Luchini v. Carmax, Inc.

• Decision Date: 23 July 2012
• Docket Number: CASE NO. CV F 12-0417 LJO DLB
• Court: U.S. District Court — Eastern District of California
• Parties: MICHAEL LUCHINI, Plaintiff, v. CARMAX, INC., et al., Defendants.

MICHAEL LUCHINI, Plaintiff,

v.CARMAX, INC., et al., Defendants.

CASE NO. CV F 12-0417 LJO DLB

UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF CALIFORNIA

Dated: July 23, 2012

ORDER ON DEFENDANTS' MOTIONS TO

DISMISS AND TO STAY

(Doc. 57.)

INTRODUCTION

Defendants¹ seek to compel to arbitration plaintiff Michael Luchini's ("Mr. Luchini's") individual and representative overtime compensation claims based on arbitration provisions in Mr. Luchini's employment agreement. With compelled arbitration, defendants seek to dismiss this action or stay it pending arbitration. Mr. Luchini responds that the arbitration provisions are unenforceable in that they preclude Mr. Luchini's pursuit of substantive rights and are unconscionable. This Court considered Mr. Luchini's alternative motions to dismiss and stay on the record and VACATES the July 24, 2012 hearing, pursuant to Local Rule 230(g). For the reasons discussed below, this Court STAYS this action pending arbitration of Mr. Luchini's individual claims and DISMISSES without prejudice Mr. Luchini's class, collective and representative claims.

BACKGROUND

Summary

Carmax buys and sells used vehicles throughout the United States. During August 2007 to January 2012, Carmax employed Mr. Luchini initially as a buyer-in-training and later as a buyer. Mr. Luchini primarily collected information on used vehicles and entered that information on Carmax's computer system to assist to calculate Carmax's purchase price for vehicles. Mr. Luchini claims that he and other buyers worked more than 40 hours a week and more than eight hours a day² without overtime compensation required by federal and California law and that Carmax misclassified Mr. Luchini and other buyers as exempt from overtime compensation. Mr. Luchini proceeds on his Second Amended Complaint ("SAC") to allege federal and California claims arising from Carmax' failure to pay Mr. Luchini and other buyers overtime compensation. Carmax contends that the SAC's claims are subject to arbitration pursuant its dispute resolution agreement and not amendable to class or representative litigation. Carmax seeks to compel this action to arbitration and to dismiss it in the absence of subject matter jurisdiction or to stay it pending arbitration.

Arbitration Agreement

On August 29, 2007, after he had commenced his Carmax employment, Mr. Luchini signed a Carmax Dispute Resolution Agreement ("arbitration agreement"). The arbitration agreement is two pages attached to Mr. Luchini's employment application and begins with the following bold highlighted text: "If you wish to be considered for employment . . . you must read and consent to the following agreement. You will be considered as an applicant when you have signed the Agreement. . . . You will note that if you sign at this time you do have three (3) days to withdraw your consent."

The arbitration agreement provides for arbitration of certain claims:

Except as set forth below, both CarMax and I agree to settle any and all previously unasserted claims, disputes, or controversies arising out of or relating to my application or candidacy for employment and employment and/or cessation of employment with CarMax, exclusively by final and binding arbitration before a neutral Arbitrator. By way of example only, such claims include claims under federal, state and local statutory or common law, such as the Age Discrimination in Employment Act, Title VII of the Civil Rights Act of 1964, as amended, including the amendments of the Civil Rights Act of 1991, the Americans with Disabilities Act, the Family Medical Leave Act, and the lawof contract and law of tort.

. . .

I understand that I still may exercise my rights under the National Labor Relations Act and file charges with the Equal Employment Opportunity Commission or similar federal, state, or local agency, but that upon receipt of a right-to-sue letter or similar administrative determination, I shall arbitrate any claim I may have against CarMax.

. . .

This Agreement will be enforceable throughout the application process, my employment, and thereafter with respect to any such claims arising from or relating to my application or candidacy for employment, employment or cessation of employment with CarMax. We then must arbitrate all such employment-related claims, and we may not file a lawsuit in court.

The arbitration agreement references Carmax's Dispute Resolution Rules and Procedures ("arbitration rules") and notes: "By consenting to this Agreement, you acknowledge receipt of the Dispute Resolution Rules and Procedures. You may wish to seek legal advice before consenting to this Dispute Resolution Agreement." The arbitration agreement continues: "I have read this Agreement and understand that I should read the Dispute Resolution Rules and Procedures prior to accepting an offer of employment with CarMax."

Arbitration Rules

The Rule 2 of the arbitration rules³ further addresses claims subject to arbitration:

Except as otherwise limited herein, any and all employment-related legal disputes, controversies or claims arising out of, or relating to, an Associate's application or candidacy for employment, employment or cessation of employment with CarMax or one of its affiliates shall be settled exclusively by final and binding arbitration before a neutral third-party Arbitrator selected in accordance with these Dispute Resolution Rules and Procedures. Arbitration shall apply to any and all such disputes, controversies, or claims whether asserted against the Company and/or against any employee, officer, alleged agent, director or affiliate company.

All previously unasserted claims arising under federal, state or local statutory, or common law, shall be subject to arbitration. Merely by way of example, these claims include, but are not limited to, claims arising under . . . the Fair Labor Standards Act (FLSA), 42 U.S.C. § 1981, as amended . . . the Employee Retirement Income Security Act (ERISA) . . .

. . .

Claims by Associates for state employment insurance benefits (e.g., unemploymentcompensation, workers' compensation, worker disability compensation) claims arising under the National Labor Relations Act, or any claims or disputes by whistleblowers arising pursuant to the Sarbanes-Oxley Act and alleging unlawful retaliation or seeking other relief pursuant to that Act, shall not be subject to arbitration. Other statutory or common law claims alleging that CarMax retaliated or discriminated against an Associate, however, shall be subject to arbitration.

Rule 3 further emphasizes arbitration of claims:

By agreeing to the Dispute Resolution Program, an Associate agrees to resolve through arbitration all claims described in, or contemplated by Rule 2. If an Associate files a lawsuit in court to resolve claims subject to arbitration, the Associate agrees that the Court shall dismiss the lawsuit and require the Associate to arbitrate the dispute.

The arbitration rules further address selection of an arbitrator, conduct of the arbitration hearing, pre-hearing discovery, fees and expenses. Rule 9(f)(ii) bars consolidation of claims of different employees and class actions:

The Arbitrator shall not consolidate claims of different Associates into one proceeding, nor shall the Arbitrator have the power to hear an arbitration as a class action, collective action, or representative action. (A class action involves an arbitration or lawsuit where representative members of a large group who claim to share a common interest seek collective relief.)

Mr. Luchini's Claims

The SAC alleges that Carmax has unlawfully classified buyers, including Mr. Luchini, "as exempt from overtime payments under federal and state laws" and such employees "have worked overtime hours, as defined by applicable federal and state laws, and are and have been entitled to premium compensation at the appropriate rate . . . for all overtime hours worked." The SAC alleges:

1. A first claim for failure to pay overtime and record hours worked to violate the Fair Labor Standards Act ("FLSA"), 29 U.S.C. §§ 201, et seq.;

2. A second claim for failure to pay overtime to violate California Wage Order No. 4-2001 and California Labor Code sections 510 and 1194;

3. A third claim for waiting time penalties to violate California Labor Code sections 201-203;

4. A fourth claim for failure to provide accurate wage and hour statements to violate California Wage Order No. 4-2001 and California Labor Code sections 226, 1174 and 1174.5;5. A fifth claim for failure to provide meal and rest periods to violate California Wage Order No. 4-2001 and California Labor Code sections 218.5, 226.7 and 512;

6. A sixth claim for unfair competition to violate the California Unfair Competition Law ("UCL"), Cal. Bus. & Prof. Code, §§ 17200, et seq.;

7. A seventh claim for penalties under the California Private Attorneys General Act ("PAGA"), Cal. Labor Code, §§ 2698, et seq.;

8. An eighth claim for failure to maintain accurate records for hours worked to violate the Employee Retirement Income Security Act ("ERISA"), 29 U.S.C. § 1059(a)(1); and

9. A ninth claim for breach of fiduciary duties for failure to credit overtime compensation to violate ERISA.

In addition to Mr. Luchini, the SAC pursues each of the claims on behalf of other Carmax buyers by asserting class, collective and representative allegations.

DISCUSSION

Carmax contends that the arbitration agreement and arbitration rules compel Mr. Luchini to arbitrate the SAC claims and preclude class, collective and representative litigation to warrant dismissal or stay of this action. Mr. Luchini responds that the arbitration agreement and arbitration rules are unenforceable in that they preclude pursuit of substantive rights and are unconscionable.

Arbitration Policy

Arbitration is a way to resolve disputes "that the parties have agreed to submit to arbitration." First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 943, 115 S.Ct. 1920 (1995). Arbitration clauses limit a court's power: "Our...