Filed 8/3/21 Nolfo v. The Lyndon Group CA4/3
NOT TO BE PUBLISHED IN OFFICIAL REPORTS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 This opinion has not been certified for publication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
FOURTH APPELLATE DISTRICT
DIVISION THREE
KATHERYN NOLFO et al.,
Plaintiffs and Respondents, G059241
v. (Super. Ct. No. 30-2019-01086438)
THE LYNDON GROUP, LLC, et al., OPINION
Defendants and Appellants.
Appeal from an order of the Superior Court of Orange County, Charles
Margines, Judge. Affirmed.
Stuart Kane, Bruce D. May and Shane P. Criqui for Defendants and
Appellants.
Denis & Rasi, Ethan E. Rasi and Paul J. Denis for Plaintiffs and
Respondents.
* * *
INTRODUCTION
Katheryn Nolfo, Andreas Wittmann, and Brian Medenwaldt (collectively
plaintiffs) filed a lawsuit in which they asserted several wage-related claims against The
Lyndon Group and Kenneth Jones (collectively defendants). Among those claims was a
claim alleged by Nolfo and Wittmann for willful misclassification of employment under
the Labor Code Private Attorneys General Act of 2004 (PAGA) (Lab. Code, § 2698 et
seq.).
Defendants moved to compel to arbitration all but one of Wittmann’s
claims pursuant to the arbitration provision contained in Wittmann’s consulting
agreement with defendants. Defendants did not seek arbitration of Wittmann’s PAGA
claim, which defendants concede cannot be compelled to mandatory arbitration. (See
lskanian v. CLS Transportation Los Angeles, LLC (2014) 59 Cal.4th 348 (Iskanian).)
The trial court denied the motion to compel on the ground that the third party exception
under Code of Civil Procedure section 1281.2, subdivision (c) (section 1281.2(c))
applied.
We affirm. The record supports the court’s findings that the conditions of
the third party exception were met here. Substantial evidence shows that within the
meaning of section 1281.2(c): (1) Wittmann was a party to a pending court action with a
third party (Nolfo and Medenwaldt); (2) Wittmann’s non-PAGA claims on the one hand,
and Nolfo and Medenwaldt’s claims on the other, arose out of the same transaction or
series of related transactions; and (3) there would be a possibility of conflicting rulings on
a common issue of law or fact. The trial court did not err by denying defendants’ motion
to compel arbitration.
2
FACTS AND PROCEDURAL HISTORY
I.
PLAINTIFFS’ FIRST AMENDED COMPLAINT AND DEFENDANTS’ ANSWER
Plaintiffs filed a first amended complaint alleging they performed work for
The Lyndon Group, a “‘travel expenses and other . . . management services’ company”
with a principal place of business in Newport Beach, and Jones, who is “an individual, a
managing agent, and the current Chief Executive Officer” of The Lyndon Group.
The first amended complaint alleged Nolfo, a California resident,
performed work for defendants as both an employee and as a purported independent
contractor; Wittmann, a Florida resident, performed work for defendants as a purported
independent contractor; and Medenwaldt, a New York resident, performed work for
defendants as an employee. Nolfo and Wittmann asserted against defendants a PAGA
claim for willful misclassification and a claim for failure to reimburse business expenses
in violation of Labor Code section 2802. All plaintiffs asserted a claim for breach of
written or oral contract against The Lyndon Group for failure to pay commissions
contractually owed to them. Plaintiffs also asserted claims against defendants for failure
to pay all wages, including commissions (Lab. Code, §§ 200, 201, 226, 558, 558.1),
failure to pay all wages due upon separation of employment (id., §§ 201-203), failure to
provide accurate itemized wage statements (id., § 226), and for restitution and injunctive
relief for unfair business practices (Bus. & Prof. Code, §17200).
Attached as Exhibit B to the first amended complaint was a copy of a
consulting agreement between The Lyndon Group and T&E Consulting, LLC (consulting
agreement). On the signature page of the consulting agreement appear the signature of
Kenneth Jones, identified as “Executive Managing Director” of The Lyndon Group, and a
signature line for Wittmann, identified as “Managing Director” of T&E Consulting LLC.
Paragraph 23 of the consulting agreement states: “ARBITRATION. Except to the extent
that a party is entitled to seek injunctive or other equitable relief, any controversy or
3
claim arising out of or relating to this Agreement shall be settled by binding arbitration
before a single arbitrator in accordance with the then-existing rules for commercial
arbitration of the American Arbitration Association, and judgment upon any award
rendered by the arbitrators may be entered in any court having jurisdiction thereof. Any
arbitration shall be held in Orange County, California. The costs of such arbitration and
the attorneys’ fees and other experts’ fees and related costs of all parties shall be borne by
the party against whom the arbitrator rules.”
Defendants’ answer to the first amended complaint included the affirmative
defense that each cause of action was subject to mandatory, contractual arbitration.
II.
MOTION TO COMPEL ARBITRATION
Defendants filed a motion to compel arbitration of Wittmann’s claims
pursuant to the arbitration provision in the consulting agreement. In his opposition to the
motion, Wittmann argued (1) the PAGA claim, “which is a threshold issue critical to a
significant amount of liability and damages in this case, is exempt from arbitration” (bold
and underscoring omitted); (2) the arbitration provision in the consulting agreement is
unconscionable; and (3) “[j]udicial economy will not be served by compelling arbitration
because co-Plaintiff Kath[e]ryn Nolfo’s claims overlap substantially with Plaintiff
Wittmann[’s], which would likely result in duplication of efforts and inconsistent rulings,
among other problems.”
In their reply, defendants, inter alia, acknowledged that under Iskanian,
supra, 59 Cal.4th 348, Wittmann’s PAGA claim was not subject to mandatory arbitration.
Defendants urged the trial court to order all of Wittmann’s other claims to arbitration and
stay his PAGA claim until arbitration of those claims was completed.
4
III.
THE TRIAL COURT DENIES THE MOTION TO COMPEL
At the hearing on the motion, the trial court invited the parties’ counsel to
present argument in light of the court’s tentative ruling to deny the motion to compel
arbitration pursuant to the third party exception under section 1281.2(c). Following the
hearing, the trial court took the matter under submission.
The trial court thereafter denied the motion to compel arbitration on the
ground the third party exception applied. In its minute order, the trial court explained:
“The provisions of CCP § 1281.2(c) tend to indicate that the court should
exercise its discretion herein and decline to order arbitration. Section 1281.2(c) states
that one of the grounds for the court to decline to order the parties to arbitrate is if: [¶]
‘(c) A party to the arbitration agreement is also a party to a pending court action or
special proceeding with a third party, arising out of the same transaction or series of
related transactions and there is a possibility of conflicting rulings on a common issue of
law or fact.’
“Defendants’ Reply argues that the court should stay Plaintiff Wittmann’s
PAGA claim and order the balance of the claims to arbitration. If the court does so, in
order for the arbitrator to make a determination as to the remaining causes of action,
he/she will have to make a factual and legal determination that an employee/employer
relationship existed between Wittmann and the Defendants, which is the same central
issue as the misclassification grounds for Wittmann’s PAGA claim. As the court will
have to make that same determination to resolve the First Cause of Action, there is a very
real possibility that the arbitrator and the court will reach different—indeed conflicting—
determinations as to the existence of employee/employer relationships between the
parties.
“Additionally, co-Plaintiffs Katheryn Nolfo and Brian Medenwaldt have
brought claims arising out of substantially similar facts as those being sought to be
5
arbitrated by Defendant[s]. Having the arbitrator resolve some of the causes of action as
to only one of three different Plaintiffs creates an additional reasonable possibility of
conflicting rulings between the court and the arbitrator.
“Indeed, the court’s discretion under CCP § 1281.2(c) constitutes
independent grounds to deny the entire motion.”
Defendants appealed.
DISCUSSION
I.
SECTION 1281.2(C) AND THE GOVERNING STANDARDS OF REVIEW
“California law reflects a strong public policy in favor of arbitration as a
relatively quick and inexpensive method for resolving disputes. [Citation.] To further
that policy, [Code of Civil Procedure] section 1281.2 requires a trial court to enforce a
written arbitration agreement unless one of three limited exceptions applies. [Citation.]
Those statutory exceptions arise where (1) a party waives the right to arbitration;
(2) grounds exist for revoking the arbitration agreement; and (3) pending litigation with a
third party creates the possibility of conflicting rulings on common factual or legal issues.
(§ 1281.2, subds. (a)-(c).)” (Acquire II, Ltd. v. Colton Real Estate Group (2013) 213
Cal.App.4th 959, 967 (Acquire II).)
The third party litigation exception, which is codified at section 1281.2(c),
may apply if the following conditions are met: (1) “[a] party to the arbitration agreement
is also a party to a pending court action or special proceeding with a third party”; (2) the
third party action “aris[es] out of the same transaction or series of related transactions”;
and (3) “there is a possibility of conflicting rulings on a common issue of law or fact.” (§
1281.2(c).) “If all three of these conditions are satisfied, then section 1281.2(c) grants a
trial court discretion to either deny or stay arbitration despite an agreement to arbitrate the
dispute. [Citation.] Specifically, section 1281.2 identifies four options from which the
6
court may choose: (1) ‘refuse to enforce the arbitration agreement and . . . order
intervention or joinder of all parties in a single action or special proceeding’; (2) ‘order
intervention or joinder as to all or only certain issues’; (3) ‘order arbitration among the
parties who have agreed to arbitration and stay the pending court action or special
proceeding pending the outcome of the arbitration proceeding’; and (4) ‘stay arbitration
pending the outcome of the court action or special proceeding.’ (§ 1281.2.)” (Acquire II,
supra, 213 Cal.App.4th at p. 968.)
A trial court does not have discretion to deny a motion to compel or to stay
arbitration unless all three of section 1281.2(c)’s conditions have been satisfied.
(Acquire II, supra, 213 Cal.App.4th at p. 968.) “When section 1281.2(c) applies, ‘the
trial court’s discretionary decision as to whether to stay or deny arbitration is subject to
review for abuse.’ [Citations.] The trial court’s decision whether section 1281.2(c)
applies, however, is reviewed under either the substantial evidence standard or the de
novo standard. If the court based its decision on a legal determination, then we adopt the
de novo standard. [Citations.] If the court based its decision on a factual determination,
then we adopt the substantial evidence standard of review. [Citation.] Whether there are
conflicting issues arising out of related transactions is a factual determination subject to
review under the substantial evidence standard.” (Id. at pp. 971-972.)
II.
THE TRIAL COURT DID NOT ERR BY DENYING THE MOTION TO COMPEL
ARBITRATION UNDER SECTION 1281.2(c)
Defendants do not dispute that the first condition of the third party
exception under section 1281.2(c) was satisfied. They acknowledge that Nolfo and
Medenwaldt are parties to the underlying litigation and that neither is subject to the
arbitration provision in Wittmann’s consulting agreement. Instead, defendants contend
the trial court “erred as a matter of law and fact in finding that the second and third
7
elements also existed” because “[t]he record simply does not support such a conclusion.”
Defendants’ contention is without merit.
A.
Plaintiffs’ Court Claims and Wittmann’s Arbitrable Claims Arise Out of the Same
Transaction or Series of Transactions
As to the second condition, the trial court found that plaintiffs’ court claims
and Wittmann’s arbitrable claims arose out of the same transaction or series of related
transactions. This is not surprising: Nolfo and Wittmann join in the first amended
complaint to assert the same causes of action against defendants for alleged violations of
wage and hour law, and Medenwaldt joins Nolfo and Wittmann in asserting all but the
PAGA misclassification claim against defendants. (See Acquire II, supra, 213
Cal.App.4th at p. 971 [“We emphasize the allegations of the parties’ pleadings may
constitute substantial evidence sufficient to support a trial court’s finding that section
1281.2(c) applies”].)
Under the heading “Facts Common to All Causes of Action,” the first
amended complaint alleges that, at times, defendants misclassified Nolfo and Wittmann
as independent contractors, causing them to suffer damages in the forms of unpaid wages,
unpaid commissions, unreimbursed business expenses such as travel and vehicle
expenses, and other out of pocket expenses. Other than perhaps the breach of contract
claim, each of Nolfo’s and Wittmann’s claims depends on the determination that they
were misclassified as independent contractors. Nolfo’s and Wittmann’s claims seek the
same remedies for defendants’ failure to pay earned wages. Both Nolfo and Wittmann
seek, as damages, recovery of unpaid commissions, reimbursement of business expenses,
and provision of itemized wage statements. Nolfo’s and Wittmann’s claims are
commonly and necessarily rooted in defendants’ set of employment policies governing
their classification of workers and their payroll and billing practices.
8
Substantial evidence, therefore, supported the finding that Wittmann’s
arbitrable claims and Nolfo’s claims, which are not subject to mandatory arbitration,
arose out of the same transaction or series of related transactions within the meaning of
section 1281.2(c). Defendants argue that insufficient evidence supported this finding
because the record does not specify the “services each of the Plaintiffs performed or what
conditions they worked under.” We reject that argument. The record shows plaintiffs did
not have identical working circumstances (e.g., two were under written contract with
defendants, each plaintiff lives and works in a different state). But what is dispositive
under the statute is not those differences in individual circumstances but the fact Nolfo’s
and Wittmann’s claims arose out of the same transaction or series of transactions,
namely, defendants’ employment policies and payroll and billing practices.
This case, therefore, is distinguishable from Acquire II, supra, 213
Cal.App.4th 959 upon which defendants rely. In Acquire II, a panel of this court
concluded insufficient evidence supported the trial court’s findings that the claims of
those plaintiffs who had agreed to arbitration and the claims of those plaintiffs who had
not agreed to arbitration arose out of the same transaction or series of transactions. (Id. at
p. 973.)
The Acquire II court explained: “Plaintiffs’ claims regarding their
decisions to invest with Defendants arose out of separate transactions because each group
of Plaintiffs invested in different funds or properties at different times over a 10-year
period. Defendants offered investment opportunities in each fund and property under
separate private placement memoranda months or years apart. Even the share investment
and tenant in common investment opportunities in the same fund were offered at different
times. Each group of Plaintiffs executed separate agreements to define their rights and
obligations depending on the fund or property in which they invested. [¶] Plaintiffs’
claims regarding Defendants’ management of the funds and properties also arose out of
separate transactions because Defendants managed different funds and different
9
properties for each group of Plaintiffs. A transaction regarding one property or fund did
not affect a separate property held in a separate fund. Separate agreements governed
Defendants’ management of each fund and each group of properties. Specifically,
Defendants managed the properties the funds held for the share investors under separate
operating agreements governing each fund and they managed the separate properties each
fund owned with the tenant in common investors under separate property management
agreements.” (Acquire II, supra, 213 Cal.App.4th at p. 974, italics added.)
Here, as we have explained, the plaintiffs’ claims in this case, unlike the
plaintiffs’ claims in Acquire II, arose out of the same set of employment policies and
payroll and billing operations.
B.
There Is a Possibility of Conflicting Rulings on a Common Issue of Law or Fact
The trial court found that the final condition of the third party exception
under section 1281.2(c) was also satisfied. Defendants argue the third condition was not
satisfied because only the trial court may decide the PAGA claim and in so doing may
disregard any classification findings made by the arbitrator as to Wittmann’s non-PAGA
claims.
In their opening brief, defendants argue: “As the Minute Order reflects, the
Superior Court reasoned that if the second through seventh causes were ordered to
arbitration, the arbitrator and the court could end up issuing conflicting rulings on
whether an employment relationship existed between the Company and Plaintiff
Wittmann. The flaw in this reasoning is that under Iskanian . . . , only the Superior Court
can adjudicate a PAGA claim and under Williams v. Superior Court [(2015) 237
Cal.App.4th 642], a PAGA claim cannot be split into an arbitrable individual claim and a
non-arbitrable representative claim. Instead, only the Court can adjudicate both those
aspects of a PAGA claim, which means the Court can ignore, reject, or adopt the
10
arbitrator’s findings as the Court sees fit. This eliminates the possibility of inconsistent
rulings by the Court and the Arbitrator on the PAGA claim.” (Underscoring omitted.)
The question under the statute here, however, is whether compelling
arbitration and staying nonarbitrable claims create the possibility of conflicting rulings on
a common issue of law or fact in the first place—not whether it is within the trial court’s
power to thereafter adopt or reject relevant prior rulings by an arbitrator in resolving
nonarbitrable claims. Indeed, defendants’ argument itself assumes that the circumstances
presented here trigger the possibility of conflicting rulings.
Furthermore, the trial court’s minute order does not conflict with Williams
v. Superior Court, supra, 237 Cal.App.4th 642 or otherwise suggest the PAGA claim
would be split into an individual claim to be decided by the arbitrator and a representative
claim to be decided by the trial court. Instead, the trial court’s reasoning that all of
Nolfo’s and Wittmann’s claims—regardless of the arbitrability of some—are based on
same central issue of misclassification.
Defendants also argue plaintiffs’ unique circumstances undermine a finding
that arbitration of Wittmann’s arbitrable claims would create the possibility of conflicting
rulings: “There is no substantial evidence to show that the Arbitrator’s adjudication of
Mr. Wittmann’s non-PAGA claims would have any bearing on the claims by Plaintiffs
Nolfo or Medenwaldt. A finding by the arbitrator that Mr. Wittmann was due
commissions under the written Consulting Agreements for services rendered through his
consulting company in Florida does not indicate that Ms. Nolfo is due commissions under
her unwritten agreement with The Lyndon Group LLC in California or that Mr.
Medenwaldt is due commissions under his offer letter for employment in New York.”
The third condition of the exception under section 1281.2(c) is satisfied by
showing the existence of “a possibility of conflicting rulings on a common issue of law
or fact.” (Italics added.) Again, the misclassification issue at the heart of Nolfo’s and
Wittmann’s claims is, at a minimum, a common issue of law. Resolution of Wittmann’s
11
classification status in the arbitration of his non-PAGA claims would therefore create the
possibility of conflicting rulings on this common issue of law.
Defendants’ reliance on Kim v. Reins International California, Inc. (2020)
9 Cal.5th 73 (Kim) is without merit. In Kim, the issue presented was whether an
employee loses standing to pursue a PAGA claim if the employee settles and dismisses
individual claims for Labor Code violations after those claims were compelled to
arbitration. (Id. at pp. 80, 82.) The Supreme Court held that the “[s]ettlement of
individual claims does not strip an aggrieved employee of standing, as the state’s
authorized representative, to pursue PAGA remedies.” (Id. at p. 80.)
In their opening brief, defendants argue: “Kim reinforces the conclusion
that the Superior Court in the instant case erred in denying arbitration because in
adjudicating Mr. Wittmann’s PAGA claim, the Superior Court would not be bound by
any finding by the Arbitrator on his non-PAGA claims. Instead, the Superior Court alone
will decide whether Mr. Wittmann should have been classified as an employee or
independent contractor with respect to his claim for civil penalties under PAGA. This
eliminates the possibility of inconsistent rulings within the meaning of Section 1281.2(c)
on the PAGA claim, which means the Superior Court erred in denying arbitration.”
The only issue presented in Kim was the effect of a settlement of
non-PAGA claims on the resolution of a PAGA claim—there was no issue of a
conflicting or possibly conflicting prior finding or ruling by an arbitrator. The Supreme
Court in Kim did not address section 1281.2 at all, much less the third condition of the
third party exception under subdivision (c).
12
DISPOSITION
The order denying the motion to compel arbitration is affirmed.
Respondents shall recover costs on appeal.
FYBEL, J.
WE CONCUR:
BEDSWORTH, ACTING P. J.
MOORE, J.
13