because "[t]he whole of a contract is to be taken together, so as to give effect to every part, if reasonably practicable, each clause helping to interpret the other." (Civ. Code, § 1641.) On the other hand, while it is true that "when a general and particular provision are inconsistent, the latter is paramount to the former" (Code Civ. Proc., § 1859), the "Entire Agreement" language and the "Acknowledgment" language are "particular" in different areas. The "Entire Agreement" language is more particular regarding how a modification can be made (through a mutually executed writing) without specifying who may modify the agreement, whereas the "Acknowledgment" language is more particular regarding who may modify the agreement (the employer has sole discretion to do so) without specifying how such a modification is to be made. It is therefore unclear which is the general and which is the particular provision.
While the "Entire Agreement" language and the "Acknowledgment" language seem contradictory, "[r]epugnancy in a contract must be reconciled, if possible, by such an interpretation as will give some effect to the repugnant clauses, subordinate to the general intent and purpose of the whole contract." (Civ. Code, § 1652; accord, Civ. Code, § 1643 ["A contract must receive such an interpretation as will make it lawful, operative, definite, reasonable, and capable of being carried into effect, if it can be done without violating the intention of the parties"].) Additionally, "[w]ords in a contract which are wholly inconsistent with its nature, or with the main intention of the parties, are to be rejected" and "[i]n cases of uncertainty not removed by the preceding rules, the language of a contract should be interpreted most strongly against the party who caused the uncertainty to exist." (Civ. Code, §§ 1653 & 1654.) With these canons of construction as a guide, we conclude that, while the "Acknowledgment" language purports to give only the employers the right to modify the agreements, the "Entire Agreement" language prohibits any modifications without the employee's express, written assent, thus making the right to modify effectively a mutual right (or mutual prohibition), because no modification can occur unless both parties acknowledge the change in writing. We do not find this to be substantively unconscionable.
(b) A Unilateral Right to Modify the Agreement Is Not Substantively Unconscionable
Even were the agreements to be construed as Herrera advocates, that would not render them substantively unconscionable, because any proposed modification would be subject to the employer's obligation to act in good faith. In Peng, the Court of Appeal concluded the arbitration agreement's unilateral modification provision was not substantively unconscionable because an employer's unilateral power to modify an agreement "'indisputably carries with it the duty to exercise that right fairly and in good faith.'" (Peng, supra, 219 Cal.App.4th at 1473, fn. 8.) The court further found the "implied covenant [of good faith and fair dealing] also prevents an employer from modifying an arbitration agreement once a claim has accrued or become known to it." (Id. at 1474.) Our colleagues in Division Seven reached a similar conclusion in Serpa v. California Surety Investigations, Inc. (2013) 215 Cal.App.4th 695, 708, holding that "the implied covenant of good faith and fair dealing limits the employer's authority to unilaterally modify the arbitration agreement and saves that agreement from being illusory and thus unconscionable."
Citing Hicks v. E. T. Legg & Associates (2001) 89 Cal.App.4th 496, Herrera argues that the covenant of good faith and fair dealing does not save the agreements from substantive unconscionability because a "cause of action for breach of the implied warranty of good faith and fair dealing is not permitted beyond the express terms of the contract." Hicks found that "'[i]t is universally recognized the scope of conduct prohibited by the covenant of good faith is circumscribed by the purposes and express terms of the contract.'" (Id. at 509.) Applied here, appellants' ability to modify the arbitration agreements would be circumscribed by the purpose and terms of the agreements themselves. We fail to see how this circumscription would permit appellants to modify the agreements in a manner so unfair as to be substantively unconscionable.
Herrera's reliance on Ingle v. Circuit City Stores, Inc. (9th Cir. 2003) 328 F.3d 1165 (Ingle) is misplaced. Preliminarily, we note that "[t]he decisions of the Ninth Circuit Court of Appeals . . . are not binding on us." (Roskind v. Morgan Stanley Dean Witter & Co. (2000) 80 Cal.App.4th 345, 355.) Moreover, in Ingle, "[s]everal substantive terms of [the employer]'s arbitration agreement [we]re one-sided. The provisions concerning coverage of claims, the statute of limitations, the prohibition of class actions, the filing fee, cost-splitting, remedies, and [the employer]'s unilateral power to modify or terminate the arbitration agreement all operate[d] to benefit the employer inordinately at the employee's expense." (Ingle, supra, at 1172-1173, italics added.) Notably, the Ninth Circuit expressly drew "no conclusion as to whether this term [giving the employer the unilateral right to modify or terminate the agreement], by itself, render[ed] the contract unenforceable." (Id. at 1179, fn. 23.) Accordingly, even were the agreements to be interpreted in a manner providing Herrera's employers the exclusive right to modify them, we would not find them substantively unconscionable.
The Court of Appeal in Peng explicitly "decline[d] plaintiff's invitation to follow Ingle . . . ." (Peng, supra, 219 Cal.App.4th at 1474, fn. 8.)
(c) Both Parties May Terminate the Agreements
Herrera also argues the "Acknowledgment" language is unconscionable because it gives the employers the sole right to terminate the agreements. However, our Supreme Court has held that "like other contracts, arbitration agreements that do not specify a term of duration are terminable at will after a reasonable time has elapsed." (Reigelsperger v. Siller (2007) 40 Cal.4th 574, 580.) Because no term of duration was specified in these agreements, Herrera also had the right to terminate the agreements after a reasonable time. Moreover, because Herrera did not file his complaint until more than a year after he signed the second of two arbitration agreements, we conclude the right to terminate the agreements was essentially mutual. Therefore, any substantive unconscionability is limited to the fact that the "Acknowledgment" language permits the employer to terminate the agreements immediately, whereas Herrera could do so only after a reasonable time elapsed. While this is somewhat unfair, it does not "shock the conscience." In sum, we find the agreements to have a very low level of substantive unconscionability.
We therefore do not address Herrera's contention that the terms in the arbitration agreements were illusory due to a unilateral right to modify or terminate them.
Because the agreements contain only a moderate level of procedural unconscionability along with a very low level of substantive unconscionability, we conclude the doctrine of unconscionability does not render the arbitration agreements unenforceable.
DISPOSITION
The court's order denying appellants' motion to compel arbitration is reversed. On remand, the court shall enter a new order granting the motion. Appellants are awarded their costs on appeal.
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS.
MANELLA, P. J. We concur: WILLHITE, J. COLLINS, J.