Hon. Gonzalo P. Curiel, United States District Judge.
Before the Court is Defendant The Brigantine, Inc.'s ("Defendant's" or "Brigantine's") motion to compel arbitration or, alternatively, to stay the proceedings pending decision of the Supreme Court of the United States in Morris v. Ernst & Young, LLP, 834 F.3d 975 (9th Cir. 2016), cert. granted, ___ U.S. ___, 137 S.Ct. 809, 196 L.Ed.2d 595 (2017). (Dkt. No. 9.) The motion has been fully briefed. (Dkt. Nos. 20, 22.) The Court deems this motion suitable for disposition without oral argument pursuant to Civil Local Rule 7.1(d)(1). Having considered the parties' arguments and the applicable law, the Court
On February 22, 2017, Plaintiffs Neal Pataky ("Plaintiff" or "Pataky"), Jessica Cleek ("Plaintiff" or "Cleek"), and Lauren
In support of its motion, Defendant attached copies of the Employment At-Will and Arbitration Agreement, signed by Pataky, Cleek, and Michelson on September 4 or September 5, 2014. (Dkt. No. 9-2, Carl Decl. Exs. A, C, E.) Employees are presented with an Employment At-Will and Arbitration Agreement as part of Defendant's hiring practice. (Carl Decl. ¶ 3.) As a matter of company policy, employees are not required to sign the document. (Id.) Human resources instructs managers not to force or require employees to sign the agreement — indeed, some employees decline to sign the agreement, with no effect on their employment status. (Id.) Nonetheless, Defendant does not specify whether employees are affirmatively instructed that signing the agreement is optional. (See id.) And the language of the Arbitration Agreement does not give employees any notice that they may opt out of the agreement, or that signing it is completely voluntary and will have no effect on their employment status. (See Dkt. No. 9-2, Carl Decl. Exs. A, C, E.)
Paragraph 2 of the Arbitration Agreement reads as follows:
(Dkt. No. 9-2 at 4.)
Paragraph 3 of the Arbitration Agreement contains a class action waiver:
(Id.)
Paragraph 6 contains a severability provision: "If any term, provision or portion of this Agreement is determined to be void or unenforceable it shall be severed and the remainder of this Agreement shall be fully enforceable." (Id. at 5.)
Each of the three Plaintiffs supplied a declaration testifying that the copies of the Employment At-Will and Arbitration Agreement proffered by Defendant "do not look familiar," that they lack "specific recollection of having signed" the Agreement, that they "had no idea" that they "may have signed an arbitration agreement with Brigantine" until they reviewed Defendant's exhibits, and that they lack "recollection of anyone at Brigantine ever explaining ... that signing an arbitration agreement meant [they] could not file a lawsuit about employment issues with Brigantine, or represent other employees in a class action." (Dkt. No. 12-4, Cleek Decl. ¶ 9; Dkt. No. 12-5, Michelson Decl. ¶ 9; Dkt. No. 12-6, Pataky Decl. ¶ 10.) None of the Plaintiffs took the agreements home for review or consulted an attorney. (Id.)
On March 16, 2017, Defendant filed the instant motion to compel arbitration. (Dkt. No. 9.) In the alternative, Defendant requests that the Court stay the proceedings pending the Supreme Court's ruling in Morris. (Dkt. No. 9.) On April 7, 2017, Plaintiffs filed an opposition to Defendant's motion, arguing that Morris prevents the Court from compelling arbitration in the instant case, and that a stay is inappropriate. (Dkt. No. 20.) On April 21, 2017, Defendant filed a reply. (Dkt. No. 22.)
Pursuant to the Federal Arbitration Act ("FAA"), arbitration agreements "shall be valid, irrevocable, and enforceable, save upon such grounds that exist at law or in equity for the revocation of any contract." 9 U.S.C. § 2. The FAA provides that "a party aggrieved by the alleged failure, neglect, or refusal of another to
In ruling on a motion to compel arbitration, a court must determine two gateway matters: (1) whether there is an agreement to arbitrate between the parties; and (2) whether the agreement covers the dispute. Brennan v. Opus Bank, 796 F.3d 1125, 1130 (9th Cir. 2015) (citing Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79, 84, 123 S.Ct. 588, 154 L.Ed.2d 491 (2002)). If these conditions are satisfied, the court lacks discretion to deny the motion and must compel arbitration. 9 U.S.C. § 4; Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213, 218, 105 S.Ct. 1238, 84 L.Ed.2d 158 (1985) ("By its terms, the [FAA] leaves no place for the exercise of discretion by a district court, but instead mandates that district courts shall direct the parties to proceed to arbitration."). In addition, § 3 of the FAA provides that once a court compels arbitration, the court "shall on application of one of the parties stay the trial of the action" until arbitration has occurred. 9 U.S.C. § 3. However, "[i]f the making of the arbitration agreement or the failure, neglect, or refusal to perform the same be in issue, the court shall proceed summarily to the trial thereof." 9 U.S.C. § 4.
"It is a settled principle of law that `arbitration is a matter of contract.'" Ingle v. Circuit City Stores, Inc., 328 F.3d 1165, 1170 (9th Cir. 2003) (quoting United Steelworkers of America v. Warrior & Gulf Nav. Co., 363 U.S. 574, 582, 80 S.Ct. 1347, 4 L.Ed.2d 1409 (1960)). "To evaluate the validity of an arbitration agreement, federal courts `should apply ordinary state-law principles that govern the formation of contracts.'" Id. (quoting First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 944, 115 S.Ct. 1920, 131 L.Ed.2d 985 (1995)).
Plaintiffs contest the existence of the arbitration agreements. (Dkt. No. 20 at 20-24.) Plaintiffs testify that they each lack recollection of having signed or seen the arbitration agreement nearly three years ago, that they did not understand the agreement to mean that they could not file an employment lawsuit against Defendant on behalf of themselves or others similarly situated, that they do not recall receiving an explanation from anyone regarding the consequences of signing the agreement, and that they never reviewed the agreement at home or with a lawyer. (Dkt. No. 12-4, Cleek Decl. ¶ 9; Dkt. No. 12-5, Michelson Decl. ¶ 9; Dkt. No. 12-6, Pataky Decl. ¶ 10.)
While the circumstances surrounding the formation of the agreements may be unclear (e.g., how the agreements were presented to Plaintiffs; whether anyone witnessed Plaintiffs sign the agreements; and what, if anything, Defendant or its representatives said to Plaintiffs about the agreements), Plaintiffs' objections do not go to the existence of a contract. Plaintiffs do not contest that the agreements bear their respective signatures. Plaintiffs cite
Furthermore, Flores v. Nature's Best Distribution, LLC, 7 Cal.App.5th 1, 6, 212 Cal.Rptr.3d 284 (2016), review denied (Mar. 29, 2017), is inapposite. The Flores court expressly declined to decide whether the defendant properly authenticated the arbitration agreement. See 7 Cal.App.5th at 9, 212 Cal.Rptr.3d 284 ("We do not need to address whether the Agreement was properly authenticated because, even assuming the Agreement indeed bears plaintiff's signature, it fails to reflect plaintiff's agreement to submit her claims against defendants in the instant case to binding arbitration pursuant to its terms."). Unlike the arbitration agreement in this case, the body of the agreement in Flores did not define either "employee" or "Company" or identify with which entity the plaintiff had made an agreement. Id. The arbitration agreement in Flores further failed to clearly define which disputes would be subject to arbitration, and which would instead be subject to resolution through a grievance and arbitration procedure contained in a collective bargaining agreement. Id. at 10. The arbitration agreement did not identify which set of rules would apply to binding arbitration. Id. In conclusion, the Flores court held that the ambiguity of the agreement precluded a conclusion that the parties had reached an agreement:
Id. at 11 (internal citation omitted). Flores is distinguishable from the instant case, and Plaintiffs' reliance on Flores is misplaced.
In addition, the arbitration agreement each Plaintiff signed specifically provides, "I and the Company each specifically waive and relinquish our respective rights to bring a claim against the other in a court of law." (Dkt. No. 9-2 at 4.) The agreement also contains a bolded, all-caps acknowledgment before the signature line:
(Id. at 5.) That Plaintiffs now lack recollection of having signed the agreement and now testify that they did not understand the agreement does not comport with the acknowledgment that they signed.
Plaintiffs also dispute that the arbitration agreement covers the instant litigation. (Dkt. No. 20 at 20-24.) "Any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration." Simula, Inc. v. Autoliv, Inc., 175 F.3d 716,
(Dkt. No. 9-2 at 4 (emphases added).) Because the arbitration agreement clearly covers all disputes arising out of Plaintiffs' employment with Defendant, save for the narrow exception delineated above, Plaintiffs' argument is unavailing.
Having concluded that the arbitration agreements exist, and that they cover the instant dispute, the Court turns to examine whether the Ninth Circuit's decision in Morris renders the arbitration agreements unenforceable.
In its arbitration jurisprudence, the Supreme Court has repeatedly stated that "[b]y agreeing to arbitrate a statutory claim, a party does not forgo the substantive rights afforded by the statute; it only submits to their resolution in an arbitral, rather than a judicial, forum." Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 628, 105 S.Ct. 3346, 87 L.Ed.2d 444 (1985) (emphasis added); Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 26, 111 S.Ct. 1647, 114 L.Ed.2d 26 (1991); Shearson/Am. Exp., Inc. v. McMahon, 482 U.S. 220, 229, 107 S.Ct. 2332, 96 L.Ed.2d 185 (1987); Am. Exp. Co. v. Italian Colors Rest., 570 U.S. 228, 133 S.Ct. 2304, 2310-11, 186 L.Ed.2d 417 (2013) (stating that although the Supreme Court has never invalidated an arbitration agreement on grounds of the "`effective vindication' exception" to the FAA," the exception "would certainly cover a provision in an arbitration agreement forbidding the assertion of certain statutory rights"); CompuCredit Corp. v. Greenwood, 565 U.S. 95, 102, 132 S.Ct. 665, 181 L.Ed.2d 586 (2012) (holding that contract "parties remain free to specify" their choice of judicial forum "so long as the guarantee" of the statute "is preserved").
Section 7 of the National Labor Relations Act ("NLRA") provides that employees have "the right to self-organization, to form, join, or assist labor organizations, to bargain collectively through representatives of their own choosing, and to engage in other concerted activities for the purpose of collective bargaining or other mutual aid or protection." 29 U.S.C. § 157. Section 8(a)(1) makes it "an unfair labor
In Morris v. Ernst & Young, LLP, 834 F.3d 975 (9th Cir. 2016), cert. granted, ___ U.S. ___, 137 S.Ct. 809, 196 L.Ed.2d 595 (2017), the Ninth Circuit examined "whether an employer violates the National Labor Relations Act by requiring employees to sign an agreement precluding them from bringing, in any forum, a concerted legal claim regarding wages, hours, and terms and conditions of employment." 834 F.3d at 979. Applying principles of Chevron deference, the Ninth Circuit adopted the NLRB's interpretation of Sections 7 and 8 of the NLRA in D.R. Horton.
Following the NLRB's conclusion that "[c]oncerted activity — the right of employees to act together — is the essential, substantive right established by the NLRA," the Ninth Circuit concluded that "Ernst & Young interfered with that right by requiring its employees to resolve all of their legal claims in separate proceedings.'" Id. at 980. Because the arbitration agreement "interfere[d] with a protected § 7 right in violation of § 8," the "separate proceedings" clause in the contract triggered the savings clause in FAA § 2 and could not be enforced. Id. at 983-84. The Ninth Circuit concluded:
Morris, 834 F.3d at 990.
Defendant reads Morris narrowly, arguing that because Plaintiffs were not required to sign an arbitration agreement prohibiting class action, the arbitration agreement, with the embedded class action waiver, is enforceable. (Dkt. No. 9-1 at 16-17; Dkt. No. 22 at 2-5.) Defendant relies chiefly upon a footnote distinguishing Johnmohammadi v. Bloomingdale's, Inc., 755 F.3d 1072 (9th Cir. 2014), an earlier Ninth Circuit decision. (Id.) In the footnote, the majority in Morris wrote: "In contrast, there was no § 8 violation in
Defendant's attempt to analogize the facts of this case to Johnmohammadi is unavailing. Unlike the agreement in Johmohammadi, the arbitration agreement in this case does not contain any express indication or implicit suggestion that employees had the right to opt out of the agreement, that they could refuse to sign the agreement without repercussion to their employment status, or that they could take the agreement home for thirty days to decide whether or not to opt out. (Dkt. No. 9-2, Carl Decl. ¶ 3.) While Defendant maintains that managers were instructed not to require employees to sign the agreement, there is no evidence that managers affirmatively informed employees that they had the choice not to sign the agreement. (Id.) Moreover, while employees are presented with an Employment At-Will and Arbitration Agreement as part of Defendant's hiring practice, (id.), it is unclear under what circumstances Plaintiffs were presented with the agreement, and what, if anything, Plaintiffs learned from Defendant or its representatives about the agreement. Although the agreements were signed on September 4 or 5, 2014, Plaintiffs were hired well in advance of September 2014: Cleek was hired on May 1, 2013, (Dkt No. 20-1, Cleek Decl. ¶ 2); Michelson was hired in May 2013, (Dkt. No. 20-2, Michelson Decl. ¶ 2); and Pataky was hired some time in 2005, (Dkt. No. 20-3, Pataky Decl. ¶ 2). Defendant has not shown that Plaintiffs were on notice that they had an affirmative opt-out right. The facts surrounding the formation of the arbitration agreements fall far short of the facts in Johnmohammadi.
Although the Court need not resolve the question, the Court observes that the footnote distinguishing Johnmohammadi appears to be in tension with the remainder of the majority's opinion in Morris. In Morris, the Ninth Circuit concluded that a provision prohibiting concerted legal action in any forum violates § 8 of the NLRA on its own; the requirement that an employee sign a concerted action waiver is an additional violation of § 8:
Morris, 834 F.3d at 982. Morris makes clear that "the arbitration requirement is not the problem. The same [separate proceedings] provision in a contract that required court adjudication as the exclusive remedy would equally violate the NLRA. The NLRA obstacle is a ban on initiating, in any forum, concerted legal claims — not a ban on arbitration." Morris, 834 F.3d at 984 (emphasis added). Indeed, the decision reiterates repeatedly that the relevant problem is the waiver of class action, not the requirement that the parties submit to arbitration:
Id. at 985 (emphases added).
Having concluded that concerted legal action is a protected substantive right under the NLRA, the majority continued on to explain how its conclusion squares with the FAA and Supreme Court precedent:
Id. (internal citations omitted). The difference between substantive and procedural rights "is key, because substantive rights cannot be waived in arbitration agreements. This tenet is a fundamental component of the Supreme Court's arbitration jurisprudence[.]" Id. at 985-86 (internal citations omitted) (emphasis added); see also id. at 986 n.10 ("Contract parties can agree on the procedural terms they like (such as resolving disputes in arbitration), but they may not agree to leave the substantive protections of federal law at the door."). Accordingly, "when an arbitration contract professes the waiver of a substantive federal right, the FAA's saving clause prevents a conflict between the statutes by causing the FAA's enforcement mandate to yield." Id. at 986. Because "[t]he rights established in § 7 of the NLRA — including the right of employees to pursue legal claims together — are substantive," and "are the central, fundamental protections of the Act," the "FAA does not mandate the enforcement of a contract that alleges their waiver." Id. Accordingly, the "separate proceedings" clause was an "illegal" term that could not be enforced under the savings clause in § 2 of the FAA. Id. at 985 ("When an illegal provision not targeting arbitration is found in an arbitration agreement, the FAA treats the contract like any other; the FAA recognizes a general contract defense of illegality." (citing, inter alia, 9 U.S.C. § 2)).
In light of the above, it is unclear whether providing a clear opportunity to opt out of an arbitration agreement containing a class action waiver, as in Johnmohammadi, neutralizes a class action waiver's interference
Plaintiffs argue that the Court may not sever the class action waiver in the arbitration agreement and compel Plaintiffs to class arbitration. (Dkt. No. 20 at 19-20.) Even without the class action waiver, there is no contractual basis for determining that the parties agreed to submit to class arbitration. (Id.) Defendant does not respond to Plaintiffs' argument.
The Supreme Court has held 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." Stolt-Nielsen S.A. v. AnimalFeeds Int'l Corp., 559 U.S. 662, 684, 130 S.Ct. 1758, 176 L.Ed.2d 605 (2010). Furthermore,
Id. at 685.
Here, the arbitration agreement explicitly rules out class arbitration in Paragraphs 2 and 3. The agreement states that the parties "agree to utilize binding individual arbitration as the sole and exclusive means to resolve all disputes that may arise out of or be related in any way to [the employee's] employment." (Dkt. No. 9-2 at 4 (emphases added).) The agreement expressly provides that "[t]his binding arbitration Agreement shall not be construed to allow or permit the consolidation or joinder of other claims or controversies involving any other employees or parties, or permit such claims or controversies to proceed as a class action, collective action or any similar representative action." (Id.) The agreement divests the arbitrator of the authority to order class arbitration and forbids employees from "bring[ing] an[y] action on a class, collective, representative, or other similar basis." (Id.)
Accordingly, because the parties did not agree to class arbitration, the Court cannot rely on the severability provision in the arbitration agreement to compel Plaintiffs to class arbitration.
"The District Court has broad discretion to stay proceedings as an incident to its power to control its own docket." Clinton v. Jones, 520 U.S. 681, 706, 117 S.Ct. 1636, 137 L.Ed.2d 945 (1997) (citing Landis v. N. Am.Co., 299 U.S. 248, 254, 57 S.Ct. 163, 81 S.Ct. 153 (1936)). In determining whether to grant a motion to stay, "the competing interests which will be affected by the granting or refusal to grant a stay must be weighed." Lockyer v. Mirant Corp., 398 F.3d 1098, 1110 (9th Cir. 2005). These interests include: (1) the
As a starting matter, the Supreme Court recently granted certiorari in Morris on January 13, 2017. Ernst & Young, LLP v. Morris, ___ U.S. ___, 137 S.Ct. 809, 196 L.Ed.2d 595 (2017). There is no indication that a decision will be issued in a matter of months. Furthermore, Defendant makes no attempt to justify a stay, other than stating that the Supreme Court's ruling in Morris is forthcoming. Defendant has not satisfied its burden in moving for a stay. See Clinton, 520 U.S. at 708, 117 S.Ct. 1636.
As to the first factor, Plaintiffs have shown that they will face damage from the granting of a stay. Specifically, Plaintiffs assert that a stay pending the Supreme Court's decision would prejudice Plaintiffs by delaying the opt-in, notice and consent, and conditional class certification procedures for the instant putative FLSA class action. (Dkt. No. 20 at 27-31.) The two-year statute of limitations period would continue to run, and evidence may be lost during the stay. (Id.) As to the second factor, Defendant has proffered no argument showing that it will incur hardship or inequity from being required to go forward in the instant litigation. And as to the third factor, while a ruling in Morris would directly weigh in on whether this action may proceed in federal court, the sum of the three stay factors do not weigh in favor of a stay.
For the foregoing reasons, the Court
