Case Number: BC631074 Hearing Date: February 21, 2018 Dept: 47

Massoud Afzal v. Sears Roebuck and Co.

MOTION TO COMPEL ARBITRATION

MOVING PARTY: Defendants Sears, Roebuck and Co. and Sears Holdings Management Corporation

RESPONDING PARTY(S): Plaintiff Massoud Afazal

STATEMENT OF MATERIAL FACTS AND/OR PROCEEDINGS:

This is an action to seek civil penalties pursuant to PAGA for wage and hour violations.

Defendants Sears, Roebuck and Co. and Sears Holdings Management Corporation move to compel arbitration.

TENTATIVE RULING:

Defendants Sears, Roebuck and Co. and Sears Holdings Management Corporation’s motion to compel arbitration is DENIED.

DISCUSSION:

Motion To Compel Arbitration

As an initial matter, Defendants’ 20-page memorandum of points and authorities exceeds the 15-page limit set forth in CRC Rule 3.1113(d) without leave of court. The Court will only consider the first 15 pages of argument.

Likewise, Plaintiff’s 19-page opposition also exceeds the 15-page limit set forth in CRC Rule 3.1113(d) without leave of court. A memorandum filed in excess of the page limits “must be filed and considered in the same manner as a late-filed paper.” CRC Rule 3.1113(g). The Court has discretion to disregard a late-filed brief. CRC Rule 3.1300(d). Accordingly, while the Court could completely disregard the entirety of the opposition, instead, the Court will only read the first 15 pages of the Opposition.

Defendants seek to compel Plaintiff to arbitrate on an individual basis his private claims for victim-specific relief under Labor Code § 558 to recover allegedly unpaid wages.

Under California law, arbitration agreements are valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract. Blake v. Ecker (2001) 93 Cal.App.4th 728, 741 (overruled on other grounds by Le Francois v. Goel (2005) 35 Cal.4th 1094). A party petitioning to compel arbitration has the burden of establishing the existence of a valid agreement to arbitrate and the party opposing the petition has the burden of proving, by a preponderance of the evidence, any fact necessary to its defense. Banner Entertainment, Inc. v. Superior Court (1998) 62 Cal.App.4th 348, 356-57.

A party seeking to enforce an arbitration agreement must properly authenticate the agreement before it may be received into evidence where the party opposing arbitration contests the authenticity of the arbitration agreement. Ruiz v. Moss Bros. Auto Group, Inc. (2014) 232 Cal.App.4th 836, 843, 846. “In ruling on the petition when factual matters are in dispute, the court must weigh credibility and the strength of competing evidence.” Acquire II, Ltd. v. Colton Real Estate Group (2013) 213 Cal.App.4th 959, 971.

Here, even assuming, for the sake of argument, that Plaintiff agreed to the arbitration agreement, the Court agrees with the Court’s holding in Lawson v. ZB, N.A. (2017) 18 Cal.App.5th 705, cited by Plaintiff, that Esparza v. KS Indus., L.P (2017) 13 Cal.App.5th 1228, upon which Defendants rely, was incorrectly decided.

In Esparza, the Fifth District held as follows:

We conclude that, for purposes of the Iskanian rule, PAGA representative claims for civil penalties are limited to those where a portion of the recovery is allocated to the Labor and Workforce Development Agency. Claims for unpaid wages based on Labor Code section 558 are not allocated in this manner and, therefore, the Iskanian rule does not exempt such claims from arbitration.

Applying the foregoing interpretation of the Iskanian rule and its term of art, civil penalties, to this litigation, we conclude some of the claims the employee is pursuing are PAGA representative claims that seek civil penalties. Under the Iskanian rule, those claims are not subject to arbitration. Our analysis does not end with that conclusion because the employee intended to pursue private claims for victim-specific relief, such as claims to recover wages under Labor Code section 558. The Iskanian rule does not exempt such claims from arbitration. This intention was based on the employee’s misinterpretation of the Federal Arbitration Act, the PAGA and Iskanian. Before this litigation proceeds, the employee shall be required to clearly state whether he will continue to pursue the claims to recover wages under Labor Code section 558 that are subject to arbitration. Accordingly, we remand for [*1235] further proceedings to allow the employee to unambiguously state his intention. Once his intention is clear, the trial court shall enter an appropriate order.

Esparza v. KS Industries, L.P. (2017) 13 Cal.App.5th 1228, 1234-35.

Employee argues this text clearly states that an award “an amount sufficient to recover underpaid wages” is a civil penalty. Employee further argues that this “civil penalty” under Labor Code section 558 constitutes a “civil penalty” within the meaning of Labor Code section 2699, subdivision (a) and a “civil penalty” for purposes of the rule adopted in Iskanian. We disagree. Employee’s argument is based on semantics and not substance. One substantive aspect of the claim is the financial reality that 100 percent of the “amount sufficient to recover underpaid wages” is paid to the affected employee. (Lab. Code, § 558, subd. (a)(2).) In Iskanian, our Supreme Court clearly expressed the need to avoid semantics and analyze substance in determining the scope of representative claims that could be pursued outside arbitration without violating the Federal Arbitration Act. (See Iskanian, supra, 59 Cal.4th at p. 388.) In short, parsing the language in the California statutes does not determine the scope of the federal statute, which ultimately is the legislation that controls whether a particular claim by Employee is subject to arbitration. Employee’s attempt to recover unpaid wages under Labor Code section 558 is, for purposes of the Federal Arbitration Act, a private dispute arising out of his employment contract with KS Industries. In statutory terms, the wage claim is covered by “[a] written provision in … a contract … to settle by arbitration a controversy thereafter arising out of such contract.” (9 U.S.C. § 2.) The dispute over wages is a private dispute because, among other things, it could be pursued by Employee in his own right. We recognize that private disputes can overlap with the claims that could be pursued by state labor law enforcement agencies. When there is overlap, the claims retain their private nature and continue to be covered by the Federal Arbitration Act. To hold otherwise would allow a rule of state law to erode or restrict the scope of the Federal Arbitration Act—a result that cannot withstand scrutiny under federal preemption doctrine. Therefore, we conclude preventing arbitration of a claim for unpaid wages would interfere with the Federal Arbitration Act’s goal of promoting arbitration as a forum for private dispute resolution. (See Iskanian, supra, 59 Cal.4th at p. 389.)

Similarly, Employee’s attempt to recover wages on behalf of other aggrieved employees involves victim-specific relief and private disputes. The rule of nonarbitrability adopted in Iskanian is limited to claims “that can only be brought by the state or its representatives, where any resulting judgment is binding on the state and any monetary penalties largely go to state coffers.” (Iskanian, supra, 59 Cal.4th at p. 388, italics added.) These limitations are not met by the claims for unpaid wages owed to other aggrieved employees because (1) those employees could pursue recovery of the unpaid wages in their own right and (2) the unpaid wages recovered would not go to state coffers.

In sum, Employee’s claims for unpaid wages are subject to arbitration pursuant to the terms of the parties’ arbitration agreement and the Federal Arbitration Act. The rule of nonarbitrability adopted in Iskanian is limited to representative claims for civil penalties in which the state has a direct financial interest.

Esparza, supra, 13 Cal.App.5th at 1243-46 (italics in original).

In Lawson, the Fourth District persuasively pointed out why Esparza was incorrectly decided:

Following Arias, in Thurman v. Bayshore Transit Management, Inc. (2012) 203 Cal.App.4th 1112 [138 Cal. Rptr. 3d 130] (Thurman), we considered the impact of the PAGA on a claim, like Lawson’s, brought for alleged violations of section 558, subdivision (a). The defendant in Thurman argued the underpaid wages portions of relief provided by section 558, subdivision (a)(1) and (2) were severable from the $50 and $100 amounts imposed for each violation and those portions could not be collected in a PAGA action. (Thurman, at pp. 1144–1145.) We rejected the defendants’ contention: “In our view, the language of section 558, subdivision (a), is more reasonably construed as providing a civil penalty that consists of both the $50 or $100 penalty amount and any underpaid wages, with the underpaid wages going entirely to the affected employee or employees as an express exception to the general rule that civil penalties recovered in a PAGA action are distributed 75 percent to the Labor and Workforce Development Agency (LWDA) and 25 percent to the aggrieved employees (§ 2699, subd. (i).)” (Thurman, at p. 1145.) In doing so we relied on Supreme Court, Court of Appeal and federal district court cases, which in other contexts found that the underpaid wages provided for under section 558 are part of the $50 and $100 penalties set forth in the statute. (Thurman, at pp. 1145–1147, citing Reynolds v. Bement (2005) 36 Cal.4th 1075, 1087–1089 [32 Cal. Rptr. 3d 483, 116 P.3d 1162] (Reynolds), Jones v. Gregory (2006) 137 Cal.App.4th 798, 809, fn. 11 [40 Cal. Rptr. 3d 581] (Jones), Bradstreet v. Wong (2008) 161 Cal.App.4th 1440, 1451 [75 Cal. Rptr. 3d 253] (Bradstreet), and Yadira v. Fernandez (N.D.Cal., June 14, 2011, No. C-08-05721 RMW) 2011 WL 2434043 (Yadira).) We stated: “We agree with the Yadira court that the entire remedy provided by section 558, including the recovery of underpaid wages, is a civil penalty, as noted by the California Supreme Court in Reynolds and by the Courts of [*718] Appeal in Jones and Bradstreet. Defendants characterize the statement in Reynolds that section 558 provides a ‘civil penalty, payable to the affected employee, equal to the amount of any underpaid wages’ as dictum based solely on the text of section 558, without analysis. Even assuming that this is so, we conclude that it is a correct construction of section 558, subdivision (a), and note that statements of the California Supreme Court should be considered persuasive even if properly characterized as dictum. [Citations.] The Reynolds court’s reading of section 558 reflects that the plain meaning of the statute is that the civil penalty it specifies consists of both an assessment of $50 for initial violations or $100 for subsequent violations and an amount sufficient to recover underpaid wages.” (Thurman, at p. 1147.)

In directly rejecting the defendant’s efforts to separate the assessments expressly denominated in section 558 from the underpaid wages provided by the statute in PAGA actions, we noted that in PAGA actions a plaintiff is acting on behalf of the state and that in an action brought by the state there was no question the state could recover both the denominated assessments and underpaid wages: “Because an aggrieved employee who brings a PAGA action sues ‘as the proxy or agent of the state’s labor law enforcement agencies’ [citation], the logical extension of defendants’ argument that wages cannot be recovered as a civil penalty is that the LWDA could not seek underpaid wages on behalf of employees under section 558. However, nothing in Arias suggests that the Legislature did not intend that the LWDA be able to recover ‘underpaid wages’ on behalf of employees under section 558 as part of a civil penalty for Labor Code and [Industrial Welfare Commission] order violations that result in underpayment of wages. The Legislature has authorized labor law enforcement agencies to prosecute actions for wages on behalf of employees elsewhere in the Labor Code. For example, under section 1193.6, the Department of Industrial Relations or DLSE may prosecute a civil action to recover unpaid wages on behalf of employees, with or without their consent. We conclude that the Legislature similarly authorized the LWDA to recover underpaid wages on behalf [of] employees in the form of a civil penalty under section 558. Accordingly, an aggrieved employee acting as the LWDA’s proxy or agent by bringing a PAGA action may likewise recover underpaid wages as a civil penalty under section 558.” (Thurman, supra, 203 Cal.App.4th at pp. 1147–1148.)

. . .

E. Analysis

1. Section 558 Claims Are PAGA Claims

Section 2699 subdivision (a) provides: “Notwithstanding any other provision of law, any provision of this code that provides for a civil penalty to be assessed and collected by the Labor and Workforce Development Agency or any of its departments, divisions, commissions, boards, agencies, or employees, for a violation of this code, may, as an alternative, be recovered through a civil action brought by an aggrieved employee on behalf of himself or herself and other current or former employees pursuant to the procedures specified in Section 2699.3.” (Italics added.)

Section 558, by its terms and as we interpreted it in Thurman, expressly provides for civil penalties and hence claims under section 558, including claims for underpaid wages, are cognizable under the PAGA. As our holding in Thurman makes clear, the $50 and $100 assessments as well as the compensation for underpaid wages provided for by section 558, subdivisions (a) and (b) are, together, the civil penalties provided by the statute.

In this regard, we respectfully part company with the views recently expressed by our colleagues in the Fifth District in Esparza v. KS Industries, L.P. (2017) 13 Cal.App.5th 1228 [221 Cal. Rptr. 3d 594] (Esparza). . . .

The court in Esparza also found that in light of Iskanian, our opinion in Thurman was no longer an impediment to severance of underpaid wage claims brought under section 558. (Esparza, supra, 13 Cal.App.5th at p. 1243.)

Our initial point of departure from Esparza is the opinion’s apparent conclusion that the plaintiff could pursue relief under section 558 in his own right. (Esparza, supra, 13 Cal.App.5th at p. 1246.) The court in Esparza cited no authority to support this conclusion and the authority that has come to our attention has consistently found there is no private right of action under section 558. (See Robles v. Agreserves, Inc. (E.D.Cal. 2016) 158 F.Supp.3d 952, 1006; Chang v. Biosuccess Biotech. Co., Ltd. (C.D.Cal. 2014) 76 F.Supp.3d 1022, 1049.) Rather, an individual may recover under section 558, only when the individual has satisfied the procedural requirements set forth in the PAGA and is acting in the place of and for the Labor and Workforce Development Agency (LWDA). (Robles, at p. 1006; Chang, at p. 1049.) In this regard section 558 is distinguishable from the wage penalties provided by section 203, and discussed in Iskanian; section 203, subdivision (b) expressly provides that “[s]uit may be filed” for those penalties. In general, where, as under section 558, there is no express right of private enforcement and instead a regulatory agency has expressly been given the right to enforce the statute, no private right of action will be implied. (See Vicko Ins. Services, Inc. v. Ohio Indemnity Co. (1999) 70 Cal.App.4th 55, 63–64 [82 Cal. Rptr. 2d 442].)

We also disagree with Esparza’s treatment of our opinion in Thurman. While we agree Thurman was decided before Iskanian, and that in Thurman we had no occasion to address the preemption issues discussed in Iskanian, those circumstances in no sense undermine the continuing validity of our holding in Thurman, to wit: in enacting section 558, the Legislature intended [*724] the underpaid wages recoverable under the statute, as well as the $50 and $100 assessments provided by the statute, be treated as civil penalties and that as civil penalties, neither type of recovery is severable for purposes of applying the PAGA. (See Thurman, supra, 203 Cal.App.4th at pp. 1147–1148.) In Thurman, in interpreting the intent of our Legislature in enacting section 558, we plainly did not purport to consider the separate question of whether FAA preemption, which was only later set forth in Concepcion, barred enforcement of the statute under the qui tam procedures set forth in the PAGA. That separate preemption question was however answered in Iskanian in its discussion of the distinction between civil penalties, which can be enforced even when an employee is subject to a class waiver agreement and statutory damages, which are preempted by such an agreement. (See Iskanian, supra, 59 Cal.4th at p. 381.)

The court in Iskanian made it clear that the distinction between civil penalties and victim specific statutory damages hinges in large measure on whether, prior to enactment of the PAGA, they could only be recovered by way of regulatory enforcement or whether they supported a private right of action. (See Iskanian, supra, 59 Cal.4th at p. 381.) As we have seen, section 558 provides no private right of action and by its terms is only enforceable by the LWDA. (See Robles v. Agreserves, Inc., supra, 158 F.Supp.3d at p. 1006; Chang v. Biosuccess Biotech Co., Ltd., supra, 76 F.Supp.3d at p. 1049.)

We of course recognize that in finding no FAA preemption, the court in Iskanian also relied on the fact the penalties it was considering were “largely” payable to the state. (Iskanian, supra, 59 Cal.4th at pp. 387–388.) In Iskanian, 75 percent of the civil penalties were payable to the LWDA and 25 percent were payable to employees. (Id. at p. 380; § 2699, subd. (i).) Here, there is nothing in the record which suggests the predominate amounts recovered under section 558 will be in the form of underpaid wages payable to employees; indeed, we note that with respect to the meal break and rest break violations alleged by Lawson, while section 558 provides either a $50 or $100 assessment for each violation during a pay period, Lawson only alleges an underpaid wage loss of one hour’s wages for each violation. Thus, depending upon how many violations occurred during a pay period and the effected employees’ rate of pay, it is quite possible that, at least as to the rest break and meal break allegations, the underpaid wage portion of any recovery will fall within the 25 percent range implicitly approved by the court in Iskanian.

In sum, because, prior to enactment of PAGA there was no private remedy under section 558 and because there is no basis upon which to conclude that recovery under the statute will largely go to individual employees, at this point, as in Iskanian, FAA preemption does not apply.

2. The Trial Court Erred

Because claims under section 558 are indivisible claims for civil penalties, the trial court’s order bifurcating Lawson’s PAGA claim between the denominated assessments and underpaid wages was erroneous, as was its further order directing that the underpaid wages be arbitrated as a representative action.) As we have discussed, the courts in Iskanian, Williams and Reyes have held that an individual employee’s prior arbitration agreement is no impediment to the employee’s right to bring a distinct civil enforcement action under the PAGA, notwithstanding the fact that the employee may have waived his or her right to bring class or representative claims against his or her employer. As those cases make clear, in bringing a PAGA action an employee is not acting on his or her own behalf, but on behalf of the state and the state is not bound by the employee’s prior agreement, including any waiver of his or right to bring a representative action.

PAGA claims are not only outside the scope of a plaintiff’s prior arbitration agreement under the terms of the statute itself and Iskanian, arbitration of such a representative claim also appears to run afoul of the principles set forth in Concepcion. In particular, arbitration of a PAGA claim, which as the trial court noted, is always a representative claim, would deprive defendants of the ability to challenge rulings on the merits and de novo, posing for defendants considerable and unexpected risks. (See Concepcion, supra, 563 U.S. at pp. 350–352.)

Accordingly, we must direct that the trial court vacate its order and enter a new order denying Z.B.’s motion to arbitrate. Contrary to ZB’s contention we have no power to direct that the trial court modify its order so that Lawson be compelled to arbitrate an individual underpaid wage claim. As the cases emphasize, under the PAGA Lawson is acting as a representative of the state, which has not agreed to arbitrate its claim for civil penalties. (Williams, supra, 237 Cal.App.4th at p. 649, quoting Reyes, supra, 202 Cal.App.4th at p. 1124.)

Lawson v. ZB, N.A. (2017) 18 Cal.App.5th 705, 717-25 (bold emphasis and underlining added).

Rather than mere semantics, the plain meaning rule of construing statutes leads to the conclusion that the Legislature intended that the entirety of Labor Code § 558 constituted a civil penalty, a portion of which would be paid entirely to the affected employee as underpaid wages.

Settled principles of statutory construction mandate that “ ‘ “[t]he statute’s plain meaning controls the court’s interpretation unless its words are [*610] ambiguous.” [Citations.] . . . .

Elk Hills Power, LLC v. Board of Equalization (2013) 57 Cal.4th 593, 609-10.

(a) Any employer or other person acting on behalf of an employer who violates, or causes to be violated, a section of this chapter or any provision regulating hours and days of work in any order of the Industrial Welfare Commission 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.

(3) Wages recovered pursuant to this section shall be paid to the affected employee.

(b) If upon inspection or investigation the Labor Commissioner determines that a person had paid or caused to be paid a wage for overtime work in violation of any provision of this chapter, any provision regulating hours and days of work in any order of the Industrial Welfare Commission, or any applicable local overtime law, the Labor Commissioner may issue a citation. The procedures for issuing, contesting, and enforcing judgments for citations or civil penalties issued by the Labor Commissioner for a violation of this chapter shall be the same as those set out in Section 1197.1.

(c) In a jurisdiction where a local entity has the legal authority to issue a citation against an employer for a violation of any applicable local overtime law, the Labor Commissioner, pursuant to a request from the local entity, may issue a citation against an employer for a violation of any applicable local overtime law if the local entity has not cited the employer for the same violation. If the Labor Commissioner issues a citation, the local entity shall not cite the employer for the same violation.

(d) The civil penalties provided for in this section are in addition to any other civil or criminal penalty provided by law.

(e) This section does not change the applicability of local overtime wage laws to any entity.

Lab. Code, § 558 (bold emphasis and underlining added).

Accordingly, Plaintiff’s PAGA cause of action to recover civil penalties pursuant to Labor Code § 558 is not subject to arbitration, as the claims are brought on behalf of the State, which has not consented to arbitration of this claim. Lawson, supra, 18 Cal.App.5th at 725.

Accordingly, the motion to compel arbitration of Plaintiff’s claims under Labor Code § 588 to recover unpaid wages is DENIED.

Plaintiff to give notice, unless waived.

IT IS SO ORDERED.

Dated: February 21, 2018 ___________________________________

Randolph M. Hammock

Judge of the Superior Court