TRUDY LAWLER v. 24 HOUR FITNESS USA INC (2011)

C. Court Proceedings

On February 18, 2010, plaintiff filed her class action complaint.   On August 3, 2010, defendant filed a motion to compel arbitration and stay court proceedings.   Defendant argued Gentry v. Superior Court, supra, 42 Cal.4th at page 450 was preempted by the Federal Arbitration Act under Stolt–Nielsen S.A. v. Animal Feeds Internat.   Corp., (2010) 559 U.S. _, _ [130 S.Ct. 1758, 1775] (Stolt–Nielsen ).   In addition, defendant requested a stay pending the outcome of the Supreme Court case, AT & T Mobility LLC v. Concepcion (2011) 563 U.S. _, _ [131 S.Ct. 1740, 1753].

Plaintiff argued the arbitration agreement was unenforceable because Gentry barred enforcement of class action waivers and the waiver of private attorney general representative actions was unlawful.   As will be noted the complaint does not seek to proceed pursuant to the Private Attorneys General Act (Lab.Code, § 2699).   Plaintiff also argued Stolt–Nielsen did not preempt California law and the case should not be stayed.   Plaintiff filed no evidence of any kind.

On October 26, 2010, the trial court denied defendant's motion to compel arbitration and stay the action without prejudice.   At the hearing, the trial court ruled that Stolt–Nielson did not preempt state law.   The trial court discussed Gentry.   But the trial court did not explicitly apply the Gentry factors in ruling that the arbitration agreement was unenforceable because of the class arbitration waiver.   The trial court made no other substantive unconscionability ruling and did not discuss plaintiff's Private Attorneys General Act waiver argument.   The Private Attorneys General Act is discussed only in plaintiff's points and authorities but not in her complaint.   The court found the opt-out process was procedurally unconscionable.   The trial court found there was no showing “that the plaintiff understood the significance of the opportunity to opt-out of the arbitration clause prior” to the dispute.   The trial court stated:  “I don't know that there is any evidence before the Court that the defendant advised her that she could consult with an attorney or be given the opportunity to independently evaluate the significance of the form.   There is no evidence before the Court, at least that I can recall, that once the 30 days lapsed, there would be a further opportunity to revisit the issue.”

Defendant timely filed its notice of appeal on November 9, 2010.   On January 21, 2011, the California Supreme Court transferred the present appeal from the Court of Appeal for the Fourth Appellate District, Division Two to this division.

III. DISCUSSION

A. Standard of Review

Code of Civil Procedure section 1281 provides, “A written agreement to submit to arbitration an existing controversy or a controversy thereafter arising is valid, enforceable and irrevocable, save upon such grounds as exist for the revocation of any contract.”   Both state and federal law favor enforcement of valid arbitration agreements.  (Wagner Construction Co. v. Pacific Mechanical Corp. (2007) 41 Cal.4th 19, 25 [strong public policy in favor of arbitration];  Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, 97 (Armendariz ).)   However, courts will not enforce arbitration provisions that are unconscionable or contrary to public policy.  (Id. at p. 114;  Abramson v. Juniper Networks, Inc. (2004) 115 Cal.App.4th 638, 651.)   The party opposing arbitration bears the burden of proving that an arbitration provision is unenforceable on unconscionability grounds.  (Htay Htay Chin v. Advanced Fresh Concepts Franchise Corp. (2011) 194 Cal.App.4th 704, 708;  Szetela v. Discover Bank (2002) 97 Cal.App.4th 1094, 1099.)

Unconscionability has both a procedural and a substantive element.   Procedural unconscionability focuses on oppression or surprise due to unequal bargaining power.   Substantive unconscionability focuses on overly harsh or one-sided results.  (Armendariz, supra, 24 Cal.4th at p. 114;  Wherry v. Award, Inc. (2011) 192 Cal.App.4th 1242, 1246.)   Employment arbitration addressing statutory rights are subject to certain minimal requirements.   Citing its prior decision in Armendariz, our Supreme Court explained:  “[W]e held ․ ‘(1) the arbitration agreement may not limit the damages normally available under the statute (Armendariz, supra, 24 Cal.4th at 103);  (2) there must be discovery “sufficient to adequately arbitrate [the] statutory claim” (id. at p. 106);  (3) there must be a written arbitration decision and judicial review “ ‘sufficient to ensure the arbitrator comply with the requirements of the statute’ ” (ibid.);   and (4) the employer must “pay all types of costs that are unique to arbitration” (id. at p. 113).' ”  (Sonic–Calabasas A, Inc. v. Moreno (2011) 51 Cal.4th 659, 677;  judg. vacated and cause remanded for further consideration in light of AT & T Mobility LLC v. Concepcion, supra, 563 U.S. _, [131 S.Ct. 1740];  accord Little v. Auto Stiegler, Inc. (2003) 29 Cal.4th 1064, 1076.)

Plaintiff had the burden of proof on the unconscionability issue.  (Engalla v. Permanente Medical Group, Inc. (1997) 15 Cal.4th 951, 972;  Mission Viejo Emergency Medical Associates v. Beta Healthcare Group (2011) 197 Cal.App.4th 1146, 1156.)   We review the record for substantial evidence of substantive unconscionability.  (Lhotka v. Geographic Expeditions, Inc. (2010) 181 Cal.App.4th 816, 820–821;  Ontiveros v. DHL Express (USA), Inc. (2008) 164 Cal.App.4th 494, 502.)   The Court of Appeal has held, “ ‘[W]hen the extrinsic evidence is undisputed, ․ we review the contract de novo to determine unconscionability.’ ”  (Gatton v. T–Mobile USA, Inc. (2007) 152 Cal.App.4th 571, 579;  Suh v. Superior Court (2010) 181 Cal.App.4th 1504, 1512.)

B. Class Action And Class Arbitration Waiver Under Gentry

Courts will not enforce arbitration provisions that are unconscionable or contrary to public policy.  (Armendariz, supra, 24 Cal.4th at p. 99;  Abramson v. Juniper Networks, Inc., supra, 115 Cal.App.4th at p. 651.)   Under title 9 United States Code section 2 arbitration agreements may be invalidated by generally applicable contract defenses such as unconscionability.  (AT & T Mobility v. Concepcion, supra, 563 U.S. at p. _, [131 S.Ct. at 1746] quoting Doctor's Associates, Inc. v. Casarotto (1996) 517 U.S. 681, 687.)   In Gentry, our Supreme Court identified substantive unconscionability principles that must be litigated in the trial court:  “[T]he trial court must consider ․:  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' right to overtime pay through individual arbitration.   If it concludes, based on these factors, that a class arbitration is likely to be a significantly more effective practical means of vindicating the rights of the affected employees than individual litigation or arbitration, and finds that the disallowance of the class action will likely lead to a less comprehensive enforcement of overtime laws for the employees alleged to be affected by the employer's violations, it must invalidate the class arbitration waiver to ensure that these employees can ‘vindicate [their] unwaivable rights in an arbitration forum.” ’  (Gentry v. Superior Court, supra, 42 Cal.4th at p. 463;  see Little v. Auto Stiegler, Inc., supra, 29 Cal.4th at p. 1077.)   Here, plaintiff has failed to make any factual showing concerning the Gentry factors in opposing defendant's petition to compel arbitration.   There was no evidence supporting the trial court's ruling that the class action and class arbitration waiver is unenforceable under Gentry.   There is no merit to plaintiff's Gentry analysis.

C. Class Action And Arbitration Waiver Under Title 42

United States Code Sections 157 and 158(a)

Plaintiff argues the class action waiver is unenforceable because it violates title 29 United States Code sections 157 and 158, subdivision (a).   Title 29 United States Code section 157 provides, in pertinent part, “Employees shall have the right to self-organization, to form, join, or assist labor organizations, to bargain collectively through representatives of their own choosing, and to engage in other concerted activities for the purpose of collective bargaining or other mutual aid or protection․  “ Title 29 United States Code section 158, subdivision (a) states:  “(a) Unfair labor practices by employer [¶] It shall be an unfair labor practice for an employer—․ [¶] (1) to interfere with, restrain, or coerce employees in the exercise of the rights guaranteed in section [157 of this title]․”  Plaintiff argues the National Labor Relations Board has determined that class actions are a form of protected activity.   Plaintiff contends it follows from these cases that an arbitration clause that precludes class actions by employees to enforce wage and hour laws also violates title 29 United States Code section 157.

Plaintiff never raised these issues in the trial court.   Traditional forfeiture jurisprudence applies to appellate review of arbitration decisions.  (Pearson Dental Supplies, Inc. v. Superior Court (2010) 48 Cal.4th 665, 681;  Moncharsh v. Heily & Blase (1992) 3 Cal.4th 1, 30–31;  Tutti Mangia Italian Grill, Inc. v. American Textile Maintenance Co. (2011) 197 Cal.App.4th 733, 740;  Jones v. Jacobson (2011) 195 Cal.App.4th 1, 19, fn. 12;  Countrywide Financial Corp. v. Bundy (2010) 187 Cal.App.4th 234, 264;  see Doers v. Golden Gate Bridge etc.   Dist. (1979) 23 Cal.3d 180, 185, fn. 1.)

Thus, the National Labor Relations Board contentions have been forfeited.

D. Unconscionability

1. Procedural Unconscionability

The trial court found the opt-out notice was procedurally unconscionable because:  there was no showing that plaintiff understood the significance of the opportunity to opt-out of the arbitration agreement prior to the dispute;  plaintiff was neither advised nor had the opportunity to consult with an attorney;  and once the 30 days lapsed, there was no showing the opt-out period could be extended.   But, as we previously discussed, plaintiff, as the party opposing arbitration, has the burden of establish that the arbitration provision is unconscionable.  (Htay Htay Chin v. Advanced Fresh Concepts Franchise Corp., supra,194 Cal.App.4th at p. 708;  Brown v. Wells Fargo Bank, NA, (2008) 168 Cal.App.4th 938, 955;  Szetela v. Discover Bank, supra, 97 Cal.App.4th at p. 1099.)   Plaintiff presented no evidence to support any of the matters cited by the trial court.

In addition, plaintiff contends there is procedural unconscionability because the opt-out provision here is similar to the 30–day opt-out provision in Gentry v. Superior Court, supra, 42 Cal.4th at pages 470–472, which the California Supreme Court found inadequate.   At the outset, it bears considerable emphasis that our Supreme Court did not hold the evidence demonstrated that the opt-out provision in Gentry was unconscionable.   Our Supreme Court explained:  “We conclude that the Court of Appeal erred in finding the present agreement free of procedural unconscionability.   It is true that freedom to choose whether or not to enter a contract of adhesion is a factor weighing against a finding of procedural unconscionability.  (See, e.g., Dean Witter Reynolds, Inc. v. Superior Court (1989) 211 Cal.App.3d 758, 769–771 [agreement between brokerage house and sophisticated consumer of financial services that included a $50 termination fee on an IRA account was not unconscionable where competing IRA's without the challenged fee were freely available].)   But there are several indications that [plaintiff's] failure to opt out of the arbitration agreement did not represent an authentic informed choice.”  (Gentry v. Superior Court, supra, 42 Cal.4th at p. 470.)

Our Supreme Court then listed several reasons to believe that no authentic informed choice was made by the plaintiff.  (Id. at pp. 470–472.)   After identifying the potential grounds for an unconscionability finding, issues we never addressed, our Supreme Court directed we remand to the trial court for a hearing to allow development of the facts:  “As noted, [plaintiff] argues that several provisions of the arbitration agreement other than the class arbitration waiver are substantively unconscionable, an argument that Circuit City disputes.   The Court of Appeal did not address these arguments, believing the agreement not to be procedurally unconscionable and upholding the class arbitration waiver.   As stated in the previous part of this opinion, 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.   Unless the issue is mooted, the trial court must also determine on remand whether the original 1995 arbitration agreement or an amended agreement controls the present case and whether the controlling agreement has substantively unconscionable terms.   If so, the court must determine whether these terms should be severed, or whether instead the arbitration agreement as a whole should be invalidated.  (See Little, supra, 29 Cal.4th at pp. 1074–1076.)”  (Gentry v. Superior Court, supra, 42 Cal.4th at pp. 472–473.)   Here, plaintiff presented no evidence at all.   There is no substantial evidence that plaintiff was misled in any respect.   Thus, as in connection with the substantive unconscionability issue related to the class action waiver, no substantial evidence supports the trial court's ruling.

In any event, unlike Gentry, here there is no evidence plaintiff failed to make an informed choice not to return the Opt–Out Form. Unlike the arbitration agreement in Gentry, the arbitration agreement at issue here does not limit the remedies and statute of limitations provided by law.   In addition, the arbitration agreement provides, “Each party will pay the fees for his, her or its own attorneys, subject to any remedies to which that party may be entitled under applicable law.”   Unlike the provision in Gentry which gives the arbitrator discretion to award attorney fees to employees, here plaintiff's statutory attorney fee rights are preserved.   Moreover, there is no evidence plaintiff felt pressured to agree to arbitrate her claims.   Although the employment application certification states that “arbitration is an expeditious and economical way to settle employment disputes without going through courts,” there is no evidence defendant pressured plaintiff to agree to arbitration.   Moreover, defendant notified plaintiff in the handbook acknowledgement form that her “decision to opt out or not opt out will not be used as basis for the Company taking any retaliatory action” against her.   The inferences cited in Gentry which warranted the plaintiff be given an opportunity to have an evidentiary hearing are not present here.   Plaintiff presented no evidence.

2. Substantive Unconscionability

Plaintiff argues the arbitration agreement is substantively unconscionable because it contains an overbroad confidentiality provision and waivers of class action and class arbitration and representative claims under the Private Attorneys General Act. As we previously discussed, no substantial evidence supports the assertion that the class action and class arbitration waiver is substantively unconscionable under Gentry.

As noted, the arbitration agreement contains the following confidentiality provision, “Except as may be required by law, neither a party nor an arbitrator may disclose the existence, content, or results of any arbitration hereunder without the prior written consent of both parties.”   Plaintiff contends the arbitration agreement is substantively unconscionable because the confidentiality provision is overbroad, relying on Davis v. O'Melveny & Myers (9th Cir.2007) 485 F.3d 1066, 1078–1079 and Ting v. AT & T (9th Cir.2003) 319 F.3d 1126, 1151–52.   Neither Ninth Circuit case is controlling.   We are more persuaded by the analysis in Htay Htay Chin v. Advanced Fresh Concepts Franchise, supra, 194 Cal.App.4th at page 714.   In Htay Htay Chin, the Court of Appeal found the following confidentiality provision in an arbitration agreement was not unconscionable, “ ‘Except as may be required by law, no party or arbitrator(s) may disclose the existence, content or results of any arbitration hereunder without the prior written consent of both parties.’ ”   The Court of Appeal found the breath of the confidentiality provision was limited because it does not apply when disclosure is required by law or when the parties have provided prior written consent.  (Ibid.) Likewise, the confidentiality provision here is not overly broad because it does not apply when disclosure is required by law or when the parties have provided written consent.

And even if the confidentiality provision is substantively unconscionable, as it is a single objectionable provision, it can be stricken.  (Little v. Auto Stiegler, Inc., supra, 29 Cal.4th at p. 1075;  Bolter v. Superior Court (2001) 87 Cal.App.4th 900, 910–911.)   Plaintiff neither asked that it be stricken nor has requested such on appeal.   Plaintiff has thus forfeited her right to seek it now.  (Pearson Dental Supplies, Inc. v. Superior Court, supra, 48 Cal.4th at p. 681;  Tutti Mangia Italian Grill, Inc. v. American Textile Maintenance Co., supra, 197 Cal.App.4th at p. 740;  Jones v. Jacobson, supra, 195 Cal.App.4th at p. 19, fn. 12;  Countrywide Financial Corp. v. Bundy, supra, 187 Cal.App.4th at p. 264.)   Given the complete failure of proof, there was no basis to deny the motion to compel arbitration.

Plaintiff argues the arbitration agreement is unenforceable because it contains a waiver of representative claims under the Private Attorneys General Act of 2004.   Under the Private Attorneys General Act, an aggrieved employee may bring a private civil action for Labor Code violations.  (Lab.Code, § 2699, subd. (a).)  Plaintiff's complaint did not seek civil penalties under Labor Code section 2699, subdivision (f) and has failed to plead compliance with the pre-suit administrative procedural requirements set forth in Labor Code section 2699.3, subdivision (a).   Thus, the entire Private Attorneys General Act issue has been forfeited.  (Pearson Dental Supplies, Inc. v. Superior Court, supra, 48 Cal.4th at p. 681;  Moncharsh v. Heily & Blase, supra, 3 Cal.4th at pp. 30–31.)

3. Post-remittitur proceedings

At oral argument, plaintiff argues that we should remand for further fact finding.   We disagree.   The present litigation arose after Gentry was decided.   Plaintiff had the opportunity to present relevant evidence and she chose not to do so.   Unlike a situation where a motion to compel was made while Gentry was pending, here, plaintiff had the ability to present evidence.   And the Gentry opinion identified some of the relevant facts that could be explored after the remittitur issued.   Here, this is a post-Gentry case.   No sound reason has been presented for us to remand the case for hearing to present evidence Gentry required be presented in connection with the motion to compel arbitration.

IV. DISPOSITION

The October 26, 2010 order denying its motion to compel arbitration is reversed.   Upon remittitur issuance, the motion to compel arbitration is to be granted.   Defendant, 24 Hour Fitness USA, Inc. shall recover its costs on appeal from plaintiff, Trudy Lawler.

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

TURNER, P. J.

We concur:

KRIEGLER, J.

KUMAR, J.^*

FOOTNOTES

FOOTNOTE.  FN*.  Judge of the Los Angeles Superior Court, assigned by the Chief Justice pursuant to article VI, section 6 of the California Constitution.