Purported appeal of order compelling arbitration treated as extraordinary petition; order compelling individual arbitration affirmed

August 6, 2012
By Justice Steven Vartabedian (Ret.) on August 6, 2012 6:00 AM |

Thumbnail image for Court House.jpgIn Nelsen v. Legacy Partners Residential, Inc. (filed July 18, 2012) 2012 DJDAR 9956, plaintiff Lorena Nelson worked for defendant as a property manager from 2006 to 2009. Early in her employment she received a 43-page pre-printed form employee handbook that included a small-print arbitration clause at page 42 headed "TEAM MEMBER ACKNOWLEDGMENT AND AGREEMENT." The handbook gave no option to arbitration as a means of resolving employment disputes. She signed the agreement. In 2010, she filed a class-action lawsuit against defendant primarily alleging violations of wage and hour laws.

Defendant moved the trial court to compel plaintiff to arbitrate the matter as an individual party pursuant to the arbitration clause. Plaintiff opposed the motion, claiming the arbitration clause was unconscionable and in violation of California public policy favoring class actions in this type of lawsuit; if arbitration was to be compelled, argued plaintiff, the court would have to allow class arbitration. The trial court granted the motion to compel individual arbitration, and plaintiff appealed.

To start, the California Court of Appeal, First Appellate District, Division One, questioned whether plaintiff is allowed to appeal this order because it is not a final judgment. (Civil Code section 906.) Nelson argued the "death knell" doctrine, citing Franco v. Athens Disposal Co., Inc. (2009) 171 Cal.App.4th 1277: that the order is effectively the death of the class litigation. However, the appellate court pointed to the applicability of this doctrine only where it is unlikely that any individual action will proceed. But the court stops short of deciding this issue of appealability, and instead exercised its discretion to treat the appeal as a petition for writ of mandate.

On the merits, the Court of Appeal determined that plaintiff failed to meet her burden of showing (1) the arbitration clause was both procedurally and substantively unconscionable, and/or (2) that the clause required class-wide arbitration.

While the arbitration clause in question contained elements of adhesion suggestive of procedural unconscionability: employer's preprinted form offered on a take-it-or-leave-it basis in difficult-to-understand terms and lacking conspicuousness; plaintiff failed to show any substantive unconscionability. Plaintiff's reliance on Armendariz v. Foundation Health Psychcare Services Inc. (2000) 24 Cal.4th 83, 113 is misplaced because the scope of the arbitration agreement there was unilateral, only employee claims were subjected to arbitration; the provision here was bilateral, meaning both employee and employer claims required arbitration by its terms. The court thus found the clause was not unenforceable due to unconscionability.

Regarding whether the arbitration clause required the allowance of class claims, the court pointed to the question of the mutual intent of the parties when they formed the contract. (See June 19, 2012, blog article.) Here the written provision did not have language allowing class claims. Nor was there any extrinsic evidence offered reflecting an intent to allow class arbitration. Plaintiff's arguing that California public policy requires allowing class arbitration is an argument that has been rejected by the United States Supreme Court. (See Stolt-Nielsen S.A. v. Animal Feeds Int'l Corp. (2010) ___ U.S. ___, and AT&T Mobility, Inc. v. Concepcion (2011)___U.S. ___. ) Accordingly, the court found class-wide arbitration was not required, and affirmed the order compelling individual arbitration.

There are two points I wish to make regarding this case. One concerns appealability, the other unconscionablity. (Note: these "ability" words are not likely found in any dictionary; rather they may be the creations of appellate judges and law professors.)

First, don't expect appellate courts to save purported appeals from nonappealable orders (and I do take the view that the order here was nonappealable.) While this appellate court dodged the issue by treating the matter as a petition for writ of mandate, not all courts will do so. (See Jordan v. Malone (1992) 5 Cal.App.4th 18.) This can be embarrassing to explain to a client after the court dismisses your appeal and you then file a separate petition, which the court can simply deny discretionarily if it so chooses.

Second, this case should serve as a reminder that the fact that a contract is terribly one-sided procedurally such that it can be labeled as having elements of adhesion, this by itself will not cause a court to find the contract unenforceable due to unconscionability. There must also be some showing that the express terms themselves are substantively unconscionable. All too often it seems to me that attorneys forget this dual requirements when arguing unenforceability.

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