Filed 7/31/24 Lodes v. Transmodus Corp. CA2/6

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions 

not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion 

has not been certified for publication or ordered published for purposes of rule 8.1115. 

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

SECOND APPELLATE DISTRICT

DIVISION SIX

WILLIAM LODES,

 Plaintiff and Respondent,

v.

TRANSMODUS 

CORPORATION et al.,

 Defendants and Appellants.

2d Civ. No. B332111

(Super. Ct. No. 

2023CUWT011076)

(Ventura County)

The trial court denied an employer’s motion to compel 

arbitration, finding that the arbitration provisions in an

employment contract were both procedurally and substantively 

unconscionable. We affirm.

FACTS

Transmodus Corporation (Transmodus) hired William 

Lodes as its chief revenue officer in July 2020. At the time Lodes 

was hired, the parties executed an Executive Employment

Agreement (Agreement) relating to Lodes’s employment. The 

Agreement contained an arbitration provision as follows: 
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Section 6 prohibits Lodes from disclosing confidential 

information concerning Transmodus.

Section 7 prohibits Lodes from directly or indirectly 

competing with Transmodus.

Section 9 requires Lodes to return all confidential 

information as well as other property to Transmodus on 

termination of employment.

Section 10 provides: “[Lodes] and [Transmodus] agree that 

any breach or evasion of the terms of Sections 6, 7, and 9 of this 

Agreement will result in immediate and irreparable harm to

[Transmodus]. Therefore, in the event of any controversy 

concerning the rights or obligations of the parties under Sections 

6, 7, or 9 of this Agreement, [Transmodus] shall be entitled to 

obtain an injunction and/or specific performance as well as any 

other legal or equitable remedy necessary in order to compel 

compliance with Sections 6, 7 and 9 hereof. Such remedies, 

however, shall be cumulative and nonexclusive and shall be in 

addition to any other remedy or remedies to which [Transmodus]

may be entitled.”

Section 13.1 provides: “To the fullest extent permitted by 

the law, all disputes between [Lodes]; (and his successors and 

assigns) and [Transmodus] (and its officers, directors, employers, 

agents, successors, affiliates and assigns) relating in any manner 

whatsoever to the employment or termination of [Lodes], 

including, without limitation, all disputes arising out of or related 

to this Agreement (the ‘Arbitrable Claims’), shall be resolved by 

final and binding arbitration. All persons and entities specified 

in the preceding sentence (other than [Transmodus] and [Lodes])

shall be considered third-party beneficiaries of the rights and 

obligations created by this Section on Arbitration. Arbitrable 
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Claims shall include, but are not limited to, contract (express or 

implied) and tort claims of all kinds, as well as all claims based 

on any federal, state, or local law, statute, or regulation, 

excepting only claims under applicable workers’ compensation

law and unemployment insurance claims. By way of example

and not in limitation of the foregoing, Arbitrable Claims, shall 

include (to the fullest extent permitted by law) any claims arising 

under Title VII of the Civil Rights Act of 1964, the Age 

Discrimination in Employment Act, the Americans with 

Disabilities Act and the California Fair Employment and 

Housing Act (and any similar state or local civil rights law), as 

well as any claims asserting wrongful termination harassment, 

breach of contract, breach of the covenant of good faith and fair 

dealing, negligent or intentional infliction emotional distress, 

negligent or intentional misrepresentation, negligent or 

intentional interference with contract or prospective economic

advantage, defamation, invasion of privacy, and claims related to 

disability.”

Section 13.2 provides in part: “Arbitration of Arbitrable 

Claims shall be in accordance with the National Rules for the 

Resolution of Employment Disputes of the American Arbitration 

Association, as amended (‘AAA Employment Rules’), as 

augmented in this Agreement . . . . Either party may bring an 

action in court to compel arbitration under this Agreement and to 

enforce an arbitration award. Otherwise, neither party shall 

initiate or prosecute any lawsuit or administrative action in any 

way related to any Arbitrable Claim. Notwithstanding the 

foregoing, either party may, at its option, seek injunctive relief to 

enforce Sections 6, 7, and 9 of this Agreement. All arbitration 

hearings under this Agreement shall be conducted in Ventura 
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County, California. The parties hereby waive any rights they 

may have to trial by jury in regard to any right to trial by jury as 

to the making, existence, validity, or enforceability of this 

Agreement to arbitrate.” (Some capitalization omitted.)

Section 13.4 of the Agreement provides in part: “All 

proceedings and all documents prepared in connection with any 

Arbitrable Claim shall be confidential and, unless otherwise 

required by law, the subject matter thereof shall not be disclosed 

to any person other than the parties to the proceedings, their 

counsel, witnesses and experts, the arbitrator, and, if involved, 

the court and court staff. All documents filed with the arbitrator 

or with a court shall be filed under seal. The parties shall 

stipulate to all arbitration and court orders necessary to 

effectuate fully the provisions of this subsection concerning 

confidentiality.”

Lodes Sues After Being Terminated

Transmodus terminated Lodes’s employment in December 

2022. Lodes filed a complaint in superior court against 

Transmodus and its chief executive officer, Robert McShirley 

(collectively hereafter Transmodus). The complaint alleged 

causes of action for unlawful retaliation, wrongful termination,

failure to pay wages, failure to indemnify for necessary business 

expenses, waiting time penalties, breach of contract, and 

fraudulent inducement. It is undisputed that all the causes of 

action relate to Lodes’s employment.

Transmodus responded with a motion to compel 

arbitration. Lodes opposed the motion on the ground that the 

Agreement was unconscionable. In opposition, Lodes declared

that: 1) no one reviewed or discussed the Agreement with him,

told him the Agreement was voluntary, or that its terms were 
5

negotiable; 2) the Agreement was a condition of employment; 3) 

he had no part in drafting the Agreement; 4) McShirley told him 

that the Agreement fully complied with California law; 5) no one

told him he was giving up his right to pursue administrative 

remedies with state agencies; and 6) no one provided him with 

the AAA Rules for the resolution of employment disputes or 

directed him to where he could find the rules.

Ruling

The trial court stated as follows: “The Court . . . finds that 

the arbitration provision in Section 13 of the [Agreement] is 

moderately procedurally unconscionable, on the grounds that (a) 

the Agreement is a contract of adhesion and [Lodes] was given no 

opportunity to negotiate the terms of the arbitration provision 

therein; (b) there was some oppression accompanying the 

execution of the Agreement, in that the arbitration provision 

therein is relatively long and complex, it was not explained to 

him, and [Lodes] was required to execute the Agreement as a 

condition of his employment; and (c) there was a modest amount 

of surprise associated with the arbitration provision, in that 

given the length and complexity of the arbitration provision, its 

interaction with other Sections of the Agreement, there appears 

to be a reasonable doubt that [Lodes’s] consent to these terms 

was fully informed.”

The trial court found that the Agreement was substantively

unconscionable as follows: “The Court further finds that the 

Agreement and the arbitration provision therein are permeated 

with multiple substantively unconscionable provisions, including 

(a) the ‘injunctive relief’ carve-out in Section 13.2 of the 

Agreement which, particularly when considered in conjunction 

with the stipulations in Section 10, is highly favorable to 
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Transmodus and evidences a lack of mutuality; (b) the waiver of

[Lodes’s] right to initiate administrative proceedings in Section 

13.2, which deprives [Lodes] of statutory rights under the Fair 

Employment [and] Housing Act and to a Berman hearing[1] before 

the Labor Commissioner; (c) the waiver of the right to a jury trial 

for non-arbitrable claims in Section 13.2, which is contrary to 

California law; and (d) the overbroad confidentiality provision in 

Section 13.4, which does not appear to be supported by a 

legitimate business purpose. The Court finds that these 

substantively unconscionable provisions could not be eliminated 

without rewriting/reforming significant provisions in the 

Agreement and based on this finding, declines to sever the 

offensive provisions.”

DISCUSSION

I. Standard of Review

An arbitration agreement, like any other contract, is not 

enforceable if it is found to be unconscionable under the state law 

of contract. (Armendariz v. Foundation Health Psychare Services, 

Inc. (2000) 24 Cal.4th 83, 114) (Armendariz).) Unconscionability 

requires a finding that a contract is both procedurally and 

substantively unconscionable. (OTO, LLC v. Kho (2019) 8 

Cal.5th 111, 125) (OTO).) But procedural and substantive 

unconscionability need not be present in the same degree. (Ibid.) 

Instead, a “sliding scale” is employed: the greater the presence of 

one, the less of the other is needed for a contract to be 

unenforceable. (Ibid.) The parties agree that because the facts 

1 An employee may seek administrative relief by filing a 

wage claim with the Labor Commissioner pursuant to sections 98 

to 98.8 of the Labor Code. Hearings on these claims are 

commonly known as “Berman hearings.”
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are not in dispute, the standard of review is de novo. (Bautista v.

Fantasy Activewear, Inc. (2020) 52 Cal.5th 650, 655.) 

II. Procedural Unconscionability

Procedural unconscionability focuses on the circumstances 

of contract formation, addressing oppression or surprise due to 

unequal bargaining power. (OTO, supra, 8 Cal.5th at p. 125.)

Transmodus does not contest that the Agreement is a 

contract of adhesion. That alone can make it procedurally 

unconscionable. (Armendariz, supra, 24 Cal.4th at p. 115 [in preemployment contracts the economic pressure executed by 

employers may be particularly acute].)

In addition, procedural unconscionability has been found 

where the advantages and disadvantages of arbitration were not 

adequately explained to the employee. (Gentry v. Superior Court

(2007) 42 Cal.4th 443, 470.) Procedural unconscionability has 

also been found where the applicable rules referred to in the 

agreement were not provided to the employee at the time the 

agreement was signed (Trivedi v. Curexo Technology Corp. (2010) 

189 Cal.App.4th 387, 393) and where the agreement contains 

complex sentences, statutory references, and legal jargon. (OTO, 

supra, 8 Cal.5th at p. 128.)

Here in addition to the contract being adhesive, the 

advantages and disadvantages of arbitration were not explained 

to Lodes, the applicable rules of arbitration were not provided to 

him, and the Agreement contained complex sentences and 

unexplained statutory references. The trial court was generous 

to Transmodus in its description of the procedural

unconscionability as “moderate.”
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III. Substantive Unconscionability

Substantive unconscionability concerns the fairness of an 

agreement’s terms and whether the terms are overly harsh or 

one-sided. (OTO, supra, 8 Cal.5th at p. 125.)

(a) Equitable Relief

Here the Agreement exempts from arbitration the right to 

seek injunctive relief to: prevent Lodes from disclosing 

confidential information, prevent Lodes from competing with 

Transmodus, and require information and company property. 

The Agreement places no similar obligations on Transmodus.

In Mercuro v. Superior Court (2002) 96 Cal.App.4th 167, 

the agreement excluded from arbitration: claims for equitable 

relief for intellectual property violations, unfair competition, and 

disclosure of trade secrets. (Id. at p. 176.) The appellate court

concluded that the agreement suffered from substantive 

unconscionability because it excluded from arbitration claims 

most likely to be brought by the employer, and required 

arbitration of claims most likely to be brought by the employee. 

(Ibid.) The Agreement here suffers from the same defect. It 

excludes from arbitration claims most likely to be brought by 

Transmodus while relegating to arbitration claims most likely to 

be brought by Lodes.

Transmodus’s reliance on Baltazar v. Forever 21, Inc. 

(2016) 62 Cal.4th 1237 (Baltazar) is misplaced. In Baltazar, our 

Supreme Court held that an arbitration agreement was not 

substantially unconscionable insofar as it allowed the parties to 

seek a temporary restraining order or a preliminary injunction. 

(Id. at pp. 1247-1248.) The provision did no more than recite the 

procedural protections secured by Code of Civil Procedure section 
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1281.8, subdivision (b) of the California Arbitration Act. (Id. at p. 

1247.)

But here the Agreement did not confine Transmodus to 

seeking in court the provisional remedies of a temporary 

restraining order or preliminary injunction authorized by Code of 

Civil Procedure section 1281.8, subdivision (b). Instead, the 

Agreement gave Transmodus plenary authorization to seek 

equitable relief to protect confidential information, protect 

against competition, and for return of confidential information 

and property. Where, as here, the “carve-out” is not limited to 

provisional remedies, the Agreement is substantively 

unconscionable. (Farrar v. Direct Commerce, Inc. (2017) 9 

Cal.App.5th 1257, 1273.)

Moreover, the Agreement requires Lodes to stipulate to the 

existence of irreparable injury to Transmodus and to consent to 

the issuance of an injunction. Those provisions are also 

substantively unconscionable. (Alberto v. Cambrian Homecare

(2023) 91 Cal.App.5th 482, 492.)

(b) Statutory Rights

An arbitration agreement cannot limit statutorily imposed 

remedies. (Armendariz, supra, 24 Cal.4th at p. 103.) Here the 

Agreement bars Lodes from pursuing any “administrative action 

in any way related to an Arbitrable Claim.” The provision is 

clearly substantively unconscionable. It prevents Lodes from 

seeking relief under, among other administrative provisions, the 

Fair Employment and Housing Act (Gov. Code, § 12900 et seq.) 

and proceedings before the Labor Commissioner (see Lab. Code,

§ 98 et seq.).
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(c) Confidential Arbitration

The Agreement provides in part: “All proceedings and all 

documents prepared in connection with any Arbitrable Claim 

shall remain confidential . . . .”

Transmodus argues it has the right to keep its trade secrets 

confidential. Lodes does not dispute that. But the Agreement 

goes far beyond the confidentiality of trade secrets. The 

Agreement requires the arbitration proceedings themselves to 

remain confidential. 

Such broad confidentiality provisions are unconscionable 

because they prevent an employee from contacting other 

employees to assist in litigating or arbitrating an employee’s 

case. (Ramos v. Superior Court (2018) 28 Cal.App.5th 1042, 

1065-1066; Davis v. O’Melveny & Myers (9th Cir. 2007) 485 F.3d 

1066, 1078-1079).)

Transmodus’s reliance on Baltazar, supra, 62 Cal.4th at 

page 1250 is misplaced. There the confidentiality agreement was 

limited to “trade secrets and proprietary and confidential 

information.” (Ibid.) The Agreement here is not so limited.

(d) Jury Waiver for Non-Arbitrable Claims

The Agreement calls for waiver of a jury trial for nonarbitrable causes of action. Such pre-dispute jury trial waivers 

are unconscionable. (Dougherty v. Roseville Heritage Partners

(2020) 47 Cal.App.5th 93, 107) (Dougherty).)

(e) Severability

Transmodus does not argue that the unconscionable 

provisions can be severed. Severability is usually allowed where 

only one provision is unconscionable. (Dougherty, supra, 47 

Cal.App.5th at p. 107.) Here unconscionability permeates the 
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entire Agreement. In fact, it is difficult to think of a prohibition 

on unconscionability this Agreement does not violate.

DISPOSITION

The judgment (order) is affirmed. Costs are awarded to 

respondent.

NOT TO BE PUBLISHED.

GILBERT, P. J.

We concur:

YEGAN, J.

BALTODANO, J.
Jeffrey G. Bennett, Judge

Superior Court County of Ventura

______________________________

The Wales Law Firm and Michael G. Wales for Defendants 

and Appellants.

Law Offices of Christina M. Coleman and Christina M. 

Coleman for Plaintiff and Respondent.