Samaniego v. Empire Today, LLC
2012 WL 1591847, 205 Cal. App. 4th 1138, 140 Cal. Rptr. 3d 492 (2012)
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Rule of Law:
An arbitration agreement is unenforceable under California law if it is both procedurally and substantively unconscionable. This generally applicable contract defense is not preempted by the Federal Arbitration Act.
Facts:
- Salome Samaniego and Juventino Garcia worked as carpet installers for Empire Today, LLC (Empire).
- To obtain and maintain employment, they were required to sign form contracts presented on a non-negotiable, take-it-or-leave-it basis.
- The contracts were only in English, despite Garcia being unable to read English and Samaniego having limited English literacy. Their requests for Spanish translations were denied.
- The 11-page contract was dense with legal terminology, and the arbitration clause was the 36th of 37 sections.
- The agreement shortened the statute of limitations for installers' claims to six months.
- It included a unilateral fee-shifting provision requiring installers to pay any attorneys' fees Empire incurred to enforce its rights.
- The agreement also exempted claims typically brought by Empire, such as those for injunctive relief, from the arbitration requirement, while mandating arbitration for all installer claims.
- Empire did not provide plaintiffs a copy of the American Arbitration Association rules that the agreement stated would govern the arbitration.
Procedural Posture:
- Salome Samaniego and Juventino Garcia filed a putative class action lawsuit against Empire Today, LLC in a California superior court (trial court), alleging violations of the Labor Code.
- Empire filed a motion to stay the action and compel arbitration pursuant to its 'Subcontractor Installer Agreement.'
- The superior court denied Empire's motion, finding the arbitration agreement was procedurally and substantively unconscionable.
- The superior court also denied Empire's subsequent request for reconsideration in light of the U.S. Supreme Court decision in AT&T Mobility LLC v. Concepcion.
- Empire (appellant) appealed the trial court's denial of its motion to compel arbitration to the California Court of Appeal, First District (intermediate appellate court).
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Issue:
Is an arbitration agreement contained within an employment contract unconscionable and therefore unenforceable when it is presented on a take-it-or-leave-it basis to employees with limited English proficiency and contains multiple one-sided terms favoring the employer?
Opinions:
Majority - Siggins, J.
Yes. The arbitration agreement is unconscionable and unenforceable because it exhibits high degrees of both procedural and substantive unconscionability. The court reasoned that the agreement was procedurally unconscionable due to oppression and surprise; it was a contract of adhesion presented on a take-it-or-leave-it basis to employees with limited English proficiency who were not given translations or adequate time to review, and the company failed to provide the referenced arbitration rules. The agreement was substantively unconscionable because it contained multiple one-sided provisions that unfairly favored Empire, including a shortened statute of limitations that undermined statutory labor rights, a unilateral attorney's fee provision, and a carve-out that exempted Empire's most likely claims from arbitration. The court concluded that these defects permeated the agreement, making severance inappropriate, and held that the U.S. Supreme Court's decision in AT&T Mobility LLC v. Concepcion did not preempt this generally applicable unconscionability analysis.
Analysis:
This case is significant for reaffirming the vitality of California's two-prong unconscionability doctrine as a defense against the enforcement of arbitration agreements in the post-Concepcion era. It clarifies that while the Federal Arbitration Act (FAA) preempts state laws that specifically target arbitration (like the Discover Bank rule against class-action waivers), it does not displace generally applicable contract defenses like unconscionability. The decision provides a clear framework for lower courts, demonstrating that a combination of oppressive contract formation (procedural) and multiple one-sided terms (substantive) can render an arbitration clause unenforceable. This precedent serves as a crucial protection for employees and consumers against systematically unfair arbitration schemes imposed by parties with superior bargaining power.
