BLAINE NICKSON v. SHEMRAN, INC.
D080914
COURT OF APPEAL, FOURTH APPELLATE DISTRICT DIVISION ONE STATE OF CALIFORNIA
April 7, 2023
CERTIFIED FOR PUBLICATION
Angel M. Bermudez, Judge.
Law Offices of Eli Mayer Kantor, Eli Mayer Kantor and Jonathan D. Kantor for Defendant and Appellant.
Lawyers for Justice, Edwin Aiwazian, Tara Zabehi and Travis Joseph Maher for Plaintiff and Respondent.
Shemran, Inc. (Shemran) appeals the denial of its motion to compel arbitration of a Labor Code Private Attorneys General Act of 2004 (PAGA) (
The final issue is what to do with Nickson‘s nonindividual PAGA claims, since only his individual ones are arbitrable. In Viking River, purporting to apply California law, the United States Supreme Court stated that a plaintiff lacks standing to prosecute nonindividual PAGA claims when their individual ones are ordered to arbitration. (Viking River, supra, 142 S.Ct. at p. 1925.) Shemran contends we should, therefore, dismiss Nickson‘s nonindividual PAGA claims. California courts, however, are the final word on the meaning and application of this state‘s statutes. (See Beal v. Missouri P.R. Corp. (1941) 312 U.S. 45, 50 (Beal).)2 In Kim v. Reins (2020) 9 Cal.5th 73, 80, the California Supreme Court held that employees do not lose PAGA standing even after settling and dismissing individual claims. Indeed, relying on Kim, we recently held that an employee whose individual PAGA claims are time-barred still has standing to pursue nonindividual claims. (Johnson v. Maxim Healthcare Services, Inc. (2021) 66 Cal.App.5th 924, 929 (Johnson).) Pending further guidance from the California Supreme Court,3 we are compelled to follow Kim and hold that Nickson‘s nonindividual PAGA claims should not be dismissed.
FACTUAL AND PROCEDURAL BACKGROUND
In 2021, Nickson filed a single-count PAGA complaint against Shemran and “Barons Market,” a fictitious business name under which it operates grocery stores. Nickson alleged that he was “an hourly-paid, non-exempt employee” and defendants violated certain wage-and-hour provisions of the Labor Code. He sought civil penalties on behalf of himself and other aggrieved employees.
Shemran promptly moved to compel arbitration, supported by an authenticated copy of the Agreement. It provides for the “resolution by binding arbitration” of Nickson‘s individual claims:
“Barons Market and I mutually consent to the resolution by binding arbitration of all claims or controversies . . . that Barons Market may have against me or that I may have against Barons Market . . . .” [¶] . . . [¶] “All claims that are covered by this Agreement can only be brought . . . on an individual basis. . . . I agree to waive any right to join or consolidate claims with others, or to make any claims as representative of a class, a member of a class, or in a private attorney general capacity.”
After conducting an unreported hearing, the trial court denied the motion, citing Iskanian, supra, 59 Cal.4th 348 as “controlling law.”
DISCUSSION
A. PAGA
Before 2004, the California Labor and Workforce Development Agency (LWDA) was responsible for collecting civil penalties for labor law violations. The Legislature found, however, that the LWDA lacked sufficient resources to keep pace with the sheer number and gravity of offenses. As a solution, PAGA was enacted to empower aggrieved employees to act as private attorneys general to prosecute and collect civil penalties on the State‘s behalf. (See Arias v. Superior Court (2009) 46 Cal.4th 969, 980 (Arias).)
PAGA does not create substantive rights. It “‘is simply a procedural statute allowing an aggrieved employee to recover civil penalties—for Labor Code violations—that otherwise would be sought by state labor law enforcement agencies.‘“(Bautista v. Fantasy Activewear, Inc. (2020) 52 Cal.App.5th 650, 657.) Seventy-five percent of the penalties recovered go to the LWDA; the remainder is disbursed to the aggrieved employees. (
In PAGA parlance, Labor Code violations suffered by the plaintiff are “individual claims.” (See Viking River, supra, 142 S.Ct. at p. 1916.) The statute, however, allows an aggrieved employee to join claims for offenses committed against fellow employees. These are called “non-individual” claims. (Ibid.)
In Iskanian, the California Supreme Court considered whether an employer could limit its PAGA exposure by contract. The answer was no. An employee‘s right to bring a PAGA action “is unwaivable.” (Iskanian, supra, 59 Cal.4th at p. 383.) This is because an employee‘s agreement to waive their right to bring a PAGA action would “disable one of the primary mechanisms for enforcing the Labor Code,” and as such was against public policy. (Iskanian, at p. 383.)4
The Iskanian court also considered whether the FAA preempted its rule against PAGA waivers. It found no preemption because “the FAA aims to ensure an efficient forum for the resolution of private disputes, whereas a PAGA action is a dispute between an employer and the state.” (Iskanian, supra, 59 Cal.4th at p. 384.) In a PAGA action, “the state is the real party in interest” and “[t]here is no indication that the FAA was intended to govern disputes between the government in its law enforcement capacity and private individuals.” (Iskanian, at p. 385.)
Additionally, Iskanian rejected the employer‘s argument that the particular waiver it drafted should be upheld because it only waived nonindividual PAGA claims and preserved the employee‘s right to arbitrate individual ones. (Iskanian, supra, 59 Cal.4th at pp. 383–384.) Appellate courts interpreted this aspect of Iskanian “as prohibiting splitting PAGA claims into individual and nonindividual components to permit arbitration of the individual claims.” (Lewis v. Simplified Labor Staffing Solutions, Inc. (2022) 85 Cal.App.5th 983, 993.)
Based on Iskanian, California courts refused to enforce predispute agreements to arbitrate PAGA claims. The rationale was that an employee cannot be “aggrieved” before a violation occurs. And until the employee is “aggrieved,” they have no authority to act as the State‘s agent. As one court explained, “[A]n agreement to arbitrate the PAGA claims would not be enforceable unless it was made after the former employee became a PAGA authorized aggrieved employee (i.e., an agent of the state).” (Herrera v. Doctors Medical Center of Modesto (2021) 67 Cal.App.5th 538, 550, fn. 3.)
This rule and the logic behind it seemed sound—until Viking River.
In Viking River, the United States Supreme Court considered whether the FAA preempts California‘s rule invalidating contractual waivers of the right to assert PAGA claims.5 (Viking River, supra, 142 S.Ct. at p. 1913.)
The court‘s analysis began by explaining that PAGA actions are “representative” in two distinct ways. First, they are all representative in the sense that the aggrieved employee represents the State. (Viking River, at p. 1916.) Second, some PAGA actions are also predicated on Labor Code violations that the defendant allegedly committed against other aggrieved employees (i.e., not the plaintiff). (See Viking River, at p. 1916.) Because the statute allows joinder of nonindividual claims, a PAGA action is also “representative” in the sense that the named plaintiff represents fellow aggrieved employees.
As discussed above, under Iskanian an employee cannot waive the right to bring a PAGA action. In Viking River, the court concluded 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. (Viking River, supra, 142 S.Ct. at p. 1919.) Thus, even after Viking River, a contractual waiver of the right to prosecute PAGA claims is unenforceable as against California public policy.
However, Iskanian‘s secondary rule—prohibiting a PAGA action from being split into separate individual and nonindividual actions—is procedural. Viking River holds that the FAA preempts this rule. If splitting were allowed, the court reasoned, parties might prefer to resolve higher-stakes nonindividual claims in a court, where appellate review is available to correct errors, but to arbitrate lower-stakes individual claims. (Viking River, supra, 142 S.Ct. at p. 1924Iskanian‘s no-splitting rule “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 nonindividual claims or forego arbitration entirely. (Viking River, at p. 1923.) According to the court, “This combination of standing to act on behalf of a sovereign and mandatory freeform joinder allows plaintiffs to unite a massive number of claims in a single-package suit” and “‘arbitration is poorly suited to the higher stakes’ of massive-scale disputes of this kind.” (Ibid.)
As a result of these two aspects of Viking River, and assuming the agreement is otherwise enforceable: (1) an employee‘s waiver of the right to bring a PAGA action is unenforceable; however, (2) where a predispute agreement provides for arbitrating only individual PAGA claims, that portion of the action may be split off and compelled to arbitration, while the remaining nonindividual claims remain for disposition in court.
Here, the Agreement purports to waive Nickson‘s right “to make any claims . . . in a private attorney general capacity.” That waiver is unenforceable as a matter of state law. (Viking River, supra, 142 S.Ct. at pp. 1924–1925.)
The Agreement, however, contains a severability clause stating, “If any provision of this Agreement is determined to be void or otherwise unenforceable, such determination shall not affect the validity of the remainder of the Agreement.” Accordingly, Shemran is entitled to enforce other terms of the Agreement, unless they are invalid for some independent reason. (See Viking River, supra, 142 S.Ct. at p. 1925 [applying severability clause].)6
In defining the scope of arbitrable claims, the Agreement provides that only individual PAGA claims can be arbitrated: “All claims that are covered by this Agreement can only be brought by me . . . on an individual basis.” Under Viking River, this is enforceable. Therefore, the order denying Shemran‘s motion to compel arbitration is incorrect. Nickson‘s individual PAGA claims can be arbitrated, while his nonindividual PAGA claims cannot—unless the Agreement is unenforceable on some other ground(s).
D. Unconscionability
Under the FAA, generally applicable contract defenses (such as unconscionability) may invalidate an arbitration agreement if it “does not interfere ‘with fundamental attributes of arbitration.‘“(Prima Donna Development Corp. v. Wells Fargo Bank, N.A. (2019) 42 Cal.App.5th 22, 37.) Attempting to sidestep the impact of Viking River, Nickson‘s principal argument on appeal is that the Agreement is still unenforceable because it is “is rife with provisions that are procedurally and substantively unconscionable.” He explains that although he raised this issue in the trial court, it was not considered because the motion was denied on other grounds (i.e., Iskanian).7
Nickson asks us to remand to the trial court to decide whether the Agreement is unconscionable. Alternatively, he urges us to decide the issue as a matter of law for the first time on appeal. We decline both requests because the parties agreed that the arbitrator—not the court—would decide enforceability issues.8
The Agreement contains what is commonly called a “delegation clause.” It provides that “[t]he Arbitrator, and not any . . . court” has “exclusive authority to resolve . . . disputes” involving “enforceability” of the Agreement, including but not limited to, any claim that all or any part of this Agreement is void or voidable.” The plain meaning requires the issue of unconscionability to be decided in arbitration. Case law points in that direction too.
The United States Supreme Court considered an identically worded provision in Rent-A-Center, West, Inc. v. Jackson (2010) 561 U.S. 63 (Rent-A-Center). There, the agreement gave the arbitrator “‘exclusive authority to resolve any dispute relating to the . . . enforceability . . . of this Agreement including, but not limited to any claim that all or any part of this Agreement is void or voidable.‘” (Id. at p. 66.) In seeking to avoid
Thus, under Rent-A-Center, “it is important to determine whether the party is making a specific challenge to the enforceability of the delegation clause or is simply arguing that the agreement as a whole is unenforceable. If the challenge is to the agreement as a whole—even if it applies equally to the delegation clause—the delegation clause is . . . enforced . . . [and] the arbitrator, not the court, will determine whether the agreement is enforceable.” (Malone v. Superior Court (2014) 226 Cal.App.5th 1551, 1559–1560 (Malone).)
Here, as in Rent-A-Center, the Agreement clearly and unmistakably assigns the enforceability issue to the arbitrator. It states that the arbitrator “and not any” court, “shall have exclusive authority” to resolve disputes regarding enforceability of the Agreement. In B.D. v. Blizzard Entertainment, Inc. (2022) 76 Cal.App.5th 931, 957, this court held that nearly identical language (“‘[t]he arbitrator shall determine the scope and enforceability of this arbitration agreement‘“) “clearly and unmistakably states” that the arbitrator has authority to decide “‘all issues of arbitrability.‘” (Ibid.) The same conclusion is compelled here.
Moreover, Nickson‘s claim of unconscionability is directed against the entire Agreement, not the delegation clause in particular. He contends the Agreement is procedurally unconscionable because (1) it was presented on a take-it-or-leave-it basis; (2) he was required to sign it to begin employment; (3) it was provided to him not as a stand-alone document, but as part of his “on-boarding procedure“; and (4) the Agreement claims to incorporate AAA
We conclude, therefore, that this case falls squarely within the Rent-A-Center rule. Here, as in that case, a delegation clause is contained in an arbitration agreement. In both cases, the employee has challenged the enforceability of the agreement as a whole, not the delegation clause in particular. Finally, as in Rent-A-Center, the delegation to the arbitrator to decide enforceability is clear and unmistakable. Thus, it is for the arbitrator, not a court, to determine whether the Agreement is unconscionable.
E. The Nonindividual Claims
As explained, Nickson‘s individual PAGA claims must be arbitrated. But what about his nonindividual claims? In a portion of the Viking River opinion that has been characterized as “dicta,”10 the Supreme Court concluded that “PAGA provides no mechanism to enable a court to adjudicate non-individual PAGA claims once an individual claim has been committed to a separate proceeding.” (Viking River, supra, 142 S.Ct. at p. 1925Ibid.) Thus, “[w]hen an employee‘s own dispute is pared away from a PAGA action, the employee is no different from a member of the general public, and PAGA does not allow such persons to maintain suit.” (Ibid.) Accordingly, Viking River concluded, “the correct course is to dismiss [the plaintiff‘s] remaining claims.”11 (Viking River, at p. 1925.)
Nickson contends Viking River‘s interpretation of state law is both not binding and incorrect. Not surprisingly, Shemran sees it differently. We conclude Nickson is correct.
When “a cause of action is based on statute, standing rests on the provision‘s language, its underlying purpose, and the legislative intent.” (Kim, supra, 9 Cal.5th at p. 83.) “The plain language of section 2699(c) has only two requirements for PAGA standing.” (Kim, at p. 83.) First, the plaintiff must be an “aggrieved employee,” which the statute defines as someone ‘who was employed by the alleged violator.‘” (Id. at pp. 83–84.) Second, plaintiff must be a person ” ‘against whom one or more of the alleged violations was committed.” (Ibid.)
The court in Kim determined that an employee who settled or dismissed their individual PAGA claim retained standing to prosecute nonindividual PAGA claims. As the court explained, PAGA standing is defined by statute “in terms of violations, not injury.” (Kim, supra, 9 Cal.5th at p. 84.) Thus, the plaintiff “became an aggrieved employee, and had PAGA standing, when one or more Labor Code violations were committed against him. [Citation.] Settlement did not nullify these violations.” (Kim, at p. 84.) The court found that “[n]othing in the legislative history suggests the Legislature intended to make PAGA standing dependent on the existence of an unredressed injury, or the maintenance of a separate, unresolved claim.” (Kim, at pp. 90–91.)
We followed Kim in precisely this manner when deciding Johnson, supra, 66 Cal.App.5th 924. There, the plaintiff alleged a single cause of action under PAGA. The employer demurred on standing grounds, asserting the plaintiff lacked standing because her individual PAGA claims were time-barred. Rejecting the employer‘s argument, we explained:
“Johnson alleged she is employed by [defendant] and that she personally suffered at least one Labor Code violation on which the PAGA claim is based. [Citations.] The fact that Johnson‘s individual claim may be time-barred does not nullify the alleged Labor Code violations nor strip Johnson of her standing to pursue PAGA remedies.” ( Johnson, at p. 930.)
Thus, Kim teaches that on the issue of standing—whether individual PAGA claims are severed from nonindividual ones is not even relevant, much less decisive. As Kim explained, “the Legislature did not intend to link PAGA standing to the maintenance of individual claims when such claims have been alleged” and “[t]his expansive approach to standing serves the state‘s interest in vigorous enforcement.” (Kim, supra, 9 Cal.5th at p. 85Piplack v. In-N-Out Burgers (2023) 88 Cal.App.5th 1281, 1292 [following Viking River on FAA preemption, but Kim on PAGA standing for nonindividual claims]; Galarsa v. Dolgen California, LLC (2023) 88 Cal.App.5th 639, 652–655 [same].)12
DISPOSITION
The order denying the motion to compel arbitration is reversed with directions to enter a new order granting the motion, but only with respect to Nickson‘s individual PAGA claims. The nonindividual PAGA claims remain pending in the superior court. We leave management of the superior court litigation during the pendency of arbitration to the trial court‘s sound discretion.
In the interests of justice, each party shall bear their own costs on appeal.
DATO, J.
WE CONCUR:
HUFFMAN, Acting P. J.
BUCHANAN, J.