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Sanchez v. Western Pizza Enterprises

March 17, 2008

OCTAVIO SANCHEZ ET AL., PLAINTIFFS AND RESPONDENTS,
v.
WESTERN PIZZA ENTERPRISES, INC., DEFENDANT AND APPELLANT.



APPEAL from an order of the Superior Court of Los Angles County, Elizabeth Allen White, Judge. Affirmed. (Los Angeles County Super. Ct. No. BC375868).

The opinion of the court was delivered by: Croskey, J.

CERTIFIED FOR PUBLICATION

Western Pizza Enterprises, Inc. (Western Pizza), appeals the denial of its motion to compel arbitration of a complaint filed by Octavio Sanchez. The trial court determined that a provision in the arbitration agreement prohibiting class arbitration was unenforceable, that other terms of the agreement were unconscionable, and that the agreement could not be enforced. Western Pizza contends (1) the enforceability of the arbitration agreement is a question for the arbitrator to decide; (2) the Federal Arbitration Act (FAA) (9 U.S.C. § 1 et seq.) preempts California law to the extent that California law would prevent the enforcement of the agreement; (3) the class arbitration waiver does not impermissibly interfere with the employees' ability to vindicate their statutory rights, and therefore is enforceable; and (4) the terms of the arbitration agreement are neither procedurally nor substantively unconscionable. We reject these contentions, conclude that the denial of the motion to compel arbitration was proper, and affirm the order.

FACTUAL AND PROCEDURAL BACKGROUND

1. Factual Background

Sanchez works as a delivery driver at a Domino's Pizza restaurant owned by Western Pizza.*fn1 He drives his own car in making deliveries. His hourly wage has ranged from the legal minimum wage to approximately 50 cents above minimum wage.

Western Pizza reimburses him at a fixed rate of 80 cents per delivery regardless of the number of miles driven or actual expenses incurred.

Sanchez and Western Pizza are parties to an undated arbitration agreement. The record does not indicate when the parties signed the agreement. The agreement states that the execution of the agreement "is not a mandatory condition of employment." It states that any dispute that the parties are unable to resolve informally will be submitted to binding arbitration before an arbitrator "selected from the then-current Employment Arbitration panel of the Dispute Eradication Services," and that the arbitrator must be approved by both parties. It states that the parties waive the right to a jury trial. It also states that the arbitration fees will be borne by Western Pizza and, "Except as otherwise required by law, each party shall bear its own attorney fees and costs."

The arbitration agreement states that the arbitrator "shall be responsible for resolving any disputes over the interpretation or application of this Arbitration Agreement." It also states, "[e]xcept as expressly provided, the interpretation, scope and enforcement of this ADR Agreement and all procedural issues shall be governed by the procedural and substantive provisions of the Federal Arbitration Act, 9 U.S.C. § 1 et seq. (the 'FAA'), the federal decisional law construing the FAA, and the Rules of the Arbitrator, provided the Arbitrator's rules do not conflict with the FAA."

The arbitration agreement also provides a procedure for small claims: "If either Party asserts that a dispute involves an amount in controversy that is too small to warrant resolution by standard arbitration procedures, the claim may be resolved by a summary small claims procedure (the 'Small Claims Procedure'). The Parties shall meet and confer to agree on whether the use of a Small Claims Procedure is appropriate in light of the nature and amount of the claim and, if so, what dispute resolution procedures are most appropriate. To the extent the Parties are unable to agree, the Arbitrator shall decide whether and to what extent a Small Claims Procedure shall apply. The Small Claims Procedure may involve relaxed rules of evidence, the use of broad principles of equity in place of strict application of law, telephonic hearings, and such other economic procedures as the Arbitrator deems appropriate under the circumstances of the dispute and consistent with due process. In no event, however, shall the Arbitrator utilize a Small Claims Procedure for a dispute involving a claim in excess of $50,000."

The arbitration agreement includes a waiver of class arbitration, stating: "the Arbitrator shall not consolidate or combine the resolution of any claim or dispute between the two Parties to this ADR Agreement with the resolution of any claim by any other party or parties, including but not limited to any employee of the Company. Nor shall the Arbitrator have the authority to certify a class under Federal Rule of Civil Procedure Rule 23, analogous state rules, or Arbitrator's rules pertaining to class arbitration, and the Arbitrator shall not decide claims on behalf of any other party or parties."

The arbitration agreement also provides for the appointment of a referee (Code Civ. Proc., § 638, subd. (a)) to decide any issue in the event that any part of the agreement is determined to be unenforceable or any issue is determined to be nonarbitrable. It states that the referee's fees will be paid by Western Mutual and that the referee will have no authority to certify a class or decide the merits of any third party claim.

2. Trial Court Proceedings

Sanchez filed a putative class action complaint against Western Pizza in August 2007. He alleges that Western Pizza does not record the number of miles driven by its delivery drivers but instead reimburses them at the rate of 80 cents per delivery. He alleges that the drivers not only are not adequately reimbursed for their expenses incurred in the performance of their job duties, but also as a result are paid less than the legal minimum wage. He alleges counts for (1) failure to reimburse job expenses (Lab. Code, § 2802); (2) failure to pay minimum wage (id., § 1194); (3) failure to itemize wage statements (id., § 226); (4) unfair business practices (Bus. & Prof. Code, § 17200 et seq.); and (5) conversion.

Western Pizza asked Sanchez, through their respective counsel, if he would submit the dispute to binding arbitration and provided a copy of the arbitration agreement. Sanchez's counsel responded that the class arbitration waiver was unenforceable, that the agreement impermissibly restricted the right to discovery, and that the agreement purported to require the use of an arbitrator whose website included a testimonial by a former colleague of the defendant's counsel who stated that the arbitrator had persuaded the plaintiff to " 'settle for a very small sum.' " Sanchez's counsel stated that Sanchez would submit to arbitration only if the class arbitration waiver and the provisions for small claims and a referee were stricken from the agreement and the arbitration proceeded as a class arbitration before JAMS or AAA.

Western Pizza moved to compel arbitration and stay the action (Code Civ. Proc., §§ 1281.2, 1281.4). It argued that both the FAA and the California Arbitration Act (id., § 1280 et seq.) required the enforcement of the arbitration agreement. Sanchez argued in opposition that the class arbitration waiver was unenforceable under Gentry v. Superior Court (2007) 42 Cal.4th 443 (Gentry) and that the arbitration agreement as a whole was unconscionable because (1) the small claims procedure allows disputes to be decided without "strict application of law" and using "relaxed rules of evidence"; (2) the arbitration agreement does not require a written arbitration award; (3) the arbitration panel designated in the arbitration agreement has only one arbitrator, Alan Saler, whose website includes a testimonial from an attorney at the former firm of Western Pizza's counsel; and (4) the arbitration agreement includes no provision for discovery.

Western Pizza argued in reply that only an arbitrator could determine the enforceability of the class arbitration waiver or the unconscionability of the arbitration agreement as a whole, that the class arbitration waiver was not unenforceable under Gentry, supra, 42 Cal.4th 443, and that the arbitration agreement was not unconscionable.

The trial court at the hearing on the motion cited Gentry, supra, 42 Cal.4th 443, and Murphy v. Check 'N Go of California, Inc. (2007) 156 Cal.App.4th 138 (Murphy), and stated, "we have an individual plaintiff with a small claim who would otherwise be unable to afford legal services, and the class action would be an appropriate mechanism by which he could, in effect, bundle his claim with other claims and make it more efficient and expedient." The court also stated that the "small claims procedure" did not allow discovery in cases where the amount in dispute was up to $50,000, and that the agreement waived other rights and was procedurally and substantively unconscionable. The court entered a minute order denying the motion. Western Pizza timely appealed the order.*fn2

CONTENTIONS

Western Pizza contends (1) the enforceability of the arbitration agreement is a question for the arbitrator to decide; (2) the FAA preempts California law to the extent that California law would prevent the enforcement of the agreement; (3) the class arbitration waiver does not impermissibly interfere with the employees' ability to vindicate their statutory rights, and therefore is enforceable; and (4) the arbitration agreement is neither procedurally nor substantively unconscionable.

DISCUSSION

1. Applicability of the FAA

The FAA compels judicial enforcement of a wide range of arbitration agreements in transactions affecting interstate commerce. (Allied-Bruce Terminix Cos. v. Dobson (1995) 513 U.S. 265, 273-275, 281 [115 S.Ct. 834].) Congress in enacting the FAA intended to exercise the full extent of its authority to regulate interstate commerce. (Allied-Bruce, supra, at p. 277.) The parties do not discuss whether Sanchez's employment involves interstate commerce and do not meaningfully discuss whether the FAA applies to the arbitration agreement. Both parties appear to assume that the FAA applies. The arbitration agreement states that the FAA governs "the interpretation, scope and enforcement of this ADR Agreement and all procedural issues." We need not decide whether the FAA applies by its own terms or the effect of the provision just quoted because our conclusions stated in this opinion are the same regardless of whether the FAA applies, as we will explain. Because the FAA does not conflict with California law as applied in this case, there is no preemption. (Volt Info. Sciences v. Leland Stanford Jr. U. (1989) 489 U.S. 468, 477 [109 S.Ct. 1248].)

2. The Enforceability of the Arbitration Agreement Is a Question for the Court to Decide

Section 2 of the FAA provides that a written arbitration agreement "shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract." (9 U.S.C. § 2.) Thus, under the FAA, the validity and enforceability of an arbitration agreement is governed by state law applicable to contracts generally. (Doctor's Associates, Inc. v. Casarotto (1996) 517 U.S. 681, 686-687 [116 S.Ct. 1652].)

The FAA was intended to overcome a historical judicial hostility to arbitration agreements. (Mitsubishi Motors v. Soler Chrysler-Plymouth (1985) 473 U.S. 614, 626, fn. 14 [105 S.Ct. 3346].) The FAA preempts state laws, whether legislative or judicial, that are directed at and disfavor arbitration agreements in particular, but does not preempt state laws applicable to contracts generally. (Perry v. Thomas (1987) 482 U.S. 483, 492-493, fn. 9 [107 S.Ct. 2520].) Rather, a state court may refuse to enforce an arbitration agreement, in whole or in part, to which the FAA applies, based on generally applicable contract defenses, such as fraud, duress, or ...


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