Huell v. BevMo Holdings, LLC ( 2022 )

1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 EASTERN DISTRICT OF CALIFORNIA 10 ----oo0oo---- 11 12 SHELDON HUELL, an individual, No. 2:22-cv-01394 WBS AC 13 Plaintiff, 14 v. ORDER RE: DEFENDANT’S MOTION TO COMPEL ARBITRATION and 15 BEVMO HOLDINGS, LLC, a Delaware PLAINTIFF’S MOTION FOR LEAVE Limited Liability Company; BEVMO TO AMEND 16 GC SERVICES, LLC, a California Limited Liability Company, 17 Defendants. 18 19 ----oo0oo---- 20 Plaintiff Sheldon Huell brought this action against his 21 former employer, Bevmo! Inc.,1 alleging claims for wage 22 discrimination on the basis of race under both California and 23 federal law. (Docket No. 1-2.) Before the court are defendant’s 24 motion to compel arbitration (Docket No. 6) and plaintiff’s 25 26 1 Plaintiff originally sued Bevmo Holdings, LLC and Bevmo GC Services. However, the correct defendant, as plaintiff 27 acknowledges in their motion for leave to amend, is Bevmo!, Inc. Accordingly, the court will use “defendant” in the singular in 28 this order. 1 motion for leave to amend the complaint (Docket No. 8). 2 I. Facts & Procedural History 3 Plaintiff, an African American man, worked for Bevmo! 4 Inc. (“Bevmo”) as a cashier and manager at two different 5 locations. (Compl. ¶¶ 2-3.) Plaintiff first worked as a cashier 6 from April 2018 to June 2020 at the Midtown Sacramento Bevmo 7 location. (Compl. ¶ 4.) He earned $12 an hour. (Id. ¶ 7.) In 8 June 2020, plaintiff began working at the Natomas Bevmo location 9 and was made manager. (Id. ¶ 8.) After receiving a 40-cents 10 raise, plaintiff earned $15.40 an hour. (Id.) Plaintiff learned 11 that four other managers, who performed similar work and worked 12 the same hours, earned between $17.50 to $ 19.00 an hour. (Id. ¶ 13 11.) According to plaintiff, these four managers had “lighter 14 skin tone” and were “white-passing.” (Id. ¶ 12.) Human 15 Resources began an investigation after plaintiff inquired about 16 the pay discrepancy. (Id. ¶¶ 13-14.) Plaintiff alleges that he 17 noticed that he was receiving more write-ups and disciplinary 18 actions and being given additional tasks other managers were not 19 asked to do after he raised the pay discrepancy concerns with 20 Human Resources. (Id. ¶ 16.) Plaintiff no longer works for 21 Bevmo.2 (Id. ¶ 17.) 22 Plaintiff filed a complaint with the Department of 23 Employment and Fair Housing and received a right-to-sue letter. 24 (Compl. ¶ 18.) On June 21, 2022, plaintiff filed his complaint 25 in California state court. (Docket No. 1-2.) Defendants removed 26 the case to this court on August 5, 2022. (Id.) 27 2 Plaintiff did not provide any specific information as 28 to when or why his employment with Bevmo ended. 1 On August 8, 2022, defendant requested that plaintiff 2 stipulate to arbitration because he had agreed to arbitrate any 3 disputes against defendant. (Def.’s Mot. to Compel, at 4 (Docket 4 No. 6-1).) In order to onboard as an employee at Bevmo, 5 prospective employees must complete the online onboarding 6 process. (See Chavez Decl. ¶ 7 (Docket No. 6-3).) One of the 7 documents employees must view and agree to as part of this 8 onboarding process is the Arbitration Agreement (“Agreement”). 9 (Id. ¶ 10.) Plaintiff electronically signed the Agreement before 10 beginning his employment with Bevmo in April 2018. (Id. ¶ 4.) 11 On August 9, 2022, parties met and conferred regarding 12 defendant’s request that plaintiff stipulate to arbitration 13 pursuant to the Agreement. (Id.) Plaintiff refused to stipulate 14 to arbitration. (Id.) 15 On August 30, 2022, plaintiff filed a Claims Notice 16 with the Labor Workforce Development Agency (“LWDA”) to include a 17 cause of action under California’s Private Attorneys General Act 18 (“PAGA”), Cal. Lab. Code §§ 2698 et seq., for violation of the 19 Equal Pay Act under Cal. Lab. Code § 1197.5. (Pl.’s Mot. for 20 Leave at 2 (Docket No. 8-1).) On September 8, 2022, plaintiff’s 21 counsel requested defendant’s counsel stipulate to amend the 22 complaint so plaintiff could include a PAGA claim. (Id.) 23 Defendant’s counsel refused. (Id.) 24 II. Motion to Compel Arbitration 25 A. Legal Standard 26 The Federal Arbitration Act (“FAA”) provides that an 27 arbitration clause in a contract “shall be valid, irrevocable, 28 and enforceable, save upon such grounds as exist at law or in 1 equity for the revocation of any contract.” 9 U.S.C. § 2; Stolt- 2 Nielsen S.A. v. AnimalFeeds Int’l Corp., 559 U.S. 662, 682 3 (2010). “The central or primary purpose of the FAA is to ensure 4 that private agreements to arbitrate are enforced according to 5 their terms.” Id. 6 The FAA “leaves no place for the exercise of discretion 7 by a district court, but instead mandates that district courts 8 shall direct the parties to proceed to arbitration on issues as 9 to which an arbitration agreement has been signed.” Dean Witter 10 Reynolds, Inc. v. Byrd, 470 U.S. 213, 218 (1985). “[A]s a matter 11 of federal law, any doubts concerning the scope of arbitrable 12 issues should be resolved in favor of arbitration, whether the 13 problem at hand is a construction of the contract language itself 14 or an allegation of waiver, delay, or like defense to 15 arbitrability.” Moses H. Cone Mem’l Hosp. v. Mercury Const. 16 Corp., 460 U.S. 1, 24–25 (1983); see Poublon v. C.H. Robinson 17 Co., 846 F.3d 1251, 1259 (9th Cir. 2017) (same). 18 Upon a showing that a party has failed to comply with a 19 valid arbitration agreement, the district court must issue an 20 order compelling arbitration. See Cohen v. Wedbush, Noble Cooke, 21 Inc., 841 F.2d 282, 285 (9th Cir. 1988). “[T]he FAA limits 22 courts’ involvement to determining (1) whether a valid agreement 23 to arbitrate exists and, if it does, (2) whether the agreement 24 encompasses the dispute at issue.” Cox v. Ocean View Hotel 25 Corp., 533 F.3d 1114, 1119 (9th Cir. 2008) (internal quotation 26 marks omitted). 27 B. Whether There is a Valid Arbitration Agreement 28 While plaintiff acknowledges that he electronically 1 signed the Agreement at the outset of his employment, he says the 2 Agreement is not valid because it is unconscionable. (Pl.’s 3 Opp’n at 7 (Docket No.7).) The FAA’s “savings clause permits 4 agreements to arbitrate to be invalidated by generally applicable 5 contract defenses, such as fraud, duress, or unconscionability . 6 . .” AT&T Mobility LLC v. Concepcion, 563 U.S. 333, 339 (2011) 7 (quotation and citation omitted). “Unconscionability has both a 8 ‘procedural’ and a ‘substantive’ element.” Armendariz v. Found. 9 Health Psychcare Servs., 24 Cal. 4th 83, 114 (2000). “Both 10 [must] be present in order for a court to exercise its discretion 11 to refuse to enforce a contract or clause under the doctrine of 12 unconscionability.” Id. However, “they need not be present in 13 the same degree.” OTO, LLC v. Kho, 8 Cal. 5th 111, 125 (2019). 14 “A procedural unconscionability analysis begins with an inquiry 15 into whether the contract is one of adhesion.” Id. at 126. “A 16 substantive procedural unconscionability analysis examines the 17 fairness of a contract’s terms.” Id. at 129. The concern is 18 with “terms that are unreasonably favorable to the more powerful 19 party.” Id. at 130. 20 Here, the Agreement was a condition of employment and 21 therefore is a contract of adhesion, see OTO, LLC, 8 Cal. 5th at 22 126 (“Arbitration contracts imposed as a condition of employment 23 are typically adhesive.”). However, because “adhesion 24 establishes only a ‘low’ degree of procedural unconscionability,” 25 Davis v. Kozak, 53 Cal. App. 5th 897, 907 (2020), plaintiff must 26 show high substantive unconscionability. See MacClelland v. 27 Cellco P’ship, -- F. Supp. 3d --, 2022 WL 2390997, at *5 (N.D. 28 Cal. July 1, 2022) (“Since [p]laintiffs have only established a 1 minimal amount of procedural unconscionability, they must show 2 significant substantive unfairness to avoid arbitration.”) 3 (citation omitted); see also Armendariz, 24 Cal. 4th at 114 4 (explaining that procedural and substantive unconscionability are 5 evaluated on a “sliding scale” and therefore do not need to be 6 “present in the same degree”). 7 Plaintiff concedes that the Agreement meets the minimum 8 level of substantive fairness as articulated in Armendariz.3 9 (See Pl.’s Opp’n at 7.) Instead, plaintiff argues the Agreement 10 is substantively unconscionable because it allegedly waives 11 representative claims brought under PAGA. (Id.) While plaintiff 12 does not currently have a PAGA claim, he seeks to amend his 13 complaint to add a PAGA claim for defendant’s alleged violation 14 of the Equal Pay Act. (See generally Pl.’s Mot. for Leave.) 15 “PAGA authorizes any ‘aggrieved employee’ to initiate 16 an action against a former employer ‘on behalf of himself . . . 17 and other current or former employees’ to obtain civil penalties” 18 that otherwise can be “recovered only by the State” in an 19 enforcement action brought by California’s Labor and Workforce 20 Development Agency (LWDA). Viking River Cruises, Inc. v. 21 Moriana, 142 S. Ct. 1906, 1914 (2022) (quoting Cal. Lab. Code 22 § 2699(a)). “California precedent holds that a PAGA suit is a 23 3 “An arbitration agreement is lawful if it (1) provides 24 for neutral arbitrators, (2) provides for more than minimal discovery, (3) requires a written award, (4) provides for all of 25 the types of relief that would otherwise be available in court, and (5) does not require employees to pay either unreasonable 26 costs or any arbitrators’ fees or expenses as a condition of 27 access to the arbitration forum.” Armendariz, 24 Cal. 4th at 102 (citation and quotation omitted). 28 1 ‘representative action in which the employee plaintiff sues as an 2 agent or proxy’ of the State.” Id. (quoting Cal. Lab. Code 3 § 2699(a); Iskanian v. CLS Transp. L.A., LLC, 59 Cal. 4th 348 4 (2014)). PAGA claims are “representative” in two ways: (1) the 5 aggrieved employee who brings a PAGA claim asserts the claim on 6 behalf of the state; and (2) the aggrieved employee may assert 7 claims based on violations “other current or former employees” 8 suffered. See id. at 1916. 9 In Viking River Cruises, the United States Supreme 10 Court concluded that the FAA did not preempt California’s bar on 11 waivers of employees’ ability to represent the state in PAGA 12 actions. See id. at 1924-26. However, it did find the FAA 13 preempted California’s rule that “PAGA claims cannot be split 14 into arbitrable individual claims and nonarbitrable 15 ‘representative’ claims.” Id. at 1916. Accordingly, under 16 Viking River Cruises, employees may waive the right to bring PAGA 17 claims that are specifically premised on Labor Code violations 18 they have personally suffered, but “waivers of the right to 19 assert . . . claims [on the state’s behalf] under PAGA” remain 20 invalid. MacClelland, 2022 WL 2390997, at *9; see Viking River 21 Cruises, 142 S. Ct. at 1923-26; Shams v. Revature LLC, -- F. 22 Supp. 3d --, 2022 WL 3453068, at *2 (N.D. Cal. Aug. 17, 2022). 23 Here, plaintiff contends that the Agreement is 24 substantively unconscionable because it “requires arbitration for 25 ‘any representative action,’ including an employee’s right to 26 bring a PAGA action on behalf of the state.” (Pl.’s Opp’n at 9.) 27 The portion of the Agreement addressing representative actions 28 is, in relevant part, as follows: 1 Bevmo and I agree that the parties may bring only in 2 arbitration any representative action under any statute wherein their rights to bring such representative 3 action are deemed unwaivable (such as the California Private Attorneys General Act of 2004). 4 5 (Chavis Decl., Ex. A (“Agreement”) at 7 (Docket No. 6-3).). 6 Representative PAGA claims are not arbitrable. See 7 Viking River Cruises, 142 S. Ct. at 1924-1925 (“The agreement 8 between Viking and Moriana purported to waive ‘representative’ 9 PAGA claims. Under Iskanian, this provision was invalid if 10 construed as a wholesale waiver of PAGA claims. And under our 11 holding, that aspect of Iskanian is not preempted by the FAA . . 12 . .”); see also Iskanian, 59 Cal. 4th at 386 (describing 13 arbitration as “a dispute between an employer and an employee 14 arising out of their contractual relationship” and a 15 representative PAGA claim as “a dispute between an employer and 16 the state”) (emphasis in original). 17 However, that a provision is unenforceable does not 18 make the arbitration agreement unconscionable. “Under California 19 law, contracts can be contrary to public policy but not 20 unconscionable and vice versa.” Poublon, 846 F.3d at 1265 21 (citation and quotation omitted). “[T]he enforceability of the 22 waiver of a PAGA representative action does not make th[e] 23 provision substantively unconscionable.” Id. To find 24 substantive unconscionability, California courts “have held that 25 the agreement must be ‘overly harsh,’ ‘unduly oppressive,’ 26 ‘unreasonably favorable,’ or must ‘shock the conscience.’” Id. 27 at 1261 (citing Sanchez v. Valencia Holding Co., LLC, 61 Cal. 4th 28 899, 911 (2015)). 1 Here, plaintiff is correct that the Agreement 2 impermissibly mandates unwaivable representative actions, 3 including PAGA, to be brought “only in arbitration.” (Agreement 4 at 7.) However, the Agreement is not “‘permeated’ by 5 unconscionability.” Armendariz, 24 Cal. 4th at 122. Rather, 6 plaintiff concedes that that the Agreement meets the minimal 7 levels of fairness under California law. (See Pl.’s Opp’n at 7.) 8 Furthermore, plaintiff cites no authority holding that a 9 provision impermissibly mandating arbitration of unwaivable 10 representative actions is substantively unconscionable. 11 Nevertheless, because the provision is unlawful, the 12 court must determine whether the provision can be severed.4 13 “[T]he strong preference is to sever unless the agreement is 14 ‘permeated’ by unconscionability.” Ajamian v. CantorCO2e, L.P., 15 203 Cal. App. 4th 771, 802 (2012); see also Armendariz, 24 Cal. 16 4th at 122 (explaining that a trial court may “refuse to enforce 17 the entire agreement . . . . only when the agreement is 18 ‘permeated’ by unconscionability”). The provision mandating 19 unwaivable representative actions be brought only in arbitration 20 can be severed “without affecting the remainder of the 21 agreement.” 5 Poublon, 846 F.3d at 1273; cf. Armendariz, 24 Cal. 22 4 The Agreement contains a severability clause. That 23 clause provides in part: This Agreement shall be self-amending; meaning if by 24 law or common law a provision is deemed unlawful or unenforceable that provision and the Agreement 25 automatically, immediately and retroactively shall be amended, modified, and/or altered to be enforceable. 26 (Agreement at 7.) 27 5 Plaintiff cites two cases to support his argument that 28 the unenforceable provision renders the Agreement unconscionable. 1 4th at 125 (finding severability inapplicable where the 2 arbitration agreement had multiple unlawful provisions and “there 3 [wa]s no single provision [the] court c[ould] strike or restrict 4 in order to remove the unconscionable taint from the agreement”). 5 The court therefore finds the Agreement is valid when the 6 unenforceable provision requiring arbitration of representative 7 PAGA claims is severed from the provisions of the Agreement as 8 they pertain to arbitration of other claims. 9 C. Whether the Arbitration Agreement Encompasses Claims 10 The Agreement covers “[a]ny legally-cognizable 11 controversy or claim arising out of or relating to [plaintiff’s] 12 employment or termination of employment (including any post- 13 termination claim).” (Agreement at 6.) Plaintiff’s claims of 14 wage discrimination on the basis of race under various federal 15 and California statutes all arise out of his employment with 16 Bevmo. (Compl. ¶¶ 19-37.) The Agreement thus encompasses all of 17 plaintiff’s claims. Accordingly, the court will grant 18 defendants’ motion to compel arbitration as to all of plaintiff’s 19 claims. 20 III. Motion for Leave to Amend 21 Plaintiff seeks leave to amend for two purposes: (1) to 22 23 However, both cases weigh against plaintiff’s position. See Holman v. Bath & Body Works, LLC, No. 1:20-cv-01603 NONE SAB, 24 2021 WL 5826468, at *22 (E.D. Cal. Dec. 8, 2021) (finding the PAGA waiver and arbitration provision severable); Harper v. 25 Charter Communications, LLC, 2:19-cv-00902 WBS, 2022 WL 4095889, at *4 (E.D. Cal. Sep. 7, 2022) (finding that because the 26 severability clause exempted the “representative . . . action 27 waiver” from severance, the arbitration agreement did not require arbitration of plaintiff’s PAGA claims). 28 1 correct the name of defendant Bevmo! Inc.;6 and (2) to add a 2 claim under PAGA. (Pl.’s Mot. for Leave at 1.) 3 A. Legal Standard 4 Under Federal Rule of Civil Procedure 15(a), a party 5 may amend its pleading with the court’s leave, which should be 6 “freely give[n] . . . when justice so requires.” Fed. R. Civ. P. 7 15(a)(2). “[R]equests for leave should be granted with ‘extreme 8 liberality.’” Moss v. U.S. Secret Serv., 572 F.3d 962, 972 (9th 9 Cir. 2009) (citation omitted). Leave “should be granted unless 10 amendment would cause prejudice to the opposing party, is sought 11 in bad faith, is futile, or creates undue delay.” Johnson v. 12 Mammoth Recreations, 975 F.2d 604, 607 (9th Cir. 1992). 13 B. Discussion 14 Defendant opposes plaintiff’s motion for leave to add a 15 PAGA claim because, among other arguments, it is futile and would 16 prejudice defendant. (Def.’s Opp’n at 1.) 17 1. Futility 18 “An amendment is futile when ‘no set of facts can be 19 proved under the amendment to the pleadings that would constitute 20 a valid and sufficient claim or defense.’” Missouri ex rel. 21 Koster v. Harris, 847 F.3d 646, 656 (9th Cir. 2017) (citation 22 omitted). “A defendant bears the burden of establishing that a 23 proposed amendment is futile . . . .” Nguyen v. Thermo Fisher 24 Sci., Inc., 18-cv-6728 DMG (JCx), 2019 WL 13039947, at *1 (C.D. 25 26 6 As mentioned at the outset of this order, plaintiff mistakenly sued Bevmo! Inc. as Bevmo Holdings, LLC and Bevmo GC 27 Services, LLC. (Pl.’s Mot. for Leave at 1.) Defendant does not challenge amending the complaint for this purpose. 28 1 Cal. Mar. 21, 2019) (citation omitted). 2 Before commencing a PAGA action, a plaintiff must 3 complete various administrative requirements with the Labor and 4 Workforce Development Agency (“LWDA”). See, e.g., Cal. Lab. Code 5 § 2699.3(a)(1)(A) (requiring plaintiff notify the LWDA and 6 employer of the Labor Code violations and supporting facts); Id. 7 § 2699.3(a)(2)(A) (requiring plaintiff wait until either the LWDA 8 responds to the notice or 65 days elapses). The “dual purpose” 9 of § 2699.3’s notice requirements is to “provid[e] the LWDA with 10 an initial opportunity to investigate . . . and giv[e] employers, 11 in certain instances, an opportunity to cure the alleged 12 violations.” Hoang v. Vinh Phat Supermarket, Inc., No. 2:13-cv- 13 00724 WBS, 2013 WL 4095042, at *7 (E.D. Cal. Aug. 13, 2013) 14 (citing Cal. Lab. Code § 2699.3(a),(c)) (other citations 15 omitted). 16 Defendant argues that amendment would be futile because 17 plaintiff failed to provide adequate notice under Cal. Lab. Code 18 § 2699.3(a). (Def.’s Opp’n at 5-7.) Plaintiff concedes that he 19 did not provide notice by certified mail and did not wait 65 days 20 before seeking to commence a PAGA claim as required by Cal. Lab. 21 Code § 2699.3. (Pl.’s Mot. for Leave at 5.) However, numerous 22 courts have “excused strict compliance” with these administrative 23 requirements where the purposes of the requirements were not 24 undermined. See, e.g., Magadia v. Wal-Mart Assocs., 319 F. Supp. 25 3d, 1180, 1188 (N.D. Cal. 2018) (finding plaintiff’s failure to 26 “exhaust his administrative remedies before filing suit . . . 27 does not bar [p]laintiff’s PAGA claim”); Hoang, 2013 WL 4095042, 28 at *7 (“[T]here is no indication that plaintiff’s notice . . . 1 precluded the LWDA from performing its administrative function. 2 Nor did the late notice deprive [employer] of the opportunity to 3 cure.”); Bradescu v. Hillstone Rest. Group, Inc., No. SACV 13- 4 1289 GW, 2014 WL 5312546, at *10 (C.D. Cal. Sept. 18, 2014) 5 (“[T]he [c]ourt sees little reason to punish [plaintiff] for 6 acting too quickly . . .”). 7 Even where courts have dismissed PAGA claims for 8 failing to comply with the administrative requirements, they have 9 granted leave to amend. See, e.g., Machado v. M.A.T. & Sons 10 Landscape, Inc., No. 2:09-cv-00459 JAM, 2009 WL 2230788, at *3-4 11 (E.D. Cal. July 23, 2009) (granting leave to amend so plaintiff 12 could properly bring his PAGA claim as a representative action); 13 Jeske v. Maxim Healthcare Servs., Inc., No. CV F 11-1838 LJO, 14 2012 WL 78242, at *13 (E.D. Cal. Jan. 10, 2012) (granting leave 15 to amend so plaintiff could define aggrieved employees); Chie v. 16 Reed Elsevier, Inc., No. C-11-1784, 2011 WL 3879495, at *4-5 17 (N.D. Cal. Sept. 2, 2011) (granting leave to amend so plaintiff 18 could provide a description of the aggrieved employees). Because 19 plaintiff might be able to show that he has either cured the 20 administrative failures or that any existing administrative 21 failures do not undermine the purpose of Cal. Lab. Code § 2699.3, 22 the court finds amendment would not be futile. 23 2. Prejudice 24 Defendant also argues granting plaintiff leave to amend 25 to add a PAGA claim would prejudice defendant doing so would 26 force defendant to incur the costs of filing another motion to 27 compel arbitration. However, the costs of presenting another 28 motion to compel arbitration will for all practical purposes be eee DEI OS IEE OSE OO OS OE ES ND 1 de minimis when compared to the total costs of defending this 2 action, and defendant cites no authority to support the 3 | proposition that incurring additional filing costs amounts toa 4 sufficient showing of prejudice for the court to deny plaintiff's 5 motion for leave to amend. 6 IT IS THEREFORE ORDERED that defendants’ motion to 7 compel arbitration (Docket No. 6) be, and the same hereby is, 8 GRANTED. 9 IT IS FURTHER ORDERED that plaintiff’s motion for leave 10 to amend (Docket No. 8-1) be, and the same hereby is GRANTED. 11 Plaintiff shall file said amended complaint within fourteen days 12 from the date this Order is filed.’ 13 Dated: November 15, 2022 tleom ah. A. be—~ 14 WILLIAM B. SHUBB UNITED STATES DISTRICT JUDGE 15 16 17 18 19 20 21 22 7 The court expresses no opinion in this Order as to 24 whether plaintiff would lack standing to maintain his non- individual PAGA claims if his individual PAGA claim is compelled 29 to arbitration. See Viking River Cruises, 142 S.Ct. at 1925 26 (“When an employee’s own dispute is pared away from a PAGA action, the employee is no different from a member of the general 27 public, and PAGA does not allow such persons to maintain suit.”) (citation omitted). 28 14