Veitenhans v. Hikvision USA, Inc.

WAGILISTRIA VEITENHANS, Plaintiff and Respondent, v. HIKVISION USA, INC., Defendant and Appellant.

B302552

COURT OF APPEAL OF THE STATE OF CALIFORNIA SECOND APPELLATE DISTRICT DIVISION FOUR

May 27, 2021

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.

(Los Angeles County Super. Ct. No. 19STCV17310)

APPEAL from an order of the Superior Court of Los Angeles County, Ruth Ann Kwan, Judge. Affirmed.

Steven B. Stevens; Solomon, Saltsman & Jamieson and Ryan M. Kroll for Plaintiff and Respondent.

Gordon Rees Scully Mansukahni, Christopher B. Cato, Matthew G. Kleiner and Casey Shaw for Defendant and Appellant.

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INTRODUCTION

Appellant Hikvision USA, Inc. appeals from an order denying its motion to compel arbitration of claims brought by respondent Wagilistria Veitenhans, a former employee, alleging Hikvision discriminated against her on the basis of her gender and disability, in violation of the Fair Employment and Housing Act (FEHA). Hikvision's motion sought to enforce an arbitration provision in an employment agreement it required Veitenhans to sign when it hired her. Although the arbitration provision facially applied to all claims related to Veitenhans's employment, a contemporaneously executed confidentiality agreement established an exception for Hikvision's claims against Veitenhans for using or disclosing Hikvision's confidential information (the confidentiality carve-out).

In opposing Hikvision's motion to compel arbitration, Veitenhans argued the arbitration provision was both procedurally and substantively unconscionable, and therefore unenforceable. She identified the confidentiality carve-out as the worst of several substantively unconscionable terms, arguing the carve-out deprived the arbitration provision of mutuality, the paramount consideration in assessing the unconscionability of anarbitration agreement. Veitenhans further argued that curing the arbitration provision's unconscionability by severing the carve-out (or any other term) was neither possible nor in the interests of justice. Hikvision did not argue for severance of the confidentiality carve-out. Indeed, Hikvision failed even to mention the carve-out in the trial court.

The court found the arbitration provision both substantively and procedurally unconscionable. It found significant substantive unconscionability because the confidentiality carve-out (along with another provision) deprived the arbitration provision of mutuality. It found substantial procedural unconscionability because: (1) the employment agreement was adhesive; (2) the arbitration provision's language was ambiguous; (3) Hikvision did not sign the agreement; and (4) Hikvision failed to identify or attach the rules of the American Arbitration Association (AAA), which were incorporated into the arbitration provision by reference. Finding the arbitration provision unenforceable, the court denied Hikvision's motion to compel arbitration.

On appeal, Hikvision contends: (1) the trial court erred in finding sufficient degrees of substantive and procedural unconscionability to render the arbitration provision unenforceable; and (2) even assuming there was no error in the court's unconscionability findings, the court abused its discretion in refusing to enforce the arbitration provision,rather than severing the confidentiality carve-out and enforcing the remainder of the provision.

We affirm. Reviewing the trial court's unconscionability findings de novo, as there is no material dispute in the evidence, we find a high degree of substantive unconscionability and a moderate degree of procedural unconscionability. A high degree of substantive unconscionability is established by: (1) the confidentiality carve-out, which deprived the arbitration provision of the paramount concern of mutuality; and (2) the provision's incorporation of AAA rules that, at the time the provision was executed, subjected Veitenhans to a risk of bearing costs forbidden by Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83 (Armendariz).¹ A moderate degree of procedural unconscionability is established by: (1) the employment agreement's adhesive nature; (2) Hikvision's failure to identify or attach the substantively unconscionable AAA cost-splitting rules; and (3) Hikvision's drafting of the employment and confidentiality agreements in a manner that obscured the arbitration provision's lack of mutuality. In light of theseunconscionability findings, we conclude the trial court did not err in finding the arbitration provision sufficiently unconscionable to render it unenforceable. Finally, we conclude Hikvision forfeited its argument for severance of the confidentiality carve-out by failing even to mention the carve-out, let alone argue for its severance, in the trial court.

FACTUAL BACKGROUND

A. The Employment and Confidentiality Agreements

In May 2013, Veitenhans applied for a regional sales manager position with Hikvision, a multi-national surveillance camera manufacturer and retailer. Veitenhans's written application and resume indicated she had obtained a bachelor's degree and a paralegal certificate, and had worked in sales for more than a decade. Later that month, Hikvision sent Veitenhans a letter offering her the position. The offer letter informed Veitenhans that in order to accept the job, she was required to execute, inter alia, an employment agreement and a confidentiality agreement.

On June 1, 2013, Veitenhans signed the employment agreement and the confidentiality agreement (along with other employment documents) and began working for Hikvision. Hikvision did not sign either agreement. The agreements were drafted on preprinted forms and typically referred to Veitenhans in generic terms (e.g., "Employee," "he or she," and "his or her").

The employment agreement was three pages long and included 18 numbered paragraphs. Paragraph 14 of the employment agreement -- titled, in boldface, "Settlement by Arbitration" -- provided, "Any claim or controversy that arises out of or relates to this agreement, or the breach of it, shall be settled by arbitration in accordance with the rules of the American Arbitration Association. Judgment upon the award rendered may be entered in any court with jurisdiction." No AAA rules were identified within or attached to the agreement. The agreement did not explain that Veitenhans's agreement to submit claims to arbitration constituted a waiver of her right to bring those claims in court. Nor did the employment agreement reference the separate confidentiality agreement.

The confidentiality agreement included 10 numbered paragraphs, without headings. It provided that Veitenhans had and would come into possession of "confidential information belonging to the Employer[,] including but not limited to trade secrets . . . ." Veitenhans promised not to disclose "such confidential information" to third parties, or to use it for her own or third parties' benefit. Paragraph four provided, "Violation of this agreement by the Employee will entitle the Employer to an injunction . . . and will entitle the Employer to other legal remedies, including attorney's fees and costs. Employee agrees that in the event of any breach or threatened breach by Employee, Employer may obtain, in addition to any other legal remedies which may be available, such equitable relief as may be necessary to protectEmployer against any such breach or threatened breach." Paragraph five provided, "This Agreement shall be governed and construed in accordance with the laws of the United States and the State of California and Employee consents to the exclusive jurisdiction of the state courts and U.S. federal courts located there for any dispute arising out of this Agreement." As the parties agree on appeal, the second portion of paragraph five -- investing the courts with "exclusive" jurisdiction over disputes arising under the agreement, which protected only Hikvision's confidential information -- established the confidentiality carve-out, exempting Hikvision's confidentiality claims against Veitenhans from the employment agreement's arbitration provision. (See Civ. Code, § 1642 ["Several contracts relating to the same matters, between the same parties, and made as parts of substantially one transaction, are to be taken together"].) The confidentiality agreement made no reference to the employment agreement or to arbitration.

B. Veitenhans's FEHA Action

In January 2019, Hikvision terminated Veitenhans's employment. In May 2019, Veitenhans sued Hikvision. Veitenhans alleged there was a "blatant and widespread culture of misogyny" at Hikvision. A Hikvision executive overseeing her sales group remarked, in her presence and that of a colleague and future supervisor, that her gender was "'a punishment for being evil in a past life.'" The same executive hypothesized that Veitenhans might developovarian cancer as a divine punishment for having engaged in premarital sex. Coworkers spread rumors that Veitenhans had sex with clients, and that this was the sole reason for her success. While training new hires, a Hikvision employee stated that Veitenhans knew nothing, and did not need to know anything, because she was a "'girl.'" Her superiors treated her less favorably than male coworkers in performance evaluations, responses to reimbursement requests, and pay.

Veitenhans further alleged that Hikvision discriminated against her on the basis of her July 2018 diagnosis of trochanteric pain disorder, which temporarily impacted her ability to perform one of her duties, viz., driving long distances without a break on visits to customers and prospective clients. Between August and December 2018,...