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Armendariz doesn't apply to common-law claims
July 29, 2005 by Ross Runkel at LawMemo

California's Supreme Court threw cold water on the notion that Armendariz v. Foundation Health Psychcare Services (California 2002) should be applied across-the-board to all common-law claims such as breach of contract and intentional infliction of emotional distress. Boghos v. Certain Underwriters (California 07/18/2005).

In Armendariz an employee claimed that his employer violated California's Fair Employment and Housing Act (FEHA). The parties had signed an agreement to arbitrate, but the California Supreme Court said that employer-mandated agreements to arbitrate FEHA claims would be enforced only if they

provide for neutral arbitrators, more than minimal discovery, a written award, and all of the types of relief that would otherwise be available in court and, in addition, “ ‘do[] not require employees to pay either unreasonable costs or any arbitrators’ fees or expenses as a condition of access to the arbitration forum.’ ”

Armendariz was extended in Little v. Auto Steigler (California 2003) to apply the same requirements to employer-mandated agreements to arbitrate tort claims for wrongful discharge in violation of public policy.

Antone Boghos sued his insurance company for ceasing to pay benefits under his disability insurance policy. The policy contained an arbitration provision, so the company moved to compel arbitration. Boghos resisted arbitration on the ground that the arbitration agreement required that the arbitration costs be split among the parties. The cost-splitting provision was one of the items forbidden by Armendariz.

The California Supreme Court made an important distinction between Armendariz-Little claims and the claims brought by Boghos.

• In Armendariz the plaintiff was suing on a statutory claim, and the FEHA statute was one that created rights for the benefit of individuals and also for the benefit of the public.
• In Little the plaintiff sought to enforce public policies that are carefully tethered to fundamental policies delineated in constitutional or statutory provisions.
• Boghos' case, on the other hand, raised claims of plain old garden-variety common-law breach of contract and intentional infliction of emotional distress. These claims clearly are not "unwaivable claims based on or tethered to statutes."

In sending the case back to the lower courts, the California Supreme Court invited inquiry into

(1) whether the clause of the arbitration provision requiring Boghos to share the costs of arbitration and the arbitrator’s (or arbitrators’) fees is is unenforceable under the general law of unconscionability, (2) whether Boghos’s ability to pay his share of the costs and fees is relevant to the question of unconscionability and, if so, whether he must prove he is factually unable to pay, (3) whether the clause of the arbitration provision selecting the venue of arbitration (“Los Angeles County or at another location if agreed by all parties”) is unconscionable, and (4) whether, if the cost-sharing clause, the venue-selection clause or both are unconscionable, the offending clause or clauses should be severed and the matter nevertheless referred to arbitration (see Civ. Code, § 1670.5).

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