2005-2

Arbitration agreement between employer and employee is substantively unconscionable.

In Al-Safin v. Circuit City Stores, Inc., Circuit City Stores, Inc. (Circuit City), appealed the district court's denial of its motion to dismiss and compel arbitration of Mohammed Al-Safin's employment discrimination claims. The district court held that the arbitration agreement between Circuit City and Al-Safin was unconscionable under Washington state law, and thus unenforceable. The Ninth Circuit affirmed.

In June 1997, Al-Safin applied for a job at a Circuit City store in Washington and was required to sign an arbitration agreement entitled "Circuit City Dispute Resolution Agreement" (DRA). By signing the DRA, Al-Safin agreed to resolve all disputes arising out of his employment relationship with Circuit City through arbitration in accordance with the "Circuit City Dispute Resolution Rules and Procedures" (DRRP). Rule 19 of the DRRP in effect in 1997 (1997 DRRP) stated that both the DRA and DRRP could be amended, and the DRRP was amended in 1998 (1998 DRRP). Rule 19 of the 1998 DRRP stated that "all claims arising before alteration or termination shall be subject to the [DRA] and corresponding [DRRP] in effect at the time the Arbitration Request Form and accompanying filing fee is received by the Company." Hence, any arbitration filed would be governed by the DRRP in effect that year, as opposed to the DRRP in effect when the claim arose.

Al-Safin's employment was terminated in November 1998. On December 2, 1999, Al-Safin filed a complaint against Circuit City in the United States District Court for the Western District of Washington alleging violations of both federal and state anti-discrimination laws. Circuit City filed a motion to compel arbitration, which was denied, and Circuit City appealed. In an unpublished disposition, the Ninth Circuit reversed the district court's decision.

In that decision, the Ninth Circuit addressed the validity of the arbitration agreement under federal law. It determined that Circuit City could compel arbitration of Al-Safin's federal employment discrimination claims, and that Al-Safin knowingly agreed to arbitrate his federal claims. The Ninth Circuit expressed no opinion as to the enforceability of particular provisions, yet concluded that it was unable to agree with the suggestion that illegal provisions so infected the contract as to render it invalid as a matter of federal law. It remanded the case for the district court to determine the validity of the agreement under Washington state law.

Effective December 31, 2002, the DRRP was amended (2003 DRRP). One week later, Circuit City renewed its motion to compel arbitration and argued that under the new DRRP the arbitration agreement was enforceable. The district court held that the 1997 DRRP, and not the 1998 or 2003 DRRP, applied, and that the arbitration agreement was unenforceable because it was unconscionable under Washington law. After its motion for reconsideration was denied, Circuit City appealed.

Like California, Washington recognizes two classifications of unconscionability, substantive and procedural. Substantive unconscionability involves those cases where a clause or term in the contract is alleged to be one-sided or overly harsh, shocking to the conscience, monstrously harsh, or exceedingly calloused. Procedural unconscionability is the lack of a meaningful choice, considering all the circumstances surrounding the transaction including the manner in which the contract was entered, whether the party had a reasonable opportunity to understand the terms of the contract, and whether the important terms were hidden in a maze of fine print. In Washington, a contract generally may be invalid based on either substantive or procedural unconscionability.

The parties disputed: (1) the Ninth Circuit's previous decision that the arbitration agreement was enforceable; (2) whether the agreement was unconscionable under Washington law; and (3) whether any unenforceable contract provisions were severable. The Ninth Circuit found that the plain meaning of its initial decision was that: (1) the arbitration agreement was valid under federal law; but (2) the district court was to determine in the first instance whether it was valid under state contract law. It did not address whether the arbitration agreement was enforceable under state law.

Circuit City contended that Rule 19 of the DRRPs permitted it to amend the arbitration agreement each year, and that under the 1998 DRRP, Al-Safin's dispute was governed by the rules in effect when he filed for arbitration in 2003. The Ninth Circuit disagreed. Since the modification provision allowed Circuit City to alter the rules and procedures governing arbitration almost at will, the Court concluded that Rule 19 was substantively unconscionable under Washington law and that the modification provision was therefore unenforceable. Moreover, the Ninth Circuit held that Circuit City's unilateral change in policy would not be effective until employees received reasonable notice of the change and accepted the change. Circuit City did not offer reasonable notice to former employees like Al-Safin. Thus, as to those employees, there was no valid offer to amend the 1998 DRRP. Therefore, because no contract was formed between Circuit City and Al-Safin regarding the 2003 DRRP, the 2003 DRRP never went into effect as to Al-Safin and the 1998 DRRP controlled the parties' dispute.

The Ninth Circuit noted that in the cases of Circuit City Stores, Inc. v. Mantor, 335 F.3d 1101 (9th Cir. 2003), Ingle v. Circuit City Stores, Inc., 328 F.3d 1165 (9th Cir. 2003), and Circuit City Stores, Inc. v. Adams, 279 F.3d 889 (9th Cir.), cert. denied, 535 U.S. 1112 (2002), it previously held that Circuit City's arbitration agreement was substantively unconscionable under California law and rejected contract provisions: (1) forcing employees to arbitrate claims against Circuit City, but not requiring Circuit City to arbitrate claims against employees; (2) limiting remedies; (3) splitting costs and fees; (4) imposing a one-year statute of limitations; (5) prohibiting class actions; (6) regarding the filing fee and waiver of the fee; and (7) giving Circuit City the unilateral right to terminate or modify the agreement.

The Court noted that California applies virtually the same definition of substantive unconscionability as Washington. Each of the provisions the Ninth Circuit held unconscionable under California law were present in Circuit City's 1998 DRRP. Hence, Mantor, Ingle, and Adams were persuasive authority that the arbitration agreement was substantively unconscionable under Washington law. The Court also noted that like California law, Washington law grants courts discretion to sever unconscionable contract provisions or refuse to enforce the entire contract. In each of the California cases — Mantor, Ingle, and Adams — the Ninth Circuit held that the unconscionable terms rendered the arbitration agreement unenforceable. Applying Washington law, the Ninth Circuit also concluded that the unconscionable provisions of the 1998 DRRP pervaded the entire arbitration agreement and any attempt to sever those provisions would render the procedure unworkable.

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An attorney's presumed possession of confidential information concerning a former client should not automatically cause the attorney's former firm to be disqualified.

In Goldberg v. Warner/Chappell Music, Inc., the Court of Appeal affirmed the trial court's denial of Appellant Ilene Goldberg's motion to disqualify Mitchell Silberberg & Knupp LLP (MS&K), counsel for her former employer Warner/Chappell Music, Inc (Warner).

Goldberg worked as in-house counsel for Warner. In April 1997, MS&K began legal work on a copyright matter for Warner. In May 1997, Warner gave Goldberg a written employment agreement to sign. She asked J. Eugene Salomon, then a partner with MS&K, to advise her with respect to the agreement. She met with Salomon for an hour and a half to go over the terms of the agreement. She purportedly disclosed confidential information to him including the nature and terms of her employment agreement, her compensation and benefits, disability, termination by Warner, her ability to retain, disclose, and use confidential/privileged information concerning her employment relationship with Warner, scripts and other literary works created by her, the effect of a change in control of Warner, expiration of the employment agreement, and Warner's obligations under state and federal law. She also had other conversations and correspondence with Salomon relating to his advice about the terms and conditions of her employment agreement.

Salomon practiced law at MS&K from October 1987 through October 2000, when he moved to another firm. (Salomon claimed Goldberg told Salomon she was going to represent herself in negotiations over the contract, but asked if Salomon would talk to her about the agreements generally. He told Goldberg he would be glad to talk to her about what she could expect in the course of her negotiations. They primarily discussed what she might expect with respect to the boilerplate issues.) Salomon never discussed with any other lawyer at MS&K what was said in his conversation with Goldberg, and never opened a file for her. MS&K never billed her.

Subsequently, Goldberg retained MS&K to work on various matters for Warner, and she did not have an objection to MS&K's representation of Warner in matters that did not conflict with MS&K's prior representation of her.

Goldberg was terminated in December 2002. Goldberg brought suit against Warner for wrongful termination. Warner retained MS&K to represent it in the matter. Goldberg's counsel sent letters to MS&K stating that he had serious concerns about the propriety of MS&K representing Warner, given that Goldberg had professional relationships with various members of MS&K, and maintained friendships with certain members of MS&K. There was no reference to Goldberg being a former client of the firm.

MS&K maintained that its past dealings with Goldberg were solely in connection with its representation of Warner. On October 30, 2003, at mediation, MS&K learned for the first time that Goldberg was contending that she had been provided personal legal advice by Salomon.

Rule 3-310(E) of the Rules of Professional Conduct provides that an attorney "shall not, without the informed written consent of the client or former client, accept employment adverse to the client, or former client where, by reason of the representation of the client or former client, the member has obtained confidential information material to the employment."

When a substantial relationship has been shown to exist between the former representation and the current representation, and when it appears by virtue of the nature of the former representation or the relationship of the attorney to his former client confidential information material to the current dispute would normally have been imparted to the attorney or to subordinates for whose legal work he was responsible, the attorney's knowledge of confidential information is presumed. In addition, where the attorney is disqualified from representation due to an ethical conflict, the disqualification extends to the entire firm. However, where the lawyer can show that there was no opportunity for confidential information to be divulged, the presumption is rebuttable.

Goldberg formally moved to disqualify MS&K, which the trial court denied. At the hearing, the court stated that the only potential basis for disqualification was Goldberg's contact with Salomon, not her personal and professional relationships with other MS&K attorneys. The trial court noted that if Salomon were still with MS&K, the firm would be disqualified. However, because Salomon had left the firm, there was no need for vicarious disqualification.

The Court of Appeal affirmed the trial court's decision. The Court of Appeal relied upon the reasoning in Adams v. Aerojet-General Corp. (2001) 86 Cal.App.4th 1324. In Adams, while the supposedly tainted attorney worked his firm, it represented Aerojet with respect to advice on land use issues. The "tainted attorney," however, had nothing to do with that representation and departed the firm in 1989. A decade later, his new firm was retained to represent individuals against Aerojet involving release of toxic chemicals and contamination of groundwater. Aerojet sought to disqualify the "tainted attorney" and the new firm because of the attorney's former association with the other firm. The trial court ordered the new firm disqualified. On appeal, the court acknowledged that if the attorney himself had been personally involved with the other firm's work on Aerojet matters, he would be subject to disqualification. However, since there was no indication of the attorney's personal involvement in Aerojet matters, nor any direct evidence that he was exposed to client secrets during the time his former firm rendered services to Aerojet, the court decided not to extend the doctrine of imputed knowledge and vicarious disqualification to the new firm.

In addition, the Court of Appeal relied on ABA Model Rules of Professional Conduct, Model Rule 1.10(b), whcih provides: "When a lawyer has terminated an association with a firm, the firm is not prohibited from thereafter representing a person with interests materially adverse to those of a client represented by the formerly associated lawyer and not currently represented by the firm, unless (1) the matter is the same or substantially related to that in which the formerly associated lawyer represented the client; and (2) any lawyer remaining in the firm has [protected] information . . . that is material to the matter."

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Sheriff's deputy disciplined for using alcohol was entitled to discovery of non-confidential investigation documents.

In Hinrichs v. County of Orange, Beverly Hinrichs, an officer in the Orange County Sheriff's Department (the Department), appealed from the denial of her petition for a writ of mandate challenging discipline imposed upon her by the Department.

Hinrichs is a full-time special officer in the Department. On November 5, 1999, at approximately 10:00 p.m., she reported to work at the Inmate Reception Center of the jail facility in Santa Ana. Sergeant Brian Schmutz, Hinrichs' supervisor, held the door for her as she entered the building, and smelled the odor of alcohol on her breath.

Approximately an hour later, Hinrichs was directed to see Schmutz. When she arrived, Schmutz was there with Sergeant S. Taylor, and asked if she had been drinking. She replied that she had consumed two beers with her lunch, approximately 10 hours earlier. She also explained that she had been sick for the two previous nights and had been taking Nyquil. Hinrichs was reassigned for the day. She was moved from the Visiting Desk to an assignment in Female I.D., a less public location, and relieved of her weapon.

In February of 2000, the Department gave Hinrichs a written notice she was the subject of an internal affairs investigation for "use-of-alcohol" on November 5, 1999. The internal affairs investigation included a formal interrogation of Hinrichs, who was accompanied by counsel. At the conclusion of the interrogation, Hinrichs' counsel served the Department with a written demand for stenographer's notes and copies of any reports or complaints relating to the matter, except those which were deemed confidential. In response to the request, the Department stated it would release reports to Hinrichs only if she was given discipline higher than a written reprimand.

On April 14, 2000, the Department issued Hinrichs a letter of reprimand, whcih stated that Hinrichs "alienate[d] your coworkers and opened the department, as well as yourself, to liability. You were scheduled to work a ‘Visiting' position. Imagine the public's reaction to the odor of alcohol on the person who is running a visiting session. These are the people that pay your wages and expect that you will be professional enough to perform your duties. You are expected to be prepared for emergencies as well as the daily operation of the area. How much trust can the public, co-workers or supervisors have in your ability to handle the job if you smell of alcohol? Additionally, you caused the Sergeants to have to re-deploy manpower to cover the position you failed to be prepared for. This behavior was irresponsible and wholly unprofessional." The letter also stated that Hinrichs had violated two sections of the Department's manual of rules and regulations: one pertaining to standards of conduct, and the other to the prohibition of alcohol use on duty.

Hinrichs appealed the reprimand by requesting a meeting with Captain Gage, the author of the letter. Gage denied her appeal, but with the comment that "Department issued the reprimand for ‘odor of an alcoholic beverage.' There is no belief or accusation that . . . Hinrichs was intoxicated or impaired."

Hinrichs proceeded with the next step of the administrative appeal process, by requesting relief from the department of human resources. While that request was pending, she filed her petition for a writ of administrative mandamus.

Section 3303 specifies the rights that must be accorded to an officer under several different scenarios. First, in relevant part, where interrogation of a public safety officer is in the "normal course of duty, counseling, instruction, or informal verbal admonishment by, or other routine or unplanned contact with, a supervisor or any other public safety officer," §3303 makes no requirements. Nor does it apply in the case of "an investigation concerned solely and directly with alleged criminal activities." (§ 3303(i).)

Second, where the interrogation "could lead to punitive action," which is defined as "any action that may lead to dismissal, demotion, suspension, reduction in salary, written reprimand, or transfer for purposes of punishment," the interrogation must be conduced at a reasonable hour, preferably during the officer's working hours, for a reasonable period of time, in a reasonable and non-threatening manner (§ 3303(a), (d) & (e)). The Department is also required to inform the officer of the nature of the investigation, as well as the name, rank and command of the persons present, prior to the commencement of the interrogation (§ 3303(b) & (c)).

Third, the officer must be afforded the opportunity to bring her own recording device to record the interrogation, and if the interrogation is recorded by the department, the officer must be given access to the tape recording or stenographer's notes. Additionally, the officer is also entitled to copies of any reports or complaints made by investigators or others, except those deemed by the department to be confidential. (§ 3303(g).)

Hinrichs alleged, among other things, that she had been denied the rights guaranteed to her under Government Code section 3303, including her right to be informed of the nature of her initial interrogation conducted by Schmutz and Taylor and her right to obtain copies of all non-confidential reports and witness statements pertaining to her case. She further alleged that the use-of-alcohol regulation did not give her adequate notice that the mere odor of alcohol was proscribed conduct. Hinrichs also alleged violation of her right to substantive due process, on the basis the use-of-alcohol regulation was unconstitutional, because the presumption it imposed had the effect of shifting the burden of proof to her.

The trial court denied Hinrichs' petition, concluding any claim based upon violation of Hinrichs' substantive rights was not ripe because her administrative appeal had not yet been fully resolved.

The Court of Appeal found that with regard to whether the Department violated her rights under Government Code section 3303 in failing to inform her of the nature of its investigation prior to her initial interrogation by Schmutz and Taylor, the error, if any, was harmless.

With regard to Hinrichs' argument that the Department impermissibly denied her copies of reports required by section 3303, the Court of Appeals agreed. The Department argued that had no duty to provide the reports unless the discipline imposed was greater than a written reprimand. It contended that the significant procedural due process protections specified in Skelly v. State Personnel Bd. (1975) 15 Cal.3d 194, would not be required in the case of a mere written reprimand. The Court of Appeal found that the obligation to produce the documents was not based upon Skelly; instead, it was a requirement of section 3303, which is expressly made applicable in the case of a written reprimand. The Department also argued that under section 3303(g), Hinrichs was not entitled to "pre-interrogation" documents, and the Court disagreed. The Department's refusal to produce whatever reports were in its possession could not be presumed harmless.

Finally, the Court was unpersuaded by Hinrichs' contention that regulation was unconstitutional because it imposed a presumption that the odor of alcohol on the breath evidences an impairment, and thus shifted to her the burden of proving she was not under the influence of alcohol at the time in question. Since the odor of alcohol was not proscribed by this regulation, but was merely evidence creating a rebuttable presumption of alcohol use which caused the officer to be unable to perform his or her duties, nothing in the provision alters the ultimate burden of proving the violation. That burden remained with the Department.

However, the Court found that the Department's letter of reprimand was inconsistent with section 31.35.0 of the manual of rules and regulations. It found that the letter of reprimand did not provide any evidentiary basis for its conclusions. This letter supported Hinrichs's argument that the Department's decision was based on "odor of alcohol" only and not on a conclusion she was not able to carry out her duties. The explanation of the discipline contained in the decision on appeal does not correspond to the test of whether Hinrichs was able to perform her duties. Instead, it relies only on "odor of alcohol."

The Department contended the reprimand issued to Hinrichs was proper even if the use-of-alcohol regulation is inapplicable on these facts. The Court disagreed, holding that if the Department did choose to specify a particular regulation that the officer was alleged to have violated, and provided no other description of the alleged wrongful conduct, the Department could not thereafter impose discipline based upon a different regulation.

The order was reversed with directions to the trial court to let a writ of mandate issue, compelling respondents to reverse their issuance of a written reprimand to Hinrichs stemming from her conduct on November 5, 1999. Hinrichs was also to recover her costs on appeal.

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