Bautista v. Fantasy Activewear, Inc.

• Decision Date: 25 June 2020
• Docket Number: B297070,B299768
• Citation: 265 Cal.Rptr.3d 389,52 Cal.App.5th 650
• Court: California Court of Appeals Court of Appeals
• Parties: Saul G. BAUTISTA, Plaintiff and Respondent, v. FANTASY ACTIVEWEAR, INC., et al., Defendants and Appellants. Apolinar Luz Garcia, Plaintiff and Respondent, v. Fantasy Dying and Finishing, Inc., et al., Defendants and Appellants.

52 Cal.App.5th 650

265 Cal.Rptr.3d 389

Saul G. BAUTISTA, Plaintiff and Respondent,

v.FANTASY ACTIVEWEAR, INC., et al., Defendants and Appellants.

Apolinar Luz Garcia, Plaintiff and Respondent,

v.Fantasy Dying and Finishing, Inc., et al., Defendants and Appellants.

B297070

B299768

Court of Appeal, Second District, Division 1, California.

Filed June 25, 2020

Jenkins Kayayan, Jonathan M. Jenkins and Lara Kayayan, Los Angeles, for Defendants and Appellants.

Bokhour Law Group and Mehrdad Bokhour, Los Angeles; Hatan Law, Inc. and Farzin Hatanian, Century City, for Plaintiffs and Respondents.

CHANEY, J.

Fantasy Activewear, Inc. (AW), Fantasy Dyeing and Finishing, Inc. (DF), and Anwar Gajiani appeal from orders denying petitions to compel arbitration in two actions involving substantially similar wage and hour allegations filed by Saul Bautista against AW and Gajiani and Apolinar Garcia against DF and Gajiani.¹

Bautista and Garcia both signed settlement agreements with Fantasy in 2014 in connection with a case called Guerra v. Fantasy Activewear, Inc. (LASC No. BC517633) containing the arbitration clauses at issue in this appeal. In 2018, Bautista and Garcia filed class action complaints alleging a variety of wage and hour causes of action against AW, DF, and Gajiani, and amended them to allege causes of action under the Private Attorneys General Act (PAGA) ( Lab. Code, § 2698 et seq. ). Fantasy filed petitions to compel arbitration in each action based on the 2014 settlement agreements. Bautista and Garcia dismissed their class allegations. In each case, the trial court denied the petition to compel arbitration based on, among other independent grounds, their conclusions that the arbitration clauses’ predispute waivers of representative actions were unenforceable under Iskanian v. CLS Transportation Los Angeles, LLC (2014) 59 Cal.4th 348, 173 Cal.Rptr.3d 289, 327 P.3d 129 ( Iskanian ) and Julian v. Glenair, Inc. (2017) 17 Cal.App.5th 853, 225 Cal.Rptr.3d 798 ( Julian ).

Fantasy contends here that the question of whether Bautista and Garcia's waivers of representative actions were enforceable is a question of arbitrability that, pursuant to the terms of Fantasy's arbitration agreements with Bautista and Garcia, must be left for the arbitrator to decide. We conclude, however, that Bautista and Garcia were not acting as agents of the Labor and Workforce Development Agency (LWDA) when they entered into their settlement agreements with AW and DF. Consequently, their agreements with AW and DF were not entered into on behalf of the LWDA, and Fantasy has alleged the existence of no arbitration agreement existing between it and the LWDA—the real party in interest here. Accordingly, we affirm the trial court's denials of Fantasy's petitions to compel arbitration.

BACKGROUND

AW knits yarn into fabric that DF dyes, cuts, processes, and ships to contractors who sew and assemble apparel, which AW sells to retail resellers.² DF employed Garcia briefly in 2011, and then again from 2012 to 2018. AW employed Bautista from 2010 to 2018.

In 2013, Manuel Guerra filed a wage and hour class action complaint alleging causes of action under the Labor Code for failure to provide meal periods, failure to provide rest periods, failure to pay hourly wages, failure to provide accurate written wage statements, and failure to timely pay all final wages, as well as an Unfair Competition Law claim under Business and Professions Code section 17200 et seq.³ In January 2014, Fantasy entered into settlement agreements and arbitration agreements with putative class members in the Guerra action, including Bautista and Garcia.⁴ The identical arbitration agreements purported to require arbitration as the "exclusive remedy" for "any controversy, claim or dispute between Employee and Employer ... relating to or arising out of Employee's employment or the cessation of employment ...." "Any claim covered" by the arbitration agreement was to be "brought and conducted solely on an individual basis and not in a class, multiple plaintiff or representative action, or as a named or unnamed member in a class, consolidated, representative or private attorney general action." The agreements provide that any arbitration will be conducted "in accordance with the JAMS Employment Arbitration Rules & Procedures." Those rules state that "[u]nless the relevant law requires otherwise, the Arbitrator has the authority to determine jurisdiction and arbitrability issues as a preliminary matter."

On June 1, 2018, Bautista and Garcia filed class action complaints alleging causes of action substantially similar to those alleged in the Guerra action. On August 21, 2018, Bautista and Garcia filed amended complaints, each alleging a PAGA cause of action under Labor Code section 2698 et seq.

On October 30, 2018, Fantasy petitioned the trial court in each case for an order compelling arbitration and staying the trial court proceedings. In response, Bautista and Garcia filed requests for the trial court to dismiss their class allegations pursuant to California Rules of Court, rule 3.770. Bautista and Garcia explained that they "wishe[d] to dismiss the class allegations without prejudice and proceed with the PAGA cause[s] of action against" Fantasy. The trial court granted the request in each case.

The trial court denied AW's petition to compel arbitration against Bautista on March 21, 2019 and DF's petition to compel arbitration against Garcia on June 6, 2019. Fantasy timely appealed from each order.⁵

DISCUSSION

"Generally, the standard of review applicable to the denial of a petition to compel arbitration is determined by the issues presented on appeal [citation]. To the extent the denial relies on a pertinent factual finding, we review that finding for the existence of substantial evidence. [Citation.] In contrast, to the extent the denial relies on a determination of law, we review the trial court's resolution of that determination de novo. [Citation.] Nonetheless, we are not bound by the trial court's rationale, and thus may affirm the denial on any correct legal theory supported by the record, even if the theory was not invoked by the trial court." ( Julian , supra , 17 Cal.App.5th at p. 864, 225 Cal.Rptr.3d 798, fn. omitted.) There is no dispute regarding the underlying facts here; rather, the parties disagree about the applicable law.

The parties’ arguments turn on their framing of the issues in the case. Fantasy contends that the question of whether a PAGA claim is an arbitrable claim is a question of arbitrability that has been delegated to the arbitrator through the JAMS rules, which it contends were incorporated into Bautista's and Garcia's arbitration agreements. Bautista and Garcia counter that the question is one that precedes arbitrability—the question is whether the real party in interest, the LWDA, can be bound by an arbitration agreement to which it is not a signatory, and that was entered into before Bautista and Garcia were deputized as LWDA's agents for purposes of their PAGA claim. Fantasy concedes that each California case that has considered the question has concluded that arbitration agreements entered into before a plaintiff has been deputized for purposes of a PAGA representative action is not enforceable for purposes of the PAGA representative action. Nevertheless, Fantasy asks us to reject the holdings in those cases and expressly disagree with Julian , supra , 17 Cal.App.5th 853, 225 Cal.Rptr.3d 798, Betancourt v. Prudential Overall Supply (2017) 9 Cal.App.5th 439, 215 Cal.Rptr.3d 344, Tanguilig v. Bloomingdale's, Inc. (2016) 5 Cal.App.5th 665, 210 Cal.Rptr.3d 352, and Correia v. NB Baker Electric, Inc. (2019) 32 Cal.App.5th 602, 244 Cal.Rptr.3d 177. We decline to do so.

Fantasy contends that the United States Supreme Court's recent decision in Henry Schein, Inc. v. Archer and White Sales, Inc. (2019) ––– U.S. ––––, 139 S.Ct. 524, 202 L.Ed.2d 480 ( Henry Schein ) compels us to reverse the trial court's order and instruct the trial court to send the Bautista and Garcia matters to arbitration for an arbitrator to decide whether Bautista's and Garcia's PAGA representative claims are arbitrable claims. In Henry Schein , the Supreme Court considered the "wholly groundless" exception to the rule that where parties have delegated arbitrability to the arbitrator by "clear and unmistakable" evidence, the arbitrator is entitled to resolve questions of arbitrability. The Court took up the issue noting that some Circuit Courts of Appeals had "determined that the court rather than an arbitrator should decide the threshold arbitrability question if, under the contract, the argument for arbitration is wholly groundless." ( Id. at p. ––––, 139 S.Ct. at 529.) The Supreme Court concluded that "[w]hen the parties’ contract delegates the arbitrability question to an arbitrator, a court may not override the contract. In those circumstances, a court possesses no power to decide the arbitrability issue. That is true even if the court thinks that the argument that the arbitration agreement applies to a particular dispute is wholly groundless." ( Id. at p. ––––, 139 S.Ct. at 529.)

Henry Schein is inapposite. The question here is not whether claims are arbitrable under an agreement among the parties, but rather whether there exists an agreement among the parties to arbitrate. "Under ‘both federal and state law, the threshold question presented by a petition to compel arbitration is whether there is an agreement to arbitrate .’ " ( Cruise v. Kroger Co. (2015) 233 Cal.App.4th 390, 396, 183 Cal.Rptr.3d 17, original italics.)

"A PAGA claim is legally and conceptually different from an employee's own suit for damages and statutory penalties. An employee suing under PAGA ‘does so as the proxy or agent of the state's labor law enforcement agencies .’ [Citation.] Every PAGA claim is ‘a dispute between an employer and the state .’ [Citations.] Moreover,...