Case Name:   Jasson Steffan vs. Fry’s Electronics, Inc.

Case No.:       1-13-CV-254011

 

This is a putative wage and hour class action by plaintiff Jasson Steffan (“Plaintiff”) individually and on behalf of all persons who are or were employed by defendant Fry’s Electronics, Inc. (“Defendant”) as Loss Prevention & Safety Managers (“LPSMs”) in California and were classified as exempt from overtime wages at any time during the period beginning on the date four years prior to the filing of the instant action and ending on the date of filing of the operative Complaint (the “California Class”).[1]

 

In the operative Complaint, filed on October 2, 2013, Plaintiff alleges that Defendant engages in the sale, servicing and support of computer hardware and software products and personal electronics, and employs LPSMs to engage in the finite set of tasks of ensuring the proper operation and repairs of alarm and CCTV equipment, detaining and processing shoplifters, observing and reviewing store surveillance cameras, training store associates on how to properly use equipment and lift certain products, and attending weekly informational conferences to learn about proper loss prevention techniques all in accordance with Defendant’s company policies.[2]  The LPMS is a salaried position exempt from overtime pay and other related benefits,[3] but Plaintiff alleges that the perform their finite set of tasks, LPSMs did not engage in a supervisory role, did not determine what work was to be done by other employees or in what time frame, did not have a distinct role in training other employees or determining what training they were to receive, and did not have the authority to hire, fire, discipline or promote employees, determine their pay rates or benefits, or give raises.[4]

 

The Complaint asserts five causes of action for: (1) unlawful business practices (Cal. Bus. & Prof. Code, § 17200 et seq.); (2) failure to pay overtime compensation (Cal. Lab. Code, §§ 510, 1194, and 1198); (3) failure to provide accurate itemized statements (Cal. Lab. Code, § 226); (4) failure to pay wages when due (Cal. Lab. Code, §§ 201, 202, 203); and (5) violation of the Private Attorney General Act (“PAGA”) (Cal. Lab. Code, § 2698 et seq.).  Plaintiff brings the second, third and fourth causes of action on behalf of a California subclass, defined as all members of the California Class who were employed by Defendant in California at any time during the period beginning on the date three years prior to the filing of the action and ending on the date of the filing of the Complaint.[5]

 

Defendant now petitions to compel arbitration and stay this action pending the completion of arbitration.

 

Defendant argues that Plaintiff, as a former employee, executed an arbitration agreement on or about June 22, 2005 that requires arbitration under the Federal Arbitration Act (“FAA”) of “any and all disputes between [Plaintiff] and [Defendant] … arising from or in any way related to [Plaintiff’s] employment by [Defendant], including but not limited to, claims for damages and violations of state or federal laws and regulations related to harassment, wrongful termination, and/or discrimination (excluding claims for workers’ compensation or unemployment insurance)[.]”[6]  Defendant argues that each of Plaintiff’s five causes of action arises out of and is related to the employment relationship between Plaintiff and Defendant.  Thus, Defendant argues Plaintiff’s individual claims must be submitted to arbitration and his class claims and representative PAGA claims must be dismissed.  Additionally, Defendant argues that pursuant to recent decisions in Kinecta v. Superior Court (2012) 205 Cal.App.4th 506 and Nelsen v. Legacy Partners (2012) 207 Cal.App.4th 1115, the Court should interpret the parties’ Arbitration Agreement to preclude class arbitration because this interpretation would be consistent with the two-party intent of the contract.

 

In opposition, Plaintiff argues that under Iskanian v. CLS Transportation (2014) 59 Cal.4th 348, the motion to compel arbitration cannot be granted as to the PAGA claim.  As to the issue of class arbitration, Plaintiff argues that Defendant should be judicially estopped from arguing that the Court, rather than the arbitrator, decides the availability of class arbitration.  Plaintiff contends that in an unrelated case before this Court, Shrivastava v. Fry’s Electronics, Case No. 1-11-CV-192189, Defendant successfully argued that under Garcia v. DirecTV, Inc. (2004) 115 Cal.App.4th 297, the arbitrator decides the availability of class arbitration.  Plaintiff distinguishes Kinecta and Nelsen as involving situations where the parties presented the arbitrability issue to the appellate courts.  Plaintiff also cites Sandquist v. Lebo Automotive, Inc. (Jun. 24, 2014) 2014 Cal. App. LEXIS 651 as a recent appellate decision following Garcia for the position that the arbitrator should decide the availability of class arbitration.

 

In reply, Defendant argues that the PAGA action should be stayed pending review of Iskanian by the United States Supreme Court.  As for the class arbitration issue, Defendant argues that it is proper for the Court to interpret the Arbitration Agreement for the availability of class arbitration since Plaintiff is inviting the Court to interpret the Arbitration Agreement with regard to his PAGA claim.  Defendant further argues that Garcia should not be followed because “much better reasoned contrary caselaw has developed in the interm”,[7] including Kinecta, Nelson, and Truly Nolen of America v. Superior Court (2012) 208 Cal.App.4th 487, in which the appellate court directed the trial court to apply contract interpretation principles to determine if an arbitration agreement permitted class arbitration.  Defendant argues that Garcia was based on the faulty premise that a majority of the U.S. Supreme Court in Green Tree Financial Corp. v. Bazzle (2003) 539 U.S. 444 held that the decision of whether an arbitration agreement permitted class claims was the arbitrator’s, when in fact, it was only a plurality of the court, as later observed by the high court in Stolt-Nielsen S.A. v. AnimalFeeds Int’l Corp. (2010) 559 U.S. 662.  Defendant argues that the Third Circuit Court of Appeals in Opalinski v. Robert Half International, Inc. (3d Cir. 2014) 2014 U.S. App. LEXIS 14538 provides an extensive analysis as to why the determination of class arbitration should be made by a court, not the arbitrator.

 

Legal Standards – Petition to Compel Arbitration

 

“A written agreement to submit to arbitration an existing controversy or a controversy thereafter arising is valid, enforceable and irrevocable, save upon such grounds as exist for the revocation of any contract.”  (Cal. Code Civ. Proc., § 1281 .)

 

“On petition of a party to an arbitration agreement alleging the existence of a written agreement to arbitrate a controversy and that a party thereto refuses to arbitrate such controversy, the court shall order the petitioner and the respondent to arbitrate the controversy if it determines that an agreement to arbitrate the controversy exists, unless it determines that: [¶] (a) The right to compel arbitration has been waived by the petitioner; or [¶] (b) Grounds exist for the revocation of the agreement.”  (Cal. Code Civ. Proc., § 1281.2 , subds. (a), (b).)

 

“[W]hen 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 whether the agreement exists and, if any defense to its enforcement is raised, whether it is enforceable.  Because the existence of the agreement is a statutory prerequisite to granting the petition, the petitioner bears the burden of proving its existence by a preponderance of the evidence.  If the party opposing the petition raises a defense to enforcement … that party bears the burden of producing evidence of, and proving by a preponderance of the evidence, any fact necessary to the defense. [Citation.]”  (Rosenthal v. Great Western Fin. Securities Corp. (1996) 14 Cal.4th 394, 413.)

 

Discussion

 

There is no dispute that an agreement to arbitrate exists, and that it is broad enough to encompass the employment-related claims asserted in this action.  There is little doubt that Plaintiff’s claims for failure to pay all wages due and provide legally compliant wage statements constitute disputes between Plaintiff and Defendant arising from and related to Plaintiff’s employment with Defendant.  Even Plaintiff’s UCL claim is based on the same statutory and regulatory violations as his other causes of action.[8]

 

Notably, the Arbitration Agreement does not contain an express waiver of class or representative claims.  Thus, Defendant argues the Court should interpret the agreement based on contract law to determine if the parties intended arbitration to only encompass individual disputes (thereby impliedly waiving the right to bring a class action lawsuit).

 

Recently in Iskanian, the California Supreme Court held that under California Civil Code sections 1668 and 3513, “an employee’s right to bring a PAGA claim is unwaivable.”  (Iskanian, supra, 59 Cal.4th at p. 383.)  The court further held that an employment agreement which compels the waiver of representative claims under the PAGA is contrary to public policy and unenforceable as a matter of law, and a state-law rule against PAGA waivers does not, for purposes of federal preemption, frustrate 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 an employer and the state Agency.”  (Id. at p. 384, original italics.)

 

Although the Arbitration Agreement at issue does not contain an express waiver of representative claims, Iskanian essentially precludes arbitration of Plaintiff’s PAGA claim as a matter of law because even if the Arbitration Agreement was interpreted to include an implied PAGA waiver, that waiver would be contrary to public policy and unenforceable.  Thus, Plaintiff’s PAGA claim cannot be submitted to arbitration.

 

The next issue is whether this Court should determine the availability of class arbitration.  Plaintiff argues that Defendant’s position here is inconsistent with the position it took in an unrelated case entitled Shrivastava v. Fry’s Electronics.  There, in granting Defendant’s motion to compel arbitration, a prior judge of this Court (Hon. James P. Kleinberg) left the determination of the availability of class arbitration to the arbitrator.  This ruling was based on Defendant’s arguments under Bazzle and Garcia that the foundational issue of whether a particular arbitration agreement permits class arbitration must be decided by arbitrator, not the court.  Yet in following Garcia, the Court noted the lack of settled authority on the issue.

 

However, the issue is far from settled.  Bazzle was decided by a plurality of the U.S. Supreme Court (Justices Breyer, Scalia, Souter, and Ginsburg).  Justices Rehnquist, O’Connor and Kennedy dissented, arguing that “the decision of what to submit to the arbitrator is a matter of contractual agreement by the parties, and the interpretation of that contract is for the court, not for the arbitrator.”  (Bazzle, supra, 539 U.S. at p. 456, original emphasis.)  Justice Stevens dissented in part, but concurred in the judgment because the plurality opinion was “close” to his own. (Id. at p. 455.)  After Bazzle, the U.S. Supreme Court in Stoltz-Nielsen S.A. v. Anima/Feeds Int’l Corp. (2010) 130 S. Ct. 1758, 1772 observed that “Bazzle did not yield a majority decision ….”  Thus, the U.S. District Court in Yahoo[! Inc. v. Iversen (2011 N.D. Cal.) 2011 U.S. Dist. LEXIS 117149] perceived the split in Bazzle as “the absence of any controlling authority” and turned “to more general law regarding what questions are for the Court and what questions are for the arbitrator …. “  (Yahoo, supra, 2011 U.S. Dist. LEXIS 117149 at * 10.)  Nevertheless, this Court is bound by the clear adoption of Bazzle in Garcia.[9]

 

Defendant claims that cases post-dating Garcia have clarified the law on the Court’s ability to determine the availability of class arbitration.  This is not so.  Although the California appellate courts in Nelsen (1st Dist. Div. 1) and Kinecta (2d Dist. Div. 3) analyzed the arbitration agreements to find that the respective parties did not agree to class arbitration, the cases did not squarely confront the legal issue presented in Bazzle and Garcia and left open after Stolt-Nielsen.  In Nelsen, the appellate court “recognize[d] some federal courts have decided issues of class arbitration are generally for the arbitrator to decide, at least when the arbitration agreement does not provide otherwise” and cited Bazzle, Stolt-Nielsen and Garcia in a footnote (see Nelsen, supra, 207 Cal.App.4th at pp. 1128-1129, fn. 6), but distinguished the case before it based on the fact that the parties “invite this court to decide the issue” because the defendant “asks that we find the arbitration agreement does not reflect its consent to class arbitration, while [the plaintiff] requests we either find the arbitration agreement unenforceable or interpret it to allow class arbitration.”  (Nelsen, supra, 207 Cal.App.4th at p. 1129, original italics.)  The same can be said of Kinecta.[10]  There, the defendant petitioned for writ of mandate to set aside a portion of the trial court’s order denying the request to dismiss class claims, and in response to the petition for writ of mandate, the plaintiff “argue[d] that the order denying Kinecta’s request for dismissal of class claims from the complaint should be affirmed.”  (Kinecta, supra, 205 Cal.App.4th at p. 516.)  Thus, as in Nelsen, both parties in Kinecta turned to the appellate court to interpret the arbitration agreement in their favor.

 

Defendant also relies on Truly Nolen, supra, 208 Cal.App.4th 487, where the California Court of Appeal for the Fourth District, Division 1 ordered the trial court on remand to determine the availability of class arbitration.  However, this was only after an express finding that the plaintiffs had essentially waived the argument that the trial court had no authority to decide class arbitration.  The appellate court noted that the defendant specifically requested arbitration on an individual, not class basis, and the plaintiffs did not challenge the trial court’s ruling on this request.  “By failing to ask the court to defer the class arbitration issues to the arbitrator, plaintiffs cannot now complain about the court’s authority to rule on those issues.”  (Truly Nolen, supra, 208 Cal.App.4th at p. 515.)

 

Here, in contrast to Kinecta, Nelsen and Truly Nolen, Plaintiff has not asked this Court to interpret the Arbitration Agreement to allow for class arbitration or failed to object to Defendant’s request that this Court decide the issue of the availability of class arbitration.  Instead, Plaintiff has argued, consistent with Defendant’s argument in the unrelated case before this Court, that under Garcia, the arbitrator should decide.[11]

 

Recently, the California Court of Appeal for the Second Appellate District, Division Seven in Sandquist v. Lebo Automotive, Inc. (Jun. 24, 2014) 2014 Cal. App. LEXIS 651 held that although “the plurality opinion in Bazzle is not binding, it is persuasive” and reversed an order dismissing the class claims, with instructions on remand to enter a new order submitting the issue of whether the parties agreed to arbitrate the class claims to the arbitrator.  (Sandquist, supra, at *20-25.)  Thus, the law on this issue is really no clearer now than it was in November of 2011 when the Court followed Garcia with the caveat that “the issue is far from settled.”  Because Garcia remains binding authority on this Court, and Kinecta, Nelsen and Truly Nolen involve circumstances not present here, the Court will once again follow Garcia and submit the issue of whether the parties agreed to arbitrate class claims to the arbitrator.

 

For all of these reasons, Defendant’s motion to compel arbitration is GRANTED IN PART as to Plaintiffs’ first, second, third, and fourth causes of action, but DENIED as to the fifth cause of action under PAGA.  The PAGA action shall be STAYED until the completion of arbitration pursuant to California Code of Civil Procedure section 1281.4.

 

[1] Compl. ¶ 8.

[2] Compl. ¶ 5.

[3] Compl. ¶ 6.

[4] Compl. ¶ 7.

[5] Compl. ¶ 37.

[6] Agreement to Arbitrate Disputes Regarding Employment § I, Exh. A to Decl. Lisa Souza ISO Pet. to Compel Arb. and Mot. to Stay Action.

[7] Def’s Reply at p. 4:19-20.

[8] See Compl. at ¶ 52, citing Defendant’s violations of “applicable Wage Order(s), the California Code of Regulations, and the California Labor Code Sections 204, 226.7, 510, 512, 1194 & 1198[.]”

[9] See Nov. 18, 2011 Order Re: Petition to Compel Arbitration at p. 8, fn. 7, docket no. 25 in Case No. 1-11-CV-192189.

[10] Notably, the court in Kinecta did not acknowledge Bazzle and Garcia.

[11] Defendant’s argument that the “first half” of Plaintiff’s opposition brief regarding Iskanian and PAGA essentially invites the Court to interpret the Arbitration Agreement on the availability of class arbitration is not well-taken.  Iskanian precludes arbitration of the PAGA claim as a matter of law without having to interpret the Arbitration Agreement.