Filed 3/27/20 Alatorre v. Alcal Specialty Contracting CA2/4

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

SECOND APPELLATE DISTRICT

DIVISION FOUR

JOSE ALATORRE,

Plaintiff and Respondent,

v.

ALCAL SPECIALTY CONTRACTING, INC.,

Defendant and Appellant.

B297476

(Los Angeles County
Super. Ct. No. BC722152)

APPEAL from an order of the Superior Court of Los Angeles County, Michael L. Stern, Judge. Reversed and remanded with instructions.

Locke Lord, Susan A. Kidwell; Daniel S. Yanagihara, Phillip Chan and Martin Ruano for Defendant and Appellant.

KO Legal, Kimberly Lind for Plaintiff and Respondent.

INTRODUCTION

Jose Alatorre sued his former employer, Alcal Specialty Contracting, Inc., alleging causes of action relating to wrongful discharge and whistleblower retaliation. Alcal moved to compel arbitration pursuant to the arbitration agreement Alatorre signed as a condition of his employment at Alcal. The arbitration agreement had a delegation provision stating that the arbitrator, not a court, had the authority to determine the enforceability of the arbitration agreement. Alatorre opposed Alcal’s motion on the basis that the arbitration agreement was unconscionable; he did not challenge the delegation provision specifically. The trial court denied Alcal’s motion, and Alcal appealed.

We reverse. Under the reasoning of Rent-A-Center, West, Inc. v. Jackson (2010) 561 U.S. 63 (Rent-A-Center), when an arbitration agreement includes a delegation provision giving the arbitrator the authority to determine the enforceability of the arbitration agreement, and the party opposing arbitration does not challenge the delegation provision specifically, a court must enforce the delegation provision and allow the arbitrator to determine the enforceability of the broader arbitration agreement. We therefore reverse and remand the matter with directions to grant Alcal’s motion.

FACTUAL AND PROCEDURAL BACKGROUND

A. Complaint
B.
Alatorre filed a complaint alleging that he began working for Alcal in August 2016, and that he worked at “the various Defendant entities operating as Ihop franchises.” (This may be an error; Alcal states in its opening brief that it is “in the construction industry, where it performs roofing, waterproofing, insulation, firestop, and garage door work,” and that Alatorre worked at its warehouse.) Alatorre alleged that after he reported multiple workplace safety violations, Alcal took several retaliatory actions against him, eventually resulting in his termination in September 2017. Alatorre asserted one cause of action for wrongful discharge in violation of public policy, and two causes of action for whistleblower retaliation (Lab. Code,

§§ 1102.5, 6310). Alatorre prayed for damages, penalties, attorney fees, and injunctive relief, and requested a jury trial.

C. Motion to compel arbitration
D.
Alcal filed a motion to compel arbitration. It asserted that Alatorre “signed a binding arbitration agreement upon commencing his employment” with Alcal. The arbitration agreement required employees to arbitrate all claims against Alcal, including claims of retaliation and wrongful termination. Alcal submitted the declaration of Heather Lim, the human resource manager for Alcal’s parent company, Pacific Coast Building Services, Inc. Lim stated that Alatorre was a “yard worker” in Alcal’s Southgate warehouse from August 26, 2016 to September 13, 2017. Lim stated that Alcal’s Personnel Manual contained its policies and procedures, including the “Arbitration of Disputes Policy.”

A copy of the personnel manual was attached to Lim’s declaration. Section Five, starting on page 103, was titled “Arbitration.” It stated, “All employees are required to arbitrate Disputes (as described below) as a condition of employment and of continued employment with the Company.” Covered disputes included all claims arising out of employment, including retaliation and wrongful termination claims. The arbitration section set out procedures for requesting arbitration, and stated, “The Arbitrator, and not a court or government agency, shall have the exclusive authority to decide all questions or disputes relating to the interpretation, applicability, or enforceability of this Arbitration of Disputes policy, and/or the parties’ agreement to arbitrate Disputes, including but not limited to whether a party has an obligation to arbitrate a Dispute, . . . whether an agreement to arbitrate exists, and whether that agreement is enforceable or is void or voidable.” The arbitration section also stated, “This Policy, and any arbitration under this Policy, shall be governed by the Federal Arbitration Act.”

Lim stated in her declaration, “To indicate their agreement to all of the Company’s policies and procedures described in the Personnel Manual, there is a one-page Personnel Manual Acknowledgement & Agreement for new employees to sign.” The acknowledgement and agreement form included a reference to the arbitration agreement in the personnel manual, and stated, “As a condition of employment and/or continuing employment, I agree to final and binding arbitration of Disputes between me and the Company in accordance with the Arbitration of Disputes Policy, the terms of which are incorporated by reference herein.”

Alcal also submitted the declaration of Karlos Nava, an Assistant Production Manager with Alcal who stated that he had provided Alatorre with employment-related paperwork. Nava stated that after Alcal extended Alatorre a conditional offer of employment, Alatorre came to the company office to complete the onboarding paperwork. Alatorre was given paperwork, including the Personnel Manual and Personnel Manual Acknowledgement & Agreement form. Alatorre sat down in an office to review and sign the documents; he was not rushed, and he did not ask any questions about the documents. Attached to Nava’s declaration was the Personnel Manual Acknowledgement & Agreement form signed by Alatorre, which was undated.

In its motion, Alcal asserted that Alatorre “agreed to the arbitration agreement by signing the Personnel Manual Acknowledgement & Agreements page.” It argued that the claims in Alatorre’s complaint fell within the scope of arbitrable disputes in the arbitration agreement. Alcal noted that the arbitration agreement “delegates to the arbitrator ‘the exclusive authority to decide all questions or disputes relating to the interpretation, applicability, or enforceability of this Arbitration of Disputes Policy.” Alcal argued that if there was a dispute about whether the arbitration agreement was enforceable, “the Court should still order arbitration so that the arbitrator can decide the issue of enforceability,” due to the exclusive authority granted to the arbitrator to decide that issue.

E. Opposition to motion to compel arbitration
F.
Alatorre opposed the motion, arguing that the arbitration agreement was unconscionable and therefore unenforceable. He asserted that the “circumstances of obtaining [Alatorre’s] signature on an Acknowledgment separate from the Arbitration Agreement were procedurally unconscionable,” and “the terms of the subject arbitration agreement are substantively unconscionable.” Alatorre claimed he was “rushed through to sign the subject new hire paperwork and was dismissed when he asked what an arbitration agreement was.” Alatorre stated in a declaration that when he went to Alcal to apply for a job, an employee or intern instructed him to flip through several documents and sign them in a process that took “no more than a minute.” Alatorre stated that when he asked what arbitration was, the employee brushed him off and told him to hurry up. Alatorre also said he was never provided with a copy of any documents. Alatorre disputed Nava’s statement that Alatorre was provided with plenty of time to review the paperwork.

Alatorre asserted in his opposition that the “trial court typically decides the threshold issues of enforceability of the arbitration agreement and the scope of issues to be arbitrated.” He argued that the arbitration agreement was procedurally unconscionable because it was a contract of adhesion, imposed on employees as a condition of employment. Alatorre also contended that the arbitration provision was procedurally unconscionable because the terms were hidden deep within the employee handbook and he was given no time to review it.

Alatorre also asserted that the arbitration agreement was substantively unconscionable, because it changed the statute of limitations on wrongful termination claims, it minimized Alatorre’s rights to pursue claims, and the rules governing arbitration were not attached. Alatorre contended that “unconscionability permeates the entire agreement rendering it unenforceable and not severable.”

G. Reply in support of motion
H.
It its reply, Alcal stated again that the parties agreed that the arbitrator, not a court, had the exclusive authority to decide all issues regarding enforceability of the agreement. Alcal asserted that if the court did decide the issues, it should find that the arbitration agreement was not unconscionable, because “[t]he evidence indicates that the Arbitration Agreement was negotiable—but Plaintiff never attempted to negotiate it.” Alcal also stated that Alatorre said in his declaration that he saw the arbitration agreement before signing the acknowledgment form, and he was bound by the agreement even if he chose not to read it. Alcal disagreed that the arbitration provision was buried in a long employee handbook, stating that it was a separate section and was written in a readable font. Alcal also argued that the arbitration agreement was not substantively unconscionable. Finally, Alcal requested that if the court were to find that the arbitration agreement were unconscionable, the court should “sever the offending clause(s) and reform the Arbitration Agreement to preserve arbitration.”

I. Court ruling
J.
There is no reporter’s transcript of the hearing in the trial court. The only information about the court’s ruling is in a minute order, which states, “The Court having fully considered the arguments of all parties, both written and oral, as well as the evidence presented, now rules as follows: [¶] The Motion to Compel Arbitration filed by Alcal Specialty Contracting, Inc. on 01/17/2019 is Denied with Prejudice.”

A notice of ruling by Alatorre’s counsel stated that the court found procedural unconscionability, and “substantive unconscionability for failure to establish procedures with respect to discovery and the arbitrator.” The notice of ruling continued, “The Court specifically notes for the record that if the Defendant’s Motion to Compel Arbitration had been granted, the California Code of Civil Procedure would have applied to all discovery and evidence, and the Plaintiff would have been blameless for any fees incurred or tendered to advance the arbitration.”

Alcal timely appealed.

DISCUSSION

A. Legal standards
B.
Alcal asserts on appeal that the trial court erred in denying its motion to compel arbitration because the arbitration agreement had a delegation provision giving the arbitrator the exclusive authority to determine whether the parties reached an agreement to arbitrate. A “delegation provision is an agreement to arbitrate threshold issues concerning the arbitration agreement.” (Rent-A-Center, supra, 561 U.S. at p. 68.) “Just as a court may not decide a merits question that the parties have delegated to an arbitrator, a court may not decide an arbitrability question that the parties have delegated to an arbitrator.” (Henry Schein, Inc. v. Archer & White Sales, Inc. (2019) ___U.S.___ [139 S.Ct. 524, 530, 202 L.Ed.2d 480, 487].)

When a trial court’s order denying a petition to compel arbitration is based on a question of law, we review the denial de novo. (Performance Team Freight Systems, Inc. v. Aleman (2015) 241 Cal.App.4th 1233, 1239 (Performance Team).) “In moving for arbitration, the petitioner bears the burden of showing, by a preponderance of the evidence, the existence of a valid arbitration agreement, while the party opposing the petition bears the burden of proving any defense.” (Ibid.)

The arbitration agreement is governed by the Federal Arbitration Act (FAA, 9 U.S.C. § 1, et seq.). Section 2 of the FAA requires courts to enforce arbitration agreements according to their terms, “save upon such grounds as exist under law or in equity for the revocation of any contract,” (9 U.S.C. § 2 (section 2).) Section 3 allows a court to dismiss or stay the proceedings, and section 4 allows a court order to compel arbitration. (9 U.S.C. §§ 3, 4.)

C. Alatorre did not challenge the delegation provision in the arbitration agreement
D.
Alcal contends that the trial court erred by failing to compel arbitration because according to the arbitration agreement, the court should have allowed the arbitrator to determine Alatorre’s contentions of unconscionability. Alcal asserts that because Alatorre challenged only the arbitration agreement as a whole—not the delegation provision specifically—the trial court was required to compel arbitration. We agree.

This case is factually similar to and controlled by the United States Supreme Court’s analysis in Rent-A-Center, supra, 561 U.S. 63. In that case, plaintiff Antonio Jackson filed an employment discrimination suit under federal law in district court in Nevada. The defendant employer, Rent-A-Center, filed a motion under the FAA to compel arbitration pursuant to an arbitration agreement Jackson signed as a condition of his employment. (Id. at p. 65.) “Jackson opposed the motion on the ground that ‘the arbitration agreement in question is clearly unenforceable in that it is unconscionable’ under Nevada law. . . . Rent-A-Center responded that Jackson’s unconscionability claim was not properly before the court because Jackson had expressly agreed that the arbitrator would have exclusive authority to resolve any dispute about the enforceability of the Agreement.” (Id. at p. 66.) The district court granted the motion to compel arbitration, the Ninth Circuit reversed, and the United States Supreme Court granted certiorari.

The Supreme Court stated that there were two relevant provisions of the parties’ agreement. First, a provision provided for arbitration of “all ‘past, present or future’ disputes arising out of Jackson’s employment with Rent-A-Center.” (Rent-A-Center, supra, 561 U.S. at p. 68.) The Supreme Court stated that the “current ‘controversy’ between the parties is whether the Agreement is unconscionable.” (Ibid.) Second, the parties’ agreement had a delegation provision, which stated that the arbitrator “shall have exclusive authority to resolve any dispute relating to the . . . enforceability . . . of this Agreement including, but not limited to any claim that all or any part of this Agreement is void or voidable.” (Ibid.) The court stated that the “delegation provision is an agreement to arbitrate threshold issues concerning the arbitration agreement” (id. at p. 68), and it was “valid under § 2 ‘save upon such grounds as exist at law or in equity for the revocation of any contract.’” (Id. at p. 70.)

The Court noted that there are typically “two types of validity challenges under § 2”: first, a challenge to the validity of the agreement to arbitrate, and second, a challenge to the contract as a whole. (Rent-A-Center, supra, 561 U.S. at p. 70.) The court stated, “[O]nly the first type of challenge is relevant to a court’s determination whether the arbitration agreement at issue is enforceable,” because “a party’s challenge to another provision of the contract, or to the contract as a whole, does not prevent a court from enforcing a specific agreement to arbitrate.” (Ibid.) However, “[i]f a party challenges the validity under § 2 of the precise agreement to arbitrate at issue, the federal court must consider the challenge before ordering compliance with that agreement under § 4.” (Id. at p. 71.)

Defining the issues before it, the Supreme Court stated that the written provision “Rent-A-Center asks us to enforce is the delegation provision—the provision that gave the arbitrator ‘exclusive authority to resolve any dispute relating to the . . . enforceability . . . of this Agreement,’ . . . . The ‘remainder of the contract,’ [citation], is the rest of the agreement to arbitrate claims arising out of Jackson’s employment with Rent-A-Center.” (Rent-A-Center, supra, 561 U.S. at p. 71.) The court added, “In this case, the underlying contract is itself an arbitration agreement.” (Id. at p. 72.) Noting that “[s]ection 2 operates on the specific ‘written provision’ to ‘settle by arbitration a controversy’ that the party seeks to enforce,” the court held that “unless Jackson challenged the delegation provision specifically, we must treat it as valid under § 2, and must enforce it under §§ 3 and 4, leaving any challenge to the validity of the Agreement as a whole for the arbitrator.” (Ibid.)

However, “Jackson challenged only the validity of the contract as a whole. Nowhere in his opposition to Rent-A-Center’s motion to compel arbitration did he even mention the delegation provision.” (Rent-A-Center, supra, 561 U.S. at p. 72.) Instead, Jackson argued that under Nevada law, the entire arbitration agreement was unconscionable. (Id. at p. 73.) “[N]one of Jackson’s substantive unconscionability challenges was specific to the delegation provision.” (Ibid.) The Supreme Court held that because Jackson did not challenge the delegation provision specifically, the district court was required to comply with its terms and grant the petition to compel arbitration. (Id. at pp. 75-76.)

California cases have followed Rent-A-Center’s analysis, stating that “a delegation clause nested in an arbitration provision is severable from the remainder of the contract and the question of its enforceability is for the court to decide if a challenge is directed specifically at the validity of the delegation clause.” (Luxor Cabs, Inc. v. Applied Underwriters Captive Risk Assurance Co. (2018) 30 Cal.App.5th 970, 979.) Thus, “a party’s challenge to the arbitration agreement [as a whole] does not invalidate the delegation clause, and therefore the arbitrator, and not a court, must consider any challenge to the arbitration agreement as a whole.” (Tiri v. Lucky Chances, Inc. (2014) 226 Cal.App.4th 231, 240 (Tiri).) “[W]hether the arbitration agreement as a whole is ultimately held to be unenforceable will have no bearing on the enforcement of the delegation clause itself.” (Malone v. Superior Court (2014) 226 Cal.App.4th 1551, 1559 (Malone).)

Thus, under Rent-A-Center, “when a party is claiming that an arbitration agreement is unenforceable, it is important to determine whether the party is making a specific challenge to the enforceability of the delegation clause or is simply arguing that the agreement as a whole is unenforceable. If the party’s challenge is directed to the agreement as a whole—even if it applies equally to the delegation clause—the delegation clause is severed out and enforced; thus, the arbitrator, not the court, will determine whether the agreement is enforceable. In contrast, if the party is making a specific challenge to the delegation clause, the court must determine whether the delegation clause itself may be enforced (and can only delegate the general issue of enforceability to the arbitrator if it first determines the delegation clause is enforceable).” (Malone, supra, 226 Cal.App.4th at pp. 1559-1560.)

Here, Alatorre challenged only the arbitration agreement as a whole, and did not challenge the delegation provision specifically. He does not contend otherwise. Instead, Alatorre asserts that his failure to address the delegation provision was a response to Alcal’s argument that the entire arbitration provision was enforceable. However, it was not Alcal’s burden to anticipate and address Alatorre’s potential defenses. “In moving for arbitration, the petitioner bears the burden of showing, by a preponderance of the evidence, the existence of a valid arbitration agreement, while the party opposing the petition bears the burden of proving any defense.” (Performance Team, supra, 241 Cal.App.4th at p. 1239.)

In a similar argument, Alatorre asserts that Alcal has “waived its arguments on appeal” regarding the delegation provision “by failing to raise them properly before the trial court.” He contends that Alcal mentioned the delegation provision only “in passing,” and did not cite any of the federal authority it now relies upon, such as Rent-A-Center. According to Alatorre, the result was invited error. Alcal responds that it clearly contended in the trial court that the delegation clause required arbitration.

Alcal’s delegation provision argument in the trial court was not as robust as it could have been. For example, Alcal did not cite Rent-A-Center, although it did cite Pinela v. Neiman Marcus Group, Inc. (2015) 238 Cal.App.4th 227, 242, 245, which discussed and followed Rent-A-Center. Alcal also did not explicitly ask the trial court to sever the delegation clause from the remainder of the agreement. Nevertheless, Alcal clearly asserted its position in both its motion and reply that the proceedings should be stayed and the controversy referred to arbitration based on both the arbitration agreement and the delegation provision within it. This was sufficient to preserve Alcal’s contentions on appeal. Moreover, the question before us is an issue of law based on uncontroverted facts, in that the parties do not disagree about the text of the delegation provision. If a “theory presented for the first time on appeal involves only a legal question determinable from facts” that are uncontroverted, the issue may be raised for the first time on appeal. (In re Marriage of Priem (2013) 214 Cal.App.4th 505, 510-511.) Alcal’s contentions were not forfeited.

Alatorre asserts for the first time on appeal that the delegation provision is not sufficiently clear. For a delegation clause to be effective, “the language of the clause must be clear and unmistakable.” (Tiri, supra, 226 Cal.App.4th at p. 242.) Because Alatorre did not raise any challenge to the delegation clause in the trial court, this contention has been forfeited. Nevertheless, the delegation provision here was clear and unmistakable, stating, “The Arbitrator, and not a court or government agency, shall have the exclusive authority to decide all questions or disputes relating to the interpretation, applicability, or enforceability of this Arbitration of Disputes policy, and/or the parties’ agreement to arbitrate Disputes, including but not limited to whether a party has an obligation to arbitrate a Dispute, . . . whether an agreement to arbitrate exists, and whether that agreement is enforceable or is void or voidable.”

Alatorre asserts that there is a “potential conflict in the powers delegated to the arbitrator” because the section titled “Arbitration Hearing And Decision” states that at the arbitration hearing, the “arbitrator only has the power to decide those issues which are described in the written request for arbitration, plus any defenses thereto.” Alatorre does not cite any authority for this position, or elaborate on his argument. We are unpersuaded that this language renders the delegation provision unclear.

Because there was a delegation provision in the arbitration agreement, and Alatorre did not challenge the delegation provision specifically, under the reasoning of Rent-A-Center the trial court was required to enforce the delegation provision and grant Alcal’s motion.

DISPOSITION

The superior court’s order of March 11, 2019 denying Alcal’s motion to compel arbitration is reversed. The matter is remanded, and the superior court is directed to enter a new order granting Alcal’s motion to compel arbitration. Alcal is entitled to costs on appeal.

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

COLLINS, J.

We concur:

MANELLA, P. J. CURREY, J.