Baltazar v. Forever 21, Inc.

• Citation: 200 Cal.Rptr.3d 7,367 P.3d 6,62 Cal.4th 1237
• Decision Date: 28 March 2016
• Docket Number: No. S208345.,S208345.
• Parties: Maribel BALTAZAR, Plaintiff and Respondent, v. FOREVER 21, INC., et al., Defendants and Appellants.
• Court: California Supreme Court

62 Cal.4th 1237

367 P.3d 6

200 Cal.Rptr.3d 7

Maribel BALTAZAR, Plaintiff and Respondent,

v.FOREVER 21, INC., et al., Defendants and Appellants.

No. S208345.

Supreme Court of California

March 28, 2016.

Paul Hastings, Paul W. Cane, Jr., San Francisco; Gilbert, Kelly, Crowley & Jennett, Arthur J. McKeon III, Rebecca J. Smith and Edward E. Ward, Los Angeles, for Defendants and Appellants.

Debra J. La Fetra for Pacific Legal Foundation as Amicus Curiae on behalf of Defendants and Appellants.

Law Offices of Mark Joseph Valencia, Valencia & Cywinska, Mark Joseph Valencia and Izabela Cywinska Valencia, Los Angeles, for Plaintiff and Respondent.

KRUGER

, J.

In this case, we are once again asked to determine the enforceability of an arbitration agreement under the law of unconscionability. As a condition of her employment with defendants, plaintiff Maribel Baltazar signed an agreement to resolve any employment-related disputes by means of arbitration. The agreement provides that, in the event a claim proceeds to arbitration, the parties are authorized to seek preliminary injunctive relief in the superior court. The primary question before us is whether this clause renders the arbitration agreement unconscionable, and therefore unenforceable, because it unreasonably favors the employer. We conclude that the clause, which does no more than restate existing law (see Code Civ. Proc., § 1281.8, subd. (b)

( section 1281.8(b) )), does not render the agreement unconscionable. Finding no other basis to support Baltazar's claim of unconscionability, we affirm the judgment of the Court of Appeal.

I.

In November 2007, Baltazar was invited to a job interview at a Los Angeles warehouse operated by Forever 21, a clothing retail merchandiser. When she arrived for the interview, she was asked to fill out an 11–page employment application. Pages 8 and 9 of the application consisted of an arbitration agreement. Several blank spaces on the application were highlighted in yellow, indicating places where Baltazar should sign. Although Baltazar signed all other portions of the application, she initially refused to sign the arbitration agreement.

A Forever 21 employee told Baltazar, "[S]ign it or no job." Baltazar then signed the arbitration agreement and was hired.

The agreement provides that the parties "mutually agree" to arbitrate "any claim or action arising out of or in any way related to the hire, employment, remuneration, separation or termination of Employee." The agreement specifies that the disputes subject to arbitration "include but are not limited to: claims for wages or other compensation due; claims for breach of any employment contract or covenant (express or implied); claims for unlawful discrimination, retaliation or harassment ..., and Disputes arising out of or relating to the termination of the employment relationship between the parties, whether based on common law or statute, regulation, or ordinance." (Original italics.) In the event the parties proceed to arbitration, the agreement provides that either party may seek provisional relief: "Pursuant to California Code of Civil Procedure [section] 1281.8

either party hereto may apply to a California court for any provisional remedy, including a temporary restraining order or preliminary injunction." The agreement also contains a confidentiality provision: "Both parties agree that the Company has valuable trade secrets and proprietary and confidential information. Both parties agree that in the course of any arbitration proceeding all necessary steps will be taken to protect from public disclosure such trade secrets and proprietary and confidential information." And finally, as relevant here, the agreement provides that if a court determines that "the parties['] agreement to arbitrate under the Model Rules for Arbitration of Employment Disputes of the American Arbitration Association is not enforceable," then the parties will arbitrate the dispute under the California Arbitration Act (CAA) (Code Civ. Proc., § 1280 et seq.

).

Baltazar resigned from Forever 21 in January 2011. Later that year, she filed a complaint against defendants in the superior court. Her complaint alleges that during the course of her employment at Forever 21, she suffered verbal and physical harassment, race and sex discrimination, and retaliation, all in violation of California law.¹ Defendants filed a motion to compel arbitration under the terms of the agreement that Baltazar had signed. Baltazar opposed the motion, arguing that the arbitration agreement was unconscionable and therefore unenforceable. Agreeing with Baltazar, the trial court denied the motion to compel arbitration. The trial court found that the agreement was procedurally unconscionable because of the parties' unequal bargaining power. It explained that Forever 21 had required Baltazar to sign the agreement, without modification, as a condition of receiving employment. The trial court also found that the agreement was substantively unconscionable because (1) it lists only employee claims as illustrative examples of the types of disputes to which it applies, (2) it gives Forever 21 the right to protect trade secrets and other confidential information, and (3) it still requires arbitration even if a court finds the agreement to be unenforceable insofar as it requires arbitration under the model rules of the American Arbitration Association (AAA).

The Court of Appeal reversed. It agreed with the trial court's conclusion that the agreement was "oppressive and procedurally unconscionable" because Baltazar "was required to sign the Agreement as a condition of employment, was unable to negotiate the terms of the Agreement, and had no meaningful choice in the matter." But the Court of Appeal disagreed with the trial court's conclusion that the agreement was substantively unconscionable. The court rejected Baltazar's argument that the clause of the arbitration agreement permitting either party to seek provisional relief in superior court was substantively unconscionable because such relief more often serves the interests of employers than employees. On this point, the Court of Appeal expressly disagreed with Trivedi v. Curexo Technology Corp. (2010) 189 Cal.App.4th 387, 116 Cal.Rptr.3d 804

(Trivedi ). The court similarly rejected Baltazar's arguments that the agreement's list of examples of employment-related disputes subject to arbitration and its confidentiality provision were unfairly one-sided, rendering the agreement unconscionable. Finally, the court rejected Baltazar's argument that the arbitration agreement at issue here was unconscionable because it required arbitration even if a court determined the agreement to be unenforceable, explaining: "The Agreement states that arbitration will be conducted pursuant to the rules of the American Arbitration Association ..., but if those rules are found unenforceable, the arbitration will proceed under the CAA." That provision, the court concluded, "simply provides an alternative means of arbitration if [the AAA] rules are unenforceable for some reason," and does not require arbitration in the event a court declares the agreement itself to be unenforceable.² We granted Baltazar's petition for review.

II.

A.

As a starting point for our analysis, we review general principles of unconscionability. " ‘One common formulation of unconscionability is that it refers to " ‘an absence of meaningful choice on the part of one of the parties together with contract terms which are unreasonably favorable to the other party.’ " [Citation.] As that formulation implicitly recognizes, the doctrine of unconscionability has both a procedural and a substantive element, the former focusing on oppression or surprise due to unequal bargaining power, the latter on overly harsh or one-sided results.' " (Sonic–Calabasas A, Inc. v. Moreno (2013) 57 Cal.4th 1109, 1133, 163 Cal.Rptr.3d 269, 311 P.3d 184

(Sonic II ).)

" ‘The prevailing view is that [procedural and substantive unconscionability] must both be present in order for a court to exercise its discretion to refuse to enforce a contract or clause under the doctrine of unconscionability.’ [Citation.] But they need not be present in the same degree. ‘Essentially a sliding scale is invoked which disregards the regularity of the procedural process of the contract formation, that creates the terms, in proportion to the greater harshness or unreasonableness of the substantive terms themselves.’ [Citations.] 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, 99 Cal.Rptr.2d 745, 6 P.3d 669

(Armendariz ).)

"[A] finding of procedural unconscionability does not mean that a contract will not be enforced, but rather that courts will scrutinize the substantive terms of the contract to ensure they are not manifestly unfair or one-sided. [Citation.] ... [T]here are degrees of procedural unconscionability. At one end of the spectrum are contracts that have been freely negotiated by roughly equal parties, in which there is no procedural unconscionability.... Contracts of adhesion that involve surprise or other sharp practices lie on the other end of the spectrum. [Citation.] Ordinary contracts of adhesion, although they are indispensable facts of modern life that are generally enforced (see Graham v. Scissor–Tail, Inc. (1981) 28 Cal.3d 807, 817–818, 171 Cal.Rptr. 604, 623 P.2d 165

), contain a degree of procedural unconscionability even without any notable surprises, and ‘bear within them the clear danger of oppression and overreaching.’ (Id. at p. 818 [171 Cal.Rptr. 604, 623 P.2d 165 ].)" (Gentry v. Superior Court (2007) 42 Cal.4th 443, 469, 64 Cal.Rptr.3d 773, 165 P.3d 556.) We have instructed that courts must be "particularly attuned" to this danger in the...