Cedric A Beaty vs Homer T Hayward Lumbar Co et al

Case Number

22CV04265

Case Type

Hearing Date / Time

Fri, 06/14/2024 - 10:00

Nature of Proceedings

Motion to Compel

Tentative Ruling

For the reasons set forth herein:

1. Defendants’ Motion to Compel Plaintiff Cedric A. Beaty to Submit to Arbitration, against both Homer T. Hayward Lumber Co. and United Staffing Associates, LLC, is granted.
2. The action is stayed pending the completion of arbitration of Beaty’s individual claims.

Background:

This action commenced on October 28, 2022, by the filing of the Private Attorneys General Act (“PAGA”) complaint by plaintiff Cedric A. Beaty (“Beaty”) against defendants Homer T. Hayward Lumber Company (“HLC”) and United Staffing Associates, LLC (“USA;” collectively “defendants”), setting forth allegations of: (1) Failure to Pay for All Hours Worked; (2) Failure to Provide Meal Periods; (3) Failure to Authorize and Permit Rest Periods; (4) Failure to Pay All Earned Wages Twice per Month; (5) Failure to Maintain Accurate Records of Hours Worked and Meal Periods; (6) Failure to Pay all Wages at Termination; (7) Failure to Furnish Accurate Itemized Wage Statements; and (8) Failure to Indemnify for Necessary Expenditures.

According to Vice President of Human Resources and Employment Counsel for USA, Shawnte Priest: USA is a temporary staffing agency that offers temporary staffing, temporary-to-hire staffing, and direct placement services to different employers as needed. (Priest Dec., ¶ 3.) On September 26, 2017, USA registered Beaty for placement with potential employers and placed him with HLC on September 27, 2017. (Priest Dec., ¶ 5.) These facts are not disputed by plaintiffs.

Defendants now move to compel Beaty to submit his claims to arbitration pursuant to an arbitration agreement that was executed by Beaty and USA. Beaty does not dispute that he executed the arbitration agreement.

Beaty opposes the motion.

Analysis:

“California law, like federal law, favors enforcement of valid arbitration agreements.” (Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, 97.)

“Under both federal and California state law, arbitration is a matter of contract between the parties.” (Badie v. Bank of America (1998) 67 Cal.App.4th 779, 787.)

Arbitration agreements are valid and enforceable under both California and Federal Law. “A written agreement to submit to arbitration an existing controversy or a controversy thereafter arising is valid, enforceable and irrevocable, save upon such grounds as exist for the revocation of any contract.” (Code Civ. Proc., § 1281.)

California Code of Civil Procedure section 1281.2 provides that “(o)n petition of a party to an arbitration agreement alleging the existence of a written agreement to arbitrate a controversy and that a party thereto refuses to arbitrate such controversy, the court shall order the petitioner and the respondent to arbitrate the controversy if it determines that an agreement to arbitrate the controversy exists, unless it determines that . . . [¶] . . . [¶] . . . [g]rounds exist for the revocation of the agreement.”

“ ‘Doubts as to whether an arbitration clause applies to a particular dispute are to be resolved in favor of sending the parties to arbitration. The court should order them to arbitrate unless it is clear that the arbitration clause cannot be interpreted to cover the dispute.’ “ (California Correctional Peace Officers Assn. v. State (2006) 142 Cal.App.4th 198,205.)

1. Existence of the Arbitration Agreement.

The preliminary question that must be addressed is the existence of the arbitration agreement.

Defendants have provided a copy of the arbitration agreement executed by Beaty in connection with his new hire and registration process. As relevant to the present motion, the agreement includes:

“This Agreement is governed by the Federal Arbitration Act, 9 U.S.C. § 1 et seq. and evidences a transaction involving commerce. This Agreement applies to any dispute arising out of or related to Employee’s employment with United Staffing Associates, LLC, USA Staffing, Inc., or one of its affiliates, subsidiaries or parent companies . . . or termination of employment. Except as otherwise provided in this Agreement, this Agreement applies to any dispute that Company may have against Employee or that Employee may have against: (1) Company; (2) its officers, directors, principals, shareholders, members, owners, employees, or agents; (3) Company’s clients; (4) Company’s benefit plans or the plan’s sponsors, fiduciaries, administrators, affiliates, or agents; and 95) all successors and assigns of any of them.” (Agreement, ¶ 1.)

“Except as it otherwise provides, this Agreement is intended to apply to the resolution of disputes that otherwise would be resolved in a court of law, and therefore this Agreement requires all such disputes to be resolved only by an arbitrator through final and binding arbitration and not by way of court or jury trial. Such disputes include without limitation disputes arising out of or relating to interpretation or application of this Agreement, but not as to the enforceability, revocability or validity of the Agreement or any portion of the Agreement.” (Ibid.)

“You and the Company agree to bring any dispute in arbitration on an individual basis only, and not on a class, collective, or private attorney general basis. Accordingly,

          “(a) There will be no right or authority for any dispute to be brought, heard or arbitrated as a class action (“Class Action Waiver”). The Class Action Waiver shall be severable from this Agreement in any case in which (1) the dispute is filed as a class action and (2) there is a final judicial determination that the Class Action Waiver is unenforceable. In such instances, the class action must be litigated in a civil court of competent jurisdiction.

          “(b) There will be no right or authority for any dispute to be brought, heard or arbitrated as a collective action (“Collective Action Waiver”). The Collective Action Waiver shall be severable from this Agreement in any case in which (1) the dispute is filed as a collective action and (2) there is a final judicial determination that the Collective Action Waiver is unenforceable. In such instances, the collective action must be litigated in a civil court of competent jurisdiction.

          “(c) There will be no right or authority for any dispute to be brought, heard or arbitrated as a private attorney general action (“Private Attorney General Waiver”). The Private Attorney General Waiver does not apply to any claim you bring in arbitration as a private attorney general solely on your own behalf and not on behalf of or regarding others. The Private Attorney General Waiver shall be severable from this Agreement in any case in which there is a final judicial determination that the Private Attorney General Waiver is unenforceable. In such instances and where the claim is brought as a private attorney general, such private attorney general claims must be litigated in a civil court of competent jurisdiction.” (Agreement, ¶ 5.)

“The Class Action Waiver, Collective Action Waiver and Private Attorney General Waiver shall be severable in any case in which the dispute is filed as an individual action and severance is necessary to ensure that the individual action proceeds in arbitration.” (Ibid.)

“Arbitration is not a mandatory condition of Employee’s employment at the Company, and therefore an Employee may submit a statement notifying the Company that the Employee wishes to opt out and not be subject to this Agreement. If an Employee wants to opt out, he or she must notify the Company of the intention to opt out by submitting a signed and dated statement on a ‘Dispute Resolution Agreement Opt Out Form’ that can be obtained from and returned to the Company’s Human Resources Department at 505 Higuera St., San Luis Obispo, CA 93401 or by submitting to that Department a written statement signed and dated by Employee and containing Employee’s Identification Number stating that Employee is opting out of this Agreement. In order to be effective, the opt out notice must be provided within 30 days of Employee’s receipt of this Agreement. An employee who timely opts out as provided in this paragraph will not be subject to any adverse employment action as a consequence of that decision and may pursue available legal remedies without regard to this Agreement. Should an Employee not opt out of this Agreement within 30 days of the Employee’s receipt of this Agreement, continuing the Employee’s employment constitutes mutual acceptance of the terms of this Agreement by Employee and the Company. An Employee has the right to consult with counsel of the Employee’s choice concerning this Agreement.” (Agreement, ¶ 8.)

“General principles of contract law determine whether the parties have entered a binding agreement to arbitrate.” (Craig v. Brown & Root, Inc. (2000) 84 Cal.App.4th 416, 420.) “The party seeking arbitration bears the burden of proving the existence of an arbitration agreement, and the party opposing arbitration bears the burden of proving any defense, such as unconscionability.” (Pinnacle Museum Tower Assn. v. Pinnacle Market Development (US), LLC (2012) 55 Cal.4th 223, 236.)

As defendants have met their burden of demonstrating the existence of the agreement, the burden now shifts to Beaty to demonstrate grounds which require that the agreement not be enforced.

2. Federal Arbitration Act.

Defendants argue that the Federal Arbitration Act (“FAA”) governs the interpretation of the agreement. Beaty argues that it does not.

“[T]he basic purpose of the Federal Arbitration Act is to overcome courts’ refusals to enforce agreements to arbitrate. [Citation.] The origins of those refusals apparently lie in “ ‘ “ancient times,” ’ ” when the English courts fought “ ‘ “for extension of jurisdiction - all of them being opposed to anything that would altogether deprive every one of them of jurisdiction.” ’ ” [Citations.] American courts initially followed English practice, perhaps just “ ‘ “stand[ing] . . . upon the antiquity of the rule” ’ ” prohibiting arbitration clause enforcement, rather than “ ‘ “upon its excellence or reason.” ’ ” [Citations.] Regardless, when Congress passed the Arbitration Act in 1925, it was “ ‘motivated, first and foremost, by a . . . desire’ ” to change this arbitration rule. [Citation.] It intended courts to “ ‘enforce [arbitration] agreements into which parties had entered,’ ” [citation], and to “ ‘place such agreements “ ‘upon the same footing as other contracts, “ ’ ” [Citations.].” (Allied-Bruce Terminix Companies, Inc. v. Dobson (1995) 513 U.S. 265, 270-271.)

“The party asserting the FAA bears the burden to show it applies by presenting evidence establishing the contract with the arbitration provision has a substantial relationship to interstate commerce.” (Carbajal v. CWPCS, Inc. (2016) 245 Cal.App.4th 227, 234.) “In determining whether the employment agreement involved interstate commerce, the parties’ subjective intent is not the determining factor. “ ‘[E]videncing a transaction involving commerce’ ” (9 U.S.C. § 2) simply means that “ ‘the ‘transaction’ in fact ‘involv[e]s’ interstate commerce, even if the parties did not contemplate an interstate commerce connection.’ ” [Citation.]” (Giuliano v. Inland Empire Personnel, Inc. (2007) 149 Cal.App.4th 1276, 1286.)

The United States Supreme Court has “interpreted the term ‘involving commerce’ in the FAA as 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. [Citation.]” (The Citizens Bank v. Alafabco, Inc. (2003) 539 U.S. 52, 56.) Under this broad interpretation, “application of the FAA [is not] defeated because the individual [transaction], taken alone, did not have a ‘substantial effect on interstate commerce.’ [Citation.] Congress’ Commerce Clause power ‘may be exercised in individual cases without showing any specific effect upon interstate commerce’ if in the aggregate the economic activity in question would represent ‘a general practice ... subject to federal control.’ [Citations.] Only that general practice need bear on interstate commerce in a substantial way. [Citations.]” (Id. at pp. 56-57.)

Although defendants argue that they engage in interstate commerce, defendants have not provided any admissible evidence of the same. Defendants have failed to meet their burden to show that the FAA is applicable due to their involvement in interstate commerce.

However, as stated above, the arbitration agreement specifically provides, in the first line, that the agreement is governed by the FAA.

In the absence of a substantial relationship to interstate commerce “the language of the Agreement, not an analysis of interstate commerce, dictates the applicable law.” (Valencia v. Smyth (2010) 185 Cal.App.4th 153, 179.)

Here, the parties entered into an agreement that any disputes will be determined by arbitration under the FAA. This agreement is sufficient to determine that the FAA is applicable to the arbitration.

Beaty argues that Labor Code section 229 prohibits arbitration of wage and hour claims, yet acknowledge that if the FAA applies section 229 is preempted. “In matters in which the FAA applies, it preempts Labor Code section 229, requiring arbitration of claims that otherwise could be resolved in court.” (Performance Team Freight Systems, Inc. v. Aleman (2015) 241 Cal.App.4th 1233, 1240.)

Thus, the FAA governs the agreement and arbitration is not barred by section 229.

3. Waiver Due to Delay

Beaty argues that arbitration is waived by defendants’ unreasonable delay in demanding arbitration because the present motion was made 15 months after the case was filed and more than a year after the initial case management conference.

“ ‘[W]aiver of the right to compel arbitration is a rule for arbitration, such that the FAA controls. Rules for arbitration include principles that affect the ‘ “allocation of power between alternative tribunals.” ’ [Citation.] Waiver, in the arbitration context, involves the circumstances under which a party is foreclosed from electing an arbitration forum. Therefore, the question of whether a party has waived its right to compel arbitration directly concerns the allocation of power between courts and arbitrators. Cf. Moses H. Cone [Hospital] v. Mercury Constr. Corp., [1982] 460 U.S. 1, 24–25, 103 S. Ct. 927 [, 74 L.Ed.2d 765] . . . (explaining that ‘ “an allegation of waiver” ’ must be resolved in light of the FAA’s preference for arbitration).’ ” [Citations.] Therefore, “ ‘it is federal law, not state, that governs the inquiry into whether a party has waived its right to arbitration.’ ” [Citations.]” (Aviation Data, Inc. v. American Express Travel Related Services Co., Inc. (2007) 152 Cal.App.4th 1522, 1535 (Aviation Data).)

“To prove that a waiver of arbitration exists, a party must demonstrate “ ‘(1) knowledge of an existing right to compel arbitration; (2) acts inconsistent with that existing right; and (3) prejudice to the party opposing arbitration resulting from such inconsistent acts.’ ” [Citation.] The party arguing waiver “ ‘bears a heavy burden of proof.’ ” [Citation.] Any doubts as to waiver are resolved in favor of arbitration. [Citations.]” (Creative Telecommunications, Inc. v. Breeden (1999) 120 F.Supp.2d 1225, 1232.)

The Ninth Circuit has determined that waivers of contractual rights to arbitration ‘are not favored.’ [Citation.] Thus, to waive arbitration rights, a party must ‘substantially invok[e] the litigation machinery’ in such a way as to prejudice the other party. [Citations.].... If there is any ambiguity as to the scope of the waiver, the court must resolve the issue in favor of arbitration.” (Ibid.)

“Although prejudice is generally relevant, the federal circuits differ on the nature and degree of prejudice necessary to find waiver [citations], and at least one circuit has expressly rejected the notion that prejudice is a separate and independent element of the showing necessary to demonstrate waiver of the right to arbitrate. [Citation.] To the extent a showing of prejudice is required, it may come in different guises. “ ‘This Court has recognized two types of prejudice: substantive prejudice and prejudice due to excessive cost and time delay. ‘ “Prejudice can be substantive, such as when a party loses a motion on the merits and then attempts, in effect, to relitigate the issue by invoking arbitration, or it can be found when a party too long postpones his invocation of his contractual right to arbitration, and thereby causes his adversary to incur unnecessary delay or expense.” ’ [Citation.]” [Citation.]” (Aviation Data, supra, 152 Cal.App.4th at p. 1538.)

As set forth in the supplemental declaration of defense counsel (“Supp. Dec.”), and as reflected in court filings:

On February 16, 2023, defendants filed a CMC statement which references arbitration several times and indicates that discovery will be complete “Per Arbitrator.”

The parties agreed to engage in mediation of plaintiffs’ claims in May 2023. (Supp. Dec., ¶ 2.)

On June 15, 2023, defendants filed a CMC statement which represented that the parties had mediation scheduled to take place on August 31, 2023. (Supp. Dec., ¶ 3 & Exh. A.) There are several references to arbitration contained in the CMC. The CMC statement also referenced that discovery would be completed “Per Arbitrator.”

On September 21, 2023, defendants filed another CMC statement indicating that there was a mediation session scheduled for September 19, 2023, and stating that “Defendants will move to compel arbitration if mediation is unsuccessful.” (Supp. Dec., ¶ 4 & Exh. B.) The CMC statement also referenced that discovery would be completed “Per Arbitrator.”

Defendants have not filed any cross-complaints, demurred to plaintiff’s complaint, propounded any discovery, or taken any depositions. No trial date has been set.

[Note: The court has used the dates that the documents were filed with the court rather than the dates indicated in the Supp. Dec. as the dates are not consistent with one another.]

Given the totality of the circumstances, it appears that any delay in moving to compel arbitration was due to efforts at mediation and settlement of plaintiff’s claims. Given this intended goal, and defendants’ consistent references to compelling arbitration should settlement efforts fail, the court does not find that the delay was unreasonable. Plaintiff does not set forth any other grounds for his waiver argument and the court does not find that defendants have waived arbitration on any grounds.

4. Unconscionability.

Plaintiff argues that the arbitration agreement is unenforceable because it is unconscionable. Defendants argue that it is not.

“Unconscionable arbitration agreements are not enforceable.” (Wherry v. Award, Inc. (2011) 192 Cal.App.4th 1242, 1245.) “To be voided on this ground, the agreement must be both procedurally and substantively unconscionable.” (Ibid.) Procedural unconscionability focuses on oppression or surprise due to unequal bargaining power: substantive unconscionability on overly harsh or one-sided results. (Sonic-Calabasas A, Inc. v. Moreno (2013) 57 Cal. 4th 1109.) “But they need not be present to the same degree.” (Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, 114.) Rather, the court invokes a “sliding scale” to determine unconscionability: “The more substantively oppressive the contract term, the less evidence of procedural unconscionability is required to come to the conclusion that the term is unenforceable, and vice versa.” (Ibid.) The burden of proving unconscionability rests upon the party asserting it.” (OTO, L.L.C. v. Kho (2019) 8 Cal.5th 111, 126.) Unconscionability is a question of law. (Malone v. Superior Court (2014) 226 Cal.App.4th 1551, 1562.)

Most employment related arbitration agreements are procedurally unconscionable because they are presented on a “take-it-or-leave-it” basis. “ ‘The term [contract of adhesion] signifies a standardized contract, which, imposed and drafted by the party of superior bargaining strength, relegates to the subscribing party only the opportunity to adhere to the contract or reject it.’ ” [Citation.] “ ‘Arbitration contracts imposed as a condition of employment are typically adhesive.’ ” [Citation.]” (Davis v. Kozak (2020) 53 Cal.App.5th 897, 906.)

However, the arbitration agreement at issue here contains a clear opt-out provision.

“If the offeree has a meaningful opportunity to freely opt out of a term after assenting to the contract, and the terms of the contract are clear, then the contract is not being offered on a take-it-or-leave-it basis. [Citations.]” (Guadagno v. E*Trade Bank (2008) 592 F. Supp.2d 1263, 1270.) “Because the Arbitration clause containing the waiver was not presented on a take-it-or-leave-it basis, but gave [plaintiff] sixty days to opt out, it was not unconscionable.” (Ibid.)

The court finds no procedural or substantive unconscionability. Both Beaty and defendants are bound by the terms of the agreement.

5. Applicability to Non-Signatory HLC

Plaintiff argues that the arbitration agreement is inapplicable to HLC because it is not a party to the agreement.

“A contract, made expressly for the benefit of a third person, may be enforced by him at any time before the parties thereto rescind it.” (Civ. Code, § 1559.) In evaluating whether a third party is a beneficiary, a court must analyze the “express provisions of the contract at issue, as well as all of the relevant circumstances” to determine (1) whether the third party would in fact benefit from the contract . . . (2) whether a motivating purpose of the contracting parties was to provide a benefit to the third party, and (3) whether permitting a third party to [enforce the contract] against a contracting party is consistent with the objectives of the contract and the reasonable expectations of the contracting parties. All three elements must be satisfied to permit the third party action to go forward.” (Goonewardene v. ADP, LLC (2019) 6 Cal.5th 817, 830.)

Under the doctrine of equitable estoppel, “a nonsignatory defendant may invoke an arbitration clause to compel a signatory plaintiff to arbitrate its claims when the causes of action against the nonsignatory are ‘intimately founded in and intertwined’ with the underlying contract obligations.” (Boucher v. Alliance Title Co., Inc. (2005) 127 Cal.App.4th 262, 271.) “By relying on contract terms in a claim against a nonsignatory defendant, even if not exclusively, a plaintiff may be equitably estopped from repudiating the arbitration clause contained in that agreement.” (Id. at p. 272.) “[I]f a plaintiff relies on the terms of an agreement to assert his or her claims against a nonsignatory defendant, the plaintiff may be equitably estopped from repudiating the arbitration clause of that very agreement. In other words, a signatory to an agreement with an arbitration clause cannot’ “ ‘have it both ways’ “ ‘; the signatory ‘cannot, on the one hand, seek to hold the non-signatory liable pursuant to duties imposed by the agreement, which contains an arbitration provision, but, on the other hand, deny arbitration’s applicability because the defendant is a non-signatory.’ “ (Goldman v. KPMG, LLP (2009) 173 Cal.App.4th 209, 220.)

Equitable estoppel is frequently invoked in staffing agency situations. In Garcia v. Pexco, LLC (2017) 11 Cal.App.5th 782, plaintiff had an arbitration agreement with his staffing agency, Real Time Staffing Services. He sued Real Time and the employer, Pexco, for labor law violations. (Id. at pp. 784-785.) The trial court granted the motion to compel arbitration by both defendants. The appellate court affirmed, noting that even though Pexco was a nonsignatory, it could compel arbitration because “all of [plaintiff’s] claims are intimately founded in and intertwined with his employment relationship with Real Time,” with whom he agreed to arbitrate “ ‘any dispute.’ “ (Id. at pp. 787, 784.)

Similarly, in the class action context, a nurse, employed by a staffing agency, sued her employer hospital. (Franklin v. Community Regional Medical Center (9th Cir. 2021) 998 F.3d 867, 869-870.) The arbitration agreement was between the nurse and staffing agency. The trial court granted the hospital’s motion to compel arbitration as a non-signatory and the Ninth Circuit affirmed. Applying California law, the Ninth Circuit held that the plaintiff’s claims of owed wages and other Labor Code violations were “ ‘intimately founded in and intertwined’ “ with her employment relationship with the staffing agency. (Id. at p. 875.)

As in Garcia v. Pexco, LLC and Franklin v. Community Regional Medical Center, all of the claims are intertwined with plaintiffs’ employment relationship with USA, the staffing agency. In fact, the allegations against both defendants are identical. Thus, defendants may compel arbitration with both defendants under an equitable estoppel theory.

Beaty will be ordered to arbitrate his individual claims against HLC and USA, and the action will be stayed pending completion of arbitration.