Judge Michelle Williams Court, Case 19STCV31526 2022-08-11 Tentative Ruling

Judge: Michelle Williams Court, Case: 19STCV31526, Date: 2022-08-11 Tentative Ruling

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TENTATIVE RULING: Defendant Longwood Management Corp.’s Motion to Compel Individual Arbitration and to Dismiss Representative PAGA Action is GRANTED in part. Plaintiff’s individual PAGA claims are ordered to arbitration. Plaintiff’s representative PAGA claims shall remain in this action, which is STAYED in its entirety pending the outcome of arbitration. A Status Conference re Initiation of Arbitration is scheduled for September 15, 2022 at 8:30 a.m.

Defendant filed a supplemental request for judicial notice of a ruling by another Department of the Los Angeles Superior Court in which Defendant sought to compel arbitration against a different plaintiff. This request is DENIED. (See City of Bakersfield v. West Park Home Owners Assn. & Friends (2016) 4 Cal.App.5th 1199, 1210 (“the City relies on similar financing plans having been validated by at least eight California trial courts. The City requests this court to take judicial notice of these trial court orders. However, trial court orders hold no precedential value. Accordingly, we will neither rely upon, nor take judicial notice of, these orders.”) (internal citation omitted).)

“California law reflects a strong public policy in favor of arbitration as a relatively quick and inexpensive method for resolving disputes. To further that policy, section 1281.2 requires a trial court to enforce a written arbitration agreement unless one of three limited exceptions applies. Those statutory exceptions arise where (1) a party waives the right to arbitration; (2) grounds exist for revoking the arbitration agreement; and (3) pending litigation with a third party creates the possibility of conflicting rulings on common factual or legal issues.” (Acquire II, Ltd. v. Colton Real Estate Group (2013) 213 Cal.App.4th 959, 967; Code Civ. Proc. § 1281.2.) Similarly, “under the FAA, the strong federal policy favoring arbitration agreements requires courts to resolve any doubts concerning arbitrability in favor of arbitration.” (Valencia v. Smyth (2010) 185 Cal.App.4th 153, 176 (internal quotations omitted).)

In deciding a petition to compel arbitration, trial courts must decide first whether an enforceable arbitration agreement exists between the parties, and then determine the second gateway issue whether the claims are covered within the scope of the agreement. (Omar v. Ralphs Grocery Co. (2004) 118 Cal.App.4th 955, 961.) The opposing party has the burden to establish any defense to enforcement. (Gatton v. T-Mobile USA, Inc. (2007) 152 Cal.App.4th 571, 579 (“The petitioner, T–Mobile here, bears the burden of proving the existence of a valid arbitration agreement and the opposing party, plaintiffs here, bears the burden of proving any fact necessary to its defense.”).)

Defendant provides the Mutual Agreement to Arbitrate Claims between Alden Terrace and Plaintiff Fabian Knowles dated June 29, 2015. (Garcia Decl. Ex. 1.) On June 23, 2020, Judge Lia Martin issued an Order on Motion to Compel Arbitration in Los Angeles Superior Court case 19STCV22354 Knowles v. Alden Enterprises, Inc. based upon the identical June 29, 2015 Mutual Agreement to Arbitrate Claims at issue here. (Abbot Decl. Ex. A.) Judge Martin specifically rejected Plaintiff Knowles’ argument that the June 29, 2015 agreement was unconscionable and expressly found the agreement was enforceable by Longwood against Plaintiff. (Ibid.)

“Issue preclusion, . . . prevents relitigation of previously decided issues, rather than causes of action as a whole. It applies only (1) after final adjudication (2) of an identical issue (3) actually litigated and necessarily decided in the first suit and (4) asserted against one who was a party in the first suit or one in privity with that party.” (Samara v. Matar (2018) 5 Cal.5th 322, 327 (citations omitted). See also Southeast Resource Recovery Facility Authority v. Montenay Intern. Corp. (9th Cir. 1992) 973 F.2d 711, 713 (“an order compelling arbitration is given preclusive effect under California law.”).) Plaintiff contends the issues are “not identical” because 19STCV22354 Knowles v. Alden Enterprises, Inc. involved discrimination and wrongful termination claims whereas this case involves Plaintiff’s PAGA claim. (Opp. at 11:4-17.) However, Plaintiff’s unconscionability arguments, as well as Defendant Longwood’s general ability to enforce the agreement as a non-party, apply to the arbitration agreement as a whole and not the claim to be arbitrated. The issues of unconscionability and enforcement are identical to those in the prior action, were litigated and decided in prior litigation involving both Plaintiff and Defendant, and that order is final. “For purposes of issue preclusion, however, an ‘issue’ includes any legal theory or factual matter which could have been asserted in support of or in opposition to the issue which was litigated.” (Border Business Park, Inc. v. City of San Diego (2006) 142 Cal.App.4th 1538, 1565–1566.) As a result, Plaintiff is precluded from arguing, as he extensively does in opposition, that the agreement is unconscionable, (see Opp. at 11:17-19:6), or that Defendant cannot enforce the agreement.

Federal law applies to arbitration provisions in contracts involving interstate commerce. ([Higgins v. Superior Court] (2006) 140 Cal.App.4th 1238, 1247.) Where the Federal Arbitration Act applies, state procedural rules govern the determination of a motion to compel arbitration. (Vivid Video Inc. v. Playboy Ent. Group, Inc. (2007) 147 Cal.App.4th 434, 440.) “Even when the Federal Arbitration Act applies, state law governs such matters as who is bound by and who may enforce an arbitration agreement.” (Thomas v. Westlake (2012) 204 Cal.App.4th 605,614 n. 7.)

(Abbot Decl. Ex. A.) This is the only reference in Judge Martin’s order related to federal law or the FAA. Nothing in this paragraph can be construed as a ruling that the Federal Arbitration Act applies. However, the agreement provides “[e]xcept as provided in this Agreement, the Federal Arbitration Act shall govern the interpretation, enforcement and all proceedings pursuant to this Agreement.” (Garcia Decl. Ex. 1.) Accordingly, the FAA applies. (See Victrola 89, LLC v. Jaman Properties 8 LLC (2020) 46 Cal.App.5th 337, 355 (“But the presence of interstate commerce is not the only manner under which the FAA may apply. As discussed above, the parties may also voluntarily elect to have the FAA govern enforcement of the Agreement, as they did here.”).)

The Agreement requires arbitration of “all claims or controversies (‘claims’), past, present or future, whether or not arising out of [Plaintiff’s] employment” including “claims for violation of any federal, state, or other governmental law, statute, regulation or ordinance” between the parties. (Garcia Decl. Ex. 1.) A PAGA cause of action is a claim for a violation of state law and therefore falls within the terms of the arbitration agreement.

Plaintiff contends Defendant waived its right to compel arbitration in this proceeding. (Opp. at 8:16-11:3.) “Although a court may deny a petition to compel arbitration on the ground of waiver (§ 1281.2, subd. (a)), waivers are not to be lightly inferred and the party seeking to establish a waiver bears a heavy burden of proof.” (St. Agnes Medical Center v. PacifiCare of California (2003) 31 Cal.4th 1187, 1195.)

“In determining waiver, a court can consider (1) whether the party's actions are inconsistent with the right to arbitrate; (2) whether the litigation machinery has been substantially invoked and the parties were well into preparation of a lawsuit before the party notified the opposing party of an intent to arbitrate; (3) whether a party either requested arbitration enforcement close to the trial date or delayed for a long period before seeking a stay; (4) whether a defendant seeking arbitration filed a counterclaim without asking for a stay of the proceedings; (5) whether important intervening steps [e.g., taking advantage of judicial discovery procedures not available in arbitration] had taken place; and (6) whether the delay affected, misled, or prejudiced the opposing party.” (Saint Agnes, supra, 31 Cal.4th at 1196.) Additionally, “[w]here no deadline for demanding arbitration is specified in the agreement, a party who does not demand arbitration within a reasonable time is deemed to have waived the right to arbitration. What constitutes a ‘reasonable time’ is a question of fact depending on the situation of the parties, the nature of the transaction, and the facts of the particular case, including any prejudice suffered by the opposing party because of the delay.” (Hoover v. American Income Life Ins. Co., 206 Cal. App. 4th 1193, 1203 (2012) (internal citations omitted).)

“Waiver does not occur by mere participation in litigation if there has been no judicial litigation of the merits of arbitrable issues and no prejudice.” (Roman v. Superior Court (2009) 172 Cal.App.4th 1462, 1479 (quotations omitted).) Here, there has not been any adjudication on the merits of arbitral issues and the Court is not persuaded by Plaintiff’s contention that Defendant’s mere filing of a motion for summary judgment, rather than obtaining a ruling thereon, is sufficient to support waiver. (Opp. at 10:10-20. See Quach v. California Commerce Club, Inc. (2022) 78 Cal.App.5th 470, 478 (“In the instant case, there has been no judicial litigation of the merits of arbitrable issues, and therefore no waiver on that basis.”).) While Plaintiff cites Defendant’s discovery, Plaintiff does not assert he has given Defendant any discovery that it would not be entitled to in arbitration. (Roman, supra, 172 Cal.App.4th at 1479 (“the discovery sought . . . did not seek to take advantage of discovery tools unavailable in arbitration.”); Quach, supra, 78 Cal.App.5th at 484 (“when a party resisting arbitration makes no showing other than a lengthy delay during which the parties engaged in party-directed discovery—with no indication that discovery would have been unavailable or unnecessary in arbitration or that the party incurred costs that it would not otherwise have incurred had arbitration occurred earlier—that showing runs afoul of St. Agnes Medical Center’s admonitions.”).)

Plaintiff is correct that Defendant did not invoke arbitration in its May 20, 2021 answer and did not seek to compel arbitration until July 20, 2022. However in Guess?, Inc. v. Superior Court (2000) 79 Cal.App.4th 553, relied upon by Plaintiff, the court noted the defendant “failed to offer any explanation for its decision to defer for three months its demand for arbitration.” (Id. at 557.) The court in Guess? further cited Fisher v. A.G. Becker Paribas Inc. (9th Cir. 1986) 791 F.2d 691, 698 noting “under the Federal Arbitration Act, a failure to plead arbitration as an affirmative defense is insufficient by itselfto constitute waiver.” (Guess?, supra, 79 Cal.App.4th at 558; Fisher, supra, 791 F.2d at 698 (“Absent a showing of prejudice by the Fishers, the bare fact that Becker failed to raise an affirmative defense is inadequate by itself to support a claim of waiver of arbitration.”).)

Here, Defendant could not have compelled Plaintiff to arbitrate any potion of his PAGA claim during this litigation as a matter of law. (See e.g. Collie v. Icee Company (2020) 52 Cal.App.5th 477, 480 (“under Iskanian v. CLS Transportation Los Angeles LLC (2014) 59 Cal.4th 348, 173 Cal.Rptr.3d 289, 327 P.3d 129 (Iskanian) and Betancourt v. Prudential Overall Supply (2017) 9 Cal.App.5th 439, 215 Cal.Rptr.3d 344 (Betancourt), an employee cannot be compelled to arbitrate a PAGA cause of action on the basis of a predispute arbitration agreement.”); Brooks v. AmeriHome Mortgage Company, LLC (2020) 47 Cal.App.5th 624, 629 (“Where an employee alleges a single representative cause of action under PAGA, the claim cannot be split into an arbitrable individual claim and a nonarbitrable representative claim.”).) On June 15, 2022, the United States Supreme Court issued its opinion in Viking River Cruises, Inc. v. Moriana (2022) 142 S. Ct. 1906 holding “the FAA preempts the rule of Iskanian insofar as it precludes division of PAGA actions into individual and non-individual claims through an agreement to arbitrate.” (Id. at 1924.) Accordingly, there are no acts inconsistent with the right to arbitrate because that right did not exist under California or federal law at the time.

Kirkland's conduct caused prejudice to Guess. Guess has been exposed to the substantial expense of pretrial discovery and motions that would have been avoided had Kirkland timely and successfully asserted a right to arbitrate. Through its use of the discovery process, Guess has disclosed at least some of its trial tactics to Kirkland, certainly more so than would have been required in the arbitral arena. Through Kirkland's delay—which it has not even tried to explain—Guess has lost whatever efficiencies that would otherwise have been available to it through arbitration. Simply put, “ '[t]he courtroom may not be used as a convenient vestibule to the arbitration hall so as to allow a party to create his own unique structure combining litigation and arbitration.' ” (Christensen v. Dewor Developments, supra, 33 Cal.3d at p. 784, quoting De Sapio v. Kohlmeyer (1974) 35 N.Y.2d 402 [362 N.Y.S.2d 843, 321 N.E.2d 770, 773].)

(Guess?, supra, 79 Cal.App.4th at 558; Opp. at 5:21-6:1.) However, Plaintiff does not provide any evidence that he “has disclosed more of his trial tactics to Longwood than would have been required in the arbitral arena.” (Opp. at 10:23-24.) Plaintiff’s incursion of costs does not demonstrate sufficient prejudice. (See Law Offices of Dixon R. Howell v. Valley (2005) 129 Cal.App.4th 1076, 1097 (“The mere fact that the opposing party has incurred some litigation expense before the arbitration right is claimed is not a sufficient form of prejudice.”).)

In opposition, Plaintiff first contends, unlike the agreement in Viking River Cruises, the agreement does not contain an express waiver of the right to bring a PAGA action. Plaintiff states “[t]o the extent that the Court finds the Agreement to be enforceable, then nothing in the Agreement prohibits the arbitration of Plaintiff’s representative PAGA claims.” (Opp. at 19:9-13.) In reply, Defendant contends nothing in the agreement itself allows representative PAGA claims to be ordered to arbitration where the parties have not expressly agreed to arbitrate on a representative basis. (Reply at 17:3-16.)

As noted above, the FAA applies here. The Court agrees with Defendant that an arbitration agreement that is silent on the issue of representative or class claims is insufficient to demonstrate consent to arbitrate the representative PAGA claims. The Agreement only applies to claims between Defendant and Plaintiff, not representative claims. (Garcia Decl. Ex. 1. See at Lamps Plus, Inc. v. Varela (2019) 139 S.Ct. 1407, 1416; Stolt-Nielsen S.A. v. AnimalFeeds International Corp. (2010) 559 U.S. 662, 687; Viking River, supra, 142 S.Ct. at 1917, 1924.)

Plaintiff also notes that a petition for rehearing has been filed in Viking River Cruises and requests “[t]he Court should decline to rule on this Motion until after the disposition of the petition for rehearing.” (Opp. at 19:14-19.) Pursuant to United States Supreme Court, Rule 45.2, “[t]he filing of a petition for rehearing stays the mandate until disposition of the petition, unless the Court orders otherwise. If the petition is denied, the mandate issues forthwith.” (U.S. Sup. Ct. R. 45.) In reply, Defendant contends in a footnote, without citing authority, that “[i]ssuance of the mandate is the document that controls the disposition of the particular case under review on remand to the lower courts; the precedential significance of the opinion exists irrespective of the issuance of the mandate,” and it is “highly unlikely” the Court will grant the petition. (Reply at 18 n.16.) However, federal courts interpreting similar rules in the Federal Rules of Appellate Procedure have held that a petition for rehearing does not affect the precedential value of the opinion at issue. (See e.g. Application of Dow Jones & Co., Inc. (S.D.N.Y., Dec. 17, 1998, No. 98 MISC. 8-85 (PKL)) 1998 WL 883299, at *3 (“Dow Jones also argues that because NBC has filed a petition for rehearing in banc in Gonzales, this Court should stay enforcement of the subpoena until the petition is resolved. The Court declines to do so. . . . The Court will adhere to the Second Circuit’s holding in Gonzales.”).)

Moreover, the petition for rehearing is limited to modifying Part IV of the opinion, and therefore does not seek to alter the Court’s ruling as to whether Plaintiff’s individual PAGA claim is arbitrable. (See Respondent’s Petition for Rehearing Viking River Cruises, v. Moriana, 2022 WL 2971944 (U.S.), 3. (“Ms. Moriana respectfully requests rehearing to the limited extent necessary to modify Part IV of the Court's opinion and the Court's disposition of the case.”).) Accordingly, the petition for rehearing will not affect the Court’s ruling herein and the Court shall not withhold its ruling pending the outcome of the petition for rehearing.

In arguing the Court should follow Viking River Cruises, Defendant cites Elliott v. Albright (1989) 209 Cal.App.3d 1028, 1034, which quoted 9 Witkin, Cal. Procedure (3d ed. 1985) Appeal, § 779, p. 750: “Decisions of the United States Supreme Court are binding not only on all of the lower federal courts [citation], but also on state courts when a federal question is involved.” The court in Elliot addressed the denial of a motion to compel arbitration of claims under a federal securities statute. Defendant contends that because Viking River Cruises concluded the plaintiff’s representative claims should be dismissed for lack of standing, this Court should dismiss Plaintiff’s Knowles’ representative claims in this action. (Mot. at 18:10-19:2.) Plaintiff contends the representative PAGA claim should not be dismissed because the United States Supreme Court misapplied California law on PAGA standing. (Opp. at 19:20-21:25.)

With due respect to the United States Supreme Court, this Court agrees with Plaintiff. The opinion in Viking River Cruises is not binding upon this Court as to the state law question of standing under a California statute. (See generally East Quincy Services Dist. v. General Accident Ins. Co. of America (2001) 88 Cal.App.4th 239, 246 (“As we repeatedly remind litigants, on questions of state law even U.S. Supreme Court decisions are not controlling.”).) The California Supreme Court’s ruling in Kim v. Reins International California, Inc. (2020) 9 Cal.5th 73 is binding upon this Court and supports the conclusion that Plaintiff’s representative PAGA claims should not be dismissed.

In Kim, the Court addressed whether a plaintiff’s settlement of individual Labor Code violations deprived that plaintiff of PAGA standing. The Court stated “[t]he Legislature defined PAGA standing in terms of violations, not injury. Kim became an aggrieved employee, and had PAGA standing, when one or more Labor Code violations were committed against him. (See § 2699(c).) Settlement did not nullify these violations.” (Kim, supra, 9 Cal.5th at 84.) Similarly, compelling Plaintiff to arbitrate his individual PAGA claim does not nullify the alleged violations, it merely requires resolution of Plaintiff’s individual PAGA allegations in the arbitral forum. A PAGA plaintiff only lacks standing if he or she is adjudged to have not been an aggrieved employee. (Id. at 83-84 (“The plain language of section 2699(c) has only two requirements for PAGA standing. The plaintiff must be an aggrieved employee, that is, someone “who was employed by the alleged violator” and “against whom one or more of the alleged violations was committed.” (§ 2699(c).).”).) The parties’ arbitration agreement has no bearing on whether Plaintiff is an aggrieved employee and Plaintiff retains standing to pursue representative PAGA claims in court. Accordingly, there is no basis under California law to dismiss the representative PAGA claims at this time.