SHUBIN v. WILLIAM LYON HOMES INC

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Court of Appeal, First District, Division 4, California.

Kristy SHUBIN, Plaintiff and Respondent, v. WILLIAM LYON HOMES, INC. et al., Defendants and Appellants.

No. A088858.

Decided: November 14, 2000

Paul, Hastings, Janofsky & Walker, LLP, Howard C. Hay, Glenn L. Briggs, for Appellant. Gillin, Jacobson, Ellis & Larsen, Ralph L. Jacobson, Kristin M. Lucey, for Respondent.

Kristy Shubin filed a complaint against her former employer, William Lyon Homes, Inc. (the employer or employer), alleging employment discrimination and harassment based on sex and pregnancy.   The employer filed a motion to compel arbitration of Shubin's claims.  (Code Civ. Proc., § 1294, subd. (a).)  The superior court denied the motion on the grounds that a mandatory employment arbitration clause in Shubin's employment agreement was both procedurally and substantively unconscionable, thereby rendering the entire arbitration clause unenforceable.   The employer appealed.

On August 24, 2000, the California Supreme Court held that employees can be compelled to arbitrate wrongful termination or employment discrimination claims brought under the California Fair Employment and Housing Act (FEHA) ( Gov.Code, § 12900 et seq.) if the arbitration permits the employee to vindicate his or her statutory rights.   The court further held, however, that certain provisions of the arbitration clause in the case before it were unconscionable.   Because it concluded that the unconscionable provisions permeated the entire agreement it had before it, the Supreme Court held that those provisions could not be severed.   It therefore found the agreement to be unenforceable in its entirety.  (Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, 90-91, 122, 99 Cal.Rptr.2d 745, 6 P.3d 669 (Armendariz).)

Applying Armendariz to this case, we shall conclude, first, that the trial court's finding that the arbitration agreement herein is procedurally unconscionable is supported by substantial evidence.   On the other hand, we shall conclude that the agreement is substantively unconscionable for only one of three reasons cited by the trial court.   As we cannot say that the single unconscionable provision permeates the entire agreement, we conclude that the proper remedy is to reverse the trial court's order denying arbitration, to direct the court to enter a new order severing the one unconscionable provision from the rest of the agreement, and to enforce the remaining portions of the agreement.  (See Armendariz, supra, 24 Cal.4th at pp. 122-124, 99 Cal.Rptr.2d 745, 6 P.3d 669.)

I.

FACTS 1

A. Background

In April 1998, William Lyon Homes, Inc. hired Kristy Shubin as a receptionist.   In December 1998, she was promoted to escrow coordinator.   In January 1999, Shubin told Doug Bauer, president of the employer's Northern California region, that she was pregnant.   Shubin alleged that immediately after she announced her pregnancy, Bauer and Connie Newbury, the marketing/sales coordinator for the employer, subjected her to negative and hostile reactions.   These included her eventual removal as escrow coordinator and demotion to a receptionist position.   Shubin further alleged that in March 1999, Bauer refused to make accommodations for work restrictions imposed by Shubin's physician during her pregnancy.

In July 1999, after first obtaining a right-to-sue letter from the Department of Fair Employment & Housing (DFEH), Shubin filed her “complaint for damages for discrimination and harassment based on sex and pregnancy” against the employer and certain fictitious defendants.

B. The Arbitration Clause

The employer responded to Shubin's complaint by moving to compel arbitration.   The employer's motion was based on an arbitration clause contained in a two-paged “employee agreement” Shubin had signed shortly after she began working for the company.   The arbitration clause provides:

6.  Binding Arbitration.   Any dispute arising out of or relating to Employee's employment and/or the terms of this Agreement, including but not limited to any claims of harassment or discrimination in violation of any federal or state law and any other aspect of Employee's compensation, employment or its termination (except a workers' compensation or unemployment claim, an alleged taking or use of confidential information, or claims with respect to Paragraph 4 above),2 shall be resolved by an arbitrator experienced in employment law arbitrations who is selected in accordance with the rules of JAMS/Endispute, as the exclusive remedy for such dispute and instead of any court action, which is hereby expressly waived.   Should either party pursue any other legal or administrative action against the other regarding any matter included within this binding arbitration clause, the responding party shall be entitled to recover its costs, expenses and attorneys' fees incurred as a result of such action.

C. Circumstances Surrounding Shubin's Signing of Employee Agreement

In opposition to the employer's motion, Shubin filed a declaration in which she stated that she began working for the company as a receptionist in April 1998.   Shortly thereafter,3 her office manager, Kathy Sampson, approached her late in the day and put several pieces of paper on her desk.   Sampson told Shubin to sign them so she could send them to the company's headquarters in Southern California.   Sampson stood by and waited as Shubin signed the papers, telling her where to sign or initial each piece of paper.

Shubin declared that she did not have time to read each document before she signed it.   She said she “did not feel that [she] had any choice but to sign.”   When Shubin asked Sampson what it was she was signing, Sampson replied that the papers were just for company records, to show that Shubin had been hired.   Sampson reassured Shubin that she would go over each document with her later.   Sampson did not give Shubin copies of the documents she signed.   Sampson did not tell Shubin that in signing the employee agreement, she was agreeing to arbitrate any dispute she might have with the company.   No one at the company mentioned “arbitration” to her.   Although Shubin later asked for opportunities to review the signed paperwork, she did not receive a copy of the agreement until after she filed this action and her attorney requested it.

In her declaration, Sampson, the office manager, stated that she recalled presenting the employment agreement to Shubin to read and sign, but Shubin never indicated a need for more time to read it before she signed it.   She did not recall telling Shubin that she would explain the agreement to Shubin at a later time.

In May 1999, after Shubin filed her administrative claim, a subsequent office manager, Bridget Koopen, approached Shubin and asked her to sign another document entitled “Employee Agreement.”   Shubin told her that before she signed it, she wished to take it home, read it, and consult with her attorney, but Koopen would not let her do so.   Shubin asked for a copy, but Koopen would not give her one.   According to Shubin, Koopen seemed upset by Shubin's failure to sign the document.

D. The Motion to Compel

In August 1999, after Shubin filed her complaint, Howard C. Hay, the employer's attorney, wrote a letter to Shubin's attorney, Kristin M. Lucey, indicating that if their dispute could not be resolved by discussion, the employer would submit it to arbitration.   Hay attached a copy of the employment agreement to his letter.   This was apparently the first time the employer had provided Shubin with a copy of the employment agreement.

Attorney Lucey responded to Hay's letter by stating that “given the content of the arbitration agreement,” Shubin was unwilling to proceed with arbitration.   From the outset, Lucey maintained that the arbitration clause was “procedurally and substantively unconscionable” and therefore unenforceable.   Lucey argued that Shubin had no power to negotiate the terms of her employment agreement and she was required to sign it as a condition of her employment.   Lucey also noted that under the arbitration clause, the employer had retained the right for it to go to court on matters significant to the employer while employees were required to submit any dispute “arising out of or relating to” their employment to arbitration.   The only exceptions to the latter were disputes concerning workers' compensation and unemployment claims, matters which are governed by statute in any event and not subject to waiver or arbitration.

Hay did not reply to the merits of Lucey's letter.   Instead, he noted that the Supreme Court had granted review in a case Lucey had cited in her letter and admonished her that she no longer had any case authority to support Shubin's “refusal to honor her promise to arbitrate.”   By letter, Lucey agreed that while she could no longer rely directly on the case she had previously cited, its underlying reasoning remained persuasive and supported Shubin's “concern regarding the procedural and substantive unconscionability of the arbitration agreement.”

In September 1999, the employer filed its motion to compel arbitration.   In support, it argued that California has a “strong policy” in favor of arbitration agreements, and that arbitration agreements should be enforced unless an arbitration clause cannot be interpreted to cover the dispute.   As the employer intended its arbitration clause to apply to “any claims of harassment or discrimination in violation of any federal or state law,” it argued that the clause clearly covered Shubin's lawsuit.   Anticipating Shubin's objection that the arbitration was unconscionable, the employer argued that the agreement “is evenhanded because it provides plaintiff with two exceptions (Workers' Compensation and Unemployment Claims) to the Company's one exception for its trade secrets only.”   It argued that “[p]laintiff's agreement (1) does not alter any remedies available to her, (2) does not limit her recovery of her attorneys' fees, (3) does not shorten any limitations period at all, and (4) does not limit her right to discovery.”   The employer concluded that “[t]he only thing that is ‘unconscionable’ is plaintiff's effort to repudiate her written promise based on one exception which has nothing to do with her claim.”

In opposition to the employer's motion to compel arbitration, Shubin renewed her arguments that the agreement she had signed was both procedurally and substantively unconscionable.   Relying primarily on Kinney v. United HealthCare Services, Inc. (1999) 70 Cal.App.4th 1322, 83 Cal.Rptr.2d 348 (Kinney) and Stirlen v. Supercuts, Inc. (1997) 51 Cal.App.4th 1519, 60 Cal.Rptr.2d 138 (Stirlen), she argued that the arbitration clause was procedurally unconscionable in that it was contained in a contract of adhesion drawn up by the employer that Shubin had no realistic ability to modify.  (See Stirlen, 51 Cal.App.4th at p. 1534, 60 Cal.Rptr.2d 138.)   The clause was substantively unconscionable because it unilaterally required her to submit her claims to arbitration while reserving the employer's right to go to court.   (Kinney, supra, 70 Cal.App.4th at p. 1332, 83 Cal.Rptr.2d 348;  Stirlen, supra, 51 Cal.App.4th at p. 1536, 60 Cal.Rptr.2d 138.)   Further, under the “JAMS/Endispute” rules incorporated into the employer's agreement, the parties to arbitration involving employment disputes are limited to taking the deposition “of one individual under the control of the opposing Party” and each must pay a pro rata share of Jams/Endispute fees.  (See JAMS/Endispute Arbitration Rules and Procedures for Employment Disputes (Jams/Endispute rules).)   Citing Cole v. Burns International Security Services (D.C.Cir.1997) 105 F.3d 1465 (Cole), Shubin argued that an employer could not require an employee to submit his or her statutory claims to arbitration and then require the employee to pay all or part of the arbitrators' fees.  (Cole, supra, at pp. 1483-1485.)   Finally, Shubin contended that the employer's argument based upon what was not in the agreement was not probative.   The question, Shubin argued, is whether or not the employment agreement as executed by the parties is, or is not, invalid as unconscionable.

On October 8, 1999, the trial court tentatively ruled to deny the employer's motion.   It found that the arbitration clause was both procedurally and substantively unconscionable in that (1) the employer had access to the courts while the employee did not;  (2) the parties' rights to discovery were limited, a factor which had significantly greater impact on the employee than on the employer;  and (3) if the employee initiated a court or administrative remedy, she would have to bear all costs, expenses, and attorney fees, even if she prevailed.   Following a hearing, the court adopted its tentative ruling.   The court's order denying the employer's motion to compel arbitration was filed on that same date.4

II.

DISCUSSIONA. Standard of Review

 Normally, the determination of the validity of an arbitration clause, made only “upon such grounds as exist for the revocation of any contract” (Code Civ.Proc., § 1281), is a judicial function subject to de novo review.  (Stirlen, supra, 51 Cal.App.4th at p. 1527, 60 Cal.Rptr.2d 138.)   An exception is when the validity of the arbitration clause turns on a factual determination.   In that circumstance, the standard on appeal is whether there is substantial evidence to support the trial court's finding.   (Id., at p. 1527, fn. 2, 60 Cal.Rptr.2d 138.) In this case, the factual issues are based on affidavits or declarations submitted by the parties.   The applicable standards of appellate review of a judgment based on affidavits or declarations are the same as for a judgment following oral testimony-we accept the trial court's resolution of disputed facts when supported by substantial evidence.  (Betz v. Pankow (1993) 16 Cal.App.4th 919, 923, 20 Cal.Rptr.2d 834.)   Applying these principles in the context of this case, when deciding whether the trial court's finding of unconscionability was correct, “ ‘we must assume a set of facts consistent with the [trial] court's finding of unconscionability if such an assumption is supported by substantial evidence.’  [Citation.]”  (Ilkhchooyi v. Best (1995) 37 Cal.App.4th 395, 411, 45 Cal.Rptr.2d 766.)   We then take these facts as found by the trial court and decide, as a matter of law, whether the arbitration clause is valid and enforceable.

 Assuming one or more provision of an arbitration agreement is found unconscionable, a trial court then has “some discretion as to whether to sever or restrict the unconscionable provision or whether to refuse to enforce the entire agreement.”   But a trial court may take the latter course only if the agreement is “ ‘permeated’ ” by unconscionability.   (Armendariz, supra, 24 Cal.4th at p. 122, 99 Cal.Rptr.2d 745, 6 P.3d 669.)   If the trial court concludes that the arbitration agreement is permeated by unconscionability and for that reason refuses to enforce the entire agreement, the reviewing court must then decide whether or not the trial court has abused its discretion.  (Id., at pp. 122, 124, 99 Cal.Rptr.2d 745, 6 P.3d 669.)

B. Armendariz

In asking this court to reverse the trial court's order denying its motion to compel arbitration, the employer argues that California has a “strong public policy” favoring arbitration agreements;  that the arbitration clause is enforceable unless it is found to be both procedurally and substantively unconscionable;  and that upon analysis, the arbitration clause herein is neither procedurally nor substantively unconscionable.

In Armendariz, the California Supreme Court considered “a number of issues related to the validity of a mandatory employment arbitration agreement, i.e., an agreement by an employee to arbitrate wrongful termination or employment discrimination claims rather than filing suit in court, which an employer imposes on a prospective or current employee as a condition of employment.”   (Armendariz, supra, 24 Cal.4th at p. 90, 99 Cal.Rptr.2d 745, 6 P.3d 669.)   The court concluded that FEHA claims “are in fact arbitrable if the arbitration permits an employee to vindicate his or her statutory rights.”  (Ibid., italics in original.)   For such vindication to occur, “the arbitration must meet certain minimum requirements, including neutrality of the arbitrator, the provision of adequate discovery, a written decision that will permit a limited form of judicial review, and limitations on the costs of arbitration.”   (Id., at pp. 90-91, 99 Cal.Rptr.2d 745, 6 P.3d 669.)   In addition to those “minimum requirements for the arbitration of unwaivable statutory claims,” the court considered objections that apply more generally to any type of arbitration imposed on an employee by an employer as a condition of employment, regardless of the type of claim being arbitrated.  “These objections fall under the rubric of ‘unconscionability.’ ”  (Id., at p. 113, 99 Cal.Rptr.2d 745, 6 P.3d 669.)   Finding several portions of agreement before it to be unconscionable, the Supreme Court concluded that, rather than the provisions it considered unconscionable being severable, the entire arbitration agreement was unenforceable.  (Id., at p. 91, 99 Cal.Rptr.2d 745, 6 P.3d 669.)

We shall consider the employer's arguments in light of Armendariz.

C. Arbitration Agreements Are Neither Favored nor Disfavored

The employer begins its argument by referring to California's “strong public policy” favoring arbitration agreements.   It cites several previous cases expressing and implementing that policy, including decisions enforcing agreements to arbitrate in the context of employment discrimination claims.   (See, e.g., Moncharsh v. Heily & Blase (1992) 3 Cal.4th 1, 9, 10 Cal.Rptr.2d 183, 832 P.2d 899;  24 Hour Fitness, Inc. v. Superior Court (1998) 66 Cal.App.4th 1199, 1215, 78 Cal.Rptr.2d 533 [sexual harassment].)   The employer adds:  “Furthermore, this strong public policy is not simply a creation of the California Supreme Court, it is the intent of the Legislature.”  (See Moncharsh v. Heily & Blase, supra, 3 Cal.4th at p. 9, 10 Cal.Rptr.2d 183, 832 P.2d 899.)

 In Armendariz, the Supreme Court first agreed that employment discrimination claims could be made subject to arbitration if the arbitration permits an employee to vindicate his or her statutory rights.  (Armendariz, supra, 24 Cal.4th at p. 90, 99 Cal.Rptr.2d 745, 6 P.3d 669.)   Indeed, for purposes of the California Arbitration Act, Code of Civil Procedure section 1280, subdivision (a) defines the term “agreement” as including “agreements between employers and employees or between their respective representatives.”   But at the same time, the Supreme Court seems to have modified its previous view as to the strength of the public policy in support of arbitration.   “[A]lthough we have spoken of a ‘strong public policy of this state in favor of resolving disputes by arbitration’ [citation], Code of Civil Procedure section 1281 makes clear that an arbitration agreement is to be rescinded on the same ground as other contracts or contract terms.   In this respect, arbitration agreements are neither favored nor disfavored, but simply placed on an equal footing with other contracts.”  (Armendariz, supra, 24 Cal.4th at pp. 126-127, 99 Cal.Rptr.2d 745, 6 P.3d 669.)

D. General Validity of the Arbitration Clause

 In order to ensure that mandatory employment arbitration agreements are not used to curtail an employee's FEHA rights, the California Supreme Court generally endorsed five minimum requirements for the lawful arbitration of such rights, as initially formulated by the United States Court of Appeal, District of Columbia Circuit.  (Armendariz, supra, 24 Cal.4th at pp. 102-113, 99 Cal.Rptr.2d 745, 6 P.3d 669, following Cole, supra, 105 F.3d 1465.) 5  “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, at p. 102, 99 Cal.Rptr.2d 745, 6 P.3d 669, citing Cole, supra, at p. 1482.)   Thus, a mandatory arbitration agreement in an employment contract is valid if it encompasses, expressly or impliedly, all of these requirements.   (Armendariz, supra, at p. 102, 99 Cal.Rptr.2d 745, 6 P.3d 669.)

1. Neutrality of Arbitrator

The California Supreme Court had previously held that a neutral arbitrator is essential to ensuring the integrity of the arbitration process.  (Graham v. Scissor-Tail, Inc. (1981) 28 Cal.3d 807, 825, 171 Cal.Rptr. 604, 623 P.2d 165.)   As in Armendariz, no one in this case challenges the requirement for a neutral arbitrator.  (Armendariz, supra, 24 Cal.4th at p. 103, 99 Cal.Rptr.2d 745, 6 P.3d 669.)   The integrity and neutrality of the JAMS/Endispute organization when conducting arbitration hearings is not in question.

2. Limitation of Remedies

“The principle that an arbitration agreement may not limit statutorily imposed remedies such as punitive damages and attorney fees appears to be undisputed.”  (Armendariz, supra, 24 Cal.4th at p. 103, 99 Cal.Rptr.2d 745, 6 P.3d 669.)   One of the clauses the Supreme Court found unconscionable in Armendariz was a provision purporting to limit the employee's damages to backpay.   It concluded that “this damages limitation [was] contrary to public policy and unlawful.”  (Id., at p. 104, 99 Cal.Rptr.2d 745, 6 P.3d 669.)   There is no claim of unlawful limitation of remedies in this case.

3. Adequate Discovery

In finding the arbitration clause herein to be invalid, the trial court found that “the parties rights to discovery are limited” and this limitation “has a significantly greater impact on plaintiff than defendant.”   Shubin had argued that under the JAMS/Endispute rules, each party has a limited “right to take the deposition of the opposing party or of one individual under the control of the opposing Party.”  (See JAMS/Endispute rules, supra, ¶ 13(b).)   In Armendariz, the employees argued that employers typically possess the documents relevant to an employment discrimination case and employ many of the relevant witnesses.   Denying adequate discovery would lead to the frustration of the employee's rights.  (Armendariz, supra, 24 Cal.4th at p. 104, 99 Cal.Rptr.2d 745, 6 P.3d 669.)

 In Armendariz, the Supreme Court agreed that adequate discovery was indispensable for the vindication of FEHA claims.   But rather than invalidate the agreement before it solely on that basis, the Supreme Court inferred that “when parties agree to arbitrate statutory claims, they also implicitly agree, absent express language to the contrary, to such procedures as are necessary to vindicate that claim.” 6  (Armendariz, supra, 24 Cal.4th at pp. 105-106, 99 Cal.Rptr.2d 745, 6 P.3d 669.)  “Accordingly, whether or not the employees in this case are entitled to the full range of discovery provided in Code of Civil Procedure section 1283.05, they 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, 99 Cal.Rptr.2d 745, 6 P.3d 669, fn. omitted.)   The Supreme Court therefore held “that the employer, by agreeing to arbitrate the FEHA claim, has already impliedly consented to such discovery.   Therefore, lack of discovery is not grounds for holding a FEHA claim inarbitrable.”  (Ibid.)

 Applying the reasoning of Armendariz to our case, we too shall infer that when the employer agreed to arbitrate the FEHA claim, it implicitly consented to discovery sufficient for Shubin to adequately arbitrate her statutory claim.   As so construed, the apparent limitation on the employee's discovery rights as found by the trial court does not provide a basis for holding her FEHA claim inarbitrable.

4. Written Arbitration Award and Judicial Review

Neither party raised this specific issue in the trial court.   The Supreme Court indicated, in reasoning equally applicable to this case, that it would be premature to articulate precisely what standard of judicial review is sufficient to ensure that arbitrators comply with statutory requirements.  “All we hold today is that in order for such judicial review to be successfully accomplished, an arbitrator in a FEHA case must issue a written arbitration decision that will reveal, however briefly, the essential findings and conclusions on which the award is based.”  (Armendariz, supra, 24 Cal.4th at p. 107, 99 Cal.Rptr.2d 745, 6 P.3d 669.)   As in Armendariz, “[N]othing in the present arbitration agreement precludes such written findings, and to the extent it applies to FEHA claims the agreement must be interpreted to provide for such findings.”  (Ibid.)

5. Payment of Costs and Arbitration Fees

The Supreme Court criticized provisions in a mandatory employment arbitration agreement requiring the employee to bear unreasonable costs and arbitration fees.  (Armendariz, supra, 24 Cal.4th at pp. 107-113, 99 Cal.Rptr.2d 745, 6 P.3d 669.)   The arbitration agreement before it incorporated Code of Civil Procedure section 1284.2, which provides that each party must pay a pro rata share of an arbitrator's expenses and fees.   Similarly, the arbitration agreement in our case incorporates the JAMS/Endispute rules, which provide that, absent an agreement by the parties to the contrary, “[e]ach party will pay its pro-rata share of JAMS/Endispute's fees and expenses․” (JAMS/Endispute rules, ¶ 27(a).)   Further, “[t]he Parties are jointly and severally liable for the payment of the fees and expenses of JAMS/Endispute.”  (Id., ¶ 27(c).)   While it is possible that the arbitrator might ultimately award expenses or attorneys' fees as a remedy in the arbitration itself (Id., ¶ 19(c)), the employee still risks having to pay one half of the applicable arbitration fees.

The Cole court held that it was unlawful to require an employee who is the subject of a mandatory employment arbitration agreement to have to pay the costs of arbitration.  (Cole, supra, 105 F.3d at pp. 1483-1485.)   Our Supreme Court had previously applied this rule in California Teachers Assn. v. State of California (1999) 20 Cal.4th 327, 355, 84 Cal.Rptr.2d 425, 975 P.2d 622, in which it considered whether it was constitutionally permissible to statutorily require a teacher who loses an administrative challenge to a dismissal to pay one-half of the administrative law judge's fees.   The Supreme Court held it was not.  (Ibid.)

In Armendariz, the Supreme Court applied the same rule to the arbitration of statutory claims.   It said that “it is not only the costs imposed on the claimant but the risk that the claimant may have to bear substantial costs” that deters the exercise of the employee's right to a hearing.   The court held “that the cost issues should be resolved not at the judicial review stage but when a court is petitioned to compel arbitration.”  (Armendariz, supra, 24 Cal.4th at p. 110, 99 Cal.Rptr.2d 745, 6 P.3d 669.)   The court concluded “that when an employer imposes mandatory arbitration as a condition of employment, the arbitration agreement or arbitration process 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.”   (Id., at pp. 110-111, 99 Cal.Rptr.2d 745, 6 P.3d 669, italics in original.)

Construing the FEHA as implicitly prohibiting such costs, the Supreme Court held “that a mandatory employment arbitration agreement that contains within its scope the arbitration of FEHA claims impliedly obliges the employer to pay all types of costs that are unique to arbitration.   Accordingly, we interpret the arbitration agreement in the present case as providing, consistent with the above, that the employer must bear the arbitration forum costs.”   (Armendariz, supra, at p. 113, 99 Cal.Rptr.2d 745, 6 P.3d 669.)

The Supreme Court ultimately held that, given the above interpretation, the absence of a specific provision on arbitration costs is not grounds for denying the enforcement of an arbitration agreement.7  Thus, we may not invalidate the arbitration agreement in this case on that grounds.   (Armendariz, supra, 24 Cal.4th at p. 113, 99 Cal.Rptr.2d 745, 6 P.3d 669.)

However, we must still consider the impact of the trial court's interpretation of the additional provision in the arbitration clause herein that Shubin would have to bear all costs, expenses, and attorneys' fees if she initiated a court or administrative remedy, even if she emerged as the prevailing party.8  At the hearing on the motion to compel arbitration, the court asked the employer's attorney whether, under the language of this provision, Shubin would have to pay costs, expenses, and attorney's fees, even if she were to pursue a court or administrative remedy and win.   It inquired:  “Wouldn't an employee reading that not have an understanding, if I win I lose anyways.   I can't afford to pay those fees.”   Not satisfied with the employer's response, the trial court found the arbitration clause to be substantively unconscionable, due in part to the fact “that if plaintiff initiates a court or administrative remedy, plaintiff will have to bear all costs, expenses and attorney's fees even if plaintiff prevails.”

We therefore turn to the general issue of unconscionability and the impact of this provision upon it.

E. Unconscionability

In Part II.C. of the Armendariz decision, the Supreme Court focused on the minimum requirements for the arbitration of unwaivable statutory claims under the FEHA. (Armendariz, supra, 24 Cal.4th at pp. 99-113, 99 Cal.Rptr.2d 745, 6 P.3d 669.)   We now turn to Part II.D., wherein the Supreme Court considered the objections to arbitration that apply more generally to any type of arbitration imposed on an employee by an employer as a condition of employment, regardless of the type of claim being arbitrated, i.e. issues of “unconscionability.”  (Id . at pp. 113-121, 99 Cal.Rptr.2d 745, 6 P.3d 669.)

Code of Civil Procedure section 1281 provides:  “A written agreement to submit to arbitration an existing controversy or a controversy thereafter arising is valid, enforceable and irrevocable, save upon such grounds as exist for the revocation of any contract.” 9

Code of Civil Procedure section 1281.2 provides, in part:  “On petition of a party to an arbitration agreement alleging the existence of a written agreement to arbitrate a controversy and that a party thereto refuses to arbitrate such controversy, the court shall order the petitioner and the respondent to arbitrate the controversy if it determines that an agreement to arbitrate the controversy exists, unless it determines that:  [¶] ․ ¶ (b) Grounds exist for the revocation of the agreement.” 10

Civil Code section 1670.5 codifies the principle that a court can “revoke” or refuse to enforce an unconscionable provision in a contract.   Subdivision (a) provides:  “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.”

 In Armendariz, the Supreme Court recognized that because unconscionability is a reason for refusing to enforce contracts generally, it is also a valid reason for refusing to enforce an arbitration agreement under Code of Civil Procedure section 1281.  (Armendariz, supra, 24 Cal.4th at p. 114, 99 Cal.Rptr.2d 745, 6 P.3d 669.)   The Court stated that unconscionability analysis begins with an inquiry into whether the contract is one of adhesion, i.e., “ ‘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.’  (Neal v. State Farm Ins. Cos. (1961) 188 Cal.App.2d 690, 694, 10 Cal.Rptr. 781.)”   (Armendariz, supra, at. p. 113, 99 Cal.Rptr.2d 745, 6 P.3d 669.)   If the contract is adhesive, a court must then decide if there are other factors present which operate to make it unenforceable.   Citing Graham v. Scissor-Tail, Inc., supra, 28 Cal.3d 807, 171 Cal.Rptr. 604, 623 P.2d 165, the Supreme Court recognized two judicially imposed limitations on the enforcement of adhesion contracts or provisions thereof.  (Armendariz, supra, 24 Cal.4th at p. 113, 99 Cal.Rptr.2d 745, 6 P.3d 669.)   One is that if such a contract or provision does not fall within the reasonable expectations of the weaker party, it will not be enforced against that party.   The second is that a contract or provision, “even if consistent with the reasonable expectations of the parties, will be denied enforcement if, considered in its context, it is unduly oppressive or ‘unconscionable.’  [Citations.]”  (Graham v. Scissor Tail, Inc., supra, 28 Cal.3d at p. 820, 171 Cal.Rptr. 604, 623 P.2d 165.)

Continuing, the Supreme Court stated that unconscionability has both a “procedural” and a “substantive” element.   The former focuses on “oppression” or “surprise” due to unequal bargaining power, while the latter focuses on “overly harsh” or “one-sided results.”   “ ‘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.’  ” (Stirlen, supra, 51 Cal.App.4th at p. 1533, 60 Cal.Rptr.2d 138, quoted with approval in Armendariz, supra, 24 Cal.4th at p. 114, 99 Cal.Rptr.2d 745, 6 P.3d 669, italics omitted.)   But the two need not be present in the same degree.  “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, 99 Cal.Rptr.2d 745, 6 P.3d 669.)

1. Contract of Adhesion

 First, while the employee agreement in this case was relatively brief in scope, it was nevertheless adhesive.   The record suggests that it was a standardized contract imposed on employees as a condition of employment with no realistic opportunity for the employee to negotiate its terms.  (Armendariz, supra, 24 Cal.4th at pp. 114-115, 99 Cal.Rptr.2d 745, 6 P.3d 669.)  “[I]n the case of preemployment arbitration contracts, the economic pressure exerted by employers on all but the most sought-after employees may be particularly acute, for the arbitration agreement stands between the employee and necessary employment, and few employees are in a position to refuse a job because of an arbitration requirement.”  (Id., at p. 115, 99 Cal.Rptr.2d 745, 6 P.3d 669.)

2. Procedural Unconscionability

 Relying primarily on Rosenthal v. Great Western Fin. Securities Corp. (1996) 14 Cal.4th 394, 423-424, 58 Cal.Rptr.2d 875, 926 P.2d 1061, the employer claims the trial court erred when it found the employment agreement herein to be procedurally unconscionable.   It asserts that the sole evidence relied upon by the trial court was Shubin's declaration that she “did not have time” to read the agreement before she signed it, nor did she “feel” she had any choice but to sign the documents.   In Rosenthal, the arbitration agreement was attacked on the basis of fraud, rather than unconscionability.   In that context, the Supreme Court stated that if a party, with a reasonable opportunity to do so, fails to learn the nature of a document he or she signs, such negligence precludes a finding that the contract is void for fraud in the execution.  (Id., at p. 423, 58 Cal.Rptr.2d 875, 926 P.2d 1061.)   Stated simply, one should read a contract before signing it.   In response to claims by some of the plaintiffs in Rosenthal that they were not given time to read the agreement, or that they felt rushed or pressured to sign, the court stated, “Without evidence [that the defendants] actually took some action or said something to hurry or pressure the prospective client, however, these claims add nothing to plaintiffs' showing.”  (Id., at p. 424, fn. 12, 58 Cal.Rptr.2d 875, 926 P.2d 1061.)

The agreement here, of course, is not being attacked on the grounds of fraud and Shubin said more than the employer asserts.   She declared that Ms. Sampson's actions and comments served to pressure her into signing several documents, including the employment agreement, without Shubin having “time to read each document before I signed it.”   According to Shubin, Sampson came to her desk late in the day, put several pieces of paper on her desk, and told her that she needed the documents signed so they could be sent to the corporate offices.   Sampson seemed to be in a hurry.   She stood by and showed Shubin where to sign or initial each piece of paper.   When Shubin asked what she was signing, she was told “the papers [were] just for company records to show that I had been hired, or words to that effect.”   Shubin was not given a copy of the papers she signed.  “I did not feel that I had any choice but to sign the documents.”   Almost a year later, in May 1999, when a subsequent office manager asked Shubin to sign a similar agreement, she was not permitted to take that document home with her to read it.   Shubin indicated she had wanted to consult with her attorney before signing it, but when she asked for a copy, the office manager refuse to let her have one.

Citing Shubin's declaration, the trial court found the arbitration agreement to be procedurally unconscionable.   Under applicable standards of review, we must assume a set of facts consistent with that court's finding of unconscionability if such an assumption is supported by substantial evidence.   (Ilkhchooyi v. Best, supra, 37 Cal.App.4th at p. 411, 45 Cal.Rptr.2d 766.)   Unlike in Rosenthal, supra, 14 Cal.4th at p. 424, fn. 12, 58 Cal.Rptr.2d 875, 926 P.2d 1061, there was evidence in our case that Sampson, the office manager, said and did things to hurry or pressure Shubin into signing the documents placed before her, without having the time to carefully read their contents.   Shubin's references to the later events in May corroborate the inference that the employer's practice was to ask its employees to sign important employment documents under circumstances where the employee had little chance to carefully read them and no realistic opportunity to suggest modifications.   We therefore conclude that the trial court's finding of procedural unconscionability is supported by substantial evidence.

3. Substantive Unconscionability

The trial court found substantive unconscionability based on the following:  “1) Defendant has access to the courts and plaintiff does not, 2) the parties [sic ] rights to discovery are limited which has a significantly greater impact on plaintiff than defendant, 3) that if plaintiff initiates a court or administrative remedy, plaintiff will have to bear all costs, expenses and attorney's fees even if plaintiff prevails.”

Initially, we note that at the time the trial court made its ruling, Armendariz had not yet been decided.   Based on the teachings of Armendariz, we shall conclude that the agreement is substantively unconscionable in only the third area cited by the trial court.   Because that single unconscionable provision does not permeate the entire arbitration agreement, we believe the appropriate remedy is to sever that single unconscionable provision from the rest and to permit enforcement of the remainder of the agreement.

a. Discovery

 First, with regard to the court's second finding and the impact of the JAMS/Endispute rules purporting to limit discovery in an employment arbitration proceeding, the Supreme Court has put a gloss on those provisions as they are to be applied in FEHA disputes.   It held that in such cases, 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.”  (Armendariz, supra, 24 Cal.4th at p. 106, 99 Cal.Rptr.2d 745, 6 P.3d 669, fn. omitted.)   The court held that the employer, by agreeing to arbitrate the FEHA claim, impliedly consents to such discovery.   Given this interpretation, the lack of a provision in the agreement for adequate discovery is not in itself a ground for holding a FEHA claim inarbitrable.  (Ibid.)

We turn to the other two grounds cited by the trial court to support its finding of substantive unconscionability.

b. Lack of Mutuality

 In finding the arbitration agreement in our case to be substantively unconscionable, the trial court stated that the employer has access to the courts while the employee does not.   In Armendariz, the primary reason the Supreme Court found the arbitration agreement before it to be substantively unconscionable was that the agreement lacked mutuality, i.e., that it required only the employees to arbitrate their wrongful termination claims against the employer, but did not require the employer to arbitrate claims it may have against the employees.  (Armendariz, supra, 24 Cal.4th at pp. 115-116, 99 Cal.Rptr.2d 745, 6 P.3d 669.)   It said that “the doctrine of unconscionability limits the extent to which a stronger party may, through a contract of adhesion, impose the arbitration forum on the weaker party without accepting that forum for itself.”  (Id., at p. 118, 99 Cal.Rptr.2d 745, 6 P.3d 669.)

In our case, the arbitration clause applies to “[a]ny dispute arising out of or relating to Employee's employment and/or the terms of this Agreement, including but not limited to any claims of harassment or discrimination in violation of any federal or state law and any other aspect of Employee's compensation, employment or its termination (except a workers' compensation or unemployment claim, an alleged taking or use of confidential information, or claims with respect to [the employee's duty to preserve the employer's interests in confidentiality] ).”

In evaluating the validity of that provision, we note first that the exceptions relating to workers' compensation and unemployment claims concern subject matter areas which are closely governed by statute.   Such claims must be pursued in administrative forums;  neither is a proper subject matter for either court or arbitration proceedings.  (See generally, Lab.Code, § 5300 et seq.;   Unemp.Ins.Code, § 1951 et seq.)

That leaves for consideration the impact of the parenthetical exception relating to “an alleged taking or use of confidential information, or claims with respect to” the employee's duty to preserve the employer's interests in confidentiality, as spelled out in paragraph 4 of the agreement.  (See fn. 2, ante.)   Shubin contends that under the overall terms of the agreement, she is absolutely precluded from any access to the courts, while the employer could have access to the courts if issues relating to the taking, use, or disclosure of confidential information were involved. She points out that these are issues primarily of concern to the employer.   She cites as an example a situation where the employer might claim she was disclosing confidential information to a friend who was about to open a competitive business, and asserts that the employer could sue her for damages and injunctive relief in court, while she could not sue her employer.

But unlike the agreements in Armendariz, Stirlen, and Kinney the arbitration clause here does not itself preclude Shubin from resorting to the courts in all instances relating to confidential information.   Although most disputes arising out of or relating to her employment must be resolved by arbitration, the exceptions relating to disputes involving the taking, use, or disclosure of confidential information seem to apply to both sides.   The clause itself does not expressly distinguish between the rights of the employer and the employee in that regard.  (See Kinney, supra, 70 Cal.App.4th at pp. 1325-1326, 1332, 83 Cal.Rptr.2d 348;  Stirlen, supra, 51 Cal.App.4th at pp. 1528-1529, 1542, 60 Cal.Rptr.2d 138.)

In the hypothetical cited by Shubin, if her employer claimed that she was disclosing confidential information to her friend who was about to open a competitive business, the arbitration clause would not preclude Shubin from seeking declaratory relief as to whether she in fact was violating the confidentiality terms of her agreement.

On the issue of mutuality, we find that the arbitration clause in this case is distinguishable from those in the cited cases and conclude that the provisions relating to access to the courts are not substantively unconscionable.

c. Duty to Pay Costs of Court or Administrative Remedy

 We agree with the trial court, however, that the arbitration clause in the present case places an unconscionable burden on the employee as it relates to the payment of costs, expenses, and attorneys' fees.   First, insofar as the costs of arbitration are concerned, the Supreme Court in Armendariz held “that a mandatory employment arbitration agreement that contains within its scope the arbitration of FEHA claims impliedly obliges the employer to pay all types of costs that are unique to arbitration.   Accordingly, we interpret the arbitration agreement in the present case as providing, consistent with the above, that the employer must bear the arbitration forum costs.”   (Armendariz, supra, 24 Cal.4th at p. 113, 99 Cal.Rptr.2d 745, 6 P.3d 669, italics added.)

But the arbitration clause in our case presents cost and fee issues beyond those relating to the costs of the actual arbitration.   The arbitration clause in this case expressly provides:  “Should either party pursue any other legal or administrative action against the other regarding any matter included within this binding arbitration clause, the responding party shall be entitled to recover its costs, expenses and attorneys' fees incurred as a result of such action.”   According to the trial court's interpretation of this provision, if Shubin went either to court or to an administrative agency and prevailed against the employer on an employment-related issue, the provision suggests she would have to pay to the employer its costs, expenses, and attorneys' fees, even though she was the prevailing party.   We agree, in part, with the trial court.

In a court action on a contract, Civil Code section 1717, subdivision (a) states that even if a contract specifically provides that attorney's fees and costs must be awarded to one of the parties, “the party who is determined to be the party prevailing on the contract, whether he or she is the party specified in the contract or not, shall be entitled to reasonable attorney's fees in addition to other costs.”   Under section 1717, even if the last sentence in the arbitration clause may be worded one-sided in favor of the employer, the statute requires that it be interpreted bilaterally.   Thus, if Shubin went to court and prevailed against the employer, she would be entitled to recover her costs, expenses, and attorney's fees.

But Civil Code section 1717 does not seem to extend to administrative proceedings.   It applies only to an “action” on a contract, i.e., an ordinary proceeding brought in a court of justice. (Code Civ.Proc., § 22.)

Suppose, for example, the employee sought to pursue her discrimination claim administratively before the DFEH. In Armendariz, the Supreme Court kept open that possibility, noting that “[n]othing in this opinion ․ should be interpreted as implying that an arbitration agreement can restrict an employee's resort to [DFEH], the administrative agency charged with prosecuting complaints made under the FEHA, ․” (Armendariz, supra, 24 Cal.4th at p. 99, 99 Cal.Rptr.2d 745, 6 P.3d 669, fn. 6.) The trial court looked upon this fee and cost provision as “a compelling disincentive” to the employee who sought to pursue an alternative remedy to arbitration.   In the example we cite, the clause chills the exercise of the employee's right to legitimately pursue her claim before DFEH. (See Armendariz, supra, 24 Cal.4th at p. 110, 99 Cal.Rptr.2d 745, 6 P.3d 669.)   For that reason, we agree with the trial court that, to this limited extent, this provision of the arbitration clause is unconscionable.

F. Severability

 Finally, citing Civil Code section 1670.5, the employer argues that even if we find one provision of the arbitration clause before us to be unconscionable, we should excise that clause and enforce the remainder of the agreement.   In Armendariz, the Supreme Court found that section 1670.5 gives the trial court some discretion as to whether to sever or restrict the unconscionable provision or whether to refuse to enforce the entire agreement.   The Supreme Court held that the statute contemplated the latter course only when an agreement was permeated by unconscionability.  (Armendariz, supra, 24 Cal.4th at p. 122, 99 Cal.Rptr.2d 745, 6 P.3d 669.)

In Armendariz, the Supreme Court found two factors which weighed against severance of the unlawful provisions.   First, the arbitration agreement there had more than one unlawful provision.   Given the multiple unlawful provisions, it found that the trial court in that case had not abused its discretion in concluding that the arbitration clause was permeated by an unlawful purpose.   Second, concerning the agreement's lack of mutuality, the court could identify no single provision that it could strike or restrict in order to remove that unconscionable taint from the agreement.  (Armendariz, supra, 24 Cal.4th at pp. 124-125, 99 Cal.Rptr.2d 745, 6 P.3d 669.)

 By contrast, we have found only part of one provision in our arbitration agreement to be unlawful:  that portion of the last sentence of the arbitration clause, relating to the payment of costs, expenses, and attorneys' fees in the event either party pursued a claim administratively.   The words “or administrative” can be severed without adversely affecting the central purpose of the contract.  “If the illegality is collateral to the main purpose of the contract, and the illegal provision can be extirpated from the contract by means of severance or restriction, then such severance and restriction are appropriate.”  (Armendariz, supra, 24 Cal.4th at p. 124, 99 Cal.Rptr.2d 745, 6 P.3d 669.)   We believe that severance is appropriate in this case.

III.

DISPOSITION

The order denying the employer's motion to compel arbitration is reversed.   The trial court is ordered to enter an order severing the words “or administrative” from the last sentence of the binding arbitration clause and to enforce the remaining portions of the agreement.

FOOTNOTES

1.   The factual background is based on the complaint and certain other documents filed for and against the employer's motion to compel arbitration.

2.   Paragraph 4 of the agreement provides:  “Confidential Information.   Employee agrees that any confidential information (e .g., financial, personnel or related to existing or prospective customers) will be kept in confidence, will be used exclusively for the benefit of the company and will not be disclosed or used outside the company either during Employee's employment or thereafter.”

3.   There is a factual discrepancy as to when the “employment agreement” was signed.   Sampson declared that Shubin signed it on April 14, 1998, Shubin's first day on the job.   Shubin thought she had signed it “about two weeks” later.   The agreement, itself, sheds no light on this discrepancy.   Shubin's signature line is undated.   William Lyon signed the agreement on behalf of the employer on “5-18-98,” more than a month after Shubin commenced her employment.

4.   In support of its October 8 order, the court cited Maciejewski v. Alpha Systems Lab, Inc. (1999) 73 Cal.App.4th 1372, 87 Cal.Rptr.2d 390, review granted October 6, 1999, S081796.   Apparently unknown to the parties or the trial court, the Supreme Court had granted review of Maciejewski two days previously.   In granting review, the Supreme Court ordered that further action in Maciejewski be deferred pending disposition of Armendariz.

5.   In the trial court, Shubin had relied on that portion of Cole which had held that an employer could not require an employee to submit her statutory claims to arbitration and then require the employee to pay all or part of the arbitrators' fees.  (Cole, supra, at pp. 1483-1485.)

6.   In Armendariz, the arbitration clause incorporated by reference the procedural rules of the California Arbitration Act (Code Civ.Proc., § 1280 et seq.).   In this case, the arbitration clause incorporated by reference “the rules of JAMS/Endispute.”   These incorporated provisions, in turn, set forth the discovery procedures applicable in each case.   We do not consider such incorporation language to be the “express language to the contrary” contemplated by the Supreme Court in the portion of Armendariz, just quoted.

7.   Again, we do not consider the provision which incorporated the JAMS/Endispute rules into the arbitration clause in this case to be a “specific provision” concerning the costs of arbitration.  (See fn. 6, ante.)

8.   The arbitration clause in our case provides, in part:  “Should either party pursue any other legal or administrative action against the other regarding any matter included within this binding arbitration clause, the responding party shall be entitled to recover its costs, expenses and attorneys' fees incurred as a result of such action.”

9.   The California Supreme Court has noted that reference to “the revocation of a contract” is something of a misnomer.   While “offers” are “revoked,” contracts are extinguished by “rescission.”   The Supreme Court prefers to refer to “rescission” or the “voiding” of an arbitration agreement.  (See Armendariz, supra, 24 Cal.4th at p. 98, fn. 4, 99 Cal.Rptr.2d 745, 6 P.3d 669;  see also 6 Witkin, Cal. Procedure (4th ed.   1997) Proceedings Without Trial, § 499, p. 929.)

10.   See footnote 9, ante.

SEPULVEDA, J.

HANLON, P.J., and REARDON, J., concur.

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