Opinion
G042698 Super. Ct. No. 30-2009-00124859
08-23-2011
MARIAM BERRI, Plaintiff and Respondent, v. THE NEIMAN MARCUS GROUP, INC., Defendant and Appellant.
McGuireWoods and Michelle R. Walker; Jackson Lewis, Samantha N. Hoffman and Sherry L. Swieca for Defendant and Appellant. Exodus Law Group and Robert S. Kostrenich for Plaintiff and Respondent.
NOT TO BE PUBLISHED IN OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.
OPINION
Appeal from an order of the Superior Court of Orange County, David T. McEachen, Judge. Reversed and remanded with directions.
McGuireWoods and Michelle R. Walker; Jackson Lewis, Samantha N. Hoffman and Sherry L. Swieca for Defendant and Appellant.
Exodus Law Group and Robert S. Kostrenich for Plaintiff and Respondent.
Appellant The Neiman Marcus Group, Inc. (Neiman) appeals from an order denying its motion to compel arbitration of a dispute with one of its former employees, respondent Mariam Berri. Berri sued Neiman and two of its employees for breach of contract and common law tort claims relating to her termination from her sales position at the Neiman store in Newport Beach. Neiman moved to compel arbitration.
The trial court denied Neiman's motion, finding several features of the arbitration agreement to be unconscionable. It also found a clause assigning the power to determine contract validity to the arbitrator unenforceable, because it was ambiguous and did not clearly and unmistakably delegate this power.
We agree the delegation clause was ineffective, based on language in another clause in the agreement that rendered it ambiguous. The trial court erred, however, in finding the agreement as a whole unconscionable. The parts of the agreement that led to this conclusion were severable. We therefore reverse and remand, directing the trial court to consider severability issues as appropriate before ordering the case to arbitration.
I
FACTS
Berri sued Neiman and two former coemployees for damages based on her termination from her position at the Neiman Marcus store in Newport Beach. She described herself in her complaint as a very successful salesperson in Neiman's fine jewelry department, with a loyal clientele of repeat customers. She alleged she was making over $275,000 annually in commissions at the time of the activities recounted in the complaint.
According to Berri, Neiman had a policy in the jewelry department whereby the first salesperson to make a sale to a particular customer in effect "owned" that customer, and other salespeople could not sell jewelry to that person in the future. Berri alleged that she and the individual employee defendants became embroiled in disputes over who owned certain customers, all of which disputes were resolved in favor of the other employees. She also described other incidents allegedly demonstrating both the defendant employees' animosity towards her and Neiman's failure to do anything about it.
Things came to a head in June 2008, when Berri was accused of taking a ring belonging to one of the defendant employees. According to Berri, reports were filed, both internally and with the Newport Beach Police Department, accusing her of theft. She was terminated and, a short time later, arrested and charged with a felony. The charges were later dropped.
Berri ascribes her termination to the desire of the two individual defendant employees to appropriate her customers and obtain her commissions for themselves, to lessen competition for new customers, and to create job openings in the jewelry department for their friends.
Berri sued Neiman for breach of contract (for terminating her without good cause and treating her unfairly), for breach of the covenant of good faith and fair dealing (largely based on her allegedly unfair treatment and termination), and for wrongful termination in violation of public policy. This last claim is somewhat puzzling. Although Berri alleged that she was terminated because of her "complaints about harassment, hostile work environment, and the failure of Defendant NEIMAN to pay her monies to which she was lawfully entitled," there were no factual allegations of sexual harassment or other harassment or hostility based on a protected category. Berri alluded to some comments made by the employees about her Muslim faith, but she did not allege any facts indicating an adverse employment action was against her on account of her religion. She also alleged no Fair Employment and Housing Act (FEHA) or Labor Code causes of action. Apparently Berri's "public policy" cause of action against Neiman was rooted, like the other two, in the disputes about who "owned" certain customers and the fallout from these disputes.
Berri alleged in conclusory terms in her first cause of action for breach of contract that she was terminated for "improper purposes," including her supervisor's desire to appropriate her commissions for his own purposes, her "ethnicity and religious beliefs," and in retaliation for raising these issues with Neiman's human resources department. These allegations, however, formed part of a breach of contract cause of action, not one based on a statute such as the Fair Employment and Housing Act. Under the circumstances, we will assume Berri is asserting contract, not statutory, causes of action.
Berri also sued Neiman and the two individual employees for defamation, based on the ring incident, and Neiman and one of the individual employees for malicious prosecution, based on her arrest for theft and the subsequent dismissal of the charges against her. After she filed her complaint, Neiman moved to compel arbitration.
The arbitration agreement itself is a 10-page document that "requires you [the employee] to submit all complaints, disputes, and legal claims . . . you have against the company, and the company to submit all disputes it has against you, to binding arbitration." (Capitalization omitted.) Berri did not sign the arbitration agreement itself, but apparently signed The Neiman Marcus Group, Inc., Mandatory Arbitration Agreement Associate Acknowledgement Form (acknowledgement), which referred several times to the arbitration agreement. The acknowledgement does not explicitly require Berri to "agree" to anything. It states, however, "I understand that the Arbitration Agreement is not optional. Rather, it is mandatory and a condition and term of my employment if I am employed or continue employment on or after July 15, 2007."
After a hearing, the trial court found the arbitration agreement unenforceable as unconscionable. In addition to finding the agreement procedurally unconscionable — because it was a condition of continued employment — the trial court identified five features of the agreement it felt were substantively unconscionable: (1) Neiman's reserving the right to increase the number of arbitrators from one to three and to amend, modify, or revoke the arbitration agreement; (2) requiring all arbitrators to be licensed to practice law and to reside in Texas (Neiman's home state); (3) a Texas and Fifth Circuit choice-of-law clause; (4) limited discovery; and (5) a delegation of the power to determine enforceability of the agreement to the arbitrator rather than the court (the delegation clause). As to this last feature, the court held that the agreement was ambiguous as to whether the arbitrator or the court was empowered to determine enforceability and therefore did not "clearly and unmistakably" delegate to the arbitrator the power to determine whether the agreement was unconscionable. The trial court also ruled on some of Neiman's evidentiary objections. This timely appeal followed, pursuant to Code of Civil Procedure section 1294, subdivision (a).
We reject, as raised for the first time on appeal, Neiman's argument that the arbitrability of this dispute should also be decided under Texas law. (Newton v. Clemons (2003) 110 Cal.App.4th 1, 11.)
II
DISCUSSION
Generally, an arbitration agreement between a California employee and a corporation engaged in multi-state commerce is governed by the Federal Arbitration Act (FAA; 9 U.S.C. § 1 et seq.). (See, e.g., Circuit City Stores, Inc. v. Adams (2001) 532 U.S. 105 [FAA applies to contract between California employee and national retailer of consumer electronics]; Perry v. Thomas (1987) 482 U.S. 483 [FAA applies to contract between California employee and national brokerage firm].) Congress enacted the FAA to "create a body of federal substantive law of arbitrability, applicable to any arbitration agreement within the coverage of the Act." (Moses H. Cone Memorial Hosp. v. Mercury Const. (1983) 460 U.S. 1, 24.)
Berri asserted in her declaration that she worked exclusively at the Newport Beach store. She alleged in her complaint that Neiman "owned and operated certain retail sales stores under the name 'Neiman Marcus' in the United State[s]" and "employs well over 150 employees in both California and the United States . . . ."
The federal law created under the FAA is enforceable in both state and federal courts. (Perry v. Thomas, supra, 482 U.S. at p. 489.) A state law that conflicts with this federal law is preempted. (Southland Corp. v. Keating (1984) 465 U.S. 1, 10.) State procedural rules relating to arbitration apply, so long as they do not interfere with the purpose of the federal law, and California courts use California motion procedure to determine whether to compel arbitration. (Rosenthal v. Great Western Fin. Securities Corp. (1996) 14 Cal.4th 394, 409-410.) Further, California has a strong public policy in favor of arbitration as an expeditious and cost-effective way of resolving disputes. (Moncharsh v. Heily & Blase (1992) 3 Cal.4th 1, 9.)
Agreement to Arbitrate
"[W]hen a petition to compel arbitration is filed and accompanied by prima facie evidence of a written agreement to arbitrate the controversy, the court itself must determine whether the agreement exists . . . . Because the existence of the agreement is a statutory prerequisite to granting the petition, the petitioner bears the burden of proving its existence by a preponderance of the evidence." (Rosenthal v. Great Western Fin. Securities, Corp., supra, 14 Cal.4th at p. 413; see also Volt Info. Sciences, Inc. v. Bd. of Trustees (1989) 489 U.S. 468, 475-476 [state contract formation law applies]); Hotels Nevada v. L.A. Pacific Center, Inc. (2006) 144 Cal.App.4th 754, 761-762 [enforceability determined in manner provided by law for the hearing of motions].) "'Prima facie evidence is that degree of evidence which suffices for proof of a particular fact until contradicted and overcome, as it may be, by other evidence, direct or indirect.'" (People v. Van Gorden (1964) 226 Cal.App.2d 634, 636-637, quoting 18 Cal.Jur.2d, Evidence, § 13, p. 435.)
Neiman's evidence of the existence of the arbitration agreement consisted of the declaration of Nina Fabian, Neiman's vice-president of associate relations, and two attached exhibits - the acknowledgement and the arbitration agreement. The one-page acknowledgment bore a handwritten signature, the hand-printed name "Mariam Berri" a 6-digit personal identification number, and the date "7-13-07."
In her opposition to Neiman's motion to compel arbitration, Berri did not directly dispute the existence of an agreement to arbitrate. She maintained instead that Neiman had not presented adequate evidence of the existence of the agreement. She did not specifically deny signing the acknowledgment — in fact, in her declaration she admitted to signing a one-page document on July 13, 2007 — but instead denied that Neiman had produced evidence of the arbitration agreement and of her execution of the acknowledgement. Berri did not, however, file evidentiary objections to the Fabian declaration, and the trial court did not rule on the admissibility of the declaration or the exhibits. Other than the evidentiary objections to the Fabian declaration, Berri made no argument in the trial court that would call the existence of the agreement into question.
Documents may be authenticated by circumstantial evidence, including content and location. (People v. Smith (2009) 179 Cal.App.4th 986, 1001-1002; People v. Gibson (2001) 90 Cal.App.4th 371, 383). Documents may also be incorporated by reference into other documents, and the arbitration agreement was properly incorporated by reference into the acknowledgment. (See, e.g., Wolschlager v. Fidelity National Title Ins. Co. (2003) 111 Cal.App.4th 784, 790-791.)
Moreover, the trial court based its denial of Neiman's motion on several unconscionability grounds. In order for an agreement to be unconscionable, it must first exist, so from this ruling we may infer the trial court implicitly overruled any objections Berri may have had to Neiman's exhibits. An unconscionability defense is directed at an agreement's validity, not at its existence. (Madrigal v. New Cingular Wireless Services, Inc. (E.D.Cal., Aug. 17, 2009, No. 09-CV-00033-OWW) 2009 U.S. Dist. Lexis 72416, p. *21.) We conclude — as did the trial court, apparently — that Neiman has satisfied its burden to present a prima facie evidence of the existence of an agreement to arbitrate.
Berri devoted most of her opposition to the motion to unconscionability arguments, spending only two paragraphs on the evidence of the agreement.
The Delegation Clause
The United States Supreme Court held in Howsam v. Dean Witter Reynolds, Inc. (2002) 537 U.S. 79 that "the 'question of arbitrability,' is 'an issue for judicial determination [u]nless the parties clearly and unmistakably provide otherwise.' [Citation.]" (Id. at p. 83.) In First Options of Chicago, Inc. v. Kaplan (1995) 514 U.S. 938, the court provided a framework by which courts can determine whether the arbitrator or the court should decide arbitrability. Briefly, the first issue to be resolved is whether the proposed participants agreed to arbitrate at all. (Id. at p. 944.) The court applies "ordinary state-law principles that govern the formation of contracts" to decide this issue. (Ibid.)If the court finds the parties agreed to arbitrate, then the court examines the agreement itself to determine whether the parties assigned the power to determine arbitrability to the arbitrator. (Id. at p. 943.) The court, however, should not assume that the parties agreed to have the arbitrator determine arbitrability. On the contrary, the court should not find that the parties agreed to delegate this issue to the arbitrator "unless there is 'clea[r] and unmistakeabl[e]' evidence that they did so. [Citations.]" (Id. at p. 944.)
We also conclude that Berri properly challenged the delegation provision, as she was required to do. (Rent-A-Center, West, Inc. v. Jackson (2010) 561 U.S. ____ [130 S.Ct. 2772, 2778-2779].)
We review questions of contract interpretation independently. (Parsons v. Bristol Development Co. (1965) 62 Cal.2d 861, 865.) The subject of arbitrability, when it does not rest on the evaluation of extrinsic evidence, is reviewed de novo. (Greenspan v. LADT, LLC (2010) 185 Cal.App.4th 1413, 1436-1437.) The "delegation clause" (called "Enforcement" in this arbitration agreement) provides, in pertinent part: "Any dispute concerning this Agreement — the way it was formed, its applicability, meaning, scope, enforceability, or any claim that all or part of this Agreement is void or voidable — is subject to arbitration under this Agreement and shall be determined by the arbitrator."
The trial court held this provision did not clearly and unmistakably give exclusive jurisdiction to the arbitrator to decide whether the agreement was enforceable. It ruled this clause was not clear and unmistakable because of the presence of another clause in the agreement, the "Severability" clause, which provided in pertinent part, "[I]f any provision of this Agreement is adjudged to be void or otherwise unenforceable, in whole or in part, then as to the Covered Employees in the state where the court making such determination is located, the offending provision shall be severed from the remainder of the Agreement and the rest of the Agreement shall be effective. . . . If any court determines that this Agreement in its entirety shall not be enforced, such determination shall be effective only as to the Covered Employees who reside in the state where such court is located, and not as to any other Covered Employees, as to whom this Agreement shall continue to be valid and enforceable." (Italics added.)
The trial court, following Baker v. Osborne Development Corp. (2008) 159 Cal.App.4th 884, held that a similar provision rendered the agreement ambiguous as to whether the court or the arbitrator would decide enforceability and therefore the agreement lacked a clear and unmistakable delegation of this issue to the arbitrator. Other cases are in accord. Recently, in Hartley v. Superior Court 196 Cal.App.4th 1249, 1255-1256 (Hartley), Division One of this district found such ambiguity when interpreting similar provisions of an arbitration agreement.
In Hartley, the arbitration clause stated that all disputes, "'including the determination of the scope and applicability of this agreement to arbitrate, shall be subject to the terms of the [FAA] and shall be submitted to final and binding arbitration . . . .'" (Hartley, supra, 196 Cal.App.4th at p. 1256.) The agreement also stated, however, in its severability clause: "'In the event that any provision of this Agreement shall be determined by a trier of fact of competent jurisdiction to be unenforceable in any jurisdiction, . . . the remainder of this Agreement shall remain binding. . . .'" (Id. at p. 1257.) The court held: "[T]he account agreements do not meet the heightened standard that must be satisfied to vary from the general rule that the court decides the gateway issue of arbitrability. The severability clause here uses the term 'trier of fact of competent jurisdiction,' rather than the term 'arbitrator,' indicating the court has authority to decide whether an arbitration provision is unenforceable. . . . When an agreement is ambiguous, 'the court and not the arbitrator should decide arbitrability so as not to force unwilling parties to arbitrate a matter they reasonably thought a judge, not an arbitrator, would decide.' [Citations.] We construe ambiguities against Monex as the drafting party. [Citation.]" (Id. at pp. 1257-1258; see also Parada v. Superior Court (2009) 176 Cal.App.4th 1554, 1565 [delegation must be "clear and unmistakable"]; Laguna v. Coverall N. Am., Inc. (S.D. Cal July 26, 2011, No. 09cv2131-JM) 2011 U.S. Dist. Lexis 81105 [court decides threshold issue when delegation provision is ambiguous].)
The instant case is very similar; indeed, the similarities in the language are striking. Further, as was the case in Hartley, any ambiguities must be construed against Neiman, the drafter of the language. Following the reasoning in Hartley and the line of cases cited therein, we conclude the trial court properly found the delegation clause ineffective.
Unconscionability
The grounds upon which the trial court based its decision was unconscionability. Unconscionability includes both substantive and procedural elements. (Stirlen v. Supercuts, Inc. (1997) 51 Cal.App.4th 1519, 1531.) Procedural unconscionability addresses the manner in which agreement to the disputed term was sought or obtained, such as unequal bargaining power between the parties and hidden terms included in contracts of adhesion. (24 Hour Fitness, Inc. v. Superior Court (1998) 66 Cal.App.4th 1199, 1212-1213.) Substantive unconscionability addresses the impact of the term itself, such as whether the provision is so harsh or oppressive that it should not be enforced. (Id. at p. 1213.) These elements, however, need not be present to the same degree. "[T]he more substantively oppressive the contract term, the less evidence of procedural unconscionability is required to come to the conclusion that the term is unenforceable, and vice versa." (Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, 114.)
Assuming we agree with the trial court that the agreement is procedurally unconscionable, because it was presented as a condition of continued employment, we disagree that it was inherently substantively unconscionable. The trial court pointed to five specific provisions that were problematic: (1) Neiman's reserving the right to increase the number of arbitrators from one to three and to amend, modify, or revoke the arbitration agreement; (2) requiring all arbitrators to be licensed to practice law and to reside in Texas; (3) a Texas and Fifth Circuit choice-of-law clause; (4) limited discovery; and (5) the delegation clause. But severing some or all of those clauses could properly address each of these concerns, to the extent they are ongoing and likely to tip the scales in Neiman's favor. (Civ. Code, § 1670.5, subd. (a).) There is nothing inherently unconscionable about requiring Berri to arbitrate her disputes, as she agreed to do, as long as the arbitration procedures are fair and do not provide Neiman with an advantage. We therefore direct the trial court to consider severability of the problematic clauses upon remand.
III
DISPOSITION
The order is reversed. Upon remand, the court shall consider whether severability of specific provisions of the arbitration agreement is appropriate before ordering the case to arbitration. In the interests of justice, each party shall bear their costs on appeal.
________
MOORE, J.
I CONCUR:
________
O'LEARY, J.
BEDSWORTH, ACTING P. J., Dissenting:
I respectfully dissent.
I agree with the majority that Neiman Marcus established the existence of an arbitration agreement. We part company over the interpretation of the delegation clause, which provides, in pertinent part: "Any dispute concerning this Agreement - the way it was formed, its applicability, meaning, scope, enforceability, or any claim that all or part of this Agreement is void or voidable - is subject to arbitration under this Agreement and shall be determined by the arbitrator." The trial court refused to enforce this clause because of the presence of another clause in the agreement, the "Severability" clause, which provided in pertinent part, "[I]f any provision of this Agreement is adjudged to be void or otherwise unenforceable, in whole or in part, then as to the Covered Employees in the state where the court making such determination is located, the offending provision shall be severed from the remainder of the Agreement and the rest of the Agreement shall be effective. . . . If any court determines that this Agreement in its entirety shall not be enforced, such determination shall be effective only as to the Covered Employees who reside in the state where such court is located, and not as to any other Covered Employees, as to whom this Agreement shall continue to be valid and enforceable." The trial court held that the presence of the severability clause rendered the delegation clause unclear and ambiguous.
I do not interpret the two clauses this way. The delegation clause seems to me clearly and unmistakably to demonstrate an intention to subject all disputes concerning the validity of the arbitration agreement itself to arbitration. The severability clause, in my view, does not reflect any uncertainty or ambiguity about whether a court or an arbitrator should decide these kinds of disputes. It deals with another issue entirely. It reflects the realities - and vagaries - of litigation. A challenge to an arbitration agreement must first take place in a court, because only a court can determine whether the parties agreed to arbitrate in the first place. (Certain Underwriters at Lloyd's London v. Westchester Fire Ins. Co. (3d Cir. 2007) 489 F.3d 580, 585.) Arbitration law being what it is, no one can be completely certain that some court somewhere would not decide that it - rather than the arbitrator - should also determine arbitrability issues. If that happened, and if the court then found part or all of the agreement unenforceable, the severability provision would contain the damage, restricting the effect to the particular state where the court sat.
"The whole of a contract is to be taken together, so as to give effect to every part, if reasonably practicable, each clause helping to interpret the other." (Civ. Code, § 1641; see also General Precision, Inc. v. International Association of Machinists (1966) 241 Cal.App.2d 744, 746 [magnifying one clause at expense of another renders portion of agreement meaningless].)
The court in Awuah v. Coverall North America, Inc. (1st Cir. 2009) 554 F.3d 7, dealt with a very similar situation. The arbitration agreement in that case incorporated the American Arbitration Association's (AAA) Rule 7 into the agreement; Rule 7 gave the arbitrator the power to rule on his or her own jurisdiction. The district court, however, found that a severability clause in the agreement, "allowing other provisions to survive if a 'court of competent jurisdiction' invalidates a provision" showed that the parties had not clearly and unmistakably agreed to submit jurisdictional issues to the arbitrator. (Id. at p. 11.) "With respect," the First Circuit held, "this is too thin a basis for concluding that the agreements' language 'evinces an intent to allow questions of arbitrability to be decided by a court.' . . . [AAA] Rule 7(a) says plainly that the arbitrator may 'rule on his or her own jurisdiction' including any objection to the 'existence, scope, or validity of the arbitration agreement.' This is about as 'clear and unmistakable' as language can get, . . ." (Ibid.; see also Fallo v. High-Tech Institute (8th Cir. 2009) 559 F.3d 874, 878.)
To me, the language of the delegation clause in this case is equally clear and unmistakable. The agreement delegates arbitrability issues to the arbitrator. I would therefore remand to the trial court with instructions to grant Neiman's petition to compel arbitration. All of the unconscionability issues identified in the majority opinion are, I believe, for the arbitrator to decide.
BEDSWORTH, ACTING P. J.