Plaintiff and respondent Network Capital Funding Corporation (Network Capital) filed a declaratory relief action alleging its arbitration agreement with defendant and appellant Erik Papke required Papke to arbitrate his wage and hour claims on an individual basis rather than the classwide basis he sought in his pending arbitration proceeding. Papke petitioned the trial court for an order compelling Network Capital to submit its declaratory relief claims to arbitration. According to Papke, the broad language in the parties' arbitration agreement required the arbitrator, not the court, to decide whether the agreement authorized class arbitration. The trial court denied Papke's petition, concluding it must decide whether the arbitration agreement authorized class arbitration, and in doing so found this particular agreement did not allow class arbitration. Papke challenges both these conclusions on appeal.
As explained below, we agree with the trial court. Deciding whether the parties' arbitration agreement authorizes class arbitration does not simply determine what arbitration procedures the parties agreed to use, but rather whose claims the parties agreed to arbitrate. Supreme Court precedent requires courts to decide whose claims are covered by an arbitration agreement unless the parties clearly and unmistakably agree to have the arbitrator decide that question. Because Papke and Network Capital's arbitration agreement does not clearly and unmistakably designate the arbitrator to determine whether the agreement authorizes class arbitration, we conclude the trial court properly decided that question.
In October 2011, Network Capital hired Papke as an employee. Papke signed the "Employment Acknowledgment and Agreement" (Arbitration Agreement), which required the parties to "utilize binding arbitration to resolve all disputes that may arise out of or be related to [his] employment in any way." The Arbitration Agreement further states, "Both the Company and I agree that any claim, dispute, and/or controversy that either I may have against the Company ..., or the Company may have against me, shall be submitted to and determined exclusively by binding arbitration under the Federal Arbitration Act.... Included within the scope of this Agreement are all disputes, whether based on tort, contract, statute ..., equitable law, or otherwise. The only exception to the requirement of binding arbitration shall be for claims arising under the National Labor Relations Act which are brought before the National Labor Relations Board, claims for medical and disability benefits under the California Workers' Compensation Act, Employment Development Department Claims, or as may otherwise be required by state or federal law...."
In June 2013, Papke initiated arbitration proceedings against Network Capital by serving a demand for class arbitration. On behalf of all similarly situated current and former employees of Network Capital, Papke's demand alleged wage and hour claims under the Labor Code and the unfair competition law (Bus. & Prof. Code, § 17200 et seq.). Papke later served an amended class arbitration demand adding a representative claim under the Labor Code Private Attorneys General Act of 2004 (Lab. Code, § 2698).
After receiving Papke's demand, Network Capital told him the Arbitration Agreement did not authorize class arbitration. Network Capital also insisted the trial court must resolve any disagreement over the availability of class arbitration, not the arbitrator. Papke disagreed, arguing the Arbitration Agreement's broad language required the arbitrator to decide all claims, disputes,
Based on this disagreement, Network Capital sought a judicial declaration that (1) it is the court's responsibility to decide whether the Arbitration Agreement authorized class arbitration, and (2) the Arbitration Agreement prohibited class arbitration. In August 2013, Network Capital sought a preliminary injunction enjoining Papke from seeking any class or representative relief in the pending arbitration proceedings. Papke opposed that motion, demurred to Network Capital's complaint, and petitioned for an order compelling Network Capital to submit their dispute to the arbitrator for resolution.
The trial court heard all three motions at the same time and took the matters under submission. A few days later, the court granted Network Capital the requested preliminary injunction, denied Papke's petition to compel arbitration, and overruled Papke's demurrer. The court explained, "the issue of whether the agreement requires arbitration of class actions is one for the court and the court determines that the agreement allows for the arbitration of Mr. Papke's personal claims, but does not address Mr. Papke asserting the claims of others, including class members." Papke now appeals.
The ultimate issue in this case is whether the parties' Arbitration Agreement allows Papke to pursue class and representative claims in arbitration, or requires him to arbitrate his claims on an individual basis only (sometimes, Class Arbitration Question). Before we reach that issue, however, we first must determine who decides that question (sometimes, Who Should Decide Question). If it is the arbitrator, we must reverse and remand for the arbitrator to decide the Class Arbitration Question in the first instance. If it is the trial court, only then do we review whether the court properly determined the Arbitration Agreement did not authorize class arbitration.
"`There is no uniform standard of review for evaluating an order denying a motion to compel arbitration. [Citation.] If the court's order is based on a decision of fact, then we adopt a substantial evidence standard. [Citations.] Alternatively, if the court's denial rests solely on a decision of law, then a de novo standard of review is employed. [Citations.]' [Citation.]" (Avery v. Integrated Healthcare Holdings, Inc. (2013) 218 Cal.App.4th 50, 60 [159 Cal.Rptr.3d 444].)
The parties agree the Federal Arbitration Act (9 U.S.C. § 1 et seq.; FAA) governs the Arbitration Agreement, which expressly states the parties agree to "binding arbitration under the Federal Arbitration Act." (See Rodriguez v. American Technologies, Inc. (2006) 136 Cal.App.4th 1110, 1121-1122 [39 Cal.Rptr.3d 437] [arbitration governed by FAA, not Cal. law, when arbitration provision states parties shall arbitrate their dispute "`pursuant to the FAA'"].)
The United States Supreme Court explained the rationale for this presumption as follows: "[The] question ... `who (primarily) should decide arbitrability'... is rather arcane. A party often might not focus upon that question or upon the significance of having arbitrators decide the scope of their own powers. [Citation.] And, given the principle that a party can be forced to arbitrate only those issues it specifically has agreed to submit to arbitration, one can understand why courts might hesitate to interpret silence or ambiguity on the `who should decide arbitrability' point as giving the arbitrators that power, for doing so might too often force unwilling parties to arbitrate a matter they reasonably would have thought a judge, not an arbitrator, would decide. [Citation.]" (First Option, supra, 514 U.S. at p. 945.)
Here, the Arbitration Agreement's express terms do not mention class arbitration nor do they submit arbitrability questions to the arbitrator for resolution. Instead, the Arbitration Agreement simply requires Papke and Network Capital to arbitrate "any claim, dispute, and/or controversy" they have with one another, except for a few specialized claims not applicable here. This ambiguous language is not a clear and unmistakable statement Papke and Network Capital intended the arbitrator to decide whether they agreed to class arbitration. (Opalinski v. Robert Half Internat., Inc. (3d Cir.
Seeking to reverse the presumption favoring court resolution, Papke contends we must resolve all doubts about arbitrability in favor of arbitration, and therefore any question concerning whether he and Network Capital agreed to class arbitration must be submitted to the arbitrator for resolution. We find this contention unpersuasive because Papke conflates the Who Should Decide Question with the Class Arbitration Question. The FAA's strong policy in favor of enforcing arbitration agreements according to their terms generally requires any doubt concerning the arbitrability of a dispute to be resolved in favor of arbitration, but that presumption only applies to whether a particular dispute is covered by an arbitration agreement, that is, to arbitrability questions. (Howsam, supra, 537 U.S. at p. 83; First Options, supra, 514 U.S. at pp. 944-945; AT&T Technologies, supra, 475 U.S. at p. 650; Moses H. Cone Hospital v. Mercury Constr. Corp. (1983) 460 U.S. 1, 24-25 [74 L.Ed.2d 765, 103 S.Ct. 927] (Moses).) That presumption does not apply to the threshold question of who decides whether a particular dispute is covered by an arbitration agreement. (First Options, at pp. 944-945.) As explained above, the Supreme Court has held the presumption on the Who Should Decide Question runs in favor of courts: absent a clear and unmistakable agreement to the contrary, it is presumed the parties intended courts, not arbitrators, to decide whether the parties agreed to submit a particular dispute to arbitration. (Ibid.; see Howsam, supra, 537 U.S. at p. 83; AT&T Technologies, supra, 475 U.S. at p. 649.)
The United States Supreme Court first addressed whether the Class Arbitration Question is a procedural or arbitrability question in Green Tree Financial Corp. v. Bazzle (2003) 539 U.S. 444 [156 L.Ed.2d 414, 123 S.Ct. 2402] (plur. opn. of Breyer, J.) (Bazzle). There, four justices concluded whether the parties' agreement prohibited class arbitration was a procedural question for the arbitrators because it concerned the procedures to be used in arbitrating the parties' dispute, not whether they agreed to arbitration or whether their agreement applied to the underlying dispute. (Id. at pp. 452-453 (plur. opn. of
Although they unmistakably declared Bazzle is not binding precedent, neither Oxford nor Stolt-Nielsen resolved the Who Should Decide Question because the parties in both cases agreed to have the arbitrator decide the Class Arbitration Question, and therefore the Who Should Decide Question was not before the court. (Oxford, supra, 569 U.S. at p. ___, fn. 2 [133 S.Ct. at p. 2068, fn. 2]; Stolt-Nielsen, supra, 559 U.S. at p. 680.) Oxford and Stolt-Nielsen nonetheless establish Bazzle's value is limited to the persuasiveness of its rationale. The United States Supreme Court therefore has not yet resolved the Who Should Decide Question.
The two federal circuits that have confronted the issue rejected Bazzle and concluded the Class Arbitration Question is an arbitrability question for courts to decide because it determines whose claims the parties must arbitrate and thereby fundamentally affects both the nature and scope of the parties' arbitration. (Opalinski, supra, 761 F.3d at pp. 332-335; Huffman v. Hilltop Companies, LLC (6th Cir. 2014) 747 F.3d 391, 398-399 (Huffman); Reed Elsevier, Inc. ex rel. LexisNexis Division v. Crockett (6th Cir. 2013) 734 F.3d 594, 597-599 (Reed Elsevier).) Several district courts from other circuits, however, have found Bazzle persuasive and concluded the Class Arbitration Question is for arbitrators to decide because it determines the procedures the parties will use to arbitrate their dispute. (See, e.g., In re A2P SMS Antitrust Litigation (S.D.N.Y. 2014) 2014-1 TradeCas. (CCH) ¶ 78,791 [2014 WL 2445756, pp. *10-*12] (A2P SMS); Lee v. JPMorgan Chase & Co. (C.D.Cal. 2013) 982 F.Supp.2d 1109, 1112-1114 (Lee); Hesse v. Sprint Spectrum L.P. (W.D.Wn., Feb. 17, 2012, No. C06-0592JLR) 2012 WL 529419, pp. *2-*3; Guida v. Home Savings of America, Inc. (E.D.N.Y. 2011) 793 F.Supp.2d 611, 615-619 (Guida).)
Bazzle concluded arbitrators must decide the Class Arbitration Question because it is a procedural inquiry that asks, "what kind of arbitration proceeding the parties agreed to. That question ... concerns contract interpretation and arbitration procedures. Arbitrators are well situated to answer that question.... [Accordingly,] this matter of contract interpretation should be for the arbitrator, not the courts, to decide." (Bazzle, supra, 539 U.S. at pp. 452-453, original italics (plur. opn. of Breyer, J.).) We find this reasoning unpersuasive because the proper standard for identifying procedural questions does not consider the kind of arbitration procedures the parties agreed to or whether the question is a matter of contract interpretation.
As explained above, questions of procedure grow out of the parties' dispute and bear on its final disposition. (Howsam, supra, 537 U.S. at pp. 83-84; First Options, supra, 514 U.S. at pp. 944-945; see Stolt-Nielsen, supra, 559 U.S. at p. 685.) Whether the parties' arbitration agreement authorizes class arbitration does not pose a procedural question under the
The Class Arbitration Question also is not analogous to issues the Supreme Court has found pose a procedural question for arbitrators to decide. For example, whether the parties agreed to arbitrate on an individual or class basis is not analogous to whether the claimant satisfied all prerequisites to arbitration established by the parties' agreement. (Howsam, supra, 537 U.S. at p. 84, citing John Wiley & Sons v. Livingston (1964) 376 U.S. 543, 557 [11 L.Ed.2d 898, 84 S.Ct. 909] (John Wiley & Sons) [whether claimant completed first two steps of grievance procedure is procedural question for arbitrator when steps are prerequisite to arbitration].) Similarly, the Class Arbitration Question is not analogous to whether the statute of limitations bars a party's claim or "`allegation[s] of waiver, delay, or a like defense to arbitrability,'" all of which the Supreme Court has found to be procedural matters. (Howsam, at pp. 84-85; see Moses, supra, 460 U.S. at pp. 24-25.) Neither Bazzle nor any of the cases adopting its rationale provides an explanation or analysis of how the Class Arbitration Question grows out of the parties' underlying dispute or bears on the dispute's final disposition.
Moreover, the Supreme Court has since rejected the conclusion a question is procedural simply because the answer determines the procedures the parties will use to arbitrate their claims.
Sandquist and the district courts that followed Bazzle found these fundamental differences between individual and class arbitration to be insignificant because those courts considered the differences to be "more relevant to the issue of whether the parties agreed to class arbitration ... than to the issue of whether the court or the arbitrator decides if an agreement contemplates class arbitration." (Sandquist, supra, 228 Cal.App.4th at pp. 78-79; see A2P SMS, supra, 2014 WL 2445756 at p. *11; Lee, supra, 982 F.Supp.2d at p. 1114; Guida, supra, 793 F.Supp.2d at pp. 616, 619.) Sandquist and these other cases, however, provide no explanation or analysis to support this conclusion and nonetheless concede the fundamental differences between individual and class arbitration have at least some relevance to deciding whether the Class Arbitration Question is a question of arbitrability or procedure.
We find these fundamental differences to be highly relevant because they show the Class Arbitration Question does not grow out of the parties' dispute itself and does not bear on the dispute's final resolution. Indeed, the differences highlighted in Stolt-Nielsen and AT&T Mobility are not merely procedural because the issue of whose claims the parties agreed to arbitrate is essentially a question of what the parties agreed to, a gateway issue that determines the scope of the parties' arbitration proceedings.
Bazzle found the Class Arbitration Question is not an arbitrability question because it "concerns neither the validity of the arbitration clause nor its applicability to the underlying dispute between the parties," and does not ask "whether the parties wanted a judge or an arbitrator to decide whether they agreed to arbitrate a matter." (Bazzle, supra, 539 U.S. at p. 452, italics omitted (plur. opn. of Breyer, J.).) We are not persuaded by this rationale because the Class Arbitration Question determines whose claims the parties agreed to arbitrate and thereby fundamentally affects the scope of the parties' arbitration.
As explained above, questions of arbitrability concern whether the contracting parties agreed to arbitrate their disputes and the scope of that agreement; they are matters the contracting parties would likely have expected a court to decide. (Howsam, supra, 537 U.S. at pp. 83-84; First Options, supra, 514 U.S. at pp. 944-945; see Stolt-Nielsen, supra, 559 U.S. at p. 685.) Applying this standard, we conclude the Class Arbitration Question involves the scope of the parties' arbitration agreement because it requires the decision maker to determine whose claims the parties agreed to arbitrate — only the named plaintiff's claims against the defendant, or the claims of numerous other absent, but similarly situated claimants against the defendant. (See Stolt-Nielsen, supra, 559 U.S. at p. 686; AT&T Mobility, supra, 563 U.S. at pp. ___-___ [131 S.Ct. at pp. 1750-1751].) Here, the Class Arbitration Question requires the decision maker to determine whether Papke and Network Capital's agreement to submit "any claim, dispute, and/or controversy" to binding arbitration covers not only Papke's claims against Network Capital, but also the claims of all similarly situated, past and present employees against Network Capital.
Papke contends Stolt-Nielsen and Oxford support his position that arbitrators may decide whether the arbitration agreement covers class claims, but Papke flatly misconstrues both of those cases. The portion of Stolt-Nielsen Papke cites is merely a summary of the plurality opinion in Bazzle, and the court explains a majority of the Bazzle court did not resolve whether a court should decide that question. The Stolt-Nielsen court did not reach the issue because the parties had stipulated the arbitrators would decide whether to
Citing Linder v. Thrifty Oil Co. (2000) 23 Cal.4th 429 [97 Cal.Rptr.2d 179, 2 P.3d 27], Papke also contends "the issue whether a case should proceed as an individual action or as a class is a procedural question." Papke, however, misapplies Linder, which addressed whether a court could consider an action's merits when deciding a class certification motion. Linder did not address arbitration, let alone whether courts or arbitrators should decide the Class Arbitration Question.
Finally, Network Capital contends the California Supreme Court recently decided the Who Should Decide Question in City of Los Angeles v. Superior Court (2013) 56 Cal.4th 1086 [158 Cal.Rptr.3d 1, 302 P.3d 194]. Not so. In City of Los Angeles, the court concluded a dispute concerning the scope of a contractual duty to arbitrate is subject to judicial resolution unless the arbitration agreement expressly provided otherwise. (Id. at p. 1093.) That is simply a statement of the rule that courts usually decide arbitrability questions. City of Los Angeles, however, did not address whether the Class Arbitration Question is an arbitrability question, and therefore that case does not support Network Capital's position.
Assuming the Class Arbitration Question was for the court to decide, Papke contends the court erred in concluding the Arbitration Agreement did not authorize class arbitration because the agreement required him and Network Capital to submit "any claim, dispute, and/or controversy" between them to binding arbitration "[i]nclud[ing] ... all disputes, whether based on tort, contract, statute ..., equitable law, or otherwise," and "[t]he sole exception is for claims before the [National Labor Relations Board]." Because class arbitration does not fall within the narrow exception the Arbitration Agreement creates to the parties' obligation to submit all claims, disputes, and controversies to arbitration, Papke concludes the agreement must authorize class arbitration. Papke's argument ignores the governing law on the requirements for submitting claims to class arbitration.
Here, the Arbitration Agreement is silent as to class arbitration because the agreement neither expressly authorizes nor prohibits class arbitration, and therefore Papke must point to some other contractual basis for concluding the parties agreed to class arbitration. He argues the parties' intent to authorize class arbitration is established by the Arbitration Agreement's broad language requiring the parties to submit "any claim, dispute, and/or controversy" to arbitration and the parties' omission of class arbitration from the narrow list of exceptions to that broad obligation. Papke, however, fails to point to any extrinsic evidence to support this argument regarding the parties' intent and nothing on the face of the Arbitration Agreement supports this contention. Without some extrinsic evidence of the parties' intent, Papke's argument is nothing more than an argument the parties implicitly agreed to class arbitration. As explained above, Stolt-Nielsen rejected that contention, and therefore we conclude the trial court properly determined the Arbitration Agreement did not authorize class arbitration.
Papke contends Stolt-Nielsen only applies when the parties stipulate they did not reach an agreement on class arbitration. According to Papke, Stolt-Nielsen does not apply here because a dispute exists between him and Network Capital on whether they agreed to class arbitration. Papke is mistaken. Stolt-Nielsen does not limit its holding to its facts, but rather establishes a generally applicable rule that there must be some contractual basis for compelling a party to submit to class arbitration in addition to an agreement to arbitrate all disputes. Papke fails to acknowledge Stolt-Nielsen's central holding, and fails to show he and Network Capital agreed to class arbitration in addition to individual arbitration.
The order is affirmed. Network Capital shall recover its costs on appeal.
Bedsworth, Acting P. J., and Fybel, J., concurred.
We also note this appeal involves the claims of other people that Papke seeks to assert on a class or representative basis rather than a group of people who have all entered into arbitration agreements with Network Capital and seek to join together to pursue their claims against Network Capital in a single arbitration proceeding. Whether the Arbitration Agreement authorizes that sort of joinder is not before us and we express no opinion on that question.