Petition for Writ of Certiorari — Auto Stiegler, Inc. v. Little

Supreme Court brief2003

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O02 1720 MAY 22 2003

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In the

Supreme Court of the Anited States

AuTo STIEGLER, INC.,

Petitioner,

ALEXANDER M. LITTLE,

Respondent.

On PETITION For Writ OF CERTIORARI

To THE SuPREME Court OF CALIFORNIA

PETITION FOR WRIT OF CERTIORARI

CHRISTOPHER C. HOFFMAN

Counsel of Record

Davw R. KRESSER

FIsHER & PuHILties LLP FIsHER & PHILLiIps LLP

Sure 1980 1500 RESURGENS PLAZA

101 West BRoADWAY. 945 East Paces Ferry Roap

SAN Disco, CA 92101 ATLANTA, GA 30326

(619) 881-1960 (404) 231-1400

Counsel for Petitioner

BECKER GALLAGHER LEGAL PUBLISHING, INC.,

CINCINNATI, OHIO 800-890-5001

REN MTR, erm UN Ow em POE SPREE ot a se TTT t 2s

QUESTION PRESENTED

Whether the Federal Arbitration Act preempts the

Supreme Court of California’s blanket rule that all employers

must always pay all arbitration forum costs in matters

involving state law claims of wrongful termination in violation

of public policy?

Seenlieteatadiee tien al

PARTIES TO THE PROCEEDING AND

CORPORATE DISCLOSURE STATEMENT

The parties to the proceeding are set forth in the case

caption. Petitioner Auto Stiegler, Inc. is a privately held

corporation. Auto Stiegler, Inc. is unaware of any publicly

traded company owning 10 percent or more of its stock.

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TABLE OF CONTENTS

QUESTION PRESENTED

PARTIES TO THE PROCEEDING AND

CORPORATE DISCLOSURE STATEMENT

TABLE OF CONTENTS

CONSTITUTIONAL AND STATUTORY

PROVISIONS INVOLVED

I. Overview of the case.

II. Factual background.

I. The FAA preempts state statutes and judicially

created rules that interfere with the

enforcement of arbitration agreements subject

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II. The “employer always pays” rule is also in

irreconcilable conflict with the Court’s

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Ill. The creation of the “employer always pays”

rule in matters involving the arbitration of

state law public policy claims is based on a

flawed analysis of FAA preemption and the

federal appeals court case from which it was

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;

IV. The Court should prevent the “employer

always pays” rule from expanding to every

predispute employment arbitration agreement

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APPENDIX

Appendix A

Decision of the Supreme Court of California -

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Appendix B

Decision of the Court of Appeal of the State of

California, Second Appellate District, Division

Five - Dated September 17,2001 ......... 47a

Appendix C

Minute Order of the Superior Court of

California, County of Los Angeles - Dated

Pe Bi I ee eee ee 64a

Appendix D

Transcript of Hearing Held on August 7, 2000

in the Superior Court of California, County of

COG FO 6 6k hs Oo a See 69a

Appendix E

Arbitration Agreement Between Auto Stiegler,

Inc. and Alexander M. Little - Dated January

TD, SOE occ ccd s ¥ewe see oe 85a

Appendix F

Portions of State Court Record Where

Preemption Argument Raised ............ 87a

TABLE OF AUTHORITIES

Cases:

Allied-Bruce Terminix Cos. v. Dobson,

SES UB. Bae Clee vce wt essen es 4, 11, 12, 16

Armendariz v. Foundation Health Psychcare Servs., Inc..,

24 Cal. 4th 83, 6 P.3d 669,

99 Cal. Rptr. 2d 745 (2000) .... 3, 6-9, 15, 17-21

Brown v. Wheat First Securities, Inc. ,

250 F356 Gal GOA. Gals Bee? ss 8 tw ees 18-21

Cartage, Inc. v. Ford Dealers Adver. Ass’n,

446 F.26 239 Oi Cet. F97E) ow wee ewes. 11

Circuit City Stores, Inc. v. Adams,

Soe We. POO CHE) 0 vas eet wses 4,11, 12, 21

Cole v. Burns Intern. Sec. Svcs.,

105 F.2d 1465 (D.C. Cir. 1997) .... 7, 17-19, 21

Dean Witter Reynolds, Inc. v. Byrd,

GAs is BOF CE 4 een ee eee 10

Doctors Assocs., Inc. v. Casarotto,

Jit We. Gee CORE ook re eS 5, 11, 16

Free v. Bland, 369 U.S. 663 (1962) ............. 21

Gilmer v. Interstate Johnson Lane Corp..,

Foe Ue. BOPP es eee encase 12, 16, 17, 19

Green Tree Fin. Corp. v. Randolph,

531 U.S. 79 (2000) ..... 4, 8, 13, 14, 16, 19, 20

Laprade v. Kidder, Peabody & Co., Inc.,

wae Fae Fe G.. CR. BOE) ove cece cess 20

Mastrobuono v. Shearson Lehman Hutton, Inc.,

gk ee. Fs. Seer re 11, 12, 16

Mitsubishi Motors v. Soler Chrysler-Plymouth,

dk | ft ea are 16

Moses H. Cone Mem’l. Hosp. v. Mercury Constr. Corp.,

og ee er ee ee eee 13

Musnick v. King Motor Co. of Ft. Lauderdale,

2003 U.S. App. LEXIS 6014 (11th Cir. 2003) . . 14

Perry v. Thomas, 482 U.S. 483 (1987) ..... 11, 16, 21

Shearson/American Express, Inc. v. McMahon,

Ee: ee ee eee 16

Southland Corp. v. Keating,

oe ee eee re 3, 41, 12, 21

Volt Info. Sciences, Inc. v. Bd. of Trs. of Leland

Stanford Junior Univ.,

og ee ree 4,10

Constitutional Provision and Statutes:

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CEO. hs OCR eee 2, 4, 10, 14

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California Arbitration Act, § 1284.2 ......... 2, 6, 16

California Fair Employment and Housing Act,

Ce. SOO. Ti Se SE. 0k 0 80 40 Ho wee ew eo es 3, 6

Vili

OPINIONS BELOW

The February 27, 2003, decision of the Supreme Court of

California is reported at 29 Cal. 4th 1064, 63 P.3d 979, 130

Cal. Rptr. 2d 892 and is reprinted at App. 1a - 46a. The

September 17, 2001, decision of the Court of Appeal of

California, Second Appellate District, Division Five, is

reported at 92 Cal. App. 4th 329, 112 Cal. Rptr. 2d 56 and is

reprinted at App. 47a - 63a. The November 2; 2000,

unpublished minute order of the Superior Court of California,

County of Los Angeles, is reprinted at App. 64a - 68a. The

transcript of the hearing held on August 7, 2000, in the

Superior Court of California, County of Los Angeles, is

reprinted at App. 69a - 84a.

STATEMENT OF JURISDICTION

The Supreme Court of California issued its decision on

February 27, 2003. This petition for certiorari is timely in

that Petitioner has filed it within 90 days of February 27,

2003. The Court has jurisdiction pursuant to 28 U.S.C. §

1257(a).

CONSTITUTIONAL AND STATUTORY

PROVISIONS INVOLVED

Article VI of the United States Constitution provides in

relevant part: .

This Constitution, and the Laws of the United

States which shall be made in Pursuance

- thereof; and all Treaties made, or which shall

be made, under the Authority of the United

States, shall be the supreme Law of the Land;

and the Judges in every State shall be bound ©

thereby, any Thing in the Constitution or Laws

of any state to the Contrary notwithstanding.

————e_----—-—

The Federal Arbitration Act (“FAA”), 9 U.S.C. §§ 1-16

(1994), provides in relevant part:

§ 1 “[C]ommerce,” as herein defined, means

commerce among the several States or with

foreign nations, or in any Territory of the

United States or in the District of Columbia,

or between any such Territory and another, or

between any such Territory and any State or

foreign nation, or between the District of

Columbia and any State or Territory or foreign

nation, but nothing herein contained shall

apply to contracts of employment of seamen,

railroad employees, or any other class of

workers engaged in foreign or interstate

commerce.

§ 2 A written provision in any maritime

transaction or a contract evidencing a

transaction involving commerce to settle by

arbitration a controversy thereafter arising out

of such contract or transaction, or the refusal

to perform the whole or any part thereof, or an

agreement in writing to submit to arbitration

an existing controversy arising out of such a

contract, transaction, or refusal, shall be valid,

‘rrevocable, and enforceable, save upon such

grounds as exist at law or in equity for the

revocation of any contract.

The California Arbitration Act, § 1284.2 provides:

Unless the arbitration agreement otherwise

provides or the parties to the arbitration

otherwise agree, each party to the arbitration

shall pay his pro rata share of the expenses and

fees of the neutral arbitrator, together with

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other expenses of the arbitration incurred or

approved by the neutral arbitrator, not

including counsel fees or witness fees or other

expenses incurred by a party for his own

benefit.

STATEMENT OF THE CASE

The Court is asked to strike down a state court created

obstacle to arbitration of employment claims that is preempted

by the FAA.

I. Overview of the case.

Though the parties’ arbitration agreement contemplated a

sharing of arbitration forum costs, the Supreme Court of

California refused to enforce the agreement as written.

Instead the state court created a blanket rule that all employers

must always pay all arbitration forum costs in matters

involving state law claims of wrongful termination in violation

of public policy.’ This holding is preempted by the FAA.

Congress enacted the FAA “to assure those who desired

arbitration and whose contracts related to interstate commerce

that their expectations would not be undermined . . . by state

courts. ...” Southland Corp. v. Keating, 465 U.S. 1, 13

(1984). Recognizing “the widespread unwillingness of state

courts to enforce arbitration agreements,” Congress intended

the FAA “to be a broad enactment appropriate in scope to

1 The Supreme Court of California had previously created a

blanket rule that all employers must always pay all arbitration

forum costs in matters involving claims brought under the

California Fair Employment and Housing Act, Cal. Gov. Code, §

12900 et seq. Armendariz v. Foundation Health Psychcare Servs.,

Inc., 24 Cal. 4th 83, 6 P.3d 669, 99 Cal. Rptr. 2d 745 (2000).

This case represents an extension of the Armendariz rule to state

common law claims.

meet the large problems Congress was addressing” - - i.e.,

judicial hostility to arbitration - - “unencumbered by state-law

constraints.” Jd. at 13-14. The FAA therefore preempts all

state laws and rulings disfavoring arbitration, such as the

“employer always pays” rule at issue here. Allied-Bruce

Terminix Cos. v. Dobson, 513 U.S. 265, 272 (1995).

The Court recently affirmed that the FAA applies to “all

contracts of employment” except those of “transportation

workers.” Circuit City Stores, Inc. v. Adams, 532 U.S. 105,

109 (2001). “We have been clear in rejecting the supposition

that the advantages of the arbitration process somehow

disappear when transferred to the employment context.

[Citation omitted.] Arbitration agreements allow parties to

avoid the costs of litigation, a benefit that may be of particular

importance in employment litigation. .. .” Jd. at 123.

The Supreme Court of California holding is in

irreconcilable conflict with the FAA and decisions of the

Court interpreting the enforceability of agreements to arbitrate

subject to the FAA. An arbitration agreement, like the one

here, “shall be valid, irrevocable, and enforceable, save upon

such grounds as exist at law or in equity for the revocation of

any contract.” 9 U.S.C. §2. The FAA “requires courts to

enforce privately negotiated agreements to arbitrate, like other

contracts. in accordance with their terms.” Volt Info.

Sciences, Inc. v. Bd. of Trs. of Leland Stanford Junior Univ.,

489 U.S. 468, 478 (1989). The mere sharing of arbitration

forum costs, absent proof of such prohibitive expense that a

party’s substantive rights cannot be vindicated, is not grounds

for refusing to enforce an otherwise valid arbitration

agreement subject to the FAA. Green Tree Fin. Corp. v.

Randolph, 531 U.S. 79 (2000). Further, the “employer

always pays” rule created by the Supreme Court of California

is applicable only to a narrow category of employment

\ arbitration agreements, and not to contracts generally. As

such, this judicially-created state rule violates the FAA.

Doctors Assocs., Inc. v. Casarotto, 517 U.S. 681, 687 (1996)

(“Courts may not, however, invalidate arbitration agreements

under state laws applicable only to arbitration provisions. ”).

The Supreme Court of California created the “employer

always pays” rule over the dissent of three of the seven

Judges who heard the case. Judge Brown’s opinion, in which

Judges Baxter and Chin concurred, viewed the majority

decision as “turning the judicial clock backwards to an era of

hostility toward arbitration” and as “chipping away at” the

Court’s “precedents broadly construing the scope of the FAA

....” App. 46a. Judge Brown’s opinion concludes by

urging “the high court to clarify once and for all whether our

approach to arbitration law comports with its precedents.” Jd.

Il. Factual background.

Respondent Alexander M. Little worked for Petitioner

Auto Stiegler, Inc., an automobile dealership. App. 3a.

Before commencing his employment, and twice during his

employment, Little voluntarily signed contractual agreements

to resolve, through private binding arbitration, any

controversy arising out of or relating to his employment.

App. 3a, 48a. All three arbitration agreements are similar in

both form and substance; the last agreement is dated January

13, 1997, and is reprinted in Appendix E of this Petition.

The arbitration agreement provides that “any claim,

dispute or controversy . . . arising from, related to, or having

any relationship or connection whatsoever with .

employment by, or other association with, the Company,

whether based on tort, contract, statutory, or equitable law,

or otherwise, shall be submitted to and determined exclusively

by binding arbitration... .” App. 85 - 86a. The agreement

itself is silent as to arbitration forum costs, but it expressly

states that arbitrations are to take place “under the Federal

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Arbitration Act, in conformity with the procedures of the

California Arbitration Act... .” Jd. Section 1284.2 of the

California Arbitration Act contemplates that the parties will

share arbitration forum costs.

Auto Stiegler terminated Little’s employment, and Little

filed an action in state court alleging: (i) tortious demotion

and termination in violation of public policy, (ii) breach of an

implied contract of continued employment, and (iii) breach of

an implied contract of good faith and fair dealing. App. 50a.

Little did not sue under the California Fair Employment and

Housing Act or any other statute. Auto Stiegler’s response to

the state court action was a Motion.to Compel Arbitration and

to Stay the Proceedings. App. 50a, 72a. By its response,

Auto Stiegler sought to enforce the contractual agreement

between the parties to arbitrate employment related disputes.

III. Proceedings below.

On August 7, 2000, the Superior Court of California

granted Auto Stiegler’s motion to compel arbitration and

stated: “I think this really is a forum-shifting kind of

arbitration agreement. It seems to be relatively - - actually

very fair.” App. 83a.

Two weeks later on August 24, 2000, the Supreme Court

of California issued its decision in Armendariz.? The

Armendariz court held that an agreement to arbitrate

discrimination claims under the California Fair Employment

and Housing Act (“FEHA”), Cal. Gov. Code § 12900 et seq..,

is valid only if certain requirements are met. Specifically, the

Armendariz holding requires the following requirements be

met before a contract requiring arbitration of FEHA claims

2 Armendariz v. Foundation Health Psychcare Servs., Inc..,

24 Cal. 4th 83, 6 P.3d 669, 99 Cal. Rptr. 2d 745 (2000).

will be enforced: (1) the arbitration agreement may not limit

the damages normally available under the statute, (2) there

must be discovery sufficient to arbitrate the statutory claim

adequately, (3) there must be a written arbitration decision

and judicial review sufficient to ensure that the arbitration

complies with the requirements of the statute, and (4) the

employer must “pay all types of costs that are unique to

arbitration.” App. 15a.’

On September 22, 2000, Little filed a motion with the

superior court to reconsider its order compelling arbitration

in light of the Armendariz decision. On October 31, 2000,

the superior court reversed its earlier decision and denied

Auto Stiegler’s motion to compel arbitration, holding that the

arbitration agreement did not comport with the requirements

for arbitrating state statutory claims set forth in Armendariz.

App. 64a - 66a. Auto Stiegler appealed.

The Court of Appeal of the State of California, Second

Appellate District, Division Five, reversed the superior court

and ordered that the claims be arbitrated. App. 62a. The

appeals court held that the Armendariz requirements were

inapplicable to the state common law claims raised in this case

and, consistent with the FAA, held that the arbitration

agreement must be enforced according to its terms. App. 52 -

54a, 62a. The appeals court specifically rejected Little’s

argument that the sharing of arbitration forum costs rendered

the agreement unconscionable under state contract law. App.

3 The Armendariz court relied extensively on Cole v. Burns

Intern. Sec. Svcs., 105 F.2d 1465 (D.C. Cir. 1997), which set

forth similar requirements for arbitrating federal statutory claims

under Title VII of the Civil Rights Act of 1964, 42 U.S.C. § 2000e

et seq. App. 16a.

57a - 59a. The appeals court reviewed the record on the

arbitration forum costs issue and stated that Little:

. . . presented no evidence to support [his]

contention concerning the costs of arbitration.

He presented no evidence of the costs of

arbitration nor his alleged inability to pay such

expenses. He presented no evidence to show

that he would pay more to arbitrate than to

undergo the costs of litigating in a courtroom.

App. 57a.

Applying the Court’s decision in Green Tree to this

record, the appeals court held that:

. . . there is no merit to the argument that the

statutory requirement that plaintiff pay his

share of arbitration costs in connection with

his non-statutory claims . . . renders the

agreement to arbitrate unconscionable in this

case which is subject to the United States

Arbitration Act.

App. 58a.

In a 4-3 decision, the Supreme Court of California

reversed the appeals court and held that the Armendariz

requirements created for statutory claims also apply to state

common law claims alleging wrongful termination in violation

of public policy. App. 14a - 23a. Central to this Petition,

the Supreme Court of California refused to enforce the

parties’ arbitration agreement as written regarding the sharing

of arbitration forum costs. Instead, the Court held that Auto

Stiegler must pay all arbitration forum costs. App. 24a -

Vote arden te alle aa

AD ab ASO RA a ti EIS

29a. The three dissenting Judges concluded that the

Armendariz “employer aiways pays” rule could not be applied

in this case. Judge Brown’s opinion reasoned that the

Supreme Court of California is precluded by FAA preemption

from doing so, and that the majority’s holding “usurps

Congress’s authority to establish ‘the supreme law of the

land.’” App. 45a - 46a, citing U.S. Const., art. VI, cl.2.

Auto Stiegler raised and preserved the FAA preemption

argument in the California courts at every level. In its briefs

to the lower courts and the Supreme Court of California, Auto

Stiegler argued that a refusal to enforce the agreement as

written could violate the FAA and ignore its preemptive

effect. Portions of the briefs in the California courts raising

the FAA issue are reprinted in Appendix F.

REASONS FOR GRANTING THE PETITION

Supreme Court Rule 10 identifies considerations used by

the Court when deciding whether to exercise its discretion to

grant a petition for writ of certiorari. One consideration is

that “a state court . . . has decided an important federal

question in a way that conflicts with relevant decisions of this

Court.” Here, a majority of the Supreme Court of California

has created an “employer always pays” rule applicable to

arbitration agreements that is preempted by the FAA and that

is in irreconcilable conflict with decisions of this Court

interpreting the FAA. The conflict created by the majority

4 The Supreme Court of California did not hold that the

arbitration agreement failed to meet any of the Armendariz

requirements cther than the “employer always pays” requirement.

App. 23a. The court did sever an arbitration appeal provision

contained in the agreement on the ground that it was

unconscionable under state contract law. App. 11a - 14a. This

latter ruling is not at issue in this Petition.

decision must be resolved in favor of the federal law pursuant

to the Supremacy Clause of the United States Constitution.

The dissenting Judges acknowledge that the Supreme Court of

California is overstepping its authority, and they also urge the

Court to intercede and resolve this important question of

federal law involving the preemptive scope of the FAA.

I. The FAA preempts state statutes and judicially

created rules that interfere with the enforcement of

arbitration agreements subject to it.

The FAA evinces a supreme and preemptive federal policy

favoring the enforcement of arbitration agreements involving

interstate commerce. In enacting the FAA, Congress sought

“to reverse the longstanding judicial hostility to arbitration

agreements that had existed at English common law and had

been adopted by American courts, and to place arbitration

agreements upon the same footing as other contracts.” Dean

Witter Reynolds, Inc. v. Byrd, 470 U.S. 213, 219-20 (1985).

The primary substantive provision of the FAA states that “[a]

written provision in . . . a contract evidencing a transaction

involving commerce to settle by arbitration a controversy

thereafter arising out of such contract or transaction . . . shall

be valid, irrevocable, and enforceable, save upon such

grounds as exist at law or in equity for the revocation of any

contract.” 9 U.S.C. § 2. The FAA “requires courts to

enforce privately negotiated agreements to arbitrate, like other

contracts, in accordance with their terms.” Volt Info.

Sciences, Inc. v. Bd. of Trs. of Leland Stanford Junior Univ.,

489 U.S. 468, 478 (1989).°

-> There is no doubt that the arbitration agreement entered into

between Auto Stiegler and Little in this matter is covered by the

FAA. The business conducted by Auto Stiegler, operation of an

automobile dealership, affects interstate commerce. See e.g.,

The Court has demonstrated the far reaching preemptive

scope of the FAA by repeatedly invalidating, under the

Supremacy Clause, state laws that attempt to limit the

enforceability of arbitration agreements. Doctor's Assocs.,

Inc. v. Casarotto, 517 U.S. 681, 687 (1996) (FAA preempts

Montana law requiring special notice requirement on

arbitration agreements.); Mastrobuono v. Shearson Lehman

Hutton, Inc., 514 U.S. 52, 58 (1995) (FAA preempts New

York prohibition against arbitrating punitive damages.);

Allied-Bruce Terminix Cos., Inc. v. Dobson, 513 U.S. 265,

268-277 (1995) (FAA preempts Alabama statute making

predispute arbitration agreements unenforceable.); Perry v.

Thomas, 482 U.S. 483, 489 (1987) (FAA preempts California

statute prohibiting arbitration of wage collection actions.);

Southland Corp. v. Keating, 465 U.S. 1, 10 (1984) (FAA

preempts California statute prohibiting arbitration of claims

under the California Franchise Investment Law.).

In invalidating these state limits on arbitration, the Court

has explained that Section 2 of the FAA “is a congressional

declaration of a liberal federal policy favoring arbitration

agreements, notwithstanding any State substantive or

procedural policies to the contrary.” Perry, 482 U.S. at 489

Cartage, Inc. v. Ford Dealers Adver. Ass'n, 446 F.2d 289, 292

(9th Cir. 1971) (Sale of cars to customers is “an essential part of

the flow of interstate commerce. To say the least, these resales

directly affect interstate commerce.”) The Court recently held that

the FAA Section 1 exclusion of contracts of employment applies

only to seaman, railroad and other transportation workers. Circuit

City Stores, Inc. v. Adams, 532 U.S. 105 (2001). The Section 1

exclusion is inapplicable here. Further, the Supreme Court of

California acknowledged that the arbitration agreement between

Auto Stiegler and Little was subject to the FAA, but erroneously

concluded that the “employer always pays” rule did not conflict

with the FAA. App. 20a - 21a.

(emphasis added). Congress “withdrew the power of the

states to require a judicial forum for the resolution of claims

which the contracting parties agreed to resolve by arbitration”

in order “to foreclose state legislative attempts to undercut the

enforceability of arbitration agreements.” Jd. at 10, 16.

Thus, “the FAA ensures” that an arbitration agreement “will

| be enforced according to its terms even if a rule of state law

: would otherwise exclude such claims from arbitration.”

| Mastrobuono, 514 U.S. at 58 (emphasis added). “[A]ny

| State policy” that purports to invalidate an arbitration clause

in a contract that is otherwise enforceable under state law is

“unlawful, for that kind of policy would place arbitration

clauses on an unequal ‘footirg,’ directly contrary to the

| [FAA] language and Congress’ intent [citation omitted].”

Allied-Bruce, 513 U.S. at 281.

Opposing the conclusion reached by the Court in Circuit

City that the FAA applies to “all contracts of employment”

except those of “transportation workers,” various amici

“including the attorney generals of 22 States,” argued that this

broad construction of the FAA “intrudes upon the policies of

the separate States” by “effect[ively] pre-empt[ing] . . . state

employment laws which restrict or limit the ability of

employees and employers to enter into arbitration

agreements.” Circuit City, 532 U.S. at 109, 121-22. The

Court responded that, under Gilmer,® arbitration agreements

in employment contracts “can be enforced under the FAA

without contravening the policies of congressional enactments

giving employees specific protection against discrimination

prohibited by federal law.” Jd. at 123 (emphasis added). As

for the policies of the state laws, the Court found them

irrelevant under Southland’s holding “that Congress intended

® Gilmer v. Interstate Johnson Lane Corp., 500 U.S. 20.

(1991).

the FAA . . . to pre-empt state anti-arbitration laws to the

contrary.” Id. at 122.

For all of these reasons, the state-created “employer

always pays” rule is preempted by the FAA. The rule applied

by the Supreme Court of California therefore violates the

Supremacy Clause and this Petition should be granted.

Il. The “employer always pays” rule is also in

irreconcilable conflict with the Court’s decision in

Green Tree.

The “employer always pays” rule also conflicts with the

Court’s decision in Green Tree. The arbitration agreement in

Green Tree was silent with respect to the payment of

arbitration forum costs. Green Tree, 531 U.S. at 84.

Randolph, who financed the purchased of a mobile home

through Green Tree, argued that the “risk” posed to her

ability to vindicate federal statutory rights by “prohibitive”

arbitration cosis rendered the arbitration agreement

unenforceable. Id. at 90. The Court rejected that argumen*.

The Green Tree record did not show the existence of such

prohibitive arbitration forum costs so as to preclude Randoiph

from vindicating her federal statutory rights, “[ijndeed, it

contains hardly any information on the matter.” Id. The

Court reasoned that to invalidate the arbitration agreement

based on a potential risk of prohibitive costs would undermine

the “‘liberal federal policy favoring arbitration agreements’”

and would “conflict with ovr prior holdings that the party

resisting arbitration beats the burden of proving that the

claims at issue are unsuitable for arbitration.” Jd. at 91,

quoting Moses H. Cone Mem't. Hosp. v. Mercury Constr.

Corp., 460 U.S. 1, 24 (1983).

Here, Little made no showing that the sharing of

arbitration forum costs would be so “prohibitive” as to

prevent him from vindicating his state common law rights. In

fact, the record contains no evidence regarding arbitration

costs. App. 57a - 58a. The blanket rule adopted by the

Supreme Court of California requiring all employers to

always pay all arbitration forum costs is in irreconcilable

conflict with Green Tree and undermines “the liberal federal

policy favoring arbitration agreements.”’

While acknowledging that its approach to arbitration

forum costs is “in some respects different” from the Green

Tree approach, the Supreme Court of California attempts to

avoid FAA preemption by claiming that the “employer always

pays” rule does not “improperly disfavor arbitration in

comparison to other contract clauses.” App. 28a. This

attempt fails. The FAA requires enforcement of arbitration

agreements “save upon such grounds as exist at law or in

equity for the revocation of any contract.” 9 U.S.C. § 2

(emphasis added).

The judicially-created “employer always pays” rule

operates to deny enforcement of the arbitration agreement as

written based on grounds that are unique to employment

’ Following Green Tree, all federal appeals courts except the

Ninth Circuit to consider the issue have adopted the Green Tree

case-by-case approach. See Musnick v. King Motor Co. of Ft.

Lauderdale, 2003 U.S. App. LEXIS 6014, ** 5-9 (11th Cir. 2003)

(collecting cases). These decisions involve federal statutory rights,

rather than state law public policy claims, and they interpret Green

Tree to require a party seeking to avoid arbitration to establish that

enforcement of arbitration forum cost sharing provisions would

“preclude” the vindication of federal rights in the arbitral forum.

Id. at* 9. A state court cannot, consistent with FAA preemption,

require a lesser showing through use of a blanket “employer always

, pays” rule in matters involving non-statutory state law claims.

arbitration agreements. The Supreme Court of California

expressly acknowledges that this

rule would only apply to mandatory,

predispute employment arbitration agreements,

and because in many instances arbitration will

be considered an efficient means of resolving

a dispute both for the employer and the

employee, the employer seeking to avoid both

payment of all forum costs and litigation can

attempt to negotiate post-dispute arbitration

agreements with its aggrieved employees.

Armendariz, 24 Cal. 4th at 112, 6 P.3d at 688, 99 Cal. Rept.

2d at 765-66 (emphasis added).

By its own terms, this state rule applies uniquely to

arbitration agreements in the employment context. By

creating a rule applicable only to employment arbitration

agreements, the Supreme Court of California violates the

FAA.

Thus state law, whether of legislative or

judicial origin, is applicable if that law arose to

govern issues concerning the validity,

revocability, and enforceability of contracts

~ generally. A state-law principle that takes its

meaning precisely from the fact that a contract

to arbitrate is at issue does not comport with

this requirement of [the FAA]. . . .Nor may a

court rely on the uniqueness of an agreement

to arbitrate as a basis for a state-law holding

that enforcement would be unconscionable, for

this would enable the court to effect what we

hold today the state legislature cannot.

Perry, 482 U.S. at 492 n.9. See also, Doctors Assocs., Inc.,

517 U.S. at 687 (“Courts may not, however, invalidate

arbitration agreements under state laws applicable only to

arbitration provisions.”); Mastrobuono, 514 U.S. at 58 (The

FAA preempts a judicially-created rule prohibiting arbitrators

from awarding punitive damages.); Allied-Bruce, 513 U.S. at

281 (FAA preempts state rule that places arbitration

agreements on “unequal ‘footing,’ directly contrary to the

[FAA] language and Congress’ intent.”).®

The Petition should also be granted because the state

court’s blanket rule conflicts with the Court’s decision in

Green Tree.

Ill. Thecreation of the “employer always pays” rule in

matters involving the arbitration of state law public

policy claims is based on a flawed analysis of FAA

preemption and the federal appeals court case from

which it was adopted.

Congress enacted the FAA. Congress is free to narrow

the scope of its enactments. Shearson/American Express, Inc.

v. McMahon, 482 U.S. 220, 226 (1987). Consistent with this

principle, the Court had recognized that the FAA does not

govern if “‘Congress itself has evinced an intention to

preclude a waiver of judicial remedies for the statutory rights

at issue.’” Gilmer v. Interstate Johnson Lane Corp. , 500 U.S.

20, 26 (1991), quoting Mitsubishi Motors v. Soler Chrysler-

Plymouth, 473 U.S. 614, 628 (1985) (emphasis added). Such

8 The state court singles out only the narrow category of

employment arbitration agreements for application of the blanket

“employer always pays” rule. That rule also conflicts with

California statutory law. Section 1284.2 of the California

Arbitration Act applies to all arbitration agreements and it

contemplates cost sharing.

an intention by Congress may, however, be discerned only

from “the text [of a federal statute], its legislative history, or

an ‘inherent conflict’ between arbitration and [that statute’s]

underlying purposes.” Jd. at 26, quoting McMahon, 482 U.S.

at 227. Thus, in the absence of a federal statute evidencing

a clear intent by Congress to restrict arbitration, the FAA

controls and precludes courts from imposing their own

arbitration-specific restrictions. FAA preemption precludes

the enforcement of state statutes or judicially-created rules

that interfere with the enforcement of otherwise valid

arbitration agreements subject to the FAA. See Section I

above.

The Supreme Court of California relied extensively on

Cole v. Burns Int’l. Sec. Servs., 105 F.3d 1465 (D.C. Cir.

1997), when it adopted the “employer always pays” rule for

arbitration of state statutory discrimination claims in

Armendariz. The District of Columbia Circuit Court of

Appeals in Cole started its analysis by reviewing the Court’s

decision in Gilmer, which enforced an agreement to arbitrate

federal statutory employment claims. Under Gilmer, the

arbitration agreement is valid “so long as the prospective

litigant effectively may vindicate [his or her] statutory cause

of action in the arbitral forum.” Gilmer, 500 U.S. at 28.

Relying on the fact that the Court in Gilmer “endorsed a

system of arbitration in which employees are not required »

pay for the arbitrator assigned to hear their statutory claims,”

the Cole court concluded that there “is no reason to think the

Court would have approved arbitration in the absence of this

arrangement.” Cole, 105 F.3d at 1484. The Cole court

therefore held that it would not enforce an agreement

9 Under the NYSE and NASD arbitration rules at issue in

Gilmer, it was standard practice for employers to pay all of the

arbitrator’s fees. Cole, 105 F.3d at 1483.

requiring arbitration of federal statutory rights if the

agreement required the employee “to pay all or part of the

arbitrator’s fees and expenses.” Jd. at 1485.

The Supreme Court of California in Armendariz, relying

on the Cole rationale regarding arbitration of federal statutory

employment claims, adopted the “employer always pays” rule

for arbitration of state statutory employment claims." In this

case, the Supreme Court of California extended the

Cole/Armendariz rule to state common law claims for

wrongful termination in violation of public policy. This

extension shows a complete disregard of the federal

preemption doctrine and the Supremacy Clause.

In Brown v. Wheat First Securities, Inc., 257 F.3d 821

(D.C. Cir. 2001), the D.C. Circuit itself refused to extend

Cole to a common law claim for wrongful termination in

violation of public policy. In Brown, the employee raised a

“whistleblower” public policy claim similar to the one Little

raises here. In refusing to extend Cole to common law public

policy claims, the court reasoned:

We also see no basis for extending Cole. As

we have explained, our central rationale - -

respecting congressional intent - - does not

extend beyond the statutory context.

Moreover, by enacting the Federal Arbitration

Act, Congress “manifest[ed] a liberal federal

policy favoring arbitration agreements.”. . .

The [FAA] also pre-empted state restrictions

on the enforcement of arbitration agreements.

10 For the reasons stated in Sections I and II above, Auto

Stiegler contends that the Armendariz “employer always pays” rule

is preempted by the FAA even when applied to arbitration of state

statutory claims, but that issue is not raised by this Petition.

[citations omitted] Gilmer, as we've seen,

framed the question as whether dispute

resolution under the FAA was consistent with

the federal right-creating statute in question .

For a common law claim under the

District of Columbia law, any such

inconsistency would be resolved in favor of the

only federal law involved, the FAA.

* * *

[The employee] nowhere asserts that D.C. law

creates a Cole like requirement for its own

common law “public policy” causes of action.

Perhaps this omission is because state

restrictions on arbitration are pre-empted by

the Federal Arbitration Act.

Brown, 257 F.3d at 825-26.

This reasoning is equally applicable here. Even the court

in which the “employer always pays” rule originates does not

apply it to common law claims of wrongful termination in

- violation of public policy. FAA preemption of such a rule is

recognized by that court.

Moreover, the Armendariz decision quotes with approval

the Cole court’s assumption that the Court would not have

approved arbitration in Gilmer absent the NYSE and NASD

arbitration forum arrangement that the employer pays the

arbitration fees. Armendariz, 24 Cal. 4th at 107-08, 6 P.3d

at 685, 99 Cal. Rptr. 2d at 762-63. The Court’s decision in

Green Tree negates any assumption that the Court would not

approve arbitration of employment claims in the absence of an

employer pay arrangement. Thus, a primary reason for the

Cole court’s adoption of the “employer always pays” rule has

been nullified by a later decision of the Court.

As shown above, the “employer always pays” rule

adopted by the state court in this case is in direct conflict with

Green Tree. Following Green Tree, the D.C. Circuit" and all

other federal courts of appeals except the Ninth Circuit to

consider the issue have rejected a blanket “employer always

pays” rule for arbitration of federal statutory claims. Instead,

federal courts of appeal apply the Green Tree case-by-case

approach to determine if arbitration costs are so prohibitive as

to prevent vindication of statutory rights.'* As the D.C.

Circuit recognized in Brown, extension of the “employer

always pays” rule to state law public policy claims is

preempted by the FAA, the only federal law involved.

IV. The Court should prevent the “employer always

pays” rule from expanding to every predispute

employment arbitration agreement in California.

Notwithstanding the Court’s decision in Green Tree

requiring the party seeking to avoid arbitration to demonstrate

that arbitration costs are so “prohibitive” as to prevent

vindication of statutory rights, parties seeking to avoid

arbitration in California courts need make no such showing.

Rather, the Supreme Court of California requires all

employers to pay all arbitration forum costs in arbitrations of

statutory discrimination claims (Armendariz), and the court

has now extended that rule to state common law claims based

on public policy. The public policy rationale for the state

court’s holding in this case can be extended to virtually any

employment claim. The public policy rationale used by the

state court to create and expand the “employer always pays”

1! See Laprade v. Kidder, Peabody & Co., Inc., 246 F.2d

702, 706-08 (D.C. Cir. 2001).

12 See footnote 7, supra.

rule, as noted by the dissenting Judges, “subjects most, if not

all, tort claims to the Cole/Armendariz requirements.” App.

45a. “All claims not based on contract - including, for

example, . . . defamation and tortious interference claims. .

. implement values that society has one way or another

thought deserving.” Brown, 257 F.3d at 826. Under the

public policy rationale for the rule, “it is hard to see what

falls outside it.” Jd.

No doubt the Supreme Court of California considers

common law claims alleging violation of public policy

important. However, “[t]he relative importance to the State

of its own law is not material when there is a conflict with a

valid federal law, for the Framers of our [federal]

Constitution provided [in the Supremacy Clause] that the

federal law must prevail.” Free v. Bland, 369 U.S. 663, 666

(1962).

The Court has in the past struck down California statutory

provisions preempied by the FAA. See Perry and Southland.

The Court is asked here to strike down a California state

court-created obstacle to arbitration that is likewise

preempted, and to reaffirm that state courts “should not chip

away at Southland by indirection” and create rules that ignore

the broad preemptive scope of the FAA. Circuit City, 532

U.S. at 122.

CONCLUSION

For the foregoing reasons, this Petition for Writ of

Certiorari should be granted. As an alternative to this

Petition, Auto Stiegler respectfully requests summary reversal

of the Supreme Court of California’s decision in this case and

an order to enforce the arbitration agreement as written with

respect to payment of arbitration forum costs.

Respectfully submitted.

Christopher C. Hoffman David R. Kresser

Counsel of Record Fisher & Phillips LLP

1500 Resurgens Plaza

Fisher & Phillips LLP 945 East Paces Ferry Road

Suite 1980 Atlanta, Georgia 30326

101 West Broadway (404) 231-1400

San Diego, California 92101

(619) 881-1961

Counsel for Petitioner

APPENDIX A

IN THE SUPREME COURT OF CALIFORNIA

No. S101435

[Filed February 27, 2003]

ALEXANDER M. LITTLE,

Plaintiff and Respondent,

AUTO STIEGLER , INC.,

Defendant and Appellant.

Appeal from Second District, Fifth Division,

- Los Angeles County

B147003, 92 Cal. App. 4th 329, 112 Cal Rptr. 2d 56

Super. Ct. No. BC230809

S. Patricia Spear

JUDGES:

MORENO, J. WE CONCUR: GEORGE, C. J., KENNARD,

J., WERDEGAR, J. CONCURRING AND DISSENTING

OPINION BY BAXTER, J. CHIN, J., CONCUR WITH

BAXTER’S DISSENT. BROWN, J. CONCURRING AND

DISSENTING OPINION BY BROWN, J. CONCUR WITH

BROWN’S DISSENT: BAXTER, J., CHIN, J.

OPINION

In this case, we consider four interlocking questions: (1)

Is a provision in a mandatory employment arbitration

agreement that permits either party to “appeal” an arbitration

award of more than $50,000 to a second arbitrator,

unconscionable; (2) if it is unconscionable, then should that

unconscionable provision be severed from the rest of the

arbitration agreement and the agreement enforced, or is the

entire agreement invalid; (3) if the former, then in reviewing

the rest of the arbitration agreement, do the minimum

requirements for arbitration of unwaivable statutory claims

that we set forth in Armendariz v. Foundation Health

Psychcare Services, Inc. (2000) 24 Cal.4th 83, 6 P.3d 669,

99 Cal. Rptr. 2d 745 (Armendariz) apply also to claims that

an employee was terminated in violation of public policy; (4)

if yes, then must one of those requirements that the employer

imposing mandatory arbitration on the employee must pay all

costs unique to arbitration be reconsidered and revised in light

of a post- Armendariz United States Supreme Court decision

on arbitration costsharing, Green Tree Financial Corp. v.

Randolph Ed. 24 373, 121 (2000) 531 U.S. 79, 148 L. S. Ct.

513 (Green Tree).

We conclude as follows: (1) the appellate arbitration

provision for arbitration awards over $50,000 is

unconscionable; (2) that provision should be severed and the

rest of the arbitration agreement enforced; (3) a suit claiming

wrongful termination in violation of public policy should be

subject to the requirements set forth in Armendariz; and (4)

Green Tree does not require that we modify Armendariz’s cost

requirements. We accordingly partly reverse the Court of

Appeal’s judgment.

Supreme Court of California Opinion - 2/27/03

I. STATEMENT OF FACTS

Alexander Little worked for Auto Stiegler, Inc., an

automobile dealership. Little eventually rose to become Auto

Stiegler’s service manager. He alleges that he was demoted,

then terminated, for investigating and reporting warranty

fraud. He filed an action against defendant for tortious

demotion in violation of public policy; tortious termination in

violation of public policy; breach of an implied contract of

continued employment; and breach of the implied covenant of

good faith and fair dealing. In the first through third causes of

action, he sought compensatory and punitive damages. In the

fourth cause of action, plaintiff sought only contract breach

damages. He sought no relief under the Fair Employment and

Housing Act (FEHA). (Gov. Code, § 12900 et seq.)

Little signed three nearly identical arbitration agreements

while employed by defendant in June 1995, October 1996,

and January 1997. The most recent of the three stated as

follows: “I agree that any claim, dispute, or controversy

(including, but not limited to, any and all claims of

discrimination and harassment) which would otherwise

require or allow resort to any court or other governmental

dispute resolution forum between myself and the Company (or

its owners, directors, and officers, and parties affiliated with

its employee benefit and health plans) arising from, related to,

or having any relationship or connection whatsoever with my

seeking employment with, employment by, or other

association with, the Company, whether based on tort,

contract, statutory, or equitable law, or otherwise, shall be

submitted to and determined exclusively by binding

arbitration under the Federal Arbitration Act, in conformity

with the procedures of the California Arbitration Act (Cal.

Code Civ. Proc. Sec 1280 et seq., including section 1283.05

Supreme Court of California Opinion - 2/27/03

and all of the act’s other mandatory and permissive rights to

discovery); provided, however, that: In addition to

requirements imposed by law, any arbitrator herein shall be

a retired California Superior Court Judge and shall be subject

to disqualification on the same grounds as would apply to a

judge of such court. To the extent applicable in civil actions

in California courts, the following shall apply and be

observed: all rules of pleading (including the right of

demurrer), all rules of evidence, all rights to resolution of the

dispute by means of motions for summary judgment,

judgment on the pleadings, and judgment under Code of Civil

Procedure section 631.8. Resolution of the dispute shall be

based solely upon the law governing the claims and defenses

pleaded, and the arbitrator may not invoke any basis other

than such controlling law, including but-not limited to,

notions of ‘just cause.’ As reasonably required to allow full

use and benefit of this agreement’s modifications to the act’s

procedures, the arbitration shall extend the times set by the

act for the giving of notices and setting of hearings. Awards

exceeding $50,000.00 shall include the arbitrator’s written

reasoned opinion and, at either party’s written request within

20 days after issuance of the award, shall be subject to

reversal and remand, modification, or reduction following

review of the record and arguments of the parties by a second

arbitrator who shall, as far as practicable, proceed according

to the law and procedures applicable to appellate review by

the California Court of Appeal of a civil judgment following

court trial. I understand by agreeing to this binding arbitration

provision, both I and the Company give up our rights to trial

by jury.”

Auto Stiegler’s initial motion to compel arbitration was

granted. Following our decision in Armendariz, the trial

Supreme Court of California Opinion - 2/27/03

court, upon plaintiff's request for reconsideration, denied

defendant’s motion to compel arbitration. The trial court

ruled: “The court believes that the arbitration clause in issue

does not meet the standards set forth by the Supreme Court

and it should not be enforced. The clauses of the arbitration

agreement that do not comport with the requirements of the

Armendariz [decision] include the clauses that:{ 1. Require

the Plaintiff to share the costs; { 2. Provide for no judicial

review. The court deems this fatal, as judicial review of all

decisions is not the same as limited review by another

arbitrator of only certain awards; { 3. Limit the remedies

available to the complaintant [sic] [to] possibly exclude

equitable as opposed to legal remedies, to which he might

otherwise be entitled. ¢ 4. Lack of mutuality of remedy, in

that this clause, unlike the one in Armendariz does not

obviously bind the employer to likewise enforce its right in

the arbitration forum.”

The Court of Appeal reversed. It held that the Armendariz

requirements did not apply to nonstatutory claims. Further, it

rejected the claim that the arbitration agreement was

unconscionable. It focused on Armendariz’s discussion of

whether both parties were bound to arbitrate, and concluded

that the arbitration agreements did in fact bind both parties.

The Court of Appeal did not consider whether the arbitration

“appeal” triggered by an award of greater than $50,000 was

unconscionable. Finally, the court concluded that under the

United States Supreme Court’s decision in Green Tree,

silence as to who would bear the costs of arbitration was not

a basis for invalidating the agreement. We granted review.

ry ee ye

Supreme Court of California Opinion - 2/27/03

II. DISCUSSION

A. Unconscionability of Appellate Arbitration Provision

As recounted, the arbitration agreement provided that

“[a]wards exceeding $50,000.00 shall include tiie arbitrator’s

written reasoned opinion and, at either party’s written request

within 20 days after issuance of the award, shall be subject to

reversal and remand, modification, or reduction following

review of the record and arguments of the parties by a second

arbitrator who shall, as far as practicable, proceed according

to the law and procedures applicable to appellate review by

the California Court of Appeal of a civil judgment following

court trial.” Little contends this provision is unconscionable.

We agree.

To briefly recapitulate the principles of unconscionability,

the doctrine has “ ‘both a “procedural” and a “substantive”

element,’ the former focusing on ‘”oppression” ’ or ‘

“surprise” ’ due to unequal bargaining power, the latter on

*“overly harsh”’ or ‘ “one-sided”’ results.” ( Armendariz,

supra, 24 Cal.4th at p. 114.) The procedural element of an

unconscionable contract generally takes the form of a contract

of adhesion, “ ‘which, imposed and drafted by the party of -

superior bargaining strength, relegates to the subscribing

party only the opportunity to adhere to the contract or reject

it.’” (Id. at p. 113.) “In the case of preemployment arbitration

contracts, the economic pressure exerted by employers on all

but the most sought-after employees may be particularly

acute, for the arbitration agreement stands between the

employee and necessary employment, and few employees are

in a position to refuse a job because of an arbitration

requirement.” (Jd. at p. 115.) It is clear in the present case

that Auto Stiegler imposed on Little an adhesive arbitration

Supreme Court of California Opinion - 2/27/03

agreement.

Substantively unconscionable terms may take various

forms, but may generally be described as unfairly one-sided.

One such form, as in Armendariz, is the arbitration

agreement’s lack of a “ ‘modicum of bilaterality,’ “ wherein

the employee’s claims against the employer, but not the

employer’s claims against the employee, are subject to

arbitration. (Armendiriz, supra, 24 Cal.4th at p. 119.)

Another kind of substantively unconscionable provision

occurs when the party imposing arbitration mandates a post-

arbitration proceeding, either judicial or arbitral, wholly or

largely to its benefit at the expense of the party on which the

arbitration is imposed. Two Court of Appeal cases have

addressed this kind of unconscionability.

In Beynon v. Garden Grove Medical Group (1980) 100

Cal. App. 3d 698 (Benyon), the medical group imposed on its

patients a mandatory arbitration agreement. Paragraph B of

the agreement authorized the medical group, but not the

patient, to reject the first arbitration award and submit the

dispute -to a second arbitration panel. The court held the

provision unconscionable. “That the provisions of paragraph

B unreasonably limit the obligations of the health plan and

health care provider and defeat the reasonable expectations of

one enrolling in the plan is manifest. The term arbitration

normally imports a dispute resolution procedure which is

speedy, economical and ‘bears equally’ on the parties.

[Citation.] The provisions of paragraph B, however, are

weighted in favor of the health plan and provider of services

and against members and can render arbitration an expensive -

and protracted proceeding. By granting to only the health plan

or health care provider the unilateral right to reject an

arbitration award without cause and to require rearbitration,

a i

Supreme Court of California Opinion - 2/27/03

paragraph B enables the health plan and health care provider

to transform arbitration into virtually a ‘heads I win, tails you

lose’ proposition.” (Benyon, supra, 100 Cal. App. 3d at p.

706.)

Saika v. Gold (1996) 49 Cal.App.4th 1074, (Saika), also

arose in the doctor/patient setting. The arbitration agreement

in that case had a provision that permitted either party to

reject an arbitration award of $25,000 or greater and request

a trial de novo in superior court. The Court of Appeal refused

to enforce the provision and instead directed the trial court to

confirm the $325,000 award in the patient’s favor. The court

rejected the doctor’s argument that the case was

distinguishable from Benyon because the challenged

arbitration provision permitted either party to request a trial

de novo if the award exceeded the stated amount. “([I]n the

vernacular of late 20th century America, let us ‘get real.’ As

a practical matter, the benefit which the trial de novo clause

confers on patients is nothing more than a chimera. The odds"

that an award will both (a) clear the $25,000 threshold but (b)

still be so low that the patient would want to have a trial de

novo are so small as to be negligible. Unless we are to

assume that arbitrators in medical malpractice cases regularly

and capriciously make awards substantially below what justice

requires and that is an assumption which we will not indulge

the cases where the trial de novo clause could possibly benefit

the patient are going to be rare indeed.” (Saika, supra, 49

Cal.App.4th at p. 1080.) The court concluded that “the

rejection clause meant the arbitration agreement really did

not function as an arbitration agreement. The promise of an

inexpensive, speedy resolution to the claim evaporated with

one party’s unilateral ability to avoid results it did not like.

[{] We have already referred to the strong public policy

Supreme Court of California Opinion - 2/27/03

favoring arbitration. That policy is manifestly undermined by

provisions in arbitration clauses which seek to make the

arbitration process itself an offensive weapon in one party’s

arsenal.” (/d. at p. 1081.)

Auto Stiegler and its amici curiae make several arguments

to distinguish this case from Benyon and Saika. First, they

claim that the arbitration appeal provision applied

evenhandedly to both parties and that, unlike the

doctor/patient relationship in Saika, there is at least the

possibility that an employer may be the plaintiff, for example

in cases of misappropriation of trade secrets. (See, e.g.,

Brennan v. Tremco Inc. (2001) 25 Cal.4th 310) But if that is

the case, they fail to explain adequately the reasons for the

$50,000 award threshold. From a plaintiff's perspective, the

decision to resort to arbitral appeal would be made not

according to the amount of the arbitration award but the

potential value of the arbitration claim compared to the costs

of the appeal. If the plaintiff and his or her attorney estimate

that the potential vaiue of the claim is substantial, and the

arbitrator rules that the plaintiff takes nothing because of its

erroneous understanding of a point of law, then it is rational

for the plaintiff to appeal. Thus, the $50,000 threshold

inordinately benefits defendants. Given the fact that Auto

Stiegler was the party imposing the arbitration agreement and

the $50,000 threshold, it is reasonable to conclude it imposed

the threshold with the knowledge or belief that it would

generally be the defendant.

Although parties may justify an asymmetrical arbitration

agreement when there is a “legitimate commercial need”

(Armendariz, supra, 24 Cal.4th at p. 117), that need must be

“other than the employer’s desire to maximize its advantage”

in the arbitration process. (Jd. at p. 120.) There is no such

Supreme Court of California Opinion - 2/27/03

justification for the $50,000 threshold. The explanation for

the threshold offered by amicus curiae Maxie, Rheinheimer,

Stephens & Vrevich that an award in which there is less than

that amount in controversy would not be worth going through

the extra step of appellate arbitral review makes sense only

from a defendant’s standpoint and cannot withstand scrutiny.

Auto Stiegler also argues that an arbitration appeal is less

objectionable than a second arbitration, as in Benyon, or a

trial de novo, as in Saika, because it is not permitting a

wholly new proceeding, making the first arbitration illusory,

but only permitting limited appellate review of the arbitral

award. We fail to perceive a significant difference. Each of

these provisions is geared toward giving the arbitral defendant

a substantial opportunity to overturn a sizable arbitration

award. Indeed, in some respects appellate review is more

favorable to the employer attempting to protect its interests.

It is unlikely that an arbitrator who merely acts in an appellate

Capacity will increase an award against the employer, whereas

a trial or arbitration de novo at least runs the risk that the

employer would become liable for an even larger sum than

that awarded in the initial arbitration.

We therefore conclude that the arbitral appeal provision

in this particular agreement is unconscionably one-sided and

may not be enforced. We next turn to the question whether

this provision may be severed and the rest of the arbitration

agreement enforced, or whether the entire agreement should

be invalidated.

10a

Supreme Court of California Opinion - 2/27/03

B. Is the Unconscionable Portion of the

Agreement Severable ?

In Armendariz, we reviewed the principles regarding the

severance of illegal terms from an arbitration agreement. As

we stated: “Two reasons for severing or restricting illegal

terms rather than voiding the entire contract appear implicit

in case law. The first is to prevent parties from gaining

undeserved benefit or suffering undeserved detriment as a

result of voiding the entire agreement particularly when there

has been full or partial performance of the contract.

[Citations.] Second, more generally, the doctrine of severance

attempts to conserve a contractual relationship if to do so

would not be condoning an illegal scheme. [Citations.] The

overarching inquiry is whether ‘ “the interests of justice . . .

would be furthered”’ by severance. [Citation.] Moreover,

courts must have the capacity to cure the unlawful contract

through severance or restriction of the offending clause,

which . . . is not invariably the case.” (Armendariz, supra, 24

Cal.4th at pp. 123-124.) Accordingly, “[c]ourts are to look to

the various purposes of the contract. If the central purpose of

the contract is tainted with illegality, then the contract as a

whole cannot be enforced. If the illegality is collateral to the

main purpose of the contract, and the illegal provision can be

extirpated from the contract by means of severance or

restriction, then such severance and restriction are

appropriate.” (Id. at p. 124.)

In Armendariz, we found two factors weighed against

severance of the unlawful provisions. “First, the arbitration

agreement contains more than one unlawful provision; it has

both an unlawful damages provision and an unconscionably

unilateral arbitration clause. Such multiple defects indicate a

lla

Supreme Court of California Opinion - 2/27/03

systematic effort to impose arbitration on an employee not

simply as an alternative to litigation, but as an inferior forum

that works to the employer’s advantage. . . . [{] Second, in

the case of the agreement’s lack of mutuality, . . . permeation

[by an unlawful purpose] is indicated by the fact that there is

no single provision a court can strike or restrict in order to

remove the unconscionable taint from the agreement. Rather,

the court would have to, in effect, reform the contract, not

through severance or restriction, but by augmenting it with

additional terms. Civil Code section 1670.5 does not

authorize such reformation by augmentation, nor does the

arbitration statute. Code of Civil Procedure section 1281.2

authorizes the court to refuse arbitration if grounds for

revocation exist, not to reform the agreement to make it

lawful. Nor do courts have any such power under their

inherent limited authority to reform contracts. [Citations.]”

(Armendariz, supra, 24 Cal.4th at pp. 124-125.)

Neither of these factors are operative in the present case.

There is only a single provision that is unconscionable, the

one-sided arbitration appeal.' And no contract reformation is

' We note that the other three grounds the trial court found in

this case for refusing to enforce the arbitration agreement,

described in the statement of facts above, do not appear to be valid.

First, the fact that an arbitration agreement does not explicitly

provide for judicial review is no basis for invalidating it.

(Armendariz, supra, 24 Cal.4th at p. 107.) Second, unlike in

Armendariz, nothing in the language of the present agreement limits

remedies and no limitation should be implied. Finally, unlike the

agreement in Armendariz, which explicitly limited the scope of the

arbitration agreement to wrongful termination claims and therefore

implicitly excluded the employer’s claims against the employee ( id.

24 Cal. 4th at pp. 92, 24 Cal. 4th 120), the arbitration agreement

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required — the offending provision can be severed and the

rest of the arbitration agreement left intact. Thus, the courts

in Benyon and Saika, considering similar provisions, severed

them and enforced the rest of the arbitration agreement

(Benyon, supra, 100 Cal.3d at p. 713; Saika, supra, 49

Cal.4th at p. 1082.)

Moreover, there is no indication that the state of the law

was “sufficiently clear at the time the arbitration agreement

was signed to lead to the conclusion that this [appellate

in the present case contained no such limitation, instead applying to

“any claim, dispute, or controversy . . . between [the employee]

and the Company.”

Amicus cutiae California Employment Lawyers Association

points to other provisions in the agreement that are, in its view,

contrary to public policy or unconscionable. Essentially, amicus

curiae objects to the incorporation of legal formalities into Auto

Stiegler’s arbitration agreement: its mandate that the rules of

pleading and evidence shall be observed, that the arbitrator shall

only rely on governing law and not informal principles of “just

cause,” and that traditional judicial motions such as demur and

summary judgment be available to the parties. They claim that such

procedures detract from the inherent informality of arbitration.

Without more, however, we cannot say that these provisions, which

make arbitration more closely follow judicial procedures, are

unconscionably one- sided. It is not at all obvious that such

provisions would inordinately benefit Auto Stiegler rather than

Little. To the extent that the availability of dispositive pre-

arbitration motions favor Auto Stiegler as defendant, they confer no

more of an advantage than would be the case had the action been

brought in court.

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arbitration provision] was drafted in bad faith.” (Armendariz,

supra, 24 Cal.4th at pp. 124-125, fn. 13.) There is enough of

a difference between the appellate arbitration provision,

drafted in the employment context, and the de novo trial and

arbitration provisions in the doctor/patient setting in Benyon

and Saika, to preclude a determination that the provision was

directly contrary to settled law and therefore inferentially

drafted in bad faith.

We therefore conclude that Auto Stiegler’s arbitration

agreement is valid and enforceable once the unconscionable

appellate arbitration provision is deleted. Whether a court

should refuse to enforce it on other grounds will be

considered below.

C. Is Arbitration of a Tameny Claim Subject to the

Minimal Procedural Requirements Set Forth in

Armendariz?

In Tameny v. Atlantic Richfield Co. (1980) 27 Cal.3d 167,

178, we recognized that although employers have the power

to terminate employees at will, they may not terminate an

employee for a reason that is contrary to public policy. Little

claims that arbitration of Tameny claims are subject to the

minimum requirements set forth in Armendariz, reviewed

below. We agree.

In Armendariz, we held that arbitration of claims under

the FEHA is subject to certain minimal requirements: (1) the

arbitration agreement may not limit the damages normally

available under the statute (Armendariz, supra, 24 Cal.4th at

p. 103); (2) there must be discovery “sufficient to adequately

arbitrate their statutory claim” (id. at p. 106); (3) there must

be a written arbitration decision and judicial review “

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‘sufficient to ensure the arbitrators comply with the

requirements of the statute’” (ibid.); and (4) the employer

must “pay all types of costs that are unique to arbitration”

(id. at p. 113).

These requirements were founded on the premise that

certain statutory rights are unwaivable. “This unwaivability

derives from two statutes that are themselves derived from

public policy. First, Civil Code section 1668 states: ‘All

contracts which have for their object, directly or indirectly,

to exempt anyone from responsibility for his own fraud, or

willful injury to the person or property of another, or

violation of law, whether willful or negligent, are against the

policy of the law.’ ‘Agreements whose object, directly or

indirectly, is to exempt [their] parties from violation of the

law are against public policy and may not be enforced.’

[Citation.] Second, Civil Code section 3513 states, ‘Anyone

may waive the advantage of a law intended solely for his

benefit. But a law established for a public reason cannot be

contravened by a private agreement.’ [Citations.]”

(Armendariz, supra, 24 Cal.4th at p. 100.) We concluded that

the FEHA was enacted for public reasons and the rights it

conferred on employees were unwaivable. (/d. at pp. 100-

101.) We then concluded that the above requirements were

. Necessary to enable an employee to vindicate these

unwaivable rights in an arbitration forum.

A Tameny claim is almost by definition unwaivable.

“[The] public policy exception to the at-will employment rule

must be based on policies ‘carefully tethered to fundamental

policies that are delineated in constitutional or statutory

provisions .\. . .’” (Silo v. CHW Medical Foundation (2002)

27 Cal.4th 1097, 1104.) Moreover, the public policy that is

the basis for such a claim must be “ ‘ “public”’ in that it

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* “affects society at large”’ rather than the individual, must

have been articulated at the time of discharge, and must be

‘ “ *fundamental’”’ and ‘ “ ‘substantial.’”’ ” (/bid.) Thus, a

legitimate Tameny claim is designed to protect a public

interest and therefore “ ‘cannot be contravened by a private

agreement.’” (Armendariz, supra, 24 Cal.4th at p. 100.) In

other words, an employment agreement that required

employees to waive claims that they were terminated in

violation of public policy would itself be contrary to public

policy. Accordingly, because an employer cannot ask the

employee to waive Tameny claims, it also cannot impose on

the arbitration of these claims such burdens or procedural

shortcomings as to preclude their vindication. Thus, the

Armendariz requirements are as appropriate to the arbitration

of Tameny claims as to unwaivable statutory claims.

Auto Stiegler cites Brown v. Wheat First Securities, Inc.

(D.C. Cir. 2001) 257 F.3d 821 (Brown), which came to a

contrary conclusion with respect to a claim for termination in

violation of public policy under District of Columbia law. The

court held that Cole v. Burns International Security Services

(D.C Cir. 1997) 105 F.2d 1465 (Cole), a case on which

Armendariz relied, and which set forth requirements for

arbitrating claims under title VII of the Civil Rights Act of

1964 similar to the Armendariz requirements, should be

limited to federal statutory claims, not state tort claims

derived from common law. In Brown, an employee of a

securities firm was allegedly terminated for alerting the

Securities and Exchange Commission to illegal activities

occurring at his employer’s firm. He claimed to fall within the

“whistleblower” exception to the employment-at-will rule

under District of Columbia common law. He refused to

participate in subsequent arbitration and moved to vacate the

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arbitration award on the grounds that he was to be charged

substantial arbitration fees, contrary to Cole.

The Brown court, which consisted of a different panel of

the District of Columbia Circuit Court of Appeals than had

decided Cole, began by reviewing the latter decision. As the

Brown court summarized it, Cole acknowledged “that the

Supreme Court in Gilmer v. Interstate/Johnson Lane Corp.

500 U.S. 20, 111 S. Ct. 1647 (1991) [(Gilmer), had “made

clear that, as a general rule, statutory claims are fully subject

to binding arbitration.’ [citations][.] [But] we also noted that

‘Gilmer cannot be read as holding that an arbitration

agreement is enforceable no matter what rights it waives or

what burdens it imposes,’ [citation]. The arbitration

agreement will be valid ‘so long as the prospective litigant

effectively may vindicate [his or her] statutory cause of action

in the arbitral forum.’ [Citations.] As to fees, we found that

‘it would undermine Congress’s intent to prevent employees

who are seeking to vindicate statutory rights from gaining

access to a judicial forum and then require them to pay for the

services of an arbitrator when they would never be required

to pay for a judge in court.” [Citation.] Accordingly we

interpreted the arbitration agreement as requiring the

employer to pay the arbitrator’s fees.” (Brown, supra, 257

F.3d at pp. 824-825.)

The Brown court, in rejecting the extension of Cole to

nonstatutory claims, pointed to language in Cole limiting its

holding to such claims. The court further stated: “We also see

no basis for extending Cole. As we have explained, our

central rationale — respecting congressional intent — does —

not extend beyond the statutory context. Moreover, by

enacting the Federal Arbitration Act, Congress ‘manifest[ed]

a “liberal federal policy favoring arbitration agreements.”’

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[Citations]. The Act also pre-empted state restrictions on the

enforcement of arbitration agreements. Gilmer, as we’ve

seen, framed the question as whether dispute resolution under

the FAA was consistent with the federal right-creating statute

in question. [Citation.] For a common law claim under

District of Columbia law, any such inconsistency would be

resolved in favor of the only federal law involved, the FAA.”

(Brown, supra, 257 F.3d at pp. 825-826.)

We disagree with the Brown court, at least insofar as its

decision would be interpreted to preclude extension of the

Armendariz requirements to Tameny claims. First, although

Cole was a Title VII case properly focused on mandatory

arbitration of federal statutory rights, its rationale extends

beyond that context generally to unwaivable rights conferred

for a public benefit. The statement in Gilmer that provides the

point of departure in Cole — “‘by agreeing to arbitrate a

statutory claim, [an employee] does not forgo the substantive

rights afforded by the statute; [he] only submits to their

resolution in an arbitral, rather than a judicial, forum’” (Cole,

supra, 105 F.3d at p. 1481, quoting Gilmer, supra, 500 U.S.

at p. 26) — would apply equally to nonstatutory public

rights.

The Brown court’s apparent position that only federal

Statutory rights may be subject to Cole’s requirements,

because any attempt to place conditions on arbitration based

on state law would be preempted by the Federal Arbitration

Act (FAA), is incorrect. The FAA provides that arbitration

agreements are “valid, irrevocable and enforceable save upon

such grounds as exist at law or in equity for the revocation

of any contract.” (9 U.S.C. § 2.) Thus, “[a] state-law

principle that takes its meaning precisely from the fact that a

contract to arbitrate is at issue does not comport with the text

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of section 2 [of the FAA].” (Doctor’s Associates, Inc. v.

Casarotto (1996) 517 U.S. 681, 685, italics omitted.) But

under section 2 of the FAA, a state court may refuse to

enforce an arbitration agreement based on “generally

applicable contract defenses, such as fraud, duress, or

unconscionability.” (Doctor’s Associates, Inc., supra, 517

U.S. at p. 687.) One such long-standing ground for refusing

to enforce a contractual term is that it would force a party to

forgo unwaivable public rights, as reviewed above. (See,

e.g., Baker Pacific Corp v. Suttles (1990) 220 Cal. App. 3d

1148, 1153-1154 [mandatory employee waiver of all

employer liability for asbestos exposure contrary to public

policy].)”

2 —_ We note the prohibition against exculpatory contracts

contrary to public policy is generally invoked in the context of

contracts of adhesion. (See, e.g., Baker Pacific Corp v. Suttles,

supra, 220 Cal. App. 3d at p. 1151; Tunkl v. Regents of University

of California (1963) 60 Cal.2d 92, 99-100, 32 Cal. Rptr. 33, 383

P.2d 441.) Thus, as with unwaivable statutory claims, special

arbitration requirements for Tameny claims “would generally not

apply in situations in which an employer and an employee

knowingly and voluntarily enter into an arbitration agreement after

a dispute has arisen. In those cases, employees are free to determine

what trade-offs between arbitral efficiency and formal procedural

protections best safeguard their . . . rights.” (Arimendariz, supra,

24 Cal.4th at p. 103, fn. 8.) Nor would our conclusion that waiver

of the right is contrary to public policy preclude a party from

settling a claim based on that right. (See, e.g., Jefferson v.

Department of Youth Authority (2002) 28 Cal.4th 299, 48 P.3d 423,

121 Cal. Rptr. 2d 391 [approving an agreement and release settling

a FEHA claim].)

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Thus, while we recognize that a party compelled to

arbitrate such rights does not waive them, but merely

“submits to their resolution in an arbitral, rather than a

judicial, forum” (Gilmer, supra, 500 U.S. at p. 26),

arbitration cannot be misused to accomplish a de facto waiver

of these rights. Accordingly, although the Armendariz

requirements specifically concern arbitration agreements, they

do not do so out of a generalized mistrust of arbitration per se

(see Doctor’s Associates, Inc., supra, 517 U.S. at p. 687),

but from a recognition that some arbitration agreements and

proceedings may harbor terms, conditions and practices that

undermine the vindication of unwaivable rights. The

Armendariz requirements are therefore applications of

general state law contract principles regarding the

unwaivability of public rights to the unique context of

arbitration, and accordingly are not preempted by the FAA.

And, as discussed above, there is no reason under

Armendariz’s logic to distinguish between unwaivable

statutory rights and unwaivable rights derived from common

law.

We recognize that “[iJn enacting § 2 of the [FAA],

Congress declared a national policy favoring arbitration and

withdrew the power of the states to require a judicial forum

for the resolution of claims which the contracting parties

agreed to resolve by arbitration.” (Southland Corp. v. Keating

(1984) 465 U.S. 1, 10 (Southland).) The object of the

Armendariz requirements, however, is not to compel the

substitution of adjudication for arbitration, but rather to

ensure minimum standards of fairness in arbitration so that

employees subject to mandatory arbitration agreements can

vindicate their public rights in an arbitral forum.

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Specifically, with regard to arbitration costs at issue in this

case and in Brown, the principle that arbitration costs may

prevent arbitration claimants from effectively pursuing their

public rights would apply with equal force to Tameny claims

as to FEHA claims or to federal statutory claims. Nothing in

the FAA prevents states from controlling arbitration costs

imposed by adhesive contracts so that the remedy of

prosecuting state statutory or common law public rights

through arbitration is not rendered illusory. The Armendariz

costshifting requirement is unique to arbitration only to the

extent that arbitration, alone among contract provisions, may

potentially require litigants to expend large sums to pay for

the costs of the hearing that will decide his or her statutory

other public rights. In other words, it is not the arbitration

agreement itself but the imposition of arbitration forum costs

that under certain circumstances violate state law.

Moreover, Armendariz’s cost rule does not “require a

judicial forum’ for the resolution of claims which the

contracting parties agreed to resolve by arbitration.”

(Southland, supra, 465 U.S. at p. 10) Rather, we simply

required that employers pay arbitration forum costs under

certain circumstances as a condition of arbitration. Nothing in

the United States Supreme Court case law leads us to believe

that a state requirement shifting arbitration costs in mandatory

employment agreements to the employer pursuant to

established state law contract doctrine violates the FAA.

Furthermore, Code of Civil Procedure section 1284.2,

which provides that each party pay a pro rata share of

arbitration costs unless the agreement provides otherwise,

does not alter our conclusion. We held in Armendariz that this

statute does not preclude the judicial imposition of

proportionally greater costs on the employer in the case of

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FEHA claims. (Armendariz, supra, 24 Cal.4th at p. 112.) We

reasoned that “the agreement to arbitrate a statutory claim is

implicitly an agreement to abide by the substantive remedial

provisions of the statute” and that the FEHA implicitly

prohibited large arbitration costs that would stand as an

obstacle to successfully pursuing rights conferred on the

employee. (/bid.) We similarly conclude that an agreement

to arbitrate a claim of wrongful termination contrary to public

policy must be interpreted to implicitly include an agreement

to proportion costs in a manner that is reasonable for the

employee/claimant, in order to prevent the de facto waiver of

unwaivable rights contrary to Civil Code sections 1668 and

3513, discussed above. Code of Civil Procedure section

1284.2's default provision does not compel a contrary

conclusion.

Therefore, we conclude that a plaintiff/employee seeking

to arbitrate a Tameny claim should have the benefit of the

same minimal protections as for FEHA claims as a means of

ensuring that they can effectively prosecute such a claim in

the arbitral forum.’ These include the availability of damages

> Auto Stiegler also cites Brennan v. Tremco, supra, 25 Cal.

4" 310 in support of its position that Tameny claims are not subject

to the Armendariz requirements. In Brennan, we held that no suit

for malicious prosecution may be maintained for an action that the

parties resolve through contractual arbitration. In discussing the

reasons for this rule, the court stated: “ the nature of private

arbitration does not always allow for a ready determination of

whether or why the prior action actually terminated in the malicious

prosecution plaintiffs favor. Except for statutory claims [citing

Armendariz}, an arbitrator need not explain the basis of an award.”

(Brennan, supra, at p. 317.) Brennan did not consider the

extension of Armendariz to Tameny claims, and may not be relied

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remedies equal to those available in a Tameny suit brought in

court, including punitive damages (Commodore Home

Systems, Inc. v. Superior Court (1982) 32 Cal.3d 211, 220);

discovery sufficient to adequately arbitrate Tameny claim; a

written arbitration decision and judicial review sufficient to

ensure that arbitrators have complied with the law respecting

such claims; and allocation of arbitration costs so that they

will not unduly burden the employee.

We have already rejected the contentions that the

arbitration agreement in the present case limited Little’s

remedies or his ability to obtain adequate judicial review. Nor

is it evident from the agreement that Little will be unable to

obtain adequate discovery. Little argues, however, that there

is a risk of burdensome costs being imposed on him, contrary

to Armendariz. We consider this arguments in the next part of

our opinion.‘

upon by Auto Stiegler. (People v. Superior Court (Zamudio)

(2000) 23 Cal. 4" 183, 198 [“‘ cases are not authority for

propositions not considered’”].) Nor does our extension of

Armendariz to Tameny claims undermine Brennan’s point that in

most arbitrations, the arbitrator need not explain the basis for the

award.

* Auto Stiegler argues that even if Armendariz is extended to

Tameny claims, Little’s complaint does not state facts sufficient to

allege a Tameny cause of action. Neither the trial court nor the

Court of Appeal addressed this issue, and we express no view on

the matter. On remand, Auto Stiegler will have an opportunity to

re .ssert this argument.

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D. Cost Sharing and Arbitration of Tameny Claims

Little argues that the arbitration agreement’s silence on the

issue of costs means that he would be statutorily compelled to

share costs under Code of Civil Procedure section 1284.2 ,

and that the imposition of such costs renders the arbitration

agreement unenforceable. Armendariz did not conclude that

an arbitration agreement silent on costs was unenforceable.

On the contrary, we held we would infer from such silence an

agreement that “the employer must bear the arbitration forum

costs” and that “the absence of specific provisions on

arbitration costs would . . . not be grounds for denying the

enforcement of an arbitration agreement.” (Armendariz,

supra, 24 Cal.4th at p. 113.)

The California Motorcar Dealers Association, amicus

curiae on behalf of Auto Stiegler, argues that our holding on

costs in Armendariz has been supplanted by the United States

Supreme Court’s holding in Green Tree, supra, 531 U.S. 79.

Because the allocation of arbitration costs will be at issue on

remand, we address the relationship between Armendariz and

Green Tree.

In Green Tree, the plaintiff, purchaser of a mobile home,

sued her lender on various federal statutory grounds,

including violation of the Truth in Lending Act (TILA) (15

USC § 1601 et seq.) for failing to disclose certain finance

charges. (Green Tree, supra, 531 U.S. at pp. 82-83.) The

buyer’s agreement with the lender contained a binding

arbitration clause that included all statutory claims. The

agreement was silent on the issue of who would pay the costs

of arbitration. The district court granted the lender’s motion

to compel arbitration but the court of appeals reversed,

holding that the agreement posed the risk that the plaintiff's

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“ability to vindicate her statutory rights would be undone by

‘steep’ arbitration costs and therefore was unenforceable.”

(Id. 531 U.S. at p. 84.)

The United States Supreme Court reversed. It first

reaffirmed its long standing position that statutory claims are

arbitrable under the FAA absent the expression of

congressional intent “to preclude a waiver of judicial

remedies for the statutory rights at issue.” (Green Tree,

supra, 531 U.S. at p. 90.) Finding no such expression in the

TILA, the court proceeded to address the borrower's

argument that silence on the matter of arbitration costs created

an unacceptable risk that she might have to pay prohibitive

costs and therefore not be able to vindicate her statutory rights

through arbitration. The court stated: “It may well be that the

existence of large arbitration costs could preclude a litigant

such as Randolph from effectively vindicating her federal

statutory rights in the arbitral forum. But the record does not

show that Randolph will bear such costs if she goes to

arbitration. Indeed, it contains hardly any information on the

matter. As the Court of Appeals recognized, ‘We lack... .

information about how claimants fare under Green Tree’s

arbitration clause.’ The record reveals only the arbitration

agreement’s silence on the subject, and that fact alone is

plainly insufficient to render it unenforceable. The ‘risk’ that

Randolph will be saddled with prohibitive costs is too

speculative to justify the invalidation of an arbitration

agreement.” ( Id. 531 U.S. at pp. 90-91, fns. omitted.)

The court further explained: “To invalidate the agreement

on that basis would undermine the ‘liberal federal policy

favoring arbitration agreements.’ [Citation.] It would also

conflict with our prior holdings that the party resisting

arbitration bears the burden of proving that the claims at issue

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are unsuitable for arbitration. [Citation.] We have held that

the party seeking to avoid arbitration bears the burden of

establishing that Congress intended to preclude arbitration of

the statutory claims at issue. [Citation.}] Similarly, we believe

that where, as here, a party seeks to invalidate an arbitration

agreement on the ground that arbitration would be

prohibitively expensive, that party bears the burden of

showing the likelihood of incurring such costs. Randolph did

not meet that burden. How detailed the showing of prohibitive

expense must be before the party seeking arbitration must

come forward with contrary evidence is a matter we need not

discuss; for in this case neither during discovery nor when the

case was presented on the merits was there any timely

showing at all on the point. The Court of Appeals therefore

erred in deciding that the arbitration agreement’s silence with

respect to costs and fees rendered it unenforceable.” (Green

Tree, supra, 531 U.S. at pp. 91-92, italics added, fn.

omitted.)

Although Green Tree was not an employment case, most

courts interpreting it have done so in the employment context.

These courts have arrived at divergent meanings of the

“prohibitively expensive” standard. Some courts have

interpreted that term narrowly and maintain that it does not

affect the validity of the categorical position set forth in Cole,

supra, 105 F.3d 1465 that the employer should pay the costs

of a mandatory employment arbitration of statutory claims.

(See. e.g., Circuit City Stores v. Adams (2002) 279 F.3d 889;

Cooper v. MRM Investment Company (M.D. Tenn.) 199 F.

Supp. 2d 771, 781; Ball v. SFX Broadcasting, Inc.

(N.D.N.Y.) 165 F. Supp. 2d 230.) Other courts have held

that Green Tree represents a departure from Cole’s

categorical position, and requires a case-by-case analysis

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based on such factors as the employee’s ability to pay the

arbitration fees and the differential between projected

arbitration and litigation fees. (See, e.g., Blair v. Scott

Specialty Gases (3d Cir. 2002) 283 F.3d 595, 609 (Blair);

Nelson v. Insignia/ESG, Inc. (D.D.C. 2002) 215 F. Supp. 2d

143; Bradford v. Rockwell Semiconductor Systems Inc. (4th

Cir. 2001) 238 F.3d 549 (Bradford).) Still other courts have

held the information presented by the employee before

arbitration was too speculative to warrant invalidation of the

arbitration agreement, while retaining jurisdiction to

reconsider the cost issue after arbitration. (See, ¢.2.,

Mildworm v. Ashcroft (E.D.N.Y. 2002) 200 F. Supp. 2d 171;

Boyd v. Town of Hayneville (M.D. Alabama 2001) 144 F.

Supp. 2d 1272.)

Armendariz and Green Tree agree on two fundamental

tenets. First, silence about costs in an arbitration agreement

is not grounds for denying a motion to compel arbitration.

Second, arbitration costs can present significant barriers to the

vindication of statutory rights. Nonetheless, there may be a

significant difference between the two cases. Although Green

Tree did not elaborate on the kinds of costsharing

arrangements that would be unenforceable, dicta in that case,

and several federal cases cited above interpreting it, suggest

that federal law requires only that employers not impose

“prohibitively expensive” arbitration costs on the employee

(Green Tree, supra, 531 U.S. at p. 92), and that

determination of whether such costs have been imposed are to

be made on a case-by-case basis. Armendariz, on the other

hand, categorically imposes costs unique to arbitration on

employers when unwaivable rights pursuant to a mandatory

employment arbitration agreement are at stake. Assuming that

Green Tree and Armendariz pose solutions to the problem of

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arbitration costs that are in some respects different, we do not

agree with amicus curiae that the FAA requires states to

comply with federal arbitration costsharing standards.

As reviewed in the previous part of this opinion,

Armendariz’s cost-shifting requirement is not preempted by

the FAA. It is not a barrier to the enforcement of arbitration

agreements, nor does it improperly disfavor arbitration in

comparison to other contract clauses. Rather, it is derived

from state contract law principles regarding the unwaivability

of certain public rights in the context of a contract of

adhesion. We do not discern from the United States Supreme

Court’s jurisprudence on FAA preemption a requirement that

state law conform precisely with federal law as to the manner

in which such public rights are protected.

Furthermore, we considered and rejected in Armendariz

a case-by-case approach to arbitration costs similar to that

suggested by courts interpreting Green Tree based on the

differential between projected arbitration and litigation fees.

(Blair, supra, 283 F.3d at p. 609; Bradford, supra, 238 F.3d

at p. 556.) As we stated: “To be sure, it would be ideal to

devise a method by which the employee is put in exactly the

same position in arbitration, costwise, as he or she would be

in litigation. But the factors going into that calculus refuse to

admit ready quantification. Turning a motion to compel

: arbitration into a mini-trial on the comparative costs and

benefits of arbitration and litigation for a particular employee

would not only be burdensome on the trial court and the

parties, but would likely yield speculative answers.”

(Armendariz, supra, 24 Cal.4th at p. 111.) The individualized

consideration of employees’ ability to pay arbitration costs

that courts interpreting Green Tree contemplate (see Blair,

supra, 283 F.3d at p. 609; Bradford, supra, 238 F.3d at p.

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556) would further complicate the case-by- case calculation of

prohibitive expense. We also rejected in Armendariz the

notion that “there [would] be an advantage to apportioning

arbitration costs at the conclusion of the arbitration rather than

at the outset. Without clearly articulated guidelines, such a

postarbitration apportionment would create a sense of risk and

uncertainty among employees that could discourage the

arbitration of meritorious claims.” (Armendariz, supra, 24

Cal.4th at p. 111.) We see no reason to reevaluate these

conclusions in light of Green Tree and its progeny.

In short, for reasons stated above, we do not believe that

the FAA requires state courts to adopt precisely the same

means as federal courts to ensure that the vindication of

public rights will not be stymied by burdensome arbitration

costs. We continue to believe that Armendariz represents the

soundest approach to the problem of arbitration costs in the

context of mandatory employment arbitration. We therefore

conclude that on remand the court compelling arbitration

should require the employer to pay in this case “all types of

costs that are unique to arbitration.” (Armendariz, supra, 24

Cal.4th at p. 113.)

Ill. DISPOSITION

The judgment of the Court of Appeal is reversed insofar

as it (1) permits enforcement of a clause allowing arbitral

review only of awards greater than $50,000 and (2) requires

arbitration of Little’s Tameny claim, assuming he has

adequately alleged such a claim, without requiring Auto

Stiegler to pay arbitration forum costs as set forth in

Armendariz. The cause is remanded to the Court of Appeal

with instructions to direct the superior court to conduct

further proceedings consistent with the views expressed in this

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opinion. In all other respects, the Court of Appeal’s judgment

is affirmed.

MORENO, J.

WE CONCUR: GEORGE, C. J.

KENNARD, J.

WERDEGAR, J.

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CONCURRING AND DISSENTING OPINION BY

BAXTER, J.

I agree with the majority that the “over $50,000" clause

in the arbitration agreement was unconscionable, and _

therefore unenforceable, but was severable. On the other

hand, I agree with Justice Brown that the special procedural

rules for contractual arbitration of statutory claims, as set

forth in Armendariz v. Foundation Health Psychcare Services,

Inc. (2000) 24 Cal.4th 83 (Armendariz), should not be

extended to so-called Tameny claims that an employee was

wrongfully terminated in violation of public policy (see

Tameny v. Atlantic Richfield Co. (1980) 27 Cal.3d 167, 164

Cal. Rptr. 839, 610 P.2d 1330).!

I also dissent from the majority’s decision to retain rules,

first announced in Armendariz, for allocation of the costs of

mandatory arbitration of statutory claims.” In my view,

intervening United States Supreme Court authority sharply

undermines the soundness of Armendariz’s approach, and

Should prompt us to alter our analysis of the cost issue.

' Throughout this opinion, I use the terms “contractual

arbitration,” “arbitration contract,” and “arbitration clause” to refer

to agreements for mandatory arbitration of disputes that may arise

in the future. As the majority indicate, different considerations

apply to parties’ agreements to arbitrate disputes that have already

arisen.

* Tuse the term “statutory claims” throughout the following

discussion because, like Justice Brown, I would not extend the cost

protections of Armendariz beyond rights arising directly from

Statute to other causes of action, such as Tameny claims, which the

majority may consider “nonwaivable.”

—

Supreme Court of California Opinion - 2/27/03

To recap briefly: Code of Civil Procedure section 1284.2°

states that unless the arbitral parties agree otherwise,

arbitration costs shall be shared pro rata. Though section

1284.2 is an implied term of every arbitration agreement

silent on costs, Armendariz deemed it preempted in part by

the need to ensure that financial considerations would not

deter an employee who had agreed to mandatory arbitration

from using that forum to pursue a statutory claim of

discrimination under the Fair Employment and Housing Act

(FEHA). To resolve this problem, Armendariz held that

notwithstanding section 1284.2, and regardless of any

particularized showing of hardship or need, FEHA impliedly

requires an employer to pay all the employee’s “forum costs”

of contractual arbitration of a FEHA claim. (Armendariz,

supra, 24 Cal.4th 83, 107-113.)

Thereafter, the United States Supreme Court decided

Green Tree Financial Corp.-ALA. v. Randolph (2000) 531

U.S. 79, 148 L. Ed. 2d 373, 121 S. Ct. 513 (Green Tree).

Green Tree held that where Congress has evinced no intent to

limit the arbitrability of a particular federal statutory claim, a

party seeking to avoid mandatory contractual arbitration of

such a claim has the burden of showing that the costs of

arbitration he is likely to incur will render that forum

“prohibitively expensive.” (/d. at p. 92.) To deny contractual

arbitration on the mere risk of undue cost, said Green Tree,

“would undermine the ‘liberal federal policy favoring

arbitration agreements . . .’ [citation] [and] would also

conflict with our prior holdings that the party resisting

arbitration bears the burden of proving that the claims at issue

3 All further unlabeled statutory references are to the Code of

Civil Procedure.

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are unsuitable for arbitration. [Citations.]” (/d. at p. 91.)

Central to Green Tree’s analysis, of course, was the rule of

the Federal Arbitration Act (FAA: 9 U.S.C. § 2.) that

arbitration agreements involving interstate commerce may be

invalidated only on grounds applicable to contracts generally.

(Green Tree, supra, at p. 89.)

Despite Green Tree, the instant majority retain

Armendariz’s “employer always pays” cost formula. The

majority say Green Tree does not strictly require us to alter

Armendariz’s application of California contract law to the

issue of arbitration costs. On that technical point, the majority

may Or may not be correct. As Green Tree makes ciear,

however, the FAA, which governs both federal and state

arbitration law, was adopted “ ‘to reverse the longstanding

jedicial hostility to arbitration agreements . . . and to place

[such] agreements upon the same footing as other contracts.’

“ (Green Tree, supra, 531 U.S. 79, 89, quoting Gilmer v.

Interstate/Johnson Lane Corp. (1991) 500 U.S. 20, 24, 114

L. Ed. 2d 26, 111 S. Ct. 1647 (Gilmer).) Green Tree holds in

essence that even where the vindication of Statutory rights is

at stake, when courts interfere with an arbitration agreement

by presuming undue cost to one party, they exhibit particular

“hostility” and suspicion toward contractual arbitration, which

the FAA was intended to prevent.

At direct odds with this principle is the current California

requirement that the employer must always pay the

employee’s “forum costs” of arbitrating a statutory claim,

regardless of actual need, and contrary to a California law

that implies a cost-sharing term in every arbitration contract

unless che parties expressly agree otherwise. I believe Green

Tree warrants reconsideration of the Armendariz majority’s

views on cost allocation.

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It should be noted that in articulating California’s

minimum requirements for mandatory contractual arbitration

of statutory claims, Armendariz placed primary reliance on a

federal case, Cole v. Burns Intern. Security Services (D.C.

Cir. 1997) 323 U.S. App. D.C. 133, 105 F.3d 1465 (Cole). -

Among other things, Cole concluded that an employee could

not be forced by contract to arbitrate federal statutory rights

if also required to pay any part of the arbitrator’s fee. (/d. at

p. 1485.) Armendariz quoted with approval Cole’s assertion

that in Gilmer, supra, 500 U.S. 20, the high court had “

‘endorsed a system of [mandatory contractual] arbitration [of

federal statutory claims] in which employees are not required

to pay for tke arbitrator [and] there [was] no reason to think

that the Court would have approved arbitration in the absence

of this arrangement.’ “(Armendariz, supra, 24 Cal.4th 83,

107-168, quoting Cole, supra, 105 F.3d at p. 1484.)* Green

Tree has since destroyed that assumption. While the Green

Tree majority did not expressly disapprove Cole, they

essentially negated Cole’s conclusions about the cost-sharing

requirements of a valid scheme for arbitration of federal

statutory claims.

Under the circumstances, I would overrule Armendariz’s

arbitrary cost allocation formula. In its place, I would adopt

Green Tree’s principle that if a party resists mandatory

contractual arbitration of a statutory claim on grounds of

* Cole conceded that cost allocation was not an issue in

Gilmer, supra, 500 U.S. 20. This, Cole explained, was because the

arbitration in Gilmer, between a brokerage firm and its employee,

was subject-to a standard securities industry practice that the

employer pays the arbitrator’s fees. (Cole, supra, 105 F.3d 1465,

1483.)

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undue cost, he must make a timely, particularized showing of

the expected expense, and must also demonstrate that, in his

particular case, this cost would make arbitration prohibitively

expensive as compared to court litigation. Evidence on this

issue could be presented to the court deciding a motion to

compel arbitration. If the party opposing arbitration

demonstrated prohibitive expense, the court could grant the

motion to compel upon the condition that the proponent of

arbitration accept, with the caveat discussed below, a more

equitable allocation of costs.

I close with one final point. In light of the strong policy

favoring arbitration on the terms agreed by the parties,

interference with the arbitration contract’s cost provisions,

express or implied by statute, should be countenanced only to

the degree actually necessary to assure that mandatory resort

to the arbitral forum has not deterred vindication of a

Statutory claim. For this reason, whatever pre- arbitration

reallocation of costs may be necessary to ensure that the

claimant is not deterred in advance, this allocation should be

tentative only, and should be subject to readjustment once the

true expenses and rewards of the arbitral proceeding are

known.

In hindsight, it may become apparent that the actual costs

of arbitration, with its faster, simpler, and more economical

procedures, were less than the probable expenses of resolving

the same claim in court. Even if they were greater, the

difference may prove so minimal, given the claimant’s

general financial ability or the magnitude of his final

recovery, that forcing the other party to absorb all the

claimant’s forum costs, contrary to their agreement, is an

unfair interference with contractual arbitration. Under these

circumstances, the party who “fronted” costs for the claimant

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should be reimbursed for the excess.

I see no reason why the arbitrator cannot, subject to

appropriate judicial review, reassess the cost allocation at the

conclusion of the proceedings.° “When apportioning costs, the

arbitrator should consider the magnitude of the costs unique

to arbitration, the ability of the employee to pay a share of

these costs, and the overall expense of the arbitration as

compared to a court proceeding.” (Armendariz, supra, 24

Cal.4th 83, 129 (conc. opn. of Brown, J.).) As indicated

above, the amount actually recovered by the claimant in

arbitration should also be a relevant consideration.

“Ultimately, any apportionment should ensure that the costs

imposed on the employee, if known at the onset of litigation,

would not have deterred her from enforcing her statutory

rights or stopped her from effectively vindicating these rights.

[Citation.]” ( Ibid.)

Believing Armendariz was dispositive, the employee in

this case (Little) never sought to make a showing of

prohibitive expense. Believing Green Tree was dispositive,

the Court of Appeal simply held that the arbitration

agreement’s silence on costs was no bar to its unconditional

enforcement. As I have indicated, I would overrule

Armendariz to the extent it is inconsistent with Green Tree.

> J assume that when granting a motion to compel contractual

arbitration (§ 1281.2), the superior court could condition its order

both on a tentative reallocation of costs, and on the parties’

agreement that the court would retain power to review any

readjustment later ordered by the arbitrator. Moreover, a power to

review cost readjustments should also be within the court’s

jurisdiction in the event either party moves to vacate the arbitration

award. (§ 1285 et seq.)

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Thus, if I believed Little’s Tameny claim was entitled to

Armendariz protections, I would support a remand to allow

Little to make the requisite showing.

I would reverse the judgment of the Court of Appeal

insofar as it permits enforcement of a clause allowing arbitral

review only of awards greater than $50,000, and would

affirm the Court of Appeal’s judgment in all other respects.

If I agreed with the majority that Armendariz protections

apply to Tameny claims--which I do not--I would additionally

reverse the Court of Appeal’s judgment insofar as it requires

Little to arbitrate this claim without allowing him to

demonstrate that pro rata sharing of forum costs would make

arbitration prohibitively expensive for him, and I would

remand to the Court of Appeal with directions to instruct the

trial court to conduct further proceedings consistent with the

views expressed in this opinion.

BAXTER, J.

WE CONCUR:

CHIN, J.

BROWN, J.

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CONCURRING AND DISSENTING OPINION BY

BROWN, J.

Like the majority, I find the appellate arbitration provision

in the arbitration agreement unconscionable. (Maj. opn., ante,

at p. 2.) I also agree that this “provision should be severed

and the rest of the arbitration agreement enforced.” (/bid.) I,

however, disagree with the majority’s application of the

requirements set forth in Armendariz v. Foundation Health

Psychcare Services, Inc. (2000) 24 Cai.4th 83 (Armendariz)

to an action alleging wrongful termination in violation of

public policy (Jameny claim) (see Tameny v. Atlantic

Richfield Co. (1980) 27 Cal.3d 167, 178, 164 Cal. Rptr. 839,

610 P.2d 1330).' Unlike the majority, I found Brown v.

Wheat First Securities, Inc. (2001) 347 U.S. App. D.C. 228,

257 F.3d 821 (Brown) persuasive and would not apply

Armendariz to Tameny claims.

“In Armendariz, we held that arbitration of claims under

the [California Fair Employment and Housing Act (FEHA)

(Gov. Code, § 12900 et seq.)] is subject to certain minimal

requirements... .” (Maj. opn., ante, at p. 12.) We imposed

these requirements despite the preemptive scope of the

Federal Arbitration Act (FAA) (9 U.S.C. § 1 et seq.) based

on “the United States Supreme Court’s dictum that a party, in

agreeing to arbitrate a statutory claim, ‘does not forgo the

substantive rights afforded by the statute [but] only submits to

their resolution in an arbitral . . . forum.’ “ (Armendariz,

' For the reasons stated in Justice Baxter’s concurring and

dissenting opinion, ante, I also disagree with the majority’s refusal

to modify Armendariz’s cost requirements in light of Green Tree

Financial Corp. v. Randolph (2000) 531 U.S. 79, 148 L. Ed. 2d

373, 121 S. Ct. 513.

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supra, 24 Cal.4th at p. 99, quoting Mitsubishi Motors v. Soler

Chrysler-Plymouth (1985) 473 U.S. 614, 628, 87 L. Ed. 2d

444, 105 S. Ct. 3346 (Mitsubishi).) Because the Legislature

enacted FEHA with the express intention of safeguarding

certain rights for the benefit of the public at large, we

concluded that neither federal nor state arbitration laws

preclude our imposition of restrictions on the arbitration of

FEHA claims. (See Armendariz, supra, 24 Cal.4th at pp. 100-

101.) In doing so, we carefully limited our holding to

arbitrations of statutory claims.

Our heavy reliance on Cole v. Burns Intern. Security

Services (D.C. Cir. 1997) 323 U.S. App. D.C. 133, 105 F.3d

1465 (Cole) demonstrates the limited scope of our holding in

Armendariz. (See Armendariz, supra, 24 Cal.4th at pp. 101-

102.) In Cole, the District of Columbia Circuit Court of

Appeals imposed the same requirements we imposed in

Armendariz (Cole/Armendariz requirements) to the arbitration

of claims under title VII of the Civil Rights Act of 1964 (Title

VII). ( Cole, supra, 105 F.3d at p. 1482.) It imposed these

requirements because of the importance of respecting

congressional intent as expressed in “public statutes like the

[Age Employment in Discrimination Act] and Title VII.”

(Cole, at p. 1482.) Ascertaining the unwaivability of the

rights conferred by these public statutes from their text,

history, and purpose and citing this unwaivability as evidence

of congressional intent, the court found that Congress

intended to provide certain procedural protections to

employees seeking to vindicate these rights. (/bid.) Thus,

Cole did not impose additional requirements on the arbitration

of these statutory claims based solely on their unwaivability

or public policy concerns.

Supreme Court of California Opinion - 2/27/03

The District of Columbia Circuit Court of Appeals made

this expressly clear in Brown. In Brown, the court refused to

impose the Cole/Armendariz requirements on the arbitration

of a common law claim virtually identical to the Tameny

claim at issue here. (Brown, supra, 257 F.3d at p. 825.) As

the court explained, Cole was limited “at vital points to

statutory rights” ( Brown, 257 F.3d at p. 825), and “our

central rationale--respecting congressional intent--does not

extend beyond the statutory context” (ibid.). The court further

noted that the FAA preempts “state restrictions on the

enforcement of arbitration agreements” and necessarily

precludes courts from restricting the arbitration of common

law claims. (Brown, at p. 826.) Finally, the court observed

that the creation of judicially crafted public policy exceptions

to the FAA would, as a practical matter, subject the

arbitration of most, if not all, tort and contract claims to the

Cole/Armendariz requirements. (/bid.)

Notwithstanding the majority’s arguments to the contrary,

I believe Brown should guide our decision here. As explained

above, we carefully limited the application of Armendariz to

statutory rights. (See ante, at pp. 1-2.) And our rationale for

imposing the Cole/Armendariz requirements on the arbitration

of FEHA claims--respecting legislative intent--does not extend

beyond the statutory context. (See ibid.)

Indeed, we are precluded from doing so by both Congress

and our own Legislature. Congress enacted the FAA “ ‘to

assure those who desired arbitration and whose contracts

related to interstate commerce that their expectations would

not be undermined . . . by state courts... .’ “ ( Southland

Corp. v. Keating (1984) 465 U.S. 1, 13, 79 L. Ed. 2d 1, 104

S. Ct. 852.) Recognizing “the widespread unwillingness of

state courts to enforce arbitration agreements” (ibid.),

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Congress intended the FAA “to be a broad enactment

appropriate in scope to meet the large problems Congress was

addressing” (465 U.S. at p. 14)--i.e., judicial hostility to

arbitration--and “unencumbered by state law constraints” ( id.

465 U.S. at p. 13). As such, the FAA preempts all state laws

and rules disfavoring arbitration. (See Allied-Bruce Terminix

Cos. v. Dobson (1995) 513 U.S. 265, 272, 130 L. Ed. 2d

753, 115 S. Ct. 834.) |

Of course, Congress is free to circumscribe the scope of

its enactments. (Shearson/American Express Inc. v. McMahon

(1987) 482 U.S. 220, 226, 96 L. Ed. 2d 185, 107 S. Ct.

2332.) Consistent with this principle, the United States

Supreme Court has recognized that the FAA does not govern

if “ ‘Congress itself has evinced an intention to preclude a

waiver of judicial remedies for the Statutory rights at issue.’

“ (Gilmer v. Interstate/Johnson Lane Corp. (1991) 500 U.S.

20, 26, 114 L. Ed. 2d 26, 111 S. Ct. 1647 (Gilmer), quoting

Mitsubishi, supra, 473 U.S. at p. 628.) Such an intention

may, however, be discerned only from “the text [of a federal

Statute], its legislative history, or an ‘inherent conflict’

between arbitration and” that statute’s underlying purposes.

(Gilmer, supra, 500 U.S. at p. 26, quoting McMahon, supra,

482 U.S. at p. 227.) Thus, in the absence of a statute

evidencing a clear congressional intent to restrict arbitration,

the FAA controls and precludes courts from imposing their

own arbitration-specific restrictions.2 (See Mastrobuono v.

> We have extended this rationale of Gilmer to state legislative

enactments and restricted the arbitration of certain Statutory causes

of action serving a transcendent public purpose as determined by a

State legislature. (See Broughton v. Cigna Healthplans (1999) 21

Cal.4th 1066, 1083, 988 P.2d 67, 90 Cal. Rptr. 2d 334

4la

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Shearson Lehman Hutton, Inc. (1995) 514 U.S. 52, 55, 58,

131 L. Ed. 2d 76, 115 S. Ct. 1212 (Mastrobuono) {holding

that the FAA precludes the enforcement of a judicially created

rule despite its basis in public policy]; see also McMahon,

supra, 482 U.S. at p. 227 [to defeat application of the FAA,

the parties opposing arbitration “must demonstrate that

Congress intended to make an exception to the [FAA] for

claims arising under” statute, “an intention discernible from

the text, history, or purposes of the statute”].)

Similarly, California’s arbitration scheme precludes

California courts from restricting arbitrations in the absence

of an express legislative intent to do so. “Title 9 of the Code

of Civil Procedure . . . represents a comprehensive statutory

scheme regulating private arbitration in this state.”

(Moncharsh v. Heily & Blase (1992) 3 Cal.4th 1, 9, 832 P.2d

899, 10 Cal. Rptr. 2d 183.) This scheme establishes “that

arbitration agreements will be enforced in accordance with

their terms.” (Vandenberg v. Superior Court (1999) 21

Cal.4th 815, 836, fm. 10, 982 P.2d 229, 88 Cal. Rptr. 2d

366.) Absent certain statutorily enumerated grounds not

relevant here (see Code Civ. Proc., § 1281.2), courts must

enforce an arbitration agreement as written. While the

Legislature may create exceptions to this strong statutory

policy in favor of arbitration and selectively limit arbitrations,

we may not. (See Armendariz, supra, 24 Cal.4th at p. 98

(Broughton).) While I reluctantly concede that Broughton is binding

until the United States Supreme Court decides otherwise (but see

Broughton, supra, 1066, 1088-1103 (dis. opn. of Chin, J.)), neither

this court nor the United States Supreme Court has ever suggested

that a federal or state court may, on its own initiative, restrict the

arbitration of a common law cause of action.

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[recognizing that the Legislature may “selectively prohibit[]

arbitration in certain areas”].)

Nonetheless, the majority does just that. A Tameny claim

is a common law cause of action created by this court--and

not by the Legislature. (See Green v. Ralee Engineering Co.

(1998) 19 Cal.4th 66, 71, 960 P.2d 1046, 78 Cal. Rptr. 2d 16

(Green) (“Although our Legislature has determined that an

employment contract is generally terminable at either party’s

will . . ., we have created a narrow exception to this rule by

recognizing that an employer’s right to discharge an at-will

employee is subject to limits that fundamental public policy

imposes.” (Italics added, fn. omitted.)].) Thus, Tameny

Claims are a judicial--and not a legislative--construct, and the

public policy underlying these claims “is inconsequential as

a measure of [the Legislature’s] interest in the stated policy.”

(Brown, supra, 257 F.3d at p. 826.) As a result, the

majority’s extension of Armendariz violates the FAA and our

Own Statutory arbitration scheme.

The statutes the majority cites to establish the

unwaivability of Tameny claims are inapposite. Civil Code

section 3513, by its terms, applies only to laws enacted by the

Legislature. Meanwhile, Civil Code section 1668 merely

declares that contracts that “directly or indirectly .. . exempt

anyone from responsibility for his own fraud, or willful injury

to the person or property of another, or violation of law,

whether willful or negligent, are against” public policy. An

arbitration agreement does not, however, ¢xempt anyone from

responsibility for his or her wrongdoing. Rather, the

agreement merely changes the forum in which the

determination of responsibility is made. (See Gilmer, supra,

500 U.S. at p. 26 [parties compelled to arbitrate their claims

merely “ ‘submit[] to their resolution in an arbitral, rather

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than a judicial, forum’ “].) Thus, Civil Code section 1668

does not evince a legislative intent to impose any restrictions

on the arbitration of Tameny claims.

In any event, the majority’s focus on the unwaivability of

Tameny claims is misplaced. To evade FAA preemption, the

majority purports to apply a generally applicable contract

defense by “refusing to enforce a contractual term . . . that .

. . would force a party to forgo unwaivable public rights . .

..” (Maj. opn., ante, at p. 16.) Thus, the majority sees “no

reason under Armendariz’s logic to distinguish between

unwaivable statutory rights and unwaivable rights derived

from common law.” (/d. at p. 17.) The majority’s logic,

however, is specious. The majority finds an agreement to

arbitrate Zameny claims violative of public policy absent

satisfaction of the Cole/Armendariz requirements solely

because of alleged deficiencies unique to an arbitral forum

established by an otherwise valid agreement. In doing so, the

majority necessarily premises its holding on plaintiff's

purported inability to vindicate his common law claim in the

arbitral forum and creates a rule specific to arbitration

agreements. As such, the majority’s holding rests on a

“suspicion of arbitration as a method of weakening the

protections afforded in the substantive law to would-be

complainants” rejected long ago. (Rodriguez de Quijas v.

Shearson/Am. Exp. (1989) 490 U.S. 477, 481, 104 L. Ed. 2d

526, 109 S. Ct. 1917.) This is true regardless of whether the

claim is waivable or not.

Thus, the unwaivability of Tameny claims is a red herring.

The crucial question is whether there is any evidence of a

congressional (see Gilmer, supra, 500 U.S. at p. 26) or

legislative intent (see Broughton, supra, 21 Cal.4th at p.

1083) to place restrictions on the arbitration of 7ameny

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~ Claims. While the unwaivability of a Statutory right

established by the statute’s text, history, or purpose may

evidence such an intent (see Cole, supra, 105 F.3d at p.

1482; Armendariz, supra, 24 Cal.4th at p. 100), a judicial

finding of unwaivability for public policy reasons cannot.

Indeed, the public policy exception the majority adopts

subjects most, if not all, tort claims to the Cole/Armendariz

requirements. “All claims not based on contract--including,

for example, . . . defamation and tortious interference claims

. . .--implement values that society has in one way or another

thought deserving.” (Brown, supra, 257 F.3d at p. 826.)

Under this public policy rationale, “it is hard to see what falls

outside it.” (Jbid.) For example, under the majority’s logic,

any arbitration of an intentional tort claim must abide by the

Cole/Armendariz recuirements because such claims are

unwaivable under Civil Code section 1668.

In this respect, this case is no different from

Mastrobuono. In Mastrobuono, the United States Supreme

Court held that the FAA preempted a judicially created rule

prohibiting arbitrators from awarding punitive damages even

though a state court created the rule for public policy reasons.

(Mastrobuono, supra, 514 U.S. at pp. 55, 58.) The same

reasoning precludes our application of the judicially created

Cole/Armendariz requirements to the arbitration of Tameny

claims. By creating a rule applicable only to arbitration

provisions, the majority necessarily violates the FAA. (See

Doctor’s Associates, Inc. vy. Casarotte (1996) 517 U.S. 681,

687 [“Courts may not, however, invalidate arbitration

agreements under state laws applicable only to arbitration

provisions” ].)

Our extension of Armendariz to Tameny claims therefore

usurps Congress’s authority to establish “the supreme law of

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the land” (U.S. Const., art. VI, cl. 2) and the Legislature’s

“responsibility to declare the public policy of the state”

(Green, supra, 19 Cal.4th at p. 71). Moreover, by imposing

arbitration-specific restrictions that have no congressional or

legislative basis, the majority not only undermines the “liberal

federal policy favoring arbitration” (Moses H. Cone Hospital

v. Mercury Constr. Corp. (1983) 460 U.S. 1, 24, 74 L. Ed.

2d 765, 103 S. Ct. 927), but also contravenes California’s

“strong public policy in favor of arbitration as a speedy and

relatively inexpensive means of dispute resolution” (Ericksen,

Arbuthnot, McCarthy, Kearney & Walsh, Inc. v. 100 Oak

Street (1983) 35 Cal.3d 312, 322, 197 Cal. Rptr. 581, $73

P.2d 251). Even if Tameny claims cannot be effectively

vindicated absent imposition of the Cole/Armendariz

requirements, both Congress and our Legislature have

declined to impose them. By disregarding their intentions, the

majority appears intent on turning “the judicial clock

backwards to an era of hostility toward arbitration.” (Madden

v. Kaiser Foundation Hospitals (1976) 17 Cal.3d 699, 714,

131 Cal. Rptr. 882, 552 P.2d 1178.) Indeed, this court

appears to be “chipping away at” United States Supreme

Court precedents broadly construing the scope of the FAA

“by indirection,” despite the high court’s admonition against

doing so. (Circuit City Stores, Inc. v. Adams (2001) 532 U.S.

105, 122, 149 L. Ed. 2d 234, 121 S. Ct. 1302.) I therefore

urge the high court to clarify once and for all whether our

approach to arbitration law comports with its precedents.

BROWN, J.

WE CONCUR:

BAXTER, J.

CHIN, J.

APPENDIX B

COURT OF APPEAL OF CALIFORNIA,

SECOND APPELLATE DISTRICT, DIVISION FIVE

No. B147003

[Filed September 17, 2001]

ALEXANDER M. LITTLE,

Plaintiff and Respondent,

AUTO STIEGLER, INC..,

Defendant and Appellant.

i a a

APPEAL from an order of the Superior Court of Los

Angeles County. Super. Ct. No. BC230809.

S. Patricia Spear, Judge.

JUDGES:

TURNER, P.J., ARMSTRONG, J., WILLHITE, J.”

Judge of the Los Angeles County Superior Court, assigned by

the Chief Justice pursuant to article VI, section 6 of the California

Constitution.

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Court of Appeal of State of California Opinion - 09/17/01

OPINION

I. Introduction

Auto Stiegler, Inc. (defendant) appeals from an order

denying its motion to compel arbitration of an action for

tortious demotion and termination brought by Alexander M.

Little (plaintiff). The trial court held the arbitration agreement

was unconscionable and hence unenforceable under

Armendariz v. Foundation Health Psychcare Services, Inc.

(2000) 24 Cal. 4th 83, 113-127 (hereafter Armendariz). The

complaint contains no statutory claims as was the case in

Armendariz. Based on the language in Armendariz and the

Supreme Court’s discussion in Brennan v. Tremco Inc. (2001)

25 Cal. 4th 310, 317, we conclude the arbitration clause is

enforceable in a case involving no statutory claims and the

order under review is reversed.

ll. Background

Plaintiff signed three nearly identical arbitration

agreements while employed by defendant. The most recent of

ine three stated as follows: “I agree that any claim, dispute,

ur controversy (including, but not limited to, any and all

claims of discrimination and harassment) which would

otherwise require or allow resort to any court or other

governmental dispute resolution forum between myself and

the Company (or its owners, directors, and officers, and

parties affiliated with its employee benefit and health plans)

arising from, related to, or having any relationship or

connection whatsoever with my seeking employment with,

employment by, or other association with, the Company,

whether based on tort, contract, statutory, or equitable law,

or otherwise, shall be submitted to and determined exclusively

by binding arbitration under the Federal Arbitration Act, in

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conformity with the procedures of the California Arbitration

Act (Cal. Code Civ. Proc. Sec 1280 et seq., including section

1283.05 and all of the act’s other mandatory and permissive

rights to discovery); provided, however, that: In addition to

requirements imposed by law, any arbitrator herein shaly be

a retired California Superior Court Judge and shall be subject

to disqualification on the same grounds as would apply to a

judge of such court. To the extent applicable in civil actions

in California courts, the following shall apply and be

observed: all rules of pleading (including the right of

demurrer), all rules of evidence, ali rights to resolution of the

dispute by means of motions for summary judgment,

judgment on the pleadings, and judgment under Code of Civil

Procedure section 631.8. Resolution of the dispute shall be

based solely upon the law governing the claims and defenses

pleaded, and the arbitrator may not invoke any basis other

than such controlling law, including but not limited to,

notions of ‘just cause.’ As reasonably required to allow full

use and benefit of this agreement’s modifications to the act’s

procedures, the arbitration shall extend the times set by the

act for the giving of notices and setting of hearings. Awards

exceeding $ 50,000.00 shall include the arbitrator’s written

reasoned opinion and, at either party’s written request within

20 days after issuance of the award, shall be subject to

reversal and remand, modification, or reduction following

review of the record and arguments of the parties by a second

arbitrator who shall, as far as practicable, proceed according

to the law and procedures applicable to appellate review by

the California Court of Appeal of a civil judgment following

court trial. I understand by agreeing to this binding arbitration

provision, both I and the Company give up our rights to trial

by jury.”

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Plaintiff filed an action against defendant alleging he was

demoted and subsequently terminated after he reported that

certain employees were engaging in warranty fraud.

Plaintiff's causes of action were for: tortious demotion in

violation of public policy; tortious termination in violation of

public policy; breach of an implied contract of continued

employment; and breach of the implied covenant of good faith

and fair dealing. In the first through third causes of action,

plaintiff sought compensatory and punitive damages. In the

fourth cause of action, plaintiff sought only contract breach

damages. Plaintiff sought no relief under the Fair

Employment and Housing Act (FEHA). (Gov. Code, § 12900

et seq.)

Defendant’s initial motion to compel arbitration was

granted. Following the Supreme Court’s decision in

Armendariz, the trial court, upon plaintiff's request for

reconsideration, denied defendant’s motion to compel

arbitration. The trial court ruled: “The court believes that the

arbitration clause in issue does not mect the standards set

forth by the Supreme Court and it should not be enforced.

The clauses of the arbitration agreement that do not comport

with the requirements of the Armendariz [decision] include

the clauses that: [P] 1. Require the Plaintiff to share the costs;

{ 2. Provide for no judicial review. The court deems this

fatal, as judicial review of all decisions is not the same as

limited review by another arbitrator of only certain awards;

4 3. Limit the remedies available to the complaintant [sic] [to]

possibly exclude equitable as opposed to legal remedies, to

which he might otherwise be entitled. { 4. Lack of mutuality

of remedy, in that this clause, unlike the one in Armendariz

does not obviously bind the employer to likewise enforce its

Court of Appeal of State of California Opinion - 09/17/01

right in the arbitration forum.” Defendant filed a timely notice

of appeal.

III. Discussion

A. Standard of Review

The present case involves the application of the United

States Arbitration Act. The arbitration agreement involves an

employment contract in commerce and it explicitly indicates

that it is to be “submitted to and determined exclusively by

binding arbitration under the Federal Arbitration Act” subject

to the procedures of the California Arbitration Act. (9 U.S.C.

§ 2; Circuit City Stores, Inc. vy. Adams (2001) 532 U.S. 105,

__ [121 S. Ct. 1302, 1307].) As such, subject to defenses

applicable in all contract disputes including that of

unconscionability, the arbitration agreement must be enforced

according to its terms. (Volt Information Sciences, Inc. v.

Board of Trustees of the Leland Stanford Junior University

(1989) 489 U.S. 468, 477-478: Warren-Guthrie v. Health Net

(2000) 84 Cal. App. 4th 804, 813.)

When, as here, no extrinsic evidence has been introduced,

the validity of an arbitration clause is a question of law. (24-

Hour Fitness, Inc. vy. Superior Court ( 1998) 66 Cal. App. 4th

1199, 1212; Stirlen y. Supercuts, Inc. (1997) 51 Cal. App.

4th 1519, 1527.) We are not bound by the trial court’s

construction of the agreement. (24- Hour Fitness, Inc. v.

Superior Court, supra, 66 Cal. App. 4th at p. 1212; Stirlen y.

Supercuts, Inc., supra, 51 Cal. App. 4th at p. 1527.) Our

review is de novo. (24- Hour Fitness, Inc. v. Superior Court,

supra, 66 Cal. App. 4th at p. 1212; Stirlen v. Supercuts, Inc.,

supra, 51 Cal. App. 4th at p. 1527.) Further, as the Court of

Appeal explained in 24- Hour Fitness, Inc. v. Superior Court,

supra, 66 Cal. App. 4th at pages 1214-1215: “We view the

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cited clauses in light of the standard rules of contract

interpretation. ‘An interpretation which gives effect is

preferred to one which makes void.’ (Civ. Code, § 3541.) If

it may be done without violating the parties’ intent, we must

interpret the contract in such a way as to make it ‘lawful,

operative, definite, reasonable, and capable of being carried

into effect.’ (Civ. Code, § 1643.) Particularly where the

contract is one of adhesion, ambiguity in the contract

language not dispelled by application of other canons of

construction is interpreted against the drafter. (Civ. Code,

§ 1654; Neal v. State Farm Ins. Cos. (1961) 188 Cal. App.

2d 690, 695, [].) Finally, because of the strong public policy

in favor of arbitration, ‘courts will “‘indulge every

intendment to give effect to such proceedings.’” [Citation.]’

(Moncharsh v. Heily & Blase (1992) 3 Cal. 4th 1, 9 [].)” As

the Supreme Court held in Graham v. Scissor-Tail, Inc.

(1981) 28 Cal. 3d 807, 819, footnote 16, an arbitration case:

“The rule requiring the resolution of ambiguities against the

drafting party ‘applies with peculiar force in the case of a

contract of adhesion... . .’ ( Neal v. State Farm Ins. Cos.,

supra, 188 Cal. App. 2d 690, 695.)”

B. Armendariz

In Armendariz, the Supreme Court held certain minimum

requirements must be met in order for arbitration to be an

adequate forum for the vindication of nonwaivable statutory

rights under the FEHA. (Armendariz, supra, 24 Cal. 4th at p.

100.) The court found the Legislature had enacted the FEHA

“*for a public reason.’” (/bid.) The Supreme Court concluded

that vindication of FEHA rights in arbitration requires

“neutrality of the arbitrator, the provision of adequate

discovery, a written decision that will permit a limited form

of judicial review, and limitations on the costs of arbitration.”

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(/d. at pp. 90-91: Camargo v. California Portland Cement

Co. (2001) 86 Cal. App. 4th 995, 1019, fn. 8, 103 Cal. Rptr.

2d 841.) After articulating these five implied elements of

every agreement to arbitrate a FEHA claim, the Supreme

Court went on to discuss unconsionability in general Stating,

“In the previous section of this opinion, we focused on the

minimum requirements for the arbitration of unwaivable

statutory claims. In this section, we will consider objections

to arbitration that apply more generally to any type of

arbitration imposed on the employee by the employer as a

condition of employment, regardless of the type of claim

being arbitrated. These objections fall under the rubric of

‘unconscionability.’” (Armendariz, supra, 24 Cal. 4th at p.

113.) We will first discuss the five minimum requirements

under Armendariz for an agreement to arbitrate a FEHA claim

and their application to this case. We then turn to the question

of unconscionability.

1. Five Minimum Requirements Under Armendariz

The five minimum requirements for arbitration of

nonwaivable FEHA claims discussed in Armendariz are

inapplicable here. Plaintiff has not alleged a FEHA cause of

action or any other Statutory claim. Therefore, unlike the

Armendariz court, we are not concerned with vindication in

arbitration of plaintiff's FEHA claims or any other

nonwaivable statutory rights. No Statutory claims are present

in this case. Hence, the alleged absence of the five minimum

requirements in Armendariz is not a ground for invalidating

the arbitration clause in this case. (See Brennan v. Tremco

Inc., supra, 25 Cal. 4th at Pp. 317 [“Except for statutory

Claims, [citation], an arbitrator need not explain the basis of

an award”].) Therefore, the purported absence of the five

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minimum Armendariz requirements is not a ground for

invalidating the present arbitration clause.

2. Unconscionability Under Armendariz

The trial court found the present arbitration agreement

was unenforceable because of a “lack of mutuality of

remedy[.]” The trial court concluded the agreement did not

bind defendant to enforce ifs rights in arbitration. Armendariz

held, “regardless of the type of claim being arbitrated,” a

contract of adhesion will not be enforced if it is

unconscionable. (Armendariz, supra, 24 Cal. 4th at p. 113.)

Moreover, an arbitration agreement is _ substantively

unconscionable if it requires only the employee, but not the

employer, to arbitrate claims. (Armendariz, supra, 24 Cal.

4th at pp. 115-121, accord Kinney v. United HealthCare

Services, Inc. (1999) 70 Cal. App. 4th 1322, 1332.) Absent

a reasonable justification based on ““business realities’” such

“lack of mutuality” is unconscionable. (Armendariz, supra,

24 Cal. 4th at p. 117; Stirlen v. Supercuts, Inc., supra, 51

Cal. App. 4th at p. 1536.) In the case of an agreement to

arbitrate imposed by an employer on an employee, it is not

enough that the employer agrees to be bound by arbitration of

the employee’s job-related disputes. (Armendariz, supra, 24

Cal. 4th at p. 118.)

The arbitration agreement at issue in Armendariz was

limited in scope to employee claims regarding wrongful

termination. (Armendariz, supra, 24 Cal. 4th at p. 120.) It

stated: “‘I agree as a condition of my employment, that in the

event my employment is terminated, and I contend that such

termination was wrongful or otherwise in violation of the

conditions of employment or was in violation of any express

or implied condition, term or covenant of employment,

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whether founded in fact or in law, including but not limited to

the covenant of good faith and fair dealing, or otherwise in

violation of any of my rights, I and Employer agree to submit

any such matter to binding arbitration . . . .” ( /d. at pp. 91-

92.) The Armendariz agreement did not expressly authorize

the employer to litigate rather than arbitrate its claims against

the employee. Nevertheless, this one-sided right to compel

arbitration by the employer only, the Supreme Court

concluded, was the “clear implication of the agreement.”

(Armendariz, supra, 24 Cal. 4th at p. 120.) The Supreme

Court noted: “Obviously, the lack of mutuality can be

manifested as much by what the agreement does not provide

as by what it does. [Citation.]” (/bid.)

The present agreement is materially distinguishable from

that in Armendariz. Here, the agreement states: “/ agree that

any claim, dispute, or controversy (including, but not limited

to, any and all claims of discrimination and harassment)

which would otherwise require or allow resort to any court or

other governmental dispute resolution forum between myself

and the Company (or its owners, directors, and officers, and

parties affiliated with its employee benefit and health plans)

arising from, related to, or having any relationship or

connection whatsoever with my seeking employment with,

employment by, or other association with, the Company,

whether based on tort, contract, statutory, or equitable law,

or otherwise, shall be submitted to and determined exclusively

by binding arbitration . . . . I understand by agreeing to this

binding arbitration provision, both J and the Company give up

our rights to trial by jury.” (Italics added.) Unlike the

Armendariz contract, this agreement is not reasonably

susceptible of a conclusion defendant is not bound to arbitrate

its claims against plaintiff. It requires that “any claim,

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dispute, or controversy . . . between myself and the Company

. . arising from, related to, or having any relationship or

connection whatsoever with my seeking employment with,

employment by, or other association with, the Company”

shall be arbitrated. It further specifies that both plaintiff and

defendant “give up [their] rights to trial by jury.” Under the

plain terms of this agreement, both plaintiff and defendant are

required to arbitrate any dispute having any relationship or

connection between them. Finally, no damage limitation of

any type appears in the agreement.

There is no merit to plaintiff's argument only he was

bound by the arbitration clause. The agreement is on

defendant’s stationary. The arbitration agreement was given

originally to plaintiff along with an employee handbook which

stated, “We intend for this handbook to offer two-way

communications: what you expect from us, and what we

expect from you.” An employee handbook may be utilized in

construing the terms of an employment relationship. (Guz v.

Bechtel National, Inc. (2000) 24 Cal. 4th 317, 340 [employee

handbook relevant in construing power to terminate at will];

Foley v. Interactive Data Corp. (1988) 47 Cal. 3d 654, 681-

682 [employer personnel manual relevant to existence of

implied terms of employment relationship]; Romo v. Y-3

Holdings, Inc. (2001) 87 Cal. App. 4th 1153, 1159-1160

[employee never agreed to be bound by arbitration agreement

in severable portion of employee handbook]; Hill v. City of

Long Beach (1995) 33 Cal. App. 4th 1684, 1692 [municipal

employee’s employment rights determined by reference to city

charter, civil service rules, and employee handbook].)

Further, any doubts as to whether defendant would be bound

by the agreement it provided on its own stationary along with

the employee handbook would be resolved in favor of

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arbitration. (Moncharsh v. Heily & Blase, supra, 3 Cal. 4th

at p. 9; Christensen v. Dewor Developments (1983) 33 Cal.

3d 778, 782.)

3. Costs of Arbitration

Plaintiff argues that the requirement that he pay a pro rata

Share of the costs of arbitration renders the agreement

unconscionable. Because the arbitration clause is silent on the

subject, Code of Civil Procedure section 1284.2 requires

plaintiff to pay his pro rata share of the arbitration.' Plaintiff

presented no evidence to support this contention concerning

the costs of arbitration. He presented no evidence of the costs

of arbitration nor his alleged inability to pay such expenses.

He presented no evidence to show that he would pay more to

arbitrate than to undergo the costs of litigating in a

courtroom. Under these circumstances, this case, one not

involving a statutory claim, is best analogized to the decision

of Green Tree Financial Corp.-Alubama v. Randolph (2000)

531 U.S. 79, 90-91, where the United States Supreme Court

addressed an argument that the costs of arbitration arising in

connection with a federal civil rights claim rendered the

agreement unconscionable as follows: “It may well be that the

existence of large arbitration costs could preclude a litigant

such as Randolph from effectively vindicating her federal

statutory rights in the arbitral forum. But the record does not

' Code of Civil Procedure section 1284.2 states, “Unless the

arbitration agreement otherwise provides or the parties to the

arbitration otherwise agree, each party to the arbitration shall pay

his pro rata share of the expenses and fees of the neutral arbitrator,

together with other expenses of the arbitration incurred or approved

by the neutral arbitrator, not including counsel fees or witness fees

or other expenses incurred by a party for his own benefit.”

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show that Randolph will bear such costs if she goes to

arbitration. Indeed, it contains hardly any information on the

matter. As the Court of Appeals recognized, ‘we lack . . .

information about how claimants fare under Green Tree’s

arbitration clause.” [Randolph v. Green Tree Financial (11th

Cir. 1999)] 178 F.3d [1149,] 1158. The record reveals only

the arbitration agreement’s silence on the subject, and that

fact alone is plainly insufficient to render it unenforceable.

The ‘risk’ that Randolph will be saddled with prohibitive costs

is too speculative to justify the invalidation of an arbitration

agreement. To invalidate the agreement on that basis would

undermine the ‘liberal federal policy favoring arbitration

agreements.’ [Citation.]” (Fn. omitted.) Green Tree Financial

Corp. is a decision construing the United States Arbitration

Act and as such is useful in construing California arbitration

proceedings. (Engalla v. Permanente Medical Group, Inc.

(1997) 15 Cal. 4th 951, 971-972 [United States Arbitration

Act policies providing for presumption in favor of

arbitrability and requirement that agreements to arbitrate be

construed on basis of state law contract principles applied to

health insurance agreement]; Rosenthal v. Great Western Fin.

Securities Corp. (1996) 14 Cal. 4th 394, 408 [“[I]t follows

that a state procedural statute or rule that frustrated the

effectuation of [9 U.S.C. §] 2’s central policy would, where

the federal law applied, be preempted by the [United States

Arbitration Act]”].) Based on this record, there is no merit to

the argument that the statutory requirement that plaintiff pay

his share of arbitration costs in connection with his non-

Statutory claims, which involve the entirety of his lawsuit,

renders the agreement to arbitrate unconscionable in this case

which is subject to the United States Arbitration Act.

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Plaintiff argues that this case is controlled by Cole v.

Burns International Security Services (D. C. Cir. 1997) 323

U.S. App. D.C. 133, 105 F.3d 1465, 1483-1485, where the

Court of Appeals for the District of Columbia Circuit held

that an employee could not be required to pay the costs of

arbitration of statutory claims. Because the arbitration clause

in Cole was silent on the issue of cost allocation, the Court of

Appeals construed the employment contract to require the

employer to pay all of the arbitrators’ costs in a claim

premised upon the employee’s statutory claims. Cole did not

invalidate the arbitration agreement. (/d. at 1484-1485.)

In Armendariz, the California Supreme Court adopted the

analysis of Cole and the majority of courts that have

considered the issue in connection with an employee’s

statutory claims. (Armendariz v. Foundation Health Psychcare

Services, Inc., supra, 24 Cal. 4th at pp. 110-111.) However,

as noted previously, the present case involves no statutory

claims. The Armendariz cost-shifting analysis applies solely

in the context of statutory claims. Armendariz did not adopt

a blanket rule that every predispute arbitration clause is

invalidated as unconscionable when an employee asserts

without any evidence an inability to pursue a dispute which

contains no statutory claims. (See Brennan v. Tremco Inc.,

supra, 25 Cal. 4th at p. 317 [Armendariz requirement that the

arbitrator state reasons for the award in a FEHA case

inapplicable when nonstatutory claims involved].)

4. Law to be Applied

Plaintiff argues that the following language renders the

arbitration clause unenforceable: “Resolution of the dispute

shall be based solely upon the law governing the claims and

defenses pleaded, and the arbitrator may not invoke any basis

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other than such controlling law, including but not limited to,

notions of ‘just cause.’” Plaintiff analogizes the language to

the limitation of remedies analysis in Kinney v. United

Healthcare Services, supra, 70 Cal. App. 4th at p. 1332 and

Stirlen v. Supercuts, Inc., supra, 51 Cal. App. 4th at pp.

1529-1530. In Kinney, the arbitration agreement limited

theories of recovery for the employee so as to prevent the

recovery of certain types of contract damages as well as other

compensatory and punitive relief. (Kinney v. United

HealthCare Services, Inc., supra, 70 Cal. App. 4th at p.

1332.) In Stirlen, the arbitration clause limited the employee’s

remedies as follows: “‘The exclusive remedy for alleged

violation of this Agreement . . . shall be a money award not

to exceed the amount of actual damages for breach of

contract, less any proper offset for mitigation of such

damages, and the parties shall not be entitled to any other

remedy at law or in equity, including but not limited to other

money damages, exemplary damages, specific performance,

and/or injunctive relief.’” (Stirlen v. Supercuts, Inc., supra,

51 Cal. App. 4th at p. 1529.) In Armendariz, the Supreme

Court noted that an agreement which does not even permit

full recovery of ordinary contract damages by the employee

while placing no restriction on recoverable compensation if a

claim is brought by an employer is impermissively one-sided.

(Armendariz v. Foundation Health Psychcare Services, Inc.,

supra, 24 Cal. 4th at pp. 120-121.) No such limitations

appear in the present agreement. It requires the arbitrator, a

retired superior court judge, to follow the law.

Likewise without merit is plaintiff's contention that the

contractual prohibition against using “just cause” principles

in returning an award renders the agreement unconscionable.

As noted previously, the arbitrator, a retired superior court

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judge, must apply the following legal standard in returning an

award, “Resolution of the dispute shall be based solely upon

the law governing the claims and defenses pleaded, and the

arbitrator may not invoke any basis other than such

controlling law, including but not limited to, notions of ‘just

cause.’” (Italics added.) The concept of “just cause” appears

repeatedly in cases construing collective bargaining

agreements subject to the Labor Management Relations Act.

(E.g. United Paperworkers Intern. Union v. Misco, Inc.

(1987) 484 U.S. 29, 33, 39-40 [arbitrator could refuse to

examine post termination evidence in making “just cause”

determination under a collective bargaining agreement]; Gulf

Coast Industrial Workers Union v. Exxon Co. (Sth Cir. 1993)

991 F.2d 244, 255-256 [“just cause” for a termination under

a collective bargaining agreement must be evaluated in terms

of the facts known to the employer at the time of termination];

Hill & Westoff, No Song Unsung, No Wine Untasted--

Employee Addictions, Dependencies, And Post-Discharge

Rehabilitation: Another Look At The Victim Defense In Labor

Arbitration (1999) 47 Drake L.J. 399, 413 [“‘Just cause’ is a

term of art as employed in Collective Bargaining A greements.

Attendant upon that term are established concepts of industrial

fairness and due process of both a substantive and procedural

nature”; Abrams & Nolan, Toward A Theory Of ‘Just Cause’

In Employee Discipline Cases (1985) Duke L.J. 594

(“Collective bargaining agreements typically provide for

arbitration of disputes concerning the interpretation or

application of the contract. As a result, arbitrators are

routinely required to apply the just cause standard in order to

evaluate the propriety of disciplinary action”].) The present

dispute does not involve the construction of a collective

bargaining agreement. Hence, prohibiting the use of

principles of just cause in returning an arbitration award is not

pes

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unconscionable where no collective bargaining agreement is

involved, the arbitrator, who must be a retired superior court

judge, is to apply the applicable rules of law, and the

employee retains all of her or his legal and equitable

remedies.

[Part III.B.5. is deleted from publication]

5. Other Contentions

Plaintiff raises other contentions premised on the

Armendariz analysis relating to arbitration of Fair

Employment and Housing Act claims. (Armendariz v.

Foundation Health Psychcare Services, Inc., supra, 24 Cal.

4th at pp. 99-111.) For the reasons previously expressed, the

present cade does not involve a statutory claim and the

Armendariz analysis is not controlling based on the

evidentiary showing made to date because the present case

does not involve a statutory claims. (Brenna” v. Tremco Inc.,

supra, 25 Cal.4th at p. 317.) Also, there is nothing

substantially unconscionable about the agreement which

applies equally to each side and which allows judicial review.

IV. DISPOSITION

The order denying the motion to compel arbitration of

defendant, Auto Stiegler, Inc., is reversed. The matter is

remanded with directions to order arbitration. Defendant,

Auto Stiegler, Inc., is to recover its costs on appeal from

plaintiff, Alexander M. Little.

TURNER, P.J.

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We concur:

ARMSTRONG, J. WILLHITE, J.”

x LOPE EAE TSC ed Fel OME Lf LEAN NOE ERIS PERL GAY ILE:

Judge of the Los Angeles County Superior Court, assigned by

the Chief Justice pursuant to article VI, section 6 of the California

Constitution.

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APPENDIX C

SUPERIOR COURT OF CALIFORNIA,

COUNTY OF LOS ANGELES

DATE: 11/02/00

HONORABLE S. Patricia Spear Judge

HONORABLE Judge Pro Tem

Add On

T. Camacho Crt Asst Deputy Sheriff

Dept. 13

Sybil R. Hale Deputy Clerk

J. Streeter Reporter

9:00 am BC230809

ALEXANDER M LITTLE No Appearances

AUTO STIEGLER INC

NATURE OF PROCEEDINGS:

RULING ON SUBMITTED MATTER;

Superior Court of California Minute Order - 11/02/00

Having heard argument from both sides, the Court makes

the following ruling:

Plaintiff's motion for reconsideration of the court’s ruling

on Defendant’s motion to compel arbitration is granted in

view of the Supreme Court opinion in the matter of

Armendariz v. Foundation Health Psychcare Services, Inc.,

24 Cal. 4th 83 (2000) issued after the court’s prior ruling.

The court believes that the arbitration clause in issue does

not meet the standards set forth by the Supreme Court and

it should not be enforced. The clauses of the arbitration

agreement that do not comport with the requirements of the

Armendariz, include the clauses that:

1. Require the Plaintiff to share the costs;

2. Provide for no judicial review. The court deems this

fatal, as judicial review of all decisions is not the

same as limited review by another arbitrator of only

certain awards;

3. Limit the remedies available to the complaintant

possibly exclude equitable as opposed to legal

remedies, to which he might otherwise be entitled.

4. Lack of mutuality of remedy, in that this clause,

unlike the one in Armendariz does not obviously

bind the employer to likewise enforce its right in the

arbitration forum.

Based on the foregoing infirmities, the Defendant’s motion

to compel arbitration is denied and Defendant is ordered to

answer the complaint in 20 days of the court’s ruling in

open court.

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Superior Court of California Minute Order - 11/02/00

Initial Status Conference set for December 15, 2000 at 9:00

A.M. in this Department.

A copy of this minute order is sent via United States Mail

to parties listed on the Certificate of Mailing.

‘7

Superior Court of California Minute Order - 11/02/00

CERTIFICATE OF MAILING

Superior Court Central

Civil Division

ALEXANDER M LITTLE

VS. BC230809

AUTO STIEGLER INC

Moskowitz, Brestoff, Winston & Blinderman

Attorney for Pltf/Petnr

1880 Century Park East

Suite 350

Los Angeles CA 90067

Fisher & Phillips LLP

Attorney for Defendant/Respondent

18400 Von Karman Ave.

Suite 400

Irvine CA 92612

I am over the age of 18 years and not a party to the within

action. Iam familiar with the Los Angeles Superior Court

practice for collection and processing of correspondence and

know that such correspondence is deposited with postage

prepaid with the United States Postal Service the same day it

is delivered to the mail room in the Los Angeles Superior

Court. I declare under penalty of perjury under the laws of

the State of California that I delivered a true copy of the

above notice to the party(ies) or his (their) attorney of record

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Superior Court of California Minute Order - 11/02/00

as addressed and listed above by placing the copy in a sealed

envelope to the mail room of this court.

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APPENDIX D

COURT OF APPEAL OF THE STATE OF

CALIFORNIA

SECOND APPELLATE DISTRICT

NO. BC230809

ALEXANDER M. LITTLE,

PLAINTIFF AND RESPONDENT

Vv.

)

| )

AUTO STIEGLER, INC., ET AL., )

)

DEFENDANTS AND APPELLANTS. )

)

Appeal from the Superior Court

of Los Angeles County

Honorable S. Patricia Spear, Judge

REPORTER’S TRANSCRIPT ON APPEAL

8/7/00 AND 10/31/00 .

Transcript Decision of Superior Court of California

APPEARANCES:

FOR PLAINTIFF: Moskowitz, Brestoff, Winston &

Blinderman, LLP

By: Dennis A. Winston, Esq.

1880 Century Park East, Suite 350

Los Angeles, California 90067

(310) 785-0550 Fax (310) 785-0880

FOR DEFENDANTS:

Fisher & Phillips, LLP

By: Christopher C. Hoffman, Esq.

18400 Von Karman Avenue,

Suite 400

Irvine, California 92612

(949) 851-2424 Fax (949) 851-0152

Jon Streeter

Official Reporter

CSR No. 3704

70a

Transcript Decision of Superior Court of California

The Court: Okay. On Little versus Auto Stiegler,

is everybody here? I guess so.

Mr. Hoffman: Good Morning, Your Honor, Chris

Hoffman for Defendant Auto Stiegler.

Mr. Winston: Dennis Winston on behalf of Plaintiff,

Alex Little.

The Court: Good Morning. I did give youa

tentative ruling. Did you see that?

Mr. Winston: No, Your Honor, I haven’t seen it.

The Court: Okay. We’ll put this on second call. It

should be on the court attendant’s desk. Why don’t you take

a look at that, and then when you’re ready I'll recall it.

Mr. Hoffman: Thank You, Your Honor.

The Court: This isn’t my regular court attendant, so

she didn’t know what to do with all the stuff.

Mr. Hoffman: Certainly.

The Court: We'll get organized.

(Whereupon a Recess Was Taken

From 8:42 a.m. to 8:49 a.m.)

The Court: Little versus Auto Stiegler.

Okay. We’ve already had the appearances of counsel

for the record. And have you had a chance to review the

tentative ruling?

Mr. Winston: Yes, Your Honor.

Tila

Transcript Decision of Superior Court of California

The Court: And the tentative ruling is to compel the

arbitration of the state of proceedings. I think counsel

probably has some comments for me.

Mr. Winston: I think I’m up, Your Honor. I think

you’ re right.

“Your Honor, I think we should start with the initial

premise that it’s clear this contract, this arbitration provision,

wasn’t negotiable, so it’s procedurally unconscionable, and

we start there, and then we just focus on whether it’s

substantively unconscionable.

The Court : Okay.

Mr. Winston: And the answer to that is, I think that --

I understand your tentative; however, let’s focus just on the

right of appeal. Yes, both sides have the right of appeal;

however, if Little loses, he doesn’t get to appeal.

The Court : Yes, he does.

Mr. Winston: No, he doesn’t

The Court : It says both sides have the right to

appeal.

Mr. Winston: No, if Little loses, he doesn’t get to

appeal.

The Court: Why?

Mr. Winston: Because it’s in the agreement. It’s only

if there is an award over $50,000 that the losing party gets to

appeal, so if Little loses, he loses. That’s not fair.

Second,

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