Tiri v. Lucky Chances, Inc.

• Decision Date: 15 May 2014
• Docket Number: A136675
• Citation: 226 Cal.App.4th 231,171 Cal.Rptr.3d 621
• Court: California Court of Appeals Court of Appeals
• Parties: Lourdes TIRI, Plaintiff and Respondent, v. LUCKY CHANCES, INC., Defendant and Appellant.

226 Cal.App.4th 231

171 Cal.Rptr.3d 621

Lourdes TIRI, Plaintiff and Respondent,

v.LUCKY CHANCES, INC., Defendant and Appellant.

A136675

Court of Appeal,

First District, Division 4, California.

Filed May 15, 2014

See 1 Witkin, Summary of Cal. Law (10th ed. 2005) Contracts, § 336.

San Mateo County Superior Court, Honorable Joseph C. Scott. (Super. Ct. No. CIV514064)

Tyler M. Paetkau, Redwood City, Counsel for Appellant.

Allan A. Villanueva, San Bruno, Counsel for Respondent.

Humes, J.

Several years after she was hired, Lourdes Tiri signed an agreement with her employer, Lucky Chances, Inc., requiring disputes between them to be resolved by arbitration. In one of the provisions, the parties agreed to delegate questions about the enforceability of the agreement to the arbitrator, instead of a court. Tiri was subsequently fired, and she filed a complaint in superior court for wrongful discharge. Lucky Chances petitioned to compel arbitration, but the trial court denied the petition on the basis that the arbitration agreement was unconscionable and therefore unenforceable.

Lucky Chances appeals the court's order denying arbitration. We hold that the trial court lacked the authority to rule on the enforceability of the agreement because the parties' delegation of this authority to the arbitrator was clear and is not revocable under state law. Accordingly, we reverse.

I.Factual and Procedural Background

More than three years after she was hired as a cook by Lucky Chances, a card-club casino and restaurant in Colma, Tiri was asked and agreed to sign a mutual agreement to arbitrate claims (the agreement). Five years later, Tiri was fired, allegedly while on medical leave after undergoing heart surgery. Tiri brought this action for wrongful discharge, and this appeal turns on whether the agreement precluded the trial court from considering the validity of both the agreement and her underlying legal claims.

The parties dispute the circumstances surrounding Tiri's signing the agreement. According to Tiri, she was called to the human-resources department and given the agreement “right there and then ... to sign immediately.” She contends that the terms of the agreement were not explained, and that she was not told that the terms were negotiable, that her signature was optional, or that she could take the agreement and review it before signing. She “felt [she] had to sign it as a condition of continued employment with Lucky Chances,” and she believed that she would be fired if she did not sign it. According to Lucky Chances's human-resources manager, Tiri was never told that the agreement was nonnegotiable, and Tiri never asked to change the agreement or to negotiate its terms. Still, Lucky Chances does not specifically deny that Tiri was told to sign the agreement immediately and was never informed that the terms could be negotiated.

The agreement is a five-page, stand-alone document that is entitled, in blocked, bold lettering, “MUTUAL AGREEMENT TO ARBITRATE CLAIMS.” It relates solely to resolving claims between Tiri and Lucky Chances and provides that “any and all differences and/or legal disputes” (except those related to workers' compensation and unemployment-insurance benefits) will be resolved “through the process of final and binding arbitration.” The agreement further provides that any arbitration “shall be in accordance with the current AAA [American Arbitration Association] Employment Rules.” A copy of those rules was not attached to the agreement, although the agreement identified a website where the rules could be found.

The agreement also includes an explicit provision that delegates to the arbitrator issues regarding the agreement's enforceability: “The Arbitrator, and not any federal, state, or local court or agency, shall have the exclusive authority to resolve any dispute relating to the interpretation, applicability, enforceability, or formation of this Agreement, including, but not limited to, any claim that all or any part of this Agreement is void or voidable.” This provision is central to the issues in this appeal, and we will refer to it as the delegation clause.

After Tiri filed her complaint, Lucky Chances filed a petition to compel arbitration arguing that the enforceability of the arbitration agreement is a question for the arbitrator, not a court, under the express terms of the delegation clause. Tiri opposed the petition. She argued that the arbitration agreement was unconscionable and that its unconscionability was an issue properly resolved by the trial court.

The trial court issued a tentative ruling denying Lucky Chances's petition, but the ruling did not address the delegation clause. At the hearing on the petition, Lucky Chances's attorney argued that it was important for the court to rule on the threshold issue of the delegation clause and that recent case law required the trial court to delegate to the arbitrator the question whether the arbitration agreement was unconscionable. The court asked about the presence of contractual consideration when an employer asks a current employee to sign an arbitration agreement, and Lucky Chances's attorney insisted that the adequacy of consideration in this case was an issue for the arbitrator to decide, an argument the court considered “rather circular.”

At the close of the hearing, the trial court adopted its tentative ruling and denied the petition to compel arbitration. In doing so, it focused on the fact that the arbitration agreement stated it would be governed by AAA rules but failed to attach those rules, citing two cases that declined to enforce arbitration agreements under similar circumstances: Zullo v. Superior Court (2011) 197 Cal.App.4th 477, 127 Cal.Rptr.3d 461 and Fitz v. NCR Corp. (2004) 118 Cal.App.4th 702, 13 Cal.Rptr.3d 88. The court found that “the arbitration agreement is both substantively and procedurally unconscionable and therefore unenforceable because [Lucky Chances] presented the agreement to plaintiff on a ‘take it or leave it basis' and [Lucky Chances] failed to attach the AAA employment dispute resolution rules to the arbitration agreement.” Lucky Chances timely appealed.

II.Discussion

In this appeal, we must decide whether the trial court properly denied Lucky Chances's petition to compel arbitration in light of the delegation clause, which gives the arbitrator the authority to decide whether the arbitration agreement is enforceable. The answer turns on whether the delegation clause is valid under state-law unconscionability principles. We conclude that the trial court's ruling must be reversed because, although its implied finding that the delegation clause was procedurally unconscionable was correct, its implied finding that the delegation clause was substantively unconscionable was incorrect. As a result of our conclusion that the delegation clause is valid, we leave to the arbitrator the question whether the arbitration agreement as a whole, or any of its other severable provisions, is unconscionable.

A. The General Law Governing Arbitration Agreements.

Under both federal and state law, arbitration agreements are valid and enforceable, unless they are revocable for reasons under state law that would render any contract revocable. (9 U.S.C. § 2; ¹Code Civ. Proc., § 1281; ²Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, 98, 99 Cal.Rptr.2d 745, 6 P.3d 669 ( Armendariz ).) Reasons that would render any contract revocable under state law include fraud, duress, and unconscionability. ( Sonic–Calabasas A, Inc. v. Moreno (2013) 57 Cal.4th 1109, 1142, 163 Cal.Rptr.3d 269, 311 P.3d 184 ( Sonic II ); Armendariz, at p. 114, 99 Cal.Rptr.2d 745, 6 P.3d 669; Stirlen v. Supercuts, Inc. (1997) 51 Cal.App.4th 1519, 1551–1552, 60 Cal.Rptr.2d 138.)

A motion to compel arbitration is essentially a request for specific performance of a contractual agreement. (Duffens v. Valenti (2008) 161 Cal.App.4th 434, 443, 74 Cal.Rptr.3d 311.) The party seeking to compel arbitration bears the burden of proving by a preponderance of the evidence the existence of an arbitration agreement. (Rosenthal v. Great Western Fin. Securities Corp. (1996) 14 Cal.4th 394, 413, 58 Cal.Rptr.2d 875, 926 P.2d 1061 (Rosenthal ); § 1281.2.) The party opposing the petition bears the burden of establishing a defense to the agreement's enforcement by a preponderance of the evidence. (Rosenthal, at p. 413, 58 Cal.Rptr.2d 875, 926 P.2d 1061; § 1281.2, subd. (b).) In determining whether there is a duty to arbitrate, the trial court must, at least to some extent, examine and construe the agreement. (Duffens, at p. 443, 74 Cal.Rptr.3d 311.)

B. The Applicability of the Federal Arbitration Act Is Immaterial.

The parties dispute at length the applicability of the FAA, which governs only arbitration agreements that are part of written contracts affecting interstate commerce. (9 U.S.C. § 2.) But we conclude that the FAA's applicability is immaterial because our decision in this case would be the same under either the FAA or the CAA.

“In most important respects, the California statutory scheme on enforcement of private arbitration agreements is similar to the [FAA]; the similarity is not surprising, as the two share origins in the earlier statutes of New York and New Jersey.” (Rosenthal, supra, 14 Cal.4th at p. 406, 58 Cal.Rptr.2d 875, 926 P.2d 1061.) In similar language, both the FAA and the CAA provide that predispute arbitration agreements are valid, enforceable, and irrevocable, save upon such grounds as exist for the revocation of any contract. (Ibid.) ³ Thus, enforcing valid arbitration agreements is favored under both state and federal law. ( Armendariz, supra, 24 Cal.4th at pp. 97–98, 99 Cal.Rptr.2d 745, 6 P.3d 669.)

“California courts often look to federal law when deciding arbitration issues under state law.” (Dream Theater, Inc. v. Dream Theater (2004) 124 Cal.App.4th 547, 553, 21 Cal.Rptr.3d 322.) They have specifically...