Fuentes v. Empire Nissan, Inc.

Facts

Unconscionability doctrine supplies the framework. To establish that a contract is unenforceable as unconscionable, the party resisting enforcement must show unfairness both in the procedure by which the contract was formed and in the substance of its terms — the familiar procedural and substantive elements, applied on a sliding scale. (Fuentes, supra, 19 Cal.5th at pp. 102–103.) Fuentes asked where a document’s physical format — here, print so degraded it approached illegibility — fits within that structure.

When Evangelina Yanez Fuentes applied to work at Empire Nissan, she signed a document titled “Applicant Statement and Agreement” containing a provision mandating arbitration of “all disputes which may arise out of the employment context,” and providing that any future modification of its terms must be “in writing and signed by the President of the Company.” (Fuentes, supra, 19 Cal.5th at p. 100.) The document was “printed in a very small font and its text is so blurry and broken up that it is nearly unreadable”; its arbitration provision was a lengthy, densely printed paragraph of complex sentences filled with legal jargon and statutory references. (Ibid.) The trial court, borrowing the Supreme Court’s description of a similar agreement in OTO, L.L.C. v. Kho (2019) 8 Cal.5th 111, 128, called the document “‘visually impenetrable’” to the point that it “‘challenge[s] the limits of legibility.’” (Fuentes, at p. 100.)

The circumstances of signing compounded the format. The agreement came inside an employment application packet Fuentes was given only five minutes to review, most of which she spent filling out the application form itself. She was told the documents concerned her application, references, and drug testing; that she had to complete them to work at Empire Nissan; and that she should hurry because the drug-testing facility was about to close. She was not offered an opportunity to ask questions and never received a copy. (Fuentes, supra, 19 Cal.5th at p. 100.)

After she was hired, Fuentes signed — again at Empire Nissan’s request — two substantially identical confidentiality agreements. They barred her from “usurp[ing], for personal gain, any opportunities in the Dealership’s line of business” and from using or disclosing confidential information and trade secrets; each provided that it “supersedes any and all prior agreements” on the covered subjects; each authorized Empire Nissan to seek “any proper injunction” in addition to “any other remedies available … at law or in equity”; and each awarded fees and costs to the prevailing party “if legal action is taken to enforce” it. Neither copy in the record bore a signature from Empire Nissan’s president. (Fuentes, supra, 19 Cal.5th at pp. 100–101.)

About two and a half years into her employment, Fuentes took medical leave for cancer treatment. A year later she requested a brief extension of the leave before returning; Empire Nissan terminated her employment. She sued for wrongful discharge and related claims, and Empire Nissan moved to compel arbitration. (Fuentes, supra, 19 Cal.5th at p. 101.)

Procedural history

The Los Angeles County Superior Court denied the motion to compel. It found the text barely legible and difficult to understand, and that Empire Nissan had given Fuentes no meaningful opportunity to review or negotiate — “a very high degree of procedural unconscionability” — and, relying on Kho and Davis v. TWC Dealer Group, Inc. (2019) 41 Cal.App.5th 662, 674, found “a low to moderate degree of substantive unconscionability” in the agreement’s “‘fine-print terms’” and in the confidentiality agreements’ apparent carveout of unfair-competition, trade-secret, and confidentiality claims — claims only Empire Nissan would bring. The court did not reach Fuentes’s separate argument that no valid agreement had been formed. (Fuentes, supra, 19 Cal.5th at p. 101.)

A divided Court of Appeal reversed. The majority (Wiley, J.) held that “tiny and unreadable print” is a problem of procedural unconscionability only, criticizing and declining to follow Davis; and, “[r]elying on the principle that ‘federal and California law strongly favor arbitration,’” it interpreted the confidentiality agreements as themselves requiring arbitration — so there was no one-sided carveout and “no substantive unconscionability.” Having found no substantive unconscionability, it declined to address procedural unconscionability at all, and directed the trial court to grant the motion to compel. (Fuentes, supra, 19 Cal.5th at p. 102, quoting Fuentes v. Empire Nissan, Inc. (2023) 90 Cal.App.5th 919, 929–931, 936.) Presiding Justice Stratton dissented: given the high degree of procedural unconscionability, the “low degree of substantive unconscionability” shown sufficed, and if fine print can indicate substantive unconscionability, “then the fine print here, which is so small as to challenge the limits of legibility, qualifies.” (Fuentes, at p. 102, quoting 90 Cal.App.5th at pp. 938–939 (dis. opn. of Stratton, P.J.).) The Supreme Court granted review to resolve the conflict with Davis. (Fuentes, at p. 100.)

Issue

Two questions controlled. First, how does illegibility figure in the unconscionability calculus — can small, blurry, difficult-to-read print support a finding of substantive unconscionability (as Davis held and the trial court found), or does format bear only on the procedural element (as the Court of Appeal held)? (Fuentes, supra, 19 Cal.5th at p. 100.) Second, in evaluating whether the paired confidentiality agreements created a one-sided exemption from arbitration for the employer’s own claims, could the Court of Appeal resolve interpretive doubt by invoking “the principle that the law strongly favors arbitration”? (Id. at p. 110.) The disposition also raised a third question: whether Fuentes’s contention that no valid agreement was ever formed — because the document’s format and presentation precluded assent — remained open on remand. (Id. at pp. 112–114.)

Holding

Reasoning

The sliding scale, restated. The Court began from settled ground: both procedural and substantive elements must be present, but “these required elements need not be present to the same degree” — “‘the more substantively oppressive [a] term, the less evidence of procedural unconscionability is required to come to the conclusion that the term is unenforceable, and vice versa.’” (Fuentes, supra, 19 Cal.5th at p. 103, quoting Ramirez v. Charter Communications, Inc. (2024) 16 Cal.5th 478, 493.) Where procedural unconscionability is substantial, “even a relatively low degree of substantive unconscionability may suffice,” and courts must closely scrutinize the substantive terms “‘to ensure they are not manifestly unfair or one-sided.’” (Fuentes, at p. 103, quoting OTO, L.L.C. v. Kho, supra, 8 Cal.5th at p. 130.)

A high degree of procedural unconscionability. Empire Nissan conceded adhesion, so the question was degree — oppression and surprise beyond the ordinary adhesion baseline. (Fuentes, supra, 19 Cal.5th at pp. 103–104.) On oppression: where a prospective employer directs an applicant to sign an arbitration agreement as part of the application process, economic pressure is “particularly high,” and Empire Nissan added a five-minute window, the hurry-up about the closing drug-testing facility, no disclosure that the packet contained an arbitration agreement, no chance to ask questions, and no copy afterward — “significant oppression.” (Id. at p. 104.) On surprise: the format itself. The agreement’s “mammoth” roughly 900-word paragraph squeezed 35 lines into about three vertical inches; one sentence ran 214 words; the text named six statutes and cited code sections without explanation. (Id. at pp. 104–105.) The Court concluded the formation circumstances “did not promote voluntary or informed agreement” and that, given the high procedural unconscionability, “even a low degree of substantive unconscionability may render the agreement unenforceable.” (Id. at p. 105, quoting Kho, supra, 8 Cal.5th at pp. 129–130.)

“Fine-print terms” means hidden unfair terms, not small fonts. The heart of the conflict was Kho‘s inclusion of “fine-print terms” in its catalog of potentially substantively unconscionable terms. Davis had read that phrase to mean print “‘so small as to challenge the limits of legibility.’” The Court disagreed: “The expression ‘fine-print terms’ refers to substantively unfair or one-sided terms hidden in a legal document” — hidden by smaller type, burial in a text block, or placement where they will be overlooked — and “[t]he common theme is that the terms are both hidden and unfavorable to the nondrafting party.” (Fuentes, supra, 19 Cal.5th at pp. 106–107.) Because “font size does not affect the substance of an agreement’s terms, it cannot render a contractual term substantively unconscionable” — though it feeds surprise on the procedural side and thereby lowers the substantive showing required. (Id. at p. 107.) On this point the Court agreed with Empire Nissan and the Court of Appeal, and all seven justices were aligned. (Id. at p. 117 (dis. opn. of Guerrero, C.J.).)

Mutuality and the confidentiality agreements. The remaining substantive-unconscionability theory invoked Armendariz: it is “unfairly one-sided for an employer with superior bargaining power to impose arbitration on the employee as plaintiff but not to accept such limitations when it seeks to prosecute a claim against the employee,” absent business-reality justification. (Fuentes, supra, 19 Cal.5th at pp. 107–108, quoting Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, 117.) Fuentes read the confidentiality agreements — covering exactly the claims only Empire Nissan would bring — as carving those claims out of arbitration and into court. Reading the confidentiality agreements alone, the Court found they contemplate judicial enforcement: they authorize remedies “at law or in equity” and prevailing-party fees in any “legal action,” a term the Court understood “in its ordinary, popular sense, which … is a proceeding in court, not an arbitration”; they never mention arbitration; and because arbitration “‘”‘is strictly a matter of consent,’”‘” contractual silence leaves the default of litigation. (Fuentes, at pp. 108–109, citing Ford Motor Warranty Cases (2025) 17 Cal.5th 1122, 1129.) Read together with the arbitration agreement, however, the documents were ambiguous: the confidentiality agreements “supersede[] any and all prior agreements” on their subjects, but the arbitration agreement permits modification only in a writing signed by the company president. (Fuentes, at pp. 109–110.)

No thumb on the scale: the Quach error. The Court of Appeal had broken the tie with “the principle that the law strongly favors arbitration.” That, the Supreme Court held, “was misplaced”: under Quach v. California Commerce Club, Inc. (2024) 16 Cal.5th 562, 579, “the policy ‘”favoring”‘ arbitration is not one of promoting arbitration over litigation, but instead of ensuring that arbitration agreements are not disfavored, i.e., that they are treated like other contracts.” (Fuentes, supra, 19 Cal.5th at p. 110.) Treating this agreement like other contracts meant the opposite interpretive posture: close scrutiny of terms for one-sidedness given the high procedural unconscionability, with ambiguities resolved against the drafter. (Ibid., citing Kho, supra, 8 Cal.5th at p. 130, and Sandquist v. Lebo Automotive, Inc. (2016) 1 Cal.5th 233, 248.)

The signature problem. The Court of Appeal’s interpretation also rested on an assumed fact: that Empire Nissan’s president “never signed” the confidentiality agreements, so no valid modification of the arbitration agreement could have occurred. But Empire Nissan never made that argument in the trial court, Fuentes had no reason to take discovery on it, and the trial court made no finding — so the interpretation “lacks an adequate factual foundation.” (Fuentes, supra, 19 Cal.5th at p. 111.) Empire Nissan waived the argument by not raising it below; but because Fuentes had not specifically contested the point on review, the Court declined to decide it and instead remanded for the trial court to consider the questions and make findings, with discretion to reopen the record. (Id. at pp. 111–112 & fn. 5.) In a pointed footnote, the majority explained why the signature could not simply be held against Fuentes: the drafter would otherwise “have it both ways,” producing a signed copy to compel a departing employee into court when that helped, and disclaiming judicial access when mutuality was challenged — an unfairness given that whether the president signs is “a matter over which it has complete control.” (Id. at pp. 111–112, fn. 4.)

Contract formation stays live on remand. Separately, Fuentes (supported by amicus Public Justice) argued that no valid agreement to arbitrate was ever formed because the format and presentation precluded assent. The Court held she had not waived the theory — she argued below that the document’s illegibility and the “procedures and tactics” used to obtain her signature “preclude formation of a valid contract,” and the trial court expressly declined to reach it — but the Court likewise declined to decide it, because the trial court had not ruled. (Fuentes, supra, 19 Cal.5th at pp. 112–114.) The Court of Appeal’s contrary disposition — directing that arbitration be compelled, implicitly cutting off the unresolved validity argument — “was error.” (Id. at p. 114.) The trial court may take briefing “on the relationship between legibility and mutual assent”; the Supreme Court “express[ed] no view on this subject.” (Ibid.)

The dissent. Chief Justice Guerrero agreed that font size cannot supply substantive unconscionability but would have affirmed. In her view, the confidentiality agreements — properly construed — confer no right on Empire Nissan to litigate in court: an arbitrator can award legal and equitable remedies including injunctions (Advanced Micro Devices, Inc. v. Intel Corp. (1994) 9 Cal.4th 362, 390–391); “legal action” can encompass arbitration; the severability clause’s reference to a “court of competent jurisdiction” is boilerplate consistent with arbitration; and, given the prior arbitration agreement, “something more than silence is required to exempt claims under the confidentiality agreements from arbitration.” (Fuentes, supra, 19 Cal.5th at pp. 120–122 (dis. opn. of Guerrero, C.J.).) Any residual ambiguity, she argued, must be resolved in favor of validity — a rule she placed above contra proferentem (Civ. Code, §§ 1643, 1654) — and the majority’s contrary suggestion that high procedural unconscionability changes contract interpretation was unsupported. (Id. at pp. 123–124 (dis. opn. of Guerrero, C.J.).) She also charged the majority with reversing on grounds — the signature “factual question” and the dispositional error — that no party raised or briefed, in tension with Government Code section 68081 and rule 8.516(b) of the California Rules of Court, and with reviving a mutual-assent theory Fuentes conceded she raised “for the first time” on the merits in the Supreme Court. (Id. at pp. 125–130 (dis. opn. of Guerrero, C.J.).) The majority answered the procedural critique in footnotes 5 and 8: remand affords the parties the process the dissent says they were denied, and “there is a difference between a decision on the merits and a decision to remand.” (Id. at pp. 112, fn. 5, 114, fn. 8.)

Significance

Fuentes tidies a doctrinal seam that had divided the Courts of Appeal since Davis: format now lives exclusively on the procedural side of the ledger. Plaintiffs can no longer count illegibility twice. But the decision is anything but a defense win. Its operative instruction — that high procedural unconscionability compels courts to “closely scrutinize” terms and to construe ambiguities against the drafting employer (Fuentes, supra, 19 Cal.5th at p. 110) — converts the sliding scale into a working interpretive method, and its application of Quach beyond waiver confirms that the “policy favoring arbitration” cannot resolve any contested question of contract meaning in California courts. Where Quach abrogated arbitration-specific waiver rules (Quach, supra, 16 Cal.5th at p. 579), Fuentes extends the equal-treatment principle into unconscionability review and contract interpretation generally.

The decision also deepens the Armendariz mutuality line for the modern, multi-document workplace. Employers increasingly layer confidentiality, invention-assignment, and restrictive-covenant agreements on top of a form arbitration agreement. Fuentes teaches that those documents will be read together (Civ. Code, § 1642), that judicial-enforcement language in the employer-protective documents can create exactly the one-sided carveout Armendariz condemns, and that drafting ambiguity belongs to the drafter. (Fuentes, supra, 19 Cal.5th at pp. 108–110.) Footnote 4’s “have it both ways” analysis will be quoted often: an employer cannot hold the signature (or other formation formalities) in reserve and elect whichever characterization defeats the employee’s current position. (Id. at pp. 111–112, fn. 4.)

Finally, the Court left a legislative marker. Noting that formatting problems in employment contracts “do not appear to be confined to this case,” footnote 2 observes that “[t]he Legislature may wish to consider specifying requirements for employment contracts that promote legibility and comprehensibility, as it has with other types of contracts,” citing models including Code of Civil Procedure section 1295’s medical-arbitration disclosure rules. (Fuentes, supra, 19 Cal.5th at p. 105, fn. 2.) Practitioners should watch the 2026–2027 session for a responsive bill.

Key quotes

“We hold that a contract’s format generally is irrelevant to the substantive unconscionability analysis, which focuses on the fairness of the contract’s terms, but that courts must closely scrutinize the terms of difficult-to-read contracts for unfairness or one-sidedness.” (Fuentes, supra, 19 Cal.5th at p. 100.)

“An otherwise fair and mutual term is not made substantively unconscionable by printing it in a manner that makes it difficult to read; the fact that a term is printed in tiny, blurry font does not alone make it harsh, one-sided, or otherwise unreasonably unfair.” (Id. at p. 107.)

“The expression ‘fine-print terms’ refers to substantively unfair or one-sided terms hidden in a legal document.” (Ibid.)

“[T]he policy ‘”favoring”‘ arbitration is not one of promoting arbitration over litigation, but instead of ensuring that arbitration agreements are not disfavored, i.e., that they are treated like other contracts.” (Id. at p. 110, quoting Quach v. California Commerce Club, Inc. (2024) 16 Cal.5th 562, 579.)

“Given this prior agreement, something more than silence is required to exempt claims under the confidentiality agreements from arbitration.” (Id. at p. 122 (dis. opn. of Guerrero, C.J.).)

Read the full opinion (CourtListener) →

Practice pointer

Open questions

Fuentes decides the format question and remands nearly everything else. The Court expressly declined to decide whether the missing presidential signature defeats the confidentiality agreements’ superseding effect, leaving the parties to litigate the signature question — and its unconscionability consequences — on a reopened record. (Fuentes, supra, 19 Cal.5th at pp. 111–112 & fn. 5.) It declined to reach whether an all-but-illegible document presented in a five-minute window can defeat contract formation altogether, inviting briefing “on the relationship between legibility and mutual assent” while “express[ing] no view on this subject” — a doctrinal frontier with force well beyond arbitration, and one the dissent contends is foreclosed by the black-letter rule that a party may assent to a document she cannot read. (Id. at p. 114; id. at p. 130 (dis. opn. of Guerrero, C.J.).) Footnote 6 preserves Fuentes’s Iskanian theory that the agreement’s PAGA representative-action waiver is unlawful, directing any severance-versus-invalidation fight to the framework of Ramirez v. Charter Communications, Inc. (2024) 16 Cal.5th 478, 516–517. (Fuentes, at p. 112, fn. 6.) And the majority’s statement that high procedural unconscionability requires construing ambiguities against the drafter — which the dissent reads as an unsupported innovation subordinating the validity presumption of Civil Code section 1643 (id. at pp. 123–124 (dis. opn. of Guerrero, C.J.)) — will generate litigation over how much interpretive work the formation context can do in the next contract-stack case.