Date: 08-28-2020

Case Style:

Michael Conyer v. Hula Media Services, LLC

Case Number: B296738

Judge: Grimes, J.

Court: California Court of Appeals Second Appellate District, Division Eight on appeal from the Superior Court, County of Los Angeles

Plaintiff's Attorney: John L. Barber, Jeffry A. Miller, Wendy S. Dowse and Rachel J. Lee

Defendant's Attorney: Lee R. Feldman, Caroline Wolf and Craig T. Byrnes

Description: 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
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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:
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“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 nondepositing 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.”
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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
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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.
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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
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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
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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,
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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,
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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
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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
13
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)].)

Outcome: 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.

Plaintiff's Experts:

Defendant's Experts:

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