Filed 4/26/13

CERTIFIED FOR PUBLICATION

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

SECOND APPELLATE DISTRICT

DIVISION SEVEN

VALERIE SERPA,

Plaintiff and Respondent,

v.

CALIFORNIA SURETY 

INVESTIGATIONS, INC., et al.,

Defendants and Appellants.

 B237363

 (Los Angeles County

 Super. Ct. No. BC464218)

ORDER MODIFYING OPINION

(NO CHANGE IN JUDGMENT)

THE COURT: 

IT IS ORDERED that the citation to Baltazar v. Forever 21, Inc. (2012) 212 

Cal.App.4th 221, 234 in the second full paragraph on page 9 of the opinion be deleted 

and replaced with Zullo v. Superior Court (2011) 197 Cal.App.4th 477, 486.) 

There is no change in the judgment.

______________________________________________________________________

 PERLUSS, P. J. WOODS, J. JACKSON, J.
Filed 3/21/13; pub. order & mod. 4/19/13 (see end of opn.) (unmodified version)

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

SECOND APPELLATE DISTRICT

DIVISION SEVEN

VALERIE SERPA,

Plaintiff and Respondent,

v.

CALIFORNIA SURETY 

INVESTIGATIONS, INC., et al.,

Defendants and Appellants.

 B237363

 (Los Angeles County

 Super. Ct. No. BC464218)

APPEAL from an order of the Superior Court of Los Angeles County, Ruth Ann 

Kwan, Judge. Reversed and remanded with directions.

Paul, Plevin, Sullivan & Connaughton, Fred M. Plevin, Jeffrey P. Ames and 

Matthew R. Jedreski for Defendants and Appellants, California Surety Investigations, 

Inc., Two Jinn, Inc., Aladdin Bail Bonds and Peter Holdsworth.

Stevens, Carlberg & McMillan and Daniel P. Stevens for Plaintiff and Respondent 

Valerie Serpa.

__________________
2

California Surety Investigations (CSI), its employee Peter Holdsworth and CSI‟s 

parent company, Two Jinn, Inc., doing business as Aladdin Bail Bonds (collectively CSI 

parties), appeal from the order denying their motion to compel arbitration of claims 

brought against each of them by Valerie Serpa for sexual harassment, employment 

discrimination, wrongful termination in violation of public policy and related causes of 

action. The CSI parties contend the trial court erred in concluding the arbitration 

agreement Serpa signed was unconscionable and, therefore, unenforceable. We reverse. 

FACTUAL AND PROCEDURAL BACKGROUND

1. Serpa’s Complaint

On June 24, 2011 Serpa filed a complaint in Los Angeles County Superior Court 

alleging claims against the CSI parties under the Fair Employment and Housing Act 

(FEHA) for sexual harassment, gender discrimination, retaliation and failure to prevent 

harassment and discrimination (Gov. Code, § 12940, subds. (a), (h), (j), (i), & (k)). 

Serpa‟s complaint also included claims for violation of the Family Rights Act (Gov. 

Code, § 12945.2) and wrongful termination in violation of public policy. 

2. The CSI Parties’ Motion To Compel Arbitration 

On August 9, 2011 the CSI parties moved to compel arbitration contending Serpa 

had agreed at the inception of her employment as a bail bonds investigator with CSI to 

arbitrate all claims arising out of her employment. The motion was based on three 

documents that were attached as exhibits: (1) “Acknowledgment of Receipt of 

Arbitration and Agreement to Arbitrate” (the arbitration agreement); 

(2) “Acknowledgment of Receipt of Employee Handbook”; and (3) a copy of CSI‟s 

employee handbook. 

a. The arbitration agreement 

The arbitration agreement that Serpa signed provided, “I understand and agree that 

if my employment is terminated or my employment status is otherwise changed or if any 

other dispute arises concerning my employment and The Company and I cannot resolve 

such dispute through informal internal efforts, I will submit any such dispute (including, 
3

but not limited to wage and hour claims, claims of unlawful discrimination based on race, 

sex, age, national origin, disability or any other basis prohibited by law, but excluding 

claims which are required by law to be resolved solely by a public agency, such as claims 

relating to workers‟ compensation or unemployment insurance) exclusively to binding 

arbitration before a retired judge. I further agree to abide by the procedures in The 

Company‟s Arbitration Policy. I have received a copy of the Arbitration Policy that is 

located in the employee handbook.” 

b. The employee handbook arbitration policy

Page three of the employee handbook, under the bold-face-type heading

“Arbitration Agreement,” contains the company‟s arbitration policy: “The Company has 

adopted an arbitration policy, which provides for mandatory arbitration of all disputes 

arising out of any employee‟s employment at the Company, an employee‟s termination of 

employment or other change in employment status, which cannot be resolved by informal 

internal resolution. By accepting or continuing in employment with the Company, every 

employee agrees to the following policy[:]

“If your employment is terminated or your employment status is otherwise 

changed and you believe that your rights were violated or if any other dispute arises 

concerning your employment which you and the Company cannot resolve informally and 

internally, you and the Company agree to submit the dispute (including, but not limited to 

wage and hour claims and, claims of unlawful discrimination based on race, sex, age, 

national origin, disability or any other basis prohibited by law), exclusively to binding 

arbitration before a retired judge. This Arbitration Policy specifically excludes only 

those claims that are required by law to be heard solely by a public agency such as 

worker‟s compensation. . . . [¶] . . . [¶]

“You and the Company shall each bear your own costs for legal representation at 

any such arbitration. The Company will be responsible for all costs associated with the 

arbitration (with the exception of legal representation). . . . 

“You and the Company agree that if any court of competent jurisdiction declares 

that any part of this Arbitration Policy or the Acknowledgment of Receipt of Arbitration 
4

Policy and Agreement to Arbitration, which is being provided to you at the same time, is 

illegal, invalid or unenforceable, such a declaration will not affect the legality, validity or

enforceability of the remaining parts of either document, and the illegal, invalid, or 

unenforceable part will no longer be part of either document.”1

The second paragraph of page three of the handbook, under the heading “Right to 

Revise,” states, “The Company retains the right to revise, modify, or delete any provision 

or policy in this Handbook, or the implementation of any provision or policy, except for 

the policy of at-will employment, at any time.” 

c. Acknowledgment of receipt of employee handbook

On the first day of her employment, Serpa also received and signed a document 

entitled “Acknowledgment of Receipt of Employee Handbook” in which she 

acknowledged reviewing a copy of the handbook and agreed to abide by the terms and 

conditions of her employment as stated in the handbook. This acknowledgment form 

also stated, “I understand that any and all policies or practices [in the handbook] can be 

changed at any time by employer. Employer reserves the right to change my hours, 

wages and working conditions at any time. . . . I also understand that the employer 

reserves the right to amend, modify, rescind, delete, supplement or add to the provisions 

of the Handbook, as it deems appropriate from time to time in its sole discretion.” 

 3. Serpa’s Opposition to the Motion To Compel Arbitration

Serpa opposed the motion to compel arbitration, asserting any agreement to 

arbitrate was unconscionable. She argued the agreement to arbitrate was part of an 

adhesion contract, lacked mutuality of obligation and, because any part of the handbook, 

including the arbitration policy, could be revised at any time by CSI, was illusory. In 

addition, Serpa argued the arbitration agreement was substantively unconscionable 

because it required her to submit to internal grievance procedures before pursuing 

arbitration, thus giving CSI a “free peek” at her case, and deprived her of her statutory 

 

1 A similar severance provision also appears in the arbitration agreement.
5

right under FEHA to recover attorney fees if she prevailed on any of her FEHA claims 

(Gov. Code, § 12965, subd. (b)). 

4. The Trial Court’s Ruling Denying the CSI Parties’ Motion 

The trial court denied the CSI parties‟ motion to compel arbitration, agreeing with 

Serpa that the agreement was unconscionable. The court found the agreement to 

arbitrate, considered alone and on its face, lacked mutuality because it required Serpa to 

arbitrate her employment-related claims against CSI but did not compel CSI to arbitrate 

its disputes with Serpa. It also concluded that, while the arbitration policy expressed in 

the handbook and incorporated by reference into the agreement to arbitrate appeared to 

make the facially unilateral agreement to arbitrate bilateral, the bilateral nature of the 

agreement was actually illusory because CSI could change the arbitration policy as stated 

in the handbook at its sole discretion and without notice. Finding the offending nature of 

the agreement could not be severed without rewriting the agreement, the court concluded 

the agreement was unconscionable and unenforceable.

2

DISCUSSION

1. Public Policy in Favor of Arbitration and Standard of Review

There is a strong public policy in favor of arbitration. (St. Agnes Medical Center 

v. PacifiCare of California (2003) 31 Cal.4th 1187, 1195 [recognizing strong federal and 

state public policies favoring arbitration]; Moncharsh v. Heily & Blase (1992) 3 Cal.4th 

1, 9; Engalla v. Permanente Medical Group, Inc. (1997) 15 Cal.4th 951, 971-972.) 

Under both the Federal Arbitration Act (FAA) and the California Arbitration Act 

(CAA), arbitration agreements are valid, irrevocable and enforceable except upon 

grounds that exist for revocation of the contract generally. (See Armendariz v. 

Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, 97-99 (Armendariz); 

AT&T Mobility LLC v. Concepcion (Apr. 27, 2011, No. 09-893) __ U.S. __ [131 S.Ct. 

1740, 1746, 179 L.Ed.2d 742] [under § 2 of the FAA, arbitration agreement is valid, 

 

2 The trial court also found the attorney fee provision deprived Serpa of potentially 

available remedies under FEHA, but determined that provision alone did not make the 

agreement unconscionable because it could be severed without altering the agreement. 
6

irrevocable and enforceable “save upon such grounds as exist at law or in equity for the 

revocation of any contract”]; Code Civ. Proc., §§ 1281 [same]; 1281.2, subd. (b) [on 

petition of party to arbitration agreement to arbitrate controversy with another party to 

agreement, court must compel arbitration unless grounds exist for revocation of 

agreement].)

3

 

Like any other contract, an agreement to arbitrate is subject to revocation if the 

agreement is unconscionable. (Pinnacle Museum Tower Assn. v. Pinnacle Market 

Development (US) (2012) 55 Cal.4th 223, 246-247 (Pinnacle); Armendariz, supra, 

24 Cal.4th at p. 98; see Civ. Code, § 1670.5, subd. (a) [“[i]f the court as a matter of law 

finds the contract or any clause of the contract to have been unconscionable at the time it 

was made the court may refuse to enforce the contract, or it may enforce the remainder of 

the contract without the unconscionable clause, or it may so limit the application of any 

unconscionable clause as to avoid any unconscionable result”].) 

Absent conflicting extrinsic evidence, the validity of an arbitration clause, 

including whether it is subject to revocation as unconscionable, is a question of law 

subject to de novo review. (Pinnacle, supra, 55 Cal.4th at p. 236; Roman v. Superior 

Court (2009) 172 Cal.App.4th 1462, 1468-1469 (Roman); Samaniego v. Empire Today 

LLC (2012) 205 Cal.App.4th 1138, 1144.)

 

3 The CSI parties assert, and Serpa does not dispute, that their agreement is 

governed by the FAA (9 U.S.C. § 2) because CSI routinely engages in interstate and 

international commerce. (See Allied-Bruce Terminix Cos. v. Dobson (1995) 513 U.S. 

265, 273-275, 281 [115 S.Ct. 834, 130 L.Ed.2d 753]; Dotson v. Amgen, Inc. (2010) 

181 Cal.App.4th 975, 979-980.) On the question presented in this case—whether the 

agreement is revocable as unconscionable—the FAA and the CAA are, for all practical 

purposes, identical. (See 9 U.S.C. § 2; Code Civ. Proc., § 1281.) There is no contention 

in this case that California law is inconsistent with the FAA. (See AT&T Mobility LLC v. 

Concepcion, supra, 131 S.Ct. at p. 1746 [validity and enforceability of an arbitration 

agreement is governed by state law applicable to contracts generally so long as state law 

does not conflict with the FAA]; Natalini v. Import Motors (2013) 213 Cal.App.4th 587, 

594-595 [same].)
7

2. Governing Law on Unconscionability

Unconscionability has both procedural and substantive elements. (Armendariz, 

supra, 24 Cal.4th at p. 99; Roman, supra, 172 Cal.App.4th at p. 1469.) Although both 

must appear for a court to invalidate a contract or one of its individual terms 

(Armendariz, at p. 114; Wayne v. Staples, Inc. (2006) 135 Cal.App.4th 466, 482 

(Wayne)), they need not be present in the same degree: “[T]he 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.” 

(Armendariz, at p. 114; accord, Roman, at p. 1470.) 

Procedural unconscionability focuses on the elements of oppression and surprise. 

(Pinnacle, supra, 55 Cal.4th at p. 247; Roman, supra, 172 Cal.App.4th at p. 1470; 

Wayne, supra, 135 Cal.App.4th at pp. 480-481.) “„“„Oppression arises from an 

inequality of bargaining power which results in no real negotiation and an absence of 

meaningful choice. . . . Surprise involves the extent to which the terms of the bargain are 

hidden in a “prolix printed form” drafted by a party in a superior bargaining position.‟”‟” 

(Wayne, at p. 480; see also Mercuro v. Superior Court (2002) 96 Cal.App.4th 167, 174 

[“procedural unconscionability focuses on the oppressiveness of the stronger party‟s 

conduct”]; Pinnacle, at p. 247.) 

Substantive unconscionability focuses on the actual terms of the agreement and 

evaluates whether they create an “„“overly harsh”‟” or “„“one-sided”‟ result” 

(Armendariz, supra, 24 Cal.4th at p. 114; accord, Little v. Auto Stiegler, Inc. (2003) 

29 Cal.4th 1064, 1071 (Little)), that is, whether contractual provisions reallocate risks in 

an objectively unreasonable or unexpected manner. (Jones v. Wells Fargo Bank (2003) 

112 Cal.App.4th 1527, 1539.) Substantive unconscionability “may take various forms,” 

but typically is found in the employment context when the arbitration agreement is “onesided” 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.” (Little, at p. 1072; accord, Roman, supra, 

172 Cal.App.4th at pp. 1469-1470; see also Armendariz, at p. 119 [“[i]t is unfairly one-
8

sided for an employer with superior bargaining power to impose arbitration on the 

employee as plaintiff but not to accept such limitations when it seeks to prosecute a claim 

against the employee, without at least some reasonable justification for such onesidedness based on „business realities‟”]; Kinney v. United HealthCare Services, Inc. 

(1999) 70 Cal.App.4th 1322, 1330 [“„[s]ubstantive unconscionability‟ focuses on the 

terms of the agreement and whether those terms are „so one-sided as to “shock the 

conscience”‟”].) 

3. The Trial Court Erred in Concluding the Agreement To Arbitrate Was

Unconscionable and Unenforceable

a. Procedural unconscionability

It is well settled that adhesion contracts in the employment context, that is, those 

contracts offered to employees on a take-it-or-leave-it basis, typically contain some 

aspects of procedural unconscionability. (See Armendariz, supra, 24 Cal.4th at p. 115 

[“[i]n the case of preemployment arbitration contracts, the economic pressure exerted by 

employers on all but the most sought-after employees may be particularly acute, for the 

arbitration agreement stands between the employee and necessary employment, and few 

employees are in a position to refuse a job because of an arbitration agreement”]; Little, 

supra, 29 Cal.4th at p. 1071 [same].) 

The instant agreement to arbitrate is no different. It provides that, “by accepting 

or continuing in employment,” Serpa agrees to the terms of the arbitration agreement. 

The parties presented neither evidence nor argument that Serpa had any opportunity to 

negotiate the terms of the agreement. Nonetheless, as we have explained, this adhesive 

aspect of an agreement is not dispositive. (Roman, supra, 172 Cal.App.4th at p. 1471 & 

fn. 2.) When, as here, there is no other indication of oppression or surprise, “the degree 

of procedural unconscionability of an adhesion agreement is low, and the agreement will 

be enforceable unless the degree of substantive unconscionability is high.” (Ajamian v. 

CantorCO2e (2012) 203 Cal.App.4th 771, 796; accord, Dotson v. Amgen, Inc. (2010) 

181 Cal.App.4th 975, 981-982; see generally Roman, at p. 1471, fn. 2 [“[w]hen 
9

bargaining power is not grossly unequal and reasonable alternatives exist, oppression 

typically inherent in adhesion contracts is minimal”].)4

b. Substantive unconscionability

i. The obligation to arbitrate is mutual

Serpa contends the agreement to arbitrate is one-sided because it requires her to 

submit claims against CSI to arbitration but does not require CSI to arbitrate its claims 

against her: “I understand and agree that if my employment is terminated or my 

employment status is otherwise changed or any other dispute arises concerning my 

employment . . . , I will submit any such dispute exclusively to binding arbitration.” 

Were that the full extent of the agreement, we would likely agree it lacked 

mutuality because it requires Serpa to submit to arbitration “any such disputes” involving 

her employment without imposing a similar obligation on CSI. (See Armendariz, supra, 

24 Cal.4th at p. 117 [arbitration agreement that imposes obligation only on employee to 

arbitrate employee‟s claims lacks mutuality and is unconscionable]; Baltazar v. 

Forever 21, Inc. (2012) 212 Cal.App.4th 221, 234.) In this way, this document, at least 

on its face, is far different from that in Roman, supra, 172 Cal.App.4th 1462 in which we 

held the words “I agree” did not vitiate an otherwise bilateral obligation to arbitrate “all 

disputes and claims that might arise out of my employment.” (Id. at pp. 1466-1467, 

1471; see e.g., Nyulassy v. Lockheed Martin Corp. (2004) 120 Cal.App.4th 1267, 1273 

[where arbitration obligation was triggered solely by employee‟s objection to company‟s 

personnel decision, agreement lacked mutuality]; O’Hare v. Municipal Resource 

Consultants (2003) 107 Cal.App.4th 267, 271 [arbitration provision unilateral and 

unconscionable because language providing “Any claim that you may have arising out of 

 

4 In the trial court Serpa also argued the agreement had a high level of procedural 

unconscionability because the arbitration policy was “buried” in the employee handbook, 

even though it was identified in the table of contents and appeared prominently on 

page three of the handbook. She has abandoned that argument on appeal. 
10

or relating to this Agreement . . . shall be settled by binding arbitration” imposed 

obligation to arbitrate only on employee, not employer].)

5

 

However, as the trial court recognized, the agreement‟s incorporation of the 

arbitration policy in the employee handbook (see generally Boys Club of San Fernando 

Valley, Inc. v. Fidelity & Deposit Co. (1992) 6 Cal.App.4th 1266, 1271 [“[a]n agreement 

need not expressly provide for arbitration, but may do so in a secondary document which 

is incorporated by reference”]; Chan v. Drexel Burnham Lambert, Inc. (1986) 

178 Cal.App.3d 632, 641 [same]) salvages the agreement by establishing an unmistakable 

mutual obligation on the part of CSI and Serpa to arbitrate “any dispute” arising out of 

her employment. (See Roman, supra, 172 Cal.App.4th at pp. 1467, 1471 [agreement 

providing “all disputes and claims arising out of” employment was bilateral because it 

covered both employer‟s and employee‟s claims]; McManus v. CIBC World Markets 

Corporation (2003) 109 Cal.App.4th 76, 100 [agreement to arbitrate “„[a]ll disputes 

arising out of your employment‟” created mutual obligation to arbitrate].) 

ii. The obligation to arbitrate is not illusory

Serpa agrees the arbitration policy in the handbook establishes a bilateral 

obligation to arbitrate but insists that mutual obligation is illusory because, as both the 

handbook and the written acknowledgment of its receipt make clear, CSI is authorized to 

alter the terms of any policy contained in the handbook at its sole discretion and without 

notice. (See Mattei v. Hopper (1958) 51 Cal.2d 119, 122 [an agreement is illusory if it 

leaves one party “free to perform or to withdraw from the agreement at his own 

unrestricted pleasure”].) This argument fails to recognize the fundamental limit on CSI‟s 

ability to alter the arbitration agreement imposed by the covenant of good faith and fair 

dealing implied in every contract. 

 

5 The question whether the term “I agree” transforms what would otherwise appear 

to be a bilateral agreement to arbitrate into a unilateral one, an issue that, as we have 

explained, is not presented in this case, is currently pending in the Supreme Court. (See 

Wisdom v. AccentCare, Inc. (2012) 202 Cal.App.4th 591, review granted Mar. 28, 2012, 

S200128.) 
11

The implied covenant of good faith prevents one contracting party from “unfairly 

frustrating the other party‟s right to receive the benefits of the agreement actually made.” 

(Guz v. Bechtel National, Inc. (2000) 24 Cal.4th 317, 349; accord, American Express 

Bank, FSB v. Kayatta (2010) 190 Cal.App.4th 563, 570.) Thus, it has long been the rule 

that a provision in an agreement permitting one party to modify contract terms does not, 

standing alone, render a contract illusory because the party with that authority may not 

change the agreement in such a manner as to frustrate the purpose of the contract. (See 

Perdue v. Crocker National Bank (1985) 38 Cal.3d 913, 923 [“„where a contract confers 

on one party a discretionary power affecting the rights of the other, a duty is imposed to 

exercise that discretion in good faith and in accordance with fair dealing‟”]; see generally 

Asmus v. Pacific Bell (2000) 23 Cal.4th 1, 16 [employer‟s right to unilaterally modify 

employment agreement does not make agreement illusory]; Badie v. Bank of America 

(1998) 67 Cal.App.4th 779, 787-788 [contracting party with unilateral right to modify 

contract does not have “carte blanche to make any kind of change whatsoever”; unilateral 

right to modify, when limited by the implied covenant of good faith and fair dealing, 

requires the party holding the power to affect the other party‟s rights to exercise it in a 

manner consistent with the reasonable contemplation of the parties at the time of the 

contract].) 

Application of the implied covenant of good faith and fair dealing is no different 

in the arbitration context. In 24 Hour Fitness, Inc. v. Superior Court (1998) 

66 Cal.App.4th 1199 (24 Hour Fitness), a former employee brought an action against the 

company, doing business as 24 Hour Nautilus, for sexual harassment and related torts. 

The employer moved to compel arbitration based on an arbitration policy in its employee 

handbook, which also contained a provision allowing the company to amend the 

handbook at its sole discretion. The 24 Hour Fitness court rejected the plaintiff‟s 

contention the unilateral right-to-amend provision made the arbitration agreement 

illusory and thus unconscionable. Observing the parties to an arbitration agreement, like 

any contract, are bound by the contract‟s implied covenant of good faith, the court 

explained, “Nautilus‟s discretionary power to modify the terms of the personnel 
12

handbook on [written] notice indisputably carries with it the duty to exercise that right 

fairly and in good faith. [Citation.] So construed, the modification provision does not 

render the contract illusory.” (Id. at p. 1214.) 

Peleg v. Neiman Marcus Group, Inc. (2012) 204 Cal.App.4th 1425 (Peleg) is not 

to the contrary. In Peleg the employee of a department store asserted the arbitration 

agreement he signed was illusory because the store retained the unilateral right to amend, 

modify or revoke the agreement on 30 days‟ advance written notice, with the change to

apply to any unfiled claim. (Id. at p. 1437.) Citing 24 Hour Fitness, the Peleg court 

observed, had the agreement to arbitrate simply authorized the department store to make 

unilateral modifications, it would not be illusory under California law because the 

implied covenant of good faith and fair dealing would preclude any change that 

undermined the employee‟s rights. (Peleg, at pp. 1465-1466.) What made the agreement 

problematic, in the court‟s view, was that it expressly applied to unfiled claims, including 

those that had accrued, thus potentially permitting the employer to modify the agreement 

retroactively to frustrate the employee‟s rights in arbitration. Because the agreement 

specifically allowed retroactive modifications, the implied covenant could not be used to 

vary those express contract terms and limit the employee to prospective amendments 

only. (Id. at p. 1464 [“while the covenant may imply limitations making the use of that 

right fair and in good faith, it may not give rise to duties or obligations that conflict with 

the agreement‟s express terms”]; see Carma Developers (Cal.), Inc. v. Marathon 

Development California, Inc. (1992) 2 Cal.4th 342, 374 [“the implied covenant of good 

faith is read into contracts „in order to protect the express covenants or promises of the 

contract, not to protect some general public policy interest not directly tied to the 

contract‟s purpose‟”].) Without the benefit of the implied covenant to rein in and restrict 

the employer‟s otherwise unilateral right to modify the agreement to include unfiled 
13

claims, the court held the agreement to arbitrate was illusory and invalid under California 

law. (Peleg, at pp. 1464-1465.)

6

The peculiar issue of retroactivity that concerned the court in Peleg is not present 

in this case. Thus, we need not consider whether we agree with that court‟s implicit 

conclusion that modifications to arbitration procedures affecting accrued claims would 

not be subject to the implied covenant of good faith. (See Peleg, supra, 204 Cal.App.4th

at pp. 1433, 1465.) Simply stated, under the analyses of both 24 Hour Fitness and Peleg, 

the implied covenant of good faith and fair dealing is properly applied in this case and 

saves this arbitration contract from being illusory. (See 24 Hour Fitness, supra, 

66 Cal.App.4th at p. 1214; see generally Civ. Code, § 1643 [if possible without violating 

the parties‟ unambiguous intent, a contract is interpreted so as to make it “lawful, 

operative, definite, reasonable and capable of being carried into effect”]; Pearson Dental 

Supplies v. Superior Court (2010) 48 Cal.4th 665, 682 [whenever possible court 

interprets contract in manner that is consistent with parties‟ intent and renders contract 

enforceable rather than void].) 

Serpa alternatively argues, and the trial court apparently agreed, 24 Hour Fitness 

is distinguishable because the arbitration provision in that case permitted the employer to 

modify the handbook‟s policies only after giving the employee written notice, while in 

the instant case the agreement can be modified by CSI to the employee‟s detriment 

without any notice. This characterization of the agreement in 24 Hour Fitness is 

questionable. No advance notice was required; only written notice after the fact. (See 

24 Hour Fitness, supra, 66 Cal.App.4th at p. 1213 [Nautilus “reserves the right to change 

any provision in this Handbook at any time for any reason without advance notice” 

provided changes are made in a writing provided to employee].) In any event, when, as 

here, the agreement is silent as to notice, implied in the unilateral right to modify is the 

accompanying obligation to do so upon reasonable and fair notice. (See, e.g., Asmus v. 

 

6 The Peleg court ultimately applied the Texas choice-of-law provision in the 

agreement and concluded the agreement was unconscionable under Texas law. (Peleg, 

supra, 204 Cal.App.4th at p. 1467.) 
14

Pacific Bell, supra, 23 Cal.4th at p. 16; see generally Guz v. Bechtel National, Inc., supra, 

24 Cal.4th at p. 334.) In sum, this is an even stronger case than 24 Hour Fitness to 

conclude the implied covenant of good faith and fair dealing limits the employer‟s 

authority to unilaterally modify the arbitration agreement and saves that agreement from 

being illusory and thus unconscionable.

7

iii. The attorney fee provision is unconscionable but may be severed 

without vitiating the agreement to arbitrate 

Serpa contends the agreement to arbitrate is substantively unconscionable because, 

by requiring the parties to bear their own attorney fees, it purports to deprive Serpa of 

unwaivable statutory remedies available to her if she prevails on her FEHA claims at the 

arbitration. (See Gov. Code, § 12965, subd. (b); Chavez v. City of Los Angeles (2010) 

47 Cal.4th 970, 984 [FEHA‟s authorization of attorney fees is intended, among other 

things, to make it easier for plaintiffs of limited means to pursue meritorious claims and 

thereby encourage litigation of claims that are in the public interest]; Armendariz, supra, 

24 Cal.4th at p. 124 & fn. 13 [agreement to arbitrate is substantively unconscionable 

when it purports to deprive employee of unwaivable statutory rights and remedies under 

FEHA]; Ajamian v. CantorCO2e, L.P., supra, 203 Cal.App.4th at p. 800 [arbitration 

 

7 In holding the unilateral right to modify the arbitration agreement is restricted by 

the implied covenant of good faith and fair dealing, we are mindful of, albeit not 

persuaded by, dictum from our Division Five colleagues‟ recent opinion in Sparks v. 

Vista Del Mar Child & Family Services (2012) 207 Cal.App.4th 1511, 1523, stating a 

purported agreement to arbitrate in an employee handbook “is illusory if, as here, the 

employer can unilaterally modify the handbook.” The Sparks majority held the 

arbitration agreement was unenforceable for a number of reasons not present here (for 

example, the employee did not actually sign an arbitration agreement and the arbitration 

provisions in the employee handbook were never called to his attention). Among a litany 

of other grounds for not enforcing the agreement was the single sentence we just quoted, 

citing only to out-of-state authority, without further legal analysis, let alone any 

discussion of 24 Hour Fitness and its application of the implied covenant of good faith 

and fair dealing. (Sparks, at p. 1523; but see id. at p. 1524 (conc. and dis. opn. of Turner, 

J.).) To the extent this dictum is inconsistent with 24 Hour Fitness’s application of the 

implied covenant of good faith and fair dealing, we find the latter opinion more 

persuasive for the reasons we have explained.
15

agreement eliminating plaintiff‟s statutory right to recover attorney fees under Lab. Code 

if she prevailed on her overtime claim and imposing on her obligation to pay reasonable 

attorney fees in event employer prevailed was unconscionable; “„[t]his violates

Armendariz‟”].)

The CSI parties, on the other hand, urge the requirement that each party bear her 

or its own attorney fees is not substantively unconscionable; it simply applies the 

“American rule” that, unless expressly provided in contract or statute, each party to a 

litigation must pay its own attorney fees. (See Trope v. Katz (1995) 11 Cal.4th 274, 278; 

see also Code Civ. Proc., § 1021 [absent contractual or statutory authority, each party 

bears own attorney fees].) In those cases where attorney fees are statutorily authorized, 

they argue, as in FEHA actions, the attorney fee provision will be applied consistently 

with existing FEHA requirements. (Cf. Armendariz, supra, 24 Cal.4th at p. 113 [absence 

of specific provisions on costs in arbitration agreement is not ground for denying 

enforcement of arbitration agreement; rather, agreement will be interpreted consistently 

with FEHA‟s requirements]; see generally Pearson Dental Supplies, Inc. v. Superior 

Court, supra, 48 Cal.4th at p. 682 [ambiguity in agreement should be interpreted, 

whenever possible, in manner consistent with parties‟ intent and to make agreement valid 

rather than void].) 

Had the agreement to arbitrate been silent on the question of attorney fees, or 

provided for the recovery of attorney fees in an appropriate circumstance or in 

accordance with applicable law, we might agree with the CSI parties. However, the 

attorney fee provision is not ambiguous. It expressly requires each party to bear his, her 

or its own attorney fees regardless of the type of action brought. It provides for this 

approach even while expressly stating the agreement governs actions for harassment and 

discrimination. For that reason, the provision limiting the recovery of attorney fees is 

unenforceable. (Armendariz, supra, 24 Cal.4th at p. 124.) That determination, however, 

does not vitiate the underlying agreement to arbitrate. When, as here, the arbitration 

agreement is not otherwise permeated by unconscionability, the offending provision, 

which is plainly collateral to the main purpose of the contract, is properly severed and the 
16

remainder of the contract enforced. (See Roman, supra, 172 Cal.App.4th at p. 1462; 

Armendariz, at p. 122 [although Civ. Code, § 1670.5 gives trial court some discretion 

whether to sever the unconscionable provision or refuse to enforce entire agreement, it 

also appears “to contemplate the latter course only when an agreement is “„permeated‟ by 

unconscionability”]; Dotson v. Amgen, Inc., supra, 181 Cal.App.4th at pp. 985-986 

[same].)

8

iv. Language in the agreement contemplating internal efforts to 

resolve the dispute before it is submitted to arbitration is not 

substantively unconscionable

Relying on language in Nyulassy v. Lockheed Martin Corp., supra, 

120 Cal.App.4th 1267, Serpa contends the agreement to arbitrate “requires” her to submit 

her dispute informally to the company before seeking arbitration and thus unfairly gives 

the CSI parties a “free peek” at her case. (See id. at pp. 1282-1283 [given unilateral 

nature of agreement requiring only employee to arbitrate his claims, the additional 

requirement that employee submit claim to supervisors before seeking to arbitrate claims, 

while seemingly laudable effort at informal resolution, was actually just an effort to 

obtain a “free peek” at employee‟s case].) The agreement states that if the dispute 

“cannot be resolved through informal internal efforts, I will submit” the claim to binding 

arbitration. “Informal internal efforts” are not defined in the agreement or the handbook, 

and there is no reasonable basis to infer the agreement requires anything other than some 

informal notice of a grievance before proceeding to arbitration. This case is thus far 

different from the provisions in Nyulassy, which the court found unacceptable primarily 

because it was yet another employer-based mechanism in an agreement permeated by 

unilateral provisions favoring the employer. (Id. at p. 1283.) Moreover, to the extent the 

cited language is anything other than precatory, a requirement that internal grievance 

procedures be exhausted before proceeding to arbitration is both reasonable and laudable 

 

8 For all practical purposes, of course, severance of the offending provision yields 

the same result as if the agreement was simply interpreted in accordance with FEHA 

requirements, as the CSI parties urge. That is, each party will be responsible for his, her 

and its own attorney fees unless FEHA compels a different result.
17

in an agreement containing a mutual obligation to arbitrate. It plainly does not “shock the 

conscience” so as to vitiate the arbitration agreement. 

In sum, the agreement to arbitrate is not unconscionable. To the extent the 

agreement contains an attorney fee provision that purports to deprive Serpa of her 

remedies under FEHA, that particular provision is properly severed, and the remainder of 

the agreement to arbitrate is properly enforced. 

DISPOSITION

The order denying the CSI parties‟ motion to compel arbitration is reversed. On 

remand the trial court is directed to sever the offending attorney fee provision from the 

agreement and otherwise grant the motion to compel arbitration. The CSI parties are to 

recover their costs on appeal. 

PERLUSS, P. J. 

We concur:

WOODS, J. 

JACKSON, J.
18

CERTIFIED FOR PUBLICATION

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

SECOND APPELLATE DISTRICT

DIVISION SEVEN

VALERIE SERPA,

Plaintiff and Respondent,

v.

CALIFORNIA SURETY 

INVESTIGATIONS, INC., et al.,

Defendants and Appellants.

 B237363

 (Los Angeles County

 Super. Ct. No. BC464218)

ORDER MODIFYING OPINION

AND CERTIFYING OPINION

FOR PUBLICATION

(NO CHANGE IN JUDGMENT)

THE COURT: 

The opinion in this case filed March 21, 2013 was not certified for publication. It 

appears the opinion meets the standards for publication specified in California Rules of 

Court, rule 8.1105(c), appellant‟s request pursuant to California Rules of Court, rule 

8.1120(a) for publication is granted. 

IT IS HEREBY CERTIFIED that the opinion meets the standards for publication 

specified in California Rules of Court, rule 8.1105(c); and 

ORDERED that the words “Not to be Published in the Official Reports” appearing 

on page 1 of said opinion be deleted and the opinion herein be published in the Official 

Reports. 
19

IT IS FURTHER ORDERED that the first paragraph on page 2 be deleted and 

replaced with: 

Valerie Serpa sued California Surety Investigations (CSI), its 

employee Peter Holdsworth and CSI‟s parent company, Two Jinn, Inc., 

doing business as Aladdin Bail Bonds (collectively CSI parties), for sexual 

harassment, employment discrimination, wrongful termination in violation 

of public policy and related causes of action. The trial court denied the CSI 

parties‟ motion to compel arbitration, finding the agreement to arbitrate 

lacked mutuality. The court rejected the CSI parties‟ argument the requisite 

mutuality was provided by the bilateral arbitration provisions in CSI‟s 

employees‟ handbook, incorporated by reference into the arbitration 

agreement, because CSI could change the handbook at its sole discretion 

and without notice. We reverse.

There is no change in the judgment.

______________________________________________________________________

 PERLUSS, P. J. WOODS, J. JACKSON, J.