Fowler v. CarMax
Filed 3/26/13 Fowler v. CarMax CA2/1
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IN
THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND
APPELLATE DISTRICT
DIVISION
ONE
JOHN WADE FOWLER et al.,
Plaintiffs and Appellants,
v.
CARMAX, INC. et al.,
Defendants and Respondents.
B238426
(Los Angeles
County
Super. Ct.
No. BC388340)
APPEAL from
an order of the Superior Court
of
County, William F. Highberger, Judge. Reversed with directions.
Kingsley
& Kingsley, Eric B. Kingsley, Darren M. Cohen; The Cooper Law Firm, Scott
B. Cooper; The Carter Law Firm and Roger R. Carter, for Plaintiffs and
Appellants.
Ogletree,
Deakins, Nash, Smoak & Stewart, Jack F. Sholkoff and Christopher W. Decker,
for Defendants and Respondents.
_____________________
>
John Wade
Fowler and Wahid Areso filed class complaints against CarMax,
alleging wage and hour violations.
Fowler and Areso appeal from the trial court’s order granting CarMax’s
BACKGROUND
As a condition of applying for
employment with CarMax, Fowler and Areso were required to sign the CarMax
dispute resolution agreement, which provided that any claims arising out of
employment with CarMax be “settle[d] . . . exclusively by final and binding
arbitration before a neutral Arbitrator,†and any arbitration “will be
conducted in accordance with the CarMax Dispute Resolution Rules and
Procedures.†Fowler signed the agreement
on August 5, 2006, and Areso
signed it on May 17, 2006;
CarMax also signed the agreement. Fowler
and Areso received a copy of the associated Dispute Resolution Rules and
Procedures. We hereinafter refer to the
agreement and the incorporated rules and procedures collectively as the
arbitration agreement.
The
up to 20 interrogatories or document requests, and allowed each party to take
up to three depositions. The arbitrator
had the discretion to permit additional discovery “[u]pon the request of any Party
and a showing of substantial need . . . but only if the Arbitrator finds that
such additional discovery is not overly burdensome, and will not unduly delay
conclusion of the arbitration.â€
The
arbitration agreement also prohibited class arbitration: “The Arbitrator shall not consolidate claims
of different Associates into one proceeding, nor shall the Arbitrator have the
power to hear an arbitration as a class action (a class action involves an
arbitration or lawsuit where representative members of a large group who claim
to share a common interest seek collective relief).†The agreement also provided: “Carmax may alter or terminate the
[arbitration agreement] on December 31 of any year upon giving thirty (30)
calendar days written notice to Associates, provided that all claims arising
before alteration or termination shall be subject to the [arbitration
agreement] in effect at the time the Arbitration Request Form is received by
the Company.†Notice of termination or
alteration of the arbitration agreement “may be given by posting a written
notice by December 1 of each year at all CarMax locations.†The arbitration agreement and any award
pursuant to it “shall be enforceable and subject to the Federal Arbitration Act,
9 U.S.[C. ]§ 1,
et seq. . . .â€
In April
2008, Fowler, who was employed by CarMax as a sales consultant, filed a
putative class action in superior court on behalf of a class of himself and
other nonexempt CarMax employees, including a subclass of sales consultants. The complaint alleged that CarMax failed to
provide meal and rest periods, failed to comply with wage statement
requirements, failed to timely pay wages due at termination, and violated the
unfair competition law. Areso’s wife
Leena, who also was employed by CarMax as a sales consultant, filed a putative
class action against CarMax on behalf of all persons employed by CarMax as
sales consultants in the four years prior to filing, and an amended complaint
filed in July 2008 added Areso as a named plaintiff. Areso’s first amended complaint alleged that
CarMax failed to provide meal breaks and violated the unfair competition law.
for civil penalties pursuant to the Private Attorneys General Act of 2004
(PAGA), Labor Code section 2698 et seq.
Areso filed a notice of related cases, and the actions were assigned to
the same courtroom.
Discovery
ensued on both sides. On August 20,
2008, Fowler and Areso (hereinafter, collectively Plaintiffs) propounded
special interrogatories and requests for production of documents to CarMax;
Carmax responded in October 2008. Also
in August 2008, CarMax propounded 34 requests for production of documents on
Plaintiffs, who responded on September 24, 2008. On November 20, 2008, CarMax propounded
special interrogatories on Plaintiffs, who responded in December 2008. On February 17, 2009, Plaintiffs served a
second set of special interrogatories and requests for production of documents
on CarMax, who responded in April 2009.
Also in April 2009, CarMax served a second set of special
interrogatories, and a second set of requests for production, on
Plaintiffs. CarMax took the deposition
of Leena Areso in September 2008, and took the deposition of Wahid Areso in
October 2008. In January 2009,
Plaintiffs took the deposition of CarMax’s persons most knowledgeable.
CarMax
filed two motions for summary adjudication in January 2009: one as to Leena and Wahid Areso’s first cause
of action for failure to pay overtime, and another as to Fowler’s fourth cause
of action for failure to provide itemized wage statements. The trial court granted both of CarMax’s
motions for summary adjudication on June 16, 2009. That same day, pursuant to a stipulation by
the parties, the trial court stayed Plaintiffs’ cases until the California
Supreme Court entered a decision following its grant of review in
on her overtime claim, and dismissed her other claims; we affirmed the trial
court’s ruling. (Areso v. CarMax, Inc. (2011) 195 Cal.App.4th 996.) The remaining issues in Plaintiffs’ putative
class actions are that CarMax failed to provide meal periods (Fowler and Areso)
and rest periods (Fowler), and derivative claims.
While the
2011, counsel for Carmax sent a letter to Plaintiff’s counsel requesting that
Plaintiffs submit their cases to arbitration and dismiss their class claims, in
light of the United States Supreme Court’s April 27, 2011 decision in
(2011) 563 U.S. ___ [179 L.Ed.2d 742, 131 S.Ct. 1740] (Concepcion). Counsel for Plaintiffs refused, responding
that CarMax had taken steps inconsistent with the intent to invoke arbitration
and had waived its right to compel arbitration.
Plaintiffs also argued that in any event, the agreement was
substantively and procedurally unconscionable and therefore unenforceable.
CarMax then
filed a motion on or about June 17, 2011 to vacate the stay and compel
arbitration on an individual basis.
Plaintiffs filed an opposition on July 1, 2011, arguing that CarMax had
waived its right to compel arbitration, the agreement was procedurally and
substantively unconscionable, Concepcion did
not preempt the California Supreme Court decision in Gentry v. Superior Court (2007) 42 Cal.4th 443 (
National Labor Relations Act (NLRA) (29 U.S.C. § 151 et seq.), and the
Plaintiffs’ claims under PAGA were not arbitrable. Plaintiffs requested that the court allow
additional discovery before issuing a ruling to “develop a more extensive
factual record on whether Defendants’ class action ban would prevent Plaintiffs
and the putative class members from vindicating their non-waivable statutory rights. Because Defendants had never raised this
issue before the instant motion, there was no need to conduct discovery on the
issue.â€
On July 19,
2011, the trial court held a hearing on CarMax’s motion to compel arbitration,
took the case under submission, and requested supplemental briefing from both
parties. The court issued a proposed
order granting the motion to compel on November 9, 2011. After further argument on November 17, 2011,
the court issued an order granting CarMax’s motion to compel on November 21,
2011. The trial court granted the motion
“based primarily on the holding and reasoning of [Concepcion],†which the court believed “raise[d] serious questions
as to the continued validity of case such as [Gentry]. . . .†The court
found: CarMax had not waived its right
to compel arbitration; Gentry was no
longer applicable to determine whether the class action waiver was invalid; the
arbitration agreement was not unconscionable merely because it was a contract
of adhesion; the PAGA claim was arbitrable on an individual basis; and the NLRA
did not preempt the agreement. The court
concluded that Plaintiffs were required “to arbitrate their individual claims
without inclusion of the class claims.â€
The court stayed the case pending completion of the arbitration.
Plaintiffs
filed a timely notice of appeal.
DISCUSSION
I. The trial court’s order granting the
motion to compel is appealable.
CarMax contends that the trial
court’s order compelling arbitration is not appealable and we should therefore
dismiss the appeal. We disagree.
A trial
court order compelling arbitration is ordinarily reviewable only after the
arbitration is complete and a party appeals from the resulting judgment. (Flores
v. West Covina Auto Group (2013) 212 Cal.App.4th 895, 905.) An exception is the death knell doctrine,
which allows immediate appeal of such an order if it “effectively terminate[s]
class claims while allowing individual claims to proceed.†(Ibid.) As the California Supreme Court recently
explained, an order “determining the plaintiff could not maintain his claims as
a class action but could seek individual relief, was
appealable . . . [b]ecause the order effectively rang the
death knell for the class claims,†and therefore was “in essence a final
judgment on those claims.†(
Cal.4th 751, 757.) That is precisely
what the trial court’s order granting CarMax’s motion to compel did, in finding
the class action waiver was enforceable and requiring Plaintiffs to arbitrate
their individual claims without inclusion of the class claims. In re
Baycol Cases I and II make clear that Plaintiffs need not present evidence
that they will not be able to pursue their individual
claims as a result of the trial court’s order. CarMax’s reliance on dicta to the contrary in
Nelsen v. Legacy Partners Residential,
Inc. (2012) 207 Cal.App.4th 1115
and Szetela v. Discover Bank (2002)
97 Cal.App.4th 1094, is therefore to no avail.
As we stated recently, granting a motion to compel arbitration when the
arbitration agreement includes a class action waiver “was the ‘death knell’ of
class litigation through
arbitration. . . . Consequently, [appellant] filed a
proper appeal. [Citations.]†(Franco
v. Athens Disposal Co., Inc. (2009) 171 Cal.App.4th 1277, 1288 (
II. CarMax did not waive the right to compel
arbitration.
The trial court concluded that
CarMax had not waived its right to compel
arbitration, although before it moved to compel CarMax had filed two
successful motions for summary adjudication and obtained “substantial
discovery†from the Plaintiffs: “It is
true that this all happened, but the key point is that it would have appeared
pointless and probably even a risky strategy . . . for defendants and their
counsel to challenge the controlling effect of Discover Bank [v. Superior
Court (2005) 36 Cal.4th 148 (overruled in Concepcion, supra, 563
U.S. ___) ( Discover Bank)] and
similar California appellate authorities which appeared to prohibit state court
enforcement of mandatory arbitration clauses to require individual arbitration
only in the context of wage-and-hour class actions.â€
elaboration: “Further, and as a separate
basis to find no waiver, plaintiffs have failed to make the required showing of
resulting prejudice.†On appeal, CarMax argues that when
Plaintiffs filed their class actions complaints in 2008, the California Supreme
Court had held that class action waivers were both procedurally and
substantively unconscionable and thus unenforceable, first in the context of a
consumer contract of adhesion (Discover
Bank, at pp. 162–163), and then in the employment context (
CarMax contends that it would therefore have been futile to invoke the
arbitration agreement, because under Gentry
the arbitration agreement would have been unenforceable.
Public policy strongly
favors arbitration and “requires a close judicial scrutiny of waiver claims.†(St.
Agnes Medical Center v. PacifiCare of California (2003) 31 Cal.4th 1187,
1195 (St. Agnes).) “Although a court may deny a petition to
compel arbitration on the ground of waiver [citation] waivers are not to be
lightly inferred and the party seeking to establish a waiver bears a heavy
burden of proof.†(Ibid.) “[A]ny doubts
concerning the scope of arbitrable issues should be resolved in favor of
arbitration, whether the problem at hand is the construction of the contract
language itself or an allegation of waiver, delay, or a like defense to
arbitrability.†(Moses H. Cone Hospital v. Mercury Constr. Corp. (1983) 460 U.S. 1,
24–25 [103 S.Ct. 927, 74 L.Ed.2d 765].)
A written agreement to arbitrate an
existing or future dispute can be waived if not properly asserted. (Code Civ. Proc., § 1281.2, subd. (a).) To determine whether a party has waived its
right to arbitration, “relevant and properly considered†factors include: “‘“(1) whether the party’s actions are
inconsistent with the right to arbitrate; (2) whether the ‘litigation machinery
has been substantially invoked’ and the parties ‘were well into preparation of
a lawsuit’ before the party notified the opposing party of an intent to
arbitrate; (3) whether a party either requested arbitration enforcement close
to the trial date or delayed for a long period before seeking a stay; (4)
whether a defendant seeking arbitration filed a counterclaim without asking for
a stay of the proceedings; (5) ‘whether important intervening steps [e.g.,
taking advantage of judicial discovery procedures not available in arbitration]
had taken place’; and (6) whether the delay ‘affected, misled, or prejudiced’
the opposing party.â€â€™ [Citation.]†(St.
Agnes, supra, 31 Cal.4th at p.
1196.) When, as in this case, “‘the facts
are undisputed and only one inference may reasonably be drawn, the issue is one
of law and the reviewing court is not bound by the trial court’s ruling.’ [Citation.]â€
(Ibid.) The essential facts in this case are
undisputed, and we therefore engage in de novo review.
Initially, we note that Plaintiffs
filed their class complaints in April and May of 2008, and roughly a year later
in June 2009, the parties stipulated to a stay of Plaintiffs’ cases pending the
California Supreme Court’s 2012 decision in Brinker,
supra, 53 Cal.4th 1004. That stay was still in effect when counsel
for CarMax requested arbitration in June 2011.
For the purpose of our waiver analysis, only slightly more than a year
passed before CarMax indicated that it intended to move to compel for
arbitration.
First, CarMax did not take any
significant action inconsistent with the right to arbitrate. CarMax engaged in more discovery than
provided for in the arbitration agreement, but as noted above, the agreement
also allowed the parties to request additional discovery from the
arbitrator. CarMax also successfully
moved for summary adjudication on two causes of action, but as CarMax points
out, the arbitration agreement provides that a party may “challenge[ ] the
legal sufficiency of an asserted claim . . . in a pre-hearing brief,†and the
arbitrator had the power to strike a legally deficient claim prior to the
arbitration hearing.
Second, the litigation machinery has
been substantially invoked, with significant discovery and two summary
adjudication motions, but as noted above, those actions were consistent with
the terms of the arbitration agreement.
Third, CarMax did not delay for a
long period before moving to compel arbitration and seeking a stay. During the year after the filing of the
complaints and before the parties stipulated to a stay pending the decision in
made a motion to compel a highly risky proposition. When CarMax filed its motion to compel with
the stay still in effect, it acted only slightly more than a month after
Fourth, CarMax did not file a
counterclaim without seeking a stay.
Fifth, as we explained above, CarMax
did not take any important intervening steps such as engaging in judicial
discovery not available in arbitration.
The arbitration agreement provided a mechanism for CarMax to request the
somewhat more extensive discovery it propounded.
Sixth, Plaintiffs have made no
showing of prejudice. Although
Plaintiffs argue that the three years between the filing of their complaints
and the motion to compel impaired their ability to enjoy the benefits or
efficiencies of arbitration, as we pointed out above, fully two of those three
years were subject to a stay agreed to by Plaintiffs pending the resolution of
legal questions by the California Supreme Court in Brinker, supra, 53
Cal.4th 1004. The parties actively
litigated the cases during the year preceding the stay, and Plaintiffs do not
argue that any evidence was lost. (See
Given the strong presumption against
waiver, we agree with the trial court that no waiver occurred.
III. The arbitration agreement is not unconscionable.
Plaintiffs contend that even if CarMax did not waive the
right to arbitrate, the arbitration agreement is unconscionable. We agree with the trial court that the
arbitration agreement as a whole is not unconscionable.
An agreement to arbitrate is invalid
if it is both procedurally and substantively unconscionable. (Code Civ. Proc., § 1281; Civ. Code, §
1670.5; Armendariz v. Foundation Health
Psychcare Services, Inc. (2000) 24 Cal.4th 83, 114 (Armendariz).)
name="_ftnref7" title="">[7] The two types of unconscionability need not
be present in the same degree, and “the more substantively oppressive the
contract term, the less evidence of procedural unconscionability is required to
come to the conclusion that the term is enforceable, and vice versa.†(Armendariz,
at p. 114.)
Procedural
unconscionability arises in the making of the agreement, focusing 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.) There is no question here that the
arbitration agreement, presented to Plaintiffs for signature on a
take-it-or-leave-it basis as a precondition to applying for employment with
CarMax, was a standard contract of adhesion imposed and drafted by CarMax, the
party with superior bargaining power. (
Plaintiffs do not argue, however, that they were surprised by hidden
terms or somehow not informed of the terms of the agreement. There was therefore only some evidence of
procedural unconscionability.
Substantive
unconscionability focuses on “‘“overly harshâ€â€™ or ‘“one-sidedâ€â€™ results.†(Armendariz,
supra, 24 Cal.4th at p. 114.) Plaintiffs argue that the provision allowing
CarMax to alter or terminate the Arbitration Agreement on December 31 of any
year by posting notice 30 days in advance at CarMax locations is unilateral and
renders the agreement substantively unconscionable. Under California law, however, even a
modification provision not providing for advance notice does not render an
arbitration agreement illusory, because the agreement also contains an implied
covenant of good faith and fair dealing.
(Peleg v. Neiman Marcus Group,
Inc. (2012) 204 Cal.App.4th 1425, 1463–1464.)
Although
Plaintiffs do not raise this point, the arbitration agreement also
provides: “[A]ll claims arising before
alteration or termination shall be subject to the [agreement] in effect at the
time the Arbitration Request Form is received by the Company.†To the extent that this express statement
would subject claims “arising†before a modification but not submitted to
arbitration until after incorporation of that modification into the arbitration
agreement, the covenant of good faith and fair dealing cannot vary the plain
language. (Peleg v. Neiman Marcus Group, Inc., supra, 204 Cal.App.4th at p. 1465.)
provides that if any of the arbitration rules “is held to be in conflict with a
mandatory provision of applicable law, the conflicting Rule or Procedure shall
be modified automatically to comply with the mandatory provision†until the
rules can be formally modified to comply with the law. The modification provision therefore does not
constitute sufficient evidence of substantive unconscionability to counterbalance
the relatively low level of procedural unconscionability.
IV. Gentry
is still good law.
The trial court concluded that
arbitration agreement to special scrutiny as a precondition to determining
whether to enforce the waiver.
name="_ftnref9" title="">[9]
Discover Bank, supra, 36
Cal.4th 148, which the United States Supreme Court overruled in
credit cardholder agreement). Our
Supreme Court concluded that class action arbitration waivers found in such
consumer contracts may be substantively unconscionable “‘inasmuch as they may
operate effectively as exculpatory contract clauses that are contrary to public
policy.’†(Discover Bank, at p. 161.)
The court explained that when a consumer contract of adhesion contains a
class arbitration waiver, under circumstances where disputes likely involve
small amounts of damages, and where a litigant alleges that the party with the greater
bargaining power engages in a scheme to deliberately cheat individual consumers
out of small amounts of money, under California law such a waiver is invalid as
unconscionable. (Id. at pp. 162–163.)
The
California Supreme Court followed Discover
Bank with Gentry,
court held that a class action waiver in an arbitration agreement not in a
consumer contract, but between an employee and his employer, would be invalid
“under some circumstances [in which] such a provision would lead to a de facto
waiver and would impermissibly interfere with employees’ ability to vindicate
unwaivable rights and to enforce the overtime laws.†(Gentry,
at p. 457.) The court noted that
individual awards in wage-and-hour cases tended to be modest, and employees and
their attorneys must weigh that anticipated modest recovery (and the modest
means of the plaintiffs) against the risk of not prevailing and incurring
substantial attorney fees. Further, a
current employee who sues his employer faces a greater risk of retaliation,
individual employees may not sue because they are unaware that their legal
rights may be violated, and even where some individual claims are larger, class
actions may be necessary for the effective enforcement of statutory
policies. (Id. at pp. 458–462.) Under
those circumstances and any others imposing “real world obstacles to the
vindication of class members’ rights . . . through individual arbitration,†(
an “exculpatory effect†and violates Civil Code section 1668. (Gentry,
court concludes that 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, 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 . . . .’†(
If no other provision in the arbitration agreement is unenforceable, the
court should invalidate the waiver and send the case to arbitration as a class
action, or have the class action heard in court if the parties so
stipulate. (Id. at p. 466.)
agreement between an employer and an employee required a different analysis
than Discover Bank’s rule of
substantive unconscionability for consumer contracts of adhesion. The Discover
Bank rule is “a legal determination subject to de novo review,†while
class . . . action . . . is a significantly
more effective practical means of vindicating unwaivable statutory rights,
which is a discretionary determination subject to abuse of discretion
review.†(Arguelles-Romero v. Superior Court (2010) 184 Cal.App.4th 825,
841.)
Presented
with a class-action waiver in a consumer contract of adhesion, the court in
consumer contracts [are] unconscionable,†noting “the times in which consumer
contract were anything other than adhesive are long past.†(Concepcion,
supra, 131 S.Ct. at pp. 1746,
1750.) The court did not have before it,
as we do in this case, an employment agreement, which the Gentry analysis examines not for unconscionability, but rather for
whether, under the circumstances in the particular case, “a class
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.) A class action waiver in such an agreement
will be unenforceable if the trial court “finds that the disallowance of the
class action will likely lead to a less comprehensive enforcement of [wage and
hour] laws for the employees alleged to be affected by the employer’s
violations.†(Ibid.) The Supreme Court did
not address a situation in which an employee’s unwaivable statutory rights were
involved, and therefore Concepcion does
not preclude our application of a Gentry analysis.
The trial
court in this case, however, did not address the Gentry factors. Because
on CarMax’s motion to compel is whether the circumstances of Plaintiffs’ class
action establish that class litigation is likely to be significantly more
effective as a practical means of vindicating the rights of members of the
putative class, whether in individual
litigation or arbitration. (See
The
compel, Plaintiffs requested additional discovery to establish a complete
factual record as to the Gentry factors
described above. The trial court held,
however, that Gentry did not survive
address the Gentry factors or
Plaintiffs’ discovery request. We
therefore remand the matter for further proceedings, so that the trial court
may determine what additional factual and legal inquiries are necessary to
determine whether after applying Gentry
the motion to compel should be granted or denied. (See Wagner
Construction Co. v. Pacific Mechanical Corp. (2007) 41 Cal.4th 19, 31.)
V. The NLRA does not bar enforcement of the arbitration
agreement.
The National Labor Relations Board (NLRB) concluded in
184, that requiring an employee to waive class treatment of grievances violated
an employee’s rights under the NLRA.
Under the FAA, however, a federal statute does not override an
arbitration agreement unless congressional intent is clear from the statute’s
language or legislative history. (
565 U.S. ___ [181 L.Ed.2d 586, 132 S.Ct. 665, 669].) The NLRA’s provision that an employee may
engage in “concerted activities for the purpose of collective bargaining or
other mutual aid or protection†(29 U.S.C. § 157) does not show a clear
congressional command to override the FAA, and D.R. Horton, Inc. did not identify any such command in the
NLRA. (Nelsen v. Legacy Partners Residential, Inc., supra, 207 Cal.App.4th at pp. 1133–1135.) We decline to follow the NLRB’s decision.
DISPOSITION
The trial court’s order
granting CarMax’s motion to compel arbitration is reversed. The matter is remanded for a determination
whether the factors in Gentry
exist so as to allow John Wade Fowler to proceed in court with the class
action. Each side is to bear its costs on appeal.
NOT TO BE PUBLISHED.
JOHNSON,
J.
We concur:
MALLANO, P.
J.
CHANEY, J.
name="_ftn1" title="">[1]
CarMax, Inc., CarMax Auto Superstores California, LLC, and CarMax Auto
Superstores West Coast, Inc. CarMax,
Inc. was dismissed without prejudice pursuant to a tolling agreement by
stipulation and order filed June 24, 2008.
name="_ftn2" title="">[2]
The parties stipulated to the dismissal without prejudice of a cause of action
for failure to reimburse for expenses.
