Court Opinion

ID: 4639831
Source: CourtListenerOpinion
Date Created: 2020-12-05 01:02:08.718622+00
Date Added: 2024-06-11T07:59:37.582442
License: Public Domain

Filed 12/4/20 Ali v. Daylight Transport, LLC CA1/2
                  NOT TO BE PUBLISHED IN OFFICIAL REPORTS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 This opinion has not been certified for publication or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.

          IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

                                      FIRST APPELLATE DISTRICT

                                                   DIVISION TWO

SABID ALI et al.,
         Plaintiffs and Respondents,
                                                                        A157104
v.
DAYLIGHT TRANSPORT, LLC,                                                (Alameda County Super. Ct.
                                                                        No. RG18915217)
         Defendant and Appellant.

         Daylight Transport, LLC (appellant) appeals from the trial court’s
order denying its motion to compel arbitration and stay the underlying action
in this matter arising from the proposed class action lawsuit filed by Sabid
Ali and Eric Bland (collectively respondents), alleging they were misclassified
as independent contractors and, therefore, denied certain wage and hour
protections under California law. On appeal, appellant challenges the trial
court’s findings that (1) respondents are exempt from the Federal Arbitration
Act (FAA) (9 U.S.C. § 1, et seq.) because they are transportation workers
engaged in interstate commerce, and (2) the agreement to arbitrate between
appellant and each respondent was unconscionable and unenforceable. We
shall affirm the trial court’s order.

                                                               1
                         FACTUAL BACKGROUND
      Evidence submitted in support of and opposition to the motion to
compel arbitration—which includes, inter alia, documentary evidence; the
declaration and deposition of Jim McCarthy, appellant’s vice president of
finance and chief financial officer; and the declarations of both respondents—
is as follows.
      Appellant is “an established expedited less-than-truck load (‘LTL’)
carrier” that is “in the business of managing, coordinating, and scheduling
expedited LTL shipments across the country.” Appellant has locations
throughout California and the United States. The “vast majority” of
appellant’s work involves interstate transport.
      For pick-up and delivery services, appellant contracts with independent
truck drivers. Although the freight transported by these truck drivers “is
predominantly interstate freight, [it] also includes intrastate freight.”
Documents McCarthy had reviewed showed that the freight respondents
handled “either originated out of state or had final delivery destination out of
state.” However, appellant’s independent contractor truck drivers in
California, including respondents, “only provided pick-up and delivery
services within the state of California” and respondents “never crossed state
lines in moving freight for [appellant’s] customers.”1
      Respondents Ali and Bland each entered into an “Independent
Contractor Service Agreement” (Agreement) before beginning to drive freight

      1
        In April 2016, when Bland renewed his commercial driver’s license, he
initially indicated on a Department of Motor Vehicles form that he would be
driving intrastate only. However, appellant’s employees thereafter instructed
him “to change the certification to be for interstate commercial driving because
[he] was moving freight that crosses state lines.”

                                        2
for appellant, and regularly signed materially identical Agreements or
contract extension addenda over the time they drove for appellant.
      All of the Agreements respondents signed contained an identical
arbitration provision, which stated:
      “6.02 Arbitration. Any claim, dispute or controversy including, but not
limited to the interpretation of any federal, statutory or regulatory provisions
purported to be encompassed by this Agreement (i.e., the Leasing
Regulations), any alleged breach of this Agreement, or the enforcement of any
statutory rights emanating or relating to this Agreement shall be resolved on
an individual basis (and not as part of a class action) exclusively between
Contractor and Company by final and binding arbitration to be held in the
County and State of Contractor’s domicile before the American Arbitration
Association (‘AAA’). The arbitration proceeding shall be governed by the
following rules:
      “(a) A written demand for arbitration must be filed with the AAA and a
copy of the filing provided to the other party within one hundred twenty (120)
days of the occurrence of the claimed breach or other event giving rise to the
controversy or claim. Failure to make such timely demand for arbitration
shall constitute an absolute bar to the institution of any proceedings and a
waiver of the claim.
      “(b) The demand for arbitration shall identify the provision(s) of this
Agreement alleged to have been breached and shall state the issue proposed
to be submitted to arbitration and the remedy sought. The copy of the
demand shall be filed with the American Arbitration Association at 1750 Two
Galleria Tower, 13455 Noel Road, Dallas, Texas 75240-6636 with a request
that the demand be forwarded to the appropriate AAA Regional Office.

                                       3
      “(c) As to any dispute or controversy which under the terms of this
Agreement is a proper subject of arbitration, no suit at law or in equity based
on such dispute or controversy shall be instituted by either party other than a
suit to conform, enforce, vacate, modify or correct the award of the
arbitrator(s) as provided by law; provided, however, that this clause shall not
limit Company’s right to obtain any provisional remedy including, without
limitation, injunctive relief, writ for recovery of possession or similar relief
from any court of competent jurisdiction, as may be necessary in Company’s
sole subjective judgment to protect its property rights . . . .
      “(d) General pleadings and discovery processes related to the
arbitration proceeding shall comply with the Federal Rules of Civil
Procedure.
      “The Arbitration proceeding shall be governed by the AAA’s
Commercial Arbitration Rules to the extent that such Rules are not
inconsistent with the immediately preceding subparts (a) through (d).”
(Agreement, § VI., cl. 6.02.)
      Ali worked for appellant from 2007 to September 2016, and Bland
worked for appellant from August 2014 to January 2018, as pickup and
delivery drivers. Appellant classified and paid both respondents as
independent contractors during the entire time of their work for appellant.
Appellant required them to sign the Agreements in order to work as drivers.
Ali signed approximately 10 agreements and Bland signed approximately six
Agreements and extension addenda over the course of their work for
appellant in order to continue driving for the company. Each of the
Agreements contained the identical arbitration provision.
      Appellant’s terminal service managers presented the Agreements to
both Ali and Bland, who were not involved in drafting any part of them. Nor

                                         4
were they given any opportunity to negotiate the terms of the Agreements,
including the arbitration provision, or review the terms with an attorney
before signing them. Ali, for example, would receive the Agreement or
extension addendum “the night before he had to sign it” and “could not be
dispatched to make pickups or deliveries without signing” the Agreement “as
presented to [him].” If he failed to do so, he would lose his job with appellant.
In another example, in late 2017, Bland received notice of an extension
addendum two to three days before the New Year’s holiday, which he was
directed to sign by New Years’ Eve, in order to continue working. In addition,
appellant did not provide either respondent with a copy of the AAA
commercial arbitration rules referred to in the Agreements.
                      PROCEDURAL BACKGROUND
      On August 2, 2018, respondents filed a complaint against appellant on
behalf of themselves and a putative class of California delivery drivers,
requesting relief from appellant’s “unlawful misclassification of former and
current Daylight delivery drivers as ‘Independent Contractors,’ ” and alleging
that, as a result of the misclassification, appellant had violated a number of
Labor Code and wage order provisions, as well as the law against unfair
competition. The causes of action included (1) failure to pay minimum wage
(Lab. Code, §§ 226.2, 1182.11, 1182.12, 1194, 1104.2, 1197 et seq.; Industrial
Welfare Commission (IWC) Wage Order No. 9; Minimum Wage Order); (2)
failure to reimburse employment expenses (Lab. Code, §§ 2802, 2804; IWC
Wage Order No. 9); (3) unlawful deductions from wages (Lab. Code, §§ 221,
223; IWC Wage Order No. 9); (4) failure to provide off-duty meal periods
(Lab. Code, §§ 226.7, 512; IWC Wage Order 9); (5) failure to provide off-duty
paid rest periods (Lab. Code, §§ 226.2, 512; IWC Wage Order No. 9); (6)
failure to furnish accurate wage statements (Lab. Code, §§ 226, 226.3; IWC

                                        5
Wage Order No. 9); (7) waiting time penalties (Lab. Code, §§ 201–203); and
(8) violations of California’s Unfair Competition Law (Bus. & Prof. Code,
§ 17200 et seq.).
      On October 19, 2018, appellant filed a motion to compel arbitration and
stay the underlying action, arguing chiefly that (1) the FAA applied to the
Agreements between the parties and the FAA’s exemption for transportation
workers engaged in interstate commerce was inapplicable to respondents,
and (2) under the FAA, the arbitration provision applied to the claims
asserted in respondents’ lawsuit, respondents had agreed to arbitrate those
claims, and no grounds—including, in particular, unconscionability—existed
for revocation of the arbitration provision.
      On November 26, 2018, respondents filed a first amended complaint,
adding a cause of action under the Private Attorneys General Act (Lab. Code,
§ 2698 et seq.), based on appellant’s alleged Labor Code violations.
      On March 1, 2019, the trial court denied appellant’s motion to compel
arbitration and stay the action, after finding that the arbitration provision in
the Agreements was unenforceable. First, the court found that the FAA did
not apply to the Agreements between the parties because respondents fell
within the FAA’s exemption for transportation workers engaged in interstate
commerce. (9 U.S.C. § 1.)2 Second, the court found that the arbitration
provision was both procedurally and substantively unconscionable and
unenforceable under applicable state law.

      Section 1 provides an exemption from FAA coverage to “contracts of
      2

employment of seamen, railroad employees, or any other class of workers
engaged in foreign or interstate commerce.” (9 U.S.C. § 1.)

                                        6
      On March 26, 2019, appellant filed a notice of appeal.3
                                DISCUSSION
    I. FAA Preemption and Appellant’s Abandonment of that Issue
                        A. Trial Court Background
      In its motion to compel arbitration, appellant first argued that
respondents were required to arbitrate the claims asserted in their complaint
because the FAA applied to the Agreements between the parties and the
section 1 transportation worker exemption to arbitration was inapplicable to
respondents because they did not personally cross state lines while driving
for appellant. In its order denying the motion to compel, the trial court first
found that appellant had “met its burden of demonstrating that the
Independent Contractor Agreements are contracts evidencing a transaction
involving commerce,” and were therefore covered by the FAA. The court
further found, however, that the transportation worker exemption applied
because appellant’s “evidence demonstrates that the class of drivers that
includes [respondents] delivered interstate freight” and that appellant
instructed Bland to get an interstate driver’s license. The court therefore
concluded respondents had satisfied their burden of demonstrating that the
FAA did not apply to the Agreements. The court next addressed whether the
arbitration provision was nevertheless enforceable under California law,
focusing on the contract defense of unconscionability, and ultimately finding
the provision unenforceable due to its procedural and substantive
unconscionability.
      In its opening brief on appeal, appellant argued that the trial court
erred when it found the FAA inapplicable to respondents’ claims, before

      3
       On July 13, 2020, we granted the unopposed application of Public
Justice for leave to file an amicus curiae brief in support of respondents’
position on the question of whether they are exempt from the FAA.

                                       7
turning to the issue of unconscionability and enforceability of the arbitration
provision under state law. In its reply brief, however, appellant asserted that
this court need not reach the question of whether the FAA applies to the
parties’ Agreements or whether respondents fall under the FAA’s
transportation worker exemption because those questions have “no bearing
on this appeal. The trial court’s sole basis for declining to enforce the
Agreement was that it was unconscionable under California law, and
[respondents] offer no other basis for declining to enforce it. [Appellant] does
not contend that California’s unconscionability doctrine conflicts with or is
preempted by the FAA. Hence that doctrine applies regardless of whether
the Agreement is covered by the FAA, and this court need not resolve
whether it is.”
      Appellant further claimed in its reply brief that it “has not changed its
position as to relevance of the FAA to this appeal. [Appellant] has always
maintained that the Agreement fully complies with California law.
[Citation.] However, as [respondents] can defend the order on any grounds,
and are not limited to those stated in the order, [appellant] was forced to
raise the application of the FAA, in case [respondents] raised grounds for
nonenforcement which are preempted by the FAA. As [respondents] have not
done so either below or on appeal, the issue is now moot.”
      In its amicus brief, amicus curiae Public Justice responded that,
“[a]fter spending thirteen pages of its opening brief arguing that the [FAA]
applies [citation], [appellant] changes course in its reply brief . . . . But where
it applies, the [FAA] limits what state law can do, for the [FAA] preempts
state law with which it conflicts. If the [FAA] does not apply, state law that
would otherwise be preempted is applicable. Thus, before this court can
resolve this appeal as a matter of state law, answering the statutory

                                         8
interpretation question posed by the transportation-worker exemption is a
necessary first step in order to determine what body of state law it may
permissibly apply.”
                               B. Legal Analysis
      In AT&T Mobility LLC v. Concepcion (2011) 563 U.S. 333 (Concepcion),
the United States Supreme Court discussed the history and import of the
FAA, which “was enacted in 1925 in response to widespread judicial hostility
to arbitration agreements. [Citation.] Section 2, the ‘primary substantive
provision of the Act’ [citation], provides in relevant part, as follows:
      “ ‘A written provision of any maritime transaction or a contract
evidencing a transaction involving commerce to settle by arbitration a
controversy thereafter arising out of such contract or transaction . . . shall be
valid, irrevocable, and enforceable, save upon such grounds as exist at law or
in equity for the revocation of any contract.’ (9 U.S.C. § 2.)
      “We have described this provision as reflecting both a ‘liberal federal
policy favoring arbitration’ [citation], and the ‘fundamental principle that
arbitration is a matter of contract’ [citation]. In line with these principles,
courts must place arbitration agreements on an equal footing with other
contracts [citation], and enforce them according to their terms [citation].”
(Concepcion, supra, 563 U.S. at p. 339.)
      Section 1 of the FAA, however, “provides a limited exemption from FAA
coverage to ‘contracts of employment of seamen, railroad employees, or any
other class of workers engaged in foreign or interstate commerce.’ (9 U.S.C.
§ 1.) In Circuit City [Stores, Inc. v. Adams (2001) 532 U.S. 105, 119], the
United States Supreme Court concluded section 1’s catchall phrase ‘ “any
other class of workers engaged in foreign or interstate commerce” ’ does not
refer to all workers involved in foreign or interstate commerce, but rather

                                         9
only to ‘transportation workers.’ [Citation.]” (Muller v. Roy Miller Freight
Lines, LLC (2019) 34 Cal.App.5th 1056, 1062; see id. at p. 1069 [truck driver
who drove intrastate portion of interstate trips for transportation company
was engaged in interstate commerce and therefore exempt from FAA under
section 1 because company’s goods originated primarily outside of California];
Nieto v. Fresno Beverage Co., Inc. (2019) 33 Cal.App.5th 274, 284 [intrastate
delivery driver was exempt under section 1 of FAA because he “was engaged
in interstate commerce through his participation in the continuation of the
movement of interstate goods to their destinations”].)
      In Concepcion, the high court addressed whether certain claims, such
as the alleged unconscionability of an arbitration agreement, may be raised
as a defense to the agreement’s enforceability, notwithstanding the FAA’s
preemption of state law. The court explained that the final phrase of section
2 of the FAA “permits arbitration agreements to be declared unenforceable
‘upon such grounds as exist at law or in equity for the revocation of any
contract.’ This saving clause permits agreements to arbitrate to be
invalidated by ‘generally applicable contract defenses, such as fraud, duress,
or unconscionability,’ but not by defenses that apply only to arbitration or
that derive their meaning from the fact that an agreement to arbitrate is at
issue. [Citations.]” (Concepcion, supra, 563 U.S. at p. 339.)
      Recently, in OTO, L.L.C. v. Kho (2019) 8 Cal.5th 111 (OTO), our
Supreme Court discussed how California law interacts with the FAA as to the
enforceability of arbitration agreements: “California law strongly favors
arbitration. Through the comprehensive provisions of the California
Arbitration Act (Code Civ. Proc., § 1280 et seq.), ‘the Legislature has
expressed a “strong public policy in favor of arbitration as a speedy and
relatively inexpensive means of dispute resolution.” ’ [Citation.] As with the

                                       10
FAA (9 U.S.C. § 1 et seq.), California law establishes ‘a presumption in favor
of arbitrability.’ [Citation.] An agreement to submit disputes to arbitration
‘is valid, enforceable and irrevocable, save upon such grounds as exist for the
revocation of any contract.’ (Code Civ. Proc., § 12814; see 9 U.S.C. § 2.)
       “ ‘ “[G]enerally applicable contract defenses, such as . . .
unconscionability, may be applied to invalidate arbitration agreements
without contravening” the FAA’ or California law. [Citations.]
Unconscionability can take different forms depending on the circumstances
and terms at issue. However, the doctrine’s application to arbitration
agreements must rely on the same principles that govern all contracts.
[Citation.] The degree of unfairness required for unconscionability must be
as rigorous and demanding for arbitration clauses as for any other contract
clause. [Citation.]” (OTO, supra, 8 Cal.5th at p. 125.)
       In the present case, appellant acknowledged in its reply brief that
respondents have not raised any defenses to the arbitration provision that
conflict with, and would therefore be preempted by, the FAA. Considering
appellant’s abandonment of the issue of FAA preemption (see United Grand
Corp. v. Malibu Hillbillies, LLC (2019) 36 Cal.App.5th 142, 160 [in light of
appellant’s repudiation of an argument raised in its opening brief, appellate
court would “treat the claim as abandoned”]), and its acknowledgement that
respondents’ unconscionability claims under California law could potentially
apply regardless of the FAA’s arguable applicability (see OTO, supra,
8 Cal.5th at p. 126), we will go directly to the question of whether the
arbitration provision is unconscionable and unenforceable under California
law.

       All further statutory references are to the Code of Civil Procedure
       4

unless otherwise indicated.

                                         11
                            II. Unconscionability
      Appellant challenges the trial court’s findings that, under California
law, the arbitration provision in the Agreement between it and respondents
is procedurally and substantively unconscionable, and so permeated with
unconscionability that severance of the unconscionable terms is not possible.
      “The general principles of unconscionability are well established. A
contract is unconscionable if one of the parties lacked a meaningful choice in
deciding whether to agree and the contract contains terms that are
unreasonably favorable to the other party. [Citation.] Under this standard,
the unconscionability doctrine ‘ “has both a procedural and a substantive
element.” ’ [Citation.] ‘The procedural element addresses the circumstances
of contract negotiation and formation, focusing on oppression or surprise due
to unequal bargaining power. [Citations.] Substantive unconscionability
pertains to the fairness of an agreement’s actual terms and to assessments of
whether they are overly harsh or one-sided.’ [Citation.]
      “Both procedural and substantive unconscionability must be shown for
the defense to be established, but ‘they need not be present in the same
degree.’ [Citation.] Instead, they are evaluated on ‘ “a sliding scale.” ’
[Citation.] ‘[T]he more substantively oppressive the contract term, the less
evidence of procedural unconscionability is required to’ conclude that the
term is unenforceable. [Citation.] Conversely, the more deceptive or coercive
the bargaining tactics employed, the less substantive unfairness is required.
[Citations.] A contract’s substantive fairness ‘must be considered in light of
any procedural unconscionability’ in its making. [Citation.] ‘The ultimate
issue in every case is whether the terms of the contract are sufficiently
unfair, in view of all relevant circumstances, that a court should withhold
enforcement.’ [Citation.]

                                        12
      “The burden of proving unconscionability rests upon the party
asserting it. [Citations.] ‘Where, as here, the evidence is not in conflict, we
review the trial court’s denial of arbitration de novo.’ [Citation.]” (OTO,
supra, 8 Cal.5th at pp. 125–126.)
   A. Applicability of California Law Applying the Unconscionability
     Doctrine to Arbitration Agreements in the Employment Context
      As a preliminary matter, appellant argues that because the
Agreements between the parties make clear that respondents are
independent contractors, California cases addressing unconscionability in the
employee-employer context are inapplicable here.
      In Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24
Cal.4th 83, 115 (Armendariz), our high court observed that “[a]rbitration is
favored in this state as a voluntary means of resolving disputes, and this
voluntariness has been its bedrock justification.” Nevertheless, “[g]iven the
lack of choice and the potential disadvantages that even a fair arbitration
system can harbor for employees, we must be particularly attuned to claims
that employers with superior bargaining power have imposed one-sided,
substantively unconscionable terms as part of an arbitration agreement.”
(Ibid.)
      Here, although the Agreements state that respondents are independent
contractors, respondents’ complaint is based primarily on the contention that
they were misclassified as independent contractors, and were instead
employees, entitled to certain protections under the Labor Code. Recently, in
Subcontracting Concepts (CT), LLC v. De Melo (2019) 34 Cal.App.5th 201
(Subcontracting Concepts), a panel of this Division addressed a similar
contention by a purported employer based on facts that were nearly identical
to those in this case. We first discussed two appellate opinions that had
rejected a similar argument: “In Ramos [v. Superior Court (2018) 28

                                       13
Cal.App.5th 1042, 1046 (Ramos)], the trial court granted a law firm’s motion
to compel arbitration after Ramos, an ‘ “Income Partner” ’ at the firm,
brought a California Fair Employment and Housing Act (Gov. Code, § 12900
et seq.; FEHA) claim. On appeal, the parties disputed whether Armendariz
applied to the arbitration clause in the parties’ partnership agreement, with
the law firm contending it did not because Ramos was not an employee.”
(Ramos, at pp. 1055–1056.)
      “Division One of this District found ‘it unnecessary to resolve the
question of whether Ramos was an employee’ for purposes of ‘deciding
whether the parties’ arbitration agreement [was] enforceable,’ concluding
that Armendariz should guide its arbitrability determination because, inter
alia, the law firm ‘was in a superior bargaining position vis-à-vis [the
partner] akin to that of an employer-employee relationship, and there is no
evidence in this record that Ramos had an opportunity to negotiate the
arbitration provision.’ (Ramos, supra, 28 Cal.App.5th at p. 1056.)
      “Likewise, in Wherry [v. Award, Inc. (2011) 192 Cal.App.4th 1242, 1249
(Wherry)], the appellate court applied Armendariz’s requirements in finding
unconscionable an arbitration agreement between the parties even though
the plaintiffs were independent contractors. In its analysis of substantive
unconscionability, the court stated: ‘That plaintiffs are independent
contractors and not employees makes no difference in this context. The
contract by which they were to work for defendants contained a mandatory
arbitration provision.’ ” (Subcontracting Concepts, supra, 34 Cal.App.5th at
pp. 208–209.)
      In Subcontracting Concepts, we ultimately concluded that because
“there plainly was a power imbalance between the parties, respondent was
required to sign an agreement containing a mandatory arbitration provision,

                                       14
and the underlying claims involve whether respondent was an employee or
an independent contractor,” it was “both unnecessary and inappropriate to
resolve the question of whether respondent was an employee for purposes of
our unconscionability determination under California law. [Citations.]”
(Subcontracting Concepts, supra, 34 Cal.App.5th at pp. 209–210.)
      Likewise, in the case before us, we find that it is “both unnecessary and
inappropriate” to determine whether respondents were employees for
purposes of our unconscionability determination. (Subcontracting Concepts,
supra, 34 Cal.App.5th at p. 210.) Whether or not a finder of fact ultimately
agrees with respondents’ allegations that they were employees, “the
relationship between [appellant and respondents] was characterized by a
power imbalance analogous to that of an employer-employee relationship”
and was “sufficiently similar to that of an employee-employer relationship to
conclude the parties’ arbitration agreement is subject to Armendariz
requirements.” (Ramos, supra, 28 Cal.App.5th at pp. 1057–1058.)
                     B. Procedural Unconscionability
      “A procedural unconscionability analysis ‘begins with an inquiry into
whether the contract is one of adhesion.’ [Citation.] An adhesive contract is
standardized, generally on a preprinted form, and offered by the party with
superior bargaining power ‘on a take-it-or-leave-it basis.’ [Citations.]
Arbitration contracts imposed as a condition of employment are typically
adhesive [citations]. The pertinent question, then, is whether circumstances
of the contract’s formation created such oppression or surprise that closer
scrutiny of its overall fairness is required. [Citations.] ‘ “ ‘Oppression occurs
where a contract involves lack of negotiation and meaningful choice, surprise
where the allegedly unconscionable provision is hidden within a prolix
printed form.’ ” ’ [Citations.]” (OTO, supra, 8 Cal.5th at p. 126.)

                                        15
      “With respect to preemployment arbitration contracts, [our Supreme
Court has] observed that ‘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.’ [Citation.] This economic pressure can also be
substantial when employees are required to accept an arbitration agreement
in order to keep their job.” (OTO, supra, 8 Cal.5th at p. 127, quoting
Armendariz, supra, 24 Cal.4th at p. 115.)
      In the present case, the trial court found that the Agreements were
procedurally unconscionable because appellant “was in a superior bargaining
position and presented the contracts on a take it or leave it basis.” We agree
that the undisputed evidence shows that the Agreements were contracts of
adhesion. (See OTO, supra, 8 Cal.5th at p. 126.) Each Agreement consisted
of a standardized, preprinted form in small font, with the arbitration
provision appearing near the end of a 15-page contract containing multiple
provisions. Specifically, the arbitration provision is the 27th of 39 clauses
contained within the Agreement and is the second of three clauses set forth
under a heading entitled, “Administrative and Related Matters.”
      Both respondents stated that they were under pressure to sign the
Agreements and extension addenda quickly without any opportunity to
negotiate or consult an attorney. They were given the Agreements with short
deadlines—between one and four days—to sign them, initially as a condition
of working as a driver for appellant, and subsequently as a repeated
precondition to continued work. These circumstances “demonstrate
significant oppression.” (OTO, supra, 8 Cal.5th at p. 127.)

                                       16
      Appellant points out that in his declaration, Jim McCarthy, appellant’s
chief financial officer, provided conflicting evidence on this issue, stating, “As
is [appellant’s] general practice, [each respondent] was afforded an
opportunity to review the Independent Contractor Agreement and was free to
take the Independent Contractor Agreement to be reviewed by an attorney of
his choosing. If [either respondent] so desired, he also could have engaged
[appellant] in discussions over the terms of the Independent Contractor
Agreement. In other words, [each respondent] could have asked questions,
raised concerns, or offered to negotiate any terms of the Independent
Contractor Agreement.”
      In his subsequent deposition, however, when asked about the specific
circumstances surrounding respondents’ signing of the initial and subsequent
Agreements and extension addenda, McCarthy acknowledged that he was not
present when the Agreements were presented to or signed by either
respondent and did not know who gave them the Agreements to sign or how
they received them. He did not know when respondents’ received the
Agreements for signature or how long they had to review them before
signing. McCarthy acknowledged that he did not even know whether either
respondent was ever given an opportunity to review the Agreements before
signing them. Nor did he know whether either respondent ever had the
opportunity to negotiate the terms of any of the Agreements they signed
during their time driving for appellant. Regarding the extension addenda
that current drivers sometimes were required to sign to extend their
contracts in lieu of a new Agreement, if a driver did not sign the addendum,
the driver’s relationship with appellant would terminate.
      In light of McCarthy’s detailed deposition testimony in which he
admitted that he did not know any of the particular circumstances

                                        17
surrounding respondents’ signing of their Agreements with appellant, we find
that the evidence is not in conflict on this point. Instead, the sole and
uncontroverted evidence regarding those circumstances, provided in Ali’s and
Bland’s declarations, is that Ali and Bland were under pressure to sign the
initial and subsequent Agreements and extension addenda quickly and that
neither respondent was given the opportunity to consult an attorney or
negotiate the terms of the Agreements before signing them as a condition of
driving for appellant. This evidence shows significant oppression. (See OTO,
supra, 8 Cal.5th at p. 127.)
      In addition, the arbitration provision stated that “[t]he Arbitration
proceeding shall be governed by the AAA’s Commercial Arbitration Rules,”
but the provision failed to state what those rules were and appellant did not
provide either respondent with a copy of them. (See Subcontracting Concepts,
supra, 34 Cal.App.5th at p. 211; Carbajal v. CWPSC, Inc. (2016) 245
Cal.App.4th 227, 245 (Carbajal).) The AAA rules, which were neither
articulated in nor attached to the arbitration provision, contain a cost sharing
requirement, which respondents have challenged in the present case.
Specifically, rule 54 of the AAA rules states that, except for the expenses of
witnesses called by either party, “[a]ll other expenses of the arbitration,
including required travel and other expenses of the arbitrator, AAA
representatives, and any witness and the cost of any proof produced at the
direct request of the arbitrator, shall be borne equally by the parties, unless
they agree otherwise or unless the arbitrator in the award assesses such
expenses or any part thereof against any specified party or parties.” (Italics
added.)
      This case is thus distinguishable from Baltazar v. Forever 21, Inc.
(2016) 62 Cal.4th 1237, 1246 (Baltazar), cited by appellant, in which our

                                        18
Supreme Court addressed an employee’s claim that the procedural
unconscionability of the arbitration agreement she was required to sign was
increased by the fact that the employer did not provide her “with a copy of the
AAA’s rules for arbitration of employment disputes, which, by the terms of
the arbitration agreement, govern[ed] any arbitration between the parties.”
The court rejected the employee’s reliance on several Court of Appeal cases,
explaining that those cases “stand for the proposition that courts will more
closely scrutinize the substantive unconscionability of terms that were
‘artfully hidden’ by the simple expedient of incorporating them by reference
rather than including them in or attaching them to the arbitration
agreement. [Citation.] [The employee’s] argument accordingly might have
more force if her unconscionability challenge concerned some element of the
AAA rules of which she had been unaware when she signed the agreement.
But her challenge to the enforcement of the agreement has nothing to do with
the AAA rules; her challenge concerns only matters that were clearly
delineated in the agreement she signed.” (Ibid.)
      Here, unlike the employee in Baltazar, respondents’ unconscionability
challenge does “concern[] some element of the AAA rules of which [they] had
been unaware when [they] signed the agreement.” (Baltazar, supra,
62 Cal.4th at p. 1246.) One of their claims of substantive unconscionability
relates to the requirement that they bear half the costs of arbitration, which
was not included anywhere in the arbitration provision. (See pt. II.C., post.)
Rather it was “ ‘artfully hidden’ ” by appellant’s incorporation by reference of
the AAA rules, which were neither delineated in the Agreements respondents
signed nor otherwise provided to them. (Baltazar, at p. 1246.) This fact
exacerbated the procedural unconscionability of the arbitration provision by
adding an element of surprise to the already oppressive circumstances of its

                                       19
formation, requiring “closer scrutiny of its overall fairness.” (OTO, supra,
8 Cal.5th at p. 126.)
       In sum, because neither the arbitration provision nor the manner of its
presentation to Ali and Bland “promote[d] voluntary or informed agreement
to its terms,” the evidence indicates, at the very least, a moderate degree of
procedural unconscionability. (OTO, supra, 8 Cal.5th at p. 129.)
                        C. Substantive Unconscionability
       “Substantive unconscionability examines the fairness of a contract’s
terms. This analysis ‘ensures that contracts, particularly contracts of
adhesion, do not impose terms that have been variously described as
“ ‘ “overly harsh” ’ ” [citation], “ ‘unduly oppressive’ ” [citation], “ ‘so one-sided
as to “shock the conscience” ’ ” [citation], or “unfairly one-sided” [citation].)
All of these formulations point to the central idea that the unconscionability
doctrine is concerned not with “a simple old-fashioned bad bargain” [citation],
but with terms that are “unreasonably favorable to the more powerful
party.” ’ [Citation.] Unconscionable terms ‘ “impair the integrity of the
bargaining process or otherwise contravene the public interest or public
policy” ’ or attempt to impermissibly alter fundamental legal duties.
[Citation.] . . .
       “Substantive terms that, in the abstract, might not support an
unconscionability finding take on greater weight when imposed by a
procedure that is demonstrably oppressive. Although procedural
unconscionability alone does not invalidate a contract, its existence requires
courts to closely scrutinize the substantive terms ‘to ensure they are not
manifestly unfair or one-sided.’ [Citation.]” (OTO, supra, 8 Cal.5th at
pp. 129–130.)

                                          20
      Here, the trial court concluded there were three substantively
unconscionable terms in the arbitration provision. First, it found that the
Agreement “has a 120 day statute of limitations. This is substantially
shorter than the statutory limits and is unconscionable. [Citation.]” Second,
the Agreement “permits [appellant] to seek a provisional remedy from the
court but precludes plaintiffs from equivalent access. This is one sided and
supports a finding of unconscionability. [Citation.]” Third, the Agreement
“also requires that [respondents and appellant] split the cost of arbitration.
This is unconscionable because a cost greater than the filing fees associated
with litigation deters claims.”
      We agree with the trial court that these three terms are substantively
unconscionable.
      First, with respect to the shortened statute of limitations, most of the
statutory Labor Code claims in respondents’ complaint have at least a three-
year statute of limitations. (See Pinela v. Neiman Marcus Group, Inc. (2015)
238 Cal.App.4th 227, 254 (Pinela).) The claims under the Business and
Professions Code have a four-year statute of limitations. (See Bus. & Prof.
Code, § 17208.) The arbitration provision shortens these statutes of
limitations, stating: “A written demand for arbitration must be filed with the
AAA and a copy of the filing provided to the other party within one hundred
twenty (120) days of the occurrence of the claimed breach or other event
giving rise to the controversy or claim. Failure to make such timely demand
for arbitration shall constitute an absolute bar to the institution of any
proceedings and a waiver of the claim.” (Agreement, § VI., cl. 6.02(a).)
      “California courts have held that, in the context of statutory claims
such as the wage-and-hour claims brought by [respondents], a provision in an
arbitration agreement shortening the statutory limitations period is

                                       21
substantively unconscionable. ‘The Labor Code . . . affords employees three
or four years to assert [wage-and-hour claims]. [Citations.] Where, as in this
case, arbitration provisions undermine statutory protections, courts have
readily found unconscionability.’ [Citations.]” (Pinela, supra, 238
Cal.App.4th at p. 254; accord, Samaniego v. Empire Today LLC (2012) 205
Cal.App.4th 1138, 1147 (Samaniego); Nyulassy v. Lockheed Martin Corp.
(2004) 120 Cal.App.4th 1267, 1283.)5
      Considering the applicable law and the circumstances of this case, we
conclude the language in the arbitration provision significantly shortening
the statute of limitations is substantively unconscionable. (See Pinela, supra,
238 Cal.App.4th at p. 254.)
      Second, with respect to the requirement that respondents bear half the
costs of arbitration, as noted earlier, this AAA rule was not included in the
arbitration provision or attached to the Agreement even though the provision
required that any arbitration proceedings be governed by AAA rules, which
we have found is procedurally unconscionable. (See pt. II.B., ante; see also
Agreement, § VI., cl. 6.02; AAA Rules, rule 54.) This rule is also substantively
unconscionable under applicable California law because “[a]n arbitration
procedure may not impose such costs or risks on wage claimants that it

      5
       Appellant asserts that the shortened limitations period in this case
was not substantively unconscionable because, “outside the employment
context, ‘California courts have permitted contracting parties to modify the
length of the otherwise applicable California statute of limitations, whether
the contract has extended or shortened the limitations period.’ [Citation.]”
(Quoting Hambrecht & Quist Venture Partners v. American Medical
International, Inc. (1995) 38 Cal.App.4th 1532, 1548, italics added.) We have
already found, however, that in the circumstances of this case the
relationship between the parties “was characterized by a power imbalance
analogous to that of an employer-employee relationship” and the arbitration
provision, therefore, is subject to the Armendariz requirements. (Ramos,
supra, 28 Cal.App.5th at pp. 1057–1058; see pt. II.A., ante.)

                                       22
‘ “effectively blocks every forum for the redress of disputes, including
arbitration itself.” ’ [Citation.] [¶] . . . . [Armendariz] requires that
employers bear most arbitration costs, which, because they include the
arbitrator’s compensation, can be substantial. The Armendariz rule
mitigates the unfairness of expecting that employees bear costs of a
procedure to which they were required to agree.” (OTO, supra, 8 Cal.5th at
pp. 134–135;6 see also Armendariz, supra, 24 Cal.4th at pp. 110–111
[“consistent with the majority of jurisdictions to consider this issue, we
conclude that when an employer imposes mandatory arbitration as a
condition of employment, the arbitration agreement or arbitration process
cannot generally require the employee to bear any type of expense that the
employee would not be required to bear if he or she were free to bring the
action in court”]; Subcontracting Concepts, supra, 34 Cal.App.5th at p. 212,
[finding substantively unconscionable an arbitration provision’s requirement
that plaintiff claiming misclassification as an independent contractor bear his
own arbitration costs].)
      Third, the clause in the arbitration provision purporting to allow only
appellant to request a provisional remedy in court provides: “As to any
dispute or controversy which under the terms of this Agreement is a proper
subject of arbitration, no suit at law or in equity based on such dispute or
controversy shall be instituted by either party other than a suit to conform,
enforce, vacate, modify or correct the award of the arbitrator(s) as provided
by law; provided, however, that this clause shall not limit Company’s right to

      6
       The OTO court noted that section 1284.2 “states a default rule that,
unless the agreement specifies otherwise, parties to an arbitration will bear
their own expenses. However, Armendariz created an exception to this
general rule for arbitrations of employment-related disputes.” (OTO, supra,
8 Cal.5th at p. 128.)

                                        23
obtain any provisional remedy including, without limitation, injunctive relief,
writ for recovery of possession or similar relief from any court of competent
jurisdiction as may be necessary in Company’s sole subjective judgment to
protect its property rights.” (Agreement, § VI., cl. 6.02(c), italics added.)
      Appellant maintains that the trial court “misread” this clause because,
“[w]hile [the challenged] language does permit [appellant] to seek a
provisional remedy in court, nothing about it precludes [respondents] from
doing the same; the clause is simply silent on that issue. In fact,
[respondents] are permitted to seek a provisional remedy in court,
notwithstanding the agreement to arbitrate, because . . . section 1281.8(b)
guarantees both parties that right[.]”
      Section 1281.8, subdivision (b) provides in relevant part: “A party to an
arbitration agreement may file in the court in the county in which an
arbitration proceeding is pending, or if an arbitration proceeding has not
commenced, in any proper court, an application for a provisional remedy in
connection with an arbitrable controversy, but only upon the ground that the
award to which the applicant may be entitled may be rendered ineffectual
without provisional relief.”
      We find that clause 6.02(c) is misleading in that it states that the
exception to arbitrability for provisional remedies applies only to appellant.
This reflects an attempt to improperly insert a unilateral carve out in the
arbitration provision that favors appellant, which demonstrates substantive
unconscionability. (See Armendariz, supra, 24 Cal.4th at p. 117; compare
Baltazar, supra, 62 Cal.4th at p. 1241 [clause in arbitration agreement that
authorized both parties to seek preliminary injunctive relief in trial court
“does no more than restate existing law (see . . . § 1281.8, subd. (b) . . . ), [and
therefore] does not render the agreement unconscionable”].)

                                         24
       In addition, appellant is incorrect that “[t]he language of [clause]
6.02(c) merely reiterates what . . . section 1281.8(b) already provides,” and is
therefore not unconscionable. Clause 6.02(c) does not limit appellant’s ability
to seek provisional remedies to arbitration-related issues, which is the sole
context to which section 1281.8 applies. (See § 1281.8, subd. (b) [parties to an
arbitration agreement may file in trial court “an application for a provisional
remedy in connection with an arbitrable controversy, but only upon the
ground that the award to which the applicant may be entitled may be
rendered ineffectual without provisional relief”].) Instead, the clause gives
appellant the right to obtain in court any provisional remedy, “without
limitation,” whenever it believes in its “sole subjective judgment” that such
action is necessary “to protect its property rights,” despite the arbitration
provision’s requirement that the parties otherwise arbitrate all claims.
(Agreement, § VI., cl. 6.02(c).)
       Thus, because the clause purports to permit appellant alone to seek
redress in court, because the rights given to appellant in clause 6.02(c) of the
arbitration provision go beyond the bilateral rights provided by section
1281.8 to parties involved in the arbitration process, and because appellant
has provided no reasonable justification for such a one-sided carve out, this
clause is substantively unconscionable. (See Armendariz, supra, 24 Cal.4th
at p. 117 [“it is unfairly one-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 one-sidedness based
on ‘business realities’ ”]; accord, Carbajal, supra, 245 Cal.App.4th at p. 248;
Carmona v. Lincoln Millennium Car Wash, Inc. (2014) 226 Cal.App.4th 74,
86.)

                                        25
                                D. Severability
      Appellant contends that even assuming the arbitration provision
contained unconscionable terms, the trial court improperly refused to sever
those provisions and enforce the contract.
      Civil Code section 1670.5, subdivision (a) provides: “If 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.”
      We review the trial court’s refusal to sever the unconscionable terms
for abuse of discretion. (Armendariz, supra, 24 Cal.4th at p. 122.) “The
overarching inquiry is whether ‘ “the interests of justice . . . would be
furthered” ’ by severance. [Citation.]” (Id. at p. 124.)
      “In Armendariz, the court identified three factors relevant to whether
severance is appropriate. First, ‘[i]f the central purpose of the contract is
tainted with illegality, then the contract as a whole cannot be enforced.’
(Armendariz, supra, 24 Cal.4th at p. 124.) Second, the fact that an
‘arbitration agreement contains more than one unlawful provision’ may
‘indicate a systematic effort to impose arbitration on an employee . . . as an
inferior forum that works to the employer’s advantage’ and may justify a
conclusion ‘that the arbitration agreement is permeated by an unlawful
purpose.’ (Ibid.) Third, if ‘there is no single provision a court can strike or
restrict in order to remove the unconscionable taint from the agreement,’ the
court would have to ‘reform the contract, not through severance or restriction,
but by augmenting it with additional terms,’ which would exceed its power to
cure a contract’s illegality. (Id. at pp. 124–125.)” (Subcontracting Concepts,

                                        26
supra, 34 Cal.App.5th at pp. 215–216; accord, Samaniego, supra, 205
Cal.App.4th at p. 1149.)
      “ ‘The ultimate issue in every case is whether the terms of the contract
are sufficiently unfair, in view of all relevant circumstances, that a court
should withhold enforcement.’ [Citation.]” (OTO, supra, 8 Cal.5th at p. 126.)
Here, we have found at least a moderate level of procedural
unconscionability, with circumstances surrounding the formation of this
contract of adhesion demonstrating both oppression and surprise, and three
substantively unconscionable terms that unfairly favor appellant in various
ways. These circumstances plainly justify a finding that “ ‘the central
purpose of the contract is tainted with illegality,’ ” that the multiple unlawful
provisions “ ‘indicate a systematic effort to impose arbitration [on
respondents] as an inferior forum that works to [appellant’s] advantage,’ ”
and that, “ ‘there is no single provision [the court could] strike or restrict in
order to remove the unconscionable taint from the agreement.’ ”
(Subcontracting Concepts, supra, 34 Cal.App.5th at p. 215, quoting
Armendariz, supra, 24 Cal.4th at pp. 124, 125.)7
      For these reasons, we conclude the trial court did not abuse its
discretion when it determined that the terms of the arbitration provision
were “sufficiently unfair” that enforcement should be withheld. (OTO, supra,
8 Cal.5th at p. 126; see also Davis v. Kozak (2020) 53 Cal.App.5th 897, 918

      7
        Moreover, even assuming it would be possible, as appellant argues, to
strike the substantively unconscionable terms, without having to rewrite or
augment the terms of the arbitration provision, we would still find the trial
court acted within its discretion when it refused to enforce the contract. That
is because, as discussed in detail, ante, the totality of the circumstances
support the determination that the interests of justice would not be served by
severance, which is the “overarching inquiry” in deciding whether to enforce
an unconscionable contract. (Armendariz, supra, 24 Cal.4th at p. 124.)

                                        27
[where two substantively unconscionable provisions worked to employer’s
“distinct advantage,” and indicated employer’s “self-interested effort to
impose an inferior forum on its employees, the trial court was within its
discretion to conclude the agreement was permeated by unconscionability
and should not be enforced”]; Carbajal, supra, 245 Cal.App.4th at p. 254
[where arbitration agreement contained three substantively unconscionable
terms, trial court did not abuse its discretion when it refused to enforce
agreement because it was “permeated with unconscionability”]; Samaniego,
supra, 205 Cal.App.4th at pp. 1147–1148, 1149 [where arbitration agreement
contained three substantively unconscionable terms, trial court could
reasonably conclude “that severance would not serve the interests of
justice”].)
       In light of our conclusion that the trial court did not abuse its discretion
when it found the arbitration provision unenforceable based on one of the
“generally applicable contract defenses,” i.e., unconscionability (Concepcion,
supra, 563 U.S. at p. 339; see 9 U.S.C. § 2), we need not resolve the question
of whether respondents are transportation workers engaged in interstate
commerce and therefore exempt from the FAA. (See OTO, supra, 8 Cal.5th at
p. 125; 9 U.S.C. § 1.)
                                 DISPOSITION
       The trial court’s order denying appellant’s motion to compel arbitration
and stay the underlying action is affirmed. Costs on appeal are awarded to
respondents Sabid Ali and Eric Bland.

                                        28
                                          _________________________
                                          Kline, P.J.

We concur:

_________________________
Richman, J.

_________________________
Miller, J.

Ali et al. v. Daylight Transport, LLC (A157104)

                                     29