Judge Randolph M. Hammock, Case 19STCV45659 2022-09-28 Tentative Ruling

“[T]he petitioner bears the burden of proving the existence of a valid arbitration agreement by the preponderance of the evidence . . . .” (Giuliano v. Inland Empire Personnel, Inc. (2007) 149 Cal.App.4th 1276, 1284). “In determining whether an arbitration agreement applies to a specific dispute, the court may examine only the agreement itself and the complaint filed by the party refusing arbitration [citation]. The court should attempt to give effect to the parties' intentions, in light of the usual and ordinary meaning of the contractual language and the circumstances under which the agreement was made.” (Weeks v. Crow (1980) 113 Cal.App.3d 350, 353). “Doubts as to whether an arbitration clause applies to a particular dispute are to be resolved in favor of sending the parties to arbitration. The court should order them to arbitrate unless it is clear that the arbitration clause cannot be interpreted to cover the dispute.” (California Correctional Peace Officers Ass'n v. State (2006) 142 Cal.App.4th 198, 205).

“[A] party opposing the petition bears the burden of proving by a preponderance of the evidence any fact necessary to its defense. [Citation.] In these summary proceedings, the trial court sits as a trier of fact, weighing all the affidavits, declarations, and other documentary evidence, as well as oral testimony received at the court's discretion, to reach a final determination.” (Giuliano v. Inland Empire Personnel, Inc. (2007) 149 Cal.App.4th 1276, 1284).

“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. . . .” (CCP § 1281.4.)

Defendant moves to compel arbitration of Plaintiff’s individual PAGA claim and for dismissal of the remaining representative PAGA claims. Defendant relies on the recent U.S. Supreme Court decision in Viking River Cruises, Inc. v. Moriana (2022) 142 S.Ct. 1906, which overturned the prior California rule prohibiting the separation of PAGA claims into individual and representative claims for purposes of arbitration. (See Iskanian v. CLS Transportation Los Angeles, LLC (2014) 59 Cal.4th 348, 383-84.)

California has a strong public policy in favor of arbitration as an expeditious and cost-effective way of resolving disputes. “Even so, parties can only be compelled to arbitrate when they have agreed to do so.” (Avila v. S. California Specialty Care, Inc. (2018) 20 Cal. App. 5th 835, 843.) “The party seeking to compel arbitration bears the burden of proving the existence of a valid arbitration agreement.” (Id.) An arbitration agreement is a contractual agreement. “General contract law principles include that ‘[t]he basic goal of contract interpretation is to give effect to the parties’ mutual intent at the time of contracting. [Citations.] ... The words of a contract are to be understood in their ordinary and popular sense.” [Citations.] (Garcia v. Expert Staffing W., 73 Cal. App. 5th 408, 412–13.)

I and the Company mutually and voluntarily agree that any claim, dispute, and/or controversy… which would otherwise require or allow resort to any court or other governmental dispute resolution forum between myself and the Company (or its owners, directors, officers, managers, employees, agents, and parties affiliated with its employee benefit and health plans) arising from, related to, or having any relationship or connection whatsoever with my seeking employment with, employment by, or other association with the Company, whether based in tort, contract, statutory, or equitable law, or otherwise…shall be submitted to and determined exclusively by binding arbitration under the Federal Arbitration Act ("FAA") applicable to businesses, like Company, that are involved in business in interstate commerce, in conformity with the procedures of the California Arbitration Act (Cal. Code Civ. Proc. sec. 1280 et seq., including sec. 1283.05 and all of the Acts, other mandatory and permissive rights to discovery).

Plaintiff argues that Defendant waived its right to compel arbitration. When considering if waiver occurred in the context of arbitration, courts 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.” [Citations]. (Iskanian, 59 Cal. 4th at 375).

Plaintiff filed this action on December 18, 2019. Defendant did not move to compel arbitration, because doing so would have been futile under the California Supreme Court’s holding in Iskanian. Iskanian itself addressed waiver in a similar context. There, the Court found that even a three-year delay did not constitute waiver of the right to arbitrate. Addressing “futility,” the court explained that when arbitrability is “foreclosed by existing law, the mere fact that the parties then proceed to engage in various forms of pretrial litigation does not compel the conclusion that the party has waived its right to arbitrate when a later change in the law permits arbitration.” (Iskanian, 59 Cal. 4th at 377–78 [abrogated by Viking River on other grounds].) The Court emphasized that the key consideration in the analysis is the risk of prejudice to the opposing party.

Here, Plaintiff has not shown that he will suffer undue or substantial prejudice. Although this court recognizes that the parties have litigated the matter, “courts will not find prejudice where the party opposing arbitration shows only that it incurred court costs and legal expenses.’[Citation.] ‘Prejudice typically is found only where the petitioning party's conduct has substantially undermined this important public policy or substantially impaired the other side's ability to take advantage of the benefits and efficiencies of arbitration.’” (Iskanian, 59 Cal. 4th at 377). The evidence of that here is minimal. Moreover, “any doubts regarding a waiver allegation should be resolved in favor of arbitration. (St. Agnes Med. Ctr., 31 Cal. 4th at 1195.)

Thus, Plaintiff “does not demonstrate that [Defendant’s] delay in pursuing arbitration was unreasonable or that pretrial proceedings have resulted in cognizable prejudice.” (Id. at 378.) Accordingly, Defendant has not waived the right to arbitrate.

Relying on the Supreme Court’s recent holding in Viking River Cruises, Defendant argues that Plaintiff’s individual claim should be severed and sent to arbitration. Under the previous rule set forth in Iskanian, an employee’s individual PAGA claims were not arbitrable even if the parties had agreed to arbitrate individual claims. The defendant employer in Iskanian had attempted to argue that “the arbitration agreement at issue here prohibits only representative claims, not individual PAGA claims for Labor Code violations that an employee suffered.” (Iskanian, supra, 59 Cal.4th at p. 383.) Rejecting this, the California Supreme Court held that such a separation “frustrates the PAGA's objectives” because “a single-claimant arbitration under the PAGA for individual penalties will not result in the penalties contemplated under the PAGA to punish and deter employer practices that violate the rights of numerous employees under the Labor Code.” (Id. at p. 384.)

However, the U.S. Supreme Court overturned this restriction, holding that “Iskanian’s prohibition on contractual division of PAGA actions into constituent claims unduly circumscribes the freedom of parties to determine the issues subject to arbitration and the rules by which they will arbitrate . . . and does so in a way that violates the fundamental principle that arbitration is a matter of consent.” (Viking River, supra, 142 S.Ct. at p. 1923, internal citations omitted.) According to the U.S. Supreme Court, Iskanian’s rule was improper because it coerced parties to litigate all PAGA claims even where the parties agreed to arbitrate claims arising out of Labor Code violations suffered by the Plaintiff. (Id. at p. 1924.)

Under the old rule set forth in Iskanian, Plaintiff’s individual PAGA claims would have been indivisible from the representative claims, thus precluding arbitration of the individual claims. However, under Viking River, this division is now permitted, and the agreement to arbitrate Plaintiff’s individual claims must be enforced. Plaintiff does not dispute this interpretation of Viking River.

A remaining issue is what should happen to Plaintiff’s remaining non-individual claims, which are not subject to arbitration. The Viking River Court held that a plaintiff loses standing to assert a non-individual PAGA claim once her own individual claims are compelled to arbitration. (Viking River, supra, 142 S.Ct. at p. 1925.) The Supreme Court directly addressed what “should have been done” with the plaintiff’s non-individual claims. The Court stated:

[A]s 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). When an employee's own dispute is pared away from a PAGA action, the employee is no different from a member of the general public, and PAGA does not allow such persons to maintain suit. See¿Kim [v. Reins Int’l. California, Inc.] 9 Cal.5th [73,] 90, 259 Cal.Rptr.3d 769, 259 Cal.Rptr.3d, 459 P.3d at 1133¿(“PAGA's standing requirement was meant to be a departure from the ‘general public’ ... standing originally allowed” under other California statutes). As a result, Moriana lacks statutory standing to continue to maintain her non-individual claims in court, and the correct course is to dismiss her remaining claims. Viking River Cruises, 142 S.Ct. 1906, Slip Opn. at 21.

However, the Supreme Court also recognized that this is ultimately an issue of state law. It comes as no surprise, then, that the California Supreme Court is set to decide the issue in Adolph v. Uber Technologies, Case No. S27467. The Supreme Court granted review on July 20, 2022, and on August 1, 2022, set the issue to be briefed as: “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…maintains statutory standing to pursue ‘PAGA claims arising out of events involving other employees’ in court or in any other forum the parties agree is arbitrable.”

Accordingly, this Court will defer its ruling only as to the issue of dismissal of the remaining representative claim pending the California Supreme Court’s decision in Adolph. But as discussed above, Plaintiff’s individual claim is compelled to arbitration.

Finally, Plaintiff argues the agreement should be disregarded based on principles of unconscionability. Unconscionability has “both a procedural and a substantive element, the former focusing on oppression or surprise due to unequal bargaining power, the latter on overly harsh or one-sided results. (Sanchez v. Valencia Holding Company, LLC (2015) 61 Cal.4th 899, 910.) Under California law, an arbitration agreement must be in some measure both procedurally and substantively unconscionable in order for the agreement to be unenforceable. (Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, 114; De La Torre v. CashCall, Inc. (2018) 5 Cal.5th 966, 982.) “But they need not be present in the same degree. . . . [T]he 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.” (Armendariz, supra, 24 Cal.4th at p. 114.)

Plaintiff argues the agreement is procedurally unconscionable because it was a contract of adhesion. “The term [contract of adhesion] signifies a standardized contract, which, imposed and drafted by the party of superior bargaining strength, relegates to the subscribing party only the opportunity to adhere to the contract or reject it.” [Citation]. (Id. at 113).

Here, the “take it or leave it” nature of the agreement is sufficient to establish “some degree of procedural unconscionability.” (Sanchez v. Valencia Holding Co., LLC (2015) 61 Cal.4th 899, 915). This means the substantive terms of the agreement must be scrutinized to ensure they are not manifestly unfair or one-sided. (Id.)

In Armendariz, the California Supreme Court outlined five elements that must be present in an arbitration agreement in order to avoid substantive unconscionability. (24 Cal.4th at p. 102.) Armendariz factor 1 requires that the agreement provide for a “neutral arbitrator[].” (Id.) Armendariz factor 2 and 3 requires that the arbitration agreement “provide for more than minimal discovery” and that the arbitrator issue a written opinion. (Id.) Armendariz factor 4 requires that the agreement provide for all the types of relief that would otherwise be available in court. (Id.) Finally, Armendariz factor 5 provides that the agreement must not “require employees to pay either unreasonable costs or any arbitrators’ fees or expenses as a condition of access to the arbitration forum.” (Id.)

Plaintiff argues the agreement is substantively unconscionable because it “is silent as to whether Defendant will pay for all costs uniquely associated with arbitration.” (Opp. 12: 5-6.) Plaintiff cites no authority stating that the agreement to arbitrate itself must expressly provide that the Defendant will cover the costs of arbitration. Nonetheless, JAMS rule 31(a) provides that “[e]ach Party shall pay its pro rata share of JAMS fees and expenses as set forth in the JAMS fee schedule in effect at the time of the commencement of the Arbitration, unless the Parties agree on a different allocation of fees and expenses.” (Defendant’s RJN, Exh. A.) In this case, Defendant states that it “agree[s] to cover all costs unique to arbitration pursuant to Armendariz standards.” (Reply 8: 22-23.)

Moreover, the JAMS “Policy on Employment Arbitration Minimum Standards of Procedural Fairness” provides that “[t]he only fee that an employee may be required to pay is the initial JAMS Case Management Fee. All other costs must be borne by the company, including any additional JAMS Case Management Fees and all professional fees for the arbitrator’s services.” (Id., Exh. B.) Accordingly, the Agreement here does not violate Armendariz.

Finally, Plaintiff argues the wholesale PAGA waiver in the arbitration agreement here cannot be severed because “unconscionability permeates” the agreement. As discussed above, the court disagrees that the agreement is unconscionable.

Viking River left intact Iskanian's holding that representative PAGA claims are not arbitrable. (Id. at pp. 1924–1925 [“The agreement between Viking and Moriana purported to waive ‘representative’ PAGA claims. Under Iskanian, this provision was invalid if construed as a wholesale waiver of PAGA claims. And under our holding, that aspect of Iskanian is not preempted by the FAA ....”].) Accordingly, to the extent that the arbitration agreement here conflicts with the Iskanian’s prohibition on wholesale waivers of PAGA arbitration, only that portion of the agreement is severed.

Any party may submit on the tentative ruling by contacting the courtroom via email at Smcdept49@lacourt.org by no later than 4:00 p.m. the day before the hearing. All interested parties must be copied on the email. It should be noted that if you submit on a tentative ruling the court will still conduct a hearing if any party appears. By submitting on the tentative you have, in essence, waived your right to be present at the hearing, and you should be aware that the court may not adopt the tentative, and may issue an order which modifies the tentative ruling in whole or in part.