Arroyo v. Riverside Auto Holdings, Inc. CA4/2 ( 2013 )

Filed 9/13/13 Arroyo v. Riverside Auto Holdings, Inc. CA4/2
NOT TO BE PUBLISHED IN OFFICIAL REPORTS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
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IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
FOURTH APPELLATE DISTRICT
DIVISION TWO
ROBERT ARROYO,
Plaintiff and Respondent, E056256
v. (Super.Ct.No. RIC1200257)
RIVERSIDE AUTO HOLDINGS, INC., OPINION
Defendant and Appellant.
APPEAL from the Superior Court of Riverside County. Daniel A. Ottolia, Judge.
Reversed.
Fine, Boggs & Perkins, John P. Boggs, David J. Reese, and Ian G. Robertson for
Defendant and Appellant.
Fernandez & Lauby, Brian J. Mankin, and Marisa L. Kautz for Plaintiff and
Respondent.
1
Riverside Auto Holdings, Inc. (Riverside) appeals the denial of its petition to
compel arbitration of wage and hour claims asserted in a complaint filed by respondent
Robert Arroyo, a former employee.
Since the case was filed as a class action, the petition also requested an order that
the plaintiff’s claims are to be heard individually and not on a class basis.
I
FACTS AND PROCEDURAL HISTORY
Arroyo is a former employee of Riverside Auto Holdings, Inc. doing business as
Singh Chevrolet. On January 5, 2012, Arroyo filed a class action complaint against
Riverside under Code of Civil Procedure section 382.1 The class was defined as “[a]ll
current and former hourly, non-exempt automobile mechanic employees employed by
Riverside Auto Holdings Inc. in California within the four years prior to the filing of [the]
complaint to the present.” The complaint generally alleged that Riverside engaged in a
number of wage and hour practices that violated the California Labor Code.
Specifically, seven causes of action were alleged: (1) failure to pay regular and
overtime wages; (2) failure to pay minimum wages; (3) failure to indemnify employees
for hand tools and equipment; (4) failure to make payments within the required time; (5)
failure to provide itemized wage statements; (6) failure to maintain records; and (7)
unfair and unlawful competition.
1 Unless otherwise indicated, all further statutory references are to the Code
of Civil Procedure.
2
On February 23, 2012, Riverside responded by filing a petition to compel
arbitration. The petition alleged that Riverside had a dispute resolution program to
resolve all employment related claims, disputes, or controversies. All employees were
required to use the program. The petition also alleged that Arroyo executed a written
agreement that provided that any employment-related dispute would be submitted to, and
decided by, binding arbitration. The agreement stated that the arbitration would be
controlled by the Federal Arbitration Act (FAA) in conformity with the procedures of the
California Arbitration Act. A copy of the agreement signed by Arroyo was attached to
the petition. A declaration by the office manager authenticated the alleged arbitration
agreement.
Riverside’s petition sought an order compelling Arroyo to arbitrate all claims
arising from his employment. It also requested “[a]n Order confirming that – consistent
with U.S. Supreme Court jurisprudence – because the arbitration agreement does not
provide for class or representative actions, the Arbitrator must hear Plaintiff’s claims
individually and not on any class or representative basis.”
In support of its petition, Riverside reviewed the applicable law and argued that
Arroyo’s individual arbitration agreement must be enforced and that class claims could
not be arbitrated because they were not expressly or impliedly contained in the arbitration
agreement.
In opposition to the petition, Arroyo submitted a declaration stating that he was
directed to apply for the job online, that he was verbally hired, and that he was not
3
directed to sign any document before beginning work. He had no recollection of signing
the arbitration agreement. He also stated that he did not receive an employee handbook
or instruction on company policies. He was not aware of any policy or rule requiring
arbitration of disputes.
Arroyo’s accompanying memorandum of points and authorities argued that (1)
unfair competition claims could not be ordered to arbitration; (2) the arbitration
agreement was not enforceable because it violated federal law; (3) the arbitration
agreement was unenforceable because it was unconscionable; and (4) there was no
agreement to arbitrate.
Riverside’s reply brief argued that (1) there was a written arbitration agreement;
(2) the FAA preempted state laws hostile to the enforcement of arbitration agreements:
(3) each of plaintiff’s claims were subject to arbitration; (4) a National Labor Relations
Act decision could not change the strong federal policy to enforce arbitration agreements;
and (5) the arbitration agreement was not unconscionable.
A second office manager declaration stated that Arroyo applied for employment
on the date the arbitration agreement was digitally signed. A copy of the arbitration
clause was attached to the declaration. Although virtually unreadable, it appears to be a
different arbitration agreement than the one submitted previously.
Further supplemental briefing was submitted by both parties after the April 3,
2012 hearing.
4
II
THE TRIAL COURT DECISION
The petition was heard on April 3, 2012. The trial court noted that the law was in
a state of flux on the issues presented. It chose to follow Brown v. Ralphs Grocery
(2011) 197 Cal.App.4th 489 instead of AT&T Mobility LLC v. Concepcion (2011) ___
U.S. ___ [131 S.Ct. 1740, 179 L.Ed.2d 742] (AT&T Mobility).
The trial court therefore denied Riverside’s petition to compel arbitration pursuant
to the arbitration agreement. 2
III
STANDARD OF REVIEW
“‘“The right to arbitration depends upon contract; a petition to compel arbitration
is simply a suit in equity seeking specific performance of that contract. [Citations.]”
[Citation.]’ [Citation.] Code of Civil Procedure sections 1281.2 and 1290.2 provide for
the resolution of motions to compel arbitration in summary proceedings in which ‘[t]he
petitioner bears the burden of proving the existence of a valid arbitration agreement by
the preponderance of the evidence, and a party opposing the petition bears the burden of
proving by a preponderance of the evidence any fact necessary to its defense. [Citation.]
In these summary proceedings, the trial court sits as a trier of fact, weighing all the
affidavits, declarations, and other documentary evidence, as well as oral testimony
2 Unfortunately, no statement of decision was requested under section 1291.
5
received at the court’s discretion, to reach a final determination. [Citation.] No jury trial
is available for a petition to compel arbitration. [Citation.]’ [Citation.] ‘We will uphold
the trial court’s resolution of disputed facts if supported by substantial evidence.
[Citation.] Where, however, there is no disputed extrinsic evidence considered by the
trial court, we will review its arbitrability decision de novo.’ [Citation.]” (Giuliano v.
Inland Empire Personnel, Inc. (2007) 149 Cal.App.4th 1276, 1284.)
In Gorlach v. Sports Club Co. (2012) 209 Cal.App.4th 1497, a case relied on by
Arroyo, the court said, “[W]here the trial court’s denial of a petition to arbitrate presents
a pure question of law, we review the order de novo. [Citation.]” (Id. at p. 1505.)
Such is the case here. The trial court did not decide any factual issues, and
decided the petition based solely on legal determinations. Our standard of review is
therefore a de novo standard of review.
Arroyo argues that some issues require application of an abuse of discretion
standard of review. We will discuss Arroyo’s argument as the need arises.
IV
ISSUES
A. Riverside contends the arbitration agreement is valid and enforceable.
Arroyo contends the agreement is unconscionable and unenforceable.
B. Arroyo contends there is an implied agreement to permit class arbitration.
Riverside contends there is no such agreement.
6
C. Riverside contends that the rule of FAA preemption governs interpretation
of the agreement in this case. Arroyo contends that there is no FAA preemption and that
California law governs.
D. Arroyo contends that Gentry v. Superior Court (2007) 42 Cal.4th 4433“applies in cases, such as the present case, to invalidate a class waiver where the
implementation of such a waiver would pose significant obstacles to the vindication of
the employees’ statutory rights. [Citation.]” Arroyo further contends that Gentry
remains good law after AT&T Mobility, supra, 131 S.Ct. 1740.
Riverside contends there is no class waiver in this case; the Gentry rule is
preempted by the FAA, as held by AT&T Mobility; and, in any event, the factual showing
required by Gentry has not been made.
V
IS THERE AN EXPRESS OR IMPLIED ARBITRATION AGREEMENT?
Section 1281 provides: “A written agreement to submit to arbitration an existing
controversy or a controversy thereafter arising is valid, enforceable and irrevocable, save
upon such grounds as exist for the revocation of any contract.”
Section 1281.2 provides, in relevant part: “On petition of a party to an arbitration
agreement alleging the existence of a written agreement to arbitrate a controversy and
that a party thereto refuses to arbitrate such controversy, the court shall order the
3 The continuing validity of Gentry is an unsettled question that is discussed
below. Shepard’s lists five cases describing Gentry as overruled.
7
petitioner and the respondent to arbitrate the controversy if it determines that an
agreement to arbitrate the controversy exists, unless it determines that [one of three
conditions is applicable].”
Since there is no contention that the exceptions apply, Riverside contends that
section 1281.2 required the trial court to grant the petition. It also argues that the court
should have dismissed the class action claims and required Arroyo to proceed on his
individual claims.
“‘[T]he trial court’s first task is to determine whether the parties have in fact
agreed to arbitrate the dispute. [¶] We apply general California contract law to
determine whether the parties formed a valid agreement to arbitrate.’” (Gorlach v. Sports
Club Co., supra, 209 Cal.App.4th at p. 1505.)
Unfortunately, the trial court did not make an initial determination that there was
an enforceable arbitration agreement. Accordingly, there are no findings that there was a
valid agreement to arbitrate or which of the two versions of the arbitration agreement
governs. However, the trial court impliedly found such an agreement by finding that it
was unenforceable.
Riverside attempts to remedy any defect by arguing that the allegations of its
petition, including the allegation that there was an express arbitration agreement, were
factually accepted because Arroyo did not file a timely response to the petition. It cites
section 1290, which states, “A proceeding under this title in the courts of this State is
commenced by filing a petition. Any person named as a respondent in a petition may file
8
a response thereto. The allegations of a petition are deemed to be admitted by a
respondent duly served therewith unless a response is duly served and filed. The
allegations of a response are deemed controverted or avoided.”
Riverside then points out that section 1290.6, in relevant part, provides, “A
response shall be served and filed within 10 days after service of the petition . . . .” The
record shows that the petition and other documents were mailed on February 24, 2012,
and the response was not mailed until March 20, 2012. Under these facts, the response
was not timely served, and the allegations of the petition were deemed admitted.
Arroyo responds by arguing that Riverside waived the issue by not raising it in the
trial court. He cites Truly Nolen of America v. Superior Court (2012) 208 Cal.App.4th
487, 513-514 (Truly Nolen), Franco v. Athens Disposal Co., Inc. (2009) 171 Cal.App.4th
1277, 1288, and Atlas Plastering, Inc. v. Superior Court (1977) 72 Cal.App.3d 63, 68.
We need not resolve the issue as it involves factual questions that were not
addressed by the trial court. However, since the trial court decided the arbitration
agreement was unenforceable on other grounds, we will accept its implied finding that
there was an arbitration agreement.
VI
IS THE ARBITRATION AGREEMENT UNENFORCEABLE?
As previously stated, section 1281 provides, “A written agreement to submit to
arbitration an existing controversy or a controversy thereafter arising is valid, enforceable
and irrevocable, save upon such grounds as exist for the revocation of any contract.”
9
In Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th
83 (Armendariz),4 our Supreme Court held that an agreement to arbitrate may be
unenforceable if it is found to be unconscionable under general principles of contract law.
The court said, “[U]nder both federal and California law, arbitration agreements are
valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity
for the revocation of any contract. [Citations.] In other words, under California law, as
under federal law, an arbitration agreement may only be invalidated for the same reasons
as other contracts.” (Id. at p. 98, fn. omitted.) These grounds include unconscionability.
(Id. at p. 99.)
Armendariz concerned the issue of the validity of a mandatory employment
arbitration agreement, i.e., an adhesion agreement imposed on an employee or
prospective employee as a condition of employment. (Armendariz, supra, 24 Cal.4th at
p. 90.) It found that the agreement at issue was unconscionable and therefore
unenforceable. (Id. at p. 91.)
Addressing this issue, the Armendariz court applied the general rule that contract
law principles govern the question of unconscionability. (Armendariz, supra, 24 Cal.4th
at p. 99; see, generally, 3 Cal. Civil Procedure Before Trial (Cont.Ed.Bar 4th ed. 2012)
Alternative Dispute Resolution, § 45.28A-C, pp. 2200-2204.)
4 Shepard’s lists the case as abrogated in part by AT&T Mobility, supra, 131
S.Ct. 1740. It also lists the case as abrogated in part as stated in Ruhe v. Masimo Corp.
(2011) U.S. Dist. LEXIS 104811.
10
Under those principles, “[u]nconscionability analysis begins with an inquiry into
whether the contract is one of adhesion.” (Armendariz, supra, 24 Cal.4th at p. 113.) The
court went on to define procedural and substantive unconscionability and their
relationship. (Ibid.)
The arbitration agreement in Armendariz was a procedurally unconscionable
contract of adhesion because it was imposed on employees as a condition of employment
and there was no opportunity to negotiate. (Armendariz, supra, 24 Cal.4th at pp 114-
115.) The same is true of the arbitration agreement in this case.
The court also found substantive unconscionability, primarily because there was a
lack of mutuality in the agreement. (Armendariz, supra, 24 Cal.4th at pp. 119-120.) In
other words, substantive unconscionability focuses on “‘“overly harsh”’” or
“‘“one-sided”’” results. (Id. at p. 114.) Accordingly, the trial court correctly refused to
enforce the arbitration agreement.
Finally, the court discussed the question of whether the unconscionable provisions
could be severed from the other provisions of the arbitration agreement. (Armendariz,
supra, 24 Cal.4th at pp. 121-125.) The court found Civil Code section 1599 applies to
this determination, and that the agreement in Armendariz was not severable.
(Armendariz, at pp. 125-127.) The Supreme Court therefore reversed the appellate court
and upheld the trial court’s decision, which refused to enforce the arbitration agreement.
Armendariz is not dispositive here because the trial court did not make any factual
findings of procedural or substantive unconscionability. In other words, Arroyo did not
11
parse the arbitration agreements to submit evidence or factual argument that the
agreements were substantively unconscionable, and the trial court heard no evidence and
made no findings on the issue.5
Accordingly, we cannot find that the implied arbitration agreement is
unconscionable. Arroyo has simply not met his burden of proof. (Giuliano v. Inland
Empire Personnel, Inc., supra, 149 Cal.App.4th at p. 1284.) The arbitration agreement is
valid and enforceable.
VII
WAS THERE AN IMPLIED AGREEMENT TO PERMIT ARBITRATION
OF CLASSWIDE CLAIMS?
Neither party contends there was an express provision in the arbitration agreement
which allowed, or expressly disallowed, arbitration of class action claims. The
agreement was simply silent on the subject.
However, Arroyo contends there was an implied agreement to permit class
arbitration. He cites Civil Code section 1636: “A contract must be so interpreted as to
give effect to the mutual intention of the parties as it existed at the time of contracting, so
far as the same is ascertainable and lawful.” (See also Civil Code §§ 1635, 1643.)
5 As discussed below, the parties do debate whether the factual requirements
of Gentry v. Superior Court, supra, 42 Cal.4th 443 were met and whether Gentry is still
good law.
12
From these basic principles, Arroyo argues that “[g]iven the state of the law
applicable to arbitration agreements at the time the parties entered into the agreement, the
fact that an express waiver of class claims was not included in the agreement gives rise to
the necessary conclusion that the agreement intended to permit class arbitration.”
The argument is not sustainable. The only evidence as to the intent of Riverside
was the office manager’s declaration that all employees were required to follow the
dispute resolution program, including the signing of the arbitration agreement. No intent
to allow, or disallow, class action litigation can be gleaned from the declaration.
Arroyo’s declaration is equally unhelpful. The gist of his declaration is that he
was unaware he had signed an arbitration agreement, that no one informed him of
company policies, and that no one mentioned arbitration to him. It cannot be said that he
negotiated, agreed to, or intended any particular provisions in an agreement he was not
even aware of.
We therefore agree with Riverside that the express written arbitration agreement
cannot reasonably be interpreted to provide that class action claims can be arbitrated.
The legal issue is whether there was an implied agreement to arbitrate class action
claims as a matter of law. In 2010, the United States Supreme Court decided Stolt-
Nielsen S.A. v. AnimalFeeds Int’l Corp. (2010) ___ U.S. ___ [130 S.Ct. 1758, 176
L.Ed.2d 605]. The arbitration agreement in that case was a charter party between a
shipper and a shipping company. (Id. at pp. 1764-1765.) It was not a typical consumer
contract. The Supreme Court held that “a party may not be compelled under the FAA to
13
submit to class arbitration unless there is a contractual basis for concluding that the party
agreed to do so.” (Id. at p. 1775.)
In the present case, there is no suggestion that the trial court was presented with
any evidence of an agreement to submit to class arbitration, and the trial court did not
make any findings of fact.
We therefore agree with Riverside that the class action claims were not impliedly
subject to arbitration.
VIII
FAA PREEMPTION OF CLASS ACTION CLAIMS
One of the most volatile issues in this area of the law concerns the argument that
the FAA preempts class action claims in arbitration agreements, particularly when
statutory rights, such as the Labor Code provisions cited in this case, are asserted.
In 2005, the California Supreme Court decided Discover Bank v. Superior Court
(2005) 36 Cal.4th 148.6 The issue in that case was the validity of a provision in an
arbitration agreement that prohibited classwide arbitration. The bank sought arbitration.
Our Supreme Court concluded “that, at least under some circumstances, the law in
California is that class action waivers in consumer contracts of adhesion are
unenforceable, whether the consumer is being asked to waive the right to class action
6 Due primarily to the decision in AT&T Mobility, discussed below,
Shepard’s lists the case as abrogated in 19 cases, overruled in 32 cases, and superseded in
7 cases.
14
litigation or the right to classwide arbitration. We further conclude that the Court of
Appeal is incorrect that the FAA preempts California law in this respect.” (Discover
Bank, at p.153.)
The court said, “Such one-sided, exculpatory contracts in a contract of adhesion, at
least to the extent they operate to insulate a party from liability that otherwise would be
imposed under California law are generally unconscionable.” (Discover Bank v. Superior
Court, supra, 36 Cal.4th at p. 161.) It specifically found that “there is nothing to indicate
that class action and arbitration are inherently incompatible.” (Id. at p. 167.)
Accordingly, the court held that “classwide arbitrations are workable and appropriate in
some cases.” (Id. at p. 172.)
However, in April, 2011, the United States Supreme Court decided AT&T
Mobility, supra, 131 S.Ct. 1740. The court said, “Although we have had little occasion to
examine classwide arbitration, our decision in Stolt-Nielsen is instructive. In that case we
held that an arbitration panel exceeded its power under . . . the FAA by imposing class
procedures based on policy judgments rather than the arbitration agreement itself or some
background principle of contract law that would affect its interpretation. [Citation.] We
then held that the agreement at issue, which was silent on the question of class
procedures, could not be interpreted to allow them because the ‘changes brought about by
the shift from bilateral arbitration to class-action arbitration’ are ‘fundamental.’
[Citation.] This is obvious as a structural matter: Classwide arbitration includes absent
parties, necessitating additional and different procedures and involving higher stakes.
15
Confidentiality becomes more difficult. And while it is theoretically possible to select an
arbitrator with some expertise relevant to the class-certification question, arbitrators are
not generally knowledgeable in the often-dominant procedural aspects of certification,
such as the protection of absent parties. The conclusion follows that class arbitration, to
the extent it is manufactured by Discover Bank rather than consensual, is inconsistent
with the FAA.” (Id. at pp. 1750-1751.)
The court therefore decided that the Discover Bank rule was preempted by the
FAA. (AT&T Mobility, supra, 131 S.Ct. at p. 1753.)
There is no specific class action waiver in the present case. Accordingly, as stated
above, an arbitration agreement that is silent on class action procedures cannot be
interpreted to allow class action arbitration.
In the present case, the trial court acknowledged AT&T Mobility but declined to
follow it. It explained that AT&T Mobility “applies to consumer cases and not to a
complaint such as this where plaintiff is seeking . . . wages, back wages, and order time
[sic] and things of that nature.”
The trial court’s decision, based on an alleged distinction between consumer and
nonconsumer arbitration, is contrary to the broad language in AT&T Mobility regarding
classwide arbitration under the FAA. For example, the court said, “When state law
prohibits outright the arbitration of a particular type of claim, the analysis is
straightforward: The conflicting rule is displaced by the FAA. [Citation.] But the inquiry
becomes more complex when a doctrine normally thought to be generally applicable,
16
such as duress or, as relevant here, unconscionability, is alleged to have been applied in a
fashion that disfavors arbitration.” (AT&T Mobility, supra, 131 S.Ct. at p. 1747.)
Accordingly, the court held that “[t]he overarching purpose of the FAA, evident in
the text of §§ 2, 3, and 4, is to ensure the enforcement of arbitration agreements
according to their terms so as to facilitate streamlined proceedings. Requiring the
availability of classwide arbitration interferes with fundamental attributes of arbitration
and thus creates a scheme inconsistent with the FAA.” (AT&T Mobility, supra, 131 S.Ct.
at p. 1748, italics added.) Thus, FAA preemption is not limited to consumer agreements.
In fact, as noted above, Stolt-Nielsen involved an arbitration clause in a charter party, not
a typical consumer contract.
The trial court in the present case opted to interpret AT&T Mobility narrowly by
limiting it to consumer cases. Instead, it chose to follow Brown v. Ralph’s Grocery,
supra, 197 Cal.App.4th 489.7 Brown filed a class action under the Private Attorneys
General Act of 20048 against her employer for alleged violations of the Labor Code.
The applicable arbitration agreement in Brown provided that there was no
authority to arbitrate class action or private attorney general disputes. (Brown v. Ralph’s
Grocery, supra, 197 Cal.App.4th at p. 495.) The trial court found both provisions
unconscionable. (Id. at p. 496.) After supplemental briefing was submitted on the effect
7 Brown was filed three months after AT&T Mobility. Nevertheless, review
was denied (2011 Cal. LEXIS 10809) and certiorari was denied sub nom. Ralphs Grocery
Co. v. Brown (2012) 132 S.Ct. 1910, 182 L.Ed.2d 771.
8 Labor Code sections 2698 through 2699.5.
17
of the AT&T Mobility preemption issue, the appellate court decided it did not have to
determine the FAA preemption issue because a factual showing had not been made as
required by Gentry v. Superior Court, supra, 42 Cal.4th 443.9 (Brown, at pp. 497-498.)
We therefore conclude that Brown is not authority on the FAA preemption issue
because it did not address it. The trial court therefore erred in failing to apply the
holdings of AT&T Mobility to this case.
We also conclude that the trial court erred in interpreting AT&T Mobility v.
Concepcion narrowly by attempting to make a distinction based on consumer and
nonconsumer arbitration agreements. (Lewis v. UBS Fin. Servs. (2011) 818 F.Supp.2d
1161, 1167.)
IX
DOES GENTRY v. SUPERIOR COURT SURVIVE AT&T MOBILITY?
In Gentry v. Superior Court, supra, 42 Cal.4th 443, our Supreme Court
summarized the case as follows: “In this case we consider whether class arbitration
waivers in employment arbitration agreements may be enforced to preclude class
arbitrations by employees whose statutory rights to overtime pay pursuant to Labor Code
sections 500 et seq. and 1194 allegedly have been violated. We conclude that at least in
some cases, the prohibition of classwide relief would undermine the vindication of the
employees’ unwaivable statutory rights and would pose a serious obstacle to the
9 Certiorari denied by Circuit City Stores v. Gentry (2008) 552 U.S. 1296[128 S.Ct. 1743, 170 L.Ed.2d 541]. Gentry is separately discussed below.
18
enforcement of the state’s overtime laws. Accordingly, such class arbitration waivers
should not be enforced if a trial court determines, based on the factors discussed below,
that class arbitration would be a significantly more effective way of vindicating the rights
of affected employees than individual arbitration. We therefore reverse the judgment of
the Court of Appeal upholding the class arbitration waiver and remand for the above
determination.” (Id. at p. 450, fn. omitted.)
Arroyo cites Truly Nolen, supra, 208 Cal.App.4th 487. In that case, as here, the
arbitration agreements were silent on the issue of classwide arbitration. The trial court
granted the motion to compel arbitration but allowed class arbitration, citing Gentry.
(Truly Nolen, at pp. 492-493.)
Truly Nolen filed a petition for writ of mandate challenging the trial court’s
refusal to order individual arbitration. The petition contended that AT&T Mobility had
overruled Gentry. (Truly Nolen, supra, 208 Cal.App.4th at p. 493.)
The court responded, “Although Concepcion’s reasoning strongly suggests that
Gentry’s holding is preempted by federal law, the United States Supreme Court did not
directly rule on the class arbitration issue in the context of unwaivable statutory rights
and the California Supreme Court has not yet revisited Gentry. Thus, we continue to be
bound by Gentry under California’s stare decisis principles. However, we conclude the
trial court’s application of the Gentry elements was unsupported on the factual record
before it.” (Truly Nolen, supra, 208 Cal.App.4th at p. 493.)
19
The opinion continues with a comprehensive examination of the cases and a
thorough discussion of the issue presented here.
It summarizes the discussion as follows: “Based on Concepcion’s expansive
language and its clear mandate that arbitration agreements must be enforced according to
their terms despite a state’s policy reasons to the contrary, and the United States Supreme
Court’s recent holding that this principle extends to federal statutory claims [citation], we
agree with those courts that have questioned the continuing validity of the Gentry
standard to invalidate an express arbitration waiver contained in an employment
arbitration agreement governed by the FAA. This same conclusion applies to
employment arbitration agreements that do not contain an express or implied agreement
to permit class arbitration. Under the reasoning of Concepcion and Stolt-Nielsen, absent
a showing of mutual consent, it is questionable whether courts can validly invoke Gentry
to require an objecting party to engage in classwide arbitration.” (Truly Nolen, supra,
208 Cal.App.4th at p. 506.)
Nevertheless, the court follows Gentry: “Plaintiffs argue that we should adhere to
Gentry until the California Supreme Court has the opportunity to review the decision in
light of the recent United States Supreme Court decisions in Concepcion and Stolt-
Nielsen. We find this argument persuasive. On federal statutory issues, intermediate
appellate courts in California are absolutely bound to follow the decisions of the
California Supreme Court, unless the United States Supreme Court has decided the same
question differently. [Citations.] Although we agree with Truly Nolen that Concepcion
20
implicitly disapproved the reasoning of the Gentry court, the United States Supreme
Court did not directly address the precise issue presented in Gentry. Under the
circumstances, we decline to disregard the California Supreme Court’s decision without
specific guidance from our high court. [Citation.]” (Truly Nolen, supra, 208 Cal.App.4th
at p. 507.)
We agree with the Truly Nolen analysis. Although many other cases10 reach
varying results on the scope of AT&T Mobility, we agree that Gentry remains good law
until our Supreme Court decides otherwise.11 We therefore assume that Gentry is valid
in the following discussion. (Brown v. Ralph’s Grocery, supra, 197 Cal.App.4th at p.
494; Kinecta Alternative Financial Solutions, Inc. v. Superior Court (2012) 205
Cal.App.4th 506, 516.)
Gentry states, “[W]hen it is alleged that an employer has systematically denied
proper overtime pay to a class of employees and a class action is requested
notwithstanding an arbitration agreement that contains a class arbitration waiver, the trial
10 See, for example, Nelsen v. Legacy Partners Residential, Inc. (2012) 207
Cal.App.4th 1115, 1131-1132 (collecting cases).
11 Our Supreme Court states in Gentry that it granted review to clarify the
holding in Discover Bank. (Gentry v. Superior Court, supra, 42 Cal.4th at p. 452.) The
first “clarification” is entitled “Class Arbitration Waiver in Overtime Cases May Be
Contrary to Public Policy.” (Id. at p. 453, italics omitted.) However, AT&T Mobility
states that Stolt-Nielsen holds that “an arbitration panel exceeded its power under
§ 10(a)(4) of the FAA by imposing class procedures based on policy judgments rather
than the arbitration agreement itself or some background principle of contract law . . . .”
(AT&T Mobility, supra, 131 S.Ct. at p. 1750.) The court thus finds that general public
policy grounds are not sufficient to overcome the requirement that the parties must agree
to arbitrate the issue or establish a general contract law defense.
21
court must consider the factors discussed above: the modest size of the potential
individual recovery, the potential for retaliation against members of the class, the fact that
absent members of the class may be ill informed about their rights, and other real world
obstacles to the vindication of class members’ rights to overtime pay through individual
arbitration. If it concludes, based on these factors, that a class arbitration is likely to be a
significantly more effective practical means of vindicating the rights of the affected
employees than individual litigation or arbitration, and finds that the disallowance of the
class action will likely lead to a less comprehensive enforcement of overtime laws for the
employees alleged to be affected by the employer’s violations, it must invalidate the class
arbitration waiver to ensure that these employees can ‘vindicate [their] unwaivable rights
in an arbitration forum.’ [Citation.]” (Gentry v. Superior Court, supra, 42 Cal.4th at
p. 463, fn. omitted.)
The problem Arroyo faces is that he made no factual showing on the Gentry
elements, even though his memorandum of points and authorities emphasized the
continuing viability of Gentry. Accordingly, Arroyo now argues that we should remand
for a determination of whether the application of the Gentry factors invalidates the waiver
provision.
We decline the invitation. Arroyo was well aware of the Gentry issue, and his
failure to present the necessary factual evidence to the trial court means that he failed to
meet his burden of proof to show that the petition for arbitration should be denied.
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Secondly, as we have found, the arbitration agreement was silent on the question
of class arbitration. Accordingly, Stolt-Nielsen applies. The case holds that a class action
claim cannot be arbitrated unless there is “a contractual basis for concluding that the
party agreed to do so.” (Stolt-Nielsen S.A. v. AnimalFeeds International Corp., supra,130 S.Ct. at p. 1775.) There was no such contractual basis here, and it is clear from
Arroyo’s own declaration that one could not be shown on remand.
Third, in Truly Nolen, the court did remand for a determination of the threshold
issue of whether there was an implied agreement to authorize class arbitration, but it did
not remand for further consideration of the Gentry factors. (Truly Nolen, supra, 208
Cal.App.4th at p. 516.)
Thus, even assuming that Gentry survives until our Supreme Court declares
otherwise, the assumption does not help Arroyo. “Even if Gentry has not been overruled,
in opposing Kinecta’s motion to compel arbitration and to dismiss class claims, Malone
had to provide evidence of the four Gentry factors. Plaintiff has the burden of
establishing that the arbitration provision (here, limiting arbitration to bilateral
arbitration) is invalid by making a factual showing of the four Gentry factors. [Citation.]
The record shows that Malone provided no evidence as to any of the four Gentry factors
required to support a trial court’s determination that the arbitration should proceed as a
class action arbitration. Thus there is no evidence, and no substantial evidence, that
plaintiff had established a factual basis that would require a declaration that the
arbitration agreement was unenforceable. [Citation.] [¶] Because there are no grounds
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to declare the arbitration agreement unenforceable and because the arbitration provision
contained no agreement to classwide arbitration, Kinecta argues that Concepcion and
Stolt-Nielson require reversal of the order denying its request to dismiss class claims from
Malone’s complaint. We agree.” (Kinecta Alternative Financial Solutions, Inc. v.
Superior Court, supra, 205 Cal.App.4th at p. 517.)
“[T]he court in Gentry, supra, 42 Cal.4th at page 446, required a factual showing
under the four-factor test established in that case. Plaintiff, however, made no such
showing in opposing the petition to compel arbitration. Thus, there was no evidence,
much less substantial evidence, supporting the trial court’s finding that under Gentry,
plaintiff had established a basis not to enforce the class action waiver. As a result, we
reverse the trial court’s ruling invalidating the class action waiver.” (Brown v. Ralph’s
Grocery Co., supra, 197 Cal.App.4th at p. 497.)
We therefore agree with Riverside that Gentry is inapplicable here because there
was no evidence that the Gentry factors have been met. This is a failure of proof which
precludes reliance on Gentry.
X
SUMMARY
We summarize our resolution of the issues raised by the parties as follows:
1. While the trial court did not expressly find the existence of a contract to
arbitrate, it impliedly found there was an arbitration agreement, albeit an unenforceable
one.
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2. The arbitration agreement was not unconscionable because, although it was
clearly a contract of adhesion, the trial court did not find substantive unconscionability.
Arroyo failed to establish substantive unconscionability and therefore failed to meet his
burden of proof. The arbitration agreement is therefore valid and enforceable.
3. The arbitration agreement did not expressly provide that class action claims
were arbitrable. Such claims are not impliedly arbitrable since the parties did not
specifically agree to them. (Stolt-Nielsen S.A. v. AnimalFeeds International Corp., supra,130 S.Ct. at p. 1775.)
4. If the arbitration agreement was interpreted to allow class action arbitration
in this case, any such provision would be preempted by the FAA. The trial court erred in
failing to apply the holdings of AT&T Mobility, supra, 131 S.Ct. 1740 to this case.
5. Although we discern a strong argument for preemption, we assume
arguendo that Gentry remains good law until it is expressly overruled by our Supreme
Court. Nevertheless, we agree with Riverside that Arroyo has not met its burden of proof
by making the factual showing required by Gentry.
We conclude that Riverside has shown the existence of a valid enforceable
arbitration agreement. (§ 1281.) Arroyo has not shown that the arbitration agreement is
unenforceable under general principles of unconscionability. Arroyo has also failed to
show that the parties agreed, expressly or impliedly, to arbitration of class action claims.
Even assuming that Gentry survives AT&T Mobility, as Arroyo argues, he has not met the
factual burden of proof required by Gentry.
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The trial court therefore erred in denying Riverside’s petition to compel
arbitration.
XI
DISPOSITION
The judgment is reversed, and the case is remanded with directions to enter an
order granting Riverside’s petition to compel arbitration on an individual basis.
Appellant shall recover its costs on appeal.
NOT TO BE PUBLISHED IN OFFICIAL REPORTS.
RICHLI
J.
We concur:
HOLLENHORST
Acting P. J.
KING
J.
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