Opinion
F061801
11-16-2011
GILBERT KENNETH MORAN, Petitioner, v. THE SUPERIOR COURT OF KERN COUNTY, Respondent. KAISER FOUNDATION HEALTH PLAN, INC. et al., Real Parties in Interest.
Matthews Law Group, Charles T. Mathews; The Rager Law Firm, Jeffrey A. Rager; Law Offices of Roxanne Huddleston and Roxanne Huddleston for Petitioner. No appearance for 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NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.
(Super. Ct. No. S-1500-CV-270393)
OPINION
ORIGINAL PROCEEDING; Petition for Writ of Mandate. William D. Palmer, Judge.
Matthews Law Group, Charles T. Mathews; The Rager Law Firm, Jeffrey A. Rager; Law Offices of Roxanne Huddleston and Roxanne Huddleston for Petitioner.
No appearance for Respondent.
Paul, Hastings, Janofsky & Walker, James A. Zapp, Ryan J. Crain; McCormick Barstow, David R. McNamara and Scott M. Reddie for Real Parties in Interst.
Petitioner seeks a writ of mandate directing the trial court to vacate its order granting real parties' motion to compel arbitration and to enter a new order denying the motion. Petitioner contends the arbitration agreement is fatally ambiguous, does not meet the minimum standards of fairness established by Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83 (Armendariz), and is substantively and procedurally unconscionable. We conclude that the arbitration agreement is valid and enforceable, and deny the petition.
FACTUAL AND PROCEDURAL BACKGROUND
Petitioner filed a complaint against The Permanente Medical Group (TPMG) and real parties in interest, Kaiser Foundation Health Plan (KFHP), Kaiser Foundation Hospitals (KFH), and Southern California Permanente Medical Group (SCPMG). KFHP sells prepaid health care plans to its members. It provides medical services to its members by contracting with two groups: SCPMG in southern California and TPMG in northern California. SCPMG and TPMG are physician owned entities. KFH provides or arranges for hospital services for KFHP members. The complaint alleged petitioner was employed by real parties and TPMG until his employment was terminated effective February 22, 2010. It included causes of action for wrongful or retaliatory termination, violation of the Fair Employment and Housing Act (FEHA; Gov. Code, § 12940 et seq.) based on race or national origin discrimination, defamation, intentional interference with prospective economic advantage, and intentional infliction of emotional distress.
The complaint alleges petitioner was employed by TPMG, KFH, and KFHP as an obstetrician and gynecologist at a Kaiser facility in Fresno. Between 2002 and 2004, while he was Chief of the OB/GYN department and oversaw the quality of care committee, petitioner complained to hospital officials about substandard patient care given by a doctor identified as Dr. X. The physician-in-chief told petitioner to stop complaining, and dismantled the quality of care committee; he demoted and otherwise disciplined petitioner as a result of the complaints. Dr. X's negligence resulted in the death of three patients. Petitioner was told he could work harassment-free at Kaiser-Bakersfield if he resigned his partnership, returned to employee status, and accepted a reduction in pay and job security; he was told he would likely be promoted to partnership again after one year, rather than the usual three years. Petitioner agreed to this. His first day of work for SCPMG in Bakersfield was January 8, 2007. He subsequently filed a lawsuit alleging retaliation for patient advocacy; that suit was resolved on June 29, 2009. Petitioner was later told he would not be promoted to partner at Kaiser-Bakersfield; he was terminated effective February 22, 2010.
Real parties responded to petitioner's complaint in the underlying action by filing a motion to stay the action and to compel arbitration of all of petitioner's claims against them pursuant to his employment agreement with SCPMG. TPMG filed its own motion to stay the action and compel arbitration, pursuant to the same employment agreement. Real parties presented the employment contract between SCPMG and petitioner and the arbitration agreement it included. SCPMG had submitted three proposed contracts to petitioner electronically through its website. Each contained section XII, which stated: "Physician and SCPMG agree to be bound by the attached Arbitration Agreement, which is incorporated by reference into this Contract. Furthermore, except to the extent that such would conflict with the attached Arbitration Agreement, Physician and SCPMG agree to follow the Dispute Resolution Procedure (Rules and Regulations, section 1I) or Alternative Dispute Resolution Procedure (Rules and Regulations, section 1J)." When petitioner accessed the website to review the employment contract, the website had links to other employment-related documents, including the Rules and Regulations, which contained the Dispute Resolution Procedure (DRP), which in turn contained the provisions for arbitration of disputes. Petitioner electronically signed the third employment contract on December 30, 2006. On January 8, 2007, his first day of employment with SCPMG, petitioner received a copy of the DRP and signed a document acknowledging he had received it, read it, and agreed to abide by it; he declared he was told he had to sign it or he could not work there.
In their motion to compel arbitration, real parties contended that all of petitioner's claims arose out of his employment with SCPMG and, because petitioner alleged KFH and KFHP were acting with SCPMG as a single or joint employer, or alter egos or agents of one another, his claims against all three were subject to binding arbitration. TPMG also asserted it had standing to compel arbitration because petitioner alleged TPMG was a joint employer, alter ego, or agent of SCPMG. Petitioner opposed the motions, arguing KFHP, KFH, and TPMG were not parties to the arbitration agreement and denied being agents or joint employers of petitioner, so they had no standing to compel arbitration. He also asserted the arbitration agreement, if it existed, was unconscionable and should not be enforced.
The trial court issued a tentative ruling denying the motions. It reasoned the employment agreement containing the arbitration agreement was between petitioner and SCPMG, and the other defendants denied having an agency relationship with SCPMG; accordingly, the authorities allowing agents to obtain the benefit of the principal's arbitration agreement did not apply. It opined there was also a possibility of conflicting rulings on common issues of law or fact if the claims were split between arbitration and litigation. After further briefing and oral argument, however, the court granted the motion as to SCPMG, KFH, and KFHP. As to TPMG, it denied the motion and severed the sixth cause of action. Petitioner filed his petition with this court, seeking a writ of mandate directing the trial court to vacate its order granting real parties' motion to compel arbitration and to enter a new order denying the motion. We issued an order to show cause why the requested relief should not be granted, in order to consider the questions raised.
During oral argument in the trial court, counsel for TPMG asserted that, if the causes of action arising out of petitioner's employment in Bakersfield were alleged against TPMG, then the same claims were being made against all the defendants, all the defendants were alleged to be petitioner's employer, and the claims arose out of the employment agreement; therefore, all the claims should be arbitrated together. If, however, as petitioner's counsel had suggested to him, only the sixth cause of action (interference with prospective economic advantage) was alleged against TPMG, and it was based on allegations TPMG sent petitioner to Bakersfield to get rid of him and to set him up for termination there, then that claim was not based on the employment contract with SCPMG; counsel represented that TPMG would prefer to have that cause of action severed for trial in a smaller case, rather than including it in an arbitration "98 percent" of which did not involve TPMG.
DISCUSSION
I. Writ Review
A writ of mandate "must be issued in all cases where there is not a plain, speedy, and adequate remedy, in the ordinary course of law." (Code Civ. Proc., § 1086.) Writ review is deemed extraordinary, but may be granted when "'the party seeking the writ lacks an adequate means, such as a direct appeal, by which to attain relief' or 'the petitioner will suffer harm or prejudice in a manner that cannot be corrected on appeal.' [Citation.]" (City of Half Moon Bay v. Superior Court (2003) 106 Cal.App.4th 795, 803 (Half Moon Bay); Science Applications Internat. Corp. v. Superior Court (1995) 39 Cal.App.4th 1095, 1100 (Science Applications).) An order granting a petition to compel arbitration is not immediately appealable. (State Farm Fire & Cas. v. Hardin (1989) 211 Cal.App.3d 501, 506.) In the absence of writ review, petitioner will be required to comply with the order in full, arbitrating the claims against real parties and litigating the claims against TPMG, until final judgment is entered; only then will he be able to seek review by appeal. By the time the matter is arbitrated and litigated to judgment, petitioner will have incurred the expenses of both arbitration and litigation; he will not be able to effectively challenge the order and avoid that expense. Accordingly, we conclude petitioner does not have "a plain, speedy, and adequate remedy, in the ordinary course of law" and review by extraordinary writ proceeding is appropriate in this case. (§ 1086.)
All further statutory references are to the Code of Civil Procedure unless otherwise indicated.
II. Existence of Arbitration Agreement
Petitioner argues that real parties failed to demonstrate a valid arbitration agreement existed, because certain provisions were missing from the agreement and it was therefore "fatally ambiguous." He bases this argument on two provisions of the DRP. The first states: "Each party shall pay its own legal fees in prosecuting or defending the claims so arbitrated, subject to the authority of the arbitrator to award fees and costs pursuant to statute as set forth in paragraph (h), below." The second provision, in a paragraph describing the arbitrator's authority, states: "The arbitrator shall resolve all discovery disputes, and may permit discovery in addition to that provided for in paragraph (j) below, upon a showing of good cause for that additional discovery." Petitioner contends the document does not contain any paragraph labeled (h) or (j). Therefore, he concludes, there are unknown or missing terms, and it is unknown under what circumstances the arbitrator may award fees and costs or permit additional discovery. Petitioner concedes this issue was not raised in the trial court.
Real parties assert in their return that the information in paragraphs (h) and (j) is contained in the DRP; the version of the DRP submitted to the court simply lacks the lettered designation. They state that the DRP in the Rules and Regulations uses an outline format which includes the lettered designations. The free-standing DRP does not. Real parties assert that the DRP in the Rules and Regulations, which was available to petitioner via a link in the website where he signed his employment contract, included paragraphs designated (h) and (j).
"Ordinarily, issues not raised in the trial court proceedings are waived. [Citation.]" (Woodridge Escondido Property Owners Ass'n. v. Nielsen (2005) 130 Cal.App.4th 559, 574.) "As a general rule, a new theory may not be presented for the first time on appeal unless it raises only a question of law and can be decided based on undisputed facts." (Piscitelli v. Friedenberg (2001) 87 Cal.App.4th 953, 983.) In a footnote, petitioner cites this rule, implying that the issue regarding the purportedly missing terms is one of law based on undisputed facts. Real parties' assertions demonstrate that the issue is not solely one of law, and, if petitioner had raised it in the trial court, real parties would have been alerted to it and might have offered additional evidence to establish the relevant facts. This is not an appropriate issue to raise for the first time on appeal.
When a petition to compel arbitration is filed, the petitioner bears the burden of proving the existence of the arbitration agreement by a preponderance of the evidence. (Rosenthal v. Great Western Fin. Securities Corp. (1996) 14 Cal.4th 394, 413.) If the party opposing the petition raises a defense to enforcement, that party bears the burden of proving by a preponderance of the evidence the facts necessary to the defense. (Ibid.)
Real parties, in their motion, alleged the existence of an arbitration agreement between petitioner and SCPMG. They offered as evidence a copy of the employment agreement and the DRP incorporated into it by reference. They offered evidence of petitioner's electronic signature on the employment contract and his separate handwritten signature on a document acknowledging he had received a copy of the DRP, read it, and agreed to be bound by it. Petitioner did not deny signing the employment agreement and admitted he signed the acknowledgement of receipt of the DRP.
The burden was on petitioner to prove any defense that involved establishing the invalidity of the agreement. Petitioner failed to raise the issue of the allegedly missing terms in the trial court. As a result, the facts supporting or refuting petitioner's argument were not developed in the trial court and are not before this court to review. We decline to consider petitioner's argument for the first time on appeal. III. Effect of AT&T Mobility LLC v. Concepcion
Real parties contend, based on the recent decision of the United States Supreme Court in AT&T Mobility LLC v. Concepcion (2011) ___ U.S. ___, 131 S.Ct. 1740 (AT&T Mobility), that the Federal Arbitration Act (FAA) preempts state law to the extent a state law rule that designates a term as unconscionable "stands as an obstacle" to enforcing an arbitration agreement governed by the FAA. (See AT&T Mobility, supra, 131 S.Ct. at p. 1753.) Real parties argue the state rules on which petitioner relied to show unconscionability of the arbitration agreement have been preempted. Real parties have not shown that the FAA applies to the contract in issue. Moreover, their interpretation of AT&T Mobility's effect on the rules of unconscionability is overbroad.
AT&T Mobility held that "California's Discover Bank rule is preempted by the FAA." (AT&T Mobility, supra, 131 S.Ct. at p. 1753.) In Discover Bank, supra, 36 Cal.4th 148, the California Supreme Court held that a class action waiver in an arbitration agreement is unconscionable and should not be enforced when found in certain consumer contracts. The FAA provides that "'[a] written provision in any maritime transaction or a contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract or transaction ... shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.' [Citation.]" (AT&T Mobility, supra, 131 S.Ct. at p. 1745.) The final phrase of the statute, the "saving clause, permits agreements to arbitrate to be invalidated by 'generally applicable contract defenses, such as fraud, duress, or unconscionability,' but not by defenses that apply only to arbitration or that derive their meaning from the fact that an agreement to arbitrate is at issue. [Citations.]" (Id. at p. 1746.) Nothing in the statute, however, "suggests an intent to preserve state-law rules that stand as an obstacle to the accomplishment of the FAA's objectives" or are absolutely inconsistent with the FAA. (Id. at p. 1748.)
Discover Bank v. Superior Court (2005) 36 Cal.4th 148 (Discover Bank).
It held such waivers were unconscionable when "'found in a consumer contract of adhesion in a setting in which disputes between the contracting parties predictably involve small amounts of damages, and when it is alleged that the party with the superior bargaining power has carried out a scheme to deliberately cheat large numbers of consumers out of individually small sums of money.'" (AT&T Mobility, supra, 131 S.Ct. at p. 1746.)
The court noted "[t]he overarching purpose of the FAA ... is to ensure the enforcement of arbitration agreements according to their terms so as to facilitate streamlined proceedings." (AT&T Mobility, supra, 131 S.Ct. at p. 1748.) The Discover Bank rule, which required the availability of class-wide arbitration regardless of the parties' agreement, "interfere[d] with fundamental attributes of arbitration and thus create[d] a scheme inconsistent with the FAA." (AT&T Mobility, at p. 1748.) Class-wide arbitration loses the informality of arbitration; it makes the process slower, more costly, and more likely to generate a procedural morass. (Id. at p. 1751.) It requires that an arbitrator determine issues of class certification, sufficiency of the named claimant's representation of the class, whether the claimant's claims are typical of those of the class, and how discovery should be conducted. (Ibid.) It necessitates special procedures to protect the rights of absent parties. (Id. at pp. 1750, 1751.) The lack of multilayered review increases the risk errors will go uncorrected. While that risk may be acceptable when individual claims are presented, it may be unacceptable to defendants when claims are aggregated into a class-wide proceeding. (Id. at p. 1752.) The court concluded: "Because it 'stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress,' [citation], California's Discover Bank rule is preempted by the FAA." (Id. at pp. 1753.)
AT&T Mobility did not hold that all state unconscionability law, as it applies to arbitration agreements, is preempted by the FAA. It acknowledged that an arbitration agreement may be invalidated by unconscionability under state law to the same extent as contracts in general. Its consideration was limited to California's Discover Bank rule, a rule it found was inconsistent with the purposes and objectives of arbitration and "interfere[d] with fundamental attributes of arbitration." (AT&T Mobility, supra, 131 S.Ct. at p. 1743.) Real parties have not shown that other aspects of California's unconscionability law, which petitioner invoked in an attempt to invalidate his arbitration agreement with real parties, are fundamentally at odds with arbitration. IV. Violation of Armendariz Requirements
Petitioner contends the arbitration agreement does not meet the minimum fairness standards set out in Armendariz. "There are three steps in reviewing the validity of arbitration agreements. The first step involves identifying 'whether the agreement implicates public or private rights.' [Citation.]" (Fitz v. NCR Corp. (2004) 118 Cal.App.4th 702, 711 (Fitz).) Public rights include statutory rights established for a public reason, such as rights under the FEHA. (Armendariz, supra, 24 Cal.4th at p. 100.) They also include some nonstatutory rights, which are designed to protect a public interest and cannot be contravened by a private agreement, such as the right not to have one's employment terminated in violation of public policy. (Little v. Auto Stiegler, Inc. (2003) 29 Cal.4th 1064, 1077 (Little).) Public rights are deemed unwaivable. (Ibid.)
One federal district court has opined that AT&T Mobility, supra, 131 S.Ct. 1740, "decided that states cannot refuse to enforce arbitration agreements based on public policy" and trumped consideration of state public policy rules in determining whether an arbitration agreement is enforceable, "at least for cases in federal court." (Arellano v. T-Mobile USA, Inc. (N.D. Cal. 2011) 2011 U.S. Dist. LEXIS 52142 at pp. *5-*6.) We need not determine whether this interpretation of AT&T Mobility is correct or how it affects the Armendariz rule that, when unwaivable public rights are in issue, an arbitration agreement must meet certain minimum standards of fairness in order to be enforceable; we have concluded the Armendariz standards have been met, and the arbitration agreement is enforceable regardless.
"The second step is to apply the enforceability standards applicable to those rights." (Fitz, supra, 118 Cal.App.4th at p. 712.) When unwaivable public rights are asserted, the arbitration agreement must satisfy both the minimum requirements set forth in Armendariz, supra, 24 Cal.4th 83, and conscionability standards. (Abramson v. Juniper Networks, Inc. (2004) 115 Cal.App.4th 638, 652.) "Where the plaintiff asserts private rights rather than (or in addition to) unwaivable public rights, the agreement to arbitrate those claims is tested only against conscionability standards." (Id. at p. 652.) "If the court finds that the arbitration provisions fail either of these standards, the third step is to determine whether the offending provisions can be excised from the agreement to arbitrate or whether the provisions so permeate the agreement as to render it void in its entirety." (Fitz, supra, 118 Cal.App.4th at p. 712.)
Petitioner's complaint included claims of violation of the FEHA and wrongful termination in violation of public policy. The requirements of Armendariz apply to those claims. In Armendariz, the court set out five minimum requirements for the lawful arbitration of nonwaivable statutory rights pursuant to a mandatory employment arbitration agreement. "Such an arbitration agreement is lawful if it '(1) provides for neutral arbitrators, (2) provides for more than minimal discovery, (3) requires a written award, (4) provides for all of the types of relief that would otherwise be available in court, and (5) does not require employees to pay either unreasonable costs or any arbitrators' fees or expenses as a condition of access to the arbitration forum.'" (Armendariz, supra, 24 Cal.4th at p. 102.) Petitioner contends the arbitration agreement failed to satisfy these minimum standards because it did not require a neutral arbitrator and did not authorize all the relief available in a court action.
In the trial court, the burden of proof is on the party opposing the motion to compel arbitration to establish the invalidity of the purported arbitration agreement. (Rosenthal, supra, 14 Cal.4th at p. 413.) Where the evidence is conflicting, we accept the trial court's resolution of factual issues if it is supported by substantial evidence. (Nyulassy v. Lockheed Martin Corp. (2004) 120 Cal.App.4th 1267, 1277 (Nyulassy).) In the absence of conflicting extrinsic evidence, however, the validity of the arbitration agreement, including whether it is unconscionable or contrary to public policy, is a question of law subject to de novo review. (Dotson v. Amgen, Inc. (2010) 181 Cal.App.4th 975, 979.) No conflicting extrinsic evidence was presented regarding the contractual provisions for selection and qualifications of the arbitrator or for the relief available, so we review de novo the question whether the arbitration agreement met the minimum standards for arbitration of unwaivable rights.
A. Neutral arbitrator
The arbitration provisions of the DRP include the following: "Any arbitration hereunder shall be before a single arbitrator in accordance with the relevant dispute rules of the American Arbitration Association ('AAA') then in effect ..., except that in the event of any conflict between those rules and those set forth herein, the rules set forth herein shall control." The DRP sets out the method of selecting the arbitrator: The AAA gives the parties a list of eleven arbitrators from its panel of arbitrators; each party strikes up to six names from the list. If only one name remains, that person becomes the arbitrator; if more names remain, the parties alternately strike a name until only one remains. "Neither party waives the right to seek disqualification of the arbitrator. If a party seeks disqualification due to a potential conflict of interest, then the AAA shall make the final decision as to whether the arbitrator is disqualified."
The rules of the AAA provide:
"a. Any arbitrator shall be impartial and independent and shall perform his or her duties with diligence and in good faith, and shall be subject to disqualification for:
"i. partiality or lack of independence,
"ii. inability or refusal to perform his or her duties with diligence and in good faith, and
"iii. any grounds for disqualification provided by applicable law....
"b. Upon objection of a party to the continued service of an arbitrator, or on its own initiative, the AAA shall determine whether the arbitrator should be disqualified under the grounds set out above, and shall inform the parties of its decision, which decision shall be conclusive."
Petitioner seems to contend that, because the DRP does not specify that the arbitration selection process will start with a list of eleven "neutral" arbitrators provided by the AAA, and does not itself use the term "neutral" in describing the arbitrator, the arbitration agreement violates the first requirement of Armendariz. Armendariz did not discuss what it meant by a neutral arbitrator. The term "neutral" means "refraining from taking sides in a dispute" or "impartial; unbiased." (See Black's Law Dict. (9th ed. 2009) p. 1140.) The rules of the AAA require that the arbitrator be "impartial and independent." We perceive no substantive distinction between a requirement that the arbitrator be impartial and independent and a requirement that the arbitrator be neutral. The DRP, by adopting the AAA rules, requires arbitration before a neutral arbitrator.
Petitioner contends the arbitration agreement deprives him of the right to disqualify an arbitrator with a potential conflict of interest, because it places on the AAA responsibility for determining whether a challenged arbitrator should be disqualified, and then makes that determination "conclusive." In Azteca Construction, Inc. v. ADR Consulting, Inc. (2004) 121 Cal.App.4th 1156 (Azteca), the parties' dispute was subject to an agreement requiring arbitration pursuant to the AAA's rules for construction industry disputes. Those rules included a provision that, if a party objected to the continued service of an arbitrator, the AAA would decide whether the arbitrator should be disqualified and that determination would be conclusive. (Id. at p. 1160.) The California Arbitration Act (the Act; § 1280, et seq.) required a proposed arbitrator to make certain disclosures (id., § 1281.9) and if, based on the disclosures, a party filed a timely notice of disqualification, the arbitrator was required to be disqualified (id., § 1281.91, subd. (b)(1)). (Azteca, supra, at p. 1160.)
After the disclosures were made, the plaintiff timely demanded disqualification of the proposed arbitrator, but the AAA found there was no good cause for disqualification, and the arbitration proceeded before the challenged arbitrator. (Azteca, supra, 121 Cal.App.4th at p. 1160.) When the plaintiff petitioned to vacate the subsequent arbitration award based on the failure to disqualify the arbitrator, the trial court denied the petition on the ground the plaintiff had waived its rights under the Act by agreeing to arbitration under the AAA rules. The appellate court reversed, concluding "[t]he provisions for arbitrator disqualification established by the California Legislature may not be waived or superseded by a private contract." (Ibid.) The Act "confers on both parties the unqualified right to remove a proposed arbitrator based on any disclosure required by law which could affect his or her neutrality. [Citation.] There is no good faith or good cause requirement for the exercise of this right ...." (Id. at p. 1163.)
The court went on to conclude that the statutes and ethical rules governing disqualification of arbitrators in private arbitrations were enacted for a public purpose and could not be waived. (Azteca, supra, 121 Cal.App.4th at pp. 1166, 1167.) "Azteca could not, by agreeing to submit to arbitration before the AAA, waive its statutory rights to disqualify an arbitrator under the methods set forth by the Act. In resolving Azteca's objection to the proposed arbitrator, the AAA was required to follow section 1281.9 and section 1281.91." (Id. at p. 1168.)
We note that, subsequent to the opinion in Azteca, the Legislature amended section 1281.85 to add subdivision (c), providing: "The ethics requirements and standards of this chapter are nonnegotiable and shall not be waived." (The Act, § 1281.85, subd. (c); Stats. 2009, ch. 133, § 1.)
The AAA disqualification rule makes an arbitrator subject to disqualification on "any grounds for disqualification provided by applicable law"; this would include the ground that, based on the arbitrator's disclosures pursuant to the Act, section 1281.9, the party filed a timely notice of disqualification. In determining whether a proposed arbitrator should be disqualified pursuant to its rule, the AAA is bound to follow the Act and give effect to the party's "unqualified right to remove a proposed arbitrator based on any disclosure required by law which could affect his or her neutrality." (Azteca, supra, 121 Cal.App.4th at p. 1163.) Consequently, the arbitration agreement does not fail to satisfy the Armendariz requirement of a neutral arbitrator.
B. Relief available
Petitioner contends the arbitration agreement also violates the Armendariz requirement that it "provide[] for all of the types of relief that would otherwise be available in court." (Armendariz, supra, 24 Cal.4th at p. 102.) Specifically, he challenges the provision of the DRP that "[e]ach party shall pay its own legal fees in prosecuting or defending the claims so arbitrated, subject to the authority of the arbitrator to award fees and costs pursuant to statute as set forth in paragraph (h), below." The FEHA authorizes an award of reasonable attorney fees to the prevailing party (Gov. Code, § 12965, subd. (b)). A plaintiff prevailing on a FEHA claim "should ordinarily recover [such fees] absent special circumstances rendering such an award unjust." (Leek v. Cooper (2011) 194 Cal.App.4th 399, 419-420 (Leek).) Section 1032, subdivision (b), provides that, subject to exceptions, the prevailing party is entitled to recover costs "as a matter of right." Petitioner asserts there is no paragraph (h) in the arbitration agreement and therefore the provision that "each party shall pay its own legal fees" requires him to bear his own fees and costs, contrary to the provisions of the FEHA and section 1032, subdivision (b).
In the paragraph immediately following the one discussing legal fees and costs, the DRP sets out the authority it confers upon the arbitrator. After granting the arbitrator authority to interpret and apply the DRP, resolve discovery disputes, and grant prehearing motions, it continues: "The arbitrator shall apply the substantive applicable law ... and may award any remedy authorized by law, including attorney's fees and costs that are authorized by statute." Thus, consistent with the prior paragraph, the arbitrator is granted the authority to make an award of attorney fees and costs when authorized by statute and in accordance with the substantive applicable law. An award of attorney fees to the plaintiff prevailing on a FEHA claim is authorized by statute; in accordance with the substantive law, the arbitrator should make such an award in the absence of "special circumstances rendering such an award unjust." (Leek, supra, 194 Cal.App.4th at p. 420.) An award of costs to the prevailing party is also authorized by statute and, in accordance with the applicable substantive law, must be made by the arbitrator as a matter of right unless an exception applies. Consequently, the arbitration agreement does not impermissibly deny or limit the availability to plaintiff of an award of attorney fees or costs, or any other relief available under the applicable substantive law. It satisfies the Armendariz requirement that it authorize all types of relief otherwise available in court.
V. Unconscionability
"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." (Civ. Code, § 1670.5, subd. (a).) The trial court concluded the arbitration agreement was not unenforceable because of unconscionability, and granted the motion to compel arbitration. It made no express findings of fact supporting its ruling. To the extent the parties presented conflicting extrinsic evidence on the issue of the unconscionability of the arbitration agreement, we will imply factual findings in favor of the court's ruling on the motion. (Fair v. Bakhtiari (2011) 195 Cal.App.4th 1135, 1148.) If there is substantial evidence in the record to support those implied findings of fact, we will uphold them. (Ibid.)
"'[U]nconscionability 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 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. 'Essentially a sliding scale is invoked which disregards the
regularity of the procedural process of the contract formation, that creates the terms, in proportion to the greater harshness or unreasonableness of the substantive terms themselves.' [Citations.] 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 unenforceable, and vice versa." (Armendariz, supra, 24 Cal.4th at p. 114.)
A. Procedural unconscionability
Procedural unconscionability "'focuses on two factors: "oppression" and "surprise." [Citations.] "Oppression" arises from an inequality of bargaining power which results in no real negotiation and "an absence of meaningful choice." [Citations.] "Surprise" involves the extent to which the supposedly agreed-upon terms of the bargain are hidden in the prolix printed form drafted by the party seeking to enforce the disputed terms. [Citations.]' [Citation.]" (Stirlen v. Supercuts, Inc. (1997) 51 Cal.App.4th 1519, 1532.) "The procedural element of an unconscionable contract generally takes the form of a contract of adhesion." (Little, supra, 29 Cal.4th at p. 1071.) A contract of adhesion is "'a standardized contract, 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.]" (Armendariz, supra, 24 Cal.4th at p. 113.) The adhesive nature of the contract is not dispositive; "[w]hen bargaining power is not grossly unequal and reasonable alternatives exist, oppression typically inherent in adhesion contracts is minimal." (Roman v. Superior Court (2009) 172 Cal.App.4th 1462, 1471.) Procedural unconscionability alone does not render a contract unenforceable; there must also be some substantive unconscionability present. (Ibid.)
Petitioner contends the arbitration agreement is procedurally unconscionable because of both oppression and surprise. Regarding surprise, he argues that, although the employment contract stated the arbitration agreement was attached, neither the DRP nor the arbitration agreement it contained was attached; he reviewed the contract electronically and he "would have to have waded through links," none of which was entitled "dispute resolution procedure" or "arbitration agreement," in order to find the arbitration agreement.
Section XII of the employment contract referred to both "the attached Arbitration Agreement" and "the Dispute Resolution Procedure (Rules and Regulations, section 1I)." On the signature page of the contract, in capital letters and bold print, the following language appeared:
"I acknowledge that I have carefully read this contract, that I have had the opportunity to consult an attorney, that I understand and agree to its terms, including those set forth in section XII herein regarding internal dispute resolution and arbitration, that all understandings and agreements between the Southern California Permanente Medical Group and me relating to the subjects covered in the contract are contained in it, and that I have entered into this contract voluntarily and not in reliance on any promises or representations by the employer other than those contained in this contract itself." (Capitalization and bold print omitted.)
Petitioner reviewed the proposed contract electronically. Thus, the arbitration agreement could not be physically attached to the employment contract, as it could have been if he had reviewed a paper copy. On the website where petitioner reviewed the contract, however, there was a link to the Rules and Regulations; within those rules, was the DRP which included the arbitration agreement. Petitioner had electronic access to three versions of the proposed contract over the course of two months, and each of them included section XII. He was afforded adequate time to review the employment contract itself and the documents available through the website's links before executing the employment contract; he was not pressured or hurried to sign the contract without reading it. Additionally, on his first day of work, petitioner met with the Medical Staff Manager, who gave him a copy of the DRP; petitioner signed a document acknowledging he had received and read a copy of the DRP, and agreed to abide by its terms. We note that petitioner presented no evidence that he was unaware he was agreeing to arbitration of disputes with his employer at the time he executed the employment contract, or that he was unable to, or did not know how to, access the DRP to review the arbitration agreement.
Although section XII is somewhat confusing, that section, together with the statement on the signature page, alerted petitioner to the existence of the arbitration provisions. The terms of the arbitration agreement were available through a link in the website. The arbitration agreement was not "hidden in the prolix printed form" so that petitioner was unaware the arbitration provisions were part of the contract. Consequently, substantial evidence supports the implied findings of fact necessary to reach the conclusion that the arbitration agreement was not procedurally unconscionable due to surprise.
Petitioner also asserts the arbitration agreement was oppressive because it was imposed on him in a contract of adhesion and it was made a condition of his employment with SCPMG. A contract of adhesion is "'a standardized contract, 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.]" (Armendariz, supra, 24 Cal.4th at p. 113.) The evidence indicated SCPMG drafted three proposed employment contracts and submitted each to petitioner electronically for him to execute; he signed the final one. Changes were made at his request, including increasing the compensation amount in the second version and adding a provision for up to two years prior service credit toward partnership. Although each proposed contract contained the same provision that petitioner agreed to be bound by the attached arbitration agreement and to follow the DRP found in the Rules and Regulations, petitioner did not question the provision or object to its inclusion in his employment contract. Petitioner presented evidence, through the deposition testimony of SCPMG's general counsel, that employee physicians must agree to abide by the DRP procedure in order to be employed by SCPMG. Thus, although petitioner was able to negotiate some terms of his employment contract, there was undisputed evidence that SCPMG required physicians to agree to arbitration of disputes in order to become employed with SCPMG.
Petitioner asserts the arbitration agreement was oppressive because it was made a condition of petitioner's employment. This is essentially another way of arguing the contract was one of adhesion - that the employee only had the option of accepting the employer's contract, including the arbitration provision, or rejecting it. In Lagatree v. Luce, Forward, Hamilton & Scripps (1999) 74 Cal.App.4th 1105, 1122, 1127, the court concluded that a predispute arbitration agreement is not invalid or unenforceable merely because it is required as a condition of employment or offered on a take-it-or-leave-it basis. Rather, "claims of economic coercion [must] be decided on a case-by-case basis," based on a combination of procedural and substantive unconscionability. (Id. at p. 1122.)
Because of the adhesive nature of the contract containing the arbitration provisions, we conclude there was some procedural unconscionability. There was no surprise; the terms of the arbitration agreement were not hidden, and there was no showing petitioner was unaware of the arbitration provisions when he executed the contract. The level of oppression was low. Petitioner was not subjected to extraordinary pressure to sign the arbitration agreement, nor was he induced to agree to the contract by misleading representations by real parties. Consequently, the level of procedural unconscionability was low.
Compare, e.g., Mercuro v. Superior Court (2002) 96 Cal.App.4th 167, 174-175, finding the employer's conduct was highly oppressive where the employer threatened to make things so difficult for the employee he would be forced to resign, and to blackball him from the industry so he could not make a living, if he refused to sign the arbitration agreement; Ting v. AT&T (9th Cir. 2002) 319 F.3d 1126, 1134, 1148-1149 (Ting), finding procedural unconscionability where AT&T mailed the arbitration agreement to customers in an envelope few realized contained a contract, included a cover letter indicating their service and billing would not change and they need do nothing, offered the agreement on a take-it-or-leave-it basis, and, if customers objected, dissuaded them from switching companies by falsely informing them all major competitors had similar provisions in their agreements.
B. Substantive unconscionability
Substantively unconscionable terms are generally described as "unfairly one-sided" with no justification for being so one-sided. (Little, supra, 29 Cal.4th at p. 1071; Jones v. Humanscale Corp. (2005) 130 Cal.App.4th 401, 416.) Substantive unconscionability focuses on the actual terms of the agreement and whether they are "so one-sided as to 'shock the conscience.' [Citation.]" (American Software, Inc. v. Ali (1996) 46 Cal.App.4th 1386, 1390, 1391 (American Software).) "The basic test [for unconscionability] is whether, in the light of the general background and the needs of the particular case, the clauses involved are so one-sided as to be unconscionable under the circumstances existing at the time of the making of the contract.... The principle is one of the prevention of oppression and unfair surprise [citation] and not of disturbance of allocation of risks because of superior bargaining power." (Legis. Com. com., Deering's Ann. Civ. Code § 1670.5 (2005 ed.) p. 383.) Whether the agreement is substantively unconscionable must be determined as of the time the parties entered into the contract. (American Software, supra, 46 Cal.App.4th at p. 1391.) Petitioner argues several provisions of the arbitration agreement make it substantively unconscionable.
1. Unilateral modification
On his first day of work, petitioner was given a copy of the DRP and a document headed "Signature Page," which stated: "I have received a copy of the Dispute Resolution Procedure approved by the SCPMG Board of Directors on May 18, 2006, and have read it. I agree to abide by the Dispute Resolution Procedure and by any changes made to it from time to time by the SCPMG Board of Directors." Petitioner signed the signature page. Petitioner contends the agreement to abide by any changes made by SCPMG gave SCPMG a unilateral right to modify the arbitration agreement and rendered its promises illusory and the agreement one-sided.
In 24 Hour Fitness, Inc. v. Superior Court (1998) 66 Cal.App.4th 1199 (24 Hour Fitness), an employee sued her employer for sexual harassment. The employer sought summary judgment on the ground the employee had agreed to arbitrate her claims against the employer. The court concluded the arbitration agreement was valid, rejecting the employee's claims the agreement was unconscionable, illusory, and lacking in mutuality. (Id. at p. 1204.) The employee had signed an acknowledgement that she had received and read the personnel handbook; it stated: "'I ... agree that if there is any dispute arising out of my employment as described in the section called "Arbitration of Disputes" in the handbook, I will submit it exclusively to binding and final arbitration according to the procedures outlined in the "Employment Arbitration Procedures Manual."'" (Id. at p. 1205.) The personnel handbook contained an agreement to arbitrate; the procedure manual contained the detailed procedures for arbitrating disputes. The personnel handbook also contained a provision that the employer "reserves the right to change any provision of this Handbook at any time for any reason without advance notice." (Id. at pp. 1213-1214.) The plaintiff contended this provision for unilateral modification rendered the arbitration agreement illusory and lacking in mutuality.
The court rejected that argument: "'"[W]here the contract specifies performance the fact that one party reserves the power to vary it is not fatal if the exercise of the power is subject to prescribed or implied limitations such as the duty to exercise it in good faith and in accordance with fair dealings."' [Citations.] [The employer's] discretionary power to modify the terms of the personnel handbook in writing notice indisputably carries with it the duty to exercise that right fairly and in good faith. [Citation.] So construed, the modification provision does not render the contract illusory." (24 Hour Fitness, supra, 66 Cal.App.4th at p. 1214.)
In Badie v. Bank of America (1998) 67 Cal.App.4th 779 (Badie), the defendant bank attempted to add an alternative dispute resolution (ADR) provision to existing account agreements with its credit card customers by giving them notice of the new terms in their monthly statements. It relied on a provision in the existing agreements giving it a unilateral right to modify the agreements. Several customers sued for a declaration of the invalidity of the ADR provision.
The court concluded the ADR provision was invalid. "The contract modification cases cited by the Bank and relied on by the trial court in its statement of decision do not support the proposition that a party with the unilateral right to modify a contract has carte blanche to make any kind of change whatsoever as long as a specified procedure is followed. In fact, those cases suggest that a modification made 'in accordance with the terms of the contract' means, at least in part, a modification whose general subject matter was anticipated when the contract was entered into." (Badie, supra, 67 Cal.App.4th at p. 791.) Because the ADR provision was a wholly new provision added to the existing agreements, rather than a change in an existing provision, the court concluded its subject matter was not anticipated when the contracts were entered into and was not a valid modification. (Id. at p. 803.) The court noted cases which concluded a unilateral right to modify a contract was limited by the covenant of good faith and fair dealing, and stated:
"'The essence of the good faith covenant is objectively reasonable conduct.' [Citation.] '[T]he covenant of good faith can be breached for objectively unreasonable conduct, regardless of the actor's motive.' [Citation.] One commentor has suggested that good faith performance of the discretionary power to affect the other party's rights requires the party holding such power to exercise it 'for any purpose within the reasonable contemplation of the parties at the time of [contract] formation-to capture opportunities that were preserved upon entering the contract, interpreted objectively,' and that, conversely, breach of the covenant occurs when the discretionary power is used to 'recapture opportunities foregone' when the contract was entered into. [Citations.] Where, as in this case, a party has the unilateral right to change the terms of a contract, it does not act in an 'objectively reasonable' manner [citation] when it attempts to 'recapture' a forgone opportunity by adding an entirely new term which has no bearing on any subject, issue, right, or obligation addressed in the original contract
and which was not within the reasonable contemplation of the parties when the contract was entered into." (Badie, supra, 67 Cal.App.4th at p. 796.)
Accordingly, we conclude the provision allowing SCPMG to modify the arbitration procedures was limited by the covenant of good faith and fair dealing and, as so limited, did not make the arbitration agreement unfairly or unconscionably one-sided.
Petitioner cites federal cases for the proposition that "an arbitration agreement allowing one party the unfettered right to alter the arbitration agreement's existence or its scope is illusory." (Dumais v. American Golf Corp. (2002) 299 F.3d 1216, 1219.) Only one of these cases, however, applied California law and it did not mention 24 Hour Fitness or its conclusion that an agreement permitting one party to modify the arbitration procedures does not grant it an "unfettered" right to modify the agreement, but a right limited by the covenant of good faith and fair dealing. We do not find the modification provision to be substantively unconscionable.
He also cites Ingle v. Circuit City Stores, Inc. (9th Cir. 2003) 328 F.3d 1165, 1179; Floss v. Ryan's Family Steak Houses, Inc. (6th Cir. 2000) 211 F.3d 306, 315-316; Hooters of America, Inc. v. Phillips (4th Cir. 1999) 173 F.3d 933, 939; and Gibson v. Neighborhood Health Clinics, Inc. (7th Cir. 1997) 121 F.3d 1126, 1133.)
2. Procedures prior to arbitration
The DRP sets out a dispute resolution procedure that includes five "processes." Process V is the arbitration procedure. Processes I through IV are preliminary procedures for attempting to resolve disputes without a formal arbitration proceeding. Petitioner contends these preliminary steps require petitioner, but not SCPMG, to undergo two mini-trials before reaching arbitration. He asserts they impose a one-sided procedure "designed to trip up the claimant at every step and give SCPMG an advance look at the evidence so it can refine its defense."
Process I requires the complaining party to give written notice of a claim to the responding party. It must describe the nature of the claims and the factual basis for them, and include a list of witnesses, a description or copy of the documents that "contain any statement supporting the claims," the relief requested, and the persons from whom relief is sought. Failure to include this information may be grounds for rejection of the claim. The responding party has 30 days to respond. If the dispute is not resolved, the complaining party may proceed to either Process II or Process III, as applicable; that process must be initiated within 15 days after the end of Process I. Process II involves investigation by and a conference with the Area Medical Director "in an effort to reach a mutually satisfactory resolution." Process III involves a written appeal to the Chair of the Area Appeals Committee, which must be initiated within 15 days after the end of Process I or II. If a party is dissatisfied with the result after Process III, the parties may mutually assent to proceed to Process IV, which involves a written appeal to the Board of Directors, or they may proceed directly to Process V, arbitration. "Notwithstanding the Processes set forth above, the parties to a dispute may agree between or among themselves at any time to proceed directly to this Process V." Real parties submitted a declaration stating that SCPMG "has never turned down a physician's request to proceed directly to arbitration and bypass the DRP's Processes I to IV."
The DRP provides that it "applies to any dispute involving a Physician and SCPMG that would otherwise be cognizable in a court of law." It provides an illustrative list of such disputes, which includes, among others, claims for breach of contract, theft, damage to property, violation of the obligation to preserve trade secrets, interference with contract, interference with prospective business advantage, fraud, libel, slander, conversion, and malicious prosecution. It excludes claims for worker's compensation benefits, temporary restraining orders and preliminary injunctions to preserve the status quo pending arbitration, reports to law enforcement about conduct believed to be a crime, and reports to a state professional board that are required by law. Thus, the DRP binds both petitioner and SCPMG to use the same dispute resolution procedure for claims or disputes arising between them. With few exceptions, it includes all disputes that could be brought in court, even those that would typically be brought by SCPMG against its employee physicians.
The bilateral nature of the dispute resolution procedure distinguishes the parties' contract from the employment contract analyzed in Nyulassy, which petitioner cites. (Nyulassy, supra, 120 Cal.App.4th 1267.) In Nyulassy, the agreement required only the plaintiff to arbitrate his employment claims against his employer; the employer's claims against the plaintiff arising out of the employment contract were not subject to the arbitration agreement. (Id. at p. 1282.) The court stated:
"The employment agreement—in addition to compelling plaintiff to arbitrate all of his disputes with defendant—requires him to submit to discussions with his supervisors in advance of, and as a condition precedent to, having his dispute resolved through binding arbitration. 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 plaintiff to submit to an employer-controlled dispute resolution mechanism (i.e., one without a neutral mediator) suggests that defendant would receive a 'free peek' at plaintiff's case, thereby obtaining an advantage if and when plaintiff were to later demand arbitration." (Nyulassy, supra, 120 Cal.App.4th at pp. 1282-1283.)
The agreement in Nyulassy also shortened the employee's time for bringing claims against the employer, even those with a four-year statute of limitations. (Nyulassy, supra, 120 Cal.App.4th at p. 1283.) The court concluded that "taken together, these three aspects of the mandatory employment arbitration agreement render[ed] it substantively unconscionable." (Id. at p. 1283, fn. omitted.)
The arbitration agreement in this case is not one-sided in requiring only the employee to arbitrate his claims according to its terms, and it does not limit the time for bringing a claim. The agreement displays the "'modicum of bilaterality'" required by Armendariz. (Armendariz, supra, 24 Cal.4th at p. 117.) The employer, like the employee, is subject to the requirement that it disclose the nature of its claim, the facts supporting it, and the relevant witnesses and documents at the outset of the dispute resolution process, if the preliminary steps of the process are not bypassed. The provisions for arbitration are bilateral, the disclosure is required for the purpose of attempting to informally resolve the dispute without arbitration, and the arbitration procedure itself requires disclosure of the documents and witnesses each party anticipates using at the hearing and permits discovery to obtain further information. Given these facts, we do not associate any insidious intent to gain an unfair advantage with the provision requiring the complaining party to provide basic information about the claim or dispute at the time the party initiates the dispute resolution proceedings. It would be difficult to engage in a meaningful attempt to informally resolve a dispute without such basic information. We note that, in petitioner's case, the parties have effectively bypassed the preliminary steps of the dispute resolution procedure. The provisions for prearbitration dispute resolution are not unconscionable.
The DRP provides that the written notice initiating the claim must be sent to the responding party "within the time limitations period for asserting such a claim in a court of law."
3. Confidentiality
Petitioner contends the arbitration agreement is substantively unconscionable because it includes a confidentiality clause. That clause provides: "All evidence discovered or submitted at the hearing is confidential and may not be disclosed, except pursuant to court order." Petitioner contends this provision gives SCPMG a "repeat player" advantage and prevents petitioner from obtaining relevant evidence about previous employee claims against SCPMG, which might demonstrate a pattern of conduct or intentional conduct, because those employees are also bound by the confidentiality clause.
In Ting, supra, 319 F.3d 1126, the plaintiff filed suit against AT&T alleging its Consumer Services Agreement (CSA), which mandated arbitration for dispute resolution, violated state consumer protection laws. AT&T had mailed the CSA to 60 million customers, advising them that, if they did not wish to be bound by the CSA, they could cancel their AT&T service. (Id. at p. 1134.) The trial court enjoined enforcement of the dispute resolution provisions of the CSA, which it found to be unconscionable under California law. It found the provisions substantively unconscionable on four grounds, including the ground that it imposed a broad confidentiality provision. (Id. at p. 1149.) The agreement provided: "'Any arbitration shall remain confidential. Neither you nor AT&T may disclose the existence, content or results of any arbitration or award, except as may be required by law or to confirm and enforce an award.'" (Id. at p. 1151, fn. 16.) The court upheld the finding that the confidentiality provision was unconscionable.
"Although facially neutral, confidentiality provisions usually favor companies over individuals. In Cole [v. Burns International Security Services (D.C. Cir. 1997) 105 F.3d 1465], the D.C. Circuit recognized that because companies continually arbitrate the same claims, the arbitration process tends to favor the company. [Citation.] Yet because of plaintiffs' lawyers and arbitration appointing agencies like the AAA, who can scrutinize arbitration awards and accumulate a body of knowledge on a particular company, the court discounted the likelihood of any harm occurring from the 'repeat player' effect. [Citation.] We conclude, however, that if the company succeeds in imposing a gag order, plaintiffs are unable to mitigate the advantages inherent in being a repeat player. This is particularly harmful here, because the contract at issue affects seven million Californians. Thus, AT&T has placed itself in a far superior legal posture by ensuring that none of its potential opponents have access to precedent while, at the same time, AT&T accumulates a wealth of knowledge on how to negotiate the terms of its own unilaterally crafted contract. Further, the unavailability of arbitral decisions may prevent potential plaintiffs from obtaining the information needed to build a case of intentional misconduct or unlawful discrimination against AT&T. For these reasons, we hold that the district court did not err in finding the secrecy provision unconscionable." (Ting, supra, 319 F.3d at pp. 1151-1152.)
In Davis v. O'Melveny & Myers (9th Cir. 2007) 485 F.3d 1066 (Davis), the court reached a similar conclusion. The plaintiff appealed from an order compelling her to arbitrate her claims against her employer, a large law firm, contending the arbitration agreement was unconscionable. The arbitration agreement was distributed to existing employees, including the plaintiff, with the advice that it would become effective three months later and bind any employee who continued to work for the firm thereafter. (Id. at p. 1069.) The agreement provided:
"Except as may be necessary to enter judgment upon the award or to the extent required by applicable law, all claims, defenses and proceedings (including, without limiting the generality of the foregoing, the existence of a controversy and the fact that there is a mediation or an arbitration proceeding) shall be treated in a confidential manner by the mediator, the Arbitrator, the parties and their counsel, each of their agents, and employees and all others acting on behalf of or in concert with them. Without limiting the generality of the foregoing, no one shall divulge to any third party or person not directly involved in the mediation or arbitration the content of the pleadings, papers, orders, hearings, trials, or awards in the arbitration, except as may be necessary to enter judgment upon the Arbitrator's award as required by applicable law. (Davis, supra, 485 F.3d at p. 1071.)
Citing Ting, the Davis court found the confidentiality clause was overbroad and unconscionably favored the employer. (Davis, supra, 485 F.3d at pp. 1078, 1079.) Although there was less chance that the employer would be a "repeat player" because the agreement affected only hundreds or thousands of employees, rather than millions of customers as in Ting, the facially neutral confidentiality provision lacked mutuality. Its restrictions "would ... prevent an employee from contacting other employees to assist in litigating (or arbitrating) an employee's case. An inability to mention even the existence of a claim to current or former O'Melveny employees would handicap if not stifle an employee's ability to investigate and engage in discovery." (Id. at p. 1078.) These restrictions "would place O'Melveny 'in a far superior legal posture' by preventing plaintiffs from accessing precedent while allowing O'Melveny to learn how to negotiate and litigate its contracts in the future." (Ibid.) The court opined the confidentiality provision "might even chill enforcement of Cal. Labor Code § 232.5, which forbids employers from keeping employees from disclosing certain 'working conditions' and from retaliating against employees who do so." (Id. at p. 1079, fn. omitted.)
The confidentiality clause in the DRP is not as broad as those in Ting and Davis. It does not prohibit disclosure of "the existence, content or results of any arbitration or award" (Ting, supra, 319 F.3d at p. 1151, fn. 16) or "the content of the pleadings, papers, orders, hearings, trials, or awards in the arbitration" (Davis, supra, 485 F.3d at p. 1071). It prevents disclosure only of the "evidence discovered or submitted at the hearing." The existence of the arbitration and the pleadings or documents containing the claimant's allegations are not confidential. Thus, unlike the confidentiality provisions in Ting and Davis, the confidentiality provision in petitioner's contract does not interfere with his ability to investigate his claims. Petitioner may advise potential witnesses and others of the existence and nature of his claims in order to enlist their aid in obtaining relevant information and evidence. Significantly, the written award, including its "findings of fact ... on each issue necessary to the arbitrator's conclusion, together with conclusions of law sufficient to provide a rationale for the arbitrator's decision with respect to the matters at issue," is not made confidential. Accordingly, the confidentiality clause does not prevent petitioner from obtaining the results of prior arbitrations involving other employees or the facts and reasoning the arbitrator relied on in reaching the result.
As to "evidence discovered or submitted at the hearing," the confidentiality clause permits disclosure "pursuant to court order." The DRP gives each party "the right to subpoena witnesses and documents for the arbitration hearing." It also authorizes discovery, including the right to conduct depositions "in accordance with the procedures set forth in Rule 30 of that Federal Rules of Civil Procedure" and "to subpoena documents from third parties." Rule 30 of the Federal Rules of Civil Procedure (28 U.S.C.) sets out procedures for taking depositions and provides that the witness's attendance "may be compelled by subpoena under Rule 45." The procedures for issuance and service of subpoenas for testimony and production of documents also authorize the court to hold a person in contempt for failing to obey a subpoena. (Fed. Rules Civ. Proc., rule 45, 28 U.S.C.) The DRP also "may be enforced in accordance with the provisions of the Federal Arbitration Act ... or the provisions of any applicable state arbitration statute." The California Arbitration Act (§ 1280, et seq.) authorizes the use of subpoenas to require the attendance of witnesses and the production of documents at the arbitration proceeding, and authorizes penalties for failure to comply. (§§ 1282.6, 1991.) In light of the availability of subpoena procedures for obtaining evidence and contempt orders for noncompliance, petitioner has not established that the exception for disclosures "pursuant to court order" would not permit him sufficient access to otherwise confidential evidence to mitigate any repeat player effect and to give the agreement the modicum of bilaterality necessary to avoid unconscionability.
We note that petitioner made no showing that real parties are "repeat players."
Petitioner also asserts the confidentiality clause violates the public policy expressed in Business and Professions Code section 2056. That section provides that "[i]t is the public policy of the State of California that a physician and surgeon be encouraged to advocate for medically appropriate health care for his or her patients." (Bus. & Prof. Code, § 2056, subd. (b).) It prohibits terminating, retaliating against or otherwise penalizing a physician "for advocating for medically appropriate health care," and discouraging a physician "from communicating to a patient information in furtherance of medically appropriate health care." (Id., subd. (c).) Petitioner contends the confidentiality provision would "prevent him from making public information which will protect patients" even if arbitration discovery discloses "life-threatening behavior and practices by defendants and their employees." The DRP expressly does not apply to reports to law enforcement agencies of conduct believed to be a crime, reports to state professional boards that are required by law, or complaints to administrative agencies of the federal or state government of "discrimination, failure to pay compensation, or other violation of law." The confidentiality clause precludes disclosure only of "evidence discovered or submitted at the hearing." It does not foreclose petitioner from advising his patients regarding their health care or from expressing his opinion about another physician's competence or ability to render appropriate treatment to petitioner's patients.
We conclude the confidentiality provision does not render the arbitration agreement substantively unconscionable.
4. Limitation on remedies
Petitioner contends the arbitration agreement is substantively unconscionable because it limits his statutory remedies by requiring each party to bear its own attorney fees and costs and it prohibits class actions. As discussed in section IV(B), ante, however, the arbitration agreement does not limit the availability to plaintiff of any statutory remedy, including an award of attorney fees and costs. As discussed in section III, ante, AT&T Mobility essentially held that a class action waiver in an arbitration agreement is not unconscionable.
C. Conclusion
Petitioner demonstrated only a low level of procedural unconscionability; while the contract was one of adhesion, there were no elements of surprise or hidden terms present. In order to prevail, petitioner would have to establish a high level of substantive unconscionability. This he failed to do.
VI. Discretion to Refuse to Enforce Arbitration Agreement
Finally, petitioner contends that, if the arbitration agreement is enforceable, this court should direct the trial court to refuse to enforce it pursuant to section 1281.2, subdivision (c). That provision authorizes the court to deny a petition to compel arbitration if it determines that "[a] party to the arbitration agreement is also a party to a pending court action or special proceeding with a third party, arising out of the same transaction or series of related transactions and there is a possibility of conflicting rulings on a common issue of law or fact." If the court makes such a determination, it:
"(1) may refuse to enforce the arbitration agreement and may order intervention or joinder of all parties in a single action or special proceeding; (2) may order intervention or joinder as to all or only certain issues; (3) may order arbitration among the parties who have agreed to arbitration and stay the pending court action or special proceeding pending the outcome of the arbitration proceeding; or (4) may stay arbitration pending the outcome of the court action or special proceeding." (§ 1281.2, subd. (c).)
Petitioner contends he is a party to the arbitration agreement and also a party to a pending action against third parties, KFH and KFHP; he asserts KFH and KFHP are not parties to the arbitration agreement and therefore are not entitled to enforce it by compelling petitioner to arbitrate pursuant to it. If his claims against KFH and KFHP are litigated and his claims against SCPMG are arbitrated, petitioner argues, there is a "very real possibility of conflicting results." Consequently, he requests the motion to compel arbitration be denied in its entirety.
In Rowe v. Exline (2007) 153 Cal.App.4th 1276 (Rowe), Rowe, a former officer and shareholder of a corporation, sued the corporation and two directors and shareholders for breach of a settlement agreement pursuant to which the corporation agreed to make certain installment payments to Rowe in exchange for his ownership interest in the corporation. (Id. at pp. 1280-1281.) The agreement was signed by Rowe as an individual and by the individual defendants on behalf of the corporation. (Id. at p. 1281.) It contained a provision requiring the parties to arbitrate all disputes under the agreement. (Ibid.) The individual defendants had dissolved the corporation and distributed the assets without making the final payment to Rowe; Rowe sought recovery of the amount of the final payment. Rowe's complaint alleged that the individuals were the alter egos of the corporation. (Id. at pp. 1280-1281.)
The defendants moved to compel arbitration, asserting that the corporation as a signatory of the contract and the individuals as alleged alter egos of the corporation could compel arbitration. (Rowe, supra, 153 Cal.App.4th at p. 1281.) The trial court concluded only the corporation signed the arbitration agreement, so Rowe was only bound to arbitrate disputes with the corporation. Pursuant to section 1281.2, subdivision (c), however, the trial court concluded permitting arbitration with the corporation and litigation against the individuals at the same time would create a risk of conflicting rulings on common issues of law and fact, and staying the court proceedings pending arbitration would not promote judicial economy. Accordingly, it exercised discretion to refuse to enforce the arbitration agreement pursuant to section 1281.2, subdivision (c), and ordered all claims to be litigated in a court action. (Rowe, supra, at p. 1282.)
The appellate court reversed the order. It observed that, while generally only signatories to an arbitration agreement may enforce it, some exceptions exist. (Rowe, supra, 153 Cal.App.4th at p. 1284.) One exception permits a nonsignatory who is sued as an agent of a signatory to enforce the arbitration agreement. (Ibid.) The individual defendants, however, were sued as alter egos, rather than agents, of the corporation. "Alter ego theory posits that the individual defendants are inseparable from the corporation and in legal effect are the corporation. [Citation.] The corporate form is disregarded and the entity is considered an association of individuals. [Citations.]" (Ibid.) The court concluded the rule applicable to those sued as agents should also apply to those sued as alter egos.
"Rowe does not refute the law permitting a nonsignatory to compel arbitration if sued as a signatory's agent. Nor does he provide any persuasive reason why a nonsignatory should be precluded from compelling arbitration if sued as a signatory's alter ego. Indeed, while an agent is one who acts on behalf of a corporation, an alter ego is one who, effectively, is the corporation. By suing [the individuals] for breach of the Agreement on the ground that they are [the corporation's] alter egos, and even alleging in the complaint that [the individuals] entered into the Agreement, [the individual defendants] are 'entitled to the benefit of the arbitration provisions.' [Citation.]" (Rowe, supra, 153 Cal.App.4th at p. 1285, fn. omitted.)
The court also found equitable estoppel enabled the nonsignatories to enforce the arbitration agreement. "'"[T]he equitable estoppel doctrine applies when a party has signed an agreement to arbitrate but attempts to avoid arbitration by suing nonsignatory defendants for claims that are '"based on the same facts and are inherently inseparable"' from arbitrable claims against signatory defendants."' [Citation.] Claims that rely upon, make reference to, or are intertwined with claims under the subject contract are arbitrable. [Citation.]" (Rowe, supra, 153 Cal.App.4th at p. 1287.) Rowe sued the nonsignatory individual defendants for breach of contract "under the alter ego theory, as though they were one and the same with the corporation that signed the Agreement." (Ibid.) His other causes of action alleged statutory claims that also relied on, made reference to, presumed the existence of, and were intertwined with the contract. Accordingly, all of Rowe's causes of action against the individual defendants were subject to arbitration. (Ibid.) Because there were no claims by or against a third party not bound by the arbitration agreement, section 1281.2, subdivision (c), did not apply and did not authorize denial of the motion to compel arbitration. (Rowe, at p. 1290.)
The court in Laswell v. AG Seal Beach, LLC (2010) 189 Cal.App.4th 1399 (Laswell) reached the same result. Laswell sued several entities as operators of the health care facility where she was admitted for postoperative rehabilitative care following hip surgery. In various causes of action including elder abuse, negligence, and willful misconduct, she alleged she received improper care and treatment. (Id. at p. 1402.) The trial court denied the defendants' motion to compel arbitration. (Id. at p. 1404.)
The appellate court reversed the order. "A trial court is required to order a dispute to arbitration when the party seeking to compel arbitration proves the existence of a valid arbitration agreement covering the dispute," unless an exception exists. (Laswell, supra, 189 Cal.App.4th at p. 1404.) Discussing the exception for actions involving third parties and presenting "a possibility of conflicting rulings on a common issue of law or fact," (id. at p. 1405) the court noted:
"This exception '"addresses the peculiar situation that arises when a controversy also affects claims by or against other parties not bound by the arbitration agreement."' [Citation.] The exception thus does not apply when all defendants, including a nonsignatory to the arbitration agreement, have the right to enforce the arbitration provision against a signatory plaintiff. [Citations.] The exception '"is not a provision designed to limit the rights of parties who choose to arbitrate or otherwise to discourage the use of arbitration. Rather, it is part of California's statutory scheme designed to enforce the parties' arbitration agreements ...."' [Citation.]" (Id. at p. 1405, italics added.)
The arbitration agreement provided for arbitration of any dispute "'arising out of the provision of services by the [f]acility.'" (Laswell, supra, 189 Cal.App.4th at p. 1406.) The court rejected the trial court's interpretation that this provision referred only to AG Seal Beach, LLC, the entity that operated the facility where Laswell resided, and not to the other defendants-the owner of AG Seal Beach, LLC, and the management company in charge of the day-to-day operation and patient care of the facility-which the trial court construed to be third parties not subject to the arbitration agreement. (Id. at pp. 1406-1407.)
"'The term "third party" for purposes of section 1281.2 ... must be construed to mean a party that is not bound by the arbitration agreement." [Citation.] '[I]n many cases, nonparties to arbitration agreements are allowed to enforce those agreements where there is sufficient identity of parties.' [Citation.] In addition, '"'[t]he equitable estoppel doctrine applies when a party has signed an agreement to arbitrate but attempts to avoid arbitration by suing nonsignatory defendants for claims that are "'based on the same facts and are inherently inseparable'" from arbitrable claims against signatory defendants.'"' [Citation.]" (Laswell, supra, 189 Cal.App.4th at p. 1407.)
The court concluded all the defendants were bound by the arbitration agreement. Laswell's own allegations set out the relationships among the defendants. She alleged they all were responsible for her improper care. Thus, her claims were based on the same facts and theory and were "inherently inseparable." (Laswell, supra, 189 Cal.App.4th at p. 1407.) Additionally, defense counsel stated that all the defendants were represented by the same attorneys and would participate in the arbitration proceedings. (Ibid.) Consequently, no defendant was a third party not bound by the arbitration agreement, section 1281.2, subdivision (c), did not apply, and the trial court erred as a matter of law in denying the defendants' motion to compel arbitration. (Laswell, at p. 1408.)
Petitioner contends KFH and KFHP, as nonsignatories of the employment contract, cannot enforce the arbitration agreement; he argues they are third parties within the meaning of section 1281.2, subdivision (c), and therefore the exception allowing the court to exercise its discretion to deny arbitration applies. The complaint, however, alleges that each defendant was "the agent, employee or representative of the remaining defendants and was acting at least in part, within the course and scope of such relationship in doing the things herein alleged." It also alleges each defendant "was acting in a single or joint employer, and/or alter ego capacity such that they are liable for the acts of their agents and/or employees." After identifying the four named defendants, the complaint states that "the defendants are collectively referred herein to as KAISER." Thereafter, the allegations are made against "Kaiser"; there are no separate facts or causes of action alleged against SCPMG or against KFH or KFHP.
The agency, joint employer, and alter ego allegations apply to all the causes of action. With the exception of the fifth cause of action for defamation and the sixth cause of action for intentional interference with prospective economic advantage, all of plaintiff's causes of action are based on his employment relationship with Kaiser. They are alleged against all of the defendants, based on the same facts. They rely on, presume the existence of, and are intertwined with the employment agreement. The claims against the nonsignatories, KFH and KFHP are based on the employment contract and are inherently inseparable from the arbitrable claims against the signatory, SCPMG.
The fifth cause of action alleges "[a]gents and employees of Kaiser-Fresno made disparaging comments about Plaintiff to agents and employees of Kaiser-Bakersfield about Plaintiff and his suitability as an employee and partner."
The sixth cause of action alleges TPMG interfered with the economic relationship or contract between SCPMG and plaintiff.
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Petitioner attempts to distinguish Rowe and Laswell on the ground that the defendants here, unlike the defendants in those cases, denied they were agents or alter egos of one another as alleged in the complaint, and asserted they were separate, independent parties. That argument, however, does not defeat the equitable estoppel theory, which is based on the conduct of the plaintiff and the nature of the claims alleged. "'"[T]he equitable estoppel doctrine applies when a party has signed an agreement to arbitrate but attempts to avoid arbitration by suing nonsignatory defendants for claims that are '"based on the same facts and are inherently inseparable"' from arbitrable claims against signatory defendants."' [Citation.]" (Rowe, supra, 153 Cal.App.4th at p. 1287.) Plaintiff signed an employment agreement containing an arbitration agreement, which was also signed by SCPMG as the employer. Plaintiff sued SCPMG along with other defendants who did not sign the employment agreement, alleging causes of action arising out of his employment and the termination of that employment. The same factual allegations were made against SCPMG, KFH, and KFHP, and the claims are inherently inseparable. Consequently, equitable estoppel applies, even if SCPMG, KFH, or KFHP has denied the allegations that they are agents, joint employers, or alter egos of one another.
Petitioner argues KFH and KFHP, like the codefendants in Birl v. Heritage Care, LLC (2009) 172 Cal.App.4th 1313 (Birl), are third parties for purposes of section 1281.2, subdivision (c). In Birl, the decedent's survivors sued several defendants for elder abuse, wrongful death, and related causes of action. The complaint alleged that, after undergoing surgery at a Kaiser hospital, the decedent had been admitted to a nursing facility, readmitted to Kaiser, admitted to another nursing facility, readmitted to Kaiser, admitted to the nursing facility of the defendant, Heritage, then taken to another hospital where he died. The complaint alleged various causes of action against Kaiser, Heritage, and the other two nursing facilities, based on alleged deficiencies in the decedent's care and treatment. (Birl, supra, 172 Cal.App.4th at pp. 1315-1317.)
Heritage moved to compel arbitration of some of the causes of action against it. (Birl, supra, 172 Cal.App.4th at p. 1317-1318.) Kaiser's motion to compel arbitration had been denied and the two other nursing facilities had no arbitration agreement with decedent. Thus, the claims against the defendants other than Heritage were to be litigated. (Id. at p. 1317.) The trial court exercised its discretion under section 1281.2, subdivision (c), and denied Heritage's motion. (Birl, at p. 1318.) On appeal, Heritage acknowledged that Kaiser and the two other nursing facilities were third parties for purposes of the statute. (Id. at p. 1319.) The issues involved whether other requirements of section 1281.2, subdivision (c), were met. (Birl, at p. 1319.) Thus, Birl did not address the issue of third parties or determine what constitutes a third party under the statute. Further, the case does not indicate whether the complaint alleged the same facts against any of the codefendants or whether it alleged each defendant was responsible for the actions of its codefendants. Birl is not authority for holding that KFH and KFHP are third parties as that term is used in section 1281.2, subdivision (c).
Denying arbitration because of petitioner's inclusion of claims against KFH and KFHP is inappropriate for an additional reason. Petitioner agreed to arbitration of those claims pursuant to an express provision of the DRP. It states: "this DRP applies to any dispute between a Physician and any other person where SCPMG is sought to be held vicariously or indirectly liable on account of the other person's conduct." Because the complaint seeks to hold all the defendants liable for one another's conduct on theories of agency and alter ego, his claims fall within this provision.
DISPOSITION
The petition for a writ of mandate is denied. Real parties in interest shall recover their costs from petitioner.
HILL, P. J.
WE CONCUR:
GOMES, J.
DETJEN, J.