Murphy v. Check `N Go of California, Inc.

• Decision Date: 17 October 2007
• Docket Number: No. A114442.,A114442.
• Citation: 156 Cal.App.4th 138,67 Cal.Rptr.3d 120
• Court: California Court of Appeals Court of Appeals
• Parties: Lisa MURPHY, Plaintiff and Respondent, v. CHECK `N GO OF CALIFORNIA, INC., Defendant and Appellant.

67 Cal.Rptr.3d 120

156 Cal.App.4th 138

Lisa MURPHY, Plaintiff and Respondent, v. CHECK `N GO OF CALIFORNIA, INC., Defendant and Appellant.

No. A114442.

Court of Appeal, First District, Division 1.

October 17, 2007.

Squire, Sanders & Dempsey, Alexandra A. Bodnar, Casey J.T. McCoy, Los Angeles, and Mark C. Dosker, San Francisco, for Defendant and Appellant—Check `N Go of California, Inc.

Keller Grover, Eric A. Grover, Jade Butman, San Francisco, and Elizabeth A. Acevedo, for Plaintiff and Respondent— Lisa Murphy.

MARCHIANO, P.J.

Defendant Check `N Go of California, Inc., appeals from an order denying its motion to compel arbitration of a wage and hour case filed by plaintiff Lisa Murphy. The main issues are whether the class action waiver in the arbitration agreement is unconscionable, a question we review with the benefit of the recent decision in Gentry v. Superior' Court (2007) 42 Cal.4th 443, 64 Cal.Rptr.3d 773, 165 P.3d 556 (Gentry), and whether that question should be resolved by the court, rather than an arbitrator appointed under the agreement. We conclude that the court was empowered to decide the unconscionability issue, agree with its ruling that the class action waiver is unconscionable, and affirm the order denying the motion to compel arbitration.

I. BACKGROUND

Plaintiff worked for defendant, a payday lending company, for eight years ending in 2005; for the last seven of those eight years she held the position of "salaried retail manager." She sued defendant in February 2006, alleging that defendant misclassified its salaried retail managers as exempt employees under state labor laws. The suit asserts causes of action on behalf of the class of salaried retail managers for violation of Business and Professions Code section 17200 et seq., and failure to pay or provide overtime compensation, accurate itemized wage statements, adequate meal and rest periods, and wages upon termination, during the four years prior to the filing of the complaint.

Plaintiff signed defendant's "Dispute Resolution Agreement" (the agreement) in June 2004. In her declaration in opposition to the motion to compel arbitration, plaintiff states that the agreement came to her office "as part of our regular mailings from the company. All employees had to sign the agreement and return the signature pages to the corporate offices." She states that no one explained the agreement to her, or told her that she had the option to revise or opt out of the agreement. "I understood," she says, "that I had to sign the[] agreement[] as part of my job working for the company."

The agreement covers all claims arising from or relating to plaintiffs employment, other than claims she would file with governmental agencies that enforce employment insurance or discrimination laws. Covered claims include "any assertion by you or us that this Agreement is substantively or procedurally unconscionable," and "any pre-existing or present claim that you or we actually assert or could assert against each other." The agreement provides four exclusive means, which need not be used in any particular order, for resolution of disputes: an "open door policy"; an "employee relations committee"; mediation; and arbitration.

The arbitration option, described in sections 3.5 et seq. of the agreement, is mandatory if elected by either party. "Consequently," explains section 3.5.1 in bold print, "if the claimant or the person or entity against whom a Covered Claim is asserted elects to arbitrate the claim, then neither you nor we may file or maintain a lawsuit in a court and neither you nor we may join or participate in a class action or a representative action, act as a private attorney general or a representative of others, or otherwise consolidate the Covered Claim with the claims of others." Section 3.5.2 provides for arbitration by the American Arbitration Association unless the employee elects to use a similar national arbitration firm, and states in bold print that "you and we agree that an arbitration firm may not arbitrate a Covered Claim as a class action or a representative action and may not otherwise consolidate the Covered Claim with the claims of others." Section 3.5.4 states that the agreement is governed by the Federal Arbitration Act. Section 3.5.5 provides for severance of any part of the agreement found to be unenforceable, and for enforcement of the other provisions that are not invalidated.

Certain aspects of the agreement are set forth on a cover page in bold print under the heading "Notice," including the broad coverage of employment-related disputes, the provision for mandatory arbitration, and the class action waiver. The first two sentences of the notice state: "Before signing this Dispute Resolution Agreement, you should carefully review the entire agreement and, if you want, consult with an independent attorney. By signing this agreement and by commencing or continuing an at-will employment relationship, you and we agree to exclusively use this dispute resolution program to resolve all employment-related disputes covered by the program."

In support of the motion to compel arbitration, defendant submitted the declaration of a corporate officer stating that defendant is an Ohio corporation licensed to do business in California, and attaching a copy of defendant's 2004 Dispute Resolution Agreement with the signature page plaintiff executed.

Plaintiff opposed the motion on unconscionability grounds. In addition to her declaration, plaintiff lodged declarations of her counsel and two other attorneys experienced in wage and hour cases attesting to the difficulty of prosecuting such cases individually, rather than as class actions. The attorneys stated that, given the relatively small sums of money involved in individual cases, it is difficult for plaintiffs to find counsel willing to take them, despite the availability of statutory attorneys' fees. The attorneys further opined that class actions were the only effective way to redress wage and hour violations. They each stated: "The blunt reality is that employers want to limit class actions because they do not want to reform business practices that reduce profits-regardless of the legality of the practices.... [I]f the employer can limit attacks on its global classification decision to the odd lawsuit or arbitration here and there, it will have no incentive to truly examine whether its practices comply with the law and make changes if they do not. As a matter of simple economics, a few individual settlements or even lost trials or arbitrations will be more than made up exponentially by the savings from the decision to (mis)classify employees as exempt and pay them a fixed salary for 45, 50, 55 and or more hours per week. The employees who have no idea their lights are being violated or who can't find attorneys to take on their relatively small individual cases will continue to be exploited by working unpaid overtime hours...."

In its order demoting the motion to compel arbitration, the court determined that: (1) it had the power to rule on the unconscionability issues; (2) the parties' agreement, defined in the order as the "2004 arbitration agreement," was a contract of adhesion; (3) the agreement's class action waiver was substantively unconscionable under Discover Bank v. Superior Court (2005) 36 Cal.4th 148, 30 Cal.Rptr.3d 76, 113 P.3d 1100 (Discover Bank); (4) the agreement's provisions for arbitration of unconscionability issues and pre-existing claims were also substantively unconscionable, and (5) the unconscionable terms would not be severed from the agreement. All of these determinations are challenged in this appeal.

II. DISCUSSION

A. Scope of Review

Unconscionability findings are reviewed de novo if they are based on declarations that raise "no meaningful factual disputes." (Higgins v. Superior Court (2006) 140 Cal.App.4th 1238, 1250, 45 Cal.Rptr.3d 293 (Higgins).) However, where an unconscionability determination "is based upon the trial court's resolution of conflicts in the evidence, or on the factual inferences which may be drawn therefrom, we consider the evidence in the light most favorable to the court's determination and review those aspects of the determination for substantial evidence." (Gutierrez v. Autowest, Inc. (2003) 114 Cal.App.4th 77, 89, 7 Cal.Rptr.3d 267 (Gutierrez).) The ruling on severance is reviewed for abuse of discretion. (See Civil Code, § 1670.5, subd. (a); Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, 122, 99 Cal.Rptr.2d 745, 6 P.3d 669 (Armendariz).)

B. Court's Jurisdiction

Defendant maintains that an arbitrator appointed under the parties' agreement, rather than the court, should have decided the unconscionability issues that plaintiff raises. "[T]he question of arbitrability is for judicial determination '[u]nless the parties clearly and unmistakably provide otherwise.'" (Dream Theater, Inc. v. Dream Theater (2004) 124 Cal.App.4th 547, 552, 21 Cal.Rptr.3d 322 (Dream Theater).) To accept less than clear and unmistakable evidence of an agreement to arbitrate arbitrability "might too often force unwilling parties to arbitrate a matter they reasonably would have thought a judge, not an arbitrator, would decide." (First Options of Chicago, Inc. v. Kaplan (1995) 514 U.S 938, 945, 115 S.Ct. 1920, 131 L.Ed.2d 985 (First Options).) Defendant notes that arbitrable claims under the agreement include "any assertion by you or us that this Agreement is substantively or procedurally unconscionable," and submits that this provision reflects a clear and unmistakable agreement to arbitrate unconscionability issues.

While the language of the agreement could not be clearer, plaintiffs alleged assent to this provision was vitiated by the fact that it was set forth in a contract of adhesion, i.e., a standardized contract drafted by the stronger party and presented to the weaker party on a take it or leave it basis (24...