Piplack v. In-N-Out Burgers ( 2023 )

Filed 3/7/23
CERTIFIED FOR PUBLICATION
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
FOURTH APPELLATE DISTRICT
DIVISION THREE
TOM PIPLACK et al.,
Plaintiffs and Respondents, G061098
v. (Super. Ct. No. 30-2019-01114510)
IN-N-OUT BURGERS, OPINION
Defendant and Appellant.
Appeal from an order of the Superior Court of Orange County, Randall J.
Sherman, Judge. Reversed in part and remanded in part. Motion to dismiss. Denied.
Request for judicial notice. Denied. Motion to admit new evidence and determine facts
on appeal. Denied.
Littler Mendelson, Fermin H. Llaguno, and Michael L. Kibbe for
Defendant and Appellant.
Aiman-Smith & Marcy, Randall B. Aiman-Smith, Reed W. L. Marcy,
Hallie Von Rock, and Brent A. Robinson for Plaintiffs and Respondents.
* * *
Defendant In-N-Out Burgers appeals from the trial court’s denial of its
motion to compel arbitration of the claims of plaintiffs Tom Piplack and Donovan
Sherrod for penalties under the Labor Code Private Attorneys General Act of 2004 (Lab.
Code, § 2698 et seq.; PAGA). Defendant argues the recent decision of the United States
Supreme Court in Viking River Cruises, Inc. v. Moriana (2022) ___ U.S. ___ [142 S.Ct.
1906] (Viking), rendered while defendant’s appeal was pending before this court, requires
plaintiffs’ individual PAGA claims to be arbitrated and all remaining representative
1
claims dismissed for lack of standing. Plaintiffs contend the agreement does not require
arbitration of individual PAGA claims, defendant waived its right to arbitration by
participating in trial proceedings, plaintiff Sherrod is not bound by the arbitration
agreement because he entered it before reaching the age of majority and disaffirmed it
after reaching that age, and that plaintiffs have standing to pursue representative PAGA
claims in court even if their individual claims are sent to arbitration.
We conclude the arbitration agreements require individual PAGA claims to
be arbitrated and defendant did not waive its right to compel arbitration. Accordingly, as
to plaintiff Piplack, we reverse—his individual PAGA claim must be arbitrated. As to
plaintiff Sherrod, we remand for the trial court to consider his arguments regarding
disaffirmance in the first instance, as those arguments were not properly briefed or
2
decided in the trial court because they were irrelevant under pre-Viking law.
1
Prior to the issuance of the Viking opinion, plaintiffs moved to dismiss
defendant’s appeal as frivolous. We elected to consider that motion in connection with
our decision on the merits and now deny it. In light of the pendency of the Viking case,
even before the Supreme Court’s decision, defendant’s appeal presented a good faith
argument for a change in the law.
2
We deny plaintiffs’ related motion to admit new evidence and determine
facts on appeal, as we decline to reach the merits of disputed issues over plaintiff
Sherrod’s alleged disaffirmance of the arbitration agreement and conclude plaintiffs’
proffered new evidence is irrelevant to our determination on the waiver question. We
deny plaintiffs’ request for judicial notice for the same reason.
2
The standing question associated with the representative PAGA claims
presents us with a dilemma. On the one hand, the California Supreme Court, in the case
Kim v. Reins International California, Inc. (2020) 9 Cal.5th 73 (Kim), provided us with a
recent, definitive, and (most importantly) binding interpretation of the relevant portions
of PAGA controlling standing. We read Kim as recognizing two (and only two)
3
requirements for standing under PAGA, neither of which is affected in any way by
moving the individual component of a PAGA claim to arbitration. On the other hand, in
Viking, the United States Supreme Court, citing the very same Kim case, concluded a
plaintiff whose individual PAGA claim is compelled to arbitration loses standing to
pursue representative PAGA claims. (Viking, supra, ___ U.S. at p. ___ [142 S.Ct. at p.
1925].)
Despite the deep deference we afford the United States Supreme Court,
even on purely state law questions where the United States Supreme Court’s opinions are
only persuasive, not binding, we conclude we must follow Kim and hold that plaintiffs
retain standing to pursue representative PAGA claims in court even if their individual
PAGA claims are compelled to arbitration. We simply cannot reconcile the Viking
decision’s standing analysis with the Kim decision.
FACTS AND PROCEDURAL HISTORY
Defendant is a restaurant chain, operating in California and elsewhere.
Plaintiffs are former employees of defendant. During their employment, both plaintiffs
signed arbitration agreements with defendant. Those agreements required plaintiffs to
pursue any claims arising out of their employment with defendant through arbitration
under the Federal Arbitration Act (9 U.S.C. § 1, et seq.; FAA). The agreements also
3
Those requirements are that the plaintiff be someone “‘who was
employed by the alleged violater’ and ‘against whom one or more of the alleged
violations was committed.’” (Kim, supra, 9 Cal.5th at pp. 83-84.)
3
contained a private attorney general waiver, which provided, “There will be no right or
authority for any dispute to be brought, heard or arbitrated as a private attorney general
action (‘Private Attorney General Waiver’).” This waiver was severable under two
different clauses. The first provided the waiver was severable “in any case in which (1)
the dispute is filed as a private attorney general action and (2) a civil court of competent
jurisdiction finds the Private Attorney General Waiver is unenforceable. In such
instances, any private attorney general claim must be litigated in a civil court of
competent jurisdiction.” The second stated, “The . . . Private Attorney General
Waiver . . . shall be severable in any case in which the dispute is filed as an individual
action and severance is necessary to ensure that the individual action proceeds in
arbitration.”
In late 2019, plaintiffs sued defendant for penalties under PAGA based on
defendant’s alleged practices of requiring employees to purchase and wear certain articles
of clothing without reimbursing them and requiring employees to purchase and utilize
special cleaning products to maintain these clothes, again without reimbursement. As is
typical for a PAGA action, plaintiffs’ suit was brought on their own behalf and on behalf
of other similarly aggrieved employees.
Initially, the case proceeded in relatively ordinary fashion, with the filing of
answers, demurrers, amended complaints, and a discovery motion. However, in February
2022, defendant filed a motion to compel arbitration. Defendant explained the delayed
timing of its motion by referring to a pending United States Supreme Court case, Viking,
in which defendant indicated it expected the United States Supreme Court to overturn or
4
materially alter the California Supreme Court’s so-called Iskanian rule, which barred
arbitration of PAGA claims. Just a few days after the filing of the motion, before
4
(Iskanian v. CLS Transportation Los Angeles, LLC (2014) 59 Cal.4th 348(Iskanian).)
4
plaintiffs could file opposition to the motion, the trial court summarily denied it under
Iskanian. Defendant timely appealed.
DISCUSSION
The Recent History of Group Employment Litigation in California and Arbitration
California’s Labor Code “contains a complex scheme for timely
compensation of workers, deterrence of abusive employer practices, and enforcement of
wage judgments.” (Voris v. Lampert (2019) 7 Cal.5th 1141, 1157.) The Labor Code
imposes civil penalties and a right for employees to recover attorney fees for violations of
many of its rules. (See, e.g., Lab. Code, §§ 203, 218.5, 226.)
By at least the mid-2000s, it had become clear that “class actions play[ed]
an important function in enforcing [the Labor Code] by permitting employees who are
subject to the same unlawful payment practices a relatively inexpensive way to resolve
their disputes.” (Gentry v. Superior Court (2007) 42 Cal.4th 443, 459 (Gentry),
disapproved by Iskanian, supra, 59 Cal.4th 443.) In short, employees of large employers
with standardized practices allegedly violating the Labor Code could band together,
making it economically viable to pursue claims that might have been too small for each
of them to pursue individually.
To avoid such class actions, some employers began including arbitration
agreements containing class action waivers in their employment contracts. In Gentry, the
California Supreme Court held these provisions were, at least in some instances,
unenforceable as contrary to California public policy. (Gentry, supra, 42 Cal.4th at p.
457.) However, in AT&T Mobility LLC v. Concepcion (2011) 563 U.S. 333(Concepcion), the United States Supreme Court held this rule was preempted by the
FAA.
After Concepcion, class actions were now effectively unavailable against
employers utilizing mandatory arbitration agreements containing class action waivers. In
5
lieu of class actions, some employee-plaintiffs turned to PAGA, which permitted them to
bring an action for certain civil penalties (and attorney fees) on behalf of both themselves
and other similarly situated employees. In Iskanian, the California Supreme Court held
an employee cannot waive his or her right to file a PAGA claim, or to file the
representative portion of a PAGA action on behalf of other similarly situated employees.
(Iskanian, supra, 59 Cal.4th at pp. 382-384.) The court also concluded PAGA actions
could not be split into “individual” and “representative” components (the individual
component corresponding to the alleged violations experienced by the plaintiff, and the
representative component corresponding to the alleged violations experienced by the
other employees) in order to compel arbitration of the individual component. (Id. at pp.
383-384.) The California Supreme Court also considered whether these rules were
preempted by the FAA but concluded they were not. (Iskanian, supra, at pp. 384-389.)
After Iskanian, it was settled law in California that PAGA claims could not
be compelled to arbitration, in whole or in part. However, that rule would last only a few
years. In Viking, the United States Supreme Court considered a challenge to the Iskanian
rule based on the same FAA preemption theory the California Supreme Court had
rejected. (Viking, supra, ___ U.S. at pp. ___ [142 S.Ct. at pp. 1916-1917].) The majority
reached a mixed result, concluding the FAA preempted only the portion of Iskanian
forbidding splitting PAGA actions into individual and representative components, but not
the portion prohibiting waiver of the right to pursue representative PAGA actions.
(Viking, supra, ___ U.S. at pp. ___ [142 S.Ct. at pp. 1922-1924].) Consequently, the
FAA required severance and separate arbitration of the individual component of the
plaintiff’s PAGA claim. (Viking, supra, ___ U.S. at p. ___ [142 S.Ct. at p. 1925].)
The majority also concluded that, now that the plaintiff’s individual PAGA
claim was to be compelled to arbitration, the plaintiff lacked standing to pursue a
representative PAGA claim in court on behalf of other employees. (Viking River Cruises,
Inc. v. Moriana, supra, ___ U.S. at p. ___ [142 S.Ct. at p. 1925].) The majority cited
6
Kim, supra, 9 Cal.5th 73 for this conclusion, as PAGA standing is a pure question of state
law, upon which the California Supreme Court, not the United States Supreme Court, has
the last word. (Viking, at p. ___ [142 S.Ct. at p. 1925].) One of the five votes for the
majority, Justice Sotomayor, also wrote a concurrence stressing that her joinder in the
majority was premised on the understanding that California courts would ultimately
decide the standing question. (Id. at p. ___ (conc. opn. of Sotomayor, J.) [142 S.Ct. at p.
1925 (conc. opn. of Sotomayor, J.)].)
Viking’s modification to the rules set forth by the California Supreme Court
in Iskanian created the present rule: arbitration agreements between employers and
employees that require arbitration of the individual portion of a PAGA claim are
enforceable, but arbitration agreements that require arbitration (or waiver) of the
representative portion of a PAGA claim are not enforceable.
Defendant’s Arbitration Agreement
Even after Viking, plaintiffs argue defendant’s arbitration agreement
requires that all their claims be heard in court. Specifically, plaintiffs point to section
7(b) of the agreement, which provides, “There will be no right or authority for any
dispute to be brought, heard or arbitrated as a private attorney general action (‘Private
Attorney General Waiver’). The Private Attorney General Waiver shall be severable
from this Agreement in any case in which (1) the dispute is filed as a private attorney
general action and (2) a civil court of competent jurisdiction finds the Private Attorney
General Waiver is unenforceable. In such instances, any private attorney general claim
must be litigated in a civil court of competent jurisdiction.”
Plaintiffs contend the prerequisites for application of this provision have
been met; they filed this action as a “private attorney general action,” and the trial court
found the waiver unenforceable. Consequently, plaintiffs argue, the case “must be
litigated in a civil court of competent jurisdiction,” not arbitrated.
7
We disagree. The key point is the meaning of the phrase “a private attorney
general action.” Plaintiffs understand that phrase to include any PAGA claim, and under
Iskanian’s approach to PAGA, that reading would have been plausible. But Viking
changes the analysis. After Viking, every PAGA action is properly understood as a
combination of two claims: an “individual” claim, arising from the Labor Code
violations suffered by the plaintiff or plaintiffs themselves, and a “representative” claim,
arising from violations suffered by other employees. By virtue of FAA preemption, these
claims are severable from one another, and the “individual” claim is arbitrable, even if
the state, which holds a 75 percent interest in any civil penalties recovered, does not
consent to or participate in the arbitration. Thus, the individual claim is “individual”
within the meaning of defendant’s arbitration agreement, and only the “representative”
claim is a true qui tam, or “private attorney general,” action. And the agreement makes
clear, “The . . . Private Attorney General Waiver . . . shall be severable in any case in
which the dispute is filed as an individual action and severance is necessary to ensure that
the individual action proceeds in arbitration.”
Accordingly, we conclude defendant’s arbitration agreement follows
Viking’s structure by compelling plaintiffs’ PAGA claims to arbitration and requiring the
remaining representative claims to be litigated in court.
Waiver
Next, plaintiffs argue defendant waived its right to arbitrate by delaying
seeking arbitration, participating in litigation in the trial court, omitting arbitration as an
affirmative defense in its answer to plaintiffs’ first amended complaint, and engaging in
settlement negotiations in this and other PAGA cases. As discussed above, the trial court
did not reach this issue, so plaintiffs ask us to decide it in plaintiffs’ favor for the first
time on appeal.
8
We conclude, however, that defendant has not waived its right to arbitrate
as a matter of law. In Iskanian, in addition to the PAGA issues discussed above, the
California Supreme Court also considered whether the defendant had waived its right to
compel arbitration (and prevent certification of a class action) failing to pursue its
arbitration rights until the United States Supreme Court issued Concepcion. (Iskanian,
supra, 59 Cal.4th at pp. 374-378.) The defendant in Iskanian initially filed a petition to
compel arbitration at the outset of the case, then withdrew it after the California Supreme
Court issued Gentry. (Iskanian, at p. 376.) But when the United States Supreme Court
issued Concepcion and effectively invalidated Gentry, the defendant renewed its motion
for arbitration, citing the change in the law. (Iskanian, at p. 376.) The California
Supreme Court held this delay, and the cost of the related intervening proceedings in the
trial court, could not constitute waiver because the failure to file a “futile” motion to
compel arbitration was not an unreasonable delay. (Id. at pp. 376-377.)
Similarly, in the present case, defendant raised its right to arbitrate as soon
5
as it had any chance of success. The fact that defendant vigorously defended itself in the
trial court makes no difference because the relevant question is whether there was any
unreasonable delay. The omission of arbitration as an affirmative defense to plaintiffs’
first amended complaint is also not a waiver of arbitration for precisely the same reason,
and in any event, defendant raised arbitration as an affirmative defense to plaintiffs’
second amended complaint.
Nor does plaintiffs’ invocation of Morgan v. Sundance, Inc. (2022) ___
U.S. ___ [142 S.Ct. 1708] alter the “futility” rule from Iskanian. In Morgan, the United
States Supreme Court held waiver of a right to arbitrate under the FAA did not depend on
5
If anything, defendant moved too quickly by seeking to compel
arbitration before the United States Supreme Court could decide Viking. In the absence
of Viking, the trial court had no choice but to deny defendant’s motion, as Iskanian
remained good law and prohibited arbitration of any PAGA claim.
9
a showing of prejudice, but rather arose from any “‘intentional relinquishment or
abandonment’” of the right to arbitrate. (Morgan, at p. ___ [142 S.Ct. at pp. 1713-
1714].) This rule tracks closely with the reasoning of Iskanian. Failing to make a futile
motion to compel arbitration surely does not constitute an intentional relinquishment of
the right to compel arbitration should the law change.
Plaintiffs’ arguments regarding defendant’s settlement negotiations are also
unavailing. Settlement negotiations are not inconsistent with a right to arbitration, do not
create unreasonable delay (or, so far as we can tell, any delay), and again do not
constitute an intentional relinquishment or abandonment of any rights.
Sherrod’s Disaffirmance of the Arbitration Agreement
Even if the arbitration agreement is enforceable and defendant did not
waive its rights, plaintiffs still contend plaintiff Sherrod’s individual claim may not be
compelled to arbitration because he entered the arbitration agreement before reaching the
age of majority and disaffirmed the agreement after turning 18. Again, plaintiffs ask us
to decide this question in the first instance, as they were unable to raise the issue in the
trial court due to the trial court’s summary denial of defendant’s motion to compel
arbitration. We decline to do so, as it is evident from the parties’ briefing that factual
disputes exist on this question. Instead, we remand to the trial court for further
proceedings on this issue with respect to plaintiff Sherrod.
As to plaintiff Piplack, having dispensed with his defenses to arbitration of
his individual claim, we reverse and remand for the trial court to compel his individual
claim to arbitration.
Standing to Pursue Representative Claims
In addition to compelling arbitration of plaintiffs’ individual PAGA claims,
defendant asks us to instruct the trial court to dismiss plaintiffs’ representative PAGA
10
claims, as suggested by the United States Supreme Court in Viking. In response,
plaintiffs argue we are not bound by Viking, and should instead follow Kim and allow
plaintiffs to pursue their representative claims in court even if their individual claims are
compelled to arbitration.
We begin with the basic rule set forth by the California Supreme Court in
Kim: “The plain language of [Labor Code] section 2699(c) has only two requirements for
PAGA standing. The plaintiff must be an aggrieved employee, that is, someone ‘who
was employed by the alleged violator’ and ‘against whom one or more of the alleged
violations was committed.’” (Kim, supra, 9 Cal.5th at pp. 83-84.) These are the only
requirements. A plaintiff whose individual claims are barred by the statute of limitations
can nevertheless constitute an “aggrieved employee” for PAGA purposes and maintain a
representative action. (Johnson v. Maxim Healthcare Services, Inc. (2021) 66
Cal.App.5th 924, 930.) It is not even necessary that the plaintiff have an unredressed
claim or injury at all; the plaintiff in Kim settled all his individual claims. (Kim, supra, at
p. 82.) In short, paring away the plaintiff’s individual claims does not deprive the
plaintiff of standing to pursue representative claims under PAGA, so long as the plaintiff
was employed by the defendant and suffered one or more of the alleged violations.
We now reproduce Viking’s analysis of the standing question, in full: “The
remaining question is what the lower courts should have done with [the plaintiff’s] non-
individual claims. Under our holding in this case, these claims may not be dismissed
simply because they are ‘representative.’ Iskanian’s rule remains valid to that extent.
But as we see it, PAGA provides no mechanism to enable a court to adjudicate non-
individual PAGA claims once an individual claim has been committed to a separate
proceeding. Under PAGA’s standing requirement, a plaintiff can maintain non-
individual PAGA claims in an action only by virtue of also maintaining an individual
claim in that action. See Cal. Lab. Code Ann. §§ 2699(a), (c). When an employee’s own
dispute is pared away from a PAGA action, the employee is no different from a member
11
of the general public, and PAGA does not allow such persons to maintain suit. See Kim,
[supra, 9 Cal.5th at p. 90] (‘PAGA’s standing requirement was meant to be a departure
from the “general public” . . . standing originally allowed’ under other California
statutes.) As a result, [the plaintiff] lacks statutory standing to continue to maintain her
non-individual claims in court, and the correct course is to dismiss her remaining claims.”
(Viking, supra, ___ U.S. at p. ___ [142 S.Ct. at p. 1925].)
This places us on the horns of a dilemma. On the one hand, the Kim rule is
6
quite clear. Regardless of whether plaintiffs’ individual claims are compelled to
arbitration, they nevertheless were employed by the alleged violator and claim that one or
more of the alleged violations were committed against them. Thus, even with their
individual claims forced into a separate forum (or pared away), they satisfy the test for
standing described by the California Supreme Court, which binds us.
On the other hand, the United States Supreme Court cited Kim in Viking
and came to the opposite conclusion. As defendant points out, we afford the United
States Supreme Court deep deference, even on questions of state law, where the
California Supreme Court has final say. (People v. Houston (1986) 42 Cal.3d 595, 609-
610.) But, absent some means of harmonizing Viking with Kim, we must follow Kim.
Defendant offers a tempting rationalization for the Viking court’s
conclusion by pointing to certain language in Labor Code section 2699, subdivision (a).
Defendant argues subdivision (a) only authorizes an aggrieved employee to file an action
“on behalf of himself or herself and other current or former employees [under PAGA].”
6
So, too, is the underlying statute, Labor Code section 2699, subdivisions
(a) and (c). Subdivision (a) authorizes any “aggrieved employee” to bring suit, and
subdivision (c) defines “aggrieved employee” as “any person who was employed by the
alleged violator and against whom one or more of the alleged violations was committed.”
It says nothing about a continuing injury, a right to bring an individual claim, or
arbitration.
12
Thus, defendant argues, a plaintiff who cannot maintain an individual PAGA claim also
cannot maintain a representative PAGA action.
But Kim forecloses even this line of reasoning. In addition to its standing
arguments, the defendant in Kim sought to apply the doctrine of claim preclusion to bar
the plaintiff from pursuing a PAGA action after having dismissed his individual claims as
part of a settlement. The California Supreme Court held this doctrine could not apply
because the individual claims, which had been sent to arbitration, and the PAGA action
were part of the “same lawsuit.” (Kim, supra, 9 Cal.5th at p. 92.) The same reasoning
applies here. Even though Viking requires the trial court to bifurcate and order individual
PAGA claims to arbitration when an appropriate arbitration agreement exists, the
individual PAGA claims in arbitration remain part of the same lawsuit as the
representative claims remaining in court. Thus, plaintiffs are pursuing a single PAGA
action “on behalf of [themselves] and other current or former employees,” albeit across
two fora.
Lastly, we find defendant’s citations to legislative history on this point
unpersuasive. The legislative history cited by defendant (namely, various committee
analyses generally discussing the standing requirement and its distinction from “general
7
public” standing) is the same as that considered by the California Supreme Court in Kim,
and it does not reach any further in this case than it did in Kim. Moreover, legislative
history is doubly unpersuasive in the present context, as PAGA and its legislative history
predate not only Viking, but also Iskanian, Concepcion, and even Gentry. The general
discussion of standing in the legislative history is simply too far removed from the
complex procedural question we now face to be of any value.
We recognize this holding may create complications for future PAGA
litigation, which is already complicated enough as it is. Nevertheless, as a matter of stare
7
(See Kim, supra, 9 Cal.5th at pp. 90-91.)
13
decisis, we are bound to follow Viking on FAA preemption and Kim on PAGA standing.
8
Thus, trapped between Scylla and Charybdis, we have charted the only course we can.
To the extent that the resulting complications are undesirable, we leave resolution of
them to Congress or the Legislature.
DISPOSITION
The trial court’s order denying defendant’s motion to compel arbitration is
vacated. The matter is remanded to the trial court to render factual findings in the first
instance on issues surrounding plaintiff Sherrod’s alleged disaffirmance of the arbitration
agreement upon reaching the age of majority, to compel plaintiff Piplack’s individual
PAGA claim to arbitration, and to deny defendant’s motion to compel arbitration as to
plaintiffs’ representative PAGA claims.
In the interests of justice, the parties shall each bear their own costs on
appeal.
SANCHEZ, J.
WE CONCUR:
BEDSWORTH, ACTING P. J.
DELANEY, J.
8
(See Homer, “The Odyssey,” book XII.)
14