Davis v. Kozak

• Decision Date: 19 August 2020
• Docket Number: A156238,A156234
• Court: California Court of Appeals Court of Appeals
• Parties: Scott DAVIS, Plaintiff and Respondent, v. Stefan KOZAK et al., Defendants and Appellants. Scott Davis, Plaintiff and Respondent, v. Red Bull North America, Inc., Defendant and Appellant.

53 Cal.App.5th 897

267 Cal.Rptr.3d 927

Scott DAVIS, Plaintiff and Respondent,

v.Stefan KOZAK et al., Defendants and Appellants.

Scott Davis, Plaintiff and Respondent,

v.Red Bull North America, Inc., Defendant and Appellant.

A156234

A156238

Court of Appeal, First District, Division 3, California.

Filed August 19, 2020

Mitchell Silberberg & Knupp, Adam Levin, Stephen A. Rossi, Los Angeles, and Elana Moses; for Defendants and Appellants.

Peretz & Associates, Yosef Peretz, and Ruth L. Israely, San Francisco, for Plaintiff and Respondent.

FUJISAKI, J.

This consolidated appeal arises out of plaintiff Scott Davis's lawsuit against executives of Red Bull North America, Inc. (Red Bull) for age and sex harassment in violation of the Fair Employment and Housing Act (FEHA, Gov. Code § 12900 et seq. ) and related tort claims. Red Bull and its executives appeal from the trial court's orders denying their motions to compel arbitration of Davis's claims. We conclude that the arbitration agreement between Davis and Red Bull was unconscionable and unenforceable, and that the trial court properly refused enforcement of the entire agreement. Accordingly, we affirm.

FACTUAL AND PROCEDURAL BACKGROUND

In June 2018, Davis filed a complaint against individual defendants Stefan Kozak, Ryan Conway, Edward Hayden, Christopher Trombetta, and Mark Russ for age and sex harassment and hostile work environment in violation of the FEHA, and for intentional and negligent infliction of emotional distress. Davis alleged he was 56 years old, had been employed by Red Bull for 15 years, and was in a mid-level managerial sales position from 2007 until he was wrongfully terminated in April 2018. In the first cause of action for harassment and hostile work environment based on age, Davis alleged that the individual defendants—all high-ranking executives within the company—consistently made derogatory comments and subjected Davis to harassing conduct related to his age, and passed him over for promotions and terminated his employment due to his age. In the second cause of action for harassment and hostile work environment based on sex, Davis alleged he was subjected to a hostile and abusive work environment because the individual defendants sexually harassed and permitted sexual harassment of women in the workplace, and his complaints and assistance to others in making complaints about the hostile work environment led to further harassment against him. Davis's emotional distress claims derived from the same allegations of age and sex harassment.¹

Shortly after Davis filed his complaint, Red Bull notified Davis of the company's decision to initiate arbitration and seek a declaration that the claims alleged in Davis's DFEH complaint were without merit. When Davis refused to submit to arbitration, Red Bull filed a demand for arbitration with the American Arbitration Association (AAA).

In July 2018, the individual defendants moved to compel Davis to submit his claims to arbitration.

Davis then filed a separate lawsuit against Red Bull seeking a declaratory judgment that the claims set forth in his DFEH complaint were not subject to the arbitration agreement and that the arbitration agreement was not binding on him. He further sought temporary and permanent injunctive relief staying Red Bull's arbitration until the final adjudication of his civil action against the individual defendants. In response, Red Bull filed its own motion to compel arbitration of Davis's claims.

The Arbitration Agreement

In seeking arbitration of the dispute, appellants relied on the "Red Bull North America, Inc. Binding Arbitration Agreement" signed by Davis on September 29, 2003 (hereafter, the arbitration agreement or agreement).

The arbitration agreement is printed on Red Bull letterhead and consists of 18 paragraphs over three pages. It states in relevant part that Davis, "in consideration of [his] employment with [Red Bull]" agreed that "[a]ny and all disputes which involve or relate in any way to [his] employment (or termination of employment) with Red Bull, except for obligations under the Employee Confidentiality Agreement with Red Bull, shall be submitted to and resolved by final and binding arbitration."

The arbitration agreement further specifies it is "intended to cover all civil claims which involve or relate in any way to [Davis's] employment (or termination of employment) with Red Bull, including, but not limited to, claims of employment discrimination or harassment on the basis of ... sex, age, ... claims based on violation of public policy or statue [sic ], claims for wrongful discharge, [and] claims for emotional distress ...."

Under its procedures for initiating arbitration, the agreement provides that within 30 days of receipt of a notice of arbitration, "Red Bull and I will attempt to agree upon a mutually acceptable arbitrator. If Red Bull and I are unable to agree upon [an] arbitrator, we will submit the dispute to the [AAA]." The agreement further states that "arbitration shall be conducted in accordance with the laws of the state in which the arbitration is conducted and the rules and requirements of the arbitration service being utilized, specifically any rules applicable to employment disputes, to the extent that such rules and requirements do not conflict with the terms of this Agreement."

Regarding arbitral discovery, the agreement states: "Either party shall be entitled to conduct a limited amount of discovery prior to the arbitration hearing. Either party may take a maximum of two (2) depositions. Either party may apply to the arbitrator for further discovery. Such further discovery may, in the discretion of the arbitrator, be awarded upon a showing of sufficient cause."²

Hearing, Decision, and Appeal

In a detailed tentative opinion, the trial court was prepared to grant appellants’ motions to compel. After finding that appellants had met their burden of showing Davis was a party to a written agreement requiring him to submit the controversy alleged in his complaint to arbitration, the court determined that Davis had failed to show the agreement was unenforceable under principles of unconscionability, with the exception of the discovery limitation, which the court found to be severable. The court also found that the individual defendants had standing as nonsignatories to enforce the arbitration agreement under agency and estoppel principles.

After the hearing, however, the trial court reversed course. The court not only concluded the individual defendants could not enforce the arbitration agreement, but it also determined the agreement itself is unconscionable and unenforceable. On the latter point, the court found the agreement procedurally unconscionable because it involves an "added level of ‘surprise’ " by failing to specify which arbitration service would be utilized or which set of arbitration rules would apply to the arbitration. The court further found the agreement substantively unconscionable because (1) its language pertains only to the employee, not Red Bull, and therefore, the agreement to arbitrate is not mutual; (2) non-mutuality is further demonstrated by the "substantial ‘carve-out’ for the types of claims [Red Bull] would be likely to bring against Plaintiff" for disputes relating to obligations under the Employee Confidentiality Agreement; and (3) the arbitral discovery process is limited and does not guarantee adequate discovery for vindication of Davis's FEHA claims. The trial court denied both motions to compel.

Appellants timely appealed. ( Code Civ. Proc., § 1294, subd. (a).)

DISCUSSION

"California law, like federal law, favors enforcement of valid arbitration agreements," allowing that they "may only be invalidated for the same reasons as other contracts." ( Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, 97–98, 99 Cal.Rptr.2d 745, 6 P.3d 669 ( Armendariz ).) Generally applicable contract defenses such as unconscionability remain applicable to invalidate arbitration agreements. ( OTO, L.L.C. v. Kho (2019) 8 Cal.5th 111, 125, 251 Cal.Rptr.3d 714, 447 P.3d 680 ( OTO ).)

The unconscionability doctrine has both procedural and substantive elements, "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 ).) Both must be shown for the defense to be established, but not necessarily in the same degree. ( OTO , supra , 8 Cal.5th at p. 125, 251 Cal.Rptr.3d 714, 447 P.3d 680.) We evaluate unconscionability on a sliding scale, so that the more substantively one-sided the contract term, the less evidence of procedural unconscionability is required to conclude that the term is unenforceable, and vice versa. ( Id. at pp. 125–126, 251 Cal.Rptr.3d 714, 447 P.3d 680.) "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." ( Sanchez v. Valencia Holding Co., LLC (2015) 61 Cal.4th 899, 912, 190 Cal.Rptr.3d 812, 353 P.3d 741 ( Sanchez ).) When unconscionability is shown, the trial court has discretion either to refuse to enforce the contract or to strike the unconscionable provision and enforce the remainder of the contract. ( Civ. Code, § 1670.5, subd. (a) ; Armendariz , supra , 24 Cal.4th at p. 122, 99 Cal.Rptr.2d 745, 6 P.3d 669.)

"On appeal from the denial of a motion to compel arbitration, ‘[u]nconscionability findings are reviewed de novo if they are based on declarations that raise "no meaningful factual disputes." [Citation.] However, where an unconscionability determination "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...