Garcia v. Central Coast Restaurants, Inc.

• Court: District Court, N.D. California
• Decided: September 23, 2019
• Docket: 3:18-cv-02370
• Status: Unknown

Opinion

1 2 3 4 5 6 7 UNITED STATES DISTRICT COURT 8 NORTHERN DISTRICT OF CALIFORNIA 9 JENNIFER GARCIA, 10 Case No. 18-cv-02370-RS Plaintiff, 11 v. ORDER DENYING 12 DEFENDANTS' MOTION CENTRAL COAST RESTAURANTS, FOR SUMMARY JUDGMENT 13 INC., et al.,

14 Defendants.

15 I. INTRODUCTION 16 Plaintiff Jennifer Garcia filed this putative class action alleging various wage and hour 17 violations under California state law by defendants. Two years ago, Silvia Contreras and Martha 18 Valencia Lazaro sued the same defendants, alleging the same wage and hour claims, but under the 19 California Labor Code’s Private Attorneys General Act §§ 2698 et seq. (“PAGA”). Defendants 20 recently settled with Contreras and Lazaro. Defendants now move for summary judgment, on the 21 grounds that Garcia either must be compelled to arbitrate her claims or that Contreras and 22 Lazaro’s settlement precludes the ongoing litigation of this case. For the reasons set forth below, 23 the motion is denied. 24 II. BACKGROUND 25 Garcia alleges systematic deprivation of minimum and overtime wages, inadequate rest 26 and meal breaks, failure to indemnify employees, failure to provide accurate wage statements, 27 failure to pay wages owed upon termination, and violations of California’s Unfair Competition 1 and other damages for herself and all others similarly situated.1 Defendants—both California 2 corporations engaged in the operation of the restaurants in the chain at issue—are no strangers to 3 allegations of this sort. They have recently reached a settlement with two other former employees, 4 also represented by Garcia’s counsel, who filed a PAGA case alleging similar claims. 5 When Garcia began working for defendants on approximately May 20, 2015, she was 6 seventeen years old. On her first day of work, she signed an At-Will & Arbitration Employee 7 Acknowledgement and Agreement (“the Agreement”), which required binding arbitration of “any 8 claim, dispute, and/or controversy…arising from, related to, or having any relationship or 9 connection whatsoever” to her employment with defendants. Exhibit 3, Plaintiff’s Opposition to 10 Defendants’ Motion for Summary Judgment (“Plaintiff’s Response”). She alleges being rushed 11 through signing the paperwork, tricked as to its contents, and taken advantage of because she was 12 a minor. Plaintiff Jennifer Garcia’s Declaration in Support of Plaintiff’s Response (“Plaintiff’s 13 Declaration”) at 2–3. Garcia stopped working for defendants in April 2016 and turned eighteen 14 years old in May 2016. 15 Meanwhile, in October 2015, two of defendants’ other employees sued defendants in 16 Superior Court in the County of Monterey. See Contreras et al v. JIB Management, Inc. et al, No. 17 15-cv-000143 (Cal. Super. Ct. filed October 21, 2015). Contreras makes claims similar to those in 18 the present case: failure to pay minimum and overtime wages, failure to provide rest and meal 19 periods, failure to indemnify employees, failure to pay wages due at termination, and failure to 20 provide wage statements. The plaintiffs in both cases are represented by the same counsel. While 21 the present case is a putative class action, the Contreras plaintiffs made their claims on behalf of 22 the State of California pursuant to PAGA. The Contreras plaintiffs have recently reached a 23 $400,000 settlement with defendants, which provides for payment to the California Labor and 24

25 1 The putative class comprises “[a]ll persons who are employed or have been employed by Defendants in the State of California who, within four (4) years of the filing of the original 26 Complaint in this action, have worked as non-exempt restaurant workers.” Class Action Complaint at 22, Garcia v. Central Coast Restaurants, Inc., No. RG-17886551 (filed Dec. 13, 27 2017). 1 Workforce Development Agency (“CLWDA”), to the named plaintiffs, and to plaintiffs’ attorneys 2 for fees and costs. The remainder is to be allocated to aggrieved employees “as penalties and to 3 recover underpaid wages as penalties.” Order Granting Motion to Approve Penalties Sought as 4 Part of a Settlement Pursuant to the Private Attorney Generals Act (“Settlement”), Contreras. 5 Garcia filed the present case in December 2017, approximately eighteen months after the 6 termination of her employment with defendants. Her complaint disavowed “[a]ny employment- 7 related documents, including any arbitration agreement(s) entered into by Plaintiff and 8 Defendants…during the time Plaintiff was a minor.” Class Action Complaint at 4, Garcia v. 9 Central Coast Restaurants, Inc., No. RG-17886551 (filed Dec. 13, 2017). Garcia characterizes her 10 disavowal as preemptive, however, and alleges she was unaware of having signed the Agreement 11 until defendants filed their motion for summary judgment. 12 III. LEGAL STANDARD 13 A. Arbitration Standard 14 When deciding a motion to compel arbitration, a standard similar to the summary 15 judgment standard is applied. Concat LP v. Unilever, PLC, 350 F.Supp.2d 796, 804 (N.D. Cal. 16 2004). The question of whether parties agreed to arbitration is to be decided by a court, not an 17 arbitrator, unless the parties clearly provide otherwise. AT & T Techs., Inc. v. Commc'ns Workers 18 of Am., 475 U.S. 643, 649 (1986). Under the Federal Arbitration Act, arbitration agreements “shall 19 be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the 20 revocation of any contract.” 9 U.S.C. § 2 (2012). Federal policy encourages arbitration, 21 prohibiting state courts from treating arbitration agreements differently than any other contractual 22 agreement. AT&T Mobility v. Concepcion, 563 U.S. 333, 341 (2011). Doubts regarding the scope 23 of arbitrable issues should thus be resolved in favor of arbitration. Rajagopalan v. NoteWorld, 24 LLC, 718 F.3d 844, 846–47 (9th Cir. 2013). 25 When the question is not whether a particular issue is arbitrable but whether a particular 26 party is bound by an arbitration agreement, however, this liberal policy is irrelevant. Id. The court 27 must apply principles of contract law to arbitration agreements the same way it would to any other 1 contract. Concepcion, 563 U.S. at 343. Under California law, the essential elements for a contract 2 are (1) “[p]arties capable of contracting;” (2) “[t]heir consent;” (3) “[a] lawful object;” and (4) 3 “[s]ufficient cause or consideration.” Cal. Civ. Code § 1550 (West 1999). If a motion to compel 4 arbitration is opposed on the ground that no agreement was made, the benefit of all reasonable 5 doubts and inferences should be given to the opposing party. Concat LP, 350 F.Supp.2d at 804. 6 The formation of an arbitration agreement can only be decided as a matter of law when there is no 7 genuine issue of material fact. Three Valleys Mun. Water Dist. v. E.F. Hutton & Co., 925 F.2d 8 1136, 1141 (9th Cir.1991). 9 B. Summary Judgment Standard 10 Summary judgment is proper “if the pleadings and admissions on file, together with the 11 affidavits, if any, show that there is no genuine issue as to any material fact and that the moving 12 party is entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(c). The purpose of summary 13 judgment “is to isolate and dispose of factually unsupported claims or defenses.” Celotex v. 14 Catrett, 477 U.S. 317, 323–24 (1986). The moving party “always bears the initial responsibility of 15 informing the district court of the basis for its motion, and identifying those portions of the 16 pleadings and admissions on file, together with the affidavits, if any, which it believes demonstrate 17 the absence of a genuine issue of material fact.” Id. at 323 (citations and internal quotation marks 18 omitted). If it meets this burden, the non-moving party then “must set forth specific facts showing 19 that there is a genuine issue for trial.” Fed. R. Civ. P. 56(e). Those facts must be material, i.e., 20 “facts that might affect the outcome of the suit under the governing law….Factual disputes that are 21 irrelevant or unnecessary will not be counted.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 22 247–48 (1986). The court must draw all reasonable inferences in favor of the non-moving party, 23 including questions of credibility and of the weight to be accorded to particular evidence. Masson 24 v. New Yorker Magazine, Inc., 501 U.S. 496 (1991) (citing Anderson, 477 U.S. at 255). 25 IV. DISCUSSION 26 A. Arbitration 27 Garcia does not dispute that she signed the Agreement on her first day of employment with 1 defendants, and that if the Agreement is valid, its scope would include her present claims. She 2 contends, however, that the Agreement is unenforceable under three separate theories based in 3 traditional contract law: fraud in the inception, disaffirmance of a contract signed as a minor, and 4 unconscionability. Because Garcia’s defenses raise genuine disputes of material fact, arbitration 5 cannot be compelled at the summary judgment stage. 6 1. Fraud in the Inception 7 The California Supreme Court has held that, where fraud exists in the inception of a 8 contract “the promisor is deceived as to the nature of his act, and actually does not know what he 9 is signing, or does not intend to enter into a contract at all.” Rosenthal v. Great Western Fin. 10 Securities Corp., 14 Cal.4th 394, 415 (1996). When the party does not intend to enter into the 11 contract, mutual assent—an essential element of contract formation—is lacking, and the contract 12 is void. Id. at 415–16. The court cannot compel arbitration, because the very agreement to arbitrate 13 is invalid. Id. The operative inquiry in determining whether a contract was created by fraud is 14 whether a reasonable reader of the contract would have understood to what the parties were 15 agreeing. DKS, Inc. v. Corporate Business Solutions, Inc., 675 Fed.App’x. 738, 739 (9th Cir. 16 2017). 17 Here, Garcia’s allegations raise questions on that score. She states that she has difficulty 18 reading English, especially complicated words—of which there are plenty in the arbitration 19 agreement. Plaintiff’s Declaration at 2. She alleges that her manager rushed her through signing 20 the paperwork, did not give her a copy to review later, and misrepresented the contents of the 21 forms—in particular, Garcia says she was told the forms informed of her rights, not that they 22 waived her rights. Id. at 2–3. Defendants counter that Garcia “misstates the evidence” and that 23 Garcia’s manager did not in any way mislead her. Accepting Garcia’s version of events for 24 purposes of this motion, it is entirely possible that a reasonable reader in her position would not 25 have understood the nature of the contract’s terms. 26 2. Disaffirmation 27 Under California law, an individual who enters into a contract as a minor but disaffirms it 1 within a “reasonable time” after reaching the age of majority has voided the contract. See Cal. 2 Family Code § 6710; Hurley v. Southern Cal. Edison Co., 183 F.2d 125, 132 (9th Cir. 1950). 3 What is a “reasonable time” is to be evaluated on a case-by-case basis. See Hurley, 183 F.3d at 4 132. In all cases, the time to be evaluated for its reasonableness is the time between when the 5 individual “discover[s]” the nature and significance of the contract and when the individual 6 disaffirms it, not the time between signing and disaffirming. Id. (holding that a minor who 7 disaffirmed a contract fifteen years after it was signed, but only two days after discovering its 8 nature, had successfully voided the contract); see also Lopez v. Kmart Corporation, 2015 WL 9 2062606 (N.D. Cal. May 4, 2015) (holding that a minor who disaffirmed an arbitration clause in 10 his employment contract via the filing of a class action complaint eighteen months after he signed 11 the contract, and one month after his eighteenth birthday, did so within a reasonable time). 12 Here, the parties agree that Garcia signed her employment contract, including the 13 Agreement, in May 2015 and that she reached the age of majority in May 2016. The parties 14 disagree as to how much time elapsed between when Garcia discovered the nature and 15 significance of the contract and when she disaffirmed it. Garcia claims she prospectively 16 disavowed any arbitration agreement she might have signed in her December 2017 complaint, but 17 she did not know about the definitive existence of this Agreement until defendants filed it as an 18 exhibit to their present Motion for Summary Judgment; that is, she disaffirmed the Agreement 19 before she discovered its significance. Defendants counter that Garcia must have known about the 20 existence of the Agreement given her statements in the complaint and allusions to the existence of 21 such a contract in a Joint Case Management Statement; that is, she knew what she was signing 22 when she signed it, and she did not disaffirm it until eighteen months later. 23 Thus, the parties raise two genuine disputes of material fact. First, the parties disagree 24 about when Garcia discovered the nature and significance of the Agreement: when she signed it, 25 when defendants filed their Motion for Summary Judgment, or somewhere in the middle. Second, 26 they disagree about whether the time that elapsed between when Garcia came to appreciate the 27 nature and significance of the Agreement and when she disaffirmed it was “reasonable.” At the 1 summary judgment stage, all facts must be construed in favor of the non-moving party. Concat 2 LP, 350 F.Supp.2d at 804. Accepting Garcia’s version of events for purposes of this motion, there 3 exists a genuine dispute as to material fact, i.e. whether the Agreement is void. 4 3. Unconscionability 5 Under California law, a contractual clause is unenforceable only if it is both procedurally 6 and substantively unconscionable. See Armendariz v. Found. Health Psychcare Servs., Inc., 24 7 Cal.4th 83, 114 (2000); Nagrampa v. MailCoups, Inc., 469 F.3d 1257, 1280 (9th Cir. 2006). 8 Courts apply a sliding scale: “the more substantively oppressive the contract term, the less 9 evidence of procedural unconscionability is required to come to the conclusion that the term is 10 unenforceable, and vice versa.” Armendariz, 24 Cal.4th at 114. Still, “both [must] be present in 11 order for a court to exercise its discretion to refuse to enforce a contract or clause under the 12 doctrine of unconscionability.” Id. 13 Garcia alleges that the Agreement is procedurally unconscionable for many of the same 14 reasons she alleges fraud in the inception: her manager rushed her to sign the contract, did not give 15 her a copy for later review, and misrepresented the terms. Plaintiff’s Declaration at 2–3. Insofar as 16 the agreement was “imposed on [Garcia] as a condition of employment and there was no 17 opportunity to negotiate,” Armendariz, 24 Cal.4th at 115, her allegations support a finding of 18 substantial procedural unconscionability. They also raise questions as to substantive 19 unconscionability. See Sonic-Calabasas A, Inc. v. Moreno, 57 Cal.4th 1109, 1146 (2013) (citing 20 terms similar to those in the Agreement as evidence of substantive unconscionability). Given that 21 Garcia has presented evidence of both procedural and substantive unconscionability, there exists a 22 factual dispute as to the Agreement’s validity. The facts are not so clear-cut as to any of the 23 asserted contracts defenses such that compelling arbitration at the summary judgment stage is 24 appropriate. Defendants’ motion to compel arbitration must thus be denied. 25 B. Res Judicata 26 Res judicata, or claim preclusion, prevents parties from relitigating claims that have 27 already been decided. An action is barred under res judicata when: (1) a claim was raised, or 1 could have been raised, in a prior action; (2) that prior action resulted in a valid final judgment on 2 the merits; and (3) the parties in the present action are the same as, or in privity with, the parties in 3 the prior action. See Owens v. Kaiser Found. Health Plan, Inc., 244 F.3d 708, 713 (9th Cir. 2001). 4 The Superior Court in the County of Monterey has explicitly reserved judgment on the issue of 5 whether the Contreras settlement will have preclusive effect. In their supplemental briefing, 6 defendants request that judgment on the res judicata issue be stayed while they petition the 7 Superior Court to reconsider, or that they be permitted to withdraw the argument altogether. 8 Because it is not clear what effect a Superior Court reversal would have on the present action, 9 however, and because the res judicata issue has been fully briefed, it is discussed here. 10 1. Same Claim 11 California follows a “primary rights” approach to determine whether two causes of action 12 are the same. Rangel v. PLS Check Cashers of Cal., Inc., 899 F.3d 1106, 1111 (9th Cir. 2018). 13 This approach defines a “right” as the right to obtain redress for an injury, regardless of the legal 14 theory asserted or the remedy sought; thus, “one injury gives rise to one claim for relief.” Id. 15 Defendants argue that, because Garcia claims the same violations of the labor code as did the 16 Contreras plaintiffs, she is asserting the same primary right. Garcia, however, notes a subtle but 17 important difference. While her putative class action was filed to redress the injuries of former 18 employees of the defendants—being deprived of their wages and breaks, and other labor law 19 violations—the Contreras case, and other PAGA actions, are filed on behalf of the state of 20 California. PAGA actions exist primarily to remedy the injury sustained by the state when its 21 labor laws are violated because it lacks the enforcement resources to prosecute every employer- 22 offender. See Villacres v. ABM Industries Inc., 189 Cal.App.4th 562, 578 (Cal. Ct. App. 2010). 23 See also Arias v. Superior Court, 46 Cal.4th 969, 986 (2009) (“The [PAGA] employee plaintiff 24 represents the same legal right and interest as state labor law enforcement agencies); Amalgamated 25 Transit Union, Local 1756, AFL-CIO v. Superior Court, 46 Cal.4th 993, 1003 (“[PAGA actions 26 27 1 are] designed to protect the public, not to benefit private parties.”).2 The California Supreme Court 2 reaffirmed as recently as this month that an employee bringing a PAGA action represents “the 3 same legal right and interest as” state labor law enforcement agencies—not aggrieved employees. 4 ZB, N.A. v. Superior Court of San Diego County, No. S246711, 2019 WL 4309684 (Cal. Sept. 12, 5 2019) (internal quotations omitted). Because Garcia seeks to remedy the injury sustained by 6 former employees of defendants, while the Contreras plaintiffs sued to protect the state’s 7 interests—albeit with some incidental benefit to aggrieved employees—they are not asserting the 8 same primary right. 9 2. Prior Judgment 10 The parties do not dispute that the Settlement is a valid final judgment on the merits for the 11 purposes of claim preclusion. 12 3. Same Parties 13 In order to be precluded by a prior lawsuit, the parties in the present action must be the 14 same as, or in privity with, the parties in the prior suit. Nonparty preclusion applies when (1) the 15 nonparty was “adequately represented” in the prior action, or (2) the party in the present action 16 acts as a proxy for a party in the prior action. See Taylor v. Sturgell, 553 U.S. 880, 895 (2008). 17 Garcia is not in privity with the Contreras plaintiffs for the same reason that she is not asserting 18 the same right that they were; the Contreras plaintiffs were representing the interests of the State 19 of California, not of Garcia and other fellow employees. Garcia and other putative class members 20 have not yet been given notice of the Contreras case, let alone the settlement; it is unclear how 21 their interests could be represented by an action about which they may not have knowledge. 22 The parties’ disagreement as to whether existing law governs this dispute further explains 23 why Contreras is not preclusive. Garcia argues that Arias v. Superior Court is dispositive. The 24

25 2 Further evidence that PAGA exists primarily to enforce a right of the state is that the California Labor Code provides for seventy-five percent of damages recovered pursuant to PAGA actions to 26 be given to CLWDA and twenty-five percent to aggrieved employees. See Cal. Labor Code § 2699(i). It should be noted that the Contreras settlement, however, provides for about forty 27 percent to aggrieved employees, ten percent to CLWDA, and the remainder to other parties. 1 California Supreme Court held in Arias that a PAGA action in which an employee prevails binds 2 the defendant employer; “[n]onparty employees may…use the judgment against the employer to 3 obtain remedies other than civil penalties for the same labor code violations.” Id. at 987. Arias, 4 however, as defendants rightly point out, contemplated a judgment of fault against the defendants, 5 not a settlement agreement. This is significant because the Contreras settlement agreement clearly 6 disavows any admission of fault by the defendants. 7 The parties also both point to Villacres v. ABM Industries Inc., which held that a settlement 8 in a class action precludes a future PAGA action alleging the same labor code violations. 9 Villacres, 189 Cal.App.4th. at 578. However, in Villacres, contrary to the pending action, the 10 initial case with the preclusive effect was a class action, while the estopped second case was a 11 PAGA claim. This is significant because, while class actions require notice and an opportunity to 12 opt-out be given to class members, so as to comport with the requirements of due process, PAGA 13 actions do not. See Arias, 46 Cal. at 986–87 (holding that because PAGA actions do not require 14 class certification procedures, they cannot be binding on nonparty employees bringing subsequent 15 cases on the same claims, as they were not necessarily given notice of the initial PAGA claims). 16 The Contreras settlement was approved only this past June, and nonparty employees, including 17 Garcia, have not yet been given formal notice of the settlement. It would strain due process to 18 limit Garcia’s ability to bring her lawsuit because of the preclusive effect of a prior lawsuit of 19 which no notice has thus far been provided. 20 Finally, the parties have provided additional briefing on ZB, N.A. v. Superior Court of San 21 Diego County, in which the California Supreme Court held this month that aggrieved employees 22 may not recover unpaid wages under PAGA. ZB, N.A., 2019 WL 4309684 at *9. PAGA only 23 authorizes private citizens to collect civil penalties on behalf of state labor agencies, the court 24 reasoned, and unpaid wages are not civil penalties. Id. Nonparty employees must instead recover 25 unpaid wages in a subsequent non-PAGA action. Id. at *11. To hold that the Contreras settlement 26 is binding on Garcia would thus be to hold that there is no possible way for her to recover her 27 unpaid wages, in obvious conflict with the California Supreme Court’s suggestions. ] Thus, putting aside whether Arias, Villacres, or any other California decision operates as 2 || binding precedent, it is clear that Garcia neither asserts the same primary right nor was she 3 adequately represented by the Contreras plaintiffs. Res judicata, accordingly, does not limit her 4 || ability to proceed? 5 V. CONCLUSION 6 Genuine disputes of material fact exist as to whether arbitration can be compelled. Garcia’s 7 || claims are furthermore not estopped by the Contreras settlement. Accordingly, for the reasons set 8 forth above, defendants’ Motion for Summary Judgment is denied. 9 10 || ITISSO ORDERED. 11 a 12 Dated: September 23, 2019

2B RICHARD SEEBORG 14 United States District Judge

Oo Z 18 19 20 21 22 23 24 ——_i——@-_—_——_ > Defendants make several objections to the admission of Garcia’s declaration. Objection 1 is overruled as defendants have provided no basis for it in the Federal Rules of Evidence. Objections 27 2, 3, 4, 5, 6, and 7 are overruled as they are not lay opinions or legal conclusions; they are Garcia’s representations of her own state of mind at the time she signed the arbitration agreement. 28 ORDER DENYING SUMMARY JUDGMENT CASE No. 18-cv-02370-RS