FirstAmerica Auto. Inc. v. Sweeney

• Decision Date: 16 March 2000
• Court: California Court of Appeals Court of Appeals
• Parties: (Cal.App. 6 Dist. 2000) FIRSTAMERICA AUTOMOTIVE, INC., Plaintiff and Appellant, v. EDWIN S. SWEENEY, Defendant and Respondent; ARTHUR S. LUJAN, as LABOR COMMISSIONER, etc., Intervener and Respondent. H019813 Filed

94 Cal.Rptr.2d 623 (Cal.App. 6 Dist. 2000)

FIRSTAMERICA AUTOMOTIVE, INC., Plaintiff and Appellant, v. EDWIN S. SWEENEY, Defendant and Respondent; ARTHUR S. LUJAN, as LABOR COMMISSIONER, etc., Intervener and Respondent.

H019813

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA SIXTH APPELLATE DISTRICT

Filed 3/16/00; pub. order 4/14/00 (see end of opn.)

Trial Court: Santa Clara County Superior Court

Superior Court No.: CV777524

Trial Judge: The Honorable Robert A. Baines

(Santa Clara County Super. Ct. No. CV777524)

Attorneys for Plaintiff and Appellant: Fisher & Phillips FirstAmerica Automotive, Inc. Ned A. Fine John P. Boggs David J. Reese

Attorneys for Defendant and Respondent: No appearance by Respondent

Edwin S. Sweeney, in Pro. Per.

Attorneys for Intervenor and Respondent: Miles E. Locker, Chief Counsel

Arthur S. Lujan, as Labor CommissionerAnne Rosenzweig, Staff Counsel

In this appeal we decide whether an employee's claim for unpaid wages should be heard by an arbitrator or by California's Labor Commissioner. The employer and employee agreed to submit all disputes arising from their employment contract to binding arbitration under the Federal Arbitration Act ("FAA," 9 U.S.C., 1 et seq.). However, California Labor Code section 229 specifically exempts from arbitration claims for unpaid wages. The issue is therefore whether the FAA preempts the state statute. This in turn depends upon whether the parties' employment contract in this case falls within an exclusionary provision contained in the FAA which provides that "nothing herein contained shall apply to contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce." (9 U.S.C., 1, "section 1.")

Most courts that have interpreted this exclusionary provision in the FAA have construed the stated exceptions narrowly to refer to workers who, like seamen and railroad employees, are actually engaged in transporting goods or services across state lines. ¹ The Ninth Circuit Court of Appeals, however, has recently construed the provision to exclude all employment contracts from coverage under the FAA, expressly holding that "the FAA does not apply to labor or employment contracts." (Craft v. Campbell Soup Co.(Craft) (9th Cir. 1999) 177 F.3d 1083, 1094.)

In this case Edwin Sweeney (Employee), employed as a car salesman for FirstAmerica Automotive, Inc., doing business as Capitol Nissan (Employer), filed a claim for unpaid wages with California's Labor Commissioner. In response, Employer filed a petition to compel Employee to arbitrate all his claims against Employer pursuant to the agreement in their employment contract to arbitrate any disputes arising from that contract under the FAA. The Labor Commissioner intervened in this action and opposed Employer's petition under authority of the Ninth Circuit's holding in Craft that employment contracts are excluded from the scope of the FAA. Therefore, there was no federal preemption and Employee's claim for unpaid wages must be adjudicated by the Labor Commissioner under Labor Code section 229. The trial court agreed with this reasoning, followed Craft, and denied Employer's petition, finding "there is no Federal preemption of Labor Code 229."

We have carefully reviewed the provisions of the FAA, California Labor Code section 229, and the relevant case law. We believe the question is close, but, for the reasons stated below, we will follow the majority view that gives a narrow construction to the exclusionary provision of the FAA, thus furthering strong policy favoring arbitration. We conclude that the employment contract in this case did not fall within the exclusionary provision of section 1 of the FAA; thus the FAA preempts California Labor Code section 229. We therefore reverse the trial court's order.

CONTENTIONS AND STANDARD OF REVIEW

The parties' contentions center on the interpretation of the FAA and California Labor Code section 229. Employer contends that the exclusionary provision contained in section 1 of the FAA does not apply to the employment contract in this case. Thus the FAA applies and preempts the state statute. The Labor Commissioner, on the other hand, urges a broad interpretation of section 1 of the FAA to exclude employment contracts such as the one before us from the FAA.

These contentions present pure questions of law for our independent resolution. This court has said before: " 'Where the facts are not in conflict and the issue involves the proper application of a statute or administrative regulation, a reviewing court is not bound by the trial court's determination. [Citations.]' [Citation.]" (People ex rel. Deputy Sheriffs' Assn. v. County of Santa Clara (1996) 49 Cal.App.4th 1471, 1477.) "The interpretation of statutes and contracts is a matter of law subject to independent review by this court." (Spellman v. Securities, Annuities & Ins. Services, Inc. (1992) 8 Cal.App.4th 452, 457.)

THE ARBITRATION AGREEMENTS

Employee signed an applicant's statement on June 25, 1998, before he started work as a salesman for Employer. This states in part: "I agree that any claim, dispute, and/or controversy . . . which would otherwise require or allow resort to any court or other governmental dispute resolution forum between myself and the Company . . . arising from, related to, or having any relationship or connection whatsoever with my . . . employment by . . . the Company, whether based on tort, contract, statutory, or equitable law, or otherwise, shall be submitted to and determined exclusively by binding arbitration under the Federal Arbitration Act, in conformity with the procedures of the California Arbitration Act . . . ."

The arbitration agreement in the employee's handbook signed by Employee on June 28, 1998, his first day of work, states: "I also understand that the Corporation promotes a voluntary system of alternative dispute resolution which involves binding arbitration to resolve all disputes which may arise out of the employment context. Because of the mutual benefits (such as reduced expense and increased efficiency) which private binding arbitration can provide both the Corporation and myself, I voluntarily agree that any claim, dispute, or controversy . . . which would otherwise require or allow resort to any court or other governmental dispute resolution forum between myself and the Corporation . . . arising from, related to, or having any relationship or connection whatsoever with my . . . employment by . . . the Corporation, whether based on tort, contract, statutory, or equitable law, or otherwise, (with the sole exception of claims arising under the National Labor Relations Act which are brought before the National Labor Relations Board, claims for medical and disability benefits under the California Workers Compensation Act, and Employment Development Department claims), shall be submitted to and determined exclusively by binding arbitration under the Federal Arbitration Act, in conformity with the procedures of the California Arbitration Act . . . . [] I UNDERSTAND BY VOLUNTARILY AGREEING TO THIS BINDING ARBITRATION PROVISION, BOTH I AND THE CORPORATION GIVE UP OUR RIGHTS TO TRIAL BY JURY."

THE CALIFORNIA STATUTE

California Labor Code section 229 states: "Actions to enforce the provisions of this article for the collection of due and unpaid wages claimed by an individual may be maintained without regard to the existence of any private agreement to arbitrate. This section shall not apply to claims involving any dispute concerning the interpretation or application of any collective bargaining agreement containing such an arbitration agreement." Labor Code section 98 authorizes the Labor Commissioner to hold an administrative hearing on an employee's claim for unpaid wages.² By its terms, section 229 authorizes an action for unpaid wages regardless of an applicable arbitration agreement.

THE FEDERAL ARBITRATION ACT

"The FAA was originally enacted in 1925, 43 Stat. 883, and then reenacted and codified in 1947 as Title 9 of the United States Code. Its purpose was to reverse the longstanding judicial hostility to arbitration agreements that had existed at English common law and had been adopted by American courts, and to place arbitration agreements upon the same footing as other contracts. (Dean Witter Reynolds Inc. v. Byrd [(1985)] 470 U.S. 213, 219-220, and n. 6.)" (Gilmer v. Interstate/Johnson Lane Corp. (1991) 500 U.S. 20, 24.)

"[T]he primary substantive provision" (Moses H. Cone Hospital v. Mercury Constr. Corp. (1983) 460 U.S. 1, 24) of the FAA is 9 United States Code section 2 (section 2), which states: "A written provision in any maritime transaction or a contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract or transaction, or the refusal to perform the whole or any part thereof, or an agreement in writing to submit to arbitration an existing controversy arising out of such a contract, transaction, or refusal, shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract."

The phrase "involving commerce" in section 2 is unique in federal statutes. (Allied-Bruce Terminix Cos. v. Dobson (1995) 513 U.S. 265, 273.) It has been construed broadly. "[T]he word 'involving,' like 'affecting,' signals an intent to exercise Congress' commerce power to the full." (Id. at p. 277; cf. Perry v. Thomas (1987) 482 U.S. 483, 490; see Annot., 130 L.E.2d 1189, 1202-1203.) The FAA "rests on the authority of Congress to enact substantive rules under the Commerce Clause." (Southland Corp. v. Keating (1984) 465 U.S. 1, 11.) "In enacting 2 of the federal Act, Congress declared a national policy favoring arbitration and withdrew the power of the states to require a judicial forum for the resolution of claims which the contracting parties agreed to resolve by...