In Gentry v. Superior Court (2007) 42 Cal.4th 443 [64 Cal.Rptr.3d 773, 165 P.3d 556] (Gentry), our Supreme Court held that, in arbitration agreements governing employment, class action waivers may be unenforceable in "some circumstances [because they] ... would lead to a de facto waiver [of employees' statutory rights] and would impermissibly interfere with employees' ability to vindicate [those] rights" (id. at p. 457, italics added).
More specifically, Gentry addressed the enforceability of class action waivers in the context of a claim for overtime compensation. The court grounded its decision on the conclusion that an employee's right to overtime compensation is an unwaivable statutory right. (Gentry, supra, 42 Cal.4th at pp. 455-457.) In determining the validity of class action waivers, the court stated: (1) "individual awards in wage-and-hour cases tend to be modest" (id. at p. 457); (2) "a current employee who individually sues his or her employer is at greater risk of retaliation" (id. at p. 459); (3) "some individual employees may not sue because they are unaware that their legal rights have been violated" (id. at p. 461); (4) "`class actions may be needed to assure the effective enforcement of statutory policies ...'" (id. at p. 462); and (5) there may be "real world obstacles to the vindication of class members' rights to overtime through individual arbitration" (id. at p. 463).
Gentry concluded that, when an employee alleges that an employer has systematically denied proper overtime pay to a class of employees, and a trial court finds, based on the foregoing factors, that a class action "is likely to be a significantly more effective practical means of vindicating the rights of the affected employees than individual litigation or arbitration, and finds that the disallowance of the class action will likely lead to a less comprehensive enforcement of overtime laws for the employees alleged to be affected by the employer's violations, it must invalidate the class arbitration waiver to ensure that these employees can `vindicate [their] unwaivable [statutory] rights ....'" (Gentry, supra, 42 Cal.4th at p. 463, italics added.)
In Franco v. Athens Disposal Co., Inc. (2009) 171 Cal.App.4th 1277 [90 Cal.Rptr.3d 539] (Franco I), we concluded that Gentry invalidated a class action waiver where an employee alleged that his employer had violated the laws regarding employees' rights to rest and meal periods — statutory rights that are also unwaivable. (Franco I, at pp. 1290-1294, citing Lab. Code,
After we decided Franco I, the employer filed a second petition to compel arbitration, arguing that a change in the law rendered the class action waiver enforceable. The trial court denied the petition. That ruling is now before us. The question on appeal is whether Gentry was overruled by Stolt-Nielsen S. A. v. AnimalFeeds Int'l Corp. (2010) 559 U.S. ___ [176 L.Ed.2d 605, 130 S.Ct. 1758] (Stolt-Nielsen) and AT&T Mobility LLC v. Concepcion (2011) 563 U.S. ___ [179 L.Ed.2d 742, 131 S.Ct. 1740] (Concepcion). We conclude that Gentry remains good law because, as required by Concepcion, it does not establish a categorical rule against class action waivers but, instead, sets forth several factors to be applied on a case-by-case basis to determine whether a class action waiver precludes employees from vindicating their statutory rights. And, as required by Stolt-Nielsen, when a class action waiver is unenforceable under Gentry, the plaintiff's claims must be adjudicated in court, where the plaintiff may file a putative class action. Accordingly, we affirm.
The facts in this appeal are taken from our prior opinion and the record in Franco I and the exhibits filed in connection with the second petition to compel arbitration.
On April 9, 2007, plaintiff Edixon Franco filed a class action complaint against "Athens Disposal Company, Inc., dba Athens Services" (Athens Services). The complaint alleged as follows.
"Franco [was] employed by Athens [Services] as a nonexempt, hourly employee .... He brought this suit individually and on behalf of other similarly situated current and former employees. The potential class is significant in size such that individual joinder would be impractical. Athens [Services] engaged in a systematic course of illegal payroll practices and policies in violation of the Labor Code .... Athens [Services] subjected all of its hourly employees to the identical violations.
"The first cause of action alleges that Athens [Services] violated Labor Code sections 510 and 1194 by failing to pay overtime.... In the second cause of
On June 22, 2007, Athens Services, represented by Hill, Farrer & Burrill (the Hill firm), "filed a petition to compel arbitration and to dismiss or stay the civil action. The petition stated that Athens [Services] was in the business of trash removal, hauling, disposal, and recycling and was engaged in interstate commerce within the meaning of the Federal Arbitration Act ... (9 U.S.C. §§ 1-16). Athens [Services] alleged that arbitration was required under the [August 2005] arbitration agreement signed by Franco — written in Spanish — which was attached as an exhibit." (Franco I, supra, 171 Cal.App.4th at pp. 1283-1284.)
Franco was employed by Athens Services from May 20, 2005, to May 12, 2006. In August 2005, he signed an "Employee Agreement to Arbitrate" that stated: "I acknowledge that I have received and reviewed a copy of the Athens Services' Mutual Arbitration Policy (`MAP'), and I understand that it is a condition of my employment. I agree that it is my obligation to make use of the MAP and to submit to final and binding arbitration any and all claims and disputes that are related in any way to my employment or the termination of my employment with Athens Services ... or its parent, subsidiary, sister or affiliated companies or entities, and each of its and/or their employees, officers, directors or agents (`the Company') and that ... both the Company and I agree to forego any right... to bring claims on a representative or class basis. I also agree that such arbitration ... will be conducted under the Federal Arbitration Act and the applicable procedure rules of the American Arbitration Association (`AAA'), [¶] ... [T]he Company also agrees to submit all claims and disputes it may have with me to final and binding arbitration, and the Company further agrees that if I submit a request for binding arbitration, my maximum out-of-pocket expenses for the arbitrator
The "Mutual Arbitration Policy" (MAP) read: "Athens Services (`the Company') has adopted and implemented a new arbitration policy, requiring mandatory, binding arbitration of disputes, for all employees, regardless of length of service.... [The MAP] will govern all existing or future disputes between you and the Company that are related in any way to your employment, [¶] ... [¶] The MAP ... covers all disputes relating to or arising out of an employee's employment with the Company or the termination of that employment.... [¶] ... Likewise, the Company agrees to be bound by the MAP. This mutual obligation to arbitrate claims means that both you and the Company are bound to use the MAP as the only means of resolving any employment-related disputes.... [B]oth you and the Company forego and waive any right to join or consolidate claims in arbitration with others or to make claims in arbitration as a representative or as a member of a class or in a private attorney general capacity .... No remedies that otherwise would be available to you individually or to the Company in a court of law, however, will be forfeited by virtue of this agreement to use and be bound by the MAP. [¶] ... [¶] The Company and you will share the cost of the AAA's filing fee and the arbitrator's fees and costs, but your share of such fees and costs shall not exceed an amount equal to your local court civil filing fee.... You and the Company will be responsible for the fees and costs of your own respective legal counsel, if any ...." (Italics added.) The MAP permitted the company and its employees to sue in small claims court subject to that court's jurisdictional monetary limit.
The MAP was described as a "new" arbitration policy because, at the time of hire on May 20, 2005, Franco was given the "Athens Services Employee Guide," which required arbitration in simple, concise terms: "Any claim or controversy that arises out of or relates to the interpretation, application or enforcement of this agreement or any other matter concerning or relating to the employment relationship between the Employer and Employee shall be submitted to final and binding arbitration in accordance with the Labor Arbitration Rules of the American Arbitration Association." The arbitration provision in the employee guide did not prohibit an employee from consolidating claims, pursuing a class action or other representative action, being a class representative or a member of a class, or acting as a private attorney general. The arbitration provision was silent as to those issues. Franco signed an acknowledgment form, indicating he had been given a copy of the
In support of the petition to compel arbitration, the president of "Athens Disposal Company, doing business as Athens Services," submitted a declaration stating that the company had complied with the Labor Code and the applicable wage order. The payroll manager submitted a declaration, stating: "I have been employed by Athens Services for 8 years .... [¶] ... [¶] ... I am familiar with Edixon Franco's personnel file. He was employed by Athens [Services] as a waste hauling driver. In that position, Edixon Franco held a commercial driver's license and operated one of the company's waste hauling vehicles (i.e. a trash truck), which is a three axle commercial vehicle weighing more than 10,000 pounds. As a driver operating such a vehicle, Edixon Franco, like all of [Athens Services's] waste hauling drivers, was exempt from California's overtime wage laws and regulations ...."
In opposition to the petition, Franco "submitted evidence showing that, based on his hourly wage, his estimated damages for the alleged denial of meal and rest periods totaled $7,750; he would also be entitled to approximately $2,500 in civil penalties [under the PAGA].... Franco filed a declaration in which he stated that, during his employment with Athens [Services] (1) he did not know he was entitled to an hour's pay if Athens [Services] did not give him a meal or rest period; (2) he was not aware of all of his rights under the Labor Code or other labor law; (3) in his experience, employees who complained about working conditions were `looked down on' by management and `often los[t] their jobs or [were] treated in ways that force[d] them to quit'; and (4) he `did not feel secure enough to complain about anything [he] may have felt was wrong .... [He] felt that if [he] complained about anything [he] would be fired.'" (Franco I, supra, 171 Cal.App.4th at p. 1285.)
Franco filed declarations from three attorneys who discussed the necessity of bringing his wage and hour claims as a class action, whether in court or arbitration. One declaration, from Attorney Matthew J. Matern, read: "Based on my experience and knowledge of Labor Code cases, it would be extremely difficult for the class member employees to obtain representation for their cases because of the relatively small amounts [of] damages each employee suffers if they are required to litigate each of their cases separately. That is assuming ... each class member knew [his or her] rights under the Labor Code were being violated, each had the ability to find an attorney to
"... Without the ability to litigate these cases as a class proceeding, my firm could not represent the individual class members especially if we had [to] arbitrate each one separately because of the low damages present in many of these cases, including this one. Moreover, if the entire class were to come into my office, we could not ... litigate each case separately, either in court or in arbitration.
"... As to the argument that attorneys fees are available in these types of cases, because of the small amount of damages for each individual, the small amount of attorney's fees that would be considered `reasonable' in relation to any individual's claim would not be sufficient to permit me to invest my time. Moreover, paying the claims of each individual employee who happens to walk into my or another attorney's office will not deter the employer from continuing to deny rest and meal periods or force the employer to pay its employees the wages due. Rather, preventing class proceedings from occurring will only allow this and other employers to pay the claims of a few employees, if any, and continue violating the Labor Code unabated.
"... The penalties sought under the PAGA are not damages and are apportioned seventy-five percent to the State of California and twenty-five percent to the individual class members, not the Named Plaintiff. Based on the hourly wages paid to Plaintiff Franco, we estimate damages for him for denial of rest and meal breaks to be approximately $7,750.00. We estimate that penalties in this case for the individual named plaintiffs [under the PAGA] could reach approximately $10,000.00 for Plaintiff for [rest and meal period] violations ..., with [Franco] retaining about approximately $2,500.00." (Italics added.)
Another attorney, Victor L. George, declared: "In February of this year[, 2007,] I was named a `Top 100 Southern California Attorney' in `Southern California Super Lawyers.' I have been listed as a `Super Lawyer' each of the four (4) years the magazine has been in existence (2004, 2005, 2006, 2007). According to the publishers of Law Politics magazine, Super Lawyers are the top 5% of attorneys in their practice field, [¶] ... [¶]
"... Based on my experience and knowledge of wage and hour cases, it would be extremely difficult for an employee to obtain representation for their Labor Code cases if they needed to either arbitrate or litigate in court individually. Many cases such as this one have damages significantly lower than your typical harassment or discrimination case.... These [Labor Code] cases involve many hours of attorney work and despite the possibility of obtaining attorneys fees upon a successful arbitration, the chances that an arbitrator will award the attorney the full amount of hours worked are not great.
"... In my experience, the employees that come into my office have little knowledge of their rights under California law and rarely do they come in while still working for the employer who wronged them. Many times the employees who come into my office have worked for the employer for less than one year.
"... Many of the cases that involve short term employees could not be litigated at all in superior court because of the low amount of damages. If one of the purported class members in this case came into my office after working for only a few months and not receiving any breaks, I would have to decline. Without the ability to litigate these cases as a class proceeding, my firm could not represent the individual class members, especially if we had [to] arbitrate each one separately because of the low damages present in many of these cases." (Italics added.)
Franco argued that, under Gentry, supra, 42 Cal.4th 443, the MAP's class action waiver and the prohibition on acting as a private attorney general were invalid. Athens Services countered that Gentry was "not ... a blanket rule invalidating all class action waivers in employment arbitration agreements." Rather, Gentry applied only in cases where a class action waiver constituted a "disadvantage [to] employees in vindicating their rights." (Id. at p. 464, italics added.) According to Athens Services, Franco had not made such a
The trial court, Judge Elizabeth A. Grimes presiding, granted the petition to compel arbitration, reasoning that although Gentry applied to overtime claims, Franco's claim for overtime compensation lacked merit. The court also stated that, assuming Gentry applied to Franco's nonovertime claims, classwide arbitration would not be significantly more effective than individual arbitrations because of the preponderance of individualized issues, the need for specific inquiries into the merits of each employee's claims, and the varying extent of liability. The court opined that "... [Athens Services's] arbitration program would not disadvantage any employee who pursued claims through individual arbitration." (Franco I, supra, 171 Cal.App.4th at p. 1287.)
On appeal, we concluded that, in ruling on the petition, the trial court had erred in considering the merits of Franco's overtime claim and treating the claim as if it had been dismissed. (See Franco I, supra, 171 Cal.App.4th at pp. 1287, 1288-1290.) As to Franco's claims alleging rest and meal period violations, we held that the pertinent laws (§§512, 226.7) conferred unwaivable statutory rights on employees and that Franco had satisfied the Gentry factors. (See Franco I, at pp. 1290-1299.) We reached the same conclusion as to Franco's claim for civil penalties under the PAGA. (See 171 Cal.App.4th at pp. 1299-1302.) We stated that Athens Services's evidence concerning whether it had complied with the Labor Code was premature: "[T]his type of evidence goes to the merits of Franco's claims and is not to be considered on a petition to compel arbitration ...." (Id. at p. 1298.) We ultimately decided that, under Gentry, the class action waiver was unenforceable. (See id. at pp. 1297-1299.) We also concluded that the MAP's prohibition on acting as a private attorney general was unenforceable as to Franco's claim under the PAGA, which authorizes "an aggrieved employee [to recover civil penalties] on behalf of himself or herself and other current or former employees." (§2699, subd. (a); see Franco I, at pp. 1299-1300, 1303.)
Accordingly, we found the MAP unenforceable, explaining: "`If the central purpose of the contract is tainted with illegality, then the contract as a whole cannot be enforced.... [¶] ... [M]ultiple defects indicate a 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.'" (Franco I, supra, 171 Cal.App.4th at p. 1299.) "Because the [MAP] contains a class arbitration waiver and also precludes Franco from seeking civil penalties ..., contrary to the PAGA, we conclude that the agreement as a whole is tainted with illegality and is unenforceable.... [Athens Services's] petition to compel arbitration should therefore be denied, and this case should proceed in a court of law." (Id. at p. 1303, citation omitted.) We reversed the trial court.
Athens Services filed a petition for review in the California Supreme Court, which declined to hear the case (Franco v. Athens Disposal Co., Inc. (June 17, 2009, S172223)). Athens Services then filed a petition for a writ of certiorari in the United States Supreme Court, which denied the petition on January 11, 2010 (Athens Disposal Co., Inc. v. Franco (2010) 558 U.S. ___ [175 L.Ed.2d 926, 130 S.Ct. 1050]). The case returned to the trial court.
On January 22, 2010, the trial court, Judge John A. Kronstadt presiding, conducted a status conference. Counsel for Athens Services — the Hill firm —
On May 17, 2010, Arakelian filed a petition to compel arbitration, relying — as it had in the first petition — on the MAP, adopted in August 2005. In its memorandum of points and authorities, the Hill firm argued that our decision in Franco I had been overruled by Stolt-Nielsen, supra, 559 U.S. ___ [130 S.Ct. 1758], making the MAP enforceable. In the alternative, the Hill firm asserted that if Stolt-Nielsen had not overruled Franco I, the trial court should compel arbitration based on the arbitration provision in the Athens Services Employee Guide, which Franco acknowledged receiving when he was hired on May 20, 2005.
In opposition to the petition, Franco relied on his opposition to the first petition to compel arbitration. He filed supplemental papers contending that (1) under the law of the case doctrine, Arakelian was bound by Franco I because it was in privity with Athens Disposal Company, Inc., (2) Stolt-Nielsen did not constitute a change in the law, and (3) if the MAP was unenforceable, the arbitration provision in the employee guide did not provide a basis for arbitration because it had been superseded by the MAP, and there was no legal grounds for reviving it.
With respect to Arakelian's late appearance in the case, Franco pointed out that on May 24, 2005 — around two years before he filed suit — the Hill firm appeared on behalf of "Arakelian Enterprises, Inc., dba Athens Services" in a different employment case (Flores v. Arakelian Enterprises, Inc. (Super. Ct. L.A. County, 2010, No. BC333940)). In Flores, the Hill firm successfully petitioned the superior court to compel arbitration. Arakelian prevailed on the merits. On July 22, 2010, judgment was entered in Flores, confirming the arbitration award in favor of Arakelian. Thus, the entire time the Hill firm was representing "Athens Disposal Company, Inc., dba Athens Services" in this case, the firm knew from its work in Flores that Arakelian, not Athens Disposal Company, Inc., was the corporation doing business as Athens Services. Yet the firm did not disclose that Arakelian was Franco's employer until after (1) we reversed the order granting the first petition to compel arbitration and (2) Athens Services had exhausted all appeals.
On September 13, 2010, the trial court heard Arakelian's petition to compel arbitration. By minute order of the same date, the trial court denied
On April 21, 2011, Arakelian filed a notice of appeal. Six days later, on April 27, 2011, the United States Supreme Court issued its decision in Concepcion, supra, 563 U.S. ___ [131 S.Ct. 1740].
The material facts are not in dispute. The question on appeal — whether Gentry, supra, 42 Cal.4th 443, has been overruled — presents an issue of law we review de novo. (See Nickell v. Matlock (2012) 206 Cal.App.4th 934, 940 [142 Cal.Rptr.3d 362]; W.M. Ban & Co., Inc. v. South Coast Air Quality Management Dist. (2012) 207 Cal.App.4th 406, 423 [143 Cal.Rptr.3d 403].)
Arakelian argues that Gentry was overruled by Stolt-Nielsen, supra, 559 U.S. ___ [130 S.Ct. 1758], and Concepcion, supra, 563 U.S. ___ [131 S.Ct. 1740]. We disagree. Gentry held that, based on certain factors, a class action waiver may be unenforceable if it prevents employees from vindicating unwaivable statutory rights. Stolt-Nielsen, on the other hand, held that if an arbitration agreement does not expressly or implicitly authorize a class action, a plaintiff cannot pursue claims on a class basis in an arbitral forum. (See Stolt-Nielsen, 559 U.S. at pp. ___-___ [130 S.Ct. at pp. 1775-1776]; Truly Nolen of America v. Superior Court (2012) 208 Cal.App.4th 487, 512 [145 Cal.Rptr.3d 432].) Concepcion held that California's Discover Bank rule (Discover Bank v. Superior Court (2005) 36 Cal.4th 148 [30 Cal.Rptr.3d 76, 113 P.3d 1100] (Discover Bank)) did not provide a basis for revoking an arbitration agreement because it constituted a categorical rule against class action waivers in consumer contracts, thereby disfavoring arbitration. (See Concepcion, 563 U.S. at pp. ___, ___ [131 S.Ct. at pp. 1747, 1750].) Concepcion did not address or question prior California Supreme Court cases recognizing that an arbitration agreement may be unenforceable if it prevents a plaintiff from vindicating his or her statutory rights.
In Franco I, the Hill firm represented a corporation named Athens Disposal Company, Inc., doing business as Athens Services. After we reversed the trial
Approximately 11 days after the United States Supreme Court denied certiorari, the Hill firm announced at a status conference in the trial court that Franco had sued the wrong corporation. According to the Hill firm, Franco should have filed suit against Arakelian. In its opening brief on this appeal, the Hill firm maintains that Athens Disposal Company, Inc., was "an inactive corporate entity." Yet in Franco I, the Hill firm submitted a declaration from the president of "Athens Disposal Company" in support of Athens Services's petition to compel arbitration.
After the Hill firm announced that Franco had sued the wrong corporation, he added Arakelian as a Doe defendant. The Hill firm then filed a second petition to compel arbitration based on the same arbitration agreement — the MAP — we held unenforceable in Franco I. Simply put, the Hill firm attempted to enforce the same arbitration agreement again.
In denying the second petition to compel arbitration, the trial court stated that it would not consider any new legal arguments that could have been made in Franco I. For instance, the trial court did not resolve Arakelian's contention that, if the MAP was still unenforceable under Franco I, it should enforce the predecessor arbitration provision in the employee guide. In addition, the second petition was supported by preprinted statements signed by a number of Athens Services's employees, declaring that the company had complied with the rest and meal period laws. But as stated in Franco I, that type of evidence goes directly to the merits of Franco's claims and is not pertinent in ruling on a petition to compel arbitration. (Franco I, supra, 171 Cal.App.4th at p. 1298; see Brinker Restaurant Corp. v. Superior Court (2012) 53 Cal.4th 1004, 1023-1025 [139 Cal.Rptr.3d 315, 273 P.3d 513].)
The Federal Arbitration Act (FAA) was enacted in 1925 and codified in 1947 as title 9, chapter 1 of the United States Code (9 U.S.C. §§ 1-16). (See Dumitru v. Princess Cruise Lines, Ltd. (S.D.N.Y. 2010) 732 F.Supp.2d 328, 336.)
At first, the arbitration of statutory claims under the FAA received a judicial cold shoulder. In Willco v. Swan (1953) 346 U.S. 427 [98 L.Ed. 168, 74 S.Ct. 182] (Wilko), the Supreme Court held that claims under the Securities Act of 1933 (15 U.S.C. §§ 77a-77aa) were not subject to arbitration. As the court explained: "When the security buyer, prior to any violation of the Securities Act, waives his right to sue in courts, he gives up more than would a participant in other business transactions. The security buyer has a wider choice of courts and venue. He thus surrenders one of the advantages the Act gives him and surrenders it at a time when he is less able to judge the weight of the handicap the Securities Act places upon his adversary.
"Even though the provisions of the Securities Act, advantageous to the buyer, apply, their effectiveness in application is lessened in arbitration as compared to judicial proceedings. Determination of the quality of a commodity or the amount of money due under a contract is not the type of issue here involved. This case requires subjective findings on the purpose and knowledge of an alleged violator of the Act. They must be not only determined but
In Scherk v. Alberto-Culver Co. (1974) 417 U.S. 506 [41 L.Ed.2d 270, 94 S.Ct. 2449] (Scherk), the court distinguished Wilko and concluded that a dispute under the Securities Exchange Act of 1934 (15 U.S.C. §§ 78a-78u) is subject to arbitration where the parties' agreement implicates international concerns: "Accepting the premise ... that the operative portions of the language of the 1933 Act relied upon in Wilko are contained in the Securities Exchange Act of 1934, [Alberto-Culver Company's] reliance on Wilko in this case ignores the significant and, we find, crucial differences between the agreement involved in Wilko and the one signed by the parties here. Alberto-Culver's contract to purchase the business entities belonging to Scherk was a truly international agreement. Alberto-Culver is an American corporation with its principal place of business and the vast bulk of its activity in this country, while Scherk is a citizen of Germany whose companies were organized under the laws of Germany and Liechtenstein. The negotiations leading to the signing of the contract in Austria and to the closing in Switzerland took place in the United States, England, and Germany, and involved consultations with legal and trademark experts from each of those countries and from Liechtenstein. Finally, and most significantly, the subject matter of the contract concerned the sale of business enterprises organized under the laws of and primarily situated in European countries, whose activities were largely, if not entirely, directed to European markets.
"Such a contract involves considerations and policies significantly different from those found controlling in Wilko. In Wilko, quite apart from the arbitration provision, there was no question but that the laws of the United States generally, and the federal securities laws in particular, would govern disputes arising out of the stock-purchase agreement. The parties, the negotiations, and the subject matter of the contract were all situated in this country, and no credible claim could have been entertained that any international conflict-of-laws problems would arise. In this case, by contrast, in the absence of the arbitration provision considerable uncertainty existed at the time of the agreement, and still exists, concerning the law applicable to the resolution of disputes arising out of the contract.
Moses H. Cone Hospital v. Mercury Constr. Corp. (1983) 460 U.S. 1 [74 L.Ed.2d 765, 103 S.Ct. 927] addressed the interplay between state and federal courts in applying the FAA. There, a hospital entered into an agreement with a construction contractor and agreed to resolve disputes through binding arbitration. When a dispute arose, the hospital filed suit in state court. The contractor filed an action in federal district court, seeking an order compelling arbitration. The federal district court issued a stay of its proceedings pending resolution of the state court case. The court of appeals reversed and instructed the district court to enter an order compelling arbitration.
The United States Supreme Court held that the state law was preempted, explaining: "In 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. The [FAA] provides: [¶] `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, 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.
"Congress has ... mandated the enforcement of arbitration agreements.
"We discern only two limitations on the enforceability of arbitration provisions governed by the [FAA]: they must be part of a written maritime contract or a contract `evidencing a transaction involving commerce' and such clauses may be revoked upon `grounds as exist at law or in equity for the revocation of any contract.' We see nothing in the Act indicating that the broad principle of enforceability is subject to any additional limitations under state law." (Southland Corp. v. Keating, supra, 465 U.S. at pp. 10-11, fn. omitted.)
The court continued: "`[T]he need for the law arises from ... the jealousy of the English courts for their own jurisdiction.... This jealousy survived for so lon[g] a period that the principle became firmly embedded in the English common law and was adopted with it by the American courts. The courts have felt that the precedent was too strongly fixed to be overturned without legislative enactment....'...
"... `[T]he purpose of the [FAA] was to assure those who desired arbitration and whose contracts related to interstate commerce that their expectations would not be undermined by federal judges, or ... by state courts or legislatures.'" (Southland Corp. v. Keating, supra, 465 U.S. at p. 13, citation omitted, italics added.) Thus, the FAA was intended to overcome hostility to arbitration by both state and federal judges.
In Dean Witter Reynolds Inc. v. Byrd (1985) 470 U.S. 213 [84 L.Ed.2d 158, 105 S.Ct. 1238], the court addressed the situation where a plaintiff's claims
In Mitsubishi Motors v. Soler Chrysler-Plymouth (1985) 473 U.S. 614 [87 L.Ed.2d 444, 105 S.Ct. 3346] (Mitsubishi Motors), the plaintiff, a car manufacturer, filed a breach of contract action against one of its dealerships and sought to compel arbitration of the dispute pursuant to an arbitration provision in the parties' contract. The dealer filed a counterclaim against the manufacturer, alleging a violation of the Sherman Act (15 U.S.C. §§ 1-7), the Clayton Act (15 U.S.C. §§ 12-27, 44), and other statutes. (See Mitsubishi Motors, at pp. 618-620, 635.) The Supreme Court granted certiorari to decide whether an antitrust claim is subject to arbitration when the parties' contract arises from an international transaction. (Mitsubishi Motors, at p. 624.)
In Mitsubishi Motors, the court disagreed with the assertion that an award of treble damages under the Clayton Act (15 U.S.C. § 15) served a public purpose and therefore precluded arbitration. Instead, the court concluded that treble damages constituted a private remedy intended to compensate a plaintiff: "The treble-damages provision wielded by the private litigant is a chief tool in the antitrust enforcement scheme, posing a crucial deterrent to potential violators....
"The importance of the private damages remedy, however, does not compel the conclusion that it may not be sought outside an American court. Notwithstanding its important incidental policing function, the treble-damages cause of action ... seeks primarily to enable an injured competitor to gain compensation for that injury.
"`[The provision authorizing an award of treble damages] is in essence a remedial provision. It provides treble damages to "[a]ny person who shall be injured in his business or property by reason of anything forbidden in the antitrust laws ...." Of course, treble damages also play an important role in penalizing wrongdoers and deterring wrongdoing, as we also have frequently observed.... It nevertheless is true that the treble-damages provision, which makes awards available only to injured parties, and measures the awards by a multiple of the injury actually proved, is designed primarily as a remedy.' ...
"... [T]he treble-damages provision `was conceived of primarily as a remedy for "[t]he people of the United States as individuals ...."'" (Mitsubishi Motors, supra, 473 U.S. at pp. 635-636, citations omitted, italics added.)
Last, in Mitsubishi Motors, the court noted that the parties' contract contained a choice-of-forum clause, requiring that arbitration be conducted in Japan, as well as a choice-of-law clause, mandating the application of the laws of the Swiss Confederation. (Mitsubishi Motors, supra, 473 U.S. at p. 637, fn. 19.) The court then commented, "[I]n the event the choice-offorum and choice-of-law clauses operated in tandem as a prospective waiver of a party's right to pursue statutory remedies for antitrust violations, we would have little hesitation in condemning the agreement as against public
In Shearson/American Express Inc. v. McMahon (1987) 482 U.S. 220 [96 L.Ed.2d 185, 107 S.Ct. 2332] (McMahon), the court held that claims based on the Securities Exchange Act of 1934 (15 U.S.C. §§ 78a-78u) and the Racketeer Influenced and Corrupt Organizations Act (RICO) (18 U.S.C. §§ 1961-1968) are subject to arbitration. Addressing the claim under the Securities Exchange Act of 1934, the court noted that in Scherk, supra, All U.S. at pages 515-518, it had required that claims under the act be arbitrated where the arbitration agreement arose in an international context. (See McMahon, at pp. 229, 232-233.) In McMahon, the court held that securities claims involving domestic agreements are subject to arbitration because, in enacting the Securities Exchange Act of 1934, Congress did not exempt such claims from the FAA. (See McMahon, at pp. 227-238.) The court also noted that an administrative agency, the Securities and Exchange Commission, "has sufficient statutory authority to ensure that arbitration is adequate to vindicate Exchange Act rights." (Id. at p. 238, italics added.)
As to the RICO claim, the plaintiffs in McMahon argued that the availability of treble damages (see 18 U.S.C. § 1964(c)) served a public purpose, making the claim nonarbitrable. The Supreme Court rejected that argument, as it had with respect to an award of treble damages in antitrust cases. (See Mitsubishi Motors, supra, 473 U.S. at pp. 635-636.) The court concluded that an award of treble damages is a remedy intended to compensate a plaintiff, not a benefit conferred on the public. (See McMahon, supra, 482 U.S. at pp. 240-241.) In short, "The private attorney general role for the typical RICO plaintiff is simply less plausible than it is for the typical antitrust plaintiff, and does not support a finding that there is an irreconcilable conflict between arbitration and enforcement of the RICO statute. [¶] ... [The plaintiffs] may effectively vindicate their RICO claim in an arbitral forum, and therefore there is no inherent conflict between arbitration and the purposes underlying [the provision authorizing an award of treble damages]." (McMahon, at p. 242, italics added.)
Given the foregoing case law, it was inevitable that the decision in Wilko, supra, 346 U.S. 427 — which exempted claims under the Securities Act of 1933 (15 U.S.C. §§ 77a-77aa) from arbitration — would soon meet its demise. In Rodriguez de Quijas v. Shearson/Am. Exp. (1989) 490 U.S. 477 [104 L.Ed.2d 526, 109 S.Ct. 1917], the court overruled Wilko, saying it reflected "`the old judicial hostility to arbitration'" (Rodriguez de Quijas, at p. 480).
"We also are unpersuaded by the argument that arbitration will undermine the role of the EEOC [(Equal Employment Opportunity Commission)] in enforcing the ADEA. An individual ADEA claimant subject to an arbitration agreement will still be free to file a charge with the EEOC, even though the claimant is not able to institute a private judicial action.... [The plaintiff] filed a charge with the EEOC in this case. In any event, the EEOC's role in combating age discrimination is not dependent on the filing of a charge; the agency may receive information concerning alleged violations of the ADEA `from any source,' and it has independent authority to investigate age discrimination." (Gilmer, supra, 500 U.S. at pp. 27-28, italics added.)
The court continued: "It is also argued that arbitration procedures cannot adequately further the purposes of the ADEA because they do not provide for broad equitable relief and class actions. As the court below noted, however, arbitrators do have the power to fashion equitable relief.... [T]he NYSE rules applicable here do not restrict the types of relief an arbitrator may award, but merely refer to `damages and/or other relief.'... The NYSE rules also provide for collective proceedings.... But `even if the arbitration could not go forward as a class action or class relief could not be granted by the arbitrator, the fact that the [ADEA] provides for the possibility of bringing a collective action does not mean that individual attempts at conciliation were intended to be barred.' ... Finally, it should be remembered that arbitration agreements will not preclude the EEOC from bringing actions seeking class-wide and equitable relief." (Gilmer, supra, 500 U.S. at p. 32, citations omitted, some italics added; see EEOC v. Waffle House, Inc. (2002) 534 U.S. 279
In Cole v. Burns Internat. Security Services (D.C. Cir. 1997) 105 F.3d 1465 (Cole), an employee filed suit against his former employer, alleging race discrimination, harassment based on race, and retaliation in violation of title VII of the Civil Rights Act of 1964 (Title VII) (42 U.S.C. §§ 2000e-2000e-4). The employee asserted that the parties' arbitration agreement was unconscionable because it lacked certain procedural protections. The court initially stated: "The starting point of our analysis is the Supreme Court's decision in Gilmer[, supra, 500 U.S. 20]. In that case, the Court held that an employee's agreement to arbitrate employment-related disputes may require him to arbitrate statutory claims under the ADEA because `[b]y 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.'... [T]he Court emphasized that `so long as the prospective litigant effectively may vindicate [his or her] statutory cause of action in the arbitral forum, the statute will continue to serve both its remedial and deterrent function.' ... [¶] ... [¶] Obviously, Gilmer cannot be read as holding that an arbitration agreement is enforceable no matter what rights it waives or what burdens it imposes." (Cole, at pp. 1481-1482, citations omitted.)
Although the arbitration agreement in Armendariz was governed by the California Arbitration Act (Code Civ. Proa, §§ 1280-1294.2), not the FAA (see Armendariz, supra, 24 Cal.4th at pp. 91-92), the court concluded that its analysis applied to both acts (see id. at pp. 96-99). In describing the "minimum requirements for the lawful arbitration of [unwaivable statutory] rights pursuant to a mandatory employment arbitration agreement" (id. at p. 102), the court first noted that, in a prior case, it had held that a neutral arbitrator was "essential to ensuring the integrity of the arbitration process." (Id. at p. 103, citing Graham v. Scissor-Tail, Inc. (1981) 28 Cal.3d 807, 825 [171 Cal.Rptr. 604, 623 P.2d 165].) The court went on to hold (1) an arbitration agreement cannot limit statutorily available remedies (Armendariz, at pp. 103-104); (2) "[t]he denial of adequate discovery in arbitration proceedings leads to the de facto frustration of the employee's statutory rights" (id. at p. 104); (3) "an arbitrator in a[n] FEHA case must issue a written arbitration decision ... [containing] essential findings and conclusions on which the award is based" (id. at p. 107); and (4) in arbitrating FEHA claims, "the arbitration agreement ... cannot generally require the employee to bear any type of expense that the employee would not be required to bear if he or she were free to bring the action in court" (Armendariz, at pp. 110-111). An agreement that mandates the arbitration of FEHA claims "impliedly obliges the employer to pay all types of costs that are unique to arbitration." (Armendariz, at p. 113.)
The Supreme Court held that the arbitration agreement was enforceable: "[W]e are mindful of the FAA's purpose `to reverse the longstanding judicial hostility to arbitration agreements ... and to place arbitration agreements upon the same footing as other contracts.' ...
"In light of that purpose, we have recognized that federal statutory claims can be appropriately resolved through arbitration, and we have enforced agreements to arbitrate that involve such claims.... We have likewise rejected generalized attacks on arbitration that rest on `suspicion of arbitration as a method of weakening the protections afforded in the substantive law to would-be complainants.' ... These cases demonstrate that even claims arising under a statute designed to further important social policies may be arbitrated because ` "so long as the prospective litigant effectively may vindicate [his or her] statutory cause of action in the arbitral forum," ` the statute serves its functions." (Randolph, supra, 531 U.S. at pp. 89-90, citations omitted, italics added.)
"To invalidate the agreement on that basis would undermine the `liberal federal policy favoring arbitration agreements.' ... It would also conflict with our prior holdings that the party resisting arbitration bears the burden of proving that the claims at issue are unsuitable for arbitration.... We have
In Kristian v. Comcast Corp. (1st Cir. 2006) 446 F.3d 25, the court of appeals applied Randolph to federal and state antitrust claims, specifically, the Clayton Act (15 U.S.C. §§ 12-27, 44) and the Massachusetts Antitrust Act (Mass. Gen. Laws ch. 93, §§ 1-14a). (See Kristian, at pp. 29, 43.) Although both acts authorized an award of attorney fees and costs to the prevailing party (15 U.S.C. § 15(a); Mass. Gen. Laws ch. 93, § 12), the arbitration agreements precluded such an award.
In concluding that the agreements' prohibition on an award of attorney fees and costs was unenforceable, the court of appeals stated: "The [Supreme] Court's assumption [in Randolph] that a showing of prohibitive arbitration costs is a valid challenge to enforcement of an arbitration agreement makes practical sense. If, because of a consumer agreement[,] ... a plaintiff's only apparent dispute resolution forum is binding, mandatory arbitration, and the plaintiff cannot afford to arbitrate because of an inability to recover attorney's fees and costs, the plaintiff is essentially deprived of any dispute resolution forum whatsoever, [¶] ... [¶]
"Here, Plaintiffs have a much stronger position than the plaintiff in Randolph. The clause in Randolph was silent on the question of costs and fees. By contrast, the ... arbitration agreements explicitly state that a plaintiff bears all of his or her own costs, including the cost of experts and attorneys. The conflict between the arbitration agreements and the statutes could not be clearer. More importantly, again in contrast to the plaintiff in Randolph, Plaintiffs make a strong showing that costs and attorney's fees will be prohibitively expensive. In the district court, Plaintiffs submitted extensive declarations from a former Massachusetts Superior Court justice, an attorney who specializes in antitrust law and class actions, and an economist. These declarations establish that the pursuit of Plaintiffs' antitrust claims will require a huge outlay of financial resources. Without the possibility of recovering costs and attorney's fees, an individual plaintiff would undoubtedly have an impossible time securing legal representation ...." (Kristian v.
In Booker v. Robert Half Internal, Inc. (D.C. Cir. 2005) 367 U.S. App.D.C. 77 [413 F.3d 77], an employee was required by contract to arbitrate any dispute arising out of or relating to employment. An employee filed suit under the District of Columbia Human Rights Act (D.C. Code §§2-1401.01 to 2-1431.08), alleging he had been discharged based on race. Although the act authorized an award of punitive damages to a prevailing employee (see D.C. Code § 2-1403.16(b); Arthur Young & Co. v. Sutherland (D.C. 1993) 631 A.2d 354, 370-372), the arbitration agreement contained a provision barring such an award (Booker, at p. 79). The district court severed that provision and granted the motion to compel arbitration. The employee appealed.
"... [W]hile 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"` ..., 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 ..., 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." (Little v. Auto Stiegler, Inc., supra, 29 Cal.4th at pp. 1078-1079, citations omitted, some italics added.)
In Little v. Auto Stiegler, Inc., supra, 29 Cal.4th 1064, our Supreme Court also addressed whether Armendariz was preempted by the FAA as construed in Randolph, supra, 531 U.S. 79. There, the United States Supreme Court stated that if "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, supra, 531 U.S. at p. 92.) In Armendariz, our Supreme Court held that where an employee is required to arbitrate an FEHA claim, he or she is not obligated to pay any type of cost unique to arbitration regardless of whether the cost would be prohibitively expensive. (Armendariz, supra, 24 Cal.4th at pp. 110-111, 113.) In Little, our Supreme Court concluded that Armendariz was not preempted by Randolph, explaining: "Although [Randolph] 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 [established in Randolph]. 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. [Citations.] Other courts have held that [Randolph] represents a departure from Cole's categorical position, and requires a case-by-case analysis based on such factors as the employee's ability to pay the arbitration fees and the differential between projected arbitration and litigation fees. [Citations.] Still other courts have held the information
"... 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." (Little v. Auto Stiegler, Inc., supra, 29 Cal.4th at p. 1084, citations omitted, some italics added.)
In Discover Bank, supra, 36 Cal.4th 148, overruled in Concepcion, supra, 563 U.S. ___ [131 S.Ct. 1740], our Supreme Court determined whether a class arbitration waiver in a consumer contract was unenforceable under the doctrine of unconscionability. In that case, the plaintiff, a credit card holder, sued the card issuer, Discover Bank, alleging a claim for breach of contract and a claim for violation of the Delaware Consumer Fraud Act (Del. Code Ann. tit. 6, §§ 2511-2527). (Discover Bank, at p. 154.) Discover Bank moved to compel arbitration pursuant to an arbitration provision in the cardholder agreement, which also contained a class action waiver. The trial court initially
The Supreme Court granted review. In reversing the Court of Appeal, the court explained that "class action waivers found in [consumer] contracts may... be substantively unconscionable inasmuch as they may operate effectively as exculpatory contract clauses that are contrary to public policy. As stated in Civil Code section 1668: `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.'" (Discover Bank, supra, 36 Cal.4th at p. 161, italics omitted.)
The court then set forth the traditional principles of unconscionability: "`[T]he 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." ... 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.'" ... [¶] Substantively unconscionable terms may take various forms, but may generally be described as unfairly one-sided.'" (Discover Bank, supra, 36 Cal.4th at p. 160, citation omitted.)
Ultimately, the court distilled a specific rule of unconscionability for class arbitration waivers in consumer contracts: "[W]hen the waiver is found in a consumer contract of adhesion in a setting in which disputes between the contracting parties predictably involve small amounts of damages, and when it is alleged that the party with the superior bargaining power has carried out a scheme to deliberately cheat large numbers of consumers out of individually small sums of money, then, at least to the extent the obligation at issue is governed by California law, the waiver becomes in practice the exemption of the party `from responsibility for [its] own fraud, or willful injury to the person or property of another.'" (Discover Bank, supra, 36 Cal.4th at pp. 162-163, quoting Civ. Code, § 1668.)
Two years later, our Supreme Court decided Gentry, supra, 42 Cal.4th 443. In Gentry, an employee filed a putative class action against his employer, alleging a violation of California's overtime compensation statutes (§§ 510, 1194). More specifically, the plaintiff alleged that his employer, Circuit City, had "`illegally misclassified' [customer service managers] as `exempt managerial/executive employees' not entitled to overtime pay, when in fact, they were `"non-exempt" non-managerial employees' entitled to be compensated for hours worked in excess of eight hours per day and 40 hours per week." (Gentry, at p. 451.) Circuit City moved to compel arbitration pursuant to its "`Associate Issue Resolution Package'" and "`Dispute Resolution Rules and Procedures,'" which required the arbitration of employment-related disputes. (Ibid.) The arbitration agreement also contained a class action waiver. The plaintiff opposed arbitration and argued the class action waiver was unenforceable. The trial court found the class action waiver was valid and granted the motion, ordering the plaintiff to arbitrate his claims on an individual basis. The Court of Appeal denied the plaintiff's petition for a writ of mandate, concluding the class action waiver was enforceable.
In describing when a class action waiver might constitute a de facto waiver of statutory rights, the court stated: "First, individual awards in wage-and-hour cases tend to be modest. In addition to the fact that litigation over [the] minimum wage by definition involves the lowest-wage workers, overtime litigation also usually involves workers at the lower end of the pay scale,
Next, the court explained: "It is true that section 1194 permits employees to recover reasonable attorney fees if they prevail in an overtime litigation suit.... Even assuming that such attorney fees were equally available in arbitration, employees and their attorneys must weigh the typically modest recovery, and the typically modest means of the employees bringing overtime lawsuits, with the risk of not prevailing and being saddled with the substantial costs of paying their own attorneys. Moreover, the award of `reasonable' fees and costs is at the discretion of the trial court. Assuming that the arbitrator had similar discretion, there is still a risk that even a prevailing plaintiff/employee may be undercompensated for such expenses. Given these risks and economic realities, class actions play an important function in enforcing overtime laws by permitting employees who are subject to the same unlawful payment practices a relatively inexpensive way to resolve their disputes." (Gentry, supra, 42 Cal.4th at pp. 458-459, italics added, citation omitted.)
The court continued: "A second factor in favor of class actions for these cases ... is that a current employee who individually sues his or her employer is at greater risk of retaliation. We have recognized that retaining one's employment while bringing formal legal action against one's employer is not `a viable option for many employees.' ... The difficulty of suing a current employer is likely greater for employees further down on the corporate hierarchy. As one court observed: `"Although there is only plaintiff's suggestion of intimidation in this instance, the nature of the economic dependency involved in the employment relationship is inherently inhibiting."' ...
"... [F]ederal courts have widely recognized that fear of retaliation for individual suits against an employer is a justification for class certification in the arena of employment litigation, even when it was otherwise questionable that the numerosity requirements of rule 23 (Fed. Rules Civ. Proc., rule 23, 28 U.S.C.) were satisfied." (Gentry, supra, 42 Cal.4th at pp. 459-460, citations omitted.)
As a third factor to be considered, the court said: "[S]ome individual employees may not sue because they are unaware that their legal rights have been violated.... [I]t may often be the case that the illegal employer conduct
Fourth, "`class actions may be needed to assure the effective enforcement of statutory policies even though some claims are large enough to provide an incentive for individual action. While employees may succeed under favorable circumstances in recovering unpaid overtime through a lawsuit or a wage claim filed with the Labor Commissioner, a class action may still be justified if these alternatives offer no more than the prospect of "random and fragmentary enforcement" of the employer's legal obligation to pay overtime.'... `By preventing "a failure of justice in our judicial system" ..., the class action not only benefits the individual litigant but serves the public interest in the enforcement of legal rights and statutory sanctions.'" (Gentry, supra, 42 Cal.4th at p. 462, citations omitted, italics added.)
After discussing those factors, the court concluded: "[W]hen it is alleged that an employer has systematically denied proper overtime pay to a class of employees and a class action is requested notwithstanding an arbitration agreement that contains a class arbitration waiver, the trial court must consider the factors discussed above: the modest size of the potential individual recovery, the potential for retaliation against members of the class,
Under Gentry, if a class action waiver is invalid, and no other provision in the arbitration agreement is unenforceable, the court should (1) invalidate the waiver and send the case to arbitration, where it may be heard as a class action, or (2) have the case heard in court but only if the parties so stipulate. (Gentry, supra, 42 Cal.4th at p. 466; see id. at p. 463; see also Franco I, supra, 171 Cal.App.4th at pp. 1299-1300, 1303 [finding two provisions of arbitration agreement invalid and declaring arbitration agreement unenforceable, permitting case to proceed in court]; fn. 2, ante.)
At this point in our discussion, we think it beneficial to point out some post-Gentry considerations that affect an employee's ability to vindicate his or her unwaivable statutory rights through arbitration. First, Gentry involved a claim for overtime compensation. An employee who prevails on a claim alleging the failure to pay overtime compensation or the minimum wage is entitled to an award of attorney fees. (See § 1194, subd. (a); Gentry, supra, 42 Cal.4th at p. 458.) Similarly, an employee is entitled to attorney fees if he or she prevails on a claim "for the nonpayment of wages, fringe benefits, or health and welfare or pension fund contributions." (§ 218.5.) In Kirby v. Immoos Fire Protection, Inc. (2012) 53 Cal.4th 1244 [140 Cal.Rptr.3d 173, 274 P.3d 1160], the Supreme Court held that the Labor Code (§§ 218.5, 1194) does not permit an award of attorney fees to an employee who prevails on a claim alleging a violation of the rest period statute (§ 226.7). (See Kirby, at pp. 1250-1253, 1255-1259.) The analysis in Kirby seems equally applicable to a claim alleging a failure to provide a meal period (§§ 226.7, 512). For an employee like Franco — whose overtime claim may be meritless and whose principal claims are based on the rest and meal period statutes (see Franco I, supra, 171 Cal.App.4th at pp. 1283, 1286) — the unavailability of attorney fees would make it significantly less likely that an attorney would pursue his rest and meal period claims on an individual basis. In cases alleging rest and meal period claims, Kirby increases the need for class relief if employees are to vindicate their unwaivable statutory rights.
Consequently, it remains true "that these statistics are supportive of [the] position that retaliation against employees for asserting statutory rights under the Labor Code is widespread. Given that retaliation would cause immediate disruption of the employee's life and economic injury, and given that the outcome of the complaint process is uncertain, we do not believe the existence of an antiretaliation statute and an administrative complaint process undermines [the] point that fear of retaliation will often deter employees from individually suing their employers." (Gentry, supra, 42 Cal.4th p. 461, italics added.)
As an illustration of Gentry's third factor — "some individual employees may not sue because they are unaware that their legal rights have been violated" (Gentry, supra, 42 Cal.4th at p. 461) — we note that, while the legal community awaited the Supreme Court's decision in Brinker Restaurant Corp. v. Superior Court, supra, 53 Cal.4th 1004, no one could describe with assurance the scope of an employer's duty to provide rest and meal periods. Brinker devoted several pages to explaining "the amount of rest time that must be authorized, and the timing of any rest periods." (Id. at p. 1028; see id. at pp. 1028-1032.) The court also addressed the propriety of a class action as to rest period claims. (Id. at pp. 1032-1034.) On the subject of meal periods, the court held that an "employer satisfies [its] obligation if it relieves its employees of all duty, relinquishes control over their activities and permits them a reasonable opportunity to take an uninterrupted 30-minute break, and does not impede or discourage them from doing so. ... [¶] ... [T]he
Finally, in Arguelles-Romero v. Superior Court (2010) 184 Cal.App.4th 825 [109 Cal.Rptr.3d 289], the Court of Appeal explained the doctrinal distinctions between Discover Bank and Gentry. As the court stated: "Discover Bank involved allegations of an unconscionable class action waiver.... [¶] The Supreme Court first concluded that `when a consumer is given an amendment to its cardholder agreement in the form of a "bill stuffer" that he would be deemed to accept if he did not close his account, an element of procedural unconscionability is present.' ... The court then turned to the issue of substantive unconscionability, and concluded that class action waivers `may ... be substantively unconscionable inasmuch as they may operate effectively as exculpatory contract clauses that are contrary to public policy.'" (Arguelles-Romero, at p. 837, citation omitted.)
"In contrast, what we will call `the rule of Gentry' is not a rule of unconscionability....
"The seeds for the rule of Gentry were planted not in Discover Bank, but in Armendariz, supra, 24 Cal.4th 83. Armendariz considered whether a plaintiff could be compelled to arbitrate discrimination claims brought under the California Fair Employment and Housing Act (FEHA ...). The Supreme Court began with the premise that FEHA rights are unwaivable.... The court agreed that, as a general matter, assuming the arbitral forum is adequate, an agreement to arbitrate a nonwaivable statutory claim does not waive the claim, it simply submits its resolution to another forum.... However, if the arbitral forum is not adequate, an agreement to arbitrate a nonwaivable statutory claim may, in fact, improperly compel the claimant to forfeit his or her statutory rights.... The Armendariz court then considered the minimum requirements that any arbitral forum would have to meet so that forcing a party to pursue nonwaivable statutory claims in that forum would still enable the party to vindicate his or her rights....
"The question that arose in Gentry was whether the right to a class arbitration should also be included among the Armendariz protections as a necessary minimum requirement for the arbitration of a nonwaivable statutory right. The Supreme Court concluded that it should, `at least in some cases.'"
For our purposes, two decisions of the United States Supreme Court are pertinent in determining whether Gentry remains good law.
In Stolt-Nielsen, supra, 559 U.S. ___ [130 S.Ct. 1758], a dispute arose between a shipping company and one of its customers. The customer filed a putative class action in federal district court, alleging an antitrust claim. The parties had agreed to arbitrate their disputes. After filing suit in federal district court, the customer served the shipping company with a demand for class arbitration. (Id. at pp. ___ - ___ [130 S.Ct. at pp. 1764-1765.) The parties entered into a supplemental agreement providing that (1) a panel of three arbitrators would decide if the case could be maintained as a class arbitration and (2) the arbitration clause was silent on that point. (Id. at pp. ___ - ___ [130 S.Ct. at pp. 1765-1766].) The arbitrators concluded the arbitration clause permitted class arbitration and issued an award resolving only that question. (Id. at p. ___ [130 S.Ct. at p. 1766].) The panel stayed its decision to allow the parties to seek judicial review. (Ibid.)
The district court vacated the award, concluding that the arbitrators should have based their decision on custom and usage in the maritime industry. The court of appeals reversed the district court on the ground that maritime law did not prohibit class arbitration. (Stolt-Nielsen, supra, 559 U.S. at pp. ___ - ___ [130 S.Ct. at pp. 1766-1767].)
In the court's view: "An implicit agreement to authorize class-action arbitration ... is not a term that the arbitrator may infer solely from the fact of the parties' agreement to arbitrate. This is so because class-action arbitration changes the nature of arbitration to such a degree that it cannot be presumed the parties consented to it by simply agreeing to submit their disputes to an arbitrator. In bilateral arbitration, parties forgo the procedural rigor and appellate review of the courts in order to realize the benefits of private dispute resolution: lower costs, greater efficiency and speed, and the ability to choose expert adjudicators to resolve specialized disputes....
"Consider just some of the fundamental changes brought about by the shift from bilateral arbitration to class-action arbitration. An arbitrator chosen according to an agreed-upon procedure ... no longer resolves a single dispute between the parties to a single agreement, but instead resolves many disputes between hundreds or perhaps even thousands of parties.... The arbitrator's award no longer purports to bind just the parties to a single arbitration agreement, but adjudicates the rights of absent parties as well.... And the commercial stakes of class-action arbitration are comparable to those of class-action litigation ... even though the scope of judicial review is much more limited .... We think that the differences between bilateral and class-action arbitration are too great for arbitrators to presume, consistent with their limited powers under the FAA, that the parties' mere silence on the issue of class-action arbitration constitutes consent to resolve their disputes in class proceedings." (Stolt-Nielsen, supra, 559 U.S. at pp. ___ - ___ [130 S.Ct. at pp. 1775-1776], citations omitted.)
In February 2002, Vincent and Liza Concepcion purchased cellular telephones and service from AT&T. The telephones were advertised as free, but the Concepcions were charged $30.22 in sales tax based on the telephones' retail value. The Concepcions filed suit in the United States District Court for the Southern District of California. "The [case] was later consolidated with a putative class action alleging ... that AT&T had engaged in false advertising and fraud by charging sales tax on phones it advertised as free." (Concepcion, supra, 563 U.S. at p. ___ [131 S.Ct. at p. 1744].)
The purchase agreement between the Concepcions and AT&T contained a provision requiring the arbitration of all disputes and prohibiting class or representative proceedings. The agreement further provided that "customers may initiate dispute proceedings by completing a one-page Notice of Dispute form available on AT&T's Web site. AT&T may then offer to settle the claim; if it does not, or if the dispute is not resolved within 30 days, the customer may invoke arbitration by filing a separate Demand for Arbitration, also available on AT&T's Web site. In the event the parties proceed to arbitration, the agreement specifies that AT&T must pay all costs for nonfrivolous claims; that arbitration must take place in the county in which the customer is billed; that, for claims of $10,000 or less, the customer may choose whether the arbitration proceeds in person, by telephone, or based only on submissions; that either party may bring a claim in small claims court in lieu of arbitration; and that the arbitrator may award any form of individual relief, including injunctions and presumably punitive damages. The agreement ... denies
AT&T moved to compel arbitration. The district court denied the motion. "It described AT&T's arbitration agreement favorably, noting, for example, that the informal dispute-resolution process was `quick, easy to use' and likely to `promp[t] full or ... even excess payment to the customer without the need to arbitrate or litigate' ... and that consumers who were members of a class would likely be worse off." (Concepcion, supra, 563 U.S. at p. ___ [131 S.Ct. at p. 1745], second italics added.) Nevertheless, the district court found the class arbitration waiver unenforceable under Discover Bank, supra, 36 Cal.4th 148. The Ninth Circuit affirmed for the same reason.
The Supreme Court granted certiorari to decide the following "Question Presented": "Whether the Federal Arbitration Act preempts States from conditioning the enforcement of an arbitration agreement on the availability of particular procedures — here, class-wide arbitration — when those procedures are not necessary to ensure that the parties to the arbitration agreement are able to vindicate their claims." (U.S. Supreme Ct., No. 09-893, AT&T Mobility LLC v. Concepcion, Question Presented <http://www.supremecourt.gov/qp/09-00893qp.pdf> [as of Nov. 26, 2012], italics added.)
In overruling Discover Bank, the court explained: "California's Discover Bank rule ... interferes with arbitration. Although the rule does not require classwide arbitration, it allows any party to a consumer contract to demand it ex post. The rule is limited to adhesion contracts, ... but the times in which consumer contracts were anything other than adhesive are long past.... The rule also requires that damages be predictably small, and that the consumer allege a scheme to cheat consumers.... The former requirement, however, is toothless and malleable ..., and the latter has no limiting effect, as all that is required is an allegation." (Concepcion, supra, 563 U.S. at p. ___ [131 S.Ct. at p. 1750], citations & fn. omitted.)
The court went on to describe the differences between bilateral and class arbitrations. "First, the switch from bilateral to class arbitration sacrifices the principal advantage of arbitration — its informality — and makes the process slower, more costly, and more likely to generate procedural morass than final judgment." (Concepcion, supra, 563 U.S. at p. ___ [131 S.Ct. at p. 1751].) "Second, class arbitration requires procedural formality. The ... rules [of the American Arbitration Association] governing class arbitrations mimic the Federal Rules of Civil Procedure for class litigation." (Ibid.) "Third, class arbitration greatly increases risks to defendants. Informal procedures do of course have a cost: The absence of multilayered review makes it more likely that errors will go uncorrected. Defendants are willing to accept the costs of
As we read Concepcion, the FAA preempted the Discover Bank rule because it operated as a categorical prohibition on class action waivers in consumer contracts. According to the Supreme Court, Discover Bank would invalidate "most" of those waivers (Concepcion, supra, 563 U.S. at p. ___ [131 S.Ct. at p. 1746]) and "allows any party to a consumer contract to demand [classwide arbitration] ex post" (Id. at p. ___ [131 S.Ct. at p. 1750]).
Based on our reading of Concepcion, we reject "the conclusion that the [FAA] requires state courts to replace the essentially categorical Discover Bank rule requiring class arbitration with another categorical rule requiring individual arbitration in every case ...." (Brewer v. Missouri Title Loans, supra, 364 S.W.3d at p. 491.)
This interpretation is supported by the post-Concepcion decision in Marmet Health Care Center v. Brown (2012) 565 U.S. ___ [182 L.Ed.2d 42, 132 S.Ct. 1201]. There, the Supreme Court held that the FAA preempted a West Virginia rule prohibiting arbitration agreements from encompassing claims against a nursing home for negligence resulting in personal injury or death. (See Marmet Health Care Center, 565 U.S. at p. ___ [132 S.Ct. at p. 1203].) Relying on Concepcion, the high court stated: "West Virginia's prohibition against predispute agreements to arbitrate personal-injury or wrongful-death claims against nursing homes is a categorical rule prohibiting arbitration of a particular type of claim, and that rule is contrary to the terms and coverage of the FAA." (Marmet Health Care Center, 565 U.S. at pp. ___ - ___ [132 S.Ct. at pp. 1203-1204], italics added; see Perry v. Thomas (1987) 482 U.S. 483 [96 L.Ed.2d 426, 107 S.Ct. 2520] [FAA preempts Cal. statute (§ 229) permitting civil action for collection of wages despite parties' agreement to arbitrate wage disputes]; Doctor's Associates, Inc. v. Casarotto (1996) 517 U.S. 681 [134 L.Ed.2d 902, 116 S.Ct. 1652], [FAA preempts Mont. statute that requires a contract subject to arbitration to contain notice of arbitration on first page]; Preston v. Ferrer (2008) 552 U.S. 346 [169 L.Ed.2d 917, 128 S.Ct. 978] [when parties agree to arbitrate all disputes, FAA preempts state statutes vesting administrative forum with primary jurisdiction over dispute].)
Concepcion recognized that "[t]he overarching purpose of the FAA ... is to ensure the enforcement of arbitration agreements according to their terms
"Concepcion is, at base, about obstacle preemption. In evaluating a case-by-case defense under which plaintiffs must show that the imposition of the class waiver confers de facto immunity, the critical issue following Concepcion is whether the defense will be deemed to `stand[] as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress,' as expressed in the FAA. This inquiry turns on just what `stands as an obstacle' means.
"So what was it about the Discover Bank unconscionability defense that made it an impermissible `obstacle,' so as to trigger preemption under the FAA notwithstanding its nondiscriminatory general applicability within the meaning of the savings clause? This much we know: it was not because the successful invocation of that defense in any given case would render an arbitration clause unenforceable as written. Any such objection would be circular: it would mean the defense is an impermissible obstacle because it is a defense. Whenever any common law contract defense is successfully invoked under the FAA [savings] clause — including fraudulent inducement, duress, or anything else — the arbitration clause may not be enforced as
As Gentry itself recognized: "We cannot say categorically that all class arbitration waivers in overtime cases are unenforceable. As [the employer-defendant] points out, some 40 published cases over the last 70 years in California have involved individual employees prosecuting overtime violations without the assistance of class litigation or arbitration. [Citations.] Not all overtime cases will necessarily lend themselves to class actions, nor will employees invariably request such class actions. Nor in every case will class
Consistent with the multifactor nature of the test in Gentry, our Supreme Court "remand[ed] th[at] case to the Court of Appeal with directions to remand to the trial court to determine ... whether, in this particular case, class [proceedings] would be a significantly more effective means than individual arbitration actions of vindicating the right to overtime pay of the group of employees whose rights to such pay have been allegedly violated by Circuit City. If the trial court invalidates the waiver on public policy grounds, then the parties may ... [initiate] class [proceedings] ...." (Gentry, supra, 42 Cal.4th at p. 466.)
As noted, the "Question Presented" in Concepcion did not expressly address whether an arbitration agreement is enforceable if it fails to ensure that the parties can vindicate their claims. (See pt. II.D.2., ante.) Nor did the opinion in Concepcion mention the line of Supreme Court cases stating that an arbitration agreement is unenforceable if it prevents a claimant from vindicating his or her statutory claims. In the 19 months since Concepcion was decided, courts have reached different conclusions as to whether Gentry has been overruled. (See Reyes v. Liberman Broadcasting, Inc. (2012) 208 Cal.App.4th 1537, 1546-1549 [146 Cal.Rptr.3d 616] [discussing cases].)
To our knowledge, only one published decision has referenced the "Question Presented" in Concepcion, and it held that a class action waiver was unenforceable because the waiver prevented the plaintiff from vindicating her statutory right to overtime compensation. In Sutherland v. Ernst & Young, LLP, supra, 768 F.Supp.2d 547, and Sutherland v. Ernst & Young, LLP (S.D.N.Y. 2012) 847 F.Supp.2d 528, an employee filed a putative class action alleging her employer had violated the Fair Labor Standards Act of 1938 (29 U.S.C. §§ 201-219) by not paying overtime compensation. Although the parties were subject to an arbitration agreement containing a class action waiver, the district court invalidated the waiver on the ground that the plaintiff could not afford to pursue her claim on an individual basis.
As the district court explained in its first decision: "Sutherland's uncontested submission estimates that her attorney's fees during arbitration will exceed $160,000, and that costs will exceed $6,000.... Sutherland will
The district court found that "[e]ven if Sutherland were willing to incur approximately $200,000 to recover a few thousand dollars, she would be unable to retain an attorney to prosecute her individual claim. This is due largely to the [arbitration] Agreement's obstacles to reimbursement of fees and expenses. Whether attorney's fees and expenses incurred during arbitration are compensable is subject to the discretion of the arbitrators.... The amount of such reimbursement is also left to the arbitrators' discretion.... [¶] In light of the foregoing, Sutherland cannot reasonably be expected to retain an attorney to pursue her individual claim ...." (Sutherland v. Ernst & Young, LLP, supra, 768 F.Supp.2d at p. 553.) "Sutherland's only option in pursuing her individual claim is thus to retain an attorney on a contingent fee basis. But just as no rational person would expend hundreds of thousands of dollars to recover a few thousand dollars in damages, `no attorney (regardless of competence) would ever take such a case on a contingent fee basis.' ... [¶] If Sutherland could aggregate her claim with the claims of others similarly situated, however, she would have no difficulty in obtaining legal representation.... This is because class proceedings `achieve economies of time, effort, and expense....'" (Id. at pp. 553-554, citations & fn. omitted.)
In the district court's second decision, the court concluded that preemption under Concepcion occurs when a plaintiff lacks the incentive to pursue a claim, but, in the case before it, the plaintiff lacked the means to bring a claim: "The facts in Sutherland's case differ from Concepcion with respect to the plaintiff's ability to vindicate her statutory rights. The Court in Concepcion emphasized in detail the provisions in that arbitration agreement that benefitted plaintiffs and that ensured that the Concepcions would be able to find redress for their claims.... [T]he question presented to the Court in Concepcion was whether the FAA `preempts States from conditioning the enforcement of an arbitration agreement on the availability of particular procedures — here, class-wide arbitration — when those procedures are not necessary to ensure that the parties to the arbitration agreement are able to vindicate their claims.' ... In contrast to the facts in Concepcion, Sutherland has demonstrated that she would not be able to obtain representation or vindicate her rights on an individual basis." (Sutherland v. Ernst & Young, LLP, supra, 847 F.Supp.2d at pp. 535-536, citations & fn. omitted, italics added in Sutherland.)
As the Ninth Circuit recently observed in upholding a class action waiver: "`[T]he Concepcion Court examined this very arbitration agreement' and concluded `"that aggrieved customers who filed claims would be essentially guaranteed to be made whole."' ...
As one attorney explained: "I advance all costs and all of our firm's time.... Even so, I recognize that often any financial remuneration will not be forthcoming until years and years after I initially begin to pursue a case. I litigate Labor Code cases similar to this case on a class basis and would not take a case from any of the absent class members if I had to litigate it on an individual basis because of the moderate damages and because these cases are labor intensive. Additionally, it makes no sense to bring these cases individually because the employer can simply pay the small damages and not be forced to correct its unlawful behavior. [¶] ... [I]t would be extremely difficult for an employee to obtain representation for their Labor Code cases if they needed to either arbitrate or litigate in court individually. Many cases such as this one have damages significantly lower than your typical harassment or discrimination case.... These [Labor Code] cases involve many hours of attorney work and despite the possibility of obtaining attorneys fees upon a successful arbitration, the chances that an arbitrator will award the attorney the full amount of hours worked are not great." (Italics added.)
As noted, after we decided Franco I — long after the attorney declarations were submitted — the California Supreme Court held that attorney fees are not recoverable by an employee who prevails on a rest period claim. (See Kirby v. Immoos Fire Protection, Inc., supra, 53 Cal.4th at pp. 1250-1253, 1255-1259.) The court's analysis also appears to apply to employees who prevail on a meal period claim.
As stated by another attorney in support of Franco's opposition: "Without the ability to litigate these [Labor Code] cases as a class proceeding, my firm could not represent the individual class members especially if we had [to] arbitrate each one separately because of the low damages present in many of these cases, including this one. Moreover, if the entire class were to come into my office, we could not ... litigate each case separately, either in court or in arbitration.
"... [P]aying the claims of each individual employee who happens to walk into my or another attorney's office will not deter the employer from
We therefore conclude that Gentry survives Stolt-Nielsen and Concepcion. Consistent with Stolt-Nielsen, when a class action waiver is unenforceable under Gentry, the case must be adjudicated in court, where the plaintiff may seek to certify a class. As required by Concepcion, Gentry is not a categorical rule against class action waivers but is a multifactor test that rests in part on whether a class action "is likely to be a significantly more effective practical means of vindicating the rights of the affected employees than individual litigation or arbitration." (Gentry, supra, 42 Cal.4th at p. 463.) And consistent with Mitsubishi Motors, Gilmer, and Randolph, Gentry recognizes that arbitration is not a proper forum if it prevents a claimant from effectively pursuing his or her unwaivable statutory rights.
We realize that some federal courts have limited the vindication of statutory rights analysis to claims based on federal law; other federal courts disagree. (See, e.g., Coneff v. AT&T Corp., supra, 673 F.3d at p. 1158, fn. 2, citing conflicting decisions.) But as the United States Supreme Court emphasized in a post-Concepcion decision: "[The FAA] requires courts to enforce
The United States Supreme Court has recognized the necessity of a class action in cases where, as here, the potential recovery exceeds the cost of litigating a plaintiff's claims on an individual basis. As the court stated in one case: "A critical fact in this litigation is that petitioner's individual stake in the damages award he seeks is only $70. No competent attorney would undertake this complex antitrust action to recover so inconsequential an amount. Economic reality dictates that petitioner's suit proceed as a class action or not at all." (Eisen v. Carlisle & Jacquelin (1974) 417 U.S. 156, 161 [40 L.Ed.2d 732, 94 S.Ct. 2140], italics added.)
We also note this is not a case where the arbitration agreement or rules permit "collective proceedings" or where an administrative agency can be expected to seek classwide relief. (Cf. Gilmer, supra, 500 U.S. at p. 32.) Although the Labor Commissioner has the statutory authority to "prosecute [an] action for the collection of wages and other moneys payable to employees" (§ 98.3, subd. (b)), the Legislature enacted the PAGA precisely because the Labor Commissioner lacks the resources to prosecute Labor Code violations adequately. "`The [PAGA] attempted to remedy the understaffing of California's labor law enforcement agencies by granting employees the authority to bring civil actions against their employers for Labor Code violations. Fearing the state's budget crisis [in 2003] would continue to prevent adequate Labor Code enforcement, the Act's sponsors intended to guarantee "maximum compliance with state labor laws in the underground economy and to ensure an effective disincentive for employers to engage in unlawful and anticompetitive business practices." Thus, under the Act, employees supplement the [Labor Commissioner] as Labor Code enforcers by "deputizing" employees in the role of private attorney generals.'" (Franco I, supra, 171 Cal.App.4th at pp. 1301-1302.)
In addition, we observe that the PAGA authorizes an aggrieved employee to recover civil penalties — a remedy — only if he or she proves that an employer has violated a substantive provision of the Labor Code, such as the statutes governing rest and meal periods (§§ 226.7, 512). (See Arias v. Superior Court, supra, 46 Cal.4th at pp. 981, 987; §§ 2699, subd. (a), 2699.3, 2699.5.) In a case where Gentry invalidates a class action waiver, requiring that substantive claims be heard in court, Gentry also mandates that the additional remedies available under the PAGA be determined in court. As stated, where Gentry's multifactor test is satisfied, an arbitration forum is not appropriate for vindicating an employee's unwaivable statutory rights. Those rights include not only the substantive Labor Code provisions but also the available remedies, including those under the PAGA. We need not go so far as to say that all PAGA claims are exempt from arbitration. Rather, when substantive Labor Code claims must be adjudicated in court under Gentry, the PAGA remedies "tag along" under the same unwaivable statutory rights analysis that applies to the substantive claims.
The order is affirmed.
Chaney, J., and Johnson, J., concurred.
