Opinion
NOT TO BE PUBLISHED
Appeal from an order of the Superior Court of Orange County No. 07CC01971, Hugh Michael Brenner, Judge.
Sheppard, Mullin, Richter & Hampton, Greg S. Labate, Karin Dougan Vogel, and Matthew M. Sonne for Defendants and Appellants.
Stevens & Carlberg, Janeen Carlberg Yoshida, for Plaintiff and Respondent.
OPINION
IKOLA, J.
Defendants LBL Insurance Services, Inc. (LBL), and Stan Lambert appeal from an order denying their motion to compel arbitration. The trial court denied the motion because it determined the arbitration provision was procedurally and substantively unconscionable. We affirm.
FACTS
In July 2005, plaintiff Suzanne Tourangeau applied for a job at LBL. She completed an employment application and signed her name at the end, under the following paragraph: “I agree to submit to binding arbitration all disputes and claims arising out of this application and, in the event that I am hired, all disputes and claims arising out of my employment. This agreement includes every type of dispute that may be lawfully submitted to arbitration, including claims of wrongful discharge, discrimination, harassment, or any injury to my physical, mental, or economic interests. This means that a neutral arbitrator, rather than a court or jury, will decide the dispute. As such, I am waiving my right to a court or jury trial. I agree that any arbitration will be conducted in accordance with [THE LBL GROUP’S employee handbook or the rules of the American Arbitration Association or specify other rules].” Neither the LBL employee handbook, nor the rules of the American Arbitration Association, nor any other rules were attached to the application when plaintiff reviewed and signed it. Neither LBL nor Lambert signed the application.
LBL hired plaintiff in September 2005. A few months later, she was terminated. In January 2007, she filed a complaint against LBL and its chief executive officer, Lambert, alleging violations of the California Fair Employment and Housing Act (Gov. Code § 12900, et seq.) and wrongful termination in violation of public policy. Defendants moved to compel arbitration based on the arbitration provision in the application. Plaintiff opposed the motion. She claimed the arbitration provision was unconscionable, and therefore unenforceable, under the standards outlined in Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83 (Armendariz).
The court agreed, and concluded the arbitration provision was procedurally and substantively unconscionable. The court denied the motion, and defendants timely appealed.
DISCUSSION
Standard of Review
The parties agree the standard of review is de novo. They are correct. “Unconscionability is ultimately a question of law for the court.” (Flores v. Transamerica HomeFirst, Inc. (2001) 93 Cal.App.4th 846, 851.) “‘It is true that numerous factual inquiries bear upon that question . . . and to the extent there are conflicts in the evidence or in the factual inferences which may be drawn there from, we consider the evidence in the light most favorable to the judgment. [Citations.] In the present case, however, the extrinsic evidence was undisputed. Consequently, we review the [arbitration provision] de novo to determine unconscionability.’” (Ibid.)
The Arbitration Provision is Unconscionable
A court will not enforce an arbitration agreement if is unconscionable. (Armendariz, supra, 24 Cal.4th at p. 113.) The doctrine of unconscionability has a substantive and a procedural element. (Little v. Auto Stiegler (2003) 29 Cal.4th 1064, 1071 (Little); Kinney v. United HealthCare Services, Inc. (1999) 70 Cal.App.4th 1322, 1329 (Kinney).) Although both elements must be present before an arbitration provision is rendered unenforceable on unconscionability grounds (Kinney, supra, 70 Cal.App.4th at p. 1329), the elements “need not be present to the same degree.” (Chin, et al., Cal. Practice Guide: Employment Litigation (The Rutter Group 2007) ¶ 18:622.) As our high court has explained, “[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; see also Gatton v. T-Mobile USA, Inc. (2007) 152 Cal.App.4th 571, 585; Kinney, supra, 70 Cal.App.4th at p. 1329 [“‘the greater the degree of substantive unconscionability, the less the degree of procedural unconscionability that is required to annul the contract or clause’”].)
An arbitration provision is substantively unconscionable if it requires the employee, but not the employer, to arbitrate. (Fitz v. NCR Corp. (2004) 118 Cal.App.4th 702, 723 (Fitz); O’Hare v. Municipal Resource Consultants (2003) 107 Cal.App.4th 267, 274-275; Mercuro v. Superior Court (2002) 96 Cal.App.4th 167, 176-177.) This is so because the “paramount consideration” in assessing substantive unconscionability is mutuality. (Abramson v. Juniper Networks, Inc. (2004) 115 Cal.App.4th 638, 657 (Abramson).)
Though not cited by either party, Higgins v. Superior Court (2006) 140 Cal.App.4th 1238, 1253 (Higgins), is on point. There, the Second District Court of Appeal concluded that an arbitration agreement signed by participants on a reality television show was unconscionable. (Id. at p. 1241.) The agreement in Higgins, like the one at issue here, “repeatedly include[d] ‘I agree’ language, with the ‘I’ being a reference to the ‘applicant’ (i.e., each of the [plaintiffs]). . . .” (Id. at p. 1253.) The court held that the agreement was substantively unconscionable because it required the show participants — but not the companies involved in producing and broadcasting the television show — to submit their claims to arbitration. (Ibid.)
Like the arbitration agreement in Higgins, the arbitration provision here lacks mutuality because it does not require defendants to arbitrate claims they might bring against plaintiff. The provision repeatedly uses “I agree” language; the “I” is indisputably plaintiff. Defendants urge us to overlook the repeated references to “I” in the arbitration provision by arguing they intended to be bound by it. We are not persuaded. As our high court explained in Armendariz, “whether an employer is willing, now that the employment relationship has ended, to allow the arbitration provision to be mutually applicable, or to encompass the full range of remedies, does not change the fact that the arbitration agreement as written is unconscionable and contrary to public policy.” (Armendariz, supra, 24 Cal.4th at p. 125.) Accordingly, the arbitration provision is substantively unconscionable because it requires plaintiff, but not defendants, to arbitrate claims arising out of plaintiff’s employment at LBL.
“‘Procedural unconscionability’ concerns the manner in which the contract was negotiated and the circumstances of the parties at that time. [Citation.] It focuses on factors of oppression and surprise.” (Kinney, supra, 70 Cal.App.4th at p. 1329 .) “The procedural element of an unconscionable contract generally takes the form of a contract of adhesion, ‘“which, imposed and drafted by the party of superior bargaining strength, relegates to the subscribing party only the opportunity to adhere to the contract or reject it.”’” (Little, supra, 29 Cal.4th at p. 1071; Fitz, supra, 118 Cal.App.4th at p. 713 [“Adhesive contracts are those where a party of superior bargaining strength drafts the contract and imposes its terms in a take-it or leave-it manner.”])
Courts routinely acknowledge the employer’s superior bargaining position over an employee. (See, e.g., Gentry v. Superior Court (2007) 42 Cal.4th 443, 472 [an employee would not feel free to opt out of an arbitration agreement “[g]iven the inequality between employer and employee and the economic power that the former wields over the latter”]; Little, supra, 29 Cal.4th at p. 1071; Armendariz, supra, 24 Cal.4th at p. 115; Fitz, supra, 118 Cal.App.4th at pp. 721-723; McManus v. CIBC World Markets Corp. (2003) 109 Cal.App.4th 76, 91.) This unequal bargaining power is “‘particularly acute’” in the context of a preemployment arbitration agreement because the economic pressure on a job applicant makes it unlikely that the employee can “‘refuse a job because of an arbitration requirement.’” (Little, supra, 29 Cal.4th at p. 1071.)
The arbitration provision in the application is undeniably adhesive. LBL, who was in a superior bargaining position over plaintiff, drafted the arbitration provision and presented it to plaintiff on a take-it-or-leave-it basis: If she wanted to apply for a job at LBL, she had to accept the terms of the arbitration provision. We disagree with defendants’ contention that plaintiff was required to submit extrinsic evidence to prove the provision was procedurally unconscionable. Plaintiff’s failure to present extrinsic evidence about the “negotiations, if any, preceding [her] execution of the [application] does not preclude a finding of procedural unconscionability.” (O’Hare, supra, 107 Cal.App.4th at p. 283; see also Harper v. Ultimo (2003) 113 Cal.App.4th 1402, 1405 (Harper).) We can infer procedural unconscionability by examining the relationship of the parties and the contractual terms. (Abramson, supra, 115 Cal.App.4th at p. 663.) Both factors support our conclusion that the arbitration provision was procedurally unconscionable. First, as previously noted, defendants had a superior bargaining position over plaintiff, a prospective employee. She wanted a job at LBL, and she had to accept the terms of the arbitration provision to be considered for that job. Second, the one-sided nature of the arbitration provision creates an inference that it is oppressive, and therefore procedurally unconscionable. (Little, supra, 29 Cal.4th at p. 1071.)
In denying the motion to compel arbitration, the court below relied on the declaration submitted by Lambert, where he averred that job applicants were given time to review the application before signing. The court noted that Lambert did not state that prospective employees were given the opportunity to negotiate any of the terms of the arbitration provision, and concluded Lambert’s silence on this point created an inference that there was no opportunity for prospective employees, like plaintiff, to negotiate the terms of the arbitration provision.
The arbitration provision also contains hidden terms, which satisfies the surprise element of procedural unconscionability. (24 Hour Fitness, Inc. v. Superior Court (1998) 66 Cal.App.4th 1199, 1213; Harper, supra, 113 Cal.App.4th at pp. 1406-1407.) When she applied for a position at LBL, the arbitration provision required the arbitration of plaintiff’s claims to be conducted in accordance with: (1) the LBL employee handbook; or (2) the rules of the American Arbitration Association (AAA); or (3) other unspecified rules. When plaintiff signed the application, however, she had no way of knowing which rules would govern at the time of the arbitration. (Harper, supra, 113 Cal.App.4th at p. 1405.) Because plaintiff had agreed in advance to all three rule sets (without seeing any of the rules), defendants could choose the rule set most advantageous to them.
In Harper, supra 113 Cal.App.4th 1402, the arbitration agreement provided that the arbitration would be conducted in accordance with the Better Business Bureau arbitration rules, but did not attach the rules. (Id. at p. 1405.) On appeal, we held that defendants’ failure to attach the rules to the contract was procedurally unconscionable: “The inability to receive full relief is artfully hidden by merely referencing the Better Business Bureau arbitration rules, and not attaching those rules to the contract for the customer to review. The customer is forced to go to another source to find out the full import of what he or she is about to sign — and must go to that effort prior to signing. . . . As written, the clause pegs both the scope and procedure of the arbitration to rules which might change. And it is unclear whether an arbitration would be conducted under the Better Business Bureau rules as of the time of contracting, or at the time of arbitration. Thus even a customer who takes the trouble to check the Better Business Bureau arbitration rules before signing the contract may be in for a preliminary legal battle in the event that Better Business Bureau arbitration rules were to become substantively less favorable in the interim.” (Id. at pp. 1406-1407.) As in Harper, the arbitration provision here is procedurally unconscionable because it requires plaintiff to adhere to undisclosed rules.
Defendants nevertheless argue the arbitration provision is not procedurally unconscionable because all prospective employees, including plaintiff, were given time to complete the application and review its contents before signing. But merely allowing the applicant sufficient time to review the application does not by itself eliminate its adhesive character or render the contractual process procedurally conscionable. In Ingle v. Circuit City Stores, Inc. (9th Cir. 2003) 328 F.3d 1165, 1172, the Ninth Circuit held that a preemployment arbitration agreement was procedurally unconscionable under California law even though the plaintiff had three days to consider the terms of the agreement. As the court explained, “The amount of time [plaintiff] had to consider the contract is irrelevant” because she “had no meaningful option; she either had to walk away from the employer altogether or sign the arbitration agreement for fear of automatic rejection or termination at the outset of her employment.” (Id. at p. 1172 & fn. 4.) The same is true here. The amount of time plaintiff had to review the application was of no import — she could review the application for as long as she wanted, but she had to agree to arbitrate if she wanted to apply for a position at LBL. For this reason and the reasons discussed above, we conclude the arbitration provision is procedurally unconscionable. And because the arbitration provision is substantively and procedurally unconscionable, we decline to enforce it.
We Cannot Sever the Arbitration Provision
Finally, defendants argue the court erred in refusing to sever the unconscionable portion of the arbitration provision. This argument fails for two reasons: First, defendants did not raise the severance argument in the court below and, as a result, they have forfeited this argument on appeal. (Eisenberg et al. Cal. Practice Guide: Civil Appeals and Writs (The Rutter Group 2007) ¶ 8:229, p. 8-135, [citing cases].) Second, even if defendants had requested severance in the court below, the court would have been within its discretion to deny the request. (Murphy v. Check ‘n Go of California, Inc. (2007) 156 Cal.App.4th 138, 144 [a trial court’s “ruling on severance is reviewed for abuse of discretion”]; Harper, supra, 113 Cal.App.4th at p. 1411.) As plaintiff correctly notes, the entire arbitration provision reflected a lack of mutuality. To make the arbitration provision mutual, we would have to reform the provision by adding language to establish that defendants are also bound to arbitrate. We cannot. (See Armendariz, supra, 24 Cal.4th at pp. 124-125 [a court must void the entire agreement if it can only be cured through reformation and augmentation].)
DISPOSITION
The order denying defendants’ motion to compel arbitration is affirmed. Plaintiff shall recover her costs on appeal.
WE CONCUR: RYLAARSDAM, ACTING P. J., ARONSON, J.