Judge Michael P. Linfield, Case 21STCV18889 2022-10-21 Tentative Ruling

Judge: Michael P. Linfield, Case: 21STCV18889, Date: 2022-10-21 Tentative Ruling

Case Number: 21STCV18889 Hearing Date: October 21, 2022 Dept: 34

SUBJECT: Motion to Compel Individual Arbitration and Dismiss PAGA Representative Claim

Moving Party: Defendants Mike Thompson Recreational Vehicles and Mike Thompson Recreational Vehicles, Colton

Resp. Party: Plaintiff Phillip Hamlin

The Court GRANTS IN PART Defendants’ Motion. The Court GRANTS Defendants’ motion to Compel Arbitration of Plaintiff’s individual PAGA claims. The Court DENIES Defendants’ motion to dismiss the PAGA Representative claims.

BACKGROUND:

On May 19, 2021, Plaintiff Phillip Hamlin filed his Complaint for Violation of the California Labor Code Private Attorneys General Act (PAGA) against Defendants Mike Thompson Recreational Vehicles and Mike Thompson Recreational Vehicles, Colton.

On September 20, 2021, Defendants filed their Answer.

On May 17, 2022, pursuant to the parties’ stipulation, the Court continued Trial to May 30, 2023.

On August 19, 2022, Defendants filed their Motion to Compel Individual Arbitration and Dismiss PAGA Representative Claim. Defendants concurrently filed: (1) Memorandum of Points and Authorities; (2) Proposed Order; (3) Declaration of Natalie Hacker; and (4) Declaration of Andrew C. Crane.

On October 7, 2022, Plaintiff filed his Opposition to the Motion.

On October 14, 2022, Defendants filed their Reply. Defendants concurrently filed a second Declaration by Andrew C. Crane.

ANALYSIS:

I. Legal Standard for a Petition to Compel Arbitration

A. Statutes

“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.” (Code Civ. Proc., § 1281.)

“On petition of a party to an arbitration agreement alleging the existence of a written agreement to arbitrate a controversy and that a party to the agreement refuses to arbitrate that 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 rescission 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. …

(d) “The petitioner is a state or federally chartered depository institution….”

(Code Civ. Proc., § 1281.2, subds. (a–d), rest of statute omitted for brevity.)

“If a court of competent jurisdiction, whether in this State or not, 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 arbitrate or until such earlier time as the court specifies.” (Code Civ. Proc., § 1281.4, rest of statute omitted for brevity.)

B. Common Law

“Under both federal and state law, arbitration agreements are valid and enforceable, unless they are revocable for reasons under state law that would render any contract revocable.” (Tiri v. Lucky Chances, Inc. (2014) 226 Cal.App.4th 231, 239, citations omitted.)

“When a party to an arbitration agreement challenges the agreement as unenforceable, we decide the issue based on the same state law standards that apply to contracts generally. The United States Arbitration Act (9 U.S.C. § 1 et seq.), commonly known as the Federal Arbitration Act, creates a presumption in favor of arbitrability and permits courts to refuse to enforce agreements to arbitrate only ‘upon such grounds as exist at law or in equity for the revocation of any contract’ (9 U.S.C. § 2). Similarly, title 9 of the Code of Civil Procedure (§ 1280 et seq.) expresses a strong public policy favoring the enforcement of valid agreements to arbitrate.” (Boghos v. Certain Underwriters at Lloyd’s of London (2005) 36 Cal.4th 495, 502, citations omitted.)

“Reasons that would render any contract revocable under state law include fraud, duress, and unconscionability.” (Tiri, supra, at 239, citations omitted.)

“The party seeking to compel arbitration bears the burden of proving by a preponderance of the evidence the existence of an arbitration agreement. The party opposing the petition bears the burden of establishing a defense to the agreement's enforcement by a preponderance of the evidence. In determining whether there is a duty to arbitrate, the trial court must, at least to some extent, examine and construe the agreement.” (Id.)

II. Discussion

A. The Arbitration Agreement

Defendants move the Court to compel arbitration based on an arbitration agreement Plaintiff allegedly signed on July 28, 2017 as part of his new employee hiring with Defendants. (Decl. Hacker, Ex. A, p. 2.) Defendants’ Executive Assistant, Natalie Hacker, averred that the arbitration agreements and other such business records are kept by Defendants in each employee’s respective personnel file, that it was the business practice of Defendants to place arbitration agreements in the personnel file immediately after the employee signed the document, and that she reviewed this file. (Decl. Hacker, p. 2–3.)

Plaintiff does not deny signing the agreement. Rather, he argues that the agreement is not enforceable, that it excludes PAGA claims, and that a recent United States Supreme Court decision does not apply.

The only evidence before the Court is that Plaintiff signed an arbitration agreement on July 28, 2017. (Decl. Hacker, Ex. A, p. 2.)

By a preponderance of the evidence, the Court finds that there is an arbitration agreement and that the parties signed it. The Court concludes that Defendant has met its burden in proving the existence of an arbitration agreement. (Tiri, supra, at 239.)

B. Minimum Requirements under Armendariz

1. Legal Standard

The Supreme Court of California has held that, in addition to unconscionability, an arbitration agreement relating to unwaivable statutory rights (such as those under the Fair Employment and Housing Act) has to meet five additional minimum requirements: (1) ensuring that the employee does not bear any costs above that which he or she would have to pay in court; (2) providing for adequate discovery; (3) providing for all types of relief that would otherwise be available in a non-arbitration forum; (4) requiring a written arbitration award and adequate judicial review; and (5) providing for a neutral arbitrator. (Armendariz v. Found. Health Psychcare Servs., Inc. (2000) 24 Cal.4th 83, 103–13, abrogated in part on other grounds by AT&T Mobility LLC v. Concepcion (2010) 565 U.S. 333.)

“[A] mandatory employment arbitration agreement that contains within its scope the arbitration of FEHA claims impliedly obliges the employer to pay all the types of costs that are unique to arbitration.” (Armendariz, supra, at 113.)

“We similarly conclude that an agreement to arbitrate a claim of wrongful termination contrary to public policy must be interpreted to implicitly include an agreement to proportion costs in a manner that is reasonable for the employee/claimant….” (Little v. Auto Stiegler, Inc. (2003) 29 Cal.4th 1064, 1080–81.)

2. Analysis

According to Defendant, the arbitration agreement states in relevant part:

“I and the Company agree to utilize binding arbitration as the sole and exclusive means to resolve all disputes that may arise out of or be related in any way to my employment, including but not limited to the termination of my employment and my compensation. I and the Company each specifically waive and relinquish our respective rights to bring a claim against the other in a court of law . . . . Both I and the Company agree that any claim, dispute, and/or controversy that I may have against the Company (or its owners, directors, officers, managers, employees, or agents), or the Company may have against me, shall be submitted to and determined exclusively by binding arbitration under the Federal Arbitration Act (“FAA”), in conformity with the procedures of the California Arbitration Act (Cal. Code Civ. Proc. Sec 1280 et seq., including section 1283.05 and all of the Act’s other mandatory and permissive rights to discovery. The FAA applies to this agreement because the Company’s business involves interstate commerce. Included within the scope of this Agreement are all disputes. . . .” (Motion, p. 2:16-24; Hackler Declaration, Exh. A.)

The Court considers whether the arbitration agreement contains each of the minimum requirements under Armendariz.

(1) Costs: The arbitration agreement does not say anything about who pays costs. Given that PAGA claims are statutory claims related to public policy, the Court interprets the arbitration agreement to implicitly include an agreement that the employer will cover all of the costs that are unique to arbitration.

(2) Discovery: “Both [Plaintiff] and [Defendants] agree that any claim, dispute, and/or controversy that [Plaintiff] may have against [Defendants] (or its owners, directors, officers, managers, employees, or agents), or [Defendants] may have against [Plaintiff], shall be submitted to and determined exclusively by binding arbitration under the Federal Arbitration Act (“FAA”), in conformity with the procedures of the California Arbitration Act (Cal. Code Civ. Proc. Sec 1280 et seq., including section 1283.05 and all of the Act’s other mandatory and permissive rights to discovery.)” (Decl. Hacker, Ex. A, p. 1.)

(3) Remedies: “Resolution of all disputes shall be based solely upon the law governing the claims and defenses pleaded, and the arbitrator may not invoke any basis (including but not limited to, notions of ‘just cause’) other than such controlling law.” (Id. at p. 2.)

(4) Written award: “Awards shall include the arbitrator’s written reasoned opinion.” (Id.)

(5) Neutral arbitrator: “In addition to any other requirements imposed by law, the arbitrator selected to hear claims under this Agreement shall be a retired California Superior Court Judge, or an otherwise qualified individual to whom the parties mutually agreement, and shall be subject to disqualification on the same grounds as would apply to a judge of such court.” (Id.)

The Court finds that the arbitration agreement meets each of the minimum requirements under Armendariz.

C. Unconscionability

1. Legal Standard

“Agreements to arbitrate may be invalidated if they are found to be unconscionable.” (Fitz v. NCR Corp. (2004) 118 Cal.App.4th 702, 713, citations omitted.) However, “[t]he party resisting arbitration bears the burden of proving unconscionability.” (Museum Tower Ass’n v. Pinnacle Mkt. Dev. (US), LLC (2012) 55 Cal.4th 223, 247 [citations omitted].)

2. Analysis

Plaintiff does not argue that the contract is unconscionable. Therefore, Plaintiff has not met his burden of proving unconscionability.

D. PAGA Claims

1. Inclusion of PAGA Claim in the Arbitration Agreement

Plaintiff argues that the arbitration agreement excludes PAGA claims, focusing on language in the agreement that excludes “claims that are not subject to arbitration under current law.” (Opp’n, p. 4:4; (Decl. Hacker, Ex. A, p. 1, emphasis added.) Specifically, Plaintiff argues that “under current law” means that the arbitration agreement precludes division due to the case law from the California Supreme Court. (Iskanian v. CLS Transp. Los Angeles, LLC (2014) 59 Cal.4th 348, overruled in part by Viking River Cruises, Inc. v. Moriana (2022) 142 S. Ct. 1906, 1924.)

Defendants argue: (1) that the arbitration agreement did not exempt PAGA claims at the time of its execution; (2) that the term “current law” includes the new ruling in Viking River because the United States Supreme Court interprets existing law rather than creating new law; and (3) that judicial decisions apply retroactively as a general matter. (Ferra v. Loews Hollywood Hotel, LLC (2021) 11 Cal.5th 858, 878.)

The Court agrees with Defendants. The United States Supreme Court has interpreted how the PAGA statue relates to the FAA. That applies retroactively to the period when this arbitration agreement was signed. Thus, the Court finds that the PAGA claim could be arbitrated and thus was included in the arbitration agreement.

2. Division of Individual and Non-Individual PAGA Claims

The Supreme Court of the United States recently held that the Federal Arbitration Act preempts a rule of California law that invalidates contractual waivers of the right to assert representative claims under the Private Attorneys General Act (PAGA) in any forum. (Viking River Cruises v. Moriana (2022) 142 S.Ct. 1906, 2022 WL 2135491.) The Viking opinion holds that individual, not representative, PAGA claims can be compelled into arbitration if the parties have consented. (Id. at *11.) However, the Supreme Court upheld case law which prohibits a wholesale waiver of PAGA claims, including a waiver of representative standing altogether to assert PAGA actions. (Id. at *6, *11.)

The California legislature enacted PAGA with the goal of enhancing limited labor law enforcement resources by empowering employees to enforce Labor Code as private attorneys general, or representatives of the state. (Arias v. Superior Court (2009) 46 Cal.4th 969, 980.) PAGA confers a cause of action on “aggrieved employees” to bring representative claims. (Id. at 980, see also Cal. Lab. Code § 2699(a).) A PAGA claim is distinct from individual civil claims under the labor code because the employee becomes a proxy or agent of the state, thus the claim is unlike others that confer a right to statutory damages under the Labor Code. (Kim v. Reins Int’l Cal. Inc. (2020) 9 Cal.5th 73, 81.)

Under PAGA, civil penalties may be “recovered through a civil action brought by an aggrieved employee on behalf of himself or herself and other current or former employees.” (Cal. Lab. Code § 2699(a).) Aggrieved employees are defined as “any person who was employed by the alleged violator” and “against whom one or more of the alleged violations was committed.” (Id. at (c).) Case law holds that a plaintiff’s rights to a representative action are not barred by settlement or dismissal of individual claims. (Kim, at 80, 83-91.) The Kim court further held that settlement, or other means to remediate a violation, did not “nullify” the fact of the violation. (Id. at 84.) The California Supreme Court found that a narrow construction of PAGA standing was “contrary to the statute’s purpose to ensure effective code enforcement” and “runs counter to the broader statutory scheme,” including the express authority to bring a PAGA suit separately from an individual claim for relief. (Id. at 87-88.)

“The authority and only authority is the State, and if that be so, the voice adopted by the State as its own (whether it be of its Legislature or of its Supreme Court) should utter the last word.” (Erie R. Co. v. Tompkins (1938) 304 U.S. 64, 78-9.) The Erie rule is the cornerstone of our unique blend of federalism, and thus limits the power of the federal government to usurp substantive legal matters spoken to by either a legislature or a state Supreme Court. Standing in state court is thus a matter for California courts to determine under guidance from the legislature.

Defendants move the Court to: (1) sever the PAGA claim so that Plaintiff’s PAGA claim will be arbitrated on an individual basis; and (2) dismiss the rest of the PAGA claim due to lack of standing. Defendant argues that this is required by the United States Supreme Court’s decision in Viking River.

Plaintiff argues that even if an enforceable agreement to arbitrate PAGA exists, the California Supreme Court’s ruling in Kim v. Reins prohibits the dismissal of Plaintiff’s representative PAGA claim. (Kim v. Reins Int’l Cal., Inc. (2020) 9 Cal.5th 73, 80.) Plaintiff further argues that the California Supreme Court may address and resolve any questions regarding Viking River as it has recently decided to review another case: Adolph v. Uber Tech., Inc. (2022) Cal. LEXIS 5021.

In Kim, the California Supreme Court considered whether “employees lose standing to pursue a claim under the Labor Code Private Attorney General Act of 2004 if they settle and dismiss their individual claims for Labor Code violations[.] We conclude the answer is no. Settlement of individual claims does not strip an aggrieved employee of standing, as the state’s authorized representative, to pursue PAGA remedies.” (Kim, supra, at 80, citations omitted.)

In Viking River, the United States Supreme Court specifically cited Kim in its discussion of what to do with the non-individual claims. The discussion was summarized by Justice Sotomayor in her concurrence:

“The Court concludes that the FAA poses no bar to the adjudication of [Plaintiff’s] ‘non-individual’ PAGA claims, but that PAGA itself ‘provides no mechanism to enable a court to adjudicate non-individual PAGA claims once an individual claim has been committed to a separate proceeding.’ Ante, at 1925. Thus, the Court reasons, based on available guidance from California courts, that [Plaintiff] lacks “statutory standing” under PAGA to litigate her “nonindividual” claims separately in state court. Ibid. Of course, if this Court's understanding of state law is wrong, California courts, in an appropriate case, will have the last word.” (Viking River, supra, at p. 1925 [Sotomayor, conc.].)

To further complicate the matter, Jarobe v. Hanlees Auto Group is currently under review by the California Supreme Court. The Jarobe Court stated that “[b]ecause a PAGA claim is representative and does not belong to an employee individually, an employer should not be able to dictate how and where the representative action proceeds. . . . Accordingly . . . the trial court did not abuse its discretion in declining to stay the PAGA action pending the arbitration of [plaintiff’s] individual claims.” (Jarobe v. Hanlees Auto Group (2020) 53 Cal.App.5th 539, 557.)

In addition to Jarobe, the California Supreme Court has also granted review in Adolph v. Uber Technologies, Inc. (Cal. Ct. App., Apr. 11, 2022, No. G059860) 2022 WL 1073583, review granted July 20, 2022). Adolph holds that the status of an employee as aggrieved is to be determined by the trial court, not an arbitrator. (Id., at *5.) The issue to be decided by our Supreme Court is “whether an aggrieved employee who has been compelled to arbitrate claims under the Private Attorney Generals Act (PAGA) that are ‘premised on Labor Code Violations actually sustained by’ the aggrieved employee [citing Viking River] maintains statutory standing to pursue ‘PAGA claims arising out of events involving other employees’ [citing Viking River] in court or in any other forum the parties agree is suitable.”

This Court is bound by California common law and adheres to doctrines and decisions that reflect matters defined by the state legislature and state courts. While Viking has effectively allowed individual PAGA claims to be pared away from representative actions where there is an arbitration agreement, the matter of standing for representative PAGA claims is not settled.

3. Dismissal of Non-Individual PAGA Claims

Defendants’ request to dismiss the non-individual PAGA claims is DENIED.

III. Conclusion