Lead Opinion
Opinion
In this case, we consider four interlocking questions: (1) Is a provision in a mandatory employment arbitration agreement that permits either party to “appeal” an arbitration award of more than $50,000 to a second arbitrator, unconscionable; (2) if it is unconscionable, then should that unconscionable provision be severed from the rest of the arbitration agreement and the agreement enforced, or is the entire agreement invalid; (3) if the former, then in reviewing the rest of the arbitration agreement, do the minimum requirements for arbitration of unwaivable statutory claims that we set forth in Armendariz v. Foundation Health Psychcare Services, Inc. (2000)
We conclude as follows: (1) the appellate arbitration provision for arbitration awards over $50,000 is unconscionable; (2) that provision should be severed and the rest of the arbitration agreement enforced; (3) a suit claiming wrongful termination in violation of public policy should be subject to the requirements set forth in Armendariz; and (4) Green Tree does not require that we modify Armendariz's cost requirements. We accordingly partly reverse the Court of Appeal’s judgment.
I. Statement of Facts
Alexander M. Little worked for Auto Stiegler, Inc., an automobile dealership. Little eventually rose to become Auto Stiegler’s service manager. He alleges that he was demoted, then terminated, for investigating and reporting warranty fraud. He filed an action against defendant for tortious demotion in violation of public policy; tortious termination in violation of public policy; breach of an implied contract of continued employment; and breach of the implied covenant of good faith and fair dealing. In the first through third causes of action, he sought compensatory and punitive damages. In the fourth cause of action, plaintiff sought only contract breach damages. He sought no relief under the California Fair Employment and Housing Act (FEHA). (Gov. Code, § 12900 et seq.)
Little signed three nearly identical arbitration agreements while employed by defendant in June 1995, October 1996, and January 1997. The most recent of the three stated as follows: “I agree that any claim, dispute, or controversy (including, but not limited to, any and all claims of discrimination and harassment) which would otherwise require or allow resort to any court or other governmental dispute resolution forum between myself and the Company (or its owners, directors, and officers, and parties affiliated with its employee benefit and health plans) arising from, related to, or having any relationship or connection whatsoever with my seeking employment with, employment by, or other association with, the Company, whether based on tort, contract, statutory, or equitable law, or otherwise, shall be submitted to and determined exclusively by binding arbitration under the Federal Arbitration Act, in conformity with the procedures of the California Arbitration Act (Cal. Code Civ. Proc. Sec 1280 et seq., including section 1283.05 and all of the act’s other mandatory and permissive rights to discovery); provided, however, that: In addition to requirements imposed by law, any arbitrator herein shall be a retired California Superior Court Judge and shall be subject to disqualification on the same grounds as would apply to a judge of such court. To the extent applicable in civil actions in California courts, the following shall apply and be observed: all rules of pleading (including the right of demurrer), all rules of evidence, all rights to resolution of the dispute by means of motions for summary judgment, judgment on the pleadings, and judgment under Code of Civil Procedure section 631.8. Resolution of the dispute shall be based solely upon the law governing the claims and defenses pleaded, and the arbitrator may not invoke any basis other than such controlling law, including but not limited to, notions of ‘just cause.’ As reasonably required to allow full use and benefit of this agreement’s modifications to the act’s procedures, the arbitration shall extend the times set by the act for the giving of notices and setting of hearings. Awards exceeding $50,000.00 shall include the arbitrator’s written reasoned opinion and, at either party’s written request within 20 days after issuance of the award, shall be subject to reversal and remand, modification,
Auto Stiegler’s initial motion to compel arbitration was granted. Following our decision in Armendariz, the trial court, upon plaintiff’s request for reconsideration, denied defendant’s motion to compel arbitration. The trial court ruled: “The court believes that the arbitration clause in issue does not meet the standards set forth by the Supreme Court and it should not be enforced. The clauses of the arbitration agreement that do not comport with the requirements of the Armendariz [decision] include the clauses that: [f] 1. Require the Plaintiff to share the costs; [$] 2. Provide for no judicial review. The court deems this fatal, as judicial review of all decisions is not the same as limited review by another arbitrator of only certain awards; [|] 3. Limit the remedies available to the complaintant [szc] [to] possibly exclude equitable as opposed to legal remedies, to which he might otherwise be entitled. H|] 4. Lack of mutuality of remedy, in that this clause, unlike the one in Armendariz does not obviously bind the employer to likewise enforce its right in the arbitration forum.”
The Court of Appeal reversed. It held that the Armendariz requirements did not apply to nonstatutory claims. Further, it rejected the claim that the arbitration agreement was unconscionable. It focused on Armendariz,s discussion of whether both parties were bound to arbitrate, and concluded that the arbitration agreements did in fact bind both parties. The Court of Appeal did not consider whether the arbitration “appeal” triggered by an award of greater than $50,000 was unconscionable. Finally, the court concluded that under the United States Supreme Court’s decision in Green Tree, silence as to who would bear the costs of arbitration was not a basis for invalidating the agreement. We granted review.
II. Discussion
A. Unconscionability of Appellate Arbitration Provision
As recounted, the arbitration agreement provided that “[ajwards exceeding $50,000.00 shall include the arbitrator’s written reasoned opinion and, at either party’s written request within 20 days after issuance of the award, shall be subject to reversal and remand, modification, or reduction following review of the record and arguments of the parties by a second arbitrator who shall, as far as practicable, proceed according to the law and procedures applicable to appellate review by the California Court of Appeal of a civil judgment following court trial.” Little contends this provision is unconscionable. We agree.
To briefly recapitulate the principles of unconscionability, the doctrine has “ ‘both a “procedural” and a “substantive” element,’ the former focusing on ‘ “oppression” ’ or ‘ “surprise” ’ due to unequal bargaining power, the latter on ‘ “overly harsh” ’ or ‘ “one-sided” ’ results.” (Armendariz, supra,
Substantively unconscionable terms may take various forms, but may generally be described as unfairly one-sided. One such form, as in Armendariz, is the arbitration agreement’s lack of a “ ‘modicum of bilaterality,”’ wherein the employee’s claims against the employer, but not the employer’s claims against the employee, are subject to arbitration. (Armendariz, supra,
In Beynon v. Garden Grove Medical Group (1980)
Saika v. Gold (1996)
Auto Stiegler and its amici curiae make several arguments to distinguish this case from Beynon and Saika. First, they claim that the arbitration appeal provision applied evenhandedly to both parties and that, unlike the doctor/patient relationship in Saika, there is at least the possibility that an employer may be the plaintiff, for example in cases of misappropriation of trade secrets. (See, e.g., Brennan v. Tremco Inc. (2001)
Although parties may justify an asymmetrical arbitration agreement when there is a “legitimate commercial need” (Armendariz, supra,
Auto Stiegler also argues that an arbitration appeal is less objectionable than a second arbitration, as in Beynon, or a trial de novo, as in Saika, because it is not permitting a wholly new proceeding, making the first arbitration illusory, but only permitting limited appellate review of the arbitral award. We fail to perceive a significant difference. Each of these provisions is geared toward giving the arbitral defendant a substantial opportunity to overturn a sizable arbitration award. Indeed, in some respects appellate review is more favorable to the employer attempting to protect its interests. It is unlikely that an arbitrator who merely acts in an appellate capacity will increase an award against the employer, whereas a trial or arbitration de novo at least runs the risk that the employer would become liable for an even larger sum than that awarded in the initial arbitration.
B. Is the Unconscionable Portion of the Agreement Severable?
In Armendariz, we reviewed the principles regarding the severance of illegal terms from an arbitration agreement. As we stated: “Two reasons for severing or restricting illegal terms rather than voiding the entire contract appear implicit in case law. The first is to prevent parties from gaining undeserved benefit or suffering undeserved detriment as a result of voiding the entire agreement—particularly when there has been full or partial performance of the contract. [Citations.] Second, more generally, the doctrine of severance attempts to conserve a contractual relationship if to do so would not be condoning an illegal scheme. [Citations.] The overarching inquiry is whether ‘ “the interests of justice . . . would be furthered” ’ by severance. [Citation.] Moreover, courts must have the capacity to cure the unlawful contract through severance or restriction of the offending clause, which . . . is not invariably the case.” (Armendariz, supra, 24 Cal.4th at pp. 123-124.) Accordingly, “[c]ourts are to look to the various purposes of the contract. If the central purpose of the contract is tainted with illegality, then the contract as a whole cannot be enforced. If the illegality is collateral to the main purpose of the contract, and the illegal provision can be extirpated from the contract by means of severance or restriction, then such severance and restriction are appropriate.” (Id. at p. 124.)
In Armendariz, we found two factors weighed against severance of the unlawful provisions. “First, the arbitration agreement contains more than one unlawful provision; it has both an unlawful damages provision and an unconscionably unilateral arbitration clause. Such multiple defects indicate a 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. . . . [f ] Second, in the case of the agreement’s lack of mutuality, . . . permeation [by an unlawful purpose] is indicated by the fact that there is no single provision a court can strike or restrict in order to remove the unconscionable taint from the agreement. Rather, the court would have to, in effect, reform the contract, not through severance or restriction, but by augmenting it with additional terms. Civil Code section 1670.5 does not authorize such reformation by augmentation, nor does the arbitration statute. Code of Civil Procedure section 1281.2 authorizes the court to refuse arbitration if grounds for revocation exist, not to reform the agreement to make it lawful. Nor do courts have any such power under their inherent limited authority to reform contracts. [Citations.]” (Armendariz, supra, 24 Cal.4th at pp. 124-125.)
Neither of these factors is operative in the present case. There is only a single provision that is unconscionable, the one-sided arbitration appeal.
Moreover, there is no indication that the state of the law was “sufficiently clear at the time the arbitration agreement was signed to lead to the conclusion that this [appellate arbitration provision] was drafted in bad faith.” (Armendariz, supra, 24 Cal.4th at pp. 124-125, fn. 13.) There is enough of a difference between the appellate arbitration provision, drafted in the employment context, and the de novo trial and arbitration provisions in the doctor/ patient setting in Beynon and Saika, to preclude a determination that the provision was directly contrary to settled law and therefore inferentially drafted in bad faith.
We therefore conclude that Auto Stiegler’s arbitration agreement is valid and enforceable once the unconscionable appellate arbitration provision is deleted. Whether a court should refuse to enforce it on other grounds will be considered below.
C. Is Arbitration of a Tameny Claim Subject to the Minimal Procedural Requirements Set Forth in Armendariz?
In Tameny v. Atlantic Richfield Co. (1980)
In Armendariz, we held that arbitration of claims under the FEHA is subject to certain minimal requirements: (1) the arbitration agreement may not limit the damages normally available under the statute (Armendariz, supra,
These requirements were founded on the premise that certain statutory rights are unwaivable. “This unwaivability derives from two statutes that are themselves derived from public policy. First, Civil Code section 1668 states: ‘All contracts which have for their object, directly or indirectly, to exempt anyone from responsibility for his own fraud, or willful injury to the person or property of another, or violation of law, whether willful or negligent, are against the policy of the law.’ ‘Agreements
A Tameny claim is almost by definition unwaivable. “[The] public policy exception to the at-will employment rule must be based on policies ‘carefully tethered to fundamental policies that are delineated in constitutional or statutory provisions . . . .’” (Silo v. CHW Medical Foundation (2002)
Auto Stiegler cites Brown v. Wheat First Securities, Inc. (D.C. Cir. 2001)
The Brown court, which consisted of a different panel of the District of Columbia Circuit Court of Appeals than had decided Cole, began by reviewing the latter decision. As the Brown court summarized it, Cole acknowledged “that the Supreme Court in Gilmer v. Interstate/Johnson Lane Corp.,
The Brown court, in rejecting the extension of Cole to nonstatutory claims, pointed to language in Cole limiting its holding to such claims. The court further stated: “We also see no basis for extending Cole. As we have explained, our central rationale—respecting congressional intent—does not extend beyond the statutory context. Moreover, by enacting the Federal Arbitration Act, Congress ‘manifested] a “liberal federal policy favoring arbitration agreements.” ’ [Citations]. The Act also pre-empted state restrictions on the enforcement of arbitration agreements. [Citations.] Gilmer, as we’ve seen, framed the question as whether dispute resolution under the FAA was consistent with the federal right-creating statute in question. [Citation.] For a common law claim under District of Columbia law, any such inconsistency would be resolved in favor of the only federal law involved, the FAA.” (Brown, supra, 257 F.3d at pp. 825-826.)
We disagree with the Brown court, at least insofar as its decision would be interpreted to preclude extension of the Armendariz requirements to Tameny claims. First, although Cole was a title VII case properly focused on mandatory arbitration of federal statutory rights, its rationale extends beyond that context generally to unwaivable rights conferred for a public benefit. The statement in Gilmer that provides the point of departure in Cole—“ ‘[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’ ” (Cole, supra,
The Brown court’s apparent position that only federal statutory rights may be subject to Cole’s requirements, because any attempt to place conditions on arbitration based on state law would be preempted by the Federal Arbitration Act (FAA), is incorrect. The FAA provides that arbitration agreements are “valid, irrevocable, and enforceable, save upon
Thus, while we recognize that a party compelled to arbitrate such rights does not waive them, but merely “ ‘submits to their resolution in an arbitral, rather than a judicial, forum’ ” (Gilmer, supra,
We recognize that “[i]n enacting § 2 of the [FAA], Congress declared a national policy favoring arbitration and withdrew the power of the states to require a judicial forum for the resolution of claims which the contracting parties agreed to resolve by arbitration.” (Southland Corp. v. Keating (1984)
Specifically, with regard to arbitration costs at issue in this case and in Brown, the principle that arbitration costs may prevent arbitration claimants from effectively pursuing their public rights would apply with equal force to Tameny claims as to FEHA claims or to federal statutory claims. Nothing in the FAA prevents states from controlling arbitration costs imposed by adhesive contracts so that the remedy of prosecuting state statutory or common law public rights through arbitration is not rendered illusory. The Armendariz cost-shifting requirement is unique to arbitration only to the extent that arbitration, alone among contract provisions, may potentially require litigants to expend large sums to pay for the costs of the hearing that will decide his or her statutory other public rights. In other words, it is not the arbitration agreement itself but the imposition of arbitration forum costs that under certain circumstances violates state law.
Moreover, Armendariz’s cost rule does not “require a judicial forum for the resolution of claims which the contracting parties agreed to resolve by arbitration.” (Southland, supra,
Furthermore, Code of Civil Procedure section 1284.2, which provides that each party pay a pro rata share of arbitration costs unless the agreement provides otherwise, does not alter our conclusion. We held in Armendariz that this statute does not preclude the judicial imposition of proportionally greater costs on the employer in the case of FEHA claims. (Armendariz, supra,
Therefore, we conclude that a plaintiff/employee seeking to arbitrate a Tameny claim should have the benefit of the same minimal protections as for FEHA claims as a means of ensuring that they can effectively prosecute such a claim in the arbitral forum.
We have already rejected the contentions that the arbitration agreement in the present case limited Little’s remedies or his ability to obtain adequate judicial review. Nor is it evident from the agreement that Little will be unable to obtain adequate discovery. Little argues, however, that there is a risk of burdensome costs being imposed on him, contrary to Armendariz. We consider this arguments in the next part of our opinion.
D. Cost Sharing and Arbitration of Tameny Claims
Little argues that the arbitration agreement’s silence on the issue of costs means that he would be statutorily compelled to share costs under Code of Civil Procedure section 1284.2, and that the imposition of such costs renders the arbitration agreement unenforceable. Armendariz did not conclude that an arbitration agreement silent on costs was unenforceable. On the contrary, we held we would infer from such silence an agreement that “the employer must bear the arbitration forum costs” and that “[t]he absence of specific provisions on arbitration costs would . . . not be grounds for denying the enforcement of an arbitration agreement.” (Armendariz, supra,
The California Motorcar Dealers Association, amicus curiae on behalf of Auto Stiegler, argues that our holding on costs in Armendariz has been supplanted by the United States Supreme Court’s holding in Green Tree, supra,
In Green Tree, the plaintiff, purchaser of a mobilehome, sued her lender on various federal statutory grounds, including violation of the Truth in Lending Act (TILA) (15 U.S.C. § 1601 et seq.) for failing to disclose certain finance charges. (Green Tree, supra, 531 U.S. at pp. 82-83 [121 S.Ct. at pp. 517-518].) The buyer’s agreement with the lender contained a binding arbitration clause that included all statutory claims. The agreement was silent on the issue of who would pay the costs of arbitration. The district court granted the lender’s motion to compel arbitration but the court of appeals reversed, holding that the agreement posed the risk that the plaintiffs
The United States Supreme Court reversed. It first reaffirmed its longstanding position that statutory claims are arbitrable under the FAA absent the expression of congressional intent “to preclude a waiver of judicial remedies for the statutory rights at issue.” (Green Tree, supra,
The court further explained: “To invalidate the agreement on that basis would undermine the ‘liberal federal policy favoring arbitration agreements.’ [Citation.] It would also conflict with our prior holdings that the party resisting arbitration bears the burden of proving that the claims at issue are unsuitable for arbitration. [Citations.] We have held that the party seeking to avoid arbitration bears the burden of establishing that Congress intended to preclude arbitration of the statutory claims at issue. [Citations.] Similarly, we believe that where, as here, a party seeks to invalidate an arbitration agreement on the ground that arbitration would be prohibitively expensive, that party bears the burden of showing the likelihood of incurring such costs. Randolph did not meet that burden. How detailed the showing of prohibitive expense must be before the party seeking arbitration must come forward with contrary evidence is a matter we need not discuss; for in this case neither during discovery nor when the case was presented on the merits was there any timely showing at all on the point. The Court of Appeals therefore erred in deciding that the arbitration agreement’s silence with respect to costs and fees rendered it unenforceable.” (Green Tree, supra, 531 U.S. at pp. 91-92 [121 S.Ct. at pp. 522-523], italics added, fn. omitted.)
Although Green Tree was not an employment case, most courts interpreting it have done so in the employment context. These courts have arrived at divergent meanings of the “prohibitively expensive” standard. Some courts have interpreted that term narrowly and maintain that it does not affect the validity of the categorical position set forth in Cole, supra,
Armendariz and Green Tree agree on two fundamental tenets. First, silence about costs in an arbitration agreement is not grounds for denying a motion to compel arbitration. Second, arbitration costs can present significant barriers to the vindication of statutory rights. Nonetheless, there may be a significant difference between the two cases. Although Green Tree did not elaborate on the kinds of cost-sharing arrangements that would be unenforceable, dicta in that case, and several federal cases cited above interpreting it, suggest that federal law requires only that employers not impose “prohibitively expensive” arbitration costs on the employee (Green Tree, supra,
As reviewed in the previous part of this opinion, Armendariz’s cost-shifting requirement is not preempted by the FAA. It is not a barrier to the enforcement of arbitration agreements, nor does it improperly disfavor arbitration in comparison to other contract clauses. Rather, it is derived from state contract law principles regarding the unwaivability of certain public rights in the context of a contract of adhesion. We do not discern from the United States Supreme Court’s jurisprudence on FAA preemption a requirement that state law conform precisely with federal law as to the manner in which such public rights are protected.
Furthermore, we considered and rejected in Armendariz a case-by-case approach to arbitration costs similar to that suggested by courts interpreting Green Tree based on the differential between projected arbitration and litigation fees. (Blair, supra,
In short, for reasons stated above, we do not believe that the FAA requires state courts to adopt precisely the same means as federal courts to ensure that the vindication of public rights will not be stymied by burdensome arbitration costs. We continue to believe that Armendariz represents the soundest approach to the problem of arbitration costs in the context of mandatory employment arbitration. We therefore conclude that on remand the court compelling arbitration should require the employer to pay in this case “all types of costs that are unique to arbitration.” (Armendariz, supra,
III. Disposition
The judgment of the Court of Appeal is reversed insofar as it (1) permits enforcement of a clause allowing arbitral review only of awards greater than $50,000 and (2) requires arbitration of Little’s Tameny claim, assuming he has adequately alleged such a claim, without requiring Auto Stiegler to pay arbitration forum costs as set forth in Armendariz. The cause is remanded to the Court of Appeal with instructions to direct the superior court to conduct further proceedings consistent with the views expressed in this opinion. In all other respects, the Court of Appeal’s judgment is affirmed.
George, C. 1, Kennard, L, and Werdegar, J., concurred.
Notes
We note that the other three grounds the trial court found in this case for refusing to enforce the arbitration agreement, described in the statement of facts above, do not appear to be valid. First, the fact that an arbitration agreement does not explicitly provide for judicial review is no basis for invalidating it. (Armendariz, supra,
Amicus curiae California Employment Lawyers Association points to other provisions in the agreement that are, in its view, contrary to public policy or unconscionable. Essentially, amicus curiae objects to the incorporation of legal formalities into Auto Stiegler’s arbitration agreement: its mandate that the rules of pleading and evidence shall be observed, that the arbitrator shall only rely on governing law and not informal principles of “just cause,” and that traditional judicial motions such as demurrer and summary judgment be available to the parties. They claim that such procedures detract from the inherent informality of arbitration. Without more, however, we cannot say that these provisions, which make arbitration more closely follow judicial procedures, are unconscionably one-sided. It is not at all obvious that such provisions would inordinately benefit Auto Stiegler rather than Little. To the extent that the availability of dispositive pre-arbitration motions favor Auto Stiegler as defendant, they confer no more of an advantage than would be the case had the action been brought in court.
We note the prohibition against exculpatory contracts contrary to public policy is generally invoked in the context of contracts of adhesion. (See, e.g., Baker Pacific Corp v. Suttles, supra,
Auto Stiegler also cites Brennan v. Tremco Inc., supra,
Auto Stiegler argues that even if Armendariz is extended to Tameny claims, Little’s complaint does not state facts sufficient to allege a Tameny cause of action. Neither the trial court nor the Court of Appeal addressed this issue, and we express no view on the matter. On remand, Auto Stiegler will have an opportunity to reassert this argument.
Concurrence Opinion
I agree with the majority that the “over $50,000” clause in the arbitration agreement was unconscionable, and therefore unenforceable, but was severable. On the other hand, I agree with Justice Brown that the special procedural rules for contractual arbitration of statutory claims, as set forth in Armendariz v. Foundation Health Psychcare Services, Inc. (2000)
I also dissent from the majority’s decision to retain rules, first announced in Armendariz, for allocation of the costs of mandatory arbitration of statutory claims.
To recap briefly: Code of Civil Procedure section 1284.2
Thereafter, the United States Supreme Court decided Green Tree Financial Corp.-Ala. v. Randolph (2000)
Despite Green Tree, the instant majority retain Armendariz's “employer always pays” cost formula. The majority say Green Tree does not strictly require us to alter Armendariz's application of California contract law to the issue of arbitration costs. On that technical point, the majority may or may not be correct. As Green Tree makes clear, however, the FAA, which governs both federal and state arbitration law, was adopted “ ‘to reverse the longstanding judicial hostility to arbitration agreements . . . and to place [such] agreements upon the same footing as other contracts.’ ” (Green Tree, supra,
At direct odds with this principle is the current California requirement that the employer must always pay the employee’s “forum costs” of arbitrating a statutory claim, regardless of actual need, and contrary to a California law that implies a cost-sharing term in every arbitration contract
It should be noted that in articulating California’s minimum requirements for mandatory contractual arbitration of statutory claims, Armendariz placed primary reliance on a federal case, Cole v. Burns Intern. Security Services (D.C. Cir. 1997)
Under the circumstances, I would overrule Armendariz’s arbitrary cost allocation formula. In its place, I would adopt Green Tree’s principle that if a party resists mandatory contractual arbitration of a statutory claim on grounds of undue cost, he must make a timely, particularized showing of the expected expense, and must also demonstrate that, in his particular case, this cost would make arbitration prohibitively expensive as compared to court litigation. Evidence on this issue could be presented to the court deciding a motion to compel arbitration. If the party opposing arbitration demonstrated prohibitive expense, the court could grant the motion to compel upon the condition that the proponent of arbitration accept, with the caveat discussed below, a more equitable allocation of costs.
I close with one final point. In light of the strong policy favoring arbitration on the terms agreed by the parties, interference with the arbitration contract’s cost provisions, express or implied by statute, should be countenanced only to the degree actually necessary to assure that mandatory resort to the arbitral forum has not deterred vindication of a statutory claim. For this reason, whatever pre-arbitration reallocation of costs may be necessary to ensure that the claimant is not deterred in advance, this allocation should be tentative only, and should be subject to readjustment once the true expenses and rewards of the arbitral proceeding are known.
In hindsight, it may become apparent that the actual costs of arbitration, with its faster, simpler, and more economical procedures, were less than the probable expenses of resolving the same claim in court. Even if they were greater, the difference may prove so minimal, given the claimant’s general financial ability or the magnitude of his final recovery, that forcing the other party to absorb all the claimant’s forum costs, contrary to their
I see no reason why the arbitrator cannot, subject to appropriate judicial review, reassess the cost allocation at the conclusion of the proceedings.
Believing Armendariz was dispositive, the employee in this case (Little) never sought to make a showing of prohibitive expense. Believing Green Tree was dispositive, the Court of Appeal simply held that the arbitration agreement’s silence on costs was no bar to its unconditional enforcement. As I have indicated, I would overrule Armendariz to the extent it is inconsistent with Green Tree. Thus, if I believed Little’s Tameny claim were entitled to Armendariz protections, I would support a remand to allow Little to make the requisite showing.
I would reverse the judgment of the Court of Appeal insofar as it permits enforcement of a clause allowing arbitral review only of awards greater than $50,000, and would affirm the Court of Appeal’s judgment in all other respects. If I agreed with the majority that Armendariz protections applied to Tameny claims—which I do not—I would additionally reverse the Court of Appeal’s judgment insofar as it requires Little to arbitrate this claim without allowing him to demonstrate that pro rata sharing of forum costs would make arbitration prohibitively expensive for him, and I would remand to the Court of Appeal with directions to instruct the trial court to conduct further proceedings consistent with the views expressed in this opinion.
Chin, J., and Brown, J., concurred.
throughout this opinion, I use the terms “contractual arbitration,” “arbitration contract,” and “arbitration clause” to refer to agreements for mandatory arbitration of disputes that may arise in the future. As the majority indicate, different considerations apply to parties’ agreements to arbitrate disputes that have already arisen.
I use the term “statutory claims” throughout the following discussion because, like Justice Brown, I would not extend the cost protections of Armendariz beyond rights arising directly from statute to other causes of action, such as Tameny claims, which the majority may consider “nonwaivable.”
All further unlabeled statutory references are to the Code of Civil Procedure.
Cole conceded that cost allocation was not an issue in Gilmer, supra,
I assume that when granting a motion to compel contractual arbitration (§ 1281.2), the superior court could condition its order both on a tentative reallocation of costs, and on the parties’ agreement that the court would retain power to review any readjustment later ordered by the arbitrator. Moreover, a power to review cost readjustments should also be within the court’s jurisdiction in the event either party moves to vacate the arbitration award. (§ 1285 et seq.)
Concurrence Opinion
Like the majority, I find the appellate arbitration provision in the arbitration agreement unconscionable. (Maj. opn., ante, at p. 1069.) I also agree that this “provision should be severed and the rest of the arbitration agreement enforced.” (Ibid.) I, however, disagree with the majority’s application of the requirements set forth in Armendariz v. Foundation Health Psychcare Services, Inc. (2000)
“In Armendariz, we held that arbitration of claims under the [California Fair Employment and Housing Act (FEHA) (Gov. Code, § 12900 et seq.)] is subject to certain minimal requirements . . . .” (Maj. opn., ante, at p. 1076.) We imposed these requirements despite the preemptive scope of the Federal Arbitration Act (FAA) (9 U.S.C. § 1 et seq.) based on “[t]he United States Supreme Court’s dictum that a party, in agreeing to arbitrate a statutory claim, ‘does not forgo the substantive rights afforded by the statute [but] only submits to their resolution in an arbitral . . . forum.’ ” (Armendariz, supra,
Our heavy reliance on Cole v. Burns Intern. Security Services (D.C. Cir. 1997)
The District of Columbia Circuit Court of Appeals made this expressly clear in Brown. In Brown, the court refused to impose the Cole/Armendariz requirements on the arbitration of a common law claim virtually identical to the Tameny claim at issue here. (Brown, supra,
Notwithstanding the majority’s arguments to the contrary, I believe Brown should guide our decision here. As explained above, we carefully limited the application of Armendariz to statutory rights. (See ante, at p. 1090.) And our rationale for imposing the Cole/Armendariz requirements on the arbitration of FEHA claims—respecting legislative intent—does not extend beyond the statutory context. (See, ante, at p. 1090.)
Indeed, we are precluded from doing so by both Congress and our own Legislature. Congress enacted the FAA “ ‘to assure those who desired arbitration and whose contracts related to interstate commerce that their expectations would not be undermined ... by state courts . . . .’” (Southland Corp. v. Keating (1984)
Of course, Congress is free to circumscribe the scope of its enactments. (Shearson/American Express Inc. v. McMahon (1987)
Similarly, California’s arbitration scheme precludes California courts from restricting arbitrations in the absence of an express legislative intent to do so. “Title 9 of the Code of Civil Procedure . . . represents a comprehensive statutory scheme regulating private arbitration in this state.” (Moncharsh v. Heily & Blase (1992)
Nonetheless, the majority does just that. A Tameny claim is a common law cause of action created by this court—and not by the Legislature. (See Green v. Ralee Engineering Co. (1998)
The statutes the majority cites to establish the unwaivability of Tameny claims are inapposite. Civil Code section 3513, by its terms, applies only to laws enacted by the Legislature. Meanwhile, Civil Code section 1668 merely declares that contracts that “directly or indirectly . . . exempt anyone from responsibility for his own fraud, or willful injury to the person or property of another, or violation of law, whether willful or negligent, are against” public policy. An arbitration agreement does not, however, exempt anyone from responsibility for his or her wrongdoing. Rather, the agreement merely changes the forum in which the determination of responsibility is made. (See Gilmer, supra,
In any event, the majority’s focus on the unwaivability of Tameny claims is misplaced. To evade FAA preemption, the majority purports to apply a generally applicable contract defense by “refusing to enforce a contractual term . . . that . . . would force a party to forgo unwaivable public rights . . . .” (Maj. opn., ante, at p. 1079.) Thus, the majority sees “no reason under Armendariz’’ s logic to distinguish between
Thus, the unwaivability of Tameny claims is a red herring. The crucial question is whether there is any evidence of a congressional (see Gilmer, supra,
In this respect, this case is no different from Mastrobuono. In Mastrobuono, the United States Supreme Court held that the FAA preempted a judicially created rule prohibiting arbitrators from awarding punitive damages even though a state court created the rule for public policy reasons. (Mastrobuono, supra, 514 U.S. at pp. 55, 58 [115 S.Ct. at pp. 1215, 1216-1217].) The same reasoning precludes our application of the judicially created Cole/Armendariz requirements to the arbitration of Tameny claims. By creating a rule applicable only to arbitration provisions, the majority necessarily violates the FAA. (See Doctor’s Associates, Inc. v. Casarotto (1996)
Our extension of Armendariz to Tameny claims therefore usurps Congress’s authority to establish “the supreme law of the land” (U.S. Const., art. VI, cl. 2) and the Legislature’s “responsibility to declare the public policy of the state” (Green, supra,
Baxter, J., and Chin, J., concurred.
For the reasons stated in Justice Baxter’s concurring and dissenting opinion, ante, I also disagree with the majority’s refusal to modify Armendariz’s cost requirements in light of Green Tree Financial Corp.-Ala. v. Randolph (2000)
We have extended this rationale of Gilmer to state legislative enactments and restricted the arbitration of certain statutory causes of action serving a transcendent public purpose as determined by a state legislature. (See Broughton v. Cigna Healthplans (1999)