Trial Judge No. 1 Found The Arbitration Agreement Enforceable, No. 2 Found It Enforceable, And Court Of Appeal Agreed With No. 2.
Chris Mills sued his former employer for disability discrimination and related employment claims. Employer FSG successfully enforced an arbitration agreement, the trial judge holding unconscionable provisions in the agreement were severable. An appeal followed, but that appeal is not the subject of this post. Mills also filed a class action lawsuit for labor law violations, including PAGA claims, and FSG again moved to compel arbitration, but in front of a different trial judge. Despite the fact that the arbitration provision under consideration was the same in both lawsuits, the second judge found the arbitration provision to be permeated by unconscionability, and refused to enforce it. The second judge's order is the subject of FSG's appeal. Chris Mills v. Facility Solutions Group, Inc., B313943 (2/7 11/1/22) (Feuer, Perluss, Segal).
Of course, FSG argued claim or issue preclusion required trial judge No. 2 to accept the ruling of trial judge No. 1, who found the arbitration agreement to be enforceable. But there had been no final adjudication on the merits, because an order granting a motion to compel arbitration is not appealable, and review of the order must await appeal of the judgment confirming an arbitration award. [Note: our sidebar category is collateral estoppel/res judicata, admittedly no longer the favored terms of art, having been replaced by claim and issue preclusion.]
The agreement, being a condition of employment, was adhesive and had aspects of procedural unconscionability. The arbitration agreement was also substantively unconscionable because it unfairly allocated costs and attorney fees to the employee, limited discovery, improperly barred tolling of the statute of limitations, and included an invalid waiver of representative PAGA claims.
The last point, regarding invalid waiver of representative PAGA claims, is interesting in light of the SCOTUS ruling in Moriana v. Viking River Cruises, holding that California law invalidating contractual waivers of the right to assert representative claims under PAGA is preempted by the FAA, insofar as PAGA precludes division of actions into individual and representative claims. Because the court in Mills, however, did not require Mills to arbitrate, there was no need to divide his individual and representative claims: both could be litigated. Justice Feuer sides with Justice Sotomayor's concurring opinion in Moriana that even if the employee is required to arbitrate individual claims, under California law, the employee still has standing to bring a representative action. However, Justice Feuer does not need to decide the issue of standing, since Mills was not required to arbitrate.
COMMENT: While acknowledging that there is no per se rule that severance can never be used if there is more than one item of substantive unconscionability, Justice Feuer explains why, as a matter of policy, the court should not sever and rewrite the contract here: "[U]pholding this type of agreement with multiple unconscionable terms would create an incentive for an employer to draft a one-sided arbitration agreement in the hope employees would not challenge the unlawful provisions, but if they do, the court would simply modify the agreement to include the bilateral terms the employer should have included in the first place."
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