Judge Robert B. Broadbelt, Case 21STCV21050 2023-05-03 Tentative Ruling

Judge: Robert B. Broadbelt, Case: 21STCV21050, Date: 2023-05-03 Tentative Ruling

Tentative rulings are sometimes, but not always, posted. The purpose of posting a tentative ruling is to to help focus the argument. The posting of a tentative ruling is not an invitation for the filing of additional papers shortly before the hearing.

MOVING PARTIES: Defendants Hankey Investment Company, LP, Nowcom Corporation, erroneously sued as Nowcom, LLC, Midway Rent a Car, Inc., Knight Management Insurance Services, LLC, erroneously sued as Knight Management Company, Inc., HFC Acceptance, LLC, and Don Hankey

RESPONDING PARTY: Plaintiff Michael Castellanos, an individual, on behalf of himself and all other aggrieved employees

Petition to Compel Arbitration of Individual PAGA Claims and Dismissing or Staying Nonindividual PAGA Claims

The court considered the moving, opposition, and reply papers filed in connection with this petition.

The court rules on Defendants’ objections to the Declaration of Cathy Gonzalez as follows:

The court overrules Defendants’ (1) objection to the excerpt in Paragraph 12 (Objections, p. 3:17-20), and (2) last objection (Objections, pp. 4:9-5:11).

Defendants Hankey Investment Company, LP, Nowcom Corporation, erroneously sued as Nowcom, LLC, Midway Rent A Car, Inc., Knight Management Insurance Services, LLC, erroneously sued as Knight Management Company, Inc., HFC Acceptance, LLC, and Don Hankey (“Defendants”) move the court for an order (1) compelling plaintiff Michael Castellanos (“Plaintiff”) to submit his individual claims under the Private Attorneys General Act of 2004 (Labor Code, §¿2698, et seq.) (“PAGA”) to binding arbitration, and (2) dismissing the nonindividual PAGA claims or, alternatively, staying the nonindividual PAGA claims (i) pending the California Supreme Court’s decision in Adolph v. Uber Technologies, Inc., review granted July 20, 2022, S274671, or (ii) pending completion of arbitration.

As a threshold matter, the court finds that Defendants have met their burden of establishing that the Federal Arbitration Act (“FAA”) applies to the arbitration agreement presented in connection with this petition.

“The FAA applies to a contract ‘evidencing a transaction involving commerce.’” (Basura v. U.S. Home Corp. (2002) 98 Cal.App.4th 1205, 1213.)¿ Under this standard, the FAA applies “not only to the actual physical interstate shipment of goods but also contracts relating to interstate commerce.”¿ (Id. at pp. 1213-1214.)¿ The phrase “evidencing a transaction involving commerce” is to be broadly construed by the courts.¿ (Giuliano v. Inland Empire Personnel, Inc. (2007) 149 Cal.App.4th 1276, 1286.)¿

Defendants have presented evidence showing that (1) defendant Hankey Investment Company, LP (i) provides human resources services to various entities throughout the United States and (ii) invests in and develops commercial real estate in California and other states; (2) defendant HFC Acceptance, LLC finances car fleets for car rental companies throughout the United States; (3) defendant Nowcom Corporation provides dealer management computer systems to automobile dealers throughout the United States; (4) defendant Knight Management Insurance Services, LLC provides insurance services in connection with insurance risks in multiple states; and (5) defendant Midway Rent A Car, Inc. rents and leases cars at various locations around California, including an airport location, from which it serves interstate and international travelers. (Douglas Decl., ¶¶ 6-11.) The court therefore finds that Defendants have presented evidence proving that the entity defendants are engaged in interstate commerce and therefore have established that the arbitration agreement is a contract evidencing transactions involving commerce.

Plaintiff has not challenged the applicability of the FAA to the arbitration agreement at issue here by presenting either evidence or argument establishing that the FAA does not apply.

A written provision in any contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract. (9 U.S.C. § 2.) The FAA requires courts to direct parties to proceed to arbitration on issues covered by an arbitration agreement upon a finding that the making of the arbitration agreement is not in issue. (9 U.S.C. § 4; Chiron Corp. v. Ortho Diagnostic Sys. (9th Cir. 2000) 207 F.3d 1126, 1130.) “The court’s role under the [FAA] is therefore limited to determining (1) whether a valid agreement to arbitrate exists and, if it does, (2) whether the agreement encompasses the dispute at issue.” (Chiron Corp., supra, 207 F.3d at p. 1130.) The FAA reflects “both a ‘liberal federal policy favoring arbitration,’ [citation], and the ‘fundamental principle that arbitration is a matter of contract,’ [citation].” (AT&T Mobility LLC v. Concepcion (2011) 563 U.S. 333, 339.)

“‘ “The party seeking to compel arbitration bears the burden of proving the existence of an arbitration agreement, while the party opposing the petition bears the burden of establishing a defense to the agreement’s enforcement.” ’”¿ (Beco v. Fast Auto Loans (2022) 86 Cal.App.5th 292, 302.)¿ The burden of production as to this finding shifts in a three-step process.¿ (Gamboa v. Northeast Community Clinic (2021) 72 Cal.App.5th 158, 165.)¿ First, the moving party bears the burden of producing prima facie evidence of a written agreement to arbitrate, which can be met by attaching a copy of the arbitration agreement purporting to bear the opponent’s signature.¿ (Ibid.)¿ If the moving party meets this burden, the opposing party bears, in the second step, the burden of producing evidence to challenge its authenticity.¿ (Ibid.)¿ If the opposing party produces evidence sufficient to meet this burden, the third and final step requires the moving party to establish, with admissible evidence, a valid arbitration agreement between the parties.¿ (Ibid.)

The court finds that Defendants have met their burden of (1) proving a written agreement to arbitrate this controversy exists as between Plaintiff and defendant Hankey Investment Company, LP (“HIC”), and (2) proving that defendants Nowcom Corporation, erroneously sued as Nowcom, LLC, Midway Rent A Car, Inc., Knight Management Insurance Services, LLC, erroneously sued as Knight Management Company, Inc., HFC Acceptance, LLC, and Don Hankey (“Non-Signatory Defendants”) may enforce the arbitration agreement as nonsignatories.

The court finds that HIC has submitted evidence of a valid, written agreement to arbitrate the individual claims alleged in Plaintiff’s Complaint between it and Plaintiff.

Defendants present the “Employer-Employee Dispute Resolution” (the “Arbitration Agreement”) entered into by and between defendant HIC on the one hand, and Plaintiff on the other hand. (Douglas Decl., ¶ 5; Douglas Decl., Ex. A, Arbitration Agreement.) The Arbitration Agreement provides that “[t]he parties shall submit to binding arbitration before a neutral arbitrator all disputes and claims arising out of submission of any employment application or any and all disputes that may arise out of or already exist related to employee’s employment or relationship with Company, whether during or after that employment, including, but not limited to claims for wages or other compensation due . . . and claims for violation of any federal, state or other governmental constitution, statute, ordinance or regulation.” (Douglas Decl., Ex. A, Arbitration Agreement, p. 1, ¶ 1.) Arbitration “must be brought in the employee name as an individual and not as a plaintiff or a class member in any purported class or representative proceeding (with the exception of claims under the Labor Code Private Attorney Generals Act of 2004 (PAGA) (Lab. Code, § 2698 et seq.)” and “will be governed by the Federal Arbitration Act (9 U.S.C. § 2 et seq.).” (Douglas Decl., Ex. A, p. 1, ¶ 2.) Plaintiff electronically signed the Arbitration Agreement on August 15, 2019. (Douglas Decl., Ex. A, Arbitration Agreement, p. 2.)

The court finds that this evidence is prima facie evidence of a written agreement to arbitrate between HIC and Plaintiff.

The court further finds that HIC has met its burden of showing that the Arbitration Agreement applies to the individual PAGA claims asserted by Plaintiff in his Complaint. Plaintiff’s PAGA cause of action is based on Plaintiff’s employment with Defendants and, specifically, Defendants’ alleged (1) failure to pay Plaintiff and other aggrieved employees overtime and minimum wages due and owing during employment and upon termination, (2) failure to provide meal and rest periods, (3) failure to provide wage statements, (4) failure to provide information, (5) failure to reimburse business-related expenses and costs, and (6) failure to provide notice of sick time and accrual. (Compl., ¶¶ 7, 13, 17, 57-65.) Thus, Plaintiff’s PAGA cause of action is based on his individual claims “related to [Plaintiff’s] employment or relationship with” Defendants, both during and after the employment relationship, including “claims for wages or other compensation due . . . and claims for violation of any federal, state or other governmental constitution, statute, ordinance or regulation.” (Douglas Decl., Ex. A, Arbitration Agreement, p. 1, ¶ 1.)

The court finds that Plaintiff has not met his burden of producing evidence to challenge the authenticity of the Arbitration Agreement. Plaintiff has not submitted evidence showing that he did not sign the Arbitration Agreement or otherwise contesting the validity of his electronic signature.

Instead, Plaintiff contends that the Arbitration Agreement expressly excludes PAGA claims from its scope because it states that “any binding arbitration must be brought in the employee name as an individual and not as a plaintiff or a class member in any purported class or representative proceeding (with the exception of claims under [PAGA]) (Lab. Code, §2698 et seq.).” (Douglas Decl., Ex. A, Arbitration Agreement, p. 1, ¶ 2.) The court finds that this language does not exclude PAGA claims from the claims that are covered by the Arbitration Agreement. The court further finds that this language does not constitute a waiver of Plaintiff’s right to bring a PAGA action in court or in arbitration.

The court therefore finds that HIC has produced evidence of a valid, written agreement to arbitrate Plaintiff’s individual PAGA claims between HIC and Plaintiff. (Gregg v. Uber Technologies Inc. (2023) 89 Cal.App.5th 786, 796 [“under Viking River, employers may enforce an agreement mandating arbitration of a plaintiff’s individual PAGA claim”], 799 [current law “now permits a PAGA lawsuit to be split into arbitrable and nonarbitrable components, and does not require it to be treated as an indivisible unit for purposes of arbitration”].)

The court finds that Non-Signatory Defendants have met their burden of showing that they may enforce the Arbitration Agreement pursuant to the doctrines of equitable estoppel and agency.

“‘Generally speaking, one must be a party to an arbitration agreement to be bound by it or invoke it.’ [Citations.] ‘There are exceptions to the general rule that a nonsignatory to an agreement cannot be compelled to arbitrate and cannot invoke an agreement to arbitrate, without being a party to the arbitration agreement.’” (JSM Tuscany, LLC v. Superior Court (2011) 193 Cal.App.4th 1222, 1236-1237 [internal citations omitted].) One such exception is the doctrine of equitable estoppel. (Id. at p. 1237.) “Under this exception, ‘a nonsignatory defendant may invoke an arbitration clause to compel a signatory plaintiff to arbitrate its claims when the causes of action against the nonsignatory are “intimately founded in and intertwined” with the underlying contract obligations.’ [Citation.] The doctrine applies where the claims are ‘“‘based on the same facts and are inherently inseparable” from the arbitrable claims against signatory defendants.’” (Garcia v. Pexco, LLC (2017) 11 Cal.App.5th 782, 786 [internal citation omitted].)

Further, “California law permits a nonsignatory defendant to compel a signatory plaintiff to arbitrate where there is a connection between the claims alleged against the nonsignatory and its agency relationship with a signatory.” (Cohen v. TNP 2008 Participating Notes Program, LLC (2019) 31 Cal.App.5th 840, 863; Dryer v. Los Angeles Rams (1985) 40 Cal.3d 406, 418 [“If, as the complaint alleges, the individual defendants, though not signatories, were acting as agents for the Rams, then they are entitled to the benefit of the arbitration provisions”].)

The court finds that Non-Signatory Defendants have established that they may compel Plaintiff to arbitrate his claims against them under the Arbitration Agreement because (1) Plaintiff’s PAGA cause of action is “based on the same facts and [is] inherently inseparable from the arbitrable claims against signatory” defendant HIC since Plaintiff has alleged that Defendants, as joint employers, are each liable under PAGA, and (2) Plaintiff has alleged an agency relationship between Nonsignatory Defendants and HIC by alleging that (i) defendant Don Hankey is an agent of the entity defendants, and (ii) Defendants were Plaintiff’s joint employer for purposes of joint liability under PAGA. (Garcia, supra, 11 Cal.App.5th at p. 786 [internal quotations omitted]; Cohen, supra, 31 Cal.App.5th at p. 863; Compl., ¶¶ 7, 12.) As set forth above, the court further finds that Plaintiff’s individual PAGA claims are encompassed by the scope of the Arbitration Agreement.

The court finds that Plaintiff has not met his burden of establishing that Non-Signatory Defendants may not enforce the Arbitration Agreement against him pursuant to the doctrines of equitable estoppel or agency. Plaintiff has not addressed this argument in his opposition or presented other evidence showing that these doctrines do not apply to the circumstances presented in this action.

The court therefore finds that Non-Signatory Defendants have established that they may enforce the terms of the Arbitration Agreement against Plaintiff as nonsignatories.

“A written provision in any…contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract or transaction. . . , or an agreement in writing to submit to arbitration an existing controversy arising out of such a contract, . . . shall be valid, irrevocable, and enforceable, save upon such ground as exist at law or in equity for the revocation of any contract….” (9 U.S.C. § 2.) “Arbitration agreements, accordingly, are subject to all defenses to enforcement that apply to contracts generally.” (Ingle v. Circuit City Stores, Inc. (9th Cir. 2003) 328 F.3d 1165, 1170.)

The court finds that Plaintiff has not met his burden of establishing that Defendants waived their right to arbitrate the claims alleged in this action.

“[W]aiver of the right to compel arbitration is a rule for arbitration, such that the FAA controls.” (Sovak v. Chugai Pharm Co. (9th Cir. 2002) 280 F.3d 1266, 1270.) To prove that Defendants waived their right to arbitration, Plaintiff must show (1) Defendants had knowledge of their right to compel arbitration, (2) Defendants acted inconsistently with that right, and (3) Plaintiff suffered prejudice from their delay in moving to compel arbitration. (Ibid.) Plaintiff “bears a ‘heavy burden of proof’ in showing these elements.” (Ibid.) Courts, however, may not “condition a waiver of the right to arbitrate on a showing of prejudice[,]” and must instead “focus[] on the actions of the person who held the right” to arbitrate. (Morgan v. Sundance, Inc. (2022) 142 S.Ct. 1708, 1712-1713.) Thus, the primary inquiry focuses on whether a party acted inconsistently with the right to arbitrate.

Plaintiff contends that Defendants waived their right to arbitrate by (1) litigating this action in court, including by filing a motion for a protective order, petitioning the Court of Appeal for a writ, and filing motions for summary judgment, (2) delaying the filing of this motion until a year after the Supreme Court issued the decision in Viking River Cruises, Inc. v. Moriana (2022) 142 S. Ct. 1906 (“Viking River Cruises”), and (3) as to defendants HIC and Don Hankey, responding to Plaintiff’s discovery requests. However, in support of their motion, Defendants (1) explained that they did not attempt to enforce the Arbitration Agreement when this action was filed based on the then-existing law established by Iskanian v. CLS Transportation Los Angeles, LLC (2014) 59 Cal.4th 348; (2) asserted that they reserved the hearing date for this motion on July 8, 2022, following the June 15, 2022 ruling in Viking River Cruises; and (3) provided evidence showing that, on August 12, 2022, Defendants’ counsel emailed Plaintiff’s counsel (i) asking whether Plaintiff would stipulate to arbitration, and (ii) referencing “the two or three conversations [counsel] had over the past couple of weeks about the arbitrability of these cases” previously. (Holmes Decl., ¶¶ 4-5; Holmes Decl., Ex. B.)

The court finds that this evidence establishes that, while Defendants knew of their right to compel arbitration under the new law provided by the Supreme Court’s June 15, 2022 ruling in Viking River Cruises, Defendants did not act inconsistently with that right so as to support a finding of waiver. First, while the court notes that Defendants did not file this petition with the court until April 11, 2023, Defendants have explained that they reserved the first available hearing date for their petition on July 8, 2022 (i.e., only a few weeks after Viking River Cruises was decided). Second, Defendants have presented evidence showing that Plaintiff was put on notice of Defendants’ intent to compel arbitration of this action by, at the latest, August 12, 2022. (Holmes Decl., Ex. B.) Finally, although the court notes that the parties have engaged in some discovery and motion practice, the court finds that Defendants’ conduct has not evidenced conduct inconsistent with their right to arbitrate this action following the ruling in Viking River Cruises.

Thus, the court finds that Plaintiff has not established that Defendants have waived their right to arbitrate.

The court therefore finds that (1) defendant HIC has met its burden of producing a valid, written agreement to arbitrate Plaintiff’s individual PAGA actions; (2) Non-Signatory Defendants have met their burden of showing that they may enforce the Arbitration Agreement as nonsignatories; and (3) Plaintiff has not met his burden of showing that Defendants waived their right to arbitrate.

The court grants Plaintiff’s request to stay the nonindividual PAGA claims pending completion of arbitration.

The court grants defendants Hankey Investment Company, LP, Nowcom Corporation, erroneously sued as Nowcom, LLC, Midway Rent A Car, Inc., Knight Management Insurance Services, LLC, erroneously sued as Knight Management Company, Inc., HFC Acceptance, LLC, and Don Hankey’s petition for order compelling arbitration of individual PAGA claims and dismissing or staying nonindividual PAGA clams as follows.

The court orders (1) plaintiff Michael Castellanos and defendants Hankey Investment Company, LP, Nowcom Corporation, erroneously sued as Nowcom, LLC, Midway Rent A Car, Inc., Knight Management Insurance Services, LLC, erroneously sued as Knight Management Company, Inc., HFC Acceptance, LLC, and Don Hankey to arbitrate the individual claims alleged by plaintiff Michael Castellanos in his Complaint in this action, and (2) this action is stayed until arbitration is completed.

The court vacates the trial set for February 28, 2024, and the Final Status Conference scheduled for February 16, 2024.

The court vacates the hearing on the motion for summary adjudication set for August 7, 2023.

The court sets an Order to Show Cause re completion of arbitration on individual PAGA claims on _____________________, 2023, at 8:30 a.m.

The court sets a Case Management Conference on remaining nonindividual PAGA claims on _____________________, 2023, at 8:30 a.m.

The court orders defendants Hankey Investment Company, LP, Nowcom Corporation, erroneously sued as Nowcom, LLC, Midway Rent A Car, Inc., Knight Management Insurance Services, LLC, erroneously sued as Knight Management Company, Inc., HFC Acceptance, LLC, and Don Hankey to give notice of this ruling.

[1] In any event, “under both the FAA and California law, ‘arbitration agreements are valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.’” (Higgins v. Superior Court (2006) 140 Cal.App.4th 1238, 1247.)

michael castellanos, an individual, on behalf of himself and all other aggrieved employees ; Plaintiff, vs. hankey investment company, lp , et al.; Defendants.	Case No.:	21STCV21050

	Hearing Date:	May 3, 2023

	Time:	10:00 a.m.

	[Tentative] Order RE: defendants’ petition to compel arbitration of individual paga claims and dismissing or staying nonindividual paga claims