Opinion
A122927
7-14-2009
KYLE FITCHNER, Plaintiff and Respondent, v. FREMONT AUTOMOBILE DEALERSHIP, LLC, Defendant and Appellant.
Not to be Published in Official Reports
Defendant Fremont Automobile Dealership, LLC, doing business as Fremont Toyota (FAD), appeals the denial of its motion to compel arbitration of the wrongful termination claim against it in an action filed by plaintiff Kyle Fitchner (Fitchner). It contends the court erred in concluding its arbitration provision is unconscionable. We affirm.
BACKGROUND
On April 16, 2007, Fitchner was hired by FAD and began working. The next day he signed an "At Will Employment Agreement" (employment agreement) and a "Binding Arbitration Agreement" (arbitration agreement), both of which were included on a single page entitled "Agreements."
Appended to our decision is a copy of the "Agreements."
The Agreements
The employment agreement provides in part: "My employment and compensation is terminable at-will, is for no definite period, and my employment and compensation may be terminated by [FAD] at any time and for any reason whatsoever, with or without good cause at the option of either [FAD] or myself. Consequently, all terms and conditions of my employment, may be changed or withdrawn at [FADs] unrestricted option at any time, with or without good cause." The employment agreement includes the following integration clause: "[A]ll terms and conditions of my employment may be changed or withdrawn at [FADs] unrestricted option at any time, with or without good cause. . . . This agreement is the entire agreement between [FAD] and [Fitchner] regarding the rights of [FAD] or [Fitchner] to terminate employment with or without good cause, and this agreement takes the place of all prior and contemporaneous agreements, representations, and understandings of [Fitchner] and [FAD]."
The arbitration agreement provides, in part: "I also acknowledge that [FAD] utilizes a system of alternative dispute resolution that involves binding arbitration to resolve all disputes that may arise out of the employment context. . . . [I]n addition to requirements imposed by law, any arbitrator herein shall be a retired California Superior Court Judge . . . . To the extent applicable in civil actions in California courts, the following shall apply and be observed: all rules of pleading (including the right of demurrer), all rules of evidence, all rights to resolution of the dispute by means of motions for summary judgment, judgment on the pleadings, and judgment under Code of Civil Procedure section 631.8. . . . Awards shall include the arbitrators written reasoned opinion and, at either partys written request within 10 days after issuance of the award, shall be subject to affirmation, reversal or modification, following review of the record and arguments of the parties by a second arbitrator who shall, as far as practicable, proceed according to the law and procedures applicable to appellate review by the California Court of Appeal of a civil judgment following court trial. If [Code of Civil Procedure section] 1284.2 conflicts with other substantive statutory provisions or controlling case law, the allocation of costs and arbitrator fees shall be governed by said statutory provisions or controlling case law instead of [Code of Civil Procedure section] 1284.2. I UNDERSTAND BY AGREEING TO THIS BINDING ARBITRATION PROVISION, BOTH I AND THE COMPANY GIVE UP OUR RIGHTS TO TRIAL BY JURY." (Boldface type in original.)
The Complaint
On March 14, 2008, Fitchner filed a complaint alleging wrongful termination in violation of public policy. The complaint alleges that FAD terminated Fitchner on December 10, 2007, as a direct result of Fitchners complaining to FADs management about FADs illegal finance activities.
Motion to Compel Arbitration
In reliance on the arbitration agreement, FAD moved to compel binding arbitration and stay Fitchners civil action. The declaration of FADs human resources director filed in support of the motion to compel states the following: FAD hired Fitchner "[o]n or about April 17, 2007." Fitchner signed the contract "when he applied for and began employment at [FAD]. This document was prepared in the ordinary course of business at or around the time it was dated, has the signature of [Fitchner], who was employed . . . ."
Fitchner opposed the motion to compel arbitration on the grounds that the arbitration agreement is adhesive and substantively unconscionable. Fitchners declaration in opposition to the motion to compel states: "On April 17, 2007, I signed the At Will Employment Agreement and Binding Arbitration Agreement . . . . [¶] I was told to sign [the contract] on my second day of employment at [FAD]. I had already accepted and began [sic] working when I was told I had to sign the document. [¶] I had no choice but to sign the document and it was a non-negotiable agreement. I was told it was a standard form agreement that all employees were required to sign. [¶] While I did read the document, I really did not understand its full import."
Trial Courts Ruling
The trial court denied the motion to compel arbitration on the ground that the arbitration agreement is unenforceable. In particular, the order stated, "This contract of adhesion, offered to [Fitchner] on a take it or leave it basis on his second day of work with [FAD], is both procedurally and substantively unconscionable. . . . Clearly, [Fitchner] having just started his employment, was in no position to negotiate either not signing the agreement or the terms of the agreement. . . . [¶] The arbitration agreement is also substantively unconscionable in that [FAD], but not [Fitchner], was free to change the terms of the parties employment agreement, including the arbitration provision. . . ." The order denying FADs motion to compel arbitration is an appealable order. (Code Civ. Proc., § 1294, subd. (a).)
All undesignated section references are to the Code of Civil Procedure.
DISCUSSION
FAD contends the arbitration agreement is neither substantively nor procedurally unconscionable and therefore is enforceable.
Standard of Review
"On appeal from the denial of a motion to compel arbitration, `we review the arbitration agreement de novo to determine whether it is legally enforceable, applying general principles of California contract law. [Citations.] [Citation.]" (Baker v. Osborne Development Corp. (2008) 159 Cal.App.4th 884, 892 (Baker).) Whether an arbitration provision is unconscionable is a question of law. (Civ. Code, § 1670.5, subd. (a); Gatton v. T-Mobile USA, Inc. (2007) 152 Cal.App.4th 571, 579 (Gatton).) "[T]o the extent the trial courts determination that the arbitration agreement was unconscionable turned on the resolution of conflicts in the evidence or on factual inferences to be drawn from the evidence, we consider the evidence in the light most favorable to the trial courts ruling and review the trial courts factual determinations under the substantial evidence standard. [Citation.]" (Baker, at p. 892.)
Unconscionability has procedural and substantive elements and both elements must be present in order for a court to invalidate a contract as unconscionable. (Baker, supra, 159 Cal.App.4th at p. 894, citing Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, 99, 114 (Armendariz).) However, the procedural and substantive elements need not be present in the same degree. A sliding scale between procedural and substantive unconscionability is used. "[T]he 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, at pp. 83, 114; accord, Thompson v. Toll Dublin, LLC (2008) 165 Cal.App.4th 1360, 1371 (Thompson).) Fitchner had the burden of proving both procedural and substantive unconscionability. (Crippen v. Central Valley RV Outlet (2004) 124 Cal.App.4th 1159, 1164-1165.)
Procedural Unconscionability
The procedural element concerns the manner in which the contract was negotiated and the circumstances of the parties at that time, and focuses on oppression and surprise. (Gatton, supra, 152 Cal.App.4th at p. 581; see also Baker, supra, 159 Cal.App.4th at p. 894.) Oppression arises where the parties have unequal bargaining power, there is an absence of real negotiation and the weaker party has no meaningful choice. (Baker, at p. 894.) Surprise may arise where the relevant provisions are buried in a contract drafted by the stronger party. (Ibid)
Procedural unconscionability is generally reflected in a contract of adhesion. (Gatton, supra, 152 Cal.App.4th at p. 582.) An adhesion contract is one which is standardized, imposed and drafted by the superior party, and relegates to the weaker subscribing party only the opportunity to sign it or reject it. (Armendariz, supra, 24 Cal.4th at p. 113.) Whether a contract is adhesive affects the oppression aspect of procedural unconscionability. (Thompson, supra, 165 Cal.App.4th at p. 1372; Gatton, at p. 582.)
FAD argues that the arbitration agreement is not procedurally unconscionable because there is no evidence that Fitchner wanted to refuse to sign the arbitration agreement, tried to negotiate its terms, or lacked the time or ability to negotiate its terms. We disagree.
The trial court properly concluded the arbitration agreement is a contract of adhesion. There is no evidence that the arbitration agreement was a negotiable term of Fitchners employment. (See Baker, supra, 159 Cal.App.4th at p. 891.) In addition the standard preprinted arbitration agreement was presented on a "take-it-or-leave-it basis." (Bruni v. Didion (2008) 160 Cal.App.4th 1272, 1293.) Fitchner was told that all employees were required to sign the arbitration agreement and that he had to sign it. Moreover, he was told to sign it after he had started working the day before. These facts demonstrate the parties had unequal bargaining power, there was an absence of real negotiation, and Fitchner had no meaningful choice. (See Baker, at p. 894.)
Substantive Unconscionability
Substantive unconscionability "`focuses on the actual terms of the agreement and evaluates whether they create "` "overly harsh"" or "`"one-sided" results" [citation], that is, whether contractual provisions reallocate risks in an objectively unreasonable or unexpected manner. [Citation.]" (Baker, supra, 159 Cal.App.4th at p. 894.)
The trial court concluded the arbitration agreement is substantively unconscionable because the employment agreement permits FAD, but not Fitchner, to change the terms of Fitchners employment, including the terms of the arbitration agreement. FAD contends that although the at-will employment agreement and the arbitration agreement appear together on a single page, they are "absolutely different and separate agreements," with separate titles, signatures, and date lines. FAD argues therefore that the separate agreements are each independently enforceable. FAD further argues that the integration clause in the employment agreement makes clear that the employment agreement "is to be interpreted on its face and within the four corners of the document," and the language of "any other agreements" is not to be used to interpret the employment agreement.
FADs argument is belied by the plain language of the employment and arbitration agreements. The integration provision in the employment agreement provides in part, "this agreement takes the place of all prior and contemporaneous agreements, representations, and understandings of [Fitchner] and [FAD]." If the employment agreement is construed as entirely separate and distinct from the arbitration agreement, that provision would void the contemporaneous arbitration agreement. Additionally, as noted by Fitchner, the arbitration agreement begins, "I also acknowledge . . ." suggesting that the arbitration agreement is to be construed together with the employment agreement. We conclude the trial court properly construed the terms of the agreements.
So construed, the agreement to arbitrate lacks mutuality in that FAD, and not Fitchner, has the power to change or withdraw all the terms and conditions of Fitchners employment, including the arbitration provision. The trial court properly concluded that this is substantively unconscionable because it permits FAD to require Fitchner to arbitrate his claims against FAD, while effectively giving FAD the option to refuse arbitration and initiate a court action of its claims against Fitchner. An arbitration agreement which requires employees to arbitrate while simultaneously permitting the employer to litigate its claims against employees is substantively unconscionable. (Martinez v. Master Protection Corp. (2004) 118 Cal.App.4th 107, 115; Mercuro v. Superior Court (2002) 96 Cal.App.4th 167, 175-176.)
We conclude the trial court properly decided the arbitration agreement is both procedurally and substantively unconscionable and therefore unenforceable. (See Baker, supra, 159 Cal.App.4th at p. 896.)
Severability
FAD argues that to the extent "the questioned provision in the [employment agreement] is impermissible, it can easily be severed and the [arbitration agreement] enforced without it."
FAD does not expressly state which specific language in the employment provision should be severed, and it is unclear whether FAD is suggesting severance of only one sentence or two. Thus, in arguing the arbitration agreement is not substantively unconscionable, its opening brief states, "The [employment agreement] also contained the following language upon which the trial court relied in ruling that the separate [arbitration agreement] was substantively unconscionable: [¶] `My employment and compensation is terminable at-will, is for no definite period, and my employment and compensation may be terminated by [FAD] at any time and for any reason whatsoever, with or without good cause at the option of either [FAD] or myself. Consequently, all terms and conditions of my employment may be changed or withdrawn at [FADs] unrestricted option at any time, with or without good cause. . . . [¶] The trial court interpreted this language to mean that [FAD], but not [Fitchner], was free to change the terms of the parties employment agreement and applied this to the determination of whether the . . . [arbitration agreement] was enforceable." In arguing in favor of severance, FADs opening brief states, "To the extent the questioned provision in the [employment agreement] is impermissible, it can be easily severed and the [arbitration agreement] enforced without it." (Italics added.) We assume FADs severance argument is directed only at the second sentence.
"When a court finds a contract unconscionable or illegal it has several options. It may refuse to enforce the contract; it may sever the offending clause; or it may limit the application of the offending clause so as to avoid the unconscionable or illegal result. As a general rule, if the central purpose of the contract is `permeated or `tainted with unconscionability or illegality then the contract as a whole cannot be enforced. If, on the other hand, the unconscionability or illegality is collateral to the main purpose of the contract, and the offending provisions can be excised from the contract by means of severance or limitation, then the remainder of the contract can be enforced." (Mercuro v. Superior Court, supra, 96 Cal.App.4th at pp. 184-185.)
In the trial court, FAD expressly sought severance, and the trial courts decision implicitly rejected that request. We uphold that decision because the contract is "`permeated or `tainted with unconscionability." (Mercuro v. Superior Court, supra, 96 Cal.App.4th at p. 184.) The challenged provision expressly permits FAD to alter "at [FADs] unrestricted option at any time, with or without good cause" any employment term, including any provision in the arbitration clause. Thus, it effectively taints each aspect of the agreement entered into by the parties.
In addition, in Armendariz, the Supreme Court concluded that a single unconscionable term could justify refusing to enforce an arbitration clause drafted in bad faith, because severing the provision and enforcing the arbitration agreement would encourage drafters to overreach. "An employer will not be deterred from routinely inserting . . . a deliberately illegal clause into the arbitration agreements it mandates for its employees if it knows that the worst penalty for such illegality is the severance of the clause after the employee has litigated the matter." (Armendariz, supra, 24 Cal.4th at pp. 124-125, fn. 13.) The trial court implicitly denied severance on this basis as well, and FAD has failed to establish the court abused its discretion in doing so.
DISPOSITION
The order denying FADs motion to compel arbitration is affirmed. Costs on appeal are awarded to Fitchner.
We concur:
NEEDHAM, J.
BRUINIERS, J.