Filed 4/24/20 Page v. D.O.S. Pizza, Inc. CA2/3

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.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

SECOND APPELLATE DISTRICT

DIVISION THREE

LEMUEL AGUST PAGE,

Plaintiff and Respondent,

v.

D.O.S. PIZZA, INC.,

Defendant and Appellant.

B292810

(Los Angeles County

Super. Ct. No. BC695275)

APPEAL from an order of the Superior Court of Los Angeles County, Elihu Berle, Judge. Affirmed.

Zaller Law Group, Anthony J. Zaller, Anne McWilliams, Monica Penichet-Coates and Michael E. Thompson for Defendant and Appellant.

Kingsley & Kingsley, Eric B. Kingsley and Ariel J. Stiller for Plaintiff and Respondent.

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D.O.S. Pizza, Inc. (D.O.S.) appeals from the order of the trial court denying its motion to compel arbitration of the complaint brought by Lemuel Agust Page (Page) alleging a single cause of action for civil penalties under the Private Attorneys General Act of 2004 (PAGA) (Lab. Code, § 2698 et seq.). We conclude that the PAGA complaint is not subject to arbitration. Accordingly, we affirm the order.

BACKGROUND

The sole cause of action in the operative complaint, brought on behalf of Page and other aggrieved employees of D.O.S., seeks penalties under PAGA for D.O.S.’s wage statement violations and its failure to provide rest breaks and meal periods, all contrary to sections 203, 226, subdivision (a), 226.7, and 512. The complaint alleges that Page notified the Labor and Workforce Development Agency (LWDA), the agency that enforces California’s labor laws, of his intent to seek PAGA penalties.

D.O.S. moved to compel arbitration of Page’s individual claim and to enforce his waiver of the PAGA representative action. The premise of D.O.S.’s motion was that the complaint was subject to a binding arbitration agreement (the agreement) executed by Page and D.O.S. at the commencement of Page’s employment. LWDA is not a party to the agreement.

The agreement states in pertinent part that it “shall apply to any claim or dispute arising out of or related to the employment relationship or its termination including, but not limited to, claims of . . . violation of statute, nonpayment of wages, and all other similar claims.” (Italics added.)

The agreement also prohibits arbitration of class and representative PAGA actions. It reads in relevant part, “the Arbitrator shall not consolidate or combine the resolution of any claim or dispute between the two Parties to this . . . Agreement with the resolution of any claim by any other party or parties, including but not limited to any other employee of the Company. Nor shall the Arbitrator have the authority to certify a class under [federal or state law] . . . and the Arbitrator shall not decide claims on behalf of any other party or parties on a class or any representative basis, including under [PAGA].” (Italics added.)

Additionally, the agreement establishes that the procedural and substantive provisions of the Federal Arbitration Act (9 U.S.C. § 1 et seq.) (the FAA), federal decisional law construing the FAA, and the rules of the arbitrator govern procedural issues under the agreement.

The trial court denied D.O.S.’s motion, finding that the PAGA claim could not be compelled to arbitration. D.O.S. timely appealed.

DISCUSSION

D.O.S. contends that the agreement to arbitrate is enforceable. It argues that the FAA and federal procedural and substantive decisional law govern the agreement and the parties expressly agreed to the choice of federal law, which law requires enforcement of the parties’ agreement to arbitrate Page’s statutory claims and to waive representative actions. D.O.S. also argues that under federal law, Page’s individual PAGA claim can be compelled to arbitration, even if the representative claim cannot.

I. PAGA

The California Labor Code authorizes LWDA to collect civil penalties from employers for specified labor law violations. (Julian v. Glenair, Inc. (2017) 17 Cal.App.5th 853, 865 (Julian).) The Legislature enacted PAGA to enhance the state’s enforcement of labor laws by allowing aggrieved employees, acting as private attorneys general, to recover civil penalties for violations, with the understanding that the enforcement agencies are to retain primacy over private enforcement efforts. (Iskanian v. CLS Transportation Los Angeles, LLC (2014) 59 Cal.4th 348, 379 (Iskanian).)

PAGA works by empowering aggrieved employees to act as LWDA’s proxy or agent to bring representative actions to recover statutory civil penalties for their employers’ violations. (Julian, supra, 17 Cal.App.5th at p. 865.) A PAGA action is “ ‘a substitute for an action brought by the government itself’ ” (ibid.), where the governmental entity “is always the real party in interest” (Iskanian, supra, 59 Cal.4th at p. 382). Of the civil penalties recovered, LWDA receives 75 percent, while the remaining 25 percent goes to the aggrieved employees. (Julian, at p. 865.) To obtain authority to prosecute and collect the penalties, PAGA requires aggrieved employees to give LWDA notice. (§§ 2699, subd. (a), 2699.3, subd. (a)(1)(A).)

Accordingly, a PAGA claim is a type of qui tam representative action. (Iskanian, supra, 59 Cal.4th at p. 382.) “ ‘Traditionally, the requirements for enforcement by a citizen in a qui tam action have been (1) that the statute exacts a penalty; (2) that part of the penalty be paid to the informer; and (3) that, in some way, the informer be authorized to bring suit to recover the penalty.’ [Citation.] PAGA conforms to these traditional criteria, except that a portion of the penalty goes not only to the citizen bringing the suit but to all employees affected by the Labor Code violation.” (Ibid., italics omitted.)

Penalties under PAGA are unique to that statute. “The civil penalties recovered on behalf of the state under the PAGA are distinct from the statutory damages to which employees may be entitled in their individual capacities.” (Iskanian, supra, 59 Cal.4th at p. 381; see ZB, N.A. v. Superior Court (2019) 8 Cal.5th 175, 197 [§ 558 unpaid wage action for compensatory relief different from PAGA civil penalties].) Therefore, a suit to recover statutory civil penalties under PAGA is “ ‘ “fundamentally a law enforcement action designed to protect the public and not to benefit private parties.” ’ ” (Iskanian, at p. 387.)

Additionally, PAGA “forecloses separate but similar actions by different employees against the same employer.” (Julian, supra, 17 Cal.App.5th at p. 866.) “ ‘Because an aggrieved employee’s action under the [PAGA] functions as a substitute for an action brought by the government itself, a judgment in that action binds all those, including nonparty aggrieved employees, who could be bound by a judgment in an action brought by the government. The act authorizes a representative action only for the purpose of seeking statutory penalties for Labor Code violations.’ ” (Iskanian, supra, 59 Cal.4th at p. 381.) For this reason, “[a]ll PAGA claims are ‘representative’ actions in the sense that they are brought on the state’s behalf.” (ZB, N.A. v. Superior Court, supra, 8 Cal.5th at p. 185; accord, Iskanian, at p. 380.)

II. The FAA

“Congress enacted the FAA in response to judicial hostility to arbitration and to ensure that private arbitration agreements are enforced according to their terms.” (Correia v. NB Baker Electric, Inc. (2019) 32 Cal.App.5th 602, 614 (Correia).) The FAA’s section 2 preempts state laws inconsistent with the FAA’s provisions and objectives. (AT&T Mobility LLC v. Concepcion (2011) 563 U.S. 333, 339.) “[A] state law contract defense is unenforceable if it applies only to arbitration contracts, derives its meaning from the fact an arbitration agreement is at issue, or interferes with the fundamental attributes of arbitration.” (Correia, at p. 614.) However, state laws applying to arbitration contracts are enforceable to the extent they do not conflict with the FAA. (Correia, at p. 614.)

III. Iskanian and its progeny

In Iskanian, supra, 59 Cal.4th at page 360, the plaintiff signed an agreement providing that all claims arising out of his employment were to be submitted to arbitration and that the parties would not assert representative claims. The plaintiff alleged causes of action against his employer for violations of the Labor Code and alleged a PAGA claim. The appellate court affirmed the trial court’s grant of the employer’s motion to compel arbitration, reasoning that the plaintiff was obligated to arbitrate the PAGA claim but was barred from litigating that claim in a representative capacity. (Id. at pp. 361–362.)

On review, our Supreme Court in Iskanian, supra, 59 Cal.4th at pages 382 to 384 analyzed two issues: (1) whether arbitration agreements waiving employees’ rights to bring representative PAGA actions in any forum were unenforceable, and (2) whether the FAA preempted state law rules precluding such waivers. With respect to the first issue, Iskanian, at page 383, held that waivers made before any dispute between the employee and employer arose–so-called predispute waivers–that required employees to relinquish the right to assert a PAGA claim on behalf of other employees, are unenforceable as a matter of state law because they “harm the state’s interests in enforcing the Labor Code and in receiving the proceeds of civil penalties used to deter violations,” and are contrary to public policy. Iskanian declared, “[a]n employee’s right to bring a PAGA action is unwaivable.” (Ibid.) The Supreme Court declined to decide whether a plaintiff could assert an individual PAGA claim despite a PAGA waiver, declaring simply that “a prohibition of representative claims frustrates the PAGA’s objectives.” (Id. at p. 384, italics omitted.)

Turning to the second issue, Iskanian, supra, 59 Cal.4th 384, held that the FAA does not preempt this state law rule invalidating waivers in arbitration agreements of the right to bring representative PAGA actions. Our Supreme Court declared, “Simply put, a PAGA claim lies outside the FAA’s coverage because it is not a dispute between an employer and an employee arising out of their contractual relationship. It is a dispute between an employer and the state, which alleges directly or through its agents—either the Agency or aggrieved employees—that the employer has violated the Labor Code.” (Id. at pp. 386–387, italics added.) Iskanian, at page 387, found that “[n]othing in the text or legislative history of the FAA nor in the Supreme Court’s construction of the statute suggests that the FAA was intended to limit the ability of states to enhance their public enforcement capabilities by enlisting willing employees in qui tam actions. Representative actions under the PAGA, unlike class action suits for damages, do not displace the bilateral arbitration of private disputes between employers and employees over their respective rights and obligations toward each other. Instead, they directly enforce the state’s interest in penalizing and deterring employers who violate California’s labor laws.” Iskanian additionally reasoned that qui tam actions were never intended to fall within the FAA’s ambit, with the result that preventing arbitration of qui tam-style PAGA actions without the state’s consent does not conflict with the FAA. (Iskanian, at p. 385.)

Iskanian explained further that the waiver of the right to assert a PAGA claim “serves to disable one of the primary mechanisms for enforcing the Labor Code.” (Iskanian, supra, 59 Cal.4th at p. 383.) “Because such an agreement has as its ‘object[ ] . . . indirectly, to exempt [the employer] from responsibility for [its] own . . . violation of law,’ it is against public policy and may not be enforced.” (Ibid.) While employees are free to choose not to bring a PAGA claim when they are aware of Labor Code violations, “it is contrary to public policy for an employment agreement to eliminate this choice altogether by requiring employees to waive the right to bring a PAGA action before any dispute arises.” (Id. at p. 383.) In sum, the state rule against PAGA waivers does not frustrate or contradict the FAA’s objectives because the FAA “aims to ensure an efficient forum for the resolution of private disputes, whereas a PAGA action is a dispute between the employer and the state” LWDA. (Iskanian, at p. 384; accord, Tanguilig v. Bloomingdale’s, Inc. (2016) 5 Cal.App.5th 665, 671 (Tanguilig).)

Since Iskanian, a series of appellate courts have held that without the state’s consent, an employee’s predispute agreement to arbitrate PAGA claims is not enforceable. (Correia, supra, 32 Cal.App.5th at p. 622; Julian, supra, 17 Cal.App.5th at pp. 869–872; Betancourt v. Prudential Overall Supply (2017) 9 Cal.App.5th 439, 445–448; Tanguilig, supra, 5 Cal.App.5th at pp. 677–680.) The reasoning of these courts is that the state is the real party in interest in a PAGA action and a PAGA plaintiff asserts the claim solely on behalf of, and as the proxy or agent for, the state. Thus, the employee’s predispute arbitration agreement cannot subject a PAGA claim to arbitration because the state never agreed to arbitrate that claim. (Correia, at pp. 621–622; Julian, at pp. 871–872; Betancourt, at pp. 445–448; Tanguilig, at pp. 677–680.)

IV. Analysis

We review de novo the trial court’s legal determination that a PAGA claim cannot be compelled to arbitration. (California Correctional Peace Officers Assn. v. State of California (2006) 142 Cal.App.4th 198, 204.) “[W]e are not bound by the trial court’s rationale, and thus may affirm the denial on any correct legal theory supported by the record, even if the theory was not invoked by the trial court.” (Julian, supra, 17 Cal.App.5th at p. 864.)

Both federal and state law require that “before referring a dispute to an arbitrator, the court determines whether a valid arbitration agreement exists.” (Henry Schein, Inc. v. Archer & White Sales, Inc. (2019) ___ U.S. ___, ___ [139 S.Ct. 524, 530]; accord, Rosenthal v. Great Western Fin. Securities Corp. (1996) 14 Cal.4th 394, 413.) “Agreements to arbitrate that fall within the scope and coverage of the [FAA] must be enforced in state and federal courts.” (KPMG LLP v. Cocchi (2011) 565 U.S. 18, 19.)

Here, LWDA did not sign the agreement or consent to its terms. Indeed, no valid agreement exists between D.O.S. and the state as the real party in interest to arbitrate Labor Code violations. Nor did Page sign the agreement as an agent for the state when he commenced employment with D.O.S. and before he satisfied the requirements to assert a representative PAGA claim. (See Julian, supra, 17 Cal.App.5th at pp. 869–870, 872.) There exists no contractual basis for concluding that LWDA agreed to arbitrate Page’s representative PAGA claim, with the result that the trial court correctly denied D.O.S.’s motion to compel arbitration.

D.O.S. argues that Iskanian does not apply here because unlike that case, the agreement does not completely waive Page’s right to bring a representative action in any forum. Unlike Iskanian, D.O.S. argues, the agreement is valid and enforceable under the FAA. To the contrary, as we read the agreement, Page must arbitrate all state law violations and has waived the right to do so as a representative. But, a PAGA claim is inherently representative. More important, however, the only cause of action in the instant complaint is a PAGA representative claim. Following Iskanian, the state was never a party to the arbitration agreement, and so it cannot be compelled to arbitrate the only claim in the complaint, irrespective of the validity of the agreement’s waiver provision.

Epic Sys. Corp. v. Lewis (2018) ___ U.S. ___ [138 S.Ct. 1612], cited by D.O.S., did not overrule Iskanian, notwithstanding Epic’s reaffirmation of the FAA’s expansive preemptive scope. “On federal questions, intermediate appellate courts in California must follow the decisions of the California Supreme Court, unless the United States Supreme Court has decided the same question differently.” (Correia, supra, 32 Cal.App.5th at p. 619; see, e.g., Tanguilig, supra, 5 Cal.App.5th at p. 673 [our Supreme Court’s holding on issue of federal law is binding absent later U.S. Supreme Court contrary decision].) Epic did not invalidate Iskanian for purposes of intermediate appellate courts applying the law (see Correia, at pp. 609, 614) because Epic did not address the question facing Iskanian about whether the FAA governs a qui tam action for civil penalties brought on behalf of the state, or the enforceability of agreements barring PAGA representative claims. The issue in Epic was whether a requirement for individual arbitration was unenforceable because it violated the National Labor Relations Act (29 U.S.C. § 151 et seq.) and the Fair Labor Standards Act of 1938 (29 U.S.C.A. § 201 et seq.), two statutes that are not qui tam actions and are not at issue here. (Epic, at pp. 1619–1620.) Since Epic did not address the same question Iskanian addressed, and did not decide the same question differently, Epic did not overrule Iskanian’s holding. Therefore, federal law has not preempted the state law rules governing the waivability of PAGA representative claims and Iskanian remains the law and binding on us.

We reject D.O.S.’s next contention that Page can still be compelled to arbitrate his “individual” PAGA claim. Iskanian, supra, 59 Cal.4th at page 384, left open the possibility that an “individual PAGA action” might be cognizable. However, both Correia, supra, 32 Cal.App.5th at page 625 and Tanguilig, supra, 5 Cal.App.5th at page 677, subsequently held that a single representative claim cannot be split into arbitrable individual claims and non-arbitrable representative claims. “[R]egardless of whether an individual PAGA cause of action is cognizable, a PAGA plaintiff’s request for civil penalties on behalf of himself or herself is not subject to arbitration under a private arbitration agreement between the plaintiff and his or her employer.” (Tanguilig, at p. 677; accord, Perez v. U-Haul Co. of California (2016) 3 Cal.App.5th 408, 421 [single representative action not splittable into individual claims].)

Page’s complaint contains a single cause of action under PAGA and the only relief he seeks are statutory penalties for Labor Code violations. Thus, he has brought a representative claim only, which cannot be compelled to arbitration. Page alleged no individual claim seeking compensation that might be “individually” arbitrated.

Finally, D.O.S. contends that there are no grounds to revoke the arbitration agreement because it is not procedurally or substantively unenforceable. However, regardless of whether the arbitration clause is valid here, under Iskanian and its progeny, it does not apply to Page’s PAGA claim, which cannot be compelled to arbitration. D.O.S. failed to demonstrate that the trial court erred in denying the motion to compel arbitration.

DISPOSITION

The order is affirmed. Lemuel Agust Page is awarded his costs of appeal.

NOT TO BE PUBLISHED.

DHANIDINA, J.

We concur:

EGERTON, Acting P. J.

EPSTEIN, J.*