Judge: Daniel S. Murphy, Case: 22STCV21447, Date: 2022-11-21 Tentative Ruling

Case Number: 22STCV21447    Hearing Date: November 21, 2022    Dept: 32

BACKGROUND

            On June 8, 2020, Plaintiff Brendiana Abreau initiated this PAGA action for wage and hour violations against various defendants. The operative First Amended Complaint (FAC) names Defendants Prospect Medical Holdings, Inc. (PMH), Prospect Medical Systems, Inc. (PMS), Southern California Healthcare Systems, Inc. (SCHS), Alta Hospitals System, LLC (AHS), and Ceridian HCM Inc. (Ceridian). Plaintiff has since dismissed Ceridian as a defendant.

The parties have an arbitration agreement which requires Plaintiff to arbitrate her claims in an individual capacity. Defendants had not moved to compel arbitration due to the rule set forth in Iskanian v. CLS Transportation Los Angeles, LLC (2014) 59 Cal.4th 348, 382-84, which prohibited PAGA claims from being split into individual and representative components. Instead, Defendants moved for a stay of the action pending the United States Supreme Court decision in Viking River Cruises v. Moriana, which ultimately overturned the Iskianian rule.

On October 27, 2022, Defendants filed the instant motion to compel arbitration, arguing that the decision in Viking River now requires Plaintiff to arbitrate her individual PAGA claims.

LEGAL STANDARD

The Federal Arbitration Act (“FAA”) states that “[a] written provision in any . . . contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract or transaction . . . shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.” (9 U.S.C. § 2.) The term “involving commerce” is interpreted to mean simply “affecting commerce” to give the FAA the broadest reach possible, and does not require a transaction that is actually “within the flow of interstate commerce.” (See Allied-Bruce Terminix Co. v. Dobson (1995) 513 U.S. 265, 273-74; Citizens Bank v. Alafabco, Inc. (2003) 539 U.S. 52, 56.) Moreover, parties may agree to apply the FAA notwithstanding any effect on interstate commerce. (Victrola 89, LLC v. Jaman Properties 8 LLC (2020) 46 Cal.App.5th 337, 355.)

California law incorporates many of the basic policy objectives contained in the Federal Arbitration Act, including a presumption in favor of arbitrability. (Engalla v. Permanente Medical Group, Inc. (1997) 15 Cal.4th 951, 971-72.) California law states that “[o]n 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.)

DISCUSSION

I. Existence of a Valid Agreement

            On June 28, 2019, Plaintiff electronically signed a document titled “Binding Mutual Agreement to Arbitrate Claims.” (Dickerson Decl., Ex. B.) The agreement provides that “any controversy, claim or dispute between me and Alta Hospitals System, LLC, Alta Los Angeles Hospitals, Inc, Southern California Healthcare System, Inc, Alta Newport Hospital, Inc, and/or any of its related entities, holding companies, parents, subsidiaries . . . [and] agents . . . will be submitted to final and binding arbitration as the sole and exclusive remedy, regardless of whether the dispute is initiated by Company or me.” (Ibid.) AHS, PMS, PMH, and SCHS are all related entities. (Id., ¶¶ 2-5.) Additionally, they are alleged to be agents of one another. (Compl. ¶ 40; Ronay Family Ltd. Partnership v. Tweed (2013) 216 Cal.App.4th 830, 838; Thomas v. Westlake (2012) 204 Cal.App.4th 605, 614.) Therefore, there is a valid arbitration agreement covering the claims at issue.

            Plaintiff argues that Defendants’ evidence of the agreement is inadmissible because the declaration of Rosanne Dickerson lacks foundation in that Ms. Dickerson did not personally observe Plaintiff sign the agreement. (Opp. 7:2-13.) However, Ms. Dickerson is the Vice President of Human Resources and has personal knowledge of Defendants’ onboarding process and electronic security measures. (Dickerson Decl. ¶ 6.) “Generally, the witness who attempts to lay the foundation is a custodian, but any witness with the requisite firsthand knowledge of the business's recordkeeping procedures may qualify.” (People v. Khaled (2010) 186 Cal.App.4th Supp. 1, 8.) Plaintiff cites no authority for the proposition that an arbitration agreement can only be proven by a witness who personally observes its execution.

Plaintiff next argues that her signature cannot be proven. (Opp. 7:14-8:27.) An electronic signature has the same legal effect as a handwritten signature. (Civ. Code, § 1633.7(a).) An “electronic signature is attributable to a person if it was the act of the person. The act of the person may be shown in any manner, including a showing of the efficacy of any security procedure applied to determine the person to which the electronic record or electronic signature was attributable.” (Id., § 1633.9(a).) “[T]he burden of authenticating an electronic signature is not great.” (Ruiz v. Moss Bros. Auto Group, Inc. (2014) 232 Cal.App.4th 836, 844.) Defendants have met this burden through the declaration of Ms. Dickerson. (See Dickerson Decl. ¶ 6.) Plaintiff’s contention that she does not recall the agreement or understand arbitration does not change the fact that she signed the contract. (See Marin Storage & Trucking, Inc. v. Benco Contracting & Engineering, Inc. (2001) 89 Cal.App.4th 1042, 1049 [“one who signs an instrument which on its face is a contract is deemed to assent to all its terms”].)  

Lastly, Plaintiff argues that the agreement lacks mutual assent, but her argument addresses procedural unconscionability in relation to a contract of adhesion. (See Opp. 9:16-10:22.) These arguments do not affect the existence of the agreement, and unconscionability will be addressed below.   

The Court finds that Defendants have proven the existence of a valid arbitration agreement by a preponderance of the evidence. The burden thus shifts to Plaintiff to articulate a defense against enforcement.

II. Unconscionability

Unconscionability has both a procedural and a substantive element. (Aron v. U-Haul Co. of California (2006) 143 Cal.App.4th 796, 808.) Both elements must be present for a court to invalidate a contract or clause. (Ibid.) However, the two elements need not be present in the same degree; courts use a sliding scale approach in assessing the two elements. (Carbajal v. CWPSC, Inc. (2016) 245 Cal.App.4th 227, 242.)  

            a. Procedural Unconscionability

            Procedural unconscionability “focuses on two factors: ‘oppression’ and ‘surprise.’ ‘Oppression’ arises from an inequality of bargaining power which results in no real negotiation and ‘an absence of meaningful choice.’ ‘Surprise’ involves the extent to which the supposedly agreed-upon terms of the bargain are hidden in the prolix printed form drafted by the party seeking to enforce the disputed terms.” (Zullo v. Superior Court (2011) 197 Cal.App.4th 477, 484, internal citations and quotations omitted.)   

            Plaintiff argues that the agreement is procedurally unconscionable because it was a condition of employment. (Opp. 11:13-19.) Courts have recognized that adhesion contracts in the employment context always contain some degree of procedural unconscionability. (Serpa v. California Surety Investigations, Inc. (2013) 215 Cal.App.4th 695, 704.) However, the mere fact that an arbitration agreement is a condition of employment is not dispositive. (Ibid.) Absent evidence of oppression or surprise, the degree of procedural unconscionability will be low. (Ibid.)

            Plaintiff next argues that the agreement references JAMS rules without providing the actual rules. (Opp. 12:8-17.) However, the failure to attach rules is not dispositive unless the substance of the rules themselves are at issue. (See Baltazar v. Forever 21 (2016) 62 Cal.4th 1237, 1246.) The arbitration agreement provides that “a copy of the most current JAMS Rules may be obtained from Company’s Human Resources Department or by visiting http://www.jamsadr.com/rules-employment-arbitration/.” (Dickerson Decl., Ex. B.) Therefore, Plaintiff had access to the rules even if they were not attached to the agreement. Plaintiff does not otherwise challenge the substance of JAMS rules or cite any authority finding JAMS rules to be unconscionable in any way.

            Lastly, Plaintiff argues that no one explained arbitration to her, discussed the consequences of signing the agreement, or informed her that she could consult with a lawyer. (Abreau Decl. ¶¶ 4-6.) None of these are reasons to invalidate the agreement. While Plaintiff may not recall signing the agreement, she does not deny signing it or present any evidence to contradict her signature. There is no indication that Plaintiff was prevented from seeking further information about arbitration prior to signing the agreement. “No law requires that parties dealing at arm's length have a duty to explain to each other the terms of a written contract, particularly where, as here, the language of the contract expressly and plainly provides for the arbitration of disputes arising out of the contractual relationship.” (Brookwood v. Bank of America (1996) 45 Cal.App.4th 1667, 1674.) “Reasonable diligence requires the reading of a contract before signing it. A party cannot use his own lack of diligence to avoid an arbitration agreement.” (Ibid.)

            In sum, there is a minimal degree of procedural unconscionability.     

            b. Substantive Unconscionability

Substantive unconscionability focuses on the actual terms of the agreement and evaluates whether they create overly harsh or one-sided results as to shock the conscience. (Suh v. Superior Court (2010) 181 Cal.App.4th 1504, 1515.)

With regards to a mandatory employment arbitration agreement, the Supreme Court has imposed the following requirements: (1) the agreement must provide for a neutral arbitrator; (2) the agreement must provide for more than minimal discovery; (3) the arbitration decision must be written and disclose the essential findings and conclusions upon which an award is based; (4) the agreement must provide for all of the types of relief that would otherwise be available in court; and (5) the agreement must not require employees to pay the costs of arbitration. (Armendariz v. Foundation Health Psychare Services, Inc. (2000) 24 Cal.4th 83, 102.) The agreement in this case satisfies the Armendariz factors. (See Dickerson Decl., Ex. B.) Plaintiff does not challenge this aspect of the agreement.

Instead, Plaintiff argues that the agreement is substantively unconscionable because it contains a wholesale waiver of PAGA claims. (Opp. 13:2-26; Iskanian, supra, 59 Cal.4th at p. 384.) The agreement provides: “Both Company and I expressly waive our rights (i) to utilize class or collective action procedures in asserting a claim subject to this Agreement; and (ii) to the extent permitted by applicable law, including the Federal Arbitration Act, to utilize representative action procedures in asserting a claim subject to this Agreement. Under no circumstances shall the arbitrator have jurisdiction to decide any dispute on anything other than an individual basis.” (Dickerson Decl., Ex. B.) While the clause is invalid as a wholesale waiver of PAGA claims, it may still be enforced to the extent that it requires arbitration of Plaintiff’s individual PAGA claims. (See Viking River, supra, 142 S.Ct. at pp. 1924-25.) Unconscionable terms may be severed from the agreement. (Armendariz, supra, 24 Cal.4th at p. 124.)

The Court finds that there is no substantive unconscionability, or if there is, the affected portion may be severed and the remainder of the agreement enforced. In sum, the agreement does not exhibit unconscionability to a degree that would render it unenforceable.

III. Waiver

            Plaintiff argues that Defendants waived their right to arbitrate by participating in litigation. (Opp. 15:28-18:20.) However, Defendants were legally prohibited from compelling arbitration until the recent Viking River decision in June 2022. Where the right to arbitration is “foreclosed by existing law, the mere fact that the parties then proceed to engage in various forms of pretrial litigation does not compel the conclusion that the party has waived its right to arbitrate when a later change in the law permits arbitration.” (Iskanian, supra, 59 Cal.4th at p. 377-78.) Thus, Defendant did not unreasonably delay in bringing this motion.

IV. Disposition of PAGA Claims

            Overturning the Iskanian rule, the U.S. Supreme Court held that individual PAGA claims may be split off and compelled to arbitration if the parties so agree. (See Viking River, supra, 142 S.Ct. at pp. 1923-24.) Here, the agreement states that “[a]ll claims subject to this Agreement must be arbitrated in an individual capacity.” (Dickerson Decl., Ex. B.) Therefore, Plaintiff’s individual PAGA claims must be compelled to arbitration.

            The Court in Viking River held that a plaintiff loses standing to assert a representative PAGA claim once her own individual claims are compelled to arbitration because “a plaintiff can maintain non-individual PAGA claims in an action only by virtue of also maintaining an individual claim in that action.” (Viking River, supra, 142 S.Ct. at p. 1925.) However, the California Supreme Court, interpreting the language of the Labor Code, held otherwise in ruling that a plaintiff retains PAGA standing even after their individual claims are settled. (Kim v. Reins International California, Inc. (2020) 9 Cal.5th 73, 80.)

Only an “aggrieved employee” has standing to sue under PAGA. (Lab. Code, § 2699, subd. (a).) An “aggrieved employee” is defined as someone “who was employed by the alleged violator” and “against whom one or more of the alleged violations was committed.” (Id., subd. (c).) This does not require an employee to actually maintain a claim against the employer to have standing. “The remedy for a Labor Code violation, through settlement or other means, is distinct from the fact of the violation itself.” (Kim, supra, 9 Cal.5th at p. 84.) “The Legislature defined PAGA standing in terms of violations, not injury. [Plaintiff] became an aggrieved employee, and had PAGA standing, when one or more Labor Code violations were committed against her. (See § 2699(c).) Settlement [would] not nullify these violations.” (Ibid.) By the same logic, arbitration of the individual claims would also not nullify those violations.

The U.S. Supreme Court in Viking River cited to Kim in passing but did not substantively discuss the central logic of Kim, as outlined above. Viking River provides no justification for repudiating Kim’s interpretation of PAGA standing. Indeed, Justice Barrett referred to the Court’s analysis of state law as “unnecessary to the result,” and Justice Sotomayor acknowledged that “if this Court’s understanding of state law is wrong, California courts, in an appropriate case, will have the last word.” (Viking River, supra, 142 S.Ct. at pp. 1925-26; see also Wisconsin v. Mitchell (1993) 508 U.S. 476, 483 [SCOTUS is “bound by a state court's construction of a state statute”].) The U.S. Supreme Court in Viking River did not purport to overturn any part of Kim. This Court will follow Kim on a purely state law matter. The issue of PAGA standing has nothing to do with arbitration and is not preempted by the FAA. Therefore, Plaintiff retains standing to assert the representative PAGA claims. Those claims are stayed pending the arbitration of the individual claims.

CONCLUSION

            Defendants’ motion to compel arbitration is GRANTED as to Plaintiff’s individual PAGA claims. The remaining representative PAGA claims are stayed.