Mercuro v. Superior Court

• Decision Date: 13 February 2002
• Docket Number: No. B153355.,B153355.
• Citation: 116 Cal.Rptr.2d 671,96 Cal.App.4th 167
• Court: California Court of Appeals Court of Appeals
• Parties: Fred MERCURO et al., Petitioners, v. The SUPERIOR COURT of Los Angeles County, Respondent; Countrywide Securities Corporation, Real Party in Interest.

116 Cal.Rptr.2d 671

96 Cal.App.4th 167

Fred MERCURO et al., Petitioners, v. The SUPERIOR COURT of Los Angeles County, Respondent Countrywide Securities Corporation, Real Party in Interest.

No. B153355.

Court of Appeal, Second District, Division 7.

February 13, 2002.

Rehearing Denied March 11, 2002.

Review Denied May 15, 2002.

Melanie A. Calvert, Pasadena, for Petitioners.

No appearance for Respondent.

Steptoe & Johnson, Karen A. Rooney and Larry J. Schmadeka, Los Angeles, for Real Party in Interest.

JOHNSON, Acting P.J.

Petitioners Fred and Melissa Mercuro seek a writ of mandate overturning the trial court's order compelling them to arbitrate their employment-related tort claims against Fred Mercuro's former employer, Countrywide Securities Corporation. We issued an alternative writ of mandate. Having considered the parties' further briefing and oral argument, we grant the writ.

FACTS AND PROCEEDINGS BELOW

The material facts are not in dispute.

Fred Mercuro worked in the sales division of Countrywide Securities Corporation from April 1996 to March 2000. After leaving Countrywide, Mercuro filed an action charging it with numerous employment-related torts including age and disability discrimination, fraud, and wrongful termination in violation of public policy. Mercuro's wife joined as a plaintiff in the causes of action for fraudulent inducement and negligent misrepresentation. Countrywide filed a motion to compel the Mercuros to arbitrate all the causes of action in the complaint pursuant to arbitration agreements signed by Fred Mercuro. Melissa Mercuro did not sign either of these agreements.

In order to be employed as a securities broker for Countrywide the Securities and Exchange Commission required Mercuro to apply for a license from the National Association of Securities Dealers (NASD). Accordingly, Mercuro completed and signed the NASD application, commonly known as form U-4. Form U-4 contains a clause in which the applicant agrees to arbitrate covered disputes arising between him and his firm in accordance with the NASD constitution, by-laws and rules. Countrywide never gave Mercuro a copy of the NASD constitution, by-laws or rules nor did anyone at Countrywide advise him the NASD arbitration agreement required him to arbitrate employment disputes including statutory claims of employment discrimination. Furthermore, Mercuro was unaware of any practice in the industry which required arbitration of employment disputes. He believed he was only agreeing to arbitrate disputes arising from his handling of securities and neither understood nor agreed to arbitrate employment disputes with Countrywide.

In March or April 1997, Countrywide asked all its sales personnel to sign a contract agreeing to arbitrate certain disputes which might arise between them and the company. The agreement covered some employment-related claims including employment discrimination but excluded others such as injunctive or other equitable relief for unfair competition, unauthorized disclosure of trade secrets or violation of intellectual property rights. The agreement contained specific provisions in which the employee acknowledged he or she "knowingly and voluntarily" waived his or her right to a jury trial and agreed to certain limitations on his or her ability to conduct discovery. Countrywide offered its employees 25 shares of its stock or an extra vacation day as consideration for signing the agreement.

Mercuro had several discussions about the Countrywide arbitration agreement with Countrywide's upper management including Jonas Roth, Executive Director of Sales, and David Sambol, Chief Executive Officer. Mercuro told Roth and Sambol he was not going to sign the agreement. He explained the extra vacation day was of no value to him and 25 shares of company stock were inadequate consideration for giving up the right to a jury trial should a dispute arise between him and Countrywide.

Roth told Mercuro he "did not have the option of not signing the agreement." According to Roth, Sambol expected every sales person to sign and "if they did not sign the agreement they would find it difficult to make a living at Countrywide." Roth further stated Sambol was already angry at Mercuro and Mercuro's refusal to sign the agreement "would not go well with Sambol;" in fact, it "would put him through the roof."

Several days later, Mercuro had a chance meeting with Sambol and the subject of the arbitration agreement came up. Sambol asked Mercuro why he was the only salesperson who had not signed the agreement. Mercuro responded he did not believe "the arbitration agreement to be in [his] best interest." Sambol told Mercuro that perhaps the explanation was Mercuro "was not generationally compatible with the other salesmen."

Later the same day, Roth told Mercuro that Sandy Samuelson, the corporate attorney "was livid about [Mercuro's] refusal to sign the arbitration agreement" and Sambol was "furious" because Mercuro's refusal to sign made him "look bad." According to Roth, Sambol told him he never should have hired "this S.O.B" and hiring Mercuro "had caused him considerable grief." Sambol also told Roth if Mercuro did not sign the arbitration agreement he would be "cut off and made to "pay big time." Roth said this meant Sambol would remove Mercuro's accounts, refuse to approve his road trips "and take whatever action was necessary to drive [him] out."

Mercuro sought the advice of Dale Ledbetter, Countrywide's Chief Operating Officer. Ledbetter agreed with Mercuro "it was unfair to coerce [his] agreement to arbitrate" but counseled Mercuro to "consider the realities of the situation." Ledbetter confirmed "senior management was, indeed, very angry" about Mercuro's refusal to sign the arbitration agreement. Mercuro testified Ledbetter told him "Sambol and Roth would drive me out, making it all but impossible for me to earn a living, that I would be living in California with no income and litigating a court case which would take years to resolve." In the same conversation, Ledbetter warned Mercuro: "[P]rospective employers would likely discover any lawsuit filed against Countrywide and that I would have difficulty in obtaining other employment." Ledbetter also advised Mercuro: "[I]n reality, the arbitration agreement probably would not hold up in court."

In explaining why he gave in and signed the arbitration agreement, Mercuro stated: "Roth continued to beat on me for several more days, making it clear that I had to sign [the agreement] in order to save my job at Countrywide. . . . I felt so desperate that I finally signed the agreement. . . ." He asserted he only signed the agreement under "duress and coercion" and did not "voluntarily consent to relinquish my rights to sue Countrywide for employment disputes, including statutory claims."

After a brief hearing, the trial court granted Countrywide's motion to compel arbitration and stayed proceedings in the Mercuros' lawsuit. The court did not address Mercuro's evidence of coercion or his legal arguments on the unconscionability of the agreements. It simply found Mercuro "did in fact know what he was agreeing to." This writ petition followed.

DISCUSSION

I. COUNTRYWIDE'S ARBITRATION AGREEMENT IS UNENFORCEABLE BECAUSE IT IS UNCONSCIONABLE AND PREVENTS MERCURO FROM VINDICATING HIS UNWAIVABLE STATUTORY RIGHTS, AND THE OFFENDING PROVISIONS ARE NOT SEVERABLE.

Where, as here, the extrinsic evidence is undisputed we review the arbitration contract de novo to determine whether it is legally enforceable.¹

In this case our review is controlled by our Supreme Court's decision in Armendariz v. Foundation Health Psychcare Services, Inc.² In Armendariz, the court concluded the arbitration agreement in question was procedurally and substantively unconscionable. In addition, the agreement failed to provide an adequate forum for the vindication of the employees' statutory rights under the Fair Employment and Housing Act (FEHA). We apply the Armendariz analysis here.

A. Countrywide's Arbitration Agreement Is Procedurally And Substantively Unconscionable.

Under California law, the doctrine of unconscionability has a procedural and a substantive element. Both elements must appear in order to invalidate a contract or one of its individual terms.³ These elements, however, need not be present in 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."⁴

Procedural unconscionability turns on adhesiveness—a set of circumstances in which the weaker or "adhering" party is presented a contract drafted by the stronger party on a take it or leave it basis.⁵ To put it another way, procedural unconscionability focuses on the oppressiveness of the stronger party's conduct.⁶

There can be no doubt in this case Countrywide used oppressive tactics to secure Mercuro's signature on the arbitration agreement. Upper management told Mercuro he "did not have the option of not signing the agreement" if he wanted "to make a living at Countrywide." He was also told if he did not sign the agreement he would be "cut off and made to "pay big time." Countrywide would strip him of his accounts, refuse to approve his travel requests "and take whatever action was necessary to drive [him] out." Even the company official who seemed somewhat sympathetic to Mercuro's position warned him if he did not sign the agreement Countrywide would "drive [him] out" and "[he] would have difficulty in obtaining other employment." In other words, Countrywide would not directly fire Mercuro for refusing to sign the agreement. This would be awkward in view of Countrywide's position the agreement was voluntary. Instead, it would make things so difficult for Mercuro he would be forced to resign and then it would blackball him from the securities industry in order to "make[] it all but...