Borelli v. Black Diamond Aggregates, Inc.

Filing 67

ORDER signed by District Judge Kimberly J. Mueller on 3/20/17 ORDERING that Defendants' MOTION to Compel Arbitration as to Plaintiffs Pitassi and Muniz 46 is GRANTED. Plaintiffs' MOTION to Compel Arbitration against defendant Basic Res ources 53 is GRANTED with respect to the arbitration to be held subject to the Court's grant of defendants' MOTION. The court will hold a focused evidentiary hearing to take testimony on the issue of whether Borelli received the first page of his arbitration agreement. The court STAYS the PAGA claims of Plaintiffs Pitassi and Muniz. Defendants' MOTION to Stay proceedings against Basic Resources is DISMISSED as moot. (Mena-Sanchez, L)

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UNITED STATES DISTRICT COURT

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FOR THE EASTERN DISTRICT OF CALIFORNIA

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EDWARD BORELLI, CHRISTINA
PITASSI, and JAMES MUNIZ,
Plaintiffs,

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No. 2:14-cv-02093-KJM-KJN

ORDER
v.
BLACK DIAMOND
AGGREGATES, INC., and BASIC
RESOURCES, INC.,
Defendants.

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This matter comes before the court on the parties’ cross-motions to compel

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arbitration. See ECF Nos. 46, 53. Defendants Black Diamond Aggregates, Inc. (“Black

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Diamond”) and Basic Resources, Inc. (“Basic Resources”) argue claims brought by plaintiffs

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Edward Borelli, Christina Pitassi, and James Muniz against Black Diamond should be subject to

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arbitration, with the claims against Basic Resources stayed pending the outcome of arbitration.

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Defs.’ Mot. to Compel Arbitration (“Defs.’ Mot.”), ECF No. 46. Plaintiffs argue they are not

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subject to arbitration. Pls.’ Opp’n to Defs.’ Mot. (Pls.’ Opp’n), ECF No. 52. Alternatively,

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plaintiffs argue if they are subject to arbitration, their claims against defendant Basic Resources

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should be subject to arbitration as well. Pls.’ Mot. to Compel Arbitration (“Pls.’ Mot.”), ECF

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No. 53. Defendant Basic Resources opposes plaintiffs’ motion. Defs.’ Opp’n to Pls.’ Mot.
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(Defs.’ Opp’n), ECF No. 55. For the following reasons, the court GRANTS defendants’ motion

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to compel arbitration with plaintiffs Pitassi and Muniz, GRANTS plaintiffs’ motion to compel

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such that any arbitration will include Basic Resources as a party, and will set a focused

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evidentiary proceeding to hear testimony as to whether plaintiff Borelli received the first page of

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his arbitration agreement.

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I.

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BACKGROUND
A.

Factual Background
Plaintiffs are former employees of Black Diamond, a wholly owned subsidiary of

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Basic Resources engaged in the trucking business. See generally First Am. Compl., ECF No. 37.

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When each plaintiff began working at Black Diamond, each signed an arbitration agreement that

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required binding arbitration of all claims arising from employment. Gaalswyk Decl. at 1–2, ECF

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No. 46-3. Borelli signed his arbitration agreement on June 6, 2013. Borelli Arbitration

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Agreement (“Borelli Agreement”), Gaalswyk Decl. at 4–5. Pitassi signed her arbitration

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agreements on July 18, 2007 and March 21, 2008. Pitassi Arbitration Agreements (“Pitassi

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Agreements”), Gaalswyk Decl. at 6–7. Muniz signed his arbitration agreement on May 2, 2006.

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Muniz Arbitration Agreement (“Muniz Agreement”), Gaalswyk Decl. at 8. The arbitration

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agreements signed by Pitassi and Muniz contain the same language, but the language in Borelli’s

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arbitration agreement is different from the other two. The two types of arbitration agreements are

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described below.

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1.

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Borelli’s employment arbitration agreement requires the parties to submit to

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Borelli’s Arbitration Agreement

arbitration under the following terms:
If the parties are unable to resolve a dispute related to this
agreement through mediation, they shall submit any such dispute
(whether based on contract, tort, or statute duty or prohibition
against discrimination or harassment) to binding arbitration, in
accordance with the California Code of Civil Procedure §§ 1280
through 1294.2 and the Rules of the American Arbitration
Association. Either party may enforce the award of the arbitrator

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under Code of Civil Procedure § 1285. The parties understand that
they are waiving their rights to a jury trial.1

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Borelli Agreement.
Borelli’s arbitration agreement contains the following language regarding fees and

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costs associated with arbitration:

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Basic Resources, Inc., shall pay the arbitrator’s expenses and fees,
all charges, and any other expenses that would not have been
incurred if the case had been litigated in the judicial forum having
jurisdiction over it. Unless otherwise ordered by the arbitrator,
each party shall pay its own attorney’s fees, witness fees, and other
expenses incurred by the party for his or her own benefit.

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The arbitrator may award the prevailing party his or her expenses
and fees of arbitration, including reasonable attorneys’ fees and
witness fees, in such proportion as the arbitrator decides.2

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Id.
Borelli’s arbitration agreement includes four signature lines for the following

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parties: (1) “Employer”; (2) “Employee”; (3) “Witness”; and (4) “Human Resources.” Id. The

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only signed lines are the employee line, which is signed by Borelli and dated June 6, 2013, and

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the witness line, which is illegible and dated 6-6-2013; the employer and human resources lines

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are not signed. See id.

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2.

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To the extent relevant to this motion, the arbitration agreements signed by Pitassi

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Arbitration Agreements Signed by Pitassi and Muniz

and Muniz require the parties to submit to arbitration as follows:

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The undersigned Employer and Employee understand that any and
all controversies or claims arising out of, or relating to, their
employment relationship, or the termination thereof, or this
Employment Agreement or the breach thereof, that cannot be
resolved between or among the Employee and the Employer and/or
any of its representatives, agents and/or employees (including
claims of discrimination), shall be submitted exclusively to binding
arbitration before a neutral arbitrator in accordance with the

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This language is contained on the first page of his two-page arbitration agreement.
Borelli contends he only received the second page of his arbitration agreement, which contains
the signature line. This contention is discussed in further detail below.
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This language is on the second page of Borelli’s two-page arbitration agreement, which
he concedes he received.
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California Arbitration Act (Code of Civil Procedure Section 1281 et
seq.) except that the Employee may seek available relief from any
federal and/or state agency where the law provides for such even
though the employee has signed an agreement providing that all
disputes shall be resolved by final and binding arbitration.

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Pitassi Agreements; Muniz Agreement.
These arbitration agreements contain the following language regarding fees and

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costs associated with arbitration:

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The Employer shall be responsible for all fees and costs associated
with the arbitration that exceed those fees and costs that the
Employee would be required to bear if his or her action had been
commenced in court . . . . The arbitrator shall issue a written
decision and award and shall award fees and costs in accordance
with applicable law.

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Id.
The arbitration agreements signed by Pitassi and Muniz include four signature

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lines for the following parties: (1) “Employer”; (2) “Employee”; (3) “Witness”; and (4) “Human

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Resources Director.” Id. The employer, employee, and witness lines are signed on all

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agreements; the human resources director line is not signed. Id. Specifically, Pitassi’s first and

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second arbitration agreements are identical except for the date. Pitassi signed her first agreement

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on 7-18-2007 and her second on 3-21-2008; Ruth M. Quadroa signed and dated Pitassi’s

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agreements on the same dates; and the employer line is signed illegibly by the same individual

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and not dated on either agreement. Pitassi Agreements. Muniz signed and dated his agreement

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on 5-2-2006; an individual named Donna, last name illegible, signed and dated the witness line

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with the same date; and the same individual who signed the employer line on Pitassi’s agreement

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signed Muniz’s agreement. Muniz Agreement.

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3.

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Above the signature lines, all agreements provided the following language in all-

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Express Final and Binding Language

caps:
THE UNDERSIGNED PARTIES UNDERSTAND THAT THIS
AGREEMENT IS A WAIVER OF ALL RIGHTS TO A CIVIL
COURT ACTION FOR DAMAGES ARISING OUT OF OR
RELATING TO THEIR EMPLOYMENT RELATIONSHIP AND
THAT ONLY THE ARBITRATOR, NOT A JUDGE OR JURY,
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WILL DECIDE THE DISPUTE AND ISSUE A FINAL AND
BINDING DECISION AND AWARD.

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Borelli Agreement; Pitassi Agreements; Muniz Agreement.
B.

Procedural Background
On September 9, 2014, Borelli filed this putative class action against Black

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Diamond. ECF No. 1. The original action did not identify future parties Pitassi, Muniz, or Basic

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Resources by name. Id. at 1. In it, Borelli made claims under the federal Fair Labor Standards

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Act, various sections of the California Labor Code, California’s Unfair Competition Law, and the

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California Private Attorney General’s Act (PAGA). See generally id. Borelli alleged, inter alia,

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that Black Diamond failed to pay minimum wages, failed to authorize and permit paid rest

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periods, and failed to furnish accurate wage statements. See id.

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On January 22, 2015, Black Diamond filed a motion to compel arbitration. ECF

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No. 9. On February 26, Borelli filed a motion to amend the original complaint. ECF No. 19. On

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March 27, 2015, the court held a hearing on both motions. ECF No. 27. On September 4, 2015,

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the court granted Borelli’s motion to amend the complaint. Order at 6, ECF No. 36. In doing so,

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the court denied Black Diamond’s motion to compel arbitration as moot, subject to renewal. Id.

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On September 8, 2015, Borelli filed a first amended complaint. The amended

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complaint added James Muniz and Christina Pitassi as plaintiffs, and added Basic Resources as a

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defendant. First Am. Compl.

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On October 30, 2015, defendant Black Diamond renewed its motion to compel

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arbitration, Defs.’ Mot., and Basic Resources joined the motion, ECF No. 50. Plaintiffs opposed,

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Pls.’ Opp’n, and defendants replied, Defs.’ Reply, ECF No. 60.

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On December 4, 2015, plaintiffs filed their motion to compel arbitration, arguing

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that if plaintiffs are subject to arbitration, co-defendant Basic Resources should also be subject to

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arbitration. Pls.’ Mot. at 3. Basic Resources filed an opposition, Defs.’ Opp’n, and plaintiffs

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replied, Pls.’ Reply, ECF No. 59.

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II.

DISCUSSION

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The parties raise multiple issues in their cross-motions to compel arbitration.

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Specifically, they dispute whether (1) the Federal Arbitration Act (FAA) or California Arbitration

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Act (CAA) controls interpretation of the arbitration agreements; (2) the arbitration agreements are

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valid and enforceable against plaintiffs; (3) PAGA claims are subject to arbitration under the

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agreements; (4) the arbitration agreements are enforceable against defendant Basic Resources;

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and (5) the action should be stayed. The court will address each issue in turn.

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A.

Whether the FAA or CAA Should Govern
The parties dispute whether the FAA or CAA governs the arbitration agreements.

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See Pls.’ Opp’n at 17–18; Defs.’ Reply at 8–9. Defendants argue the arbitration agreements are

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enforceable under both the FAA and CAA. See Defs.’ Reply at 8. Plaintiffs argue only the CAA

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applies, Pls.’ Opp’n at 17, and, therefore, defendants’ reliance on the FAA as authority to stay the

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proceedings against Basic Resources must fail, id. at 26.

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Section 2 of the FAA provides that “an agreement in writing to submit to

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arbitration an existing controversy arising out of . . . a contract . . . shall be valid, irrevocable, and

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enforceable, save upon such grounds as exist at law or in equity for the revocation of any

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contract.” 9 U.S.C. § 2. However, the FAA specifically excludes from its coverage “contracts of

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employment of . . . any . . . class of workers engaged in . . . interstate commerce.” Id. § 1; see

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Circuit City Stores, Inc. v. Adams, 532 U.S. 105, 121 (2001) (holding the FAA does not apply to

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transportation workers). This exemption applies to truck drivers engaged in interstate commerce.

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Harden v. Roadway Package Sys., Inc., 249 F.3d 1137, 1140 (9th Cir. 2001).

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Defendants in this case acknowledge plaintiffs were hired as truck drivers, see

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Gaalswyk Decl. at 1, and defendants do not dispute plaintiffs were engaged in interstate

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commerce, see Borelli Decl. at 2, ECF No. 52-3 (declaring Black Diamond employees delivered

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goods to Native American lands). In light of plaintiffs’ employment as truck drivers and the

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interstate nature of Black Diamond’s business, this court finds the FAA does not apply to the

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arbitration agreements at issue. See Harden, 249 F.3d at 1140 (“The district court lacked the

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authority to compel arbitration in this case because the FAA is inapplicable to [delivery]

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drivers.”) Accordingly, California law governs the arbitration agreements.

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California Code of Civil Procedure section 1281.2 provides that the court must

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determine whether the parties agreed to arbitrate and, if so, what issues are subject to arbitration.

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United Pub. Employees v. City & Cty. of S.F., 53 Cal. App. 4th 1021, 1026 (1997). “California

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law, like federal law, favors enforcement of valid arbitration agreements.” Armendariz v. Found.

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Health Psychcare Servs., Inc., 24 Cal. 4th 83, 97 (2000). “Doubts as to whether an arbitration

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clause applies to a particular dispute are to be resolved in favor of sending the parties to

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arbitration. The court should order them to arbitrate unless it is clear that the arbitration clause

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cannot be interpreted to cover the dispute.” Id. (quoting Engineers & Architects Assn. v. Cmty.

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Dev. Dep’t, 30 Cal. App. 4th 644, 652 (1994)). The policy favoring arbitration, however, applies

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only if the court determines the parties agreed to arbitrate their disputes, which requires analysis

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of state law principles of contract formation and interpretation. See Badie v. Bank of Am., 67 Cal.

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App. 4th 779, 790 (1998) (citing First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 944

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(1995)). The party seeking to compel arbitration bears the burden of proving the existence of a

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valid and enforceable arbitration agreement by a preponderance of the evidence. Rosenthal v.

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Great W. Fin. Sec. Corp., 14 Cal. 4th 394, 412–13 (1996).

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Plaintiffs contend the arbitration agreements are not enforceable under the CAA

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because (1) the agreements are not valid, and (2) even if the agreements are valid, they do not

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cover PAGA claims. See Pls.’ Opp’n. Defendants rejoin that the agreements are valid and

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enforceable, and the agreements do not require the arbitration of PAGA claims. See Defs.’ Reply.

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The court addresses these competing contentions separately.

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B.

Validity of the Arbitration Agreements
“To evaluate the validity of an arbitration agreement, federal courts should apply

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ordinary state-law principles that govern the formation of contracts.” Ingle v. Circuit City Stores,

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Inc., 328 F.3d 1165, 1170 (9th Cir. 2003) (internal quotation omitted). “Under California law, the

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essential elements for a contract are (1) ‘[p]arties capable of contracting;’ (2) ‘[t]heir consent;’

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(3) ‘[a] lawful object;’ and (4) ‘[s]ufficient cause or consideration.’” United States ex rel. Oliver
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v. Parsons Co., 195 F.3d 457, 462 (9th Cir. 1999) (alterations in original) (quoting Cal. Civ. Code

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§ 1550; Marshall & Co. v. Weisel, 242 Cal. App. 2d 191, 196 (Ct. App. 1966)).

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Plaintiffs argue Borelli’s arbitration agreement is invalid and unenforceable

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because (1) defendants fail to meet their burden of showing Borelli entered into an arbitration

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agreement with Black Diamond, Pls.’ Opp’n at 14–15; and (2) defendants did not engage in the

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requisite prior step of mediation with Borelli. Plaintiffs also argue all plaintiffs’ arbitration

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agreements are invalid and unenforceable because (3) defendants committed fraud in the

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inducement and execution of the agreements; and (4) the agreements are unconscionable.

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1.

Whether Borelli and Defendant(s) Agreed to Arbitrate

In support of their motion to compel arbitration, defendants have filed a

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declaration signed by Henk Gaalswyk, a General Manager for Black Diamond. See Gaalswyk

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Decl. In his capacity as General Manager, Gaalswyk oversaw the hiring and orientation process

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for new employees from 1989 until 2015; he avers he has personal knowledge of the declared

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facts, including that Borelli voluntarily signed the arbitration agreement. Id. at 1–2.

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Plaintiffs argue Black Diamond fails to meet its burden of showing it entered into

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an arbitration agreement with Borelli. Pls.’ Opp’n at 14–15. Specifically, plaintiffs contend

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(1) Gaalswyk does not state he has first-hand knowledge of Black Diamond entering into an

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arbitration agreement with Borelli; (2) Gaalswyk does not show how he knew it was customary

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for Black Diamond to provide new employees with arbitration agreements, or that Black

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Diamond followed this practice with Borelli; and (3) Borelli’s arbitration agreement never

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identifies Black Diamond as a party to the agreement. Id. at 14–15.

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Regarding plaintiffs’ first and second contentions, the court can infer personal

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knowledge from a declarant’s position within a company or business. See In re Kaypro, 218 F.3d

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1070, 1075 (9th Cir. 2000) (declarant’s personal knowledge of industry practice inferred from his

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five-year tenure as credit manager; relying on interpretation of Rule 56); Barthelemy v. Air Lines

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Pilots Ass’n, 897 F.2d 999, 1018 (9th Cir. 1990) (CEO’s personal knowledge of various corporate

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activities inferred from position). In this case, because Gaalswyk held his position as a General

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Manager from 1989 until early 2015, he can be expected to know it was customary to provide
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new employees with arbitration agreements during the time period relevant here, between 2006

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and 2013. See In re Kaypro, 218 F.3d at 1075. Further, Gaalswyk states Borelli’s signed

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arbitration agreement was maintained with his personnel file. Gaalswyk Decl. at 2. The court

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can therefore also infer from Gaalswyk’s personal knowledge of Black Diamond’s business

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practices, based on his position in the company, that the execution and maintenance of Borelli’s

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signed arbitration agreement comported with Black Diamond’s ordinary method of doing

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business. See In re Kaypro, 218 F.3d at 1075 (“Kay’s testimony about his own firm’s business

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practices was clearly based on personal knowledge and can be read to mean that the restructuring

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agreements with Arrow and Schweber comported with the debtor’s ordinary methods of doing

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business.”).
To support their third contention, that Borelli’s arbitration agreement fails to

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identify Black Diamond as a party to the agreement, plaintiffs note the arbitration agreement fails

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to identify any employer by name, and the signature lines for both “Human Resources” and

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“Employer” are left blank. Pls.’ Opp’n at 14. Without an “indication as to who is entering into

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this alleged agreement with Mr. Borelli,” plaintiffs argue, “there is no enforceable agreement to

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arbitrate.” Id. at 15.

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Although an arbitration agreement must generally be memorialized in writing,

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Pinnacle Museum Tower Ass’n. v. Pinnacle Mkt. Dev. (US), LLC, 55 Cal. 4th 223, 236 (2012),

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the writing memorializing an arbitration agreement need not be signed by both parties in order to

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be upheld as binding, Serafin v. Balco Properties Ltd., LLC, 235 Cal. App. 4th 165, 176 (2015).

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“[I]t is not the presence or absence of a signature on an agreement which is dispositive; it is the

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presence or absence of evidence of an agreement to arbitrate which matters.” Serafin, 235 Cal.

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App. 4th at 176 (quotations omitted; emphasis in original).

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In this case, Borelli’s arbitration agreement is an easy-to-read two page document

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that was presented to him around the time he was hired. See Gaalswyk Decl. at 1–2; Borelli

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Agreement. As noted, Borelli’s agreement explicitly states, in capital letters, “THE

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UNDERSIGNED PARTIES UNDERSTAND THAT THIS AGREEMENT IS A WAIVER OF

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ALL RIGHTS TO A CIVIL COURT ACTION FOR DAMAGES ARISING OUT OF OR
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RELATING TO THEIR EMPLOYMENT RELATIONSHIP . . . .” Borelli Agreement; see

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Serafin, 235 Cal. App. 4th at 175 (holding employee’s signature on employer’s “mandatory

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arbitration policy” document sufficient to form agreement to arbitrate, even though employer did

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not sign document, where policy was set out in two-page, easy-to-read document). The court

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therefore finds that Borelli agreed to arbitrate matters arising out of his employment relationship

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with Black Diamond.

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2.

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Borelli argues Black Diamond cannot enforce any agreement to arbitrate because

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Duty of Defendant(s) to Mediate

Black Diamond initially refused the requisite pre-arbitration mediation of the dispute. Pls.’

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Opp’n at 15. Borelli’s arbitration agreement provides in relevant part, “If the parties are unable to

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resolve a dispute related to this agreement through mediation, they shall submit any such

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dispute . . . to binding arbitration.” Borelli Agreement.

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Borelli’s contention is premised on his argument that “[i]n the fall of 2014,” his

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counsel “proposed an early mediation,” and Black Diamond’s counsel responded that “she did not

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have authority to agree.” Ahmad Decl. ¶ 7, ECF No. 52-1. Borelli filed this action on September

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9, 2014. ECF No. 1. It is unclear form Borelli’s filings whether he proposed mediation to Black

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Diamond before filing this action. Then, on November 3, 2014, Borelli’s counsel again inquired

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about mediation, and Black Diamond’s counsel responded she “had not heard back from [Black

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Diamond]” but would let Borelli’s counsel know as soon as she did. Ahmad Decl. ¶ 7. On

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January 8, 2015, Borelli’s counsel sent a letter to Black Diamond, stating Black Diamond was

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refusing to mediate. Id. ¶ 9. Black Diamond’s counsel responded the next day, on January 9,

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stating Black Diamond was willing to “mediate Mr. Borelli’s claims at any time.” Id. ¶ 10; Cook

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Letter January 9, 2015 at 10, ECF No. 13-1. Black Diamond’s counsel also observed that “Mr.

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Borelli provide a demand [to mediate], but Mr. Borelli ha[d] not done so [at that] point.” Cook

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Letter January 9, 2015 at 10.

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“A bedrock principle of California contract law is that ‘he who seeks to enforce a

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contract must show that he has complied with the conditions and agreements of the contract on

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his part to be performed.’” Brown v. Dillard’s, Inc., 430 F.3d 1004, 1010 (9th Cir. 2005)
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(brackets omitted) (quoting Pry Corp. of Am. v. Leach, 177 Cal. App. 2d 632, 639 (1960)). In

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other words, a party cannot compel arbitration under an arbitration agreement when the party is

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itself in “material breach” of that agreement. Dillard’s, Inc., 430 F.3d at 1006. Whether a

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“breach of a contract is material depends on the importance or seriousness thereof and the

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probability of the injured party getting substantial performance.” Brown v. Grimes, 192 Cal. App.

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4th 265, 278 (2011) (quotation omitted). “A material breach of one aspect of a contract generally

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constitutes a material breach of the whole contract.” Id. at 278 (quotation omitted).

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Here, the court can discern no material breach of the terms of the arbitration

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agreement. Although Borelli’s arbitration agreement states that arbitration will occur “[i]f the

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parties are unable to resolve a dispute related to this agreement through mediation,” it gives no

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timeline by which the parties are required to mediate. Black Diamond maintains it was always

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willing to enter into mediation, and it stated so unequivocally in January 2015. Cook Letter

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January 9, 2015 at 10. Additionally, on April 3, 2015, Borelli and Black Diamond voluntarily

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agreed to submit their dispute to mediation. See Stipulation to Mediate, ECF No. 29. Thereafter,

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Borelli and Black Diamond unsuccessfully attempted to mediate, which satisfies the language of

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Borelli’s arbitration agreement, which, again, specifies no timeline for mediation. See ECF Nos.

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34 & 35. Borelli’s argument is without merit.

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3.

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Plaintiffs contend Black Diamond’s attempt to exclude Basic Resources from

Fraud in the Execution and Inducement

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arbitration constitutes fraud in the inducement and execution of all of the arbitration clauses. Pls.’

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Opp’n at 15–16. Regarding Borelli’s agreement, plaintiffs claim that by identifying the

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participants in the agreement as “the parties,” and by mandating a waiver of all rights to a civil

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court action arising from the employment relationship, defendants misled Borelli into believing

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the agreement would provide an opportunity to bring arbitration claims against Basic Resources

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as well as Black Diamond. Id. at 16 (quoting Borelli Agreement). Regarding the agreements

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signed by Pitassi and Muniz, plaintiffs claim defendants misled them into believing the following

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phrase provided an opportunity to bring arbitration claims against Basic Resources:

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The undersigned Employer and Employee understand that any and
all controversies or claims arising out of, or relating to, their
employment relationship . . . that cannot be resolved between or
among the Employee and the Employer and/or any of its
representatives, agents and/or employees . . . shall be submitted
exclusively to binding arbitration . . . .

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Id. (emphasis in original) (quoting Pitassi Agreements; Muniz Agreement). In essence, plaintiffs

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contend Black Diamond led plaintiffs to believe Basic Resources was a party to the arbitration

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agreement. By precluding Basic Resources as a party, plaintiffs argue the execution of and

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inducement to enter into the agreements constitutes fraud. Pls.’ Opp’n at 15–16.

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“California law distinguishes between fraud in the ‘execution’ or ‘inception’ of a

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contract and fraud in the ‘inducement’ of a contract.” Rosenthal, 14 Cal. 4th at 415. “[W]hen a

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plaintiff alleges fraud in the execution, the plaintiff is asserting that it was deceived as to the very

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nature of contract execution, and did not know what it was signing.” Brown v. Wells Fargo Bank,

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NA, 168 Cal. App. 4th 938, 958 (2008). “If the fraud goes to the execution or inception of the

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contract, so that the promisors do not know what they are signing, the contract lacks mutual

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assent and is void.” Vill. Northridge Homeowners Ass’n v. State Farm Fire & Cas. Co., 50 Cal.

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4th 913, 921 (2010). In contrast, “[w]hen a plaintiff alleges fraud in the inducement, the plaintiff

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is asserting that it understood the contract it was signing, but that its consent to the contract was

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induced by fraud.” Id. at 921. Additionally, California law distinguishes between fraudulently

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inducing consent to an arbitration agreement and fraudulently inducing consent to the contract as

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a whole. Larian v. Larian, 123 Cal. App. 4th 751, 762 (2004). The court decides whether there

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was fraud in the inducement of an agreement to arbitrate. Id. at 762. Absent a showing of fraud

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in the inducement to arbitrate, the arbiter decides whether there was fraud in the inducement to all

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other contractual provisions. See id.

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Regarding fraud in the execution, plaintiffs neither contend they did not know

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what they were signing nor do they contend they were deceived as to the nature of the execution.

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Each plaintiff received an agreement at the beginning of his or her employment term, and the

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agreement expressly stated a plaintiff understood he or she was waiving his or her right to a jury

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trial. Gaalswyk Decl. at 1. No facts indicate any plaintiff lacked a reasonable opportunity to
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learn the character of documents he or she signed. See Riverisland Cold Storage, Inc. v. Fresno-

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Madera Prod. Credit Ass’n, 55 Cal. 4th 1169, 1183 n.11 (2013) (“[N]egligent failure to acquaint

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oneself with the contents of a written agreement precludes a finding that the contract is void for

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fraud in the execution.”). At best, plaintiffs’ argument reveals they contest defendants’

5

interpretation of the arbitration agreement. The evidence does not support plaintiffs’ argument of

6

fraud in the execution.

7

Regarding fraud in the inducement, plaintiffs must show, by a preponderance of

8

the evidence, “that fraud was directed to the arbitration clause itself.” Ericksen, Arbuthnot,

9

McCarthy, Kearney & Walsh, Inc. v. 100 Oak St., 35 Cal. 3d 312, 319 (1983) (quoting Prima

10

Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395, 402 (1967)). In other words, plaintiffs

11

must show Black Diamond induced plaintiffs into the arbitration agreement by fraudulently

12

misrepresenting to plaintiffs that Basic Resources would arbitrate any claims related to the

13

employment agreement. See Hotels Nevada v. L.A. Pac. Ctr., Inc., 144 Cal. App. 4th 754, 761

14

(2006) (observing that party alleging fraud has burden of proof by preponderance of evidence).

15

Plaintiffs fail to meet this burden. Although plaintiffs argue Black Diamond and Basic Resources

16

were alter egos, as discussed below, plaintiffs have presented no evidence that Black Diamond

17

fraudulently misrepresented its relationship with Basic Resources and intended to induce

18

plaintiffs’ reliance based on this misrepresentation. See Engalla v. Permanente Med. Grp., Inc.,

19

15 Cal. 4th 951, 976 (1997) (“A fraudulent state of mind includes not only knowledge of falsity

20

of the misrepresentation but also an intent to induce reliance on it.” (quotes omitted)). Also, even

21

if, arguendo, Black Diamond made misrepresentations to plaintiffs, plaintiffs have not shown that

22

those misrepresentations “played a substantial part, and so [were] a substantial factor, in

23

influencing [plaintiffs’] decision” to arbitrate. See id. at 976–77.

24

Plaintiffs’ fraud-based arguments are therefore not sustainable.

25

4.

26

Plaintiffs also contend all the arbitration agreements are unenforceable because

Unconscionability

27

they are procedurally and substantively unconscionable. Pls.’ Opp’n at 20. “Because

28

unconscionability is a generally applicable defense to contracts, California courts may refuse to
13

1

enforce an unconscionable arbitration agreement.” Ingle, 328 F.3d at 1170; accord Kinney v.

2

United HealthCare Servs., Inc., 70 Cal. App. 4th 1322, 1328–29 (1999). The party seeking to

3

establish an unconscionability defense must do so by a preponderance of the evidence. Peng v.

4

First Republic Bank, 219 Cal. App. 4th 1462, 1468 (2013); Serafin, 235 Cal. App. 4th at 173.

5

“[A] contract to arbitrate is unenforceable under the doctrine of unconscionability when there is

6

both a procedural and substantive element of unconscionability[, though] procedural and

7

substantive unconscionability need not be present in the same degree.” Ingle, 328 F.3d at 1170

8

(internal quotations omitted) (citing Armendariz, 24 Cal. 4th at 114). “In other words, the more

9

substantively oppressive the contract term, the less evidence of procedural unconscionability is

10

required to come to the conclusion that the term is unenforceable, and vice versa.” Armendariz,

11

24 Cal. 4th 83 at 114.

12
13
14
15

The court analyzes the alleged procedural and substantive unconscionability
separately below.
a)

Procedural Unconscionability

Under California Law, “[a] contract is procedurally unconscionable if it is a

16

contract of adhesion, i.e., a standardized contract, drafted by the party of superior bargaining

17

strength, that relegates to the subscribing party only the opportunity to adhere to the contract or

18

reject it.” Ting v. AT&T, 319 F.3d 1126, 1148 (9th Cir. 2003) (citing Armendariz, 24 Cal. 4th at

19

115). Procedural unconscionability focuses on two factors in the contracting process: oppression

20

and surprise. Pokorny v. Quixtar, Inc., 601 F.3d 987, 996 (9th Cir. 2010); accord Stirlen v.

21

Supercuts, Inc., 51 Cal. App. 4th 1519, 1531 (1997). “Oppression addresses the weaker party’s

22

absence of choice and unequal bargaining power that results in ‘no real negotiation.’” Pokorny,

23

601 F.3d at 996 (quoting A & M Produce Co. v. FMC Corp., 135 Cal. App. 3d 473, 486 (1982)).

24

“Surprise involves the extent to which the contract clearly discloses its terms as well as the

25

reasonable expectations of the weaker party.” Chavarria v. Ralphs Grocery Co., 733 F.3d 916,

26

922 (9th Cir. 2013) (citing Parada v. Superior Court, 176 Cal. App. 4th 1554, 1570 (2009)); see

27

also Pinnacle Museum Tower Ass’n, 55 Cal. 4th at 247 (“[S]urprise [occurs] where the allegedly

28

unconscionable provision is hidden within a prolix printed form.”).
14

1
2

(1)

Oppression

In this case, the contracting process is fairly characterized as oppressive because

3

plaintiffs were in a substantially weaker bargaining position than defendants. Plaintiffs were

4

employed as truck drivers and were not represented by a union. See Borelli Decl. ¶ 5. Black

5

Diamond, a subsidiary of Basic Resources, was an experienced employer that drafted the

6

arbitration contracts. See generally Gaalswyk Decl. at 1–2. Black Diamond “asked [plaintiffs] to

7

sign” contracts the company “routinely provided new employees.” Id. at 2. “Black Diamond

8

considered arbitration to be the superior means of resolving [employment] disputes.” Id.

9

Defendants focus their attention on the ease of understanding the arbitration agreement; they do

10

not argue plaintiffs had an opportunity to negotiate the terms of the agreement, or that defendants

11

presented the contract on anything other than a take-it-or-leave-it basis. See Defs.’ Reply at 12;

12

see also Martinez v. Master Prot. Corp., 118 Cal. App. 4th 107, 114 (2004) (finding employment

13

contract adhesive where arbitration agreement was presented as a specific “condition of

14

employment”); Villa Milano Homeowners Ass’n v. Il Davorge, 84 Cal. App. 4th 819, 827 (2000)

15

(“[I]n a given case, a contract might be adhesive even if the weaker party could reject the terms

16

and go elsewhere.”); Stirlen, 51 Cal. App. 4th at 1533–34 (noting that even though sophisticated

17

corporate executive “was not a person desperately seeking employment,” the employment

18

contract was procedurally unconscionable because it was presented on a “take it or leave it

19

basis”). Oppression alone is enough under California law to establish procedural

20

unconscionability. See Nagrampa v. MailCoups, Inc., 469 F.3d 1257, 1284 (9th Cir. 2006)

21

(citing California appellate court cases). The arbitration agreements in this case are procedurally

22

unconscionable. In considering the degree of procedural unconscionability, the court analyzes

23

surprise as well.

24
25

(2)

Surprise

Regarding surprise, plaintiffs argue they were unfairly surprised because they were

26

not provided with the American Arbitration Association (“AAA”) rules referenced in the

27

arbitration agreements. Pls.’ Opp’n at 22; see Defs.’ Reply at 13 (implicitly acknowledging

28

plaintiffs were not provided with AAA rules). Although failure to provide employees “with a
15

1

copy of the AAA rules supports a determination that the arbitration agreement as a whole [is]

2

procedurally unconscionable,” “failure to attach the applicable AAA rules alone [does] not render

3

the agreement procedurally unconscionable.” Serafin, 235 Cal. App. 4th at 180 (quotations

4

omitted; emphasis added). “As with any contract, the unconscionability inquiry requires a court

5

to examine the totality of the agreement’s substantive terms as well as the circumstances of its

6

formation to determine whether the overall bargain was unreasonably one-sided.” Id. at 180

7

(emphasis in original) (quoting Sonic-Calabasas A, Inc. v. Moreno, 57 Cal. 4th 1109, 1146

8

(2013)).

9

Plaintiffs contend only that defendants failed to provide them copies of the AAA

10

rules. Plaintiffs do not say whether defendants failed to discuss or explain the AAA rules at the

11

time of signing or later during the employment. See Pls.’ Opp’n at 21. Regarding Borelli’s

12

agreement, Borelli argues he was unfairly surprised because he was not provided with the first

13

page of the arbitration agreement, which “contain[s] the reference to the AAA rules, the

14

limitations on discovery, and the provision of an unreasonably expedited proceeding.” Pls.’

15

Opp’n at 22; see Borelli Decl. ¶ 3. Defendants counter he did receive the first page, and his

16

argument is “not tenable” under the circumstances. Defs.’ Reply at 8; see Gaalswyk Decl. ¶ 2.

17

Borelli’s contention that he did not receive the first page of the agreement, if credible, would

18

weigh strongly in favor of surprise and procedural unconscionability. The court notes that the

19

second page of the agreement is not obviously a second page such that Borelli would have been

20

alerted that the document was incomplete. See Net Glob. Mktg., Inc. v. Dialtone, Inc., 217 F.

21

App’x 598, 601 (9th Cir. 2007). For example, there is no clear heading, and the second page

22

begins at the start of a new paragraph, not mid-sentence or mid-paragraph. See Borelli

23

Agreement.

24

Regarding Pitassi and Muniz, the agreements they signed do not reference

25

compliance with the AAA rules. See Pitassi Agreements; Muniz Agreement. Moreover, the text

26

of the CAA on which they rely makes no reference to the AAA. See Cal. Civ. Proc. Code § 1280

27

et seq. As such, Pitassi and Muniz’s argument that they were unfairly surprised by not receiving

28
16

1

a copy of the AAA rules is implausible. Accordingly, Black Diamond’s failure to provide Pitassi

2

and Muniz with the AAA rules does not weigh in favor of a finding of surprise.

3

(3)

Conclusion

4

In sum, although Pitassi and Muniz have not shown surprise due to Black

5

Diamond not providing them with a copy of the AAA rules, plaintiffs have shown all the

6

arbitration agreements in this case were “oppressive” contracts of adhesion. While the evidence

7

of procedural unconscionability for the agreements signed by these two plaintiffs appears

8

minimal, it is enough to proceed to the second ‘substantive’ prong of the unconscionability

9

analysis. See Serafin, 235 Cal. App. 4th at 181 (“Under the sliding-scale approach, [plaintiffs

10

must] make a strong showing of substantive unconscionability to render [Pitassi and Muniz’s]

11

arbitration provision[s] unenforceable.” (citing Ajamian v. CantorCO2e, L.P., 203 Cal. App. 4th

12

771, 796 (2012)).

13

As for Borelli, the degree to which his arbitration agreement is procedurally

14

unconscionable depends on whether he received the first page of the agreement. Given the

15

uncertainty raised by the record, the court will “hear oral testimony and allow the parties the

16

opportunity for cross-examination” on the issue. Rosenthal, 14 Cal. 4th at 414 (“[W]e agree that

17

where . . . the enforceability of an arbitration clause may depend upon which of two sharply

18

conflicting factual accounts is to be believed, the better course would normally be for the trial

19

court to hear oral testimony and allow the parties the opportunity for cross-examination.”).

20
21
22

The court next proceeds to the substantive prong of the unconscionability analysis.
b)

Substantive Unconscionability

“Substantive unconscionability centers on the ‘terms of the agreement and whether

23

those terms are so one-sided as to shock the conscience.’” Ingle, 328 F.3d at 1172 (quoting

24

Kinney, 70 Cal. App. 4th at 1330). “In evaluating the substance of a contract, courts must analyze

25

the contract ‘as of the time it was made.’” Id. (quoting A & M Produce Co, 135 Cal. App. 3d at

26

487). Plaintiffs contend all the arbitration agreements in this case are one-sided because they lack

27

mutuality in their obligation to arbitrate. Pls.’ Opp’n at 22. In other words, plaintiffs contend the

28

arbitration agreement requires the employee but not the employer to arbitrate employment
17

1

disputes because the employer and/or human resources signature lines on the arbitration

2

agreements remain unsigned. Id.

3

While a “modicum of bilaterality” is required in an arbitration agreement,

4

Armendariz, 24 Cal. 4th at 119, as noted above, “the writing memorializing an arbitration

5

agreement need not be signed by both parties in order to be upheld as a binding arbitration

6

agreement,” Serafin, 235 Cal. App. 4th at 176. As California courts reason,

7

10

‘it is not the presence or absence of a signature on an agreement
which is dispositive; it is the presence or absence of evidence of an
agreement to arbitrate which matters.’ Evidence confirming the
existence of an agreement to arbitrate, despite an unsigned
agreement, can be based, for example, on ‘conduct from which one
could imply either ratification or implied acceptance of such a
provision.’

11

Serafin, 235 Cal. App. 4th at 176 (emphases in original) (quoting Banner Entm’t, Inc. v. Superior

12

Court, 62 Cal. App. 4th 348, 361 (1998)).

8
9

13

The court readily dispenses with plaintiffs’ argument regarding the arbitration

14

agreements signed by Pitassi and Muniz. See id. Those agreements are signed by the employer,

15

employee, and a witness; only the “Human Resources Director” line remains unsigned, and

16

plaintiffs have not shown how the absence of this signature undermines the parties’ agreement to

17

arbitrate. Additionally, the court notes that these agreements bear a stamp on the top left corner

18

of each page that reads “Black Diamond Aggregates, Inc.” Pitassi Agreements; Muniz

19

Agreement. The first line of the agreements reads, “The undersigned Employer and Employee

20

understand that any and all controversies or claims arising out of, or relating to, their employment

21

relationship, or the termination thereof, . . . shall be submitted exclusively to binding

22

arbitration . . .” Id. This expansive language indicates the arbitration agreements are meant to

23

“be fully mutual in scope.” Serafin, 235 Cal. App. 4th at 182.

24

Borelli’s arbitration agreement also does not lack mutuality, if it is determined he

25

saw the first page. Even though the “Employer” and “Human Resources” lines remain unsigned,

26

the “Witness” line is signed, though the signature is illegible. As Pitassi’s and Muniz’s

27

agreements, Borelli’s agreement contains the following expansive language: “If the parties are

28

unable to resolve a dispute . . . they shall submit any such dispute (whether based on contract,
18

1

tort, or statute duty or prohibition against discrimination or harassment) to binding

2

arbitration . . . .” Borelli Agreement. Therefore, Borelli’s arbitration agreement also appears to

3

“be fully mutual in scope.” Serafin, 235 Cal. App. 4th at 182.

4

Plaintiffs also contend Borelli’s arbitration agreement is substantively

5

unconscionable because his agreement requires the losing party to pay the prevailing party’s

6

attorneys’ fees and potentially all arbitration fees, which are expenses he would not be required to

7

bear if the action were brought in court. Pls.’ Opp’n at 23–24. Plaintiffs are correct. In

8

California, employers imposing a mandatory arbitration agreement as a condition of employment

9

cannot require employees to bear expenses in arbitration they would not bear if the action were

10

brought in court. Armendariz, 24 Cal. 4th at 110–11. Were defendants to prevail in the present

11

action, they would not be able to recover attorneys’ fees on any claim. See Aleman v. AirTouch

12

Cellular, 209 Cal. App. 4th 556, 580 (2012) (Cal. Labor Code section 1194 “allows only a

13

prevailing plaintiff to recover fees.”). However, plaintiffs’ argument regarding an arbitrator’s

14

expenses is misplaced. It is true any provision requiring the employee to pay the arbitrator’s

15

expenses would be unconscionable. See Chavarria, 733 F.3d at 925 (9th Cir. 2013) (finding an

16

arbitration agreement that required the employee to bear the cost of arbitration to have “no place

17

in employment claims governed by state law”). But Borelli’s agreement expressly provides that

18

“Basic Resources, Inc., shall pay the arbitrator’s expenses and fees.” Borelli Agreement.

19

Based on the foregoing, the agreements signed by Pitassi and Muniz are not

20

substantively unconscionable. The portion of Borelli’s agreement that shifts the burden for

21

payment of attorneys’ fees is substantively unconscionable. The court thus analyzes whether this

22

portion of Borelli’s agreement can be severed, if his agreement is otherwise valid.

23
24

c)

Severance of Unconscionable Provisions

“[A] court should sever an unconscionable provision [of an arbitration agreement]

25

unless the agreement is so ‘permeated’ by unconscionability that it cannot be cured by

26

severance.” Serafin, 235 Cal. App. 4th at 183–84. As California courts have explained,

27
28

[a]n arbitration agreement can be considered permeated by
unconscionability if it contains more than one unlawful provision.
Such multiple defects indicate a systematic effort to impose
19

1

arbitration not simply as an alternative to litigation, but as an
inferior forum that works to the stronger party’s advantage. The
overarching inquiry is whether the interests of justice would be
furthered by severance.

2
3
4

Serafin, 235 Cal. App. 4th at 184 (internal quotations and changes omitted).
Because the court found the provision of Borelli’s arbitration agreement

5
6

concerning attorneys’ fees to be substantively unconscionable, the court shall sever that provision

7

from the contract in the interest of justice. Also, as stated above, the court will hear oral

8

testimony and allow the parties the opportunity for cross-examination on the issue of whether

9

Borelli received the first page of his arbitration agreement—a factual dispute that is dispositive to

10
11
12

the court’s determination of the enforceability of the remainder of the arbitration agreement.
C.

Arbitrability of PAGA Claims
The PAGA “authorizes an employee to bring an action for civil penalties on behalf

13

of the state against his or her employer for Labor Code violations committed against the

14

employee and fellow employees, with most of the proceeds of that litigation going to the state.”

15

Iskanian v. CLS Transp. Los Angeles, LLC, 59 Cal. 4th 348, 360 (2014), cert. denied, 135 S. Ct.

16

1155 (2015). Plaintiffs rely solely on the California Supreme Court’s decision in Iskanian to

17

support their contention that “[a]n employee cannot be compelled to arbitrate his or her PAGA

18

claims.” Pls.’ Opp’n at 19. Plaintiffs’ reading of Iskanian is overbroad. The Ninth Circuit has

19

observed that the “decision in Iskanian expresses no preference regarding whether individual

20

PAGA claims are litigated or arbitrated. [The Iskanian decision] provides only that

21

representative PAGA claims may not be waived outright.” Sakkab v. Luxottica Retail N. Am.,

22

Inc., 803 F.3d 425, 434 (9th Cir. 2015) (citing Iskanian, 59 Cal. 4th at 384); see also Zenelaj v.

23

Handybook Inc., 82 F. Supp. 3d 968, 978–79 (N.D. Cal. 2015) (finding PAGA claims may be

24

arbitrated despite their “qui tam” nature); Hernandez v. DMSI Staffing, LLC., 79 F. Supp. 3d

25

1054, 1067 (N.D. Cal. 2015) (unenforceability of PAGA waiver “does not necessarily dictate

26

which forum is proper for their adjudication”); but see Tanguilig v. Bloomingdale’s, Inc., 5 Cal.

27

App. 5th 665, 678 (2016) (“Because a PAGA plaintiff . . . acts as a proxy for the state only with

28

the state’s acquiescence [ ] and seeks civil penalties largely payable to the state via a judgment
20

1

that will be binding on the state, the PAGA claim cannot be ordered to arbitration without the

2

state’s consent.”).

3

Nonetheless, defendants concede in their reply that in formulating the arbitration

4

agreements, defendants did not contemplate a requirement that PAGA claims be arbitrated. See

5

Defs.’ Reply at 9. Given the derivative nature of PAGA claims, a stay is appropriate. Leyva v.

6

Certified Grocers of California, Ltd., 593 F.2d 857, 863 (9th Cir. 1979). The court shall therefore

7

stay the PAGA claims of any plaintiffs against whom arbitration is compelled, pending arbitration

8

of the other claims.

9
10

D.

Plaintiffs’ Motion to Compel Arbitration against Basic Resources
Plaintiffs make three alternative arguments in support of their motion to compel

11

Basic Resources participation in arbitration: (1) Basic Resources meets the criteria of a joint

12

employer; (2) Basic Resources was Black Diamond’s agent; or (3) Basic Resources and Black

13

Diamond are alter egos.

14

It is undisputed that Basic Resources is not a signatory to the arbitration

15

agreements. See Pls.’ Reply at 8; Defs.’ Opp’n at 2. Generally, only parties to an arbitration

16

agreement can be compelled to arbitrate. Nguyen v. Tran, 157 Cal. App. 4th 1032, 1036 (2007);

17

see Bridas S.A.P.I.C. v. Gov’t of Turkmenistan, 345 F.3d 347, 358 (5th Cir. 2003) (“Arbitration

18

agreements apply to non-signatories only in rare circumstances.”). However, “non-signatories of

19

arbitration agreements may be bound by the agreement under ordinary contract and agency

20

principles.” Comer v. Micor, Inc., 436 F.3d 1098, 1101 (9th Cir. 2006) (quoting Letizia v.

21

Prudential Bache Sec., Inc., 802 F.2d 1185, 1187 (9th Cir. 1986)). These exceptions are

22

grounded in state contract principles, and include “(1) incorporation by reference; (2) assumption;

23

(3) agency; (4) veil-piercing/alter ego; and (5) estoppel.” Comer, 436 F.3d at 1101 (quoting

24

Thomson-CSF, S.A. v. Am. Arbitration Ass’n, 64 F.3d 773, 776 (2d Cir. 1995)). The party

25

seeking to enforce a contract against a non-signatory bears the burden of showing one of these

26

exceptions applies. See Garcia v. Truck Ins. Exch., 36 Cal. 3d 426, 437 (1984).

27
28

Plaintiffs’ argument that Basic Resources meets the criteria of a joint employer
does not fall under one of the Comer exceptions. Plaintiffs’ second argument is that an agency
21

1

relationship existed between Basic Resources and Black Diamond. Pls.’ Reply at 10–11. Under

2

California law, “a non-signatory to an agreement to arbitrate may be required to arbitrate . . . if a

3

preexisting confidential relationship, such as an agency relationship between the non-signatory

4

and one of the parties to the arbitration agreement, makes it equitable to impose the duty to

5

arbitrate upon the non-signatory.” Murphy v. DirecTV, Inc., 724 F.3d 1218, 1232 (9th Cir. 2013)

6

(quoting Westra v. Marcus & Millichap Real Estate Inv. Brokerage Co., 129 Cal. App. 4th 759,

7

765 (2005)). An essential element of agency is a showing that the principal maintained control

8

over the agent’s actions. Id. at 1232 (citing Desuza v. Andersack, 63 Cal. App. 3d 694, 699 (Ct.

9

App. 1976) (“The right of the alleged principal to control the behavior of the alleged agent is an

10

essential element which must be factually present in order to establish the existence of agency,

11

and has long been recognized as such.”)). In this case, plaintiffs argue Basic Resources exercised

12

control over employees in various ways, such as controlling employees’ wages. See Pls.’ Mot. at

13

6. However, plaintiffs do not argue or show Basic Resources exercised control over Black

14

Diamond, or vice versa. Thus, plaintiffs have not shown the existence of an agency relationship.

15

Plaintiffs also argue Basic Resources is an alter ego of Black Diamond relying on

16

the fourth Comer factor. Pls.’ Reply at 11–12. Under California law, two conditions must be

17

satisfied to establish applicability of the alter ego doctrine:

18

20

First, there must be such a unity of interest and ownership between
the corporation and its equitable owner that the separate
personalities of the corporation and the shareholder do not in reality
exist. Second, there must be an inequitable result if the acts in
question are treated as those of the corporation alone.

21

Sonora Diamond Corp. v. Superior Court, 83 Cal. App. 4th 523, 538 (2000); see also Greenspan

22

v. LADT, LLC, 191 Cal. App. 4th 486, 513 (2010) (listing fourteen “not exhaustive” factors that

23

courts “may” consider “among others under the particular circumstances of each case”). “Alter

24

ego is an extreme remedy, sparingly used.” Sonora Diamond Corp., 83 Cal. App. 4th at 539

25

(citing Calvert v. Huckins, 875 F. Supp. 674, 678 (E.D. Cal. 1995)). “The essence of the alter ego

26

doctrine is that justice be done. Liability is imposed to reach an equitable result.” Greenspan,

27

191 Cal. App. 4th at 511 (changes omitted) (quoting Mesler v. Bragg Mgmt. Co., 39 Cal. 3d 290,

28

301 (1985)).

19

22

1

In this case, there is evidence suggesting Basic Resources and Black Diamond

2

operated as a single enterprise without separate personalities. In plaintiffs’ personnel records, the

3

name “Basic Resources” or the initials “BRI” appears on at least 143 of the 760 pages. Ahmad

4

Decl. ¶¶ 14–15. Basic Resources managed plaintiffs’ benefits and human resources, payroll

5

questions, and other personnel issues for Black Diamond. Decls. Abrahamson, Ducot, Fatheree,

6

Frago, Hammons, Macias, Muniz, and Pitassi (“Driver Decls.”) ¶ 3, ECF Nos. 53-5 to 53-11.

7

Additionally, the same individuals own both Black Diamond and Basic Resources. Id.

8

Employees received benefits information that identified Basic Resources as their employer. Id.

9

The human resources personnel who assisted employees identified themselves as employees of

10

Basic Resources. Id. Both Black Diamond and Basic Resources exercised control over

11

employees by requiring employees to follow workplace instructions and directives from both

12

companies. See id.; see also Ayala v. Antelope Valley Newspapers, Inc., 59 Cal. 4th 522, 531

13

(2014) (“[T]he principal test of an employment relationship [under common law] is whether the

14

person to whom service is rendered has the right to control the manner and means of

15

accomplishing the result desired.”). These facts show Basic Resources exercised control over

16

Black Diamond that is “‘so pervasive and continual’ that [Black Diamond] is but the . . .

17

instrumentality of [Basic Resources] even though separate corporate formalities are maintained.”

18

F. Hoffman-La Roche, Inc. v. Superior Court, 130 Cal. App. 4th 782, 798 (2005) (quoting Sonora

19

Diamond Corp., 83 Cal. App. 4th at 541). Because Basic Resources controlled these employees’

20

human resources, the employees were required to follow workplace instructions from both

21

companies, and the employees received benefits information that identified Basic Resources as

22

their employer, this court is persuaded that Basic Resources “in effect [took] over performance of

23

[Black Diamond]’s day-to-day operations.” Id. at 798 (emphasis omitted) (quoting Sonora

24

Diamond Corp., 83 Cal. App. 4th at 542).

25

Additionally, the arbitration agreements themselves support plaintiffs’ argument

26

that Black Diamond and Basic Resources were alter egos. As noted, Borelli’s arbitration

27

agreement provides that “Basic Resources, Inc., shall pay the arbitrator’s expenses and fees.”

28

Borelli Agreement. Notably, Black Diamond’s name appears nowhere in Borelli’s arbitration
23

1

agreement. All agreements have an unsigned line for “Human Resources” or “Human Resources

2

Director.” Borelli Agreement; Pitassi Agreements; Muniz Agreement. These facts also support

3

an inference that Basic Resources did more than dictate Black Diamond’s general policies; it

4

controlled “how the company will be operated on a day-to-day basis” such that they were

5

effectively alter egos. Calvert, 875 F. Supp. at 679 (quotation omitted).

6

Because Black Diamond and Basic Resources are alter egos, this court finds that

7

“adherence to the fiction of the separate existence of the corporation would, under the particular

8

circumstances, sanction a fraud or promote injustice.” Talbot v. Fresno-Pac. Corp., 181 Cal.

9

App. 2d 425, 431 (1960); accord Minifie v. Rowley, 187 Cal. 481, 487 (1921). For the foregoing

10

reasons, the court GRANTS plaintiffs’ motion to compel arbitration against Basic Resources.

11

E.

Motion to Stay Arbitration

12

Given the court’s decision to enforce arbitration against Basic Resources,

13

defendants’ argument to stay proceedings against Basic Resources is dismissed as moot.

14

III.

CONCLUSION

15

For the foregoing reasons, the court holds the following:

16

1.

17
18

Defendants’ motion to compel arbitration as to plaintiffs Pitassi and Muniz
is GRANTED.

2.

Plaintiffs’ motion to compel arbitration against defendant Basic Resources

19

is GRANTED with respect to the arbitration to be held subject to the

20

court’s grant of defendants’ motion.

21

3.

22

The court will hold a focused evidentiary hearing to take testimony on the
issue of whether Borelli received the first page of his arbitration agreement.

23

4.

The court STAYS the PAGA claims of plaintiffs Pitassi and Muniz.

24

5.

Defendants’ motion to stay proceedings against Basic Resources is

25

DISMISSED as moot.

26

This order resolves ECF Nos. 46 and 53.

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IT IS SO ORDERED.

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DATED: March 20, 2017
24

UNITED STATES DISTRICT JUDGE