United States District Court, C.D. California
ORDER RE MOTION TO DISMISS OR COMPEL ARBITRATION [Dkt. No. 20]
DEAN D. PREGERSON, District Judge.
Presently before the Court is Defendant's motion to dismiss the First Amended Complaint ("FAC") and compel arbitration. Having heard oral arguments and considered the parties' submissions, the Court adopts the following order.
Plaintiff is Defendant's former employee; he worked as a Termite Technician from March 1994 to November 2013. (FAC, ¶ 12.) Plaintiff alleges that Defendant did not allow its employees to take rest and meal breaks as required by California law. (Id. at ¶¶ 13, 24-33.) Plaintiff further alleges that Defendant failed to pay wages due and failed to maintain accurate wage records. (Id. at ¶¶ 34-38, 48-52.) Plaintiff also argues that these wage and hour violations are unfair business practices under California's Unfair Competition Law ("UCL"), (Id. at ¶¶ 39-47.) In addition to compensatory damages, penalties, and injunctive relief on his own behalf and on behalf of a class of employees as to the above, Plaintiff also seeks penalties on behalf of the state under the Private Attorneys General Act of 2004 ("PAGA"). (Id. at ¶¶ 53-60.)
Defendant alleges, and Plaintiff does not argue otherwise, that Plaintiff signed an arbitration agreement that formed part of his employment contract. (Mot. at 2; id., Exs. A & B.) That agreement states that it is a "mutual agreement to arbitrate covered Disputes which is the exclusive, final, and binding remedy for both the Company and me and a class action waiver." ( Id., Ex. B, § 1.) In the agreement, the employee agrees that he and the company
mutually consent to resolution under the [agreement] and to final and binding arbitration of all Disputes, including, but not limited to, any preexisting, past, present or future Disputes, which arise out of or are related to... my employment, [or] the termination of my employment... on-duty or off-duty, in or outside the workplace....
(Id. at § 3.) "Disputes" are specifically defined to include "all employment related laws, " including state laws. (Id.)
The agreement contains a class action waiver and a waiver of the right to bring a "representative action." (Id. at § 10.) The class action waiver is not severable. (Id.) However, the "representative action" waiver is severable, "if it would otherwise render this [agreement] unenforceable in any action brought under a private attorneys general law." (Id.)
The agreement also contains a choice of law provision that requires that it be "construed, interpreted and its validity and enforceability determined, " under the Federal Arbitration Act ("FAA") and Tennessee law, "unless otherwise required by applicable law." (Id. at § 13.)
With the exception of the class action waiver, provisions of void or unenforceable provisions of the agreement may be modified or severed. (Id. at § 18.)
Defendant moves to dismiss the FAC and compel arbitration under the terms of the agreement.
II. LEGAL STANDARD
Under the FAA, 9 U.S.C. § 1 et seq., a written agreement that controversies between the parties shall be settled by arbitration is "valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract, " and a party to the agreement may petition a district court with jurisdiction over the dispute for an order directing that arbitration proceed as provided for in the agreement. 9 U.S.C. §§ 2, 4. The FAA reflects a "liberal federal policy favoring arbitration agreements" and creates a "body of federal substantive law of arbitrability." Moses H. Cone Mem. Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24-25 (1983). The FAA therefore preempts state laws that "stand as an obstacle to the accomplishment of the [statute]'s objectives." AT&T Mobility LLC v. Concepcion, 131 S.Ct. 1740, 1748 (2011). This includes "defenses that apply only to arbitration or that derive their meaning from the fact that an agreement to arbitrate is at issue, " as well as state rules that act to fundamentally change the nature of the arbitration agreed to by the parties. Id. at 1746, 1750 (California rule allowing consumers to invoke class arbitration post hoc was neither "consensual" nor the kind of arbitration envisioned by the FAA).
On the other hand, "[t]he principal purpose of the FAA is to ensure that private arbitration agreements are enforced according to their terms." Id. at 1748 (emphasis added) (internal quotation marks and brackets omitted). Moreover, parties to an arbitration agreement cannot bind non-parties. E.E.O.C. v. Waffle House, Inc., 534 U.S. 279, 293-94 (2002). Thus, an individual cannot contract away the government's right to enforce its laws, even if the government seeks to recover "victim-specific" remedies such as punitive damages. Id. at 294-95. This is true even where the individual victim may have the ability to limit the relief the government can obtain in court. Id. at 296.
Plaintiff does not dispute the existence of the arbitration agreement. However, he does argue that California, rather than Tennessee, law applies; that Defendant has violated the agreement by failing to initiate mediation; that the agreement is both procedurally and substantively unconscionable; and that in any event the agreement cannot apply to his claims for injunctive relief or his claims under PAGA. (Opp'n generally.) The Court addresses each argument in turn.
A. Applicable Law
California courts apply the law of the state designated by the contract "unless (1) the chosen state has no substantial relationship to the parties or transaction; or (2) such application would run contrary to a California public policy or evade a California statute." Gen. Signal Corp. v. MCI Telecommunications Corp., 66 F.3d 1500, 1506 (9th Cir. 1995).
Plaintiff argues that the state designated in the arbitration agreement, Tennessee, has "no substantial relationship to the parties, " although Defendant is headquartered there, because Plaintiff has "never stepped foot in Tennessee." (Opp'n at 4.) However, in the sentence immediately after the one quoted above, Gen. Signal Corp. makes clear that only one party need have a substantial relationship with the designated state. 66 F.3d at 1506 ("The fact that GSX is incorporated in New York is sufficient to establish a substantial relationship.'").
Plaintiff also argues (albeit under the unconscionability analysis) that the agreement evades California statutes by applying "Tennessee substantive law." (Opp'n at 7.) The Court does not, however, read the agreement as precluding substantive wage and hour claims under California law. Rather, the agreement requires that the contract be interpreted under Tennessee law: "I expressly agree that this Plan shall be construed, interpreted and its validity and enforceability determined strictly in accordance with... the laws of Tennessee." (Mot., Ex. B at § 13.) The disputes governed by the agreement include "all employment related laws, " including state laws. (Id. at § 3.) Thus, the substantive law governing the claims is (in this case) California law, while the law to be applied in interpreting the arbitration agreement is Tennessee law.
The Court therefore concludes that the agreement is to be interpreted and analyzed under Tennessee law, unless doing so as to a specific provision would "run contrary to California public policy" ...