Verdugo v. Alliantgroup, L.P.

• Decision Date: 28 May 2015
• Docket Number: G049139
• Citation: 237 Cal.App.4th 141,187 Cal.Rptr.3d 613
• Court: California Court of Appeals Court of Appeals
• Parties: Rachel VERDUGO, Plaintiff and Appellant, v. ALLIANTGROUP, L.P., Defendant and Respondent.

237 Cal.App.4th 141

187 Cal.Rptr.3d 613

Rachel VERDUGO, Plaintiff and Appellant

v.ALLIANTGROUP, L.P., Defendant and Respondent.

G049139

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

Filed May 28, 2015

As Modified on Denial of Rehearing June 25, 2015

Law Office of James M. Gilbert, James M. Gilbert, Los Angeles; Law Offices of Darren D. Daniels and Darren D. Daniels, Ontario, for Plaintiff and Appellant.

Littler Mendelson, Julie A. Dunne, San Diego, and Khatereh S. Fahimi for Defendant and Respondent.

OPINION

ARONSON, J.

Plaintiff and appellant Rachel Verdugo appeals from an order granting a motion to stay this wage and hour lawsuit based on a forum selection clause in her employment agreement with defendant and respondent Alliantgroup, L.P. (Alliantgroup). The clause designates Harris County, Texas, as the exclusive forum for any dispute arising out of Verdugo's employment, and also includes a provision designating Texas law as governing all disputes. Verdugo contends the trial court erred because enforcing the forum selection clause and related choice-of-law clause violates California's public policy on employee compensation. We agree and reverse the trial court's order.

Although a party opposing enforcement of a forum selection clause ordinarily bears the burden to show enforcement would be unreasonable or unfair, the burden is reversed when the underlying claims are based on statutory rights the Legislature has declared to be unwaivable. In that instance, the party seeking to enforce the forum selection clause has the burden to show enforcement would not diminish unwaivable California statutory rights, otherwise a forum selection clause could be used to force a plaintiff to litigate in another forum that may not apply California law.

Here, Verdugo bases all her claims on Labor Code provisions that not only establish when and how employers must pay overtime and other forms of compensation, provide meal and rest breaks, and provide accurate wage statements to all California employees, but also establish specific remedies for an employer's violation of these provisions, including recovery of unpaid wages, interest, civil penalties, and attorney fees. To protect these important rights and remedies, the Labor Code declares they cannot be waived by agreement.

Alliantgroup failed to show enforcing the forum selection clause and related choice-of-law clause in Verdugo's employment agreement would not diminish her statutory rights by requiring her to litigate her claims in Texas under Texas law. Alliantgroup contends Verdugo's statutory rights would not be affected by enforcing the forum selection clause because a Texas court “most likely” would reject the parties' choice-of-law clause and apply California law. Alliantgroup's supposition about what a Texas court is likely to do is not sufficient to meet its burden because Alliantgroup's arguments on appeal suggest it will argue against applying California law if this case is litigated in Texas, and Alliantgroup has not cited any authority that convinces us a Texas court necessarily will apply California law.

The few cases Alliantgroup cites do not address how a Texas court will view a choice-of-law clause in the context of a Labor Code wage and hour dispute between a Texas employer and a California employee, and Alliantgroup fails to address the competing policies of these two states. Alliantgroup could have eliminated any doubt about which law would apply to Verdugo's claims by stipulating to have the Texas courts apply California law, but it did not do so. Instead, Alliantgroup acknowledged Texas might apply California law while simultaneously minimizing the significance of the California statutory rights on which Verdugo bases her claims. Alliantgroup therefore has not shown Verdugo's unwaivable statutory rights will not be diminished.

IFacts and Procedural History

Alliantgroup provides specialty tax consulting services to businesses throughout the United States. Its corporate headquarters are located in Harris County, Texas, and it has regional offices in 11 states, including California. In October 2007, Alliantgroup hired Verdugo to work as an “Associate Director” at its Irvine office in California. Verdugo performed inside sales work and provided clerical support for the sales staff. She had only minimal contact with the corporate office in Texas.

When Alliantgroup hired her, Verdugo signed an “Employment Agreement” that included a combined forum selection and choice-of-law clause stating, “Choice of Law/Jurisdiction/Venue: This Agreement shall be governed in all respects, including, but not limited to, validity, interpretation, effect and performance by the laws of the State of Texas. The parties agree that proper subject matter and personal jurisdiction shall be had solely in [the] State of Texas. The sole venue for disputes arising hereunder shall be in Harris County, Texas.” (Italics, underscoring, and boldface omitted.)

In April 2013, Verdugo brought a class action lawsuit alleging the following claims on behalf of all similarly situated past and present employees of Alliantgroup: (1) unpaid overtime wages under Labor Code section 1194 ;¹ (2) failure to provide accurate itemized wage statements under section 226; (3) failure to provide meal breaks under section 226.7; (4) failure to pay all wages due at time of termination under section 203; (5) failure to pay commissions under sections 200 to 204; (6) failure to pay vacation pay under section 227.3; (7) unfair and unlawful business practices under Business and Professions Code section 17200 et seq. ; and (8) civil penalties under the Labor Code Private Attorneys General Act of 2004 (§ 2698 et seq.; PAGA).

Alliantgroup moved to dismiss or stay the action based on the forum selection clause in the Employment Agreement. The trial court granted the motion and stayed this action based on its finding the forum selection clause was enforceable. Verdugo timely appealed.

IIDiscussion

A. Governing Legal Principles on Forum Selection Clauses

“California favors contractual forum selection clauses so long as they are entered into freely and voluntarily, and their enforcement would not be unreasonable. [Citation.] This favorable treatment is attributed to our law's devotion to the concept of one's free right to contract, and flows from the important practical effect such contractual rights have on commerce generally.” (America Online, Inc. v. Superior Court (2001) 90 Cal.App.4th 1, 11, (America Online ).) Indeed, “ ‘[f]orum selection clauses are important in facilitating national and international commerce, and as a general rule should be welcomed.’ [Citation.]” (Id. at p. 12, 108 Cal.Rptr.2d 699, italics omitted.)

A mandatory forum selection clause such as the one included in Verdugo's Employment Agreement is generally given effect unless enforcement would be unreasonable or unfair. (Animal Film, LLC v. D.E.J. Productions, Inc. (2011) 193 Cal.App.4th 466, 471, (Animal Film ); Berg v. MTC Electronics Technologies Co. (1998) 61 Cal.App.4th 349, 358, (Berg ).) “ ‘ “Mere inconvenience or additional expense is not the test of unreasonableness ...” ’ for a mandatory forum selection clause. [Citation.]” (Berg, at p. 359, 71 Cal.Rptr.2d 523.) A clause is reasonable if it has a logical connection with at least one of the parties or their transaction.² (America Online, supra, 90 Cal.App.4th at p. 12, 108 Cal.Rptr.2d 699 ; CQL Original Products, Inc. v. National Hockey League Players' Assn. (1995) 39 Cal.App.4th 1347, 1354, (CQL Products ).)

Nonetheless, “California courts will refuse to defer to the selected forum if to do so would substantially diminish the rights of California residents in a way that violates our state's public policy.” (America Online, supra, 90 Cal.App.4th at p. 12, 108 Cal.Rptr.2d 699 ; see Intershop Communications AG v. Superior Court (2002) 104 Cal.App.4th 191, 200, (Intershop Communications ) [“a forum selection clause will not be enforced if to do so would bring about a result contrary to the public policy of this state”]; CQL Products, supra, 39 Cal.App.4th at p. 1354, 46 Cal.Rptr.2d 412 ; Hall v. Superior Court (1983) 150 Cal.App.3d 411, 416–418, (Hall ).)

The party opposing enforcement of a forum selection clause ordinarily “bears the ‘substantial’ burden of proving why it should not be enforced.” (Global Packaging, Inc. v. Superior Court (2011) 196 Cal.App.4th 1623, 1633, , original italics; Intershop Communications, supra, 104 Cal.App.4th at p. 198, 127 Cal.Rptr.2d 847.) That burden, however, is reversed when the claims at issue are based on unwaivable rights created by California statutes. In that situation, the party seeking to enforce the forum selection clause bears the burden to show litigating the claims in the contractually-designated forum “will not diminish in any way the substantive rights afforded ... under California law.” ( Wimsatt v. Beverly Hills Weight etc. Internat., Inc. (1995) 32 Cal.App.4th 1511, 1520–1524, (Wimsatt ); see America Online, supra, 90 Cal.App.4th at pp. 10–11, 108 Cal.Rptr.2d 699 [party seeking enforcement must “prove that enforcement of the forum selection clause would not result in a significant diminution of rights”].)

Although the parties both contend we should review the trial court's decision to enforce the Employment Agreement's forum selection clause under the substantial evidence standard, we conclude abuse of discretion is the governing standard of review. To support their contention, the parties cite Cal–State Business Products & Services, Inc. v. Ricoh (1993) 12 Cal.App.4th 1666, (Cal–State ), which applied the substantial evidence standard based on the following explanation: “[I]n a contractual forum non conveniens motion, the trial court must determine if there is sufficient evidence to satisfy the requirements for invalidating a binding contract. If the trial court finds there are facts present which satisfy these criteria, it must act in a...