Filed 10/29/19 Waraich v. Fry’s Electronics CA6

NOT TO BE PUBLISHED IN OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.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 COURT OF APPEAL OF THE STATE OF CALIFORNIA

SIXTH APPELLATE DISTRICT

ARVINDER WARAICH et al.,

Plaintiffs and Appellants,

v.

FRY’S ELECTRONICS, INC.,

Defendant and Appellant;

ALEXANDER WARNER,

Objector and Respondent. H044642

(Santa Clara County

Super. Ct. No. 1-16-CV302944)

Plaintiffs Arvinder Waraich and Christina Chornomud, along with defendant Fry’s Electronics, Inc. (Fry’s), sought an order confirming an arbitration award those parties had obtained pursuant to a settlement of plaintiffs’ grievances against Fry’s. The superior court denied the petition and instead granted the petitions to vacate the award brought by Alexander Warner and three other objectors. The three settling parties appeal, contending that the superior court lacked authority to override the arbitrator’s decision to allow arbitration to proceed on a classwide basis. We agree with Warner, however, that the arbitrator exceeded his powers, within the meaning of Code of Civil Procedure section 1286.2, subdivision (a)(4), and 9 U.S.C. 10(a)(4). Consequently, we must affirm the order.

Background

Chornomud filed her class action complaint in Los Angeles County Superior Court in November 2009, alleging that Fry’s had failed to pay wages and overtime, failed to compensate employees for rest breaks that were not provided, failed to provide accurate reports of hours worked and deductions from wages, and willfully failed to pay employees after their employment terminated, thereby entitling those employees to penalties under Labor Code section 203. Chornomud further alleged that the failure to comply with wage and hour laws and policies constituted unfair business practices in violation of Business and Professions Code section 17200 et seq. In January 2010 she amended the complaint to add a claim under the Labor Code Private Attorneys General Act of 2004 (PAGA). (Lab. Code, § 2698 et seq.)

Chornomud and Fry’s stipulated to submit the issues to arbitration, but the arbitrator (Hon. Jack Komar, Ret.) ruled that arbitration would be limited to Chornomud’s individual claims, as her employment agreement contained no language or evidence of intent to provide for arbitration of class or representative actions. Accordingly, in Judge Komar’s “Partial Final Award” arbitration was limited to Chornomud’s individual claims.

On January 24, 2013, Chornomud and Fry’s entered into a settlement in which she dismissed her individual claims, leaving only the PAGA cause of action. On April 4, 2013, the superior court granted Chornomud’s petition to confirm the Partial Final Award and lift the stay on the PAGA claims. In October 2013 Chornomud filed a “Third Amended” PAGA action, followed in January 2014 by a “Fourth Amended” PAGA action, alleging only the failure to provide rest periods. ((Lab. Code, § 226.7.)

Chornomud and Fry’s were thereafter unable to reach a settlement even after mediation efforts. In September 2015 they agreed to stay the PAGA court claim and resolve Chornomud’s individual claims in arbitration. Her counsel subsequently added plaintiff Arvinder Waraich, a Fry’s employee in Santa Clara County, as a named claimant.

In February 2016 Chornomud, Waraich, and Fry’s engaged in mediation on both actions, including Waraich’s representative claims. This effort was successful, and between June 29 and July 1, 2016, the parties executed a “Joint Stipulation of Settlement and Release.” In order to effectuate the settlement, the parties agreed that they would consolidate the two plaintiffs’ actions and submit both to class arbitration before the Honorable William J. Cahill (ret.), who had also served as mediator. The parties further agreed that the purported class would be certified only for purposes of the settlement; if the arbitrator were not to approve the settlement or the court not to confirm it, the stipulation would be of no effect, and Fry’s would retain all of its defenses and its right to oppose class certification. The agreement to engage in class arbitration was a departure from the agreements both Chornomud and Waraich had signed as employees; those agreements had provided for arbitration without mentioning the availability of class arbitration.

On July 5, 2016, Judge Cahill issued an order granting preliminary approval of the proposed settlement. The settlement itself extended to a class of current and former Fry’s employees who had worked on an hourly or non-exempt basis during the class period—i.e., from February 1, 2006 to July 5, 2016 (the date of the preliminary approval). Fry’s agreed to a settlement amount of $2.5 million, including a “Service Award” of $10,000 each to Chornomud and Waraich. Notice of the settlement was mailed to putative class members on August 19, 2016, followed by a 45-day opt-out and objection period. Three class members— Gina Richman, Ali Hashim, and Nestor Delgado— objected.

While the Chornomud action was pending, respondent Alexander Warner, another former Fry’s employee, was pursuing his own class action against Fry’s, which he had initiated on November 6, 2014 in Contra Costa County Superior Court. In his second amended complaint, filed in October 2015, he asserted a single PAGA claim for wage violations, on behalf of “all similarly aggrieved” sales employees who had been subjected to minimum wage violations due to the company’s retention of wages from their commissions. On June 28, 2016, after extensive litigation, the parties attended mediation, but it was unsuccessful. In the two months after that, Warner did not receive notice of the Chornomud/Waraich class settlement and therefore was unaware of the opportunity to opt out or object to it until his counsel informed him of the settlement on December 6, 2016. One month earlier, on November 7, 2016, he had moved for summary judgment in his PAGA action.

Judge Cahill granted final approval of the Chornomud/Waraich settlement with Fry’s on November 11, 2016. In the order he asserted jurisdiction over all class members and granted the amounts called for in the settlement with some adjustment for litigation costs to counsel. In the final award Judge Cahill applied the terms of the settlement, which permitted class arbitration, rather than the arbitration agreement Chornomud and Waraich had originally signed as employees. Ten days later Chornomud and Waraich filed a petition in Santa Clara County Superior Court to confirm the arbitration award, joined by Fry’s.

Warner moved for leave to intervene in the Chornomud/Waraich action as a class member, pursuant to section 387, subdivision (b), and petitioned to vacate the award. The three original objectors (Richman, Hashim, and Delgado) also filed opposition to the petition to confirm the award and urged vacation of the award.

On December 23, 2016 the superior court heard the cross-petitions to confirm and vacate the arbitration award. The court issued a tentative ruling denying the petition to confirm and granting the petitions to vacate the award, based on its finding that the arbitrator had exceeded his authority. The ruling was incorporated into the subsequent order filed January 25, 2017. Fry’s timely appealed, and Chornomud and Waraich filed a timely cross-appeal.

Discussion

1. Mootness

As a preliminary matter, Warner urges us to dismiss this appeal because the settlement by its terms became “null and void” when the superior court vacated the arbitrator’s decision. We find no merit in this argument.

Warner amalgamates several details in the provisions of the settlement agreement to argue that once the “Court”—defined in paragraph No. 1.4 as the Superior Court of Santa Clara County—vacated the award, paragraph No. 13.3 made the settlement “null and void.” He also invokes paragraph No. 1.18, which sets the effective date of the settlement as “the last to occur of the following: (a) the date that the Santa Clara Superior Court’s order confirming or correcting and confirming the Arbitrator’s Final Approval Order/Award is both effective and no longer subject to judicial review, and (b) the date that the Chornomud Action is dismissed in its entirety in Los Angeles County Superior Court.” In Warner’s view, because the Santa Clara County Superior Court vacated the award, “the settlement is now void.”

Warner’s reasoning might be more tenable if the settling parties had expressly agreed that the superior court’s order would not be subject to further judicial review; but it is hardly imaginable that they would have consented to such a preclusive term; and indeed, they did not. Nor is there any basis for inferring that those parties, who were attempting to resolve their dispute through mediation and resulting settlement, intended to forgo appellate review in the event that court declined to honor their agreement. Furthermore, it is apparent that the settling parties did contemplate the possibility of appeal: Paragraph No. 13.5 states, “In the event an appeal is filed from the Court’s ruling on the motion to confirm the Arbitrator’s Final Approval Order/Award, administration of the Settlement shall be stayed pending final resolution of the appeal or other appellate review.” We therefore deny Warner’s motion to dismiss and proceed to address the merits of the appeal.

2. Scope and Standard of Review

Both state and federal judicial decisions have often emphasized the important role arbitration plays in resolving civil disputes efficiently and economically. Through the California Arbitration Act, set forth in Title 9 of the Code of Civil Procedure (§ 1280 et seq.), the Legislature has expressed a “ ‘strong public policy in favor of arbitration as a speedy and relatively inexpensive means of dispute resolution.’ [Citations.] ” (Moncharsh v. Heily & Blase (1992) 3 Cal.4th 1, 9 (Moncharsh); see also Richey v. AutoNation, Inc. (2015) 60 Cal.4th 909, 916 (Richey) [“California law favors alternative dispute resolution as a viable means of resolving legal conflicts].”) Likewise, the Federal Arbitration Act (FAA) “establishes a ‘federal policy favoring arbitration,’ [citation] requiring that ‘we rigorously enforce agreements to arbitrate.’ [Citation.]” (Shearson/American Express v. McMahon (1987) 482 U.S. 220, 226.) Consistent with this policy, “arbitrators, unless expressly restricted by the agreement or the submission to arbitration, have substantial discretion to determine the scope of their contractual authority to fashion remedies, and that judicial review of their awards must be correspondingly narrow and deferential.” (Advanced Micro Devices, Inc. v. Intel Corp. (1994) 9 Cal.4th 362, 376 (Advanced Micro); Cable Connection, Inc. v. DIRECTV, Inc. (2008) 44 Cal.4th 1334, 1370 (Cable Connection).)

“ ‘Because the decision to arbitrate grievances evinces the parties’ intent to bypass the judicial system and thus avoid potential delays at the trial and appellate levels, arbitral finality is a core component of the parties’ agreement to submit to arbitration.’ ” (Richey, supra, 60 Cal.4th at p. 916.) “[I]t is the general rule that parties to a private arbitration impliedly agree that the arbitrator’s decision will be both binding and final” (Moncharsh, supra, 3 Cal.4th at p. 9), and thus they agree to bear the risk of an arbitrator’s mistake “in return for a quick, inexpensive, and conclusive resolution to their dispute.” (Id. at p. 11.)

Accordingly, courts generally may not review arbitration awards for errors of fact or law, “even when those errors appear on the face of the award or cause substantial injustice to the parties.” (Richey, supra, 60 Cal.4th at p. 916.) “An award may be vacated only for fraud, corruption, misconduct, an undisclosed conflict, or similar ‘circumstances involving serious problems with the award itself, or with the fairness of the arbitration process.’ (Moncharsh, at p. 12; see § 1286.2, subd. (a).) Otherwise, judicial corrections are limited to remedying ‘obvious and easily correctable mistake[s],’ ‘technical problem[s],’ and actions in excess of authority so long as the correction leaves the merits of the decision unaffected. (Moncharsh, at p. 13; see § 1286.6.)” (Heimlich v. Shivji (2019) 7 Cal.5th 350, 367.)

Among the legislative exceptions to arbitral finality is section 1286.2, subdivision (a)(4), which is pertinent in the case before us. That provision permits vacation of an arbitration decision where “[t]he arbitrators exceeded their powers and the award cannot be corrected without affecting the merits of the decision upon the controversy submitted.” (§ 1286.2, subd. (a)(4).) Because the arbitrator’s powers “derive from, and are limited by, the agreement to arbitrate,” an award “in excess of those powers may, under sections 1286.2 and 1286.6, be corrected or vacated by the court.” (Advanced Micro, supra, 9 Cal.4th at p. 375.) Thus, “the courts retain the ultimate authority to overturn awards as beyond the arbitrator’s powers, whether for an unauthorized remedy or decision on an unsubmitted issue.” (Ibid.) The FAA, which was invoked as the primary source of authority in the class members’ arbitration agreements in this case, similarly allows a court to vacate an award “where the arbitrators exceeded their powers, or so imperfectly executed them that a mutual, final, and definite award upon the subject matter submitted was not made.” (9 U.S.C. 10(a)(4).)

3. Availability of Classwide Arbitration

The question presented in this appeal is whether the arbitrator can be said to have exceeded his powers by issuing an award in accordance with appellants’ settlement of their dispute as a class action, even though, as discussed below, the arbitration agreements signed by the absent class members either are silent on the availability of this procedure on a classwide basis or, in some cases (those conforming to the October 2011 and subsequent versions), expressly preclude it.

As federal and state judicial authority has evolved, one enduring premise is that “ ‘[t]he scope of arbitration is . . . a matter of agreement between the parties.’ [Citation.]” (Moncharsh, supra, 3 Cal.4th at p. 8; Volt Info. Sciences. v. Bd. of Trs. (1989) 489 U.S. 468, 479 [Arbitration under the FAA “is a matter of consent, not coercion, and parties are generally free to structure their arbitration agreements as they see fit.”].) It therefore “falls to courts and arbitrators to give effect to these contractual limitations, and when doing so, courts and arbitrators must not lose sight of the purpose of the exercise: to give effect to the intent of the parties.” (Stolt-Nielsen S. A. v. AnimalFeeds Int’l Corp. (2010) 559 U.S. 662, 684 (Stolt-Nielsen).)

In Stolt-Nielsen, a majority of the United States Supreme Court explained that “a party may not be compelled under the FAA to submit to class arbitration unless there is a contractual basis for concluding that the party agreed to do so.” (Stolt-Nielsen, supra, 559 U.S. at p. 684.) Simply agreeing to submit their disputes to an arbitrator is insufficient to permit the inference that the parties authorized class arbitration. “In bilateral arbitration, parties forgo the procedural rigor and appellate review of the courts in order to realize the benefits of private dispute resolution: lower costs, greater efficiency and speed, and the ability to choose expert adjudicators to resolve specialized disputes.” (Id. at p. 685.) Class arbitration, however, brings “fundamental changes” by binding “hundreds or perhaps even thousands” of absent parties. (Id. at p. 686.) Thus, “the differences between bilateral and class-action arbitration are too great for arbitrators to presume, consistent with their limited powers under the FAA, that the parties’ mere silence on the issue of class-action arbitration constitutes consent to resolve their disputes in class proceedings.” (Id. at p. 687.)

Recently the High Court reinforced the Stolt-Nielsen reasoning and extended it to an arbitration agreement that was not merely silent, but ambiguous on the availability of class arbitration. In Lamps Plus, Inc. v. Varela (2019) ___ U.S. __, __ [139 S.Ct. 1407] (Lamps Plus), the Court again emphasized that class arbitration lacks the benefits of individual arbitration by making the process “ ‘slower, more costly, and more likely to generate procedural morass than final judgment.’ ” (Id. at p. __ [139 S.Ct. at p. 1416].) And notably for purposes of the current appeal, “it also raises serious due process concerns by adjudicating the rights of absent members of the plaintiff class—again, with only limited judicial review.” (Ibid.) Accordingly, the majority held that ambiguity in an arbitration agreement, as with silence, is not a sufficient basis for concluding that the parties to the agreement consented to class arbitration. In so holding, the Court rejected the Ninth Circuit’s application of the California rule that when traditional construction principles do not resolve ambiguity in a contract, the ambiguous language is interpreted against the drafter. That approach, the majority ruled, “is flatly inconsistent with ‘the foundational FAA principle that arbitration is a matter of consent.’ ” (Id. at p. __ [139 S.Ct. at p. 1418; see also Epic Systems Corp. v. Lewis (2018) 584 U.S. __, __ [138 S.Ct. 1612, 1623] [“courts may not allow a contract defense to reshape traditional individualized arbitration by mandating classwide arbitration procedures without the parties’ consent”].)

In this case, the arbitration clauses in the agreements signed by employees after February 1, 2006 (the beginning of the class period) and before October 2011 were silent on the availability of class arbitration. In the April 2005 version of the employment agreement, Fry’s and the employee committed themselves, in the event of an employment-related dispute, simply to “final and binding arbitration pursuant to the provisions of the [FAA], to the extent applicable, state law.” Minor variations followed, only with respect to the applicable law to be followed in the arbitration.

Those versions of the agreement from October 2011 through February 2014, however, are neither silent nor ambiguous on this point. All contained the following provision: “Claims may only [sic] be brought and maintained in a party’s individual capacity, and not as a plaintiff, claimant or class or collective action member in any purported class or representative proceeding or Fair Labor Standards Act (‘FLSA’) collective action, provided that such restrictions apply only to the extent applicable law permits them.” They further stated, “The Arbitrator may not preside over any form of a representative or class proceeding or FLSA collective action otherwise prohibited by this Agreement without the express written consent of the parties. Neither this Agreement nor an agreement to arbitrate before a particular arbitration provider shall be interpreted to constitute such written consent.” Unquestionably, then, classwide arbitration either was not expressly approved or was specifically proscribed in all of the class members’ employment agreements.

Appellants rely heavily on Sandquist v. Lebo Automotive, Inc. (2016) 1 Cal.5th 233, in which a four-justice majority of the California Supreme Court held that the arbitrability of a dispute on a classwide basis is an issue for the arbitrator to decide. That case, however, is distinguishable. The Court in Sandquist was examining only arbitration agreements between the employee, an automobile salesperson, and his employer; and every other employee at the dealership apparently was subject to the same agreement. (Id. at pp. 242, 258.) The Sandquist holding is qualified by the acknowledgment that “the arbitration would bring in only parties to the same form of arbitration agreement a court has already determined to be valid, and the same type of dispute a court has already determined to be within the scope of that agreement.” (Id. at p. 257.) Accordingly, an arbitration award would not be binding on absent class members unless they had signed the same valid agreement, and the award would “govern only a dispute the trial court has found to be within the scope of that agreement.” (Id. at p. 258.)

Here, by contrast, employees in the identified class had agreed to varying terms with respect to the availability of class arbitration and the availability of judicial review, depending on which version of the agreement they had signed. In approving the Chornomud/Waraich settlement with Fry’s (which he had helped the parties achieve while acting as mediator), the arbitrator in the present case appears to have been unaware of the restrictions on class arbitration contained in the post-October 2011 agreements. The parties appearing before Judge Cahill at the November 1, 2016 “Final Fairness Hearing” had all signed versions before the changes initiated in 2010: Waraich and objector Richman had signed the 2005 version, objector Hashim had signed the 2007 version, and Chornomud and objector Delgado had signed the 2008 version. There was no mention at the hearing before Judge Cahill of provisions, like that contained in Warner’s agreement (the September 2012 version), expressly precluding classwide arbitration. Nor, in their written opposition to the arbitration, did the three objectors point out agreements other than their own, those of the settling parties, and that of Christopher Silva, whose separate action against Fry’s was pending. Instead, their counsel argued, relying in part on Judge Komar’s 2013 decision, that the original employment agreements signed by Chornomud and Waraich permitted only individual arbitration. Counsel for Fry’s, in describing the objectors’ position as “eyewash,” told Judge Cahill that “the other employees of Fry’s all signed . . . agreements that they would submit their claims to arbitration and thus they have consented for that reason.” And counsel for the plaintiffs suggested that there could be “a very small percentage” of class members—at most “a mini-class of a few people”—with an “oddball” agreement like Silva’s. At that point Judge Cahill suggested, and plaintiffs’ counsel agreed, that the parties would “have to carve out Silva . . . from the settlement.”

It is thus evident on this record that neither the settling parties nor the objectors informed the arbitrator that there were in fact agreements that specifically prohibited class arbitration. Judge Cahill therefore had no opportunity to ensure that absent class members would be protected by the settlement plaintiffs had entered into with Fry’s.

Fry’s maintains that we must respect the parties’ stipulation that an arbitrator rather than a court would approve and administer the classwide settlement. Invoking AT&T Mobility LLC v. Concepcion (2011) 563 U.S. 333, 344, Fry’s insists that the FAA “requires that the parties’ agreement be enforced according to its terms.” And the plaintiffs cite Oxford Health Plans LLC v. Sutter (2013) 569 U.S. 564, 572 (Oxford) in emphasizing the “highly deferential standard” applicable to an arbitrator’s decision. But neither case involved an arbitrator’s decision to authorize class arbitration when the underlying agreements were diverse, with some specifically prohibiting participation in representative or class actions. In Concepcion a single version of the arbitration agreement was at issue; and in Oxford there was no suggestion that the putative class members had contracts different from that of the plaintiff. The FAA—which all the contracting parties here agreed was the primary source of law governing their disputes—does not require parties to submit to class arbitration when the applicable agreement is either silent or ambiguous regarding that procedure. (Stolt-Nielsen, supra, 559 U.S. at pp. 686-687 [arbitrators may not infer from silence that the contracting parties agreed to class arbitration]; Lamps Plus, supra, ___ U.S. at p.__ [139 S.Ct. at p. 1419] [“Courts may not infer from an ambiguous agreement that parties have consented to arbitrate on a classwide basis”].)

The trial court in this case found its authority to vacate the award in Cable Connection, supra, 44 Cal.4th 1334, 1361, which addressed a provision nearly identical to the one in the Fry’s employment agreements composed between September 2010 and February 2014. In Cable Connection the “sales agency agreement” included the following qualification to the arbitration provision: “The arbitrators shall not have the power to commit errors of law or legal reasoning, and the award may be vacated or corrected on appeal to a court of competent jurisdiction for any such error.” (Id. at pp. 1341, fn. 3; 1361, fn. 20.) Our Supreme Court held that this contractual limitation on the arbitrator’s broad authority was enforceable. Applying the exception for awards that exceed the arbitrator’s powers in section 1286.2, subdivision (a)(4), the Court held that the parties through their agreement may circumscribe those powers; thus, “there is no jurisdictional impediment to contracts limiting the arbitrators’ authority by subjecting their award to correction for legal error.” (Cable Connection, supra, at p. 1362.)

In this case many of the prospective class members’ agreements—those conforming to the September 2010 and later versions—similarly contained provisions allowing judicial correction of an arbitrator’s “errors of law or legal reasoning,” notwithstanding their “final and binding” language. The parties in each of those agreements thus contractually limited the scope of the arbitrator’s powers and allowed the court to vacate any award that was legally incorrect, notwithstanding the earlier “final and binding” language of the agreement. The trial court correctly recognized that this limitation “depriv[ed] the arbitrato[r] of the power to commit legal error [and] specifically provided for judicial review of such error.” (Cable Connection, supra, 44 Cal.4th at p. 1361.) It then concluded that the arbitrator had erred by authorizing class arbitration, as that procedure was incompatible with the agreements signed by many of the absent class members.

We agree with that conclusion. Unquestionably, the settling parties were entitled to resolve their dispute on any terms affecting their own rights and interests. But they were not entitled to impose on other former employees procedures that not only were not mentioned but were inconsistent with the terms of those employees’ agreements. As some in the purported class expressly agreed to arbitration only on an individual basis, and some agreed that a court could overturn errors by the arbitrator, the trial court in this case properly determined that the arbitrator had exceeded his powers in permitting the dispute to be settled on a classwide basis.

Our conclusion makes it unnecessary to address the claimants’ argument that the trial court erroneously analogized this case to Luckey v. Superior Court (2014) 228 Cal.App.4th 81 (Luckey), which the trial court found “persuasive” but which plaintiffs dismiss as preempted by the FAA. Our review of the court’s determination that the arbitrator exceeded his powers is de novo; we review its ruling, not its rationale. (Richey, supra, 60 Cal.4th at p. 918, fn. 1; Department of Personnel Administration v. California Correctional Peace Officers Assn. (2007) 152 Cal.App.4th 1193, 1201.) Nor is it necessary to analyze the theoretical preemptive implications of California Rules of Court, rule 3.764, which pertains to motions to certify or decertify a class or to modify class certification. Appellants’ settlement itself contemplated the possibility that the final award might be “vacated by the Court in whole or in part,” a contingency that would render the settlement “null and void.” In the circumstances presented, where the arbitrator exceeded its authority in permitting class arbitration, vacatur was not improper.

Disposition

The order is affirmed. Warner is entitled to his costs on appeal.

_________________________________

ELIA, J.

WE CONCUR:

_______________________________

GREENWOOD, P. J.

_______________________________

PREMO, J.

Waraich et al. v. Fry’s Electronics, Inc.

H044642