Perez v. U-Haul Co. of Cal.

• Decision Date: 16 September 2016
• Docket Number: B262029
• Citation: 3 Cal.App.5th 408,207 Cal.Rptr.3d 605
• Court: California Court of Appeals Court of Appeals
• Parties: Sergio PEREZ, et al., Plaintiffs and Respondents, v. U–HAUL CO. OF CALIFORNIA, Defendant and Appellant.

3 Cal.App.5th 408

207 Cal.Rptr.3d 605

Sergio PEREZ, et al., Plaintiffs and Respondents,

v.U–HAUL CO. OF CALIFORNIA, Defendant and Appellant.

B262029

Court of Appeal, Second District, Division 7, California.

Filed September 16, 2016

Gregg A. Farley, Los Angeles, and Law Offices of Gregg A. Farley; Sahag Majarian, Tarzana, and Law Offices of Sahag Majarian, for Plaintiff and Respondent Sergio Lennin Perez.

Larry W. Lee, Nicolas Rosenthal and Diversity Law Group; Sherry Jung, Los Angeles, and Law Offices of Sherry Jung, for Plaintiff and Respondent Erick Veliz.

Alston & Bird, James R. Evans, Jr. and Ryan T. McCoy, Los Angeles, for Defendant and Appellant.

ZELON

, J. Acting P.J.Plaintiffs Sergio Perez and Erick Veliz Ramos filed a representative action under the Private Attorneys General Act of 2004 (PAGA) ( Lab. Code, §§ 2698 et seq .

), alleging that U–Haul Company of California (U–Haul) violated several provisions of the Labor Code, including overtime and meal break requirements. U–Haul filed a motion to compel plaintiffs to individually arbitrate whether they qualified as “aggrieved employee[s],” and therefore had standing to pursue a PAGA claim. (See Labor Code, § 2699, subd. (a).) U–Haul asserted that all other issues regarding the PAGA claim should be stayed pending resolution of the arbitration. The trial court denied the motion, concluding that California law prohibits an employer from compelling an employee to split the litigation of a PAGA claim between multiple forums. We affirm.

FACTUAL AND PROCEDURAL BACKGROUND

A. Events Preceding the Motion to Compel Arbitration

In 2010 and 2011, U–Haul hired plaintiffs Erick Veliz and Sergio Perez (collectively plaintiffs) to serve as customer service representatives. As a condition of their employment, plaintiffs signed a mandatory arbitration agreement that contained the following language: “I agree that it is my obligation to ... submit to final and binding arbitration any and all claims and disputes ... that are related in any way to my employment.... [B]y agreeing to use arbitration to resolve my dispute, both U–Haul and I agree to ... forego any right to bring claims as a representative or as a member of a class or in a private attorney general capacity....” A separate provision stated that the agreement was “governed by the Federal Arbitration Act [FAA], 9 U.S.C. et seq .”

In 2012, plaintiffs each filed a class action complaint against U–Haul for various Labor Code violations including (among other things) unpaid overtime (Labor Code, §§ 510

, 1194 and 1198¹ ), failure to provide meal breaks (§ 226.7), failure to pay minimum wages (§§ 1194, 1194.2, 1197, 1197.1 ), failure to pay wages in a timely manner (§ 204) and failure to provide accurate wage statements (§ 226, subd. (a).) Veliz's complaint additionally alleged a representative PAGA action seeking to collect penalties “on behalf of all other ... [a]ggrieved [e]mployees.”

The trial court granted a petition to coordinate the actions, and stayed the matter pending the California Supreme Court's decision in Iskanian v. CLS Transportation Los Angeles, LLC (2014) 59 Cal.4th 348, 173 Cal.Rptr.3d 289, 327 P.3d 129

(Iskanian ). After Iskanian was decided, the plaintiffs each filed an amended complaint that alleged a single cause of action under PAGA seeking to collect penalties on behalf of themselves and other “aggrieved employees” for various Labor Code violations.

B. U–Haul's Motion to Compel Plaintiffs to Arbitrate Whether they Are “Aggrieved Employees” Within the Meaning of PAGA

On September 22, 2014, U–Haul filed motions seeking to compel plaintiffs to individually arbitrate the “predicate issue of whether” they had personally been subjected to any Labor Code violation, and therefore had standing to assert a PAGA claim. As stated in U–Haul's motions: “Standing under PAGA requires that the plaintiff be an ‘aggrieved employee’ in order to bring a claim for statutory penalties on behalf of himself and other employees. [Citation] The Labor Code defines ‘aggrieved employee’ as ‘any person who was employed by the alleged violator and against whom one or more of the allege violations was committed.’ [Citation] [¶] Whether plaintiff is an ‘aggrieved employee’ will require a determination of whether U–Haul committed Labor Code violations against him, specifically, whether U–Haul was allegedly in violation of California Labor Codes.” U–Haul further asserted that the “representative portion” of the PAGA claims, which included “the number, scope and identities of other ‘aggrieved employees'.... and the amount of representative penalties,” were “non-arbitrable” under the employment agreement, and should be stayed pending the outcome of the arbitration.

Plaintiffs opposed the motion, arguing that the California Supreme Court's decision in Iskanian

made clear that “claims brought pursuant to PAGA are not arbitrable in any manner whatsoever, as it is against public policy.” Plaintiffs further contended that if every employee could be compelled to arbitrate “whether [he or she had] suffered the underlying Labor Code violations to establish that [he or she is an] aggrieved employee,” Iskanian would be rendered “meaningless as ... then this argument could be applied to ... require every [employee] to first arbitrate whether they are a true ‘aggrieved employee.’ ”

In reply, U–Haul argued that Iskanian

did “not hold that part of a PAGA claim cannot be arbitrated or that the predicate issue of whether U–Haul committed Labor Code violations against [plaintiff] cannot be arbitrated. Instead, Iskanian requires [only] that ‘aggrieved employees' be allowed to bring representative PAGA actions.” U–Haul further contended that the employment agreement was governed by the FAA, which explicitly “authorizes the severance of arbitrable issues from non-arbitrable issues.” U–Haul argued that several federal decisions applying the FAA had held that when a single claim raises “ ‘both arbitrable issues and nonarbitrable issues,’ ” the court must “sever[ ] the arbitrable issues.” According to U–Haul, because plaintiffs' status as “aggrieved employee[s]” was an “arbitrable issue” under the employment agreement, the FAA required that the issue to be severed from the remaining “representative” issues of the PAGA claim. After a hearing, the court entered an order concluding there was no legal basis to compel arbitration “of the predicate issue of whether U–Haul committed Labor Code violations against Plaintiffs.” The court explained that Iskanian had “spoken on this issue and determined that the FAA does not apply to PAGA ... [¶] Contrary to defendant's arguments ..., the Iskanian Court was unequivocal in finding that a PAGA claim is not subject to the [FAA]. That is the dispute is, in fact, between the State and the employer. Thus, the federal cases [regarding severance] cited by Defendant, which all rely on the FAA, are distinguishable.” The trial court further explained that other California decisions had held that PAGA claims can only be brought in a representative capacity, and “not [as] an individual [claim].... As such, there is no basis for individuals to arbitrate whether they are individual ‘aggrieved employees' before proceeding to [a trial on the remainder of the PAGA claim]. [B]ecause the [plaintiffs'] PAGA claim is (1) outside the FAA, and (2) not an individual claim, there is no basis to compel arbitration to first determine whether the representative plaintiffs are ‘aggrieved employees' under PAGA.”

DISCUSSION

A. Standard of Review and Summary of the Issue on Appeal

An order denying a petition to compel arbitration is appealable. (Code Civ. Proc., § 1294, subd. (a)

.) “In general, ‘[t]here is no uniform standard of review for evaluating an order denying a [petition] 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.]’ [Citation.]” (Laswell v. AG Seal Beach, LLC (2010) 189 Cal.App.4th 1399, 1406, 117 Cal.Rptr.3d 310.)

The parties do not dispute that: (1) the parties entered into a valid, enforceable arbitration agreement that is governed by the FAA; (2) the agreement's provision precluding employees from asserting a representative PAGA claim is unenforceable as a matter of California law (see Iskanian, supra , 59 Cal.4th at p. 384, 173 Cal.Rptr.3d 289, 327 P.3d 129

); and (3) the parties did not contemplate arbitrating a representative PAGA action, meaning that the representative claim must proceed in court. They disagree, however, whether the agreement nonetheless requires plaintiffs to individually arbitrate whether they qualify as “aggrieved employee[s],” and therefore have standing to bring a representative PAGA action on behalf of “other current or former employees.” (See § 2699, subd. (a).)² For the purposes of PAGA, an “aggrieved employee” is defined to “mean[ ] any person who was employed by the alleged violator and against whom one or more of the alleged [Labor Code] violations was committed.” (§ 2699, subd. (c).)

Plaintiffs contend the analysis and reasoning in Iskanian

makes clear that employers are not permitted to compel employees to arbitrate any aspect of a PAGA claim, including the question whether they qualify as aggrieved employees. U–Haul disagrees, arguing that Iskanian merely held that PAGA waivers in arbitration agreements are unenforceable as a matter of state law, and that the FAA does not preempt this rule. U–Haul further contends that, in this case, it is not seeking to preclude plaintiffs from pursuing a representative PAGA claim, but rather is seeking only to arbitrate the plaintiffs' individual standing to bring a PAGA claim. If the arbitrator determines the plaintiffs are aggrieved employees within the meaning of PAGA, they may then proceed with their representative action in the superior court.

B....