Court Opinion

ID: 9412590
Source: CourtListenerOpinion
Date Created: 2023-07-31 20:04:49.527+00
Date Added: 2024-06-11T16:41:39.362937
License: Public Domain

Filed 7/31/23 Ahlman v. ForwardLine Financial CA2/3
Opinion on remand from U.S. Supreme Court
   NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions
not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion
has not been certified for publication or ordered published for purposes of rule 8.1115.

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

                         SECOND APPELLATE DISTRICT

                                      DIVISION THREE

BRANDON AHLMANN,                                              B304367

         Plaintiff and Respondent,                            Los Angeles County
                                                              Super. Ct. No.
         v.                                                   19VECV01352

FORWARDLINE FINANCIAL,
LLC, et al.,

         Defendants and Appellants.

      APPEAL from an order of the Superior Court of
Los Angeles County, Theresa M. Traber, Judge. Affirmed in part,
reversed in part.

     Sacro & Walker and Lisa M. Burnett for Defendants and
Appellants.

     Justice Law Corporation and Talia Lux for Plaintiff and
Respondent.
                  _________________________
       Defendants ForwardLine Financial, LLC and ForwardLine
Payment Services, LLC (ForwardLine) appeal an order denying
their motion to compel arbitration of plaintiff Brandon Ahlmann’s
claim to recover civil penalties under the Private Attorneys
General Act of 2004 (PAGA) (Lab. Code, § 2698 et seq.).1 The
relevant arbitration clause requires plaintiff to arbitrate “any
dispute of any nature between you and the Company” “arising
out of or relating to your employment with the Company” and
specifies that “[e]ach party may pursue arbitration solely in an
individual capacity, and not as a representative or class member
in any purported class or representative proceeding.” In an
earlier opinion, a panel of this court affirmed the order, applying
our Supreme Court’s holding in Iskanian v. CLS Transportation
Los Angeles, LLC (2014) 59 Cal.4th 348 (Iskanian) to conclude
the arbitration clause did not cover plaintiff’s claim because an
action to recover civil penalties under PAGA is a representative
proceeding arising out of a dispute between the employer and
the state that cannot be waived by contractual agreement.
       In Viking River Cruises, Inc. v. Moriana (2022) __ U.S. __
[142 S.Ct. 1906] (Viking River), the United States Supreme Court
rejected the portion of Iskanian that prohibited employers from
compelling arbitration of an employee’s individual PAGA claims,
including the part of Iskanian that held a PAGA action lies
outside the coverage of the Federal Arbitration Act (FAA)
because the action “ ‘is not a dispute between an employer and
an employee arising out of their contractual relationship,’ but
‘a dispute between an employer and the state.’ ” (Viking River,
142 S.Ct. at p. 1919, fn. 4, quoting Iskanian, supra, 59 Cal.4th

1    Statutory references are to the Labor Code, unless
otherwise designated.

                                2
at p. 387.) Because plaintiff’s individual PAGA claim is
arbitrable under Viking River, we must reverse the order to
the extent it denies ForwardLine its contractual right to compel
arbitration of the claim.
       As for plaintiff’s nonindividual PAGA claims (i.e.,
the claims plaintiff asserts on behalf of his fellow aggrieved
employees), those claims remain subject to our state law rule
against contractual PAGA waivers. (See Viking River, supra,
142 S.Ct. at pp. 1924–1925.) Nonetheless, the Viking River
majority suggested a plaintiff’s nonindividual claims should be
dismissed after her individual claim is ordered to arbitration
because, in the majority’s view, “PAGA provides no mechanism
to enable a court to adjudicate nonindividual PAGA claims
once an individual claim has been committed to a separate
proceeding.” (Id. at p. 1925.)2 Our Supreme Court has now

2      Justice Barrett, with whom the Chief Justice and Justice
Kavanaugh joined, declined to support dismissal of the plaintiff’s
nonindividual PAGA claims. (Viking River, supra, 142 S.Ct.
at p. 1926 (conc. opn. of Barrett, J.) [Justice Barrett concurring
in part and in the judgment, declining to join part IV, which
“addresses disputed state-law questions as well as arguments
not pressed or passed upon in this case”].) Justice Sotomayor,
while joining the court’s opinion in full, recognized the dismissal
might well advance an incorrect interpretation of California law.
(Id. at p. 1925 (conc. opn. of Sotomayor, J.) [“[I]f this Court’s
understanding of state law is wrong, California courts, in an
appropriate case, will have the last word.”].) Justice Thomas
dissented from the entire opinion, adhering to his long-held
view that the FAA does not apply to state court proceedings.
(Id. at p. 1926 (dis. opn. of Thomas, J.), citing Allied-Bruce
Terminix Cos. v. Dobson (1995) 513 U.S. 265, 285–297 (dis. opn.
of Thomas, J.).)

                                 3
rejected that interpretation. Under our state law as interpreted
by our high court, where “a plaintiff has brought a PAGA action
comprising individual and non-individual claims, an order
compelling arbitration of the individual claims does not strip
the plaintiff of standing as an aggrieved employee to litigate
claims on behalf of other employees under PAGA.” (Adolph v.
Uber Technologies, Inc. (July 17, 2023, S274671) __ Cal.4th __
[2023 WL 4553702].) Plaintiff has standing to litigate his
nonindividual PAGA claims in the trial court.
            FACTS AND PROCEDURAL HISTORY
       Plaintiff’s operative first amended complaint asserts a
single cause of action, on behalf of plaintiff and other aggrieved
ForwardLine employees, for the recovery of civil penalties under
PAGA, based on ForwardLine’s alleged violation of the Labor
Code’s wage-and-hour provisions. The complaint alleges plaintiff
notified the Labor and Workforce Development Agency (LWDA)—
the agency that enforces California’s labor laws—of his intent
to seek PAGA penalties, and the LWDA did not intervene within
the 65-day notice period. (See § 2699.3, subd. (a)(2)(A).)
       ForwardLine moved to compel arbitration of the claim
under an arbitration clause in plaintiff’s signed offer letter.3

3      ForwardLine also purported to base its motion on a section
of its employee handbook that referenced the arbitration clause
in plaintiff’s offer letter. However, the acknowledgement that
plaintiff signed upon receiving the handbook states, “It is
specifically agreed that the Handbook is for informational
purposes only and that it is not a contract for, or guarantee of,
employment or continuing employment.” Thus, by its terms,
the handbook is not a contract under which arbitration could
be compelled. Even if it were, the parties agree the handbook’s
relevant section merely complements and is at most coextensive

                                4
The clause states:
                   “While we of course hope that your
            employment relationship with the Company
            will be mutually satisfying and rewarding, we
            recognize that disputes can sometimes occur.
            Therefore, as a condition of your employment,
            the Company requires that you hereby
            agree that any and all disputes, claims, or
            proceedings between you and the Company
            arising out of or relating to your employment
            with the Company, the nature, terms, or
            enforceable [sic] of this letter agreement, or
            any dispute of any nature between you and the
            Company shall be settled by a binding and final
            arbitration held before a single arbitrator from
            the Judicial Arbitration Mediation Service, Inc.
            (‘JAMS’). Arbitration shall be held in the
            County of Los Angeles, California, and shall be
            pursuant to the laws of the State of California.
            Each party may pursue arbitration solely in an
            individual capacity, and not as a representative
            or class member in any purported class or
            representative proceeding. The arbitrator
            may not consolidate more than one person’s or
            entity’s claims, and may not otherwise preside
            over any form of representative or class
            proceeding. The arbitrator shall also have the
            power to impose any sanction against any party

with the arbitration clause in plaintiff’s signed offer letter. We
therefore focus exclusively on the clause in the offer letter.

                                 5
             permitted by California law. The arbitration
             award shall be final. Judgment on any
             arbitration award may be entered into [sic]
             any court in the County of Los Angeles.”
       The trial court denied the motion to compel arbitration,
finding the operative complaint alleged “only ‘public’ claims for
civil remedies pursuant to PAGA,” and concluding such a claim
“may not be sent to arbitration pursuant to [a] pre-litigation
arbitration clause[ ].”
       This court affirmed the order in a nonpublished opinion,
Ahlmann v. ForwardLine Financial, LLC (Nov. 12, 2021,
B304367) [nonpub. opn.]. Applying Iskanian, we held “plaintiff’s
claim to recover civil penalties under PAGA lies outside the
coverage of the arbitration clause because the claim is not a
dispute ‘between [plaintiff] and the Company’—it is a dispute
between ‘the Company’ and the state.” (Ahlmann v. ForwardLine
Financial, LLC, supra, B304367; see Iskanian, supra, 59 Cal.4th
at pp. 386–387 [“a PAGA claim lies outside the FAA’s coverage
because it is not a dispute between an employer and an employee
arising out of their contractual relationship”; rather, “[i]t is a
dispute between an employer and the state, which alleges directly
or through its agents—either the [LWDA] or aggrieved employees
—that the employer has violated the Labor Code”].)
       The California Supreme Court denied ForwardLine’s
petition for review. (Ahlmann v. ForwardLine Financial, LLC
(Feb. 23, 2022, S272381).) However, the United States Supreme
Court granted ForwardLine’s petition for writ of certiorari
and, thereafter, vacated this court’s judgment and remanded
the matter for further consideration in light of Viking River.

                                6
(Ahlmann v. ForwardLine Financial, LLC, supra, B304367,
cert. granted sub nom. ForwardLine Financial, LLC v. Ahlmann,
Dec. 12, 2022, No. 22-75, __ U.S. __ [143 S.Ct. 522].)
                           DISCUSSION
1.     PAGA and Iskanian
       In Iskanian, our Supreme Court examined two related
questions: (1) whether arbitration agreements waiving the
right to prosecute representative PAGA actions in any forum
are unenforceable under state law, and (2) whether the FAA
preempts a state law rule prohibiting such waivers. (Iskanian,
supra, 59 Cal.4th at pp. 382–384.) The plaintiff in Iskanian had
signed an arbitration agreement providing that all claims arising
out of his employment were to be submitted to arbitration and
that the parties would not assert class or representative claims
in arbitration. (Id. at pp. 360–361.) He sued his employer,
asserting wage-and-hour class action claims and PAGA claims
seeking statutory penalties for Labor Code violations. (Id. at
p. 361.) The trial court granted the employer’s motion to compel
individual arbitration of the PAGA claim and the reviewing court
affirmed, reasoning the plaintiff was contractually obligated
to arbitrate the PAGA claim and was barred from litigating it
in a representative capacity. (Id. at pp. 361–362.) Our Supreme
Court reversed.
       Addressing the first issue, the Iskanian court held
predispute waivers that require employees to relinquish the
right to assert a representative PAGA claim in any forum are
contrary to public policy and unenforceable as a matter of state
law because they “harm the state’s interests in enforcing the
Labor Code and in receiving the proceeds of civil penalties used
to deter violations.” (Iskanian, supra, 59 Cal.4th at p. 383.)

                                7
As our high court explained, the Legislature enacted PAGA to
enhance the state’s enforcement of labor laws by authorizing
aggrieved employees, acting as private attorneys general, to
recover civil penalties for violations, with the understanding
that the enforcement agencies would retain primacy over private
enforcement efforts. (Id. at p. 379.) To maintain state oversight,
PAGA requires the employee to provide the LWDA with written
notice of the alleged Labor Code violations and authorizes an
employee to pursue a PAGA claim in court only if the agency
does not intervene. (Id. at p. 380; see § 2699.3, subd. (a)(2).)
Of the civil penalties recovered in a representative PAGA action,
75 percent goes to the LWDA, leaving the remaining 25 percent
for the “aggrieved employees.” (Iskanian, at p. 380; see § 2699,
subd. (i).)
        Because “the Legislature’s purpose in enacting the
PAGA was to augment the limited enforcement capability of
the [LWDA] by empowering employees to enforce the Labor Code
as representatives of the Agency,” the Iskanian court reasoned
“an agreement by employees to waive their right to bring a
PAGA action serves to disable one of the primary mechanisms
for enforcing the Labor Code.” (Iskanian, supra, 59 Cal.4th
at p. 383.) And, because “such an agreement has as its ‘object,
. . . indirectly, to exempt [the employer] from responsibility for
[its] own . . . violation of law,’ ” our Supreme Court held “it is
against public policy and may not be enforced.” (Ibid., quoting
Civ. Code, § 1668.)
        Turning to the second issue, the Iskanian court held the
FAA does not preempt this state law rule invalidating PAGA
waivers because “the FAA aims to ensure an efficient forum for
the resolution of private disputes, whereas a PAGA action is a

                                8
dispute between an employer and the state Labor and Workforce
Development Agency.” (Iskanian, supra, 59 Cal.4th at p. 384.)
Our high court explained: “Simply put, a PAGA claim lies
outside the FAA’s coverage because it is not a dispute between
an employer and an employee arising out of their contractual
relationship. It is a dispute between an employer and the state,
which alleges directly or through its agents—either the Agency
or aggrieved employees—that the employer has violated the
Labor Code.” (Id. at pp. 386–387, italics added.) The Iskanian
court emphasized that a PAGA claim is “ ‘ “fundamentally a
law enforcement action designed to protect the public and not
to benefit private parties” ’ ” and that “ ‘an aggrieved employee’s
action under the [PAGA] functions as a substitute for an action
brought by the government itself.’ ” (Id. at pp. 381, 387.)
“The government entity on whose behalf the plaintiff files suit
is always the real party in interest in the suit,” and this is
confirmed by “[t]he fact that any judgment in a PAGA action
is binding on the government.” (Id. at pp. 382, 387.)
      Additionally, the Iskanian court addressed the employer’s
argument that its arbitration agreement should be upheld
because the agreement prohibited only representative claims
—not individual PAGA claims for Labor Code violations that
an employee suffered. (Iskanian, supra, 59 Cal.4th at p. 383.)
In rejecting that argument, our high court said it was irrelevant
“whether or not an individual claim is permissible under the
PAGA, [because] a prohibition of representative claims frustrates
the PAGA’s objectives.” (Id. at p. 384.) Critically, California
appellate courts have interpreted this aspect of Iskanian
as prohibiting splitting PAGA claims into individual and

                                 9
nonindividual components to permit arbitration of the individual
claims. (Nickson v. Shemran, Inc. (2023) 90 Cal.App.5th 121,
128.)
2.    Viking River
      In Viking River, the United States Supreme Court
considered whether the FAA preempts the Iskanian rule
invalidating contractual waivers of the right to assert PAGA
claims.4 (Viking River, supra, 142 S.Ct. at p. 1913.) The court
began by observing the term “ ‘representative’ ” is used in
“two distinct ways” in reference to PAGA actions. (Id. at p. 1916.)
In one sense, “PAGA actions are ‘representative’ in that they
are brought by employees acting as representatives—that is,
as agents or proxies—of the State.” (Ibid.) But in another sense,
PAGA claims also are “ ‘representative’ when they are predicated
on code violations sustained by other employees.” (Ibid., italics
added.) Having drawn this distinction, the Viking River court
determined a claim “based on code violations suffered by the
plaintiff,” as opposed to a claim predicated on violations suffered
by other employees, should be understood as an “ ‘individual
PAGA claim.’ ” (Ibid.)
      Iskanian, the Viking River court explained, articulates
two rules governing contractual waivers of PAGA claims:
“Iskanian’s principal rule prohibits waivers of ‘representative’
PAGA claims in the first sense. That is, it prevents parties

4     Under the FAA, a “written provision in . . . a contract
evidencing a transaction involving commerce to settle by
arbitration a controversy thereafter arising . . . shall be valid,
irrevocable, and enforceable . . . .” (9 U.S.C. § 2.) The statute
embodies “a liberal federal policy favoring arbitration.” (Moses
H. Cone Memorial Hosp. v. Mercury Const. (1983) 460 U.S. 1, 24
(Moses H. Cone).)

                                10
from waiving representative standing to bring PAGA claims
in a judicial or arbitral forum. But Iskanian also adopted
a secondary rule that invalidates agreements to separately
arbitrate or litigate ‘individual PAGA claims for Labor Code
violations that an employee suffered,’ on the theory that resolving
victim-specific claims in separate arbitrations does not serve
the deterrent purpose of PAGA.” (Viking River, supra, 142 S.Ct.
at pp. 1916–1917.)
       The Viking River court held the principal rule of Iskanian
—prohibiting waivers of an employee’s right to bring a PAGA
action—does not conflict with the FAA, because the FAA
is concerned with the forum in which disputes are resolved,
not the substantive law that resolves them. (Viking River,
supra, 142 S.Ct. at p. 1919.) Thus, even after Viking River,
a contractual waiver of the right to prosecute PAGA claims
remains unenforceable as against California public policy.
       However, the Viking River court reasoned the secondary
rule of Iskanian—invalidating agreements to separately arbitrate
or litigate individual PAGA claims—is procedural, and the FAA
preempts this rule. (Viking River, supra, 142 S.Ct. at p. 1924.)
As the court explained, the conflict between PAGA’s procedural
structure and the FAA derives from the state statute’s built-in
mechanism of claim joinder, which “permits ‘aggrieved
employees’ to use the Labor Code violations they personally
suffered as a basis to join . . . any claims that could have been
raised by the State in an enforcement proceeding,” including
those of other aggrieved employees. (Id. at p. 1923.) By
invalidating agreements to arbitrate only individual PAGA
claims, the secondary rule of Iskanian “prohibits parties from
contracting around this joinder device,” and thus “unduly

                                11
circumscribes the freedom of parties to determine ‘the issues
subject to arbitration’ and ‘the rules by which they will
arbitrate,’ ” as guaranteed under the FAA. (Viking River, at
p. 1923.) Thus, 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.” (Id. at p. 1924.)
       In reaching this conclusion, the Viking River court rejected
a core holding of Iskanian—“that a PAGA action lies outside
the FAA’s coverage entirely because [the FAA] is limited to
controversies ‘arising out of’ the contract between the parties,”
while “a PAGA action ‘is not a dispute between an employer
and an employee arising out of their contractual relationship,’ ”
but “ ‘a dispute between an employer and the state.’ ” (Viking
River, supra, 142 S.Ct. at p. 1919, fn. 4, quoting Iskanian, supra,
59 Cal.4th at p. 387.) The court reasoned “disputes resolved in
PAGA actions satisfy [the arising out of] requirement” because
“[t]he contractual relationship between the parties is a but-for
cause of any justiciable legal controversy between the parties
under PAGA, and ‘arising out of’ language normally refers to a
causal relationship.” (Viking River, at p. 1919, fn. 4.) Moreover,
nothing in the FAA “categorically exempts” claims belonging
to sovereigns from the scope of the federal statute. (Ibid.)
3.     Viking River Compels Reversal of the Order
       In view of Viking River, we are compelled to reverse the
order to the extent it denies ForwardLine its right under the
arbitration clause to compel arbitration of plaintiff’s individual
PAGA claim. Critically, the United State Supreme Court not
only held the FAA preempts the rule that PAGA claims cannot
be divided into individual and nonindividual claims, but the

                                12
high court also expressly rejected the part of Iskanian that held
a PAGA action lies outside the coverage of the FAA because the
action “ ‘is not a dispute between an employer and an employee
arising out of their contractual relationship,’ but ‘a dispute
between an employer and the state.’ ” (Viking River, supra, 142
S.Ct. at p. 1919, fn. 4, quoting Iskanian, supra, 59 Cal.4th at
p. 387.) Because that part of the Iskanian opinion was essential
to this court’s earlier holding that the arbitration clause did
not cover plaintiff’s PAGA action (see Ahlmann v. ForwardLine
Financial, LLC, supra, B304367), we now are compelled to
conclude plaintiff’s individual PAGA claim is subject to the
parties’ agreement to arbitrate all claims “arising out of or
relating to [plaintiff’s] employment with the Company.” (See also
DIRECTV, Inc. v. Imburgia (2015) 577 U.S. 47, 53 [“The [FAA] is
a law of the United States, and [Viking River] is an authoritative
interpretation of that Act.”].)
       Plaintiff does not dispute that Viking River negates an
essential ground for our earlier opinion affirming the order.
Instead, he argues Viking River does not apply because there
is no indication in his offer letter or the arbitration clause
that the FAA would govern the parties’ agreement to arbitrate.
In the alternative, plaintiff argues Viking River is inapposite
because, unlike the agreement in that case, his offer letter does
not have a severability clause. Neither contention is persuasive.
       a.     The FAA governs the parties’ agreement to arbitrate
       The FAA was enacted to “overrule the judiciary’s
longstanding refusal to enforce agreements to arbitrate” (Dean
Witter Reynolds, Inc. v. Byrd (1985) 470 U.S. 213, 219–220), and
to place arbitration agreements “ ‘upon the same footing as other
contracts’ ” (Scherk v. Alberto-Culver Company (1974) 417 U.S.

                               13
506, 510–511). (See Mount Diablo Medical Center v. Health Net
of California, Inc. (2002) 101 Cal.App.4th 711, 717 (Mount
Diablo).) The federal statute provides for enforcement of
arbitration provisions in any contract evidencing a transaction
involving interstate commerce (9 U.S.C. § 2) and establishes that
“any doubts concerning the scope of arbitrable issues should be
resolved in favor of arbitration” (Moses H. Cone, supra, 460 U.S.
at pp. 24–25). (Accord Cronus Investments, Inc. v. Concierge
Services (2005) 35 Cal.4th 376, 386 (Cronus Investments).)
       “ ‘Commerce’ for purposes of FAA coverage ‘is to be broadly
construed so as to be coextensive with congressional power to
regulate under the Commerce Clause.’ ” (Erickson v. Aetna
Health Plans of California, Inc. (1999) 71 Cal.App.4th 646, 651;
Citizens Bank v. Alafabco, Inc. (2003) 539 U.S. 52, 56 [the FAA
reflects the “broadest permissible exercise of Congress’ Commerce
Clause power”].) Here, the record shows “ForwardLine is a
nationwide lender that receives applications for loans online
and transfers funds to small businesses throughout the country.”
Thus, its business has the requisite nexus to interstate
commerce, and the FAA presumptively applies to the parties’
arbitration agreement. (See Citizens Bank, at pp. 57–58 [given
“broad impact of commercial lending on the national economy,”
company performing purely intrastate debt-restructuring
nonetheless had requisite connection with interstate commerce
under FAA].)
       “State laws that apply to contracts generally can be applied
to arbitration agreements, but ‘courts may not . . . invalidate
arbitration agreements under state laws applicable only to
arbitration provisions.’ ” (Mount Diablo, supra, 101 Cal.App.4th
at p. 718, quoting Doctor’s Associates, Inc. v. Casarotto (1996)

                                14
517 U.S. 681, 687.) Consistent with this principle, the United
States Supreme Court has recognized “[a]rbitration under
the [FAA] is a matter of consent, not coercion, and parties
are generally free to structure their arbitration agreements
as they see fit. Just as they may limit by contract the issues
which they will arbitrate [citation], so too may they specify by
contract the rules under which that arbitration will be conducted.
Where . . . the parties have agreed to abide by state rules of
arbitration, enforcing those rules according to the terms of the
agreement is fully consistent with the goals of the FAA, even
if the result is that arbitration is stayed where the [FAA] would
otherwise permit it to go forward.” (Volt Info. Sciences v. Bd.
of Trustees (1989) 489 U.S. 468, 479; see id. at p. 470 [FAA did
not preempt application of California statute where choice-of-law
provision stated the contract “ ‘shall be governed by the law of
the place where the Project is located,’ ” which was California].)
       However, when an agreement is ambiguous as to what law
will govern an arbitration agreement otherwise covered by the
FAA, “ ‘due regard must be given to the federal policy favoring
arbitration, and ambiguities as to the scope of the arbitration
clause itself resolved in favor of arbitration.’ ” (Mastrobuono
v. Shearson Lehman Hutton, Inc. (1995) 514 U.S. 52, 62
(Mastrobuono).) Thus, in Mastrobuono, where the parties’
contract contained a choice-of-law provision stating the contract
“ ‘shall be governed by the laws of the State of New York’ ” but
made no express reference to punitive damages, the Supreme
Court held the FAA preempted New York decisional law
authorizing courts, but not arbitrators, to award punitive
damages. (Id. at pp. 54–55, 58–59, 63–64.) The Mastrobuono
court determined the choice-of-law clause at most “introduce[d]

                               15
an ambiguity into an arbitration agreement that would otherwise
allow punitive damages awards,” and, given the FAA policy
favoring arbitration, “the best way to harmonize the choice-of-law
provision with the arbitration provision [was] to read ‘the laws
of the State of New York’ to encompass substantive principles
that New York courts would apply, but not to include special
rules limiting the authority of arbitrators.” (Id. at pp. 62–64.)
       Applying these federal authorities, our state courts
have articulated a two-part test for determining whether a
choice-of-law clause incorporates state arbitration procedures
in lieu of the FAA. First, a court must determine whether
“the language of the choice-of-law clause is broad enough to
include state law on the subject of arbitrability.” (Mount Diablo,
supra, 101 Cal.App.4th at p. 724.) If the language is broad
enough, the second step requires the court “to determine whether
the particular provision of state law in question is one that
reflects a hostility to the enforcement of arbitration agreements
that the FAA was designed to overcome.” (Ibid., citing
Mastrobuono, supra, 514 U.S. 52; accord Cronus Investments,
supra, 35 Cal.4th at pp. 387, 392–393.) When the state law rule
reflects hostility to arbitration, “the choice-of-law clause should
not be construed to incorporate such a provision, at least in the
absence of unambiguous language in the contract making the
intention to do so unmistakably clear.” (Mount Diablo, at p. 724.)
       Contrary to plaintiff’s contention, the choice-of-law clause
in his offer letter is nowhere near broad enough to supplant
the FAA’s mandates regarding arbitrability. Warren-Guthrie
v. Health Net (2000) 84 Cal.App.4th 804 (Warren-Guthrie) is
instructive. The contract in that case contained an arbitration
provision and choice-of-law clause stating, “ ‘All Arbitration

                                16
shall be conducted in accordance with the California Code of
Civil Procedure, commencing with Section 1280.’ ” (Id. at p. 815.)
In holding the FAA, rather than California procedural law,
governed the subject of arbitrability, the reviewing court
emphasized there was “no express language indicating that
California law shall be determinative as to whether or not
arbitration is required,” and the choice-of-law provision expressly
“limit[ed] the scope of California law to that law pertaining to
the manner in which the arbitration is to be conducted.” (Id.
at pp. 815–816, italics added, disapproved on other grounds
by Cronus Investments, supra, 35 Cal.4th at p. 393, fn. 8.)
       Plaintiff contends the FAA does not govern the parties’
agreement to arbitrate because his offer letter states that
“ ‘Arbitration shall be held in the County of Los Angeles,
California, and shall be pursuant to the laws of the State of
California.’ ” But like the choice-of-law clause in Warren-Guthrie,
this provision is expressly limited to the law that will apply
in the arbitration—not whether plaintiff’s claims must be
arbitrated. (See Warren-Guthrie, supra, 84 Cal.App.4th at
pp. 815–816.) As for the claims to be arbitrated, the agreement
broadly states that “any and all disputes, claims, or proceedings
between you and the Company arising out of or relating to
your employment with the Company, the nature, terms, or
enforceab[ility] of this letter agreement, or any dispute of any
nature between you and the Company shall be settled by a
binding and final arbitration held before a single arbitrator from
the Judicial Arbitration Mediation Service, Inc.” without any
reference to California law. (Cf. Mount Diablo, supra, 101
Cal.App.4th at p. 722 [choice-of-law clause providing that “ ‘the
validity, construction, interpretation and enforcement of this

                                17
Agreement’ ” shall be governed by California law broad enough
to incorporate state law procedural rules governing arbitration].)
       Even if the clause was broad enough to displace the FAA,
plaintiff’s attempt to invoke California law to avoid application
of Viking River plainly implicates the sort of hostility to
the enforcement of arbitration agreements that requires
“unambiguous language in the contract making the intention
to [apply state law] unmistakably clear.” (Mount Diablo, supra,
101 Cal.App.4th at p. 724.) As discussed, Viking River declared
the secondary rule of Iskanian preempted because that rule
“prohibits parties from contracting around [PAGA’s] joinder
device,” and thus “unduly circumscribes the freedom of parties
to determine ‘the issues subject to arbitration’ and ‘the rules
by which they will arbitrate,’ ” as guaranteed under the FAA.
(Viking River, supra, 142 S.Ct. at p. 1923.) To contract around
FAA preemption and incorporate a rule that circumscribes
the freedom to arbitrate individual PAGA claims, unmistakable
clarity was required. The choice-of-law clause in plaintiff’s offer
letter simply does not meet this standard.
       b.     The restriction on arbitrating representative actions
              can be limited in accordance with Viking River
              notwithstanding the absence of a severability clause
       As discussed, in Viking River, the United States Supreme
Court held the FAA does not preempt the principal rule of
Iskanian prohibiting wholesale waivers of an employee’s right
to bring a PAGA action, but the federal statute does preempt
the secondary “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, 142
S.Ct. at p. 1924.) Because the parties’ agreement “purported

                                18
to waive ‘representative’ PAGA claims,” the Supreme Court
recognized it remained “invalid” under Iskanian to the extent
it could be “construed as a wholesale waiver of PAGA claims.”
(Viking River, at p. 1924.) However, the court noted the parties’
agreement contained a “severability clause,” stipulating “that
if the waiver provision is invalid in some respect, any ‘portion’
of the waiver that remains valid must still be ‘enforced in
arbitration.’ ” (Id. at p. 1925.) Based on this clause, the court
held, “Viking was entitled to enforce the agreement insofar as it
mandated arbitration of [the plaintiff’s] individual PAGA claim.”
(Ibid., italics added.)
       Like the agreement in Viking River, the arbitration clause
in plaintiff’s offer letter can be construed as a wholesale waiver
of PAGA claims insofar as it requires the parties to submit “any
and all disputes, claims, or proceedings” to arbitration, while
prohibiting the arbitrator from “presid[ing] over any form of
representative or class proceeding.” Plaintiff correctly asserts
this provision remains invalid under the principal rule of
Iskanian and the United States Supreme Court’s holding
in Viking River. He further contends he cannot be compelled
to arbitrate his individual PAGA claim because, unlike the
agreement in Viking River, his offer letter does not contain
a severability clause. We disagree with this latter contention.
       Civil Code section 1599 provides: “Where a contract has
several distinct objects, of which one at least is lawful, and one
at least is unlawful, in whole or in part, the contract is void as
to the latter and valid as to the rest.” “A severability clause” like
the one in Viking River “merely states existing law” codified in
Civil Code section 1599 and is unnecessary to invoke our state’s
“ ‘liberal principle’ ” of severability. (Ulene v. Jacobson (1962)

                                 19
209 Cal.App.2d 139, 142, quoting Jackson v. Shawl (1865)
29 Cal. 267, 272.)
       In Keene v. Harling (1964) 61 Cal.2d 318 (Keene), our
Supreme Court elaborated on how the principle codified in
Civil Code section 1599 operates in practice: “ ‘Whether a
contract is entire or separable depends upon its language and
subject matter, and this question is one of construction to be
determined by the court according to the intention of the parties.
If the contract is divisible, the first part may stand, although
the latter is illegal. [Citation.]’ [Citations.] It has long been
the rule in this state that ‘ “When the transaction is of such a
nature that the good part of the consideration can be separated
from that which is bad, the Courts will make the distinction,
for the . . . law . . . [divides] according to common reason; and
having made that void that is against law, lets the rest stand.” ’ ”
(Keene, at pp. 320–321, fn. omitted; Armendariz v. Foundation
Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, 122
(Armendariz); see also Birbrower, Montalbano, Condon & Frank
v. Superior Court (1998) 17 Cal.4th 119, 137–139.)
       Case law suggests “[t]wo reasons for severing or restricting
illegal terms rather than voiding the entire contract.”
(Armendariz, supra, 24 Cal.4th at p. 123.) “The first is to prevent
parties from gaining undeserved benefit or suffering undeserved
detriment as a result of voiding the entire agreement.” (Id. at
pp. 123–124; see, e.g., Keene, supra, 61 Cal.2d at pp. 320–321
[refusing to void transaction to buy coin-operated machines in
its entirety simply because a small number of those machines
were illegal “ ‘bingo-type’ pinball machines”].) “Second, more
generally, the doctrine of severance attempts to conserve
a contractual relationship if to do so would not be condoning

                                20
an illegal scheme.” (Armendariz, at p. 124; see, e.g., Werner v.
Knoll (1948) 89 Cal.App.2d 474, 476–477 (Werner).)
       Consistent with Viking River, we conclude ForwardLine
is entitled to enforce the arbitration clause with respect to
plaintiff’s individual PAGA claim, and the limitation on the
arbitrator’s authority to preside over a representative action can
be restricted in accordance with the severability principle codified
in Civil Code section 1599. The arbitration clause plainly has
a lawful purpose consistent with both the FAA and our state’s
public policy. (See, e.g., Graham v. Scissor-Tail, Inc. (1981)
28 Cal.3d 807, 821, 831 [recognizing there is a “strong public
policy of this state in favor of resolving disputes by arbitration”
and remanding for enforcement of arbitration agreement
after voiding unconscionable provision providing for biased
arbitrator].) Voiding the clause as it pertains to plaintiff’s
entire PAGA claim would have the effect of depriving
ForwardLine of its right to contract for bilateral arbitration
based on the mandatory joinder rule of Iskanian that Viking
River declared preempted. (See Viking River, supra, 142 S.Ct.
at p. 1924; cf. Keene, supra, 61 Cal.2d at pp. 320–321.) Critically,
however, the clause is divisible inasmuch as it can be construed
to refer to representative actions in the sense that plaintiff
represents fellow aggrieved employees (i.e., nonindividual PAGA
claims) while permitting the arbitrator to decide a representative
action in the sense that plaintiff acts as an agent or proxy for
the state (i.e., an individual PAGA claim). Severance is therefore
appropriate. (See Viking River, at p. 1916 [discussing the “two
distinct ways” the term “ ‘representative’ ” is used in reference
to PAGA actions]; Werner, supra, 89 Cal.App.2d at pp. 476–477
[valid portion of exculpatory damages provision severed from

                                21
provisions that were invalid, even though invalid provisions
were “not separately stated but [were] included within the single
phrase ‘any cause’ ”]; cf. Armendariz, supra, 24 Cal.4th at p. 124
[“If the central purpose of the contract is tainted with illegality,
then the contract as a whole cannot be enforced”; however, “[i]f
the illegality is collateral to the main purpose of the contract,
and the illegal provision can be extirpated from the contract
by means of severance or restriction, then such severance and
restriction are appropriate.”].)

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                           DISPOSITION
       The order denying the motion to compel arbitration is
reversed as to plaintiff’s individual PAGA claim and affirmed in
all other respects. The parties shall bear their own costs.

      NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

                                    EGERTON, J.

We concur:

             EDMON, P. J.

             HEIDEL, J.


      Judge of the Los Angeles County Superior Court, assigned
by the Chief Justice pursuant to article VI, section 6 of the
California Constitution.

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