Sonic-Calabasas A, Inc. v. Moreno

• Decision Date: 17 October 2013
• Docket Number: No. S174475.,S174475.
• Citation: 163 Cal.Rptr.3d 269,311 P.3d 184,57 Cal.4th 1109
• Court: California Supreme Court
• Parties: SONIC–CALABASAS A, INC., Plaintiff and Appellant, v. Frank MORENO, Defendant and Respondent.

57 Cal.4th 1109

311 P.3d 184

163 Cal.Rptr.3d 269

SONIC–CALABASAS A, INC., Plaintiff and Appellant,

v.Frank MORENO, Defendant and Respondent.

No. S174475.

Supreme Court of California

Oct. 17, 2013.

See 6 Witkin, Cal. Procedure (5th ed. 2008) Proceedings Without Trial, § 508.

Fine, Boggs & Perkins, John P. Boggs, Half Moon Bay, and David J. Reese, San Francisco, for Plaintiff and Appellant.

Mayer Brown, Evan M. Tager, Archis A. Parasharami, Brian J. Wong, Donald M. Falk, Palo Alto; National Chamber Litigation Center, Inc., and Robin S. Conrad for the Chamber of Commerce of the United States as Amicus Curiae on behalf of Plaintiff and Appellant.

Sheppard, Mullin, Richter & Hampton, Richard J. Simmons, Los Angeles, Karin Dougan Vogel, San Diego, and Matthew M. Sonne, Costa Mesa, for Employers Group as Amicus Curiae on behalf of Plaintiff and Appellant.

Horvitz & Levy, Lisa Perrochet, Felix Shafir and James A. Sonne, Encino, for California New Car Dealers Association as Amicus Curiae on behalf of Plaintiff and Appellant.

Locker Folberg, Miles E. Locker and Rachel Folberg, San Francisco, for Defendant and Respondent.

Hina B. Shah; Cynthia Rice, San Francisco; Jose Tello; Miye Goishi; Silas Shawver; Fernando Flores and Charlotte Noss for Asian Law Caucus, Asian Pacific American Legal Center, Bet Tzedek Legal Services, California Rural Legal Assistance, Inc., Centro Legal de La Raza, Garment Worker Center, Hastings Civil Justice Clinic, Katharine and George Alexander Community Law Center, La Raza Centro Legal, Lawyers' Committee for Civil Rights of the San Francisco Bay Area, Legal Aid Foundation of Los Angeles, Legal Aid Society–Employment Law Center, Maintenance Cooperation Trust Fund, National Employment Law Project, National Lawyers Guild Labor and Employment Committee, Neighborhood Legal Services of Los Angeles County, Wage Justice Center, Women's Employment Rights Clinic of Golden Gate University School of Law and Worksafe Law Center as Amici Curiae on behalf of Defendant and Respondent.

McGuinn, Hillsman & Palefsky, Cliff Palefsky, Keith Ehrman, San Francisco; Smith & McGinty and Valerie T. McGinty for California Employment Lawyers Association and Consumers Attorneys of California as Amici Curiae on behalf of Defendant and Respondent.

William A. Reich, Ventura, and Anne Hipshman, San Francisco, for California Labor Commissioner Julie A. Su as Amicus Curiae on behalf of Defendant and Respondent.

LIU, J.

In Sonic–Calabasas A, Inc. v. Moreno (2011) 51 Cal.4th 659, 121 Cal.Rptr.3d 58, 247 P.3d 130( Sonic I ), we held as a categorical rule that it is contrary to public policy and unconscionable for an employer to require an employee, as a condition of employment, to waive the right to a Berman hearing, a dispute resolution forum established by the Legislature to assist employees in recovering wages owed. We further held that our rule prohibiting waiver of a Berman hearing does not discriminate against arbitration agreements and is therefore not preempted by the Federal Arbitration Act (FAA). We did not invalidate the arbitration agreement at issue. Instead, we held that if one of the parties is dissatisfied with the result of the Berman hearing, it can move to arbitrate the wage dispute consistent with the arbitration agreement, just as a dissatisfied party can obtain a trial in court without such an agreement.

The United States Supreme Court granted certiorari in this case, vacated the judgment, and remanded the case to this court for consideration in light of AT & T Mobility LLC v. Concepcion (2011) 563 U.S. ––––, 131 S.Ct. 1740, 179 L.Ed.2d 742( Concepcion ). In Concepcion, the high court clarified the limitations that the FAA imposes on a state's capacity to enforce its rules of unconscionability on parties to arbitration agreements. In light of Concepcion, we conclude that because compelling the parties to undergo a Berman hearing would impose significant delays in the commencement of arbitration, the approach we took in Sonic I is inconsistent with the FAA. Accordingly, we now hold, contrary to Sonic I, that the FAA preempts our state-law rule categorically prohibiting waiver of a Berman hearing in a predispute arbitration agreement imposed on an employee as a condition of employment.

At the same time, we conclude that state courts may continue to enforce unconscionability rules that do not “interfere[ ] with fundamental attributes of arbitration.” ( Concepcion, supra, 563 U.S. at p. ––––, 131 S.Ct. at p. 1748.)Although a court may not refuse to enforce an arbitration agreement imposed on an employee as a condition of employment simply because it requires the employee to bypass a Berman hearing, such an agreement may be unconscionable if it is otherwise unreasonably one-sided in favor of the employer. As we explained in Sonic I and reiterate below, the Berman statutes confer important benefits on wage claimants by lowering the costs of pursuing their claims and by ensuring that they are able to enforce judgments in their favor. There is no reason why an arbitral forum cannot provide these benefits, and an employee's surrender of such benefits does not necessarily make the agreement unconscionable. The fundamental fairness of the bargain, as with all contracts, will depend on what benefits the employee received under the agreement's substantive terms and the totality of circumstances surrounding the formation of the agreement.

The employee in this case contends that the particular arbitration scheme at issue is unconscionable, while the employer contends that its arbitration agreement offers adequate protections and advantages to facilitate the employee's claim and is not unreasonably one-sided. Because evidence relevant to the unconscionability claim was not developed below, we remand to the trial court to determine whether the present arbitration agreement is unconscionableunder the principles set forth in this opinion.

I.

Frank Moreno is a former employee of Sonic–Calabasas A, Inc. (Sonic), which owns and operates an automobile dealership. As a condition of his employment with Sonic, Moreno signed a document entitled “Applicant's Statement & Agreement.” The agreement set forth a number of conditions of employment, including consent to drug testing and permission to contact former employers, as well as a provision making the employment at will. The agreement also contained a paragraph governing dispute resolution, which required both parties to submit employment disputes to “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....).” The arbitration provision applied to “all disputes that may arise out of the employment context ... that either [party] may have against the other which would otherwise require or allow resort to any court or other governmental dispute resolution forum[,] ... whether based on tort, contract, statutory, or equitable law, or otherwise.” The provision specified that it did not apply to claims brought under the National Labor Relations Act or the California Workers' Compensation Act, or to claims before the Employment Development Department. The provision further stated that the employee was not prevented from “filing and pursuing administrative proceedings only before the California Department of Fair Employment and Housing or the U.S. Equal Opportunity Commission.”

In addition, the agreement provided that arbitration is to be conducted by a “retired California Superior Court Judge” and that “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.” At the request of either party, an arbitration award may be reviewed by a second arbitrator who will, “ 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.”

In December 2006, after leaving his position with Sonic, Moreno filed an administrative wage claim with the Labor Commissioner for unpaid vacation pay pursuant to Labor Code section 98 et seq. (All statutory references are to the Labor Code unless otherwise indicated.) Moreno alleged he was entitled to unpaid “[v]acation wages for 63 days earned 7/15/02 to 7/15/06 at the rate of $441.29 per day.” The filing of such a claim is the first step toward obtaining a Berman hearing.

In February 2007, Sonic petitioned the superior court to compel arbitration of the wage claim and to dismiss the pending administrative action, arguing that Moreno waived his right to a Berman hearing in the arbitration agreement. The Labor Commissioner intervened on Moreno's behalf (§ 98.5), and Moreno adopted the Labor Commissioner's arguments. The Labor Commissioner argued that the arbitration agreement, properly construed, did not preclude Moreno from filing an administrative wage claim under section 98 et seq. According to the Labor Commissioner, resort to a Berman hearing was compatible with the arbitration agreement because the hearing could be followed by arbitration in lieu of a de novo appeal in the superior court under section 98.2, subdivision (a). The Labor Commissioner further argued that interpreting the arbitration agreement to waive a Berman hearing would violate public policy, relying on Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, 99 Cal.Rptr.2d 745, 6 P.3d 669( Armendariz ).

The superior court denied the petition to compel arbitration as premature. Citing Armendariz, the court said that as a matter of “basic public policy ... until there has been the preliminary non-binding hearing and decision by the Labor Commissioner, the...