41 Cal.App.5th 662
Cal. Ct. App.2019Background
- Plaintiffs Donald, Bonnie, and Raymond Davis (African‑American; Donald over 40) signed three different employment agreements with TWC Dealer Group, Inc. in April 2013; each contains arbitration language but the texts differ and are lengthy, dense, and printed in small font.
- Plaintiffs alleged age and race discrimination, hostile work environment, retaliation, various Labor Code and wage claims, and related causes of action after resigning; they filed suit and obtained Department of Fair Employment and Housing right‑to‑sue letters.
- TWC petitioned to compel arbitration, submitting the three signed agreements and a declaration from its controller that arbitration was required for all employees; plaintiffs opposed and the trial court issued a tentative ruling denying the petition.
- The trial court found an agreement to arbitrate (based on Agreements 2 and 3) but concluded the arbitration provisions were procedurally and substantively unconscionable (adhesive format, surprise, internal inconsistencies, oppressive clauses including unilateral modification and class/PAGA waiver implications) and denied the petition to compel.
- TWC appealed; the Court of Appeal affirmed the denial, relying heavily on the California Supreme Court’s recent decision in OTO, L.L.C. v. Kho (2019) and other precedent, and published the decision while criticizing appellants’ counsel for omitting significant language from quoted provisions and failing to disclose directly adverse authority.
Issues
| Issue | Plaintiff's Argument (Davises) | Defendant's Argument (TWC) | Held |
|---|---|---|---|
| Enforceability — procedural unconscionability | Agreements are adhesive, dense, hard to read, and surprising; procedural unconscionability is high | Procedural unconscionability is minimal or nonexistent; not a true take‑it‑or‑leave‑it situation | Court: High degree of procedural unconscionability (citation to Kho); format, font, complexity cause surprise and oppression |
| Enforceability — substantive unconscionability | Terms are one‑sided: unilateral modification, confusing cross‑references, inconsistent clauses, and fine print favor employer | Clauses are routine and have been enforced in other cases; not substantively oppressive | Court: Significant substantive unconscionability given procedural defects; unilateral modification, lack of mutuality, and opaque terms render agreement unenforceable |
| Class/PAGA waiver and scope limitations | Clauses that bar class/collective actions and limit representative actions could preclude PAGA claims and are against public policy | Such waivers are permissible; agreements follow customary arbitration norms | Court: Clauses could be read to bar PAGA claims; Iskanian forbids waiver of PAGA rights—this supports unconscionability finding |
| Counsel candor to tribunal | N/A (plaintiffs raised no separate ethical claim) | TWC’s briefs omitted substantial language and failed to cite Kho; counsel did not disclose directly adverse controlling authority | Court: Affirmed judgment and admonished appellant counsel for misquoting and failing to disclose directly adverse authority (invoking Rule 3.3 principles) |
Key Cases Cited
- Armendariz v. Foundation Health Psychcare Servs., 24 Cal.4th 83 (Cal. 2000) (establishes procedural and substantive unconscionability framework for employment arbitration agreements)
- OTO, L.L.C. v. Kho, 8 Cal.5th 111 (Cal. 2019) (describes high degree of procedural unconscionability where arbitration clause is dense, printed in tiny font, and legally opaque)
- OTO, L.L.C. v. Kho, 14 Cal.App.5th 691 (Cal. Ct. App. 2017) (Court of Appeal decision addressing similar Toyota dealer arbitration clause and procedural unconscionability)
- Iskanian v. CLS Transp. Los Angeles, LLC, 59 Cal.4th 348 (Cal. 2014) (holds employee PAGA claims are unwaivable and PAGA waivers are contrary to public policy)
- Subcontracting Concepts (CT), LLC v. De Melo, 34 Cal.App.5th 201 (Cal. Ct. App. 2019) (upholds denial to compel arbitration where clause barred PAGA and was unconscionable)
- Pinnacle Museum Tower Assn. v. Pinnacle Market Dev. (US), LLC, 55 Cal.4th 223 (Cal. 2012) (legal standard: unconscionability is reviewed de novo)
- Carmona v. Lincoln Millennium Car Wash, Inc., 226 Cal.App.4th 74 (Cal. Ct. App. 2014) (absence of employer signature can indicate lack of mutuality in arbitration clauses)