Judge David S. Cunningham, Case Number: 23STCV22612, Date: 2024-04-16 Tentative Ruling

Judge: David S. Cunningham, Case: 23STCV22612, Date: 2024-04-16 Tentative Ruling

Tentative Ruling Re: Motion to Compel Arbitration Re: Segoviano (23STCV22612)

Defendant’s motion to compel arbitration is granted with a modification. The arbitration agreement’s waiver provision is severed to the extent it prohibits litigation of Plaintiff’s representative Private Attorneys General Act (“PAGA”) claim. The Court:

* stays the case as to the representative PAGA claim pending completion of the arbitration.

Plaintiff worked for Defendant. She alleges that Defendant subjected her and the putative class members to numerous wage-and-hour violations.

At issue here is Defendant’s motion to compel arbitration of Plaintiff’s individual claims.

“[W]hen a petition to compel arbitration is filed and accompanied by prima facie evidence of a written agreement to arbitrate the controversy, the court itself must determine whether the agreement exists and, if any defense to its enforcement is raised, whether it is enforceable.” (Rosenthal v. Great Western Fin. Securities Corp. (1996) 14 Cal.4^th 394, 413.)

“Under ‘both federal and state law, the threshold question . . . is whether there is an agreement to arbitrate.’” (Cruise v. Kroger Co. (2015) 233 Cal.App.4^th 390, 396, emphasis in original.)

The burden of proof rests with the petitioner. (See Rosenthal, supra, 14 Cal.4^th at 413 [requiring the petitioner to prove the existence of the agreement “by a preponderance of the evidence”].) To meet the burden, “the provisions of the written agreement and the paragraph that provides for arbitration . . . must be stated verbatim or a copy must be physically or electronically attached to the petition and incorporated by reference.” (Cal. Rules of Court, rule 3.1330; see also Condee v. Longwood Management Corp. (2001) 88 Cal.App.4^th 215, 218 [same].)

“Competent evidence is required to establish both the existence of the arbitration agreement and any ground for denial.” (Knight, et al., Cal. Practice Guide: Alternative Dispute Resolution (The Rutter Group December 2023 Update) ¶ 5:321.) “The verified petition (and attached copy of the agreement) normally proves the existence of the arbitration agreement. Affidavits or declarations may be necessary when factual issues are tendered.” (Ibid.)

Defendant’s burden is satisfied. Defendant’s arbitration agreement is attached to the declaration of Defendant’s facility coordinator, Maria Cortez, at exhibit A. It is undisputed that Plaintiff signed the agreement on March 12, 2022 and that she assented to arbitration. Consequently, the Court finds that an agreement to arbitrate exists.

Plaintiff claims the arbitration agreement contains a wholesale waiver of Private Attorneys General Act (“PAGA”) claims. She contends the waiver is unlawful because it bars her from bringing PAGA claims, individual and representative, in all forums. She claims the waiver renders the agreement unenforceable since there is no severance clause. (See Opposition, pp. 1, 2-4 [discussing DeMarinis v. Heritage Bank of Commerce (2023) 98 Cal.App.5^th 776 and citing Westmoreland v. Kindercare Education LLC (2023) 90 Cal.App.5^th 967.)

In DeMarinis, the arbitration agreement had a waiver section. The first paragraph stated:

The Company and I may bring claims against the other only in its or my individual capacity, and not as a plaintiff or class member in any purported class or representative proceeding. There shall be no right or authority for any dispute to be brought, heard, or arbitrated on a class, collective, or representative basis and the Arbitrator may not consolidate or join the claims of other persons or Parties who may be similarly situated.

The Company and I acknowledge and agree that the conditions set forth in [the waiver] provision are material terms of this Agreement and may not be modified or severed, in whole or in part. If this specific provision is found to be unenforceable, then the entirety of this Agreement shall be null and void.

(Id. at 780-781, emphasis added.) The justices characterized the italicized sentence as a poison pill. (See id. at 781.)[1] They found that the poison pill combined with the nonseverability clause made the agreement null and void. (See id. at 786-791.)

Westmoreland involved similar terms. The arbitration agreement waived “class, collective, or representative” claims and contained a poison pill that stated:

If any provision of this agreement is determined to be unenforceable or in conflict with a mandatory provision of applicable law, it shall be construed to incorporate any mandatory provision, and/or the unenforceable or conflicting provision shall be automatically severed and the remainder of the agreement shall not be affected. Provided, however, that if the Waiver of Class and Collective Claims is found to be unenforceable, then this agreement is invalid and any claim brought on a class, collective, or representative action basis must be filed in a court of competent jurisdiction, and such court shall be the exclusive forum for such claims.

(Westmoreland, supra, 90 Cal.App.5^th at 971-972, emphasis added.) The Court of Appeal held that the poison pill left “no room for [the defendant] to choose to bifurcate [the plaintiff’s] claims between arbitration and court; it instead invalidate[d] the agreement.” (Id. at 982.)

The Court turns to Defendant’s agreement. Plaintiff cites the following language:

. . . I agree this ADR Program prohibits me from joining or participating in a class action or representative action, acting as a private attorney general or representative of others, or otherwise consolidating a covered claim with the claims of others.

IN CONSIDERATION FOR AND AS A MATERIAL CONDITION OF EMPLOYMENT WITH THE COMPANY, AND IN CONSIDERATION FOR THE COMPANY’S RETURN AGREEMENT TO BE BOUND BY THE COMPANY’S ADR PROGRAM AND HAVE ANY AND ALL CLAIMS ARISING OUT OF THE EMPLOYMENT RELATIONSHIP IT MAY ENJOY AGAINST ME RESOLVED IN THIS FORUM, AND PAY THE ARBITRATION FEES AS DESCRIBED THEREIN, IT IS AGREED THAT THE ALTERNATIVE DISPUTE RESOLUTION POLICY ATTACHED HERETO WHICH PROVIDES FOR FINAL AND BINDING ARBITRATION IS THE EXCLUSIVE MEANS FOR RESOLVING COVERED DISPUTES; NO OTHER ACTION MAY BE BROUGHT IN COURT OR IN ANY OTHER FORUM. I UNDERSTAND THAT THIS AGREEMENT IS A WAIVER OF ALL RIGHTS TO A CIVIL COURT ACTION FOR ALL DISPUTES RELATING TO MY EMPLOYMENT. THE TERMS AND CONDITION OF MY EMPLOYMENT AND/OR THE TERMINATION OF MY EMPLOYMENT WHETHER BROUGHT BY ME OR THE COMPANY; ONLY AN ARBITRATOR, NOT A JUDGE OR JURY, WILL DECIDE THE DISPUTE. IN ADDITION, I UNDERSTAND I AM PROHIBITED FROM JOINING OR PARTICIPATING IN A CLASS ACTION OR REPRESENTATIVE ACTION, ACTING AS A PRIVATE ATTORNEY GENERAL OR REPRESENTATIVE OF OTHERS, OR OTHERWISE CONSOLIDATING A COVERED CLAIM WITH THE CLAIMS OF OTHERS.

(Cortez Decl., Ex. A, p. 40, emphasis added.) She contends the bolded words create an unlawful wholesale waiver. The missing ingredient, though, is a poison pill. Indeed, because there is no poison pill, DeMarinis and Westmoreland are distinguishable.[2]

The last issue is whether the offending language can be severed. Defendant’s agreement does not have a severance clause, so the answer depends on whether the Court has inherent discretion to sever. Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4^th 83, 121-124 and Civil Code section 1670.5 appear to recognize such discretion; therefore, the Court finds that the waiver provision should be severed to the extent it prohibits Plaintiff from litigating the representative PAGA claim in court.

Notably, prior to Viking River Cruises, Inc. v. Moriana (2022) 142 S.Ct. 1906 (“Viking River”), the applicable law was Iskanian v. CLS Transportation Los Angeles, LLC (2014) 59 Cal.4^th 348. “Iskanian’s principal rule prohibits waivers of ‘representative’ PAGA claims in the first sense.” (Viking River, supra, 142 S.Ct. at 1916, underlined case name added.) “That is, it prevents parties from waiving representative standing to bring PAGA claims in a judicial or arbitral forum.” (Ibid., emphasis in original.) “But Iskanian also adopted a secondary rule that invalidates agreements to separately arbitrate or litigate ‘individual PAGA claims for Labor Code violations that an employee suffered,’ on the theory that resolving victim-specific claims in separate arbitrations does not serve the deterrent purpose of PAGA.” (Id. at 1916-1917, underlined case name added; see also, e.g., Knight, supra, at ¶ 5:49.4m [citing California case law for the proposition that a “single count under PAGA could not be ‘split into an arbitrable individual claim and a nonarbitrable representative claim”].)

In Viking River, the plaintiff “executed an agreement to arbitrate any dispute arising out of her employment.” (Viking River, supra, 142 S.Ct. at 1916.) “The agreement contained a ‘Class Action Waiver’ providing that in any arbitral proceeding, the parties could not bring any dispute as a class, collective, or representative PAGA action.” (Ibid.) “It also contained a severability clause specifying that if the waiver was found invalid, any class, collective, representative, or PAGA action would presumptively be litigated in court.” (Ibid.) “But under that severability clause, if any ‘portion’ of the waiver remained valid, it would be ‘enforced in arbitration.’” (Ibid.)

“After leaving her position” with the defendant, the plaintiff “filed a PAGA action . . . in California court.” (Ibid.) “Her complaint contained a claim that [the defendant] had failed to provide her with her final wages within 72 hours, as required by” Labor Code sections 101 and 102. (Ibid.) “But the complaint also asserted a wide array of other code violations allegedly sustained by other . . . employees, including violations of provisions concerning the minimum wage, overtime, meal periods, rest periods, timing of pay, and pay statements.” (Ibid.) The defendant “moved to compel arbitration of [the plaintiff’s] ‘individual’ PAGA claim” – i.e., “the claim that arose from the violation she suffered — and to dismiss her other PAGA claims.” (Ibid.) “The trial court denied that motion, and the California Court of Appeal affirmed, holding that categorical waivers of PAGA standing are contrary to state policy and that PAGA claims cannot be split into arbitrable individual claims and nonarbitrable ‘representative’ claims.” (Ibid.)

The Court of Appeal’s ruling “was dictated by . . . Iskanian.” (Ibid., underlined case name added.) “Iskanian’s principal prohibition required the lower courts to treat the representative-action waiver” in Viking River “as invalid insofar as it was construed as a wholesale waiver of PAGA standing.” (Id. at 1917, underlined case name added.) “The agreement's severability clause, however, allowed enforcement of any ‘portion’ of the waiver that remained valid, so the agreement still would have permitted arbitration of [the plaintiff’s] individual PAGA claim even if wholesale enforcement was impossible.” (Ibid.) “But because” Iskanian “prohibits division of a PAGA action into constituent claims, the state courts refused to compel arbitration of that claim as well.” (Ibid.)

The United States Supreme Court granted review and reversed, holding, eight to one, that the Federal Arbitration Act (“FAA”) preempts Iskanian “insofar as it precludes division of PAGA actions into individual and non-individual claims through an agreement to arbitrate.” (Id. at 1924.) The opinion instructs:

This holding compels reversal in this case. The agreement between [the defendant] and [the plaintiff] purported to waive “representative” PAGA claims. Under Iskanian, this provision was invalid if construed as a wholesale waiver of PAGA claims. And under our holding, that aspect of Iskanian is not preempted by the FAA, so the agreement remains invalid insofar as it is interpreted in that manner. But the severability clause in the agreement provides that if the waiver provision is invalid in some respect, any “portion” of the waiver that remains valid must still be “enforced in arbitration.” Based on this clause, [the defendant] was entitled to enforce the agreement insofar as it mandated arbitration of [the plaintiff’s] individual PAGA claim. The lower courts refused to do so based on the rule that PAGA actions cannot be divided into individual and non-individual claims. Under our holding, that rule is preempted, so [the defendant] is entitled to compel arbitration of [the plaintiff’s] individual claim.

The remaining question is what the lower courts should have done with [the plaintiff’s] non-individual claims. Under our holding in this case, those claims may not be dismissed simply because they are “representative.” Iskanian’s rule remains valid to that extent. But as we see it, PAGA provides no mechanism to enable a court to adjudicate non-individual PAGA claims once an individual claim has been committed to a separate proceeding. Under PAGA's standing requirement, a plaintiff can maintain non-individual PAGA claims in an action only by virtue of also maintaining an individual claim in that action. [Citation.] When an employee's own dispute is pared away from a PAGA action, the employee is no different from a member of the general public, and PAGA does not allow such persons to maintain suit. [Citation.] As a result, [the plaintiff] lacks statutory standing to continue to maintain her non-individual claims in court, and the correct course is to dismiss her remaining claims.

* Iskanian is preempted to the extent it bars dividing PAGA claims into individual and representative claims;

* the defendant is allowed to compel the plaintiff’s individual PAGA claim to arbitration; and

* once the plaintiff’s individual PAGA claim is compelled to arbitration, he or she lacks standing to maintain the representative PAGA claim.

The High Court’s standing ruling is nonbinding. The California Supreme Court reversed it in Adolph v. Uber Technologies, Inc. (2023) 14 Cal.5^th 1104.

Considering Iskanian, Viking River, and Adolph, and because the FAA applies, the Court intends to enforce the remainder of the agreement, compel Plaintiff’s individual claims to arbitration, strike the class claims, and stay the case as to the representative PAGA claim until the arbitration is finished.[3]

[1] A poison pill is a clause that says the entire arbitration agreement is invalid if the waiver provision is found to be unenforceable. (See ibid.)

[2] Nor is there a nonseverability clause.

[3] Defendant asserts that the FAA applies because Defendant’s business involves interstate commerce. (See Motion, pp. 5-6; see also Nelson Decl., ¶ 3.) The assertion is uncontested.