Judge Bruce G. Iwasaki, Case Number: 22STCV01605, Date: 2023-10-23 Tentative Ruling

Tentative Ruling: The Motion to Compel Arbitration is granted; the matter is stayed pending resolution of arbitration.

In this employment action, Plaintiff Elisa Ortego (Plaintiff) filed a Complaint on January 13, 2022, alleging a single PAGA cause of action complaint against her former employer, Defendant Magic Laundry Services, Inc. (Defendant). The PAGA claim incorporated numerous Labor Code violations.

On September 28, 2023, Defendant filed a motion to compel arbitration pursuant to the parties’ arbitration agreement. In opposition, Plaintiff argues the arbitration agreement includes a specific PAGA carve-out, and the arbitration agreement is unenforceable based on unconscionability. Defendant filed a reply.

The motion to compel arbitration is granted. The matter is stayed pending the outcome of arbitration.

Plaintiff’s objections to the declaration of Crystal Portillo are ruled upon as follows: No. 1, 3-4 are overruled, and No. 2 is sustained.

Defendant’s request for judicial notice of Ex. A is granted. (Evid. Code, § 452, subd. (h); see e.g., Nguyen v. Applied Medical Resources Corp. (2016) 4 Cal.App.5th 232, 240.)

Defendant’s evidentiary objections to the declaration of Elisa Ortego are ruled upon as follows: Nos. 1-3 are overruled.

Under Code of Civil Procedure section 1281.2, a court may order arbitration of a controversy if it finds that the parties have agreed to arbitrate that dispute. Because the obligation to arbitrate arises from contract, the court may compel arbitration only if the dispute in question is one in which the parties have agreed to arbitrate. (Weeks v. Crow (1980) 113 Cal.App.3d 350, 352.) Since arbitration is a favored method of dispute resolution, arbitration agreements should be liberally interpreted, and arbitration should be ordered unless the agreement clearly does not apply to the dispute in question. (Id. at p. 353; Segal v. Silberstein (2007) 156 Cal.App.4th 627, 633.)

Defendant moves to compel arbitration of Plaintiff’s individual PAGA claims and stay the remaining representative PAGA claims while the arbitration is pending. Defendant seeks to compel arbitration based on a 2019 Arbitration Agreement. In support of the existence of an arbitration agreement, Defendant submits evidence that Plaintiff began working for Defendant in November of 2018. (Portillo Decl., ¶ 4.) Then, in January 2019, Defendant conducted training for all employees to inform them about Defendant’s updated employee handbook, which included an arbitration agreement. (Portillo Decl., ¶¶ 6-7; Gallegos Reply Decl., ¶¶ 5-6.) During this training Plaintiff received this Arbitration Agreement to review and sign, which she did on January 7, 2019. (Portillo Decl., ¶¶ 8-9, Ex. A [signed version of Arbitration Agreement]; Gallegos Reply Decl., ¶¶ 5-6; see also Ortego Decl., ¶¶ 5-8.) The Agreement is a stand-alone document that was titled “ARBITRATION AGREEMENT.” (Portillo Decl., ¶ 9, Ex. B [English version of Arbitration Agreement].)

The Agreement provides that Plaintiff and Defendant mutually “agree that any legal dispute or controversy covered by this Agreement, or arising out of, relating to or concerning the scope, formation, validity, enforceability or breach of this Agreement, shall be resolved by final and binding arbitration in accordance with the Employment Arbitration Rules of the American Arbitration Association (“AAA Rules”) then in effect, and not by court or jury trial . . ..” (Portillo Decl., Ex. B, p. 1, ¶ 1.) The Agreement continues by stating it “also applies, without limitation, to disputes with any entity or individual arising out of or related to the application for employment, background checks, privacy, the employment relationship or the termination of that relationship, contracts, trade secrets, unfair competition, compensation, classification, minimum wage, seating, expense reimbursement, overtime, meal periods and rest breaks, termination, retaliation, discrimination or harassment . . ..” (Portillo Decl., Ex. B, p. 1, ¶ 1.)

Finally, the Arbitration Agreement states it “is governed by the Federal Arbitration Act (9 U.S.C. §§ 1, et seq.).” (Portillo Decl., Ex. B, p. 1, ¶ 1.) Additionally, Defendant submits evidence that its activities and operations involve interstate commerce. (Portillo Decl., ¶ 3.)

In opposition, Plaintiff does not dispute the existence of the arbitration agreement or otherwise deny signing the agreement. Thus, there is no factual dispute as to the existence of a valid arbitration agreement between the parties. Nor does Plaintiff provide any legal or factual argument as to why the FAA does not apply to this Agreement.[1]

Rather, the opposition challenges Defendant’s position that the arbitrator decides gateway issues and further argues that the Arbitration Agreement contains a carve-out of Plaintiff’s PAGA claims. These issues are addressed below.

First, Defendant argues that the Arbitration Agreement delegates all threshold questions to the arbitrator to resolve.

“There are two prerequisites for a delegation clause to be effective. First, the language of the clause must be clear and unmistakable. [Citation.] Second, the delegation must not be revocable under state contract defenses such as fraud, duress, or unconscionability.” (Tiri v. Lucky Chances, Inc. (2014) 226 Cal.App.4th 231, 242; see Rent-A-Center, West, Inc. v. Jackson (2010) 561 U.S. 63, 68, 69, fn. 1.) The “clear and unmistakable” test reflects a “heightened standard of proof” that reverses the typical presumption in favor of the arbitration of disputes. (Ajamian v. CantorCO2e, L.P. (2012) 203 Cal.App.4th 771, 787.)

Here, Defendant contends the following language in the Arbitration Provision supports delegating the resolution of “gateway” issues to the arbitrator: “any legal dispute or controversy . . . arising out of, relating to, or concerning the scope, formation, validity, enforceability or breach of this Agreement, shall be resolved by final and binding arbitration.” (Portillo Decl., Exh. B at 1, ¶ 1.) Defendant also argues that the parties incorporated the AAA Rules. According to Defendant, both the language of the Arbitration Agreement and the AAA rules constitutes clear and unmistakable evidence that the parties intended to delegate the gateway issues to the arbitrator.

In opposition, Plaintiff argues there is no clear and unmistakable evidence that Plaintiff intended to delegate the determination of arbitrability to the arbitrator. Further, Defendant did not attach the AAA rules. Finally, the purported delegation provision is unconscionable.

The Court will first address the initial question of whether the language of the Arbitration Agreement clearly and unmistakably intended to delegate the “arbitrability” of the Agreement to the arbitrator.

Defendant’s reliance on Aanderud v. Superior Court (2017) 13 Cal.App.5th 880 is instructive. In Aanderud, a solar power purchase agreement contained an arbitration provision that permitted claims to be resolved “through binding arbitration or small claims court instead of courts of general jurisdiction.” (Id. at pp. 885–886.) Relevant to the issues here, the arbitration provision delegated issues of validity and enforceability of the arbitration provision to arbitration. (Id. at p. 891.) Importantly, the Aanderud arbitration provision contained a nearly identical delegation provision to the delegation provision here: “the parties ‘agree to arbitrate all disputes ... arising out of or relating to ... the interpretation, validity, or enforceability of this Agreement, including the determination of the scope or applicability of [the arbitration] section.’ ” (Id. at 892.) The court in Aanderud concluded that this provision constituted “clear and unmistakable evidence that the parties intended to arbitrate arbitrability.” (Ibid.)

In response, Plaintiff appears to suggest that this provision is ambiguous because the Arbitration Agreement contains a carve-out for the court to resolve disputes involving the enforceability of the class and collective action waiver. Specifically, the Arbitration Provision states: “Notwithstanding any other provision of this Agreement or the AAA Rules, disputes in court or arbitration regarding the scope, formation, validity, enforceability or breach of the Class Action Waiver may be resolved only by the court and not by an arbitrator.” (Portillo Decl., Ex. B, pp. 2-3, ¶ 2.)

The provision carving out specific disputes to be resolved by the Court, however, strengthens Defendant’s argument because it indicates that the Agreement’s intent to reserve only the “Class Action Waiver” enforceability provisions for the Court to resolve – reserving the remaining issues for the arbitrator. (See Mohamed v. Uber Technologies, Inc. (9th Cir. 2016) 848 F.3d 1201, 1209 [arbitration carve-outs did not change enforceability of delegation clause].)

Additionally, as in Aanderud, the Arbitration Agreement’s reference to the AAA rules in the delegation provision further “evidences the parties' clear and unmistakable intent to submit issues of arbitrability to the arbitrator.” (Aanderud, supra, 13 Cal.App.5th at p. 893; see Greenspan v. LADT, LLC (2010) 185 Cal.App.4th 1413, 1442 [“ ‘when ... parties explicitly incorporate rules that empower an arbitrator to decide issues of arbitrability, the incorporation serves as clear and unmistakable evidence of the parties' intent to delegate such issues to an arbitrator’ ”]; Brennan v. Opus Bank (9th Cir. 2015) 796 F.3d 1125, 1130 [incorporation of AAA rules that provide that disputes regarding the validity of an arbitration agreement are also delegated to the arbitrator, rather than the Court, constitutes clear and unmistakable delegation of intermediate issues of arbitrability to the arbitrator]; Bazine v. Kelly Services Global, LLC (N.D. Cal., June 21, 2023, No. 22-CV-07170-BLF) 2023 WL 4138252, at *4-*5 [same].)

Here the AAA Rules state that “[t]he arbitrator shall have the power to rule on his or her own jurisdiction, including any objections with respect to the existence, scope or validity of the arbitration agreement” and “[t]he arbitrator shall have the power to determine the existence or validity of a contract of which an arbitration clause forms a part.” (Def.’s RJN Ex. A, p. 12, ¶ 6(a), (b).) Further, contrary to the opposition argument, it is of no consequence that the rules were not attached where the Arbitration Agreement provides the electronic location of the rules and provides instructions on how to obtain a copy of the rules from Defendant’s Human Resources Department. (See Lane v. Francis Capital Management LLC (2014) 224 Cal.App.4th 676, 691 [concluding that “the failure to attach a copy of the AAA rules did not render the agreement procedurally unconscionable” as “[t]here could be no surprise, as the arbitration rules referenced in the agreement were easily accessible to the parties—the AAA rules are available on the Internet”].) Nor is Plaintiff’s self-proclaimed status as unsophisticated party determinative. (Hernandez v. United HealthCare Services, Inc. (C.D. Cal., July 26, 2018, No. SACV180420DOCKESX) 2018 WL 7458649, at *5 [expressly holding that the incorporation of AAA rules to the delegation issue applies to unsophisticated parties].)

Accordingly, the language of this delegation provision and its incorporation of the AAA is sufficiently “clear and unmistakable” for the Court to find that the parties have agreed to delegate the Court’s responsibility to determine arbitrability to the arbitrator. Thus, the issue of whether the Arbitration Provision carves out Plaintiff’s PAGA claim from arbitration is for the arbitrator to decide – not this Court.

Next, the Court will address Plaintiff’s unconscionability arguments directed specifically at the delegation provision.

“When considering an unconscionability challenge to a delegation provision, the court must consider only arguments ‘specific to the delegation provision.’ ” (Mohamed v. Uber Technologies, Inc. (9th Cir. 2016) 848 F.3d 1201, 1210 [quoting Rent-A-Ctr., W., Inc. v. Jackson (2010) 561 U.S. 63, 73].)

Rather than address the delegation provision, Plaintiff challenges the validity of the Arbitration Agreement as a whole. That is, Plaintiff does specifically challenge the validity of the Arbitration Agreement that empowers the arbitrator to rule on “formation, interpretation, validity, applicability, unconscionability, or enforceability” of the arbitration agreement. Because Plaintiff did not challenge the delegation provision specifically, the enforceability of the arbitration agreement as a whole must be decided by the arbitrator. (Rent-A-Center, West, Inc. v. Jackson (2010) 561 U.S. 63, 75-76; Luxor Cabs, Inc. v. Applied Underwriters Captive Risk Assurance Co. (2018) 30 Cal.App.5th 970, 979 [“[A] delegation clause nested in an arbitration provision is severable from the remainder of the contract and the question of its enforceability is for the court to decide if a challenge is directed specifically at the validity of the delegation clause.”].) “[A] party's challenge to the arbitration agreement [as a whole] does not invalidate the delegation clause, and therefore the arbitrator, and not a court, must consider any challenge to the arbitration agreement as a whole.” (Tiri v. Lucky Chances, Inc., supra, 226 Cal.App.4th at 240.)

Further, the only argument Plaintiff raises with respect to substantive unconscionability of the Arbitration Agreement is the claim that the Arbitration Agreement lacked mutuality because there was no space for Defendant to countersign in the Agreement.

This argument is without merit. First, a “missing signature is irrelevant to whether the substance of the contact is fair.” (Fuentes v. Empire Nissan, Inc. (2023) 90 Cal.App.5th 919, 933.) Said another way, this argument does not inform at all on the substantive unconscionability of the agreement. Moreover, under the circumstances, the absence of Defendant’s signature on the Arbitration Agreement does not demonstrate a lack of assent by Defendant to the Arbitration provision. (See e.g., Fuentes v. Empire Nissan, Inc., surpa, 90 Cal.App.5th at 933 [“A signature can be important to show contractual assent, but that is beside the point here: Nissan certainly assented to its own arbitration agreement—the agreement that it drafted and required Fuentes to sign and that it now is trying to enforce. In this setting, no signature was necessary to prove Nissan's assent.”].)

Based on the foregoing, even assuming the Court could find that this substantive unconscionability argument applies specifically to the delegation provision, the unconscionability argument fails. (See OTO, L.L.C. v. Kho (2019) 8 Cal.5th 111, 125–126 [“Both procedural and substantive unconscionability must be shown for the defense to be established, but ‘they need not be present in the same degree.’”].) Plaintiff has not met her burden of demonstrating that the delegation provision is unconscionable or otherwise unenforceable.

In contrast, Defendant has met its burden of demonstrating the existence of a valid, enforceable delegation provision in the Arbitration Agreement. Thus, the Court will enforce the plain terms of the Arbitration Agreement, which require it to delegate to the arbitrator the threshold questions of: (1) whether the individual portion of Plaintiff’s PAGA claim falls within the scope of the Agreement; and (2) whether the Agreement is otherwise enforceable. Plaintiff’s individual PAGA claim is ordered to the AAA for resolution of these gateway issues as well as resolution of the claim itself (assuming the arbitrator finds that the Arbitration Agreement is valid and encompasses Plaintiff’s individual PAGA claim).

The remaining representative PAGA claims are stayed pending the resolution of this arbitration. (See Code Civ. Proc., § 1281.4; Barrera v. Apple American Group LLC (2023) 95 Cal.App.5th 63 [remanding to the trial court to exercise their discretion on “whether a stay of plaintiffs’ non-individual PAGA claims would be appropriate under the circumstances”].)

Accordingly, the Court grants Defendant Magic Laundry Services, Inc.’s motion to compel arbitration. The motion to compel arbitration is granted as to Plaintiff’s individual Labor Code claims. The remaining representative PAGA claims are stayed pending the outcome of arbitration.

[1] With respect to the FAA, Plaintiff’s sole argument is that “[s]ince Plaintiff’s state contract defenses regarding unconscionability are dispositive of Defendant’s Motion, and because there is no enforceable agreement, the Court need not reach the issue of whether the FAA applies.” (Opp. 20:5-7.)

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