BROSTERHOUS v. STATE BAR OF CALIFORNIA

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Court of Appeal, Third District, California.

Raymond L. BROSTERHOUS et al., Plaintiffs and Appellants, v. STATE BAR OF CALIFORNIA et al., Defendants and Respondents.

No. C015318.

Decided: October 27, 1994

Ronald A. Zumbrun, Anthony T. Caso and Deborah J. Martin, Pacific Legal Foundation, Sacramento, for plaintiffs and appellants. Diane C. Yu, Lawrence C. Yee, Starr Babcock, Richard J. Zanassi, Dina E. Goldman, San Francisco, and Robert M. Sweet, Marina Del Rey, for defendants and respondents.

In this matter we conclude that arbitration procedures adopted by the State Bar of California (State Bar) in response to Keller v. State Bar of California (1990) 496 U.S. 1, 110 S.Ct. 2228, 110 L.Ed.2d 1 (Keller ) do not preclude adjudication of First Amendment claims under 42 U.S.C. section 1983 (section 1983) in a judicial forum.

For the 1991 dues year, the State Bar calculated the amount of each member's dues attributable to activities the State Bar deemed were nonchargeable under Keller (the Keller amount).   Members who objected to use of their dues for nonchargeable activities were permitted to subtract this amount from their dues payment.   Plaintiffs, objecting members of the State Bar, challenged the State Bar's determination of the Keller amount.   The dispute was submitted to arbitration pursuant to procedures adopted by the State Bar.

Dissatisfied with the arbitrator's findings, plaintiffs commenced this action in the superior court against the State Bar and the members of its Board of Governors (Board) claiming a violation of plaintiffs' First Amendment rights.  The superior court concluded plaintiffs' exclusive remedy is under the arbitration procedure adopted by the State Bar, sustained defendants' general demurrer without leave to amend, and entered judgment of dismissal.  Plaintiffs appeal.   We shall reverse.

I

To establish the context of this litigation, we review briefly the background and history of Keller.   In Abood v. Detroit Board of Education (1977) 431 U.S. 209, 97 S.Ct. 1782, 52 L.Ed.2d 261 (Abood ), the United States Supreme Court held a labor union may not finance the expression of political views or other activities not germane to its collective bargaining function with the mandatory dues of objecting members or nonmembers.  (Id. at pp. 235–236, 97 S.Ct. at pp. 1799–1800, 52 L.Ed.2d at p. 284.)  “[T]he freedom of an individual to associate for the purpose of advancing beliefs and ideas is protected by the First and Fourteenth Amendments․  [¶] The fact that the appellants are compelled to make, rather than prohibited from making, contributions for political purposes works no less an infringement of their constitutional rights.”  (Id. at pp. 233–234, 97 S.Ct. at pp. 1798–1799, 52 L.Ed.2d at pp. 283–284, fn. and citations omitted.)

In Ellis v. Railway Clerks (1984) 466 U.S. 435, 104 S.Ct. 1883, 80 L.Ed.2d 428, the court elaborated on the expenditures which properly may be charged to objectors:  “[T]he test must be whether the challenged expenditures are necessarily or reasonably incurred for the purpose of performing the duties of an exclusive representative of the employees in dealing with the employer on labor-management issues.   Under this standard, objecting employees may be compelled to pay their fair share of not only the direct costs of negotiating and administering a collective-bargaining contract and of settling grievances and disputes, but also the expenses of activities or undertakings normally or reasonably employed to implement or effectuate the duties of the union as exclusive representative of the employees in the bargaining unit.”  (Id. at p. 448, 104 S.Ct. at p. 1892, 80 L.Ed.2d at p. 442.)

In Chicago Teachers Union v. Hudson (1986) 475 U.S. 292, 106 S.Ct. 1066, 89 L.Ed.2d 232 (Hudson ), the court considered procedures necessary to protect the interests of objectors.   The court held objectors must be provided with “an adequate explanation of the basis for the fee, a reasonably prompt opportunity to challenge the amount of the fee before an impartial decisionmaker, and an escrow for the amounts reasonably in dispute while such challenges are pending.”  (Id. at p. 310, 106 S.Ct. at p. 1077, 89 L.Ed.2d at p. 249.)

In Keller, the court applied the principle laid down in Abood to the State Bar, a mandatory or integrated bar association.   Viewing the State Bar as akin to a labor union whose members are employed in a closed or agency shop, the Keller court indicated dues of objecting members may be used only for activities germane to “regulating the legal profession [or] improving the quality of legal services.”  (496 U.S. at p. 13, 110 S.Ct. at p. 2235, 110 L.Ed.2d at p. 14.)   The court also held adequate procedures must be adopted by the State Bar, such as those outlined in Hudson, for protecting the interests of dissenting members.  (496 U.S. at p. 16, 110 S.Ct. at p. 2237, 110 L.Ed.2d at pp. 15–16.)

II

 Because this appeal is from a judgment of dismissal following the sustaining of a general demurrer, we consider as true all material, well-pleaded allegations in the complaint plus all matters properly subject to judicial notice.  (Blank v. Kirwan (1985) 39 Cal.3d 311, 318, 216 Cal.Rptr. 718, 703 P.2d 58;  Serrano v. Priest (1971) 5 Cal.3d 584, 591, 96 Cal.Rptr. 601, 487 P.2d 1241.)  “[W]e give the complaint a reasonable interpretation, reading it as a whole and its parts in their context.”  (Blank v. Kirwan, supra, 39 Cal.3d at p. 318, 216 Cal.Rptr. 718, 703 P.2d 58.)

The State Bar is a public corporation authorized to regulate the legal profession in the State of California as an adjunct of the state Supreme Court.  (Cal. Const., art. VI, § 9;  Bus. & Prof.Code, § 6000 et seq.)  The State Bar has been described as “an organization of members of the legal profession of the state with a large measure of self-government, performing such functions as examining applicants for admission, formulating rules of professional conduct, disciplining members for misconduct, preventing unlawful practice of the law, and engaging in study and recommendation of changes in procedural law and improvement of the administration of justice.  [Citations.]”  (1 Witkin, Cal. Procedure (3d ed. 1985) Attorneys, § 259, p. 295;  Saleeby v. State Bar (1985) 39 Cal.3d 547, 557, 216 Cal.Rptr. 367, 702 P.2d 525.)

All persons admitted and licensed to practice law in the state, except judges of a court of record, must be members of the State Bar.  (Cal. Const., art. VI, § 9.)   The powers and duties of the State Bar are carried out by the Board, which formulates rules and fixes annual membership dues as provided by statute.  (Bus. & Prof.Code, §§ 6008.4, 6010, 6025, 6140 et seq.)

In response to Keller, the State Bar added to its rules and regulations Article IA setting forth procedures for challenging determination of the Keller amount.1  Challengers may submit written objections (Art. IA, § 3, subd. (A)), after which the State Bar places the disputed amount in escrow (Art. IA, § 3, subd. (B)).  The State Bar may thereafter choose either to refund the disputed amount or submit the matter to arbitration.  (Art. IA, § 3, subd. (C).)  “After any decision to arbitrate, the challenger(s) and the State Bar may select and mutually agree to an impartial arbitrator․  If no agreement can be reached on an arbitrator within 30 days following the decision to arbitrate, the American Arbitration Association shall appoint an arbitrator.”  (Art. IA, § 3, subd. (D).)  “The arbitration decision shall be binding as to challenger(s) and the State Bar, subject to such appropriate review as determined by the Supreme Court.”  (Art. IA, § 3, subd. (E).)

For the 1991 dues year, the Board computed the Keller amount to be $3 and permitted objectors to deduct this sum from their total annual dues of $478.   Included with the dues notice to members was a list of major categories of chargeable and nonchargeable activities and a description of the Article IA procedures for challenging the Keller amount.2

Plaintiffs paid their 1991 State Bar dues, less the Keller amount, “under protest.”   All objectors then participated in a single, consolidated hearing before a “hearing officer” who rendered a decision requiring the State Bar to refund an additional $4.36 plus interest.3

 Instead of seeking direct review of the arbitration award, plaintiffs commenced this action in superior court against the State Bar and members of the Board.   In their complaint, plaintiffs allege specific items of expense for which no reduction in dues was allowed either in the Keller amount or in the arbitration award are not chargeable to objecting members.4  According to the complaint, “Compelling plaintiffs to support such activities with their compelled membership and mandatory dues violates their rights to freedom of speech and association guaranteed by the First Amendment to the Federal Constitution, 42 U.S.C. § 1983, and Article I, §§ 2–3, of the California Constitution.” 5  The complaint seeks return of that portion of plaintiffs' 1991 dues attributable to nonchargeable activities and an injunction against exaction of any further charges for such activities.

Defendants demurred generally, claiming, inter alia, the action is barred by the binding effect of the arbitrator's decision, and the provisions of Article IA afford plaintiffs an adequate remedy at law.   The superior court sustained the demurrer, concluding the procedures adopted by the State Bar satisfy Keller and plaintiffs' only recourse is to challenge the arbitrator's decision.

III

In Keller, the court suggested compliance with the Hudson procedures would satisfy a bar association's obligations to dissenting members.  Hudson identified three basic requirements:  (1) an adequate explanation of the basis for the fee, (2) a reasonably prompt opportunity to challenge the fee before an impartial decisionmaker, and (3) an escrow for the amounts reasonably in dispute while a challenge thereto is pending.  (475 U.S. at p. 310, 106 S.Ct. at p. 1077, 89 L.Ed.2d at p. 249.)

Plaintiffs do not contend Article IA fails to satisfy these requirements.  They do dispute, however, that the Board had the power to adopt a binding arbitration scheme for adjudication of Keller claims.   According to plaintiffs, the State Bar has only that authority granted by statute, which authority does not include the adoption of procedures for the adjudication of First Amendment rights which foreclose judicial review.

Defendants respond the power to adopt Article IA is inherent in Business and Professions Code section 6025.6  They further contend Article IA does not contemplate “binding” arbitration, despite the fact they have so denominated the adjudication procedure, because the procedure permits “such appropriate review as determined by the Supreme Court.”   Finally, defendants contend the power to adopt Article IA was implicitly granted by the Legislature when it reauthorized funding for the State Bar after adoption of those procedures.7

We need not resolve this issue.   Plaintiffs seek neither review of the arbitration decision nor to set it aside as the product of an unlawful scheme.  Instead, they contend the arbitration decision does not preclude entertainment of their section 1983 action by a court of law.   The question we must decide therefore is whether Article IA, assuming it was lawfully adopted, establishes the exclusive remedy for adjudication of a Keller challenge to State Bar expenditures.8

IV

In a series of cases beginning with Alexander v. Gardner–Denver Co. (1974) 415 U.S. 36, 94 S.Ct. 1011, 39 L.Ed.2d 147 (Gardner–Denver ), the United States Supreme Court held arbitration pursuant to a collective bargaining agreement will not preclude a separate action alleging violation of statutory rights.

In Gardner–Denver, the plaintiff brought a Title VII claim based on race discrimination.   Although the same alleged misconduct had been the subject of a prior grievance arbitration which resulted in a finding for the employer, the court found the arbitration award would not be accorded res judicata or collateral estoppel effect.   The court was persuaded by the following considerations:  (1) different rights are vindicated in an arbitration proceeding than one alleging a statutory violation, (2) the arbitrator has authority only to adjudicate contractual claims, (3) the interests of the employee may be different from those of the union which prosecutes the grievance, and (4) arbitral fact-finding is not generally equivalent to judicial fact-finding.  (415 U.S. at pp. 49–50, 53–54, 57–58, 94 S.Ct. at pp. 1020, 1022, 1024, 39 L.Ed.2d at p. 159, 161, 163–164.)   As to the latter, the court explained:  “[I]t is the informality of arbitral procedure that enables it to function as an efficient, inexpensive, and expeditious means for dispute resolution.   This same characteristic, however, makes arbitration a less appropriate forum for final resolution of Title VII issues than the federal courts.”  (415 U.S. at p. 58, 94 S.Ct. at p. 1024, 39 L.Ed.2d at pp. 163–164, fn. omitted.)

In Barrentine v. Arkansas–Best Freight System (1981) 450 U.S. 728, 101 S.Ct. 1437, 67 L.Ed.2d 641 (Barrentine ), the court used this same reasoning to conclude a prior grievance arbitration will not preclude an independent action for violation of the Fair Labor Standards Act (29 U.S.C. § 201 et seq.).   The court also stressed the individual rather than collective nature of the rights involved in an FLSA claim:  “[T]he FLSA rights petitioners seek to assert in this action are independent of the collective-bargaining process.  They devolve on petitioners as individual workers, not as members of a collective organization.   They are not waivable.   Because Congress intended to give individual employees the right to bring their minimum-wage claims under the FLSA in court, and because these congressionally granted FLSA rights are best protected in a judicial rather than in an arbitral forum, we hold that petitioners' claim is not barred by the prior submission of their grievances to the contractual dispute-resolution procedures.”  (450 U.S. at p. 745, 101 S.Ct. at p. 1447, 67 L.Ed.2d at pp. 656–657.)

In McDonald v. West Branch (1984) 466 U.S. 284, 104 S.Ct. 1799, 80 L.Ed.2d 302 (McDonald ), the court held an unappealed arbitration decision will not preclude a subsequent section 1983 action claiming violation of First Amendment rights.   As in Barrentine, the court concluded Congress intended section 1983 to be judicially enforced and arbitration cannot provide an adequate substitute.  (466 U.S. at p. 289, 104 S.Ct. at p. 1802, 80 L.Ed.2d at p. 308.)   The court explained:  “[A]lthough arbitration is well suited to resolving contractual disputes, our decisions in Barrentine and Gardner–Denver compel the conclusion that it cannot provide an adequate substitute for a judicial proceeding in protecting the federal statutory and constitutional rights that § 1983 is designed to safeguard.   As a result, according preclusive effect to an arbitration award in a subsequent § 1983 action would undermine that statute's efficacy in protecting federal rights.”  (466 U.S. at p. 290, 104 S.Ct. at p. 1803, 80 L.Ed.2d at p. 308.)

This matter is controlled by Gardner–Denver and its progeny.   As in McDonald, plaintiffs' claim is based primarily on an alleged violation of section 1983.   Congress intended such claim to be judicially enforced.  (McDonald, 466 U.S. at p. 289, 104 S.Ct. at p. 1802, 80 L.Ed.2d at p. 308.)

Although the Gardner–Denver line of cases involved grievance arbitration pursuant to a collective bargaining agreement, the principle enunciated therein has much broader application.   In Hudson, the court outlined the procedures required for protection of objectors' First Amendment rights, including adjudication by an impartial decisionmaker.   In a footnote, the court noted “expeditious arbitration” might satisfy the adjudication requirement.  (475 U.S. at p. 308, fn. 21, 106 S.Ct. at p. 1077, fn. 21, 89 L.Ed.2d at p. 248, fn. 21.)   However, the court continued:  “The arbitrator's decision would not receive preclusive effect in any subsequent § 1983 action.”  (Ibid., citing McDonald.)

In Lowary v. Lexington Local Bd. of Educ. (6th Cir.1990) 903 F.2d 422, the court of appeals considered a section 1983 claim by dissenting teachers following several years of arbitration pursuant to procedures adopted by the union to adjudicate such claims.   In each of the years in dispute, the procedures adopted by the union failed to comply with Hudson.

Despite finding the procedures unconstitutional, the court of appeals affirmed the trial court's use of the arbitrator's findings on what expenses were chargeable to dissenting members.   The plaintiffs had not challenged those findings, only the use of the procedures.   The court explained:

“Plaintiff's object to the use of an impartial decisionmaker, appointed pursuant to the unconstitutional fee collection plan, to determine the nonchargeable portions of the improperly collected fees.   Implicit in plaintiffs' argument is that they would require the District Court to examine financial documents, and conduct a trial in order to make this determination.  While the District Court might have pursued this course, it was not required to do so.   Rather, the Supreme Court has suggested that courts should not involve themselves in the factual inquiries involved in making a chargeability determination.  [Citations.]”

“Clearly, any determination by an independent arbitrator ‘would not receive preclusion effect in a subsequent § 1983 action.’  Hudson, 475 U.S. at 308 n. 21, 106 S.Ct. at 1077 n. 21 (citing McDonald v. West Branch, 466 U.S. 284, 104 S.Ct. 1799, 80 L.Ed.2d 302 (1984)).   In this case, however, plaintiffs do not claim that the decisionmaker's determinations were improper.  Rather, plaintiffs only object to the use of the procedure.”  (Id., 903 F.2d at pp. 433–434, fn. omitted and italics added.)

 To summarize, even an arbitration scheme devised specifically to adjudicate First Amendment claims, as in Hudson and Lowary, will not preclude an independent section 1983 judicial action.   Although in the independent judicial action the findings of the arbitrator may be considered by the court (McDonald, 466 U.S. at p. 292, fn. 13, 104 S.Ct. at p. 1804, fn. 13, 80 L.Ed.2d at p. 310;  Lowary v. Lexington Local Bd. of Educ., supra, 903 F.2d at p. 433, fn. 3), this need not be so, particularly if the findings are challenged.   The court is free to make its own determination of the factual issues.

Defendants argue McDonald is no longer persuasive authority in light of the greater acceptance of arbitration in recent years as a mode of dispute resolution.   Defendants rely primarily on Gilmer v. Interstate/Johnson Lane Corp. (1991) 500 U.S. 20, 111 S.Ct. 1647, 114 L.Ed.2d 26 (hereafter Gilmer ).   In Gilmer, the court held a securities representative was required by the Federal Arbitration Act (FAA, 9 U.S.C., § 1 et seq.) to arbitrate his Age Discrimination in Employment Act (29 U.S.C., § 621, et seq.) claim.   The plaintiff's job required that he register as a securities broker with various stock exchanges.   His registration application with one such exchange contained a provision that all disputes between the broker and his employer be submitted to arbitration.

The court concluded the plaintiff is bound by his agreement to arbitrate “ ‘unless Congress itself has evinced an intention to preclude a waiver of judicial remedies for the statutory rights at issue.’ ”  (500 U.S. at p. 26, 111 S.Ct. at p. 1652, 114 L.Ed.2d at p. 37, quoting from Mitsubishi Motors Corp. v. Soler Chrysler–Plymouth, Inc. (1985) 473 U.S. 614, 628, 105 S.Ct. 3346, 3354, 87 L.Ed.2d 444, 456.)   The court found no such legislative intent in the Age Discrimination in Employment Act.  (Accord, Mago v. Shearson Lehman Hutton Inc. (9th Cir.1992) 956 F.2d 932 (Title VII claim is subject to arbitration clause in employment agreement because no showing Congress intended to preclude arbitration).)

As Gilmer was premised on a voluntary submission to arbitration, it is inapposite.   The FAA depends for its application on the existence of an agreement to arbitrate.  (See 9 U.S.C., § 2.)   The court in Gilmer specifically distinguished the Gardner–Denver line of cases on this basis.  (500 U.S. at pp. 34–35, 111 S.Ct. at p. 1656, 114 L.Ed.2d at pp. 42–43.)  Title 9 of Part III of the Code of Civil Procedure (§ 1280, et seq.) is the California counterpart to the FAA.   It also is premised on an agreement to arbitrate.  (Code Civ.Proc., § 1281;  see Moncharsh v. Heily & Blase (1992) 3 Cal.4th 1, 9, 10 Cal.Rptr.2d 183, 832 P.2d 899.)

 Here, the State Bar established the procedure for resolution of disputes over the Keller amount and the State Bar exercised its choice to submit plaintiffs' challenge to arbitration rather than refund the disputed amounts.   There was no voluntary agreement to arbitrate.   Absent such an agreement, McDonald and Hudson are the controlling authority, not Gilmer, and the procedures adopted by the State Bar in Article IA do not preclude this action.9  (Accord Adams v. Burlington Northern R. Co. (D.Kan.1994) 843 F.Supp. 686, 691 (ADEA claim not barred by arbitration where voluntary arbitration agreement did not cover such a dispute);  Commissioner of Labor v. Talbert Mfg. Co. (Ind.App.1992) 593 N.E.2d 1229 (claim under Indiana occupational safety act for retaliatory discharge not precluded by arbitration of termination decision);  Winston v. Maine Technical College System (Me.1993) 631 A.2d 70, cert. denied, 511 U.S. 1069, 114 S.Ct. 1643, 128 L.Ed.2d 364 (disability claim by employee discharged for sexual misconduct not precluded by arbitration of claim pursuant to collective bargaining agreement);  Miller v. County of Glacier (1993) 257 Mont. 422, 851 P.2d 401 (section 1983 claim for denial of due process not precluded by prior grievance arbitration).)

The procedures outlined in Hudson and applied to the State Bar in Keller were never intended to be a final adjudication of First Amendment rights of objecting members.   Rather, they provide interim relief designed to counterbalance the power of a labor union or integrated bar association to exact fees without first establishing that such fees will be used for legitimate organizational purposes.   Instead of permitting assessment of membership dues and forcing objectors to sue and obtain reimbursement, thereby allowing free interim use of the funds, the Hudson procedures require immediate deposit in an escrow account and an expedited means for objectors to obtain reimbursement of amounts improperly assessed.

In this way, the expedited adjudication process operates much like a preliminary injunction proceeding in which the court assesses which party is more likely to prevail on the merits and awards interim relief.  Instead of requiring contested funds to languish in an escrow account until completion of litigation, a situation unsatisfactory to both parties, expedited adjudication places those funds in the hands of the party most likely ultimately to prevail.   However, the ultimate decision of the amount to be refunded to objecting parties remains with the court.

The judgment is reversed and the matter remanded to the trial court with directions to vacate its order sustaining defendants' demurrer and to enter an order overruling it.   Plaintiffs are to recover their costs on appeal.

FOOTNOTES

1.   The superior court took judicial notice of Article IA.

2.   The list of chargeable and nonchargeable items was based on the last available audited figures from 1989.

3.   The trial court took judicial notice of the arbitration award.  Plaintiffs contend this was error because many of the facts recited in the award are in dispute.  (See Gilmore v. Superior Court (1991) 230 Cal.App.3d 416, 418, 281 Cal.Rptr. 343.)   Because we do not rely on the arbitration award in resolving this appeal, we do not consider this contention.

4.   For example, plaintiffs objected to the following items:“a. RESEARCH, which provides support to the legislative lobbying efforts of the [State] Bar;”“f. COMMUNICATIONS AND PUBLIC AFFAIRS, the department that writes articles about the [State] Bar's political activities and which engages in public relations activities for the [State] Bar;”“h. LEGAL SERVICES, which provides support to organizations that use the legal system to promote social change and which subsidizes the Legal Services Section, a volunteer subsection of the Bar engaged in legislative advocacy[.]”

5.   Section 1983 reads in relevant part:  “Every person who, under color of any statute, ordinance, regulation, custom, or usage, of any State or Territory or the District of Columbia, subjects, or causes to be subjected, any citizen of the United States or other person within the jurisdiction thereof to the deprivation of any rights, privileges, or immunities secured by the Constitution and laws, shall be liable to the party injured in an action at law, suit in equity, or other proper proceeding for redress.”California Constitution, article 1, sections 2 and 3 guarantee the rights respectively to freedom of speech and freedom of petition and assembly.   A protected right of expressive association is implicit in the rights to freedom of speech, petition and assembly.  (Roberts v. United States Jaycees (1984) 468 U.S. 609, 622, 104 S.Ct. 3244, 3252, 82 L.Ed.2d 462, 474.)

6.   Business and Professions Code section 6025 reads in relevant part:  “Subject to the laws of this State, the [B]oard may formulate and declare rules and regulations necessary or expedient for the carrying out of this chapter.”

7.   Business & Professions Code section 6140.15 required the State Bar to submit to the Legislature “a report specifying the manner in which it has fully implemented or otherwise responded to” Keller.   The State Bar submitted a report detailing Article IA.  (We take judicial notice of this report as requested by defendants.)   Thereafter, the Legislature reauthorized funding of the State Bar for 1994 and 1995.  (Stats.1993, ch. 862.)   Defendants contend such reauthorization without comment on the Keller implementation procedure demonstrates acquiescence.

8.   Because we do not consider the validity of Article IA, we also need not address the allegation in the complaint that the State Bar failed to comply with its own procedures.   Whereas Article IA requires selection of a neutral arbitrator, the complaint alleges plaintiffs “were forced to participate in a single consolidated hearing ․ before a hearing officer chosen by the bar.”   For purposes of demurrer, we accept as true all well-pleaded allegations of the complaint.

9.   As defendants point out, where, as here, the objectors have utilized procedures adopted to adjudicate Keller claims, a section 1983 action must await completion of those procedures.   Since the State Bar is not authorized to use disputed funds until such completion, an objector's section 1983 claim would not be ripe for adjudication until that time.

PUGLIA, Presiding Justice.

BLEASE and SPARKS, JJ., concur.