Judge Daniel M. Crowley, Case Number: 23STCV28338, Date: 2024-07-25 Tentative Ruling

Defendant Abode Communities’ motion to compel arbitration of Plaintiffs Raul E. Zamora’s and Antonio Perez’s individual PAGA claims in this action is granted. Plaintiffs’ representative PAGA claim is not compelled to arbitration and is stayed pending arbitration of Plaintiffs’ individual PAGA claims.

Defendant Abode Communities (“Abode”) (“Defendant”) moves for an order compelling arbitration of all claims asserted by Plaintiffs Raul E. Zamora (“Zamora”) and Antonio Perez (“Perez”) (collectively, “Plaintiffs”) and staying the instant action during the pendency of arbitration. (Notice of Motion, pgs. 1-2; 9 U.S.C. §2; C.C.P. §§1281.2, 1281.4.) Defendant also moves to arbitrate Plaintiffs’ individual PAGA claim and request that this court dismiss Plaintiffs’ non-individual PAGA claim to the extent that it exists pursuant to the Arbitration Agreement, the Federal Arbitration Act, and the United States Supreme Court Viking River Cruises v. Moriana decision. (Notice of Motion, pg. 2.)

Plaintiffs’ 7/12/24 request for judicial notice of the Declaration of Grant Folsom in support of Defendant Viking River Cruises, Inc’s motion to compel arbitration (P-RJN, Exh. 1), is granted.

On November 20, 2023, Plaintiffs filed the instant action for penalties pursuant to Labor Code §§2699, et seq. for violations of Labor Code §§201, 202, 203, 226(a), 226.7, 510, 512, 1194, 1194.2, 1199, and 2802. (See Complaint ¶¶1-2.) Defendant filed the instant motion on February 6, 2024. Plaintiffs filed their opposition on July 12, 2024. Defendant filed its reply on July 18, 2024.

Federal law provides for enforcement of this Arbitration Agreement. The Federal Arbitration Act, 9 U.S.C. §1, et seq. (“FAA”), establishes a strong federal policy in favor of arbitration of disputes where a written arbitration agreement exists. Section 2 of the FAA provides, in pertinent part that “[a] written provision . . . to settle by arbitration a controversy thereafter arising out of such contract . . . shall be valid, irrevocable, and enforceable.” (9 U.S.C. §2.) The purpose of the FAA is to “reverse the longstanding judicial hostility to arbitration agreements.” (Gilmer v. Interstate/Johnson Lane Corp. (1991) 500 U.S. 20, 24.) The FAA places arbitration agreements “on an equal footing with other contracts and [requires courts] to enforce them according to their terms.” (AT&T Mobility, LLC v. Concepcion (2011) 563 U.S. 333, 339; see also Rent-A-Center West, Inc. v. Jackson (2010) 561 U.S. 63, 67 [“The FAA reflects the fundamental principle that arbitration is a matter of contract.”].) The FAA will preempt not only a state law that “discriminat[es] on its face against arbitration,” but also a state law that “covertly accomplishes the same objective by disfavoring contracts that (oh so coincidentally) have the defining features of arbitration agreements.” (Kindred Nursing Centers Limited Partnership v. Clark (2017) 137 S.Ct. 1421, 1426.)

The United States Supreme Court has specifically held that the FAA applies to employment contracts: “[A]s a matter of law the answer is clear. In the Federal Arbitration Act, Congress has instructed federal courts to enforce arbitration agreements according to their terms.” (Epic Systems Corp. v. Lewis (2018) 138 S.Ct. 1612, 1619 [holding that employees must submit to arbitration agreements including those with collective action waivers].)

The FAA restricts a court’s inquiry related to compelling arbitration to two threshold questions: (1) whether there was an agreement to arbitrate between the parties; and (2) whether the agreement covers the dispute. (Howsam v. Dean Witter Reynolds, Inc. (2002) 537 U.S. 79, 84.) Here, both criteria are satisfied. First, Plaintiffs agreed to arbitration when they entered into the respective Employee Acknowledgement and Agreements (collectively, “Arbitration Agreements”) that contained the relevant arbitration clause. (Decl. of Cole ¶3, Exh. 2 at ¶2.) Second, the Arbitration Agreements expressly cover “all disputes that may arise out of or be related in any way to [Plaintiffs’] employment, including but not limited to the termination of [Plaintiffs’] employment and [Plaintiffs’] compensation” between Plaintiffs and Abode. (Decl. of Cole ¶3, Exh. 2 at ¶2.)

California law also favors arbitration for dispute resolution. The California Arbitration Act (“CAA”), codified at C.C.P. §1281 et seq., provides, “A written agreement to submit to arbitration an existing controversy or a controversy thereafter arising is valid, enforceable and irrevocable, save upon such grounds as exist for the revocation of any contract.” (C.C.P. §1281; see also Grafton Partners L.P. v. Superior Court (2005) 36 Cal.4th 944, 955 [“[U]nlike predispute jury waivers, predispute arbitration agreements are specifically authorized by statute.”].)

“California law, like federal law, favors enforcement of valid arbitration agreements.” (Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, 97, 99.) The public policy in favor of arbitration is so strong that California courts have held that an employee is “bound by the provisions of the [arbitration] agreement regardless of whether [he] read it or [was] aware of the arbitration clause when [he] signed the document.” (Brookwood v. Bank of America (1996) 45 Cal.App.4th 1667, citing Macaulay v. Norlander (1992) 12 Cal.App.4th 1.) The only prerequisite for a court to order arbitration is a determination that the parties have entered into an agreement to arbitrate the dispute. (United Transportation Union v. Southern California Rapid Transit District (1992) 7 Cal.App.4th 804, 808.) Thus, arbitration must be ordered “unless the agreement clearly does not apply to the dispute in question.” (Vianna v. Doctors’ Management Co. (1994) 27 Cal.App.4th 1186, 1189.)

Defendant proved the existence of an arbitration agreement with Plaintiffs. Defendant submitted evidence that on October 26, 2021, Perez signed his Arbitration Agreement, and on December 23, 2021, Zamora signed his Arbitration Agreement. (See Decl. of Cole ¶3, Exh. 2.)

Plaintiffs do not argue that they did not enter into valid Arbitration Agreements with Defendant, rather, they argue their representative PAGA action must remain before this Court and cannot be compelled to arbitration. (See Opposition, pgs. 7-9.) This argument will be addressed in turn.

Based on the foregoing, Defendant proved the existence of a valid Arbitration Agreement with Plaintiffs that is enforceable by Defendant.

I and the Company agree to utilize binding individual arbitration as the sole and exclusive means to resolve all disputes that may arise out of or be related in any way to my employment, including but not limited to the termination of my employment and my compensation. I and the Company each specifically waive and relinquish our respective rights to bring a claim against each other in a court of law. Both I and the Company agree that any claim, dispute, and/or controversy that I may have against the Company (or its owners, directors, officers, managers, employees, or agents), or the Company may have against me, shall be submitted to and determined exclusively by binding arbitration… The only exception to the requirement of binding arbitration shall be for claims arising under the National Labor Relations Act which are brought before the National Labor Relations Board, claims for medical and disability benefits under the California Workers’ Compensation Act, Employment Development Department claims, or other claims that are not subject to arbitration under current law.

All claims brought under this binding arbitration Agreement shall be brought in the individual capacity of myself or the Company. This binding arbitration Agreement shall not be construed to allow or permit the consolidation or joinder of other claims or controversies involving any other employees or parties, or permit such claims or controversies to proceed as a class or collective action. No arbitrator shall have the authority under this agreement to order any such class or collective action. By signing this agreement, I am agreeing to waive any substantive or procedural rights that I may have to bring an action on a class or collective basis.

(Decl. of Cole ¶2, Exh. 2 at ¶3.) This clause of the agreement is silent as to PAGA claims.

Further, the Arbitration Agreements contain a severability clause: “If any term, provision or portion of this Agreement is determined to be void or unenforceable it shall be severed and the remainder of this Agreement shall be fully enforceable.” (Decl. of Cole ¶2, Exh. 2 at ¶6.)

Defendant’s argument that Plaintiffs’ individual PAGA claims must be compelled to arbitration and Plaintiffs’ representative PAGA claims should be stayed in this Court pending the completion of individual arbitration in the interest of judicial efficiency is well taken. Here, Plaintiffs’ individual PAGA claims arise from their employment relationship with Defendant and are therefore governed by the Arbitration Agreements.

Pursuant to the California Supreme Court’s ruling in Adolph v. Uber Technologies, Inc., “[n]othing in PAGA or any other relevant statute suggests that arbitrating individual claims effects a severance. When a case includes arbitrable and nonarbitrable issues, the issues may be adjudicated in different forums while remaining part of the same action.” (Adolph v. Uber Technologies, Inc. (2023) 14 Cal.5th 1104, 1124.) The Adolph Court further stated:

Code of Civil Procedure section 1281.4 states that upon “order[ing] arbitration of a controversy which is an issue involved in an action,” the court should “stay the action.” It further provides that “[i]f the issue which is the controversy subject to arbitration is severable, the stay may be with respect to that issue only.” Section 1281.4 does not contemplate that the compelled arbitration of an issue in controversy in the action is a separate action. The statute makes clear that the cause remains one action, parts of which may be stayed pending completion of the arbitration.

Here, Defendant met their burden of establishing the Arbitration Agreement covers the causes of action asserted in Plaintiffs’ complaint as to their individual PAGA claims and such claims can be compelled to arbitration. However, Defendant cannot compel Plaintiff’s representative PAGA claims, and Defendant concedes that such claims should be stayed in this Court. (Reply, pg. 5.)

Accordingly, Plaintiffs’ covered claims relating to their individual PAGA action relate to the Arbitration Agreement and can therefore be compelled to arbitration. Plaintiffs’ representative PAGA action does not relate to the Arbitration Agreement and therefore cannot be compelled to arbitration.

“[P]rocedural and substantive unconscionability must both be present in order for a court to exercise its discretion to refuse to enforce a contract or clause under the doctrine of unconscionability.” (Armendariz, 24 Cal.4th at pg. 102.) Courts invoke a sliding scale which disregards the regularity of the procedural process of the contract formation, that creates the terms, in proportion to the greater harshness or unreasonableness of the substantive terms themselves, i.e., the more substantively oppressive the contract term, the less evidence of procedural unconscionability is required to conclude that the term is unenforceable, and vice versa. (Id., at pg. 114.) Plaintiffs bear the burden of proving that the provision at issue is both procedurally and substantively unconscionable.

Plaintiffs do not argue the issue of unconscionability and therefore concede this issue.

Pursuant to C.C.P. §1281.4, if an application has been made to a court involving order to arbitrate a controversy and such application is undetermined, the court where the application is pending shall, upon motion of a party to the action, stay the action until the application for an order to arbitrate is determined. (C.C.P. §1281.4.)

The Adolph Court stated, with respect to staying a representative PAGA action pending the resolution of an individual PAGA claim in arbitration:

[T]he trial court may exercise its discretion to stay the non-individual claims pending the outcome of the arbitration pursuant to section 1281.4 of the Code of Civil Procedure. Following the arbitrator’s decision, any party may petition the court to confirm or vacate the arbitration award under section 1285 of the Code of Civil Procedure. If the arbitrator determines that Adolph is an aggrieved employee in the process of adjudicating his individual PAGA claim, that determination, if confirmed and reduced to a final judgment (Code Civ. Proc., §1287.4), would be binding on the court, and Adolph would continue to have standing to litigate his nonindividual claims. 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. (See Rocha v. U-Haul Co. of California (2023) 88 Cal.App.5th 65, 76-82, 304 Cal.Rptr.3d 587)

Here, it would be prudent for this Court to stay Plaintiffs’ representative PAGA claims to avoid unnecessarily duplicative and potentially conflicting rulings on whether Plaintiffs are “aggrieved employees” under the PAGA statute.

Accordingly, Plaintiffs’ representative PAGA cause of action in this case is stayed pending arbitration of Plaintiffs’ individual PAGA claims.

Defendant’s motion to compel arbitration of Plaintiffs’ individual PAGA claims is granted. Plaintiffs’ representative PAGA claims are not compelled to arbitration and remain under this Court’s jurisdiction and are stayed pending arbitration.

The Court sets a non-appearance case review for July 25, 2025, at 8:30 a.m. The parties are directed to submit a joint statement five calendar days in advance, apprising the Court of the status of the arbitration.

Hon. Daniel M. Crowley

Judge of the Superior Court