Nyulassy v. Lockheed Martin Corp.

• Decision Date: 27 July 2004
• Docket Number: No. H026704.,H026704.
• Citation: 16 Cal.Rptr.3d 296,120 Cal.App.4th 1267
• Court: California Court of Appeals Court of Appeals
• Parties: Fred NYULASSY, Plaintiff and Respondent, v. LOCKHEED MARTIN CORPORATION, Defendant and Appellant.

16 Cal.Rptr.3d 296

120 Cal.App.4th 1267

Fred NYULASSY, Plaintiff and Respondent, v. LOCKHEED MARTIN CORPORATION, Defendant and Appellant.

No. H026704.

Court of Appeal, Sixth District.

July 27, 2004.

Michele C. Coyle, David R. Singer, Los Angeles, Hogan & Hartson, for Defendant and Appellant.

Randall M. Widmann, Palo Alto, Law Office of Randall M. Widmann, Attorney for Plaintiff and Respondent.

WALSH, J.^*

Our Supreme Court has upheld employment agreements that require the employee to arbitrate disputes, so long as the arbitration clause does not impair the employee's statutory rights and is not unconscionable. (See Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, 99 Cal.Rptr.2d 745, 6 P.3d 669 (Armendariz).) We are called upon here to examine whether a mandatory employment arbitration agreement-executed by the employee in connection with the settlement of a previous dispute with the employer's predecessor after advice from the employee's attorney-is unconscionable or otherwise unenforceable.

Plaintiff Fred Nyulassy sued his employer, defendant Lockheed Martin Corporation, alleging that defendant demoted him in retaliation for his protected workplace activity (i.e., complaints about treatment of employees and resistance to employer-sanctioned illegal activity). Plaintiff asserted claims for breach of contract, breach of the covenant of good faith and fair dealing, wrongful demotion in violation of public policy, and violation of section 6310 of the Labor Code. Defendant moved to compel arbitration and stay all proceedings (motion), based upon a mandatory arbitration clause in plaintiff's employment agreement. The trial court denied the motion, and defendant appeals that decision.

Defendant claims that the court erred in holding that the subject arbitration agreement was unconscionable, and that the court improperly extended the holding in Armendariz to a post-dispute arbitration agreement as defendant claims is presented here. For the reasons stated below, we conclude that the trial court correctly decided that the arbitration agreement was unconscionable. Accordingly, we affirm the order denying the motion to compel arbitration.

FACTS

I. Prior Dispute

Plaintiff was employed for approximately 20 years by Western Development Labs and/or Loral Aerospace Corporation, company/companies subsequently acquired by defendant (collectively, defendant's predecessor).¹ In December 1994, defendant's predecessor terminated plaintiff.

As a result of his termination, plaintiff brought an action in Santa Clara Superior Court, case No. CV 747363 (prior case), asserting, inter alia, a claim for age discrimination. Plaintiff was represented in that prior case by Randall Widmann, his attorney in the present action. The parties to the prior case settled their dispute in November 1997 and signed the agreements that are central to the issue of the arbitrability of the present dispute. The terms of the settlement included a payment to plaintiff² and an agreement that defendant would hire plaintiff as an employee.

II. Settlement Agreement

In or about November 1997, the parties to the prior case-plaintiff and defendant's predecessor-entered into a written agreement (settlement agreement) entitled, "Confidential Settlement Agreement And Release Of Claims." (Capitalization omitted.) The settlement agreement was signed by plaintiff; it was also signed by Attorney Widmann, as plaintiff's counsel, below the block lettering, "APPROVED AS TO FORM."

Paragraph 18 of the settlement agreement provided in part: "The parties stipulate that any action involving the validity, interpretation or enforcement of the Agreement, or for any claim for breach of this Agreement shall be subject to the arbitration provision in Exhibit C." The document referenced as "Exhibit C" was the employment agreement (discussed post), entered into by the parties at the time of the settlement. The settlement agreement contained a confidentiality provision, which referenced further the remedy of arbitration under the employment agreement. The settlement agreement also contained a general provision that the parties in the prior case had been represented by counsel; it included a statement that the parties had carefully read and reviewed the terms of the agreement with their respective counsel and were "freely and voluntarily entering into it."

III. Employment Agreement

At or about the time the settlement agreement was signed, plaintiff and defendant signed an employment agreement.³ That agreement was a standard form document; it was modified or supplemented, however, in several respects by the settlement agreement. One notable change made plaintiff's employment relationship terminable only for good cause for a period of three years after the date of his employment, notwithstanding the "at-will" provision in the form employment agreement. The settlement agreement also contained supplemental terms of plaintiff's employment, including starting salary, the identity of plaintiff's supervisor, and other specifics.

The employment agreement provided that all disputes or controversies that plaintiff had concerning his employment would be subject to binding arbitration conducted under the employment dispute resolution rules of the American Arbitration Association. Under this arbitration agreement, plaintiff waived all rights to pursue any claims against defendant through judicial proceedings. Plaintiff-as a precondition to arbitration-was also required to attempt to resolve any employment disputes by engaging in discussions with various levels of management. The employment agreement provided further that plaintiff waived his arbitration remedy if he did not exercise it (a) within 180 days of his employment termination (if a termination claim), or, alternatively, (b) within 180 days after such other dispute or controversy arose.⁴

IV. Declarations Submitted In Connection With Motion

Plaintiff submitted two declarations in opposition to defendant's motion to compel arbitration: Widmann's and plaintiff's own declaration. Plaintiff declared that, as part of settling the prior case, he was required to sign the employment agreement and a proprietary information agreement, and that "[t]here was no negotiation over any of the terms of these agreements, as Lockheed will not negotiate the terms of its proprietary information agreement and employment agreement."⁵ He stated further that he had been out of work after being terminated by defendant's predecessor, and that, "if [he] wanted to settle [his] case[, he] would have to do what all-new [sic] employees do and that is sign the employment agreement and proprietary information agreements concerning which no negotiations were tolerated by LOCKHEED."

Widmann declared that he had represented plaintiff in both the prior case and in the instant action. He summarized the allegations in the prior case and described it as "hard fought" litigation that lasted nearly three years. During settlement negotiations shortly before trial scheduled in September 1997, defendant "abruptly" made an employment offer to plaintiff. Widmann declared that, under the terms of the settlement reached in the prior case, in order to be hired, plaintiff "was required to submit a resume, complete an employment application, sign a proprietary agreement and the standard employment agreement which LOCKHEED was using at that time. These documents were not negotiated by the parties and, indeed, were non-negotiable." Widmann twice repeated in his declaration that the terms of the employment agreement were nonnegotiable. He declared that, if plaintiff "wanted to settle his case at all on any terms he had to sign the standard employment agreement .... Thus, if Mr. Nyulassy wanted to obtain the other benefits of the settlement aside from obtaining employment from LOCKHEED he had to sign the standard agreements which were non-negotiable."⁶ (Underscoring in original.)

Defendant's evidence in support of the motion consisted of a declaration from its counsel (in the present case),⁷ principally reciting the language contained in the settlement documents from the prior case. Exhibits to that declaration included copies of the settlement agreement (redacted), the employment agreement, and correspondence between counsel involving defendant's request that plaintiff arbitrate his dispute pursuant to the arbitration clause in the employment agreement. Defendant submitted no declarations in reply to the Nyulassy and Widmann declarations.

PROCEDURAL HISTORY

Plaintiff filed his complaint on May 15, 2003. The complaint alleged four causes of action arising out of plaintiff's employment relationship with defendant, namely, (1) wrongful demotion in violation of public policy (claimed under, inter alia, Lab.Code, § 6310), (2) violation of statute (Lab.Code, § 6310), (3) breach of employment contract,⁸ and (4) breach of implied good faith covenant.

The complaint alleged that, as of March 2001, plaintiff managed defendant's QA department in Santa Clara County, and at that time, he was given additional responsibility for the management of the QA department in the "RSAIIA project," located in Santa Maria. Plaintiff alleged that he made complaints to management both about his employer's abusive treatment of his subordinates in Santa Maria, and regarding its insistence that defendant deliver a product to the United States government that the company knew was defective. The complaint alleged further that, sometime⁹ after receiving extremely favorable reviews in January 2002 and June 2002, plaintiff was "abruptly" given an "[u]nsatisfactory" interim performance review, removed from his management position, and was told that he should retire. He claimed that defendant took this adverse employment action as a result of his protected activities of complaining "about the treatment of ... employees and his complaining about and resisting [defendant's] efforts to...