Judge Lon F. Hurwitz, Case 20-01145518 2023-08-04 Tentative Ruling

Judge: Lon F. Hurwitz, Case: 20-01145518, Date: 2023-08-04 Tentative Ruling

Motion to Compel Arbitration

Motion to Lift Stay and Compel Arbitration of Individual PAGA Claims

Moving Party: Defendants The Resort at Pelican Hill, LLC; Irvine Management Company; and The Irvine Company, LLC

Responding Party: Plaintiff Mackenzie Heyman, individually and on behalf of those similarly situated

SERVICE: April 23, 2023, by electronic service

RELIEF SOUGHT: Defendants ask the Court to lift the current stay on Plaintiff’s class and PAGA claims pending arbitration, and to compel Plaintiff’s individual PAGA claims to be submitted to arbitration.

UPCOMING EVENTS: Status Conference, August 16, 2023

FACTS/OVERVIEW: This is a putative wage-and-hour class and Private Attorneys General Act (“PAGA”) action. On May 26, 2020, Plaintiff Mackenzie Heyman, individually and on behalf of those similarly situated (“Plaintiff”) filed a Complaint (ROA 2) against Defendants The Resort at Pelican Hill, LLC, Irvine Management Company, and The Irvine Company, LLC (collectively, “Defendants”) alleging seven causes of action for:

1. Unlawful Business Practices – Failure to Pay All Gratuities Owed (Labor Code § 351);

2. Intentional Interference with Prospective Economic Advantage;

3. Conversion;

4. Unjust Enrichment;

5. Failure to Provide Timely and Accurate Wage Statements;

6. Waiting Time Penalties; and

7. Unlawful Business Practices (Bus. & Prof. Code §§ 17200, et seq.).

On July 16, 2020, Plaintiff voluntarily filed the operative First Amended Complaint (“FAC”) alleging the same causes of action, and adding two PAGA claims and a claim for failure to provide employee records. (ROA 7).

Plaintiff was a “coordinator” for Defendants at The Resort at Pelican Hill, in Newport Coast, from December 2013 to March 2020. [FAC, ¶9]. The class is defined as “all people who are or who have been employed by Defendants as hourly non-exempt employees, including but not limited to, servers, coordinators, and other similar hourly and non-exempt employees throughout the State of California within the four years preceding the filing of this Complaint.” [FAC, ¶10].

Per the Complaint: “Defendants impose mandatory gratuities on the sale of food and beverage but fail to distribute the total proceeds of those gratuities to non-managerial service employees as required by California law.” [FAC, ¶2]. Specifically, Plaintiff alleges this practice violates Labor Code section 351 and is the basis for the majority of her claims.

In August 2020, Defendants moved to compel arbitration of Plaintiff’s individual claims and dismissal of the class claims. At the hearing on November 16, 2020, the Court granted the motion as to all but Plaintiff’s PAGA claims (the 9th and 10th causes of action) and the class claims. (ROA 41). Plaintiff was ordered to arbitrate her individual claims, and the PAGA and class claims were stayed pending the arbitration. The Court rejected Defendants’ request to dismiss the class claims. (Ibid.)

In their November 2022 Joint Status Conference Statement, the parties stated that the demand for arbitration was submitted on July 9, 2021, and on November 3, 2021, the arbitrator was appointed. (ROA 66). In addition, the parties noted that the arbitration previously set for October 11 through 18, 2022, had been continued to June 19 through 23, 2023. (Ibid.) The parties also noted that they had submitted a stipulation to dismiss Defendant Irvine Management Company from the arbitration. (Ibid.)

On February 14, 2023, Defendants filed the current motion entitled “Motion to Lift Stay for the Sole Purpose of Hearing This Motion, and to Compel Plaintiff’s PAGA Claims to Arbitration on an Individual Basis.” (ROA 76). Defendants seek to compel Plaintiff’s individual PAGA claims to arbitration pursuant to the holding in Viking River Cruises, Inc. v. Moriana (2022) 142 S.Ct. 1906 (“Viking River”). Plaintiff opposes (ROA 91), and Defendants reply (ROA 95).

CONTENTIONS AND ANALYSIS:

Statement of the Law

Under Code of Civil Procedure section 1281.2, a party to an arbitration agreement may move to compel arbitration if another party to the agreement refuses to arbitrate. A party moving to compel arbitration under Section 1281.2 must prove by a preponderance of the evidence that: (1) The parties entered into a written agreement to arbitrate; and (2) one or more of the claims at issue are covered by that agreement. (Code Civ. Proc., § 1281.2; Villacreses v. Molinari (2005) 132 Cal.App.4th 1223, 1230.) If the moving party meets this burden, the burden shifts to the resisting party to prove by a preponderance of evidence a defense to enforcement of the agreement. (Id., at p. 1230.)

California law favors the enforcement of valid arbitration agreements. (Ericksen, Arbuthnot, McCarthy, Kearney & Walsh, Inc. v. 100 Oak Street (1983) 35 Cal.3d 312, 320; In re Tobacco I (2004) 124 Cal.App.4th 1095, 1103.) Any doubts to arbitration will be resolved against the party asserting a defense to arbitration, whether the issue is construction of contract language, waiver, delay or any other defense to arbitrability. (Erickson, supra, 35 Cal.3d at p. 320; In re Tobacco I, supra, 124 Cal.App.4th at p. 1103.)

Merits

Defendants contend that under the recent decision in Viking River, they are entitled to enforce the portion of the operative Arbitration Agreement mandating the arbitration of Plaintiff’s individual PAGA claims. Defendants note that this Court previously held that the Arbitration Agreement was valid and enforceable, and therefore, ordered Plaintiff’s individual claims to arbitration. In addition, Defendants note this Court held that under Iskanian v. CLS Transp. Los Angeles, LLC (2014) 59 Cal.4th 348, Plaintiff’s individual PAGA claims should remain before this Court. Accordingly, Defendants now ask this Court to lift the current stay in this action for the purpose of hearing this motion, order Plaintiff’s individual PAGA claims to arbitration pursuant to the Viking River decision, and continue to stay Plaintiff’s representative PAGA claims and class claims.

Stay of PAGA and Class Claims

As a preliminary matter, Defendants ask this Court to lift the stay imposed on November 16, 2020, pursuant to the grant of Defendants’ previous motion to compel arbitration. Defendants seek to lift the stay for the limited purpose of adjudicating the instant motion. As argued by Defendants, the Court has discretion to lift the stay prior to the completion of the pending arbitration of Plaintiff’s individual claims. Defendants contend lifting the stay is proper because it would not frustrate the arbitrator’s jurisdiction, but rather expand the arbitrator’s jurisdiction over Plaintiff’s claims. In support, Defendants cite to MKJA, Inc. v. 123 Fit Franchising, LLC (2011) 191 Cal.App.4th 643.

In opposition, Plaintiff contends the stay should not be lifted. According to Plaintiff, Viking River does not mandate the compelling of her individual PAGA claims to arbitration. Plaintiff argues that Defendants are reading Viking River too broadly, and that the Arbitration Agreement in this litigation does not contain the express provisions that justified the result in Viking River. Plaintiff also contends lifting the stay would further delay the resolution of this three-year-old dispute, as well as prejudice Plaintiff, the other aggrieved employees, and the putative class members. Plaintiff notes this Court already denied Defendants’ previous motion to compel her PAGA claims to arbitration. As a result, Plaintiff contends there is no reason to lift the stay to examine the issue again.

A court’s order of stay pending arbitration is governed by Code of Civil Procedure section 1281.4, which provides in relevant part:

If a court of competent jurisdiction … has ordered arbitration of a controversy which is an issue involved in an action or proceeding pending before a court of this State, the court in which such action or proceeding is pending shall, upon motion of a party to such action or proceeding, stay the action or proceeding until an arbitration is had in accordance with the order to arbitration or until such earlier time as the court specifies. [¶] … [¶] If the issue which is the controversy subject to arbitration is severable, the stay may be with respect to that issue only.

“ ‘The purpose of the statutory stay is to protect the jurisdiction of the arbitrator by preserving the status quo until arbitration is resolved. [Citations.] [¶] In the absence of a stay, the continuation of the proceedings in the trial court disrupts the arbitration proceedings and can render them ineffective. [Citation.] [Citation.]” (MKJA, supra, 191 Cal.App.4th at p. 658.) Once a motion to compel arbitration is granted and the lawsuit stayed, “ ‘the action at law sits in the twilight zone of abatement with the trial court retaining merely vestigial jurisdiction over matters submitted to arbitration.’” (Titan/Value Equities Group, Inc. v. Superior Court (1994) 29 Cal.App.4th 482, quoting Brock v. Kaiser Foundation Hospitals (1992) 10 Cal.App.4th 1790, 1796.) Accordingly, courts have held that, after granting a motion to compel arbitration and staying a lawsuit, the scope of jurisdiction retained by the trial court is extremely narrow. (SWAB Financial, LLC v. E*Trade Securities, LLC (2007) 150 Cal.App.4th 1181, 1199-1200.)

The preservation of the arbitrator’s jurisdiction through a stay of litigation “is essential to the enforceability of an arbitration agreement …. Given the purpose of the statute, the most reasonable interpretation of the stay provision is that it grants a trial court discretion to lift a stay prior to the completion of arbitration only under circumstances in which lifting the stay would not frustrate the arbitrator’s jurisdiction.” (MKJA, supra, 191 Cal.App.4th at p. 660.) Courts have held that the final paragraph of Section 1281.4 suggests at least one narrow circumstance under which a trial court may be authorized to lift a stay under the statute—if an issue in litigation is removed from the litigation or the arbitrable controversy is removed from the arbitration. (Id. at pp. 660-661.) It has also been held that the court’s “vestigial jurisdiction” includes: (1) appointing arbitrators if the method selected by the parties fails; (2) granting provisional remedies if the arbitration award would otherwise be rendered ineffectual; (3) determining whether plaintiff is financially unable to pay their share of arbitration costs, and, if so, to order defendant to pay plaintiff’s share of costs or waive the right to arbitration; (4) confirming, correcting, or vacating the award; (5) setting a date for completion of the arbitration if it is not included in the parties’ agreement; and (6) removing an arbitrator who “fails to act and his or her successor has not been appointed….” (See, Titan/Value, supra, 29 Cal.App.4th at p. 486; Aronow v. Sup. Ct. (Emergent, LLP) (2022) 76 Cal.App.5th 865, 870, 885-886; Bosworth v. Whitmore (2006) 135 Cal.App.4th 536, 539, 550.) “Otherwise, however, the arbitrator takes over. The court has no continuing jurisdiction.” (Cal. Prac. Guide, Alternative Dispute Resolution (Rutter Group, 2022 December Update), § 5:346.2.)

Here, according to the parties’ most recent Joint Status Conference Statement, arbitration was set to begin on June 19, 2023, and conclude on June 23, 2023. Moreover, in the Joint Stipulation and Order filed on April 20, 2023 (ROA 86), the parties asked the Court to continue the hearing on this motion so they could participate in mediation on May 17, 2023. Since the parties do not mention either of these proceedings in their respective opposition and reply papers, it is assumed that the arbitration has not commenced and the mediation either did not take place or was unsuccessful.

Nevertheless, the circumstances of this case are similar to those found in Blake v. Ecker (2001) 93 Cal.App.4th 728. In Blake, plaintiff sued her employer for various violations of the Fair Employment and Housing Act (FEHA). The defendant employer moved to compel arbitration and stay the civil action until the arbitration was complete. The arbitration agreement stated that plaintiff was required to arbitrate any disputes against her employer. The agreement also contained a severance clause allowing the court to sever any portion found to be unreasonable and unenforceable. The plaintiff opposed the motion on the ground that her FEHA claims were not subject to arbitration. However, the court ruled against her, granted the motion, and ordered the matter to binding arbitration. The court also ordered that the action be stayed pending the arbitration. (Blake, supra, 93 Cal.App.4th at p. 734.)

One day after the order compelling arbitration, the Court of Appeal issued its decision in Armendariz v. Foundation Health Psychcare Services, Inc. In Armendariz, the Court of Appeal held that an employer-imposed contractual agreement for arbitration was enforceable, even if it lacked a mutuality of remedies. The California Supreme Court granted review. While Armendariz was pending before the Supreme Court, neither of the parties in Blake took any action to initiate the arbitration proceedings. The Supreme Court then handed down its decision in Armendariz. Shortly thereafter, the defendant employer in Blake filed a motion with the trial court to dismiss plaintiff’s complaint for her failure to prosecute. (Blake, supra, 93 Cal.App.4th at p. 735.) The plaintiff then filed a motion for an order vacating the prior order compelling arbitration and staying the action. The plaintiff argued that at the time the motion to compel was granted, there was a split of authority on the validity of employment arbitration agreements, but under Armendariz, her arbitration agreement was unenforceable. In making her motion, the plaintiff relied on Code of Civil Procedure section 1008(c). Therefore, the plaintiff argued that the trial court should vacate its original order compelling arbitration and lift the stay so that her action could move forward. (Id. at p. 736.) The defendant employer opposed on the grounds that plaintiff failed to comply with the requirements for a motion for reconsideration, and the application of Armendariz was not retroactive or did not apply to the facts of the case. (Id. at pp. 736-737.) The trial court granted the defendant’s motion to dismiss for failure to prosecute, and placed the plaintiff’s motion to vacate off calendar as moot. The plaintiff appealed. (Id. at p. 737.)

The appellate court first noted that once the trial court stayed the civil action, it was stayed for all purposes during the arbitration proceedings; as a result, the defendant employer’s only avenue for redress was in the arbitration proceeding. (Blake, supra, 93 Cal.App.4th at p. 737, citing to Brock v. Kaiser Foundation Hosps. (1992) 10 Cal.App.4th 1790, 1796, 1797-1801.) In referring to the holding in Brock, the Blake court held that once the petition to compel arbitration was granted and the action at law stayed, “ ‘the action at law sits in the twilight zone of abatement with the trial court retaining merely a vestigial jurisdiction over matters submitted to arbitration.’” (Id. at pp. 737-738.) The court went on to list the matters within the limited scope of that “vestigial jurisdiction.” Accordingly, the Blake court found that the trial court did not have jurisdiction to grant the defendant’s motion to dismiss. (Id. at p. 738.)

However, the Blake court went on to hold that the trial court did have jurisdiction to consider the plaintiff’s motion to vacate because there was “clear legal authority for such a motion” under CCP § 1008(c). (Blake, supra, 93 Cal.App.4th at p. 739.) The appellate court went on to hold that “the trial court was bound to grant such reconsideration in light of the conflict among prior authorities that was resolved by Armendariz.” (Ibid.) As a result, the appellate court held that the trial court was required to reconsider the original motion to compel arbitration. (Ibid.)

In the current litigation, Defendants are essentially asking this Court to lift the stay and reconsider its prior grant of their motion to compel arbitration as it pertained to Plaintiff’s PAGA claims. However, Defendants’ request to reconsider this Court’s November 2020 Order is untimely under Code of Civil Procedure section 1008(a). Therefore, whether this motion is interpreted as a request to lift the stay under CCP § 1281.4 or to reconsider the Order compelling arbitration under CCP § 1008(a), this Court is without jurisdiction and must deny the motion.

Compel PAGA Claims to Arbitration

Nevertheless, the Court does have authority to reconsider and modify its prior Order under Code of Civil Procedure section 1008, subdivision (c), which states: “If a court at any time determines that there has been a change of law that warrants it to reconsider a prior order it entered, it may do so on its own motion and enter a different order.” Under this provision, a court must act sua sponte, either as the result of its own second thoughts or in response to a party’s request. (Le Francois v. Goel (2005) 35 Cal.4th 1094, 1108.)

In this instance, there is no reason why the Court cannot do so here. Although the arbitrator has already been appointed, it appears that the arbitration proceeding has not actually commenced. Therefore, pursuant to CCP § 1008(c), the Court must reconsider its November 2020 Order to arbitrate in light of the holding in Viking River.

As noted above, the Court granted Defendants’ motion to compel arbitration “as to all but Plaintiff’s PAGA claims … and the class claims.” (ROA 41). First, the Court found that Defendants had sufficiently established the subject Arbitration Agreement is governed by the FAA. The Court specifically found that under Iskanian v. CLS Transportation Los Angeles, LLC (2014) 59 Cal.4th 348, 387, the PAGA claims were not subject to arbitration and were not covered by the arbitration agreement “because the State is the real party in interest.” The Iskanian Court reasoned that “a PAGA claim lies outside the [Federal Arbitration Act]’s coverage because it is not a dispute between an employer and an employee arising out of their contractual relationship. It is a dispute between an employer and the state, which alleges directly or through its agents—either the Labor and Workforce Development Agency or aggrieved employees—that the employer has violated the Labor Code.” (Id. at pp. 386-387.)

However, the U.S. Supreme Court in Viking River subsequently disagreed with Iskanian on this issue. Viking River found that “[a]lthough the terms of § 2 [of the FAA] limit the FAA’s enforcement mandate to agreements to arbitrate controversies that ‘arise out of’ the parties’ contractual relationship, disputes resolved in PAGA actions satisfy this requirement. … [R]egardless of whether a PAGA action is in some sense also a dispute between an employer and the State, nothing in the FAA categorically exempts claims belonging to sovereigns from the scope of § 2.” (Viking River, supra, 142 S.Ct. at p. 1919, fn. 4.) Viking River also held that PAGA actions can be split into individual arbitrable claims and representative non-arbitrable claims. (Id. at pp. 1924-1925.)

As a general rule, judicial decisions are given retroactive effect. (Brennan v. Tremco, Inc. (2001) 25 Cal.4th 310, 318; Abramson v. Juniper Networks, Inc. (2004) 115 Cal.App.4th 638, 660-661.) “Courts sometimes make an exception to this general rule when the decision changed a settled rule on which the parties had relied. [Citation.] … But when a court is ‘merely deciding a legal question, not changing a previously settled rule,’ there is no reason not to apply a judicial decision to a pending case. [Citation.]” (Blake, supra, 93 Cal.App.4th at p. 740, citing Brennan v. Tremco, supra, 25 Cal.4th at p. 318.)

There is no reason to depart from the general rule of retroactivity in this litigation. Just as Armendariz has been applied retroactively by appellate courts, Viking River and the recently decided case of Adolph v. Uber Technologies, Inc. (Cal. July 17, 2023) 2023 WL 4553702, should be applied retroactively as well.

As a preliminary matter, it is noted that this Court previously found that the Agreement includes a delegation of authority to the arbitrator. However, the Court also noted that threshold questions of arbitrability are ordinarily for the courts to decide.

Regarding the issue here, the Arbitration Agreement provides in relevant part:

This agreement to arbitrate includes any disputes that the Company may have against you, and any disputes that you may have against the Company or any of its employees, supervisors, managers or agents, arising out of or relating to your employment, including but not limited to (1) any claims of discrimination, harassment, or retaliation, (2) violation of any federal, state or local law, (3) any claims relating to any aspect of your wages, compensation, training, or terms and conditions of employment, and (4) any claims relating to the termination of your employment. The arbitration shall be the exclusive and binding remedy for any such dispute and shall be used instead of any court action (including jury trial), which is hereby expressly waived. [Declaration of Madeline Calvete-Douglass, Exh. A.] The Agreement also includes a waiver of the parties’ respective rights to bring class or representative actions. Specifically, Plaintiff and Defendants agreed that: “All claims and disputes subject to this Agreement must be brought in each party’s individual capacity, and not as a plaintiff, class representative, or class member in any purported class or representative proceeding.” [Ibid.]

Although this waiver provision is not a wholesale waiver of an employee’s right to bring PAGA claims against Defendants, it is an impermissible waiver of claims an employee may bring on behalf of other employees (i.e., non-individual claims). (Iskanian, supra, 59 Cal.4th at p. 384.) In Iskanian, the California Supreme Court explained that “whether or not an individual claim is permissible under the PAGA, a prohibition of representative [i.e., non-individual] claims frustrates the PAGA’s objectives.” (Ibid.) The U.S. Supreme Court in Viking River left this rule undisturbed. (Viking River, supra, 142 S.Ct. at p. 1925.)

To the extent the waiver of representative claims is impermissible, the Agreement states the provision can be severed. The Agreement states: “If any part of this agreement is found unenforceable, it will no longer be part of this agreement but it will not affect the enforceability of the remaining parts of this agreement.” [Ibid.]

This is where Viking River changes the analysis. Under Iskanian, since PAGA claims could not be split into individual and non-individual components, then this type of unenforceable waiver provision resulted in PAGA claims not being compelled into arbitration. Under Viking River, however, every PAGA action is understood as being comprised of two claims—an “individual” claim and a “representative” claim. (Viking River, supra, 142 S.Ct. at p. 1924.) Because of FAA preemption, these claims are severable from one another, and the “individual” portion of a PAGA claim is arbitrable.

Here, the provisions of the Agreement are consistent with Viking River’s division of a PAGA claim into individual and non-individual claims. Therefore, under the Agreement, Plaintiff’s non-individual PAGA claims cannot be compelled to arbitration. However, her individual PAGA claims must be submitted to arbitration because they involve consideration of Labor Code violations suffered by Plaintiff. The division of the PAGA causes of action into individual and non-individual components is consistent with Plaintiff’s agreement to arbitrate any disputes she may have with Defendants.

Accordingly, under the holding in Viking River, this Court’s prior ruling that Plaintiff’s PAGA claims are not covered by the Arbitration Agreement was erroneous. Since the Arbitration Agreement is governed by the FAA, Plaintiff’s PAGA claims are not outside of the Agreement. Therefore, Plaintiff’s individual PAGA claims in the ninth and tenth causes of action must be compelled to arbitration. Under the holding in Adolph v. Uber Technologies, supra, Plaintiff’s non-individual PAGA claims remain stayed pending the outcome of the arbitration.

RULING:

Defendants’ “Motion to Lift the Stay for the Sole Purpose of Hearing this Motion, and to Compel Plaintiff’s PAGA Claims to Arbitration on an Individual Basis” is DENIED on the ground the motion is essentially an untimely request to reconsider this Court’s prior grant of Defendants’ motion to compel arbitration as it pertained to Plaintiff’s PAGA claims. Defendants also have not demonstrated that lifting the stay imposed pursuant to Code of Civil Procedure section 1281.4 would not frustrate the jurisdiction of the arbitrator.

However, under Code of Civil Procedure section 1008, subdivision (c), the Court has reconsidered and modified is Order of November 16, 2020, where the Court found that Plaintiff’s PAGA claims in the ninth and tenth causes of action were not subject to arbitration and not encompassed with the Arbitration Agreement between Plaintiff and Defendants. The Court finds that under the holding in Viking River Cruises, Inc. v. Moriana (2022) 142 S.Ct. 1906, this Court’s prior ruling that Plaintiff’s PAGA claims are not covered by the Arbitration Agreement was erroneous. Since the Arbitration Agreement is governed by the FAA, Plaintiff’s PAGA claims are not outside of the Agreement. Therefore, Plaintiff’s individual PAGA claims in the ninth and tenth causes of action are compelled to arbitration. Under the holding in Adolph v. Uber Technologies, Inc. (Cal. July 17, 2023) 2023 WL 4553702, Plaintiff’s non-individual PAGA claims remain stayed pending the outcome of the arbitration.

Clerk to give notice of this Court’s ruling.