Judge: Alison Mackenzie, Case: 24STCV20987, Date: 2024-12-09 Tentative Ruling
Case Number: 24STCV20987 Hearing Date: December 9, 2024 Dept: 55
NATURE OF PROCEEDINGS: Hearing on Defendant's Motion
to Compel Arbitration
Defendant's Motion
to Compel Arbitration is denied.
BACKGROUND
Plaintiff Austin Gerlach
filed this non-individual PAGA action against his former employer, Zara USA, Inc. (“Defendant”), alleging labor
code violations and seeking PAGA penalties, attorneys fees, and costs.
Defendant filed a Motion to Compel Arbitration. Plaintiff filed a
reply.
REQUESTS FOR JUDICIAL NOTICE
Plaintiff requests the Court take judicial notice of four
California Superior Court minute orders, which he cites in his brief. California
Rules of Court, rule 8.1115 generally prohibits citation to unpublished
opinions but does not discuss trial court orders. However, in County of San
Bernardino v. Cohen (2015) 242 Cal.App.4th 803, 816, the court held trial
court orders are not citable under rule 8.1115. Accordingly, Plaintiff’s
request for judicial notice is denied.
Defendant requests the Court take judicial notice of a
California Superior Court minute order in a related case with a different
plaintiff. That order has no preclusive effect on this case and, as noted
above, is not citable authority. Accordingly, Defendant’s request for judicial
notice is denied.
LEGAL STANDARD
“On petition of a party to an arbitration agreement alleging
the existence of a written agreement to arbitrate a controversy and that a
party to the agreement refuses to arbitrate that controversy, the court shall
order the petitioner and the respondent to arbitrate the controversy if it
determines that an agreement to arbitrate the controversy exists….” Code Civ.
Proc. § 1281.2. “The party seeking arbitration bears the burden of proving the
existence of an arbitration agreement, and the party opposing arbitration bears
the burden of proving any defense, such as unconscionability.” Pinnacle
Museum Tower Assn. v. Pinnacle Market Development (US), LLC (2012)
55 Cal.4th 223, 236.
ANALYSIS
It is undisputed that Plaintiff signed an arbitration
agreement to submit all claims arising from his employment with Zara to individual
binding arbitration. See Declaration of Joanna Dmytryszyn (“Dmytryszyn
Decl.”) Ex. 1. However, the agreement provides that it does not apply to representational
PAGA claims “[t]o the extent federal law prohibits enforcement of [the
representative action waiver]” and “[i]n the event a court determines that this
Section 5 is unenforceable with respect to any claim, it shall not apply to
that claim….” Dmytryszyn Decl., Ex.1 ¶¶ 4, 5. Here, Plaintiff alleges only a
representative PAGA claim seeking to recover only civil penalties for Labor
Code violations inflicted against other employees. To have standing to bring a
PAGA action, Plaintiff must be an “aggrieved employee.” Therefore, the question
before the Court is whether the arbitration agreement requires Plaintiff to
arbitrate the issue of whether he is an aggrieved employee before proceeding
with his representative PAGA action in court.
I. Definitions
This case involves standing under the Labor Code Private
Attorneys General Act of 2004 (PAGA). Lab. Code, § 2698 et seq.[1] “PAGA authorizes ‘an
aggrieved employee,’ acting as a proxy or agent of the state Labor and
Workforce Development Agency (LWDA), to bring a civil action against an
employer ‘on behalf of himself or herself and other current or former employees’
to recover civil penalties for Labor Code violations they have sustained.” §
2699, subd. (a); see Iskanian, at p. 380. Adolph v. Uber
Technologies, Inc. (2023) 14 Cal.5th 1104, 1113. “Under PAGA, ‘civil
penalty’ is a term of art limited to a monetary recovery that is distributed 75
percent to the Labor and Workforce Development Agency and 25 percent to the
employee aggrieved by the Labor Code violation.” Galarsa v. Dolgen
California, LLC (2023) 88 Cal.App.5th 639, 648 (Galarsa) (citations
omitted).
As the U.S. Supreme Court noted, “PAGA's unique features
have prompted the development of an entire vocabulary unique to the statute….
An unfortunate feature of this lexicon is that it tends to use the word
‘representative’ in two distinct ways …. PAGA actions are “representative” in
that they are brought by employees acting as representatives—that is, as agents
or proxies—of the State…. But PAGA claims are also called ‘representative’ when
they are predicated on code violations sustained by other employees.” Viking
River Cruises, Inc. v. Moriana (2022) 596 U.S. 639, 648. An additional
source of confusion stems from the conflation of a plaintiff’s personal claim
for damages based on Labor Code violations and a PAGA claim seeking to recover
a civil penalty imposed because of a Labor Code violation suffered by the plaintiff. See Galarsa, supra, 88
Cal.App.5th at p. 648.
This order uses the term “PAGA claim” to mean a claim for a
civil penalty imposed by, or recoverable under, PAGA and pursued by an employee
as the proxy or agent of the state's labor law enforcement agencies. Therefore,
“a ‘PAGA action’ usually involves many ‘PAGA claims,’ and each claim involves a
Labor Code violation and an associated civil penalty.” Ibid (citations
omitted). To avoid confusion, this order refers to PAGA claims seeking to
recover only civil penalties for Labor Code violations suffered by the
plaintiff as “individual claims” and PAGA claims seeking to recover civil
penalties for violations suffered by non-plaintiff employees “non-individual”
claims. See Adolph, supra, (2023) 14 Cal.5th at p. 1114. “Labor Code
claims” or “damages claims” refer to non-PAGA causes of action.
II. Non-Individual Only PAGA Claim
Plaintiff’s Complaint purports to bring only a non-individual
PAGA claim and does not seek recovery for any individual PAGA claims. Defendant
seeks to compel Plaintiff to arbitrate his individual PAGA claim before he can
proceed with his non-individual PAGA claim. As a threshold issue, the Court
must determine if Plaintiff can bring only non-individual PAGA claims without
any individual PAGA claim.
In Iskanian v. CLS Transportation Los Angeles, LLC
(2014) 59 Cal.4th 348, 383 (Iskanian), the California Supreme Court held
that an employee’s right to bring a PAGA action “is unwaivable.” In addition, Iskanian
held unenforceable an agreement that, while providing for arbitration of
alleged Labor Code violations sustained by the plaintiff employee, compelled
waiver of PAGA claims on behalf of other employees. Iskanian, supra, 59
Cal.4th at p. 384. Citing Iskanian, “various courts held that employers
may not require employees to ‘split’ PAGA actions in a manner that puts
individual and non-individual components of a PAGA claim into bifurcated
proceedings.” Adolph v. Uber Technologies, Inc. (2023) 14 Cal.5th 1104,
1118 (citing, Perez v. U-Haul Co. of California (2016) 3 Cal.App.5th (Perez)
408, 420–421 and Williams v. Superior Court (2015) 237 Cal.App.4th 642,
649.).
However, in Viking River Cruises, Inc. v. Moriana
(2022) 596 U.S. 639, 662 (Viking River), the United States Supreme Court
considered a predispute employment contract with an arbitration provision
specifying that ‘[i]n any arbitral proceeding, the parties could not bring any
dispute as a class, collective, or representative PAGA action.’” Viking River, supra, 596 U.S., at p. 647. The
Court held that the FAA does not preempt the state’s rule against wholesale
waiver of PAGA claim but does preempt California’s state law rule that “PAGA
actions cannot be divided into individual and non-individual claims.” Ibid.
Because the arbitration agreement contained a severability clause providing “if
any ‘portion of the waiver that remained valid, it would be ‘enforced in
arbitration,’” the Court held that the defendant could compel arbitration of
the individual-PAGA claim. Ibid. Therefore, under the FAA, an
arbitration agreement is enforceable against individual claims, but waiver of
non-individual claims is not. Ibid.
In Adolph, the California Supreme Court held that “where
a plaintiff has filed a PAGA action comprised of individual and non-individual
claims, an order compelling arbitration of individual claims does not strip the
plaintiff of standing to litigate non-individual claims in court.” Adolph, supra,
(2023) 14 Cal.5th at p. 1123. In Balderas v. Fresh Start Harvesting, Inc.
(2024) 101 Cal.App.5th 533 the court held that “inability for an employee to
pursue an individual PAGA claim does not prevent that employee from filing a
representative PAGA action.” Similarly, in Johnson v. Maxim Healthcare
Services, Inc. (2021) 66 Cal.App.5th 924 (Johnson), the court
held that “an employee, whose individual claim is time-barred, may still pursue
a representative claim under PAGA.” Johnson, supra, 66 Cal.App.5th at p.
929.
Defendant argues that Plaintiff cannot bring his PAGA claims
on a non-individual-only basis. Mot. at p. 11:3-12:4. It is true that PAGA requires
the civil action to be brought by “an aggrieved employee on behalf of the
employee and other current or former employees.” § 2699, subd. (a)
(emphasis added). The cases mentioned above show it is not required that the
Plaintiff litigate any individual claim to bring a PAGA action. An employee
whose individual PAGA claim is barred by the statute of limitations cannot
strictly be said to bring an action on their own behalf. Nevertheless, they
have standing to bring a non-individual action. Johnson, supra, 66
Cal.App.5th at p. 929.
Defendant further argues that Adolph requires
Plaintiff first to arbitrate his individual PAGA claim because if the
arbitrator finds Plaintiff is not an aggrieved employee, he will have no
standing to bring a non-individual PAGA claim. Mot. at p. 9:14-24. Defendant is
correct that an arbitrator’s determination that Plaintiff is not an aggrieved
employee in the process of adjudicating his individual PAGA claim, if confirmed
and reduced to a final judgment, would deprive Plaintiff of standing. See
Adolph, supra, 14 Cal.5th at. p. 1124 (“If the arbitrator determines
that Adolph is not an aggrieved employee and the court confirms that
determination and reduces it to a final judgment, the court would give effect
to that finding, and Adolph could no longer prosecute his non-individual claims
due to lack of standing.”) However, that is not a basis to conclude that Defendant
can compel Plaintiff to bring an individual claim. Arbitration of non-PAGA
Labor Code violation claims also has a preclusive effect on PAGA standing, yet
Defendant cannot compel Plaintiff to bring those claims when he has elected not
to. See Rodriguez v. Lawrence Equipment, Inc. (2024) 106
Cal.App.5th 645, 658 (holding that arbitration of non-PAGA labor code
violations is preclusive of PAGA standing). Defendant has no more of a right to
compel Plaintiff to bring an individual PAGA claim than it does to compel him
to bring an individual Labor Code damages claim.
Therefore, the Court concludes that Plaintiff is permitted
to bring a non-individual-only PAGA claim.
III. Arbitrability of non-individual PAGA Standing
Even though the agreement precludes the arbitration of any
non-individual PAGA claims, Defendant argues that Plaintiff must arbitrate the
issue of his status as an aggrieved employee before bringing any non-individual
PAGA action in Court. Mot. at p. 10:12-15.
In a pre-Viking River decision, Perez v. U-Haul
Co. of California (2016) 3 Cal.App.5th 408 (Perez), the court
rejected that argument. There, the plaintiffs filed a single cause of action seeking
civil penalties under PAGA and had not filed any separate Labor Code claim for
personal damages. Id. at p. 413. The parties’ arbitration agreement
contained a PAGA waiver, which the defendants conceded was not enforceable
under Iskanian, and therefore, the plaintiffs were permitted to proceed
with their PAGA action in court. However, the defendants argued that the
agreement required plaintiffs to individually arbitrate the issue of whether
they were aggrieved employees with standing to assert a PAGA claim.
The Perez court rejected this argument for two
reasons. First, it found that whether plaintiffs had standing to pursue a PAGA
claim was not an issue that fell within the scope of the arbitration agreement.
Second, it held, “California law prohibits the enforcement of an employment
agreement provision that requires an employee to individually arbitrate whether
he or she qualifies as an ‘aggrieved employee’ under PAGA, and then (if
successful) to litigate the remainder of the “representative action in the
superior court.” Perez, supra, 3 Cal.App.5th 408,
421. In reaching that conclusion, the Court relied on Isksanian’s
holding that “requiring an employee to bring a PAGA claim in his or her ‘individual’
capacity, rather than in a ‘representative’ capacity, would undermine the
purposes of the statute.” Perez, supra, Cal.App.5th 408, 421 (quoting Iskanian,
at pp. 383–384).
In light of the U.S. Supreme Court’s holding that Iskanian’s
rule prohibiting PAGA claims from being split into individual and
representative claims is preempted by the FAA, this Court concludes that Perez’s
holding barring arbitration of aggrieved employee standing is likewise
preempted. The Court’s ruling in Viking River was based on the principle
that “state law cannot condition the enforceability of an arbitration agreement
on the availability of a procedural mechanism that would permit a party to
expand the scope of the arbitration by introducing claims that the parties did
not jointly agree to arbitrate.” Viking River, supra, 596 U.S., at p. 660.
As interpreted by the Court, PAGA contains a “built-in mechanism of claim
joinder … that … permits “aggrieved employees” to use the Labor Code violations
they personally suffered as a basis to join to the action any claims that could
have been raised by the State in an enforcement proceeding.” Id. at p. 659.
Therefore, “the only way for parties to agree to arbitrate one of
an employee’s PAGA claims is to also ‘agree’ to arbitrate all other PAGA
claims in the same arbitral proceeding.” Id. at p. 662. Because defendants
disfavor this arbitration of large number of claims in arbitration, “Iskanian’s
indivisibility rule effectively coerces parties to opt for a judicial forum.” Ibid.
While California case law makes clear that aggrieved
employee standing is a distinct issue from individual PAGA claims, the logic of
Viking River applies with equal force to both. Just as the FAA preempts
state law requiring the joinder of representative and individual claims in
arbitration, it likewise preempts law requiring joinder of standing determination
and the merits of a PAGA claim. See Adolph v. Uber Technologies, Inc. (2023)
14 Cal.5th 1104, 1125 (“Viking River reiterated that parties may
opt for arbitration procedures that depart from standard liberal rules of claim
joinder, ‘[a]nd that is true even if bifurcated proceedings are an inevitable
result.’” [quoting Viking River, supra, 596 U.S. at p. 660]). When
parties agree to arbitrate only the narrow issue of whether an employee has
standing to bring a non-individual PAGA action but not the merits of that
action, the FAA compels courts to enforce that agreement.
IV. Scope of Arbitration
Having determined that, as a matter of law, parties are not
precluded from arbitrating only the issue of non-individual PAGA standing, the
Court must determine if the party's agreement requires such arbitration. After
reviewing the terms of the agreement, the Court concludes it does not.
In Perez, the Court rejected the defendant's argument
that the plaintiff was required to arbitrate the question of aggrieved employee
standing, in part because that issue was not covered in the arbitration
agreement. The agreement extended to “any and all claims and disputes … related
in any way to [plaintiffs'] employment.” The agreement, also stated that “the parties
would not seek arbitration (or litigation) of any ‘claims as a representative …
or in a private attorney general capacity.’” The court held, “the agreement
contains no language suggesting that despite this exclusion of representative
claims, the parties did agree to arbitrate whether the complaining party had
standing to initiate a representative claim in court. We fail to see how an
agreement that excludes representative claims can nonetheless be reasonably
interpreted to require plaintiffs to arbitrate their standing to bring a
representative claim.” Perez, supra, 3 Cal.App.5th at p. 420.
Section 5 of the agreement similarly provides that claims
must “be brought on an individual basis only, and arbitration on an individual
basis is the exclusive remedy.” Dmytryszyn Decl., Ex.1 ¶ 5. As in Viking
River, the agreement contains a severability clause, which states, “To the
extent federal law prohibits enforcement of Section 5 with respect to
representative claims under [PAGA] …. such claims also are not covered by this
Agreement.” Id. at ¶ 4. Under federal law, the agreement is not
permitted to act as a wholesale waiver of PAGA claims. Viking River, supra,
596 U.S., at p. 647. Therefore, the agreement to arbitrate extends only to
individual PAGA claims and does not allow for arbitration of non-individual
claims.
As in Perez, nothing in the agreement suggests that
the parties intended to arbitrate the standing element of non-individual claims,
while excluding the claims themselves from arbitration. See Perez, supra, 3
Cal.App.5th at p. 420. The fact that both individual and non-individual PAGA
claims have the same aggrieved employee standing requirement does not mean that
the agreement allows Defendant to arbitrate the issue of non-individual PAGA standing,
any more than it allows Plaintiff to bring the issue of individual PAGA
standing into court. If Plaintiff wishes to bring a non-individual PAGA claim,
he is bound by the arbitration agreement to do so in arbitration. However,
Plaintiff has brought only a non-individual PAGA claim and is permitted, and
indeed required, to do so in court. Accordingly, Defendant’s motion to compel
arbitration is denied.
CONCLUSION
Defendant's Motion to Compel Arbitration is denied.