Legal Jolt -- Circuit City's mandatory arbitration policy fails to dissuade a determined fired worker who wins a $150,000 award.
Daily Journal - Dec 22, 2000

By Jason W. Armstrong
Daily Journal Staff Writer

SANTA ANA - Sam Majdi used to enjoy his job in the electronics field. His dedication even earned him a sales-manager-of-the-year award during a stint at The Good Guys.

But after returning to a former employer, Circuit City, the 45-year-old's attitude toward his profession changed.

Majdi, who is of Iranian descent, claimed that he was unlawfully fired from Circuit City for sending an e-mail that was considered offensive to a subordinate. He also alleged that his supervisors racially discriminated against him and tried to weed out all Circuit City employees of Middle Eastern descent.

An outside attorney for Richmond, Va.-based Circuit City Stores Inc. declined to be interviewed for this article.

Majdi filed a lawsuit detailing his allegations, but, because of an agreement he signed when he was hired requiring that he submit to arbitration instead of taking his lawsuit to court, a judge ordered him to arbitrate his case.

Circuit City's arbitration policy created an uphill legal battle for Majdi. From the time an arbitrator was selected, he had a deadline of just 90 days to produce discovery, and he was limited to deposing only three witnesses. In addition, he was up against a Circuit City policy that provided for only $5,000 in punitive damages.

But after dogged pursuit of evidence to back his case, the Aliso Viejo resident earlier this year overcame the obstacles to obtain a favorable ruling through the electronic giant's arbitration policy.

Majdi was awarded more than $150,000 for his claims of wrongful termination, breach of contract and breach of the covenant of good faith and fair dealing. He wasn't, however, awarded any punitive damages.

His victory against Circuit City comes at a time when the law as it applies to mandatory employment arbitration agreements is evolving rapidly.

The California Supreme Court, in a decision earlier this year, Armendariz v. Foundation Health Psychcare Services Inc., 24 Cal.4th 83 (Cal. Aug. 24, 2000), dramatically increased the fairness of compulsory arbitration policies.

Both Armendariz and a state appellate case against Circuit City, Ramirez v. Circuit City, 76 Cal.App.4th 1229 (1999), found that employment arbitration agreements are "unconscionable" if they operate in a harsh or one-sided manner without any justification.

Majdi's lawyer, Irvine sole practitioner Sima Fard, said the arbitration agreements of Circuit City and other employers now have to be "in line with due process."

Majdi's case, however, played out before the beneficial provisions of the recent rulings went into effect.

Majdi started work for an Orange County Circuit City store in 1989. He jumped ship five years later to work for The Good Guys, where he won the store's Sales Manager of the Year award in 1995.

Circuit City staff members approached Majdi soon after he won the award and asked him to return to their company as a manager with better pay and status, he contended in litigation papers.

Majdi accepted the offer and joined the staff at Circuit City's Santa Ana store. He soon was promoted and moved to the Irvine store, where he was manager of the audio/video department.

Not long after he was hired, though, Majdi alleges that he began to encounter racial discrimination.

His supervisor, Dave Delaney, began treating him differently from other non-Iranian males, Majdi contends in his documents. Delaney used profanity toward him and allegedly told Majdi he didn't want him in his store.

Majdi says he was ordered to "write up" and fire other employees of Middle Eastern descent. Delaney, he contends, allegedly referred to such individuals as "towel heads" and described them as having bad body odor.

In May 1997, Majdi admonished by e-mail one of his subordinates for not complying with Delaney's policy of calling back customers who visited and purchased items from the store.

The e-mail, sent to an employee named Michael Buttacavoli, stated that Majdi did not want to get "fucked over" because he called Buttacavoli's customers for him.

Buttacavoli complained about the e-mail, and Majdi was fired.
Majdi filed a complaint in Orange County Superior Court, alleging that he was unjustly terminated and that he suffered discrimination because of his race and ethnic origin.

The case was transferred to federal court, where a judge granted a motion by Circuit City to compel arbitration.

As the case arbitrated, Fard, Majdi's lawyer, said she experienced difficulties getting discovery from Circuit City. And because of the arbitration agreement's three-witness deposition limit, Fard said she wasn't able to depose several of the individuals who allegedly made the decision to fire Majdi.

Circuit City didn't conduct a thorough investigation of Majdi's claims, Fard said. Instead, store officials would respond by "sensing" the work environment or randomly questioning employees about conduct, according to the arbitrator's decision in the case.

Circuit City officials acknowledged that they never spoke with Majdi about his allegations, according to the arbitrator's report.

The arbitrator, Steven D. Bromberg of Judicate West in Santa Ana, found that Majdi was wrongfully terminated. But Bromberg did not find that Majdi's firing was racially motivated. He awarded Majdi $155,000, which covered back pay, court costs and the causes of action Majdi alleged.

Circuit City moved to vacate the award, alleging that the arbitrator "exceeded his powers and acted in manifest disregard" in his award of damages to Majdi.

But a federal judge granted a motion by Majdi to confirm the award, finding that the arbitrator's award stayed true to the law.

Rex D. Berry, name partner in Seattle's Davis, Grimm, Payne, Marra & Berry who represented Circuit City, declined to comment on Majdi's allegations or his award.

"Circuit City, as a general rule, doesn't comment on litigation," Berry said.

In the last year, the state Supreme Court has overhauled the standards by which compulsory arbitration agreements are imposed on employees.

In the Ramirez case, the other case that involved Circuit City, the high court found that the chain's arbitration agreement is "unenforceable and unconscionable."

In that case, a Fresno Circuit City employee, Robert Ramirez, who installed electronics in automobiles for the store, alleged that the company failed to pay its workers adequate wages even though it required them to provide their own tools for installation of Circuit City products.

Ramirez, who filed a class action "on behalf of himself and all others similarly situated," also alleged that Circuit City didn't pay its employees enough overtime wages and that the company was misreporting its employees' earnings statements.

Circuit City filed a motion to compel arbitration, but the trial court found that the agreement excludes class actions, and it denied the company's motion.

On appeal to the 4th District Court of Appeal, the judges found that Circuit City's arbitration agreement "contravenes California law to the extent that it limits the rights conferred on employees by the Labor Code."

More significant, however, the Supreme Court's finding this year in the Armendariz case will lead to major changes in employment arbitration throughout the state.

"Given the lack of choice and the potential disadvantages that even a fair arbitration system can harbor for employees, we must be particularly attuned to claims that employers with superior bargaining power have imposed one-sided, substantively unconscionable terms as part of an arbitration agreement," Justice Stanley Mosk wrote.

In that case, the high court found that such an agreement can't exclude a worker from the same types of relief available in cases that go to trial on claims that have statutorily imposed remedies, such as punitive damages and attorney fees.

The justices also found that an employee should not have to pay unreasonable costs as a condition of access to the arbitration forum.

Also prohibited under Armendariz are agreements that require an employee to arbitrate a claim against an employer but do not work in the reverse, that is, do not require the employer to arbitrate a claim against an employee. Such unequal treatment is "substantially unconscionable," the justices decided.

Frank Cronin, a partner at Irvine's Snell & Wilmer who specializes in employment law, said the state Supreme Court has "basically given its seal of approval" to mandatory arbitration, as long as it gives plaintiffs most of the benefits they would get in a courtroom.

About 25 percent of companies in California require their employees to arbitrate claims they bring against their employers, Cronin said.

"The court's ruling is adding all the features of civil litigation to arbitration," Cronin said. "It also helps determine whether or not there is an unconscionable agreement."

Fard said she respects the award Majdi received from his arbitration with Circuit City, but she said she believes her client should have received damages for racial discrimination.

"Circuit City believed they were above the law," Fard said. "They didn't think anyone would find out about it."

Court Criticizes Law Firm's Mischaracterization of the Law

By a MetNews Staff Writer

Metropolitan News-Enterprise

Wednesday, August 9, 2006
Page 3

The Fourth District Court of Appeal criticized an Irvine firm yesterday in an unpublished opinion for arguing a legal position contrary to what the same court had ruled in a published opinion in a prior case involving the same firm.

Justice William W. Bedsworth, writing for Div. Three, said:

"In this case, we deal with tactics which were heavy-handed at best, and at worst could be viewed as a deliberate attempt to deprive a pro per plaintiff of the opportunity to air his grievance in any forum. Reluctant as we are to cast aspersions, we must reverse the judgment, and cannot spare trial counsel what the record seems to indicate is well-earned criticism."

The court reversed summary judgment to defendant St. John Knits Inc.- represented at trial and on appeal by the Irvine firm Payne & Fears in a wrongful termination case brought by Behzad Zamani- and remanded the case to the trial court.

When Zamani began working for St. John in 1997 as a head mechanic, he signed a written employment offer which provided that all disputes would be resolved by binding arbitration to the "fullest extent allowed by law."

After St. John terminated Zamani's employment in 2002, he filed suit in Orange Superior Court. St. John raised the arbitration provision as an affirmative defense, but did not file a motion to compel arbitration.

Instead, it "engaged in a campaign to convince Zamani to 'stipulate' to arbitration," Bedsworth said.

During a court hearing in which Zamani appeared in pro per, and stated that he wanted to go to trial, defense counsel asked for "a representation on the record by the plaintiff . . . that he is stating that under no circumstances will he agree to arbitration - that he's waiving his rights to arbitration."

The court then said to Zamani "Sir?" And Zamani replied "I'm refusing the arbitration? . . . Yes." The court then set the matter for trial.

St. John filed a motion for summary judgment which the court granted, stating that "it is undisputable by admissible evidence that . . . all of Zamani's causes of action are subject to final and binding arbitration and Zamani expressly and impliedly waived his right to arbitration."

The court entered judgment pursuant to the order.

Bedsworth noted that:

"Three years ago, in Kalai v. Gray (2003) 109 Cal.App.4th 768, we tried to make it clear that a plaintiff will not be deprived of his right to proceed with his claim in arbitration merely because he first attempted to litigate it in court. As we explained, our Supreme Court had previously stated that a waiver of the right to proceed in arbitration "occurs when the merits of the dispute have been litigated by the parties."

The justice continued:

"Unfortunately, our message was apparently not clear to defendant St. John Knits, Inc. (St. John), despite the fact it is represented by the same law firm that represented the prevailing party in Kalai. Or perhaps it was clear, and that is why counsel omitted any mention of Kalai before the trial court in this case.

Noting that St. John used the same authorities the court found unpersuasive in Kalai, Bedsworth said:

"Of course, counsel is always free to disagree with our published opinions (even to disparage them, privately) to distinguish them or perhaps to argue they are inconsistent with other, more persuasive authority. What counsel cannot do is mischaracterize the state of the law."

Bedsworth concluded:

"To characterize counsel's efforts as disturbing would be mild, and St. John's current efforts to distinguish Kalai in this appeal are no improvement."

Payne and Fears attorney Jane M. Flynn, who worked on the appeal, told the MetNews that she hadn't read yesterday's opinion, but thought Kalai was distinguishable because the plaintiff in that case did nothing more than file suit.

Irvine attorney Sima Fard, who represented Zamani on appeal, was not available for comment.

The case is Zamani v. St. John Knits Inc., G035818.

Mandatory arbitration agreement that limits discovery and caps punitive damages recoverable by employees is unconscionable
 

Law Reporter, Jun 2000
Ramirez ro. Circuit City Stores, Inc., 90 Cal. Rptr. 2d 916 (Ct. App. 1999).

A California appellate court held an arbitration clause in an employment contract that limits discovery and caps punitive damages is unconscionable.

Here, Ramirez was an equipment installer for Circuit City. To apply for the job, he had to sign an agreement that mandated arbitration of all employment-related disputes with Circuit City in accordance with company rules. Those rules limit discovery and cap punitive damages recoverable by employees.

Ramirez filed suit against Circuit City, alleging that it committed unfair business practices in violation of state statutes and regulations. The trial court denied defendant's motion to compel arbitration, finding the agreement unconscionable.

Affirming, the appellate court noted that unconscionable agreements have both a procedural and a substantive element. The court said the procedural element focuses on two factors: oppression and surprise. Oppression arises from an inequality of bargaining power that results in no real negotiation and an absence of meaningful choice, the court explained. Surprise involves the extent to which the terms of the bargain are hidden in a "prolix printed form" drafted by a party in a superior bargaining position. Substantive unconscionability addresses whether the one-sidedness of an agreement is objectively justified.

Applying this standard, the court noted that plaintiff had no choice but to sign the arbitration agreement if he was to be considered for a job with defendant. The court rejected defendant's argument that plaintiff had a choice not to apply for a job that required signing an arbitration agreement. The court said this argument ignores the realities of the marketplace because persons such as plaintiff applying for an entry-level position presumably need a job, lack much in the way of salable skills, and are unlikely to understand the significance of the rights relinquished by signing the contract. A meaningful choice, the court emphasized, requires more than the choice-for applicants such as plaintiff-between foregoing the possibility of employment or applying for a job and agreeing to what appears to be a fair means of resolving employment-related disputes. Thus, the court concluded, the procedural element of unconscionability exists here.

Further, the court found a high degree of substantive unconscionability in this case. An agreement that requires the weaker party to arbitrate any claims he or she may have but permits the stronger party to seek redress through the courts is presumptively unconscionable, the court said. Here, language in the agreement explaining which disputes are subject to arbitration refers to only an employee's claims but says nothing about defendant's claims or claims against employees.

Accordingly, the court held the arbitration agreement unenforceable.

Plaintiff's Counsel

David A. Rosenfield, Oakland, Cal.

Joseph A. Creitz, Oakland, Cal.

Comment. But see Majdi v. Circuit City Stores, Inc., No. CV98-4112AAH(CTx) (C.D. Cal. 1998). There, an employee sued Circuit City, alleging wrongful termination and racial discrimination, among other claims. A U.S. district court rejected the contention that defendant's arbitration agreement was unconscionable, holding that plaintiff had a meaningful choice in that he could have chosen to seek work with some other employer instead of signing the agreement. An arbitrator later awarded plaintiff $125,500, plus costs. *Sima Fard, Irvine, Cal., represented plaintiff.

Documents in the Majdi case are available through the Court Documents section in the back of this issue, courtesy of Ms. Fard.

Copyright Association of Trial Lawyers of America Jun 2000
Provided by ProQuest Information and Learning Company. All rights Reserved

Fourth District Blasts Payne & Fears For Failing To Cite Kalai

As reported in the L.A. Daily Journal last week,

An appellate panel criticized an Irvine law firm Tuesday for not playing fair while defending a company against an employee's discrimination complaint. "In this case, we deal with tactics which were heavy-handed at best, and at worst could be viewed as a deliberate attempt to deprive a pro per plaintiff the opportunity to air his grievance in any form," Acting Presiding Judge William W. Bedsworth wrote on behalf of the three-judge panel of the 4th District Court of Appeal. Zamani v. St. John Knits Inc., G035818. In its unpublished ruling, the panel unanimously reversed an Orange County Superior Court judge's dismissal of Behzad Zamani's complaint against St. John Knits Inc., where he had worked as head mechanic for five years. Zamani sued the company after being fired, alleging discrimination. Daniel F. Fears of the Irvine firm Payne & Fears represented the company. Before the trial court, the law firm cited arguments that were already defeated by the appellate court three years earlier, the panel said. Payne & Fears should have known about the ruling because the firm represented the prevailing party in that case. Kalai v. Gray 109 Cal.App.4th 768 (2003). "To characterize counsel's efforts as disturbing would be mild," Bedsworth wrote. Fears could not immediately be reached for comment Tuesday. © 2006 Daily Journal Corporation.

Remember 24 Hour Fitness, Inc. v. Superior Court (1998) 66 Cal.App.4th 1199, and its arbitration waiver issue? Dead forever is that part of the opinion which defense lawyers (and some trial judges) misquoted to claim that a person cannot demand a court determination of an arbitration agreement's validity without waiving the right to arbitrate should the agreement be found enforceable. Three years ago, in Kalai v. Gray (2003) 109 Cal.App.4th 768, the Fourth District Court of Appeal held that a plaintiff will not be deprived of his right to proceed with his claim in arbitration merely because he first attempted to litigate it in court. The Supreme Court had previously held that a waiver of the right to proceed in arbitration only occurs "when the merits of the dispute have been litigated by the parties" (Doers v. Golden Gate Bridge etc. Dist. (1979) 23 Cal.3d 180), but the 24 Hour Fitness case suggested that one who "repudiates" the arbitration agreement may never again seek to arbitrate -- an absurd rule that would have rendered any unconscionable arbitration agreement into an ad terrorem clause. Though California law clearly provides parties the right to seek a determination regarding the validity of a contract, including a contract for arbitration, St. John Knits and its counsel, Payne & Fears, claimed that it did not. They cited 24 Hour Fitness and its progeny, Martinez v. Scott Specialty Gases, Inc. (2000) 83 Cal.App.4th 1236, but made no mention of Kalai, even though the losing counsel in the Kalai case was Payne & Fears. The Court of Appeal did not appreciate that tactic. We don't know of any sanction being issued, but the opinion contained a number of gems, which, if it is ever published, would make for powerful support of many common employee arguments:

Much as our legal system favors the resolution of disputes on their merits, we still sometimes run into a case in which a party manages to rope the trial court into the kind of "gotcha!" resolution that usually frustrates justice. In this case, we deal with tactics which were heavy-handed at best, and at worst could be viewed as a deliberate attempt to deprive a pro per plaintiff of the opportunity to air his grievance in any forum. ...

In this case, we reject St. John's contention that plaintiff Behzad Zamani "waived" his right to pursue his claim in arbitration, merely because he first attempted to pursue it in court. The fact he also stated, during the court proceedings, that he was "refusing" to arbitrate - at a time when no arbitration proceeding had ever been initiated, and St. John's counsel had been badgering him to stipulate to it - changes nothing. Zamani was entitled to "refuse" to arbitrate his own claims as part of his argument he was entitled to litigate in court. As a practical matter, every party who files an opposition to a petition or motion to compel arbitration does that. What Zamani might not be entitled to do, if he entered in to an enforceable arbitration agreement, is litigate those claims. And that issue - whether Zamani could proceed with his claim in court - is the only issue which should have been determined below.

... the judgment is reversed, and the case is remanded with directions to modify the summary judgment order so as to delete any finding that Zamani waived his right to arbitrate. The court is also directed to consider whether St. John's conduct in attempting to deprive Zamani of any forum in which to adjudicate his claim amounts to a violation of the covenant of good faith and fair dealing, and warrants a finding that St. John itself relinquished its right to compel arbitration in this case.

First, we must address the conduct of St. John's counsel in attempting to persuade the trial court of the merits of its summary judgment motion, without so much as acknowledging the existence of our prior Kalai opinion. Of course, counsel is always free to disagree with our published opinions (even to disparage them, privately); to distinguish them; or perhaps to argue they are inconsistent with other, more persuasive authority. What counsel cannot do is mischaracterize the state of the law. "An attorney has a duty '[t]o employ, for the purpose of maintaining the causes confided to him or her such means only as are consistent with truth, and never to seek to mislead the judge or any judicial officer by any artifice or false statement of fact or law.' (Bus. & Prof. Code, § 6068, subd. (d).) Further, a member of the State Bar '[s]hall not seek to mislead the judge, judicial officer, or jury by an artifice or false statement of fact or law.' (Rules Prof. Conduct, rule 5-200(B).) '"Honesty in dealing with the courts is of paramount importance, and misleading a judge is, regardless of motives, a serious offense."' (Paine v. State Bar (1939) 14 Cal.2d 150, 154; see also Di Sabatino v. State Bar (1980) 27 Cal.3d 159, 162-163; Garlow v. State Bar (1982) 30 Cal.3d 912, 917.) 'Counsel should not forget that they are officers of the court, and while it is their duty to protect and defend the interests of their clients, the obligation is equally imperative to aid the court in avoiding error and in determining the cause in accordance with justice and the established rules of practice.' (Furlong v. White (1921) 51 Cal.App. 265, 271." (Williams v. Superior Court (1996) 46 Cal.App.4th 320, 330.) ...

No attorney in her right mind would have acceded to the stipulation shortening time for a summary judgment motion from 75 days to only 21 days, without knowing what St. John intended to do with it - and certainly would not have if she did know. ...

In 24 Hour Fitness, the court concluded, in accordance with Charles J. Rounds, that defendants were entitled to summary judgment based upon their arbitration agreement. It then went on to say, in a footnote contained in the disposition portion of its opinion, that: "[w]e recognize the result of our decision here is that Munshaw has no avenue for recourse against Nautilus, Rodriguez, Harmon or Cunningham. This consequence flows from her decision to repudiate the arbitration agreement." (24 Hour Fitness, Inc. v. Superior Court, supra, 66 Cal.App.4th at p. 1216, fn. 12.) The court does not, however, make any effort to explain exactly why that would be the result. In Kalai, we attributed the court's statement to the fact the arbitration provision at issue expressly required an arbitration be commenced within a year, which had not occurred. That factor distinguished 24 Hour Fitness from both Kalai and this case, and we consequently have no need to consider whether we might agree with the court's conclusion on that basis. However, if the 24 Hour Fitness court meant to suggest that a plaintiff's mere repudiation of the agreement would entitle defendant to avoid any adjudication of plaintiff's claims, we simply disagree. That conclusion is inconsistent with both basic contract law and the precedents discussed above. ...

Rather than employing the arbitration provision in the parties' agreement as a means of resolving this dispute in arbitration, as is clearly intended, it appears St. John was attempting to spin it into a means of avoiding resolution altogether. If that is true, it would constitute grounds for concluding that it is St. John, rather than Zamani, that has waived its right to arbitration in this case. As explained in Davis v. Blue Cross of Northern California (1979) 25 Cal.3d 418, 427, the covenant of good faith and fair dealing, which "requires each contracting party to refrain from doing anything to injure the right of the other to receive the benefits of the agreement" is implied in arbitration agreements as well as others. And conduct by one party which amounts to a deliberate effort to deprive the opposing party of those arbitration benefits can be construed as a violation of the covenant of good faith and fair dealing, and can be used to preclude the first party from thereafter seeking to enforce the arbitration agreement. We remand this case to the trial court with directions to consider whether St. John's conduct rises to that level, and to determine whether, as a consequence, St. John has relinquished its own right to compel arbitration