Judge Lon F. Hurwitz, Case 21-01212206 2023-06-16 Tentative Ruling

Judge: Lon F. Hurwitz, Case: 21-01212206, Date: 2023-06-16 Tentative Ruling

Motion to Compel Arbitration

Motion to Compel Arbitration and Dismiss Action

Moving Party: Defendant Houdini, Inc.

Responding Party: Plaintiff Adela Hernandez, on behalf of herself and all other similarly situated

SERVICE: On February 17, 2023, by electronic service. (ROA 78.) Amended notice, on March 17, 2023, by electronic service. (ROA 87.)

RELIEF SOUGHT: Defendant Houdini, Inc. seeks an order compelling Plaintiff Adela Hernandez to submit her individual claim under the California Private Attorneys General Act (“PAGA”) to binding arbitration and dismiss the remaining representative PAGA claim.

RELATED CASES:

1. Raymundo Hernandez v. Resource Employment Solutions, LLC, et al., Case No. 2019-01084740-CU-OE-CXC (filed July 19, 2019, in Dept. CXC101)

2. Villagomez v. Houdini, Inc., Case No. 2020-01140694-CU-OE-CXC

3. Houdini, Inc. v. Resource Employment Solutions, LLC, et al. (filed in private arbitration on May 2, 2023, pursuant to contract and in lieu of a cross-claim)

(See, ROA 64 and 85 [Minute Orders]; ROA 96).

UPCOMING EVENTS: None

FACTS/OVERVIEW: This is a wage-and-hour action. On July 23, 2021, Plaintiff Adela Hernandez, on behalf of herself and all others similarly situated (“Plaintiff”), filed her original Complaint (ROA 2) against Defendants Houdini, Inc. (“Houdini”) and Resource Employment Solutions II California, LLC (“Resource”) alleging seven causes of action for:

1. Failure to Pay Overtime Wages;

2. Failure to Pay Minimum Wages;

3. Failure to Provide Meal Periods;

4. Failure to Provide Rest Periods;

5. Failure to Pay All Wages Owed Upon Termination;

6. Failure to Provide Accurate Wage Statements; and

7. Unfair Competition.

Defendant Resource answered on September 20, 2021. (ROA 16.) Plaintiff subsequently sought leave to amend. (ROA 30.) Defendant Houdini answered on January 28, 2022. (ROA 37.)

On February 28, 2022, a Stipulation and Order was filed wherein: (1) the First Amended Complaint adding a PAGA claim was deemed filed and served; (2) Plaintiff agreed to submit her individual claims to binding arbitration; (3) the class allegations were dismissed, without prejudice, by the Court; (4) Plaintiff’s motion for leave to amend was withdrawn; and (5) the parties agreed that Plaintiff could proceed with the PAGA representative action in this Court concurrent with the arbitration of her individual claims. (ROA 45.)

On April 1, 2022, Plaintiff filed the operative First amended Complaint wherein she added an eighth cause of action for Civil Penalties Under PAGA. (ROA 51.) Defendants separately answered. (ROA 53, 55.)

On February 17, 2023, Defendant Houdini filed the current Motion to Compel Arbitration and Dismiss Action. (ROA 74, 78.) Plaintiff opposes (ROA 84), and Houdini replies (ROA 89).

REQUEST FOR JUDICIAL NOTICE: (ROA 76)

Houdini asks this Court to take judicial notice of the document entitled “Joint Stipulation and Order to File First Amended Complaint, Submitting Individual Labor Code Claims to Binding Arbitration, and Dismissing Class Allegations Without Prejudice.” The document was filed in this litigation on February 28, 2022, and it includes as “Exhibit A” a copy of the arbitration agreement at issue.

Judicial notice is granted pursuant to Evidence Code section 452, subdivision (d), with the caveat that the Court is not judicially noticing the enforceability of the attached arbitration agreement.

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.)

Contentions of the Parties

Houdini is a wholesale supplier of products to resellers throughout the United States. Resource is a temporary staffing agency that provides employees to work at Houdini-owned warehouses pursuant to a contract between Houdini and Resource. Plaintiff was a Resource employee who was assigned to work at one of Houdini’s warehouses. [(ROA 80) Declaration of Diana Lyons (“Lyons Decl.”), ¶¶ 3-5.] On August 5, 2020, Plaintiff and Resource entered into an Arbitration Agreement (“Agreement”). [RJN, Exh. A to Exh. 1.]

Generally, the parties do not dispute the existence of the Agreement, its enforceability under the Federal Arbitration Act ("FAA”), or its conscionability. On February 25, 2022, the parties stipulated that Plaintiff would dismiss her class claims and submit her individual Labor Code claims to binding arbitration pursuant to the Agreement. In addition, the parties stipulated that Plaintiff could concurrently proceed with her remaining PAGA claims in this Court. It is also noted the parties stipulated that the Agreement inured to the benefit of Houdini, and therefore, it is undisputed that Houdini has a right to enforce the Agreement. [RJN, Exh. 1; ROA 79, Declaration of Lyle Chan (“Chan Decl.”), ¶ 3.]

Houdini contends that under the recent decision in Viking River Cruises, Inc. v. Moriana (2022) 142 S.Ct. 1906 (“Viking River”), Plaintiff must submit her individual PAGA claims to arbitration pursuant to the terms of the Agreement. According to Houdini, the February 2022 stipulation between the parties did not include an agreement for Plaintiff to submit her individual PAGA claims to arbitration because pre-Viking River, California law under Iskanian v. CLS Transportation Los Angeles, LLC (2014) 59 Cal.4th 348 (“Iskanian”) did not allow for the severance of a PAGA action into individual and representative claims. However, in anticipation of the Viking River decision, a clause was included in the stipulation wherein Houdini expressly reserved the right to enforce the Agreement as to Plaintiff’s PAGA claims. [RJN, Exh. 1.]

Now, in light of the Viking River decision, Houdini contends the Iskanian rule precluding the division of PAGA actions into individual and non-individual claims has been abrogated. As argued by Houdini, Viking River held that if a PAGA claimant signed an arbitration agreement waiving representative procedures, then the individual PAGA claim must be arbitrated and the non-individual PAGA claim dismissed. (Viking River, supra, 142 S.Ct. at pp. 1924-1925.) Houdini contends that under the holding of Viking River, it is undisputed that the class and representative claims waiver in the Agreement is enforceable. Houdini also argues that the provision in the Agreement does not run afoul of Iskanian because it expressly states that representative PAGA claims are not included in the waiver if the law precludes such waivers.

Nevertheless, Houdini notes that the Agreement contains a severability clause. As a result, Houdini contends that even if this Court finds the Agreement contains an impermissible waiver of PAGA claims, this Court could severe the provisions and still compel Plaintiff to submit her individual PAGA claims to arbitration. Houdini contends that in that instance, Plaintiff’s non-individual PAGA claims, as defined under Viking River, must be dismissed.

Plaintiff contends the Agreement contains a wholesale waiver of representative actions that is impermissible and unenforceable under the holdings of Viking River and Iskanian. In addition, Plaintiff contends that the Agreement expressly excludes PAGA representative claims from the waiver provision. As argued by Plaintiff, since the FAA requires courts to enforce arbitration agreements according to their terms, then under the clear language of the Agreement here, both individual and non-individual PAGA claims are excluded from the requirement that disputes be sent to arbitration.

Plaintiff also challenges Viking River’s interpretation of the standing requirement under the PAGA statute. As argued by Plaintiff, PAGA’s plain language, as well as the interpretation of that language in Kim v. Reins Int’l California, Inc. (2020) 9 Cal.5th 73 (“Kim”), makes it clear that an aggrieved employee under PAGA is not deprived of statutory standing if forced to adjudicate a portion of his or her claim in arbitration rather than in civil court. Plaintiff contends both the PAGA statute and Kim only require two things for PAGA standing: (1) to be an aggrieved employee, and (2) be a person against whom one or more of the alleged violations was committed. (Kim, supra, 9 Cal. 5th at pp. 83-84.) Plaintiff asserts that she satisfies both of these requirements, and therefore, she should not lose standing if she is forced to arbitrate a portion of her PAGA claim.

Finally, Plaintiff notes that recent appellate rulings in California have held that a PAGA plaintiff retains standing to pursue representative PAGA claims in civil court even if the individual PAGA claims are sent to arbitration. In support, Plaintiff cites to Galarsa v. Dolgen California, LLC (2023) 88 Cal.App.5th 639, [1 On May 3, 2023, the California Supreme Court, in Case No. S279021, granted the petition for review in Galarsa. However, the Court deferred further action pending consideration and disposition of a related issue in Adolph v. Uber Technologies, Inc., Case No. S274671. Pending review, the opinion of the Court of Appeal may be cited for its persuasive value, and “for the limited purpose of establishing the existence of a conflict in authority that would in turn allow trial courts to exercise discretion under Auto Equity Sales, Inc. v. Superior Court (1962) 57 Cal.2d 450, 456…, to choose between sides of any such conflict.” (See, “Standing Order Exercising Authority Under California Rules of Court, Rule 8.1115(e)(3), Upon Grant of Review or Transfer of a Matter with an Underlying Published Court of Appeal Opinion, Administrative Order 2021-04-021,” cited in Comment, para. 2 to Cal. Rules of Court, Rule 8.1115(e)(3)]; and Piplack v. In-N-Out Burgers (2023) 88 Cal.App.5th 1281.

In reply, Houdini contends the waiver in the Agreement is not a wholesale waiver, but rather, specifically carves out representative PAGA claims. As a result, Houdini argues that the Agreement is enforceable under Viking River and Iskanian. Nevertheless, Houdini contends that even if it is found the waiver violates the rule in Iskanian, the Agreement contains a severability clause that would allow the waiver provision to be severed and the remainder of the Agreement to be enforced.

Houdini reiterates that Viking River is the binding law here. However, Houdini also acknowledges the pending decision from the California Supreme Court in Adolph v. Uber. As a result, Houdini concedes that if the Court is not inclined to dismiss Plaintiff’s non-individual PAGA claims, then a stay of those claims is appropriate.

Merits

The dispute between the parties is a narrow one: Is Plaintiff required to submit her individual PAGA claim to arbitration, and must the Court dismiss Plaintiff’s representative PAGA claim?

The Agreement includes a section entitled “Class Action Waiver,” which provides in relevant part:

[N]either [Houdini] nor [Plaintiff] will assert, participate in, or join class action, collective action, or representative action claims against the other in arbitration or otherwise; and … [Houdini] and [Plaintiff] shall only submit [their] own, individual claims in arbitration and will not seek to to represent the interest of any other person, except to the extent a representative action brought under the California Private Attorneys General Act … is, as a matter of law, not deemed subject to such a waiver. This class and representative action waiver is meant to be enforceable to the maximum extent allowed by law. [RJN, Exh. A to Exh. 1, p. 2.]

The Agreement also contains a severance provision, which provides in relevant part:

If any parts of this Agreement are found to be invalid, illegal or unenforceable, the validity, legality and/or enforceability of the remaining provisions will not be affected or impaired by that determination. If any terms or sections of this Agreement are determined to be unenforceable, they shall be modified so that the unenforceable term or section is enforceable to the greatest extent possible. [Id. at p. 1.]

As a preliminary matter, both Houdini and Plaintiff seem to misconstrue the effect of the waiver provision in the Agreement. Essentially, the waiver provision provides that Houdini and Plaintiff must waive their right to bring class or representative claims in arbitration or in civil court. More importantly, the provision then states that Houdini and Plaintiff will submit only their individual claims to arbitration and will not bring representative claims in arbitration; but to the extent representative PAGA claims are deemed not subject to the waiver, then they may be brought by Plaintiff—presumably either in arbitration or in civil court.

As a result, contrary to Plaintiff’s contention, this provision should not be construed as a wholesale waiver of PAGA claims. Nevertheless, although Houdini correctly states that the waiver provision is not a wholesale representative waiver, Houdini also seems to suggest that since representative PAGA claims are specifically carved out, then the Agreement requires individual PAGA claims to be sent to arbitration. However, this presumes a certain interpretation of the term “representative” with regards to the PAGA action—an interpretation that was probably not contemplated at the time the boilerplate Agreement was drafted.

As discussed in Viking River, the U.S., the Supreme Court reasoned that the term “representative action” is used in two ways. In the first sense, PAGA actions are “representative” because they are “brought by employees acting as representatives—that is, as agents or proxies—of the State.” (Viking River, supra, 142 S.Ct. at p. 1916.) In the second sense, the actions are “called ‘representative’ when they are predicated upon code violations sustained by other employees.” (Ibid.) “But when the word ‘representative’ is used in the second way, it makes sense to distinguish ‘individual’ PAGA claims, which are premised on Labor Code violations actually sustained by the plaintiff, from ‘representative’ (or perhaps quasi-representative) PAGA claims arising out of events involving other employees.” (Ibid.) Viking River goes on to note that Iskanian’s principal rule prohibiting waivers of “representative” PAGA claims contemplates the first sense. In other words, Iskanian “prevents parties from waiving representative standing to bring PAGA claims in a judicial or arbitral forum.” (Viking River, supra, 142 S.Ct. at p. 1916.)

In the current litigation, it is reasonable to presume that the PAGA exclusion language in the waiver provision of the Agreement also intended the first sense of the term “representative”—not the second sense. In that regard, the use of the term “representative” in the PAGA exclusion clause is not intended to distinguish between individual and non-individual claims. Instead, it is a descriptive term referring to all actions brought under the PAGA statutes.

In reading the Agreement’s PAGA exclusion clause in this manner, one must then look again to Viking River. Although the Viking River Court overruled Iskanian to the extent Iskanian precluded the division of PAGA actions into individual and non-individual claims, the Court also upheld the portion of Iskanian that held an arbitration provision is invalid if construed as a wholesale waiver of PAGA claims. In that instance, if there is a severability clause, then the invalid provision may be severed, and the defendant would then be “entitled to enforce the agreement insofar as it mandated arbitration of [plaintiff]’s individual PAGA claim.” (Viking River, supra, 142 S.Ct. at pp. 1924-1925.)

In both Galarsa and Piplack, the California Court of Appeal disagreed with Viking River, and held that the non-individual PAGA claim could be pursued in court while the individual PAGA claim was sent to arbitration (Galarsa, supra, 88 Cal.App.5th at p. 655; Piplack, supra, 88 Cal.App.5th at p. 1293.)

As stated in previous rulings in this Court, the California Supreme Court has granted review in Adolph v. Uber Technologies, S274671, to answer the question: “Whether an aggrieved employee who has been compelled to arbitrate claims under the Private Attorneys General Act (PAGA) that are ‘premised on Labor Code violations actually sustained by’ the aggrieved employee [citation] maintains statutory standing to pursue ‘PAGA claims arising out of events involving other employees’ [citation] in court or in any other forum that the parties agree is suitable.”

Accordingly, in anticipation of the Adolph decision, the Court will send Plaintiff’s individual PAGA claims to arbitration and stay Plaintiff’s non-individual PAGA claims until the California Supreme Court decides this issue.

RULING:

Defendant Houdini, Inc.’s Motion to Compel Arbitration is GRANTED in part and DENIED in part. IT IS ORDERED THAT Plaintiff Adela Hernandez’s individual PAGA claim be submitted to arbitration, non-individual PAGA claim be stayed pending completion of the arbitration, and pending the California Supreme Court’s decision in Adolph v. Uber Technologies, Inc. Clerk to give Notice.