Judge: William D. Claster, Case: 22-01255939, Date: 2022-09-30 Tentative Ruling
1. Defendant Specialty Restaurants Corporation's Notice of
Motion to Compel Arbitration and Dismiss Plaintiff's Complaint ROA 21
2. Status Conference
Defendant Specialty Restaurants Corporation moves for an order (1) compelling arbitration of the individual portion of Plaintiff Paul Hailey’s PAGA-only complaint, and (2) dismissing the representative portion of Plaintiff’s PAGA claim. The Court rules as follows:
An arbitration review conference will take place in Department CX-104 on April 17, 2023 at 8:30 a.m.
I. Factual Background
Plaintiff was employed by Defendant as a bartender from 2019 to 2022. (Hailey Decl., ¶ 2.) He admits that as part of his onboarding, he was required to sign an arbitration agreement. (Id., ¶ 3.) He claims that he was given ten minutes to review it at the end of his shift, and he was given no opportunity to negotiate its terms. (Id., ¶¶ 4, 6.) He adds that he was never told he could opt out. (Id., ¶ 7.)
Defendant’s regional manager Jake Rossman explains that the arbitration agreement is actually contained in Defendant’s employee manual, and that Plaintiff formed the agreement by signing a “receipt and acknowledgment” for the employee handbook. (See Rossman Decl., Ex. A [signed receipt], Ex. B [relevant excerpts from handbook].) Because both sides agree Plaintiff signed a document that required arbitration of disputes, the Court finds Defendant has met its burden to prove the existence of an agreement to arbitrate.
The agreement provides, “Any controversy, dispute or claim between any employee and the Company, or its officers, agents or other employees, subsidiaries, affiliates, parent, or sister corporations, shall be settled by binding arbitration, at the request of either party.” (Rossman Decl., Ex. B, at p. 18.) It explains that the FAA governs the agreement. (Ibid.) It covers “claims for wages and other compensation” and “claims for violation of any . . . state . . . statute.” (Ibid.)
The agreement contains a class action/PAGA waiver:
To the maximum extent permitted by law, employee hereby waives any right to bring on behalf of persons other than him/herself, or to otherwise participate with other persons in, any class, collective, or representative action (including but not limited to any representative action under the California Private Attorneys General Act (“PAGA”), or other federal, state or local statute or ordinance of similar effect). Employee understands, however, that to the maximum extent permitted by law employee retains the right to bring claims in arbitration, including PAGA claims, for themselves as an individual (and only for themselves). (Id., at p. 19.)
The agreement provides for limited modification: “Only the Company President and/or the Chief Operating Officer of Specialty Restaurants may modify this policy in a signed writing and only as is necessary to make this policy enforceable under any federal, state, or local law or other applicable case law effective after this policy's initial dissemination to its workforce. Otherwise, no employee can modify this policy in any manner or enter into any agreement that is contrary to this policy.” (Ibid.) Finally, the agreement contains a severability clause. (Id., at pp. 19-20.)
Plaintiff filed this PAGA-only action in April 2022. Shortly after the United States Supreme Court’s decision in Viking River Cruises, Inc. v. Moriana (2022) 142 S.Ct. 1906, Defendant moved to compel arbitration.
II. Enforceability
Plaintiff contends the arbitration agreement 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.)
A. Procedural Unconscionability
The Court agrees with Plaintiff that the contract is procedurally unconscionable. His testimony establishes that it was a contract of adhesion: a take-it-or-leave it condition of employment he had no opportunity to negotiate. In reply, Defendant argues Plaintiff fails to establish he had no chance to discuss the terms of the agreement. But discussion isn’t the same as negotiation. As one of Defendants’ authorities puts it, adhesion turns on whether there is a chance for “arms’ length negotiating on the subject.” (Steven v. Fidelity & Cas. Co. of New York (1962) 58 Cal.2d 862, 883.) Whether Plaintiff could ask a supervisor questions about the agreement says nothing about whether he had the ability to negotiate its terms.
B. Substantive Unconscionability
For the agreement to be unenforceable, it must also be substantively unconscionable. Plaintiff fails to establish substantive unconscionability.
First, Plaintiff argues the agreement is substantively unconscionable because the modification clause renders it illusory. (See Asmus v. Pacific Bell (2000) 23 Cal.4th 1, 15 [“when a party to a contract retains the unfettered right to terminate or modify the agreement, the contract is deemed to be illusory”].) This argument fails because Defendant’s right to modify the contract isn’t unfettered. Defendant’s president or COO may unilaterally modify the agreement, but “only as is necessary to make this policy enforceable under any federal, state, or local law or other applicable case law effective after this policy’s initial dissemination to its workforce.” (Rossman Decl., Ex. B, at p. 19.) The right to unilateral modification is limited to circumstances where the agreement must be changed to comply with subsequent changes to the law.
Second, Plaintiff argues the agreement contains a wholesale waiver of PAGA claims, which remains unenforceable under Viking River Cruises. (See Viking River Cruises, supra, 142 S.Ct. at pp. 1924-1925 [citing Iskanian v. CLS Transportation Los Angeles, LLC (2014) 59 Cal.4th 348].) Plaintiff misreads the class/PAGA waiver, which applies only “[t]o the maximum extent permitted by law.” (Rossman Decl., Ex. B, at p. 19.) Furthermore, the agreement contains a severability clause. (Id., at pp. 19-20.) In similar circumstances, Viking River Cruises read a PAGA waiver and a severability clause together to avoid the wholesale PAGA waiver forbidden by Iskanian.
III. Further Proceedings
Following Viking River Cruises, the individual portion of Plaintiff’s PAGA claim is ordered to arbitration. Under both the Federal Arbitration Act and the California Arbitration Act, this case must be stayed until the completion of Plaintiff’s arbitration. (9 U.S.C. § 3; CCP § 1281.4.)
Defendant also 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.”
In reply, Defendant seeks to avoid state law issues entirely. It contends dismissal of the representative PAGA claim is required by Part III of the majority opinion in Viking River Cruises, which concerns FAA preemption. The Court disagrees. Part III held that FAA preemption requires the splitting of a PAGA claim into individual and representative components, along with the arbitration of the individual component of a PAGA claim. Part IV addressed “what the lower courts should have done with Moriana’s non-individual claims.” (Viking River Cruises, supra, 142 S.Ct. at p. 1925.) The majority’s answer to that question turns on its interpretation of PAGA standing requirements, not the FAA. (Ibid.)
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 proper course is to deny the request to dismiss the claims without prejudice to that request being renewed upon conclusion of Plaintiff’s individual arbitration.