Whitworth v. SolarCity Corp.

Filing 41

ORDER by Magistrate Judge Jacqueline Scott Corley denying #15 Motion to Compel Arbitration. (ahm, COURT STAFF) (Filed on 11/16/2016)

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UNITED STATES DISTRICT COURT

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NORTHERN DISTRICT OF CALIFORNIA

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RAVI WHITWORTH,

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Plaintiff,

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ORDER DENYING SOLARCITY’S
MOTION TO COMPEL ARBITRATION

v.

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SOLARCITY CORP.,

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Re: Dkt. No. 15

Defendant.

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United States District Court
Northern District of California

Case No.16-cv-01540-JSC

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In this putative class and collective action, Plaintiff Ravi Whitworth (“Plaintiff”) contends

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that his employer, SolarCity Corporation (“SolarCity”), failed to pay overtime wages and failed to

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compensate employees for all hours worked in violation of federal and state labor laws. Now

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pending before the Court is SolarCity’s Motion to Compel Arbitration pursuant to an arbitration

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agreement under which participating employees and SolarCity agreed to submit any employment-

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related disputes to binding arbitration. (Dkt. No. 15.) The action was stayed pending the Ninth

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Circuit Court of Appeal’s disposition of Morris v. Ernst & Young, LLP, No. 13-16599. Following

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the Ninth Circuit’s decision, the Court lifted the stay. Having carefully considered the parties

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arguments, the Court DENIES the motion to compel as the class action waiver in the parties’

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arbitration agreement is invalid and unenforceable under the National Labor Relations Act

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(NLRA) as held by Morris v. Ernst & Young, 834 F.3d 975 (9th. Cir. 2016). 1
BACKGROUND

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SolarCity provides solar power systems for public and private customers throughout the

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United States. (Complaint at ¶ 34.) It pays its employee installers on an hourly nonexempt basis

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Both parties have consented to the jurisdiction of a magistrate judge pursuant to 28 U.S.C. §
636(c). (Dkt. Nos. 6 & 10.)

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to provide installation, repair, and maintenance services to its customers. (Id. at ¶¶ 36-37.)

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Plaintiff worked for SolarCity as a Photo Installer II from August 24, 2015 to November 10, 2015

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in their Berkeley location as a nonexempt hourly employee. (Id. at ¶ 11.) In March 2016, Plaintiff

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filed this putative class and collective action on behalf of himself and a class of similarly situated

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individuals alleging nine claims for relief under the Fair Labor Standards Act (“FLSA”), the

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California Labor Code, California’s Private Attorney General Act (“PAGA”), and California

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Business & Professions Code § 17200 et seq. (Complaint at ¶¶ 73-128.) Plaintiff contends that

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SolarCity failed to (1) pay employees involved in the installation and maintenance of solar

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systems for travel time during the workday; (2) provide these same employees with statutorily
protected meal and rest breaks; and (3) indemnify these employees for reasonable business

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United States District Court
Northern District of California

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expenses. (Id. at ¶¶ 40-48.)

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Plaintiff received an offer packet from SolarCity prior to commencing his employment.

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The packet contained (1) an offer letter, (2) an employment agreement, and (3) a compensation

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acknowledgement form. (Dkt. No. 15-1 at 14-38 (Exhibits B-D). 2) The offer letter required

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Plaintiff to sign the employment agreement and noted that Plaintiff must agree that all disputes

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would be fully and finally resolved by binding arbitration. (Dkt. No. 15-1 at 16.) The

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agreement—titled “At-will employment, confidential information, invention assignment, and

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arbitration agreement”—is governed by the Federal Arbitration Act and covers “any disputes.”

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(Id. at 25, ¶ 12.) Among other things, it states:

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I expressly agree to waive any right to pursue or participate in any
dispute on behalf of, or as part of, any class or collective action,
except to the extent such waiver is expressly prohibited by law.
Accordingly, to the maximum extent permitted by law, no dispute
by the parties hereto shall be brought, heard or arbitrated as a class
or collective action, and no party hereto shall serve as a member of
any purported class, or collective proceeding, including without
limitation pending but not certified class actions (“Class Action
Waiver”). I understand and acknowledge that this Agreement affects
my ability to participate in class or collective actions. The Company
and I expressly agree that any disputes regarding the validity or
enforceability of the foregoing Class Action Waiver may only be
resolved by a civil court of competent jurisdiction and not by an

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Record citations are to material in the Electronic Case File (“ECF”); pinpoint citations are to the
ECF-generated page numbers at the top of the documents.
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arbitrator. In any case in which (a) a party files a dispute as a class
or collective action, and (b) a civil court of competent jurisdiction
finds all or part of the Class Action Waiver invalid or unenforceable,
then such elements of the dispute for which the court determined
that the Class Action Waiver was unenforceable shall be permitted
to proceed in a court of competent jurisdiction, but any remaining
portion of the dispute must still be resolved in arbitration, including
any individual claims or grievances (and in no event shall an
arbitrator have authority to arbitrate any class, collective,
representative, or private attorney general action).

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(Id. at 26, ¶ 12(A)(2).) The agreement further provides that to the extent any court allows a class

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or collective action notwithstanding the waiver, the employee may proceed with such action in

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court only after an arbitrator first determines to what extent the employee has been injured as an

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individual. (Id. at 27-28 ¶ 12(A)(4).) There is no dispute that Plaintiff signed the agreement prior
to his employment. The compensation acknowledgement form—which Plaintiff likewise

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United States District Court
Northern District of California

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signed—required Plaintiff to “submit to binding arbitration.” (Id. at 38.) SolarCity’s arbitration

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policy is also contained in their employee handbook and prior to commencing work Plaintiff

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signed an “Employee Handbook Acknowledgment and Agreement” which stated that he had read

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the alternative dispute resolution policy and that he “underst[oo]d SolarCity’s promise to arbitrate

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all employment-related disputes” and that any dispute was “subject to binding arbitration.” (Id. at

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45.)

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Shortly after Plaintiff filed this action, SolarCity moved to compel arbitration seeking to

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enforce the arbitration agreement and class action waiver. (Dkt. No. 15.) The Court stayed the

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motion pending the Ninth Circuit Court of Appeal’s decision in Morris v. Ernst & Young, LLP,

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No. 13-16599. (Dkt. No. 30.) Following the Ninth Circuit’s ruling, the Court lifted the stay and

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held a Case Management Conference. (Dkt. No. 35) Although SolarCity sought permission to

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file a supplemental brief addressing the Ninth Circuit’s decision in Morris, it subsequently decided

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not to do so. (Dkt. No. 40.)

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LEGAL STANDARD
The Federal Arbitration Act (“FAA”), 9 U.S.C. §§ 2-16, provides that arbitration

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agreements “shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or

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in equity for the revocation of any contract.” Under the FAA, “arbitration agreements [are] on an

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equal footing with other contracts,” and therefore courts are required to enforce arbitration
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agreements according to their terms. Rent-A-Center, West, Inc. v. Jackson, 561 U.S. 63, 66

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(2010). “Like other contracts, however, they may be invalidated by ‘generally applicable contract

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defenses, such as fraud, duress, or unconscionability.’” Id. (internal citations and quotations

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omitted).
The FAA espouses a general policy favoring arbitration agreements. AT&T Mobility v.

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Concepcion, 563 U.S. 333, 131 S. Ct. 1740, 1745-46, (2011). Federal courts are required to

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rigorously enforce an agreement to arbitrate. See Hall St. Assoc., L.L.C. v. Mattel, Inc., 552 U.S.

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576, 582 (2008). The court must direct parties to proceed to arbitration should it determine: (1)

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that a valid arbitration agreement exists; and (2) that the agreement encompasses the dispute at
issue. Kilgore v. KeyBank, Nat’l Ass’n, 718 F.3d 1052, 1058 (9th Cir. 2013); Cox v. Ocean View

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United States District Court
Northern District of California

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Hotel Corp., 533 F.3d 1114, 1119 (9th Cir. 2008); see also 9 U.S.C. § 4 (“If a court . . . [is]

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satisfied that the making of the agreement for arbitration or the failure to comply therewith is not

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in issue, the court shall make an order directing the parties to proceed to arbitration in accordance

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with the terms of the agreement.”). The party seeking to compel arbitration bears the burden of

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proving the existence of a valid agreement by a preponderance of the evidence. See Bridge Fund

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Capital Corp. v. Fastbucks Franchise Corp., 622 F.3d 996, 1005 (9th Cir. 2010). Courts shall

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resolve any “ambiguities as to the scope of the arbitration clause itself . . . in favor of arbitration.”

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Volt Info. Scis., Inc. v. Bd. of Trs. of Leland Stanford Jr. Univ., 489 U.S. 468, 476 (1989).
DISCUSSION

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I.

The PAGA Claim Cannot be Compelled to Arbitration.
The Ninth Circuit has specifically held that a district court cannot compel a plaintiff to

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arbitrate a PAGA claim. Sakkab v. Luxottica Retail N. Am., Inc., 803 F.3d 425, 431 (9th Cir.

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2015). SolarCity’s only response is that Sakkab was wrongly decided. That argument, of course,

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is for the United States Supreme Court or an en banc panel of the Ninth Circuit, but not for this

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Court.

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II.

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The Class and Collective Action Claims Cannot be Compelled to Arbitration.
Plaintiff argues that he cannot be compelled to arbitration because the class action waiver

is unenforceable as it violates the NLRA prohibition on interference with the right of employees to
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engage in concerted activity and the Norris-LaGuardia Act of 1932, 29 U.S.C. § 101, et. seq.,

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prohibition on the same. Plaintiff also argues that a recent decision by the National Labor

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Relations Board concluding that the SolarCity arbitration agreement violated the NLRA

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collaterally estops SolarCity from seeking to enforce the arbitration agreement here. The first

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argument is dispositive in light of Morris v. Ernst & Young, 834 F.3d 975 (9th. Cir. 2016).

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In Morris, Ernst & Young moved to compel arbitration in response to plaintiffs’ putative

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class and collective action under the FLSA and California labor law. Id. at 979. Ernst & Young

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contended that the action violated plaintiffs’ employment agreements and in particular the

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“concerted action waiver” which required employees to “(1) pursue legal claims against Ernst &
Young exclusively through arbitration and (2) arbitrate only as individuals and in “‘separate

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United States District Court
Northern District of California

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proceedings.’” Id. In opposition, plaintiffs alleged the arbitration agreement’s class waiver

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provision violated Section 7 of the NLRA, which grants employees the right to “self-organization,

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to form, join, or assist labor organizations, to bargain collectively through representatives of their

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own choosing, and to engage in other concerted activities for the purpose of collective bargaining

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or other mutual aid or protection.” 29 U.S.C. § 157. The district court granted the motion to

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compel arbitration and dismissed the case. The Ninth Circuit reversed.

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In doing so, the Ninth Circuit noted that “Section 7 protects a range of concerted employee

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activity, including the right to seek to improve working conditions through resort to administrative

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and judicial forums.” Id. at 981 (internal citation and quotation marks omitted). A lawsuit filed in

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good faith by a group of employees to achieve more favorable terms or conditions of employment

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is ‘concerted activity’ under § 7 of the National Labor Relations Act.” Id. at 981–82. The NLRA

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thus “establish[es] the right of employees to pursue work-related legal claims, and to do so

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together.” Id. at 982. The court concluded that Ernst & Young’s requirement that employees

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pursue work related claims individually was the “very antithesis of § 7’s substantive right to

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pursue concerted work-related legal claims.” Id. at 983 (internal citation and quotation marks

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omitted). The concerted action waiver was therefore unenforceable under the NLRA. Id. at 983-

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84.

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The same conclusion is required here. The SolarCity arbitration agreement contains a class
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action waiver which prohibits any dispute from being “brought, heard or arbitrated as a class or

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collective action” and instead requires that it be brought on an individual basis only. (Dkt. No. 15-

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1 at 26-27.) The arbitration agreement did not provide any opportunity for a prospective

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employee to opt-out of the agreement and was a condition of Plaintiff’s employment. Morris, 834

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F.3d at 982 n.4 (contrasting Johnmohammadi v. Bloomingdale’s Inc., 755 F. 3d 1072, 1077 (9th

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Cir. 2014), where there was no NLRA violation because the employee could have opted out of the

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arbitration agreement). (Dkt. No. 15-1 at 16). SolarCity has not advanced any argument as to

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why Morris’s conclusion regarding a class action waiver does not apply here and the Court can see

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none. SolarCity’s class action waiver is thus unenforceable.

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United States District Court
Northern District of California

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III.

The Class Action Waiver is not Severable.
The Court must consider whether the entire arbitration agreement is unenforceable or

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whether the unlawful class waiver can be severed from the rest of the agreement. Morris, 834

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F.3d at 990. The arbitration agreement provides that if a court finds that the waiver is

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unenforceable then “any remaining portion of the dispute must still be resolved in arbitration, prior

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to any judicial proceeding, including any individual claims or grievances, and including

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determination of whether any party was ‘aggrieved’ for purposes of any representative action.”

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(Dkt. No. 15-1 at 26, ¶ 12(A)(3).) This clause seeks to compel Plaintiff to resolve his claims

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individually rather than collectively and is thus unenforceable for the same reason as the class

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action waiver. See Gonzalez v. Ceva Logistics U.S., Inc., No. 16-CV-04282-WHO, 2016 WL

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6427866, at *7 (N.D. Cal. Oct. 31, 2016) (“if the arbitration agreement is enforced, even without

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the class waiver, [plaintiff] would still be limited to pursuing individual actions in arbitration. And

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under Morris, such a procedure would violate the NLRA by preventing [plaintiff] from pursing

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her employment claims through collective action.”).

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And the Court cannot save the arbitration agreement by nonetheless ordering class-wide

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relief. A court cannot compel arbitration of class claims where the parties did not contract to

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submit to class-wide arbitration. Stolt-Nielsen S.A. v. Animal Feeds Int'l. Corp., 559 U.S. 662, 684

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(2010). Here, not only did the parties not contract for class-wide arbitration, the arbitration

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agreement expressly deprives an arbitrator of any authority to arbitrate any class, collective,
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representative, or private attorney general action. (Dkt. No. 15-1 at 26, ¶ 12(A)(2).) The entire

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arbitration agreement is unenforceable.
CONCLUSION

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For the reasons stated above, SolarCity’s motion to compel arbitration is DENIED. (Dkt.
No. 15.) SolarCity shall file its responsive pleading within 14 days.

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The Case Management Conference remains on calendar for December 8, 2016.

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IT IS SO ORDERED.

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Dated: November 16, 2016

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JACQUELINE SCOTT CORLEY
United States Magistrate Judge

United States District Court
Northern District of California

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