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Kim v. Francesca's Collections of CA, Inc.

California Court of Appeals, Second District, Fifth Division
Apr 16, 2009
No. B207572 (Cal. Ct. App. Apr. 16, 2009)

Opinion

NOT TO BE PUBLISHED

APPEAL from an order of the Superior Court of Los Angeles County, No. BC383373 James R. Dunn, Judge.

Shepard, Mullin, Richter & Hamilton, Tracey A. Kennedy and Thomas Y. Lee for Defendant and Appellant.

Ablon, Lewis Bass & Gale and Barry G. Florence for Plaintiff and Respondent.


TURNER, P. J.

I. INTRODUCTION

This is an action for discrimination in violation of the Fair Employment and Housing Act (Gov. Code, § 12940 et seq.) and for wrongful termination. Defendant, Francesca’s Collections of CA, Inc., appeals from an order denying its motion to compel arbitration. The trial court ruled the purported arbitration agreement between defendant and plaintiff, Hyung Joo Kim, was unenforceable. We affirm the order.

II. BACKGROUND

Plaintiff filed a January 7, 2008 complaint asserting causes of action under the Fair Employment and Housing Act for: pregnancy discrimination; gender discrimination; and physical disability/medical condition discrimination. Plaintiff further alleged wrongful termination in violation of the public policy embodied in the Fair Employment and Housing Act and unfair business practices in violation of the Business and Professions Code. In addition, plaintiff asserted failure to pay overtime compensation and sought statutory penalties under the Labor Code.

Defendant sought to compel arbitration pursuant to a “Dispute Resolution Agreement” (the agreement). Defendant alleged plaintiff, a regional manager of retail stores, had signed the agreement. The agreement on its face purports to have been signed by “Nicole H. Kim” on August 1, 2003. The agreement states: “Dispute Resolution Program [¶] An employee who accepts or continues employment with [defendant] by accepting compensation for employment, agrees to resolve all legal claims against [defendant] through this process rather than through the court system. If an employee files a lawsuit against [defendant], [defendant] will ask the court to dismiss the lawsuit and refer to the Dispute Resolution Program. This provision applies to any workplace dispute, regardless of when it arises, including disputes that arise after an employee leaves [defendant]. [¶] The Dispute Resolution Program has three options for resolution: [¶] The Open Door option is the option we encourage to be used first. It provides immediate access to the chain of command—beginning with your supervisor and going up through the organization. [¶] The Mediation option allows for resolution through a trained, independent mediator from outside the Company. The mediator will not decide the final resolution; they only give suggestions for resolution. The resolution is up to the employee and the Company. [¶] The Arbitration option is a process in which the employee and Company present the dispute to a neutral third party, an arbitrator, for a final and binding decision. The arbitrator makes a decision after both sides present their arguments.”

Defendant’s counsel, Roger M. Rosen, filed a declaration in support of the motion to compel arbitration. Mr. Rosen declared: “As counsel for [defendant], I represent to the Court that [defendant] agrees to: [¶] (1) Pay the arbitrator’s fees consistent with the holding of [Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83], 112... [(Armendariz)]; [¶] (2) Work in good faith to select a neutral arbitrator in cooperation with plaintiff’s counsel, affiliated with JAMS, AAA, or other arbitration services provider which has rules specific to employment law cases so as to be Armendariz compliant; and [¶] (3) Return to Court for a Court-ordered appointment of neutral arbitrator if the parties cannot agree upon an arbitrator within 30 days of the hearing on this motion.”

Laura Leong Phongsy, an employee of Francesca’s Collections, Inc., defendant’s parent company, also filed a declaration in support of the motion. Ms. Phongsy declared her responsibilities included maintaining personnel files for defendant’s employees. The files were maintained at an office in Houston, Texas where Ms. Phongsy is employed. Ms. Phongy was asked to review the personnel file of Hyung Joo Kim, also known as Nicole H. Kim. Ms. Phongsy was asked to determine whether the file included a signed Dispute Resolution Program form. Ms. Phongsy found an original, signed Dispute Resolution Program form in the file. Mr. Phongsy further declared: “I am familiar with this type of form. I have seen many signed originals filed within the personnel files I maintain. Such signed forms are maintained in the ordinary course of business by Francesca’s Collections, Inc. on behalf of [defendant], within such personnel files. [¶]... My review of the pertinent records discloses that [plaintiff] was employed by [defendant] at the time the form is dated [August 1, 2003] and she remained so employed for a number of years.”

Plaintiff opposed the motion. Plaintiff argued: the agreement was vague and unenforceable, and did not apply, by its terms, to equitable or statutory relief; the agreement consists of options and does not require binding arbitration; there was no evidence she was also known as Nicole H. Kim; there was no evidence she signed the agreement; the agreement is procedurally unconscionable in that its language shows it was offered on a take it or leave it basis to existing employees such as her; the agreement is substantively unconscionable in that it is wholly one-sided; and it does not meet the Armendariz requirements for arbitration of nonwaivable public rights.

The trial court denied defendant’s motion to compel arbitration. The trial court ruled: the agreement was unauthenticated and inadmissible; it did not require binding arbitration; and Mr. Rosen’s declaration stating defendant would comply with Armendariz could not create an enforceable arbitration clause. This appeal followed.

III. DISCUSSION

Motions to compel arbitration are determined in the trial court in the manner provided for hearing motions generally. (Rosenthal v. Great Western Fin. Securities Corp. (1996) 14 Cal.4th 394, 413; Brown v. Wells Fargo Bank, NA (2008) 168 Cal.App.4th 938, 953.) Facts are proven by affidavit or declaration and documentary evidence, with oral testimony taken in the trial court’s discretion. (Rosenthal v. Great Western Fin. Securities Corp., supra, 14 Cal.4th at pp. 413-414; Brown v. Wells Fargo Bank, NA, supra, 168 Cal.App.4th at p. 953.) The Supreme Court has described the shifting burdens on the motion as follows: “[W]hen a petition to compel arbitration is filed and accompanied by prima facie evidence of a written agreement to arbitrate the controversy, the court itself must determine whether the agreement exists and, if any defense to its enforcement is raised, whether it is enforceable. Because the existence of the agreement is a statutory prerequisite to granting the petition, the petitioner bears the burden of proving its existence by a preponderance of the evidence. If the party opposing the petition raises a defense to enforcement... that party bears the burden of producing evidence of, and proving by a preponderance of the evidence, any fact necessary to the defense. (Strauch v. Eyring [(1994)]30 Cal.App.4th [181,] 186.)” (Rosenthal v. Great Western Fin. Securities Corp., supra, 14 Cal.4th at p. 413; accord, Engalla v. Permanente Medical Group, Inc. (1997) 15 Cal.4th 951, 972 (Engalla).)

Our standard of review varies with the issue we are evaluating. We review a contention an employee did not execute an arbitration agreement for substantial evidence. (Broughton v. Cigna Healthplans of California (1999) 21 Cal.4th 1066, 1106 [“court may not order arbitration where, as here, there is no substantial evidence of the existence of a valid written agreement to arbitrate”]; Metters v. Ralphs Grocery Co. (2008) 161 Cal.App.4th 696, 704; [“The record contains substantial evidence to support the trial court's finding that there was no valid agreement to arbitrate Metters’s discrimination claim.”]; Banner Entertainment, Inc. v. Superior Court (1998) 62 Cal.App.4th 348, 357 [“if substantial evidence supports the trial court's determination that a valid agreement to arbitrate exists, an appellate court will affirm that determination”].) In construing the arbitration agreement, we apply general principles of contract law. (Baker v. Osborne Development Corp. (2008)159 Cal.App.4th 884, 892; Kleveland v. Chicago Title Ins. Co. (2006) 141 Cal.App.4th 761, 764.)

We affirm the order denying defendant’s motion to compel arbitration. First, a party seeking to compel arbitration must show the existence of a valid arbitration agreement. (Engalla v. Permanente Medical Group, Inc., supra, 15 Cal.4th at p. 972; Flores v. Evergreen At San Diego, LLC (2007) 148 Cal.App.4th 581, 586.) Here, the trial court could reasonably find defendant did not show by a preponderance of the evidence that plaintiff had signed the agreement; hence no valid arbitration agreement exists. (See Flores v. Evergreen At San Diego, LLC, supra, 148 Cal.App.4th at pp. 586-587 [wife did not sign arbitration agreement and husband, who signed it, had no authority to bind her]; Goliger v. AMS Properties, Inc. (2004) 123 Cal.App.4th 374, 376-377 [patient did not sign arbitration agreement and daughter signed only as “responsible party” and not as “agent”]; Pagarigan v. Libby Care Center, Inc. (2002) 99 Cal.App.4th 298, 301 [no evidence children had authority to enter into arbitration contract on mother’s behalf]; Marcus & Millichap Real Estate Invest. Brokerage Co. v. Hock Invest. Co. (1998) 68 Cal.App.4th 83, 92 [only one of two parties initialed real estate purchase agreement].) All we know is that there was a copy of the agreement in plaintiff’s personnel file—which was maintained by the parent company in Houston, Texas—and it bore a signature, the name Nicole H. Kim, and a date; further, according to “pertinent records,” plaintiff was employed by defendant on that date. The trial court could reasonably find there was no competent evidence plaintiff also went by the name Nicole H. Kim or that plaintiff signed the agreement under a pseudonym. Further, given the gaps in the evidence, the trial court could reasonably find there was insufficient evidence one way or the other on the signature issue.

Second, even if plaintiff did sign the agreement, it does not by its terms require arbitration. It lists arbitration as one of three “options.” Given the opportunity, an employee might choose mediation over arbitration. The present arbitration provision is not an agreement to arbitrate. Rather, it is an agreement which provides plaintiff with three options: the “Open Door” policy; the opportunity to enter into mediation; and arbitration. If there is no agreement to arbitration, there is no right to compel a litigant to arbitrate the dispute. (Medical Staff of Doctors Medical Center in Modesto v. Kamil (2005) 132 Cal.App.4th 679, 684; Engineers & Architects Assn. v. Community Development Dept. (1994) 30 Cal.App.4th 644, 653.) Plaintiff was not compelled to arbitrate her dispute.

Third, if the agreement requires the parties to arbitrate, it is unconscionable. Our Supreme Court has explained: “‘“ To briefly recapitulate the principles of unconscionability, the doctrine 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.] 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.”’... [¶] Substantively unconscionable terms may take various forms, but may generally be described as unfairly one-sided.”’ (Discover Bank [v. Superior Court (2005)] 36 Cal.4th [148,] 160.) [¶] As we have explained: ‘“The prevailing view is that [procedural and substantive unconscionability] must both be present in order for a court to exercise its discretion to refuse to enforce a contract or clause under the doctrine of unconscionability.” [Citation.] But they need not be present in the same degree.....’ (Armendariz, supra, 24 Cal.4th at p. 114, italics omitted.)” (Gentry v. Superior Court (2007) 42 Cal.4th 443, 468-469.)

The Supreme Court has also recognized that special attention must be paid to arbitration agreements in the employment context. This is because few employees are in a position to decline a job offer or to quit existing employment when faced with an arbitration agreement. (Armendariz, supra, 24 Cal.4th at p. 115.) In addition, arbitration generally is more beneficial to the employer than it is to the employee. (Ibid.) The Supreme Court has concluded, “Given the lack of choice and the potential disadvantages that even a fair arbitration system can harbor for employees, we must be particularly attuned to claims that employers with superior bargaining power have imposed one-sided, substantively unconscionable terms as part of an arbitration agreement.” (Ibid.) Further, “‘The courts must... ensure that private arbitration systems resolve disputes not only with speed and economy but also with fairness.’ (Engalla, supra, 15 Cal.4th at p. 989 (conc. opn. of Kennard, J.).)” (Armendariz, supra, 24 Cal.4th at p. 115.)

If there is a duty to arbitrate, the present agreement is adhesive and procedurally unconscionable. If it requires arbitration, the agreement requires an existing employee such as plaintiff—on a take it or leave it basis—to waive his or her right to bring legal action against the employer. The agreement states in part, “An employee who... continues employment with [defendant] by accepting compensation for employment, agrees to resolve all legal claims against [defendant] through this [dispute resolution] process rather than through the court system.” There was no opportunity to negotiate. There was no opt-out provision. (Armendariz, supra, 24 Cal.4th at pp. 114-115; Gentry v. Superior Court, supra, 42 Cal.4th at pp. 471-472; Martinez v. Master Protection Corp. (2004) 118 Cal.App.4th 107, 114; Murphy v. Check ‘N Go of California, Inc. (2007) 156 Cal.App.4th 138, 144-145; McManus v. CIBC World Markets Corp. (2003) 109 Cal.App.4th 76, 91; Fitz v. NCR Corp. (2004) 118 Cal.App.4th 702, 722.)

If there is a duty to arbitrate, the agreement is also substantively unconscionable. It is one-sided. The employee is required to resolve claims against the employer in an alternative dispute resolution setting. The employer, on the other hand, is able to pursue an employee in a court of law. (See Little v. Auto Stiegler, Inc. (2003)29 Cal.4th 1064, 1070; Armendariz, supra, 24 Cal.4th at pp. 117-118; Baker v. Osborne Development Corp., supra, 159 Cal.App.4th at p. 896; Higgins v. Superior Court (2006) 140 Cal.App.4th 1238, 1253-1254; Nyulassy v. Lockheed Martin Corp. (2004) 120 Cal.App.4th 1267, 1287.) Defendant has not offered any evidence the one-sidedness of the agreement is based on any business realities. Defendant offers no justification for its unwillingness to accept the limitations it imposes on its employees. Hence, the agreement appears intended only to benefit the employer. (Armendariz, supra, 24 Cal.4th at pp. 117-118; O’Hare v. Municpal Resource Consultants (2003) 107 Cal.App.4th 267, 274.)

A trial court has some discretion whether to sever the unconscionable provisions of a contract or to refuse to enforce the entire agreement. (Civ. Code, § 1670.5, subd. (a); Armendariz, supra, 24 Cal.4th at pp. 121-122.) Civil Code section 1670.5, subdivision (a) states in part, “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,....” (Italics added.) The Legislative Committee comment to Civil Code section 1670.5 explains, “Under this section the court, in its discretion, may refuse to enforce the contract as a whole if it is permeated by the unconscionability, or it may strike any single clause or group of clauses which are so tainted or which are contrary to the essential purpose of the agreement, or it may simply limit unconscionable clauses so as to avoid unconscionable results.” (Legis. Com. com. foll. § 1670.5, 9 West’s Ann. Civ. Code (1985 ed.) p. 494.) Here, the trial court concluded the unconscionable provisions could not be severed. We review the trial court’s severability determination for an abuse of discretion. (Armendariz, supra, 24 Cal.4th at pp. 121-122, 124; Ontiveros v. DHL Exp. (USA), Inc. (2008) 164 Cal.App.4th 494, 502; Murphy v. Check ‘N Go of California, Inc., supra, 156 Cal.App.4th at p. 144.)

We find no abuse of discretion. As discussed above, if it imposes a duty to arbitrate, the agreement lacks mutuality. There is no single provision that could be stricken to remove the unconscionability. The agreement as a whole is unenforceable as an arbitration contract. (Armendariz, supra, 24 Cal.4th at pp. 121-127; Sixells, LLC v. Cannery Business Park (2008) 170 Cal.App.4th 648, 655; Fitz v. NCR Corp., supra, 118 Cal.App.4th at pp. 714-715, 726-728.)

IV. DISPOSITION

The order denying the motion to compel arbitration is affirmed. Plaintiff, Hyung Joo Kim, is to recover her costs on appeal from defendant, Francesca’s Collections of CA, Inc.

We concur: ARMSTRONG, J. MOSK, J.


Summaries of

Kim v. Francesca's Collections of CA, Inc.

California Court of Appeals, Second District, Fifth Division
Apr 16, 2009
No. B207572 (Cal. Ct. App. Apr. 16, 2009)
Case details for

Kim v. Francesca's Collections of CA, Inc.

Case Details

Full title:HYUNG JOO KIM, Plaintiff and Respondent, v. FRANCESCA’S COLLECTIONS OF CA…

Court:California Court of Appeals, Second District, Fifth Division

Date published: Apr 16, 2009

Citations

No. B207572 (Cal. Ct. App. Apr. 16, 2009)