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Wednesday, July 11, 2012

Mayers v. Volt Management: Court Finds Arbitration Agreement Unconscionable

Another skirmish in the Arbitration Wars: Mayers v. Volt Management Corp. (2/2/12) --- Cal.App. 4th ---.

The plaintiff sued his former employer, Volt, for violation of the Fair Employment and Housing Act (FEHA).  The trial court denied Volt's compel to arbitration, and the Court of Appeal affirmed, finding that the arbitration agreement at issue was unconscionable: 
The arbitration provisions contained in the employment application, employment agreement, and employee handbook each required that plaintiff submit employment-related claims to arbitration pursuant to the "applicable rules of the American Arbitration Association in the state" where plaintiff was employed or was last employed by defendant. Plaintiff was not provided with a copy of the controlling American Arbitration Association (AAA) rules or advised as to how he could find or review them. The provisions also failed to identify which set of rules promulgated by the AAA would apply. They further stated that the "arbitrator shall be entitled to award reasonable attorney's fees and costs to the prevailing party." For the reasons discussed post, such a prevailing party attorney fees term exposed plaintiff to a greater risk of being liable to defendant for attorney fees than he would have been had he pursued his FEHA claims in court.
First, and most interesting, the Court held that the Federal Arbitration Act and AT&T Mobility LLC v. Concepcion (2011) 563 U.S. ---, do not prevent it from analyzing the arbitration agreement for unconscionability.  The Court on passages from Concepcion holding that a state law may not prohibit arbitration "of a particular type of claim" or "rely on the uniqueness of an agreement to arbitrate as a basis for a state-law holding that enforcement would be unconscionable." 
In the instant case, plaintiff opposed the motion to compel arbitration by arguing that the specific arbitration provisions before the court contained elements of procedural and substantive unconscionability, which render those elements unconscionable. Plaintiff did not argue the arbitration provisions were unenforceable under California law because they required the arbitration of a particular type of claim. (See AT&T Mobility, supra, 563 U.S. at p. ___ [131 S.Ct. at p. 1747].) Nor has plaintiff based his unconscionability argument "'on the uniqueness of an agreement to arbitrate.'" (Ibid.)
Having held that unconscionability analysis survives Concepcion, the Court went on to hold: (1) the arbitration provisions had "a high degree of procedural unconscionability" because they were contained in a contract of adhesion, and the employer did not provide a copy of the applicable arbitration rules or even identify which rules would apply; (2) the arbitration provisions had "a high degree of substantive unconscionability" because they allowed the arbitrator to award fees to the prevailing party, thus placing the plaintiff at risk of incurring liability that he could not incur in court; and (3) the trial court did not err in denying the motion to compel arbitration or in declining to sever the unconscionable provisions from the agreement.  

The opinion is available here.  

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