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Broughton v. Cigna Healthplans of California, 21 Cal.4th 1066, 988 P.2d 67, 90 Cal.Rptr.2d 334 (Cal. 12/02/1999)
| [1] | California Supreme Court |
| [2] | S072583 |
| [3] | 21 Cal.4th 1066, 988 P.2d 67, 90 Cal.Rptr.2d 334, 1999.CA.0043070 <http://www.versuslaw.com> |
| [4] | December 02, 1999 |
| [5] | ADRIAN BROUGHTON, JR., A MINOR, ETC., ET AL., PLAINTIFFS AND RESPONDENTS, v. CIGNA HEALTHPLANS OF CALIFORNIA, DEFENDANT AND APPELLANT. |
| [6] | Ct. App. B093517 Los Angeles County Super. Ct. No. BC117680 |
| [7] | Attorneys for Appellant: Horvitz & Levy, Daniel J. Gonzalez, Lisa
Perrochet; Hammond, Zuetel & Cahill, Zuetel & Cahill, Zuetel &
Tomlinson, Kenneth R. Zuetel, Jr., and Cynthia L. K. Steel for Defendant
and Appellant. Fred J. Hiestand for the Association for California Tort
Reform as Amicus Curiae on behalf of Defendant and Appellant. Thelen Reid
& Priest, Curtis A. Cole and Nicole M. Duckett for California Medical
Association, California Dental Association and California Healthcare Association
as Amici Curiae on behalf of Defendant and Appellant. Arnold & Porter,
Lawrence A. Cox, Brian K. Condon and Kurt Fritz for Kaiser Foundation Health
Plan, Inc., as Amicus Curiae on behalf of Defendant and Appellant. O'Melveny
& Myers, Martin S. Checov and George C. Demos for the California Association
of Health Plans as Amicus Curiae on behalf of Defendant and Appellant. Attorneys
for Respondent: Mazursky, Schwartz & Angelo, Christopher E. Angelo,
Anthony Kornarens; Watkins & Stevens and Steven B. Stevens for Plaintiffs
and Respondents. The Alexander Law Firm and Richard Alexander for American
Association of Retired Persons as Amicus Curiae on behalf of Plaintiffs
and Respondents. Simon, Kesner & Friedman and Douglas E. Friedman for
the American Cancer Society and the Autism Society of America as Amici Curiae
on behalf of Plaintiffs and Respondents. Attorneys for Respondent: Ed Howard
for Consumers for Quality Care as Amicus Curiae on behalf of Plaintiffs
and Respondents. The Sturdevant Law Firm, James C. Sturdevant, Jack P. Hug,
Steven S. Kaufhold; Ian Herzog; Bruce Broillet; David S. Casey, Jr.; Deborah
David; Douglas Devries; Laurence E. Drivon; Thor Emblem; Joseph F. Harbison
III; Steven J. Kleifield; Moses Lebovits; Harvey R. Levine; Wayne McLean;
David A. Rosen; Leonard Sacks; Rick Simons; Daniel Smith; Chris Spagnoli;
Robert B. Steinberg; Thomas G. Stolpman; Tony Tanke; Lea-Ann Tratten; William
D. Turley; and Roland Wrinkle for Consumer Attorneys of California as Amicus
Curiae on behalf of Plaintiffs and Respondents. Paul Bland; Victoria Nugent;
and Sarah Posner for Trial Lawyers for Public Justice as Amicus Curiae on
behalf of Plaintiffs and Respondents. Patricia Sturdevant for National Association
of Consumer Advocates as Amicus Curiae on behalf of Plaintiffs and Respondents.
Mark Mandell; Mary Alexander; and John Vail for Association of Trial Lawyers
of America as Amicus Curiae on behalf of Plaintiffs and Respondents. |
| [8] | In this case we consider whether a claim brought under the Consumer Legal
Remedies Acts, Civil Code section 1750 et seq. (CLRA or the Act), may be
subject to arbitration. The Court of Appeal concluded that such a claim
would not be arbitrable, principally because the CLRA authorizes permanent
injunctive relief to enjoin deceptive business practices, and such a remedy
is beyond the scope of an arbitrator to grant or properly enforce. We conclude
that the Court of Appeal is partially correct that the injunctive relief
portion of a CLRA claim is inarbitrable, although for reasons somewhat different
from those found by the Court of Appeal. But we also conclude that an action
for damages under the CLRA is fully arbitrable and should be severed from
an injunctive relief action when, as here, a plaintiff requests both types
of relief. |
| [9] | I. Statement of Facts and Procedural Background |
| [10] | Plaintiffs are a minor, Adrian Broughton, Jr., through his guardian ad
litem, Keya Johnson (his mother), and Ms. Johnson on her own behalf. Adrian
and his mother were covered by Medi-Cal, which had negotiated a contract
with Cigna Healthplans of California (Cigna) for health care coverage. The
first cause of action in the complaint against Cigna and others, not parties
to the appeal, seeks damages for medical malpractice, based on severe injuries
claimed to have been suffered by Adrian at birth. The second cause of action
alleges violation of the CLRA, based on allegations that Cigna deceptively
and misleadingly advertised the quality of medical services which would
be provided under its health care plan. Specifically, plaintiffs allege
that Ms. Johnson received substandard prenatal medical services, and that
she was denied a medically necessary cesarean delivery. Under the second
cause of action plaintiffs ask for actual damages, punitive damages, attorneys
fees and "an order enjoining [Cigna's] deceptive methods, acts, and
practices." |
| [11] | Cigna answered the complaint, and filed a combined motion to compel arbitration
and verified petition for an order requiring plaintiffs to arbitrate the
controversy. Cigna relied on the mandatory arbitration provision in its
combined evidence of coverage and disclosure form. |
| [12] | Plaintiffs opposed the motion. They argued that there was no evidence
of an agreement to arbitrate between them and Cigna, the case did not come
within the statutes governing arbitration of medical malpractice claims,
Cigna waived the right to arbitrate by litigating motions before the trial
court, and the second cause of action under the CLRA was not subject to
arbitration. In support of the last argument, plaintiffs cited Civil Code
section 1751, *fn1 a part
of the Act: "Any waiver by a consumer of the provisions of this title
is contrary to public policy and shall be unenforceable and void." |
| [13] | The trial court severed the causes of action and granted the motion to
compel arbitration of the medical malpractice cause of action, but denied
the motion as to the cause of action under the CLRA. Cigna filed a timely
notice of appeal from the order denying its motion to compel arbitration
of the second cause of action for violation of the CLRA. |
| [14] | The Court of Appeal affirmed the trial court's judgment. It pointed to
the CLRA antiwaiver provision, and to the fact that the statute authorizes
the granting of permanent injunctions against deceptive business practices.
The court reasoned, as explained at greater length below, that arbitrators
may not issue permanent injunctions, and therefore arbitration is not an
adequate forum for the resolution of CLRA claims. We granted review to decide
whether CLRA claims are arbitrable, and we also requested the parties to
address the question whether a Conclusion that an agreement to arbitrate
CLRA claims is unenforceable would run afoul of the Federal Arbitration
Act (9 U.S.C. § 1 et seq. (FAA)). *fn2 |
| [15] | II. Discussion |
| [16] | We begin our Discussion by recapitulating the federal statutory mandate
and strong public policy in favor of enforcing arbitration agreements. Section
2 of the FAA provides: "A written provision in . . . a contract evidencing
a transaction involving [interstate] commerce to settle by arbitration the
controversy thereafter arising out of such contract or transaction, . .
. shall be valid, irrevocable, and enforceable, save upon such grounds as
exist at law or in equity for the revocation of any contract." (9 U.S.C.
§ 2.) The FAA, and section 2 in particular, "was intended `to revers[e]
centuries of judicial hostility to arbitration agreements,' [citation] by
`plac[ing] arbitration agreements "upon the same footing as other contracts."
' " (Shearson/American Express Inc. v. McMahon (1987) 482 U.S. 220,
225-226 (McMahon).) Through the FAA, "Congress precluded States from
singling out arbitration provisions for suspect status . . . ." (Doctor's
Associates, Inc. v. Casarotto (1996) 517 U.S. 681, 687 [striking down state
law requiring special notice for arbitration provisions in contracts].)
California has a similar statute (Code Civ. Proc., § 1281) and a similar
policy in favor of arbitration (Moncharsh v. Heily & Blase (1992) 3
Cal.4th 1, 9-10 (Moncharsh).) |
| [17] | Over the past 15 years, the United States Supreme Court has on numerous
occasions invalidated laws and judicial decisions that disfavored arbitration.
The seminal case of Southland Corp. v. Keating (1984) 465 U.S. 1 (Southland)
reversed one of our own cases. We had decided in Keating v. Superior Court
(1982) 31 Cal.3d 584 (Keating) that certain claims under California's Franchise
Investment Law (Corp. Code, § 3100 et seq.) were not subject to mandatory
arbitration pursuant to a provision in a franchise agreement. The Franchise
Investment Law had an antiwaiver provision similar to the one in this case,
which we construed as an expression of a legislative intent to limit enforcement
of the statute to the courts rather than arbitration. This limitation was
warranted, we reasoned, because "the effectiveness of the statute `is
lessened in arbitration as compared to judicial proceedings' [citation]
in part because of the limited nature of judicial review [citation]."
(Keating, supra, 31 Cal.3d at p. 596.) The United States Supreme Court held
that the Franchise Investment Law, so interpreted, violated the FAA. As
the court stated: "In enacting § 2 of the [FAA], Congress declared
a national policy favoring arbitration and withdrew the power of the states
to require a judicial forum for the resolution of claims which the contracting
parties agreed to resolve by arbitration." (Southland, supra, 465 U.S.
at p. 10.) |
| [18] | In Perry v. Thomas (1987) 482 U.S. 483, the high court held California
Labor Code section 229, which insulated claims regarding the collection
of wages from agreements to arbitrate, was preempted by section 2 of the
FAA. As the court explained: "An agreement to arbitrate is valid, irrevocable,
and enforceable, as a matter of federal law, [citation] `save upon such
grounds as exist at law or in equity for the revocation of any contract.'
9 U.S.C. § 2. . . . Thus state law, whether of legislative or judicial origin,
is applicable if that law arose to govern issues concerning the validity,
revocability, and enforceability of contracts generally. A state-law principle
that takes its meaning precisely from the fact that a contract to arbitrate
is at issue does not comport with this requirement of § 2. [Citation.] A
court may not, then, in assessing the rights of litigants to enforce an
arbitration agreement, construe that agreement in a manner different from
that in which it otherwise construes nonarbitration agreements under state
law." (Perry v. Thomas, supra, 482 U.S. at p. 492, fn. 9.) |
| [19] | Since Southland and Perry, the court has repeatedly made clear that arbitration
may resolve statutory claims as well as those purely contractual if the
parties so intend, and that in doing so, parties do not forego substantive
rights, but merely agree to resolve them in a different forum. (Mitsubishi
Motors Corp. v. Soler Chrysler-Plymouth, Inc. (1985) 473 U.S. 614, 627 (Mitsubishi
Motors) [claims regarding federal antitrust statutes subject to arbitration];
McMahon, supra, 482 U.S. 220 [Securities Exchange Act of 1934 and Racketeer
Influenced and Corrupt Organizations Act claims subject to arbitration];
Rodriguez de Quijas v. Shearson/American Express, Inc. (1989) 490 U.S. 477
[claims arising from Securities Act of 1933 arbitrable, overruling previous
construction of the antiwaiver provisions of that act in Wilko v. Swan (1953)
346 U.S. 427]; Gilmer v. Interstate/Johnson Lane Corporation (1991) 500
U.S. 20 (Gilmer) [Age Discrimination in Employment Act (ADEA) claim arbitrable].) |
| [20] | Notwithstanding all of the above, the United States Supreme Court has
acknowledged that "not . . . all controversies implicating statutory
rights are suitable for arbitration." (Mitsubishi Motors, supra, 473
U.S. at p. 627.) The unsuitability of a statutory claim for arbitration
turns on congressional intent, which can be discovered in the text of the
statute in question, its legislative history or in an " `inherent conflict'
between arbitration and the [statute's] underlying purposes." (Gilmer,
supra, 500 U.S. at p. 26.) Although the court has not elaborated on the
phrase "inherent conflict," two cases shed light on its meaning. |
| [21] | In Mitsubishi Motors, supra, 473 U.S. 614, the court considered, within
the context of enforcement of an international agreement, whether statutory
antitrust claims are subject to arbitration. The court rejected the argument
articulated in that case by the Court of Appeals that the claim was not
arbitrable because " `[a] claim under the antitrust laws is not merely
a private matter. The Sherman Act is designed to promote the national interest
in a competitive economy; thus, the plaintiff asserting his rights under
the Act has been likened to a private attorney-general who protects the
public's interest." ' [Citation.]" (Id. at p. 635.) The court
stated: "The treble-damages provision wielded by the private litigant
is a chief tool in the antitrust enforcement scheme, posing a crucial deterrent
to potential violators. [Citation.] [¶] The importance of the private damages
remedy, however, does not compel the Conclusion that it may not be sought
outside an American court. Notwithstanding its important incidental policing
function, the treble-damages cause of action conferred on private parties
by § 4 of the Clayton Act, 15 U.S.C. § 15, . . . seeks primarily to enable
an injured competitor to gain compensation for that injury. [¶] ".
. . Of course, treble damages also play an important role in penalizing
wrongdoers and deterring wrongdoing, as we also have frequently observed.
. . . It nevertheless is true that the treble-damages provision, which makes
awards available only to injured parties, and measures the awards by a multiple
of the injury actually proved, is designed primarily as a remedy.' "
(Id., at pp. 635-636, italics added.) |
| [22] | In McMahon, supra, 482 U.S. 220, the court considered a similar argument
with respect to the Racketeer Influenced and Corrupt Organizations Act (RICO).
The plaintiffs in that case, who brought various federal and state claims
against a brokerage firm, had argued that "the public interest in the
enforcement of RICO precludes its submission to arbitration." (Id.,
at p. 240.) The court, after citing Mitsubishi Motors, stated: "RICO's
drafters . . . sought to provide vigorous incentives for plaintiffs to pursue
RICO claims that would advance society's fight against organized crime.
[Citation.] But in fact RICO actions are seldom asserted `against the archetypal,
intimidating mobster.' [Citations.] (`[O]nly 9% of all civil RICO cases
have involved allegations of criminal activity normally associated with
professional criminals'.) The special incentives necessary to encourage
civil enforcement actions against organized crime do not support nonarbitrability
of run-of-the-mill civil RICO claims brought against legitimate enterprises.
The private attorney general role for the typical RICO plaintiff is simply
less plausible than it is for the typical antitrust plaintiff, and does
not support a finding that there is an irreconcilable conflict between arbitration
and enforcement of the RICO statute." (Id., at pp. 241-242.) |
| [23] | The Mitsubishi Motors and McMahon court's rejection of what may be termed
the "public interest" argument in the above cases revolves around
the essentially private nature of the damages remedy at issue - the public
benefits of the antitrust and civil RICO suit is merely incidental to the
pursuit of a private remedy, making the "private attorney general role"
for such plaintiffs relatively "implausible." The above passages
imply, however, that when the primary purpose and effect of a statutory
remedy is not to compensate for an individual wrong but to prohibit and
enjoin conduct injurious to the general public, i.e., when the plaintiff
is acting authentically as a private attorney general, such a remedy may
be inherently incompatible with arbitration. |
| [24] | Is there an inherent conflict between arbitration and the CLRA? In order
to answer that question, we first look to the nature and purpose of that
statute. The CLRA was enacted in an attempt to alleviate social and economic
problems stemming from deceptive business practices, which were identified
in the 1969 Report of the National Advisory Commission on Civil Disorders
(Kerner Commission). (See Reed, Legislating for the Consumer: An Insider's
Analysis of the Consumers Legal Remedies Act (1971) 2 Pacific L.J. 1, 5-7.)
Section 1760 contains an express statement of legislative intent: "This
title shall be liberally construed and applied to promote its underlying
purposes, which are to protect consumers against unfair and deceptive business
practices and to provide efficient and economical procedures to secure such
protection." |
| [25] | Specifically, the CLRA identifies as actionable certain deceptive business
practices. (§ 1770.) The practices include, for example, "[r]epresenting
that goods are original or new if they have deteriorated unreasonably or
are altered, reconditioned, reclaimed, used or secondhand" (§ 1770,
subd. (a)(6)) or "[a]dvertising goods or services with intent not to
sell them as advertised" (§ 1770, subd. (a)(9)). It permits a consumer
who has been damaged by these deceptive practices to bring an action for
actual damages, including a class action suit, as well as for "an order
enjoining a method, act, or practice," and punitive damages. (§ 1780,
subd. (a).) The court is also mandated to award the prevailing plaintiff
court costs and attorneys fees, and reasonable attorneys fees to the prevailing
defendant upon a finding that a plaintiff's prosecution was not in good
faith. (§ 1780, subd. (d).) The statute further provides that its remedies
are "not exclusive" but rather "in addition to any other
procedures or remedies . . . in any other law." (§ 1752.) And as mentioned,
the Act also expressly provides that its protections may not be waived by
the consumer. (§ 1751.) |
| [26] | In deciding whether CLRA claims are arbitrable, we first dispose of plaintiffs'
contention that section 2 of the FAA does not apply to their agreement with
Cigna because the terms of that agreement purport to incorporate the rules
of the California Arbitration Act, citing Volt Information Sciences Inc.
v. Board of Trustees of Leland Stanford Jr. University (1989) 489 U.S. 468.
We disagree. |
| [27] | Even assuming arguendo that California's statute embodies a less strict
standard for enforcing arbitration agreements than does the FAA, section
2 of the FAA applies regardless of which law the arbitration agreement incorporates.
As the court recently stated in Doctors Associates, Inc., supra, 517 U.S.
at page 688: "Volt involved an arbitration agreement that incorporated
state procedural rules, one of which, on the facts of that case, called
for arbitration to be stayed pending the resolution of a related judicial
proceeding [unlike section 4 of the FAA, which would not permit such a stay].
The state rule examined in Volt determined only the efficient order of proceedings;
it did not affect the enforceability of the arbitration agreement itself.
We held that applying the state rule would not `undermine the goals and
policies of the FAA,' [citation] because the very purpose of the Act was
to `ensur[e] that private agreements to arbitrate are enforced according
to their terms . . . .' " (Italics added.) The Doctors Associates court
struck down a state law that did affect the enforceability of arbitration
agreements by requiring special notice for arbitration provisions in contracts,
because the law "singl[ed] out arbitration provisions for suspect status."
(Doctors Associates, Inc. v. Casarotto, supra, 517 U.S. at p. 687.) As Doctors
Associates makes clear, Volt did not alter the rule that states may not
disfavor arbitration agreements, whether those agreements explicitly incorporate
the provisions of the FAA or some other arbitration regime. *fn3
The policy favoring enforcement of arbitration agreements embodied in section
2 of the FAA fully applies in this case provided, as discussed below, that
the parties to the arbitration were in a transaction involving interstate
commerce. *fn4 |
| [28] | Plaintiffs' main arguments that CLRA claims are not suitable for arbitration
revolve around the Act's injunctive relief provision. As noted, they sought
injunctive relief as well as damages in their CLRA claim. Following the
Court of Appeal, they argue that they cannot "vindicate [their CLRA
claim] in the arbitral forum" because of an arbitrator's supposed lack
of authority to grant permanent injunctive relief. |
| [29] | Plaintiffs contend that arbitrators may not issue permanent injunctions
principally because an arbitrator has no authority to vacate or modify an
injunction. They correctly point out that a superior court has the power
"to modify or vacate its [injunctive] decree when the ends of Justice
will be thereby served," notwithstanding the rule regarding finality
of judgments. (Sontag Chain Stores Co. v. Superior Court (1941) 18 Cal.2d
92, 95.) "Such a decree, it has uniformly been held, is always subject,
upon a proper showing, to modification or dissolution by the court which
rendered it. The court's power in this respect is an inherent one."
(Id. at pp. 94-95.) Grounds for modification or dissolution include supervening
changes in fact or law. (See Welsch v. Goswick (1982) 130 Cal.App.3d 398,
404-405.) Plaintiffs argue that arbitrators have no comparable authority
because they lose all ability to correct or otherwise modify arbitration
awards 30 days after service of the award. (Code Civ. Proc., § 1284.) Plaintiffs
also contend that the superior court is without statutory authority to modify
or dissolve an arbitral injunction, being confined to review an arbitration
award on a narrow basis at the time it is petitioned to confirm the award.
(Id., § 1286.2; Moncharsh, supra, 3 Cal.4th at p. 11.) |
| [30] | Plaintiffs cite Marsch v. Williams (1994) 23 Cal.App.4th 238, in support
of their position. In that case the court held that an arbitrator had no
authority to appoint a receiver in part because of the critical role the
superior court plays in supervising receivers (id., at p. 248), and plaintiffs
claim the superior court must play a similar supervisorial role vis-à-vis
permanent injunctions. Plaintiffs also argue that the fact that arbitrators
are without authority to enforce their own injunctions (see Luster v. Collins
(1993) 15 Cal.App.4th 1338, 1349) makes such injunctions unworkable. |
| [31] | Cigna disagrees, citing Swan Magnetics, Inc. v. Superior Court (1997)
56 Cal.App.4th 1504. That case concerned whether a trial court had the authority
to modify an arbitrator's injunction prohibiting the manufacture of a product
in contravention of a licensing agreement. The Swan court concluded that
an arbitrator's injunction, like a superior court injunction, is inherently
subject to modification or vacation. (Id. at p. 1510.) The Swan court envisioned
the modification or vacation occurring through the initiation of a new arbitration
proceeding. (Id. at pp. 1511-1512.) |
| [32] | We need not decide the broad question framed by the Court of Appeal and
by plaintiffs as to whether an arbitrator may ever issue a permanent injunction.
We conclude on narrower grounds that the injunction plaintiffs seek in the
present case is indeed beyond the arbitrator's power to grant. The CLRA
plaintiff in this case is functioning as a private attorney general, enjoining
future deceptive practices on behalf of the general public. We hold that
under such circumstances arbitration is not a suitable forum, and the Legislature
did not intend this type of injunctive relief to be arbitrated. |
| [33] | Our path to that Conclusion begins by recalling that the purpose of arbitration
is to voluntarily resolve private disputes in an expeditious and efficient
manner. (See Moncharsh, supra, 3 Cal.4th at pp. 10-11; Dean Witter Reynolds
Inc. v. Byrd (1985) 470 U.S. 213, 221.) Parties to arbitration voluntarily
trade the formal procedures and the opportunity for greater discovery and
appellate review for " `the simplicity, informality and expedition
of arbitration.' " (Gilmer, supra, 500 U.S. at p. 31; see also Moncharsh,
supra, 3 Cal.4th at pp. 11-12.) |
| [34] | On the other hand, the evident purpose of the injunctive relief provision
of the CLRA is not to resolve a private dispute but to remedy a public wrong.
Whatever the individual motive of the party requesting injunctive relief,
the benefits of granting injunctive relief by and large do not accrue to
that party, but to the general public in danger of being victimized by the
same deceptive practices as the plaintiff suffered. In this important respect,
the injunctive relief at issue in this case differs from the antitrust treble
damages remedy considered in Mitsubishi Motors, supra, 473 U.S. at pages
635-636, in which any public benefit was merely incidental to private compensation.
*fn5 In other words, the
plaintiff in a CLRA damages action is playing the role of a bona fide private
attorney general. (McMahon, supra, 482 U.S. at pp. 241-242.) |
| [35] | In addition to the fact that the injunction is for the public benefit,
we are cognizant of the evident institutional shortcomings of private arbitration
in the field of such public injunctions. Even those courts that have generally
affirmed the ability of arbitrators to issue injunctions acknowledge that
the modification or vacation of such injunctions involves the cumbersome
process of initiating a new arbitration proceeding. (See Swan Magnetics,
Inc. v. Superior Court, supra, 56 Cal.App.4th at pp. 1511-1512.) While these
procedures may be acceptable when all that is at stake is a private dispute
by parties who voluntarily embarked on arbitration aware of the trade-offs
to be made, in the case of a public injunction, the situation is far more
problematic. The continuing jurisdiction of the superior court over public
injunctions, and its ongoing capacity to reassess the balance between the
public interest and private rights as changing circumstances dictate, are
important to ensuring the efficacy of such injunctions. In some cases, the
continuing supervision of an injunction is a matter of considerable complexity.
(See, e.g., Board of Education of Oklahoma City v. Dowell (1991) 498 U.S.
237 [regarding dissolution of a long-standing desegregation decree].) Indeed,
in such cases, Judges may assume quasi-executive functions of public administration
that expand far beyond the resolution of private disputes. (Ibid.) Arbitrators,
on the other hand, in addition to being unconstrained by judicial review,
are not necessarily bound by earlier decisions of other arbitrators in the
same case. Thus, a superior court that retains its jurisdiction over a public
injunction until it is dissolved provides a necessary continuity and consistency
for which a series of arbitrators is an inadequate substitute. |
| [36] | Furthermore, we recently held that an arbitration award does not have
collateral estoppel effect in favor of nonparties to an arbitration unless
the arbitral parties so agree. (Vandenberg v. Superior Court (1999) 21 Cal.4th
815, 836-837.) Thus, if an arbitrator issued an injunction under the CLRA
prohibiting a certain deceptive practice, and if that injunction were imperfectly
enforced, another consumer plaintiff also seeking to enjoin the practice
would have to relitigate it. In other words, only the parties to the injunction
would be able to enforce it, although the injunction is public in scope.
Therefore, an arbitral injunction would be more difficult to enforce, and
would be a less effective means of achieving the CLRA's goal of enjoining
deceptive business practices. |
| [37] | Moreover, it hardly requires elaboration that superior court Judges are
accountable to the public in ways arbitrators are not. Superior court Judges
are constitutional officers (Cal. Const., art. VI, § 4) who are sworn to
uphold the United States and California Constitutions (id., art. XX, § 3).
They are locally elected (id., art. VI, § 16(b)) and may be recalled (id.,
art. II, § 14(b)). They are subject to discipline by a public body, the
Commission on Judicial Performance. (Id., art. VI, § 18.) Virtually all
of their proceedings take place in public view. (See NBC Subsidiary (KNBC-TV),
Inc. v. Superior Court (1999) 20 Cal.4th 1178.) Their decisions are subject
to appellate review. By contrast, arbitrators are not public officers and
are in no way publicly accountable. Their proceedings take place in private.
They are subject to minimal appellate review. (Moncharsh, supra, 3 Cal.4th
at p. 11.) There can be little doubt that publicly accountable Judges, rather
than arbitrators, are the most appropriate overseers of injunctive remedies
explicitly designed for public protection. |
| [38] | In short, there are two factors taken in combination that make for an
"inherent conflict" between arbitration and the underlying purpose
of the CLRA's injunctive relief remedy. First, that relief is for the benefit
of the general public rather than the party bringing the action. (Mitsubishi
Motors, supra, 473 U.S. at pp. 635-636; McMahon, supra, 482 U.S. at pp.
241-242.) Second, the judicial forum has significant institutional advantages
over arbitration in administering a public injunctive remedy, which as a
consequence will likely lead to the diminution or frustration of the public
benefit if the remedy is entrusted to arbitrators. Given this inherent conflict,
we will presume, absent indications to the contrary, that the Legislature
did not intend that the injunctive relief claims be arbitrated. (See Gilmer,
supra, 500 U.S. at p. 26.) *fn6
We discern no such indications in this case, and indeed, the language of
the statute suggests the contrary. Section 1780, subdivision (c) prescribes
that the CLRA action be filed in "any court . . . having jurisdiction
of the subject matter." *fn7 |
| [39] | Nor do we believe that this interpretation of the CLRA contravenes the
FAA. As discussed, the United States Supreme Court recognizes an "inherent
conflict" exception to the arbitrability of federal statutory claims.
(Gilmer, supra, 500 U.S. at p. 26.) The Discussion in Gilmer and the other
cases cited above, it is true, occurred in the context of an inquiry into
whether Congress had intended federal statutory claims to be exempt from
arbitration. "Just as it is the congressional policy manifested in
the Federal Arbitration Act that requires courts liberally to construe the
scope of arbitration agreements covered by that Act, it is the congressional
intention expressed in some other statute on which the courts must rely
to identify any category of claims as to which agreements to arbitrate will
be held unenforceable." (Mitsubishi Motors, supra, 473 U.S. at p. 627.)
But although the court has stated generally that the capacity to withdraw
statutory rights from the scope of arbitration agreements is the prerogative
solely of Congress, not state courts or legislatures (Southland, supra,
465 U.S. at p. 18), it has never directly decided whether a legislature
may restrict a private arbitration agreement when it inherently conflicts
with a public statutory purpose that transcends private interests. In the
present case, as discussed, we believe there is such an inherent conflict
between arbitration and a statutory injunctive relief remedy designed for
the protection of the general public. Although both California and federal
law recognize the important policy of enforcing arbitration agreements,
it would be perverse to extend the policy so far as to preclude states from
passing legislation the purposes of which make it incompatible with arbitration,
or to compel states to permit the vitiation through arbitration of the substantive
rights afforded by such legislation. |
| [40] | In other terms, our holding does not represent a " `suspicion of
arbitration as a method of weakening the protections afforded in the substantive
law to would-be complainants . . . out of step with our current strong endorsement
of the federal statutes favoring this method of resolving disputes' "
(Gilmer, supra, 500 U.S. at p. 30). Rather, it is a recognition that arbitration
cannot necessarily afford all the advantages of adjudication in the area
of private attorney general actions, that in a narrow class of such actions
arbitration is inappropriate, and that this inappropriateness does not turn
on the happenstance of whether the rights and remedies being adjudicated
are of state or federal derivation. |
| [41] | Nor does anything in the legislative history of the FAA suggest that Congress
contemplated "public injunction" arbitration within the universe
of arbitration agreements it was attempting to enforce. Indeed, the primary
focus of the drafters of the FAA appears to have been on the utility of
arbitration in resolving ordinary commercial disputes. (See Schwartz, Enforcing
Small Print to Protect Big Business: Employee and Consumer Rights Claims
in an Age of Compelled Arbitration, (1997) Wis. L.Rev. 33, 75-78; Cohen
& Dayton, The New Federal Arbitration Law (1926) 12 Va. L.Rev. 265,
285.) Although the court has interpreted the FAA to extend to noncommercial
statutory claims, it is doubtful Congress would have envisioned the extension
of the FAA to enforce arbitral jurisdiction over a public injunction. *fn8 |
| [42] | Our holding that a CLRA injunctive relief action is not subject to arbitration
does not necessarily lead to the Conclusion that a CLRA action for damages
is likewise inarbitrable. On the contrary, as Mitsubishi Motors, McMahon,
Gilmer and other cases cited above make clear, statutory damages claims
are fully arbitrable. Such an action is primarily for the benefit of a party
to the arbitration, even if the action incidentally vindicates important
public interests. (Mitsubishi Motors, supra, 473 U.S. at pp. 635-636.) In
the context of statutory damage claims, the United States Supreme Court
has consistently rejected plaintiffs' arguments that abbreviated discovery,
arbitration's inability to establish binding precedent, and a plaintiff's
right to a jury trial render the arbitral forum inadequate, or that submission
of resolution of the claims to arbitration is in any sense a waiver of the
substantive rights afforded by statute. (See Gilmer, supra, 500 U.S. at
pp. 31-32; Mitsubishi Motors, supra, 473 U.S. at p. 627.) "By agreeing
to arbitrate a statutory claim, a party does not forgo the substantive rights
afforded by the statute; it only submits to their resolution in an arbitral,
rather than a judicial, forum." (Mitsubishi Motors Corp., supra, 473
U.S. at p. 628.) |
| [43] | Thus, although the CLRA might be interpreted to mean that the damages
remedy under the Act is to be resolved solely in a judicial forum (see Keating,
supra, 31 Cal.3d 584), we construe the Act as consistent with the FAA (see
People v. Superior Court (Romero) (1996) 13 Cal.4th 497, 509 [presuming
a legislative intent that a statute be constitutional]). We therefore interpret
the CLRA as permitting arbitration of damages claims, at least to the extent
the FAA governs such claims. |
| [44] | Moreover, although as noted, the CLRA does not address the question of
arbitrability directly, the provisions of the statute itself imply that
a distinction between an arbitrable request for damages and an inarbitrable
request for injunctive relief is warranted. In Gilmer, the court suggested
that a statute such as the ADEA that promotes " `informal methods of
conciliation, conference and persuasion,' " is consistent with arbitration.
(Gilmer, supra, 500 U.S. at p. 29; 29 U.S.C. § 626(b).) The CLRA promotes
such informal methods by requiring a consumer to notify those alleged to
have committed deceptive practices at least 30 days prior to commencing
an action for damages, and by providing that the consumer may not recover
damages if appropriate correction, repair, replacement or other remedy is
given. (See §§ 1782, subds. (a)-(c), 1784.) However, section 1782, subdivision
(d), provides that an action for injunctive relief may be brought without
giving such notice and waiting for such remediation. These differing approaches
to actions for damages and for injunctive relief reflect the differing purposes
of the two actions. The former is primarily to remedy individual wrongs,
and prescribes methods short of litigation to accomplish this. The latter
is for the protection of the public and does not prescribe informal methods
of resolution that would compromise that protective purpose. These divergent
approaches and purposes are consistent with the Conclusion that a CLRA action
for damages is amenable to arbitration but an action for injunctive relief
is not. |
| [45] | Plaintiffs contend that neither damages nor injunctive relief under the
CLRA is subject to arbitration. They argue that insofar as the FAA would
prevent states from delegating to state courts exclusively the task of enforcing
a particular statute, it is in violation of the Tenth Amendment of the United
States Constitution, citing Printz v. United States (1997) 521 U.S. 898.
In that case, the court reviewed the constitutionality of a provision within
the Brady Handgun Violence Prevention Act that required local law enforcement
officers to conduct federally mandated background checks on prospective
gun owners. The court concluded, under the Tenth Amendment and other provisions
of our dual federalist governmental structure, that "the Federal Government
may not compel the States to implement, by legislation or executive action,
federal regulatory programs." (521 U.S. at p. 925.) In the present
case, no such implementation "by legislation or executive action,"
is at issue. Rather, all that is involved is the enforcement of a preemptive
federal statute, the FAA, in state court. Printz did not alter the general
rules of federal supremacy or the enforcement of federal law in state court,
nor affect the broad applicability of the FAA to contracts for arbitration,
which had been reaffirmed a year before Printz in Doctors Associates, Inc.,
supra, 517 U.S. 681. *fn9 |
| [46] | Plaintiffs also claim that arbitration of any CLRA claim would waive an
important statutory right to judicial review, citing in particular our decision
in Moncharsh, supra, 3 Cal.4th 1, that an arbitration award cannot be vacated
because of evident factual or legal error. In Moncharsh, we stated that
the risk that an arbitrator's decision will be premised on an error of law
or fact is acceptable, in part, because "by voluntarily submitting
to arbitration, the parties have agreed to bear that risk in return for
a quick, inexpensive, and conclusive resolution to their dispute."
(Id., at p. 11.) Plaintiffs argue that when the subject of arbitration is
an unwaivable statutory right promoting an important public interest, as
it is in this case, it is beyond the power of the contracting parties to
take that risk of an erroneous legal decision. |
| [47] | Plaintiffs' claim is premature. As the United States Supreme Court has
stated: "[A]lthough judicial scrutiny of arbitration awards necessarily
is limited, such review is sufficient to ensure that arbitrators comply
with the requirements of the statute" at issue. (McMahon, supra, 482
U.S. at p. 232.) The question whether the precise standard of judicial review
articulated in Moncharsh "is sufficient to ensure that arbitrators
comply" with unwaivable statutory requirements does not bear on whether
that claim is arbitrable ab initio. Rather, that question pertains to the
precise standard by which an arbitrator's award of damages under the CLRA
will be reviewed by the court petitioned to confirm the arbitration award.
It can only be raised, therefore, at the time a party seeks such confirmation.
(See Code Civ. Proc., § 1286.2.) We decline to address such an unripe claim
here. |
| [48] | Plaintiffs also argue that arbitration costs and attorneys fees mandated
for a prevailing plaintiff in a CLRA claim (see § 1780, subd. (d)) would
not be available under arbitration, and for that reason arbitration of the
claim would foreclose important remedies provided under the Act. In support
of their contention they cite Code of Civil Procedure section 1284.2, which
declares that "each party to the arbitration shall pay his pro rata
share of the expenses and fees of the neutral arbitrator" and bear
his own attorneys fees unless "the arbitration agreement otherwise
provides." |
| [49] | We agree with plaintiffs that the availability of costs and attorneys
fees to prevailing plaintiffs is integral to making the CLRA an effective
piece of consumer legislation, increasing the financial feasibility of bringing
suits under the statute. (See enrolled bill rep., Assem. Bill No. 3756 (1987-1988
Reg. Sess.) p. 3.) When we construe potentially conflicting statutes, our
duty is to harmonize them if reasonably possible. (County of San Bernardino
v. City of San Bernardino (1997) 15 Cal.4th 909, 933.) Here any potential
conflict between the California Arbitration Act and the CLRA is easily resolved
when we recognize that Code of Civil Procedure section 1284.2 is simply
a default provision. When parties agree to resolve statutory claims through
arbitration, it is reasonable to infer that they consent to abide by the
substantive and remedial provisions of the statute. (See Kamakazi Music
Corp. v. Robbins Music Corp., supra, 684 F.2d at p. 231.) Otherwise, a party
would not be able to fully " `vindicate [his or her] statutory cause
of action in the arbitral forum.' " (Gilmer, supra, 500 U.S. at pp.
27-28.) We therefore interpret Code of Civil Procedure section 1284.2 as
giving way to the remedial provisions of the CLRA when parties have agreed
to arbitrate claims under that statute. As such, Code of Civil Procedure
section 1284.2 presents no barrier to the enforcement of an arbitration
agreement containing a CLRA claim. *fn10 |
| [50] | Finally, plaintiffs claim that the FAA applies only to interstate commerce,
and interstate commerce was not at issue here. If the FAA does not apply,
then California law might arguably have a less stringent standard for enforcing
agreements to arbitrate unwaivable statutory claims. (See Keating, supra,
31 Cal.3d 584.) We note that the definition of interstate commerce under
the FAA is as broad as under the commerce clause of the United States Constitution.
(See Allied-Bruce Terminix Co., Inc. v. Dobson (1995) 513 U.S. 265.) Nonetheless,
it is true that the issue of the applicability of the FAA was not raised
below, and so the question whether the contract between plaintiffs and Cigna
was a "contract evidencing a transaction involving commerce" under
section 2 of the FAA (9 U.S.C. § 2) has not been litigated. We therefore
remand for consideration of this question, and, if it is concluded that
section 2 of the FAA does not apply, whether California law warrants a different
result on the question of arbitrability of CLRA damages claims. |
| [51] | United States Supreme Court case law makes clear that when a suit contains
both arbitrable and inarbitrable claims, the arbitrable claims should be
severed from those that are inarbitrable and sent to arbitration. (Dean
Witter Reynolds Inc. v. Byrd, supra, 470 U.S. at p. 221.) This is so even
when severance leads to inefficiency. (Ibid.) In the present case, we are
concerned not with distinct arbitrable and inarbitrable claims, but with
arbitrable and inarbitrable remedies derived from the same statutory claim.
Yet we believe the logic of Byrd still applies. Given the strong policy
in both federal and state law for arbitrating private disputes, and given
the inherent unsuitability of arbitration as a means of resolving plaintiffs'
action for injunctive relief under the CLRA, the injunctive relief action
alone should be decided in a judicial forum. Therefore, assuming the damages
portion of the CLRA claim is found to be arbitrable under the arbitration
agreement and subject to the FAA or otherwise arbitrable under California
law, it should be resolved, together with the malpractice claim, in arbitration. |
| [52] | III. Disposition |
| [53] | For all of the foregoing, we affirm the judgment of the Court of Appeal
in part and reverse in part, and remand the cause for proceedings consistent
with this opinion. |
| [54] | MOSK, J. |
| [55] | WE CONCUR: George, C. J., Baxter, J., Werdegar, J. |
| [56] | CONCURRING AND DISSENTING OPINION BY CHIN, J. |
| [57] | I concur in the majority's holding that an agreement to arbitrate a claim
under the Consumers Legal Remedies Act (CLRA or Act) (Civ. Code, §§ 1750-1784)
*fn11 is enforceable to
the extent a consumer filing a CLRA claim seeks actual damages, restitution,
or punitive damages. Like the majority, in reaching this Conclusion, I have
not considered issues that are beyond the scope of our order granting review,
including plaintiffs' contention that defendant failed to establish the
existence of an agreement requiring arbitration of the CLRA claim. (Maj.
opn., ante, at p. 3, fn. 2.) Those issues may be raised in subsequent proceedings.
Thus, for purposes of deciding the question before us-whether an agreement
to arbitrate a CLRA claim is valid and enforceable-I assume the parties
made such an agreement and the Federal Arbitration Act (FAA) (9 U.S.C. §
1 et seq.) applies. |
| [58] | However, I Dissent from the majority's holding that an agreement to arbitrate
a CLRA claim is unenforceable to the extent the consumer seeks "[a]n
order enjoining the [unlawful] methods, acts, or practices." (§ 1780,
subd. (a)(2).) As a matter of federal law, the FAA and the supremacy clause
of the federal Constitution prohibit us from enforcing the CLRA as the majority
interprets it. As a matter of statutory construction, nothing requires us
to adopt the majority's constitutionally suspect interpretation. The public
policy of this state, which the Legislature has expressly declared through
the arbitration statutes, requires that we enforce arbitration agreements
according to their terms. The majority's Conclusion frustrates this public
policy. Moreover, I find nothing in the CLRA indicating, either explicitly
or implicitly, that the Legislature intended to override this statutorily
declared public policy and prohibit arbitration of CLRA injunction requests.
On the contrary, both the structure and language of the CLRA suggest the
Legislature viewed arbitration of injunction requests as consistent with
the CLRA's goals. |
| [59] | Of course, at first glance, the majority's interpretation may seem appealing,
because the facts alleged in this case are tragic and plaintiffs do not
want to arbitrate. However, the majority's holding extends beyond this setting;
it prevents full enforcement of an arbitration agreement even between parties
who desire and expressly agree to arbitrate all aspects of a CLRA claim
in order to avoid costly and often slow court proceedings. As I will explain,
I conclude that an agreement to arbitrate a CLRA claim is enforceable in
its entirety. |
| [60] | I. Under the Majority's Construction, the CLRA Conflicts With the FAA
and Is Unconstitutional in Part. |
| [61] | In enacting the FAA, Congress "intended to `revers[e] centuries of
judicial hostility to arbitration agreements,' [citation], by `plac[ing]
[them] "upon the same footing as other contracts." ' " (Shearson/American
Express Inc. v. McMahon (1987) 482 U.S. 220, 225-226 (Shearson).) Section
2 of the FAA provides: "A written provision in . . . a contract evidencing
a transaction involving [interstate] commerce to settle by arbitration a
controversy thereafter arising out of such contract or transaction, . .
. shall be valid, irrevocable, and enforceable, save upon such grounds as
exist at law or in equity for the revocation of any contract." (9 U.S.C.
§ 2.) This provision "requires courts to enforce privately negotiated
agreements to arbitrate, like other contracts, in accordance with their
terms" (Volt Info. Sciences v. Leland Stanford Jr. U. (1989) 489 U.S.
468, 478 (Volt)), and "mandates enforcement of agreements to arbitrate,"
even if they include "statutory claims." (Shearson, supra, 482
U.S. at p. 226.) "The `liberal federal policy favoring arbitration
agreements, [citation], manifested by this provision and the [FAA] as a
whole, is at bottom a policy guaranteeing the enforcement of private contractual
arrangements: the [FAA] simply `creates a body of federal substantive law
establishing and regulating the duty to honor an agreement to arbitrate.'
[Citation.]" (Mitsubishi Motors v. Soler Chrysler-Plymouth (1985) 473
U.S. 614, 625, fn. omitted (Mitsubishi).) |
| [62] | The United States Supreme Court has demonstrated the primacy and scope
of this duty by repeatedly invalidating, under the supremacy clause of the
federal Constitution, state statutes that attempt to limit the enforceability
of arbitration agreements. For example, in Perry v. Thomas (1987) 482 U.S.
483, 491 (Perry), the court held the FAA preempts a California statute that
prohibits enforcement of an agreement to arbitrate an action to collect
wages. It reasoned in part that " `[s]section 2 [of the FAA] is a congressional
declaration of a liberal federal policy favoring arbitration agreements,
notwithstanding any state substantive or procedural policies to the contrary.'
" (Perry, supra, 482 U.S. at p. 489, italics added.) And, in Southland
Corp. v. Keating (1984) 465 U.S. 1, 16 (Southland), the high court invalidated
a California statute that we had construed to prohibit arbitration of claims
under the California Franchise Investment Law. According to the court, in
enacting section 2 of the FAA, "Congress intended to foreclose state
legislative attempts to undercut the enforceability of arbitration agreements"
(Southland, supra, 465 U.S. at p. 16, fn. omitted) and "withdrew the
power of the states to require a judicial forum for the resolution of claims
which the contracting parties agreed to resolve by arbitration." (Id.
at p. 10.) The court recently both reaffirmed Southland and heightened its
impact by holding that the FAA's purpose and Congress's expansive intent
require a broad reading of section 2 that extends the FAA's reach to the
limits of congressional power under the commerce clause. (Allied-Bruce Terminix
Cos. v. Dobson (1995) 513 U.S. 265, 268-277 (Allied-Bruce).) The court then
applied this broad reading of the FAA to nullify an Alabama statute that
made predispute arbitration agreements invalid and unenforceable. (Allied-Bruce,
supra, 513 U.S. at pp. 268-277; see also Volt, supra, 489 U.S. at p. 478
["FAA pre-empts state laws which `require a judicial forum for the
resolution of claims which the contracting parties agreed to resolve by
arbitration.' "].) |
| [63] | In my view, the majority's Conclusion that the CLRA prohibits enforcement
of an agreement to arbitrate a CLRA injunction request runs afoul of these
high court decisions. Under the majority's interpretation, the Legislature,
through the CLRA, has "singl[ed] out arbitration provisions for suspect
status," which Congress, through the FAA, has specifically prohibited.
(Doctor's Associates, Inc. v. Casarotto (1996) 517 U.S. 681, 687.) States
may not "decide that a contract is fair enough to enforce all its basic
terms (price, service, credit), but not fair enough to enforce its arbitration
clause. The [FAA] makes any such state policy unlawful, for that kind of
policy would place arbitration clauses on an unequal `footing,' directly
contrary to the [FAA's] language and Congress' intent. [Citation.]"
(Allied-Bruce, supra, 513 U.S. at p. 281.) |
| [64] | Rejecting this Conclusion, the majority maintains the FAA permits the
Legislature to prohibit enforcement of an agreement to arbitrate a CLRA
injunction request. Although acknowledging that the high court "has
stated generally" that only Congress has this prohibitory power and
has recognized an "inherent conflict" exception to the FAA only
in determining whether Congress intended to preclude arbitration, the majority
nevertheless asserts that the court "has never directly decided whether
a [state] legislature may restrict a private arbitration agreement when
it inherently conflicts with a public statutory purpose that transcends
private interests." (Maj. opn., ante, at p. 18.) "[I]t would be
perverse," the majority reasons, "to extend the policy [of enforcing
arbitration agreements] so far as to preclude states from passing legislation
the purposes of which make it incompatible with arbitration, or to compel
states to permit the vitiation through arbitration of the substantive rights
afforded by such legislation." (Ibid.) |
| [65] | I conclude that binding federal authority forecloses the majority's attempt
to base an FAA exception for state laws limiting enforcement of arbitration
agreements on the "inherent conflict" analysis applicable to congressional
action. As I have shown above, the high court's pronouncements regarding
the preemptive effect of the FAA on such state laws have been broad and
emphatic. They do not appear to permit any exception. But we need not speculate
on that question, because in Southland the high court declared: "We
discern only two limitations on the enforceability of arbitration provisions
governed by the [FAA]: they must be part of a written maritime contract
or a contract `evidencing a transaction involving commerce' and such clauses
may be revoked upon `grounds as exist at law or in equity for the revocation
of any contract.' We see nothing in the [FAA] indicating that the broad
principle of enforceability is subject to any additional limitations under
state law." (Southland, supra, 465 U.S. at pp. 10-11, italics added,
fn. omitted; see also Perry, supra, 482 U.S. at pp. 489-490 [quoting Southland].)
Absent one of these two exceptions, we must enforce an agreement to arbitrate
"unless Congress itself has evinced an intention to preclude a waiver
of judicial remedies for the statutory rights at issue." (Mitsubishi,
supra, 473 U.S. at p. 628, italics added.) As the high court recently put
it in simple, clear, and unequivocal terms, "state courts cannot apply
state statutes that invalidate arbitration agreements." (Allied-Bruce,
supra, 513 U.S. at p. 272.) The Supreme Court's view could hardly be clearer. |
| [66] | Indeed, Southland belies the majority's assertion that the high court
"has never directly decided whether a legislature may restrict a private
arbitration agreement when it inherently conflicts with a public statutory
purpose that transcends private interests." (Maj. opn., ante, at p.
18.) In Keating v. Superior Court (1982) 31 Cal.3d 584, 598-599 (Keating),
we held that the Legislature, through Corporations Code section 31512, had
prohibited enforcement of agreements to arbitrate claims under the California
Franchise Investment Law. We also held that this statutory prohibition did
not violate the FAA's "general principle of arbitrability," which
we construed to include an "exception[]" for state statutes expressing
a legislative "determination that the public interest is best served
by maintaining access to the [judicial] remedies which the Legislature has
provided." (Keating, supra, 31 Cal.3d at p. 602.) In words reminiscent
of the majority's, we reasoned: "That Congress intended, through the
FAA, to override state policies of that nature seems highly improbable."
(Ibid.) In Southland, the high court rejected our reading of the FAA and
held that, under our interpretation, the California statute "directly
conflicts with § 2 of the [FAA] and violates the Supremacy Clause."
(Southland, supra, 465 U.S. at p. 10.) |
| [67] | Justice Stevens Dissented from this part of the majority opinion in Southland,
invoking the FAA exception to arbitrability "based on `such grounds
as exist at law or in equity for the revocation of any contract.' "
(Southland, supra, 465 U.S. at p. 18 (conc. and dis. opn. of Stevens, J.).)
He reasoned that, because a contract void as contrary to public policy is
revocable at law or in equity, this exception "leaves room for the
implementation of certain substantive state policies that would be undermined
by enforcing certain categories of arbitration clauses." (Ibid.) More
specifically, he argued that, through Corporations Code section 31512, the
Legislature had declared an agreement to arbitrate a claim under the Franchise
Investment Law to be "void as a matter of public policy" and that
"this declaration of state policy [was] entitled to respect."
(Southland, supra, 465 U.S. at p. 20 (conc. and dis. opn. of Stevens, J.).)
He also asserted that the FAA did not override "public policy"
limits on enforcing arbitration agreements "simply because the source
of" the public policy "is a State rather than the Federal Government,"
and was not " `so unyielding as to require enforcement of an agreement
to arbitrate a dispute over the application of a regulatory statute which
a state legislature . . . has decided should be left to judicial enforcement.'
" (Id. at p. 21 (conc. and dis. opn. of Stevens, J.).) |
| [68] | The Southland majority disagreed with Justice Stevens, explaining: "If
we accepted this analysis, states could wholly eviscerate congressional
intent to place arbitration agreements `upon the same footing as other contracts'
[citation] simply by passing statutes such as the Franchise Investment Law.
We have rejected this analysis because it is in conflict with the [FAA]
and would permit states to override the declared policy requiring enforcement
of arbitration agreements." (Southland, supra, 465 U.S. at p. 17, fn.
11.) Southland thus establishes that the FAA invalidates a state statute
that limits enforcement of arbitration agreements even where the state legislature
expressly declares that arbitration "inherently conflicts with a public
statutory purpose that transcends private interests." (Maj. opn., ante,
at p. 18.) A fortiori, Southland also establishes that the FAA prohibits
a court from refusing to enforce an agreement to arbitrate a CLRA injunction
request by inferring, as the majority does, a legislative intent to prohibit
arbitration based on a purported inherent conflict with the alleged public
purpose of such a request. |
| [69] | Southland is significant for another reason; the high court there refused
to do precisely what the majority now does, i.e., apply legal principles
for determining whether Congress established an FAA exception to validate
state laws limiting enforcement of arbitration agreements. In Wilko v. Swan
(1953) 346 U.S. 427, 437 (Wilko), overruled in Rodriguez de Quijas v. Shearson/Am.
Exp. (1989) 490 U.S. 477, 484-486, the Supreme Court concluded that, because
"the protective provisions of the [federal] Securities Act require
the exercise of judicial discretion to fairly assure their effectiveness,
. . . Congress must have intended" to prohibit enforcement of agreements
to arbitrate securities claims. In reversing our Keating decision, the high
court explained in Southland: "The California Supreme Court justified
its holding by reference to our Conclusion in Wilko . . . . The analogy
is unpersuasive. The question in Wilko was not whether a state legislature
could create an exception to § 2 of the [FAA], but rather whether Congress,
in subsequently enacting the Securities Act, had in fact created such an
exception." (Southland, supra, 465 U.S. at p. 16, fn. 11.) Thus, contrary
to the majority's analysis, the Supreme Court in Southland told us that
the legal principles governing the scope and exercise of Congress's authority
to establish exceptions to the FAA may not serve as the basis for reading
into the FAA an exception for state laws that limit enforcement of arbitration
agreements. |
| [70] | Finally, I note that federal appellate courts applying the "inherent
conflict" analysis even in its proper context-to congressional conduct-have
rejected the "public injunction" exception the majority now creates.
In Rosenberg v. Merrill Lynch, Pierce, Fenner & Smith (D.Mass. 1998)
995 F.Supp. 190, 212, a federal district court held that Congress intended
to preclude enforcement of predispute agreements to arbitrate discrimination
claims under title VII of the Civil Rights Act of 1964 (42 U.S.C. § 2000e
et seq.). In reaching this Conclusion, the court stressed the "primacy
of public rights" under title VII, as evidenced by provisions that
allow plaintiffs who "would not be entitled to reinstatement or backpay"
nevertheless to "vindicate the rights of others through seeking declaratory
and injunctive relief and punitive damages." (Id. at p. 205.) On appeal,
the First Circuit Court of Appeals rejected the district court's analysis
and Conclusion, explaining that "the district court [had] overlooked"
the high court's view "that public rights may be enforced through arbitration."
(Rosenberg v. Merrill Lynch, Pierce, Fenner & Smith (1st Cir. 1999)
170 F.3d 1, 11, citing Gilmer v. Interstate/Johnson Lane Corp. (1991) 500
U.S. 20 (Gilmer).) In my view, the majority's analysis suffers from the
same analytical error; its holding puts the CLRA in conflict with the FAA's
commands and renders the CLRA unconstitutional and unenforceable under the
federal supremacy clause to the extent it prohibits arbitration of injunction
requests. |
| [71] | II. CLRA Injunction Requests Are Arbitrable Under California Law. |
| [72] | In adopting a constitutionally suspect construction of the CLRA, the majority
violates a cardinal rule of statutory interpretation. "If a statute
is susceptible of two constructions, one of which will render it constitutional
and the other unconstitutional in whole or in part, or raise serious and
doubtful constitutional questions, the court will adopt the construction
which, without doing violence to the reasonable meaning of the language
used, will render it valid in its entirety, or free from doubt as to its
constitutionality, even though the other construction is equally reasonable.
[Citations.] The basis of this rule is the presumption that the Legislature
intended, not to violate the Constitution, but to enact a valid statute
within the scope of its constitutional powers." (Miller v. Municipal
Court (1943) 22 Cal.2d 818, 828.) Thus, we should not adopt a construction
of the CLRA that renders it partially unconstitutional absent statutory
language requiring that we do so. Because, as I explain below, the CLRA
does not contain such language, I reject the majority's Conclusion that
agreements to arbitrate CLRA injunction requests are unenforceable under
California law. |
| [73] | A. Public Policy Expressly Favors Enforcement of Arbitration Agreements. |
| [74] | The majority correctly observes that California's public policy strongly
favors enforcement of arbitration agreements. (Maj. opn., ante, at p. 4.)
Through enactment of "a comprehensive statutory scheme regulating private
arbitration . . . , the Legislature has expressed a `strong public policy
in favor of arbitration as a speedy and relatively inexpensive means of
dispute resolution.' [Citations.]" (Moncharsh v. Heily & Blase
(1992) 3 Cal.4th 1, 9 (Moncharsh).) More than 80 years ago, we explained
that "[t]he policy of the law in recognizing arbitration agreements
and in providing by statute for their enforcement is to encourage persons
who wish to avoid delays incident to a civil action to obtain an adjustment
of their differences by a tribunal of their own choosing." (Utah Const.
Co. v. Western Pac. Ry. Co. (1916) 174 Cal. 156, 159.) Thus, California
law, like federal law, establishes "a presumption in favor of arbitrability."
(Engalla v. Permanente Medical Group, Inc. (1997) 15 Cal.4th 951, 971 (Engalla).)
The Legislature established this statutory presumption "to overcome
earlier judicial hostility to arbitration agreements." (Vandenberg
v. Superior Court (1999) 21 Cal.4th 815, 830 (Vandenberg).) |
| [75] | Perhaps the clearest and most unequivocal expression of this public policy
favoring arbitration appears in Code of Civil Procedure section 1281. It
declares that "[a] written agreement to submit to arbitration an existing
controversy or a controversy thereafter arising is valid, enforceable and
irrevocable, save upon such grounds as exist for the revocation of any contract."
This section establishes the "fundamental policy" of California's
arbitration scheme: "that arbitration agreements will be enforced in
accordance with their terms." (Vandenberg, supra, 21 Cal.4th at p.
836, fn. 10, original italics.) To implement this policy, Code of Civil
Procedure section 1281.2 directs that, on petition, a court "shall
order" arbitration "if it determines that an agreement to arbitrate
the controversy exists, unless it determines that" one of only three
specified exceptions applies: (1) the petitioner has waived the right to
compel arbitration; (2) grounds exist for revoking the agreement; or (3)
a party to the agreement is also a party to a pending legal proceeding with
a third party that arises out of the same transaction, and a possibility
exists of conflicting rulings on common legal or factual issues. |
| [76] | Of course, the Legislature is free to establish additional exceptions
to this statutory command. (Cf. Shearson, supra, 482 U.S. at p. 226 [FAA's
statutory mandate "may be overridden by a contrary congressional command"].)
The question before us, then, is not whether we think arbitration of CLRA
claims is a bad idea, but whether the Legislature has established an additional
exception to Code of Civil Procedure sections 1281 and 1281.2 that precludes
arbitration of CLRA claims, either in whole or in part. Moreover, in light
of our strong public policy favoring arbitration and the statutes expressly
reflecting that public policy, the burden of showing this intent should
be on the party opposing arbitration. (Shearson, supra, 482 U.S. at p. 227.)
I conclude that plaintiffs have not met, and cannot meet, this burden. |
| [77] | B. The CLRA Does Not Establish an Exception to the Statutory Duty to Enforce
Arbitration Agreements. |
| [78] | In concluding that the Legislature has established an exception to the
courts' statutory duty to enforce arbitration agreements, the majority does
not maintain that the language of the CLRA expressly creates an exception.
On the contrary, the majority declares that "the CLRA does not address
the question of arbitrability directly . . . ." (Maj. opn., ante, at
p. 20.) Nor does the majority assert that the CLRA's legislative history
reveals a legislative intent to create an exception. Notably, the majority
does not even consider this traditional indicator of legislative intent.
Rather, adopting one aspect of the analysis federal courts apply in determining
arbitrability under the FAA, the majority begins by asking whether "there
[is] an inherent conflict between arbitration and the CLRA." (Maj.
opn., ante, at p. 8.) Finding that such a conflict exists, at least as to
injunctive relief, the majority then concludes that the Legislature must
have intended to prohibit full enforcement of agreements to arbitrate CLRA
claims. (Maj. opn., ante, at pp. 16-17.) For several reasons, I disagree. |
| [79] | Initially, the majority does not explain what basis exists in California
law for adopting the federal "inherent conflict" analysis, which
essentially recognizes implied exceptions to the express statutory requirement
that we enforce arbitration agreements. The majority cites no case where
we have taken a similar approach in applying California's arbitration statutes.
*fn12 Nor do Code of Civil
Procedure sections 1281 and 1281.2, which state the only grounds for refusing
to enforce an arbitration agreement, appear to authorize a judicial search
for implied exceptions to their command. Given that the Legislature has
expressly established "a [statutory] presumption in favor of arbitrability"
(Engalla, supra, 15 Cal.4th at p. 971), we have no basis judicially to "presume,"
as the majority does, that "the Legislature did not intend" to
permit arbitration of CLRA injunction requests. *fn13
(Maj. opn., ante, at p. 16.) |
| [80] | In any event, even applying the "inherent conflict" analysis,
because I reject the majority's two underlying premises, I also reject its
Conclusion that an agreement to arbitrate a CLRA injunction request is unenforceable.
The majority's first premise is that a CLRA injunction does "not .
. . resolve a private dispute but . . . remed[ies] a public wrong."
(Maj. opn., ante, at p. 13.) Thus, in the majority's view, consumers requesting
CLRA injunctive relief act merely as "bona fide private attorney[s]
general" (id. at p. 14) who "by and large" reap no benefit
from an injunction against deceptive practices of which they have already
been victims. (Id. at p. 13.) |
| [81] | The provisions of the CLRA indicate the Legislature does not share the
majority's view. Under section 1780, only a damaged consumer has standing
to file a CLRA claim seeking an order enjoining unlawful practices (or any
other form of authorized relief). Moreover, the CLRA gives the damaged consumer
complete control over the litigation. Thus, a CLRA plaintiff may decide
not to request an injunction, or may abandon a request at any time, or may
settle or dismiss the CLRA claim without obtaining injunctive relief. Of
course, these litigation decisions would impact any public benefit of injunctive
relief far more than would arbitration. The Legislature would not have given
the CLRA plaintiff such unfettered control, and would not have so strictly
limited standing to seek injunctive relief, had it viewed a CLRA injunction
as only a public remedy that does not resolve a private dispute or benefit
the individual CLRA plaintiff. Thus, the provisions of the CLRA belie the
majority's Conclusion that because CLRA plaintiffs act merely as private
attorneys general insofar as they request injunctions, they may not agree
to arbitrate that request. If they may decline to make the request or abandon
it, then surely they can arbitrate it. |
| [82] | Notably, applying the federal "inherent conflict" analysis the
majority now adopts, the United States Supreme Court has twice relied on
similar considerations in rejecting claims that the public nature of a particular
remedy precluded enforcement of an arbitration agreement. In Mitsubishi,
the high court considered the argument that antitrust claims under the Sherman
Act are not arbitrable because of " `the pervasive public interest
in enforcement of the antitrust laws.' " (Mitsubishi, supra, 473 U.S.
at p. 629.) The court recognized that an antitrust claim " ` "is
not merely a private matter" ' " and that an antitrust plaintiff
" ` "has been likened to a private attorney-general who protects
the public's interest." ' " (Id. at p. 635.) It nevertheless concluded
that relief under the Sherman Act " `was conceived of primarily as
a remedy for ". . . individuals," ' " explaining: "[T]he
antitrust cause of action remains at all times under the control of the
individual litigant: no citizen is under an obligation to bring an antitrust
suit [citation], and the private antitrust plaintiff needs no executive
or judicial approval before settling one." (Mitsubishi, supra, 473
U.S. at p. 636.) Six years later, the court again relied on an individual
plaintiff's authority to "settle[] . . .without any [third party] involvement"
in rejecting an attack on an arbitration agreement based on an alleged inherent
conflict between arbitration and the important public policies furthered
by the Age Discrimination in Employment Act of 1967. (Gilmer, supra, 500
U.S. at p. 28.) Thus, that the Legislature gave the CLRA plaintiff unfettered
control over litigation, including an injunction request, strongly suggests
it designed the CLRA to resolve private disputes and provide remedies to
the individual consumer, not to protect the public. |
| [83] | Another CLRA provision reinforces this Conclusion. Section 1752 declares
that the CLRA's provisions and remedies "are not exclusive," are
"in addition to any other procedures or remedies for any violation
or conduct provided for in any other law," and do not "limit any
other statutory or any common law rights of the Attorney General or any
other person to bring class actions." This section further suggests
that the legislative focus of the CLRA was to provide remedies to the individual
consumer; the Legislature envisioned that public protection would be achieved
outside of the CLRA. |
| [84] | The CLRA's legislative history supports this Conclusion. Summaries and
analyses of the CLRA emphasized its remedial purpose for the victimized
consumer and said little about public protection. For example, the Legislative
Counsel's Digest for the bill enacting the CLRA stated that the Act "provides
specific legal remedies for consumers who suffer damage as a result of"
an unlawful method, act, or practice. (Legis. Counsel's Dig., Assem. Bill
No. 292, 2 Stats. 1970 (Reg. Sess.) Summary Dig., p. 223; see also Quelimane
Co. v. Stewart Title Guaranty Co. (1998) 19 Cal.4th 26, 46, fn. 9 [digests
of Legislative Counsel are relevant to statutory interpretation].) Similarly,
an analysis by the Assembly Committee on Judiciary stressed that the CLRA's
purpose was "to provide consumers with remedies as against merchants"
because "[n]o such remedies are presently available to the individual
consumer in California law." (Assem. Com. on Judiciary, Analysis of
Assem. Bill No. 292 (1970 Reg. Sess.) Apr. 20, 1970, p. 1, italics added;
see also id. at p. 2 ["The remedies available to the deceived consumer
. . . include damages, injunctive relief . . . ."].) Thus, the CLRA's
provisions and legislative history indicate that the Legislature designed
CLRA injunctive relief to resolve private disputes by providing a complete
remedy to the individual consumer. The majority does not, and cannot, cite
anything to support its contrary assertion that CLRA injunctions were "explicitly
designed for public protection." (Maj. opn., ante, at p. 16.) |
| [85] | Finally, besides the Legislature's evident intent, for two additional
reasons I disagree with the majority that a CLRA injunction is only a public
remedy that does not resolve private disputes or benefit the CLRA plaintiff.
First, nothing prevents a CLRA plaintiff from requesting an injunction that
merely prohibits a defendant from committing additional unlawful acts against
that plaintiff, and only against that plaintiff. This type of limited order
would not appear to be a public remedy at all. Second, given the list of
practices the CLRA prohibits (see § 1770), a victimized consumer who continues
to transact business with a CLRA defendant, either by choice or necessity,
will often benefit from an order enjoining the defendant from committing
the unlawful practice again. Under these circumstances, the public benefit
of a CLRA injunction is only incidental (or, at best, complementary) to
providing the CLRA plaintiff with a complete remedy. The first premise underlying
the majority's Conclusion is, therefore, unsound. |
| [86] | The majority's second premise fares no better. The majority asserts that
private arbitration is inferior to the judicial forum "in administering
a public injunctive remedy" and will diminish or frustrate the public
benefit of a CLRA injunction. (Maj. opn., ante, at p. 17.) Specifically,
the majority asserts that private arbitration has certain "institutional
shortcomings" that are especially problematic when dealing with "public
injunctions." (Id. at p. 15.) |
| [87] | I need not question the majority's list of purported institutional shortcomings
to reject its Conclusion. Initially, as I have already explained, the Legislature
designed the CLRA, including its injunctive remedy, primarily to benefit
the individual consumer, not to protect the public. Thus, the purported
institutional shortcomings of arbitration are no more relevant here than
in any other context. |
| [88] | In addition, despite its protestations to the contrary (maj. opn., ante,
at pp. 18-19), the majority's reliance on the purported institutional shortcomings
of arbitration merely resurrects the judicial hostility toward arbitration
that we long ago abandoned and that our arbitration statutes were designed
to overcome. As the United States Supreme Court stated in rejecting similar
arguments, the majority's qualms about arbitration do "not rest on
any evidence, either `in the record . . . [or] in the facts of which [we
may] take judicial notice,' " but instead simply "reflect a general
suspicion of the desirability of arbitration and the competence of arbitration
tribunals." (Shearson, supra, 482 U.S. at p. 231.) The majority's mistrust
of arbitration is " `far out of step with our current strong endorsement
of . . . statutes favoring this method of resolving disputes.' [Citation.]"
(Gilmer, supra, 500 U.S. at p. 30; see also Shearson, supra, 482 U.S. at
p. 233 [mistrust of arbitration "is difficult to square with [the prevailing]
assessment of arbitration"].) I thought "we [were] well past the
time when judicial suspicion of the desirability of arbitration and of the
competence of arbitral tribunals inhibited the development of arbitration
as an alternative means of dispute resolution." (Mitsubishi, supra,
473 U.S. at pp. 626-627.) "We should not now turn the judicial clock
backwards to an era of hostility toward arbitration." (Madden v. Kaiser
Foundation Hospitals (1976) 17 Cal.3d 699, 714.) |
| [89] | More importantly, given the statutory duty the Legislature imposed on
us to enforce arbitration agreements according to their terms (Code Civ.
Proc., §§ 1281, 1281.2), it is not our judicial prerogative to decide that
"arbitration is not a suitable forum" (maj. opn., ante, at p.
13) or that "Judges, rather than arbitrators, are the most appropriate
overseers of injunctive remedies explicitly designed for public protection."
(Id. at p. 16.) As Justice Mosk recently wrote for a unanimous court, the
desirability of arbitration "implicates an issue of public policy-an
issue that the Legislature has already resolved" through Code of Civil
Procedure section 1281.2. (Mercury Ins. Group v. Superior Court (1998) 19
Cal.4th 332, 351.) "If [the majority] believes that the law should
allow an additional [exception] for [public injunctions]," it should
relay its concerns "to the body that can [properly provide] satisfaction-which
is the Legislature . . . ." (Ibid.) *fn14 |
| [90] | In short, neither of the premises central to the majority's analysis is
valid. Thus, they are insufficient to support the majority's inference that
because an inherent conflict exists between arbitration and the purpose
of a CLRA injunction, the Legislature must have intended to exclude CLRA
claims from the express statutory rule requiring full enforcement of arbitration
agreements. |
| [91] | Moreover, other CLRA provisions suggest that arbitration of CLRA injunction
requests does not conflict with, and indeed advances, the CLRA's goals.
I have already discussed section 1752, which declares that the CLRA's provisions
and remedies "are not exclusive," are "in addition to any
other procedures or remedies for any violation or conduct provided for in
any other law," and do not "limit any other statutory or any common
law rights of the Attorney General or any other person to bring class actions."
Thus, enforcement of a damaged consumer's agreement to arbitrate a CLRA
injunction request "will not preclude" others, including the Attorney
General, "from bringing actions seeking class-wide and equitable relief."
(Gilmer, supra, 500 U.S. at p. 32.) In Gilmer, the United States Supreme
Court cited similar considerations in rejecting the claim that an inherent
conflict exists between arbitration and enforcement of the important public
policies furthered by the Age Discrimination in Employment Act of 1967.
(Gilmer, supra, 500 U.S. at p. 32.) |
| [92] | In addition, as the majority correctly explains, sections 1782 and 1784
of the CLRA promote informal methods of dispute resolution by establishing
a notice and opportunity to cure mechanism that conditions a damaged consumer's
ability to file an action for and recover damages. (Maj. opn., ante, at
pp. 20-21.) To quote the high court, that a statute directs resort to "
`informal methods of conciliation, conference, and persuasion' [citation]
. . . suggests that out-of-court dispute resolution, such as arbitration,
is consistent with the statutory scheme" at issue. (Gilmer, supra,
500 U.S. at p. 29.) Thus, the CLRA's informal "cure" mechanism
suggests that arbitration is consistent with the CLRA's statutory scheme. |
| [93] | The majority draws this same inference from sections 1782 and 1784, but,
citing section 1782, subdivision (d), refuses to apply it to an injunction
request. (Maj. opn., ante, at pp. 20-21.) Section 1782, subdivision (d),
permits a damaged consumer to file an action for injunctive relief without
first invoking the CLRA's informal "cure" mechanism. According
to the majority, the separate treatment this section affords an injunction
request is consistent with the Conclusion that such a request is not arbitrable.
(Maj. opn., ante, at pp. 20-21.) |
| [94] | I find that section 1782, subdivision (d), is more consistent with the
opposite Conclusion. Its exclusion of injunction requests from the CLRA's
"cure" mechanism suggests, in my view, a legislative desire for
speedy determination of such requests and a speedy end to the unlawful practices
being committed. Supporting this inference is section 1760, which declares
that one of the CLRA's purposes is "to provide efficient and economical
procedures to secure [consumer] protection." As I have already explained,
our public policy encourages arbitration precisely because it avoids the
delays of the judicial forum and offers a relatively speedy and economical
method for resolving disputes. (Moncharsh, supra, 3 Cal.4th at p. 9.) Arbitration
of a CLRA injunction request would therefore serve a legislative desire
for speed and efficiency. By contrast, the majority's insistence on judicial
determination of CLRA injunction requests despite the parties' agreement
to arbitrate hinders those goals, potentially perpetuates unlawful practices,
and therefore disserves the very public interest the majority seeks to further.
Thus, I find section 1782, subdivision (d), to be more supportive of the
Conclusion that arbitration of a CLRA injunction request is consistent with
the statutory scheme, than of the majority's contrary Conclusion. |
| [95] | Finally, I also disagree with the majority's assertion that section 1780,
subdivision (c), suggests the Legislature intended to prohibit arbitration
of CLRA injunction requests. (Maj. opn., ante, at p. 17.) Section 1780,
subdivision (c), provides in relevant part: "If within the [specified]
county there is a municipal court, having jurisdiction of the subject matter,
. . . then that court is the proper court for the trial of the action. Otherwise,
any court in the county having jurisdiction of the subject matter is the
proper court for the trial thereof." This section is simply a standard
venue provision; it specifies which court among those having subject matter
jurisdiction is the proper one for trial. In my view, this venue provision,
which is similar to the venue provisions of many other statutory schemes,
does not indicate a legislative intent to preclude arbitration. |
| [96] | In summary, nothing in the language, structure, or legislative history
of the CLRA establishes, or even suggests, that an inherent conflict exists
between the Act's goals and arbitration of a CLRA injunction request. On
the contrary, those sources all suggest that arbitration of a CLRA injunction
request is consistent with the Act's goals. Thus, the statutory command
to enforce arbitration agreements according to their terms fully applies
to an agreement to arbitrate a CLRA claim, including a request for an injunction.
I therefore cannot join the majority's holding that an agreement to arbitrate
a CLRA injunction request is unenforceable. I would hold that an agreement
to arbitrate a CLRA claim is enforceable in its entirety. |
| [97] | CHIN, J. |
| [98] | I CONCUR: |
| [99] | BROWN, J. |
| [100] | DISSENTING OPINION BY KENNARD, J. |
| [101] | In this case, defendant CIGNA Healthplans of California sought arbitration
of plaintiffs' claims against it, including a statutory claim under the
Consumer Legal Remedies Act. (CLRA; Civ. Code, § 1750 et seq.) Defendant,
however, failed to produce any competent evidence to meet its burden of
establishing the existence of an agreement to arbitrate plaintiffs' claims.
Accordingly, the trial court should have denied defendant's petition for
arbitration. |
| [102] | Because defendant failed to prove the existence of an arbitration agreement,
it is impossible to know the scope of the alleged arbitration agreement
and whether it was intended to include plaintiffs' CLRA claim. The majority
nonetheless decides the arbitrability of CLRA claims, concluding that such
claims are arbitrable to the extent they seek damages but not to the extent
they seek injunctive relief. I do not join the majority's advisory opinion
on the question. Instead, I would await a case in which the question is
clearly presented on the record. |
| [103] | The majority also appears to suggest that parties to an arbitration agreement
may not use a choice of law provision to restrict the scope of arbitrable
claims. I disagree. Rather than let the majority's suggestion go unquestioned
and potentially mislead courts in the future, I explain the basis of my
disagreement below. |
| [104] | I. |
| [105] | Plaintiffs are a mother and son who are Medi-Cal members. Defendant CIGNA
Healthplans of California (CIGNA) offers HMO-type medical insurance plans
to Medi-Cal members, for which Medi-Cal pays the cost. It appears that plaintiff
mother joined CIGNA's plan in 1991. Her son was injured during birth in
December 1993. Plaintiffs brought this action against CIGNA, the hospital,
and the son's doctors, alleging medical malpractice and seeking damages.
Plaintiffs also allege that CIGNA violated the CLRA by making false and
misleading statements concerning the quality of medical care CIGNA provides
to Medi-Cal members; they seek damages and injunctive relief for this alleged
CLRA violation. CIGNA petitioned for arbitration, claiming there was an
arbitration provision in the contract between it and the State of California
governing the Medi-Cal health plan to which plaintiffs belonged. |
| [106] | CIGNA never produced a copy of the alleged arbitration agreement, however.
Instead, it initially submitted with its arbitration petition, without any
foundational or authenticating testimony, a copy of an "Evidence of
Coverage and Disclosure Form" for employees (not Medi-Cal recipients)
covered by employee group health insurance plans it offers. That document
describes a procedure for arbitrating disputes relating to employee health
benefits, but it also notes in bold face: "This Combined Evidence of
Coverage and Disclosure Form constitutes only a summary of the Agreement.
The Group Services Agreement must be consulted to determine the exact terms
and conditions of coverage." CIGNA also submitted both a 1985 Medicare
(not Medi-Cal) Supplement plan brochure with a similar arbitration description
and an undated "CIGNA Healthplan Disclosure Form" for employee
group health plans describing a provision for arbitration. |
| [107] | In the trial court, CIGNA later submitted with its reply in support of
arbitration, but again without any foundational or authenticating testimony,
two versions of a summary of benefits for Medi-Cal patients that were included
in documents produced by plaintiffs. The summaries themselves are undated,
but other documents and certain notations suggest that one was given to
plaintiff mother in January 1994 and the other in December 1994. The January
1994 summary makes no mention of arbitration. The December 1994 summary
states that arbitration applies only to "any controversy . . . arising
from a medical practice claim," apparently thereby excluding from arbitration
CLRA claims that, like plaintiffs', are based on false advertising. It also
states that the arbitration shall be "governed by the provisions of
the California Code of Civil procedure [sic]." CIGNA never produced
the underlying agreements between it and the State of California that these
documents purported to summarize. |
| [108] | The trial court ordered arbitration of plaintiffs' malpractice claim but
not their CLRA claim. The Court of Appeal affirmed, holding that the CLRA
claim was not arbitrable because an arbitrator lacks authority to grant
and enforce injunctive relief intended to benefit the general public. The
majority agrees that plaintiffs' CLRA claim is not arbitrable to the extent
it seeks injunctive relief but concludes that it is arbitrable to the extent
it seeks damages. |
| [109] | II. |
| [110] | Arbitration is a creature of contract. "[A]rbitration is simply a
matter of contract between the parties; it is a way to resolve those disputes--but
only those disputes--that the parties have agreed to submit to arbitration."
(First Options v. Kaplan (1995) 514 U.S. 938, 943.) " `In cases involving
private arbitration, "[t]he scope of arbitration is . . . a matter
of agreement between the parties" [citation], and " `[t]he powers
of an arbitrator are limited and circumscribed by the agreement or stipulation
of submission.' " [Citations.]' " (Vandenberg v. Superior Court
(1999) 21 Cal.4th 815, 830.) |
| [111] | Accordingly, the question of whether the parties have agreed to arbitrate,
the scope of the claims they have agreed to arbitrate, the methods by which
the arbitration is to be conducted, and the remedies available to the arbitrator
all depend upon the terms of the agreement between the parties. Without
knowing the content of the agreement between the parties, it is impossible
to answer the question of whether the parties have agreed to arbitrate a
particular claim. |
| [112] | Here, the record before us contains no substantial evidence of any arbitration
agreement between the parties. CIGNA, while insisting on its alleged right
to arbitrate plaintiffs' claims, never produced any competent evidence of
the alleged arbitration agreement. It failed to produce its alleged agreement
with the State of California establishing its medical plan for Medi-Cal
members. Some of the various benefits summaries it produced do not describe
Medi-Cal plans; of the two that do, one makes no mention of any arbitration
agreement and the other describes an arbitration agreement excluding entirely
CLRA claims like those of plaintiffs. All of the summaries were produced
without any foundational or authenticating testimony stating that the summaries
accurately described the terms of an arbitration agreement to which plaintiffs
are subject or stating the effective date of any such arbitration agreement. |
| [113] | CIGNA's evidentiary failure alone should have doomed its petition for
arbitration. A court may not order arbitration where, as here, there is
no substantial evidence of the existence of a valid written agreement to
arbitrate. (Code Civ. Proc., § 1281.2; Rosenthal v. Great Western Fin. Securities
Corp. (1996) 14 Cal.4th 394, 406, 409.) |
| [114] | The majority does not dispute the absence of any arbitration agreement
between the parties. It nonetheless decides the abstract and hypothetical
question of whether, if two parties agree to arbitrate CLRA claims and the
agreement is subject to the United States Arbitration Act (USAA; 9 U.S.C.
§ 1 et seq.), the USAA allows California to forbid arbitration of CLRA claims.
In doing so, the majority renders an advisory opinion. Although its decision
that claims for injunctive relief under the CLRA are nonarbitrable may be
correct, I would decide the question only in a case where it is present
on the record before us. |
| [115] | III. |
| [116] | In the course of its decision, the majority appears to suggest that parties
to an arbitration agreement may not use a choice of law provision to restrict
the scope of arbitrable claims. I disagree. |
| [117] | Arbitration is a matter of contract. Accordingly, the only claims that
may be arbitrated are those the parties have identified in their arbitration
agreement. In turn, there are many methods by which the parties can identify
the claims they have agreed to arbitrate. For example, they may specify
the arbitrable claims directly as those arising out of a particular transaction
or event, those arising within a particular time period, or those based
on a particular legal theory. Or the parties may identify the arbitrable
claims indirectly by choosing a body of private arbitration rules that specifies
the scope of arbitrable claims. In doing so, they incorporate by reference
the claims limitations determined by those rules. The parties may also indirectly
specify the scope of arbitrable claims by including a choice of law provision
that selects a body of law limiting the arbitrability of certain claims.
Such a choice of law provision, if the parties so intend, incorporates by
reference whatever limits on the scope of arbitrability are established
by the chosen body of law. (See generally Mastrobuono v. Shearson Lehman
Hutton, Inc. (1995) 514 U.S. 52 [examining an arbitration agreement's choice
of law provision and its provision adopting a body of private arbitration
rules to determine whether parties intended to exclude a particular form
of remedy from the arbitration].) |
| [118] | Thus, in this case, if an arbitration agreement does exist between the
parties, determining whether plaintiffs' CLRA claims are arbitrable would
involve the following inquiry. Does the parties' arbitration agreement include
CLRA claims within the scope of an express specification of the claims subject
to arbitration? Have the parties incorporated by reference in their agreement
an arbitration rule authorizing or limiting arbitration of CLRA claims?
Have the parties incorporated by reference a body of law restricting arbitration
of CLRA claims and, if so, did the parties thereby intend to exclude CLRA
claims from arbitration? |
| [119] | Only after it is determined that the parties have in some manner authorized
arbitration of CLRA claims and have not chosen a body of law restricting
arbitration of those claims would it be necessary to reach the further questions
addressed by the majority: Whether California law restricts or prohibits
arbitration of CLRA claims notwithstanding the intent of the parties to
arbitrate those claims and, if so, whether the USAA permits California to
do so. |
| [120] | The majority appears to take a somewhat different view of the use of a
choice of law provision to shape the contours of an arbitration agreement.
The majority opinion may be read to suggest that section 2 of the USAA,
which provides as a matter of federal law that arbitration agreements are
generally enforceable according to their terms notwithstanding any contrary
provision of state law, forbids the parties from using a choice of law provision
to limit the scope of an arbitration agreement. (Maj. opn., ante, at pp.
9-10.) The two United States Supreme Court decisions the majority cites,
Doctor's Associates, Inc. v. Casarotto (1996) 517 U.S. 681 and Volt Info.
Sciences v. Leland Stanford Jr. U. (1989) 489 U.S. 468, do not support this
proposition. At issue in Doctor's Associates was a state law applying only
to arbitration agreements that would have precluded enforcement of the parties'
arbitration clause, contrary to the intent of the parties to arbitrate their
disputes. The high court held that section 2 of the USAA preempted that
state law. No choice of law provision was at issue. (Doctor's Associates,
Inc. v. Casarotto, supra, 517 U.S. 681, 687-688.) In Volt, the parties to
an arbitration agreement had agreed that California law, rather than the
federal law of the USAA, should govern their arbitration procedure. The
high court held that the USAA did not preclude the parties from choosing
to have their arbitration governed by California's arbitration law rather
than by the procedures of the USAA. (Volt Info. Sciences v. Leland Stanford
Jr. U., supra, 489 U.S. at pp. 476-479.) |
| [121] | These two cases stand only for the proposition that the USAA preempts
state law from restricting the scope of arbitrable claims contrary to the
intent of the parties as manifested in the arbitration agreement. Both those
cases acknowledge that the purpose of the USAA is only to " `ensur[e]
that private agreements to arbitrate are enforced according to their terms.'
" (Doctor's Associates, Inc. v. Casarotto, supra, 517 U.S. 681, 688,
quoting Volt Info. Sciences v. Leland Stanford Jr. U., supra, 489 U.S. 468,
479.) "[P]arties are generally free to structure their arbitration
agreements as they see fit." (Volt Info. Sciences v. Leland Stanford
Jr. U., supra, 489 U.S. at p. 479.) "[T]he [USAA] does not . . . prevent
parties who do agree to arbitrate from excluding certain claims from the
scope of their arbitration agreement [citations]. It simply requires courts
to enforce privately negotiated agreements to arbitrate, like other contracts,
in accordance with their terms." (Id. at p. 478.) |
| [122] | Accordingly, when a procedural or substantive limitation on arbitration
is voluntarily adopted by the parties through a choice of law provision,
and is not imposed unwillingly on them by a state, judicial enforcement
of the parties' freely chosen limitation is fully consistent with the USAA.
In that situation, a court is merely enforcing the arbitration agreement
"according to [its] terms." (Volt Info. Sciences v. Leland Stanford
Jr. U., supra, 489 U.S. 468, 479.) Otherwise stated, under the USAA parties
seeking to exclude a particular class of claims from arbitration under their
arbitration agreement are free to do so either by expressly describing those
claims in the arbitration agreement or by using a choice of law clause to
incorporate by reference a law prohibiting arbitration of those claims. |
| [123] | CONCLUSION |
| [124] | Because the record contains no arbitration agreement between the parties,
I would reverse the judgment of the Court of Appeal and instruct it to vacate
the trial court's partial order of arbitration and to remand for further
proceedings. |
| [125] | KENNARD, J. |
| [126] | Name of Opinion Broughton v. Cigna Healthplans of California |
| [127] | Review Granted XXX 65 Cal.App.4th 314 |
| [128] | Opinion No. S072583 |
| [129] | Date Filed: December 2, 1999 |
| [130] | Court: Superior |
| [131] | County: Los Angeles |
| [132] | Judge: Ronald E. Cappai |
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| Opinion Footnotes | |
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| [133] | *fn1 All statutory references
are to the Civil Code unless otherwise indicated. |
| [134] | *fn2 In limiting the issues
on which we granted review, we have not considered an issue plaintiffs raised
below: whether the government can, on behalf of Medi- Cal recipients, agree
to arbitration and waive the recipients' right to a jury trial as a condition
of receiving Medi- Cal benefits. Nor do we address plaintiffs' contention
that the arbitration agreement at issue in this case applied only to medical
malpractice claims and not CLRA claims. These issues may be raised as appropriate
in subsequent proceedings. |
| [135] | *fn3 Of course, parties
may conceivably enter into an arbitration agreement that provides a different
standard of enforceability than that found in section 2 of the FAA. There
is no indication in the present case that the parties have done so. |
| [136] | *fn4 Plaintiffs also claim
the FAA preemption issue was raised for the first time in the petition for
review and not in the courts below, and is therefore not properly before
this court. But as Cigna points out, the issue was not raised by the trial
court's ruling, which merely held that the agreement between Broughton and
Cigna did not encompass the arbitration of CLRA claims. The Court of Appeal,
on the other hand, held that the CLRA itself precludes arbitration, which
directly raises the issue of FAA preemption, although neither the Court
of Appeal nor the parties addressed that issue. This court is empowered
to decide issues necessary for the proper resolution of the case before
it, whether or not raised in the courts below. (See Cal. Rules of Court,
rule 29.2(a)); Cedars- Sinai Medical Center v. Superior Court (1998) 18
Cal.4th 1, 6.) |
| [137] | *fn5 It is true, of course,
that many injunctions will have effects beyond the parties themselves. For
example, an injunction in the copyright field will prevent certain parties
from selling products to third parties. (See, e.g., Saturday Evening Post
v. Rumbleseat Press, Inc. (7th Cir. 1987) 816 F.2d 1191, 1198- 1199 [preventing
copyright infringement]; Kamakazi Music Corp. v. Robbins Music Corp. (2d
Cir. 1982) 684 F.2d 228, 229, 231) [same]; see also General Dynamics Corp.
v. Local 5, Indus. Union of Marine Workers (1st Cir. 1972) 469 F.2d 848,
850 [approving arbitrator's award enjoining employees from violating no-strike
clause]; Sprinzen v. Nomberg (1979) 46 N.Y.2d 623, 631 [approving arbitrator's
award enforcing restrictive employment covenant].) In Advanced Micro Devices,
Inc. v. Intel (1994) 9 Cal.4th 362, 381, we upheld an arbitrator's grant
and extension of certain licensing agreements that doubtless would have
some effect on third parties. But in all the cases cited above, the effects
of the arbitrator's decision on third parties were incidental to the primary
purpose of resolving a conflict between the parties and rectifying individual
wrongs. We do not decide if these types of injunctions are arbitrable. In
the present case, however, plaintiffs asked for an injunction against Cigna's
"deceptive methods, acts, and practices," an injunction that will
obviously not benefit them directly, since they have already been injured,
allegedly, by such practices and are aware of them. Moreover, even if a
CLRA plaintiff stands to benefit from an injunction against a deceptive
business practice, it appears likely that the benefit would be incidental
to the general public benefit of enjoining such a practice. Unlike an antitrust
treble damages award, for example, where the plaintiff is the primary beneficiary
of such an award and the public only indirectly benefited by its deterrent
value, in the case of a CLRA injunction the public is generally benefited
directly by the elimination of deceptive practices, and the plaintiff benefited,
if it all, only by virtue of being a member of the public. Thus, we disagree
with the Concurring and Dissenting opinion that the public benefit of a
CLRA injunction is "only incidental (and is, at best, complementary)
to providing the CLRA plaintiff with a complete remedy." (Conc. and
dis. opn., post, at p. 16.) We do not decide the hypothetical case of the
CLRA plaintiff whose injunctive relief claim stands to benefit him or her
uniquely without public benefit. |
| [138] | *fn6 As the Concurring
and Dissenting opinion points out, a CLRA claim, like the antitrust claim
at issue in Mitsubishi Motors, "remains at all times under the control
of the individual litigant" and "no citizen is under an obligation
to bring" such an action, nor does the CLRA plaintiff require "executive
or judicial approval" before settling a CLRA claim. (Mitsubishi Motors,
supra, 473 U.S. at p. 636.) But once the consumer brings an injunctive relief
action under the CLRA, the fashioning and continuing supervision of such
relief by a private arbitrator conflicts with the public protective purpose
inherent in the Act for the reasons stated above. |
| [139] | *fn7 The Concurring and
Dissenting opinion argues that Code of Civil Procedure section 1281.2 mandates
the enforcement of arbitration agreements subject only to the statutory
exceptions listed therein. We disagree. Rather, we agree with the United
States Supreme Court, as cited above, that a legislative body may express
its intention to make a statutory right inarbitrable not only explicitly,
but also implicitly in those rare circumstances in which the fulfillment
of the statutory purpose inherently conflicts with arbitration. |
| [140] | *fn8 Our holding does not
imply that the government itself may not be a party to an arbitration agreement.
Public sector arbitration is common, for example, in the field of labor
relations. (See, e.g., Firefighters Union v. City of Vallejo (1974) 12 Cal.3d
608.) But the Legislature did not intend, nor do we believe the FAA compels,
a private attorney general who seeks injunctive relief on behalf of the
public to submit the question to a private arbitrator. |
| [141] | *fn9 Because we conclude
that the FAA does not compel private arbitration of public injunctions,
we need not consider plaintiffs' related argument that the Tenth Amendment
precludes interpreting the FAA to prohibit legislatures from delegating
enforcement of public injunctions exclusively to the courts. |
| [142] | *fn10 Plaintiffs cite
Alexander v. Gardner- Denver Co. (1974) 415 U.S. 36, 94, and its progeny
- Barrentine v. Arkansas- Best Freight System, Inc. (1981) 450 U.S. 728,
and McDonald v. West Branch (1984) 466 U.S. 284 - for the proposition that
the United States Supreme Court has not uniformly favored resolution of
statutory claims by arbitration. "In Gardner- Denver, the issue was
whether a discharged employee whose grievance had been arbitrated pursuant
to an arbitration clause in a collective- bargaining agreement was precluded
from subsequently bringing a Title VII action based upon the conduct that
was the subject of the grievance. In holding that the employee was not foreclosed
from bringing the Title VII claim, we stressed that an employee's contractual
rights under a collective- bargaining agreement are distinct from the employee's
statutory Title VII rights[.]" (Gilmer, supra, 500 U.S. at pp. 33-
34.) Barrentine and McDonald involved similar statutory claims submitted
to arbitration pursuant to a collective bargaining agreement. The Gilmer
court articulated the reasons why these three cases differ from the line
of cases quoted above affirming the arbitrability of statutory claims. "First,
[these three] cases did not involve the issue of the enforceability of an
agreement to arbitrate statutory claims. Rather, they involved the quite
different issue whether arbitration of contract- based claims precluded
subsequent judicial resolution of statutory claims. Since the employees
there had not agreed to arbitrate their statutory claims, and the labor
arbitrators were not authorized to resolve such claims, the arbitration
in those cases understandably was held not to preclude subsequent statutory
actions. Second, because the arbitration in those cases occurred in the
context of a collective- bargaining agreement, the claimants there were
represented by their unions in the arbitration proceedings. An important
concern therefore was the tension between collective representation and
individual statutory rights . . . . Finally, those cases were not decided
under the FAA, which, as discussed above, reflects a `liberal federal policy
favoring arbitration agreements.' " (Gilmer, supra, 500 U.S. at p.
35.) In the present case, none of the above considerations are in play,
and these cases are therefore inapposite. |
| [143] | *fn11 Unless otherwise
indicated, all further statutory references are to the Civil Code. |
| [144] | *fn12 Keating, supra,
31 Cal.3d 584, is not to the contrary. There, in construing the non-waiver
provision of the Franchise Investment Law to prohibit arbitration, we did
not cite an inherent conflict between arbitration and that statutory scheme,
or even suggest that mode of analysis. Rather, looking to statutory language
and legislative history, we concluded the "Legislature intended the
non-waiver provision . . . to be interpreted in accord with Wilko[, supra,
346 U.S. 427]," which, before passage of the California statute, had
interpreted a similar non-waiver provision to preclude arbitration of certain
securities claims. (Keating, supra, 31 Cal.3d at p. 599.) We did not, as
the majority asserts, "reason[]" that this arbitration prohibition
"was warranted . . . because `the effectiveness of the statute "is
lessened in arbitration as compared to judicial proceedings" [citation]
in part because of the limited nature of judicial review [citation].' "
(Maj. opn., ante, at p. 5.) In the passage the majority quotes from Keating,
we were simply describing the Wilko decision, not independently analyzing
the relevant California statute. (See Keating, supra, 31 Cal.3d at p. 596.)
The CLRA contains a non-waiver provision (§ 1751) that is similar to the
non-waiver provision we construed in Keating, supra, 31 Cal.3d 584. Presumably
because Southland, supra, 465 U.S. 1, reversed our Keating decision, the
majority does not rely on this CLRA provision in refusing to enforce agreements
to arbitrate CLRA injunction requests. |
| [145] | *fn13 To support its
assertion that we should "presume" a legislative intent to prohibit
arbitration, the majority cites Gilmer. (Maj. opn., ante, at p. 17.) However,
Gilmer says nothing about making such a presumption. It simply states that,
in applying federal law, any congressional intent to prohibit arbitration
"will be discoverable in the text of the [statute at issue], its legislative
history, or an `inherent conflict' between arbitration and the [statute's]
underlying purpose." (Gilmer, supra, 500 U.S. at p. 26.) Gilmer also
states that courts making this inquiry "should . . . ke[ep] in mind
that `questions of arbitrability must be addressed with a healthy regard
for the . . . policy favoring arbitration. [Citation.]" (Ibid.) In
my view, the majority fails to heed this admonition in applying the federal
"inherent conflict" test to the CLRA. Gilmer's only reference
to presumptions is in refusing to presume " `that the parties and arbitral
body conducting a proceeding will be unable or unwilling to retain competent,
conscientious and impartial arbitrators.' [Citation.]" (Gilmer, supra,
500 U.S. at p. 30.) As I later explain, in my view, the majority also fails
to follow this aspect of Gilmer. |
| [146] | *fn14 Similarly, in the
CLRA, the Legislature has already expressed its view regarding the majority's
concern that "only the parties to [a CLRA] injunction" initially
issued in arbitration "would be able to enforce it . . . ." (Maj.
opn., ante, at p. 16) As I have already explained, the Legislature gave
the CLRA plaintiff sole control over the claim, including the decision to
make and pursue an injunction request. Thus, even if the majority is correct
that only parties would be able to enforce an arbitral CLRA injunction-an
issue that has not been decided and is not before us-this result would be
completely consistent with the Legislature's intent. Moreover, where a CLRA
claim proceeds as a class action under section 1781, all class members would
be able to enforce the injunction. Thus, the population of damaged consumers
with enforcement power is not necessarily as small as the majority suggests.
In any event, the scenario the majority imagines would probably arise rarely,
if ever; the CLRA defendant would have to continue to commit the identical
practice, despite losing a lawsuit, perhaps paying both damages and punitive
damages, and being ordered to stop, and all of the CLRA plaintiffs would
have to decline to enforce the injunction they went to substantial effort
to obtain. We should not base a general rule prohibiting arbitration of
CLRA injunction requests on this seemingly remote possibility. |
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