Opinion
A101450.
10-8-2003
ANDREW WALKER, Plaintiff and Appellant, v. IASCO, Defendant and Respondent.
This employment dispute proceeded to private arbitration pursuant to an arbitration clause contained in the employment agreement. Four months into the arbitration process, appellant, the employee, sought declaratory relief and a judicial determination that the arbitration agreement was unenforceable. The trial court denied a stay and the arbitration proceeded. Now, on appeal from the trial courts confirmation of the arbitration award, appellant raises numerous objections to the validity of the employment agreement and the arbitration provision contained within it. We affirm the judgment.
FACTUAL AND PROCEDURAL HISTORY
The Employment Agreement
IASCO is in the business of providing aircraft flight crews to commercial airlines on international flights. In 1992, appellant Andrew Walker was hired by IASCO to serve as a flight engineer for Japan Air Lines. Walker was later transferred to a flight engineer assignment with the airlines subsidiary, JALways (JAZ). In January 1998 he entered into a new agreement, at issue here, to serve as a first officer (co-pilot) with JAZ for a fixed term of three years.
The employment contract with IASCO contains a liquidated damages clause that requires either party in material breach of the contract to pay the other $17,000 as the sole and exclusive remedy. The employment contract also contains an arbitration clause providing that "[a]ny controversy, claim or demand of any kind between CREWMEMBER and IASCO" will be submitted to arbitration at the request of either party served on the other.
The three-year contract term was to begin when Walker completed his training and his JAZ "line check," which he did on August 4, 1998. The contract was therefore due to expire on August 4, 2001. Nearly a year beforehand, on September 12, 2000, Walker notified IASCO that he intended to resign his position with JAZ in order to accept employment with Aloha Airlines. His letter acknowledged that the employment contract "holds me here until some later date or renders a rather stiff breach of contract penalty." IASCOs associate director of flight crew services, Bruce Philips, spoke with Walker and confirmed that Walker would be required to pay the liquidated damages. Philips followed up that conversation with a letter informing Walker that IASCO would require payment of $17,000 in liquidated damages and offering to establish a payment schedule for that amount. On October 17, 2000, Walker resigned from his position.
Arbitration
Before his resignation took effect, Walker, through counsel, sought to reach a settlement of the liquidated damages in an amount less than $17,000. Counsels October 9, 2000 letter included a request that if IASCO insisted on collecting the full $17,000, then "please consider this letter as a demand for arbitration under para. 23." On October 17, Walker confirmed his demand for arbitration in a letter to IASCO noting that his "written demand for arbitration still stands."
In December 2000, IASCO initiated arbitration proceedings before the American Arbitration Association by filing a formal demand for arbitration of its claim to liquidated damages. In January 2001, Walker submitted a response to IASCOs demand for arbitration, raising affirmative defenses to IASCOs claim but voicing no objection to proceeding by arbitration. He also consented to the selection of the arbitrator. In April 2001, in a letter to the arbitrator, Walker objected to bearing the costs of the arbitration. Walker argued that the arbitration agreement was unconscionable insofar as it failed to require IASCO to pay the costs of arbitration. The arbitrator requested briefing from the parties on the issue of costs and ultimately ordered IASCO to pay the ongoing costs of arbitration subject to recovery in the final award.
In his briefing to the arbitrator, submitted in May 2001, Walker for the first time argued that IASCOs claim was not arbitrable. He asserted that the employment agreement as a whole is unconscionable and unenforceable because it lacks mutuality in various respects; hence, the arbitration clause within it is also unenforceable. At the same time, Walker maintained that the issues of unconscionability and enforceability were threshold issues for the arbitrator to decide, subject to judicial review.
On May 23, 2001, the arbitrator ruled that Walker had waived his objections to the arbitrability of the dispute by himself demanding arbitration and then failing to raise any objection as arbitration was commenced. Walker then turned to the superior court for declaratory relief on the unenforceability of the arbitration agreement, and he moved to stay the arbitration. The trial court denied a stay and ordered the arbitration to proceed.
On November 30, 2001, both parties submitted their cases to the arbitrator on the documentary evidence produced in discovery.[] A month later, the arbitrator ruled that IASCO was entitled to the full amount of $17,000 in liquidated damages plus costs and attorney fees in an amount to be determined. In briefing on the issue of attorney fees, Walker again objected to the enforceability of the arbitration agreement. The arbitrator then issued his final award of $17,000 in damages to IASCO plus attorney fees of $32,690 and costs of $11,750.[]
Walker participated in discovery with an express disclaimer that he was not waiving his objections to arbitration.
The total costs of arbitration were allocated $11,750 payable by Walker and $3,650 payable by IASCO. The award of attorney fees to IASCO was a considerable reduction of the amount requested.
Petition to Confirm
IASCO petitioned the superior court to confirm the arbitrators award. Walker submitted a response in which he raised numerous objections to the enforceability of the employment agreement as a whole as well as the liquidated damages provision and the arbitration clause in particular. The trial court granted IASCOs petition and confirmed the arbitration award. The court also dismissed Walkers complaint for declaratory relief and entered judgment in favor of IASCO. The court awarded IASCO its attorney fees and costs in an amount to be determined. IASCO submitted a memorandum of costs for $23 in costs and $ 18,407 in attorney fees. Walker appeals.
DISCUSSION
I. The Employment Agreement
Appellant raises numerous issues pertaining to the validity of the employment agreement at large and the liquidated damages provision therein. These issues were raised in the arbitration proceedings and rejected by the arbitrator. Accordingly, the arguments cannot be judicially reviewed.
An arbitrators decision is binding and final. Errors of law or fact are not subject to judicial intervention, even if the error appears on the face of the arbitration award. A court may not review the merits of the controversy, the arbitrators reasoning, or the sufficiency of the evidence. (Moncharsh v. Heily & Blase (1992) 3 Cal.4th 1, 6, 9-11, 27-28.)
Judicial review is limited to the grounds specified in sections 1286.2 and 1286.6 of the Code of Civil Procedure for vacating and correcting an arbitration award.[] (Moncharsh v. Heily & Blase, supra, 3 Cal.4th at pp. 26-28.) Appellant has not asserted any such statutory grounds. Consequently, we will not evaluate appellants claims that the employment agreement is an invalid personal services contract, lacks mutuality, or is otherwise unenforceable.[]
The grounds for vacating an arbitration award include fraud, corruption, misconduct, or disqualification of the arbitrator. (Code Civ. Proc., § 1286.2.) An arbitration award may also be vacated on the ground that the arbitrator exceeded his or her powers. (Code Civ. Proc., § 1286.2, subd. (a)(4).) But an arbitrator does not exceed his or her powers merely by rendering an erroneous decision on a legal or factual issue as long as the issue was within the scope of the controversy submitted to the arbitrator. (Moncharsh v. Heily & Blase, supra, 3 Cal.4th at p. 28.)
Judicial review of an arbitration award is available when the challenger contends the entire contract (not just a part of it) is illegal. (Moncharsh v. Heily & Blase, supra, 3 Cal.4th at pp. 31-32.) This exception arises from the principle that the courts will not permit an arbitration award to carry out the commission of a crime or an illegal act. (California State Council of Carpenters v. Superior Court (1970) 11 Cal.App.3d 144, 156-157.) Appellant points to nothing that renders the entire employment agreement illegal.
II. Arbitrators Decision on Costs and Fees
The rules of arbitral finality apply with equal force to the arbitrators award of attorney fees and costs. The arbitrators decision cannot be judicially reviewed for error when the issue of fees and costs has been submitted to the arbitrator. (Moshonov v. Walsh (2000) 22 Cal.4th 771, 775-776, 779; accord, Moore v. First Bank of San Luis Obispo (2000) 22 Cal.4th 782, 786-787; Pierotti v. Torian (2000) 81 Cal.App.4th 17, 23-26.) We will not review appellants challenges to the attorney fees and costs awarded by the arbitrator in a case where plaintiff is not attempting to vindicate unwaivable public rights. (See Little v. Auto Stiegler, Inc. (2003) 29 Cal.4th 1064, 1076-1081; Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, 110-111.)
III. The Arbitration Clause
Appellant argues that the arbitration clause is unconscionable and unenforceable; hence, the dispute should not have been submitted to arbitration. IASCO argues in response that Walker is barred from raising the argument because of his demand for arbitration and his acquiescence in the arbitration proceeding. We will not delve into this procedural dispute. Even assuming, arguendo, that the issue is properly before us, we can discern no merit whatsoever in Walkers claims of unconscionability.
Civil Code section 1670.5 allows a court to refuse enforcement of a contract if the court finds the contract or any clause thereof to be unconscionable. Appellant seeks to invoke this principle by putting forth several ways in which the arbitration clause is allegedly one-sided or unfair. He has failed to show, however, that the arbitration clause is unconscionable.
Civil Code section 1670.5 does not define unconscionability, but the courts have held that the term includes both a procedural and a substantive element. (Armendariz v. Foundation Health Psychcare Services, Inc., supra, 24 Cal.4th at p. 114.) The procedural element focuses on whether the contract is one of adhesion. The substantive element involves contract terms that are so one-sided as to shock the conscience or are unduly harsh and oppressive. (Stirlen v. Supercuts, Inc., supra, 51 Cal.App.4th at pp. 1532-1533.) Appellants complaints do not meet the substantive element of unconscionability, even though the employment agreement is a contract of adhesion.
The lack of mutuality in an arbitration agreement does not necessarily render it invalid. For an arbitration agreement to be found unconscionable the one-sidedness must have no reasonable justification and put the employee at a disadvantage. (Armendariz v. Foundation Health Psychcare Services, Inc., supra, 24 Cal.4th at pp. 116-121.) In Armendariz, for example, the arbitration agreement required arbitration of wrongful termination claims by the employee, but not of claims by the employer. It also restricted damages for the employee but not for the employer. (Id. at pp. 120-121.) Here, in contrast, the "modicum of bilaterality" that Armendariz calls for is apparent. Both IASCO and Walker were bound by the arbitration clause to submit their claims to arbitration. No distinction is made as to the procedures to be used or the recovery that could be obtained.
Moreover, appellant has ignored the full text of Civil Code section 1670.5, which allows the court to enforce a contract even when a part is found unconscionable. The court may enforce the remainder of the contract without the unconscionable portion, or the court may simply limit the application of an unconscionable clause so as to avoid an unconscionable result. (Civ. Code, § 1670.5, subd. (a); see generally Armendariz v. Foundation Health Psychcare Services, Inc., supra, 24 Cal.4th at pp. 121-124.) As will be seen in the discussion that follows, the parts of the arbitration agreement that appellant finds objectionable can readily be ignored.
1. Workers Compensation and Unemployment Insurance
Appellant argues that the arbitration clause is unconscionable because it is so broad that it would require arbitration even of workers compensation and unemployment insurance claims.[] Yet, as appellant concedes, this case has nothing to do with such claims. The arbitration clause indisputably applies to IASCOs claim for liquidated damages; whether the clause can validly be applied to other types of controversies is irrelevant.
The arbitration agreement calls for arbitration of "any [and all claims] of any kind, . . . arising from . . . the violation of any tort law or any other applicable law, statute, regulation, rule, order, or public policy."
2. Exclusion of JAZ
Walker contends the arbitration agreement is unfair because JAZ is excluded from the arbitration, though JAZ was a joint employer of Walker along with IASCO. Walker concedes that because JAZ was not a signatory to the employment agreement (or its arbitration clause), JAZ cannot be made a party to the arbitration, but Walker argues that a crewmember is thereby unfairly denied recourse for a grievance against JAZ. Walker in no way demonstrates how he was adversely affected by the absence of JAZ from the arbitration proceeding. Again, the situation posed is hypothetical and unrelated to IASCOs claim in arbitration.
3. California Venue
The employment agreement sets San Mateo County as the exclusive venue for arbitration or any other action regarding enforcement, interpretation, or breach of the employment agreement. Walker argues this restriction on venue is unconscionable as it requires out-of-state residents, such as Walker, to incur additional costs of arbitrating away from home.[]
The arbitrator attempted to accommodate Walkers objections to his costs as a nonresident by allowing the parties to proceed by telephone and to submit the matter for decision based on the documents produced in discovery.
In some cases, the place or manner of arbitration may be so unfair as to be unconscionable. (Bolter v. Superior Court (2001) 87 Cal.App.4th 900, 908.) This is not one of those cases. The employment agreement was executed in Burlingame, and at that time, IASCO was a California corporation with its offices in Burlingame. Within the arbitration proceeding, the parties stipulated early on to a change of venue to San Francisco because the arbitrators office was located there. Only later did Walker object to the California venue.
4. Expanded Review
One aspect of the arbitration clause purports to expand judicial review of the arbitration award: "If any substantive law is incorrectly applied, the validity and enforceability of the award shall be determined exclusively by the California courts pursuant to the terms of this Agreement." A similar provision has been held to be unenforceable. (Crowell v. Downey Community Hospital Foundation (2002) 95 Cal.App.4th 730, 735-739.) This defect affects only a proceeding that occurs after the arbitration award has been made. It has no effect on bringing claims to arbitration or the conduct of the arbitration proceeding. The clause is severable from the rest of the arbitration agreement and is irrelevant to the arbitrability of IASCOs claim. (Oakland-Alameda County Coliseum Authority v. CC Partners (2002) 101 Cal.App.4th 635, 645-647.)
IV. Attorney Fees on Petition to Confirm
Appellant challenges the award of attorney fees made by the superior court upon IASCOs petition to confirm the award. He argues that there was no authority for an award of attorney fees by the trial court, as the general "American rule" requires each party to pay its own attorney fees. Walker ignores the exception to the American rule for attorney fees provided by statute. (Code Civ. Proc., § 1021.) Civil Code section 1717, in turn, authorizes an award of attorney fees in an action on a contract when fees are provided by the contract.
Here, the employment agreement allows IASCO to recover its fees related to collecting the liquidated damages. That clause extends to recovery of attorney fees upon a petition to confirm the arbitration award. (Carole Ring & Associates v. Nicastro (2001) 87 Cal.App.4th 253, 260-261.) The fact that the attorney fee clause, as written, is one-sided is of no consequence. Civil Code section 1717 makes the obligation reciprocal by providing for an award of attorney fees to the prevailing party even though the contract makes recovery of attorney fees available to only one party.[] In any event, IASCO prevailed on the petition to confirm the arbitration award. The trial court did not err in awarding IASCO its attorney fees.
Civil Code section 1717, subdivision (a), provides in pertinent part: "In any action on a contract, where the contract specifically provides that attorneys fees and costs, which are incurred to enforce that contract, shall be awarded either to one of the parties or to the prevailing party, then the party who is determined to be the party prevailing on the contract, whether he or she is the party specified in the contract or not, shall be entitled to reasonable attorneys fees in addition to other costs." (Italics added.)
The attorney fee clause is also broad enough to include fees incurred on appeal from the judgment confirming the arbitration award. (See Ajida Technologies, Inc. v. Roos Instruments, Inc. (2001) 87 Cal.App.4th 534, 551-552.) The better practice is to have the trial court determine such fees. (Gemini Aluminum Corp. v. California Custom Shapes, Inc. (2002) 95 Cal.App.4th 1249, 1264-1265.)
DISPOSITION
The judgment is affirmed. The matter is remanded to the trial court for an award to IASCO of attorney fees incurred on appeal. IASCO shall also recover its costs on appeal.
We concur: JONES, P.J. and GEMELLO, J.