Papudesi v. Northrup Grumman Corp.



















Filed 12/4/12
Papudesi v. Northrup Grumman Corp. CA2/2

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>NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

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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 This opinion has not been certified for
publication or ordered published for purposes of rule 8.1115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
ONE




>

KRISHNA PAPUDESI, Plaintiff and Respondent, v. NORTHROP GRUMMAN CORP., Defendant and Appellant.

B235730 (Los Angeles County Super. Ct. No. BC452975) ORDER MODIFYING OPINION [no change in the judgment]

THE COURT:

It is
ordered that the opinion filed herein on November 29, 2012, be href="http://www.mcmillanlaw.com/">modified as follows:

1. On page 4, insert the following footnote
(footnote 1) at the end of the second paragraph,: “Northrop’s request for judicial notice of
the arbitration proceedings is granted.”

2. On page 11, first paragraph, the last
sentence, which reads as follows: “For
reasons we set forth in another case, Franco
v. Arakelian Enterprises, Inc. (case No. B232583), we disagree.” is deleted
and replaced with the following: “For
reasons we set forth in a case we decided earlier this week, >Franco v. Arakelian Enterprises, Inc.
(Nov. 26, 2012, B232583), ___ Cal.App.4th ___ [2012 WL 5898063; 2012 Cal.App.
Lexis 1207]), we disagree.



3. On page 12, first line, the reference: “Franco
v. Arakelian Enterprises, supra,
(B232583)” is changed to: “>Franco v. Arakelian Enterprises, >supra, ___ Cal.App.4th ___ [2012 WL
5898063; 2012 Cal.App. Lexis 1207].”



These
modifications effect no change in the judgment.

NOT TO BE
PUBLISHED.

MALLANO, P. J. CHANEY, J. JOHNSON, J.

Filed
11/29/12 Papudesi v. Northrop Grumman
CA2/1 (unmodified version)

>NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

>

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opinion has not been certified for publication or ordered published for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
ONE




>

KRISHNA PAPUDESI, Plaintiff and Respondent, v. NORTHROP GRUMMAN CORP., Defendant and Appellant.

B235730 (Los Angeles County Super. Ct. No. BC452975)

APPEAL from
an order of the Superior Court of Los Angeles County. Richard L. Fruin, Jr., Judge. Reversed with directions.

Gibson,
Dunn & Crutcher, Scott A. Kruse, Eugene Scalia, Jesse A. Cripps and Lynn
Hang for Defendant and Appellant.

Cohelan
Khoury & Singer, Michael D. Singer, J. Jason Hill; Aegis Law Firm and
Kashif Haque for Plaintiff and Respondent.





___________________________________









An employee
signed an integrated employment contract with her employer that had no
provision regarding dispute resolution.
Years later, the employer instituted a mandatory policy calling for
employees to submit any employment dispute to arbitration. When the employee filed a class action wage
and hour lawsuit against the employer, the employer petitioned the trial court
to stay civil proceedings and compel arbitration. The trial court denied the motion, finding
the policy mandating arbitration was not a valid modification of the original
employment contract. We conclude the
arbitration policy did not modify the original employment contract but
constituted a separate agreement. The
issue is whether the agreement is enforceable.
Because the trial court did not reach this issue, we remand the matter
for further proceedings.

BACKGROUND

Plaintiff
Krishna Papudesi began her employment with defendant Northrop Grumman
Corporation in September 2003 as a systems analyst. As a condition of employment she signed an
agreement providing her employment was at-will and for no definite period of
time, Northrop reserving the right to terminate the employment at any time
without cause. The one-page agreement
provided that Papudesi would “comply with the rules and policies of Northrop”
and “all written and verbal safety rules and operating guidelines,” and would
work any job or shift necessitated by operations. The final clause of the contract stated,
“This Employment Agreement constitutes the entire agreement between me and the
Company with respect to the subject
matters covered in this Agreement, and supersedes all prior agreements and
understandings relating to such matters, whether written or oral. This Agreement may not be superseded,
amended, or modified except by written agreement signed by me and by an officer
of the Company.” (Italics added.) The agreement was silent on Northrop’s
dispute resolution policy.

Three years
later, in September 2006, Northrop distributed to employees by First Class and
electronic mail materials setting forth its new dispute resolution policy. In them, policy No. H103, a 14-page document
entitled “Dispute Resolution Process,” set forth Northrop’s dispute resolution
procedure, the last step of which was binding arbitration. Policy No. H103A, comprising 11 pages and
entitled “Employee Mediation/Binding Arbitration Program,” set forth Northrop’s
arbitration policy.

Under the arbitration program, the
non-initiating party would choose between two arbitration tribunals, JAMS and
AAA. The arbitration would be conducted
first pursuant to any legally required procedural rules, then rules
specifically set forth in the policy itself, then the chosen tribunal’s rules,
copies of which could be obtained online or through Northrop’s human resources
managers. The arbitrator was vested with
“authority to decide any disputes regarding discovery,” and any party that
sought more than three depositions would be required to hold a joint meeting
with the arbitrator to discuss discovery issues, limitations and scheduling. The arbitration policy provided that “[i]f .
. . any party prevails on a claim, which (if brought in a court) affords the
prevailing party attorneys’ fees and/or costs, then the arbitrator may award
reasonable fees and/or costs to the prevailing party to the same extent as would
apply in court.”

The
arbitration program also contained the following class waiver: “To the extent it is permissible to do so in
the jurisdiction where the arbitration is held and (if applicable) the
jurisdiction where the parties’ obligation to arbitrate claims under this
Program is enforced, both you and the Company waive the right to bring any
covered claim under this Program as a class action. In jurisdictions where this is permissible,
the arbitrator will not have authority or jurisdiction to consolidate claims of
different employees into one proceeding, nor shall the arbitrator have
authority or jurisdiction to hear the arbitration as a class action.”

Policy Nos.
H103 and H103A both included the following language: “By accepting or continuing employment on or
after 1 November 2006, all covered employees agree to submit any covered
disputes to binding arbitration, rather than to have such disputes heard by a
court or jury.”

Papudesi continued to work for
Northrop until her employment was terminated in April of 2008.

In February
2010, Papudesi’s counsel sent a demand letter to Northrop alleging wrongful
termination in violation of public policy and intentional infliction of
emotional distress. Northrop demanded
arbitration and Papudesi complied, submitting a request for mediation and a
demand for arbitration to her former employer.

Eleven months later, while
arbitration proceedings were ongoing, Papudesi filed the instant class action
lawsuit, alleging Northrop failed to pay overtime wages, provide meal and rest
periods, pay wages in a timely manner, or provide itemized wage statements.

Northrop moved to compel
arbitration and stay all civil court proceedings, arguing policies No. H103 and
No. H103A constituted a valid agreement to submit any employment disputes to
binding arbitration. It argued Papudesi
waived any claim that the agreement was unenforceable by previously submitting
her tort claims to arbitration in February 2010. Noting that in meet-and-confer efforts
Papudesi had argued Northrop arbitration policy was invalid under >Gentry v. Superior Court (2007) 42
Cal.4th 433 (Gentry) because it
contained a class waiver, Northrop argued Gentry
had been superseded by AT&T
Mobility, LLC v. Concepcion (2011) 131 S.Ct. 1740 (Concepcion).

In opposition to the motion,
Papudesi argued the arbitration policy was unenforceable for four reasons: It constituted a modification of the
employment that was invalid because it was not signed, as required by the
integration clause of the original employment contract; it was unconscionable
under Armendariz v. Foundation Health
Psychcare Services, Inc. (2000) 24 Cal.4th 83 (Armendariz); it was invalid under Gentry because it contained a class waiver; and it was invalid
because section 7 of the National Labor Relations Act, title 29 United States
Code section 151 et seq., prohibits class action waivers in the employment
context.

At some point, Papudesi also filed
motions for discovery that would inform a Gentry
analysis.

Before the hearing the trial court
issued a tentative ruling that it later adopted as its final ruling. In it, the court found policies No. H103 and
No. H103A were invalid because they constituted an attempt to modify Papudesi’s
original employment contract, but had not been signed by either Papudesi or an
officer of Northrop, as required by the agreement. The court also found that by submitting her
discrimination and tort claims to arbitration Papudesi did not waive the right
to file a civil wage and hour lawsuit because absent an arbitration agreement,
an employee is free to pursue severable claims in different forums. The court denied Northrop’s motion, declined
to reach the unconscionability or class waiver issues, and deemed plaintiff’s
motions for discovery to be moot.

Northrop appeals.

DISCUSSION

A. Policies H103 and H103A Set Forth a
Separate Agreement

Northrop
contends the trial court erred in finding the arbitration agreement set forth
in policy Nos. H103 and H103A was an invalid attempt to modify Papudesi’s
original employment agreement. We agree.

“The right
to arbitration depends upon contract; a petition to compel arbitration is
simply a suit in equity seeking specific performance of that contract.” (>Engineers & Architects Assn. v.
Community Development Dept. (1994) 30 Cal.App.4th 644, 653.) “The petitioner bears the burden of proving
the existence of a valid arbitration agreement by the preponderance of the
evidence, and a party opposing the petition bears the burden of proving by a
preponderance of the evidence any fact necessary to its defense. [Citation.]
In these summary proceedings, the trial court sits as a trier of fact,
weighing all the affidavits, declarations, and other documentary evidence, as
well as oral testimony received at the court’s discretion, to reach a final
determination. [Citation.]” (Engalla
v. Permanente Medical Group, Inc. (1997) 15 Cal.4th 951, 972.) Courts will uphold the trial court’s
resolution of disputed facts if they are supported by substantial
evidence. (Nyulassy v. Lockheed Martin Corp. (2004) 120 Cal.App.4th 1267,
1277.) Where no disputed evidence is
considered by the trial court, “we will review its arbitrability decision de
novo.” (Ibid.)

Here,
Papudesi’s employment agreement constituted the parties’ entire agreement “with
respect to the subject matters covered” by it, and could not be modified except
by a written agreement signed by the parties.
The “matters covered” by the agreement included the at-will nature of
Papudesi’s employment and her duty to comply with Northrop’s safety rules and
policies and work any shift or job necessitated by operations. Although Papudesi’s compliance with
Northrop’s “policies” was a “matter[] covered” by the contract, nothing
prohibited Northrop from introducing new policies without a signed
writing.

On the contrary, because at-will
employment permits an employer to discharge or demote an employee without
cause, it necessarily also “authorizes an employer unilaterally to alter the
terms of employment, provided the alteration does not violate a statute or breach
an . . . agreement.”
(Schachter v. Citigroup, Inc.
(2009) 47 Cal.4th 610, 620, citing Scott
v. Pacific Gas & Electric Co. (1995) 11 Cal.4th 454, 465; see Labor
Code, § 2922 [“[a]n employment having no specific term may be terminated at the
will of either party”].) Papudesi was an
at-will employee. Northrop was therefore
entitled to alter the terms of her employment by instituting new policies as it
saw fit.

Papudesi
maintains that she never received the arbitration policy and never agreed to
it. The record is to the contrary. First, Northrop’s human resources director
declared the policy was sent to Papudesi twice—once via mail and again via
electronic mail. This created a
presumption that she received the materials.
(Craig v. Brown & Root, Inc.
(2000) 84 Cal.App.4th 416, 421.)
Papudesi has offered no evidence rebutting this presumption. Further, policy Nos. H103 and H103A both
provided that the employee’s acceptance of continued employment constituted
acceptance of the arbitration agreement. (Schach>ter v. Citigroup, Inc., >supra, 47 Cal.4th at p. 620 [an employer
may condition continued employment upon the acceptance of a newly incepted
policy].) Papudesi continued her
employment with Northrop, thereby accepting the arbitration agreement.

B. The Arbitration Policy is not
Unconscionable

Papudesi
contends that even if policy Nos. H103 and H103A constitute a separate,
independent agreement, the agreement is unconscionable. Although the trial court declined to reach
this issue, the state of the record permits us to review Papudesi’s claim.

“A written
agreement to submit to arbitration an existing controversy or a controversy
thereafter arising is valid, enforceable and irrevocable save upon such grounds
as exist for the revocation of any contract.”
(Code Civ. Proc., § 1281.) Courts
may refuse to enforce a contract or clause on the ground that it was
unconscionable when formed. (Civ. Code,
§ 1670.5, subd. (a).) Papudesi argues
the arbitration agreement was unconscionable because it failed to provide clear
rules and limited discovery and remedies.

Unconscionability has both a procedural and a
substantive element. (Gentry, >supra, 42 Cal.4th at pp. 468-469.) The procedural element focuses on oppression
or surprise that arises from unequal bargaining power. This usually takes the form of a contract of
adhesion which, drafted by the party with superior bargaining strength, allows
the other party the option only to adhere to the terms or reject them. The substantive element looks to the results,
and whether they are overly harsh or one-sided.
(Ibid.) Although both elements must be present, they
need not be present in an equal degree.
A sliding scale is used: the more
procedurally unconscionable a contract may be, the less substantive unconscionability
is necessary and vice versa. (>Armendariz, supra, 24 Cal.4th at p. 114.)
As the party opposing the arbitration, Papudesi bears the burden of
proving unconscionability. (>Rosenthal v. Great Western Fin. Securities
Corp. (1996) 14 Cal.4th 394, 413.)

1. Procedural Unconscionability

In a section heading in her
respondent’s brief Papudesi argues, without elaboration, that the arbitration
agreement set forth in policy Nos. H103 and H103A was procedurally
unconscionable “because of the manner in which it was presented.” We assume she means to suggest policy Nos.
H103 and H103A possessed a degree of procedural unconscionability because they
were presented on a take-it-or-leave-it basis by a party with superior bargaining
power. We agree.

“Procedural unconscionability
pertains to the making of the agreement; it focuses on the oppression that
arises from unequal bargaining power and the surprise to the weaker party that
results from hidden terms or the lack of informed choice.” (Ajamian
v. CantorCO2e, L.P. (2012) 203 Cal.App.4th 771, 795.) Nonnegotiable contracts are procedurally
unconscionable in the employment context.
(Armendariz, >supra, 24 Cal.4th at p. 115; >Ajamian v. CantorCO2e, L.P., >supra, at p. 796.)

Here,
Northrop had superior bargaining power and presented the policy on a
take-it-or-leave-it basis. Nothing in
the record suggests any part of the arbitration policy was negotiable. On the contrary, Northrop informed its
employees that continued employment constituted acceptance of the agreement as
is. The policy was therefore
procedurally unconscionable to a degree.


But
Papudesi could not have been surprised by the terms of the arbitration
policy. Surprise has been found in
situations where policy descriptions are inaccurate or hidden in small font or
buried in prolixity. (>A&M Produce Co. v. FMC Corp. (1982)
135 Cal.App.3d 473, 486.) Here, the
policy was set forth in an 11-page document that addressed only the scope and
processes of arbitration and mediation and clearly described and referenced
arbitration rules. Nothing was
inaccurate, hidden or buried.

Because the arbitration agreement
is adhesive but does not cause surprise or oppression, Papudesi must show
substantial substantive unconscionability exists for it to be unenforceable. (Ajamian
v. CantorCO2e, L.P., supra, 203
Cal.App.4th at p. 796.)

2. Substantive
Unconscionability

Papudesi
argues Northrop’s arbitration policy is unconscionable because it limits
discovery and remedies. We disagree.

To ensure that an arbitration agreement
in the employer-employee context does not curtail an employee’s public rights,
it must provide for more than minimal discovery and all types of relief as
would be available in court. (>Fitz v. NCR Corp. (2004) 118 Cal.App.4th
702, 712-713.) “Parties are entitled to
discovery sufficient to vindicate their claims.” (Dotson
v. Amgen, Inc. (2010) 181 Cal.App.4th 975, 983.) Limiting discovery, however, is important to
the streamlined nature of arbitration. (>Ibid.)
An arbitration policy need not make available the entire range of
discovery that would be allowed in a civil lawsuit. (Armendariz,
supra, 24 Cal.4th at pp. 105-106.)

Here,
Northrop’s arbitration policy requires any party seeking more than three
depositions to participate in a joint meeting with the arbitrator to discuss
discovery issues, limitations and scheduling.
It also gives the arbitrator “authority to decide any disputes regarding
discovery.” JAMS and AAA discovery
rules, which come into play in situations not covered by the policy’s discovery
rules, limit discovery but give the arbitrator authority to order any discovery
necessary for a full exploration of issues in dispute. This is permissible. (Armendariz,
supra, 24 Cal.4th 83 at p. 106
[parties are entitled to any discovery necessary to vindicate their rights]; >Roman v. Superior Court (2009) 172
Cal.App.4th 1462, 1475-1476 [AAA rules regarding discovery were adequate
because they gave the arbitrator discretion to expand allowable discovery if
necessary to vindicate rights]; Dotson v.
Amgen, Inc., supra, 181
Cal.App.4th at p. 984 [a rule that limited initial discovery but allowed for
expansion at the arbitrator’s discretion allowed for adequate discovery].) Together, Northrop’s and the JAMS and AAA
rules entitle employees to adequate discovery.

Papudesi
depends on Fitz v. NCR Corp., >supra, 118 Cal.App.4th 702 for the
proposition that limits on discovery in an employer-employee arbitration are
not permissible. There, the arbitration
policy at issue limited discovery to two depositions and expert testimony and
provided that a “compelling need” must exist before an arbitrator could allow
expanded discovery. The court held the
discovery rules impermissibly favored the employer, which possessed a majority
of the evidence. (Id. at pp. 716-717.) The
case is distinguishable because here, unlike in Fitz v. NCR, Northrop’s arbitration policy places no limit on the
arbitrator’s discretion to expand discovery.

Papudesi
argues because the arbitration policy allows a prevailing party to recover attorney fees in arbitration, whereas the Labor
Code allows only prevailing employees
to recover attorney fees in court, it does not allow for the same remedies as
would be available in court. The
argument is without merit.

A degree of substantive unconscionability
exists where an arbitration agreement fails to provide for all types of relief
as would be available in court. (>Fitz v. NCR Corp., supra, 118 Cal.App.4th at p. 712.)
Here, the arbitration policy provided:
“[i]f . . . any party prevails on a claim, which (if brought in a court)
affords the prevailing party attorneys’ fees and/or costs, then the arbitrator
may award reasonable fees and/or costs to the prevailing party to the same
extent as would apply in court.” This
provision grants the same relief as would be available in a civil lawsuit.

Because
Papudesi adduces only limited procedural unconscionability and no substantive
unconscionability, we conclude Northrop’s arbitration policy is not
unconscionable.

C. Class Waiver

Papudesi
argues the arbitration policy is invalid under Gentry because it contains a class waiver. Gentry
sets forth several factors to be considered on a case-by-case basis to
determine whether a class action waiver renders an arbitration agreement
invalid. Because the trial court found
that no valid arbitration agreement existed it declined to consider the >Gentry factors and curtailed plaintiff’s
discovery on Gentry issues. The record is therefore insufficient for us
to determine whether Gentry would
invalidate Northrop’s arbitration policy.
Northrop preliminarily argues no Gentry
analysis need be performed at all because the United States Supreme Court’s
recent decision in Concepcion overruled
Gentry. For reasons we set forth in another case, >Franco v. Arakelian Enterprises, Inc.
(case No. B232583), we disagree.

>Gentry held that in certain
circumstances a class waiver that interfered with an employee’s unwaivable
statutory rights would be unenforceable.
(42 Cal.4th. at p. 457.) The
supreme court set forth five factors to consider when determining whether a
class waiver interfered with unwaivable statutory rights: the modesty of individual claims; the
employee’s fear of retaliation; absent class members’ awareness of their legal
rights; the necessity of class action to assure enforcement of statutory
rights; and other “real world obstacles to the vindication” of rights. (Id.
at pp. 462-463.) If the trial court
concludes, based on these factors, “that a class arbitration is likely to be a
significantly more effective practical means of vindicating the rights of the
affected employees than individual litigation or arbitration, and finds that
the disallowance of the class action will likely lead to a less comprehensive
enforcement of overtime laws for the employees alleged to be affected by the
employer’s violations, it must invalidate the class arbitration waiver to
ensure that these employees can ‘vindicate [their] unwaivable rights in an
arbitration forum.’ [Citation.] The kind of inquiry a trial court must make is similar to the one it already
makes to determine whether class actions are appropriate. ‘[T]rial courts are ideally situated to
evaluate the efficiencies and practicalities of permitting group action. . . .’ [Citation.]”
(Id. at pp. 463-464, fn. omitted.)

A question
exists as to whether Gentry remains
good law after the U.S. Supreme Court’s ruling in Concepcion, where the court held that a categorical state rule
invalidating class arbitration waivers is preempted by the Federal Arbitration
Act. For reasons set forth in >Franco v. Arakelian Enterprises, >supra (B235730), we conclude >Gentry survives Concepcion because it sets forth not a categorical rule but a
multifactor test that rests in part on whether a class action “is likely to be
a significantly more effective practical means of vindicating the rights of the
affected employees than individual litigation or arbitration.” (Gentry,
supra, 42 Cal.4th at p 463.)

Because a >Gentry analysis is fact intensive, and
because Gentry discovery was curtailed
in this case, we will remand the matter for further proceedings, during which
the trial court may conduct whatever additional factual and legal inquiries are
necessary to decide the Gentry
issue. (See Wagner Construction Co. v. Pacific Mechanical Corp. (2007) 41
Cal.4th 19, 31.)

D. NLRA

Papudesi
cites D. R. Horton, Inc. (2012) 35>7 NLRB 184 (Horton), an administrative decision of the National Labor Relations
Board (the Board), for the proposition that requiring an employee to waive
class treatment of grievances violates the employee’s right under the National
Labor Relations Act to “engage in . . . concerted activities for the purpose of
collective bargaining or other mutual aid or protection.” (29 U.S.C. § 157.)

We decline
to follow Horton. In Concepcion,
the United States Supreme Court stated that under the FAA, an arbitration
agreement must be enforced according to its terms, class waiver included. This is true unless the FAA’s mandate has
been “‘overridden by a contrary congressional command.’” (Compucredit
Corp. v. Greenwood (2012) ___ U.S. ___ [132 S.Ct. 665, 669, 181 L.Ed.2d
586].) The National Labor Relations
Act’s provision that an employee may engage in “concerted activities for the
purpose of collective bargaining or other mutual aid or protection” does not
constitute a congressional command that the employee may disregard an agreement
prohibiting class treatment of employment claims.

CONCLUSION>

We
conclude Northrop’s arbitration policy constituted an agreement that was
separate from and independent of Papudesi’s employment contract. The agreement is not unconscionable, but its
class waiver provision may yet be unenforceable under Gentry. Because the trial
court did not reach this issue, we remand the matter for further proceedings.

DISPOSITION

The trial
court’s order denying Northrop’s motion to compel arbitration is reversed. The matter is remanded for a determination
whether Gentry invalidates the
arbitration policy’s class waiver. Each
side is to bear its costs on appeal .

NOT TO BE PUBLISHED





CHANEY, J.

We concur:





MALLANO,
P. J.





JOHNSON,
J.