Nieto v. Fresno Beverage Co.

• Decision Date: 07 March 2019
• Docket Number: F074704
• Citation: 245 Cal.Rptr.3d 69,33 Cal.App.5th 274
• Court: California Court of Appeals Court of Appeals
• Parties: Daniel NIETO, Plaintiff and Respondent, v. FRESNO BEVERAGE COMPANY, INC., Defendant and Appellant.

33 Cal.App.5th 274

245 Cal.Rptr.3d 69

Daniel NIETO, Plaintiff and Respondent,

v.FRESNO BEVERAGE COMPANY, INC., Defendant and Appellant.

F074704

Court of Appeal, Fifth District, California.

Filed March 7, 2019

Morgan, Lewis & Bockius, Thomas M. Peterson, Brian C. Rocca, San Francisco, and Kathryn T. McGuigan, Los Angeles, for Defendant and Appellant.

Yoon Law, Kenneth H. Yoon, Stephanie E. Yasuda, and Brian G. Lee, Los Angeles; Justice Law Corporation, Douglas Han, Shunt Tatavos-Gharajeh, and Daniel J. Park, Glendale, for Plaintiff and Respondent.

DETJEN, Acting P.J.Plaintiff Daniel Nieto was employed for many years as a delivery driver for defendant Fresno Beverage Company, Inc., doing business as Valley Wide Beverage Company (VWB). After being terminated from his employment, Nieto filed a class action lawsuit against VWB alleging various wage and hour violations under California labor law. VWB responded by filing a petition to compel arbitration, since Nieto had signed a written arbitration agreement when he was hired. VWB argued that under the Federal Arbitration Act ( 9 U.S.C. § 1 et seq., the FAA) Nieto must be ordered to arbitrate the dispute in accordance with the terms of the parties’ arbitration agreement. Nieto opposed the petition, primarily arguing that his employment at VWB came within a statutory exemption to the FAA granted to transportation workers engaged in interstate commerce. Nieto reasoned that since the FAA did not apply, a California law allowing court actions on wage claims notwithstanding the existence of an arbitration agreement (i.e., Lab. Code, § 229 ) was not preempted by the FAA, meaning the lawsuit may proceed in court. The trial court agreed with Nieto’s exemption argument and denied the petition to compel arbitration. VWB appealed from that order. We conclude the trial court correctly found that Nieto’s employment came within the FAA exemption. Accordingly, the trial court’s order denying the petition to compel arbitration is affirmed.

FACTS AND PROCEDURAL BACKGROUND

Nieto was employed by VWB as a delivery driver from April 1, 2008, to February 24, 2014. Shortly after his employment commenced, Nieto executed various documents pertaining to his employment, including an employee handbook and the arbitration agreement. The arbitration agreement provided among other things that arbitration was to be the exclusive remedy for all employment disputes, including disputes related to wage and hour issues. For reasons that are not disclosed in the record, Nieto’s employment was terminated on February 24, 2014.

On August 12, 2016, Nieto filed a class action complaint in the trial court against VWB for alleged violations of California wage and hour laws. The class action complaint sought, on behalf of Nieto and the class of other similarly situated current and former employees of VWB, meal period and rest break wages, minimum and overtime wages, and other wages and penalties allegedly due. The causes of action consisted of the following: (1) first cause of action for violation of Labor Code sections 226.7 and 512 (regarding meal period and rest break wages); (2) second cause of action for violation of Labor Code sections 510 and 1194 (regarding minimum and overtime wages); (3) third cause of action for violation of Labor Code section 203 (regarding waiting time penalties); (4) fourth cause of action for violation of Labor Code section 226 (regarding record keeping); (5) fifth cause of action for unfair business practices under Business and Professions Code section 17200 (premised on the Labor Code violations of the preceding causes of action).

On September 14, 2016, VWB filed its petition to compel arbitration. The petition asserted that the arbitration agreement came under the broad coverage of the FAA, which law reflects a liberal federal policy favoring arbitration and requiring courts to enforce arbitration agreements according to their terms. The petition correctly noted the general coverage provision of the FAA (i.e., 9 U.S.C. § 2, or section 2 ) applies broadly to contracts "involving" interstate commerce that contain arbitration clauses, including where the arbitration agreement is between employers and employees. (See Circuit City Stores, Inc. v. Adams (2001) 532 U.S. 105, 119, 121 S.Ct. 1302, 149 L.Ed.2d 234 ( Circuit City ).) Finally, VWB’s petition pointed out that where the FAA is applicable, state laws interfering with enforcement of arbitration rights, such as California Labor Code section 229, are preempted by the FAA. (See Perry v. Thomas (1987) 482 U.S. 483, 484, 492, 107 S.Ct. 2520, 96 L.Ed.2d 426 [so holding].)

In support of its petition to compel arbitration, VWB submitted a declaration specifically describing VWB’s involvement in interstate commerce. Among other things, the supporting declaration asserted that VWB is a beverage distributor, contracting nationally and internationally, buying beer, wine and other beverages manufactured in other states and countries, and after such beverages are transported to VWB’s warehouse, they are delivered to VWB customers in California. Thus, as acknowledged in VWB’s petition, "[t]he products delivered by VWB’s drivers are part of a continuous stream of interstate travel." Consequently, according to VWB, its economic activity plainly involved interstate commerce and the parties’ arbitration agreement was and is governed by the FAA.

On or about October 4, 2016, Nieto filed his opposition to the petition to compel arbitration. Nieto’s opposition asserted that as a delivery truck driver engaged in interstate commerce, his employment was excluded from the FAA’s coverage based on the statutory exemption for "contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce." ( 9 U.S.C. § 1, or section 1.) Thus, according to Nieto’s opposition, the FAA was not applicable, no preemption applied, and all issues were to be resolved under California law. Nieto’s opposition claimed that, under California law, specifically Labor Code section 229, he was entitled to have his wage claims heard in court notwithstanding the existence of the arbitration agreement. In any event, it was further argued that the arbitration agreement was entirely unenforceable because of several purportedly unconscionable provisions.

On October 11, 2016, VWB filed its reply in support of the petition to compel arbitration. VWB’s reply contended that the FAA exemption did not apply to Nieto since he only delivered products within California and did not cross state lines. Further, VWB insisted that Nieto had failed to show any of the provisions of the arbitration agreement were substantively unconscionable.

The hearing on the petition was held on October 26, 2016. On October 27, 2016, the trial court denied the petition to compel arbitration, with the tentative ruling becoming the order of the court. The trial court’s ruling found that the arbitration agreement was not substantively unconscionable, and therefore was enforceable. However , the trial court’s ruling went on to explain that Nieto’s employment came within the FAA’s exemption provided to transportation workers engaged in the movement of interstate commerce. The trial court noted that Nieto’s work qualified for the exemption even though his deliveries did not cross state lines, explaining as follows: "[VWB’s] general business activities involve[d] receiving shipments from other states and countries, storing same for a short period, then tasking employees such as [Nieto] with delivery of the goods to in-state customers. ... [A]s [Nieto’s] employment involved transporting goods received from out of state, the transportation worker exemption to the FAA applie[d]." Furthermore, the trial court held that because Nieto was a transportation worker exempt from the FAA, Labor Code section 229 governed, which section "provides that an action for wage and hour claims may be maintained despite an agreement to arbitrate." The trial court then concluded: "[Nieto’s] complaint is, in its entirety, an action for wage and hour violations. [Nieto’s] action may thus be maintained, regardless of the arbitration provision in the employment contract between [Nieto] and [VWB]." Accordingly, VWB’s petition to compel arbitration was denied.

On November 8, 2016, VWB timely filed its notice of appeal from the trial court’s order denying the petition to compel arbitration.

DISCUSSION

I. Standard of Review

" ‘ " ‘There is no uniform standard of review for evaluating an order denying a motion to compel arbitration. [Citation.] If the court’s order is based on a decision of fact, then we adopt a substantial evidence standard. [Citations.] Alternatively, if the court’s denial rests solely on a decision of law, then a de novo standard of review is employed. [Citations.]’ " ’ " ( Avila v. Southern California Specialty Care, Inc . (2018) 20 Cal.App.5th 835, 839-840, 230 Cal.Rptr.3d 42.) Here, as the facts appear to be undisputed, we review de novo the legal question of whether Nieto was a transportation worker exempt from the FAA. (See Muro v. Cornerstone Staffing Solutions, Inc . (2018) 20 Cal.App.5th 784, 790, 229 Cal.Rptr.3d 498 ; Omar v. Ralphs Grocery Co . (2004) 118 Cal.App.4th 955, 959, 13 Cal.Rptr.3d 562.)

II. The Trial Court Correctly Ruled the FAA Did Not Apply

A. The FAA Exemption

The FAA was enacted in 1925 to remedy the general hostility of American courts to the enforcement of arbitration agreements; and to effectuate that purpose, the FAA compels judicial enforcement of a wide range of written arbitration agreements. ( Circuit City , supra , 532 U.S. at p. 111, 121 S.Ct. 1302.) Section 2 of the FAA, the basic coverage provision of the FAA, makes the law applicable to contracts evidencing a transaction "involving commerce" ( 9 U.S.C. § 2 ), which language reflects that Congress intended the law’s coverage to extend to the full reach of its commerce clause power. ( Allied-Bruce...