Ralphs Grocery Co. v. Massie

• Decision Date: 11 March 2004
• Docket Number: No. D042249,D042249
• Citation: 11 Cal.Rptr.3d 65,116 Cal.App.4th 1031
• Court: California Court of Appeals Court of Appeals
• Parties: RALPHS GROCERY COMPANY, Plaintiff and Appellant, v. Kelvin MASSIE et al., Defendants and Respondents.

11 Cal.Rptr.3d 65

116 Cal.App.4th 1031

RALPHS GROCERY COMPANY, Plaintiff and Appellant, v. Kelvin MASSIE et al., Defendants and Respondents.

No. D042249

Court of Appeal, Fourth District, Division 1

March 11, 2004

As Modified on Denial of Rehearing March 30, 2004

Ordered Not Officially Published August 11, 2004^*

Littler Mendelson, Henry D. Lederman, Walnut Creek, Kenneth J. Rose, San Diego, Kristin M. Stockholm and Marissa M. Tirona, San Francisco, for Plaintiff and Appellant.

Sessions Kimball & Turner, Don D. Sessions and Patrick E. Turner, Mission Viejo, for Defendant and Respondent Kelvin Massie.

Miles E. Locker, San Francisco, for Defendant and Respondent Arthur Lujan.

IRION, J.

Plaintiff Ralphs Grocery Company (Ralphs) appeals an order denying its petition to (1) compel defendant Kelvin Massie, its terminated former employee, to arbitrate an employment discrimination complaint he filed with the California Division of Labor Standards Enforcement (DLSE); and (2) stay defendant Arthur Lujan from taking any administrative action on Massie's complaint in Lujan's capacities as the DLSE's Chief and California's Labor Commissioner.¹ Ralphs contends the superior court reversibly erred by determining Massie's filing of his discrimination complaint with the DLSE did not trigger Ralphs's contractual right to compel Massie to arbitrate that complaint in accord with an agreement he signed during his employment with Ralphs. Ralphs also contends the superior court reversibly erred by determining Massie's arbitration agreement with Ralphs did not bar State from investigating Massie's discrimination complaint or otherwise exercising its administrative jurisdiction under Labor Code section 98.7.² Further, citing Howsam v. Dean Witter Reynolds, Inc. (2002) 537 U.S. 79, 123 S.Ct. 588, 154 L.Ed.2d 491 (Howsam), Ralphs contends that in deciding whether to compel arbitration, a court may consider only two gateway issues of arbitrability unless the parties have clearly and unmistakably provided otherwise. (Id. at pp. 591-592.) "Thus, a gateway dispute about whether the parties are bound by a given arbitration clause raises a `question of arbitrability' for a court to decide. [Citations.] Similarly, a disagreement about whether an arbitration clause in a concededly binding contract applies to a particular type of controversy is for the court." (Id. at p. 592.)

The record indicates that without first determining the first gateway dispute whether Massie was bound by a valid and enforceable arbitration agreement, the superior court proceeded to determine the second gateway dispute adversely to Ralphs by concluding (1) Ralphs's contractual right to compel arbitration was unripe because the filing of Massie's discrimination complaint with the DLSE did not trigger Massie's obligation under his agreement with Ralphs to arbitrate his employment-related claims, and (2) the arbitration agreement between Massie and Ralphs did not preclude State from maintaining the administrative proceedings initiated by Massie's complaint. (Howsam, supra, 123 S.Ct. at p. 592.) Because the superior court did not comply with the process mandated by the Supreme Court for determining the two gateway issues of arbitrability bearing on the decision whether to compel arbitration, we reverse the order denying Ralphs's petition and direct the superior court to determine whether the parties' arbitration agreement is binding and enforceable against Massie before the court proceeds, if necessary, to determine the issues whether the Federal Arbitration Act (FAA) (9 U.S.C. § 2) requires arbitration of Massie's Labor Code discrimination complaint and whether the United States Constitution's Supremacy Clause applies to preempt State's administrative proceedings on Massie's complaint. (Perry v. Thomas (1987) 482 U.S. 483, 489, 107 S.Ct. 2520, 96 L.Ed.2d 426 (Perry); Southland Corp. v. Keating (1984) 465 U.S. 1, 11-12, 104 S.Ct. 852, 79 L.Ed.2d 1 (Southland).

I INTRODUCTION

In 1985 Massie began working for Ralphs. In 2001 Massie signed an "Employee Acknowledgement" stating he received, read and understood Ralphs's "Dispute Resolution Program Mediation & Binding Arbitration Policy" (the Policy).³ In May 2002 Ralphs terminated Massie's employment.

In October 2002 Massie filed a discrimination complaint with the DLSE asserting Ralphs violated the law by discharging him for "lawful conduct occurring during nonworking hours away from the employer's premises."⁴ State notified Ralphs that Massie had filed a complaint that State intended to investigate.

In February 2003, after seeking unsuccessfully to persuade Massie and State that Massie's discrimination complaint was subject to mandatory arbitration and that State lacked jurisdiction over Massie's complaint, Ralphs filed its petition in the superior court to compel Massie to arbitrate, and to stay State's administrative proceedings on Massie's complaint. In opposing Ralphs's petition, Massie asserted the Arbitration Agreement was unenforceable because it was procedurally and substantively unconscionable; his filing of a discrimination complaint with the DLSE did not initiate any "formal dispute resolution" that would trigger his contractual obligation to arbitrate; and Ralphs's right to compel arbitration had not yet ripened. State's opposition to Ralphs's petition asserted that the FAA did not preempt State's power to investigate Massie's discrimination complaint because State was not a party to the Arbitration Agreement, and that the Labor Commissioner, not employee complainant Massie, controlled the investigation of the complaint.

In April 2003 the superior court denied Ralphs's petition. The court concluded Massie's filing of his discrimination complaint with the DLSE initiated State's administrative proceedings, but did not trigger Massie's contractual arbitration obligation because those administrative proceedings did not presently involve Massie as a party. Hence, the court denied Ralphs's request to compel arbitration on the ground Ralphs's contractual arbitration right was unripe. Citing E.E.O.C. v. Waffle House, Inc. (2002) 534 U.S. 279, 122 S.Ct. 754, 151 L.Ed.2d 755 (Waffle House), the superior court also concluded the Arbitration Agreement between Massie and Ralphs did not preclude non-signatory State from investigating employee Massie's discrimination complaint or otherwise exercising its administrative jurisdiction under section 98.7. The court thus declined to stay the Labor Commissioner's administrative proceedings.

On this appeal, Ralphs seeks reversal of the superior court order denying its petition. Because the superior court prejudicially erred by not complying with the procedural requirements mandated in Howsam, supra, 537 U.S. 79, 123 S.Ct. 588, when it decided the arbitrability of Massie's Arbitration Agreement with Ralphs, the order must be reversed and the matter remanded for further proceedings.

II DISCUSSION

We review de novo the legal question whether the FAA required the court to grant Ralphs's petition to compel arbitration and stay State's administrative proceedings. (California Teachers Assn. v. San Diego Community College Dist. (1981) 28 Cal.3d 692, 699, 170 Cal.Rptr. 817, 621 P.2d 856; Basura v. U.S. Home Corp. (2002) 98 Cal.App.4th 1205, 1210-1211, 120 Cal.Rptr.2d 328.)

As enacted in 1925, the FAA's "`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.'" (Waffle House, supra, 534 U.S. at p. 289, 122 S.Ct. 754.) "The FAA broadly provides that a written provision in `a contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract ... shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.'" (Ibid., citing 9 U.S.C. § 2.) In enacting section 2 of the FAA, "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 arbitration." (Southland, supra, 465 U.S. at p. 10, 104 S.Ct. 852; accord, Perry, supra, 482 U.S. at p. 489, 107 S.Ct. 2520.) Thus, the "FAA is `at bottom a policy guaranteeing the enforcement of private contractual arrangements.'" (Waffle House, at p. 294, 122 S.Ct. 754.) "`Congress intended to foreclose state legislative attempts to undercut the enforceability of arbitration agreements.'" (Perry, at p. 489, 107 S.Ct. 2520.) Employment contracts are generally covered by the FAA. (Waffle House, at p. 289, 122 S.Ct. 754.)

"California law, like federal law, favors enforcement of valid arbitration agreements." (Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, 97, 99 Cal.Rptr.2d 745, 6 P.3d 669 (Armendariz).) The California Supreme Court has acknowledged that the FAA "generally preempts state legislation that would restrict the enforcement of arbitration agreements." (Armendariz, at p. 98, 99 Cal.Rptr.2d 745, 6 P.3d 669, citing Doctor's Associates, Inc. v. Casarotto (1996) 517 U.S. 681, 687-688, 116 S.Ct. 1652, 134 L.Ed.2d 902 (Doctor's Associates).) The California Supreme Court also has acknowledged that the FAA "incorporates a strong federal policy of enforcing arbitration agreements, including agreements to arbitrate statutory rights." (Armendariz, at pp. 96-97, 99 Cal.Rptr.2d 745, 6 P.3d 669.) Moreover, the California Supreme Court has stated: "Assuming an adequate arbitral forum, we agree with the [United States] Supreme Court that `[b]y agreeing to arbitrate a statutory claim, a party does not forgo the substantive rights afforded by the statute; it only submits to their resolution in an arbitral, rather than a judicial, forum.'" (Id. at pp. 98-99, 99 Cal.Rptr.2d...