Getachew Bayou vs Matthew Pakkala et al

Case Number

24CV01613

Case Type

Hearing Date / Time

Fri, 08/23/2024 - 10:00

Nature of Proceedings

CMC; Demurrer; Motion to Compel; Motion: Stay

Tentative Ruling

For the reasons set forth herein:

1. Defendants’ Motion to Compel Plaintiff Getachew Bayou to submit his individual class action claims to arbitration, is granted.

2.   The action will be stayed pending disposition of the individual claims in

      arbitration.  

3.   Defendants’ Demurrer is taken off-calendar as moot. The taking of the

      demurrer off-calendar is without prejudice.

Background:

This action commenced on March 20, 2024, by the filing of the class action complaint by plaintiff Getachew Bayou (“plaintiff”), against defendants World Oil Marketing Company (“WOMC”), World Oil Corp (“WOC”), World Oil, LLC (“WO”), Robert S. Roth (“Robert”), Steven F. Roth (‘Steven”), Matthew Pakkala (“Pakkala”), and Christopher Norton (“Norton;” collectively “defendants”), setting forth causes of action for: (1) Violation of California Labor Code sections 510 and 1198 (unpaid overtime); (2) Violation of California Labor Code sections 204, 204b, 1194.2, 1197, 1182.12, 1194, 1197.1, 1198, and Wage Order No. 7, LA County Code section 8100 et seq. (unpaid minimum wages); (3) Violation of California Labor Code sections 226.7, 512(A), and 1198 (failure to provide meal periods); (4) Violation of California Labor Code sections 226.7 and 1198 (failure to provide rest breaks); (5) Violation of California Labor Code sections 226(a), 1174(d), and 1198 (non-compliant wage statements and failure to maintain payroll records); (6) Violation of California Labor Code sections 201, 202, and 203 (wages not paid upon termination); (7) Violation of California Labor Code section 2802 (unreimbursed business expenses); and (8) Violation of California Business & Professions Code sections 17200, et seq. (unlawful business practices).

As alleged in the complaint:

Robert and Steven are owners, officers and directors of WOMC and WOC and members and owners of WO. (Compl., ¶¶ 8, 9.) WOMC, WOC, and WO are alter egos of Robert and Steven. (Ibid.)

Pakkala is CEO, Executive Vice President, and Chief Financial Offer of WOMC, WOC, and WO. (Compl., ¶ 10.) Pakkala is responsible for the acts by WOMC, WOC, and WO. (Ibid.)

Norton is the Chief Legal Officer and Director of WOMC, WOC, and WO, and is responsible for the acts by WOMC, WOC, and WO. (Compl., ¶ 11.)

WOMC, WOC, and WO are an “integrated enterprise” in that “there is interrelation of operations, common management, centralized control of labor relations, and common ownership or financial control between the two companies.” (Compl., ¶ 12.)

Each of the defendants “was the agent, servant, joint venturer, partner, and/or employee of each and every other DEFENDANT, and in doing the things alleged was acting within the course and scope of such agency, service, joint venture, partnership, and/or employment, and in doing the acts herein was acting with the consent, permission, authorization and ratification of each of the remaining DEFENDANTS.” (Compl., ¶ 15.) Each of the defendants was the alter ego of the other defendants. (Ibid.)

The defendants own and operate several gas stations across California and in several other states. (Compl., ¶ 18.)

The “Contractor Class” are individuals who worked for defendants and were misclassified as “Independent Contractors.” (Compl., ¶ 22.) The “Substitute Class” are individuals who worded for defendants but did not have contracts with defendants. (Compl., ¶ 25.)

Plaintiff then alleges numerous violations of the Labor Code and Business & Professions Code.

Defendants seek to compel arbitration of plaintiff’s individual claims and dismiss, or stay, class claims, based on an arbitration agreement contained in Lease, License, and Consignment Agreement (“lease agreement”).

Defendants also demur to plaintiff’s complaint on the grounds that it is duplicative of an earlier-filed action entitled Quadrat Swaleh, et al. v. World Oil Marketing Company, et al., pending in Santa Clara County Superior Court, Case No. 24CV431318.

Plaintiff opposes the motion and the demurrer.

Analysis:

As an initial matter: plaintiff’s arguments that an arbitration ruling, on a different case, operates as collateral estoppel, and that the underlying agreement is illegal, are irrelevant in ruling on the present motion. As defendant’s put it: “Plaintiff’s contention confuses the arbitrability of a dispute with the merits.” (Reply, p. 1, ll. 17-22.) An arbitration award has no nonmutual collateral estoppel effect as to third parties such as plaintiff. The sole issue here is not whether plaintiff will be able to prove his case, rather, it is whether he should be compelled to arbitrate his individual claims. Plaintiff’s arguments in this regard are rejected.

          Motion to Compel Arbitration

“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 copies of the arbitration agreement executed by plaintiff, on at least three occasions, in connection with the lease agreement. As relevant to the present motion, the 2005 and 2021 agreements include:

“(a) Any controversy, dispute or claim of whatsoever nature arising out of, in connection with, or in relation to the interpretation, performance or breach of this Agreement, including any claim based on contract, tort or statute, shall be determined by final and binding arbitration conducted before a single arbitrator at a location determined by the arbitrator in Los Angeles County, California and administered by Jams/Endispute (‘JAMS’), or if JAMS shall not then exist, the American Arbitration Association (‘AAA’). Judgment on any award rendered by the arbitrator may be entered by any state or federal court having jurisdiction thereof. . . .

“(f) If any provision of this Section 16.15 is unenforceable under applicable law, it shall be deemed deleted.

“NOTICE: BY INITIALING IN THE SPACE BELOW, YOU ARE AGREEING TO HAVE ANY CONTROVERSY, DISPUTE OR CLAIM OF WHATSOEVER NATURE ARISING OUT OF, IN CONNECTION WITH, OR IN RELATION TO THE INTERPRETATION, PERFORMANCE OR BREACH OF THIS AGREEMENT, INCLUDING ANY CLAIM BASED ON CONTRACT, TORT OR STATUTE (BUT EXCLUDING ANY CONTROVERSY, DISPUTE OR CLAIM DESCRIBED IN SECTION 16.15(b), DECIDED BY NEUTRAL ARBITRATION, AND YOU ARE GIVING UP ANY RIGHTS YOU MIGHT POSSESS TO HAVE THE DISPUTE LITIGATED IN A COURT OR JURY TRIAL. BY INITIALING IN THE SPACE BELOW, YOU ARE GIVING UP YOUR JUDICIAL RIGHTS TO DISCOVERY AND APPEAL. IF YOU REFUSE TO SUBMIT TO ARBITRATION AFTER AGREEING TO THIS PROVISION, YOU MAY BE COMPELLED BY LAW TO ARBITRATE. YOUR AGREEMENT TO THIS ARBITRATION PROVISION IS VOLUNTARY.

“We have read and understand the foregoing and agree to submit to any controversy, dispute or claim of whatsoever nature arising out of, in connection with, or in relation to the interpretation, performance or breach of this Agreement, including any claim based on contract, tort or statute (but excluding any controversy, dispute or claim described in Section 16.15(b)) to neutral arbitration.” (Lease agreement, ¶ 16.15; italics added.)

Plaintiff indicated his acceptance of the arbitration agreement by initialing as “Tenant.” (Ibid.)

“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, and that the agreement covers the claims brought by plaintiff, the burden now shifts to plaintiff 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. Plaintiffs argue 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.)

Here, defendants have provided Pakkala’s declaration, which provides in part:

“1. I am Chief Operating Officer at World Oil Marketing Company (“WOMC”). I have personal knowledge of the facts set forth in this declaration, except where such facts are stated to be based on information and belief, and those facts I believe to be true. If called as a witness, I could and would testify competently to the matters set forth in this declaration.

“2. The gasoline supplied by WOMC at the gas station located at 5648 Hollister Avenue, Goleta, California 93117 (“Station”) came from various refineries in Southern California, including those owned and/or operated by the following companies that I know, based on my experience dealing with them, are out-of-state businesses: Valero Energy Corp., a Delaware corporation, Andeavor (formerly Tesoro Corporation), a Texas corporation, and Atlantic Richfield Company (ARCO), a Delaware corporation, or their respective affiliates. Based on my experience in the industry, I also know that the gasoline supplied by those corporations was refined from crude oil sourced from around the United States and the world.”

Here, it appears clear that gas stations, such as the ones at issue here, are involved in interstate commerce.

To the extent that plaintiff argues that there is a choice of law provision contained in the lease agreement, the FAA still applies to the enforcement of the arbitration agreement because defendants are engaged in interstate commerce. (see Volt Information Sciences, Inc. v. Board of Trustees of Leland Stanford Junior University (1989) 489 U.S. 468, 476-478.)

Plaintiff argues that Labor Code section 229 prohibits arbitration of wage and hour claims. “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.)

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

3. Waiver

Plaintiffs argue that arbitration is waived by defendants’ filing of a single case management conference statement.

“ ‘[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.)

The filing of the case management conference statement is not a waiver.

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.)

“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 arbitration agreement, by its very terms, is a voluntary agreement. It was not a “take-it-or-leave-it” provision. Likewise, the arbitration agreement is binding on both plaintiff and defendants in the context of the lease agreement. None of the factors argued by plaintiff tend to show that there is any unconscionability, and the court finds that none exists, either procedurally or substantively.

5. Applicability to Non-Signatory Defendants

Plaintiff does not dispute defendants’ argument that the individually named defendants may invoke the arbitration agreement even though not signatories. Despite plaintiff apparently conceding this point, it is worth a brief discussion.

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.)

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 plaintiff’s claims are intimately founded in and intertwined with all defendants. In fact, the allegations against all defendants are essentially identical and based on the same facts. All causes of action are asserted against all defendants on the same grounds. Thus, all defendants may compel arbitration with under an equitable estoppel theory.

Plaintiff will be ordered to arbitrate his individual claims against defendants.

The class claims will be stayed pending completion of arbitration.

            Demurrer

As the motion to compel arbitration is being granted, the demurrer will be taken off-calendar as moot. This ruling is without prejudice to re-raise the issues following the completion of the arbitration proceedings.