Hill v. Garda CL Nw., Inc.

• Decision Date: 12 September 2013
• Docket Number: No. 87877–3.,87877–3.
• Citation: 179 Wash.2d 47,308 P.3d 635
• Parties: Lawrence HILL, Adam Wise and Robert Miller, on their own behalves and on behalf of all persons similarly situated, Petitioners, v. GARDA CL NORTHWEST, INC., f/k/a AT Systems, Inc, a Washington corporation, Respondent.
• Court: Washington Supreme Court

179 Wash.2d 47

308 P.3d 635

Lawrence HILL, Adam Wise and Robert Miller, on their own behalves and on behalf of all persons similarly situated, Petitioners,

v.GARDA CL NORTHWEST, INC., f/k/a AT Systems, Inc, a Washington corporation, Respondent.

No. 87877–3.

Supreme Court of Washington, En Banc.

Sept. 12, 2013.

Daniel Foster Johnson, Breskin Johnson & Townsend PLLC, Annette M. Messitt, Annette Messitt, Esq., Martin S. Garfinkel, Adam J. Berger, Schroeter Goldmark & Bender, Seattle, WA, for Petitioners.

Clarence M. Belnavis, Fisher & Phillips LLP, Portland, OR, for Respondents.

Kathleen Phair Barnard, Schwerin Campbell Barnard Iglitzin & Lav, Jeffrey Lowell Needle, Seattle, WA, Walter J. Robinson Jr., Attorney at Law, Yakima, WA, Amicus Curiae on behalf of Washington Employment Lawyers Association, Washington State Labor Council, Service Employees International Union Local 925, Service Employees International Union Local 6, Service Employees International Union Healthcare 775nw, Service Employees International Union Healthcare 1199nw.

Kimberlee L. Gunning, Terrell Marshall Daudt & Willie PLLC, Seattle, WA, Amicus Curiae on behalf of Northwest Consumer Law Center.

Timothy Sandefur, Anastasia P. Killian, Pacific Legal Foundation, Sacramento, CA, Brian Trevor Hodges, Pacific Legal Foundation, Bellevue, WA, Amicus Curiae on behalf of Pacific Legal Foundation.

STEPHENS, J.

¶ 1 Petitioners Lawrence Hill, Adam Wise, and Robert Miller (referred to collectively as “the employees”) represent a class of persons who were employed by armored car company Garda CL Northwest Inc. The employees brought a wage and hour suit against Garda, citing violations of the Washington Industrial Welfare Act (WIWA), chapter 49.12 RCW, and the Washington Minimum Wage Act (MWA), chapter 49.46 RCW. Following several months of litigation, including certification of the employee class, Garda moved to compel arbitration under the terms of a labor agreement. The trial court granted the motion to compel arbitration but ruled that the employees could arbitrate as a class. The Court of Appeals affirmed the order to compel arbitration but held that the employees must arbitrate individually notwithstanding the class certification. This case asks us to consider a number of issues arising from the motion to compel, including whether the arbitration provision is unconscionable. We hold that this arbitration clause is unconscionable and reverse the Court of Appeals.

FACTS AND PROCEDURAL HISTORY

¶ 2 Garda is an armored truck company operating across Washington State. It employs drivers to pick up, transport, and deliver currency for its clients. Employees at each Garda facility in Washington are required to sign a labor agreement.¹ The agreements are negotiated between Garda and employee associations. The associations represent employees but are not unions in the traditional sense of the word. The associations do not collect dues from the employees and have no resources. Clerk's Papers (CP) at 606–07. There is little bargaining that actually occurs in creating the agreements, and employees generally must accept whatever is offered. CP at 555, 561.

¶ 3 The labor agreement contains a clause regarding grievance and arbitration. The language of this clause varies little from facility to facility.² The employee association does not file grievances on behalf of employees because it has no funds to do so. CP at 607. Uncontroverted evidence establishes that no employee has even attempted to use the grievance process since at least 2004. CP at 571 (answer from Garda to written interrogatory regarding arbitration activity), 607 (declaration of shop steward).

¶ 4 On February 16, 2009, the employees in this matter filed a suit against Garda in King County Superior Court for wage and hour violations. The employees allege that they were not allowed meal and rest breaks as required by the WIWA and MWA. Garda timely answered and raised the arbitration clause in the labor agreement as an affirmative defense. Trial was set for August 2010. Throughout 2009, the parties exchanged written discovery. However, they delayed “significant investment in prosecuting and defending the case because trial was imminent in a very similar [class-action] matter, Pellino v. Brinks, No. 07–2–13469–7–SEA.” CP at 841. No depositions occurred in 2009. A verdict for the Pellino class issued in January 2010. The parties began discussing settlement, but nothing came to fruition. A stipulated motion was filed for a new trial date of December 2010.

¶ 5 On March 26, 2010, the employees filed a motion for class certification. A hearing on the motion was set for July 16, 2010. On July 1, 2010, Garda filed its opposition to the motion for class certification. On the same date, it also filed a motion to compel arbitration or for summary judgment, and noted the motion hearing for August 27, 2010.

¶ 6 On July 23, 2010, the trial court granted the motion for class certification. Notice was thereafter sent to the 306 class members. On August 27, the court heard Garda's motion to compel arbitration or for summary judgment. It denied the summary judgment motion but ordered further briefing on the arbitration question. On September 24, 2010, the court ordered arbitration to be pursued by the class it had certified. Garda appealed the decision to allow the class to arbitrate, and the employees cross appealed the order to compel arbitration. The Court of Appeals affirmed the order to compel arbitration but reversed the trial court on the issue of class arbitration, holding that the arbitration must proceed on an individual basis. Hill v. Garda CL N.W., Inc., 169 Wash.App. 685, 697, 281 P.3d 334 (2012). The Court of Appeals did not reach the employees' claim that the arbitration clause is unconscionable. Id. at 690, 281 P.3d 334. The employees filed a petition for review, which this court granted. Hill v. Garda CL N.W., Inc., 176 Wash.2d 1010, 297 P.3d 706 (2013).

ISSUE

¶ 7 Are the terms of the arbitration clause unconscionable? [Short Answer: Yes] ³

ANALYSIS

¶ 8 Arbitration is a rapidly evolving dispute resolution method. The United States Supreme Court has weighed in several times in the recent past with decisions that have curtailed somewhat the ability of states to regulate arbitration processes. See, e.g., AT & T Mobility LLC v. Concepcion, –––U.S. ––––, 131 S.Ct. 1740, 179 L.Ed.2d 742 (2011); Stolt–Nielsen SA v. AnimalFeeds Int'l Corp., 559 U.S. 662, 130 S.Ct. 1758, 176 L.Ed.2d 605 (2010); 14 Perm Plaza LLC v. Pyett, 556 U.S. 247, 129 S.Ct. 1456, 173 L.Ed.2d 398 (2009). These cases confirm an expansive interpretation of the Federal Arbitration Act (FAA), 9 U.S.C. §§ 1–14, to occupy an increasingly significant role in the field of arbitration. See Concepcion, 131 S.Ct. at 1746–48. In Washington, we have long recognized, as we must, that arbitration is favored as a matter of policy under the FAA. See Zuver v. Airtouch Commc'ns, Inc., 153 Wash.2d 293, 301, 103 P.3d 753 (2004).

¶ 9 At the same time, we have continued to recognize that “ ‘arbitration is a matter of contract and a party cannot be required to submit to arbitration any dispute which he has not agreed so to submit.’ ” Satomi Owners Ass'n v. Satomi,LLC, 167 Wash.2d 781, 810, 225 P.3d 213 (2009) (internal quotation marks omitted) (quoting Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79, 83, 123 S.Ct. 588, 154 L.Ed.2d 491 (2002)). To that end, we have recognized our authority to decide “ ‘gateway dispute[s].’ ” Id. at 809, 225 P.3d 213 (quoting Howsam, 537 U.S. at 83, 123 S.Ct. 588). These types of disputes go to the validity of the contract and are preserved for judicial determination, as opposed to arbitrator determination, unless the parties' agreement clearly and unmistakably provides otherwise. See id.; see also Gandee v. LDL Freedom Enters., Inc., 176 Wash.2d 598, 293 P.3d 1197 (2013) (limiting the reach of Concepcion ). Unconscionability is one such gateway dispute.

¶ 10 The employees argue that the arbitration clause in the labor agreement is unenforceable because several of its individual provisions are substantively unconscionable, namely the 14–day limitations period, 2– and 4–month limitations on back pay damages (depending on which labor agreement applies), and a cost-prohibitive fee-sharing provision. Suppl. Br. of Pet'rs at 11. We conclude that the terms of this arbitration clause are substantively unconscionable. As noted, such a holding obviates the need to consider the other questions presented by the parties.

¶ 11 Garda argues that this court should not review this question at all, contending that unconscionability is not a matter of substantial public concern. Suppl. Br. of Resp't at 13–14. The Court of Appeals did not rule on the question, deciding instead that the question of unconscionability did not merit discretionary review under RAP 2.3(b)(4). Hill, 169 Wash.App. at 690, 281 P.3d 334. The question was clearly preserved, as the employees argued unconscionability before the trial court, CP at 534, 749, and raised the issue in their cross motion for discretionary review. Cross–Appellants' Opening Br. at 23–29.

¶ 12 We reject Garda's claim that we should not consider the employees' unconscionability argument. Unconscionability is a “gateway dispute” that courts must resolve because a party cannot be required to fulfill a bargain that should be voided. See Zuver, 153 Wash.2d at 302–03, 103 P.3d 753. Indeed, we have suggested a party must raise objections to arbitration in the trial court or on first review or risk having waived the challenge. Id. at 321, 103 P.3d 753 (declining to hear Zuver's challenges to arbitration that were not raised below or in a motion for discretionary review). When the trial court declines to compel arbitration, that decision is immediately appealable, in part because “[i]f a trial court does not compel arbitration and there is no immediate right to appeal, the party seeking arbitration...