Carbajal v. CWPSC, Inc.

Decision Date26 February 2016
Docket NumberG050438
Citation245 Cal.App.4th 227,199 Cal.Rptr.3d 332
CourtCalifornia Court of Appeals Court of Appeals
Parties Martha CARBAJAL, Plaintiff and Respondent, v. CWPSC, INC., Defendant and Appellant.

Ogletree, Deakins, Nash, Smoak & Stewart, Rafael G. Nendel–Flores and Seth E. Ort, Costa Mesa, for Defendant and Appellant.

Trush Law Office, James M. Trush, Newport Beach; Perona, Langer, Beck, Serbin, Mendoza & Harrison, Ellen R. Serbin and Brennan S. Kahn, Long Beach, Todd H. Harrison, for Plaintiff and Respondent.



, J.

Defendant and appellant CWPSC, Inc. (CW Painting) appeals the trial court's order denying its motion to compel its former employee, plaintiff and respondent Martha Carbajal, to arbitrate her wage and hour claims under the arbitration provision in her employment agreement. The trial court denied the motion because it found the arbitration provision was both procedurally and substantively unconscionable. We agree with the trial court.

The arbitration provision is procedurally unconscionable because it is part of an adhesion contract CW Painting imposed on Carbajal as a term of her employment. Moreover, although the arbitration provision required the parties to arbitrate their disputes under the American Arbitration Association's (AAA) rules, the provision did not identify which of AAA's many different rules would apply, CW Painting failed to provide Carbajal with a copy of the rules it believed applied, and CW Painting required Carbajal to sign the agreement without telling her where she could find the governing rules or giving her an opportunity to determine which rules would apply.

The arbitration provision is substantively unconscionable because it allows CW Painting to obtain injunctive relief in court while requiring Carbajal to seek relief through arbitration, it waives the statutory requirement that CW Painting post a bond or undertaking to obtain injunctive relief, and it effectively waives Carbajal's statutory right to recover her attorney fees if she prevails on her Labor Code claims.

Contrary to CW Painting's contention, the trial court was not required to sever these unconscionable terms and enforce the remainder of the arbitration provision. A trial court has discretion to deny enforcement of an arbitration agreement when the existence of multiple unconscionable terms permeates the entire agreement. The record supports the trial court's exercise of its discretion.

Finally, we reject CW Painting's contention the Federal Arbitration Act (9 U.S.C. § 1 et seq.

; FAA) governs. The party asserting the FAA bears the burden to show it applies by presenting evidence establishing the contract with the arbitration provision has a substantial relationship to interstate commerce, but CW Painting failed to timely present such evidence.



CW Painting provides residential painting services for homeowners. It hires college students as "interns" to sell its services and manage its painting crews. In November 2011, Carbajal was a student at the University of California, San Diego when CW Painting made an on-campus solicitation for new interns. After the presentation, CW Painting accepted her into its internship program. During her interview, CW Painting asked Carbajal to sign the "2012 Season Employment Agreement—CWP Intern" (Agreement), but no one explained its provisions to her.

Under the heading "LET'S TALK IT OUT," the Agreement included an arbitration provision that required Carbajal and CW Painting "to submit any and all disputes to final and binding arbitration in accordance with the rules of the [AAA]." The arbitration provision had a class action waiver that required Carbajal to arbitrate any claims she asserted on an individual basis, and prohibited the arbitrator from "enter[ing] an award or otherwise provid[ing] relief on a class, collective or representative basis." The same paragraph also provided that Carbajal and CW Painting "specifically retain a right to appeal in a court of competent jurisdiction any determination or award of an arbitrator made in contravention of this section, including without limitation, a determination (i) that a claim may proceed as a class, collective, or representative action; or (ii) that awards relief on a class, collective, or representative basis. In such appeal, the standard of review to be applied to the arbitrator's decision shall be the same as that applied by an appellate court reviewing a decision of a trial court sitting without a jury."

The arbitration provision further provided, "The costs of arbitration will be shared equally by [Carbajal] and [CW Painting]; however, if the law expressly requires [CW Painting], as the employer, [to] bear the entire cost of arbitration then [CW Painting] will then pay the entire cost." Finally, the provision required Carbajal and CW Painting to be "responsible for your own attorneys' fees."

The Agreement also required Carbajal to keep CW Painting's trade secrets and other information confidential and required her to use that information exclusively for CW Painting's benefit. If Carbajal breached these obligations, the Agreement included a liquidated damages provision that required her to "pay to [CW Painting], immediately upon demand, the sum of ten thousand dollars ($10,000.00) per breach." The Agreement further provided that Carbajal "agrees that, in addition to the foregoing remedy, if [Carbajal] breaches any of [the confidentiality or exclusive use provisions, CW Painting] will have the right to obtain an injunction from a court of competent jurisdiction restraining such breach or threatened breach and a right to specific performance of any such provision of this Agreement. [Carbajal] further agrees that no bond or other security shall be required in obtaining such equitable relief." (Capitalization omitted.)

After attending an orientation and two-day training seminar, Carbajal began working for CW Painting in February 2012. In May 2012, CW Painting informed Carbajal it was missing some of her employment documents, including page two of the Agreement, which contained the arbitration, liquidated damages, and injunctive relief provisions described above. CW Painting e-mailed the documents to Carbajal, who signed and returned them to CW Painting as instructed.

Carbajal quit in August 2012, and filed this class action against CW Painting approximately a year later. The operative first amended complaint alleges the following clams on behalf of all similarly situated interns: (1) recovery of unpaid wages; (2) failure to provide meal periods; (3) failure to provide paid rest periods; (4) illegal deductions from wages; (5) failure to provide accurate itemized wage statements; (6) failure to compensate for business expenses; (7) failure to timely pay wages upon separation; (8) "declaratory relief—fraud in inducement, void and unenforceable agreement"; and (9) unfair business practices. (Capitalization omitted.)

CW Painting asked Carbajal to submit her claims to arbitration on an individual basis as the Agreement required, but Carbajal refused and sent CW Painting a notice purporting to rescind the Agreement because CW Painting had never signed it. Based on Carbajal's refusal, CW Painting filed a motion to compel her to arbitrate her claims on an individual basis. CW Painting argued the Agreement was enforceable and governed by the FAA, which preempts all California statutes and case law invalidating class action waivers or otherwise limiting the enforceability of the parties' arbitration agreement.

Carbajal opposed the motion, arguing (1) no enforceable arbitration agreement existed because CW Painting never signed the Agreement; (2) the FAA does not apply because CW Painting failed to present any evidence showing the Agreement involved interstate commerce; (3) Labor Code section 229

invalidates any private agreement to arbitrate Labor Code claims for unpaid wages; and (4) the Agreement's arbitration provision is procedurally and substantively unconscionable. CW Painting filed a reply brief arguing the FAA applied because Carbajal's duties bore a substantial relationship to interstate commerce. In support, CW Painting submitted new declarations from one of its officers and a supplier stating many of the materials CW Painting used in its painting business were shipped from other states.

The trial court denied the motion. In its order, the court simply stated the motion was denied "on the basis that the court finds that the subject Employment Agreement is procedurally and substantively unconscionable." Neither party requested a statement of decision, and the trial court provided no further explanation of its ruling. This appeal followed.



A. Standard of Review

" ‘Unconscionability is ultimately a question of law for the court.’ [Citations.] ‘However, numerous factual issues may bear on that question. [Citation.] Where the trial court's determination of unconscionability is based upon the trial court's resolution of conflicts in the evidence, or on the factual inferences which may be drawn therefrom, we consider the evidence in the light most favorable to the court's determination and review those aspects of the determination for substantial evidence.’ [Citation.] If there are no material conflicts in the evidence bearing on the issue of unconscionability, our review is de novo." (The McCaffrey Group, Inc. v. Superior Court (2014) 224 Cal.App.4th 1330, 1347, 169 Cal.Rptr.3d 766

(McCaffrey ); see Serafin v. Balco Properties Ltd., LLC (2015) 235 Cal.App.4th 165, 178, 185 Cal.Rptr.3d 151 (Serafin ).)

When a trial court denies a motion to compel arbitration, a party may request the court to provide a statement of decision explaining the factual and legal basis for its decision. (Code Civ. Proc., § 1291

; Acquire II, Ltd. v. Colton Real Estate Group (2013) 213 Cal.App.4th 959, 970, 153 Cal.Rptr.3d 135 (Acquire II ); Metis Development LLC v. Bohacek (2011) 200 Cal.App.4th 679,...

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