Monday, March 15, 2004
Court of Appeal Says:
Judge Must Rule on Unconscionability in Bid to Compel Arbitration
By DAVID WATSON, Staff Writer
A court deciding a petition to compel arbitration must rule on the validity of the contractual arbitration clause before determining whether federal law requires that the dispute be subjected to arbitration, the Fourth District Court of Appeal has ruled.
In an opinion for Div. One, Justice Joan Irion said the two analytical steps mandated by the U.S. Supreme Court in Howsam v. Dean Witter Reynolds, Inc. (2002) 123 S.Ct. 588 must be performed in the correct order. San Diego Superior Court Judge Lisa Foster erred in skipping over the first “gateway” issue to reach the second, Irion said.
Foster denied the petition brought by Ralphs Grocery Company, which sought to compel arbitration of a terminated employee’s discrimination claim. The employee, Kelvin Massie, filed his claim with the state Division of Labor Standards Enforcement.
Ralphs also asked Foster to stay any action by the labor commissioner on Massie’s complaint.
Foster declined to do so, ruling that the arbitration clause in Massie’s employment contract neither barred the DLSE from acting nor was triggered by his complaint.
But Irion said that on remand the judge should begin by determining whether the clause was even enforceable.
“Because the superior court did not comply with the process mandated by the Supreme Court for determining the two gateway issues of arbitrability bearing on the decision whether to compel arbitration, we reverse the order denying Ralphs’s petition and direct the superior court to determine whether the parties’ arbitration agreement is binding and enforceable against Massie before the court proceeds, if necessary, to determine the issues whether the Federal Arbitration Act...requires arbitration of Massie’s Labor Code discrimination complaint and whether the United States Constitution’s Supremacy Clause applies to preempt State’s administrative proceedings on Massie’s complaint.”
Irion noted that Massie claimed the arbitration provision was substantively and procedurally unconscionable and had presented evidence in support of that contention to Foster. In a declaration, the employee stated he felt “pressured” to sign the “Employee Acknowledgement,” which contained the arbitration provision, despite his reservations about it, and was not given enough time to fully consider the matter and investigate his rights.
“By not reaching the issue of unconscionability,” Irion explained, “the superior court failed to determine the first gateway dispute of arbitrability, to wit, whether the Arbitration Agreement was enforceable against Massie.... Because the court prejudicially erred by not following Howsam’s mandated procedures in deciding whether to compel arbitration, the order denying Ralphs’s petition must be reversed and the matter remanded to the superior court for determination of that first gateway dispute.”
Issue Not Reached
Irion noted that though Ralphs failed to present any evidence contradicting Massie’s account of how he came to sign the acknowledgement, Foster never ruled on the issue. Only if she determines the arbitration provision is valid and enforceable, Irion said, should Foster proceed to decide whether Massie’s administrative complaint triggered it and whether it preempts the state from acting on the complaint.
Foster would then have to determine whether the state agency was seeking “victim-specific relief” such as reinstatement or reimbursement for lost wages or benefits, Irion explained. If so, she said, the state would be standing “in the employee’s ‘shoes’” and would be bound by the arbitration provision.
The state would not be barred from seeking other types of relief, such as “posting of notices advising employees of their legal rights and injunctive relief to compel the employer’s future compliance with the law,” Irion said.
“We find nothing in FAA jurisprudence that would necessarily preclude an employee from pursuing in State’s administrative proceedings remedies that are not victim-specific, or preclude State from exercising its statutory authority to protect employees’ civil rights through such remedies.”
The case is Ralphs Grocery Company v. Massie, 04 S.O.S. 1346.
Copyright 2004, Metropolitan News Company