Opinion
H046007
04-24-2020
VICTORIA MORALES, Plaintiff and Respondent, v. CLASSIC SALADS, LLC, Defendant and Appellant.
NOT TO BE PUBLISHED IN OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115. (Monterey County Super. Ct. No. 17CV002929)
Respondent Victoria Morales brought this action against her former employer, appellant Classic Salads, LLC (Classic Salads) and alleged that she was subjected to discrimination based on sex. Classic Salads filed a petition to compel arbitration pursuant to an arbitration agreement it had entered into with her. Morales opposed the petition, arguing the arbitration agreement was unconscionable and therefore unenforceable. The trial court ruled in Morales's favor, and Classic Salads has appealed.
We conclude the trial court erred. Although the arbitration agreement was a contract of adhesion, it was not substantively unconscionable. We therefore reverse the order denying Classic Salads's petition to compel arbitration.
I. FACTS AND PROCEDURAL BACKGROUND
These facts are taken from the first amended complaint.
A. Allegations in the Complaint
Appellant Classic Salads is a California corporation that operates a salad-processing plant in Watsonville. Respondent Victoria Morales worked at the Classic Salads plant in 2015. In 2018, Morales and another former Classic Salads employee who is not a party to this appeal filed the operative class action complaint against Classic Salads for sex discrimination, alleging Classic Salads "operat[ed] [] an employment system in which jobs are segregated by sex and women are denied higher paying 'men's jobs' due to discrimination in job assignments and promotions and discrimination in pay within the same job classification." The complaint alleged a single cause of action for violation of the California Fair Employment and Housing Act (FEHA). Classic Salads denied the allegations.
B. Petition to Compel Arbitration and Opposition
Classic Salads filed a petition to compel arbitration of Morales's claim (petition). In the petition, Classic Salads alleged that Morales and Classic Salads entered into an arbitration agreement on March 13, 2015, the date on which it hired her. Classic Salads asserted the arbitration agreement was governed by the Federal Arbitration Act (FAA). Classic Salads sought an order compelling arbitration of Morales's claims and staying proceedings as to her until the trial court had ruled on the petition or until the conclusion of arbitration. In support of its assertion for application of the FAA, Classic Salads filed a declaration stating it operated in California and Arizona and sold its products to customers throughout the United States.
Classic Salads attached to its petition a two-page document entitled "arbitration agreement" dated March 13, 2015, and signed by Morales and Classic Salads employee Richard Urbach. The agreement stated that any dispute related to Morales's employment by Classic Salads "shall be submitted to and determined exclusively by binding arbitration and will be based on the rules for the resolution of employment disputes of the Judicial Arbitration and Mediation Services (JAMS), under the Federal Arbitration Act, in conformity with the procedures of the California Arbitration Act (Cal. Code Civ. Proc. sec 1280 et seq., including section 1283.05 and all of the Act's other mandatory and permissive rights to discovery)." The arbitration agreement did not include a copy of the JAMS rules.
The scope of the arbitration agreement between Morales and Classic Salads extended to "all disputes, whether based on tort, contract, statute (including, but not limited to, any claims of discrimination and harassment . . . based on the California Fair Employment and Housing Act)." The agreement stated that if any term, provision or portion "is declared void or unenforceable it shall be severed and the remainder of this Agreement shall be enforceable."
In conjunction with its petition, Classic Salads submitted the declaration of Urbach, who had signed the arbitration agreement on behalf of Classic Salads. Urbach stated that he hired Morales and gave her an employee handbook, the arbitration agreement, and other "hiring documents," such as tax forms. Urbach requested that Morales sign the documents and give them back to him. He "believe[d]" that Morales returned the documents, which were then provided to human resources. Urbach's declaration does not state when Morales signed and returned the documents or how much time she had to review them.
Morales opposed Classic Salads's petition to compel arbitration on the ground that the arbitration agreement was unconscionable. She asserted the agreement was procedurally unconscionable because it was a "classic adhesion contract" that Classic Salads did not explain to her, and it was substantively unconscionable because the JAMS rules referenced in the agreement provide for only minimal discovery.
Morales cited to rule 17 of the JAMS rules for arbitration of employment disputes (JAMS rule 17), emphasizing in particular rule 17(b), which she argued allowed her only one deposition of the opposing party absent the approval of the arbitrator. Morales also asserted that the JAMS rules did not require parties to provide each other with evidence helpful to the opposing party's case.
Morales stated that this limited discovery was substantively unconscionable because it furnished "far less discovery than [she] will need to prove her case." In particular, Morales asserted she would need information about other employees at the plant to show discrimination between " 'women's jobs' " and " 'men's jobs,' " and she would need to take at least 15 depositions.
In the trial court, Morales also argued that the agreement was substantively unconscionable because it required her to pay half of the arbitration filing fees. In this court, Morales does not advance this argument and appears to implicitly concede that the agreement is not for this reason unconscionable. The concession is well-taken. The agreement does not require the employee to pay the costs of arbitration. With respect to filing fees, the agreement provides that Morales must pay half the filing fees, "unless such fees would exceed normal court fees," in which case Classic Salads is required to pay "its own one half of the fees" plus "the difference between what [Morales] would have paid in court as a filing fee . . . and one half of the actual amount of those fees." The California Supreme Court has held that "when an employer imposes mandatory arbitration as a condition of employment, the arbitration agreement or arbitration process 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 v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, 110-111.) The court in Armendariz quoted with approval a secondary source that noted " '[t]here is no doubt that parties appearing in federal court may be required to assume the cost of filing fees and other administrative expenses, so any reasonable costs of this sort that accompany arbitration are not problematic.' " (Id. at p. 108.) Because the agreement requires Morales to pay only one-half of the "normal court [filing] fees," we conclude the agreement's requirement that Morales pay half of the arbitration filing fee does not render the agreement substantively unconscionable.
Morales submitted a declaration in conjunction with her opposition to the petition. She stated that, when she went to the Classic Salads office seeking employment, she was given documents that she was required to sign before she could begin work. She stated "I don't have a specific recollection of signing an arbitration agreement. I did not know what an arbitration agreement was at the time. Although I don't recall signing an arbitration agreement, I recall that I was required to sign the documents presented to me to be allowed to work, no one called my attention to an arbitration agreement or what it meant, and I was not allowed to negotiate any terms of the arbitration agreement I signed. The documents presented to me were given on a take-it-or-leave-it basis, with my ability to work dependent on signing the documents. [¶] The person who met with me and had me sign the papers was Ric[h]ard Urbach, the Production Manager. He was very busy, interviewing a lot of people in the QC office at [the] Classic Salads plant . . . . He didn't explain to me what the papers were, or what they meant. He just gave me a stack of papers and told me to sign. I didn't know that by signing the papers I was giving up my right to a jury trial, or giving up my right to file claims in court. The whole meeting took only four or five minutes, so there was no time for me to read everything."
In reply, Classic Salads asserted the arbitration agreement was neither procedurally nor substantively unconscionable. Classic Salads pointed out that Morales did not assert she was "threatened or bullied" into signing the arbitration agreement; it was only two-pages long and "easily understood." Classic Salads asserted that the JAMS rules for employment arbitration were not like those prior courts had found to be substantively unconscionable. Alternatively, Classic Salads requested that, if the trial court were to find any provision unconscionable, that "it can and should be severed, and the remainder [of the agreement] shall continue to be in full force and effect."
C. Trial Court Ruling
The trial court conducted a hearing on the petition and denied it. The trial court's substantive analysis, in full, states, "The Court finds the arbitration agreement unenforceable because it is unconscionable, both procedurally and substantively. [¶] The Court finds that the facts in this case are most factually similar to the facts of Baxter v. Genworth North American Corp. (2017), 16 Cal.App.5th 713 [Baxter]."
The reporter's transcript for this hearing is not part of the record on appeal.
Classic Salads appeals the trial court's order denying its petition to compel arbitration.
II. DISCUSSION
Classic Salads contends that the trial court erred when it found that the arbitration agreement was unenforceable because it was unconscionable. With respect to procedural unconscionability, Classic Salads concedes that Morales's assent to the arbitration agreement was a condition of her employment, and it did not give her an opportunity to negotiate its terms. However, Classic Salads argues that it was not required to explain the arbitration agreement to Morales, and the agreement was obvious because it was contained in a stand-alone document that Morales signed separately. Furthermore, Classic Salads maintains that the agreement's failure to include a copy of the JAMS rules does not render it procedurally unconscionable.
Turning to substantive unconscionability, Classic Salads argues that the discovery provisions in the arbitration agreement go beyond those provided in the JAMS rules. The agreement also incorporates Code of Civil Procedure section 1283.05. Classic Salads asserts the agreement's discovery provisions, including JAMS rule 17, are not substantively unconscionable because they place no limits on formal written discovery, do not restrict the number of depositions each party can take, and allow the arbitrator to afford the parties additional depositions if the parties cannot agree on the number of depositions. In addition, the discovery provisions are not one-sided. In the alternative, Classic Salads asks this court to sever any provision this court deems unconscionable.
Unspecified statutory references are to the Code of Civil Procedure.
Morales counters that the trial court did not err in finding the arbitration agreement unenforceable as unconscionable. The agreement was "highly procedurally unconscionable" because it was an adhesion contract, and Morales was not given a copy of the relevant JAMS rules when she signed it. Morales maintains the agreement was substantially unconscionable under the principles articulated in Armendariz v. Foundation Health Psychare Services, Inc. (2000) 24 Cal.4th 83 (Armendariz) because it allows for only minimal discovery. She asserts the JAMS rules "would govern this arbitration" and do not provide for interrogatories, requests for admission, or requests for production of documents relating to her claim, and do not guarantee more than one deposition. Relying on Ontiveros v. DHL Express (USA), Inc. (2008) 164 Cal.App.4th 494 (Ontiveros), Baxter, supra, 16 Cal.App.5th 713, and Fitz v. NCR Corp. (2004) 118 Cal.App.4th 702 (Fitz), Morales contends this minimal discovery renders the arbitration agreement unconscionable.
Morales asserts that Classic Salads has forfeited any argument that the arbitration agreement incorporates the discovery rules of section 1283.05 because it did not make that argument in the trial court. In any event, she contends section 1283.05 simply allows the arbitrator to determine how many depositions should be taken. According to Morales, any arbitrator "construing this arbitration agreement. . . will inevitably follow the limitations on discovery imposed by JAMS Rule 17, which do not provide for the discovery tools necessary for Ms. Morales to prove her case." Finally, Morales states that the trial court did not abuse its discretion when it refused to sever the arbitration's unconscionable provision from the rest of the arbitration agreement.
In reply to Morales's argument of forfeiture, Classic Salads asserts that this court is not bound by the trial court's interpretation of the arbitration agreement, which this court reviews de novo. Classic Salads contends it was Morales's burden—not theirs—to prove the defense of unconscionability. Classic Salads implicitly concedes it did not raise any argument with respect to section 1283.05 in the trial court but argues this court can address the question in the first instance because it does not raise a contested issue of fact and therefore Morales would not be prejudiced by any inability to develop the factual record. Classic Salads notes that Morales does not dispute that the FAA governs the arbitration agreement at issue here.
A. Background Legal Principles
1. Standards of Review
An order denying a petition to compel arbitration is an appealable order. (§ 1294, subd. (a).) If the facts regarding the petition to compel arbitration are undisputed, we review the order de novo. (Brown v. Wells Fargo Bank, N.A. (2008) 168 Cal.App.4th 938, 953.) The parties do not assert the trial court resolved any issues of disputed facts in ruling on Classic Salads's petition; therefore, we apply de novo review to the order.
In interpreting an arbitration agreement, we apply ordinary rules of contract interpretation. (Rice v. Downs (2016) 248 Cal.App.4th 175, 185.) We " 'give effect to the parties' intentions, in light of the usual and ordinary meaning of the contractual language and the circumstances under which the agreement was made' " (id. at p. 185) and avoid "[a]n interpretation that leaves part of a contract as surplusage." (Id. at p. 186.) " 'Interpreting a written document to determine whether it is an enforceable arbitration agreement is a question of law subject to de novo review when the parties do not offer conflicting extrinsic evidence regarding the document's meaning.' " (State Farm General Ins. Co. v. Watts Regulator Co. (2017) 17 Cal.App.5th 1093, 1098.) Here, neither party has presented any extrinsic evidence (beyond the text of the JAMS rules about which there is no dispute) with respect to the meaning of the arbitration agreement. We therefore apply de novo review in interpreting its terms.
2. Arbitration
Both California and federal law strongly favor arbitration. (OTO, L.L.C. v. Kho (2019) 8 Cal.5th 111, 125 (OTO); Moses H. Cone Hospital v. Mercury Constr. Corp. (1983) 460 U.S. 1, 24.) The parties do not dispute that the FAA governs the arbitration agreement at issue in this appeal. The FAA requires that courts enforce an arbitration agreement according to its terms. (Volt Info. Sciences v. Leland Stanford Jr. U. (1989) 489 U.S. 468, 478 (Volt).)
Under the FAA, courts must "place arbitration agreements on an equal footing with other contracts." (AT&T Mobility LLC v. Concepcion (2011) 563 U.S. 333, 339 (Concepcion).) The FAA "pre-empts state laws which 'require a judicial forum for the resolution of claims which the contracting parties agreed to resolve by arbitration.' " (Volt, supra, 489 U.S. at p. 478.) The FAA prevents states "from mandating or promoting procedures incompatible with arbitration." (Iskanian v. CLS Transportation Los Angeles, LLC (2014) 59 Cal.4th 348, 366.) The FAA precludes states from "requir[ing] a procedure that interferes with fundamental attributes of arbitration, 'even if it is desirable for unrelated reasons.' " (Sanchez v. Valencia Holding Co., LLC (2015) 61 Cal.4th 899, 923 (Sanchez).) This rule "applies equally to requirements imposed by statute or judicial rule." (Id. at p. 924.)
The FAA contains a "saving clause," which "permits agreements to arbitrate to be invalidated by 'generally applicable contract defenses, such as fraud, duress, or unconscionability.' " (Concepcion, supra, 563 U.S. at p. 339.) However, "defenses that apply only to arbitration or that derive their meaning from the fact that an agreement to arbitrate is at issue," do not fall within the FAA's saving clause and thus do not serve to invalidate an arbitration agreement. (Ibid.)
A petition to compel arbitration based on a written arbitration agreement must be granted unless grounds exist to revoke the agreement. (§§ 1281, 1281.2, subd. (b).) Under the FAA, a generally applicable contract defense such as unconscionability may invalidate an arbitration agreement if the defense is enforced evenhandedly and does not interfere "with fundamental attributes of arbitration." (Concepcion, supra, 563 U.S. at p. 344; Sanchez, supra, 61 Cal.4th at p. 906.) "[A] court may not 'rely on the uniqueness of an agreement to arbitrate as a basis for a state-law holding that enforcement would be unconscionable, for this would enable the court to effect what . . . the state legislature cannot.' " (Concepcion, at p. 341.) The FAA preempts a state rule "not only when it facially discriminates against arbitration but also when it disfavors arbitration as applied." (Sanchez, at p. 924.)
3. Unconscionability
"The general principles of unconscionability are well established. A contract is unconscionable if one of the parties lacked a meaningful choice in deciding whether to agree and the contract contains terms that are unreasonably favorable to the other party." (OTO, supra, 8 Cal.5th at p. 125.) Under the FAA, the "doctrine's application to arbitration agreements must rely on the same principles that govern all contracts." (Ibid.)
The defense of unconscionability is "inherently fact-specific." (OTO, supra, 8 Cal.5th at p. 138.) The party asserting the defense of unconscionability bears the burden of proving its applicability. (Id. at p. 126.) In resolving a claim of unconscionability, a court's inquiry is whether the contract provision was unconscionable at the time it was made. (Sonic-Calabasas A, Inc. v. Moreno (2013) 57 Cal.4th 1109, 1133-1134.)
The doctrine of unconscionability consists of procedural and substantive components. " 'The procedural element addresses the circumstances of contract negotiation and formation, focusing on oppression or surprise due to unequal bargaining power. [Citations.] Substantive unconscionability pertains to the fairness of an agreement's actual terms and to assessments of whether they are overly harsh or one-sided.' [Citation.] [¶] Both procedural and substantive unconscionability must be shown for the defense to be established, but 'they need not be present in the same degree.' " (OTO, supra, 8 Cal.5th at p. 125.) "[T]hey are evaluated on ' "a sliding scale." ' [Citation.] '[T]he more substantively oppressive the contract term, the less evidence of procedural unconscionability is required to' conclude that the term is unenforceable. [Citation.] Conversely, the more deceptive or coercive the bargaining tactics employed, the less substantive unfairness is required." (Id. at pp. 125-126.)
"A procedural unconscionability analysis 'begins with an inquiry into whether the contract is one of adhesion.' [Citation.] An adhesive contract is standardized, generally on a preprinted form, and offered by the party with superior bargaining power 'on a take-it-or-leave-it basis.' [Citations.] Arbitration contracts imposed as a condition of employment are typically adhesive [citations] . . . . The pertinent question, then, is whether circumstances of the contract's formation created such oppression or surprise that closer scrutiny of its overall fairness is required. [Citations.] ' " 'Oppression occurs where a contract involves lack of negotiation and meaningful choice, surprise where the allegedly unconscionable provision is hidden within a prolix printed form.' " ' " (OTO, supra, 8 Cal.5th at p. 126, italics omitted.)
"Substantive unconscionability examines the fairness of a contract's terms. 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.] All of these formulations point to the central idea that the unconscionability doctrine is concerned not with "a simple old-fashioned bad bargain" [citation], but with terms that are "unreasonably favorable to the more powerful party." ' " (OTO, supra, 8 Cal.5th at pp. 129-130.)
The California Supreme Court has emphasized that this standard is a demanding one. " 'Commerce depends on the enforceability, in most instances, of a duly executed written contract. A party cannot avoid a contractual obligation merely by complaining that the deal, in retrospect, was unfair or a bad bargain. . . . 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.' " (Baltazar v. Forever 21, Inc. (2016) 62 Cal.4th 1237, 1245 (Baltazar).) As the FAA applies to this agreement, the unconscionability doctrine must rely on the same principles that govern all contracts (OTO, supra, 8 Cal.5th at p. 125) and may not "derive [its] meaning from the fact that an agreement to arbitrate is at issue." (Concepcion, supra, 563 U.S. at p. 339.)
B. Analysis
1. Procedural Unconscionability
Morales asserts that the agreement was procedurally unconscionable because it was an adhesion contract that Classic Salads did not explain to her and did not include the JAMS rules incorporated by reference. Classic Salads does not dispute that the contract was adhesive but points out that it did not pressure Morales to enter into it, and the agreement was not presented in a deceptive manner.
We agree with Morales that she has established the element of procedural unconscionability. Morales was not allowed to negotiate the terms of the agreement, rendering the agreement adhesive. (Little v. Auto Stiegler, Inc. (2003) 29 Cal.4th 1064, 1071 (Little).) Her lack of bargaining power and the agreement's failure to include the JAMS procedural rules containing the discovery limitations she challenges as unconscionable support a finding of " 'oppression' " amounting to procedural unconscionability. (See Carmona v. Lincoln Millennium Car Wash, Inc. (2014) 226 Cal.App.4th 74, 83-84 (Carmona); Baxter, supra, 16 Cal.App.5th at p. 722; cf. Baltazar, supra, at p. 1246.) Further, there is no evidence that Morales had the training or experience to have an independent understanding of arbitration—circumstances that, when present, have led courts to characterize adhesive contracts as having "a minimal degree of procedural unconscionability." (See, e.g., Dotson v. Amgen, Inc. (2010) 181 Cal.App.4th 975, 981 (Dotson).)
Nevertheless, the facts here do not suggest a high degree of procedural unconscionability—most notably because there is no evidence of surprise or coercive tactics. (See Carmona, supra, 226 Cal.App.4th at p. 85.) For example, Morales presented no evidence that she was unable to read the agreement or understand the language in which it was written; that the company representative who gave it to her was unable to answer her questions; or that her pay would be reduced if she spent time reading it. (Cf. id. at p. 82; OTO, supra, 8 Cal.5th at p. 127.) Moreover, Morales separately signed the agreement, which is only two pages long, not written in small type, and was not hidden from her. (See Roman v. Superior Court (2009) 172 Cal.App.4th 1462, 1470-1471 (Roman).)
Although Morales stated that the "whole meeting" at which she was hired took only four or five minutes and Urbach did not explain the agreement to her, she does not assert that he pressured her to sign it or was unable or unwilling to answer questions that she posed to him.
For these reasons, the agreement at issue here involves some level of procedural unconscionability. We need not decide the amount, however, because as we next explain, the arbitration agreement is not substantively unconscionable. (See OTO, supra, 8 Cal.5th at p. 125 [both procedural and substantive unconscionability must be shown to establish the defense of unconscionability].)
2. Substantive Unconscionability
Morales asserts the agreement is substantively unconscionable because it limits discovery necessary to prove her FEHA claim. In particular, she emphasizes that JAMS rule 17(b) entitles her only to one deposition and, absent agreement with the opposing party, the arbitrator will decide whether to grant additional depositions. Morales states she needs 15 depositions to prove her case, as well as information under Classic Salads's control, such as other employees' employment records. Morales asserts the JAMS rules do not give her the right to request documents possessed by Classic Salads or propound interrogatories or requests for admission.
According to the JAMS rules reproduced in the record titled JAMS Employment Arbitration Rules & Procedures, JAMS rule 17(b) provides "Each party may take at least one deposition of an opposing Party or an individual under the control of the opposing Party. The Parties shall attempt to agree on the number, time, location, and duration of the deposition(s). Absent 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 witness."
In Armendariz, supra, 24 Cal.4th 83, the California Supreme Court considered whether employees may be compelled to arbitrate antidiscrimination claims brought under FEHA. (Id. at p. 90.) The California Supreme Court concluded such claims were arbitrable as long as the arbitration agreement met certain conditions, including "the provision of adequate discovery." (Id. at pp. 90-91.)
In its discussion of "adequate discovery" in the context of a FEHA claim, the court in Armendariz stated, "adequate discovery is indispensable for the vindication of FEHA claims." (Armendariz, supra, 24 Cal.4th at p. 104.) The court in Armendariz considered the employer's argument that the arbitration agreement at issue provided for adequate discovery by incorporating by reference the discovery provisions set forth in the California Arbitration Act (CAA) at section 1283.05, subdivision (a). (Armendariz, at pp. 104-105.) The employees in that case countered that under the terms of the agreement section 1283.05 did not apply, and because of a lack of adequate discovery (among other reasons) they should not be forced to arbitrate their FEHA claims. (Id. at p. 105.)
Section 1283.05, subdivision (a), provides, "After the appointment of the arbitrator or arbitrators, the parties to the arbitration shall have the right to take depositions and to obtain discovery regarding the subject matter of the arbitration, and, to that end, to use and exercise all of the same rights, remedies, and procedures, and be subject to all of the same duties, liabilities, and obligations in the arbitration with respect to the subject matter thereof, as provided in Chapter 2 (commencing with Section 1985) of Title 3 of Part 4, and in Title 4 (commencing with Section 2016.010) of Part 4, as if the subject matter of the arbitration were pending before a superior court of this state in a civil action other than a limited civil case, subject to the limitations as to depositions set forth in subdivision (e) of this section." Subdivision (e) states "Depositions for discovery shall not be taken unless leave to do so is first granted by the arbitrator or arbitrators."
The California Supreme Court rejected the employees' argument that, if the agreement did not incorporate section 1283.05, the discovery provision would be inadequate. It stated, "We infer from . . . the fundamentally contractual nature of arbitration itself [citation], that parties incorporating the CAA into their arbitration agreement are also permitted to agree to something less than the full panoply of discovery provided in Code of Civil Procedure section 1283.05. We further infer that when parties agree to arbitrate statutory claims, they also implicitly agree, absent express language to the contrary, to such procedures as are necessary to vindicate that claim. [Citation.] As discussed above, it is undisputed that some discovery is often necessary for vindicating a FEHA claim. Accordingly, whether or not the employees in this case are entitled to the full range of discovery provided in Code of Civil Procedure section 1283.05, they are at least entitled to 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 pursuant to Code of Civil Procedure section 1286.2. [¶] Therefore, although the employees are correct that they are entitled to sufficient discovery as a means of vindicating their sexual discrimination claims, we hold that the employer, by agreeing to arbitrate the FEHA claim, has already impliedly consented to such discovery. Therefore, lack of discovery is not grounds for holding a FEHA claim inarbitrable." (Armendariz, supra, 24 Cal.4th at pp. 105-106, fn. & italics omitted.)
Although the California Supreme Court in this portion of Armendariz was not discussing unconscionability, we see no basis for concluding a discovery provision that the California Supreme Court found sufficient to allow for arbitration of FEHA claims can be described as so unfairly one-sided that it is substantively unconscionable. Other courts have similarly rejected claims of unconscionability where there "appears to be no meaningful difference between the scope of discovery approved in Armendariz" and that of the relevant arbitration agreement. (See, e.g., Roman, supra, 172 Cal.App.4th at p. 1476.)
Here, the arbitration agreement specifically allows for the application of section 1283.05, which the California Supreme Court has described as providing "the full panoply of discovery." (Armendariz, supra, 24 Cal. 4th at pp. 105-106; see also Berglund v. Arthroscopic & Laser Surgery Center of San Diego (2008) 44 Cal.4th 528, 535 (Berglund) [noting section 1283.05, subdivision (a) "incorporates the Civil Discovery Act"]; Cox v. Bonni (2018) 30 Cal.App.5th 287, 304-305 [arbitration agreements that "provided that discovery would be conducted pursuant to section 1283.05" "expressly granted the parties the same ability to obtain discovery that they would have in the trial court" but noting "subdivision (e) requires the parties to seek leave from the arbitrator before taking depositions"].)
Morales acknowledges that her arbitration agreement with Classic Salads incorporates section 1283.05 but nevertheless argues this court should affirm the trial court's finding that the agreement was substantively unconscionable for two reasons. First, Morales asserts that Classic Salads has forfeited any argument on appeal with respect to the agreement's inclusion of section 1283.05 by failing to present it to the trial court. Second, Morales argues that section 1283.05 "otherwise provides for discovery as in a civil case, but then gives the arbitrator the power to alter those requirements," which "simply brings us back to JAMS rule 17, which guarantees only one deposition." Morales argues the arbitration agreement "cannot reasonably be read to provide for both application of the JAMS rules for arbitration and the full panoply of discovery allowed by the California Code of Civil Procedure" because "that would make the provision for governance by the JAMS rules, with their limitations, a nullity." Morales asserts that the arbitration agreement "direct[s]" the arbitrator to follow the JAMS rules, and therefore the arbitrator will disregard the discovery allowed by section 1283.05 and will only allow the discovery allowed by JAMS rule 17. Because, in Morales's view, the JAMS rules provide for inadequate discovery, the agreement is substantively unconscionable.
Turning first to the question of forfeiture, we do not agree that Classic Salads is precluded on appeal from relying on the agreement's express incorporation of section 1283.05 by reference. While it is true that appellate courts generally do not consider new theories raised for the first time on appeal, a well-settled exception is that "a party may change the legal theory he relied upon at trial, so long as the new theory presents a question of law to be applied to undisputed facts in the record." (Hoffman-Haag v. Transamerica Ins. Co. (1991) 1 Cal.App.4th 10, 15.) The parties' briefing below squarely presented to the trial court the question whether the discovery procedures set out in the agreement rendered it substantively unconscionable. The reference to section 1283.05 appears on the face of the two-page arbitration agreement, and its meaning presents a question of law involving no factual issues. Under these circumstances, we decline to apply the doctrine of forfeiture.
The arbitration agreement here provides that any employment-related dispute between the employee and Classic Salads must be submitted to binding arbitration "based on the rules for the resolution of employment disputes of the Judicial Arbitration and Mediation Services (JAMS), under the Federal Arbitration Act, in conformity with the procedures of the California Arbitration Act [CAA] (Cal. Code Civ. Proc. sec. 1280 et. seq., including section 1283.05 and all of the Act's other mandatory and permissive rights to discovery.)" We disagree with Morales's contention that the text of the agreement itself precludes application of the procedures of the CAA because otherwise its reference to the JAMS rules would be surplusage. The JAMS rules contained in the record differ from the CAA, such as in the payment and allocation of the fees and expenses for arbitration. (See § 1281.97.) Therefore, the reference to the CAA is not surplusage.
As stated above, the California Supreme Court has described section 1283.05 as incorporating "the full panoply of discovery." (Armdendariz, supra, 24 Cal.4th at pp. 105-106; see also OTO, supra, 8 Cal.5th at p. 119 [describing the relevant arbitration clause as providing for arbitrations "conducted before a retired superior court judge, pursuant to the California Arbitration Act (Code Civ. Proc., § 1280 et seq.), with full discovery permitted (see Code Civ. Proc., § 1283.05)" (italics added)].) In light of its incorporation of section 1283.05, we reject Morales's assertion that the agreement is substantively unconscionable because it limits her ability to use written discovery mechanisms to gain information held by Classic Salads.
We also disagree with Morales's contention that, looking solely at JAMS rule 17, the arbitrator here would necessarily limit Morales to one deposition. The relevant rule states "each party may take at least one deposition of an opposing Party or an individual under the control of the opposing Party." (Italics added.) If the parties cannot agree "on the number, time, location and duration of the deposition(s)," 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 witness." We do not read this provision as explicitly or implicitly limiting Morales to one deposition. The standard under which the arbitrator can grant additional depositions is the relatively low threshold of "reasonable need." Courts may not assume an arbitrator "would not be fair in determining whether additional depositions were needed." (Dotson, supra, 181 Cal.App.4th at p. 984.) Instead, we must "assume that the arbitrator will operate in a reasonable manner in conformity with the law." (Ibid.)
In contrast to the language here, courts have found discovery provisions in other arbitration agreements substantively unconscionable when they have restricted discovery to a small number of depositions and have limited the arbitrator's authority to allow for additional discovery absent a finding of "compelling need." (See, e.g., Fitz, supra, 118 Cal.App.4th at pp. 709, 717.) The court in Fitz distinguished the arbitration agreement at issue there from the agreement upheld in the California Supreme Court in Armendariz because in Armendariz the agreement "by reference incorporated all the rules set forth in the CAA" where the agreement in Fitz did not. (Id. at p. 718.) As we have already observed, the agreement at issue in this appeal does incorporate the CAA; moreover, even under the JAMS rules, the standard under which the arbitrator should grant a request for additional depositions is considerably less restrictive than the provision examined in Fitz.
Morales's assertion that this agreement is substantively unconscionable appears to amount to a contention that a FEHA claim like hers, which requires significant discovery of information held by the employer, is not arbitrable as a matter of law. In Armendariz, the California Supreme Court rejected this proposition as a matter of state law. Moreover, Morales's argument is inconsistent with the FAA, which precludes application of general principles, like unconscionability, in a way that disfavors arbitration in practice. (Concepcion, supra, 563 U.S. at p. 339.)
Arbitration generally entails discovery limitations. (Berglund, supra, 44 Cal.4th at p. 534.) "[A]rbitration is meant to be a streamlined procedure. Limitations on discovery, including the number of depositions, is one of the ways streamlining is achieved. . . . discovery limitations are an integral and permissible part of the arbitration process." (Dotson, supra, 181 Cal.App.4th at p. 983.) In the context of arbitration, "[a]dequte discovery is not synonymous with unfettered discovery." (Martinez v. Master Production Corp. (2004) 118 Cal.App.4th 107, 118 (Martinez).)
The arbitration agreement here is not like those other courts have found unenforceable because they were substantively unconscionable. "Substantive unconscionability 'may take many forms,' but typically is found in the employment context when the arbitration agreement is 'one-sided' in favor of the employer without sufficient justification, for example, when 'the employee's claims against the employer, but not the employer's claims against the employee, are subject to arbitration.' " (Roman, supra, 172 Cal.App.4th at p. 1470; Little, supra, 29 Cal.4th at pp. 1071-1072.)
The cases Morales relies on in support of her argument that the agreement here is substantively unconscionable are distinguishable in that they were obviously one-sided in favor of the employer and contained multiple aspects that, taken together, led courts to conclude they were substantively unconscionable.
For example, in Baxter, the sole case cited by the trial court in its order denying Classic Salads's petition, the court found the arbitration agreement "unfairly one-sided" because it prohibited an employee from investigating a claim by questioning fellow employees while permitting the employer to do so. (Baxter, supra, 16 Cal.App.5th at pp. 724-726.) There is no similar, one-sided restriction in the agreement at issue here. In Ontiveros, supra, 164 Cal.App.4th 494, another case cited by Morales, the agreement permitted the arbitrator to allow for more than one deposition only upon a showing of " 'substantial need.' " (Id. at p. 511.) Again, the agreement here incorporates a less demanding standard.
In Martinez, supra, 118 Cal.App.4th 107, the Court of Appeal found the arbitration agreement substantively unconscionable because it required the employee to arbitrate claims that the employees were most likely to bring, while permitting the employer to litigate in court the claims most likely to be asserted by the employer against its employees. (Id. at p. 115.) The court found this one-sided agreement to lack mutuality and deemed it substantively unconscionable. (Ibid.) Nevertheless, the court in Martinez refused to conclude the agreement was substantively unconscionable because it limited discovery to a single deposition. (Id. at p. 119.) The court found the discovery provision "compound[ed] the one-sidedness of the arbitration agreement" when "considered against the backdrop of the other indisputably unconscionable provisions" (ibid.), but the discovery provision was not by itself substantively unconscionable. By contrast, Morales does not in this court cite to any aspect of the arbitration agreement other than its discovery provision in support of her assertion that it is substantively unconscionable.
Similarly, in Ramos v. Superior Court (2018) 28 Cal.App.5th 1042, another Court of Appeal found an arbitration agreement substantively unconscionable because it required the employee "to pay her own attorney fees, bear half of the costs of arbitration, and limit[ed] the arbitrator's authority to provide relief authorized by statute." (Id. at p. 1064.) However, the court did not reach a similar conclusion with respect to the agreement's lack of express language allowing for discovery. The court observed, " '[A] limitation on discovery is an important component of the "simplicity, informality, and expedition of arbitration." ' [Citation.] Though we recognize courts must balance the desire for simple discovery with an employee's need for discovery 'sufficient to adequately arbitrate their statutory claim,' parties are 'also permitted to agree to something less than the full panoply of discovery provided in [the] Code of Civil Procedure.' [Citation.] Further, as Armendariz held, 'when parties agree to arbitrate statutory claims, they also implicitly agree, absent express language to the contrary, to such procedures as are necessary to vindicate that claim.' [Citation.] Accordingly, we do not conclude the lack of express language in the arbitration provision regarding discovery renders the agreement unconscionable." (Id. at pp. 1061-1062, italics omitted.)
Here, neither the arbitration agreement nor its discovery provision was one-sided. Morales has not pointed us to any case in which a reviewing court found that an arbitration agreement that incorporated section 1283.05—or even one referencing only JAMS rule 17—was substantively unconscionable based solely on its purported limitations on discovery. Having examined the text of the arbitration agreement and the applicable case law, we conclude that Morales did not carry her burden of showing in the trial court the agreement was substantively unconscionable. As an arbitration agreement is unenforceable only if the agreement is both procedurally and substantively unconscionable (OTO, supra, 8 Cal.5th at p. 125), the trial court erred in denying Classic Salads's petition to compel arbitration.
In light of this conclusion, we do not reach Classic Salads's argument that the trial court erred in declining to sever the unconscionable provision from the arbitration agreement.
Classic Salads requests that this court compel the trial court to stay further proceedings in this matter. Morales asserts such an order would be inappropriate because the underlying litigation involves at least one plaintiff who did not enter into an arbitration agreement. As the record on appeal is limited to the proceedings involving Morales, the question of a stay is a matter the trial court should consider in the first instance.
III. DISPOSITION
The trial court's order is reversed. On remand, the trial court shall enter a new order granting Classic Salads's petition to compel arbitration. Appellant is entitled to costs on appeal.
/s/_________
Danner, J. WE CONCUR: /s/_________
Elia, Acting P.J. /s/_________
Bamattre-Manoukian, J.