THOMAS KU v. TEKNI PLEX INC (2011)

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

This appeal raises the question whether an arbitration clause in an employment agreement entered into by a plaintiff and a defendant is enforceable.   The trial court found that the arbitration clause is unconscionable in several respects and therefore not enforceable.   We agree with that determination and we will affirm the court's denial of the employers' motion to compel arbitration.

BACKGROUND OF THE CASE

1. Allegations in the Complaint

This action was filed on October 26, 2009 by Thomas Ku, Lee Denton, and Edilberto Portugues, but only one of them, Thomas Ku (Ku), is a signatory to the subject employment agreement with the arbitration clause.   The defendants, who are described in the complaint as former “joint employers” of the three plaintiffs are Tekni-Plex, Inc., Plastic Specialties and Technologies, Inc., and Natvar Holdings, Inc.¹ Plaintiffs Ku and Denton began their employment with a company called Dolco, which the complaint describes as a Tekni-Plex company, and later they were transferred to Natvar Holdings;  plaintiff Portugues began his employment with Natvar Holdings.   Ku was a plant manager, Denton was a plant accountant and Portugues was a production supervisor.

According to the complaint, the plaintiffs are all Asian.   When Robert Donahue, who is Caucasian, became the defendants' general manager in August 2008 he spent a significant amount of time with the Caucasian and Hispanic managers, including going to lunch and dinner with them and taking some of them to a baseball game in a limousine.   He never invited any of the Asians.   Donahue would talk to the managers but would ignore the plaintiffs.   When Donahue conducted monthly financial review meetings he would not include plaintiff Ku in them even though Ku had always been included before.   Donahue would also give projects to people who reported directly to Ku without telling Ku. All three plaintiffs were terminated by Donahue in February 2009.   Of the 12 people in management positions at that time, plaintiffs were the only Asians.   The other nine were Caucasian and Hispanic.   One of those nine was terminated but he was fired for cause.   When plaintiffs were terminated they were told they were being let go because their positions were being eliminated due to restructuring.   However, on the same day that he was terminated, Ku was replaced by a Hispanic person that Ku had hired several months earlier, and that person's qualifications were inferior to Ku's.

Plaintiffs' complaint alleges causes of action for violation of the California Fair Employment and Housing Act (FEHA) including discrimination on account of race by laying off plaintiffs because of their race and by failure to prevent discrimination, and wrongful termination in violation of public policy.

2. The Motion to Compel Arbitration

On December 4, 2009, defendants filed a motion to compel arbitration of the claims made by plaintiff Ku. (Code Civ. Proc., § 1281.2.) ² Ku filed opposition papers.  Section 1281.2 provides that if a court finds that a written agreement to arbitrate a controversy exists, the court nevertheless need not enforce such agreement if it finds that “[g]rounds exist for the revocation of the agreement.”   At the hearing on Tekni-Plex's motion the trial court denied it, ruling that the arbitration clause in the employment agreement entered into by Ku and Tekni-Plex, Inc. was unconscionable and unenforceable.   This appeal followed.

3. The Employment Agreement

A reading of the agreement, which was signed by Ku on May 8, 2006, shows it is focused on rights claimed by Tekni-Plex, and on Ku's corresponding duties and obligations in connection therewith.

The arbitration provisions in the employment agreement between Ku and defendants (agreement) cover essentially one-third of that document.   Despite the statement in a declaration submitted by defendant Tekni-Plex's personnel manager in support of defendants' motion to compel arbitration that execution of the agreement is not a condition of employment, the agreement specifically states that agreeing to the terms of the agreement was a condition of employment for Ku.

The agreement sets out in paragraph 5 terms and conditions relating to defendant Tekni-Plex's trade secrets and confidential and proprietary information.   The last provision in that paragraph 5 states:  “The remedy at law for breach of this paragraph 5 is inadequate and Employer, in addition to any other remedy, can seek appropriate injunctive relief from an appropriate court or arbitrator, at Employer's election, pursuant to paragraph 12 below.”   Paragraph 9, which addresses plaintiff's promise to not solicit any of Tekni-Plex's employees to engage in other business activities, whether during or after plaintiff's employment, has a injunctive relief provision that is essentially the same as the one in paragraph 5.

The agreement states that the dispute resolution provisions which are set out in the agreement apply to claims “whether or not arising out of [Ku's] employment, termination of employment, or otherwise,” that Ku may have against Tekni-Plex or Tekni-Plex may have against Ku, and it states that such claims “shall be resolved in accordance with the procedure set forth below.”   Such “[c]laims include, but are not limited to, controversies relating to:  compensation or benefits, breach of any contract, torts, discrimination under state, federal or local law, and violation of any federal, state, or other governmental law, statute, regulation, or ordinance.”   In addition, the agreement specifically states that “[t]o the extent permitted by law, [Ku] agrees not to initiate or prosecute against [Tekni-Plex] any administrative action (including an administrative charge of discrimination to the extent permitted by law) in any way related to any Claim covered by this Agreement.”

Despite such all-inclusive language, the agreement carves out exceptions for what claims must be resolved according to the agreement's dispute resolution provisions.   The agreement states that it “shall not apply to any Claim:  (a) by [Ku] for workers' compensation or unemployment benefits;  or (b) by [Tekni-Plex] for injunctive and/or other equitable relief, including, but not limited to, unfair competition and/or the use and/or unauthorized disclosure of trade secrets or confidential information.   With respect to matters referred to in sub-paragraph (b) above, [Tekni-Plex] may seek and obtain injunctive relief in court, and then proceed with arbitration under this Agreement.”

This provision providing Tekni-Plex with the right to seek relief in a court is justified in the following manner.  “The proprietary information of [Tekni-Plex is] of a special, unique, unusual and extraordinary nature, which gives [it] a particular value, the loss of which cannot reasonably or adequately be compensated for in damages in an action at law.   The breach by [Ku] of any provision of this Agreement would cause [Tekni-Plex] irreparable injury and damage, the measure of which could not be adequately measured at law.  [Tekni-Plex] shall be entitled, as a matter of right in addition to and without the prejudice of any other right or remedy, to injunctive and other equitable relief in an appropriate court to prevent the violation of any provision of the Agreement by [Ku] and/or to cause [Ku] to comply with the respective provisions hereof, as applicable․  The exercise by [Tekni-Plex] of any of its rights hereunder shall not constitute a waiver by [Tekni-Plex] of any other rights which it may have to damages or otherwise.”  (Italics added.)

Paragraph 11.3 states that if Ku or Tekni-Plex do not proceed with a claim according to the dispute resolution procedures set out in that paragraph, “the Claim shall be void and deemed waived even if there is a federal or state statute of limitations which would allow more time to pursue the Claim.”   Such procedures are as follows.   Ku must first raise his claim verbally with the person involved and if that does not resolve the claim, then the claim must be presented to Ku's immediate supervisor within one year after Ku first knew or should have known of the facts giving rise to the claim.   The supervisor then has 15 days to answer the claim.   If the claim is not resolved by presenting it to the supervisor, Ku must present it in writing to the president of Tekni-Plex within 15 working days after he receives the supervisor's answer;  otherwise Ku will be deemed to have accepted Tekni-Plex's “last stated position” on the claim and waived the right to pursue it further.   If a written claim is presented to the president, the president has 15 working days to render a written decision on the claim, and failure to provide the written decision is deemed a denial by Tekni-Plex.   At that point, Ku can request voluntary, nonbinding mediation and if Ku's claim is not resolved by mediation, then Ku can serve written notice of his intention arbitrate the claim.

Claims that Tekni-Plex might have against Ku have two fewer steps.   A claim by Tekni-Plex must be raised verbally with Ku within one year after Tekni-Plex first knew or should have known of the facts giving rise to the claim, and if the claim is not resolved, Tekni-Plex can proceed to mediation.   If the claim is not resolved by mediation, Tekni-Plex can serve written notice to Ku of its intention to proceed to arbitration.   Notices for mediation and arbitration have time limitations in which they must be served.   When the parties cannot agree on a mediator, the American Arbitration Association (AAA) mediation dispute resolution procedures must be used;  and if notice of intent to arbitrate is served by one of the parties, the arbitration is conducted in accordance with the AAA's rules for the resolution of employment disputes and before a single arbitrator.   The agreement provides that mediation and arbitration are conducted in private, the evidence presented there and the results of the mediation and arbitration are confidential and may not be disclosed to anyone or any entity.

Finally, the agreement states that it binds not only Ku but also his “heirs, executors, administrators and estate.”   It further states that whereas Tekni-Plex “may assign this Agreement to any successor entity,” Ku “is prohibited from assigning his rights, duties or obligations” under the agreement.³

DISCUSSION

1. Standard of Review

We apply California contract law to the question whether the arbitration provisions in the agreement are enforceable.⁴  Because there is no conflict in the evidence presented to the trial court with respect to defendants' motion to compel arbitration we will review the issue of enforceability de novo.  (CPI Builders, Inc. v. Impco Technologies, Inc. (2001) 94 Cal.App.4th 1167, 1171-1172.)

2. Unconscionable Agreements

“[T]he existence of a valid agreement to arbitrate is determined by reference to state law principles regarding the formation, revocation and enforceability of contracts generally.  [Citations.]”  (Kinney v. United HealthCare Services, Inc. (1999) 70 Cal.App.4th 1322, 1327-1328 [Kinney ].)  Civil Code section 1670.5 provides that if a court finds as a matter of law that a contract or clause in a contract was unconscionable when the contract was made the court can refuse to enforce the contract, enforce all but the unconscionable clause, or limit the application of the unconscionable clause to avoid an unconscionable result.   Here, the trial court declined to enforce the arbitration provisions of the agreement, finding them unconscionable.

Unconscionability has two elements-procedural unconscionability and substantive unconscionability.  “Although both elements must be present before a contract or contract provision is rendered unenforceable on grounds of unconscionability, they are reviewed in tandem such that ‘the greater the degree of substantive unconscionability, the less the degree of procedural unconscionability that is required to annul the contract or clause.’   [Citation.]”  (Kinney, supra, 70 Cal.App.4th at p. 1329.)   The greater the degree of procedural unconscionability, the less the degree of substantive unconscionability that is necessary to find that the arbitration agreement or provision is unenforceable.  “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 v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, 114 [Armendariz ].)

3. Procedural Unconscionability

“ ‘Procedural unconscionability’ concerns the manner in which the contract was negotiated and the circumstances of the parties at that time.”  (Kinney, supra, 70 Cal.App.4th at p. 1329.)   Were the parties to the contract of equal bargaining power and if not, was there real negotiation of the contract and a meaningful choice on the part of the weaker party?  (Ibid.) The procedural unconscionability element focuses on whether unequal bargaining power between the parties to the contract resulted in oppression or surprise to the party with less power.  (Armendariz, supra, 24 Cal.4th at p. 114.)

Although Tekni-Plex's custodian of employee personnel files, Alfred Ochoa, submitted a declaration in support of defendants' motion to compel arbitration in which he stated that execution of the agreement “is not a condition of employment as evidenced by Plaintiff Denton refusing to sign an agreement and continuing to remain employed by the Company,” those facts concerning Denton do not fit plaintiff Ku's situation.   If Denton “continued to remain employed” even though he refused to sign the agreement, then apparently Tekni-Plex found good reason to let him refuse to sign and keep his job.   Ku, however, was presented with the agreement before he was hired, and the agreement specifically states that Tekni-Plex would not even consider hiring Ku unless Ku agreed to the terms of the agreement.   Ochoa did not state in his declaration that Ku was specifically told that signing the agreement was really not a condition to being considered for employment.   Thus, we are left with the understanding that the agreement was presented to Ku on a take it or leave it basis-sign the agreement or you will not be considered for employment.   That type of arrangement is what the court in Little v. Auto Stiegler, Inc. (2003) 29 Cal.4th 1064, 1071 (Little ), observed to be a contract of adhesion.  (See also Armendariz, supra, 24 Cal.4th at pp. 113-114 [procedural unconscionability occurs when the stronger party drafts the contract and presents it to the weaker party on a “take it or leave it” basis”].)

Further, Denton's failure to sign the agreement is not significant when we examine whether Ku and Tekni-Plex negotiated the contract and whether there was a meaningful choice on the part of plaintiff Ku with respect to its terms.   Ochoa further did not state that the agreement was negotiated or that plaintiff had any meaningful choice with respect to its terms;  we are, therefore, left with a record that supports the conclusion that neither of those things happened.   The Armendariz court observed that when it comes to “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.”  (Armendariz, supra, 24 Cal.4th at p. 115.) ⁵

The Armendariz court also observed that “[a]rbitration is favored in this state as a voluntary means of resolving disputes, and this voluntariness has been its bedrock justification.”  (Armendariz, supra, 24 Cal.4th at p. 115, italics added.)   Thus, “surprise” can be an element of procedural unconscionability.  (Id. at p. 114.)   Although the agreement at issue here provides that Ku had the right to discuss the agreement with his own attorney before signing it, it is nevertheless true that consulting an attorney about signing the agreement when signing the agreement is a condition to even being considered for employment is not what the average prospective employee would expect.   The agreement is not within the reasonable expectations of a prospective employee.  (Kinney, supra, 70 Cal.App.4th at p. 1328.)

Given the above facts and analysis, we find, as did the trial court, that procedural unconscionability exists here.   As we explain below, we also agree with the trial court that substantive unconscionability is likewise present.

4. Substantive Unconscionability

a. Equitable Relief Rights for Tekni-Plex:  Lack of Mutuality

“ ‘Substantive unconscionability’ focuses on the terms of the agreement and whether those terms are ‘so one-sided as to “shock the conscience.”   ‘ [Citations.]”  (Kinney, supra, 70 Cal.App.4th at p. 1330.)   Thus, a paramount consideration in assessing whether an agreement is substantively unconscionable is mutuality of terms.  (Nyulassy v. Lockheed Martin Corp. (2004) 120 Cal.App.4th 1267, 1287.)   Here, except for two types of issues that an employee would raise against defendants, both of which involve adjudication by state administrative bodies (workers' compensation and unemployment benefits) and thus are not proper claims for arbitration (Mercuro v. Superior Court (2002) 96 Cal.App.4th 167, 176 [Mercuro ] ), all other claims made by Ku would have to be arbitrated under the terms of the agreement.   Thus, common employee claims against an employer, such as wage and hour claims, various forms of discrimination, sexual harassment, wrongful termination, and other violations of the Fair Employment and Housing Act would have to be arbitrated.

In dire contrast, the types of claims against Ku that would be most important to Tekni-Plex, namely unfair competition and the unauthorized use or disclosure of Tekni-Plex's trade secrets and confidential information, have a different procedural route under the agreement.   The agreement gives Tekni-Plex the option to file suit in court and seek equitable relief, including injunctions, and then continue with arbitration of those claims after the court, in ruling on Tekni-Plex's request for equitable relief, has already made a decision whether Tekni-Plex appears to have a good claim against Ku. The trial court found that these carved out equitable relief provisions in the agreement are unreasonably favorable to Tekni-Plex and thus substantively unconscionable.   Case law supports that decision.

The Kinney court observed that a party who must arbitrate a dispute gives up the right to have claims tried by a jury and moreover, “except in extraordinary circumstances, that party has no avenue of review for an adverse decision, even if that decision is based on an error of fact or law that appears on the face of the ruling and results in substantial injustice to that party.  [Citation.]”  (Kinney, supra, 70 Cal.App.4th. at p. 1332.)   In contrast here, because Tekni-Plex is allowed into court, it could seek judicial review if its request to a trial court for equitable relief were denied or limited.   This type of arrangement, where an arbitration agreement excepts from arbitration common employer causes of action like unfair competition, disclosure of trade secrets and violation of intellectual property rights and permits the employer to seek equitable relief on those causes of action was determined to be substantively unconscionable by the court in Mercuro, supra, 96 Cal.App.4th at pp. 175-178.  (See also Trivedi v. Curexo Technology Corp. (2010) 189 Cal.App.4th 387, 397;  Fitz v. NCR Corp. (2004) 118 Cal.App.4th 702, 725.)

Tekni-Plex argues that this case is different from Mercuro in that the agreement signed by Ku “allows [Tekni-Plex] to seek and obtain injunctive relief in court, but then avoid the breadth that caused concerns to the Mercuro court by requiring [Tekni-Plex] to proceed with arbitration under this Agreement for equitable relief and other damages.”  (Italics added.)   However, we do not read the agreement that way.   Paragraph 11.1 specifically states that the agreement “shall not apply” to any claim by Tekni-Plex “for injunctive and/or other equitable relief,” for such claims as unfair competition and the use or disclosure of trade secrets and confidential information (italics added), and further states that Tekni-Plex “may seek and obtain injunctive relief in court, and then proceed with arbitration under this Agreement.”  (Italics added.)

Thus, all forms of equitable relief are excepted on behalf of Tekni-Plex, not just injunctive relief.   Moreover, the provision that Tekni-Plex may go to court and then to arbitration, when contrasted with the provision that the agreement shall not apply to claims by Tekni-Plex for equitable relief, causes us to conclude that Tekni-Plex is given the option to arbitrate claims regarding unfair competition and confidential information or trade secret disclosure claims after it seeks equitable relief in court.   Further, Tekni-Plex's right to seek equitable relief in court applies “to any Claim” by Tekni-Plex against Ku, not just unfair competition and the use or unauthorized disclosure of Tekni-Plex's trade secrets and confidential information;  in contrast, Ku is given no such equitable relief rights under the terms of the contract for any of its claims against Tekni-Plex, a clear lack of mutuality.

The fact that section 1281.8 gives parties to arbitration agreements the statutory right to seek injunctive relief in a court on the ground that the arbitration award that may be given to such party may be rendered ineffectual without such injunctive relief does not negate the fact that by its terms, the agreement lacks mutuality of equitable relief from a court.   The same can be said for Tekni-Plex's argument that section 527.8 permits employers to seek temporary restraining orders and injunctions on behalf of their employees who have suffered unlawful violence or a credible threat of violence.   Tekni-Plex has rights under section 527.8 whether this agreement is in effect or not;  and we reject its assertion that if the injunctive relief provisions assured to it by the agreement were to be found unenforceable but the agreement itself found enforceable then it would have to seek section 527.8-type injunctive relief on behalf of its harmed or threatened employees through an arbitrator.   However, as we have already indicated, the whole of the agreement was properly found unenforceable by the trial court.

b. Shortening of Statutes of Limitations

Another provision in the agreement adds to the substantive unconscionability of the agreement.   Paragraph 11.3(1) requires that if Ku cannot resolve a claim by raising it verbally with the person involved, then Ku must present a claim in writing to his supervisor within one year after Ku “initially knew or should have known of the facts that gave rise to the Claim.”   Then, if Ku's claim remains unresolved, he must present the claim in writing to Tekni-Plex's president within 15 working days of receiving the supervisor's answer and if that time limitation is not met, Ku will be deemed, under the agreement, to have accepted Tekni-Plex's “last stated position on the Claim and waived the right to further contest the Claim.”

In contrast, a claim by Tekni-Plex against Ku must be verbally raised within one year after it initially knew or should have known of the facts giving rise to such claim and if it is not resolved Tekni-Plex can proceed immediately to mediation.   The trial court observed that claims that Ku might have against Tekni-Plex may, by statute, have a longer statute of limitations than one year.   While it is true that the agreement forces both Ku and Tekni-Plex to relinquish statutory statute of limitation rights, Ku's claims have two extra steps, with one involving a mandatory 15-day time limitation, that are not imposed on the Tekni-Plex.   Moreover, as the court in Davis v. O'Melveny & Meyers (9th Cir.2007) 485 F.3d 1066, 1076-1077 (Davis ) noted, when it comes to shortened limitations periods for employment-related statutory claims, the fact that an employer is also limited by the shortened limitations period “is of no consequence, as these are types of claims likely only to be brought by employees.”   The Davis court also observed that such shortened limitations periods deprive employees of the benefit of the “continuing violation doctrine” that is available in suits brought under the FEHA. (Ibid.) Additionally, the Davis court stated that an employer's concession about the invalidity of a contract clause and willingness to forego it (such as defendants do in the instant case regarding the provisions that shorten statutes of limitations), does not change the fact that the clause is unconscionable as written and will not resuscitate a contract.  (Id. at p. 1079.)

c. The Confidentiality Clause

Citing the Davis case, the trial court in the instant case also determined that the confidentiality provision in the agreement is substantively unconscionable.   Noting that not all confidentiality provisions will be unconscionable but overly broad ones can be, the trial court stated that here, the confidentiality provision in the agreement requires that the evidence presented at mediation and arbitration and the results of those proceedings are to be kept confidential except when the parties agree otherwise or a court so orders and that, said the trial court, “appears to be” overly broad.   The agreement provides that (1) mediation and arbitration are to be conducted in private and are not open to the public or media;  (2) except for a proceeding to enforce the agreement or an award rendered under the agreement, the evidence, including testimony, that is presented at mediation and arbitration, and the results of the mediation and arbitration, are confidential and may not be disclosed to any person or entity except pursuant to a court order;  and (3) Ku and Tekni-Plex must give “sufficient prior written notice of any judicial proceeding at which a court order is sought, to enable the other to seek a protective order before disclosure occurs.”  (Italics added.)   That would include a judicial proceeding to enforce an award made pursuant to the agreement.⁶

In Davis, a broad confidentiality provision was addressed by the reviewing court and found to be substantively unconscionable.   Importantly, the Davis court stated that “even facially mutual confidentiality provisions can effectively lack mutuality and therefore be unconscionable.”  (Davis, supra, 485 F.3d at p.1078.) It cited prior federal court of appeals cases where the courts had observed that businesses tend to arbitrate the same claims and thus arbitration tends to favor companies, and while this effect can be lessened by the ability of plaintiffs' lawyers and arbitration appointing agencies to review arbitration awards and thereby obtain information about a company, if the company is successful in imposing a confidentiality provision then plaintiffs are not able to mitigate the advantages that the company has in being a repeat player in arbitration.   The result is that the company, such as an employer, is in a much superior legal position because it ensures that current and potential opponents will not have access to information about previous arbitrations in which the company was involved.  (Ibid.)

The Davis court stated that the restrictions set out in the confidentiality clause sought to be enforced by the employer, O'Melveny & Meyers, against its former employee unconscionably favored that law firm.   They prevented both employee and potential employee plaintiffs from “accessing precedent while allowing O'Melveny to learn how to negotiate and litigate its contracts in the future,” thereby “plac[ing] O'Melveny ‘in a far superior legal posture’.”   (Ibid.) The Davis court noted that the confidentiality provisions “might even chill enforcement of Cal. Labor Code § 232.5, which forbids employers from keeping employees from disclosing certain ‘working conditions' and from retaliating against employees who do so.”  (Id. at p. 1079.)

We reject Tekni-Plex's argument that this case is substantively different from Davis because in Davis (1) the parties were not permitted to disclose to anyone not directly involved in the mediation or arbitration the content of pleadings and papers and (2) the parties were not even permitted to disclose that a controversy between them existed and there was a resulting mediation or arbitration.   Tekni-Plex argues that in the instant case, there is no confidentiality provision that prevents its employees from having access to the pleadings which it and Ku file in this case, the law and motion the parties filed concerning Tekni-Plex's motion to compel arbitration, and “all discovery, law and motion, dispositive motion, expert discovery, contentions, defenses and awards raised throughout the arbitration.”   Tekni-Plex argues that therefore the confidentiality provision “is limited to a stipulated protective order regarding what is discussed during the mediation and the arbitration hearing.”   We do not so read the confidentiality provision.

Any evidence presented at mediation and arbitration is confidential and may not be disclosed, and that would include discovery used as evidence;  likewise the “results of the mediation and/or arbitration” may not be disclosed, and that would include the award of the mediator/arbitrator.   Thus, although a suit or arbitration may be brought against Tekni-Plex in the future by one or more of its other employees and the identity of previous employee plaintiffs and their respective attorneys revealed to such a plaintiff during discovery, any information not permitted to be disclosed by Ku would not be available to such future plaintiffs, and that would include what would be most helpful to the future plaintiffs-the evidence presented by the parties, and the results of the mediation and arbitrator, which would be the decision/award together with its recitation of the evidence, findings of fact, application of relevant law to the facts, and decision.

5. Severance of Substantive Unconscionable Provisions

Not Appropriate In This Case

A trial court has discretion under Civil Code section 1670.5, subdivision (a) to refuse to enforce an entire agreement if the agreement is “permeated” by unconscionability.  (Armendariz, supra, 24 Cal.4th at p. 122;  Murphy v. Check ‘N Go of California, Inc. (2007) 156 Cal.App.4th 138, 149).)   An arbitration agreement can be considered permeated by unconscionability if it “contains more than one unlawful provision․  Such multiple defects indicate a systematic effort to impose arbitration ․ not simply as an alternative to litigation, but as an inferior forum that works to the [stronger party's] advantage.”  (Armendariz, supra, at p. 124;  Murphy, supra, at p. 148.)   “The overarching inquiry is whether ‘ “the interests of justice ․ would be furthered” ‘ by severance.  [Citation.]”  (Armendariz, supra, at p. 124.)

In the instant case, the trial court stated that because the agreement contains several provisions that are substantively unconscionable (e.g., the provision favoring Tekni-Plex with respect to seeking equitable relief in court and having the option to then proceed to arbitration;  the shortening of statutes of limitations;  and the confidentiality provisions), the court would not sever those provisions from the agreement but would instead exercise its discretion to deny enforcement of the entire agreement.   Once again, we find no fault with the trial court's analysis.⁷

DISPOSITION

The order of the trial court denying the defendant's motion to compel arbitration is affirmed.   The plaintiff Ku shall recover his costs herein.

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

We Concur:

FOOTNOTES

FN1. Except where the context requires otherwise, we will refer to these three “joint employer” companies as the “defendants.”   The record is not clear as to the specific legal relationship of the three companies but that issue is not relevant to our resolution of this matter..  FN1. Except where the context requires otherwise, we will refer to these three “joint employer” companies as the “defendants.”   The record is not clear as to the specific legal relationship of the three companies but that issue is not relevant to our resolution of this matter.

FN2. Unless otherwise indicated all references herein to statutes are to the Code of Civil Procedure..  FN2. Unless otherwise indicated all references herein to statutes are to the Code of Civil Procedure.

FN3. In addition, the agreement has conflicting provisions regarding determination of its enforceability.   Paragraph 11.3, subparagraph (8) states that the arbitrator has “exclusive authority to resolve any Claim, including, but not limited to, a dispute relating to the interpretation, applicability, enforceability or formation of this Agreement, or any contention that all or part of this Agreement is void or voidable.”   On the other hand, paragraph 16 provides that “if a court finds that any provision or provisions is excessively broad as to duration, geographic scope, activity or subject, such provision shall be construed by limiting and reducing it so as to be valid and enforceable to the extent permitted by law.”.  FN3. In addition, the agreement has conflicting provisions regarding determination of its enforceability.   Paragraph 11.3, subparagraph (8) states that the arbitrator has “exclusive authority to resolve any Claim, including, but not limited to, a dispute relating to the interpretation, applicability, enforceability or formation of this Agreement, or any contention that all or part of this Agreement is void or voidable.”   On the other hand, paragraph 16 provides that “if a court finds that any provision or provisions is excessively broad as to duration, geographic scope, activity or subject, such provision shall be construed by limiting and reducing it so as to be valid and enforceable to the extent permitted by law.”

FN4. Despite the fact that the agreement provides that it is governed by the laws of the State of Nevada that are “applicable to employment contracts without giving effect to any conflict of law provisions thereof,” when Tekni-Plex presented its motion to compel arbitration it did not rely on Nevada law.   It relied on California law.   The same is true for its presentation to this court.   We therefore will ignore the issue and, like the parties, apply the law of California..  FN4. Despite the fact that the agreement provides that it is governed by the laws of the State of Nevada that are “applicable to employment contracts without giving effect to any conflict of law provisions thereof,” when Tekni-Plex presented its motion to compel arbitration it did not rely on Nevada law.   It relied on California law.   The same is true for its presentation to this court.   We therefore will ignore the issue and, like the parties, apply the law of California.

FN5. “Various studies have shown that arbitration is advantageous to employers not only because it reduces the costs of litigation, but also because it reduces the size of the award that an employee is likely to get, particularly if the employer is a ‘repeat player’ in the arbitration system.  [Citations.]  It is perhaps for this reason that it is almost invariably the employer who seeks to compel arbitration.  [Citation.]”  (Armendariz,supra, 24 Cal.4th at p. 115.).  FN5. “Various studies have shown that arbitration is advantageous to employers not only because it reduces the costs of litigation, but also because it reduces the size of the award that an employee is likely to get, particularly if the employer is a ‘repeat player’ in the arbitration system.  [Citations.]  It is perhaps for this reason that it is almost invariably the employer who seeks to compel arbitration.  [Citation.]”  (Armendariz,supra, 24 Cal.4th at p. 115.)

FN6. Tekni-Plex acknowledges the confidentiality provisions in the Evidence Code relating to mediation.  (Evid.Code, §§ 703.5, 1115 et seq.).  FN6. Tekni-Plex acknowledges the confidentiality provisions in the Evidence Code relating to mediation.  (Evid.Code, §§ 703.5, 1115 et seq.)

FN7. From the plain language of the agreement, it does not appear to apply either to the other plaintiffs or to the two defendants other than Tekni-Plex.   The agreement specifically states it is between Ku and Tekni-Plex.   Even if we accept Tekni-Plex's argument that its co-defendants are “beneficiaries” of the arbitration agreement with Ku, it is clear that other two plaintiffs cannot be compelled to arbitrate.   Thus, the defendants will have to, in any event, defend a court action involving all of the issues raised in plaintiffs' complaint.   Clearly, judicial economy also favors the conclusion we reach here..  FN7. From the plain language of the agreement, it does not appear to apply either to the other plaintiffs or to the two defendants other than Tekni-Plex.   The agreement specifically states it is between Ku and Tekni-Plex.   Even if we accept Tekni-Plex's argument that its co-defendants are “beneficiaries” of the arbitration agreement with Ku, it is clear that other two plaintiffs cannot be compelled to arbitrate.   Thus, the defendants will have to, in any event, defend a court action involving all of the issues raised in plaintiffs' complaint.   Clearly, judicial economy also favors the conclusion we reach here.

KLEIN, P. J. KITCHING, J.