Leshane v. Tracy VW, Inc. ( 2022 )

Filed 4/29/22
CERTIFIED FOR PUBLICATION
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
THIRD APPELLATE DISTRICT
(San Joaquin)
----
NICOLE LESHANE et al., C093881
Plaintiffs and Respondents, (Super. Ct. No.
STKCVUOE2020006864)
v.
TRACY VW, INC., et al.,
Defendants and Appellants.
APPEAL from a judgment of the Superior Court of San Joaquin County, George J.
Abdallah, Jr., Judge. Affirmed.
Fine, Boggs & Perkins, John P. Boggs and David J. Reese for Defendants and
Appellants.
Whitehead Employment Law, Jacob N. Whitehead and Meghan N. Higday for
Plaintiffs and Respondents.
Plaintiffs Nicole Leshane, Steve Garner, Justin Prasad, Isaac Saldana, and Maurice
West sued defendants Tracy VW, Inc. and RJ Gill Ventures, Inc. alleging several Labor
Code violations. They did so on behalf of themselves as defendants’ former employees,
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on behalf of others similarly situated, and on behalf of the state pursuant to the Private
Attorneys General Act of 2004 (Private Attorneys General Act) (Lab. Code, § 2698 et
seq.). After defendants filed a petition to compel arbitration, plaintiffs filed a first
amended complaint alleging violations of the Labor Code solely as representatives of the
state under the Private Attorneys General Act.
Defendants continued to seek arbitration of plaintiffs’ individual claims and
dismissal of their class-wide claims pursuant to the arbitration agreements each plaintiff
signed. Defendants reasoned “[p]laintiffs’ amendment of the Complaint to strip out
[claims not pertaining to the Private Attorneys General Act] has not, without more, made
the controversy go away. The elimination of claims for individual and class-wide
damages from the Complaint is only an indication that Plaintiffs are not actively seeking
that relief at this time and in this forum. There remains a controversy between the
parties that that [sic] Plaintiffs, or any of them, could resuscitate at some point in the
future. And Defendants have the absolute right to compel arbitration of such
controversy . . . .”
The trial court denied defendants’ petition to compel arbitration finding plaintiffs’
claim under the Private Attorneys General Act was not subject to arbitration citing
Iskanian v. CLS Transportation Los Angeles, LLC (2014) 59 Cal.4th 348. Defendants
appeal the trial court’s order.
We affirm.
DISCUSSION
Defendants agree plaintiffs’ claim under the Private Attorneys General Act cannot
be compelled to arbitration. They contend, however, that arbitration is still required to
resolve the arbitrable individual claims plaintiffs raised in their original complaint which
was dismissed without prejudice by filing the first amended complaint. Defendants urge
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us to interpret “controversy” as used in Code of Civil Procedure 1 section 1281.2 as
including any question subject to an arbitration agreement, even if that question is not
asserted by a claimant in any forum. They argue this is permitted because section 1281.2
does not require a controversy be brought in a court action before it can be compelled
into arbitration. While we agree a legal action is not a prerequisite to an arbitration order
(see, e.g., Trubowitch v. Riverbank Canning Co. (1947) 30 Cal.2d 335, 337 [buyer
instituted proceeding to compel arbitration of seller’s liability under contract after seller
failed to deliver goods]; United Public Employees v. City & County of San Francisco
(1997) 53 Cal.App.4th 1021, 1023 [union plaintiff instituted proceeding to compel
arbitration of a member’s grievance against city defendant]), we decline to give section
1282.1 the broad interpretation defendants urge.
We review questions of statutory interpretation de novo. (People ex rel. Lockyer
v. Shamrock Foods Co. (2000) 24 Cal.4th 415, 432.) “Our fundamental task in
construing a statute ‘is to ascertain the Legislature’s intent [and] effectuate the law’s
purpose. [Citation.] We begin our inquiry by examining the statute’s words, giving them
a plain and commonsense meaning. [Citation.] In doing so, however, we do not consider
the statutory language “in isolation.” ’ ” (In re Greg F. (2012) 55 Cal.4th 393, 406.)
Rather, “we construe the words in question ‘ “in context, keeping in mind the nature and
obvious purpose of the statute . . . .” ’ ” (Ibid.) “ ‘We must also avoid a construction that
would produce absurd consequences, which we presume the Legislature did not intend.’ ”
(Ibid.) Every statute is to be read “ ‘with reference to the entire scheme of law of which
it is part so that the whole may be harmonized and retain effectiveness.’ ” (People v.
Pieters (1991) 52 Cal.3d 894, 899.)
1 Further section references are to the Code of Civil Procedure unless otherwise
indicated.
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Section 1281.2 provides: “On petition of a party to an arbitration agreement
alleging the existence of a written agreement to arbitrate a controversy and that a party to
the agreement refuses to arbitrate that 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 . . . .” “The clear purpose and effect of section 1281.2 is to require
the superior court to determine in advance whether there is a duty to arbitrate the
controversy which has arisen.” (Freeman v. State Farm Mut. Auto. Ins. Co. (1975) 14
Cal.3d 473, 480.)
Section 1281.2 is part of the California Arbitration Act. (§ 1280 et seq.; see
Sheppard, Mullin, Richter & Hampton, LLP v. J-M Manufacturing Co., Inc. (2018) 6
Cal.5th 59, 72.) Both the California Arbitration Act and the Federal Arbitration Act (9
U.S.C. § 1 et seq.) recognize “ ‘ “arbitration as a speedy and relatively inexpensive means
of dispute resolution” ’ and are intended ‘ “to encourage persons who wish to avoid
delays incident to a civil action to obtain an adjustment of their differences by a tribunal
of their own choosing.” ’ ” (St. Agnes Medical Center v. PacifiCare of California (2003)
31 Cal.4th 1187, 1204; see AT&T Mobility LLC v. Concepcion (2011) 563 U.S. 333, 344-
348 [179 L.Ed.2d 742, 754-756].) Arbitration is therefore a matter of contract (Sparks v.
Vista Del Mar Child & Family Services (2012) 207 Cal.App.4th 1511, 1517-1518) and
arbitrators derive their “ ‘powers from the parties’ agreement to forgo the legal process
and submit their disputes to private dispute resolution’ ” (Lamps Plus, Inc. v. Varela
(2019) __ U.S. __, __ [203 L.Ed.2d 636, 646]; see Epic Systems Corp. v. Lewis (2018) __
U.S. __, __ [200 L.Ed.2d 889, 898-899] [with the passage of the Federal Arbitration Act,
Congress endorsed arbitration as a forum for “quicker, more informal, and often cheaper
resolutions for everyone involved”]).
With this obvious purpose in mind, we turn to the definition of controversy as
provided in the California Arbitration Act. Section 1280, subdivision (d) defines
controversy as “any question arising between parties to an agreement whether the
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question is one of law or of fact or both.” If the Legislature intended a controversy be
any question by a party to an agreement, as defendants argue, then that is what
section 1280, subdivision (d) would have said. Instead, the Legislature required the
question be “between parties” to the arbitration agreement. (§1280, subd. (d).) We must
give meaning to this phrase and avoid a construction that makes any word or phrase in a
statute surplusage. (See Reno v. Baird (1998) 18 Cal.4th 640, 658.)
The use of the plural “parties” and requirement that the question be between them,
indicates a bilateral process typical of arbitration proceedings. (See AT&T Mobility LLC
v. Concepcion, supra, 563 U.S. at pp. 347-348 [179 L.Ed.2d at pp. 755-756].)
Defendants do not cite, nor have we found a case presenting the scenario here, where a
defendant seeks to compel a plaintiff to arbitrate claims held by the plaintiff but which
the plaintiff declines to assert. Defendants’ interpretation of “controversy” to include
plaintiffs’ individual claims not asserted in the first amended complaint, or any forum in
which plaintiffs could obtain relief, strips arbitration of its defining characteristic as a
forum for bilateral dispute resolution. Without a claimant seeking to resolve a question
subject to the arbitration agreement, there is no bilateral dispute to resolve. More
importantly, arbitration’s purpose, as a cheaper and more efficient alternative to civil
actions (Epic Systems Corp. v. Lewis, supra, __ U.S. at p. __ [200 L.Ed.2d at pp. 898-
899]), is not implicated because arbitration under the circumstances presented would not
be an alternative to a civil action or an action in any other forum. The practical results of
defendants’ argument is to transform arbitration into a forum for declaratory relief,
something arbitration is not.
This is where defendants’ true strategy becomes apparent. If defendants were
interested in determining the validity of plaintiffs’ allegations of Labor Code violations in
the absence of plaintiffs’ seeking damages, they could conduct an internal investigation
of those allegations. Instead, defendants seek arbitration of those allegations with the
purpose of having plaintiffs’ trial court action stayed. By this conduct, defendants are not
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using arbitration as a forum for neutral dispute resolution, but as a shield against liability
under the Private Attorneys General Act. This is not arbitration’s intended purpose. (See
Armendariz v. Foundation Health Psychcare Servs., Inc. (2000) 24 Cal.4th 83, 118
[arbitration agreement requiring employee to arbitrate claims but not requiring an
employer to do so was unconscionable because it transformed arbitration from a forum
for neutral dispute resolution into something it was not intended to be].) Moreover, such
an interpretation would undermine our Supreme Court’s holding in Iskanian, prohibiting
waiver of claims under the Private Attorneys General Act through arbitration agreements,
resulting in absurdity. (Iskanian v. CLS Transportation Los Angeles, LLC, supra, 59
Cal.4th at pp. 382-389.)
Defendants disagree, arguing that “[i]n light of [plaintiffs’] right to reassert the
dropped claims, [plaintiffs’] dismissal without prejudice . . . fails to negate the existence
of an arbitrable controversy between the parties.” Put another way by defendants,
“[b]ecause [plaintiffs’] elimination of their claims for individual and class-wide damages
and other relief other than civil penalties under [the Private Attorneys General Act] was
done without prejudice to such claims being raised later, the arbitration obligation lives
on just as [plaintiffs’] opportunity to resuscitate those individual claims survives.” The
problem with defendants’ argument is that it acknowledges plaintiffs are not actively
pursuing relief based on arbitrable questions of law or fact. Indeed, defendants
acknowledge that if plaintiffs continue on their chosen path, their claims will extinguish
through the running of the statute of limitations.
It is well established that a claimant may choose to disregard the arbitration
provisions of a contract and initiate a lawsuit, leaving it to the other party to file a timely
motion to compel arbitration. (Brock v. Kaiser Foundation Hospitals (1992) 10
Cal.App.4th 1790, 1795 [“there is nothing to prevent one of the parties to a contractual
arbitration provision from resorting initially to an action at law”]; Sargon Enterprises,
Inc. v. Browne George Ross LLP (2017) 15 Cal.App.5th 749, 767 [the California
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Arbitration Act “recognizes that a party to an arbitration agreement may elect to initiate a
civil action, rather than an arbitration proceeding, and it specifically protects the party’s
right to do so”].) A claimant may make this choice for a variety of reasons, including a
good faith belief that the arbitration provision is unconscionable, or simply a hope that
the other side will not protest and the matter will proceed in court. (Sargon, at pp. 767-
768.) The initiation of a lawsuit based on arbitrable questions is an act to be countered by
specific enforcement of the arbitration provision. (Id., at p. 767.) “ ‘A right to compel
arbitration is not . . . self-executing. If a party wishes to compel arbitration, he must take
active and decided steps to secure that right, and is required to go to the court where the
[claimant]’s action [at law] lies.’ ” (Brock v. Kaiser Foundation Hospitals, at p. 1795.)
Here, plaintiffs do not maintain an action in any forum based on arbitrable claims
and there is no longer an action for defendants to counter by filing a petition under
section 1281.2 for specific enforcement of the arbitration provision. Thus, any question
pertaining to plaintiffs’ individual claims under the Labor Code is not “between parties”
and not a controversy. (§ 1280, subd. (d).) Accordingly, the trial court did not err by
denying defendants’ petition to compel arbitration. 2
2 Because we conclude the trial court properly denied defendants’ petition to
compel arbitration, we need not consider defendants’ argument that plaintiffs’ claim
under the Private Attorneys General Act must be stayed while the arbitration proceedings
occur. We also do not address defendant’s appellate contention the first amended
complaint was defective because plaintiffs did not seek leave of court before dismissing
their class claims. Defendants did not object nor move to strike the first amended
complaint on this basis in the trial court, and thus the claim of error is forfeited.
(Westsiders Opposed to Overdevelopment v. City of Los Angeles (2018) 27 Cal.App.5th
1079, 1091 [“ ‘ “[i]t is well established that issues or theories not properly raised or
presented in the trial court may not be asserted on appeal, and will not be considered by
an appellate tribunal” ’ ”].)
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DISPOSITION
The order denying defendants’ petition to compel arbitration is affirmed.
Plaintiffs shall recover their costs on appeal. (Cal. Rules of Court, rule 8.278(a)(1).)
/s/
Robie, J.
We concur:
/s/
Blease, Acting P. J.
/s/
Hoch, J.
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