Network Capital Funding Corp. v. Papke ( 2014 )

Filed 10/9/14
CERTIFIED FOR PUBLICATION
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
FOURTH APPELLATE DISTRICT
DIVISION THREE
NETWORK CAPITAL FUNDING
CORPORATION,
G049172
Plaintiff and Respondent,
(Super. Ct. No. 30-2013-00659735)
v.
OPINION
ERIK PAPKE,
Defendant and Appellant.
Appeal from an order of the Superior Court of Orange County, Geoffrey T.
Glass, Judge. Affirmed.
Righetti Glugoski, Matthew Righetti and John Glugoski for Defendant and
Appellant.
Fisher & Phillips, Lonnie D. Giamela and Jimmie E. Johnson for Plaintiff
and Respondent.
* * *
Plaintiff and respondent Network Capital Funding Corporation (Network
Capital) filed a declaratory relief action alleging its arbitration agreement with defendant
and appellant Erik Papke required Papke to arbitrate his wage and hour claims on an
individual basis rather than the classwide basis he sought in his pending arbitration
proceeding. Papke petitioned the trial court for an order compelling Network Capital to
submit its declaratory relief claims to arbitration. According to Papke, the broad
language in the parties’ arbitration agreement required the arbitrator, not the court, to
decide whether the agreement authorized class arbitration. The trial court denied Papke’s
petition, concluding it must decide whether the arbitration agreement authorized class
arbitration, and in doing so found this particular agreement did not allow class arbitration.
Papke challenges both these conclusions on appeal.
As explained below, we agree with the trial court. Deciding whether the
parties’ arbitration agreement authorizes class arbitration does not simply determine what
arbitration procedures the parties agreed to use, but rather whose claims the parties
agreed to arbitrate. Supreme Court precedent requires courts to decide whose claims are
covered by an arbitration agreement unless the parties clearly and unmistakably agree to
have the arbitrator decide that question. Because Papke’s and Network Capital’s
arbitration agreement does not clearly and unmistakably designate the arbitrator to
determine whether the agreement authorizes class arbitration, we conclude the trial court
properly decided that question.
We also conclude the trial court properly determined Papke’s and Network
Capital’s arbitration agreement does not authorize class arbitration. The Supreme Court
has held a party may not be compelled to submit to class arbitration absent a contractual
basis for concluding the party agreed to class arbitration; a mere agreement to submit all
claims to arbitration is not sufficient. Here, the parties’ arbitration agreement shows they
did not agree to class arbitration. The agreement’s broad terms requiring the parties to
submit all claims, disputes, and controversies to arbitration, with only a few limited and
2
inapplicable exceptions, fall short of demonstrating a clear agreement to arbitrate class
claims.
I
FACTS AND PROCEDURAL HISTORY
In October 2011, Network Capital hired Papke as an employee. Papke
signed the “Employment Acknowledgment and Agreement” (Arbitration Agreement),
which required the parties to “utilize binding arbitration to resolve all disputes that may
arise out of or be related to [his] employment in any way.” The Arbitration Agreement
further states, “Both the Company and I agree that any claim, dispute, and/or controversy
that either I may have against the Company . . . , or the Company may have against me,
shall be submitted to and determined exclusively by binding arbitration under the Federal
Arbitration Act . . . . Included within the scope of this Agreement are all disputes,
whether based on tort, contract, statute . . . , equitable law, or otherwise. The only
exception to the requirement of binding arbitration shall be for claims arising under the
National Labor Relations Act which are brought before the National Labor Relations
Board, claims for medical and disability benefits under the California Workers’
Compensation Act, Employment Development Department Claims, or as may otherwise
be required by state or federal law. . . .”
In June 2013, Papke initiated arbitration proceedings against Network
Capital by serving a demand for class arbitration. On behalf of all similarly situated
current and former employees of Network Capital, Papke’s demand alleged wage and
hour claims under the Labor Code and the Unfair Competition Law (Bus. & Prof. Code,
§ 17200 et seq.). Papke later served an amended class arbitration demand adding a
representative claim under the Labor Code Private Attorneys General Act of 2004
(Lab. Code, § 2698).
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After receiving Papke’s demand, Network Capital told him the Arbitration
Agreement did not authorize class arbitration. Network Capital also insisted the trial
court must resolve any disagreement over the availability of class arbitration, not the
arbitrator. Papke disagreed, arguing the Arbitration Agreement’s broad language
required the arbitrator to decide all claims, disputes, and controversies between the
parties, including whether the Arbitration Agreement authorized class arbitration.
Based on this disagreement, Network Capital sought a judicial declaration
that (1) it is the court’s responsibility to decide whether the Arbitration Agreement
authorized class arbitration, and (2) the Arbitration Agreement prohibited class
arbitration. In August 2013, Network Capital sought a preliminary injunction enjoining
Papke from seeking any class or representative relief in the pending arbitration
proceedings. Papke opposed that motion, demurred to Network Capital’s complaint, and
petitioned for an order compelling Network Capital to submit their dispute to the
arbitrator for resolution.
The trial court heard all three motions at the same time and took the matters
under submission. A few days later, the court granted Network Capital the requested
preliminary injunction, denied Papke’s petition to compel arbitration, and overruled
Papke’s demurrer. The court explained, “the issue of whether the agreement requires
arbitration of class actions is one for the court and the court determines that the
agreement allows for the arbitration of Mr. Papke’s personal claims, but does not address
Mr. Papke asserting the claims of others, including class members.” Papke now appeals.
II
DISCUSSION
The ultimate issue in this case is whether the parties’ Arbitration
Agreement allows Papke to pursue class and representative claims in arbitration, or
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requires him to arbitrate his claims on an individual basis only (sometimes, Class
Arbitration Question). Before we reach that issue, however, we first must determine who
decides that question (sometimes, Who Should Decide Question). If it is the arbitrator,
we must reverse and remand for the arbitrator to decide the Class Arbitration Question in
the first instance. If it is the trial court, only then do we review whether the court
properly determined the Arbitration Agreement did not authorize class arbitration.
A. Standard of Review and Governing Law
“‘There is no uniform standard of review for evaluating an order denying a
motion to compel arbitration. [Citation.] If the court’s order is based on a decision of
fact, then we adopt a substantial evidence standard. [Citations.] Alternatively, if the
court’s denial rests solely on a decision of law, then a de novo standard of review is
employed. [Citations.]’ [Citation.]” (Avery v. Integrated Healthcare Holdings, Inc.
(2013) 218 Cal.App.4th 50, 60.) Interpreting a written arbitration agreement is a question
of law subject to de novo review when the parties offer no conflicting extrinsic evidence
on the document’s meaning. (Ibid.) Because the parties offered no extrinsic evidence on
the meaning of the Arbitration Agreement, we review the trial court’s ruling under the
de novo standard.
The parties agree the Federal Arbitration Act (9 U.S.C. § 1 et. seq.; FAA)
governs the Arbitration Agreement, which expressly states the parties agree to “binding
arbitration under the Federal Arbitration Act.” (Rodriguez v. American Technologies,
Inc. (2006) 136 Cal.App.4th 1110, 1121-1122 [arbitration governed by FAA, not
California law, when arbitration provision states parties shall arbitrate their dispute
“‘pursuant to the FAA’”].)
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B. The Trial Court Properly Determined It Must Decide the Class Arbitration
Question
1. Who Decides the Class Arbitration Question Turns On Whether It Presents
an Arbitrability or Procedural Issue
Our analytical starting point is the premise that “[a]rbitration . . . is a matter
of consent, not coercion.” (Volt Information Sciences, Inc. v. Board of Trustees of Leland
Stanford Junior University (1989) 489 U.S. 468, 479; see Howsam v. Dean Witter
Reynolds, Inc. (2002) 537 U.S. 79, 83 (Howsam) [“‘arbitration is a matter of contract’”].)
Arbitrators have authority to decide disputes only because the parties agreed in advance
to submit their disputes to arbitration. (Stolt-Nielsen S.A. v. AnimalFeeds International
Corp. (2010) 559 U.S. 662, 683 (Stolt-Nielsen); AT&T Technologies, Inc. v.
Communications Workers of America (1986) 475 U.S. 643, 648-649
(AT&T Technologies).)
Arbitration’s consensual nature allows the parties to structure their
arbitration agreements as they see fit. They may limit the issues to be arbitrated, specify
the rules and procedures under which they will arbitrate, designate who will serve as their
arbitrator(s), and limit with whom they will arbitrate. (Stolt-Nielsen, supra, 559 U.S. at
p. 683; AT&T Mobility LLC v. Concepcion (2011) 563 U.S. ___ [131 S.Ct. 1740,
1748-1749] (AT&T Mobility).) Arbitration’s consensual nature also means “a party can
be forced to arbitrate only those issues it specifically has agreed to submit to arbitration.”
(First Options of Chicago, Inc. v. Kaplan (1995) 514 U.S. 938, 945 (First Options);
Howsam, supra, 537 U.S. at p. 83.)
In the absence of a “‘clear[] and unmistakabl[e]’” agreement to the
contrary, it is presumed the parties to an arbitration agreement intended the court, rather
than the arbitrator, to decide whether they agreed to submit a particular dispute to
arbitration. (Howsam, supra, 537 U.S. at p. 83; First Options, supra, 514 U.S. at
pp. 944-945; AT&T Technologies, supra, 475 U.S. at p. 649.) These “question[s] of
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arbitrability” include whether the parties entered into a valid arbitration agreement and
whether a concededly binding arbitration agreement applies to a particular dispute.
(Ibid.)
The United States Supreme Court explained the rationale for this
presumption as follows: “[The] question . . . ‘who (primarily) should decide arbitrability’
. . . is rather arcane. A party often might not focus upon that question or upon the
significance of having arbitrators decide the scope of their own powers. [Citations.]
And, given the principle that a party can be forced to arbitrate only those issues it
specifically has agreed to submit to arbitration, one can understand why courts might
hesitate to interpret silence or ambiguity on the ‘who should decide arbitrability’ point as
giving the arbitrators that power, for doing so might too often force unwilling parties to
arbitrate a matter they reasonably would have thought a judge, not an arbitrator, would
decide. [Citations.]” (First Option, supra, 514 U.S. at p. 945.)
Questions of arbitrability that are presumptively for courts to decide are
limited to a narrow range of gateway issues that “contracting parties would likely have
expected a court to have decided . . . .” (Howsam, supra, 537 U.S. at p. 83.) Courts do
not find a question of arbitrability “in other kinds of general circumstances where parties
would likely expect that an arbitrator would decide the [question]. Thus, ‘“procedural”
questions which grow out of the dispute and bear on its final disposition’ are
presumptively not for the judge, but for an arbitrator to decide. [Citation.] So, too, the
presumption is that the arbitrator should decide ‘allegation[s] of waiver, delay, or a like
defense to arbitrability.’ [Citation.]” (Id. at p. 84, original italics.)
Here, the Arbitration Agreement’s express terms do not mention class
arbitration nor do they submit arbitrability questions to the arbitrator for resolution.
Instead, the Arbitration Agreement simply requires Papke and Network Capital to
arbitrate “any claim, dispute, and/or controversy” they have with one another, except for
a few specialized claims not applicable here. This ambiguous language is not a clear and
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unmistakable statement Papke and Network Capital intended the arbitrator to decide
whether they agreed to class arbitration. (Opalinski v. Robert Half Intern., Inc.
(3rd Cir. 2014) 761 F.3d 326, 335 (Opalinski) [“express contractual language
unambiguously delegating the question of arbitrability to the arbitrator” is required to
overcome the presumption courts decide arbitrability questions; “[s]ilence or ambiguous
contractual language is insufficient to rebut the presumption”].) Accordingly, who
decides the Class Arbitration Question turns on the nature of that question. In other
words, is the issue a question of arbitrability for the court or a question of procedure for
the arbitrator?
Seeking to reverse the presumption favoring court resolution, Papke
contends we must resolve all doubts about arbitrability in favor of arbitration, and
therefore any question concerning whether he and Network Capital agreed to class
arbitration must be submitted to the arbitrator for resolution. We find this contention
unpersuasive because Papke conflates the Who Should Decide Question with the Class
Arbitration Question. The FAA’s strong policy in favor of enforcing arbitration
agreements according to their terms generally requires any doubt concerning the
arbitrability of a dispute to be resolved in favor of arbitration, but that presumption only
applies to whether a particular dispute is covered by an arbitration agreement, that is, to
arbitrability questions. (Howsam, supra, 537 U.S. at p. 83; First Options, supra,514 U.S. at pp. 944-945; AT&T Technologies, supra, 475 U.S. at p. 650; Moses H. Cone
Memorial Hosp. v. Mercury Const. Corp. (1983) 460 U.S. 1, 24-25 (Moses).) That
presumption does not apply to the threshold question of who decides whether a particular
dispute is covered by an arbitration agreement. (First Options, at pp. 944-945.) As
explained above, the Supreme Court has held the presumption on the Who Should Decide
Question runs in favor of courts: absent a clear and unmistakable agreement to the
contrary, it is presumed the parties intended courts, not arbitrators, to decide whether the
8
parties agreed to submit a particular dispute to arbitration. (Ibid.; see Howsam, supra,537 U.S. at p. 83; AT&T Technologies, supra, 475 U.S. at p. 649.)
2. The Class Arbitration Question is a Question of Arbitrability for the Court
The United States Supreme Court first addressed whether the Class
Arbitration Question is a procedural or arbitrability question in Green Tree Financial
Corp. v. Bazzle (2003) 539 U.S. 444 (plur. opn. of Breyer, J.) (Bazzle). There, four
justices concluded whether the parties’ agreement prohibited class arbitration was a
procedural question for the arbitrators because it concerned the procedures to be used in
arbitrating the parties’ dispute, not whether they agreed to arbitration or whether their
agreement applied to the underlying dispute. (Id. at pp. 452-453.) As a plurality opinion
by less than a majority of the Court, however, Bazzle is not binding precedent. Indeed,
two later Supreme Court cases emphasize, “this Court has not yet decided whether the
availability of class arbitration is a question of arbitrability” because Bazzle was a
plurality opinion. (Oxford Health Plans LLC v. Sutter (2013) 569 U.S. ___, ___, fn. 2
[133 S.Ct. 2064, 2068, fn. 2] (Oxford); see Stolt-Nielsen, supra, 559 U.S. at p. 680.)
Although they unmistakably declared Bazzle is not binding precedent,
neither Oxford nor Stolt-Nielsen resolved the Who Should Decide Question because the
parties in both cases agreed to have the arbitrator decide the Class Arbitration Question,
and therefore the Who Should Decide Question was not before the Court. (Oxford,
supra, 133 S.Ct. at p. 2068, fn. 2; Stolt-Nielsen, supra, 559 U.S. at p. 680.) Oxford and
Stolt-Nielsen nonetheless establish Bazzle’s value is limited to the persuasiveness of its
rationale. The United States Supreme Court therefore has not yet resolved the Who
Should Decide Question.
The two federal circuits that have confronted the issue rejected Bazzle and
concluded the Class Arbitration Question is an arbitrability question for courts to decide
because it determines whose claims the parties must arbitrate and thereby fundamentally
9
affects both the nature and scope of the parties’ arbitration. (Opalinski, supra, 761 F.3d
at pp. 332-335; Huffman v. Hilltop Companies, LLC (6th Cir. 2014) 747 F.3d 391,
398-399 (Huffman); Reed Elsevier, Inc. ex rel. LexisNexis Div. v. Crockett (6th Cir. 2013)
734 F.3d 594, 597-599 (Reed Elsevier).) Several district courts from other circuits,
however, have found Bazzle persuasive and concluded the Class Arbitration Question is
for arbitrators to decide because it determines the procedures the parties will use to
arbitrate their dispute. (See, e.g., In re A2P SMS Antitrust Litigation (S.D.N.Y. 2014)
2014-1 Trade Cas. (CCH) ¶78,791 [2014 WL 2445756, *10-*12] (A2P SMS); Lee v.
JPMorgan Chase & Co. (C.D. Cal. 2013) 982 F.Supp.2d 1109, 1112-1114 (Lee); Hesse
v. Sprint Spectrum L.P. (W.D. Wa., Feb. 17 2012, No. C06-0592JLR) 2012 WL 529419,
*2-*3 (Hesse); Guida v. Home Savings of America, Inc. (E.D.N.Y. 2011) 793 F.Supp.2d
611, 615-619 (Guida).)1 Two days before oral argument in this case, the Second District
Court of Appeal published the first California case to squarely address the issue, and
decided it was a procedural question based on Bazzle’s rationale.2 (Sandquist v. Lebo
Automotive, Inc. (2014) 228 Cal.App.4th 65, 78-79 (Sandquist).)
1 In addition to Bazzle, these decisions also heavily relied on two Third
Circuit Court of Appeals opinions that no longer reflect the law in that circuit. The first,
Vilches v. The Travelers Companies, Inc. (3rd Cir. 2011) 413 Fed.Appx. 487, is an
unpublished opinion that followed Bazzle and concluded the Class Arbitration Question
is a procedural issue for arbitrators. (Id. at pp. 492-493.) The Third Circuit implicitly
renounced Vilches in Opalinski by stating it had not yet decided whether the Class
Arbitration Question was an arbitrability or procedural question, and then concluded it
posed an arbitrability question. (Opalinski, supra, 761 F.3d at pp. 331-334.) Opalinski
does not expressly refer to Vilches because Vilches is an unpublished opinion. (3rd Cir.
Local Appellate Rules, Appendix I, Internal Operating Procedures 5.7.) The second
opinion, Quilloin v. Tenet HealthSystem Philadelphia, Inc. (3rd Cir. 2012) 673 F.3d 221,
included a single sentence stating the Class Arbitration Question is a procedural one for
arbitrators. (Id. at p. 232.) In Opalinski, the Third Circuit explained that sentence in
Quilloin was unsupported dicta and rejected it by concluding the question was an
arbitrability question for the court. (Opalinski, at pp. 331-332.)
2 In Garcia v. DIRECTV, Inc. (2004) 115 Cal.App.4th 297, the Court of
Appeal declared arbitrators must decide whether an arbitration agreement prohibits class
10
As explained below, we are not persuaded by Bazzle and its rationale for
concluding the Class Arbitration Question is a procedural matter for arbitrators, and
therefore decline to follow Bazzle, Sandquist, or similar cases adopting Bazzle’s rationale.
Instead, we agree with Opalinski, Huffman, and Reed Elsevier, and conclude the Class
Arbitration Question is an arbitrability question for courts.
a. Bazzle and Its Progeny Fail to Establish the Class Arbitration
Question is a Procedural Issue for Arbitrators to Decide
Bazzle concluded arbitrators must decide the Class Arbitration Question
because it is a procedural inquiry that asks, “what kind of arbitration proceeding the
parties agreed to. That question . . . concerns contract interpretation and arbitration
procedures. Arbitrators are well situated to answer that question. . . . [Accordingly,] this
matter of contract interpretation should be for the arbitrator, not the courts, to decide.”
(Bazzle, supra, 539 U.S. at pp. 452-453, original italics.) We find this reasoning
unpersuasive because the proper standard for identifying procedural questions does not
consider the kind of arbitration procedures the parties agreed to or whether the question is
a matter of contract interpretation.
As explained above, questions of procedure grow out of the parties’ dispute
and bear on its final disposition. (Howsam, supra, 537 U.S. at pp. 83-84; First Options,
supra, 514 U.S. at pp. 944-945; see Stolt-Nielsen, supra, 559 U.S. at p. 685.) Whether
the parties’ arbitration agreement authorizes class arbitration does not pose a procedural
arbitration. Garcia conducted no analysis on the issue, but simply concluded Bazzle
“mandate[d]” that result. (Id. at pp. 302-303.) As explained above, Bazzle was a
nonbinding plurality decision and both Stolt-Nielsen and Oxford declared Bazzle had not
decided whether courts or arbitrators should decide the Class Arbitration Question.
Although they did not decide the Who Should Decide Question, two California Court of
Appeal decisions have pointed out that Garcia did not resolve the issue because it relied
on Bazzle without analyzing the underlying issue. (Truly Nolen of America v. Superior
Court (2012) 208 Cal.App.4th 487, 515, fn. 4; Nelsen v. Legacy Partners
Residential, Inc. (2012) 207 Cal.App.4th 1115, 1129, fn. 6.)
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question under the above standard because it does not grow out of the parties’ underlying
dispute and does not bear on the final disposition of their claims. Here, the Class
Arbitration Question arises out of an ambiguity in the Arbitration Agreement, not
Papke’s wage and hour claims against Network Capital. Similarly, the Class Arbitration
Question does not bear on the final disposition of Papke’s wage and hour claims; he is
entitled to continue pursuing those claims regardless of how the Class Arbitration
Question is resolved.
The Class Arbitration Question also is not analogous to issues the Supreme
Court has found pose a procedural question for arbitrators to decide. For example,
whether the parties agreed to arbitrate on an individual or class basis is not analogous to
whether the claimant satisfied all prerequisites to arbitration established by the parties’
agreement. (Howsam, supra, 537 U.S. at p. 84, citing John Wiley & Sons, Inc. v.
Livingston (1964) 376 U.S. 543, 557 (John Wiley & Sons) [whether claimant completed
first two steps of grievance procedure is procedural question for arbitrator when steps are
prerequisite to arbitration].) Similarly, the Class Arbitration Question is not analogous to
whether the statute of limitations bars a party’s claim or “‘allegation[s] of waiver, delay,
or a like defense to arbitrability,’” all of which the Supreme Court has found to be
procedural matters. (Howsam, at pp. 84-85; Moses, supra, 460 U.S. at pp. 24-25.)
Neither Bazzle nor any of the cases adopting its rationale provides an explanation or
analysis of how the Class Arbitration Question grows out of the parties’ underlying
dispute or bears on the dispute’s final disposition.
Moreover, the Supreme Court has since rejected the conclusion a question
is procedural simply because the answer determines the procedures the parties will use to
arbitrate their claims.3 In Stolt-Nielsen, the Supreme Court explained the shift from
3 In Sandquist, the Court of Appeal determined the Class Arbitration
Question was a procedural issue because “a class action is a procedural device.”
(Sandquist, supra, 228 Cal.App.4th at p. 78.)
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individual to class arbitration is not simply a matter of “what ‘procedural mode’ [i]s
available to present [a party’s] claims” because that shift fundamentally changes the
nature of the arbitration and significantly expands its scope. (Stolt-Nielsen, supra,559 U.S. at p. 687; Opalinski, supra, 761 F.3d at pp. 333-334.) Indeed, the Stolt-Nielsen
court concluded class arbitration is not a mere procedural device to which parties
implicitly agree by entering into an arbitration agreement, but rather a fundamentally
different proceeding that requires an explicit or clear basis in the parties’ arbitration
contract showing they agreed not only to arbitration, but to class arbitration.
(Stolt-Nielsen, at pp. 685-687.) Similarly, in AT&T Mobility, the Court concluded the
shift from individual to class arbitration so fundamentally changes the nature and scope
of arbitration that any state law or policy requiring class arbitration without an explicit
agreement is inconsistent with the consensual nature of arbitration, and therefore the
FAA preempts the state law or policy. (AT&T Mobility, supra, 131 S.Ct. at
pp. 1750-1753.)
The fundamental differences between class and individual arbitration the
Stolt-Nielsen and AT&T Mobility courts identified include the following: (1) class
arbitration requires the arbitrator to resolve not a single dispute between the parties to a
single agreement, but rather many disputes involving potentially hundreds or thousands
of parties (Stolt-Nielsen, supra, 559 U.S. at p. 686); (2) a class arbitration award
adjudicates not only the rights of the parties to the arbitration agreement, but also the
rights of absent parties (ibid.; AT&T Mobility, supra, 131 S.Ct. at pp. 1750-1751);
(3) class arbitration involves commercial stakes comparable to class action litigation, but
the scope of judicial review is much narrower (Stolt-Nielsen, at pp. 686-687;
AT&T Mobility, at p. 1752); (4) class arbitration proceedings are much more formal and
do not provide the time and costs savings that typically prompt parties to agree to
arbitration (AT&T Mobility, at pp. 1751-1752); and (5) the presumption of privacy and
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confidentiality applicable in individual arbitrations does not apply in class arbitration
(Stolt-Nielsen, at p. 686; AT&T Mobility, at pp. 1750-1751).
Sandquist and the district courts that followed Bazzle found these
fundamental differences between individual and class arbitration to be insignificant
because those courts considered the differences to be “more relevant to the issue of
whether the parties agreed to class arbitration . . . than to the issue of whether the court or
the arbitrator decides if an agreement contemplates class arbitration.” (Sandquist, supra,
228 Cal.App.4th at pp. 78-79; A2P SMS, supra, 2014 WL 2445756, *11; Lee, supra,
982 F.Supp.2d at p. 1114; Guida, supra, 793 F.Supp.2d at pp. 616, 619.) Sandquist and
these other cases, however, provide no explanation or analysis to support this conclusion
and nonetheless concede the fundamental differences between individual and class
arbitration have at least some relevance to deciding whether the Class Arbitration
Question is a question of arbitrability or procedure.
We find these fundamental differences to be highly relevant because they
show the Class Arbitration Question does not grow out of the parties’ dispute itself and
does not bear on the dispute’s final resolution. Indeed, the differences highlighted in
Stolt-Nielsen and AT&T Mobility are not merely procedural because the issue of whose
claims the parties agreed to arbitrate is essentially a question of what the parties agreed
to, a gateway issue that determines the scope of the parties’ arbitration proceedings.
b. How the Class Arbitration Question Affects the Scope of the
Arbitration Makes It an Arbitrability Question for the Court
Bazzle found the Class Arbitration Question is not an arbitrability question
because it “concerns neither the validity of the arbitration clause nor its applicability to
the underlying dispute between the parties,” and does not ask “whether the parties wanted
a judge or an arbitrator to decide whether they agreed to arbitrate a matter.” (Bazzle,
supra, 539 U.S. at p. 452, italics omitted.) We are not persuaded by this rationale
14
because the Class Arbitration Question determines whose claims the parties agreed to
arbitrate and thereby fundamentally affects the scope of the parties’ arbitration.
As explained above, questions of arbitrability concern whether the
contracting parties agreed to arbitrate their disputes and the scope of that agreement; they
are matters the contracting parties would likely have expected a court to decide.
(Howsam, supra, 537 U.S. at pp. 83-84; First Options, supra, 514 U.S. at pp. 944-945;
see Stolt-Nielsen, supra, 559 U.S. at p. 685.) Applying this standard, we conclude the
Class Arbitration Question involves the scope of the parties’ arbitration agreement
because it requires the decisionmaker to determine whose claims the parties agreed to
arbitrate—only the named plaintiff’s claims against the defendant, or the claims of
numerous other absent, but similarly-situated claimants against the defendant.
(See Stolt-Nielsen, supra, 559 U.S. at p. 686; AT&T Mobility, supra, 131 S.Ct. at
pp. 1750-1751.) Here, the Class Arbitration Question requires the decisionmaker to
determine whether Papke and Network Capital’s agreement to submit “any claim,
dispute, and/or controversy” to binding arbitration covers not only Papke’s claims against
Network Capital, but also the claims of all similarly situated, past and present employees
against Network Capital.4
4 Because the Class Arbitration Question focuses on whose claims the
Arbitration Agreement requires Papke and Network Capital to arbitrate, we do not
address whether an arbitrator’s resolution of that question could require other Network
Capital employees to arbitrate their claims against Network Capital or allow Papke to
arbitrate the claims on their behalf. We simply echo the concerns Justice Alito voiced in
his concurring opinion in Oxford: “[A]t least where absent class members have not been
required to opt in, it is difficult to see how an arbitrator’s decision to conduct class
proceedings could bind absent class members who have not authorized the arbitrator to
decide on a classwide basis which arbitration procedures are to be used.” (Oxford, supra,133 S.Ct. at pp. 2071-2072 (conc. opn. of Alito, J.).)
We also note this appeal involves the claims of other people that Papke seeks to
assert on a class or representative basis rather than a group of people that have all entered
into arbitration agreements with Network Capital and seek to join together to pursue their
claims against Network Capital in a single arbitration proceeding. Whether the
15
As the Third Circuit explained in Opalinski, “The Supreme Court has long
recognized that a district court must determine whose claims an arbitrator is authorized to
decide. In John Wiley & Sons . . . , the defending company claimed it was not bound by
the arbitration provisions of an agreement signed by a company with which it had
merged. Id. at 546-47. The Court stated that there was ‘no doubt’ that the issue ‘whether
or not the company was bound to arbitrate, as well as what issues it must arbitrate, is a
matter to be determined by the Court. . . .’ Id. at 546-47 (internal quotation marks and
citations omitted). Similarly, in First Options individual business owners argued that
they were not personally bound by an arbitration agreement they had signed on behalf of
their wholly owned company. See 514 U.S. at 941-42. The Court again concluded that
this was a ‘question of arbitrability’ to be presumptively determined by a court absent
clear contractual language to the contrary. Id. at 946-47. Our Circuit has also held
repeatedly that whose claims an arbitrator may decide is an issue for the courts. See, e.g.,
Allstate Settlement Corp. v. Rapid Settlements, Ltd., 559 F.3d 164, 169 (3d Cir.2009)
(‘[w]hether the arbitrator’s award binds [a third-party] is a question that the court must
decide’); Sandvik AB v. Advent Int’l Corp., 220 F.3d 99, 107 (3d Cir.2000) (determining
‘whether Huep’s signature bound Advent’ was ‘a necessary prerequisite to the court’s
fulfilling its role of determining whether the dispute is one for an arbitrator to decide’).”
(Opalinski, supra, 761 F.3d at p. 332.)
We also conclude the Class Arbitration Question is a question of
arbitrability because contracting parties would likely and reasonably expect a court to
decide the question. Indeed, when the Class Arbitration Question is properly viewed as
asking whose claims the parties agreed to arbitrate, allowing the arbitrator to decide the
question without clear and unmistakable evidence the parties intended the arbitrator to
Arbitration Agreement authorizes that sort of joinder is not before us and we express no
opinion on that question.
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decide it “might too often force unwilling parties to arbitrate a matter they reasonably
would have thought a judge, not an arbitrator, would decide.” (First Options, supra,514 U.S. at p. 945; see Howsam, supra, 537 U.S. at pp. 83-84.) Allowing an arbitrator to
decide this issue threatens the consensual nature of arbitration and the rule that parties
may be compelled to arbitrate only those issues they agreed to arbitrate. (See First
Options, at p. 945.)
Papke contends Stolt-Nielsen and Oxford support his position that
arbitrators may decide whether the arbitration agreement covers class claims, but Papke
flatly misconstrues both of those cases. The portion of Stolt-Nielsen Papke cites is
merely a summary of the plurality opinion in Bazzle, and the court explains a majority of
the Bazzle court did not resolve whether a court should decide that question. The
Stolt-Nielsen court did not reach the issue because the parties had stipulated the
arbitrators would decide whether to allow representative claims. (Stolt-Nielsen, supra,
559 U.S. at pp. 678-680.) Similarly, Papke ignores Oxford’s express statement it did not
resolve the Who Should Decide Question because the parties agreed to submit the Class
Arbitration Question to the arbitrator. Papke also ignores that Oxford emphasized Bazzle
was a nonbinding plurality opinion and the Court therefore had not yet resolved whether
the court or the arbitrator should decide whether an arbitration agreement authorizes class
arbitration. (Oxford, supra, 133 S.Ct. at p. 2068, fn. 2.)
Citing Linder v. Thrifty Oil Co. (2000) 23 Cal.4th 429, Papke also contends
“the issue whether a case should proceed as an individual action or as a class is a
procedural question.” Papke, however, misapplies Linder, which addressed whether a
court could consider an action’s merits when deciding a class certification motion.
Linder did not address arbitration, let alone whether courts or arbitrators should decide
the Class Arbitration Question.
Finally, Network Capital contends the California Supreme Court recently
decided the Who Should Decide Question in City of Los Angeles v. Superior Court
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(2013) 56 Cal.4th 1086. Not so. In City of Los Angeles, the court concluded a dispute
concerning the scope of a contractual duty to arbitrate is subject to judicial resolution
unless the arbitration agreement expressly provided otherwise. (Id. at p. 1093.) That is
simply a statement of the rule that courts usually decide arbitrability questions.
City of Los Angeles, however, did not address whether the Class Arbitration Question is
an arbitrability question, and therefore that case does not support Network Capital’s
position.
C. The Trial Court Properly Decided the Parties Did Not Agree to Class Arbitration
Assuming the Class Arbitration Question was for the court to decide, Papke
contends the court erred in concluding the Arbitration Agreement did not authorize class
arbitration because the agreement required him and Network Capital to submit “any
claim, dispute, and/or controversy” between them to binding arbitration “[i]nclud[ing] . . .
all disputes, whether based on tort, contract, statute . . . , equitable law, or otherwise,” and
“[t]he sole exception is for claims before the [National Labor Relations Board].”
Because class arbitration does not fall within the narrow exception the Arbitration
Agreement creates to the parties’ obligation to submit all claims, disputes, and
controversies to arbitration, Papke concludes the agreement must authorize class
arbitration. Papke’s argument ignores the governing law on the requirements for
submitting claims to class arbitration.
In Stolt-Nielsen, the Supreme Court held “a party may not be compelled
under the FAA to submit to class arbitration unless there is a contractual basis for
concluding that the party agreed to do so.” (Stolt-Nielsen, supra, 559 U.S. at p. 684,
original italics.) The Stolt-Nielsen Court did not decide what constituted a sufficient
contractual basis for compelling a party to submit to class arbitration because the parties
in that case entered into the unusual stipulation that not only was their agreement silent
on class arbitration, but they never reached an agreement on class arbitration. (Ibid.;
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see Oxford, supra, 133 S.Ct. at pp. 2069-2070.) Stolt-Nielsen, however, explained, “An
implicit agreement to authorize class-action arbitration . . . is not a term that the arbitrator
may infer solely from the fact of the parties’ agreement to arbitrate. This is so because
class-action arbitration changes the nature of arbitration to such a degree that it cannot be
presumed the parties consented to it by simply agreeing to submit their disputes to an
arbitrator.” (Stolt-Nielsen, at p. 685.)
Here, the Arbitration Agreement is silent as to class arbitration because the
agreement neither expressly authorizes nor prohibits class arbitration, and therefore
Papke must point to some other contractual basis for concluding the parties agreed to
class arbitration. He argues the parties’ intent to authorize class arbitration is established
by the Arbitration Agreement’s broad language requiring the parties to submit “any
claim, dispute, and/or controversy” to arbitration and the parties’ omission of class
arbitration from the narrow list of exceptions to that broad obligation. Papke, however,
fails to point to any extrinsic evidence to support this argument regarding the parties’
intent and nothing on the face of the Arbitration Agreement supports this contention.
Without some extrinsic evidence of the parties’ intent, Papke’s argument is nothing more
than an argument the parties implicitly agreed to class arbitration. As explained above,
Stolt-Nielsen rejected that contention, and therefore we conclude the trial court properly
determined the Arbitration Agreement did not authorize class arbitration.
Papke contends Stolt-Nielsen only applies when the parties stipulate they
did not reach an agreement on class arbitration. According to Papke, Stolt-Nielsen does
not apply here because a dispute exists between him and Network Capital on whether
they agreed to class arbitration. Papke is mistaken. Stolt-Nielsen does not limit its
holding to its facts, but rather establishes a generally applicable rule that there must be
some contractual basis for compelling a party to submit to class arbitration in addition to
an agreement to arbitrate all disputes. Papke fails to acknowledge Stolt-Nielsen’s central
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holding, and fails to show he and Network Capital agreed to class arbitration in addition
to individual arbitration.
III
DISPOSITION
The order is affirmed. Network Capital shall recover its costs on appeal.
ARONSON, J.
WE CONCUR:
BEDSWORTH, ACTING P. J.
FYBEL, J.
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