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Thursday, March 10, 2016

Carbajal v. CWPSC: Arbitration Agreement Unconscionable, Unenforceable

In Carbajal v. CWPSC, Inc. (Cal.App. 2/26/16), the plaintiff filed a putative wage and hour class action against her former employer, CW. Relying on an arbitration agreement with a class action waiver, CW moved to compel the plaintiff to arbitrate her individual claims. The trial court denied the motion, holding the arbitration agreement unconscionable. The Court of Appeal affirmed, holding as follows:

CW failed to meet its burden of demonstrating that the Federal Arbitration Act (FAA) applied. "The party asserting FAA preemption bears the burden to present evidence establishing a contract with the arbitration provision affects" (1) the channels of interstate commerce, (2) the instrumentalities of interstate commerce and persons or things in interstate commerce, or (3) those activities having a substantial relation to interstate commerce. CW "presented no evidence to establish any connection to interstate commerce."

CW's arbitration agreement had a moderate level of procedural unconscionability. The agreement was a contract of adhesion. The agreement stated that arbitration would proceed under AAA rules, but it did not state which set of AAA rules would apply. CW did not give the plaintiff a copy of the applicable rules, tell her where to find the rules, offer to explain the arbitration provision, or give her an opportunity to review any rules.

The arbitration agreement also had a moderate level of substantive unconscionability. It required the plaintiff to bring all claims in arbitration, but "broadly authorize[d] CW to seek any type of injunctive relief in court." It waived the requirement that CW post a bond to obtain injunctive relief. The agreement also provided that each party should bear its own fees, which would interfere with the plaintiff's right to recover attorney fees if she prevailed on certain of her wage claims.

A provision giving CW the right to appeal an award granting class-wide relief was not substantively unconscionable.
Here, the arbitration provision states, “the arbitrator shall have no authority or jurisdiction to enter an award or otherwise provide relief on a class, collective or representative basis.” If the arbitrator awarded any form of class relief, CW Painting would be entitled to challenge the award in court and have it set aside regardless of whether the Agreement’s arbitration provision included the appeal term Carbajal challenges. The appeal term therefore does not increase the arbitration provision’s substantive unconscionability.
Given the moderate level of both procedural and substantive unconscionability, the agreement was unenforceable.
The presence of three substantively unconscionable provisions supported the conclusion that the agreement was "permeated with unconscionability," and the trial court did not abuse its discretion in refusing to sever the unconscionable terms from the agreement.

The Court did not address the plaintiff's contentions that Labor Code section 229 precludes arbitration of her Labor Code claims, and that CW could not enforce the Agreement because CW never signed it.

The opinion is available here.

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