Judge: William D. Claster, Case: 21-01236826, Date: 2022-09-09 Tentative Ruling
Defendant Lobel Financial Corporation's Notice of Motion and Motion to Compel Arbitration of Plaintiff's Individual Claim and Dismiss the Non-Individual Portion of her PAGA Claim ROA# 66
Defendant Lobel Financial Corporation moves to compel arbitration of Plaintiff Felicia Hernandez’s PAGA claim on an individual basis and to dismiss the representative portion of her PAGA claim. The Court rules as follows:
3. As discussed below, the Court is willing to consider a request for limited further briefing from Plaintiff given the way Defendant handled the two arbitration agreements at issue. Assuming no further briefing takes place, the Court sets an arbitration review conference for March 28, 2023.
EVIDENTIARY OBJECTIONS
Plaintiff’s objections to the Alvarez Declaration are OVERRULED as to objections 1-6 and SUSTAINED as to objections 7-11. Defendant’s objections to the Hernandez Declaration are all OVERRULED.
GROUNDS FOR RULING
I. Factual and Procedural Background
A. Execution of Arbitration Agreements
Plaintiff was employed by Defendant, a multi-state automobile financing company, from July 2017 to December 2020. (Hernandez Decl., ¶ 2; Alvarez Decl., ¶ 2.) Her onboarding process was handled by Lynda Marmolejo, an assistant branch manager. In July 2017, Marmolejo met with Plaintiff to go over documents in a new hire packet, including an arbitration agreement. Marmolejo personally witnessed Plaintiff sign the arbitration agreement. After Plaintiff signed the agreement, Marmolejo countersigned on behalf of Defendant. (1st Marmolejo Decl., ¶ 3.) This arbitration agreement (the “2017 Agreement”), as executed by Plaintiff and Marmolejo, is attached to the 1st Marmolejo Declaration as Exhibit A. Plaintiff does not specifically recall signing the 2017 Agreement, but she acknowledges signing a number of documents as part of the onboarding process. (Hernandez Decl., ¶ 3.)
In May 2019, Defendant rolled out a new arbitration agreement (the “2019 Agreement”). Marmolejo printed the 2019 Agreement in hard copy and handed it to each of her subordinates, including Plaintiff. She provided all employees, including Plaintiff, time to review the 2019 Agreement, and she asked employees to let her know if they had any questions. (2nd Marmolejo Decl., ¶ 4.) Marmolejo does not recall Plaintiff raising any questions about the 2019 Agreement. (Ibid.) As before, Marmolejo witnessed Plaintiff sign the 2019 Agreement, and after Plaintiff signed it, Marmolejo countersigned on Defendant’s behalf. (Ibid.) The 2019 Agreement is attached to the 2nd Marmolejo Declaration as Exhibit B.
B. Presentation of Agreements
Defendant’s opening papers attached only the 2017 Agreement. In opposition, Plaintiff put on evidence that before filing suit, she sent Defendant a statutory demand for inspection of her personnel records. The demand included, among other things, Plaintiff’s “[e]mployee personnel file in its entirety” and “[a]ny and all arbitration agreements signed by Ms. Hernandez.” (Silva Decl., Ex. A.) In response, Defendant produced 142 pages of records. Among the documents produced was the signature page of the 2019 Agreement—an incomplete version of a document not mentioned in Defendant’s opening papers. (Silva Decl., ¶ 3, Ex. B.)
In reply, Defendant offers the entire 2019 Agreement as an attachment to the 2nd Marmolejo Declaration, and Marmolejo testifies to its execution. However, Defendant offers no explanation for the discrepancy between its filings and its response to Plaintiff’s inspection demand.
It appears to the Court that the 2017 Agreement and 2019 Agreement are identical in all relevant respects, so the Court will refer to the 2019 Agreement in deciding this motion. However, given the circumstances in which these agreements were presented to Plaintiff and the Court, the Court is willing to entertain a request from Plaintiff for further briefing and limited discovery on this particular issue. If Plaintiff is inclined to make such a request, she should be prepared to explain to the Court why such briefing and limited discovery is likely to lead to a different result on this motion.
C. Terms of 2019 Agreement
The arbitration agreement states, “Except as otherwise specifically provided herein, any claim, dispute, and/or controversy that either party may have against the other, including but not limited to, claims related to compensation . . . based on the California Labor Code . . . shall be submitted to and determined exclusively by binding arbitration.” (2nd Marmolejo Decl., Ex. B, § 1.) The agreement “shall not apply to any dispute if an agreement to arbitrate such dispute is prohibited by law.” (Ibid.)
The agreement acknowledges that “certain claims . . . arise under laws that permit or require administrative agency action or adjudication prior to or instead of pursuit of relief in another forum.” (Id., § 2.) The agreement allows “any such claim [to] be brought before the designated administrative agency,” but once administrative remedies are exhausted, “any further action with respect thereto shall be pursued exclusively through the binding arbitration procedure set forth in this Agreement.” (Ibid.)
The agreement provides for arbitration before an arbitrator with employment law experience on the JAMS panel, with proceedings governed by the then-current JAMS Employment Arbitration Rules & Procedures. (Id., §§ 4-5.) The agreement also provides for demurrers and motions for summary judgment, and discovery that in the arbitrator’s judgment is necessary to fully explore the issues in dispute. (Id., § 6.) Defendant agrees to pay all fees that exceed what would be incurred by filing in a court of law. (Ibid.)
By signing the agreement, an employee warrants that he or she had a reasonable amount of time to review the agreement and had the right to discuss the agreement with an attorney prior to signing it. (Id., § 9.) The agreement also includes instructions for how to opt out within 30 days of execution. (Id., § 11.)
Regarding representative actions, the agreement provides, in all capitals and bold text:
THE PARTIES FURTHER AGREE THAT NEITHER PARTY MAY BRING, PURSUE, OR ACT AS A PLAINTIFF OR REPRESENTATIVE IN ANY PURPORTED REPRESENTATIVE PROCEEDING OR ACTION, OR OTHERWISE PARTICIPATE IN ANY SUCH REPRESENTATIVE PROCEEDING OR ACTION OTHER THAN ON AN INDIVIDUAL BASIS EXCEPT TO THE EXTENT THIS PROVISION IS UNENFORCEABLE AS A MATTER OF LAW.
THE PARTIES AGREE THAT ANY REPRESENTATIVE CLAIMS THAT ARE FOUND NOT SUBJECT TO ARBITRATION UNDER THIS AGREEMENT SHALL BE RESOLVED IN COURT AND ARE STAYED PENDING THE OUTCOME OF THE ARBITRATION. THE PARTIES AGREE THAT A COURT, NOT THE ARBITRATOR, SHALL DETERMINE WHETHER ANY CLAIMS MUST PROCEED ON A CLASS, REPRESENTATIVE, OR COLLECTIVE BASIS. (Id., at p. 4 [emphasis original].)
Finally, the agreement contains a severability clause. (Id., § 7.)
II. Discussion
A. Existence of Agreement
Plaintiff argues Defendant has failed to establish the existence of an arbitration agreement. The Court disagrees.
Plaintiff relies principally on Gamboa v. Northeast Community Clinic (2021) 72 Cal.App.5th 158. In Gamboa, the employer’s director of human resources attached the purported arbitration agreement to her declaration and testified it was signed by the plaintiff. The plaintiff, in opposition, said she had no recollection of the arbitration agreement and would not have signed it had she known what it meant. She also objected to the human resources director’s testimony. The trial court sustained her objections to the human resources director’s testimony and denied the employer’s motion to compel arbitration, finding the employer had not proven the existence of an agreement. (See id., at pp. 168-71.)
Were the record limited to Alvarez’s testimony, Gamboa might be controlling, particularly because the Court has sustained Plaintiff’s objections to Alvarez’s attempt to authenticate 2017 Agreement. But Defendant also relies on the testimony of Marmolejo, who states that she personally witnessed Plaintiff sign both the 2017 and 2019 Agreements. Plaintiff has not objected to this testimony. Comparing Marmolejo’s testimony about what she in fact saw (Plaintiff signing the agreement) with Plaintiff’s testimony about what she hypothetically would have done (not signed the agreement if she knew what it meant), the Court finds by a preponderance of the evidence that Plaintiff signed the 2017 and 2019 Agreements. As a result, Defendant has met its burden of showing an arbitration agreement exists.
B. 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: within thirty calendar days of signing the agreement, an employee could email a specific contact at Defendant stating in writing, “I opt out of the Arbitration Agreement.” (2nd Marmolejo Decl., Ex. B, at § 11.) If an employee opts out by the deadline, “neither Employee nor the Company will be bound by this Agreement.” (Ibid.)
Plaintiff puts on no evidence 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.
C. Application of Contract Law Principles
Plaintiff offers several reasons why foundational principles of contract law bar enforcement of the representative action waiver in the agreement. All fail to persuade the Court.
Plaintiff first argues that contracts must be interpreted to give effect to the intention of the parties at the time the contract was entered into. At the time the agreements were entered into, Viking River Cruises, Inc. v. Moriana (2022) 142 S.Ct. 1906 was several years off, and Iskanian v. CLS Transportation Los Angeles, LLC (2014) 59 Cal.4th 348 was the governing standard for PAGA waivers. Plaintiff reasons that because Iskanian was governing law, the parties could not have intended to send PAGA claims to arbitration, and application of Viking River Cruises violates this principle of contract interpretation.
Plaintiff’s argument “ignore[s] the general rule that judicial decisions are to be applied retroactively.” (Waller v. Truck Ins. Exchange, Inc. (1995) 11 Cal.4th 1, 24.) This general rule applies in the contract context. In Waller, for example, the insured sought coverage under a policy issued in 1986. The California Supreme Court found the insurer had no duty to defend based on appellate decisions handed down in 1993 and 1994. It rejected the insured’s contention that these decisions couldn’t be applied retroactively to a contract from 1986. (Id., at pp. 24-25.)
Plaintiff next argues the arbitration agreement does not waive any PAGA rights. As noted above, the agreement contains an explicit representative action waiver. Plaintiff admits “PAGA claims are brought on behalf of the State of California” (Opp. at p. 7), but she nevertheless argues PAGA claims are not representative actions. The Court disagrees. Both the United States Supreme Court and the California Supreme Court describe PAGA actions as “representative.” (See Viking River Cruises, supra, 142 S.Ct. at p. 1914 [“California precedent holds that a PAGA suit is a ‘representative action’ in which the employee sues as an ‘agent or proxy’ of the State.”]; Arias v. Superior Court (2009) 46 Cal.4th 969, 985 [referring to “a representative action brought by an aggrieved employee under the Labor Code Private Attorneys General Act of 2004”].) PAGA actions are representative actions, so they are covered by the representative action waiver.
For the same reason, the Court rejects Plaintiff’s final argument on this point, that the waiver is ambiguous and must be construed in her favor. PAGA actions are representative actions, so there is no ambiguity about whether they are covered by the representative action waiver.
D. Wholesale Waiver Prohibition
Plaintiff next argues that Defendant’s reading of the representative action waiver amounts to a wholesale waiver of PAGA claims, which is still improper under Iskanian, even after Viking River Cruises. (See Viking River Cruises, supra, 142 S.Ct. at pp. 1924-1925.) This argument overlooks both the severability clause in the agreement (2nd Marmolejo Decl., Ex. B, at § 7) and the representative waiver itself, which applies “except to the extent that this provision is unenforceable as a matter of law.” (Id., at p. 4 [capitalization and emphasis omitted].) The agreement at issue in Viking River Cruises had both a wholesale PAGA waiver and a severability clause, and the United States Supreme Court read those provisions together to avoid the wholesale PAGA waiver forbidden by Iskanian. (Viking River Cruises, supra, 142 S.Ct. at pp. 1924-25.)
E. Further Proceedings
Defendant asks the Court to dismiss the representative portion of Plaintiff’s PAGA claim. This request follows the conclusion of Viking River Cruises, where the majority explained that under its view of California law, plaintiffs 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 Plaintiff hasn’t suffered any of the Labor Code violations complained of, meaning Plaintiff lacks PAGA standing regardless of what happens in Adolph. For these reasons, the Court denies the request to dismiss the representative claim without prejudice to Defendant raising the issue again when Plaintiff’s arbitration concludes. The case will be stayed pending resolution of the arbitration.