Faine Davis v. Nordstorm, Inc.

Filing

FILED OPINION (JOHN T. NOONAN, PAUL J. WATFORD and WILLIAM E. SMITH) REVERSED AND REMANDED. Judge: JTN , Judge: PJW , Judge: WES Authoring. FILED AND ENTERED JUDGMENT. [9141024]

Case: 12-17403

06/23/2014

ID: 9141024

DktEntry: 41-1

FOR PUBLICATION

UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT

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

No. 12-17403
D.C. No.
4:11-cv-03956CW

v.
NORDSTROM, INC.,
Defendant-Appellant.

OPINION

Appeal from the United States District Court
for the Northern District of California
Claudia Wilken, Chief District Judge, Presiding
Argued and Submitted
December 6, 2013—Pasadena, California
Filed June 23, 2014
Before: John T. Noonan and Paul J. Watford, Circuit
Judges, and William E. Smith, Chief District Judge.*
Opinion by Judge Smith

*

The Honorable William E. Smith, Chief District Judge for the U.S.
District Court the District of Rhode Island, sitting by designation.

Page: 1 of 11

Case: 12-17403

2

06/23/2014

ID: 9141024

DktEntry: 41-1

DAVIS V. NORDSTROM, INC.
SUMMARY**

Arbitration / California Law
The panel reversed the district court’s order denying
Nordstrom, Inc.’s motion to compel arbitration of an
employee’s claims that were brought as a putative class
action alleging violations of state and federal employment
laws, and remanded for further proceedings.
Following the United States Supreme Court’s decision in
AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740 (2011),
Nordstrom made revisions to the employee arbitration policy,
contained in its employee handbook, which precluded
employees from bringing most class action lawsuits.
The panel held that Nordstrom and the employee entered
into a valid agreement to arbitrate disputes on an individual
basis. The panel found that Nordstrom satisfied the minimal
requirements under California law for providing employees
with reasonable notice of a change to its employee handbook
by sending a letter to the employees informing them of the
modification, and not seeking to enforce the arbitration
provision during the 30 day notice period. The panel also
held that Nordstrom was not bound to inform the employee
that her continued employment after receiving the letter
constituted acceptance on new terms of employment. Finally,
the panel declined to address in the first instance the issue
whether the arbitration agreement was unconscionable under
California law.
**

This summary constitutes no part of the opinion of the court. It has
been prepared by court staff for the convenience of the reader.

Page: 2 of 11

Case: 12-17403

06/23/2014

ID: 9141024

DktEntry: 41-1

DAVIS V. NORDSTROM, INC.

Page: 3 of 11

3

COUNSEL
George S. Howard, Jr. (argued), Jones Day, San Diego,
California; Julie A. Dunne and Dominic J. Messiha, Littler
Mendelson, P.C., Los Angeles, California; Michael G.
Leggieri, Littler Mendelson, P.C., Sacramento, California, for
Defendant-Appellant.
Courtland W. Creekmore (argued), Matthew R. Bainer, and
Hannah R. Salassi, Scott Cole & Associates, APC, Oakland,
California, for Plaintiff-Appellee.

OPINION
SMITH, Chief District Judge:
Following the United States Supreme Court’s decision in
AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740 (2011),1
Appellant Nordstrom, Inc. (“Nordstrom”) made revisions to
the employee arbitration policy2 contained in its employee
handbook. These changes precluded employees from
bringing most class action lawsuits. Despite these changes,
weeks later, Nordstrom employee Faine Davis filed a class

1

The United States Supreme Court decision in AT&T Mobility LLC v.
Concepcion, 131 S.Ct. 1740 (2011), overruled the California Supreme
Court finding in Discover Bank v. Superior Court, 36 Cal. 4th 148 (Cal.
2005). In Concepcion, the Supreme Court rejected Discover Bank’s
holding that a class waiver is unconscionable in a contract of adhesion,
reasoning that the California rule to the contrary ran afoul of the Federal
Arbitration Act (“FAA”). Concepcion, 131 S.Ct. at 1746–48, 1753.
2

This policy was referred to internally at Nordstrom as the “Nordstrom
Dispute Resolution Program.”

Case: 12-17403

06/23/2014

4

ID: 9141024

DktEntry: 41-1

DAVIS V. NORDSTROM, INC.

action lawsuit on behalf of herself and other similarly situated
employees, alleging that Nordstrom violated various state and
federal employment laws.
In time, Nordstrom, relying on the revised arbitration
policy in its employee handbook sought to compel Davis to
submit to individual arbitration of her claims. The district
court held that Davis and Nordstrom did not enter into a valid
arbitration agreement with respect to the revision, and
therefore denied Nordstrom’s motion to compel arbitration.
Nordstrom appeals the district court’s decision. Because we
find that Nordstrom and Davis did indeed enter into a valid
agreement to arbitrate disputes on an individual basis, we
REVERSE the district court and REMAND for further
proceedings consistent with this order.
I. Standard of Review
We review the district court’s decision to deny the motion
to compel arbitration de novo. Kilgore v. KeyBank Nat’l
Ass’n, 718 F.3d 1052, 1057 (9th Cir. 2013). Factual findings
are reviewed for clear error, Ticknor v. Choice Hotels Int’l,
Inc., 265 F.3d 931, 936 (9th Cir. 2001), but where no facts are
in dispute our entire review is de novo. Pac. Reinsurance
Mgmt. Corp. v. Ohio Reinsurance Corp., 814 F.2d 1324,
1327 (9th Cir. 1987).
II. Background
The basic facts are straightforward and not in dispute. On
August 11, 2011, Davis filed a purported class action lawsuit
against Nordstrom seeking redress for nonpayment of wages,
failure to provide meal periods and rest breaks, and unfair
competition. Relying on the company’s employee handbook,

Page: 4 of 11

Case: 12-17403

06/23/2014

ID: 9141024

DktEntry: 41-1

DAVIS V. NORDSTROM, INC.

Page: 5 of 11

5

Nordstrom moved to compel Davis to submit to individual
arbitration of her claims. Davis acknowledges that she
received a copy of the handbook when she first took her
position at Nordstrom, and during her employment the
company revised the handbook several times, always
notifying Davis of the changes.
Two provisions of this handbook matter for this appeal.
The first explained the circumstances under which Nordstrom
employees were required to arbitrate their disputes with the
company (the “arbitration provision”); the second required
Nordstrom to provide employees with 30 days written notice
of any substantive changes to the arbitration provision (the
“notice provision”). The handbook provided that the notice
provision was included to “allow employees time to consider
the changes and decide whether or not to continue
employment subject to the changes.”
Prior to July 2011, the arbitration provision required
employees to arbitrate individual disputes, but permitted
employees to bring class action lawsuits against the company.
In July 2011 and again in August 2011, Nordstrom revised
the arbitration provision; both revisions required employees
to arbitrate nearly all claims individually, and precluded
employees from filing most class action lawsuits. To comply
with the notice provision, Nordstrom sent letters to
employees, including Davis, in June 2011 informing them of
the change in the arbitration policy.3 In this June letter,
Nordstrom informed employees that “the Nordstrom Dispute
Resolution Program has been in place for several years.
We’ve recently made updates to the program and want to
3

In the July 2011 revision to the arbitration provision, Nordstrom also
completely removed the notice provision.

Case: 12-17403

6

06/23/2014

ID: 9141024

DktEntry: 41-1

DAVIS V. NORDSTROM, INC.

ensure you have the current version.” Along with this letter,
Nordstrom included a copy of the entire Dispute Resolution
Program, including the arbitration provision.
III.

Discussion

The Federal Arbitration Act (“FAA”), 9 U.S.C. §§ 1, et
seq., reflects a “liberal federal policy” in favor of arbitration.
Concepcion, 131 S. Ct. at 1745. Under the FAA, the role of
the district court is to determine if a valid arbitration
agreement exists, and if so, whether the agreement
encompasses the dispute at issue. Kilgore, 718 F.3d at
1057–58.
A. Contract Formation
The district court determined that no revised agreement
was ever reached – holding that Nordstrom had failed to
provide employees with the required 30 days notice of the
change in the arbitration provision, and to inform employees
that their continued employment constituted acceptance of the
new arbitration provision. Because we hold that Nordstrom
complied with the notice requirement, and that California law
imposes no duty upon Nordstrom specifically to inform
employees that their continued employment constituted
acceptance of new terms of employment, we reverse.
Arbitration is a product of contract. Parties are not
required to arbitrate their disagreements unless they have
agreed to do so. Pinnacle Museum Tower Ass’n v. Pinnacle
Mktg. Dev. (U.S.), LLC, 55 Cal. 4th 223, 236 (Cal. 2012). A
contract to arbitrate will not be inferred absent a “clear
agreement.” Avery v. Integrated Heathcare Holdings, Inc.,
218 Cal. App. 4th 50, 59 (Cal. Ct. App. 2013). When

Page: 6 of 11

Case: 12-17403

06/23/2014

ID: 9141024

DktEntry: 41-1

DAVIS V. NORDSTROM, INC.

Page: 7 of 11

7

determining whether a valid contract to arbitrate exists, we
apply ordinary state law principles that govern contract
formation. Ferguson v. Countrywide Credit Indus., Inc.,
298 F.3d 778, 782 (9th Cir. 2002). In California, a “clear
agreement” to arbitrate may be either express or implied in
fact. Pinnacle Mktg. Dev., 55 Cal. 4th at 236.
The handbook Davis received when she began work
established the ground rules of her employment, including
that Davis and Nordstrom would arbitrate certain disputes.
She accepted employment on this basis, so there was a
binding agreement to arbitrate. Under California law,
Nordstrom was permitted to unilaterally change the terms of
Davis’s employment, including those terms included in its
employee handbook. Craig v. Brown & Root, Inc., 84 Cal.
App. 4th 416, 422 (Cal. Ct. App. 2000). Nordstrom was also
entitled to enforce the terms of employment identified in this
handbook, and any modifications made to it, as it could any
other contract. See id. Indeed, “[i]t is settled that an
employer may unilaterally alter the terms of an employment
agreement,4 provided such alteration does not run afoul of the
[California] Labor Code.” Schachter v. Citigroup, Inc.,
47 Cal. 4th 610, 619 (Cal. 2009). Where an employee
continues in his or her employment after being given notice
of the changed terms or conditions, he or she has accepted
those new terms or conditions. Id. at 620.
The parties have not provided, and we have not found, a
case dictating that under California law Nordstrom was
required to provide notice of the change in any particular
way. Instead, “an employer may terminate or modify a
4

The terms of employment need not be memorialized in a formal
“employment agreement.”

Case: 12-17403

8

06/23/2014

ID: 9141024

DktEntry: 41-1

DAVIS V. NORDSTROM, INC.

contract with no fixed duration period after a reasonable time
period, if it provides employees with reasonable notice, and
the modification does not interfere with vested employee
benefits.” Asmus v. Pac. Bell, 23 Cal. 4th 1, 11 (Cal. 2000).
Of course, if an employer has prescribed methods of policy
modification and employee notice, it is incumbent upon the
employer to abide by those methods. Ferguson, 298 F.3d at
786. Here, the terms of the arbitration provision in Davis’s
initial handbook stated that Davis would be provided “30
days written notice of substantive changes . . . to allow [her]
time to consider the changes and decide whether or not to
continue employment subject to the changes.”
The first question is whether Nordstrom complied with
the notice requirement. The district court determined that
Nordstrom made the revised arbitration provisions
immediately applicable to its employees without providing 30
days written notice as required by the employee handbook.
In reaching this conclusion the district court found three
factors determinative: first, Nordstrom failed to submit
evidence that the company told employees the policy change
only went into effect after 30 days; second, the cover letter
Nordstrom sent to employees accompanying the revised
arbitration provision informed employees that the “current
version” of the arbitration provision was enclosed implying
it was immediately effective and; third, a Nordstrom human
resources document set forth internal measures for
implementing the changed policy. Davis relies on the same
factors in this appeal.
Nordstrom argues that it sent the revised arbitration
provision to all employees, including Davis, and that it did
not enforce the provision against Davis, or anyone else,
within 30 days of her receiving it. Additionally, Nordstrom

Page: 8 of 11

Case: 12-17403

06/23/2014

ID: 9141024

DktEntry: 41-1

DAVIS V. NORDSTROM, INC.

Page: 9 of 11

9

asserts that during this 30 day time period, Davis never
objected to the revised provision and she did not quit her job.
While the communications with its employees were not
the model of clarity, we find that Nordstrom satisfied the
minimal requirements under California law for providing
employees with reasonable notice of a change to its employee
handbook by sending a letter to Davis and other employees
informing them of the modification, and not seeking to
enforce the arbitration provision during the 30 day notice
period.
The next question is whether Nordstrom was bound to
inform Davis that her continued employment after receiving
the letter constituted acceptance of new terms of employment.
The district court found it was, but we disagree. The district
court chiefly relied upon Morvant v. P.F. Chang’s China
Bistro, Inc., 870 F. Supp. 2d 831 (N.D. Cal. 2012) for this
finding. The district court read Morvant as holding that an
employer who unilaterally changes terms of employment
must inform his employees that continued employment will
constitute acceptance of new terms of employment. If
Morvant were read in that manner, however, it would be
inconsistent with the holding of the California Supreme Court
in Asmus. In Asmus, the court held that an employer seeking
to terminate a unilateral contract must provide reasonable
notice of the termination and refrain from interfering with
vested rights. Asmus, 23 Cal. 4th at 18. This requirement also
applies to unilateral contract modifications. Id. at 16, 18.
Nowhere in Asmus did the California Supreme Court require
that employees must be expressly told that continued
employment constitutes acceptance, nor have any California
state appellate court decisions imposed such a requirement.
See Serpa v. California Surety Investigations, Inc., 215 Cal.

Case: 12-17403

10

06/23/2014

ID: 9141024

DktEntry: 41-1

DAVIS V. NORDSTROM, INC.

App. 4th 695, 516 (Cal. Ct. App. 2013) (holding that an
employer is required to give “reasonable and fair notice”
when modifying terms of employment).
B. Unconscionability
Davis also argues that the arbitration agreement was
unconscionable under Gentry v. Superior Court, 42 Cal. 4th
443 (Cal. 2007). In Gentry, the California Supreme Court
concluded that employees had certain unwaiveable rights to
overtime, and that under certain circumstances a waiver that
precluded an employee from seeking to vindicate those rights
as part of a class action could lead to a de facto waiver of
those rights. Id. at 456–57. The California Supreme Court
relied primarily on its earlier decision in Discover Bank in
this holding. The United States Supreme Court subsequently
overruled Discover Bank holding that the decision ran afoul
of the FAA. Concepcion, 131 S.Ct. at 1746–48, 1753.
Nordstrom argues we should find that Gentry similarly
infringes upon the FAA.
The district court never reached the unconscionability
issue. Typically, “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. Wulff,
428 U.S. 106, 120 (1976)). This court has discretion to
decide whether to reach such an issue, however, where the
issue presented is a purely legal one and the record below has
been fully developed. Quinn, 783 F.2d at 814. In
considering whether to exercise this discretion, “we should
consider whether the resolution of the issue is clear and
whether injustice might otherwise result.” Id.

Page: 10 of 11

Case: 12-17403

06/23/2014

ID: 9141024

DktEntry: 41-1

DAVIS V. NORDSTROM, INC.

Page: 11 of 11

11

While the record in this case is fully developed, and Davis
pressed her unconscionability argument before the district
court and did so again here, the resolution of the issue is not
clear, and for that reason we decline to exercise our discretion
to address the unconscionabilty question in the first instance.5
Compare Truly Nolan of Am. v. Superior Court, 208 Cal.
App. 4th 487, 507 (Cal. Ct. App. 2012) (holding Gentry
remains binding law after Concepcion), with Velazquez v.
Sears, Roebuck & Co., 13-cv-680-WQH-DHB, 2013 WL
4525581, at *8 (S.D. Cal. Aug. 26, 2013) (holding Gentry
was overruled by Concepcion). Indeed, the California
Supreme Court currently has pending before it a case that will
decide whether Gentry remains valid under California law.
See Iskanian v. CLS Transp. of Los Angeles, LLC, No.
S204032 (Cal. petition granted Sept. 19, 2012).6
IV.

Conclusion

For the foregoing reasons, we reverse the district court’s
order and remand for further proceedings consistent with this
opinion.
REVERSED AND REMANDED.

5

We also do not take up Davis’s argument that the arbitration policy is
prohibited by the National Labor Relations Act (“NLRA”). The facts of
this case are slightly different than those of Johnmohammadi v.
Bloomgindale’s, Inc., No. 12-55578, also released today. Unlike the
plaintiff in Johnmohammadi, Davis did not have the opportunity to opt out
of the arbitration provision. In Johnmohammadi, we held that a voluntary
arbitration program does not violate the NLRA. We state no opinion, in
the first instance, whether a mandatory arbitration program would.
6

The California Supreme Court heard argument in Iskanian v. CLS
Transp. of Los Angeles, LLC on April 3, 2014.