Judge: Peter Wilson, Case: 2022-01240353, Date: 2022-09-29 Tentative Ruling

Defendants Morley Companies, Incorporated (Morley) and Hyundai Motor America (Hyundai) generally demur to the Complaint based on lack of standing, or in the alternative, seeks to compel Plaintiff’s individual claims to arbitration and dismiss the non-individual PAGA claims.

Request for Judicial Notice: Defendants’ Requests for Judicial Notice (ROA 58, Ex. B and ROA 73, Ex. C) are GRANTED.

Plaintiff’s Request for Judicial Notice (ROA 67) is GRANTED. 

The Demurrer: Defendants contend Plaintiff lacks standing to allege representative PAGA claims because he released his individual claims when he entered into the Settlement Agreement. ROA 57, P&A, pp. 12-13. Defendants argue that since Plaintiff can no longer allege his individual PAGA claims, he cannot pursue representative PAGA claims as set forth in Viking River Cruises, Inc. v. Moriana (2002) 142 S. Ct. 1906, 1925 (“But as we see it, PAGA provides no mechanism to enable a court to adjudicate non-individual PAGA claims once an individual claim has been committed to a separate proceeding. Under PAGA's standing requirement, a plaintiff can maintain non-individual PAGA claims in an action only by virtue of also maintaining an individual claim in that action. See Cal. Lab. Code Ann. §§ 2699(a), (c).”)

A general demurrer challenges the legal sufficiency of a complaint on the ground that it fails to state facts sufficient to constitute a cause of action. (Code Civ. Proc. § 430.10(e).)  The allegations in the complaint as a whole must be reviewed to determine whether a set of alleged facts constitutes a cause of action.  (People v. Superior Court (Cahuenga’s the Spot) (2015) 234 Cal.App.4th 1360, 1376.)  A complaint need only meet fact-pleading requirements, which requires a statement of facts constituting a cause of action in ordinary and concise language, and should allege ultimate facts that, as a whole, apprise defendant of the factual basis of the claim. (Code Civ. Proc. §425.10(a)(1); Navarrete v. Meyer (2015) 237 Cal.App.4th 1276, 1284.)

In ruling on a demurrer, the court is guided by the following long-settled rules:  The court treats the demurrer as admitting all material facts properly pleaded, but not contentions, deductions or conclusions of fact or law.  The court may also consider matters which may be judicially noticed.  Further, the court gives the complaint a reasonable interpretation, reading it as a whole and its parts in their context. (Blank v. Kirwan (1985) 39 Cal.3d 311, 318.)

The Court does not consider the Arbitration Agreement in ruling on this demurrer because it is not an attachment to the Complaint and judicial notice of it was not requested.

It is undisputed the Settlement Agreement was entered into between Plaintiff and Morley, not Hyundai. It is undisputed that Hyundai is not a party to the Settlement Agreement.

However, Hyundai argues it can enforce the Settlement Agreement because Plaintiff has alleged it is a joint employer with Morley, and although they are distinct entities, Plaintiff makes the same allegations against them. Hyundai also argues that the Settlement expressly includes it because the definition of “Released Parties” include “affiliates” and “agents and clients”. ROA 57, P&A, pp. 13-15; ROA 71, Reply, p. 3.

The Complaint expressly alleges that Hyundai is Morley’s client. ROA 2, Complaint, ¶¶2 [“Hyundai is one of Morley’s business clients”]. Thus, Defendant is correct that Hyundai falls within the definition of Released Parties in the Settlement Agreement and may enforce its terms. Hyundai is a third-party beneficiary of the Settlement Agreement.

Plaintiff argues that the Settlement Agreement was not intended to release his individual PAGA claims. Even if the Settlement Agreement encompasses Plaintiff’s individual PAGA claims, he has not lost standing pursuant to Kim v. Reins Int’l Cal., Inc. (2020) 9 Cal. 5^th 73.

Because the California Supreme Court is the final arbiter of California law, Kim’s interpretation, not Viking River Cruises’ interpretation, of PAGA standing governs. (Beal v. Missouri P.R. Corp. (1941) 312 U.S. 45, 50 [explaining that state courts are the “final arbiters’ of the meaning and application of state statutes]; Johnson v. U.S. (2010) 559 U.S. 133, 138 [citing Johnson v. Fankel (1997) 510 U.S. 911, 916 for the proposition that federal courts, including the U.S. Supreme Court, is bound by the interpretation of a state statute by the highest court in that state]; 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.”).)

Under Kim, Plaintiff has not lost standing to pursue a representative PAGA claim just because he settled his individual claims. The California Supreme Court in Kim explained:

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).) Both requirements derive from readily ascertainable facts, and both are satisfied here. Kim was employed by Reins and alleged that he personally suffered at least one Labor Code violation on which the PAGA claim is based. Kim is thus an “aggrieved employee” with standing to pursue penalties on the state's behalf.

(Kim v. Reins Int'l California, Inc., supra, 9 Cal. 5th at 83–84.)

The California Supreme Court specifically rejected arguments that the plaintiff lost standing because he no longer had a continuing injury by settling and accepting compensation for his injury:

The 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. The remedy for a Labor Code violation, through settlement or other means, is distinct from the fact of the violation itself.

(Kim v. Reins Int'l California, Inc., supra, 9 Cal. 5th at 84.) Moreover, the California Supreme Court found that the express language of the PAGA statute “does not require the employee to claim that any economic injury results from the alleged violations” (ibid., italics in original), and that PAGA standing is not linked to the maintenance of any individual claims. (Id. at 85.)

The Complaint pleads the two elements necessary for PAGA standing, i.e. that Plaintiff was an employed by Defendants and one or more of the alleged violations was committed against him. See Complaint, ¶¶12-27. Therefore, pursuant to Kim, Plaintiff has standing to pursue a representative PAGA action even if he settled his individual claims.

The demurrer to the Complaint is accordingly OVERRULED.

The Motion to Compel Arbitration: Because there is a severability clause in the Arbitration Agreement, Plaintiff “concedes that his individual PAGA claims against Hyundai may now be split from his non-arbitrable, representative PAGA claims, and be compelled to arbitration pursuant to the Arbitration Agreement”. ROA 65, Opp., p. 13-15.

Defendants argue that Morley, as a joint employer, is also entitled to enforce the Arbitration Agreement against Plaintiff. It in undisputed that Morley is not a signatory to the Arbitration Agreement.

“‘Generally speaking, one must be a party to an arbitration agreement to be bound by it or invoke it.’”  (Molecular Analytical Systems v. Ciphergen Biosystems, Inc. (2010) 186 Cal.App.4th 696, 706.)  However, there are exceptions to this general rule, which include: “‘(a) incorporation by reference; (b) assumption; (c) agency; (d) veil-piercing or alter ego; (e) estoppel; and (f) third-party beneficiary.’” (Cohen v. TNP 2008 Participating Notes Program, LLC (2019) 31 Cal.App.5th 840, 859.)

Following oral argument on September 9, 2022, the Court took this matter under submission to further consider to what extent equitable estoppel and/or agency principles, which Defendant first raised in its Reply brief, permitted Morley to compel arbitration.  

Having reviewed Plaintiff’s supplemental submission and having further considered the parties’ written and oral arguments, the Court finds Morley has not established any exceptions apply to permit it to compel arbitration.

There is no evidence that Morley is a parent, subsidiary, officer, director, agent, representative, shareholder, successor or assign of Hyundai to which the Arbitration Agreement also applies. ROA 52, Ex. A. There are no alter ego or agency allegations in the Complaint. There is no allegation either party acted as the other’s agent and Defendant’s reliance upon Thomas v. Westlake (2012) 204 Cal.App.4th 605, 614 is misplaced because there, “agency” was explicitly alleged.

Meriting further discussion, however, is the potential application of equitable estoppel. As set forth by Morley, this argument succeeds or fails based on the application of Garcia v. Pexco, LLC (2017) 11 Cal.App.5th 782. There is no question the facts in Garcia are superficially similar to the facts here and Plaintiff does not argue otherwise. In Garcia, “Temporary staffing company Real Time Staffing Services, LLC . . . hired Garcia in 2011 as an hourly employee. Real Time then assigned Garcia to work for Pexco.” Garcia, supra, 11 Cal.App.5th at 784. This, however, is where the similarities end.

In Garcia, the arbitration agreement was between the staffing agency and the employee. Here, the arbitration agreement is between the staffing agency’s customer (Hyundai) and the employee. While it may be equitable to extend an arbitration agreement to the downstream customer of a staffing agency (as in Garcia), it is an entirely different matter to run equity in reverse, i.e., from the staffing agency’s client back to the staffing agency which engaged the employee in the first place. In other words, while a client such as Hyundai and an employee such as Garcia could fairly expect an arbitration agreement that was in place at the outset would apply downstream, there is no equity achieved by conjuring a negotiation and agreement to arbitrate between the staffing agency and the employee. Nothing in Garcia suggests such a reverse process is equitable. Additionally, such a result would be inconsistent with the parties’ reasonable expectations and gives short shrift to consent, the fundamental basis underlying enforcement of arbitration agreements. See, e.g., Jarboe v. Hanlees Auto Group (2020) 53 Cal. App. 5th 539 (claims must arise from the same contract containing the arbitration provision plaintiff attempts to avoid); Goldman v. KPMG, LLP (2009) 173 Cal. App. 4th 209 (same); Jones v. Jacobson (2011) 195 Cal. App. 4th 1 (same).

Defendants have also not demonstrated that Morley is a third-party beneficiary. The Arbitration Agreement expressly applies to “claims or controversies that may arise directly between” the employee and Hyundai during or after the employer provided services for his or her employer while “working in [Hyundai’s] facilities and/or while working together” with [Hyundai’s] employees.” ROA 52, Ex. A, emphasis added. The Arbitration Agreement distinguishes between Hyundai and the employee’s employer. This suggests the Arbitration Agreement was not made for the benefit of Morley.

Accordingly, the Court GRANTS the Motion to Compel Arbitration of Plaintiff’s individual claims as to Hyundai and DENIES the Motion to Compel as to Morley.

The Court orders that the non-individual PAGA claims against Hyundai and all PAGA claims against Morley are STAYED pending completion of arbitration. (Code Civ. Proc. § 1281.4)

A status conference is scheduled for March 10, 2023 at 9:00 a.m., and the parties are Ordered to file a joint status report not later than March 3, 2023.

Defendants are ordered to give notice.