Judge: William D. Claster, Case: 22-01264401, Date: 2022-09-22 Tentative Ruling
Defendant Capstone Financial Partners, LLC's Petition to Compel Arbitration #13
Defendant Capstone Financial Partners, LLC (“Capstone”), the sole moving party on this petition, seeks an order (1) compelling individual arbitration of Plaintiff Alexandra Kelly Wolstrup’s claims, including the individual portion of her PAGA claim, and (2) dismissing the representative portion of her PAGA claim.
I. Factual Background
Defendants in this matter are Capstone, Capstone Partners Financial & Insurance Services, LLC, Capstone Partners—Mass Mutual, and Van Hess (a natural person). It appears from the complaint that Capstone is the partner company, and the other two entities are its affiliates or subsidiaries. Plaintiff was employed by Capstone as an administrative assistant. Hess, a principal of Capstone, was her direct supervisor. (See generally Compl.) Plaintiff alleges that all Defendants are agents of one another. (Compl. ¶ 12.)
In June 2022, Plaintiff filed the present action, bringing a PAGA claim and a number of individual wage-and-hour claims against the defendants. She does not bring any class claims. Capstone—the only defendant to appear so far—responded by filing the present petition to compel arbitration.
Capstone contends that Plaintiff executed an arbitration agreement, attached to the MacDiarmid Declaration as Exhibit A. In her opposition, Plaintiff does not contest the formation or existence of the agreement, so the Court finds Capstone has carried its burden to prove the existence of the agreement.
The agreement contains the following relevant terms:
“Employee, the Company, and PEO [defined elsewhere as G&A Partners, not a party to this case] agree that any claim, dispute, and or controversy that Employee may have against the Company (or its owners, directors, officers, managers, employees, or agents) . . . or that the Company . . . may have against Employee, shall be submitted to and determined exclusively by arbitration under the Federal Arbitration Act . . . in conformity with the procedures of the California Arbitration Act.” (MacDiarmid Decl., Ex. A, at p. 1.) The agreement expressly covers all disputes “based on . . . statute,” including “the California Labor Code,” with a carve-out for “claims that are not subject to arbitration under current law.” (Ibid.)
The agreement includes a blanket class and representative action waiver. It also includes a more specific provision relating to PAGA claims, which provides that if a PAGA claim is unwaivable and may be pursued in court, the PAGA claim must be stayed until the resolution of claims that are arbitrable. (Id., at p. 2.) The agreement contains a severability clause. (Ibid.)
II. Discussion
Initially, while no party discusses the effect of the arbitration agreement on the other Capstone entities or Hess, the Court notes that all named defendants are alleged to be agents of one another (Compl. ¶ 12), and the arbitration agreement covers claims between the employee, the company, and the company’s agents. (MacDiarmid Decl., Ex. A, at p. 1.) Because the remaining defendants are all allegedly agents of Capstone, and because the agreement covers Capstone’s agents, the agreement covers Plaintiff’s dispute with all named defendants. (See Dryer v. Los Angeles Rams (1985) 40 Cal.3d 406, 418 [“If, as the complaint alleges, the individual defendants, though not signatories, were acting as agents for the Rams, then they are entitled to the benefit of the arbitration provisions.”].)
Again, Plaintiff does not contest the existence or enforceability of the agreement as written. She makes two arguments in opposition: that the agreement is unenforceable as a result of Capstone’s litigation conduct, and that if the agreement is enforceable, the representative portion of the PAGA claim should be stayed rather than dismissed.
A. Waiver
Plaintiff contends that under Morgan v. Sundance (2022) 142 S.Ct. 1708, 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 Court questions whether Morgan actually so holds, or whether this language simply describes the Eighth Circuit’s waiver test stripped of its arbitration-specific prejudice requirement. (See ibid. [“Stripped of its prejudice requirement, the Eighth Circuit’s current waiver inquiry would focus on Sundance’s conduct. Did Sundance, as the rest of the Eighth Circuit’s test asks, knowingly relinquish the right to arbitrate by acting inconsistently with that right?”].) The Court assumes, for the sake of argument, that Plaintiff accurately describes the holding of Morgan.
Assuming Morgan sets forth a two-factor waiver analysis, Plaintiff bears the burden of proving Capstone has waived its right to compel arbitration. (See St. Agnes Medical Center v. PacifiCare of California (2003) 31 Cal.4th 1187, 1195 [citing the FAA].) She has not met that burden here.
The sole argument for waiver is that on August 2, 2022—the same day this motion was filed—Capstone served form interrogatories and requests for production of documents on Plaintiff. Plaintiff cites no evidence showing that Capstone in fact served discovery, but Capstone concedes it did on reply, so the Court accepts that concession. The mere service of discovery, however, is not necessarily inconsistent with the right to compel arbitration. As St. Agnes notes, waiver happens when a party “tak[es] advantage of judicial discovery procedures not available in arbitration.” (Id., at p. 1196 [emphasis added].)
The arbitration agreement here provides that CCP § 1283.05 governs discovery. That is, the parties are entitled to the entire universe of discovery provided by the Civil Discovery Act, just as they would be in a court of law. Plaintiff has not entered the discovery requests into the record for the Court to evaluate whether any of the propounded discovery exceeds what is permissible in the arbitration proceeding. As a result, Plaintiff fails to carry her burden to show waiver and the arbitration agreement is enforceable.
B. Further Proceedings
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.)
In addition to the stay, Capstone 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 Capstone raising the issue again when Plaintiff’s arbitration concludes.