De Leon v. Pinnacle Prop. Mgmt. Servs., LLC

• Decision Date: 17 November 2021
• Docket Number: G059801
• Citation: 287 Cal.Rptr.3d 402,72 Cal.App.5th 476
• Parties: Anthony DE LEON, Plaintiff and Respondent, v. PINNACLE PROPERTY MANAGEMENT SERVICES, LLC, et al., Defendants and Appellants.
• Court: California Court of Appeals Court of Appeals

72 Cal.App.5th 476

287 Cal.Rptr.3d 402

Anthony DE LEON, Plaintiff and Respondent,

v.PINNACLE PROPERTY MANAGEMENT SERVICES, LLC, et al., Defendants and Appellants.

G059801

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

Filed November 17, 2021

Jackson Lewis, Thomas G. Mackey, Los Angeles, and Dylan B. Carp, San Francisco, for Defendants and Appellants.

Employees First Labor Law, Jonathan P. LaCour, Pasadena, and Lisa Noveck for Plaintiff and Respondent.

OPINION

MARKS, J.^*

Defendants Pinnacle Property Management Services, LLC (Pinnacle) and Jennifer Stewart (Stewart) appeal from the court's order denying their motion to compel arbitration. The court denied the motion because it determined the arbitration agreement was procedurally and substantively unconscionable. As to the former, the court noted the agreement was unconscionable because plaintiff Anthony De Leon was required to sign the arbitration agreement as a precondition to his employment. As to the latter, the court found the agreement was substantively unconscionable because of its limits on discovery and because it shortened the statute of limitations to one year on all claims.

On appeal, defendants contend the arbitration agreement had low procedural unconscionability and contained only one substantively unconscionable provision—the statute of limitations provision. They alternatively claim the court erred by failing to sever any unconscionable provisions. For the reasons below, we agree with the court's unconscionability findings. The court also did not abuse its discretion by refusing to sever any portion of the arbitration agreement. We accordingly affirm.

FACTS

The Issue Resolution Agreement

In 2016, plaintiff submitted an electronic application for employment with Pinnacle. Among other things, he electronically signed an "Issue Resolution Agreement" (IRA), which he was required to sign as a precondition to employment. The IRA provided that plaintiff and Pinnacle agreed to "settle any and all previously unasserted claims, disputes or controversies arising out of or relating to [plaintiff's] application or candidacy for employment, employment, and/or cessation of employment with Pinnacle ... exclusively by final and binding arbitration before a neutral Arbitrator." The selected arbitrators would have experience deciding employment disputes, and arbitration would be conducted in accordance with the "Issue Resolution Rules" (IRR). The IRA further advised: "The [IRA] and the Issue Resolution Rules affect your legal rights. You may wish to seek legal advice before signing this [IRA]." (Boldface omitted.) Plaintiff could withdraw his consent to the IRA within three days of signing if he notified Pinnacle he no longer wanted to be considered for employment.

The IRR were attached to the IRA and included several provisions that are central to this appeal. First, rule 4(b)(i) of the IRR included the following statute of limitations provision: "The ‘Arbitration Request Form’ shall be submitted not later than one year after the date on which the Employee knew, or through reasonable diligence should have known, of the facts giving rise to the Employee's claim(s). The failure of an Employee to initiate an arbitration within the one-year time limit shall constitute a waiver with respect to that dispute relative to that Employee. Notwithstanding anything stated herein to the contrary, this clause will not affect tolling doctrines under applicable state laws or the employee's ability to arbitrate continuing violations." The statute of limitations was repeated on the third page of the IRA: "I understand that I must file a claim for arbitration within one (1) year of the day on which I learned or, through reasonable diligence, should have learned that my legal rights were violated."

Second, rule 7 of the IRR was a discovery provision that allowed: (a) "one set of 20 interrogatories ... to the opposing Party," which could include "a request for all documents upon which the responding party relies in support of its answers to the interrogatories"; and (b) three depositions by each side. The arbitrator could permit additional discovery "[u]pon the request of any Party and a showing of substantial need " "but only if the Arbitrator finds that such additional discovery is not overly burdensome, and will not unduly delay conclusion of the arbitration." In resolving discovery disputes, the arbitrator would be guided by the Federal Rules of Civil Procedure.

Third, the IRR included the following costs provision: "The Company shall advance all costs of arbitration. Each Party shall advance its own incidental costs.... [E]ach Party shall pay one-half of the costs of arbitration following the issuance of the arbitration award. The Employee's liability for the costs and fees of arbitration, other than attorneys' fees, however, shall be limited to $100."

Plaintiff's Complaint

In 2020, plaintiff filed a complaint alleging he was employed as a nonexempt employee at Pinnacle and reported to Stewart. According to the complaint, defendants did not compensate plaintiff for overtime work or certain business expenses and did not provide accurate wage statements. The complaint further alleged plaintiff injured his back while working and went on leave due to back pain. Once his doctor released him to return to work with restrictions, plaintiff expressed his desire to return to work but allegedly never heard back from defendants.

The complaint accordingly alleged claims for: (1) failure to pay minimum wages; (2) failure to furnish wage statements; (3) failure to pay wages timely; (4) failure to pay overtime wages; (5) failure to reimburse business expenses; (6) waiting time penalties; (7) wrongful constructive termination in violation of the Fair Employment and Housing Act (FEHA); (8) disability discrimination in violation of FEHA; (9) violation of Business & Professions Code section 17200 (UCL claim); (10) failure to accommodate a disability in violation of FEHA; (11) failure to engage in a good faith interactive process in violation of FEHA; (12) wrongful constructive termination in violation of Labor Code section 1102.5 ; and (13) wrongful constructive termination in violation of public policy. The claims were alleged against both Pinnacle and Stewart with the exception of the seventh through eleventh and thirteenth causes of action, which were limited to Pinnacle.

Defendant's Motion to Compel Arbitration and the Court's Order

In October 2020, defendants filed a motion to compel arbitration contending plaintiff's claims fell within the scope of the IRA. Plaintiff opposed the motion on grounds that the IRA was unconscionable. Among other things, he argued the provisions providing for a shortened one-year statute of limitations and limited discovery were substantively unconscionable. He also claimed the IRA improperly shifted fees and costs to him and was one-sided.

In support of his opposition, plaintiff submitted the declaration of his counsel who estimated plaintiff would need to: (1) serve at least 50 interrogatories to Pinnacle alone; (2) serve at least 70 requests for production of documents; and (3) depose seven specified individuals. The declaration also ambiguously stated plaintiff "would need up to the full Code of Civil Procedure limit of 35 requests." With respect to the interrogatories, the declaration stated they were necessary "to gather basic information about [d]efendants' policies on overtime and off-the-clock work, meal and rest breaks, and reimbursements, [d]efendants' policies with respect to discrimination and reporting illegal activity at the workplace, as well as [d]efendants' knowledge of [p]laintiff's disability and need for accommodations." Likewise, plaintiff needed information about "how [d]efendants implemented those policies with respect to [p]laintiff specifically, in addition to [d]efendants' communications with [p]laintiff about his wages, injury, complaints of illegal activity by [d]efendants, and need for workplace accommodations, among other communications."

In November 2020, the court denied defendants' motion and found the IRA was procedurally and substantively unconscionable with provisions that could not be severed from the agreement. First, the court held the IRA was procedurally unconscionable because plaintiff was required to sign the IRA as a precondition to his employment. Second, the court found the IRA was substantively unconscionable because of its limits on discovery and because it shortened the statute of limitations to one year on all claims. Relying on Baxter v. Genworth North America Corp. (2017) 16 Cal.App.5th 713, 224 Cal.Rptr.3d 556 ( Baxter ) and Fitz v. NCR Corp. (2004) 118 Cal.App.4th 702, 13 Cal.Rptr.3d 88 ( Fitz ), the court held plaintiff produced evidence establishing the discovery limits were insufficient for him to pursue his 13 claims. The court further noted, "[T]he IRA does not appear to permit for adequate discovery of third parties prior to the hearing at the arbitration." Finally, the court held the unconscionable provisions could not be severed from the IRA because there otherwise would be no provisions on discovery.

DISCUSSION

Defendants contend the court erred by finding the IRA was unconscionable and thus unenforceable. According to defendants, the IRA has low procedural unconscionability and contains only one substantively unconscionable provision—the statute of limitations provision. They alternatively claim the court erred by failing to sever any unconscionable provisions. We agree the IRA has some degree of procedural unconscionability but find both the statute of limitations and discovery provisions are substantively unconscionable. As a result, we affirm.

Unconscionability

Both California law and federal law favor the enforcement of valid arbitration agreements. ( Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, 96-97, 99 Cal.Rptr.2d 745, 6 P.3d 669 ( Armendariz ).) But courts will...