Pataky et al v. The Brigantine, Inc.

Filing 24

ORDER Denying Defendant's 9 Motion to Compel Arbitration and Denying Defendant's Motion to Stay the Proceedings Pending Decision of the Supreme Court of the United States. Signed by Judge Gonzalo P. Curiel on 5/3/17. (dlg)

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UNITED STATES DISTRICT COURT

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SOUTHERN DISTRICT OF CALIFORNIA

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NEAL PATAKY, JESSICA CLEEK, and
LAUREN MICHELSON, individually,
and on behalf of others similarly situated,

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Case No.: 3:17-cv-00352-GPC-AGS
ORDER DENYING DEFENDANT’S
MOTION TO COMPEL
ARBITRATION AND DENYING
DEFENDANT’S MOTION TO STAY
THE PROCEEDINGS PENDING
DECISION OF THE SUPREME
COURT OF THE UNITED STATES

Plaintiffs,
v.
THE BRIGANTINE, INC., a California
corporation,
Defendant.

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[ECF No. 9.]

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Before the Court is Defendant The Brigantine, Inc.’s (“Defendant’s” or
“Brigantine’s”) motion to compel arbitration or, alternatively, to stay the proceedings
pending decision of the Supreme Court of the United States in Morris v. Ernst & Young,
LLP, 834 F.3d 975 (9th Cir. 2016), cert. granted, 137 S. Ct. 809 (2017). (Dkt. No. 9.)
The motion has been fully briefed. (Dkt. Nos. 20, 22.) The Court deems this motion
suitable for disposition without oral argument pursuant to Civil Local Rule 7.1(d)(1).
Having considered the parties’ arguments and the applicable law, the Court DENIES
Defendant’s motion to compel arbitration and DENIES Defendant’s request for a stay.
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BACKGROUND

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On February 22, 2017, Plaintiffs Neal Pataky (“Plaintiff” or “Pataky”), Jessica

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Cleek (“Plaintiff” or “Cleek”), and Lauren Michelson (“Plaintiff” or “Michelson”)

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(collectively, “Plaintiffs”), on behalf of themselves and others similarly situated, filed the

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instant putative class action against The Brigantine, Inc., a California corporation which

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owns and operates multiple restaurants in San Diego County. (Dkt. No. 1, Compl. ¶ 4.)

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Plaintiffs allege that Defendant maintained an unlawful “tip pooling” policy, under which

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Plaintiffs, who were employed as servers at Defendant’s restaurants, had to “tip out”

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portions of their earned tip income to other employees who do not provide direct table

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service to customers. (Compl. ¶¶ 8–9.) Plaintiffs assert three claims for relief based on

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Defendant’s alleged violations of the Fair Labor Standards Act (“FLSA”), 29 U.S.C. §

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201 et seq., (Compl. ¶¶ 15–22); unfair business practices in violation of California’s

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Unfair Competition Law (“UCL”), Cal. Bus. & Prof. Code § 17200 et seq., (Compl. ¶¶

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23 – 28); and unlawful business practices in violation of the UCL, Cal. Bus. & Prof. Code

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§ 17200 et seq., (Compl. ¶¶ 29–34).

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In support of its motion, Defendant attached copies of the Employment At-Will

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and Arbitration Agreement, signed by Pataky, Cleek, and Michelson on September 4 or

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September 5, 2014. (Dkt. No. 9-2, Carl Decl. Exs. A, C, E.) Employees are presented

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with an Employment At-Will and Arbitration Agreement as part of Defendant’s hiring

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practice. (Carl Decl. ¶ 3.) As a matter of company policy, employees are not required to

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sign the document. (Id.) Human resources instructs managers not to force or require

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employees to sign the agreement—indeed, some employees decline to sign the

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agreement, with no effect on their employment status. (Id.) Nonetheless, Defendant does

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not specify whether employees are affirmatively instructed that signing the agreement is

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optional. (See id.) And the language of the Arbitration Agreement does not give

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employees any notice that they may opt out of the agreement, or that signing it is

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completely voluntary and will have no effect on their employment status. (See Dkt. No.

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9-2, Carl Decl. Exs. A, C, E.)
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Paragraph 2 of the Arbitration Agreement reads as follows:

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I and the Company agree to utilize binding individual arbitration as the sole and
exclusive means to resolve all disputes that may arise out of or be related in any
way to my employment, including but not limited to the termination of my
employment and my compensation. I and the Company each specifically waive
and relinquish our respective rights to bring a claim against the other in a court of
law. Both I and the Company agree that any claim, dispute, and/or controversy
that I may have against the Company (or its owners, directors, officers, managers,
employees, or agents), or the Company may have against me, shall be submitted to
and determined exclusively by binding arbitration under the Federal Arbitration
Act (“FAA”), in conformity with the procedures of the California Arbitration Act
(Cal. Code Civ. Proc. sec 1280 et seq., including section 1283.05 and all of the
Act’s other mandatory and permissive rights to discovery). The FAA applies to
this Agreement because the Company’s business involves interstate commerce.
Included within the scope of this Agreement are all disputes, whether based on tort,
contract, statute (including, but not limited to, any claims of discrimination,
harassment and/or retaliation, whether they be based on the California Fair
Employment and Housing Act, Title VII of the Civil Rights Act of 1964, as
amended, or any other state or federal law or regulation), equitable law, or
otherwise. The only exception to the requirement of binding arbitration shall be
for claims arising under the National Labor Relations Act which are brought before
the National Labor Relations Board, claims for medical and disability benefits
under the California Workers’ Compensation Act, Employment Development
Department claims, or other claims that are not subject to arbitration under current
law. However, nothing herein shall prevent me from filing and pursuing
proceedings before the California Department of Fair Employment and Housing, or
the United States Equal Employment Opportunity Commission (although if I
choose to pursue a claim following the exhaustion of such administrative remedies,
that claim would be subject to the provisions of this Agreement). By this binding
arbitration provision, I acknowledge and agree that both the Company and I give
up our respective rights to trial by jury of any claim I or the Company may have
against the other.

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(Dkt. No. 9-2 at 4.)
Paragraph 3 of the Arbitration Agreement contains a class action waiver:
All claims brought under this binding arbitration Agreement shall be brought in the
individual capacity of myself or the Company. This binding arbitration Agreement
shall not be construed to allow or permit the consolidation or joinder of other
claims or controversies involving any other employees or parties, or permit such
claims or controversies to proceed as a class action, collective action or any similar
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representative action. No arbitrator shall have the authority under this agreement
to order any such class, collective or representative action. By signing this
agreement, I am agreeing to waive any substantive or procedural rights that I may
have to bring an action on a class, collective, representative, or other similar basis.

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(Id.)
Paragraph 6 contains a severability provision: “If any term, provision or portion of
this Agreement is determined to be void or unenforceable it shall be severed and the
remainder of this Agreement shall be fully enforceable.” (Id. at 5.)
Each of the three Plaintiffs supplied a declaration testifying that the copies of the
Employment At-Will and Arbitration Agreement proffered by Defendant “do not look

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familiar,” that they lack “specific recollection of having signed” the Agreement, that they

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“had no idea” that they “may have signed an arbitration agreement with Brigantine” until

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they reviewed Defendant’s exhibits, and that they lack “recollection of anyone at

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Brigantine ever explaining . . . that signing an arbitration agreement meant [they] could
not file a lawsuit about employment issues with Brigantine, or represent other employees
in a class action.” (Dkt. No. 12-4, Cleek Decl. ¶ 9; Dkt. No. 12-5, Michelson Decl. ¶ 9;
Dkt. No. 12-6, Pataky Decl. ¶ 10.) None of the Plaintiffs took the agreements home for
review or consulted an attorney. (Id.)
On March 16, 2017, Defendant filed the instant motion to compel arbitration.
(Dkt. No. 9.) In the alternative, Defendant requests that the Court stay the proceedings
pending the Supreme Court’s ruling in Morris. (Dkt. No. 9.) On April 7, 2017, Plaintiffs
filed an opposition to Defendant’s motion, arguing that Morris prevents the Court from
compelling arbitration in the instant case, and that a stay is inappropriate. (Dkt. No. 20.)
On April 21, 2017, Defendant filed a reply. (Dkt. No. 22.)
LEGAL STANDARD
Pursuant to the Federal Arbitration Act (“FAA”), arbitration agreements “shall be
valid, irrevocable, and enforceable, save upon such grounds that exist at law or in equity
for the revocation of any contract.” 9 U.S.C. § 2. The FAA provides that “a party

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aggrieved by the alleged failure, neglect, or refusal of another to arbitrate under a written

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agreement for arbitration may petition any United States district court . . . for an order

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directing that . . . arbitration proceed in the manner provided for in such agreement.” 9

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U.S.C. § 4. Federal policy favors arbitration. Moses H. Cone Mem’l Hosp. v. Mercury

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Constr. Corp., 460 U.S. 1, 24 (1983). The FAA “establishes that, as a matter of federal

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law, any doubts concerning the scope of arbitrable issues should be resolved in favor of

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arbitration, whether the problem at hand is the construction of the contract language itself

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or an allegation of waiver, delay, or a like defense to arbitrability.” Id. at 24–25.

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In ruling on a motion to compel arbitration, a court must determine two gateway

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matters: (1) whether there is an agreement to arbitrate between the parties; and (2)

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whether the agreement covers the dispute. Brennan v. Opus Bank, 796 F.3d 1125, 1130

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(9th Cir. 2015) (citing Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79, 84 (2002)).

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If these conditions are satisfied, the court lacks discretion to deny the motion and must

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compel arbitration. 9 U.S.C. § 4; Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213, 218

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(1985) (“By its terms, the [FAA] leaves no place for the exercise of discretion by a

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district court, but instead mandates that district courts shall direct the parties to proceed

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to arbitration.”). In addition, § 3 of the FAA provides that once a court compels

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arbitration, the court “shall on application of one of the parties stay the trial of the action”

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until arbitration has occurred. 9 U.S.C. § 3. However, “[i]f the making of the arbitration

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agreement or the failure, neglect, or refusal to perform the same be in issue, the court

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shall proceed summarily to the trial thereof.” 9 U.S.C. § 4.

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DISCUSSION
I.

Motion to Compel Arbitration
A. The Existence of the Arbitration Agreement
“It is a settled principle of law that ‘arbitration is a matter of contract.’” Ingle v.

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Circuit City Stores, Inc., 328 F.3d 1165, 1170 (9th Cir. 2003) (quoting United

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Steelworkers of America v. Warrior & Gulf Nav. Co., 363 U.S. 574, 582 (1960)). “To

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evaluate the validity of an arbitration agreement, federal courts ‘should apply ordinary
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state-law principles that govern the formation of contracts.’” Id. (quoting First Options

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of Chicago, Inc. v. Kaplan, 514 U.S. 938, 944 (1995)).

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Plaintiffs contest the existence of the arbitration agreements. (Dkt. No. 20 at 20–

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24.) Plaintiffs testify that they each lack recollection of having signed or seen the

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arbitration agreement nearly three years ago, that they did not understand the agreement

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to mean that they could not file an employment lawsuit against Defendant on behalf of

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themselves or others similarly situated, that they do not recall receiving an explanation

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from anyone regarding the consequences of signing the agreement, and that they never

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reviewed the agreement at home or with a lawyer. (Dkt. No. 12-4, Cleek Decl. ¶ 9; Dkt.

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No. 12-5, Michelson Decl. ¶ 9; Dkt. No. 12-6, Pataky Decl. ¶ 10.)

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While the circumstances surrounding the formation of the agreements may be

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unclear (e.g., how the agreements were presented to Plaintiffs; whether anyone witnessed

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Plaintiffs sign the agreements; and what, if anything, Defendant or its representatives said

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to Plaintiffs about the agreements), Plaintiffs’ objections do not go to the existence of a

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contract. Plaintiffs do not contest that the agreements bear their respective signatures.

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Plaintiffs cite no law requiring Defendant or its representative to countersign the

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arbitration agreement, where the agreement makes amply clear that the agreement is

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between the employee and Brigantine, expressly defined in the agreement as “the

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Company.” (Dkt. No. 9-2 at 4–5.)

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Furthermore, Flores v. Nature’s Best Distribution, LLC, 7 Cal. App. 5th 1, 6 (Cal.

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Ct. App. 2016), review denied (Mar. 29, 2017), is inapposite. The Flores court expressly

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declined to decide whether the defendant properly authenticated the arbitration

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agreement. See 7 Cal. App. 5th at 9 (“We do not need to address whether the Agreement

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was properly authenticated because, even assuming the Agreement indeed bears

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plaintiff’s signature, it fails to reflect plaintiff’s agreement to submit her claims against

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defendants in the instant case to binding arbitration pursuant to its terms.”). Unlike the

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arbitration agreement in this case, the body of the agreement in Flores did not define

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either “employee” or “Company” or identify with which entity the plaintiff had made an
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agreement. Id. The arbitration agreement in Flores further failed to clearly define which

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disputes would be subject to arbitration, and which would instead be subject to resolution

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through a grievance and arbitration procedure contained in a collective bargaining

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agreement. Id. at 10. The arbitration agreement did not identify which set of rules would

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apply to binding arbitration. Id. In conclusion, the Flores court held that the ambiguity

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of the agreement precluded a conclusion that the parties had reached an agreement:

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Viewing the Agreement as a whole, the Agreement is ambiguous regarding (1)
whether the arbitration provision of the Agreement (not a grievance and arbitration
procedure of a collective bargaining agreement) applied to any or all of plaintiff’s
claims against any or all of defendants in the instant action and (2) the governing
rules and procedures for any such arbitration. We cannot conclude the parties
reached agreement on the matter of submitting any or all of plaintiff’s claims to
final and binding arbitration as contemplated by the Agreement. The trial court
therefore did not err by denying the petition; we do not need to analyze whether the
arbitration provision was procedurally and/or substantively unconscionable.

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Id. at 11(internal citation omitted). Flores is distinguishable from the instant case, and
Plaintiffs’ reliance on Flores is misplaced.
In addition, the arbitration agreement each Plaintiff signed specifically provides, “I
and the Company each specifically waive and relinquish our respective rights to bring a
claim against the other in a court of law.” (Dkt. No. 9-2 at 4.) The agreement also
contains a bolded, all-caps acknowledgment before the signature line:
MY SIGNATURE BELOW ATTESTS TO THE FACT THAT I HAVE
READ, UNDERSTAND, AND AGREE TO BE LEGALLY BOUND TO ALL
OF THE ABOVE TERMS. I FURTHER UNDERSTAND THAT THIS
AGREEMENT REQUIRES ME TO ARBITRATE ANY AND ALL
DISPUTES THAT ARISE OUT OF MY EMPLOYMENT.
DO NOT SIGN UNTIL YOU HAVE READ THE ABOVE
ACKNOWLEDGMENT AND AGREEMENT.

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(Id. at 5.) That Plaintiffs now lack recollection of having signed the agreement and now

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testify that they did not understand the agreement does not comport with the

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acknowledgment that they signed.

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Plaintiffs also dispute that the arbitration agreement covers the instant litigation.

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(Dkt. No. 20 at 20–24.) “Any doubts concerning the scope of arbitrable issues should be

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resolved in favor of arbitration.” Simula, Inc. v. Autoliv, Inc., 175 F.3d 716, 721 (9th Cir.

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1999). Here, there can be no doubt regarding the expansive scope of the arbitration

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agreement, given the following unambiguous language:

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I and the Company agree to utilize binding individual arbitration as the sole and
exclusive means to resolve all disputes that may arise out of or be related in any
way to my employment, including but not limited to the termination of my
employment and my compensation . . . Both I and the Company agree that any
claim, dispute, and/or controversy that I may have against the Company (or its
owners, directors, officers, managers, employees, or agents), or the Company may
have against me, shall be submitted to and determined exclusively by binding
arbitration . . . Included within the scope of this Agreement are all disputes,
whether based on tort, contract, statute (including, but not limited to, any claims of
discrimination, harassment and/or retaliation, whether they be based on the
California Fair Employment and Housing Act, Title VII of the Civil Rights Act of
1964, as amended, or any other state or federal law or regulation), equitable law, or
otherwise. The only exception to the requirement of binding arbitration shall be for
claims arising under the National Labor Relations Act which are brought before
the National Labor Relations Board, claims for medical and disability benefits
under the California Workers’ Compensation Act, Employment Development
Department claims, or other claims that are not subject to arbitration under current
law.

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(Dkt. No. 9-2 at 4 (emphases added).) Because the arbitration agreement clearly covers
all disputes arising out of Plaintiffs’ employment with Defendant, save for the narrow
exception delineated above, Plaintiffs’ argument is unavailing.
Having concluded that the arbitration agreements exist, and that they cover the
instant dispute, the Court turns to examine whether the Ninth Circuit’s decision in Morris
renders the arbitration agreements unenforceable.
B. Applicability of the Ninth Circuit’s Decision in Morris
In its arbitration jurisprudence, the Supreme Court has repeatedly stated that “[b]y
agreeing to arbitrate a statutory claim, a party does not forgo the substantive rights
afforded by the statute; it only submits to their resolution in an arbitral, rather than a
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judicial, forum.” Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S.

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614, 628 (1985) (emphasis added); Gilmer v. Interstate/Johnson Lane Corp., 500 U.S.

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20, 26 (U.S. 1991); Shearson/Am. Exp., Inc. v. McMahon, 482 U.S. 220, 229 (1987); Am.

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Exp. Co. v. Italian Colors Rest., 133 S. Ct. 2304, 2310–11 (2013) (stating that although

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the Supreme Court has never invalidated an arbitration agreement on grounds of the

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“‘effective vindication’ exception” to the FAA,” the exception “would certainly cover a

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provision in an arbitration agreement forbidding the assertion of certain statutory rights”);

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CompuCredit Corp. v. Greenwood, 565 U.S. 95, 102 (2012) (holding that contract

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“parties remain free to specify” their choice of judicial forum “so long as the guarantee”

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of the statute “is preserved”).
Section 7 of the National Labor Relations Act (“NLRA”) provides that employees

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have “the right to self-organization, to form, join, or assist labor organizations, to bargain

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collectively through representatives of their own choosing, and to engage in other

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concerted activities for the purpose of collective bargaining or other mutual aid or

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protection.” 29 U.S.C. § 157. Section 8(a)(1) makes it “an unfair labor practice for an

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employer to interfere with, restrain, or coerce employees in the exercise of the rights

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guaranteed in section [7].” 29 U.S.C. § 158(a). In 2012, the National Labor Relations

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Board (“NLRB”) held that “[t]he right to engage in collective action—including

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collective legal action—is the core substantive right protected by the NLRA and is the

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foundation on which the Act and Federal labor policy rest.” In Re D.R. Horton, Inc., 357

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NLRB 2277, 2286 (2012). Accordingly, following the Supreme Court’s arbitration

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jurisprudence regarding substantive statutory rights, the NLRB concluded that an

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employer violates the NLRA “when it requires employees covered by the Act, as a

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condition of their employment, to sign an agreement that precludes them from filing

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joint, class, or collective claims addressing their wages, hours, or other working

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conditions against the employer in any forum, arbitral or judicial.” Id. at 2277.

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In Morris v. Ernst & Young, LLP, 834 F.3d 975 (9th Cir. 2016), cert. granted, 137
S. Ct. 809 (2017), the Ninth Circuit examined “whether an employer violates the National
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Labor Relations Act by requiring employees to sign an agreement precluding them from

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bringing, in any forum, a concerted legal claim regarding wages, hours, and terms and

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conditions of employment.” 834 F.3d at 979. Applying principles of Chevron deference,

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the Ninth Circuit adopted the NLRB’s interpretation of Sections 7 and 8 of the NLRA in

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D.R. Horton.1 Id. at 980–84. “Section 7’s ‘mutual aid or protection clause’ includes the

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substantive right to collectively ‘seek to improve working conditions through resort to

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administrative and judicial forums.’” Id. at 983 (quoting Eastex, Inc. v. NLRB, 437 U.S.

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556, 566). Accordingly, “an employer may not defeat the right by requiring employees

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to pursue all work-related legal claims individually” without violating § 8. Id.
Following the NLRB’s conclusion that “[c]oncerted activity—the right of

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employees to act together—is the essential, substantive right established by the NLRA,”

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the Ninth Circuit concluded that “Ernst & Young interfered with that right by requiring

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its employees to resolve all of their legal claims in separate proceedings.’” Id. at 980.

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Because the arbitration agreement “interfere[d] with a protected § 7 right in violation of §

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8,” the “separate proceedings” clause in the contract triggered the savings clause in FAA

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§ 2 and could not be enforced. Id. at 983–84. The Ninth Circuit concluded:
In sum, the “separate proceedings” provision of the Ernst & Young contract
interferes with a substantive federal right protected by the NLRA’s § 7. The
NLRA precludes contracts that foreclose the possibility of concerted work-related
legal claims. An employer may not condition employment on the requirement that
an employee sign such a contract.

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Morris, 834 F.3d at 990.

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Defendant reads Morris narrowly, arguing that because Plaintiffs were not required

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to sign an arbitration agreement prohibiting class action, the arbitration agreement, with

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the embedded class action waiver, is enforceable. (Dkt. No. 9-1 at 16–17; Dkt. No. 22 at

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Defendant argues that D.R. Horton “has been rejected by most courts in the Ninth Circuit.” (Dkt. No.
22 at 5.) In so arguing, Defendant ignores the Ninth Circuit’s adoption of the NLRB’s interpretation of
Sections 7 and 8 of the NLRA in Morris.
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2–5.) Defendant relies chiefly upon a footnote distinguishing Johnmohammadi v.

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Bloomingdale’s, Inc., 755 F.3d 1072 (9th Cir. 2014), an earlier Ninth Circuit decision.

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(Id.) In the footnote, the majority in Morris wrote: “In contrast, there was no § 8

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violation in Johnmohammadi v. Bloomingdale’s, Inc. because the employee there could

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have opted out of the individual dispute resolution agreement and chose not to.” Morris,

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834 F.3d at 983 n.4. In Johnmohammadi, the employee, who sought to bring a class

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action on behalf of herself and fellow employees for unpaid wages, received upon her

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hiring a set of documents “inform[ing] her that she agreed to resolve all employment-

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related disputes through arbitration unless she returned an enclosed form within 30 days

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electing, as the form put it, ‘NOT to be covered by the benefits of Arbitration.’

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Johnmohammadi did not return the opt-out form.” 755 F.3d at 1074. Despite

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Johnmohammadi’s argument that “filing th[e] class action on behalf of her fellow

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employees [wa]s one of the ‘other concerted activities’ protected by the Norris–

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LaGuardia Act and the NLRA,” the Ninth Circuit chose not to “decide whether

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Johnmohammadi has correctly interpreted this statutory phrase. To prevail, she must still

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show that Bloomingdale’s interfered with, restrained, or coerced her in the exercise of her

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right to file a class action.” Id. at 1075. Because Johnmohammadi had the right to opt

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out of the agreement and voluntarily chose not to do so, the arbitration agreement was

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valid, and arbitration must be compelled. Id. at 1077.

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Defendant’s attempt to analogize the facts of this case to Johnmohammadi is

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unavailing. Unlike the agreement in Johmohammadi, the arbitration agreement in this

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case does not contain any express indication or implicit suggestion that employees had

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the right to opt out of the agreement, that they could refuse to sign the agreement without

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repercussion to their employment status, or that they could take the agreement home for

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thirty days to decide whether or not to opt out. (Dkt. No. 9-2, Carl Decl. ¶ 3.) While

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Defendant maintains that managers were instructed not to require employees to sign the

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agreement, there is no evidence that managers affirmatively informed employees that

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they had the choice not to sign the agreement. (Id.) Moreover, while employees are
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presented with an Employment At-Will and Arbitration Agreement as part of

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Defendant’s hiring practice, (id.), it is unclear under what circumstances Plaintiffs were

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presented with the agreement, and what, if anything, Plaintiffs learned from Defendant or

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its representatives about the agreement. Although the agreements were signed on

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September 4 or 5, 2014, Plaintiffs were hired well in advance of September 2014: Cleek

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was hired on May 1, 2013, (Dkt No. 20-1, Cleek Decl. ¶ 2); Michelson was hired in May

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2013, (Dkt. No. 20-2, Michelson Decl. ¶ 2); and Pataky was hired some time in 2005,

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(Dkt. No. 20-3, Pataky Decl. ¶ 2). Defendant has not shown that Plaintiffs were on notice

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that they had an affirmative opt-out right. The facts surrounding the formation of the

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arbitration agreements fall far short of the facts in Johnmohammadi.

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Although the Court need not resolve the question, the Court observes that the

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footnote distinguishing Johnmohammadi appears to be in tension with the remainder of

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the majority’s opinion in Morris. In Morris, the Ninth Circuit concluded that a provision

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prohibiting concerted legal action in any forum violates § 8 of the NLRA on its own; the

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requirement that an employee sign a concerted action waiver is an additional violation of

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§ 8:

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Section 8 establishes that “[i]t shall be an unfair labor practice for an employer . . .
to interfere with, restrain, or coerce employees in the exercise of the rights
guaranteed in section 157.” 29 U.S.C. § 158. A “separate proceedings” clause
does just that: it prevents the initiation of any concerted work-related legal claim,
in any forum. Preventing the exercise of a § 7 right strikes us as “interference”
within the meaning of § 8. Thus, the Board’s determination that a concerted action
waiver violates § 8 is no surprise. And an employer violates § 8 a second time by
conditioning employment on signing a concerted action waiver.

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Morris, 834 F.3d at 982. Morris makes clear that “the arbitration requirement is not the

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problem. The same [separate proceedings] provision in a contract that required court

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adjudication as the exclusive remedy would equally violate the NLRA. The NLRA

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obstacle is a ban on initiating, in any forum, concerted legal claims—not a ban on

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arbitration.” Morris, 834 F.3d at 984 (emphasis added). Indeed, the decision reiterates

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repeatedly that the relevant problem is the waiver of class action, not the requirement that

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the parties submit to arbitration:

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The illegality of the “separate proceedings” term here has nothing to do with
arbitration as a forum. It would equally violate the NLRA for Ernst & Young to
require its employees to sign a contract requiring the resolution of all work-related
disputes in court and in “separate proceedings.” The same infirmity would exist if
the contract required disputes to be resolved through casting lots, coin toss, duel,
trial by ordeal, or any other dispute resolution mechanism, if the contract (1)
limited resolution to that mechanism and (2) required separate individual
proceedings. The problem with the contract at issue is not that it requires
arbitration; it is that the contract term defeats a substantive federal right to pursue
concerted work-related legal claims.
Id. at 985 (emphases added).
Having concluded that concerted legal action is a protected substantive right under
the NLRA, the majority continued on to explain how its conclusion squares with the FAA
and Supreme Court precedent:
Crucial to today’s result is the distinction between “substantive” rights and
“procedural” rights in federal law. The Supreme Court has often described rights
that are the essential, operative protections of a statute as “substantive” rights. In
contrast, procedural rights are the ancillary, remedial tools that help secure the
substantive right.
Id. (internal citations omitted). The difference between substantive and procedural rights
“is key, because substantive rights cannot be waived in arbitration agreements. This
tenet is a fundamental component of the Supreme Court’s arbitration jurisprudence[.]”
Id. at 985–86 (internal citations omitted) (emphasis added); see also id. at 986 n.10
(“Contract parties can agree on the procedural terms they like (such as resolving disputes
in arbitration), but they may not agree to leave the substantive protections of federal law
at the door.”). Accordingly, “when an arbitration contract professes the waiver of a
substantive federal right, the FAA’s saving clause prevents a conflict between the statutes
by causing the FAA’s enforcement mandate to yield.” Id. at 986. Because “[t]he rights
established in § 7 of the NLRA—including the right of employees to pursue legal claims

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together—are substantive,” and “are the central, fundamental protections of the Act,” the

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“FAA does not mandate the enforcement of a contract that alleges their waiver.” Id.

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Accordingly, the “separate proceedings” clause was an “illegal” term that could not be

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enforced under the savings clause in § 2 of the FAA. Id. at 985 (“When an illegal

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provision not targeting arbitration is found in an arbitration agreement, the FAA treats the

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contract like any other; the FAA recognizes a general contract defense of illegality.”

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(citing, inter alia, 9 U.S.C. § 2)).

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In light of the above, it is unclear whether providing a clear opportunity to opt out

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of an arbitration agreement containing a class action waiver, as in Johnmohammadi,

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neutralizes a class action waiver’s interference with Sections 7 and 8 of the NLRA.

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However, given that the facts surrounding the formation of the arbitration agreements in

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this case are distinguishable from those in Johnmohammadi, the Court does not need to

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resolve the apparent tension between Morris and Johnmohammadi. The Court next

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proceeds to examine whether the class action waiver provision is severable.

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C. Severability
Plaintiffs argue that the Court may not sever the class action waiver in the

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arbitration agreement and compel Plaintiffs to class arbitration. (Dkt. No. 20 at 19–

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20.) Even without the class action waiver, there is no contractual basis for determining

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that the parties agreed to submit to class arbitration. (Id.) Defendant does not respond to

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Plaintiffs’ argument.

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The Supreme Court has held that “a party may not be compelled under the FAA to

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submit to class arbitration unless there is a contractual basis for concluding that the party

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agreed to do so.” Stolt-Nielsen S.A. v. AnimalFeeds Int’l Corp., 559 U.S. 662, 684

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(2010). Furthermore,

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An implicit agreement to authorize class-action arbitration, however, is not a term
that the arbitrator may infer solely from the fact of the parties’ agreement to
arbitrate. This is so because class-action arbitration changes the nature of
arbitration to such a degree that it cannot be presumed the parties consented to it by
simply agreeing to submit their disputes to an arbitrator.
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Id. at 685.

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Here, the arbitration agreement explicitly rules out class arbitration in Paragraphs 2

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and 3. The agreement states that the parties “agree to utilize binding individual

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arbitration as the sole and exclusive means to resolve all disputes that may arise out of or

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be related in any way to [the employee’s] employment.” (Dkt. No. 9-2 at 4 (emphases

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added).) The agreement expressly provides that “[t]his binding arbitration Agreement

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shall not be construed to allow or permit the consolidation or joinder of other claims or

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controversies involving any other employees or parties, or permit such claims or

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controversies to proceed as a class action, collective action or any similar representative

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action.” (Id.) The agreement divests the arbitrator of the authority to order class

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arbitration and forbids employees from “bring[ing] an[y] action on a class, collective,

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representative, or other similar basis.” (Id.)

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Accordingly, because the parties did not agree to class arbitration, the Court cannot

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rely on the severability provision in the arbitration agreement to compel Plaintiffs to class

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arbitration.2

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II.

Motion to Stay
“The District Court has broad discretion to stay proceedings as an incident to its

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power to control its own docket.” Clinton v. Jones, 520 U.S. 681, 706 (1997) (citing

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Landis v. N. Am.Co., 299 U.S. 248, 254 (1936)). In determining whether to grant a

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motion to stay, “the competing interests which will be affected by the granting or refusal

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to grant a stay must be weighed.” Lockyer v. Mirant Corp., 398 F.3d 1098, 1110 (9th

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Cir. 2005). These interests include: (1) the possible damage which may result from the

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granting of a stay, (2) the hardship or inequity which a party may suffer in being required

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to go forward, and (3) the orderly course of justice measured in terms of the simplifying

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2

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The Court does not find it necessary to reach the remaining arbitration-specific issues raised by the
parties, including, inter alia, whether Defendant’s arbitration agreement also violates the Norris
LaGuardia Act and the FLSA, (Dkt. No. 20 at 18–19; Dkt. No. 22 at 5–6), and whether the arbitration
agreements are unconscionable, (Dkt. No. 20 at 25–27).
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or complicating of issues, proof, and questions of law which could be expected to result

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from a stay. Id. The burden is on the moving party. Clinton, 520 U.S. at 708.

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Defendant summarily requests that the Court stay this case pending the Supreme Court’s

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decision regarding Morris, stating that a decision “can be expected within a matter of

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months.” (Dkt. No. 9-1 at 18; Dkt. No. 22 at 8.) Plaintiffs oppose Defendant’s

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request. (Dkt. No. 20 at 27–31.)

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As a starting matter, the Supreme Court recently granted certiorari in Morris on

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January 13, 2017. Ernst & Young, LLP v. Morris, 137 S. Ct. 809 (2017). There is no

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indication that a decision will be issued in a matter of months. Furthermore, Defendant

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makes no attempt to justify a stay, other than stating that the Supreme Court’s ruling in

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Morris is forthcoming. Defendant has not satisfied its burden in moving for a stay. See

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Clinton, 520 U.S. at 708.

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As to the first factor, Plaintiffs have shown that they will face damage from the

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granting of a stay. Specifically, Plaintiffs assert that a stay pending the Supreme Court’s

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decision would prejudice Plaintiffs by delaying the opt-in, notice and consent, and

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conditional class certification procedures for the instant putative FLSA class

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action. (Dkt. No. 20 at 27–31.) The two-year statute of limitations period would

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continue to run, and evidence may be lost during the stay. (Id.) As to the second factor,

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Defendant has proffered no argument showing that it will incur hardship or inequity from

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being required to go forward in the instant litigation. And as to the third factor, while a

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ruling in Morris would directly weigh in on whether this action may proceed in federal

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court, the sum of the three stay factors do not weigh in favor of a stay.

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CONCLUSION

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For the foregoing reasons, the Court DENIES Defendant’s motion to compel

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arbitration and DENIES Defendant’s request for a stay.

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IT IS SO ORDERED.
////

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Dated: May 3, 2017

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