Judge: Deirdre Hill, Case: 22TRCV01089, Date: 2023-03-14 Tentative Ruling

Case Number: 22TRCV01089    Hearing Date: March 14, 2023    Dept: M

Hearing Date:                         March 14, 2023

Moving Parties:                      Defendant Pinnacle Technical Resources Inc.

Responding Party:                  Plaintiff Lavale Graham

Motion to Compel Arbitration and Stay the Action

            The Court considered the moving, opposition, and reply papers.

RULING

            The motion is GRANTED.

BACKGROUND

On October 28, 2022, plaintiff Lavale Graham (“Plaintiff”) filed a representative action for Civil Penalties Pursuant to Labor Code § 2699, et seq. for violations of Labor Code §§ 201, 202, 203, 204 et seq., 210, 221, 226(a), 226.7, 227.3, 510, 512, 558(a)(1)(2), 1194, 1197, 1197.1, 1198, 2802, California Code of Regulations, Title 8, Section 11040, Subdivision 5(A)- (B), and the applicable Wage Order(s). 

LEGAL AUTHORITY

Under California¿law,¿public policy favors arbitration as an efficient and less expensive means of resolving private disputes.¿  (Moncharsh v. Heily & Blasé (1992) 3 Cal.4th 1, 8-9;¿AT&T Mobility LLC v. Concepcion¿(2011) 563 U.S. 333, 339 (Concepcion).)  “To further that policy, Code of Civil Procedure, section 1281.2 requires a trial court to enforce a written arbitration agreement unless one of three limited exceptions¿applies.  Those statutory exceptions arise where (1) a party waives the right to arbitration; (2) grounds exist for revoking the arbitration agreement; and (3) pending litigation with a third party creates the possibility of conflicting rulings on common factual or legal issues.”  (Acquire II, Ltd. v. Colton Real Estate Group¿(2013) 213 Cal.App.4th 959, 967 (Acquire II), citing Code of Civ. Proc., § 1281.2, subds. (a)-(c).)  Similarly, the Federal Arbitration Act (“FAA”) reflects a liberal federal policy favoring arbitration and the fundamental principle that arbitration is a matter of contract.  (Concepcion, supra, 563 U.S. at p. 339.)  In line with these principles, courts must place arbitration agreements on an equal footing with other contracts and enforce them according to their terms.  (Id.)  “[U]nder¿both the FAA and California law, ‘arbitration agreements are valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.’”  (Higgins v. Sup. Ct.¿(2006) 140 Cal.App.4th 1238, 1247.)¿ 

Accordingly, whether an agreement is governed by the California Arbitration Act (“CAA”) or the¿FAA, courts resolve doubts regarding the scope of arbitrable issues in favor of arbitration.  (Moncharsh,¿supra,¿at 3 Cal.4th at p. 9;¿Comedy Club, Inc. v. Improv West Assocs.¿(9th Cir. 2009) 553¿F.3d¿1277, 1284; see also¿Engalla¿v. Permanente Med. Grp., Inc.¿(1997) 15 Cal.4th 951, 971-972 [“California law incorporates many of the basic policy objectives contained in the Federal Arbitration Act, including a presumption in favor of arbitrability [citation] and a requirement that an arbitration agreement must be enforced on the basis of state law standards that apply to contracts in general [citation]”].)  The petitioner bears the burden of proving the existence of a valid arbitration agreement, and the opposing party bears the burden of proving any fact necessary to its defense.¿¿(Gatton v. T-Mobile USA, Inc.¿(2007) 152 Cal.App.4th 571, 579.)

DISCUSSION

            Defendant Pinnacle Technical Resources Inc. (“Defendant”) requests an order compelling binding arbitration and to stay the proceedings. 

Existence of an Enforceable Arbitration Agreement

In determining the enforceability of an arbitration agreement, the court considers “two ‘gateway issues’ of arbitrability: (1) whether there was an agreement to arbitrate between the parties, and (2) whether the agreement covered the dispute at issue.”  (Omar v. Ralphs Grocery Co. (2004)¿118 Cal.App.4th 955, 961.)¿¿¿ 

“Arbitration is a product of contract.  Parties are not required to arbitrate their disagreements unless they have agreed to do so.  [Citation.]  A contract to arbitrate will not be inferred absent a¿‘clear agreement.’  [Citation.]  When determining whether a valid contract to arbitrate exists, we apply ordinary state law principles that govern contract formation.  [Citation.]  In California, a¿‘clear agreement’¿to arbitrate may be either express or implied in fact.¿ [Citation.]”  (Davis v. Nordstrom, Inc. (9th Cir. 2014) 755¿F.3d¿1089, 1092-93.)  “[T]he court is only required to make a finding of the agreement's existence, not an evidentiary determination of its validity.  (Condee v. Longwood Mgmt. Corp. (2001) 88 Cal. App. 4th 215.)

Defendant provides the following arbitration provision in the Terms of Employment Agreement (“Agreement”), which provides as follows: “Pinnacle and I agree to bring any dispute in arbitration on an individual basis only, and not on a class or collective basis.  The arbitrator may not consolidate more than one person’s claims, and may not otherwise preside over any form of a representative or class proceeding.  Accordingly, [t]here will be no right or authority for any dispute to be brought, heard or arbitrated as a class action (“Class Action Waiver”).  The Class Action Waiver shall not be severable from this Agreement in any case in which (1) the dispute is filed as a class action and (2) a civil court of competent jurisdiction finds the Class Action Waiver is unenforceable.  In such instances, the class action must be litigated in a civil court of competent jurisdiction.  There will be no right or authority for any dispute to be brought, heard or arbitrated as a collective action (“Collective Action Waiver”).  The Collective Action Waiver shall not be severable from this Agreement in any case in which (1) the dispute is filed as a collective action and (2) a civil court of competent jurisdiction finds the Collective Action Waiver is unenforceable.  In such instances, the collective action must be litigated in a civil court of competent jurisdiction.”  (Van Marion Decl. ¶ 5, Exhib 1.) 

The Agreement is dated March 10, 2022, and bears the digital signature of “LaVale Raymonte Graham.”  (See Van Marion Decl. ¶ 5, Exhib 1.)  The language of the Agreement appears broad enough to cover all the causes of action against Defendant asserted by Plaintiff in the Complaint.  Specifically, the Agreement “applies to any legal dispute, controversy or claim arising out of, relating to or in connection with these Terms, including the breach, termination or validity thereof, [Plaintiff’s] application for employment with Pinnacle, [Plaintiff’s] employment with Pinnacle and/or the termination of [Plaintiff’s] employment.”  (Van Marion Decl. ¶ 5, Exhib 1.) 

            Plaintiff does not offer any arguments regarding the validity of the Arbitration Agreement.  Thus, the Court finds that Defendant has shown the existence of an enforceable arbitration agreement between Defendant and Plaintiff.

Unconscionability 

The doctrine of unconscionability refers to “an absence of meaningful choice on the part of one of the parties together with contract terms which are unreasonably favorable to the other party.”  (Sonic-Calabasas A, Inc. v. Moreno(2013)¿57 Cal.4th 1109, 1133.)  It consists of procedural and substantive components, “the former focusing on oppression or surprise due to unequal bargaining power, the latter on overly harsh or one-sided results.”  (Id.)  Although both components of unconscionability must be present to invalidate an arbitration agreement, they need not be present in the same degree.  (Armendariz v. Found. Health¿Psychcare¿Servs., Inc. (2000)¿24 Cal.4th 83, 114 (abrogated in-part on other grounds by¿Concepcion, 563 U.S. 333).)¿¿¿ 

“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.  [Citations.]  In other words, the more substantively unconscionable the contract term, the less evidence of procedural unconscionability is required to come to the conclusion that the term is unenforceable, and vice versa.”  (Id.) “The party resisting arbitration bears the burden of proving unconscionability.”  (Pinnacle Museum Tower¿Ass’n¿v. Pinnacle Market Dev. (US) (2012) LLC,¿55 Cal.4th 223, 247.)

Plaintiff contends that the arbitration agreement is unconscionable.  First, Plaintiff argues it is procedurally unconscionable because the terms were not subject to negotiation and Plaintiff was required to accept the Agreement as a condition of employment with the Agreement as drafted by Defendant.  Plaintiff claims it was a contract of adhesion presented by the employer to an employee on a take-it or leave-it basis.  Further, Plaintiff argues the adhesiveness of the contract is readily apparent and admitted by Defendant as Plaintiff was accepting an offer of employment who, as a “weaker or ‘adhering’ party is presented a contract drafted by the stronger party on a take it or leave it basis.”  (Mercuro v. Superior Court (2002) 96 Cal. App. 4th 167, 174.)  However, Defendant demonstrates that the agreement was not adhesive as Plaintiff had an opportunity to opt out.  Defendant provides evidence that the Agreement provided Plaintiff with sufficient time and information to opt-out, and Plaintiff had several days to review the Agreement before signing it, plus the opportunity to reach out to the assigned Onboarding Analyst with any questions.  (Van Marion Decl., ¶¶ 8-11.)  The Court finds this sufficient to defeat Plaintiff’s arguments concerning procedural unconscionability. 

Second, Plaintiff argues the agreement is substantively unconscionable because the terms seek to deprive Plaintiff protections under California law under Armendariz by requiring disputes regarding the terms to be governed by Texas state law.  Plaintiff contends that Armendariz set forth the California standard with respect to factors considered in the determination of unconscionability including, but not limited to, mutuality and confidentiality.  Plaintiff argues that the determination of the enforceability of the Agreement must also be subject to California state law since Plaintiff’s employment was in California and subject to California state law.  Defendant argues that it is seeking enforcement under the FAA and not the laws of the state of Texas, and to the extent that the Agreement references Texas law, this provision can be severed without disturbing the parties’ agreement to arbitrate.  The Court agrees with Defendant’s arguments, finding that the FAA governs the arbitration proceedings.  

Next, Plaintiff argues that the Agreement is substantively unconscionable because it requires the employee to bear expenses and costs in a judicial proceeding.  The Court disagrees since the Agreement only imposes costs and fees on Plaintiff in dismissing the lawsuit, which is arguably not at issue here.  The Agreement does not impose costs on Plaintiff as to arbitration, which is not in conflict with Armendariz.  

Plaintiff also argues that the Agreement’s imposition of confidentiality is also substantively unconscionable because it “‘serves no purpose other than to tilt the scales of justice in favor of the employer by denying access to any information about other claims against the employer to other potential victims….’”  (Murrey v. Superior Court (2023) 87 Cal.App.5th 1223, 1254.)  The Court does not find that the existence of a confidentiality provision alone renders the Agreement unconscionable.  Furthermore, the Agreement provides that the arbitration shall remain confidential “to the greatest extent permitted by law.”  (Van Marion Decl., ¶ 5, Ex. 1.)  Additionally, Plaintiff fails to provide any authority prohibiting confidentiality provisions in arbitration agreements.  

Finally, Plaintiff contends that the waiver of PAGA argued is in violation of Armendariz as well as Galarsa.  (See Armendariz v. Found. Health Psychcare Servs., Inc. (2000) 24 Cal. 4th 83, 100 [finding that a provision purporting to waive the right to bring a PAGA claim is in direct contravention with state law providing that a “law established for a public reason cannot be contravened by a private agreement”]; See Galarsa v. Dolgen California, LLC (2023) 2023 Cal.App.LEXIS 129 at *2 [“PAGA claims seeking to recover civil penalties for Labor Code violations suffered by employees other than plaintiff may be pursued by plaintiff in court.”].)  The Court finds Plaintiff’s arguments to be unpersuasive.  First, it appears from the agreement that Plaintiff only waived his individual PAGA claims, which is not in conflict with Iskanian v. CLS Transportation Los Angeles, LLC (2014) 59 Cal.4th 348 (“Iskanian”) as discussed below.  Second, even if there was a wholesale waiver of Plaintiff’s PAGA claims, Viking River Cruises, Inc. v. Moriana, 142 S.Ct. 1906 (2022) (“Viking River”), allows a court to sever the representative and individual components of the PAGA claim such that only the individual PAGA claims are compelled to arbitration.  

Plaintiff also argues that severance of the unconscionable portions cannot be severed because there are multiple instances of unconscionability, thus rendering the entire agreement unenforceable.  However, as discussed above, the Court finds that any portions that are unconscionable may be severed without destroying the integrity of the agreement to arbitrate.  

Thus, the Court finds that the Agreement is not unconscionable. 

PAGA Waiver

PAGA is codified at Labor Code sections 2698 to 2699.5, and it authorizes aggrieved employees to file lawsuits to recover civil penalties on behalf of themselves, other employees, and the State of California for Labor Code violations. The Legislature’s purpose in enacting the PAGA was to augment the limited enforcement capability of the Labor and Workforce Development Agency by empowering employees to enforce the Labor Code as representatives of the Agency.  (Iskanian, supra, 59 Cal.4th at p. 383-384.)  Under Iskanian an agreement by employees to waive their right to bring a PAGA action serves to disable one of the primary mechanisms for enforcing the Labor Code.  (Id.)  Since such an agreement has as its object, indirectly, to exempt the employer from responsibility for the employer’s own violation of law, it is against public policy and may not be enforced.  (Id.)  Accordingly, an employment agreement that compels the waiver of representative claims under the PAGA is contrary to public policy and unenforceable as a matter of state law.  (Id.)  Consistent with Iskanian, California courts have held that a pre-dispute agreement to arbitrate is ineffective to compel arbitration of a PAGA claim because the employee who signed the agreement was not then authorized to waive the state’s right to a judicial forum.  (Julian v. Glenair, Inc. (2017) 17 Cal.App.5th 853, 871.)  

In its June 15, 2022, decision in Viking River Cruises, Inc. v. Moriana, 142 S.Ct. 1906 (2022) (“Viking River”) the United States Supreme Court held that “the FAA preempts the rule of Iskanian insofar as it precludes division of PAGA actions into individual and non-individual claims through an agreement to arbitrate.”  (Id. at p. 1924.)  Addressing the severability of “individual” and “representative” PAGA claims, the Court held that, while “[t]he lower courts refused to do so based on the rule that PAGA actions cannot be divided into individual and non-individual claims” under the holding in Viking River, “that rule is preempted, so Viking is entitled to compel arbitration of Moriana’s individual claim.”  (Id. at p. 1925.)  Significantly, the Court went on to hold that “[w]hen 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.”  (Id.)  In effect, the employee would be deprived of standing to bring the PAGA action. 

Based on these holdings in Viking River, Defendant urges this court to compel the arbitration of Plaintiff’s “individual” PAGA claims and to dismiss the remaining “representative” claims.  What Defendant seeks is consistent with Viking River.  However, Plaintiff argues that Viking River does not apply because Defendant’s Agreement does not contain a representative action or PAGA action waiver, thus, there is no basis to sever Plaintiff’s individual PAGA claim. Plaintiff’s argument is misplaced.  There is nothing in Viking River which requires an agreement to contain a representative PAGA action waiver.  In fact, the Agreement need not waive representative actions or contain a PAGA waiver in order for Viking River to apply.  Although Iskanian originally prohibited severing individual” and “representative” PAGA claims, the Supreme Court found that such claims could be severed.  Here, the Agreement already severed the representative and individual PAGA claims as the parties agreed to arbitrating only the claims that Plaintiff may have on an individual basis.  Viking River established that this was lawful and enforceable.  Thus, the Court need not determine whether the unenforceable, representative PAGA claims need to be severed from Plaintiff’s waiver of PAGA claims because it is not an issue here given that it was not contemplated in the Agreement.  As Defendant points out in its reply, the gateway issue for the Court to resolve here, is whether the Agreement requires individual arbitration of Plaintiff’s PAGA claims, which the Court finds in the affirmative.  

                        Staying Plaintiff’s Representative PAGA Claims

Plaintiff appears to expect possible further judicial clarification of the effect of Viking River on PAGA claim arbitration, by the California Supreme Court in Adolph v. Uber Techs., Inc., No. G059860, 2022 WL 1073583, at *2 (Cal. Ct. App. Apr. 11, 2022), review granted (July 20, 2022) (Case No. S-274671).  Federal courts, including the United States Supreme Court, are bound by state courts’ interpretation of state law.  (Johnson v. U.S., 559 U.S. 133, 138 (2010) (internal citation omitted).).  Viking River clashes with the California Supreme Court standing-based decision in Kim v. Reins Int’l Cal. Inc., 9 Cal.5th 73, 90-91 (Cal. 2020) (stating that “[n]othing in the legislative history suggests the Legislature intended to make PAGA standing dependent on the existence of an unredressed injury, or the maintenance of a separate, unresolved claim.  Such a condition would have severely curtailed PAGA’s availability to police Labor Code violations because, as noted, many provisions do not create private rights of action or require an allegation of quantifiable injury.”)

Given the effect of Viking River on the application of PAGA, and the extent to which its holding on standing may be at odds with California state law, it is reasonable to expect further judicial clarification of the standing issue.  Thus, the Court will grant Defendant’s motion to compel arbitration with respect to Plaintiff’s individual PAGA claim and stay the representative claim for post-arbitration proceedings pursuant to Kim, assuming no contrary interpretations of PAGA standing by the California Supreme Court.

CONCLUSION

In light of the foregoing, the Court GRANTS Defendant’s Motion to Compel Arbitration in part, with respect to Plaintiff’s individual PAGA claims, and stays further proceedings with respect to Plaintiff’s representative PAGA claims.

            Defendant is ordered to give notice.