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We have recently seen significant legal developments in estate planning, elder and special needs law, and business law, including the following:
- The US Supreme Court ruled on the constitutionality of the mandatory repatriation tax
- The New York Appellate Division upheld the constitutionality of a minimum spending requirement for nursing homes
- A federal court decided a preliminary injunction on enforcement of the Federal Trade Commission’s nationwide ban of noncompete agreements
To ensure that you stay abreast of these changes, we have highlighted these and other noteworthy developments and analyzed how they may impact your estate planning, elder and special needs law, and business law practices.
Estate Planning
US Supreme Court Holds Mandatory Repatriation Tax Constitutional in Narrow Ruling
Moore v. United States, No. 22-800, 2024 WL 3056011 (June 20, 2024)
Charles and Kathleen Moore (the Moores) sought to invalidate the mandatory repatriation tax (MRT), a one-time tax created by the 2017 Tax Cuts and Jobs Act. The MRT subjects US persons who own at least 10 percent of a “controlled foreign corporation” (i.e., a foreign corporation whose ownership or voting rights are more than 50 percent owned by US persons) to a pass-through tax on the controlled foreign corporation’s profits, regardless of whether the corporation distributed its earnings to them. The MRT was aimed at addressing the trillions of dollars of undistributed income that controlled foreign corporations had accumulated, by imposing a tax rate of 8 to 15.5 percent on the pro rata shares of US shareholders.
The Moores, who owned 11 percent of a foreign corporation called KisanKraft, had an increased tax liability of $14,729 for 2017 due to the MRT. The Moores challenged the constitutionality of the MRT, contending that it violates the Apportionment Clause and the Due Process Clause. The United States District Court for the Western District of Washington dismissed their claim, and the Ninth Circuit Court of Appeals affirmed the district court’s order. The United States Supreme Court granted certiorari.
The Moores argued that the MRT was a direct tax on property that must be apportioned among the states according to their population. They asserted that income requires realization and the MRT did not tax any income they had realized.
In its opinion, the US Supreme Court noted that Congress, in subpart F of the Internal Revenue Code (I.R.C.), treats American-controlled foreign corporations as pass-through entities, attributing income of those business entities to American shareholders and taxing those shareholders on that income. The Court further noted that income taxes are indirect taxes, which are permitted without apportionment.
The Court rejected the Moores’s argument that the MRT was a tax on unrealized income, ruling that the MRT did indeed impose a tax on realized income, albeit income realized by KisanKraft rather than the Moores, that the MRT attributed to the Moores as shareholders. It found that the “precise and narrow question” it must address was “whether Congress may attribute an entity’s realized and undistributed income to the entity’s shareholders or partners, and then tax the shareholders or partners on their portions of that income.” Moore v. United States, No. 22-800, 2024 WL 3056011, *7 (June 20, 2024).
The Court relied on its “longstanding precedents” establishing that partnership taxes, S corporation taxes, and subpart F taxes are constitutional: Congress may elect to treat an entity as a pass-through, attributing its income to its shareholders or partners and then taxing them on that income. The Court held that Congress may tax either the entity or its shareholders or partners, stating “[e]ither way, this Court has held that the tax remains a tax on income—and thus an indirect tax that need not be apportioned.” Id. The Court determined that the Moores had not established a meaningful distinction between the MRT and taxes on partnership, S corporation, and subpart F income.
The Court further noted that “the Moores’ argument, taken to its logical conclusion, could render vast swaths of the Internal Revenue Code unconstitutional,” depriving “the U.S. government and the American people of trillions in tax revenue.” Id. at *13. It determined that its precedent established that the “Constitution does not require that fiscal calamity.” Id. Thus, the Court affirmed the judgment of the Ninth Circuit Court of Appeals.
Takeaways: Many speculated that the Supreme Court’s decision could significantly impact the constitutional viability of legislation that has repeatedly been proposed to create a “wealth tax” on unrealized gains. However, the Moore court clearly stated that its holding was “narrow” and limited to situations involving “(i) taxation of the shareholders of an entity, (ii) on the undistributed income realized by the entity, (iii) which has been attributed to the shareholders, (iv) when the entity itself has not been taxed on that income. In other words, our holding applies when Congress treats the entity as a pass-through.” Id. at *14. The Court further stated as follows:
For their part, the dissent and the opinion concurring in the judgment focus primarily on the realization issue—namely, whether realization is required for an income tax. We do not decide that question today . . . [N]othing in this opinion should be read to authorize any hypothetical congressional effort to tax both an entity and its shareholders or partners on the same undistributed income realized by the entity. Nor does this decision attempt to resolve the parties’ disagreement over whether realization is a constitutional requirement for an income tax.
Id. It is notable that Justice Jackson stated in her concurring opinion that she believes the Sixteenth Amendment does not impose a realization requirement, whereas Justices Barrett and Alito, in their concurring opinion, and Justices Thomas and Gorsuch, in their dissenting opinion, asserted that income derived from any source must be realized to be taxed without apportionment.
Testamentary Trust Beneficiary Not Bound by Order that Bound Trustee in Probate Proceeding with Conflict of Interest
Carmel v. Fleischer, No. 4D2023-1040, 2024 WL 3057578 (Fla. Dist. Ct. App. June 20, 2024)
Herbert Carmel passed away in 2017 survived by three children, including his sons, Mark and Randall. Herbert executed a codicil to his will before he died, providing that Mark’s share of his estate would be held in a trust with Randall and a third party, Allen Lamberg, as co-trustees. Mark’s children were remainder beneficiaries of his share. Litigation ensued over the will’s provisions, which Mark asserted were the result of Randall’s undue influence over Herbert. The parties to the litigation reached a settlement that included the appointment of Norman Fleischer as the personal representative of Herbert’s estate. After the settlement, the trial court entered an order terminating the trust, but it later vacated the order after Mark and his son asserted claims of forgery. Because the testamentary trust was not terminated, Randall and Allen continued as its trustees despite a provision in the settlement agreement prohibiting communications between Mark and Randall. Litigation related to the settlement agreement continued.
In the meantime, Norman administered Herbert’s estate. In 2019, Mark received a trustee’s accounting and trustee’s waiver of an accounting of the estate. He filed motions objecting to them and demanding an inventory and accounting of both the estate and the trust. The court never ruled on the motions.
In early 2023, Norman filed a final accounting as personal representative of Herbert’s estate and a petition for discharge. In his petition, Norman acknowledged Mark’s motions but stated that Mark lacked standing because he was not an interested person in the proceedings; rather, Mark was only a qualified beneficiary of a testamentary trust and Norman was not the trustee of that trust. Mark filed a motion to compel Norman to provide him with a copy of the final accounting. In addition, he filed a petition to surcharge Norman, alleging improper administration of the estate. Norman filed a motion to strike Mark’s surcharge petition, asserting that Mark lacked standing: Mark was not an interested person because he was a beneficiary only of the testamentary trust, not the estate. The trial court agreed with Norman and granted his petition for discharge.
On appeal, the District Court of Appeal of Florida, Fourth District, ruled that the trial court had erred. The court determined that Mark was an interested person “who may reasonably be expected to be affected by the outcome of the particular proceeding” under Fla. Stat. § 731.201(23) because he was the contingent beneficiary of a testamentary trust. Relying on Florida precedent, the court determined that “such interest may reasonably be expected to be affected if the personal representative has not properly administered the decedent’s estate and does not deliver to the testamentary trusts all of the assets to which the trusts are entitled under the will.” Carmel v. Fleischer, No. 4D2023-1040, 2024 WL 3057578, *2 (Fla. Dist. Ct. App. June 20, 2024).
Norman argued that orders in the probate proceeding that were binding on Randall and Allen as co-trustees of the testamentary trust were binding on Mark as beneficiary. He relied on Fla. Stat. § 731.303, which states that a representative may bind another if there is “no conflict of interest between them or among the persons represented . . . orders binding a trustee bind beneficiaries of the trust in proceedings to probate a will, in establishing or adding to a trust, in reviewing the acts or accounts of a prior fiduciary, and in proceedings involving creditors or other third parties.”
However, the court found that a conflict did exist between Randall as trustee of the testamentary trust and Mark as a beneficiary: not only were there significant disagreements between them over the settlement, but Randall, who was also a beneficiary of the estate, would benefit if the testamentary trust was required to bear more of the estate’s expenses. Due to these conflicts of interest, orders binding the trustees could not bind Mark. As a result, the court held that Mark had standing to contest Norman’s discharge as personal representative of Herbert’s estate and to file a petition for surcharge.
Takeaways: Clients may assume that naming the same individual as personal representative of their estate and as trustee of their testamentary trust is the best course. However, in some states, it may be beneficial to name different individuals to fill such roles. In Florida, under Fla. Stat. § 731.303, unless there is a conflict of interest between representatives or among the persons represented, orders in a probate proceeding that bind one such representative also bind other representatives, which may facilitate the administration of the trust and estate. Those orders are not binding on representatives or the persons represented in factual situations such as those in the Carmel case where conflicts of interest exist.
Wife Not Entitled to Assets Held in Trust Where Husband Amended Trust to Exclude Her as Beneficiary Before His Death
In re E. Earl Lyden Trust, No. 362112, 2024 WL 1469932 (Mich. Ct. App. April 4, 2024)
In 2001, Earl Lyden, as the sole settlor, created a revocable living trust (RLT) naming himself as trustee. In 2018, Earl decided to designate the RLT as the beneficiary of two retirement plans. Earl’s lawyer advised him that his wife, Denice, would need to waive her rights of survivorship in the plans. Denice signed consent forms relinquishing her survivor interests and Earl amended the trust, naming Denice as the beneficiary of all trust income for her lifetime and up to 3 percent of the principal as needed for medical expenses. In addition, she was named as the successor trustee. The trust document provided that if Denice remarried, she would no longer be entitled to receive the trust income but would instead receive a $200,000 payout. Upon her death, the trust’s principal would pass to Earl’s son, Hunter.
In 2019, Denice filed for divorce and the court entered an order prohibiting Denice and Earl from dissipating or transferring marital assets. In 2020, while the divorce was pending, Earl amended the RLT, designating Hunter as its sole beneficiary and successor trustee. The amended RLT specifically stated that Earl was intentionally making no provision for Denice in the trust. He passed away several months later before the divorce was finalized.
The RLT’s assets passed solely to Hunter as set forth in the amended RLT. Denice filed a petition in the probate court seeking to set aside or reform the RLT on the basis that the amendments were contrary to public policy because they almost completely divested her of marital property. The trial court granted Hunter’s motions for summary disposition after determining that the amendments to the RLT were not against public policy.
On appeal, the Michigan Court of Appeals affirmed the trial court’s judgment, holding that if a spouse does not have an intention to defraud the other spouse of their marital rights, they may use an RLT to effectively disinherit the other spouse (because, as discussed more fully below, the applicable rules in Michigan give a surviving spouse rights only to the probate estate of a deceased spouse, and the probate estate does not include any assets in trust). In this case, there was no evidence that Earl had an intention to defraud Denice. Rather, his trust amendments were intended to provide for Hunter in light of the pending divorce, which the court determined was a proper purpose.
In addition, the court ruled that Earl did not owe Denice a fiduciary duty. To the contrary, Mich. Comp. L. 700.7603(1) provides “while a trust is revocable, rights of the trust beneficiaries are subject to the control of, and the duties of the trustee owed exclusively to, the settlor.” Because Denice was only a beneficiary and not the settlor of the RLT, and because no fiduciary relationship existed between Earl and Denice during the divorce proceedings, there was no breach of fiduciary duty to Denice. Thus, even though Denice would have received roughly half of the assets in the RLT if the divorce had been finalized before Earl’s death, those assets passed solely to Hunter.
Takeaways: Although Denice did not receive any of the RLT’s assets, she did receive approximately $300,000 from the sale of the marital home and two vehicles worth approximately $22,000 and $69,000 from Earl’s probate estate as her elective share as surviving spouse. Elective share statutes are designed to protect the surviving spouse in situations in which they are disinherited: even if the deceased spouse’s will expressly states an intention to completely or partially disinherit their spouse, most states’ elective share statutes allow a spouse to make a timely election to inherit a certain percentage—often ranging from 30 to 50 percent—of their deceased spouse’s estate. In some states, including Michigan, the surviving spouse is only allowed to take their elective share from the probate estate, which excludes money and property that have been transferred to a trust, insurance policies, and retirement or financial accounts that name other beneficiaries. Other states have laws that include both the probate estate and other accounts or property the deceased spouse owned; these laws provide that the surviving spouse’s elective share can be calculated based on a larger pool of assets called the augmented estate.
Elder Law and Special Needs Law
New York Statute Imposing Minimum Spending Requirement on Nursing Homes Held Constitutional
Grand South Point, LLC v. Bassett, CV-23-0159, 2024 WL 3056050 (N.Y. App. Div. June 20, 2024)
In 2021, New York’s legislature enacted N.Y. Pub. Health L. § 2828, which mandates that New York nursing homes spend a minimum of 70 percent of their revenue on direct resident care, including 40 percent on resident-facing staffing. The law caps nursing home profits at 5 percent of total operating and nonoperating expenses. It further directs the New York Commissioner of Health (the Commissioner) to promulgate regulations regarding the disposition of revenue in excess of expenses for residential healthcare facilities and to deposit recouped funds into a nursing home quality pool.
In 2022, 130 nursing homes filed an amended complaint asserting that N.Y. Pub. Health L. § 2828 was unconstitutional under the New York and US Constitutions. The lower court granted the Commissioner’s motion to dismiss, and the nursing homes appealed.
On appeal, the New York Supreme Court, Appellate Division, Third Department rejected the nursing homes’ assertion that the New York legislature had unconstitutionally delegated its lawmaking authority to the Commissioner by granting it unfettered discretion regarding the use of funds deposited into the quality pool, finding instead that the legislature had set a standard, “albeit a vague one,” requiring the funds to be used to facilitate quality improvements in residential healthcare facilities. In addition, the court found that the law did not violate the Equal Protection Clause in the US Constitution and New York constitution by treating nursing homes differently from other similarly situated healthcare providers: applying a rational basis review, the court determined that case law and the facts of the present case easily survived because the law was reasonably related to the legitimate state objective of ensuring that nursing homes meet minimum standards of patient care, which was “exactly within the police power of the Legislature.” Grand South Point, LLC v. Bassett, CV-23-0159, 2024 WL 3056050, at *7 (N.Y. App. Div. June 20, 2024). The court also found that the nursing homes’ substantive due process claim was meritless because there was a rational connection between the law and a legitimate state interest in ensuring that nursing homes meet minimum standards of patient care.
In addition, the court ruled that the nursing homes’ assertions that the penalties associated with the spending mandate and excessive-revenue cap were unconstitutional under the Excessive Fines Clause of the Eighth Amendment of the US Constitution were not ripe because no fine had yet been imposed on them. The court held that the lower court erred in failing to enter a judgment making an appropriate declaration regarding the constitutionality of N.Y. Pub. Health L. § 2828. It modified the order to explicitly declare that N.Y. Pub. Health L. § 2828 is not unconstitutional.
Takeaways: The Grand South Point, LLC decision comes on the heels of the Centers for Medicare and Medicaid Services’s (CMS) recent issuance of a final rule establishing minimum staffing standards for long-term care facilities and requiring states to report the percentage of Medicaid payments for certain Medicaid-covered institutional services spent on compensation for direct-care workers and support staff. Although the goal underlying the CMS final rule (which has now been challenged in federal court) and state laws such as N.Y. Pub. Health L. § 2828 is to ensure safe and quality care at long-term care facilities, many in the long-term care industry are concerned that the unintended consequences may be that nursing facilities will be forced to reduce the number of beds available or even close due to their inability to hire adequate numbers of nurses to meet the mandates. There is currently a shortage of nurses, and many available nurses do not choose careers in long-term care facilities, making it difficult for long-term care facilities to comply with staffing mandates. Advocates for the change, however, argue that these long-needed patient care considerations will result in better outcomes in an industry often prone to cutting corners in search of profit maximization.
Tony Bennett’s Family Embroiled in Lawsuit over Alleged Mishandling of Trust Assets
The late singer Tony Bennett, whose decades-long career included duets with Frank Sinatra and Lady Gaga, died in 2023 after years of suffering from Alzheimer’s disease. Bennett is survived by a blended family including two daughters, Antonia and Johanna, whose mother was Sandra Grant; two sons, Daegal “Dae” and D’Andrea “Danny,” whose mother was Patricia Beech; and his wife of 15 years, Susan Benedetto. Tony Bennett’s trust, created in 1994, lists Antonia, Johanna, Dae, and Susan as beneficiaries. On June 12, 2024, Antonia and Johanna filed suit alleging that Danny, as trustee of their father’s trust, failed to disclose some of Tony Bennett’s assets, including proceeds from sales of his song “I Left My Heart in San Francisco,” and has not provided an accounting of Bennett’s assets and financial affairs. Susan and Dae are also named in the lawsuit.
Antonia and Johanna also claim that Danny obtained personal benefits for himself and his company from transactions made on behalf of Bennett, the trust, and Benedetto Arts LLC. Johanna and Antonia assert concerns about the handling of Bennett’s finances and assets both before and after his death. They seek an order that all property and assets of Bennett’s estate, the trust, and Benedetto Arts LLC, an entity in which the trust holds an interest, be inventoried, accounted for, and distributed pursuant to the terms of the trust.
Takeaways: Creating an estate plan for blended families requires special care, as relationships may be strained and it may be difficult to ensure all children are, or perceive that they are, being treated fairly. In addition, naming a family member as the trustee of a trust whose beneficiaries are other family members risks family discord, even in families that have previously had positive dynamics. This risk is heightened when the grantor of the trust suffers from a medical condition that calls their testamentary capacity into question. The beneficiaries may assert, rightly or wrongly, that the trustee has improperly or unfairly managed or distributed trust assets. In addition to damaging family relationships, expensive litigation could result. Some protections can be included in a trust document in the event a client wishes to name a family member as trustee—for example, providing the settlor or beneficiaries with the power to remove and replace the trustee, appointing a trust protector who can review the trustee’s actions and remove a trustee who fails to meet their fiduciary obligations, or naming an additional, uninterested trustee to provide oversight.
Business Law
Federal District Court Enjoins Enforcement of FTC Noncompete Ban Only Against Named Plaintiffs
On April 23, 2024, the Federal Trade Commission (FTC) issued its final Non-Compete Clause Rule, which provides that it is a violation of section 5 of the FTC Act, 15 U.S.C. § 45, which prohibits “[u]nfair methods of competition in or affecting commerce, and unfair or deceptive acts or practices in or affecting commerce,” for persons to enter into noncompete clauses with workers after the September 4, 2024, effective date of the final rule.
Ryan, LLC, a global tax services firm, challenged the final rule in the US District Court for the Northern District of Texas by filing a lawsuit against the FTC seeking declaratory and injunctive relief on multiple grounds, including that the FTC lacks the constitutional and statutory authority to issue the final rule and that the rule is arbitrary and capricious. On July 3, 2024, the court determined that Ryan, LLC was likely to succeed on the merits and enjoined the enforcement of the final rule against the named plaintiffs.
Takeaways: Unless a nationwide injunction is issued in the other pending case challenging the FTC rule, the Final Rule will take effect on September 4, 2024. A hearing is scheduled for July 10, 2024, in ATS Tree Services, LLC v. FTC on the plaintiff’s motion for injunctive relief and a declaratory judgment holding the final rule unlawful and setting it aside. It is notable that in Loper Bright Enterprises v. Raimondo, No. 22-451 (U.S. June 28, 2024), the US Supreme Court struck down Chevron deference, the legal doctrine that empowered federal regulators rather than courts to interpret unclear laws. The court’s decision increases the likelihood that the final rule will ultimately be struck down.
Restrictive Covenants Did Not Survive Completion of Employment Agreement
Wilber-Ellis Co. v. Erikson, 103 F.4th 1352 (8th Cir. 2024)
Kevin Erikson was an employee of Lacey’s Farmacy, which was purchased by Wilber-Ellis Company, LLC (Wilber-Ellis) in 2015. As part of the acquisition, Kevin signed an employment agreement with a four-year term providing that he could only be terminated for cause and that he could continue to work for Wilber-Ellis as an at-will employee following the completion of the agreement. The agreement contained noncompetition and nonsolicitation clauses prohibiting Kevin from engaging in competitive business or disclosing Wilber-Ellis’s confidential information. Pursuant to the clauses, Kevin agreed not to take employment or solicit from Wilber-Ellis’s customers or employees within a 100-mile radius of a specified county for two years after the termination of his employment. The employment agreement also contained a survival clause that provided the following:
For the avoidance of doubt, the expiration or termination of this Agreement shall not be deemed a release or termination of any obligations of Employee, or rights of Employer, to the extent such obligations or rights, as the case may be, expressly survive the termination of this Agreement.
Wilber-Ellis Co. v. Erikson, 103 F.4th 1352, 1355 (8th Cir. 2024).
In 2023, nearly four years after the completion of the four-year term of the employment agreement, Kevin resigned from Wilber-Ellis and began working for a competitor located within the county identified in the restrictive covenants. Wilber-Ellis sought a preliminary injunction, alleging that Kevin had violated the restrictive covenants contained in the employment agreement. The federal district court granted the preliminary injunction after finding that the restrictive covenants survived the termination of the employment agreement.
On appeal, the Eighth Circuit Court of Appeals reversed, finding that under the plain language of the employment agreement and South Dakota law, which governed the agreement, there must be express language in the restrictive covenants extending their application beyond the termination date of the employment agreement. South Dakota law required the parties to be bound by the language of the employment agreement as drafted, “not as the parties wished it was drafted.” Id. at 1357. In the present case, “[t]he parties could have included express language that would have extended the application of the Restrictive Covenants. They did not.” Id. Consequently, the court reversed the district court and vacated the preliminary injunction.
Takeaways: The Eighth Circuit noted that the stated purpose of the restrictive covenants in the employment agreement at issue in Wilbur-Ellis was to protect its goodwill as part of an acquisition and that it had chosen four years as the amount of time needed to recoup its goodwill. Therefore, at the end of the four-year term of the agreement, Kevin and Wilber-Ellis had completed the obligations they owed to each other under its terms. The court’s ruling is in keeping with public policy disfavoring noncompetition agreements if they are not necessary to protect legitimate business interests. If the FTC Final Rule takes effect in September 2024, the noncompetition agreement at issue also would have been unenforceable due to the federal ban on noncompetes, because the rule states that it applies retroactively.
Arbitration Agreement Held Unconscionable Where Employee Required to Share Costs of Arbitration, Apply Out-of-State Law, and Attend Proceedings in Another State
Dopp v. Now Optics, LLC, D081665, 2024 WL 2265759 (Cal. Ct. App. May 20, 2024)
Allison Dopp was employed by Now Optics, LLC (Now Optics) from 2019 to 2021. When Allison was hired, she electronically signed various documents, including a mandatory arbitration agreement stating that she agreed as a condition of her employment to final and binding arbitration of any dispute with Now Optics and its officers, directors, supervisors, managers, employees, or agents. Allison’s employment was eventually terminated. She filed a lawsuit against Now Optics alleging class action claims for labor violations, including wrongful discharge and violations of the Fair Employment and Housing Act based on gender discrimination, sexual harassment, failure to prevent harassment or discrimination, and retaliation.
Now Optics filed a motion to compel arbitration. However, Allison asserted that the arbitration agreement was unenforceable because it was procedurally and substantively unconscionable. The trial court agreed, entering an order denying the motion to compel.
The California Court of Appeals, in its de novo review, found that the arbitration agreement was a contract of adhesion because it had been offered to Allison by Now Optics, who was in a superior bargaining position on a take it or leave it basis and thus had “at least a modest degree of procedural unconscionability.” Dopp v. Now Optics, LLC, D081665, 2024 WL 2265759, *3 (Cal. Ct. App. May 20, 2024). The court also determined that although the arbitration agreement required Allison to share the costs of arbitration by the American Arbitration Association (AAA), it did not provide information enabling her to discover the amount of costs she might incur. In fact, an AAA arbitrator’s fees could range from $350 an hour to $7,500 per day, which was far above her ability to pay with her monthly earnings from Now Optics: “Accordingly, she signed an arbitration agreement as a condition of employment without knowing that her share of the required arbitration costs could make it practically impossible for her to assert her rights. This element of surprise and oppression further contributes to the procedural unconscionability.” Id.
In addition, the court held that the arbitration agreement was substantively unconscionable. First, the arbitration agreement contained a provision stating that the agreement would be governed by Florida law, forcing Allison to waive unwaivable statutory rights and remedies provided by California law. In addition, the agreement contained a forum selection clause prohibited by California law stating that arbitration proceedings under the agreement would take place in Florida. Moreover, the court determined that a confidentiality provision contained in the arbitration agreement was substantively unconscionable in the context of workplace sexual harassment and discrimination claims. Because of the large number of unconscionable provisions in the arbitration agreement, the court concluded “that the arbitration agreement overall registers high on the scale of substantive unconscionability” and “had too high a degree of unconscionability for severance to rehabilitate.” Id. at *8, *10. As a result, it affirmed the trial court’s order denying Now Optics’s motion to compel arbitration.
Takeaways: Although the Dopp court’s opinion is unpublished and nonprecedential, California practitioners should encourage clients who use arbitration agreements in the employment context to seek review of existing agreements to ensure that they do not include provisions likely to be found unconscionable.
