Court Opinion

ID: 4425643
Source: CourtListenerOpinion
Date Created: 2019-08-14 23:01:44.062383+00
Date Added: 2024-06-11T14:52:56.239754
License: Public Domain

Filed 7/23/19; Certified for Publication 8/14/19 (order attached)

              IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

                                   FOURTH APPELLATE DISTRICT

                                              DIVISION THREE

DANIEL PAUL CLIFFORD,

    Plaintiff and Respondent,                                       G055858

         v.                                                         (Super. Ct. No. 30-2017-00938829)

QUEST SOFTWARE INC.,                                                OPINION

    Defendant and Appellant.

                  Appeal from an order of the Superior Court of Orange County, Walter P.
Schwarm, Judge. Affirmed in part and reversed in part.
                  Seyfarth Shaw, Jon D. Meer, Kiran Aftab Seldon and Eric W. May for
Defendant and Appellant.
                  Alizadeh Employees Law and Arash N. Alizadeh for Plaintiff and
Respondent.
                                        *                 *               *
               The question posed in this appeal is whether an employee’s claim against
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his employer for unfair competition under Business and Professions Code section 17200
(the UCL) is arbitrable. The employee brought various wage and hour claims against his
employer, and the employer moved to compel arbitration based on the parties’ arbitration
agreement. The trial court granted the motion in part and ordered to arbitration every
cause of action except the employee’s UCL claim, which the court concluded was not
arbitrable. In so ruling, the court cited without discussion our Supreme Court’s holding
in Cruz v. PacifiCare Health Systems, Inc. (2003) 30 Cal. 4th 303 (Cruz).
               We reverse that portion of the trial court’s order. Assuming Cruz remains
good law — a question we need not answer here — Cruz at most stands for the
proposition that UCL claims for “public” injunctive relief are not arbitrable. (Cruz,
supra, at pp. 315-316.) Cruz does not bar arbitration of a UCL claim for private
injunctive relief or restitution, which is precisely what the UCL claim here seeks. The
employee’s UCL claim therefore is subject to arbitration, along with his other causes of
action.
                                             I.
                                          FACTS
               In 1995, Daniel Clifford began working for Quest Software Inc. (Quest). In
2012, Dell Inc. acquired Quest to form its software division, Dell Software Inc., which
hired Clifford as an employee.
               In 2015, Clifford participated in Dell’s online “Code of Conduct” training
course. According to Quest, when Clifford completed the training, he acknowledged that
he read and agreed to the terms of Dell’s Arbitration Agreement and Dispute Resolution
           2
Program.

1
       All further undesignated statutory references are to this code.
2
       Clifford denies having consented to the arbitration agreement, but assumes for this
appeal only that he did so.

                                             2
               The arbitration agreement establishes arbitration as the exclusive method
for resolving any employment-related disputes Clifford may have with either his
employer or his employer’s subsidiaries, which includes Quest. The arbitration
agreement expressly applies to claims regarding pay, wages, overtime, meal and rest
breaks, and expense reimbursements; claims for unfair competition; and requests for
“final injunctive . . . relief” related to those claims.
               In 2017, Clifford filed a complaint against Quest for: (1) failure to pay
overtime; (2) failure to provide meal periods; (3) failure to provide rest periods; (4)
failure to provide accurate wage statements; (5) failure to reimburse for business
expenses; and (6) unfair business practices under section 17200. He bases his complaint
on his allegation Quest misclassified him as an exempt employee. He did not assert any
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putative class claims and instead sued Quest solely in an individual capacity.
               Quest moved to compel arbitration of Clifford’s claims. The trial court
found Quest had established the existence of a binding and enforceable arbitration
agreement, and it compelled arbitration of Clifford’s first through fifth causes of action.
However, it denied the motion on the sixth cause of action — his UCL claim — citing
without discussion our Supreme Court’s decision in Cruz, supra, 30 Cal. 4th 303. The
court stayed the prosecution of that cause of action pending the completion of the
arbitration. Quest timely appealed.
                                                II.
                                          DISCUSSION
                            A. Appealability and Standard of Review
               Because an order denying a petition to compel arbitration is appealable, we
may review the portion of the trial court’s order denying Quest’s motion to compel

3
       Although Clifford’s complaint alleges he “intends to amend the complaint to add
claims under the Labor Code Private Attorneys General Act of 2004 (PAGA),” the record
includes no such amendment or motion to amend.

                                                3
arbitration of Clifford’s UCL cause of action. (Code Civ. Proc., § 1294, subd. (a).)
              “When a trial court’s order [denying a petition to compel arbitration] is
based on a question of law, we review the denial de novo. [Citation.] Decisions on
issues of fact are reviewed for substantial evidence. [Citation.]” (Performance Team
Freight Systems, Inc. v. Aleman (2015) 241 Cal. App. 4th 1233, 1239.)
B.     The Arbitrability of UCL Claims and the Broughton-Cruz Rule
              The UCL addresses “unfair competition,” which “mean[s] and include[s]
any unlawful, unfair or fraudulent business act or practice and unfair, deceptive, untrue or
misleading advertising and any act prohibited by [the false advertising law, section
17500].” (§ 17200.) Although the UCL’s “purpose ‘is to protect both consumers and
competitors by promoting fair competition in commercial markets for goods and
services’” (McGill v. Citibank, N.A. (2017) 2 Cal.5th 945, 954 (McGill)), it also protects
employees. (Alch v. Superior Court (2004) 122 Cal. App. 4th 339, 401.) An employer’s
unlawful employment practices, such as unlawful discrimination or failure to pay wages,
may form the basis for a UCL claim. (See Sullivan v. Oracle Corp. (2011) 51 Cal. 4th
1191, 1206; Hodge v. Superior Court (2006) 145 Cal. App. 4th 278, 283.) Only two
remedies are available under the UCL: injunctive relief and restitution (i.e.,
disgorgement of money or property unlawfully obtained). (§ 17203; Cruz, supra,
30 Cal.4th at p. 317; Herr v. Nestlé U.S.A., Inc. (2003) 109 Cal. App. 4th 779, 789, fn. 15
(Herr).)
              The arbitrability of UCL claims depends on the type of relief the plaintiff
seeks. Our Supreme Court held in Cruz that UCL claims for restitution “are fully
arbitrable” (Cruz, supra, 30 Cal.4th at pp. 318, 320), but UCL claims for public
injunctive relief cannot be arbitrated (id. at pp. 315-316). If a plaintiff’s UCL cause of
action includes both arbitrable and inarbitrable claims, such as a request for restitution
and a request for public injunctive relief, the trial court must sever the cause of action,
order the arbitrable portion to arbitration, and stay the inarbitrable portion pending the

                                              4
completion of arbitration. (McGill, 2 Cal.5th at p. 966; Cruz, supra, 30 Cal.4th at
p. 320.)
               In concluding UCL claims for “public” injunctive relief cannot be
arbitrated, the Cruz court relied in large part on its earlier holding in Broughton v. Cigna
Healthplans (1999) 21 Cal. 4th 1066 (Broughton). The Broughton plaintiffs sued Cigna
under the Consumers Legal Remedies Act (CLRA) (Civ. Code, § 1750 et seq.), which
protects consumers against deceptive business practices, and they sought damages and
injunctive relief based on Cigna’s allegedly deceptive advertising methods. (Broughton,
supra, at p. 1072.) Our Supreme Court held their CLRA damages claim was arbitrable
because “[s]uch an action is primarily for the benefit of a party to the arbitration, even if
the action incidentally vindicates important public interests.” (Id. at p. 1084.) But it held
the CLRA injunction claim was not arbitrable because the plaintiffs were “functioning as
a private attorney general, enjoining future deceptive practices on behalf of the general
public.” (Id. at pp. 1079-1080.)
              The Broughton court explained there is an “‘inherent conflict’” between the
underlying purpose of the CLRA’s injunctive relief remedy and private arbitration:
injunctive relief under the CLRA “is for the benefit of the general public rather than the
party bringing the action,” and private arbitration is not well suited to issuing or
enforcing public injunctions. (Broughton, supra, 21 Cal.4th at pp. 1081-1082.) Because
“the judicial forum has significant institutional advantages over arbitration in
administering a public injunctive remedy,” the Broughton court concluded CLRA claims
for “public” injunctive relief are not arbitrable because the injunction’s benefit to the
public would be frustrated if the remedy were entrusted to arbitrators. (Id. at pp. 1079-
1082.)
              Four years later, in Cruz, our Supreme Court extended that same reasoning
to claims for “public” injunctive relief under the UCL. (Cruz, supra, 30 Cal.4th at pp.
315-316.) The plaintiffs in Cruz alleged PacifiCare had fraudulently induced its

                                              5
customers to enroll in health care programs while at the same time discouraging primary
care physicians from providing services to enrollees, and they sought injunctive and
monetary relief under section 17200, which prohibits unfair business practices, and
section 17500, which prohibits untrue or misleading statements designed to mislead the
public. As in Broughton, the Cruz court held the claims for restitution were arbitrable
because any public benefit from that relief would be “incidental to the private benefits
obtained from those bringing the restitutionary or damages action.” (Id. at p. 318.) But it
found “the request for injunctive relief [was] clearly for the benefit of health care
consumers and the general public” and therefore not arbitrable. (Id. at p. 315.)
              These two cases generated what is often called the Broughton-Cruz rule:
“[a]greements to arbitrate claims for public injunctive relief under the CLRA, the UCL,
or the false advertising law are not enforceable in California.” (McGill, supra, 2 Cal.5th
at p. 956.) In other words, a plaintiff’s claim for “public” injunctive relief under the
CLRA or the UCL must be determined in a judicial forum, not in arbitration.
              Importantly, the Broughton-Cruz rule distinguishes between public
injunctive relief and private injunctive relief, and it only bars arbitration of claims for
public injunctive relief. (McGill, supra, 2 Cal.5th at p. 955; see Cruz, supra, 30 Cal.4th
at p. 315 [declining to decide whether a UCL claim for injunctive relief designed
primarily to rectify individual wrongs is arbitrable]; Broughton, supra, 21 Cal.4th at
p. 1081, fn. 5 [declining to decide whether a CLRA claim for private injunctive relief is
arbitrable].) “[P]ublic injunctive relief under the UCL, the CLRA, and the false
advertising law is relief that has ‘the primary purpose and effect of’ prohibiting unlawful
acts that threaten future injury to the general public. [Citation.] Relief that has the
primary purpose or effect of redressing or preventing injury to an individual plaintiff—or
to a group of individuals similarly situated to the plaintiff—does not constitute public
injunctive relief.” (McGill, supra, 2 Cal.5th at p. 955.)

                                               6
              Because the Broughton-Cruz rule does not apply to claims for private
injunctive relief, a plaintiff’s request for private injunctive relief under the UCL is
arbitrable, assuming the arbitration agreement is otherwise valid and enforceable.
(Kilgore v. KeyBank, NA (9th Cir. 2013) 718 F.3d 1052, 1061 (Kilgore).) In Kilgore, for
example, students of a defunct flight school who had obtained student loans from
KeyBank brought a putative class action under the UCL to enjoin KeyBank from
reporting loan defaults to credit agencies and from enforcing notes against them. (Id. at
p. 1056.) The Ninth Circuit found their claims were arbitrable because their claims did
“not fall within [the] purview” of the Broughton-Cruz rule. (Id. at p. 1060.) The court
explained Broughton-Cruz only bars arbitration when the benefits of the requested
injunctive relief would accrue “‘to the general public in danger of being victimized by the
same deceptive practices as the plaintiff suffered.’” (Ibid. [citing Broughton].) It then
reasoned the students’ claim for injunctive relief did not fall within that “‘narrow
exception’” because the requested relief “plainly would benefit only the approximately
120 putative class members.” (Id. at p. 1061.) It explained: “The central premise of
Broughton-Cruz is that ‘the judicial forum has significant institutional advantages over
arbitration in administering a public injunctive remedy, which as a consequence will
likely lead to the diminution or frustration of the public benefit if the remedy is entrusted
to arbitrators.’” (Ibid.) That concern was “absent” in Kilgore, in large part because “the
class affected by the alleged practices [was] small” so there was “no real prospective
benefit to the public at large from the relief sought.” (Ibid.)
              In recent years, several courts have concluded the Federal Arbitration Act
(FAA) (9 U.S.C. §§ 1 et seq.), which mandates the enforcement of certain arbitration
agreements, preempts the Broughton-Cruz restriction on arbitrability. (See, e.g.,
Ferguson v. Corinthian Colleges, Inc. (9th Cir. 2013) 733 F.3d 928, 930 [“we conclude
that the Broughton-Cruz rule is preempted by the [FAA]”]; Nelsen v. Legacy Partners
Residential, Inc. (2012) 207 Cal. App. 4th 1115, 1136 [Broughton-Cruz rule “is in conflict

                                               7
with the FAA”]; see also AT&T Mobility LLC v. Concepcion (2011) 563 U.S. 333, 341
[FAA preempts any “state law [that] prohibits outright the arbitration of a particular type
of claim”].) Our Supreme Court has not yet weighed in on the FAA preemption issue
and in fact declined the opportunity to do so in 2017. (See McGill, supra, 2 Cal.5th at pp.
953, 954, 956 [after granting review of appellate court’s finding that FAA preempted
Broughton-Cruz, court determined Broughton-Cruz was “not at issue in this case” and
expressly declined to address the preemption issue].)
C.     Application
               We must decide what impact, if any, Broughton-Cruz has on the
arbitrability of Clifford’s UCL cause of action, which seeks both injunctive relief and
restitution. As noted, the trial court concluded Cruz renders the entire UCL claim
inarbitrable. According to Quest, Clifford’s injunctive relief claim only seeks private
injunctive relief, so Broughton-Cruz does not render his injunctive relief claim
inarbitrable. Quest further contends Broughton-Cruz mandates at a minimum arbitration
of Clifford’s UCL claim for restitution. Alternatively, Quest argues the FAA applies and
preempts Broughton-Cruz. Clifford contends the injunctive relief portion of his UCL
claim seeks “public” injunctive relief and thus is inarbitrable under Broughton-Cruz, and
Quest waived any argument that the restitution portion of his UCL claim is severable
from the inarbitrable portion of his UCL claim by failing to make that argument below.
               We need not decide whether the FAA applies or whether it preempts
Broughton-Cruz because, even if Broughton-Cruz is still viable, it would not bar the
arbitration of any portion of Clifford’s UCL claim. As we explain below, Clifford’s UCL
claim seeks only private injunctive relief and restitution, and thus does not fall within the
purview of Broughton-Cruz’s restriction on the arbitrability of UCL claims for public
injunctive relief.
               The private nature of Clifford’s UCL claim is immediately evident from the
face of his complaint. In describing Quest’s alleged acts of unfair competition, Clifford’s

                                              8
complaint repeatedly refers to wage and hour violations directed at Clifford only, such as
Quest’s “failures to pay Plaintiff all earned overtime and premium-pay wages,” Quest’s
failure “to reimburse Plaintiff for all necessary expenditures or losses incurred by
Plaintiff,” Quest’s failure “to provide Plaintiff suitable lockers, closets, or equivalent,”
Quest’s “underreporting to federal and state authorities wages earned by Plaintiff,” and
Quest’s act of “exploiting Plaintiff by taking his labor without lawful compensation.”
(Italics added.) Clifford does not allege Quest directed similar conduct at other
employees, much less the public at large.
              Clifford’s requests for injunctive relief under the UCL are similarly limited
to him as an individual. He alleges Quest’s “unfair business practices entitle Plaintiff to
seek preliminary and permanent injunctive relief, including but not limited to orders that
[Quest] account for, disgorge, and restore to Plaintiff all compensation unlawfully
withheld.” (Italics added.) He “further requests that a receiver be appointed to control
and monitor all of the business affairs of [Quest] to ensure compliance with applicable
wage-and[-]hour-laws of the State of California and to ensure that full restitution is made
to Plaintiff of his owed and unpaid compensation.” (Italics added.) Finally, he “requests
that the Court issue a preliminary injunction against [Quest] to prevent [it] from
committing further violations of the Labor Code and the unfair business practices alleged
herein.” The only express beneficiary of Clifford’s requested injunctive relief is Clifford,
and the only potential beneficiaries are Quest’s current employees, not the public at large.
              These allegations confirm Clifford’s UCL claim for injunctive relief is
private in nature. As our Supreme Court recently explained, injunctive relief that
“primarily ‘resolve[s] a private dispute’ between the parties” and “‘rectif[ies] individual
wrongs’” is private, not public, relief. (McGill, supra, 2 Cal.5th at p. 955 [citing
Broughton].) Clifford’s UCL claim does exactly that — it seeks to resolve a private
dispute between him and his employer over his employer’s act of allegedly
misclassifying him as an exempt employee resulting in several Labor Code violations.

                                               9
That dispute is inherently distinguishable from the misleading advertising practices at
issue in Broughton and Cruz because those practices directly impacted the public at large
and the public stood to benefit from injunctive relief. Because Clifford’s UCL claim
does not seek public injunctive relief, it is not subject to the Broughton-Cruz restriction
on arbitrability of public injunctive relief claims. (Kilgore, supra, 718 F.3d at p. 1061.)
              Clifford contends his UCL claim is public in nature because his complaint
alleges Quest “reaped unfair benefit, illegal competitive advantage, and illegal profit at
the expense of Plaintiff and other current and former employees, competitors, and the
general public” and “should be made to disgorge [its] ill-gotten gains and restore such
monies to Plaintiff and to those other current and former employees as restitution.”
(Italics added.)
              There are several flaws with Clifford’s argument. First, the complaint’s
references to Quest’s other employees appears in the portion of Clifford’s UCL claim
seeking restitution, not the part seeking injunctive relief, so it does not render his claim
for injunctive relief “public” in nature. Our review of Clifford’s complaint discloses no
request for injunctive relief that would impact the public. Second, even if Clifford’s
requested injunctive relief would benefit Quest’s current employees, it is not “public”
injunctive relief as defined in Broughton and Cruz. As the Supreme Court recently
observed in McGill, “[r]elief that has the primary purpose or effect of redressing or
preventing injury to an individual plaintiff—or to a group of individuals similarly
situated to the plaintiff—does not constitute public injunctive relief” under Broughton-
Cruz. (McGill, supra, 2 Cal.5th at p. 955, italics added.)
              Clifford also contends his intent to add a PAGA claim confirms his UCL
claim is public in nature. This argument is also without merit. First, the record discloses
no such amendment to his complaint. Second, the addition of a PAGA claim would not
impact Clifford’s existing UCL claim. PAGA enables an aggrieved employee to bring a
representative action on behalf of himself, other employees, and the State to recover civil

                                              10
penalties for an employer’s Labor Code violations. (Lab. Code, § 2698, et seq.; see
Iskanian v. CLS Transportation Los Angeles, LLC (2014) 59 Cal. 4th 348, 379.) A PAGA
claim may be asserted in the same complaint as a UCL claim (Lab. Code, § 2699, subd.
(g)(2)), but it would be evaluated independently of the UCL claim. In other words, the
addition of a seventh cause of action asserting a PAGA claim would not change the fact
that Clifford’s sixth cause of action under the UCL does not seek public injunctive relief.
              Finally, Clifford cites to his complaint’s allegation that he “acts in the
public interest by exposing [Quest’s] unfair business practices and seeking injunctive
relief to remedy those practices” as further evidence his UCL injunctive relief claim is
public in nature. (Italics added.) We are not persuaded. The public certainly has an
interest in securing an employer’s compliance with wage and hour laws. (See Dynamex
Operations West, Inc. v. Superior Court (2018) 4 Cal.5th 903, 913 [employer that
misclassifies workers as independent contractors would have “unfair competitive
advantage . . . over competitors that properly classify similar workers as employees”];
Herr, supra, 109 Cal.App.4th at p. 790 [“an employer which fails to pay overtime wages
gains an unfair advantage over its competitors”].) But that public interest and any
incidental benefit to the public from ensuring Quest’s compliance with wage and hour
laws do not transform Clifford’s private UCL injunctive relief claim into a public one
under the definitions of public and private injunctive relief articulated by our Supreme
Court in Broughton, Cruz, and McGill. Under those definitions, an employee’s request
for an injunction requiring his employer to comply with the Labor Code is indisputably
private in nature.
              To summarize, Clifford’s claim for injunctive relief under the UCL falls
outside the Broughton-Cruz restriction on arbitrability because Clifford only seeks
private injunctive relief, not “public” injunctive relief as defined in Broughton, Cruz, and
McGill. The portion of his UCL claim seeking injunctive relief therefore is arbitrable,

                                             11
even if Broughton-Cruz remains good law and is not preempted by the FAA (a point we
do not decide here).
              The portion of Clifford’s UCL claim seeking restitution is also arbitrable
because the Broughton-Cruz bar on arbitrability only applies to claims for public
injunctive relief, not to UCL claims for restitution. (Cruz, supra, 30 Cal.4th at pp. 318,
320.)
              Accordingly, Clifford’s entire UCL claim is subject to arbitration along
with his other causes of action.
                                            III.
                                       DISPOSITION
              We reverse the portion of the trial court’s order denying Quest’s motion to
compel arbitration of Clifford’s sixth cause of action and staying the prosecution of that
cause of action pending the completion of the arbitration. The court is directed to compel
the sixth cause of action to arbitration. The order is otherwise affirmed. Quest shall
recover its costs on appeal. (Cal. Rules of Court, rule 8.278(a)(1).)

                                                   ARONSON, J.

WE CONCUR:

O’LEARY, P. J.

GOETHALS, J.

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Filed 8/14/19                CERTIFIED FOR PUBLICATION

                IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

                              FOURTH APPELLATE DISTRICT

                                      DIVISION THREE

DANIEL PAUL CLIFFORD,

    Plaintiff and Respondent,                        G055858

        v.                                           (Super. Ct. No. 30-2017-00938829)

QUEST SOFTWARE INC.,                                 ORDER

    Defendant and Appellant.

                  Appellant, Quest Software, Inc., and nonparties Horvitz & Levy and the
California Employment Law Council and the Employers Group have requested that our
opinion filed on July 23, 2019, be certified for publication. It appears that our opinion
meets the standards set forth in California Rules of Court, rule 8.1105(c). The request is
GRANTED. The opinion is ordered published in the Official Reports.

                                                   ARONSON, J.

WE CONCUR:

O’LEARY, P. J.

GOETHALS, J.