Edwards v. First Republic Bank

 

 

 

 

 

 

 

 

 

 

 

 

Filed 12/5/13  Edwards v. First Republic Bank CA1/3

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>NOT TO BE PUBLISHED IN OFFICIAL REPORTS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opinion has not been certified for publication or ordered published for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

 

FIRST
APPELLATE DISTRICT

 

DIVISION
THREE

 

 
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JOHN EDWARDS,             Plaintiff and Respondent, v. FIRST REPUBLIC BANK,             Defendant and Appellant.

A135505         (San Francisco County       Super. Ct. No. CGC-11-516928)

 

            Defendant
First Republic Bank (the Bank) appeals from an order denying its href="http://www.mcmillanlaw.com/">motion to compel arbitration of an
employment dispute with plaintiff John Edwards. 
An arbitration agreement may be unenforceable if it is both procedurally
and substantively unconscionable.  (>Armendariz v. Foundation Health Psychcare
Services, Inc. (2000) 24 Cal.4th 83, 114 (Armendariz).)  The trial
court found that the agreement here is substantively unconscionable because the
Bank can modify it at any time.  As
Division One of this Appellate District recently observed in a case presenting the
same issues as those raised here (Peng v.
First Republic Bank (2013 219 Cal.App.4th 1462, 1473-1474 (>Peng)), the trial court’s finding of
substantive unconscionability was contrary to our holding in >24 Hour Fitness, Inc. v. Superior Court
(1998) 66 Cal.App.4th 1199, 1214 (24 Hour
Fitness).  Like the court in >Peng, we adhere to the reasoning
expressed in 24 Hour Fitness and the
cases that have followed it, and conclude that the Bank’s arbitration agreement
is not substantively unconscionable.  We
therefore reverse the order denying the motion to compel arbitration.

 

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I.  BACKGROUND

            Edwards
signed a March 2010 offer of employment from the Bank, and an agreement
attached to the offer that specified all claims relating to his employment
would be resolved by arbitration.  The
Bank reserved the right under the arbitration agreement to modify it “at any
time with or without notice.”  Edwards
sued the Bank for gender discrimination and other causes of action arising from
termination of his employment.  The court
denied the Bank’s motion to compel arbitration on the grounds that the
arbitration agreement is substantively unconscionable because of the
modification provision, and procedurally unconscionable because it provides for
arbitration “in accordance with the rules of the American Arbitration
Association or such alternative dispute resolution service as agreed upon by
the parties” and such rules “were not provided to [Edwards], much less
identified with any clarity.”  Before the
trial court, the parties did not discuss the limitations the href="http://www.fearnotlaw.com/">covenant of good faith and fair dealing
places on an employer’s ability to modify an employment agreement as identified
in 24 Hour Fitness, or its possible application to the agreement offered
by the Bank.

>II. 
DISCUSSION

            In
24 Hour Fitness, this court rejected
an argument that an arbitration agreement in a personnel handbook was
“illusory” because the employer had the right to change the handbook “at any
time for any reason without advance notice.” 
(24 Hour Fitness, >supra, 66 Cal.App.4th at pp.
1213-1214.)  We observed that “ ‘
“[w]here the contract specifies performance the fact that one party reserves
the power to vary it is not fatal if the exercise of the power is subject to
prescribed or implied limitations such as the duty to exercise it in good faith
and in accordance with fair dealings.” ’ [Citations.]”  (Id.
at p. 1214.)  We held that the
employer’s “discretionary power to modify the terms of the personnel handbook .
. . indisputably carries with it the duty to exercise that right fairly and in
good faith. [Citation.] So construed, the modification provision does not
render the contract illusory.”  (>Ibid.)

            As
the court in Serpa v. California Surety
Investigations, Inc. (2013) 215 Cal.App.4th 695 (Serpa) recently noted, our analysis in 24 Hour Fitness was followed in Peleg
v. Neiman Marcus Group, Inc. (2012) 204 Cal.App.4th 1425 (>Peleg). 
“In Peleg the employee of a
department store asserted the arbitration agreement he signed was illusory
because the store retained the unilateral right to amend, modify or revoke the
agreement on 30 days’ advance written notice with the change to apply to any
unfiled claim.  (Id. at p. 1437.)  Citing >24 Hour Fitness, the >Peleg court observed had the agreement
to arbitrate simply authorized the department store to make unilateral
modifications, it would not be illusory under href="http://www.mcmillanlaw.com/">California law because the implied
covenant of good faith and fair dealing would preclude any change that
undermined the employee’s rights.  (>Peleg, at pp. 1465-1466.)”  (Serpa,
supra, 215 Cal.App.4th at p. 707.)

            >Serpa likewise followed >24 Hour Fitness.  The arbitration agreement in >Serpa incorporated provisions in an
employee handbook (Serpa, >supra, 215 Cal.App.4th at p. 699), and
the employer had the right to “revise, modify, or delete” the handbook’s
provisions “except for the policy of at-will employment, at any time” (>id. at p. 700).  The employee’s argument that the modification
provision made the obligation to arbitrate illusory and thus unconscionable
“fail[ed] to recognize the fundamental limit on [the employer’s] ability to
alter the arbitration agreement imposed by the covenant of good faith and fair
dealing implied in every contract.” (Id. at
p. 706.)  “[U]nder the analyses of both >24 Hour Fitness and Peleg, the implied covenant of good faith and fair dealing is
properly applied in this case and saves this arbitration contract from being
illusory.”  (Id. at pp. 707-708.)

            Like
the Peng court, we conclude that >24 Hour Fitness, Peleg, and Serpa govern
here.  (Peng, supra, 219
Cal.App.4th at pp. 1473-1474.)  Because any
modification of the arbitration agreement by the Bank is subject to a “covenant
of good faith and fair dealing [that] would preclude any change that undermined
the employee’s rights” (Serpa, >supra, 215 Cal.App.4th at p. 707), the
modification provision did not make the arbitration agreement substantively
unconscionable.

            Edwards
argues for a different result based on Sparks
v. Vista Del Mar Child and Family Services (2012) 207 Cal.App.4th 1511 (>Sparks), and Ingle v. Circuit City Stores, Inc. (9th Cir. 2003) 328 F.3d 1165 (>Ingle). 
In both cases, the courts stated that arbitration agreements were
substantively unconscionable because the employer had the ability to modify
them at will.  (Sparks, supra, 207
Cal.App.4th at pp. 1514, 1516, 1523; Ingle,
supra, 328 F.3d at pp. 1172-1173,
1179, fn 23.)  We agree with the >Serpa court that Sparks is unpersuasive because it did not consider “>24 Hour Fitness and its application of
the implied covenant of good faith and fair dealing.”  (Serpa,
supra, 215 Cal.App.4th at p. 708, fn. 7.) 
Ingle is unpersuasive for the
same reason.

            In
view of our conclusion that the arbitration agreement is not substantively
unconscionable, we need not decide whether the agreement is procedurally
unconscionable.  (Armendariz, supra, 24 Cal.4th at p. 114.)

>III. 
DISPOSITION

            The
order denying the motion to compel arbitration is reversed, with directions to
grant the motion.  Each party is to bear
its own costs on appeal.

 

 

 

 

                                                                                    _________________________

                                                                                    Siggins,
J.

 

 

We concur:

 

 

_________________________

Pollak, Acting P.J.

 

 

_________________________

Jenkins, J.