Opinion
B306688
03-30-2021
IRMA CRUZ, Plaintiff and Respondent, v. CALOP BUSINESS SYSTEMS, INC., Defendant and Appellant.
Law Office of Juan Hong and Juan Hong for Defendant and Appellant. KJT Law Group, Vache A. Thomassian, Caspar Jivalagian; Adams Employment Counsel and Christopher A. Adams for Plaintiff and Respondent.
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115. (Los Angeles County Super. Ct. No. 19STCV41242) APPEAL from an order of the Superior Court of Los Angeles County, Amy D. Hogue, Judge. Affirmed. Law Office of Juan Hong and Juan Hong for Defendant and Appellant. KJT Law Group, Vache A. Thomassian, Caspar Jivalagian; Adams Employment Counsel and Christopher A. Adams for Plaintiff and Respondent.
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Defendant and appellant Calop Business Systems, Inc. (Calop), appeals from an order denying its motion to compel arbitration. We affirm.
FACTUAL AND PROCEDURAL BACKGROUND
I. Arbitration Agreement
Plaintiff and respondent Irma Cruz (Cruz) was employed by Calop as a security guard and flight inspector.
On March 25, 2019, Cruz received a copy of Calop's updated employee handbook when she picked up her paycheck. Mijeong Kim (Kim), a staff member in Calop's human resources department, tried to explain a change to the handbook regarding dispute resolution. Because Kim "had an impression that [Cruz] did not completely understand [the] explanation" provided, she asked another staff member to explain it to Cruz in Spanish. Following an explanation in Spanish, Cruz signed a three-page document contained in the handbook titled, "Pre-Dispute Resolution Agreement" (Agreement).
The Agreement superseded an earlier document—also titled "Pre-Dispute Resolution Agreement"—signed by Cruz in 2016. The differences between the Agreement and the earlier document are not relevant to our analysis.
The Agreement begins with the statement that it "must be assented [to] between employees and the Company." It continues: "In the event that you seek relief in a court for a dispute or have claims that resulted out of your employment with the company, Calop may, at anytime [sic] within 60 days of the service of such complaint, at its sole option, require all or part of the dispute to be mediated by the arbitrator . . . ."
The Agreement states that the employee agrees "that the company's option to require an arbitration of any dispute is governed by the Federal Arbitration Act and is fully enforceable" and "that if the company exercise[s] its option for the arbitration, the dispute will be heard solely by the arbitrator, not by a court or jury, and the decision made by the arbitrator will be final and binding." It further provides: "You and Calop agree to resolve all disputes through arbitration rather than litigation. You waive your rights to bring any litigation as a class action. The arbitrator shall not have the power to hear arbitration as a class action."
The Agreement also requires that, if the "employee has any grievance or complaint under this Agreement or arising out of this employment, [the] employee shall first attempt to resolve the grievance or dispute by use of the procedures contained in Calop's Employee Handbook . . . so that Calop may gather, preserve evidence, and investigate internally." (Capitalization omitted.) Unless and until the employee exhausts Calop's internal grievance procedures, the "employee expressly waives any right to file suit or pursue any other administrative or legal action to remedy any alleged wrong[.]" (Capitalization omitted.)
Also on March 25, 2019, Cruz signed a form confirming her receipt of the employee handbook and stating, "I understand that the policies, rules and benefits described in it are subject to change at the sole discretion of [Calop] at any time."
II. Cruz's Complaint
On November 15, 2019, Cruz filed a complaint in the Los Angeles County Superior Court, on behalf of herself and a putative class consisting of "[a]ll current and former persons employed by Calop . . . in California as non-exempt employees . . . ."
The complaint sets forth eight causes of action arising out of Cruz's employment with Calop: (1) failure to pay minimum wage; (2) failure to pay overtime wages; (3) failure to provide meal periods; (4) failure to provide rest periods; (5) failure to furnish accurate wage statements; (6) waiting time penalties; (7) unlawful deductions from wages; and (8) unfair business practices. The complaint also alleges a representative action for civil penalties under the Private Attorneys General Act (PAGA).
III. Calop's Motion to Compel Arbitration
On March 2, 2020, Calop moved to compel arbitration of Cruz's eight causes of action and to stay the PAGA claim. It argued that Cruz was required to arbitrate under the Agreement.
In opposition, Cruz contended that the Agreement was illusory and, therefore, did not constitute a valid agreement to arbitrate. In the alternative, she argued that the Agreement was unenforceable because it was unconscionable.
IV. Ruling
On July 1, 2020, the trial court denied Calop's motion to compel arbitration.
As an initial matter, the trial court found that Calop had met its burden of proving by a preponderance of the evidence that a valid arbitration agreement existed between it and Cruz. Calop had attached a copy of the Agreement, with Cruz's signature, to its motion.
The trial court then proceeded to find the Agreement unconscionable. By the Agreement's plain terms, "Cruz had no choice but to sign it." This presented some degree of procedural unconscionability. The Agreement was also substantively unconscionable, because it was "one-sided in Calop's favor."
Because "there [wa]s no single provision that the [c]ourt could strike in order to remove this unconscionability from the Agreement[,]" the trial court concluded that the entire Agreement was unenforceable.
V. Appeal
Calop filed a timely notice of appeal from the trial court's order denying the motion to compel arbitration.
DISCUSSION
I. Standard of Review
The party seeking to compel arbitration bears the burden of proving that a valid agreement to arbitrate exists. If that burden is met, the party opposing arbitration must prove a defense to the enforcement of the agreement. (Pinnacle Museum Tower Assn. v. Pinnacle Market Development (US), LLC (2012) 55 Cal.4th 223, 236 (Pinnacle).)
When no evidentiary conflict exists, as is the case here, we review de novo an order denying a motion to compel arbitration. (OTO, L.L.C. v. Kho (2019) 8 Cal.5th 111, 126 (OTO).)
II. Relevant Law
A written arbitration agreement "is valid, enforceable and irrevocable, save upon such grounds as exist for the revocation of any contract." (Code Civ. Proc., § 1281.) One such ground is unconscionability. (Civ. Code, § 1670.5.)
"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.) Unconscionability has both procedural and substantive elements. (Ibid.)
The procedural element of unconscionability focuses on how the contract was formed. (Pinnacle, supra, 55 Cal.4th at p. 246.) The "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.'" (OTO, supra, 8 Cal.5th at p. 126.) If a contract is adhesive, "[t]he pertinent question . . . is whether circumstances of the contract's formation created such oppression or surprise that closer scrutiny of its overall fairness is required." (Ibid.)
The substantive element of unconscionability "examines the fairness of a contract's terms." (OTO, supra, 8 Cal.5th at p. 129.) It "is concerned not with 'a simple old-fashioned bad bargain' [citation], but with terms that are 'unreasonably favorable to the more powerful party' [citation]." (Sonic-Calabasas A, Inc. v. Moreno (2013) 57 Cal.4th 1109, 1145 (Sonic).) "'[T]he paramount consideration in assessing [substantive] conscionability is mutuality.'" (Nyulassy v. Lockheed Martin Corp. (2004) 120 Cal.App.4th 1267, 1281 (Nyulassy).)
We evaluate procedural and substantive unconscionability on a sliding scale. Both elements must be present, but the greater the degree of one type of unconscionability, the lesser of the other type is required to establish overall unconscionability. (OTO, supra, 8 Cal.5th at pp. 125-126.)
III. Analysis
Assuming that the parties entered into a valid agreement to arbitrate, we conclude that the Agreement was both procedurally and substantively unconscionable.
Cruz contends that the Agreement is illusory and, therefore, Calop failed to meet its initial burden of proving the existence of a valid agreement to arbitrate. Because we conclude that the Agreement is not enforceable based on unconscionability, we need not and do not address this issue further.
A. Procedural unconscionability
The Agreement is procedurally unconscionable as a contract of adhesion—that is, a standardized contract offered by the party with superior bargaining power (Calop) on a take-it-or-leave-it basis. (See Baltazar v. Forever 21, Inc. (2016) 62 Cal.4th 1237, 1244; Bakersfield College v. California Community College Athletic Assn. (2019) 41 Cal.App.5th 753, 761 ["a finding of a contract of adhesion is essentially a finding of procedural unconscionability"].)
It was presented to Cruz as a standard, preprinted form in the employee handbook. Written in English, it was verbally explained to Cruz in Spanish. But Calop did not provide any written translation. This suggests that Cruz had no meaningful opportunity to negotiate the terms. (See Orcilla v. Big Sur, Inc. (2016) 244 Cal.App.4th 982, 997 [loan documents signed by couple with limited English fluency on standard, preprinted forms in English suggested that the couple had no role in negotiating the terms]; Carmona v. Lincoln Millennium Car Wash, Inc. (2014) 226 Cal.App.4th 74, 85 & fn. 5 [procedural unconscionability found where employers knew employees required translations but did not provide it for pertinent portions of an arbitration agreement].)
We do not know the extent of Cruz's English-language proficiency, but we can infer that it was sufficiently limited to impact her comprehension of the Agreement. Kim, the human resources staff member who tried to explain aspects of the Agreement to Cruz in English, had the impression that Cruz did not understand, which prompted her attempt to have it explained to Cruz in Spanish.
We disagree with Calop's contention that Cruz has not proved procedural unconscionability because she did not submit a declaration regarding the circumstances under which she signed the Agreement. The oppressive nature of the Agreement is apparent from its format and the circumstances under which it was signed as evidenced by the declarations submitted by Calop. Cruz is not required to present evidence that she attempted to negotiate the terms of the Agreement and was rebuffed. (See OTO, supra, 8 Cal.5th at p. 127 ["a complaining party need not show it tried to negotiate standardized contract terms to establish procedural unconscionability"].) Such evidence might demonstrate an even greater degree of procedural unconscionability, but we are satisfied that Cruz has established the presence of such unconscionability.
B. Substantive unconscionability
The Agreement's provision regarding the mandatory use of Calop's internal grievance procedures creates a high degree of substantive unconscionability.
Cruz also argues that the Agreement lacks mutuality in the most fundamental respect: Whereas Cruz is required to arbitrate her claims against Calop, Calop need not arbitrate its claims against Cruz. We find the language of the Agreement to be ambiguous on this issue. On one hand, it contains several references to Calop's "option" to require arbitration and to Cruz's grievances or claims. On the other hand, it also includes statements such as, "[y]ou and Calop agree to resolve all disputes through arbitration rather than litigation" and "[a]rbitration shall be the exclusive method for resolving any dispute[.]" We need not attempt to resolve this ambiguity. Assuming that the Agreement also covers Calop's claims, we still find a sufficiently high degree of substantive unconscionability to render it unenforceable.
The Agreement requires Cruz to first use Calop's internal procedures to attempt to resolve any grievance arising out of her employment. Only after such procedures are exhausted is she permitted to pursue another remedy, including arbitration. The Agreement contains no provision restricting Calop's potential claims against Cruz in this manner.
"While on its face, this provision may present a laudable mechanism for resolving employment disputes informally, it connotes a less benign goal. Given the unilateral nature of the arbitration agreement, requiring [the employee] to submit to an employer-controlled dispute resolution mechanism (i.e., one without a neutral mediator) suggests that [the employer] would receive a 'free peek' at [the employee]'s case, thereby obtaining an advantage if and when [the employee] were to later demand arbitration." (Nyulassy, supra, 120 Cal.App.4th at pp. 1282-1283.)
It is also fundamentally unfair to require Cruz to exhaust all the available remedies contained in Calop's employee handbook when Calop has absolute control over those procedures. According to the handbook receipt signed by Cruz, Calop has the unilateral power to change the policies described in the handbook at its "sole discretion . . . at any time." Thus, Calop could delay completion of the internal grievance procedures indefinitely either through its management of the process or by changing what is required for completion.
When asked at oral argument about Calop's unilateral ability to change the internal grievance procedures outlined in its handbook, Calop's counsel pointed us to Peleg v. Neiman Marcus Group, Inc. (2012) 204 Cal.App.4th 1425. But that case deals with whether an arbitration agreement is illusory if it contains a modification provision (id. at p. 1433), and not, as relevant here, whether an arbitration agreement's requirement that an employee first exhaust an employer's internal grievance procedures (which can be unilaterally changed by the employer) renders the arbitration agreement substantively unconscionable.
In short, Calop has the unilateral power to impede Cruz's access to neutral forms of dispute resolution, while gaining a "free peek" at her case in the process.
C. Overall unconscionability
The combined effect of the procedural unconscionability and substantive unconscionability discussed above renders the Agreement, in its totality, "unreasonably one-sided." (Sonic, supra, 57 Cal.4th at p. 1146.) Having satisfied "the overall test of unconscionability" (Pinela v. Neiman Marcus Group, Inc. (2015) 238 Cal.App.4th 227, 250), we conclude that Calop's motion to compel arbitration was properly denied.
Calop does not argue on appeal that any unconscionable provision should be severed from the Agreement so that it may be enforced in part. Any claim of error regarding severability has been forfeited. (See Golden Door Properties, LLC v. Superior Court (2020) 52 Cal.App.5th 837, 870 ["issues not addressed as error in a party's opening brief with legal analysis and citation to authority are forfeited"].)
DISPOSITION
The order denying the motion to compel arbitration is affirmed. Cruz is entitled to her costs on appeal.
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS.
/s/_________, J.
ASHMANN-GERST We concur: /s/_________, P. J.
LUI /s/_________, J.
HOFFSTADT