Opinion
F085840
01-31-2024
JONATAN QUIROZ, Plaintiff and Respondent, v. AMERICAN INCORPORATED, et al., Defendants and Appellants.
Braun and Melucci and Kerri M. Melucci for Defendants and Appellants. Capstone Law, Ryan H. Wu and John E. Stobart, for Plaintiff and Respondent.
NOT TO BE PUBLISHED
APPEAL from an order of the Superior Court of Tulare County No. VCU293698. David C. Mathias, Judge.
Braun and Melucci and Kerri M. Melucci for Defendants and Appellants.
Capstone Law, Ryan H. Wu and John E. Stobart, for Plaintiff and Respondent.
OPINION
SNAUFFER, J.
Plaintiff Jonatan Quiroz sued his former employer, American Incorporated and Crossfire Construction Company ("defendants"), to recover civil penalties under the Private Attorneys General Act of 2004 (PAGA; Lab. Code, § 2698 et seq.). Quiroz's complaint asserts a single cause of action under PAGA based on Labor Code violations he suffered personally, as well as Labor Code violations suffered by other employees of defendants. Defendants moved to compel arbitration of the PAGA claims for violations Quiroz suffered (the "individual claims") and to dismiss the PAGA claims for violations the other employees suffered (the "non-individual claims"). The court denied the motion in full, finding that the parties' arbitration agreement contains an illegal wholesale waiver of PAGA claims, which invalidates the entire agreement.
Undesignated statutory references are to the Labor Code.
Quiroz's complaint alleged defendants are alter egos of each other.
We affirm.
PAGA BACKGROUND
"PAGA authorizes 'an aggrieved employee,' acting as a proxy or agent of the state Labor and Workforce Development Agency (LWDA), to bring a civil action against an employer 'on behalf of himself or herself and other current or former employees' to recover civil penalties for Labor Code violations they have sustained." (Adolph v. Uber Technologies, Inc. (2023) 14 Cal.5th 1104, 1113 (Adolph), quoting § 2699, subd. (a).) "A PAGA claim for civil penalties '" 'is fundamentally a law enforcement action.'"' [Citation.] 'The "government entity on whose behalf the plaintiff files suit is ... the real party in interest." '" (Adolph, at p. 1117, quoting Kim v. Reins International California, Inc. (2020) 9 Cal.5th 73, 81 (Kim).) Seventy-five percent of any penalties collected by a PAGA representative are distributed to the LWDA, while the remaining 25 percent are distributed to the aggrieved employees. (§ 2699, subd. (i).)
Iskanian
In Iskanian v. CLS Transportation Los Angeles, LLC (2014) 59 Cal.4th 348, 382383 (Iskanian), the California Supreme Court held that "a predispute categorical waiver of the right to bring a PAGA action is unenforceable." (Adolph, supra, 14 Cal.5th at p. 1117.) This type of waiver, prohibiting PAGA claims from being brought in any forum, is commonly called a "wholesale waiver" of PAGA claims. The court also held that the Federal Arbitration Act (FAA) (9 U.S.C. § 1 et seq.) "does not preempt a state law that prohibits waiver of PAGA representative actions in an employment contract." (Iskanian, at p. 360.) Following Iskanian, "various courts held that employers may not require employees to 'split' PAGA actions in a manner that puts individual and nonindividual components of a PAGA claim into bifurcated proceedings." (Adolph, supra, 14 Cal.5th at p. 1118.)
Viking River
In Viking River Cruises, Inc. v. Moriana (2022) 596 U.S. 639 (Viking River) the United States Supreme Court considered whether the FAA preempts two of Iskanian's rules, which it described this way: "Iskanian's principal rule prohibits waivers of 'representative' PAGA claims in the first sense. That is, it prevents parties from waiving representative standing to bring PAGA claims in a judicial or arbitral forum. But Iskanian also adopted a secondary rule that invalidates agreements to separately arbitrate or litigate 'individual PAGA claims for Labor Code violations that an employee suffered,' on the theory that resolving victim-specific claims in separate arbitrations does not serve the deterrent purpose of PAGA." (Viking River, supra, 569 U.S. at p. 649.)
The Viking River court determined the FAA does not preempt Iskanian's main rule prohibiting wholesale waivers of PAGA claims (Viking River, supra, 596 U.S. at pp. 658-659), reasoning that because the FAA is concerned with the forum in which disputes are resolved, not with the substantive law that resolves them, it did not preempt this rule. (Id. at p. 653.) Thus, even after Viking River, a contractual waiver of the right to prosecute PAGA claims in any forum is unenforceable as against California public policy.
At the same time, the Viking River court held the FAA preempts Iskanian's secondary rule "preclud[ing] [the] division of PAGA actions into individual and nonindividual claims through an agreement to arbitrate." (Viking River, supra, 569 U.S. at p. 662.) If splitting were allowed, the court reasoned, parties might prefer to resolve higher-stakes non-individual claims in court, where appellate review is available to correct errors, but to arbitrate lower-stakes individual claims. (Id. at pp. 660-662.) But Iskanian's prohibition on contractual splitting of PAGA claims "circumscribes the freedom of parties to determine 'the issues subject to arbitration' and 'the rules by which they will arbitrate'" by imposing on them an all-or-nothing choice: arbitrate both individual and non-individual claims or forego arbitration entirely. (Id. at p. 559.)
The Supreme Court then turned to the agreement at issue there, which required "arbitrat[ion] [of] any dispute arising out of [the plaintiff's] employment" and contained a waiver provision "providing that in any arbitral proceeding, the parties could not bring any dispute as a class, collective, or representative PAGA action." (Viking River, supra, 569 U.S. at p. 647.) The agreement also included a "severability clause" specifying that "if any 'portion' of the waiver remained valid, it would be 'enforced in arbitration.'" (Ibid.) The Court relied on that clause in concluding the defendant had a right to compel arbitration of the plaintiff's individual PAGA claim, even though the arbitration agreement was invalid as to the non-individual PAGA claims. (Id. at p. 1925.)
The Court also held that the plaintiff's non-individual PAGA claims must be dismissed, reasoning that the plaintiff lacks standing to maintain those claims in state court once the individual claim has been committed to arbitration. (Viking River, supra, 596 U.S. at p. 663.) However, Justice Sotomayor noted in her concurring opinion that California courts would have the last word on this question of state law. (Id. at p. 664 (conc. opn. of Sotomayor, J.).)
Justice Sotomayor stated: "Of course, if this Court's understanding of state law is wrong, California courts, in an appropriate case, will have the last word." (Viking River, supra, 596 U.S. at p. 664 (conc. opn. of Sotomayor, J.).)
Adolph
In Adolph, supra, 14 Cal.5th 1104, the California Supreme Court addressed whether a plaintiff continues to have standing under PAGA to litigate non-individual claims after the individual claims are compelled to arbitration. The court concluded that "[w]here a plaintiff has brought a PAGA action comprising individual and non-individual claims, an order compelling arbitration of the individual claims does not strip the plaintiff of standing as an aggrieved employee to litigate claims on behalf of other employees under PAGA." (Id. at p. 1114; see id. at pp. 1121-1123.) In so concluding, the Adolph court superseded Viking River's holding that an aggrieved party who has been compelled to arbitrate individual PAGA claims loses standing to pursue non-individual PAGA claims. (Adolph, at p. 1119.)
Adolph was decided after the parties completed their appellate briefing.
SUMMARY OF FACTS
Quiroz worked for defendants as a driver and saw cutter from January 2022 to June 2022. As part of Quiroz's onboarding process, Quiroz and defendants signed an arbitration agreement. The arbitration agreement stated in part:
"By entering into this agreement, controversies between the parties below are subject to binding arbitration under the arbitration rules set forth in the Federal Arbitration Act (FAA), 9 U.S.C. sections 1 et seq., or if for any reason the FAA does not apply, then such controversies shall be subject to binding arbitration rules set forth in the California Arbitration Act, California Code of Civil Procedure, Title 9 of Part 3, Sections 1280 et seq., and other applicable laws. This agreement waives all rights to a civil court action, including class action lawsuits. A decision through binding arbitration, not by a judge or jury, will decide the controversy."
The agreement did not contain a severability clause.
In August 2022, Quiroz's attorney provided written notice of Labor Code violations to the LWDA and defendants under section 2699.3. Over 65 days passed without the agency responding to Quiroz's notice.
TRIAL COURT PROCEEDINGS
In October 2022, Quiroz filed a complaint seeking civil penalties under PAGA for violations of the Labor Code. He sought penalties for violations he suffered individually and for violations suffered by other employees, which is to say he asserted both individual and non-individual PAGA claims.
In December 2022, defendants moved to compel arbitration of Quiroz's individual claims and to dismiss the non-individual claims. The motion was supported by two declarations. Defendants asserted that under Viking River, the individual claims must be sent to arbitration and the non-individual claims must be dismissed "when a valid and enforceable agreement to arbitration exists." They gave no page citation to Viking River to support why the individual claims must be arbitrated and why the non-individual claims must be dismissed here. They also asserted, citing Viking River, that when the individual claims are ordered to arbitration, Quiroz will lack standing to continue to pursue the non-individual claims in court.
Quiroz opposed the motion, arguing that defendants misunderstood Viking River's analysis. He explained that Viking River's holding was based on a careful analysis of the terms of the arbitration agreement in that case, and that individual and non-individual claims are not automatically split whenever there is an arbitration agreement. Instead, the claims were split as they were in Viking River because of the severance clause and the provision in the agreement to arbitrate individually.
Quiroz argued that whether or not the waiver clause in the agreement was a waiver of PAGA actions, the motion was meritless. If it was a waiver of PAGA actions, then it would be invalid under Viking River and, since the agreement does not have a severance clause saving the rest of the contract like the agreement in Viking River did, the entire agreement was invalid. Alternatively, if the waiver clause was not a wholesale waiver of non-individual claims, then both the individual and non-individual claims should be ordered to arbitration because there was no legal reason for ordering only the individual claims to arbitration. In any event, the motion should be denied.
In reply, defendants argued the waiver provision waives only non-individual PAGA claims and "does not apply to [Quiroz's] individual PAGA claim." It is not a wholesale waiver. Defendants based this argument on the premise that non-individual PAGA claims are class actions, and thus are covered by the waiver. From this, defendants argued that "the waiver provision here is unlike the provision considered to be a wholesale waiver in Viking River which expressly waived a plaintiff's right to bring a PAGA action altogether." They asserted that a waiver of the right to bring nonindividual PAGA claims in any forum is lawful. As a result, the waiver provision is not unlawful and does not invalidate the entire arbitration agreement.
The trial court heard argument and denied the motion in February 2023 in a written order. The court first addressed the scope of the arbitration agreement: "[Quiroz] has sued for various Labor Code violations on the basis of the PAGA statute. Therefore, these claims would appear to be within the scope of the Arbitration Agreement." But despite this finding that Quiroz's claims were within the scope of the agreement's arbitrability clause, the court found the claims could not be ordered to arbitration. This is because the court found the agreement's waiver provision contained an impermissible wholesale waiver of PAGA claims, which rendered the entire agreement unenforceable with respect to all of Quiroz's PAGA claims. On that point, the court "note[d] the Agreement here purports to 'waive all right to a civil court action, including class action lawsuits' and no severance clause appears present." The court then stated:
The written order was the court's tentative ruling on the motion, which the court adopted as the order without change.
"[T]he Agreement contains a wholesale waiver of PAGA claims which is invalid under California law, a law which has not been preempted
by the FAA and Viking River. Iskanian, as noted above, provides that an employee's pre-dispute waiver of the right to bring PAGA claims is contrary to public policy and invalid (Iskanian, supra, 59 Cal.4th at [p.] 383) and Viking River recognizes that 'that aspect of Iskanian is not preempted by the FAA.' (Viking River, supra, 142 S.Ct. at [pp.] 19241925.) The class action waiver, which includes a waiver of the right to be a plaintiff in a representative action, is invalid as a waiver of PAGA claims under Iskanian."
Continuing the Viking River analysis, the court found that, "[a]bsent a severability clause, the PAGA waiver cannot be split between individual and [non-individual] actions. The waiver is all-or-nothing with respect to PAGA claims, and as it is invalid under Iskanian, the effect of the waiver on the PAGA claims is nothing." The court denied the motion based on that reasoning.
DISCUSSION
On appeal, defendants contend the trial court erred in interpreting the arbitration agreement as including a wholesale waiver of PAGA claims-that is, a waiver of the right to bring either type of PAGA claim in any forum. They argue the court erroneously believed that PAGA actions are class actions and thus are covered by the agreement's waiver provision, which states that the parties waive all right to a civil court action, including class actions. They interpret the agreement as requiring that the individual claims be sent to arbitration and the non-individual claims be dismissed or dealt with according to the holding in Adolph, supra, 14 Cal.5th 1104.
We need not decide whether the agreement contained a wholesale waiver of PAGA claims. This is because the motion should have been denied even if there were no impermissible wholesale waiver.
For sake of argument, we will presume defendants are correct that there was no wholesale waiver and thus the agreement was not invalid. From there, we will explain how even though the agreement provided for arbitration of both individual and nonindividual PAGA claims, defendants' motion to compel arbitration of Quiroz's individual PAGA claims should have been denied because the parties never agreed to separate the individual PAGA claims from non-individual PAGA claims. Viking River held that individual PAGA claims may be separately arbitrated, but only if the parties have agreed to do so. (Viking River, supra, 596 U.S. at p. 662.) Since Quiroz has not agreed to do so, either all or none of his PAGA claims must be arbitrated. Thus, the trial court's decision to deny defendants' motion in full was correct, but for different reasons.
I. Standard of review
"On petition of a party to an arbitration agreement alleging the existence of a written agreement to arbitrate a controversy and that a party to the agreement refuses to arbitrate that 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[.]" (Code Civ. Proc., § 1281.2.) "In a petition to compel arbitration, 'the moving party, in essence, requests specific performance of a contractual agreement to arbitrate the controversy[.] The trial court must determine in advance whether there is a duty to arbitrate the controversy[.] This determination "necessarily requires the court to examine and, to a limited extent, construe the underlying agreement." '" (Gravillis v. Coldwell Banker Residential Brokerage Co. (2006) 143 Cal.App.4th 761, 770-771.)
"We review the trial court's interpretation of an arbitration agreement de novo when, as here, that interpretation does not depend on conflicting extrinsic evidence." (DMS Services, LLC v. Superior Court (2012) 205 Cal.App.4th 1346, 1352.).
II. Scope of the arbitration agreement
As mentioned, we will assume the arbitration agreement does not contain an illegal wholesale waiver and is therefore valid. The question then is the agreement's scope, and the parties actually agree on the scope.
The parties agree that Quiroz's individual and non-individual PAGA claims fall within the scope of the arbitration agreement; the agreement provides for arbitration of all PAGA claims. We will first discuss the scope of the agreement and accept the parties' agreement. We will then explain why the claims could not be split by separately arbitrating Quiroz's individual claims. Either all or none of the PAGA claims must be arbitrated unless Quiroz agrees to split the claims as defendants attempted to do.
The agreement covers "controversies between the parties" to the agreement, namely Quiroz and American. The trial court stated in its order denying defendants' motion that "[Quiroz's] claims would appear to be within the scope of the Arbitration Agreement." We interpret this statement to be a determination that both the individual and non-individual claims are "controversies between the parties" and thus are within the agreement's scope. Neither party challenges this interpretation. In fact, both parties agree with it.
Both parties in their appellate briefing express their understanding that they agreed to arbitrate all PAGA claims in the arbitration agreement. Defendants, in their opening brief, assert that "the overall intention of the [arbitration] agreement is arbitration." These words in context:
"Quiroz contended below that the individual PAGA claims could not be sent to arbitration because there was no specific provision providing that the parties agreed to arbitrate an individual PAGA claim, but not a representative PAGA claim. While it is true the Arbitration Agreement does not carve out any specific type of claim, the overall intention of the agreement is arbitration. That intention necessarily includes arbitration of the subcategory of an individual PAGA claim." (Italics added.)
In this portion of their brief, defendants were arguing that even though the arbitration agreement did not make individual PAGA claims arbitrable and nonindividual PAGA claims non-arbitrable, Viking River's holding "allows for" the two types of claims to be separated in that way. This is so, according to defendants, even though Viking River was decided after the parties signed the arbitration agreement, because Viking River applies retroactively. We interpret defendants to be arguing that Viking River allows them to split the PAGA claims by moving to compel arbitration of only the individual claims, even though the agreement does not provide that the claims can be split.
Whether defendants are correct in that argument is irrelevant at this point. What is important is what defendants admitted in making that argument. They admitted that the arbitration agreement provides that all types of PAGA claims are to be arbitrated. Put differently, defendants admitted that the parties intended, when signing the agreement, that all PAGA claims would be arbitrated.
Quiroz in his appellate brief shares this understanding. He says:
"Defendants admit 'it is true the Arbitration Agreement does not carve out any specific type of claim' and recognize that 'the overall intention of the agreement is arbitration.' [Quiroz] agrees that the parties intended to arbitrate [Quiroz]'s claims. But, just as '[t]hat intention necessarily includes arbitration of the subcategory of an individual PAGA claim,' it would also include the representative, 'non-individual' PAGA claim." (Italics added.)
In sum, the trial court found that all PAGA claims are covered by the arbitration agreement, and the parties share this understanding. There is no reason for us to not accept this understanding. We next show why even though the agreement covered all PAGA claims, the correct course was to reject defendants' attempt to split the claims via their motion to compel arbitration.
III. Divisibility of the PAGA claims
The correct decision below was to deny the motion in full. The trial court happened to reach this result, although we disagree with its reasoning. As we now explain, defendants are incorrect that Viking River allows them to pare away the individual PAGA claims from the non-individual claims by moving to compel arbitration of only the individual claims. Either all or none of the PAGA claims must be arbitrated, unless Quiroz consents to dividing the claims, which he has not. Thus, the correct course here was to deny defendants' motion.
Defendants tried to divide the individual and non-individual PAGA claims by moving to compel arbitration of only the individual PGA claims and to dismiss the nonindividual PAGA claims. In doing so, defendants sought to compel arbitration of fewer than all arbitrable claims, an unusual maneuver. But defendants' tactical reasons for this course of action are obvious. They attempt to seize on Viking River's holding that an aggrieved party who has been compelled to arbitrate individual PAGA claims loses standing to pursue non-individual PAGA claims. (Viking River, supra, 569 U.S. at p. 663.) Defendants asserted in the lower court that moving the individual PAGA claims to arbitration and leaving behind the non-individual claims in court requires dismissing the non-individual claims for lack of standing. Their position on appeal as to the disposition of the non-individual claims remains similar but expands slightly to accommodate Adolph's then-forthcoming holding. That is, defendants' briefing argues that we should either dismiss the non-individual claims as directed in Viking River, or resolve those claims "as the California Supreme Court may determine in the pending case of Erik Adolph v. Uber Technologies, Inc." In any event, defendants apparently feel a splitting of claims, even if the non-individual claims are not dismissed, would inure to their advantage.
Recall that appellate briefing was completed before Adolph was decided.
Recall that in Adolph, supra, 14 Cal.5th 1104, the California Supreme Court decided for itself whether plaintiffs retain standing to pursue non-individual PAGA claims in state court when individual PAGA claims are separately ordered to arbitration. (Id. at p. 1114.)
There is no question that had defendants moved to compel all of Quiroz's PAGA claims to arbitration, the trial court should have ordered all of the claims to arbitration. This is so because, as we have explained, the court found that all PAGA claims are within the scope of the arbitration agreement's arbitrability clause, and the parties accept this interpretation of the agreement. But since defendants sought to compel arbitration of only the individual PAGA claims, the question is whether defendants can pare away the individual claims and arbitrate them separately. The parties disagree on whether defendants can do this.
Defendants, citing Viking River, assert they can split away the individual PAGA claims from the non-individual claims by moving to compel arbitration of only the individual claims. They maintain Viking River allows this even though the arbitration agreement does not provide that the two types of claims can be divided like that. Quiroz disagrees. He argues that Viking River allows the two types of PAGA claims to be separately arbitrated only if the parties agree to do so. And because the parties have not agreed to do so, the individual claims cannot be pared away, and thus the motion must be denied in full. As we will explain, Quiroz is correct.
As previously discussed, Viking River provided important clarification about the relationship between PAGA claims and the FAA. There, the Court was asked to decide whether the FAA preempts two of Iskanian's rules, which we will briefly recap. (Viking River, supra, 596 U.S. at p. 649.) The first rule, which Viking River left intact, is that wholesale waivers of PAGA claims are unenforceable. (Id. at pp. 658-659, 662.) Iskanian's secondary rule invalidates agreements to separately arbitrate or litigate individual PAGA claims. (Id. at p. 649.) Put differently, Iskanian "precludes division of PAGA actions into individual and non-individual claims through an agreement to arbitrate." (Id. at p. 662.) Viking River held the FAA preempts this second rule. (Ibid..)
The Court also ruled that if individual claims are committed to a separate proceeding, a party "lacks statutory standing to continue to maintain her non-individual claims in court, and the correct course is to dismiss her remaining claims." (Viking River, supra, at p. 663.)
Quiroz correctly characterizes as "narrow" the FAA's preemption of Iskanian's second rule announced in Viking River. Quiroz observed in his lower court moving papers that Viking River itself does not divide PAGA claims into individual and nonindividual claims; rather, it honors the parties' contractual agreement to do so. Indeed, Viking River explained that "the FAA preempts the rule of Iskanian insofar as it precludes division of PAGA claims into individual and non-individual claims through an agreement to arbitrate." (Viking River, supra, 596 U.S. at p. 662, italics added.) This shows that individual PAGA claims cannot be pared away from non-individual claims unless the parties have agreed to do so. Quiroz has not agreed to do so here, and thus defendants cannot unilaterally divide the claims by moving to compel arbitration of only the individual claims. Unless Quiroz agrees to do otherwise, the parties must arbitrate either all or none of the PAGA claims.
DISPOSITION
The trial court's order denying defendants' motion is affirmed. Quiroz is awarded his costs on appeal.
WE CONCUR: POOCHIGIAN, Acting P. J., DETJEN, J.