DocketNumber: Case No. 16-cv-01540-JSC
Citation Numbers: 336 F. Supp. 3d 1119
Judges: Corley
Filed Date: 8/21/2018
Status: Precedential
Modified Date: 7/25/2022
Plaintiff Ravi Whitworth brought this putative class and collective action against his former employer Defendant SolarCity Corporation. Plaintiff later amended his complaint to include the claims of four additional named Plaintiffs. (Dkt. No. 68.) The Court denied SolarCity's motion to compel arbitration given the Ninth Circuit's decision in Morris v. Ernst & Young ,
The parties have submitted supplemental briefing regarding the motion to compel arbitration following Epic . Having reviewed the parties' original and supplemental briefs, and having had the benefit of oral argument on August 9, 2018, the Court DENIES the motion to compel arbitration of Plaintiffs Whitworth, Carranza, and Frias's PAGA claims, but GRANTS the motion to compel arbitration of their individual claims and GRANTS the motion to compel as to Plaintiffs Farrohki and Whitford's individual claims. The Court also GRANTS SolarCity's motion to stay proceedings pending arbitration.
DISCUSSION
Following the Supreme Court's decision in Epic , the Court held a Status Conference to discuss how to proceed in this action. (Dkt. No. 114.) As a threshold matter, the parties agree that three of the five Plaintiffs-Whitworth, Carranza, and Frias-have valid arbitration agreements and that these agreements contain representative action waivers which preclude them from pursuing representative actions. The parties also agree that Plaintiffs Whitworth, Carranza, and Frias cannot bring class claims and that their individual non-PAGA claims must be arbitrated. The parties cannot agree, however, about whether *1122Plaintiffs Farrohki and Whitford have valid arbitration agreements or how the Court should handle Plaintiffs Whitworth, Carranza, and Frias's PAGA claims.
The Court thus directed the parties to provide supplemental briefing regarding three issues. (Dkt. No. 116.) First, whether Epic overruled Sakkab v. Luxottica Retail N. Am., Inc. ,
A. Plaintiffs Whitworth, Carranza, and Frias's PAGA Claims
There are two issues with respect to Plaintiffs Whitworth, Carranza, and Frias's PAGA claims. First, whether Epic overruled Sakkab such that Plaintiffs must now arbitrate their PAGA claims with their other claims. Second, whether Plaintiffs' PAGA claims based on violations of Labor Code section 558 must be arbitrated even if their other PAGA claims cannot be compelled to arbitration.
1) Epic did not overrule Sakkab
As a general rule, "circuit precedent, authoritative at the time that it issued, can be effectively overruled by subsequent Supreme Court decisions that are closely on point, even though those decisions do not expressly overrule the prior circuit precedent." Miller v. Gammie ,
The Supreme Court [in Epic ] thus emphatically held that a rule attacking a contract for requiring individualized arbitration-even when based on a general contract defense of illegality-cannot be preserved by the FAA's saving clause if that rule does not "render any contract enforceable," but only renders arbitration agreements unenforceable."
(Dkt. No. 122 at 10.
Accepting SolarCity's characterization of Epic , it is still not clearly irreconcilable with Sakkab . Sakkab applied the same interpretation *1123of the savings clause as articulated by SolarCity: the court held that the FAA's savings clause "requires that a state contract defense place arbitration agreements on equal footing with the non-arbitration agreements."
In sum, Sakkab is not clearly irreconcilable with Epic ; rather, there remains a "meaningful basis for the [ Sakkab ] rule." Morton v. De Oliveira ,
2) Plaintiffs' Section 558 Claims are Not Subject to Arbitration
SolarCity next insists that even if the Court is not persuaded that Epic implicitly overruled Sakkab , the Court should nonetheless compel arbitration of the PAGA claims to the extent that the claims are predicated on California Labor Code section 558. SolarCity's argument is based on an unpublished Ninth Circuit Court of Appeals decision favoring one of two diverging California Court of Appeals cases on this question. See Mandviwala v. Five Star Quality Care, Inc. ,
Labor Code section 558(a) provides that:
(a) Any employer or other person acting on behalf of an employer who violates, or causes to be violated, a section of this chapter or any provision regulating hours and days of work in any order of the Industrial Welfare Commission shall be subject to a civil penalty as follows:
(1) For any initial violation, fifty dollars ($50) for each underpaid employee for each pay period for which the employee was underpaid in addition to an amount sufficient to recover underpaid wages.
*1124(2) For each subsequent violation, one hundred dollars ($100) for each underpaid employee for each pay period for which the employee was underpaid in addition to an amount sufficient to recover underpaid wages.
(3) Wages recovered pursuant to this section shall be paid to the affected employee.
The Esparza court held when a plaintiff seeks to recover lost wages under Labor Code section 558(a) through a PAGA claim, the Iskanian rule does not apply because such wage claims are private disputes arising out of the employment contract with the employer, and therefore subject to arbitration. Esparza ,
In Lawson , in contrast, the court held that the unpaid wage portion of a section 558(a) PAGA claim is part of the civil penalty and therefore Iskanian applies; the trial court thus had erred by bifurcating the unpaid wages portion of the plaintiff's section 538(a) claim and ordering arbitration of that portion of the 558(a) claim.
Mandviwala concluded-without analysis-that Esparza was "more consistent with the ruling of Iskanian [because] Esparza specifically distinguished between individual claims for compensatory damages (such as unpaid wages) and PAGA claims for civil penalties, which is more consistent with Iskanian and reduces the likelihood that Iskanian will create FAA preemption issues." Mandviwala ,
This Court respectfully disagrees and concludes that the California Supreme Court is most likely to follow Lawson for several reasons. First, Esparza's conclusion that a claim under section 558"is a *1125private dispute because, among other things, it could be pursued by Employee in his own right,"
Second, Esparza's cursory treatment of the appellate court's prior decision in Thurman ,
[w]hile we agree Thurman was decided before Iskanian , and that in Thurman we had no occasion to address the preemption issues discussed in Iskanian , those circumstances in no sense undermine the continuing validity of our holding in Thurman , to wit: in enacting section 558, the Legislature intended the underpaid wages recoverable under the statute, as well as the $50 and $100 assessments provided by the statute, be treated as civil penalties and that as civil penalties, neither type of recovery is severable for purposes of applying the PAGA.
Lawson ,
Third, Esparza's heavy reliance on the fact that the unpaid wage portion of the section 558(a) penalty is paid to the employee rather than the state is also not persuasive. Lawson also noted that Iskanian focused on the fact that the penalties it was considering were "largely" payable to the state.
Moreover, while both Esparaza and Lawson assume without analysis that in a PAGA action the unpaid wages portion of the section 558(a) civil penalty will go entirely to the aggrieved employees, this Court is not so certain. The PAGA was enacted after section 558, and provides that 75 percent of the civil penalties recovered by an aggrieved employee are allocated to the state. If the entire section 558 recovery is considered the penalty, including the unpaid wages portion, then pursuant to a PAGA claim 75 percent of that penalty, including 75 percent of the unpaid wages, are allocated to the state. To put it another way, when the State enforces section 558, the $50 or $100 per violation portion of the penalty goes to the state, and all of the unpaid wages portion goes to the aggrieved employees. On the other hand, when an employee brings a PAGA claim based on a section 558 violation, 75 percent of the penalty goes to the state and 25 percent to the employee, including 25 percent of the portion that in a state-enforcement action would go entirely to the state. This possible construction of PAGA and section 558 is another reason Esparza is not persuasive.
The Court thus concludes that the California Supreme Court is most likely to follow Lawson which is most consistent with the language and history of section 558(a) and Iskanian .
* * *
The Court therefore denies SolarCity's motion to compel arbitration of Plaintiffs Whitworth, Carranza, and Frias's PAGA claims.
B. Plaintiffs Farrohki and Whitford Must Arbitrate Their Claims
Plaintiffs Farrohki and Whitford were added as Plaintiffs in the First Amended Complaint pleading wage and hour claims under the Fair Labor Standards Act and California Labor Code §§ 510 and 1194, as well as a claim under California Business & Professions Code § 17200 et seq. (Dkt. No. 68.) SolarCity moved to compel arbitration of these claims based on arbitration agreements signed by Farrohki and Whitford at the start of their employment with SolarCity. (Dkt. Nos. 71; 71-5 at 8 (Farrohki's Arbitration Agreement); 71-5 at 33 (Whitford's Arbitration Agreement).) In response to the motion to compel, Plaintiffs Farrohki and Whitford argued that their arbitration agreements are invalid due to the presence of an unlawful PAGA waiver. The Court declined to reach this issue because it denied the motion to compel arbitration based on Morris . In doing so, the Court suggested that it also had concerns regarding Farrohki and Whitford's standing to raise this challenge since they have not pled PAGA claims. In light of Epic , the Court must now decide whether it must compel Farrohki and Whitford to arbitrate their claims.
1. Issue Preclusion Does not bar SolarCity From Enforcing the Arbitration Agreements
Plaintiffs Farrohki and Whitford bring wage and hour claims on behalf of *1127themselves and a putative class; they do not bring any PAGA claims. There is no dispute that they each signed employment agreements that require them to arbitrate their individual claims. (Dkt. No. 71-5 at 12, 37.) The arbitration agreements also waive their ability to bring the claims on behalf of a putative class or through a collective action. In particular, the waiver language of their arbitration agreements states:
"In arbitration, the parties will have the right to conduct civil discovery, bring motions, and present witnesses and evidence as provided by the forum state's procedural rules applicable to court litigation as interpreted and applied by the arbitrator. However, there will be no right or authority for any dispute to be brought, heard or arbitrated as a class or collective action ("Class Action Waiver"), or in a representative or private attorney general capacity on behalf of a class of persons or the general public. Notwithstanding any other clause contained in this Agreement, the preceding sentence shall not be severable from this Agreement in any case in which the dispute to be arbitrated is brought as a class or collective action, or in a representative or private attorney general capacity on behalf of a class of persons or the general public."
(Dkt. No. 71-5 at 12-13, 39-40 ¶ 12(d) (emphasis added.) After Epic , these arbitration provisions, including the class action waiver, are enforceable. Epic Sys. Corp. v. Lewis , --- U.S. ----,
Issue preclusion "prohibits the relitigation of issues argued and decided in a previous case, even if the second suit raises different causes of action." DKN Holdings LLC v. Faerber ,
In Wan , the plaintiff brought a PAGA claim against his former employer SolarCity following Iskanian . SolarCity unsuccessfully moved to compel arbitration of the plaintiff's status as an aggrieved employee for purposes of his PAGA claim. Wan ,
"Notwithstanding any other clause contained in this Agreement, the preceding sentence shall not be severable from this Agreement in any case in which the dispute to be arbitrated is brought as a class action or collective action, or in a representative or private attorney general capacity on behalf of a class of persons or the general public."
Id. at *11. Because the plaintiff brought his case as a private attorney general action, the non-severability clause applied. The court therefore concluded: "the arbitration agreement contains an invalid PAGA waiver under Iskanian , and that because the waiver is not severable, the entire arbitration agreement is unenforceable." Id. at *12.
In Altman , the plaintiff brought wage and hour claims as a class action and also a representative PAGA action.
Issue preclusion does not compel this Court to hold that Farrohki and Whitford's arbitration agreements are likewise unenforceable in their entirety. The holdings in Wan and Altman turned on the non-severability of the invalid PAGA waiver. The issue actually litigated and necessarily decided was whether the invalid PAGA waiver was not severable and therefore the arbitration agreement in its entirety unenforceable when the plaintiff brings a PAGA claim; these cases did not address whether the invalid PAGA waiver is not severable under these agreements when the plaintiff does not bring a PAGA claim. Thus, Wan and Altman did not decide the issue presented here: whether the PAGA waiver is not severable, and the entire arbitration agreement unenforceable, when the plaintiff does not bring a PAGA claim. To put it another way, Wan and Altman did not involve the identical factual issues as here because there the plaintiffs brought PAGA claims and here they do not. See Lucido v. Super. Ct. ,
Plaintiffs' insistence that Wan and Altman held that the arbitration agreements are "void from the beginning" is not supported by the reasoning of those cases. After the courts determined that the arbitration agreements included an unenforceable PAGA waiver, they went on to analyze *1129whether the waiver was severable. They held the waiver was not severable because the plain language of the non-severability clause applied; namely, the PAGA waiver was not severable because the plaintiffs sought to bring their actions as private attorney generals. Wan ,
2. The Invalid PAGA Waiver is Severable
Having concluded that issue preclusion does not require a finding of unenforceability, the Court must still address the effect of the presence of the invalid PAGA waiver. The Court previously raised a concern as to whether Farrohki and Whitford have standing to challenge the enforceability of the arbitration agreement based on the invalid PAGA waiver given that they do not bring PAGA claims. And indeed, in similar circumstances, some courts have held that they do not. See, e.g., Gerton v. Fortiss, LLC , No. 15-CV-04805-TEH,
In any event, assuming, without deciding, that Farrohki and Whitford can argue that the arbitration agreement in its entirety is unenforceable because it contains a PAGA waiver that does not apply to their claims, the Court concludes that the invalid PAGA waiver is severable. "Where a contract has several distinct objects, of which one at least is lawful, and one at least is unlawful, in whole or in part, the contract is void as to the latter and valid as to the rest."
Farrohki and Whitford do not argue, and the Court does not find, that the central purpose of the parties' arbitration agreement is tainted with illegality; indeed, with the exception of the PAGA waiver, Plaintiffs do not contend that any other provision is invalid. Further, the single invalid provision-the PAGA waiver-has no applicability to Farrohki and Whitford's case given that they do not bring any PAGA claims. Thus, the PAGA waiver *1130should be severed and the remainder of the agreement enforced.
Farrohki and Whitford nonetheless appear to assert that the Court cannot sever the PAGA waiver under the plain language of the arbitration agreements. In particular, because the agreements state that the class, collective and PAGA waiver "shall not be severable from this Agreement in any case in which the dispute to be arbitrated is brought as a class or collective action, or in a representative or private attorney general capacity on behalf of a class of persons or the general public," and Farrohki and Whitford bring their wage and hour claims as a class and collective action, the PAGA claims are not severable. The Court does not agree.
The agreements' requirement that Farrohki and Whitford arbitrate their individual claims and waive any class and collective claims is valid following Epic . It makes no sense to read the arbitration agreements as precluding the severability of the PAGA waiver because, in violation of their arbitration agreements, Farrohki and Whitford nonetheless filed suit in federal court and asserted claims on behalf of a class. To put it another way, the PAGA waiver is severable if no PAGA claim is brought. To hold otherwise would violate the "liberal federal policy favoring arbitration." AT&T Mobility v. Concepcion ,
Accordingly, to the extent Plaintiffs have standing to challenge the invalid PAGA waiver, the Court severs the PAGA waiver and grants SolarCity's motion to compel arbitration of Farrohki and Whitford's claims.
C. A Stay Pending Arbitration is Appropriate
Having concluded that Plaintiffs Whitworth, Carranza, and Frias's PAGA claims are not subject to arbitration, the question is whether these claims should proceed in this Court while the arbitration proceeds on all of Plaintiffs' individual claims or whether the claims should be stayed. SolarCity insists that the claims should be stayed and Plaintiffs oppose any such stay.
Pursuant to
While the PAGA claims are not identical to the claims compelled to arbitration (overtime, minimum wage, rest period, wages on termination, wage statements, indemnification, and unfair business practices claims), the factual allegations underlying the claims are the same. Further, *1131"Plaintiffs['] PAGA claims are derivative in nature of [their] substantive claims that will proceed to arbitration, and the outcome of the nonarbitrable PAGA claims will depend upon the arbitrator's decision." Shepardson v. Adecco USA, Inc. , No. 15-CV-05102-EMC,
CONCLUSION
For the reasons stated above, SolarCity's motion to compel arbitration is GRANTED IN PART AND DENIED IN PART: it is DENIED as to Plaintiffs Whitworth, Carranza, and Frias's PAGA claims; and it is GRANTED as to Plaintiffs Whitworth, Carranza, and Frias's non-PAGA claims and all of Plaintiffs Farrohki and Whitford's claims.
SolarCity's motion for a stay pending arbitration is GRANTED.
IT IS SO ORDERED.
While the Court understood this to be the issue following the Case Management Conference, the parties' briefing indicates that the real issue is whether the Court should stay Plaintiffs' PAGA claims pending arbitration or whether those should proceed in this Court.
Record citations are to material in the Electronic Case File ("ECF"); pinpoint citations are to the ECF-generated page numbers at the top of the documents.
When an employee recovers civil penalties under PAGA, 75 percent is allocated to the Labor and Workforce Development Agency and the remaining 25 percent is allocated to the aggrieved employees. See
At oral argument, SolarCity conceded that the agreements are identical in all material respects.
Although Wan and Altman are unpublished California appellate court decisions, the Court is not precluded from citing them or relying on them for estoppel purposes. California Rule of Court 8.1115(b)(1), which governs citation of unpublished decisions, provides an exception for cases where "the opinion is relevant under the doctrines of law of the case, res judicata, or collateral estoppel."