ORDER GRANTING PLAINTIFFS' MOTION TO COMPEL ARBITRATION; GRANTING IN PART AND DENYING IN PART DEFENDANTS' MOTION TO SEVER AND DISMISS; AND GRANTING PLAINTIFF BRYANT'S REQUEST FOR DISMISSAL OF HIS CLAIMS WITH PREJUDICE

SUSAN ILLSTON, District Judge.

Plaintiffs' motion to compel arbitration, and defendants' motion to sever and dismiss, are currently scheduled for hearing on July 15, 2011. Pursuant to Civil Local Rule 7-1(b), the Court finds this matter appropriate for resolution without oral argument and hereby VACATES the hearing. Plaintiff Bryant also requests that his remaining claims be dismissed with prejudice. Having considered the papers submitted, and for good cause shown, the Court hereby rules as follows.

BACKGROUND

This litigation concerns a wage and hour dispute brought by current and former hourly employees of Service Corporation International ("SCI"), a nationwide provider of funerary services.1 Plaintiffs allege that, contrary to SCI's verbal and written assurances, they were not compensated at the legally required rate of pay for all hours worked, in particular hours spent performing community service work on behalf of SCI and hours during which plaintiffs were "on call."

This action is related to another case currently pending in this Court, Helm, et al. v. Alderwoods Group, Inc., No. 08-1184 SI. Both the Helm action and this case originated with a complaint filed in the United States District Court for the Western District of Pennsylvania, Prise, et al. v. Alderwoods Group, Inc., No. 06-1641. The Prise action originally included state and federal wage and hour claims against SCI and Alderwoods Group, Inc., which was acquired by SCI in 2006. The district court in Prise, however, declined to exercise supplemental jurisdiction over the state law claims, and as a result, plaintiffs instituted the Helm case and the present case by filing class action complaints in the Alameda County Superior Court. The Helm action asserts state law wage and hour claim against Alderwoods for the period prior to its 2006 acquisition by SCI, and the present action asserts wage and hour claims against SCI. SCI removed this case to this Court on February 28, 2008. On March 9, 2011, 2011 WL 855815 the Court denied plaintiffs' motions for class certification in both this case and in the Helm action.2

Claude Bryant, Joseph Biernacki, Gordon Farmer, Rhealyn Holland, James Stickle, Eleanor Riggio, Frank Acuna, Richard Lamasters, Kenneth Allen, Craig Fulcher, Sanford Levine and Thomas Thompson are named as plaintiffs in the operative Third Amended Complaint. Plaintiffs Bryant, Biernacki, Farmer, and Holland all worked in the Northern District of California; the other named plaintiffs worked in Arizona, Oregon, North Carolina, Iowa, Florida and Montana.

LEGAL STANDARD

I. Motion to sever

Federal Rule of Civil Procedure 20 provides that multiple plaintiffs may join in a single action if (1) they assert a right to relief that arises "out of the same transaction, occurrence, or series of transactions or occurrences," and (2) they raise "any question of law or fact common to all plaintiffs." Fed.R.Civ.P. 20(a)(1). "If the test for permissive joinder is not satisfied, a court, in its discretion, may sever the misjoined parties, so long as no substantial right will be prejudiced by the severance." Coughlin v. Rogers, 130 F.3d 1348, 1350 (9th Cir.1997); see also Fed.R.Civ.P. 21 ("[T]he court may at any time . . . sever any claim against a party."). Even if the permissive joinder requirements are met, the court may sever to avoid delay, jury confusion, or prejudice to the moving party. Fed.R.Civ.P. 20(b); Coleman v. Quaker Oats Co., 232 F.3d 1271, 1296 (9th Cir. 2000).

II. Motion to compel arbitration

Section 4 of the Federal Arbitration Act ("FAA") permits "[a] party aggrieved by the alleged failure, neglect, or refusal of another to arbitrate under a written agreement for arbitration [to] petition any United States district court . . . for an order directing that . . . arbitration proceed in the manner provided for in [the arbitration] agreement." 9 U.S.C. § 4. Upon a showing that a party has failed to comply with a valid arbitration agreement, the district court must issue an order compelling arbitration. Id.

The Supreme Court has stated that the FAA espouses a general policy favoring arbitration agreements. Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24-25, 103 S.Ct. 927, 74 L.Ed.2d 765 (1983); see also Hall Street Assoc., L.L.C. v. Mattel, Inc., 552 U.S. 576, 581, 128 S.Ct. 1396, 170 L.Ed.2d 254 (2008). Federal courts are required to rigorously enforce an agreement to arbitrate. See Hall Street Assoc., 552 U.S. at 582, 128 S.Ct. 1396. In determining whether to issue an order compelling arbitration, the court may not review the merits of the dispute but must limit its inquiry to (1) whether the contract containing the arbitration agreement evidences a transaction involving interstate commerce, (2) whether there exists a valid agreement to arbitrate, and (3) whether the dispute(s) fall within the scope of the agreement to arbitrate. See Republic of Nicaragua v. Standard Fruit Co., 937 F.2d 469, 477-78 (9th Cir. 1991), cert. denied, 503 U.S. 919, 112 S.Ct. 1294, 117 L.Ed.2d 516 (1992). If the answer to each of these queries is affirmative, then the court must order the parties to arbitration in accordance with the terms of their agreement. 9 U.S.C. § 4.

The FAA provides that arbitration agreements generally "shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract." 9 U.S.C. § 2. "Thus, generally applicable contract defenses, such as fraud, duress, or unconscionability, may be applied to invalidate arbitration agreements without contravening" federal law. Doctor's Assoc., Inc. v. Casarotto, 517 U.S. 681, 687, 116 S.Ct. 1652, 134 L.Ed.2d 902 (1996). In interpreting the validity and scope of an arbitration agreement, the courts apply state law principles of contract formation and interpretation. See id.; see also Wolsey, Ltd. v. Foodmaker, Inc., 144 F.3d 1205, 1210 (9th Cir.1998). Accordingly, the Court reviews plaintiff's arbitration agreement in light of the "liberal federal policy favoring arbitration agreements," Moses H. Cone, 460 U.S. at 24, 103 S.Ct. 927, and considers the enforceability according to the laws of the state of contract formation. See First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 944, 115 S.Ct. 1920, 131 L.Ed.2d 985 (1995); Ingle v. Circuit City Stores, 328 F.3d 1165, 1170 (9th Cir.2003).

DISCUSSION

Defendants have moved to have the claims of each named plaintiff severed, and all named plaintiffs (other than Claude Bryant) dismissed. Plaintiffs do not oppose defendant's motion to sever. However, they have moved to compel arbitration of the claims of plaintiffs Biernacki, Farmer, and Holland, and they ask the Court to rule on that motion first and then dismiss the claims of those three plaintiffs without prejudice. Plaintiffs also request that Bryant's claims be dismissed with prejudice so that he might appeal the Court's denial of class certification, and they request that the claims of any remaining severed plaintiffs be dismissed without prejudice.3

I. Motion to sever and dismiss

The Court agrees with the parties that the claims of plaintiffs Stickle, Riggio, Acuna, Lamasters, Allen, Fulcher, Levine, and Thompson should be severed and dismissed. These plaintiffs were employed by SCI outside of California, and they only assert state law claims. Even if joinder is permissible, allowing these plaintiffs to remain in the same lawsuit as the California plaintiffs would likely lead to jury confusion were this case to be resolved in its merits. See Fed.R.Civ.P. 20(b); Coleman, 232 F.3d at 1296. The Court therefore GRANTS IN PART defendants' motion, SEVERS the claims of plaintiffs Stickle, Riggio, Acuna, Lamasters, Allen, Fulcher, Levine, and Thompson, and DISMISSES them "without prejudice to the institution of new, separate lawsuits by the dropped plaintiffs against some or all of the present defendants based on the claim or claims attempted to be set forth in the present complaint." See Coughlin, 130 F.3d at 1350 (internal quotation marks omitted) (explaining that, after severing the claims of all named plaintiffs, a "court can generally dismiss all but the first named plaintiff without prejudice" for this purpose).

Plaintiffs Bryant, Biernacki, Farmer, and Holland all worked in California. The first prong of the permissive joinder test is satisfied, as they "allege that their claims arise out of a systematic pattern of events." See id. In the Court's order denying plaintiff's motion for class certification, the Court determined that plaintiffs "presented an overarching common question of fact." See Doc. 353 at 7. Moreover, all of their claims are governed by California labor law. The parties have not argued that the facts or law have changed since the Court's initial assessment of commonality, and therefore the Court's findings stand and the second prong of the permissive joinder test is satisfied. The Court declines to exercise its discretion under Coughlin to sever these plaintiffs at this point, and instead reaches plaintiff's motion to compel arbitration. Thus, defendants' motion is DENIED IN PART.4

II. Motion to compel arbitration

Plaintiffs Biernacki, Farmer, and Holland have moved to compel arbitration.5 Defendants oppose the motion, arguing that plaintiffs have not met their burden to compel arbitration, and that plaintiffs have waived any right to arbitrate.

A. Plaintiffs have met their burden

Defendants argue that plaintiffs have presented no evidence that any of the defendants agreed to arbitrate plaintiffs' claims. This is incorrect. Plaintiffs Biernacki, Farmer, and Holland have presented sufficient evidence that they signed arbitration agreements with SCI.

Plaintiffs offer in support of their motion an agreement that defendants produced during the course of this litigation, signed by Mr. Biernacki and a representative of the "company," and including the SCI logo. Decl. of Sarah Cressman in Supp. of Mot. to Compel Arbitration (Doc. 361), Ex. 1 ("Biernacki Agreement"). The agreement says that "Employee and the Company agree that [except for in certain circumstances not relevant to this motion], all disputes relating to any aspect of Employee's employment with the Company shall be resolved by binding arbitration." Id.

The agreement appears to be complete, and it is essentially identical to arbitration agreements that SCI has sought to enforce in other actions, either by filing a motion to compel arbitration or by filing a motion to dismiss for lack of jurisdiction based on the existence of an arbitration agreement. See id., Exs. B & E. Plaintiffs assert that SCI, as a matter of course, required employees, upon hiring, to execute agreements identical in substance to that signed by Mr. Biernacki, and they have presented an affidavit of an SCI human resources administrator, apparently submitted in another civil action, explaining that "[i]t was the regular course of business for an employee or representative of SCI and/or its subsidiary or affiliated companies . . . to make the attached [arbitration] Agreement." See id. Ex. E. Defendants do not aver or present any evidence (such as a declaration) that plaintiffs Farmer and Holland did not sign identical agreements, or even that defendants are not in possession of any such arbitration agreements.6

On the record presented to the Court, plaintiffs have carried their burden to establish the existence of enforceable arbitration agreements.

B. Plaintiffs have not waived their right to arbitrate

Defendants argue that plaintiffs have waived their right to arbitrate by prosecuting this case and several other related cases around the country, but they have not carried their heavy burden to establish waiver.

In Fisher v. A.G. Becker Paribas, Inc., 791 F.2d 691 (9th Cir.1986), the Ninth Circuit held that a party seeking to prove waiver of a right to arbitration must show: "(1) knowledge of an existing right to compel arbitration; (2) acts inconsistent with that existing right; and (3) prejudice to the party opposing arbitration resulting from such inconsistent acts." Id. at 694. Because waiver of a contractual right to arbitration is not favored, "any party arguing waiver of arbitration bears a heavy burden of proof." Id.

In Fisher, the Ninth Circuit examined whether a defendant's decision not to file a motion to compel arbitration prior to the Supreme Court's rejection of the intertwining doctrine—which held that when it was impractical or impossible to separate nonarbitrable from arbitrable contract claims, a court should deny arbitration in order to preserve its exclusive jurisdiction over federal securities claims—constituted waiver. See id. at 695. Prior to the Supreme Court's decision, the Ninth Circuit had approved of the intertwining doctrine and had said in De Lancie v. Birr, Wilson & Co., 648 F.2d 1255 (9th Cir.1981), that arbitration should be denied where common law claims are intertwined with securities law violations. Id. at 693. The defendant relied on the doctrine and the Ninth Circuit's decision in De Lancie in deciding not to file a motion to compel arbitration, because it would have been "futile" prior to the Supreme Court's ruling. Id. The Ninth Circuit concluded that there was no waiver because the defendant was entitled to rely on the intertwining doctrine and that court's prior decisions in deciding that it would be futile to file a motion to compel arbitration. Id. Because the arbitration agreement was unenforceable before the Supreme Court's decision, the Ninth Circuit held that the defendant did not act inconsistently with a known existing right to compel arbitration and had not waived the right to arbitration. Id. at 697.

A similar change in the law with regard to arbitration agreements has just occurred. In Discover Bank v. Superior Court, 36 Cal.4th 148, 30 Cal.Rptr.3d 76, 113 P.3d 1100 (Cal.2005), the California Supreme Court held that certain class-action arbitration waivers were unconscionable under California law and should not be enforced. Id. at 162, 30 Cal.Rptr.3d 76, 113 P.3d 1100 (quoting Cal. Civil Code § 1668). The Supreme Court has recently disagreed, in AT & T Mobility LLC v. Concepcion, ___ U.S. ___, 131 S.Ct. 1740, 179 L.Ed.2d 742 (2011). The Concepcion Court abrogated the holding in Discover Bank, explaining that the "overarching purpose" of the FAA is to "ensure the enforcement of arbitration agreements according to their terms so as to facilitate streamlined proceedings" and that requiring the availability of classwide arbitration "interferes with fundamental attributes of arbitration." Id. at 1748.

The arbitration agreement that plaintiffs are seeking to enforce in this case appears not to permit class action arbitration, and therefore until recently would not have been enforceable according to its terms. Defendants do not cite Concepcion in their papers or explain how it is that plaintiffs acted inconsistently with a known right by not moving to compel arbitration before the decision in Concepcion. They have failed to meet their "heavy burden" to prove waiver. Fisher, 791 F.2d at 694.

The Court GRANTS plaintiffs Biernacki, Farmer, and Holland's motion to compel arbitration, and DISMISSES their claims WITHOUT PREJUDICE to pursuing them in arbitration.

CONCLUSION

For the foregoing reasons and for good cause shown, the Court hereby GRANTS IN PART and DENIES IN PART defendants' motion, SEVERS the claims of plaintiffs Stickle, Riggio, Acuna, Lamasters, Allen, Fulcher, Levine, and Thompson, and DISMISSES those claims WITHOUT PREJUDICE to the institution of new, separate lawsuits by the dropped plaintiffs against some or all of the present defendants based on the claim or claims attempted to be set forth in the present complaint.

The Court GRANTS plaintiffs Biernacki, Farmer, and Holland's motion to compel arbitration and DISMISSES their claims WITHOUT PREJUDICE to pursuing them in arbitration.

The Court GRANTS plaintiff Bryant's unopposed request, and his claims are DISMISSED WITH PREJUDICE. (Docs. 356, 360.)

IT IS SO ORDERED.

ORDER GRANTING MOTION TO AMEND JUDGMENT

On July 12, 2011, the Court granted plaintiffs Biernacki, Farmer, and Holland's motion to compel arbitration and dismissed their claims without prejudice. See Doc. 380. The Court also dismissed the claims of the remaining plaintiffs in the suit and entered judgment accordingly on July 14. See Doc. 381. On August 11, defendants filed a timely motion to alter or amend the judgment pursuant to Rule 59(e) of the Federal Rules of Civil Procedure.1 Defendants' motion is currently scheduled for hearing on September 22, 2011. Pursuant to Civil Local Rule 7-1(b), the Court finds this matter appropriate for resolution without oral argument and hereby VACATES the hearing. Having considered the papers submitted, and for good cause shown, the Court hereby GRANTS defendants' motion.

In opposing plaintiffs' motion to compel arbitration, defendants argued that plaintiffs Biernacki, Farmer, and Holland had waived their right to compel arbitration. Defendants argued that plaintiffs' conduct met all three prongs of the Ninth Circuit's waiver test, which is laid out in Fisher v. A.G. Becker Paribas Inc., 791 F.2d 691, 694 (9th Cir.1986) and Hoffman Const. Co. of Oregon v. Active Erectors and Installers, Inc., 969 F.2d 796, 798 (9th Cir.1992) (quoting Fisher). See Def. Oppo. to Pl. Mot. to Compel Arbitration (Doc. 363), at 16-17. Neither party addressed the question of whether the recent U.S. Supreme Court decision in AT&T Mobility v. Concepcion, ___ U.S. ___, 131 S.Ct. 1740, 179 L.Ed.2d 742 (2011), which overruled the California Supreme Court case Discover Bank v. Superior Court, 36 Cal.4th 148, 30 Cal.Rptr.3d 76, 113 P.3d 1100 (2005), should have any bearing on the outcome of the motion.

The Court agreed that the Fisher test applied, but determined that plaintiffs had not waived their right to compel arbitration under the test. The Court explained its reasoning as follows:

Doc. 380 at 8.

In their Rule 59(e) motion, defendants argue that the Court made a manifest error of law. See Allstate Ins. Co. v. Herron, 634 F.3d 1101, 1111 (9th Cir.2011) (explaining the possible grounds for granting a Rule 59(e) motion). They argue that while defendants could not have enforced the arbitration agreements as written before Concepcion, plaintiffs could have. Therefore, by litigating their claims for three years, plaintiffs acted inconsistently with a known right, and defendants were prejudiced by plaintiffs' actions.

Plaintiffs oppose the motion. Plaintiffs argue that "prior to Concepcion, arbitration agreements that d[id] not permit class arbitration [we]re unenforceable" and "[r]egardless of which party sought to compel arbitration, the law would have applied equally to invalidate the arbitration agreement because it did not permit class arbitration." Pl. Oppo. at 2, 7. Finally, they argue that even if defendants are correct legally, they have not carried their burden to prove waiver factually.

Prior to Concepcion, defendants in certain types of actions could not enforce as written arbitration agreements that did not permit class arbitration. The arbitration agreement itself would remain enforceable, however, unless the agreement itself prohibited the severing of the unconscionable term, or if the arbitration agreement had an "insidious pattern" of unconscionable terms. See, e.g., Shroyer v. New Cingular Wireless Services, Inc., 498 F.3d 976, 986-87 (9th Cir.2007) (voiding agreement where it contained "a nonseverability clause, which states that if the `specific proviso' that `the arbitrator may not . . . preside over any form of a representative or class proceeding,' `is found to be unenforceable, then the entirety of this arbitration clause shall be null and void'" (omission in Shroyer) (emphasis removed)), overruled by AT&T Mobility v. Concepcion, ___ U.S. ___, 131 S.Ct. 1740, 179 L.Ed.2d 742 (2011); Ingle v. Circuit City Stores, Inc., 328 F.3d 1165, 1180 (9th Cir. 2003) (citing seven "unconscionable aspects" of the arbitration agreement to explain why the court was "compelled to find the entire contract unenforceable"), overruled in part by AT&T Mobility v. Concepcion, ___ U.S. ___, 131 S.Ct. 1740, 179 L.Ed.2d 742 (2011). There is no such non-severance clause in plaintiffs' arbitration provision, and plaintiffs have not argued that there is an "insidious pattern" in this case.

The Discover Bank rule evolved out of California's laws regarding unconscionability. The rule only applied where the arbitration provision was "imposed and drafted by the party of superior bargaining strength." 36 Cal.4th at 160, 30 Cal.Rptr.3d 76, 113 P.3d 1100. Thus, it protected the party of lesser bargaining strength: the plaintiff/consumer. The Discover Bank Court based its decision in part on the fact that it was "difficult to envision the circumstances under which the provision might negatively impact" the defendant-drafter of the provision. See 36 Cal.4th at 161, 30 Cal.Rptr.3d 76, 113 P.3d 1100. The California Supreme Court announced a similar RULE IN the area of employment law in Gentry v. Superior Court, 42 Cal.4th 443, 64 Cal.Rptr.3d 773, 165 P.3d 556 (2007). The Supreme Court explained that "under some circumstances such a provision would lead to a de facto waiver [of unwaivable statutory rights] and would impermissibly interfere with employees' ability to vindicate unwaivable rights and to enforce the overtime laws." Id. at 457, 64 Cal.Rptr.3d 773, 165 P.3d 556.

It is not at all clear that a defendant—the party of the greater bargaining strength—could have utilized the protections afforded by Discover Bank and Gentry to compel one or more individual plaintiffs to arbitrate their claims as a class. Plaintiffs have not cited, and the Court is not aware of, any case where a defendant attempted to do so. Nor, as a practical matter, is it easy to envision a situation in which a defendant would wish to do so or could try to do so.

The cases cited by plaintiffs in opposition to defendants' motion involve defendants moving to compel arbitration. See, e.g., Swift v. Zynga Game Network, Inc., ___ F.Supp.2d ___, 2011 WL 3419499 (N.D.Cal.2011) (defendant's motion); In re Cal. Title Ins. Antitrust Litig., No. 08-01341, 2011 WL 2566449, at *3 (N.D. Cal. June 27, 2011) (defendants' motion); Villegas v. U.S Bancorp, No. C 10-1762 RS, 2011 WL 2679610 (N.D.Cal. June 20, 2011) (defendants' motion); Estrella v. Freedom Fin., No. C. 09-03156, 2011 WL 2633643 (N.D.Cal. July 5, 2011) (defendants' motion). Plaintiffs have not successfully explained how those cases can be analogized to this case, where it is plaintiffs who are moving to compel arbitration, and where it appears that plaintiffs could have arbitrated their claims on an individual basis when they filed suit in 2008.

Defendants successfully met their burden to show that plaintiffs acted inconsistently with a known right when they litigated this case for over three years: filing this case in federal court, filing an amended complaint, undertaking considerable discovery including filing a motion to compel, and filing a motion for class certification. Defendants have also successfully met their burden to show that they were prejudiced by the time and expense of litigating this case for the past three years.

For the foregoing reasons, and for good cause shown, the Court hereby GRANTS defendants' motion and WITHDRAWS the Judgment entered in this case on July 14, 2011. (Doc. 385.) Additionally, the Court AMENDS its Order of July 12, 2011 as follows:

The Court previously granted defendants' motion to sever the claims of plaintiffs Stickle, Riggio, Acuna, Lamasters, Allen, Fulcher, Levine, and Thompson, and dismissed them "`without prejudice to the institution of new, separate lawsuits by the dropped plaintiffs against some or all of the present defendants based on the claim or claims attempted to be set forth in the present complaint.'" Order (Doc. 380) at 5 (quoting Coughlin v. Rogers, 130 F.3d 1348, 1350 (9th Cir.1997) (internal quotation marks omitted)). For the reasons stated in the July 12 Order, that part of the Order remains unchanged.

The Court previously denied defendants' motion to sever the claims of plaintiffs Biernacki, Farmer, and Holland, finding that the permissive joinder test was satisfied. For the reasons stated in the July 12 Order, that part of the Order remains unchanged.

The Court previously found that plaintiffs Biernacki, Farmer, and Holland had carried their burden to establish the existence of enforceable arbitration agreements. For the reasons stated in the July 12 Order, that part of the Order remains unchanged.

The Court previously found that plaintiffs Biernacki, Farmer, and Holland had not waived their right to arbitration and granted in part plaintiffs' motion to compel arbitration. For the above reasons, the Court AMENDS its Order, finds that plaintiffs Biernacki, Farmer, and Holland did waive their right to arbitration, and DENIES their motion to compel arbitration.

Finally, in the July 12 Order, the Court GRANTED plaintiff Bryant's unopposed request for his claims to be dismissed with prejudice. Because the request was made in order to permit the Court to enter judgment in this case, so that plaintiff Bryant might appeal the Court's denial of class certification, the Court AMENDS its Order and DENIES plaintiff Bryant's request for his claims to be dismissed at this point.

Plaintiffs Bryant, Biernacki, Farmer, and Holland are hereby ORDERED to file a statement to the Court by 5:00 p.m. on Friday, September 16, 2011, informing the Court whether plaintiffs wish to pursue their claims individually, or whether they would like their claims to be dismissed with prejudice in order to facilitate appeal.

Because the judgment in this case has been withdrawn, plaintiffs' objections to defendants' bill of costs is OVERRULED without prejudice. (Doc. 383.)

IT IS SO ORDERED.