Judge David S. Cunningham, Case Number: 24STCV01967, Date: 2024-10-25 Tentative Ruling

Judge: David S. Cunningham, Case: 24STCV01967, Date: 2024-10-25 Tentative Ruling

Plaintiff used to work for ADEX as a fiber technician. He claims ADEX subjected him and other current and former employees to multiple wage-and-hour violations.

“[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.)

Plaintiff started working for Defendant in October 2021. (See Tackett Decl., ¶ 4.) During the onboarding process, which took place online, Defendant claims Plaintiff e-signed Defendant’s employment agreement, which contains an arbitration provision. (See id. at ¶¶ 6-8.)

Shannon Tackett is Defendant’s vice president. (See id. at ¶ 1.) Tackett describes the onboarding process this way:

3. As Vice President, I am responsible for managing operations for the Company, including profits and losses, overall administration, account management, and workforce management and oversight. In my role, I also conduct the onboarding process for all new hire employees and oversee the implementation, review, and execution of all new employment documents, agreements, and policies which are presented to prospective and current employees. Additionally, as Vice President, I have access to all employee personnel files and records.

5. Prior to beginning their employment with ADEX, all fiber technicians complete standard onboarding paperwork. This paperwork is completed via the JobDiva platform, a secure online applicant tracking system. The process works as follows: the new employee provides their email address to a Company administrative assistant who then sends the new employee’s onboarding packet to the email address provided. The new employee then has the opportunity to review the agreements and ask any questions they may have. Once the documents are signed, I receive notification that they have been signed, and I review and sign the documents on behalf of ADEX.

6. Mr. Najarro went through this same onboarding process prior to the start of his employment with the Company. Prior to beginning his employment, on October 14, 2021, Mr. Najarro was presented with and ultimately signed an Employment Agreement (the “Agreement”) with the Company, which includes an agreement to arbitrate any claims or controversies relating to Mr. Najarro’s employment with the Company, and prohibits class or collective actions under paragraph 16. . . .

7. In accordance with the Company’s onboarding processes, on October 14, 2021, Mr. Najarro was emailed the Agreement for his review prior to starting employment with the Company.

8. On October 17, 2021, at 2:11 PM, Mr. Najarro electronically signed the Agreement via JobDiva.

9. On October 27, 2021, I electronically signed the Agreement on behalf of the Company. . . .

Defendant’s employment agreement is attached to Tackett’s declaration at exhibit A. The arbitration provision appears in paragraph 16. It states:

16) This Agreement shall be governed by, and construed and enforced in accordance with, the laws of the State of New York. Any dispute or controversy arising out of or relating to this Agreement, and/or related to Employee’s employment, that could otherwise be resolved by a court shall be resolved through arbitration in accordance with the Employment Arbitration Rules and Mediation Procedures of the American Arbitration Association [(“AAA”)], in which neither class nor collective proceedings will be permitted. Judgment upon the award may be entered in any court having jurisdiction thereover. Employee and Employer give up and waive any right to resolve a controversy through any other means, and the right to sue in court in connection with claims related to this Agreement and/or Employer’s employment with the Company. This waiver of the right to sue in court includes, for example, claims based on federal statutes such as Title VII of the Civil Rights Act of 1964 and the Fair Labor Standards Act and claims based on statutes, common law causes of action and concerning compensation. If there is more than one dispute between Employee and Employer, all such disputes may be heard in a single proceeding. Disputes pertaining to different employees of Employer will be heard in separate proceedings. Any arbitration shall be held in the County of New York, State of New York or in such other place as the parties hereto may agree, unless applicable law requires otherwise.

* facts and terms like these suffice to establish an agreement to arbitrate; and

Defendant contends the FAA controls because Defendant’s “business operations” and “Plaintiff’s work” “affect[ed] interstate commerce.” (Motion, p. 4; see also Tackett Decl., ¶ 10.)

The Court favors a continuance. The FAA applies if the arbitration agreement’s plain language says it applies or if “the underlying contract facilitates interstate commercial transactions or directly or indirectly affects commerce between states.” (Knight, supra, at ¶ 5:50.2, emphasis in original.) Since paragraph 16 does not mention the FAA, Defendant bears the burden to show that “the contract involves interstate commerce[.]” (Id. at ¶ 5:51.1.) Supplemental evidence is needed because Tackett’s declaration is conclusory on this point:

10. ADEX conducts business nationwide and currently actively employs employees in 15 states throughout the country, including California. In addition, ADEX has global project experience in over 180 countries.

(Tackett Decl., ¶ 10.) Indeed, the declaration fails to discuss Plaintiff’s work duties at all.

The parties disagree about whether the agreement delegates the enforcement question – more acutely, the unconscionability question – to the arbitrator. (See Motion, pp. 8-9 [Defendant arguing in favor of delegation]; see also Opposition, pp. 8-10 [Plaintiff arguing against delegation].)

“Some [California] courts state that parties can ‘clearly and unmistakably’ provide that an arbitrator may decide whether an arbitration clause is unconscionable.” (Knight, supra, at ¶ 5:150.2 [citing Dream Theater, Inc. v. Dream Theater (2004) 124 Cal.App.4^th 547, Bruni v. Didion (2008) 160 Cal.App.4^th 1272, and Chin v. Advanced Fresh Concepts Franchise Corp. (2011) 194 Cal.App.4^th 704]; see also id. at ¶ 5:111.39)

On the other hand, “where the arbitration agreement does not clearly and unmistakably delegate power . . . to determine unconscionability, the court must decide that issue.” (Ibid. [citing Ajamian v. CantorCO2e, L.P. (2012) 203 Cal.App.4^th 771 and Jack v. Ring LLC (2023) 91 Cal.App.5^th 1186], emphasis in original.)

And federal courts? They generally hold that courts should decide unconscionability. (See id. at ¶ 5:150.2c [citing Davis v. O’Melveny & Myers (9^th Cir. 2007) 485 F.3d 1066 and Puelo v. Chase Bank USA, N.A. (3^rd Cir. 2010) 605 F.3d 172].)

However, Defendant cites Brennan v. Opus Bank (9^th Cir. 2015) 796 F.3d 1125. (See Motion, p. 8.) There, the Ninth Circuit found that “incorporation of [the] AAA rules into [an] arbitration provision . . . constituted clear and unmistakable evidence of [the] parties’ intent to delegate questions of arbitrability, including whether [the] clause was unconscionable[.]” (Knight, supra, at ¶ 5:111.39 [citing Brennan, supra, 796 F.3d at 1132-1133].)

This Court agrees with Plaintiff. Yes, paragraph 16 incorporates the AAA rules (see Tackett Decl., Ex. A, ¶ 16), but Brennan is distinguishable. The Ninth Circuit limited the holding to the situation where the arbitration agreement is between two sophisticated parties. (See Brennan, supra, 796 F.3d at 1131.) Plaintiff describes himself as unsophisticated. (See Opposition, p. 9.) As a matter of caution, the Court believes the prudent approach is for the Court to resolve the unconscionability question.

Plaintiff claims the arbitration provision is unconscionable. (See Opposition, pp. 4-8.)

Unconscionability is a contract defense. (See Torrecillas v. Fitness International, LLC (2020) 52 Cal.App.5^th 485, 492.) Under the FAA (assuming it governs), unconscionability can be utilized to “invalidate [an] arbitration agreement[].” (Ibid.) Courts apply state law to test whether the agreement is unconscionable. (See, e.g., Lagatree v. Luce, Forward, Hamilton & Scripps (1999) 74 Cal.App.4^th 1105, 1119.)

“[U]nconscionability has both a procedural and a substantive element, the former focusing on oppression or surprise due to unequal bargaining power, the latter on overly harsh or one-sided results.” (Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, 114, internal quotation marks omitted.) “The prevailing view is that [procedural 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.” (Ibid.) “But they need not be present in the same degree.” (Ibid.) “Essentially a sliding scale is invoked 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.” (Ibid.) “In other words, the more substantively oppressive the contract term, the less evidence of procedural unconscionability is required to come to the conclusion that the term is unenforceable, and vice versa.” (Ibid.)

Plaintiff contends the arbitration provision “is a contract of adhesion” (Opposition, p. 2; see also id. at p. 4), it “is hidden in a larger employment agreement” (id. at p. 2; see also id. at pp. 5, 6-7), and Defendant did not provide a copy of the AAA rules. (See id. at p. 2; see also id. at pp. 5-6.)

The first argument is unavailing. “[A] predispute arbitration agreement is not invalid merely because it is imposed as a condition of employment.” (Lagatree v. Luce, Forward, Hamilton & Scripps (1999) 74 Cal.App.4th 1105, 1122–1123.) Stated another way, “the mandatory nature of an arbitration agreement does not, by itself, render the agreement unenforceable.” (Ibid.; see also Knight, supra, at ¶ 5:146 [“The mere fact an adhesion contract is involved does not per se render the arbitration clause unenforceable. Rationale: Such contracts are ‘an inevitable fact of life for all citizens – businessman and consumer alike.’”], emphasis in original.)

Regardless, Plaintiff does not cite evidence demonstrating that Defendant presented the provision on a take-it-or-leave it basis (Plaintiff’s “feeling” that he “had no choice but to sign” is inadequate to meet his burden). (Najarro Decl., ¶ 5.) In fact, the employment agreement says the opposite. It clearly states that Plaintiff entered into the employment agreement “freely and voluntarily” and that he received an opportunity to consult an attorney:

Employee acknowledges that he/she has had the opportunity to consult legal counsel in regard to this Agreement, has read and understands the Agreement, is fully aware of its legal effect, and has entered into it freely and voluntarily and not on any representations or promises other than those contained in this Agreement.

The second argument is also unavailing. The employment agreement is just two pages long. The same font – 11 or 12 point – is used throughout. Prominence-wise, paragraph 16 is the same as every other paragraph. It is not hidden; it is legible; and it is conspicuous enough. (See id. at Ex. A, pp. 1-2.)

The third argument fails because Plaintiff is not challenging the AAA rules themselves. (See Baltazar v. Forever 21, Inc. (2016) 62 Cal.4^th 1237, 1246 [“Baltazar's argument accordingly might have force if her unconscionability challenge concerned some element of the AAA rules of which she had been unaware when she signed the arbitration agreement. But her challenge to the enforcement of the agreement has nothing to do with the AAA rules; her challenge concerns only matters that were clearly delineated in the agreement she signed.”].)

Plaintiff claims paragraph 16 waives California law and “forc[es] him to arbitrate in New York under New York law.” (Opposition, p. 8.)

Whenever possible, each provision of this Agreement shall be interpreted in such a manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be prohibited by or invalid under applicable law, such provision shall fail to be in effect only to the extent of such prohibition or invalidity, without invalidating the remainder of this Agreement or of any such provision.

(Tackett Decl., Ex. A, ¶ 17.) Defendant concedes that paragraph 16’s choice-of-law and venue sentences should be severed and stipulates that the “arbitration will proceed in California pursuant to California law.” (Motion, p. 12.) Given the concession and stipulation, the Court intends to grant severance and to enforce the remainder of paragraph 16.

Plaintiff fails to meet his burden, and the Court finds the arbitration provision enforceable, except the Court intends to sever the choice-of-law and venue sentences.

Defendant asserts that paragraph 16 requires arbitration on an individual basis and does not permit class and representative claims to be arbitrated. Defendant contends the class claims should be stricken and the representative PAGA claim should be stayed. (See Motion, pp. 13-14.)

The outcome depends on whether the FAA applies, so the ruling is deferred until after the continuance.

. . . Any dispute or controversy arising out of or relating to this Agreement, and/or related to Employee’s employment, that could otherwise be resolved by a court shall be resolved through arbitration in accordance with the Employment Arbitration Rules and Mediation Procedures of the [AAA], in which neither class nor collective proceedings will be permitted. . . . Employee and Employer give up and waive any right to resolve a controversy through any other means, and the right to sue in court in connection with claims related to this Agreement and/or Employer’s employment with the Company. . . .

(Tackett Decl., Ex. A, ¶ 16.) These words bar class and representative arbitration and waive Plaintiff’s right to file a lawsuit as to covered claims. This bar is enforceable under the FAA. (See, e.g., Knight, supra, at ¶ 5:49.4c [discussing AT&T Mobility LLC v. Concepcion (2011) 563 U.S. 333]; see also, e.g., Iskanian v. CLS Transportation Los Angeles, LLC (2014) 59 Cal.4^th 348, 359-360 [finding that the FAA preempts “a state’s refusal to enforce [] a [class] waiver on grounds of public policy or unconscionability”].)

Nevertheless, the words do not bar class actions per se. They do not seem to create a traditional class waiver. The Court is inclined to either order supplemental briefing on the scope of the waiver or grant Plaintiff’s counsel leave to try to find a new class representative who is not subject to arbitration.

Prior to Viking River Cruises, Inc. v. Moriana (2022) 142 S.Ct. 1906 (“Viking River”), Iskanian controlled. “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[.]” (Ibid.)

The United States Supreme Court granted review and reversed, holding, eight to one, that the 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.

This is a recurring issue in numerous cases on the Court’s docket. Considering Iskanian, Viking River, and Adolph, the Court’s approach has been to compel individual PAGA claims to arbitration and to stay representative PAGA claims until the arbitrations finish. The Court would probably do the same here.

[1] Plaintiff admits that he e-signed the employment agreement (see Najarro Decl., ¶¶ 4-5) yet claims he does not remember seeing it. (See id. at ¶ 3.) Lack of memory is not a defense. Nor is failure to read. (See, e.g., Ramos v. Westlake Services LLC (2015) 242 Cal.App.4^th 674, 687 [“[T]he fact that [the plaintiff] signed a contract in a language he may not have completely understood would not bar enforcement of the arbitration agreement. If [the plaintiff] did not speak or understand English sufficiently to comprehend the English Contract, he should have had it read or explained to him.”].)