SCOTT DAVIS, Plаintiff and Respondent, v. STEFAN KOZAK et al., Defendants and Appellants. SCOTT DAVIS, Plaintiff and Respondent, v. RED BULL NORTH AMERICA, INC., Defendant and Appellant.
A156234 (Alameda County Super. Ct. No. RG18907104); A156238 (Alameda County Super. Ct. No. RG18916491)
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA FIRST APPELLATE DISTRICT DIVISION THREE
Filed 8/19/20
CERTIFIED FOR PUBLICATION
FACTUAL AND PROCEDURAL BACKGROUND
In June 2018, Davis filed a complaint against individual defendants Stefan Kozak, Ryan Conway, Edward Hayden, Christopher Trombetta, and Mark Russ for age and sex harassment and hostile work environment in violation of the FEHA, and for intentional and negligent infliction of emotional distress. Davis alleged he was 56 years old, had been employed by Red Bull for 15 years, and was in a mid-level managerial sales position from 2007 until he was wrongfully terminated in April 2018. In the first cause of action for harassment and hostile work environment based on age, Davis alleged that the individual defendants—all high-ranking executives within the company—consistently made derogatory comments and subjected Davis to harassing
Shortly after Davis filed his complaint, Red Bull notified Davis of the company’s decision to initiate arbitration and seek a declaration that the claims alleged in Davis’s DFEH complaint were without merit. When Davis refused to submit to arbitration, Red Bull filed a demand for arbitration with the American Arbitration Association (AAA).
In July 2018, the individual defendants moved to compel Davis to submit his claims to arbitration.
Davis then filed a separate lawsuit against Red Bull seeking a declaratory judgment that the claims set forth in his DFEH complaint were not subject to the arbitration agreement and that the arbitration agreement was not binding on him. He further sought temporary and permanent injunctive relief staying Red Bull’s arbitration until the final adjudication of his civil action against the individual defendants. In response, Red Bull filed its own motion to compel arbitration of Davis’s claims.
The Arbitration Agreement
In seeking arbitration of the dispute, appellants relied on the “Red Bull North America, Inc. Binding Arbitration Agreement” signed by Davis on September 29, 2003 (hereafter, the arbitration agreement or agreement).
The arbitration agreement is printed on Red Bull letterhead and consists of 18 paragraphs over three pages. It states in relevant part that Davis, “in consideration of [his] employment with [Red Bull]” agreed that “[a]ny and all disputes which involve or relate in any way to [his] employment (or termination of employment) with Red Bull, except for obligations under the Employee Confidentiality Agreement with Red Bull, shall be submitted to and resolved by final and binding arbitration.”
Under its procedures for initiating arbitration, the agreement provides that within 30 days of receipt of a notice of arbitration, “Red Bull and I will attempt to agree upon a mutually acceptable arbitrator. If Red Bull and I are unable to agree upon [an] arbitrator, we will submit the dispute to the [AAA].” The agreement further states that “arbitration shall be conduсted in accordance with the laws of the state in which the arbitration is conducted and the rules and requirements of the arbitration service being utilized, specifically any rules applicable to employment disputes, to the extent that such rules and requirements do not conflict with the terms of this Agreement.”
Regarding arbitral discovery, the agreement states: “Either party shall be entitled to conduct a limited amount of discovery prior to the arbitration hearing. Either party may take a maximum of two (2) depositions. Either party may apply to the arbitrator for further discovery. Such further discovery may, in the discretion of the arbitrator, be awarded upon a showing of sufficient cause.”2
Hearing, Decision, and Appeal
In a detailed tentative opinion, the trial court was prepared to grant appellants’ motions to compel. After finding that appellants had met their burden of showing Davis was a party to a written agreement requiring him to submit the controversy alleged in his complaint to arbitration, the court determined that Davis had failed to show the agreement was unenforceable under principles of unconscionability, with the exception of the discovery limitation, which the court found to be severable. The court also found that the individual defendants had standing as nonsignatories to enforce the arbitration agreement under agency and estoppel principles.
After the hearing, however, the trial court reversed course. The court not only concluded the individual defendants could not enforce the arbitration
Appellants timely appealed. (
DISCUSSION
“California law, like federal law, favors enforcement of valid arbitration agreements,” allowing that they “may only be invalidated for the same reasons as other contracts.” (Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, 97–98 (Armendariz).) Generally applicable contract defenses such as unconscionability remain applicable to invalidate arbitration agreements. (OTO, L.L.C. v. Kho (2019) 8 Cal.5th 111, 125 (OTO).)
The unconscionability doctrine has both procedural and substantive elements, “the former focusing on oppression or surprise due to unequal bargaining power, the latter on overly harsh or one-sided results.” (Sonic-Calabasas A, Inc. v. Moreno (2013) 57 Cal.4th 1109, 1133 (Sonic).) Both must be shown for the defense to be established, but not necessarily in the same degree. (OTO, supra, 8 Cal.5th at p. 125.) We evaluate unconscionability on a sliding scale, so that the more substantively one-sided the contract term, the less evidence of procedural unconscionability is required to conclude that the term is unenforceable, and vice versa. (Id. at pp. 125–126.) “The ultimate issue in every case is whether the terms of the contract are sufficiently unfair, in view of all relevant circumstances, that a court should withhold enforcement.” (Sanchez v. Valencia Holding Co., LLC (2015) 61 Cal.4th 899, 912 (Sanchez).) When unconscionability is shown, the trial court has discretion either to refuse to enforce the contract or to strike the unconscionable provision and enforce the remainder of the contract. (
The principal questions posed in this appeal are whether the arbitration agreement is unconscionable, and if so, whether the trial court should have severed the offending provisions rather than refuse enforcement of the agreement as a whole. An additional question is whether the trial court erred in finding that the individual defendants, as nonsignatories, lack standing to enforce the agreement. We address these questions in order, as resolution of the first two may obviate the need to reach the third.
A. Procedural Unconscionability
“Procedural unconscionability focuses on ‘ ” ‘oppression’ ” ’ or ‘ ” ‘surprise’ ” ’ due to unequal bargaining power. [Citation.] ‘Oppression arises from an inequality of bargaining power that results in no real negotiation and an absence of meaningful choice. Surprise involves the extent to which the suрposedly agreed-upon terms are hidden in a prolix printed form drafted by the party seeking to enforce them.’ ” (Baxter v. Genworth North America Corp. (2017) 16 Cal.App.5th 713, 722 (Baxter).)
“Unconscionability analysis begins with an inquiry into whether the contract is one of adhesion. [Citation.] ‘The term [contract of adhesion] signifies a standardized contract, which, imposed and drafted by the party of superior bargaining strength, relegates to the subscribing party only the opportunity to adhere to the contract or reject it.’ ” (Armendariz, supra, 24 Cal.4th at p. 113.) “Arbitration contracts imposed as a condition of employment are typically adhesive.” (OTO, supra, 8 Cal.5th at p. 126.)
The arbitration agreement here is a form contract on Red Bull letterhead with spaces for the employee’s name and signature. It states at the outset that Davis’s agreement to its terms is “in consideration of” his employment with Red Bull. In his declaration in opposition to the motions to compel, Davis attested that the agreement was presented to him “as a condition of employment along with a stack of other documents, and on a ‘take-it-or-leave-it’ basis.” He further attested on information and belief that the agreement “was
Though appellants are correct that Davis’s declaration is speculative in some respects, the record sufficiently demonstrates that the arbitration agreement was presented as a standardized, non-negotiable term of Davis’s employment. Appellants do not contend that Davis could have opted out of the arbitration agreement or negotiated his employment contract without one. (Sanchez, supra, 61 Cal.4th at p. 914; Serpa v. California Surety Investigations, Inc. (2013) 215 Cal.App.4th 695, 704 (Serpa).) Although appellants seize on Davis’s acknowledgment that he did not actually attempt to negotiate the arbitration terms, a complaining party need not show it tried to negotiate standardized contract terms to establish procedural unconscionability. (OTO, supra, 8 Cal.5th at p. 127; Carbajal v. CWPSC, Inc. (2016) 245 Cal.App.4th 227, 244 (Carbajal).)
The record also sufficiently demonstrates the parties’ unequal bargaining positions. There is no dispute that Red Bull was, at all relevant times, a large and prominent multinational corporation, a point reinforced by the declaration of Red Bull’s human resources director describing the size and scope of Red Bull’s business in the beverage industry. Davis, in comparison, was hired by the company in 2003 to a middle manager position. On this record, the unequal bargaining power between Red Bull and Davis was reasonably apparent from the parties’ relationship. (Carbajal, supra, 245 Cal.App.4th at p. 244.) Indeed, “few employees are in a position to refuse a job because of an arbitration requirement.” (Armendariz, supra, 24 Cal.4th at p. 115.) Furthermore, because Red Bull presented the arbitration agreement in the context of hiring Davis as a new employee, we must be “particularly attuned” to the danger of oppression and overreaching in this setting. (OTO, supra, 8 Cal.5th at p. 127.) Accordingly, we conclude Davis carried his burden to show the arbitration agreement was a contract of adhesion.
By itself, however, adhesion establishes only a “low” degree of procedural unconscionability. (Serpa, supra, 215 Cal.App.4th at p. 704.) Davis did not attempt to show other sharp practices on the part of Red Bull, such as lying, manipulating, or placing him under duress. (Baltazar v. Forever 21 (2016) 62 Cal.4th 1237, 1245 (Baltazar).) And we disagree with Davis’s characterization of the arbitration agreement as unreasonably prolix or complex. The agreement is set forth in a standalone three-page document, clearly labeled “Binding Arbitration Agreement,” with standard-sized and readable text. With the exception of a few paragraphs, the agreement does not contain overly long or complicated
Nor do we find, as the trial court did, an element of surprise in the agreement’s failure to identify a specific arbitration provider. The agreement clearly spells out that the parties will attempt to mutually agree on an arbitrator, and if that fails, the parties will utilize the services of AAA. Reasonably construed, the provision affords Davis the opportunity to negotiate fоr a preferred arbitrator, with AAA as the fallback if the parties cannot agree. There is nothing surprising or hidden in this regard.
The trial court also found an element of surprise in the arbitration agreement’s failure to identify the particular arbitral rules that would apply. But the primary option under the agreement is for the parties to mutually agree upon an arbitrator, and for arbitration to be conducted in accordance with the provider’s “rules applicable to employment disputes” to the extent they do not conflict with the agreement. Consequently, the applicable rules could not be precisely identified at the time of contracting.
Appellants insist there is no potential for surprise because, in the event the parties could not agree on an arbitrator, then the “rules applicable to employment disputes” can only refer to the AAA Employment Arbitration Rules and Mediation Procedures, which are currently accessible on the AAA website. Appellants emphasize that both the 2002 version (in effect when Davis was hired) and the 2009 current version of the AAA rules state that the rules applicable to a given dispute are those in effect “at the time the demand for arbitration . . . is received by the AAA.” Citing Evans v. Centerstone Development Co. (2005) 134 Cal.App.4th 151, 158 (Evans) and Lucas v. Gund, Inc. (C.D.Cal. 2006) 450 F.Supp.2d 1125, 1131–1132 (Lucas), appellants maintain that when an agreement does not specify which version of the arbitral rules applies to a particular dispute but references rules that do, those rules control. Davis counters that the agreement remains unclear because it does not identify which version of the rules would apply, and the current 2009 version of the AAA employment rules was not in effect at the time of contracting.
The precise question before us is not determining which vеrsion of the AAA rules applies, but whether the arbitration agreement’s failure in the first place to identify the applicable version heightens the degree of procedural unconscionability. (See Carbajal, supra, 245 Cal.App.4th at pp. 244–245 [oppression is increased when employer not only fails to provide rules “but also fails to clearly identify which rules will govern so the employee could locate and review them“].) Carbajal distinguished both Evans and Lucas as
That said, the full scope of Carbajal’s procedural unconscionability rationale is in questiоn after the Supreme Court issued its decision in Baltazar, supra, 62 Cal.4th 1237, shortly after Carbajal was published. (See Nguyen v. Applied Medical Resources Corp. (2016) 4 Cal.App.5th 232, 248–249.) In Baltazar, the Supreme Court held that the failure to provide a copy of the arbitral rules, standing alone, does not heighten the degree of procedural unconscionability. Baltazar noted that in the cases where the failure to provide the arbitral rules supported a finding of procedural unconscionability, the “claim depended in some manner on the arbitration rules in question. [Citations.] These cases thus stand for the proposition that courts will more closely scrutinize the substantive unconscionability of terms that were ‘artfully hidden’ by the simple expedient of incorporating them by reference rather than including them in or attaching them to the arbitration agreement.” (Baltazar, at p. 1246.)
It logically follows from Baltazar that a viable claim of procedural unconscionability for failure to identify the particular version of the applicable arbitral rules—like a claim for failure to attach the rules themselves—depends in some manner on the substantive unfairness of a term or terms contained within the unidentified version of the rules applicable to the dispute. (See Peng v. First Republic Bank (2013) 219 Cal.App.4th 1462, 1470–1472 (Peng) [no heightened procedural unconscionability due to failure to attach arbitral rules or identify them with clarity].) That is, if the unidentified rules are not themselves substantively unfair, then the employer cannot be faulted for vaguely referring to such rules. Notably, Davis does not contend that either the 2002 or the 2009 version of the AAA employment rules contained substantively unconscionable terms.
Furthermore, to the extent Carbajal remains viable with regard to Davis’s theory of procedural unconscionability, the case is factually distinguishable. In Carbajal, the plaintiff was asked to sign an arbitration agreement during her interview, and the employer’s most knowledgeable person conceded that еven he did not know which AAA rules applied under the arbitration provision. (Carbajal, supra, 245 Cal.App.4th at p. 244.) Davis does not similarly claim that he was given insufficient time to consider the arbitration agreement before signing it or that he was otherwise unable to access the AAA rules at the time of contracting.
B. Substantive Unconscionability
In assessing substantive unconscionability, we look to the terms of the parties’ agreement to “ensure[] that contracts, particularly contracts of adhesion, do not imрose terms that have been variously described as ‘ ” ‘overly harsh’ ” ’ [citation], ‘ “unduly oppressive” ’ [citation], ‘ “so one-sided as to ‘shock the conscience’ ” ’ [citation], or ‘unfairly one-sided.’ ” (Sonic, supra, 57 Cal.4th at p. 1145.) These formulations “all mean the same thing.” (Sanchez, supra, 61 Cal.4th at p. 911.) Substantive unconscionability ” ‘is concerned not with “a simple old-fashioned bad bargain” [citation], but with terms that are “unreasonably favorable to the more powerful party.” ’ ” (Ibid.) “[T]he paramount consideration in assessing [substantive] unconscionability is mutuality.” (Abramson v. Juniper Networks, Inc. (2004) 115 Cal.App.4th 638, 657 (Abramson).) “Agreements to arbitrate must contain at least ‘ “a modicum of bilaterality” ’ to avoid unconscionability.” (Id., citing Armendariz, supra, 24 Cal.4th at p. 119.)
In making this determination, courts often look to whether the agreement meets a minimum level of fairness based on the factors set forth in Armendariz. (Wherry v. Award, Inc. (2011) 192 Cal.App.4th 1242, 1248.) Among these factors is the requirement that there must be discovery sufficient to adequately arbitrate a party’s claims. (Armendariz, supra, 24 Cal.4th at pp. 102–106.)
1. Discovery
A limitation on discovery is an important way in which arbitration can provide a simplified and streamlined procedure for the resolution of disputes. (Dotson v. Amgen (2010) 181 Cal.App.4th 975, 983 (Dotson); Armendariz, supra, 24 Cal.4th at p. 106, fn. 11.) At the same time, “[a]dequate discovery is indispensable for the vindication of statutory claims” (Fitz v. NCR Corp. (2004) 118 Cal.App.4th 702, 715), and “[t]he denial of adequate discovery in arbitration proceedings leads to the de facto frustration of” statutory rights (Armendariz, supra, 24 Cal.4th at p. 104). In this context, “adequate” does not mean “unfettered.” (Mercuro v. Superior Court (2002) 96 Cal.App.4th 167, 184 (Mercuro).) In striking the appropriate balance between the
The arbitration agreement here permits each party to take a maximum of two depositions. It contains no express provisions entitling the partiеs to propound interrogatories, requests for admission, or demands for production all relevant documents.4 Appellants emphasize that despite these limitations, the arbitrator retains the authority to order additional discovery
on a showing of “sufficient cause.” According to appellants, this standard is equivalent to “good cause,” which was approved by the courts in Mercuro and Poublon, and is “not different in substance from the standards approved in Roman [v. Superior Court (2009) 172 Cal.App.4th 1462 (Roman)] or Dotson, supra.” Appellants’ reliance on these authorities is misplaced.
As this court previously observed in Baxter, the discovery provision in Dotson permitted additional discovery by the arbitrator on “a simple ‘showing of need.’ ” (Baxter, supra, 16 Cal.App.5th at p. 729, citing Dotson, supra, 181 Cal.App.4th at pp. 978, 984.) Baxter agreed with Dotson that such a showing “did not impose an unreasonable limitation on the arbitrator’s authority to increase discovery” and held that the “showing of need” standard was less onerous than a “good and sufficient cause” standard. (Baxter at p. 729.) And as relevant here, the arbitration clause in Dotson explicitly permitted more discovery than the agreement before us. (Dotson, supra, 181 Cal.App.4th at p. 982 [parties allowed at least two deрositions (of an individual and any expert) and also to make document demands to any party in arbitration].)
Roman also involved a substantively different standard for discovery. There, the arbitration agreement incorporated the 1997 AAA rules, which stated the arbitrator had authority to order “such discovery, by way of deposition, interrogatory, document production, or otherwise, as the arbitrator considers necessary to a full and fair exploration of the issues in dispute, consistent with the expedited nature of arbitration.”5 (Roman, supra, 172 Cal.App.4th at p. 1475.) But rather than adopting AAA discovery procedures, Red Bull’s arbitration agreement provides instead for default discovery that
production, that limits depositions to two per party, and that uses a less-defined “sufficient cause” standard for obtaining additional discovery.
And even assuming the “sufficient cause” standard here is equivalent to the “good cause” standard approved in Mercuro and Poublon, both Mercuro and Poublon emphasized that the plaintiffs before them had made no showing whatsoever of an inability to vindicate their statutory rights under the discovery standards provided in the subject arbitration agreements. (Mercuro, supra, 96 Cal.App.4th at p. 183; Poublon, supra, 846 F.3d at p. 1271; cf. Ontiveros v. DHL Express (USA), Inc. (2008) 164 Cal.App.4th 494, 513 [employee estimated need to take at least 15 to 20 depositions].)
Here, in contrast, the record amply supports Davis’s contention that he would be unable to vindicate his statutory rights under the discovery limitations of the arbitration agreement. Davis had a 15-year work history with Red Bull, and he offered facts tending to show that the alleged age and sex harassment “dramatically increas[ed]” since 2010 and continued until his termination in 2018. At the root of Davis’s complaint is the theory that Red Bull executives promoted a risky youth-centered culture that glorified partying and substance abuse and looked the other way at reports of sexual harassment and battery. As a result, Davis claims, he was often subjected to ageist slurs directed at him in the presence of multiple witnesses, and was harassed by having to witness the sexual harassment and abuse of multiple women, including Red Bull employees. Davis’s claims are also based on retaliatory harassment resulting from his reports of harassment of himself and others and his participation in formal investigations of these reports. Finally, he claims that he and other similarly-situated older employees were passed up for promotions despite their superior qualifications, and that he was terminated because of his age. Relevant documents would include, at minimum, those relating to Davis’s work performance, discipline and termination, the reports of age and sex harassment by Davis and others, and the company’s internal investigations. In shоrt, Davis has demonstrated that he has a factually complex case involving numerous percipient witnesses, executives, and investigators6 and that the arbitration agreement’s default limitations on discovery are almost certainly inadequate to permit his fair pursuit of these
In so concluding, we take our cue from Baxter, supra, 16 Cal.App.5th 732, which reached a similar conclusion where an arbitral discovery process featured default limitations that inhibited the plaintiff’s ability to fairly pursue her claims against a former employer for discrimination and retaliation in violation of the FEHA. (Baxter, at p. 729.) In Baxter, the
plaintiff had a 12-year employment history with the defendant, and she made a factual showing that the outcome of her claims would depend upon several percipient witnesses, six of whom were identified by name in the complaint, and the relevant documents would include those relating to the defendant’s family leave practices, evaluation policies, reorganization, prior complaints similar to the plaintiff’s, communications concerning her discipline and termination, and the defendant’s internal investigation. (Baxter, at pp. 728–729.) The parties’ arbitration agreement, however, contained the following default discovery limitations: the defendant’s employees would receive documents from their personnel and medical files, and each party would be permitted to propound up to 10 interrogatories and five written requests for documents to the other party, and to depose two individuals fоr a total of no more than eight hours. (Id. at p. 727.) The arbitrator was authorized to order further discovery ” ‘for good and sufficient cause shown.’ ” (Ibid.)
As Baxter explained, the default discovery allowed under the foregoing provisions was “low,” the burden placed on the plaintiff “to justify additional discovery is somewhat greater than a simple showing of need or good cause,” and the plaintiff had “established as a factual matter that she will likely need to conduct at least three to five times the number of depositions allowed” under the default limitations. (Baxter, supra, 16 Cal.App.5th at p. 730.) Under the circumstances, Baxter determined that the default levels of discovery would be inadequate to vindicate the plaintiff’s FEHA rights. (Id. at pp. 728–729 [distinguishing Mercuro]) and that it was “reasonable to conclude that her ability to prove her claims would be frustrated” (id. at p. 730).
We assume, as we must, that any selected arbitrator will operate in a reasonable manner in conformity with the law. (Dotson, supra, 181 Cal.App.4th at p. 984.) But under the circumstances presented here, it is reasonable to conclude that the particular terms of the arbitration agreement appear to constrain an arbitrator’s efforts to expand discovery to the extent necessary to vindicate Davis’s statutory rights. (See Baxter, supra, 16 Cal.App.5th at p. 730; Dougherty, supra, 47 Cal.App.5th at p. 106.)
Accordingly, we agree with the trial court that the discovery limitations in the subject arbitration agreement are substantively unconscionable.
2. Mutuality
We next review the arbitration agreement for “the paramount consideration” of mutuality. (Abramson, supra, 115 Cal.App.4th at p. 657.) Courts have found a lack of sufficient mutuality where the agreement exempts from arbitration the types of claims an employer is likely to bring against an employee. (Carlson v. Home Team Pest Defense, Inc. (2015) 239 Cal.App.4th 619, 634–635 [excluding employer’s “most likely claims” to enforce anticompetitive covenants and confidentiality provisions while employee “was required to relinquish her access to the courts for all of her nonstatutory claims“]; Stirlen v. Supercuts (1997) 51 Cal.App.4th 1519, 1536–1542 (Stirlen) [excluding claims pertaining to patent infringement and improper use of confidential information and competition].)
We initially reject Davis’s broad contention that the entire arbitration agreement lacks mutuality because of the repeated phrasing “I agree” and the absence of a signature line for Red Bull. (Roman, supra, 172 Cal.App.4th at p. 1466 [use of “I agree” language in arbitration clause that expressly covers “all disputes” creates mutual agreement to arbitrate].) That the agreement was drafted on Red Bull letterhead is an indication the company intended to be bound by the agreement. (Serafin v. Balco Properties Ltd., LLC (2015) 235 Cal.App.4th 165, 176–177; Cruise v. Kroger Co. (2015) 233 Cal.App.4th 390, 398.) Furthermore, the agreement specifically discusses what “Red Bull or I” must do in order to “initiate” arbitration. As a whole, the agreement is thus reasonably construed as both parties consenting to arbitration of any disputes either party brings involving or relating to Davis’s employment, with the one notable exception discussed below. (Bigler v. Harker School (2013) 213 Cal.App.4th 727, 737–738.)
The sole exception to arbitration under the agreement is for disputes that involve “obligations under the Employee Confidentiality Agreement with Red Bull.”8 Appellants contend this provision is mutual because Davis can sue in court for any claims he has against Red Bull relating to inventions or intellectual property belonging solely to him. We disagree, as such disputes would not involve any “obligations” under the Employee Confidentiality Agreement.9
to, owned by and regularly used by the Company, or its parent and other affiliated companies, including but not limited to financial information, proprietary information relating to formulas, developmental or experimental work, trade secrets, techniques, know-how, discoveries, inventions, marketing information including statistical analyses, pricing structures, business strategies, plans for market expansion, information regarding customers, supplies and distributors, address/contacts lists (collectively, Confidential Information).” (Italics added.) The employee then agrees to “maintain the confidentiality of all Confidential Information” as so defined. There is no corresponding obligation of the company relating to any proprietary information of the employee. The agreement’s section on remedies states: “In the event of a breach or threatened breach of this Agreement by the Employee, the Company shall be entitled to all remedies available at law and equity, including injunctive relief and recovery from the Employee.” (Emphasis added.) Elsewhere, the Employee Confidentiality Agreement requires employеes to assign to Red Bull any work product they develop during their employment, but in delineating the scope of this assignment, states “this Agreement shall not apply to any invention the Employee develops entirely on his/her own time without the use of the Company’s equipment, supplies, facilities or trade secrets” unless the invention relates to the company’s business or to the employee’s work for the company. (Emphasis added.)
In short, the Employee Confidentiality Agreement only obligates Red Bull’s employees to protect the company’s confidential and proprietary information, not vice versa. The confidentiality agreement expressly states it “shall not apply“—and identifies no obligations on the company’s part—with regard to any inventions or information belonging solely to its employees.
Accordingly, the exemption from arbitration for disputes involving “obligations under the Employee Confidentiality Agreement” lacks mutuality in two ways. First, any theoretical claim that Davis may have against Red Bull for wrongfully using his inventions or intellectual property is not a dispute involving the breach of any “obligations” under the confidentiality agreement and would therefore fall within the scope of the parties’ arbitration agreement. Second, and in a broader sense, the arbitration agreement effectively exempts from arbitration the types of claims Red Bull is most likely to bring against an employee such as Davis. (Carlson v. Home Team Pest Defense, Inc., supra, 239 Cal.App.4th at pp. 634–635; Stirlen, supra, 51 Cal.App.4th at pp. 1536–1542.)
Substantive unconscionability “turns not only on a ‘one-sided’ result, but also on an absence of ‘justification’ for it.” (Stirlen, supra, 51 Cal.App.4th at p. 1532.) As our Supreme Court has recognized, a contract can provide a ” ‘margin of safety’ that provides the party with superior bargaining strength
To recap, we are presented here with only a minimal showing of procedural unconscionability based on adhesion. Accordingly, a “high” degree of substantive unconscionability is required to find the agreement
unenforceable (Peng, supra, 219 Cal.App.4th at p. 1470), and we conclude that threshold is met. Due to the carve-out provision for the Employee Confidentiality Agreement, the “paramount” concern of mutuality (Abramson, supra, 115 Cal.App.4th at p. 650) is lacking, and Red Bull, as the party with superior bargaining strength, fails to articulate any legitimate business reason for the exemption. When considered in combination with the discovery limitations discussed in part B.1., ante, the carve-out provision allows Red Bull to litigate the types of claims it would most likely bring against employees in civil court with the full panoply of discovery at its disposal, while employees like Davis have no choice but to arbitrate even the most factually complex statutory claims subject to a discovery process that is far more restrictive and does not impact Red Bull in the same way for company-initiated claims. On this record, we conclude Davis has a made a sufficiently strong combined showing of procedural and substantive unconscionability to render the arbitration agreement unenforceable.
C. Severance
The decision to sever rests in the trial court’s discretion and is reviewed for abuse of discretion. (Armendariz, supra, 24 Cal.4th at pp. 121–125; Lhotka, supra, 181 Cal.App.4th at p. 821.)
In Armendariz, the Supreme Court held that
Because the trial court did not explicitly address severance in its final orders, Red Bull contends that the court completely failed to exercise its discretion with regard to severance, and that this by itself requires reversal. This contention is belied by the record. There is nothing in the record indicating the trial court disregarded the parties’ briefing of the severance issue, and the court’s awareness of its discretion is demonstrated by its initial ruling tentatively ordering severance, which the court evidently аbandoned when finalizing its orders denying appellants’ motions to compel.11
DISPOSITION
The orders denying the motions to compel are affirmed. Davis is entitled to his costs on appeal.
FUJISAKI, J.
We concur.
SIGGINS, P.J.
JACKSON, J.
(A156234)
Superior Court of Alameda County
Robert D. McGuiness, Judge.
Mitchell Silberberg & Knupp, Adam Levin, Stephen A. Rossi, and Elana Moses; for Defendants and Appellants.
Peretz & Associates, Yosef Peretz, and Ruth L. Israely for Plaintiff and Respondent.