NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
In a prior opinion, we addressed Ralphs Grocery Co.'s appeals from orders denying its petitions to compel arbitration of two class action lawsuits filed by its employees, alleging Labor Code and Unfair Competition Law violations. Ralphs had unsuccessfully sought arbitration of these disputes in accordance with provisions in various agreements that subject such claims to individual binding arbitration and prohibit proceedings on a class or representative basis, and we affirmed the trial court's orders denying Ralphs' petitions. (Massie v. Ralphs Grocery Co., McLeod v. Ralphs Grocery, B187844, B187854, May 14, 2007 [nonpub. opn.].) Thereafter, our Supreme Court granted Ralphs' petitions for review and remanded the matters with directions to vacate our prior decision and to reconsider the cause in light of Gentry v. Superior Court (2007) 42 Cal.4th 443. (S153059.) We in turn remanded the matter to the trial court for the required factual showing.
After permitting the parties to conduct discovery on the Gentry factors and considering supplemental briefing and argument on these issues, the trial court again denied Ralphs' motion to enforce its class action waiver and compel individual arbitration, finding "Just as in Gentry, the class arbitration waivers found in this case jeopardize the rights of its employees by prohibiting the most practical and most likely, only, effective means of challenging defendants' overtime practices."
Ralphs appeals. Because we conclude the agreement Ralphs seeks to enforce is procedurally and substantively unconscionable and unenforceable as a result, we affirm.
FACTUAL AND PROCEDURAL SUMMARY
In our prior opinion, we summarized the proceedings to date as follows:
In November, the trial court ordered these two cases as well as Swanson v. Ralphs Grocery Co., (Super. Ct. Los Angeles County, 2002, No. BC284875), and Prachasaisoradej v. Ralphs Grocery Co. (Super. Ct. Los Angeles County, 2001, No. BC254143) related, with the Prachasaisoradej case designated the lead case.
"In April 2005, the McLeod plaintiffs filed a first amended complaint adding plaintiff Bruce Pack. In August, they filed a second amended complaint adding plaintiff Peter Wang as well as a third cause of action for unlawful nonpayment of overtime in violation of the Labor Code and unfair business practices under the Unfair Competition Law.
"In September 2005, Ralphs filed motions to compel arbitration and stay proceedings in both the Massie and McLeod actions.
"There are three arbitration policies at issue: the 2001, 2003 and 2004 policies.
"Paragraph 8 of the policy contains the following class action waiver provision: `[U]nless controlling legal authority requires otherwise, there will be no right or authority for any dispute to be heard or arbitrated on a class action basis, as a private attorney general, or on bases involving disputes brought in a representative capacity on behalf of the general public, of other Ralphs employees (or any of them), or of other persons similarly situated. The individual claim of any Employee bound by this Policy is subject to this Policy. Any action brought against Ralphs (or any of them) by any other person (whether an Employee bound by this Policy or not) in a representative capacity on behalf of or for the benefit of any Employee bound by this Policy will be designated as a "Representative Action." To the fullest extent permitted by law, any individual claim by an Employee for a remedy pursuant to or under the authority of a Representative Action is subject to this Policy. Thus, even though some of the Federal Rules of Civil Procedure apply as set forth above,
"According to Ralphs, McLeod, Mock, Pack and Rosales agreed to the terms of the 2001 arbitration policy by signing an acknowledgement. (As to Miner and Wang, Ralphs presented declarations indicating that copies of the policy were delivered to Miner and `Chang P Wang' in September 2001, and they continued to work for Ralphs thereafter.)
"The 2003 arbitration provision was incorporated by reference into a six-page, single-spaced document entitled `2003 Semi-Annual Bonus Plan.' Headings within the document included `Concepts Used in Determining the Bonus You May Be Eligible to Earn Under the Bonus Plan,' `How to Calculate the Bonus You May Be Eligible To Earn Under the Bonus Plan,' `Eligibility to Earn a Bonus Under the Bonus Plan,' and `Other Terms and Conditions.' At paragraph 3 under this last heading, the bonus plan provides: `All participants in this Bonus Plan are covered and bound by the most recent version of the Ralphs Grocery Company Dispute Resolution Program ("DRP") Mediation & Binding Arbitration Policy (the "Policy")—as implemented, modified, amended, restated, or revoked—for all "Covered Disputes" as defined in the Policy, regardless of whether they relate to or arise out of this Bonus Plan or any predecessor or successor plan(s). Any Bonus Plan participant who is not familiar with or does not have a copy of the most recent version of the Policy can obtain a copy from their Store Director, the Company's Personnel Department, or the Company's Human Resources Department.'
"Paragraphs 6 and 7 at page 5 (regarding `Eligibility to Earn a Bonus under the Bonus Plan') of the 2003 Bonus Plan stated: `
"The `Other Terms and Conditions' section of the 2003 Bonus Plan also contained the following provisions: `[¶] This Bonus Plan, and all predecessor and successor plans, have been or will be voluntarily drafted or implemented by the Company with the intention that they comply with all applicable laws and regulations. The Company did not and does not intend to draft or implement, or incur the expense of defending, any such plans which anyone challenges or are held as not being in any way legal, valid, or enforceable as drafted or implemented. If this Bonus Plan, or any predecessor or successor plan(s), as drafted or implemented, is challenged as unlawful, invalid, unconscionable, or otherwise unenforceable in whole or in part, or held to be such by any court or arbitrator of competent jurisdiction, by or through any type of individual or representative action or proceeding brought or participated in by any Bonus Plan participant on his or her own behalf or on behalf of any current or former employee(s) of the Company, then such plans will be deemed to be terminated from their inception as to any such Bonus Plan participants and they must return to the Company any payments received thereunder.
"`[¶] The Company reserves the exclusive right to amend, modify, or terminate this Bonus Plan at any time and for any reason in its sole and absolute discretion.
"`[¶] Any Store Member covered by this Bonus Plan who does not agree to all of the terms and conditions contained herein must affirmatively opt-out of participating in this Bonus Plan by giving notice to the Company of their opting-out of participating in this Bonus Plan. Such notice must be given to the Company in writing no later than
"Although it apparently was not provided with the 2003 Bonus Plan, the `most recent' (2003) version of the arbitration policy defined `Covered Disputes' to include the same types of disputes subject to the 2001 policy (among others) and also contained a class action waiver provision similar to the one set forth within the 2001 arbitration policy.
"According to Ralphs, Massie, Prachasaisoradej, Lee, Mendez, Rosales, McLeod and Wang agreed to the 2003 arbitration policy because they all accepted payments under the 2003 bonus plan and failed to opt out of this plan.
"The 2004 Bonus Plan was substantially similar to the 2003 plan before this court in the Swanson case except that the 2004 plan states that the calculations `are adjusted based on the principles in Ralphs v. Superior Court, 112 Cal.App.4th 1090 (2003).' Further, instead of incorporating the `most recent version' of the arbitration policy by reference, the 2004 Bonus Plan attached the 2004 arbitration policy to the plan (making the plan eleven pages). The 2004 arbitration policy contained a substantially similar definition of `covered disputes' and a substantially identical class action waiver provision as those found in the 2001 and 2003 policies, but also added a number of new provisions. For example, the following language was added: `The submission of an application for employment, acceptance of employment or continuation of employment with the Company by an Employee is deemed the Employee's acceptance of this Arbitration Policy. No signature by an Employee or the Company is required for this Arbitration Policy to apply to Covered Disputes.'
"In addition, a new paragraph was added to the 2004 Bonus Plan, stating as follows: `[¶]
"According to Ralphs, Prachasaisoradej, Mendez, Rosales and Wang agreed to the 2004 arbitration policy by accepting payments under the 2004 bonus plan and by failing to opt out of this plan.
"The Massie and McLeod plaintiffs filed opposition to Ralphs' motions to compel arbitration, claiming the arbitration agreements were unconscionable and therefore unenforceable on multiple grounds, including the impermissible inclusion of the class action waivers.
"The trial court heard oral argument, took the matter under submission and issued a six-page ruling denying the motions to compel arbitration, finding the class action waivers unconscionable and therefore unenforceable under Discover Bank v. Superior Court (2005) 36 Cal.4th 148, 162-163 (Discover Bank) and Independent Assn. of Mailbox Center Owners, Inc. v. Superior Court (2005) 133 Cal.App.4th 396, 410-411 (Mailbox Center). Because Ralphs indicated it was unwilling to pursue arbitration in the absence of the class action waivers, the trial court denied Ralphs' motions without prejudice." (McLeod v. Ralphs Grocery Co. (May 14, 2007, B187844/B187854) [nonpub. opn.] at pp. 2-8, all emphasis in original.) We affirmed the trial court's orders. (Id. at p.17.)
A few months later, however, our Supreme Court granted review, holding the cases pending resolution of Gentry v. Superior Court. (McLeod v. Ralphs Grocery Company, supra, review granted Aug. 8, 2007, S153059.) Then, on November 28, 2007, our Supreme Court reversed and remanded the matter with directions to reconsider in light of the decision in Gentry v. Superior Court (2007) 42 Cal.4th 443.
The Gentry court stated: "We cannot say categorically that all class arbitration waivers in overtime cases are unenforceable. . . . Nonetheless, when 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[se] factors . . .: the modest size of the potential individual recovery, the potential for retaliation against members of the class, the fact that absent members of the class may be ill informed about their rights, and other real world obstacles to the vindication of class members' rights to overtime pay through individual arbitration." (Gentry, supra, 42 Cal.4th at pp. 462-463.) Because Gentry's application to the factual record in this case should be performed by the trial court in the first instance, we remanded the matter to the trial court to reconsider this case in light of Gentry. (See id. at p. 472 ["we remand the matter to the Court of Appeal with directions to remand to the trial court to determine whether the class arbitration waiver is void"].)
On remand, the trial court permitted the parties to conduct discovery on the Gentry factors, received further briefing and heard argument on the issues. In its March 8, 2010 Statement of Decision, this time pursuant to Gentry, supra, 42 Cal.4th 443, the trial court again found the class relief waiver provision in the arbitration agreements unenforceable.
"D. Real World Obstacles to Individual Vindication of Rights through Individual Arbitration
"E. Federal Preemption Does Not Preclude Invalidating Ralphs' Class Arbitration Waiver
"`Whether an arbitration provision is unconscionable is ultimately a question of law.'" (Suh v. Superior Court (2010) 181 Cal.App.4th 1504, 1511, citing Parada v. Superior Court (2009) 176 Cal.App.4th 1554, 1567.) "`We are not bound by the trial court's stated reasons, if any, supporting its ruling; we review the ruling, not its rationale.'" (Walgreen Co. v. City and County of San Francisco (2010) 185 Cal.App.4th 424, 433, citation omitted.) Generally speaking, "an appealed judgment or order correct on any theory will be affirmed, even though the trial court's reasoning may have been erroneous." (Eisenberg et al., Cal. Practice Guide: Civil Appeals and Writs (The Rutter Group 2011) [¶] 8:214, p. 8-147, original italics, citing Davey v. Southern Pacific Co. (1897) 116 Cal. 325, 329.) "No rule of decision is better or more firmly established by authority, nor one resting upon a sounder basis of reason and propriety, than that a ruling or decision, itself correct in law, will not be disturbed on appeal merely because given for a wrong reason. If right upon any theory of the law applicable to the case, it must be sustained regardless of the considerations which may have moved the trial court to its conclusion." (Davey v. Southern Pacific Co., supra, 116 Cal. at p. 329.)
"`To justify a reversal, it is incumbent upon the appellant to show an erroneous ruling, and not merely bad reasoning or mistaken views of the law.'" [Citations.] In other words, it is judicial action, and not judicial reasoning or argument, which is the subject of review; and, if the former be correct, we are not concerned with the faults of the latter." (Davey v. Southern Pacific Co., supra, 116 Cal. at pp. 329-330.)
Just five days after Ralphs filed its opening brief, the United States Supreme Court decided AT&T Mobility LLC v. Concepcion (2011) 563 U.S. ___ [131 S.Ct. 1740] (Concepcion). By a five-to-four majority, the Concepcion court held that the California Supreme Court's rule in Discover Bank v. Superior Court (2005) 36 Cal.4th 148 [30 Cal.Rptr.3d 76, 113 P.3d 1100] (Discover Bank)—that class action waivers in consumer arbitration agreements may be unenforceable or unconscionable—is preempted by the FAA. "[W]hen a doctrine normally thought to be generally applicable, such as duress or, as relevant here, unconscionability, is alleged to have been applied in a fashion that disfavors arbitration," a court must determine whether the state law rule "stand[s] as an obstacle to the accomplishment of the FAA's objectives"—primarily to "ensure that private arbitration agreements are enforced according to their terms." (Concepcion, supra, 131 S.Ct. at p. 1748.) "Requiring the availability of classwide arbitration interferes with fundamental attributes of arbitration and thus creates a scheme inconsistent with the FAA." (Ibid.)
According to Ralphs, Concepcion now conclusively establishes that Gentry v. Superior Court, supra, 42 Cal.4th 443 is preempted by the Federal Arbitration Act.
In this appeal, however, we need not decide whether Gentry, supra, 42 Cal.4th 443 survives Concepcion, supra, 563 U.S. ___ [131 S.Ct. 1740] or whether the class action waiver, standing alone, is unenforceable; from the outset, the plaintiffs in this case have argued the arbitration agreements at issue are both procedurally and substantively unconscionable for multiple deficiencies beyond the class action waiver.
"Concepcion did not overthrow the common law contract defense of unconscionability whenever an arbitration clause is involved. Rather, the Court reaffirmed that the savings clause preserves generally applicable contract defenses such as unconscionability, so long as those doctrines are not `applied in a fashion that disfavors arbitration.'" (Kilgore v. KeyBank, N.A. (2012) 2012 U.S. App. LEXIS 4736, citing Concepcion, supra, 131 S. Ct. at 1747.) "[A] court may not `rely on the uniqueness of an agreement to arbitrate as a basis for a state-law holding that enforcement would be unconscionable, for this would enable the court to effect what . . . the state legislature cannot.'" (Concepcion, supra, 131 S.Ct. at p. 1747.)
"[C]ourts must place arbitration agreements on an equal footing with other contracts, Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440, 443, 126 S.Ct. 1204, 163 L. Ed. 2d 1038 (2006), and enforce them according to their terms, Volt Information Sciences, Inc. v. Board of Trustees of Leland Stanford Junior Univ., 489 U.S. 468, 478, 109 S.Ct. 1248, 103 L. Ed. 2d 488 (1989)." (Concepcion, supra, 131 S.Ct. at pp. 1745-1746.) "The final phrase of [title 9, United States Code, section] 2 . . . permits arbitration agreements to be declared unenforceable `upon such grounds as exist at law or in equity for the revocation of any contract." (Id. at p. 1746.) "Under California law, courts may refuse to enforce any contract found `to have been unconscionable at the time it was made,' or may `limit the application of any unconscionable clause.' Cal. Civ. Code Ann. § 1670.5(a) (West 1985). A finding of unconscionability requires `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.'" (Ibid.) "Unconscionability has generally been recognized to include (1) an absence of meaningful choice on the part of one of the parties and (2) contract terms which are unreasonably favorable to the other party." (Chavarria v. Ralphs Grocery Company (2011) 2011 U.S. Dist. LEXIS 104694, p. 11, citing Stirlen v. Supercuts, Inc. (1997) 51 Cal.App.4th 1519, 1526-1527.)
Leaving to one side the evidence the plaintiffs presented that they were pressured to sign the arbitration agreements and were required to accept the arbitration terms in order to receive bonuses for which they had already worked, the agreements themselves establish the agreements were presented on a "take it or leave it" basis. The 2001 Policy states that the arbitration agreement is "a term of all Employees' employment." According to the 2003 Policy, it is a "term of all Employees' employment (or application for employment)." The 2004 Policy specifies that it "applies to all Employees' employment," that "continuation of employment with the Company by an Employee is deemed the Employee's acceptance of this Arbitration Policy" and that it applies to employees whose employment has terminated. To the extent Ralphs claims some employees had the opportunity to "opt out" of the arbitration policy (within a 14-day window without any specification of to whom such a request was to be directed and forfeiting any bonus), such an option was illusory since continued employment purportedly constituted acceptance of arbitration—no signature is even required. Even an employee who attempted to opt out of the arbitration policy and even lost a bonus as a result would find the arbitration policy still applied—an added element of surprise. (See also Chavarria v. Ralphs Grocery Company, supra, 2011 U.S. Dist. LEXIS 104694.)
For the reasons identified in Chavarria v. Ralphs Grocery Company, supra, 2011 U.S. Dist. LEXIS 104694 (as well as Vu v. Superior Court, supra, B213988), we find Ralphs arbitration policy to be substantively unconscionable as well. Substantive unconscionability "turns not only on a `one-sided result,' but also on an absence of `justification' for it." (Ellis v. McKinnon Broadcasting Co. (1993) 18 Cal.App.4th 1796, 1806, citations omitted.) Here, in addition to Ralphs' preclusion of all representative, class and private attorney general actions (see Brown v. Ralphs Grocery Company (2011) 197 Cal.App.4th 489) (and notwithstanding the trial court's factual findings under Gentry), in the same agreement it touts as fair and for the benefit of everyone involved, the Ralphs arbitration policy mandates confidentiality as to the "existence, content and outcome" of any proceeding (see Davis v. O'Melveny & Meyers (2007) 485 F.3d 1066, 1079, overruled on another ground in Kilgore v. KeyBank, supra, 2012 U.S. App. LEXIS 4736 [similar confidentiality provision "too broad," "contrary to public policy," and therefore substantively unconscionable under California law]); prohibits arbitration before providers maintaining their own procedural safeguards in conflict with the limitations Ralphs seeks to impose (see Martinez v. Master Protection Corp. (2004) 118 Cal.App.4th 107 [American Arbitration Association refused to conduct employment arbitration pursuant to agreement containing similar deficiencies]); attempts to shorten the limitations period (and thus limit available damages) and impose arbitration costs and fees on employees (see id. at p. 116); and provides Ralphs may modify the agreement so long as it does so in writing or otherwise allows itself to do pursuant to its own policy (see Ingle v. Circuit City Stores, Inc. (9th Cir. 2003) 328 F.3d 1165, 1173, 1179; Circuit City Stores, Inc. v. Mantor (9th Cir. 2003) 335 F.3d 1101, 1107), among other one-sided provisions. (See also Chavarria v. Ralphs Grocery Company, supra, 2011 U.S. Dist. LEXIS 104694 at p. 16 [the method Ralphs devised for the selection of an arbitrator amounts to a "sham"; if the parties do not mutually agree on an arbitrator, the end result is that the "last arbitrator standing" will always be one of three arbitrators proposed by Ralphs].)
In light of the numerous deficiencies in Ralphs' arbitration policy, severance of an offending provision is no cure in this case; we find the policy is permeated with unconscionability and unenforceable as a result. (Civ. Code, § 1670.5, subd. (a).)
As the court in Chavarria v. Ralphs Grocery Company, supra, 2011 U.S. Dist. LEXIS 104694 stated, "Ralphs' arbitration policy lacks any semblance of fairness and eviscerates the right to seek civil redress, rendering it a right that exists in name only. To condone such a policy would be a disservice to the legitimate practice of arbitration and a stain on the credibility of our system of justice." As we said in finding Ralphs' arbitration policy unenforceable in Vu v. Superior Court, "This is not a close case."
The orders are affirmed. The plaintiffs are entitled to their costs of appeal.
"Another new provision specified: `Except and only to the extent it may be required by applicable law, the parties and the Qualified Arbitrator shall maintain the existence, content and outcome of any arbitration proceedings held pursuant to this Arbitration Policy in the strictest confidence and shall not disclose the same without the prior written consent of all the parties.'
"Other provisions purported to shorten the applicable statutes of limitation and shift arbitration costs to the extent Ralphs could contractually do so."