Judge: William A. Crowfoot, Case: 22AHCV00578, Date: 2023-02-01 Tentative Ruling

Case Number: 22AHCV00578    Hearing Date: February 1, 2023    Dept: 3

SUPERIOR COURT OF THE STATE OF CALIFORNIA

FOR THE COUNTY OF LOS ANGELES - NORTHEAST DISTRICT

I.            INTRODUCTION

On August 12, 2022, plaintiff Trinidad Franco Lopez (“Plaintiff”) filed this action against defendant P.R. Perneky Management Corp. (“Defendant”).  Plaintiff asserts a sole cause of action for seeking civil penalties under the Private Attorneys General Act, California Labor Code §§ 2698, et seq. (“PAGA”). As Defendant has not answered the complaint, there is no trial date yet set.

On November 18, 2022, Defendant filed this instant motion to compel arbitration.

On January 9, 2023, Plaintiff filed an opposition.

On January 25, 2023, Defendant filed a reply.

II.          LEGAL STANDARD

“On petition of a party to an arbitration agreement alleging the existence of a written agreement to arbitrate a controversy and that a party thereto refuses to arbitrate such controversy, the court shall order the petitioner and the respondent to arbitrate the controversy if it determines that an agreement to arbitrate the controversy exists, unless it determines that: (a) The right to compel arbitration has been waived by the petitioner; or (b) Grounds exist for the revocation of the agreement.”  (Code Civ. Proc., §§ 1281.2(a)-(b).) “Because the existence of the agreement is a statutory prerequisite to granting the petition, the petitioner bears the burden of proving its existence by a preponderance of the evidence.” (Rosenthal v. Great Western Fin. Securities Corp. (1996) 14 Cal.4th 394, 413.) 

“California law, ‘like [federal law], reflects a strong policy favoring arbitration agreements and requires close judicial scrutiny of waiver claims.’”  (Wagner Const. Co. v. Pacific Mechanical Corp. (2007) 41 Cal.4th 19, 31.) If the court orders arbitration, then the court shall stay the action until arbitration is completed.  (See Code Civ. Proc., § 1281.4.) 

III.        DISCUSSION

Under California¿law,¿public policy favors arbitration as an efficient and less expensive means of resolving private disputes.¿  (Moncharsh v. Heily & Blasé (1992) 3 Cal.4th 1, 8-9;¿AT&T Mobility LLC v. Concepcion¿(2011) 563 U.S. 333, 339 (Concepcion).)  “To further that policy, Code of Civil Procedure, section 1281.2 requires a trial court to enforce a written arbitration agreement unless one of three limited exceptions¿applies.  Those statutory exceptions arise where (1) a party waives the right to arbitration; (2) grounds exist for revoking the arbitration agreement; and (3) pending litigation with a third party creates the possibility of conflicting rulings on common factual or legal issues.”  (Acquire II, Ltd. v. Colton Real Estate Group¿(2013) 213 Cal.App.4th 959, 967 (Acquire II), citing Code of Civ. Proc., § 1281.2, subds. (a)-(c).)  Similarly, the Federal Arbitration Act (“FAA”) reflects a liberal federal policy favoring arbitration and the fundamental principle that arbitration is a matter of contract.  (Concepcion, supra, 563 U.S. at p. 339.)  In line with these principles, courts must place arbitration agreements on an equal footing with other contracts and enforce them according to their terms.  (Id.)  “[U]nder¿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. Sup. Ct.¿(2006) 140 Cal.App.4th 1238, 1247.)¿

Accordingly, whether an agreement is governed by the California Arbitration Act (“CAA”) or the¿FAA, courts resolve doubts regarding the scope of arbitrable issues in favor of arbitration.  (Moncharsh,¿supra,¿at 3 Cal.4th at p. 9;¿Comedy Club, Inc. v. Improv West Assocs.¿(9th Cir. 2009) 553¿F.3d¿1277, 1284; see also¿Engalla¿v. Permanente Med. Grp., Inc.¿(1997) 15 Cal.4th 951, 971-972 [“California law incorporates many of the basic policy objectives contained in the Federal Arbitration Act, including a presumption in favor of arbitrability [citation] and a requirement that an arbitration agreement must be enforced on the basis of state law standards that apply to contracts in general [citation]”].)  The petitioner bears the burden of proving the existence of a valid arbitration agreement, and the opposing party bears the burden of proving any fact necessary to its defense.¿¿(Gatton v. T-Mobile USA, Inc.¿(2007) 152 Cal.App.4th 571, 579.)

A.   Existence of an Enforceable Arbitration Agreement

In determining the enforceability of an arbitration agreement, the court considers “two ‘gateway issues’ of arbitrability: (1) whether there was an agreement to arbitrate between the parties, and (2) whether the agreement covered the dispute at issue.”  (Omar v. Ralphs Grocery Co. (2004)¿118 Cal.App.4th 955, 961.)¿¿¿

“Arbitration is a product of contract.  Parties are not required to arbitrate their disagreements unless they have agreed to do so.  [Citation.]  A contract to arbitrate will not be inferred absent a¿‘clear agreement.’  [Citation.]  When determining whether a valid contract to arbitrate exists, we apply ordinary state law principles that govern contract formation.  [Citation.]  In California, a¿‘clear agreement’¿to arbitrate may be either express or implied in fact.¿ [Citation.]”  (Davis v. Nordstrom, Inc. (9th Cir. 2014) 755¿F.3d¿1089, 1092-93.)  “[T]he court is only required to make a finding of the agreement's existence, not an evidentiary determination of its validity.  (Condee v. Longwood Mgmt. Corp. (2001) 88 Cal. App. 4th 215.)

Defendant provides the following ‘Arbitration Agreement’ (“Agreement”), which provides as follows:

“The parties of this Agreement agree that any dispute in arbitration will be brought on an individual basis only. To the fullest extent permitted by law, the parties agree that they shall not join or consolidate claims submitted for arbitration under this Agreement with those of any other persons and that no form of class, collective, or representative action shall be arbitrated under this Agreement. For any class, collective or representative action, the parties agree that the Court or Arbitrator shall order arbitration to the fullest extent permitted by applicable law and stay resolution of non-arbitrable claims pending resolution of the Arbitration.”

(Haden-Avila Decl., Ex. A.)

The Agreement is dated November 11, 2019, and bears the signature of “Trinidad Franco.”  (See Haden-Avila Decl. ¶ 5, Exh. A.)  The language of the Agreement appears broad enough to cover all the causes of action against Defendant asserted by Plaintiff in the Complaint.  Specifically, the Agreement requires that any claim, dispute, and/or controversy between the Parties arising out of or relating in any way to Plaintiff’s employment be submitted to and determined exclusively by binding arbitration under the Federal Arbitration Act (“FAA”).  (See Haden-Avila Decl. ¶ 5, Exh. A, ¶ 7.)

          Plaintiff does not offer any arguments regarding the validity of the Arbitration Agreement.  Thus, the Court finds that Defendant has shown the existence of an enforceable arbitration agreement between Defendant and Plaintiff.

B.   Unconscionability

The doctrine of unconscionability refers to “an absence of meaningful choice on the part of one of the parties together with contract terms which are unreasonably favorable to the other party.”  (Sonic-Calabasas A, Inc. v. Moreno (2013)¿57 Cal.4th 1109, 1133.)  It consists of procedural and substantive components, “the former focusing on oppression or surprise due to unequal bargaining power, the latter on overly harsh or one-sided results.”  (Id.)  Although both components of unconscionability must be present to invalidate an arbitration agreement, they need not be present in the same degree.  (Armendariz v. Found. Health¿Psychcare¿Servs., Inc. (2000)¿24 Cal.4th 83, 114 (abrogated in-part on other grounds by¿Concepcion, 563 U.S. 333).)¿¿¿

“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 unconscionable the contract term, the less evidence of procedural unconscionability is required to come to the conclusion that the term is unenforceable, and vice versa.”  (Id.) “The party resisting arbitration bears the burden of proving unconscionability.”  (Pinnacle Museum Tower¿Ass’n¿v. Pinnacle Market Dev. (US) (2012) LLC,¿55 Cal.4th 223, 247.)

Plaintiff does not bring any arguments regarding the unconscionability of the agreement.  Thus, the Court finds that the Arbitration Agreement is not unenforceable due to unconscionability.

C.   Severability 

The core question here is whether this PAGA claim is subject to arbitration under the Arbitration Agreement.

PAGA is codified at Labor Code sections 2698 to 2699.5, and it authorizes aggrieved employees to file lawsuits to recover civil penalties on behalf of themselves, other employees, and the State of California for Labor Code violations.  The Legislature’s purpose in enacting the PAGA was to augment the limited enforcement capability of the Labor and Workforce Development Agency by empowering employees to enforce the Labor Code as representatives of the Agency. (Iskanian v. CLS Transportation Los Angeles, LLC (2014) 59 Cal.4th 348, 383-384.)  Under Iskanian an agreement by employees to waive their right to bring a PAGA action serves to disable one of the primary mechanisms for enforcing the Labor Code. (Id.)  Since such an agreement has as its object, indirectly, to exempt the employer from responsibility for the employer’s own violation of law, it is against public policy and may not be enforced.  (Id.)  Accordingly, an employment agreement that compels the waiver of representative claims under the PAGA is contrary to public policy and unenforceable as a matter of state law. (Id.)  Consistent with Iskanian, California courts have held that a pre-dispute agreement to arbitrate is ineffective to compel arbitration of a PAGA claim because the employee who signed the agreement was not then authorized to waive the state’s right to a judicial forum.  (Julian v. Glenair, Inc. (2017) 17 Cal.App.5th 853, 871.)

Until earlier this year, the obvious conclusion would be that the claim here is not subject to arbitration and Defendant’s motion should be denied. In its June 15, 2022, decision in Viking River Cruises, Inc. v. Moriana, 142 S.Ct. 1906 (2022) (“Viking River”) 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.” Id., at 1924. Addressing the severability of “individual” and “representative” PAGA claims, the Court held that, while “[t]he lower courts refused to do so based on the rule that PAGA actions cannot be divided into individual and non-individual claims” under the holding in Viking River, “that rule is preempted, so Viking is entitled to compel arbitration of Moriana’s individual claim.” Id., at 1925. Significantly, the Court went on to hold that “[w]hen 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.” Id. In effect, the employee would be deprived of standing to bring the PAGA action.

Based on these holdings in Viking River, Defendant urges this court to compel the arbitration of Plaintiff’s “individual” PAGA claims and to dismiss the remaining “representative” claims. What Defendant seeks is consistent with Viking River. However, Plaintiff argues that Viking River does not apply because Defendant’s Agreement does not contain a severability clause which specifically contemplates claim splitting as to PAGA claims.  Plaintiff distinguishes the severability clause in Defendant’s Agreement from the one in Viking River which narrowly focused on the class action waiver.  (See Viking River, supra, 142 S.Ct. at p. 1925 [where “the severability clause in the agreement provide[d] that if the waiver provision is invalid in some respect, any ‘portion’ of the waiver that remains valid must still be ‘enforced in arbitration’”.)  The court finds otherwise. 

There is nothing in Viking River which mandates that the severability clause specifically contemplate the waiver provision for PAGA claims or severability thereof.  Here, the severability clause contemplates severing all invalid portions, including PAGA claims, and requires that any and all provisions not deemed invalid be enforced.  This is consistent with the U.S. Supreme Court’s finding in Viking River, where “[the defendant] was entitled to enforce the agreement insofar as it mandated arbitration of [the plaintiff’s] individual PAGA claim.”  (Viking River, supra, 142 S.Ct. at p. 1925.)  Thus, this court finds that the severability clause in Defendant’s Agreement is applicable to the instant case and to be valid need not specifically contemplate claim splitting as Plaintiff contends. 

There is a compelling rationale, however, to either compel the individual PAGA claims to arbitration while staying the representative claims, or to stay the entire action until some further appellate decisions clarify the matter. Under a plain reading of Viking River, it seems no representative PAGA claim would survive the arbitration of an individual PAGA claim if the PAGA statute were interpreted to require distinct, and therefore arbitrable, individual PAGA claims for the purposes of standing. Without some form of corrective action or further interpretation, this reading would gut the purposes of the PAGA statute as explained in Iskanian. Indeed, Plaintiff has endeavored to plead its case around the Viking River holding by asserting a sole cause of action and essentially describing Plaintiff’s Labor Code grievances as coterminous with the grievances of other unnamed employees. But this court is unpersuaded that such artful pleading in fact addresses the Viking River understanding of standing under PAGA; if Plaintiff succeeds, then Plaintiff conceivably also fails by depriving itself of standing to bring either an individual or representative claim.

Both parties appear to expect possible further judicial clarification of the effect of Viking River on PAGA claim arbitration, either by the California Supreme Court in Adolph v. Uber Techs., Inc., No. G059860, 2022 WL 1073583, at *2 (Cal. Ct. App. Apr. 11, 2022), review granted (July 20, 2022) (Case No. S-274671), or by the United States Supreme Court in the event it grants a rehearing in Viking River.  Federal courts, including the United States Supreme Court, are bound by state courts’ interpretation of state law. Johnson v. U.S., 559 U.S. 133, 138 (2010) (internal citation omitted).. Viking River clashes with the California Supreme Court standing-based decision in Kim v. Reins Int’l Cal. Inc., 9 Cal.5th 73, 90-91 (Cal. 2020) (stating that “[n]othing in the legislative history suggests the Legislature intended to make PAGA standing dependent  on the existence of an unredressed injury, or the maintenance of a separate, unresolved claim. Such a condition would have severely curtailed PAGA’s availability to police Labor Code violations because, as noted, many provisions do not create private rights of action or require an allegation of quantifiable injury.”

Given the effect of Viking River on the application of PAGA, and the extent to which its holding on standing may be at odds with California state law, it is reasonable to expect further judicial clarification of the standing issue. Thus, this court will grant Defendant’s motion to compel arbitration with respect to Plaintiff’s individual PAGA claim and stay the representative claim for post-arbitration proceedings pursuant to Kim, assuming no contrary interpretations of PAGA standing by the California Supreme Court or United States Supreme Court should it rehear Viking River.

IV.         CONCLUSION

In light of the foregoing, the Court GRANTS Defendant’s Motion to Compel Arbitration in part, with respect to Plaintiff’s individual PAGA claims, and stays further proceedings with respect to Plaintiff’s representative PAGA claims.

Moving party to give notice.

Parties who intend to submit on this tentative must send an email to the Court at alhdept3@lacourt.org indicating intention to submit on the tentative as directed by the instructions provided on the court website at www.lacourt.org.  Please be advised that if you submit on the tentative and elect not to appear at the hearing, the opposing party may nevertheless appear at the hearing and argue the matter.  Unless you receive a submission from all other parties in the matter, you should assume that others might appear at the hearing to argue.  If the Court does not receive emails from the parties indicating submission on this tentative ruling and there are no appearances at the hearing, the Court may, at its discretion, adopt the tentative as the final order or place the motion off calendar.