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

Heading: Is the Unconscionable Portion of the Agreement Severable?

Text: In Armendariz, we reviewed the principles regarding the severance of illegal terms from an arbitration agreement. As we stated: Two reasons for severing or restricting illegal terms rather than voiding the entire contract appear implicit in case law. The first is to prevent parties from gaining undeserved benefit or suffering undeserved detriment as a result of voiding the entire agreementparticularly when there has been full or partial performance of the contract. [Citations.] Second, more generally, the doctrine of severance attempts to conserve a contractual relationship if to do so would not be condoning an illegal scheme. [Citations.] The overarching inquiry is whether `the interests of justice ... would be furthered `by severance. [Citation.] Moreover, courts must have the capacity to cure the unlawful contract through severance or restriction of the offending clause, which ... is not invariably the case. ( Armendariz, supra, 24 Cal.4th at pp. 123-124, 99 Cal.Rptr.2d 745, 6 P.3d 669.) Accordingly, [c]ourts are to look to the various purposes of the contract. If the central purpose of the contract is tainted with illegality, then the contract as a whole cannot be enforced. If the illegality is collateral to the main purpose of the contract, and the illegal provision can be extirpated from the contract by means of severance or restriction, then such severance and restriction are appropriate. (Id. at p. 124, 99 Cal.Rptr.2d 745, 6 P.3d 669.) In Armendariz, we found two factors weighed against severance of the unlawful provisions. First, the arbitration agreement contains more than one unlawful provision; it has both an unlawful damages provision and an unconscionably unilateral arbitration clause. Such multiple defects indicate a systematic effort to impose arbitration on an employee not simply as an alternative to litigation, but as an inferior forum that works to the employer's advantage.... [¶.] Second, in the case of the agreement's lack of mutuality, ... permeation [by an unlawful purpose] is indicated by the fact that there is no single provision a court can strike or restrict in order to remove the unconscionable taint from the agreement. Rather, the court would have to, in effect, reform the contract, not through severance or restriction, but by augmenting it with additional terms. Civil Code section 1670.5 does not authorize such reformation by augmentation, nor does the arbitration statute. Code of Civil Procedure section 1281.2 authorizes the court to refuse arbitration if grounds for revocation exist, not to reform the agreement to make it lawful. Nor do courts have any such power under their inherent limited authority to reform contracts. [Citations.] ( Armendariz, supra, 24 Cal.4th at pp. 124-125, 99 Cal.Rptr.2d 745, 6 P.3d 669.) Neither of these factors is operative in the present case. There is only a single provision that is unconscionable, the one-sided arbitration appeal. [1] And no contract reformation is required-the offending provision can be severed and the rest of the arbitration agreement left intact. Thus, the courts in Beynon and Saika, considering similar provisions, severed them and enforced the rest of the arbitration agreement. ( Beynon, supra, 100 Cal. App.3d at p. 713,161 Cal.Rptr. 146; Saika, supra, 49 Cal.App.4th at p. 1082, 56 Cal. Rptr.2d 922.) Moreover, there is no indication that the state of the law was sufficiently clear at the time the arbitration agreement was signed to lead to the conclusion that this [appellate arbitration provision] was drafted in bad faith. ( Armendariz, supra, 24 Cal.4th at pp. 124-125, fn. 13, 99 Cal. Rptr.2d 745, 6 P.3d 669.) There is enough of a difference between the appellate arbitration provision, drafted in the employment context, and the de novo trial and arbitration provisions in the doctor/patient setting in Beynon and Saika, to preclude a determination that the provision was directly contrary to settled law and therefore inferentially drafted in bad faith. We therefore conclude that Auto Stiegler's arbitration agreement is valid and enforceable once the unconscionable appellate arbitration provision is deleted. Whether a court should refuse to enforce it on other grounds will be considered below.