Degraff v. Perkins Coie Cal. P.C.
| Decision Date | 21 February 2018 |
| Docket Number | A148405 |
| Parties | HAROLD DEGRAFF, Plaintiff and Respondent, v. PERKINS COIE CALIFORNIA P.C. et al., Defendants and Appellants. |
| Court | California Court of Appeals Court of Appeals |
NOT TO BE PUBLISHED IN OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.
(San Mateo County Super. Ct. No. CIV534202)
Defendants Perkins Coie California P.C. (California PC) and Perkins Coie LLP (Perkins LLP) appeal an order denying their petition to compel plaintiff Harold DeGraff to arbitrate his claims against defendants and staying trial court proceedings pending arbitration. Applying Washington state law, the trial court concluded the parties' contractual arbitration provision was both procedurally and substantively unconscionable. We conclude the provision is not procedurally unconscionable under Washington law. We also conclude that while certain portions of the provision are substantively unconscionable, the offending portions can be severed. Accordingly, we reverse.
Defendant Perkins LLP is a law firm based in Seattle, Washington. Perkins LLP consists of both individual partners and various professional corporations that are its "corporate partners." One of those corporate partners is California PC.
From 2004 to 2007, plaintiff worked for the law firm of Greenberg Traurig. After one of his colleagues left the firm to join defendants' Menlo Park office, attorneys from that firm began recruiting plaintiff. During these discussions, he was told that he could join the firm either as an individual partner of Perkins LLP or as an employee of its corporate partner, namely, California PC. If he joined as an employee, he would not receive income from Perkins LLP and would therefore not receive a Schedule K-1. Instead, he would receive W-2 wages from California PC and, at some point in the future, would be expected to contribute capital to it in exchange for shares of its stock.
In a letter dated March 7, 2007, defendants sent plaintiff an offer letter, inviting him to join the firm "as a voting, full-equity partner in our Menlo Park office." He was given the choice of joining the firm as an individual partner or as a shareholder of California PC: Plaintiff chose to join as a "shareholder/employee" partner. The offer letter included a copy of a "Partnership Agreement," the execution of which was a requirement for membership.
On March 9, 2007, plaintiff signed the offer letter.
On July 3, 2007, plaintiff began work at the Menlo Park office. He was required to complete a form W-9.
On July 5, 2007, Perkins LLP executed an employment eligibility verification form I-9 for plaintiff.
In 2007 (in the month of November, according to plaintiff), plaintiff signed the Partnership Agreement. The Partnership Agreement contains a choice-of-law clause providing that the contract shall be governed by Washington state law. It also contains a mandatory arbitration provision, applicable to "[a]ny dispute arising out of this Agreement, or out of the relationship between any Partner or Shareholder and the Firm or any Corporate Partner . . . ." The arbitration provision provides, among other things, that any arbitration is to be strictly confidential and must be completed within 90 days ofwritten notice. Also, if the parties cannot agree on the appointment of an arbitrator, the president of the Washington State Bar Association will select as arbitrator a partner from a large Seattle law firm. Under the provision, the parties are jointly responsible for the arbitrator's fees, and the prevailing party is entitled to an award of attorney fees and costs from the losing party.
Plaintiff also signed an "Employment Agreement," pursuant to which he became a "shareholder/employee" of California PC. In that agreement (Employment Agreement), he is identified as the "Employee" and California PC is identified as the "Employer." In signing the Employment Agreement, plaintiff expressly acknowledged he was also bound by the terms of the Partnership Agreement: The Employment Agreement states it is governed by California law.
During the course of his work with defendants, plaintiff received a form W-2 for each year, which showed California PC as his employer. He filled out a form W-4 for withholdings and did not receive a schedule K-1 from Perkins LLP.
On November 26, 2008, Perkins LLP filed a limited liability partnership annual renewal statement with the State of Washington, indicating that it had 21 partners only.1
On January 1, 2009, defendants revised the Partnership Agreement. The 2009 version contains the same arbitration clause as the prior version. Plaintiff voted to approve the revisions and signed this version of the agreement.
Plaintiff resigned in May 2010.
In August 2011, plaintiff filed a claim with the California Labor Commissioner, claiming a right to reimbursement from defendants for various allegedly unauthorized deductions totaling $60,194.
On March 20, 2012, plaintiff withdrew his claim and cancelled a scheduled hearing before the Labor Commissioner.
On May 4, 2012, plaintiff filed a class action complaint in the United States District Court for the Northern District of California, asserting essentially the same claims as the ones at issue in the present case, which we describe below.
On July 30, 2012, the district court issued an order enforcing the arbitration provision and granting a motion to dismiss filed by defendants.
On August 28, 2012, plaintiff filed a notice of appeal in the United States Court of Appeals, Ninth Circuit.
On December 9, 2014, the Ninth Circuit concluded it did not have original jurisdiction over the case.
On June 10, 2015, the federal case was dismissed without prejudice.
On June 11, 2015, plaintiff filed the underlying lawsuit as a class action, alleging claims for (1) unlawful deductions under Labor Code sections 221 and 223, (2) failure to reimburse business expenses under Labor Code section 2802, (3) failure to pay all wages due under Labor Code sections 201 to 203, (4) failure to provide accurate, itemized wage statements under Labor Code section 226, and unfair competition under Business and Professions Code section 17200 et seq. He defined the class as " '[a]ll attorneys who have been treated as "shareholder/employees" of Perkins Coie California, PC at any time from May 5, 2008 through the date of final judgment.' "
In the complaint, plaintiff alleges that during his employment defendants made several improper deductions from his wages to fund their business expenses, including deductions for workers' compensation insurance, unemployment insurance, accountingfees, Medicare, Social Security, shareholder loans, and retirement expenses. Plaintiff sought declaratory and injunctive relief, as well as restitution, statutory penalties, damages, and attorney fees.
On September 3, 2015, defendants filed a motion to compel arbitration.
On October 9, 2015, plaintiff filed an opposition to defendants' motion to compel arbitration. He asserted that California law, not Washington law, applied to the dispute. He also claimed the arbitration provision is unenforceable because it fails to comply with public policy and because it is unconscionable. In his accompanying declaration, he stated that he signed both the Employment Agreement and the Partnership Agreement in or around November 2007. He understood that he would not be able to continue working for defendants if he did not sign both documents exactly as presented, and he had no opportunity to negotiate the terms in either agreement.
On November 10, 2015, the trial court ordered the parties to file supplemental briefs concerning choice-of-law and unconscionability (or not) of the arbitration provision and its terms.
On December 7, 2015, defendants filed a supplemental brief in support of their motion to compel arbitration.
On January 6, 2016, plaintiff filed a supplemental opposition.
On April 14, 2016, the trial court filed its order denying defendants' motion to compel arbitration. The court elected to consider the issue under Washington State law, as advocated by defendants, reasoning that if the clause is not enforceable under that state's laws there would be no need to engage in an analysis under California law. For purposes of the motion, the court declined to make a determination on the merits as to whether plaintiff was an "employee," accepting at face value plaintiff's claim that he was defendants' employee for purposes of ruling on the enforceability of the arbitration clause.
Applying Washington law, the trial court concluded the arbitration provision was unconscionable due to procedural and/or substantive unconscionability. Specifically, the court found that the provision was procedurally unconscionable because the Partnership Agreement was an adhesion contract, and because plaintiff was not afforded a reasonable opportunity to understand its terms such that he had a "meaningful choice."...
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