Mills v. Facility Solutions Grp., Inc.

Decision Date01 November 2022
Docket NumberB313943
Citation84 Cal.App.5th 1035,300 Cal.Rptr.3d 833
Parties Chris MILLS, Plaintiff and Respondent, v. FACILITY SOLUTIONS GROUP, INC., Defendant and Appellant.
CourtCalifornia Court of Appeals Court of Appeals

CDF Labor Law, Mark S. Spring, Sacramento, and Lindsay A. Ayers, Irvine, for Defendant and Appellant.

Berenjie Law Firm, Shadie L. Berenji and David C. Hopper, Beverly Hills, for Plaintiff and Respondent.

FEUER, J.

In November 2020 Chris Mills filed a complaint against his former employer, Facility Solutions Group, Inc. (FSG), for disability discrimination and related causes of action under the Fair Employment & Housing Act (FEHA; Gov. Code, § 12900 et seq. ) (Mills v. Facility Solutions Group, Inc. (Super. Ct. L.A. County, 2020, No. 20STCV44744) (Mills I )). The same month Mills filed this class action against FSG for Labor Code violations, which also included a claim under the Private Attorneys General Act of 2004 (PAGA; Labor Code, § 2698 et seq. ).1 In February 2021 the trial court in Mills I (Judge Daniel S. Murphy) granted FSG's motion to compel arbitration, finding the substantively unconscionable terms in the arbitration agreement could be severed from the agreement. FSG then moved to compel arbitration in this action under the same arbitration agreement. The trial court in this action (Judge Amy D. Hogue) denied FSG's motion, finding unconscionability permeated the arbitration agreement because it had a low to moderate level of procedural unconscionability and at least six substantively unconscionable terms, making severance infeasible.

On appeal, FSG contends claim and issue preclusion required the trial court in this action to enforce the arbitration agreement. However, Judge Murphy's order granting FSG's motion to compel arbitration is not final, so claim and issue preclusion do not apply.

FSG also argues the arbitration agreement is not unconscionable, or in the alternative, the trial court abused its discretion in not severing any unconscionable terms. Neither contention has merit. We agree with the trial court the arbitration agreement is permeated with unconscionability, and the court cannot simply sever the offending provisions. Rather, the court would need to rewrite the agreement, creating a new agreement to which the parties never agreed. Moreover, upholding this type of agreement with multiple unconscionable terms would create an incentive for an employer to draft a one-sided arbitration agreement in the hope employees would not challenge the unlawful provisions, but if they do, the court would simply modify the agreement to include the bilateral terms the employer should have included in the first place. We affirm.

FACTUAL AND PROCEDURAL BACKGROUND
A. Mills's Employment and the Arbitration Agreement

Mills was employed by FSG as an apprentice electrician from October 2, 2018 to August 27, 2019. FSG required new employees to access, review, and electronically sign documents, including an arbitration agreement. Mills reviewed FSG's onboarding documents using a cellphone application. On October 5, 2018 Mills electronically signed a two-page, single-spaced arbitration agreement in small print titled "Employee Arbitration Agreement" (arbitration agreement).

Under the arbitration agreement, Mills and FSG agreed "to submit any and all such disputes" that arise "during or after employment with FSG" to binding arbitration. Further, the Federal Arbitration Act (FAA; 9 U.S.C. § 1 et seq. ) "will govern the interpretation, enforcement, and all judicial proceedings under and/or with respect to the Arbitration Agreement." The agreement provided under "General Procedures" that the American Arbitration Association's Employment Arbitration Rules and Mediation Procedures (AAA rules) would apply; the hearing arbitrator would apply the substantive law and the law of remedies of the state in which the claim arose; and the arbitration decisions and awards would be "strictly confidential" and not disclosed except as necessary for judicial enforcement.

The arbitration agreement provided for limited discovery, including the right to take depositions and designate expert witnesses. Parties could obtain additional discovery pursuant to an order by the arbitrator "upon a showing of substantial need." The agreement required a party to make a written demand for arbitration within the applicable statute of limitations, and specified that the limitations period would not be stayed by the filing of a lawsuit. The agreement provided further that Mills agreed to pursue his claims against FSG "solely on an individual basis, and [to] waive any and all rights to proceed as a member of a group or class against FSG." The agreement required Mills to pay a $250 filing fee, with FSG to bear the remaining administrative fees and arbitrator compensation. However, any fees for postponement of the arbitration must be paid by the party causing the postponement. The agreement provided further for an award of attorneys’ fees to the prevailing party, to be determined pursuant to the definition of a prevailing party under the Civil Rights Attorney's Fees Awards Act of 1976 ( 42 U.S.C. § 1988 ). The agreement allowed either party to appeal the arbitration award to a panel of three arbitrators, with the fees and expenses to be paid by the appellant or shared if there is a cross-appeal. If the arbitration panel remanded the matter for a new hearing, the parties would share the additional costs of arbitration. Finally, the agreement included a severability clause that stated if any provision of the agreement is invalidated, "such determination shall not affect the validity of the remainder of this Agreement." (Underlining omitted.)

B. The FEHA Action ( Mills I)

On November 23, 2020 Mills filed a complaint in Mills I , in which he alleged causes of action under FEHA for disability discrimination; failure to engage in the interactive process; failure to provide reasonable accommodations; retaliation; failure to prevent discrimination and retaliation; wrongful termination in violation of public policy; and failure to provide personnel and payroll records. On February 8, 2021 Judge Murphy granted FSG's motion to compel arbitration, finding Mills "established a low degree of procedural unconscionability" because the arbitration agreement was a contract of adhesion. Further, some of the provisions of the arbitration agreement were substantively unconscionable, but they could be severed from the agreement. Judge Murphy reasoned the waiver of representative claims was not relevant to his analysis because Mills was "not pursuing a PAGA claim in this action."

C. This Action Alleging Class and PAGA Claims

On November 20, 2020 Mills filed a class action on behalf of himself and other former and current employees against FSG alleging violations of the Labor Code for (1) failure to pay minimum wages; (2) failure to pay overtime wages; (3) unlawful deduction of wages; (4) failure to pay vested vacation wages; (5) failure to provide meal periods; (6) failure to reimburse business expenses; (7) failure to timely pay wages; (8) failure to maintain payroll records and provide accurate itemized wage statements; and (9) failure to provide one day's rest out of seven. Mills also alleged a cause of action for unfair competition in violation of Business and Professions Code section 17200. In addition, Mills asserted a cause of action under PAGA seeking civil penalties for the alleged Labor Code violations.

D. FSG's Motion To Compel Arbitration

On April 16, 2021 FSG moved to compel arbitration of Mills's class and PAGA claims. FSG contended Mills consented to the arbitration agreement; Mills's individual claims were subject to the arbitration agreement; the class claims must be dismissed because of the class action waiver; and the arbitration agreement satisfied the requirements set forth in Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, 99 Cal.Rptr.2d 745, 6 P.3d 669 ( Armendariz ). As to the PAGA waiver, FSG argued the court should "sever the unenforceable part of the class waiver ‘of a group’ " and stay the claim until completion of the arbitration. FSG also argued claim preclusion barred relitigation of the enforceability of the arbitration agreement.

In opposition, Mills argued Judge Murphy's order granting FSG's motion to compel arbitration in Mills I did not bar him from litigating the arbitration agreement's enforceability in this action. Further, the arbitration agreement was procedurally and substantively unconscionable, and the agreement's unconscionable terms could not be remedied through reformation or severance. Mills also objected to a stay of the PAGA claim if the trial court compelled arbitration of his individual claims.

Following argument from the attorneys, on May 14, 2021 the trial court (Judge Hogue) denied FSG's motion to compel arbitration. The court took judicial notice of the order compelling arbitration in Mills I , but it concluded issue preclusion did not bar litigation of the enforceability of the arbitration agreement because Judge Murphy did not address whether the PAGA waiver was substantively unconscionable. The court found low to moderate procedural unconscionability, noting Mills was required to sign the arbitration agreement as a condition of employment, the font was small (page one contained over 60 lines of text), and "[r]eading this text on a cell phone would be difficult." The court also found a high degree of substantive unconscionability, citing six unconscionable provisions, including the arbitration fee, postponement fee, appeal costs, attorneys’ fees, limited discovery, bar on tolling of the statute of limitations, and PAGA waiver.

The court found severance of these provisions was not feasible, explaining, "[T]his [arbitration agreement] has too many provisions that are troublesome for the court to grant arbitration, notwithstanding, of course, the strong policy in favor of it. I...

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