Ballesteros v. FormFactor, Inc.

FEUER, J.

NOT TO BE PUBLISHED

APPEALS from an order of the Superior Court of Los Angeles County No. 22STCV33390, Carolyn B. Kuhl, Judge. Affirmed.

Wolflick, Khachaturian & Bouayad, Gregory D. Wolflick and Adam N. Bouayad for Defendant and Appellant.

James R. Hawkins, Isandra Fernandez, and Lance Dacre for Plaintiff and Respondent.

FEUER, J.

FormFactor, Inc. appeals from an order denying in part its motion to compel arbitration of Nepthalie Ballesteros's claims brought under the Private Attorneys General Act of 2004 (PAGA; Labor Code, § 2698 et seq.). Ballesteros worked for FormFactor as a temporary employee through a staffing agency for about 18 months starting in April 2021. FormFactor contends that although the arbitration agreement Ballesteros executed stated that "[p]rivate attorney general representative actions under the California Labor Code are not arbitrable," under Viking River Cruises, Inc. v. Moriana (2022) 596 U.S. 639 (Viking River) the trial court should have ordered Ballesteros's "individual" PAGA claims to arbitration. We interpret the arbitration agreement, entered into before Viking River was decided, to exclude all PAGA claims from the scope of the arbitration agreement. At the time the parties entered the agreement, the usual and ordinary meaning of a PAGA "representative action" was an action on behalf of the state, whether on behalf of an individual employee or other employees. We affirm.

FACTUAL AND PROCEDURAL BACKGROUND

A. Ballesteros's Employment and the Arbitration Agreement

On April 19, 2021 Ballesteros started working for a temporary staffing agency, Roth Staffing Companies, L.P., dba Ultimate Staffing Services. As part of the onboarding process, on April 19 Ballesteros signed a Mutual Arbitration Agreement (arbitration agreement), which was also signed by a representative of Roth. On April 28 Ballesteros was dispatched to work as a temporary employee at FormFactor, where Ballesteros worked until October 12, 2022.

The arbitration agreement provided for arbitration "relating to or arising out of [Ballesteros's] employment or the cessation of that employment," including any "claims of unpaid wages, breach of contract, torts, violation of public policy, discrimination, harassment, or any other employment-related claims" under the California Labor Code and other specified statutes. The arbitration agreement provided in a section titled "Class Action Waiver" (capitalization and boldface omitted), "Private attorney general representative actions under the California Labor Code are not arbitrable, not within the scope of this Agreement and may be maintained in a court of law. However, both the Company and you agree to bring any dispute in arbitration on an individual basis only, and not on a class or collective basis on behalf of others. There will be no right or authority for any dispute to be brought, heard or arbitrated as a class or collective action, or as a member in any such class or collective proceeding ('Class Action Waiver')."

On October 12, 2022 Ballesteros filed a putative class action lawsuit against FormFactor alleging employment-related claims. The first amended class action complaint alleged wage and hour claims under the Labor Code, violations of the unfair competition law (Bus. &Prof. Code, § 17200), and a cause of action under PAGA.

B. FormFactor's Motion To Compel Arbitration

On April 21, 2023 FormFactor filed a motion to compel arbitration, requesting the trial court compel arbitration of Ballesteros's individual claims, including his PAGA claim; dismiss the class claims; and dismiss or stay Ballesteros's "representative" PAGA claims. FormFactor asserted it could enforce the arbitration agreement as a third-party beneficiary on an equitable estoppel theory. Further, FormFactor and Roth were involved in interstate commerce, and the Federal Arbitration Act (FAA) (9 U.S.C. § 1 et seq.) applied. With respect to Ballesteros's PAGA cause of action, FormFactor argued that under Viking River, the exclusion from arbitration for PAGA "representative actions" did not include individual PAGA claims, which should be compelled to arbitration. Further, the class action waiver language stating the parties agreed to bring any dispute in arbitration "'on an individual basis only'" supported FormFactor's interpretation. (Capitalization omitted.)

Ballesteros does not dispute that the FAA applies to the arbitration agreement.

Ballesteros opposed the motion on the basis that FormFactor was not a signatory to the arbitration agreement or a third-party beneficiary of the agreement. Ballesteros also argued that all PAGA claims are representative in that they are brought on behalf of the government. In addition, it was not until Viking River was decided in 2022 that PAGA representative claims could be divided into individual claims and claims on behalf of other employees.

After a hearing, on July 24, 2023 the trial court granted the motion in part, compelling Ballesteros's non-PAGA individual claims to arbitration, striking the class action allegations, and denying the motion to compel arbitration of the PAGA claims but staying the claims pending completion of the arbitration of the individual non-PAGA claims. The court held FormFactor could enforce the arbitration agreement under the doctrine of equitable estoppel because Ballesteros's claims were "intimately founded in and intertwined with his employment with Roth." The court further held the arbitration agreement "clearly and unambiguously excludes PAGA claims from arbitration," citing to the language in the arbitration agreement that representative PAGA claims under the Labor Code are not within the scope of the arbitration agreement and could be brought in a court of law. The court observed "that all PAGA claims are representative because such claims are brought on behalf of the government. A PAGA case is not a 'representative action' because it is brought on behalf of other employees. Rather, a PAGA case is [a] 'representative action' because it asserts claims belonging to the government." Finally, the court stayed Ballesteros's PAGA claims under Code of Civil Procedure section 1281.4 on the basis that arbitration of his individual claims would determine whether FormFactor committed a Labor Code violation against Ballesteros. FormFactor timely appealed the trial court's order to the extent it denied the motion to compel arbitration of the PAGA claims.

DISCUSSION

A. Governing Law on Arbitration Agreements and Standard of Review

Code of Civil Procedure section 1281.2 requires the trial court to order arbitration of a controversy "[o]n 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 . . . if it determines that an agreement to arbitrate the controversy exists." In any motion to compel arbitration, the threshold questions "are whether an agreement to arbitrate exists [citations] and, if so, whether the parties' dispute falls within the scope of that agreement." (Ahern v. Asset Management Consultants, Inc. (2022) 74 Cal.App.5th 675, 687; accord, Pinnacle Museum Tower Assn. v. Pinnacle Market Development (U.S.), LLC (2012) 55 Cal.4th 223, 236 (Pinnacle) ["'"A party cannot be required to submit to arbitration any dispute which he has not agreed so to submit."'"]; Duran v. EmployBridge Holding Co. (2023) 92 Cal.App.5th 59, 65 ["Whether the parties agreed to arbitrate all or a portion of 'the present controversy turns on the language of the arbitration clause.'''].)

Under state and federal law, there is a public policy in favor of arbitration. (Morgan v. Sundance, Inc. (2022) 596 U.S. 411, 417-418; OTO, L.L.C. v. Kho (2019) 8 Cal.5th 111, 125 [acknowledging strong public policy favoring arbitration under state law]; Mondragon v. Sunrun Inc. (2024) 101 Cal.App.5th 592, 602 (Mondragon).) "The policy favoring arbitration, however, does not apply when unambiguous language shows the parties did not agree to arbitrate all or a part of the dispute." (Duran v. EmployBridge Holding Co., supra, 92 Cal.App.5th at p. 66 [language in arbitration agreement stating that "'claims under PAGA . . . are not arbitrable under this Agreement'" was unambiguous and controlled notwithstanding policy favoring arbitration]; accord, Pinnacle, supra, 55 Cal.4th at p. 236 [notwithstanding the policy favoring arbitration, because arbitration is a matter of consent, "'"a party cannot be required to submit to arbitration any dispute which he has not agreed so to submit"'"]; Mondragon, at p. 602 [same].)

"'When deciding whether the parties agreed to arbitrate a certain matter . . ., courts generally . . . should apply ordinary state-law principles that govern the formation of contracts.'" (Sandquist v. Lebo Automotive, Inc. (2016) 1 Cal.5th 233, 244; accord, Pinnacle, supra, 55 Cal.4th at p. 236 ["In California, '[g]eneral principles of contract law determine whether the parties have entered a binding agreement to arbitrate.'"]; Gregg v. Uber Technologies, Inc. (2023) 89 Cal.App.5th 786, 800 ["'The ordinary rules of contract interpretation apply to arbitration agreements.'"].)

"In determining the scope of an arbitration clause, '[t]he court should attempt to give effect to the parties' intentions, in light of the usual and ordinary meaning of the contractual language and the circumstances under which the agreement was made.'" (Victoria v. Superior Court (1985) 40 Cal.3d 734, 744; accord, Mondragon, supra, 101 Cal.App.5th at p. 602; Garcia v. Expert Staffing West (2021) 73 Cal.App.5th 408, 412-413 ["'General contract law principles include that "[t]he basic goal of contract interpretation is to give effect to the parties' mutual intent at the time of contracting."'"]; see Civ. Code, § 1648 ["However broad may be the terms of a contract, it extends only to those things concerning which it appears that the parties intended to contract."].)

"'"Whether an arbitration agreement applies to a controversy is a question of law to which the appellate court applies its independent judgment where no conflicting extrinsic evidence in aid of interpretation was introduced in the trial court."'" (Ahern v. Asset Management Consultants, Inc., supra, 74 Cal.App.5th at p. 687; accord, Mondragon, supra, 101 Cal.App.5th at p. 602; see Pinnacle, supra, 55 Cal.4th at p. 236 ["Where, as here, the evidence is not in conflict, we review the trial court's denial of arbitration de novo."].)

B. Representative PAGA Claims and Viking River

PAGA authorizes "'an "aggrieved employee" [to] bring a civil action personally and on behalf of other current or former employees to recover civil penalties for Labor Code violations. (Lab. Code, § 2699, subd. (a).)'" (Iskanian v. CLS Transportation Los Angeles, LLC (2014) 59 Cal.4th 348, 380 (Iskanian), overruled in part by Viking River, supra, 596 U.S. 639.) Under the statute, 75 percent of the civil penalties are distributed to the Labor and Workforce Development Agency, with the remaining 25 percent to the "aggrieved employees." (Ibid; see § 2699, subd. (i).) The arbitration agreement in Iskanian provided that the company and employee agreed not to assert class action or "'representative action claims against the other in arbitration or otherwise,'" and would only "'submit their own, individual claims in arbitration and will not seek to represent the interests of any other person.'" (Iskanian, at pp. 360-361.) The court observed there was no dispute that the arbitration agreement's reference to "representative actions" covered representative actions brought under PAGA. (Id. at p. 378.)

The Iskanian court held PAGA waivers, like class action waivers, are "contrary to public policy and unenforceable as a matter of state law." (Iskanian, supra, 59 Cal.4th at p. 384.) However, unlike class action waivers, the court concluded the FAA does not preempt California law invalidating PAGA waivers because PAGA claims are brought by the aggrieved employee as a "statutorily designated proxy" for the Labor and Workforce Development Agency, not on the employee's own behalf to resolve a private dispute. (Id. at p. 388.) Further, "'every PAGA action, whether seeking penalties for Labor Code violations as to only one aggrieved employee-the plaintiff bringing the action-or as to other employees as well, is a representative action on behalf of the state.'" (Id. at p. 387.) Therefore, "California's public policy prohibiting waiver of PAGA claims, whose sole purpose is to vindicate the Labor and Workforce Development Agency's interest in enforcing the Labor Code, does not interfere with the FAA's goal of promoting arbitration as a forum for private dispute resolution." (Id. at pp. 388-389.)

Following Iskanian, the California courts consistently held PAGA actions are representative actions on behalf of the state, and do not include individual claims. As the California Supreme Court explained in Kim v. Reins International California, Inc. (2020) 9 Cal.5th 73, 87 in the context of an employee's continued standing to pursue PAGA claims after settling and dismissing the employee's individual Labor Code claims, "There is no individual component to a PAGA action because '"every PAGA action . . . is a representative action on behalf of the state."' [Citation.] Plaintiffs may bring a PAGA claim only as the state's designated proxy, suing on behalf of all affected employees." Further, the court explained, "Appellate courts have rejected efforts to split PAGA claims into individual and representative components." (Id. at p. 88; see Adolph v. Uber Technologies, Inc. (2023) 14 Cal.5th 1104, 1118 (Adolf) ["Following our decision in Iskanian, various courts held that employers may not require employees to 'split' PAGA actions in a manner that puts individual and non-individual components of a PAGA claim into bifurcated proceedings."].)

In Perez v. U-Haul Co. of California (2016) 3 Cal.App.5th at page 420, for example, we concluded an employer and employee had not agreed to arbitrate a PAGA action because the arbitration agreement stated the parties would not seek to arbitrate any "'claims as a representative . . . or in a private attorney general capacity,'" and therefore, because "a PAGA action is by definition a form of representative claim, . . . PAGA claims are categorically excluded from the arbitration agreement."

In Viking River, supra, 596 U.S. at page 643, the United States Supreme Court granted certiorari to decide whether Iskanian's holding invalidating "contractual waivers of the right to assert representative claims under [PAGA]" was preempted by the FAA. The Viking River court "left undisturbed" the holding in Iskanian "that a predispute categorical waiver of the right to bring a PAGA action is unenforceable." (Adolph, supra, 14 Cal.5th at p. 1117.)

However, the Viking River court also addressed the validity of "California law [that] prohibits division of a PAGA action into constituent claims," on which basis the state courts had refused to compel arbitration of individual PAGA claims. (Viking River, supra, 596 U.S. at p. 649.) In deciding this question, the United States Supreme Court observed that "California precedent holds that a PAGA suit is a '"representative action"' in which the employee plaintiff sues as an "'agent or proxy"' of the State." (Viking River, at p. 645, citing Iskanian, supra, 59 Cal.4th at p. 380.) Viking River parted ways with Iskanian and its progeny, characterizing PAGA actions as being representative in two different ways: "In the first sense, PAGA actions are 'representative' in that they are brought by employees acting as representatives-that is, as agents or proxies-of the State. But PAGA claims are also called 'representative' when they are predicated on code violations sustained by other employees. In the first sense, '"every PAGA action is . . . representative"' and '[t]here is no individual component to a PAGA action,' [citation], because every PAGA claim is asserted in a representative capacity. But when the word 'representative' is used in the second way, it makes sense to distinguish 'individual' PAGA claims, which are premised on Labor Code violations actually sustained by the plaintiff, from 'representative' (or perhaps quasi-representative) PAGA claims arising out of events involving other employees.'" (Viking River, supra, 596 U.S. at p. 648.)

The Viking River court held "the FAA preempts the rule of Iskanian insofar as it precludes division of PAGA actions into individual and non-individual claims through an agreement to arbitrate." (Viking River, supra, 596 U.S. at p. 662.) The court reasoned that the rule against splitting PAGA claims "unduly circumscribes the freedom of parties to determine 'the issues subject to arbitration' and 'the rules by which they will arbitrate.'" (Id. at p. 659.) Therefore, "the FAA preempts the rule of Iskanian insofar as it precludes division of PAGA actions into individual and non-individual claims through an agreement to arbitrate." (Id. at p. 662.)

C. The Arbitration Agreement Unambiguously Excludes All PAGA Actions from Arbitration

FormFactor contends that in light of the holding in Viking River, the arbitration agreement's exclusion from arbitration for a PAGA "representative action" does not apply to Ballesteros's individual PAGA claims. Ballesteros responds that at the time he and FormFactor entered into the arbitration agreement in April 2021, the California courts consistently interpreted exclusions in arbitration agreements for a PAGA "representative action" to include any claims on behalf of the state, whether brought to redress violations suffered by the plaintiff or other employees. Ballesteros has the better argument.

Our decision in Mondragon, supra, 101 Cal.App.5th 592 is directly on point. There, the parties entered into an arbitration agreement in January 2022 that stated "claims brought by [the] [e]mployee in state or federal court as a representative of the state of California as a private attorney general under the PAGA (to the extent applicable)" were not covered under the agreement. (Id. at p. 599.) In rejecting the employer's claim that the exclusion did not apply to individual PAGA claims, we reasoned that "nothing in Viking River suggests a party must arbitrate individual PAGA claims where, as here, the arbitration agreement specifically carves out PAGA claims and does not distinguish between individual and non-individual claims." (Id. at p. 614.)

Moreover, we explained that "[a]t the time the parties entered into the agreement, California courts, including the California Supreme Court, had consistently held '"every PAGA action, whether seeking penalties for Labor Code violations as to only one aggrieved employee-the plaintiff bringing the action- or as to other employees as well, is a representative action on behalf of the state."'" (Mondragon, supra, 101 Cal.App.5th at p. 612, quoting Iskanian, supra, 59 Cal.4th at p. 387; see Kim v. Reins International California, Inc., supra, 9 Cal.5th at p. 87; Perez, supra, 3 Cal.App.5th at p. 420.) And, prior to Viking River, the Courts of Appeal had consistently rejected the proposition that a representative PAGA claim could be split into individual and non-individual claims. (See Adolph, supra, 14 Cal.5th at p. 1118; Kim, at p. 87.)

In light of California precedent at the time the arbitration agreement was executed, it is not a reasonable interpretation of the language in the arbitration agreement that FormFactor and Ballesteros intended, in referring to a PAGA representative action, to refer to anything other than a representative action on behalf of the state. (See Victoria v. Superior Court, supra, 40 Cal.3d at p. 744 [arbitration agreement should be interpreted in light of circumstances at the time the agreement was made]; Mondragon, supra, 101 Cal.App.5th at p. 602 [same].)

The arbitration agreement here, as in Mondragon, excludes from arbitration PAGA "representative actions," without distinguishing between claims brought on an individual or nonindividual basis. FormFactor contends its position is supported by the second sentence in the class action waiver section of the arbitration agreement (that immediately follows the exclusion for representative PAGA claims), which reads, "However, both the Company and you agree to bring any dispute in arbitration on an individual basis only, and not on a class or collective basis on behalf of others." FormFactor asserts the use of the word "[h]owever" at the beginning of the second sentence is used to contrast "representative" PAGA claims referenced in the first sentence with "individual" PAGA claims referenced in the second sentence. That contention might be persuasive if both sentences referenced PAGA claims, but they do not. Instead, the word "[h]owever" contrasts representative PAGA claims addressed in the first sentence with "class or collective" claims referenced in the second and third sentences. The second sentence states that only disputes on an individual basis, and not a "class or collective" basis, may be arbitrated; the third sentence states there is no right to arbitrate or bring a claim as a "class or collective action." The waiver in the third sentence is defined as the "class action waiver." (Capitalization omitted.) Our reading of the language in the class action waiver section is consistent with the circumstances under which the arbitration agreement was signed in that PAGA claims at the time were by definition representative, but non-PAGA claims could be asserted on an individual or "class or collective" basis.

We likewise do not find persuasive FormFactor's argument that it was "just as likely, perhaps more so, that the parties to the Agreement at issue intended language that specifically excluded [r]epresentative PAGA claims, while still encompassing individual PAGA claims" in "anticipation that Iskanian would be overruled." FormFactor notes that the concept of splitting a PAGA cause of action was first argued in 2014, when it was rejected by the Supreme Court in Iskanian, supra, 59 Cal.4th at page 387, and then raised again (and rejected) in the 2020 unpublished opinion in Moriana v. Viking River Cruises (Sept. 18, 2020 B297327) 2020 Cal.App. LEXIS 6045, *4-5. But in the absence of extrinsic evidence that the parties anticipated that Viking River would overrule Iskanian's holding with respect to representative PAGA claims, it is not a reasonable interpretation of the arbitration agreement that it was intended to allow arbitration of individual PAGA claims despite rejection by California courts of the concept of individual PAGA claims. As we reasoned in Mondragon, supra, 101 Cal.App.5th at page 615, "It may be that, had [the employer] predicted the holding in Viking River, [the employer] would have drafted the agreement in a way that covered Mondragon's individual PAGA claims and excluded only his non-individual PAGA claims. But '[i]t is widely recognized that the courts are not at liberty to revise an agreement under the guise of construing it. Neither abstract justice nor the rule of liberal interpretation justifies the creation of a contract for the parties which they did not make themselves.'"

Finally, FormFactor's reliance on Galarsa v. Dolgen California, LLC (2023) 88 Cal.App.5th 639 and Johnson v. Lowe's Home Ctrs., LLC (9th Cir. 2023) 93 F.4th 459 is misplaced. In Galarsa, the arbitration agreement contained a waiver of an employee's right to assert any "representative action claims" in an arbitration or in "any other forum," which the Court of Appeal severed from the agreement as an unlawful PAGA waiver under Iskanian. (Galarsa, at pp. 649-650.) Similarly, the arbitration agreement in Johnson included an unlawful "'Representative Action Waiver,'" which the Ninth Circuit likewise held was properly severed from the agreement. (Johnson, at p. 464.) Thus, the courts in Galarsa and Johnson had no occasion to consider the breadth of an exclusion for a "representative" PAGA claim. In this case, by contrast, the arbitration agreement specifically allowed representative PAGA claims to be brought in court.

In Galarsa, once the arbitration agreement was stripped of its PAGA waiver, the only remaining question was whether the employee's individual PAGA claims were arbitrable under Viking River. (See Galarsa, supra, 88 Cal.App.5th at p. 650.) The court concluded they were arbitrable "because the Labor Code violations allegedly suffered by plaintiff occurred as a result of her employment and could not have occurred if she had not been employed by [the employer]." (Id. at pp. 650-651.) And in Johnson, the Ninth Circuit similarly held the employee's agreement to arbitrate her individual PAGA claim (as one "'arising out of [her] employment'") was arbitrable. (Johnson, supra, 93 F.4th at pp. 462, 464.)

DISPOSITION

The order denying FormFactor's motion to compel arbitration is affirmed. Ballesteros is to recover his costs on appeal.

We concur: SEGAL, Acting P. J., PULOS, J. ^[*]

^[*] Judge of the San Diego County Superior Court, assigned by the Chief Justice pursuant to article VI, section 6 of the California Constitution.