Betancourt v. Prudential Overall Supply

Citations: 9 Cal. App. 5th 439; 27 Wage & Hour Cas.2d (BNA) 306; 215 Cal. Rptr. 3d 344; 2017 WL 895834; 2017 Cal. App. LEXIS 191Docket: E064326

Court: California Court of Appeal; March 7, 2017; California; State Appellate Court

Original Court Document: View Document

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Roberto Betancourt filed a complaint against Prudential Overall Supply under the Private Attorneys General Act (PAGA), alleging multiple violations of the California Labor Code, including failure to pay overtime, provide meal and rest periods, pay minimum wage, and maintain accurate payroll records. Betancourt sought civil penalties, costs, and attorney fees.

Prudential moved to compel arbitration based on an Agreement to Arbitrate signed by Betancourt in 2006, which required him to submit employment-related claims to arbitration and waived his right to bring claims as a representative or class member. Prudential contended that all of Betancourt's claims, including the PAGA claim, fell under the arbitration agreement and asserted that Betancourt was mischaracterizing his wage and hour claims to avoid arbitration. The trial court denied Prudential's motion, leading to Prudential's appeal, which was affirmed by the appellate court.

Betancourt opposed the motion to compel arbitration on several grounds: 

1. **Insufficient Evidence**: He claimed Prudential's evidence of a valid arbitration agreement was inadequate, specifically criticizing a declaration by a custodian of records as "woefully" insufficient.
   
2. **Nature of the Complaint**: Betancourt argued that his complaint exclusively set forth a PAGA claim and that the prayer for relief did not determine the claim type.

3. **Enforceability of Waiver**: He contended that any waiver of his right to bring a representative PAGA action was unenforceable, as it would violate California law which allows PAGA actions to seek penalties for Labor Code violations aimed at protecting the public rather than benefiting private parties.

4. **Unconscionability of the Agreement**: Betancourt asserted the Agreement was unconscionable based on several factors: lack of negotiation opportunity, absence of a written copy provided to him, potential waiver of his PAGA rights, the possibility of incurring unreasonable costs, and its illusory nature lacking mutuality.

During the August 6, 2015 hearing, the trial court indicated that a PAGA claim is not subject to arbitration, following the precedent set in *Iskanian v. CLS Transportation Los Angeles, LLC*. The court suggested Prudential should file a motion to strike any inconsistent remedies rather than compel arbitration. It denied Prudential’s motion without prejudice, allowing for future motions after further discovery.

Prudential argued the trial court erred in denying the motion, asserting that Betancourt's claims were indeed subject to arbitration under the Agreement. The court's denial was based on a legal determination, subject to de novo review. To compel arbitration, a party must demonstrate a written agreement to arbitrate, a demand for arbitration, and refusal from the other party. A party cannot be compelled to arbitrate if they have not signed an arbitration agreement, regardless of whether the complaint includes employees who have signed such agreements. The PAGA aims to address under-enforcement of Labor Code violations often overlooked by prosecutors.

Civil penalties under the Labor Code faced enforcement challenges due to limited government resources, prompting the enactment of the Labor Code Private Attorneys General Act of 2004 (PAGA). PAGA enables "aggrieved employees" to act as private attorneys general and recover civil penalties for Labor Code violations, representing the same interests as state enforcement agencies. These penalties are separate from any individual statutory damages employees may seek. Betancourt's case is a PAGA representative action alleging violations and seeking civil penalties, with no challenges to the pleadings altering its nature. The trial court correctly denied Prudential’s motion to compel arbitration based on Betancourt's predispute arbitration agreement, as PAGA actions are brought on behalf of the state and not bound by such agreements. Prudential argued that Betancourt's complaint included non-PAGA claims due to requests for business expenses and other damages, but the court noted that Prudential needed to properly challenge the pleadings rather than using a motion to compel arbitration for this purpose. The court found Prudential's arguments unpersuasive, emphasizing that a PAGA claim’s arbitration issues must be addressed through proper procedural means.

In Hall v. Nomura Securities International, the court addressed the implications of simultaneous filings of a demurrer and a motion to compel arbitration. The discussion centered on Iskanian, where the California Supreme Court ruled that the right to bring a Private Attorney General Act (PAGA) action, which is a representative action, is unwaivable. The court reasoned that waiving this right undermines enforcement of the Labor Code and is against public policy, thus making such waivers unenforceable. Additionally, the court concluded that California law prohibiting the waiver of PAGA claims is not preempted by the Federal Arbitration Act (FAA) because PAGA claims represent a dispute between the employer and the state, not just between employer and employee arising from a contractual relationship.

Prudential argued that it had an enforceable agreement to arbitrate PAGA claims with Betancourt, but this argument was rejected because PAGA claims involve the state as a real party in interest, meaning the state is not bound by Betancourt’s predispute arbitration agreement. Prudential's assertion that an arbitrator should decide the arbitrability of the PAGA claims was also dismissed, as PAGA claims are fundamentally not contractual disputes. Furthermore, Prudential's suggestion that the representative claims portion of the agreement could be severed to compel arbitration was found unpersuasive, as altering Betancourt's private employment agreement does not affect the state's interests in PAGA actions. Lastly, Prudential contended that if Iskanian prohibits arbitration of all PAGA claims, such a state law would be preempted by the FAA, but this argument was not substantiated.

Iskanian does not prohibit the arbitration of all PAGA claims, and a PAGA plaintiff may consent to arbitration post-complaint. However, the focus is on whether a defendant can enforce a predispute arbitration agreement in a PAGA case, given that a PAGA claim represents a dispute between an employer and the state, not between an employer and an employee. Betancourt, as a PAGA plaintiff, is suing on behalf of the state and is not bound by a predispute arbitration agreement with Prudential. As such, Prudential cannot compel arbitration based on this agreement. The California Supreme Court's ruling in Iskanian clarifies that PAGA claims are outside the FAA's scope, emphasizing that the state is the true party in interest. Therefore, while PAGA actions may be arbitrable, reliance on a predispute agreement with a private party is insufficient for compelling arbitration in these cases. The judgment is affirmed, with costs awarded to the respondent on appeal.