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Network Capital Funding Corp. v. Papke

California Court of Appeals, Fourth District, Third Division

October 9, 2014

ERIK PAPKE, Defendant and Appellant.


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Appeal from an order of the Superior Court of Orange County, No. 30-2013-00659735 Geoffrey T. Glass, Judge.

Righetti Glugoski, Matthew Righetti and John Glugoski for Defendant and Appellant.

Fisher & Phillips, Lonnie D. Giamela and Jimmie E. Johnson for Plaintiff and Respondent.



Plaintiff and respondent Network Capital Funding Corporation (Network Capital) filed a declaratory relief action alleging its arbitration agreement with defendant and appellant Erik Papke required Papke to arbitrate his wage and hour claims on an individual basis rather than the classwide basis he sought in his pending arbitration proceeding. Papke petitioned the trial court for an order compelling Network Capital to submit its declaratory relief claims to arbitration. According to Papke, the broad language in the parties’ arbitration agreement required the arbitrator, not the court, to decide whether the agreement authorized class arbitration. The trial court denied Papke’s petition, concluding it must decide whether the arbitration agreement authorized class arbitration, and in doing so found this particular agreement did not allow class arbitration. Papke challenges both these conclusions on appeal.

As explained below, we agree with the trial court. Deciding whether the parties’ arbitration agreement authorizes class arbitration does not simply determine what arbitration procedures the parties agreed to use, but rather whose claims the parties agreed to arbitrate. Supreme Court precedent requires courts to decide whose claims are covered by an arbitration agreement unless the parties clearly and unmistakably agree to have the arbitrator decide that question. Because Papke’s and Network Capital’s arbitration agreement does not clearly and unmistakably designate the arbitrator to determine whether the agreement authorizes class arbitration, we conclude the trial court properly decided that question.

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We also conclude the trial court properly determined Papke’s and Network Capital’s arbitration agreement does not authorize class arbitration. The Supreme Court has held a party may not be compelled to submit to class arbitration absent a contractual basis for concluding the party agreed to class arbitration; a mere agreement to submit all claims to arbitration is not sufficient. Here, the parties’ arbitration agreement shows they did not agree to class arbitration. The agreement’s broad terms requiring the parties to submit all claims, disputes, and controversies to arbitration, with only a few limited and inapplicable exceptions, fall short of demonstrating a clear agreement to arbitrate class claims.



In October 2011, Network Capital hired Papke as an employee. Papke signed the “Employment Acknowledgment and Agreement” (Arbitration Agreement), which required the parties to “utilize binding arbitration to resolve all disputes that may arise out of or be related to [his] employment in any way.” The Arbitration Agreement further states, “Both the Company and I agree that any claim, dispute, and/or controversy that either I may have against the Company..., or the Company may have against me, shall be submitted to and determined exclusively by binding arbitration under the Federal Arbitration Act.... Included within the scope of this Agreement are all disputes, whether based on tort, contract, statute..., equitable law, or otherwise. The only exception to the requirement of binding arbitration shall be for claims arising under the National Labor Relations Act which are brought before the National Labor Relations Board, claims for medical and disability benefits under the California Workers’ Compensation Act, Employment Development Department Claims, or as may otherwise be required by state or federal law....”

In June 2013, Papke initiated arbitration proceedings against Network Capital by serving a demand for class arbitration. On behalf of all similarly situated current and former employees of Network Capital, Papke’s demand alleged wage and hour claims under the Labor Code and the Unfair Competition Law (Bus. & Prof. Code, § 17200 et seq.). Papke later served an amended class arbitration demand adding a representative claim under the Labor Code Private Attorneys General Act of 2004 (Lab. Code, § 2698).

After receiving Papke’s demand, Network Capital told him the Arbitration Agreement did not authorize class arbitration. Network Capital also insisted the trial court must resolve any disagreement over the availability of class arbitration, not the arbitrator. Papke disagreed, arguing the Arbitration Agreement’s broad language required the arbitrator to decide all claims, disputes,

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and controversies between the parties, including whether the Arbitration Agreement authorized class arbitration.

Based on this disagreement, Network Capital sought a judicial declaration that (1) it is the court’s responsibility to decide whether the Arbitration Agreement authorized class arbitration, and (2) the Arbitration Agreement prohibited class arbitration. In August 2013, Network Capital sought a preliminary injunction enjoining Papke from seeking any class or representative relief in the pending arbitration proceedings. Papke opposed that motion, demurred to Network Capital’s complaint, and petitioned for an order compelling Network Capital to submit their dispute to the arbitrator for resolution.

The trial court heard all three motions at the same time and took the matters under submission. A few days later, the court granted Network Capital the requested preliminary injunction, denied Papke’s petition to compel arbitration, and overruled Papke’s demurrer. The court explained, “the issue of whether the agreement requires arbitration of class actions is one for the court and the court determines that the agreement allows for the arbitration of Mr. Papke’s personal claims, but does not address Mr. Papke asserting the claims of others, including class members.” Papke now appeals.



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