United States District Court, E.D. California
STEVEN VILLARREAL, AGUSTIN BENITEZ, CARLOS MORALES, Plaintiffs,
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
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
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).
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.)
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
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.
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
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.
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.”).
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.
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.
Federal Arbitration Act (FAA) vs. California Arbitration Act
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.
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)).
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
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