Ramos v. Frey's Electronics CA2/7 ( 2014 )

Filed 11/17/14 Ramos v. Frey’s Electronics CA2/7
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for
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IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION SEVEN
LEO RAMOS, B246404
Plaintiff and Appellant, (Los Angeles County
Super. Ct. No. BC486879)
v.
FRY’S ELECTRONICS, INC.,
Defendant and Respondent.
APPEAL from an order of the Superior Court of Los Angeles County, Anthony J.
Mohr, Judge. Reversed in part and remanded for further proceedings.
Matthew & George, Abraham Matthew, Jacob George and Mazyar Mazarei, for
Plaintiff and Respondent.
Sheppard, Mullin, Richter & Hampton, Richard J. Simmons and Matthew M.
Sonne, for Defendant and Appellant.
_______________________
Leo Ramos brought a class action complaint against his employer, Fry’s
Electronics, for unpaid overtime and other violations of the Labor Code. The complaint
also alleged a representative claim under the Labor Code Private Attorneys General Act
of 2004 (PAGA) (Lab. Code, §§ 2698 et seq.)1 on behalf of all aggrieved employees.
Fry’s filed a petition to compel arbitration asserting that Ramos had entered into an
employment agreement that required him to arbitrate all of his claims on an individual
basis. The trial court denied the petition, concluding that: (1) the agreement’s class
arbitration waiver was unenforceable pursuant to Gentry v. Superior Court (2007) 42
Cal.4th 443 (Gentry); and (2) any waiver of Ramos’s right to pursue a representative
PAGA claim was contrary to public policy and unenforceable. Fry’s appealed.
During the pendency of the appeal, the California Supreme Court issued
Iskanian v. CLS Transportation Los Angeles, LLC (2014) 59 Cal.4th 348 (Iskanian),
which held that: (1) the Federal Arbitration Act (FAA) preempts Gentry’s rule against
class arbitration waivers in employment contracts; and (2) the FAA does not preempt
California’s rule prohibiting the waiver of representative PAGA claims. In light of
Iskanian, we reverse in part and remand for further proceedings.
FACTUAL AND PROCEDURAL BACKGROUND
A. Events Preceding Fry’s’s Petition to Compel Arbitration
1. Ramos’s arbitration agreement
In January of 2010, defendant Fry’s Electronics hired plaintiff Leo Ramos as a
customer service representative and car electronics technician. On the day Ramos was
hired, a Fry’s employee requested that he sign an arbitration agreement as a condition of
his employment. The agreement stated, in part: “[Ramos and Fry’s] hereby agree that
any and all disputes between [Ramos and Fry’s] (including related disputes between
[Ramos] and other [employees] or agents of [Fry’s] . . . ) arising from or in any way
related to [Ramos’s] employment by [Fry’s] including but not limited to claims for
damages and violations of state or federal laws and regulations related to harassment,
1 Unless otherwise noted, all further statutory citations are to the Labor Code.
2
wrongful termination and/or discrimination . . . . shall be determined and decided by final
and binding arbitration pursuant to the provisions of the Federal Arbitration Act
[FAA]and to state law to the extent state law would otherwise be allocable, consistent
with the [FAA]. . .”
The agreement described procedures that were to govern various aspects of the
arbitration, including the selection of the arbitrator, discovery, the filing of pleadings and
motions and the award of remedies. The agreement further provided that the arbitrator
was to issue a written award and statement of decision “specifying the applicable factual
and legal findings and conclusion on which the award is based.” The agreement was
silent on other issues relating to the arbitration, including judicial review of the
arbitrator’s award and allocation of the costs of the arbitration.
2. Ramos’s complaint
On June 19, 2012, Ramos filed a class action complaint against Fry’s for unpaid
overtime (§§ 510, 1194 and 1198) and various other Labor Code violations, including
failure to reimburse business expenses (§§ 2800, 2802), failure to pay wages in a timely
manner (§ 204) and failure to provide accurate wage statements (§ 226). Ramos further
alleged that each of these acts constituted an “unlawful business practice” within the
meaning of Business and Professions Code section 17200 (section 17200) and requested
an order for restitution and injunctive relief. Ramos sought to bring each of these claims
“individually, as well as on behalf of each and all other persons similarly situated.”
In addition to his claims for damages and restitution, Ramos alleged a
representative action under the PAGA seeking to collect penalties for each Labor Code
violation “on behalf of all aggrieved employees in his capacity as private attorney
general.”
B. Fry’s’s Petition to Compel Arbitration
1. Summary of Fry’s’s petition
On July 26, 2012, Fry’s filed a petition to compel Ramos to arbitrate each of his
claims on an individual basis. Fry’s argued the language of the parties’ agreement made
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clear Ramos had agreed to arbitrate any claim arising from his employment. Fry’s
further asserted that because the agreement contained no language suggesting that the
parties had contemplated class or representative arbitration, Ramos was required to
arbitrate all of his claims on an individual basis.
In his opposition, Ramos argued there were numerous reasons the court should
deny the petition. First, Ramos asserted Fry’s had failed to make a “prima facie”
showing that the parties had entered into a binding contract. Although Ramos admitted
he had signed the arbitration agreement, he contended there was no evidence the parties
had mutually consented to the agreement or that the agreement was supported by
adequate consideration. In support, Ramos provided a declaration stating that was not
given a chance to review the document and was not told the document was an arbitration
agreement that would waive his right to a judicial forum.
Second, Ramos argued that even if Fry’s had established a binding arbitration
contract, his Labor Code claims fell outside the scope of the agreement. Ramos
contended that “[f]or an arbitration clause to operate for individual statutory claims, there
must be a clear and unmistakable waiver of a judicial forum.” According to Ramos, his
agreement with Fry’s did not meet that standard because it did not specifically reference
“statutory claims or identify any statutes.”
Third, Ramos argued that, under California law, a plaintiff has a right to pursue
statutory claims for unpaid wages in court regardless of any agreement to arbitrate. (See
§ 229.) Although Ramos acknowledged the FAA preempted this rule of state law, he
argued the FAA was inapplicable because Fry’s had presented no evidence showing that
the agreement “involve[d] interstate commerce.” Rather, according to Ramos, the
evidence showed only that Fry’s was headquartered in California, that he was a citizen of
California and that he had never worked in a Fry’s location outside of California.
Fourth, Ramos argued that even if Fry’s had established the existence of an
enforceable arbitration agreement governed by the FAA, the agreement was
unenforceable because it was unconscionable. Ramos contended the agreement was
procedurally unconscionable because it was a “nonnegotiable contract of adhesion” that
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failed to “specify or attach the rules that govern the arbitration.” He argued the
agreement was “substantively unconscionable” because it did not “permit for judicial
review of the arbitrator’s decision.”
Fifth, Ramos argued that even if the agreement was generally valid, it had no
effect on his PAGA claim or his claim for injunctive relief under section 17200. Ramos
contended the agreement contained no language indicating he had consented to arbitrate
representative actions brought on behalf of the Attorney General. He further argued that,
even if the agreement could be read to extend to representative PAGA claims, Brown v.
Ralphs Grocery Co. (2011) 197 Cal.App.4th 489 (Brown), made clear that “PAGA
waivers” were unenforceable as a matter of public policy. Ramos raised a similar
argument regarding his claim for injunctive relief under section 17200, asserting that
Cruz v. PacifiCare Health Systems, Inc. (2003) 30 Cal.4th 303 (Cruz), had held that such
claims are not arbitrable and that the FAA does not preempt this rule of state law.
Finally, Ramos argued that if the court intended to compel arbitration, “the action
must be ordered to class arbitration.” Ramos argued he was permitted to arbitrate his
Labor Code claims on a classwide basis because the arbitration agreement did not
specifically preclude class proceedings. He further argued that even if the agreement
included an implied waiver of his right to class arbitration, such a waiver was
unenforceable under Gentry, supra, 42 Cal.4th 443.
In its reply, Fry’s argued that all of Ramos’s arguments lacked merit. First, it
asserted that the signed arbitration agreement, combined with Ramos’s admission he
signed the document, was sufficient to prove the existence of a valid contract. Second, it
argued that the language in the agreement stating that the parties agreed to arbitrate all
claims “arising from” or “related to” Fry’s’s employment extended to alleged violations
of the Labor Code. Third, Fry’s argued that the failure to include a specific provision
permitting judicial review was insufficient to render the agreement unconscionable.
Fry’s also asserted the FAA was applicable to the parties’ employment agreement
because the transaction related to “interstate commerce.” In support, Fry’s provided a
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declaration demonstrating that it was a national electronics retailer and that its California
stores sold merchandise acquired from vendors in numerous different states.
Fry’s further asserted that because the agreement was governed by the FAA, the trial
court was required to apply recent decisions from the United States Supreme Court that
had broadly interpreted the FAA’s preemption provisions.
Fry’s argued that under Stolt-Nielsen S.A. v. AnimalFeeds Int’l Corp. (2010) 559
U.S. 662 (Stolt-Nielsen), a party could not be compelled to engage in class or
representative arbitration in the absence of an express provision demonstrating that it had
agreed to do so. Fry’s contended that because the parties’ agreement was silent on class
or representative arbitration proceedings, the parties were presumed to have waived the
right to use consolidated arbitration proceedings and agreed only to “bilateral
arbitration.”
Fry’s also argued that, in AT&T Mobility LLC v. Concepcion (2011) 131 S.Ct.
1740 (Concepcion), the Supreme Court made clear that the FAA preempts any state rule
that would render class or representative action waivers in arbitration agreements
unenforceable. Fry’s argued that although Concepcion did not directly overrule the rule
set forth in Gentry, its holding and its logic demonstrated that Gentry’s rule precluding
employment class action waivers was preempted by the FAA. Finally, Fry’s argued that
Concepcion’s rationale also implicitly overruled the “Cruz rule” (see Cruz, supra, 30
Cal.4th 303) precluding arbitration of section 17200 claims seeking injunctive relief.
2. Trial court ruling
After a hearing, the trial court issued an order denying Fry’s’s petition to compel
arbitration. The order initially considered and rejected Ramos’s assertions that Fry’s had
failed to show the existence of a valid arbitration agreement; that the agreement did not
cover alleged violations of the Labor Code; or that the agreement was not governed by
the FAA. The court also agreed with Fry’s’s assertion that because the agreement did not
reference class or representative proceedings, it effectively required Ramos to arbitrate
his Labor Code and PAGA claims on an individual basis.
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The court further concluded, however, that: (1) class and representative arbitration
waivers are unenforceable under California law; and (2) the FAA does not preempt these
rules, which are predicated on public policy. In support, the court cited to Brown, supra,
197 Cal.App.4th 489, which held that the FAA does not preempt California’s rule
prohibiting the enforcement of arbitration “PAGA waivers,” and Gentry, supra, 42
Cal.4th 443. The court acknowledged that Concepcion had cast significant doubt on the
continuing validity of Gentry, but believed it was compelled to apply Gentry until the
California Supreme Court resolved the issue.
As a result of these rulings, and in light of the fact that Fry’s’s petition sought an
order compelling arbitration on an individual basis only, the court denied the petition.
DISCUSSION
A. Standard of Review
“An order denying a petition to compel arbitration is appealable. (Code Civ.
Proc., § 1294, subd. (a).) “In general, ‘[t]here is no uniform standard of review for
evaluating an order denying a [petition] to compel arbitration. [Citation.] If the court’s
order is based on a decision of fact, then we adopt a substantial evidence standard.
[Citations.] Alternatively, if the court’s denial rests solely on a decision of law, then a
de novo standard of review is employed. [Citations.]’ [Citation.]” (Laswell v. AG Seal
Beach, LLC (2010) 189 Cal.App.4th 1399, 1406.)
On appeal, Fry’s concedes that, under California law, Ramos could not be
compelled to arbitrate his Labor Code claims or his PAGA claim in his individual
capacity, nor could he be compelled to arbitrate his claim for injunctive relief under
section 17200. Fry’s argues, however, that: (1) the parties’ arbitration agreement is
governed by the FAA; (2) under the FAA, the parties’ arbitration agreement implicitly
waived Ramos’s ability to arbitrate his claims in a class or representative capacity and
waived his right to a judicial forum on his injunctive relief claim; (3) to the extent such
waivers are unenforceable as a matter of California public policy, the FAA preempts
those state law rules.
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Ramos, however, contends that we should affirm the trial court’s ruling because:
(1) Fry’s failed to establish the arbitration agreement constitutes a binding contract or
that it extends to statutory hours and wages claims; (2) the FAA does not govern the
arbitration agreement; (3) even if the FAA applies, the agreement permits class and
representative proceedings; (4) if the agreement impliedly waives the right to proceed
with class or representative actions, those waivers are unenforceable; (5) the arbitration
agreement has no effect on his claim for injunctive relief under section 17200.
B. Fry’s Demonstrated the Existence of a Binding Arbitration Agreement that
Is Governed by the FAA
Before addressing the impact of the FAA on the parties’ arbitration agreement, we
assess Ramos’s preliminary contentions that: (1) Fry’s failed to establish the existence of
a valid arbitration agreement; (2) the agreement does not cover violations of the Labor
Code; and (3) Fry’s did not demonstrate the arbitration agreement is governed by the
FAA.
1. Fry’s established the existence of a binding arbitration agreement
Ramos initially contends that “Fry’s has failed to establish a prima facie case that
an agreement to arbitrate exists.” Although Ramos admits he signed the arbitration
agreement Fry’s attached to its petition to compel arbitration, he contends no contract
was formed because there was no mutual assent. In support, Ramos cites to statements in
his declaration explaining that, on the day he was hired, a Fry’s assistant manager handed
him the form and told him he was required to sign it as a condition of his employment.
According to Ramos, the assistant manager did not give him “an opportunity to read the
form,” did not tell him the document was an arbitration agreement and did not tell him he
was waiving his right to a judicial forum. Fry’s provided a counter declaration from a
customer service supervisor stating that she presented the agreement to Ramos, instructed
him to read the document and told him she would answer any questions he might have.
“Mutual assent to contract is based upon objective and outward manifestations of
the parties; a party’s ‘subjective intent, or subjective consent, therefore is irrelevant.’
[Citation.]” (Stewart v. Preston Pipeline Inc. (2005) 134 Cal.App.4th 1565, 1587.) The
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general rule in California is that “a party who fails to read a contract but nonetheless
objectively manifests his assent by signing it – absent fraud or knowledge by the other
contracting party of the alleged mistake – may [not] later rescind the agreement on the
basis that he did not agree to its terms.” (Id. at p. 1589; Marin Storage & Trucking, Inc.
v. Benco Contracting and Engineering, Inc. (2001) 89 Cal.App.4th 1042, 1049
[“ordinarily one who signs an instrument which on its face is a contract is deemed to
assent to all its terms. A party cannot avoid the terms of a contract on the ground that he
or she failed to read it before signing”].) This general rule of contract law applies equally
to arbitration agreements. (Brookwood v. Bank of America (1996) 45 Cal.App.4th 1667,
1674.) In this case, Ramos has not alleged that Fry’s misled him about the contents of
the arbitration agreement or that Fry’s was otherwise aware he did not understand what
he was signing. The mere fact that Ramos did not read or understand the agreement
before signing it is insufficient to demonstrate lack of mutual consent.
Ramos also argues the arbitration agreement is unenforceable because he received
no consideration for his promise to arbitrate claims arising from his employment. Ramos
appears to assert the agreement amounted to a unilateral promise for which he received
nothing in return. This argument, however, overlooks that the agreement is in fact
bilateral in nature, requiring both parties to arbitrate any claims they may have against the
other that arise from Fry’s’s employment. As explained in Strotz v. Dean Witter
Reynolds, Inc. (1990) 223 Cal.App.3d 208, 216 [overruled on other grounds, Rosenthal v.
Great Western Fin. Securities Corp. (1996) 14 Cal.4th 394]: “[W]hatever the law may
be regarding unilateral waiver of the right to select a judicial forum, it is not instructive in
the context of a bilateral agreement to arbitrate. Where an agreement to arbitrate exists,
the parties’ mutual promises to forego a judicial determination and to arbitrate their
disputes provide consideration for each other. Both parties give up the same rights and
thus neither gains an advantage over the other.”
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2. Ramos’s statutory wage and hour claims fall within the scope of the
arbitration agreement
Ramos next argues that his statutory wages and hour claims fall outside the scope
of the arbitration agreement. He asserts that “[f]or an arbitration clause to operate for
individual statutory claims,” the agreement must “expressly” reference statutory claims
and identify each statutory claim that is subject to arbitration. In support, he cites two
cases involving the interpretation of collective bargaining agreements (CBA’s) that
contained provisions requiring the arbitration of any dispute “arising” out of the CBA.
(See Vasquez v. Superior Court (2000) 80 Cal.App.4th 430, 433; Hoover v. American
Income Life Ins. Co. (2012) 206 Cal.App.4th 1193, 1208 (Hoover).) In both cases, the
courts applied special rules pertaining to the interpretation of arbitration provisions
within “union-negotiated” CBAs (Vasquez, supra, 80 Cal.App.4th at p. 434): “‘In the
collective bargaining context, the parties “must be particularly clear’ about their intent to
arbitrate statutory [employment] claims.’ [Citation.] A waiver in a collective bargaining
agreement is sufficiently clear if it . . . contain[s] a clear and unmistakable provision
under which the employees agree to submit to arbitration all [state and federal statutory]
causes of action arising out of their employment.’ [Citation.]” (Ibid.; see also Hoover,
supra, 206 Cal.App.4th at p. 1208.) Both courts concluded that a general provision
requiring the arbitration of disputes “arising” out of the CBA did not satisfy those
requirements. (Vasquez, supra, 80 Cal.App.4th at pp. 435-436; Hoover, supra, 206
Cal.App.4th at p. 1208.)
Vasquez and Hoover have no relevance here. First, this case does not involve the
interpretation of a collective bargaining agreement. Thus, the special rules of
construction at issue in Vasquez and Hoover do not apply. Second, unlike in Vasquez or
Hoover, the language in Ramos’s agreement does not merely require the arbitration of
disputes “arising” out of the parties’ contract. Rather, the agreement states that the
parties would arbitrate “any and all disputes . . . arising from or in any way related to
[Ramos’s] employment by Fry’s, including but not limited to claims for damages and
violation of state or federal laws . . . .” Each of Ramos’s claims, all of which are
10
predicated on alleged violations of the Labor Code, clearly arises from the conditions of
his employment. Accordingly, his claims fall within the scope of the agreement.
3. Fry’s provided evidence demonstrating the arbitration agreement is
governed by the FAA
Ramos argues that even if Fry’s established the existence of an enforceable
agreement to arbitrate statutory wage and hour claims, it failed to show the agreement is
governed by the FAA. Section 2 of the FAA (9 U.S.C. § 2) states that the federal statute
applies to any “written provision in . . . a contract evidencing a transaction involving
commerce.” The United States Supreme Court has “interpreted the term ‘involving
commerce’ in the FAA as the functional equivalent of the term ‘affecting commerce’ –
words of art that ordinarily signals the broadest permissible exercise of Congress’
commerce clause power. [Citation.]” (Citizens Bank v. Alafabco, Inc. (2003) 539 U.S.
52, 56 (Citizens Bank); Shepard v. Edward Mackay Enterprises, Inc. (2007) 148
Cal.App.4th 1092, 1097 (Shepard).) 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.]”
(Citizen's Bank, supra, 539 U.S. at pp. 56-57.)
As the party asserting the applicability of the FAA, Fry’s had the burden to
produce evidence showing the contract involved interstate commerce. (Shepard, supra,
148 Cal.App.4th at p. 1101; Hoover, supra, 206 Cal.App.4th at p. 1207.) In the trial
court, Fry’s submitted a declaration stating the following facts: Fry’s is an “electronics
retailer” that is headquartered in California and operates retail stores located in nine
states; the inventory sold in Fry’s’s California stores “is purchased from vendors in 44
states and the District of Columbia”; Fry’s maintains an “e-commerce” website that ships
goods to all 50 states from a distribution center located in Tennessee. The trial court
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concluded these facts were sufficient to demonstrate that Fry’s was a “nationwide retailer
and affects interstate commerce, even if Ramos individual position did not require
interaction outside of California.” In support, the court cited Peleg v. Neiman Marcus
Group, Inc. (2012) 204 Cal.App.4th 1425, 1447, which held that the defendant’s status as
a national retailer provided an adequate basis to demonstrate the FAA applied to its
employment arbitration agreements.
Ramos does not explain why Fry’s’s evidence is insufficient to demonstrate the
applicability of the FAA nor does he attempt to distinguish Peleg. Instead, he asserts the
FAA is inapplicable because “he is not aware of any facts suggesting that the employee-
employer relationship between Ramos and Fry’s had a specific effect or bearing on
interstate commerce in a substantial way.’” As explained above, however, the
Supreme Court has clarified that “application of the FAA [is not defeated] because the
individual . . . transaction[], taken alone, did not have a ‘substantial effect on interstate
commerce.’” (Citizens Bank, supra, 539 U.S. at pp. 56-57.) Rather, the question is
whether the Fry’s’s employment relationships with its employees, considered in the
aggregate, affect interstate commerce.
Fry’s’s evidence is sufficient to support the trial court’s finding of FAA coverage
for two reasons. First, the evidence shows Fry’s employed personnel and sold
merchandise at least nine states. (See generally Circuit City Stores, Inc. v. Adams (2001)
532 U.S. 105, 109 [FAA applied to employment agreement entered into with “national
retailer of consumer electronics”].) Second, the evidence shows the employees in Fry’s’s
California retail stores (which includes Ramos) sell merchandise that Fry’s acquires from
vendors located in 44 states. (See Shepard, supra, 148 Cal.App.4th at pp. 1100-1101
[evidence that “construction of plaintiff’s house involved the receipt and use of building
materials that were manufactured and/or produced outside California” sufficient to
demonstrate FAA governed estate purchase arbitration agreement].)
The only authority Ramos cites in support of his assertion that Fry’s failed to
demonstrate FAA coverage is Hoover, supra, 206 Cal.App.4th 1193. In Hoover,
however, the court held that the defendant had “waived the right to seek arbitration by
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actively litigating th[e] action for more than a year and causing prejudice to [plaintiff.]”
(Id. at p. 1203.) The court further explained that even if defendant “had not waived its
right to assert arbitration, [the court] would [have] decide[d] [defendant] could not
compel arbitration” (id. at p. 1206) of plaintiff’s wage and hour claims because California
law provides a judicial forum for such claims “‘without regard to the existence of any
private agreement to arbitrate . . .’” (Id. at p. 1207 [citing Labor Code, § 229].) The court
noted that although this state law is inapplicable “when there is federal preemption under
the FAA,” the defendant had failed to provide evidence demonstrating its contract with
plaintiff had any effect on interstate commerce. (Id. at pp. 1207-1208.) According to the
court, the only “facts” defendant had established were that plaintiff “was a California
resident who sold life insurance policies” and that the defendant was “based in Texas.”
(Ibid.) The court concluded that, standing alone, such facts were insufficient to
“demonstrate FAA coverage.” (Ibid.)
To the extent the Hoover’s discussion of FAA coverage amounted to anything
more than dicta, the case is distinguishable. Unlike Fry’s, the defendant in Hoover did
not present any evidence that it employed people throughout the country, that it sold its
products to consumers located throughout the country or that its California employees
sold products acquired from vendors in numerous other states.
C. Ramos Is Required to Arbitrate his Labor Code Claims in his Individual
Capacity, but Is Entitled to Pursue a Representative PAGA Claim
Having concluded that Fry’s demonstrated the existence of an enforceable
arbitration agreement governed by the FAA, we next consider whether the agreement
required Ramos to arbitrate his Labor Code and PAGA claims on an individual (rather
than class or representative) basis.
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1. Summary of case law governing employment arbitration agreements and
class arbitration waivers
a. Summary of California law prior to Stolt–Nielsen and Concepcion
More than 30 years ago, the California Supreme Court held in Keating v. Superior
Court (1982) 31 Cal.3d 584, that trial courts have the authority to order classwide
arbitration in appropriate cases. “The arbitration agreement in Keating had no specific
provision permitting or precluding classwide arbitration, but the high court held that a
trial court has the discretionary authority to order classwide arbitrations where the
interests of justice would be served. [Citations.]” (Truly Nolen of America v. Superior
Court (2012) 208 Cal.App.4th 487, 498 (Truly Nolen).) Following Keating, class
arbitration became a “well accepted” method for resolving disputes in California.
(Discover Bank v. Superior Court (2005) 36 Cal.4th 148, 152 (Discover Bank).)
Almost two decades after Keating was decided, the California Supreme Court
addressed the enforceability of an employment agreement requiring the arbitration of
wrongful termination claims arising under the California Fair Employment and Housing
Act (FEHA) (Gov. Code, § 12900 et seq.). (Armendariz v. Foundation Health Psychcare
Services, Inc. (2000) 24 Cal.4th 83 (Armendariz).) Armendariz concluded that although
FEHA statutory claims are unwaivable, “such claims are in fact arbitrable if the
arbitration permits an employee to vindicate his or her statutory rights.” (Id. at p. 90.)
The Court explained that, “[i]n order for such vindication to occur, the arbitration must
meet certain minimum requirements, including neutrality of the arbitrator, the provision
of adequate discovery, a written decision that will permit a limited form of judicial
review, and limitations on the costs of arbitration.” (Id. at p. 91.)
Armendariz further ruled that even if an arbitration agreement satisfies each of
these minimum requirements (or does not pertain to unwaivable statutory rights), the
agreement may be invalidated if it is found to be unconscionable. As explained in
Armendariz, “[u]nconscionability analysis begins with an inquiry into whether the
contract is one of adhesion. . . . If the contract is adhesive, the court must then determine
whether ‘other factors are present which, under established legal rules – legislative or
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judicial – operate to render it [unenforceable].’ [Citation.] [¶] . . . [¶] ‘[U]nconscionability
has both a “procedural” and a “substantive” element,’ the former focusing on
‘“oppression”’ or ‘“surprise”’ due to unequal bargaining power, the latter on ‘“overly
harsh”’ or ‘“one-sided”’ results. [Citation.] ‘The prevailing view is that [procedural and
substantive unconscionability] must both be present in order for a court to exercise its
discretion to refuse to enforce a contract or clause under the doctrine of
unconscionability.’ [Citation.] But they need not be present in the same degree. . . .”
(Id at pp. 113-114.)
Thus, Armendariz concluded that an agreement requiring the arbitration of
unwaivable statutory rights may be unenforceable under two theories. First, the
agreement may be found to lack an essential element necessary to effectuate the
unwaivable statutory rights at issue, thereby rendering the agreement unenforceable as
“contrary to public policy.” (Armendariz, supra, 24 Cal.4th at p. 99.) Second, the
agreement may be unenforceable under principles of unconscionability. (Ibid.) The
Court also concluded that the FAA permitted states to invalidate arbitration agreements
based on these general principles of contract law. In support, the Court cited the FAA’s
savings provision, which states that arbitration agreements are valid, irrevocable, and
enforceable “‘save upon such grounds as exist at law or in equity for the revocation of
any contract.’ (9 U.S.C. § 2).” (Id. at p. 98.)
In Discover Bank, supra, 36 Cal.4th 148, the Court “considered an issue
unaddressed in Keating – whether an express ‘class action waiver may be unenforceable
as contrary to public policy or unconscionable.’ [Citation.]” (Truly Nolen, supra, 208
Cal.App.4th at p. 499.) The plaintiff filed a class action complaint alleging a credit card
company had improperly imposed late fee payments. The defendant sought an order
compelling plaintiff to arbitrate his claim on an individual basis, citing a provision in the
parties’ credit card user agreement that expressly waived the right to proceed by class
arbitration. Plaintiff opposed the petition, arguing that “class action or arbitration
waivers in consumer contracts . . . should be invalidated as unconscionable under
California law.” (Discover Bank, supra, 36 Cal.4th at p. 160.)
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The Court agreed, holding that some forms of consumer class action waivers are
unconscionable: “[W]hen the waiver is found in a consumer contract of adhesion in a
setting in which disputes between the contracting parties predictably involve small
amounts of damages, and when it is alleged that the party with the superior bargaining
power has carried out a scheme to deliberately cheat large numbers of consumers out of
individually small sums of money, then . . . the waiver becomes in practice the exemption
of the party ‘from responsibility for [its] own fraud, or willful injury to the person or
property of another.’ [Citation.] Under these circumstances, such waivers are
unconscionable under California law and should not be enforced.” (Discover Bank,
supra, 36 Cal.4th at pp. 162-163.)
As in Armendariz, the Court further concluded that this rule of state law was not
preempted by the FAA: “‘Under section 2 of the FAA, a state court may refuse to
enforce an arbitration agreement based on “generally applicable contract defenses, such
as fraud, duress, or unconscionability.”’ [Citation.] . . . In the present case, the principle
that class action waivers are, under certain circumstances, unconscionable as unlawfully
exculpatory is a principle of California law that does not specifically apply to arbitration
agreements, but to contracts generally. In other words, it applies equally to class action
litigation waivers in contracts without arbitration agreements as it does to class arbitration
waivers in contracts with such agreements.” (Discover Bank, supra, 36 Cal.4th at p. 65.)
Two years later, in Gentry, supra, 42 Cal.4th 443, the Court “consider[ed] whether
class arbitration waivers in employment arbitration agreements may be enforced to
preclude class arbitrations by employees whose statutory rights to overtime pay pursuant
to Labor Code sections 500 et seq. and 1194.” (Id. at p. 450.) The agreement at issue
contained an express waiver stating that the arbitrator “shall not consolidate claims of
different [employees] into one proceeding . . . [or] have the power to hear arbitration as a
class action.” (Id. at p. 451.)
In its analysis, the Court explained that, unlike in Discover Bank, the plaintiff’s
claim was predicated on his unwaivable statutory right to overtime pay. As a result, even
if the arbitration agreement was not unconscionable, the class arbitration waiver
16
provision was unenforceable on public policy grounds if it would “‘undermine the
vindication of the employees’ . . . statutory rights.’” (Iskanian, supra, 59 Cal.4th at
p. 363.)
The Court concluded that a class arbitration waiver would impermissibly interfere
with employees’ ability to vindicate overtime rights “under some circumstances.”
(Gentry, supra, 42 Cal.4th.at p. 457.) The Court explained that when a plaintiff seeks a
class action alleging unpaid overtime “notwithstanding an arbitration agreement that
contains a class arbitration waiver, the trial court must consider [four] factors” (id. at
p. 463): (1) the modest size of the potential individual recovery; (2) the potential for
retaliation against members of the class; (3) the fact that absent class members may be ill
informed about their rights; and (4) other real world obstacles to the vindication of class
members’ statutory rights. (Ibid.) The Court held that if the “trial court determines,
based on [these] factors . . ., that class action arbitration would be a significantly more
effective way of vindicating the rights of affected employees than individual arbitration,”
the court must invalidate the class arbitration waiver. (Id. at p. 450.)
The Court also concluded that a rule “invalidating [some forms of employment]
class arbitration waivers” was not preempted by the FAA because it did not
“discriminate[] against arbitration.” (Gentry, supra, 42 Cal.4th at p. 465.) Rather,
according to the Court, “[t]he principle that in the case of certain unwaivable statutory
rights, class action waivers are forbidden when class actions would be the most effective
practical means of vindicating those rights is an arbitration-neutral rule: it applies to class
waivers in arbitration and nonarbitration provisions alike.” (Ibid.)
b. Stolt–Nielsen and Concepcion
In 2010, the United States Supreme Court decided Stolt–Nielsen, supra, 559 U.S.
662, “which concerned the issue whether a court/arbitrator has the authority under the
FAA to order classwide arbitration in a situation where there is no agreement to engage
in class arbitration. [Citation.]” (Truly Nolen, supra, 208 Cal.App.4th at p. 502.) The
parties agreed that although the arbitration agreement did not contain an explicit class
action waiver provision, they had not agreed to class arbitration. The arbitration panel,
17
however, concluded the agreement implicitly permitted class arbitration because there
was no provision explicitly precluding consolidated proceedings.
The Supreme Court reversed, concluding that “a party may not be compelled
under the FAA to submit to class arbitration unless there is a contractual basis for
concluding that both parties agreed to do so.” (Stolt–Nielsen, supra, 559 U.S. at p. 684.)
The Court explained that “[a]n implicit agreement to authorize class-action arbitration . . .
is not a term that the arbitrator may infer solely from the fact of the parties’ agreement to
arbitrate. This is so because class-action arbitration changes the nature of arbitration to
such a degree that it cannot be presumed the parties consented to it by simply agreeing to
submit their disputes to an arbitrator.” (Id. at p. 685.)
One year later, the United States Supreme Court decided Concepcion, supra, 131
S.Ct. 1740, which abrogated Discover Bank. The plaintiff in Concepcion brought a class
action challenging a cell phone carrier’s imposition of sales tax on a free phone. The
defendant moved to compel individual arbitration of the claim pursuant to a clause in the
plaintiff’s consumer contract that included an express waiver of the right to class
arbitration. Relying on Discover Bank, the lower courts refused to enforce the class
action waiver clause under California law. The United States Supreme Court granted
certiorari to consider “whether [the FAA] preempts California’s [Discovery Bank] rule
classifying most collective-arbitration waivers in consumer contracts as unconscionable.”
(Id. at p. 1746.)
As summarized by the California Supreme Court: “[t]he high court in Concepcion
invalidated Discover Bank and held that ‘[r]equiring the availability of classwide
arbitration interferes with fundamental attributes of arbitration and thus creates a scheme
inconsistent with the FAA.’ [Citation.] According to Concepcion, classwide arbitration
‘sacrifices the principal advantage of arbitration – its informality – and makes the process
slower, more costly, and more likely to generate procedural morass than final judgment.’
[Citation.] . . . . The court concluded that ‘[b]ecause it “stands as an obstacle to the
accomplishment and execution of the full purposes and objectives of Congress,”
18
[citation], California’s Discover Bank rule is preempted by the FAA.’ [Citation.]”
(Iskanian, supra, 59 Cal.4th at p. 362.)
c. Iskanian
In Iskanian, supra, 59 Cal.4th 348, the California Supreme Court addressed
Concepcion’s effect on the enforceability of class and representative arbitration waivers
in employment agreements. Plaintiff filed a class action complaint for unpaid overtime
and various other Labor Code violations. The complaint also alleged a representative
action under the PAGA seeking penalties for each violation of the Labor Code on behalf
of all aggrieved employees. The defendant moved to compel individual arbitration based
on an employment agreement that precluded either party from pursuing any “class action
or representative action claims . . . in arbitration or otherwise.” (Id. at pp. 360-361.)
Citing Concepcion, the trial court granted employer’s petition, ordering the case into
individual arbitration and dismissing the class and representative claims. The appellate
court affirmed.
The California Supreme Court initially summarized Concepcion, explaining the
decision had held that: (1) the FAA preempts state rules that are incompatible with the
fundamental attributes of arbitration; and (2) requiring classwide arbitration interfered
with numerous attributes of arbitration, including its expediency and informality. 2 The
Court concluded that, under the principles of Concepcion, Gentry’s rule against some
2 In Sonic-Calabasas A, Inc. v. Moreno (2013) 57 Cal.4th 1109, the Court clarified
that Concepcion does not prevent states from applying general rules of contract law that
have a “disproportionate impact” on arbitration: “[A] facially neutral state law rule is not
preempted simply because its evenhanded application ‘would have a disproportionate
impact on arbitration agreements.’ [Citation.] . . . . Under Concepcion, a state law rule is
preempted when its impact is such that it interferes with fundamental attributes of
arbitration.” (Id. at p. 1144.) The court reaffirmed these principles in Iskanian. The
Ninth Circuit has reached a different conclusion, holding that, under Concepcion,
“generally applicable state-law rules are preempted if in practice they have a
‘disproportionate impact’ on arbitration or ‘interfere[] with fundamental attributes of
arbitration and thus create[] a scheme inconsistent with the FAA.’ [Citation.]”
(Mortensen v. Bresnan Communications, LLC (9th Cir. 2013) 722 F.3d 1151, 1159
[emphasis added].)
19
forms of employment class arbitration waivers was preempted under the FAA. (Id. at
p. 362.)
The Court next considered whether the plaintiff was required to arbitrate his
PAGA claim on an individual basis. The Court began by summarizing the PAGA
provisions: “‘Under the legislation, an “aggrieved employee” may bring a civil action
personally and on behalf of other current or former employees to recover civil penalties
for Labor Code violations. [Citation.] Of the civil penalties recovered, 75 percent goes
to the Labor and Workforce Development Agency, leaving the remaining 25 percent for
the “aggrieved employees.” [Citations.]. [¶] Before bringing a civil action for statutory
penalties, an employee must . . . give written notice of the alleged Labor Code violation
to both the employer and the Labor and Workforce Development Agency. . . . If the
agency elects not to investigate, the employee may commence a civil action. [Citation.]’
[Citation.]” (Iskanian, supra, 59 Cal.4th at p. 380.) According to the Court, these
provisions demonstrated that a PAGA representative action is “a type of qui tam action”
(id. at p. 382) that permits “aggrieved employees, acting as private attorneys general, to
recover civil penalties for Labor Code violations, with the understanding that labor law
enforcement agencies were to retain primacy over private enforcement efforts.” (Id. at
p. 379.)
The Court then addressed whether California law prohibited the waiver of
representative PAGA claims and, if so, whether such a rule was enforceable under the
FAA. The Court first concluded that such claims were unwaivable: “an employment
agreement [that] compels the waiver of representative claims under the PAGA . . . is
contrary to public policy and unenforceable as a matter of state law.” (Iskanian, supra,
59 Cal.4th at p. 384.) In reaching its conclusion, the Court rejected defendant’s assertion
that the particular waiver at issue was not against public policy because the plaintiff
retained his right to arbitrate his PAGA claim on an individual basis: “[W]hether or not
an individual claim is permissible under the PAGA, a prohibition of representative claims
frustrates the PAGA’s objectives . . . [because] a single-claimant arbitration . . . for
individual penalties will not result in the penalties contemplated under the PAGA to
20
punish and deter employer practices that violate the rights of numerous employees under
the Labor Code. That plaintiff and other employees might be able to bring individual
claims for Labor Code violations in separate arbitrations does not serve the purpose of the
PAGA, even if an individual claim has collateral estoppel effects. [Citation.] Other
employees would still have to assert their claims in individual proceedings.’ [Citation.]”
(Ibid.)
The Court then explained that the FAA did not preempt this rule of California law:
“Concepcion made clear [that] a state law rule may be preempted when it ‘stands as an
obstacle to the accomplishment of the FAA’s objectives.’ [Citation.] . . . [T]he rule
against PAGA waivers does not frustrate the FAA’s objectives because . . . the 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 Agency.” (Iskanian, supra, 59
Cal.4th at p. 384.) The Court concluded: “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.” (Id. at p. 387.)
Finally, the court addressed what remedy was appropriate in light of its holding
that the arbitration agreement’s class arbitration waiver was enforceable, but its PAGA
waiver was not: “Although the arbitration agreement can be read as requiring arbitration
of individual claims but not of representative PAGA claims, neither party contemplated
such a bifurcation. [Plaintiff] has sought to litigate all claims in court, while [defendant]
has sought to arbitrate the individual claims while barring the PAGA representative claim
altogether. In light of the principles above, neither party can get all that it wants.
[Plaintiff] must proceed with bilateral arbitration on his individual damages claims, and
[the defendant] 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:
(1) Will the parties agree on a single forum for resolving the PAGA claim and the other
claims? (2) If not, is it appropriate to bifurcate the claims, with individual claims going to
21
arbitration and the representative PAGA claim to litigation? (3) If such bifurcation
occurs, should the arbitration be stayed pursuant to Code of Civil Procedure section
1281.2? [Citation.] The parties have not addressed these questions and may do so on
remand.” (Iskanian, supra, 59 Cal.4th at pp. 391-392.)
2. Ramos has failed to establish the arbitration agreement is unconscionable
Ramos initially contends that, under Armendariz, the entire arbitration agreement
is unenforceable based on principles of unconscionability. Ramos asserts the agreement
is procedurally unconscionable because “it is an adhesion contract based on a
standardized non-negotiable form, drafted and imposed by a party of superior bargaining
position, i.e., Fry’s.” Ramos argues the agreement is substantively unconscionable
because “the Agreement does not permit judicial review of the arbitrator’s decision.”
Regardless of whether the agreement exhibits some level of procedural
unconscionability, Ramos has failed to demonstrate that the agreement’s terms are
substantively unconscionable. Contrary to Ramos’s suggestion, the agreement does not
prohibit judicial review of the arbitrator’s award. Rather, the agreement is silent on the
issue of judicial review. The agreement does, however, provide that the arbitration shall
be conducted “pursuant to the provisions of the [FAA] and to state law to the extent state
law would otherwise be applicable . . .” Sections 10 and 11 of the FAA (9 U.S.C. §§ 10,
11) and sections 1286.2 and 1286.6 of the California Arbitration Act (Code Civ. Proc.,
§§ 1286.2, 1286.6) provide for limited judicial review of arbitration awards governed by
their respective provisions. Nothing in the arbitration agreement denies either party the
benefit of that review. Consequently, the agreement is not unconscionable merely
because it does not explicitly provide for judicial review. (See Little v. Auto Stiegler, Inc.
(2003) 29 Cal.4th 1064, 1075, fn. 1 [“the fact that an arbitration agreement does not
explicitly provide for judicial review is no basis for invalidating it. [Citation.]”].)
22
3. Ramos is required to arbitrate his Labor Code claims on an individual
basis
The trial court ruled that, under Gentry, Ramos could not be compelled to arbitrate
his Labor Code claims on an individual basis. Fry’s argues that, in light of Iskanian, it is
now clear that the FAA preempts the “Gentry rule” and that Ramos must therefore be
ordered to arbitrate his claims individually as required under the terms of the arbitration
agreement. Ramos disagrees, arguing that: (1) the arbitration agreement does not
preclude class arbitration; and (2) to the extent that it does, he satisfied all of the factors
set forth in Gentry, thereby rendering any class action waiver unenforceable.
a. The arbitration agreement does not permit class arbitration3
Ramos contends that, unlike the arbitration agreements at issue in Concepcion,
Gentry and Iskanian, the agreement at issue here does “not explicitly reject class
arbitration.” According to Ramos, the absence of any such language demonstrates “an
implied agreement to class arbitration exists.” We disagree, concluding this argument is
foreclosed by Stolt-Nielsen.
The agreement between Ramos and Fry’s does not reference class arbitration.
Rather, the agreement states only that “[Ramos and Fry’s] hereby agree that any and all
disputes between [Ramos and Fry’s] (including disputes between [Ramos] and other
[employees] or agents of [Fry’s] and entities legally related to [Fry’s]) arising from or in
any way related to [Ramos’s] employment by [Fry’s] . . . shall be determined and decided
by final and binding arbitration.”
3
Neither party has argued that the trial court lacked authority to determine whether
their agreement permits class arbitration. (See Sandquist v. Lebo Automotive, Inc. (2014)
228 Cal.App.4th 65, 78 [“the question whether the parties agreed to class arbitration in
cases where the arbitration agreement is silent is determined by the arbitrator”].) Instead,
both parties invited the trial court (and now invite this court) to decide the issue of class
arbitrability. Under such circumstances, the court may properly determine whether the
parties agreed to class arbitration. (See Truly Nolen, supra, 208 Cal.App.4th at p. 515
[court may properly decide question of class arbitrability where both parties requested
that it resolve the issue].)
23
In Nelsen v. Legacy Partners Residential, Inc. (2012) 207 Cal.App.4th 1115,
(Nelsen), the court considered whether a similarly-worded employment arbitration
agreement operated as a waiver of class arbitration. The plaintiff’s agreement stated: “‘I
agree that any claim, dispute, or controversy . . . between myself and [the employer] (or
its . . . agents . . .) arising from . . . my . . . employment by . . . [employer], . . . shall be
submitted to and determined exclusively by binding arbitration.” (Id. at p. 1120.) The
court concluded that, under Stolt-Nielsen, this language could not be reasonably
interpreted as permitting class arbitration. According to Nelsen, Stolt-Nelsen clarified
that “‘a party may not be compelled under the FAA to submit to class arbitration unless
there is a contractual basis for concluding that the party agreed to do so.’ [Citation.]
[Although Stolt-Nelsen] did not specify what is affirmatively required in order to show
there is a ‘contractual basis,’ . . . it did hold that the agreement’s ‘silence on the question
of class arbitration’ cannot be taken as dispositive evidence of an intent to allow class
arbitration. [Citation.]” (Id. at p. 1128.)
Applying those principles to the agreement at issue, Nelsen found there was no
language in the contract suggesting the parties had agreed to class arbitration. The court
explained that “the agreement [only contemplates arbitration] of disputes between ‘[the
plaintiff and the employer]’. . . A class action by its very nature is not a dispute or
controversy ‘between [plaintiff and employer].’ In this case (assuming a class was
certified) it would be a dispute between [employer] and numerous different individuals,
one of whom is [plaintiff]. Although [employer] agreed with [plaintiff] to arbitrate all
kinds of disputes that might arise between them, this choice of contractual language, by
its ordinary meaning, unambiguously negates any intention by [employer] to arbitrate
claims or disputes to which [plaintiff] was not a party.” (Nelsen, supra, 207 Cal.App.4th
at p. 1130.)
In Kinecta Alternative Financial Solutions, Inc. v. Superior Court (2012) 205
Cal.App.4th 506 (Kinecta), the court considered essentially identical language in a wage
and hour class action brought by a credit union employee against her former employer.
The employee’s arbitration agreement covered “‘any claim, dispute, and/or controversy
24
that either I may have against the [employer] (or its . . . employees [or] agents . . .) or the
[employer] may have against me, arising from, related to, or having any relationship or
connection whatsoever with my . . . employment by, or other association with the
[employer.]’” (Id. at p. 511, fn. 1.) As in Nelsen, the court applied Stolt-Nelsen and
concluded there was no basis for finding the agreement authorized class arbitration: “The
arbitration provision identifies only two parties to the agreement, ‘I, [plaintiff]’ and
‘[employer].’ It makes no reference to employee groups or to other employees of
[employer], and instead refers exclusively to ‘I,’ ‘me,’ and ‘my’ (designating [plaintiff].)”
(Id. at p. 517.)
The language in Ramos’s arbitration agreement cannot be meaningfully
distinguished from the language at issue in Nelsen or Kinecta. As in those cases, the
agreement states that the parties agreed that “any and all [employment-related] disputes
between [Ramos] and [Fry’s]” shall be determined by arbitration. For the reasons set
forth in Nelsen and Kinecta, we conclude this “contractual language . . . contemplates a
two-party arbitration. No language evinces an intent to allow class arbitration.” (Nelsen,
supra, 207 Cal.App.4th at p. 1131.)
b. Iskanian has clarified that the FAA preempts the Gentry rule
Ramos argues that even if the arbitration agreement impliedly waives class
arbitration, that waiver is unenforceable because he has satisfied all of the factors set
forth in Gentry. Iskanian, however, concluded that the reasoning in Concepcion made
clear that “the FAA preempts the Gentry rule.” (Iskansian, supra, 59 Cal.4th at p. 366.)
Therefore, under Iskanian and Concepcion, Ramos must “proceed with bilateral
arbitration on his individual damages claims.” (Id. at p. 391.)4
4 The California Supreme Court issued Iskanian after Ramos submitted his
respondent’s brief, but before Fry’s submitted its reply brief. Prior to oral argument, we
issued a letter to counsel requesting they be prepared to address the effect of Iskanian.
25
4. Ramos is entitled to pursue a representative PAGA claim
We next consider whether Ramos may be compelled to arbitrate his PAGA claim
on an individual basis. As summarized above, Iskanian held that arbitration provisions
requiring the waiver of “representative actions brought under the Private Attorneys
General Act” (Iskanian, supra, 59 Cal.4th at p. 378) are impermissible under state law,
and further held that the FAA does not preempt this rule.
Fry’s does not dispute that Iskanian precludes the enforcement of an employment
agreement provision that expressly waives the arbitration of representative claims under
the PAGA. It contends, however, that Iskanian is inapplicable here because the
arbitration agreement does not contain an “explicit . . . representative waiver. . . Rather, .
. . the agreement is silent with respect to PAGA claims.” According to Fry’s, Ramos is
therefore “not precluded from pursuing his PAGA claim on an individual basis.” Thus,
Fry’s essentially argues that, under Iskanian, a plaintiff may be compelled to arbitrate his
or her PAGA claim on an individual basis where the agreement is silent on the issue of
representative arbitration proceedings.
Even if we were to accept Fry’s’s assertion that the agreement included an implied
representative action waiver requiring Ramos to arbitrate his PAGA claim on an
individual basis, such a provision would be unenforceable under Iskanian.5
The defendant employer in Iskanian raised a similar argument, asserting that the
agreement at issue was not contrary to public policy because it only prohibited
“representative claims, not individual PAGA claims for Labor Code violations that an
employee suffered.” (Iskanian, supra, 59 Cal.4th at p. 383.) The California Supreme
Court disagreed, stating: “[W]hether or not an individual claim is permissible under the
PAGA, a prohibition of representative claims frustrates the PAGA’s objectives” because
a “single-claimant arbitration . . . will not result in the penalties contemplated under the
5 Fry’s appears to argue that, under the reasoning of Stolt-Nielsen, supra, 559 U.S.
662, an arbitration agreement that does not reference representative claims must be
interpreted as requiring individual arbitration of any claim that could be brought in a
representative capacity. We need not decide that issue, concluding that, under Iskanian, a
provision requiring a plaintiff to arbitrate his PAGA claim on an individual basis is
unenforceable.
26
PAGA to punish and deter employer practices that violate the . . . Labor Code.” (Id. at
pp. 383-384.) The Court’s analysis makes clear that an arbitration provision that
precludes representative PAGA claims, but permits individual PAGA claims, is still
contrary to public policy and therefore unenforceable.6
D. Ramos’s Claim for Injunctive Relief Under Section 17200 Is not Arbitrable
Finally, we consider Ramos’s assertion that, under Cruz, supra, 30 Cal.4th 303,
his claim of injunctive relief under section 17200 is not arbitrable. In Cruz, the
California Supreme Court held that section 17200 injunctive relief actions that would
benefit the public are not arbitrable. (Id. at pp. 315-316.) Cruz extended the Court’s
prior holding in Broughton v. Cigna Healthplans (1999) 21 Cal.4th 1066 (Broughton),
which held that a claim seeking public injunctive relief under the Consumers Legal
Remedies Act (CLRA) (Civ. Code, § 1750 et seq.) was not arbitrable. Broughton
explained that “the evident purpose of the injunctive relief provision of the CLRA is not
to resolve a private dispute but to remedy a public wrong.” (Broughton, supra, 21
Cal.4th at p. 1080.) According to the Court, a plaintiff seeking an injunction under the
CLRA “function[s] as a private attorney general, enjoining future deceptive practices on
behalf of the general public. . . . [U]nder such circumstances arbitration is not a suitable
forum.” (Id. at pp. 1079-1080.) The Court further explained that such a rule was not
preempted by the FAA because the federal statute was not intended to govern “‘public
injunction’ arbitrations.” (Id. at p. 1082.) In Cruz, the Court explained that claims for
public injunctive relief under the UCL are “indistinguishable from the CLRA [injunctive
relief] claim that was at issue in Broughton” and are therefore inarbitrable for the same
reasons. (Cruz, supra, 30 Cal.4th at p. 315.)
Fry’s argues that the “Broughton-Cruz rule does not survive Concepcion because
the rule prohibits outright the arbitration of a particular type of claim – claims for broad
6 Fry’s requests that, in the event we conclude Iskansian permits Ramos to pursue
his representative PAGA claim, we stay this appeal until the United States Supreme
Court decides whether to accept a petition for review that was filed in Iskanian on
September 22, 2014. We decline this request.
27
public injunctive relief.’” At least one California court has agreed, concluding:
“Concepcion adopts a sweeping rule of FAA preemption. Under Concepcion, the FAA
preempts any rule or policy rooted in state law that subjects agreements to arbitrate
particular kinds of claims to more stringent standards of enforceability than contracts
generally. Absolute prohibitions on the arbitration of particular kinds of claims such as
that reflected in Cruz are the clearest example of such policies . . . since [Cruz] prohibits
outright the arbitration of claims for public injunctive relief, it is in conflict with the
FAA.” (Nelsen, supra, 207 Cal.App.4th at p. 1136; see also Kilgore v. KeyBank, N.A.
(9th Cir. 2012) 673 F.3d 947 [under Concepcion, the Cruz rule is preempted by FAA].)
Nelsen, however, was decided prior to Iskanian, in which our Supreme Court
adopted a narrower interpretation of Concepcion. (Iskanian, supra, 59 Cal.4th at p. 364
[Concepcion held only that “states cannot require a procedure that interferes with
fundamental attributes of arbitration”].) As discussed above, Iskanian also held that
PAGA claims are not governed by the FAA because they are, in effect, disputes between
the employer and the state. The Broughton-Cruz rule is predicated on analogous
reasoning. (Broughton, supra, 21 Cal.4th at pp. 1079-1080.)
In any event, the California Supreme Court has not yet had an opportunity to
consider Concepcion’s effect on the Broughton-Cruz rule. While the reasoning of
Concepcion could be read to implicitly disapprove of such a rule, the United States
Supreme Court did not directly address whether the FAA preempts state rules prohibiting
the arbitration of statutorily-based public injunctive relief claims. “Under the
circumstances, we decline to disregard the California Supreme Court’s decision without
specific guidance from our high court.” (Truly Nolen, supra, 208 Cal.App.4th at
p. 507.)7
7 Fry’s has never argued Ramos’s claim for injunctive relief under section 17200
does not fall within the Cruz rule. At least one court has concluded that, to establish that
an injunctive relief claim falls within Cruz, the plaintiff must make a factual showing the
relief sought would “more than incidentally benefit the public.” (Nelsen, supra, 207
Cal.App.4th at p. 1136.) Because Fry’s has not argued that Ramos failed to show an
injunction in this case would have more than an incidental benefit to the public, we need
not address that issue.
28
E. Remedy
In sum, Ramos must proceed with bilateral arbitration on his individual damages
claims. He is not, however, compelled to arbitrate his PAGA claim on an individual
basis, nor is he required to arbitrate his claim for injunctive relief under section 17200.
As in Iskanian, supra, 59 Cal.4th 348, the arbitration agreement provides no basis to
determine how the parties would prefer to proceed under these circumstances. On
remand, the parties may address: (1) whether they will voluntarily agree on a single
forum for resolving all of their claims; (2) if not, whether it is appropriate to bifurcate the
claims, with individual claims going to arbitration and the representative PAGA claim
and section 17200 claim for injunctive relief going to litigation; (3) if such bifurcation
occurs, whether the trial court should stay the arbitration or litigation. (See Doan v. State
Farm General Ins. Co. (2011) 195 Cal.App.4th 1082, 1098-1099 [under Code of Civil
Procedure section 1281.2, “trial courts have the power to sever arbitrable claims from
inarbitrable ones and to stay either the arbitration or the judicial proceedings pending the
outcome of the other”].)
DISPOSITION
The trial court’s order denying Fry’s’s motion to compel arbitration is reversed.
The matter is remanded for further proceedings consistent with this opinion. Each party
shall bear its own costs on appeal.
ZELON, J.
We concur:
PERLUSS, P. J. SEGAL, J.

Judge of the Los Angeles Superior Court, assigned by the Chief Justice pursuant to
article VI, section 6 of the California Constitution.
29