Fitz v. Ncr Corp.

• Decision Date: 27 April 2004
• Docket Number: No. D041738.,D041738.
• Citation: 118 Cal.App.4th 702,13 Cal.Rptr.3d 88
• Court: California Court of Appeals Court of Appeals
• Parties: Nancy FITZ, Plaintiff and Respondent, v. NCR CORPORATION, Defendant and Appellant.

13 Cal.Rptr.3d 88

118 Cal.App.4th 702

Nancy FITZ, Plaintiff and Respondent, v. NCR CORPORATION, Defendant and Appellant.

No. D041738.

Court of Appeal, Fourth District, Division 1.

April 27, 2004.

Leon J. Saad, Saad & Associates, San Diego, CA, Diane Therese Letarte, Encinitas, CA, J. Michael Vallee, Solana Beach, CA, for Plaintiff-Respondent.

Julie A. Dunne, Karin Dougan Vogel, John A. English, Sheppard, Mullin, Richter & Hampton, San Diego, CA, for Defendant-Appellant.

NARES, Acting P.J.

This case arises out of the termination of plaintiff Nancy Fitz's employment with defendant NCR Corporation (NCR), and Fitz's subsequent wrongful termination complaint against NCR. NCR appeals from a February 2003 ruling that found an arbitration clause in the company's employee-dispute resolution policy to be unconscionable, and therefore unenforceable.

In her complaint against NCR, Fitz alleged causes of action for age discrimination, breach of implied contract, breach of the covenant of good faith and fair dealing, fraud and violation of public policy. NCR demurred to the complaint, arguing that Fitz had waived her right to pursue her claims by failing to exhaust the arbitration remedies as provided for in the company's employee-dispute resolution policy, known as Addressing Concerns Together (ACT). In the alternative, NCR sought to compel arbitration under the ACT policy terms. In response, Fitz asserted that the arbitration agreement was invalid because it was both procedurally and substantively unconscionable. Furthermore, Fitz requested the court to find invalid unilateral modifications NCR made to the arbitration agreement in 2000.

The court overruled NCR's demurrer and denied its motion to compel arbitration, finding the ACT policy to be procedurally unconscionable due to the inequality of bargaining power between NCR and substantively unconscionable because (1) the policy did not allow for adequate discovery; and (2) it required employees to arbitrate wrongful termination claims but exempted NCR from having to arbitrate claims it had against employees.

On appeal, NCR has not renewed its claim that Fitz waived her right to pursue her claims by failing to exhaust the arbitration remedies. NCR asserts that (1) the arbitration agreement met the minimum requirements for arbitration of discrimination claims; (2) the arbitration agreement was not procedurally unconscionable and (3) the agreement was not substantively unconscionable. NCR further asserts that even if some clauses in the arbitration agreement were unconscionable, the court should have severed them from the agreement and enforced the remaining terms. We reject NCR's contentions and affirm the court's order denying NCR's motion to compel arbitration.

FACTUAL BACKGROUND

Fitz began her tenure as an employee with NCR in March 1981. In 1996 NCR enacted the ACT policy. The policy set forth a three-stage employee-related dispute resolution process that required disputes that could not be resolved by internal mechanisms to be arbitrated by a neutral private party rather than litigated in the courts. The arbitration provision of the ACT policy provided that: "Except as modified by [the] policy, arbitration hearings [were t]o be conducted in accordance with the ... rules [of the American Arbitration Association (AAA)]."

NCR sent its employees a brochure outlining the ACT policy in September 1996. A letter accompanying the brochure informed employees that the new policy would be used to settle concerns over almost anything at work, ranging from disagreements over assignments to perceived discriminatory treatment. NCR did not give employees a chance to negotiate the terms of the ACT policy. Employees were deemed to have agreed to its terms not by signing the agreement but by continuing to work for NCR one month after the company sent employees the brochure or by accepting any transfers, promotions, merit increases, bonuses or any other benefits of employment.

At its inception in 1996, the policy required all arbitration hearings to be conducted by the AAA and included a process by which both employer and employee participated in selection of individual arbitrators. The policy granted arbitrators the authority to award compensatory and punitive damages, as well as order reinstatement. It also required the employee and the company to share the cost of arbitration unless the arbitrator ruled entirely in favor of the employee in which case the company would be responsible for paying both filing fees and arbitrator's fees.

NCR amended the terms of the ACT policy in 2000 in an effort to comply with the requirements for arbitrating discrimination claims as set forth by the California Supreme Court in Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, 99 Cal.Rptr.2d 745, 6 P.3d 669 (Armendariz). The policy amendments applicable to NCR's California employees were posted on the company Intranet, which was available to employees with access to an Internet connection. The new terms eliminated the fee-splitting provision of the 1996 ACT policy, specified that the arbitrator's decision must be in writing, and expressly included the award of attorneys fees as a potential remedy.

Both the original and amended ACT policy limited discovery as follows:

"To prepare for the arbitration hearing, both NCR and the employee have the right to take the sworn deposition statements of two individuals and, in addition, any expert witnesses expected to testify at the hearing. All documents to be used as exhibits and a list of all potential witnesses will be exchanged at least two weeks in advance of the hearing. No other `discovery' (i.e., depositions or demands for documents/information) will be permitted unless the arbitrator finds a compelling need to allow it. In determining whether a compelling need exists, the arbitrator will balance the interests of fairness and expediency; the arbitrator will only override the goal of achieving a prompt and inexpensive resolution to the dispute if a fair hearing is impossible without additional discovery." (Italics added.)

Additionally, the ACT policy exempted certain types of claims. The ACT policy was not to be used "to resolve disputes over confidentiality/non-compete agreements or intellectual property rights." The policy also did not require arbitration of disputes arising from workers' compensation or unemployment insurance claims and did not preclude employees who believed they had been discriminated against or deprived of their rights in violations of federal or state law from filing a charge with the appropriate state or federal agency.

PROCEDURAL BACKGROUND

In December 2001, NCR terminated Fitz's 20-year employment with the company as part of a reduction in force. A year later, Fitz filed a complaint against NCR alleging age discrimination in violation of the Fair Employment and Housing Act (FEHA), Government Code section 12940 et seq., violation of public policy, breach of implied contract, breach of the covenant of good faith and fair dealing, and fraud.

NCR demurred to the complaint, requesting that the court either find that Fitz had waived her right to pursue her claims by failing to exhaust the arbitration remedies or issue an order staying the litigation and compelling arbitration in accordance with the terms of the ACT policy. NCR argued the policy was not substantively unconscionable and was, therefore, enforceable.

Fitz opposed the demurrer and motion to compel arbitration, arguing that the arbitration agreement was unenforceable because she did not enter into it voluntarily and the terms unfairly compelled arbitration of the claims employees were most likely to bring against NCR while exempting from arbitration the claims NCR was most likely to bring against its employees. Fitz argued that the ACT policy improperly gave arbitrators discretion in awarding attorney fees and contained discovery provisions that unfairly benefited NCR and disfavored employees who did not have the same ready access to evidence as the employer. Additionally, Fitz alleged disparate treatment in that NCR discriminated against her based on age and favored younger workers as a means of reducing payroll costs.

In February 2003, the court issued a tentative ruling that found the ACT policy's arbitration provisions unenforceable as being both procedurally and substantively unconscionable. The court found the policy to be procedurally unconscionable due to the inequality of bargaining power between NCR and employees, which resulted in Fitz lacking any meaningful choice in deciding whether to accept the terms of arbitration. The court found the policy to be substantively unconscionable because (1) it lacked adequate discovery provisions; and (2) it lacked mutuality since the policy required employee-related complaints, such as allegations of discrimination, to go to arbitration, while exempting employer-related complaints, such as disputes over intellectual property and confidentiality agreements.

At the hearing, the court found NCR had reduced its concerns about the ACT policy's lack of mutuality but that the arbitration agreement was still substantively unconscionable because it did not provide for adequate discovery. The court stated:

"I think counsel for the defense has convinced me that [the ACT policy] is probably far more mutual than at first blush. I still think that there is more of interest to the employer that goes to court and more of interest to the employee that goes to arbitration. But I think counsel for the defense has effective minimized that argument in my mind. But what I remain concerned with and what has not been minimized in my mind is the ... lack of any decent discovery process. When you give two depositions and everything else is up to an arbitrator as far as the entire category of written discovery, I believe that there is very little that can be successfully discovered when you in the...