Conyer v. Hula Media Services, LLC ( 2020 )


Menu:
  • Filed 8/26/20
    CERTIFIED FOR PUBLICATION
    IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
    SECOND APPELLATE DISTRICT
    DIVISION EIGHT
    MICHAEL CONYER,                       B296738
    Plaintiff and Respondent,          (Los Angeles County
    Super. Ct. No. BC718750)
    v.
    HULA MEDIA SERVICES, LLC,
    et al.,
    Defendants and Appellants.
    APPEAL from an order of the Superior Court of Los
    Angeles County. Steven J. Kleifield, Judge. Reversed and
    remanded with directions.
    Lewis Brisbois Bisgaard & Smith, John L. Barber, Jeffry A.
    Miller, Wendy S. Dowse and Rachel J. Lee for Defendants and
    Appellants.
    Feldman Browne Olivares, Lee R. Feldman, Caroline Wolf;
    Law Offices of Craig T. Byrnes and Craig T. Byrnes for Plaintiff
    and Respondent.
    __________________________
    SUMMARY
    An employee signed an acknowledgment of receipt of the
    employee handbook. In it, he agreed he was bound by the
    provisions of the handbook, and it was his responsibility to read
    and familiarize himself with all its provisions. The handbook
    contained an agreement to arbitrate disputes. The employer did
    not highlight or otherwise call the employee’s attention to the
    arbitration clause.
    We hold the employee demonstrated his assent to the
    arbitration clause by signing the acknowledgment, and the
    employer had no duty to call the arbitration agreement to the
    employee’s attention. We further find that provisions in the
    arbitration clause concerning arbitrator’s fees and costs and
    attorney fees are unenforceable, but they may be severed, and the
    rest of the agreement is enforceable.
    Accordingly, we reverse the trial court order denying the
    employer’s motion to compel arbitration.
    BACKGROUND
    1.     The Facts
    Plaintiff Michael Conyer began working for defendant Hula
    Media Services, LLC as a facility manager and senior engineer in
    January 2017. Hula Media is a corporation that provides
    postproduction technology and services for television and features
    throughout the United States.
    When he was hired, plaintiff received a copy of defendant’s
    employee handbook. At that time, the handbook did not have an
    arbitration clause. Plaintiff signed a “receipt and
    acknowledgment” of that handbook, stating he understood and
    agreed it was his responsibility to read it and that he was bound
    by its provisions.
    In August and October 2017, plaintiff submitted written
    complaints to defendant’s then-president, alleging sexual
    2
    harassment and retaliation by defendant’s chief executive officer,
    Denine James-Nio, among other claims.
    In November 2017, Tom Elias, a human resources
    consultant for a company that performs those functions for
    defendant, distributed copies of a revised employee handbook to
    all defendant’s employees.
    Plaintiff signed the “receipt and acknowledgment” page
    (the final page of the handbook) and returned it to Mr. Elias on
    November 7, 2017. Plaintiff does not remember signing the
    receipt and acknowledgment, but he does not deny the signature
    is his.
    The language of the November 2017 receipt and
    acknowledgment of the handbook is identical to the language in
    plaintiff’s acknowledgment of the original handbook. In
    pertinent part, both documents stated: “This is to acknowledge
    that I have received a copy of the Employee Handbook. This
    Handbook sets forth the terms and conditions of my employment
    as well as the rights, duties, responsibilities and obligations of
    my employment with the Company. I understand and agree that
    it is my responsibility to read and familiarize myself with all of
    the provisions of the Handbook. I further understand and agree
    that I am bound by the provisions of the Handbook. [¶]
    I understand the Company has the right to amend, modify,
    rescind, delete, supplement or add to the provisions of this
    Handbook, as it deems appropriate from time to time in its sole
    and absolute discretion.”
    The first four pages of the handbook contained the table of
    contents. The subheading “Arbitration” appeared under the
    heading “Communication and Problem Solving,” on the first page
    of the table of contents, which indicated the arbitration provision
    was on page 15. On page 15, a paragraph headed “Arbitration”
    stated:
    3
    “Arbitration: Mindful of the high cost of litigation, not only
    in dollars but time and energy as well, Hula Media Services, LLC
    intends to and [does] hereby establish a quick, final and binding
    out-of-court dispute[] resolution procedure to be followed in the
    unlikely event any controversy should arise out of or concerning
    your employment with Hula Media Services, LLC. Accordingly,
    the parties do hereby covenant and agree as follows: Any
    controversy, dispute, or claim of whatever nature arising out of,
    in connection with, or in relation to the interpretation,
    performance or breach of your employment, including any claim
    based on contract, tort, or statute, shall be settled, at the request
    of any party to this employment relationship, by final and
    binding arbitration conducted at a location determined by an
    arbitrator in California administered by and in accordance with
    the then existing Rules of Practice and Procedure of Judicial
    Arbitration & Mediation Services, Inc. (JAMS), and judgment
    upon any award rendered by the arbitrator(s) may be entered by
    any state or federal court having jurisdiction thereof. The
    arbitrator shall determine which is the prevailing party and shall
    include in the award that party’s reasonable attorney fees and
    costs. As soon as practicable after selection of the arbitrator, the
    arbitrator or his/her designated representative shall determine a
    reasonable estimate of anticipated fees and costs of the
    arbitrator, and render a statement to each party setting forth
    that party’s pro rata share of said fees and costs. Thereafter each
    party shall, within then [sic] (10) days of receipt of said
    statement, deposit said sum with the arbitrator. Failure of any
    party to make such a deposit shall result in forfeiture by the non-
    depositing party of the right to prosecute or defend the claim,
    which is the subject of the arbitration, but shall not otherwise
    serve to abate, stay or suspend the arbitration proceedings.”
    4
    On January 8, 2018, defendant terminated plaintiff’s
    employment.
    2.     The Litigation
    In August 2018, plaintiff sued Hula Media and CEO
    Denine James-Nio (defendants), alleging sexual harassment and
    six other causes of action under the Fair Employment and
    Housing Act (FEHA, Gov. Code, § 12900 et seq.), as well as a
    claim for failure to reimburse business expenses.
    In November 2018, defendants filed a motion to compel
    arbitration. A declaration from Mr. Elias stated he distributed
    the revised handbook to all employees. “Along with all other
    employees, I instructed Plaintiff to review the Handbook which
    included the Arbitration Agreement and allowed him the
    opportunity to review it. I also instructed Plaintiff to inform me
    if he had any concerns or questions regarding the materials.
    Lastly, I instructed Plaintiff to return the signed ‘Receipt and
    Acknowledgment’ page of the Handbook to me so I could have a
    copy placed in his personnel file.” Plaintiff did so on November 7,
    2017, and he did not contact Mr. Elias with any questions or
    concerns.
    Defendants contended the Federal Arbitration Act (FAA,
    
    9 U.S.C. § 1
     et seq.) governs the agreement, because Hula Media
    provides postproduction technology services throughout
    California “as well as with other states throughout the country.”
    Plaintiff does not dispute the FAA governs the agreement.
    In opposition to defendants’ motion, plaintiff said he had
    not agreed to arbitrate. His declaration stated he “never knew
    the Company had ever adopted any arbitration policy or revised
    its Handbook,” and that during his employment, “I never received
    a copy of any revised version of the Employee Handbook and was
    not informed that there had been a revision to the Handbook.”
    Plaintiff stated that, “[c]onsidering how bad my employment
    5
    situation was at that time, and my recent internal complaints . . .
    I would not have agreed to sign an arbitration agreement in
    November 2017.” He stated that Mr. Elias “never distributed a
    revised Employee Handbook to me, nor did he ever discuss a
    revised Handbook with me whatsoever.”
    Plaintiff’s opposition argued that even if he had been given
    a copy, he would never have known that defendants put an
    arbitration clause in it “without notifying him whether and how
    the Handbook had been changed.” Plaintiff also contended the
    arbitration agreement was unconscionable, because of the
    provisions requiring the employee to pay half the arbitrator’s fees
    and costs within 10 days and mandating an award of attorney
    fees to the prevailing party.
    3.     The Trial Court’s Order
    The trial court denied defendants’ motion to compel
    arbitration. The court recognized that ordinarily, a party’s
    failure to read a contract constitutes a lack of the reasonable
    diligence required of parties before they sign a contract. But the
    court found the evidence did not support any lack of reasonable
    diligence on plaintiff’s part. The court observed the receipt and
    acknowledgment form plaintiff signed did not indicate the
    handbook now contained an arbitration agreement, “or that it
    was ‘revised’ or ‘added to’ at all.” The court accepted as true
    plaintiff’s testimony that Mr. Elias did not inform him the
    handbook contained an arbitration clause.
    The court concluded it was reasonable for plaintiff to
    assume the distribution of the handbook was routine, with no
    particular reason for plaintiff to read it again, so it would be
    “fundamentally unfair to presume that Plaintiff was aware of the
    arbitration clause.” Having found no mutual assent to arbitrate,
    the court found it unnecessary to address plaintiff’s
    unconscionability defense to arbitration.
    6
    Defendants filed a timely appeal from the trial court’s order
    denying their motion to compel arbitration.
    DISCUSSION
    Defendants maintain the FAA applies to their agreement,
    and plaintiff does not contend otherwise. The principles that
    apply to arbitration under the FAA are well known. An
    arbitration provision in a contract evidencing a transaction
    involving commerce is valid and enforceable, except on grounds
    that exist at law or in equity for the revocation of any contract.
    (Pinnacle Museum Tower Assn. v. Pinnacle Market Development
    (US), LLC (2012) 
    55 Cal.4th 223
    , 234-235 (Pinnacle).) The FAA
    preempts state laws that require a judicial forum for claims the
    parties agreed to resolve by arbitration. (Pinnacle, at p. 235.)
    “Nonetheless, it is a cardinal principle that arbitration under the
    FAA ‘is a matter of consent, not coercion.’ ” (Id. at p. 236.) “In
    determining the rights of parties to enforce an arbitration
    agreement within the FAA’s scope, courts apply state contract
    law while giving due regard to the federal policy favoring
    arbitration.” (Ibid.) State contract law in California includes the
    principle that an arbitration clause within a contract “may be
    binding on a party even if the party never actually read the
    clause.” (Ibid.)
    The party seeking arbitration has the burden to prove the
    existence of an agreement to arbitrate, and the party opposing
    arbitration must prove any defense, such as unconscionability.
    Where the evidence is not in conflict, we review the trial court’s
    denial of arbitration de novo. (Pinnacle, supra, 55 Cal.4th at
    p. 236.)
    1.    Mutual Assent
    Defendants argue plaintiff demonstrated his assent to the
    arbitration clause by signing the acknowledgment of receipt of
    the employee handbook, and his failure to read the handbook
    7
    before signing the acknowledgment did not render the arbitration
    clause unenforceable. Plaintiff argues that because defendants
    did not inform him that an arbitration clause had been added to
    the employee handbook, he did not consent to that clause.
    Mutual assent to enter into a contract “ ‘ “is determined
    under an objective standard applied to the outward
    manifestations or expressions of the parties, i.e., the reasonable
    meaning of their words and acts, and not their unexpressed
    intentions or understandings.” ’ ” (Harris v. TAP Worldwide,
    LLC (2016) 
    248 Cal.App.4th 373
    , 381 (Harris).) Plaintiff does not
    deny the authenticity of his signature on the acknowledgment
    page of the November 2017 employee handbook, although he does
    not remember signing it. It follows, therefore, that he received
    the handbook, despite his claims to the contrary. No evidence
    shows plaintiff was required to sign the acknowledgment without
    an opportunity to read the handbook first.
    Plaintiff relies on Sparks v. Vista Del Mar Child and
    Family Services (2012) 
    207 Cal.App.4th 1511
    , abrogated on other
    grounds in Harris, supra, 248 Cal.App.4th at page 390, citing the
    case multiple times in his brief and stating the case is “directly
    on point.” Sparks held, in relevant part, the plaintiff was not
    bound to arbitrate because the arbitration clause “was included
    within a lengthy employee handbook” and “was not called to the
    attention of plaintiff.” (Sparks, at p. 1514.) But in 2015, the
    Supreme Court held that a party seeking to enforce an
    arbitration agreement in a consumer contract has no duty to
    point out the arbitration clause, and any state law to that effect
    would be preempted by the FAA. (Sanchez v. Valencia Holding
    Co., LLC (2015) 
    61 Cal.4th 899
    , 914 (Sanchez) [the defendant
    “was under no obligation to highlight the arbitration clause of its
    contract, nor was it required to specifically call that clause to [the
    plaintiff’s] attention”].) The Sanchez court cited its previous
    8
    holding in Rosenthal v. Great Western Fin. Securities Corp. (1996)
    
    14 Cal.4th 394
    , 424 that “even when a customer is assured it is
    not necessary to read a standard form contract with an
    arbitration clause, ‘it is generally unreasonable, in reliance on
    such assurances, to neglect to read a written agreement before
    signing it.’ ” (Sanchez, at p. 915.)
    Plaintiff insists he was “unaware that his signature on the
    acknowledgment form was intended to create a contract,” and
    what he signed was not on its face a contract, so that “the
    holdings of typical contract cases” like Sanchez do not apply.
    That, however, ignores the words on the face of the receipt, in
    which plaintiff acknowledged the handbook sets forth the terms,
    conditions, rights, duties, responsibilities and obligations of his
    employment, and plaintiff expressly agreed he was bound by its
    provisions. That is a contract. Sanchez found “[a]ny state law
    imposing [an obligation to call attention to an arbitration clause]
    would be preempted by the FAA.” (Sanchez, supra, 61 Cal.4th at
    p. 914.) Sanchez did not limit its holding to “typical contract
    cases” (whatever that may mean) nor say anything suggesting it
    applied to consumer contracts but not employee contracts.
    We follow Sanchez in finding defendants had no obligation
    to point out to plaintiff that an arbitration clause had been added
    to the November 2017 employee handbook. It has long been the
    rule in California that a party is bound by a contract even if he
    did not read the contract before signing it. That rule applies to
    all contracts, including arbitration agreements. (Pinnacle,
    supra, 55 Cal.4th at p. 236 [“An arbitration clause within a
    contract may be binding on a party even if the party never
    actually read the clause.”]; Madden v. Kaiser Foundation
    Hospitals (1976) 
    17 Cal.3d 699
    , 710 [general rule is one who
    assents to a contract is bound by its provisions and cannot
    complain of unfamiliarity with the language]; 24-Hour Fitness,
    9
    Inc. v. Superior Court (1998) 
    66 Cal.App.4th 1199
    , 1215; 
    ibid.
    [“ ‘ “A party cannot use his own lack of diligence to avoid an
    arbitration agreement.” ’ ”]; Brookwood v. Bank of America (1996)
    
    45 Cal.App.4th 1667
    , 1674 [reasonable diligence requires reading
    of contract before signing].)
    Thus, the arbitration clause is binding, unless plaintiff
    proves a generally applicable contract defense.
    2.      Unconscionability
    Contract defenses that apply to all contracts, including the
    defense of unconscionability, may invalidate arbitration
    agreements without contravening the FAA. Unconscionability
    has both procedural and substantive elements. “The procedural
    element addresses the circumstances of contract negotiation and
    formation, focusing on oppression or surprise due to unequal
    bargaining power. . . . Substantive unconscionability pertains to
    the fairness of an agreement’s actual terms and to assessments of
    whether they are overly harsh or one-sided.” (Pinnacle, supra,
    55 Cal.4th at p. 246, citations omitted.)
    Defendants contend plaintiff did not prove either
    procedural or substantive unconscionability. We disagree, but
    conclude the unconscionable portion of the arbitration clause is
    severable, and the remainder is enforceable.
    “ ‘[C]ontracts of adhesion, although they are indispensable
    facts of modern life that are generally enforced [citation], contain
    a degree of procedural unconscionability even without any
    notable surprises, and “bear within them the clear danger of
    oppression and overreaching.” ’ ” (Baltazar v. Forever 21,
    Inc. (2016) 
    62 Cal.4th 1237
    , 1244 (Baltazar).) The
    acknowledgment form says the provisions of the handbook are
    the nonnegotiable conditions of plaintiff’s employment. In
    addition, in the acknowledgment, plaintiff said he understood
    “the Company has the right to amend, modify, rescind, delete,
    10
    supplement or add to the provisions of this Handbook, as it
    deems appropriate from time to time in its sole and absolute
    discretion.” We see no basis for requiring plaintiff to present
    further proof that he could not negotiate the handbook’s
    provisions, or that he had no meaningful choice about its terms.
    Consequently, there is at least some degree of procedural
    unconscionability in the agreement.
    We agree with defendants that failure to provide plaintiff
    with a copy of the JAMS rules does not increase the procedural
    unconscionability of the arbitration agreement. Plaintiff does not
    claim anything was hidden in those rules. (See Baltazar, supra,
    62 Cal.4th at p. 1246 [where the plaintiff’s challenge to the
    enforcement of an arbitration agreement has nothing to do with
    the applicable arbitration rules, the defendant’s failure to attach
    the rules “does not affect our consideration of [the plaintiff’s]
    claims of substantive unconscionability”]; Nguyen v. Applied
    Medical Resources Corp. (2016) 
    4 Cal.App.5th 232
    , 249
    [“following Baltazar, the failure to attach the applicable
    [American Arbitration Association] rules did not increase the
    procedural unconscionability of the . . . arbitration provision”].)
    That brings us to the substantive unconscionability
    element. The arbitration clause requires each party to pay a pro
    rata share of the arbitrator’s fees and costs. But an employer
    that seeks to compel arbitration of an employee’s FEHA claims
    cannot require the employee to pay fees and costs greater than
    the amount to file a claim in court. (Armendariz v. Foundation
    Health Psychcare Services, Inc. (2000) 
    24 Cal.4th 83
    , 112
    (Armendariz) [“We do not believe the FEHA contemplates that
    employees may be compelled to resolve their antidiscrimination
    claims in a forum in which they must pay for what is the
    equivalent of the judge’s time and the rental of the courtroom.”];
    cf. Torrecillas v. Fitness International, LLC (2020) 
    52 Cal.App.5th 11
    485, 500 [requiring employee to pay costs equivalent to the costs
    an employee would have to pay in court complies with
    Armendariz].)
    The arbitration clause also provides the arbitrator shall
    award attorney fees to the prevailing party. But a prevailing
    defendant in a FEHA case may only recover attorney fees when
    the plaintiff’s action was frivolous, unreasonable or groundless.
    (Chavez v. City of Los Angeles (2010) 
    47 Cal.4th 970
    , 985; see also
    Gov. Code, § 12965, subd. (b).) The attorney fees provision here
    violates Armendariz because it permits prevailing defendants to
    recover attorney fees even if plaintiff’s action was not frivolous,
    unreasonable or groundless. (See Serpa v. California Surety
    Investigations, Inc. (2013) 
    215 Cal.App.4th 695
    , 709-710 (Serpa)
    [requiring each party to bear their own attorney fees was
    unenforceable because it would deprive the employee of an
    unwaivable statutory remedy available if she prevailed on her
    FEHA claim]; Serafin v. Balco Properties Ltd., LLC (2015)
    
    235 Cal.App.4th 165
    , 183 (Serafin) [same; “[s]uch a modification
    of California law is inappropriate under Armendariz”].)
    3.     Severance
    Plaintiff has not shown that unconscionability so permeates
    the arbitration clause that the arbitrator’s fees and costs and the
    attorney fees provisions cannot be severed, leaving a fully mutual
    and enforceable arbitration agreement. This is not a case where
    we must reform the contract by augmenting it or otherwise
    rewriting the parties’ agreement, which of course we cannot do.
    Other courts have severed such provisions and enforced the
    rest of the arbitration agreement. (See, e.g., Serafin, supra,
    235 Cal.App.4th at p. 184 [severing provisions requiring both
    parties to bear their own attorney fees and costs and enforcing
    balance of arbitration agreement]; Serpa, supra, 215 Cal.App.4th
    at p. 710 [attorney fees provision severed as it is “plainly
    12
    collateral to the main purpose of the contract,” and remainder of
    arbitration agreement enforced]; Gutierrez v. Autowest,
    Inc. (2003) 
    114 Cal.App.4th 77
    , 92 [reversing denial of petition to
    compel arbitration and remanding with instructions to consider
    severing arbitration costs provision and enforcing the balance of
    the agreement; the central purpose of the arbitration agreement
    “was not to regulate costs, but to provide a mechanism to resolve
    disputes [and] [b]ecause the costs provision is collateral to that
    purpose, severance was available’’ (citation omitted)].)
    DISPOSITION
    The order denying defendants’ motion to compel arbitration
    is reversed. On remand, the trial court is directed to sever the
    offending provisions concerning arbitration fees and costs and
    attorney fees from the agreement and otherwise grant the motion
    to compel arbitration. Defendants shall recover costs of appeal.
    GRIMES, J.
    WE CONCUR:
    BIGELOW, P. J.
    WILEY, J.
    13