Judge: William D. Claster, Case: 21-01229647, Date: 2022-09-09 Tentative Ruling
Defendants Smile Brands Inc., Smile Brands Finance, Inc., and Smile Brands Group, Inc.'s Motion to Compel Arbitration of Plaintiff's Individual PAGA Claims and to Dismiss the Action and Notice of Stay ROA # 143
Defendants Smile Brands Inc.; Smile Brands Finance, Inc.; and Smile Brands Group, Inc. move to compel arbitration of the individual portion of Plaintiff Silvia Soler’s PAGA claim and to either dismiss or stay the representative portion of her PAGA claim. The motion is GRANTED. The individual portion of Plaintiff’s claim is to be arbitrated, and the representative portion of Plaintiff’s claim is stayed pending the resolution of the arbitration. An arbitration review conference will take place on March 29, 2023 at 8:30 a.m.
EVIDENTIARY OBJECTIONS
All of Plaintiff’s evidentiary objections are OVERRULED. Defendants’ objection to Plaintiff’s declaration is OVERRULED. Defendants’ objections to the declaration of Amir Nayebdadash are all SUSTAINED.
GROUNDS FOR RULING
I. Factual Background
A. Execution of Agreement
Mary Phillips, Defendants’ Senior Manager, Learning & Development, testifies that Defendant maintains an online internal training system, “Smile U,” that includes both online course trainings and online policy review and acknowledgments for employees. (Phillips Decl., ¶ 7.) In order to access Smile U, employees such as Plaintiff must enter their name and a confidential, individually created password. (Ibid.) No employee of Defendants can complete trainings or forms on another employee’s behalf. (Ibid.) Defendants’ arbitration agreement is presented to employees in Smile U as a “required course” that must be completed as a condition of employment. (Ibid.)
When the arbitration agreement is presented to an employee, he or she must acknowledge reviewing it. Smile U prevents the acknowledgment checkbox from being checked until the employee has scrolled through the entire arbitration agreement. (Id., ¶ 8.) Once the agreement has been scrolled through, the employee can check a box that says, “Check the box to acknowledge and agree.” (Ibid.) Once the arbitration agreement is acknowledged and agreed to, an employee can access a copy of it in the “Courses I Have Done” section of his or her Smile U portal. (Ibid.)
Smile U automatically generates a “training record” that logs activity on an employee’s Smile U account. (Id., ¶ 9.) These records cannot be altered by any employee of Defendants. (Ibid.) Plaintiff’s training record shows that on October 20, 2017, she completed the acknowledgement for the arbitration agreement. (Id., Ex. C.)
Plaintiff does not dispute any of the foregoing. She testifies that she was required to complete numerous online trainings and that she was required to log in to Smile U to complete the trainings. (Soler Decl. ¶¶ 3-4.) Soler asserts that she felt time pressure to complete trainings as quickly as possible, and that no one ever explained the purpose of the trainings to her. (Id., ¶¶ 6-7.) She testifies that she never received a copy of her online trainings and that she had no opportunity to negotiate anything in the online trainings. (Id., ¶¶ 8-9.) Finally, she states that she has no recollection of acknowledging an arbitration agreement. (Id., ¶ 10.)
Taking all of the above into consideration, the Court finds Plaintiff acknowledged and agreed to the form of arbitration agreement attached to the Phillips Declaration as Exhibit A, even if she has no specific recollection of doing so.
B. Terms of Arbitration Agreement
The arbitration agreement provides that “Employee and Company both agree all legal disputes between them” shall be arbitrated, specifically including claims regarding “wages, overtime, benefits, or other compensation.” (Phillips Decl., Ex. A, § 1.) The agreement is governed by the Federal Arbitration Act, not state law. (Id., § 2.) “[C]laims for which this Agreement would be invalid as a matter of law” are excluded from arbitration. (Ibid.)
Arbitrations under the agreement are governed by the AAA’s Employment Arbitration Rules and FRCP 68 (which provides for offers of judgment). (Id., § 5.) The agreement “prohibits the arbitrator from consolidating the claims of others into one proceeding, to the maximum extent permitted by law. This means that an arbitrator shall hear only individual claims and is prohibited from fashioning a proceeding as a . . . representative . . . action . . . to the maximum extent permitted by law.” (Id., § 7.)
Defendants are responsible for paying all costs unique to arbitration (i.e., those costs that would not be incurred in court). (Id., § 8.) Except as provided by FRCP 68, each party is responsible for paying its own attorneys’ fees and any costs not unique to arbitration (i.e., those costs that would be incurred in court, such as court reporter fees for a deposition). (Ibid.)
The arbitration agreement contains a severability clause. (Id., § 9.) Finally, it contains an opt-out clause with instructions on how an employee may opt out of arbitration within 30 days of acknowledging the agreement. (Id., § 10.)
II. Waiver
Plaintiff argues Defendants have waived the ability to compel arbitration by litigation conduct. The Court disagrees.
Because the agreement states it is governed by the FAA, and because Defendants operate throughout the United States (see Phillips Decl., ¶ 5), the FAA applies to this agreement. As a result, the relevant standard for waiver is Morgan v. Sundance (2022) 142 S.Ct. 1708. Under Morgan, a party to an arbitration agreement governed by the FAA waives its right to compel arbitration if it (1) knows of an existing right to arbitration, and (2) acts inconsistently with that right. (Id., at p. 1714.) The St. Agnes factors, such as prejudice to the non-moving party or engaging in the machinery of litigation, play no role in the Morgan analysis.
Following Morgan, waiver can only be found if a party knows of an existing right to arbitration. Before last June’s decision in Viking River Cruises, Inc. v. Moriana (2022) 142 S.Ct. 1906, no such right existed. PAGA claims could not be waived or compelled to arbitration under Iskanian v. CLS Transportation Los Angeles, LLC (2014) 59 Cal.4th 348. Viking River Cruises held, for the first time, that a PAGA claim could be split into “individual” and “representative” components, and the individual portion could be compelled to arbitration under a PAGA waiver. (Viking River Cruises, supra, 142 S.Ct. at p. 1925.) Until Viking River Cruises was handed down, Defendants had no right to compel arbitration. There was nothing to waive. Defendants filed this motion roughly a month after Viking River Cruises was decided. Defendants’ only post-Viking River Cruises litigation conduct described in the Nayebdadash Declaration concerns responding to pre-Viking River Cruises discovery requests after the Court suggested Defendants’ conduct might be sanctionable. The Court does not believe responding to discovery under threat of sanction is so inconsistent with arbitration as to waive the right to compel arbitration.
III. Unconscionability
Plaintiff argues the arbitration agreement is unconscionable and thus unenforceable. Both procedural and substantive unconscionability must be present in order for a court to refuse to enforce a contract on the grounds that it is unconscionable. (See Armendariz v. Foundation Health Psychare Services, Inc. (2000) 24 Cal.4th 83, 114.) “A procedural unconscionability analysis ‘begins with an inquiry into whether the contract is one of adhesion.’ An adhesive contract is standardized, generally on a preprinted form, and offered by the party with superior bargaining power ‘on a take-it-or-leave-it basis.’” (OTO, L.L.C. v. Kho (2019) 8 Cal.5th 111, 126.)
The arbitration agreement in this case is not a contract of adhesion. While it was standardized, on a preprinted form, and drafted by the party with superior bargaining power, it was not offered on a take-it-or-leave-it basis. To the contrary, it contains explicit instructions for opting out: “Employee may opt-out of this Agreement by delivering, within 30 days of the date this Agreement is provided to Employee, a completed and signed Opt-Out Form to Company’s senior Human Resources officer at Company’s headquarters. An Opt-Out Form is available from Human Resources upon request.” (Phillips Decl., Ex. A, § 10.)
Plaintiff does not contend that she attempted to opt out but was denied. The Court therefore concludes she was free to reject the arbitration agreement. Because she was free to reject the arbitration agreement, it is not adhesive. And because it is not adhesive, the arbitration agreement is not procedurally unconscionable. Since both procedural and substantive unconscionability must be present to find a contract unenforceable, the lack of procedural unconscionability means Plaintiff’s argument fails.
IV. Further Proceedings
Following Viking River Cruises, Plaintiff is ordered to individually arbitrate the individual portion of her PAGA claim. Defendants ask that the Court either dismiss the representative portion of Plaintiff’s PAGA claim or stay it pending the outcome of her arbitration. The Court will choose the latter option. The representative portion of Plaintiff’s PAGA claim is stayed until resolution of her arbitration.