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

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Petition for Writ of Certiorari
- **Published:** January 1, 2003
- **Citation:** 540 U.S. 818

## Text

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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,

V.

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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ii

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

iV

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

vi

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
ae es ED ak Sch wee cakes eck e tees 1
QZ U.S.C. GAB. ow cee eee ee er eS eee ee 7
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

2

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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

4

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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

5

OTE IN *

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).

6

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.

9

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.,

10

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.

11

(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).

12

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

13

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.

14

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.

15

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.

16

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.

17

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.

18

[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.

19

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.

20

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.

21

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

22

APPENDIX A

IN THE SUPREME COURT OF CALIFORNIA
No. S101435

[Filed February 27, 2003]

ALEXANDER M. LITTLE,
Plaintiff and Respondent,

V.

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.

la

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.

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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

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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

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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.

Sa

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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

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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,

Ta

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

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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

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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.

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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

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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.”

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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

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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

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386015_1624%3A1. Public record. Not legal advice.