Allen v. Labor Ready Southwest
Filed 5/13/13 Allen v. Labor Ready Southwest CA2/5
Reposted to provide correct date and correct version
California Rules of Court, rule 8.1115(a), prohibits courts
and parties from citing or relying on opinions not certified for publication or
ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for
publication or ordered published for purposes of rule 8.1115
IN
THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND
APPELLATE DISTRICT
DIVISION
FIVE
JEFFREY LEE ALLEN,
Plaintiff and Appellant,
v.
LABOR READY SOUTHWEST, INC.,
Defendant and Appellant.
B237673
(Los Angeles
County
Super. Ct.
No. BC412475)
APPEAL from
an order of the Superior Court
of
County, Ronald M. Sohigian, Judge. Reversed.
Thierman
Law Firm, P.C., Mark R. Thierman and Jason J. Kuller; Law Offices of Shaun
Setareh and Shaun Setareh; and Law Offices of Louis Benowitz and Louis Benowitz
for Plaintiff and Appellant.
Thompson
& Knight LLP, formerly Ongaro Burtt & Louderback, David R. Ongaro,
Kyann C. Kalin and Amelia D. Winchester for Defendant and Appellant.
I. INTRODUCTION
Defendant, Labor Ready Southwest, Inc., appeals and
plaintiff, Jeffrey L. Allen, cross-appeals from an order compelling
arbitration of alleged Labor Code violations.
The trial court also severed from arbitration plaintiff’s request for
relief under the Private Attorneys General Act of 2004 (Lab. Code,
pursuant to this division’s opinion in Brown
v. Ralphs Grocery Co. (2011) 197 Cal.App.4th 489, 502 (review den. Oct. 19, 2011; cert den.
1910]). Plaintiff’s cross-appeal asserts
the arbitration agreement was
unconscionable under general contract principles or that defendant waived the
right to compel arbitration. We reverse
the order compelling arbitration because defendant waived the right to compel
arbitration as a matter of law.
Defendant’s appeal is therefore moot.
II. PROCEDURAL HISTORY
A. The Complaint
On April 30, 2009, plaintiff filed a class,
representative and Private Attorneys General Act action against defendant. The complaint alleged that defendant has
approximately 600,000 temporary employees who work in various fields throughout
the United States,
Canada, and Puerto
Rico. Defendant is a State
of Washington corporation with 25
California locations. Plaintiff alleged that he and other of
defendant’s similarly situated employees were paid: on an hourly basis and worked more than 40
hours a week and more than 8 hours a day without overtime compensation in
violation of California law (§§ 510, 1194) and the Fair Labor Standards
Act (29 U.S.C. §§206(a), 207(a)(1)); wages due with a check that
failed to conform to section 212; and then were required to pay money to
defendant to receive their pay in cash; and with form checks which did not
contain a California address making it difficult to negotiate the pay checks
without a fee or hold placed on the check.
Plaintiff
further alleged that defendant had a practice of making the employees report to
the branch offices and wait up to several hours to be assigned to work at a
company. If the employees received
assignments, they were required to return to work on a daily basis to perform
work including returning time sheets signed by the businesses for defendant’s
billing purposes. The employees were not
compensated for the time spent at the premises waiting to be assigned or time
returning to the branches. The payment
options were unlawful because the employees did not receive checks containing a
state address to cash on demand without a discount. If the employees chose to receive a cash
payment, they are charged fees of $1.30 to $1.70 for each employment date. The complaint further alleged that as a
result of these practices employees who quit or were discharged were not paid
all wages due. The complaint contained
11 causes of action: failure to pay
overtime (§§ 510, 1194) (first); failure to pay overtime (29 U.S.C. § 207(a)(1)
(second); issuance of out of state paychecks (§ 212) (third); waiting time
penalties for failing to pay wages due (§§ 201, 202) (fourth); failure to
provide an accurate itemized wage statement (§226) (fifth) , failure to pay
minimum wages (§ 1194) (sixth); failure to pay minimum wage
(29 U.S.C. §206(a)) (seventh); illegal deductions (§§ 221,
400-410) (eighth); secretly paying below minimum wage scale (§ 223)
(ninth); unfair competition (Bus. & Prof. Code, § 17200 et seq.)
(tenth); and civil penalties under the Private Attorneys General Act (§ 2699
et seq.) (eleventh).
B. Federal Proceedings and Remand to State Court
On June 15, 2009, defendant removed the
lawsuit to the United States District Court for the Central District of
California, Jeffrey Lee Allen etc. et al.
v. Labor Ready Southwest, Inc., Case No. CV09-04266MRP. On February
16, 2010, the federal court denied plaintiff’s class certification
motion without prejudice. On December 15, 2010, the federal court
entered a final judgment granting in part and denying in part defendant’s
summary judgment motion. The federal
final judgment also dismissed remaining state claims for lack of
jurisdiction. On March 9, 2011, the federal court entered an
amended judgment which granted summary judgment on the first, second, fifth,
seventh and ninth causes of action for wait and travel time claims. The federal court also granted summary
judgment on allegations in the third cause of action that the paychecks violate
section 212 because they had an out-of-state address. The federal court denied summary judgment on
payment claims based on the issuance of wages in the form of vouchers as to the
third, fourth, sixth, eighth, tenth and eleventh causes of action. Because the wait and travel time claims were
the only federal claims, the federal court declined to exercise its jurisdiction
over the remaining state law claims. The
amended judgment ordered the matter remanded to state court for further
proceedings on the remaining claims.
However, the federal court certified for immediate appeal the wait and
travel claims pursuant to Federal Rules of Civil Procedure section 54(b). Plaintiff’s appeal in the United States Court
of Appeals for the Ninth Circuit is currently pending in Jeffrey Lee Allen v. Labor Ready Southwest, Inc., case No.
11-55584.
C. Remand to State Court
On June 6, 2011, after the matter was
remanded to state court, plaintiff filed a peremptory challenge pursuant to
Code of Civil Procedure section 170.6 to the Honorable Ramona See. On August
1, 2011, the matter was reassigned to the Honorable Ronald M.
Sohigian.
On September 28, 2011, defendant moved
to compel arbitration on the grounds:
plaintiff executed a valid arbitration agreement enforceable under the
Federal Arbitration Act (9 U.S.C. § 1 et seq.); and the
arbitration agreement had a valid and enforcement class action waiver and any
claims to the contrary were preempted by federal law.
The
employment application contained the following arbitration and class action
waiver provisions: “I agree that any
disputes arising out of my application for employment or employment that I
believe I have against [defendant] or its agents or representatives, including,
but not limited to, any claims related to wage and hour laws, discrimination,
harassment or wrongful termination, and all other employment related issues
(excepting only actions arising under the [National Labor Relations Act
(29 U.S.C. §151 et seq.)] will be resolved by final and binding
arbitration under the Federal Arbitration Act.
Except where prohibited by law I agree to bring any disputes I may have
as an individual and I waive any right to bring or join a class, collective or
representative action. I acknowledge
that my dispute will be decided by a neutral arbitrator and not by a judge or
jury. The arbitration shall be conducted
by the American Arbitration Association under its Employment Arbitration
Rules. The decision of the arbitrator
shall be final and binding. I understand
that [defendant] also agrees to arbitrate in the same manner any claims which
the company believes it has against me and [defendant] will pay for the
arbitrator’s fees where required by law.â€
Defendant
asserted the arbitration and class waiver provisions were enforceable as the
parties agreed under the Federal Arbitration Act. The class action waiver provision was
enforceable under standards set forth in AT&T
Mobility LLC v. Concepcion (2011) __ U.S. __ [131 S. Ct. 1740, 1753]
(hereafter Concepcion). In anticipation of an argument by plaintiff,
defendant claimed it had not waived the right to compel arbitration. This was because the Concepcion decision changed California law by overruling
36 Cal.4th 148, 162. And, plaintiff was
not prejudiced by the timing of the motion to compel arbitration. Defendant only conducted one deposition and
served limited discovery requests.
Plaintiff delayed seeking class certification in federal court after it
was initially denied.
Plaintiff’s
opposition argued the motion was belated because defendant waited over two
years to assert the right to compel arbitration. The arbitration agreement specifically
allowed concerted activity because it excluded claims arising under the
National Labor Relations Act. The
arbitration agreement was unconscionable and unenforceable. The agreement was procedurally unconscionable
because it required employees to waive their right to judicial forums as a
condition of employment. The applicable
arbitration rules were not attached to the agreement, incorporated or provided
to employees. The terms and conditions
are substantively unconscionable, effectively precluding plaintiff from filing
employment related claims with state and federal administrative agencies. It also prohibits plaintiff from seeking public
injunctive relief under the Private Attorneys General Act and the Unfair
Competition Law. The passage of two
years had resulted in a waiver of the right to compel arbitration. Plaintiff cited evidence: defendant had removed the case to federal
court; the parties had conducted significant discovery; the parties had
litigated the class certification issue; there had been two mediations costing
plaintiff nearly $10,000; and defendant obtained a partial summary judgment
which was currently being appealed before the Ninth Circuit.
In reply,
defendant argued plaintiff failed to establish waiver or address the change in
law issue, which was created by the United State’s Supreme Court’s decision in
Labor Relations Act. The agreement was neither
procedurally nor substantively unconscionable.
The trial
court granted the petition to compel arbitration and denied it in part. Citing Brown
v. Superior Court, supra, 197
Cal.App.4th at page 502, the trial court severed the claim under the Private
Attorneys General Act. Defendant filed a
timely notice of appeal from the order partially denying an order to compel
arbitration. Plaintiff filed a timely
cross-appeal from the order compelling arbitration.
III. DISCUSSION
A. The Appeal
Defendant argues the trial court erred in concluding the
Private Attorneys General Act claim is not preempted by the Federal Arbitration
Act. We need not reach this issue in
light of our conclusion below that defendant Labor Ready Southwest, Inc. waived
its right to arbitrate any claims in the present case. Defendant’s appeal is therefore moot.
B. The Cross-Appeal
federal and state laws have strong public policies favoring arbitration as a
speedy and relatively inexpensive means to resolve disputes. (Concepcion,
supra, [131 S. Ct. at pp. 1744-1745];
St. Agnes Medical Center v.
PacifiCare of California (2003) 31 Cal.4th 1187, 1204.) Code of Civil Procedure section 1281.2 allows
a party asserting there is a written agreement to arbitrate a controversy to
petition the trial court to compel arbitration.
Code of Civil Procedure section 1281.2 requires the trial court to
compel arbitration upon determination of a written agreement to arbitrate a
controversy exists. However, under
federal and state law, arbitration agreements are subject to statutory
exceptions for waiver, revocation, and a pending action. (9 U.S.C. § 2; (Code Civ. Proc.,
§ 1281.2, subd. (a)-(c).) Before a
party may be compelled to arbitrate a claim, the petitioning party has the burden
of proving the existence of a valid arbitration agreement and the dispute is
covered by the agreement. (
Inc. (1997) 15 Cal.4th 951, 972; Rosenthal
v. Great Western Financial Securities
Corp. (1996) 14 Cal.4th 394, 413-414.)
If petitioner meets its burden, the respondent has to prove by a
preponderance of the evidence any defense to the petition. (Engalla
v. Permanente Medical Group, Inc., supra,
15 Cal.4th at p. 972; Rosenthal v.
supra, 14 Cal.4th at p. 413.)
In the
cross-appeal, plaintiff asserts the trial court should have concluded the
arbitration provision was unenforceable because: defendant waived the right to compel
arbitration; the action arose under the National Labor Relations Act; and the
clause is unconscionable as a matter of law.
We conclude the trial court erred in its waiver determination as a
matter of law. Thus, we do not resolve
plaintiff’s other claims as to why the arbitration agreement was unenforceable.
It should
be noted that waiver of the right to arbitrate is not lightly inferred because
of federal and state law favoring arbitration provisions. (St. Agnes Med. Ctr. v. PacifiCare of
California, supra, 31 Cal.4th at p. 1195; Christensen v. Dewor
Developments (1983) 33 Cal.3d 778, 782.)
Thus, a waiver claim under California law requires strict judicial
scrutiny to determine whether the party asserting waiver has carried its burden
of proof. (St. Agnes Med. Ctr. v.
PacifiCare of California, supra, 31 Cal.4th at p. 1195; Christensen v.
Dewor Developments, supra, 33 Cal.3d at p. 782; Doers v. Golden Gate
Bridge etc. Dist. (1979) 23 Cal.3d 180, 189.) Because a waiver determination is generally a
factual question, the trial court’s finding must be upheld when it is supported
by substantial evidence. (St. Agnes Med. Ctr. v. PacifiCare of
California, supra, 31 Cal.4th at p. 1196; Engalla v. Permanente Medical Group, Inc., supra, 15 Cal.4th at p.
983.) However, when the facts are
undisputed and the only issues are legal, the appellate court is not bound by
the trial court’s ruling. (St. Agnes
Med. Ctr. v. Pacificare of California, supra, 31 Cal.4th at p. 1196; Platt
Pacific, Inc. v. Andelson (1993) 6
Cal.4th 307, 319.)
Our Supreme
Court has set forth the following multi-factor standard for determining whether
a party has waived the right to compel arbitration: “‘In determining waiver, a court can consider
“(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.â€â€™â€ (St. Agnes Med. Ctr. v. PacifiCare of
California, supra, 31 Cal.4th at
p. 1196, quoting Sobremonte v. Superior
Court (1998) 61 Cal.App.4th 980, 992; accord Wagner Construction Co. v. Pacific Mechanical Corp. (2007) 41
Cal.4th 19, 30–31.)
Here, the
trial court found defendant had not waived the right to compel arbitration
because doing so prior to the United State Court’s decision in
that defendant could not have waived its right to arbitrate because it was not
enforceable before Concepcion was
decided. This is because generally a
party does not act inconsistently with the right to compel arbitration if the
agreement is not enforceable under existing law. (See Letizia
v. Prudential Bache Securities, Inc. (9th Cir. 1986) 802 F.2d 1185, 1187;
Cir. 1986) 791 F.2d 691, 697; compare Roberts
v. El Cajon Motors, Inc. (2011) 200 Cal.App.4th 832, 846 & fn.
10.) Plaintiff counters that application
of the St. Agnes factors compels the
conclusion that defendant waived its right to compel arbitration
notwithstanding Concepcion. For the reasons stated below, we agree with
plaintiff that a waiver was established based on the undisputed evidence.
First, we
assume defendant is correct that it did not act inconsistently with seeking to
compel arbitration until Concepcion
was decided on April 27, 2011. But,
defendant then waited until September 28, 2011, five months after
motion to compel arbitration. No
explanation was offered as to why defendant did not immediately seek to compel
arbitration upon its return to a state judicial forum knowing the law had
changed in its favor. As our Supreme
Court explained in St. Agnes Med. Ctr. v. PacifiCare of California, supra,
31 Cal.4th at page 1195, at footnote 4: “[T]he term ‘waiver’ has a number of
meanings in statute and case law.
[Citation.] While ‘waiver’
generally denotes the voluntary relinquishment of a known right, it can also
refer to the loss of a right as a result of a party’s failure to perform an act
it is required to perform, regardless of the party’s intent to relinquish the
right. [Citations.] In the arbitration context, ‘[t]he term
“waiver†has also been used as a shorthand statement for the conclusion that a
contractual right to arbitration has been lost.’ [Citation.]â€
Under the circumstances a five-month delay between the favorable change
in law and the time the motion was filed was not consistent with enforcing its
arbitration rights.
Second, the
“litigation machinery†has been more than substantially invoked as the parties
were well into preparing for the lawsuit when defendant sought
arbitration. While the matter was
pending in federal court, plaintiff filed and defendant successfully defended
against plaintiff’s class certification motion.
Moreover, defendant subsequently sought and obtained a partial summary
judgment against plaintiff on the merits of the federal and state law
claims. The partial summary judgment
resolved the merits of the first, second, fifth, seventh and ninth causes of
action for wait and travel time claims against plaintiff. The federal court entered a final judgment
granting the partial summary judgment and removing the remaining claims to state
court on March 9, 2011. Plaintiff’s appeal
from the partial summary judgment is currently pending in the Ninth
Circuit. Thus, the litigation machinery
has been invoked in a substantial manner.
The third
factor, delay, was established because even after Concepcion was decided on April 27, 2011, defendant waited five
months to file the motion to compel arbitration on September 28, 2011. This was six months after the matter had been
remanded from one judicial forum (federal) to another judicial forum (state). The fourth factor of a counterclaim was not
established. But, the fifth factor,
important intervening steps, definitely is present because defendant was able
to obtain a final judgment against plaintiff on several of his federal claims
as well as a state law claim.
As a result
of the final federal judgment, the sixth factor of prejudice was
established. Our Supreme Court
explained: “Because merely participating
in litigation, by itself, does not result in a waiver, courts will not find
prejudice where the party opposing arbitration shows only that it incurred
court costs and legal expenses.
[Citations.] [¶] Rather, courts assess prejudice with the
recognition that California’s arbitration statutes reflect ‘“a strong public
policy in favor of arbitration as a speedy and relatively inexpensive means of
dispute resolutionâ€â€™ and are intended ‘“to encourage persons who wish to avoid
delays incident to a civil action to obtain an adjustment of their differences
by a tribunal of their own choosing.â€â€™
[Citation.] Prejudice typically
is found only where the petitioning party’s conduct has substantially
undermined this important public policy or substantially impaired the other
side’s ability to take advantage of the benefits and efficiencies of
arbitration.†(St. Agnes Medical Center v. PacifiCare of California,
pp. 1203-1204.)
Although
mere participation in litigation does not establish waiver and prejudice,
judicial litigation of the merits of arbitrable issues does. (Keating
v. Superior Court (1982) 31 Cal.3d 584, 605-606, overruled on different
grounds in Southland Corp. v. Keating
(1984) 465 U.S. 1, 3; see also Kalai v.
Gray (2003) 109 Cal.App.4th 768, 775-776; Groom v. Health Net (2000) 82 Cal.App.4th 1189, 1194.) Waiver may be established by litigation of the
merits of a controversy which would be arbitrable under the arbitration
provision. (Doers v. Golden Gate Bridge etc. Dist., supra, 23 Cal.3d at pp.
186-187; Local 659, IA.T.S.E. v. Color
Corp. Amer. (1956) 47 Cal.2d 189, 194.)
This rule applies even if the matter has not been reduced to a final
judgment on the merits. (
of California, supra, 31 Cal.4th
at pp. 1204-1205 [holding the rule is consistent with federal waiver
standards]; McConnell v. Merrill Lynch,
Pierce, Fenner & Smith, Inc. (1980) 105 Cal.App.3d 946, 951.) For example waiver may be established by
litigation through various pretrial procedures such as summary judgment and
class certification motions. (
& Smith, Inc., supra, 105
Cal.App.3d at pp. 950-951; see also Zimmerman
v. Drexel Burnham Lambert, Inc. (1988) 205 Cal.App.3d 153, 159-160.) As one appellate court has explained: “Partial or piecemeal litigation of issues in
dispute, through pretrial procedures, may in many instances justify a finding
of waiver and would be consistent with the law as spelled out in
Dist, supra, 23 Cal.3d at pp.
186-187].†(McConnell v. Merrill Lynch, Pierce, Fenner & Smith, Inc., supra,
105 Cal.App.3d at p. 951; accord Zimmerman
v. Drexel Burnham Lambert, Inc., supra, 205 Cal.App.3d at pp.
159-160.)
Here, the
parties litigated the class certification issue on the merits. Defendant also litigated the merits of
plaintiff’s federal and state claims in a summary judgment motion. Defendant obtained a final judgment against
plaintiff on all the federal claims and one state law claim. The federal court denied summary judgment on
plaintiff’s remaining state law claims.
Unless plaintiff prevails in the Ninth Circuit, a substantial portion of
plaintiff’s arbitrable claims no longer exists.
Should arbitration proceed defendant would have the advantage of a
judicial forum resolving some disputes and arbitration of the remaining
claims. Under the circumstances,
plaintiff met his burden of establishing defendant waived the right to compel
arbitration by litigating the merits of plaintiff’s arbitrable federal and
state claims. (St. Agnes Medical Center v. PacifiCare of California,
supra, 47 Cal.2d at pp.
194-195.)
In sum,
application of the St. Agnes Medical
Center v. PacifiCare of California, supra,
factors establishes that defendant waived the right to compel arbitration under
the facts of this case. Therefore, we
need not address plaintiff’s remaining theories as to why the arbitration
agreement was not enforceable.
IV. DISPOSITION
The order compelling arbitration is reversed. Plaintiff, Jeffrey L. Allen, is awarded his
costs on appeal from defendant, Labor Ready Southwest, Inc.
NOT TO BE PUBLISHED
IN THE OFFICIAL REPORTS
O’NEILL, J.
We concur:
TURNER, P. J.
KRIEGLER, J.
unless otherwise indicated.
appealable. (Code Civ. Proc.,
§ 1294;Kinecta Alternative Financial
Solutions, Inc. v. Superior Court (2012) 205 Cal.App.4th 506, 513;
(2009) 174 Cal.App.4th 1351, 1359-1360.)
However, plaintiff is correct that review of the ruling in its entirety
is available because of defendant’s appeal from the partial denial of the
motion to compel. Code of Civil
Procedure section 1294.2 provides: “The
appeal shall be taken in the same manner as an appeal from an order or judgment
in a civil action. Upon an appeal from
any order or judgment under this title, the court may review the decision and
any intermediate ruling, proceeding, order or decision which involves the
merits or necessarily affects the order or judgment appealed from, or which
substantially affects the rights of a party.
The court may also on such appeal review any order on motion for a new
trial. The respondent on the appeal, or
party in whose favor the judgment or order was given may, without appealing
from such judgment, request the court to and it may review any of the foregoing
matters for the purpose of determining whether or not the appellant was
prejudiced by the error or errors upon which he relies for reversal or
modification of the judgment or order from which the appeal is taken. The provisions of this section do not
authorize the court to review any decision or order from which an appeal might
have been taken.â€
