Ramirez v. Charter Comm., Inc.

551 P.3d 520

322 Cal.Rptr.3d 825

Angelica RAMIREZ, Plaintiff and Respondent,

v.CHARTER COMMUNICATIONS, INC., Defendant and Appellant.

S273802

Supreme Court of California.

July 15, 2024

Second Appellate District, Division Four, B309408, Los Angeles County Superior Court, 20STCV25987, David J. Cowan, Judge

Hill, Farrer & Burrill, James A. Bowles, Casey L. Morris, Elissa L. Gysi, Los Angeles; Seyfarth Shaw and Kiran A. Seldon for Defendant and Appellant.

Elmer Stahl, Robert E. Dunn; and Fred J. Hiestand for the Chamber of Commerce of the United States of America and the Civil Justice Association of California as Amici Curiae on behalf of Defendant and Appellant.

Coblentz Patch Duffy & Bass, Fred Alvarez, Anthony D. Risucci, San Francisco, and Tom Lin for Employers Group as Amicus Curiae on behalf of Defendant and Appellant.

Panitz Law Group and Eric A Panitz for Plaintiff and Respondent.

Soderstrom Law and Jamin S. Soderstrom for Lionel Harper, Hassan Turner, Luis Vazquez and Pedro Abascal as Amici Curiae on behalf of Plaintiff and Respondent.

Opinion of the Court by Corrigan, J.

Defendant was sued by a former employee and unsuccessfully moved to compel arbitration. The trial court and the Court of Appeal concluded the arbitration agreement contained unconscionable provisions and' declined to enforce it. We too conclude that certain provisions are substantively unconscionable. The next question revolves around remedy. Should the courts have refused to enforce the agreement, or could they have severed the unconscionable provisions and enforced the rest? We conclude the matter must be remanded for further consideration of this question in light of the conclusions and the analysis set out here. We also conclude the Court of Appeal’s decision did not violate the Federal Arbitration Act (9 U.S.C. § 1 et seq.; FAA).

I. Background

A. Proceedings Below and Grant of Review

Defendant Charter Communications, Inc. (Charter) has nearly 100,000 employees and provides telecommunications services throughout the United States. Charter has adopted an alternative dispute resolution program called Solution Channel, which it describes as "the means by which a current employee, a former employee, an applicant for employment, or Charter can efficiently and privately resolve covered employment-based legal disputes."

Charter job applicants had to agree to use Solution Channel. If a job offer was made, prospective employees used a computerized onboarding process. They were required to read several company documents and policies and to agree by use of an electronic signature. Those documents included a Mutual Arbitration Agreement (Agreement) and the Solution Channel Guidelines (Guidelines).

Charter hired plaintiff Angelica Ramirez in July 2019. Using the onboarding process, Ramirez accepted the proposed Agreement, including adherence to the Guidelines. In May 2020, Ramirez was fired. She sued Charter in July 2020, alleging claims for discrimination, harassment, and retaliation under the Fair Employment and Housing Act (Gov. Code, § 12900 et seq.; FEHA) along with a claim of wrongful discharge in violation of public policy.¹

Relying on the Agreement, Charter moved to compel arbitration and to recover the attorney fees incurred in seeking that ruling. In opposition, Ramirez argued the Agreement was procedurally unconscionable as a contract of adhesion, and that several provisions were substantively unconscionable as well. The challenged provisions included those: describing which Claims were subject to and excluded from arbitration; imposing a shortened filing period for certain claims; limiting the discovery available in arbitration; and allowing Charter to recover attorney fees in a manner contrary to FEHA. Charter urged the Agreement was not unconscionable. Alternatively, it argued that, if certain provisions were so held, they should be severed and the balance of the Agreement enforced.

The trial court found that the Agreement was one of adhesion because it was required as a condition of employment. It concluded the Agreement was substantively unconscionable because it shortened the time for filing a claim; violated FEHA by failing to limit Charter’s recovery of attorney fees to cases involving frivolous or bad faith claims; and impermissibly allowed an interim fee award to a party which successfully compelled arbitration. The court rejected arguments that the discovery limitations and the exclusion of some claims were Unconscionable. Finding the Agreement was "permeated with unconscionability," the court refused to enforce it and denied the motion to compel arbitration. Charter appealed.

The Court of Appeal affirmed the denial of Charter’s motion, although it disagreed with aspects of the trial court’s reasoning and concluded additional provisions were unconscionable. The court also disagreed with Patterson v. Superior Court (2021) 70 Cal. App.5th 473, 285 Cal.Rptr.3d 420 (Patterson) as to the enforceability of a provision calling for an interim award of attorney fees following a successful motion to compel.

We granted review to resolve that conflict and to determine whether the Court of Appeal erred in concluding the Agreement was unconscionable because it lacked mutuality in terms of the claims subject to and excluded from arbitration; shortened the period for filing claims; and truncated discovery. We also agreed to resolve whether the Court of Appeal’s refusal to sever the unconscionable provisions and enforce the Agreement violated the FAA.

B. Relevant Provisions of the Agreement and the Guidelines

In Section A of the Agreement, Ramirez and Charter "mutually agree" that "any dispute arising out of or relating to [Ramirez’s] pre-employment application and/or employment with Charter or the termination of that relationship, except as specifically excluded below, must be resolved through binding arbitration by a private and neutral arbitrator, to be jointly chosen by [Ramirez] and Charter." Sections B and C modify Section A and specify certain claims as subject to (Section B) or excluded from (Section C) arbitration. Among other claims, those for wrongful termination, discrimination, harassment, and retaliation are made subject to arbitration.

Section E limits the time for filing an arbitration claim. Section I provides that the "arbitrator will decide all discovery disputes related to the arbitration" and that all arbitration proceedings are conducted pursuant to the Guidelines.

Section K governs the allocation of arbitral costs, fees, and expenses. It requires that Charter pay "AAA administrative fees" and "the arbitrator’s fees and expenses." "All other costs, fees and expenses associated with the arbitration, including without limitation each party’s attorneys’ fees, will be borne by the party" incurring them. Section K goes on to provide that "the failure or refusal of either party to submit to arbitration as required by this Agreement will constitute a material breach of this Agreement. If any judicial action or proceeding is commenced in order to compel arbitration, and if arbitration is in fact compelled or the party resisting arbitration submits to arbitration following the commencement of the action or proceeding, the party that resisted arbitration will be required to pay to the other party all costs, fees and expenses that they incur in compelling arbitration, including, without limitation, reasonable attorneys’ fees."

As relevant here, the Guidelines set out general procedural rules for arbitration. These include how discovery is to be conducted and a provision that the "prevailing party" may recover, at the arbitrator’s discretion, "any remedy that the party would have been allowed to recover had the dispute been brought in court."

II. DISCUSSION

[1–3] Federal and California law treat valid arbitration agreements like any other contract and favor their enforcement. (9 U.S.C. § 2; OTO, L.L.C v. Kho (2019) 8 Cal.5th 111, 125, 251 Cal.Rptr.3d 714, 447 P.3d 680 (Kho); Torrecillas v. Fitness Internal., LLC (2020) 52 Cal.App.5th 485; 492, 266 Cal.Rptr.3d 181 (Torrecillas).) The California Arbitration Act (Code Civ. Proc., § 1280 et seq.; CAA) expresses a " ‘ "strong public policy in favor of arbitration as a speedy and relatively inexpensive means of dispute resolution." ’ " (Kho, at p. 125, 251 Cal.Rptr.3d 714, 447 P.3d 680, quoting Moncharsh v. Heily & Blase (1992) 3 Cal.4th 1, 9, 10 Cal. Rptr.2d 183, 832 P.2d 899.) A written agreement to submit a controversy to arbitration is valid, enforceable, and irrevocable, "save upon such grounds as exist for the revocation of any contract." (Code Civ. Proc., § 1281.) Unconscionability provides such grounds. (Armendariz v Foundation Health Psychcare Services, Inc (2000) 24 Cal.4th 83, 99, 99 Cal.Rptr.2d 745, 6 P.3d 669 (Armendariz).)

[4–6] The "general principles of unconscionability are well established. A contract is unconscionable if one of the parties lacked a meaningful choice in deciding whether to agree and the contract contains terms that are unreasonably favorable to the other party." (Kho, supra, 8 Cal.5th at p. 125, 251 Cal.Rptr.3d 714, 447 P.3d 680; see also Baltazar v. Forever 21, Inc. (2016) 62 Cal.4th 1237, 1243, 200 Cal.Rptr.3d 7, 367 P.3d 6 (Baltazar).) Unconscionability has both a procedural and a substantive element. (Pin- nacle Museum Tower Assn. v. Pinnacle Market Development (US), LLC (2012) 55 Cal.4th 223, 246, 145 Cal.Rptr.3d 514, 282 P.3d 1217 (Pinnacle).) The party resisting enforcement of an arbitration agreement has the burden to establish unconscionability. (Id. at p. 236, 145 Cal.Rptr.3d 514, 282 P.3d 1217.)

[7–10] Procedural unconscionability "addresses the circumstances of contract negotiation and formation, focusing on oppression or surprise due to unequal bargaining power." (Pinnacle, supra, 55 Cal.4th at p. 246, 145 Cal.Rptr.3d 514, 282 P.3d 1217.) This element is generally established by showing the agreement, is a contract of adhesion, i.e., a ...