Judge Teresa A. Beaudet, Case 22STCV09218 2022-12-07 Tentative Ruling

PAMELA CASTRO, individually and on behalf of all similarly aggrieved employees,

Plaintiff,

vs.

GO RN, LLC, et al.

Defendants.

Case No.:

22STCV09218

Hearing Date:

December 7, 2022

Hearing Time: 10:00 a.m.

[TENTATIVE] ORDER RE:

DEFENDANT CORNERSTONE PEO, LLC’S MOTION TO COMPEL ARBITRATION AND FOR AN ORDER TO STAY PROCEEDINGS PENDING ARBITRATION

Plaintiff Pamela Castro, individually and on behalf of all similarly aggrieved employees (“Plaintiff”) filed this action against Defendants GO RN, LLC and Cornerstone PEO, LLC (“Cornerstone”) (jointly, “Defendants”) on March 15, 2022. The Complaint asserts one cause of action for violation of Labor Code sections 2698, et seq., the Private Attorneys General Act (“PAGA”).

Cornerstone now moves for an order compelling arbitration of Plaintiff’s Complaint; dismissing Plaintiff’s non-individual PAGA claims from the Complaint; and staying the pending litigation during the pendency of the arbitration. Plaintiff opposes.

Objection No. 1: sustained as to the words “reviewed” in the second and third sentences, overruled as to the remainder

In a motion to compel arbitration, the moving party must prove by a preponderance of evidence the existence of the arbitration agreement and that the dispute is covered by the agreement. The burden then shifts to the resisting party to prove by a preponderance of evidence a ground for denial (e.g., fraud, unconscionability, etc.). (Rosenthal v. Great Western Fin. Securities Corp. (1996) 14 Cal.4th 394, 413-414.)

Generally, on a petition to compel arbitration, the court must grant the petition unless it finds either (1) no written agreement to arbitrate exists; (2) the right to compel arbitration has been waived; (3) grounds exist for revocation of the agreement; or (4) litigation is pending that may render the arbitration unnecessary or create conflicting rulings on common issues. (Code Civ. Proc., § 1281.2; Condee v. Longwood Management Corp. (2001) 88 Cal.App.4th 215, 218-219.)

“California has a strong public policy in favor of arbitration and any doubts regarding the arbitrability of a dispute are resolved in favor of arbitration.” (Coast Plaza Doctors Hospital v. Blue Cross of California (2000) 83 Cal.App.4th 677, 686.) “This strong policy has resulted in the general rule that arbitration should be upheld unless it can be said with assurance that an arbitration clause is not susceptible to an interpretation covering the asserted dispute.” (Ibid. [internal quotations omitted].) This is in accord with the liberal federal policy favoring arbitration agreements under the Federal Arbitration Act (“FAA”), which governs all agreements to arbitrate in contracts “involving interstate commerce.” (9 U.S.C. § 2, et seq.; Higgins v. Superior Court (2006) 140 Cal.App.4th 1238, 1247.)

Cornerstone presents evidence that in or around April 20, 2021, Plaintiff was hired by Cornerstone’s client, GO RN LLC, and went through Cornerstone’s onboarding process. (Ryan Decl., ¶ 5) Cornerstone provides payroll, workers compensation, risk management, payroll taxes, and human resources services to its clients. (Ryan Decl., ¶ 3.)

Cornerstone indicates that Plaintiff signed an agreement entitled “Arbitration Agreement.” (Ryan Decl., ¶ 7, Ex. A.) The Arbitration Agreement provides, “I agree that my sole recourse for resolving any dispute with Cornerstone PEO arising under my employment, including but not limited to wage claims, shall be to arbitrate such dispute. Such arbitration shall be pursuant to the arbitration laws of the State of New Jersey and the rules, then obtaining, of the American Arbitration Association. Venue of any action shall be in New Jersey. Cornerstone PEO is based in Medford, New Jersey, and Applicant acknowledges that this agreement is to be partially performed in Medford, New Jersey.” (Ibid.)

Plaintiff asserts that Cornerstone’s Declaration of Jake Ryan lacks evidentiary foundation and support that an arbitration agreement was actually entered into by and between Plaintiff and Cornerstone. Plaintiff asserts that she did not sign the Arbitration Agreement attached as Exhibit “A” to the Declaration of Jake Ryan and does not remember signing any type of arbitration agreement during her employment with Defendants. (Castro Decl., ¶ 5.) Plaintiff also asserts that at around the time of her hire, she was given onboarding materials that she signed by pen and not by electronic signature. (Castro Decl., ¶ 6.)

Further, Plaintiff does not dispute that the Arbitration Agreement covers the claims made in the Complaint. Therefore, the burden now shifts to Plaintiff to prove a ground for denial.

Procedural unconscionability concerns the manner in which the contract was negotiated and the parties’ circumstances at that time. It focuses on the factors of oppression or surprise. (Kinney v. United Healthcare Servs. (1999) 70 Cal.App.4th 1322, 1329.) “Oppression generally takes the form of a contract of adhesion, 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.” (Carmona v. Lincoln Millennium Car Wash, Inc. (2014) 226 Cal.App.4th 74, 84 [quotations and citations omitted].) Surprise occurs “where the allegedly unconscionable provision is hidden within a prolix printed form.” (Pinnacle Museum Tower Assn. v. Pinnacle Market Development, LLC (2012) 55 Cal.4th 223, 247.)

Plaintiff contends that the Arbitration Agreement is procedurally unconscionable. Specifically, Plaintiff indicates that around the time of her hire she was given approximately 50 pages of onboarding materials by a supervisor named Taylor, who printed onboarding materials for Plaintiff to sign on the spot, which Plaintiff did by pen. (Castro Decl., ¶ 6.) Cornerstone counters that “[w]hile there may be a hint of oppression simply due to the nature of needing to sign the agreement in order to continue employment, there was certainly no surprise.” (Reply at p. 4:9-11.)

In addition, Plaintiff indicates that she was never provided a copy of the “Arbitration American Association” (“AAA”) Employment Arbitration Rules and the State of New Jersey Rules. (Castro Decl., ¶ 6.)[1] In the reply, Cornerstone cites to Lane v. Francis Capital Management LLC (2014) 224 Cal.App.4th 676, 690, where the Court of Appeal “agree[d] that the failure to attach the arbitration rules could be a factor in support of a finding of procedural unconscionability, but disagree[d] that the failure, by itself, is sufficient to sustain a finding of procedural unconscionability.” (Citing to Peng v. First Republic Bank (2013) 219 Cal.App.4th 1462, 1472 [162 Cal. Rptr. 3d 545] [‘failure to attach the AAA rules, standing alone, is insufficient grounds to support a finding of procedural unconscionability’].)

In addition, while it is true that “the existence of contract of adhesion supports a finding of procedural conscionability,” a court must still weigh the level of procedural unconscionability against any substantive unconscionability to determine whether the agreement can be enforced. (Baxter v. Genworth North America Corp. (2017) 16 Cal.App.5th 713, 723.) “When … there is no other indication of oppression or surprise, ‘the degree of procedural unconscionability of an adhesion agreement is low, and the agreement will be enforceable unless the degree of substantive unconscionability is high.’” (Serpa v. California Surety Investigations, Inc. (2013) 215 Cal.App.4th 695, 704.)

“Substantive unconscionability pertains to the fairness of an agreement’s actual terms and to assessments of whether they are overly harsh or one-sided. A contract term is not substantively unconscionable when it merely gives one side a greater benefit; rather, the term must be so one-sided as to shock the conscience.” (Carmona v. Lincoln Millennium Car Wash, Inc., supra, 226 Cal.App.4th at p. 85 [internal quotation and citation omitted].)

Plaintiff asserts that the Arbitration Agreement is also substantively unconscionable. As set forth above, the Arbitration Agreement provides, “I agree that my sole recourse for resolving any dispute with Cornerstone PEO arising under my employment, including but not limited to wage claims, shall be to arbitrate such dispute. Such arbitration shall be pursuant to the arbitration laws of the State of New Jersey and the rules, then obtaining, of the American Arbitration Association. Venue of any action shall be in New Jersey. Cornerstone PEO is based in Medford, New Jersey, and Applicant acknowledges that this agreement is to be partially performed in Medford, New Jersey.” (Ryan Decl., ¶ 7, Ex. A.)

Plaintiff asserts that the Arbitration Agreement violates Labor Code section 925, subdivision (a), which provides, “[a]n employer shall not require an employee who primarily resides and works in California, as a condition of employment, to agree to a provision that would do either of the following: (1) Require the employee to adjudicate outside of California a claim arising in California. (2) Deprive the employee of the substantive protection of California law with respect to a controversy arising in California.” Labor Code section 925, subdivision (b) provides, “[a]ny provision of a contract that violates subdivision (a) is voidable by the employee, and if a provision is rendered void at the request of the employee, the matter shall be adjudicated in California and California law shall govern the dispute.”

Plaintiff indicates that all of her work with Defendants took place in Los Angeles, California. (Castro Decl., ¶ 7.) In the reply, Cornerstone concedes that “the term requiring arbitration in New Jersey for a California resident is the only unconscionable or otherwise illegal term in the agreement.” (Reply at p. 5:10-11.) Cornerstone asserts that this term should accordingly be severed from the agreement.

In the opposition, Plaintiff cites to Fitz v. NCR Corp. (2004) 118 Cal.App.4th 702, 714, where the Court of Appeal noted that “Civil Code section 1670.5 permits a court to determine that only a portion of a contract is unconscionable and to delete or amend that portion to make the remainder of the contract enforceable: ‘[T]he court may refuse to enforce the contract, or it may enforce the remainder of the contract without the unconscionable clause, or it may so limit the application of any unconscionable clause as to avoid any unconscionable result.’” (Citing to Civ. Code, § 1670.5, subd. (a).) “In Armendariz, the Supreme Court held that Civil Code section 1670.5 gives courts discretion to determine whether to sever or restrict an unconscionable provision or refuse to enforce an arbitration agreement in its entirety.” (Fitz v. NCR Corp., supra, at p. 714.)

“The Supreme Court found two factors present in Armendariz that led it to conclude that severance of the unlawful provisions of the arbitration agreement was inappropriate in that case. First, the arbitration agreement contained more than one unlawful clause. Given the two unlawful provisions, an unlawful damages provision and an unconscionably unilateral arbitration clause, the trial court did not abuse its discretion in concluding that the arbitration agreement was ‘permeated’ by an unlawful purpose, and therefore unenforceable in its entirety. Second, the high court could identify no single provision that it could strike or restrict in order to remove ‘the unconscionable taint from the agreement.’” (Fitz v. NCR Corp., supra, 118 Cal.App.4th at p. 714 [internal citations omitted].) The Fitz Court noted that “[s]everance of the unconscionable aspects of the Armendariz agreement was not appropriate because the court would have to, in effect, reform the contract, not through severance or restriction, but by augmenting it with additional terms. Civil Code section 1670.5 does not authorize such reformation by augmentation, nor does the arbitration statute.” (Id. at p. 714-715 [internal quotations and citations omitted].)

Here, Plaintiff contends that “because unconscionability permeates the very heart of Defendant’s Arbitration Agreement, i.e. forcing California employees to arbitrate their claims in the State of New Jersey under New Jersey Arbitration laws, it cannot be cured through severance.” (Opp’n at p. 9:9-13.) But as Cornerstone notes, severing this provision from the Arbitration Agreement would “entirely remove the unconscionable taint from the agreement.” (Reply at p. 5:10-13.) In addition, Plaintiff does not assert that the Court would be required to augment the Arbitration Agreement with additional terms should it sever the provision requiring that venue of any action be in New Jersey and that arbitration be pursuant to the arbitration laws of the State of New Jersey. Accordingly, the Court finds that the following provision is appropriately stricken from the Arbitration Agreement: “Such arbitration shall be pursuant to the arbitration laws of the State of New Jersey…Venue of any action shall be in New Jersey.”

The Court finds that the level of substantive unconscionability, after severance of the offending provision, is low. In light of the finding of only a low level of procedural unconscionability, the Court finds that Plaintiff has not met her burden of demonstrating that the arbitration agreement is unconscionable.

Code of Civil Procedure section 1281.4 states that the court shall stay the action or proceeding if the court has ordered arbitration. (Code Civ. Proc., § 1281.4.) Accordingly, the case is stayed pending completion of arbitration of Plaintiff’s arbitrable claims against Cornerstone.

Cornerstone also asserts that Plaintiff’s “non-individual” PAGA claims should be dismissed. Plaintiff counters that in the event the Court finds that Plaintiff must arbitrate her individual PAGA claims, the Court should stay Plaintiff’s “non-individual” PAGA claims and not dismiss them.

In the recent case Viking River Cruises, Inc. v. Moriana, the United States Supreme Court held that “the FAA preempts the rule of Iskanian insofar as it precludes division of PAGA actions into individual and non-individual claims through an agreement to arbitrate. This holding compels reversal in this case. 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, so the agreement remains invalid insofar as it is interpreted in that manner. But the severability clause in the agreement provides that if the waiver provision is invalid in some respect, any ‘portion’ of the waiver that remains valid must still be ‘enforced in arbitration.’ Based on this clause, Viking was entitled to enforce the agreement insofar as it mandated arbitration of Moriana’s individual PAGA claim. The lower courts refused to do so based on the rule that PAGA actions cannot be divided into individual and non-individual claims. Under our holding, that rule is preempted, so Viking is entitled to compel arbitration of Moriana’s individual claim.” (Viking River Cruises, Inc. v. Moriana (2022) 142 S.Ct. 1906, 1924-1925) The Viking River Cruises Court further held that “[a]s we see it, PAGA provides no mechanism to enable a court to adjudicate nonindividual PAGA claims once an individual claim has been committed to a separate proceeding...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.” (Id. at p. 1925.)

Plaintiff notes that the concurring opinion by Justice Sotomayor in Viking River Cruises provides, “[t]he Court concludes that the FAA poses no bar to the adjudication of respondent Angie Moriana’s non-individual PAGA claims, but that PAGA itself provides no mechanism to enable a court to adjudicate non-individual PAGA claims once an individual claim has been committed to a separate proceeding…Thus, the Court reasons, based on available guidance from California courts, that Moriana lacks statutory standing under PAGA to litigate her non-individual claims separately in state court. 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 Cruises, Inc. v. Moriana, supra, 142 S.Ct. at p. 1925 [internal quotations and citations omitted].) Plaintiff asserts that the United States Supreme Court’s interpretation of PAGA standing in Viking River Cruises was incorrect. Plaintiff cites to Kim v. Reins International California, Inc. (2020) 9 Cal.5th 73, 80, where the California Supreme Court considered whether “employees lose standing to pursue a claim under the Labor Code Private Attorneys General Act of 2004 (PAGA; Lab. Code, § 2698 et seq.) if they settle and dismiss their individual claims for Labor Code violations.” The Kim Court concluded that “the answer is no. Settlement of individual claims does not strip an aggrieved employee of standing, as the state’s authorized representative, to pursue PAGA remedies.” (Ibid.) Plaintiff asserts that the Court should thus stay and not dismiss Plaintiff’s representative PAGA claims, because under Kim she retains standing pending arbitration of Plaintiff’s individual PAGA claim.

However, the Court notes that “a concurring opinion is not the opinion of the court and is not binding.” (People v. Amadio (1971) 22 Cal.App.3d 7, 14.) Thus, it appears Viking River Cruises requires the Court here to dismiss Plaintiff’s remaining non-individual PAGA claims against Cornerstone.

For the foregoing reasons, Cornerstone’s motion to compel arbitration is granted as to Plaintiff’s claims against Cornerstone only. The entire action is stayed pending completion of arbitration of Plaintiff’s arbitrable claims against Cornerstone. Cornerstone’s motion to dismiss Plaintiff’s non-individual PAGA claims is granted as to Cornerstone only.

The Court sets an arbitration completion status conference on _______________ 2022, at 10:00 a.m. in Dept. 50. The parties are ordered to file a joint report regarding the status of the arbitration five court days prior to the status conference, with a courtesy copy delivered directly to Department 50.

[1]As set forth above, the Arbitration Agreement provides in part that “…Such arbitration shall be pursuant to the arbitration laws of the State of New Jersey and the rules, then obtaining, of the American Arbitration Association.” (Ryan Decl., ¶ 7, Ex. A.)

Superior Court of California

County of Los Angeles

Department 50