Filed 12/18/14 Gillespie v. Western Pacific Housing Management CA4/1 NOT TO BE PUBLISHED IN OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115. COURT OF APPEAL, FOURTH APPELLATE DISTRICT
DIVISION ONE STATE OF CALIFORNIA

REBECCA RENEE GILLESPIE, Plaintiff and Respondent,

v. WESTERN PACIFIC HOUSING MANAGEMENT, INC., Defendant and Appellant. D066354

(Super. Ct. No. CIVSS710814)

APPEAL from a judgment of the Supe rior Court of San Bernardino, John M. Pacheco, Judge. Reversed. Ogletree, Deakins, Nash, Smoak & Stewart, Jack S. Sholkoff, Catherine J. Coble, Angel H. Ho and Vanessa C. Krum bein for Defendant and Appellant. Kingsley and Kingsley, Eric B. Kingsley , Darren M. Cohen, Liane Katzenstein Ly and Kelsey M. Szamet for Plaintiff and Respondent. In this action for alleged La bor Code violations as to me al and rest periods brought by plaintiff Rebecca Renee Gillespie, defenda nt Western Pacific Housing Management,2 Inc. (Western Pacific) brought a motion to compel arbitration, pu rsuant to a mutual arbitration agreement (MAA). The court deni ed the motion finding (1) Western Pacific waived its right to enforce the agreement by litigating the ac tion for four years before seeking to compel arbitration, a nd (2) the MAA was unconscionable. On appeal Western Pacific asserts th e court erred by (1) finding the MAA was unconscionable and (2) finding that it waived the right to compel arbitration. We conclude that Western Pacific did not waive its right to compel arbitration. We also conclude that the MAA is not unconscionable. Further, as we shall discuss, the class action waiver is enforceable. However, we al so conclude that the class action waiver cannot apply to Gillespie's claim under th e Private Attorneys General Act of 2004 (PAGA) (Lab. Code, § 2698 et seq.). Accordingly, we reve rse the court's order denying the motion to compel arbitration and rema nd this matter for further proceedings consistent with this opinion.
FACTUAL AND PROCEDUR AL BACKGROUND
A. The Parties Beginning in March 2006, Gillespie was employed by We stern Pacific. Western Pacific is a homebuilding company based in Texas that builds homes in California. Gillespie worked as a sales representative in Southern Californi a selling homes.
B. The MAA Shortly after she was hired, Gillespie signed the MAA. The MAA provided that a ll employment-related claims, including those related to wages, were subject to arbitration:3 "Employee and the Company . . . agr ee that all disputes and claims between them, including those rela ting to Employee's employment with the Company and any separa tion therefrom . . . shall be determined exclusively by final and binding arbitration before a single, neutral arbitrator . . . . Claims subject to arbitration under this Agreement include without lim itation claims for discrimination or harassment; wages, benefits of other compensation . . . . " (Italics added.) The MAA also provides that the "arbitrator may hear only Employee's individual claims and does not have the authority to fa shion a proceeding as a class or collective action or to award relief to a group or class of employees in one arbitration proceeding."
C. The Underlying Litigation In October 2007 Gillespie filed a class ac tion lawsuit on behalf of herself and all individuals employed by Western Pacific in th e position of salesper son within California from four years prior to the filing of the ac tion. The complaint alleged Western Pacific improperly classified her and other salesperso ns as exempt from overtime law and that, as a result, she and other salespersons did not receive required meal and rest breaks. The complaint asserted causes of action for viola tion of meal and rest break law, penalties pursuant to Labor Code section 203, and vi olation of Business and Professions Code section 17200. In November 2007 Gillespie filed a firs t amended complaint adding a cause of action for violati on of Labor Code section 26 99. The parties thereafter stipulated to transfer venue from Alam eda County to San Bernardino County. Western Pacific answered the complain t several weeks after the California Supreme Court's decision in Gentry v. Superior Court (2007) 42 Cal.4th 443 ( Gentry ), in which class action waivers in employment agreements were he ld to be unenforceable,4 and, if parties sought to enforce such waiv ers, they could be forced into class action arbitration. Recognizing that moving to compel arbitration would, in light of Gentry , be futile, the parties proceeded to partially litigate Gillespie's clai ms. The parties agreed (1) to send a precertification notice to putative class members and (2) to the production of basic contact information about putative cl ass members. Western Pacific deposed Gillespie, but Gillespie took no depositions.
D. The Stay of Proceedings In December 2009 Western Pacific filed an ex parte application seeking to stay all proceedings pending the Californi a Supreme Court's resolution of Brinker v. Superior
Court (2008) 165 Cal.App.4th 25, review granted October 22, 2008, S166350 ( Brinker ), as that decision would impact resolution of this action. Gillespie opposed Western Pacific's ex parte application, asserting Brinker was not dispositive of this action. The trial court denied Western Pacific's ex parte application, but set the matter for a noticed hearing on Western Pa cific's motion to stay this litigation. On February 10, 2010, the court granted Wester n Pacific's motion to stay all proceedings until August 2010, pending the decision by the Supreme Court in Brinker. Thereafter, the court stayed the matter several more ti mes, the last stay having been issued April 11, 2012, the day before Brinker was decided. Each time the stay was con tinued, the trial court and both parties acknowledged Brinker's importance to resolution of this action. In its August 9, 2010 order extending the stay, the trial court stated , "Counsel stipulate that the Brinker case does apply to the case. . . . Counsel agree the st ay i[s] appropriate." In Janua ry 2011 the parties stipulated5 "[t]he Supreme Court still ha s not issued a decision in Brinker . Accordingly, the parties agree that a further stay of at least 180 da ys is appropriate, unless the Supreme Court issues a decision sooner. [¶] . . . The Parties t hus request that the Court extend the stay of the action until the next Case Management Conference." In August 2011, when continuing the stay, the trial court acknowledged that "[c]ounsel inform[ed] the court they are [still] waiting a decision from the Californi a Supreme Court." In February 2012 the trial court again extended the stay, noting that "[c]ounsel still waiting on decision from the Calif[ornia] Supreme Court. " On April 11, 20 12, the trial court again continued the stay "at [the] request of counsel for all par ties." Gillespie opposed the motion, arguing: (1) the MAA was both procedurally and s ubstantively unconscionable; (2) Western Pacific waived its right to compel arbitra tion through unreasonable delay and use of the judicial process, to the prejudice of Gille spie; (3) the MAA was in violation of the National Labor Relations Act (NLRA) and wa s therefore unenforceable; (4) under the holding in Gentry, supra, 42 Cal.4th 443, the MAA would be invalidated; and (5) the MAA barred Gillespie from acting as a private attorney general to recover under PAGA based on the holding of Brown v. Ralphs Grocery Co. (2011) 197 Cal.App.4th 489.
F. Court's Ruling At the hearing on Western Pacific's moti on to compel arbitration, the trial court addressed both the waiver and unconscion ability issues raised by Gillespie in her opposition to the motion to compel arbitration. On the issue of waiver, the court noted that "this has been going on for four years." The court noted that the case had been stayed pending the Brinker decision, but stated that "a lot of cost and everything has been6 expended in litigati on and everything, and I just think it's better that I stick with my tentative." As to the issue of unconsciona bility, the court addressed concerns about the MAA's one-way provision that allowed West ern Pacific to terminate the arbitration clause, but "plaintiff does not have that right ." The court also inquired about the choice of law provision. Western Paci fic acknowledged "[t]he arbitra tion agreement, it says that either Texas law or the Federal Arbitrati on Act will apply." However, Western Pacific told the court that, despite what the MAA stated, the clai ms would be resolved under California law. Counsel for Gillespie also addressed the clause providing that actions for declaratory relief could be brought in state cour t, but all other claims must be arbitrated. Counsel pointed out that although that clause was facially neut ral, it favored employers as they were the only pa rty likely to seek declaratory relie f. The court agreed, stating, "[Y]eah, another reason why it would be unc onscionable." The co urt then took the matter under submission. Thereafter, the trial court denied Western Pacific's motion finding that "[d]efendant waived [its] right to seek arb itration and the MAA is [u]nconscionable."7 DISCUSSION
I. ANALYSIS
A. Waiver A trial court may deny a petition to compel arbitration on the ground of waiver. (Code Civ. Proc., 1 § 1281.2, subd. (a).) Relevant fact ors to consider in assessing waiver claims include: "'"(1) whether the party's actions are inconsistent with the right to arbitrate; (2) whether 'the litigation machiner y has been substantia lly invoked' and the parties 'were well into preparation of a laws uit' before the party notified the opposing party of an intent to arbitrat e; (3) whether a party either re quested arbitration enforcement close to the trial date or delayed for a long period before seeking a stay; (4) whether a defendant seeking arbitration filed a count erclaim without asking for a stay of the proceedings; (5) 'whether importa nt intervening steps [e.g., ta king advantage of judicial discovery procedures not available in arbitr ation] had taken place'; and (6) whether the delay 'affected, misled, or prejud iced' the opposing party."'" ( St. Agnes Medical Center v. PacifiCare of California (2003) 31 Cal.4th 1187, 1196.) However, courts cannot lightly infer waiver. ( St. Agnes Medical Center v. PacificCare of California, supra, 31 Cal.4th at p. 1195.) The party asserting waiver bears a heavy burden and "any doubts regarding a waiver allega tion should be resolved in favor of arbitration." ( Ibid .)

1 All further undesignated statutory refere nces are to the Code of Civil Procedure.8 Here, Gillespie cannot meet this h eavy burden. As we have noted, ante , Western Pacific filed its motion to compel arb itration shortly after the decision in Brinker was issued. As we have also noted, in agreeing to multiple stays of th e proceedings in this action, the parties acknowl edged the importance of Brinker to resolution of this action. Thus, we cannot say that Western Pacific' s actions evidenced an intent to waive arbitration. In finding waiver, the trial court relie d on litigation activities and expenses that occurred before the action wa s stayed. In this regard Gillespie submitted two declarations in opposition to Western Pacific's motion to compel arbitration: a declaration from herself and one from her co unsel. Her declaration relates to her participation in discovery before the tria l court's initial stay order. Her counsel's declaration similarly relates to litigation ac tivity occurring before the initial stay order, with the exception of a statement that put ative class members c ontacted Gillespie's counsel while the stay was pending. However, th is ignores the fact that at the time this action was filed, Gentry, supra, 42 Cal.4th 443, had held that class action waivers were unenforceable. Therefore, it w ould have been futile to move to compel arbitration based upon the law existing at that time.
B. Unconscionabilty
1. Applicable authority A written contractual provisio n to submit to arbitration a ny disputes arising out of the contract is "valid, enforc eable and irrevocable, save upo n such grounds as exist for the revocation of any contract." (Code Civ. Proc., § 1281; Kinney v. United HealthCare9 Services, Inc. (1999) 70 Cal.App.4th 1322, 1327.) Unconscionability is one of those grounds. (Civ. Code, § 1670.5, subd. (a); Szetela v. Discover Bank (2002) 97 Cal.App.4th 1094, 1099 ( Discover Bank ).) "'Unconscionability is ultim ately a question of law for the court.' [Citation.] However, numerous factual issues may bear on that question. [Citation.] Where the trial court's determination of unconscionability is based upon the trial court's resolution of conflicts in the evidence, or on the factual in ferences which may be drawn therefrom, we consider the evidence in the light most favorable to the court's determination and review those aspects of the determinati on for substantial evidence." ( Gutierrez v. Autowest, Inc. (2003) 114 Cal.App.4th 77, 89.) "[T]he doctrine [of unc onscionability] '"has both a 'pro cedural' and a 'substantive' element."'" ( Little v. Auto Steigler, Inc. (2003) 29 Cal.4th 1064, 1071; Armendariz v. Foundation Health Psych care Services, Inc . (2000) 24 Cal.4th 83, 114 ( Armendariz ).) "'The prevailing view is that [procedur al and substantive unconscionability] must both be present in order for a court to exercise its di scretion to refuse to enforce a contract or clause under the doctrine of unconscionability.' [Citation.] But they need not be present in the same degree. 'Essentia lly a sliding scale is invoked wh ich disregards the regularity of the procedural process of the contract form ation, that creates the terms, in proportion to the greater harshness or unreasonableness of the substantive terms themselves.' [Citations.] In other words, the more substan tively oppressive the contract term, the less evidence of procedural unconscionability is required to co me to the conclusion that the term is unenforceable, and vice versa." ( Armendariz, supra, 24 Cal.4th at p. 114.)10 2. Analysis

a. The MAA is not procedurally unconscionable Procedural unconscionability "addresses th e circumstances of contract negotiation and formation, focusing on oppression or surp rise due to unequal bargaining power." ( Pinnacle Museum Tower Assn. v. Pinnacle Market Development ( US ) LLC (2012) 55 Cal.4th 223, 246 ( Pinnacle ).) Here, there is no evidence of "surprise" with regard to the formation of the MAA. This element refers to situations where an arbitration provision is hidden in an agreement drafted by the party seeking to enforce it. ( Flores v. Transamerica HomeFirst, Inc. (2001) 93 Cal.App. 4th 846, 853.) Here, the MAA is a separate agreement a nd the arbitration provision is clear and conspicuous. Thus, the MAA's arbitration provision does not contain any element of "surprise." Likewise, Gillespie there is no evidence of oppression. Indeed, at her deposition, after admitting she signed the MAA, Gillespie conceded that she did not even remember being presented with it. Thus, there is no evidence she signed the MAA unwillingly. Thus, because there is little or no evid ence that the MAA is procedurally unconscionable, Gillespie must demons trate the MAA's substance was highly unconscionable. b. The arbitration provis ion is not substanti vely unconscionable Substantive unconscionability relates to "t he fairness of an agreement's actual terms and to assessments of whether they are overly harsh or one-sided . . . . [T]he term must be 'so one-sided as to "shock the conscience.'" ( Pinnacle, supra, 55 Cal.4th at p.11 246.) For purposes of unconscio nability, an arbitration agreemen t must lack bilateralism. To be enforceable, it must require both partie s to submit their claims to arbitration. ( Armendariz, supra, 24 Cal.App.4th at pp. 117-120. Here, the MAA meets this requirement. It applies to both Western Pacific and Gillespie and requires them both to arbitrate their disputes arising from her employment. The trial court's comments at the heari ng indicated it was concerned regarding two aspects of the MAA: the modification provi sion and the carve-out for declaratory and equitable relief in paragraph 2. However, neith er of these issues supports a finding of substantive unconscionability. Paragraph 8 of the MAA grants Wester n Pacific a limited right to modify the terms of the MAA. It must provide 30 da ys' notice of the modifi cation and changes may only be prospective. In this regard th e MAA provides: "This Agreement may be modified or revoked by th e Company by provi ding thirty days written notice to employees. Any modifi cation or revocation shall not be effective until after the thirty day notice period, shall be prospective only, and shall not apply to any claims already initiated by either part y." (Italics added.) This provision is not unconscionable. As long as an employer's ability to modify is appropriately limited so as to ensure good faith and fair dealing, unilateral modification provisions are enforceable: "'"[W]here the contract specifies performance the fact that one party reserves the power to vary it is not fatal if the exercise of the power is subject to prescribed or imp lied limitations such as the duty to exercise it in good faith and in ac cordance with fair dealings."' [Citations.] [The employer's] disc retionary power to modify the12 terms of the personnel handbook in writing notice indisputably carries with it the duty to exercise th at right fairly and in good faith. [Citation.] . . . So construed, th e modification provision does not render the contract illusory." ( 24 Hour Fitness, Inc. v. Superior Court (1998) 66 Cal.App.4th 1199, 1214.) Thus, the MAA's modification pr ovision is not unconscionable. At the hearing on Western Pacific's moti on to compel arbitration, the trial court indicated it believed the MAA was unconscio nable because paragraph 2 excludes from arbitration declaratory or injunctive re lief claims regarding confidentiality, noncompetition, or similar obligations. Th is provision does not render the MAA unconscionable. This is so because even if the MA A's provision excluding such claims from arbitration was improper, the tr ial court could have severed it, and indeed was required to do so. In Little v. Auto Steigler, Inc., supra, 29 Cal.4th 1064, the California Supreme Court considered an employment arbitrati on agreement that included a provision providing a right to only the employer to appeal an arbitration award in excess of $50,000. ( Id. at p. 1071.) Recognizing that the appeal was unilateral, and thus unconscionable, the California Supreme Court held that the trial court was required to sever the offending provision and enfor ce the balance of the agreement. ( Id. at pp. 1072- 1076.) Similarly, in Dotson v. Amgen, Inc. (2010) 181 Cal.App.4t h 975, 985 the Court of Appeal found that a trial court's refusal to sever from an arbitration agreement a provision limiting discovery was an abuse of discretion:13 "Even if we assume the discovery provision to be unconscionable, which we do not, the trial court a bused its discretion by refusing to sever it. Where, as here, only one provision of an agreement is found to be unconscionable and that provision can easily be severed without affecting the remainder of the agreement, the proper course is to do so." (See McManus v. CIBC World Markets Corp. (2003) 109 Cal.App.4th 76, 101-102 [sev ering provision in employment arbitration agreement requiring em ployee to pay certain arbitration costs].) Thus, if the MAA's provision allowing both parties to seek injunctive or declaratory relief in court is unconscionable be cause it is only likely that Western Pacific would bring such a claim, the court was obligat ed to sever it and enforce the remainder of the agreement.
C. The MAA's Class Action Waiver Is Enforceable. Gillespie asserts that the class ac tion waiver provision in the MAA is unenforceable under Gentry, supra, 42 Cal.4th 443. However, that decision has now been abrogated by AT&T Mobility LLC v. Concepcion (2011) 563 U.S. ___ [131 S.Ct 1740] ( Concepcion ) and Iskanian v. CLS Transp ortation Los Angeles (2014) 59 Cal.4th 348 ( Iskanian

. )
In Iskanian, supra, 59 Cal.4th 348, the Califor nia Supreme Court held that "[u]nder the logic of Concepcion, the FAA [Federal Arbitration Act] preempts Gentry 's rule against employment class waivers." ( Id . at p. 364.) As the court explained: "[T]he fact that Gentry 's rule against class waiver is stated more narrowly than Discover Bank 's rule does not save it from FAA preemption under Concepcion . The high court in Concepcion made clear that even if a state law ru le against consumer class waivers were limited to 'class proceedings [t hat] are necessary to prosecu te small-dollar claims that14 might otherwise slip through the legal system ,' it would still be preempted because states cannot require a procedure that interferes with fundamental attributes of arbitration 'even if it is desirable for unrelated reasons.' [Citati ons.] It is thus inco rrect to say that the infirmity of Discover Bank was that it did not require a case-specific showing that the class waiver was exculpatory. Concepcion holds that even if a class waiver is exculpatory in a particular case, it is nonetheless preempted by the FAA." ( Iskanian,

supra, at p. 364.) The Supreme Court also considered whet her the class action waiver was invalid under the NLRA and concluded in light of the FAA's "'"liberal federal policy favoring arbitration"' ( Concepcion, supra, [131 S.Ct. at p. 1745]), that sections 7 and 8 of the NLRA do not represent '"a contrary congressional command"' overriding the FAA's mandate [citation]." ( Iskanian, supra, 59 Cal.4th at p. 373.) The Supreme Court observed that its conclusion wa s "consistent with the judgmen t of all the federal circuit courts and most of the federal district c ourts that have considered the issue." ( Ibid. ) As the United States Supreme Court held in Concepcion, if the state laws, rules, or "judicial policy judgments" "stand as an obstacle to the accomp lishment of the FAA's objectives"—to enforce private parties' arbitr ation agreements—the state law, rule or judicial policy judgment fails. ( Concepcion, supra, 131 S.Ct. at p. 1748.) States could no longer "'rely on the uniqueness of an agreem ent to arbitrate as a basis for a state-law holding that enforcement would be unconscionable . . . .'" ( Id. at p. 1747.) Thus, Concepcion overruled Gentry , and the class action waiver is enforceable.15 D. The PAGA Claims Gillespie also asserts that even if th e MAA prevents her from maintaining a class action against Western Pacific, it does not apply to her PAGA claims under Labor Code section 2698 et seq. Gillespie is correct. The court in Iskanian also addressed the question of whether the plaintiff was required to arbitrate his PAGA claim on an individual basis. Our high court began by summarizing the PAGA provisions: "'Under th e legislation, an "a ggrieved employee" may bring a civil action personally and on beha lf of other current or former employees to recover civil penalties for Labor Code viola tions. [Citation.] Of the civil penalties recovered, 75 percent goes to the Labor an d Workforce Development Agency, leaving the remaining 25 percent for the "aggrieved em ployees." [Citation.] [¶] Before bringing a civil action for statutory penalties, an em ployee must . . . give written notice of the alleged Labor Code violation to both th e employer and the Labor and Workforce Development Agency . . . . If the agency notifies the em ployee and employer that it does not intend to investigate . . . , the employee may commence a civil action.'" ( Iskanian,

supra, 59 Cal.4th at p. 380.) Acco rding to the court, these prov isions demonstrated that a PAGA representative action is "a type of qui tam action" ( id . at p. 382) that permits "aggrieved employees, acting as private attorneys general, to recover civil penalties for Labor Code violations, with the understandin g that labor law enforc ement agencies were to retain primacy over privat e enforcement efforts." ( Id . at p. 379.) The court then addressed whether California law prohibited the waiver of representative PAGA claims and, if so, whet her such a rule was enforceable under the16 FAA. The Court first concluded that such claims were unwaivable: "[A]n employment agreement [that] compels the waiver of re presentative claims under the PAGA . . . is contrary to public policy and unenforc eable as a matter of state law." ( Iskanian, supra, 59 Cal.4th at p. 384.) In re aching its conclusion, the court rejected defendant's assertion that the particular waiver at issue was not against public policy because the plaintiff retained his right to arbitrate his PAGA claim on an individual basis: "[W]hether or not an individual claim is permissible under the PAGA, a prohibition of representative claims frustrates the PAGA's objectives . . . [because ] a single-claimant arbitration . . . for individual penalties will not result in the penalties contemplated under the PAGA to punish and deter employer prac tices that violate the rights of numerous employees under the Labor Code. That plaintiff and other em ployees might be able to bring individual claims for Labor Code violations in separate arbitrations does not serve the purpose of the PAGA, even if an individual claim has colla teral estoppel effects. [Citation.] Other employees would still have to assert their claims in individual proceedings.'" ( Ibid ., italics omitted.) The Court then explained that the FAA did not preempt this rule of California law:

" Concepcion made clear [that] a state law rule ma y be preempted when it 'stand[s] as an obstacle to the accomplishment of the FAA's objectives.' [Citation.] . . . [T]he rule against PAGA waivers does not frustrate the FA A's objectives because . . . the FAA aims to ensure an efficient foru m for the resolution of privat e disputes, whereas a PAGA action is a dispute between an em ployer and the state Agency." ( Iskanian, supra, 59 Cal.4th at p. 384, italics omitted.) The Co urt concluded: "Not hing in the text or17 legislative history of the FAA nor in the Supreme Court's construction of the statute suggests that the FAA was inte nded to limit the ability of stat es to enhance their public enforcement capabilities by en listing willing employees in qui tam actions." ( Id . at p. 387.) DISPOSITION The order denying West ern Pacific's petition to compel arbitration is reversed, and the court is ordered to grant Western Pacifi c's motion to compel, w ith the exception of Gillespie's PAGA claim. The parties sh all bear their own costs on appeal.

NARES, J.
WE CONCUR:
HUFFMAN, Acting P. J.

McDONALD, J.