Younan v. Fleming Distribution Company ( 2020 )

Filed 4/23/20 Modified and Certified for Pub. 5/15/20 (order attached)
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
FIRST APPELLATE DISTRICT
DIVISION THREE
FLEMING DISTRIBUTION
COMPANY,
A157038
Defendant and Appellant,
v. (Sonoma County
Super. Ct. No. SCV-263702)
ALFONS YOUNAN,
Plaintiff and Respondent.
Appellant Fleming Distribution Company (Fleming) appeals from
a trial court order denying its petition to compel arbitration, stay
proceedings, vacate a Labor Commissioner award of $27,412.60 to
former Fleming employee, respondent Alfonus Younan (Younan), and
dismiss the action. Fleming contends the court erred in denying its
petition because Younan’s employment application and employment
agreement contained enforceable arbitration clauses and Fleming did
not waive its right to arbitration. We conclude Fleming did waive its
right to arbitration and affirm.
FACTUAL AND PROCEDURAL BACKGROUND
Younan worked for Fleming as a sales representative from 2009
to 2016. In June 2017, he filed a complaint against Fleming with the
1
Department of Industrial Relations, Labor Commissioner’s Office for
$22,000 in commissions, plus penalties and interest.
On August 31, 2017, counsel for Fleming sent a letter to the
Labor Commissioner asserting the complaint should be dismissed
because the parties signed an arbitration agreement. Fleming attached
to its letter a copy of an arbitration agreement signed by Fleming and
Younan that provided in part: “To resolve disputes in an efficient and
cost-effective manner, Employee and Employer agree that any and all
claims arising out of or related to the employment relationship that
could be filed in a court of law . . . shall be submitted to final and
binding arbitration, and not to any other forum.” (Italics added.)
Fleming stated in its letter to the Labor Commissioner: “If the Labor
Commissioner is unwilling to [dismiss the complaint], Fleming is
prepared to file a motion with the Superior Court seeking to compel
arbitration.”1 The Labor Commissioner did not dismiss the complaint,
yet Fleming opted not to file a petition to compel arbitration.
A hearing before the Labor Commissioner was set for August 13,
2018. The parties were notified they would “be given the opportunity
at the scheduled hearing to present any relevant evidence, to call
witnesses and to cross-examine witnesses” and were provided detailed
rules and procedures applicable to the hearing, including how to
request a continuance of the hearing.
In late July 2018, Fleming filed an Answer with the Labor
Commissioner that contained a general denial and nine affirmative
defenses, including a defense that arbitration was the proper forum. In
1It appears Fleming sent this letter only to the Labor Commissioner.
Younan, who may not have been aware of the letter, did not file an
opposition.
2
its prayer for relief, Fleming requested dismissal of the complaint and
attorney fees and costs.
On August 7, 2018, Fleming filed a motion with the Labor
Commissioner to vacate the August 13 hearing and dismiss the
complaint on the grounds that Younan’s employment application and
agreement required arbitration of his claim.2 Fleming requested the
motion to vacate/dismiss be heard on August 13 and, once again,
stated: “If the Labor Commissioner is unwilling to [dismiss the
complaint], [Fleming] is prepared to file a motion with the Superior
Court seeking to compel arbitration.” Both parties appeared at the
August 13 hearing before the Labor Commissioner. Fleming’s motion
to vacate/dismiss was denied on the ground that Fleming had failed to
obtain a stay from the superior court, the hearing proceeded, and the
parties presented testimony, documentary evidence, and argument.
On December 5, the Labor Commissioner issued an order setting
forth its summary of the witnesses’ testimony, factual findings
including credibility findings, and legal analyses and determinations.
The Labor Commissioner awarded Younan $22,000 in commissions and
an additional $5,412.60 in “interest accrued to date on the unpaid
balance of wages and liquidated damages,” for a total of $27,412.60.
On December 20, Fleming filed a notice of appeal in the superior
court and a de novo trial was scheduled for March 20, 2019. On
February 8, 2019 Fleming filed a petition to compel arbitration, stay
proceedings, vacate the Labor Commissioner’s order, and “dismiss this
matter in its entirety.” First, Fleming argued the matter should be
2The proof of service indicates Fleming served the Labor Commissioner
by mail and electronic mail; there is no indication Fleming served
Younan.
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arbitrated because the agreement the parties signed was governed by
the Federal Arbitration Act (FAA), which “preempts Labor Code section
229”—a California statute that allows employees to pursue their wage
claims in court even if they have agreed to arbitrate such claims.3
Second, Fleming argued it did not waive its right to arbitration because
it “rather consistently requested that this matter be dismissed and
brought through . . . arbitration.”
Younan opposed the petition on several grounds. First, he
argued the action should proceed in superior court because the
employment application provides that “nothing in the agreement will
affect . . . petitions for judicial review of a decision issued after an
administrative hearing . . . .” Second, Younan argued Fleming’s
petition was procedurally defective to the extent it was asking the trial
court to vacate (rather than stay) the Labor Commissioner’s order and
dismiss the superior court action. Third, Younan argued the
arbitration agreements were procedurally and substantively
unconscionable. Fourth and finally, Younan argued that, even if the
arbitration agreements were valid, Fleming waived its right to
arbitration by taking actions inconsistent with an intent to arbitrate
and unreasonably delaying its petition, “contrary to the purposes of
arbitration—expeditious resolution of disputes in a cost-effective
manner.”
The trial court denied Fleming’s petition. The court found
Fleming waived its right to arbitration by taking steps inconsistent
3 Labor Code section 229 provides: “Actions to enforce the provisions of
this article for the collection of due and unpaid wages claimed by an
individual may be maintained without regard to the existence of any
private agreement to arbitrate. . . .”
4
with an intent to invoke arbitration, including delaying its request to
the superior court until after a full hearing took place and the Labor
Commissioner issued its order. The court also found Fleming failed to
meet its burden to show an agreement to arbitrate the trial court action
existed: “Here, the two ‘arbitration agreements’ attached to [Fleming’s]
[p]etition both include specific language that ‘nothing in this agreement
will affect petitions for judicial review of a decision issued after an
administration hearing.’ ”4 “Thus, . . . the purported arbitration
agreements . . . explicitly carve out []petitions for judicial review of a
decision issued after an administrative hearing, which is exactly the
procedural posture of this case.” In light of its denial of Fleming’s
petition on these grounds, the court did not reach the other issues,
including whether the arbitration agreements were unconscionable.
DISCUSSION
Fleming contends the trial court erred in denying its petition
because: (1) Younan’s employment application and employment
agreement contain valid arbitration clauses that cover Younan’s claims;
and (2) Fleming did not waive its right to arbitration. We address—
and reject—Fleming’s second argument regarding waiver. As this issue
is dispositive, we do not reach the other issues raised in the appeal.5
4Although the court found that both agreements—the employment
application and the employment agreement—contained language
excluding the superior court action from arbitration, the language is
only found in the employment agreement.
5The parties dispute whether the agreements were unconscionable and
unenforceable and whether the FAA applies to the agreements and
preempts Labor Code section 229, which allows employees to proceed in
superior court on wage claims despite an agreement to arbitrate. It is
immaterial whether the FAA or the CAA applies to the parties’
5
Code of Civil Procedure section 1281.2 allows the trial court to
deny a petition to compel arbitration where “[t]he right to compel
arbitration has been waived by the petitioner.” The term “waiver” as
used in the statute is “ ‘a shorthand statement for the conclusion that a
contractual right to arbitration has been lost.’ ” (St. Agnes Medical
Center v. PacifiCare of California et al. (2003) 31 Cal. 4th 1187, 1195,
fn. 4 (St. Agnes).) Both federal and state law favor arbitration as a
“ ‘speedy and relatively inexpensive means of dispute resolution.’ ”
(Moncharsh v. Heily & Blase (1992) 3 Cal. 4th 1, 9.) Because the law
favors arbitration, waiver will not be lightly inferred and the party
asserting waiver “bears a heavy burden of proof,” with any doubts to be
resolved in favor of arbitration. (St. Agnes, supra, 31 Cal.4th at
p. 1195.)
“The relevant factors establishing waiver include whether the
party’s actions are inconsistent with the right to arbitrate; whether the
litigation machinery has been substantially invoked and the parties
were well into preparation of a lawsuit before the party notified the
opposing party of an intent to arbitrate; whether a party delayed for a
long period before seeking a stay; whether important intervening steps
[e.g., taking advantage of judicial discovery procedures not available in
arbitration] had taken place; and whether the delay affected, misled, or
prejudiced the opposing party.” (Hoover v. American Income Life Ins.
Co. (2012) 206 Cal. App. 4th 1193, 1204 (Hoover); accord, St. Agnes,
supra, 31 Cal.4th at p. 1196.) “ ‘California courts have found a waiver
of the right to demand arbitration in a variety of contexts, ranging from
agreements as the same standards apply in determining waiver.
(Zamora v. Lehman (2010) 186 Cal. App. 4th 1, 11 (Zamora).)
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situations in which the party seeking to compel arbitration has
previously taken steps inconsistent with an intent to invoke arbitration
[citations] to instances in which the petitioning party has unreasonably
delayed in undertaking the procedure. [Citations.] The decisions
likewise hold that the “bad faith” or “willful misconduct” of a party may
constitute a waiver and thus justify a refusal to compel arbitration.
[Citation.]’ ” (Iskanian v. CLS Transportation Los Angeles, LLC. (2014)
59 Cal. 4th 348, 374-375 (Iskanian).) Waiver is not a mechanical
process and no one factor is predominant. (St. Agnes, supra, 31 Cal.4th
at p. 1195.)
Although participating in the litigation of an arbitrable claim
does not by itself waive a party’s right to later seek to arbitrate the
matter, at some point continued litigation of the dispute justifies a
finding of waiver. (Hoover, supra, 206 Cal.App.4th at p. 1204 [courts
look at the party’s actions, as a whole, in determining whether its
conduct is inconsistent with an intent to arbitrate]; see also e.g., Lewis
v. Fletcher Jones Motor Cars, Inc. (2012) 205 Cal. App. 4th 436, 446 [four
months passed after the filing of an action before the party “expressed a
desire to arbitrate”]; (Platt Pacific, Inc. v. Andelson (1993) 6 Cal. 4th
307, 314 [party may waive the right without the intent to do so by, for
example, making an untimely demand to arbitrate]; Zamora v.
Lehman, supra, 186 Cal.App.4th at pp. 12, 18.)
Relatedly, a party that wishes to pursue arbitration must take
“ ‘active and decided steps to secure that right’ ” because an arbitration
agreement “ ‘is not . . . self-executing.’ ” (Brock v. Kaiser Foundation
Hospitals (1992) 10 Cal. App. 4th 1790, 1795.) “Mere announcement of
the right to compel arbitration is not enough. To properly invoke the
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right to arbitrate, a party must (1) timely raise the defense and take
affirmative steps to implement the process, and (2) participate in
conduct consistent with the intent to arbitrate the dispute. Both of
these actions must be taken to secure for the participants the benefits
of arbitration. (Sobremonte v. Superior Court (1998) 61 Cal. App. 4th
980, 997-998; Brock v. Kaiser Foundation Hospitals, supra,
10 Cal.App.4th at p. 1795 [a party wishing to compel arbitration files a
petition to compel arbitration and request a stay in the superior court].)
The proper procedure for “halt[ing] [Labor Commissioner] proceedings”
is to file a petition to compel arbitration and request a stay of the Labor
Commissioner proceedings in the superior court. (OTO, LLC v. Kho
(2019) 8 Cal. 5th 111, 140.)
The question of waiver is ordinarily a question of fact, and the
trial court’s finding of waiver is binding on the reviewing court if it is
supported by substantial evidence. (St. Agnes, supra, 31 Cal.4th at
p. 1196.) Reversal is not justified simply because the trial court could
have potentially reached a different conclusion on the question of
waiver; “rather, we may reverse the trial court’s waiver finding only if
the record establishes a lack of waiver as a matter of law.” (Lewis v.
Fletcher Jones Motor Cars, Inc., supra, 205 Cal.App.4th at p. 453.)
Where the relevant facts are undisputed and only one inference may
reasonably be drawn from the facts, the waiver issue may be reviewed
de novo. (St. Agnes, supra, 31 Cal.4th at p. 1196.)
Under either standard of review, we affirm the trial court’s ruling
on the basis that Fleming waived its right to arbitration. The record
establishes that Fleming was well aware of the option to file a petition
in the superior court if it wished to compel arbitration. In fact, Fleming
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explicitly stated in its August 2017 letter to the Labor Commissioner
that it was going to seek relief from the superior court if the Labor
Commissioner did not dismiss Younan’s complaint. Fleming attached
to its letter a copy of the signed arbitration agreement that provided in
relevant part that “any and all claims arising out of or related to the
employment relationship that could be filed in a court of law . . . shall
be submitted to final and binding arbitration, and not to any other
forum.” In other words, it was Fleming’s position from the start that
“any and all claims,” i.e., Younan’s wage claims, were to be “submitted
to final and binding arbitration, and not to any other forum,” i.e., not to
the Labor Commissioner’s Office. (Italics added.) Despite this, when
the Labor Commissioner did not dismiss the complaint, Fleming made
the decision not to file a superior court petition to compel arbitration or
stay the Labor Commissioner proceedings.6
Once an employee files a complaint with the Labor Commissioner
for nonpayment of wages, Labor Code section 98 subdivision (a)
“ ‘provides for three alternatives: the commissioner may either accept
the matter and conduct an administrative hearing [citation], prosecute
6 At oral argument, Fleming explained it did not file a petition in the
superior court in September 2017 (after Fleming sent a letter
requesting dismissal of the complaint and instead a hearing was set) or
in August 2018 (when the Labor Commissioner denied Fleming’s
motion to vacate the August 13 hearing and dismiss the complaint)
because the Labor Commissioner told her Fleming’s counsel it would
not dismiss the complaint based on a letter brief and Fleming should
have the hearing officer decide at the hearing whether to dismiss the
complaint. In addition, Fleming did not file a petition because it
wanted to see if the Labor Commissioner would change its mind and
dismiss Younan’s complaint. These reasons do not justify Fleming’s
delay. Moreover, we note that the statements the Labor Commissioner
purportedly made to Fleming’s counsel are not a part of the record.
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a civil action for the collection of wages and other money payable to
employees arising out of an employment relationship [citation], or take
no further action on the complaint. [Citation.]’ ” (Murphy v. Kenneth
Cole Productions, Inc. (2007) 40 Cal. 4th 1094, 1115.) As noted, the
Labor Commissioner accepted Younan’s complaint and scheduled a
hearing on the merits for August 13, 2018. At that point, Fleming once
again stated it was going to move to compel arbitration, yet did not do
so. When the Labor Commissioner denied Fleming’s motion to dismiss
stating Fleming had failed to obtain a stay from the superior court,
Fleming did not request a continuance of the hearing or otherwise take
action in furtherance of its purported position that the matter had to be
arbitrated. Instead, Fleming fully participated in the hearing by
presenting documentary evidence, witness testimony, and argument.
Younan notes—and Fleming does not dispute—that Fleming’s attorney
also “gather[ed] Younan’s testimony,” cross-examined him, reviewed
Younan’s exhibits, and learned “Younan’s trial strategies” at the
hearing. In light of Fleming’s repeated choice not to move to compel
arbitration in the trial court, coupled with its full participation in the
Labor Commissioner proceedings, the trial court correctly determined
Fleming did not “properly invoke the right to arbitrate” by “tak[ing]
affirmative steps to implement the process” and “participate in conduct
consistent with the intent to arbitrate the dispute.” (Sobremonte v.
Superior Court, supra, 61 Cal.4th at pp. 997-998.)7
7Because the administrative scheme contemplates that any party may
seek de novo review of the Labor Commissioner’s order in the superior
court (Lab. Code, § 98.2, subd. (a)), invocation of arbitration after the
Labor Commissioner issues an order may or may not give rise to a
waiver, depending on such factors as the terms of the arbitration
agreement, whether the FAA or the CAA applies (such that FAA
10
Even after the Labor Commissioner issued its order, Fleming
appealed from the order but did not exercise its right to immediately
seek to compel arbitration and stay the superior court proceedings.
Further, the trial court’s register of actions indicates the parties
engaged in discovery after the filing of the notice of appeal; there are
multiple entries relating to Younan’s request for “compliance with . . .
[his] request for production of documents” and other discovery, as well
as a lengthy court order granting Younan’s discovery requests. It was
not until February 8, 2019—20 months after Younan filed his Labor
Commissioner complaint—that Fleming finally filed a superior court
petition to compel arbitration. The trial court properly found this delay
was not reasonable.8
Fleming argues the trial court’s order must nevertheless be
reversed because Younan failed to show he was prejudiced by the delay.
preempts Labor Code section 229, see footnote 5), and the parties’
conduct. Here, the arbitration agreement stated that all claims would
be submitted to arbitration, “and not to any other forum.” This
language—which Fleming asserts requires the parties to submit to
arbitration without first going through Labor Commissioner
proceedings—coupled with Fleming’s conduct of repeatedly deciding not
to seek arbitration, supports a finding of waiver in this case.
8
Younan argued below that Fleming’s overall conduct—e.g., willingly
taking part in the Labor Commissioner proceedings, receiving “a free
hearing on the merits of its case at taxpayers’ expense,” losing on the
merits, delaying the filing of a superior court petition, and requesting
“that the Court pretend that the actions of the past two years never
occurred” so that it can deprive Younan of statutory rights guaranteed
to him as the prevailing party—“borders on bad faith.” As noted, a
party’s bad faith or misconduct may constitute a waiver that justifies a
refusal to compel arbitration. (Iskanian, supra, 59 Cal.4th at pp. 374-
375.) Although the trial court did not make an express finding of bad
faith, we observe the facts could support such a finding.
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Fleming takes the position that its actions must have caused Younan to
incur extensive costs and legal expenses and/or an unfair disadvantage
that would materially prejudice his position in any future arbitration.
Here, while the issue of prejudice presents a closer issue, we disagree
with Fleming’s position that there was “no evidence” of prejudice to
support a waiver.
As the court explained in Hoover, supra, 206 Cal.App.4th at
page 1205, prejudice can be found “where the petitioning party has
unreasonably delayed seeking arbitration or substantially impaired an
opponent’s ability to use the benefits and efficiencies of arbitration.”
There, the court observed that the party seeking arbitration had
conducted litigation in a style inconsistent with the right to arbitrate;
its actions suggested it was more interested in delay than expeditious
resolution through arbitration. (Id. at p. 1205.)
Here, although Younan did not have an attorney during the
Labor Commissioner proceedings and therefore did not suffer monetary
loss in the form of attorney fees and costs, he was represented in the
superior court action and engaged in discovery after Fleming delayed
the filing of its petition to compel arbitration. Younan also suffered the
prejudice of waiting several years to collect wages that at least one
tribunal has determined he was owed, when the matter could have
been arbitrated—assuming arbitration was proper—if Fleming had
sought to compel arbitration in August 2017 when it said it was going
to do so. As noted, the benefit of arbitration is that it is a relatively
efficient and cost-effective way of resolving disputes. At this point,
however, all benefits of a speedy resolution Younan could have obtained
through arbitration have been lost. (Sobremonte v. Superior Court,
12
supra, 61 Cal.App.4th at p. 996 [“any benefits they may have achieved
from arbitration have been lost”]; St. Agnes, supra, 31 Cal.4th at
p. 1204 [prejudice is found where “the petitioning party’s conduct has
substantially undermined [the] important public policy [in favor of
arbitration] or substantially impaired the other side’s ability to take
advantage of the benefits and efficiencies of arbitration”].) We conclude
Younan suffered cognizable prejudice.
Further, although prejudice has been held to be “critical” in
determining waiver, we also note the Supreme Court has cautioned
courts to examine each case in context: “no single test delineates the
nature of the conduct that will constitute a waiver of arbitration.” (St.
Agnes, supra, 31 Cal.4th at p. 1195, 1203.) Moreover, a party’s
unreasonable delay has also been considered a significant and
determinative issue. In Wagner Construction Co. v. Pacific Mechanical
Corp. (2007) 41 Cal. 4th 19, 29–30, for example, the Supreme Court
observed that a party’s unreasonable delay in demanding or seeking
arbitration, in and of itself, may constitute a waiver of a right to
arbitrate. “[A] party may [not] postpone arbitration indefinitely by
delaying the demand. . . . [¶] When no time limit for demanding
arbitration is specified, a party must still demand arbitration within a
reasonable time. [Citation.] . . . ‘[W]hat constitutes a reasonable time is
a question of fact, depending upon the situation of the parties, the
nature of the transaction, and the facts of the particular case.’ ” We
conclude the trial court properly determined Fleming waived its right
to arbitration.9
9On appeal, Younan did not defend the trial court’s finding of waiver
and instead focused on unconscionability and other issues. This does
not affect our determination, as it is the appellant’s burden to
13
DISPOSITION
The trial court order denying Fleming’s petition is affirmed.
Younan shall recover his costs on appeal.
affirmatively demonstrate error with respect to all of the bases upon
which the trial court rendered its decision (People v. JTH Tax, Inc.
(2013) 212 Cal. App. 4th 1219, 1237), regardless of whether the
respondent has provided argument or authority in support of the trial
court’s decision (Kriegler v. Eichler Homes, Inc. (1969) 269 Cal. App. 2d
224, 226-227 [no respondent’s brief].)
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_________________________
Petrou, J.
WE CONCUR:
_________________________
Fujisaki, Acting P.J.
_________________________
Jackson, J.
A157038/Fleming Distribution Company v. Younan
15
Filed 5/15/20
CERTIFIED FOR PUBLICATION
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
FIRST APPELLATE DISTRICT
DIVISION THREE
ALFONS YOUNAN,
Plaintiff and Respondent,
A157038
v.
FLEMING DISTRIBUTION (Sonoma County Superior
COMPANY, Court No. SCV263702)
Defendant and Appellant.
BY THE COURT:
It is ordered that the opinion in the above-entitled matter, filed on
April 23, 2020, shall be modified as follows:
1. Delete footnote Number 8. All subsequent footnotes shall be
renumbered accordingly.
The opinion was not certified for publication in the Official Reports. For
good cause, the request for publication is granted.
Pursuant to California Rules of Court, rules 8.1120 and 8.1105(c)(2), the
opinion in the above-entitled matter filed on April 23, 2020, as modified
herein, is ordered certified for publication in the Official Reports.
Dated: ____May 15, 2020____ ____Fujisaki, J.____________Acting P.J.
Trial Court: Sonoma County Superior Court
Trial Judge: Hon. Elliot Daum
Counsel: Theresa Bichsel and M. Colleen Ryan for Plaintiff and
Respondent.
Palmer Kazanjian Wohl Hodson, Alexandra M. Asterlin,
Christopher Wohl, and Treaver Hodson for Defendant and Appellant.