Little v. Auto Stiegler, Inc.

Citation29 Cal.4th 1064,63 P.3d 979,130 Cal.Rptr.2d 892
Decision Date27 February 2003
Docket NumberNo. S101435.,S101435.
CourtUnited States State Supreme Court (California)
PartiesAlexander M. LITTLE, Plaintiff and Respondent, v. AUTO STIEGLER, INC., Defendant and Appellant.

Fisher & Phillips, Christopher C. Hoffman and Jeffrey R. Thurrell, Irvine, for Defendant and Appellant.

Fine, Boggs, Cope & Perkins, Ned A. Fine, John P. Boggs, Half Moon Bay, and Michael K. Perkins for California Motorcar Dealers Association as Amicus Curiae on behalf of Defendant and Appellant.

Winston & Strawn and Lee T. Paterson, Los Angeles, for The Employers Group as Amicus Curiae on behalf of Defendant and Appellant.

Maxie, Rheinheimer, Stephens & Vrevich and Darin L. Wessel, San Diego, as Amici Curiae on behalf of Defendant and Appellant.

Moskowitz, Brestoff, Winston & Blinderman, Nelson E. Brestoff and Dennis A. Winston, Los Angeles, for Plaintiff and Respondent.

McGuinn, Hillsman & Palefsky, Cliff M. Palefsky, Keith Ehrman, San Francisco; Pine & Pine and Norman Pine, Encino, for California Employment Lawyers Association as Amicus Curiae on behalf of Plaintiff and Respondent.

MORENO, J.

In this case, we consider four interlocking questions: (1) Is a provision in a mandatory employment arbitration agreement that permits either party to "appeal" an arbitration award of more than $50,000 to a second arbitrator, unconscionable; (2) if it is unconscionable, then should that unconscionable provision be severed from the rest of the arbitration agreement and the agreement enforced, or is the entire agreement invalid; (3) if the former, then in reviewing the rest of the arbitration agreement, do the minimum requirements for arbitration of unwaivable statutory claims that we set forth in Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, 99 Cal.Rptr.2d 745, 6 P.3d 669 (Armendariz) apply also to claims that an employee was terminated in violation of public policy; (4) if yes, then must one of those requirements—that the employer imposing mandatory arbitration—on the employee must pay all costs unique to arbitration be reconsidered and revised in light of a post-Armendariz United States Supreme Court decision on arbitration costsharing, Green Tree Financial

Corp.-Ala. v. Randolph (2000) 531 U.S. 79, 121 S.Ct. 513, 148 L.Ed.2d 373 (Green Tree)?

We conclude as follows: (1) the appellate arbitration provision for arbitration awards over $50,000 is unconscionable; (2) that provision should be severed and the rest of the arbitration agreement enforced; (3) a suit claiming wrongful termination in violation of public policy should be subject to the requirements set forth in Armendariz; and (4) Green Tree does not require that we modify Armendariz's cost requirements. We accordingly partly reverse the Court of Appeal's judgment.

I. Statement of Facts

Alexander M. Little worked for Auto Stiegler, Inc., an automobile dealership. Little eventually rose to become Auto Stiegler's service manager. He alleges that he was demoted, then terminated, for investigating and reporting warranty fraud. He filed an action against defendant for tortious demotion in violation of public policy; tortious termination in violation of public policy; breach of an implied contract of continued employment; and breach of the implied covenant of good faith and fair dealing. In the first through third causes of action, he sought compensatory and punitive damages. In the fourth cause of action, plaintiff sought only contract breach damages. He sought no relief under the California Fair Employment and Housing Act (FEHA). (Gov.Code, § 12900 et seq.)

Little signed three nearly identical arbitration agreements while employed by defendant in June 1995, October 1996, and January 1997. The most recent of the three stated as follows: "I agree that any claim, dispute, or controversy (including, but not limited to, any and all claims of discrimination and harassment) which would otherwise require or allow resort to any court or other governmental dispute resolution forum between myself and the Company (or its owners, directors, and officers, and parties affiliated with its employee benefit and health plans) arising from, related to, or having any relationship or connection whatsoever with my seeking employment with, employment by, or other association with, 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 (Cal.Code Civ. Proc. Sec 1280 et seq., including section 1283.05 and all of the act's other mandatory and permissive rights to discovery); provided, however, that: In addition to requirements imposed by law, any arbitrator herein shall be a retired California Superior Court Judge and shall be subject to disqualification on the same grounds as would apply to a judge of such court. To the extent applicable in civil actions in California courts, the following shall apply and be observed: all rules of pleading (including the right of demurrer), all rules of evidence, all rights to resolution of the dispute by means of motions for summary judgment, judgment on the pleadings, and judgment under Code of Civil Procedure section 631.8. Resolution of the dispute shall be based solely upon the law governing the claims and defenses pleaded, and the arbitrator may not invoke any basis other than such controlling law, including but not limited to, notions of `just cause.' As reasonably required to allow full use and benefit of this agreement's modifications to the act's procedures, the arbitration shall extend the times set by the act for the giving of notices and setting of hearings. Awards exceeding $50,000.00 shall include the arbitrator's written reasoned opinion and, at either party's written request within 20 days after issuance of the award, shall be subject to reversal and remand, modification, or reduction following review of the record and arguments of the parties by a second arbitrator who shall, as far as practicable, proceed according to the law and procedures applicable to appellate review by the California Court of Appeal of a civil judgment following court trial. I understand by agreeing to this binding arbitration provision, both I and the Company give up our rights to trial by jury."

Auto Stiegler's initial motion to compel arbitration was granted. Following our decision in Armendariz, the trial court, upon plaintiffs request for reconsideration, denied defendant's motion to compel arbitration. The trial court ruled: "The court believes that the arbitration clause in issue does not meet the standards set forth by the Supreme Court and it should not be enforced. The clauses of the arbitration agreement that do not comport with the requirements of the Armendariz [decision] include the clauses that: [¶] 1. Require the Plaintiff to share the costs; [¶] 2. Provide for no judicial review. The court deems this fatal, as judicial review of all decisions is not the same as limited review by another arbitrator of only certain awards; [¶] 3. Limit the remedies available to the complaintant [sic ] [to] possibly exclude equitable as opposed to legal remedies, to which he might otherwise be entitled. [¶] 4. Lack of mutuality of remedy, in that this clause, unlike the one in Armendariz does not obviously bind the employer to likewise enforce its right in the arbitration forum."

The Court of Appeal reversed. It held that the Armendariz requirements did not apply to nonstatutory claims. Further, it rejected the claim that the arbitration agreement was unconscionable. It focused on Armendariz's discussion of whether both parties were bound to arbitrate, and concluded that the arbitration agreements did in fact bind both parties. The Court of Appeal did not consider whether the arbitration "appeal" triggered by an award of greater than $50,000 was unconscionable. Finally, the court concluded that under the United States Supreme Court's decision in Green Tree, silence as to who would bear the costs of arbitration was not a basis for invalidating the agreement. We granted review.

II. DISCUSSION
A. Unconscionability of Appellate Arbitration Provision

As recounted, the arbitration agreement provided that "[a]wards exceeding $50,000.00 shall include the arbitrator's written reasoned opinion and, at either party's written request within 20 days after issuance of the award, shall be subject to reversal and remand, modification, or reduction following review of the record and arguments of the parties by a second arbitrator who shall, as far as practicable, proceed according to the law and procedures applicable to appellate review by the California Court of Appeal of a civil judgment following court trial." Little contends this provision is unconscionable. We agree.

To briefly recapitulate the principles of unconscionability, the doctrine has "`both a "procedural" and a "substantive" element,' the former focusing on `"oppression"' or `"surprise"' due to unequal bargaining power, the latter on `"overly harsh"' or `"one-sided"' results." (Armendariz, supra, 24 Cal.4th at p. 114,

99 Cal.Rptr.2d 745,

6 P.3d 669.) The procedural element of an unconscionable contract generally takes the form of a contract of adhesion, "`which, imposed and drafted by the party of superior bargaining strength, relegates to the subscribing party only the opportunity to adhere to the contract or reject it.'" (Id. at p. 113, 99 Cal.Rptr.2d 745,

6 P.3d 669.) "[I]n the case of preemployment arbitration contracts, the economic pressure exerted by employers on all but the most sought-after employees may be particularly acute, for the arbitration agreement stands between the employee and necessary employment, and few employees are in a position to refuse a job because of an arbitration requirement." (Id. at p. 115, 99 Cal.Rptr.2d 745,

6 P.3d 669.) It...

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