Kinney v. United HealthCare Services, Inc.

• Decision Date: 29 March 1999
• Docket Number: No. D028873,D028873
• Citation: 83 Cal.Rptr.2d 348,70 Cal.App.4th 1322
• Court: California Court of Appeals Court of Appeals
• Parties: , 79 Fair Empl.Prac.Cas. (BNA) 894, 138 Lab.Cas. P 58,639, 99 Cal. Daily Op. Serv. 2304, 1999 Daily Journal D.A.R. 2980 Kathleen KINNEY, Plaintiff and Respondent, v. UNITED HEALTHCARE SERVICES, INC., et al., Defendants and Appellants.

Page 348

83 Cal.Rptr.2d 348

70 Cal.App.4th 1322, 79 Fair Empl.Prac.Cas. (BNA) 894,

138 Lab.Cas. P 58,639,

99 Cal. Daily Op. Serv. 2304,

1999 Daily Journal D.A.R. 2980

Kathleen KINNEY, Plaintiff and Respondent, v. UNITED HEALTHCARE SERVICES, INC., et al., Defendants and Appellants.

No. D028873.

Court of Appeal, Fourth District, Division 1, California.

March 29, 1999.

Seyfarth, Shaw, Fairweather & Geraldson, David D. Kadue and Ann M. O'Regan, Los Angeles, for Defendants and Appellants United Healthcare Services, Inc., and Linda Hansen-Kyle, John T. Farmer & Associates and Anthony T. Case for Defendant and Appellant Linda Hansen-Kyle.

Clarice J. Letizia, San Diego, for Plaintiff and Respondent.

McINTYRE, J.

United HealthCare Services, Inc. and Linda Hansen-Kyle (collectively, United) appeal an order denying their motion to require Kathleen Kinney to pursue her employment-based claims against them in arbitration. United contends that the trial court erred in finding that the arbitration provision contained in its employee handbook was unenforceable for lack of mutuality and argues that none of Kinney's other contentions in the proceedings below provide a basis for finding the provision unenforceable. We find the terms of the arbitration agreement so unconscionable as to preclude its enforcement and thus affirm the order.

FACTUAL AND PROCEDURAL BACKGROUND

Kinney worked as a utilization control consultant for Metra Health and its predecessor-in-interest, beginning in June 1989. In early 1996, United acquired Metra Health. At that time, United required its employees to sign a document acknowledging their receipt of the United HealthCare Corporation Employee Handbook (the Handbook). The Handbook included an arbitration policy, as follows:

"A. STATEMENT OF INTENT

" ... [United] believes that the resolution of [employment-related] disagreements [is] best accomplished by internal dispute review ... and, where that fails, by arbitration conducted under the rules of the American Arbitration Association. Employees and [United] benefit from the use of private arbitration because it usually results in quicker, less costly resolution of disagreements than litigation in state or federal courts. For these reasons, [United] has adopted this Employment Arbitration Policy (the 'Policy').

" ... While arbitration is an essential element of your employment relationship and is a condition of your employment, nothing in this Policy creates or is intended to create any other specific term or condition relating to your employment. [United] reserves the right to alter, amend, modify, or revoke this Policy at its sole and absolute discretion at any time with or without notice....

"B. SCOPE OF POLICY

"Arbitration is the final, exclusive and required forum for the resolution of all employment related disputes which are based on a legal claim....

"A dispute is based on a legal claim and is subject to this Policy if it arises or involves a claim under any federal, state or local statute, regulation of common law doctrine regarding or relating to employment discrimination, terms and conditions of employment, or termination of employment including, but not limited to, the following: Title VII of the Civil Rights Act of 1964, the Civil Rights Act of 1866, the Civil Rights Act of 1991, the Age Discrimination in Employment Act, the Rehabilitation Act of 1973, the Americans With Disabilities Act, the Employee Retirement Income Security Act of 1974, and all applicable amendments; state human rights or fair employment practices laws; breach of contract, promissory estoppel, or any other contract theory; and defamation, employment negligence, or any other tort theory....

"The Policy does not require that [United] initiate the arbitration process in regard to any dispute. In addition, [United] is not The policy also set forth the parameters of the arbitration proceedings. It provided that the duration of the proceeding would not exceed one day, subject to a showing of good cause for an "extended hearing," and restricted the scope and extent of discovery, providing that interrogatories could be used only to seek the identification of potential witnesses and that each party would be limited to twenty-five document requests and two eight-hour depositions. It also included limitations on an employee's substantive right of recovery. In accordance with its terms, the arbitrator was precluded from finding that the employment relationship was other than at-will. Further, it limited the recovery of compensatory and punitive damages for employment discrimination in accordance with the provisions of Title VII of the Civil Rights Act of 1964 (42 U.S.C. § 2000e et seq.), as amended; according to United, the Title VII damage limitation applicable to its employees is currently $300,000. The policy also expressly permitted an award of attorney fees to United in certain situations, but making no similar provision for the employee to recover such fees.

required to follow the steps of either [the internal dispute review procedure] or the Policy before initiating or implementing any disciplinary action, or before asserting any claim, demand or action against an employee for breach of any restrictive covenant, wrongful disclosure of confidential information, or any other actions which may constitute a breach of contract, a breach of [United]'s Code of Conduct, a breach of a common law duty, or a breach or violation of either civil or criminal law."

In February 1996, Kinney returned to work after a hospitalization. At that time, she was required by United's supervisory personnel to sign a form acknowledging her receipt of the Handbook, and agreeing to certain of the company's policies, including the arbitration policy. The acknowledgment form provided in part "I understand that arbitration is the final, exclusive and required forum for the resolution of all employment related disputes which are based on a legal claim. I agree to submit all employment related disputes based on a legal claim to arbitration under [United]'s policy."

In January 1997, Kinney filed a complaint against United in the superior court, asserting claims for employment discrimination and retaliation, breach of contract, infliction of emotional distress, negligent supervision, tortious conduct and interference with prospective economic advantage. The complaint alleged that, beginning in June 1995, Kinney was subjected to physical sexual harassment by Hansen-Kyle, her supervisor. It further alleged that Kinney's complaints to United went unanswered, except that Hansen-Kyle began to harass Kinney about her work in retaliation for her complaints about the sexual harassment.

United filed a motion to dismiss or stay the court proceedings, seeking to require Kinney to submit her claims to arbitration. Kinney opposed the motion, contending that the agreement to arbitrate employment-related claims was unenforceable against her. After hearing oral argument, the court denied United's motion. United appeals. ¹

DISCUSSION

A written provision in a contract to submit to arbitration a dispute arising out of the contract is valid, irrevocable and enforceable except on "such grounds as exist at law or in equity for the revocation of any contract." (9 U.S.C. § 2 [contracts subject to the Federal Arbitration Act (FAA) ]; Code Civ. Proc., § 1281 [contracts governed by state arbitration law].) Accordingly, the existence of a valid agreement to arbitrate is determined by reference to state law principles regarding the formation, revocation and enforceability of contracts generally. (Cione v. Foresters Equity Services, Inc. (1997) 58 Cal.App.4th 625, 634, 68 Cal.Rptr.2d 167; see generally Doctor's Associates, Inc. v. Casarotto (1996) 517 U.S. 681, 686-687, 116 S.Ct. 1652, 134 L.Ed.2d 902 [state law defenses may invalidate an agreement to arbitrate governed by the FAA]; Engalla v. Permanente Medical Group, Inc. (1997) 15 Cal.4th 951, 971-973, 64 Cal.Rptr.2d 843, 938 P.2d 903 [contracts subject to state arbitration law].) In the proceedings below, Kinney asserted that the arbitration provision was an unconscionable adhesion contract and thus unenforceable. We agree.

In Graham v. Scissor-Tail, Inc. (1981) 28 Cal.3d 807, 171 Cal.Rptr. 604, 623 P.2d 165, the California Supreme Court addressed the criteria for determining whether an arbitration clause set forth in an adhesion contract is unenforceable on grounds of unconscionability pursuant to common law. In accordance with Graham, " ... there are two judicially imposed limitations on the enforcement of adhesion contracts or provisions thereof. The first is that such a contract or provision which does not fall within the reasonable expectations of the weaker or 'adhering' party will not be enforced against him. [Citations.] The second--a principle of equity applicable to all contracts generally--is that a contract or provision, even if consistent with the reasonable expectations of the parties, will be denied enforcement if, considered in its context, it is unduly oppressive or 'unconscionable.' [Citations.]" (Id. at p. 820, 171 Cal.Rptr. 604, 623 P.2d 165.)

In 1979, the Legislature enacted Civil Code section 1670.5, which adopted the standards of unconscionability set forth in section 2-302 of the Uniform Commercial Code, to be applied to all contracts. (Stats.1979, ch. 819, § 3.) Civil Code section 1670.5, subdivision (a) provides "[i]f the court as a matter of law finds the contract or any clause of the contract to have been unconscionable at the time it was made[,] the court may refuse to enforce the contract, or ... any unconscionable clause...." (See also A & M Produce Co. v. FMC Corp. (1982) 135 Cal.App.3d 473, 484, 186 Cal.Rptr. 114.) The doctrine of unconscionability generally arises where there is " ' ... an absence of meaningful choice on the part of one of the parties[,] together with contract terms which are unreasonably favorable to the other...