Massie v. Ralphs Grocery Store
Filed 4/2/12 Massie v. Ralphs Grocery Store CA2/7
California Rules of Court, rule 8.1115(a), prohibits courts
and parties from citing or relying on opinions not certified for publication or
ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for
publication or ordered published for purposes of rule 8.1115
IN
THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND
APPELLATE DISTRICT
DIVISION
SEVEN
JAMES MASSIE, et al.,
Plaintiffs and
Respondents,
v.
RALPHS GROCERY COMPANY, et al.,
Defendants and Appellants.
B224196
(Los Angeles
County Super.
Ct. Nos.
BC321144 and BC321704)
APPEAL
from orders of the Superior Court
of
County, Ann Jones, Judge.
Affirmed.
Reid
Smith, Linda S. Husa and Steven B. Katz; Littler Mendelson, Henry D. Lederman
and Lisa C. Chagala for Defendants and Appellants.
Law
Offices of Ian Herzog and Ian Herzog; Daniels, Fine, Israel,
Schonbuch & Lebovits, Scott A. Brooks and Craig S. Momita; Law Offices of
Stephen Glick and Stephen Glick for Plaintiffs and Respondents.
_______________________________
INTRODUCTION
In
a prior opinion, we addressed Ralphs Grocery Co.’s appeals from orders denying
its petitions to compel arbitration of
two class action lawsuits filed by its employees, alleging Labor Code and
Unfair Competition Law violations.
Ralphs had unsuccessfully sought arbitration of these disputes in
accordance with provisions in various agreements that subject such claims
to individual binding arbitration and prohibit proceedings on a class or
representative basis, and we affirmed the trial court’s orders denying Ralphs’
petitions. (Massie v. Ralphs Grocery Co., McLeod v. Ralphs Grocery, B187844, B187854,
May 14, 2007
[nonpub. opn.].) Thereafter, our Supreme
Court granted Ralphs’ petitions for review and remanded the matters with
directions to vacate our prior decision and to reconsider the cause in light of
Gentry v. Superior Court (2007) 42
Cal.4th 443. (S153059.) We in turn remanded the matter to the trial
court for the required factual showing.
After
permitting the parties to conduct discovery on the Gentry factors and considering supplemental briefing and argument
on these issues, the trial court again denied Ralphs’ motion to enforce its
class action waiver and compel individual arbitration, finding “Just as in
found in this case jeopardize the rights of its employees by prohibiting the
most practical and most likely, only, effective means of challenging
defendants’ overtime practices.”
Ralphs
appeals. Because we conclude the
agreement Ralphs seeks to enforce is procedurally and substantively
unconscionable and unenforceable as a result, we affirm.
FACTUAL AND PROCEDURAL SUMMARY
In our
prior opinion, we summarized the proceedings to date as follows:
“
v. Ralphs Grocery Company (Super. Ct. Los Angeles County, 2004, No.
BC321144): On September 7, 2004, James Massie, Eddy
Korkiat Prachasaisoradej, Teresa Lee, Jose Mendez and Jaime Rosales,
similarly situated, and on behalf of the California general public,’ filed a
complaint against Ralphs Grocery Company and Food-4-Less Holdings, Inc.
(hereinafter collectively “Ralphs”
alleging causes of action for underpaymentof overtime in violation of Labor Code section 510, violation of the Unfair
Competition Law (Bus. & Prof. Code, § 17200 et seq.) and for penalties
under Labor Code sections 203 and 558.
“
v. Ralphs Grocery Company (Super. Ct. Los Angeles County, 2004, No.
BC321704): Ten days later, Donald
McLeod, Benjamin Mock and Michael Miner, ‘individually and on behalf of all
others similarly situated, and on behalf of the California general public,’
filed a complaint against Ralphs alleging causes of action for nonpayment of
overtime compensation and violation of the Unfair Competition Law.
In
November, the trial court ordered these two cases as well as
Ct. Los Angeles County, 2002, No. BC284875), and Prachasaisoradej v. Ralphs Grocery Co. (Super. Ct. Los Angeles
County, 2001, No. BC254143) related, with the Prachasaisoradej case designated the lead case.[]
“In April
2005, the McLeod plaintiffs filed a first amended complaint adding plaintiff
Bruce Pack. In August, they filed a
second amended complaint adding plaintiff Peter Wang as well as a third cause
of action for unlawful nonpayment of overtime in violation of the Labor Code
and unfair business practices under
the Unfair Competition Law.
“In
September 2005, Ralphs filed motions to compel arbitration and stay proceedings
in both the Massie and McLeod actions.
“There are
three arbitration policies at issue: the
2001, 2003 and 2004 policies.[
name="_ftnref1" title="">[1]] The 2001 arbitration policy was set forth in
a four-page, single-spaced document, entitled ‘Ralphs Grocery Company Dispute
Resolution Program Mediation & Binding Arbitration Policy.’ At paragraph 4, this arbitration policy
states:
‘Arbitration . . . is the sole and exclusive remedy
for any dispute(s) arising out of or related to the employer/employee
relationship. . . . This includes, for example,
disputes arising from alleged unfair
competition, unfair business
practices, . . . unpaid wages or failure to pay overtime or
other compensation or the computation thereof. . . . This
Policy covers, for example, any claims
arising under . . . the California Labor Code [or] the
California Business [and] Professions Code . . . .’ (Italics added.)
“Paragraph
8 of the policy contains the following class action waiver provision: ‘[U]nless controlling
there will be no right or authority for any dispute to be heard or arbitrated
on a class action basis, as a private attorney general, or on bases involving
disputes brought in a representative capacity on behalf of the general public,
of other Ralphs employees (or any of them), or of other persons similarly
situated. The individual claim of any
Employee bound by this Policy is subject to this Policy. Any action brought against Ralphs (or any of
them) by any other person (whether an Employee bound by this Policy or not) in
a representative capacity on behalf of or for the benefit of any Employee bound
by this Policy will be designated as a “Representative Action.” To the fullest extent permitted by law, any
individual claim by an Employee for a remedy pursuant to or under the authority
of a Representative Action is subject to this Policy. Thus, even though some of the Federal Rules
of Civil Procedure apply as set forth above, there shall be no judge or jury trials, and there shall be no class
actions or Representative Actions permitted, unless controlling legal
authority requires otherwise.’ (Original
emphasis.)
“According
to Ralphs, McLeod, Mock, Pack and Rosales agreed to the terms of the 2001
arbitration policy by signing an acknowledgement. (As to Miner and Wang, Ralphs presented
declarations indicating that copies of the policy were delivered to Miner and
‘Chang P Wang’ in September 2001, and they continued to work for Ralphs
thereafter.)
“The 2003
arbitration provision was incorporated by reference into a six-page,
single-spaced document entitled ‘2003 Semi-Annual Bonus Plan.’[] Headings within the document included ‘Concepts
Used in Determining the Bonus You May Be Eligible to Earn Under the Bonus
Plan,’ ‘How to Calculate the Bonus You May Be Eligible To Earn Under the Bonus
Plan,’ ‘Eligibility to Earn a Bonus Under the Bonus Plan,’ and ‘Other Terms and
Conditions.’ At paragraph 3 under this
last heading, the bonus plan provides:
‘All participants in this Bonus Plan are covered and bound by the most
recent version of the Ralphs Grocery Company Dispute Resolution Program (“DRP”
Mediation & Binding Arbitration Policy (the “Policy”
—as implemented,modified, amended, restated, or revoked—for all “Covered Disputes” as defined
in the Policy, regardless of whether they relate to or arise out of this Bonus
Plan or any predecessor or successor plan(s).
Any Bonus Plan participant who is not familiar with or does not have a
copy of the most recent version of the Policy can obtain a copy from their
Store Director, the Company’s Personnel Department, or the Company’s Human
Resources Department.’
“Paragraphs
6 and 7 at page 5 (regarding ‘Eligibility to Earn a Bonus under the Bonus
Plan’
of the 2003 Bonus Plan stated: ‘opt-out of participating in the Bonus Plan. As set forth below, Bonus Plan eligible
Members who do not agree with the terms and conditions of this Bonus Plan must
affirmatively opt-out of participating in the Bonus Plan.
“‘[¶]
have challenged, the legality, validity, or enforceability of this Bonus Plan
or any predecessor or successor plan(s) on behalf of the Store Member himself
or herself, in any type of representative capacity on behalf of any other
current or former employees of the Company, or as a participant in any type of
representative action making any such challenge(s). . . .’
(Original emphasis.)
“The ‘Other Terms and
Conditions’ section of the 2003 Bonus Plan also contained the following
provisions: ‘[¶] This Bonus Plan, and
all predecessor and successor plans, have been or will be voluntarily drafted
or implemented by the Company with the intention that they comply with all
applicable laws and regulations. The
Company did not and does not intend to draft or implement, or incur the expense
of defending, any such plans which anyone challenges or are held as not being in
any way legal, valid, or enforceable as drafted or implemented. If this Bonus Plan, or any predecessor or
successor plan(s), as drafted or implemented, is challenged as unlawful,
invalid, unconscionable, or otherwise unenforceable in whole or in part, or
held to be such by any court or arbitrator of competent jurisdiction, by or
through any type of individual or representative action or proceeding brought
or participated in by any Bonus Plan participant on his or her own behalf or on
behalf of any current or former employee(s) of the Company, then such plans
will be deemed to be terminated from their inception as to any such Bonus Plan
participants and they must return to the Company any payments received
thereunder.
“‘[¶] The
Company reserves the exclusive right to amend, modify, or terminate this Bonus
Plan at any time and for any reason in its sole and absolute discretion.
“‘[¶] Any
Store Member covered by this Bonus Plan who does not agree to all of the terms
and conditions contained herein must affirmatively opt-out of participating in
this Bonus Plan by giving notice to the Company of their opting-out of
participating in this Bonus Plan. Such
notice must be given to the Company in writing no later than
delivered by that date to Ralphs Grocery Company’s registered agent for service
of process in the state in which the Store Member works for the Company. The written notice must identify the Store
Member by name and their social security or employee identification number,
contain an affirmative statement that the Store Member is opting-out of
participating in this Bonus Plan, and be signed and dated by the Store
Member. Any Store Member who fails to
give the Company such notice in the manner prescribed herein, or who accepts
any bonus distribution under this Bonus Plan after giving such notice, will be
deemed to be covered by the terms and conditions of this Bonus Plan and a
participant thereof.’ (Original
emphasis.)
“Although
it apparently was not provided with the 2003 Bonus Plan, the ‘most recent’
(2003) version of the arbitration policy defined ‘Covered Disputes’ to include
the same types of disputes subject to the 2001 policy (among others) and also
contained a class action waiver provision similar to the one set forth within
the 2001 arbitration policy.
name="_ftnref2" title="">[2]
“According
to Ralphs, Massie, Prachasaisoradej, Lee, Mendez, Rosales, McLeod and Wang
agreed to the 2003 arbitration policy because they all accepted payments under
the 2003 bonus plan and failed to opt out of this plan.
“The 2004
Bonus Plan was substantially similar to the 2003 plan before this court in the
states that the calculations ‘are adjusted based on the principles in
Cal.App.4th 1090 (2003).’ Further,
instead of incorporating the ‘most recent version’ of the arbitration policy by
reference, the 2004 Bonus Plan attached the 2004 arbitration policy to the plan
(making the plan eleven pages). The 2004
arbitration policy contained a substantially similar definition of ‘covered
disputes’ and a substantially identical class action waiver provision as those
found in the 2001 and 2003 policies, but also added a number of new
provisions. For example, the following
language was added: ‘The submission of
an application for employment, acceptance of employment or continuation of
employment with the Company by an Employee is deemed the Employee’s acceptance
of this Arbitration Policy. No signature
by an Employee or the Company is required for this Arbitration Policy to apply
to Covered Disputes.’
name="_ftnref3" title="">[3]
“In
addition, a new paragraph was added to the 2004 Bonus Plan, stating as
follows: ‘[¶] Acceptance of any payment under this Bonus Plan by any participant
constitutes a waiver, release, relinquishment and discharge of any and all
claims the participant has, had or may have against Ralphs Grocery Company
(and/or its predecessor, successor, parent, subsidiary and/or affiliated
entities) arising out of or related to any and all previous bonus plans (and
the payments made thereunder) and/or any actual or claimed misclassification as
a salaried employee rather than as an hourly employee, as previously, now or hereafter made or
asserted by such participant, regardless of whether such claims were or are made
or asserted by or for such participant individually, collectively, putatively,
on a representative basis, or otherwise, including without limitation in
connection with the following litigation:
Eddy Korkiat Prachasaisoradej vs.
Ralphs Grocery Company, Los Angeles County Superior Court Case No. BC254143
(commenced July 13, 2001), California Court of Appeal (Second Appellate
District) Case No. B165498 (commenced March 3, 2003); David Swanson vs. Ralphs Grocery Company, Los Angeles County
Superior Court Case No. BC284875 (commenced November 7, 2002), California Court
of Appeal (Second Appellate District) Case No. B168257 (commenced June 30,
2003); and James Massie, Eddie Korkiat
Prachasaisoradej, Teresa Lee, Jose Mendez and Jaime Rosales vs. Ralphs Grocery
Company, Los Angeles County Superior Court Case No. BC321144 (commenced
September 7, 2004).’ (Original
emphasis.)
“According
to Ralphs, Prachasaisoradej, Mendez, Rosales and Wang agreed to the 2004
arbitration policy by accepting payments under the 2004 bonus plan and by
failing to opt out of this plan.
“The Massie
and McLeod plaintiffs filed opposition to Ralphs’ motions to compel
arbitration, claiming the arbitration agreements were unconscionable and
therefore unenforceable on multiple grounds, including the impermissible
inclusion of the class action waivers.
“The trial
court heard oral argument, took the matter under submission and issued a
six-page ruling denying the motions to compel arbitration, finding the class
action waivers unconscionable and therefore unenforceable under
36 Cal. 4th 148, 162-163 (Discover Bank)
and Independent Assn. of Mailbox Center
Owners, Inc. v. Superior Court (2005) 133 Cal.App.4th 396, 410-411 (
pursue arbitration in the absence of the class action waivers, the trial court
denied Ralphs’ motions without prejudice.”
(McLeod v. Ralphs Grocery Co.
(May 14, 2007, B187844/B187854) [nonpub. opn.] at pp. 2-8, all emphasis in
original.) We affirmed the trial court’s
orders. (Id. at p.17.)
A few
months later, however, our Supreme Court granted review, holding the cases
pending resolution of Gentry v. Superior
Court. (McLeod v. Ralphs Grocery Company, supra, review
granted Aug. 8, 2007, S153059.) Then, on
November 28, 2007, our Supreme Court reversed and remanded the matter with
directions to reconsider in light of the decision in Gentry v. Superior Court (2007)
42 Cal.4th 443.
The
arbitration waivers in overtime cases are
unenforceable. . . . Nonetheless, when it is alleged
that an employer has systematically denied proper overtime pay to a class of
employees and a class action is requested notwithstanding an arbitration
agreement that contains a class arbitration waiver, the trial court must
consider the[se] factors . . . : the modest size of the potential individual
recovery, the potential for retaliation against members of the class, the fact
that absent members of the class may be ill informed about their rights, and
other real world obstacles to the vindication of class members’ rights to
overtime pay through individual arbitration.”
(Gentry, supra, 42 Cal.4th at
pp. 462-463.) Because
record in this case should be performed by the trial court in the first
instance, we remanded the matter to the trial court to reconsider this case in
light of Gentry. (See id.
at p. 472 [“we remand the matter to the Court of Appeal with directions to
remand to the trial court to determine whether the class arbitration waiver is
void”].)
On
remand, the trial court permitted the parties to conduct discovery on the
briefing and heard argument on the issues.
In its March 8, 2010 Statement of Decision, this time pursuant to
court again found the class relief waiver provision in the arbitration
agreements unenforceable.
name="_ftnref5" title="">[5] More particularly, the trial court determined
as follows:
“A. Anticipated
Recoveries in these Cases Are Modest
“The
first question is whether there are financial incentive[s] sufficient to insure
individual challenges to the defendants’ overtime policies in the event that
the class arbitration waiver were to be enforced.
“Considering
the first factor set forth in Gentry,
plaintiffs have met their burden of showing that the amount of the typical
recovery that might be expected given the plaintiffs’ theories of liability is
modest and fails to provide a sufficient financial incentive for the plaintiffs
to pursue these cases individually.
[(Cf. Franco v. Athens Disposal
Company, Inc. (2009) 171 Cal.App.4th 1277, 1288] (‘in determining the
validity of a class arbitration waiver, the trial court must consider the
plaintiff’s theories of liability and the amount of the typical individual
recovery’
.[)] “The
individual claims encompassed within these two actions are too small to warrant
the extensive litigation that would be required to vindicate these rights. For example, plaintiff McLeod, as manager of
operations, averaged 10 to 15 hours of overtime per week at an hourly rate of
approximately $28.75. Assuming an
overtime rate of $43.15 and 12 hours of overtime per week for a 52[-]week year
(assuming no vacations or leave) his total damages would equal only $26,952 per
year. This amount barely meets the
threshold for unlimited jurisdiction cases.
For plaintiff Wang, his hourly rate is $34.99, for an overtime rate of
$52.49. Working during the Southern
California Retail Grocers Strike, his estimated damages for that period would
be approximately $19,156. Claims in
these amounts are so modest that it would clearly be uneconomic to pursue them
individually, particularly when compared to the exceptional time and expense
that would be incurred in litigating them to a successful conclusion.
“Defendants
counter the obvious fact that these cases involve relatively small amounts of
individual damages by aggregating the representative plaintiffs’ claims over a
four-year statutory period. Thus,
plaintiff McLeod’s claim would increase to more than $80,000 and the other
plaintiffs would have claims ranging from $10,000 to $75,000. See Defendants’ Supplemental MPA ISO Motion
to Compel Arbitration and Stay Proceedings at 6. That exercise, however, is wholly
unavailing. Adjusting for risk, no
individual would file a claim necessitating the complex discovery undertaken in
an overtime case such as these in the hope of obtaining $30,000. In fact, in Gentry the court found that an individual recovery of $37,000
provided insufficient incentive to obviate the need for class action. Gentry,
42 Cal.4th at 458.
“The
issue is not whether absolute recovery of the representative plaintiffs meets a
particular threshold; the issue is whether the relatively small recoveries if
the case were to be restricted to an employee-by-employee adjudication render
it uneconomic to ensure vigorous private enforcement of the statutory scheme. In this case, none of the representative
plaintiffs—or the other similarly situated parties they seek to represent—have
sufficient individual damages to justify the risk and expense of pursuing the
complex inquiry into the defendants’ overtime pay practices.
“B. Risk of Retaliation Would Deter Individual
Actions
“The
second factor identified in Gentry requires
a consideration of whether an individual employee would be deterred from filing
an individual action to enforce his or her statutory rights to overtime pay
were this court to enforce the class arbitration provision at issue in this
case. The question is greater than
whether the representative plaintiffs, in fact, may suffer an adverse
employment consequence due to their decision to sue as individuals. Rather, the inquiry focuses on all of the
persons who would be eligible to participate indirectly through representative
plaintiffs and whether those persons would be likely to eschew enforcement of
their statutory rights because of fear of termination or loss of promotional opportunity.
“Plaintiffs
have provided ample and credible evidence that employers, such as defendants,
may retaliate against persons who seek to enforce the protections of the Labor
Code. Peter Wang’s amended interrogatory
responses provide persuasive proof that defendants’ store managers were fearful
of retaliation from their employer. ‘If
an employee did not do what they were told, there was a real and substantial
risk of facing negative employment consequences, including being written up,
transferred or even terminated.’ ‘My
employment was at will.’ ‘I definitely
felt that I would be retaliated against if I complained or sued Ralphs while I
was employed there. It was a very
autocratic company.’ As observed by one
experienced attorney who works in the area of wage and hour litigation,
individuals who are current employees express fear that were they to file
individual suits, that decision would undermine their ability to continue with
their employment.
title="">[7]
“Defendants’
argument that the five plaintiffs who are no longer employed by Ralphs cannot
have a valid fear of adverse consequences from coming forward is without merit.
direct retaliation from a former employer, these plaintiffs have a valid and
actual fear that subsequent potential employers may discover that an applicant
has been involved in a lawsuit and refuse to extend an offer for that
reason. See Grover Dec’l at ¶ 8. That information is readily accessible
through public searches of court records or may be asked about on a job
application or in an employment interview.
Id.
“C. Plaintiffs and Others Similarly Situated Were
Ill-Informed of their Rights Under the Overtime Laws.
“In cases
such as this one—involving the alleged misclassification of workers on a
company-wide basis—it is beyond cavil that most individual employees have a
limited understand of the legal requirements that apply to their employer’s
actions. See Dec’l of Seligman at ¶ 10. And, in this case, the representative
plaintiffs were never informed of their legal rights with regard to the law and
regulations involving overtime pay. For
example, plaintiff Peter Wang was never informed nor instructed regarding the
difference between exempt and non-exempt work and Ralphs made no effort to
ensure that he spent his time primarily engaged in exempt work. In fact, during the 2003-2004 grocery store
labor dispute, Wang ‘was expected and required to perform any task in the
store, including work that was not managerial and which was routinely performed
by hourly employees.’
name="_ftnref9" title="">[9]
“Moreover,
defendants’ argument that Massie, Prachasaisoradej, Mendez and Rosales, by
accepting payments under the Ralphs’ 2004 Bonus Plans, can no longer claim that
they were uninformed of their rights under the labor laws is unsupported by law
or fact. As is apparent from a reading
of the waivers contained in the 2004 Bonus Plan, Ralphs intended to insulate
itself from its statutory obligations, not inform its employees of their rights
under the law. See Vu v. Superior Court, Second District No. B213988 (November 17,
2009) at 11 (Ralphs’ arbitration agreement and dispute resolution policy was
substantially [sic, substantively] unconscionable as it purported to ‘insulate
Ralphs from all employee class actions and class arbitrations’
. Nor did any of the plaintiffs believe thatthey could ‘opt out’ of these provisions.
As established by Peter Wang, when he was presented with the 2004 Bonus
Plan, he ‘felt pressured and coerced into signing in order to receive my wages
which I had already earned.’
“Employees,
such as the plaintiffs in this case, who are never informed of their rights, or
who surrender known rights due to coercion or the substantive unfairness of the
defendants’ dispute resolution system are unlikely to enter into private
litigation to enforce the statutory wage scheme. In such instances, as here, a representative
action (whether by litigation or arbitration) is the avenue by which the
defendants’ alleged violations are likely to be challenged. A waiver of the plaintiffs’ rights to seek
class arbitration, such as the one at issue here, operates to exonerate
defendants of their obligations under the law.
As such, it is impermissible.
“D. Real World Obstacles to Individual
Vindication of Rights through Individual Arbitration
“In
enumerating this final category, the majority in Gentry directed trial courts to engage in a fact-specific inquiry
based on the unique circumstances presented in wage and overtime cases in order
to determine whether a class arbitration waiver is void. In this case, plaintiffs have met their
burden of demonstrating that there are a number of impediments to their
abilities to secure a vindication of their rights by way of individualized
actions. First, none of the plaintiffs
have the financial resources to pay for an attorney to file this action on
their behalf. Second, attorneys who
typically represent employees in overtime cases are unwilling to accept these
cases on a contingent basis without being able to plead them as class actions. Third, the arbitration provisions at issue
(were the matter to be arbitrated individually) are substantively
unconscionable. Ralphs included a
limitation of all claims to a one[-]year statute of limitation, rather than the
statutory term. This provision (if
enforceable) dramatically reduces the recovery available to individuals who
elect to arbitrate a dispute [of] their individual claim with their
employer. Offsetting that small recovery
with the expense of such a complex action ensures that individual arbitrations
of defendants’ overtime practices will not occur. Under those same arbitration policies,
defendants deprived employees of their rights to proceed as private attorneys
general. In addition, Ralphs inserted
terms that guaranteed Ralphs the right to select the [arbitrator] and to
terminate or modify the terms of the plan in its sole and absolute
discretion. And, Ralphs [also] issued
these policies as part of a bonus plan, without sufficient time for the
employees to make an informed decision whether they wished to exercise their
right to ‘opt-out’ of the accompanying bonus plan. The obvious one-sidedness of Ralphs’ dispute
resolution mechanism creates yet another impediment to an individual employee
seeking to vindicate his or her statutory rights to receive overtime pay
through the arbitral process.
“E. Federal Preemption Does Not Preclude
Invalidating Ralphs’ Class Arbitration Waiver
“Defendants’
contention that any effort to apply Gentry
to invalidate Ralphs’ class arbitration waiver would be preempted by
federal law is without merit. As clearly
stated by the [California] Supreme Court, ‘[w]e [do not] accept Circuit City’s
argument that a rule invalidating class arbitration waivers discriminates
against arbitration clauses in violation of the Federal Arbitration Act.’ 42 Cal.4th at 465. Rather, by striking down the waiver and
allowing employees to proceed with class arbitration, this court’s ruling is
consistent with the ‘liberal policy favoring arbitration agreements.’ As noted in Gentry, ‘[w]e . . . continue to reject Circuit City’s suggestion
that class actions are incompatible with arbitration and that compelling class
arbitrations in the appropriate case violates the FAA.’ Id.
“F. Conclusion
“Just as
in Gentry, the class arbitration
waivers found in this case jeopardize the rights of its employees by
prohibiting the most practical and most likely, only, effective means of
challenging defendants’ overtime practices.
“For the reasons set forth above,
defendants’ motion to enforce its class action waiver and to, thereby, compel
individual arbitration is denied. . . .”
Ralphs appeals.
DISCUSSION
“‘Whether an arbitration provision
is unconscionable is ultimately a question of law.’” (Suh v.
Superior Court (2010) 181 Cal.App.4th 1504, 1511, citing
Cal.App.4th 1554, 1567.) “‘We are not
bound by the trial court’s stated reasons, if any, supporting its ruling; we
review the ruling, not its rationale.’”
(Walgreen Co. v. City and County
of San Francisco (2010) 185 Cal.App.4th 424, 433, citation omitted.) Generally speaking, “an appealed judgment or
order correct on any theory will be
reasoning may have been erroneous.”
(Eisenberg et al., Cal. Practice Guide:
Civil Appeals and Writs (The Rutter Group 2011) [¶] 8:214, p. 8-147,
original italics, citing Davey v.
Southern Pacific Co. (1897) 116 Cal. 325, 329.) “No rule of decision is better or more firmly
established by authority, nor one resting upon a sounder basis of reason and
propriety, than that a ruling or decision, itself correct in law, will not be
disturbed on appeal merely because given for a wrong reason. If right upon any theory of the law
applicable to the case, it must be sustained regardless of the
considerations which may have moved the trial court to its conclusion.” (Davey
v. Southern Pacific Co., supra, 116 Cal. at p. 329.)
“‘To justify a reversal, it is
incumbent upon the appellant to show an erroneous ruling, and not merely bad reasoning
or mistaken views of the law.’”
[Citations.] In other words, it
is judicial action, and not judicial reasoning or argument, which is the
subject of review; and, if the former be correct, we are not concerned with the
faults of the latter.” (
Cal. at pp. 329-330.)
Just five days after Ralphs filed its opening brief, the United States
Supreme Court decided AT&T Mobility
LLC v. Concepcion (2011) 563 U.S. ___ [131 S.Ct. 1740] (
California Supreme Court’s rule in Discover
Bank v. Superior Court (2005) 36 Cal.4th 148 [30 Cal. Rptr. 3d 76, 113 P.3d
1100] (Discover Bank)—that class
action waivers in consumer arbitration agreements may be unenforceable or
unconscionable—is preempted by the FAA.
“[W]hen a doctrine normally thought to be generally applicable, such as
duress or, as relevant here, unconscionability, is alleged to have been applied
in a fashion that disfavors arbitration,” a court must determine whether the
state law rule “stand[s] as an obstacle to the accomplishment of the FAA’s
objectives”--primarily to “ensure that private arbitration agreements are
enforced according to their terms.” (
arbitration interferes with fundamental attributes of arbitration and thus
creates a scheme inconsistent with the FAA.”
(Ibid.)
According to Ralphs, Concepcion now
conclusively establishes that Gentry v.
Superior Court, supra, 42 Cal.4th 443 is preempted by the Federal
Arbitration Act.
In this appeal, however, we need not decide whether
S.Ct. 1740] or whether the class action waiver, standing alone, is
unenforceable; from the outset, the plaintiffs in this case have argued the
arbitration agreements at issue are both procedurally and substantively
unconscionable for multiple deficiencies beyond the class action waiver.
“Concepcion did not
overthrow the common law contract defense of unconscionability whenever an
arbitration clause is involved. Rather,
the Court reaffirmed that the savings clause preserves generally applicable
contract defenses such as unconscionability, so long as those doctrines are not
‘applied in a fashion that disfavors arbitration.’” (Kilgore
v. KeyBank, N.A. (2012) 2012 U.S. App. LEXIS 4736, citing
“[A] court may not ‘rely on the uniqueness of an agreement to arbitrate
as a basis for a state-law holding that enforcement would be unconscionable,
for this would enable the court to effect what . . . the
state legislature cannot.’” (
1747.)
“[C]ourts must place arbitration agreements on an equal footing with
other contracts, Buckeye Check Cashing,
Inc. v. Cardegna, 546 U.S. 440, 443, 126 S. Ct. 1204, 163 L. Ed. 2d 1038
(2006), and enforce them according to their terms, Volt Information Sciences, Inc. v. Board of Trustees of Leland Stanford
Junior Univ., 489 U.S. 468, 478, 109 S. Ct. 1248, 103 L. Ed. 2d 488
(1989).” (Concepcion, supra, 131 S.Ct. at pp. 1745-1746.) “The final phrase of [title 9, United States
Code, section] 2 . . . permits arbitration agreements to be
declared unenforceable ‘upon such grounds as exist at law or in equity for the
revocation of any contract.” (
enforce any contract found ‘to have been unconscionable at the time it was
made,’ or may ‘limit the application of any unconscionable clause.’ Cal. Civ. Code Ann. § 1670.5(a) (West
1985). A finding of unconscionability
requires ‘a “procedural” and a “substantive” element, the former focusing
on “oppression” or “surprise” due to unequal bargaining power, the latter on
“overly harsh” or “one-sided” results.’”
(Ibid.) “Unconscionability has generally been
recognized to include (1) an absence of meaningful choice on the part of one of
the parties and (2) contract terms which are unreasonably favorable to the
other party.” (Chavarria v. Ralphs Grocery Company (2011) 2011 U.S. Dist. LEXIS
104694, p. 11, citing Stirlen v.
Supercuts, Inc. (1997) 51 Cal.App.4th 1519, 1526-1527.)
Procedural Unconscionability
Leaving to one side the evidence the plaintiffs presented that they
were pressured to sign the arbitration agreements and were required to accept
the arbitration terms in order to receive bonuses for which they had already
worked, the agreements themselves establish the agreements were presented on a “take
it or leave it” basis. The 2001 Policy
states that the arbitration agreement is “a term of all Employees’
employment.” According to the 2003
Policy, it is a “term of all Employees’ employment (or application for
employment).” The 2004 Policy specifies
that it “applies to all Employees’ employment,” that “continuation of
employment with the Company by an Employee is deemed the Employee’s acceptance
of this Arbitration Policy” and that it applies to employees whose employment
has terminated. To the extent Ralphs
claims some employees had the opportunity to “opt out” of the arbitration
policy (within a 14-day window without any specification of to whom such a
request was to be directed and forfeiting any bonus), such an option was
illusory since continued employment purportedly constituted acceptance of
arbitration—no signature is even required.
Even an employee who attempted to opt out of the arbitration policy and
even lost a bonus as a result would find the arbitration policy still
applied—an added element of surprise.
(See also Chavarria v. Ralphs
Grocery Company, supra, 2011 U.S. Dist. LEXIS 104694.)
Substantive Unconscionability
For the reasons identified in Chavarria
v. Ralphs Grocery Company, supra, 2011 U.S. Dist. LEXIS 104694 (as well as
arbitration policy to be substantively unconscionable as well. Substantive unconscionability “turns not only
on a ‘one-sided result,’ but also on an absence of ‘justification’ for it.” (Ellis
v. McKinnon Broadcasting Co. (1993) 18 Cal.App.4th 1796, 1806, citations
omitted.) Here, in addition to Ralphs’
preclusion of all representative, class and private attorney general actions
(see Brown v. Ralphs Grocery Company (2011)
197 Cal.App.4th 489) (and notwithstanding the trial court’s factual findings
under Gentry), in the same agreement
it touts as fair and for the benefit of everyone involved, the Ralphs
arbitration policy mandates confidentiality as to the “existence, content and
outcome” of any proceeding (see Davis v.
O'Melveny & Meyers (2007) 485 F.3d 1066, 1079, overruled on another
ground in Kilgore v. KeyBank, supra, 2012
U.S. App. LEXIS 4736 [similar confidentiality provision “too broad,” “contrary
to public policy,” and therefore substantively unconscionable under California
law]); prohibits arbitration before providers maintaining their own procedural
safeguards in conflict with the limitations Ralphs seeks to impose (see
(2004) 118 Cal.App.4th 107 [American Arbitration Association refused to conduct
employment arbitration pursuant to agreement containing similar deficiencies]);
attempts to shorten the limitations period (and thus limit available damages)
and impose arbitration costs and fees on employees (see id. at p. 116); and provides Ralphs may modify the agreement so
long as it does so in writing or otherwise allows itself to do pursuant to its
own policy (see Ingle v. Circuit City
Stores, Inc. (9th Cir. 2003) 328 F.3d 1165, 1173, 1179;
Cir. 2003) 335 F.3d 1101, 1107), among other one-sided provisions. (See also Chavarria
v. Ralphs Grocery Company, supra, 2011 U.S. Dist. LEXIS 104694 at p. 16
[the method Ralphs devised for the selection of an arbitrator amounts to a “sham”;
if the parties do not mutually agree on an arbitrator, the end result is that
the “last arbitrator standing” will always be one of three arbitrators proposed
by Ralphs].)
In light of the numerous deficiencies in Ralphs’ arbitration policy,
severance of an offending provision is no cure in this case; we find the policy
is permeated with unconscionability and unenforceable as a result. (Civ. Code, § 1670.5, subd. (a).)
As the court in Chavarria v.
Ralphs Grocery Company, supra, 2011 U.S. Dist. LEXIS 104694 stated,
“Ralphs’ arbitration policy lacks any semblance of fairness and eviscerates the
right to seek civil redress, rendering it a right that exists in name
only. To condone such a policy would be
a disservice to the legitimate practice of arbitration and a stain on the
credibility of our system of justice.”
As we said in finding Ralphs’ arbitration policy unenforceable in
close case.”
DISPOSITION
The orders
are affirmed. The plaintiffs are
entitled to their costs of appeal.
WOODS,
J.
We concur:
PERLUSS,
P. J. ZELON,
J.
parties apparently dispute whether more
than one of these policies applies to certain plaintiffs (both the 2003 and
2004 policies state that the current policy “supersedes and replaces each prior
version of the Company’s Mediation & Binding Arbitration Policy”
, but itis undisputed that at least one of these policies applies to each of the ten
named plaintiffs.
is no right or authority for any Covered Disputes to be heard or arbitrated on
a class action basis, as a private attorney general, or on bases involving
claims or disputes brought in a representative capacity on behalf of the
general public, of other Ralphs employees (or any of them), or of other persons
similarly situated. The individual
Covered Disputes of any Employee bound by this Policy are subject to this
Policy. Any action or proceeding brought
against Ralphs (or any of them) by any person (whether an Employee bound by
this Policy or not) or entity in a representative capacity on behalf of or for
the benefit of (in whole or in part) any Employee bound by this Policy is
designated as a ‘Representative Action’ in this Policy. To the fullest extent permitted by law, any
individual Covered Disputes of or by an Employee for a remedy pursuant to or
under the authority of a Representative Action are governed by and subject to
this Policy. Thus, even though some of
the Federal Rules of Civil Procedure apply as set forth above,
there are no class actions or Representative Actions permitted under this
Policy.’ (Original
emphasis.)”
