Allen v. Labor Ready Southwest CA2/5

Filed 5/9/13 Allen v. Labor Ready Southwest CA2/5
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS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 This opinion has not been certified for publication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 FIVE

JEFFREY LEE ALLEN, B237673

Plaintiff and Appellant, (Los Angeles County
Super. Ct. No. BC412475)
v.

LABOR READY SOUTHWEST, INC.,

Defendant and Appellant.

APPEAL from an order of the Superior Court of Los Angeles County, Ronald M.
Sohigian, Judge. Affirmed in part; reversed in part.
Thierman Law Firm, P.C., Mark R. Thierman and Jason J. Kuller; Law Offices of
Shaun Setareh and Shaun Setareh; and Law Offices of Louis Benowitz and Louis
Benowitz for Plaintiff and Appellant.
Thompson & Knight LLP, formerly Ongaro Burtt & Louderback, David R.
Ongaro, Kyann C. Kalin and Amelia D. Winchester for Defendant and Appellant.
 I. INTRODUCTION

Defendant, Labor Ready Southwest, Inc., appeals and plaintiff, Jeffrey L. Allen,
cross-appeals from an order compelling arbitration of alleged Labor Code violations.
The trial court also severed from arbitration plaintiff’s request for relief under the Private
Attorneys General Act of 2004 (Lab. Code,1 § 2698 et seq.) pursuant to this division’s
opinion in Brown v. Ralphs Grocery Co. (2011) 197 Cal.App.4th 489, 502 (review den.
Oct. 19, 2011; cert den. Ralphs Grocery Co. v. Brown (Apr. 16, 2012) [132 S. Ct. 1910]).
Plaintiff’s cross-appeal asserts the arbitration agreement was unconscionable under
general contract principles or that defendant waived the right to compel arbitration. We
reverse the order compelling arbitration because defendant waived the right to compel
arbitration as a matter of law. Defendant’s appeal is therefore moot.

II. PROCEDURAL HISTORY

A. The Complaint

On April 30, 2009, plaintiff filed a class, representative and Private Attorneys
General Act action against defendant. The complaint alleged that defendant has
approximately 600,000 temporary employees who work in various fields throughout the
United States, Canada, and Puerto Rico. Defendant is a State of Washington corporation
with 25 California locations. Plaintiff alleged that he and other of defendant’s similarly
situated employees were paid: on an hourly basis and worked more than 40 hours a week
and more than 8 hours a day without overtime compensation in violation of California
law (§§ 510, 1194) and the Fair Labor Standards Act (29 U.S.C. §§206(a), 207(a)(1));
wages due with a check that failed to conform to section 212; and then were required to
pay money to defendant to receive their pay in cash; and with form checks which did not

1
All further statutory references are to the Labor Code unless otherwise indicated.

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contain a California address making it difficult to negotiate the pay checks without a fee
or hold placed on the check.
Plaintiff further alleged that defendant had a practice of making the employees
report to the branch offices and wait up to several hours to be assigned to work at a
company. If the employees received assignments, they were required to return to work
on a daily basis to perform work including returning time sheets signed by the businesses
for defendant’s billing purposes. The employees were not compensated for the time
spent at the premises waiting to be assigned or time returning to the branches. The
payment options were unlawful because the employees did not receive checks containing
a state address to cash on demand without a discount. If the employees chose to receive a
cash payment, they are charged fees of $1.30 to $1.70 for each employment date. The
complaint further alleged that as a result of these practices employees who quit or were
discharged were not paid all wages due. The complaint contained 11 causes of action:
failure to pay overtime (§§ 510, 1194) (first); failure to pay overtime
(29 U.S.C. § 207(a)(1) (second); issuance of out of state paychecks (§ 212) (third);
waiting time penalties for failing to pay wages due (§§ 201, 202) (fourth); failure to
provide an accurate itemized wage statement (§226) (fifth) , failure to pay minimum
wages (§ 1194) (sixth); failure to pay minimum wage (29 U.S.C. §206(a)) (seventh);
illegal deductions (§§ 221, 400-410) (eighth); secretly paying below minimum wage
scale (§ 223) (ninth); unfair competition (Bus. & Prof. Code, § 17200 et seq.) (tenth); and
civil penalties under the Private Attorneys General Act (§ 2699 et seq.) (eleventh).

B. Federal Proceedings and Remand to State Court

On June 15, 2009, defendant removed the lawsuit to the United States District
Court for the Central District of California, Jeffrey Lee Allen etc. et al. v. Labor Ready
Southwest, Inc., Case No. CV09-04266MRP. On February 16, 2010, the federal court
denied plaintiff’s class certification motion without prejudice. On December 15, 2010,
the federal court entered a final judgment granting in part and denying in part defendant’s

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summary judgment motion. The federal final judgment also dismissed remaining state
claims for lack of jurisdiction. On March 9, 2011, the federal court entered an amended
judgment which granted summary judgment on the first, second, fifth, seventh and ninth
causes of action for wait and travel time claims. The federal court also granted summary
judgment on allegations in the third cause of action that the paychecks violate section 212
because they had an out-of-state address. The federal court denied summary judgment on
payment claims based on the issuance of wages in the form of vouchers as to the third,
fourth, sixth, eighth, tenth and eleventh causes of action. Because the wait and travel
time claims were the only federal claims, the federal court declined to exercise its
jurisdiction over the remaining state law claims. The amended judgment ordered the
matter remanded to state court for further proceedings on the remaining claims.
However, the federal court certified for immediate appeal the wait and travel claims
pursuant to Federal Rules of Civil Procedure section 54(b). Plaintiff’s appeal in the
United States Court of Appeals for the Ninth Circuit is currently pending in Jeffrey Lee
Allen v. Labor Ready Southwest, Inc., case No. 11-55584.

C. Remand to State Court

On June 6, 2011, after the matter was remanded to state court, plaintiff filed a
peremptory challenge pursuant to Code of Civil Procedure section 170.6 to the Honorable
Ramona See. On August 1, 2011, the matter was reassigned to the Honorable Ronald M.
Sohigian.
On September 28, 2011, defendant moved to compel arbitration on the grounds:
plaintiff executed a valid arbitration agreement enforceable under the Federal Arbitration
Act (9 U.S.C. § 1 et seq.); and the arbitration agreement had a valid and enforcement
class action waiver and any claims to the contrary were preempted by federal law.
The employment application contained the following arbitration and class action
waiver provisions: “I agree that any disputes arising out of my application for
employment or employment that I believe I have against [defendant] or its agents or

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representatives, including, but not limited to, any claims related to wage and hour laws,
discrimination, harassment or wrongful termination, and all other employment related
issues (excepting only actions arising under the [National Labor Relations Act
(29 U.S.C. §151 et seq.)] will be resolved by final and binding arbitration under the
Federal Arbitration Act. Except where prohibited by law I agree to bring any disputes I
may have as an individual and I waive any right to bring or join a class, collective or
representative action. I acknowledge that my dispute will be decided by a neutral
arbitrator and not by a judge or jury. The arbitration shall be conducted by the American
Arbitration Association under its Employment Arbitration Rules. The decision of the
arbitrator shall be final and binding. I understand that [defendant] also agrees to arbitrate
in the same manner any claims which the company believes it has against me and
[defendant] will pay for the arbitrator’s fees where required by law.”
Defendant asserted the arbitration and class waiver provisions were enforceable as
the parties agreed under the Federal Arbitration Act. The class action waiver provision
was enforceable under standards set forth in AT&T Mobility LLC v. Concepcion (2011)
__ U.S. __ [131 S. Ct. 1740, 1753] (hereafter Concepcion). In anticipation of an
argument by plaintiff, defendant claimed it had not waived the right to compel
arbitration. This was because the Concepcion decision changed California law by
overruling Discover Bank v. Superior Court (2005) 36 Cal.4th 148, 162. And, plaintiff
was not prejudiced by the timing of the motion to compel arbitration. Defendant only
conducted one deposition and served limited discovery requests. Plaintiff delayed
seeking class certification in federal court after it was initially denied.
Plaintiff’s opposition argued the motion was belated because defendant waited
over two years to assert the right to compel arbitration. The arbitration agreement
specifically allowed concerted activity because it excluded claims arising under the
National Labor Relations Act. The arbitration agreement was unconscionable and
unenforceable. The agreement was procedurally unconscionable because it required
employees to waive their right to judicial forums as a condition of employment. The
applicable arbitration rules were not attached to the agreement, incorporated or provided

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to employees. The terms and conditions are substantively unconscionable, effectively
precluding plaintiff from filing employment related claims with state and federal
administrative agencies. It also prohibits plaintiff from seeking public injunctive relief
under the Private Attorneys General Act and the Unfair Competition Law. The passage
of two years had resulted in a waiver of the right to compel arbitration. Plaintiff cited
evidence: defendant had removed the case to federal court; the parties had conducted
significant discovery; the parties had litigated the class certification issue; there had been
two mediations costing plaintiff nearly $10,000; and defendant obtained a partial
summary judgment which was currently being appealed before the Ninth Circuit.
In reply, defendant argued plaintiff failed to establish waiver or address the change
in law issue, which was created by the United State’s Supreme Court’s decision in
Concepcion. The action did not arise under the National Labor Relations Act. The
agreement was neither procedurally nor substantively unconscionable.
The trial court granted the petition to compel arbitration and denied it in part.
Citing Brown v. Superior Court, supra, 197 Cal.App.4th at page 502, the trial court
severed the claim under the Private Attorneys General Act. Defendant filed a timely
notice of appeal from the order partially denying an order to compel arbitration. Plaintiff
filed a timely cross-appeal from the order compelling arbitration.2

2
An order compelling arbitration is not directly appealable. (Code Civ. Proc.,
§ 1294;Kinecta Alternative Financial Solutions, Inc. v. Superior Court (2012) 205
Cal.App.4th 506, 513; Fagelbaum & Heller LLP v. Smylie (2009) 174 Cal.App.4th 1351,
1359-1360.) However, plaintiff is correct that review of the ruling in its entirety is
available because of defendant’s appeal from the partial denial of the motion to compel.
Code of Civil Procedure section 1294.2 provides: “The appeal shall be taken in the same
manner as an appeal from an order or judgment in a civil action. Upon an appeal from
any order or judgment under this title, the court may review the decision and any
intermediate ruling, proceeding, order or decision which involves the merits or
necessarily affects the order or judgment appealed from, or which substantially affects
the rights of a party. The court may also on such appeal review any order on motion for a
new trial. The respondent on the appeal, or party in whose favor the judgment or order
was given may, without appealing from such judgment, request the court to and it may
review any of the foregoing matters for the purpose of determining whether or not the
appellant was prejudiced by the error or errors upon which he relies for reversal or

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 III. DISCUSSION

A. The Appeal

Defendant argues the trial court erred in concluding the Private Attorneys General
Act claim is not preempted by the Federal Arbitration Act. We need not reach this issue
in light of our conclusion below that defendant Labor Ready Southwest, Inc. waived its
right to arbitrate any claims in the present case. Defendant’s appeal is therefore moot.

B. The Cross-Appeal

Both federal and state laws have strong public policies favoring arbitration as a
speedy and relatively inexpensive means to resolve disputes. (Concepcion, supra, [131
S. Ct. at pp. 1744-1745]; St. Agnes Medical Center v. PacifiCare of California (2003) 31
Cal.4th 1187, 1204.) Code of Civil Procedure section 1281.2 allows a party asserting
there is a written agreement to arbitrate a controversy to petition the trial court to compel
arbitration. Code of Civil Procedure section 1281.2 requires the trial court to compel
arbitration upon determination of a written agreement to arbitrate a controversy exists.
However, under federal and state law, arbitration agreements are subject to statutory
exceptions for waiver, revocation, and a pending action. (9 U.S.C. § 2; (Code Civ. Proc.,
§ 1281.2, subd. (a)-(c).) Before a party may be compelled to arbitrate a claim, the
petitioning party has the burden of proving the existence of a valid arbitration agreement
and the dispute is covered by the agreement. (Engalla v. Permanente Medical Group,
Inc. (1997) 15 Cal.4th 951, 972; Rosenthal v. Great Western Financial Securities Corp.
(1996) 14 Cal.4th 394, 413-414.) If petitioner meets its burden, the respondent has to

modification of the judgment or order from which the appeal is taken. The provisions of
this section do not authorize the court to review any decision or order from which an
appeal might have been taken.”

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prove by a preponderance of the evidence any defense to the petition. (Engalla v.
Permanente Medical Group, Inc., supra, 15 Cal.4th at p. 972; Rosenthal v. Great
Western Financial Securities Corp., supra, 14 Cal.4th at p. 413.)
In the cross-appeal, plaintiff asserts the trial court should have concluded the
arbitration provision was unenforceable because: defendant waived the right to compel
arbitration; the action arose under the National Labor Relations Act; and the clause is
unconscionable as a matter of law. We conclude the trial court erred in its waiver
determination as a matter of law. Thus, we do not resolve plaintiff’s other claims as to
why the arbitration agreement was unenforceable.
It should be noted that waiver of the right to arbitrate is not lightly inferred
because of federal and state law favoring arbitration provisions. (St. Agnes Med. Ctr. v.
PacifiCare of California, supra, 31 Cal.4th at p. 1195; Christensen v. Dewor
Developments (1983) 33 Cal.3d 778, 782.) Thus, a waiver claim under California law
requires strict judicial scrutiny to determine whether the party asserting waiver has
carried its burden of proof. (St. Agnes Med. Ctr. v. PacifiCare of California, supra, 31
Cal.4th at p. 1195; Christensen v. Dewor Developments, supra, 33 Cal.3d at p. 782;
Doers v. Golden Gate Bridge etc. Dist. (1979) 23 Cal.3d 180, 189.) Because a waiver
determination is generally a factual question, the trial court’s finding must be upheld
when it is supported by substantial evidence. (St. Agnes Med. Ctr. v. PacifiCare of
California, supra, 31 Cal.4th at p. 1196; Engalla v. Permanente Medical Group, Inc.,
supra, 15 Cal.4th at p. 983.) However, when the facts are undisputed and the only issues
are legal, the appellate court is not bound by the trial court’s ruling. (St. Agnes Med. Ctr.
v. Pacificare of California, supra, 31 Cal.4th at p. 1196; Platt Pacific, Inc. v. Andelson
(1993) 6 Cal.4th 307, 319.)
Our Supreme Court has set forth the following multi-factor standard for
determining whether a party has waived the right to compel arbitration: “‘In determining
waiver, a court can consider “(1) whether the party’s actions are inconsistent with the
right to arbitrate; (2) whether ‘the litigation machinery has been substantially invoked’
and the parties “were well into preparation of a lawsuit” before the party notified the

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opposing party of an intent to arbitrate; (3) whether a party either requested arbitration
enforcement close to the trial date or delayed for a long period before seeking a stay; (4)
whether a defendant seeking arbitration filed a counterclaim without asking for a stay of
the proceedings; (5) ‘whether important intervening steps [e.g., taking advantage of
judicial discovery procedures not available in arbitration] had taken place’; and (6)
whether the delay ‘affected, misled, or prejudiced’ the opposing party.”’” (St. Agnes
Med. Ctr. v. PacifiCare of California, supra, 31 Cal.4th at p. 1196, quoting Sobremonte
v. Superior Court (1998) 61 Cal.App.4th 980, 992; accord Wagner Construction Co. v.
Pacific Mechanical Corp. (2007) 41 Cal.4th 19, 30–31.)
Here, the trial court found defendant had not waived the right to compel arbitration
because doing so prior to the United State Court’s decision in Concepcion would have
been futile. Defendant asserts the trial court is correct that defendant could not have
waived its right to arbitrate because it was not enforceable before Concepcion was
decided. This is because generally a party does not act inconsistently with the right to
compel arbitration if the agreement is not enforceable under existing law. (See Letizia v.
Prudential Bache Securities, Inc. (9th Cir. 1986) 802 F.2d 1185, 1187; Fisher v. A.G.
Becker Paribas Inc. (9th Cir. 1986) 791 F.2d 691, 697; compare Roberts v. El Cajon
Motors, Inc. (2011) 200 Cal.App.4th 832, 846 & fn. 10.) Plaintiff counters that
application of the St. Agnes factors compels the conclusion that defendant waived its right
to compel arbitration notwithstanding Concepcion. For the reasons stated below, we
agree with plaintiff that a waiver was established based on the undisputed evidence.
First, we assume defendant is correct that it did not act inconsistently with seeking
to compel arbitration until Concepcion was decided on April 27, 2011. But, defendant
then waited until September 28, 2011, five months after Concepcion was decided, to file
the motion to compel arbitration. No explanation was offered as to why defendant did
not immediately seek to compel arbitration upon its return to a state judicial forum
knowing the law had changed in its favor. As our Supreme Court explained in St. Agnes
Med. Ctr. v. PacifiCare of California, supra, 31 Cal.4th at page 1195, at footnote 4:
“[T]he term ‘waiver’ has a number of meanings in statute and case law. [Citation.]

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While ‘waiver’ generally denotes the voluntary relinquishment of a known right, it can
also refer to the loss of a right as a result of a party’s failure to perform an act it is
required to perform, regardless of the party’s intent to relinquish the right. [Citations.] In
the arbitration context, ‘[t]he term “waiver” has also been used as a shorthand statement
for the conclusion that a contractual right to arbitration has been lost.’ [Citation.]”
Under the circumstances a five-month delay between the favorable change in law and the
time the motion was filed was not consistent with enforcing its arbitration rights.
Second, the “litigation machinery” has been more than substantially invoked as the
parties were well into preparing for the lawsuit when defendant sought arbitration. While
the matter was pending in federal court, plaintiff filed and defendant successfully
defended against plaintiff’s class certification motion. Moreover, defendant subsequently
sought and obtained a partial summary judgment against plaintiff on the merits of the
federal and state law claims. The partial summary judgment resolved the merits of the
first, second, fifth, seventh and ninth causes of action for wait and travel time claims
against plaintiff. The federal court entered a final judgment granting the partial summary
judgment and removing the remaining claims to state court on March 9, 2011. Plaintiff’s
appeal from the partial summary judgment is currently pending in the Ninth Circuit.
Thus, the litigation machinery has been invoked in a substantial manner.
The third factor, delay, was established because even after Concepcion was
decided on April 27, 2011, defendant waited five months to file the motion to compel
arbitration on September 28, 2011. This was six months after the matter had been
remanded from one judicial forum (federal) to another judicial forum (state). The fourth
factor of a counterclaim was not established. But, the fifth factor, important intervening
steps, definitely is present because defendant was able to obtain a final judgment against
plaintiff on several of his federal claims as well as a state law claim.
As a result of the final federal judgment, the sixth factor of prejudice was
established. Our Supreme Court explained: “Because merely participating in litigation,
by itself, does not result in a waiver, courts will not find prejudice where the party
opposing arbitration shows only that it incurred court costs and legal expenses.

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[Citations.] [¶] Rather, courts assess prejudice with the recognition that California’s
arbitration statutes reflect ‘“a strong public policy in favor of arbitration as a speedy and
relatively inexpensive means of dispute resolution”’ and are intended ‘“to encourage
persons who wish to avoid delays incident to a civil action to obtain an adjustment of
their differences by a tribunal of their own choosing.”’ [Citation.] Prejudice typically is
found only where the petitioning party’s conduct has substantially undermined this
important public policy or substantially impaired the other side’s ability to take advantage
of the benefits and efficiencies of arbitration.” (St. Agnes Medical Center v. PacifiCare
of California, supra, 31 Cal.4th at pp. 1203-1204.)
Although mere participation in litigation does not establish waiver and prejudice,
judicial litigation of the merits of arbitrable issues does. (Keating v. Superior Court
(1982) 31 Cal.3d 584, 605-606, overruled on different grounds in Southland Corp. v.
Keating (1984) 465 U.S. 1, 3; see also Kalai v. Gray (2003) 109 Cal.App.4th 768, 775-
776; Groom v. Health Net (2000) 82 Cal.App.4th 1189, 1194.) Waiver may be
established by litigation of the merits of a controversy which would be arbitrable under
the arbitration provision. (Doers v. Golden Gate Bridge etc. Dist., supra, 23 Cal.3d at pp.
186-187; Local 659, IA.T.S.E. v. Color Corp. Amer. (1956) 47 Cal.2d 189, 194.) This
rule applies even if the matter has not been reduced to a final judgment on the merits.
(St. Agnes Medical Center v. PacifiCare of California, supra, 31 Cal.4th at pp. 1204-
1205 [holding the rule is consistent with federal waiver standards]; McConnell v. Merrill
Lynch, Pierce, Fenner & Smith, Inc. (1980) 105 Cal.App.3d 946, 951.) For example
waiver may be established by litigation through various pretrial procedures such as
summary judgment and class certification motions. (McConnell v. Merrill Lynch, Pierce,
Fenner & Smith, Inc., supra, 105 Cal.App.3d at pp. 950-951; see also Zimmerman v.
Drexel Burnham Lambert, Inc. (1988) 205 Cal.App.3d 153, 159-160.) As one appellate
court has explained: “Partial or piecemeal litigation of issues in dispute, through pretrial
procedures, may in many instances justify a finding of waiver and would be consistent
with the law as spelled out in Doers [v. Golden Gate Bridge etc. Dist, supra, 23 Cal.3d at
pp. 186-187].” (McConnell v. Merrill Lynch, Pierce, Fenner & Smith, Inc., supra, 105

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Cal.App.3d at p. 951; accord Zimmerman v. Drexel Burnham Lambert, Inc., supra, 205
Cal.App.3d at pp. 159-160.)
Here, the parties litigated the class certification issue on the merits. Defendant
also litigated the merits of plaintiff’s federal and state claims in a summary judgment
motion. Defendant obtained a final judgment against plaintiff on all the federal claims
and one state law claim. The federal court denied summary judgment on plaintiff’s
remaining state law claims. Unless plaintiff prevails in the Ninth Circuit, a substantial
portion of plaintiff’s arbitrable claims no longer exists. Should arbitration proceed
defendant would have the advantage of a judicial forum resolving some disputes and
arbitration of the remaining claims. Under the circumstances, plaintiff met his burden of
establishing defendant waived the right to compel arbitration by litigating the merits of
plaintiff’s arbitrable federal and state claims. (St. Agnes Medical Center v. PacifiCare of
California, supra, 31 Cal.4th at p. 1204; Doers v. Golden Gate Bridge etc. Dist., supra,
23 Cal.3d at p. 185; Local 659, IA.T.S.E. v. Color Corp. Amer., supra, 47 Cal.2d at pp.
194-195.)
In sum, application of the St. Agnes Medical Center v. PacifiCare of California,
supra, factors establishes that defendant waived the right to compel arbitration under the
facts of this case. Therefore, we need not address plaintiff’s remaining theories as to why
the arbitration agreement was not enforceable.

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 IV. DISPOSITION

The order compelling arbitration of the remaining claims is reversed. Plaintiff,
Jeffrey L. Allen, is awarded his costs on appeal from defendant, Labor Ready Southwest,
Inc.
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

O’NEILL, J.*

We concur:

TURNER, P. J.

KRIEGLER, J.

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

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