McGuire v. 99 Cents Only Stores, LLC CA2/1 ( 2021 )

Filed 3/2/21 McGuire v. 99 Cents Only Stores, LLC CA2/1
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IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION ONE
GEORGE MCGUIRE, B301863
Plaintiff and Respondent, (Los Angeles County
Super. Ct. No. BC690901)
v.
99 CENTS ONLY STORES LLC,
Defendant and Appellant.
APPEAL from an order of the Superior Court of Los Angeles
County, William F. Highberger, Judge. Reversed with directions.
Munger, Tolles & Olson, Katherine M. Forster, Elizabeth R.
Dyer, and David W. Moreshead for Defendant and Appellant.
Matern Law Group, Matthew J. Matern, Launa Adolph,
Kiran Prasad, and Shooka Dadashzadeh for Plaintiff and
Respondent.
Defendant and appellant 99 Cents Only Stores LLC
(the company) challenges the trial court’s determination that
the company waived its right to enforce an arbitration agreement
between the company and one of its former employees, plaintiff
and respondent George McGuire. The company appeals from
an order denying, based on such waiver, the company’s motion to
compel arbitration of McGuire’s individual claims in his lawsuit
alleging Labor Code violations on both an individual and classwide
basis, as well as pursuant to a PAGA claim.
The company’s motion to compel individual arbitration
followed closely on the heels of a United States Supreme Court
decision, Lamps Plus, Inc. v. Varela (2019) ___ U.S. __ [139 S.Ct.
1407, 203 L.Ed.2d 636] (Lamps Plus), which case eliminated all
risk that the arbitration agreement could be interpreted as a basis
for classwide arbitration under the Federal Arbitration Act (FAA),
an outcome the company has openly sought to avoid. The company
and McGuire had litigated the case for 14 months before the
company filed its motion, during which time the parties exchanged
some classwide discovery.
The trial court erred in concluding that, by litigating the
matter during that 14-month period, the company waived its right
to seek individual arbitration. Neither the court’s factual findings
nor the record supports the prejudice required to establish such
waiver. First, they do not support that the company’s delay was
unreasonable and thus prejudicial. The considerable risk of class
arbitration prior to Lamps Plus provides a reasonable explanation
for the timing of the company’s motion, whether or not that risk
rose to the level of making such a motion futile. Moreover, the trial
court did not find, and nothing suggests, that the company sought
or gained any improper tactical advantage by waiting to enforce
2
the arbitration agreement. We disagree with McGuire that the
company wanting to avoid class arbitration under an agreement
the company viewed as authorizing only individual arbitration
constitutes an effort to gain an improper tactical advantage.
Nothing prohibits arbitration agreements covering only individual
claims, and the company was entitled to pursue an outcome
consistent with the company’s interpretation of its arbitration
agreement with McGuire.
Nor does the exchange of classwide discovery and McGuire’s
work analyzing class claims support a finding of prejudice.
McGuire bore a heavy burden below of proving that these efforts
would not have occurred, had the company moved earlier to compel
arbitration. But McGuire failed to provide a record from which the
trial court could reasonably infer how much of these efforts, if any,
exceeded what he would have done to pursue his PAGA claim—a
nonarbitrable representative cause of action based on the exact
same alleged conduct and Labor Code violations as McGuire’s
class claims. Thus, McGuire’s showing below was insufficient as
a matter of law to meet his burden of establishing prejudice by the
company’s delay in pursuing individual arbitration.
We reverse the order to the extent it denies the company’s
request to compel McGuire’s individual claims to arbitration.
Upon remand, we will instruct the trial court to issue a new order
granting the motion to compel McGuire’s individual claims to
arbitration and to rule on the company’s request to stay all other
claims, pending the outcome of arbitration.
3
FACTS AND PROCEEDINGS BELOW
A. McGuire’s Arbitration Agreement with the
Company
The company operates retail stores in several states. In
2010, the company hired McGuire as an at-will employee at one
of its stores in California.
At the time it hired McGuire, the company required new
employees to enter into an arbitration agreement. The arbitration
agreement McGuire entered into (the agreement) provides that
“the Company and the undersigned Employee are waiving the right
to a jury trial for all employment-related disputes” and that “[b]oth
the Company and the Employee shall be precluded from bringing
or raising in court or another forum any dispute that was or could
have been submitted to binding arbitration.” The agreement does
not expressly address class actions. It does provide, however, that
“[t]he Company and the undersigned Employee hereby agree that
any dispute with any party (including the Company’s affiliates,
successors, predecessors, parents, subsidiaries, divisions, dba’s,
contractors, employees, officers[,] directors and agents) that may
arise from or in connection with Employee’s employment with the
Company or the termination of Employee’s employment with the
Company must be submitted for resolution by mandatory, binding
arbitration.”
Notably for the purposes of this appeal, the agreement
further provides that, during arbitration, “[t]he parties will be
permitted to conduct discovery as provided by . . . Code of Civil
Procedure[ ] [s]ection 1283.05,” which in turn grants the parties
“the right to take depositions and to obtain discovery regarding
the subject matter of the arbitration, and, to that end, to use and
exercise all of the same rights, remedies, and procedures, and be
4
subject to all of the same duties, liabilities, and obligations in the
arbitration with respect to the subject matter thereof . . . as if the
subject matter of the arbitration were pending before a superior
court of this state in a civil action other than a limited civil case.”1
(Code Civ. Proc., § 1283.05, subd. (a).)
B. McGuire Sues the Company
In 2018, McGuire filed a lawsuit against the company,
both individually and on behalf of those similarly situated, alleging
wage and overtime violations under the Labor Code as well as a
unlawful business practices claim under Business and Professions
Code section 17200.
McGuire later amended his complaint to add a claim under
the Private Attorneys General Act (PAGA) (Lab. Code, § 2698
et seq.). The PAGA authorizes aggrieved employees to act as
private attorneys general and collect “civil penalties” for Labor
Code violations, where the Labor and Workforce Development
Agency (LWDA) has been notified and does not itself take action.
(See Lab. Code, § 2699, subd. (a).) A PAGA suit is representative
in nature, in that the plaintiff is “suing on behalf of all affected
employees,” but “ ‘a representative action under PAGA is not
a class action.’ ” (Kim v. Reins International California, Inc.
(2020) 9 Cal.5th 73, 87.) Rather, a PAGA claim is technically
1 Code of Civil Procedure section 1283.05 does limit the
discovery rights available to parties in superior court litigation by
requiring that “[d]epositions for discovery shall not be taken unless
leave to do so is first granted by the arbitrator or arbitrators.”
(Code Civ. Proc., § 1283.05, subd. (e).) Given that neither party
took any depositions prior to the company’s motion to compel
arbitration, however, this limitation is not relevant to our analysis.
5
“an enforcement action between the LWDA and the employer,”
with the plaintiff acting as a proxy for the government. (Id.
at p. 86.) For this reason, an arbitration agreement between
an employee and employer (to which, of course, the government is
not a party) cannot provide a basis for compelling PAGA claims to
arbitration under either California law or the FAA. (See Iskanian
v. CLS Transportation Los Angeles, LLC (2014) 59 Cal.4th 348, 384
(Iskanian) [California state law rule against PAGA waivers does
not frustrate FAA goals].)
McGuire’s PAGA claim is based on the same Labor Code
violations that underlie his class action claims,2 although the
time frame for the PAGA claim spanned one year, rather than the
four-year putative class period.
C. The Company Initially Declines to Seek
Arbitration
In a joint statement filed in anticipation of the initial status
conference, the company informed the court that McGuire “and/or
other members of the putative class” had signed agreements to
arbitrate, and that the company “may file an early motion in
connection with the arbitration issue.”
At the initial status conference in April 2018, the company
stated that it had located an arbitration agreement with McGuire,
but that this agreement was “not one [the company] would seek
to enforce here.” The company explained that it believed McGuire’s
2 The PAGA claim was not based on the Business and
Professions Code violation underlying one of McGuire’s class
claims. However, the exact same conduct that formed the
basis for the Labor Code violation class claims also provided
the basis for the unlawful business practices class claim under
the Business and Professions Code.
6
personnel file might be incomplete; it did not contain the company’s
updated form arbitration agreement that, per the company,
included a class action waiver. The company hoped to learn
McGuire had also executed the updated agreement, and explained
to the court that if the company was able to locate such an
additional arbitration agreement with McGuire, it would “move
to compel individual arbitration.” (Italics added.) The company
represented to the court that it would do so, if at all, within 30 days
or less.
Ultimately, the company was unable to locate any arbitration
agreement with McGuire that contained a class action waiver.
The company thus did not initially seek to compel arbitration, and
instead answered both the complaint and first amended complaint.
In both answers, the company identified the arbitration agreement
as an affirmative defense. The company’s answers also expressly
reserved “[the company’s] position that [the] case [wa]s subject to a
valid and enforceable arbitration agreement and that th[e] lawsuit
ha[d] been filed in violation of that agreement.”
D. The Company’s Explanation for Initially
Declining to Pursue Arbitration
In support of its motion to compel individual arbitration,
the company explained to the court below and now repeats on
appeal that it chose to answer the complaint, rather than move to
compel arbitration at the outset of proceedings, based on concerns
regarding the company’s ability to compel to arbitration only
McGuire’s individual claims (and avoid classwide arbitration),
given the lack of a class action waiver in the agreement.
At the time the company answered the complaints, neither
California nor federal law foreclosed the possibility that a court
could compel class arbitration under an arbitration agreement
7
that is ambiguous regarding whether it covers class claims.
Although no California state court decision had expressly addressed
this issue, the California Supreme Court in Sandquist v. Lebo
Automotive, Inc. (2016) 1 Cal.5th 233 (Sandquist) addressed the
related issue of “who decides whether [an arbitration] agreement
permits or prohibits classwide arbitration, a court or the
arbitrator.” (Id. at p. 241.) The Court in Sandquist “conclude[d]
no universal rule allocates this decision in all cases to either
arbitrators or courts. Rather, who decides is in the first instance
a matter of agreement, with the parties’ agreement subject to
interpretation under state contract law.” (Ibid.) The arbitration
agreement at issue in Sandquist included a broad description
of the scope of the arbitrator’s authority, and other features of
the agreement suggested questions of arbitrability were for the
arbitrator, although these were “by no means conclusive” on the
issue. (Id. at p. 246.) “In the presence of [such] ambiguity, [the
Court] turn[ed] to” “two . . . long-established [state law contract]
interpretive principles.” (Id. at pp. 246–247.) Namely, that
“ambiguities in written agreements are to be construed against
their drafters” under California law (id. at p. 247)—a maxim
that “ ‘ “applies with peculiar force in the case of a contract of
adhesion” ’ ” (id. at p. 248)—and that “when the allocation of a
matter to arbitration or the courts is uncertain, we resolve all
doubts in favor of arbitration.” (Id. at p. 247.) These principles
led the Court to conclude that the specific arbitration agreement at
issue in Sandquist delegated to the arbitrator the task of deciding
whether the agreement covered class claims. (Id. at pp. 246–248.)
The Court further concluded that nothing in the FAA “imposes an
interpretive presumption that, as a matter of federal law, preempts
8
state law rules of contract interpretation and alters the conclusion
state law would otherwise reach here.” (Id. at pp. 251, 260.)
As for federal court decisions at the time, in Varela v. Lamps
Plus, Inc. (9th Cir. 2017) 701 Fed. Appx. 670, the Ninth Circuit
directly addressed the issue of what is required in order for an
arbitration agreement to cover class claims. In so doing, the
court applied the same California state law interpretive maxims
that the California Supreme Court applied in Sandquist, and
cited Sandquist on these points. (Id. at p. 672.) Based thereon,
the Ninth Circuit ultimately concluded that, under the FAA,
contractual language that is ambiguous as to whether it covers
class claims can provide the “necessary ʻcontractual basis’ for
agreement to class arbitration.” (See id. at p. 673.)
According to the company, “[b]ased on Sandquist and
Varela, the Company [initially] determined that a motion to compel
individual arbitration of McGuire’s claims was unlikely to succeed
because McGuire’s Arbitration Agreement did not include an
express class action waiver” and was ambiguous as to whether it
permitted class arbitration. Thus, the company feared that, had it
earlier sought individual arbitration, it could ultimately have been
compelled to classwide arbitration instead, which is a result it
wanted to avoid.
E. The Parties Engage in Discovery and Mediation
In April and May 2018, the parties exchanged written and
document discovery requests. McGuire provided written discovery
responses, and although he did not produce any documents as part
of formal discovery responses, produced 62 documents in connection
with subsequent mediation efforts. The company produced a total
of approximately 2,155 pages of material through formal discovery
9
and informal mediation disclosures. Neither party took any
depositions.
Much of these discovery requests and information
exchanges were related to class-based claims. Although
both parties responded to many requests largely by objecting,
McGuire’s counsel represented to the court that he reviewed the
approximately 2,000 documents he received from the company
through formal discovery “for class litigation purposes.” These
formally produced materials did not include a class list or any other
information that could have identified any of the members of the
putative class. The company did, however, provide employee time
punch data as part of informal subsequent mediation disclosures.
The parties agreed to participate in mediation to be held on
June 5, 2019, and to stay any further formal discovery pending
the outcome of that mediation. Because of their forthcoming
mediation, the parties also jointly requested and received an
extension of the class certification deadline to October 3, 2019.
F. The Company’s Motion to Compel Arbitration
Following the United States Supreme Court’s
Reversal in Lamps Plus
On April 24, 2019, the United States Supreme Court reversed
the Ninth Circuit’s Lamps Plus decision. (See Lamps Plus, supra,___ U.S. at p. ___ [139 S.Ct. at p. 1415].) The high court held that
an arbitration agreement that is ambiguous as to the availability of
class arbitration cannot provide the necessary contractual basis for
permitting class arbitration under the FAA—even when state law
rules of contract interpretation suggest it can. (Ibid.) In so holding,
the Supreme Court rejected the idea that the FAA permits a court
to rely on the specific maxims of contract interpretation cited in
Sandquist and Varela as a basis for finding class claims arbitrable
10
under an ambiguous agreement. It explained: “The doctrine
of contra proferentem [requiring a contract to be interpreted
against the drafter] cannot substitute for the requisite affirmative
‘contractual basis for concluding that the part[ies] agreed to [class
arbitration].’ ” (Id. at p. 1419, italics omitted.) The Court further
explained that “[c]lass arbitration is not only markedly different
from the ‘traditional individualized arbitration’ contemplated by
the FAA, it also undermines the most important benefits of that
familiar form of arbitration” (id. at p. 1415) and the FAA “therefore
requires more than ambiguity to ensure that the parties actually
agreed to arbitrate on a classwide basis.” (Ibid.) The parties
do not and cannot dispute that the Supreme Court’s Lamps Plus
decision changed the law regarding what the FAA requires in order
to compel arbitration on a classwide basis.
Within two weeks of the Supreme Court’s decision, the
company informed McGuire it intended to file a motion to compel
McGuire’s individual claims to arbitration. The company offered
to delay the filing of a motion to compel arbitration pending the
outcome of mediation, if McGuire would agree not to argue later
that the company had waived its right to seek arbitration. McGuire
did not agree to this. The mediation on the class claims proceeded
as planned, but the parties were unable to reach a resolution.
That same day, the company filed its motion to compel
individual arbitration. The motion argued that it would have been
futile for the company to seek to compel individual arbitration prior
to the United States Supreme Court’s Lamps Plus decision, given
that the agreement does not contain an express class action waiver.
McGuire opposed the motion, disagreeing with the company’s
futility arguments and arguing the company’s delay in bringing the
11
motion significantly prejudiced McGuire, such that the company
had waived its right to arbitration.
G. Hearings and Supplemental Briefing on
Arbitration Motion
The trial court issued a tentative ruling indicating it intended
to grant the company’s motion. On July 17, 2019, the trial court
held an initial hearing on the motion, at which McGuire informed
the court he had incurred substantial costs retaining an expert
to analyze putative class member time and pay records. The trial
court ordered supplemental briefing on the issue of prejudice and
continued the hearing.
In his supplemental brief and accompanying attorney
declaration (the Matern declaration), McGuire identified the fees
and costs he had incurred that he argued would have been avoided,
had the matter proceeded to individual arbitration from the outset,
rather than classwide litigation. The Matern declaration states
that a total of $150,997.50 in legal fees (237.6 attorney hours) were
attributable solely to work on classwide claims. The declaration
attributed 98.3 of those 237.6 hours (and approximately $55,000
in fees) to preparing class claim-related discovery responses, such
as responses to requests regarding “purported class members,”
and reviewing the information provided by the company “for
class litigation purposes.” The declaration further broke down the
amount of legal fees the declarant associated solely with classwide
litigation as follows: 11.5 hours ($7,665.00 in fees) “to confer with
[an] expert on class-wide issues and to otherwise analyze the class
data, as well as in conferring with [an] investigator on class-wide
issues to be discussed with the class members in this action”;
14.7 hours ($11,535 in fees) “to strategize regarding class litigation,
specifically by preparing for a motion for class certification and
12
strategizing on theories to establish commonality, typicality and
adequacy in this action”; 56.8 hours ($45,298.00 in attorney fees)
“to prepare for, attend, and otherwise expend efforts on class
mediation—a total which would have been significantly reduced
had mediation been geared exclusively towards [McGuire’s]
individual claims” and 56.3 hours, totaling $31,100.00 in fees,
“in opposing and otherwise addressing” the motion to compel
individual arbitration.
McGuire also identified $13,979.35 in costs spent on expert
data analysis of employee data and investigative services to assist
with contacting class members. Specifically, the declaration
provided that McGuire “incurred costs of approximately $11,416.85
on investigative services, which assisted with [McGuire’s] efforts
in contacting class members and gathering information that
[McGuire] needed from class members in order to prepare for
mediation and an eventual motion for class certification,” and
“incurred approximately $2,562.50 for expert data analysis of the
class-wide claims in advance of mediation.” It did not identify (nor
does the record disclose) which mediation-related fees and costs,
if any, were incurred before the company put McGuire on notice
of its intent to seek arbitration of McGuire’s individual claims.
In terms of the potential overlap between the class claim-
related work underlying these fees and costs and work relevant
to McGuire’s PAGA claim, the declaration stated only that
McGuire would not have “incurred all of these costs [and fees] in
an exclusively PAGA-representative action, given that the class
period exceeds the PAGA period by . . . three . . . years, meaning
that there was approximately [four] times as much data to analyze
and roughly [four] times as many individuals to contact.”
13
In advance of the continued hearing, the trial court issued
a tentative ruling denying the company’s motion. The tentative
ruling included several factual findings to support the court’s
conclusion that the company’s delay in bringing the motion had
been unreasonable and had prejudiced McGuire. Specifically,
the court found that, despite being aware of the agreement, the
company had “delayed for a long period (i.e., 14 months) before
seeking to compel arbitration.” The court further found that the
company thereafter engaged in “extensive class[ ]wide discovery,”
“a level of discovery not likely to be allowed in arbitration,
particularly if [the company] had sought to limit the arbitration to
an individual claim,” and that McGuire “invested substantial time
and money . . . developing information pertaining to the entire
class of over 44,700 employee putative members.” Considering
these findings under the appropriate multi-factor analysis set forth
by the California Supreme Court in St. Agnes Medical Center v.
PacifiCare of California (2003) 31 Cal.4th 1187, 1203–1204
(St. Agnes), the court concluded the company had waived any right
to seek individual arbitration. The court ultimately adopted this
tentative ruling as its final ruling on the motion.
Although the court’s written decision did not expressly
address the company’s futility argument, it did note that the
company had “changed its position regarding its interest in
arbitration only after the [United States] Supreme Court reduced
the hazards of class arbitration via its decision in [Lamps Plus].”
At the continued hearing, the court rejected the futility argument,
based on the court’s view that, under the agreement, the law before
Lamps Plus did not render class arbitration inevitable. The court
further noted that the possibility of an arbitrator, rather than
a court, deciding whether class claims are arbitrable under the
14
agreement also did not render a motion for individual arbitration
futile.3
The company timely appealed the court’s denial of its motion
to compel individual arbitration.
DISCUSSION
A. Applicable Law and the Company’s Arguments
“[A] petition to compel arbitration will be denied when
the right has been waived by the proponent’s failure to properly
and timely assert it.” (Guess?, Inc. v. Superior Court (2000)
79 Cal.App.4th 553, 557 (Guess), citing Code Civ. Proc., §§ 1281,
1281.2, subd (a).) The FAA and California state law apply the same
standards for determining whether a party has waived the right
to seek arbitration. (See Lewis v. Fletcher Jones Motor Cars, Inc.
(2012) 205 Cal.App.4th 436, 444.) Under these standards, waiver
is “not to be lightly inferred and the party seeking to establish
a waiver bears a heavy burden of proof.” (St. Agnes, supra, 31
Cal.4th at p. 1195.) The California Supreme Court has suggested
a number of nonexclusive factors courts may consider in assessing
3 Both parties, as well as the trial court, appear to assume
that the question of whether class arbitration was available under
the agreement would most likely be decided by an arbitrator, rather
than the court, as the California Supreme Court instructed was
necessary on the facts in Sandquist. Because who would decide
the issue of arbitrability does not affect our analysis on appeal,
however, and because the parties do not dispute that McGuire’s
individual claims are arbitrable, we need not consider who would
decide issues of arbitrability under the agreement.
15
whether a party has waived the right to arbitrate.4 (St. Agnes,
supra, at p. 1196.) Whether it would have been futile for the
potentially waiving party to have raised a request for arbitration
earlier is “implicit” in that multi-factor analysis. (Iskanian, supra,
59 Cal.4th at p. 376.)
The California Supreme Court has instructed that, in
analyzing these factors, “ ‘[t]he presence or absence of prejudice
from the litigation of the dispute is the determinative issue under
federal law.’ ” (St. Agnes, supra, 31 Cal.4th at p. 1203 (italics
added), quoting Doers v. Golden Gate Bridge, Highway and
Transportation District (1979) 23 Cal.3d 180, 188; see also Thorup
v. Dean Witter Reynolds, Inc. (1986) 180 Cal.App.3d 228, 237 [to
establish an effective waiver under the FAA, “[t]he party opposing
arbitration must demonstrate actual prejudice”].) Likewise, under
California law, where, as here, there has been no judicial litigation
of the merits of arbitrable issues, “[t]he presence or absence of
prejudice from the litigation is a determinative issue.” (Hoover v.
American Income Life Ins. Co. (2012) 206 Cal.App.4th 1193, 1205
(Hoover); Christensen v. Dewor Developments (1983) 33 Cal.3d 778,
4 These factors are: “ ‘ “(1) whether the party’s actions are
inconsistent with the right to arbitrate; (2) 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; (3) whether a party either
requested arbitration enforcement close to the trial date or delayed
for a long period before seeking a stay; (4) whether a defendant
seeking arbitration filed a counterclaim without asking for a stay
of the proceedings; (5) ‘whether important intervening steps [e.g.,
taking advantage of judicial discovery procedures not available in
arbitration] had taken place’; and (6) whether the delay ‘affected,
misled, or prejudiced’ the opposing party.” ’ ” (St. Agnes, supra, 31
Cal.4th at p. 1196.)
16
782.) Thus, absent prejudice from a party’s delay in seeking to
enforce an arbitration agreement, there can be no waiver of the
right to arbitrate.
Prejudice sufficient to support an arbitration waiver must
be based on more than lengthy delay and/or the opposing party
having incurred court costs and legal expenses from continued
participation in litigation. (St Agnes, supra, 31 Cal.4th at p. 1203;
Iskanian, supra, 59 Cal.4th at p. 377; Groom v. Health Net (2000)
82 Cal.App.4th 1189, 1197 (Groom).) Instead, “prejudice typically
is found only where the petitioning party has unreasonably delayed
seeking arbitration or substantially impaired an opponent’s ability
to use the benefits and efficiencies of arbitration.” (Hoover, supra,
206 Cal.App.4th at p. 1205 (italics added); Bower v. Inter-Con
Security Systems, Inc. (2014) 232 Cal.App.4th 1035, 1048 (Bower)
[“[t]he distinction in the case law turns on whether any delay in
seeking arbitration is reasonable”]; see St. Agnes, supra, 31 Cal.4th
at pp. 1203–1204; Groom, supra, 82 Cal.App.4th at p. 1197.) “For
example, courts have found prejudice where the petitioning party
used the judicial discovery processes to gain information about
the other side’s case that could not have been gained in arbitration”
(St. Agnes, supra, at p. 1204; see Hoover, supra, 206 Cal.App.4th
at p. 1205 [prejudice from “extensive discovery that is unavailable
in arbitration proceedings”]), or where a party otherwise uses delay
in seeking arbitration as a litigation tactic to gain a strategic
advantage. (See Guess, supra, 79 Cal.App.4th at p. 558 [prejudice
from delay in seeking arbitration that led opposing party to
“disclose[ ] at least some of its trial tactics . . . more so than would
have been required in the arbitral arena” and caused the opposing
party to “los[e] whatever efficiencies that would otherwise have
been available to it through arbitration”]; Sprunk v. Prisma LLC
17
(2017) 14 Cal.App.5th 785, 799 (Sprunk) [delay in moving to compel
arbitration reflected “strategic use of the judicial forum . . . and
support[ed] a waiver finding”].)
The company offers three primary arguments why the
court’s waiver analysis was erroneous and its ruling on the motion
to compel individual arbitration should be reversed. First, the
company contends that the court incorrectly rejected—or, in the
alternative, did not sufficiently consider—the futility of seeking
individual arbitration before Lamps Plus. Second, the company
contends that the court’s factual findings are insufficient as a
matter of law to support prejudice. Third, as an alternative, the
company challenges the sufficiency of the evidence to support those
factual findings.
A trial court’s determination of waiver, “ ‘ “if supported
by substantial evidence, is binding on an appellate court’ ” ” and
“[o]nly ‘ “in cases where the record before the trial court establishes
a lack of waiver as a matter of law, [may] the appellate court . . .
reverse a finding of waiver made by the trial court.” ’ ” (Adolph v.
Coastal Auto Sales, Inc. (2010) 184 Cal.App.4th 1443, 1450; see
Davis v. Continental Airlines, Inc. (1997) 59 Cal.App.4th 205,
211 [reversal of waiver finding appropriate where “the record
as a matter of law compels finding nonwaiver”].) Even assuming,
without deciding, that the court’s express factual findings are
supported by substantial evidence, these findings, either alone or
combined with other facts supported by substantial evidence in the
record, are insufficient as a matter of law to establish the prejudice
necessary to support waiver.5
5We thus need not and do not reach the company’s
arguments challenging the sufficiency of evidence to support
the court’s findings, or the company’s futility arguments as such.
18
B. The Facts Found By the Court Do Not Establish
Prejudice
In response to the company’s prejudice arguments, McGuire
identifies two factual findings he argues establish that the
company’s delay was sufficiently prejudicial to support waiver:
the delay was “for a long period,” and, as a result of it, McGuire
provided and analyzed extensive class claim-related information
and discovery, something that would not have occurred in
individual arbitration (or in subsequent litigation of the
nonarbitrable PAGA claims, at least not to as great an extent).
McGuire argues this generated unnecessary expense for McGuire
and a windfall of information for the company.
1. Reasonableness of delay in light of change
in law via Lamps Plus
Under certain circumstances, a delay in seeking arbitration
may be so unreasonable that it alone deprives the opposing party
of core benefits of arbitration, and thus is sufficiently prejudicial
to support waiver. (See Iskanian, supra, 59 Cal.4th at pp. 377–378;
Bower, supra, 232 Cal.App.4th at pp. 1048–1049.) But the length
of delay alone cannot establish unreasonableness. (See Hoover,
supra, 206 Cal.App.4th at p. 1203; see also Wagner Construction
Co. v. Pacific Mechanical Corp. (2007) 41 Cal.4th 19, 30 [“ ‘[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’ ”].) Cases deeming a delay sufficiently
unreasonable to establish prejudice involved delay for which the
party seeking arbitration had no plausible explanation, and/or
a record supporting an inference of delay for strategic advantage.
(See e.g., Guess, supra, 79 Cal.App.4th at p. 558 [noting party
seeking arbitration “ha[d] not even tried to explain” its failure to
19
do so earlier and to instead seek extensive discovery, which would
afford it a strategic advantage]; Bower, supra, 232 Cal.App.4th at
p. 1049 [party initially declined to seek arbitration “because it saw
an advantage in pursuing [discovery and class settlement] in the
judicial forum” and “nothing . . . suggest[ed] . . . any change in
the law that prompted [the party] to finally pursue arbitration”];
Sprunk, supra, 14 Cal.App.5th at p. 798 [discussed post].) Neither
is the case here.
a. A considerable risk of class arbitration
under the agreement existed pre-Lamps Plus
The company has explained that it did not seek to compel
individual arbitration for approximately 14 months because it
feared that doing so under then-applicable law might have forced
the company into unwanted classwide arbitration.
The risk of such an outcome was considerable following the
California Supreme Court’s 2016 decision in Sandquist. Although
that case did not deal with the specific issue of class arbitration,
it held that, if arbitration agreement language in an employer’s
contract of adhesion is ambiguous, the concepts of contra
proferentem and the FAA’s pro-arbitration presumption require
that language be interpreted against the drafter (i.e., the employer)
and in favor of arbitration. (See Sandquist, supra, 1 Cal.5th at
pp. 246–247 [“[i]n the presence of ambiguity, we turn to other
principles applicable to the interpretation of arbitration clauses
and contracts generally [¶] . . . [¶] [and] [u]ltimately dispositive
here are two . . . long-established interpretive principles”].) Before
Lamps Plus, had the court (or the arbitrator) determined the
language in the agreement here to be ambiguous, Sandquist would
have required the application of these same interpretive principles,
creating a considerable risk that the trial court (or an arbitrator)
20
would have construed the agreement against the company and in
favor of arbitration of both individual and class claims. Indeed, in
the decision the United States Supreme Court ultimately reversed,
the Ninth Circuit Court of Appeals relied on the interpretive
principles discussed in Sandquist to conclude ambiguous
arbitration agreement language sufficient to support classwide
arbitration under the FAA. (See Varela v. Lamps Plus, Inc., supra,701 Fed. Appx. at pp. 672–673.)
McGuire cites two Court of Appeal cases in arguing that
no such risk existed before Lamps Plus. (See Kinecta Alternative
Financial Solutions, Inc. v. Superior Court (2012) 205 Cal.App.4th
506 (Kinecta) & Nelsen v. Legacy Partners Residential, Inc. (2012)
207 Cal.App.4th 1115 (Nelsen).) These cases pre-date Sandquist
and are thus of little assistance to McGuire’s argument. More
fundamentally, these cases merely reflect two Courts of Appeal
interpreting language in arbitration agreements different from
the language at issue here. (See Kinecta, supra, at p. 519 [parties
did not agree to classwide arbitration with the language “ ‘any
claim, dispute, and/or controversy that either I may have against
the Credit Union . . . or the Credit Union may have against me,
arising from, related to, or having any relationship or connection
whatsoever with my seeking employment with, employment by,
or other association with the Credit Union’ ”]; Nelsen, supra, 207
Cal.App.4th at pp. 1129–1130 [agreement that provided it “only
covers claims, disputes, and controversies ‘between myself and
Legacy Partners,’ ” did not authorize class arbitration].) That
those courts determined the language at issue in those cases was
an insufficient contractual basis to support classwide arbitration
does not mean the language in the agreement here necessarily is
21
insufficient as well. McGuire is thus incorrect in dismissing the
risk of class arbitration pre-Lamps Plus based on these cases.
Regardless of whether this risk rose to such a level that
it would have rendered a pre-Lamps Plus motion to compel
individual arbitration futile, the risk was sufficient to justify
concerns about an outcome the company viewed as inconsistent
with the arbitration agreement it signed. We therefore consider
the reasonableness of the company’s delay against a backdrop of
this risk.
b. The company’s timing in moving to compel
is consistent with changes in the risk of
classwide arbitration
The timing of the company’s motion to compel tracks the
neutralization of risk that the company might be required to
arbitrate class claims. Such timing is thus “consistent with . . .
a bona fide desire to await clarification of the law,” rather than
a prejudicial “strategic decision” to delay. (Sprunk, supra, 14
Cal.App.5th at p. 799; see Oregel v. PacPizza, LLC (2015) 237
Cal.App.4th 342, 358–359 (Oregel).) Namely, in April 2019,
Lamps Plus rejected the Ninth Circuit’s reliance on Sandquist
for the very interpretative principles noted above and held that
the FAA does not permit ambiguous language to support classwide
arbitration under any circumstances. Less than two weeks later,
the company informed McGuire of its intent to seek individual
arbitration. The company then filed its motion to compel within
several weeks. Thus, the company moved promptly to enforce its
arbitration agreement following a change in the law it claims led
it not to move earlier.
This distinguishes the company’s conduct from that at issue
in cases rejecting as disingenuous a delaying party’s purported
22
reliance on a change in law. In Sprunk, for example, the party
seeking arbitration “waited over a year . . . after the Supreme Court
decision that [the party] concede[d] settled the [applicable] law.”
(See Sprunk, supra, 14 Cal.App.5th at p. 798.) Further, in Sprunk
and Oregel, the timing of the belated motion to compel arbitration
aligned with the completion of class certification, creating “good
reason to suspect that [the party] made a strategic decision to delay
its motion to compel arbitration to give itself another opportunity to
win the case by defeating a class.” (Sprunk, supra, 14 Cal.App.5th
at p. 798 (italics added); Oregel, supra, 237 Cal.App.4th at
pp. 358-359 [rejecting argument that delay based on change in law
where “the record suggest[ed] that [the party seeking arbitration]
believed it could keep open the option of arbitrating the dispute
while it conducted discovery, but when it appeared the class was
going to be certified, . . . assert[ ] its purported right to arbitrate to
preempt certification”].) Here, by contrast, the company sought to
arbitrate months before the certification issue was even scheduled
to be heard, and thus neither tried to obtain (nor did obtain)
multiple opportunities to defeat class claims.
The company was entitled to try and enforce the terms of
the agreement, which the company interpreted as requiring only
individual claim arbitration. The law permits parties to exclude
class claims from the scope of an arbitration agreement (AT&T
Mobility LLC v. Concepcion (2011) 563 U.S. 333, 352 [holding class
action waivers are enforceable under FAA and California rule to the
contrary preempted]), and thus, potentially, to pursue individual
claim arbitration before any related class claims. (See Code Civ.
Proc., § 1281.4, 3d par. [permitting stay of severable, nonarbitrable
claims pending arbitration of arbitrable claims].) To the extent
the company sought or will obtain a strategic advantage from
23
arbitrating only individual claims, but not class claims, this is not
improper gamesmanship—it is merely the company enforcing a
valid contract.
Nor do the court’s findings support some other type of
improper motive for or strategic benefit from the company’s delay.
For example, “there was no evidence that [the company] stretched
out the litigation process, . . . or waited until the eve of trial to
move to compel arbitration.” (Khalatian v. Prime Time Shuttle,
Inc. (2015) 237 Cal.App.4th 651, 663 (Khalatian), citing Iskanian,
supra, 59 Cal.4th at p. 377; Bower, supra, 232 Cal.App.4th at
p. 1045.)
2. Classwide litigation efforts and classwide
discovery
The trial court found that the parties had engaged in
“extensive classwide discovery” and “a level of discovery not likely
to be allowed in arbitration,” given that the company was seeking to
compel arbitration of only McGuire’s individual claims. The court
further found that McGuire’s “counsel [had] invested substantial
time and money thereafter developing information pertaining to the
entire class of over 44,700 employee putative members.” McGuire
argues that these findings reflect the requisite prejudice, because
counsel’s classwide efforts will be useless in individual arbitration
(and largely useless in litigation of the PAGA claim, given the
shorter time frame it covers), and because the company secured an
unfair advantage by obtaining classwide discovery to which it was
not entitled in individual arbitration.
In order for such classwide efforts and discovery to constitute
prejudice flowing from the company’s delay, it must be true that
McGuire would have avoided them, had the company moved earlier
to compel individual arbitration. To determine whether this is the
24
case, we must consider the relevance of those efforts to McGuire’s
nonarbitrable PAGA claim, which would have remained pending
during arbitration, albeit potentially stayed. (See Code Civ. Proc.,
§ 1281.4, 3d par.) McGuire’s classwide efforts can only be
prejudicial if they would not have been relevant to McGuire’s
PAGA claim.6 (See Gloster v. Sonic Automotive, Inc. (2014) 226
Cal.App.4th at p. 450 [“[i]n the absence of a demonstration that the
discovery would not be useful . . . in pursuing [plaintiff ’s] claims
in arbitration, its expense did not constitute prejudice”].) McGuire
bore the “heavy burden” below of establishing this. (St. Agnes,
supra, 31 Cal.4th at p. 1195.)
The court did not make any findings regarding the extent of
the overlap between McGuire’s class claim-related discovery and
efforts and discovery and efforts relevant to his PAGA claim. We
therefore review the record for substantial evidence to support
the finding on this point that is necessarily implied in the court’s
conclusion that McGuire’s classwide efforts constituted prejudice.
(See St. Agnes, supra, 31 Cal.4th at p. 1196.) In so doing, we
view the record in the light most favorable to McGuire, and draw
6 In arguing that the classwide efforts and classwide
discovery unavailable in arbitration can constitute prejudice,
McGuire relies heavily on Bower, supra, 232 Cal.App.4th 1035.
Bower is inapposite, because it was decided in 2014, at which time
the arbitrability of Bower’s PAGA claim on an individual basis
was still unclear. (See Tanguilig v. Bloomingdale’s, Inc. (2016)
5 Cal.App.5th 665, 677.) Under those circumstances, it is possible
discovery regarding a broader group of employees could only be
obtained by delaying arbitration, because the representative
PAGA claims may not have continued in court after the arbitration
agreement was enforced. Moreover, Bower does not discuss the
effect of the plaintiff ’s PAGA claim in its prejudice analysis.
25
every reasonable inference in his favor. (See SFPP v. Burlington
Northern & Santa Fe Ry. Co. (2004) 121 Cal.App.4th 452, 462.)
For reasons we discuss further below, we conclude that the record
contains no evidence from which the trial court could reasonably
infer the extent to which McGuire’s classwide efforts would not
have been useful to McGuire’s nonarbitrable PAGA claim. There
is thus no basis for the court to reasonably infer that the classwide
efforts McGuire claims constitute prejudice would have been
avoided, had the company moved earlier to compel, or that these
efforts would be wasted, were the trial court to grant the motion for
individual claim arbitration. Thus, as a matter of law, McGuire did
not carry his burden below.
The parties do not dispute that the PAGA claim is based
on the same alleged conduct and Labor Code violations as the
class claims. Thus, the merits of the PAGA claim and class claims
necessarily overlap. Accordingly, discovery and other efforts
McGuire identifies regarding the merits of the class claims are
relevant to the PAGA claim in any event.
The Matern declaration is the only evidence in the record
bearing on the extent to which the work McGuire performed on
classwide claims was work McGuire would need to perform in any
event in connection with the PAGA claim, given their overlapping
merits. But the Matern declaration speaks to the work performed
in litigation that would not have been necessary for McGuire to
arbitrate his individual claims. This does not address whether
or to what extent the work performed in litigation would have
been necessary for McGuire to litigate his PAGA claim. The vast
majority of the declaration does not distinguish between class and
PAGA claims. For example, immediately after stating that “my
office did not include [in legal fee estimates] time which [McGuire’s
26
counsel] would have spent to litigate the case regardless of the
matter being compelled to individual arbitration,” the Matern
declaration explains that “we only considered time spent after
[the company] filed its [a]nswer on April 17, 2018, as it is common
practice for a motion to compel arbitration to be filed in place of
an answer, and we therefore reasonably inferred that their time
was dedicated to class litigation from that point forward.” (Italics
added.) But “classwide litigation” was only part of what was before
the court after that point—the PAGA claim remained pending as
well.
The only portion of the declaration that addresses the extent
to which classwide litigation work would not also support McGuire’s
litigation of his PAGA claims is conjecture by the declarant.
Specifically, the declarant argues that, because the class claims
cover a time period three years longer than the PAGA claim,
they involved four times as much data and four times as many
employees as the PAGA claim (and correspondingly more work).
As a preliminary matter, the number of years surveyed does not
bear a linear relationship to the amount of discovery relevant to
the completely overlapping merits of the class and PAGA claims.
Moreover, the declaration’s conjecture in this regard is built on the
faulty assumption that a time period four times as long corresponds
to a group of employees four times as big. Yet an employee might
have been employed by the company both during the one-year
PAGA period and the remaining three years of the class period.
Although we recognize that there will be some turnover in
employees over the course of a four-year period, the one-to-one
correlation between time and number of employees the declaration
assumes would require that in each of the three years unique to
the putative class period, the company hired as many employees
27
as it had working for it during the year covered by the PAGA claim.
This is on its face speculative and, in any event, unsupported by
any evidence in the record.
In addition, the declaration ignores that all “aggrieved
employees” during the one-year PAGA period are necessarily
also putative class members (even though not all putative class
members are necessarily “aggrieved employees” for the purposes
of the PAGA claim). Thus, even if we were to accept the Matern
declaration’s conjecture that the class claims involve four times
as many employees as the PAGA claim, without additional
information about which employees were the subject of McGuire’s
legal, expert, and investigative efforts, we have no basis for
determining whether that work involved employees who are both
putative class members and “aggrieved employees” during the one-
year PAGA claim period. To the extent they are, such work would
serve both class claims and the PAGA claim. Similarly, without
information about which data McGuire analyzed, the fact that a
four-year period generates more data than a one-year period also is
not a basis for assuming McGuire performed more work than would
be required for his PAGA claim. Thus, the length of the putative
class period is not a basis from which the court could reasonably
infer what portion of McGuire’s work on class claims would not
also support his PAGA claim, because such an inference relies
on both the false premise that a longer period necessarily involves
more employees, and the unsubstantiated premise that the work
performed related to a time period beyond the PAGA period and/or
employees not covered by the PAGA period.
McGuire next argues that McGuire’s counsel analyzed class
certification issues in connection with mediation and in anticipation
of the class certification motion, and that these issues have no
28
bearing on a PAGA claim. But there exists no inherent or clear
dividing line between analysis of class certification issues and
analysis of the merits of an underlying class claim; often the merits
and class certification issues are significantly intertwined. (See,
e.g., Brinker Restaurant Corp. v. Superior Court (2012) 53 Cal.4th
1004, 1023 [“ ‘issues affecting the merits of a case may be enmeshed
with class action requirements’ ”]; see also Wal–Mart Stores, Inc. v.
Dukes (2011) 564 U.S. 338, 351 [analysis of a class certification
“[f]requently . . . will entail some overlap with the merits of the
plaintiff ’s underlying claim”].) In addition, some aspects of the
class certification process involve issues that must be litigated
to support the PAGA claim as well, such as the commonality
of the alleged violations to all aggrieved employees. (See, e.g.,
Amiri v. Cox Communications California, LLC (C.D.Cal. 2017)
272 F.Supp.3d 1187, 1194 [“some district courts strike PAGA
representative claims where establishing liability based on Labor
Code violations would be unmanageable due to the individualized
assessments required to prove violations based on the plaintiff ’s
allegations and the defendant’s evidence of the necessary
inquiries”].) McGuire has not provided evidence from which the
court could reasonably infer McGuire’s 14.7 hours of legal work
related to an anticipated motion for class certification did not
overlap with the merits issues common to the class and PAGA
claims to a sufficient extent to establish prejudice.
“ ‘[N]o waiver of the right to arbitrate can occur from
conducting discovery on non-arbitrable claims.’ ” (Rush v.
Oppenheimer & Co. (2d Cir. 1985) 779 F.2d 885, 889 [plaintiff
“unable to point to any specific discovery . . . that was not relevant
to the [nonarbitrable] . . . claims, [and] he [thus] cannot establish
that prejudice in the arbitration would result from that discovery”];
29
see Gloster, supra, 226 Cal.App.4th at p. 450.) The same is true
for legal fees and costs incurred working on nonarbitrable claims.
Because the record does not contain any basis on which the court
could have reasonably inferred that McGuire’s class-claim-related
discovery and efforts were irrelevant to his nonarbitrable PAGA
claim, he has failed to provide sufficient evidence to support a
finding that these efforts were a waste of time or resources, or that
the company obtained any discovery it otherwise could not have
obtained, absent its delay. Such classwide discovery and efforts
cannot, therefore, support a finding of prejudice.
3. The timing of classwide discovery
Of course, the company’s delay in moving to compel
arbitration may have affected when the parties exchanged
classwide discovery. Namely, had the company moved to compel
arbitration earlier, the PAGA claim potentially could have been
stayed, in which case McGuire would have engaged in PAGA-
related discovery after individual arbitration. By contrast, were
the court to permit individual arbitration to proceed at this point,
McGuire would have provided this discovery before individual
arbitration. Such a change in timing could support a finding of
prejudice if the discovery McGuire provided revealed strategic
information regarding McGuire’s individual claims, such that it
would prejudice McGuire in individual arbitration to have revealed
the information in advance. (See Guess, supra, 79 Cal.App.4th
at p. 558 [finding waiver where, “[t]hrough its use of the discovery
process,” the party opposing arbitration “disclosed at least some
of its trial tactics”]; see Groom, supra, 82 Cal.App.4th at p. 1196
[discussing cases in which a party “by engaging in discovery,
the defendant learned all the details of the plaintiff ’s case before
demanding arbitration” causing sufficient prejudice to support
30
waiver] (italics omitted.) Neither the court’s factual findings, nor
the record, support that this is the case. Nor does McGuire’s
briefing explain how the classwide discovery would have telescoped
trial strategy relevant to arbitration of plaintiff ’s individual claims.
In any case, to the extent such discovery was relevant to McGuire’s
individual claims, the company could have obtained the same
information via the broad discovery provision in the arbitration
agreement. Nor could this change in timing prejudice McGuire in
the eventual PAGA litigation, as in either scenario, McGuire would
have had to provide PAGA-related discovery before trial on the
PAGA claim.7
We therefore conclude that the court’s factual findings and
the record more broadly are insufficient as a matter of law to
establish waiver. We reverse the trial court’s order to the extent it
denies the company’s request to compel McGuire’s individual claims
to arbitration.
7 As McGuire’s counsel suggested during oral argument
before this court, it is possible that McGuire’s mediation brief
revealed McGuire’s trial tactics for PAGA litigation that the
company could not have obtained through normal discovery, and
thus that the company could not have learned before trial, absent
the company’s delay in seeking arbitration. But the record does not
indicate whether the parties exchanged mediation briefs before or
after the company put McGuire on notice of its intent to compel
arbitration approximately a month before the mediation took place.
If McGuire chose to provide the company such a brief after learning
of the company’s plan to seek arbitration—instead of, for example,
offering a confidential brief to the mediator, or canceling the
mediation altogether—he cannot blame this choice on the
company’s delay in seeking arbitration. The record thus does not
contain sufficient information to support the argument that the
mediation brief facilitated a prejudicial disclosure of trial tactics.
31
The court below has not yet had occasion to consider the other
request presented by the company’s motion: that the court stay
“the remainder of this case, including [McGuire’s] PAGA claim.”
We express no opinion as to the proper disposition of this request,
and instead instruct the trial court, upon remand, to issue a new
order addressing it.
DISPOSITION
The court’s order denying the company’s motion to compel
arbitration is reversed. Upon remand, the court shall issue a new
order granting arbitration of McGuire’s individual claims and
ruling on the company’s request for a stay of all other claims. The
parties shall bear their own costs on appeal.
NOT TO BE PUBLISHED.
ROTHSCHILD, P. J.
We concur:
BENDIX, J.
FEDERMAN, J.*
*Judge of the San Luis Obispo County Superior Court,
assigned by the Chief Justice pursuant to article VI, section 6 of
the California Constitution.
32