Proceedings: IN CHAMBERS — ORDER RE DEFENDANTS’ MOTION TO COMPEL ARBITRATION OF INDIVIDUAL CLAIMS, AND DISMISS CLASS AND REPRESENTATIVE CLAIMS [22]
I.
PROCEDURAL BACKGROUND
On July 22,'2014, Plaintiff David L. Tot-ten filed an amended complaint in San Bernardino County Superior Court, alleging the following causes of action: (1) failure to pay wages for-all hours worked at the minimum wage rate, in violation of Cal. Lab.Code §§ 1194 and 1197; (2) failure to pay overtime wages for daily overtime and all time worked, in violation of Cal. Lab. Code §§ 510,1194, and 1198; (3) failure to provide second meal periods or pay meal period premium wages, in violation of Cal. Lab.Code §§ 512 and 226.7; (4) failure to provide complete and accurate wage statements, in violation of Cal. Lab.Code § 226; (5) failure to timely pay all earned wages due at the time of separation of employment, in violation of Cal. Lab.Code §§ 201, 202, and 203; (6) unfair business practices, in violation of Cal. Bus. & ProfCode § 17200 et seq.; and (7) civil penalties under the Private Attorneys General Act of 2004 (“PAGA”), Cal. Lab.Code § 2698 et seq. [Doc. #1-1.] On August 27, '2014, Defendants removed the action to federal court. [Doc. # l.j
Defendants Kellogg Brown ■ & Root, LLC (“KBR”) andMolycorp, Inc.' (“Moly-corp”) currently have a motion to compel ■arbitration and dismiss- or stay the action pending before this Court. (“DefiMotion”)
II.
FACTUAL BACKGROUND
On January 16, 2012, KBR hired Totten. See Bynum Decl. ¶ 6 [Doc. # 22-1 at 1-3.] Totten worked for KBR at the Mountain Pass rare earth mine in California, where KBR provided services to Molycorp, Inc. Id. ¶¶ 2,6.
At his new hire orientation on January 16, Totten signed an acknowledgment of and agreement to KBR’s Dispute Resolution Program (“DRP”) as a condition of his employment. See id. ¶ 9, Exh. B (“Signature Page”) [Doc. #22-1 at 38.] Totten contends, however, that he was not given a copy of any of the American Arbitration Association (“AAA”) or Judicial Arbitration and Mediation Services (“JAMS”) rules referenced in the DRP Agreement. Totten Decl. ¶ 3 [Doc. # 23-1].
The DRP Agreement requires employees to arbitrate their claims against KBR and third parties, including KBR’s clients such as Molycorp:
This Program is intended to be for the benefit of the Company’s clients, customers, contractors, and vendors, who are intended third-party beneficiaries of this Dispute Resolution Plan. The mandatory arbitration provisions of this Plan shall be applicable to all Disputes between Employees and the Company’s clients, customers, contractors, and vendors, who shall have the right to enforce the'provisions of the Plan.
See id. ¶ 5, Exh. A (“DRP Agreement”) § 3C [Doc. #22-1 at 4-37.] The agreement to arbitrate also “applies to and binds the Company” as well as “each Employee and Applicant.” Id. § 3B.
Furthermore, the scope . of the DRP Agreement encompasses “all legal and equitable claims ... with respect to ... [t]he employment ... of an Employee, including but not limited to the terms, conditions, or termination of such employment ... [or] any other matter related to or concerning the relationship between the Employee and [KBR].” Id. § 2E(4).
The DRP Agreement also, bars KBR, employees, and applicants from pursuing claims on a class, collective, or representative basis:
Each Dispute shall be arbitrated on an individual basis. Neither the Company nor. any Employee or Applicant may pursue (any Dispute on a class action, collective action or consolidated basis or in a representative capacity on behalf of other persons or entities who are claimed to be similarly situated, or participate as a class member in such a proceeding. The arbitrator in any proceeding under this Plan shall have no authority to conduct the matter as a consolidated, class, or collective action.
Id. § 4B(i) (emphasis added). The agreement further states:
If the procedural-limitation in subpara-graph B(i) of this section is held unenforceable by a court in a proceeding in which a party seeks to pursue a class or collective action or otherwise act in a representative capacity, then this Plan shall not apply with respect to that class or representative action which shall proceed instead before the court. If the court, however, ultimately denies the party’s request to proceed on a class, collective or representative basis, then the party’s individual claim(s) shall be subject to this Plan and referable to arbitration pursuant to the Plan’s terms.
KBR terminated Totten’s employment on or around June 24, 2014. Bynum Decl. If 10.
III.
LEGAL STANDARD
The Federal Arbitration Act (“FAA”) provides that written arbitration agreements are “valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.” AT & T Mobility LLC v. Concepcion,
“Section 2 of the FAA contains a savings clause, which provides that arbitration agreements are ‘enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.’ ” Id. (quoting 9 U.S.C. § 2). The savings clause “permits agreements to arbitrate to be invalidated by generally applicable contract defenses, such as fraud, duress, or unconscioriability, but not by defenses that apply only to arbitration or that derive their meaning from the fact that an agreement to arbitrate is at issue.” Concepcion,
Federal substantive law governs questions concerning the interpretation and enforceability of arbitration agreements. Moses H. Cone Mem’l Hosp. v. Mercury Constr. Corp.,
“When evaluating a motion to compel arbitration, courts treat the facts as they would when ruling on a motion for summary judgment, construing all facts and reasonable inferences that can be drawn from' those facts in a light most favorable to the non-moving party.” Chavez v. Bank of Am.,
IV.
DISCUSSION
Defendants move to compel arbitration of Totten’s individual claims on the ground
A. Mutual Assent
The parties do not dispute that, if the agreement is valid, it ’encompasses Totten’s claims. Rather, the parties disagree that a valid agreement exists. Under California law, a contract is valid if there is mutual assent between the parties and valid consideration. Div. of Labor Law Enforcement v. Transpacific Transp. Co.,
Totten contends that he never assented to the agreement because he was never given a copy of, or access to, the KBR arbitration agreement at or before the time he signed it. (“Plaintiffs Opp.”) [Doc. #23 at 13.] KBR has submitted evidence that its practice is to brief new employees on the DRP, provide new employees with a copy of the DRP’s rules, and read aloud the DRP’s rules to them. See Bynum Decl. ¶ 8. Totten disputes that this occurred when he was hired. Nonetheless, it is undisputed that Totten signed the agreement acknowledging that he had “received and reviewed a copy of the KBR Dispute Resolution • Plan and Rules,” “agree[d] to the terms of the Program,” and understood that certain legal claims must be “resolved ■ through binding-and final arbitration instead of any court system.” See id. ¶ 9, Exh. B.
■ “It is well established, in the absence of fraud, overreaching or excusable neglect, that one who signs an instrument may not avoid the impact of its terms on the ground that he failed to read the instrument before signing it.” Stewart v. Preston Pipeline Inc.,
Here, Totten assented to be bound by the DRP when he signed the agreement that he had “received and reviewed a copy of the KBR Dispute Resolution Plan and Rules,” “agreed to the terms ■of the Program,” and understood that certain legal claims must be “resolved through binding-and final arbitration instead of any -court system.” See Bynum Decl. ¶ 9, Exh. B. Furthermore, valid consideration supports the DRP. The parties mutually agreed to submit to arbitration in the event of a dispute covered by the DRP, and Totten accepted KBR’s offer of employment in exchange for his agreement to arbitrate.
B. Unconscionability
Even if he assented to the DRP Agreement, however, Totten asserts that it is invalid because it is unconscionable. Under California law, “the doctrine of unconscionability has both a procedural and substantive element, the former focusing on oppression or surprise due to unequal bargaining power, the latter on overly harsh or one-sided results.” Sonic-Calabasas A, Inc. v. Moreno,
1. Procedural Unconscionability
Totten has met 'his burden of showing that the DRP Agreement is procedurally unconscionable! First, KBR imposed the agreement on Totten as a condition of his employment, without giving him a meaningful opportunity to negotiate its terms. Indeed, the Signature Page states, “I understand that this agreement is a condition of my employment with the Company.” See Bynum Decl. ¶ 9, Exh. B. Thus, because the agreement was signed by Totten as a'condition of his employment without affording him, a meaningful opportunity to' negotiate its terms,' the DRP Agreement is to some degree procedurally unconscionable. See Armendariz,
But “[m]ere inequality in. bar gaining power ... is not a sufficient reason to hold that arbitration agreements are never enforceable in the employment context.” Gilmer v. Interstate/Johnson Lane Corp.,
2. Substantive Unconscionability
■California law requires that a plaintiff also show that the agreement is substantively unconscionable in order to find the agreement unenforceable on the basis of unconscionability. Totten advances several arguments why the DRP Agreement is substantively unconscionable: (1) the agreement lacks mutuality; (2) KBR reserves the right to unilaterally modify the arbitration policy and rules in its sole discretion; (3) the DRP Agreement requires that all discovery costs be borne by the party taking the discovery; (4) the attorneys’ fees provision permits an arbitrator to award fees to either party, including KBR;, and (5) the class and representative action waivers violate the NLRA and California public policy. The Court addresses each of these arguments in turn.
i. Lack of Mutuality
The Court rejects Totten’s argument that the DRP Agreement lacks mutuality. The agreement clearly states that it “applies to and binds the Company” as well as “each Employee and Applicant,” thus ensuring a mutual obligation to arbitrate. DRP Agreement § 3B.
ii. Unilateral Modification Policy
Totten objects to the DRP Agreement’s unilateral modification provision. The provision states: “This Plan may be amended by Sponsor at any time by giving at least 30 days notice to current Employees. However, no amendment shall apply to a Dispute which is initiated prior to the effective date of the amendment.” DRP Agreement § 6A. Totten argues that KBR’s reservation of the right to unilaterally modify the arbitration policy and rules with 30 days’ notice renders the arbitration agreement illusory, unconscionable, and unenforceable, because KBR can be aware of a pending dispute before it is “initiated” and can therefore unfairly manipulate the rules.
The Court agrees, but only to the extent that the quoted language renders the modification provision itself illusory and unconscionable. Under California law, “[a]n agreement to arbitrate is illusory if ... the employer can unilaterally modify [it].” Sparks v. Vista Del Mar Child & Family Servs.,
The court in Peleg examined a similar modification provision that allowed the employer arbitration agreement to be “amended, modified, or revoked in writing by the Company at anytime, but only upon thirty (30) days’ advance notice — ” Peleg,
Thus, the Peleg court concluded, “if a claim has accrued or if the employer knows about a claim, all parties to the Agreement, should be bound by the version in effect at that time; no changes should apply after the point of accrual or'knowledge.” Id. Discussing the implied covenant sof good faith and fair dealing as a potential remedy, the court found that “[a] unilateral modification provision that is silent as to whether contract changes apply to claims, accrued or known, is impliedly restricted by the covenant so that changes do not apply to such claims.” Id. at 1465,
Conversely, if “a modification provision expressly addresses whether contract changes apply to claims that have accrued or are known to the employer,” the implied covenant of good faith and fair dealing “cannot create implied terms that coiitra-dict the express language.” Id. Accordingly, the court'determined that á modifica'tion provision — which expressly states that it shall have “no effect on any Claim that was filed for arbitration prior to the effective date of [the] amendment” — is illusory under California law. Id. at 1436, 1465,
Here, the DRP Agreement explicitly delineates the modification provision’s applicability. The modification provision states that the arbitration policy may be amended with a 30-day notice, but that “no amendment shall apply to a Dispute which , is initiated prior to the effective date of the amendment.” DRP Agreement § 6A (emphasis added). Put differently, “modifications may apply to claims already accrued or known to [KBR], provided that the .claim was not filed until after the 30-day notice period.” Reyes v. United Healthcare Servs., Inc.,
Just as in Peleg and Reyes, the implied covenant of good faith and fair dealing cannot save the DRP Agreement’s unilateral modification provision — the implied covenant cannot alter the express language of the arbitration agreement between Tot-ten and KBR. Accordingly, the Court finds that the modification provision is illusory and unconscionable.
iii. Discovery Costs Provision
• With respect to discovery costs, Defendants point out that the DRP Agreement’s provision that discovery costs be borne by the party initiating the discovery allocates-those costs in the same manner that they are allocated in state and federal courts. See Luafau v. Affiliated Computer Services, Inc.,
Further, the Agreement does not preclude Totten from recovering discovery costs, but provides the arbitrator with the authority to order the same relief as would be available in court to a prevailing party. See DRP Agreement § 8B (“The substantive legal rights, remedies, and defenses of all Parties are preserved ... the arbitrator Shall have the authority ... to order any and all relief, legal or equitable ... which a Party could obtain from a court of competent jurisdiction....”). This includes awarding discovery costs. As such, the discovery costs provision is not substantively unconscionable.
iv. Attorneys’ Fees Provision
The attorneys’ fees provision at issue permits the arbitrator to award.attorneys’, fees-to an employee, not KBR, even where the law does not provide for an award of fees:
Notwithstanding the provisions of the preceding subsection, in any proceeding before an arbitrator, the arbitrator, in the arbitrator’s discretion, may allow a prevailing Employee or Applicant a reasonable attorney’s fee as part ’of the award. The discretion to allow an award of fees under'- this subsection is in addition to any discretion, right or power which the arbitrator may have under applicable law. However, any award of fees shall be reduced by any amounts which have been or will be paid by the KBR Employee Legal Consultation Plan.2
See 4d. § 8D. Nothing in this provision suggests that the arbitrator has the power to award KBR attorneys’ fees contrary to a statute. As the attorneys’ fees provision in the arbitration agreement would not discourage potential claimants, the Court finds that it is not substantively unconscionable.
C. Class Action Waiver
Totten argues that this Court should not enforce the class action waiver in the DRP Agreement because the waiver violates the NLRA. In particular, Totten contends that the class action waiver interferes wi h his right to engage in protected concerted activity under Sections 7 and 8(a)(1) of the NLRA. Plaintiffs Opp. at 22 (citing NLRA § 7, 29 U.S.C; § .157; NLRA § 8(a)(1), 29 U.S.C. § 158(a)(1)).
1. Sections 7 and 8(a)(1) of the NLRA
Section 7 of the NLRA provides that “[e]mployees shall have' the right to ... engage in ... concerted activities for the purpose of collective bargaining or other mutual aid or protection.” NLRA § 7, 29 U.S.C. § 157 . (emphasis added).
This right to engage in concerted activity to improve one’s working conditions is not limited to union workers seeking to collectively bargain with management. It also applies to non-union employees “when they seek to improve working conditions through resort to administrative and judicial forums.... ” Id. at 566,
In order for employee activity to fall within Section 7, it must be “concerned.” While this term “embraces the activities of employees who have joined together in order to achieve common goals,” the Supreme Court has found that “the language of § 7 does not confine itself to such a narrow meaning.” NLRB v. City Disposal Sys. Inc.,
Significantly, concerted activity also encompasses concerted legal action. See, e.g., Brady v. National Football League,
Such concerted legal action is also evident in Salt River Valley Water Users’ Association v. NLRB.,
Given that protected concerted activity can take the form of concerted legal action, the Court turns next to the National Labor Relations Board’s (“NLRB”) decision in In re D.R. Horton, Inc., a case which both sides debate in their briefing.
2. The NLRB’s Horton I Decision
i. Class Action Waiver and the NLRA
In support of his argument that the class action waiver in this case is invalid under the NLRA, Totten invokes a series of NLRB decisions that began with In re D.R. Horton, Inc.,
Defendants respond by pointing to the Fifth Circuit’s decision refusing to enforce that portion of the Board’s opinion upon which Totten relies. D.R. Horton, Inc. v. NLRB,
In Horton I, the NLRB struck down an employer arbitration agreement containing a class action waiver because it restricted employees from engaging in the protected concerted activity of pm-suing collective legal action to improve workplace conditions under Section 7 of the NLRA. Specifically, the Board found that the coming together by employees to bring a class proceeding to address workplace issues like wages constituted a form of concerted activity under Section 7. Horton I,
The Horton I Board highlighted the fact that the Supreme Court has long upheld the principle that “employers cannot enter into individual agreements with employees in which the employees cede their statutory rights to act collectively.” Horton I,
The Board then concluded that, unlike procedural rights, employers cannot demand that employees waive their substantive rights to act collectively to improve workplace conditions:
Just as the substantive right to engage in concerted activity aimed at improving wages, hours or working conditions through litigation or arbitration lies at the core of the rights protected by Section 7, the prohibition of individual agreements imposed on employees as a means of requiring that they waive their right to engage in protected, concerted activity lies at the core of the prohibitions contained in Section 8.
Horton I,
The Board had no trouble reconciling its ruling with the FAA. In fact, the Board stated that the class action waiver it found impermissible fell within the FAA’s savings clause, which makes arbitration agreements “enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.” 9 U.S.C. § 2. According to the Board:
[T]he purpose of the' FAA was to prevent courts from treating arbitration agreements less favorably than other private contracts. The Supreme Court ... has made clear that “[w]herever private contracts conflict with [the] functions” of the National Labor Relations Act, “they obviously must yield or the Act would be reduced to a futility.” J.I. Case Co. [ ]321 U.S. at 337 [64 S.Ct. 576 ]. To find that an arbitration agreement must yield to the NLRA is to treat it no worse than any other private contract that conflicts with Federal labor law. The [employer’s arbitration agreement] would equally violate the NLRÁ if it said nothing about arbitration, but merely required employees, as a condition of employment, to agree to pursue any claims in court against the Respondent solely on an individual basis.
Horton I,
Because the arbitration agreement violated federal law — by preventing employees from exercising their substantive right to engage in protected concerted activity for mutual aid or protection — the Board concluded that the agreement could not be enforced under the FAA.
To further support its position, the Board emphasized the principle that arbitration agreements may not require a party to “forgo the substantive rights'afforded by the statute.” Id. (quoting Gilmer,
Here, like in Horton I, KBR’s arbitration agreement requires employees like Totten tq agree, as a condition of employment, that “[e]ach Dispute shall be arbitrated on an individual basis” and that no employee “may pursue any Dispute on a class action, collective action or consolidated basis or in a representative capacity on béhalf of other persons or entities who are claimed to be similarly situated, or participate as a class member in such a proceeding.” DRP Agreement § 4B(i).
In light of the, plain text of. Sections 7 and 8 of the NLRA, this Court finds the Board’s reasoning- in Horton I not only persuasive, but at the very least “reasonably defensible.” See Sure-Tan, Inc. v. NLRB,
ii. Class Action Waiver and the Norris-LaGuardia Act
In addition to its finding that class action waivers run afoul of Section 7 rights, the NLRB also found that the Norris-LaGuardia Act of 1932, 29 U.S.C. § 101 et seq.; protects employees’ concerted litigation activity against contractually-based restraints, because an employment-related class, collective, or joint action falls within the definition of a “labor dispute.” Horton I,
Section 2 of the Norris-LaGuardia Act declares that it is the “public policy of the United States” that individual workers be free of “interference, restrain, or coercion” by employers when they engage in “concerted activities for the purpose of collective bargaining or other mutual aid or protection.” 29 U.S.C'. § 102 (emphasis added). Section 3 states that ;“any .., undertaking or promise” that conflicts-with the policy declared in Section 2 “shall not be enforceable in any court of the -United States....” 29 U.S.C. § 103. Section 4 identifies activities not subject, to restraining orders or injunctions — whether undertaken “singly or in concert” — including “[b]y all.lawful means aiding any'person participating or interested in .any labor dispute who ... is prosecuting, any action or suit in any court of the United States or of any State.” 29 U.S.C. § 104(d) (emphasis added). The Norris-LaGuradia Act goes on to .define “labor dispute” in Section 13' to include “any controversy concerning terms or conditions of employment.” 29 U.S.C. § 113.
Viewed in tandem, Sections 2, 3, 4, and 13 of the Norris-LaGuardia Act prevent a federal court from enforcing any undertaking or promise that contravenes the public policy that employees be free from employer interference in concerted activities for the purpose of mutual aid or protection, such as pursuing employment-related collective legal action. The Norris-La-Guardia Act makes KBR’s class action waiver, imposed as a condition of employment, unenforceable — such waivers constitute -promises or -undertakings that prevent employees from acting in concert with their coworkers,to vindicate their workplace rights in court, or in arbitration.
Defendants contend that Supreme Court precedent permits class action waivers like the one in KBR’s arbitration agreement. Relying on the Supreme Court’s decision in Concepcion, Defendants state that this Court “is obligated to comply with the mandate of the United States Supreme Court and enforce the class arbitration waiver at issue in this matter.” (“Def.Reply”) [Doc. # 25 at 18.]
The Court disagrees, however, that Concepcion applies to this case. Concepcion involved preemption, of a state law ruling precluding enforcement of a class arbitration waiver in the consumer context. Concepcion,
Defendants cite another recent Supreme Court case, American Express Co. v. Italian Colors Restaurant, — U.S. —,
The Supreme Court rejected the merchants’ arguments. It found that federal “antitrust laws do not .guarantee an affordable procedural path to the vindication of every claim.” Id. at 2309. The Court also held that the class action waiver was enforceable, even when “the plaintiffs cost of individually arbitrating a federal statutory claim exceeds the potential recovery.” ■ Id. at 2307. As the majority put it, “the fact
This case is distinguishable. Italian Colors did not implicate NLRA-covered employees entitled to the substantive right to collective action. The Court in Italian Colors considered whether a “judge-made exception to the FAA” applied to invalidate an arbitration agreement’s class action waiver. See id. at 2310. By contrast, here, the plain text of Section 2 of the FAA renders the class action waiver unenforceable: Defendants’ interference with Totten’s Section 7 rights violates federal law. See id. at 2310-11 (the FAA’s savings clause “would certainly cover a provision in an arbitration agreement forbidding the assertion of certain statutory rights”).
4. The Fifth Circuit’s Horton II Decision
Understandably, Defendants rely heavily on the Fifth Circuit’s decision in Horton II, which overturned the key ruling in Horton I. The Fifth Circuit disagreed with the Board’s finding that the class action waiver in the arbitration agreement violated the NLRA. See also Murphy Oil USA, Inc. v. NLRB.,
This Court is not persuaded by Horton II for the following reasons.
i. Concerted Legal Action is a Section 7 Substantive Right
First, this Court respectfully disagrees with the Fifth Circuit’s assertion that the right to protected concerted litigation activity under Section 7 is not a substantive non-waivable right. According to the Fifth Circuit, the “[t]he use of class action procedures ... is not a substantive right” but merely a “procedural device.” Horton II,
This Court does not quibble with the line of decisions the Fifth Circuit cites that determined no substantive right to class procedures exist under the ADEÁ and the FLSA. Whether those substantive rights exist under those particular “employment-related statutory frameworks” bears no relevance to whether the substantive right to “engage in concerted activities for the purpose of ... mutual aid or protection” through a class action exists under the NLRA. Indeed, the Fifth Circuit acknowledges the distinctions that the Board makes between the NLRA and other statutes. See Horton II,
In its' decision, the Fifth Circuit also states that “[a] detailed analysis of Concepcion leads to the conclusion that the Board’s rule does not fit within the FAA’s saving clause.” Horton II,
In short, the Fifth Circuit fails to provide a convincing response to the Board’s explanation of why the right to engage in collective legal action is a core substantive right protected by Section '7:
Any contention that the Section 7 right to bring a class or collective action is merely “procedural” must fail. Thé right to engage ' in collective action— including collective legal action — is the core substantive right protected by the NLRA and is the. foundation on which the Act and Federal labor policy rest.... To the extent [the employerand amici argue] that there-is no Section 7 right to class certification, they are surely correct. Whether a class is certified depends on whether the requisites for certification under Rule 23 have been met; But that is not the issue in this case. The issue here is whether [the employer] may lawfully condition employment on employees’ waiving their right under the NLRA to take the collective action inherent in seeking class certification, whether or not they are ultimately successful under Rule 23. Rule 23 may be a procedural rule, but the Section 7 right to act concerteffly by invoking Rule 23, Section 216(b), or other legal procedures is not.
Horton I,
In-similarly criticizing the Fifth Circuit’s opinion in Horton II, the district court in Herrington v. Waterstone Mortgage Corporation observed that “it is not 'dear [from the Fifth Circuit’s analysis] how §§ 157 and 158(a)(1) can be distinguished from any other substantive right in the employment context, such as the right to be paid a minimum wage or to be free from certain types of discrimination.”
Courts and the Board regularly invoke Section 7 to protect various forms of concerted employee activity geared towards improving the workplace, and even activities for “mutual aid or protection” not limited to those aimed at .changing the terms and conditions of employment. See, e.g., Std. Concrete Prods. v. General Truck Drivers, Office, Food & Warehouse Union, Local 952,
Given the myriad forms that protected collective action can take, Defendants cite to no authority that can provide a reasoned basis why the Court should create a special carve-out for concerted legal activity and deem that particular form of concerted action unprotected activity,
ii. The NLRA Coexists with the FAA Through the Savings Clause
In Horton II, the Fifth Circuit observes that “[t]here is no argument that the NLRA’s text contains explicit language of a congressional intent to override the FAA.” Horton II,
The Fifth Circuit had no need to search for congressional intent to “override the FAA”: there is no conflict between the NLRA and the FAA in this context. But see infra, note 10. The class action waiver in Horton violated the NLRA and thus falls squarely within the ambit of - the FAA’s savings clause. 9 U.S.C. § 2. See also Mortensen v. Bresnan Communs., LLC,
Finally, the Fifth Circuit looked for evidence in the NLRA’s “legislative history of a disavowal of arbitration” and found none.
In light of the above discussion, the Court declines to follow the Fifth Circuit’s decision in Horton II. Instead, like the Horton II dissent, the Court endorses the- Board’s position in Horton I. See
5. Other Cases That Have Declined to Follow Horton I
Defendants assert that “[federal courts have overwhelmingly rejected the NLRB’s reasoning [in Horton I ], found that class action waivers in arbitration agreements do not violate the NLRA, and held that the NLRB’s reasoning conflicts with the [FAA] and Supreme Court precedent.” Def. Reply at 17, In addition to Horton II, they cite to three other circuit court decisions. Id. (citing Sutherland v. Ernst & Young LLP,
None of these other circuit opinions are controlling authority. The Second Circuit in Sutherland did not provide any substantive analysis regarding its decision not to apply the Board’s Horton I reasoning. Sutherland,
Defendants also cite to two district court decisions and a California Supreme Court decision. See Ortiz v. Hobby Lobby Stores, Inc.,
In sum, the. Court endorses the Board’s reasoning in Horton I and finds the class action waiver in KBR’s arbitration agreement invalid. The waiver violates federal labor law and thus is unenforceable under
D. Totten’s PAGA Claim
Totten contends that the representative action waiver cannot be enforced against claims brought under the Private Attorneys General Act of 2004 (“PAGA”), Cal. Lab.Code § 2698 et seq. Such “representative” PAGA claims seek penalties for Labor Code violations affecting other employees. The California Supreme Court in Iskanian. v. CLS Transp. Los Angeles, LLC found agreements that waive the right to bring PAGA representative claims to be unenforceable under California" law.
[California Civil Codes sections 1668 and 3513] compel the conclusion that an employee’s right to bring a PAGA action is unwaivable. Section 2699, subdivision (a) states: “Notwithstanding any other provision .of law, any provision of this code that provides for a civil penalty to be assessed and collected by the Labor and Workforce Development Agency ... for a violation of this code, may, as an alternative, be recovered through a civil action brought by an aggrieved employee on behalf of himself or herself and other current, or former employees pursuant to the procedures specified in Section 2699.3.” As noted, the Legislature’s purpose in enacting the PAGA was to augment the limited enforcement capability of the Labor and Workforce Development Agency by empowering employees to enforce the Labor Code as representatives of the Agency. Thus, an agreément by employees to waive their right to bring a PAGA action serves to disable one of the primary mechanisms for enforcing the Labor Code. Because such an agreement has as its “object, ... indirectly, to exempt [the employer] from responsibility for [its] own ... violation of law,” it is against public policy and may not be enforced. (Civ.Code, § 1668.) " ■
Defendants contend that the rule against PAGA waivers laid out in Iskanian is preempted by the FAA. This argument, however, no longer carries weight.
The Ninth Circuit, in Sakkab v. Luxotti-ca Retail North America, Inc., recently found that “the Iskanian rule does not stand as an obstacle to the accomplishment of the FAA’s objectives, and is not preempted” by the- FAA.
The Iskanian court likened PAGA actions to qui tarn actions in that a representative plaintiff brings .an action “as the proxy or agent of the state’s labor enforcement agencies,” Iskanian, 59. Cal.4th at 380-82,
Because the Iskanian rule against PAGA waivers is not preempted by the FAA, this Court finds the representative action waiver in KBR’s agreement as applied to Totten’s PAGA claims unenforceable. Accordingly, the Court DENIES Defendants’ motion to dismiss Totten’s PAGA claims.
E. Severance of Unconscionable Contract Provision
A court determination that “the arbitration agreement contains ... flawed provisions does not necessarily mean that the entire [arbitration agreement] is substantively unconscionable.” Davis v. O’Melveny & Myers,
Here, the Court finds the modification provision “collateral” to the arbitration agreement’s main purpose. Accordingly, the Court' severs the prospective-modification provision from the DRP Agreement.
■’ As for the class action and representative waivers, - section 4B(ii) of the DRP Agreement provides that in the event the Court finds thosé waivers unenforceable, “this Plan shall not apply with respect to that class or representative" action which shall proceed instead before the court.” Thus, púrsuant to the DRP Agreement’s own terms, Totten’s class and representative claims shall proceed in this Court.
To the extent Totten brings individual claims, the Court GRANTS Defendants’ motion to compel arbitration as to those individual claims.
F. Defendant Molycorp’s Bankruptcy
On August 5, 2015, Defendant KBR notified the Court that Molycorp filed a petition for Chapter 11 bankruptcy. [Doc. # 39.] KBR suggests that the bankruptcy petition should automatically stay the entire case under 11 U.S.C. § 362. The Court disagrees. The Court “does not have the jurisdiction to extend the stay to a non-debtor party.” Placido v. Prudential Ins. Co. of Am.,
In any event, the bankruptcy of one defendant does not normally stay the case as to non-debtor defendants absent unusual circumstances. Chugach Timber Corp. v. Northern Stevedoring & Handling Corp. (In re Chugach Forest Products, Inc.),
[T]he bankruptcy court would first need to extend the automatic stay under its equity jurisdiction. Such extensions, although referred to as extensions of the automatic stay, are in fact injunctions issued by the bankruptcy court after hearing and the establishment of unusual need to take this action to protect the administration of the bankruptcy estate.
Bankruptcy courts are in accord. See, e.g., Kenoyer v. Cardinale (In re Kenoyer),
In the absence of a bankruptcy court order extending the automatic stay to the non-debtor in this action, this case will go forward as to Defendant KBR.
IV.
CONCLUSION
In light of the foregoing:
1. Defendants’ motion to compel arbitration is GRANTED as to Totten’s individual claims;
2. The motion to dismiss is DENIED as to Totten’s class action claims;
3. The motion to dismiss is DENIED as to Totten’s claims under PAGA, Cal. Lab.Code § 2698 et seq.;
4. Defendant KBR shall file its Answer within 21 days from the date of this Order; and
5. The Court’s Order to Show Cause why the action should not be stayed [Doc. # 41] is discharged.
IT IS SO ORDERED.
. Under KBR’s Legal Consultation Plan, KBR pays up to $2,500 a year for an employee to consult an attorney when the employee is pursuing a claim pursuant to the DRP. See Supplemental Declaration of Bynum ¶ 9.
. Totten makes this argument under the substantive unconscionability rubric. But because he cites to no authority that necessarily subsumes the NLRA analysis under the state law contractual concept of unconscionability, the Court will analyze this invalidity argument separately as a matter of federal law.
.The NLRA broadly provides that "[the] term ‘employee’ shall include any employee,” 29 U.S.C. § 152(3), subject only to certain specifically enumerated exceptions.
. The Board also observed, assuming a "direct conflict between the NLRA and the FAA,” that the Norris-LaGuardia Act was enacted after the FAA and includes language repealing any acts that conflict with it, Horton I,
. For the same reason, the Court also finds the Supreme Court’s decision in DIRECTV, Inc. v. Imburgia, — U.S. —,
. In the Section 7 context, the right often cannot exist without the remedy. For example, employees who wish to stage a lawful demonstration or a picket to challenge what is perceived to be unfair employer policies must apply for a permit to lawfully assemble, which may result in the imposition of appropriate time, place, and manner restrictions. See, e.g., Serv. Employees Int’l Union, Local 5 v. City of Houston,
. "The ADEA, like Tide VII of the Civil Rights Act of 1964, authorizes courts to award broad, class-based injunctive relief to achieve the purposes.of the Act. 29 U.S.C. § 626(b).” Gilmer,
. The FLSA's collective action provision states that an action to recover the liability prescribed under- the FLSA “may be maintained against any employer ... in any Federal or State court of competent jurisdiction by any one or more employees for and in behalf of himself or themselves and other employees similarly situated.” 29 U.S.C. § 216(b). It adds that "[n]o employee shall be a party plaintiff to any such action unless he gives his consent in writing to become such a party and such consent is filéd’m'the court in which such action is brought.” Id.
. The Fifth Circuit further concluded, "[hjaving worked in tandem with arbitration agreements in the past, the NLRA has no inherent conflict with the FAA.” Horton II, 737 F.3d at 361. To the extent that the Fifth Circuit is referring to the body of law governing labor arbitration/this is not necessarily true. To be sure, a conflict between the two statutes does not exist in cases involving individual, non-union workers without a collective bargaining agreement. But in the context of labor-management relations that ■revolve largely around a collective bargaining agreement with an arbitration provision, potential conflicts between federal labor law and the FAA do exist. Such conflicts 'stem from the fact that the FAA does not govern arbitration in the collective bargaining context.
The Fifth Circuit, in its exploration of the NLRA’s legislative history, neglects to discuss Section 301 of the Labor Management Relations Act ("LMRA”), which is the statute, distinct from the NLRA, that gives federal courts jurisdiction to enforce and vacate labor arbitration agreements. While Section -301 makes no mention of the. word-"arbitration,” the Supreme Court in Textile Workers Union of America v. Lincoln Mills ruled that.arbitration agreements in collective bargaining contracts are enforceable under Section 301 of the LMRA, not the FAA.
The Supreme Court acknowledged that Section 301 expresses a federal policy that "federal courts should enforce these agreements ... and that industrial peace can be best obtained only in that way.” Id. at 455,
' As this judicial "hostility” towards arbitration in commercial cases has waned in recent decades, courts have applied reasoning from labor arbitration case law to commercial arbitration cases'brought under the FAA. See, e.g., Sweet Dreams Unlimited, Inc. v. Dial-A-Mattress Int'l, Ltd.,
This blurring of the divide between FAA cases and Section 301 cases does not mean, however, that "no inherent conflict” exists between labor law and the FAA. For instance, the Court in the Steelworkers Trilogy established standards for when a court can overturn an arbitrator’s award, including when a court determines that the award does not, draw its “essence” from the collective bargaining agreement. United Steelworkers of Am. v. Enter. Wheel & Car Corp.,