Dopp v. Now Optics, LLC

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ALLISON DOPP, Plaintiff and Respondent, v. NOW OPTICS, LLC et al., Defendants and Appellants.

D081665

California Court of Appeals, Fourth District, First Division

May 20, 2024

NOT TO BE PUBLISHED

APPEALS from an order of the Superior Court of San Diego County No. 37-2022-00022391-CU-OE-CTL, Joel Wohlfeil, Judge. Affirmed.

Polsinelli, Noel S. Cohen, September Rea, J. Alan Warfield and Armida Derzakarian for Defendants and Appellants.

Pancer Law Corporation and Ian Pancer for Plaintiff and Respondent.

BUCHANAN, J.

Defendants Now Optics, LLC (Now Optics), Vision Precision Holdings, LLC (Vision Precision), and two of their supervisorial employees Alexander Sanchez and Amy Roger, appeal from an order denying their motion to compel arbitration of plaintiff Allison Dopp's employment claims. We agree with the trial court that the arbitration agreement signed by Dopp as a condition of her employment is procedurally unconscionable and contains multiple provisions that are substantively unconscionable. We also find no abuse of discretion in the trial court's decision that the arbitration agreement is so permeated with unconscionability as to preclude severance of the invalid provisions. Accordingly, we affirm the order.

FACTUAL AND PROCEDURAL BACKGROUND

New Optics and Vision Precision are affiliated Florida limited liability companies. They collectively operate over 180 optical retail stores across the country.

From 2019 to 2021, Dopp was employed by defendants at retail stores in San Diego County. When she was first hired, Dopp electronically signed various on-boarding documents, including a mandatory arbitration agreement. The arbitration agreement stated that, as a condition of her employment, Dopp agreed to final and binding arbitration of any dispute with the defendants or their officers, directors, supervisors, managers, employees, or agents.

As relevant here, the mandatory arbitration agreement contained the following provisions: (1) as a prerequisite to arbitration, the parties agreed "to make good faith efforts [to resolve] any dispute internally on an informal basis through Human Resources"; (2) if these informal resolution efforts failed, the parties agreed to submit to non-binding, pre-arbitration mediation by the American Arbitration Association (AAA) and agreed that "[t]he parties shall equally share the cost of the mediation"; (3) if the dispute remained unresolved, either party could then submit the dispute for resolution by "final binding confidential arbitration" under "the Employment Dispute Resolution Rules of the AAA (Rules) on a confidential basis"; (4) the arbitrator "shall apply the governing substantive law" of Florida; (5) the arbitration "shall take place in Palm Beach County, Florida, unless an alternative location is chosen by mutual agreement of the parties or is otherwise prohibited by law"; (6) the parties "agree to share equally the AAA administrative fees and the arbitrator's fees and expenses"; (7) "[a]ll other costs and expenses associated with the arbitration, including, without limitation, each party's respective attorneys' fees, shall be borne by the party incurring the expense"; and (8) the parties "will not assert class action or representative action claims against each other in arbitration or otherwise."

After her employment was terminated, Dopp filed suit against the defendants. After dismissing her first lawsuit, Dopp filed this action. As amended, the operative complaint alleged class action claims for meal and rest period violations and overtime violations, as well as various individual claims, including wrongful discharge and violations of the Fair Employment and Housing Act (FEHA; Gov. Code, § 12900 et seq.) for alleged gender discrimination, sexual harassment, failure to prevent harassment and/or discrimination, and retaliation.

Defendants filed a motion to compel arbitration. In opposition, Dopp argued that the arbitration agreement could not be enforced because it was procedurally and substantively unconscionable.

After a hearing, the trial court denied the motion to compel arbitration by written order. The court found that the arbitration agreement was procedurally unconscionable because it was a contract of adhesion and did not disclose the arbitration fees Dopp was required to pay. The court also found that the following provisions of the arbitration agreement were substantively unconscionable: (1) the Florida choice-of-law provision; (2) the required sharing of arbitration fees and expenses; (3) the required sharing of mediation fees and expenses; (4) the requirement that each party bear the costs of their own attorney fees; (5) the confidentiality provision; and (6) the requirement of informal dispute resolution. Finally, the court declined to sever the invalid provisions and concluded that the arbitration agreement could not be enforced because it was permeated with unconscionable provisions.

DISCUSSION

I Standard of Review

Absent conflicting extrinsic evidence, we review de novo whether an arbitration clause is unconscionable. (Magno v. The College Network, Inc. (2016) 1 Cal.App.5th 277, 283 (Magno).) However, we review the trial court's decision whether to sever unconscionable provisions for abuse of discretion. (Ibid.)

II Unconscionability

The parties do not dispute that the arbitration clause is governed by the Federal Arbitration Act (FAA). (9 U.S.C § 1 et seq.) The FAA reflects a liberal federal policy favoring arbitration as a matter of contract. (Magno supra, 1 Cal.App.5th at p. 284.) Under both federal and state law, arbitration agreements are valid and enforceable, unless they are revocable for reasons under state law that would render any contract revocable, such as fraud, duress, or unconscionability. (Gostev v. Skillz Platform, Inc. (2023) 88 Cal.App.5th 1035, 1054.)

The party seeking arbitration bears the burden of proving the existence of an arbitration agreement, and the party opposing arbitration bears the burden of proving any defense, such as unconscionability. (Pinnacle Museum Tower Assn. v. Pinnacle Market Development (US), LLC (2012) 55 Cal.4th 223, 236 (Pinnacle).)

Unconscionability has both a procedural and substantive element. (Pinnacle, supra, 55 Cal.4th at p. 246.) Procedural unconscionability addresses the circumstances of contract negotiation and formation, focusing on oppression or surprise due to unequal bargaining power. (Ibid.) Substantive unconscionability pertains to the fairness of an agreement's actual terms and whether they are overly harsh or one-sided. (Ibid.) Both elements must be present for a finding that the agreement is unconscionable, but they are evaluated on a sliding scale and need not be present in the same degree. (Ibid.) The more substantively oppressive the terms, the less evidence of procedural unconscionability is required, and vice versa. (Id. at p. 247.) The ultimate issue in every case is whether the terms of the contract are sufficiently unfair, in view of all relevant circumstances, that a court should withhold enforcement. (OTO, L.L.C. v. Kho (2019) 8 Cal.5th 111, 126 (OTO).)

A. Procedural Unconscionability

Procedural unconscionability analysis begins by inquiring whether the contract is one of adhesion. (OTO, supra, 8 Cal.5th at p. 126.) An adhesive contract is a standard form contract offered by the party with superior bargaining position to the other party on a "take it or leave it" basis. (Ibid.) "Arbitration contracts imposed as a condition of employment are typically adhesive." (Ibid.) "In the employment context, '[a]n arbitration agreement that is an essential part of a "take it or leave it" employment condition, without more, is procedurally unconscionable.'" (De Leon v. Pinnacle Property Management Services, LLC (2021) 72 Cal.App.5th 476, 485 (De Leon).)

The arbitration contract here was a prewritten form agreement, which the defendants presented to Dopp as a condition of employment on a "take it or leave it" basis. As a contract of adhesion, the arbitration agreement had at least a modest degree of procedural unconscionability. (De Leon, supra, 72 Cal.App.5th at p. 485; All v. Daylight Transport, LLC (2020) 59 Cal.App.5th 462, 474; Carbajal v. CWPSC, Inc. (2016) 245 Cal.App.4th 227, 242-244.)

Like the trial court, we also find one additional element of procedural unconscionability. The arbitration agreement required Dopp to share the costs of both mediation and arbitration by the AAA, but did not provide her with any way of determining what those costs might be. According to her counsel's declaration, AAA's website does not provide any information about arbitrator or mediator fees, and AAA would not provide counsel with any estimate of those fees over the phone. In counsel's experience, the fees for a AAA arbitrator range from $350 to $750 per hour and up to $7,500 per day. Dopp's monthly earnings were barely sufficient to cover her basic living expenses, and she could not afford to pay for the cost of arbitration or mediation. Accordingly, she signed an arbitration agreement as a condition of employment without knowing that her share of the required arbitration costs could make it practically impossible for her to assert her rights. This element of surprise and oppression further contributes to the procedural unconscionability. (See Ajamian v. CantorC02e, L.P. (2012) 203 Cal.App.4th 771, 797 (Ajamian) [plaintiff "was unaware of the excessive costs she would incur in arbitrating"]; see also Parada v. Superior Court (2009) 176 Cal.App.4th 1554, 1571-1572 [same].)

"In the end, we need not quibble over whether there was a moderate level of [procedural] unconscionability, a low one or just the required minimum; as we discuss next, the degree of substantive...