Judge Peter Wilson, Case 30-2023-01304927 2023-06-15 Tentative Ruling

Judge: Peter Wilson, Case: 30-2023-01304927, Date: 2023-06-15 Tentative Ruling

Defendant Kelly Services Global, LLC seeks to compel Plaintiff Yuri Fischer to arbitrate his individual claims under PAGA and to dismiss the action based on lack of standing pursuant to Viking River Cruises, Inc. v. Moriana (2022) 142 S. Ct. 1906 (Viking River). In the alternative, Defendant seeks to dismiss or stay this action based on the rule of exclusive concurrent jurisdiction and the earlier-filed representative PAGA action entitled, Blake v. Exel, Inc. d/b/a DHL Supply Chain, Case No. RG21101295 currently pending in the Superior Court of California for the County of Alameda.

For the reasons which follow, the motion to compel Plaintiff to arbitrate his individual claims is GRANTED, and the action is stayed pending arbitration.

There is no dispute Plaintiff signed the two-page document entitled “Dispute Resolution and Mutual Agreement to Binding Arbitration” (the Arbitration Agreement). ROA 22, Galasso Decl., ¶19 and Ex. B; ROA 70, Fischer Decl., ¶3.

The Arbitration Agreement applies to “Covered Claims” that arise between Plaintiff and Kelly Services, Inc. and its subsidiaries [referred to in the Arbitration Agreement collectively as Kelly or Kelly Services], which includes Defendant. ROA 22, Galasso Decl., ¶ and Ex. B, ¶1.

“Covered Claims” include “all common-law and statutory claims relating to [Plaintiff’s] employment, including, but not limited to, any claim for breach of contract, unpaid wages, …” ROA 22, Ex. B, ¶2.

Excluded from the definition of “Covered Claims” are, among other claims not applicable here, “[a]ny claim that cannot be required to be arbitrated as a matter of law.” ROA 22, Ex. B, ¶3. The Arbitration Agreement also provides that “arbitration is the only forum for resolving Covered Claims, and that both Kelly Services and I hereby waive the right to a trial before a judge or jury in federal or state court in favor of arbitration for Covered Claims.” ROA 22, Ex. B, ¶2.

The Waiver of Class and Collective Claims provides “all claims subject to this agreement will be arbitrated only on an individual basis, and that both Kelly Services and [Plaintiff] waive the right to participate in or receive money or any other relief from any class, collective, or representative proceeding. No party may bring a claim on behalf of other individuals, and no arbitrator hearing any claim under this agreement may: … (iii) arbitrate any form of a class, collective, or representative proceeding.” ROA 22, Ex. B, ¶8.

The Savings Clause & Conformity Class states: “If any provision of this Agreement is determined to be unenforceable or in conflict with a mandatory provision of applicable law, it shall be construed to incorporate any mandatory provision and/or unenforceable or conflicting provision shall be automatically severed and the remainder of the Agreement shall not be affected. Provided, however, that if the Waiver of Class and Collective Claims is found to be unenforceable, then any claim brought on a class, collective or representative action basis must be filed in a court of competent jurisdiction, and such court shall be the exclusive forum for such claims.” ROA 22, Ex., ¶16.

Based on the above, Plaintiff contends that all of his PAGA claims must be heard in Court and relies on the recent case of Westmoreland v. Kindercare Education LLC (2023) 90 Cal.App.5^th 967, 307 Cal.Rptr.3d 554 (Westmoreland).

The arbitration agreement in Westmoreland contained similar provisions to those discussed above. The key difference was in the Savings Clause & Conformity Clause which stated, “if the Waiver of Class and Collective Claims is found to be unenforceable, then this agreement is invalid and any claim brought on a class, collective, or representative action basis must be filed in a court of competent jurisdiction, and such court shall be the exclusive forum for such claims.” (307 Cal.Rptr.3d at 558, emphasis added.) This provision was referred to as a “poison pill”. (Id.)

The Westmoreland court explained

Ironically, the language and structure of Kindercare's arbitration agreement necessitates a result similar to the “claim joinder” rule in PAGA that Viking River deemed problematic when imposed by state law. (Viking River, supra, 142 S.Ct. at pp. 1923–1924.) The poison pill effectively prevents us from sending Westmoreland's “individual” claims under PAGA (representing the State of California but pursuing “individual” remedies based on the plaintiff's status as a former employee) to arbitration, while allowing litigation in court of her “representative” claims under PAGA, which involve the rights of other “aggrieved employees.” (See Lab. Code, § 2699, subds. (a), (c).)

(307 Cal. Rptr. 3d at 566.)

The Westmoreland court held that “the arbitration agreement is invalid by operation of the unambiguous ‘Savings Clause and Conformity Clause” and all PAGA claims must be litigated in court (Id.)

Further, the Westmoreland court observed:

Had Kindercare simply included a waiver of representative claims in its arbitration agreement, and not included the poison pill at the end of the agreement, the result here could have been substantially similar to that in Viking River. The case also would have been similar to other recent appellate decisions following Viking River, including Tesla, Piplack, and Galarsa v. Dolgen California, LLC (2023) 88 Cal.App.5th 639, 305 Cal.Rptr.3d 15. The arbitration agreements in those cases did not have a poison pill provision like the one in Kindercare's agreement here, and so PAGA claims could be divided: the “individual” PAGA claim sent to arbitration and the “representative” PAGA claim pursued in court. (Tesla, supra, 87 Cal.App.5th at pp. 225–226, 303 Cal.Rptr.3d 457; Piplack, supra, 88 Cal.App.5th at p. 1293, 305 Cal.Rptr.3d 405; Galarsa, at pp. 654–655, 305 Cal.Rptr.3d 15.)

(307 Cal.Rptr.3d at 566.)

Contrary to Plaintiff’s arguments, the Savings Clause & Conformity Clause here does not contain the poison pill provision in Westmoreland. The phrase “then this agreement is invalid” or something similar is not here contained in the Savings Clause & Conformity Clause. As such, Westmoreland fails to support Plaintiff’s contention that his PAGA claims cannot be divided and that the Arbitration Agreement therefore does not apply to his claims.

As explained by the Court of Appeal for the Fourth District, Division 3 in Piplack v. In-N-Out Burger, after Viking River “every PAGA action is properly understood as a combination of two claims: an ‘individual’ claim, arising from the Labor Code violations suffered by the plaintiff or plaintiffs themselves, and a ‘representative’ claim, arising from violations suffered by other employees. By virtue of FAA preemption, these claims are severable from one another, and the ‘individual’ claim is arbitrable, even if the state, which holds a 75 percent interest in any civil penalties recovered, does not consent to or participate in the arbitration. Thus, the individual claim is ‘individual’ within the meaning of defendant's arbitration agreement, and only the ‘representative’ claim is a true qui tam, or ‘private attorney general,’ action. And the agreement makes clear, ‘The ... Private Attorney General Waiver ... shall be severable in any case in which the dispute is filed as an individual action and severance is necessary to ensure that the individual action proceeds in arbitration’.” (88 Cal.App.5^th at 1288-1289.)

As in Piplack, the Arbitration Agreement here permits the individual PAGA claims to be severed from the representative PAGA claims. (See Piplack v. In-N-Out Burgers, supra, 88 Cal. App. 5th at 1288 (holding that the language “[t]here will be no right or authority for any dispute to be brought, heard or arbitrated as a private attorney general action” did not constitute a wholesale waiver, and compelling plaintiffs’ individual PAGA claim to arbitration); Galarsa v. Dolgen Cal., LLC (2023) 88 Cal. App. 5th 639, 650 (severing a waiver that stated an employee “‘may not assert any … representative action claims in any arbitration pursuant to the Agreement or in any other forum’ as to all PAGA claims” and still compelling plaintiff’s individual claims to arbitration).

Unconscionability. The party opposing arbitration bears the burden of proving, by a preponderance of the evidence, any fact necessary to its defense. (Engalla v. Permanente Medical Group, Inc. (1997) 15 Cal.4^th 951, 971.) Plaintiff argues the Arbitration Agreement is procedurally and substantively unconscionable.

Procedural unconscionability, which focuses on oppression or surprise due to unequal bargaining power, and substantive unconscionability, which focuses on overly harsh or one-sided results, must both be present for a court to refuse to enforce an arbitration agreement.

“‘“But they need not be present in the same degree. “Essentially a sliding scale is invoked which disregards the regularity of the procedural process of the contract formation, that creates the terms, in proportion to the greater harshness or unreasonableness of the substantive terms themselves.” [Citations.] In other words, the more substantively oppressive the contract term, the less evidence of procedural unconscionability is required to come to the conclusion that the term is unenforceable, and vice versa.’” (Sanchez, supra, 61 Cal.4th 899, 910, 190 Cal.Rptr.3d 812, 353 P.3d 741.)

(Performance Team Freight Systems, Inc. v. Aleman (2015) 241 Cal.App.4th 1233, 1246-1247.)

Procedural Unconscionability. In OTO, L.L.C. v. Kho (2019) 8 Cal.5th 111, the California Supreme Court explained that the procedural unconscionability analysis begins with an inquiry into whether the contract is one of adhesion. (Id. at 126.) “An adhesive contract is standardized, generally on a preprinted form, and offered by the party with superior bargaining power on a take-it-or-leave-it basis. (Baltazar v. Forever 21, Inc. (2016) 62 Cal.4th 1237, 1245.) Arbitration contracts imposed as a condition of employment are typically adhesive (Armendariz v. Foundational Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, 114-115; Serpa v. California Surety Investigations, Inc. (2013) 215 Cal.App.4th 695, 704.)

“When the contract is a contract of adhesion imposed and drafted by the party with superior bargaining power, the adhesive nature of the contract is ‘evidence of some degree of procedural unconscionability.’ ” (Sanchez v. Carmax Auto Superstores California, LLC (2014) 224 Cal.App.4th 398, 403.) But the fact that an agreement is adhesive is not, alone, sufficient to render it unconscionable. (Malone v. Superior Court (2014) 226 Cal.App.4th 1551, 1561.)

Thus, the court considers whether circumstances of the contract’s formation created such oppression or surprise that closer scrutiny of its overall fairness is required. (OTO, L.L.C., supra, 8 Cal.5th at 126-127.) “The circumstances relevant to establishing oppression include, but are not limited to (1) the amount of time the party is given to consider the proposed contract; (2) the amount and type of pressure exerted on the party to sign the proposed contract; (3) the length of the proposed contract and the length and complexity of the challenged provision; (4) the education and experience of the party; and (5) whether the party's review of the proposed contract was aided by an attorney.” (Id.)

Plaintiff argues there is procedural unconscionability because he was essentially forced to sign Arbitration Agreement as a condition of employment before he was hired or started work, without the ability to negotiate, without sufficient time to consider the document and without understanding its import. ROA 70, Fischer Decl., ¶¶3-5, 7, 9.

First, arbitration as a condition of employment, by itself, is insufficient to find procedural unconscionability. (Baltazar v. Forever 21, Inc. (2016) 62 Cal.4^th 1247, 1241.)

Next, directly above the signatures, in bold, the Arbitration Agreement advises it is “not mandatory for people who reside or work in California, and if I work or reside in California, I understand that the decision to sign this Agreement to Arbitrate is entirely my own, and that neither my hiring nor continued employment with Kelly is conditioned upon signing this Agreement to Arbitrate. If you are completing the hiring process electronically and you do not wish to sign the Agreement, please log out of eRegistration and contact your Kelly Representative, who will help you to complete the remaining onboarding documents.” ROA 22, Ex. B, p. 2. The plain language of the Arbitration Agreement explains that it is not a condition of employment and permits Plaintiff time to consider whether to sign it or not. Plaintiff claims logging out and calling a Kelly Representative “was a daunting task” (ROA 70, Fischer Decl., ¶8) but there is no evidence that doing so would have unreasonably delayed or hindered his employment.

Although Plaintiff states he was “rushed”, “forced to sign” and “backed into a corner” to sign the Arbitration Agreement these statements are conclusory as Plaintiff does not identify any specific facts that support his assertions. Further, Defendant presented evidence that Plaintiff could have saved the information on eRegistration and logged out and logged back in later to complete the process, could have printed the documents or saved them in PDF format, and there is no time limit to complete the documents. ROA 22, Galasso Decl., ¶¶11-13.

Additionally, Plaintiff seems to contend the Arbitration Agreement was a surprise. It is a separate two-page document that is clearly labeled in bold and all capital letters as “Dispute Resolution and Mutual Agreement to Binding Arbitration”. The Arbitration Agreement is written in plain language and clearly states that signing the Arbitration Agreement means that Plaintiff cannot bring Covered Claims in court and must arbitrate his claims. Thus, the Arbitration Agreement was not a surprise or hidden.

The Court finds there is no procedural unconscionability.

Substantive Unconscionability. In assessing substantive unconscionability, the “paramount consideration” is mutuality of the obligation to arbitrate. (Nyulassy v. Lockheed Martin Corp. (2004) 120 Cal. App. 4th 1267, 1287.) “[I]t is unfairly one-sided for an employer with superior bargaining power to impose arbitration on the employee as plaintiff but not to accept such limitations when it seeks to prosecute a claim against the employee, without at least some reasonable justification for such one-sidedness based on ‘business realities.’” (Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, 117; Ingle v. Circuit City Stores, Inc. (9th Cir. 2003) 328 F.3d 1165, 1174 [applying Calif. law, unilateral agreement presumed substantively unconscionable]; Baltazar v. Forever 21, Inc. (2016) 62 Cal.4th 1237, 1248-1249, 200 CR3d 7, 14-15 [agreement listing only employee claims as examples of types arbitrable not unfairly one-sided if it requires arbitration of all employment related claims].)

Here, Plaintiff identifies four separate provisions that make it substantively unconscionable: (1) permits one-sided injunctive relief in court; (2) waives the right to bring a representative claim; (3) contains a Michigan choice-of-law provision; and (4) contains a statute of limitations period of 300 days for all claims.

For the reasons discussed above, the class and collective action waiver is not unconscionable and is consistent with Viking Rivers.

Defendant does not dispute that the Michigan choice-of-law provision is substantively unconscionable and contrary to Labor Code § 925. ROA 74, Reply, p. 9. As recognized by Defendant, the Court may and does elect to sever the choice-of-law provision in paragraph 5 of the Arbitration Agreement.

Similarly, the 300-days limitations provision in paragraph 6 of the Arbitration Agreement is substantively unconscionable since it unreasonable shortens the statute of limitations period. (See Martinez v. Master Protection Corp. (2004) 118 Cal. App. 4th 107, 117 [an arbitration provision containing a six-month statute of limitations for all claims was unconscionable]; Beco v. Fast Auto Loans, Inc. (2022) 86 Cal.App.5th 292 [unreasonably short limitation period was unenforceable]; Ellis v. U.S. Security Associates (2014) 224 Cal. App. 4th 1213, 1225 [shortened limitations period as unconscionable.]) But again, the Court can and does elect to sever the 300-days limitation in paragraph 6 in the Arbitration Agreement.

Finally, the emergency or temporary injunctive relief provision is not substantively unconscionable. That provision in paragraph 3 of the Arbitration Agreement does not prohibit either party from bringing seeking such relief. (Baltazar v. Forever 21, Inc. (2016) 62 Cal.4^th1237, 1246-1248 [an arbitration agreement that expressly allows any party to seek injunctive relief or a court restraining order is not substantively unconscionable on that basis alone].)

As Plaintiff has not demonstrated procedural unconscionability and the substantively unconscionable provision can be severed from the Arbitration Agreement, Plaintiff has not met its burden of establishing a defense to the enforcement of the Arbitration Agreement.

Under the FAA, 9 U.S.C. §3, and CAA, CCP §1281.4, this case must be STAYED until completion of Plaintiff’s arbitration. In Viking River, the majority of the U.S. Supreme Court explained that under its view of California law, plaintiffs who are ordered to arbitrate their individual PAGA claims lose standing to prosecute representative PAGA claims: “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.” (142 S. Ct. at 1925.)

But “construction of a state statute by a federal court does not preclude a state court from later rejecting the federal court’s conclusion.” (16 Cal.Jur.3d (2022) Courts, § 324. See also, 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.”).) As two concurrences in Viking River pointed out, the majority may well be incorrect about PAGA standing. Justice Sotomayor wrote, “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, 142 S.Ct. at 1926 [conc. opn. of Sotomayor, J.].) And three justices noted the majority’s conclusion “addresses disputed state-law questions” and “is unnecessary to the result.” (Ibid. [conc. opn. of Barrett, J.].)

Further, the California Supreme Court granted review in Adolph v. Uber Technologies, S274671, to answer this exact question and the matter has been submitted for a decision. Were the Court to dismiss the representative PAGA claims only for Adolph to reach a different conclusion than Viking River, both judicial economy and the parties’ resources would be taxed by attempts to unwind the dismissal. Other California courts have agreed that the non-individual PAGA claims should be stayed pending a decision in Adolph. Galarsa v. Dolgen Cal., LLC, supra; Piplack v. In-N-Out Burgers, supra.

For these reasons, the Court DENIES the request to dismiss the non-individual PAGA claims, without prejudice.

Requests for Judicial Notice: As to ROA 20, Defendant’s RJN, GRANT as to Exhibits D, E, F, G, H, I, and J and DENY as to Exhibits A-C, K, L and M because the documents were not relevant to the Court’s ruling. As to ROA 64, Plaintiff’s RJN, GRANT as to No. 1 [Plaintiff’s Complaint] and DENY as to Nos. 2-5 because the documents were not relevant the Court’s ruling.

The Court orders that this matter is STAYED pending completion of the arbitration. (Code Civ. Proc. § 1281.4.)

A status conference is scheduled for December 1, 2023 at 9:00 a.m., and the parties are ordered to file a joint status report not later than November 27, 2023.

Defendant is ordered to give notice.