CANNOT BE COMPELLED TO ARBITRATE BECAUSE THE RULES OF PROCEDURE PROVIDED UNDER
THE ARBITRATION CLAUSE ARE UNFAIR AND UNCONSCIONABLE [AND WOULD OPERATE TO DENY
EMPLOYEES A FAIR OPPORTUNITY TO PRESENT HIS/HER/ITS POSITION].
Rules Are Unfair and Unconscionable. When the rules of arbitration procedure designated in the arbitration provision are unfair to the extent of denying a party a fair opportunity to present his or her case, the arbitration provision is unconscionable and arbitration will not be compelled under the agreement (Graham v. Scissor-Tail, Inc. (1981) 28 Cal. 3d 807, 825–826, 171 Cal. Rptr. 604, 623 P.2d 165; Stirlen v. Supercuts, Inc. (1997) 51 Cal. App. 4th 1519, 1552, 60 Cal. Rptr. 2d 138; Treo v. Kettner Homeowners Ass’n v. Superior Court (2008) 166 Cal. App. 4th 1055, 1067, 83 Cal. Rptr. 3d 318; see Civ. Code § 1670.5).
B. Doctrine of Unconscionability
Does not offend Federal Arbitration Act if it does not interfere with arbitration. The Federal Arbitration Act preempts state law of unconscionability only to the extent that it interferes with arbitration (AT&T Mobility LLC v. Concepcion (2011) 563 U.S. 333, 131 S. Ct. 1740, 179 L. Ed.2d 742, 750, 755; Coneff v. AT&T Corp. (9th Cir. 2012) 673 F.3d 1155, 1158; Sanchez v. Valencia Holding Co., LLC (2015) 61 Cal. 4th 899, 912, 190 Cal. Rptr. 3d 812, 353 P.3d 741).
[The Supreme Court’s holding that the FAA preempts state laws having a disproportionate impact on arbitration cannot be read to immunize all arbitration agreements from invalidation no matter how unconscionable they may be, so long as they invoke the shield of arbitration (Chavarria v. Ralphs Grocery Co. (9th Cir. 2013) 733 F.3d 916, 927).]
C. Criteria of Unconscionability
Unconscionability has generally been held to include an absence of meaningful choice on the part of one of the two parties together with contract terms that are unreasonably favorable to the other party. Thus, unconscionability has both a “procedural” and a “substantive” element. Both procedural and substantive elements of unconscionability must be present in order for a court to refuse to enforce a contract or clause under the doctrine of unconscionability, but they need not be present in the same degree. A sliding scale is invoked under which 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 (Baltazar v. Forever 21, Inc. (2016) 62 Cal. 4th 1237, 1243–1244, 200 Cal. Rptr. 3d 7, 367 P.3d 6; Sanchez v. Valencia Holding Co., LLC (2015) 61 Cal. 4th 899, 911, 190 Cal. Rptr. 3d 812, 353 P.3d 741; Gentry v. Superior Court (Cir. City Stores, Inc.) (2007) 42 Cal. 4th 443, 468–470, 64 Cal. Rptr. 3d 773, 165 P.3d 556; Little v. Auto Stiegler, Inc. (2003) 29 Cal. 4th 1064, 1072, 130 Cal. Rptr. 2d 892, 63 P.3d 979; Baxter v. Genworth N. Am. Corp. (2017) 16 Cal. App. 5th 713, 721, 224 Cal. Rptr. 3d 556; Magno v. The Coll. Net., Inc. (2016) 1 Cal. App. 5th 277, 284–285; Carbajal v. CWPSC, Inc. (2016) 245 Cal. App. 4th 227, 242, 199 Cal. Rptr. 3d 332).
D. Element of Procedural Unconscionability.
The procedural element of unconscionability focuses on two factors: “oppression” and “surprise.” “Oppression” arises from an inequality of bargaining power which results in no real negotiation and an absence of meaningful choice. “Surprise” involves the extent to which the supposedly agreed-on terms of the bargain are hidden in the prolix printed form drafted by the party seeking to enforce the disputed terms (Gentry v. Superior Court (Cir. City Stores, Inc.) (2007) 42 Cal. 4th 443, 469–470, 64 Cal. Rptr. 3d 773, 165 P.3d 556; Little v. Auto Stiegler, Inc. (2003) 29 Cal. 4th 1064, 1073, 130 Cal. Rptr. 2d 892, 63 P.3d 979; Baxter v. Genworth N. Am. Corp. (2017) 16 Cal. App. 5th 713, 722, 224 Cal. Rptr. 3d 556; Carbajal v. CWPSC, Inc. (2016) 245 Cal. App. 4th 227, 243, 199 Cal. Rptr. 3d 332; Parada v. Superior Ct. (2009) 176 Cal. App. 4th 1554, 1569, 98 Cal. Rptr. 3d 743; Sanchez v. W. Pizza Enters., Inc. (2009) 172 Cal. App. 4th 154, 165–166, 90 Cal. Rptr. 3d 818).
[There are degrees of procedural unconscionability. At one end of the spectrum are contracts that have been freely negotiated by roughly equal parties, in which there is no procedural unconscionability. Contracts of adhesion that involve surprise or other sharp practices lie on the other end of the spectrum (Baltazar v. Forever 21, Inc. (2016) 62 Cal. 4th 1237, 1244, 200 Cal. Rptr. 3d 7, 367 P.3d 6; Magno v. The Coll. Net., Inc. (2016) 1 Cal. App. 5th 277, 285). Ordinary contracts of adhesion, although they are indispensable facts of modern life that are
generally enforced, contain a degree of procedural unconscionability even without any notable surprises, and bear within them the clear danger of oppression and overreaching.]
[Courts must be particularly attuned to this danger in the employment setting, where economic pressure exerted by employers on all but the most sought-after employees may be particularly acute] (Baltazar v. Forever 21, Inc. (2016) 62 Cal. 4th 1237, 1244, 200 Cal. Rptr. 3d 7, 367 P.3d 6). Accordingly, a requirement that an existing employee accept an arbitration agreement containing unconscionable provisions in order to keep his or her job exhibits a “high degree of oppressiveness” (Baxter v. Genworth N. Am. Corp. (2017) 16 Cal. App. 5th 713, 723, 224 Cal. Rptr. 3d 556).]
[If a contract is one of adhesion, the procedural element of unconscionability is present; procedural unconscionability can be inferred from the arbitration agreement itself when that agreement is so one-sided that it defies credulity to suggest that the weaker party had any input or that any desire of the weaker party to change the contract terms would have been considered or honored].
[Although failure to read a provision does not excuse compliance with it, it may establish actual surprise (the unfairness of which is reinforced by the defendant’s failure to call the arbitration clause to the attention of plaintiffs) (see Magno v. The Coll. Net., Inc. (2016) 1 Cal. App. 5th 277, 286–287). The circumstances of this transaction established actual surprise. While an agreement need not expressly provide for arbitration, but may do so by incorporating a referenced document that is readily available, the (specify document, how, and when it was presented for signature, e.g., warranty booklet was not provided before or at the time the builder application was presented for signature just before the close of escrow). Thus, substantial evidence supported the trial court’s findings of surprise and oppression and the conclusion of procedural unconscionability.]
D1. Under Contract of Adhesion
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. Although contracts of adhesion are generally enforceable according to their terms, a provision contained in a contract of adhesion cannot be enforced if it does not fall within the reasonable expectations of the weaker or “adhering” party. Failure to pass the “reasonable expectations” test is generally treated as the equivalent of substantive
unconscionability. An arbitration provision in a contract of adhesion will be considered unconscionable and will not be enforced if its terms do not fall within plaintiffs’ reasonable expectations (Serafin v. Balco Props. Ltd., LLC (2015) 235 Cal. App. 4th 165, 179–181, 185 Cal. Rptr. 3d 151; Serpa v. Cal. Sur. Investigs., Inc. (2013) 215 Cal. App. 4th 695, 704, 155 Cal. Rptr. 3d 506; Parada v. Superior Ct. (2009) 176 Cal. App. 4th 1554, 1569, 98 Cal. Rptr. 3d 743; Bruni v. Didion (2008) 160 Cal. App. 4th 1272, 1277, 1288–1289, 73 Cal.Rptr. 3d 395).
E. Element of Substantive Unconscionability
Substantive unconscionability involves a harsh or one-sided allocation of risks between the parties. A contractual term is suspect if it reallocates the risks of the bargain in an objectively unreasonable or unexpected manner, resulting in contract terms so one-sided as to shock the conscience.
[Not all unreasonable risk allocations are unconscionable. Unenforceability of the clause is tied to the procedural aspects of unconscionability such that the greater the unfair surprise or inequality of bargaining power, the less unreasonable the risk allocation which will be tolerated] (Magno v. The Coll. Net., Inc. (2016) 1 Cal. App. 5th 277, 288; Serpa v. Cal. Sur. Investigations, Inc. (2013) 215 Cal. App. 4th 695, 704, 155 Cal. Rptr. 3d 506; Little v. Auto Stiegler, Inc. (2003) 29 Cal. 4th 1064, 1073, 130 Cal. Rptr. 2d 892, 63 P.3d 979; Parada v. Superior Ct. (2009) 176 Cal. App. 4th 1554, 1559, 98 Cal. Rptr. 3d 743; Sanchez v. W. Pizza Enters., Inc. (2009) 172 Cal. App. 4th 154, 175, 90 Cal. Rptr. 3d 818). [A court applying unconscionability analysis may consider the value of benefits provided by the state procedural statutes applicable to enforcement of a particular statutory right that the arbitration agreement waives (Sonic-Calabasas A, Inc. v. Moreno (2013) 57 Cal. 4th 1109, 1150–1152, 311 P.3d 184, cert. denied, 134 S. Ct. 2724, 189 L. Ed. 2d 763).] [An adhesive agreement that gives the drafting party the right to choose a biased arbitrator is substantively unconscionable (Graham v. Scissor-Tail, Inc. (1981) 28 Cal. 3d 807, 826–827, 171 Cal. Rptr. 604, 623 P.2d 165; Magno v. The Coll. Net., Inc. (2016) 1 Cal. App. 5th 277, 290).]
[An arbitral limitations period that is shorter than the otherwise applicable period is one factor that supports a finding of substantive unconscionability (Magno v. The Coll. Net., Inc. (2016) 1 Cal. App. 5th 277, 291).]
F. Sophistication of Weaker Party Is No Defense to Unconscionability
Even a sophisticated business person may be the victim of unconscionability if presented with a standard form contract the provisions of which are non-negotiable (Graham v. Scissor-Tail, Inc. (1981) 28 Cal. 3d 807, 818–819, 171 Cal. Rptr. 604, 623 P.2d 165; Dotson v. Amgen, Inc. (2010) 181 Cal. App. 4th 975, 980–982, 104 Cal. Rptr. 3d 341; Stirlen v. Supercuts, Inc. (1997) 51 Cal. App. 4th 1519, 1533–1534, 60 Cal. Rptr. 2d 138).
G. Permissible Breadth of Order in Class Action
When an arbitration provision is unconscionable and unenforceable, the trial court in a class action has authority to order that the arbitration
provision not be enforced against potential class members (Patterson v. ITT Consumer Fin. Corp. (1993) 14 Cal. App. 4th 1659, 1663–1667, 18 Cal. Rptr. 2d 563).
H. Provision for Arbitral Review Is Unconscionable
A post-arbitration proceeding, either judicial or arbitral, wholly or largely to benefit the party that drafted and imposed the arbitration agreement at the expense of the party on which the arbitration is imposed is unconscionable. Although seemingly neutral on its face,a provision that allows either party to have an award in excess of $50,000 reviewed by a second arbitrator is so one-sided as to be unconscionable. The $50,000 threshold only benefits the party against whom an award of that magnitude is likely to be entered. While an asymmetrical arbitration may be permissible when there is a “legitimate commercial need,” that need must be other than the stronger party’s desire to maximize its advantage in the arbitration process (Little v. Auto Stiegler, Inc. (2003) 29 Cal. 4th 1064, 1074, 1077–1079, 130 Cal. Rptr. 2d 892,
63 P.3d 979; Fittante v. Palm Springs Motors, Inc. (2003) 105 Cal. App. 4th 708, 722–724, 129 Cal. Rptr. 2d 659).
I. Prohibition on Classwide Arbitration In Agreement Not Subject to the Federal Arbitration Act Is Unconscionable.
A class arbitration prohibition in a consumer contract of adhesion not subject to the Federal Arbitration Act (AT&T Mobility LLC v. Concepcion (2011) 563 U.S. 333, 131 S. Ct. 1740, 179 L. Ed. 2d 742, 754 (Discover Bank rule applying Civ. Code § 1670.5, to invalidate class arbitration waivers in agreements subject to FAA is preempted
to extent it interferes with arbitration)) in a setting in which disputes
between the contracting parties involve small amounts of damages, when it is alleged that the party with the superior bargaining power has carried out a scheme to deliberately cheat large numbers of consumers of individually small sums of money, [at least to the extent the issue is governed by California law], becomes in practice an exculpatory clause and is unconscionable and unenforceable (Discover Bank v. Superior Court (Boehr) (2005) 36 Cal. 4th 148, 161, 30 Cal. Rptr. 3d 76, 113 P.3d 1100 (remanding for determination of choice of law issue); Parada v. Superior Ct. (2009) 176 Cal. App. 4th 1554, 1573, 98 Cal. Rptr. 3d 743 (prohibition on consolidation or joinder); Gatton v. T-Mobile
USA, Inc. (2007 152 Cal. App. 4th 571, 579–581, 61 Cal. Rptr. 3d 344; Cohen v. DirecTV, Inc. (2006) 142 Cal. App. 4th 1442, 1451–1455, 48 Cal. Rptr. 3d 813; Klussman v. Cross Country Bank (2005) 134 Cal. App. 4th 1283, 1290, 1294, 36 Cal. Rptr. 3d 728 (finding California law applicable after choice of law analysis); Aral v. Earthlink, Inc. (2005) 134 Cal. App. 4th 544, 556–557, 36 Cal. Rptr. 3d 229 (finding California law applicable after choice of law analysis); see Civ. Code § 1668).
J. Arbitration Agreement May Be Procedurally Unconscionable Despite Opt-Out Provision
An arbitration agreement may have an element of procedural
unconscionability notwithstanding an opt-out provision. The lack of material information about the disadvantageous terms of the arbitration agreement, combined with the likelihood that [specify, e.g., employees felt at least some pressure not to opt out of the arbitration
agreement], supports the conclusion that the agreement is not entirely free from procedural unconscionability [Add situation-specific facts, e.g., The one-page description of the advantages and disadvantages of
arbitration gave a very one-sided view of arbitration and failed to mention reduced limitation periods, limitation on the length of time for which back pay could be recovered, a cap on punitive damages, that there was no right to attorney’s fees and costs, which would be provided by the overtime pay statute, and limited discovery] (Gentry v. Superior Court (Circuit City Stores, Inc.) (2007) 42 Cal. 4th 443, 451, 468, 470– 472, 64 Cal. Rptr. 3d 773, 165 P.3d 556).
K. Arbitration Agreement Is Wholly Unenforceable on Account of Unconscionable Provisions
Although Civil Code Section 1670.5(a) gives a court authority to
sever the unconscionable portions of an arbitration clause and enforce the remainder, with respect to an arbitration clause that suffers from multiple problems of unconscionability or unconscionable provisions that are not severable, severing the unconscionable portions of the clause and compelling arbitration is not appropriate (Armendariz v. Found. Health Psychcare Servs., Inc. (2000) 24 Cal. 4th 83, 121–122, 99 Cal. Rptr. 2d 745, 6 P.3d 669; Wherry v. Award, Inc. (2011) 192 Cal. App. 4th 1242, 1250, 123 Cal. Rptr. 3d 1; Parada v. Superior Ct. (2009) 176 Cal. App. 4th 1554, 1585–1587, 98 Cal. Rptr. 3d 743; Sanchez v. W. Pizza Enters., Inc. (2009) 172 Cal. App. 4th 154, 181, 90 Cal.
Rptr. 3d 818; Franco v. Athens Disposal Co., Inc. (2009) 171 Cal. App. 4th 1277, 1303, 90 Cal. Rptr. 3d 539; Murphy v. Check ‘N Go of Cal., Inc. (2007) 156 Cal. App. 4th 138, 149, 67 Cal. Rptr. 3d 120). [Refusing to compel arbitration is especially appropriate when the entire arbitration provision is unilateral, and/or the multiple defects indicate a systematic effort to impose arbitration on the weaker party, not simply as an alternative to litigation, but as an inferior forum that works to the stronger party’s advantage. With an unconscionably unilateral arbitration clause, there is no single provision a court could strike or restrict in order to remove the unconscionable taint from the agreement. The only option would be to reform the agreement to make it bilateral; and a court has no power to do that (Armendariz v. Found. Health Psychcare Servs., Inc. (2000) 24 Cal. 4th 83, 124–125, 99 Cal. Rptr. 2d 745, 6 P.3d 669; Baxter v. Genworth N. Am. Corp. (2017) 16 Cal. App. 5th 713, 738, 224 Cal. Rptr. 3d 556; Magno v. The Coll. Net., Inc. (2016) 1 Cal. App. 5th 277, 292; Nyulassy v. Lockheed Martin Corp. (2004) 120 Cal. App. 4th 1267, 1287–1288, 16 Cal. Rptr. 3d 296; Fitz v. NCR Corp. (2004) 118 Cal. App. 4th 702, 727–728, 13 Cal. Rptr. 3d 88; Abramson v. Juniper Nets., Inc. (2004) 115 Cal. App. 4th 638, 666–668, 9 Cal. Rptr. 3d 422)].
L. Unconscionable Portions of Arbitration Agreement Will Not Be Severed After They Are No Longer Needed by Party Urging Arbitration
When an arbitration agreement is not only permeated with unconscionability, but when the primary agreement has been terminated and the party urging arbitration obtained everything it bargained under that agreement, it is woefully unfair, and justice would not be served, by severing post hoc the offending provisions for which the party urging arbitration no longer has any use, and requiring the party claiming injury to arbitrate its claim (Flores v. Transam. HomeFirst, Inc. (2001) 93 Cal. App. 4th 846, 857–858, 113 Cal. Rptr. 2d 376).
M. Court Must Strike Unconscionable Remedy Limitations Before Ordering Arbitration
Even if the arbitrator has broad discretion to interpret an
arbitration agreement, the court has the duty, before compelling arbitration, to strike from the arbitration clause any provisions that would deprive the arbitrator of authority to award statutory remedies or any relief that would otherwise be allowable in court (Indep. Ass’n of Mailbox Ctr. Owners, Inc. v. Superior Court (Mail Boxes Etc., USA,
Inc.) (2005) 133 Cal. App. 4th 396, 410, 34 Cal. Rptr. 3d 659).
N. Delegation Clauses in Employment Arbitration Agreements May Be Unenforceable As Unconscionable
A delegation clause that is sufficiently procedurally and substantively unconscionable is unenforceable (Pinela v. Neiman Marcus Grp.,
Inc. (2015) 238 Cal. App. 4th 227, 245–246).