Opinion
NOT TO BE PUBLISHED
APPEAL from an order of the Superior Court of Los Angeles County, No. BC353508 Judith C. Chirlin, Judge.
Horvitz & Levy, Barry R. Levy, Jeremy B. Rosen and Alicia A. Pell; Lipsitz Green Scime Cambria, Paul J. Cambria, Jr., and Jonathan W. Brown for Defendants and Appellants.
Mancini & Associates, Marcus A. Mancini and Christopher Barnes; Benedon & Serlin, Gerald M. Serlin and Douglas G. Benedon for Plaintiff and Respondent.
JACKSON, J.
INTRODUCTION
Defendants Larry Flynt, L.F.P., Inc. (LFP), LFP Video, Inc., Flynt Management Group, LLC and Lyn Heller (defendants) appeal from the order denying their motion to compel contractual arbitration and to stay judicial proceedings pending arbitration. We reverse with directions.
BACKGROUND
In January 1999, plaintiff Cheryl Oldham began working at LFP. At that time, she signed an acknowledgement confirming her receipt of the then extant 1993 employee handbook. In August 1999, LFP updated its employee handbook. In October, LFP forwarded the updated handbook to all employees. The 1999 handbook expressly stated that it replaced all other employee handbooks.
The 1999 handbook contained the following arbitration clause: “It is in the interest of both LFP and its employees to resolve in a speedy and inexpensive way any legal controversy which may arise. Therefore, no dispute between LFP (or any of its officers, directors or employees) and any employee of LFP, which is in any way related to the employment of the employee (including but not limited to claims of wrongful termination; racial, sexual or other discrimination or harassment; defamation; and other employment-related claims or allegations) shall be the subject of a lawsuit filed in state or federal court. Instead, any such dispute shall be submitted to arbitration before the American Arbitration Association (AAA) or any other individual or organization on which the parties agree or which a court may appoint.”
The arbitration agreement further set forth the scope of discovery as follows: “Each party shall be entitled to take one deposition, and to take any other discovery as is permitted by the Arbitrator. In determining the extent of discovery, the Arbitrator shall exercise discretion, but shall consider the expense of the desired discovery and the importance of the discovery to a just adjudication. The Arbitrator shall hear motions pertaining to the pleadings, discovery or summary judgment or adjudication, in accordance with California law.”
In addition, the arbitration agreement required the arbitrator to “render a decision which conforms to the facts, supported by competent evidence (except that the Arbitrator may accept written declarations under penalty of perjury, in addition to live testimony), and the law as it would be applied by a court sitting in the State of California. At the conclusion of the arbitration, the Arbitrator shall make written findings of fact, and state the evidentiary basis for each such finding. The Arbitrator shall also issue a ruling, and explain how the findings of fact justify his ruling.”
The agreement also contained a provision allowing for expanded judicial review of the arbitration award: “Any party may apply to a court of competent jurisdiction for entry of judgment on the arbitration award. The court shall review the arbitration award, including the ruling and findings of fact, and shall determine whether they are supported by competent evidence and by a proper application of law to the facts. If the court finds that the award is properly supported by the facts and law, then it shall enter judgment on the award; if the court finds that the award is not supported by the facts or the law, then the court may enter a different judgment (if such is compelled by uncontradicted evidence) or may direct the parties to return to arbitration for further proceedings consistent with the order of the court.”
On January 7, 2000, plaintiff acknowledged in writing that she “read the August 1999 LFP Employee Handbook,” understood “the policies, procedures and conditions of employment outlined therein” and “agree[d] to the terms thereof.” With regard to arbitration, she acknowledged that “the agreement to arbitrate may not be waived without a written document signed by either the Chairman of the Board or President of LFP, on the one hand, and by me, on the other hand.”
On June 6, 2006, plaintiff brought this action for violation of the Fair Employment and Housing Act (FEHA; Gov. Code, § 12900 et seq.) against defendants, alleging sexual harassment, retaliation and discrimination in violation of Government Code section 12940 and age harassment, retaliation and discrimination in violation of Government Code sections 12940 and 12941. Defendants thereafter notified plaintiff that they would move to compel arbitration unless she stipulated to resolving her claims via arbitration in accordance with the 1999 employee handbook.
The facts underlying plaintiff’s claims are not relevant to a resolution of the issues on appeal and, therefore, need not be set forth.
With no stipulation forthcoming, defendants filed a motion to compel arbitration and to stay plaintiff’s action, relying upon the arbitration clause contained in the 1999 employee handbook. Plaintiff opposed defendants’ motion on the grounds, among others, that the judicial review and discovery provisions of the arbitration agreement were unenforceable.
On November 1, 2006, the court denied defendants’ motion to compel arbitration, concluding that the enhanced judicial review and the discovery provisions were unenforceable and not severable. A written order denying defendants’ motion was signed by the trial court on January 19, 2007. Therein, the court held that “under current California law, arbitration awards are not reviewable for errors of fact or law, and that the arbitration agreement signed by Plaintiff Oldham as part of the Employee Handbook of L.F.P., Inc. sets forth language allowing Superior Court review of any arbitration award for errors of fact or law.” The court then found that the “provision allowing for judicial review of the arbitrator’s award is unenforceable under current California law, (Crowell v. Downey Community Hosp[ital] Found[ation] (2002) 95 Cal.App.4th 730, 739-740, 115 Cal.Rptr.2d 810, 817), and that this provision is not severable from the remaining portions of the parties’ agreement to arbitrate.” In addition, the court found “that the parties’ agreement to arbitrate unilaterally restricted the scope of discovery to be engaged in by Plaintiff.”
Defendants appealed from the November 1, 2006 minute order and from the January 19, 2007 written order. By order dated May 2, 2007, we granted defendants’ motion to consolidate their two appeals.
CONTENTIONS
Defendants contend the trial court erroneously denied their motion to compel arbitration. More specifically, defendants maintain that the parties’ agreement for enhanced judicial review is enforceable, the agreement provides for ample discovery as required by Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83 (Armendariz), and in the event portions of the arbitration agreement are invalid, reversal is required to sever those portions and to compel arbitration.
In a letter dated June 6, 2008, defendants have withdrawn their contention that to the extent California arbitration law precludes enforcement of enhanced judicial review provision in the 1999 employee handbook, it is preempted by the Federal Arbitration Act.
Plaintiff counters that the LFP arbitration agreement is both procedurally and substantively unconscionable and thus unenforceable. Plaintiff claims the arbitration agreement is substantively unconscionable because the provision requiring enhanced judicial review is unenforceable, the discovery provision lacks mutuality and permits the admission of declarations to the benefit of LFP, and LFP is permitted to revise its company policies and practices. Finally, plaintiff maintains that the trial court correctly ruled that the unconscionable provisions of the LFP arbitration agreement could not be severed.
For the reasons detailed below, we conclude that the LFP arbitration agreement is enforceable and that reversal is required.
DISCUSSION
A. Standard of Review
In the absence of disputed evidence, the enforceability of a contractual arbitration agreement is a legal question subject to de novo review. (Giuliano v. Inland Empire Personnel, Inc. (2007) 149 Cal.App.4th 1276, 1284; Nyulassy v. Lockheed Martin Corp. (2004) 120 Cal.App.4th 1267, 1277.)
B. The Enhanced Judicial Review Provision
Defendants contend that the trial court erroneously denied their motion to compel arbitration, in that the arbitration provision calling for judicial review is valid and enforceable. Plaintiff, on the other hand, contends that the provision is substantively unconscionable and thus unenforceable.
An arbitration agreement will not be enforced if it is unconscionable or revocation of the agreement is compelled for other reasons. (Armendariz, supra, 24 Cal.4th at pp. 98-99; accord, Doctor’s Associates, Inc. v. Casarotto (1996) 517 U.S. 681, 686-687 [116 S.Ct. 1652, 134 L.Ed.2d 902].) There are two forms of unconscionability: procedural and substantive. (Armendariz, supra, at p. 114.) Procedural unconscionability “focuses on the oppressiveness of the stronger party’s conduct.” (Mercuro v. Superior Court (2002) 96 Cal.App.4th 167, 174.) Oppression and surprise are the focal points of a procedural unconscionability inquiry. (Discover Bank v. Superior Court (2005) 36 Cal.4th 148, 160.) This form of unconscionability is often found in contracts of adhesion drafted by the party with the superior bargaining power. (Little v. Auto Stiegler, Inc. (2003) 29 Cal.4th 1064, 1071.) Substantive unconscionability, on the other hand, is concerned with contractual terms that produce unfair or one-sided results. (Armendariz, supra, at p. 114.)
In order for a court to invalidate an entire contract or a portion thereof, both procedural and substantive unconscionability must be present. (Armendariz, supra, 24 Cal.4th at p. 114.) They need not be present in the same degree, however. (Ibid.) “‘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.” (Ibid.) With these principles in mind, we turn to the question of the enforceability of the judicial review provision of the arbitration agreement.
The law in existence at the time the trial court ruled on defendants’ motion to compel arbitration supported the court’s conclusion that the provision allowing for expanded judicial review was unenforceable and not severable. In rendering its ruling, the trial court relied upon Crowell v. Downey Community Hospital Foundation, supra, 95 Cal.App.4th 730, in which a majority of Division Two of this Court invalidated a judicial review provision in an arbitration agreement, reasoning as follows: “Because the Legislature clearly set forth the trial court’s jurisdiction to review arbitration awards when it specified grounds for vacating or correcting awards in [Code of Civil Procedure] sections 1286.2 and 1286.6, we hold that the parties cannot expand that jurisdiction by contract to include a review on the merits.” (Crowell, supra, at p. 739.) The Crowell majority then held the entire agreement unenforceable because it deemed the judicial review provision “so central to the arbitration agreement that it could not be severed.” (Id. at pp. 739-740.)
Crowell has since been disapproved by the California Supreme Court, however. On August 25, 2008, the state’s high court, in Cable Connection, Inc. v. DIRECTV, Inc. (2008) ___ Cal.4th ___ [82 Cal.Rptr.3d 229], held that a contract provision calling for judicial review of an arbitration award for legal error is enforceable under state law (id. at p. ___ [82 Cal.Rptr.3d at p. 235]), and it disapproved Crowell, as well as other cases, to the extent it held to the contrary. (Id. at p. ___ [82 Cal.Rptr.3d at p. 251].) Cable Connection compels us to reject plaintiff’s substantive unconscionability argument and to conclude that the arbitration provision providing for enhanced judicial review is enforceable. (Auto Equity Sales, Inc. v. Superior Court (1962) 57 Cal.2d 450, 455.)
C. Discovery Provision
In Armendariz, supra, 24 Cal.4th 83, the California Supreme Court observed that “adequate discovery is indispensable for the vindication of FEHA claims.” (Id. at p. 104.) Thus employees “are at least entitled to discovery sufficient to adequately arbitrate their statutory claim, including access to essential documents and witnesses, as determined by the arbitrator(s) and subject to limited judicial review pursuant to Code of Civil Procedure section 1286.2.” (Id. at p. 106, fn. omitted.)
“Adequate discovery is not synonymous with unfettered discovery,” however. (Martinez v. Master Protection Corp. (2004) 118 Cal.App.4th 107, 118.) Indeed, “a limitation on discovery is one important component of the ‘simplicity, informality, and expedition of arbitration.’” (Armendariz, supra, 24 Cal.4th at p. 106, fn. 11, quoting Gilmer v. Interstate/Johnson Lane Corp. (1991) 500 U.S. 20, 31 [111 S.Ct. 1647, 114 L.Ed.2d 26].) Both “the arbitrator and reviewing court must balance this desirable simplicity with the requirements of the FEHA in determining the appropriate discovery, absent more specific statutory or contractual provisions.” (Armendariz, supra, at p. 106, fn. 11.)
As defendants aptly point out, the arbitration agreement at issue here “provides for more generous deposition discovery than permitted under the [California Arbitration Act],” which does not permit any depositions without leave granted by the arbitrator. Here, each side is guaranteed at least one deposition. Any party wishing to take additional depositions or obtain other discovery need only file the appropriate motion with the arbitrator. When determining discovery requests, the arbitrator is to exercise his or her discretion, taking into consideration “the expense of the desired discovery and the importance of the discovery to a just adjudication.” Inasmuch as these rules apply to LFP and plaintiff equally, we conclude that the trial court erroneously concluded that the arbitration agreement “unilaterally restricted the scope of discovery to be engaged in by Plaintiff” and we reject plaintiff’s argument that the discovery provision lacks mutuality.
Code of Civil Procedure section 1283.05 sets forth the manner of taking depositions in an arbitration proceeding. Subdivision (a) of that statutory provision states: “After the appointment of the arbitrator or arbitrators, the parties to the arbitration shall have the right to take depositions and to obtain discovery regarding the subject matter of the arbitration, and, to that end, to use and exercise all of the same rights, remedies, and procedures, and be subject to all of the same duties, liabilities, and obligations in the arbitration with respect to the subject matter thereof, as provided in Chapter 2 (commencing with Section 1985) of Title 3 of Part 4, and in Title 4 (commencing with Section 2016.010) of Part 4, as if the subject matter of the arbitration were pending before a superior court of this state in a civil action other than a limited civil case, subject to the limitations as to depositions set forth in subdivision (e) of this section.” Subdivision (e) provides that “[d]epositions for discovery shall not be taken unless leave to do so is first granted by the arbitrator or arbitrators.”
With regard to plaintiff’s assertion that the discovery provision permits the admission of declarations to the benefit of LFP, the short answer is that the discovery provision permits her to seek admission of declarations as well. The provision she challenges does not limit the use of live testimony or require the use of declarations in lieu of live testimony. Rather, it allows declarations to be used “in addition to live testimony.” We find no merit to plaintiff’s assertion that the discovery provision is substantively unconscionable.
D. Revision of LFP Policies and Practice
Plaintiff urges that the arbitration agreement is substantively unconscionable because LFP has the unilateral power to revise its company policies and practices, including the arbitration provision. We disagree.
LFP’s ability to revise its employee handbook, which contains the arbitration provision, is limited by the implied duty of good faith and fair dealing. (Hailey v. California Physicians’ Service (2007) 158 Cal.App.4th 452, 472; 24 Hour Fitness, Inc. v. Superior Court (1998) 66 Cal.App.4th 1199, 1214.) This duty would prevent LFP from unilaterally modifying the terms of the arbitration provision to its exclusive benefit and to the detriment of plaintiff. Finally, the acknowledgment plaintiff signed after receiving the 1999 employee handbook made it clear that waiver of arbitration required the consent of plaintiff and LFP.
E. Procedural Unconscionability
Plaintiff lists a variety of reasons to support her assertion that the LFP arbitration agreement is procedurally unconscionable. Inasmuch as we have concluded that the agreement is not substantively unconscionable, and both substantive and procedural unconscionability are required to invalidate a contract or one of its provisions (Armendariz, supra, 24 Cal.4th at p. 114), we need not reach the merits of plaintiff’s assertion. Even if we were to assume that some degree of procedural unconscionability exists, that alone is not enough to invalidate the arbitration agreement. (Ibid.)
DISPOSITION
The order denying defendants’ motion to compel arbitration is reversed and the trial court is directed to enter a new order granting the motion. The parties are to bear their own costs on appeal.
We concur: PERLUSS, P. J., ZELON, J.