Judge: William D. Claster, Case: 21-01218245, Date: 2022-08-12 Tentative Ruling
Defendants First American Specialty Insurance Company and First American Property & Casualty Insurance Agency's Notice of Motion and Motion to Compel Arbitration ROA 41
Defendants First American Specialty Insurance Company (“FASIC”) and First American Property & Casualty Insurance Agency, Inc. (“FAPCIA”) seek an order (1) compelling arbitration of Plaintiffs Jennifer Lee and Denny Huang’s individual PAGA claims, and (2) dismissing Plaintiffs’ representative PAGA claims without prejudice. The Court rules as follows:
An arbitration review conference will take place on March 15, 2023 at 8:30 a.m. in Department CX-104.
EVIDENTIARY MATTERS
Defendants seek judicial notice of a 2019 Form 10-K for First American Financial Corporation filed with the United States Securities and Exchange Commission. The Court declines to take notice of this document because it is not material to the Court’s ruling on this motion. (See Jordache Enterprises, Inc. v. Brobeck, Phleger & Harrison (1998) 18 Cal.4th 739, 748 fn. 6 [declining to take judicial notice of materials not “necessary, helpful, or relevant”].)
Defendants have filed evidentiary objections to Plaintiffs’ declarations. Objections 5, 7, 12, and 14 are sustained on best/secondary evidence grounds. All other objections are overruled.
GROUNDS FOR RULING
I. Factual Background
Defendants are among the subsidiaries of First American Financial Corporation (“FAFC”). FAFC and its subsidiaries, divisions, affiliates, etc. are collectively referred to as a “family” of companies. (Gibson Decl., ¶¶ 2-3.)
Plaintiffs were hired by FASIC in 2019. (Huang Decl., ¶ 2; Lee Decl., ¶ 2.) As part of the onboarding process, they were required to log into FASIC’s “KnowledgeSPOT” system and review a number of documents and training materials. (Huang Decl., ¶ 3; Lee Decl., ¶ 3.)
A. Operation of KnowledgeSPOT
Bryan Jarecky, an analyst in FAFC’s human resources department, is responsible for maintaining electronic records relating to agreements and policies acknowledged by employees of the FAFC family of companies, including Defendants here. (Jarecky Decl., ¶¶ 1-2.) These responsibilities include using the KnowledgeSPOT system “to verify that employees have completed the review and acknowledgment of policies and agreements.” (Id., ¶ 3.) Jarecky explains that in order to access KnowledgeSPOT, an employee must input his or her unique user ID and password combination. (Id., ¶ 4.) Employees are instructed not to share their user ID or password with anyone, and unauthorized use of another individual’s user ID or password is a violation of company policy. (Id., ¶ 5.) If an employee has reason to believe his or her user ID or password is being used by another person, they are required to inform information security personnel. (Ibid.)
When employees review and acknowledge agreements in KnowledgeSPOT, the system creates an electronic record of the date and time the employee completed the task. These records are maintained in the regular course of business. Jarecky is responsible for maintaining the records. (Id., ¶ 6.)
Among the agreements an employee would review and acknowledge in KnowledgeSPOT is the dispute resolution agreement, or “DRA,” at issue here. KnowledgeSPOT would prompt the employee to access the DRA, review the DRA, and upon finishing review, click a button that says “I Acknowledge.” KnowledgeSPOT’s prompt explained the effect of clicking “I Acknowledge” as follows:
By clicking on the I Acknowledge button, I hereby acknowledge that I have received, reviewed, and understand [the DRA]. [¶] I further understand and agree to the use of an electronic method of signature to demonstrate my acknowledgment of this [DRA]. [¶] Although I may elect to opt out and not be subject to the [DRA] by following the procedure described in Section 8, I understand that I am required to acknowledge receipt of this [DRA]. (Id., Ex. B [emphasis original].)
FAFC’s records show that Lee electronically acknowledged the DRA on July 16, 2019 at 9:21 a.m. (Id., Ex. D.) Records also show that Huang electronically acknowledged the DRA on April 17, 2019 at 8:11 a.m. (Id., Ex. E.) A review of FAFC’s electronic records shows no submission of an opt-out form by either Lee or Huang. (Id., ¶ 11.) To Jarecky’s knowledge, neither Lee nor Huang ever reported unauthorized use of their user ID or password. (Id., ¶ 12.) In any event, neither Lee nor Huang testifies to having reported unauthorized use.
Neither Lee nor Huang has any recollection of reviewing the DRA, but both admit the DRA was included in the onboarding documents they were required to review. (Huang Decl., ¶ 7; Lee Decl., ¶ 6.) Both admit that they “clicked through and signed the required onboarding documents.” (Huang Decl., ¶ 10; Lee Decl., ¶ 8.)
The Court finds that Plaintiffs were provided the DRA and clicked the “I Acknowledge” button, thereby acknowledging receipt, review and understanding of the DRA, including its opt-out provision.
B. Terms of DRA
The parties to the DRA are “You (the ‘Employee’) and First American Financial Corporation, including any wholly or partially owned division, affiliate or subsidiary of First American Financial Corporation (collectively, the Company’).” (Jarecky Decl., Ex. A, § 1.) As noted above, Defendants are both subsidiaries of FAFC. The DRA “requires all covered disputes to be resolved only by final and binding arbitration rather than by court, class actions, and/or jury trials.” (Ibid.) Covered disputes include, “without limitation, any dispute arising out of or related to Employee’s employment with the Company or the termination of that employment.” (Ibid.) The DRA is governed by the Federal Arbitration Act. (Ibid.)
The DRA provides that arbitration will be conducted by the American Arbitration Association “pursuant to AAA’s Employment Arbitration Rules . . . in effect as of the date either Employee or the Company initiates arbitration.” (Id., § 2.) The DRA includes a class/collective action waiver that provides:
Employee and the Company agree to bring any covered dispute in arbitration on an individual basis only, and not on a class, collective, representative, or private attorney general basis. Accordingly, neither Employee nor the Company shall bring, nor shall the arbitrator preside over, any form of class, representative, or private attorney general proceeding. . . . If a court decides that applicable law does not permit the enforcement of any of this section’s limitations as to a particular claim for relief, then that claim (and only that claim) must be severed from the arbitration and may be brought in court. (Id., § 5.)
The Employee has the right to opt out of the DRA by sending a form to human resources within 35 days after the Company delivers the DRA to the employee. (Id., § 8.) The DRA includes instructions on how to access opt-out forms. (Ibid.) Finally, the DRA provides: “Should Employee not opt out of this Agreement within 35 days after the Company mails, sends, or otherwise delivers this Agreement to Employee, continuing Employee’s employment constitutes mutual acceptance of the terms of this Agreement by Employee and the Company. Employee has the right to consult with counsel of the Employee’s choice concerning this Agreement.” (Ibid.)
II. Discussion
A. Acceptance of the DRA
Plaintiffs argue there is no binding agreement to arbitrate because they never accepted the DRA’s terms. In particular, they argue they never signed the DRA, despite being required to sign other documents during the onboarding process.
Plaintiffs are correct that a contract can be formed only if there is mutual assent. (See Chicago Title Ins. Co. v. AMZ Ins. Services, Inc. (2010) 188 Cal.App.4th 401, 422.) But Plaintiffs are wrong to suggest that mutual assent can only be established by a signature. (See Banner Entertainment, Inc. v. Superior Court (1998) 62 Cal.App.4th 348, 361 [“In other words, it is not the presence or absence of a signature which is dispositive; it is the presence or absence of evidence of an agreement to arbitrate which matters.”] [emphasis original].)
“California law permits employers to implement policies that may become unilateral implied-in-fact contracts when employees accept them by continuing their employment.” (Asmus v. Pacific Bell (2000) 23 Cal.4th 1, 11.) This principle has been recognized in the context of arbitration agreements. (See, e.g., Johnmohammadi v. Bloomingdale’s, Inc. (9th Cir. 2014) 755 F.3d 1072, 1074 [“By not opting out within the 30-day period, she became bound by the terms of the arbitration agreement.”]; Craig v. Brown & Root, Inc. (2000) 84 Cal.App.4th 416, 420 [“[A] party’s acceptance of an agreement to arbitrate may be . . . implied-in-fact where, as here, the employee’s continued employment constitutes her acceptance of an agreement proposed by her employer.”].)
Here, the DRA provides that an employee who fails to opt out within 35 days and continues his employment with Defendants has accepted the terms of the DRA. Regardless of whether they specifically recall reviewing the DRA, Plaintiffs acknowledged receiving and reviewing it. Nor is there any evidence that they opted out. Plaintiffs contend they never received an opt-out form, but the DRA contains instructions for obtaining one. (See Jarecky Decl., Ex. A, at § 8.) Importantly, Plaintiffs put on no evidence they followed those instructions and asked for a form.
Taking the above into consideration, the Court finds Plaintiffs accepted the terms of the DRA and therefore are bound by it.
B. Unconscionability
Plaintiffs argue the DRA is unconscionable and therefore unenforceable. “‘The prevailing view is that [procedural and substantive unconscionability] must both be present in order for a court to exercise its discretion to refuse to enforce a contract or clause under the doctrine of unconscionability.’ (Citation.) But they need not be present in the same degree. ‘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.’ (Citation.)” (Armendariz v. Foundation Health Psychare Services, Inc. (2000) 24 Cal.4th 83, 114.)
It appears Plaintiffs’ arguments focus almost entirely on procedural unconscionability. As a result, they arguably fail to meet their burden by failing to identify anything substantively unconscionable about the DRA. Nevertheless, the Court notes the following arguments raised by Plaintiffs.
1. Hurried Review
First, Plaintiffs argue their supervisor, Edward Levin, hurried them through the onboarding process as quickly as possible. The apparent suggestion is that Plaintiffs weren’t afforded sufficient time to review anything before clicking through. But Lee testifies that that her onboarding process took two days, and Huang testifies his took three days. (Lee Decl., ¶ 4; Huang Decl., ¶ 4.) This is more than enough time to review the DRA and other onboarding documents, even if Levin urged Plaintiffs to hurry up so they “could go ‘live’ and start making money.” (Lee Decl., ¶ 4.)
2. Failure to Advise of Right to Counsel
Second, Plaintiffs claim they were not afforded a chance to seek counsel before acknowledging the DRA. This is contradicted by the DRA itself, which provides, “Employee has the right to consult with counsel of the Employee’s choice concerning this Agreement.” (Jarecky Decl., Ex. A, at § 8.) Even if it was unrealistic to expect Plaintiffs to consult with an attorney before acknowledging receipt of the DRA, they had 35 days to consult an attorney and decide whether to opt out. (Ibid.) This is not the stuff of unconscionability.
3. Failure to Include AAA Rules
Third, Plaintiffs argue they were not provided a copy of the governing AAA Employment Arbitration Rules. As Defendants point out, “the failure to attach the AAA rules, standing alone, is insufficient grounds to support a finding of procedural unconscionability.” (Peng v. First Republic Bank (2013) 219 Cal.App.4th 1462, 1472.) Rather, the party claiming unconscionability must point to something in the missing rules that would “prevent fair and full arbitration.” (Ibid.)
Peng distinguishes Plaintiffs’ two main authorities, Fitz v. NCR Corp. (2004) 118 Cal.App.4th 702 and Harper v. Ultimo (2003) 113 Cal.App.4th 1402. In Fitz, the agreement provided the arbitration would proceed according to AAA rules, except as modified. The employer modified the AAA rules to limit the scope of discovery. Because the AAA rules weren’t included with the arbitration agreement, there was no way for the employee to tell that his discovery rights were less than what the AAA rules would ordinarily provide. This element of surprise—not the mere failure to attach the AAA rules—was procedurally unconscionable. (Peng, supra, 219 Cal.App.4th at p. 1472.) Similarly, in Harper, the agreement provided a consumer arbitration would proceed according to the rules of the Better Business Bureau, which weren’t attached. Left unstated in the agreement was that BBB rules “precluded the consumer from obtaining damages.” (Id., at p. 1471.) Because the failure to attach the BBB rules substantively limited the consumer’s recovery, it was procedurally unconscionable not to attach them. (Ibid.)
Unlike Fitz or Harper, Plaintiffs point to nothing in the missing AAA rules that would prevent them from fully and fairly arbitrating their claims. As a result, the failure to include the rules was not procedurally unconscionable.
4. Failure to Provide Opt-Out Form
Finally, Plaintiffs argue the failure to provide an opt-out form is unconscionable. But as noted above, the DRA contained express instructions on how Plaintiffs could obtain one. There is no evidence Plaintiffs ever asked for opt-out forms, let alone that they were denied forms. This is not procedurally unconscionable.
C. Whether PAGA Claims Are Covered
As Defendants correctly note, under the United States Supreme Court’s recent decision in Viking River Cruises, Inc. v. Moriana (2022) 142 S.Ct. 1906, the FAA preempts California’s former rule barring arbitration of PAGA claims to the extent that rule bars arbitration of “individual” PAGA claims (i.e., PAGA claims based on Labor Code violations personally suffered by the plaintiff). (Compare Iskanian v. CLS Transportation Los Angeles, LLC (2014) 59 Cal.4th 348.) Thus, under Viking River Cruises, Plaintiffs’ individual PAGA claims must be sent to separate arbitrations.
Plaintiffs offer two arguments to the contrary, neither of which is availing. First, they claim the DRA is silent on whether PAGA or representative claims are covered, which suggests they are not. But the DRA provides, “neither Employee nor the Company shall bring, nor shall the arbitrator preside over, any form of class, representative, or private attorney general proceeding.” (Jarecky Decl., Ex. A, at § 5 [emphasis added].)
Second, they argue that contracts must be interpreted in accordance with the law in effect at the time the parties entered into their agreement. They reason that because Iskanian was the law when they purportedly entered into the DRA, the parties must be understood to have agreed that PAGA claims cannot be compelled to arbitration. This argument cannot be reconciled with Viking River Cruises, where the United States Supreme Court ordered the parties to arbitrate the plaintiff’s individual PAGA claims based on an arbitration agreement entered into when Iskanian controlled.
Following Viking River Cruises, Plaintiffs’ individual PAGA claims are ordered to be separately arbitrated per the terms of the DRA.
D. Representative PAGA Claims/Stay of Proceedings
Defendants ask the court to stay this case while each Plaintiff’s individual PAGA claims are separately arbitrated. A stay pending completion of the arbitrations is required in these circumstances. (CCP § 1281.4.)
Finally, Defendants ask the Court to dismiss the representative portion of Plaintiffs’ PAGA claims. This request follows the conclusion of Viking River Cruises, where the majority explained that under its view of California law, plaintiffs who are ordered to arbitrate their individual PAGA claims lose standing to prosecute representative PAGA claims: “But as 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.” (Viking River Cruises, supra, 142 S.Ct. at p. 1925.)
But “construction of a state statute by a federal court does not preclude a state court from later rejecting the federal court’s conclusion.” (16 Cal.Jur.3d (2022) Courts, § 324.) As two concurrences in Viking River Cruises pointed out, the majority may well be incorrect about PAGA standing. Justice Sotomayor wrote, “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, supra, 142 S.Ct. at p. 1926 [conc. opn. of Sotomayor, J.].) And three justices noted the majority’s conclusion “addresses disputed state-law questions” and “is unnecessary to the result.” (Ibid. [conc. opn. of Barrett, J.].)
In fact, the California Supreme Court recently granted review in Adolph v. Uber Technologies, S274671, to answer this exact question. Per an order dated August 1, 2022, “The issue to be briefed and argued is limited to the following: 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 [citation] maintains statutory standing to pursue ‘PAGA claims arising out of events involving other employees’ [citation] in court or in any other forum the parties agree is suitable.”
Were the Court to dismiss the representative PAGA claims only for Adolph to reach a different conclusion than Viking River Cruises, both judicial economy and the parties’ resources would be taxed by attempts to unwind the dismissal. Furthermore, the arbitrator may decide that neither Plaintiff has suffered any of the Labor Code violations complained of, meaning neither Plaintiff has PAGA standing regardless of what happens in Adolph. For these reasons, the Court will deny the request to dismiss the representative claims without prejudice to Defendants raising the issue again when the arbitrations conclude.