Judge Bruce G. Iwasaki, Case Number: 24STCV11183, Date: 2024-11-14 Tentative Ruling

In this employment action, Plaintiff Dagoberto Juarez (Plaintiff) filed a Complaint on May 3, 2024, alleging claims for breach of contract, fraud, unfair competition and numerous wage and hour Labor Code claims against his former employer, Defendants CitiStaff Solutions Inc., Toro Pallets Inc. and Rodrigo Toro.

On September 30, 2024, Defendant CitiStaff Solutions Inc. (CitiStaff) filed a motion to compel arbitration pursuant to the parties’ arbitration agreement. In opposition, Plaintiff argues the arbitration agreement is barred by Labor Code section 432.6, the FAA does not apply to this arbitration agreement, and the arbitration agreement does not apply to Defendants Toro Pallets Inc. and Rodrigo Toro.

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 CitiStaff moves to compel arbitration of Plaintiff’s claims and dismiss the action, or in the alternative, stay the matter pending arbitration.

Defendant CitiStaff seeks to compel arbitration based on a 2017 Arbitration Agreement. In support of the existence of an arbitration agreement, Defendant submits evidence that Plaintiff executed an Arbitration Agreement on September 1, 2017 as part of CitiStaff’s employee onboarding process. (Cerdas Decl., ¶¶ 4, 6-7.)

The Agreement provides that Plaintiff and Defendant CitiStaff “agree to exclusively engage in Mandatory Mediation and Binding Arbitration for any and all disputes, claims, or controversies (“claims”) they may have against each other, including claims against current and former agents, owners, officers, directors, or employees, arising out of the employment relationship between the employee and the employer or the termination thereof.” (Cerdas Decl., ¶¶ 5-6, Exs. A; Slater Decl., ¶ 4, Ex. B.) The Agreement continues by stating these claims include, but are not limited to “[c]laims of employment discrimination and harassment under Title VII of the Civil Rights Act, as amended; the California Fair Employment and Housing Act; the Equal Pay Act; the Wage Theft Prevention Act; Age Discrimination in Employment Act, as amended; the Americans with Disabilities Act; 42 U.S.C. 1981; the Employee Retirement Income Security Act; the California Labor Code, including any claim filed by the employee related to wages; employment notices of any kind; meal and rest breaks; wage disclosure notices; employment notices of any kind; breach of employment contract or the implied covenant of good faith and fair dealing; wrongful termination; or unlawful conduct (whether intentional or negligent) including defamation, misrepresentation, fraud, and infliction of emotional distress.” (Cerdas Decl., ¶¶ 5-6, Ex. A; Slater Decl., ¶ 4, Ex. B.)

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 binding arbitration agreement between the parties. Nor does Plaintiff argue the Agreement is unenforceable because it is procedurally and substantively unconscionable. Rather, the dispute turns whether the Arbitration Agreement is invalid under Labor Code section 432.6.

Section 432.6, subdivision (a), prohibits employers from requiring employees to waive, as a condition of employment, the right to litigate certain claims. It states:

“A person shall not, as a condition of employment, continued employment, or the receipt of any employment-related benefit, require any applicant for employment or any employee to waive any right, forum, or procedure for a violation of any provision of the California Fair Employment and Housing Act [FEHA] (Part 2.8 (commencing with Section 12900) of Division 3 of Title 2 of the Government Code) or this code, including the right to file and pursue a civil action or a complaint with, or otherwise notify, any state agency, other public prosecutor, law enforcement agency, or any court or other governmental entity of any alleged violation.”

As noted in the reply, this statute by its own terms does not apply to the Arbitration Agreement at issue in this matter.

Section 432.6, subdivision (h), states that this section applies only “to contracts for employment entered into, modified, or extended on or after January 1, 2020.”

As Defendant’s undisputed evidence clearly shows, this Arbitration Agreement was entered into on September 1, 2017. (Cerdas Decl., ¶¶ 5-6, Exs. A; Slater Decl., ¶ 4, Ex. B.) Thus, Plaintiff’s reliance on Section 432.6 is improper.

Even if Section 432.6 applied, the application of this statute to the Arbitration Agreement would be preempted under the Federal Arbitration Act (FAA).

Recently, the Ninth Circuit has recently held that in light of the FAA’s “purpose [ ] to further Congress's policy of encouraging arbitration,” Assembly Bill 51, which added Labor Code § 432.6, stood “as an obstacle to that purpose,” and was “therefore preempted.” (Chamber of Com. of the United States of Am. v. Bonta (9th Cir. 2023) 62 F.4th 473, 487.)

In its moving papers, Defendant CitiStaff argues that the FAA applies to the Arbitration Agreement because it engages in interstate commerce. In support, Defendant submits evidence it is a temporary staffing agency that places temporary employees to work at various companies throughout Southern California in warehousing, logistics, light manufacturing, and food production; CitiStaff’s employees work on products and goods that are shipped and/or distributed to different states nationwide. (Cerdas Decl., ¶ 2.) Additionally, CitiStaff has offices in Washington, Texas, Nevada, Arizona, and Indiana, where it places employees to work at various businesses. (Slater Decl., ¶ 2; Cerdas Decl., ¶¶ 2-3.)

Defendant CitiStaff also contends that Defendant Toro Pallets engages in interstate commerce. Defendant Toro Pallets is a company specializing in the manufacturing, sale, purchase, repair and distribution of pallets. (Slater Decl., ¶3; Cerdas Decl., ¶ 4.) During the time Plaintiff was assigned there, Toro Pallets shipped pallets out of state, and also accepted pallets for purchase or repair from sources outside of California. (Slater Decl., ¶ 3; Cerdas Decl., ¶ 4.)

Defendant CitiStaff has met its evidentiary burden of showing that the Arbitration Agreement involves interstate commerce such that the FAA applies.[1]

Finally, Plaintiff argues that the Arbitration Agreement does not apply to Toro Pallets. Specifically, Plaintiff argues that Defendant Toro Pallets is not an intended third-party beneficiary, the doctrine of equitable estoppel does not apply, and there is no evidence of a principal-agent relationship with Defendant CitiStaff.

Defendants Toro Pallets and Rodrigo Toro did not join in the motion. The Court doubts that Defendant CitiStaff has standing to compel the other two defendants to arbitrate. But if they were to join in the motion, the Court would conclude that Toro Pallets and Rodrigo Toro could also enforce the arbitration provision.

A party seeking to compel arbitration must generally establish that he or she was a party to an arbitration agreement. (DMS Services, LLC v. Superior Court (2012) 205 Cal.App.4th 1346, 1352-1353; JSM Tuscany, LLC v. Superior Court (2011) 193 Cal.App.4th 1222, 1236.) However, California courts have recognized certain exceptions which permit a nonsignatory to an agreement with an arbitration clause “to compel arbitration of, or be compelled to arbitrate, a dispute arising within the scope of that agreement.” (DMS Services, supra, 205 Cal.App.4th at p. 1353; see also Metalclad Corp. v. Ventana Environmental Organizational Partnership (2003) 109 Cal.App.4th 1705, 1713-1714.)

Here, Defendant Toro Pallets and Rodrigo Toro may enforce the Arbitration Agreement under the agency theory.

“[W]hen a plaintiff alleges a defendant acted as an agent of a party to an arbitration agreement, the defendant may enforce the agreement even though the defendant is not a party thereto.” (Thomas v. Westlake (2012) 204 Cal.App.4th 605, 614.)

Here, Plaintiff alleges that Defendants are all “the agent and employee of the other defendants and was, at all times herein mentioned, acting within the scope of said agency and employment.” (Compl., ¶ 5.) Further, the Complaint at times referred to both employers collectively as “Defendants” without distinction (Compl., ¶¶ 51, 55-59), and alleged identical claims and nearly identical conduct regarding unlawful and improper acts. (Compl., ¶¶ 2-64.)

Thus, Plaintiff’s own allegations concede an agency relationship. Therefore, all Defendants may compel arbitration under the Arbitration Agreement. (Dryer v. Los Angeles Rams (1985) 40 Cal.3d 406, 418, [where complaint alleges that nonsignatory defendants acted as agents for signatory defendant, the nonsignatory defendants are entitled to benefit of arbitration agreement].)[2]

Under this exception, “a nonsignatory defendant may invoke an arbitration clause to compel a signatory plaintiff to arbitrate its claim 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, 267.) The doctrine applies where the claims are “ ‘ “based on the same facts and are inherently inseparable’ ” from the arbitrable claims against signatory defendants.” (Metalclad Corp. v. Ventana Environmental Organizational Partnership (2003) 109 Cal.App.4th 1705, 1713.)

As noted above, the allegations against all Defendants in the Complaint here arise from Plaintiff’s temporary staffing placement by CitiStaff with Toro Pallets; thus, the employment claims all arise from the same employment relationship governed by the Arbitration Agreement. (See e.g., Garcia v. Pexco, LLC (2017) 11 Cal.App.5th 782, 786-788.) As such, the causes of action against the nonsignatory defendants are “intimately founded in and intertwined” with the underlying contract obligations.

Accordingly, the Court grants Defendant CitiStaff Solutions Inc.’s motion to compel arbitration. The matter is stayed pending arbitration.

[1] Even if Plaintiff is correct that the FAA does not apply to the arbitration agreement with Defendants, this does not render the Arbitration Agreement unenforceable based on the Court’s determination that Labor Code section 432.6 does not apply to this Agreement. That is, a contract to arbitrate does not require the FAA to be enforceable. Rather, the FAA only preempts certain state laws that would otherwise prohibit arbitration. “Nothing in the CAA, however, requires that an arbitration agreement explicitly reference the CAA to be enforceable under California law.” (Garrido v. Air Liquide Industrial U.S. LP (2015) 241 Cal.App.4th 833, 841; see also Lagatree v. Luce, Forward, Hamilton & Scripps (1999) 74 Cal.App.4th 1105, 1121 [“Assuming arguendo that the FAA does not apply, we would assess the validity of the parties' arbitration agreements under the California Arbitration Act.”].) Thus, the applicability of the FAA has no consequence here.

[2] Non-moving Defendants do not appear to be third party beneficiaries. To invoke the third-party beneficiary exception, the nonsignatory “ ‘ha[s] to show that the arbitration clause ... was made expressly for [its] benefit.’ ” (Fuentes, supra, 26 Cal.App.5th at pp. 551–552, 237 Cal.Rptr.3d 256.) Here, the Arbitration Agreement had its own list of intended third-party beneficiaries. Based on the English language translation, the Agreement required arbitration of any employment disputes between Plaintiff and CititStaff (which referred to “CitiStaff Solutions Inc. and CitiStaff Management Group, Inc.”) and “current and former agents, owners, officers, directors, or employees . . ..” (Cerdas Decl., ¶¶ 5-6, Ex. A, ¶ 3; Slater Decl., ¶ 4, Ex. B, ¶ 3.) Here, Defendant CitiStaff repeatedly refers to non-moving Defendants as “customers.”

Department 58