Judge Randolph M. Hammock, Case Number: BC694862, Date: 2023-05-10 Tentative Ruling

Plaintiff Scott Tarter Brings a single cause of action against Defendant South East Personnel Leasing, Inc., seeking civil penalties under Labor Code sections 2698, et seq. (“PAGA”), for Defendant’s alleged violations of applicable Labor Code statutes and Wage Order regulations.

Additionally, this court defers its ruling on the issue of dismissal of Plaintiff’s remaining representative claim pending the California Supreme Court’s Decision in Adolph v. Uber Technologies, Case No. S274671. That portion of this case is also STAYED pending further order.

Each party has submitted objections to evidence. This court is unaware of any legal authority which requires a court to rule on evidentiary objections on a motion, except as to a motion for summary motion/adjudication (CCP § 437c (q)) or a special motion to strike (CCP § 425.16 (b)(2)); see also, Sweetwater Union High School Dist. v. Gilbane Building Co. (2019) 6 Cal.5th 931, 947-949.)

Defendant contends that Plaintiff’s PAGA claim is simply “unmanageable,” given that Defendant is a Professional Employer Organization who has contracted with 947 different “client companies.” Because Plaintiff seeks to recover penalties for all employees of these companies, Defendant contends it carries the unreasonable burden of having to negate its status as an employer for all of them—a question which is highly fact-intensive and could require hundreds of witnesses.

Plaintiff, on the other hand, contends Defendant is exaggerating the manageability concerns, as evidence can be adduced by common evidence. Plaintiff also contends courts lack authority to dismiss the PAGA actions based on manageability in the first place.

The Court of Appeal is split on whether a court can dismiss a PAGA claim based on unmanageability concerns. In Wesson, the Court held that trial courts “have inherent authority to ensure that PAGA claims can be fairly and efficiently tried and, if necessary, may strike a claim that cannot be rendered manageable.” (Wesson v. Staples the Off. Superstore, LLC (2021) 68 Cal. App. 5th 746, 765.) Thus, the Court held the trial court properly struck the claims where the parties agreed that trying the employer’s affirmative defenses “would require a trial spanning several years with many hundreds of witnesses.” (Id. at 773.)

Not long after Wesson, the Court of Appeal came to the opposite conclusion in Estrada. (Estrada v. Royalty Carpet Mills, Inc. (2022) 76 Cal. App. 5th 685, 713.) While the court in Estrada “under[stood] the concerns expressed in Wesson,” it “respectfully disagree[d] with” its holding. (Id. at 712, 713.) Estrada concluded that dismissing a PAGA action based on concerns it was unmanageable would contravene the purpose of PAGA. (Id. at 712.) Instead of dismissing the action altogether, Estrada stated that “courts may, where appropriate and within reason, limit witness testimony and other forms of evidence when determining the number of violations that occurred and the amount of penalties to assess.” (Id. at 713.)

The Supreme Court of California has granted review of Estrada to determine whether trial courts have inherent authority to strike or narrow PAGA claims if they cannot be managed. (See Estrada v. Royalty Carpet Mills, S274340.) The case has been fully briefed as of September 26, 2022. No date for oral argument is set.

Be that as it may, this court need not resolve that split now or pick a side. There is insufficient evidence at this time that trial would, in fact, be unmanageable. Unlike in Wesson, parties dispute the breadth of evidence that needs to be offered at trial. Moreover, as discussed below, Defendant’s alternative motion to compel arbitration is GRANTED.

“[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.)

As an initial matter, Plaintiff argues that Defendant waived the right to arbitrate. Plaintiff notes the case has been pending for over five years, and that Defendant was aware that an agreement to arbitrate existed for all of it. During that time, Defendant has responded to discovery, propounded its own discovery, defended the deposition of Heather Clark, and taken the deposition of Plaintiff Scott Tarter. (Smith Decl. ¶¶ 4-33.)

When considering if waiver occurred in the context of arbitration, both state and federal 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; [and] (5) ‘whether important intervening steps [e.g., taking advantage of judicial discovery procedures not available in arbitration] had taken place…” [Citations]. (Iskanian, 59 Cal. 4th at 375). Notably, under recent authority from the Supreme Court of the United States, the element of prejudice is “no longer required to demonstrate a waiver of one's right to arbitration, and the waiver inquiry should instead focus on the actions of the holder of that right.” (Davis v. Shiekh Shoes, LLC (2022) 84 Cal.App.5th 956, 795 [citing Morgan v. Sundance, 142 S.Ct. 1708 (2022)].)

Whether prejudice is still a factor under California law is a question that is currently under review. The Supreme Court of California has granted a petition for review in Quach. (See Quach v. California Com. Club, 515 P.3d 623 (Cal. 2022).) Of course, the California Supreme Court may split from the Supreme Court of the United States to find that prejudice is still required under California law.

In isolation, Defendant’s actions thus far certainly resemble waiver. However, these must also be considered in context with the state of law existing for much of this case. Although Defendant waited years to compel arbitration, for the vast majority of that time, Iskanian was controlling. Any attempt to compel arbitration would have been futile by any reasonable measure. 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].)

Moreover, once the Supreme Court of the United States released its decision in Viking River, the parties were in the midst of a tolling agreement while they attempted mediation. (Deitz Decl. ¶¶ 3, 4.) On December 1, 2022—the first docket filing in nearly a full-calendar year—Plaintiff ended the tolling agreement by filing its motion for summary adjudication. That motion sought to preclude Defendant from presenting evidence of certain affirmative defenses. This court denied that motion on March 14, 2023. (See Final Ruling, 03/14/2023.) Just a month later, on April 14, 2023, Plaintiff filed this motion.

Defendant also raised arbitration as an affirmative defense in its Answer, albeit only to Plaintiff’s individual claims—as already discussed, likely because arbitration of PAGA claims was unavailable under then-existing law. (See Answer, 04/30/2018.) Plaintiff eventually dismissed those individual claims, leaving only the non-arbitrable PAGA claim.

Considering the above, this court cannot find that Defendant acted inconsistent with the right to arbitrate. Defendant moved to compel arbitration within a reasonable time from that point when it became necessary and no longer futile to do so. In making this finding, the court emphasizes the well-accepted principle that “any doubts regarding a waiver allegation should be resolved in favor of arbitration.” (St. Agnes Med. Ctr., 31 Cal. 4th at 1195.)

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 agree that any claim, dispute, and/or controversy that either I may have against my Worksite Employer, my Temporary Staffing Employer, or SPLI (or their respective owners, directors, officers, managers, employees, agents, subsidiaries, and parties affiliated with their employee benefit and health plans) or that my Worksite Employer, my Temporary Staffing Employer, or SPLI may have against me, arising from, related to, or having any relationship or connection whatsoever with my seeking employment with, employment by, or any other association with my Worksite Employer, my Temporary Staffing Employer, or SPLJ shall be submitted to and determined exclusively by binding arbitration under the Federal Arbitration Act (9 U.S.C. §§ I, et seq.) in conformity with the procedures of the California Arbitration Act (Cal. Code Cvi. Proc. sec. 1280 et. seq., including section 1283.05 and all of the Act's other mandatory and permissive rights to discovery).

The provision is broad, covering “any claim, dispute, and/or controversy” in connection with Plaintiff’s employment. (Id.) “[A]rbitration agreements should be liberally interpreted, and arbitration should be ordered unless the agreement clearly does not apply to the dispute in question.” (See Vianna v. Doctors’ Management Co. (1994) 27 Cal.App.4th 1186, 1189.) It therefore covers the dispute here. Plaintiff does not contend otherwise.

Finally, the Agreement here expressly states that it is governed by the FAA. (See Davis v. Shiekh Shoes, LLC (2022) 84 Cal. App. 5th 956, 963 [finding the FAA applies “if it is so stated in the agreement.”].) The Court will therefore apply the FAA where necessary.

Relying on the Supreme Court’s recent holding in Viking River Cruises, Defendant argues that Plaintiff’s individual claim should 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.) The Court found 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.)

Here, the parties have agreed to arbitrate their employment disputes, including PAGA claims. 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. The point emphasized in Viking River is that when parties agree to arbitrate disputes arising from Labor Code violations individually sustained by an employee, they must be held to that agreement, notwithstanding the resulting division of the PAGA claims. Similarly, the parties here are bound by their agreement to arbitrate claims for violations sustained by Plaintiff in the course of her employment, even if it means separating those claims from the claims based on violations suffered by other employees.

Plaintiff then argues that even under Viking River, the Agreement here contains an impermissible “wholesale waiver” of the right to bring PAGA claims. As stated in Iskanian and confirmed in Viking River, Plaintiff is correct that a wholesale waiver remains unenforceable. 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 ....”].)

Here, Plaintiff agreed that “all claims…must be brought in my individual capacity and not as a plaintiff or class member in any purported class action, collective action or representative action proceeding.” (Clark Decl., Exh. 1, ¶ 1(C).) Although this provision could constitute a wholesale waiver, the agreement also contains a severance provision that directly addresses representative actions. It provides:

Severance. If any term, provision, or portion of this Agreement is declared void or unenforceable it shall be severed and the remainder of this Agreement shall be enforceable. For example, if the portion of this Agreement containing my agreement to waive any right I may have to bring a representative action and/or private attorney general action in arbitration is declared void or unenforceable, said term or provision shall be severed and the remainder of this agreement shall be enforceable. If the representative action and/or private attorney general action is severed and I bring an action that includes claims subject to this Agreement and a representative action and/or a private attorney general action that are not subject to this Agreement, SPLI, my Worksite Employer, my Temporary Staffing Employer, and I agree to stay the non-arbitral claims until the claims subject to this Agreement are fully arbitrated.”

Thus, the severability clause in the agreement provides that if the waiver of representative claims is invalid in some respect, “said term or provision shall be severed and the remainder of this agreement shall be enforceable.” (Clark Decl., Exh. 1, ¶ 3.) Based on this clause, Defendant is entitled to enforce the agreement insofar as it mandates arbitration of Plaintiff’s individual PAGA claim.

The 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. Understandably, the California Supreme Court is set to decide the issue in Adolph v. Uber Technologies, Case No. S274671. 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.” The Supreme Court held oral argument in Adolph on May 9, 2023.

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. This case otherwise remains stayed pending further order.

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.