Judge Bruce G. Iwasaki, Case 21STCV40012 2022-09-01 Tentative Ruling

Tentative Ruling: The Motion to Compel Arbitration is granted as to Plaintiff’s individual PAGA claims. The Motion is otherwise denied as to dismissal of the representative portion of the PAGA claim. The Court stays the remaining PAGA representative claim pending arbitration.

On October 29, 2021, Anderson Hill (Plaintiff), individually and on behalf of all aggrieved employees, filed a representative action complaint against Fashion Nova LLC, Fashion Nova, Inc., Nova Fashion, Inc., and Fashion Nova Holdings, LLC. The Complaint alleges a violation of the California Labor Code Private Attorneys General Act (PAGA) based on allegations that the companies failed to maintain adequate temperatures in the work environment. On December 6, 2021, Plaintiff added FN Logistics, LLC as a Doe defendant.

FN Logistics, LLC (Defendant or FN Logistics) now moves to compel arbitration of Plaintiff’s individual PAGA claim and dismiss the representative claim. It argues that it is a third-party beneficiary of the arbitration agreement, which is signed between Plaintiff and Adecco USA, Inc.[1]

The arbitration clause is in Paragraphs 7 and 8 of the “Voluntary Dispute Resolution and Arbitration Agreement for Consultants/Associates.” There is also a severability clause in Paragraph 13. As relevant, these paragraphs state:

7. EXCEPT FOR YOUR RIGHTS UNDER PARAGRAPH 4, BY SIGNING THIS AGREEMENT, THE PARTIES AGREE THAT EACH MAY BRING CLAIMS AGAINST THE OTHER ONLY IN THEIR INDIVIDUAL CAPACITIES AND NOT AS A PLAINTIFF, CLASS, OR COLLECTIVE ACTION MEMBER IN ANY PURPORTED CLASS AND/OR COLLECTIVE ACTION PROCEEDING.

8. FURTHERMORE, BY SIGNING THIS AGREEMENT, THE PARTIES AGREE THAT EACH MAY BRING CLAIMS AGAINST THE OTHER ONLY IN THEIR INDIVIDUAL CAPACITIES AND NOT IN ANY REPRESENTATIVE PROCEEDING UNDER ANY PRIVATE ATTORNEY GENERAL STATUTE (“PAGA CLAIM”), UNLESS APPLICABLE LAW REQUIRES OTHERWISE. IF THE PRECEDING SENTENCE IS DETERMINED TO BE UNENFORCEABLE, THEN THE PAGA CLAIM SHALL BE LITIGATED IN A CIVIL COURT OF COMPETENT JURISDICTION AND ALL REMAINING CLAIMS WILL PROCEED IN ARBITRATION.

13. If any provision(s) of this Dispute Resolution Agreement is declared overbroad, invalid or unenforceable, such provision(s) shall be severed from this Dispute Resolution Agreement and the remaining provisions of this Dispute Resolution Agreement shall remain in full force and effect and shall be construed in a fashion which gives meaning to all of the other terms of this Dispute Resolution Agreement. (Meierhans Decl., Ex. 3.)

Plaintiff opposes the motion to compel arbitration. He argues that Defendant is not a third-party beneficiary, and the severability clause requires the entire PAGA claim to be litigated in this Court. Alternatively, Plaintiff requests that the representative PAGA claim remain in this Court and stayed pending arbitration of his individual PAGA claim. Finally, he argues that if the Court is inclined to dismiss the representative PAGA claim, that the entirety of the PAGA claim should be compelled to arbitration.

In reply, Defendant asserts that the third-party beneficiary or equitable estoppel doctrines apply. It also argues that the savings clause, “unless applicable law requires otherwise,” mandates severing the PAGA claim into individual and representative components. Defendant reiterates that the representative claim should be dismissed for lack of standing.

The Court finds that there is a valid arbitration agreement and grants the motion as it relates to Plaintiff’s individual PAGA claims. The Court declines to dismiss the representative PAGA claims and stays the case under Code of Civil Procedure section 1281.4.

Plaintiff’s request for judicial notice is granted. (Evid. Code, § 452, subds. (c), (d).) Plaintiff’s objections are overruled.

Code of Civil Procedure section 1281.2 authorizes the court to order arbitration of a case if it finds the parties agreed to arbitrate that dispute “and that a party to the agreement refuses to arbitrate that controversy.” Arbitration agreements should be liberally interpreted and ordered unless the agreement clearly does not apply to the dispute in question. (Weeks v. Crow (1980) 113 Cal.App.3d 350, 353; Segal v. Silberstein (2007) 156 Cal.App.4th 627, 633.) “ ‘Doubts as to whether an arbitration clause applies to a particular dispute are to be resolved in favor of sending the parties to arbitration. The court should order them to arbitrate unless it is clear that the arbitration clause cannot be interpreted to cover the dispute.’ ” (California Correctional Peace Officers Assn. v. State¿(2006) 142 Cal.App.4th 198, 205.)

The party moving to compel arbitration has the initial burden to (1) affirmatively admit and allege the existence of a written arbitration agreement, and (2) prove the existence of that agreement by a preponderance of the evidence. (Rosenthal v. Great W. Fin. Sec. Corp, 14 Cal. 4th 394, 413.) Once this is met, the burden shifts to the responding party to prove that the agreement is unenforceable by a preponderance of the evidence. (Ibid.)

Defendant has produced the arbitration agreement. (Meierhans Decl. ¶¶ 2-3, Ex. 3.) Therefore, the burden shifts to Plaintiff to argue that the agreement is unenforceable.

“A contract, made expressly for the benefit of a third person, may be enforced by him at any time before the parties thereto rescind it.” (Civ. Code, § 1559.) In evaluating whether a third party is a beneficiary, a court must analyze the “express provisions of the contract at issue, as well as all of the relevant circumstances” to determine (1) whether the third party would in fact benefit from the contract . . . (2) whether a motivating purpose of the contracting parties was to provide a benefit to the third party, and (3) whether permitting a third party to [enforce the contract] against a contracting party is consistent with the objectives of the contract and the reasonable expectations of the contracting parties. All three elements must be satisfied to permit the third party action to go forward.” (Goonewardene v. ADP, LLC (2019) 6 Cal.5th 817, 830.)

Plaintiff contends that a typographical error in the name of the Fashion Nova business entities invalidates an assignment of rights between the entities, and thus prevents FN Logistics, LLC from benefiting from the arbitration agreement. The argument is unpersuasive.

Defendant produced an “Assignment and Assumption Agreement” between Fashion Nova, Inc. and FN Logistics, Ltd., with the consent of Adecco USA, Inc. Plaintiff argues that there is no “FN Logistics, Ltd.” and Defendant lacks foundation to aver that “Ltd.” is a typographical error. The Court disagrees. Defendant produced the declaration of Erica Meierhans. Ms. Meierhans attests that she is General Counsel of FN Logistics and its affiliated companies and has “knowledge of or access to and custody of business records and other information relating to FN Logistics and its affiliates’ business operations, corporate governance, and contracts with third-party service providers. (Meierhans Decl. ¶ 2.) She attests that “The reference to ‘Ltd.’ is a typographical error as no such Fashion Nova-affiliated entity existed and the agreement should have referenced FN Logistics, Inc. instead.” (Meierhans Decl. ¶ 8, fn. 1.)

Plaintiff produced the California Secretary of State’s webpage as to FN Logistics, LLC and argues that the entity “did not come into existence until April 13, 2021. (Opp., p. 2:19-20.) However, that same page indicates that the “Date LLC was formed in home jurisdiction” was June 18, 2018. (See also Meierhans Decl., Ex. 1.) Therefore, the Court is unpersuaded by Plaintiff’s argument that Defendant is an improper party merely because of a typographical error.

Irrespective of the typographic error, the parties clearly intended Adecco’s clients, including FN Logistics, LLC, to benefit from the contract. Paragraph 10 of the agreement explicitly states that the “Company’s Client(s)” are “intended to be third party beneficiaries to this Dispute Resolution Agreement.” Specifically, Paragraph 1 of the arbitration agreement provides that it applies to all claims that the employee may have against the “Company, Company Client(s), and/or Company and/or Company Client(s)' officers, directors, employees, agents, or parent, subsidiary, or affiliated entities, except as set forth below.” (Meierhans Decl., Ex. 3.) Defendant has established that it is a client of Adecco USA, Inc. (Voong Decl., ¶¶ 3-4; Meierhans Decl. ¶¶ 6-7, Ex. A.) Therefore, Defendant may compel arbitration as a third-party beneficiary regardless of whether its name contains “Ltd.” or “LLC” as a suffix.

Equitable estoppel applies because Plaintiff’s claims are intertwined with his employment relationship with the staffing agency.

Alternatively, Defendant FN Logistics may compel arbitration under equitable estoppel. Under that doctrine, “a nonsignatory defendant may invoke an arbitration clause to compel a signatory plaintiff to arbitrate its claims when the causes of action against the nonsignatory are ‘intimately founded in and intertwined’ with the underlying contract obligations.” (Boucher v. Alliance Title Co., Inc. (2005) 127 Cal.App.4th 262, 271.) “By relying on contract terms in a claim against a nonsignatory defendant, even if not exclusively, a plaintiff may be equitably estopped from repudiating the arbitration clause contained in that agreement.” (Id. at p. 272.) “[I]f a plaintiff relies on the terms of an agreement to assert his or her claims against a nonsignatory defendant, the plaintiff may be equitably estopped from repudiating the arbitration clause of that very agreement. In other words, a signatory to an agreement with an arbitration clause cannot ‘ “ ‘have it both ways’ ” ’; the signatory ‘cannot, on the one hand, seek to hold the non-signatory liable pursuant to duties imposed by the agreement, which contains an arbitration provision, but, on the other hand, deny arbitration's applicability because the defendant is a non-signatory.’ ” (Goldman v. KPMG, LLP, supra, 173 Cal.App.4th at p. 220.)

Equitable estoppel is frequently invoked in staffing agency situations. In Garcia v. Pexco, LLC (2017) 11 Cal.App.5th 782, plaintiff had an arbitration agreement with his staffing agency, Real Time Staffing Services. He sued Real Time and the employer, Pexco, for labor law violations. (Id. at pp. 784–785.) The trial court granted the motion to compel arbitration by both defendants. The appellate court affirmed, noting that even though Pexco was a nonsignatory, it could compel arbitration because “all of [plaintiff’s] claims are intimately founded in and intertwined with his employment relationship with Real Time,” with whom he agreed to arbitrate “ ‘any dispute.’ ” (Id. at pp. 787, 784.)

Similarly, in the class action context, a nurse, employed by a staffing agency, sued her employer hospital. (Franklin v. Community Regional Medical Center (9th Cir. 2021) 998 F.3d 867, 869-870.) The arbitration agreement was between the nurse and staffing agency. The trial court granted the hospital’s motion to compel arbitration as a non-signatory and the Ninth Circuit affirmed. Applying California law, the Ninth Circuit held that the plaintiff’s claims of owed wages and other Labor Code violations were “ ‘intimately founded in and intertwined’ ” with her employment relationship with the staffing agency. (Id. at p. 875.) The appellate court further noted that Plaintiff’s failure to name the staffing agency as a defendant was irrelevant: “Although the court in Garcia cited the plaintiff's decision to allege that the staffing agency and the client were jointly responsible for the statutory violations, 217 Cal. Rptr. 3d at 797, that was not an invitation for litigants and their lawyers to plead around equitable estoppel.” (Ibid.)

Here, Plaintiff agreed to arbitrate “any and all disputes, claims or controversies arising out of or relating to this Agreement, the employment relationship between the Parties, or the termination of the employment relationship.” (Meierhans Decl., Ex. 3.) Plaintiff alleges Labor Code violations in the failure to maintain adequate temperature in the warehouses. As in Garcia v. Pexco, LLC and Franklin v. Community Regional Medical Center, these claims are intertwined with Plaintiff’s employment relationship with Adecco USA, Inc., the staffing agency. Thus, Defendant may alternatively compel arbitration under equitable estoppel.

Plaintiff asserts that his claims are not within the scope of the arbitration agreement. Courts “interpret arbitration agreements using the plain meaning rule, seeking to give effect to the mutual intention of the parties.” (Garner v. Inter-State Oil Co. (2020) 52 Cal.App.5th 619, 622.) “Under the plain meaning rule, courts give the words of the contract or statute their usual and ordinary meaning.” (Valencia v. Smyth (2010) 185 Cal.App.4th 153, 162.)

Here, Paragraph 8 of the arbitration agreement states that the parties “may bring claims against the other only in their individual capacities and not in any representative proceedings under any Private Attorney General Statute (“PAGA Claim”), unless applicable law requires otherwise.” Thus, the plain meaning of Paragraph 8 indicates that the individual PAGA claim shall be arbitrated.

Plaintiff next argues that the arbitration agreement “is invalid as a matter of law” because there is a “quasi-non-severability clause as to the PAGA Waiver.” (Opposition, p. 4:9-11.) That is, he argues that the PAGA waiver in the agreement is a “wholesale” waiver and is invalid under Iskanian v. CLS Transportation Los Angeles, LLC (2014) 59 Cal.4th 348, 384 (Iskanian).

However, Iskanian was partly superseded by the United States Supreme Court in Viking River Cruises, Inc. v. Moriana (2022) 596 U.S. ___ [142 S.Ct. 1906, 1924]. The Court held that the Federal Arbitration Act “preempts the rule of Iskanian insofar as it precludes division of PAGA actions into individual and non-individual claims through an agreement to arbitrate.” Therefore, Viking River Cruises clarified that PAGA claims can be severed into individual and representative components.

Plaintiff further argues that there is ambiguity because of the broad severability clause in Paragraph 13 and the “quasi-non-severability clause” in Paragraph 8, which states that “if the preceding sentence is determined to be unenforceable, then the PAGA claim shall be litigated in a civil court of competent jurisdiction and all remaining claims will proceed in arbitration.” These provisions are not inconsistent. Paragraph 8 is redundant of Paragraph 13: that if the representative PAGA waiver is unenforceable, then it should be severed out and the remaining claims should be arbitrated. This is again repeated by the preceding sentence in Paragraph 8 that parties cannot bring representative claims “unless applicable law requires otherwise.” The Court reads this to mean “unless applicable law does not allow” the waiver of representative claims. In this case, Iskanian did not allow for such waivers and therefore invalidated that provision. Accordingly, given that the parties agreed to at least three different clauses purporting to sever out the invalid waiver of representative PAGA claims, there is no ambiguity.

Viking River Cruises requires arbitration of Plaintiff’s individual PAGA claims.

In Viking River Cruises, the United States Supreme Court decided the issue of whether the Federal Arbitration Agreement preempted the Iskanian decision, which invalidated contractual waivers of the right to allege representative claims under PAGA. (Viking River Cruises, supra, 142 S.Ct. at p. 1913.) In Viking River Cruises, plaintiff Moriana signed an arbitration agreement that contained a class action waiver and a severability clause that if any “portion” of the waiver remained valid, it would be “enforced in arbitration.” (Id. at p. 1916.) Moriana then filed a PAGA complaint against her employer, Viking River Cruises, who moved to compel arbitration of her “individual” claims. (Ibid.)

The U.S. Supreme Court distinguished PAGA actions as being representative in “two distinct ways” – first, these claims are representative because the employees act as “agents or proxies” of the state and thus, “ ‘ “every PAGA action is . . . representative.” ’ ” Second, PAGA claims are representative “when they are predicated on code violations sustained by other employees.” With respect to the second sense of “representative,” the High Court further distinguished “ ‘individual’ PAGA claims, which are premised on Labor Code violations actually sustained by the plaintiff, from ‘representative’ (or perhaps quasi-representative) PAGA claims arising out of events involving other employees.” (Viking River Cruises, supra, 142 S.Ct. at p. 1916.) The Viking decision upheld Iskanian’s “principal rule” prohibiting general waivers of PAGA actions in the first sense. However, it held that federal law preempted the “secondary rule that invalidates agreements to separately arbitrate or litigate ‘individual PAGA claims for Labor Code violations that an employee suffered.’ ” (Id. at pp. 1916-1917.)

The Court reasoned that Iskanian’s prohibition on the division of PAGA claims “unduly circumscribes the freedom of parties to determine ‘the issues subject to arbitration’ ” (Id. at p. 1923.) Because PAGA’s unique mechanism permitted employees to “unite a massive number of claims,” and Iskanian allowed employees to abrogate an agreement to arbitrate individual claims, this created the effect of coercing parties into withholding PAGA claims from arbitration. (Id. at p. 1924.) Thus, the result was inconsistent with the basic principle that arbitration is a matter of consent and was “incompatible with the FAA.” (Ibid.)

In applying its holding to the facts of the case, the U.S. Supreme Court found that Viking River Cruises was entitled to compel arbitration of the plaintiff’s individual PAGA claim. While the agreement’s class action waiver was invalid as a matter of law, the severability clause allowed the valid portion of the waiver to be “ ‘enforced in arbitration.’ ” (Viking River Cruises, supra, 142 S.Ct. at p. 1925.) In addition, the Court found that once compelled to arbitrate her individual claim, Moriana would then lack standing to pursue the nonindividual PAGA claim because she was no longer an aggrieved employee under Labor Code section 2699, subdivisions (a) and (c). (Ibid.)

Here, the facts are similar to Viking River Cruises. The arbitration agreement at issue contains a class or collective action waiver in Paragraph 7 and an explicit waiver of representative PAGA claims in Paragraph 9. In light of Viking River Cruises and Iskanian, the waivers on representative claims are invalid. However, the clause in Paragraph 13 states that the invalid waiver “shall be severed from this Dispute Resolution Agreement and the remaining provisions of this Dispute Resolution Agreement shall remain in full force and effect and shall be construed in a fashion which gives meaning to all of the other terms of this Dispute Resolution Agreement.” The “other terms” include the agreement to arbitrate individual claims. Therefore, the Court orders that Plaintiff’s individual PAGA claims be submitted to arbitration.

The representative PAGA claims must be stayed and whether Plaintiff still has standing to assert them is an issue of state law.

While the Court orders arbitration of the individual PAGA claim, the Court will not dismiss the representative PAGA claim and instead stays the claim pending the outcome of the arbitration.

The arbitration agreement states that if the waiver on the representative PAGA claim is unenforceable, then the “PAGA claim shall be litigated in a civil court of competent jurisdiction.” Thus, the PAGA representative claim shall remain in this court. (See also Shepardson v. Adecco USA, Inc. (N.D.Cal., Apr. 5, 2016, No. 15-cv-05102-EMC) 2016 U.S. Dist. Lexis 46754, *19 [staying the representative PAGA claim in a case involving the same arbitration language].)

Defendant’s argument for dismissal of the PAGA representative claim relies on non-binding dictum in the Viking River Cruises decision. The majority opinion of the U.S. Supreme Court assumed that “PAGA provides no mechanism to enable a court to adjudicate non-individual PAGA claims once an individual claim has been committed to a separate proceeding.” This dictum turns on state law, and involves, among other things, the difference between federal Article III standing, and who is an “aggrieved employee” under PAGA. Defendant fails to discuss standing in its papers and how it would be prejudiced if the case was stayed as opposed to dismissed.

The California Supreme Court has held that representative PAGA claims may be pursued even when the individual claims have settled. In Kim v. Reins International California, Inc. (2020) 9 Cal.5th 73, 83 (Kim), the High Court noted that statutory standing in California “rests on the [statute’s] language, its underlying purpose, and the legislative intent.” For PAGA standing, Labor Code section 2699, subdivision (c) only imposed two requirements to be an “aggrieved employee”: the plaintiff must be someone who was “ ‘employed by the alleged violator’ and ‘against whom one or more of the alleged violations was committed.’ ” (Kim, supra, 9 Cal.5th at pp. 83-84.) Even if the plaintiff was no longer “injured” because his claims were settled, the statute defined standing “in terms of violations, not injury.” (Id. at p. 84.) Therefore, the “remedy for a Labor Code violation, through settlement or other means, is distinct from the fact of the violation itself.” (Ibid.)

The U.S. Supreme Court briefly referenced Kim only four times in Viking River Cruises and did not discuss it substantively for its statutory analysis. In fact, one of the cited quotes from Kim in Viking River Cruises referenced that PAGA standing “was meant to be a departure from the ‘general public’ [citation] standing”; however, the very next sentence in Kim stated that “Nothing in the legislative history suggests the Legislature intended to make PAGA standing dependent on the existence of an unredressed injury, or the maintenance of a separate, unresolved claim.” (Kim, supra, 9 Cal.5th at pp. 90-91, italics added.) Given the lack of discussion on statutory standing in Viking River Cruises, this Court does not rely upon that case for its dictum on PAGA standing, which is a matter of California law. (Beal v. Missouri P.R. Corp. (1940) 312 U.S. 45, 50 [“state courts are the final arbiters of [statutory] meaning and appropriate application”].)

Neither party discussed Kim, nor any effect Viking River Cruises has on that decision given the differences between Article III standing and California standing. (See Kim, supra, 9 Cal.5th at p. 85, fn. 4 [“ ‘cases are not authority for propositions that are not considered.’”]; Viking River Cruises, supra, 142 S.Ct. at p. 1925 (conc. opn. of Sotomayor, J.) [“If this Court’s understanding of state law is wrong, California courts . . . will have the last word”].) PAGA authorizes employees to pursue civil penalties, even if they suffer no individual injury or if their individual injuries were remedied by other means. (Kim, supra, 9 Cal.5th at pp. 90-91.)

The Court does not agree that Viking River Cruises is dispositive of the standing issue as to representative PAGA claims. Therefore, the Court finds that PAGA standing under California law is not necessarily connected to injury or redressability and the Court declines to dismiss the representative PAGA claim. (See (Shams v. Revature LLC (N.D.Cal., Aug. 17, 2022, No. 22-cv-01745-NC) 2022 U.S.Dist.LEXIS 149682, *10 [“because the California Supreme Court is the final arbiter of California law, this Court applies Kim’s interpretation of PAGA standing to this case”].)

The Court stays the representative PAGA claims. (Code of Civ. Proc., § 1281.4; 9 U.S.C. § 3.) All deadlines and time limits are tolled until further order. When the arbitration of the individual claims is completed, the parties shall notify the Court.

Because the Court does not dismiss the representative PAGA claims, Plaintiff’s request to arbitrate the entire PAGA claim is not considered.

Plaintiff fails to raise any unconscionability arguments regarding the arbitration agreement.

Due to Plaintiff’s failure to address the unconscionability argument advanced by Defendant, the Court will only briefly discuss the issue of whether the arbitration agreement is unconscionable. The party resisting arbitration has the burden of proving unconscionability. (Pinnacle Museum Tower Assn. v. Pinnacle Market Development (US), LLC (2012) 55 Cal.4th 223, 247.)

There are generally five minimum requirements for enforceable arbitration agreements: The California Supreme Court set forth five minimum requirements for enforceable arbitration agreements: (1) neutral arbitrator(s), (2) more than minimal discovery, (3) a written award, (4) all types of relief that would otherwise be available in court, and (5) no additional costs for the employee beyond what the employee would incur if bringing the claim in court. (Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, 102.)

The arbitration agreement incorporates the rules of the “Employment Arbitration Rules of the American Arbitration Association then in effect.” Rule 12 provides for neutral arbitrators, Rule 9 grants the arbitrator full discretion as to discovery issues, Rule 39 requires a written award, and Rule 32 grants relief otherwise available in court. The agreement is silent on costs, but because Plaintiff does not dispute these issues, the Court generally finds that the agreement complies with these factors and that it is not substantively unconscionable. The Court does not address procedural unconscionability.

The Court grants the Motion to Compel Arbitration as to Plaintiff’s individual PAGA claim. The Court stays this action pursuant to California Code of Civil Procedure, Section 1281.4 pending arbitration pursuant to the arbitration agreement.

[1] Adecco USA, Inc. is the staffing agency. On July 7, 2022, Plaintiff separately filed a Complaint and Demand for Arbitration against Adecco USA and the Fashion Nova entities as to his claims for disability discrimination, wrongful termination, and Fair Employment and Housing Act violations. (Meierhans Decl., Ex. 3.)

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