Court Opinion

ID: 4551157
Source: CourtListenerOpinion
Date Created: 2020-07-24 21:02:07.365408+00
Date Added: 2024-06-11T12:59:24.944327
License: Public Domain

Filed 6/25/20 Certified for Publication 7/24/20 (order attached)

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

                    SECOND APPELLATE DISTRICT

                                 DIVISION ONE

SAUL G. BAUTISTA,
                                                B297070
        Plaintiff and
        Respondent,                             (Los Angeles County
                                                Super. Ct. No. BC707891)
        v.

FANTASY ACTIVEWEAR,
INC., et al.,

        Defendants and
        Appellants.

APOLINAR LUZ GARCIA,                            B299768

        Plaintiff and                           (Los Angeles County
        Respondent,                             Super. Ct. No. BC707890)

        v.

FANTASY DYING AND
FINISHING, INC., et al.,

        Defendants and
        Appellants.
      APPEALS from orders of the Superior Court of Los Angeles
County, Rafael A. Ongkeko and Yvette M. Palazuelos, Judges.
Affirmed.
      Jenkins Kayayan, Jonathan M. Jenkins and Lara Kayayan
for Defendants and Appellants.
      Bokhour Law Group and Mehrdad Bokhour; Hatan Law,
Inc. and Farzin Hatanian for Plaintiffs and Respondents.
                   ____________________________
      Fantasy Activewear, Inc. (AW), Fantasy Dyeing and
Finishing, Inc. (DF), and Anwar Gajiani appeal from orders
denying petitions to compel arbitration in two actions involving
substantially similar wage and hour allegations filed by Saul
Bautista against AW and Gajiani and Apolinar Garcia against
DF and Gajiani.1
      Bautista and Garcia both signed settlement agreements
with Fantasy in 2014 in connection with a case called Guerra v.
Fantasy Activewear, Inc. (LASC No. BC517633) containing the
arbitration clauses at issue in this appeal. In 2018, Bautista and
Garcia filed class action complaints alleging a variety of wage
and hour causes of action against AW, DF, and Gajiani, and
amended them to allege causes of action under the Private
Attorneys General Act (PAGA) (Lab. Code, § 2698 et seq.).
Fantasy filed petitions to compel arbitration in each action based
on the 2014 settlement agreements. Bautista and Garcia
dismissed their class allegations. In each case, the trial court
denied the petition to compel arbitration based on, among other
independent grounds, their conclusions that the arbitration
clauses’ predispute waivers of representative actions were

      1   We refer to AW, DF, and Gajiani collectively as Fantasy.

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unenforceable under Iskanian v. CLS Transportation Los
Angeles, LLC (2014) 59 Cal.4th 348 (Iskanian) and Julian v.
Glenair, Inc. (2017) 17 Cal.App.5th 853 (Julian).
       Fantasy contends here that the question of whether
Bautista and Garcia’s waivers of representative actions were
enforceable is a question of arbitrability that, pursuant to the
terms of Fantasy’s arbitration agreements with Bautista and
Garcia, must be left for the arbitrator to decide. We conclude,
however, that Bautista and Garcia were not acting as agents of
the Labor and Workforce Development Agency (LWDA) when
they entered into their settlement agreements with AW and DF.
Consequently, their agreements with AW and DF were not
entered into on behalf of the LWDA, and Fantasy has alleged the
existence of no arbitration agreement existing between it and the
LWDA—the real party in interest here. Accordingly, we affirm
the trial court’s denials of Fantasy’s petitions to compel
arbitration.
                          BACKGROUND
       AW knits yarn into fabric that DF dyes, cuts, processes,
and ships to contractors who sew and assemble apparel, which
AW sells to retail resellers.2 DF employed Garcia briefly in 2011,
and then again from 2012 to 2018. AW employed Bautista from
2010 to 2018.
       In 2013, Manuel Guerra filed a wage and hour class action
complaint alleging causes of action under the Labor Code for
failure to provide meal periods, failure to provide rest periods,
failure to pay hourly wages, failure to provide accurate written
wage statements, and failure to timely pay all final wages, as

      2   Gajiani owns and operates both AW and DF.

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well as an Unfair Competition Law claim under Business and
Professions Code section 17200 et seq.3 In January 2014,
Fantasy entered into settlement agreements and arbitration
agreements with putative class members in the Guerra action,
including Bautista and Garcia.4 The identical arbitration
agreements purported to require arbitration as the “exclusive
remedy” for “any controversy, claim or dispute between Employee
and Employer . . . relating to or arising out of Employee’s
employment or the cessation of employment . . . .” “Any claim
covered” by the arbitration agreement was to be “brought and
conducted solely on an individual basis and not in a class,
multiple plaintiff or representative action, or as a named or
unnamed member in a class, consolidated, representative or
private attorney general action.” The agreements provide that
any arbitration will be conducted “in accordance with the JAMS
Employment Arbitration Rules & Procedures.” Those rules state
that “[u]nless the relevant law requires otherwise, the Arbitrator
has the authority to determine jurisdiction and arbitrability
issues as a preliminary matter.”
       On June 1, 2018, Bautista and Garcia filed class action
complaints alleging causes of action substantially similar to those
alleged in the Guerra action. On August 21, 2018, Bautista and

      3 The Guerra action did not include a PAGA representative
action. After AW settled Guerra’s individual claims and
discovery to identify a replacement class representative was
unsuccessful, the trial court dismissed the Guerra case without
prejudice in December 2017.
      4Bautista and Garcia personally signed settlement and
arbitration agreements and received settlement payments.

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Garcia filed amended complaints, each alleging a PAGA cause of
action under Labor Code section 2698 et seq.
       On October 30, 2018, Fantasy petitioned the trial court in
each case for an order compelling arbitration and staying the
trial court proceedings. In response, Bautista and Garcia filed
requests for the trial court to dismiss their class allegations
pursuant to California Rules of Court, rule 3.770. Bautista and
Garcia explained that they “wishe[d] to dismiss the class
allegations without prejudice and proceed with the PAGA
cause[s] of action against” Fantasy. The trial court granted the
request in each case.
       The trial court denied AW’s petition to compel arbitration
against Bautista on March 21, 2019 and DF’s petition to compel
arbitration against Garcia on June 6, 2019. Fantasy timely
appealed from each order.5
                            DISCUSSION
       “Generally, the standard of review applicable to the denial
of a petition to compel arbitration is determined by the issues
presented on appeal [citation]. To the extent the denial relies on
a pertinent factual finding, we review that finding for the
existence of substantial evidence. [Citation.] In contrast, to the
extent the denial relies on a determination of law, we review the
trial court’s resolution of that determination de novo. [Citation.]
Nonetheless, we are not bound by the trial court’s rationale, and
thus may affirm the denial on any correct legal theory supported
by the record, even if the theory was not invoked by the trial
court.” (Julian, supra, 17 Cal.App.5th at p. 864, fn. omitted.)

      On September 16, 2019, Bautista filed a motion to dismiss
      5

AW’s appeal (No. B297070). The motion is denied as moot.

                                 5
There is no dispute regarding the underlying facts here; rather,
the parties disagree about the applicable law.
       The parties’ arguments turn on their framing of the issues
in the case. Fantasy contends that the question of whether a
PAGA claim is an arbitrable claim is a question of arbitrability
that has been delegated to the arbitrator through the JAMS
rules, which it contends were incorporated into Bautista’s and
Garcia’s arbitration agreements. Bautista and Garcia counter
that the question is one that precedes arbitrability—the question
is whether the real party in interest, the LWDA, can be bound by
an arbitration agreement to which it is not a signatory, and that
was entered into before Bautista and Garcia were deputized as
LWDA’s agents for purposes of their PAGA claim. Fantasy
concedes that each California case that has considered the
question has concluded that arbitration agreements entered into
before a plaintiff has been deputized for purposes of a PAGA
representative action is not enforceable for purposes of the PAGA
representative action. Nevertheless, Fantasy asks us to reject
the holdings in those cases and expressly disagree with Julian,
supra, 17 Cal.App.5th 853, Betancourt v. Prudential Overall
Supply (2017) 9 Cal.App.5th 439, Tanguilig v. Bloomingdale’s,
Inc. (2016) 5 Cal.App.5th 665, and Correia v. NB Baker Electric,
Inc. (2019) 32 Cal.App.5th 602. We decline to do so.
       Fantasy contends that the United States Supreme Court’s
recent decision in Henry Schein, Inc. v. Archer and White Sales,
Inc. (2019) ___ U.S. ____ (Henry Schein) compels us to reverse the
trial court’s order and instruct the trial court to send the Bautista
and Garcia matters to arbitration for an arbitrator to decide
whether Bautista’s and Garcia’s PAGA representative claims are
arbitrable claims. In Henry Schein, the Supreme Court

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considered the “wholly groundless” exception to the rule that
where parties have delegated arbitrability to the arbitrator by
“clear and unmistakable” evidence, the arbitrator is entitled to
resolve questions of arbitrability. The Court took up the issue
noting that some Circuit Courts of Appeals had “determined that
the court rather than an arbitrator should decide the threshold
arbitrability question if, under the contract, the argument for
arbitration is wholly groundless.” (Id. at p. ___.) The Supreme
Court concluded that “[w]hen the parties’ contract delegates the
arbitrability question to an arbitrator, a court may not override
the contract. In those circumstances, a court possesses no power
to decide the arbitrability issue. That is true even if the court
thinks that the argument that the arbitration agreement applies
to a particular dispute is wholly groundless.” (Id. at p. ___.)
       Henry Schein is inapposite. The question here is not
whether claims are arbitrable under an agreement among the
parties, but rather whether there exists an agreement among the
parties to arbitrate. “Under ‘both federal and state law, the
threshold question presented by a petition to compel arbitration is
whether there is an agreement to arbitrate.’ ” (Cruise v. Kroger
Co. (2015) 233 Cal.App.4th 390, 396, original italics.)
       “A PAGA claim is legally and conceptually different from
an employee’s own suit for damages and statutory penalties. An
employee suing under PAGA ‘does so as the proxy or agent of the
state’s labor law enforcement agencies.’ [Citation.] Every PAGA
claim is ‘a dispute between an employer and the state.’
[Citations.] Moreover, the civil penalties a PAGA plaintiff may
recover on the state’s behalf are distinct from the statutory
damages or penalties that may be available to employees suing
for individual violations. [Citation.] Relief under PAGA is

                                 7
designed primarily to benefit the general public, not the party
bringing the action. [Citations.] ‘A PAGA representative action
is therefore a type of qui tam action,’ conforming to all
‘traditional criteria, except that a portion of the penalty goes not
only to the citizen bringing the suit but to all employees affected
by the Labor Code violation.’ [Citation.] The ‘government entity
on whose behalf the plaintiff files suit is always the real party in
interest.’ ” (Kim v. Reins International California, Inc. (2020) 9
Cal.5th 73, 81, original italics (Kim).)
       “An employee seeking PAGA penalties must notify the
employer and the [LWDA] of the specific labor violations alleged,
along with the facts and theories supporting the claim.
[Citations.] If the agency does not investigate, does not issue a
citation, or fails to respond to the notice within 65 days, the
employee may sue. [Citation.]” (Kim, supra, 9 Cal.5th at p. 81.)
       “A PAGA action is thus ultimately founded on a right
belonging to the state, which—though not named in the action—
is the real party in interest. [Citation.] That is because PAGA
does not create any new substantive rights or legal obligations,
but ‘is simply a procedural statute allowing an aggrieved
employee to recover civil penalties—for Labor Code violations—
that otherwise would be sought by state labor law enforcement
agencies.’ [Citation.] [¶] Ordinarily, when a person who may act
in two legal capacities executes an arbitration agreement in one
of those capacities, the agreement does not encompass claims the
person is entitled to assert in the other capacity. [Citations.]
That rule reflects general principles regarding the significance of
legal capacities. [Citation.]
       “Under the rule set forth above, an arbitration agreement
executed before an employee meets the statutory requirements for

                                 8
commencing a PAGA action does not encompass that action. Prior
to satisfying those requirements, an employee enters into the
agreement as an individual, rather than as an agent or
representative of the state. As an individual, the employee is not
authorized to assert a PAGA claim; the state—through LWDA—
retains control of the right underlying any PAGA claim by the
employee.” (Julian, supra, 17 Cal.App.5th at pp. 871-872, italics
added.)
       The question here is not whether a PAGA representative
action may ever be arbitrable or who is empowered in any
particular circumstance to determine arbitrability, but rather
whether an arbitration agreement binds a real party in interest
that never agreed to arbitrate. We acknowledge that “there are
six theories by which a nonsignatory may be bound to arbitrate”
(Suh v. Superior Court (2010) 181 Cal.App.4th 1504, 1513), but
none of those six theories applies here.6 Bautista and Garcia
entered into their arbitration agreements with Fantasy in 2014.
Bautista and Garcia did not become agents of the LWDA for
purposes of their PAGA representative actions until 2018.
       Because Bautista and Garcia were not acting as agents of
the state when they entered into the arbitration agreements at
issue here, Fantasy has identified no arbitration agreement that
would bind the real party in interest here—the state—to
arbitration, even of the question of arbitrability. “[T]he threshold
question presented by a petition to compel arbitration is whether

      6 The “six theories by which a nonsignatory may be bound
to arbitrate [are]: ‘(a) incorporation by reference; (b) assumption;
(c) agency; (d) veil-piercing or alter ego; (e) estoppel; and (f) third-
party beneficiary’ [citations].” (Suh v. Superior Court, supra, 181
Cal.App.4th at p. 1513.)

                                   9
there is an agreement to arbitrate.” (Cruise v. Kroger Co., supra,
233 Cal.App.4th at p. 396, italics omitted.) We find no agreement
among the parties to this action to arbitrate their claims.
Accordingly, we affirm the trial court’s orders.
                          DISPOSITION
      The trial court’s orders denying Fantasy’s petitions to
compel arbitration are affirmed. Bautista and Garcia are
awarded costs on appeal.

                                          CHANEY, J.

We concur:

             ROTHSCHILD, P. J.

             BENDIX, J.

                               10
Filed 7/24/20
                CERTIFIED FOR PUBLICATION

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

                SECOND APPELLATE DISTRICT

                        DIVISION ONE

SAUL G. BAUTISTA,               B297070

       Plaintiff and            (Los Angeles County
       Respondent,              Super. Ct. No. BC707891)

       v.

FANTASY ACTIVEWEAR,
INC., et al.,

       Defendants and
       Appellants.

APOLINAR LUZ GARCIA,            B299768

       Plaintiff and            (Los Angeles County
       Respondent,              Super. Ct. No. BC707890)

       v.                       ORDER CERTIFYING OPINION
                                FOR PUBLICATION
FANTASY DYING AND
FINISHING, INC., et al.,        [NO CHANGE IN JUDGMENT]

       Defendants and
       Appellants.
      The opinion in the above-entitled matter filed on June 25,
2020, was not certified for publication in the Official Reports. For
good cause it now appears that the opinion should be published in
the Official Reports and it is so ordered.
      There is no change in judgment.

____________________________________________________________
ROTHSCHILD, P. J.           CHANEY, J.            BENDIX, J.

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