Filed 2/19/20 Gotts v. John L. Sullivan Chevrolet, Inc. CA3

NOT TO BE PUBLISHED

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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.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

THIRD APPELLATE DISTRICT

(Placer)

—-

MATTHEW GOTTS,

Plaintiff and Respondent,

v.

JOHN L. SULLIVAN CHEVROLET, INC., et al.,

Defendants and Appellants.

C088801

(Super. Ct. No. SCV0041694)

Defendants John L. Sullivan Chevrolet, Inc., John L. Sullivan, and Steven A. Ruckels (collectively, defendants) appeal from an order denying their petition to compel arbitration and stay court proceedings (petition). Finding no error, we affirm the trial court’s order.

FACTUAL AND PROCEDURAL BACKGROUND

Plaintiff Matthew Gotts previously worked as a sales associate for defendant John L. Sullivan Chevrolet, Inc., an automobile dealership. In August 2018, on behalf of himself and other similarly situated employees, plaintiff sued defendants for alleged Labor Code violations. Plaintiff alleges that defendants failed to pay employees for all regular and overtime hours worked, did not permit employees to take meal and rest periods, failed to pay employees for missed meal and rest periods, failed to reimburse employees for business-related expenses, failed to provide accurate wage statements, and failed to timely pay all wages owed upon resignation or termination.

Plaintiff’s complaint contains a single cause of action brought under the Private Attorneys General Act of 2004 (PAGA) (§ 2698 et seq.). For each enumerated violation, plaintiff seeks a civil penalty or, if no civil penalty is specifically provided, the default civil penalty under section 2699, subdivision (f).

In October 2018, defendants filed a petition to compel arbitration of plaintiff’s individual claims for unpaid and underpaid wages. Defendants argued that plaintiff executed multiple written agreements to submit all employment-related disputes to binding arbitration. Although defendants conceded that predispute agreements to arbitrate PAGA claims are not enforceable, defendants argued that the allegations in plaintiff’s complaint go beyond a “true” PAGA claim for civil penalties, seeking recovery of unpaid wages and other victim-specific relief under sections 558 and 1197.1. Thus, defendants sought an order compelling plaintiff to arbitrate his individual victim-specific claims for damages and staying the remainder of the civil action.

The trial court denied the petition. In its ruling, it first determined that individual claims for relief were not alleged in the complaint. The court then ruled that arbitration would be improper even if plaintiff were seeking to recover victim-specific relief as part of his PAGA claim because the arbitration agreements between the parties expressly exclude PAGA claims from the scope of arbitration.

DISCUSSION

On appeal, defendants argue that the trial court erred by (1) determining that plaintiff’s complaint does not seek recovery of individual claims for unpaid/underpaid wages under sections 558 and 1197.1, and (2) refusing to compel arbitration of such claims. We disagree.

I

Background Law

We begin with an overview of the PAGA and the state law that precludes predispute waivers of an employee’s right to bring a representative action under the PAGA. (See Iskanian v. CLS Transportation Los Angeles, LLC (2014) 59 Cal.4th 348 (Iskanian).)

The Legislature enacted the PAGA in 2003 to address lagging public enforcement of state labor laws. (Iskanian, supra, 59 Cal.4th at p. 379.) Prior to the enactment of the PAGA, many Labor Code violations went unenforced because they had no civil penalties attached and were punishable only as criminal misdemeanors. (Ibid.) And even when statutes specified civil penalties, there was a shortage of government resources to pursue enforcement. (Ibid.) The Legislature addressed these problems by enacting new civil penalties for Labor Code violations “ ‘significant enough to deter violations,’ ” and allowing aggrieved employees, acting as private attorneys general, to recover the civil penalties that previously were recoverable only by the state’s labor law enforcement agencies. (Id. at pp. 379-380.)

PAGA claims are “representative actions” in the sense that they substitute for actions brought by the government itself. (Iskanian, supra, 59 Cal.4th at p. 381.) The PAGA empowers aggrieved employees to sue on behalf of themselves and other aggrieved employees to recover civil penalties for Labor Code violations. (§ 2699, subd. (a).) An employee plaintiff suing under the PAGA does so as the “ ‘proxy or agent’ ” of the state’s labor law enforcement agencies. (Iskanian, at p. 380.) Because the employee’s action functions as a substitute for an action brought by the government itself, a judgment in that action is binding not only on the named employee but also on the government and any represented employees who are not parties to the proceeding. (Id. at p. 381.) A PAGA claim is therefore a type of qui tam action, in which the government is the real party in interest. (Id. at p. 382.)

The PAGA does not limit an employee’s right to pursue other remedies available under state or federal law, either separately or concurrently with an action under the PAGA. (§ 2699, subd. (g)(1).) Thus, a plaintiff may, but need not, pursue both representative claims for civil penalties and individual claims for compensatory damages (such as restitution of unpaid wages) in the same action. (ZB, N.A. v. Superior Court (2019) 8 Cal.5th 175, 187 (ZB).)

In Iskanian, the California Supreme Court recognized the distinction between civil penalties recovered on behalf of the state and “the statutory damages to which employees may be entitled in their individual capacities.” (Iskanian, supra, 59 Cal.4th at p. 381.) At issue in Iskanian was whether the Federal Arbitration Act preempts state law rules restricting enforcement of terms in employment arbitration agreements. (Id. at p. 359.) In the wake of the United States Supreme Court’s decision in AT&T Mobility LLC v. Concepcion (2011) 563 U.S. 333 [179 L.Ed.2d 742], it held that traditional class action waivers are enforceable, overruling a contrary holding in Gentry v. Superior Court (2007) 42 Cal.4th 443, 457, 465. (Iskanian, at pp. 362-366.)

The court reached a different conclusion on whether a predispute employment agreement can waive an employee’s right to bring a representative PAGA action. (Iskanian, supra, 59 Cal.4th at pp. 378-392.) Because a PAGA action functions as a substitute for an action brought by the government itself, the court held that an employment agreement requiring an employee to waive the right to bring a representative PAGA action in any forum is unenforceable. (Id. at p. 384.) The court also held that the Federal Arbitration Act, which is primarily concerned with private disputes, does not preempt this state law rule. (Id. at pp. 360, 384.)

However, the court was careful to limit this holding to representative PAGA actions in which the plaintiff is seeking to recover civil penalties on behalf of the state. (Iskanian, supra, 59 Cal.4th at pp. 387-388.) The court distinguished claims for unpaid wages and other types of victim-specific relief payable directly to employees, concluding that such claims are “private disputes,” which are subject to preemption under the Federal Arbitration Act. (Ibid.) Specifically, the court held: “Our opinion today would not permit a state to circumvent the [Federal Arbitration Act] by, for example, deputizing employee A to bring a suit for the individual damages claims of employees B, C, and D. This pursuit of victim-specific relief by a party to an arbitration agreement on behalf of other parties to an arbitration agreement would be tantamount to a private class action, whatever the designation given by the Legislature. Under Concepcion, such an action could not be maintained in the face of a class waiver.” (Iskanian, supra, at pp. 387-388.)

Since Iskanian was decided, courts consistently have held that an employer cannot rely on a predispute arbitration agreement to compel arbitration of a representative PAGA claim. (See, e.g., Correia v. NB Baker Electric, Inc. (2019) 32 Cal.App.5th 602, 621 (Correia); Betancourt v. Prudential Overall Supply (2017) 9 Cal.App.5th 439, 448-449; Tanguilig v. Bloomingdale’s, Inc. (2016) 5 Cal.App.5th 665, 677 (Tanguilig).) It is equally well established that state law does not bar an employer from compelling arbitration of an employee’s individual claims for compensatory damages, such as unpaid wages. (Iskanian, supra, 59 Cal.4th at p. 391.) But courts disagreed about whether a PAGA claim could be split into “individual” and “representative” components with the employee compelled to arbitrate the individual component of the claim. (ZB, supra, 8 Cal.5th at p. 184.)

The disagreement centered on PAGA actions in which the plaintiff sought civil penalties under section 558. The PAGA empowers aggrieved employees to sue on behalf of themselves and others to recover civil penalties under section 558. (§ 2699, subd. (a).) Section 558 states that any employer who violates overtime and other workday requirements “shall be subject to a civil penalty as follows: [¶] (1) For any initial violation, fifty dollars ($50) for each underpaid employee for each pay period for which the employee was underpaid in addition to an amount sufficient to recover underpaid wages. [¶] (2) For each subsequent violation, one hundred dollars ($100) for each underpaid employee for each pay period for which the employee was underpaid in addition to an amount sufficient to recover underpaid wages.” (§ 558, subd. (a), italics added.) Section 558 further provides that any wages recovered under that section shall be paid to the affected employee. (§ 558, subd. (a)(3).)

Because of how section 558 is worded, courts disagreed on whether unpaid/underpaid wages recovered should be treated as an indivisible part of the civil penalty recovered under the PAGA, or as a separate remedy available to employees suing in their individual capacities. (See ZB, supra, 8 Cal.5th at p. 184.) This distinction was considered important because, under Iskanian, an employer cannot compel arbitration of a representative PAGA claim, but can compel an employee to arbitrate an individual claim for victim-specific relief. (Correia, supra, 32 Cal.App.5th at p. 621; Iskanian, supra, 59 Cal.4th at pp. 387-388, 391.) Thus, when an aggrieved employee seeks in a PAGA action to recover unpaid wages under section 558, some courts held that the employer could effectively split the claim in two and compel the employee to arbitrate the “individual” portion of the claim seeking unpaid/underpaid wages. (See e.g., Esparza v. KS Industries, L.P. (2017) 13 Cal.App.5th 1228, 1234, 1246-1247.) Other courts disagreed, concluding that a PAGA claim cannot be split and therefore no portion of a PAGA claim can be compelled to arbitration. (See, e.g., Lawson v. ZB, N.A. (2017) 18 Cal.App.5th 705, 722-725; Tanguilig, supra, 5 Cal.App.5th at pp. 677-678, 680; Correia, supra, 32 Cal.App.5th at p. 625.)

In ZB, the Supreme Court granted review to resolve this split of authority. (ZB, supra, 8 Cal.5th at p. 184.) The plaintiff in ZB sued her former employer and its parent company for alleged Labor Code violations. (Id. at p. 183.) The plaintiff’s complaint contained a single cause of action under the PAGA seeking civil penalties and unpaid wages under section 558 on behalf of herself and other aggrieved employees. (ZB, at p. 183.) Because the plaintiff previously had agreed to arbitrate all employment claims and to waive class arbitration, the defendants moved to compel arbitration of the plaintiff’s individual claim for unpaid wages and to stay the remainder of the civil action. (Id. at p. 183.) The defendants argued that the plaintiff’s individual claim for unpaid wages was not part of the “ ‘traditional PAGA penalties’ ” and therefore was subject to arbitration under the parties’ agreement. (Ibid.)

The trial court generally agreed, but the relief it granted exceeded what the defendants had requested. The trial court issued an order compelling arbitration of not only the plaintiff’s individual claims for unpaid wages but also the plaintiff’s representative claims for unpaid wages of other employees. (ZB, supra, 8 Cal.5th at p. 183.) The defendants noticed an appeal and petitioned for a writ of mandate reversing the trial court’s order. (Id. at pp. 183-184.)

The Court of Appeal dismissed the appeal (on procedural grounds) but issued the writ. (ZB, supra, 8 Cal.5th at pp. 183-184.) The appellate court reasoned that a request for unpaid wages under section 558 is an integrated part of the civil penalty recoverable under the PAGA and therefore no portion of the claim can be compelled to arbitration. (ZB, at p. 184.) The appellate court issued a writ commanding the trial court to vacate its order and enter a new order denying the defendants’ motion to compel arbitration. (Ibid.)

The California Supreme Court granted review to decide whether an employer may compel arbitration of the portion of an employee’s PAGA claim seeking unpaid wages under section 558. (ZB, supra, 8 Cal.5th at p. 184.) But rather than address that question, the court disposed of the matter by answering the “more fundamental question” of whether unpaid wages are even recoverable in a PAGA action. (Id. at p. 181.) The court concluded they are not. (Id. at p. 188.) The court reasoned that while the Labor Commissioner may issue citations that include both a civil penalty and an amount for unpaid wages, the unpaid wages are a form of compensatory relief and not part of the civil penalty that an aggrieved employee may recover in a PAGA claim. (Id. at pp. 182, 188, 197-198.) Because employees cannot recover unpaid wages under section 558 in a PAGA claim, the court affirmed the judgment denying the employer’s motion to compel arbitration. (ZB, at p. 198.)

II

Analysis

In this case, defendants do not dispute that “traditional” PAGA claims seeking civil penalties payable to the state are excluded from arbitration by the Supreme Court’s decision in Iskanian and by the terms of the parties’ arbitration agreement. But defendants contend plaintiff’s complaint is not limited to recovery of civil penalties on behalf of the state. Defendants contend that the complaint also seeks to recover unpaid wages under sections 558 and 1197.1. Defendants contend that unpaid wages are not true civil penalties and instead constitute victim-specific relief subject to arbitration under the parties’ agreement and the Federal Arbitration Act. Because defendants sought to compel arbitration only of plaintiff’s victim-specific claims for unpaid wages, defendants contend the trial court erred in denying the petition to compel arbitration. We disagree.

As noted in the reply brief, the dispute in this case essentially follows the lines of the Esparza-Lawson dispute about whether the recovery of unpaid wages under section 558 should be considered part of the “civil penalty” that employees are authorized to recover on behalf of the state under the PAGA. At the time the parties filed their briefs, this dispute was unsettled. This is no longer true. Less than 24 hours after defendants filed their reply brief, the Supreme Court issued its decision in ZB. (ZB, supra, 8 Cal.5th 175.) As a result of that decision, it is now established that the civil penalties a plaintiff may recover under section 558 (or analogous section 1197.1) do not include unpaid/underpaid wages. (ZB, supra, at pp. 182, 190-191, 197-198.) This is fatal to defendants’ arguments on appeal.

Plaintiff’s complaint alleges a single claim for civil penalties under the PAGA. Defendants’ petition assumed that the civil penalties recoverable under sections 558 and 1197.1 may include unpaid/underpaid wages and sought to compel arbitration of only those claims. ZB makes clear that defendants were operating under a faulty premise. Plaintiff cannot recover unpaid wages under the cause of action alleged in the complaint. (See ZB, supra, 8 Cal.5th at pp. 197-198.) Thus, the trial court did not err by denying the defendants’ petition to compel arbitration.

DISPOSITION

We affirm the order denying the petition to compel arbitration. Plaintiff shall recover his costs on appeal. (Cal. Rules of Court, rule 8.278(a)(1) & (2).)

KRAUSE , J.

We concur:

MURRAY , Acting P. J.

DUARTE , J.