STREETER, J. —
Plaintiffs Bernadette Tanguilig and Juan Carlos Pinela brought this putative class action against their former employer, Neiman Marcus Group, Inc. (NMG), alleging violations of the Labor Code, and NMG moved to compel arbitration. The trial court initially ordered arbitration of all of Pinela's claims except his claim under the Labor Code Private Attorneys General Act of 2004 (PAGA) (Lab. Code, § 2698 et seq.), but later reconsidered its order and denied the motion, concluding the arbitration agreement at issue is illusory. On appeal, NMG argues (1) the court lacked jurisdiction to reconsider its initial order, (2) an arbitrator, rather than a court, must determine any challenges to the enforceability of the arbitration agreement, and (3) the arbitration agreement is enforceable and encompasses all of Pinela's claims, including his PAGA claim. Finding no merit to these arguments, we affirm.
NMG is a luxury-brand fashion retailer headquartered in Texas with stores across the United States. Tanguilig originally sued NMG in August 2007. The
In August 2011, after plaintiffs moved for class certification, NMG — prompted, it says, by the United States Supreme Court's then recent decision in AT&T Mobility LLC v. Concepcion (2011) 563 U.S. [179 L.Ed.2d 742, 131 S.Ct. 1740, 1748] (Concepcion) — moved to compel arbitration of Pinela's claims under NMG's mandatory arbitration program for employment-related disputes. In support of its motion, NMG submitted evidence that, at the time of Pinela's employment (November 2007 through November 2009), it distributed to each new employee a copy of its "Mandatory Arbitration Agreement," brochures explaining the arbitration program, and an employee handbook that included a brief description of the program (collectively, the NMG Arbitration Agreement or the Agreement). Under the NMG Arbitration Agreement, any employee working for NMG after July 15, 2007, is deemed to have consented to the terms of the Agreement.
Included within the scope of the Agreement are "any and all complaints, disputes, or legal claims that [Pinela or NMG] may have against the other, arising out of or connected in any way" with Pinela's employment, including claims for "[v]iolations of any ... state ... statute, ordinance, regulation, or public policy relating to ... meal or rest breaks, ... minimum wage and overtime pay, ... or payment at termination." The Agreement prohibits the arbitrator from "consolidat[ing] claims of different employees into one (1) proceeding" or from "consider[ing], certify[ing], or hear[ing] an arbitration as a class action." During the orientation process for all new employees, NMG
On November 22, 2011, the trial court issued an order granting NMG's motion in part. The court found that the NMG Arbitration Agreement did "not clearly and unmistakably designate the question of arbitrability to an arbitrator," but ruled that the Agreement is enforceable and that "[t]he scope of the ... Agreement is broad enough to cover all of ... Pinela's claims in this case with the exception of [his] claim under [PAGA], which is not subject to arbitration...." "All other questions on arbitration," the court ruled, "including the `impact, if any, of the California Supreme Court's decisions in Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83 [99 Cal.Rptr.2d 745, 6 P.3d 669] and Gentry v. Superior Court (2007) 42 Cal.4th [443] [64 Cal.Rptr.3d 773, 165 P.3d 556] abrogated as stated in Iskanian v. CLS Transportation Los Angeles, LLC (2014) 59 Cal.4th 348, 360, 366] [173 Cal.Rptr.3d 289, 327 P.3d 129], are for the arbitrator to decide." Pinela sought writ relief (Tanguilig v. Superior Court (January 19, 2012, A134027)), which this court denied in January 2012 on the ground he has "an adequate remedy at law by appeal after a judgment confirming any arbitration award."
In a joint case management conference statement filed with the trial court following our order denying the writ petition, plaintiff's counsel reported that Pinela had submitted a formal demand for arbitration before the American Arbitration Association (AAA), but that, as of February 2012, the parties had "not yet selected an arbitrator ... and arbitration proceedings [had] not yet begun." Given the nascent state of the arbitration proceedings, plaintiff's counsel suggested the court might wish to reconsider its arbitration order in light of the February 16, 2012 decision in Ajamian v. CantorCO2e, L.P. (2012) 203 Cal.App.4th 771 [137 Cal.Rptr.3d 773] (Ajamian). In a March 2012 order, the court, "on its own motion and exercising its inherent authority,"
Initially, no one questioned whether the trial court had jurisdiction to reconsider or modify its order granting NMG's motion to compel arbitration. All parties were in favor of it, for different reasons. Pinela and Tanguilig wanted another shot at convincing the court to deny the motion outright. And NMG, facing an effort by Pinela to convince the AAA to permit him to proceed on a class basis under Gentry, an issue that the trial court's ruling compelling arbitration left open for consideration by the arbitrator, wanted a definitive order that foreclosed any possibility of class arbitration in light of Concepcion. In fact, NMG affirmatively took the position that the trial court had jurisdiction to reconsider. After the briefing relating to reconsideration was underway, however, NMG took a different tack and argued the trial court lacked jurisdiction to reconsider its order.
Reconsideration proceedings eventually expanded to cover a number of issues, including the effect of the April 17, 2012 decision in Peleg v. Neiman Marcus Group, Inc. (2012) 204 Cal.App.4th 1425 [140 Cal.Rptr.3d 38] (Peleg). In Peleg, Division One of the Second District Court of Appeal held an arbitration agreement identical in form to the agreement at issue in this case was illusory under Texas law (which the appellate court applied pursuant to a choice of law provision) and therefore unenforceable. (Peleg, supra, at pp. 1445, 1448, 1467.) In an order dated November 8, 2012, the trial court
NMG timely appealed.
NMG contends that, once the trial court entered an order compelling arbitration, the court lost jurisdiction to reconsider whether the case belongs in arbitration. We disagree.
The cases relied on by NMG do not establish the court lacked jurisdiction. As NMG notes, courts have held that, when an order compelling arbitration is in place and the trial court has stayed pending litigation while the arbitration is proceeding (see Code Civ. Proc., § 1281.4), the court retains only "vestigial
These and similar cases cited by NMG are inapposite. None of them addresses a claim that a trial court lacks authority to reconsider its own order compelling arbitration. (See Malek, supra, 121 Cal.App.4th at pp. 59-60 [Titan/Value inapposite because it did not involve a motion for reconsideration; trial court had jurisdiction to reconsider its prior ruling compelling arbitration despite "the parties' near completion of arbitration"].) While it is correct as a general matter that the granting of a stay under Code of Civil Procedure section 1281.4 places the proceedings before the trial court in "the twilight zone of abatement" (Brock v. Kaiser Foundation Hospitals (1992) 10 Cal.App.4th 1790, 1796 [13 Cal.Rptr.2d 678]), such a stay does not effect the "ouster of the judicial power vested in the trial court of this state by our Constitution" (id. at p. 1795). Because contractual arbitration "dr[aws] its vitality from the contract" (id. at p. 1806), a trial court has inherent power to revisit the foundational "question of whether the parties are bound by a particular arbitration agreement" (Malek, supra, 121 Cal.App.4th at p. 56), just as it may on its own motion revise any other interim ruling in the action pending before it (Le Francois, supra, 35 Cal.4th at pp. 1096-1097).
After initially sending the vast bulk of this case to an arbitrator while keeping a piece of it — a split procedural result that presented its own complexities — the trial court continued to monitor and remain alert to new legal developments bearing on the correctness of its original decision to compel arbitration. In doing so, the court was responding to suggestions from the parties, pertinent developments in the appellate courts (including writ proceedings in this court, see ante, fn. 3), and its own considerable experience in this rapidly evolving area of law. That is as it should be. As Justice Frankfurter once observed, "[w]isdom too often never comes, and so one ought not to reject it merely because it comes late." (Henslee v. Union Planters
NMG argues an arbitrator, not a court, must determine whether the NMG Arbitration Agreement is enforceable, because the Agreement delegates questions of enforceability to the arbitrator. Section 19 of the Agreement states: "Any dispute concerning this Agreement — the way it was formed, its applicability, meaning, scope, enforceability, or any claim that all or part of this Agreement is void or voidable — is subject to arbitration under this Agreement and shall be determined by the arbitrator."
Under section 2 of the Federal Arbitration Act (FAA; 9 U.S.C. § 1 et seq.) (9 U.S.C. § 2), a "written provision" in any "contract" "involving commerce" "to settle by arbitration a controversy thereafter arising out of such contract" "shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract." (See Armendariz v. Foundation Health Psychcare, supra, 24 Cal.4th at pp. 97-98 (Armendariz); see also Code Civ. Proc., § 1281.) Although threshold questions of arbitrability are ordinarily for courts to decide in the first instance under the FAA (Ajamian, supra, 203 Cal.App.4th at pp. 781-782), the "[p]arties to an arbitration agreement may agree to delegate to the arbitrator, instead of a court, questions regarding the enforceability of the agreement." (Tiri v. Lucky Chances, Inc. (2014) 226 Cal.App.4th 231, 241 [171 Cal.Rptr.3d 621] (Tiri).)
Second, the delegation must not be revocable under state contract defenses to enforcement. (Rent-A-Center, supra, 561 U.S. at p. 68; see Sonic-Calabasas A, Inc. v. Moreno (2013) 57 Cal.4th 1109, 1142-1143 1[63 Cal.Rptr.3d 269, 311 P.3d 184] (Sonic II).) Among these defenses is unconscionability. In California, the common law doctrine of unconscionability was codified in 1979 in Civil Code section 1670.5. (Carboni v. Arrospide (1991) 2 Cal.App.4th 76, 81 [2 Cal.Rptr.2d 845].) The Legislature adopted as generally applicable to all contracts the terms of a Uniform Commercial Code provision governing unconscionability. (Carboni v. Arrospide, supra, 2 Cal.App.4th at p. 81.) Although unconscionability is now codified as a statutory defense, a claim that a contract is unenforceable on this ground remains an equitable matter. (Hartley v. Superior Court (2011) 196 Cal.App.4th 1249, 1257 [127 Cal.Rptr.3d 174].) "`"That equity does not enforce unconscionable bargains is too well established to require elaborate citation."' ... `Under both federal and California law, arbitration agreements are valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the voiding of any contract.'" (Ibid., citations omitted.)
As to the first requirement, the Peleg court determined that, under California law,
Pinela argued in the trial court, and argues on appeal, that both the delegation provision and the Agreement as a whole are unconscionable. The trial court did not address unconscionability in either respect. Because the issue was raised below and is properly before us, and because the underlying facts are undisputed, we will decide the legal question of unconscionability here, in the first instance. (Higgins v. Superior Court (2006) 140 Cal.App.4th 1238, 1251 [45 Cal.Rptr.3d 293].) With no facts in dispute, our review is de novo. (Serafin v. Balco Properties Ltd., LLC (2015) 235 Cal.App.4th 165, 178 [185 Cal.Rptr.3d 151] (Serafin).)
Moving a step deeper into the analysis, "`"[u]nconscionability has both a `procedural' and a `substantive' element," the former focusing on "`oppression'" or "`surprise'" due to unequal bargaining power, the latter on "`overly harsh'" or "`one-sided'" results. [Citation.]'" (Tiri, supra, 226 Cal.App.4th at p. 243; accord, Serafin, supra, 235 Cal.App.4th at p. 177.) "`"The prevailing view is that [procedural and substantive unconscionability] must both be present in order for a court to exercise its discretion to refuse to enforce a contract or clause under the doctrine of unconscionability." [Citation.]'" (Tiri, supra, 226 Cal.App.4th at pp. 243-244.) "Both, however, need not be present to the same degree. A sliding scale is applied so that `"`the more substantively oppressive the contract term, the less evidence of procedural unconscionability is required to come to the conclusion that the term is unenforceable, and vice versa.'"'" (Serafin, supra, 235 Cal.App.4th at p. 178.) "The party opposing arbitration has the burden of proving unconscionability." (Tiri, supra, 226 Cal.App.4th at p. 244.)
"[The Supreme Court] explained [in Rent-A-Center] that any claim of unconscionability must be specific to the delegation clause. ([Rent-A-Center, supra, 561 U.S. at p. 73].)" (Tiri, supra, 226 Cal.App.4th at p. 244.) The plaintiff in Rent-A-Center failed to direct his claim of unconscionability specifically to the delegation clause, and thus delegation of the issue to the arbitrator was upheld in that case. (Rent-A-Center, supra, 561 U.S. at p. 73.) To illustrate how such a claim might be made, however, the court explained that the employee's contention that discovery limitations in arbitration were substantively unconscionable would have had to be specifically directed at the delegation clause. "In the court's words, the employee `would have had to argue that the limitation upon the number of depositions causes the arbitration of his claim that the Agreement is unenforceable to be unconscionable.' [(Rent-A-Center, supra, 561 U.S. at p. 74.)] The court acknowledged that this `would be, of course, a much more difficult argument to sustain than the argument that the same limitation renders arbitration of [the employee's] factbound employment-discrimination claim unconscionable.' (Ibid.)" (Tiri, supra, 226 Cal.App.4th at p. 244.)
The procedural element of unconscionability, as noted above, focuses on two factors: oppression and surprise. "Oppression arises from an inequality of bargaining power which results in no real negotiation and an absence of meaningful choice." (Serafin, supra, 235 Cal.App.4th at p. 177.) "`"`"Surprise" involves the extent to which the supposedly agreed-upon terms of the bargain are hidden in the prolix printed form drafted by the party seeking to enforce the disputed terms.'"'" (Tiri, supra, 226 Cal.App.4th at p. 245.) For the same reasons that we conclude the delegation clause is part of a contract of adhesion, we conclude it is procedurally unconscionable.
The delegation clause was presented along with the rest of the Agreement on a take-it-or-leave-it basis. (Ajamian, supra, 203 Cal.App.4th at p. 794, fn. 11 [arbitration provision procedurally unconscionable where presented on take-it-or-leave-it basis].) Courts have recognized that "the issue of delegating arbitrability questions to an arbitrator is a `rather arcane' issue upon which parties likely do not focus." (Tiri, supra, 226 Cal.App.4th at p. 246.) Here, section 16 of the NMG Arbitration Agreement, the choice of law clause, further complicates this issue, making it even less likely that an unsophisticated layperson like Pinela would understand how arbitrability questions are to be resolved under the Agreement.
Section 16 of the Agreement states: "This Agreement shall be construed, governed by, and enforced in accordance with the laws of the State of Texas (except where specifically stated otherwise herein), except that for claims or defenses arising under federal law, the arbitrator shall follow the substantive law as set forth by the United States Supreme Court and the United States Court of Appeals for the Fifth Circuit. The arbitrator does not have the authority to enlarge, add to, subtract from, disregard, or ... otherwise alter
While this is not a case involving fraud or sharp practices, we conclude there is more than the minimum degree of procedural unconscionability that is always present with an adhesive contract. Grasping the import and meaning of this particular delegation clause would have been beyond the ken of most anyone in these rushed circumstances. Without going to the expense of hiring a lawyer — not just any lawyer, but a Texas lawyer skilled in the intricacies of arbitrability, with the choice of law overlay presented here — and then having sufficient time to seek and obtain legal advice from that lawyer, Pinela was not in a position to make an informed assessment of the consequences of agreeing to delegate all questions concerning the "applicability, meaning, scope [or] enforceability" of the Agreement to the arbitrator. Although the delegation clause was not hidden from him, it might as well have been.
We are not the first court to recognize that obscure, difficult to comprehend choice of law clauses may serve as traps for the unwary in mandatory arbitration agreements. In Mastrobuono v. Shearson Lehman Hutton, Inc. (1995) 514 U.S. 52, 54 [131 L.Ed.2d 76, 115 S.Ct. 1212] (Mastrobuono), for example, Antonio Mastrobuono pressed an arbitration claim against Shearson, his securities broker-dealer, and won an arbitration award that included punitive damages. Invoking a New York choice of law clause in its standard form customer arbitration agreement, Shearson sought to vacate the punitive damages element of the award on the ground that New York law does not permit punitive damages in arbitration. (id. at pp. 54-55.) Because Mastrobuono had a right to seek punitive damages under the FAA, the United States Supreme Court upheld the award in its entirety. (514 U.S. at pp. 55, 58, 61, 64.)
The Supreme Court refused to permit contractual displacement of Mastrobuono's right to punitive damages under a choice of law clause he likely never saw and would not have understood even if he had seen it. The
Turning to substantive unconscionability, we look first to our recent decision in Tiri, where we explained that, in light of the United States Supreme Court's decisions in Rent-A-Center, supra, 561 U.S. at pages 73-74 (which held delegation clauses are valid absent a challenge specific to the delegation) and Concepcion, supra, 131 S.Ct. at page 1748 (which held courts may not issue categorical rulings that interfere with fundamental aspects of arbitration), "clear delegation clauses in employment arbitration agreements are substantively unconscionable only if they impose unfair or one-sided burdens that are different from the clauses' inherent features and consequences." (Tiri, supra, 226 Cal.App.4th at p. 249; see id. at pp. 249-250.) Mindful of the requisite need to focus specifically on delegation, we declined in Tiri to follow prior decisions from this district holding that delegation clauses were unfair (and therefore substantively unconscionable) because (1) employees are more likely to bring enforcement challenges, and (2) arbitrators "could be invested in the outcome" of a challenge to the enforceability of an arbitration agreement. (id. at pp. 248-250 [declining to follow Ontiveros v. DHL Express (USA), Inc. (2008) 164 Cal.App.4th 494 [79 Cal.Rptr.3d 471] (Ontiveros) and Murphy, supra, 156 Cal.App.4th 138 on this point]; see Malone v. Superior Court (2014) 226 Cal.App.4th 1551, 1563, fn. 9 [173 Cal.Rptr.3d 241] [concluding Ontiveros and Murphy have been undermined by more recent authority].) Citing some of the same cases
Pinela does, however, make a more particularized substantive unconscionability challenge to the delegation clause that meets the standard we described in Tiri, i.e., such a clause may be found substantively unconscionable where it imposes an unfair burden that is different from the inherent features and consequences of delegation clauses. (See Tiri, supra, 226 Cal.App.4th at p. 249.) Specifically, Pinela points out, because of the Texas choice of law provision, an arbitrator addressing Pinela's argument that the Agreement as a whole is unconscionable would not have the authority to apply California unconscionability standards in making that determination. From this premise, Pinela argues the Texas choice of law provision — as applied under section 19 of the Agreement, the delegation provision — renders section 19 unconscionable because it unfairly restricts the legal arguments that he can make if he is required to arbitrate his claim that the NMG Arbitration Agreement is unconscionable.
This claim differs from the challenges to delegation discussed in Rent-A-Center and Tiri. (See Rent-A-Center, supra, 561 U.S. at p. 74 [employee did not argue that limitations on discovery, as applied to delegation provision, rendered that provision unconscionable]; Tiri, supra, 226 Cal.App.4th at p. 248 [employee did not "assert and demonstrate that the confidentiality clause as applied to the delegation clause renders that clause unconscionable by impeding her ability to arbitrate whether the arbitration agreement as a whole is unconscionable"].) We conclude it has merit. As noted, section 16 of the NMG Arbitration Agreement (the choice of law provision) requires application of Texas law (or, in some instances, Fifth Circuit law), and specifies: "The arbitrator does not have the authority to enlarge, add to, subtract from, disregard, or ... otherwise alter the parties' rights under such laws, except to the extent set forth herein." (Italics added.) While section 19 provides the arbitrator will determine a challenge to the enforceability of the Agreement brought by a California employee of NMG (such as Pinela), section 16 prohibits the arbitrator from applying California unconscionability standards in making that determination.
In support of this holding, the Samaniego court relied on the California Supreme Court's decision in Washington Mutual Bank v. Superior Court (2001) 24 Cal.4th 906 [103 Cal.Rptr.2d 320, 15 P.3d 1071] (Washington Mutual), stating: "[In Washington Mutual], the Supreme Court explained that `[u]nder [Nedlloyd Lines B.V. v. Superior Court (1992) 3 Cal.4th 459 [11 Cal.Rptr.2d 330, 834 P.2d 1148]], ... the weaker party to an adhesion contract may seek to avoid enforcement of a choice-of-law provision therein by establishing that "substantial injustice" would result from its enforcement [citation] or that superior power was unfairly used in imposing the contract [citation] [indicating that evidence of unfair use of bargaining power may defeat enforcement of a forum-selection clause contained in an adhesion contract].' ([Washington Mutual, supra, 24 Cal.4th] at pp. 917-918, fn. omitted.) ... "... Choice-of-law provisions contained in [adhesion] contracts are usually respected. Nevertheless, the forum will scrutinize such contracts with care and will refuse to apply any choice-of-law provision they may contain if to do so would result in substantial injustice to the adherent."' ([Washington Mutual, supra,] at p. 918, fn. 6, quoting Rest.2d Conflict of Laws, § 187, com. b, p. 562.)" (Samaniego, supra, 205 Cal.App.4th at p. 1148.) Under these principles, the court explained, "the same factors that render the arbitration provision unconscionable warrant the application of California law.... [T]o the extent Illinois law might require enforcement of its arbitration clause, enforcing [the employer's] choice-of-law provision would result in substantial injustice. The trial court correctly declined to apply it." (Samaniego, supra, 205 Cal.App.4th at p. 1149, fn. omitted; see Harris v. Bingham McCutchen LLP (2013) 214 Cal.App.4th 1399, 1404 [154 Cal.Rptr.3d 843] (Harris) ["As noted in Samaniego, in California the weaker
We find the analysis in Samaniego persuasive and apply it here. We have concluded the NMG Arbitration Agreement is a contract of adhesion and is procedurally unconscionable. Because of the choice of law clause in the NMG Arbitration Agreement, an arbitrator acting pursuant to the delegation clause could not (1) apply California law to determine whether the Agreement is unconscionable, or even (2) limit the application of the choice of law provision to the extent necessary to prevent substantial injustice, as California law would require. (See Samaniego, supra, 205 Cal.App.4th at pp. 1148-1149; Harris, supra, 214 Cal.App.4th at p. 1404; see also Ajamian, supra, 203 Cal.App.4th at p. 794, fn. 11 [delegation of enforceability questions was substantively unconscionable because "in order to obtain relief from having to present her claims to a three-arbitrator panel in New York under New York law, the [arbitration] provision would require [the plaintiff] to present her argument to that very three-arbitrator panel in New York under New York law"].) Instead, section 16 of the Agreement states the arbitrator would not have authority to alter the rights the parties have under Texas law. The elimination of Pinela's ability to contend that the NMG Arbitration Agreement as a whole is unconscionable under California law renders the delegation clause substantively unconscionable.
In addition to Samaniego, Hall v. Superior Court (1983) 150 Cal.App.3d 411, 416-417 [197 Cal.Rptr. 757] (Hall) is instructive. Hall, a securities case, arose in a situation where two California investors exchanged their interests in an oil and gas limited partnership in return for stock in one of their co-investors, Imperial Petroleum, a Utah corporation. (Id. at p. 414.) The contract memorializing their exchange agreement contained both forum selection and choice of law provisions identifying Nevada as the selected forum and governing law. (Ibid.) When the two investors later sued Imperial in California on a securities fraud claim under California's Corporate Securities Law, of 1968 (Corp. Code, § 25000 et seq.), Imperial invoked the forum selection clause. (150 Cal.App.3d at pp. 414-415.) The trial court found the clause to be enforceable and stayed the action, forcing the plaintiffs to repair to Nevada. (Id. at p. 415.) In reversing, the Court of Appeal analyzed the interaction of both clauses, noting that their enforceability was "inextricably bound up" with one another. (Id. at p. 416.)
The reason for considering the forum selection and choice of law provisions together in Hall was that a Nevada court's application of Nevada law pursuant to the choice of law clause would deprive the investor plaintiffs of the protection of California securities laws. (Hall, supra, 150 Cal.App.3d at
Accordingly, because of the particular burdens imposed on Pinela by sections 16 and 19 of the Agreement, burdens that are not an inherent feature
Having found the delegation clause to be unenforceable, we proceed to consider the enforceability of the NMG Arbitration Agreement as a whole. On reconsideration, the trial court, relying on Peleg, found the Agreement as a whole to be illusory and therefore unenforceable because section 21 permits NMG to modify its terms unilaterally upon 30 days' notice. We agree that the NMG Arbitration Agreement is unenforceable, but we reach that conclusion because it is unconscionable, not because it is illusory. Because we have already found procedural unconscionability, the enforceability of the Agreement as a whole rises or falls largely on an analysis of substantive unconscionability. We therefore begin with that issue and focus most of our attention on it, applying California law, as we did in our delegation-specific analysis of unconscionability.
As we recently explained in Serafin, "`[s]ubstantive unconscionability... typically is found in the employment context when the arbitration agreement is "one-sided" in favor of the employer without sufficient justification, for example, when "the employee's claims against the employer, but not the employer's claims against the employee, are subject to arbitration."'" (Serafin, supra, 235 Cal.App.4th at pp. 177-178.) "Additionally, `[t]o be valid, at minimum the arbitration agreement must require a neutral arbitrator, sufficient discovery, and a written decision adequate enough to allow judicial review. Further, it must include all remedies available in a judicial action and the employee may not be required to pay unreasonable costs or fees. [Citation.] Elimination of or interference with any of these ... provisions makes an arbitration agreement substantively unconscionable.' (Wherry v. Award, Inc. (2011) 192 Cal.App.4th 1242, 1248 [123 Cal.Rptr.3d 1], citing [Armendariz, supra, 24 Cal.4th at p. 102].)" (Serafin, supra, 235 Cal.App.4th at p. 178.)
Applying this test here, we see multiple unconscionable aspects to the NMG Arbitration Agreement. Pinela attacks seven distinct provisions of the Agreement as substantively unconscionable, and of these we focus primarily on three.
The issue here is not whether the absence of certain procedural rights in arbitration (such as a bar on class proceedings or limited discovery) raises questions about whether statutory claims under California law may be pursued effectively in an arbitral forum. Texas extends statutory wage-and-hour protections to employees for at least some of the violations alleged here, but it does not recognize a private cause of action for enforcement of any of them. (See Abatement Inc. v. Williams (Tex.App. 2010) 324 S.W.3d 858, 863-865 (Abatement); Tex Lab. Code Ann. §§ 61.011-61.020.) California does permit private enforcement of the Labor Code provisions identified in the TAC (see Lab. Code, §§ 203, 218, 226, subd. (e)(1), 226.7, subd. (c), 1194, subd. (a), 2699, subd. (a)), but section 16 of the Agreement amounts to an advance waiver of rights under those very statutes. By contractual choice of law, therefore, the substantive basis for Pinela's statutory claims has been eliminated, thus blocking him from pursuing his claims at all, not merely burdening their pursuit in arbitration.
We are not persuaded by NMG's argument that section 14.a of the Agreement is valid because it includes a saving clause allowing the arbitrator to enforce a longer limitations period if the arbitrator determines that applying the shorter private limitations period specified in the Agreement "would be illegal or unconscionable under applicable law." We have concluded above that the Agreement's delegation of unconscionability questions to the arbitrator is itself unconscionable. Moreover, despite the general statement that the arbitrator may determine whether a shortened private limitations period is invalid "under applicable law," the arbitrator's authority to enforce California law limiting the waiver of particular limitations periods is uncertain in light of the directive in section 16 of the Agreement that the arbitrator is to apply Texas law and lacks authority to alter the rights the parties have under Texas law.
In Serafin, we recently addressed this very issue, noting that a provision in an arbitration agreement requiring both parties to bear their own attorney fees and costs was substantively unconscionable (but severable in the circumstances of that case) because it "runs counter to [the California Fair Employment and Housing Act (FEHA; Gov.Code, § 12900 et seq.)] which allows a successful plaintiff to recover attorney fees and costs from the employer (but does not similarly allow an employer to recover fees and costs from an employee in most cases)." (Serafin, supra, 235 Cal.App.4th at p. 183.) We stated: "Such a modification of California law is inappropriate under Armendariz as it has the effect of denying a plaintiff the rights and remedies he or she would have if he or she were litigating his or her claims in court." (Serafin, supra, 235 Cal.App.4th at p. 183.) As NMG noted in the trial court, section 11 of the Agreement authorizes an award of arbitration costs or attorney fees "to the extent such an award is permitted by applicable law." But, again, the arbitrator's authority to apply the limitations outlined above (California law's limitations on the imposition of fees and costs) is questionable in light of section 16 of the Agreement.
It is illuminating to compare the contract at issue in this case to the one we recently analyzed for unconscionability in Serafin, supra, 235 Cal.App.4th 165. There, because the plaintiff showed a minimal degree of procedural unconscionability arising from the adhesive nature of the arbitration agreement at issue, under the sliding-scale approach she had the burden of making a strong showing of substantive unconscionability. (Id. at pp. 180-181, 185.) She was unable to demonstrate any one-sidedness or lack of mutuality. (Id. at p. 182.) And she pointed to only one clause that we found to be substantively unconscionable, a provision apportioning attorney fees and costs. (Id. at pp. 183-184.) After determining the fees and costs apportionment provision to be severable (id. at pp. 183-184), we found that no substantive unconscionability remained and affirmed the trial court's order compelling arbitration (id. at p. 185).
We complete our unconscionability analysis by returning briefly to the issue of choice of law, which in many ways lies at the heart of this case. We have applied California law under Samaniego and Hall at both steps of the analysis, initially with respect to the delegation clause, and then again with respect to the Agreement as a whole. But in light of the broadened scope of our evaluation at the second step of the unconscionability analysis, and in particular given our conclusion that the NMG Arbitration Agreement actually strips Pinela of statutory protections of California law on multiple levels — not merely that it has the potential to do so — we emphasize that we would reach the same conclusion, and we do reach the same conclusion, under a full Nedlloyd analysis.
There is no question that the chosen state, Texas, has a substantial relationship to the parties. NMG, although a Delaware corporation, is headquartered in Texas. Nor can there be any real doubt that this case presents a conflict between California and Texas law. There is no legal basis in Texas law for the claims pleaded in the TAC. (See Abatement, supra, 324 S.W.3d at pp. 863-865.)
The order denying NMG's petition to compel arbitration is affirmed. Pinela shall recover his costs on appeal.
Reardon, Acting P.J., and Rivera, J., concurred.