Judge David S. Cunningham, Case Number: 23STCV07194, Date: 2023-08-14 Tentative Ruling

Judge: David S. Cunningham, Case: 23STCV07194, Date: 2023-08-14 Tentative Ruling

Moving Party: Pacific PJ LLC (“Pacific PJ”), PJ Cleveland LLC (“PJ Cleveland”), PJ Escondido Inc. (“PJ Escondido”), and Ahmad Malekzadeh (“Malekzadeh”) (collectively “Defendants”)

“This is a putative ‘wage and hour’ class action.” (8/14/23 Ruling Re: Motion to Compel Arbitration, p. 1.)

“PJ Cleveland owned and operated a Papa John’s pizza restaurant in Escondido, California. In November 2021, Plaintiff started working at the Escondido restaurant.” (Id. at p. 2.)

“PJ Escondido purchased the Escondido restaurant in February 2022. Later that December, PJ Escondido distributed revised employment documents, including a revised arbitration agreement, to all PJ Escondido employees.” (Ibid.)

“Plaintiff signed the PJ Cleveland agreement and the PJ Escondido agreement.” (Ibid.)

On 6/29/23, Defendants moved to compel arbitration of Plaintiff’s individual claims.

On 8/14/23, the Court heard oral arguments and ordered the parties to provide supplemental briefing on three issues: (1) whether the PJ Cleveland agreement’s coverage of nonemployment claims is substantively unconscionable; (2) whether the PJ Cleveland agreement’s mutual exclusion of injunctive-relief claims is substantively unconscionable; and (3) whether the PJ Escondido agreement’s coverage of joint-employer claims is substantively unconscionable.

The Court must determine whether the supplemental briefs support granting or denying Defendants’ motion to compel.

On 6/6/23, Plaintiff filed a companion, PAGA-only action against Defendants.[1] The case number is 23STCV12867, and it is pending before Judge Bruce Iwasaki in Department 58. The allegations are the same as here.

On 8/25/23, Judge Iwasaki granted Defendants’ motion to compel arbitration. He analyzed the same arbitration agreements and mostly the same arguments. Like here, Plaintiff claimed the scope of the PJ Cleveland agreement is overbroad because it covers nonemployment claims and the scope of the PJ Escondido agreement is overbroad because it covers joint-employer claims. Judge Iwasaki rejected the arguments.

Judge Iwasaki’s order is not binding, but it is persuasive. The Court agrees with his analysis.

The Court found last time that Defendants established agreements to arbitrate and that Pacific PJ and Malekzadeh are entitled to enforce the agreements as nonsignatories. (See 8/14/23 Ruling Re: Motion to Compel Arbitration, pp. 10, 14.) Those rulings stand. The Court declines to revisit them.

At the last hearing, Plaintiff claimed the motion should be denied because “the agreements constitute contracts of adhesion.” (Id. at p. 10.)

. . . Plaintiff did not file a declaration. He does not declare under oath that he was pressured to sign or that he did not receive opportunities to read the agreements and to consult attorneys before signing. Indeed, the agreements say the opposite. Both clearly state that he read them and agreed to them on a voluntary basis. [Citations.]

Regardless, “a predispute arbitration agreement is not invalid merely because it is imposed as a condition of employment.” [Citation.] “[T]he mandatory nature of an arbitration agreement does not, by itself, render the agreement unenforceable.” [Citations.]

Here, Defendants contend the Court should grant the motion because (1) procedural unconscionability and substantive unconscionability both must be present to find the agreements unenforceable, and (2) there is no procedural unconscionability in light of the Court’s prior analysis. (See Defendants’ Supp. Brief, p. 7.)

The Court disagrees. In Judge Iwasaki’s case, Defendants conceded that the agreements were provided to Plaintiff as a condition of employment. The same is true here. Neither side truly disputes that the agreements are contracts of adhesion. The amount of procedural unconscionability is minimal, not zero.

As noted above, the Court ordered the parties to brief three issues: (1) whether the PJ Cleveland agreement’s coverage of nonemployment claims is substantively unconscionable; (2) whether the PJ Cleveland agreement’s mutual exclusion of injunctive-relief claims is substantively unconscionable; and (3) whether the PJ Escondido agreement’s coverage of joint-employer claims is substantively unconscionable.

Whether the PJ Cleveland Agreement’s Coverage of Nonemployment Claims Is Substantively Unconscionable

Nonemployment Claims: Section 1 [of the PJ Cleveland agreement] states that the parties agree to arbitrate “all claims, disputes, and/or controversies . . . , whether or not arising out of Employee’s employment or the termination of employment, that Company may have against Employee or that Employee may have against Company or against its employees or agents in their capacity as employees or agents.” (Neghabat Decl., Ex. 2, p. 1, § 1, emphasis added.) While the claims at issue here are employment-related claims, which are certainly covered by the agreement, the question is whether the italicized words render the agreement overbroad and unenforceable. Plaintiff contends the answer is yes because, for example, Plaintiff would be denied “access to a jury trial if [PJ Cleveland] committed fraud against him as a customer, or intentionally injured him as a customer.” (Opposition, p. 12.) The Court shares Plaintiff’s concern that the language encompasses nonemployment claims. But is a hypothetical situation based on claims that are not alleged in the complaint sufficient to establish unconscionability and to support denial of arbitration? Is severance appropriate to limit the agreement’s reach to employment-related claims? The parties should provide further briefing to answer these questions.

(See 8/14/23 Ruling Re: Motion to Compel Arbitration, p. 12, bolding and italics in original, footnote omitted.)

Defendants cite Revitch v. DirectTV (2020) 977 F.3d 713 and Fittante v. Palm Springs Motors, Inc. (2003) 105 Cal.App.4^th 708, claiming the Court is not required to entertain hypothetical claims in assessing substantive unconscionability. Defendants assert that “[c]ourts regularly enforce employment arbitration agreements for employment claims, even where the agreement covers a broad scope of claims, including potential claims unrelated to employment.” (Defendants’ Supp. Brief, p. 3.)

Plaintiff contends the analogous case is Thomas v. Cricket Wireless, LLC (N.D. Cal. 2020) 506 F.Supp.3d 891. He claims the Court’s analysis should focus on whether the agreement was unconscionable “at the time it was made.” (Plaintiff’s Supp. Opposition, p. 2, emphasis in original.) He opines that it was unconscionable from the date of formation for the agreement to cover “claims for sexual harassment” and other nonemployment claims. (Id. at p. 3 [claiming 9 U.S.C. section 402 bars arbitration of sexual-harassment claims].)

* alternatively, the Court should sever the “whether or not” wording (see id. at p. 4).

Revitch is unhelpful. The Court distinguished it last time. (See 8/14/23 Ruling Re: Motion to Compel Arbitration, p. 12 n.1.)

In Fittante, the plaintiff claimed the agreement was “so broad as to define[ ] away [his] right of access to the [c]ourts even as to matters outside of his employment[.]” (Fittante, supra, 105 Cal.App.4^th at 720, internal quotation mark omitted.) The Court of Appeal disagreed and enforced the agreement: “We find it unnecessary to dwell on plaintiff's claims of vagueness or overbreadth, inasmuch as they present only phantasms in the present context. Plaintiff's claims here all arise unquestionably out of his employment or application for employment with the employer.” (Ibid.)

Fittante is on point and remains good law. The PJ Cleveland agreement covers employment claims, Plaintiff alleges employment claims against PJ Cleveland, and his employment claims arise out of his employment, so the Court does not need to worry about hypothetical nonemployment claims. The scope of the agreement is not unconscionable under the circumstances.

Thomas does not change the result. There, plaintiff Waters alleged that defendant Cricket had engaged in false advertising in 2012 through 2014. In 2018 and 2019, Waters purchased phone services from AT&T Mobility and signed arbitration agreements. Cricket moved to compel arbitration under the AT&T Mobility agreements as an affiliate of AT&T Mobility. The court found the agreements overbroad and unconscionable because they covered “all disputes and claims” between Waters and AT&T Mobility’s affiliates “no matter how unrelated” the claims were to the agreements. (Thomas, supra, 506 F.Supp.3d at 904.) In particular, the court reasoned that her claims and the agreements were “wholly divorced” from each other:

After all, Cricket is trying to compel arbitration of Waters’ claims against it for the alleged false advertising of its wireless services between 2012 and 2014 – before it became an affiliate of AT&T Mobility – based on an entirely separate wireless service agreement that Waters signed with a different wireless service provider – AT&T Mobility – years after she purchased a phone from Cricket.

(Id. at 904, 905.) Here, differently, to repeat, Plaintiff’s employment claims arise out of his employment with PJ Cleveland. The Thomas opinion recognizes that “courts . . . regularly enforce arbitration clauses with respect to claims that arise directly out of or are somehow connected to the service agreement containing the arbitration clauses[.]” (Id. at 904.)

Notwithstanding any other provision of this title, at the election of the person alleging conduct constituting a sexual harassment dispute or sexual assault dispute, or the named representative of a class or in a collective action alleging such conduct, no predispute arbitration agreement or predispute joint-action waiver shall be valid or enforceable with respect to a case which is filed under Federal, Tribal, or State law and relates to the sexual assault dispute or the sexual harassment dispute.

(9 U.S.C. § 402, subd. (a), emphasis added.) Since Plaintiff does not allege sexual assault or sexual harassment, the Court agrees with Defendants; section 402 is inapplicable.[2]

Whether the PJ Cleveland Agreement’s Mutual Exclusion of Injunctive-Relief Claims Is Substantively Unconscionable

Injunctive Relief: The [PJ Cleveland] agreement provides: “Claims . . . that Company or Employee may have for injunctive relief are not covered by this Agreement.” (Neghabat Decl., Ex. 2, p. 2, § 3.) Plaintiff cites page 116 of Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4^th 83, arguing that provisions of this kind benefit employers. Page 116 does not mention or discuss injunctions. However, several cases, including Armendariz, suggest that limits on damages and remedies “may be substantively unconscionable.” (Warren, supra, at ¶ 5:155.2l [collecting cases].) Does it make a difference that PJ Cleveland’s agreement is mutual in excluding injunctive claims from arbitration? What about severance? The parties should brief these issues.

(See 8/14/23 Ruling Re: Motion to Compel Arbitration, p. 12, bolding in original.)

Defendants contend the PJ Cleveland agreement’s exclusion of injunctive-relief claims is mutual and permitted by Baltazar v. Forever 21, Inc. (2016) 62 Cal.4^th 1237. (See Defendants’ Supp. Brief, pp. 4-6; see also Defendants’ Supp. Reply, 4-6 [discussing Plaintiff’s authorities].)

Plaintiff claims the exclusion is nonmutual. He argues that Baltazar is distinguishable, and he relies on Carbajal v. CWPSC, Inc. (2016) 245 Cal.App.4^th 227, Steele v. American Mortgage Management Services (E.D. Cal., Oct. 26, 2012, No. 2:12-cv-00085 WBS JFM) 2012 WL 5349511, Nagrampa v. MailCoups, Inc. (9^th Cir. 2006) 469 F.3d 1257, and Farrar v. Direct Commerce, Inc. (2017) 9 Cal.App.5^th 1257. (See Plaintiff’s Supp. Opposition, pp. 5-6.)

In Baltazar, the arbitration agreement “allow[ed] the parties to seek a temporary restraining order or preliminary injunctive relief in the superior court.” (Baltazar, supra, 62 Cal.4^th at 1246.) Plaintiff Baltazar asserted that the agreement was one-sided because defendant “Forever 21 [was] more likely than one of its employees to seek such relief.” (Ibid.) The California Supreme Court accepted the assertion “for the sake of argument” yet found that the agreement did “no more than recite the procedural protections already secured by [Code of Civil Procedure] section 1281.8(b), which expressly permits parties to an arbitration to seek preliminary injunctive relief during the pendency of the arbitration.” (Id. at 1247.) The Supreme Court held that the agreement did “not place Baltazar at an unfair advantage.” (Id. at 1248.)

Carbajal and Nagrampa involved nonmutual injunctive-relief clauses. (See Carbajal, supra, 245 Cal.App.4^th at 249 [“Here, the Agreement is substantively unconscionable on its face because it requires Carbajal to arbitrate ‘any and all disputes’ she has with CW Painting, but it authorizes CW Painting to ‘obtain an injunction from a court of competent jurisdiction’ to restrain Carbajal from breaching the Agreement's nondisclosure and exclusive use provisions. CW Painting offers no justification for this blatantly one-sided provision.”]; see also Nagrampa, supra, 469 F.3d at 1286 [“The MailCoups arbitration provision” “requires that Nagrampa submit to arbitration any controversy related to the franchise agreement, ‘or any breach thereof, including without limitation, any claim that this Agreement or any portion thereof is invalid, illegal or otherwise voidable or void,’ while reserving MailCoups’s right to obtain any provisional remedy ‘including, without limitation, injunctive relief from any court of competent jurisdiction, as may be necessary in MailCoups’s sole subjective judgment to protect its Service Marks and proprietary information.’ This language, read plainly, means that MailCoups could go to court to obtain ‘any provisional remedy,’ even if it related to a claim for breach of contract, as long as the claim also implicated MailCoups’s Service Marks or proprietary information.”].)

The Steele court compelled arbitration despite the fact that the arbitration agreement excluded “injunctive relief for unfair competition and/or trade secrets” and gave the defendant a unilateral right to “modify or terminate the arbitration process.” (Steele, supra, 2012 WL 5349511, at *8.) The court found that the provisions were irrelevant to the plaintiffs’ claims, “would not result in an arbitration . . . ‘permeated by unconscionability,’” and did not “indicate a systematic effort to impose arbitration on an employee not simply as an alternative to litigation, but as an inferior forum that works to the employer’s advantage.” (Ibid.)

Notably, the Steele court said it could “conceive of valid reasons, entirely independent of any intent to place the employees at a relative disadvantage or to generate one-sided results, for excluding claims of unfair competition or trade secret violations from the mandatory arbitration provisions[.]” (Ibid.) The court reckoned: “Unlike the type of claims involved in this case, such claims typically arise after the employer-employee relationship has terminated. More importantly, the resolution of such claims has the potential of substantially impacting the rights of third parties.” (Ibid.)

In Farrar, the arbitration agreement covered employment claims but excluded claims related to a confidentiality agreement between the plaintiff and the defendant (there is no confidentiality agreement at issue in the instant case). The Court of Appeal found the exclusion one-sided and unconscionable because it amounted to a “wholesale exception” instead of being “limited to provisional remedies[.]” (Farrar, supra, 9 Cal.App.5^th at 1273 [noting that “several courts have concluded a complete carve-out for confidentiality-related claims results in unfair one-sidedness”].) Still, the Court held that the right approach was to sever the exclusion and to enforce the rest of the agreement. (See id. at 1275.)

Considering these authorities, and because the plain language of the injunctive-relief exclusion is mutual, the Court agrees with Defendants. The Court intends to either find the exclusion enforceable or sever it and enforce the remainder. Before making a final decision, though, the Court wants Plaintiff’s counsel and defense counsel to further address Farrar. The attorneys should be prepared to discuss Farrar during oral arguments.

Whether the PJ Escondido Agreement’s Coverage of Joint-Employer Claims is Substantively Unconscionable

Joint Employer: Section 3 [of the PJ Escondido agreement] states: “I [] agree to arbitrate claims pursuant to the terms of this Agreement against any person or entity I allege to be a joint employer with the Company[.]” (Rogan Decl., Ex. 3, p. 1, § 3.) Plaintiff claims the wording is overbroad and nonreciprocal, yet he fails to cite a case that proscribes this type of provision. (See Opposition, p. 14.) And even assuming he is right, two questions stand out. One, would severing the sentence solve the problem? Two, is severance even necessary given the independent ability – available to Plaintiff and nonsignatories – to seek arbitration based on principles of agency, third-party beneficiary, or equitable estoppel? (See, e.g., Knight, supra, at ¶¶ 5:263-5:263.1, 5:266.5, 5:266.10.) As explained below, the circumstances here support finding the joint-employer claims arbitrable under one or more of these exceptions. Nevertheless, the Court is inclined to give the parties a chance to brief these two questions.

(See 8/14/23 Ruling Re: Motion to Compel Arbitration, pp. 13-14, bolding in original.)

Plaintiff claims Armendariz renders section 3 nonmutual per se, and he contends the agency, third-party-beneficiary, and equitable-estoppel exceptions do not apply. (See Plaintiff’s Supp. Opposition, pp. 7-9.)

The Court disagrees. Plaintiff continues to fail to cite authority prohibiting the joint-employer provision (no pinpoint from Armendariz is provided). (See id. at p. 7.) Moreover, Defendants already satisfied “one or more of the exceptions.” (8/14/23 Ruling Re: Motion to Compel Arbitration, p. 14.) The ruling stands, and Plaintiff’s attempt to reraise the issue is denied. Bottom line, Plaintiff fails to meet his burden to show unconscionability. PJ Escondido’s agreement is enforceable.

The PJ Cleveland agreement and the PJ Escondido agreement contain class waivers. (See 8/14/23 Ruling Re: Motion to Compel Arbitration, pp. 3, 7-8.)

[1] “PAGA” means Private Attorneys General Act.

[2] If it were necessary (it is not), the Court would be authorized to sever the “whether or not” terms.