Kec v. Superior Court ( 2020 )

Filed 6/19/20; Certified for Publication 7/9/20 (order attached)
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
FOURTH APPELLATE DISTRICT
DIVISION THREE
NICHOLE KEC,
Petitioner,
v. G058119
THE SUPERIOR COURT OF ORANGE (Super. Ct. No. 30-2018-01031808)
COUNTY,
OPINION
Respondent;
R.J. REYNOLDS TOBACCO
COMPANY, et al.,
Real Parties in Interest.
Original proceedings; petition for a writ of mandate and/or prohibition to
challenge an order of the Superior Court of Orange County, Randall Sherman, Judge.
Petition granted.
Law Offices of Natalie Mirzayan and Natalie Mirzayan for Petitioner.
No appearance for Respondent.
Jones Day, Steven M. Zadravecz, Nathaniel P. Garrett, Allison E. Crow,
and Michael A. Carvin for Real Parties in Interest.
* * *
It is the established law of this state that a predispute contractual waiver of
claims under the Labor Code Private Attorneys General Act of 2004 (PAGA) (Lab. Code,
§ 2698 et seq.) is invalid. Here, the parties’ arbitration agreement purports to waive class
actions and any “other representative action” (the representative waiver). There is no
dispute that this representative waiver is broad enough to cover a PAGA claim, and is
thus invalid. Usually, where a single contract provision is invalid, but the balance of the
contract is lawful, the invalid provision is severed, and the balance of the contract is
enforced. But here, the arbitration agreement goes on to provide that the provision
containing the class action and representative waiver is not modifiable nor severable.
The arbitration agreement also contains a provision that if the representative waiver is
found to be invalid, “the Agreement becomes null and void as to the employee(s) who are
parties to that particular dispute”—a so-called “‘blow-up’ provision.”
Plaintiff Nichole Kec brought individual, class, and PAGA claims against
defendants R.J. Reynolds Tobacco Company, Reynolds American Inc., and three
individual employees at R.J. Reynolds Tobacco Company. Plaintiff alleged, in essence,
that she and others were misclassified as exempt employees, resulting in various
violations of the Labor Code. R.J. Reynolds Tobacco Company and Reynolds American
Inc., moved to compel arbitration of plaintiff’s individual claims except the PAGA
1
claim.
1
Because this writ proceeding concerns only the motion to compel
arbitration filed by R.J. Reynolds Tobacco Company and Reynolds American Inc., we
will hereafter refer to these two entities as the defendants.
2
The court granted the motion. The court reasoned: (1) Because defendants
had not asked the court to rule on the enforceability of the representative waiver, it had
not found the representative waiver invalid, and thus the blow-up provision had not been
triggered; and (2) the blow-up provision may apply only to the attempted waiver of the
PAGA claim, not to the arbitrability of plaintiff’s claims under the Labor Code. Plaintiff
filed the present writ petition.
FACTS
Plaintiff’s complaint alleges the following: Plaintiff was a territory
manager for the defendants from 2012 through 2016. She, and all other similarly situated
territory managers, were improperly classified as exempt employees. The term
“manager” inaccurately described the actual job duties of a territory manager, which did
not involve any supervision, but instead involved “ a mixture of manual labor and other
non-sales duties – such as re-setting . . . products, checking inventory, rotating products
on the shelves based on expiration dates, scanning product barcodes to ensure accurate
pricing, enforcing [the defendants’] contracts with established traditional and non-
traditional retail outlets, and providing consulting services to store managers/owners by
providing tobacco advice through the development of individual business plans.”
Plaintiff’s complaint includes causes of action for failure to pay wages
(including overtime wages), failure to provide meal periods and rest breaks, failure to
indemnify for various business expenses, waiting time penalties, failure to pay upon
discharge, failure to provide itemized wage statements, conversion, violation of Business
and Professions Code section 17200 et seq., and penalties pursuant to PAGA.
In response, defendants moved to compel plaintiff “to arbitrate her claims
on an individual basis, pursuant to the binding arbitration agreement she entered into with
3
Defendants, and to stay this action and Plaintiff’s PAGA claim until arbitration has
concluded.”
Section 5 of the arbitration agreement contains the following waiver
provision: “The Parties waive the right to bring, join, participate in, or opt into, a class
action, collective action, or other representative action whether in court or in arbitration.”
“This Section (Section 5) may not be modified or severed from this Agreement for any
reason.”
Section 16 of the arbitration agreement contains both a general severability
provision and an exception for section 5, to which a purported blow-up provision attaches
instead. “Except for Section 5, if any provision of this Agreement is held by a court of
competent jurisdiction or an arbitrator to be invalid, void, or unenforceable, the
remaining provisions shall, nevertheless, continue in full force without being impaired or
invalidated in any way. If Section 5 is found by a court of competent jurisdiction to be,
in any way, unlawful, invalid, void or otherwise unenforceable, the Agreement becomes
null and void as to employee(s) who are parties to that particular dispute, for purposes of
that dispute in the jurisdiction of the court delivering the ruling. If Section 5 is found by
a court of competent jurisdiction to be, in any way, unlawful, invalid, void or otherwise
unenforceable, any class claims, collective claims, or any other representative claims may
only be brought in a court of competent jurisdiction.”
The court granted defendants’ motion to compel arbitration. Addressing
the blow-up provision, the court commented, “Section 16 of the Arbitration Agreement
does not result in invalidation of the entire agreement. Even if Section 5 contains a
legally invalid term, purporting to waive the right to bring a representative PAGA action,
defendants are not attempting to enforce that provision. As a result, this court need not
reach the question of whether that provision is valid. Since this court thus has not ‘held’
or ‘found’ part of Section 5 to be unlawful, invalid, void or unenforceable, the
‘Agreement becomes null and void’ language of Section 16 does not apply. Moreover,
4
even if the court had made such a holding or finding, the agreement is invalid only as to
‘that particular dispute’, which could be interpreted to mean the PAGA claim. Any
ambiguity must be resolved consistent with the principle found in a long line of cases,
continuing through this year, that arbitration agreements are to be liberally interpreted,
with any doubts resolved in favor of arbitration.”
Plaintiff petitioned for a writ of mandate seeking to overturn the court’s
order compelling arbitration of her individual claims. We issued an order to show cause
and stayed the court’s order. Defendants filed a formal return, and plaintiff a formal
reply.
DISCUSSION
As an initial matter, we acknowledge the parties have devoted substantial
portions of their briefs on this writ petition arguing their respective positions on the
interpretation and effect of the so-called blow-up provision. But we decline to accept
their implied invitation to interpret section 16 of the arbitration agreement, in which the
blow-up provision is found. First, the blow-up provision contains a condition precedent
which was not triggered. By its express terms, the blow-up provision applies only where
the court has found section 5 of the arbitration agreement to be “in any way, unlawful,
invalid, void or otherwise unenforceable.” Here, the court expressly declined to make
that finding. Second, even if the blow-up provision had been triggered, plaintiff and
defendants have each presented plausible, but competing, interpretations of section 16.
But we have no extrinsic evidence by which we might have been able to determine the
true intention of the parties to the agreement. Each interpretation offered by the parties,
and some we have considered independently, still leaves a lingering ambiguity.
Fortunately, we need not resolve this issue. Following Securitas Security Services USA,
Inc. v. Superior Court (2015) 234 Cal. App. 4th 1109 (Securitas), which is directly on
5
point, we conclude defendants attempted to accomplish what the contract forbids: trial of
individual claims in arbitration, and a representative claim in court. In other words,
defendants attempted to modify the contract provision by severing the representative
waiver from the balance of the arbitration agreement. This is plainly contrary to the
intent of the agreement which expressly provides: “This [class action and representative
waiver] may not be modified or severed from this Agreement for any reason.”
Accordingly, we will grant the petition and issue a writ of mandate ordering the court to
vacate its order granting the motion to compel arbitration of plaintiff’s individual claims
and to enter a new order denying the motion.
The representative waiver is void.
Under PAGA, an “aggrieved employee” may bring an action on behalf of
herself and other current or former employees seeking civil penalties for violations of the
Labor Code. (Lab. Code, § 2699, subd. (a).) Seventy-five percent of the penalties
recovered go to the Labor and Workforce Development Agency, leaving the remaining
25 percent for the “aggrieved employees.” (Id., subd. (i).) Here, the parties’ arbitration
agreement purported to waive the parties’ right to bring “a class action, or other
representative action whether in court or in arbitration.” (Italics added.) “There is no
dispute that the contract’s term ‘representative action[]’ covers representative actions
brought under the Labor Code Private Attorneys General Act of 2004.” (Iskanian v. CLS
Transportation Los Angeles, LLC (2014) 59 Cal. 4th 348, 378 (Iskanian).) And while
Iskanian held it is permissible for an employee to waive the right to bring a class action,
the rule is different for an employee seeking to bring a PAGA claim. “[A]n employee’s
right to bring a PAGA action is unwaivable.” (Iskanian, at p. 383.)
6
Defendants sought to selectively enforce the arbitration agreement by
compelling plaintiff to arbitrate all her individual claims while leaving plaintiff’s PAGA
2
claim in the court. The question here is whether this selective enforcement is
permissible under the terms of the parties’ arbitration agreement.
Defendants may not selectively enforce the arbitration agreement.
We interpret the arbitration agreement as we would any other contract.
“‘The fundamental rule is that interpretation of . . . any contract . . . is governed by the
mutual intent of the parties at the time they form the contract. [Citation.] The parties’
intent is found, if possible, solely in the contract’s written provisions. [Citation.] “The
‘clear and explicit’ meaning of these provisions, interpreted in their ‘ordinary and popular
sense,’ unless ‘used by the parties in a technical sense or a special meaning is given to
them by usage’ [citation], controls judicial interpretation.” [Citation.] If a layperson
would give the contract language an unambiguous meaning, we apply that meaning.’”
(Nelsen v. Legacy Partners Residential, Inc. (2012) 207 Cal. App. 4th 1115, 1129.) “We
review the scope of an arbitration provision de novo when, as here, that interpretation
does not depend on conflicting extrinsic evidence.” (RN Solution, Inc. v. Catholic
Healthcare West (2008) 165 Cal. App. 4th 1511, 1522.)
2
The PAGA claim is not arbitrable. “Without the state’s consent, a
predispute agreement between an employee and an employer cannot be the basis for
compelling arbitration of a representative PAGA claim because the state is the owner of
the claim and the real party in interest, and the state was not a party to the arbitration
agreement. Under state and federal law, an arbitration agreement applies only to the
parties who agreed to its terms and a party cannot be compelled to arbitrate a dispute that
it has not elected to submit to arbitration.” (Correia v. NB Baker Electric, Inc. (2019) 32
Cal. App. 5th 602, 622.)
7
It is axiomatic that a contract must have a lawful object. (Civ. Code,
§ 1550, subd. (3).) “Where a contract has but a single object, and such object is unlawful,
whether in whole or in part, or wholly impossible of performance, or so vaguely
expressed as to be wholly unascertainable, the entire contract is void.” (Civ. Code,
§ 1598, italics added.) Here, section 4 of the arbitration agreement expresses a single
object. The “[a]greement requires that all Covered Claims be resolved through final and
binding arbitration. Arbitration of Covered Claims under this Agreement is in lieu of the
right and opportunity to engage in litigation and is the exclusive means to resolve any
3
Covered Claim.” Usually “[w]here the consideration is only partly illegal and the
agreement is severable, the legal portion may be enforced.” (1 Witkin, Summary of Cal.
Law (11th ed. 2017) Contracts, § 422.) But “where severability is not found, the contract
is void.” (Ibid.)
Applying the above general principles, we conclude that defendants may
not selectively enforce the arbitration agreement in a manner that defeats its goals. Had
the parties intended to permit defendants to proceed with arbitration notwithstanding an
invalid waiver of representative claims, they would have simply made that provision
severable, like every other term in the agreement. But that is not what they did. Instead,
by specifically making section 5 not severable, the agreement evinces an intent not to
allow defendants to selectively enforce the arbitration agreement.
Securitas, supra, 234 Cal. App. 4th 1109, is directly on point. In Securitas
an employee brought wage and hour claims against her employer, including individual,
class, and representative claims under PAGA. (Id. at pp. 1112, 1114.) The parties had
signed an arbitration agreement containing both a class and representative waiver. As
here, the agreement provided that the representative waiver was not severable from the
remainder of the agreement. (Id. at pp. 1113-1114.) Also, as here, the employer filed a
3
There is no dispute that all of plaintiff’s claims are “Covered Claims” as
defined in section 2 of the arbitration agreement.
8
motion to compel arbitration of the individual claims and asked the court to either dismiss
or stay the class and PAGA claims. (Id. at p. 1114.) The trial court granted the motion to
compel arbitration, but instead of staying or dismissing the PAGA claim, it ordered the
PAGA claim to arbitration. (Id. at p. 1115.) The employer petitioned for a writ of
mandate to compel the court to dismiss or stay the PAGA claim. (Ibid.)
The Securitas court agreed the trial court had erred, but in what must have
been a keenly disappointing outcome for the employer, the court held that the entire
agreement was unenforceable. (Id. at p. 1112.) The court based its conclusion on the
nonseverability provision: “The dispute resolution agreement, therefore, is not divisible,
but presents an all-or-nothing proposition: when [an] employee asserts class, collective or
representative claims, either the employee forgoes his or her right to arbitrate such
claims, or the entire agreement to arbitrate disputes is unenforceable and the parties must
resolve their disputes in superior court. We view this construction as clear, but to the
extent the dispute resolution agreement’s language is uncertain on the point and one can
glean a different outcome from the language, our conclusion would nevertheless stand
under the principle that ‘a court should construe ambiguous language against the interest
of the party that drafted it.’” (Id. at p. 1126.)
In its briefing on this writ petition, defendants do not even mention the
Securitas holding, much less attempt to distinguish it, despite the case being a prominent
centerpiece of plaintiff’s argument. That is not surprising since Securitas is squarely on
point. Instead, in what is perhaps best regarded as a response to the Securitas holding,
defendants counter that “[i]t cannot seriously be disputed that, when the representative
waiver was originally included in the Arbitration Agreement, that waiver was intended
solely for [defendants’] benefit.” Relying on the principle that a “contracting party may
waive provisions placed in a contract solely for his benefit” (Doryan v. Salant (1977) 75
Cal. App. 3d 706, 712), defendants contend they were entitled to selectively enforce the
arbitration agreement.
9
Defendants’ argument ignores the nature of a waiver. Whether a waiver
has been established is measured by the circumstances existing at the time the waiver is
exercised. “Case law is clear that ‘“[w]aiver is the intentional relinquishment of a known
right after knowledge of the facts.” [Citations.] The burden . . . is on the party claiming a
waiver of a right to prove it by clear and convincing evidence that does not leave the
matter to speculation, and “doubtful cases will be decided against a waiver” [citation].’”
(Waller v. Truck Ins. Exchange, Inc. (1995) 11 Cal. 4th 1, 31.) Here, defendants did not
intentionally give up a right to enforce the representative waiver because no such right
existed when plaintiff’s complaint was filed in November 2018. At the time of contract
formation, February 23, 2012, Iskanian had not yet been decided, and at that time it could
have been said the representative waiver was solely for defendants’ benefit, which
defendants accordingly could waive by choosing not to enforce it. But at the time the
arbitration agreement was sought to be enforced, defendants no longer had the right to
enforce the representative waiver. (Iskanian, supra, 59 Cal.4th at p. 383.) Simply put,
there no longer existed any “right” to relinquish. Instead, the attempt to selectively
enforce section 5 amounts to an attempt to unilaterally modify the contract provision by
allowing its severance. The arbitration agreement expressly prohibits a modification of
section 5 “for any reason.” Thus, the representative waiver may not be severed. Plaintiff
is entitled to pursue her PAGA claim, and because that claim is not arbitrable (see fn. 1,
ante), the entire dispute must remain in court.
10
DISPOSITION
Let a peremptory writ of mandate issue ordering respondent trial court to
vacate its June 7, 2019 order granting defendants’ motion to compel arbitration, and to
enter a new order denying the motion in its entirety. The stay order imposed by the court
is dissolved upon issuance of the remittitur. The order to show cause is discharged.
Plaintiff shall recover her costs incurred in this original proceeding.
IKOLA, ACTING P. J.
WE CONCUR:
THOMPSON, J.
GOETHALS, J.
11
Filed 7/9/20
CERTIFIED FOR PUBLICATION
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
FOURTH APPELLATE DISTRICT
DIVISION THREE
NICHOLE KEC,
Petitioner,
v. G058119
THE SUPERIOR COURT OF ORANGE (Super. Ct. No. 30-2018-01031808)
COUNTY,
ORDER
Respondent;
R.J. REYNOLDS TOBACCO
COMPANY, et al.,
Real Parties in Interest.
Diversity Law Group has requested that our opinion filed on June 19, 2020,
be certified for publication. It appears that our opinion meets the standards set forth in
California Rules of Court, rule 8.1105(c). The request is GRANTED.
The opinion is ordered published in the Official Reports.
IKOLA, ACTING P. J.
WE CONCUR:
THOMPSON, J.
GOETHALS, J.