Whitworth v. Solarcity Corp., Case No. 16-cv-01540-JSC

CourtUnited States District Courts. 9th Circuit. United States District Courts. 9th Circuit. Northern District of California
Citation336 F.Supp.3d 1119
Docket NumberCase No. 16-cv-01540-JSC
Parties Ravi WHITWORTH, et al., Plaintiffs, v. SOLARCITY CORP., et al., Defendants.
Decision Date21 August 2018

336 F.Supp.3d 1119

Ravi WHITWORTH, et al., Plaintiffs,
v.
SOLARCITY CORP., et al., Defendants.

Case No. 16-cv-01540-JSC

United States District Court, N.D. California.

Signed August 21, 2018


336 F.Supp.3d 1121

Gal Gressel, Lisa Lin Garcia, Richard Howard Rahm, Littler Mendelson, P.C., San Francisco, CA, for Defendants.

Christina Ann Humphrey, Humphrey & Rist LLP, San Diego, CA, Jahan C. Sagafi, Outten & Golden LLP, San Francisco, CA, Robert Neil Fisher, Outten and Golden LLP, New York, NY, Thomas Anthony Rist, Humphrey and Rist, LLP, Fayetteville, WV

ORDER RE: MOTION TO COMPEL ARBITRATION AND MOTION TO STAY

JACQUELINE SCOTT CORLEY, United States Magistrate Judge

Plaintiff Ravi Whitworth brought this putative class and collective action against his former employer Defendant SolarCity Corporation. Plaintiff later amended his complaint to include the claims of four additional named Plaintiffs. (Dkt. No. 68.) The Court denied SolarCity's motion to compel arbitration given the Ninth Circuit's decision in Morris v. Ernst & Young , 834 F.3d 975 (9th. Cir. 2016), holding that employment arbitration agreements containing class action waivers are invalid and unenforceable under the National Labor Relations Act (NLRA). (Dkt. Nos. 41 & 81.) On May 21, 2018, the Supreme Court reversed the Ninth Circuit's decision in Morris . See Epic Sys. Corp. v. Lewis , ––– U.S. ––––, 138 S.Ct. 1612, 200 L.Ed.2d 889 (2018).

The parties have submitted supplemental briefing regarding the motion to compel arbitration following Epic . Having reviewed the parties' original and supplemental briefs, and having had the benefit of oral argument on August 9, 2018, the Court DENIES the motion to compel arbitration of Plaintiffs Whitworth, Carranza, and Frias's PAGA claims, but GRANTS the motion to compel arbitration of their individual claims and GRANTS the motion to compel as to Plaintiffs Farrohki and Whitford's individual claims. The Court also GRANTS SolarCity's motion to stay proceedings pending arbitration.

DISCUSSION

Following the Supreme Court's decision in Epic , the Court held a Status Conference to discuss how to proceed in this action. (Dkt. No. 114.) As a threshold matter, the parties agree that three of the five Plaintiffs—Whitworth, Carranza, and Frias—have valid arbitration agreements and that these agreements contain representative action waivers which preclude them from pursuing representative actions. The parties also agree that Plaintiffs Whitworth, Carranza, and Frias cannot bring class claims and that their individual non-PAGA claims must be arbitrated. The parties cannot agree, however, about whether

336 F.Supp.3d 1122

Plaintiffs Farrohki and Whitford have valid arbitration agreements or how the Court should handle Plaintiffs Whitworth, Carranza, and Frias's PAGA claims.

The Court thus directed the parties to provide supplemental briefing regarding three issues. (Dkt. No. 116.) First, whether Epic overruled Sakkab v. Luxottica Retail N. Am., Inc. , 803 F.3d 425, 431 (9th Cir. 2015), such that Plaintiffs Whitworth, Carranza, and Frias's PAGA claims must be compelled to arbitration along with their other claims. Second, to address SolarCity's argument that the Court must compel Plaintiffs to arbitrate their PAGA claims first.1 Finally, whether the Court must compel Plaintiffs Farrohki and Whitford to arbitrate their individual claims. Subsumed within this question are whether the arbitration agreements are invalid because they include non-severable waivers of representative actions including PAGA claims, and the question of whether Farrohki and Whitford have standing to challenge the validity of their arbitration agreements on this ground given that they have not pled PAGA claims. Upon review of the original motion to compel briefing, as well as the parties' supplemental submissions, and having had the benefit of oral argument, the Court rules as follows.

A. Plaintiffs Whitworth, Carranza, and Frias's PAGA Claims

There are two issues with respect to Plaintiffs Whitworth, Carranza, and Frias's PAGA claims. First, whether Epic overruled Sakkab such that Plaintiffs must now arbitrate their PAGA claims with their other claims. Second, whether Plaintiffs' PAGA claims based on violations of Labor Code section 558 must be arbitrated even if their other PAGA claims cannot be compelled to arbitration.

1) Epic did not overrule Sakkab

As a general rule, "circuit precedent, authoritative at the time that it issued, can be effectively overruled by subsequent Supreme Court decisions that are closely on point, even though those decisions do not expressly overrule the prior circuit precedent." Miller v. Gammie , 335 F.3d 889, 899 (9th Cir. 2003) (internal citation and quotation marks omitted). While "the issues decided by the higher court need not be identical in order to be controlling [ ], the relevant court of last resort must have undercut the theory or reasoning underlying the prior circuit precedent in such a way that the cases are clearly irreconcilable ." Id. at 900 (emphasis added). SolarCity argues Epic is clearly irreconcilable with Sakkab because Morris (which Epic overruled) and Sakkab both rest on the same interpretation of the FAA's savings clause, an interpretation which Epic rejected. In particular, SolarCity contends:

The Supreme Court [in Epic ] thus emphatically held that a rule attacking a contract for requiring individualized arbitration—even when based on a general contract defense of illegality—cannot be preserved by the FAA's saving clause if that rule does not "render any contract enforceable," but only renders arbitration agreements unenforceable."

(Dkt. No. 122 at 10.2 )

Accepting SolarCity's characterization of Epic , it is still not clearly irreconcilable with Sakkab . Sakkab applied the same interpretation

336 F.Supp.3d 1123

of the savings clause as articulated by SolarCity: the court held that the FAA's savings clause "requires that a state contract defense place arbitration agreements on equal footing with the non-arbitration agreements." 803 F.3d at 432. It then went on to hold that "[t]he Iskanian rule complies with this requirement. The rule bars any waiver of PAGA claims, regardless of whether the waiver appears in an arbitration agreement or a non-arbitration agreement." Id. SolarCity ignores that in Iskanian the California Supreme Court found that a waiver of representative actions bars a PAGA claim on behalf of the state in its entirety; even if an employee could bring and therefore arbitrate an individual PAGA claim, such individual's claims "do not ‘result in the penalties contemplated under the PAGA to punish and deter employer practices that violate the rights of numerous employees under the Labor Code.’ " Sakkab , 803 F.3d at 431 (quoting Iskanian , 59 Cal. 4th 348, 383, 173 Cal.Rptr.3d 289, 327 P.3d 129 (2014) ). As Sakkab explained, "[a]n agreement to waive ‘representative’ PAGA claims—that is, claims for penalties arising out of violations against other employees—is effectively an agreement to limit the penalties an employee-plaintiff may recover on behalf of the state." Id. ; see also id. at 436 ("PAGA action is a statutory action for penalties brought as a proxy for the state, rather than a procedure for resolving the claims of other employees."). Epic does not require an interpretation of the FAA that allows a private party to immunize itself from liability under a particular law, especially a law prosecuted on behalf of a state.

In sum, Sakkab is not clearly irreconcilable with Epic ; rather, there remains a "meaningful basis for the [ Sakkab ] rule." Morton v. De Oliveira , 984 F.2d 289, 292 (9th Cir. 1993). Therefore, in the absence of Ninth Circuit authority stating otherwise, this Court must follow Sakkab .

2) Plaintiffs' Section 558 Claims are Not Subject to Arbitration

SolarCity next insists that even if the Court is not persuaded that Epic implicitly overruled Sakkab , the Court should nonetheless compel arbitration of the PAGA claims to the extent that the claims are predicated on California Labor Code section 558. SolarCity's argument is based on an unpublished Ninth Circuit Court of Appeals decision favoring one of two diverging California Court of Appeals cases on this question. See Mandviwala v. Five Star Quality Care, Inc. , 723 F. App'x 415, 417-18 (9th Cir. 2018) (discussing Esparza v. KS Indus., L.P. , 13 Cal. App. 5th 1228, 1234, 221 Cal.Rptr.3d 594 (2017) ; Lawson v. ZB, N.A. , 18 Cal.App.5th 705, 227 Cal.Rptr.3d 613 (2017), as modified (Dec. 21, 2017), review granted March 21, 2018). However, Mandviwala —as an unpublished decision—is not binding; instead, this Court must "attempt to determine how the California Supreme Court might decide the issue." Ileto v. Glock Inc. , 349 F.3d 1191, 1200 (9th Cir. 2003) ; see also 9th Cir. Rule 36-3(a) ("Unpublished dispositions and orders of this Court are not precedent, except when relevant under the doctrine of law of the case or rules of claim preclusion or issue preclusion.").

Labor Code section 558(a) provides that:

(a) Any employer or other person acting on behalf of an employer
...

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