FLORA GONZALES, оn behalf of herself and all others similarly situated and on behalf of the general public, Plaintiffs, v. EMERITUS CORPORATION, SUMMERVILLE AT ATHERTON COURT LLC, BROOKDALE LIVING COMMUNITIES, INC., BROOKDALE SENIOR LIVING COMMUNITIES, INC., BROOKDALE VEHICLE HOLDING, LLC; and Does 1 through 50, inclusive, Defendants.
No. C 18-06630 WHA
November 23, 2019
ORDER RE MOTION TO COMPEL ARBITRATION
INTRODUCTION
In this PAGA and wage-and-hour putative class action, defendants move to compel arbitration. For the reasons stated below, the motion to compel arbitration is GRANTED IN PART AND DENIED IN PART.
STATEMENT
In September 2019, the California Supreme Court held that the “amount sufficient to recover the underpaid wages” under
In brief, under California‘s Private Attorneys General Act of 2004, an aggrieved employee may seek civil penalties for Labor Code violations committed against her and other aggrieved employees by bringing — on behalf of California — a representative action against her employer. If the aggrieved employee prevails, the California Labor and Workforce Development Agency collects 75 percent of the penalties, and the aggrieved employees receive the remainder.
(a) Any employer . . . who violates . . . 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.
In other words, under
In 2012, the California Court of Appeal held that the underpaid wages constitute a civil penalty. Thurman v. Bayshore Transit Mgmt., Inc., 203 Cal. App. 4th 1112, 1144–48 (2012). That is, both the $50 and $100 fines and the “amount sufficient to recover the underpaid wages” could be the subject of a PAGA claim.
Having decided that the underpaid wages in
This split in authority bled into federal court. An unpublished opinion from our court of appeals found Esparza‘s reasoning more persuasive — and held that underpaid wages could be separately compelled to arbitration. Mandviwala v. Five Star Quality Care, Inc., 723 F. App‘x 415, 417–18 (9th Cir. 2018). But within months, a judge from this district disagreed and found Lawson more persuasive — and held that underpaid wages could not be separately compelled to arbitration. Whitworth v. SolarCity Corp., 336 F. Supp. 3d 1119, 1124–26 (N.D. Cal. 2018) (Judge Jacqueline Scott Corley). In between, the undersigned judge adopted our court of appeals’ reasоning in Mandviwala. Cabrera v. CVS Rx Services, Inc., No. C 17-05803 WHA, 2018 WL 1367323 (N.D. Cal. Mar. 16, 2018).
On March 21, 2018, the California Supreme Court granted review of Lawson seemingly to decide this split in authority. The California Supreme Court resolved the split by overruling Thurman.
The California Supreme Court began its analysis by admitting that “at first glance, a plausible reading of [
In other words, on the specific question of whether PAGA claims for unpaid wages under
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In this case, as alleged in the complaint, plaintiff Flora Gonzales worked as a medical aid and techniсian for seventeen years, providing care to senior citizens in a senior citizen facility. For the first fourteen of those years, either defendant Emeritus Corporation or defendant Summerville At Atherton Court LLC owned and operated the facility. Then, in 2014, three entities — defendant Brookdale Senior Living, Inc., defendant Brookdale Living Communities,
No ability to opt out of this policy existed. To the contrary, the policy bound employees automatically when they showed up to work. The arbitration agreement provided: “I understand that even if I do not sign this [a]greement, if I come to work after being given this agreement, I am agreeing to it and so is Brookdale” (id. ¶ 6) Moreover, refusal to sign a handbook — which provided mere detail on the arbitration process — would “result in [plaintiff‘s] immediate termination of employment.”
Other provisions within the arbitration agreement took away more rights in connection with the ability to bring сlass action and PAGA claims. More specifically, Section Eight of the arbitration agreement provided: “[c]lass action waiver. There is no right or authority under this [a]greement for any dispute to be brought, heard or arbitrated as a class or collective action” (id. § 8). Section Nine of the arbitration agreement provided: “[PAGA] waiver. There is no right or authority for any dispute to be brought, heard or arbitrated as a private attorney general action.” With respect to this PAGA waiver, however, the arbitration agreement also specifically provided that “[t]his provision can be removed from the [a]greement in a case where the dispute is filed as [a] private attorney general action and the court finds this waiver unenforceable. If that happens, then the private attorney general action will be litigated in that court” (id. § 9).
In 2014, our plaintiff signed both the arbitration agreement and the handbook. In 2017, the facility terminated plaintiff‘s employment.
In July 2018, plaintiff initiated this PAGA and wage-and-hour putative class action against defendants in Alameda County Superior Court, asserting six claims undеr the California Labor Code, including relief under
In October 2018, defendants removed the action to our district court. Defendants moved to compel arbitration of all claims based on the executed arbitration agreеment between the parties. Plaintiff opposed (Dkt. Nos. 1, 14, 15).
Primarily, the parties disagreed on the following three points: (i) whether or not the arbitration agreement could be enforced at all; (ii) if the arbitration agreement could be enforced, whether or not the contractual “waiver” of the ability to assert PAGA claims could be enforced; and (iii) if the cоntractual “waiver” of the PAGA claims could not be enforced, whether the underpaid wages sought by the complaint under
After oral argument in December 2018, an order stayed the action in full pending the California Supreme Court‘s decision in Lawson (Dkt. No. 19).
Following the California Supreme Cоurt‘s decision, the parties filed a joint status report. Plaintiff maintained that the motion to compel should be denied, but that leave be granted “to amend her [c]omplaint regarding the penalties sought under
This order first holds that the arbitration agreement is enforceable. All claims within the scope of the arbitration agreement must be sent to arbitration. Still, the class-action “waiver” provides “no right or authority under this [a]greement for any dispute to be arbitrated as a class or cоllective action” and so, the undersigned leaves it to the arbitrator to decide whether there is other authority for which plaintiff does have a right to bring a class or collective action.
Second, as to the PAGA claims, this order holds that plaintiff‘s PAGA waiver is unenforceable under binding precedent. Pursuant to the arbitration agreement, the representative PAGA claims remain in the district court аnd will not be sent to arbitration. Third, turning to the claims for unpaid wages brought under
1. THE ARBITRATION AGREEMENT IS VALID AND ENFORCEABLE.
Under the Federal Arbitration Act, a district court determines “whether a valid arbitration agreement exists and, if so, whеther the agreement encompasses the dispute at issue.” Lifescan, Inc. v. Premier Diabetic Servs., Inc., 363 F.3d 1010, 1012 (9th Cir. 2004). Here, the parties agree that the agreement encompassed the claims at issue. The arbitration agreement provided that ”any legal dispute arising out of or related to [plaintiff‘s] employment . . . must be resolved using final and binding arbitration and not by a court or jury trial. That includes any legal dispute that has to do with any of the following: wage and hour law, . . . unfair competition, compensation, breaks or rest periods” (Withers Decl. ¶ 6, Exh. A. § 1) (emphasis in original).
Plaintiff argues that the arbitration agreement is invalid and therefore should not be enforced due to alleged unconscionability and due to a perceived ambiguity in the PAGA waiver. Both arguments fail.
Turning to plaintiff‘s first argument, thе parties agree California state law applies. “Under California law, a contractual clause is unenforceable if it is both procedurally and substantively unconscionable.” Davis v. O‘Melveny & Myers, 485 F.3d 1066, 1072 (9th Cir. 2007) (emphasis added) (overruled on other grounds). Here, a high degree of unconscionable procedure permeates the provision at issue in that defendants imposed the arbitration agreement on plaintiff without evеn requiring her signature (although she did sign it) and under threat of terminating her fourteen-year employment. But procedural unconscionability is not enough to invalidate an arbitration agreement on its own, and plaintiff has made an insufficient showing of any overly harsh or one-sided result created by the agreement.
Plaintiff argues that the absence of “[p]laintiff‘s rights to meaningful discovеry” under the agreement satisfies a minimalist version of substantive unconscionability. Any assertion that plaintiff will be deprived of meaningful discovery in arbitration, however, glides over the arbitration agreement itself. On discovery, the arbitration agreement is explicit: “[d]iscovery will be conducted as directed by law or the [a]rbitrator” and the arbitrator may “issue subpoenas, if nеeded, for witnesses or documents” (Withers Decl. ¶ 6, Exh. A. § 1). The Court therefore can — and does — fully expect that reasonable discovery will be afforded by the arbitrators.
Even assuming the phrase is in fact ambiguous, this provision can be severed аnd therefore does not invalidate the entire agreement. Moreover, the PAGA waiver is also self-contained in its own section of the arbitration agreement. Furthermore, the arbitration agreement‘s main purpose is to impose arbitration. The PAGA waiver is therefore not central, but collateral, to the purpose of the agreement.
Plaintiff has not met her burden to show that the arbitration agreement is unenforceable. Because the agreement is valid and encompasses the claims at issue, the non-PAGA claims must be arbitrated. The next section will now detail why the PAGA waiver is invalid and why the PAGA claims must therefore remain in this forum.
2. THE PAGA WAIVER IN THE AGREEMENT IS NOT ENFORCEABLE.
As stated, the arbitration agreement included a waiver of all claims brought under PAGA. Both the California Supreme Court and our court of appeals have specifically held that these waivers are not enforceable. See Iskanian v. CLS Transport. Los Angeles, LLC, 59 Cal. 4th 348, 382–84 (2014); Sakkab v. Luxottica Retail N. Am., Inc., 803 F.3d 425, 430–40 (9th Cir. 2015). As such, under this binding precedent, the arbitration agreement‘s PAGA waiver remains unenforceable.
In this connection, the representative PAGA claims must remain in this forum. More specifically, the arbitration agreement provided that “[t]his provision can be removed from the [a]greement in a case where the dispute is filed as [a] private attorney general action and the court finds this waiver unenforceable. If that happens, then the private attorney general action will be litigated in that court” (Withers Decl. ¶ 6, Exh. A at § 9). The parties agree that if the waiver is struck, this provision now refеrs to the undersigned. The PAGA claims will remain here.
Defendants argue that Sakkab and Iskanian have been implicitly overruled by the United States Supreme Court‘s 2018 decision Epic Systems Corporation v. Lewis, 138 S. Ct. 1612 (2018). In Epic Systems, the Supreme Court held that contract defenses which invalidated arbitration agreements were a “device” that manifested “judicial antagonism” towards arbitration and were therefore preempted by the Federal Arbitration Act. Id. at 1623.
When prior circuit precedent has not been explicitly overruled, the analysis turns on whether “the relevant court of last resort . . . undercut the theory or reasoning underlying the prior circuit precedent in such a way that the cases are clearly irreconcilable.” Miller v. Gammie, 335 F.3d 889, 900 (9th Cir. 2003) (emphasis added). As relevant here, the reasoning which anchored the Supreme Court‘s decision in Epic Systems is far enough from the reasоning which anchored the California Supreme Court‘s decision in Iskanian and our court of appeals’ decision in Sakkab that Sakkab remains binding.
In Iskanian, the California Supreme Court held that an arbitration agreement requiring an employee as a condition of employment to give up the right to bring representative PAGA actions in any forum is contrary to public policy. Specifically,
The California Supreme Court‘s decision in Iskanian expresses no preference regаrding whether individual PAGA claims are litigated or arbitrated. It provides only that representative PAGA claims may not be waived outright. The Iskanian rule does not prohibit the arbitration of any type of claim.
803 F.3d at 434 (citations omitted). Put simply, PAGA waivers are invalid because they hurt California‘s interest in enforcing the Labor Code and not because of any reason that has anything to do with arbitratiоn. Therefore, our court of appeals held in Sakkab, that the Federal Arbitration Act did not preempt the California Supreme Court‘s decision in Iskanian. Id. at 439. For these same reasons, the holdings of Epic Systems and Sakkab are therefore not clearly irreconcilable and this order remains bound by Sakkab.
Defendants’ arguments to the contrary are unavailing for the specific reason that none demonstrates that our court of appeals’ decision in Sakkab is clearly irreconcilable with the United States Supreme Court‘s decision in Epic Systems.
The PAGA waiver in this agreement must be and hereby is held invalid. Under the agreement, the representative PAGA claims must remain in this forum. The arbitrability of any unpaid wages claims under
3. LEAVE TO AMEND COMPLAINT AND STAY OF PAGA CLAIMS.
In light of the decision by the California Suprеme Court clarifying the ability to allege unpaid wages under PAGA, justice requires that plaintiff be granted leave to amend her PAGA claims to comply with the California Supreme Court‘s recent decision in ZB, N.A. v. Superior Court of San Diego County, 8 Cal. 5th 175 (2019). Accordingly, leave to amend the complaint is GRANTED IN PART AND DENIED IN PART. Plaintiff may amend the unpaid wages aspect of her PAGA claims only to allege unpaid wages under a Labor Code provision other than
Under
To the extent stated, defendants’ motion to compel arbitration is GRANTED IN PART AND DENIED IN PART. The motion is GRANTED as to plaintiff‘s individual claims which are ORDERED to individual arbitration. The motion is DENIED as to the representative PAGA claims, which remain in this forum. Those claims are STAYED pending arbitration. Leave to amend the complaint is GRANTED solely as to the PAGA claims for unpaid wages previously brought under
IT IS SO ORDERED.
Dated: November 23, 2019.
WILLIAM ALSUP
UNITED STATES DISTRICT JUDGE