Judge: Elaine Lu, Case: 24STCV17559, Date: 2025-02-27 Tentative Ruling

Case Number: 24STCV17559    Hearing Date: February 27, 2025    Dept: 9

Superior Court of California

County of Los Angeles

Spring Street Courthouse, Department 9

Background

            This is a putative wage-and-hour class action and representative action.  Plaintiffs Byron Achig (“Achig”) and Felix Salinas (“Salinas”) (jointly “Plaintiffs”) allege that they and the putative class members are and were employed by Defendants Dentas, Inc. dba Denny’s, Denshaz, Inc. dba Denny’s, Densaif, Inc., Denjas, Inc., Denshan, Inc., and 327 South Palm Avenue, LLC (collectively “Defendants”) and that Defendants violated the Labor Code, Industrial Welfare Commission wage orders, and the Business and Professions Code.

On July 15, 2024, Plaintiffs filed the instant class action and representative complaint.  In the Complaint, Plaintiffs assert causes of action for (1) Failure to Pay Wages, (2) Failure to Pay Minimum Wages, (3) Failure to Pay Overtime Compensation, (4) Failure to Provide Rest Periods, (5) Failure to Provide Meal Periods, (6) Failure to Provide Itemized Wage and Hour Statements, (7) Waiting Time Penalties, (8) Unfair Competition, and (9) Civil Penalties under the Private Attorney General Act (“PAGA”).

On December 24, 2024, Defendants filed the instant motion to compel arbitration.  On February 13, 2025, Plaintiffs filed an opposition.  On February 20, 2025, Defendants filed a reply.

Legal Standard

California law incorporates many of the basic policy objectives contained in the Federal Arbitration Act, including a presumption in favor of arbitrability.  (See Engalla v. Permanente Medical Group, Inc. (1997) 15 Cal.4th 951, 971-72.) Under Code of Civil Procedure section 1281, a “written agreement to submit to arbitration an existing controversy or a controversy thereafter arising is valid, enforceable and irrevocable, save upon such grounds as exist for the revocation of any contract.”

“On petition of a party to an arbitration agreement alleging the existence of a written agreement to arbitrate a controversy and that a party thereto refuses to arbitrate such controversy, the court shall order the petitioner and the respondent to arbitrate the controversy if it determines that an agreement to arbitrate the controversy exists, unless it determines that:

(a) The right to compel arbitration has been waived by the petitioner; or

(b) Grounds exist for the revocation of the agreement.

(c) A party to the arbitration agreement is also a party to a pending court action or special proceeding with a third party, arising out of the same transaction or series of related transactions and there is a possibility of conflicting rulings on a common issue of law or fact. . . .”  (CCP §1281.2.)

The right to arbitration depends upon contract; a petition to compel arbitration is simply a suit in equity seeking specific performance of that contract.  (Marcus & Millichap Real Estate Inv. Brokerage Co. v. Hock Inv. Co. (1998) 68 Cal.App.4th 83, 88.)  When presented with a petition to compel arbitration, the trial court's first task is to determine whether the parties have in fact agreed to arbitrate the dispute.  (Id.) 

“Rosenthal v. Great Western Fin. Securities Corp. (1996) 14 Cal.4th 394] explained: ‘[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.  Because the existence of the agreement is a statutory prerequisite to granting the petition, the petitioner bears the burden of proving its existence by a preponderance of the evidence.  If the party opposing the petition raises a defense to enforcement—either fraud in the execution voiding the agreement, or a statutory defense of waiver or revocation (see §1281.2(a), (b))—that party bears the burden of producing evidence of, and proving by a preponderance of the evidence, any fact necessary to the defense.’ (Rosenthal, supra, at 413.)  According to Rosenthal, facts relevant to enforcement of the arbitration agreement must be determined ‘in the manner . . . provided by law for the . . . hearing of motions.’ (Rosenthal, supra, at 413, quoting §1290.2.)  This ‘ordinarily mean[s] the facts are to be proven by affidavit or declaration and documentary evidence, with oral testimony taken only in the court’s discretion.’ (Rosenthal, supra, at 413–414; . . .).”  (Hotels Nevada v. L.A. Pacific Center, Inc. (2006) 144 Cal.App.4th 754, 761-762.)

Discussion

Existence of an Agreement to Arbitrate

Under both the Federal Arbitration Act and California law, arbitration agreements are valid, irrevocable, and enforceable, except on such grounds that exist at law or equity for voiding a contract.  (Winter v. Window Fashions Professions, Inc. (2008) 166 Cal.App.4th 943, 947.)  In ruling on a motion to compel arbitration, the court must first determine whether the parties actually agreed to arbitrate the dispute, and general principles of California contract law help guide the court in making this determination.  (Mendez v. Mid-Wilshire Health Care Center (2013) 220 Cal.App.4th 534, 541.)  “With respect to the moving party’s burden to provide evidence of the existence of an agreement to arbitrate, it is generally sufficient for that party to present a copy of the contract to the court.”  (Baker v. Italian Maple Holdings, LLC (2017) 13 Cal.App.5th 1152, 1160.)

Defendants assert that Plaintiffs’ claims are subject to predispute arbitration agreements that Plaintiff Achig and Plaintiff Salinas each separately signed.  In support of this assertion, Defendants present the declarations of Irfan Rashid – a District Manager for Defendant Denshan, Inc. and HR Manager for all of the Defendants – and Syed Zaidi – an Area Manager for Denny’s restaurants owned by Defendants.  (Rashid Decl. ¶ 2; Zaidi Decl. ¶ 2.)

As a District Manager for Defendant Denshan, Inc. and HR Manager for all of the Defendants, Rashid has access to business records, including the personnel records of current and former employees.  (Rashid Decl. ¶ 3.)  Rashid is also familiar with Defendants’ onboarding process for Defendants’ Restaurant Managers.  (Rashid Decl. ¶ 6.)

Pursuant to Plaintiff Achig’s personnel records with Defendants, Plaintiff Achig was hired on May 10, 2016 as a Restaurant Manager for one of Defendants’ restaurants in the City of Commerce.  (Rashid Decl. ¶ 5.)  During onboarding, Plaintiff Achig was required to fill out various forms including an I-9, a W-4 form, and various other forms.  (Rashid Decl. ¶ 6.)  Among these forms that appear to bear Plaintiff Achig’s signature is an Arbitration Agreement.  (Rashid Decl. ¶ 7, Exh. A.)

As an Area Manager for Denny’s Restaurants owned by Defendants, Zaidi has access to business records, including the personnel records of current and former employees.  (Zaidi Decl. ¶ 3.)  Zaidi is also familiar with Defendants’ onboarding process for hourly employees.  (Zaidi Decl. ¶ 6.)

Pursuant to Plaintiff Salinas’s personnel records with Defendants, Plaintiff Salinas was hired on April 16, 2023 as a line cook for one of Defendants’ Denny’s restaurants.  (Zaidi Decl. ¶ 5.)  During onboarding, Plaintiff Salinas was required to fill out various forms including an I-9, a W-4 form, and various other forms.  (Zaidi Decl. ¶ 6.)  Among these forms that appear to bear Plaintiff Salinas’s signature is an Arbitration Agreement.  (Zaidi Decl. ¶ 7, Exh. A.)

The terms of the two Arbitration Agreements that bear Plaintiff Achig’s and Plaintiff Salinas’s signature are nearly identical and provide as follows:

Arbitration Agreement

I and [Denshan, Inc./Denshaz, Inc.] (hereinafter “Company”) agree to submit to binding arbitration all disputes that may arise out of the employment context. I and the Company agree that any claim, dispute and/or controversy that either I or the Company (or its owners, directors, officers, managers, employees, agents and parties affiliated with its employee benefit and health plans) may have against the other, arising from, related to or having any relationship or connection whatsoever with my seeking employment with, employment by, or other association with the Company, shall be submitted to and determined exclusively by arbitration under the Federal Arbitration Act, in conformity with the procedures of the California Arbitration Act, Cal. Code of Civ. Proc. § 1280, et seq., (the “Act”) including § 1283.05 and all of the Act’s other mandatory and permissive rights to discovery. This arbitration agreement shall be governed by the Federal Arbitration Act. Included within the scope of this agreement are all disputes whether based on tort, contract, statutory or equitable law, or otherwise, including but not limited to, any claim of unlawful discrimination or harassment (whether based on the California Fair Employment and Housing Act, Title Vil of the Civil Rights Act of 1964, as amended, or any other state or federal law or regulation), wrongful termination, and/or any claim pertaining to my compensation.

The only exception to the requirement of binding arbitration shall be for claims arising out of the National Labor Relations Act which are brought before the National Labor Relations Board, claims for medical and disability benefits under the California Workers’ Compensation Act, Employment Development Department claims, representative claims under the Private Attorney General Act for Labor Code penalties, or as may otherwise be required by state or federal law. However, nothing herein shall prevent me from filing and pursuing proceedings before the California Department of Fair Employment and Housing, or the United States Equal Opportunity Commission (although if I choose to pursue a claim following the exhaustion of such administrative remedies, that claim would be subject to the provisions of this agreement).

Except as otherwise required under applicable law, I and the Company expressly intend and agree that class action and collective action procedures shall not be asserted, nor will they apply in any arbitration pursuant to this agreement. I and the Company agree that each will not assert class action or collective action claims against the other in arbitration or otherwise. I and the Company shall only submit our own individual claims in arbitration and will not seek to represent the interest of any other person. However, nothing herein shall prevent me from filing and pursuing a representative claim under the Private Attorney General Act for Labor Code penalties in civil court.

In addition to requirements imposed by law, the arbitrator selected shall be a retired California Superior Court Judge, or an otherwise neutral qualified individual to whom the parties mutually agree, and shall be subject to disqualification on the same grounds as would apply to a judge of such court. If the Company and I are unable to agree on a neutral arbitrator within 10 days from the time a written demand for arbitration is made, either party may file a petition for appointment of arbitrator pursuant to California Code of Civil Procedure § 1281.6. To the extent applicable in civil actions in California courts, the following shall apply and be observed: all rules of pleading (including the right of demurrer), all rules of evidence, all rights to resolution of the dispute by means of motions for summary judgment, judgment on the pleadings, and judgment under Code of Civil Procedure § 631.8. Resolution of the dispute shall be based solely upon the law governing the claims and defenses pleaded, and the arbitrator may not invoke any basis other than such controlling law, including but not limited to, notions of “just cause.” As reasonably required to allow full use and benefit of this agreement’s modification to the Act’s procedures, the arbitrator shall extend the times set by the Act for giving of notices and setting of hearings. Awards shall include the arbitrator’s written reasoned opinion. Nothing in this agreement shall prevent me or the Company from collecting the same damages that would be available in a civil trial, including punitive damages and attorneys’ fees. The arbitrator’s opinion shall be subject to judicial review in accordance with the Federal Arbitration Act.

I acknowledge that this agreement is not intended to interfere with my rights to collectively bargain, to engage in protected, concerted activity, or to exercise other rights protected under the National Labor Relations Act, and that I will not be subject to disciplinary action of any kind for opposing this agreement. This agreement does not alter in any way the at-will status of my employment with the Company. Should any term or provision of this agreement be declared void or unenforceable, it shall be severed and the remainder of this agreement shall be enforceable.

MY SIGNATURE BELOW ATTESTS TO THE FACT THAT I HAVE READ, UNDERSTAND AND AGREE TO BE LEGALLY BOUND TO ALL OF THE ABOVE TERMS. I FURTHER UNDERSTAND THAT THIS AGREEMENT REQUIRES ME TO ARBITRATE ANY AND ALL DISPUTES THAT ARISE OUT OF MY EMPLOYMENT. BY VOLUNTARILY AGREEING TO BINDING ARBITRATION, I UNDERSTAND THAT BOTH I AND THE COMPANY ARE GIVING UP OUR RIGHT TO TRIAL BY JURY.

(Rashida Decl. ¶ 7, Exh. A; Zaidi Decl. ¶ 7, Exh. A.) 

One of the two Arbitration Agreements is dated May 10, 2016 and appears to have been signed by Plaintiff Achig.  (Rashida Decl. ¶ 7, Exh. A.)  The second of the two Arbitration Agreements is dated April 16, 2023 and appears to have been signed by Plaintiff Salinas.  (Zaidi Decl. ¶ 7, Exh. A.) 

“[D]efendants may meet their initial burden to show an agreement to arbitrate by attaching a copy of the arbitration agreement purportedly bearing the opposing party’s signature.” (Espejo v. Southern California Permanente Medical Group (2016) 246 Cal.App.4th 1047, 1060; see also Bannister v. Marinidence Opco, LLC (2021) 64 Cal.App.5th 541, 543–544  [“The party seeking arbitration can meet its initial burden by attaching to the petition a copy of the arbitration agreement purporting to bear the respondent's signature.”].)  Accordingly, Defendants have met their moving burden by providing the Arbitration Agreements purportedly bearing each Plaintiffs’ signatures.

In opposition, Plaintiffs do not dispute the authenticity of either of the signatures on the Arbitrations Agreement.  Rather, Plaintiffs contend that the non-signatory Defendants cannot compel arbitration, and therefore, this entire motion fails.  Plaintiffs also contend that the Arbitration Agreements are unenforceable because they contain an illegal PAGA waiver.

The Federal Arbitration Act Governs the Arbitration Agreements

            “A party seeking to enforce an arbitration agreement has the burden of showing FAA preemption.” (Lane v. Francis Capital Mgmt. LLC (2014) 224 Cal.App.4th 676, 684.) “The FAA applies to contracts that involve interstate commerce (9 U.S.C. §§ 1, 2), but since arbitration is a matter of contract, the FAA also applies if it is so stated in the agreement.”  (Davis v. Shiekh Shoes, LLC (2022) 84 Cal.App.5th 956, 963.)  If the agreement is silent, the FAA provides for enforcement of arbitration provisions in any “‘contract evidencing a transaction involving commerce.’ (9 USC § 2.)”  (Allied-Bruce Terminix Companies, Inc. v. Dobson (1995) 513 U.S. 265, 277.)  Accordingly, “[t]he party asserting the FAA bears the burden to show it applies by presenting evidence establishing the contract with the arbitration provision has a substantial relationship to interstate commerce[.]”  (Carbajal v. CWPSC, Inc. (2016) 245 Cal.App.4th 227, 234.) 

            Here, the Arbitration Agreements expressly specify that they are governed by the FAA.  (Rashida Decl. ¶ 7, Exh. A; Zaidi Decl. ¶ 7, Exh. A [“This Arbitration agreement shall be governed by the Federal Arbitration Act.”].)  Accordingly, the FAA governs the Arbitration Agreements.  (Davis, supra, 84 Cal.App.5th at p.963.) 

Scope of the Arbitration Agreements

            The Arbitration Agreements provide in relevant part that “I and the Company agree that any claim, dispute and/or controversy that either I or the Company (or its owners, directors, officers, managers, employees, agents and parties affiliated with its employee benefit and health plans) may have against the other, arising from, related to or having any relationship or connection whatsoever with my seeking employment with, employment by, or other association with the Company, shall be submitted to and determined exclusively by arbitration… Included within the scope of this agreement are all disputes whether based on tort, contract, statutory or equitable law, or otherwise, including but not limited to, any claim of unlawful discrimination or harassment (whether based on the California Fair Employment and Housing Act, Title Vil of the Civil Rights Act of 1964, as amended, or any other state or federal law or regulation), wrongful termination, and/or any claim pertaining to my compensation. … The only exception to the requirement of binding arbitration shall be for claims arising out of the National Labor Relations Act which are brought before the National Labor Relations Board, claims for medical and disability benefits under the California Workers’ Compensation Act, Employment Development Department claims, representative claims under the Private Attorney General Act for Labor Code penalties, or as may otherwise be required by state or federal law.”  (Rashida Decl. ¶ 7, Exh. A; Zaidi Decl. ¶ 7, Exh. A [italics added].)

            Plaintiffs’ claims all arise from their employment with Defendants.  (See e.g., Complaint ¶ 24.)  Thus, all of Plaintiffs’ claims – except for Plaintiff’s claim for civil penalties under PAGA which is expressly exempt – are subject to the Arbitration Agreements. 

All Defendants are Entitled to Enforce the Arbitration Agreement

The Arbitration Agreement dated May 10, 2016 names Defendant Denshan, Inc. and Plaintiff Achig as the parties to the agreement: Plaintiff Achig is identified as the Employee, and Defendant Denshan, Inc. as the Company.  (Rashida Decl. ¶ 7, Exh. A.)  The Arbitration Agreement dated April 16, 2023 names Defendant Denshaz, Inc. as the Company in the body of the agreement but is signed on behalf of Denshan, Inc. with Plaintiff Salinas as the employee.  (Zaidi Decl. ¶ 7, Exh. A.)  Thus, many of the named Defendants are not specifically named or identified as parties to the Arbitration Agreements.

Relying on Soltero v. Precise Distribution, Inc. (2024) 102 Cal.App.5th 887, Plaintiffs contend that the non-signatory Defendants cannot move to compel arbitration and therefore the entire motion must be denied.  Plaintiffs’ reliance on Soltero is misplaced. 

In Soltero, the plaintiff was hired by a third-party staffing agency and signed an arbitration agreement as part of this hiring process with the third-party staffing agency.  (Id. at p.891.)  The third-party staffing agency assigned the plaintiff to work on a temporary work assignment with the defendant employer.  (Ibid.)  The plaintiff filed a class action alleging wage-and-hour violations against solely the defendant employer.  (Id. at pp.891-892.)  The defendant employer moved to compel arbitration relying on the arbitration agreement between the plaintiff and the third-party staffing agency.  (Id. at p.892.)  The trial court denied the defendant employer’s motion to compel arbitration, and the Court of Appeal affirmed.  (Ibid.)   The Court of Appeal reasoned that equitable estoppel was inapplicable because the plaintiff’s “complaint d[id] not mention or rely on any provision of her employment agreement with [the staffing agency] as a basis for imposing liability on [the defendant employer]. Accordingly, [the plaintiff]'s complaint against [the defendant employer] is not ‘founded in and inextricably bound up with the obligations imposed by the agreement containing the arbitration clause.’”  (Id. at p.893.)  The Court of Appeal found that based on the terms of the arbitration clause, the defendant employer was not a third-party beneficiary.  (Id. at pp.898-899.)  The Court of Appeal also held that the defendant employer could not enforce the arbitration agreement as an agent because there were no allegations in the complaint or evidence that defendant employer was an agent of the third-party staffing agency.  (Id. at p.899 [“Absent any such allegation or evidence of an agency relationship, there is no basis to apply the agency exception.”].) 

Notably, there is a split of authority as to Soltero’s reasoning on the issue of equitable estoppel.  (See e.g., Gonzalez v. Nowhere Beverly Hills LLC (2024) 107 Cal.App.5th 111.)  Gonzalez involved the plaintiff Gonzalez and nine related Nowhere LLCs which each operated nine Erewhon grocery stores and against a tenth, LLC Nowhere Holdco, LLC which was their managing member.  (Id. at p.115.)  Gonzalez was employed by Nowhere Santa Monica, LLC and “[a]s a condition of employment, Gonzalez entered into an individual (i.e., non-class) arbitration agreement with Nowhere Santa Monica which provided that any dispute “between Nowhere Santa Monica, LLC DBA Erewhon-Santa Monica” and Gonzalez relating to his employment would be submitted to arbitration, including any claims for ‘compensation, wages, claims alleging failure to compensate for all hours worked, failure to pay overtime, failure to pay minimum wage, failure to reimburse expenses, failure to pay wages upon termination, failure to provide accurate and itemized wage statements, failure to provide meal and/or rest breaks, entitlement to waiting time penalties and/or other claims involving employee wages, [or] benefits.’”  (Id. at p.116.)  Gonzalez filed a class action asserting wage-and-hour violations “against the ten Nowhere entities, defining as ‘Defendants’ those ten entities plus ‘any of their parent, subsidiary, or affiliated companies.’”  (Ibid.)  “Gonzalez further alleged that ‘each of the [d]efendants was the agent, principal, employee, employer, representative, joint venture or co-conspirator of each of the other [d]efendants,’ who ‘authorized, ordered, ... directed’ and ratified the conduct of each other defendant, and ‘there exists a unity of interest and ownership between defendants such that their individuality and separateness have ceased to exist.’ ‘As a result of the aforementioned facts,’ Gonzalez alleged, defendants ‘are joint employers.’”  (Ibid.) 

The ten Nowhere Entities filed a motion to compel Gonzalez’s non-class claims to arbitration and dismiss the class claims.  (Id. at p.117.)  In relevant part, “Gonzalez admitted that he entered into an arbitration agreement with Nowhere Santa Monica and conceded that the agreement compelled arbitration as to that entity, but argued the remaining defendants failed to establish the agreement applied to them because they offered no evidence that equitable estoppel should apply.”  (Ibid.)  The trial court agreed and concluded that equitable estoppel did not apply and “therefore granted the motion to compel individual arbitration as to Nowhere Santa Monica but denied it as to the other Nowhere entities.”  (Ibid.)  The nine other Nowhere entities appealed and the Court of Appeal reversed.  (Id at p.118.)

After detailing and summarizing cases involving the application of equitable estoppel to nonsignatories of arbitration agreements – Metalclad Corp. v. Ventana Environmental Organizational Partnership (2003) 109 Cal.App.4th 1705, Boucher v. Alliance Title Co., Inc. (2005) 127 Cal.App.4th 262, Garcia v. Pexco, LLC (2017) 11 Cal.App.5th 782, and Soltero v. Precise Distribution, Inc. (2024) 102 Cal.App.5th 887 – the Court of Appeal in Gonzalez applied these principles of equitable estoppel to the facts in Gonzalez.  (Gonzalez, supra, 107 Cal.App.5th at pp.118-121.)  In summarizing their holding, the Court of Appeal found that:

Gonzalez's claims against the non-Santa Monica joint employers all depend on and are founded in and inextricably intertwined with the employment agreement between Gonzalez and Nowhere Santa Monica. That agreement contains an arbitration provision. Because Gonzalez agreed to arbitrate his wage and hour claims against Nowhere Santa Monica, and because his theory of liability against the non-Santa Monica entities is that they exercised significant control over Nowhere Santa Monica's employees so as to share its legal obligations, he is equitably estopped from raising the non-Santa Monica entities’ nonsignatory status to oppose arbitrating his wage and hour claims against them.

In other words, it would be unfair for Gonzalez to group the non-Santa Monica entities with Nowhere Santa Monica for purposes of wage and hour liability as joint employers while at the same time denying the joint relationship in order to avoid arbitration. (See Garcia, supra, 11 Cal.App.5th at pp. 787-788.)

(Gonzalez, supra, 107 Cal.App.5th at p.124.)

The Court of Appeal went on to disagree with and distinguish cases that Gonzalez relied upon.  (Id. at pp.124-129.)  In relevant part, the Court of Appeal in Gonzalez concluded that Court of Appeal in Soltero erred in two regards.  (Id. at pp.126-128.)  First, “[t]o the extent Soltero holds that equitable estoppel did not apply because the plaintiff's complaint made no mention of the underlying employment agreement, [the Gonzalez Court] believe[d] it erred. To apply equitable estoppel only when a complaint expressly references the agreement containing an arbitration clause would either limit application of the doctrine to contractual claims or invite tort and statutory claimants to craft complaints to avoid any mention of the agreement, … No authority or principle supports either the limitation or encouragement of misleading artful pleading.”  (Gonzalez, supra, 107 Cal.App.5th at p. 127.)  Second, “[t]o the extent Soltero declined to follow Garcia’s equitable estoppel holding because, as Soltero reasoned, Garcia failed to explain how the plaintiff's Labor Code claims against his assigned employer actually relied on the substantive terms of his employment agreement with the temporary agency (Soltero, supra, 102 Cal.App.5th at p.896,), [the Gonzalez Court] believe[d] it again erred. … claims against a joint employer are intertwined with the substantive terms of an agreement with the direct employer because a joint employer's obligations flow from those of the direct employer.”  (Gonzalez, supra, 107 Cal.App.5th at p.127-128.)  Thus, there is a split of authority as to whether Soltero’s application of equitable estoppel is correct.   

However, even without this split of authority, Soltero is inapplicable to the instant action.  Unlike Soltero, Defendants are not seeking to enforce an arbitration agreement to which none of them are parties.  Rather, Plaintiffs have expressly named Defendant Denshan, Inc. and Denshaz, Inc. as parties.  Moreover, the terms of the Arbitration Agreements and the allegations of the complaint show that all Defendants are entitled to enforce the Arbitration Agreements.

“It is well established that a non-signatory beneficiary of an arbitration clause is entitled to require arbitration.”  (Harris v. Superior Court (1986) 188 Cal.App.3d 475, 478.)  “[A] third party — that is, an individual or entity that is not a party to a contract — may bring a breach of contract action against a party to a contract only if the third party establishes not only (1) that it is likely to benefit from the contract, but also (2) that a motivating purpose of the contracting parties is to provide a benefit to the third party, and further (3) that permitting the third party to bring its own breach of contract action against a contracting party is consistent with the objectives of the contract and the reasonable expectations of the contracting parties.”  (Goonewardene v. ADP, LLC (2019) 6 Cal.5th 817, 821.)

“A contract, made expressly for the benefit of a third person, may be enforced by him at any time before the parties thereto rescind it.”  (Civ. Code, § 1559.)  “The test for determining whether a contract was made for the benefit of a third person is whether an intent to benefit a third person appears from the terms of the contract. [Citation.] If the terms of the contract necessarily require the promisor to confer a benefit on a third person, then the contract, and hence the parties thereto, contemplate a benefit to the third person. The parties are presumed to intend the consequences of a performance of the contract.”  (Spinks v. Equity Residential Briarwood Apartments (2009) 171 Cal.App.4th 1004, 1022.) 

“[T]he third person need not be named or identified individually to be an express beneficiary.” (Id. at p.1023.)  “‘A third party may enforce a contract where he shows that he is a member of a class of persons for whose benefit it was made.’” (Ronay Family Limited Partnership v. Tweed (2013) 216 Cal.App.4th 830, 838-839.)

Here, “[Plaintiffs] and the [Defendant Denshan, Inc./Denshaz, Inc.] agree that any claim, dispute and/or controversy that either [Plaintiffs] or the Company (or its owners, directors, officers, managers, employees, agents and parties affiliated with its employee benefit and health plans) may have against the other, arising from, related to or having any relationship or connection whatsoever with [Plaintiffs’] seeking employment with, employment by, or other association with the Company, shall be submitted to and determined exclusively by arbitration…”  (Rashida Decl. ¶ 7, Exh. A; Zaidi Decl. ¶ 7, Exh. A [italics added].)  Plaintiffs expressly allege that “Defendants, and each of them, are now and/or at all times mentioned in this Complaint were the agents, servants and/or employees of some or all other Defendants, and vice-versa, and in doing the things alleged in this Complaint, Defendants are now and/or at all times mentioned in this Complaint were acting within the course and scope of that agency, servitude and/or employment..”  (Complaint ¶ 24.)  As alleged agents of Defendant Denshan, Inc. and Denshaz, Inc., the remaining Defendants are express third-party beneficiaries of the Arbitration Agreements.

Moreover, the complaint alleges that all of the Defendants were alter egos of each other and were acting agents of each other when the alleged misconduct occurred.  (Complaint ¶ 24, [“Defendants, and each of them, are now and/or at all times mentioned in this Complaint were the agents, servants and/or employees of some or all other Defendants, and vice-versa, and in doing the things alleged in this Complaint, Defendants are now and/or at all times mentioned in this Complaint were acting within the course and scope of that agency, servitude and/or employment..”.)  (See 24 Hour Fitness, Inc. v. Superior Court (1998) 66 Cal.App.4th 1199, 1199–1200 [in action concerning former employee’s claims against employer and various employees for sexual harassment in the workplace, employee defendants who were not parties to the arbitration agreement were entitled to its benefit because the complaint alleged they were acting as agents for the employer at the time of the alleged wrongful conduct.].)

As the Court of Appeal noted in Thomas v. Westlake (2012) 204 Cal.App.4th 605, a plaintiff's allegations of an agency relationship among defendants are sufficient to allow the alleged agents to invoke the benefit of an arbitration agreement executed by their principal even though the agents are not parties to the agreement.  (Thomas v. Westlake (2012) 204 Cal.App.4th 605, 614-615.)  By having alleged that all defendants acted as agents of one another, Plaintiff is bound by the legal consequences of their allegations because it would be unfair to the defendants to allow Plaintiff to invoke agency principles when it is to their advantage to do so but to disavow those same principles when it is not.  (Thomas v. Westlake (2012) 204 Cal.App.4th 605, 614-615.)

Therefore, all Defendants are entitled to enforce the arbitration agreement.

Enforceability of Arbitration Agreements

“Once such a document is presented to the court, the burden shifts to the party opposing the motion to compel, who may present any challenges to the enforcement of the agreement and evidence in support of those challenges.”  (Baker v. Italian Maple Holdings, LLC (2017) 13 Cal.App.5th 1152, 1160.)  

“California courts analyze unconscionability as having a procedural and a substantive element.”  (Kinney v. United Healthcare Services, Inc. (1999) 70 Cal.App.4th 1322, 1329.)  “[B]oth elements must be present before a contract or contract provision is rendered unenforceable on grounds of unconscionability.”  (Ibid.)  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.”  (Ibid.)  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.)  “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 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.)  “The party resisting arbitration bears the burden of proving unconscionability.”  (Pinnacle Museum Tower Assn. v. Pinnacle Market Dev. (US), LLC (2012) 55 Cal.4th 223, 247.)

Procedural Unconscionability

“ ‘Procedural unconscionability’ concerns the manner in which the contract was negotiated and the circumstances of the parties at that time. [Citation.] It focuses on factors of oppression and surprise. (Ibid.)”  (Kinney, supra, 70 Cal.App.4th at p.1329.)  “ ‘ “ ‘Oppression occurs where a contract involves lack of negotiation and meaningful choice, surprise where the allegedly unconscionable provision is hidden within a prolix printed form.’ ” ’ ”  (OTO, L.L.C. v. Kho (2019) 8 Cal.5th 111, 126.)  “ ‘[A] finding of procedural unconscionability does not mean that a contract will not be enforced, but rather that courts will scrutinize the substantive terms of the contract to ensure they are not manifestly unfair or one-sided.’ ”  (Baltazar v. Forever 21, Inc. (2016) 62 Cal.4th 1237, 1244.)

Plaintiff does not contend or otherwise show that the Arbitration Agreements are procedurally unconscionable.

Substantive Unconscionability

“Substantive unconscionability” focuses on the terms of the agreement and whether those terms are “so one-sided as to ‘shock the conscience.’”  (Kinney, supra, 70 Cal.App.4th at p.1330.)

Plaintiff contends that the Arbitration Agreements are substantively unconscionable because they contain an improper PAGA waiver.

            PAGA Waiver

A waiver of the right to bring a representative claim under PAGA is against public policy and unenforceable.  (Iskanian v. CLS Transportation Los Angeles, LLC (2014) 59 Cal.4th 348, 383 abrogated on other grounds by Viking River Cruises, Inc. v. Moriana (2022) 596 U.S. 639.)  “[T]he FAA does not preempt a state law that prohibits waiver of PAGA representative actions in an employment contract.”  (Id. at p.360.)   “[A] predispute categorical waiver of the right to bring a PAGA action is unenforceable [Citation] — a rule that Viking River left undisturbed[.]”  (Adolph v. Uber Technologies, Inc. (2023) 14 Cal.5th 1104, 1117.)  “[A]n unenforceable wholesale PAGA waiver is one that requires an employee as a condition of employment to waive their right to bring any ‘representative’ PAGA claims, individual or nonindividual, ‘in any forum.’”  (DeMarinis v. Heritage Bank of Commerce (2023) 98 Cal.App.5th 776, 788–789.)

            Here, there no waiver of representative PAGA claims..  The Arbitration Agreements expressly exclude PAGA claims in their entirety from arbitration as follows: “[t]he only exception to the requirement of binding arbitration shall be for claims arising out of the National Labor Relations Act which are brought before the National Labor Relations Board, claims for medical and disability benefits under the California Workers’ Compensation Act, Employment Development Department claims, representative claims under the Private Attorney General Act for Labor Code penalties, or as may otherwise be required by state or federal law.”  (Rashida Decl. ¶ 7, Exh. A; Zaidi Decl. ¶ 7, Exh. A [italics added].)

Waiver of Class Action Claims

A provision in an employment agreement that requires arbitration and prohibits class or collective actions is enforceable under the FAA and does not run afoul of the National Labor Relations Act.  (See Epic Systems Corp. v. Lewis (2018) 584 U.S. 497.)  Moreover, the FAA preempts California's doctrines of public policy and unconscionability to the extent they prohibit class action waivers of an employee's un-waivable rights.  (Iskanian v. CLS Transportation Los Angeles, LLC (2014) 59 Cal.4th 348, 359-360 abrogated on other grounds by Viking River Cruises, Inc. v. Moriana (2022) 596 U.S. 639.)  Accordingly, under the FAA, class action waivers are valid and enforceable. 

Here, the Arbitration Agreements expressly provides that:

Except as otherwise required under applicable law, I and the Company expressly intend and agree that class action and collective action procedures shall not be asserted, nor will they apply in any arbitration pursuant to this agreement. I and the Company agree that each will not assert class action or collective action claims against the other in arbitration or otherwise. I and the Company shall only submit our own individual claims in arbitration and will not seek to represent the interest of any other person. However, nothing herein shall prevent me from filing and pursuing a representative claim under the Private Attorney General Act for Labor Code penalties in civil court.

(Rashida Decl. ¶ 7, Exh. A; Zaidi Decl. ¶ 7, Exh. A.) 

Plaintiffs do not dispute the applicability or validity of the class action waiver.  Nor do Plaintiffs otherwise contend that this class action waiver is unenforceable.  Accordingly, pursuant to the class action waiver, Plaintiffs’ putative class action claims are dismissed.

CONCLUSION AND ORDER

Based on the foregoing, Defendants Dentas, Inc. dba Denny’s, Denshaz, Inc. dba Denny’s, Densaif, Inc., Denjas, Inc., Denshan, Inc., and 327 South Palm Avenue, LLC’s motion to compel arbitration is GRANTED as follows:

Pursuant to the class action waiver, Plaintiffs’ putative class action claims are dismissed.

The entirety of Plaintiffs’ PAGA claims are STAYED for all purposes pending arbitration of all of Plaintiff’s remaining claims pursuant to Code of Civil Procedure section 1281.4.  The parties are ordered to file a joint status report no later than June 5, 2025 regarding the progress of arbitration including the name of the arbitrator, the status of timely payment of arbitration fees, and the stay. The Court hereby sets a Non-Appearance Case Review for June 12, 2025, at 8:30 a.m., Department 9.

The Judicial Assistant shall give notice to Defendants, and Defendants are ordered to file proof of service of the instant order on all other parties within 5 days.

DATED: February 27, 2025                                                   _____________________________

                                                                                                  Elaine Lu

                                                                                                  Judge of the Superior Court