Re: Balucas v. Guckenheimer Enterprises, Inc., Superior Court
Case No. 17CECG03563
Hearing Date: March 13, 2018 (Dept. 403)
Motion: Defendant’s Petition to Compel Arbitration
Tentative Ruling:

To grant and dismiss the class claims and order plaintiff’s individual claims to arbitration. To sever the PAGA claim and stay litigation thereof until after arbitration is completed.

Explanation:

When a petition to compel arbitration is filed and accompanied by prima facie evidence of a written agreement to arbitrate the controversy, the court itself must determine: (1) whether the agreement exists and, (2) if any defense to its enforcement is raised, whether it is enforceable. The petitioner (seeking to compel arbitration) bears the burden of proving the existence of an arbitration agreement by a preponderance of the evidence. The party claiming a defense bears the same burden as to the defense. (Rosenthal v. Great Western Fin. Securities Corp. (1996) 14 Cal.4th 394, 413-414.)

It is undisputed that plaintiff entered into an agreement to arbitrate (“DRA”) the claims raised in his First Amended Complaint (“FAC”). Plaintiff does not argue that the DRA is unconscionable in any way. Rather, plaintiff opposes the petition to compel arbitration on three grounds: (1) the class action waiver is illegal and unseverable; (2) the PAGA waiver is illegal; and (3) the prohibition on judicial actions for injunctive relief under the UCL is illegal and unenforceable.

Class claim waiver

The Dispute Resolution Agreement (“DRA”) provides:

You and the Company agree to bring any dispute in arbitration on an individual basis only, and not on a class, collective, or private attorney general representative action basis. Accordingly,

(a) There will be no right or authority for any dispute to be brought, heard or arbitrated as a class action (“Class Action Waiver”).
(Hong Dec. ¶ 20, Exh. C.)

The primary authority on the enforceability of the class claims waiver is AT&T Mobility LLC v. Concepcion (2011) 131 S.Ct. 1740, 1748, where the Supreme Court held that the FAA preempts state laws “conditioning the enforceability of certain arbitration agreements on the availability of classwide arbitration procedures.” The Concepcion court held that a state rule invalidating class waivers interferes with

11

arbitration’s fundamental attributes of speed and efficiency, and thus disfavors arbitration as a practical matter. (Id. at p. 1750–1753.)

“A party may not be compelled under the FAA to submit to class arbitration unless there is a contractual basis for concluding that the party agreed to do so.” (Stolt-Nielsen v. AnimalFeeds Int’l Corp. (2010) 130 S.Ct. 1758, 1775.)

The opposition contends that the class waiver violates federal law, relying on Morris v. Ernst & Young, LLP (9th. Cir. 2016) 834 F.3d 975, 989-990, where the Ninth Circuit held that a class action waiver required as a condition of employment violates the NLRA’s substantive right for employees to pursue claims together.

However, Morris isn’t the only word on this issue. In Cortez v. Doty Bros. Equipment Company (2017) 15 Cal.App.5th 1, 17, the court of appeal held that an employment contract prohibiting classwide arbitration did not violate the protections of the NLRA for collective action. The court further explained,

There is currently a conflict among the United States Courts of Appeals as to the merit of Cortez’s position. The Ninth and Seventh Circuits have held that waivers of classwide arbitration are antithetical to the NLRA’s protection of collective activity (see Morris v. Ernst & Young, LLP (9th Cir. 2016) 834 F.3d 975, 983; Lewis v. Epic Sys. Corp. (7th Cir. 2016) 823 F.3d 1147, 1155) while other circuit courts have rejected that position and found such waivers of class actions enforceable. (See, e.g., Murphy Oil USA, Inc. v. NLRB (5th Cir. 2015) 808 F.3d 1013, 1018; Sutherland v. Ernst & Young LLP (2d Cir. 2013) 726 F.3d 290, 297; Owen v. Bristol Care, Inc. (8th Cir. 2013) 702 F.3d 1050, 1052.) The United States Supreme Court recently granted certiorari in these cases to resolve the issue. (See, e.g., Morris, at p. 983; cert. granted sub non. Ernst & Young, LLP v. Morris (2017) –––U.S. ––– –, 137 S.Ct. 809, 196 L.Ed.2d 595.)

Cortez urges us to defer ruling on this question until the United States Supreme Court decides this issue. Further delay is unnecessary. The California Supreme Court has rejected Cortez’s argument. (See Iskanian v. CLS Transportation, LLC Los Angeles, supra, 59 Cal.4th at pp. 375-376, 173 Cal.Rptr.3d 289, 327 P.3d 129 [“the NLRA’s general protection of concerted activity, which makes no reference to class actions,” does not bar parties to a CBA from excluding class claims from the agreement to arbitrate].) So must we. (Auto Equity Sales, Inc. v. Superior Court (1962) 57 Cal.2d 450, 455, 20 Cal.Rptr. 321, 369 P.2d 937.)

(Id. at pp. 17-18.)

This court will follow the interpretation of Cortez, and conclude that the class claims waiver does not violate the NLRA, and the class claims should be dismissed.

Moreover, as both the opposition and reply point out, the federal court in Johnmohammadi v. Bloomingdales, Inc. (9th Cir. 2014) 755 F.3d 1072, ruled that a waiver of class claims is not illegal under section 8(a)(1) of the NLRA as long as the employee could opt – out of the agreement. (Id. at pp. 1075-76.) In Morris the

12

arbitration agreement and class claims waiver was required as a condition of employment. The Morris court stated that “an employer violates § 8 a second time by conditioning employment on signing a concerted action waiver.” (Morris, supra, at p. 982.) In other words, the employee did not have a chance to opt out. Johnmohammadi is therefore consistent with the later Morris decision.

Here, plaintiff could have opted out, but did not. The arbitration agreement was not a condition of employment.

PAGA claim

Plaintiff’s FAC adds a cause of action pursuant to the Private Attorneys General Act (“PAGA”). Plaintiff opposes the petition to compel on the ground that the PAGA waiver is unenforceable. Plaintiff is correct on that point, and defendant does not argue otherwise. (See Iskanian v. CLS Transportation, LLC Los Angeles (2014) 59 Cal.4th 348, 384, 389.)

However, the DRA contains the following severability provision:

Except as stated in paragraph 5, above, in the event any portion of this Agreement is deemed unenforceable, the remainder of this Agreement will be enforceable. If the Class Action Waiver, Collective Action Waiver or Private Attorney General Waiver is deemed to be unenforceable, the Company and Employee agree that this Agreement is otherwise silent as to any party’s ability to bring a class, collective or representative action in arbitration.

(Hong Dec. ¶ 20, Exh. C § 10.)

In this case the court will sever the PAGA claim from the remainder of plaintiff’s claims (Iskanian at pp. 391-392; Mohamed v. Uber Techs, Inc. (9th Cir. 2016) 836 F.3d 1102, 1214; Gentry v. Superior Court (2007) 42 Cal.4th 443, 466), and stay the PAGA claim pending completion of arbitration (Young v. Remx, Inc. (2016) 2 Cal.App.5th 630).

Injunctive relief under the UCL

Plaintiff argues that the prohibition on judicial actions for injunctive relief under the Unfair Competition Law (“UCL”), Business & Professions Code § 17200 et seq., is illegal and unenforceable. (See McGill v. Citibank, N.A. (2017) 2 Cal.5th 945.)

Defendant does not contend otherwise, but points out that whether the DRA has a provision prohibiting “judicial actions for injunctive relief under the UCL”, whether it is enforceable, and whether plaintiff, as a former employee, has standing to seek such relief, are all issues to be decided by an arbitrator.

Parties may “tailor some, even many features of … [the] contract, including the way arbitrators are chosen, what their qualifications should be, which issues are arbitrable, along with procedure and choice of substantive law.” (Hall Street Assocs., L.L.C. v. Mattel, Inc. (2008) 552 U.S. 576, 586.) If the parties express “clea[r] and unmistakabl[e] evidence” of their intent to arbitrate validity or enforceability, any

13

disputes concerning arbitrability are to be decided by the arbitrator. (First Options of Chicago, Inc. v. Kaplan (1995) 514 U.S. 938, 944.)

The DRA requires that the arbitrator decide any disputes concerning “the enforceability, revocability or validity of the [DRA] or any portion of the [DRA].” (Hong Dec. Exh. C (DRA), § 1.) Plaintiff has made no challenge to the delegation provision.

In Aanderud v. Superior Court (2017) 13 Cal.App.5th 880, the arbitration agreement included a delegation provision. The court held that the question of whether a public injunctive relief waiver provision rendered arbitration provision unenforceable as a whole was for the arbitrator in accordance with the delegation clause in the parties’ arbitration agreement.

Accordingly, this is an issue for the arbitrator to decide.

Pursuant to Cal. Rules of Court, Rule 3.1312(a) and Code Civ. Proc. § 1019.5(a), no further written order is necessary. The minute order adopting this tentative ruling will serve as the order of the court and service by the clerk will constitute notice of the order.

Tentative Ruling
Issued By: RTM on 03/09/18
(Judge’s initials) (Date)