Serpa v. California Surety Investigations, Inc.
215 Cal. App. 4th 695
| Cal. Ct. App. | 2013Background
- Serpa filed FEHA claims against CSI parties in Los Angeles Superior Court on June 24, 2011.
- CSI moved to compel arbitration on August 9, 2011 based on an arbitration agreement, handbook arbitration policy, and an acknowledgment form.
- Arbitration agreement states disputes will be submitted to binding arbitration before a retired judge, with company arbitration policy referenced.
- Handbook page three contains the arbitration policy, including mutual arbitration language and cost allocations; it also provides a right to revise by the company.
- Serpa challenged unconscionability and lack of mutuality, and the trial court denied arbitration, which the Court of Appeal reversed and remanded to sever an unenforceable attorney-fee provision and compel arbitration.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Is the arbitration agreement unconscionable and unenforceable? | Serpa argues lack of mutuality and illusory terms. | CSI argues covenant of good faith preserves mutuality and modify-right does not render illusory. | No; agreement is not unconscionable; sever the fee provision. |
| Does implied covenant of good faith limit unilateral modifications to the arbitration terms? | Modification rights render the contract illusory. | Covenant limits modifications; 24 Hour Fitness supports non-illusory modification. | Implied covenant saves the arbitration provision from being illusory. |
| Is the attorney-fee provision unconscionable and enforceable in severed form? | Provision deprives FEHA remedies; unconscionable. | Attorney-fee provision can be severed without vitiating arbitration. | The fee provision is severable; remainder remains enforceable. |
| Does the internal grievance prerequisite render the agreement unconscionable? | Mandatory internal grievance steps before arbitration are oppressive. | Internal efforts are permissible and not unduly favoring employer. | Not unconscionable; severance cures any issue and FEHA-aligned interpretation applies. |
Key Cases Cited
- Armendariz v. Foundation Health Psychcare Services, Inc., 24 Cal.4th 83 (Cal. 2000) (arbitration unconscionability framework; procedural and substantive elements)
- Pinnacle Museum Tower Assn. v. Pinnacle Market Development (US), 55 Cal.4th 223 (Cal. 2012) (unconscionability standards for contracts; severability principles)
- 24 Hour Fitness, Inc. v. Superior Court, 66 Cal.App.4th 1199 (Cal. App. 1998) (implied covenant to modify handbook terms; not illusory when done in good faith)
- Nyulassy v. Lockheed Martin Corp., 120 Cal.App.4th 1267 (Cal. App. 2004) (information about mandatory internal grievance as part of arbitration may be permissible or not depending on context)
- Peleg v. Neiman Marcus Group, Inc., 204 Cal.App.4th 1425 (Cal. App. 2012) (considered retroactivity and implied covenant limits on unilateral modification)
- Sparks v. Vista Del Mar Child & Family Services, 207 Cal.App.4th 1511 (Cal. App. 2012) (discussed illusory arbitration in handbook context; dictum noted)