Opinion
B227951
08-18-2011
YAREE COLLINS, Plaintiff and Appellant, v. CONTEMPORARY SERVICES CORPORATION, Defendant and Respondent.
Orshansky & Yeremian, Anthony J. Orshansky, David H. Yeremian and Justin Kachadoorian for Plaintiff and Appellant. Reed Smith, Remy Kessler and Steven B. Katz for Defendant and Respondent.
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.
(Los Angeles County Super. Ct. No. BC432138)
APPEAL from a judgment of the Superior Court of Los Angeles County, Ruth Ann Kwan, Judge. Reversed and remanded with directions.
Orshansky & Yeremian, Anthony J. Orshansky, David H. Yeremian and Justin Kachadoorian for Plaintiff and Appellant.
Reed Smith, Remy Kessler and Steven B. Katz for Defendant and Respondent.
An employer and employee executed a written agreement to arbitrate all claims arising out of the employment or its termination. Later, the employee filed a class action complaint alleging that the employer had violated Labor Code sections governing overtime pay, and meal and rest periods, and prohibiting retaliation against employees who assert rights under the Labor Code. On the employer's motion, the trial court entered an order compelling arbitration in accord with two principal rulings.
First, applying the United States Supreme Court's decision in Stolt-Nielsen S.A. v. Animal Feeds International Corp. (2010) _ U.S. _ (Stolt-Nielsen), the trial court interpreted the arbitration agreement to mean that the parties did not mutually consent to arbitration of classwide claims. Stated differently, the arbitration agreement as interpreted provides for arbitration of the employee's personal claims only. The trial court's interpretation of the parties' arbitration agreement under Stolt-Nielsen is not challenged on appeal.
Second, applying the United States Supreme Court's decision in Rent-A-Center, West, Inc. v. Jackson (2010) __ U.S. __ (Rent-A-Center), the trial court ruled that the issue whether the parties' arbitration agreement — as interpreted to allow for arbitration of the employee's individual claims only — is "unconscionable" must be decided by the arbitrator pursuant to a "delegation clause" contained in the arbitration agreement.
The employee then filed the current appeal. We reverse the trial court's order.
FACTS
Contemporary Services Corporation (CSC) is in the business of providing crowd control and security services. Yaree Collins is a former CSC employee. At the time CSC hired Collins in July 2009, a company representative instructed him to sign a stack of documents as a prerequisite to employment, including an independent document entitled "Mutual Agreement to Arbitrate Claims" (the Arbitration Agreement).
The Arbitration Agreement states that CSC and Collins "mutually agree to the resolution by arbitration of all claims or controversies arising out of [Collins's] employment or its termination . . . ," and provides that "arbitration shall be in accordance with the . . . current National Rules for Resolution of Employment Disputes of the American Arbitration Association [(AAA)]." The Arbitration Agreement does not contain any express words on the subject of arbitration of classwide claims, but it does contain this provision: "Each party shall be entitled to all types of remedies and relief otherwise available in court" (Italics added.)
On our own motion, we take judicial notice that the AAA does not close its doors to hearing classwide claims in arbitration, and, in fact, has promulgated "Supplementary Rules for Class Arbitrations" (SRCA's) which apply "to any dispute arising out of an agreement that provides for arbitration pursuant to any of the rules of the [AAA]." As noted above, the Arbitration Agreement between CSC and Collins expressly states that arbitration shall be conducted in accord with the AAA's National Rules for Resolution of Employment Disputes, which means the SRCA's would possibly come into play in the event Collins were afforded arbitration of his classwide claims.
The Arbitration Agreement also contains a provision which reads as follows: "The arbitrator shall have the exclusive authority to resolve any dispute relating to the formation, interpretation, applicability, or enforceability of this [Arbitration] Agreement, including . . . any Claim that all or any part of this [Arbitration] Agreement is void or voidable." We refer to this provision as the "delegation clause."
In February 2010, Collins filed a class action complaint against CSC. In April 2010, Collins filed his operative first amended complaint, alleging the following causes of action: failure to pay wages and overtime under (Lab. Code, § 510); failure to provide meal periods (§ 226.7); failure to provide rest breaks (ibid.); failure to pay "reporting time" pay; failure to furnish a written, itemized statement of earnings (§ 226, subd. (a)); failure to pay wages in a timely manner (§ 203); retaliation (§§ 98.6, 1102.5); wrongful termination; violation of the Unfair Competition Law based on the underlying Labor Code violations; and for penalties under sections 2698 through 2699.5.
In early June 2010, CSC moved to stay the proceedings and to compel arbitration. Relying on Stolt-Nielsen, supra, 130 S.Ct. 1758, decided in April 2010, CSC argued to the trial court to order Collins to arbitrate his claims individually and to disallow arbitration of his classwide claims. More specifically, CSC argued the Arbitration Agreement is "silent" as to classwide arbitration, and that Stolt-Nielsen requires that the agreement be interpreted under the Federal Arbitration Act (FAA; see 9 U.S.C. § 1 et seq.) not to evidence the parties' consent to arbitration of classwide claims. CSC further argued that the trial court should determine the further "gateway" issue whether the Arbitration Agreement as interpreted is "unconscionable." In that regard, CSC argued the court should find that the Arbitration Agreement is not unconscionable because arbitration under the AAA's rules will be fair to both CSC and to Collins.
Later in June 2010, about two weeks after CSC filed its motion to compel Collins to arbitrate his employment claims on an individual basis under Stolt-Nielsen, the United States Supreme Court issued its opinion in Rent-A-Center, supra, 130 S.Ct. 2772. In Rent-A-Center, the Supreme Court held that a delegation clause in an arbitration agreement included in a contract of employment, giving to the arbitrator the exclusive authority to decide questions involving the "enforceability" of the agreement, was a valid delegation under the FAA. The specific "enforceability" issue addressed in Rent-A-Center was "unconscionability" under Nevada law.
On July 1, 2010, almost two weeks after the Supreme Court decided Rent-A-Center, Collins filed his opposition to CSC's motion to compel arbitration. Broadly summarized, Collins's opposition argued that the Arbitration Agreement could not be enforced in the event it was interpreted not to provide for arbitration of classwide claims. Relying on our state Supreme Court's decision in Gentry v. Superior Court (2007) 42 Cal.4th 443 (Gentry), which held that an express provision in an arbitration agreement waiving arbitration of classwide claims made the agreement unconscionable, Collins argued that an "implied waiver" of arbitration of classwide claims in his current case would make the Arbitration Agreement between him and CSC equally unconscionable, and, thus, unenforceable.
In its reply to Collins's opposition, CSC modified its original positions somewhat and argued that issues of enforceability, including unconscionability, should be addressed to the arbitrator, not the trial court. Citing the then-recent opinion in Rent-A-Center, CSC argued that the Arbitration Agreement's delegation clause required all issues regarding enforceability of the Arbitration Agreement to be determined by the arbitrator. At the same time, CSC reiterated its original position that the Arbitration Agreement was silent regarding classwide arbitration, and that the trial court should interpret the Arbitration Agreement not to provide for arbitration of classwide claims, meaning Collins should be compelled to arbitrate his claims on an individual basis. In sum, CSC wanted the delegation clause to apply for the purpose of who would determine the issue of the "enforceability" of the Arbitration Agreement in light of its waiver of arbitration of classwide claims. At the same time, CSC ignored the delegation clause for the purpose of who would determine the issue of the "interpretation" of the Arbitration Agreement, i.e., did it or did it not allow for arbitration of classwide claims.
As noted above, the delegation clause reads: "The arbitrator shall have exclusive authority to resolve any dispute relating to the . . . interpretation, . . . or enforceability of this [Arbitration] Agreement . . . ."
On July 20, 2010, the parties argued the motion to arbitrate to the trial court. At the time of the hearing, Collins raised the more focused argument that the delegation clause itself could not be enforced. He cited Murphy v. Check 'N Go of California, Inc. (2007) 156 Cal.App.4th 138 (Murphy) and Ontiveros v. DHL Express (USA), Inc. (2008) 164 Cal.App.4th 494 (Ontiveros). The trial court agreed to read the cases and to accept further briefing in the event the court found it was needed.
On August 10, 2010, the trial court issued an order granting CSC's motion to compel arbitration. Broadly summarized, the court's order is comprised of two principal rulings. First, the court found the Arbitration Agreement to be silent on the availability of arbitration of classwide claims, which meant, ruled the court, that it must be interpreted under Stolt-Nielsen, supra, 130 S.Ct. 1758 as not evidencing the parties' mutual assent to submit classwide claims to arbitration. Second, the court ruled that the issue of whether the Arbitration Agreement as interpreted is unconscionable is an issue for the arbitrator under Rent-A-Center, supra, 130 S.Ct. 2772. Collins filed a timely notice of appeal from the trial court's order.
On April 27, 2011, while Collins's appeal remained pending in our court, the United States Supreme Court issued its opinion in AT&T Mobility LLC v. Concepcion (2011) _ U.S. _ (Concepcion). In Concepcion, the Supreme Court considered the unconscionability/enforceability of an arbitration agreement in a consumer sales contract. The alleged unconscionability involved in Concepcion was an express provision included in the arbitration agreement denying arbitration of classwide claims. The Supreme Court held that the FAA prohibited California from conditioning the enforceability of an arbitration agreement on the availability of arbitration for classwide claims. In so holding, the court ruled that the FAA preempted Discover Bank v. Superior Court (2005) 36 Cal.4th 148 (Discover Bank), in which our California Supreme Court had decided that an express contractual denial of arbitration of classwide claims rendered an arbitration agreement in a consumer contract substantively unconscionable.
DISCUSSION
I. Appellate Jurisdiction
Before turning to Collins's arguments, we address CSC's argument that we do not have jurisdiction to consider Collins's appeal because the trial court's order compelling arbitration is not an appealable order. On January 14, 2011, we rejected CSC's contention in the context of its motion to dismiss Collins's appeal, and we are not persuaded by CSC that we should reconsider the appealability of the trial court's order on the ground that we were guilty of "misreading" the record in rendering our prior order. We did not misread the record. We are satisfied that the trial court's order compelling arbitration, as it is currently framed, effectively rang the "death knell" for classwide claims through arbitration, thus making the order directly appealable. (Franco v. Athens Disposal Co., Inc. (2009) 171 Cal.App.4th 1277, 1288.)
CSC argues there has been no death knell for Collins's classwide claims because the arbitrator might still find that the arbitration agreement is unconscionable, in which case Collins's classwide claims would be returned and revived in the trial court. CSC's position might ring less hollow if the record did not show that CSC expressly argued in the trial court that an unconscionability challenge based on an interpreted "waiver" of arbitration of classwide claims would not be reviewable by the arbitrator. CSC's suggestion that the arbitrator might still find unconscionability for reasons apart from the trial court's interpretation of the parties' arbitration agreement to preclude arbitration of classwide claims is not persuasive in that the trial court's interpretation ruling is the foundation of the entire case. As this case stands, the trial court's order as framed under Stolt-Nielsen and Rent-A-Center has foreclosed arbitration of classwide claims, while sending Collins to binding arbitration. We are satisfied that this situation has resulted in an effective death knell for Collins's classwide claims which is sufficient for us to exercise jurisdiction over Collins's appeal.
CSC also argues Collins cannot appeal because he consented to the trial court's order as framed. CSC's construction of the record is not correct. During the hearing on CSC's motion to compel arbitration, Collins offered that he was "amenable" to a decision which would submit to the arbitrator the issue of whether arbitration of classwide claims was available under the terms of the Arbitration Agreement. However, when the trial court issued its order it took a different path than offered by Collins. In the end, the court interpreted the Arbitration Agreement to mean that it did not afford arbitration of classwide claims. Collins did not give his consent in the trial court to have his claims arbitrated solely on an individual basis.
II. The Delegation Clause Issue
Collins contends the trial court's order compelling arbitration must be reversed because the delegation clause found in the Arbitration Agreement, i.e., the "exclusive authority" assigned to the arbitrator to "resolve any dispute relating to the formation, interpretation, applicability, or enforceability" of the parties' Arbitration Agreement, is itself unconscionable and thus not enforceable. Collins argument relies on Murphy, supra, 156 Cal.App.4th 138 and Ontiveros, supra, 164 Cal.App.4th 494. As we understand Collins's position, he argues the trial court, not the arbitrator, must decide the issue whether the parties' Arbitration Agreement is unconscionable because it does not allow for arbitration of classwide claims. Framed another way, Collins's argument is that the trial court wrongly applied Rent-A-Center in his case. We agree.
A. Preliminary Sub-issues
As a preliminary matter, we dispatch with CSC's argument that we do not have the power to consider Collins's directly focused challenge to the delegation clause in the Arbitration Agreement because the trial court did not address the issue. According to CSC, the trial court declined to consider the substantive merits of Collins's challenge to the delegation clause, finding the challenge was untimely because he did not raise it until the hearing on CSC's motion to compel arbitration. CSC's construction of the record is, again, not correct. Although it is true that the trial court commented during the hearing on CSC's arbitration motion on the timing of Collins's challenge to the delegation clause, the court later expressly stated that it was "going to read these cases [Collins] submitted" on the issue of the enforceability of the delegation clause. The court further indicated it would allow supplemental briefs on the issue of the challenge to the delegation clause in the event it found it necessary. In its order compelling arbitration, the court discussed Murphy and Ontiveros. In light of these circumstances, CSC is wrong that Collins is trying to raise an issue on appeal that was not addressed in the trial court.
As another preliminary matter, we reject Collins's argument that the FAA does not apply in his case. In moving to compel arbitration, CSC asserted, albeit without a factual showing, that the parties' Arbitration Agreement was governed by the FAA; in his papers opposing the motion to compel arbitration, Collins did not contest that the FAA applied. The trial court's order compelling arbitration expressly reads: "The parties do not dispute that the [Arbitration] Agreement is governed by the [FAA]." The FAA applies to when a "contract evidencing a transaction involving [interstate] commerce" contains an arbitration agreement. (9 U.S.C. § 2.)
As a result of the context in which the FAA issue was addressed in the trial court, i.e., without any development of an evidentiary record on the issue whether the parties' employment contract evidenced a transaction involving interstate commerce, we reject Collins's position that we should rule on appeal that the FAA does not apply. This case was set up and decided in the trial court as an FAA case, and we will not change that context on appeal, particularly where factual questions may well factor into the proffered alternate context. (See, e.g., Ernst v. Searle (1933) 218 Cal. 233, 240 ["The rule is well settled that the theory upon which a case is tried must be adhered to on appeal."]; accord, Brown v. Boren (1999) 74 Cal.App.4th 1303, 1316.)
Apart from the context presented in this case, courts have generally found that employment is properly regulated by federal law because it has a connection to interstate commerce. (See, e.g., United States v. Darby (1941) 312 U.S. 100, 119 [federal wage laws valid; Congress may regulate intrastate employment where it has an effect on interstate commerce].) More directly on point, the United States Supreme Court has held that the FAA applies to an arbitration agreement at issue in a case alleging violations of the California Labor Code, and that the FAA preempts California Labor Code section 229's provision that an action for the collection of wages may be maintained in state court "without regard to the existence of any private agreement to arbitrate." (See Perry v. Thomas (1987) 482 U.S. 483, 484, 490.)
We disagree with Collins's argument that "FAA applicability presents a [subject matter] jurisdictional question" that "must be addressed whensoever it arises," his obvious implication being that an appellate court such as ourselves must address the issue when raised, regardless of the circumstances of a particular case. Collins's argument does not persuade us that a determination by our court to the effect that the FAA does not apply in his case would void the trial court's order compelling arbitration for want of subject matter jurisdiction. Two of the cases cited by Collins to support his subject matter jurisdiction argument, i.e., Consolidated Theatres, Inc. v. Theatrical Stage Employees Union (1968) 69 Cal.2d 713, and Robinson v. Superior Court (1950) 35 Cal.2d 379, do not mention the FAA, let alone decide any issue relating to the FAA. In Consolidated Theatres, the issue addressed on appeal was whether the trial court's subject matter jurisdiction over a labor-based action was preempted by the Labor Management Relations Act (29 U.S.C. § 141 et seq.). In other words, if the trial court did not have subject matter jurisdiction because of the Labor Management Relations Act, none of the trial court's orders regarding the labor dispute could stand. In Collins's current case, regardless of whether the outcome would be different under the FAA or California's arbitration statutes, the trial court had subject matter jurisdiction to rule on CSC's motion to compel arbitration. In Robinson, the issue was whether the trial court had correctly ruled that it lacked subject matter jurisdiction to confirm an award issued by the state Labor Commissioner as a judgment. The Court of Appeal ruled that the trial court did have such subject matter jurisdiction. Again, Collins's current case does not involve a question about the trial court's authority to rule on CSC's motion to compel arbitration.
Collins also misplaces his reliance on Sanchez v. Western Pizza Enterprises, Inc. (2009) 172 Cal.App.4th 154. According to Collins, Division Three of our court was "suggesting" in Sanchez, at page 164, that it "would have had to determine FAA applicability" on appeal, regardless of other circumstances, if the result in the case would have been different under state and federal arbitration law. We do not see such a suggestion. In Sanchez, an arbitration agreement contained a provision expressly stating that the FAA governed "the interpretation, scope and enforcement" of the agreement, and the parties themselves also "assumed" that the FAA applied. (Sanchez, supra, at p. 164.) After it noted these circumstances, Division Three then stated: "We need not decide whether the FAA applies by its own terms or [by] the effect of the provision just quoted because our conclusions stated in this opinion are the same regardless of whether the FAA applies, as we will explain." (Ibid.) We do not discern from Division Three's language a suggested conclusion that it would have been "compelled to decide" FAA applicability on appeal, regardless of the case's circumstances in the trial court.
With these preliminary sub-issues out of the way, we turn to the overriding issue in Collins's current case: "who" — as between the trial court and the arbitrator — must decide whether the parties' Arbitration Agreement is or is not unconscionable because it does not allow for arbitration of classwide claims? A reflexive application of the plain language of the delegation clause would lead to the conclusion that the arbitrator alone is tasked with deciding the issue whether the Arbitration Agreement is unconscionable. We find the case law is not so easily applied.
B. The Enforceability of the Delegation Clause
Having determined that the FAA applies in Collins's current case, we are left with deciding whether the court or the arbitrator is tasked with determining the enforceability of a delegation clause in an arbitration agreement. CSC argues that Rent-A-Center, supra, supports a fairly broad rule that, when an arbitration agreement delegates exclusive authority to the arbitrator to determine the enforceability of the agreement, issues involving whether the arbitration agreement as a whole, or as to any of its parts, is enforceable is reserved solely for the arbitrator. In other words, CSC's basic position is that the issue of whether an arbitration agreement is unconscionable is for the arbitrator when there is a delegation clause assigning that task to the arbitrator, and that the issue of whether the delegation clause itself in the arbitration agreement is unconscionable is also for the arbitrator when there is a delegation clause. Collins counters that the holding in Rent-A-Center is more narrow than CSC says; he argues that Rent-A-Center only supports a rule that when a party resisting arbitration pursuant to an arbitration agreement does not challenge a delegation clause in the agreement, then issues concerning the enforceability of the arbitration agreement as a whole are properly sent to the arbitrator for decision, but, when a party resisting arbitration challenges a delegation clause in an arbitration agreement, a court must decide in the first instance whether the attempted delegation will be enforced.
We agree with Collins that Rent-A-Center did not hold that the enforceability of an arbitration agreement, in whole or as to any of its parts, shall be decided by the arbitrator in all cases in which an arbitration agreement contains a delegation clause. Given a fair reading, Rent-A-Center began with the foundation that the parties there did not contest the validity of the delegation clause at issue in that case. (Rent-A-Center, supra, 130 S.Ct. at pp. 2778-2781.) Based on that foundation, the Supreme Court then held that the issue of enforceability of the arbitration agreement as a whole under state-founded unconscionability law had been validly delegated to the arbitrator under the FAA. Stated in other words, we understand that the Supreme Court in Rent-A-Center essentially severed one arbitration agreement into two independent parts, one arbitration agreement governing resolution of the merits of a substantive claim for workplace discrimination and retaliation, which were at issue in the case, and the second arbitration agreement governing the delegation of authority to the arbitrator to determine whether the former, substance-governing arbitration agreement was enforceable. The Supreme Court then ruled that the unchallenged delegation clause trumped any existing state law requiring that the issue of the unconscionability of the arbitration agreement as a whole was to be decided by a court. In reaching this result, the Supreme Court went to great lengths to emphasize that the delegation clause had not been the subject of a challenge. In short, we understand Rent-A-Center to say this: the parties had contractually agreed to delegation, and, because their delegation was not questioned, it would be enforced as a matter of contract; the broader issue of the unconscionability of the arbitration agreement as a whole would be decided by the arbitrator.
So, because Rent-A-Center did not hold that delegation clauses in arbitration agreements subject to the FAA are universally or even presumptively valid, we are left with two choices in this case. One, we may attempt to divine from Rent-A-Center and other FAA cases what the rules are regarding the circumstances under which a delegation clause in an arbitration agreement subject to the FAA may be ruled unenforceable, or, two, we may look to existing California cases addressing the subject of the enforceability of a delegation clause in an arbitration agreement (see, e.g., Murphy, supra, 156 Cal.App.4th 138; see also Ontiveros, supra, 164 Cal.App.4th 494). Because the FAA controls in Collins's current case, we will look first to the available FAA jurisprudence; we consider the state cases only for their persuasiveness on the relevant issues.
Title 9 United States Code section 2 provides that an arbitration agreement "shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract." Some years ago, the United States Supreme Court adhered to the rule that the issue of "arbitrability" was a matter for judicial determination as a matter of contract interpretation. (See, e.g., AT&T Technologies v. Communication Workers (1986) 475 U.S. 643, 649.) "Arbitrability," in the most common circumstance presented in the cases, involved the issue of whether the substance of a particular dispute fell within the range of matters subject to and encompassed by the parties' agreement to arbitrate. In more recent years, the United States Supreme Court has become more amendable, under contract principles, to allowing parties to reserve to the arbitrator the authority to decide the issue of arbitrability, provided the arbitration agreement clearly and unmistakably evidences the parties intent to delegate decision-making on the issue of arbitrability. (See, e.g., Howsam v. Dean Witter Reynolds, Inc. (2002) 537 U.S. 79, 83; First Options of Chicago, Inc. v. Kaplan (1995) 514 U.S. 938, 943-945.) As noted, in Rent-A-Center, supra, 130 S.Ct. 2772, the Supreme Court ruled that the issue of "unconscionability" fell within these "arbitrability" rules, meaning, at least in the abstract, that an arbitrator, when given such authority, may validly rule on whether an arbitration agreement as a whole is unconscionable.
California arbitration law is fairly consistent with federal law on this subject, and allows for parties to provide that the question of the arbitrability of a dispute may itself be arbitrated, so long as the contract expressly assigns that authority to the arbitrator. (See Ontiveros, supra, 164 Cal.App.4th at p. 503.)
In Collins's current case, we have the next logical step after Rent-A-Center. We are asked to decide whether a delegation clause will be enforced under the FAA when a party challenges the validity of the delegation clause under our state's unconscionablility law. We now hold that when a delegation clause is challenged under our state's unconscionability law, a court must decide whether the delegation clause is enforceable. In our view, the United States Supreme Court's opinion in Rent-A-Center signals that this is the governing rule under the FAA.
As the Supreme Court explained in Rent-A-Center, an arbitration agreement, as a "matter of substantive federal arbitration law," is enforceable independent of any related contract giving rise to a dispute between the parties, even where the arbitration agreement is included in a broader contract. (Rent-A-Center, supra, 130 S.Ct. at p. 2778.) Thus, a party's challenge to a contract as a whole does not prevent a court from enforcing a specific agreement to arbitrate the validity of the contract as a whole because the arbitration agreement is severable from the remainder of the contract. "But that agreements to arbitrate are severable does not mean that they are unassailable. If a party challenges the validity. . . of the precise agreement to arbitrate . . . , the . . . court must consider the challenge before ordering compliance with that agreement . . . . In Prima Paint [v. Flood & Conklin (1967) 388 U.S. 395], for example, if the claim had been 'fraud in the inducement of the arbitration [agreement] itself,' then the court would have considered it. 388 U.S. at 403-404. 'To immunize an arbitration agreement from judicial challenge on the ground of fraud in the inducement would be to elevate it over other forms of contract,' id. at 404, n. 12." (Ibid.)
The parties' briefs have not persuaded us that a different rule should apply to a claim that unconscionability makes a delegation clause unenforceable, than would apply to a claim that fraud in the inducement makes a delegation clause unenforceable. To immunize a delegation clause against judicial review upon a claim of unconscionability would elevate the clause over other forms of contract provisions. (Rent-A-Center, supra, 130 S.Ct. at p. 2778.) We see nothing in the parties' briefs on appeal that avoidance of the law governing contract enforceability should be permitted in the context of a challenge to an agreement to delegate. In Collins's current case, the trial court erred in applying Rent-A-Center to validate the delegation clause, without meaningful evaluation of the issue whether the delegation clause was unconscionable. For this reason, we reverse the trial court's ruling to send to the arbitrator the issue whether the Arbitration Agreement as a whole (i.e., as interpreted not to allow for arbitration of classwide claims) is unconscionable. Delegation should be abated until the trial court has first ruled on the narrower issue of whether the delegation clause itself is unconscionable. If the trial court rules that the delegation clause is not unconscionable, then the court shall again refer the broader issue of the unconscionability of the entire Arbitration Agreement to the arbitrator. (Cf. Rent-A-Center, supra, 130 S.Ct. 2772.) If, on the other hand, the trial court rules that the delegation clause is unconscionable, then the court must retain and rule upon the broader issue of the unconscionability of the Arbitration Agreement as a whole.
The parties have extensively argued whether Murphy, supra, 156 Cal.App.4th 138 and Ontiveros, supra, 164 Cal.App.4th 494 compel the conclusion that the delegation clause in Collins's current case is unconscionable. Based on the record before us, we find it premature to decide whether the delegation clause is unconscionable. A claim that a contract is unenforceable on the ground of unconscionability is a matter of equity. (See Walnut Producers of California v. Diamond Foods, Inc. (2010) 187 Cal.App.4th 634, 643 [equity does not enforce unconscionable bargains].) Accordingly, the issue to be decided by the trial court is whether it would be inequitable, i.e., unduly unfair, to compel Collins to abide by his consent to delegate issues involving the interpretation and enforceability of the parties' Arbitration Agreement to the arbitrator. That judicial determination as to the fairness of the delegation clause will ultimately be fact-driven, and, for this reason we find the decision must initially be made in the trial court upon development of a record showing the respective benefits and hardships to both parties in the event of a delegation or nondelegation.
Collins's briefs on appeal invite us to forego development of such a record, and to declare the delegation clause unconscionable under Murphy, supra, 156 Cal.App.4th 138 and Ontiveros, supra, 164 Cal.App.4th 494. Collins tells us that Murphy and Ontiveros teach that, once delegation is implemented, the arbitrator will likely never rule that the arbitration agreement is unconscionable. In other words, Collins argues the delegation clause is unconscionable because he will never get a fair shake from the arbitrator on his broader claim that the arbitration agreement, in that it does not allow for arbitration of classwide claims, is unconscionable. We decline Collins's invitation to declare the delegation clause unconscionable as a matter of law in the first instance.
The express and implicit concern reflected in Murphy and Ontiveros seems to be that arbitrators have a "unique self-interest in deciding that a dispute is arbitrable," thus injecting inherent bias into the decision on the issue of arbitrability. (Ontiveros, supra, 164 Cal.App.4th at pp. 505-506.) In other words, it is unlikely that an arbitrator will ever declare an arbitration agreement unconscionable because, to do so, would mean the arbitrator would be terminating his own assignment, and would displease the repeat business users of his or her services. (Ibid.) We do not agree that, as a matter of law, all arbitrators are inherently suspect vis-a-vis their financial interests. This same issue is present in an arbitrator's decision as to whether a particular dispute is arbitrable as well, and courts have not found that arbitrators are so self-interested that they are prohibited from making that determination. Indeed, in the Rent-A-Center opinion, the Supreme Court did not express concern that allowing an arbitrator to determine the enforceability of the arbitration agreement as a whole would be problematic insofar as the arbitrator might have a personal financial interest in finding the arbitration could proceed. Further, unfairness depends on many factors, including how arbitrators are chosen, and an arbitrator's history. On the other hand, if Collins presents substantial evidence persuading that he will not be afforded a fair hearing on the broader issue of the unconscionability of the arbitration agreement as a whole, it would follow that the delegation clause itself might affect an unconscionable path to that unfairness, and, for that reason, would itself be unconscionable. But before a delegation clause is deemed valid or unconscionable, the parties should make a showing one way or the other that its implementation would cause some form of unfairness. III. The Concepcion Issue
As noted above, the trial court interpreted the Arbitration Agreement under Stolt-Nielsen, giving the agreement this meaning: the parties did not mutually consent to arbitration of classwide claims. Collins has not challenged this interpretation on appeal, and, for this reason, we have proceeded in this opinion based upon the foundation that the court's interpretation of the Arbitration Agreement is correct.
We do note that the language of the arbitration agreement in Stolt-Nielsen is markedly different from the language in the Arbitration Agreement in the current case.
While this opinion was pending in our court, the United States Supreme Court issued its decision in Concepcion, supra, 131 S.Ct. 1740. In Concepcion, the United States Supreme Court ruled — in the context of a consumer contract — that California's Discover Bank rule is preempted by the FAA. In short, the United States Supreme Court ruled that state law conditioning the enforceability or unconscionability of an arbitration agreement — in a consumer contract — on the availability of arbitration of classwide claims is preempted by the FAA, and that an arbitration agreement provision disallowing arbitration of classwide claims is valid and enforceable.
Regardless of who — as between the trial court or the arbitrator — ultimately is tasked with deciding whether the parties' Arbitration Agreement in the current case is unconscionable because it does not allow for arbitration of classwide claims, the parties and the trial court or arbitrator will be required to address Concepcion's applicability in the current case. In so doing, the court or arbitrator will be required to determine the continuing viability of Gentry, supra, 42 Cal.4th 443, in light of Concepcion.
DISPOSITION
The trial court's order granting CSC's motion to compel arbitration is reversed, and the cause is remanded to the trial court to conduct a hearing on the unconscionability of the delegation clause, and for further proceedings in accord with this opinion. The parties shall bear their own costs on appeal.
BIGELOW, P. J.
We concur:
RUBIN, J.
FLIER, J.