Opinion
NOT TO BE PUBLISHED
Superior Court County of Ventura Nos. CIV 233936; CIV 241827, Ken W. Riley, Judge
Jones Day, Elwood Lui, Harry I. Johnson III, Brian Hoffstadt; Jackson Lewis LLP and Joel P. Kelly for Appellant.
Hathaway, Perrett, Webster, Powers, Chrisman & Gutierrez, Alejandro P. Gutierrez; McTague & Palay and Daniel J. Palay for Respondents.
PERREN, J.
Ecolab, Inc., appeals from a judgment of dismissal entered after the trial court approved settlement of a class action wage and hours dispute. The settlement followed an arbitrator's award of $50 million in overtime wages and interest to the class. Ecolab contends the settlement agreement is void because two violations of the agreement occurred: (1) The arbitrator assigned the burden of proof to Ecolab and (2) respondent class made public disclosures of the arbitration award. We affirm.
STATEMENT OF FACTS AND PROCEDURAL HISTORY
Respondents Jefferson Roe and David Brown filed a class action lawsuit on behalf of current and former employees of appellant Ecolab, Inc. The complaint alleges that Ecolab violated the Labor Code by failing to pay wages for overtime and meal periods. The trial court certified the class in May 2006. The parties subsequently agreed to mediation. The mediation resulted in a stipulation for settlement in which Ecolab agreed to pay $2 million plus one-half of the amount of overtime and meal time, if any, determined by a special master. The settlement agreement contained the following two provisions at issue in this appeal:
"12.... For purposes of this arbitration only, the Parties agree that neither has the burden of proof and that the Special Master shall give such weight to the evidence as he determines based on the totality of the evidence. If the Special Master finds that there were hours worked by the class in excess of 40 hours per week or 8 hours a day, such wages and interest thereon will be included in the Special Master's determination...."
"29.... Class Counsel and the Representative Plaintiffs will not make any public disclosure of the Class Settlement or this Stipulation of Settlement; provided, however, that Plaintiffs may file this Stipulation of Settlement with the Court in support of Plaintiff's Motion for Preliminary Approval and that such filing shall not be deemed a breach of this Settlement. Class Counsel and the Representative Plaintiffs will not have any communications with the media other than to direct any media representative who inquires to the public records of the Cases on file with the Court. Class Counsel will take all steps necessary to ensure the Representative Plaintiffs are aware of and obtain their adherence to, the restrictions against any media comment on the Settlement and its terms. The Parties agree that this is a material term of the settlement and any breach by the Representative Plaintiffs or Class Counsel would permit Defendant to terminate the Settlement."
Subsequently, the parties entered into a stipulation to proceed to arbitration. The arbitration agreement contains the following two provisions material to this lawsuit:
"1.... The Superior Court retains jurisdiction over the Parties and the litigation, and will be informed of the Arbitrator's decision as part of the final resolution of this matter."
"4.... For purposes of this arbitration only, the Parties agree that neither has the burden of proof and that the Arbitrator shall give such weight to the evidence as the Arbitrator determines based on the totality of the evidence."
During a six-day hearing, plaintiffs presented testimony from 14 former and current employees of Ecolab and an expert witness. Ecolab presented testimony from one employee and an expert witness. On September 24, 2007, the arbitrator issued a 17-page decision finding in favor of plaintiffs and awarding $39,432,175 in overtime wages, $11,870,975 in pre-award interest, and per diem interest after the date of the award of $10,975. The following day, Ecolab announced the amount of the award on its website. The information on the website was posted by media outlets on numerous other websites. Neither plaintiffs nor their attorneys made any comment to the media concerning the award.
In October 2007, plaintiffs filed a motion for preliminary approval of the proposed class settlement. They submitted the stipulation for settlement and the arbitrator's award as exhibits to the motion. Ecolab opposed the motion asserting that plaintiffs obtained the award by corruption, fraud and undue means and the arbitrator exceeded the scope of his authority in making the award. Ecolab did not assert that plaintiffs had violated the confidentiality clause of the settlement agreement. The trial court continued the hearing to allow time for Ecolab to file a motion to vacate the arbitration award.
On December 14, 2007, Ecolab's counsel sent a letter to plaintiffs' counsel stating it was terminating the settlement agreement on the ground that plaintiffs breached the confidentiality clause in the agreement by submitting the arbitration award to the court with their motion for preliminary approval. On the same day, Ecolab filed a notice of breach of stipulation of settlement with the court and a motion for leave to file cross-complaint. Subsequently, Ecolab filed a motion to vacate the arbitration award.
On February 6, 2008, the court denied Ecolab's motion to vacate the arbitration award and its motion for leave to file cross-complaint. It also overruled Ecolab's objections to preliminary approval of the class action settlement. Ecolab filed a petition for writ of mandate with this court seeking reversal of the trial court's denial of its motion to vacate the arbitration award and overruling its objections to the motion for preliminary approval of the settlement. We denied the petition.
On July 2, 2008, plaintiffs filed a motion for final approval. Ecolab opposed the motion on the ground that there was no valid and enforceable settlement and reasserted the objections to the motion for preliminary approval. On August 11, 2008, the court issued a final judgment of dismissal with prejudice in which it approved the settlement.
DISCUSSION
The Trial Court Properly Denied Appellant's Motion to Vacate
Ecolab asserts its motion to vacate the arbitration award should have been granted because the arbitrator exceeded his powers by placing the burden of proof on Ecolab to show hours worked by its employees in violation of the provision in the arbitration agreement that neither party shall have the burden of proof.
Code of Civil Procedure section 1286.2, subdivision (a)(4) provides that a court shall vacate an award if it determines an arbitrator exceeded his powers and the award cannot be corrected without affecting the merits of the decision. In determining whether an arbitrator exceeded his powers, we review the trial court's decision de novo, but we must give substantial deference to the arbitrator's own assessment of his contractual authority. (Advanced Micro Devices, Inc. v. Intel Corp. (1994) 9 Cal.4th 362, 373.) "It is not appropriate for courts to review the sufficiency of the evidence before the arbitrator [citation] or to pass upon the validity of the arbitrator's reasoning [citations]." (Rodrigues v. Keller (1980) 113 Cal.App.3d 838, 843.) "[A] showing of substantial prejudice is required if the arbitration award is to be vacated pursuant to [Code Civ. Proc.] section 1286.2." (Rosenquist v. Haralambides (1987) 192 Cal.App.3d 62, 69.)
In cases involving private arbitration, "'"[t]he powers of an arbitrator are limited and circumscribed by the agreement or stipulation of submission."'" (Moncharsh v. Heily & Blasé (1992) 3 Cal.4th 1, 8.) Awards in excess of those powers may be corrected or vacated by the court. (Cable Connection, Inc. v. DIRECTV, Inc. (2008) 44 Cal.4th 1334, 1356.) "[A]rbitrators do not 'exceed [] their powers'... merely by rendering an erroneous decision on a legal or factual issue, so long as the issue was within the scope of the controversy submitted to the arbitrators." (Moshonov v. Walsh (2000) 22 Cal.4th 771, 776.)
Ecolab contends that the arbitrator's citation to Hernandez v. Mendoza (1988) 199 Cal.App.3d 721, in its decision shows that it placed the burden of proof on Ecolab, contrary to the parties' stipulation. Our review of the record leads us to conclude that the arbitrator did no more than declare that the overwhelming weight of the evidence supported the contentions of the class when measured against that produced by appellant.
In Hernandez, a former employee brought an action to recover wages for uncompensated overtime from his former employer. The trial court entered judgment for the employer, finding that the employee had not carried his burden of proof to show the amount of hours actually worked. We reversed and vacated the judgment reasoning that, although the employee's evidence as to hours worked was imprecise, the consequences of the employer's failure to keep accurate records as required by statute should fall on the employer, not the employee. Because the employer could not produce accurate information, the trial court's duty was to draw whatever reasonable inferences it could from the employee's evidence. We held the employee carried his burden of proof by showing the amount and extent of the hours worked by just and reasonable inference. The burden then shifted to the employer to produce evidence either of the precise amount of work or evidence to negate the reasonableness of the inference to be drawn from the employee's evidence. (Hernandez v. Mendoza, supra, 199 Cal.App.3d at p. 727.)
The arbitrator cited Hernandez in the context of evaluating the testimony of the parties' expert witnesses: "These determinations are consistent with and in furtherance of the strong public policy expressed by the California Court of Appeal in Hernandez v. Mendoza, 199 Cal.App.3d 721, 727 (1988) ('Hernandez'). As determined in this Award, during discovery and thereafter, into the time of [sic] arbitration hearing, Ecolab has attempted to deny the plaintiff class 'recovery on the ground [and by conduct during and as part [of] this litigation which would make the class] unable to prove the precise extent of uncompensated work, [which, if unaddressed, would] allow the employer to keep the benefits of any employee's labors without paying due compensation.' Id. As permitted under Hernandez, the class has 'produce[d] sufficient evidence to show the amount and extent of [uncompensated overtime] work as a matter of just and reasonable inference,' id., and by permissible extrapolation. As also determined herein, Ecolab has not adduced 'the precise amount of work performed or with evidence to [negate] the reasonableness of the inference to be drawn from the employee[s'] evidence. Id."
After noting Ecolab did not prepare, maintain or produce reliable documentation of total hours worked each day by any class member, the arbitrator wrote in a footnote: "Regardless of whether, by stipulation or otherwise, any party has a litigation burden of proof concerning any issue or matter in any 'usual' court or arbitration—as a matter of practicality, to avoid unfairness and to avoid creating a perverse incentive for employers—it is contrary to public policy to impose on an employee claiming compensation for wages (including overtime wages) a burden to prepare, maintain and produce reliable documentation in support of a wage claim. The corollary of that public policy is that the burden to do that is the employer's. Hernandez. [¶] At all relevant times during the class period, Ecolab has been subject to that strong public policy obligation to prepare and maintain records reflecting the start and end times of each employee's work days and hours worked. That is so regardless of any exemption from record keeping claimed or referenced by Ecolab in this arbitration."
We do not review the arbitrator's references to Hernandez in a vacuum. To determine whether the arbitrator in fact misplaced the burden of proof we review the entire decision to determine whether, as the parties agreed, the arbitrator gave "such weight to the evidence as the arbitrator determines based on the totality of the evidence." (See, e.g., People v. Lindberg (2008) 45 Cal.4th 1, 36 [de novo review requires appellate court to make an original appraisal of all the evidence].)
The arbitrator began his decision by noting the parties' stipulations that he was "'to give weight to the evidence as the Arbitrator determines based on the totality of the evidence,'" and that "neither side has the burden of proof as to any issue submitted for resolution by the Arbitrator under the Stipulation."
The decision contains extensive factual findings with detailed recitations of fact supporting those findings. The arbitrator found that plaintiffs' percipient witnesses were more credible than Ecolab's witnesses, that the testimony of plaintiffs' witnesses concerning average hours worked per week was more consistent than Ecolab's witnesses, and that plaintiffs' witnesses were more geographically representative than Ecolab's.
The arbitrator stated that "the claims of the plaintiff class have been proven" finding that plaintiffs' expert witness presented more persuasive opinion evidence than that provided by Ecolab's expert. In this regard, the arbitrator stated: "Ecolab's expert testimony has not been accepted. That is because its data and methodology have been flawed to beyond the point of reliability and trustworthiness." The arbitrator noted that Ecolab's expert relied on information compiled especially for the class action litigation and that this information was inconsistent with declarations submitted by Ecolab to the Ventura Superior Court, showing that, during the class action period, Ecolab employees worked at least 50 hours per week and some in excess of 80 hours per week.
The arbitrator explained in detail the reasons he did not consider Ecolab's evidence to be persuasive, including that the information Ecolab provided contained factual impossibilities, such as many instances of service calls recorded as having begun within one to three minutes from the recorded end of a service call miles away. The arbitrator noted: "None of this was explained by Ecolab (including by its expert witness, Mr. Ross, who waved away the anomaly). [Fn. omitted.]"
The arbitrator concluded his findings as follows: "Ecolab's reliance on a single declaration—which was signed on June 28, 2007 and apparently filed shortly thereafter in a U.S. District Court action in New York, near the time of this arbitration and almost a year and half after the numerous Ecolab-prepared and filed declarations of 50/60 hours worked by Ecolab specialists filed with the Ventura Superior Court in one of these class actions and ignored by Ecolab and Mr. Ross (but not the class) in this arbitration—illustrates Ecolab's inability to ground or reconcile Mr. Ross's and Ecolab's estimates with the 'personal observations and experience' of even its own selected specialist/declarants. [Fn. omitted.] That inability importantly undercuts any arguable validity or reliability of Ecolab's data and expert opinion evidence. That is so, whether or not that inability is coupled with Ecolab's having conspicuously ignored, as best it could, the fact and effects of the numerous sworn declarations filed with the Court in 2006, which are now inconsistent with its position in this arbitration."
The arbitrator's decision shows he carefully considered and weighed the evidence submitted by both sides. His references to Hernandez noted the public policy in favor of placing the burden on the employer in wage and hour actions to produce records showing the time worked by employees and his concurrence with that public policy. However, nothing in the decision indicates he applied Hernandez burden shifting to the instant arbitration. To the contrary, the decision painstakingly sets forth the evidence presented by both sides, the arbitrator's determinations as to the credibility of the witness testimony and documentary evidence, and his ultimate determination that plaintiffs' evidence and witnesses were more credible. It is clear that the arbitrator found plaintiffs' evidence by far the more persuasive and ruled accordingly. The ruling was not based on assigning a burden of proof to one side or the other. Rather, it was based on the strength of plaintiffs' case and the weakness of defendant's evidence.
If the mention of Hernandez created any ambiguity as to how the arbitrator reached his decision—and, given the thoroughness of the decision, we do not believe there to be one—then we are required to defer to the arbitrator's resolution of this ambiguity. The arbitrator expressly stated he was not assigning either party the burden of proof and was deciding the issue by giving such weight to the evidence as was warranted based on the totality of the evidence. We must give substantial deference to the arbitrator's assessment of his own authority, "further[ing] the policies... of ensuring finality of, and limiting judicial intervention in, the arbitration process." (Delaney v. Dahl (2002) 99 Cal.App.4th 647, 659.)
We reject Ecolab's secondary argument that the arbitrator improperly based the award on perceived discovery abuses by Ecolab rather than on the evidence produced at the hearing concerning the hours worked by the employees.
The Trial Court Did Not Err in Finding Plaintiffs Did Not Breach the Confidentiality Provision of the Settlement Agreement
Ecolab asserts plaintiffs breached the confidentiality provision of the stipulation for settlement by attaching a copy of the arbitration award to their motion for preliminary approval of the proposed class settlement. Plaintiffs contend no breach occurred because the stipulation for settlement permitted them to file the award with the trial court, filing the award with the court was necessary so the court could perform its duty to determine whether the class action settlement was reasonable, and Ecolab's dissemination of the terms of the award on its website estops it from asserting a breach of confidentiality against the plaintiffs.
The first paragraph of the agreement to arbitrate states in part: "The Parties have resolved certain issues and entered into a confidential stipulation. Pursuant to that stipulation, the Parties have agreed to final and binding arbitration of the still disputed claim. The Superior Court retains jurisdiction over the Parties and the litigation, and will be informed of the Arbitrator's decision as part of the final resolution of this matter." (Italics added.) The confidentiality provision in the settlement agreement states that "Plaintiffs may file this Stipulation of Settlement with the Court in support of Plaintiffs' Motion for Preliminary Approval and that such filing shall not be deemed a breach of this Settlement."
The language of the agreement indicates that the parties intended the arbitration award to be an integral part of the class action settlement and that the award would be submitted to the court as part of the settlement. By submitting the arbitration award to the court with its petition for preliminary approval of the settlement agreement, plaintiffs did no more than what the parties agreed to in the settlement agreement and agreement to arbitrate.
Moreover, Ecolab's interpretation of the confidentiality provision is inconsistent with rules governing court approval of arbitration awards. Those rules require that the arbitration award be filed with the court. Section 1285.4, subdivision (c), states that a petition to confirm or vacate an arbitration award shall "[s]et forth or have attached a copy of the award and the written opinion of the arbitrators, if any." The rules governing approval of class action settlements also require the court to review the arbitration award in determining whether or not to approve the settlement. California Rules of Court (CRC), rule 3.769(c), states that a motion for approval of a class action settlement must contain the settlement agreement. CRC rule 3.769, subdivision (g), states: "Before final approval, the court must conduct an inquiry into the fairness of the proposed settlement." As the arbitration award is integral to settlement of the class action, the court could not evaluate the fairness of the settlement without reviewing the award. (See Kullar v. Foot Locker Retail, Inc. (2008) 168 Cal.App.4th 116, 129 [trial court must independently satisfy itself that the consideration being received for release of the class members' claims is reasonable in light of the strengths and weaknesses of the claims and risks of the particular litigation].) Respondents did nothing more than comply with the law and rules governing arbitration.
The judgment is affirmed. Respondents shall recover costs on appeal.
We concur: YEGAN, Acting P.J. COFFEE, J.