Betancourt v. Transp. Brokerage Specialists, Inc.

• Decision Date: 29 March 2021
• Docket Number: A159528
• Citation: 276 Cal.Rptr.3d 785,62 Cal.App.5th 552
• Court: California Court of Appeals Court of Appeals
• Parties: Josue BETANCOURT et al., Plaintiffs and Respondents, v. TRANSPORTATION BROKERAGE SPECIALISTS, INC., Defendant and Appellant.

62 Cal.App.5th 552

276 Cal.Rptr.3d 785

Josue BETANCOURT et al., Plaintiffs and Respondents,

v.TRANSPORTATION BROKERAGE SPECIALISTS, INC., Defendant and Appellant.

A159528

Court of Appeal, First District, Division 3, California.

Filed March 29, 2021

Certified for Partial Publication.^*

Hersh & Hersh, Mark E. Burton for Plaintiff and Respondent.

Roxborough, Pomerance, Nye & Adreani, Drew E. Pomerance and Trevor R. Witt for Defendant and Appellant.

Petrou, J. Defendant Transportation Brokerage Specialists, Inc. appeals from a trial court order denying its motion to (1) compel plaintiff Josue Betancourt to arbitrate his individual claims pursuant to the arbitration provision in his employment agreement; and (2) dismiss or strike his class claims pursuant to the class action waiver also contained in the employment agreement.

In its order, the trial court applied California law after finding that plaintiff was exempt from Federal Arbitration Act ( 9 U.S.C. § 1 et seq. ) (FAA) coverage because he was a transportation worker engaged in interstate commerce. The trial court then denied defendant's motion to dismiss or strike plaintiff's class claims after finding that the class action waiver was unenforceable. The trial court also denied defendant's motion to compel arbitration of plaintiff's individual claims, concluding that the unenforceable class action waiver rendered the arbitration agreement unenforceable. On appeal, defendant challenges the trial court's findings on FAA inapplicability, unenforceability of the class action waiver, and unenforceability of the arbitration agreement.

We agree with the trial court that plaintiff is exempt from FAA coverage. We also agree that the class action waiver is unenforceable under California law, and affirm the trial court's order denying the motion to dismiss or strike plaintiff's class claims. We reverse, in part, that portion of the trial court order denying the motion to compel arbitration of plaintiff's individual claims and remand for further consideration consistent with this opinion, as the trial court improperly found the arbitration agreement unenforceable in its entirety rather than severing the class action waiver provision from the remainder of the employment agreement.

FACTUAL AND PROCEDURAL BACKGROUND

Plaintiff worked as a delivery driver for defendant from approximately February 2017 to May 2018. Defendant describes itself as a "last-mile" delivery company whose primary client was online retailer Amazon.com Inc. (Amazon).¹ According to defendant's Chief Operations Officer (COO), Amazon accounted for 99.5% of defendant's overall business and 100% of its business in 2016 and 2017.

A. Arbitration Agreement

At the start of his employment, plaintiff signed an At-Will Employment, Non-Disclosure, Non-Solicitation, Class-Action Waiver and Arbitration Agreement (Agreement).

Section 6 of the Agreement is entitled "Arbitration " and provides, in relevant part: "Any controversy, dispute or claim between the employee and the Company, or its officers, agents or other employees, shall be settled by binding arbitration, at the request of either party." (Emphasis in original.) Section 6 also states: "Both Company and Employees understand that by using arbitration to resolve disputes they are giving up any right that they may have to a judge or jury trial with regard to all issues concerning employment. The decision of the arbitrator shall be binding and conclusive on the parties and cannot be reviewed for error of law or legal reasoning of any kind. Judgment upon the reward rendered by the arbitrator may be entered in any court having proper jurisdiction. " (Emphasis in original.)

Section 7 of the Agreement is entitled "Class Action Waiver " and provides, in relevant part: "Any Claim must be brought in the respective party's individual capacity, and not as a plaintiff or class member in any purported class, collective, representative, multiple plaintiffs, or similar proceeding (‘Class Action’). The parties expressly waive any ability to maintain any Class Action in any forum." (Emphasis in original.)

Section 11 of the Agreement is entitled "Severability " and states: "If any term, covenant or condition of this Agreement or the application thereof to any person or circumstance is determined to be invalid or unenforceable, the remainder of the Agreement will not be affected thereby, and will continue to be valid and enforceable to the fullest extent permitted by law." (Emphasis in original.) This section also provides that, within 10 days of signing the Agreement, an employee can mail a written, notarized statement "requesting that either or both of the [arbitration and class action waiver] clauses be revoked."

B. Complaint

Plaintiff filed suit against defendant, asserting eight causes of action: (1) failure to provide meal and rest periods ( Labor Code §§ 226.7, 512 );² (2) failure to furnish accurate wage statements (§§ 226, 1174, 1174.5); (3) failure to pay all wages when due and waiting time penalties (§§ 201–204, 1194); (4) failure to reimburse for business expenses (§ 2802); (5) violation of California's Unfair Competition Law ( Bus. & Prof. Code § 17200 ) (UCL); (6) violation of the Private Attorneys General Act (§ 2698 et seq.) (PAGA); (7) unlawful retaliation (§ 1102.5); and (8) wrongful termination in violation of public policy.

The first six causes of action were brought on behalf of plaintiff and a putative class of defendant's delivery drivers, agents and employees. The seventh and eighth causes of action (for unlawful retaliation and wrongful termination) were brought on behalf of plaintiff in his individual capacity.

C. Defendant's Motion

Defendant filed a motion to compel arbitration of plaintiff's individual claims, dismiss or strike the class claims pursuant to the class action waiver in the Agreement, and stay the PAGA claim pending resolution of the claims at arbitration. Defendant argued that (1) the FAA applied to the Agreement, as the FAA's exemption for transportation workers engaged in interstate commerce was inapplicable to plaintiff; (2) the class action waiver was enforceable; and (3) there were no grounds—including, in particular, unconscionability—to preclude enforcement of the arbitration agreement.

In July 2019, the trial court issued a tentative ruling, held the initial hearing on the motion, and ordered limited discovery on the issue of interstate commerce. The parties then submitted supplemental briefing. Plaintiffs’ supplemental briefing included, among other things, declarations from plaintiff and four putative class members, as well as an attorney declaration estimating the potential recovery for plaintiff and these putative class members. A second hearing took place in early December 2019, at which time defense counsel requested a statement of decision.

D. Trial Court's Ruling on Motion

On December 31, 2019, the trial court issued its statement of decision denying the motion. The trial court first found defendant had met its burden to demonstrate the existence of an agreement to arbitrate, and thus the burden shifted to plaintiff to prove a ground to deny enforcement of the agreement. The trial court then adopted its finding from its July 2019 tentative ruling that the FAA was inapplicable because plaintiff was engaged in interstate commerce.

The trial court then found the class action waiver unenforceable under the four-factor test from Gentry v. Superior Court (2007) 42 Cal.4th 443, 64 Cal.Rptr.3d 773, 165 P.3d 556 ( Gentry ). First, the potential individual recovery was small because the estimated range of awards varied from $16,376 to $36,512 per employee. Second, the declarations of plaintiff and the putative class members showed that the employees would not have been willing to bring a lawsuit during their employment because of fear of retaliation, as they had experienced and witnessed retaliation. Third, the declarations demonstrated that absent class members may have been ill informed of their rights, as plaintiff and the putative class members attested that they were unaware of their rights during employment, and were unable to take breaks because of their tight schedules but were still forced to indicate on their timecards that they had taken those breaks. Fourth, there were real world obstacles to the vindication of employee's rights, as " ‘the instant case involves precisely the sort of arbitration agreement with a class action waiver entered as a condition of employment by low-wage, limited-information employees in vulnerable, at-will employment environments[.]’ " ( Garrido v. Air Liquide Industrial U.S. LP (2015) 241 Cal.App.4th 833, 847, 194 Cal.Rptr.3d 297 ( Garrido ).)

Based on the trial court's analysis of the Gentry factors, it concluded that both the class action waiver and the arbitration provision were not enforceable. Hence, it denied the motion as to both (1) arbitration of plaintiff's individual claims, and (2) dismissal or striking of the class claims. The trial court noted that, although "not necessary" to its denial, it had considered plaintiff's arguments as to procedural and substantive unconscionability of the Agreement. In the July 2019 tentative ruling, the trial court found that plaintiff had met his burden on procedural unconscionability, showing "some level of oppression with regard to the manner in which the agreement was presented and signed," and "at least a small degree" of surprise involved. The trial court then found one substantively unconscionable provision (preventing judicial review for error of law or legal reasoning of any kind), but determined that it could be severed. Thus, the trial court concluded that the Agreement, as a whole, was not unconscionable. The trial court expressly adopted this reasoning as part of its statement of decision, "[t]o the extent relevant to a review of the court's denial[.]"

The trial court declined, however, to address plaintiff's defense to the motion that he had stated...