Correia v. NB Baker Elec., Inc.

• Decision Date: 25 February 2019
• Docket Number: D073798
• Citation: 244 Cal.Rptr.3d 177,32 Cal.App.5th 602
• Court: California Court of Appeals Court of Appeals
• Parties: Mark CORREIA et al., Plaintiffs and Respondents, v. NB BAKER ELECTRIC, INC., Defendant and Appellant.

32 Cal.App.5th 602

244 Cal.Rptr.3d 177

Mark CORREIA et al., Plaintiffs and Respondents,

v.NB BAKER ELECTRIC, INC., Defendant and Appellant.

D073798

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

Filed February 25, 2019

Finch, Thornton & Baird, Chad T. Wishchuk, Kathleen A. Donahue, San Diego, and Marlene C. Nowlin for Defendant and Appellant.

Baker Law Group, Michelle Baker ; Law Office of Alan S. Yockelson and Alan S. Yockelson, San Diego, for Plaintiffs and Respondents.

HALLER, J.

Plaintiffs Mark Correia and Richard Stow sued their former employer, NB Baker Electric, Inc. (Baker), alleging wage and hour violations and seeking civil penalties under the Private Attorney General Act of 2004 (PAGA). ( Lab. Code, § 2699 et seq. )¹ Baker responded by petitioning for arbitration under the parties' arbitration agreement. The agreement provided that arbitration shall be the exclusive forum for any dispute and prohibited employees from bringing a "representative action."

The trial court granted the arbitration petition on all causes of action except for the PAGA claim. On the PAGA claim, the court followed the California Supreme Court decision in Iskanian v. CLS Transportation Los Angeles, LLC (2014) 59 Cal.4th 348, 173 Cal.Rptr.3d 289, 327 P.3d 129 ( Iskanian ), which held unenforceable agreements to waive the right to bring PAGA representative actions in any forum, and the California Court of Appeal decision in Tanguilig v. Bloomingdale's, Inc. (2016) 5 Cal.App.5th 665, 210 Cal.Rptr.3d 352 ( Tanguilig ), which held a PAGA claim cannot be compelled to arbitration without the state's consent. The trial court stayed the PAGA claim pending the conclusion of the arbitration.

Baker contends the court erred because: (1) plaintiffs' response to its arbitration petition was untimely; (2) Iskanian is no longer binding as it is inconsistent with a recent United States Supreme Court decision, Epic Systems Corp. v. Lewis (2018) ––– U.S. ––––, 138 S.Ct. 1612, 200 L.Ed.2d 889 ( Epic ); and (3) the parties' arbitration agreement should be interpreted to mean that if the representative-action waiver is unenforceable, the PAGA claim for statutory penalties remains subject to arbitration.

We determine the court acted within its discretion in considering plaintiffs' response to the arbitration petition despite that plaintiffs filed the response after the statutory deadline. We additionally determine we remain bound by Iskanian. Although the Epic court reaffirmed the broad preemptive scope of the Federal Arbitration Act (FAA), Epic did not address the specific issues before the Iskanian court involving a claim for civil penalties brought on behalf of the government and the enforceability of an agreement barring a PAGA representative action in any forum. We thus conclude the trial court properly ruled the waiver of representative claims in any forum is unenforceable.

We also reject Baker's contention that the court erred in failing to order plaintiffs' PAGA claim to arbitration. Although Iskanian did not decide the issue of whether courts have the authority to order a PAGA representative action into arbitration, several California Courts of Appeal have held a PAGA arbitration requirement in a predispute arbitration agreement is unenforceable based on Iskanian 's view that the state is the real party in interest in a PAGA claim. These courts reasoned the state must have consented to the agreement to effectively waive the right to bring the PAGA claim into court. We agree with this analysis as applied to the circumstances before us.

We are aware the federal courts have reached a different conclusion regarding the arbitrability of a PAGA representative claim, but find these decisions unpersuasive because the courts did not fully consider the implications of the qui tam nature of a PAGA claim on the enforceability of an employer-employee arbitration agreement. Moreover, although we provided Baker the specific opportunity to do so, it failed to identify a sound basis for this court to apply the federal decisions on this issue.

FACTUAL AND PROCEDURAL BACKGROUND

In 2014 and 2015, plaintiffs began working for Baker. At the outset, each employee signed an identical arbitration agreement (Arbitration Agreement). This agreement provided in relevant part:

"Section 4

"The Company and Employee agree that Employee's employment ... involves interstate commerce and thus the [FAA] applies.

"Section 5

"Employee and the Company agree that in the event any dispute arises between Employee and the Company relating to Employee's employment with the Company, including without limitation, any claim(s) based on common law, any express or implied contract, any federal or state statute, any statute or provision relating to employment discrimination and/or employment rights, any wage and hour claims, the federal or any state constitution and/or any public policy, will be determined by binding arbitration and not by a lawsuit or resort to court process. [¶] ... [¶]

"The arbitration provided for in this Agreement shall be the exclusive forum for any dispute between Employee and the Company related to the claims set forth above. ... [¶] ... [¶]

"Section 6

"No claims covered by this Agreement shall be permitted by the arbitrator or a court to proceed or be maintained as a class action or representative action by an Employee on behalf of other Employees.

"Section 7

"NOTICE: BY SIGNING THIS AGREEMENT, YOU ARE GIVING UP YOUR RIGHT TO MAINTAIN ANY CLASS ACTION OR REPRESENTATIVE ACTION IN ARBITRATION OR ANY COURT CONCERNING ANY DISPUTE SPECIFIED IN SECTION 5 ABOVE.

"Section 8

"NOTICE: BY SIGNING THIS AGREEMENT, YOU ARE AGREEING TO HAVE ANY ISSUE RELATING TO YOUR EMPLOYMENT OR OTHER DISPUTE SPECIFIED IN SECTION 5 ABOVE DECIDED BY NEUTRAL ARBITRATION AND YOU ARE GIVING UP YOUR RIGHT TO A JURY OR COURT TRIAL."

The Arbitration Agreement also contained a severance clause stating that if any provision or part of a provision is found to be invalid, the finding shall not "invalidat[e]" the remaining portions of the provision or any other part of the agreement.

In December 2016, the employment ended for both plaintiffs.

Six months later, in June 2017, plaintiffs filed a complaint against Baker. As amended, the complaint asserted breach of contract, statutory unfair competition, and wage and hour violations.² Plaintiffs sought damages for these violations and requested penalties under PAGA. On their PAGA claim, plaintiffs alleged they were bringing the action "on their own behalf, and in their representative capacity on behalf of other current or former aggrieved employees, for penalties pursuant to [ section] 2699 for [Baker's] violations of the enumerated ... Labor Code sections ...." (Italics omitted.) They sought 25 percent of all penalties for the employees and the remaining 75 percent for the state. They alleged they previously notified the California Labor Workforce Development Agency (Agency) of their intention to bring the PAGA claims.

On September 7, 2017, Baker petitioned for an order compelling plaintiffs to submit their causes of action to separate, individual arbitrations under the Arbitration Agreement. Baker scheduled the hearing for January 12, 2018.

On December 29, 2017, plaintiffs filed an opposition to Baker's petition. They argued: (1) the Arbitration Agreement was procedurally and substantively unconscionable; (2) the agreement was void because it contains an unenforceable waiver of PAGA representative actions; (3) PAGA representative actions cannot be compelled to arbitration; and (4) judicial economy would not be served by severing the remaining claims from the PAGA claim that must be litigated in court.

In reply, Baker argued plaintiffs' response must be stricken because it was untimely filed, and alternatively the Arbitration Agreement should be enforced because it was not procedurally or substantively unconscionable. On the PAGA claim, Baker did not seek to enforce the representative-action waiver, but urged the court to order this claim into arbitration, asserting that Iskanian and a more recent Ninth Circuit decision ( Sakkab v. Luxottica Retail North America, Inc . (9th Cir. 2015) 803 F.3d 425 ( Sakkab ) ) both contemplated that PAGA claims can be arbitrated, even if they could not be completely barred. Baker argued that at the very least the PAGA "individual" claims should be ordered to arbitration. Baker also asserted that the PAGA claims were asserted in bad faith merely "as a means to gain additional damages unrelated to their own individual claims" and that by failing to intervene, the state "waiv[ed] any interest" in plaintiffs' claims.

At the hearing on the motion, Baker's counsel reiterated that she agreed plaintiffs' PAGA representative-action waiver was not enforceable under Iskanian , but argued Iskanian did not hold that PAGA claims could not be compelled to arbitration. The court responded that it would adhere to its tentative ruling that all claims would be ordered to arbitration except for the PAGA claim. The court also remarked: "It will be nice when we get some firm direction on this ... because the [state and federal courts] seem[ ] to be all over the place on it. [¶] Right now, I think that the [law is] ... I can't order a PAGA claim to arbitration. [¶] ... [¶] ... To me, you can make a fair argument that it will be much more efficient for everybody to do them all in one place .... [¶] [But] I'm going to stay the PAGA case. I'm going to send the rest of it to arbitration. ..."

In its written order, the court explained its rejection of plaintiffs' substantive unconscionability arguments, and ordered all claims to arbitration except for the PAGA claim. On the PAGA claim, the order stated: " ‘A PAGA claim (whether individual or representative) cannot be ordered to arbitration without the state's consent,’ " citing Tanguilig, supra, 5 Cal.App.5th 665, 210 Cal.Rptr.3d 352.

DISCUSSION

Baker contends the court erred in refusing to enforce the Arbitration...