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Garcia v. Superior Court (Southern Counties Express, Inc.)

California Court of Appeals, Second District, First Division

May 15, 2015

EDUARDO GARCIA, et al., Petitioners,

[As modified May 27 and June 3, 2015.]

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Gilbert & Sackman, Joshua F. Young, Michael D. Weiner and Sean M. Kramer for Petitioners.

No appearance for Respondent.

Larson & Gaston and Victor J. Consentino for Real Party in Interest.



Petitioners Eduardo Garcia, Garcia Transportation GP, and Luis Torres-Garzon[1] seek relief from the April 25, 2014 order of respondent court (Michael P. Vicencia, Judge) granting the motion of real party in interest Southern Counties Express, Inc. to compel arbitration of Petitioners’ wage and hour complaints to the Labor Commissioner. We grant the requested relief in part and remand to the trial court with directions.


Petitioners are truck drivers (sometimes called owner-operators) who were engaged by Southern Counties Express, Inc. (Southern Counties) to haul shipping containers from the ports of Los Angeles and Long Beach to facilities throughout Southern California. When engaged by Southern Counties, and at 90-day intervals thereafter, each of the drivers signed an “Independent Contractor” agreement (consisting of 17 pages, with appendices); at less-frequent intervals they signed “Vehicle Lease” agreements (consisting of 12 pages). The independent contractor agreements provided that the contracting driver would use the specified truck to provide hauling services at Southern Counties's direction; the vehicle lease agreements provided that the contracting drivers would lease a specified truck from Southern Counties for that purpose. And (as required by federal regulations governing Southern Counties as an authorized interstate carrier), that Southern Counties will have “exclusive possession, use and control of the Equipment and shall assume

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complete responsibility for the operation thereof to the extent required by such regulation....” (See 49 C.F.R. §§ 376.11, 376.12(c)(1) (2014).) Each of the agreements contained provisions requiring the parties to submit any disputes arising under the agreements to arbitration.

The arbitration clauses of the most recent agreements provided that “[a]ny dispute, claim or controversy arising out of or relating to this Agreement for the breach, termination, enforcement, interpretation, or validity thereof, including the applicability of Agreement to arbitrate, shall be determined by arbitration....” They go on to provide that the arbitration shall take place before a single arbitrator in Los Angeles County, administered pursuant to the JAMS Streamlined Arbitration Rules & Procedures; that judgment may be entered on the award; that the arbitrator may allocate all or part of the costs of the arbitration (including arbitrator’s fees and the prevailing party’s reasonable attorney’s fees); and that any claim brought by the independent contractor must be in his or her individual capacity and not as a class or representative proceeding.[2]

In March 2013, Petitioners filed administrative claims with the California Division of Labor Standards Enforcement (DLSE) alleging Southern Counties's misclassification of Petitioners as independent contractors rather than employees. Their claims sought administrative relief under Labor Code sections 98 through 98.8, to recover minimum-wage payments, reimbursements of improper deductions from compensation and statutory penalties. (Garcia v. Southern Counties Express, Inc., case No. 05-55450 ADC; Torres-Garzon v. Southern Counties Express, Inc., case No. 05-57718 LT.)[3]

Southern Counties petitioned respondent court to compel arbitration of the claims in these cases, and to stay the DLSE proceedings in each of them. (Southern Counties Express, Inc. v. Garcia (Super. Ct. L.A. County, No. NS026531); Southern Counties Express, Inc. v. Torres-Garzon (Super. Ct. L.A. County,

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No. NS026539.)[4] The trial court (Michael P. Vicencia, Judge) considered documentary and testimonial evidence, and argument from the parties (including the Labor Commissioner on Petitioners’ behalf), concerning Petitioners’ claims that the arbitration provisions of their agreements are unconscionable, and therefore unenforceable. After two days of hearings, the court granted an order compelling arbitration under the JAMS Streamlined Arbitration Rules and Procedures.[5] It found the witnesses from Southern Counties to be very credible, and Petitioners’ testimony to be less so. It found that because Southern Counties had needed drivers, Petitioners’ bargaining position was not inferior to that of Southern Counties. It found that because Petitioners had not sought to negotiate any term of their agreements with Southern Counties, there was no evidence that Southern Counties had refused them that opportunity, or that the agreements were presented to them on a “take-it-or-leave-it” basis. It found that because Petitioners had been required to sign renewed independent contractor agreements at 90-day intervals, they had ample opportunities to review their agreements and to obtain legal advice concerning them. Based on these conclusions, the court ruled that the parties’ agreements were not procedurally unconscionable. Its ruling was grounded on only the procedural unconscionability issue; the court did not consider or rule upon whether the agreements were or were not substantively unconscionable.

By timely petition to this court, Petitioners Garcia and Luis Torres-Garzon seek a writ of mandate or other extraordinary relief compelling respondent court to vacate its order granting Southern Counties's petitions to compel arbitration, and to enter a new order denying the petitions to compel arbitration and to permit the administrative proceedings to continue before the DLSE. We requested opposition and issued an order to show cause. Southern Counties filed a return, to which Petitioners replied. We sought and received further briefing with respect to a number of issues, and we heard oral argument. We conclude that the order compelling arbitration must be reversed and the matter remanded to the trial court for consideration and determination of threshold issues concerning Southern Counties's right to arbitration.

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A. Applicable Law and Standard of Review

Strong public policies favor enforcement of agreements to arbitrate disputes. Under the California Arbitration Act (Code Civ. Proc., § 1280 et seq. (CAA)), “On petition of a party to an arbitration agreement alleging the existence of a written agreement to arbitrate a controversy and that a party thereto refuses to arbitrate such controversy, the court shall order the petitioner and the respondent to arbitrate the controversy if it determines that an agreement to arbitrate the controversy exists....” (Code Civ. Proc., § 1281.2.) Under that provision, the court shall order arbitration of any dispute that it determines is within the parties’ arbitration agreement unless the right to compel arbitration has been waived or the agreement is otherwise unenforceable. (Code Civ. Proc., § 1281.2.) Under both the CAA and the Federal Arbitration Act (9 U.S.C. § 1 et seq. (FAA)), arbitration agreements are “valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.” (9 U.S.C. § 2; AT&T Mobility LLC v. Conception (2011) 563 U.S. __, __ [179 L.Ed.2d 742, 131 S.Ct. 1740, 1748]; Rebolledo v. Tilly’s, Inc. (2014) 228 Cal.App.4th 900, 912 [175 Cal.Rptr.3d 612].)

With respect to agreements to which the FAA applies, the federal policy favoring arbitration preempts any state-law impediments to the policy’s fulfillment. If a state law interferes with the FAA’s purpose of enforcing arbitration agreements according to their terms, the FAA preempts the state-law provision, no matter how laudable the state law’s objectives. (AT&T Mobility LLC v. Conception, supra, 563 U.S. at p.___ [131 S.Ct. at p. 1753]: Iskanian v. CLS Transportation Los Angeles, LLC (2014) 59 Cal.4th 348, 384 [173 Cal.Rptr.3d 289, 327 P.3d 129].) Under the supremacy clause of the United States Constitution (art. VI, cl. 2), the FAA requires any conflicting state law to give way. (Nitro-Lift Technologies, L. L. C. v. Howard (2012) ___ 568 U.S. ___, ___ [184 L.Ed.2d 328, 133 S.Ct. 500, 504]; Moses H. Cone Memorial Hospital v. Mercury Constr. Corp. (1983) 460 U.S. 1, 24-25 [74 L.Ed.2d 765, 103 S.Ct. 927, 941] [Under FAA “any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration”].)

Arbitration nevertheless is a matter of contract. No public policy favors requiring arbitration of issues that the parties have not agreed to arbitrate. (Rebolledo v. Tilly’s, Inc., supra, 228 Cal.App.4th at p. 912; Mendez v. Mid-Wilshire Health Care Center (2013) 220 Cal.App.4th 534, 540-541 [163 Cal.Rptr.3d 80].) In ruling on a motion to compel arbitration, the court, guided by general principles of California law, must first determine whether the parties actually agreed to arbitrate the dispute. (Mendez v. Mid-Wilshire Health Care Center, supra, 220 Cal.App.4th at p. 541.)

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Code of Civil Procedure sections 1281.2 and 1290.2 provide for summary proceedings in the trial court to resolve petitions to compel arbitration, in which the trial court sits as a trier-of-fact, weighing documentary evidence and any oral testimony that the court may hear in its discretion. (Engalla v. Permanente Medical Group, Inc. (1997) 15 Cal.4th 951, 972 [64 Cal.Rptr.2d 843, 938 P.2d 903]; Rosenthal v. Great Western Fin. Securities Corp. (1996) 14 Cal.4th 394, 413 [58 Cal.Rptr.2d 875, 926 P.2d 1061].) In such proceedings the petitioner bears the burden of proving the existence of a valid arbitration agreement by a preponderance of the evidence, while a party opposing the petition bears the burden of proving any fact necessary to its defense. (Pinnacle Museum Tower Assn. v. Pinnacle Market Development (US), LLC (2012) 55 Cal.4th 223, 236 [145 Cal.Rptr.3d 514, 282 P.3d 1217].)

B. The Trial Court Erred by Failing to Determine Whether PetitionersÂ’ Claims are Exempt from the FAA

Despite the presumption in favor of arbitration imposed by the FAA, 9 United States Code section 1 expressly limits the FAA’s application by exempting from its coverage certain contracts. Specifically, section 1 provides (in relevant part) that nothing in the FAA “shall apply to contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce.” (9 U.S.C. § 1.) The United States Supreme Court interpreted this language in Circuit City Stores, Inc. v. Adams (2001) 532 U.S. 105 [149 L.Ed.2d 234, 121 S.Ct. 1302], reversing the lower court’s ruling that had held the section 1 exemption from the FAA applicable to all contracts of employment. The better reading of the law, the Supreme Court held, is that Section 1 exempts only “contracts of employment of transportation workers”-meaning “workers actually engaged in the movement of goods in interstate commerce.” (532 U.S. at pp. 106, 119, 112.)[6]

The court in Circuit City Stores, Inc. v. Adams expressly declined to consider what does and does not constitute a “contract of employment” within the meaning of the FAA, 9 United States Code section 1. (Circuit City Stores, Inc. v. Adams, supra, 532 U.S. at p. 113.)

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Petitioners contended in the trial court that because they are workers involved in the transportation of goods in interstate commerce, their contracts with Southern Counties are exempt from the FAA’s application, and-despite the agreements’ recitation that their status is that of independent contractors and not employees-the FAA therefore does not preempt the rights afforded by the Labor Code.[7] Southern Counties argues, to the contrary, that the independent contractor and vehicle lease agreements in this case are not “contracts of employment, ” and the 9 United States Code section 1 exemption therefore does not apply.

Whether Petitioners’ claims are exempt from the FAA’s application is significant, because the FAA’s application governs the outcome of Petitioners’ challenges to the arbitration provisions’ enforcement. If the FAA applies to Petitioners’ claims, the arbitration provisions are “irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.” (9 U.S.C. § 2; see Nitro-Lift Technologies, L.L.C. v. Howard, supra, 568 U.S. at p. ___ [133 S.Ct. at p. 504]; American Express Co. v. Italian Colors Restaurant (2013) 570 U.S. ___, ___ [186 L.Ed.2d 417,133 S.Ct. 2304, 2309]; Perry v. Thomas (1987) 482 U.S. 483, 489, 491 [96 L.Ed.2d 426, 107 S.Ct. 2520].) But if their claims are exempt from the FAA’s application, California law specifically provides that the arbitration agreements cannot apply to defeat the Labor Code enforcement sought by Petitioners’ claims. Labor Code section 229 provides that “[a]ctions to enforce the provisions of this article for the collection of due and unpaid wages claimed by an individual may be maintained without regard to the existence of any private agreement to arbitrate.” Therefore if the FAA does apply, only very limited contract defenses (primarily under the doctrine of unconscionability) would be available to defeat Southern Counties's arbitration demand.[8] But if the agreements are exempt from the FAA, 9 United States Code section 1, their arbitration provisions are trumped by Labor Code section 229 and its administrative and judicial procedures for the determination of Petitioners’ claims.

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A number of federal cases (none of them authoritative in this court) have considered whether the agreements involved in those cases are within the FAA's 9 United States Code section 1 exemption. For example, in Owner-Operator Independent Drivers Ass’n v. Swift Transportation Co. Inc. (D. Ariz. 2003) 288 F.Supp.2d 1033, the court held that the section 1 exemption did not apply, because the plaintiff-drivers (who did not dispute that they were independent contractors rather than employees) failed to show they “should in fact be considered employees based on the terms of the contract and the circumstances of their working relationship with [the carrier].” (Swift, at p. 1035.) The court in Owner-Operator Independent Drivers Assn. v. C.R. England, Inc. (D. Utah 2004) 325 F.Supp.2d 1252, looked also to the parties’ agreements and relationships to reach the opposite conclusion. It found that the agreements in those cases constituted “contracts of employment” within the meaning of the section 1 exemption, notwithstanding that the agreements identified the parties’ relationships as that of “carrier and independent contractor and not as employer-employee.' " (C.R. England, at pp. 1257-1258.)[9]

Southern Counties's effort to enforce the arbitration provisions of the parties’ agreements raised the applicability of the 9 United States Code section 1 exemption as a threshold issue. But the trial court ordered the matter to arbitration without hearing argument, taking further evidence, or indicating its consideration of the issue. It expressly limited the parties’ argument and presentation of evidence to the single question of whether the agreements were procedurally unconscionable (and concluded they were not). At the close of the January 2014 hearing the court scheduled further evidentiary hearings, but limited the issue to be heard to be only the agreements’ “procedural and substantive unconscionability.” At the evidentiary hearings the court instructed the parties to address only the issue of procedural unconscionability, and advised that “I’m not making a determination as to whether or not these were employees or not employees, but just the effect that [their understanding of the agreements] may have had on their ability to freely enter into the contractual relationship.”

Petitioners were (and are) entitled to the court’s determination whether their agreements are contracts of employment for transportation workers engaged in interstate commerce, within the meaning of the 9 United States Code section 1 exemption as interpreted by the Supreme Court in Circuit City Stores, Inc. v. Adams, supra, 532 U.S. 105. That law, if it applies, would exempt their agreements from the FAA’s requirement that their

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arbitration agreements must be enforced. There is a strong policy in favor of enforcing agreements to arbitrate, and under the FAA. “‘Questions of arbitrability must be addressed with a healthy regard for the federal policy favoring arbitration.’” (Armijo v. Prudential Ins. Co. of America (10th Cir. 1995) 72 F.3d 793, 797, quoting Mitsubishi Motors v. Soler Chrysler-Plymouth (1985) 473 U.S. 614, 626 [87 L.Ed.2d 444, 105 S.Ct. 3346]; see Moses H. Cone Memorial Hospital v. Mercury Construction Corp., supra, 460 U.S. at p. 25 [74 L.Ed.2d 765, 103 S.Ct. 927].) Nevertheless, “there is no policy compelling persons to accept arbitration of controversies... which no statute has made arbitrable.” (Freeman v. State Farm Mut. Auto. Ins. Co. (1975) 14 Cal.3d 473, 481 [121 Cal.Rptr. 477, 535 P.2d 341].)

The evidence before the trial court was sufficient as a threshold matter to require the court’s consideration of the issue. The evidence relevant to the question whether the drivers’ agreements with Southern Counties were “contracts of employment” within the meaning of the 9 United States Code section 1 exemption included evidence that Southern Counties owned the trucks it provided to Petitioners for their work hauling containers for Southern Counties’ customers; that its leases of those trucks to Petitioners were coincidental with Petitioners’ agreements to drive the trucks for the company’s hauling business, and to be compensated for doing so (less lease payments for use of the trucks) without regard to the amounts paid to Southern Counties by the hauling customers.[10] Southern Counties provided Petitioners with commercial licenses and permits needed for entry into and exit from the ports of Los Angeles and Long Beach, where their loads were picked up. Southern Counties specified the insurance they would have, purchasing it for them and deducting the premiums from their compensation. Southern Counties required that its logo would be on the trucks’ doors, and required installation of a GPS tracking service to permit it to monitor the progress of deliveries. The agreements’ requirement that Southern Counties's identification must be removed from the truck’s doors before the trucks could be used for any other purpose limited the truck’s use to hauling only for Southern Counties during an agreement’s term.

Plaintiff drivers allege they had no meaningful discretion in performing their work, and no realistic entrepreneurial opportunities for use of the truck supplied by Southern Counties. Southern Counties made delivery assignments to the drivers each day, in the order they signed in at Southern Counties's

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yard. Southern Counties's dispatcher would provide the driver with the location to pick up and deliver the shipping container, along with any special instructions; a driver’s failure to follow the dispatcher’s instructions in completing deliveries would result in the driver receiving fewer deliveries in the future. Drivers were paid by Southern Counties at regular intervals on the basis of each load delivered. The drivers had no relationship with the customers of Southern Counties for whom they hauled goods; they could not negotiate delivery rates with the customers, and they were not told how much the customers were paying Southern Counties for their work.

By failing to rule on the threshold question whether the arbitration provisions of their agreements were exempt from the application of the FAA by virtue of 9 United States Code section 1 and Labor Code section 229, the trial court erred.[11] Petitioners were engaged to transport goods shipped from foreign ports to facilities throughout Southern California; as such, their contracts with Southern Counties may arguably come within the FAA’s section 1 exemption. (Circuit City Stores, Inc. v. Adams, supra, 532 U.S. at pp. 106, 119.) These allegations necessitated the trial court’s consideration and ruling on the issue whether the parties their agreements constitute contracts of employment of transportation workers within the meaning of the FAA’s section 1 exemption.

C. Writ Relief is Warranted

An order compelling arbitration is not appealable. (Elijahjuan v. Superior Court (2012) 210 Cal.App.4th 15, 19 [147 Cal.Rptr.3d 857].) Review of an order compelling arbitration ordinarily must await appeal from a final judgment entered after arbitration. (Abramson v. Juniper Networks, Inc. (2004) 115 Cal.App.4th 638, 648 [9 Cal.Rptr.3d 422].)

Nevertheless, when warranted by the circumstances, immediate review of an order granting a motion to compel arbitration may be obtained by a petition for writ of mandate. (Kinecta Alternative Financial Solutions, Inc. v. Superior Court (2012) 205 Cal.App.4th 506, 513 [140 Cal.Rptr.3d 347]; Nelsen v. Legacy Partners Residential, Inc. (2012) 207 Cal.App.4th 1115, 1123 [144 Cal.Rptr.3d 198].) We find writ review appropriate here, because the order compelling arbitration was entered without having afforded the parties the hearing and consideration to which the law entitled them.


Because the evidence proffered in opposition to the motion to compel arbitration provided sufficient grounds for a hearing on the issues whether the

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parties’ agreements are exempt from the FAA’s preemptive application, the order compelling arbitration must be set aside and the matter remanded to the superior court for appropriate consideration of that issue.


Let a peremptory writ of mandate issue commanding respondent superior court to vacate its order compelling arbitration. The cause is remanded to the trial court for further proceedings consistent with this opinion, including any supplements to the motion and opposition that the court may find appropriate. Petitioners are entitled to costs on the original proceeding.

Rothschild, R J., and Johnson, J., concurred.

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