F OR P UBLICATION



### UNIT E D ST AT E S CO URT O F APPE AL S FO R T H E NINT H CIRCUIT

F A I N E D A V I S , individually

and on behalf of all others similarly situated, Plaintiff-Appellee
,

v

.

N O R D S T R O M , I N C ., Defendant-Appellant

. N o. 12-17403

D.C. No. 4:11-cv-03956- CW

OPI NI ON

A ppeal from the United States District Court for the Northern District of California Claudia W ilken, Chief District J udg e, Presiding

Arg ued and Submitted December 6, 2013—Pasadena, California

F iled J une 23, 2014

B efore: J ohn T. Noonan and Paul J . W atford, Circuit J udg es, and W illiam E. Smith, Chief District J udg e. *

Opinion by

J udg e Smith

* T h e Ho n o rab l e W i l l i a m E. Sm ith
, Ch ief District J u d g e f or th e U .S. District Co u

rt th e District o f

Rh od e Islan d , sittin g b y

d esig n atio n

.D A V I S V

. N O R

D S T R O M , I N C

. 2

SUMMARY * *

Arbitration / Calif

ornia Law

The panel reversed the district court’s order deny ing Nordstrom, I nc.’s motion to compel arbitra t ion of an employ e e’s claims that were broug ht as a putative class

a c t i on alleg ing v iolations of state a nd federal employ

me n t laws, and remanded for further proceeding s.

F ollowing the United States Supreme Court’s decision in AT& T Mobility LLC v. Concepcion
, 131 S. Ct. 1740 (2011), Nordstrom made revisions to the employ e e arbitration policy
, contained in its employ ee han d book, which precluded employ e es from bring ing most class action lawsuits.

The panel held that Nordstrom and the employ ee entered i n t o a valid ag reement to arbitrate d isputes on an individual basis. The panel found that Nordstrom satisfied the minimal requirements under California law for providing employ ees with reasonable notice of a chang e to its employ ee handbook by sending a letter to the employ e es infor m i n g them of the modif i c ation, and not seeking to enforce the arbitration provision during the 30 day notice perio d

. The p anel also held that N o r dstrom was not bound to inform the employ ee that her conti n u ed employ ment after receiving the letter constituted a cceptance on new terms of employ ment. F inally
, the panel declined to address in the f irst instance t h e i s sue whether the arbitration ag r eement was unconscionable under California law.

** T h is su m m ary co n stitu

t es n o p ar t o f t h e o p in io n o f th e co u rt. It h as b een p rep ared b y

co u rt staf

f f o r th e co n v en i en ce o f

th e read er.D A V I S V

. N O R

D S T R O M , I N C

. 3

COUNSEL

Georg e S. Howard
, J r. (arg ued), J ones Day
, San Dieg o, California; J ulie A. Dunne and Dominic J

. Messiha, L it tler Mendelson, P. C

. , L os Ang e les, California; Michael G

. L eg g ieri, L ittler Mendelson, P.C., Sacramento, Californi a , f o r Defendant-Appellant.

Courtland W

. Creekmore ( arg u ed), Matthew R. B ai n e r , a nd Hannah R. Salassi, Scott Cole & Associates, A PC, Oakland, California, for Plaintiff-Appellee.

OP INION

SMI T H, Chief District J u dg e:

F ollowing the United States Supreme Court’s decision in AT& T Mobility LLC v

. Concepcion
, 131 S. Ct. 1740 (2011), 1 Appellant N ordstrom, I nc. (“Nordstrom”) made revisions to the employ ee arbitration policy 2 c ontained in its employ ee handbook. Th e s e c hang e s precluded employ ees from bring ing most class a ction lawsuit s

. D espite these c hang es, weeks later, Nordstrom employ ee F aine Davis filed a class

1 T h e U n ited States Su

p rem e Co u rt d ecisio n i n AT& T Mo bility LLC v. Co n cep cio n , 13 1 S.Ct. 1 7 4 0 (2 0 1 1 ), o v erru led th e C alif o rn ia S u p rem e Co u rt f in d in g in Disco ver Ba n k v. S u p erio r Co urt , 3 6 C al. 4 th 1 4 8 (Cal. 2 0 0 5 ). In Co n cep cio n , t h e Su p rem e Co u rt rej ected Disco ver Ba n k ’ s h o ld in g th at a class w aiv er is u n co n scio n ab le in a co n tract of ad h esio n , reaso n i n g th at th e Calif

o rn ia ru le to th e co n trary

ran af o u l o f th e Fed eral A rb itratio n

A ct (“ FA A ”). C

o n cep cio n , 1 3 1 S.Ct. at 1 7 46

– 4 8 , 1 7 5 3

.

2 T h is p o licy w as ref

erred to in tern ally at No rd stro m as th e “ No rd stro m Disp u te Reso lu tio n

P ro g ram .”D A V I S V

. N O R

D S T R O M , I N C

. 4

action lawsuit on behalf of herself and other similarly situated employ e es, alleg ing that N ordstrom violated various state a nd federal employ

ment laws.

I n t ime, N ordstrom, rely ing on the revised arbitration policy in its employ ee handbook soug ht to compel Davis to submit to indivi d

ual arbitration of her claims. The district court held that Davis and Nordstrom did not enter into a valid arbitration ag reement with respect to the revis i o n , a nd therefore denied Nordstrom’s motion to compel ar b i t r ation. Nordstrom appeals the district court’s decision. B ecause we find t h a t N ordstrom and Davis did indeed enter into a valid ag reement to arbitrate disputes on an individ u a l basis, we REVERSE the distr ict court a n d REMAND for f

urther proceeding s consistent with this order.

I

. Standard of Review

W e review the d istrict court’s decision to d eny the motion to compel arbitration de novo. Kilgore v. KeyBank Nat’l Ass’n
, 718 F .3d 1 052, 1057 ( 9 th Cir. 2013). F actual finding s
are reviewed for clear error, Tic k n o r v

. Choice Hotels Int’l, Inc.
, 2 6 5 F .3d 931, 936 (9th Cir. 2001), but where n o facts a re in dispute our entire review is de n o v o

. Pac. Reinsurance Mg m t

. Corp. v. Ohio Reinsurance Corp.
, 814 F .2d 1324, 1327 (9th Cir. 1987).

I I

. B a ckg round

The basic facts a

re straig htforward and not in dispute. On Aug ust 11, 2011, Davis filed a purported class action lawsuit ag ainst Nordstrom seeking redress for nonpay ment of wag es, f a i l u re to p rovide meal periods and rest breaks, and unfair competition. Rely ing on the c ompany ’ s employ ee handbook,D A V I S V

. N O R

D S T R O M , I N C

. 5

Nordstr o m m o v ed to compel D avis to submit to individual arbitration of her claims. Davis acknowledg es that she received a copy o f t he handbook w hen she first took her po s i t i on at Nordstrom, and during her employ ment the company revised the handboo k several times, alway s notify ing Davis of the chang es.

Two provisions of this h a n dbook matter for t his appeal. The f irst ex p lained the circumstances under which Nordstrom employ e es were required to arbit r a t e their disputes with the company ( t h e “arbitration provision”); the second r equired Nordstrom to provide employ ees w ith 30 day s written notice of any substantiv e chang es to the arbitration provision (the

“ n otice provision”). The handbook provided that the noti c e provision was included to “allow employ ees time to consider the chang es and decide whether or not to continue employ ment subject to the chang es.”

Prior to J uly 2 011, the arbitration provision r e q u i red employ e es to arbitrate individual dispu t es, but p ermitted employ e es to bring class action lawsuits a g ainst the company

. I n J uly 2011 and ag a in in Aug u st 2011, Nordstrom r e vised the arbitration provision; b o t h revisions required employ ees to arbitrate nearly all claims ind i v i dually
, and precluded employ e es from filing most class action lawsuits. To comply with the notice provision, Nordstrom s e n t letters to employ e es, including Davis, in J une 2011 informing them o f the chang e in the arbitration policy

. 3 I n t h i s J u ne letter, Nordstrom informed employ ees that “the Nordstrom Dispute Resolution Prog ram has been in place for several y ears. W e ’ ve r ecently made updates to the prog ram and want to

3 In th e J u ly

2 0 1 1 rev isio n

to th e arb itratio n

p ro v isio n , No rd stro m

also

co m pletely rem ov ed th e n o tice p ro v isio n

.D A V I S V

. N O R

D S T R O M , I N C

. 6

ensure y ou have the c u r

rent version.” Along w ith this lett e r, N ordstrom included a copy of the entire Dispute Resoluti o n Prog r am, including the arbitration provision.

I I I

. Discussion

The F ederal Arbit r a tion Act (“F AA”), 9 U.S.C. §§ 1, et seq. , reflects a “liberal federal policy ” in favor of arbitration. Concepcion
, 131 S. Ct. at 1745. Under the F AA, the role of the district c ourt is to dete r m i n e i f a valid arbitration ag reement ex ists, and if so, whether the ag reement encompa s s es the dispute at issue. Kilgore
, 718 F .3d at 1057–58.

A. Contract F ormation

The district court determined th at no revised ag reement

was ever reached – holding that Nordstrom had failed to provide e mploy ees with the r equired 30 d ay s notice of the chang e in the arbitration provision, and to inform employ ees that their continued employ ment constitu t e d a c c e p tance o f the

new arbitration p rovision. B ecause we hold that Nordstrom complied with the notice requirement, and that California law imposes n o duty upon Nordstrom specifically to inform

em p l oy ees that their continued e mploy ment constituted acceptance of new terms of employ ment, we reverse.

Ar b i t r a t i on is a product of contract. Parties are not required to arbitrate their d i s a g reements unless they have ag reed to do so. Pinnacle Museum Tower Ass’n v. Pinnacle Mktg. D ev. (

U.S.)

, LLC
, 55 Cal. 4th 2 23, 236 (Cal. 2 012). A contract to a

rbitrate will n o t b e inferred a bsent a “ clear ag reement.” Avery v. Integrated Heathcare Holdings, Inc.
, 218 Cal. App. 4 th 50
, 5 9 ( C al. Ct. App. 2013). W h enD A V I S V

. N O R

D S T R O M , I N C

. 7
determining wheth er a valid contract to arbitrate ex ists, we apply ordinary state law principles that g overn contract formation. Ferguson v. Countrywide Credit Indu s

. , I n c. , 298 F .3d 778, 782 (9th Cir. 2 0 0 2 )

. I n California, a “ clear ag reement” to arbitrate m a y b e either ex press or implied in fact. Pinnacle Mktg. Dev.
, 55 Cal. 4th at 236.

T h e handbook Davis received w hen she beg an work established the g round rules o f her employ ment, including that Davis and Nordstrom would arbitrate certain d isputes. She accepted employ

ment on this bas i s , s o there was a b inding a g reement to a rbitrate. Under California la w , Nordstrom was permitted to unilaterally chang e the terms o f Davis’s employ

ment, including tho se terms included in its employ e e h andbook. Craig v

. B r o w n & Root, Inc.
, 84 Cal. App. 4th 4 16, 4 22 ( Cal. Ct. App. 2000). Nordstrom was also entitled to enforce the terms of employ ment identified in this handbook, and any modifications made to it, a s i t c o u ld any other c ontract. See id. I ndeed, “[ i] t is settled that an employ e r may unilaterally alter the te r ms of an employ ment ag reement, 4 provided such alteration does not run afoul o f the [ California] L abor Code.” S chachter v. Citigrou

p, Inc.
, 47 C al. 4th 610, 619 (Cal. 2009). Where an employ ee continues in his o r her emp l o y ment after being g iven notice of the chang ed terms or condition s , h e or she has accepted those new terms or conditions. Id. at 620.

The parties have not p rovided, and we have not found, a

case d ict a ting that u nder California law Nordstrom was required to p rovide notice o f the chang e in any particular way

. I n s tead, “an employ er may terminate or modify a

4 T h e t erm s o f em

p lo y m en t n eed n o t b e m em o ri a lized i n a f o rm al

“ em p lo y m en t ag reem en t.”D A V I S V

. N O R

D S T R O M , I N C

. 8

contract with no fix ed d

uration period after a reasonable time period, if i t provides employ ees with reasonable notice, a nd the modification does not interfere w ith vested employ ee benefits.” Asmus v. Pac. Bell
, 23 Cal. 4th 1, 11 ( Cal. 2000). Of course, if an employ er has prescribed methods of p o l icy modification and employ ee notice, it is incumbent upon the employ e r to abide by those m e t h o ds. Ferguson
, 298 F .3d at 786. Her e, the terms of the arbitration p rovision in Davis’s initial h andbook stated that Davis w ould be provided “ 30 day s written notice of substantive chang es . .

. to allow [her] time to c onsider the chang es and d e c ide whether o r not to continue employ

ment subject to the chang es.”

The first question is whether N ordstrom complied with the notice requirement. The d istrict court determined that No r d s t r o m made the revised arbitration provisions i mmediately applicable to its employ ees w ithout providing 3 0 day s written notice as required by th e e m p l oy ee handbook. I n reaching this conclusion the distric t court found three factors determinative: first, Nordstrom fa iled to submit evidence that the company told e mploy ees the policy chang e only went into effect after 30 da y s ; s ec o nd, the cover letter Nor d s t rom sent to employ ees accompany ing the revised arbitration provision informed emp l oy ees that the “current version” o f the arbitrat i o n provision w as enclosed imply ing it was immediately effective and ; third, a Nordstrom human

resourc e s d ocument set forth internal measures for implementing the chang ed polic y

. Davis relies on the same factors in this appeal.

Nor dstrom arg ues that it sent the revised arbitration provision to all employ ees, including Davi s , a nd that it did not e nforce the provision ag ainst Davis, o r any one else, within 30 day s of her receiving i t

. A d ditionally
, NordstromD A V I S V

. N O R

D S T R O M , I N C

. 9

asserts that during this 30 day time p eri o d
, Davis never objected to the revised provision and she did not quit her job.

W h ile the communications with its employ ees were not the model of clarity
, we find that Nordstrom satisfie d the minimal requirements under Calif ornia law for providing employ e es w ith reasonable notice o f a chang e to its employ ee handbook by sending a lette r t o Davis a nd o ther employ ees informing them of the modificat i o n , and not seeking to enforce the arbitration provision during the 30 d a y n o tice period.

T h e nex t question is whether Nordstrom was boun d t o inform Davis that her continued employ ment after receiving the letter constituted acceptance o f new terms of employ ment. The district court found it w as, but we disag ree. T he district court c hiefly relied u

pon Morvan t v

. P .F. Chang’s China Bistro, Inc.
, 870 F

. Supp. 2d 831 (N.D. Cal. 2 0 1 2 ) for this finding

. T he district court read Morvant as ho l ding that an employ e r wh o unilaterally c h ang es terms of employ ment must inform his employ ees that continued empl o y m e n t will constitute acceptance of new t erms o f employ ment. I f Morvant were read in t h at manner, however, it would be inconsistent with the holding of the California Supreme Court in A smus

. I n Asmus
, the c o urt held that a n employ er seeking to terminate a unilateral c ontra c t must provide reasonable notice of the term ination and refrain from interfering with vested rig hts. Asmus
, 2 3 Cal. 4 th at 18. This requirement also applies to unilateral contract modifications. Id. at 16, 18. Nowhere in Asmus did the California Supreme Court require that e mploy ees must be ex pressly told that continued employ ment constitutes acceptance, nor have any California

s t a te appellate court decisions imposed such a r equirement. See Serpa v

. California S urety Investigations, Inc.
, 215 Cal.D A V I S V

. N O R

D S T R O M , I N C

. 10

App. 4t h 695, 516 ( Cal. Ct. App. 2013) (holding that an employ e r is required t o g ive “reasonable and fair notice” when modify ing terms of employ ment).

B

. Unconscionability

Davis also a

rg ues that the a

rbitrat i o n ag reement was unconscionable under Gentry v. Superior Court
, 4 2 Cal. 4th 443 (Cal. 2 007). I n Gentry
, t h e California Supreme Court concluded that employ ees h ad certain unwaiveable r ig hts to overtime, and that under certain circumstances a w a iver that precluded an employ e e from seeking to vindicate those rig hts

as part o f a clas s ac t i o n c ould lead to a de facto w aiver o f t h o s e rig hts. Id

. at 4 5 6–57. The California Supreme Cou r t relied p r i marily on its earlier decision in Discover Bank in this holding

. The United States Supreme Court subsequently overruled Discover Bank holding that the decisio n ran afoul

o f t he F AA. Concepcion
, 131 S.Ct. at 1746–48, 1753. N o r d s t rom arg ues we should find that Gentry similarly infring es upon the F AA.

The district court never r eached the unconscionability issue. Ty pically
, “a federal appellate court does not consider

an issue not passed upon below.” Quinn v. Robinson
, 783 F

. 2d 776, 814 (9th Cir. 1986) (quoting Singleton v. W ulff
, 428 U

. S

. 106, 120 (1976)). T his court has discretion to decide w hether to reach such an issue, however
, w here the issue presented is a purely leg al one and the record b elow has been fully developed. Quinn
, 7 83 F .2 d a t 8 1 4. I n consideri n g whether to ex e rcise this discretion, “we should consider whether the resolution of the issue is c l e a r a nd whether injustice mig h t otherwise result.” Id.D A V I S V

. N O R

D S T R O M , I N C

. 11

W h ile the r ecord in this case is f ully developed, and D avis pressed h er unconscionability arg ument before the distri ct court and did so ag ain here, the resolution of the issue is not clear, and for that reason we decline to ex ercise our discretion to a d d ress the unconscionabilty question in the first instance. 5 Compare Tr u l

y Nolan of A m

. v. Superior Court
, 208 Cal. App. 4th 487, 507 (Cal. Ct. App. 2012) ( holding Gentry remain s b i nding law a fter Concepcion ), with Velazquez v

. Sears, R oebuck & Co.
, 13- cv-680-W QH-DHB
, 2013 W L 4525581, at * 8 ( S.D. Cal. Aug

. 26, 2 013) (holding Gentry

was overruled b y Concepcion ). I nde e d
, the California Supreme Court currently has pending before it a case that will decide w hether Gentry remains va lid under California law. See I ska n ian v. CLS Transp. of Los Angeles, LLC
, No. S204032 (Cal. petition g r anted Sept. 19, 2012). 6

I V. Conclusion

F or the foreg oing reasons, we reverse the district court’s order and remand for further proceeding s consistent with this opinion.

REVERSED AND REMANDED.

5 W e also do n o t tak e u

p Dav is’ s arg u m en t th at th e arb itratio n p o licy is p ro h ib ited b y

th e Natio n al L ab o r Relatio n s A ct (“ NL RA ”). T h e f acts o f th is case are s lig h tly d if f ere nt t h a n th o se o f Jo h n mo h a mma d i v. B l o o mg in d

a le’s, In c. , No

. 12

- 55 5 78
, also released to d ay

. Un li k e t h e p lain tif f in Jo h n mo h a mma d i , Dav is d i d n o t h av e th e o p p o rtu n ity to o p t o u t

o f th e arb itratio n p ro v isio n

. In Jo h n mo h a mma d i , w e h eld th at a v o l u n tary arb itr a t i o n p r og ram d o es n o t v io l ate th e NL R A

. W e state n o o p in io n , in th e f irst in stan ce, w h eth er a m an d ato ry arb i tratio n

p ro g ram w o u ld

.

6 T h e Calif

o rn ia Su p rem e Co u rt h eard arg u m en t in Iska n ia n v. CLS Tra n sp . o f Lo s An g eles, LLC

o n A p ril 3 , 2 0 1 4.