Case Number: BC662434 Hearing Date: March 06, 2018 Dept: 53

PICHANARY CHEM , et al. vs. OAKMONT MANAGEMENT GROUP LLC , et al.; BC662434, MARCH 6, 2018

[Tentative] Order RE: PLAINTIFFS’ MOTION FOR RECONSIDERATION OF ORDER GRANTING DEFENDANT OAKMONT MANAGEMENT GROUP LLC’S MOTION TO COMPEL ARBITRATION

Plaintiffs PICHANARY CHEM and LETICIA GUERRERO’s Motion for Reconsideration of Order Granting Defendant Oakmont Management Group LLC’s Motion to Compel Arbitration is DENIED.

BACKGROUND

Plaintiffs Pichanary Chem (“Chem”) and Leticia Guerrero (“Guerrero”) (jointly, “Plaintiffs”) brought this representative action against Defendants Oakmont Management Group LLC (“OMG”), Oakmont Senior Living, LLC, Joseph G. Lin, and William Gallagher (collectively, “Defendants”) on May 22, 2017. The gravamen of the Complaint is that Defendants had a consistent policy of failing to pay Plaintiffs and other aggrieved employees for all hours worked, including overtime hours, failed to provide them with written notice of their rate of pay and regular payday, failed to provide them meal and rest periods, sick days, or adequate wage statements, and failed to pay them by the appropriate pay period. The Complaint asserts one cause of action for penalties under the Private Attorney General Act (“PAGA”) (Cal.Lab. Code § 2699)

OMG petitioned the Court to compel arbitration pursuant to arbitration agreements entered into by Plaintiffs in connection with their employment, which petition was granted on December 19, 2017.

Plaintiffs now move for reconsideration in light of the publication of the Court of Appeal opinion in Lawson v. ZB N.A. (2017) 18 Cal.App.5th 705. OMG opposes.

REQUEST FOR JUDICIAL NOTICE

Plaintiffs’ Request for Judicial Notice is granted.

DISCUSSION

In granting OMG’s petition to compel arbitration, the Court found that Plaintiffs’ Labor Code section 558 claims were subject to arbitration per Esparza v. KS Industries, L.P. (2017) 13 Cal.App.5th 1228. Plaintiffs contend that reconsideration of that ruling is warranted because Lawson is new law that directly conflicts with Esparza, leading to a different result. (See Code Civ. Proc., § 1008(a).) OMG opposes on the basis that Lawson may be new law, but that this Court should decline to follow Lawson. Where there are appellate court decisions in conflict, the trial court must make a choice between the conflicting decisions. (Auto Equity Sales, Inc. v. Superior Court (1962) 57 Cal.2d 450, 456.

The Court first considers the rule set forth in Iskanian v. CLS Transp. Los Angeles, LLC (2015) 59 Cal.4th 348 as it relates to the arbitrability of PAGA claims. In Iskanian, the California Supreme Court considered whether PAGA claims are subject to arbitration under California law, and if so, whether the FAA preempts such a law. (Id. at p. 378.) The policy purposes behind enactment of PAGA were described as follows: “The Legislature declared that adequate financing of labor law enforcement was necessary to achieve maximum compliance with state labor laws, that staffing levels for labor law enforcement agencies had declined and were unlikely to keep pace with the future growth of the labor market, and that it was therefore in the public interest to allow aggrieved employees, acting as private attorneys general, to recover civil penalties for Labor Code violations, with the understanding that labor law enforcement agencies were to retain primary over private enforcement efforts.” (Id. at p. 379 [citations omitted].) Therefore, under PAGA, “an ‘aggrieved employee’ may bring a civil action personally and on behalf of other current or former employees to recover civil penalties for Labor Code violations. [citation] Of the civil penalties recovered, 75 percent goes to the Labor and Workforce Development Agency, leaving the remaining 25 percent for the ‘aggrieved employees.’ [citation]” (Id. at p. 380.)

For the purposes of the instant motion, the relevant discussion pertains to the definition of civil penalties as opposed to “statutory damages to which employees may be entitled in their individual capacities.” (Id. at p. 381.) As held in Iskanian, “a request for statutory penalties provided by the Labor Code for employer wage-and-hour violations, which were recoverable directly by employees well before the [PAGA] became part of the Labor Code” is dissimilar from “a demand for ‘civil penalties,’ previously enforceable only by the state’s labor law enforcement agencies.” (Ibid.)

The primary objective in both Esparza and Lawson was to determine whether the “penalties” recoverable under Labor Code section 558 are “civil penalties” as defined in Iskanian. Lawson holds that claims for unpaid wages under section 558 are not private because “prior to enactment of PAGA there was no private remedy under section 558.” (Lawson, supra, at pp. 724-725.) In support, the court in Lawson looked to the holding in Thurman v. Bayshore Transit Management, Inc. (2012) 203 Cal.App.4th 1112, 723-724, which provided that underpaid wages recoverable under section 558, in addition to the $50 and $100 assessments provided therein, are treated together as civil penalties. On the other hand, Esparza had rejected this argument on the basis that Thurman was decided two years before Iskanian and did not involve an arbitration provision subject to the FAA. Per the court in Esparza, an employee’s attempt to recover unpaid wages under section 558 is “for purposes of the Federal Arbitration Act, a private dispute arising out of his employment contract . . .” (Esparza, supra, at p. 1246.) Esparza based its decision on a substantive reading of section 558 and held that its holding was compelled by the “financial reality that 100 percent of the ‘amount sufficient to recover underpaid wages’ is paid to the affected employee.” (Id. at p. 1245.)

However, the inquiry does not end there, as the analysis in Iskanian demonstrates. Even if Labor Code section 558 penalties are in fact “civil penalties” as held in Thurman and Lawson, a “state law rule, however laudable, may not be enforced if it is preempted by the FAA.” (Iskanian, supra, at p. 384.) There was no discussion of FAA preemption in Thurman, so Thurman’s holding, and Lawson’s reliance thereon, only partially answers the question. As held in Iskanian, “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.” (Id. at p. 386.) Instead, “it is a dispute between an employer and the state, which alleges directly or through its agents . . . that the employer has violated the Labor Code. (Id. at pp. 386-387.) The Iskanian opinion illustrates application of this principle to the facts of its case and notes that the plaintiff in Iskanian was “seeking to recover civil penalties, 75 percent of which will go to the state’s coffers.” (Id. at p. 387.) The court in Iskanian concluded that its rule applies “specifically to a state law rule barring predispute waiver of an employee’s right to bring an action 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.” (Id. at p. 388.)

Here, the Court finds that nothing in Lawson compels rejecting the reasoning espoused in Esparza. In fact, the Court finds that the ruling in Esparza is more consistent with Iskanian, particularly in its consideration of FAA preemption. A Labor Code section 558 action is not one that can “only be brought by the state or its representatives” (as noted by OMG, Labor Code section 1194, which is alleged in Plaintiffs’ Complaint, provides that employees receiving less than the legal minimum wage or the applicable legal overtime compensation are entitled to recover in a civil action the unpaid balance of the full amount of this compensation) and is not one where “any monetary penalties largely go to state coffers” (the unpaid wages would not go to state coffers).

CONCLUSION

Based on the foregoing, Plaintiffs PICHANARY CHEM and LETICIA GUERRERO’s Motion for Reconsideration of Order Granting Defendant Oakmont Management Group LLC’s Motion to Compel Arbitration is DENIED.

OMG is ordered to provide notice of this Order.

DATED: March 6, 2018

_____________________________

Howard L. Halm

Judge of the Superior Court