Martinez v. Master Protection Corp.

• Decision Date: 15 April 2004
• Docket Number: No. B166087.,B166087.
• Citation: 12 Cal.Rptr.3d 663,118 Cal.App.4th 107
• Court: California Court of Appeals Court of Appeals
• Parties: Tony MARTINEZ, Jr., Plaintiff and Appellant, v. MASTER PROTECTION CORPORATION, Defendant and Respondent.

12 Cal.Rptr.3d 663

118 Cal.App.4th 107

Tony MARTINEZ, Jr., Plaintiff and Appellant, v. MASTER PROTECTION CORPORATION, Defendant and Respondent.

No. B166087.

Court of Appeal, Second District, Division 8.

April 15, 2004.

Horowitz & Clayton, Craig A. Horowitz and Wayne D. Clayton, Glendale, for Plaintiff and Appellant.

Howard M. Rubin, Los Angeles, for Defendant and Respondent.

BOLAND, J.

When plaintiff Tony Martinez, Jr. was hired as a salesperson for defendant Master Protection Corporation, doing business as FireMaster, he signed an arbitration agreement providing that all claims related to his employment, including claims for statutory violations, torts and discrimination, would be subject to arbitration. Martinez, whom the trial court ordered into arbitration, contends the arbitration agreement is unconscionable and unenforceable. Martinez also contends the court erred in appointing an arbitrator after the arbitral forum chosen by the parties refused to conduct the arbitration.

We conclude the arbitration agreement is procedurally and substantively unconscionable, permeated with illegality, and unenforceable. We further conclude the trial court lacked authority to appoint an arbitrator after the chosen arbitral forum refused to conduct the arbitration.

FACTUAL AND PROCEDURAL BACKGROUND

FireMaster hired Martinez in Summer 1999. Martinez was terminated by FireMaster in April 2000. In February 2001, Martinez sued FireMaster for alleged Labor Code violations, national origin discrimination in violation of the Fair Employment and Housing Act (FEHA), Government Code section 12940 violations, and wrongful termination.

FireMaster moved to compel arbitration based on a July 7, 1999 agreement Martinez was required to sign as a condition of his employment.¹ Martinez opposed the motion, arguing the arbitration agreement was unconscionable and unenforceable. The trial court disagreed, granted the motion, and stayed the litigation pending completion of the arbitration.

As dictated by the terms of the arbitration agreement, Martinez submitted his claims to the American Arbitration Association (AAA). AAA, however, twice determined the arbitration agreement did not satisfy the requirements of its rules and due process protocols for employment-related disputes, and refused to conduct an arbitration. AAA specified two reasons for its refusal to arbitrate: (1) FireMaster failed timely to notify AAA of its intent to use the association's services to resolve employment disputes, and had not filed a copy of its alternative dispute resolution plan for such disputes with AAA; and (2) AAA's policy was against conducting arbitrations on employment plans such as FireMaster's, which gave parties less time to assert claims than would otherwise be available by statute.²

After AAA refused to conduct the arbitration, Martinez filed a motion to lift the stay of court proceedings and revive the litigation. The trial court denied the motion and appointed a new arbitrator. (Code Civ. Proc., § 1281.6.)

An arbitration was conducted by a retired superior court judge. The arbitrator issued a one-page award, which found Martinez had failed to demonstrate his termination was racially motivated or the result of unlawful retaliation for his complaints about unpaid commissions.

Martinez objected to the award on the ground it failed to satisfy the arbitration agreement's requirement that the arbitrator "render an award and opinion in the form typically rendered in labor arbitrations." The arbitrator then contacted FireMaster's counsel and directed him to prepare the award. FireMaster's attorney did so, and the arbitrator signed the proposed award, as prepared by counsel and without considering Martinez's objections to FireMaster's draft award.

Martinez petitioned to vacate the arbitration award. The court denied the petition, confirmed the award and entered judgment. This appeal followed.

DISCUSSION

Martinez contends the judgment must be reversed because: (1) the arbitration agreement is unconscionable and unenforceable; (2) the trial court lacked authority to appoint another arbitrator after AAA refused to conduct the arbitration; and (3) the court erred in denying his motion to vacate the arbitration award. Our agreement with the first two contentions obviates the need to address the third.

1. FireMaster's arbitration agreement is procedurally and substantively unconscionable, permeated with illegality, and unenforceable.

Martinez insists the arbitration agreement is unenforceable because it contains illegal clauses, is permeated with an unlawful purpose, and its unconscionable provisions cannot be severed or restricted to cure the illegality.

"Unconscionability analysis begins with an inquiry into whether the contract is one of adhesion. [Citation.] `The term [contract of adhesion] signifies a standardized contract, which, imposed and drafted by the party of superior bargaining strength, relegates to the subscribing party only the opportunity to adhere to the contract or reject it.' [Citation.] If the contract is adhesive, the court must then determine whether `other factors are present which, under established legal rules — legislative or judicial — operate to render it [unenforceable.]' [Citation.]" (Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, 113, 99 Cal.Rptr.2d 745, 6 P.3d 669 (Armendariz).)

Both procedural and substantive unconscionability are required to invalidate an arbitration clause. (Armendariz, supra, 24 Cal.4th at p. 122, 99 Cal.Rptr.2d 745, 6 P.3d 669; Stirlen v. Supercuts, Inc. (1997) 51 Cal.App.4th 1519, 1533, 60 Cal.Rptr.2d 138 (Stirlen).) Procedural unconscionability focuses largely on oppression and the manner in which the agreement was negotiated. (Kinney v. United HealthCare Services, Inc. (1999) 70 Cal.App.4th 1322, 1329, 83 Cal.Rptr.2d 348 (Kinney).) Substantive unconscionability, on the other hand, focused on the terms of the agreement and the presence of overly harsh, or one-sided results. (Id. at p. 1330, 83 Cal.Rptr.2d 348.) The two aspects need not be present to the same degree. "[T]he more substantively oppressive the contract term, the less evidence of procedural unconscionability is required to come to the conclusion that the term is unenforceable, and vice versa." (Armendariz, supra, 24 Cal.4th at p. 114, 99 Cal.Rptr.2d 745, 6 P.3d 669.)

a. FireMaster's arbitration agreement, presented on a "take it or leave it" basis, is procedurally unconscionable.

The procedural aspect of the unconscionability analysis focuses on the manner in which the agreement was negotiated (Kinney, supra, 70 Cal.App.4th at p. 1329, 83 Cal.Rptr.2d 348), and, typically, on "the oppressiveness of the stronger party's conduct." (Mercuro v. Superior Court (2002) 96 Cal.App.4th 167, 174 116 Cal.Rptr.2d 671, fn. omitted (Mercuro); Harper v. Ultimo (2003) 113 Cal.App.4th 1402, 7 Cal.Rptr.3d 418.) "`Oppression' arises from an inequality of bargaining power which results in no real negotiation and `an absence of meaningful choice.' [Citation.]" (A & M Produce Co. v. FMC Corp. (1982) 135 Cal.App.3d 473, 486, 186 Cal.Rptr. 114.)

It is undisputed Martinez was required to execute the arbitration agreement as a prerequisite of his employment by FireMaster. The letter confirming FireMaster's offer of employment states that Martinez's signing and acceptance of the arbitration agreement was a specific "condition of employment." No evidence indicates Martinez had any opportunity to negotiate or refuse to sign the arbitration agreement. Indeed, when he informed FireMaster's Human Resources representative he would prefer not to sign the agreement, Martinez was told "[he] could not work at FireMaster if [he] did not sign the document." An arbitration agreement that is an essential part of a "take it or leave it" employment condition, without more, is procedurally unconscionable. (Armendariz, supra, 24 Cal.4th at pp. 113-115, 99 Cal.Rptr.2d 745, 6 P.3d 669; Stirlen, supra, 51 Cal.App.4th at p. 1534, 60 Cal.Rptr.2d 138.) The arbitration agreement meets that definition and is clearly adhesive and procedurally unconscionable.

b. The arbitration agreement is also substantively unconscionable.

Martinez makes four arguments directed to the substantive unconscionability — that is, the basic fairness — of the arbitration agreement. The agreement is unfairly one-sided because it requires arbitration of all claims of interest to an individual employee, but exempts from arbitration those claims of primary interest to the employer. In addition, the agreement's fee-splitting provision, significantly shortened statute of limitations, and restrictions on discovery, combine to deprive Martinez of any real opportunity to vindicate his rights. We address each of the contentions in turn.

(i) The arbitration agreement lacks mutuality.

"An arbitration agreement is substantively unconscionable if it requires the employee but not the employer to arbitrate claims. (Armendariz, supra, 24 Cal.4th at pp. 115-121 [99 Cal.Rptr.2d 745, 6 P.3d 669].)" (McManus v. CIBC World Markets Corp. (2003) 109 Cal.App.4th 76, 100, 134 Cal.Rptr.2d 446.) FireMaster's arbitration agreement does precisely that.

The arbitration agreement requires FireMaster and Martinez to arbitrate claims for wages, compensation and some benefit claims.³ It also compels both parties to arbitrate state and federal statutory claims, contract and tort claims, and claims of discrimination. The agreement does not encompass claims by Martinez for workers compensation or unemployment benefits. The agreement also specifically exempts from its terms any "claims by [FireMaster] for injunctive and/or other equitable relief for unfair competition and/or the use and/or unauthorized disclosure of trade secrets or confidential information." As to the latter category of claims, FireMaster — but not Martinez — retains the right to pursue its judicial remedies.

FireMaster's...