Opinion
B313948
01-19-2023
IAN PATTERSON, Plaintiff and Respondent, v. AVX DESIGN & INTEGRATION et al., Defendants and Appellants.
Fisher &Phillips, Karl R. Lindegren, Spencer Waldron and Megan E. Walker for Defendants and Appellants. Shegerian &Associates, Carney R. Shegerian and Mahru Madjidi for Plaintiff and Respondent.
NOT TO BE PUBLISHED
APPEAL from an order of the Superior Court of Los Angeles County, No. 20STCV17143, Gregory Keosian, Judge. Affirmed.
Fisher &Phillips, Karl R. Lindegren, Spencer Waldron and Megan E. Walker for Defendants and Appellants.
Shegerian &Associates, Carney R. Shegerian and Mahru Madjidi for Plaintiff and Respondent.
FEUER, J.
AVX Design &Integration, Focus Universal, and Desheng Wang (collectively, AVX) appeal the trial court's order denying their motion to compel arbitration of the employment discrimination action filed by a former company executive, Ian Patterson. AVX contends the trial court erred in concluding the arbitration agreement contains two substantively unconscionable provisions, and even if the provisions were unconscionable, the court abused its discretion in not severing the provisions and enforcing the agreement. We affirm.
FACTUAL AND PROCEDURAL BACKGROUND
A. Patterson's Employment and Arbitration Agreement
AVX employed Patterson as its chief operating officer from August 2019 until his resignation in April 2020. After extending an offer of employment, AVX e-mailed Patterson at his personal email address an "Executive Employment Agreement" with two attachments: an offer letter dated August 8, 2019 and an "Assignment of Inventions, Non-Disclosure, and Arbitration Agreement" (NDA). The employment agreement set forth Patterson's position and the terms of his employment, including compensation and benefits. It prohibited Patterson's disclosure of confidential information or trade secrets other than in the course of his employment and required him to execute the NDA.
Although it is unclear whether Wang was an employer or AVX supervisor, we refer to the companies and Wang collectively for ease of reference, as do appellants.
The offer letter stated "this offer is contingent upon the following: . . . [¶] Signing and providing all the information contained in the various documents which will be furnished to you in the near future ...." The letter directed Patterson to sign and return the letter "to confirm [his] understanding and acceptance of [the] offer by August 13th, 2019." Further, the letter invited Patterson, if he was "unsure of a specific AVX Design &Integration policy[,] . . . to ask for clarification of any employment related issue." The letter provided a phone number for Patterson to call if he had "any questions about [the] document."
Section 16 of the nine-page NDA provides that in the event of a breach or threatened breach of the agreement by Patterson, AVX "would be entitled to injunctive relief to enforce this Agreement, without the need to post a bond or security," and any legal proceeding may be brought in state or federal court in California. Section 19, titled "Arbitration," sets forth the arbitration agreement in a single paragraph comprised of 37 lines of block text covering almost one page of the agreement. The arbitration agreement provides that "any disputes arising out of or related to this Agreement or my employment with the Company shall be settled solely and exclusively by binding arbitration." However, "nothing in this Section 19 shall be construed as compelling arbitration of claims for workers compensation or unemployment benefits, claims for injunctive relief pursuant to Section 16 above, or claims that, by applicable law, cannot be compelled to arbitration. The arbitrator . . . may award damages, and/or other relief, including injunctive relief, only to the extent then permitted under applicable federal, state or local statutes."
The arbitration agreement contains a confidentiality clause that provides, "Unless otherwise prohibited or required by law, any arbitration proceeding (including the nature and substance of all claims, defenses, information, materials, discovery, witness testimony, motions, and post-hearing submissions) shall be strictly confidential and such proceeding shall be identified to [the arbitrator] as a confidential proceeding." The arbitration agreement specifies the Federal Arbitration Act (9 U.S.C. § 1 et seq.; FAA) would apply. Further, the parties were to bear their own attorneys' fees and costs, except that the arbitrator "may award attorneys' fees to the prevailing party where a statutory section at issue, if any, authorizes such an award," with the costs of the arbitration to be borne by AVX.
The arbitration agreement also contains a delegation clause that provides the arbitrator would determine any questions about "whether a dispute is an arbitrable dispute or as to the scope, validity, interpretation or enforceability" of the arbitration agreement. Neither party contends the delegation clause required the arbitrator to decide the enforceability of the arbitration agreement.
B. Patterson's Lawsuit Against AVX
On May 5, 2020 Patterson filed a complaint against AVXalleging causes of action for discrimination, hostile work environment, and retaliation under the Fair Employment and Housing Act (Gov. Code, § 12900 et seq.; FEHA); breaches of express and implied contract; negligent hiring, supervision, and retention; wrongful termination; violations of Labor Code sections 1102.5 and 232.5; intentional infliction of emotional distress; and assault and battery (against Wang).
The complaint also named Perfecular, Inc., as a defendant. Perfecular is not a party to this appeal.
C. AVX's Motion To Compel Arbitration
On June 22, 2020 AVX moved to compel arbitration of Patterson's claims. AVX argued that both the FAA and the California Arbitration Act (Code Civ. Proc., § 1281 et seq.)required arbitration given the existence of a valid and enforceable arbitration agreement that covered the claims asserted by Patterson. Further, the arbitration agreement satisfied the requirements set forth in Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83 (Armendariz), and to the extent any provision of the arbitration agreement was unconscionable, those provisions should be severed and the remainder of the agreement enforced.
Further undesignated statutory references are to the Code of Civil Procedure.
Patterson opposed the motion, arguing the parties never entered into a valid arbitration agreement and the arbitration agreement was unconscionable. Patterson asserted as to procedural unconscionability that AVX presented the agreement on a "take it or leave it" basis; he was never given an opportunity to negotiate its terms or consult with an attorney; the agreement was "hidden" in an attachment to the "main employment contract"; and he was never provided the arbitration rules. Regarding substantive unconscionability, Patterson argued the confidentiality provision impermissibly impaired his ability to conduct informal discovery, and the injunctive relief carve-out lacked mutuality because it benefited only AVX. Because unconscionability permeated the arbitration agreement, the offending provisions should not be severed.
In its reply brief, AVX argued the arbitration agreement had a low degree of procedural unconscionability given that Patterson was hired at an executive level; the agreement was not hidden in the employment documents; Patterson was provided sufficient time to review the documents and ask questions; the arbitration rules were readily available online; and Patterson offered no evidence that he tried, but was unable, to negotiate the terms of the agreement. AVX asserted as to substantive unconscionability that the confidentiality provision was expressly limited to where it was "permitted by law," and confidentiality provisions are generally not unconscionable. Further, the injunctive relief carve-out did not lack mutuality because the arbitration agreement similarly did not require arbitration of disputes over unemployment benefits and workers' compensation claims, which would likely to be brought by an employee. In addition, the carve-out was justified given AVX's need to quickly stop the misuse of its proprietary and confidential information by an employee.
Following a hearing on the motion, on May 14, 2021 the trial court denied AVX's motion to compel arbitration. The court held the arbitration agreement was "at least minimally [procedurally] unconscionable, given its adhesive nature." Further, the agreement contained two substantively unconscionable provisions. Relying on Ramos v. Superior Court (2018) 28 Cal.App.5th 1042 (Ramos), the court found the "expansive" confidentiality provision was unconscionable "because it prevented an employee-plaintiff from conducting informal discovery with other employees, while the employer could retain one-sided knowledge of all the claims leveled against it." The court also found the provision allowing a court proceeding for injunctive relief was one-sided and unconscionable. Moreover, AVX's justification for needing immediate relief where an employee exploited trade secrets or stole customers was unpersuasive given the arbitrator's authority to issue injunctions and the availability of provisional relief in state court for arbitrating parties under section 1281.8.
The court also observed that section 16 of the NDA allowed AVX to seek injunctive relief in addition to "'all other remedies as may be available,'" which indicated the carve-out could apply beyond injunctive relief, and further, section 16 entitled only AVX to attorneys' fees if it prevailed. The court declined to sever the unconscionable provisions because "[t]he expansive confidentiality provision and the carve-out for [AVX] to institute legal actions for injunctive (and other) relief evidences a systematic effort to impose arbitration on an employee as an inferior forum."
AVX timely appealed.
DISCUSSION
A. Governing Law on Unconscionability of Arbitration Agreements
"An agreement to submit disputes to arbitration 'is valid, enforceable and irrevocable, save upon such grounds as exist for the revocation of any contract.'" (OTO, L.L.C. v. Kho (2019) 8 Cal.5th 111, 125 (OTO); accord, Mills v. Facility Solutions Group, Inc. (2022) 84 Cal.App.5th 1035, 1049 (Mills); Code Civ. Proc., § 1281; 9 U.S.C. § 2.) "'"[G]enerally applicable contract defenses, such as . . . unconscionability, may be applied to invalidate arbitration agreements without contravening" the FAA' or California law." (OTO, at p. 125; accord, Pinnacle Museum Tower Assn. v. Pinnacle Market Development (US), LLC (2012) 55 Cal.4th 223, 246 (Pinnacle).)
"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. [Citation.] Under this standard, the unconscionability doctrine '"has both a procedural and a substantive element."'" (OTO, supra, 8 Cal.5th at p. 125; accord, Sanchez v. Valencia Holding Co., LLC (2015) 61 Cal.4th 899, 910 (Sanchez).) "'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.'" (OTO, at p. 125; accord, Pinnacle, supra, 55 Cal.4th at p. 246.)
"Both procedural and substantive unconscionability must be shown for the defense to be established, but 'they need not be present in the same degree.' [Citation.] Instead, they 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." (OTO, supra, 8 Cal.5th at pp. 125-126; accord, Sanchez, supra, 61 Cal.4th at p. 910.) "'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.'" (OTO, at p. 126; accord, Sanchez, at p. 912.)
"The burden of proving unconscionability rests upon the party asserting it." (OTO, supra, 8 Cal.5th at p. 126; accord, Sanchez, supra, 61 Cal.4th at p. 911.) "'Where, as here, the evidence is not in conflict, we review the trial court's denial of arbitration de novo.'" (OTO, at p. 126; accord, Pinnacle, supra, 55 Cal.4th at p. 236.)
B. The Arbitration Agreement Has Minimal Procedural Unconscionability
"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.'" (OTO, supra, 8 Cal.5th at p. 126; accord, Baltazar v. Forever 21, Inc. (2016) 62 Cal.4th 1237, 1245.) If the "circumstances of the contract's formation created . . . oppression or surprise . . . closer scrutiny of its overall fairness is required." (OTO, at p. 126; accord, Baltazar, at pp. 1245-1246.) "'"'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, at p. 126; accord, Mills, supra, 84 Cal.App.5th at p. 1051.) "'The circumstances relevant to establishing oppression include, but are not limited to (1) the amount of time the party is given to consider the proposed contract; (2) the amount and type of pressure exerted on the party to sign the proposed contract; (3) the length of the proposed contract and the length and complexity of the challenged provision; (4) the education and experience of the party; and (5) whether the party's review of the proposed contract was aided by an attorney.'" (OTO, at pp. 126-127; accord, Mills, at p. 1051.) "[S]urprise" occurs where the arbitration agreement is "written in an extremely small font" with "'visually impenetrable'" paragraphs "filled with statutory references and legal jargon." (OTO, at p. 128; accord, Mills, at p. 1051.) "Arbitration contracts imposed as a condition of employment are typically adhesive." (OTO, at p. 126; accord, Armendariz, supra, 24 Cal.4th at p. 115.)
AVX concedes the arbitration agreement suffers from "a minimal amount of procedural unconscionability." The agreement was on a standardized form drafted by AVX provided to Patterson on a take-it-or-leave-it basis, and the employment offer was contingent on Patterson signing the agreement. (See Mills, supra, 84 Cal.App.5th at p. 1051 ["It is undisputed the arbitration agreement is an adhesive contract because it was imposed as a condition of employment."]; Ajamian v. CantorCO2e, L.P. (2012) 203 Cal.App.4th 771, 796 ["The finding that the arbitration provision was part of a nonnegotiated employment agreement establishes, by itself, some degree of procedural unconscionability."].)
We agree with AVX's assertion that Patterson had a "higher than usual amount of bargaining power" because he was hired as an executive and was provided time to review and ask questions about the arbitration agreement. But the agreement has other hallmarks of procedural unconscionability. The arbitration agreement looks "'visually impenetrable,'" comprising 37 lines of block text in a single paragraph with minimal spacing that takes up nearly a full page of the agreement. (See OTO, supra, 8 Cal.5th at p. 128; Davis v. TWC Dealer Group, Inc. (2019) 41 Cal.App.5th 662, 671.) The text itself, which utilizes legal jargon and includes language like "[u]nless otherwise prohibited or required by law," would "require[ ] a specialist's legal training to understand." (OTO, at p. 129.) We conclude the arbitration agreement possesses a low degree of procedural unconscionability.
C. The Arbitration Agreement Is Substantively Unconscionable
In evaluating substantive unconscionability, we "closely scrutinize the substantive terms 'to ensure they are not manifestly unfair or one-sided.'" (OTO, supra, 8 Cal.5th at p. 130; accord, Baltazar v. Forever 21, Inc., supra, 62 Cal.4th at p. 1244.) We agree with Patterson that, as the trial court found, the arbitration agreement contains two provisions rendering the agreement substantively unconscionable.
Patterson does not contend on appeal the other provisions of the arbitration agreement are substantively unconscionable.
1. The injunctive relief carve-out is impermissibly onesided
A provision that requires an employee to arbitrate his or her disputes with an employer but allows an employer to obtain injunctive relief in court for breaches of an employment agreement and its nondisclosure provisions is substantively unconscionable. (Carbajal v. CWPSC, Inc. (2016) 245 Cal.App.4th 227, 249 ["[T]he Agreement is substantively unconscionable on its face because it requires Carbajal to arbitrate 'any and all disputes' she has with [her employer], but it authorizes [the employer] to 'obtain an injunction from a court of competent jurisdiction' to restrain Carbajal from breaching the Agreement's nondisclosure and exclusive use provisions."]; Carmona v. Lincoln Millennium Car Wash, Inc. (2014) 226 Cal.App.4th 74, 87 [provision allowing employer to enforce confidentiality agreement in court but requiring employee to arbitrate his claims was substantively unconscionable]; see Armendariz, supra, 24 Cal.4th at p. 120 [agreement that required employees to arbitrate wrongful termination claims but did not require employer to arbitrate its trade secret claims against employees was substantively unconscionable].) The unconscionability of a one-sided provision may be mitigated if the employer establishes a "reasonable justification" for the provision. (Zullo v. Superior Court (2011) 197 Cal.App.4th 477, 487; see Carbajal, at p. 249; Carmona, at p. 87 [observing employer did not justify need for court enforcement of confidentiality provision].)
AVX contends the injunctive relief carve-out is not unconscionable because the provision is bilateral and justified by the company's need to protect its proprietary and other confidential information. AVX's arguments are not persuasive. As discussed, section 16 provides that "[i]n the event of a breach or threatened breach of this Agreement, and in addition to all other remedies as may be available, the Company will . . . be entitled to injunctive relief to enforce this Agreement, without the need to post a bond or security." Section 19, in turn, makes clear that claims for injunctive relief pursuant to section 16 "cannot be compelled to arbitration." Thus, although Patterson is limited to the arbitral forum to redress his claims, AVX may pursue a claim in court in response to a breach by Patterson of the agreement's confidentiality provisions. Further, AVX is relieved of the obligation it might otherwise have to post a bond or security. (See Lange v. Monster Energy Co. (2020) 46 Cal.App.5th 436, 451 ["injunctive relief provisions that waive a bond and waive the requirement that a party show irreparable harm are substantively unconscionable"]; Carbajal v. CWPSC, Inc., supra, 245 Cal.App.4th at p. 250 ["An arbitration provision lacks mutuality and is substantively unconscionable when it authorizes the stronger party to obtain injunctive relief without establishing all of the essential elements for the issuance of an injunction."].)
In addition, section 16 authorizes only AVX to recover attorneys' fees and costs if it prevails on its claims for breach of the confidentiality agreement. And, as the trial court observed, section 16 appears to allow AVX to recover remedies in court beyond injunctive relief, allowing it to recover "all other remedies as may be available" for breach of the confidentiality provision.
AVX's argument that the arbitration agreement has some degree of mutuality because the workers' compensation and unemployment benefits carve-outs from arbitration benefit Patterson fares no better. These claims, which are administrative in nature, cannot be asserted in the trial court or an arbitration. (See Lab. Code, § 5300 [workers' compensation proceedings "shall be instituted before the appeals board and not elsewhere"]; Unemp. Ins. Code, § 301 [Employment Development Department and its director are vested with jurisdiction over California's unemployment insurance program]; id., § 1328 [Employment Development Department shall "make a determination as to the claimant's eligibility for benefits," and "claimant and the employer may appeal from a determination or reconsidered determination to an administrative law judge"].)
AVX's purported business justification- to enable AVX to obtain expedited relief to protect its proprietary and other confidential information-does not support the exclusion from arbitration. As the trial court noted, AVX fails to explain why a carve-out for injunctive relief is necessary given that section 1281.8 provides provisional injunctive relief for arbitrating parties. (See § 1281.8, subd. (b) ["A party to an arbitration agreement may file in the court in the county in which an arbitration proceeding is pending, or if an arbitration proceeding has not commenced, in any proper court, an application for a provisional remedy in connection with an arbitrable controversy, but only upon the ground that the award to which the applicant may be entitled may be rendered ineffectual without provisional relief."]; Sanchez, supra, 61 Cal.4th at p. 922 ["Even if FAA procedures apply, federal courts have concluded that a court may 'issue interim injunctive relief on arbitrable claims if interim relief is necessary to preserve the status quo and the meaningfulness of the arbitration process.'"].)
2. The arbitration agreement improperly requires the arbitration proceedings to remain confidential We agree with our colleagues in Ramos, supra,
28 Cal.App.5th at page 1067 that a provision in an arbitration agreement that requires an employee to keep all aspects of an arbitration proceeding confidential is substantively unconscionable because it impairs the employee's ability to pursue his or her claims. In Ramos, the disputed arbitration clause stated, "Except to the extent necessary to enter judgment on any arbitral award, all aspects of the arbitration shall be maintained by the parties and the arbitrators in strict confidence." (Id. at p. 1065.) The court concluded the confidentiality provision was unconscionable because it effectively prohibited an employee from conducting informal discovery, including by interviewing other employees, and the provision increased an employee's cost of arbitration by allowing only formal discovery. (Id. at p. 1066.) These effects "defeat[ed] the purpose of using arbitration as a simpler, more time-effective forum for resolving disputes." (Ibid.) The court observed that "requiring discrimination cases be kept secret unreasonably favors the employer to the detriment of employees seeking to vindicate unwaivable statutory rights and may discourage potential plaintiffs from filing discrimination cases." (Id. at pp. 1066-1067; see Baxter v. Genworth North America Corp. (2017) 16 Cal.App.5th 713, 725-726 [provision in employment arbitration agreement prohibiting employees and their attorneys from communicating with other employees about the aggrieved employee's claim was substantively unconscionable because "without the ability to conduct such an informal investigation, an employee will be hampered in his or her ability to effectively tailor the limited discovery allowed under the arbitration agreement"].)
AVX attempts to distinguish Ramos based on the language in the confidentiality provision at issue there that applied to "all aspects of arbitration." But AVX's confidentiality provision is similarly expansive, covering any arbitration proceeding involving, among other things, the "nature and substance" of Patterson's claims and defenses, discovery, and witness testimony, which would effectively prevent Patterson from speaking with other employees about any discrimination or Labor Code violations they may have suffered. The confidentiality provision is one-sided because typically it is the employer that has information on whether other employees have suffered similar discrimination or violations. And as the Ramos court observed, this type of restriction could also have a chilling effect on other employees pursuing their discrimination cases.
AVX's reliance on Sanchez v. Carmax Auto Superstores California, LLC (2014) 224 Cal.App.4th 398 and Woodside Homes of California, Inc. v. Superior Court (2003) 107 Cal.App.4th 723 is misplaced. Both cases involved provisions protecting the confidentiality of the record of the arbitration hearing, not the proceedings predating the hearing or an employee's informal discovery. The provision in Carmax Auto required "the arbitration (including the hearing and record of the proceeding) be confidential and not open to the public unless the parties agree otherwise ...." (Carmax Auto, at p. 408.) The court concluded as to this limited confidentiality provision, "In regard to 'the fairness or desirability of a secrecy provision with respect to the parties themselves, . . . we see nothing unreasonable or prejudicial about it,' and it is not substantively unconscionable." (Ibid.) Woodside Homes similarly involved a "provision that the transcript of the reference proceeding was to remain confidential unless needed for appeal." (Woodside Homes, at p. 731.) Neither Carmax Auto nor Woodside Homes supports AVX's contention the expansive confidentiality provision in this case is not unconscionable.
AVX also contends the language in the arbitration agreement that specifies the arbitration proceedings be confidential "unless otherwise prohibited or required by law" ensures that Patterson may conduct informal discovery, citing Government Code section 12964.5, subdivision (a)(1)(B). AVX forfeited this argument by failing to raise it in the trial court. (See Coastline JX Holdings LLC v. Bennett (2022) 80 Cal.App.5th 985, 1012 ["'we ignore arguments, authority, and facts not presented and litigated in the trial court'"]; Truck Ins. Exchange v. AMCO Ins. Co. (2020) 56 Cal.App.5th 619, 635 ["'arguments raised for the first time on appeal are generally deemed forfeited'"].) Moreover, AVX provides no argument in its opening brief explaining how Government Code section 12964.5, subdivision (a)(1)(B), which generally prohibits employers from requiring employees to sign nondisparagement agreements (arguably limited to sexual harassment claims), applies here to ensure Patterson may pursue informal discovery during the arbitration proceedings. AVX simply cites to the Government Code section and concludes the confidentiality provision therefore "does not have the effect of preventing an employee from conducting an informal investigation." (See Golden Door Properties, LLC v. Superior Court (2020) 53 Cal.App.5th 733, 786 ["issues not addressed as error in a party's opening brief with legal analysis and citation to authority are forfeited"]; Central Valley Gas Storage, LLC v. Southam (2017) 11 Cal.App.5th 686, 694-695 ["'To demonstrate error, appellant must present meaningful legal analysis supported by citations to authority and citations to facts in the record that support the claim of error.'"].)
AVX has also forfeited its contention, not asserted in the trial court and raised for the first time in its reply brief on appeal, that Labor Code section 1102.5 also prohibits employers from barring employee disclosures about workplace violations.
Government Code former section 12964.5, which was in effect when Patterson signed the arbitration agreement in August 2019, prohibited employers from "requir[ing] an employee to sign a nondisparagement agreement or other document that purports to deny the employee the right to disclose information about unlawful acts in the workplace, including, but not limited to, sexual harassment." (See Gov. Code, former § 12964.5, subd. (a)(2)(A).) The law was amended, effective January 1, 2022 (Senate Bill No. 331 (2021-2022 Reg. Sess.) (Stats 2021, ch. 638, § 2)) to more broadly render unenforceable any document an employer requires an employee to sign with the "effect of denying the employee the right to disclose information about unlawful acts in the workplace." (Gov. Code, § 12964.5, subd. (a)(1)(B)(i).) The amendments were aimed at prohibiting "provisions in settlement [and severance] agreements that prevent or restrict the disclosure of factual information relating to all claims involving discrimination, harassment, or retaliation for reporting or opposing harassment or discrimination pursuant to the Fair Employment and Housing Act, regardless of the protected class on which the claim is based ...." (Sen. Rules Com., Off. of Sen. Floor Analyses, 3d reading analysis of Sen. Bill No. 331 (20212022 Reg. Sess.) as amended Apr. 15, 2021, p. 3.)
D. The Trial Court Did Not Abuse Its Discretion in Declining To Sever the Unconscionable Arbitration Provisions
AVX contends the arbitration agreement had only minimal procedural and substantive unconscionability, and the trial court abused its discretion in failing to sever the two unconscionable provisions because they were separate from the primary purpose of the agreement. Although we agree the court could have severed the two offending provisions, it did not abuse its discretion in declining to do so.
Section 1670.5, subdivision (a), provides, "If the court as a matter of law finds the contract or any clause of the contract to have been unconscionable at the time it was made the court may refuse to enforce the contract, or it may enforce the remainder of the contract without the unconscionable clause, or it may so limit the application of any unconscionable clause as to avoid any unconscionable result." As the Supreme Court observed in Armendariz, supra, 24 Cal.4th at page 122, "the statute appears to give a trial court some discretion as to whether to sever or restrict the unconscionable provision or whether to refuse to enforce the entire agreement. But it also appears to contemplate the latter course only when an agreement is 'permeated' by unconscionability." (See Baltazar v. Forever 21, Inc., supra, 62 Cal.4th at p. 1245 ["'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.'"].)
As the Armendariz court explained, "If the central purpose of the contract is tainted with illegality, then the contract as a whole cannot be enforced. If the illegality is collateral to the main purpose of the contract, and the illegal provision can be extirpated from the contract by means of severance or restriction, then such severance and restriction are appropriate." (Armendariz, supra, 24 Cal.4th at p. 124.) "The overarching inquiry is whether '"the interests of justice . . . would be furthered"' by severance." (Ibid.) We review for an abuse of discretion the trial court's decision not to sever the unconscionable provisions. (Ibid.; Mills, supra, 84 Cal.App.5th at p. 1065; Lange v. Monster Energy Company, supra, 46 Cal.App.5th at p. 453.)
Contrary to AVX's contention, the two substantively unconscionable provisions were significant. As the trial court found, the offending provisions "evidenced a systemic effort to impose arbitration on an employee as an inferior forum. While plaintiff employees must seek vindication for their rights in isolated, secret proceedings before an arbitrator, [AVX is] by the contract's terms entitled to publicly seek redress for wrongdoing in the courts. Such a lack of mutuality is beyond the capacity of the court to reform." We agree the arbitration agreement was drafted by AVX in a manner to ensure it had full access to the court system to bring a claim against any employee to redress a violation of the confidentiality provision and potential theft of clients, while ensuring Patterson was limited to arbitration for vindication of his employment claims, including for wrongful termination and discrimination. This lack of mutuality goes to the heart of the arbitration agreement. (See Davis v. Kozak (2020) 53 Cal.App.5th 897, 914 [mutuality in employment agreement is "'the paramount consideration'" of an arbitration agreement].) Further, in pursuing his claim, Patterson would be hindered by his inability to conduct informal discovery for fear he would violate the agreement's confidentiality provision.
In Armendariz, supra, 24 Cal.4th at pages 124 to 125, the Supreme Court held the arbitration agreement was permeated by unconscionability based on two unconscionable provisions, one of which, as here, lacked mutuality given that the employee had to arbitrate his wrongful termination claims against the employer, but the employer did not have to arbitrate its claims against the employee. As the court explained, "multiple defects indicate a systematic effort to impose arbitration on an employee not simply as an alternative to litigation, but as an inferior forum that works to the employer's advantage." (Id. at p. 124; see Mills, supra, 84 Cal.App.5th at p. 1066 [trial court did not abuse its discretion in declining to sever unconscionable provisions where "the inclusion of multiple unlawful terms permeated the agreement with unconscionability"]; Davis v. Kozak, supra, 53 Cal.App.5th at p. 918 [trial court did not abuse its discretion in concluding the arbitration agreement was permeated by unconscionability in light of the restrictions on discovery and a nonmutual provision that exempted from arbitration the claims most likely to be brought by the employer]; Wherry v. Award, Inc. (2011) 192 Cal.App.4th 1242, 1250 [declining to sever unlawful attorneys' fees and costs provisions of arbitration agreement in FEHA action, explaining that "when the agreement is rife with unconscionability, as here, the overriding policy requires that the arbitration be rejected"].)
The cases relied on by AVX are not to the contrary. In Little v. Auto Stiegler (2003) 29 Cal.4th 1064 , Alvarez v. Altamed Health Services Corp. (2021) 60 Cal.App.5th 572, and Farrar v. Direct Commerce, Inc. (2017) 9 Cal.App.5th 1257, the courts concluded the unconscionable provisions should have been severed, but each case involved only one unconscionable provision. (See Little, at pp. 1073, 1076 [trial court should have severed single unconscionable provision limiting appellate review of arbitrator's award to those exceeding $50,000, which "inordinately benefits defendants"]; Alvarez, at p. 596 [trial court abused its discretion in not severing single unconscionable provision allowing appellate review by second arbitrator, which favored employer]; Farrar, at p. 1275 [trial court abused its discretion in declining to sever one-sided provision carving out claims for breach of confidentiality agreement where this was the only substantively unconscionable provision].)
Torrecillas v. Fitness Internat., LLC (2020) 52 Cal.App.5th 485 and Serafin v. Balco Properties Ltd., LLC (2015) 235 Cal.App.4th 165, relied on by AVX, are distinguishable. In Torrecillas the Court of Appeal rejected the employee's arguments that seven provisions in the arbitration agreement were substantively unconscionable, reversing the trial court's order denying the employer's motion to compel arbitration. (Torrecillas, at p. 497.) In Serafin, the Court of Appeal affirmed the trial court's order compelling arbitration where the trial court had severed the sole unconscionable provision for recovery of attorneys' fees. (Serafin, at p. 185.)
Here, the trial court reasonably found the two substantively unconscionable provisions permeated the arbitration agreement with unconscionability. Further, the two provisions were central to the overall agreement to prevent Patterson's disclosure of AVX's trade secrets and other confidential information. Accordingly, the trial court did not abuse its discretion in declining to sever the offending provisions. As we explained in Mills, supra, 84 Cal.App.5th at page 1068, "[a]lthough California law favors arbitration as an efficient means of resolving disputes, the courts have an obligation '"to ensure that private arbitration systems resolve disputes not only with speed and economy but also with fairness."'"
DISPOSITION
The order is affirmed. Patterson is to recover his costs on appeal.
We concur: PERLUSS, P.J., SEGAL, J.