Filed 10/31/19 Ely v. Walnut Creek Associates 2, Inc. CA1/1

NOT TO BE PUBLISHED IN OFFICIAL REPORTS

California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

FIRST APPELLATE DISTRICT

DIVISION ONE

LANDEN ELY,

Plaintiff and Respondent,

v.

WALNUT CREEK ASSOCIATES 2, INC., et al.,

Defendants and Appellants.

A153985

(Contra Costa County

Super. Ct. No. C 16-00996)

Plaintiff Landen Ely filed a complaint alleging a single cause of action under the Labor Code Private Attorneys General Act of 2004 (Lab. Code, § 2698 et seq.; PAGA). The complaint sought to recover civil penalties under section 558, subdivision (a), which includes both a set fine and the recovery of underpaid wages. Defendants Walnut Creek Associates 2, Inc. (doing business as Walnut Creek Honda), Gordon S. Walton, Steve Sklavos, and David Trzesniewski (jointly, defendants) moved to compel arbitration of Ely’s request for underpaid wages under section 558, subdivision (a). The trial court found such claims were not arbitrable and denied the motion. On appeal, defendants argue the trial court erred in concluding unpaid wages constituted a civil penalty not subject to arbitration. Although we adopt a partially different analysis than that applied by the trial court, we affirm the order denying defendants’ motion to compel arbitration.

I. BACKGROUND

Defendant Walnut Creek Associates 2, Inc. employed Ely as an automobile technician at its car dealership. At the time he was hired, Ely signed an arbitration agreement, which stated in relevant part: “[T]his Agreement is intended to apply to the resolution of disputes that otherwise would be resolved in a court of law or before a forum other than arbitration. This Agreement requires all such disputes to be resolved only by an arbitrator through final and binding arbitration and not by way of court or jury trial. . . . [¶] Except as it otherwise provides, this Agreement also applies, without limitation, to disputes regarding the employment relationship, . . . compensation, breaks and rest periods, . . . and state statutes, if any, addressing the same or similar subject matters, and all other state statutory and common law claims.”

Ely subsequently filed a complaint asserting a single PAGA cause of action. The complaint asserts it is brought “on behalf of [Ely] as a private attorney general representing the claims of the State of California,” and “is not adjudicating any claims of employees, including [his] own.” The complaint alleges various Labor Code violations and seeks civil penalties and unpaid wages. Specifically, the complaint seeks “civil penalties due from all Defendants on behalf of themselves, other aggrieved employees and the State, as provided by Labor Code § 2699[, subdivision] (i), including but not limited to, penalties and unpaid wages due pursuant to Labor Code § 558 and § 1197.1 . . . .” The complaint also prays to recover such damages for a three-year time period prior to the filing of Ely’s PAGA letter with the Labor and Workforce Development Agency (LWDA).

Approximately a year after the complaint was filed, the Fifth and Fourth District Courts of Appeal decided a pair of cases addressing whether a representative PAGA claim seeking underpaid wages pursuant to section 558 was subject to arbitration. In Esparza v. KS Industries, L.P. (2017) 13 Cal.App.5th 1228, 1246 (Esparza), the Fifth Appellate District concluded such underpaid wage claims are subject to arbitration. Conversely, the Fourth Appellate District in Lawson v. ZB, N.A. (2017) 18 Cal.App.5th 705, 725 (Lawson) concluded such claims are not subject to arbitration.

Defendants subsequently moved to compel arbitration based on Esparza, supra, 13 Cal.App.5th 1228, and argued Ely’s claim for underpaid wages under section 558 was subject to arbitration under the Federal Arbitration Act (9 U.S.C. § 1 et seq.; FAA). Specifically, defendants noted Iskanian v. CLS Transportation Los Angeles, LLC (2014) 59 Cal.4th 348 (Iskanian) only exempted from arbitration PAGA actions in which “the state is the real party in interest and judgment is binding on the state and monetary penalties largely would go to the state coffers.” Defendants argued “ ‘PAGA representative claims for civil penalties are limited to those where a portion of the recovery is allocated to the [LWDA].’ ” Because section 558 awards all underpaid wages to the employee, defendants argued any claim for such underpaid wages does not amount to a “ ‘PAGA representative claim[] for civil penalties’ ” because those wages “ ‘are not allocated in this manner.’ ” Defendants thus claimed any underpaid wage claim arising from section 558, such as the underpaid wages sought by Ely, is subject to arbitration.

Ely opposed the motion to compel arbitration. He argued the court should follow Lawson, supra, 18 Cal.App.5th 705, and conclude section 558 provided for a single civil penalty, of which the underpaid wages sought were a part of, and thus within, the scope of the representative PAGA action. Ely asserted section 558 does not provide for a private right of action, and any argument that the civil penalties, as a whole, would not largely go to the LWDA is mere conjecture.

The trial court denied defendants’ motion to compel arbitration. In assessing whether to follow Lawson or Esparza, the court found Lawson “to be a more persuasive reading of section 558 and a more persuasive application of Iskanian.” The court first noted “the text of section 558 itself refers to the $50 or $100 assessment in addition to” the underpaid wages, “as ‘a civil penalty.’ ” The court declined to find the phrase “a civil penalty” to be “mere ‘semantics.’ ” The court noted it “is required to assume that when the Legislature enacted PAGA, it was aware that section 558 used the phrase ‘civil penalties,’ ” and the use of that phrase in both section 558 and PAGA was purposeful. Next, the court agreed with Lawson’s conclusion that, prior to PAGA, there was no private right of action under section 558 and the complaint thus must be pursuant to the authority granted by PAGA. Finally, the court explained it “is required to effectuate the purpose of the law.” The court concluded, “reading section 558 together with PAGA compels the conclusion that PAGA was intended to permit aggrieved employees to seek the entirety of the civil penalty provided for by section 558 as a civil penalty under PAGA. In so doing, an aggrieved employee is enforcing section 558 as a representative of the LWDA. Accordingly, under Iskanian and Betancourt v. Prudential Overall Supply (2017) 9 Cal.App.5th 439, 447, among other cases, the Court cannot compel a section 558 claim to arbitration.” Defendants timely appealed.

II. DISCUSSION

The parties do not dispute the FAA would govern any private action brought by Ely to recover wages. Likewise, the parties do not dispute Iskanian exempted from arbitration those actions where the state is the real party in interest. At issue is whether the claim brought by Ely is subject to arbitration under the FAA.

A. Standard of Review

“The denial of a motion to compel arbitration is an appealable order. [Citation.] If the trial court’s decision to deny a motion to compel arbitration is based solely on a decision of law, a de novo standard of review is employed.” (Hernandez v. Ross Stores, Inc. (2016) 7 Cal.App.5th 171, 176.)

B. The Supreme Court’s Opinion in ZB, N.A. v. Superior Court

On September 12, 2019, the California Supreme Court issued its opinion in ZB, N.A. v. Superior Court (2019) 8 Cal.5th 175 (ZB, N.A.), which resolved the appeal from Lawson, supra, 18 Cal.App.5th 705. The Supreme Court concluded “the civil penalties a plaintiff may seek under section 558 through the PAGA do not include the ‘amount sufficient to recover underpaid wages.’ ” (ZB, N.A., at p. 182.) In separating underpaid wages from the civil penalties set forth in section 558, the court discussed the unique purpose of civil penalties and the varying enforcement mechanisms available to obtain different remedies. Unpaid wages, the court explained, could be recovered “directly through a private civil action,” via “a wage complaint with the Labor Commissioner, seeking administrative relief,” which could result in an administrative hearing or a civil action, or an enforcement action by the Division of Labor Standards Enforcement’s Bureau of Field Enforcement. (ZB, N.A., at p. 186.) The court explained “[t]he PAGA neither added to nor subtracted from these procedures for securing employees’ unpaid wages.” (Ibid.) Conversely, prior to PAGA, civil penalties could only be sought by the Labor Commissioner. (ZB, N.A., at p. 186.) While PAGA now “makes civil penalties equally recoverable through a civil action brought by an aggrieved employee,” pursuing such penalties “does not prevent an employee from separately or concurrently pursuing unpaid wages and other remedies already available to her.” (ZB, N.A., at pp. 186–187.)

In considering the broader statutory scheme providing different enforcement mechanisms for unpaid wages and civil penalties, the court concluded interpreting section 558 as authorizing “only the Labor Commissioner to issue a citation that includes both a civil penalty and the same unpaid wages . . . . best harmonizes section 558 with the procedural provisions in section 1197.1, with analogous remedies elsewhere in the Labor Code, and with the broader enforcement scheme for unpaid wages.” (ZB, N.A., supra, 8 Cal.5th at p. 188.)

The California Supreme Court then applied its analysis to the Court of Appeal’s decision in Lawson. It explained the Court of Appeal “was operating on the faulty premise that section 558’s civil penalty includes unpaid wages” when it determined the motion to compel arbitration should have been denied. (ZB, N.A., supra, 8 Cal.5th at p. 197.) However, the California Supreme Court concluded the Court of Appeal properly ordered the trial court to deny the motion to compel because “section 558 has no private right of action.” (Ibid.) In other words, because “a PAGA claim does not include unpaid wages under section 558,” the defendant’s motion to compel arbitration “concerned relief that was not cognizable under the sole cause of action in Lawson’s complaint.” (ZB, N.A., at p. 198.)

C. Analysis

Past Courts of Appeal and federal courts have split on whether an action seeking “civil penalties” under section 558 constitutes a representative action under the PAGA not subject to arbitration. (See, e.g., Zakaryan v. The Men’s Wearhouse, Inc. (2019) 33 Cal.App.5th 659, 665, review granted July 10, 2019, S255610 [“courts may not split a solitary PAGA claim and send it to two different fora”]; Whitworth v. SolarCity Corp. (N.D.Cal. 2018) 336 F.Supp.3d 1119, 1123–1126 [concluding Lawson “is most consistent with the language and history of section 558[, subdivision] (a) and Iskanian”]; Brier v. Gamestop Corp. (N.D.Cal. Oct. 25, 2017, No. 17-cv-01856-RS) 2017 WL 10442697, *4 [declining to split the § 558 unpaid wages portion of plaintiff’s PAGA claim from the remainder of the PAGA claim]; Mandviwala v. Five Star Quality Care, Inc. (9th Cir. 2018) 723 Fed.Appx. 415, 417 [“We find Esparza to be more consistent with the ruling of Iskanian.”]; Cabrera v. CVS Rx Services, Inc. (N.D.Cal. Mar. 16, 2018, No. C 17-05803 WHA) 2018 WL 1367323, *5 [finding “reasoning of Mandviwala persuasive and agrees that claims for unpaid wages under PAGA may be pursued in arbitration”].) The California Supreme Court has now resolved this split, and we are bound to follow its authority.

Here, Ely, like the plaintiff in Lawson, filed a complaint asserting a single PAGA cause of action. Consistent with the Supreme Court’s analysis in ZB, N.A., we must conclude this single PAGA claim only encompasses the fixed penalty amounts set forth in section 558, subdivision (a)(1), and not any amounts for “underpaid wages.” (See ZB, N.A., supra, 8 Cal.5th at p. 181.) And neither party asserts the fixed penalty amounts set forth in section 558, subdivision (a)(1), are subject to arbitration. Indeed, Iskanian and ZB, N.A. hold otherwise. (Iskanian, supra, 59 Cal.4th at pp. 383–384; ZB, N.A., at p. 198.)

Accordingly, because defendants sought to compel arbitration of relief “that was not cognizable under the sole cause of action” in Ely’s complaint, the trial court did not err in denying the motion to compel. (See ZB, N.A., supra, 8 Cal.5th at p. 198.) However, on remand the court should consider whether Ely may amend his complaint to request unpaid wages under an appropriate cause of action. Likewise, we leave to defendants the task of challenging any defects in the pleadings. (Betancourt v. Prudential Overall Supply, supra, 9 Cal.App.5th at p. 446 [“A motion to compel arbitration is not the proper procedural vehicle for sorting through alleged defects in the complaint”].)

III. DISPOSITION

The order denying defendants’ motion to compel arbitration is affirmed. The parties will bear their own costs on appeal. (Cal. Rules of Court, rule 8.278(a)(5).)

 

____________________________

Margulies, Acting P. J.

We concur:

_____________________________

Banke, J.

_____________________________

Sanchez, J.

A153985

Ely v. Walnut Creek Associates 2, Inc.