Franco v. Arakelian Enterprises, Inc.
234 Cal. App. 4th 947
| Cal. Ct. App. | 2015Background
- Plaintiff Edixon Franco, a former hourly employee, sued (individually and as putative class representative) for wage-and-hour and related Labor Code violations and brought a representative claim under the PAGA.
- Franco signed an employer-imposed Mutual Arbitration Policy (MAP) in 2005 that required individual arbitration and contained waivers of class, representative, and private-attorney-general actions.
- The defendants (initially sued as "Athens Disposal Co., Inc. dba Athens Services") sought to compel arbitration; appellate decisions (Franco I) held the MAP unenforceable because it waived class actions.
- After discovery revealed the correct employer was Arakelian Enterprises, Arakelian filed a second petition to compel arbitration; the trial court denied it based on law-of-the-case and alleged waiver by delay.
- The California Supreme Court’s decision in Iskanian (interpreting Concepcion) required reconsideration: class-action waivers are generally enforceable under the FAA, but PAGA representative-waiver provisions are unenforceable as against public policy and not preempted by the FAA.
- Holding on remand: the Court of Appeal reversed the denial of the petition, ordered arbitration of Franco’s individual claims, enforced the MAP’s class/representative waivers for non-PAGA individual/class claims, but held the MAP cannot bar Franco from pursuing PAGA claims in court; the case was remanded with directions and an appropriate stay.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Are employer-imposed class-action waivers in the MAP enforceable? | Franco: Gentry and Franco I make such waivers unenforceable because they impair employees' ability to vindicate statutory rights. | Arakelian: FAA (and Concepcion/Stolt-Nielsen) preempt state rules; the MAP waiver is enforceable. | Enforceable: Under Concepcion/Iskanian the FAA preempts the state-law basis used in Franco I; class waivers are not categorically invalid. |
| Does the law-of-the-case doctrine bar reconsideration of Franco I given intervening authority? | Franco: Franco I controls under law of the case. | Arakelian: Intervening Supreme Court decisions (Concepcion/Iskanian) change governing law. | Law-of-the-case does not apply because intervening change in law (Iskanian) requires redetermination. |
| Did Arakelian waive its right to compel arbitration by delaying identification as the employer? | Franco: Arakelian delayed and litigated under the wrong corporate name; that conduct waived arbitration rights and prejudiced plaintiff. | Arakelian: Delay was not shown to have caused prejudice or to be inconsistent with arbitration rights. | No waiver: Record does not show prejudice or conduct sufficient to waive arbitration; doubts resolved in favor of arbitration. |
| Are pre-dispute waivers of PAGA representative claims enforceable or preempted by the FAA? | Franco: MAP waives representative/PAGA claims and is unenforceable under state public policy (Civ. Code §1668, §3513). | Arakelian: FAA preempts state rule; waiver should be enforced like other arbitration provisions. | Unenforceable: Under Iskanian, PAGA waivers are contrary to public policy and not preempted by the FAA; PAGA claims may be litigated outside arbitration. |
Key Cases Cited
- Iskanian v. CLS Transp. Los Angeles, LLC, 59 Cal.4th 348 (Cal. 2014) (PAGA-waiver in employment arbitration agreements unenforceable; Concepcion preempts state law on class waivers but not on PAGA waiver)
- AT&T Mobility v. Concepcion, 563 U.S. 333 (U.S. 2011) (FAA preempts state rules that prohibit class-action waivers when they interfere with arbitration’s fundamental attributes)
- Stolt-Nielsen S.A. v. AnimalFeeds Int’l Corp., 559 U.S. 662 (U.S. 2010) (arbitration parties cannot be compelled to submit to class arbitration absent contractual basis)
- Gentry v. Superior Court, 42 Cal.4th 443 (Cal. 2007) (pre-Concepcion rule that employer-imposed class waivers may be unenforceable if individual arbitration thwarts statutory rights)
- Arias v. Superior Court, 46 Cal.4th 969 (Cal. 2009) (PAGA actions are representative actions prosecuting the state’s public enforcement interest)
- Franco v. Athens Disposal Co., Inc., 171 Cal.App.4th 1277 (Cal. Ct. App. 2009) (Franco I: MAP held unenforceable pre-Concepcion)