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Sabrina Laguna, et al v. Coverall North America

July 26, 2011


The opinion of the court was delivered by: Bernard G. Skomal United States Magistrate Judge


Before the Court is Plaintiffs' motion for leave to serve limited arbitration related discovery. (Doc. No. 212.) Plaintiffs seek to conduct this discovery for the purpose of opposing Defendants' motions to compel arbitration. Pursuant to Civil Local Rule 7.1(d)(1), this motion is suitable for disposition on the papers submitted.


Plaintiffs filed this putative class action against Defendants based on a purported franchise agreement between the parties for the provision of janitorial and cleaning services.*fn1 (Doc. No. 147.) Plaintiffs' Fourth Amended Complaint ("FAC") states the following twelve causes of action: (1) breach of contract; (2) misleading advertising in violation of CAL. BUS. & PROF. CODE § 17500 et seq.;*fn2

(3) failure to pay minimum wage in violation of CAL. LAB. CODE §§ 1194, 1194.2 & 1197; (4) failure to pay overtime compensation in violation of CAL. LAB. CODE §§ 510 & 1194 et seq.; (5) failure to provide rest periods or compensation in lieu thereof in violation of CAL. LAB. CODE § 226.7 and relevant California Industrial Wage Commission ("IWC") orders; (6) failure to provide meal periods or compensation in lieu thereof in violation of CAL. LAB. CODE §§ 226.7 & 512 and relevant IWC orders; (7) failure to reimburse for reasonable business expenses in violation of CAL. LAB. CODE § 2802; (8) unlawful deductions from wages in violation of CAL. LAB. CODE §§ 221 & 223; (9) conversion; (10) unfair business practices under CAL. BUS. & PROF. CODE § 17200 et seq.; (11) theft of labor in violation of CAL. LAB. CODE §§ 216, 553 & 1199 and CAL. PENAL CODE §§ 484 & 532; and (12) injunctive relief.

Plaintiffs Laguna and Salas each signed arbitration provisions when they entered into their Janitorial Franchise Agreements ("JFA") with Coverall North America, Inc. (Doc. No. 205-2, Exs. AB.) The arbitration clause requires the parties to submit their disputes to binding arbitration on an individual basis. (Id.) The relevant portions of the arbitration provision state:

A. Arbitration. Except as otherwise provided in Paragraphs 21A(14) and 21B, all controversies, disputes or claims between Coverall, its officers, directors, agents and/or employees (in their respective capacities ) and Franchisee (and Franchisee's owners, officers, directors, and/or any guarantors of this Agreement) arising out of or related to the relationship of the parties, this Agreement or the validity of this Agreement, any related agreement between the parties, and/or any specification, standard or operating procedure of Coverall, including those set forth in the Coverall Policy and Procedure Manual, which controversies, disputes, or claims are not resolved in accordance with Paragraph 20, shall be submitted promptly for arbitration.

(1) Arbitration shall be subject to the Federal Arbitration Act and not any state arbitration law and, except as otherwise provided in this Agreement or agreed upon by the parties in writing, the then current Rules of the American Arbitration Association for Commercial Arbitration.

(6) The arbitrator or appointed arbitrators shall not alter or otherwise reform the terms of this Agreement, or award any relief or grant any remedy not provided for in this Agreement or specifically excluded by this Agreement.

(11) Franchisee and Coverall agree that arbitration shall be conducted on an individual, not a class wide basis, which restriction shall be enforceable to the fullest extent permitted by law. An arbitration between Coverall and Franchisee shall not be consolidated with any other proceeding between Coverall and any other Franchisee.

Only Coverall (and its officers, directors, agents and/or employees) and Franchisee (and Franchisee's owners, officers, directors, and/or any guarantors) may be parties to any arbitration proceeding described in this Paragraph 21.A. (Doc. No. 205-2, Exs. A & B, § 21.) Plaintiff Laguna signed her JFA September 28, 2006 and Plaintiff Salas signed her JFA August 24, 2006. (Id. at Exs. A & B) Plaintiffs Laguna and Salas have never disputed that they entered into a JFA or that the agreements do not contain an arbitration provision specifically barring Plaintiffs from arbitrating their claims on a class wide basis. (Doc. No. 205-1 at 10.) Additionally, section 28 of the JFA contains a severability clause. The clause states: "If any term, provision, covenant, or condition of this Agreement is held by a court of competent jurisdiction to be invalid, void, or unenforceable, the remainder of the provisions shall remain in full force and effect and shall in no way be affected, impaired, or invalidated." (Doc. No. 205-2, Exs. A & B, § 28.) (emphasis added.)

Recently, the Supreme Court issued its decision in AT & T Mobility LLC v. Concepcion, - U.S. -, 131 S.Ct. 1740, - L.Ed.2d - (2011). The Court held that the Federal Arbitration Act ("FAA") preempts California's unconscionability law regarding exemption of certain claims from arbitration, at least for actions in federal court. Concepcion declared that states cannot refuse to enforce arbitration agreements based on public policy. 131 S.Ct. at 1746, 1752 (holding that the rule set forth in Discover Bank v. Superior Court, 36 Cal.4th 148 (2005), is preempted by the FAA because it is inconsistent with the FAA's purposes, despite "its origins in California's unconscionability doctrine and California's policy against exculpation"). Prior to Concepcion, the Discover Bank rule was consistently applied to render any consumer contract of adhesion containing a class-action waiver unconscionable. Under California law, courts may refuse to enforce any contract deemed "unconscionable at that time it was made," or may "limit the application of any unconscionable clause." Cal. Civ. Code § 1670.5. Thus, courts would not enforce arbitration agreements that contained class-action waivers. See Concepcion, 131 S.Ct. at 1746. Accordingly, Concepcion drastically altered the law governing arbitration agreements in California.

As a result of the change in law, on June 10, 2011, Defendants Coverall North America, Inc., CNA Holding Corporation, and Ted Elliott (collectively "Coverall Defendants") filed a motion to: (1) compel arbitration of Plaintiffs Laguna and Salas' claims and stay this action pending arbitration; and (2) strike all class allegations in the FAC as to Laguna and Salas.*fn3 (Doc. No. 205.) On June 14, 2010, Defendants Allied Capital Corporation and Ares Capital Corporation (herein "Allied/Ares") filed a motion to compel arbitration and stay this action under the FAA. (Doc. No. 207.)*fn4

In response to Defendants' motions to compel arbitration, Plaintiffs filed the instant motion for leave to conduct limited discovery regarding the existence, formation, and application of the arbitration agreements. (Doc. No. 212.) Specifically, Plaintiffs seek discovery regarding the enforceability of the arbitration agreements. (Id. at 4.) In order to explore whether the agreements are enforceable, Plaintiffs request leave to take "two or three Federal Rule of Civil Procedure 30(b)(6) depositions. (Id.) At least one of the Rule 30(b)(6) depositions will be directed to Allied/Ares. (Id.) Plaintiffs also ...

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