Aguilera v. Matco Tools Corp.

• Decision Date: 12 March 2020
• Docket Number: Case No.: 3:19-cv-01576-AJB-AHG
• Parties: EMANUEL AGUILERA, an individual; ROCIO AGUILERA, an individual; and SIMON GORO, an individual, Plaintiffs, v. MATCO TOOLS CORPORATION, a Delaware corporation, Defendant.
• Court: U.S. District Court — Southern District of California

EMANUEL AGUILERA, anindividual; ROCIO AGUILERA,an individual; and SIMON GORO, an individual, Plaintiffs, v. MATCO TOOLS CORPORATION, a Delaware corporation, Defendant.

Case No.: 3:19-cv-01576-AJB-AHG

UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF CALIFORNIA

March 12, 2020

ORDER:

(1) GRANTING IN PART AND DENYING IN PART DEFENDANT'S MOTION TO DISMISS (Doc. No. 6)

(2) GRANTING PLAINTIFFS' MOTION FOR PRELIMINARY INJUNCTION (Doc. No. 18)

This action can be distilled down to one simple dispute—whether this Court should enjoin Defendant Matco Tools Corporation ("Matco") from proceeding with arbitration against Plaintiffs Emanuel Aguilera, Rocio Aguilera, and Simon Goro ("Plaintiffs") in Ohio. On January 31, 2020, the Court granted Plaintiffs' ex parte application for a temporary restraining order, temporarily enjoining Matco from arbitrating its claims against Plaintiffs in the arbitration proceedings in Ohio. Now, currently pending before the Court is: (1) Matco's motion to dismiss, (Doc. No. 6) and (2) Plaintiffs' motion for preliminary injunction, (Doc. No. 18). Both motions have been fully briefed and the Court heard both motions for oral argument on March 5, 2020. (Doc. Nos. 16, 17, 30, 32.) For the reasons set forth below, the Court GRANTS IN PART AND DENIES IN PART Matco's motion to dismiss, and GRANTS Plaintiffs' motion for preliminary injunction.

I. BACKGROUND

A. The Parties and Disputes

Headquartered in Stow, Ohio, Matco Tools Corporation markets mechanic repair tools, diagnostic equipment, and toolboxes. (First Amended Complaint ("FAC") ¶ 12.) Matco contracts with individual entrepreneurs, also known as "Distributors," to display and sell Matco branded tools through "mobile distributorships." (Doc. No. 28 at 12.) Matco requires all Distributors and their spouses to sign its "Distributorship Agreement" and pay a corresponding fee. (Doc. No. 24-1 at 6.)

Plaintiffs Emanuel Aguilera, his spouse, Rocio Aguilera, and Simon Goro are all residents of California. (FAC ¶ 10-12.) Plaintiffs and their spouses signed a Distributorship Agreement in June 2018. (Doc. No. 28 at 13.) Plaintiffs allegedly borrowed funds from Matco pursuant to a promissory note in connection with their franchise distributorships. (Id.) Plaintiffs then purchased tools from Matco, and sold the tools to customers. (Id.) Both Plaintiffs Emanuel Aguilera and Simon Goro operated distributorships solely in California until November 2018. (Id.)

Plaintiffs allege Matco refused to recognize the Distributors as employees, and deprived the Distributors of protections under California law such as overtime pay and reimbursement of business expenses. (Doc. No. 24-1 at 7.) Matco, on the other hand, contends the Distributors are independent contractors. (Doc. No. 28 at 13.)

However, before getting to the merits of the case, the parties currently dispute which forum, if any, the lawsuit should appropriately be filed in. Specifically, Plaintiffs and Matco clash over Matco's Dispute Resolution provisions in the Distributorship Agreements, and the provisions requiring Distributors to submit to binding individual arbitration in Ohio for nearly all disputes. (Doc. No. 24-1 at 7.) While Matco contends otherwise, Plaintiffs allege the arbitration and forum selection clauses contained in their Distributorship Agreements are unenforceable. (Id.)

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B. Plaintiffs' Dismissed California Action and Matco's Petition to Compel Arbitration Pending in Ohio

Previously on December 7, 2018, Plaintiffs filed a class action lawsuit on behalf of themselves and other Matco Distributors and their spouses in Alameda County Superior Court, alleging that they had been misclassified as "independent contractors." (Doc. No. 24-1 at 7.) Matco removed the action to the United States District Court for the Northern District of California ("Northern District of California") on January 18, 2019. (Doc. No. 28 at 15); see Emanuel Aguilera et al. v. Matco Tools Corporation, Case No.: 19-CV-00321-YGR (N.D. Cal. 2019). On March 11, 2019, Matco moved to dismiss or transfer the action to the United States District Court for the Northern District of Ohio ("Northern District of Ohio"). (Id.) Instead of opposing Matco's motion, Plaintiffs agreed to dismiss the case without prejudice, and the parties filed a request for dismissal on March 22, 2019. (Id. at 16.) Plaintiffs did not re-file their lawsuit. (Doc. No. 24-1 at 7.) On March 25, 2019, Matco then initiated an action against Plaintiffs in the Northern District of Ohio by filing a petition to compel arbitration of Plaintiffs' dismissed California claims. (Id. at 7); Matco Tools Corporation v. Aguilera et al., Case No.: 19-cv-00641-PAB (N.D. Ohio 2019). The petition is fully briefed, and currently pending before the Northern District of Ohio. (Id.)

C. Matco's Ohio Arbitrations Against Plaintiffs

Then on June 28, 2019, Matco submitted an arbitration demand before the American Arbitration Association ("AAA") in Ohio against Plaintiffs Emanuel and Rocio Aguilera. (Doc. No. 28 at 16.) That same day, Matco filed a separate demand for arbitration—again before the AAA in Ohio—against Plaintiff Simon Goro and his wife. (Id.) In both arbitrations before the AAA, Matco seeks amounts relating to Plaintiffs' alleged failure to pay on their promissory notes. (Doc. No. 6 at 14.)

On September 19, 2019, Plaintiffs Emanuel and Rocio Aguilera contested the validity of the arbitration provision in their proceedings. (Doc. No. 30 at 16.) On December 16, 2019, the arbitrator ruled that the provision was enforceable. (Id.) Plaintiff Simon Goro and his wife are also challenging the arbitration provision in their arbitration proceeding.(Id. at 17.)

D. The Fleming Action: The Northern District of California and Ninth Circuit Decisions

Matco's classification of its workers as independent contractors is also being challenged by a different plaintiff, John Fleming, in a putative class action filed on January 25, 2019 in the Northern District of California. See John Fleming v. Matco Tools Corporation, et al., No. 3:19-cv-00463-WHO, (N.D. Cal. Jan 25, 2019) (the "Fleming Action"); (Doc. No. 24-1 at 7.) Plaintiffs in this instant matter are absent class members in the Fleming Action. (Doc. No. 16 at 7.) And Plaintiff Rocio Aguilera does not meet the criteria for putative class membership as defined in the Fleming complaint. (Doc. No. 17 at 15 n.4.) While John Fleming's Distributorship Agreement is not exactly the same as Plaintiffs' in this instant action, the dispute resolution provisions in John Fleming's Distributorship Agreement is not materially different from the provisions signed by Plaintiffs here. (Id. at 10.) On February 19, 2019, in the Fleming Action, Matco moved to enforce the Ohio forum selection clause in John Fleming's Distributorship Agreement by filing a motion to dismiss, or, in the alternative, motion to transfer venue based on forum non conveniens. (Doc. No. 28 at 15.) The district court denied the motion on May 3, 2019, holding the arbitration and forum selection clauses in John Fleming's Distributorship Agreement invalid. See Fleming v. Matco Tools Corp., 384 F. Supp. 3d 1124 (N.D. Cal. 2019). Specifically, the district court held the Federal Arbitration Act ("FAA") did not preempt Cal. Bus. & Prof. Code § 20040.5, which bars non-California forum selection clauses in franchise agreements. Id. at 1137. Additionally, the district court reasoned the arbitration provision containing the forum selection clause was invalid because it contained a Private Attorneys General Act ("PAGA") waiver, which triggered a "blow up" provision invalidating the arbitration provision. Id. at 1133.

On June 4, 2019, Matco filed a petition for writ of mandamus with the Ninth Circuit, on the issue of whether the district court properly determined the validity of the arbitration provision before ruling on the enforceability of the forum selection clause set forth in thearbitration provision. (Doc. No. 28 at 15.) On October 25, 2019, the Ninth Circuit denied the petition, affirming the district court's decision. In re Matco Tools Corp., 781 F. App'x 681 (9th Cir. 2019). The Ninth Circuit held that the district court "did not err—much less clearly so—in considering the validity of the franchise agreement's arbitration provision." Id. at 682. The Ninth Circuit also held that the district court followed "binding Ninth Circuit precedent" in concluding that: (1) "Matco and Fleming did not agree to arbitrate their dispute under the plain terms of their contract," (2) absent a valid arbitration provision, the FAA does not preempt Cal. Bus. & Prof. Code § 20040.5, and (3) the forum selection clause was unenforceable. (Id.) Matco filed a petition for rehearing en banc, which was denied by the Ninth Circuit on January 3, 2020. (Doc. No. 30 at 15.)

II. PROCEDURAL HISTORY

Plaintiffs filed this action in this Court on August 21, 2019. (Doc. No. 1.) A FAC was filed on August 22, 2019. (Doc. No. 3.) In the FAC, Plaintiffs assert three causes of action for: (1) declaratory judgment, holding the clauses requiring individual arbitration exclusively in Ohio void and unenforceable, (2) injunctive relief enjoining the Ohio proceedings, and (3) violation of California's Unfair Competition Law. (Id.) On October 10, 2019, Matco filed a motion to dismiss for lack of jurisdiction and failure to state a claim. (Doc. No. 6.) Matco seeks dismissal based on (1) the first-to-file rule, (2) lack of jurisdiction because the Distributorship Agreement allegedly delegated issues of arbitrability to an arbitrator, and (3) the failure to state a claim on the UCL, restitution, and injunctive claims for relief. Plaintiffs opposed the motion, (Doc. No. 16) and Matco replied, (Doc. No. 17).

Plaintiffs then filed a motion for preliminary injunction on December 27, 2019. (Doc. No. 18.) Matco opposed the motion. (Doc. No. 30). Plaintiffs replied on January 31, 2020. On January 13, 2020, after filing their motion for preliminary...