Judge David S. Cunningham, Case Number: 24STCV02265, Date: 2024-07-19 Tentative Ruling

Judge: David S. Cunningham, Case: 24STCV02265, Date: 2024-07-19 Tentative Ruling

Defendant’s motion to compel arbitration is granted as to Plaintiff’s individual claims.

For now, the Court declines to strike the class claims. The Court intends to either order supplemental briefing or grant Plaintiff’s counsel a chance to find a new putative class representative.

Plaintiff’s representative Private Attorneys General Act (“PAGA”) claim is stayed.

BBB “manufactures heat transfer products.” (First Amended Complaint, ¶ 12.) Plaintiff used to work for BBB. He claims BBB subjected him and other current and former nonexempt 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.)

In August 2023, Plaintiff applied to work for Defendant. The application process occurred online and required Plaintiff to acknowledge receiving multiple documents, including Defendant’s arbitration agreement. (See Elzarad Decl., ¶¶ 3-6.) The process also required Plaintiff to e-sign the arbitration agreement. (See id. at ¶¶ 7-10.) It is undisputed that he e-signed it. (See ibid.; see also Opposition, p. 3; Davis Decl., ¶¶ 4-6.)

The agreement is attached to the declaration of Rebecca Elzarad, the Employee Relations Manager of Defendant’s parent company, at exhibit 2. It states:

Individuals who wish to be considered for employment by Block By Block-California ("the Company") must read and accept the terms of the following Dispute Resolution Agreement. If you desire to do so, you may stop the process at this point and take the time to review these materials further. You must, however, complete the online Agreement, along with your application, if you wish to continue the application process and if you wish to be employed by the Company. All persons who apply for employment with the Company after November 30, 2011, and those who become employed as a result of such application, are required to agree to the Dispute Resolution Agreement below.

You and the Company recognize that differences may arise between you that cannot be resolved without the assistance of an outside party. Both you and the Company agree to resolve any and all claims, disputes or controversies arising out of or relating to your application for employment, your employment with the Company, and/or the termination of your employment exclusively by arbitration to be administered by a neutral dispute resolution agency agreed upon by the parties at the time of the dispute. If you and the Company cannot agree, the American Arbitration Association ("AAA") will administer the arbitration pursuant to its applicable Rules. Copies of AAA's Rules are available on AAA's website (www.adr.org). Some, but not all, of the types of claims covered are: unpaid wages, overtime, or other compensation; discrimination or harassment on the basis of race, sex, age, national origin, religion, disability or any other unlawful basis; breach of contract; unlawful retaliation; wrongful discharge; employment-related tort claims such as defamation; and claims arising under any statutes or regulations applicable to employees or applicable to the employment relationship, such as the Age Discrimination in Employment Act, the Family and Medical Leave Act, or the Fair Labor Standards Act. Claims not covered are those claims seeking injunctive or declaratory relief due to allegations of unfair competition, unfair business practices, the unauthorized disclosure of trade secrets or confidential information, or the breach of covenants restricting the business activities of the Company or employees. This Agreement does not affect or limit Employee's right to file an administrative charge with a state or federal agency such as the National Labor Relations Board or the Equal Employment Opportunity Commission, and it does not cover claims relating to whistleblowers and/or unlawful retaliation arising under the Sarbanes-Oxley Act. You and the Company agree that this Agreement shall be enforceable pursuant to and interpreted in accordance with the provisions of the Federal Arbitration Act.

The Arbitrator shall have the authority to award the same damages and other relief that would have been available in court pursuant to applicable law. The Arbitrator will have the authority to limit discovery and other pretrial processes to what is necessary for a prompt and inexpensive resolution of the dispute. Absent a showing of substantial need by either party or an inability to pursue or defend certain claims, the Arbitrator shall limit discovery to 25 interrogatories/document requests per party and to two depositions per party. It is expected that the arbitration hearing will be held within 180 days of the appointment of the Arbitrator. The AAA Rules will govern the allocation of costs between the parties and the course of the proceedings unless otherwise agreed. The Arbitrator shall not have the authority to add to, amend, or modify existing law or to alter the at-will status of the relationship between you and the Company. Because this Agreement is intended to resolve the particular dispute as quickly as possible, the Arbitrator shall not have the authority to consolidate the claims of other employees into a single proceeding, to fashion a proceeding as a class, collective action, or representative action, or to award relief to a class or group of employees. The Arbitrator shall have the authority to consider and rule on dispositive motions such as motions to dismiss or motions for summary judgment in accordance with the standards and burdens generally applicable to such motions in federal district court, except that the Arbitrator may establish appropriate and less formal standards and procedures for such motions at the Arbitrator's discretion consistent with the expedited nature of arbitration proceedings. The Arbitrator may issue subpoenas to compel the attendance of witnesses at the arbitration hearing and to compel the production of documents during discovery and shall do so upon reasonable request of either party. The Arbitrator shall have the exclusive authority to resolve any dispute relating to the interpretation, applicability, enforceability, or formation of this Agreement, including, but not limited to, any claim that any part of this Agreement is unenforceable, void, or voidable.

For the purposes of the scope of the obligation to arbitrate, "Company" shall include Block By Block-California, and all subsidiary companies, related companies, trade names, and alleged joint employers, as well as their respective offices, directors, managers, and employees (current and former).

If any provisions of AAA's Rules or of this Agreement are determined by the Arbitrator or by any court of competent jurisdiction to be unlawful, invalid, or unenforceable, such provisions shall be severed or modified so that the Agreement may be enforced to the greatest extent permissible under the law. All remaining terms and provisions shall continue in full force and effect. This Agreement may be modified or terminated by the Company after thirty days written notice to you. Any modifications or terminations shall be prospective only and shall not apply to any claims or disputes that are pending in arbitration or that have been initiated by either party.

SPECIAL NOTE: This Agreement and the Rules referenced above are important documents that affect your legal rights. You should familiarize yourself with and understand them, and, accepting below, you acknowledge that you have had the opportunity to do so. You may wish to seek legal advice or to consult with private legal counsel before signing this Agreement.

By acknowledging and by accepting employment with the Company if it is offered, you agree to be bound to this Dispute Resolution Agreement, as does the Company. You understand that, as more fully set forth above, you must arbitrate any and all employment-related claims against the Company and that you may not file a lawsuit in court in regard to any claims or disputes covered by this Agreement.

Facts and terms like these normally suffice to demonstrate an agreement to arbitrate, yet Plaintiff raises an assent challenge. He claims he does not recall signing the agreement, he did not review it, and Defendant did not explain it to him. (See Davis Decl., ¶¶ 4-5.)

The Court disagrees. 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.”].) Moreover, the agreement’s plain language contradicts Plaintiff’s claim: “I have read and accept the terms of the Arbitration Agreement. Yes[.]” (Elzarad Decl., Ex. 2.) Again, it is undisputed that Plaintiff e-signed it.[1]

Concerning the FAA, the agreement’s wording is clear. It states that the agreement “shall be enforceable pursuant to and interpreted in accordance with the provisions of the [FAA].” (Ibid.)

Plaintiff asserts that the agreement is unconscionable. (See Opposition, pp. 2-9.)

“[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.)

* fails to “identify the arbitrator, the arbitration location, the party covering the costs referring to the American Arbitration Association (‘AAA’) rules as to costs” (id. at pp. 5-6); and

The first point 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 differently, “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.)

The second point also fails. The agreement provides that “[t]he AAA Rules will govern the allocation of costs between the parties and the course of the proceedings unless otherwise agreed” and contains a link to the AAA’s website. (Elzarad Decl., Ex. 2.) Regardless, “[a]n agreement to arbitrate is enforceable even if it does not designate the ADR provider and makes no mention of the rules to govern the arbitration process[.]” (Knight, supra, at ¶ 8:83, emphasis in original.) In that situation, the parties must “look to” the FAA or California Arbitration Act (“CAA”), whichever applies, to fill in the gaps regarding “how to select an arbitrator[,]” “what substantive law applies[,]” “what procedural rules will be used[,]” and “what, if any, discovery will be permitted. (Id. at ¶ 8:84, emphasis in original.) As noted above, the FAA applies here. The parties remain free to sign a joint stipulation to utilize AAA, JAMS, or some other arbitration company, but, if they do not agree, the agreement will be enforced pursuant to the FAA rules. (See ibid.)

The Court also rejects the third point. “[F]ailure to attach a copy of the AAA rules [does] not render the agreement procedurally unconscionable.” (Lane v. Francis Capital Management LLC (2014) 224 Cal.App.4^th 676, 691.) Since Plaintiff is not challenging the AAA rules themselves, his argument falls short. (See also Baltazar v. Forever 21, Inc. (2016) 62 Cal.4^th 1237, 1246.)[2]

For substantive unconscionability, Plaintiff claims the agreement “limit[s] discovery to twenty-five interrogatories/document requests per party and to two depositions per party.” (Opposition, p. 8.)

(Elzarad Decl., Ex. 2, emphasis added.) The emphasized words give the arbitrator discretion to allow more discovery if needed.

In addition, the parties retain the option to stipulate to use the AAA rules or another arbitration provider’s rules that might afford greater discovery:

Both you and the Company agree to resolve any and all claims, disputes or controversies arising out of or relating to your application for employment, your employment with the Company, and/or the termination of your employment exclusively by arbitration to be administered by a neutral dispute resolution agency agreed upon by the parties at the time of the dispute. If you and the Company cannot agree, the [AAA] will administer the arbitration pursuant to its applicable Rules.

Nevertheless, the agreement gives the Court power to sever “unlawful, invalid, or unenforceable” provisions:

If any provisions of AAA's Rules or of this Agreement are determined by the Arbitrator or by any court of competent jurisdiction to be unlawful, invalid, or unenforceable, such provisions shall be severed or modified so that the Agreement may be enforced to the greatest extent permissible under the law. All remaining terms and provisions shall continue in full force and effect.

(Ibid., emphasis added.) As a matter of caution, the Court finds that the discovery limitations should be severed.

Defendant contends the class claims should be stricken. (See Motion, pp. 19-21.)

Because this Agreement is intended to resolve the particular dispute as quickly as possible, the Arbitrator shall not have the authority to consolidate the claims of other employees into a single proceeding, to fashion a proceeding as a class, collective action, or representative action, or to award relief to a class or group of employees.

You understand that, as more fully set forth above, you must arbitrate any and all employment-related claims against the Company and that you may not file a lawsuit in court in regard to any claims or disputes covered by this Agreement.

(Elzarad Decl., Ex. 2.) These words bar class and representative arbitration and waive Plaintiff’s right to bring 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].)

Notably, the words do not bar class actions per se. They do not seem to create a traditional class waiver. Instead of striking the class claims now, the Court is inclined to either order supplemental briefing or grant Plaintiff’s counsel leave to find a new putative class representative who is not subject to arbitration. If counsel ends up failing to find a new representative, the Court could dismiss the class claims at that time.

Defendant contends the individual PAGA claim should be arbitrated and the representative PAGA claim should be dismissed or stayed. (See Motion, pp. 21-22.)

Plaintiff claims the Court has discretion to deny a stay and to litigate the representative PAGA claim while the arbitration is pending. Plaintiff contends the facts support denying Defendant’s stay request. (See Opposition, pp. 11-15.)

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 as well.” (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. Discretion or not, the Court believes the same should be done here.[3]

[1] Plaintiff’s argument – that Defendant did not explain the agreement to him – is unpersuasive. Plaintiff fails to declare that he requested an explanation or that he failed to receive opportunities to read the agreement and to consult attorneys before signing. (See Davis Decl., ¶¶ 4-7.) To repeat, failure to read is not a defense.

[2] Plaintiff unpersuasively argues that the agreement’s delegation clause is unconscionable. (See Opposition, pp. 6-7.) One, the fact that the underlying agreement is an adhesion contract is not enough to establish procedural unconscionability. Two, Plaintiff only discusses the procedural element of unconscionability as to the delegation clause and does not address or establish the substantive element.

[3] Plaintiff asserts that Viking River is distinguishable. He contends Defendant’s agreement does not have a PAGA waiver and severability clause. (See Opposition, pp. 9-10.)

The Court disagrees with Plaintiff. The agreement prohibits representative arbitration, which necessarily includes arbitration of representative PAGA claims, and requires “unlawful, invalid, or unenforceable” provisions to be “severed[.]” (Elzarad Decl., Ex. 2.)