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Pataky v. The Brigantine, Inc.

United States District Court, S.D. California

May 3, 2017

NEAL PATAKY, JESSICA CLEEK, and LAUREN MICHELSON, individually, and on behalf of others similarly situated, Plaintiffs,
v.
THE BRIGANTINE, INC., a California corporation, Defendant.

          ORDER DENYING DEFENDANT'S MOTION TO COMPEL ARBITRATION AND DENYING DEFENDANT'S MOTION TO STAY THE PROCEEDINGS PENDING DECISION OF THE SUPREME COURT OF THE UNITED STATES [ECF NO. 9.]

          HON. GONZALO P. CURIEL UNITED STATES DISTRICT JUDGE.

         Before the Court is Defendant The Brigantine, Inc.'s (“Defendant's” or “Brigantine's”) motion to compel arbitration or, alternatively, to stay the proceedings pending decision of the Supreme Court of the United States in Morris v. Ernst & Young, LLP, 834 F.3d 975 (9th Cir. 2016), cert. granted, 137 S.Ct. 809 (2017). (Dkt. No. 9.) The motion has been fully briefed. (Dkt. Nos. 20, 22.) The Court deems this motion suitable for disposition without oral argument pursuant to Civil Local Rule 7.1(d)(1). Having considered the parties' arguments and the applicable law, the Court DENIES Defendant's motion to compel arbitration and DENIES Defendant's request for a stay.

         BACKGROUND

         On February 22, 2017, Plaintiffs Neal Pataky (“Plaintiff or “Pataky”), Jessica Cleek (“Plaintiff or “Cleek”), and Lauren Michelson (“Plaintiff or “Michelson”) (collectively, “Plaintiffs”), on behalf of themselves and others similarly situated, filed the instant putative class action against The Brigantine, Inc., a California corporation which owns and operates multiple restaurants in San Diego County. (Dkt. No. 1, Compl. ¶ 4.) Plaintiffs allege that Defendant maintained an unlawful “tip pooling” policy, under which Plaintiffs, who were employed as servers at Defendant's restaurants, had to “tip out” portions of their earned tip income to other employees who do not provide direct table service to customers. (Compl. ¶¶ 8-9.) Plaintiffs assert three claims for relief based on Defendant's alleged violations of the Fair Labor Standards Act (“FLSA”), 29 U.S.C. § 201 et seq., (Compl. ¶¶ 15-22); unfair business practices in violation of California's Unfair Competition Law (“UCL”), Cal. Bus. & Prof. Code § 17200 et seq., (Compl. ¶¶ 23 - 28); and unlawful business practices in violation of the UCL, Cal. Bus. & Prof. Code § 17200 et seq., (Compl. ¶¶ 29-34).

         In support of its motion, Defendant attached copies of the Employment At-Will and Arbitration Agreement, signed by Pataky, Cleek, and Michelson on September 4 or September 5, 2014. (Dkt. No. 9-2, Carl Decl. Exs. A, C, E.) Employees are presented with an Employment At-Will and Arbitration Agreement as part of Defendant's hiring practice. (Carl Decl. ¶ 3.) As a matter of company policy, employees are not required to sign the document. (Id.) Human resources instructs managers not to force or require employees to sign the agreement-indeed, some employees decline to sign the agreement, with no effect on their employment status. (Id.) Nonetheless, Defendant does not specify whether employees are affirmatively instructed that signing the agreement is optional. (See id.) And the language of the Arbitration Agreement does not give employees any notice that they may opt out of the agreement, or that signing it is completely voluntary and will have no effect on their employment status. (See Dkt. No. 9-2, Carl Decl. Exs. A, C, E.)

         Paragraph 2 of the Arbitration Agreement reads as follows:

I and the Company agree to utilize binding individual arbitration as the sole and exclusive means to resolve all disputes that may arise out of or be related in any way to my employment, including but not limited to the termination of my employment and my compensation. I and the Company each specifically waive and relinquish our respective rights to bring a claim against the other in a court of law. Both I and the Company agree that any claim, dispute, and/or controversy that I may have against the Company (or its owners, directors, officers, managers, employees, or agents), or the Company may have against me, shall be submitted to and determined exclusively by binding arbitration under the Federal Arbitration Act (“FAA”), in conformity with the procedures of the California Arbitration Act (Cal. Code Civ. Proc. sec 1280 et seq., including section 1283.05 and all of the Act's other mandatory and permissive rights to discovery). The FAA applies to this Agreement because the Company's business involves interstate commerce. Included within the scope of this Agreement are all disputes, whether based on tort, contract, statute (including, but not limited to, any claims of discrimination, harassment and/or retaliation, whether they be based on the California Fair Employment and Housing Act, Title VII of the Civil Rights Act of 1964, as amended, or any other state or federal law or regulation), 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 other claims that are not subject to arbitration under current law. However, nothing herein shall prevent me from filing and pursuing proceedings before the California Department of Fair Employment and Housing, or the United States Equal Employment Opportunity Commission (although if I choose to pursue a claim following the exhaustion of such administrative remedies, that claim would be subject to the provisions of this Agreement). By this binding arbitration provision, I acknowledge and agree that both the Company and I give up our respective rights to trial by jury of any claim I or the Company may have against the other.

(Dkt. No. 9-2 at 4.)

         Paragraph 3 of the Arbitration Agreement contains a class action waiver:

All claims brought under this binding arbitration Agreement shall be brought in the individual capacity of myself or the Company. This binding arbitration Agreement shall not be construed to allow or permit the consolidation or joinder of other claims or controversies involving any other employees or parties, or permit such claims or controversies to proceed as a class action, collective action or any similar representative action. No arbitrator shall have the authority under this agreement to order any such class, collective or representative action. By signing this agreement, I am agreeing to waive any substantive or procedural rights that I may have to bring an action on a class, collective, representative, or other similar basis.

(Id.)

         Paragraph 6 contains a severability provision: “If any term, provision or portion of this Agreement is determined to be void or unenforceable it shall be severed and the remainder of this Agreement shall be fully enforceable.” (Id. at 5.)

         Each of the three Plaintiffs supplied a declaration testifying that the copies of the Employment At-Will and Arbitration Agreement proffered by Defendant “do not look familiar, ” that they lack “specific recollection of having signed” the Agreement, that they “had no idea” that they “may have signed an arbitration agreement with Brigantine” until they reviewed Defendant's exhibits, and that they lack “recollection of anyone at Brigantine ever explaining . . . that signing an arbitration agreement meant [they] could not file a lawsuit about employment issues with Brigantine, or represent other employees in a class action.” (Dkt. No. 12-4, Cleek Decl. ¶ 9; Dkt. No. 12-5, Michelson Decl. ¶ 9; Dkt. No. 12-6, Pataky Decl. ¶ 10.) None of the Plaintiffs took the agreements home for review or consulted an attorney. (Id.)

         On March 16, 2017, Defendant filed the instant motion to compel arbitration. (Dkt. No. 9.) In the alternative, Defendant requests that the Court stay the proceedings pending the Supreme Court's ruling in Morris. (Dkt. No. 9.) On April 7, 2017, Plaintiffs filed an opposition to Defendant's motion, arguing that Morris prevents the Court from compelling arbitration in the instant case, and that a stay is inappropriate. (Dkt. No. 20.) On April 21, 2017, Defendant filed a reply. (Dkt. No. 22.)

         LEGAL STANDARD

         Pursuant to the Federal Arbitration Act (“FAA”), arbitration agreements “shall be valid, irrevocable, and enforceable, save upon such grounds that exist at law or in equity for the revocation of any contract.” 9 U.S.C. § 2. The FAA provides that “a party aggrieved by the alleged failure, neglect, or refusal of another to arbitrate under a written agreement for arbitration may petition any United States district court . . . for an order directing that . . . arbitration proceed in the manner provided for in such agreement.” 9 U.S.C. § 4. Federal policy favors arbitration. Moses H. Cone Mem l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24 (1983). The FAA “establishes that, as a matter of federal law, any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration, whether the problem at hand is the construction of the contract language itself or an allegation of waiver, delay, or a like defense to arbitrability.” Id. at 24-25.

         In ruling on a motion to compel arbitration, a court must determine two gateway matters: (1) whether there is an agreement to arbitrate between the parties; and (2) whether the agreement covers the dispute. Brennan v. Opus Bank, 796 F.3d 1125, 1130 (9th Cir. 2015) (citing Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79, 84 (2002)). If these conditions are satisfied, the court lacks discretion to deny the motion and must compel arbitration. 9 U.S.C. § 4; Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213, 218 (1985) (“By its terms, the [FAA] leaves no place for the exercise of discretion by a district court, but instead mandates that district courts shall direct the parties to proceed to arbitration.”). In addition, § 3 of the FAA provides that once a court compels arbitration, the court “shall on application of one of the parties stay the trial of the action” until arbitration has occurred. 9 U.S.C. § 3. However, “[i]f the making of the arbitration agreement or the failure, neglect, or refusal to perform the same be in issue, the court shall proceed summarily to the trial thereof.” 9 U.S.C. § 4.

         DISCUSSION

         I. Motion to Compel Arbitration

         A. The Existence of the Arbitration Agreement

         “It is a settled principle of law that ‘arbitration is a matter of contract.'” Ingle v. Circuit City Stores, Inc.,328 F.3d 1165, 1170 (9th Cir. 2003) (quoting United Steelworkers of America v. Warrior & Gulf Nav. Co.,363 U.S. 574, 582 (1960)). “To evaluate the validity of an arbitration agreement, federal courts ‘should apply ordinary state-law principles that govern the ...


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