Schwenk v. Bristol Farms CA4/3 ( 2022 )

Filed 10/28/22 Schwenk v. Bristol Farms CA4/3
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for
publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication
or ordered published for purposes of rule 8.1115.
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
FOURTH APPELLATE DISTRICT
DIVISION THREE
JOHN SCHWENK,
Plaintiff and Respondent, G060731 consol. w/ G061138
v. (Super. Ct. No. 30-2020-01162829)
BRISTOL FARMS, OPINION
Defendant and Appellant.
Appeal from an order of the Superior Court of Orange County, Randall J.
Sherman, Judge. Affirmed.
Constangy, Brooks, Smith & Prophete, Kimberly M. Talley, Steven B.
Katz, Anthony Sbardellati and Joanna E. MacMillan, for Defendant and Appellant.
Diversity Law Group and Larry W. Lee; Law Offices of Choi & Associates
and Edward W. Choi; Hyun Legal and Dennis S. Hyun; Polaris Law Group and William
L. Marder, for Plaintiff and Respondent.
* * *
Defendant Bristol Farms appeals from an order denying its motion to
compel arbitration of representative claims brought by its employee plaintiff John
Schwenk. This underlying employment case is based on wage and hour claims. Seven
months after Schwenk filed his case in the trial court, Bristol Farms distributed to its
employees an arbitration agreement to include a broad range of claims, including those
involved in this litigation. The agreement contained an opt-out procedure for employees
to follow if they did not want to be bound by the agreement.
It is undisputed that one day after Schwenk signed and submitted the
acknowledgment page of the arbitration agreement, he asked for it back, and shredded it.
He crossed out his signature on the receipt tracking list in the presence of a Bristol Farms
administrator who then initialed and confirmed the change on the form.
Bristol Farms contends Schwenk impliedly assented to the proposed
agreement to arbitrate. The trial court rejected the contention because it found Schwenk
did not assent to the agreement. We agree and affirm.
FACTS
The Postlitigation Proposed Arbitration Agreement
Schwenk began working for Bristol Farms in 2009. In September 2020, he
filed the lawsuit underlying this action, styled a “class action complaint for[] violation of
Labor Code [section] 226; and []violation of Labor Code [sections] 2689, et seq”
(capitalization omitted.) Schwenk alleged the first cause of action on behalf of himself
and a putative class and the second cause of action on behalf of himself and the state
pursuant to the Private Attorneys General Act (PAGA). Bristol Farms filed a demurrer to
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the complaint that was overruled; then it filed its answer in February 2021.
1
Bristol Farms filed an unsuccessful writ petition asking this court to reverse
the trial court’s demurrer ruling. The petition is immaterial to this appeal.
2
In May 2021, Bristol Farms created the document central to this appeal,
titled the “Mutual Agreement to Arbitrate Disputes” (the arbitration agreement), and
distributed it to its employees. The arbitration agreement stated that if consent was given,
it would “govern[] how disputes and claims that arise out of or relate to the employment
relationship between [employees] and [Bristol Farms and an entity unrelated to this
appeal] w[ould] be resolved.”
The agreement contains four proposed terms central to this appeal: (1) any
employee consenting to the agreement was agreeing “that any claim, complaint, or
dispute covered by the [a]greement . . . w[ould] be resolved by final and binding
arbitration”; (2) the agreement specifically covered this lawsuit; (3) that all employees
who received a copy of the agreement had 30 days from receipt to comply with an “opt
out” procedure; and (4) that any employee who received a copy of the agreement and did
not follow the “opt out” procedure would be “deemed to [have] accept[ed] the
agreement.”
The final page of the arbitration agreement, titled
“ACKNOWLEDGMENT,” contains four blank spaces titled “date”, “employee
[identification]”, “print name”, and “signature.” Above them are two paragraphs in all-
capitalized and bolded font (unique to the entire agreement), that use variations of the
phrases “I acknowledge” or “I understand.” For example, the first and second sentences
of the page state: “I ACKNOWLEDGE THAT I HAVE RECEIVED A COPY OF THE
MUTUAL AGREEMENT TO ARBITRATE DISPUTES AND THAT I HAVE BEEN
INSTRUCTED TO REVIEW THE AGREEMENT CAREFULLY AND MAKE SURE
THAT I UNDERSTAND IT. I UNDERSTAND THAT I HAVE THIRTY (30)
CALENDAR DAYS AFTER I ACKNOWLEDGE RECEIPT OF THE AGREEMENT
TO REVIEW AND EXCLUDE MYSELF FROM IT AND THAT FAILURE TO DO SO
WILL BE DEEMED AN ACCEPTANCE OF THE AGREEMENT.” In contrast, the
final sentence of the page also states: “I ALSO ACKNOWLEDGE . . . THAT I HAVE
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ENTERED INTO THIS AGREEMENT VOLUNTARILY AND NOT IN RELIANCE
ON ANY PROMISES OR REPRESENTATIONS MADE BY THE COMPANY
OTHER THAN THOSE CONTAINED IN THE AGREEMENT.”
According to undisputed evidence that was presented to the trial court, on
May 4, 2021, a Bristol Farms store operations administrator physically delivered the
arbitration agreement to Schwenk, who signed both the final page and the receipt tracking
list of employees who were given a copy of the agreement. According to the
administrator’s declaration, the following undisputed events took place the next day:
“Mr. Schwenk came to the office and asked me to give him back the [a]cknowledgment
page, and I [i.e., the administrator,] returned it to [Schwenk] at his request. He took the
[a]cknowledgment page to the shredder and shredded it in my presence. He also drew a
line through his signature off the roster that I provided to him [i.e., the receipt tracking
list]. I placed my initials on the line that previously bore Mr. Schwenk’s signature.”
The Bristol Farms administrator’s declaration also added: “A few days
later, another employee whose name I do not recall asked me in the presence of Mr.
Schwenk whether they needed to send a certified letter to opt out of the Arbitration
Agreement if they did not sign and return the Acknowledgment page. I told this
employee ‘yes.’ Mr. Schwenk then looked at me and asked, ‘certified letter?’ I replied
‘yes.’”
Seventy days after Schwenk shredded the arbitration agreement and crossed
out his signature on Bristol Farms’s receipt tracking list, counsel for both Bristol Farms
and Schwenk met and discussed the agreement. Meanwhile, between the shredding of
the agreement, and the discussion between counsel, Schwenk’s lawsuit had moved
forward with Schwenk’s counsel propounding two sets of initial discovery requests to
Bristol Farms, and the parties filing a second joint case management statement with the
trial court without mentioning the arbitration agreement or that either party would seek
arbitration.
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Thirty days after the respective parties’ counsel discussed the arbitration
agreement, Bristol Farms filed a motion to compel arbitration. It submitted declarations
in support of the motion and Schwenk’s counsel presented opposing declarations.
Relevant to this appeal, Schwenk asserted: “I initially signed and dated the form [i.e., the
arbitration agreement’s acknowledgment page], but after reviewing the arbitration
agreement, I crossed out my signature and date as I did not want to be bound by the
arbitration agreement.”
The Trial Court’s Denial of Bristol Farms’s Motion to Compel Arbitration
The trial court denied Bristol Farms’s motion. The court recited the
arbitration agreement’s acknowledgment page stating “I understand that I have 30
calendar days after I acknowledge receipt of the agreement to review and exclude myself
from it” (capitalization and bolding omitted), and noted that the page did not say how
exclusion should occur. The court referenced the instructions of the opt out procedure in
the arbitration agreement—i.e., “You have the right to opt out of this Agreement if you
wish. To do so, you must send a letter to Legal Department . . .”—but found Schwenk
“never signed this agreement, and therefore never agreed that sending a letter to
defendant’s Legal Department was the only way he could opt out of the arbitration
agreement.”
The trial court then reasoned: “The day after [Schwenk] returned the
[a]cknowledgment page, he went to [Bristol Farms]’s office and asked [the Bristol
Farm’s administrator] to give him back his [a]cknowledgment page, and she did so.
[Schwenk] took the [a]cknowledgment page to the shredder and shredded it in [the
administrator]’s presence. He also drew a line through his signature on the [receipt
tracking list]. [The administrator] placed her initials on the line that previously bore
plaintiff’s signature. Based on these facts, that [Schwenk] never signed the Mutual
Agreement to Arbitrate Disputes, but only acknowledged receiving a copy, that
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[Schwenk] shredded his signed [a]cknowledgment page and crossed out his [receipt
tracking list] signature one day later, and that [Bristol Farms]’s authorized agent [i.e., the
administrator] initialed the line that previously bore [Schwenk]’s signature, the court
concludes that [Schwenk] never agreed to arbitrate his claims against Bristol Farms, and
as a result, Bristol Farms may not compel plaintiff to arbitrate those claims.”
Bristol Farms appealed from the trial court’s denial order (Code Civ. Proc.,
§ 1294, subd. (a)) and the trial court granted a stay. Schwenk’s counsel subsequently
filed lawsuits that resulted in an effectively identical ruling that Bristol Farms also
appealed from; the appeals have been consolidated and our discussion here resolves both.
DISCUSSION
Bristol Farms contends a reversal of the trial court’s denial order is required
because, as a matter of law, Schwenk’s failure to comply with the opt out procedure in
the arbitration agreement resulted in his assent to the agreement. We disagree.
Governing Law and Appellate Principles
“[W]hen a petition to compel arbitration is filed and accompanied by prima
facie evidence of a written agreement to arbitrate the controversy, the court itself must
determine whether the agreement exists and, if any defense to its enforcement is raised,
whether it is enforceable. Because the existence of the agreement is a statutory
prerequisite to granting the petition, the petitioner bears the burden of proving its
existence by a preponderance of the evidence.” (Rosenthal v. Great Western Fin.
Securities Corp. (1996) 14 Cal.4th 394, 413.)
“‘“[W]hen ruling on a petition to compel arbitration, the superior court may
consider evidence on factual issues such as contract formation bearing on the threshold
issue of arbitrability.”’” (Rebolledo v. Tilly’s, Inc. (2014) 228 Cal.App.4th 900, 913
(Rebolledo); accord, Caron v. Andrew (1955) 133 Cal.App.2d 412, 416 [“‘It is generally
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held that the existence of an implied contract is usually a question of fact for the trial
court. Where evidence is conflicting, or where reasonable conflicting inferences may be
drawn from evidence which is not in conflict, a question of fact is presented for decision
of the trial court’”].)
On appellate review, we focus on the correctness of the ruling’s result and
not its reasons. (See Knapp v. AT&T Wireless Services, Inc. (2011) 195 Cal.App.4th 932,
939; accord Esparza v. Sand & Sea, Inc. (2016) 2 Cal.App.5th 781, 791-792.) We also
apply to an appellant’s contentions “three fundamental principles of appellate review: (1)
a judgment [or order] is presumed correct; (2) all intendments and presumptions are
indulged in favor of correctness; and (3) the appellant bears the burden of providing an
adequate record affirmatively proving error.” (Fladeboe v. American Isuzu Motors Inc.
(2007) 150 Cal.App.4th 42, 58.)
The controlling standard of review depends on the challenge asserted. If a
trial court’s order denying arbitration “‘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.”’ (Avery v.
Integrated Healthcare Holdings, Inc. (2013) 218 Cal.App.4th 50, 60.) “Interpreting a
written document to determine whether it is an enforceable arbitration agreement is a
question of law subject to de novo review when the parties do not offer conflicting
extrinsic evidence regarding the document’s meaning.” (Ibid.)
“General principles of contract law determine whether the parties have
entered a binding agreement to arbitrate.” (Craig v. Brown & Root, Inc. (2000)
84 Cal.App.4th 416, 420.) “‘The basic goal of contract interpretation is to give effect to
the parties’ mutual intent at the time of contracting. When a contract is reduced to
writing, the parties’ intention is determined from the writing alone, if possible. “The
words of a contract are to be understood in their ordinary and popular sense.”’”
(Rebolledo, supra, 228 Cal.App.4th at p. 913, internal citations omitted.)
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“It is essential to the existence of a contract that there should be,” among
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other elements, “consent” by the contracting parties. (Civ. Code § 1550, subd. 2.) “The
consent of the parties to a contract must be: [¶] 1. Free; [¶] 2. Mutual; and, [¶]
3. Communicated by each to the other.” (§ 1565.) “Consent is not mutual, unless the
parties all agree upon the same thing in the same sense. But in certain cases defined by
the Chapter on Interpretation, they are to be deemed so to agree without regard to the
3
fact.” (§ 1580.)
Analysis
“The existence of mutual consent is determined by objective rather than
subjective criteria, the test being what the outward manifestations of consent would lead a
reasonable person to believe. (1 Witkin, Summary of Cal. Law (8th ed. 1973) Contracts,
§ 88, pages 92-93.) Accordingly, the primary focus in determining the existence of
mutual consent is upon the acts of the parties involved.” (Meyer v. Benko (1976)
55 Cal.App.3d 937, 942-943 (Meyer); accord, Reigelsperger v. Siller (2007)
40 Cal.4th 574, 579-580 [“‘mutual consent is gathered from the reasonable meaning of
the words and acts of the parties, and not from their unexpressed intentions or
understanding’”].)
The reasonable meaning of Schwenk’s undisputed conduct—i.e., signing
the acknowledgment page of the arbitration agreement and, one day later, recovering it
from the Bristol Farms administrator, shredding it, crossing out his signature on the
receipt tracking list, and securing the administrator’s written acknowledgment of his
2
All further undesignated references are to the Civil Code unless otherwise
designated.
3
The referenced “Chapter on Interpretation” contains sections 1635 through
1663, and none of them are relied upon by Bristol Farms in this appeal.
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conduct—objectively manifested a lack of consent to be bound by Bristol Farms’s
proposed agreement.
As discussed ante, the agreement contained a 30-day window in which
recipients of the document could “opt out.” As noted, the acknowledgment page
Schwenk signed did not expressly reference the opt out provision but did state: “I
UNDERSTAND THAT I HAVE THIRTY (30) CALENDAR DAYS AFTER I
ACKNOWLEDGE RECEIPT OF THE AGREEMENT TO REVIEW AND EXCLUDE
MYSELF FROM IT.”
The trial court correctly decided Bristol Farms had not shown mutual
consent in this case based on undisputed facts. Substantial evidence supports the court’s
finding that Schwenk “never agreed to arbitrate his claims against Bristol Farms” because
Schwenk’s undisputed outward manifestations of conduct would lead a reasonable person
to believe his consent did not exist. (Meyer, supra, 55 Cal.App.3d at pp. 942-943; see
Diaz v. Sohnen Enterprises (2019) 34 Cal.App.5th 126, 134 (Diaz) [“‘“[W]here the issue
on appeal turns on a failure of proof at trial, the question for a reviewing court becomes
whether the evidence compels a finding in favor of the appellant as a matter of law”’”].)
Given that the trial court correctly ruled Bristol Farms’s motion failed on
the threshold issue of contract formation, we need not consider the issues of
conscionability within the arbitration agreement. (See Armendariz v. Foundation Health
Psychcare Services, Inc. (2000) 24 Cal.4th 83, 114.)
Bristol Farms’s Contentions
Bristol Farms argues it is entitled to a reversal as a matter of law based on a
two-part argument: (1) Schwenk agreed to Bristol Farms’s arbitration agreement by
continuing employment; and so (2) Schwenk’s failure to comply with the “opt out”
procedure in the arbitration agreement constituted his consent to be bound by the
arbitration agreement’s terms.
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In response, Schwenk notes the Legislature’s recent enactment of Labor
Code section 432.6. (Stats. 2019, ch. 711, § 3.) The statute provides in relevant part that
no person may require an “employee to waive any right, forum, or procedure for a
violation of [the Labor Code], including the right to file and pursue a civil action or a
complaint with, or otherwise notify, any state agency, other public prosecutor, law
enforcement agency, or any court.” (Id., subd. (a).) Labor Code section 432.6,
subdivision (c), includes in its definition of prohibited dealings any “agreement that
requires an employee to opt out of a waiver or take any affirmative action in order to
preserve their rights.” Another subdivision states: “Nothing in this section is intended to
invalidate a written arbitration agreement that is otherwise enforceable under the Federal
Arbitration Act [FAA] (9 U.S.C. Sec. 1 et seq.).” (Id., subd. (f).)
Applied facially, Labor Code section 432.6, subdivisions (a) and (c), are
fatal to Bristol Farms’s argument that its opt out procedure shows Schwenk consented to
the arbitration agreement. Bristol Farms asserts the statute “does not apply” due to
preemption by the FAA and points out the arbitration agreement it proposed to Schwenk
contains a provision stating the FAA “governs” the agreement. But given that a lack of
mutual consent required for contract formation is the dispositive issue here, the
enforceability of the provision is also immaterial to our analysis of this appeal.
Given the fluidity of authorities touching on FAA preemption (see, e.g.,
Viking River Cruises, Inc. v. Moriana (2022) 596 U.S. ___, ___ [142 S.Ct. 1906, 1917-
1918]), in addition to the facial invalidity of Bristol Farms’s opt out provision under
Labor Code section 432.6, we also separately conclude that Bristol Farms’s contention
for reversal under the specific facts of this case fail on a simpler ground: Schwenk was
not limited to objectively expressing his lack of consent to Bristol Farms’s proposed
agreement in the manner specified by the opt out procedure because the circumstances
shown by the record fail to support an implied consent theory of contract formation.
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Bristol Farms correctly notes that California cases that have not applied
Labor Code section 432.6 have supported a theory of implied consent to an employment-
related contract based on a lack of direct action—i.e., continuing to work for an employer
who has proposed an arbitration agreement and provided a conscionable opt out window.
(See Diaz, supra, 34 Cal.App.5th at p. 130 [“when an employee continues his or her
employment after notification that an agreement to arbitration is a condition of continued
employment, that employee has impliedly consented to the arbitration agreement”]; see
§ 1621 [“An implied contract is one, the existence and terms of which are manifested by
conduct”]; see also Circuit City Stores, Inc. v. Najd (9th Cir. 2002) 294 F.3d 1104, 1109
[interpreting California law].)
However, we do not view case law as representing a categorical rule that an
employee by virtue of continuing to work for an employer will become bound by
unilaterally proposed contract terms. Instead, case law shows that application of the
implied-in-fact theory of contract formation must be considered on a case-by-case basis,
based upon the facts of each particular case.
Here, in addition to the reasons we discussed about Schwenk’s objective
conduct, the totality of the undisputed factual circumstances do not support a conclusion
he impliedly consented to Bristol Farms’s proposed arbitration agreement by failing to
comply with the agreement’s opt out procedure. The record shows that all relevant
dealings between Schwenk and Bristol Farms occurred in a postlitigation context—
specifically, over seven months after Schwenk had filed his lawsuit. Bristol Farms, a
sophisticated employer, knew during the time these dealings were taking place that
Schwenk was represented by counsel, and presumably that Schwenk’s litigation would be
fundamentally influenced by the arbitration agreement. Bristol Farms asserts in its
briefing there is “no evidence in the record that counsel prepared the [a]rbitration
[a]greement.” However, there is a strong inference of such because the proposed
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agreement required Schwenk to contact Bristol Farm’s affiliated legal department in
order to opt out of the agreement.
The record supports a conclusion that Bristol Farms did not mention to
Schwenk’s counsel its direct dealings with Schwenk until after the purported 30-day opt
out window had expired. Bristol Farms is effectively arguing for a holding that, as a
matter of law, its dealings with Schwenk that did not include his counsel, created a
legally binding agreement—an agreement that would extinguish Schwenk’s ability to
litigate a lawsuit already initiated, all because Schwenk did not communicate his
rejection of Bristol Farms’s arbitration agreement in a manner that Bristol Farms had
unilaterally proposed. We decline to endorse such a view of contract formation and none
of the implied consent cases Bristol Farms cites contains factual circumstances that
persuade us otherwise.
Schwenk’s ability to outwardly manifest his intention about whether to
consent to Bristol Farms’s proposed agreement was broader than the opt out procedure
Bristol Farms relies on. Accordingly, independent of Labor Code section 432.6’s effect,
Bristol Farms has not shown the reversible error it needs to prevail on appeal.
Bristol Farms argues that section 1582 supports its position that Schwenk
was only allowed to manifest nonconsent by following Bristol Farms’s opt out procedure.
Not so. The statute states: “MODE OF COMMUNICATING ACCEPTANCE OF
PROPOSAL. If a proposal prescribes any conditions concerning the communication of
its acceptance, the proposer is not bound unless they are conformed to; but in other cases
any reasonable and usual mode may be adopted.” Bristol Farms attempts to turn the
statute on its head by arguing that an offeree can only reject an offer by following the
specifications of an offeror’s terms. The statute lends no support to a party arguing
implied consent for contract formation. Finally, Bristol Farms’s attempt to characterize
its arbitration agreement as a “unilateral offer of novation” offers no support for its
position because it does nothing to alter our analysis about the controlling issue of
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contract formation. (See Alexander v. Angel (1951) 37 Cal.2d 856, 860 [novation
requires the showing of a superseding obligation that must be shown by clear and
convincing evidence].)
DISPOSITION
The trial court’s order denying Bristol Farms’s motion to compel arbitration
is affirmed. Schwenk is entitled to his costs on appeal.
MARKS, J.*
WE CONCUR:
GOETHALS, ACTING P. J.
SANCHEZ, J.
*Judge of the Orange County Superior Court, assigned by the Chief Justice pursuant to
article VI, section 6 of the California Constitution.
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