Jacoby v. Islands Restaurants CA2/5 ( 2014 )

Filed 6/20/14 Jacoby v. Islands Restaurants CA2/5
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS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
publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication
or ordered published for purposes of rule 8.1115.
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION FIVE
KATHRYN JACOBY, B250886
Plaintiff and Respondent, (Los Angeles County
Super. Ct. No. BC458426)
v.
ISLANDS RESTAURANTS, L.P.,
Defendant and Appellant.
APPEAL from an order of the Superior Court of Los Angeles County, Kenneth R.
Freeman, Judge. Affirmed.
Stuart Kane LLP, Bruce D. May and Eve A. Brackmann for Defendant and
Appellant.
Capstone Law APC, Melissa Grant, Glenn A. Danas and Liana Carter for Plaintiff
and Respondent.
I. INTRODUCTION
Defendant, Islands Restaurants, L.P., appeals from a June 28, 2013 order denying
its motion to compel arbitration against plaintiff, Kathryn Jacoby. Defendant was
originally sued by Jonathan Chambless who withdrew from the case for personal reasons.
The trial court denied the motion to compel arbitration, finding defendant waived its right
to arbitrate. Because substantial evidence supports the trial court’s waiver determination
finding, we affirm the denial of defendant’s motion to compel arbitration.
II. BACKGROUND
A. Class Action Complaint
On March 30, 2011, Mr. Chambless filed a class action complaint against
defendant. Mr. Chambless was employed as a server, a non-exempt hourly paid position,
from May 2009 to December 2010 at defendant’s Woodland Hills restaurant. The
complaint alleges defendant failed to compensate plaintiff and class members for: unpaid
rest period premiums; split-shift premiums; unpaid reporting time; failure to provide
seating; and full reimbursement of business-related expenses and costs. The complaint
also alleges defendant failed to pay plaintiff and other class members all wages owed
them upon discharge including rest period and split-shift premiums. The complaint seeks
civil penalties under the Private Attorneys General Act of 2004 for alleged Labor Code
violations. In addition, the complaint alleges violation of Business and Professions Code
section 17200 et seq., because defendant’s conduct constituted unlawful business acts and
practices.
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B. Litigation With Mr. Chambless As The Proposed Class Representative
On May 4, 2011, defendant demurred and moved to strike the class action
allegations in Mr. Chambless’s complaint. Defendant argued the class action allegations
in the first cause of action for violation of Labor Code section 226.7 for unpaid rest
period premiums was barred by collateral estoppel principles. On October 21, 2011, the
demurrer was overruled and the motion to strike the class action allegations was denied.
On November 14, 2011, defendant filed an answer to the complaint. In the twenty-sixth
affirmative defense, defendant asserts the claims were covered by the arbitration
agreements signed by plaintiff and putative class members. On December 1, 2011,
defendant filed a second motion to strike or dismiss the class allegations from the first
cause of action for rest period violations based on collateral estoppel. On April 13, 2013,
defendant’s second motion to strike was denied. The trial court ruled plaintiff and
putative members were not collaterally estopped from bringing a rest period class claim
based on denial of class certification in another case filed in Orange County. On
December 20, 2011, defendant filed a mandate petition challenging the trial court’s order
denying the motion to strike. We issued an order to show cause on March 29, 2012, and
Mr. Chambless filed a response. On May 22, 2014, we issued the following order, “The
order to show cause issued on March 29, 2012, is discharged, as being improvidently
granted, and the petition for writ of mandate, filed December 20, 2011, is denied.”
(Islands Restaurants, L.P. v. Superior Court (May 22, 2012, B237974) [nonpub. order].)
Defendant filed a review petition with our Supreme Court, which was denied on August
8, 2012. (Islands Restaurants, L.P. v. Superior Court (Aug. 8, 2012, S203031 [nonpub.
order].) On January 18, 2013, Mr. Chambless filed his class certification motion. But
Mr. Chambless later withdrew as the proposed class representative for personal reasons
and was replaced by plaintiff.
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C. Plaintiff Becomes The New Class Representative
On April 15, 2013, the parties stipulated to the filing of a first amended complaint.
The first amended complaint replaces Mr. Chambless with plaintiff. Thereupon, plaintiff
is named as the proposed class representative. The first amended complaint alleges
defendant employed plaintiff from April 2009 to August 2012 as a server, a non-exempt
hourly paid position, at its Woodland Hills restaurant. The first amended complaint
alleges defendant failed to pay rest period premiums and business expenses. Plaintiff
seeks recovery of civil penalties for the Labor Code violations under the Private
Attorneys General Act. In addition, plaintiff alleges defendant engaged in unlawful
business acts and practices in violation of Business and Professions Code section 17200
et seq. The first amended complaint does not allege any new causes of action.
D. Defendant’s Motion to Compel Arbitration
After the first amended complaint was filed, defendant moved to compel
arbitration of plaintiff’s claims on May 10, 2013. Defendant argued plaintiff was
required to arbitrate her claims under the arbitration agreements she signed in 2009 and
2011. In support of its motion, defendant submitted declarations from: Warren Boone,
defendant’s director of human resources; Brian Agoncillo, an employee who trained new
servers including plaintiff; and Jacob Jurado, an assistant manager.
Mr. Boone stated since 2003, defendant had offered arbitration agreements to all
employees. No employee was required to sign the arbitration agreement. And every
employee who signed an arbitration agreement could revoke his or her acceptance within
30 days of signing. Mr. Boone stated plaintiff signed the 2009 and 2011 arbitration
agreements.
Mr. Agoncillo, a trainer, conducted plaintiff’s orientation and training on April 8,
2009. He went over the arbitration agreement with plaintiff and gave her time to read it.
Plaintiff executed the arbitration agreement and Mr. Agoncillo signed on defendant’s
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behalf on April 8, 2009. The 2009 agreement provides for arbitration of employment
disputes including employment, compensation, unpaid wages, meal and rest periods, and
overtime pay. The 2009 arbitration agreement states, “Any such employment dispute
shall be submitted to binding arbitration pursuant to the Federal Arbitration Act using the
rules for the resolution of employment disputes of the American Arbitration Association
(‘AAA’) as then in effect.” The 2009 arbitration does not contain a class action waiver.
Mr. Jurado was plaintiff’s assistant manager at the Woodland Hills restaurant. In
July 2011, Mr. Jurado was responsible for asking employees at the Woodland Hills
restaurant to sign the new arbitration agreement. He met with plaintiff and told her about
the new arbitration agreement. Mr. Jurado handed her a copy of the 2011 arbitration
agreement and gave her time to read the document and ask questions. Plaintiff executed
the 2011 arbitration agreement and Mr. Jurado signed on defendant’s behalf on July 13,
2011.
The 2011 arbitration agreement provides for arbitration of all claims including
claims for unpaid wages and penalties. The 2011 arbitration agreement is similar to the
2009 arbitration agreement with three differences. First, under the 2011 arbitration
agreement, defendant agreed to pay all of the arbitrator’s and arbitration expenses as
required by law. Second, the 2011 arbitration contains a class action waiver, “I agree that
in any dispute with [defendant], I will assert only my own individual claims, and will not
assert any claims on behalf of any other person or class of persons.” Third, the 2011
arbitration agreement states: “The Arbitrator shall follow the law. The
Arbitrator . . . shall have no power to commit an error of law or legal reasoning,
and . . . the award of the Arbitrator can be set aside on that [ground] upon review by a
court of law.” The 2011 arbitration agreement provides: “This constitutes the entire
agreement between me and [defendant] with regard to arbitration. It supersedes all other
agreements and understandings concerning arbitration, and it can be amended only in a
written agreement signed by me and [defendant].” Under the 2011 arbitration agreement,
plaintiff had 30 days after signing the agreement to revoke acceptance of it.
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In opposition to defendant’s motion, plaintiff argued the 2011 arbitration
agreement was unenforceable because it was obtain by an improper communication with
a putative class member. Plaintiff contended: defendant furnished the 2011 arbitration
agreement during the pendency of a putative class action; the 2011 arbitration agreement
superseded a prior arbitration agreement that had no class action waiver; coercion and
undue influence rendered the 2011 arbitration agreement unenforceable; and defendant
waived its right to arbitrate notwithstanding the change in class representative. Both Mr.
Chambless and plaintiff signed the 2009 agreement to arbitrate but defendant did not
move to compel arbitration during two years of litigation.
Plaintiff submitted a declaration in support of her opposition to the motion to
compel arbitration. Plaintiff stated she worked at defendant’s Woodland Hills restaurant
from April 2009 to August 2012. She was paid minimum wage, $8.00 per hour, during
the entire time she worked for defendant. Plaintiff stated she was given documents and
told to complete all the forms including the 2009 arbitration agreement. She did not think
she could change or dispute any of the forms. Plaintiff was not told by defendant that she
was entitled to take a 10-minute rest break. In March 2013, she agreed to represent the
putative class after she learned Mr. Chambless had to drop out of the suit for personal
reasons. Plaintiff is currently a student and working in a low-wage job. If plaintiff had to
pay her lawyers on an hourly basis, she would be unable to file a suit to recover wages
for missed rest breaks.
Plaintiff also submitted a declaration from her attorney, Arnab Banerjee. In
November 2012, Mr. Banerjee reached an agreement with defendant’s counsel on a class
certification briefing schedule. Based on the parties’ stipulation and the court’s order,
plaintiff filed a motion for class certification on January 18, 2013. Defendant was to file
an opposition to the class certification motion by February 18, 2013. A few days after the
motion was filed, Mr. Chambless withdrew from the case for personal reasons. In March
2013, plaintiff agreed to represent the class.
Mr. Banerjee stated plaintiff obtained the names and contact information of 13,000
putative class members from defendant as part of class-wide discovery. To prepare for
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the class certification motion, Mr. Banerjee interviewed hundreds of class members. In
addition, Mr. Banerjee took the deposition of Ray Nosse, an employee of defendant, on
multiple occasions. Mr. Nosse was designated by defendant as the employee most
qualified to testify on its behalf. (Code Civ. Proc., § 2025.230.) Mr. Banerjee reviewed
voluminous documents produced by defendant including a May 17, 2009 arbitration
agreement signed by Mr. Chambless. A copy of Mr. Chambless’s 2009 arbitration
agreement with defendant was attached to Mr. Banerjee’s declaration.
Mr. Banerjee stated he did not generally accept individual wage and hour clients.
He explained the cases tend to be expensive to investigate and prosecute and the costs
often exceeded the potential recovery. For example, plaintiff would recover at most
$6,880 in rest period premiums if she were successful on her unpaid rest period claim.
Mr. Banerjee estimated it would cost $14,950 for plaintiff to pursue her claims in
arbitration even if defendant paid the arbitration costs.
E. Trial Court’s Ruling
On June 25, 2013, the hearing was conducted on defendant’s motion to compel
arbitration. On June 28, 2013, the trial court denied the motion. The trial court found the
2011 arbitration agreement was unenforceable because it constituted an improper
communication with the putative class. However, the trial court ruled there was an
agreement to arbitrate under the 2009 arbitration agreement. The 2011 arbitration
agreement did not supersede the 2009 arbitration agreement because the updated
arbitration agreement was unenforceable. But the trial court ruled defendant waived its
right to arbitrate under the 2009 arbitration agreement. The trial court found defendant’s
actions were inconsistent with any intent to seek arbitration. Defendant filed: a
demurrer; two motions to strike; a mandate petition; and a review petition in our Supreme
Court. In addition, the parties engaged in class-wide discovery and agreed to a class
certification motion briefing schedule. The case was over two years old and there was a
pending class certification motion at the time defendant filed its motion to compel
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arbitration. The trial court rejected defendant’s contention that plaintiff’s substitution as
class representative in April 2013 “reset the clock for purposes of waiver” jurisprudence.
Plaintiff was a putative class member in the case since its inception. Moreover, both
plaintiff and Mr. Chambless signed the same 2009 arbitration agreement but defendant
did not move for arbitration until now. The trial court concluded a finding that no waiver
had occurred would result in extreme prejudice to the class.
III. DISCUSSION
A. Standard Of Review
We review the trial court’s arbitration waiver finding for substantial evidence.
(St. Agnes Medical Center v. PacifiCare of California (2003) 31 Cal.4th 1187, 1196
[“Generally, the determination of waiver is a question of fact, and the trial court’s
finding, if supported by substantial evidence, is binding on the appellate court.”]
(St. Agnes); Engalla v. Permanente Medical Group, Inc. (1997) 15 Cal.4th 951, 983;
Platt Pacific, Inc. v. Andelson (1993) 6 Cal.4th 307, 319; Hong v. CJ CGV America
Holdings, Inc. (2013) 222 Cal.App.4th 240, 248.) However, when the facts are
undisputed and only one inference may be reasonably drawn, the issue is one of law and
we review de novo. (St. Agnes, supra, 31 Cal.4th at p. 1196; Platt Pacific, Inc. v.
Andelson, supra, 6 Cal.4th at p. 319.)
B. Waiver Of Arbitration
Code of Civil Procedure section 1281.2, subdivision (a) provides in pertinent part:
“On petition of a party to an arbitration agreement alleging the existence of a written
agreement to arbitrate a controversy and that a party thereto refuses to arbitrate such
controversy, the court shall order the petitioner and the respondent to arbitrate the
controversy if it determines that an agreement to arbitrate the controversy exists, unless it
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determines that: [¶] (a) The right to compel arbitration has been waived by the petitioner;
or [¶] (b) Grounds exist for the revocation of the agreement . . . . ” Under both the
Federal Arbitration Act and state law, “waivers are not to be lightly inferred and a party
seeking to establish a waiver has a heavy burden of proof.” (St. Agnes, supra, 31 Cal.4th
at p. 1195; Christensen v. Dewor Developments (1983) 33 Cal.3d 778, 782.) Thus, any
doubts concerning waiver should be resolved in favor of arbitration. (St. Agnes, supra,31 Cal.4th at p. 1195; see Moses H. Cone Mem’l Hosp. v. Mercury Constr. Corp. (1983)
460 U.S. 1, 24-25.)
In St. Agnes, our Supreme Court adopted a multi-factor test for determining
whether a party has waived the right to arbitrate: “‘In determining waiver, a court can
consider “(1) whether the party’s actions are inconsistent with the right to arbitrate; (2)
whether ‘the litigation machinery has been substantially invoked’ and the parties ‘were
well into preparation of a lawsuit’ before the party notified the opposing party of an
intent to arbitrate; (3) whether a party either requested arbitration enforcement close to
the trial date or delayed for a long period before seeking a stay; (4) whether a defendant
seeking arbitration filed a counterclaim without asking for a stay of the proceedings; (5)
‘whether important intervening steps [e.g., taking advantage of judicial discovery
procedures not available in arbitration] had taken place’; and (6) whether the delay
‘affected, misled, or prejudiced’ the opposing party.”’” (St. Agnes, supra, 31 Cal.4th at p.
1196, quoting Sobremonte v. Superior Court (1998) 61 Cal.App.4th 980, 992; see also
Wagner Construction Co. v. Pacific Mechanical Corp. (2007) 41 Cal.4th 19, 30-31.)
Under both federal and state law, whether litigation results in prejudice to the
party opposing arbitration is critical in waiver determinations. (St. Agnes, supra, 31
Cal.4th at p. 1203; Augusta v. Keehn & Associates (2011) 193 Cal.App.4th 331, 340;
Zamora v. Lehman (2010) 186 Cal.App.4th 1, 16.) Our Supreme Court explained:
“Because merely participating in litigation, by itself, does not result in a waiver, courts
will not find prejudice where the party opposing arbitration shows only that it incurred
court costs and legal expenses. [Citations.] [¶] Rather, courts assess prejudice with the
recognition that California’s arbitration statutes reflect “‘a strong public policy in favor of
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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.”’
[Citation.] Prejudice typically is found only where the petitioning party’s conduct has
substantially undermined this important public policy or substantially impaired the other
side’s ability to take advantage of the benefits and efficiencies of arbitration. [¶] For
example, courts have found prejudice where the petitioning party used the judicial
discovery processes to gain information about the other side’s case that could not have
been gained in arbitration [citations]; where a party unduly delayed and waited until the
eve of trial to seek arbitration [citation]; or where the lengthy nature of the delays
associated with the petitioning party’s attempts to litigate resulted in lost evidence
[citation].” (St. Agnes, supra, 31 Cal.4th at pp. 1203-1204; see Augusta v. Keehn &
Associates, supra, 193 Cal.App.4th at p. 340.)
Substantial evidence supports the trial court’s waiver finding. Mr. Chambless’s
complaint was filed March 30, 2011. Both Mr. Chambless and plaintiff signed the 2009
arbitration agreement. That agreement provided for arbitration of all employment
disputes including compensation, unpaid wages, and meal and rest periods. But
defendant waited more than two years before it moved to compel arbitration on May 10,
2013. A party’s unreasonable delay in demanding arbitration, in and of itself, may
constitute a waiver of the right to arbitrate. (Lewis v. Fletcher Jones Motor Cars, Inc.
(2012) 205 Cal.App.4th 436, 444; Burton v. Cruise (2010) 190 Cal.App.4th 939, 945.) A
party must still demand arbitration within a reasonable time even if the arbitration
agreement does not specify a time limit for demanding such. (Wagner Construction Co.
v. Pacific Mechanical Corp., supra, 41 Cal.4th at p. 30; Burton v. Cruise, supra, 190
Cal.App.4th at p. 945.) Our Supreme Court explained: “‘[W]hat constitutes a reasonable
time is a question of fact, depending upon the situation of the parties, the nature of the
transaction, and the facts of the particular case.’ [Citation.]” (Wagner Construction Co.
v. Pacific Mechanical Corp., supra, 41 Cal.4th at p. 30; Burton v. Cruise, supra, 190
Cal.App.4th at p. 945.) The trial court could reasonably rule the two-year delay here was
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unreasonable. Courts have found shorter delays to be unreasonable and justification for a
waiver finding. (Lewis v. Fletcher Jones Motor Cars, Inc., supra, 205 Cal.App.4th at p.
444 [nearly five-month delay was unreasonable]; Augusta v. Keehn & Associates, supra,
193 Cal.App.4th at p. 338 [six and one-half month delay was unreasonable]; Adolph v.
Coastal Auto Sales, Inc. (2010) 184 Cal.App.4th 1443, 1446, 1449, 1451-1452 [six-
month delay supported waiver]; Guess?, Inc. v. Superior Court (2000) 79 Cal.App.4th
553, 556 [less than four-month delay supported waiver]; Sobremonte v. Superior Court,
supra, 61 Cal.App.4th at p. 996 [10-month delay unreasonable]; Kaneko Ford Design v.
Citipark, Inc. (1988) 202 Cal.App.3d 1220, 1228-1229 [five and one-half month delay
constituted waiver].).
In addition, defendant’s conduct was inconsistent with an intent to arbitrate the
claims and plaintiff has been prejudiced by the delay. Defendant did not demand
arbitration until after it had substantially invoked “the litigation machinery” by filing: a
demurrer and motion to strike the class allegations; a second motion to strike or dismiss
the class allegations; a mandate petition with us; and a review petition in our Supreme
Court. In addition, defendant participated in class discovery by producing numerous
documents including the contact information of over 13,000 putative class members.
Defendant also defended the deposition of its corporate designee on multiple occasions.
Furthermore, defendant agreed to a class certification motion briefing schedule. The
briefing schedule called on plaintiff to file a class certification motion on January 18,
2013. Defendant did not move to compel arbitration until three months after plaintiff had
filed the class certification motion.
Defendant argues plaintiff failed to show she was prejudiced by defendant’s
failure to seek arbitration against Mr. Chambless. We disagree. Plaintiff has been a
putative class member since the inception of the case. In addition, defendant stipulated to
the filing of the first amended complaint, replacing Mr. Chambless with plaintiff as the
class representative. Defendant’s unreasonable delay in moving to compel arbitration
prejudiced plaintiff and the putative class members. Defendant’s conduct substantially
undermines the public policy of favoring “‘“arbitration as a speedy and relatively
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inexpensive means”’” of resolving disputes. (St. Agnes, supra, 31 Cal.4th at p. 1203;
Lewis v. Fletcher Jones Motor Cars, Inc., supra, 205 Cal.App.4th at p. 444.)
Also, defendant contends the intervening change in the law weighs against waiver.
Defendant argues there was uncertainty concerning whether Gentry v. Superior Court
(2007) 42 Cal.4th 443, 463-464 (Gentry) was preempted by the Federal Arbitration Act.
This purported uncertainty arose after the United States Supreme Court decided AT&T
Mobility LLC v. Concepcion (2011) 563 U.S. __, ___ [131 S.Ct. 1740, 1747-1753]
(AT&T Mobility). Defendant asserts it would have been futile to seek arbitration in light
of our decision in Brown v. Ralphs Grocery Company (2011) 197 Cal.App.4th 489, 503
(Brown). In Brown, we held the Private Attorneys General Act waiver provision in the
parties’ arbitration agreement was invalid. (Id. at pp. 503-504.) But we did not decide
whether Gentry was preempted by the Federal Arbitration Act in light of AT&T Mobility.
(Brown, supra, 197 Cal.App.4th at p. 498.) We did not do so because plaintiff failed to
establish the four factors required under Gentry, supra, 42 Cal.4th at page 463. (Brown,
supra, 197 Cal.App.4th at pp. 496-497.)
And it bears emphasis Gentry did not invalidate all class action waivers in
arbitration agreements. In Gentry, our Supreme Court expressly held that not all class
arbitration waivers in overtime cases are unenforceable: “Nonetheless, when it is alleged
that an employer has systematically denied proper overtime pay to a class of employees
and a class action is requested notwithstanding an arbitration agreement that contains a
class arbitration waiver, the trial court must consider the factors discussed above: the
modest size of the potential individual recovery, the potential for retaliation against
members of the class, the fact that absent members of the class may be ill informed about
their rights, and other real world obstacles to the vindication of class members’ rights to
overtime pay through individual arbitration. If it concludes, based on these factors, that a
class arbitration is likely to be a significantly more effective means of vindicating the
rights of the affected employees than individual litigation or arbitration, and finds that the
disallowance of the class action will likely lead to a less comprehensive enforcement of
overtime laws for employees alleged to be affected by the employer’s violations, it must
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invalidate the class arbitration waiver to ensure that these employees can ‘vindicate
[their] unwaivable rights in an arbitration forum.’ [Citation.]” (Gentry, supra, 42 Cal.4th
at p. 463; see Sonic-Calabasas A, Inc. v. Moreno (2013) 57 Cal.4th 1109, 1165.)
Further, Brown was limited to a Private Attorneys General Act claim. The first amended
complaint contains an additional unfair competition claim. Finally, we are engaging in
deferential substantial evidence review. The lack of certitude about Gentry does not
establish, as a matter of law, an absence of prejudice on plaintiff’s part resulting from the
aforementioned delays.
There is substantial evidence defendant waived its right arbitrate under the 2009
arbitration agreement which was signed by both Mr. Chambless and plaintiff. Thus, the
order under review must be upheld on that ground. We need not discuss whether the
2011 arbitration agreement was an impermissible class communication and thus
unenforceable.
IV. DISPOSITION
The June 28, 2013 order denying the motion to compel arbitration is affirmed.
Plaintiff, Kathryn Jacoby, shall recover her costs on appeal from defendant, Islands
Restaurants, L.P.
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
TURNER, P. J.
We concur:
KRIEGLER, J. MINK, J.*
*
Retired Judge of the Los Angeles Superior Court, assigned by the Chief Justice
pursuant to article VI, section 6 of the California Constitution.
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