Same As Before – Only This Time A Third Judge Signs On To The Opinion
I blogged about this very same case in a post on August 27, 2014. So I was puzzled at first as to why another published opinion was issued following rehearing on January 20, 2015. Cruise v. Kroger Co., B248430 (2/3 Jan. 20, 2015) (Aldrich, Kitching, Klein) (published). The disposition before and after rehearing is identical: “The order denying the motion to compel arbitration and stay the action is reversed with directions to grant the motion.” The opinions are not identical, but are substantially the same.
This time around, Justice Kitching’s concurrence is added, making it a threesome. The first time around, a third judge was unavailable, and the Court relied on a provision allowing judgment upon the concurrence of two judges. Cal. Const., art. VI, § 3. Puzzle solved.
Fourth District Says When Agreement Is Silent, Judge Decides; Second District Says Arbitrator Decides – So The California Supreme Court Will Have To Decide.
GATEWAY. Carol M. Highsmith, photographer. 2013. Library of Congress.
When the arbitration agreement is silent, who gets to decide whether the arbitration agreement allows for class arbitration? Judge or arbitrator? Gateway issue or procedural issue?
SCOTUS decisions hold a party may not be compelled under the Federal Arbitration Act to submit to class arbitration unless there is a contractual basis for concluding the parties agreed to do so, Stolt-Nielsen S.A. v. Animalfeeds International Corp., 559 U.S. 662 (2010), with a plurality of the SCOTUS holding the arbitrator decides whether class-wide arbitration is available if the arbitration agreement is valid and the underlying dispute is within its terms, Green Tree Financial Corp. v. Bazzle, 539 U.S. 444 (2003).
I have blogged about two published Fourth District decisions that analyze the availability of class-wide arbitration as a threshold issue of arbitrability, and thus a gateway issue that the judge must decide. Network Capital Funding Corporation v. Papke, 230 Cal.App.4th 503 (2014) and Garden Fresh Restaurant Corp. v. Superior Court, 231 Cal.App.4th 678 (2014). See my posts of November 17, 2014 and October 13, 2014.
Now, in an unpublished decision, the Second District, Division 2, disagrees with the Fourth District, and holds that “the determination whether the parties to an arbitration agreement agreed to arbitrate class claims is a procedural question for the arbitrator, not the court.” Rivers v. Cedars-Sinai Medical Care Foundation, B249979 (2/7 Jan. 13, 2015) (Perluss, Woods, Feuer). The Court here views the issue not as a gateway issue of arbitrability, but rather as a subsidiary issue of how the arbitration proceeds – a procedural issue that the arbitrator can decide. The Court therefore reversed the order of the judge compelling the plaintiff to arbitrate her individual wage and hour claims, leaving it instead to the arbitrator to decide whether the class claims can be arbitrated.
NOTE: Footnote 2 states the issue is currently pending before the California Supreme Court. Sandquist v. Lebo Automotive, Inc., 228 Cal.App.4th 65, review granted, Nov. 12, 2014, S220812. See my post of July 22, 2014, regarding Sandquist.
Court of Appeal Recognizes It Is Bound By Iskanian, Until SCOTUS Resolves Validity Of PAGA Waivers.
Montano v. The Wet Seal Retail, Inc., B244107 (2/4 Jan. 7, 2015) (Epstein, Willhite, Manella) (published) is the latest case to follow the holding in Iskanian v. CLS Transportation Los Angeles, LLC, 59 Cal.4th 348 (2014), that waiver of the employee’s right to litigate Private Attorneys General Act (PAGA) (Lab. Code, section 2699) representative claims is unenforceable. In Montano, this had even greater consequence, because the paragraph containing the PAGA waiver provision stated if the waiver was found to be unenforceable for any reason by a court, then the entire arbitration agreement was void and unenforceable. Thus, because the PAGA waiver was not severable, the entire arbitration provision failed.
The Court of Appeal recognizes in footnote 5 “that several federal district courts in this state have found PAGA waivers to be enforceable under the FAA and Concepcion.” However, until SCOTUS rules on the issue, the Court of Appeal is “bound to follow the California Supreme Court’s decision in Iskanian that PAGA waivers are invalid under state law.” In Iskanian, the parties filed a petition for certiorari on September 22, 2014, No. 14-341. So stay tuned!
Burden Of Proof Shifted To Employer Because Employee Didn’t Remember Signing Arbitration Agreement.
Ruiz v. Moss Bros. Auto Group, Inc., E057529 (4/2 Dec. 23, 2014) (King, Hollenhorst, Codrington) is one more reminder of the pitfalls when dealing with electronic signatures. After employer Moss Bros. unsuccessfully petitioned for an order compelling arbitration of employee Ruiz’s employment-related claims based on an arbitration agreement Ruiz allegedly electronically signed, Moss Bros. appealed – also without success.
The employer’s declaration stated, in conclusory fashion, that Ruiz had signed the arbitration agreement. Indeed, Ruiz’s name had been electronically affixed to an arbitration agreement. Ruiz, however, did not remember signing the agreement. This shifted the burden to the employer to authenticate the signature, and the employer’s conclusory declaration failed to do so. The employer’s declaration failed to establish that the electronic signature was “the act of” Ruiz. Cal. Civ. Code, section 1633.9(a).
COMMENTS: Citing Condee v. Longwood Management Corp., 88 Cal.App.4th 215 (2001), the Court of Appeal explains, “Condee holds that a petitioner is not required to authenticate an opposing party’s signature on an arbitration agreement as a preliminary matter in moving for arbitration or in the event the authenticity of the signature is not challenged.” Because Ruiz failed to recall signing the 2011 agreement, the burden of authenticating the signature shifted to the employer, whose conclusory declaration failed to satisfy that burden.
On December 31, 2014, I posted on another electronic signature case, J.B.B. Investment Partners, Ltd. v. Fair, Case Nos. A140232, A141228 (1/2 Dec. 30, 2014), in which the Court failed to enforce a settlement agreement under CCP 664.6, due to problems with the electronic signature. The analysis was quite different, however, than the analysis in Ruiz. The problem in Ruiz was that the employer failed to authenticate the electronic signature as the act of Ruiz. The problem in J.B.B. Investment Partners, Ltd. was different – the party relying on the signature failed to show that the parties agreed to conduct business with electronic signatures under the California Uniform Electronic Transactions Act (UETA).
The lesson here is that relying on electronic signatures can be tricky business, because electronic signatures present problems of compliance with the UETA and problems of authentication.
In Wells Fargo Bank, N.A. v. The Best Service Co., Inc., the Court of Appeal dismissed defendant’s appeal of an order denying its motion to stay the action pending arbitration, because the stay motion was not accompanied by any motion or petition to compel arbitration or a pending arbitration. The order denying the bare stay motion was not an appealable order.
Judge sued her employer in one lawsuit for employment-related and Labor Code causes of action (“individual/PAGA action”), and in another related lawsuit for similar causes of action on behalf of herself an other employees (“class action”).
The trial court granted defendants’ petitions to compel arbitration of plaintiff’s individual claims only, and stayed the two cases. The arbitrator then issued a “clause construction award”, concluding that the arbitration agreement permitted arbitration of class and representative claims. She labeled the award as “a partial final award on the construction of the arbitration clause.” Next, the court ruled that the arbitrator exceeded her powers by deciding the issue of whether the parties agreed to arbitrate class or representative claims, because the issue had been submitted to the court earlier for determination. (Confusion had arisen because in ruling earlier, the trial court seemed to be saying that these issues could be brought to the attention of the arbitrator).
The trial court’s order vacating the “clause construction award” was not a final arbitration award appealable under section 1294(c). The appeal from the order vacating the clause construction award in the individual/PAGA action was therefore dismissed.
COMMENT: Why wasn’t the trial court’s order vacating the “clause construction award” appealable under the “death knell doctrine”? The “death knell doctrine only applies ‘when it is unlikely the case will proceed as an individual action.’” Szetela v. Discover Bank, 97 Cal.App.4th 1094, 1098 (2002). In Judge, however, the Court of Appeal reasoned that the death knell doctrine did not apply, because “[u]nlike an order dismissing class claims . . . the clause construction award allows class claims to proceed.” We surmise that this is a case in which there was no class action waiver in the employee’s contract.
Court of Appeal Only Found Fee-Shifting Provision To Be Substantively Unconscionable.
The trial judge, the Hon. Mary Ann Murphy, found the employer-employee arbitration Agreements to be unconscionable and unenforceable because JAMS rules were not referenced, a fee-shifting provision permitted an award of fees to the prevailing defendant on employee’s FEHA claims without factual findings required under FEHA, and the discovery provisions in the JAMS arbitration rules provided inadequate discovery. The court declined to reform the agreements, finding they were permeated by unconscionability. Employer appealed. Sandoval v. Medway Plastics Corporation, B252412 (2/4 Dec. 17, 2014) (Manella, Willhite, Collins) (unpublished).
Reversed. The only provision the Court of Appeal found to be substantively unconscionable was the fee-shifting provision. “After severing that provision,” wrote Justice Manella, “we conclude the Agreements are enforceable.”
COMMENTS: Regarding procedural unconscionability, which the Court of Appeal found to be “more than minimal” due to “the high disparity in bargaining power”, the employer did a smart thing: both respondents had signed a Spanish version of the Agreement, and both respondents were Spanish speaking. If the Spanish speaking employees had only been presented with English language arbitration clauses, the procedural unconscionability would have been higher, perhaps tipping the balance. Drip, drip, drip. Just how much unconscionability must there be to permeate an agreement?
The severability provision, which saved the Agreements from substantively unconscionable fee-shifting, provided: “If any court of competent jurisdiction finds any part of this Arbitration Agreement is illegal, invalid or unenforceable, such a finding will not affect the legality, validity or enforceability of the remaining parts of the Agreement, and the illegal, invalid or unenforceable part will be stricken from the agreement.” A very useful provision here!
Nelson v. Tucker Ellis, LLP is somewhat atypical, because it was the former attorney, rather than his former law firm, who “seized the bull by the horns”, initiating suit, and contending that the law firm released attorney Nelson’s privileged work product to other counsel, thereby interfering with his employment and relationships with his clients. Defendant Tucker Ellis, LLP appealed from the superior court’s order denying the law firm’s motion to compel arbitration. Nelson v. Tucker Ellis, LLP, Case No. A141121 (1/3 Dec. 15, 2014) (Jenkins, McGuiness, Siggins) (unpublished).
The Court of Appeal had little difficulty finding that the first prong of unconscionability, procedural unconscionability, was satisfied by the take-it-or-leave-it nature of the attorney-employee contract.
Nor did the Court have difficulty finding the second prong of unconscionability, substantive unconscionability, based on the failure of the arbitration provision to satisfy two of five requirements established by Armendariz v. Foundation Health Psychcare Services, Inc., 24 Cal.4th 83 (2000). First, the Conflict Prevention and Resolution rules impermissibly allowed for shifting costs and fees to Nelson, potentially putting him in a situation worse than he would have been under a litigation scenario, and creating uncertainty and risk. Second, the arbitrator was impermissibly precluded from granting certain monetary damages, thereby limiting the availability of relief available in court proceedings. Thus, the order below was affirmed.
One aspect of the case that caught our attention was that Nelson was a “non-capital partner”, but the trial court treated him as an employee. This was probably a pragmatic recognition that non-capital employees and employees may be factually indistinguishable. Treating him as an employee allowed for ready application of the Armendariz standards.
BLOG BONUS: Whatever the merits of the law firm’s argument, we note that the website of Tucker Ellis exhibits a sense of humor, describing its attorneys as “outstanding in our field,” and showing them standing in a corn field. Along the lines of a famous Twilight Zone episode, Mr. Nelson may have wished his former employers “into the cornfield.”
Labor Code Section 229 Expressly Provides Wage Claims Were Not Subject To Arbitration.
When state law provides a statutory exemption from arbitration, it’s not enough to assert Federal Arbitration Act preemption: “A party seeking to enforce an arbitration agreement has the burden of showing FAA preemption.” Lane v. Francis Capital Management LLC, 224 Cal.App.4th 676, 687 (2014). That means showing the activities are involved in interstate commerce. Defendant/employer failed to meet that burden in Tito v. Lotus Property Services, Inc., B249999 (2/8 Nov. 21, 2014) (Bigelow, Flier, Grimes) (unpublished).
The Titos, who worked as residential apartment managers for Defendants, alleged numerous Labor Code wage and hour violations against Defendants. Because the Titos had signed a contract with an arbitration provision, Defendants moved to compel arbitration.
Labor Code section 229 expressly provided wage claims such as those alleged by the Titos were not subject to arbitration. “In many case,” the Court of Appeal observed, “parties do not dispute that an agreement at issue involves interstate commerce and that the FAA applies.” But here the Titos did dispute that their employment agreement involved interstate commerce.
The Court of Appeal held that the employer simply did not make a showing, with evidence, that the parties’ contractual relationship involved interstate commerce, as consistent with Lane, supra, and other cases. And so the order denying the motion to compel arbitration was affirmed.
PAGA Is A Representative, Not A Class Action, And So Judge Gets To Decide Whether PAGA Action Is Subject To Arbitration.
Defendant and employer Garden Fresh Restaurant Corporation petitioned for a writ of mandate seeking a writ directing the trial court to vacate part of an order leaving it to the arbitrator to determine whether the plaintiff employee and defendant employer had agreed to class or representative arbitration. “The question that Garden Fresh’s petition presents is: who decides whether an agreement to arbitrate disputes between the parties to the agreement authorizes class and/or representative arbitration when the contract is silent on the matter – the arbitrator or the court?” Garden Fresh Restaurant Corporation v. Superior Court, D066028 (4/1 Nov. 17, 2014) (Aaron, Huffman, McIntyre).
Answer: the court does.
This is the second recent California decision rejecting the plurality conclusion in the SCOTUS case Green Tree Financial Corp. v. Bazzle, 539 U.S. 444 (2003) (plurality opinion) (Bazzle) that the availability of class arbitration is not a question of arbitrability, and thus not a “gateway issue” for judges to decide. Garden Fresh Restaurant Corporation is thus consistent with Network Capital Funding Corporation v. Papke, which also rejected the non-binding plurality reasoning in Bazzle. I posted about Network Capital Funding Corporation on October 13, 2014.
Regarding the arbitrability “gateway” issue, Garden Fresh Restaurant Corporation does not distinguish between class actions, and representative PAGA actions. Therefore, a judge also gets to decide as a “gateway” issue whether the parties agreed to arbitrate representative claims, such as a PAGA claim, in the face of a silent arbitration provision. (We note that the Court also drops a footnote 3, suggesting that based on language in Iskanian v. CLS Transportation Los Angeles, LLC, 59 Cal.4th 348 (2014), “one might reasonably conclude that a court could never compel arbitration of a PAGA claim unless the state, as opposed to the individual plaintiff, had entered into an arbitration agreement with the defendant.”)
COMMENT: If the reasoning in Iskanian and Garden Fresh Restaurant Corporation continues to be good law, it could have far-reaching consequences, not just for the courts, but also for the Legislature. For example, by creating consumer statutes that provide for more “representative” actions in which the private party acts for the state as a private attorney general, the Legislature might be able to expand consumers’ opportunities to litigate rather than arbitrate their claims – leaving it to the courts to decide whether the representative action allows for bilateral arbitration. This could lead to an end-run around the growing body of law that permits class action waivers in arbitration agreements.
Where Federal Preemption Applies, The Employee’s Contract Cannot Deprive The Employee Of A Benefit – Such As The Right to File a Lawsuit Instead Of Arbitrating – If The Collective Bargaining Agreement Provides The Benefit.
Denying employer’s motion to compel arbitration, and both parties’ sanction motions, the trial judge explained: “It’s clear to me both subjectively and objectively that counsel are just on different planets on this case.”
1905. Library of Congress.
Defendant/employer appealed the denial of its petition to compel arbitration, and Plaintiff/employee appealed the denial of her sanctions motion. Willis v. Prime Healthcare Services, Inc., B253712 (2/5 Nov. 14, 2014) (Turner, Kriegler, Mink) (certified for partial publication).
The gravamen of Plaintiff’s wage and hour claim was that, “she and other potential members did not receive proper pay because an electronic system rounded the number of hours worked to their detriment.”
Critical to the outcome of the case are the relationships between the employee/employer collective bargaining agreement, the employee’s individual employment agreement with an arbitration clause, and federal preemption, discussed in the published part of the opinion.
Plaintiff argued that the employer’s collective bargaining agreement was inconsistent with her individual employment agreement that did not require arbitration, rendering the arbitration agreement inapplicable. Defendant argued that the employee was bound by the arbitration clause in her individual employment agreement.
First, because Defendant received reimbursement from Medicare payments, and other aspects of interstate commerce were involved, the individual arbitration agreement was subject to the Federal Arbitration Act.
Second, federal common law – specifically, J.I. Case Co. v. NLRB, 321 U.S. 332 (1944), requires that an individual employee contract cannot waive any benefit to which an employee otherwise would be entitled under a collective bargaining agreement, in an industry affecting commerce as defined in the Labor Management Relations Act of 1947. Applying that principle here, the individual contract requiring arbitration could not deprive the employee of the right to file a lawsuit, if such right was a benefit available in the collective bargaining agreement.
Third, however, the J.I. Case decision did not invalidate the arbitration provision in Plaintiff’s individual agreement, which provision covered “any dispute,” and thus covered Plaintiff’s statutory wage and hour claims. However, the collective bargaining agreement specifically covered “grievances.” Under the collective bargaining agreement, a grievance was defined, “as a dispute as to the interpretation, meaning or application of a specific provision of this Agreement.” And there was nothing in the collective bargaining agreement, “about the use of an electronic system to calculate hours and rounding those calculations in a manner detrimental to an employee.” Hence, there was no inconsistency between Plaintiff’s individual agreement and the collective bargaining. In other words, the necessary predicate for federal preemption purposes requiring application of the collective bargaining agreement – inconsistent benefits in the individual and collective bargaining agreements – was lacking. Therefore, the individual agreement with its binding arbitration provision, rather than the collective bargaining agreement, applied.
And the sanctions? The trial judge said: “This is just counsel, very able counsel, in good faith who are looking at opposite ends of the telescope.” The Court of Appeal found no abuse of discretion in denying the sanctions motion.