Oto, L. L.C. v. Kho

• Decision Date: 21 August 2017
• Docket Number: A147564
• Citation: Oto, L. L.C. v. Kho, 14 Cal.App.5th 691, 222 Cal.Rptr.3d 506 (Cal. App. 2017)
• Court: California Court of Appeals
• Parties: OTO, L.L.C., Plaintiff and Appellant, v. Ken KHO, Defendant and Respondent; Julie A. Su, as Labor Commissioner, etc., Intervener and Appellant.

14 Cal.App.5th 691

222 Cal.Rptr.3d 506

OTO, L.L.C., Plaintiff and Appellant,

v.Ken KHO, Defendant and Respondent;

Julie A. Su, as Labor Commissioner, etc., Intervener and Appellant.

A147564

Court of Appeal, First District, Division 1, California.

Filed August 21, 2017

Fine, Boggs & Perkins, John P. Boggs, Half Moon Bay, and Roman Zhuk, Long Beach, for Plaintiff and Appellant

Fernando Flores, Los Angeles, for Intervener and Appellant.

No appearance for Defendant and Respondent.

Margulies, J.Ken Kho filed a claim for unpaid wages with the California Labor Commissioner (commissioner) against his former employer, OTO, L.L.C., doing business as One Toyota of Oakland (hereafter One Toyota). After settlement discussions failed, One Toyota filed a petition to compel arbitration. Under the arbitration agreement, which One Toyota required Kho to execute without explanation during his employment, the wage claim would be subject to binding arbitration conducted by a retired superior court judge. Because the intended procedure incorporated many of the provisions of the Code of Civil Procedure and the Evidence Code, the anticipated arbitration proceeding would resemble ordinary civil litigation.

The trial court denied the petition to compel. Under Sonic-Calabasas A, Inc. v. Moreno (2013) 57 Cal.4th 1109, 163 Cal.Rptr.3d 269, 311 P.3d 184 ( Sonic II ), an arbitration agreement that waives the various advantageous provisions of the Labor Code governing the litigation of a wage claim is substantively unconscionable if it fails to provide the employee with an affordable and accessible alternative forum. The trial court concluded that the alternative anticipated by One Toyota's arbitration agreement failed this standard because it effectively required Kho to retain counsel and did not expressly provide for him to recover his attorney fees if he prevailed. We reverse, concluding the arbitration proceeding satisfies the Sonic II requirements of affordability and accessibility.

I. BACKGROUND

Kho worked as an auto mechanic for One Toyota from January 2010 through April 2014, when his employment was terminated. Several months later, in October 2014, Kho filed a wage claim with the commissioner.

In November 2014, Kho and One Toyota participated in an unsuccessful settlement conference, mediated by a deputy labor commissioner. The parties continued settlement discussions for the following month, until, in mid-December, One Toyota requested that the commissioner's office forward a proposed settlement agreement to Kho. After Kho "decided not to accept" the offer, he requested a so-called "Berman hearing" on his claim.¹

On January 30, 2015, the commissioner notified One Toyota of Kho's request, and in March the hearing was scheduled for the following August. In July, Kho requested the issuance of a subpoena for records from One Toyota in preparation for the hearing. The subpoena was issued, requiring One Toyota to bring the requested documents to the hearing.

On the morning of the Berman hearing, a Monday, One Toyota's attorney faxed a letter to the commissioner's office, requesting that the hearing be taken off calendar because One Toyota had filed a petition to compel arbitration and stay the administrative proceedings on the prior Friday.² By return fax, the commissioner's office informed counsel that the hearing would proceed as scheduled. At the appointed time, counsel for One Toyota appeared, served Kho with the petition to compel and stay proceedings, and left. Undeterred, the hearing officer proceeded with the hearing in One Toyota's absence and later issued an extensive "Order, Decision, or Award" (ODA) finding Kho entitled to $102,912 in unpaid wages and $55,634 in liquidated damages, interest, and penalties.

One Toyota thereafter sought de novo review of the ODA in the trial court pursuant to Labor Code section 98.2, posting the requisite bond to secure payment of the award. (Id. , subd. (b).) At the same time, One Toyota supplemented its petition to compel arbitration with the filing of a motion to vacate the ODA. By stipulation, the commissioner was allowed to intervene in the trial court proceedings.

One Toyota's petition to compel arbitration was premised on a "Comprehensive Agreement—Employment At-Will and Arbitration" (Agreement), executed by Kho on February 22, 2013, three years into his employment. The substance of the Agreement appears to be quite similar to the arbitration agreement addressed in the Sonic decisions. (See Sonic II , supra , 57 Cal.4th at pp. 1125–1126, 1146, 163 Cal.Rptr.3d 269, 311 P.3d 184 ; Sonic-Calabasas A, Inc. v. Moreno (2011) 51 Cal.4th 659, 680, 121 Cal.Rptr.3d 58, 247 P.3d 130 ( Sonic I ).) Notwithstanding its designation as a "comprehensive" employment contract, the one and one-quarter page contract is merely an arbitration clause grafted onto an acknowledgment of at-will employment. The clause, written in a tiny font size, consists of a dense, single-spaced paragraph that occupies nearly the entirety of the first page.³ The terms of the clause are broad, requiring arbitration of "any claim, dispute, and/or controversy" by either party against the other. Although arbitration under the Agreement purports to be subject to the procedures of the California Arbitration Act (CAA; Code Civ. Proc., § 1280 et seq. ), the clause requires any arbitration to be conducted by a retired California superior court judge and in conformance with California laws governing pleading and evidence. Accordingly, the clause permits the full extent of discovery authorized by the CAA, authorizes demurrers and motions for summary judgment, among all other California pleadings, and requires the arbitration hearing to be conducted pursuant to the Evidence Code. It anticipates, in short, ordinary civil litigation, followed by the equivalent of a civil bench trial, except that one or both parties must finance the judge and facilities. With respect to the allocation of the costs of arbitration, the clause states: "If [ Code of Civil Procedure section] 1284.2 conflicts with other substantive statutory provisions or controlling case law, the allocation of costs and arbitrator fees shall be governed by said statutory provisions or controlling case law instead of [ Code of Civil Procedure section] 1284.2."⁴

In opposing the petition to compel, Kho explained the circumstances of his execution of the Agreement: "After working for One Toyota of Oakland for approximately 3 years, Alba, who was a 'porter' employed with [the human resources department of] One Toyota of Oakland, brought ... paperwork for me to sign. This happened approximately in February 2013. [¶] ... I remember working at my station and Alba asked me to sign several additional documents in February 2013. I was not asked to come into the human resources office to review the documents and I was required to sign and return them immediately to Alba, who was waiting in my work station for me to finish signing them. It took about 3–4 minutes for me to sign these documents. After I signed them, I gave the documents back to Alba and I was not given an opportunity to read what those documents were. [¶] ... I was not provided with a copy of the documents signed on [sic ] February 2013. No one from One Toyota of Oakland read to [sic ] the contents of the documents to me nor did they explain to me that I was signing an arbitration agreement and waiving any of my rights. [¶] ... [A]t no point during my employment with One Toyota of Oakland did I receive a copy of the arbitration agreement. My first language is Chinese and a copy of this agreement was not provided in my native language."

One Toyota did not dispute Kho's account.

The trial court denied the petition to compel. In an extensive written decision, the court found "that there was a high level of procedural unconscionability connected with the execution of the arbitration agreement in this case." It noted Kho was not given time to review the Agreement, was given no explanation of it, and was not given a copy afterward, which the court found "consistent with the conclusion that the arbitration provision was imposed on [Kho] under circumstances that created oppression or surprise due to unequal bargaining power." The court also found the Agreement substantively unconscionable under Sonic II because it deprived Kho of the advantages of the commissioner's procedures, which provide for a relatively quick, inexpensive method for resolving wage claims that is designed to accommodate pro se claimants, like Kho, without providing an "accessible and affordable" alternative. As the court noted, the Agreement anticipates close to a full trial, which would necessitate the hiring of counsel, but it does not provide for the recovery of attorney fees to incentivize counsel. Because the court denied the petition to compel, it declined to address Kho's argument that One Toyota's last-minute assertion of its right to arbitrate waived that right. Although the court denied the petition to compel, it did grant One Toyota's motion to vacate the ODA, concluding that the agency abused its discretion in proceeding with the hearing after having been informed that Kho had executed an agreement to arbitrate that could moot the proceeding.

One Toyota has appealed the denial of its petition to compel arbitration, while the commissioner, as intervener, has cross-appealed the order vacating the ODA. Kho has not appeared personally or by counsel, but the commissioner has filed a respondent's brief asserting arguments on his behalf.

II. DISCUSSION

A. Governing Law

1. Unconscionability

" 'A written agreement to submit to arbitration an existing controversy or a controversy thereafter arising is valid, enforceable and irrevocable, save upon such grounds as exist for the revocation of any contract.' [Citation.] A party seeking to compel arbitration of a dispute 'bears the burden of proving the existence of an arbitration agreement, and the party opposing arbitration bears the...