Opinion ID: 2630646
Heading Depth: 2
Heading Rank: 1

Heading: Unconscionability of Appellate Arbitration Provision

Text: As recounted, the arbitration agreement provided that [a]wards exceeding $50,000.00 shall include the arbitrator's written reasoned opinion and, at either party's written request within 20 days after issuance of the award, shall be subject to reversal and remand, modification, or reduction following review of the record and arguments of the parties by a second arbitrator who shall, as far as practicable, proceed according to the law and procedures applicable to appellate review by the California Court of Appeal of a civil judgment following court trial. Little contends this provision is unconscionable. We agree. To briefly recapitulate the principles of unconscionability, the doctrine has `both a procedural and a substantive element,' the former focusing on `oppression' or `surprise' due to unequal bargaining power, the latter on `overly harsh' or `one-sided' results. ( Armendariz, supra, 24 Cal.4th at p. 114, 99 Cal.Rptr.2d 745, 6 P.3d 669.) The procedural element of an unconscionable contract generally takes the form of a contract of adhesion, `which, imposed and drafted by the party of superior bargaining strength, relegates to the subscribing party only the opportunity to adhere to the contract or reject it.' (Id. at p. 113, 99 Cal.Rptr.2d 745, 6 P.3d 669.) [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 requirement. (Id. at p. 115, 99 Cal.Rptr.2d 745, 6 P.3d 669.) It is clear in the present case that Auto Stiegler imposed on Little an adhesive arbitration agreement. Substantively unconscionable terms may take various forms, but may generally be described as unfairly one-sided. One such form, as in Armendariz, is the arbitration agreement's lack of a `modicum of bilaterality,' wherein the employee's claims against the employer, but not the employer's claims against the employee, are subject to arbitration. ( Armendariz, supra, 2A Cal.4th at p. 119, 99 Cal. Rptr.2d 745, 6 P.3d 669.) Another kind of substantively unconscionable provision occurs when the party imposing arbitration mandates a post-arbitration proceeding, either judicial or arbitral, wholly or largely to its benefit at the expense of the party on which the arbitration is imposed. Two Court of Appeal cases have addressed this kind of unconscionability. In Beynon v. Garden Grove Medical Group (1980) 100 Cal.App.3d 698, 161 Cal. Rptr. 146 (Beynon) , the medical group imposed on its patients a mandatory arbitration agreement. Paragraph B of the agreement authorized the medical group, but not the patient, to reject the first arbitration award and submit the dispute to a second arbitration panel. The court held the provision unconscionable. That the provisions of paragraph B unreasonably limit the obligations of the health plan and health care provider and defeat the reasonable expectations of one enrolling in the plan is manifest. The term arbitration normally imports a dispute resolution procedure which is speedy, economical and `bears equally' on the parties. [Citation.] The provisions of paragraph B, however, are weighted in favor of the health plan and provider of services and against members and can render arbitration an expensive and protracted proceeding. By granting to only the health plan or health care provider the unilateral right to reject an arbitration award without cause and to require rearbitration, paragraph B enables the health plan and health care provider to transform arbitration into virtually a `heads I win, tails you lose' proposition. ( Beynon, supra, 100 Cal.App.3d at p. 706, 161 Cal.Rptr. 146.) Saika v. Gold (1996) 49 Cal.App.4th 1074, 56 Cal.Rptr.2d 922 (Saika) , also arose in the doctor/patient setting. The arbitration agreement in that case had a provision that permitted either party to reject an arbitration award of $25,000 or greater and request a trial de novo in superior court. The Court of Appeal refused to enforce the provision and instead directed the trial court to confirm the $325,000 award in the patient's favor. The court rejected the doctor's argument; that the case was distinguishable from Beynon because the challenged arbitration provision permitted either party to request a trial de novo if the award exceeded the stated amount. [I]n the vernacular of late 20th century America, let us `get real.' As a practical matter, the benefit which the trial de novo clause confers on patients is nothing more than a chimera. The odds that an award will both (a) clear the $25,000 threshold but (b) still be so low that the patient would want to have a trial de novo are so small as to be negligible. Unless we are to assume that arbitrators in medical malpractice cases regularly and capriciously make awards substantially below what justice requiresand that is an assumption which we will not indulge the cases where the trial de novo clause could possibly benefit the patient are going to be rare indeed. ( Saika, supra, 49 Cal. App.4th at p. 1080, 56 Cal.Rptr.2d 922.) The court concluded that the rejection clause meant the arbitration agreement really did not function as an arbitration agreement. The promise of an inexpensive, speedy resolution to the claim evaporated with one party's unilateral ability to avoid results it did not like. [¶] We have already referred to the strong public policy favoring arbitration. That policy is manifestly undermined by provisions in arbitration clauses which seek to make the arbitration process itself an offensive weapon in one party's arsenal. (Id. at p. 1081, 56 Cal.Rptr.2d 922.) Auto Stiegler and its amici curiae make several arguments to distinguish this case from Beynon and Saika. First, they claim that the arbitration appeal provision applied evenhandedly to both parties and that, unlike the doctor/patient relationship in Saika, there is at least the possibility that an employer may be the plaintiff, for example in cases of misappropriation of trade secrets. (See, e.g., Brennan v. Tremco Inc. (2001) 25 Cal.4th 310, 105 Cal.Rptr.2d 790, 20 P.3d 1086.) But if that is the case, they fail to explain adequately the reasons for the $50,000 award threshold. From a plaintiffs perspective, the decision to resort to arbitral appeal would be made not according to the amount of the arbitration award but the potential value of the arbitration claim compared to the costs of the appeal. If the plaintiff and his or her attorney estimate that the potential value of the claim is substantial, and the arbitrator rules that the plaintiff takes nothing because of its erroneous understanding of a point of law, then it is rational for the plaintiff to appeal. Thus, the $50,000 threshold inordinately benefits defendants. Given the fact that Auto Stiegler was the party imposing the arbitration agreement and the $50,000 threshold, it is reasonable to conclude it imposed the threshold with the knowledge or belief that it would generally be the defendant. Although parties may justify an asymmetrical arbitration agreement when there is a legitimate commercial need ( Armendariz, supra, 2A Cal.4th at p. 117, 99 Cal.Rptr.2d 745, 6 P.3d 669), that need must be other than the employer's desire to maximize its advantage in the arbitration process. (Id. at p. 120, 99 Cal.Rptr.2d 745, 6 P.3d 669.) There is no such justification for the $50,000 threshold. The explanation for the threshold offered by amicus curiae Maxie, Rheinheimer, Stephens & Vrevichthat an award in which there is less than that amount in controversy would not be worth going through the extra step of appellate arbitral review makes sense only from a defendant's standpoint and cannot withstand scrutiny. Auto Stiegler also argues that an arbitration appeal is less objectionable than a second arbitration, as in Beynon, or a trial de novo, as in Saika, because it is not permitting a wholly new proceeding, making the first arbitration illusory, but only permitting limited appellate review of the arbitral award. We fail to perceive a significant difference. Each of these provisions is geared toward giving the arbitral defendant a substantial opportunity to overturn a sizable arbitration award. Indeed, in some respects appellate review is more favorable to the employer attempting to protect its interests. It is unlikely that an arbitrator who merely acts in an appellate capacity will increase an award against the employer, whereas a trial or arbitration de novo at least runs the risk that the employer would become liable for an even larger sum than that awarded in the initial arbitration. We therefore conclude that the arbitral appeal provision in this particular agreement is unconscionably one-sided and may not be enforced. We next turn to the question whether this provision may be severed and the rest of the arbitration agreement enforced, or whether the entire agreement should be invalidated.