Brinkley v. Monterey Financial Services, Inc. , 242 Cal. App. 4th 294 ( 2015 )

Filed 11/19/15
CERTIFIED FOR PUBLICATION
COURT OF APPEAL, FOURTH APPELLATE DISTRICT
DIVISION ONE
STATE OF CALIFORNIA
TIFFANY BRINKLEY, D066059
Plaintiff and Appellant,
v. (Super. Ct. No.
37-2013-00071119-CU-MC-NC)
MONTEREY FINANCIAL SERVICES,
INC.,
Defendant and Respondent.
APPEAL from an order of the Superior Court of San Diego County,
Timothy M. Casserly, Judge. Affirmed in part, reversed in part, and remanded with
directions.
Niddrie Fish & Addams, Niddrie Addams, David A. Niddrie, John S. Addams;
Keegan & Baker, Patrick N. Keegan; Wickman & Wickman, Steven A. Wickman and
Christina E. Wickman for Plaintiff and Appellant.
Call & Jensen, Matthew R. Orr and Melinda Evans for Defendant and Respondent.
I.
INTRODUCTION
Plaintiff Tiffany Brinkley appeals from an order of the trial court compelling her
to arbitrate her individual claims and dismissing her class claims. Brinkley filed a
putative class action against defendant Monterey Financial Services, Inc. (Monterey),
asserting statutory violations arising from allegations that Monterey unlawfully recorded
and/or monitored telephone conversations that Brinkley had with Monterey's
representatives. Monterey moved to compel Brinkley to arbitrate her individual claims
and to dismiss Brinkley's class claims, based on an arbitration agreement contained in a
contract that Brinkley entered into with a third party who subsequently assigned
Brinkley's contract to Monterey. The trial court ordered Brinkley to arbitrate her
individual claims, and dismissed the class claims, as Monterey had requested.
On appeal, Brinkley raises a number of challenges to the trial court's order
compelling arbitration. She contends that (1) the claims fall outside the scope of the
arbitration agreement; (2) the arbitration clause is unconscionable and therefore
unenforceable; and (3) the court erred in dismissing her class action claims because the
parties agreed that an arbitrator would determine whether class arbitration is available
under the contract.
We conclude that Brinkley's claims fall within the scope of the arbitration
agreement and that the arbitration agreement is enforceable, with the exception of one
provision that we find to be unconscionable under the applicable jurisdiction's law. We
conclude, however, that it is possible to sever the unconscionable provision from the
2
remainder of the arbitration agreement and from the contract as a whole. We therefore
affirm the trial court's order compelling arbitration of Brinkley's claims. However,
because the parties' agreement delegates to the arbitrator the question whether class
arbitration is available under the contract, we reverse that portion of the trial court's order
compelling the arbitration of Brinkley's individual claims, alone, and dismissing
Brinkley's class claims.
II.
FACTUAL AND PROCEDURAL BACKGROUND
Monterey Financial Services provides three services to its customers, including
consumer financing, loan servicing, and debt collecting. Real Estate Investor Education
(REIE) was one of Monterey's customers.
On or about August 10, 2011, Brinkley signed up to receive six real estate
coaching sessions through REIE for $4,195. Brinkley paid REIE $850, and financed the
remainder of the purchase price through REIE's "Retail Installment Contract" (the RIC).
Once Brinkley's financing was approved, she had 30 days to complete an e-signature
process. During this period of time, she had the ability to access the RIC online.
Brinkley executed the RIC with her e-signature on August 24, 2011. The RIC provided
that Brinkley could cancel the contract within three days of e-signing it if she were to
change her mind.
The RIC contains a choice of law provision that provides: "This Agreement shall
be governed by and interpreted and constructed in accordance with the law of your state
of residence as indicated on the address section hereof completed by you, as applied to
3
contracts between residents of such state entered into and to be performed wholly within
such state." Brinkley identified her residence as being in the state of Washington.
The RIC also contains the following arbitration provision:
"AGREEMENT DISPUTE RESOLUTION
"ARBITRATION: By signing this Agreement, you agree that,
except as provided below, any claim or dispute arising out of or in
any way related to this Agreement, whether past, present or future,
or any matter of fact, law, background, circumstance, or other matter
of any kind whatsoever relating to this Agreement, shall be resolved
by binding arbitration in accordance with the rules of the American
Arbitration Association. You further acknowledge and agree that the
sole and exclusive venue for such binding arbitration shall be San
Diego, California. The decision by the arbitrator or arbitrators shall
be final and binding on all parties, and may be entered in any court
of competent jurisdiction for enforcement. Such a decision shall
include the payment of all fees and costs of the prevailing party. The
determination of the 'prevailing party' shall be made by the arbitrator
or arbitrators. The AGREEMENT FOR DISPUTE RESOLUTION
shall not limit the right of any party to take non-judicial actions to
enforce security interests and all rights related thereto, or to take
judicial actions for (i) the enforcement of arbitration decisions, or
(ii) the protection of any party pending arbitration decisions.
"SMALL CLAIMS PROCEDURE: Additionally, because the
purpose of the AGREEMENT FOR DISPUTE RESOLUTION is to
promote fast and inexpensive resolution of claims and disputes,
Buyer, Seller and Seller's assignee remain free to choose the small
claims court procedure to resolve any dispute or claim, as defined
above, that is within the monetary jurisdictional limit of the court.
Buyer, Seller and Seller's assignee agree, however, that any claims,
counterclaims and/or disputes, as defined above, of any sort which
are in excess of the small claims court jurisdictional monetary limit
must be arbitrated before the American Arbitration Association and
in accordance with its rules."
In addition, the RIC informs consumers that the "Seller may assign this Agreement
to any third party without prior notice to you," and that "[u]pon any such assignment,
4
such third party will become the holder of this agreement and your creditor." It further
informs consumers regarding the party to whom the assignment may be made, stating,
"Seller intends to assign this agreement to Monterey Financial Services, [I]nc., 4095
Avenida de la Plata, Oceanside, CA 92056 ('Monterey')," and explains that "[a]fter the
assignment of this Agreement to Monterey, all questions concerning the terms of this
Agreement or payments should be directed to Monterey at its address indicated above."
Later, in a separate box that includes signature lines where the assignment can be
effectuated, the consumer is told: "TERMS CONTAINED IN THIS BOX ARE NOT
PART OF THE BUYER'S AGREEMENT." According to Monterey, REIE assigned the
RIC to Monterey shortly after the contract was executed.
At some point, Brinkley stopped making payments on the RIC. According to
Brinkley, she never received all of the coaching sessions from REIE, which went out of
business in August 2012. Monterey took the position that Brinkley owed it the remaining
payments, and began collection efforts against her. During Monterey's collection efforts,
Monterey called Brinkley, and Brinkley called Monterey.1
According to the allegations in Brinkley's complaint, Brinkley made telephone
calls to and received telephone calls from employees, officers, and/or agents of Monterey
between December 2012 and March 2013. Brinkley also alleges that Monterey failed to
inform Brinkley at any time that it was recording the telephone conversations between its
1 On December 1, 2014, Brinkley filed a request for judicial notice in this court.
Brinkley seeks judicial notice of records related to a small claims action involving
Monterey and Brinkley. We conclude that these documents are not relevant to the issues
raised in this appeal, and we therefore decline to take judicial notice of the documents.
5
representatives and Brinkley. During these calls, Brinkley revealed her identity and
shared personal information. Brinkley believed that her calls were confidential and were
not being monitored or recorded.
Brinkley filed a putative class action against Monterey in October 2013, asserting
causes of action for invasion of privacy, unlawful recording of telephone calls, and
unlawful and unfair business practices. The class that Brinkley seeks to represent
includes persons who made telephone calls to or received telephone calls from Monterey
while located or residing in California or Washington, and who were not provided notice
that the calls might be recorded or monitored. Brinkley asserts that Monterey's conduct
in recording her confidential communications without her knowledge was an invasion of
her privacy and a violation of the California Invasion of Privacy Act (CIPA; Pen. Code,
§§ 630-637.5), which was enacted "to address concerns that 'advances in science and
technology that have led to the development of new devices and techniques for the
purpose of eavesdropping upon private communications and that the invasion of privacy
resulting from the continual and increasing use of such devices and techniques has
created a serious threat to the free exercise of personal liberties and cannot be tolerated in
a free and civilized society.' " (Kight v. CashCall, Inc. (2011) 200 Cal.App.4th 1377,
1388.) Among other things, the CIPA requires that all parties consent to the recording of
6
a conversation involving confidential communication. (Flanagan v. Flanagan (2002) 27
Cal.4th 766, 769.)2
Monterey moved to compel arbitration of Brinkley's individual claims, and sought
dismissal of Brinkley's class claims.
After considering briefing and declarations from the parties, the court determined
that the parties had entered into a valid arbitration agreement, that the parties had not
agreed to arbitrate class claims, and that Brinkley's claims fell within the scope of the
arbitration provision. The trial court ordered the parties to arbitrate Brinkley's individual
claims, and dismissed Brinkley's class claims.
Brinkley filed a timely notice of appeal from the trial court's order.
III.
DISCUSSION
Brinkley challenges the trial court's order requiring her to arbitrate her individual
claims and dismissing her class claims. She contends that (1) her claims fall outside the
2 Specifically, Penal Code section 632, subdivision (a) imposes liability on "[e]very
person who, intentionally and without the consent of all parties to a confidential
communication, by means of any electronic amplifying or recording device, eavesdrops
upon or records the confidential communication, whether the communication is carried
on among the parties in the presence of one another or by means of a telegraph,
telephone, or other device, except a radio . . . ." Subdivision (c) of Penal Code section
632 addresses the term "confidential communication" by providing: "The term
'confidential communication' includes any communication carried on in circumstances as
may reasonably indicate that any party to the communication desires it to be confined to
the parties thereto, but excludes a communication made in a public gathering or in any
legislative, judicial, executive or administrative proceeding open to the public, or in any
other circumstance in which the parties to the communication may reasonably expect that
the communication may be overheard or recorded."
7
scope of the arbitration provision, (2) the arbitration provision is unconscionable and may
not be enforced, and (3) the court erred in dismissing her class claims.
A. Standard of review
In a petition to compel arbitration, the party seeking to compel arbitration bears
the burden of proving the existence of a valid arbitration agreement by a preponderance
of the evidence. (Engalla v. Permanente Medical Group, Inc. (1997) 15 Cal.4th 951,
972.) The party opposing the petition bears the burden of proving by a preponderance of
the evidence any fact necessary to its defense, including that an arbitration provision is
invalid or otherwise unenforceable. (Ibid.)
On appeal, "[w]hen 'the language of an arbitration provision is not in dispute, the
trial court's decision as to arbitrability is subject to de novo review.' [Citation.] Thus, in
cases where 'no conflicting extrinsic evidence is introduced to aid the interpretation of an
agreement to arbitrate, the Court of Appeal reviews de novo a trial court's ruling on a
petition to compel arbitration.' " (Molecular Analytical Systems v. Ciphergen Biosystems,
Inc. (2010) 186 Cal.App.4th 696, 707; see also Rebolledo v. Tilly's, Inc. (2014) 228
Cal.App.4th 900, 912 [where ruling on petition did not hinge on credibility of extrinsic
evidence, but rather was based on legal interpretation of arbitration agreement, de novo
review is appropriate].)
The parties appear to agree that the de novo standard of review applies to the
issues raised by Brinkley's appeal.
8
B. Analysis
1. Brinkley's claims fall within the scope of the arbitration provision
a. Applicable law
i. The Federal Arbitration Act applies
Brinkley asserts that the Federal Arbitration Act (9 U.S.C. § 1 et seq.; FAA) does
not govern the arbitration agreement at issue.
Arbitrators derive their powers from the parties' voluntary submission of disputes
for resolution in a nonjudicial forum. Under the FAA, a valid arbitration agreement
arises from the parties' consent. (Stolt-Nielsen S. A. v. Animalfeeds Int'l Corp. (2010) 559
U.S. 662, 682 (Stolt-Nielsen).) The primary purpose of the FAA is to ensure that
agreements to arbitrate are enforced according to their terms. (Stolt-Nielsen, supra, at p.
682.) Arbitration agreements are construed to give effect to the parties' contractual rights
and expectations. (Ibid.)
The FAA applies to a contract that "evidences a transaction involving interstate
commerce . . . ." (Shepard v. Edward Mackay Enterprises, Inc. (2007) 148 Cal.App.4th
1092, 1101.) "Section 2 of the FAA provides in relevant part: '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.)" (Pinnacle Museum Tower Assn. v. Pinnacle
Market Development (US), LLC (2012) 55 Cal.4th 223, 234-235 (Pinnacle).) "This
statute stands as 'a congressional declaration of a liberal federal policy favoring
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arbitration agreements, notwithstanding any state substantive or procedural policies to the
contrary.' " (Ibid.) Essentially, "Congress passed the FAA 'to overcome courts' refusals
to enforce agreements to arbitrate.' " (Mastrobuono v. Shearson Lehman Hutton, Inc.
(1995) 514 U.S. 52, 55.)
Brinkley contends that the parties agreed only to the application of state rules for
any arbitration under their contract, and did not contemplate that the contract would be
governed by the FAA, given that the RIC provides that it is "to be interpreted and
constructed under the law of the consumer's resident state," and that it applies only " 'to
contracts between residents of such state entered into and to be performed wholly within
such state.' "
The RIC provision to which Brinkley refers is a choice-of-law provision that
immediately follows the arbitration clause in the RIC, in a paragraph titled "Governing
Law." This paragraph provides:
"This Agreement shall be governed by and interpreted and
constructed in accordance with the law of your state of residence as
indicated on the address section hereof completed by you, as applied
to contracts between residents of such state entered into and to be
performed wholly within such state."
Brinkley suggests that "[b]ecause the parties eliminated interstate commerce from
the RIC contract, they clearly evidenced their intent that only Washington or California
state law applied and not the FAA." Brinkley's argument is misdirected.
The relevant language from the RIC contemplates the existence of an interstate
transaction. The choice-of-law provision indicates that the law that is to be applied is the
law of the consumer's state, as if the contract at issue had been entered into in that state
10
and wholly performed in that state. This language is not suggesting that the RIC is such a
contract or that it does not involve interstate commerce; rather, it expresses the intent of
the parties to apply the law of the purchaser's state to the RIC, despite the fact that it may
have been entered into by residents of different states (i.e., the consumer and REIE). As
Brinkley concedes, the RIC at issue was entered into between Brinkley, a Washington
resident, and REIE, a Utah entity, and set the terms of Brinkley's purchase of services
from REIE. The RIC thus clearly evidences an interstate transaction.
Given the nature of the RIC and its choice-of-law provision, the very existence of
which suggests that the transaction at issue in the contract might be undertaken by
individuals and/or entities residing in different jurisdictions and thereby involve interstate
commerce, we conclude that the RIC "evidences a transaction involving interstate
commerce." Therefore, contrary to Brinkley's contention, the FAA and its rules apply.
ii. To the extent the application of state law is necessary,
Washington state law applies
Brinkley asserts on appeal that the law of Brinkley's state of residence,
Washington, governs interpretation of the contract.3
3 Brinkley further asserts that "[t]o the extent the appeal involves class members
who lived in California when they signed the RIC contract, California law applies."
Given that no class has been certified, and given that the questions that are to be
addressed with respect to Monterey's motion to compel arbitration involve issues
regarding the RIC that Brinkley entered into with nonparty REIE, we are disinclined to
agree with Brinkley that this court should look to California law for purposes of "class
members who lived in California when they signed" their own contracts with REIE or
some other entity whose contracts were assigned to Monterey.
11
The FAA creates "a body of federal substantive law of arbitrability, applicable to
any arbitration agreement within the coverage of the Act." (Moses H. Cone Hospital v.
Mercury Constr. Corp. (1983) 460 U.S. 1, 24.) However, even when the FAA applies,
such that "federal arbitrability law" applies, there remains "[t]he general rule in
interpreting arbitration agreements," which "is that courts 'should apply ordinary state-
law principles that govern the formation of contracts.' " (Cape Flattery Ltd. v. Titan
Mar., LLC (9th Cir. 2011) 647 F.3d 914, 920 (Cape Flattery), quoting First Options of
Chicago, Inc. v. Kaplan (1995) 514 U.S. 938, 944 (Kaplan).) We therefore consider
which state's legal principles apply in this case.
Despite Brinkley's contention that the contract requires application of Washington
law, Brinkley additionally asserts that "[i]n this case, the question whether Washington or
California law applies is immaterial," because, she contends, the laws of Washington and
California do not differ with respect to the issues raised in her appeal. Because this
statement is not entirely accurate, and because it is important that we give effect to the
parties' agreement, we address the question of which jurisdiction's law applies.
The parties have agreed that the law of the state of Washington will govern their
agreement. We must ascertain whether the parties' choice-of-law provision should be
given effect. A court analyzes the enforceability of a choice-of-law provision in a
consumer adhesion contract by applying the approach adopted by the Supreme Court in
Nedlloyd Lines B.V. v. Superior Court (1992) 3 Cal.4th 459 (Nedlloyd) with respect to
arm's-length negotiated contracts. (Washington Mutual Bank v. Superior Court (2001) 24
Cal.4th 906, 917-918.) "California . . . has no public policy against the enforcement of
12
choice-of-law provisions contained in contracts of adhesion where they are otherwise
appropriate. [Citations.] More importantly, Nedlloyd's analysis contains safeguards to
protect contracting parties, including consumers, against choice-of-law agreements that
are unreasonable or in contravention of a fundamental California policy." (Id. at p. 917.)
Under Nedlloyd, "[i]n determining the enforceability of arm's-length contractual
choice-of-law provisions, California courts shall apply the principles set forth in
Restatement section 187, which reflects a strong policy favoring enforcement of such
provisions." (Nedlloyd, supra, 3 Cal.4th at pp. 464-465.) The standards set forth in
Restatement section 187, subdivision (2) are the following: " 'The law of the state chosen
by the parties to govern their contractual rights and duties will be applied, even if the
particular issue is one which the parties could not have resolved by an explicit provision
in their agreement directed to that issue, unless either [¶] (a) the chosen state has no
substantial relationship to the parties or the transaction and there is no other reasonable
basis for the parties choice, or [¶] (b) application of the law of the chosen state would be
contrary to a fundamental policy of a state which has a materially greater interest than the
chosen state in the determination of the particular issue and which, under the rule of
[section] 188, would be the state of the applicable law in the absence of an effective
choice of law by the parties.' " (Nedlloyd, supra, at p. 465.)
The parties in this case appear to essentially agree that Washington and California
law are, in most respects, substantially similar with respect to the issues raised in this
13
appeal.4 Neither party has argued that Washington's law should not apply on the ground
that Washington has "no substantial relationship to the parties or the transaction" or
because an application of Washington law "would be contrary to a fundamental policy of
a state [that] has a materially greater interest" than Washington. (Nedlloyd, supra, 3
Cal.4th at p. 465.) We therefore conclude that it is appropriate to give effect to the
parties' agreement with respect to the choice-of-law provision, and apply the law of
Washington to those matters where state law principles govern.
Given our conclusion that the parties' choice of Washington law should be given
effect, we note that Washington courts look to federal courts for guidance in determining
whether parties have agreed to arbitrate a dispute when there has been a determination
that federal law applies to the dispute. (See Peninsula School District 40 v. Public
School Employees of Peninsula (1996) 130 Wn.2d 401, 413 [applying federal law in
context of deciding whether public sector labor-management dispute was arbitrable
pursuant to collective bargaining agreement].) We therefore consider federal case law
and Washington case law, where applicable, in addressing the parties' contentions on
appeal.
4 Brinkley asserts, "There is no substantial conflict between Washington and
California law." Monterey acknowledges, "Monterey agrees that the trial court's order
compelling arbitration of Brinkley's individual claims and dismissing the class claims is
correct regardless of which law is applied." Monterey notes that Washington and
California law differ slightly in their approaches to assessing the unconscionability of a
contract, which we discuss further in footnote 6, post.
14
iii. Brinkley's claims fall within the scope of the RIC's arbitration
provision
Brinkley contends that the trial court erred in concluding that her claims fall
within the scope of the arbitration provision in the RIC. The relevant language from the
RIC regarding its scope is the following:
"By signing this Agreement, you agree that, except as provided
below, any claim or dispute arising out of or in any way related to
this Agreement, whether past, present or future, or any matter of fact,
law, background, circumstance, or other matter of any kind
whatsoever relating to this Agreement, shall be resolved by binding
arbitration in accordance with the rules of the American Arbitration
Association." (Italics added.)
Brinkley's complaint asserts three causes of action: (1) invasion of privacy,
(2) unlawful recording of telephone calls, and (3) unlawful and unfair business practices.
Brinkley asserts that her causes of action do not arise out of, and are not related to, the
RIC. Rather, she contends that under any potentially applicable law, her "claims of
unlawful recording and monitoring of telephone calls fell outside the scope of the
arbitration agreement," because "REIE expressly limited the contract to 'legal rights of
enforcement.' "
"[T]he question of arbitrability—whether [an] agreement creates a duty for the
parties to arbitrate [a] particular grievance—is . . . an issue for judicial determination.
Unless the parties clearly and unmistakably provide otherwise, the question of whether
the parties agreed to arbitrate is to be decided by the court, not the arbitrator." (AT&T
15
Technologies v. Communications Workers (1986) 475 U.S. 643, 649.)5
"Courts resolve the threshold legal question of arbitrability of the dispute by
examining the arbitration agreement without inquiry into the merits of the dispute. If the
dispute can fairly be said to invoke a claim covered by the agreement, any inquiry by the
courts must end. Washington State has a strong public policy favoring arbitration of
disputes." (Owners Ass'n v. Burton Landscape (2009) 148 Wn.App. 400, 403-404.)
Doubts concerning the scope of arbitrable issues "should be resolved in favor of
arbitration." (Moses H. Cone Hospital v. Mercury Constr. Corp., supra, 460 U.S. at pp.
24-25.) This gives due regard to the federal policy favoring arbitration and the
presumption of arbitrability. (See AT&T Technologies v. Communications Workers,
supra, 475 U.S. at p. 650.) Notwithstanding a federal policy that favors arbitration,
however, it is clear that " 'arbitration is a matter of contract and a party cannot be required
to submit to arbitration any dispute which he has not agreed so to submit.' [Citation.]
We cannot expand the parties' agreement to arbitrate in order to achieve greater
efficiency. The Federal Arbitration Act 'requires piecemeal resolution when necessary to
give effect to an arbitration agreement.' " (Tracer Research Corp. v. National
Environmental Services Co. (9th Cir. 1994) 42 F.3d 1292, 1294-1295 (Tracer).)
5 The parties apparently agree that it was proper for the trial court to decide whether
Brinkley's claims of invasion of privacy, unlawful recording, and unfair business
practices are arbitrable, but disagree about whether the trial court answered the question
correctly. "Because neither party argues that the arbitrator should decide [the question of
arbitrability], there is no need to apply the rule requiring ' "clear and unmistakable" '
evidence of an agreement to arbitrate arbitrability." (Granite Rock Co. v. Int'l
Brotherhood of Teamsters (2010) 561 U.S. 287, 297, fn. 5.)
16
Courts consistently recognize that the duty to arbitrate a dispute arises from the
language of the contract itself. (See Stein v. Geonerco, Inc. (2001) 105 Wn.App. 41, 45.)
"An agreement for the submission of a dispute to arbitration defines and limits the issues
to be decided." (Sullivan v. Great American Ins. Co. (1979) 23 Wn.App. 242, 246.)
Although public policy strongly favors arbitration as a remedy for settling disputes,
arbitration "should not be invoked to resolve disputes that the parties have not agreed to
arbitrate." (King County v. Boeing Co. (1977) 18 Wn.App. 595, 603.)
"Four principles guide us when determining whether the parties agreed to submit a
particular dispute to arbitration: [¶] (1) the duty to submit a matter to arbitration arises
from the contract itself; (2) the question of whether parties have agreed to arbitrate a
dispute is a judicial one unless the parties clearly provide otherwise; (3) a court should
not determine the underlying merits of a dispute in determining the arbitrability of an
issue; and (4) arbitration of disputes is favored by the courts." (Tacoma Narrows
Constructors v. Nippon Steel-Kawada Bridge, Inc. (2007) 138 Wn.App. 203, 214.) In
addition, "[t]o rule that a particular dispute is not arbitrable under an arbitration
agreement, 'the court must be able to say "with positive assurance" that the arbitration
clause is not susceptible of an interpretation that covers the asserted dispute.' " (Id. at p.
216.)
Turning to the language of the RIC pertaining to the scope of the arbitration
provision, we attempt to ascertain the meaning of "arising out of or in any way related to
this Agreement."
17
Similar language has been "well explored by Ninth Circuit cases." (Golden v.
Dameron Hosp. Ass'n (E.D.Cal. Sept. 19, 2012, No. Civ. S-12-0751 LKK/EFB) 2012
U.S.Dist. Lexis 134281, *20 (Golden).) "[W]hen parties intend to include a broad
arbitration provision, they provide for arbitration 'arising out of or relating to' the
agreement." (Cape Flattery, supra, 647 F.3d at p. 922, italics added.) In circumstances
in which an arbitration clause is phrased in broad and general terms, "[a]n order to
arbitrate the particular grievance should not be denied unless it may be said with positive
assurance that the arbitration clause is not susceptible of an interpretation that covers the
asserted dispute. Doubts should be resolved in favor of coverage." (Steelworkers v.
Warrior & Gulf Co. (1960) 363 U.S. 574, 582-583.)
When an arbitration clause is interpreted "broadly," it " 'reaches every dispute
between the parties having a significant relationship to the contract and all disputes
having their origin or genesis in the contract.' " (Golden, supra, 2012 U.S. Dist. LEXIS
134281 at *21, quoting Simula, Inc. v. Autoliv, Inc. (9th Cir. 1999) 175 F.3d 716, 721
(Simula).) Stated differently, "[t]o require arbitration, [a party's] factual allegations need
only 'touch matters' covered by the contract containing the arbitration clause and all
doubts are to be resolved in favor of arbitrability." (Simula, supra, at p. 721.)
Brinkley alleges that her telephone conversations with representatives at Monterey
were recorded without her knowledge or consent. All of her claims arise from this
alleged conduct on Monterey's part. These telephone calls were initiated by Monterey
and Brinkley in the facilitation of Monterey's attempt to collect on the debt it believed to
18
be due pursuant to the RIC. We conclude that these factual allegations "touch matters"
covered by the contract—namely, debt collection pursuant to the contract.
Brinkley contends that the RIC "expressly limited enforcement efforts under the
agreement to 'all legal rights of enforcement.' " She cites a provision in the RIC referring
to REIE's rights in the case that the consumer defaults:
"4. Seller's Rights upon Default. If you default in any way, Seller's
[sic] may, without notice, demand immediate payment of the total
amount owing under this Agreement. Seller may use all legal rights
of enforcement."
Brinkley asserts that "Monterey's illegal enforcement efforts are therefore, by
definition, outside the scope of the parties' agreement." We disagree with Brinkley's
analysis. The arbitration provision in the RIC requires the parties to arbitrate "any claim
or dispute arising out of or in any way related to this Agreement." The dispute in this
action is about the legality of Monterey's collection methods, i.e., its alleged unlawful
recording of Brinkley's conversations with its representatives during its collection efforts
without her consent. The fact that Brinkley has alleged that Monterey (a) recorded her
telephone conversations with its representatives, (b) that she did not consent to such
recording, and (c) that Monterey has no valid defense to such conduct, merely raises the
existence of a dispute about the legality of Monterey's conduct. Brinkley's allegations
that Monterey engaged in illegal collection efforts are insufficient to take Brinkley's
claims outside the scope of the parties' arbitration provision on the ground that the RIC
permits only legal collection efforts. Brinkley's allegations simply place the legality of
19
Monterey's actions in dispute, and this dispute is related to the RIC, which by its terms
allows Monterey to pursue collection of debts owed.
Brinkley relies on Wagner v. Discover Bank (D.Colo. Jan. 13, 2014, Civ. A. No.
12-cv-02786-MSK-BNB) 2014 U.S.Dist. Lexis 3682, *4-*5 (Wagner) to support her
argument that her claims are not arbitrable. We find Wagner distinguishable.
In Wagner, the relevant arbitration provision stated: "In the event of any past,
present or future claim or dispute (whether based upon contract, tort, statute, common
law or equity) between you and us arising from or relating to your Account, any prior
account you have had with us, your application, the relationships which result from your
Account or the enforceability or scope of this arbitration provision, of the Agreement or
of any prior agreement, you or we may elect to resolve the claim or dispute by binding
arbitration." (Wagner, supra, 2014 U.S. Dist. LEXIS 3682 at *13, italics added.)
In concluding that the dispute in that case did not fall within the arbitration
provision at issue, the Wagner court explained: "Despite such broad language, however,
the agreement expressly applies only to disputes that 'aris[e] from or relat[e] to' an
Account, a prior account, an application, the relationships resulting from the Account, or
the scope and enforceability of the arbitration provision, Cardmember Agreement, or
prior agreement. In this regard, the scope of the agreement is limited to disputes whose
factual underpinnings arise from or relate to the specified categories." (Wagner, supra,
2014 U.S. Dist. LEXIS 3682 at *14.) Important for our purposes is the Wagner court's
description of the factual basis for the plaintiff's claims in that case as related to the
language of the arbitration agreement:
20
"Mr. Wagner's allegations specifically relate to the legality of
Discover's acts when it went about its collection activities. He
alleges unlawful conduct by Discover when it made numerous calls
to his cell phone and used a prerecorded voice system. These
allegations relate to the manner in which Discover attempted
collection. Although the existence of a debt on the account and the
right to collect the debt would 'arise from' or 'relate to' the Account,
the legality of the manner in which collection is pursued does not.
The manner of collection—whether calls were made, how frequently
they were made, and what was said during them—has nothing to do
with either the Account, the terms of the Cardmember Agreement, or
the parties' relationship. See, e.g., Coors Brewing Co. v. Molson
Breweries, 51 F.3d 1511, 1516 (10th Cir. 1995) (holding that
antitrust claims that are not factually related to parties' contractual
relationship were not subject to arbitration agreement).
"Discover has not pointed to any term governing the account which
specifies how it will collect on the account, and the arbitration
agreement does not identify manner of collection as a dispute to be
arbitrated. Indeed, Mr. Wagner may succeed on his TCPA claims
despite the existence of any account or relationship with Discover.
Although the existence of the Account may have been the 'but for'
cause of the alleged violations, that is not enough to establish that
the claims arise from or relate to the Account or the parties'
relationship resulting from the Account." (Wagner, supra, 2014
U.S. Dist. LEXIS 3682 at *15-*16, italics added.)
In this case, in contrast, Monterey has pointed to a specific term in the RIC itself
that specifies that a default by the consumer will trigger a "demand [for] immediate
payment of the total amount owing" and grants the "Seller" permission to "use all legal
rights of enforcement" to collect the monies due. As we have explained, a dispute
regarding the legality of any conduct Monterey undertook in its collection efforts is a
"dispute" that is "related to" the terms of the RIC. Wagner is therefore distinguishable
and is thus unpersuasive in this matter.
21
We conclude that the telephone calls that Brinkley alleges Monterey unlawfully
recorded were related to the RIC. As a result, Brinkley's claims concerning the legality
of the calls fall within the scope of the broad arbitration provision included in the RIC.
2. The arbitration provision is enforceable
Brinkley raises two claims challenging the enforceability of the arbitration
provision in the RIC, arguing that the clause should not be enforced because it violates
public policy, and that the clause is unconscionable, both procedurally and substantively.
a. Public policy does not render the arbitration agreement
unenforceable.
Brinkley contends that the trial court erred in enforcing the arbitration agreement
because it "is against public policy." Specifically, Brinkley argues that "[c]ontract
provisions, like this one, which purport to mandate arbitration of individual claims
involving illegal conduct and/or criminal activities should be void as a matter of public
policy because they do little to discourage such practices."
Brinkley acknowledges that her argument in this regard must be premised on the
FAA being inapplicable to the RIC, given that the FAA preempts state law attempts to
invalidate arbitration agreements on the basis of public policy. As we have already
concluded, however, the FAA does apply to the contract at issue here. Brinkley's
argument that public policy requires courts not to enforce an arbitration agreement with
respect to claims alleging illegal or criminal conduct must therefore be rejected. (See
Brown v. MHN Gov't Servs., Inc. (2013) 178 Wn.2d 258, 266 (Brown) [pursuant to AT&T
22
Mobility LLC v. Concepcion (2011) 563 U.S. 333 (Concepcion), "state rules specific to
arbitration that interfere with the purposes of the FAA are preempted"].)
b. Unconscionability
Brinkley contends that the trial court erred in determining that the RIC is not
procedurally unconscionable. Brinkley contends that it is, maintaining that she was not
provided "a meaningful choice and an opportunity to understand its terms." She further
contends that the trial court erred in determining that the RIC is not substantively
unconscionable, and asserts that the "arbitration fees and venue provision made
arbitration cost prohibitive, and subjected Brinkley to having to pay for Monterey's
attorney fees."
The Washington Supreme Court has "distinguished between 'procedural'
unconscionability, involving blatant unfairness in the bargaining process and a lack of
meaningful choice, and 'substantive' unconscionability, or unfairness of the terms or
results." (Torgerson v. One Lincoln Tower, LLC (2009) 166 Wn.2d 510, 518
(Togerson).) Under Washington law, an agreement may be invalidated if it is either
substantively or procedurally unconscionable. (Hill v. Garda CL NW, Inc. (2013) 179
Wn.2d 47, 55 (Hill II).6
6 Although it appears that Washington law and California law are very similar for
purposes of many of the issues raised in this appeal, this is one area in which the
substantive law of the two states differs slightly. In California, the unconscionability of a
contract term is considered with respect to both its alleged substantive and procedural
unconscionability: "Both procedural unconscionability and substantive unconscionability
must be shown, but 'they need not be present in the same degree' and are evaluated on ' "a
sliding scale." ' [Citation.] '[T]he more substantively oppressive the contract term, the
23
i. Procedural unconscionability
A. Legal standards
In Washington, procedural unconscionability refers to the lack of meaningful
choice, considering all the circumstances surrounding a transaction, including factors
such as the manner in which the contract was entered, whether each party had a
reasonable opportunity to understand the terms of the contract, and whether the important
terms were hidden in fine print. (Torgerson, supra, 166 Wn.2d at pp. 518-519.) The
Washington Supreme Court has "stressed that ' "these three factors [should] not be
applied mechanically without regard to whether in truth a meaningful choice existed." ' "
(Id. at p. 519, italics omitted.) In addition, the fact that an arbitration provision exists in a
contract of adhesion does not necessarily render such a provision procedurally
unconscionable. (Zuver v. Airtouch Communications, Inc. (2004) 153 Wn.2d 293, 304
(Zuver).)
less evidence of procedural unconscionability is required to come to the conclusion that
the term is unenforceable, and vice versa.' " (Pinnacle, supra, 55 Cal.4th at p. 247.)
Under Washington law, the existence of either substantive or procedural
unconscionability alone is sufficient to void the agreement. (Romney v. Franciscan Med.
Group (2015) 186 Wn.App. 728, 735 (Romney), citing Hill II, supra, 179 Wn.2d at p.
55.) The Romney court explained what this distinction may mean in application:
"California, unlike Washington, requires both procedural and substantive
unconscionability to overturn an arbitration agreement. Because of this, California is
more likely to find procedural unconscionability without also finding such procedure to
be egregious. In other words, procedural and substantive unconscionability need not be
present in the same degree and are considered on a sliding scale." (Romney, supra, at p.
739.)
24
B. The trial court did not abuse its discretion in
considering Monterey's evidence
Brinkley argues that the trial court erred in admitting the declarations of Lisa
Pruitt, a senior manager of client and support services at Monterey, and Chris Hughes,
Monterey's president, proffered by Monterey in response to Brinkley's declarations
regarding procedural unconscionability. Brinkley also contends that the trial court erred
in admitting the RIC, itself, in evidence, arguing that Monterey failed to properly
authenticate it.7 Finally, she contends that even if the trial court properly admitted this
evidence, the court erred in failing to hold an evidentiary hearing on these matters.
As Brinkley acknowledges, the trial court's ruling on an evidentiary objection is
reviewed for an abuse of discretion. (See State v. Thomas (2004) 150 Wn.2d 821, 869
["The admission or exclusion of evidence is in the discretion of the trial court."]; see also
People v. Waidla (2000) 22 Cal.4th 690, 717 ["Broadly speaking, an appellate court
applies the abuse of discretion standard of review to any ruling by a trial court on the
admissibility of evidence."].)
According to Brinkley, the Pruitt and Hughes declarations "appear to be based on
either (1) discussions with REIE employees or review of REIE records, or (2) speculation
7 In her reply brief, Brinkley expands her argument about the alleged lack of
authentification of the RIC, and sets it out as a separate ground for reversal of the trial
court's order compelling arbitration—i.e., that Monterey failed to properly establish the
existence of an arbitration agreement. Because Brinkley did not raise this as a separate
ground for reversal in her opening brief (and as a result, Monterey was not provided with
an opportunity to address the argument as a separate ground for reversal), we address
Brinkley's evidentiary arguments as they were initially made in her opening brief, as part
of her argument regarding the question whether the arbitration clause may not be
enforced on the ground of procedural unconscionability.
25
of what must have happened based on a general understanding of the process." Brinkley
suggests that Monterey was required to provide evidence from a representative of REIE
"or anyone else who would have had direct contact with Brinkley when she signed the
RIC contract." We conclude that the trial court did not abuse its discretion in admitting
these declarations.
Pruitt declares that in 2011, when Brinkley signed the RIC, Pruitt was the person
responsible for "responding to potential buyer inquiries related to REIE's on-line retail
installment contracts and helping potential buyers complete the e-signature process," and
that because of her former position she is "familiar with the on-line software and
application processes Ms. Brinkley was required to follow to sign the agreement at issue
here . . . ." Pruitt explained that Monterey's services to its clients, like REIE, include
"facilitating on-line applications relating to retail installment contracts associated with . . .
financing [to customers of Monterey's clients]." Pruitt's declaration established that
although Brinkley was contracting with REIE, Monterey was the entity that provided the
service by which REIE entered into contracts with customers like Brinkley. Monterey
therefore possessed first-hand knowledge of the process by which consumers would
access and sign the RIC. Pruitt established her personal knowledge of this process, and
could attest to that process without having to have had "discussions with REIE employees
or review of REIE records" and without "speculat[ing]" regarding "what must have
happened."
Further, the trial court was free to conclude that it believed that the RIC attached
to Pruitt's declaration was an accurate copy of the agreement between Brinkley and REIE.
26
"A business record is admissible as competent evidence if the custodian or other qualified
witness testifies to its identity and the mode of its preparation, and if it was made in the
regular course of business, at or near the time of the act, condition or event, and if, in the
opinion of the court, the sources of information, method and time of preparation were
such as to justify its admission." (Bavand v. Chase Home Finance LLC (2015)
(Wn.Ct.App., July 20, 2015) 2015 Wash. App. LEXIS 1569 at *7 (Bavand).) Further,
courts "interpret the statutory terms 'custodian' and 'other qualified witness' broadly."
(Ibid.) In addition, Washington statutory law "does not require examination of the person
who actually made the record. [Citation.] Testimony by one who has custody of the
record as a regular part of his work or who has supervision of its creation will be
sufficient to properly introduce the record." (State v. Iverson ( 2005) 126 Wn.App. 329,
337-338.) Pruitt's declaration in this regard was sufficient to demonstrate to the trial
court that the RIC was a true and correct copy of the agreement entered into by Brinkley
and REIE. The trial court therefore did not err by admitting Pruitt's declaration or the
attached RIC.
Because Pruitt's declaration attaches the relevant RIC entered into between
Brinkley and REIE, and also provides information regarding the process by which
consumers would access the RIC and complete the e-signature process, Hughes's
declaration, which was intended merely to provide the foundation for the admission of
evidence of the RIC between Brinkley and REIE, was rendered redundant and thus,
unnecessary. The trial court's decision not to sustain Brinkley's objections to it, however,
does not amount to an abuse of discretion, given that the trial court could have been
27
satisfied that Hughes also was aware of the manner in which Monterey's records were
kept.
We are similarly unconvinced by Brinkley's contention that the trial court should
have held an evidentiary hearing in order to resolve evidentiary conflicts that exist based
on the parties' submitted declarations. Brinkley contends that there is a "sharp[ ]" dispute
about "whether the RIC contract upon which the motion is based is the correct one." She
bases this on a statement in her declaration in which she indicates that, because she
received a copy of the signed agreement from Monterey, and not from REIE, she "ha[s]
no idea if such document is, in fact, the actual document that I electronically signed
online on August 24, 2011."
Despite this statement in Brinkley's declaration, the trial court could have
reasonably concluded that it should accord greater weight to Pruitt's declaration, to which
the RIC, including Brinkley's electronic signature, was attached, given Pruitt's testimony
regarding her role in keeping Monterey's business records pertaining to REIE's
installment contracts with customers. The court therefore had no need to hold an
evidentiary hearing to take live witness testimony, and it did not abuse its discretion in
declining to do so.
C. Application of procedural unconscionability standards
Brinkley asserts that the arbitration clause is procedurally unconscionable because
"it did not offer [Brinkley] a meaningful choice" given the manner in which the contract
was entered, and it failed to provide her with a " 'reasonable opportunity to understand
28
the terms,' " in part on the ground that the contract did not include or attach the AAA
rules that it was incorporating.
1. Brinkley did not lack a meaningful choice
Brinkley contends that she was not given "a meaningful choice" because "she
(1) was not given any opportunity to make changes to the pre-printed online agreement,
(2) was not allowed adequate time to review all of the terms or to have an attorney review
it, (3) did not have any power to negotiate the terms, (4) was informed she had to sign the
agreement in order to get financing as it was presented on a take-it-or-leave-it basis,
(5) never received a copy of the signed agreement from REIE, and (6) never received a
copy of the assignment."
Brinkley's first, third, and fourth contentions refer to the adhesive nature of the
RIC. It is true that Brinkley had no opportunity to make changes to the terms of the
agreement or negotiate price or other terms, and that her ability to obtain financing from
REIE was nonnegotiable and dependent on her entering into the RIC as offered.
However, in our view, the fact that the RIC is a contract of adhesion does not, by itself,
render it procedurally unconscionable such that the arbitration provision included in the
RIC may not be enforced. (See Zuver, supra, 153 Wn.2d at p. 304.) In Zuver, the
Washington Supreme Court held that in the context of an employment agreement, the
existence of unequal bargaining power between the parties is insufficient to demonstrate
that an arbitration provision was procedurally unconscionable, despite the employee's
contention that the "unequal bargaining power precluded her from ' "enjoying a
meaningful opportunity to negotiate and choose the terms of the contract." ' " (Id. at p.
29
305.)8 Rather, an employee "must show some evidence that the [party with the greater
bargaining power] refused to respond to her questions or concerns, placed undue pressure
on her to sign the agreement without providing her with a reasonable opportunity to
consider its terms, and/or that the terms of the agreement were set forth in such a way that
an average person could not understand them." (Id. at pp. 306-307.) We therefore
consider whether other aspects of the transaction indicate that Brinkley was not provided
any meaningful choice in the matter.
In addition to her claims regarding the adhesive nature of the agreement, Brinkley
contends that she was "not allowed adequate time to review all of the terms or to have an
attorney review it." Brinkley states in her declaration: "I was not allowed adequate time
to review all of the terms of REIE's pre-printed online agreement or meet with any
attorney or have an attorney review the agreement prior to electronically signing my
agreement with REIE."9 Notably, Brinkley does not state how much time she was
provided to review the terms of the five-page document. However, Brinkley first
submitted a credit application to REIE in order to obtain financing to purchase the real
8 Although Zuver involved an employment contract, we take guidance from the
Washington Supreme Court's analysis regarding procedural unconscionability and find it
helpful in considering Brinkley's contentions with respect to the consumer contract at
issue here.
9 Although providing an individual with time to have an attorney review a contract
would clearly suggest the absence of procedural unconscionability, it seems self-evident
that many, if not most, consumers who enter into contracts for the purchase of goods or
services do not seek out the advice of counsel prior to signing those agreements. This
factor thus adds little to our analysis as to whether the circumstances surrounding the
transaction support a finding that the arbitration provision is procedurally
unconscionable.
30
estate classes "on or about August 10, 2011." According to ordinary course of business
for REIE and Monterey with respect to these contracts, Brinkley "would have been
notified that her credit application was approved and that she could proceed with the e-
signature process" on the same day that she applied. Upon being notified of an approval
for credit, an applicant like Brinkley was provided "30 days to complete the e-signature
process," and during this time period, an applicant would be given "unfettered access to
the document on-line."
During the 30-day period after Brinkley received notification that her credit
application had been approved, "[o]n August 23, 2011, Monterey sent Ms. Brinkley a
follow up email with instructions for completing the application process".10 Brinkley
signed the document on August 24, 2011, approximately 14 days after first having access
to the RIC. We are unconvinced that a 14-day period to review a five-page document is
"inadequate," notwithstanding Brinkley's conclusory statement in her declaration that she
was "not allowed adequate time to review all of the terms of REIE's pre-printed online
agreement." In any event, Brinkley's statement regarding the adequacy of the time that
she was provided appears to be nothing more than a legal conclusion about the
sufficiency of time provided to her to review and understand the RIC, and as such it is of
little evidentiary value. (See Bavand, supra, 2015 Wash. App. LEXIS 1569 at *8-*9
10 The fact that Monterey, not REIE, sent Brinkley a "follow up email with
instructions for completing the application process" demonstrates the ties between
Monterey and its customer, REIE, and further demonstrates that Monterey was the party
that facilitated REIE's online applications for credit and its retail installment contracts.
31
[although an expert may provide testimony regarding "an ultimate issue for the trier of
fact to determine, a witness may not give legal conclusions"].)
To the extent that Brinkley suggests that she did not have a meaningful choice
with respect to the RIC on the ground that she "never received a copy of the signed
agreement from REIE," we find this contention to be without merit. The very first line of
the document states: "To print this document - right-click on your mouse and select print
from the popup menu." Brinkley was provided the opportunity to print and retain (and
review repeatedly) a copy of the RIC, with her e-signature, during this process. Given
these circumstances, and the fact that Brinkley has not suggested that she was unable to
print the document or did not have access to a printer, the fact that Brinkley was given the
opportunity to print the document in this manner is sufficient to overcome Brinkley's
contention that the RIC should be considered procedurally unconscionable because she
did not receive a signed copy of it.11
Brinkley's contention that she was not provided with a copy of the assignment of
the RIC between REIE and Monterey is of no significance for purposes of our procedural
unconscionability analysis. The RIC specifically informs consumers that the "Seller may
assign this Agreement to any third party without prior notice to you," and that "[u]pon
11 Brinkley suggests that the fact that the RIC stated that Brinkley could print a hard
copy is insufficient to "rebut Brinkley's declaration that an REIE representative told her
to sign the document and did not give[ ] [her] adequate . . . time to review it." We do not
read Brinkley's declaration as asserting that the REIE representative compelled or even
pressured Brinkley to sign the document without providing her time to review it. Further,
Brinkley had been provided the opportunity to access and review the RIC prior to her
conversation with the REIE representative.
32
any such assignment, such third party will become the holder of this agreement and your
creditor." Beyond this, the RIC even informs consumers that "Seller intends to assign
this agreement to Monterey Financial Services, [I]nc., 4095 Avenida de la Plata,
Oceanside, CA 92056 ('Monterey')," and that "[a]fter the assignment of this Agreement to
Monterey, all questions concerning the terms of this Agreement or payments should be
directed to Monterey at its address indicated above." The portion of the RIC that
included signature lines related to an assignment of the contract was specifically marked
"TERMS CONTAINED IN THIS BOX ARE NOT PART OF THE BUYER'S
AGREEMENT." In these circumstances, the fact that Brinkley was not provided a copy
of the assignment between REIE and Monterey did not affect Brinkley's ability to have a
meaningful choice with respect to entering into the RIC, nor did it in any way prejudice
her ability to understand the terms of the agreement or have a meaningful opportunity to
understand her rights and obligations.
2. The failure to attach the AAA rules does not
render the arbitration agreement
unconscionable
Brinkley contends that the arbitration agreement is procedurally unconscionable
because she was not given an opportunity to fully understand the terms of the agreement,
given that the RIC provided for arbitration to be completed in accordance with the
American Arbitration Association (AAA) rules, but failed to include or attach those rules.
It appears that Monterey concedes that neither a copy of the AAA rules nor a link
to a relevant version of the rules was attached to or included in the RIC. However, we do
not consider this to be a ground for concluding that the entire arbitration agreement is
33
procedurally unconscionable. Although it appears that Washington courts have yet to
consider this issue, as other courts have noted, the arbitration rules referenced in the RIC
were relatively easily accessible to Brinkley, given that they are available on the Internet,
and she was already online completing the e-signature process. (See Lane v. Francis
Capital Management LLC (2014) 224 Cal.App.4th 676, 691 (Lane) [failure to attach a
copy of the AAA rules did not render the agreement procedurally unconscionable given
that parties could easily access AAA rules on the Internet]; see also, Boghos v. Certain
Underwriters at Lloyd's of London (2005) 36 Cal.4th 495, 505, fn. 6 [up-to-date text of
AAA rules is available on AAA's Internet site].)
Brinkley points out that in Brown, supra, 178 Wn.2d 258, the Washington
Supreme Court applied California law and found procedural unconscionability where an
arbitration provision incorporated the AAA rules but did not provide the rules. However,
in Brown, the court's concern was not the failure of the defendant to attach the AAA rules
to the contract at issue, but, rather, the fact that there was "ambiguity concerning which
set of [AAA] rules applies," which presented "procedural surprise" to the plaintiffs.
(Brown, supra, at p. 267.) According to the court, this was a particularly problematic
issue in that case because the underlying claim involved a question whether the plaintiffs
were employees misclassified as independent contractors, and it was thus "unclear
whether the parties would arbitrate under the employment rules or commercial rules."
(Id. at pp. 267-268.) In addition, the defendant had "changed its position several times
regarding which set of AAA rules is appropriate," which further resulted in "procedural
surprise." (Id. at p. 268.)
34
This same degree of "procedural surprise" does not appear to exist under the
circumstances of this case, and we are not convinced that California courts would agree
with the Brown court's application of California law (see, e.g., Lane, supra, 224
Cal.App.4th at pp. 691-692 [no procedural unconscionability despite adhesion contract
referencing AAA rules but not including rules]; Peng v. First Republic Bank (2013) 219
Cal.App.4th 1462, 1472 ["failure to attach the AAA rules, standing alone, is insufficient
grounds to support a finding of procedural unconscionability"]; Bigler v. Harker School
(2013) 213 Cal.App.4th 727, 737 [no procedural unconscionability despite failure to
attach AAA rules, and even in earlier cases, failure to attach rules was of "minor
significance" in analysis]), or that the Washington Supreme Court would see the issue the
same way if it were to interpret Washington law in circumstances such as those before us.
ii. Substantive unconscionability
Brinkley contends that the arbitration provision is substantively unconscionable
because it (a) "imposes prohibitive costs," (b) requires arbitration to take place in San
Diego, California, which is Monterey's place of business, and (c ) "threatens Brinkley
with an award of attorney fees against her if she loses."
In contrast with procedural unconscionability, substantive unconscionability
involves cases " ' "where a clause or term in the contract is . . . one-sided or overly
harsh." ' [Citation.] However, such unfairness must truly stand out. ' " 'Shocking to the
conscience,' 'monstrously harsh,' and 'exceedingly calloused' are terms sometimes used to
define substantive unconscionability." ' " (Torgerson, supra, 166 Wn.2d at p. 519.)
35
The existence of substantive unconscionability, alone, is sufficient to support a
finding of unconscionability, such that a contract provision may not be enforced. (Adler
v. Fred Lind Manor (2004) 153 Wn.2d 331, 346-347 (Adler).)
A. Arbitration costs
Brinkley asserts that requiring her to arbitrate her claims imposes prohibitive costs
on her. It appears that Brinkley is basing this argument on the filing fees that she would
be required to pay pursuant to the AAA rules, as well as the potential costs of traveling to
San Diego, California, the venue imposed by the arbitration agreement.12 Brinkley
argues that the AAA rules would require her to pay an initial filing fee of $975 and a
"case service fee" or final fee of $300 on her individual claims, not including the
arbitrator's fees.13 She states that these "filing fees alone were more than she could
afford to pay REIE toward [the] classes" that she purchased from them. Brinkley also
posits that the choice-of-venue provision in the arbitration agreement, which requires her
to travel to San Diego, California, where Monterey is based, to engage in arbitration,
"further supports her claim that the arbitration costs [are] prohibitive."
An arbitration agreement is unconscionable "when the party opposing arbitration
reasonably shows in law or equity that prohibitive costs are likely to render the arbitral
12 As we discuss in section III.B.2.b.ii.B., post, the arbitration agreement includes a
fee and cost shifting provision that requires the arbitrator to shift all fees and costs,
including the fees charged by the arbitrator for his or her time, to the nonprevailing party.
Because of the way that Brinkley has framed her arguments, we do not consider that
provision in this section, but instead, focus on the default rules concerning the potential
costs to Brinkley of being required to arbitrate her claims.
13 The record includes the AAA rules, of which the trial court took judicial notice.
36
forum inaccessible." (Mendez v. Palm Harbor Homes, Inc. (2002) 111 Wn.App. 446,
465.) Washington has "adopted a burden-shifting analysis" for considering challenges
that an arbitration clause "effectively denies [a plaintiff] the ability to vindicate her
rights" because of prohibitive costs. (Gandee v. LDL Freedom Enters. (2013) 176 Wn.2d
598, 604 (Gandee).) The party opposing arbitration on substantive unconscionability
grounds must present evidence that arbitration would impose prohibitive costs. (Ibid.)
" '[A]n affidavit describing [the party's] personal finances as well as fee information
obtained from the American Arbitration Association[ ]' can be sufficient to meet this
burden. [Citation.] The party seeking arbitration can then present offsetting evidence as
to the likelihood of bearing those costs." (Ibid., quoting and citing Adler, supra, 153
Wn.2d at p. 353.)
The evidence that Brinkley has supplied demonstrates that her filing costs for the
arbitration may be approximately $975 plus $300, for a total of $1,275, which, she
contends, is more than she was able to "put down" as a down payment for the real estate
classes she purchased from REIE, which was $850. She also cites to her declaration, in
which she states that she is a " 'single mother of limited financial means' " who " 'did not
have the funds to pay for the coaching classes' "—classes that she signed up for in order
" 'to try to improve [her] financial condition.' " She concludes that she does " 'not have
the financial ability to afford the payment of hundreds, let alone thousands of dollars in
arbitration fees.' "
With respect to costs of travel to the site of the arbitration, unlike the plaintiff in
Gandee, supra, 176 Wn.2d at page 604, Brinkley did not submit any specific information
37
about the costs that she might have to bear if required to travel to San Diego to arbitrate
her individual claims. However, she asserts that although she "did not list the travel and
lodging costs she would have necessarily incurred for an arbitration in San Diego, that
level of proof was unnecessary when she already established she could not even afford
the filing fees and arbitrator's fees." She contends that it is essentially irrelevant that she
chose to file a class action lawsuit in San Diego because "the economics of a class action
in California, where costs are shared with other class members, quite differs from the
pursuit of an individual claim for $10,000 in statutory damages [citation] in a distant
forum."
Monterey asserts in response that, contrary to Brinkley's assertions, the AAA's
"Consumer-Related Disputes Supplementary Procedures" (Consumer Supplementary
Procedures) would limit Brinkley's costs to a $200 filing fee, and that all other costs
would be borne by Monterey, including the arbitrator's fee and the arbitrator's travel or
other expenses. Brinkley contends in reply that "the supplemental procedures d[o] not
apply, because they only deal[ ] with 'consumable goods or services,' involving products
and services for 'personal or household use.' " Brinkley does not provide any further
explanation as to why she believes the Consumer Supplementary Procedures do not apply
to her dispute with Monterey, and we have difficulty seeing how those AAA rules would
not apply in this situation.
The Consumer Supplementary Procedures included in the record before us set
forth when these rules apply to a particular dispute:
38
"The Commercial Dispute Resolution Procedures and these
Supplementary Procedures for Consumer-Related Disputes shall
apply whenever the American Arbitration Association (AAA) or its
rules are used in an agreement between a consumer and a business
where the business has a standardized, systematic application of
arbitration clauses with customers and where the terms and
conditions of the purchase of standardized, consumable goods or
services are non-negotiable or primarily non-negotiable in most or
all of its terms, conditions, features, or choices. The product or
service must be for personal or household use."
The AAA rules are used in the RIC that was entered into between Brinkley, a
consumer, and REIE, a business (which then assigned its rights and obligations under the
contract to Monterey, another business). REIE had a standardized, systematic application
of arbitration clauses with its consumers, evidenced by Brinkley's declaration in which
she states that she was not able to change the terms of the RIC, and that it was provided
to her on a take-it-or-leave-it basis. In addition, the terms and conditions of Brinkley's
purchase of the real estate classes and the financing terms were nonnegotiable, as she
further states in her declaration, given that there was no opportunity to negotiate price or
the terms of the services. The real estate classes were for Brinkley's personal use. Thus,
it appears that the Consumer Supplementary Procedures would apply to this dispute.
Further, Monterey has argued in the trial court and on appeal that the Consumer
Supplementary Procedures apply to any arbitration of the underlying dispute. Monterey
has thus made a judicial admission that the Consumer Supplementary Procedures,
including the fee provisions set forth in those procedures, apply to any arbitration of its
dispute with Brinkley; Monterey may therefore be estopped from arguing otherwise at a
later point in time. (See Westway Constr., Inc. v. Benton County (2006) 136 Wn.App.
39859, 868 ["The essence of judicial estoppel is the same [as equitable estoppel] in that the
party to be estopped must be asserting a position that is inconsistent with an earlier
position."]; see also American Title Ins. Co. v. Lacelaw Corp. (9th Cir. 1988) 861 F.2d
224, 227 [statements of fact contained in a brief may be considered admissions of the
party in court's discretion].)
Given that the Consumer Supplementary Procedures, which limit Brinkley's costs
to a $200 filing fee, apply to the arbitration of Brinkley's claims, we conclude that
Brinkley has not demonstrated that the fees associated with arbitrating her claims are so
prohibitive as to render the arbitration agreement substantively unconscionable on this
ground alone.14
B. Awarding fees and costs to the prevailing party
We are considerably more concerned with the unfairness of the RIC's fee and cost
shifting provision, which Brinkley contends is substantively unconscionable. The RIC's
arbitration agreement provides in relevant part:
"The decision by the arbitrator or arbitrators shall be final and
binding on all parties, and may be entered in any court of competent
jurisdiction for enforcement. Such a decision shall include the
payment of all fees and costs of the prevailing party. The
determination of the 'prevailing party' shall be made by the arbitrator
or arbitrators." (Italics added.)
14 Because Brinkley presented no evidence with respect to her potential travel costs,
we are unable to consider those costs, relative to her potential recovery on her claims, to
assess whether the choice-of-venue provision in the arbitration agreement turns an
otherwise not-unconscionable arbitration provision into an unconscionably cost-
prohibitive provision.
40
This provision essentially undermines the fee provisions in the Consumer
Supplementary Procedures discussed above, since the arbitration agreement requires an
arbitrator to award a prevailing party "all [of that party's] fees and costs." This provision
thus thwarts a consumer claimant's right under the Consumer Supplementary Procedures
to have the business bear all of the costs of arbitration with the exception of a limited
filing fee, in that under the RIC, if a consumer fails to prevail, he or she will be liable for
all of those fees (which includes any additional filing or administrative fees, plus the
arbitrator's fees and costs).
Potentially even more costly to Brinkley, and more troubling for purposes of our
unconscionability analysis, is that this provision appears to shift to the nonprevailing
party the prevailing party's attorney fees, in addition to the costs associated with the
arbitration. Although Monterey suggests that Brinkley merely "speculates that the
language of the RIC Contract could allow the arbitrator to award Monterey attorneys' fees
if it prevails," our reading of the provision is the same as Brinkley's. The arbitration
agreement requires the nonprevailing party to pay "all fees and costs of the prevailing
party." (Italics added.) The most reasonable understanding of that phrase is that the
nonprevailing party will be required to pay any and all of the fees and costs incurred by
the prevailing party in arbitrating the matter before the arbitrator, which would include
the attorney fees incurred by that party.
The Washington Supreme Court has concluded that a similar fee and cost shifting
provision was substantively unconscionable. In Gandee, supra, 176 Wn.2d at pages 602,
605 to 606, the relevant fee-shifting provision was as follows: "The prevailing party in
41
any action or proceeding related to this Agreement shall be entitled to recover reasonable
legal fees and costs, including attorney's fees which may be incurred." (Id. at p. 602.)
The plaintiff in Gandee argued that the " 'loser pays' provision" was "one-sided and harsh
because if she prevails she is already entitled to costs and fees under the [Consumer
Protection Act] but is forced to bear the risk of a negative outcome, despite the
legislature's intent to encourage consumers to vindicate their rights" by not allowing
prevailing defendants to obtain their costs and fees under the relevant statute. (Id. at p.
605.)
The Gandee court agreed, stating: "Because the 'loser pays' provision serves to
benefit only [the defendant] and, contrary to the legislature's intent, effectively chills [the
plaintiff]'s ability to bring suit under the [Consumer Protection Act], it is one-sided and
overly harsh. Therefore, we hold it to be substantively unconscionable." (Gandee,
supra, 176 Wn.2d at p. 606, italics added.) Similar fee-shifting provisions have been
determined to be substantively unconscionable because they are, effectively, one-sided in
favor of defendants, such that a plaintiff's ability to vindicate his or her rights is
undermined. (See Adler, supra, 153 Wn.2d at pp. 354-355 [clause requiring each party to
bear his or her own costs and fees was substantively unconscionable in context of a fee-
shifting statute], and Walters v. A.A.A. Waterproofing (2009) 151 Wn.App. 316 ["loser
pays" provision substantively unconscionable because one-sided and harsh, and therefore
unenforceable].)
The fee and cost shifting provision in the RIC effectively undermines a plaintiff's
statutory right to bring an action and collect attorney fees if he or she prevails, without
42
having to bear the corresponding risk of having to pay the defendant's fees if he or she
does not prevail. Washington statutory law provides that the person injured by a privacy
violation is entitled to an award of attorney fees if he or she is the prevailing party, with
no reciprocal provision for a prevailing defendant. (See Rev. Code Wash., § 9.73.060
["A person so injured shall be entitled to . . . a reasonable attorney's fee and other costs of
litigation."].) By undermining an injured plaintiff's right to attorney fees without the
plaintiff having to bear a concomitant risk of paying attorney fees, the fee and cost
shifting provision in the arbitration agreement benefits " 'the party with a substantially
stronger bargaining position and more resources.' " (Adler, supra, 153 Wn.2d at p. 355.)
We therefore conclude that the arbitration agreement's fee and cost shifting provision is
substantively unconscionable.
C. Severability of unconscionable provision
Given our conclusion that the fee and cost shifting provision is substantively
unconscionable, we are next tasked with deciding how to address the unconscionability.
Monterey argues that if this court concludes that any of the terms of the arbitration
provision are deemed unconscionable, the appropriate remedy is to sever that term.
Brinkley argues that severance of any particular term would be inappropriate because,
she contends, severance would require the court to rewrite the parties' agreement, the
unconscionability pervades the entire arbitration agreement, and the "illegal clauses
operate in concert to eliminate any realistic possibility of relief for consumers."
Under Washington law, "[s]everance is the usual remedy for substantively
unconscionable terms, but where such terms 'pervade' an arbitration agreement,
43
[Washington courts] 'refuse to sever those provisions and declare the entire agreement
void.' " (Gandee, supra, 176 Wn.2d at p. 603.) The Gandee court had to consider
whether three unconscionable provisions in an arbitration clause were severable, or,
rather, whether the entire arbitration provision was invalid as a result of the
unconscionability. (Id. at p. 607.) In applying the relevant rules, the Gandee court
explained that the arbitration clause was relatively short, in that it was a "four-sentence
arbitration clause," (ibid.) and that it contained "three unconscionable provisions." (Ibid.)
The court concluded:
"Severing all three provisions would significantly alter both the tone
of the arbitration clause and the nature of the arbitration
contemplated by the clause. The location, fee structure, and timing
of the arbitration would be changed. Little would be left of the
arbitration 'agreed' to by the parties. On these facts, the
unconscionable terms pervade the entire clause and severing three
out of four provisions would require essentially a rewriting of the
arbitration agreement. Thus, the arbitration clause cannot be severed
from the overall contract." (Ibid.)
Here, in contrast, we have found one unconscionable provision: the fee and cost
shifting provision. That provision essentially consists of a single sentence: "Such a
decision shall include the payment of all fees and costs of the prevailing party." Contrary
to Brinkley's contention, unconscionability does not permeate the arbitration agreement,
but, rather, is found only in this single sentence. The offending sentence can readily be
removed from the arbitration agreement without further upsetting the terms of that
agreement and without requiring us to rewrite the parties' agreement. We conclude that
severing the fee and cost shifting provision is the most reasonable course of action in
these circumstances. We therefore sever this language from the RIC. The contract may
44
not be enforced to the extent that it requires an arbitrator to award "all fees and costs of
the prevailing party" to that party.
3. The putative class claims
Brinkley contends that even if the trial court was correct in granting Monterey's
motion to compel arbitration, the court nevertheless erred in dismissing the putative class
claims, rather than ordering the entire matter to arbitration and allowing the arbitrator to
decide whether the parties' arbitration agreement permits class claims.15
The arbitration agreement does not expressly state whether class or representative
claims may be arbitrated. Although the parties disagree as to the meaning of this silence,
and as to whether Brinkley may pursue class arbitration under this arbitration agreement,
there is a threshold question regarding whether the determination as to the availability of
class arbitration is to be decided by the court or the arbitrator. The parties disagree as to
the answer to the question of who decides whether the arbitration agreement allows for
class arbitration.
Brinkley asserts that the parties' decision to rely on the AAA rules for arbitration,
which includes a provision that the arbitrator is to decide whether the arbitration
agreement permits class and/or representative arbitration, constitutes clear and
unmistakable evidence that the parties intended to delegate this question to the arbitrator.
Monterey contends that the question whether class arbitration is available under this
arbitration agreement is to be decided as a gateway matter by the court, relying on
15 Brinkley has not asserted a representative cause of action pursuant to the Private
Attorney General Act.
45
Garden Fresh Restaurant Corp. v. Superior Court (2014) 231 Cal.App.4th 678 (Garden
Fresh). Monterey asserts that Garden Fresh "specifically addressed the narrow issue of
whether the trial court or the arbitrator should decide the arbitrability of class claims, and
held that classwide arbitrability is a question to be determined by the trial court in the
first instance."
Arbitrators derive their powers from the parties' voluntary submission of disputes
for resolution in a nonjudicial forum. The primary purpose of the FAA is to ensure that
agreements to arbitrate are enforced according to their terms, and arbitration agreements
are construed to give effect to the parties' contractual rights and expectations. (Stolt-
Nielsen, supra, 559 U.S. at p. 682.) The parties may agree to limit the issues that they
choose to arbitrate, may agree on rules under which an arbitration will proceed, and "may
specify with whom they choose to arbitrate their disputes." (Id. at p. 683, italics omitted.)
Thus, arbitration, as a matter of contract between the parties, is a way to resolve only
those disputes that the parties have agreed to submit to arbitration. (Kaplan, supra, 514
U.S. 938.)
It follows, therefore, that an arbitrator has the power to decide an issue only if the
parties have authorized the arbitrator to do so. The parties here dispute whether the terms
of the RIC authorize the arbitrator, rather than a court, to decide whether class arbitration
is available. We now turn to that question.
The initial reference to the AAA rules in the parties' arbitration agreement appears
in the first sentence of the arbitration provision:
46
"By signing this Agreement, you agree that, except as provided
below, any claim or dispute arising out of or in any way related to
this Agreement . . . shall be resolved by binding arbitration in
accordance with the rules of the American Arbitration Association."
(Italics added.)
The question here is: Does the parties' delegation of "any claim or dispute arising
out of or in any way related to" the RIC to arbitration, to be resolved by the arbitrator "in
accordance with the rules of the American Arbitration Association," constitute a
delegation to the arbitrator of the question whether the arbitration agreement permits
class arbitration?
The only reference the parties make to Washington law on this point is to Hill v.
Garda CL NW, Inc. (Wn.Ct.App. 2012) 169 Wn.App. 685 (Hill I), reversed on other
grounds in Hill II, supra, 179 Wn.2d at p. 50.16
16 Given the parties' agreement to apply Washington law to the interpretation of the
RIC, we conclude that Garden Fresh, supra, 231 Cal.App.4th 678, as relied on by
Monterey, is not precedential authority in this matter. We also question the applicability
of Garden Fresh to the facts of this case. The question at issue in Garden Fresh was:
"Who decides whether an agreement to arbitrate disputes between the parties to the
agreement authorizes class and/or representative arbitration when the contract is silent on
the matter—the arbitrator or the court?" (Id. at p. 684, italics added.) In Garden Fresh,
the parties agreed that the arbitration agreement was silent as to whether the arbitrator or
the court was to decide the question whether class arbitration was available. Garden
Fresh's analysis provides a "default" rule applicable when the parties have not agreed in
the contract itself whether a court or an arbitrator is to decide the question of class
arbitrability. In this case, Brinkley asserts that the arbitration provision is not silent on
the question of who decides this significant issue, and that by incorporating by reference
the rules of the AAA, the arbitration agreement in fact delegates the determination of this
issue to the arbitrator. In other words, the parties here do not agree that the arbitration
agreement is silent as to the question of who decides the availability of class arbitration,
and this court must determine whether the parties have specifically contracted to have an
arbitrator determine this issue.
47
Monterey argues that the appellate court opinion in Hill I, supra, 169 Wn.App.
685 "[c]onfirms" that where, as Monterey argues is the case here, "there is no evidence
that could possibly establish an implied agreement to arbitrate class claims, the law
precludes compelling class arbitration."
Putting aside the question whether Hill I, supra, 169 Wn.App. 685 continues to
have precedential value (or what the extent of that precedential value may be) after the
Washington Supreme Court reversed that opinion and determined that the appellate court
erred in not concluding that the entire arbitration agreement at issue was unconscionable
(Hill II, supra, 179 Wn.2d at p. 50), we conclude that Hill I is of little assistance with
respect to this case, for the same reason that we question the applicability of Garden
Fresh to the questions raised by the arbitration clause at issue in this case.
In Hill I, the appellate court determined that the defendant "did not waive
arbitration and that the parties unequivocally agreed to arbitrate the current disputes," and
then agreed with the defendant's contention that the trial court had erred in compelling
class arbitration, albeit on a ground different from the ground asserted by the defendant.
(Hill I, supra, 169 Wn.App. at p. 697.) The defendant argued that "only an arbitrator
may decide whether an agreement permits arbitration on a class-wide basis." (Ibid.) The
Hill I court agreed with the defendant that the trial court had erred in ordering class
arbitration, but, despite the defendant's contention that the question was one for the
arbitrator to answer, the Hill I court "reach[ed] this conclusion [i.e., that class arbitration
was unavailable to the plaintiff] without deciding whether the arbitrator or the court
should decide the availability of class arbitration." (Ibid.)
48
As described by the Hill I court, the arbitration provision at issue in that case
"required [defendant's] employees to grieve and arbitrate 'any claim under any federal,
state, or local law . . . related to the employment relationship.' " (Hill I, supra, 169
Wn.App. at p. 688.) Significantly, the arbitration provision did not require arbitration of
any dispute or claim related to the contract itself, but, rather, claims related to the
" 'employment relationship.' " Given the significant difference between this contractual
language and the language in the RIC's arbitration provision at issue here, we find Hill I
inapplicable to our analysis.17
The question we believe we must address before reaching any conclusions
regarding the propriety of class arbitration under the parties' agreement is: Did the
parties delegate to an arbitrator the question whether the agreement allows for class
arbitration by specifically referencing the AAA rules and stating that "any claim or
dispute arising out of or in any way related to this Agreement" is to be arbitrated?18
17 Given the language of the arbitration provision in Hill I, it appears that the
arbitration agreement at issue in Hill I was similar to the arbitration agreement at issue in
Garden Fresh, in that the arbitration agreement was silent as to the delegation of the
determination of the class arbitration question.
18 We question whether the Washington Supreme Court would agree with the Hill I
court's analytical framework of deciding the merits of a question before deciding whether
the parties agreed to have an arbitrator decide the merits of that question if the Supreme
Court was provided the opportunity to address this issue. The Hill I court concluded, "As
in Stolt-Nielsen, only one possible outcome exists under the facts of this case; therefore,
we do not remand to either the court or the arbitrator for determination of whether the
arbitration agreement allows class arbitration. As a matter of law, the trial court could
not compel class arbitration. We remand for individual arbitration." (Hill I, supra, 169
Wn.App. at p. 699.) However, if the contract clearly and unmistakably delegates the
question whether the contract allowed for class arbitration to an arbitrator to decide, then
even if "only one possible outcome exists" for answering that question, the parties have
49
In the absence of any Washington authority relevant to answering this question,
we consider general rules of contract interpretation and federal authorities regarding the
interpretation of arbitration provisions, since the "FAA simply requires courts to enforce
arbitration contracts like any other contract." (Satomi Owners Ass'n v. Satomi, LLC
(2009) 167 Wn.2d 781, 822.) As we have already explained, commercial arbitration
agreements, like other contracts, must be enforced according to the intentions of the
parties, as evidenced by their terms. (See Concepcion, supra, 563 U.S. at p. 1745 [under
FAA, "courts must place arbitration agreements on an equal footing with other contracts
[citation] and enforce them according to their terms"].)
Washington, like California, permits parties to incorporate by a reference the
terms of another document into a contract. (Washington State Major League Baseball
Stadium Pub. Facilities Dist. v. Huber, Hunt & Nichols-Kiewit Constr. Co. (2013) 176
contracted to have the arbitrator, not a court, ultimately state that "one possible
outcome." By taking that determination away from the arbitrator, the appellate court
failed to give effect to the parties' expressed contractual intentions. Thus, it seems
apparent that where the parties dispute whether an issue is for a court or an arbitrator to
decide, a court should, as a matter of regular course, first determine whether it is
appropriate for the court to make a determination as to a particular issue raised by an
arbitration clause, or whether the parties have delegated the determination of that issue to
the arbitrator. Only after satisfactorily determining that that issue is one for the court to
decide (either because the parties delegated that issue to the court, or because the parties
were silent on the matter and the issue is considered a "gateway" dispute that is
presumptively for the court to decide (see Howsam v. Dean Witter Reynolds, Inc. (2002)
537 U.S. 79, 83)), should a court proceed to decide the merits of a particular issue.
50
Wn.2d 502, 517 ["In general, '[i]f the parties to a contract clearly and unequivocally
incorporate by reference into their contract some other document, that document becomes
part of their contract.' "]; Williams Constr. Co. v. Standard-Pacific Corp. (1967) 254
Cal.App.2d 442, 454 [Under California law, " 'the parties may incorporate by reference
into their contract the terms of some other document. . . . For the terms of another
document to be incorporated into the document executed by the parties the reference
must be clear and unequivocal, the reference must be called to the attention of the other
party and he must consent thereto, and the terms of the incorporated document must be
known or easily available to the contracting parties.' "].)
The RIC provides that disputes "shall be resolved by binding arbitration in
accordance with the rules of the [AAA]." Monterey, which was assigned REIE's rights
under the RIC, does not dispute that the RIC incorporates by reference the AAA rules.
By incorporating the AAA rules, the RIC also incorporated the "Supplementary
Rules for Class Arbitration" (Supplementary Class Arbitration Rules) effective October
8, 2003.19 The Supplementary Class Arbitration Rules provide, in relevant part: "Upon
19 The Supplementary Class Arbitration Rules make clear that they apply whenever
the AAA rules are referenced: "These Supplementary Rules for Class Arbitrations
('Supplementary Rules') shall apply to any dispute arising out of an agreement that
provides for arbitration pursuant to any of the rules of the [AAA] where a party submits a
dispute to arbitration on behalf of or against a class or purported class, and shall
supplement any other applicable AAA rules. These Supplementary Rules shall also
apply whenever a court refers a matter pleaded as a class action to the AAA for
administration, or when a party to a pending AAA arbitration asserts new claims on
behalf of or against a class or purported class."
51
appointment, the arbitrator shall determine as a threshold matter, in a reasoned, partial
final award on the construction of the arbitration clause, whether the applicable
arbitration clause permits the arbitration to proceed on behalf of or against a class (the
'Clause Construction Award')." (Italics added.)
When Brinkley signed the RIC, she agreed to the application of the AAA rules to
any arbitration of her claims, including the AAA rule that the arbitrator is to decide the
gateway issue of whether class arbitration is permissible under the parties' agreement.
That rule is thus part of the RIC.20 In our view, an agreement that incorporates by
reference terms that address the question at issue, such as the agreements' incorporation
of the AAA rules in the instant case, is not silent regarding the delegation of arbitrable
20 In addition, the terms of the RIC make clear that the AAA rules would cover such
an issue, even if there was not a specific rule granting the arbitrator the authority to
decide the question of the availability of class arbitration so expressly. The RIC's
reference to "any claim or dispute" that "aris[es] out of" the RIC would necessarily
include a dispute as to whether class arbitration is permitted under the RIC. As we have
already explained, the phrase "arising out of" is intended to encompass all disputes
related to the interpretation and performance of the RIC: A "dispute arise[s] out of" an
agreement when the claim or dispute relates to the interpretation and performance of the
contract itself. (See Tracer, supra, 42 F.3d at 1295 ["an arbitration clause that covers
disputes 'arising under' an agreement . . . covered only those disputes 'relating to the
interpretation and performance of the contract itself' "]; Mediterranean Enterprises, Inc.
v. Ssangyong Corp. (9th Cir. 1983) 708 F.2d 1458, 1464 ["when an arbitration clause
'refers to disputes or controversies "under" or "arising out of" the contract,' arbitration is
restricted to 'disputes and controversies relating to the interpretation of the contract and
matters of performance' "].) Therefore, whether the arbitration provision permits class
arbitration (or whether the parties' intended to permit class arbitration under the contract)
is necessarily a matter relating to the interpretation of the contract. Pursuant to the
language of the RIC, a question that requires interpretation of the contract "shall be
resolved by binding arbitration in accordance with the rules of the [AAA]."
52
issues to the arbitrator. The parties' agreement to arbitrate their disputes under a
specifically designated set of rules, which in turn provide that the arbitrator shall decide
whether the parties' arbitration agreement permits class arbitration, is "clear and
unmistakable" evidence that the parties intended to delegate the resolution of that
question to the arbitrator.
Our conclusion is not novel. Courts in the Ninth Circuit and other circuits have
adopted an analysis similar to ours. (See Zenelaj v. Handybook, Inc. (ND Cal. 2015) 82
F.Supp.3d 968, 972 [although the question whether the incorporation of the AAA rules
demonstrates " 'clear and unmistakable' evidence of the parties' intent to arbitrate
arbitrability" is not clearly settled in the Ninth Circuit, "the overwhelming consensus of
other circuits, as well as the vast majority of decisions in this district, support Defendant's
claim that, in the context of this case, incorporation of the AAA Rules effectively
delegates jurisdictional questions, including arbitrability and validity, to the arbitrator"].)
In light of our conclusion that the availability of class arbitration is a matter for the
arbitrator to decide, we reverse that portion of the trial court's order compelling Brinkley
to arbitrate her individual, but not class, claims. We also reverse the court's order
dismissing Brinkley's class claims. The entire matter should be sent to arbitration. The
arbitrator shall determine whether Brinkley may continue to pursue relief on behalf of a
class in arbitration.
53
IV.
DISPOSITION
The arbitration provision is enforceable with the exception of that portion of the
provision that states, "Such a decision shall include the payment of all fees and costs of
the prevailing party." That term is severed from the remainder of the contract because it
is substantively unconscionable and may not be enforced.
The trial court's order compelling Brinkley to arbitrate her individual claims is
affirmed to the extent that it orders Brinkley to pursue her claims in arbitration.
However, it is reversed to the extent that it compels Brinkley to arbitrate her individual,
but not class, claims. Further, that portion of the trial court's order dismissing Brinkley's
class claims is reversed.
On remand, the trial court shall enter an order compelling the parties to arbitrate
Brinkley's claims as framed in the complaint. The parties are to bear their own costs on
appeal.
AARON, J.
WE CONCUR:
McINTYRE, Acting P. J.
O'ROURKE, J.
54