GARY MATHIS, Plaintiff and Appellant, v. SCREEN ACTORS GUILD PRODUCER PENSION HEALTH PLAN et al., Defendants and Respondents.
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
An employee signed arbitration agreements with his employer in 2000 and 2005. Shortly after he signed the 2005 agreement his employment was terminated. When the employee sued the employer under several causes of action, including wrongful termination, the employer moved to compel arbitration under the 2005 agreement. The trial court granted the motion, the employer prevailed in all respects at arbitration, and the trial court confirmed the arbitration award. On appeal, the employee contends a nonnegotiable arbitration agreement is unenforceable per se, both the 2000 and 2005 agreements were unconscionable, and the arbitrator exceeded his authority by failing to consider his claim of fraud in the inducement. We reject each contention and affirm.
From 2000 to 2006, plaintiff Gary Mathis worked for defendant Screen Actors Guild Producer Pension Health Plan under the supervision of defendants Nader Karimi and Bruce Dow (collectively SAG). In 2000 plaintiff executed an arbitration agreement as a condition of employment. In 2005 plaintiff was instructed he was required to sign a revised arbitration agreement (the 2005 agreement) as a condition of continued employment.
In the 2005 agreement plaintiff and SAG mutually agreed to submit to confidential arbitration any dispute arising from plaintiff's employment or cessation of employment. The agreement provided that arbitration would be governed by the federal Arbitration Act, would occur before a neutral arbitrator selected by the parties, would take place in the county where the employee worked, and would be subject to California or federal law as applicable. It provided that the arbitrator would determine the scope and extent of discovery in accordance with the rules of the Judicial Arbitration and Mediation Services (JAMS), each party would be entitled to any damages authorized by law, the employer would pay the costs of arbitration that exceeded normal court fees, and each party would bear its own attorney fees except as provided otherwise by the arbitrator in accordance with applicable law. (The 2000 agreement had provided for three arbitrators.)
Plaintiff signed the agreement, acknowledging he “carefully read” and agreed with it.
Two months later, plaintiff's employment was terminated. Plaintiff then filed a complaint against SAG alleging several causes of action, including breach of contract, and seeking declaratory relief.
SAG moved to compel arbitration under the 2005 agreement, arguing it “satisfies the 5 criteria set forth in” Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83 (Armendariz ) because it: (1) Provided for a neutral arbitrator; (2) provided for more than minimal discovery; (3) required a written award; (4) provided for all of the types of relief that would otherwise be available in court; and (5) did not require plaintiff to pay unreasonable costs, fees or expenses as a condition of access to the arbitration forum.
SAG did not address the issue of unconscionability.
In opposition to the motion, plaintiff argued the 2005 agreement was obtained by fraud, in that SAG breached its duty to inform him before he signed it that his employment would soon be terminated. He also argued the agreement was unenforceable because it was nonnegotiable, because he was not informed that by signing it he waived his right to a jury trial, and because the agreement provided for only one neutral arbitrator, whereas the 2000 agreement had provided for three.
Plaintiff did not explicitly address the issue of unconscionability.
At the hearing on the motion, plaintiff's counsel argued that under Armendariz, a compulsory, nonnegotiable arbitration agreement is unenforceable per se. Plaintiff's counsel also argued that SAG owed a duty to inform plaintiff before he signed the 2005 agreement that it intended to terminate his employment within months, and that just the allegation of fraud in the inducement was enough to prevent arbitration. The court rejected counsel's arguments and granted SAG's motion.
The arbitration was held before retired judge Eli Chernow, who found for SAG on all causes of action. In a 24-page decision setting forth the award, Judge Chernow touched on but declined to reach the merits of plaintiff's claim that the 2005 agreement was procured by fraud, finding the issue had already been resolved in the trial court.
SAG's petition to confirm the award was granted, and judgment was entered accordingly.
Plaintiff contends the 2005 agreement was unenforceable because it was nonnegotiable. He also contends the agreement was substantively unconscionable because it: (1) failed to include a copy of the arbitration rules; (2) provided for only one arbitrator rather than three; and (3) contained a broad confidentiality clause. Finally, plaintiff contends the arbitrator exceeded his powers by failing to rule on his fraudulent inducement claim.
Preliminarily, SAG argues plaintiff waived his contention “that the arbitration agreements are unenforceable (i.e., the argument that the agreements did not comply with the requirements imposed by the Armendariz decision).” At the hearing on the motion to compel, plaintiff's counsel said, “we're not arguing that [the arbitration agreement] doesn't comply with the requirement of Armendariz. [¶] What we're saying is that the agreement was obtained by fraud․” SAG argues that by expressly waiving the contention that the agreement complied with Armendariz requirements, plaintiff necessarily waived his contention that the agreement was unenforceable. SAG misconstrues plaintiff's waiver.
Plaintiff stated below that he did not dispute that the 2005 agreement complied with “the requirement” of Armendariz. What requirement? Armendariz identifies several. The decision initially sets forth five “minimum requirements” (Armendariz, supra, 24 Cal.4th at pp. 102, 113) for the arbitration of unwaivable statutory employment claims. They are: Statutorily imposed remedies may not be limited; adequate discovery must be permitted; the arbitration award must be written; the award must be subject to judicial review; and the employee may not be required to pay unreasonable costs or fees. (Id. at pp. 103-113.) In its motion to compel arbitration SAG discussed only these requirements and stated the 2005 agreement “was specifically drafted to satisfy” them.
Though satisfying these minimum requirements is necessary for an employment arbitration agreement to be enforceable, it is not enough. As Armendariz goes on to discuss, even an agreement that satisfies the minimum requirements may be unenforceable if it is unconscionable. (Armendariz, supra, 24 Cal.4th at p. 113.) SAG did not address unconscionability in its motion.
We conclude plaintiff's waiver extends only to the issue (not raised on appeal) of whether the 2005 agreement satisfied the five “minimum” requirements discussed by Armendariz. He did not waive his argument that the agreement was unconscionable.
Plaintiff does make two arguments for the first time on appeal-that the 2005 agreement was substantively unconscionable because it contained a broad confidentiality clause and failed to include a copy of the arbitration rules. But “[w]e have the discretion to hear a newly raised question of law that can be decided on undisputed facts appearing in the record.” (D.C. v. Harvard-Westlake School (2009) 176 Cal.App.4th 836, 868.)
2. Standard of Review
The trial court's order compelling arbitration may be reviewed on appeal from a judgment confirming the arbitration award. (Fagelbaum & Heller LLP v. Smylie (2009) 174 Cal.App.4th 1351, 1359.) A petition to compel arbitration based on a written arbitration agreement will be granted unless grounds exist to revoke the agreement. (Code Civ. Proc., §§ 1281, 1281.2, subd. (b).) “The determination of arbitrability is a legal question subject to de novo review. [Citation.] We will uphold the trial court's resolution of disputed facts if supported by substantial evidence. [Citation.] Where, however, there is no disputed extrinsic evidence considered by the trial court, we will review its arbitrability decision de novo. [Citation.]” (Nyulassy v. Lockheed Martin Corp. (2004) 120 Cal.App.4th 1267, 1277.)
3. A Nonnegotiable Arbitration Agreement is not Unenforceable Per Se.
Plaintiff first contends the 2005 agreement was unenforceable because it was nonnegotiable, i.e., a contract of adhesion. A contract of adhesion in the employment context usually has a degree of procedural unconscionability. In essence, plaintiff argues that because the 2005 agreement was procedurally unconscionable, it was unenforceable. We disagree.
California law favors the enforcement of arbitration agreements. (Ericksen, Arbuthnot, McCarthy, Kearney & Walsh, Inc. v. 100 Oak Street (1983) 35 Cal.3d 312, 323.) Nevertheless, pursuant to “general contract law principles,” California courts may invalidate arbitration agreements when they contain provisions that are “unconscionable or contrary to public policy.” (Civ.Code, § 1670.5, subd. (a); Armendariz, supra, 24 Cal.4th at p. 99.)
The doctrine of unconscionability includes both a procedural and a substantive element. (Armendariz, supra, 24 Cal.4th at p. 114.) Procedural unconscionability may arise from oppression or surprise. (Ibid.) “Oppression results from unequal bargaining power, when a contracting party has no meaningful choice but to accept contract terms.” (Dotson v. Amgen, Inc. (2010) 181 Cal.App.4th 975, 980.) Thus, “[u]nconscionability analysis begins with an inquiry into whether the contract is one of adhesion. [Citation.] ‘The term [contract of adhesion] signifies 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.’ [Citation.] If the contract is adhesive, the court must then determine whether ‘other factors are present which, under established legal rules-legislative or judicial-operate to render it [unenforceable].’ [Citation.]” (Armendariz, supra, 24 Cal.4th at p. 113.)
Adhesion contracts in the employment context typically contain some measure of procedural unconscionability (see, e.g., Armendariz, supra, 24 Cal.4th at p. 115.), because “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.” (Ibid.) It is undisputed plaintiff had no opportunity to negotiate the terms of the 2005 agreement nor meaningful choice in accepting them. The agreement was thus adhesive and procedurally unconscionable.
But procedural unconscionability, without more, does not render a contract unenforceable; to be unenforceable a contract must be both procedurally and substantively unconscionable. (Armendariz, supra, 24 Cal.4th at p. 114.) Plaintiff's argument that the 2005 agreement was unenforceable simply because it was nonnegotiable thus fails.
Plaintiff cites Bayscene Resident Negotiators v. Bayscene Mobilehome Park (1993) 15 Cal.App.4th 119 (Bayscene ) and Davis v. O'Melveny & Myers (9th Cir.2007) 485 F.3d 1066 for the proposition that a nonnegotiable arbitration agreement is unenforceable per se. Neither case assists him.
In Bayscene, a Chula Vista municipal ordinance required that rent disputes be submitted to binding arbitration. When a rent dispute arose between tenants and owners of a mobile home park, the owners were forced under threat of criminal prosecution by the Chula Vista City Attorney to sign an arbitration agreement. Arbitration resulted in an award for the tenants. When the tenants petitioned the superior court to confirm the award, the court dismissed the petition in its entirety on the ground that the Chula Vista ordinance compelling arbitration was unconstitutional. On appeal, the tenants argued that the constitutionality of the ordinance was irrelevant; the arbitration agreement was enforceable because the owners consented to arbitrate. The appellate court disagreed. “To form an enforceable contract the parties' consent must be free,” the court held. (Bayscene Resident Negotiators v. Bayscene Mobilehome Park, supra, 15 Cal.App.4th at p. 127.) “Apparent consent is not free when obtained, inter alia, through duress, menace, or fraud. (Civ.Code, § 1567.)[¶] California law is clear that an agreement obtained by threat of criminal prosecution constitutes menace and is unenforceable as against public policy.” (Ibid.)
Bayscene is distinguishable because here, plaintiff's consent was not obtained by duress or menace. Though SAG put plaintiff under some economic pressure to agree to arbitration, “a predispute arbitration agreement is not invalid merely because it is imposed as a condition of employment.” (Lagatree v. Luce, Forward, Hamilton & Scripps (1999) 74 Cal.App.4th 1105, 1122.) In Armendariz too, the plaintiff employees were required to execute arbitration agreements as a condition of employment. (Armendariz, supra, 24 Cal.4th at pp. 91-92.) The Supreme Court held the agreements were adhesive and procedurally unconscionable, but not per se unenforceable. (Id. at p. 115 [directing that aspects of substantive unconscionability must be examined before the agreements could be found to be unenforceable].)
In Davis v. O'Melveny & Myers, supra, 485 F.3d 1066, an employer notified its employees that in three months time a new policy would be instituted under which they would be required as a condition of continued employment to arbitrate any employment disputes. (Id. at p. 1070.) The Ninth Circuit held the policy was procedurally unconscionable. (Id. at p. 1075.) We agree that under Armendariz, a compulsory, nonnegotiable requirement that employment disputes be arbitrated has an element of procedural unconscionability. But procedural unconscionability is not enough.
4. The 2005 Agreement was not Substantively Unconscionable
Plaintiff argues the 2005 agreement was substantively unconscionable for three reasons. First, plaintiff argues, the agreement provided for only one neutral arbitrator, whereas the 2000 agreement provided for three. Availability of a three-arbitrator panel was a “substantial” right granted by the 2000 agreement, he argues, and rescission of that right is “substantively” unconscionable.
Plaintiff confuses substantial rights with substantive unconscionability. To be substantively unconscionable, the agreement must lack mutuality in some respect, i.e., be unfairly one-sided. (Discover Bank v. Superior Court (2005) 36 Cal.4th 148, 160.) Assuming that access to three arbitrators is a substantial right (a proposition for which plaintiff offers no authority), the 2005 agreement rescinded that right for both parties equally. The change was not one-sided. Plaintiff cites to several cases where arbitration awards were vacated because arbitration proceeded with fewer arbitrators than had been agreed upon. These are inapposite, because here arbitration proceeded with the agreed-upon number of arbitrators.
Citing Ting v. AT & T (9th Cir.2003) 319 F.3d 1126, plaintiff argues the 2005 agreement was substantively unconscionable because it contained a broad confidentiality clause. The agreement provided that disputes arising from plaintiff's employment would be submitted to “final and binding, private and confidential arbitration.” Plaintiff argues confidentiality clauses one-sidedly benefit employers.
In Ting, a class action lawsuit on behalf of over 7 million residential telephone customers, at issue was a provision in long-distance telecommunication carrier contracts that required “ ‘[a]ny arbitration [to] remain confidential.’ ” (319 F.3d at p. 1151.) The court concluded the provision was unconscionable because “plaintiffs are unable to mitigate the advantages inherent in being a repeat player. This is particularly harmful here, because the contract at issue affects seven million Californians. Thus, AT & T has placed itself in a far superior legal posture by ensuring that none of its potential opponents have access to precedent while, at the same time, AT & T accumulates a wealth of knowledge on how to negotiate the terms of its own unilaterally crafted contract. Further, the unavailability of arbitral decisions may prevent potential plaintiffs from obtaining the information needed to build a case of intentional misconduct or unlawful discrimination against AT & T.” (Id. at p. 1152.) Ting has no application here because plaintiff makes no showing that SAG is a “repeat player” or, assuming it is, that arbitration confidentiality will put it in a superior legal posture. The confidentiality provision called only for confidentiality of the arbitration itself, not of the content of pleadings, papers, orders, hearings, trials or awards. Nothing in the record indicates plaintiff would have been prevented from obtaining assistance in the arbitration or stifled in his ability to investigate and engage in discovery.
Plaintiff's third argument concerns the JAMS arbitration rules. Citing Fitz v. NCR Corp. (2004) 118 Cal.App.4th 702 and Harper v. Ultimo (2003) 113 Cal.App.4th 1402, plaintiff argues the 2005 agreement was substantively unconscionable because it failed to include a copy of the JAMS rules. We disagree.
In Fitz v. NCR Corp., an arbitration agreement contained a discovery provision that was materially inconsistent with the American Arbitration Association's (AAA's) discovery rules, which governed the agreement but were not attached to it. (Fitz, supra, 118 Cal.App.4th at p. 721.) The court held that allowing unattached AAA rules to trump inconsistent rules in the agreement would deprive employees of adequate notice of the applicable rules. (Ibid.) In Harper v. Ultimo, supra, 113 Cal.App.4th 1402, an arbitration provision incorporated the arbitration rules of the Better Business Bureau (BBB), which precluded the consumer from obtaining damages. (Id. at p. 1405.) The court refused to enforce the provision because a consumer would be unfairly surprised by the discrepancy between the arbitration agreement and the (unattached) BBB rules. (Id. at pp. 1406-1407.)
Here, plaintiff does not argue that any discovery or remedy provisions in the 2005 agreement are inconsistent with those found in the JAMS rules. He argues only that reference to unattached rules renders an arbitration agreement unconscionable per se. We find no authority supporting the argument and he cites to none.
5. The Arbitrator Did Not Exceed His Powers
Plaintiff argued before the trial court that SAG breached a duty to inform him it would terminate his employment soon after he signed the 2005 agreement, thus fraudulently inducing him to enter into the agreement. He argued the allegation of fraud was itself enough to keep the matter before the trial court. The trial court disagreed. Plaintiff reiterated the argument at arbitration. Judge Chernow declined to decide the issue, finding it had been settled by the trial court. Plaintiff now argues the arbitrator impermissibly refused to determine a matter submitted to him that could properly be resolved only in arbitration.
An award may be vacated where the arbitrator exceeded his or her powers. (Code Civ. Proc., § 1286.2, subd. (a)(4).) An arbitrator has no power to refuse to decide issues properly submitted. (Ulene v. Murray Millman of California, Inc. (1959) 175 Cal.App.2d 655, 661.) The question is whether plaintiff's claim of fraud in the inducement should have been heard by the trial court or the arbitrator.
A trial court will refuse arbitration where grounds exist for rescission of the agreement to arbitrate. (Code Civ. Proc., § 1281; Engalla v. Permanente Medical Group, Inc. (1997) 15 Cal.4th 951, 973.) A contract may be rescinded if consent of a party was obtained through fraud. (Civ.Code, § 1689, subd. (b)(1); Rosenthal v. Great Western Fin. Securities Corp. (1996) 14 Cal.4th 394, 415.) Thus, “where it is claimed that fraud induced the entering into of the arbitration clause itself, the matter must be resolved by the court rather than the arbitrator.” (Johnson v. Siegel (2000) 84 Cal.App.4th 1087, 1094-1095, italics added.) But where it is claimed an entire contract was the product of fraud, the matter must be resolved by the arbitrator, not the court. (Ericksen, Arbuthnot, McCarthy, Kearney & Walsh, Inc. v. 100 Oak Street, supra, 35 Cal.3d at p. 323.) “This is because claims of fraud in the inducement are often intertwined with claims of contract breach.” (Johnson v. Siegel, at p. 1094.) “ ‘If participants in the arbitral process begin to assert all possible legal or procedural defenses in court proceedings before the arbitration itself can go forward, “the arbitral wheels would very soon grind to a halt.” ’ ” (Ericksen, supra, 35 Cal.3d at p. 323.)
Here, plaintiff claims fraud in the inducement of an entire agreement-the 2005 agreement. But the 2005 agreement pertains only to arbitration. The fraud issue was therefore required to be resolved in the trial court.
Plaintiff makes several arguments regarding the 2000 agreement that, given the discussion above and the fact that SAG moved to compel arbitration under only the 2005 agreement, we need not reach.
The order is affirmed.
NOT TO BE PUBLISHED.
ROTHSCHILD, Acting P. J. JOHNSON, J.