Filed 6/19/20 Torres v. Vanlaw Food Products CA4/3

NOT TO BE PUBLISHED IN OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

FOURTH APPELLATE DISTRICT

DIVISION THREE

IGNACIO TORRES,

Plaintiff and Respondent,

v.

VANLAW FOOD PRODUCTS, INC., et al.,

Defendants and Appellants.

G058320

(Super. Ct. No. 30-2017-00946312)

O P I N I O N

Appeal from an order of the Superior Court of Orange County, Glenda Sanders, Judge. Affirmed.

Magarian & Dimercurio, Mark D. Magarian and Krista L. Dimercurio for Defendants and Appellants.

James Hawkins, James R. Hawkins, Christina M. Lucio and Mitchell J. Murray for Plaintiff and Respondent.

* * *

 

Plaintiff Ignacio Torres worked for defendant VanLaw Food Products, Inc. (VanLaw) from September 2015 until January 2017. After separating from employment, he brought this lawsuit against VanLaw and its current and former presidents, John Gilbert and Matthew Jones (collectively defendants). Plaintiff asserts various wage and hour class claims arising from violations of the Labor Code and the Unfair Competition Law (UCL; Bus. & Prof. Code, § 17200 et seq.), and a representative claim under the Private Attorney General Act (Lab. Code, § 2698 et seq.).

Defendants moved to compel arbitration based on an agreement that plaintiff had accepted as a condition of his employment with VanLaw. The trial court denied the motion, finding the agreement was permeated with unconscionability. Defendants appealed, arguing the agreement was not substantively unconscionable and, even if it were, the trial court erred by not severing the problematic provisions. We disagree and affirm the trial court’s order.

I

FACTS AND PROCEDURAL HISTORY

VanLaw produces and distributes food products to stores, restaurants, and food service operators. Plaintiff began working on VanLaw’s production line around June 2015 through a staffing agency. In September 2015, VanLaw offered plaintiff a full-time position, which he accepted.

On the day he was hired, plaintiff attended an orientation with three other new employees. The new employees were given copies of VanLaw’s employee handbook (the handbook). There were not enough copies of the handbook for each attendee, so plaintiff was told to share a copy with another employee. Appendix A of the handbook (pages 35 through 38) contained an arbitration agreement (the agreement) that stated the subject employee and VanLaw agreed to arbitrate “any and all claims or disputes” they had against each other. Other relevant provisions are set forth below in the discussion portion of this opinion.

At orientation, plaintiff was also given an Acknowledgement of Receipt (the acknowledgement) to sign to confirm his receipt of the handbook and his agreement to be bound by its policies and rules. The acknowledgment further affirmed that plaintiff “agree[d] to resolve any dispute with [VanLaw] according to the terms of [the agreement] set out in appendix ‘A’ of [the handbook],” and that “by entering into such an agreement, [plaintiff waived his right] to a judicial forum for the determination of any dispute with [VanLaw].” Plaintiff was not allowed to negotiate the terms of the agreement or opt out of it. Instead, he was only given a few minutes to review the handbook and sign the acknowledgement. Plaintiff was told he needed to sign it to work at VanLaw. Thus, he signed the acknowledgment even though he did not have sufficient time to review the handbook or receive his own copy of it. He was never given a copy the handbook during his employment despite requesting one.

Plaintiff worked at VanLaw until January 2017. In September 2017, he filed a putative class action lawsuit against VanLaw, asserting violations of the following statutes: (1) sections 1194 and 1198 (failing to pay overtime); (2) sections 226.7 and 512 (failing to provide meal periods); (3) section 226.7 (failing to provide rest periods); (4) sections 201 through 203 (failing to timely pay wages after separation from employment); (5) section 2802 (failing to reimburse necessary expenses); 6) sections 226, 1174, and 1175 (failing to show total hours and all pay rates on wage statements); and 7) the UCL (by committing the enumerated Labor Code violations). Plaintiff later amended his complaint to add a cause of action for penalties under the Private Attorney General Act, and then amended it again to designate the true names of Jones and Gilbert that were previously listed as Does 1 and 2, respectively. Gilbert is the current president of VanLaw, while Jones is its former president.

After several unsuccessful mediations, defendants filed a motion to compel arbitration of plaintiff’s nonrepresentative claims. Plaintiff opposed the motion on grounds the agreement was unconscionable and that defendants had waived their right to arbitration due to their unreasonable delay in bringing their motion.

The trial court denied the motion. It rejected plaintiff’s waiver argument but found the agreement unconscionable. The trial court found the agreement was procedurally unconscionable because, among other things, it was not a negotiated agreement and was required as a condition of employment. The trial court also found the agreement contained several substantively unconscionable provisions, which it could not sever because doing so “would substantially alter the nature of the agreement.”

In this appeal, defendants argue the trial court erred by finding the agreement to be unconscionable. And, to the extent the agreement contains any unconscionable provisions, they contend the trial court erred by refusing to sever them.

II

DISCUSSION

A. Unconscionability Generally
B.
Unconscionability is a general contract defense that may be applied to invalidate an arbitration agreement. (Pinnacle Museum Tower Assn. v. Pinnacle Market Development (US), LLC (2012) 55 Cal.4th 223, 246.) It “consists of both procedural and substantive elements.” (Ibid.) “Both procedural unconscionability and substantive unconscionability must be shown, but ‘they need not be present in the same degree’ and are evaluated on ‘“a sliding scale.”’ [Citation.] ‘[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.’” (Id. at p. 247.)

“On appeal from the denial of a motion to compel arbitration, ‘[u]nconscionability findings are reviewed de novo if they are based on declarations that raise “no meaningful factual disputes.” [Citation.] However, where an unconscionability determination “is based upon the trial court’s resolution of conflicts in the evidence, or on the factual inferences which may be drawn therefrom, we consider the evidence in the light most favorable to the court’s determination and review those aspects of the determination for substantial evidence.”’” (Lhotka v. Geographic Expeditions, Inc. (2010) 181 Cal.App.4th 816, 820-821.)

1. Procedural unconscionability
2.
While defendants’ opening brief did not challenge the trial court’s procedural unconscionability findings, plaintiff argued the court correctly ruled on this issue in his respondent’s brief. Rather than concede the point, defendants asserted in their reply that plaintiff failed to establish procedural unconscionability. Ordinarily, defendants’ failure to raise this issue in their opening brief would waive the issue on appeal. (Tisher v. California Horse Racing Bd. (1991) 231 Cal.App.3d 349, 361.) However, given that plaintiff raised the issue in his respondent’s brief, we will review the trial court’s findings.

“Procedural unconscionability may be proven by showing oppression, which is present when a party has no meaningful opportunity to negotiate terms or the contract is presented on a take-it-or-leave-it basis.” (Wherry v. Award, Inc. (2011) 192 Cal.App.4th 1242, 1246 (Wherry).) For example, in the employment context, “[a]n arbitration agreement that is an essential part of a ‘take it or leave it’ employment condition, without more, is procedurally unconscionable.” (Martinez v. Master Protection Corp. (2004) 118 Cal.App.4th 107, 114 (Martinez).)

Such is the case here. Plaintiff filed a declaration stating he had to sign the acknowledgment and accept the arbitration agreement to work for VanLaw. The declaration also stated that plaintiff was unable to negotiate or reject any of the agreement’s terms, and he was only given a few minutes to review the 44-page handbook containing the agreement and sign the acknowledgment. This amount of time was insufficient, especially considering plaintiff was required to share a copy of the handbook with another employee. Further, VanLaw failed to give plaintiff his own copy of the handbook during his employment even though he requested it.

While defendants attack plaintiff’s declaration as self-serving and vague, they provide no evidence contradicting plaintiff’s account of the orientation. In fact, the record contains no declaration from any employee of VanLaw. This is telling, since, as the trial court noted, defendant “had, at a minimum, an equal if not better opportunity to obtain evidence from its human resources personnel regarding how the specific orientation was handled or how such orientations are generally handled.” Instead, defendants appear to contend that plaintiff’s account is undercut by the acknowledgment, in which plaintiff (1) agreed to resolve any dispute with VanLaw according to the terms of the agreement, (2) affirmed that he was waiving his right to a judicial forum as to any dispute with VanLaw, and (3) stated that he executed the acknowledgment “voluntarily without reliance on promises or representations not contained in the Handbook.”

Defendants’ argument is unpersuasive. The acknowledgement does not refute the salient points of plaintiff’s declaration. Nothing in it contradicts that plaintiff was required to accept the agreement to work at VanLaw, that he was unable to opt out or negotiate its terms, or that he was only given a few minutes to review the handbook and sign the acknowledgment. Further, even if the acknowledgment did rebut these points (which it does not), the trial court’s ruling is still supported by substantial evidence, specifically, plaintiff’s declaration. (In re Marriage of Drake (1997) 53 Cal.App.4th 1139, 1151 [in substantial evidence review “[w]e accept all evidence favorable to the prevailing party as true and discard contrary evidence”].)

Defendants also analogize this case to Harris v. TAP Worldwide, LLC (2016) 248 Cal.App.4th 373, which they assert contains similar facts. But Harris is an inapt comparison. The portion relied upon by defendants analyzes whether the parties had entered into a valid arbitration agreement, not whether the agreement was unconscionable. (Id. at pp. 380-385.) While unconscionability was at issue in Harris, it was not part of the published opinion. (Id. at p. 390.)

3. Substantive unconscionability
4.
Substantive unconscionability “ensures that contracts, particularly contracts of adhesion, do not impose terms that have been variously described as ‘“‘overly harsh’”’ [citation], ‘“unduly oppressive”’ [citation], ‘“so one-sided as to ‘shock the conscience’”’ [citation], or ‘unfairly one-sided’ [citation]. All of these formulations point to the central idea that the unconscionability doctrine is concerned not with ‘a simple old-fashioned bad bargain’ [citation], but with terms that are ‘unreasonably favorable to the more powerful party.’” (Sonic-Calabasas A, Inc. v. Moreno (2013) 57 Cal.4th 1109, 1145.) “While private arbitration may resolve disputes faster and cheaper than judicial proceedings, it ‘“may also become an instrument of injustice imposed on a ‘take it or leave it’ basis.”’ [Citation.] ‘“The courts must distinguish the former from the latter, to ensure that private arbitration systems resolve disputes not only with speed and economy but also with fairness.”’” (Magno v. The College Network, Inc. (2016) 1 Cal.App.5th 277, 288.)

To be valid, an arbitration agreement must, at minimum “‘(1) provide[] for neutral arbitrators, (2) provide[] for more than minimal discovery, (3) require[] a written award, (4) provide[] for all of the types of relief that would otherwise be available in court, and (5) . . . not require employees to pay either unreasonable costs or any arbitrators’ fees or expenses as a condition of access to the arbitration forum.’” (Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, 102 (Armendariz).) “Elimination of or interference with any of these basic provisions makes an arbitration agreement substantively unconscionable.” (Wherry, supra, 192 Cal.App.4th at p. 1248.)

The trial court found two of these requirements lacking. First, the agreement improperly limited discovery to requests for production of documents and one deposition per party, excluding experts, absent a showing of need. Second, the agreement required plaintiff to cover an equal share of the arbitrator’s fees and expenses. In addition to the Armendariz factors, the trial court also found unconscionable a clause imposing a one-year statute of limitations on any claim subject to the agreement. We discuss these provisions below.

a. one-year statute of limitations
b.
“While parties to an arbitration agreement may agree to shorten the applicable limitations period for bringing an action, a shortened limitations period must be reasonable.” (Baxter v. Genworth North America Corp. (2017) 16 Cal.App.5th 713, 731 (Baxter).) The one-year statute of limitations is unreasonable given the statutory wage and hour claims asserted here.

Most of plaintiff’s claims have a three or four-year limitations period. (Pineda v. Bank of America, N.A. (2010) 50 Cal.4th 1389, 1395, 1398 [three-year limitations periods for claims under sections 201 to 203]; Murphy v. Kenneth Cole Productions, Inc. (2007) 40 Cal.4th 1094, 1099-1100, 1108-1109 [three-year limitations period for section 226.7 claims]; Cortez v. Purolator Air Filtration Products Co. (2000) 23 Cal.4th 163, 167-168, 178-179 [three and four-year limitations periods for section 1194 and UCL claims, respectively].) As the trial court found, the one-year limitations period unreasonably “reduces Plaintiff’s time in which to bring a claim by [up to] 75 [percent]” and adversely impacts plaintiff’s potential recovery to defendants’ benefit. By doing so, it undermines the statutory protections set forth in the Labor Code. (See Samaniego v. Empire Today LLC (2012) 205 Cal.App.4th 1138, 1147.) Indeed, California courts have found in the context of similar wage and hour claims that “a provision in an arbitration agreement shortening the statutory limitations period is substantively unconscionable.” (Pinela v. Neiman Marcus Group, Inc. (2015) 238 Cal.App.4th 227, 234, fn. 1, 253-254.) We agree and find this provision unconscionable.

c. cost sharing
d.
“[T]he arbitration agreement . . . cannot generally require the employee to bear any type of expense that the employee would not be required to bear if he or she were free to bring the action in court.” (Armendariz, supra, 24 Cal.4th at pp. 110-111, italics omitted.) The agreement violates this rule by requiring plaintiff to equally share the arbitrator’s fees and expenses. Defendants assert the clause does not impose any impermissible costs in practice because the agreement calls for the American Arbitration Association (AAA) or JAMS to conduct the arbitration, and both require employers to pay these arbitration costs.

This argument is unpersuasive. The cost-sharing provision in the agreement is unconscionable as written. The AAA and JAMS rules pertaining to costs do not supplant the cost-sharing provision: the agreement does not declare itself subject to these providers’ rules, nor are they incorporated into the agreement. Defendants essentially argue the cost-sharing provision is not unconscionable because it is unenforceable. But the fact that two large arbitration providers will not enforce this provision only underscores its unreasonableness. Further, the agreement was entered into in September 2015, yet, the AAA and JAMS rules at issue became effective in 2009 and 2014, respectively. Thus, defendants either knew these rules and included the cost-sharing provision despite them or were unaware of their existence and now wield them to excuse a clearly unconscionable provision. Neither scenario saves this provision from unconscionability. Finally, the agreement does not protect plaintiff from any changes AAA or JAMS may make to their cost-sharing rules, nor does it prevent defendants from seeking reimbursement for these costs despite these providers’ rules.

e. discovery limitations
f.
“Although parties to an arbitration agreement may agree to limitations on discovery that is otherwise available under the Code of Civil Procedure, an arbitration agreement must nonetheless ‘“ensure minimum standards of fairness” so employees can vindicate their public rights.”’ (Baxter, supra, 16 Cal.App.5th at p. 727.) Employees “are at least entitled to discovery sufficient to adequately arbitrate their statutory claim, including access to essential documents and witnesses . . . .” (Armendariz, supra, 24 Cal.4th at pp. 105-106.) Here, the agreement limits each party to one deposition per side, excluding experts, plus requests for production of documents. The arbitrator may order more discovery “upon a showing of need.”

While superficially neutral, the discovery restrictions favor defendants. “Employment disputes are factually complex, and their outcomes ‘are often determined by the testimony of multiple percipient witnesses, as well as written information about the disputed employment practice.’ [Citation.] Seemingly neutral limitations on discovery in employment disputes may be nonmutual in effect. ‘“This is because the employer already has in its possession many of the documents relevant to an employment . . . case as well as having in its employ many of the relevant witnesses.”’” (Baxter, supra, 16 Cal.App.5th at p. 727.)

Nonetheless, the discovery provision by itself would likely be insufficient to find the agreement substantively unconscionable. In Martinez, the employment arbitration agreement at issue had a more stringent provision that restricted discovery to a single deposition and document request, absent a showing of “‘substantial need.’” Yet, Martinez found this provision alone did not necessarily prevent the employee from vindicating his rights under Armendariz. (Martinez, supra, 118 Cal.App.4th at pp. 118-119; see Dotson v. Amgen, Inc. (2010) 181 Cal.App.4th 975, 982-985 [arbitration agreement was not unconscionable where it limited each party to document requests and one deposition absent a showing of need].) Given the unconscionability of the other provisions, though, we need not resolve this issue. Rather, like Martinez, we find that when “considered against the backdrop of the other indisputably unconscionable provisions, the limitations on discovery . . . compound the one-sidedness of the arbitration agreement.” (Martinez, at pp. 118-119.)

C. Severability of Unconscionable Provisions
D.
The trial court found the agreement to be permeated with substantive unconscionability such that severance was inappropriate. Defendants contend this ruling was in error and that the trial court should have severed any unconscionable provisions per the terms of the agreement or under Civil Code section 1599. We disagree.

The trial court’s ruling is reviewed for abuse of discretion. (Lhotka v. Geographic Expeditions, Inc., supra, 181 Cal.App.4th at pp. 820-821.) “Under that standard, there is no abuse of discretion requiring reversal if there exists a reasonable or fairly debatable justification under the law for the trial court’s decision or, alternatively stated, if that decision falls within the permissible range of options set by the applicable legal criteria.” (Cahill v. San Diego Gas & Electric Co. (2011) 194 Cal.App.4th 939, 957.) “We reverse the judgment only if in the circumstances of the case, viewed most favorably in support of the decision, the decision exceeds ‘the bounds of reason’ [citation], and therefore a judge could not reasonably have reached that decision under applicable law.” (Ibid.)

“‘In deciding whether to sever terms rather than to preclude enforcement of the provision altogether, the overarching inquiry is whether the interests of justice would be furthered by severance; the strong preference is to sever unless the agreement is “permeated” by unconscionability.’ [Citation.] [¶] An agreement to arbitrate is considered ‘permeated’ by unconscionability where it contains more than one unconscionable provision. [Citation.] ‘Such multiple defects indicate a systematic effort to impose arbitration on [the nondrafting party] not simply as an alternative to litigation, but as an inferior forum that works to the [drafting party’s] advantage.’” (Magno v. The College Network, Inc., supra, 1 Cal.App.5th at p. 292, second italics added.)

The agreement is permeated by unconscionability given the multiple unconscionable provisions detailed above and its overall one-sidedness. As such, the trial court did not abuse its discretion by refusing to sever any portion of the agreement. While “the general rule does favor arbitration and [states] terms should be interpreted liberally [citation], . . . when the agreement is rife with unconscionability, as here, the overriding policy requires that the arbitration be rejected . . . .” (Wherry, supra, 192 Cal.App.4th at p. 1250.)

Similarly, defendants claim they informed plaintiff prior to filing this motion that they would not enforce any of the disputed provisions set forth above. Thus, they argue the arbitration can and should proceed without these provisions. This does not affect our analysis. “‘[W]hether an employer is willing, now that the employment relationship has ended [to change a provision of an arbitration agreement so it conforms to law] does not change the fact that the arbitration agreement as written is unconscionable and contrary to public policy. Such a willingness “can be seen, at most, as an offer to modify the contract; an offer that was never accepted. No existing rule of contract law permits a party to resuscitate a legally defective contract merely by offering to change it.”’” (Martinez, supra, 118 Cal.App.4th at p. 116.)

III

DISPOSITION

The order is affirmed. Plaintiff is entitled to his costs on appeal.

MOORE, ACTING P. J.

WE CONCUR:

IKOLA, J.

THOMPSON, J.