APPEAL from an order of the Superior Court of Los Angeles County, Elizabeth A. White, Judge. Reversed. (Los Angeles County Super. Ct. No. BS117996).
The opinion of the court was delivered by: Turner, P. J.
CERTIFIED FOR PUBLICATION
Defendants, Thomas Bundy, Misty Sanchez, Kevin Prevost and David Godina, appeal from an order vacating partial arbitration awards against plaintiffs, Countrywide Financial Corporation and Full Spectrum Lending, Inc. Judge Elizabeth A. White vacated the partial arbitration awards on the ground the arbitrator committed a number of legal errors. Because of the unambiguous choice of law language in the agreements to arbitrate, we conclude we must apply the vacatur provisions applicable before a United States District Court in a case subject to the Federal Arbitration Act. (9 U.S.C. § 1 et seq.) When we apply the vacatur provisions of the Federal Arbitration Act, we conclude no grounds permitted the partial awards to be vacated. Although it is uncertain whether the manifest disregard of the law vacatur rule remains extant, we apply it and the federal excess of powers standard of judicial review to the partial awards. Thus, we reverse the order vacating the partial arbitration awards. We do not address the parties' other contentions including their statute of limitations analysis.
A. Overview Of The Two Arbitration Demands
On August 19, 2006, defendants filed two separate arbitration demands on behalf of themselves and others similarly situated before the American Arbitration Association--case Nos. 111600185806 (the Bundy-Sanchez-Prevost arbitration) and 111600185706 (the Godina arbitration). Both arbitration demands were filed against Countrywide Financial Corporation and its wholly owned subsidiary, Full Spectrum Lending, Inc. which was formed in 1996. Full Spectrum Lending, Inc. primarily handled the sub-prime loans of Countrywide Financial Corporation. But Full Spectrum Lending, Inc. also handled "prime quality" loans. The Bundy-Sanchez-Prevost arbitration was brought on behalf of "Account Executive(s)" employed at all Full Spectrum Lending branches whose principal function was the sale of loan products. The Godina arbitration was bought on behalf of specified "Call Center" employees. The two arbitration cases were ultimately consolidated.
The Bundy-Sanchez-Prevost arbitration demand sought classwide arbitration of claims for unpaid wages including incentive compensation, waiting penalties, costs and attorney fees pursuant to Labor Code section 200 et seq., Business and Professions Code section 17200 et seq., and common law principles. Additionally, the Bundy-Sanchez-Prevost arbitration demand alleged defendants failed to pay incentive compensation earned on loans originated and closed in California on a semi-monthly basis as required by Labor Code section 204 and upon termination of employment pursuant Labor Code sections 201 and 202. The precise nature of the alleged forfeiture of wages will be discussed later.
According to the Bundy-Sanchez-Prevost arbitration demand: plaintiffs employed Mr. Bundy between April and November 2005 as an account executive at Full Spectrum Lending, Inc.; classified as a "non exempt employee" under federal and state wage and hour laws, Mr. Bundy was to be paid $18,000 plus incentive compensation annually; and Mr. Bundy was to receive monthly and quarterly incentive bonuses based on the number of loans funded during the relevant pay period. According to the arbitration demand, Mr. Bundy was not paid as required by Labor Code section 204. In addition, Mr. Bundy did not receive his monthly incentive compensation for November 1 through 22, 2005. Further, he did not receive quarterly incentive compensation and quarterly compensation for loans funded between July 1 and November 22, 2005. When Mr. Bundy left plaintiffs' employ, he was owed at least $6,000 in incentive compensation.
As to Ms. Sanchez, the arbitration demand alleged she was employed by plaintiffs as an account executive between May 2004 and May 4, 2006. Prior to January 1, 2005, Ms. Sanchez was unlawfully classified as an exempt employee. Under the terms of her employment agreement she was to be paid: $2,500 for her first two months of employment; $2,000 for her third month; and $800 per month thereafter. In addition, she was to receive monthly and quarterly incentive compensation. Throughout her employment, Ms. Sanchez did not receive compensation to which she was entitled in violation of Labor Code section 204. Further, when she left plaintiffs' employ, Ms. Sanchez did not receive monthly and quarterly incentive compensation for April 1 through May 4, 2006, and January 1 through May 4, 2006, respectively.
Mr. Prevost was a Full Spectrum Lending, Inc. account executive between August 2005 and May 17, 2006. Classified as an exempt employee, he was to be paid $18,000 annually plus monthly and quarterly incentive bonuses. Throughout his term of employment, Mr. Prevost was not paid as required by Labor Code section 204. And upon the termination of his employment, Mr. Prevost was not paid his monthly and quarterly incentive compensation between April 1, 2005, through May 17, 2006, and January 1 through May 17, 2006, respectively.
The arbitration claims were brought in the individual capacities of Mr. Bundy, Ms. Sanchez and Mr. Prevost and as members of a class of plaintiffs' former and present employees. The class members were not paid monthly and quarterly incentive compensation during the four years prior to the filing of the arbitration demand. All account executives were provided a copy of plaintiffs' "Incentive Plan." Under the terms of the "Incentive Plan," account executives were required to forfeit any monthly and quarterly bonuses earned in the last partial months and quarters respectively of their employment. The Bundy-Sanchez-Prevost arbitration demand alleges account executives have no power to negotiate different provisions.
The alleged class is, "All persons other than officers, directors or controlling persons of [plaintiffs] who were employed by [plaintiffs], were paid according to the Plan and therefore were not properly paid within the time frame set forth in California Labor Code § 204." The Bundy-Sanchez-Prevost arbitration demand refers to this class as the "Claimant Class." Additionally, the Bundy-Sanchez-Prevost arbitration demand seeks to represent the following subclass, "Persons, other than officers, directors, or controlling persons of [plaintiffs] who were employed by [plaintiffs], were paid according to the Plan, and left the employment of [plaintiffs], but were not paid incentive compensation earned on loans that funded during their employment."
The Godina arbitration demand alleges many of the same matters in terms of plaintiffs' operations. Mr. Godina was an account executive at the Full Spectrum Lending, Inc. Call Center in Rosemead, California between December 2, 2002, and December 8, 2005. Mr. Godina was to be paid $18,000 per year plus incentive compensation. The amount of incentive compensation payable to employees was calculated on funded loans under specified circumstances. The incentive compensation was to be paid on a monthly and quarterly basis. Prior to January 1, 2005, Mr. Godina was improperly classified as an exempt employee. Since January 1, 2005, Mr. Godina was classified as a non-exempt employee under federal and state wage and hour laws.
According to his arbitration demand, plaintiffs failed to compensate Mr. Godina as required by Labor Code section 204. And upon his discharge, Mr. Godina was not paid his monthly incentive compensation for loans funded from November 1 through December 8, 2005. Moreover, Mr. Godina did not receive quarterly incentive compensation for loans that funded July 1 through December 8, 2005. When Mr. Godina left plaintiffs' employ, he was owed in excess of $6,000 in incentive compensation.
Mr. Godina also brought his arbitration demand on behalf of similarly situated Call Center employees who had not been paid their monthly or quarterly incentive compensation in compliance with Labor Code section 204. Moreover, Mr. Godina filed the arbitration demand on behalf of former employees who were not paid their monthly and quarterly incentive compensation in the "last full and partial months and quarters respectively, of employment" while employed by plaintiffs. As in the case of the Bundy-Sanchez-Prevost arbitration demand, the forfeiture clause in Mr. Godina's employment agreement required he and other class members retain employment with plaintiffs in order to receive all incentive compensation due to employees. Apart from the different employee groups, the two potential classes in the Godina arbitration demand are the same as those alleged in the Bundy-Sanchez-Prevost arbitration demand. The claims and relief sought in the Godina arbitration demand are the same being pursued in the Bundy-Sanchez-Prevost arbitration.
In their arbitration demands, defendants seek class certification on behalf of themselves and others similarly situated regarding fellow employees' incentive compensation clauses contained in their employment agreements. The continuing tenure provision required an employee to work throughout what was designated as the "Plan Month" and the entire following month in order to receive the monthly incentive payment. Under the terms of the plan, an employee, who leaves defendants' employment either voluntarily or involuntarily before the last day of the month following the "Plan Month," will not receive any portion of the monthly incentive payment. Defendants allege: plaintiffs failed to pay earned commission wages to those employees and this constituted an unfair business practice in violation of Business and Professions Code section 17200; the continuing tenure requirement was an unconscionable forfeiture of wages (Lab. Code, § 204) "and/or" untimely withholding of wages (Lab. Code, §§ 201, 202 & 203); and, therefore, was unenforceable under California law. Defendants' arbitration demands seek: the right to proceed as classwide arbitrations; recovery of compensatory damages; recovery of penalties for violations of Labor Code section 203; payment of restitution pursuant to Business and Professions Code section 17200; recovery for unjust enrichment; disgorgement; declaratory and injunctive relief; a declaration the forfeiture provision violates Labor Code sections 201 through 204 and is unenforceable pursuant to Labor Code section 206.5; an interest award; and attorney fees.
B. Proceedings Before The Arbitrator
Before the arbitrator, the parties stipulated, "[T]here was no clause construction issue to be litigated . . . ." In May 2007, plaintiffs sought summary judgment against the defendants based on two separate settlements which had been reached in two class action lawsuits. The first action which plaintiffs asserted barred the claims brought here was a settlement in Zamora v. Countrywide Financial Corp., Los Angeles Superior Court, case No. BC351127 (the Zamora class action). The Zamora class action was filed on April 20, 2006. The Zamora class action only involved former account executives who were terminated and claims for: forfeiture of the last months of commissions; waiting time penalties; attorneys fees; and costs. The second class action, which plaintiffs asserted barred the claims brought here, was a lawsuit resolved in the United States District for the Northern District of Texas, Walker v. Countrywide Credit, Industries, case No. 3:03 CV-00684-N (the Walker federal class action). The Walker federal class action was filed in 2002 and settled in 2005. The Walker federal class action involved overtime claims. By contrast, this case involves plan and forfeiture issues. There were no plan or forfeiture claims in the Walker federal class action.
In an interim award on November 1, 2007, the arbitrator rejected plaintiffs' contention that collateral estoppel principles barred Mr. Godina from proceeding with the present class action. Additionally, in the November 1, 2007 interim award, the arbitrator ruled the issues in the Walker federal class action case were not identical to those in the Bundy-Sanchez-Prevost and Godina arbitration demands. The November 1, 2007 interim arbitration award states: "The Walker settlement documents do not include a specific reference to claims for unpaid bonuses, nor does the Motion for Final Approval and Final Judgment, and of greatest importance, nor do the notices served on the Walker class members. The settlement discussions did not involve any claims for or settlement of claims for unpaid bonuses. The claims and the claimants in the Godina and Bundy, et al. class actions differ substantially from those in the Walker case, both in numbers and in the description of their claims. [¶] The mere recital, as in the release signed on behalf of the Walker claimants, that the protection of the Civil Code section 1542 is waived, or that the release covers unknown claims, is not controlling, especially given the ample evidence to the contrary."
On November 16, 2007, the arbitrator issued an order in response to plaintiffs' request for clarification of the November 1, 2007 interim award. The November 16, 2007 clarification order states: "[N]o further formal clarification of the Interim Order is required. Nevertheless, it is emphasized that the Interim Award found that all members of class claimants of the Zamora action who received lawful notice, or participated in the fairness proceedings, or received a settlement payment in that case are barred from pursuing those same claims in the Godina and Bundy, Sanchez and Prevost cases, except for claims based on California Labor Code [section] 204. That being the case, it is observed that any claimants in the Godina and Bundy, et al., cases who are pursuing the same claims as lawfully settled in the Zamora case that were members of the Zamora class will have the burden of proving they were not given lawful notice in the Zamora case and did not participate in the fairness proceedings or receive a settlement payment in that case. [¶] It is also emphasized that the Settlement and Release in the Walker case is not a bar by res judicata or collateral estoppel to the claimants in the Godina and Bundy, et al., cases pursuing the claims against [plaintiffs] as stated in their complaints or claims filed with the American Arbitration Association."
On March 11, 2008, the arbitrator issued an interim award which granted plaintiffs' December 2007 request for summary adjudication that private litigants may not recover the penalties provided for by Labor Code section 204. The arbitrator denied plaintiffs' request to summarily adjudicate that defendants could not pursue claims predicated on Labor Code violations when proceeding under Business and Professions Code section 17200. But, the arbitrator dismissed all penalty claims.
On October 24, 2008, the arbitrator issued a "Partial Final Award Re: Class Certification" which granted defendants' class certification motions in their entirety in both cases. The October 24, 2008 interim award addressed the issues relating to both arbitration demands. The arbitrator noted the parties had stipulated in April 2007 that the issues raised by the two arbitration demands were arbitrable. The arbitrator explained: "[Defendants] request the certification of a class consisting of all persons, including current and former employees other than officers, directors or controlling persons of [plaintiffs], who were employed by the [plaintiffs] and who were paid according to the [plaintiffs'] Incentive Plan . . . and subject to that Plan's Forfeiture Provision and who were not properly paid within the time mandated by California Labor Code [section] 204. [¶] [Defendants] also move for the certification of a Sub-Class of all persons, including current and former employees, other than officers, directors, or controlling persons of [plaintiffs], who were employed by [plaintiffs] and who were entitled to be paid according to the Plan, and who left the employment of the [plaintiffs], but were not paid the incentive compensation claimed by them to have been earned pursuant to the Plan on loans funded during their employment. [¶] The combined Class and Sub-Class include all persons employed in or who were to receive, as part of the Plan's bonus provisions, payments in addition to their regular salary based on 'loans sold' to customers, ...