Filed 2/26/14; pub. order 3/20/14 (see end of opn.)




              IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

                                  SECOND APPELLATE DISTRICT

                                               DIVISION ONE


MARIO CASAS,                                            B246392

         Plaintiff and Respondent,                      (Los Angeles County
                                                        Super. Ct. No. BC483637)
         v.

CARMAX AUTO SUPERSTORES
CALIFORNIA LLC,

         Defendant and Appellant.




         APPEAL from an order of the Superior Court of Los Angeles County, Steven J.
Kleifield, Judge. Reversed.
         Ogletree, Deakins, Nash, Smoak & Stewart, Jack S. Sholkoff, Christopher W.
Decker and Vicky H. Lin for Defendant and Appellant.
         Shegerian & Associates, Carney R. Shegerian and Anthony Nguyen for Plaintiff
and Respondent.
                               __________________________________
       Mario Casas filed a complaint alleging wrongful termination against CarMax Auto
Superstores California, LLC (CarMax). The trial court denied CarMax’s motion to
compel arbitration, and CarMax appeals. We reverse.
                                    BACKGROUND
       Casas filed a complaint against CarMax on April 27, 2012, alleging wrongful
termination, Labor Code and Business and Professions Code violations, breach of an
implied contract not to terminate employment without good cause, intentional infliction
of emotional distress, negligent hiring, negligent retention, negligent supervision, and
defamation. Casas alleged that CarMax hired him on August 8, 2008 and on December
17, 2010, terminated him from his position as a service consultant. CarMax cited poor
results in customer service surveys, but the real reason was Casas’s “refusal to participate
in and his actual discussions of [CarMax’s] illegal actions both internally and externally.”
       On June 29, 2012, CarMax filed a motion to compel arbitration, based on a
Dispute Resolution Agreement (the arbitration agreement, or agreement) that Casas
signed on July 23, 2008, as part of his application for employment, and in which he
acknowledged receipt of the Dispute Resolution Rules and Procedures (DRRP) governing
any arbitration, which had been in effect since December 2005. Casas opposed the
motion to compel, arguing that the arbitration agreement was not a contract, and that in
any event the agreement was procedurally and substantively unconscionable.
       After a hearing on November 8, 2012, the trial court denied CarMax’s motion to
compel arbitration in an order entered on November 16, 2012, finding the arbitration
agreement “‘illusory’” because the DRRP gave CarMax the right to alter or terminate the
agreement and the DRRP. CarMax filed a timely notice of appeal.
                                      DISCUSSION
       The material facts are undisputed, and so we determine de novo the existence of
an agreement to arbitrate. (Sparks v. Vista Del Mar Child & Family Services (2012) 207
Cal.App.4th 1511, 1519 (Sparks).)
       Rule 19 of the DRRP provides: “CarMax may alter or terminate the Agreement
and these [DRRP] on December 31 of any year upon giving thirty (30) calendar days

                                             2
written notice to Associates, provided that all claims arising before alteration or
termination shall be subject to the Agreement and corresponding [DRRP] in effect at the
time the Arbitration Request Form is received by the Company. Notice may be given by
posting a written notice by December 1 of each year at all CarMax locations (including
locations of affiliated companies). A copy of the text of any modification to the
Agreement or Rules and Procedures will be published in the Applicant Packet, which will
be available at such locations after December 31 of each year.” Citing Sparks, supra, 207
Cal.App.4th 1511, the trial court concluded that the arbitration agreement was illusory
because CarMax could unilaterally modify or terminate the agreement and the DRRP by
posting notification at all CarMax locations, without direct notification of employees. “In
effect, the CarMax Agreement and [DRRP] tell the employee: ‘You and I are entering
into an agreement to arbitrate; we can change our mind but you can’t. There is also no
assurance you will even know we have changed our mind.’” The trial court found it
unnecessary to address whether the agreement was unconscionable.
       In Sparks, supra, 207 Cal.App.4th 1511, an employee handbook contained (but
did not highlight) a brief “dispute resolution policy” requiring the employee and
employer to arbitrate any disputes arising out of the employment relationship, and
provided that the handbook “‘may be amended, revised and/or modified by [the
employer] at any time without notice.’” (Id. at pp. 1515–1516.) The employee signed an
acknowledgment of receipt of the handbook, but stated in a declaration that the employer
did not make him aware of the arbitration clause and he was not aware of it. (Id. at
p. 1516.) The trial court concluded that the employee’s mere acknowledgment of the
handbook was insufficient to create an enforceable agreement to arbitrate. (Id. at
p. 1517.) The court of appeal affirmed because the employer failed to call attention to the
arbitration requirement in the handbook, and as another reason, stated without elaboration
(and with citation only to out-of-state authority): “An agreement to arbitrate is illusory if,
as here, the employer can unilaterally modify the handbook. [Citations.]” (Id. at
pp. 1520, 1523.)



                                              3
       Unlike the arbitration clause in Sparks, supra, 207 Cal.App.4th 1511, the
arbitration agreement in this case was not hidden in a handbook which the employee
simply acknowledged receiving. More to the point, the agreement signed by Casas
provided a specific date for any amendment of the agreement or the DRRP (December 31
of every year), 30 days’ notice, and posting at CarMax locations, while the clause in the
handbook in Sparks allowed change or elimination without any notice, and at any time.
       While the trial court did not find the modification provision unconscionable, it
declared it unilateral, allowing CarMax to “change [its] mind” about the arbitration
agreement but not allowing Casas to change his mind. Under California law, however,
even a modification clause not providing for advance notice does not render an
agreement illusory, because the agreement also contains an implied covenant of good
faith and fair dealing. (Peleg v. Neiman Marcus Group, Inc. (2012) 204 Cal.App.4th
1425, 1463–1464.) “‘“Where the contract specifies performance the fact that one party
reserves the power to vary it is not fatal if the exercise of the power is subject to
prescribed or implied limitations such as the duty to exercise it in good faith and in
accordance with fair dealings.”’ [Citations.]” (24 Hour Fitness, Inc. v. Superior Court
(1998) 66 Cal.App.4th 1199, 1214.) “[T]he implied covenant of good faith and fair
dealing limits the employer’s authority to unilaterally modify the arbitration agreement
and saves that agreement from being illusory and thus unconscionable.” (Serpa v.
California Surety Investigations, Inc. (2013) 215 Cal.App.4th 695, 708, fn. omitted.)
       Casas points out that rule 19 of the DRRP 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 a claim to a modified agreement where the claim arose
before a modification, but was 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, and the contract is illusory. (Peleg v. Neiman Marcus




                                               4
Group, Inc., supra, 204 Cal.App.4th at p. 1465.)1 In this case, however, rule 18 of the
DRRP states that if any of the arbitration rules “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 in rule 18 means that should an
employee assert a claim that arose before modification of the agreement, CarMax could
not apply the modifications to that claim.
       The modification clause in the CarMax DRRP does not invalidate the arbitration
agreement.
                                       DISPOSITION
       The trial court’s order denying CarMax Auto Superstores California’s motion to
compel arbitration is reversed. CarMax Auto Superstores California is to recover its
costs on appeal.




                                                 JOHNSON, J.
We concur:


              CHANEY, Acting P. J.


              MILLER, J.*




       1Casas cites Ingle v. Circuit City Stores, Inc. (9th Cir. 2003) 328 F.3d 1165,
which found unconscionable a unilateral modification clause in an arbitration agreement.
That case, however, expressly did not hold that that clause by itself rendered the
agreement unenforceable. (Id. at pp. 1179–1180, fn. 23.)
       *  Judge of the Los Angeles Superior Court, assigned by the Chief Justice pursuant
to article VI, section 6 of the California Constitution.

                                             5
Filed 3/20/14
                            CERTIFIED FOR PUBLICATION




                IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

                           SECOND APPELLATE DISTRICT

                                     DIVISION ONE


MARIO CASAS,                                       B246392
                                                   (Los Angeles County
        Plaintiff and Respondent,                  Super. Ct. No. BC483637)

        v.                                         CERTIFICATION AND
                                                   ORDER FOR PUBLICATION
CARMAX AUTO SUPERSTORES
CALIFORNIA LLC.,

        Defendant and Appellant.




        The opinion in the above-entitled matter filed February 26, 2014, was not certified
for publication in the Official Reports. For good cause it now appears that the opinion
should be published in the Official Reports and it is so ordered.




CHANEY, Acting P. J.                      JOHNSON, 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.
