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Villarreal v. Perfection Pet Foods, LLC

United States District Court, E.D. California

April 10, 2017

STEVEN VILLARREAL, AGUSTIN BENITEZ, CARLOS MORALES, Plaintiffs,
v.
PERFECTION PET FOODS, LLC, Defendant.

          FINDINGS AND RECOMMENDATIONS, RECOMMENDING THAT DEFENDANT'S MOTION TO COMPEL ARBITRATION BE GRANTED [ECF NO. 14] OBJECTIONS, IF ANY, DUE WITHIN 14 DAYS

         I. BACKGROUND

         Plaintiffs Steven Villarreal, August Benitez, and Carlos Morales are former employees of Defendant Perfection Pet Foods, LLC (“PPF”), a California limited liability company and pet food manufacturer. Plaintiffs filed this case November 2, 2016 and subsequently filed the First Amended Complaint on January 10, 2017. (ECF Nos. 1, 11.) It is alleged that PPF violated California labor law by requiring its non-exempt hourly employees to work twelve hour shifts, and failing to provide those employees with proper meal and rest periods. Plaintiffs bring five class claims seeking unpaid wages, premium wages for missed and/or non-compliant meal and rest periods, interest, and derivative penalties. In addition, Plaintiffs bring a claim under the California Labor Code Private Attorneys General Act (“PAGA”), and Plaintiff Villarreal has brought an individual claim for violation of the Family and Medical Leave Act of 1993 (“FMLA”).

         On February 7, 2017, PPF filed a motion to compel arbitration pursuant to the Federal Arbitration Act, 9 U.S.C. § 1 et seq. (ECF No. 14.) PPF asserts that all three Plaintiffs agreed to arbitrate employment disputes with PPF, and it requests that the Court to enforce the arbitration agreements. Plaintiffs filed a response in opposition to the motion (ECF No. 17), and PPF has filed a reply in support (ECF No. 18).

         The motion to compel arbitration is currently before the undersigned judge for findings and recommendations to the district judge on the parties' briefs and following oral argument, which was held on March 24, 2017. (ECF No. 19.)

         II. REMAINING ISSUES

         Upon the completion of briefing on the motion to compel arbitration, the following issues were presented: 1) whether all three Plaintiffs agreed to binding arbitration; 2) whether the arbitration agreement is unconscionable; 3) whether the Private Attorneys General Act (“PAGA”) claim is arbitrable; and 4) whether the arbitration agreement contains an enforceable class action waiver.

         The Court heard oral argument concerning all four issues in the motion hearing on the motion to compel arbitration on March 24, 2017. The hearing revealed that the parties were in agreement as to many of these issues.

         As to the second issue regarding whether the arbitration agreement is unconscionable, it was acknowledged that California law concerning unconscionability of a contract requires both a procedural and a substantive element. See AT&T Mobility LLC v. Concepcion, 563 U.S. 333, 340, 131 S.Ct. 1740, 1746, 179 L.Ed.2d 742 (2011) (citations omitted). Furthermore, the procedural element focuses on oppression or surprise due to unequal bargaining power, whereas the substantive element focuses on overly harsh or one-sided results. See id. At the motion hearing, PPF acknowledged unequal bargaining power in that persons seeking employment with PPF were required to accept the arbitration agreement was a “take it or leave it” situation. PPF contended that Plaintiffs could not demonstrate substantive unconscionability.

         Plaintiffs briefing set forth two bases for substantive unconscionability: 1) there was no requirement in the arbitration agreement for the arbitrator to issue a written decision; and 2) there was a pre-arbitration mediation requirement. As to the written decision argument, PPF responded that the arbitration agreement requires that the any arbitration be conducted in accordance with the rules of the California Arbitration Act (“CAA”), and § 1283.4 of the CAA requires the arbitrator to issue a written decision. (ECF No. 18, p. 4.) As to the mediation argument, PPF responded that the arbitration agreement does not require pre-arbitration mediation. (Id., pp. 4-5.) At the hearing, Plaintiffs agreed that the CAA would require a written decision. Additionally, Plaintiffs described the dispute regarding mediation as an “absence of evidence” issue. Plaintiffs' brief conceded that it was not clear whether the employee handbook requires pre-arbitration mediation. (ECF No. 17, p. 13.) PPF's reply quoted the relevant section of the employee handbook that expressly states that mediation is not required before a employment dispute is submitted to arbitration. (Id., pp. 4-5.) Accordingly, there was no remaining dispute to either element of the Plaintiffs' unconscionability argument: 1) the procedural element was satisfied, but 2) the substantive element is not satisfied. Accordingly, Plaintiffs cannot invalidate the arbitration agreement on the basis of unconscionability.

         Next, the third issue concerning the arbitability of the PAGA claim was resolved when Plaintiff conceded that current Ninth Circuit caselaw indicates that PAGA claims are arbitable. See Valdez v. Terminix Int'l Co. Ltd. P'ship, No. 15-56236, 2017 WL 836085, at *1 (9th Cir. Mar. 3, 2017) (“[Iskanian v. CLS Transp. Los Angeles, LLC, 59 Cal.4th 348, 173 Cal.Rptr.3d 289, 327 P.3d 129 (2014)] and [Sakkab v. Luxottica Retail N. Am., Inc., 803 F.3d 425 (9th Cir. 2015)] clearly contemplate that an individual employee can pursue a PAGA claim in arbitration, and thus that individual employees can bind the state to an arbitral forum.”).

         Finally, the fourth issue -class action waiver- was also resolved when PPF conceded that it was not contending that any of the three Plaintiffs in this case signed an arbitration agreement containing class action waiver language. (ECF No. 18, p. 6.) All parties agreed that, to the extent arbitration is compelled, the arbitration would include the class claims.

         Therefore, the remaining issue is the first issue: whether all three Plaintiffs signed the arbitration agreement. More specifically, the parties dispute whether Plaintiff Villarreal signed the arbitration agreement.

         III. APPLICABLE LAW

         A. Federal Arbitration Act (FAA) vs. California Arbitration Act (CAA)

         PPF has filed its motion to compel arbitration pursuant to the FAA. If a party to an arbitration agreement files a case in the district court that is covered by the agreement to arbitrate, the FAA permits the aggrieved party to file a motion to compel arbitration pursuant to their agreement. See 9 U.S.C. § 4.

         However, there is a dispute between the parties as to whether the claims are arbitrable in the first place (i.e. the arbitrability question) is governed by the FAA or the CAA. The statutory language of the FAA provides that it applies to a “contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract or transaction.” 9 U.S.C. § 2. The language “involving commerce” in the FAA has been interpreted to mean “the functional equivalent of the more familiar term ‘affecting commerce'-words of art that ordinarily signal the broadest permissible exercise of Congress' Commerce Clause power.” Citizens Bank v. Alafabco, Inc., 539 U.S. 52, 56, 123 S.Ct. 2037, 2040, 156 L.Ed.2d 46 (2003) (citing Allied-Bruce Terminix Cos. v. Dobson, 513 U.S. 265, 273-74, 115 S.Ct. 834, 130 L.Ed.2d 753 (1995)). Therefore, absent a clear and unmistakable designated intent that nonfederal arbitrability law applies, “federal law governs the arbitrability question by default because the Agreement is covered by the FAA.” Brennan v. Opus Bank, 796 F.3d 1125, 1129 (9th Cir. 2015) (citing Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 626, 105 S.Ct. 3346, 87 L.Ed.2d 444 (1985); Cape Flattery Ltd. v. Titan Maritime, 647 F.3d 914, 921 (9th Cir. 2011)).

         Plaintiffs contend that the FAA does not control because there are clauses in the relevant documents in this case that state that the CAA governs. (ECF No. 17, p. 8.) Specifically, the “Arbitration” section of the Employee Handbook states:

Pursuant to the Agreement to Arbitrate Employment Disputes, the parties voluntarily agree that the Agreement to Arbitrate Employment Disputes and any arbitration proceeding therefrom shall be governed by the California Arbitration Act (California Code of Civil Procedure Section 1280, et seq.)
The appointed arbitrator shall conduct the arbitration proceedings pursuant to California Code of Civil Procedure Section 1282, et seq. This includes the right to conduct ...

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