       Fl LE
       IN CLERKS OFFICE
SUPR~ME COURT, STATE OF WASH1NG1CN

     DATE    AUG L5 2013

lrla~9·


        IN THE SUPREME COURT OF THE STATE OF WASHINGTON


    BARBARA BROWN and CINDY
    HIETT,
                                                      No. 87953-2
                      Respondents,
                                                           En Bane
             v.
                                                   Filed    -AUG 1 5 2013
    MHN GOVERNMENT SERVICES,
    INC.; HEALTH NET, INC., and
    MHN SERVICES d/b/a MHN
    SERVICES CORPORATION, a
    Washington Corporation,

                      Appellants.


             J.M. JOHNSON, J.-The narrow question before us is whether an

    arbitration agreement signed by respondents Barbara Brown and Cindy Hiett

    is permeated with unconscionability and therefore unenforceable under
Brown v. MHN Government Services, et al., No. 87953-2



California law .1 We hold that the forum selection and punitive damages

provisions are not unconscionable and that the arbitrator selection, statute of

limitations, and fee      shifting provisions are unconscionable.              The

unconscionable taint cannot be removed through severance. We hold that

because the arbitration agreement is permeated with unconscionability, it is

unenforceable. We note that our holdings are limited to the facts of this case

because we must apply California law.             We affirm the trial court's

September 30, 2011, order granting respondents Brown and Hiett's motion

to quash the demand for arbitration and denying appellant MHN

Government Services Inc.'s motion to compel arbitration.

                          FACTS AND PROCEDURAL HISTORY

       In this case, we are asked to consider whether a particular arbitration

agreement is enforceable. The underlying action concerns, in part, Brown

and Hiett's claims under the Washington Minimum Wage Act, chapter 49.46

RCW. Specifically, they allege that they were unlawfully misclassified as

independent contractors and thus were not paid the appropriate overtime rate

for all hours worked.




1
  The agreement in question contains a California choice of law provision.   This is
discussed in detail, infra p. 4.


                                             2
Brown v. MHN Government Services, et al., No. 87953-2



      Brown and Hiett are two mental health professionals who were

recruited by MHN to take short term positions providing counseling for

military personnel and their families.        In mid-2008, MHN individually

mailed Brown and Hiett letters inviting each to apply for a military and

family life consultant position. Each filled out and submitted the paperwork

that requested general background information. Brown and Hiett were then

sent contracts in the mail labeled "Provider Services Task Order Agreement"

(PSTOA).     Clerk's Papers (CP) at 33-34; 53-54. Each then signed and

returned the PSTOA.         CP at 43-52; 63-71.         The PSTOA contains a

"Mandatory Arbitration" provision, the enforceability of which is at issue

before us. CP at 49.

       On June 14, 2011, Brown and Hiett filed a complaint in Pierce County

Superior Court, alleging state law wage claims on behalf of themselves and a

proposed class. CP at 1-10. On September 30, 2011, several motions were

made before Judge Edmund Murphy in superior court. MHN moved to

compel arbitration and stay the proceedings, and Brown and Hiett moved to

quash the demand for arbitration. Verbatim Report of Proceedings (VRP) at

2. Brown and Hiett claimed that five specific provisions of the arbitration

agreement are unconscionable: the forum selection, statute of limitations,

arbitrator selection, fee shifting, and punitive damages provisions. Judge

                                             3
Brown v. MHN Government Services, eta!., No. 87953-2




Murphy denied the motion to compel arbitration and granted the motion to

quash the demand for arbitration. VRP at 44. This ruling was based on a

finding of both procedural unconscionability (VRP at 40) and that all five

contested provisions of the arbitration agreement are substantively

unconscionable (VRP at 41-44). The court decided against severing the

provisions it found unconscionable. VRP at 43.

      MHN sought review in Division Two of the Court of Appeals of the

trial court's order. Judge Worswick certified this case for transfer to this

court pursuant to RCW 2.06.030. On October 3, 2012, the Supreme Court

commissioner issued a ruling accepting certification.

       The PSTOA contains a choice of law provision that states that it "shall

be governed by and construed according to the laws of the State of

California."   CP at 49. We generally enforce choice of law provisions.

McKee v. AT&T Corp., 164 Wn.2d 372, 384, 191 P.3d 845 (2008) (citing

Erwin v. Cotter Health Ctrs., 161 Wn.2d 676, 695-96, 167 P.3d 1112

(2007)). We disregard the choice of law provision and apply Washington

law if the following three prongs are met: (1) without the provision,

Washington law would apply; (2) the chosen state's law violates a

fundamental public policy of Washington; and (3) Washington's interest in

the determination of the issue materially outweighs the chosen state's

                                            4
Brown v. MHN Government Services, eta!., No. 87953-2




interest. !d. (citing Erwin, 161 Wn.2d at 694-95).

      The parties do not contest that California law applies to the

construction of the PSTOA.       California's unconscionability law does not

violate Washington's public policy. We accordingly respect the choice of

law provision and apply California law.

                                 STANDARD OF REVIEW


       Under California law, appellate courts review the question of

arbitrability de novo. Greenspan v. Ladt, LLC, 185 Cal. App. 4th 1413,

1437, 111 Cal. Rptr. 3d 468 (2010). Where, as here, there are no relevant

disputed facts, contract interpretation is also reviewed de novo. Wolfv. Walt

Disney Pictures & Television, 162 Cal. App. 4th 1107, 1138, 76 Cal. Rptr.

3d 585 (2008). The party opposing arbitration bears the burden of showing

that the agreement is not enforceable. See Green Tree Fin. Corp.-Ala. v.

Randolph, 531 U.S. 79, 92, 121 S. Ct. 513, 148 L. Ed. 2d 373 (2000). Under

California law, the trial court's ruling on severability is reviewed for an

abuse of discretion. In re Marriage of Facter, 212 Cal. App. 4th 967, 985-

86, 152 Cal. Rptr. 3d 79 (2013).             It is proper to decline to sever

unconscionable      prov1s10ns    if   the   agreement   1s   permeated   with

unconscionability. Armendariz v. Found. Health Psychcare Servs., Inc., 24

Cal. 4th 83, 124, 6 P.3d 669, 99 Cal. Rptr. 2d 745 (2000) (holding that the

                                             5
Brown v. MHN Government Services, et al., No. 87953-2



trial court did not abuse its discretion in concluding that the arbitration

agreement was permeated by an unlawful purpose when there were two

unconscionable provisions). Such permeation can be indicated when there is

no single provision a court can strike to remove the unconscionable taint. Id.

at 124-25.

                                       ANALYSIS

       A threshold dispute as to whether an arbitration agreement is

unconscionable is ordinarily a decision for the court and not the arbitrator.

Hartley v. Superior Court, 196 Cal. App. 4th 1249, 1253-56, 127 Cal. Rptr.

3d 17 4 (20 11) (holding that an arbitration provision in a contract was not

clear and unmistakable in stating that the question of arbitrability was

subject to arbitration, so the court could not compel arbitration on the

threshold issue of the agreement's unconscionability). Here, the issue of

arbitrability has not been clearly and unmistakably delegated to the arbitrator

on the face of the contract. Therefore, it is proper for us to determine the

enforceability of the arbitration agreement.

       The parties disagree about the application of AT&T Mobility LLC v.

Concepcion,_ U.S._, 131 S. Ct. 1740, 179 L. Ed. 2d 742 (2011), to the-

general contract defense of unconscionability under state law.               In

Concepcion, customers brought a putative class action against AT&T,

                                             6
Brown v. MHN Government Services, eta!., No. 87953-2



alleging that the company's offer of a free phone to anyone who signed up

for cell phone service was fraudulent because the company charged sales tax

on the retail value of the phone. The United States Supreme Court held that

the Federal Arbitration Act (FAA), 9 U.S.C. § 2, preempts California's

judicial rule concerning the unconscionability of class action arbitration

waivers in consumer contracts. Concepcion, 131 S. Ct. at 1753. Although

the California Supreme Court has not specifically addressed the application

of Concepcion to its unconscionability law, we note that review has been

granted in Sanchez v. Valencia Holding Co. in which the court may clarify

this issue. 201 Cal. App. 4th 74, 135 Cal. Rptr. 3d 19 (2011), superseded by

272 P.3d 976, 139 Cal. Rptr. 3d 2 (2012).

       MHN argues for a broad reading of Concepcion, asserting that courts

cannot rely on general unconscionability principles if they interfere with the

fundamental attributes of arbitration such as its informality and speed.

Brown and Hiett advocate for a narrower reading that would not impair the

power of state courts to refuse enforcement of agreements under generally

applicable unconscionability principles.        We agree with this narrower

reading of Concepcion.

       In Concepcion, the United States Supreme Court interpreted the




                                            7
Brown v. MHN Government Services, et al., No. 87953-2



FAA's savmgs clause2 to mean that arbitration agreements can 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."      I d. at 17 46 (quoting Doctor's Assocs., Inc. v.

Casarotto, 517 U.S. 681, 687, 116 S. Ct. 1652, 134 L. Ed. 2d 902 (1996)).

Accordingly, state rules specific to arbitration that interfere with the

purposes of the FAA are preempted. Because California's unconscionability

principles relevant to this case apply equally to litigation and arbitration, we

apply them to the five contested provisions of the PSTOA.

A.     California's Unconscionability Standard

       Under California law, courts may choose not to enforce any contract

found '"to have been unconscionable at the time it was made,' or may 'limit



2
  The validity of the arbitration agreement in Concepcion turned on the FAA's savings
clause. 9 U.S.C. § 2 states:

       A written provision in 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, or the refusal to
       perform the whole or any part thereof, or an agreement in writing to
       submit to arbitration an existing controversy arising out of such a
       contract, transaction, or refusal, shall be valid, irrevocable, and
       enforceable, save upon such grounds as exist at law or in equity for the
       revocation of any contract.

(Emphasis added.)


                                               8
Brown v. MHN Government Services, et al., No. 87953-2



the application of any unconscionable clause."' I d. at 1746 (quoting CAL.

CN. CODE ANN. § 1670.5(a)). Unconscionability requires both a procedural

and substantive element, "but 'they need not be present in the same degree'

and are evaluated on "'a sliding scale.""' Pinnacle Museum Tower Ass 'n v.

Pinnacle Mkt. Dev., LLC, 55 Cal. 4th 223, 282 P.3d 1217, 1232, 145 Cal.

Rptr. 3d 514 (2012) (quoting Armendariz, 24 Cal. 4th at 114).            The

procedural element concerns the manner in which the contract was

negotiated, focusing on oppression or surprise.         Procedural oppression

generally concerns an inequality of bargaining power and an absence of real

negotiation or meaningful choice. Morris v. Redwood Empire Bancorp, 128

Cal. App. 4th 1305, 1319, 27 Cal. Rptr. 3d 797 (2005). Procedural surprise

generally relates to whether the challenged term is hidden in a standardized

form or beyond the reasonable expectations of the weaker party. Id. at 1321.

Substantive unconscionability concerns overly harsh or one-sided results.

Armendariz, 24 Cal. 4th at 114.

B.     Procedural Unconscionability

       The arbitration agreement at 1ssue is procedurally unconscionable.

While there does not appear to be procedural oppresswn, ambiguity

concernmg which set of American Arbitration Association (AAA) rules

applies presents procedural surprise.

                                             9
Brown v. MHN Government Services, et al., No. 87953-2



      The arbitration agreement lacks procedural oppresswn.                 The

arbitration provision was in the same typeface, font, and size as the rest of

the PSTOA and had a bold, underlined heading labeled "Mandatory

Arbitration." Brown and Hiett had time to read and consider the agreement

before signing.    Both are sophisticated bargaining parties.      Brown is a

licensed clinical social worker and a sole proprietor of her business. CP at

99. Likewise, Hiett represents herself as a marriage family therapist. CP at

109. They are highly educated professionals who voluntarily entered into an

agreement to arbitrate.

       However, the arbitration agreement contains procedural surprise due

to its lack of clarity regarding which set of AAA rules would govern the

arbitration. The arbitration agreement provides, in part, "The parties agree

that any controversy or claim arising out of or relating to this Agreement ...

or the breach thereof, whether involving a claim in tort, contract or

otherwise, shall be settled by final and binding arbitration in accordance

with the provisions of the American Arbitration Association." CP at 49.

The AAA has upward of 20 sets of both industry-specific and general

categories of rules. Generally, arbitration agreements specify which rules

will apply or the parties agree on a set of rules if the case clearly fits in one

category or another. Here, it is unclear whether the parties would arbitrate

                                            10
Brown v. MHN Government Services, eta!., No. 87953-2



under the employment rules or commercial rules, particularly given Brown

and Hiett's underlying claim that they were employees misclassified as

independent contractors.

      MHN has changed its position several times regarding which set of

AAA rules is appropriate.         This further supports Brown and Hiett's

argument that the ambiguity in the arbitration agreement has resulted in

procedural surprise.     In the opposition to plaintiffs' motion to quash

arbitration, MHN cites specifically to the employment rules.     CP at 141.

However, in the appellate briefing, MHN contends that "it is evident" that

the commercial rules, not the employment rules, should apply.         Br. of

Appellants at 7 n.l. Where MHN, the drafter of the agreement, has failed to

maintain a consistent interpretation of the agreement's terms, we recognize

that the ambiguity concerning the AAA rules has presented procedural

surprise for Brown and Hiett.

       This finding is supported by California case law that suggests that

procedural unconscionability can be present where rules are referenced in an

arbitration agreement but not attached. See, e.g., Harper v. Ultimo, 113 Cal.

App. 4th 1402, 1406, 7 Cal. Rptr. 3d 418 (2003) (holding that it was

oppressive to reference the Better Business Bureau rules but not attach them

to the agreement because the customer must go to another source to

                                           11
Brown v. MHN Government Services, et al., No. 87953-2



determine the impact of what he is signing). The California Supreme Court

has granted review on two cases that found arbitration agreements

unconscionable in part because they did not attach copies of the applicable

AAA rules. Wisdom v. AccentCare, Inc., 202 Cal. App. 4th 591, 136 Cal.

Rptr. 3d 188, superseded by 273 P.3d 513, 139 Cal. Rptr. 3d 315 (2012);

Mayers v. Volt Mgmt. Corp., 203 Cal. App. 4th 1194, 137 Cal. Rptr. 3d 657,

superseded by 278 P.3d 1167, 137 Cal. Rptr. 3d 657 (2012).

C.      Substantive Unconscionability

        1.    Forum Selection Provision

     The arbitration agreement provides, in part, "The arbitration shall be

conducted in San Francisco, California." CP at 49. Brown and Hiett argue

that this provision is substantively unconscionable because anybody wishing

to arbitrate a claim against MHN would have to locate local counsel and

travel to California at great personal expense. They claim that this provision

is one-sided in that those signing the agreements would be less likely to have

resources to travel and obtain local counsel than MHN. We disagree and

find that the forum selection provision is not substantively unconscionable.

        Forum selection provisions in arbitration agreements are evaluated for

whether the term is "unduly oppressive." Bolter v. Superior Court, 87 Cal.

App. 4th 900, 909, 104 Cal. Rptr. 2d 888 (2001).         In Bolter, the court

                                            12
Brown v. MHN Government Services, et al., No. 87953-2



severed an unconscionable arbitration agreement clause selecting Utah as the

forum. After reviewing extensive declarations from the parties concerning

their financial circumstances, family situations, and business arrangements,

the court recognized that "[u]nder the circumstances, the 'place and manner'

terms are unduly oppressive." Id.        Here, the record is devoid of similar

declarations concerning the parties' circumstances. Brown and Hiett have

not alleged similar facts concerning the hardship of arbitrating in California.

We accordingly find that the forum selection provision is not substantively

unconscionable.

       2.     Punitive Damages Provision

       The arbitration agreement provides, in part, "The arbitrator shall have

no authority to make material errors of law or to award punitive damages or

to add to, modify or refuse to enforce any agreements between the parties."

CP at 49.     Brown and Hiett claim that the provision limiting punitive

damages deprives them of their right to statutory double damages under

RCW 49.52.070. 3        Under that provision, employees can be awarded

statutory double damages from an employer who willingly and intentionally

paid them less than is required by law.            Following the United States


3
 While the construction of the PSTOA is controlled by California law, Brown and Hiett
have asserted state law claims under Washington law.


                                            13
Brown v. MHN Government Services, et al., No. 87953-2



Supreme Court's lead in Paci.fiCare Health Systems, Inc. v. Book, 538 U.S.

401, 123 S. Ct. 1531, 155 L. Ed. 2d 578 (2003), we find that the punitive

damages provision is not substantively unconscionable.

       In Paci.fiCare, the Court was asked to decide whether a party could be

compelled to arbitrate claims arising under the Racketeer Influenced and

Corrupt Organizations Act (RICO), 18 U.S.C. § 1961, even though the

arbitration agreement's limitation on punitive damages could be construed to

limit the arbitrator's authority to award statutory treble damages. 538 U.S.

at 402.   The Court ultimately concluded that addressing the question of

whether the arbitration agreement would preclude RICO treble damages

would be premature. Id. at 404.

       The Court noted that "[ o]ur cases have placed different statutory

treble-damages provisions on different points along the spectrum between

purely compensatory and strictly punitive awards." Id. at 405. The Court

further recognized that

              [i]n light of our case law's treatment of statutory treble
       damages, and given the uncertainty surrounding the parties'
       intent with respect to the contractual term "punitive," the
       application of the disputed language to respondents' RICO
       claims is, to say the least, in doubt. And Vimar instructs that we
       should not, on the basis of "mere speculation" that an arbitrator
       might interpret these ambiguous agreements in a manner that
       casts their enforceability into doubt, take upon ourselves the
       authority to decide the antecedent question of how the

                                            14
Brown v. MHN Government Services, et al., No.   87953~2




       ambiguity is to be resolved.

I d. at 406-07 (citing Vi mar Seguros y Reaseguros, S.A. v. M/V Sky

Reefer, 515 U.S. 528, 115 S. Ct. 2322, 132 L. Ed. 2d 462 (1995)).

       Washington law is similarly unclear with respect to where RCW

49.52.070 lies on the spectrum between purely remedial and purely punitive.

See RCW 49.52.070 (referring to the damages as "exemplary"); Schilling v.

Radio Holdings, Inc., 136 Wn.2d 152, 158, 961 P.2d 371 (1998) (also noting

the "exemplary" nature of the double damages provision); Morgan v.

Kingen, 141 Wn. App. 143, 161-62, 169 P.3d 487 (2007) ("the [RCW

49.52.070] damages are exemplary damages, not merely compensatory. As

exemplary damages, they are intended to punish and deter blameworthy

conduct." (emphasis added) (footnote omitted)).

       We follow the lead of the United States Supreme Court in PacifiCare

and note that it would be premature to determine at this stage whether the

punitive damages provision would limit Brown and Hiett's ability to collect

statutory double damages under RCW 49.52.070. Accordingly, we find that

the punitive damages provision is not substantively unconscionable.

       3.     Statute of Limitations Provision

       The arbitration agreement states, in part, "Arbitration must be initiated

within 6 months after the alleged controversy or claim occurred by

                                                15
Brown v. MHN Government Services, eta!., No. 87953-2



submitting a written demand to the other party.             The failure to initiate

arbitration within that period constitutes an absolute bar to the institution of

any proceedings." CP at 49. Under the Washington Minimum Wage Act,

parties have three years to bring a claim. Seattle Prof'! Eng 'g Emps. Ass 'n

v. Boeing Co., 139 Wn.2d 824, 837, 991 P.2d 1126, 1 P.3d 578 (2000).

Brown and Hiett assert that requiring parties to initiate arbitration within six

months is substantively unconscionable because it limits their right to

damages for violations occurring up to three years prior to their complaint.

We agree and find that the statute of limitations provision is substantively

unconscionable.

       California authority suggests that a six-month statute of limitations

clause in an arbitration agreement is substantively unconscionable where the

underlying statute (here, the Washington Minimum Wage Act) provides a

much longer period of time within which to assert a claim. Brown and Hiett

cite to Cuadra v. Millan 4 in support of their argument that the statute of

limitations provision would limit their recovery to the past six months'

worth of wage claims:

            A cause of action for unpaid wages accrues when the
       wages first become legally due, i.e., on the regular payday for

4
 952 P.2d 704, 17 Cal. 4th 855, 72 Cal. Rptr. 2d 687 (1998), abrogated on other grounds
by Samuels v. Mix, 989 P.2d 701, 22 Cal. 4th 1, 91 Cal. Rptr. 2d 273 (1999)).


                                             16
Brown v. MHN Government Services, et al., No. 87953-2



      the pay period in which the employee performed the work;
      when the work is continuing and the employee is therefore paid
      periodically (e.g., weekly or monthly) a separate and distinct
      cause of action accrues on each payday, triggering on each
      occasion the running of a new period of limitations.

              It follows that such an action is timely as to all paydays
       falling within the relevant limitations period. For the same
       reason, in calculating the amount of unpaid wages due in such
       an action the court will count back from the filing of the
       complaint to the beginning of the limitations period ... and will
       award all unpaid wages earned during that period.

I d. at 707 (citations omitted).

       The California Supreme Court's recitation of how a court should

calculate back pay in a cause of action for unpaid wages is persuasive. It

appears that the statute of limitations provision in this case would, in fact,

limit the amount of available damages. Under California law, a statute of

limitations provision is substantively unconscionable if it severely limits the

time available to bring a statutory claim.        See Martinez v. Master Prot.

Corp., 118 Cal. App. 4th 107, 117, 12 Cal. Rptr. 3d 663 (2004) (holding that

an employment arbitration agreement's six-month statute of limitations

unlawfully restricted employee's ability to vindicate his rights and was

therefore substantively unconscionable where the applicable statutes provide

significantly longer periods within which to assert a claim). We accordingly

find the statute of limitations provision substantively unconscionable.


                                            17
Brown v. MHN Government Services, et al., No. 87953-2



      4.      Arbitrator Selection Provision

      The arbitration agreement provides, m part, "A single, neutral

arbitrator who is licensed to practice law shall conduct the arbitration.

MHN shall provide Provider with a list of three neutral arbitrators from

which Provider shall select its choice of arbitrator for the arbitration." CP at

49.   MHN suggests that because the AAA rules are incorporated by

reference into the agreement, some hybrid between what is written in the

agreement and the AAA rules will be used to select an arbitrator. See Br. of

Appellant at 31-3 3. Although the agreement allows MHN to select any three

neutral arbitrators, MHN claims that they are bound to select from a list

provided by the AAA. This is not the case. Under both the commercial and

employment rules, if the arbitration agreement provides its own method for

arbitrator selection, that method is used and the AAA does not provide a list

of neutral arbitrators. 5

       Substantive unconscionability concerns overly harsh or one-sided

results. Armendariz, 24 Cal. 4th at 114. On its face, this arbitrator selection


5
  Am. Arbitration Ass'n, Employment Arbitration Rules and Mediation Procedures 24
(Nov. 1, 2009), available at
http://www.adr.org/aaa/ShowProperty?nodeld=/UCJV17ADRSTCCOU43o2-&revisiori:=::Jates
treleased; Am. Arbitration Ass'n, Commercial Arbitration Rules and Mediation
Procedures 19 (June 1, 2009), available at
http://www.adr.org/aaa/ShowProperty?nodeid=/UCM/ADRSTG_004103&revision=lates
treleased.


                                            18
Brown v. MHN Government Services, et al., No. 87953-2



provision is substantively unconscionable.        It allows MHN to select any

three arbitrators whom it purports to be neutral, from which Brown and Hiett

are bound to select the final arbitrator. Because the provision is both overly

harsh and one-sided in favor of MHN, we find the arbitrator selection

provision substantively unconscionable

       5.     Fee shifting Provision

       The arbitration agreement provides, in part, "The prevailing party, or

substantially prevailing party's costs of arbitration, are to be borne by the

other party, including reasonable attorney's fees." CP at 49. Brown and

Hiett claim that this provision is substantively unconscionable because under

the Washington Minimum Wage Act, attorney fees can be recovered only by

a prevailing employee, not an employer. RCW 49.48.030. We agree and

find the fee shifting provision substantively unconscionable.

       Here, some of the underlying claims fall under the Washington

Minimum Wage Act. Despite the choice of law provision, it is proper to

consider Washington cases that have evaluated fee shifting provisions in the

context of the underlying statutory claims.

       In Walters, Division One of the Court of Appeals held that mandatory

fee shifting provisions in arbitration agreements are unconscionable where

the Washington Minimum Wage Act provides that only a prevailing

                                            19
Brown v. MHN Government Services, et al., No. 87953-2



employee would be entitled to recover costs and fees. The risk of having to

pay the employer's expenses and fees was a significant deterrent to

employees contemplating initiating an action to vindicate their rights.

Walters v. A.A.A. Waterproofing, Inc., 151 Wn. App. 316, 321-22, 211 P.3d

454 (2009).      Furthermore, the language in this agreement is mandatory,

requiring that costs "are to be borne by the other party." 6                  CP at 49

(emphasis added). Cf Zuver v. Airtouch Commc 'ns, Inc., 153 Wn.2d 293,

310-11, 103 P.3d 753 (2004) (holding that an arbitration agreement's fee

shifting provision was not substantively unconscionable where the language

of the agreement is permissive rather than mandatory).

         Mandatory fee shifting provisions in arbitration agreements are

substantively unconscionable where the Washington Minimum Wage Act

provides that only a prevailing employee would be entitled to recover costs

and fees. We find the fee shifting provision substantively unconscionable.

D.       Severability

         The trial judge found the agreement procedurally unconscionable and

that all five contested provisions are substantively unconscionable. VRP at

6
    Due to the mandatory nature of this language, we decline to apply the reasoning in
Pac(fiCare in this context. An arbitrator would not have discretion to enforce the fee
shifting provision. This is distinct from the punitive damages context where the arbitrator
would have some discretion to construe the punitive damages provision in light of the
applicable statutory damages provisions.


                                               20
Brown v. MHN Government Services, eta!., No. 87953-2



40-42. The PSTOA contains a severability provision which reads, "In the

event that any provision of this Agreement is rendered invalid or

unenforceable by any valid law or regulation of the State of California or of

the United States, or declared void by any tribunal of competent jurisdiction,

the remaining provisions of this Agreement shall remain in full force and

effect." CP at 48. The trial court declined to sever the unconscionable

provisiOns,    finding    that   the    agreement      was   permeated   with

unconscionabililty and that MHN set up the arbitration provision to put itself

at an advantage. VRP at 43-44.

      Under California law, the trial court's ruling on severability is

reviewed for an abuse of discretion. In re Marriage of Facter, 212 Cal.

App. 4th 967, 985, 152 Cal. Rptr. 3d 79 (2013); Samaniego v. Empire Today

LLC, 205 Cal. App. 4th 1138, 1144, 140 Cal. Rptr. 3d 492 (2012). It is

proper to decline to sever unconscionable provisions if the agreement is

permeated with unconscionability. Armendariz, 24 Cal. 4th at 124. Such

permeation can be indicated when there is no single provision a court can

strike to remove the unconscionable taint. ld. at 124-25.

       Here, the trial court did not abuse its discretion in choosing not to

sever the unconscionable provisions. Even where three provisions are found

unconscionable rather than five, the agreement is permeated with

                                           21
Brown v. MHN Government Services, et al., No. 87953-2




unconscionability and cannot be cured through severance. Notably, one of

the agreement's greatest defects-which set of AAA rules governs-cannot

be cured by severance alone.

                                      CONCLUSION

       We find that the arbitration agreement is procedurally unconscionable.

We also find that the forum selection and punitive damages provisions are

not substantively unconscionable while the arbitrator selection, statute of

limitations, and fee shifting provisions are. We hold that the agreement is

unconscionable and the trial court did not abuse its discretion in choosing

not to sever. We accordingly affirm the trial court.




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Brown v. MHN Government Services, et al., No. 87953-2




       WE CONCUR:




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Brown v. MHN Government Services, et. al., No. 87953-2
(Gonzalez, J. concurring)




                                   No. 87953-2

       GONZALEZ, J. (concurring)-! agree with the majority's well-reasoned

conclusions that the arbitrator selection, statute of limitations, and fee shifting

provisions of the arbitration agreement are unconscionable. But the punitive

damages provision is unconscionable as well. Washington law provides that

employers who intentionally and willfully violate employees' rights under

chapter 49.52 RCW are liable for exemplary damages. The provision of the

arbitration agreement that removes that penalty is unfairly one-sided and

unconscionable.

       RCW 49.52.070 specifically provides (with some exceptions not relevant

here) that an employer who wrongfully withholds wages "shall be liable in a

civil action ... for twice the amount of the wages unlawfully rebated or

withheld by way of exemplary damages." Under Washington law, "exemplary

damages" is another term for "punitive damages." As we have explained in the

past, "[e]xemplary damages are punitive in nature." Kadoranian by Peach v.

Bellingham Police Dep 't, 119 Wn.2d 178, 188, 829 P.2d 1061 (1992) (citing

Barr v. Interbay Citizens Bank of Tampa, 96 Wn.2d 692, 698-99, 635 P.2d 441,

649 P.2d 827 (1981)). A competent arbitrator would no doubt so find. Indeed,
Brown v. MHN Government Services, et. al., No. 87953-2
(Gonzalez, J. concurring)

even the standard legal dictionary defines punitive and exemplary damages as

synonymous terms. BLACK'S LAW DICTIONARY 448 (9th ed. 2009) (listing

"exemplary damages" as an alternate term for "punitive damages").

       Washington appellate courts have used the terms "exemplary" and

"punitive" damages interchangeably, even when discussing the statute at issue

here. In Schilling v. Radio Holdings Inc., 136 Wn.2d 152, 157, 161, 961 P.2d

371 (1998), we affirmed a trial court judgment that included double damages

under RCW 49.52.070, which we referred to as a "punitive award." The Court

of Appeals similarly explained that "[a]s exemplary damages, [RCW

49.52.070's double damages] are intended to punish and deter blameworthy

conduct." Morgan v. Kingen, 141 Wn. App. 143, 161-62, 169 P.3d 487 (2007);

see also McKee v. AT&T Corp., 164 Wn.2d 372, 401, 191 P.3d 845 (2008)

(noting Washington's "limited examples of exemplary damages" while

analyzing a service agreement's limitation on punitive damages); Dailey v. N

Coast Life Ins. Co., 129 Wn.2d 572, 577, 919 P.2d 589 (1996) (noting that the

legislature has explicitly authorized punitive damages in RCW 9.73.230(11),

which literally provides for "exemplary damages").

       We have also characterized statutes providing for double or treble

damage awards as punitive damages, even when those statutes do not use the

terms "punitive" or "exemplary." See, e.g., Barr, 96 Wn.2d at 699-700 (the

Consumer Protection Act, chapter 19.86 RCW, and laws prohibiting usury and

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Brown v. MHN Government Services, et. al., No. 87953-2
(Gonzalez, I. concurring)

trespass to trees, shrubs, and timber provide narrow exceptions to the rule that

"punitive damages are contrary to public policy"). 1

       Because RCW 49.52.070 offers specifically exemplary (or punitive)

damages, the court should not rely on PacifzCare Health Systems, Inc. v. Book,

538 U.S. 401, 123 S. Ct. 1531, 155 L. Ed. 2d 578 (2003). InPacifzCare, the

Supreme Court found that it was at least doubtful whether an arbitration

agreement's exclusion of punitive damages would prevent an arbitrator from

awarding treble damages under the Racketeer Influenced and Corrupt

Organizations Act (RICO), 18 U.S.C. § 1961. Id. at 405-06. However, RICO

provides treble damages without identifying them as remedial or punitive. 18

U.S.C. § 1964(c). The Court explained that its prior cases had placed "treble-

damages provisions on different points along the spectrum between purely

compensatory and strictly punitive awards." PacifiCare, 538 U.S. at 405. In

contrast to RICO's treble damages, Washington's legislature specified that an
1
  I recognize that an early decision of this court concluded that exemplary damages were
not a form of punishment but rather provided actual damages for "undetermined loss and
damage ... such as damage to reputation, damage to pride and to feeling, and damage of
that character, some of which, it is true, are more or less sentimental." Levy v.
Fleischner, 12 Wash. 15, 17-18,40 P. 384 (1895). However, later cases reason that
"compensatory damages fully compensate the plaintiff for all injuries to person or
property, tangible or intangible," Barr, 96 Wn.2d at 699-700, such that punitive or
exemplary damages are separate from compensatory damages. Moreover, the statute in
Levy authorized a potentially unlimited amount of exemplary damages, and the court was
inclined to think "the legislature, in granting the jury the right to assess this peculiar, and
not very well-defined, character of damages, to grant them only the right to assess actual
damages, which could not be assessed, in the absence of this provision, under the general
laws governing attachments." 12 Wash. at 17. In contrast, RCW 49.52.070 provides a
specific measure of exemplary damages, most likely for the punitive purpose normally
associated with that term.

                                               3
Brown v. MHN Government Services, et. a!., No. 87953-2
(Gonzalez, J. concurring)

employer "shall be liable in a civil action ... for twice the amount of the wages

unlawfully rebated or withheld by way of exemplary damages." RCW

49.52.070 (emphasis added).

       The conflict between RCW 49.52.070 and the arbitration agreement is

quite plain. The law allows employees to seek punitive damages from an

employer who willingly and intentionally pays them less than required, and the

agreement takes away the arbitrator's authority to award those damages. I

would hold the punitive damages provision of the arbitration agreement

unconscionable. I respectfully concur with the court's judgment that this

arbitration clause is unconscionable and unenforceable.




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Brown v. MHN Government Services, et. al., No. 87953-2
(Gonzalez, J. concurring)




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