Opinion
E067822
12-06-2018
ASDEL CASTRO, Plaintiff and Respondent, v. PINNACLE PLASTERING, INC., Defendant and Appellant.
Hill, Farrer & Burrill, James A. Bowles, Richard A. Zuniga, and Elissa L. Gysi for Defendant and Appellant. James Hawkins, James R. Hawkins, and Gregory E. Mauro for Plaintiff and Respondent.
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115. (Super.Ct.No. RIC1612672) OPINION APPEAL from the Superior Court of Riverside County. Craig Riemer, Judge. Affirmed. Hill, Farrer & Burrill, James A. Bowles, Richard A. Zuniga, and Elissa L. Gysi for Defendant and Appellant. James Hawkins, James R. Hawkins, and Gregory E. Mauro for Plaintiff and Respondent.
Defendant Pinnacle Plastering, Inc. (Pinnacle) appeals a trial court order denying its petition to compel arbitration of a dispute with a former employee. The employee, Asdel Castro, sought to enforce the Labor Code on behalf of the State of California under the Private Attorneys General Act of 2004 (PAGA), Labor Code section 2698 et seq. The trial court held the Supreme Court's decision in Iskanian v. CLS Transportation Los Angeles, LLC (2014) 59 Cal.4th 348 (Iskanian) required it to refuse to enforce arbitration.
Pinnacle argues the trial court erred because (i) Castro's complaint includes individual claims that are subject to arbitration under Iskanian and (ii) Iskanian bars waiver of representative PAGA claims, but not their arbitration. We affirm because Castro's complaint states only a representative PAGA claim and private parties to a predispute arbitration agreement cannot agree to arbitrate a representative PAGA claim because the state is the real party in interest. We also conclude our holding does not violate the federal policy in favor of the arbitrability of private disputes because representative PAGA actions are fundamentally public enforcement actions.
I
FACTUAL BACKGROUND
On September 28, 2016, Castro filed a representative claim "on behalf of himself and on behalf of the general public as private attorneys general" against defendant and appellant Pinnacle. Castro characterized his case as "a representative action for recovery of penalties under [PAGA] . . . [which] permits 'aggrieved employees' to bring a lawsuit as a representative action on behalf of themselves and all other current and former employees, to recover civil penalties and address an employer's violations of the California Labor Code."
Castro alleged Pinnacle "violated various provisions of the California Labor Code and relevant IWC Wage Orders." He claimed he had worked for Pinnacle as a plasterer, and the company failed to provide himself and other employees paid rest periods, meal breaks, overtime wages, wages complying with minimum wage and prevailing wage requirements, and failed to keep accurate records of time worked, and to pay accurate wages earned upon separation. In the prayer for relief, he requested "penalties according to proof, pursuant to Labor Code §§ 2698 et seq.; [¶] . . . reasonable attorneys' fees and costs; and [¶] . . . such other and further relief as the Court deems proper."
Pinnacle did not answer, but instead filed a petition to compel arbitration. It produced a copy of a document entitled "Employee Agreement to Arbitrate" (agreement), which Castro accepted as a condition of employment. The agreement required Castro to "submit to final and binding arbitration any and all claims and disputes . . . related in any way to my employment or the termination of my employment with the Company." The agreement says "by agreeing to use arbitration to resolve my disputes, . . . I agree to forego any right [I] may have had to a jury trial . . . and forego any right to bring claims on a class or collective basis."
The Supreme Court had decided Iskanian when Pinnacle filed its petition. That decision holds predispute waivers requiring employees as a condition of employment to give up the right to assert a representative PAGA claim are unenforceable. (Iskanian, supra, 59 Cal.4th at pp. 360-361.) Pinnacle argued the Supreme Court's decision does not bar requiring Castro to arbitrate in this dispute because (1) Castro brought individual Labor Code claims, not a true PAGA claim, and in any event, (2) Castro may be required to arbitrate his representative PAGA claim, even if the waiver provision is unenforceable as it affects such claims.
In the alternative, assuming Castro had separate individual and representative claims, Pinnacle asked the trial court to compel arbitration of Castro's individual claims and stay his representative PAGA claim pending the outcome of the arbitration. To support its argument Castro's claims were wholly or partially nonPAGA individual claims, Pinnacle pointed to parts of the complaint where Castro said he was seeking damages rather than PAGA penalties. For example, the initial complaint said Castro was "seeking unpaid overtime wages, seeking rest and meal period compensation, minimum wages, prevailing wages, penalties, and other equitable relief, and reasonable attorneys' fees and costs." Thus, Pinnacle argued, he sought standard damages for wage and hour violations rather than or in addition to civil penalties available under PAGA.
Castro disclaimed any intent to bring individual claims or to seek damages instead of civil penalties. At a hearing on the petition to compel arbitration, the trial court accepted his representation, but ordered him to amend his complaint to remove the language to which Pinnacle objected. Castro complied by filing an amended complaint omitting references to damages. The court denied Pinnacle's petition, ruling the complaint was most naturally interpreted as asserting only a representative PAGA claim and the predispute agreement to arbitrate could not be enforced because Castro brought the claim on behalf of the State of California, which is the real party in interest. Pinnacle appealed.
II
DISCUSSION
A. Standard of Review and Legal Background of PAGA Claims
"A petition to compel arbitration is a suit in equity seeking specific performance of an arbitration agreement. [Citation.] Under Code of Civil Procedure section 1281.2, a petition to compel arbitration of a claim may be denied when the arbitration agreement is unenforceable [citation] or the claim is not subject to the arbitration agreement [citations]. [¶] . . . [T]he standard of review applicable to the denial of a petition to compel arbitration is determined by the issues presented on appeal [citation]. . . . [If] the denial relies on a pertinent factual finding, we review that finding for the existence of substantial evidence. [Citation.] . . . [If] the denial relies on a determination of law, we review the trial court's resolution of that determination de novo. [Citation.] . . . [W]e are not bound by the trial court's rationale, and thus may affirm the denial on any correct legal theory supported by the record, even if the theory was not invoked by the trial court." (Julian v. Glenair, Inc. (2017) 17 Cal.App.5th 853, 863-864.)
Numerous courts have discussed the history and policy rationale of PAGA. (See generally Arias v. Superior Court (2009) 46 Cal.4th 969, 980-981; Iskanian, supra, 59 Cal.4th at p. 382; Julian v. Glenair, Inc., supra, 17 Cal.App.5th at pp. 865-867; Tanguilig v. Bloomingdale's, Inc. (2017) 5 Cal.App.5th 665, 670-671.) We need not repeat the exposition here. Suffice to say PAGA deputizes aggrieved employees to enforce California's labor laws, empowering them to bring representative civil actions to recover civil penalties for their employers' violations. Such civil actions are representative in two senses. A PAGA plaintiff sues on behalf of other employees to recover penalties due for violations of their statutory rights, and sues as the proxy or agent of the state, to vindicate its interest in enforcing compliance with the labor laws. (Julian v. Glenair, Inc., at pp. 865-866, fn. 6.)
Before bringing a PAGA action, the aggrieved employee must give written notice of the alleged violation to the employer and the California Labor and Workforce Development Agency (LWDA), and the agency has a period in which to investigate and/or issue a citation before the employee may proceed to litigation. (Lab. Code, § 2699.3; Thurman v. Bayshore Transit Management, Inc. (2012) 203 Cal.App.4th 1112, 1148-1149.) Only after the LWDA has passed on enforcement may the employee commence a civil action. Seventy-five percent of civil penalties recovered by an aggrieved employee under PAGA go to the LWDA, and the remainder goes to the aggrieved employees. (Lab. Code, § 2699, subd. (i).) "[A] judgment unfavorable to the employee binds the government, as well as all aggrieved nonparty employees potentially entitled to assert a PAGA action." (Julian v. Glenair, Inc., supra, 17 Cal.App.5th at p. 867.)
In Iskanian, our Supreme Court held predispute waivers requiring employees, as a condition of employment, to give up the right to assert a representative PAGA claim are unenforceable. (Iskanian, supra, 59 Cal.4th at pp. 360-361.) Pinnacle argues the trial court erred in finding Iskanian to be controlling in this case for two primary reasons. First, it argues, Castro's claims are individual, not representative, and he was therefore required to arbitrate them. Relatedly, and in the alternative, Pinnacle argues Castro brought both individual and representative claims, and the trial court should have ordered the individual claims arbitrated and stayed the representative claim. Second, Pinnacle argues Iskanian bars only predispute agreements to waive representative claims, not predispute agreements to arbitrate them, so we should enforce arbitration even if we conclude his complaint states only a representative PAGA claim.
We take each argument in turn.
B. Individual versus Representative Claims
Pinnacle first argues the trial court erred in construing Castro's complaint. As we've noted, the trial court read the complaint as stating a single representative PAGA claim, not individual claims for violations of the Labor Code. Castro, for his part, disclaimed any individual claims and amended his pleading to omit requests for damages not available under PAGA. Pinnacle argues the trial court misconstrued the complaint and we should construe it as stating only individual claims or individual claims in addition to a representative claim. Pinnacle's ultimate point is to argue such individual claims can be arbitrated despite Iskanian and its progeny and that they must be arbitrated under the parties' agreement.
The interpretation of pleadings is a matter of law subject to independent review. (Upland Anesthesia Medical Group v. The Doctor's Co. (2002) 100 Cal.App.4th 1137, 1144.) We "give the complaint a reasonable interpretation, reading it as a whole and its parts in their context." (Blank v. Kirwan (1985) 39 Cal.3d 311, 318.) We conclude the trial court's interpretation is the only natural one. The complaint is entitled "PAGA Representative Action," and subtitled "Civil Penalties under the Private Attorneys General Act (Labor Code §§ 2698 et seq.)." It opens by stating Castro "on behalf of himself and on behalf of the general public as private attorneys general ('Plaintiff'), hereby asserts representative claims against [Pinnacle]." The introduction states the case is a representative PAGA claim to recover civil penalties. And the prayer for relief seeks penalties under the PAGA statute and not damages. Indeed requests for civil penalties under PAGA litter the body of the complaint.
Only a few stray allegations suggest Castro sought to bring any other kind of claim. For example, the original complaint indicated in places that Castro sought damages, not civil penalties. So, in paragraph 13, the complaint says Castro is "seeking unpaid overtime wages, seeking rest and meal period compensation, minimum wages, prevailing wages" as well as "penalties, and other equitable relief, and reasonable attorneys' fees and costs." Such damages are not available in a PAGA action. In other places, the complaint includes references to the "Plaintiff's Class" and "Class Members," as if the case was brought as a wages and hours class action. However, we agree with the trial court that those portions of the pleadings were the result of inartful drafting, not an attempt to bring individual or class action claims in addition to the PAGA claim allegations that take up most of the complaint.
It is true, as Pinnacle notes, the body of the complaint alleges Pinnacle violated Castro's and other employees' rights under several other provisions of the Labor Code. However, it does not follow that the complaint articulates individual or class action claims based on those provisions. Such allegations are required as predicate violations to state a PAGA representative claim. Labor Code section 2699, subdivision (a) provides "any provision of this code that provides for a civil penalty to be assessed and collected . . . for a violation of this code, may, as an alternative, be recovered through a civil action brought by an aggrieved employee on behalf of himself or herself and other current or former employees." Section 2699.3 sets out the procedure for making such a claim, and section 2699.5 enumerates the provisions of the Labor Code that may serve as predicate violations. Those PAGA predicates are the violations on which Castro has built his PAGA claim. Thus, the fact that Castro alleged Pinnacle violated other Labor Code provisions supports rather than undermines his position that he brought a single representative PAGA claim.
Nor does the fact Castro claimed Pinnacle violated his own rights show he has separable individual PAGA claims. To bring a claim, a PAGA plaintiff must be an "aggrieved employee," which the statute defines as "any person who was employed by the alleged violator and against whom one or more of the alleged violations was committed." (Lab. Code, § 2699, subds. (a) & (c).) Thus, Castro was required to plead violations that affected himself in addition to violations affecting other employees to state a representative PAGA claim. Consequently, those allegations do not suggest Castro brought anything other than a representative claim. Nor do they support severing a portion of the case and sending it to arbitration before proceeding to the representative PAGA claim in court. (Williams v. Superior Court (2015) 237 Cal.App.4th 642, 649 ["[P]etitioner cannot be compelled to submit any portion of his representative PAGA claim to arbitration, including whether he was an 'aggrieved employee'"]; Reyes v. Macy's, Inc. (2011) 202 Cal.App.4th 1119, 1124 ["Because the PAGA claim is not an individual claim, it was not within the scope of [the employer's] request that individual claims be submitted to arbitration"].)
We note our conclusion is overdetermined. For the trial court recognized the errors in the original pleading, noted Castro was at that point in the litigation able to amend the complaint as a matter of right, and ordered him to do so to clarify the nature of the action. Castro filed an amended complaint promptly, which removed the stray references to class members and damages. The amended complaint is the operative pleading, and it plainly states a single representative PAGA claim. Thus, there really is no basis for Pinnacle to argue Castro has asserted individual claims. Its strong desire to arbitrate the dispute doesn't justify maintaining those arguments.
For all these reasons, we conclude the trial court's interpretation of the pleadings was correct. Castro stated a single representative PAGA claim. It follows that we need not address Pinnacle's numerous arguments that Castro's individual claims are arbitrable and must be arbitrated under the agreement. All that remains is the question whether Pinnacle is entitled to compel arbitration of the representative PAGA claim.
C. Predispute Agreements to Arbitrate Representative PAGA Claims
In Iskanian, the Supreme Court decided the employee was required to arbitrate individual damages claims, had waived his class claims, but a predispute provision requiring him to waive his representative PAGA claim was unenforceable. It did not, however, decide whether a predispute arbitration agreement between an employee and employer can force a representative PAGA claim into arbitration.
Addressing how the Iskanian case should proceed on remand, the court noted "neither party can get all that it wants. Iskanian must proceed with bilateral arbitration on his individual damages claims, and [his employer] must answer the representative PAGA claims in some forum. The arbitration agreement gives us no basis to assume that the parties would prefer to resolve a representative PAGA claim through arbitration. [¶] This raises a number of questions . . . [including] [w]ill the parties agree on a single forum for resolving the PAGA claim and the other claims?" (Iskanian, supra, 59 Cal.4th at p. 391; see also Sakkab v. Luxottica Retail N. Am., Inc. (9th Cir. 2015) 803 F.3d 425, 440 [holding waiver of employees' representative PAGA claims unenforceable and noting "It is unclear . . . whether the parties have agreed to arbitrate such surviving claims or whether they must be litigated instead" and returned the case to the district court "to decide in the first instance where Sakkab's representative PAGA claims should be resolved"].)
Our analysis assumes, without deciding, that after severing the provision requiring waiver of representative PAGA claims, the agreement would require arbitration of such claims. As in Iskanian, we think the arbitration agreement gives us no basis to conclude the parties would agree to resolve a representative PAGA claim through arbitration. (Iskanian, supra, 59 Cal.4th at p. 391.)
Pinnacle argues these cases affirmatively decide representative PAGA claims can be arbitrated under predispute agreements. That's a misconstrual. In the first place, though the courts recognized the issue of arbitration may arise after they invalidated a waiver provision, neither case raised the issue. "'It is axiomatic that cases are not authority for propositions not considered.' [Citation.] 'The holding of a decision is limited by the facts of the case being decided, notwithstanding the use of overly broad language by the court in stating the issue before it or its holding or in its reasoning.'" (People v. Jennings (2010) 50 Cal.4th 616, 684.) Iskanian and Sakkab simply did not decide whether private parties can agree to arbitrate a representative PAGA claim.
Second, and more fundamental, any suggestion in Iskanian and Sakkab that the parties may agree to arbitrate representative PAGA claims concerns postdispute agreements to arbitrate. The Iskanian decision makes that clear. The Court raised the possibility of arbitration in discussing what issues may arise on remand. It held the predispute arbitration agreement did not resolve whether the parties would agree to arbitrate representative PAGA claims, but noted the parties may subsequently agree to resolve the (arbitrable) individual claims and the PAGA claim in a single forum. To the extent that dicta approves agreements to arbitrate PAGA representative claims at all, it approves only postdispute agreements to arbitrate, which do not raise the same problems as predispute agreements to arbitrate. (Iskanian, supra, 59 Cal.4th at pp. 391-392.)
As it happens, a prior panel of this court has addressed the issue whether predispute agreements to arbitrate representative PAGA claims are enforceable and decided the answer is no. Based on the reasoning in Iskanian, our court held a predispute agreement between an employee and an employer cannot require arbitration of a representative PAGA claim because the state is the real party in interest and the state was not a party to the agreement. (Betancourt v. Prudential Overall Supply (2017) 9 Cal.App.5th 439, 447.) We emphasized the qui tam nature of PAGA claims as interpreted in Iskanian. "Contrary to [the employer's] position, Iskanian provides, 'Simply put, a PAGA claim . . . is not a dispute between an employer and an employee arising out of their contractual relationship. It is a dispute between an employer and the state . . .' [Citation.] Thus, the fact that [the employee] may have entered into a predispute agreement to arbitrate does not bind the state to arbitration." (Betancourt, at p. 447.) As we also held in Betancourt, the same reasoning compels the conclusion the state is not obligated to allow an arbitrator to decide arbitrability in the first instance. (Id. at pp. 447-448.) Though we have latitude to depart from our own prior decisions, we exercise it only when there is good reason to do so. (Lucent Technologies, Inc. v. Board of Equalization (2015) 241 Cal.App.4th 19, 35.) We see no good reason to depart from Betancourt. Indeed, we find additional support for our prior decision in the fact that an unfavorable judgment in a PAGA representative claim would be binding on the state. (Julian v. Glenair, Inc., supra, 17 Cal.App.5th at p. 867.)
Our holding is limited to the enforceability of predispute agreements to arbitrate. We take no position on whether parties may agree to arbitrate after a dispute has fully ripened. It is conceivable such later agreements to arbitrate may be enforceable. For example, a PAGA plaintiff who provides notice to her employer and the LDWA and ultimately receives clearance from the state to pursue a representative PAGA claim may acquire the authority to agree to resolve the dispute in arbitration. At that point, the plaintiff would understand the claims she is permitted to pursue, and the state would have ceded to the employee the authority to prosecute. Thus, the plaintiff would have both the knowledge and the authority necessary to choose the forum. (Julian v. Glenair, Inc., supra, 17 Cal.App.5th at pp. 871-872.) The plaintiff in Iskanian found himself in exactly those circumstances after the Supreme Court decided his case. The violations had occurred, he had given notice of his claims to the state and his employer, and the state had ceded authority to pursue the claim. It's possible, though unlikely, the parties to this case may decide after remand to arbitrate the case, but we have no call to decide that question today.
We have considered Epic Systems Corporation v. Lewis, 2018 WL 2292444 (May 21, 2018), which Pinnacle submitted as new authority, but find it inapposite. There, the U.S. Supreme Court considered, among other things, whether a savings clause in the FAA allowing courts to refuse to enforce arbitration agreements "upon such grounds as exist at law or in equity for the revocation of any contract" provided a basis for avoiding arbitration based on the National Labor Relation Act's preservation of the right to pursue collective action. (Epic Systems Corporation, at pp. *6-*7.) The high court determined that defense did not apply to contracts generally. Here, we determine that predispute arbitration agreements of PAGA representative claims are unenforceable for a reason that does apply to any contract, namely that Pinnacle seeks to enforce a contractual provision to bind a nonparty.
We also conclude our holding does not conflict with the federal policy favoring the arbitration. The Federal Arbitration Act (FAA) '"aims to ensure an efficient forum for the resolution of private disputes, whereas a PAGA action is a dispute between an employer and the state [LWDA]."' (Tanguilig v. Bloomingdale's, Inc., supra, 5 Cal.App.5th at p. 671.) "[A]n action to recover civil penalties 'is fundamentally a law enforcement action designed to protect the public and not to benefit private parties' [citation]. . . ." [Citation.] [¶] . . . [¶] A PAGA representative action is therefore a type of qui tam action. . . . The government entity on whose behalf the plaintiff files suit is always the real party in interest in the suit." (Ibid.)
"'Nothing in the text or legislative history of the FAA nor in the Supreme Court's construction of the statute suggests that the FAA was intended to limit the ability of states to enhance their public enforcement capabilities by enlisting willing employees in qui tam actions. Representative actions under the PAGA, unlike class action suits for damages, do not displace the bilateral arbitration of private disputes between employers and employees over their respective rights and obligations toward each other. Instead, they directly enforce the state's interest in penalizing and deterring employers who violate California's labor laws.'" (Tanguilig v. Bloomingdale's, Inc., supra, 5 Cal.App.5th at p. 671 [quoting Iskanian, supra, 59 Cal.4th at pp. 387-388].) We therefore conclude barring enforcement of a predispute agreement between an employer and employee to arbitrate representative PAGA claims does not run afoul of FAA preemption principles.
III
DISPOSITION
We affirm the order denying Pinnacle's petition to compel arbitration. Pinnacle shall bear Castro's costs on appeal.
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
SLOUGH
J. We concur: RAMIREZ
P. J. McKINSTER
J.