McManus v. Cibc World Markets Corp.

• Decision Date: 23 May 2003
• Docket Number: No. B160257.,B160257.
• Citation: 134 Cal.Rptr.2d 446,109 Cal.App.4th 76
• Court: California Court of Appeals Court of Appeals
• Parties: MichaeI J. McMANUS, Plaintiff and Respondent, v. CIBC WORLD MARKETS CORP. et al., Defendants and Appellants.

134 Cal.Rptr.2d 446

109 Cal.App.4th 76

MichaeI J. McMANUS, Plaintiff and Respondent, v. CIBC WORLD MARKETS CORP. et al., Defendants and Appellants.

No. B160257.

Court of Appeal, Second District, Division 5.

May 23, 2003.

Rehearing Denied May 30, 2003.

Review Denied August 13, 2003.

O'Melveny & Myers, Michael G. McGuinness and Adam J. Karr, Los Angeles, for Defendant and Appellant.

Horowitz & Clayton, Craig A. Horowitz and Wayne D. Clayton, Glendale, for Plaintiff and Respondent.

TURNER, P.J.

I. INTRODUCTION

Defendants, CIBC World Markets Corp. ("CIBC") and Daniel Miller, appeal from an order denying a petition to compel arbitration of employment and defamation claims brought by plaintiff, Michael J. McManus. On appeal, we conclude that: the order denying the petition to compel arbitration must be reversed; the dispute between the parties must be arbitrated; but that plaintiff may not be required to pay certain costs of the arbitration.

II. BACKGROUND

CIBC is a national investment bank and broker-dealer of securities. CIBC is a member of the National Association of Securities Dealers, Inc. ("NASD") and the New York Stock Exchange ("NYSE"). The NASD and the NYSE are self-regulatory organizations that exercise a primary supervisory role over the securities market and its participants, subject to oversight by the Securities and Exchange Commission (SEC). Upon being hired by CIBC as a director of its Consumer Growth division, plaintiff signed two arbitration agreements. The first arbitration agreement was contained in an offer letter agreement dated January 26, 2001, and it provides: "All disputes arising out of your employment or the termination of your employment at CIBC World Markets, including any statutory claims based upon discrimination, will be submitted to and resolved exclusively by a panel of arbitrators from the NASD Dispute Resolution, Inc. or the New York Stock Exchange, Inc. All discovery in any such dispute will be in accordance with California State court procedures. All such disputes will be governed by California law. In agreeing to arbitration of your claims, you recognize that you are giving up your right to a court or jury trial." The second arbitration agreement was in the SEC-approved Uniform Application for Securities Industry Registration or Transfer ("form U-4"). All applicants must sign the form U-4 agreement to arbitrate as a condition of employment in order to register with NASD and NYSE. Page 4, paragraph 5 of form U-4 provides: "I agree to arbitrate any dispute, claim or controversy that may arise between me and my firm, or a customer, or any other person, that is required to be arbitrated under the rules, constitutions, or by-laws of the SROs indicated in Item 11 as may be amended from time to time and that any arbitration award rendered against me may be entered as a judgment in any court of competent jurisdiction." (Orig.italics.)

On January 18, 2002, plaintiff filed a complaint in superior court against CIBC in which he asserted five causes of action: violation of Labor Code section 201 et seq., for (failure to pay wages (first); promissory estoppel (second); wrongful termination in violation of public policy (third); defamation (fourth); and violation of Labor Code sections 432 and 1198.5 involving the alleged failure to provide the opportunity to inspect and permit copying of personnel documents (fifth)). Plaintiff asserted the defamation claim against Mr. Miller, who was a financial analyst at CIBC. The complaint alleged that plaintiff was terminated for off-duty conduct which arose after Mr. Miller arranged a beach party for CIBC employees. Plaintiff became intoxicated at the party. As a result, Mr. Miller drove to plaintiffs home. The two men were accompanied by Mr. Miller's wife. Mr. Miller and plaintiff subsequently walked into a bar. Mr. Miller and plaintiff began to fight while in the bar. According to the complaint, the Millers falsely accused plaintiff of sexually harassing Mrs. Miller. Plaintiff alleged that this alleged off-duty conduct was used as a pretext for firing him to avoid paying him salary and bonuses as promised. Plaintiff also alleged that a false police report was "filed" against him regarding the incident with the Millers.

On February 27, 2002, CIBC filed a motion to compel arbitration of the dispute based on the two aforementioned agreements. Mr. Miller joined in the motion to compel arbitration. Plaintiff opposed the motion to compel arbitration on the ground the aforementioned agreements were unenforceable because they were substantively and procedurally unconscionable under California law. Plaintiff argued the arbitration agreements were procedurally unconscionable because they: were presented on a take or leave it basis; his declaration demonstrated, as a prerequisite of employment, he was required to sign the T_M form and the offer letter; and he was told that he would not be hired unless he signed both documents.

On March 25, 2002, the trial court granted the motion to compel arbitration. On April 19, 2002, plaintiff filed a mandate petition with this court. (McManus v. Superior Court (Apr. 19, 2002, B157970).) CIBC and Mr. Miller did not file a response to the petition. On June 21, 2002, we issued an order to show cause ... to the superior court which stated in part: "[Y]ou are ordered to show cause why the relief prayed for in the petition for writ of mandated filed April 19, 2002, should not be granted. (See Mercuro v. Superior Court (2002) 96 Cal.App.4th 167, 174-177, 116 Cal.Rptr .2d 671; cf. Doctor's Associates, Inc. v. Casarotto (1996) 517 U.S. 681, 687, fn. 3, 116 S.Ct. 1652, 134 L.Ed.2d 902; Perry v. Thomas (1987) 482 U.S. 483, 492, 107 S.Ct. 2520, 96 L.Ed.2d 426, fn. 9; U.S. Const., art. VI, cl. 2.)" We did not issue an alternative writ of mandate. On July 2, 2002, in response to the order to show cause, the trial court set aside and vacated its March 25, 2002, order granting the motion to compel arbitration. The trial court then entered a new order denying the motion to compel arbitration. On July 9, 2002, we discharged the order to show cause and dismissed the petition for writ of mandate as moot. Thereafter, defendants filed a timely notice of appeal from the order denying the motion to compel arbitration.

III. DISCUSSION

A. Introduction

Defendants contend the United States Arbitration Act mandates this dispute be arbitrated. The employment contract is between an investment bank and a director of consumer growth, which involves commerce, and, as such is subject to the limited preemptive effect of the United States Arbitration Act. (9 U.S.C. §§ 1, 2; Circuit City Stores, Inc. v. Adams (2001) 532 U.S. 105, 111-118, 121 S.Ct. 1302, 149 L.Ed.2d 234; Allied-Bruce Terminix Companies, Inc. v. Dobson (1995) 513 U.S. 265, 277, 115 S.Ct. 834, 130 L.Ed.2d 753; Perry v. Thomas, supra, 482 U.S. at p. 490, 107 S.Ct. 2520.) There is a public policy in favor of arbitration under federal and state law. (Moses H. Cone Hospital v. Mercury Const. Corp. (1983) 460 U.S. 1, 24, 103 S.Ct. 927, 74 L.Ed.2d 765; Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, 97, 99 Cal.Rptr.2d 745, 6 P.3d 669 ["California law, like federal law, favors enforcement of valid arbitration agreements"] ("Armendariz, supra," hereafter).)

The United States Arbitration Act provides in relevant part, "A written provision in any ... 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." (9 U.S.C. § 2; see EEOC v. Waffle House, Inc. (2002) 534 U.S. 279, 289, 122 S.Ct. 754, 151 L.Ed.2d 755.) Thus, an arbitration contract must be enforced according to its terms but is nevertheless subject to state law defenses applicable to all contract disputes under general contract law principles, such as fraud, duress, or unconscionability. (Doctor's Associates, Inc. v. Casarotto, supra, 517 U.S. at p. 687, 116 S.Ct. 1652; Allied-Bruce Terminix Companies, Inc. v. Dobson, supra, 513 U.S. at p. 281, 115 S.Ct. 834.) A state court may not invalidate arbitration agreements under state laws that are only applicable to arbitration provisions. (Doctor's Associates, Inc. v. Casarotto, supra, 517 U.S. at p. 687, 116 S.Ct. 1652; Allied-Bruce Terminix Companies, Inc. v. Dobson, supra, 513 U.S. at p. 281, 115 S.Ct. 834.) A legislative enactment that is unique to an arbitration agreement which invalidates a duty to arbitrate a dispute is invalid under the supremacy clause because this might allow state courts to avoid the preemptive effect of the United States Arbitration Act. (Perry v. Thomas, supra, 482 U.S. at p. 492, 107 S.Ct. 2520; Southland Corp. v. Keating (1984) 465 U.S. 1, 16, 104 S.Ct. 852, 79 L.Ed.2d 1.) Not only are state legislatures barred from enacting laws that single out arbitration clauses, but courts may not, in assessing the rights of litigants, judicially construe an agreement to arbitrate differently from nonarbitration agreements. (Doctor's Associates, Inc. v. Casarotto, supra, 517 U.S. at p. 687, 116 S.Ct. 1652, fn. 3; Perry v. Thomas, supra, 482 U.S. at p. 492, 107 S.Ct. 2520, fn. 9.) The question of whether a valid agreement to arbitrate exists is determined by reference to state law applicable to contracts generally. (Perry v. Thomas, supra, 482 U.S. at p. 492, 107 S.Ct. 2520; Chan v. Drexel Burnham Lambert, Inc. (1986) 178 Cal.App.3d 632, 638-639, 223 Cal.Rptr. 838.) If the extrinsic evidence is undisputed, an appellate court reviews an arbitration contract de novo to determine whether it is legally enforceable. (Mercuro v....