Judge Lon F. Hurwitz, Case 2022-01270572 2023-04-14 Tentative Ruling

Judge: Lon F. Hurwitz, Case: 2022-01270572, Date: 2023-04-14 Tentative Ruling

1. Motion to Compel Arbitration

2. Status Conference

FACTS/OVERVIEW:

Complaint in 2022-01270572 (#4)

This is a class action wage/hour and unfair business practices suit. Mission Inn employed Plaintiff as a non-exempt bartender. Plaintiff claims Defendant failed to pay minimum wage and overtime, failed to permit meal/rest periods, failed to timely pay wages during employment and at the time of termination, failure to provide accurate wage statements, and unfair business practices. This is the first motion to compel arbitration. There is no discovery stipulation or order for staged discovery.

Complaint in 2022-01258324 (#5)

This is a PAGA representative action. Plaintiff claims penalties for failure to pay minimum wage and overtime, failure to provide meal/rest periods, failure to timely pay wages during employment and at termination, and failure to provide complete and accurate wage statements. This is the first motion to compel arbitration. There is no discovery stipulation or order for staged discovery

ANALYSIS:

Authority

A party moving to compel arbitration under Code Civil Procedure Section 1281.2 must prove by a preponderance of the evidence that: (1) The parties entered into a written agreement to arbitrate; (2) One or more of the claims at issue are covered by that agreement; and (3) The responding party refused a prior demand for arbitration under the agreement of the claims at issue. (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 ground for denial (e.g., fraud or unconscionability). (Villacreses, 132 Cal.App.4^th at 1230.)

Application of the FAA

The party asserting the FAA applies to an agreement has “the burden to demonstrate FAA coverage by declarations and other evidence.” (Hoover v. American Income Life Ins. Co. (2012) 206 Cal.App.4th 1193, 1208.) Here, the Agreement contains a contractual provision for application of the FAA. “[S]ince 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.)

Merits

Defendant has its initial burden under CRC 3.1330 to prove the existence of an agreement to arbitrate. Defendant presents evidence that Plaintiff signed a Mutual Agreement to Arbitrate Disputes (“Agreement”) as part of her new hire paperwork. (ROA 30, Lozcano Decl. Ex. A.1) The Agreement states that Plaintiff agreed that “all disputes, controversies claims, and causes of action (collectively, "Covered Disputes") in any federal, state or local court, or before any governmental agency, under applicable federal, state or local laws, arising out of or relating to Employee's employment with the Mission Inn and the termination of that employment, . . . .” (Id. at ¶ 3.) Plaintiff further agreed that the “Agreement is covered and enforceable under the terms of the Federal Arbitration Act. (Id. at Section ¶ 17.)

Plaintiff does not dispute the authenticity of the Agreement provided by Defendant, nor does she contend she did not sign the Agreement. Plaintiff does not contend that she was denied access to the Agreement.

Further, the Arbitration Agreement includes the following relevant terms:

“EMPLOYEE HAS READ THE AGREEMENT ABOVE CAREFULLY AND HAS BEEN GIVEN THE OPPORTUNITY TO CONSIDER THE TERMS AND EFFECT ON EMPLOYEE. BY EMPLOYEE'S SIGNATURE BELOW, EMPLOYEE KNOWINGLY AND VOLUNTARILY AGREES TO BE BOUND BY THE TERMS AND CONDITIONS OF THIS AGREEMENT.” (Id. [emphasis in original).

Therefore, Defendant has proved the existence of a valid arbitration agreement with Plaintiff.

Defenses to Enforcement

Plaintiff argues the Agreement is unenforceable because it is procedurally and substantively unconscionable. Plaintiff bears the burden of proof on this challenge to enforcement.

“Both procedural and substantive unconscionability must be shown for the defense to be established, but ‘they need not be present in the same degree.’” (OTO, L.L.C. v. Kho (2019) 8 Cal.5th 111, 125). “[T]he more substantively oppressive the contract term, the less evidence of procedural unconscionability is required to’ conclude that the term is unenforceable.” (Id. at 125-126). “Conversely, the more deceptive or coercive the bargaining tactics employed, the less substantive unfairness is required.” (Id.)

Procedural Unconscionability

Plaintiff contends that the Agreement is procedurally unconscionable because it is a pre-printed contract of adhesion, presented on a take-it-or-leave-it basis. While it is true that virtually all “take it or leave it” contracts carry some degree of procedural unconscionability, that degree is presumptively low absent evidence the defendant actively interfered with plaintiff’s ability to review and understand the arbitration agreement. (Samaniego v. Empire Today, LLC (2012) 205 Cal.App.4th 1138, 1145; Mission Viejo Emergency Medical Associates v. Beta Healthcare Group (2011) 197 Cal.App.4th 1146, 1156).

Here, Plaintiff has set forth no evidence that she was prevented from reviewing the Agreements or asking questions before signing them. (See Rosenthal v. Great Western Fin’l Securities Corp. (1996) 14 Cal.4th 394 [no fraud where there was opportunity to review agreement before signing].) The title has “Arbitrate” in it, and the phrase indicating Plaintiff “carefully read” the agreement is directly above the signature line. The procedural unconscionability here is therefore low.

Substantive Unconscionability

Plaintiff asserts that the Acknowledgment is substantively unconscionable because it does not contain the minimum fairness requirements set forth in Armendariz v. Found. Health Psychcare Services, Inc. (2000) 24 Cal.4th 83.

Specifically, it alters Plaintiff’s entitlement to attorney’s fees.

Further, the Agreement is substantively unconscionable because it contains a PAGA waiver.

Attorney’s Fees

The agreement states, “Each Party shall pay its own attorneys' fees and costs, if any. However, if any Party prevails on a statutory claim which affords the prevailing party attorney's fees and costs, or if there is a written agreement providing for such attorneys' fees and costs, the Arbitrator may award reasonable attorney's fees and costs to the prevailing party.”

Plaintiff contends this language has the potential to expose her to a fee award if she loses and limit her recover on her attorney’s fees if she prevails.

In Wherry v. Award, Inc., the court found that an arbitration agreement providing a defendant with fees, without any limitation to whether the action was frivolous or brought in bad faith, violated Armendariz. (Wherry v. Award, Inc. (2011) 192 Cal.App.4th 1242, 1249.) Similarly, in Ajamian v. CantorCO2e, L.P., the court found that a provision requiring the employee to pay the employer’s attorney fees if the employer prevailed without granting her the right to recoup her own fees if she prevailed was also unconscionable. (Ajamian v. CantorCO2e, L.P. (2012) 203 Cal.App.4th 771, 800.)

In wage/hour claims, attorney’s fees are governed by Labor Code §§ 218.5 and 1194. Section 218.5 allows reasonable attorney’s fees and costs to the prevailing party, but it does not apply if fees are recoverable under Section 1194. Section 1194 applies to minimum wage/overtime claims only and only allows the employee to recover fees. Section 218.5 makes the fee award mandatory as long as a request is made and Section 1194 “entitles” the employee to fees and costs.

In PAGA actions, attorney’s fees are generally governed by CCP § 1021.5, which states “a court may award attorneys’ fees to a successful party . . . which has resulted in the enforcement of an important right affecting a public interest . . . .” The wording generally indicates only a plaintiff-employee may recover, as enforcement of the public interest must occur for fees to be recoverable.

The fees clause in the subject Agreement does not affect attorney’s fees under the PAGA action, as such fees are discretionary under the statute. As for fees for Plaintiff’s remaining wage/hour claims under Section 218.5, the clause also guts Plaintiff’s entitlement to fees. However, Plaintiff was already at risk to pay fees to Defendant if it prevailed, as Section 218.5 awards fees to the “prevailing party.”

However, for Plaintiff’s minimum wage/overtime claim, the clause effectively guts Plaintiff’s entitlement to fees by making such fees discretionary on the part of the Arbitrator.

The clause limits Plaintiff’s recovery for her minimum wage/overtime claims beyond what she would be entitled to in a court. It does not, however, limit her recovery under the PAGA. Further, it does not expose her to a fee award beyond the statutes. Still, the limit on Plaintiff’s recovery for fees for one of her two actions is unconscionable.

PAGA Waiver

In Viking River Cruises, Inc. v. Moriana (2022) 142 S.Ct. 1906, the United States Supreme Court overruled Iskanian v. CLS Transportation Los Angeles, LLC (2014) 59 Cal.4th 348 to the extent its holding was preempted by the FAA and concluded that (1) a PAGA claim could be split into “individual” and “representative” portions, and (2) the individual portion could be compelled to arbitration. However, Viking River Cruises did not overrule Iskanian to the extent it precludes “a wholesale waiver of PAGA claims.” (Id. at 1924-25.)

Therefore, pursuant to Viking River, Plaintiff’s “individual” claim may be compelled to arbitration.

Plaintiff contends that the Agreement is unlawful because it prohibits Plaintiff from pursuing a PAGA action in arbitration or in any court, as a PAGA action is a representative action brought as a proxy of the State. PAGA itself does not provide a right to pursue Labor Code claims for civil penalties on an individual basis. (Reyes v. Macy’s, Inc. (2011) 202 Cal App. 4th 119, 1123-24.) Therefore, by only permitting a plaintiff to adjudicate PAGA claims on an individual basis through arbitration, it does not permit her to adjudicate their claims at all and is therefore a PAGA waiver. This is also unconscionable.

Severability

Plaintiff argues the entire agreement is unconscionable and cannot be severed. (O’Hare v. Municipal Resource Consultants (3) 107 Cal. App. 4th 282.) Civ. Code § 1670.5 states, “If the court as a matter of law finds the contract or any clause of the contract to have been unconscionable at the time it was made the court may refuse to enforce the contract, or it may enforce the remainder of the contract without the unconscionable clause, or it may so limit the application of any unconscionable clause as to avoid any unconscionable result.”

As there are only two clauses of the Agreement that are unconscionable, it cannot be said that the agreement is “permeated” by unconscionability. (Armendariz, 24 Cal.4th at 122.) Further, severance of both clauses is allowed under Civil Code § 1670.5. The Court should sever the fees clause and any implicit PAGA waiver, enforce the remainder of the contract, and order Plaintiff’s individual PAGA claims to arbitration. Specifically, the Court should sever Paragraph 5 to the extent it includes PAGA actions2 and all of Paragraph 15 with the exception of the first sentence stating the Mission Inn shall be responsible for arbitration fees, costs, and expenses.

Stay/Dismissal

Defendant urges dismissal of the non-individual PAGA claim in its moving papers, but then argues in its replies that it only seeks a stay.

RULING:

Defendant’s Motion to Compel Arbitration and Stay the Action is GRANTED. Plaintiff’s individual PAGA claims are compelled to arbitration. The remaining representative PAGA claim is stayed pending the outcome of arbitration.

Defendant has provided a Mutual Agreement to Arbitrate Disputes (“Agreement”), which includes an arbitration provision governing “all disputes, controversies claims, and causes of action (collectively, "Covered Disputes"} in any federal, state or local court, or before any governmental agency, under applicable federal, state or local laws, arising out of or relating to Employee's employment with the Mission Inn and the termination of that employment.” (Lozcano Decl., Ex. A.) Plaintiff does not dispute she signed the agreement.

The court concludes that there exists a valid agreement to arbitrate the individual claims asserted by Plaintiff and that no grounds exist to bar enforcement of the agreement. (CCP § 1281.2.)

Further, the defense of unconscionability requires that the arbitration agreement be both procedurally and substantively unconscionable. (De La Torre v. CashCall, Inc. (2018) 5 Cal. 5th 966, 982.) Plaintiff fails to show any procedural unconscionability as the arbitration provision is clearly provided.

With respect to both the discretionary fees provision and implicit PAGA waiver, the Court finds that these provision are substantively unconscionable and unenforceable; therefore, the Court severs these provisions (Paragraph 5 to the extent that it includes PAGA Actions; and Paragraph 15, with the exception of the first sentence stating that the Mission Inn shall be responsible for arbitration fees, costs and expenses) from the agreement pursuant to the severance clause in the Agreement and Civ. Code § 1670.5. The remaining Agreement is not substantively unconscionable nor is the Agreement “permeated” with unconscionability under Armendariz; therefore, it is enforceable.

The remaining representative claim is stayed pending the outcome of arbitration of Plaintiffs’ individual PAGA claims.

Defendant to give notice.