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Pearson Dental Supplies, Inc. v. Superior Court of Los Angeles County

April 26, 2010


Ct.App. 2/4 B206740 Los Angeles County Super. Ct. No. BC 359605, Judge: Alan S. Rosenfield.

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

We have emphasized in our case law the limited nature of judicial review of contractual arbitration awards, concluding that, generally speaking, a court is not permitted to vacate an arbitration award when the award is based on errors of law. (Moncharsh v. Heily & Blase (1992) 3 Cal.4th 1, 25, 28 (Moncharsh).) We also have indicated that the scope of judicial review may be somewhat greater in the case of a mandatory employment arbitration agreement that encompasses an employee's unwaivable statutory rights. (Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, 106-107 (Armendariz).)

In the present case involving the resolution of a statutory employment discrimination claim, an arbitrator decided in favor of an employer against the employee on the grounds that the claim was time- barred under the one-year contractual deadline for requesting arbitration. The trial court vacated the award, concluding, as explained below, that the arbitrator had plainly misapplied the relevant tolling statute, Code of Civil Procedure section 1281.12. The Court of Appeal, while agreeing with the trial court that the arbitrator had erred, held nonetheless that such error was not a valid basis for vacating an arbitration award and reversed the trial court.

We conclude that the trial court and Court of Appeal are indeed correct that the arbitrator clearly erred in ruling that the employee's claim was time-barred. We further conclude that under the particular circumstances of this case, in which a clear error of law by an arbitrator means that an employee subject to a mandatory arbitration agreement will be deprived of a hearing on the merits of an unwaivable statutory employment claim, the trial court did not err in vacating the award. We therefore reverse the judgment of the Court of Appeal.

In a second issue, the employee argues that language in the arbitration agreement indicating that he is relinquishing not only the right to go to court but also to access administrative remedies is unconscionable, and that therefore not only should the arbitration award be vacated but the entire arbitration agreement should be invalidated. As explained below, we conclude the language in question is reasonably susceptible to a lawful interpretation, and therefore reject the employee's claim of unconscionability.

I. Factual and Procedural Background

Plaintiff Luis Turcios was hired as a janitor by defendant Pearson Dental Supplies, Inc., in February 1999. He was terminated on January 31, 2006, at the age of 67. He filed an administrative complaint with the Department of Fair Employment and Housing (DFEH) on April 5, 2006, claiming age discrimination. On April 14, 2006, the DFEH issued a right-to-sue letter.

On October 2, 2006, plaintiff filed a complaint against defendant in Los Angeles Superior Court alleging age discrimination in violation of the Fair Employment and Housing Act (FEHA; Gov. Code, § 12900 et seq.), wrongful termination in violation of public policy, and breach of an implied-in-fact contract or obligation not to terminate him without good cause. On November 8, 2006, Pearson filed a demurrer and motion to strike, contending plaintiff's claims of age discrimination and contractual violation were insufficiently detailed. The trial court overruled the demurrer and motion to strike on December 11, 2006. Defendant filed its answer on December 29, 2006, raising 31 affirmative defenses. In neither the demurrer nor the answer did defendant mention an arbitration agreement or plaintiff's obligation to arbitrate.

The case proceeded with discovery, and in a joint case management conference statement submitted to the trial court on February 16, 2007, defendant requested a jury trial and anticipated the trial would last three days. During a February 20, 2007, case management conference, defendant's counsel mentioned, for the first time, that there was an arbitration agreement in plaintiff's personnel file, and that this was something he "would have to explore."

On March 13, 2007, defendant filed a motion to compel arbitration, contending that plaintiff was bound by a dispute resolution agreement (DRA) he had signed in January 2001. The agreement stated that "to avoid the inconvenience, cost, and risk that accompany formal administrative or judicial proceedings," the parties agreed to arbitrate disputes arising out of the employment relationship. The arbitration was to be conducted by a "mutually agreed upon arbitrator pursuant to the California Arbitration Act" (CAA; Cal. Code Civ. Proc., § 1280 et seq.) The agreement also provided that any covered dispute "must be submitted to binding arbitration within one year from the date the dispute arose or the employee or Pearson first became aware of the facts giving rise to the dispute. If any employment related dispute which may arise is not submitted to binding arbitration within one year from the date the dispute arose or the Employee or Pearson first became aware of facts giving rise to the dispute, Pearson and the Employee agree that the claim shall be void and considered waived to the fullest extent allowed by law." Plaintiff concurrently signed a document in Spanish advising him, inter alia, of the DRA and the intention to arbitrate disputes.

On March 29, 2007, plaintiff filed an opposition to the petition to compel arbitration, arguing primarily that defendant had waived its right to demand arbitration by participating in the litigation. Plaintiff, whose primary language was Spanish, also contended he had not understood the DRA and that therefore it was not a valid agreement. On May 2, 2007, the trial court by written order granted defendant's petition. It rejected plaintiff's waiver arguments and found the agreement was valid and not unconscionable. Plaintiff filed a writ petition challenging the trial court's order. The Court of Appeal summarily denied the petition on May 31, 2007.

On June 13, 2007, plaintiff and defendant agreed upon an arbitrator. On July 24, 2007, defendant filed with the arbitrator a motion for summary judgment, contending that plaintiff's claims were time-barred by the DRA, because they had been submitted to arbitration over a year after plaintiff's termination on January 31, 2006. Plaintiff opposed the motion, contending that the one-year statute of limitations was substantively unconscionable, in part because it was shorter than the statute of limitations provided for FEHA claims.*fn1 Plaintiff also claimed that, even if the one-year period was valid, it had not yet run, because it had been tolled pursuant to Code of Civil Procedure section 1281.12, as discussed below, from the time the lawsuit was filed to 30 days after the time the order compelling arbitration became final.

The arbitrator, in a brief letter, ruled in favor of defendant on October 17, 2007, and granted its motion for summary judgment. The arbitrator stated simply that plaintiff's "failure to submit his claims and disputes to binding arbitration within the one-year period as required by the Dispute Resolution Agreement or within the tolling period prescribed in Code of Civil Procedure section 1281.12 has resulted in a waiver of his right to proceed in this arbitration against his employer...."

Defendant petitioned the superior court to confirm the award on December 5, 2007. Plaintiff filed a motion to vacate the arbitrator's award on December 17, 2007. Plaintiff then filed an opposition to defendant's petition to confirm the arbitrator's award on December 26, 2007.

The trial court vacated the arbitration award on January 28, 2008. The court (Judge Alan Rosenfield) concluded that the arbitrator had made a clear error of law by, among other things, misinterpreting the tolling provisions of Code of Civil Procedure section 1281.12. The court further concluded that under our holding in Armendariz, supra, 24 Cal.4th 83, the court was required to conduct judicial review sufficient to protect the plaintiff's unwaivable statutory rights arising from his FEHA claims and, pursuant to that authority, the court ruled the arbitrator had acted in excess of his jurisdiction and vacated the arbitration award.

Defendant filed a timely appeal, and the Court of Appeal reversed. Although the court rejected plaintiff's argument that the DRA's one-year limitation period was unconscionable, it agreed with plaintiff and with the court below that the arbitrator had "misapplied the tolling period provided by section 1281.12." The court nonetheless concluded that the arbitrator's erroneous decision "is insulated from judicial review and is not a proper basis upon which either to deny confirmation of the arbitration award or to vacate the award."

Plaintiff petitioned for review in this court, raising two questions: First, what standard of judicial review should a trial court employ to ensure that an employee's antidiscrimination claim brought under FEHA is adequately protected when arbitrated pursuant to a mandatory employment arbitration agreement? Second, is a mandatory employment arbitration agreement restricting an employee from seeking administrative remedies for violations of FEHA unlawful? We granted review.

II. Discussion

A. Did the Trial Court Err by Vacating the Arbitration Award?

In order to resolve the first issue presented by this case, we address two questions: First, did the arbitrator make an error of law in granting defendant summary judgment on the grounds that plaintiff's arbitral demand was time-barred? Second, if the arbitrator did make such an error, was that sufficient grounds for the trial court to vacate the arbitration award?

1. The Arbitrator Committed a Clear Error of Law

In order to determine whether the arbitrator committed an error of law, we begin with the pertinent statute. Code of Civil Procedure section 1281.12 states in full: "If an arbitration agreement requires that arbitration of a controversy be demanded or initiated by a party to the arbitration agreement within a period of time, the commencement of a civil action by that party based upon that controversy, within that period of time, shall toll the applicable time limitations contained in the arbitration agreement with respect to that controversy, from the date the civil action is commenced until 30 days after a final determination by the court that the party is required to arbitrate the controversy, or 30 days after the final termination of the civil action that was commenced and initiated the tolling, whichever date occurs first."

Neither of the parties disputes that Code of Civil Procedure section 1281.12 applies in the present proceeding. Here, the arbitration agreement required that a dispute "must be submitted to binding arbitration within one year from the date the dispute arose" or "the claim shall be void and considered waived to the fullest extent allowed by law." Plaintiff, the party required to initiate the action, instead commenced a civil action within the one-year period. The commencement of this civil action therefore tolled the applicable time limitation until the final order compelling arbitration.

According to its legislative history, the statute prevents "parties from being either forced to abide by arbitration agreements of dubious validity instead of seeking court evaluation, initiating costly and duplicative proceedings, or being unfairly deprived of any forum for resolution of the dispute. Supporters observe that there are many legitimate reasons why a party might file a lawsuit in court, rather than demanding or pursuing arbitration. Among these are the following: (1) the plaintiff may believe the claims are not subject to arbitration because the arbitration agreement is unenforceable on grounds of unconscionability or similar concepts; (2) there may be a dispute about whether the particular claims at issue do or do not fall within the scope of an arbitration agreement; (3) the plaintiff may contend that one or more of the statutory grounds for denying a petition to compel arbitration set forth in Code of Civil Procedure section 1281.2 exist, assuming the defendant does file a petition to compel arbitration in response to the plaintiff's filing of the lawsuit; (4) the plaintiff may prefer a court trial or jury trial and simply be hopeful that the defendant will not assert any right to arbitrate the claims, for whatever reason [indeed, the defendant may decide that it prefers a court proceeding as well]; and (5) the plaintiff might not even be aware that there is an arbitration agreement governing the controversy." (Assem. Com. on Judiciary, Analysis of Assem. Bill No. 1553 (2005-2006 Reg. Sess.) for hearing Apr. 5, ...

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