Depart. of Fair Employment and Housing v. Cisco Systems, Inc.

Filed 8/5/22
CERTIFIED FOR PUBLICATION
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SIXTH APPELLATE DISTRICT
DEPARTMENT OF FAIR H048910
EMPLOYMENT AND HOUSING, (Santa Clara County
Super. Ct. No. 20-CV-372366)
Plaintiff and Respondent,
v.
CISCO SYSTEMS, INC., et al.,
Defendants and Appellants.
The issue in this case is whether the Department of Fair Employment and Housing
can be compelled to arbitrate an employment discrimination lawsuit when the affected
employee agreed to resolve disputes with the employer through arbitration. We conclude
the Department cannot be required to arbitrate in that situation because it did not agree to
do so. We will therefore affirm the denial of the employer’s motion to compel
arbitration.
I. BACKGROUND
Cisco Systems, Inc. hired John Doe in September 2015 to work as an engineer.
(John Doe is a fictitious name used in the trial court proceedings to protect the
employee’s privacy.) Doe was required to sign an arbitration agreement as a condition of
his employment. Under the agreement, Cisco and Doe must arbitrate “all disputes or
claims arising from or relating to” Doe’s employment, including claims of
discrimination, retaliation, and harassment.
Several years after signing the agreement, Doe filed a complaint with the
California Department of Fair Employment and Housing, the administrative agency
responsible for enforcing state employment discrimination laws. The Department of Fair
Employment and Housing investigates violations of the California Fair Employment and
Housing Act (“FEHA”; Gov. Code, § 12900 et seq.; unspecified statutory references are
to this code). When it receives a complaint of employment discrimination, the
Department has authority to issue subpoenas, take depositions, and propound written
interrogatories. (§§ 12963.1, 12963.2, 12963.3.) If it determines the complaint has
merit, the Department must try to informally resolve it with the employer by “conference,
conciliation, and persuasion.” (§ 12963.7.)
If the matter is not resolved informally, the Department can decline to pursue it
further and instead issue a right to sue notice to the complainant, which allows the
employee to file a lawsuit against the employer. (§ 12965, subd. (c)(1)(A).) Or the
Department can itself sue the employer for violating FEHA. (§ 12965, subd. (a)(1).) The
affected employee has the right to participate as a plaintiff in a suit by the Department but
is not required to do so. (§ 12965, subd. (a)(3).)
Doe’s complaint to the Department alleged Cisco discriminated against him
because of ancestry or race. He reported that two supervisors denied him opportunities
and disparaged him because, under the traditional caste system of India, he is from the
lowest caste and they are from the highest. Doe also accused Cisco of retaliating when
he complained about being treated unfavorably because of his caste.
The Department notified Cisco of Doe’s complaint, investigated it, and decided it
had merit. Attempts at informal resolution were unsuccessful. The Department then
filed a lawsuit in Santa Clara County Superior Court against Cisco and the two
supervisors. Doe is not a party to the suit.
The Department’s complaint contains five causes of action alleging multiple
violations of FEHA. It seeks a permanent injunction preventing Cisco from committing
further violations, and mandatory injunctive relief requiring Cisco to institute policies to
prevent employment discrimination. The complaint requests an order that Cisco
2
compensate Doe for past and future economic losses. It also seeks punitive damages and
any further relief the trial court decides is in the public interest.
Cisco moved to compel the Department to proceed only by arbitration based on
the arbitration agreement Doe signed. The trial court denied the motion.
II. DISCUSSION
Cisco contends the Department is bound by Doe’s arbitration agreement and that
the trial court therefore should have granted the motion to compel arbitration. Whether
an arbitration agreement binds a third party is a legal question we review de novo.
(Benaroya v. Willis (2018) 23 Cal.App.5th 462, 468.)
An arbitration agreement is a contract in which the parties agree to give up the
right to take disputes to court in exchange for receiving a generally faster and less costly
decision from an agreed-upon arbitrator. Issues regarding formation of an arbitration
agreement are governed by state law principles applicable to contracts generally.
(Dotson v. Amgen, Inc. (2010) 181 Cal.App.4th 975, 980.)
Fundamental to any contract is mutual consent. A contract cannot exist unless
both parties have agreed to the same thing. (Civ. Code, § 1550; see also Weddington
Productions, Inc. v. Flick (1998) 60 Cal.App.4th 793, 811.) As a result, parties cannot be
compelled to arbitrate a dispute they have not agreed to resolve that way. (County of
Contra Costa v. Kaiser Foundation Health Plan, Inc. (1996) 47 Cal.App.4th 237, 245;
see also, Benasra v. Marciano (2001) 92 Cal.App.4th 987, 990 [strong public policy in
favor of arbitration does not extend to those who are not parties to arbitration
agreement].)
The Department never consented to resolve disputes with Cisco by arbitration, so
it ordinarily cannot be compelled to arbitrate those disputes. However we acknowledge
that arbitration agreements can be enforced against third parties in certain situations.
(Cohen v. TNP 2008 Participating Notes Program, LLC (2019) 31 Cal.App.5th 840,
859.) Nonsignatories have been bound by arbitration agreements when the nonsignatory
3
assumed the obligations of the party who signed the agreement; when an agency
relationship exists between the nonsignatory and the signer; and when the nonsignatory is
the alter ego of the signer. (Ibid., citing Benaroya v. Willis (2018) 23 Cal.App.5th 462,
468.) Cisco’s theory is along those lines: that the Department is bound by the arbitration
agreement because it is Doe’s proxy in this action and is not acting independently.
The plain language of the Government Code sections giving the Department
authority to enforce employment discrimination laws indicates otherwise. The
Department is authorized “to bring civil actions pursuant to section 12965” and “to
prosecute those civil actions before state and federal trial courts.” (§ 12930, subd. (h).)
Under section 12965, subdivision (a)(1), “the director in the director’s discretion may
bring a civil action in the name of the department on behalf of the person claiming to be
aggrieved.” With those provisions, the Legislature gave the Department the ability to sue
an employer directly for violating FEHA.
Some regulatory laws can be enforced only by the state, precluding private parties
from suing for violations. (Lu v. Hawaiian Gardens Casino, Inc. (2010) 50 Cal.4th 592,
596.) But in the area of employment discrimination, the Legislature has allowed both for
affected employees to enforce the law (after exhausting the administrative remedies
provided for by FEHA), and for an administrative agency—the Department of Fair
Employment and Housing—to do so as well. That structure promotes robust
enforcement and advances the Legislature’s stated aim of providing “effective remedies
that will both prevent and deter unlawful employment practices and redress the adverse
effects of those practices on aggrieved persons.” (§ 12920.5.)
As the public arm of the enforcement procedure, the Department acts
independently when it sues for FEHA violations.1 Were it merely a proxy, the employee
1
After oral argument in this matter, the Legislature amended FEHA to clarify the
Department’s role in pursuing litigation on behalf of the public. (See Assem. Bill
No. 2662, effective June 21, 2022, adding Gov. Code, § 12930, subd. (o) [“By
4
would decide whether to bring an action, and the Department would be limited to
pursuing only the relief that could be obtained by the employee. But under the relevant
legislation, the Department has discretion to decide whether to file suit (§ 12965,
subd. (a)(1)), and it can seek remedies beyond those available in a suit brought by an
employee (§ 12965, subd. (c) [providing, as an example of such additional relief, an order
that the employer conduct training for all employees on FEHA requirements]). (See also,
Department of Fair Employment and Housing v. Superior Court (2020)
54 Cal.App.5th 356, 373 [the Department acts as a public prosecutor when it pursues
litigation and can seek remedies to vindicate the public interest in preventing
discrimination].) The ability to decide whether to file an action and the ability to pursue
relief separate from what can be obtained by an employee confirm that the Department
operates as an independent party in an enforcement lawsuit. (See EEOC v. Waffle House,
Inc. (2002) 534 U.S. 279, 291 [The EEOC, the Department’s federal counterpart, is not
bound by employee arbitration agreements because it has the ability determine whether to
file suit and what relief to pursue.].) Although the affected employee is not a party in this
case, the right of an employee to join as a plaintiff in an action brought by the
Department also supports this view. (§ 12965, subd. (a)(3).) An employee joining a suit
by the Department is entitled to separate counsel. (Ibid.) We do not see how the
performing the functions and duties and exercising the powers set forth in this part, the
department represents the interests of the state and effectuates the declared public policy
of the state to protect and safeguard the rights and opportunities of all persons from
unlawful discrimination and other violations of this part. This subdivision is declarative
of existing law as stated in Department of Fair Employment and Housing v. Cathy’s
Creations, Inc. (2020) 54 Cal.App.5th 404, 410.”]; and amending § 12965, subd. (a) and
§ 12981, subd. (a) to add language indicating that when the Department brings a civil
action it is “acting in the public interest.”) Our decision is based on the statute as it
existed at the time the arbitration agreement in question was formed and at the time this
action was filed. We note the statutory amendments do not alter our conclusion; indeed,
the new language supports the result we reach here.
5
Department could be a proxy for an employee when the law contemplates that both the
Department and the employee can be plaintiffs, each represented by separate counsel.
Cisco seizes on statutory language providing that the Department files suit “on
behalf of the person claiming to be aggrieved” (§ 12965, subd. (a)(1)) and in such an
action “the person claiming to be aggrieved shall be the real party in interest” (§ 12965,
subd. (a)(3)). Cisco argues those provisions mean that only the employee has an interest
in the suit, not the Department. Indeed, the Department brings an action on behalf of an
affected employee because at least some of the remedies sought are for the employee.
That makes the employee a real party in interest, but it does not undermine or conflict
with the Department having an independent interest in FEHA enforcement.
A real party in interest has a substantial interest in the subject matter of the action
and stands to benefit from or be injured by a judgment. (Cohen v. TNP 2008
Participating Notes Program, LLC, supra, 31 Cal.App.5th 840, 859.) All real parties in
interest are bound by the judgment in the action. (Wolford v. Thomas (1987)
190 Cal.App.3d 347, 357.) Ensuring the employee is bound by the judgment, favorable
or unfavorable, protects employers from successive litigation. (See Redevelopment
Agency of San Diego v. San Diego Gas & Electric Co. (2003) 111 Cal.App.4th 912, 920–
921 [statutes limiting standing to real parties in interest prevent duplicative claims on the
same demand]; see also Code Civ. Proc. § 367 [“Every action must be prosecuted in the
name of the real party in interest, except as otherwise provided by statute.”].)
In section 12965, the Legislature has allowed the Department to sue for violations
and seek various remedies, even though the affected employee is the real party in interest.
Nothing in section 12965 eliminates the broader state interest in litigating the suit to
protect the public from unlawful discriminatory practices. Cisco asserts that the
Legislature’s purpose was merely to require the Department to provide legal
representation to employees in FEHA suits. Cisco bases the argument on the legislative
history of a 1992 amendment to section 12965 (which implemented an administrative
6
adjudication procedure that the Legislature has since eliminated).2 The former
administrative hearing process applied where damages could be awarded against
employers, but also allowed employers to opt out, in which case the Department could
file suit to resolve the claims. Although later amendments eliminated the administrative
hearing procedure, some language relating to Department actions filed after an employer
has opted out remains in the current statute: in such an action the employee “shall be the
real party in interest and shall have the right to participate as a party and be represented
by that person’s own counsel.” (§ 12965, subd. (a)(3).) Citing excerpts from the 1992
legislative history, Cisco argues section 12965 was never intended to allow the
Department to independently bring a civil action; rather, it was intended only to require
the Department to provide “legal assistance” to employees when an employer opted out
of administrative proceedings.
We reject Cisco’s legislative history argument for three reasons. First, the
statutory language authorizing the Department to “bring a civil action in the name of the
department on behalf of the person claiming to be aggrieved,” is sufficiently clear in
describing an independent action. Legislative history is properly considered only where
the plain statutory language is unclear or where the literal meaning of a statute is at odds
with its clear purpose. (See Huff v. Securitas Security Services USA, Inc. (2018)
23 Cal.App.5th 745, 755.) Second, the words of the statute—authorizing the Department
to bring a civil action—are directly contrary to the meaning urged by Cisco (which would
limit the Department’s role to providing legal counsel to employees). (Ibid. [“Legislative
history, even when appropriately considered, cannot be used to contradict language that
the Legislature decided to include in the statute.”].) Using legislative history to alter the
meaning of the text would be particularly inappropriate here where the legislative history
relates to a former version of the statute. And third, the documents Cisco relies on show
2
We grant Cisco’s request that we take judicial notice of the legislative history.
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only the subjective motivation of the bill’s author, rather than the Legislature as a whole.
Materials that reflect the understanding of an individual legislator, even the bill’s author,
are generally not considered in ascertaining the meaning of a statute as they do not
demonstrate the Legislature’s collective intent. (Metropolitan Water District of Southern
California v. Imperial Irrigation Dist. (2000) 80 Cal.App.4th 1403, 1426.)
Cisco compares the text authorizing the Department to bring an action for
employment discrimination under section 12965 with FEHA provisions allowing the
Department to sue in other contexts. In Cisco’s view, that comparison reflects legislative
intent to allow an independent action by the Department in the other contexts but not for
individual complaints of employment discrimination. Cisco points to section 12981,
relating to housing discrimination, which expressly acknowledges the ability of the
Attorney General to bring suit for housing discrimination and authorizes the Department
to do so as well. But the lack of a similar reference to the Attorney General in
section 12965 does not change the clear meaning of the language that the Department can
“bring a civil action in the name of the department on behalf of the person claiming to be
aggrieved” by employment discrimination. (§ 12965, subd. (a)(1).) Cisco also cites
section 12974, which authorizes the Department to file an action seeking temporary
injunctive relief to prevent employment discrimination while an administrative complaint
process is pending. But we do not see how specifically allowing for provisional
injunctive relief precludes or limits the filing of a later enforcement action if the matter is
not resolved administratively. (Department of Fair Employment and Housing v. Superior
Court, supra, 54 Cal.App.5th 356; 385.) Nothing in the other statutes Cisco references
affects the dispositive point: the Department has authority to file a civil action to enforce
employment discrimination laws. (See §§ 12930, subd. (h), and 12965, subd. (a)(1).)
Our conclusion is consistent with related authorities. In Armendariz v. Foundation
Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, 99, fn. 6, the California Supreme
Court decided that an employee’s claim for employment discrimination in violation of
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FEHA is not categorically exempt from arbitration. In dicta there, the Supreme Court
stated, “Nothing in this opinion, however, should be interpreted as implying that an
arbitration agreement can restrict an employee’s resort to the Department of Fair
Employment and Housing, the administrative agency charged with prosecuting
complaints made under the FEHA, or that the department would be prevented from
carrying out its statutory functions by an arbitration agreement to which it is not a party.”
(Ibid., at p. 99, fn. 6.) Although whether the Department is bound by an employee’s
arbitration agreement was not decided in Armendariz, Supreme Court dicta “is not to be
blithely ignored,” and is typically followed by appellate courts. (Bunch v. Coachella
Valley Water Dist. (1989) 214 Cal.App.3d 203, 212.)
Our conclusion reflects the view of the United States Supreme Court in EEOC v.
Waffle House, Inc., supra, 534 U.S. 279, 291, which held that the federal agency charged
with enforcing employment discrimination laws is not bound by an employee’s
agreement to arbitrate. And very recently, the Supreme Court decided Viking River
Cruises, Inc. v. Moriana (2022) ___ U.S ___ [2022 U.S. LEXIS 2940], a case involving
an unrelated issue (whether California’s rule invalidating waivers of representative claims
under the Private Attorneys General Act is preempted by federal law). That decision
reaffirmed, consistent with what we say here, that arbitration is a matter of consent and a
party cannot be compelled to arbitrate absent a contractual basis for concluding the party
agreed to do so. (Viking River Cruises, Inc. v. Moriana, at p. *6.).
Our reasoning also aligns with a decision from the Ninth Circuit Court of Appeals
and cases from other states declining to require administrative enforcement agencies to
arbitrate without their consent. (See Walsh v. Arizona Logistics (9th Cir. 2021)
998 F.3d 393 [federal Department of Labor not bound by employee’s arbitration
agreement]; Joule, Inc. v. Simmons (Mass. 2011) 459 Mass. 88, 97 [Massachusetts
Supreme Court holding Massachusetts Commission Against Discrimination not bound by
employee’s arbitration agreement]; Rent-A-Center, Inc. v. Iowa Civil Rights Commission
9
(Iowa 2014) 843 N.W.2d 727, 741 [Iowa Supreme Court holding Iowa Civil Rights
Commission not bound by employee’s arbitration agreement].)
We note “the public policy of this state that it is necessary to protect and safeguard
the right and opportunity of all persons to seek, obtain, and hold employment without
discrimination or abridgment on account of race, religious creed, color, national origin,
ancestry,” or other protected characteristics. (§ 12920.) To implement that policy, the
Legislature created the Department and gave it broad powers to investigate employment
discrimination complaints and bring civil actions against violators when necessary. The
Department acts independently when it exercises the power to sue for FEHA violations.
As an independent party, the Department cannot be compelled to arbitrate under an
agreement it has not entered.
III. DISPOSITION
The order denying the motion to compel arbitration is affirmed. Costs are
awarded to respondent by operation of rule 8.278(a)(1) of the California Rules of Court.
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____________________________________
Grover, Acting P. J.
WE CONCUR:
____________________________
Danner, J.
____________________________
Lie, J.
H048910 - Department of Fair Employment and Housing v. Cisco Systems Inc. et al.
Trial Court Santa Clara County Superior Court
Superior Court No. 20-CV-372366
Trial Judge Hon. Drew C. Takaichi
Counsel for Plaintiff and Respondent Sirithon Thanasombat
Department of Fair Employment and Melanie Lea Proctor
Housing Janette L. Wipper
California Department of Fair Employment &
Housing
Chaya M. Mandelbaum
Michelle G Lee
Rudy, Exelrod, Zieff & Lowe, LLP
Overview Party Office of the Attorney General
455 Golden Gate Avenue, Suite 11000
San Francisco, CA 94102
Counsel for Defendant and Appellant Lynne C. Hermle
Cisco Systems, Inc. Joseph C. Liburt
Carolina Aicon Garcia
Orrick, Herrington & Sutcliffe
Rex Heinke
Jessica M. Weisel
California Appellate Law Group LLP
Counsel for Defendants and Alexander John Hernaez
Appellants Ramana Kompella and Andrew Stephen Esler
Sundar Iyer Fox Rothschild LLP