Sanders v. Kinko's Inc.

• Decision Date: 28 June 2002
• Docket Number: No. G027561.,G027561.
• Parties: Ned SANDERS et al., Plaintiffs and Respondents, v. KINKO'S INC., Defendant and Appellant.
• Court: California Court of Appeals Court of Appeals

121 Cal.Rptr.2d 766

99 Cal.App.4th 1106

Ned SANDERS et al., Plaintiffs and Respondents, v. KINKO'S INC., Defendant and Appellant.

No. G027561.

Court of Appeal, Fourth District, Division 3.

June 28, 2002.

Akin, Gump, Strauss, Hauer & Feld, Paul J. Coady and Brian F. Van Vleck, Los Angeles, for Defendant and Appellant.

Dostart Clapp & Coveney, James F. Clapp, San Diego, and Marita Murphy Lauinger, Tustin, for Plaintiffs and Respondents.

OPINION

RYLAARSDAM, J.

Defendant Kinko's, Inc. appeals from an order of the superior court that denied, without prejudice, its motions to stay this lawsuit and to compel arbitration of the claims asserted by one of the named plaintiffs pending resolution of class action certification issues. The primary question presented is whether the Federal Arbitration Act (9 U.S.C. § 1 et seq.; FAA) precludes a state court from determining the class certification issues before compelling enforcement of an arbitration agreement covered by it. We conclude the FAA does not preempt the procedure employed in this case and affirm the trial court's order.

FACTS

Plaintiffs Ned Sanders and Patricia Lake, on behalf of themselves and "all current and former store management employees of defendant in California," sued defendant for damages and injunctive relief. The complaint alleged plaintiffs spent much of their time at work performing nonexempt tasks, but defendant improperly classified them as exempt management employees. As a result, defendant violated state labor laws and administrative wage orders by refusing to pay plaintiffs overtime compensation when they worked over 8 hours on one day or 40 hours in a week.

Defendant responded by filing a petition to compel arbitration of plaintiff Lake's claims and a motion to stay this lawsuit until completion of that arbitration. In support of these requests, defendant attached a copy of a signed "Co-worker Agreement" which, in part, stated Lake and defendant agreed "any and all disputes," including those "relating to wages or other compensation due, ... or statutory claims ... under federal, state, local, or governmental law, statute, ordinance, rule, or regulation," "shall be submitted to final and binding arbitration." The agreement also provided, "[arbitration under this section may be compelled and enforced according to the Federal Arbitration Act (9 U.S.C. 1 et seq.) and shall be conducted in accordance with the Kinko's Arbitration Procedure (KAP) ...." Defendant submitted a copy of the KAP which, in part, provided an arbitration "shall be conducted in accordance with the National Rules for Arbitration of Employment Disputes of the American Arbitration Association ...."

Plaintiffs filed opposition to defendant's requests. While "[i]n principle, plaintiffs [did] not oppose arbitration of the class claims," they argued "defendant's petition is premature." Plaintiffs claimed that, "before referring the matter to arbitration, the Court first should decide whether the matter should be certified as a class action."

The trial court agreed with plaintiffs. It denied the petition to compel arbitration and motion to stay the lawsuit "without prejudice," declaring "it is best to take care of class certification issues before turning to the question of which/whose claims are subject to arbitration under the FAA." The court "directed] the parties to proceed forthwith toward a class certification hearing," and noted it "expect[ed] issues pertaining to the arbitration clause to be addressed as part of the class certification analysis." It also ordered the parties "to provide information regarding the general number of signed arbitration agreements among putative class members as compared to the total and to provide analysis as to whether the non-signators can be `forced' to arbitrate or opt out or whether there should be sub-classes, two different classes, etc."

DISCUSSION

Appealability of the Trial Court's Order

Plaintiffs contend the appeal should be dismissed because the trial court's order denying the petition to compel arbitration without prejudice is not an appealable ruling. We disagree.

Code of Civil Procedure section 1294, subdivision (a) allows "[a]n aggrieved party" to appeal from "[a]n order dismissing or denying a petition to compel arbitration." The trial court's ruling, while not foreclosing the possibility of arbitration altogether, did have the effect of staying any arbitration until after the class certification issues are resolved. Henry v. Alcove Investment, Inc. (1991) 233 Cal. App.3d 94, 284 Cal.Rptr. 255 allowed an appeal from an order staying arbitration. (Id, at pp. 98-100, 284 Cal.Rptr. 255.) The appellate court noted that, since arbitration is intended to provide a less expensive and quicker means of resolving disputes, "an order staying arbitration is the functional equivalent of an order refusing to compel arbitration." (Id. at p. 99, 284 Cal.Rptr. 255.)

This case presents a similar situation. If defendant is correct in asserting the trial court erred by not immediately ordering plaintiff Lake's dispute arbitrated while staying the remainder of the lawsuit, then its ruling, even if without prejudice until after completion of the class certification process, effectively defeated the benefits provided by the arbitration agreement. Thus, the order is appealable.

The Denial of Defendant's Petition to Compel Arbitration

As discussed above, while the court technically "denied" defendant's petition to compel immediate arbitration of plaintiff Lake's claims, by making its ruling "without prejudice," the court effectively stayed the arbitration request until it resolved the class certification issues. In addition, the court directed the parties to consider the scope and effect of the employment agreement's arbitration clause on the class certification question. It is now well established a California court may order classwide arbitration in appropriate cases. (Keating v. Superior Court (1982) 31 Cal.3d 584, 608-614, 183 Cal.Rptr. 360, 645 P.2d 1192, revd. on other grounds in Southland Corp. v. Keating (1984) 465 U.S. 1, 16, 104 S.Ct. 852, 79 L.Ed.2d 1; Blue Cross of California v. Superior Court (1998) 67 Cal.App.4th 42, 52, 78 Cal. Rptr.2d 779; Izzi v. Mesquite Country Club (1986) 186 Cal.App.3d 1309, 1321-1322, 231 Cal.Rptr. 315; Lewis v. Prudential-Bache Securities, Inc. (1986) 179 Cal. App.3d 935, 945-946, 225 Cal.Rptr. 69.)

Defendant, noting no dispute exists concerning the existence, validity, or applicability of an arbitration agreement governed by the FAA, claims that, regardless of California arbitration law, section 4 of the FAA required the trial court to immediately order arbitration of plaintiff Lake's claims and to stay the remainder of the litigation. Contrary to defendant's claim, the trial court did not deny arbitration altogether. The real issue presented here is whether the FAA preempts state procedural law relating to arbitration agreements. We conclude the answer is no.

Section 2 of the FAA provides, "[a] written provision in ... a contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract or transaction ... 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.) The United States Supreme Court has declared this section creates a body of federal substantive law, applicable in both federal and state courts, requiring that arbitration agreements be honored. (Perry v. Thomas (1987) 482 U.S. 483, 489, 107 S.Ct. 2520, 96 L.Ed.2d 426; Southland Corp. v. Keating, supra, 465 U.S. at pp. 11-12, 104 S.Ct. 852; Moses H. Cone Memorial Hospital v. Mercury Const. Corp. (1983) 460 U.S. 1, 24,103 S.Ct. 927, 74 L.Ed.2d 765.)

However, "[t]he FAA contains no express pre-emptive provision, nor does it reflect a congressional intent to occupy the entire field of arbitration." (Volt Information Sciences, Inc. v. Leland Stanford Jr. U. (1989) 489 U.S. 468, 477, 109 S.Ct. 1248, 103 L.Ed.2d 488.) Cases have recognized the FAA only extends to state law contract principles applying solely to arbitration agreements; "[t]hus, generally applicable contract defenses, such as fraud, duress, or unconscionability, may be applied to invalidate arbitration agreements without contravening [9 United States Code] § 2. [Citations.]" (Doctor's Associates, Inc. v. Casarotto (1996) 517 U.S. 681, 687, 116 S.Ct. 1652, 134 L.Ed.2d 902; see also Smith v. PacifiCare Behavioral Health of Cal, Inc. (2001) 93 Cal.App.4th 139, 151, 113 Cal.Rptr.2d 140; The Energy Group, Inc. v. Liddington (1987) 192 Cal.App.3d 1520,1527, 238 Cal.Rptr. 202.)

Defendant contends section 4 of the FAA barred the trial court from staying arbitration while determining the issues relating to class certification, including the possibility of classwide arbitration of the litigation. Section 4 of the FAA establishes the procedure employed in federal court to compel arbitration under the FAA. It refers to a proceeding in a "United States district court which, save for [the arbitration] agreement, would have jurisdiction under Title 28, in a civil action or in admiralty of the subject matter of a suit arising out of the controversy between the parties ...."(9 U.S.C. § 4.)

Defendant and plaintiff Lake's agreement to arbitrate under the FAA does not mean the act's procedural sections apply in state court proceedings. In Volt Information Sciences, Inc. v. Leland Stanford Jr. U., supra, 489 U.S. 468,109 S.Ct. 1248, 103 L.Ed.2d 488, the Supreme Court expressly recognized, "[t]here is no federal policy favoring arbitration under a certain set of procedural rules; the federal policy is simply to ensure the enforceability, according to their terms, of private agreements to arbitrate." (Id. at p. 476, 109 S.Ct. 1248.) In a footnote, the court also noted, "[w]hile we have held that the FAA's `substantive' provisions— §§ 1 an...