Court Opinion

ID: 2781817
Source: CourtListenerOpinion
Date Created: 2015-02-25 00:03:25.906553+00
Date Added: 2024-06-11T11:28:21.470072
License: Public Domain

Filed 2/24/15 Fowler v. CarMax. CA3/1
                  NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for
publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication
or ordered published for purposes of rule 8.1115.

              IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

                                     SECOND APPELLATE DISTRICT

                                                  DIVISION ONE

JOHN WADE FOWLER et al.,                                             B238426

         Plaintiffs and Appellants,                                  (Los Angeles County
                                                                     Super. Ct. No. BC388340)
         v.
                                                                     ORDER MODIFYING OPINION
CARMAX, INC., et al.,                                                AND DENYING REHEARING

         Defendants and Respondents.                                 [NO CHANGE IN JUDGMENT]

THE COURT:
         It is ordered that the opinion filed herein on January 28, 2015, be modified as
follows:
         1. On page 18, first sentence of the second full paragraph, the word “addressed” is
changed to “briefed.”
         There is no change in the judgment.
         The petition for rehearing is denied.
         NOT TO BE PUBLISHED.

______________________________________________________________________
           CHANEY, Acting P. J.                   JOHNSON, J.
Filed 1/28/15 Fowler v. CarMax CA2/1 (unmodified version)
Opinion following remand from U.S. Supreme Court
                  NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for
publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication
or ordered published for purposes of rule 8.1115.

              IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

                                     SECOND APPELLATE DISTRICT

                                                  DIVISION ONE

JOHN WADE FOWLER et al.,                                             B238426

         Plaintiffs and Appellants,                                  (Los Angeles County
                                                                     Super. Ct. No. BC388340)
         v.

CARMAX, INC., et al.,

         Defendants and Respondents.

         APPEAL from an order of the Superior Court of Los Angeles County, William F.
Highberger, Judge. Affirmed in part and reversed in part.
         Kingsley & Kingsley, Eric B. Kingsley, Darren M. Cohen; The Cooper Law Firm,
Scott B. Cooper; The Carter Law Firm and Roger R. Carter for Plaintiffs and Appellants.
         Ogletree, Deakins, Nash, Smoak & Stewart, Jack F. Sholkoff and Christopher W.
Decker for Defendants and Respondents.
                                            _____________________
       John Wade Fowler and Wahid Areso filed class complaints against CarMax,1
alleging wage and hour violations. Fowler and Areso appealed from the trial court’s
order granting CarMax’s motion to compel arbitration. In a prior opinion, we reversed
and remanded with directions on the ground that the trial court erred in concluding that
Gentry v. Superior Court (2007) 42 Cal. 4th 443 (Gentry) had been rejected by the United
States Supreme Court in AT&T Mobility LLC v. Concepcion (2011) 563 U.S. ___ [179
L.Ed.2 742, 131 S. Ct. 1740] (Concepcion), and we directed the trial court to determine
whether the factors in Gentry existed to allow Fowler to proceed in court with the class
action. (Fowler v. Carmax (March 26, 2013, B238426) [nonpub. opn.].) The California
Supreme Court denied review. (July 10, 2013, S210443.)
       CarMax filed a petition for writ of certiorari in the Supreme Court, and on
February 24, 2014, the court granted the writ (134 S. Ct. 1277), vacated the judgment, and
remanded to this court for further consideration in light of American Express Co. v.
Italian Colors Restaurant (2013) 570 U.S. ____ [186 L. Ed. 2d 417, 133 S. Ct. 2304]
(Italian Colors), decided three months after our prior opinion in this case. We requested
and reviewed supplemental briefing from the parties on the application of Italian Colors.
Subsequently, the California Supreme Court decided Iskanian v. CLS Transportation Los
Angeles, LLC (2014) (Iskanian) 59 Cal. 4th 348, 366, holding that “in light of
Concepcion, the FAA [Federal Arbitration Act] preempts the Gentry rule.” We therefore
affirm the trial court order granting the motion to compel arbitration as to all but Fowler’s
and Areso’s representative claims under the Private Attorneys General Act of 2004
(PAGA), Labor Code section 2698 et seq.
       Portions of the following are substantially similar to our prior opinion.

       1 CarMax, Inc., CarMax Auto Superstores California, LLC, and CarMax Auto
Superstores West Coast, Inc. CarMax, Inc. was dismissed without prejudice pursuant to
a tolling agreement by stipulation and order filed June 24, 2008.
                                             2
                                      BACKGROUND
       As a condition of applying for employment with CarMax, Fowler and Areso were
required to sign the CarMax dispute resolution agreement, which provided that any
claims arising out of employment with CarMax be “settle[d] . . . exclusively by final and
binding arbitration before a neutral Arbitrator,” and any arbitration “will be conducted in
accordance with the CarMax Dispute Resolution Rules and Procedures.” Fowler signed
the agreement on August 5, 2006, and Areso signed it on May 17, 2006; CarMax also
signed the agreement. Fowler and Areso received a copy of the associated Dispute
Resolution Rules and Procedures. We hereinafter refer to the agreement and the
incorporated rules and procedures collectively as the arbitration agreement.
       The arbitration agreement allowed each party up to 20 interrogatories or document
requests, and allowed each party to take up to three depositions. The arbitrator had the
discretion to permit additional discovery “[u]pon the request of any Party and a showing
of substantial need . . . but only if the Arbitrator finds that such additional discovery is
not overly burdensome, and will not unduly delay conclusion of the arbitration.”
       The arbitration agreement also prohibited class arbitration: “The Arbitrator shall
not consolidate claims of different Associates into one proceeding, nor shall the
Arbitrator have the power to hear an arbitration as a class action (a class action involves
an arbitration or lawsuit where representative members of a large group who claim to
share a common interest seek collective relief).” The agreement also provided: “CarMax
may alter or terminate the [arbitration agreement] on December 31 of any year upon
giving thirty (30) calendar days written notice to Associates, provided that all claims
arising before alteration or termination shall be subject to the [arbitration agreement] in
effect at the time the Arbitration Request Form is received by the Company.” Notice of
termination or alteration of the arbitration agreement “may be given by posting a written
notice by December 1 of each year at all CarMax locations.” The arbitration agreement
and any award pursuant to it “shall be enforceable and subject to the Federal Arbitration
Act, 9 U.S.[C. ]§ 1, et seq. . . .”

                                               3
       In April 2008, Fowler, who was employed by CarMax as a sales consultant, filed a
putative class action in superior court on behalf of a class of himself and other nonexempt
CarMax employees, including a subclass of sales consultants. The complaint alleged that
CarMax failed to provide meal and rest periods, failed to comply with wage statement
requirements, failed to timely pay wages due at termination, and violated the unfair
competition law. Areso’s wife Leena, who also was employed by CarMax as a sales
consultant, filed a putative class action against CarMax on behalf of all persons employed
by CarMax as sales consultants in the four years prior to filing, and an amended
complaint filed in July 2008 added Areso as a named plaintiff. Areso’s first amended
complaint alleged that CarMax failed to provide meal breaks and violated the unfair
competition law. The amended complaint also included a claim for civil penalties for
plaintiffs and the proposed class pursuant to the Private Attorneys General Act of 2004
(PAGA), Labor Code section 2698 et seq. Areso filed a notice of related cases, and the
actions were assigned to the same courtroom.
       Discovery ensued on both sides. On August 20, 2008, Fowler and Areso
(hereinafter, collectively Plaintiffs) propounded special interrogatories and requests for
production of documents to CarMax; CarMax responded in October 2008. Also in
August 2008, CarMax propounded 34 requests for production of documents on Plaintiffs,
who responded on September 24, 2008. On November 20, 2008, CarMax propounded
special interrogatories on Plaintiffs, who responded in December 2008. On February 17,
2009, Plaintiffs served a second set of special interrogatories and requests for production
of documents on CarMax, who responded in April 2009. Also in April 2009, CarMax
served a second set of special interrogatories, and a second set of requests for production,
on Plaintiffs. CarMax took the deposition of Leena Areso in September 2008, and took
the deposition of Wahid Areso in October 2008. In January 2009, Plaintiffs took the
deposition of CarMax’s persons most knowledgeable.
       CarMax filed two motions for summary adjudication in January 2009: one as to
Leena and Wahid Areso’s first cause of action for failure to pay overtime, and another as

                                             4
to Fowler’s fourth cause of action for failure to provide itemized wage statements. The
trial court granted both of CarMax’s motions for summary adjudication on June 16, 2009.
That same day, pursuant to a stipulation by the parties, the trial court stayed Plaintiffs’
cases until the California Supreme Court entered a decision following its grant of review
in Brinker Restaurant Corp. v. Superior Court (2008) 165 Cal. App. 4th 25.2 Leena
Areso appealed the summary adjudication on her overtime claim, and dismissed her other
claims; we affirmed the trial court’s ruling. (Areso v. CarMax, Inc. (2011) 195
Cal. App. 4th 996.) The remaining issues in Plaintiffs’ putative class actions are that
CarMax failed to provide meal periods (Fowler and Areso) and rest periods (Fowler), and
derivative claims.
       While the stay was still in effect, on June 2, 2011, counsel for Carmax sent a letter
to Plaintiff’s counsel requesting that Plaintiffs submit their cases to arbitration and
dismiss their class claims, in light of the United States Supreme Court’s April 27, 2011
decision in Concepcion, supra, 563 U.S. ___. Counsel for Plaintiffs refused, responding
that CarMax had taken steps inconsistent with the intent to invoke arbitration and had
waived its right to compel arbitration. Plaintiffs also argued that in any event, the
agreement was substantively and procedurally unconscionable and therefore
unenforceable.
       CarMax then filed a motion on or about June 17, 2011 to vacate the stay and
compel arbitration on an individual basis. Plaintiffs filed an opposition on July 1, 2011,
arguing that CarMax had waived its right to compel arbitration, the agreement was
procedurally and substantively unconscionable, Concepcion did not preempt the
California Supreme Court decision in Gentry, supra, 42 Cal. 4th 443, the agreement
violated the National Labor Relations Act (NLRA) (29 U.S.C. § 151 et seq.), and the
Plaintiffs’ claims under PAGA were not arbitrable. Plaintiffs requested that the court

       2On April 12, 2012, the California Supreme Court determined issues related to
meal and rest periods not in issue on this appeal in Brinker Restaurant Corp. v. Superior
Court (2012) 53 Cal. 4th 1004 (Brinker).
                                              5
allow additional discovery before issuing a ruling to “develop a more extensive factual
record on whether Defendants’ class action ban would prevent Plaintiffs and the putative
class members from vindicating their non-waivable statutory rights. Because Defendants
had never raised this issue before the instant motion, there was no need to conduct
discovery on the issue.”
       On July 19, 2011, the trial court held a hearing on CarMax’s motion to compel
arbitration, took the case under submission, and requested supplemental briefing from
both parties. The court issued a proposed order granting the motion to compel on
November 9, 2011. After further argument on November 17, 2011, the court issued an
order granting CarMax’s motion to compel on November 21, 2011. The trial court
granted the motion “based primarily on the holding and reasoning of [Concepcion],”
which the court believed “raise[d] serious questions as to the continued validity of case
such as [Gentry]. . . .” The court found: CarMax had not waived its right to compel
arbitration; Gentry was no longer applicable to determine whether the class action waiver
was invalid; the arbitration agreement was not unconscionable merely because it was a
contract of adhesion; the PAGA claims were arbitrable but only on an individual basis;
and the NLRA did not preempt the agreement. The court concluded that Plaintiffs were
required “to arbitrate their individual claims without inclusion of the class claims.” The
court stayed the case pending completion of the arbitration.
       Plaintiffs filed a timely notice of appeal.
                                       DISCUSSION
I.     The trial court’s order granting the motion to compel is appealable.
       CarMax contends that the trial court’s order compelling arbitration is not
appealable and we should therefore dismiss the appeal. We disagree.
       A trial court order compelling arbitration is ordinarily reviewable only after the
arbitration is complete and a party appeals from the resulting judgment. (Muao v.
Grosvenor Properties, Ltd. (2002) 99 Cal. App. 4th 1085, 1088–1089.) An exception is
the death knell doctrine, which allows immediate appeal of such an order if it effectively

                                              6
terminates class claims while allowing individual claims to proceed. As the California
Supreme Court recently explained, an order “determining the plaintiff could not maintain
his claims as a class action but could seek individual relief, was appealable . . . [b]ecause
the order effectively rang the death knell for the class claims,” and therefore was “in
essence a final judgment on those claims.” (In re Baycol Cases I , and II (2011) 51
Cal. 4th 751, 757.) This permits an appeal from “an order that . . . amounts to a de facto
final judgment for absent plaintiffs, under circumstances where . . . the persistence of
viable but perhaps de minimis individual plaintiff claims creates a risk no formal final
judgment will ever be entered.” (Id. at p. 759.) That is precisely what the trial court’s
order granting CarMax’s motion to compel did, in finding the class action waiver was
enforceable and requiring Plaintiffs to arbitrate their individual claims without inclusion
of the class claims. In re Baycol Cases I and II make clear that Plaintiffs need not
present evidence that they will not be able to pursue their individual claims as a result of
the trial court’s order. CarMax’s reliance on dicta to the contrary in Nelsen v. Legacy
Partners Residential, Inc. (2012) 207 Cal. App. 4th 11153 and Szetela v. Discover Bank
(2002) 97 Cal. App. 4th 1094, is therefore to no avail. The order is appealable. (Franco v.
Athens Disposal Co., Inc. (2009) 171 Cal. App. 4th 1277, 1288, abrogated on other
grounds by Iskanian, supra, 59 Cal.4th at p. 366.)
II.    CarMax did not waive the right to compel arbitration.
       The trial court concluded that CarMax had not waived its right to compel
arbitration, although before it moved to compel CarMax had filed two successful motions

       3 Despite what it termed Nelsen’s “default” in failing to show that he could not
pursue his individual claims, the court of appeal concluded it did not need to decide
whether Nelsen’s appeal was within the death knell doctrine, instead exercising its
discretion to treat the appeal as a petition for a writ of mandate to “ensure appellate
review of the court’s arbitration order in the event there is no future appellate proceeding
in which the order will be reviewable.” (Nelsen v. Legacy Partners Residential, Inc.,
supra, 207 Cal.App.4th at p. 1123.) In this case, the trial court’s minute order stated:
“This matter is worthy of immediate appellate review via writ proceeding under the
standards of C.C.P. section 166.1, and plaintiffs should so advise the Court of Appeal.”
                                              7
for summary adjudication and obtained “substantial discovery” from the Plaintiffs: “It is
true that this all happened, but the key point is that it would have appeared pointless and
probably even a risky strategy . . . for defendants and their counsel to challenge the
controlling effect of Discover Bank [v. Superior Court (2005) 36 Cal. 4th 148 (overruled
in Concepcion, supra, 563 U.S. ___) ( Discover Bank)] and Gentry . . . and similar
California appellate authorities which appeared to prohibit state court enforcement of
mandatory arbitration clauses to require individual arbitration only in the context of
wage-and-hour class actions.” The trial court also stated, without further elaboration:
“Further, and as a separate basis to find no waiver, plaintiffs have failed to make the
required showing of resulting prejudice.” On appeal, CarMax argues that when Plaintiffs
filed their class action complaints in 2008, the California Supreme Court had held that
class action waivers were both procedurally and substantively unconscionable and thus
unenforceable, first in the context of a consumer contract of adhesion (Discover Bank, at
pp. 162–163), and then in the employment context (Gentry, supra, 42 Cal.4th at p. 463).
CarMax contends that it would therefore have been futile to invoke the arbitration
agreement, because under Gentry the arbitration agreement would have been
unenforceable.
       Public policy strongly favors arbitration and “requires a close judicial scrutiny of
waiver claims.” (St. Agnes Medical Center v. PacifiCare of California (2003) 31 Cal. 4th
1187, 1195 (St. Agnes).) “Although a court may deny a petition to compel arbitration on
the ground of waiver [citation] waivers are not to be lightly inferred and the party seeking
to establish a waiver bears a heavy burden of proof.” (Ibid.; Iskanian, supra, 59 Cal.4th
at p. 375.) “[A]ny doubts concerning the scope of arbitrable issues should be resolved in
favor of arbitration, whether the problem at hand is the construction of the contract
language itself or an allegation of waiver, delay, or a like defense to arbitrability.”
(Moses H. Cone Hospital v. Mercury Constr. Corp. (1983) 460 U.S. 1, 24–25 [103 S. Ct.
927, 74 L. Ed. 2d 765].)

                                               8
       A written agreement to arbitrate an existing or future dispute can be waived if not
properly asserted. (Code Civ. Proc., § 1281.2, subd. (a).) Iskanian, supra, 59 Cal. 4th
348 characterized the waiver inquiry as including whether the actions of the party seeking
arbitration were inconsistent with the right to arbitrate; whether the machinery of
litigation had been substantially invoked before the party seeking to compel arbitration
notified the other party of an intent to arbitrate; whether a delay was “‘unreasonable’”;
and the “‘critical’” question of whether the party opposing arbitration has been prejudiced
by the delay in the start of arbitration. (Id. at pp. 375–376.) When, as in this case, “‘“the
facts are undisputed and only one inference may reasonably be drawn, the issue is one of
law and the reviewing court is not bound by the trial court’s ruling.”’ [Citation.]” (Id. at
p. 375.) The essential facts in this case are undisputed, and we therefore engage in de
novo review.
       Initially, we note that Plaintiffs filed their class complaints in April and May of
2008, and roughly a year later in June 2009, the parties stipulated to a stay of Plaintiffs’
cases pending the California Supreme Court’s 2012 decision in Brinker, supra, 53
Cal. 4th 1004. That stay was still in effect when counsel for CarMax requested arbitration
in June 2011. For the purpose of our waiver analysis, only slightly more than a year
passed before CarMax indicated that it intended to move to compel for arbitration.
       First, CarMax did not take any significant action inconsistent with the right to
arbitrate. CarMax engaged in more discovery than provided for in the arbitration
agreement, but as noted above, the agreement also allowed the parties to request
additional discovery from the arbitrator. CarMax also successfully moved for summary
adjudication on two causes of action, but as CarMax points out, the arbitration agreement
provides that a party may “challenge[ ] the legal sufficiency of an asserted claim . . . in a
pre-hearing brief,” and the arbitrator had the power to strike a legally deficient claim
prior to the arbitration hearing.
       Second, the litigation machinery had been substantially invoked, with significant
discovery and two summary adjudication motions, but again, those actions were

                                              9
consistent with the terms of the arbitration agreement. CarMax did not take any
important intervening steps such as engaging in judicial discovery not available in
arbitration. The arbitration agreement provided a mechanism for CarMax to request the
somewhat more extensive discovery it propounded, and “there is no indication that
[CarMax] obtained any material information through pretrial discovery that it could not
have obtained through arbitral discovery.” (Iskanian, supra, 59 Cal.4th at p. 378.)
       Third, the delay was not unreasonable. CarMax did not delay for a long period
before moving to compel arbitration and seeking a stay. During the year after the filing
of the complaints and before the parties stipulated to a stay pending the decision in
Brinker, supra, 53 Cal. 4th 1004, Gentry made a motion to compel a highly risky
proposition. “[F]utility as grounds for delaying arbitration is implicit in the general
waiver principles we have endorsed,” and that the prevailing law “made the motion [to
compel] highly unlikely to succeed weighs in favor of finding that the party has not
waived its right to arbitrate.” (Iskanian, supra, 59 Cal.4th at p. 376.) Further, when
CarMax first requested arbitration with the stay still in effect, it acted only slightly more
than a month after Concepcion “cast Gentry into doubt” (id. at p. 375), and CarMax filed
its motion to compel only two weeks later.
       Finally, Plaintiffs have not made the critical showing of prejudice. Although
Plaintiffs argue that the three years between the filing of their complaints and the motion
to compel impaired their ability to enjoy the benefits or efficiencies of arbitration, as we
pointed out above, fully two of those three years were subject to a stay agreed to by
Plaintiffs pending the resolution of legal questions (not in issue here) by the California
Supreme Court in Brinker, supra, 53 Cal. 4th 1004. The parties actively litigated the
cases during the year preceding the stay, and Plaintiffs do not argue that any evidence
was lost. (See St. Agnes, supra, 31 Cal.4th at p. 1204.) The expenses associated with
litigation do not, without more, constitute prejudice when the delay in initiating
arbitration was not unreasonable, and “engag[ing] in various forms of pretrial litigation
does not compel the conclusion that the party has waived its right to arbitrate when a later

                                              10
change in the law permits arbitration.” (Iskanian, supra, 59 Cal.4th at pp. 377–378.)
       Given the strong presumption against waiver, we agree with the trial court that no
waiver occurred.
III.   The arbitration agreement is not unconscionable.
       Plaintiffs contend that even if CarMax did not waive the right to arbitrate, the
arbitration agreement is unconscionable. We agree with the trial court that the arbitration
agreement as a whole is not unconscionable.
       An agreement to arbitrate is invalid if it is both procedurally and substantively
unconscionable. (Code Civ. Proc., § 1281; Civ. Code, § 1670.5; Armendariz v.
Foundation Health Psychcare Services, Inc. (2000) 24 Cal. 4th 83, 114 (Armendariz).)4
The two types of unconscionability need not be present in the same degree, and “the more
substantively oppressive the contract term, the less evidence of procedural
unconscionability is required to come to the conclusion that the term is enforceable, and
vice versa.” (Armendariz, at p. 114.)
       Procedural unconscionability arises in the making of the agreement, focusing on
“the oppression that arises from unequal bargaining power and the surprise to the weaker
party that results from hidden terms or the lack of informed choice.” (Ajamian v.
CantorCO2e, L.P. (2012) 203 Cal. App. 4th 771, 795.) There is no question here that the
arbitration agreement, presented to Plaintiffs for signature on a take-it-or-leave-it basis as

   4 The trial court expressed doubt that Armendariz, supra, 24 Cal. 4th 83, remained
valid after Concepcion. Our Supreme Court has continued to employ Armendariz to
determine whether arbitration agreements are unconscionable. (Sonic-Calabasas A., Inc.
v. Moreno (2013) 57 Cal. 4th 1109, 1130; Pinnacle Museum Tower Assn. v. Pinnacle
Market Development (US), LLC (2012) 55 Cal. 4th 223, 246–250.) The court applied
Armendariz in Iskanian, supra, 59 Cal.4th at pp. 382–383, in finding that Iskanian’s right
to bring a PAGA action was not waivable. We therefore employ Armendariz to examine
whether the arbitration agreement as a whole is unconscionable. (See, e.g., Sanchez v.
CarMax Auto Superstores California LLC (2014) 224 Cal. App. 4th 398, 402; Graham v.
Bank of America, N. A. (2014) 226 Cal. App. 4th 594, 616; Tiri v. Lucky Chances, Inc.
(2014) 226 Cal. App. 4th 231, 239; Carmona v. Lincoln Millennium Car Wash, Inc. (2014)
226 Cal. App. 4th 74, 83–84; Lane v. Francis Capital Management LLC (2014) 224
Cal. App. 4th 676, 689–693.)
                                            11
a precondition to applying for employment with CarMax, was a standard contract of
adhesion imposed and drafted by CarMax, the party with superior bargaining power.
(Armendariz, supra, 24 Cal.4th at p. 113.) Plaintiffs do not argue, however, that they
were surprised by hidden terms or somehow not informed of the terms of the agreement.
There was therefore only some evidence of procedural unconscionability.
       Substantive unconscionability focuses on “‘“overly harsh”’ or ‘“one-sided”’
results.” (Armendariz, supra, 24 Cal.4th at p. 114.) Plaintiffs argue that the provision
allowing CarMax to alter or terminate the arbitration agreement on December 31 of any
year by posting notice 30 days in advance at CarMax locations is unilateral and renders
the agreement substantively unconscionable. We found the modification provision did
not make the CarMax arbitration agreement illusory in Casas v. Carmax Auto
Superstores California, LLC (2014) 224 Cal. App. 4th 1233, 1237, and noted that under
California law, even a modification provision not providing for advance notice does not
render an arbitration agreement illusory and thus unconscionable, because the agreement
also contains an implied covenant of good faith and fair dealing. (Ibid; Peleg v. Neiman
Marcus Group, Inc. (2012) 204 Cal. App. 4th 1425, 1463–1464.)
       Although Plaintiffs do not raise this point, the arbitration agreement also provides:
“[A]ll claims arising before alteration or termination shall be subject to the [agreement]
in effect at the time the Arbitration Request Form is received by the Company.” To the
extent that this express statement would subject claims “arising” before a modification
but not submitted to arbitration until after incorporation of that modification into the
arbitration agreement, the covenant of good faith and fair dealing cannot vary the plain
language. (Peleg v. Neiman Marcus Group, Inc., supra, 204 Cal.App.4th at p. 1465.)5
Nevertheless, the arbitration agreement also provides that if any of the arbitration rules

       5 Plaintiffs cite Ingle v. Circuit City Stores, Inc. (9th Cir. 2003) 328 F.3d 1165,
overruled on another point in Concepcion, which found unconscionable a unilateral
modification clause in an arbitration agreement. That case, however, expressly did not
hold that the clause by itself rendered the agreement unenforceable. (Ingle, at pp. 1179–
1180, fn. 23.)
                                             12
“is held to be in conflict with a mandatory provision of applicable law, the conflicting
Rule or Procedure shall be modified automatically to comply with the mandatory
provision” until the rules can be formally modified to comply with the law. “That
express statement . . . means that should an employee assert a claim that arose before
modification of the agreement, CarMax could not apply the modifications to that claim.”
(Casas v. Carmax, supra, 224 Cal.App.4th at p. 1237.) The modification provision
therefore does not constitute sufficient evidence of substantive unconscionability to
counterbalance the relatively low level of procedural unconscionability.
IV.    Gentry is preempted by the FAA.
       The trial court concluded that Concepcion rejected Gentry to the extent that it
subjected a class action waiver in an arbitration agreement to special scrutiny as a
precondition to determining whether to enforce the waiver. Our original opinion reversed
the trial court on this point. The Supreme Court granted a writ of certiorari regarding our
decision reversing the trial court, vacated the judgment, and remanded to us for
reconsideration. “‘Where intervening developments . . . reveal a reasonable probability
that the decision below rests upon a premise that the lower court would reject if given the
opportunity for further consideration, and where it appears that such a redetermination
may determine the ultimate outcome of the litigation, [an order granting the petition,
vacating the judgment below, and remanding the case . . . ] is, we believe, potentially
appropriate.’ [Citations.]” (Greene v. Fisher (2011) 565 U.S. ___ [132 S. Ct. 38, 45, 181
L. Ed. 2d 336].) Italian Colors, supra, 133 S. Ct. 2304, decided three months after our
initial opinion, and Iskanian, supra, 59 Cal. 4th 348, decided a year after Italian Colors,
establish that the FAA preempts the rule in Gentry and the trial court was correct.
       Discover Bank, supra, 36 Cal. 4th 148, which the United States Supreme Court
overruled in Concepcion, supra, 563 U.S. ___, involved a consumer contract of adhesion
(a credit cardholder agreement). Our Supreme Court concluded that class action
arbitration waivers found in such consumer contracts may be substantively
unconscionable “‘inasmuch as they may operate effectively as exculpatory contract

                                             13
clauses that are contrary to public policy.’” (Discover Bank, at p. 161.) The court
explained that when a consumer contract of adhesion contains a class arbitration waiver,
under circumstances where disputes likely involve small amounts of damages, and where
a litigant alleges that the party with the greater bargaining power engages in a scheme to
deliberately cheat individual consumers out of small amounts of money, under California
law such a waiver is invalid as unconscionable. (Id. at pp. 162–163.)
       The California Supreme Court followed Discover Bank with Gentry, supra, 42
Cal. 4th 443, in which the court held that a class action waiver in an arbitration agreement
not in a consumer contract, but between an employee and his employer, would be invalid
“under some circumstances [in which] such a provision would lead to a de facto waiver
and would impermissibly interfere with employees’ ability to vindicate unwaivable rights
and to enforce the overtime laws.” (Gentry, at p. 457.) The court noted that individual
awards in wage-and-hour cases tended to be modest, and employees and their attorneys
must weigh that anticipated modest recovery (and the modest means of the plaintiffs)
against the risk of not prevailing and incurring substantial attorney fees. Further, a
current employee who sues his employer faces a greater risk of retaliation, individual
employees may not sue because they are unaware that their legal rights may be violated,
and even where some individual claims are larger, class actions may be necessary for the
effective enforcement of statutory policies. (Id. at pp. 458–462.) Under those
circumstances and any others imposing “real world obstacles to the vindication of class
members’ rights . . . through individual arbitration,” (id. at p. 463) a class action waiver
has an “exculpatory effect” and violates Civil Code section 1668. (Gentry, at pp. 457,
463.) After considering those factors, if the trial court concludes that a class action “is
likely to be a significantly more effective practical means of vindicating the rights of the
affected employees than individual litigation or arbitration, and finds that the
disallowance of the class action will likely lead to a less comprehensive enforcement of
overtime laws for the employees alleged to be affected by the employer’s violations, it
must invalidate the class arbitration waiver to ensure that these employees can ‘vindicate

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[their] unwaivable rights . . . .’” (Gentry, supra, 42 Cal.4th at p. 463.) If no other
provision in the arbitration agreement is unenforceable, the court should invalidate the
waiver and send the case to arbitration as a class action, or have the class action heard in
court if the parties so stipulate. (Id. at p. 466.) Gentry required the trial court to
determine whether “whether a class . . . action . . . is a significantly more effective
practical means of vindicating unwaivable statutory rights, which is a discretionary
determination subject to abuse of discretion review.” (Arguelles-Romero v. Superior
Court (2010) 184 Cal. App. 4th 825, 841.) Our original opinion directed the trial court, on
remand, to determine whether the Gentry factors required that Plaintiffs be allowed to
proceed with the class action in spite of the waiver in the agreement.
       Italian Colors, supra, 133 S. Ct. 2304 clarified that even when statutory rights are
at stake, an arbitration agreement may include a valid waiver of class actions regardless
of whether the facts show that such suits would be significantly more effective in
vindicating those rights. In Italian Colors, the respondents were merchants who accepted
American Express cards, pursuant to an agreement with American Express containing a
clause that required all disputes to be resolved by arbitration, and provided “‘[t]here shall
be no right or authority for any Claims to be arbitrated on a class action basis.’
[Citation.]” (Id. at p. 2308.) Respondents brought a class action against American
Express for violation of the federal antitrust laws, alleging that American Express used its
monopoly power in the charge card market to force merchants to accept credit cards at
higher rates than competing cards. (Ibid.) When American Express moved to enforce the
waiver and compel individual arbitration under the FAA, the merchants submitted an
expert’s declaration estimating that it would cost from several hundred thousand dollars
to $1 million to do the analysis necessary to prove the antitrust claims, while the
maximum individual recovery, even with trebled damages, would be less than $39,000.
The Court of Appeal held that the waiver was unenforceable, because the merchants had
proven that their costs would be prohibitive if they were compelled to arbitrate under the
class action waiver. (Ibid.) The court granted certiorari to consider “‘[w]hether the

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Federal Arbitration Act permits courts . . . to invalidate arbitration agreements on the
ground that they do not permit class arbitration of a federal-law claim.” (Ibid.)
       The court concluded that courts could not invalidate an arbitration agreement
when a claim alleged violation of a federal statute, unless the FAA had been
‘“‘overridden by a contrary congressional command.”’” (Italian Colors, supra, 133 S.Ct.
at p. 2309.) No such command existed, as nothing in the antitrust laws showed an
intention to preclude a waiver of a class action procedure, and the federal rule
establishing class actions did not establish an entitlement to class proceedings whenever
litigants sought to vindicate a statutory right. (Ibid.) Further, the court rejected any
“judge-made exception to the FAA . . . allowing courts to invalidate agreements that
prevent the ‘effective vindication’ of a federal statutory right” (when plaintiffs lack
economic incentive to pursue claims individually in arbitration). (Id. at p. 2310.) “[T]he
fact that it is not worth the expense involved in proving a statutory remedy does not
constitute the elimination of the right to pursue that remedy.” (Id. at p. 2311.) As an
example, the court cited a case “enforcing a class waiver in an arbitration agreement even
though the federal statute at issue, the Age Discrimination in Employment Act, expressly
permitted collective actions.’” (Ibid.) “[T]he FAA’s command to enforce arbitration
agreements trumps any interest in ensuring the prosecution of low-value claims.” (Id. at
p. 2312, fn. 5.)
       In Iskanian, supra, 59 Cal. 4th 348, an employee signed an arbitration agreement
expressly waiving class and representative actions against the employer, a transportation
company. The employee’s first amended complaint alleged individual and class claims
against the company, alleging seven causes of action for Labor Code violations and a
claim for unfair competition, and also seeking civil penalties in a representative capacity
under PAGA. (Id. at pp. 360–361.) The company filed a motion to compel arbitration,
which the trial court granted. Shortly thereafter, the California Supreme Court decided
Gentry, and the Court of Appeal issued a writ of mandate directing the superior court to
reconsider its ruling. On remand, the company withdrew its motion to compel, and the

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trial court granted the employee’s motion to certify the class. When the Supreme Court
issued Concepcion, the company renewed its motion to compel, and the trial court ruled
in favor of the company, ordering the case into individual arbitration and dismissing the
class claims with prejudice. (Iskanian, supra, 59 Cal.4th at p. 361.) The Court of Appeal
affirmed, and the California Supreme Court granted review. (Id. at pp. 361–362.) The
court held that “Concepcion made clear that even if a state law rule against consumer
class waivers were limited to ‘class proceedings [that] are necessary to prosecute small-
dollar claims that might otherwise slip through the legal system,’ it would still be
preempted because states cannot require a procedure that interferes with fundamental
attributes of arbitration ‘even if it is desirable for unrelated reasons.’” (Id. at p. 364.)
Under Concepcion and Italian Colors, “even if a class waiver is exculpatory in a
particular case, it is nonetheless preempted by the FAA. Under the logic of Concepcion,
the FAA preempts Gentry’s rule against employment class waivers.” (Iskanian, supra,
59 Cal.4th at p. 364.)
       We therefore affirm the trial court’s conclusion that Gentry does not apply to
subject the class action waiver in this case to special scrutiny as a precondition to
enforcement.
V.     The NLRA does not bar enforcement of the arbitration agreement.
       The National Labor Relations Board (NLRB) concluded in D.R. Horton, Inc. &
Cuda (2012) 357 NLRB No. 184, that requiring an employee to waive class treatment of
grievances regarding wage claims violated an employee’s rights under the NLRA. After
a thorough analysis of the NLRB’s decision and the Fifth Circuit’s subsequent decision in
D.R. Horton, Inc. v. NLRB (5th Cir. 2013) 737 F.3d 344, the Iskanian court concluded:
“[I]n light of the FAA’s ‘“liberal federal policy favoring arbitration”’ (Concepcion,
supra, 563 U.S. at p. ___ [131 S.Ct. at p. 1745), . . . sections 7 and 8 of the NLRA do not
represent ‘“a contrary congressional command’” overriding the FAA’s mandate
(CompuCredit [Corp.] v. Greenwood [(2012)] 565 U.S. at p. ___ [132 S.Ct. [665,]

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669]).” (Iskanian, supra, 59 Cal.4th at p. 373; see Nelsen v. Legacy Partners Residential,
Inc., supra, 207 Cal.App.4th at pp. 1133–1135.)
VI.    The representative PAGA claims are not subject to waiver.
       The trial court concluded that under the arbitration agreement’s language
prohibiting arbitration of a class action, defined as “an arbitration or lawsuit where
representative members of a large group who claim to share a common interest seek
collective relief,” Plaintiffs could pursue only their individual PAGA claims in
arbitration. Iskanian, supra, 59 Cal. 4th 348 confirms, however, that an arbitration
agreement may not expressly waive an employee’s representative claim under PAGA, as
such a waiver “is contrary to public policy and unenforceable as a matter of state law,”
and that such a claim is not preempted by the FAA. (Id. at p. 384.) As an express waiver
is prohibited, an implied waiver of Plaintiffs’ PAGA claims cannot be read into the
arbitration agreement.
       As in Iskanian, supra, 59 Cal. 4th 348, questions remain that the parties have not
addressed: “(1) Will the parties agree on a single forum for resolving the PAGA claim
and the other claims? (2) If not, is it appropriate to bifurcate the claims, with individual
claims going to arbitration and the representative PAGA claim to litigation? (3) If such
bifurcation occurs, should the arbitration be stayed pursuant to Code of Civil Procedure
section 1281.2?” (Id. at pp. 391–392.) The parties may address those questions on
remand. (Id. at p. 392.)

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                                      DISPOSITION
       The trial court’s order enforcing the Private Attorneys General Act of 2004, Labor
Code section 2698 et seq., waiver in the arbitration agreement is reversed. On remand,
the parties shall decide whether to agree on a single forum for all claims; if not, whether
to bifurcate the claims, sending individual claims to arbitration and the representative
Private Attorneys General Act claims to litigation; and if bifurcation occurs, whether to
stay the arbitration pursuant to Code of Civil Procedure section 1281.2. In all other
respects, the judgment is affirmed. Each side is to bear its costs on appeal.
       NOT TO BE PUBLISHED.

                                                  JOHNSON, J.

We concur:

              CHANEY, Acting P. J.

              MILLER, J.*

       *  Judge of the Los Angeles Superior Court, assigned by the Chief Justice pursuant
to article VI, section 6 of the California Constitution.
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