Opinion
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
APPEAL from a judgment of the Superior Court of Imperial County No. L-00760, Jeffrey B. Jones and Christopher W. Yeager, Judges. Reversed and remanded with directions.
McDONALD, J.
Plaintiff Adolfo Flores appeals a judgment confirming an arbitration award in his unlawful discrimination and wrongful termination action against defendants Prime Time Products, Inc., Mainland Products, Inc., Dan Hammond, and John Hammond (together Defendants). On appeal, Flores contends the trial court erred by: (1) granting Defendants' petition to compel arbitration of his claims because there was no written arbitration agreement and, even if there was, it is unconscionable and therefore unenforceable; and (2) granting Defendants' motion for sanctions against him for petitioning to correct the arbitration award.
FACTUAL AND PROCEDURAL BACKGROUND
The factual background is based primarily on Flores's second amended complaint and should not be construed as factual findings for purposes of further proceedings on remand of this matter.
In 1996 Flores became employed by Prime Time Products, Inc. (PT) as its general manager of manufacturing operations. On or about January 7, 1999, PT adopted a policy and procedures manual (Manual) for its employees. Flores did not sign or otherwise expressly agree to the terms set forth in the Manual. The Manual included an arbitration provision (Policy #293), quoted below, which generally provided for binding arbitration by the American Arbitration Association (AAA) of disputes between PT and its employees arising out of or relating to their employment.
The Manual apparently consisted of 158 pages.
In 1998 PT hired Mark Saracuza, who later became a production supervisor and allegedly harassed Flores, calling him names and using other racial epithets regarding Flores's Mexican descent. Flores complained to PT regarding Saracuza's derogatory remarks about Mexicans. PT allegedly took no action to prevent that behavior. In July 2000 Flores filed a complaint with the United States Equal Employment Opportunity Commission (EEOC) regarding improper treatment of PT employees. As a result of Flores's EEOC complaint Dan Hammond, a co-owner of PT, allegedly became angry and refused to speak to Flores in the workplace.
John Hammond, Dan's brother, is the other co-owner of PT. Dan and John Hammond are also co-owners of Mainland Products, Inc.
Following a serious hand injury in December 1999, Flores continued to work with a cast on his arm. On August 11, 2000, Flores informed PT that he would be off work for required surgery on his hand. PT told Flores to return his company keys, pager, telephone, and gas cards. His company car was also taken. PT removed all of his personal effects from his desk and discarded them. On August 14 Flores had surgery on his wrist and hand. After several weeks of recuperation and physical therapy, Flores attempted to return to work, but was told to go home.
After first filing a complaint with the State of California Department of Fair Employment and Housing (DFEH) in July or August, Flores filed the instant action against Defendants, apparently in August 2001. In August 2002 Flores filed a second amended complaint against Defendants and Saracuza, alleging causes of action for racial discrimination, disability discrimination, wrongful termination of employment, intentional infliction of emotional distress, and breach of contract to share profits. In September, Defendants filed an answer, asserting the affirmative defense of failure to exhaust contractual remedies. Defendants apparently subsequently filed a motion for summary judgment or, in the alternative, summary adjudication of issues. In May 2003, the trial court denied the motion for summary judgment, finding there were triable issues of material fact on all of Flores's causes of action, except his cause of action for intentional infliction of emotional distress on which it granted summary adjudication for Defendants.
Although the record on appeal does not contain a copy of the original complaint, Defendants represent in their brief, without citation to the record, that Flores's complaint was filed in August 2001. For purposes of our opinion, we presume that representation is correct.
Defendants also apparently filed a cross-complaint against Flores. However, that cross-complaint is not part of the record on appeal.
On or about May 19 Defendants served on Flores a demand to arbitrate his claims against them in accordance with the arbitration provision of the Manual. On June 9 Defendants filed a petition to compel arbitration of Flores's claims against them and stay the trial court proceedings on his action. They argued all four of Flores's remaining causes of action were within the scope of the Manual's arbitration provision. They also argued the matter involved commerce within the meaning of the Federal Arbitration Act (FAA) (9 U.S.C., § 2).
On June 26, Flores filed his opposition to Defendants' petition to compel arbitration, arguing he had not signed or entered into an arbitration agreement, the arbitration provision in the Manual is unconscionable, and Defendants waived their right to demand arbitration because their demand was untimely made. Flores asserted:
"Defendants initially removed the case to federal court in San Diego, then filed a motion to dismiss the action, claiming the case did not belong in federal court. The motion to dismiss was denied and the action was remanded to this Court on [Flores's] motion. The Complaint was amended twice--once following [D]efendants' Motion for Judgment on the Pleadings (heard May 1, 2002) and again following [D]efendants' Demurrer to [Flores's] First Amended Complaint (heard July 18, 2002). The Second Amended Complaint was filed around August 20, 2002. Defendants' Motion for Summary Judgment was heard May 5, 2003. There is no trial date set on this matter."
In Defendants' reply below, they argued Flores did not submit any evidence of those asserted facts and, in any event, did not show they waived their right to arbitration of his claims.
Regarding unconscionability, Flores argued the Manual's arbitration provision lacked mutuality and therefore was unenforceable.
On October 16 the trial court issued its statement of decision granting Defendants' petition to compel arbitration. Regarding the existence of an arbitration agreement between Defendants and Flores, the court stated:
"[Flores] did not sign the [Manual] and, prior to the litigation, did not expressly agree to the terms outlined in the [Manual]. However, after commencement of the litigation, [Flores], under oath, identified the handbooks [e.g., Manual] as 'implied contracts' between [Flores] and [Defendants]. [Flores] specifically identified the [Manual] as one regulating the employment relationship."
The court found Defendants' petition to compel arbitration was governed by the FAA and authorized by Code of Civil Procedure section 1281.2. It stated section 1281.2 authorizes a court to enforce only a written agreement to arbitrate, but nothing requires the writing to be signed by the party to be charged. Citing Flores's discovery admissions, the court found he had admitted in the course of litigation that the unsigned Manual containing an arbitration provision constituted a contract between the parties. Regarding Flores's waiver argument, the court concluded he had not shown he suffered prejudice from Defendants' conduct of discovery during litigation. Finally, regarding unconscionability, the court stated: "[A] review of the arbitration clause indicates that its provisions are mutual--[Flores] could have demanded, and obtained, arbitration under the agreement, had he chosen to do so; and the fact that suits by employees against employers are far more common than those brought by employers against employees does not render the agreement legally unconscionable. " The court also concluded Flores did not submit AAA rules to the court and therefore did not show he was required to pay unreasonable fees in arbitration of his claims. The court stayed court proceedings pending completion of arbitration of Flores's claims against Defendants.
All further statutory references are to the Code of Civil Procedure unless otherwise specified.
The trial court stated: "[Flores] makes no attempt to explain his discovery admissions wherein he asserts that the [Manual], which contains an arbitration clause, constitutes a contract between the parties."
On April 20, 2007, after three days of arbitration hearings in December 2006, the AAA arbitrator issued her award (Award). The arbitrator found in Flores's favor on his retaliation and national origin discrimination claims and in Defendants' favor on his breach of contract and disability discrimination claims. She found "[t]he witnesses called by Mr. Flores were far more credible than the primary witnesses for [Defendants]. Furthermore, Defendants "failed to produce declarations prior to the hearing, the personnel files of both Mr. Flores and Ms. De La [Torres] were claimed to be lost, the testimony and declarations of [Defendants'] witnesses appeared to be orchestrated and in many instances were selective or not credible." On Flores's claim for termination of employment in violation of public policy, the arbitrator found:
"[Flores] was terminated in retaliation for filing a claim with the DFEH. There was sufficient testimony to demonstrate that Mr. Hammon[d], at the time of the 'dismissal,' had no intention of having Mr. Flores return to work at the plant. The termination was unceremonial and malicious in its execution. Mr. Hammon[d] was angry and made it clear to Mr. Flores that he didn't want him around [any more]. The testimony of Ms. De La Torre supports this. Mr. Hammon[d] himself admitted in his testimony that he 'did freak out.' When Mr. Flores did return he was ignored by management and excluded from meetings. His desk was emptied and all company cards, phones and vehicle were confiscated. Mr. Flores deserved, by virtue of his position and tenure, dignified treatment, whether he was leaving permanently or temporarily.
"Sandy Canzone quickly reversed the decision of Dan Hammon[d] on [Defendants'] records, however, to mitigate [Defendants'] exposure, after seeking legal counsel. A letter went out requesting that Flores notify the company when he was able to return to work. The potential damages for Mr. Hammon[d]'s retaliatory conduct, however, are nominal because of this reversal."
Regarding Flores's national discrimination claim, the arbitrator found that "pervasive inappropriate conduct was transpiring at [Defendants]. . . . [T]he Arbitrator was convinced that [Defendants] did not take adequate steps to curb the conduct of [Saracuza]." The arbitrator concluded: "$15,000 is awarded [to Flores] for the retaliation and discrimination claims because damages have been substantially mitigated." Furthermore, she ordered that Defendants bear the costs of the administrative fees, AAA costs, and the arbitrator's compensation. Finally, regarding the parties' respective requests for awards of attorney fees and costs, the Award stated:
"Since both parties have expended considerable funds on the litigation of this case and the Arbitrator finds that the relative successes and losses in the litigation cancel each other out, each party shall bear its own [attorney] fees and costs. The special circumstances of this case[] would render any other decision relating to the allocation of attorney fees and costs unjust under California law."
On May 17 Flores requested that the arbitrator clarify that the Award be corrected to show the names of all four Defendants, instead of referring only to Mainland Products, Inc. On June 7 the arbitrator modified the Award, stating: "The caption should be corrected to conform with the other pleadings and the case submitted to Arbitration. All [Defendants] are subject to the findings."
On June 11 Defendants requested clarification from the arbitrator on whether the Award, as modified, imposed liability on Dan and John Hammond individually. On July 7 the arbitrator sent a letter to the parties, stating:
"Given the holding of the Court [sic] as to the 'blurred' nature of the family[-]owned corporate entities, the Final Award is against both corporate entities. As to the liability of the individual [D]efendants, [Flores] did not raise or plead the issue of individual liability in the Arbitration and since both individuals were acting as officers/owners of the respective corporate defendants, individual liability should not attach to them. Although California law allows individual liability to attach to claims of retaliatory discrimination, it must be sought by [Flores] before it can be awarded."
On September 10 Flores filed a petition to confirm and correct the Award, as modified on June 7. He requested the trial court correct the Award to: (1) reflect that all four Defendants were liable; and (2) award attorney fees to him. Defendants opposed Flores's petition, arguing: (1) the Award should not be confirmed because it was moot after their payment to Flores of the net Award amount; (2) the Award should not be corrected because (a) Flores omitted from his petition papers the arbitrator's July 7 letter stating the individual Defendants (i.e., Dan and John Hammond) were not liable under the Award, and (b) the arbitrator decided the parties should bear their own attorney fees and costs and the trial court had no authority to decide otherwise. Furthermore, Defendants filed a motion requesting that the trial court impose section 128.5 sanctions against Flores and his attorneys in the amount of $11,950 for attorney fees and costs Defendants incurred in defending against his petition, which they argued was frivolous. Flores opposed Defendants' motion for sanctions.
On October 25 the trial court entered a judgment granting Flores's petition to confirm the Award, as clarified by the arbitrator, and denying Flores's petition to correct the Award. The court attached a copy of the Award (as clarified by the arbitrator) to, and incorporated it in, the judgment. Furthermore, the court granted Defendants' motion for sanctions and ordered Flores and his attorneys (D. Michael Caruthers and Sigrid Hilkey), jointly and individually, to pay $11,950 to Defendants' attorneys. On December 18 Flores filed a notice of appeal.
DISCUSSION
I
Defendants' Motion to Dismiss Appeal
On February 5, 2008, Defendants filed a motion to dismiss Flores's appeal, arguing his notice of appeal was legally insufficient because it did not identify the judgment being appealed.
A
Section 1287.4 provides for entry of a judgment by a trial court on confirmation of an arbitration award. A judgment confirming an arbitration award is expressly appealable under section 1294, which provides: "An aggrieved party may appeal from: [¶] . . . [¶] (d) A judgment entered pursuant to this title [i.e., Title 9, Arbitration, §§ 1280 et seq.]." Furthermore, section 904.1, subdivision (a)(1), generally provides for a right to appeal from a final judgment. California Rules of Court, rule 8.100(a), provides:
Section 1287.4 provides: "If an award is confirmed, judgment shall be entered in conformity therewith. The judgment so entered has the same force and effect as, and is subject to all the provisions of law relating to, a judgment in a civil action of the same jurisdictional classification; and it may be enforced like any other judgment of the court in which it is entered, in an action of the same jurisdictional classification."
All rule references are to the California Rules of Court.
"(1) To appeal from a superior court judgment . . ., an appellant must serve and file a notice of appeal in that superior court. . . .
"(2) The notice of appeal must be liberally construed. The notice is sufficient if it identifies the particular judgment or order being appealed. . . ." (Italics added.)
For example, under rule 8.100(a)(2), " 'the notice [of appeal] can be interpreted to apply to an existing appealable order or judgment, if no prejudice would accrue to the respondent. Thus, notices of appeal referring to an "order" have been interpreted to apply to a "judgment," and those referring to a "judgment" to apply to an "order," "so as to protect the right of appeal if it is reasonably clear what appellant was trying to appeal from, and where the respondent could not possibly have been misled or prejudiced." ' [Citations.]" (Walker v. Los Angeles County Metropolitan Transportation Authority (2005) 35 Cal.4th 15, 20, italics added.) "It is axiomatic that notices of appeal will be liberally construed to implement the strong public policy favoring the hearing of appeals on the merits. [Citation.] This policy is especially vital where the faulty notice of appeal engenders no prejudice and causes no confusion concerning the scope of the appeal. [Citation.]" (Norco Delivery Service, Inc. v. Owens-Corning Fiberglas, Inc. (1998) 64 Cal.App.4th 955, 960-961, italics added.)
B
Defendants assert that Flores's notice of appeal did not identify the judgment being appealed. His notice of appeal, filed on December 18, 2007, consisted of a completed Form APP-002, which has been approved for optional use by the Judicial Council of California. Its case heading correctly identified Flores as the plaintiff and "Prime Time Products, Inc., et al." as the defendants. It correctly identified the Superior Court of Imperial County as the trial court that entered the judgment or order being appealed. It also correctly identified the case number as "L-00760" and Flores as the appellant. However, in the blank space following the printed form's prompt for specification of the date on which the appealed judgment or order was entered, there is no date or other information. Selecting from the form's listed options regarding certain appealable judgments or orders, Flores checked the box adjacent to the printed language: "Other (describe and specify code section that authorizes this appeal):" and then typed in the following: "Code of Civil Procedure sections 1294 and 1294.2." (Original italics.)
Defendants argue that because Flores's notice of appeal identified only certain sections of the Code of Civil Procedure (i.e., §§ 1294 and 1294.2), they were unable to determine the judgment or order Flores was appealing and therefore were prejudiced. They argue that because section 1294 identifies five different judgments or orders a party may appeal, they were unable to determine which of those judgments or orders Flores was appealing. Accordingly, they argue Flores's notice of appeal was legally insufficient because it did not "identify" the judgment or order he was appealing, as required by rule 8.100(a)(2).
Defendants' professed ignorance of the judgment or order from which Flores was appealing is not credible. Flores's notice of appeal expressly identified section 1294. Based on the facts of this case, there was only one subdivision of section 1294 that could apply. Section 1294 provides:
"An aggrieved party may appeal from:
"(a) An order dismissing or denying a petition to compel arbitration.
"(b) An order dismissing a petition to confirm, correct or vacate an award.
"(c) An order vacating an award unless a rehearing in arbitration is ordered.
"(d) A judgment entered pursuant to this title.
"(e) A special order after final judgment." (Italics added.)
Only one of those five subdivisions, namely subdivision (d), could apply to an appeal in this case. Based on the record on appeal, there is nothing showing the trial court issued any of the orders listed in subdivisions (a), (b), (c), or (e) of section 1294. Accordingly, by identifying section 1294 and the correct case number and heading, Flores sufficiently identified the judgment he was appealing (i.e., the October 25, 2007, judgment confirming the Award) for purposes of rule 8.100(a)(2). As that rule expressly states, a notice of appeal "must be liberally construed." (Rule 8.100(a)(2), italics added.) Furthermore, we must protect Flores's right of appeal if it is reasonably clear what judgment or order he was trying to appeal from. (Walker v. Los Angeles County Metropolitan Transportation Authority, supra, 35 Cal.4th at p. 20.) In the circumstances of this case, our liberal construction of Flores's notice of appeal shows it is reasonably clear he was appealing the trial court's October 25, 2007, judgment confirming the Award. Furthermore, because there is no other interpretation of the notice of appeal that could support an inference Flores was appealing any other judgment or order in this case, Defendants could not have been misled or prejudiced regarding his notice of appeal, which can only be construed as applying to the trial court's October 25, 2007, judgment confirming the Award. (Walker v. Los Angeles County Metropolitan Transportation Authority, supra, 35 Cal.4th at p. 20; Norco Delivery Service, Inc. v. Owens-Corning Fiberglas, Inc., supra, 64 Cal.App.4th at pp. 960-961.) Accordingly, we deny Defendants' motion to dismiss Flores's appeal.
Flores's additional reference to section 1294.2 in his notice of appeal could not have misled Defendants. Section 1294.2 merely provides: "The appeal shall be taken in the same manner as an appeal from an order or judgment in a civil action. Upon an appeal from any order or judgment under this title, the court may review the decision and any intermediate ruling, proceeding, order or decision which involves the merits or necessarily affects the order or judgment appealed from, or which substantially affects the rights of a party. . . . The provisions of this section do not authorize the court to review any decision or order from which an appeal might have been taken."
Norman I. Krug Real Estate Investments, Inc. v. Praszker (1990) 220 Cal.App.3d 35 and the other cases cited by Defendants are factually inapposite and do not persuade us to reach a contrary conclusion.
II
Enforceability of the Manual's Arbitration Provision
Flores contends the trial court erred by granting Defendants' petition to compel arbitration because there was no written arbitration agreement and, even if there was, it is unconscionable and therefore unenforceable.
A
Written Arbitration Agreement.
Flores asserts that because he did not sign, or otherwise expressly agree to, the arbitration provision set forth in the Manual (i.e., Policy #293), there was no written arbitration agreement of which the trial court could compel arbitration under section 1281.2. That statute provides:
"On petition of a party to an arbitration agreement alleging the existence of a written agreement to arbitrate a controversy and that a party thereto refuses to arbitrate such controversy, the court shall order the petitioner and the respondent to arbitrate the controversy if it determines that an agreement to arbitrate the controversy exists, unless it determines that: [¶] (a) [t]he right to compel arbitration has been waived by the petitioner; or (b) [g]rounds exist for the revocation of the agreement. . . ." (§ 1281.2, italics added.)
Defendants argue that because there is evidence showing the Manual was delivered to Flores in January 1999, the arbitration provision contained therein constituted a written arbitration agreement for section 1281.2 purposes, even though he did not sign, or even acknowledge receipt of, either the Manual or its arbitration provision. Alternatively, Defendants contend that even though there may not have been a written arbitration agreement between Flores and them in 1999 (or during the remaining term of his employment), he subsequently admitted the Manual constituted a written agreement in responding to Defendants' interrogatories and therefore cannot contend the arbitration provision contained in the Manual did not constitute a written arbitration agreement.
The parties do not cite any California cases interpreting section 1281.2 factually apposite to this case. However, because we dispose of this appeal below on grounds of unconscionability of the purported written arbitration agreement, we assume arguendo, without deciding, there existed a written arbitration agreement (i.e., Policy #293 of the Manual) between Flores and Defendants within the meaning of section 1281.2.
B
Unconscionability Generally.
An arbitration agreement cannot be enforced if there are grounds for its revocation. (§§ 1281, 1281.2, subd. (b); Gatton v. T-Mobile USA, Inc. (2007) 152 Cal.App.4th 571, 579.) "Unconscionability is one ground on which a court may refuse to enforce a contract. (Civ. Code, § 1670.5.)" (Gatton, at p. 579.) Because the determination of whether an arbitration agreement is unconscionable is a question of law, we review the trial court's decision de novo or independently, when, as in this case, the relevant facts are undisputed. (Ibid.; Higgins v. Superior Court (2006) 140 Cal.App.4th 1238, 1250.)
"Unconscionability has both a procedural and a substantive element, the former focusing on 'oppression' or 'surprise' due to unequal bargaining power, the latter on 'overly harsh' or 'one-sided' results. [Citation.]" (Higgins v. Superior Court, supra, 140 Cal.App.4th at p. 1249.) Although both procedural and substantive unconscionability must be present to preclude enforcement of an arbitration agreement, they need not be present in the same degree. (Ibid.; Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, 114 (Armendariz).) In determining unconscionability, a sliding scale between procedural and substantive unconscionability is used. (Armendariz, at p. 114.) "In other words, the more substantively oppressive the contract term, the less evidence of procedural unconscionability is required to come to the conclusion that the term is unconscionable, and vice versa." (Ibid.) Therefore, if the degree of procedural unconscionability is great, only a minimal showing of substantial unconscionability is required to preclude its enforcement as unconscionable. (Ibid.; Mercuro v. Superior Court (2002) 96 Cal.App.4th 167, 175; Carboni v. Arrospide (1991) 2 Cal.App.4th 76, 83.)
C
Procedural Unconscionability.
To determine whether an arbitration agreement is procedurally unconscionable, we examine "the manner in which the contract was negotiated and the circumstances of the parties at that time. [Citation.]" (Kinney v. United HealthCare Services, Inc. (1999) 70 Cal.App.4th 1322, 1329.) "Procedural unconscionability focuses on 'oppression' or 'surprise' due to unequal bargaining power. [Citation.]" (Fitz v. NCR Corp. (2004) 118 Cal.App.4th 702, 713.) "Oppression arises when the parties have unequal bargaining power, leading to no real negotiation and lack of meaningful choice. [Citation.] Surprise may arise when challenged terms are hidden in a ' " ' "prolix printed form" drafted by a party in a superior bargaining position.' " ' [Citation.]" (Baker v. Osborne Development Corp. (2008) 159 Cal.App.4th 884, 894.) "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." ' [Citation.]" (Little v. Auto Stiegler, Inc. (2003) 29 Cal.4th 1064, 1071.)
In the circumstances of this case, the arbitration provision (which we assume arguendo is a written agreement for section 1281.2 purposes) appears in Policy #293 of the Manual, which apparently was delivered to Flores and Defendants' other employees in January 1999. The record on appeal shows Policy #293 consists of two printed pages, apparently pages 49 and 50 out of 158 pages of the Manual. PT and the other Defendants, as employers (or officers thereof), possessed superior bargaining power over Flores and other employees. Furthermore, the terms of Policy #293 (as well as the Manual's other provisions) presumably were imposed on a "take it or leave it" basis. In other words, if Flores did not want to accept Policy #293 or the Manual's other provisions, he could not negotiate its terms and could only avoid being bound by its provisions by quitting his job. He was given no meaningful choice whether to accept or reject the terms of Policy #293 or the other provisions in the Manual. (Fitz v. NCR Corp., supra, 118 Cal.App.4th at p. 722.) Accordingly, Policy #293 was a contract of adhesion and oppressive.
Furthermore, Policy #293's arbitration provision was in effect "buried" in the lengthy 158-page Manual and contained no heading to alert Flores that certain claims he may have against Defendants would be subject to arbitration. Policy #293's title is "Complaint Procedure" and does not use the word "arbitration." Rather, its arbitration language is found amidst procedures established for employee complaints. Policy #293 provides:
"[PT] has established a formal procedure to provide its employees an opportunity to resolve work-related complaints or problems, and to address any employee concerns relative to the application or enforcement of company policies, rules, or procedures. . . .
"When dealing with an employee termination, certain acts of an employee may require immediate discharge of that employee without going through any arbitration procedures. Should this become necessary, [PT] will, whenever possible, conduct an exit interview (exit interview policy #297). Any dispute or claim, except as noted above, which arises out of or which relates to employment with [PT], or which relates to any alleged breach of the employment agreement with [PT], or which arises out of or which is based upon the employment relationship including wage claim, claim for disciplinary termination, or claim based upon any employment discrimination, or civil rights statute, regulation, or law, including tort claims (except a tort which is a 'compensable injury' under workers' compensation law), shall be resolved by the use of the internal complaint procedure with the final step of the process being binding arbitration in accordance with the effective rules of commercial Arbitration Rules of the [AAA], by filing a claim in accordance with the filing rules of an arbitration organization selected, and judgment upon the award rendered pursuant to such arbitration may be entered in any [court] having jurisdiction thereof.
"Prior to entering into this process, [PT] expects its employees and their supervisors will make every reasonable effort to resolve the issue(s) in question. Therefore, the employee must first discuss any problem(s) or complaint(s) with [his or her] immediate supervisor within (30) days after the employee could have reasonably known of the perceived grievable act or omission by [PT]. Failure to submit grievance within this (30) day period will bar the employee [from] raising the grievance in any forum (court, arbitration, and internal administration) at a later date. Supervisors are then expected to take prompt, and positive action to answer any questions or revolve the complaints brought to their attention. The supervisor response to the employee complaint should be received by the employee within (10) working days of advice of complaint by the employee.
"Should the supervisor's efforts be unsuccessful in resolving the employee's complaint, the employee, within (5) working days after final discussion with the supervisor, should contact the departmental head for further review, and resolution.
"The grievance procedure has the following levels of review: [¶] [] Initial contact: supervisor[;] [] Secondary contact: departmental head[;] [] Final contact: president of [PT].
"The company will attempt, at any point in this process, to resolve all employee grievances in the most prompt and confidential manner possible and should issue a final written decision within (30) calendar days from receipt of the initial complaint by the employee. Lacking a final resolution to a question or issue, employee claims regarding[] wages, or perceived wrongful disciplinary termination, discrimination or violation of a civil rights statute, regulation, or, law, either party (the employee or the company) has the right to request the appointment of an outside licensed or certified arbitrator whose decision will be final and binding upon both the employee, and the company.
"Please note: the decision issued as an outcome of this formal arbitration whether internal or by an outside licensed and certified arbitrator will be the full final and exclusive remedy available."
Considering that the arbitration language is buried in one section of the Manual (Policy #293) located in the middle (i.e., pages 49 and 50) of a 158-page document, the arbitration provision was not openly revealed or thoroughly described to Flores. (Cf. Pardee Construction Co. v. Superior Court (2002) 100 Cal.App.4th 1081, 1089-1090 [relevant provisions were buried in contract, language did not fully explain provisions, and contained misleading caption].) Furthermore, the record does not show Defendants made any other effort to specifically inform Flores of the Manual's arbitration provision (e.g., delivery of a separate brochure disclosing, and describing in detail, the arbitration provision), and Defendants did not deliver to Flores or other employees copies of the AAA rules that would govern any arbitration. (Fitz v. NCR Corp., supra, 118 Cal.App.4th at pp. 722-723.) Accordingly, the Manual's arbitration provision satisfied the "surprise" element of procedural unconscionability. When that surprise element is combined with the oppressive manner in which the arbitration provision was unilaterally imposed on Flores, we conclude there is a high degree of procedural unconscionability in the circumstances of this case.
D
Substantive Unconscionability.
Substantive unconscionability focuses on overly harsh or one-sided provisions of an arbitration agreement. (Higgins v. Superior Court, supra, 140 Cal.App.4th at pp. 1249, 1253.) Therefore, an enforceable arbitration agreement must have a " ' "modicum of bilaterality" ' " (i.e., sufficient mutuality). (Id. at p. 1253; Fitz v. NCR Corp., supra, 118 Cal.App.4th at p. 713; Armendariz, supra, 24 Cal.4th at p. 117.) A "lack of mutuality can be manifested as much by what the agreement does not provide as by what it does." (Armendariz, at p. 120.) Although an arbitration agreement need not require arbitration of all disputes between an employer and employee to avoid invalidation on grounds of unconscionability, "an arbitration agreement imposed in an adhesive context lacks basic fairness and mutuality if it requires one contracting party, but not the other, to arbitrate all claims arising out of the same transaction or occurrence or series of transactions or occurrences." (Ibid.)
For example, many courts have held arbitration agreements to be substantively unconscionable if they provide for arbitration of those claims most likely to be brought by the weaker party (e.g., employee) and exempts from arbitration those claims most likely to be brought by the stronger party (e.g., employer). (See, e.g., Thompson v. Toll Dublin, LLC (2008) 165 Cal.App.4th 1360, 1373; Baker v. Osborne Development Corp., supra, 159 Cal.App.4th at p. 896; Fitz v. NCR Corp., supra, 118 Cal.App.4th at pp. 724-725 ["An agreement may be unfairly one-sided if its compels arbitration of the claims more likely to be brought by the weaker party but exempts from arbitration the types of claims that are more likely to be brought by the stronger party."]; Martinez v. Master Protection Corp. (2004) 118 Cal.App.4th 107, 114-115 ["[A]rbitration agreement is substantively unconscionable. It requires employees to arbitrate the claims they are most likely to assert against [the employer], while simultaneously permitting [the employer] to litigate in court the claims it is most likely to assert against its employees."]; Mercuro v. Superior Court, supra, 96 Cal.App.4th at pp. 175-177 ["The agreement is unfairly one-sided in requiring arbitration of most claims of interest to employees but exempting from arbitration most claims of interest to [the employer]."]; Stirlen v. Supercuts, Inc. (1997) 51 Cal.App.4th 1519, 1539-1542 ["The mandatory arbitration requirement can only realistically be seen as applying primarily if not exclusively to claims arising out of the termination of employment, which are virtually certain to be filed against, not by, [the employer]."]; Ingle v. Circuit City Stores, Inc. (9th Cir. 2003) 328 F.3d 1165, 1173-1174 ["Because the possibility that [the employer] would initiate an action against one of its employees is so remote, the lucre of the arbitration agreement flows one way: the employee relinquishes rights while the employer generally reaps the benefits of arbitrating its employment disputes."].)
Furthermore, if an arbitration agreement imposes an unreasonably short period in which an employee must assert his or her claim against an employer, that shortened limitations period weighs in favor of a finding of substantive unconscionability. (Nyulassy v. Lockheed Martin Corp. (2004) 120 Cal.App.4th 1267, 1283 [shortened 180-day period for asserting claim is a factor supporting a finding of substantive unconscionability].) Also, in a unilaterally-imposed contract of adhesion, a provision requiring an 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 plaintiff were to later demand arbitration." (Id. at pp. 1282-1283.) In that circumstance, an internal grievance procedure that is a precondition to arbitration of a claim is a factor supporting a finding of substantive unconscionability. (Ibid.)
In the circumstances of this case, we conclude the arbitration provision set forth in Policy #293 of the Manual has a significant degree of substantive unconscionability. Policy #293 provides for arbitration of disputes or claims that arise out of or relate to Flores's employment with PT, relate to any alleged breach of the employment agreement with PT, or arise out of or are based on his employment relationship, including wage claims, claims for disciplinary termination, and claims based on any employment discrimination or civil rights statute, regulation, or law, including tort claims. Therefore, those claims subject to arbitration are those most likely to be made by Flores, as an employee, and those claims most likely to be made by PT and the other Defendants are not required to be arbitrated. Furthermore, Policy #293 provides that PT has the express right to immediately discharge an employee for certain acts without going through any arbitration procedures and expressly excludes from its arbitration requirement those disputes regarding PT's immediate discharge of an employee. Therefore, the arbitration provision is one-sided regarding the claims subject to arbitration because it provides for arbitration of those claims most likely to be made by the weaker party (e.g., Flores) and exempts from arbitration those claims most likely to be made by the stronger party (i.e., Defendants). (Thompson v. Toll Dublin, LLC, supra, 165 Cal.App.4th at p. 1373; Baker v. Osborne Development Corp., supra, 159 Cal.App.4th at p. 896; Fitz v. NCR Corp., supra, 118 Cal.App.4th at pp. 724-725; Martinez v. Master Protection Corp., supra, 118 Cal.App.4th at pp. 114-115; Mercuro v. Superior Court, supra, 96 Cal.App.4th at pp. 175-177; Stirlen v. Supercuts, Inc., supra, 51 Cal.App.4th at pp. 1539-1542; Ingle v. Circuit City Stores, Inc., supra, 328 F.3d at pp. 1173-1174.)
Another factor supporting a finding of substantive unconscionability is the arbitration provision's 30-day limitations period for submitting a claim or grievance to Defendants. Policy #293 requires Flores to first submit any grievance to his immediate supervisor within 30 days after he reasonably could have known of that grievance. His failure to timely submit that grievance "will bar [him from] raising the grievance in any forum (court, arbitration, and internal administration) at a later date." (Italics added.) Therefore, the arbitration provision in effect sets forth a 30-day claims or limitations period for filing an "internal" grievance and failure to timely file a grievance within that period forever bars Flores from raising the claim in arbitration or any other forum. Although that limitations period apparently was not violated in this case (or at least not enforced by Defendants), the existence of the one-sided provision that unreasonably shortens Flores's right to arbitration or other recourse from a period of more than one year for most of his claims (e.g., FEHA claims) to only 30 days supports a finding of substantive unconscionability. (Nyulassy v. Lockheed Martin Corp., supra, 120 Cal.App.4th at p. 1283 [shortened 180-day period for asserting claim is a factor supporting a finding of substantive unconscionability]; Martinez v. Master Protection Corp., supra, 118 Cal.App.4th at pp. 117-118 [shortened six-month limitations period is unconscionable]; Ingle v. Circuit City Stores, Inc., supra, 328 F.3d at p. 1175 [one-year limitations period for FEHA claims is substantively unconscionable].) Furthermore, that shortened 30-day period for submitting a grievance expressly applies only to employees and not employers (i.e., Defendants), thereby making the shortened limitations period even more one-sided.
Policy #293 provides in pertinent part: "[T]he employee must first discuss any problem(s) or complaint(s) with [his or her] immediate supervisor within (30) days after the employee could have reasonably known of the perceived grievable act or omission by [PT]. Failure to submit grievance within this (30) day period will bar employee [from] raising the grievance in any forum (court, arbitration, and internal administration) at a later date." (Italics added.) No comparable provision requires the employer to submit its grievance against an employee before resorting to court action (or arbitration) or, for that matter, within any shortened limitations period (e.g., 30 days).
Finally, another factor supporting a finding of substantive unconscionability is Policy #293's requirement that Flores first submit any grievance to his immediate supervisor and comply with an internal grievance procedure as a precondition to arbitration. Although that internal grievance procedure, which applies only to claims by employees, may ostensibly be well-intended to resolve grievances informally at an early stage, that unilateral provision in effect requires Flores and other employees "to submit to an employer-controlled dispute resolution mechanism (i.e., one without a neutral mediator)." (Nyulassy v. Lockheed Martin Corp., supra, 120 Cal.App.4th at p. 1283.) That mechanism "suggests that [Defendants] would receive a 'free peek' at [Flores's] case, thereby obtaining an advantage if and when [he] were to later demand arbitration." (Ibid.) Considering all of the above factors, we conclude the arbitration provision set forth in Policy #293 of the Manual has a significant, if not high, degree of substantive unconscionability.
In so concluding, we need not consider other potential factors that may show a lack of mutuality and thereby provide additional support for a finding of substantive unconscionability, such as AAA rules that potentially limit discovery and provide for equal sharing of costs by the parties. (Fitz v. NCR Corp., supra, 118 Cal.App.4th at p. 718, fn. 3; Higgins v. Superior Court, supra, 140 Cal.App.4th at p. 1254; O'Hare v. Municipal Resource Consultants (2003) 107 Cal.App.4th 267, 279-281.)
E
Conclusion.
Applying Armendariz's "sliding scale" to the procedural and substantive unconscionability in the circumstances of this case, we conclude the arbitration provision in Policy #293 is unconscionably one-sided and therefore unenforceable. (Armendariz, supra, 24 Cal.4th at p. 114; Little v. Auto Stiegler, Inc., supra, 29 Cal.4th at p. 1074; Higgins v. Superior Court, supra, 140 Cal.App.4th at p. 1254.) It has both a high degree of procedural unconscionability and a significant, if not high, degree of substantive unconscionability. As we noted above, if the degree of procedural unconscionability is great, only a minimal showing of substantive unconscionability is required to preclude its enforcement as unconscionable. (Armendariz, at p. 114; Mercuro v. Superior Court, supra, 96 Cal.App.4th at p. 175; Carboni v. Arrospide, supra, 2 Cal.App.4th at p. 83.) In the circumstances of this case, because there is a very high degree of procedural unconscionability and more than minimal substantive unconscionability, the arbitration provision is unconscionable.
Severability.
Given an unconscionable arbitration agreement, we must decide whether it is entirely unenforceable, whether it is possible to sever its unenforceable provisions, or whether to limit the application of the unconscionable provisions to avoid the unconscionable result. (Civ. Code, § 1670.5, subd. (a); Armendariz, supra, 24 Cal.4th at pp. 121-122; Mercuro v. Superior Court, supra, 96 Cal.App.4th at p. 184.) However, if the arbitration agreement is permeated with unconscionability, "it cannot be cured by merely extirpating the offending provisions" and therefore the entire arbitration agreement is unenforceable. (Mercuro, at p. 185.) In the circumstances of this case, there are multiple provisions in the arbitration agreement that render it substantively unconscionable. Furthermore, because the arbitration agreement lacks mutuality, there is no single provision that may be stricken or restricted "to remove the unconscionable taint." (Armendariz, at p. 125.) Accordingly, we conclude the arbitration provision in Policy #293 of the Manual is permeated with unconscionability and is therefore entirely unenforceable. (Id. at pp. 124-125; Thompson v. Toll Dublin, LLC, supra, 165 Cal.App.4th at p. 1373; Ontiveros v. DHL Express (USA), Inc. (2008) 164 Cal.App.4th 494, 515; Nyulassy v. Lockheed Martin Corp., supra, 120 Cal.App.4th at pp. 1287-1288; Martinez v. Master Protection Corp., supra, 118 Cal.App.4th at p. 119; Mercuro, at pp. 185-186; Higgins v. Superior Court, supra, 140 Cal.App.4th at p. 1254; Ingle v. Circuit City Stores, Inc., supra, 328 F.3d at p. 1180. The trial court erred by granting Defendants' petition to compel arbitration of that unenforceable arbitration agreement.
In his reply brief, Flores raises the contention that the trial court erred by finding Defendants had not waived their right to arbitrate his claims by actively litigating his action for almost two years before requesting arbitration. However, because we dispose of this appeal on grounds of unconscionability, we need not address the merits of that contention. In any event, because Flores belatedly raised that contention for the first time in his reply brief, we conclude he has forfeited that potentially meritorious contention on appeal. (Reichardt v. Hoffman (1997) 52 Cal.App.4th 754, 764.)
III
Trial Court's Award of Sanctions
Flores contends the trial court erred by granting Defendants' motion for sanctions against him for petitioning to correct the Award. Defendants filed a motion requesting the trial court award them $11,950 in attorney fees as sanctions against Flores for filing a frivolous petition to correct the Award. In the trial court's judgment confirming the Award, the court granted that motion and awarded the requested sanctions against Flores.
However, because we conclude the arbitration agreement is unenforceable and arbitration should not have been compelled by the trial court, the judgment confirming the Award, including its sanctions award, must be reversed. Accordingly, Flores's instant contention is moot and we need not address its merits.
IV
Remaining Motions
There are three motions filed by the parties that remain for us to address. On May 29, 2008, Defendants filed a section 909 motion requesting we take additional evidence consisting of certain deposition testimony and a declaration of Dan Hammond regarding Flores's purported knowledge of the Manual and its grievance procedures. Because that proffered evidence is irrelevant to the grounds on which we decide this appeal, we exercise our discretion and deny that motion. (Golden West Baseball Co. v. City of Anaheim (1994) 25 Cal.App.4th 11, 42 ["The power created by [section 909] is discretionary and should be invoked sparingly, and only to affirm the case."].)
On June 20, Flores filed a section 909 motion requesting that we take additional evidence consisting of certain deposition testimony of Irene Delatorre. However, because that proffered evidence is irrelevant to the grounds on which we decide this appeal, we exercise our discretion and deny that motion. (Golden West Baseball Co. v. City of Anaheim, supra, 25 Cal.App.4th at p. 42.)
On May 29, Defendants filed a motion requesting that we impose sanctions on Flores for filing a frivolous appeal, failing to provide citations to the record for certain factual assertions, misrepresenting the facts in the record, omitting material facts that are in the record, failing to provide meaningful analysis with supporting citations to authorities, misstating legal authorities, and raising new issues not raised in the trial court. We exercise our discretion and deny that motion.
DISPOSITION
The judgment is reversed and the matter is remanded with directions that the trial court: (1) vacate its October 16, 2003, order granting Defendants' petition to compel arbitration and staying the proceedings pending completion of arbitration; (2) issue a new order denying Defendants' petition to compel arbitration and stay the proceedings; (3) vacate its October 25, 2007, judgment confirming the arbitration award and order imposing sanctions on Flores; and (4) restore this matter to its civil litigation calendar for further proceedings consistent with this opinion. Flores is awarded his costs on appeal.
WE CONCUR: McCONNELL, P. J., O'ROURKE, J.