Judge: Daniel S. Murphy, Case: 23STCV09315, Date: 2023-10-23 Tentative Ruling

Case Number: 23STCV09315    Hearing Date: October 23, 2023    Dept: 32

BACKGROUND

            On April 26, 2023, Plaintiff Maria Del Carmen Nolasco Jimenez filed this PAGA action on behalf of herself and other aggrieved employees against Defendants Route 66 Post Acute LLC and Crystal Solarzano.

            On September 27, 2023, Defendant Route 66 filed the instant motion to compel arbitration of Plaintiff’s individual PAGA claim and stay the representative claims. Plaintiff filed her opposition on October 10, 2023. Defendant filed its reply on October 16, 2023.

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.)

“On 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 Valid Agreement

            Defendant avers that Plaintiff signed an Alternative Dispute Resolution Policy at the time of her onboarding on December 31, 2019, and signed an Amended Arbitration Agreement on October 15, 2020. (Chavez Decl. ¶¶ 6-7.) Plaintiff, despite purporting to dispute that she signed an arbitration agreement, cites no evidence to rebut Defendant’s evidence. Therefore, the Court finds that Defendant has proven a valid arbitration agreement.  

II. Waiver

            A petition to compel arbitration may be denied if “[t]he right to compel arbitration has been waived by the petitioner.” (Code Civ. Proc., § 1281.2(a).) Waiver may be found where “the party seeking to compel arbitration has previously taken steps inconsistent with an intent to invoke arbitration . . . [or] the petitioning party has unreasonably delayed in undertaking the procedure.” (Fleming Distribution Co. v. Younan (2020) 49 Cal.App.5th 73, 80.) Waiver need not be voluntary and may occur even without the intent to forgo arbitration. (Hoover v. American Income Life Ins. Co. (2012) 206 Cal.App.4th 1193, 1203.) Waiver is “not to be lightly inferred.” (St. Agnes Medical Center v. PacifiCare of California (2003) 31 Cal.4th 1187, 1195.) “Accordingly, a party who resists arbitration on the ground of waiver bears a heavy burden . . . and any doubts regarding a waiver allegation should be resolved in favor of arbitration.” (Ibid.)     Plaintiff relies primarily on Bower v. Inter-Con Security Systems, Inc. (2014) 232 Cal.App.4th 1035 to argue that Defendant waived its right to compel arbitration. In Bower, the court found waiver where the defendant in a class-action lawsuit participated in class discovery and class-wide settlement before moving to compel arbitration of the plaintiff’s individual claims. (Id. at pp. 1043-45.) The court inferred from the defendant’s actions that the defendant “made a tactical decision to resolve the matter on a classwide basis in the judicial forum when the size of the class was modest” but then reversed course and pursued arbitration of the plaintiff’s individual claims when the class expanded significantly. (Id. at p. 1045.) The plaintiff was prejudiced because the defendant’s actions led him to incur expenses and effort to litigate on a class-wide basis. (Id. at pp. 1046-47.) Had the plaintiff been forced to arbitrate his individual claims, that expense and effort would have been wasted. (Ibid.)

            Here, Plaintiff filed a separate class action on February 16, 2023 in Los Angeles Superior Court (21STCV03441), approximately two months before she filed this action. (Lodi Decl. ¶ 3.) The parties attended mediation on August 8, 2023, but did not reach a resolution on either the class claims or PAGA claims. (Id., ¶ 7.) Leading up to the mediation, Plaintiff claims she propounded discovery relating to both class and representative PAGA claims, to which Defendant responded. (Id., ¶ 6.) Plaintiff avers that she has “devoted significant time and spent considerable costs in connection with informal classwide and representative discovery in the leadup to mediation . . . that also would not have been expended had this case not proceeded on a classwide and representative basis.” (Id., ¶ 8.)  

            On the other hand, Defendant avers that it “understood the scope of mediation to be limited to Plaintiff’s individual wage and hour claims from February 23, 2021 through September 16, 2022 and a PAGA release, as discussed and/or agreed to with Plaintiff’s counsel.” (Kim Decl. ¶ 8.) Defendant denies that any discovery has been served in this action. (Id., ¶ 9.) Defendant contends that as soon as Plaintiff served the class action complaint, Defendant informed Plaintiff of the arbitration agreements. (Id., ¶ 5.) Defendant argues that it has consistently maintained its right to arbitrate, both in responding to the class action and in its answer to the complaint in this action. Defendant contends that it promptly moved to compel arbitration after the mediation failed.

            The Court does not find that Defendant has engaged in judicial litigation to the extent of waiving its right to arbitrate. Unlike Bower, where the defendant engaged in class discovery and class-wide settlement in the same case that it later tried to arbitrate, the class action here is a separate lawsuit than the PAGA action that Defendant is moving for arbitration on. Additionally, the defendant in Bower propounded extensive discovery, including 46 requests for production related to the putative class. (Bower, supra, 232 Cal.App.4th at p. 1040.) Here, Defendant denies conducting any discovery in this case (Kim Decl. ¶ 9), and Plaintiff’s evidence at most shows that only Plaintiff propounded some unspecified discovery (Lodi Decl. ¶ 6). Defendant did not unreasonably delay in filing this motion because the case was only recently filed in April 2023, and Defendant was not served until July 2023. (Kim Decl. ¶ 7.) Merely participating in mediation is not dispositive, as Defendant has consistently maintained its right to compel arbitration and expressed its concern about the scope of the mediation given the arbitration agreements. (See, e.g., Kim Reply Decl. ¶ 9, Ex. 5.)  

Additionally, “[p]rejudice is a determinative issue.” (Bower, supra, 232 Cal.App.4th at p. 1042.) “Because of the strong policy favoring arbitration, prejudice typically is found only where the petitioning party has unreasonably delayed seeking arbitration or substantially impaired an opponent's ability to use the benefits and efficiencies of arbitration.” (Ibid.) The Court finds that Plaintiff did not suffer prejudice because the case is new, and the parties only participated in mediation for one day. The Court notes that there is a split of authority on whether a showing of prejudice is required for wavier. (See, e.g., Davis v. Shiekh Shoes, LLC (2022) 84 Cal.App.5th 956, 966-67.) However, given the policy in favor of arbitration and the high bar to proving waiver, the Court is not inclined to find waiver without a showing of prejudice.

In sum, the Court concludes that Defendant has not waived its right to arbitrate.

III. 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. However, an adhesion contract, by itself, presents only a minimal degree of procedural unconscionability. (Serpa v. California Surety Investigations, Inc. (2013) 215 Cal.App.4th 695, 704.) “[T]he compulsory nature of a predispute arbitration agreement does not render the agreement unenforceable on grounds of coercion or for lack of voluntariness.” (Lagatree v. Luce, Forward, Hamilton & Scripps (1999) 74 Cal.App.4th 1105, 1129.) Plaintiff offers no other argument regarding procedural unconscionability. Therefore, the contract exhibits 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.)

Plaintiff argues that the agreement is substantively unconscionable because it contains a waiver of PAGA claims. (See Iskanian v. CLS Transportation Los Angeles, LLC (2014) 59 Cal.4th 348, 384.) 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. (Viking River Cruises, Inc. v. Moriana (2022) 142 S.Ct. 1906, 1924-25.) The court may sever any portion of the agreement that is deemed unconscionable and enforce the rest. (Armendariz v. Foundation Health Psychare Services, Inc. (2000) 24 Cal.4th 83, 124.) The only provision Plaintiff identifies as substantively unconscionable is the PAGA waiver. Therefore, the agreement is not wholly permeated with unconscionability, and severance cures the defect.

In sum, the agreement exhibits a minimal degree of unconscionability, which is insufficient to avoid enforcement of the agreement.

IV. Disposition of Non-Individual PAGA Claims

            Plaintiff opposes a stay of the non-individual PAGA claims. Plaintiff argues that a PAGA plaintiff does not lose standing just because his or her individual claims are compelled to arbitration. (See Kim v. Reins International California, Inc. (2020) 9 Cal.5th 73; Adolph v. Uber Technologies, Inc. (2023) 14 Cal.5th 1104.) However, this contention is undisputed. Defendant requests a stay not because Plaintiff loses standing outright, but to prevent the parties from wasting resources litigating the judicial case when the standing issue may be resolved in arbitration. In other words, the mere fact that the individual claims have been compelled to arbitration does not remove Plaintiff’s standing to pursue the representative claims, but the findings made by an arbitrator during arbitration may reveal that Plaintiff is not an “aggrieved employee” and therefore has no standing to pursue the representative claims. (See Rocha v. U-Haul Co. of California (2023) 88 Cal.App.5th 65, 77-78.)

In any case, standing is only one example of a potentially preclusive issue. A stay is also warranted because there are likely numerous other overlapping issues between the individual and representative claims given they arise from similar alleged violations. A stay is justified to prevent duplicative or inconsistent findings on common issues. (See Franco v. Arakelian Enters., Inc. (2015) 234 Cal.App.4th 947, 966.)     

            Plaintiff argues that she cannot be forced to pursue the individual claims if she does not want to. However, Plaintiff has not been forced to pursue anything. Plaintiff chose to file the PAGA claims, and she retains the option to settle or dismiss the individual claims. But if Plaintiff decides to pursue her individual claims, she must abide by the arbitration agreement that she signed, as well as the U.S. Supreme Court’s decision in Viking River.   

            Plaintiff also argues that a stay is unwarranted because if Plaintiff decides not to proceed with her individual claims, there would be no justification for delaying litigation of the representative claims. The stay can be lifted when it is no longer needed. The possibility that a stay may not be necessary at some indeterminate time in the future does not remove the present need for a stay. A stay is necessary to prevent duplicative or inconsistent rulings on overlapping issues that would occur if the arbitration and court case proceeded simultaneously.

CONCLUSION

            Defendant’s motion to compel arbitration is GRANTED as to Plaintiff’s individual PAGA claims. The action is stayed for the remaining non-individual PAGA claims pending the outcome of arbitration.