Filed 8/25/20 Nazanen v. Lincoln Property CA4/3




                      NOT TO BE PUBLISHED IN OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for
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or ordered published for purposes of rule 8.1115.


                IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

                                     FOURTH APPELLATE DISTRICT

                                                 DIVISION THREE


 JAMILI NAZANEN,

      Plaintiff and Respondent,                                          G057544

           v.                                                            (Super. Ct. No. 30-2017-00962959)

 LINCOLN PROPERTY CO., ECW et al.,                                       OPINION

      Defendants and Appellants.



                   Appeal from an order of the Superior Court of Orange County, Glenda
Sanders, Judge. Affirmed.
                   Littler Mendelson, Alaya B. Meyers, Oliver B. Dreger and Michael L.
Kibbe for Defendants and Appellants.
                   Matern Law Group, Matthew J. Matern, Dalia R. Khalili, Kiran Prasad,
Shooka Dadashzadeh and Julia Wells for Plaintiff and Respondent.
                                             *               *               *
               Plaintiff Jamili Nazanen filed a lawsuit against defendants Lincoln Property
Co., ECW (Lincoln Property) and Lincoln Apartment Management Limited Partnership
(collectively defendants) asserting a single cause of action under the Private Attorneys
                                                                 1
General Act of 2004 (the PAGA). (Lab. Code, § 2698 et seq.) Defendants moved to
compel individual arbitration of the PAGA claim. The trial court denied the motion on
grounds PAGA claims cannot be compelled to arbitration under Iskanian v. CLS
Transportation Los Angeles, LLC (2014) 59 Cal.4th 348 (Iskanian). Defendants appeal
this ruling, primarily arguing that Iskanian has been overruled by Epic Systems Corp. v.
Lewis (2018) 138 S.Ct. 1612 (Epic).
               We disagree. The United States Supreme Court examined a different issue
in Epic, so we are bound by Iskanian. Further, we agree with other California Courts of
Appeal that have found PAGA claims cannot be compelled to arbitration without the
state’s consent, which has not been given here. Finally, we reject defendants’ contention
that the trial court erred by failing to compel certain factual issues to arbitration. A
PAGA claim cannot be severed into arbitrable and nonarbitrable portions. Accordingly,
we affirm the trial court’s order.


                                               I
                                           FACTS
               Defendants operate and oversee residential communities across the nation.
Plaintiff alleges she was employed by defendants as a leasing manager from November
2015 to December 2016. She filed this lawsuit against them in December 2017 and then
filed an amended complaint in June 2018. The amended complaint alleged a single cause




1
    Further undesignated statutory references are to the Labor Code.

                                              2
of action for civil penalties under the PAGA arising from various violations of the Labor
        2
Code.
              In November 2018, defendants moved to compel individual arbitration of
plaintiff’s PAGA claim under an arbitration agreement she had accepted as a condition of
employment. The arbitration agreement stated “any claims or causes of action between
[plaintiff] and [Lincoln Property], or any of its employees or agents, that arise in any way
from or relate in any way to [plaintiff’s] employment or termination from employment
with [Lincoln Property] . . . will be determined exclusively by final and binding
arbitration.” It also specified, “[t]he arbitrator will only have authority to hear each
employee’s individual claims and will not have the authority to (i) consolidate the claims
of other employees, (ii) fashion a proceeding as a class or collective action, or (iii)
award relief to a group or class of employees in one arbitration proceeding. Neither
[Lincoln Property] nor you will pursue any claim against the other as a member or
                              3
representative of a class.”
              In their motion, defendants recognized that Iskanian precluded them from
compelling plaintiff’s PAGA claim to arbitration on an individual basis. But they argued
this portion of Iskanian had been effectively overruled by the United States Supreme
Court in Epic and was incompatible with the Federal Arbitration Act (the FAA). In the
alternative, defendants asserted the trial court should compel certain underlying factual

2
  The specific violations are as follows: (a) failure to provide meal periods (§§ 226.7,
512); (b) failure to provide rest periods (§ 226.7); (c) failure to pay overtime (§§ 510,
1194, 1198); (d) failure to pay minimum wage (§§ 1194, 1197); (e) failure to timely pay
wages (§ 204); (f) failure to pay all wages upon separation (§§ 201-203); (g) failure to
maintain required records (§§ 226, subd. (a), 1174, subd. (d)); (h) failure to provide
accurate wage statements (§ 226, subd. (a)); and (i) failure to indemnify for business
expenses (§ 2802).
3
  The arbitration agreement also applied to Lincoln Property’s “parents, subsidiaries,
partners, members and managers (in the case of a limited liability company), and
affiliated entities.”

                                              3
issues to arbitration, including whether plaintiff was employed by both defendants.
Lincoln Property contended it was plaintiff’s sole employer. In opposition, plaintiff
contended that Epic did not overrule Iskanian, that the FAA did not apply to the
arbitration agreement, that defendants had waived their right to arbitration, and that the
agreement was unconscionable.
              The trial court denied defendants’ motion, finding Epic had not overruled
Iskanian, and, consequently, plaintiff’s PAGA claim was not arbitrable. It did not
address plaintiff’s other arguments.
              Defendants appeal the trial court’s order denying their motion to compel
arbitration. (Code Civ. Proc., § 1294, subd. (a).) They maintain the “foundation of
[their] appeal” is “that Iskanian is no longer good law because it was overruled by the
United States Supreme Court in Epic Systems.”


                                              II
                                       DISCUSSION
A. Applicable Law
              Generally, the standard of review for a denial of a motion to compel
arbitration depends on the issues presented on appeal. If the denial is based on findings
of fact, the substantial evidence standard is applied. When the denial is based on an issue
of law, the ruling is reviewed de novo. (Julian v. Glenair, Inc. (2017) 17 Cal.App.5th
853, 864 (Julian).) Here, the trial court denied defendants’ motion based on an issue of
law, specifically, that plaintiff’s PAGA claim was not arbitrable under Iskanian. Thus,
our review is de novo.
              This appeal also raises issues of stare decisis. “The decisions of [the
California Supreme Court] are binding upon and must be followed by all the state courts
of California. . . . Courts exercising inferior jurisdiction must accept the law declared by
courts of superior jurisdiction. It is not their function to attempt to overrule decisions of a

                                              4
higher court.” (Auto Equity Sales, Inc. v. Superior Court (1962) 57 Cal.2d 450, 455.)
“On federal questions, intermediate appellate courts in California must follow the
decisions of the California Supreme Court, unless the United States Supreme Court has
decided the same question differently.” (Correia v. NB Baker Electric, Inc. (2019) 32
Cal.App.5th 602, 619 (Correia).)


B. Iskanian and Epic
              In Iskanian, the California Supreme Court held that “an employee’s right to
bring a PAGA action is unwaivable.” (Iskanian, supra, 59 Cal.4th at p. 383.) “[W]here
. . . an employment agreement compels the waiver of representative claims under the
PAGA, it is contrary to public policy and unenforceable as a matter of state law.” (Id. at
p. 384.) “[T]he Legislature’s purpose in enacting the PAGA was to augment the limited
enforcement capability of the [Labor and Workforce Development] Agency by
empowering employees to enforce the Labor Code as representatives of the Agency.
Thus, an agreement by employees to waive their right to bring a PAGA action serves to
disable one of the primary mechanisms for enforcing the Labor Code.” (Id. at p. 383.)
              Iskanian also determined that these findings did not interfere with the FAA.
“A PAGA representative action is . . . a type of qui tam action.” (Iskanian, supra, 59
Cal.4th at p. 382, italics added.) “The government entity on whose behalf the plaintiff
files suit is always the real party in interest in the suit.” (Ibid.) “[A]lthough qui tam
citizen actions on behalf of the government were well established at the time the FAA
was enacted [citation], there is no mention of such actions in the legislative history and
no indication that the FAA was concerned with limiting their scope.” (Id. at p. 385.)
              Moreover, “a PAGA claim lies outside the FAA’s coverage because it is
not a dispute between an employer and an employee arising out of their contractual
relationship. It is a dispute between an employer and the state, which alleges directly or
through its agents—either the [Labor and Workforce Development] Agency or aggrieved

                                              5
employees—that the employer has violated the Labor Code.” (Iskanian, supra, 59
Cal.4th at pp. 386-387, italics added.) “Representative actions under the PAGA, unlike
class action suits for damages, do not displace the bilateral arbitration of private disputes
between employers and employees over their respective rights and obligations toward
each other. Instead, they directly enforce the state’s interest in penalizing and deterring
employers who violate California’s labor laws.” (Id. at p. 387.)
              A few years after Iskanian, the United States Supreme Court decided Epic.
In Epic, multiple plaintiffs brought separate class action claims against their respective
employers under the federal Fair Labor Standards Act (FLSA) and related state laws.
The employers sought to compel individual arbitration of these claims under agreements
that required individualized arbitration of employee disputes. (Epic, supra, 138 S.Ct.
at pp. 1616, 1619-1620.) The employees argued “the NLRA [(National Labor Relations
Act)] render[ed] their particular class and collective action waivers illegal.” (Id. at p.
      4
1622.) As such, they claimed the arbitration agreements were unenforceable under the
FAA’s “saving clause,” “which allows courts to refuse to enforce arbitration agreements
‘upon such grounds as exist at law or in equity for the revocation of any contract.’” (Id.
at p. 1616, quoting 9 U.S.C. § 2.)
              The Supreme Court disagreed with the employees. It found “the saving
clause recognizes only defenses that apply to ‘any’ contract. . . . [T]he clause offers no
refuge for ‘defenses that apply only to arbitration or that derive their meaning from the
fact that an agreement to arbitrate is at issue.’” (Epic, supra, 138 S.Ct. at p. 1622.) The
employees’ argument failed because “they object[ed] to their agreements precisely
because they require[d] individualized arbitration proceedings instead of class or


4
  The NLRA guarantees employees “the right to self-organization, to form, join, or assist
labor organizations, to bargain collectively through representatives of their own choosing,
and to engage in other concerted activities for the purpose of collective bargaining or
other mutual aid or protection . . . .” (29 U.S.C. § 157.)

                                              6
collective ones. And by attacking (only) the individualized nature of the arbitration
proceedings, the employees’ argument [sought] to interfere with one of arbitration’s
fundamental attributes.” (Ibid.)
              We are not persuaded that Epic overruled Iskanian.
              Our colleagues in Division One of this District recently rejected this
argument, finding Epic and Iskanian addressed different issues. We agree with their
analysis: “Iskanian held a ban on bringing PAGA actions in any forum violates public
policy and that this rule is not preempted by the FAA because the claim is a
governmental claim. [Citation.] Epic did not consider this issue and thus did not decide
the same question differently. [Citation.] Epic addressed a different issue pertaining to
the enforceability of an individualized arbitration requirement against challenges that
such enforcement violated the NLRA.” (Correia, supra, 32 CalApp.5th at pp. 619-620.)
Epic involved claims brought “on behalf of other employees under the FLSA or federal
class action procedures.” (Ibid.) In contrast, a PAGA claim involves an “employee . . .
deputized by the state to bring [a] qui tam claim on behalf of the state, not on behalf of
                            5
other employees.” (Ibid.)
              Further, over a year after Epic was decided, the California Supreme Court
reaffirmed Iskanian in ZB, N.A. v. Superior Court (2019) 8 Cal.5th 175. At issue in ZB
was “whether an employer may compel arbitration of an employee’s PAGA claim
requesting unpaid wages under section 558.” (Id. at p. 184.) ZB said no, concluding that
a plaintiff cannot seek such unpaid wages under the PAGA. (Id. at pp. 181-182.)
Throughout the opinion, ZB freely cited Iskanian with approval: “In Iskanian, we

5
   Division Two of this District recently reached the same conclusion as Correia: “Epic
. . . does not undermine Iskanian’s . . . characterization of PAGA claims as law
enforcement actions in which plaintiffs step into the shoes of the state.” (Collie v. The
Icee Company et al. (2020) 52 Cal.App.5th 477, 483.) Collie also noted that a predispute
PAGA waiver “is unenforceable for a reason that does apply to any contract: [the
employer] cannot enforce a contractual provision to bind a nonparty.” (Ibid.)

                                              7
declared unenforceable as a matter of state law an employee’s predispute agreement
waiving the right to bring these representative PAGA claims. Requiring employees to
forgo PAGA claims in this way contravenes public policy by ‘serv[ing] to disable,’
through private agreement, one of the state’s ‘primary mechanisms’ for enforcing the
Labor Code. [Citation.] We then concluded the FAA did not preempt this rule or
otherwise require enforcement of such a waiver in an arbitration agreement.” (Id. at p.
185.) “Iskanian established an important principle: employers cannot compel employees
to waive their right to enforce the state’s interests when the PAGA has empowered
employees to do so.” (Id. at p. 197.)
                Because we do not believe Iskanian has been overruled, we must follow it.
(Correia, supra, 32 Cal.App.5th at p. 619.)


C. Arbitrability of the PAGA Claim
                Defendants also argue that even if Iskanian is still good law, it does not bar
PAGA claims from arbitration. Rather, they assert Iskanian only prohibits the
“enforcement of agreements that waive all rights to pursue a PAGA claim.” Defendants
urge us to follow federal opinions that have found PAGA claims to be arbitrable, such as
Valdez v. Terminix Intern. Co. Ltd. Partnership (9th Cir. 2017) 681 Fed. Appx. 592, 594-
595 (Valdez).
                It is true that Iskanian does not explicitly bar PAGA claims from
arbitration. (Iskanian, supra, 59 Cal.4th at pp. 391-392; Correia, supra, 32 Cal.App.5th
at pp. 609, 621-622.) Still, we agree with the other California Courts of Appeal that have
addressed this issue. To our knowledge, all have found that a PAGA claim cannot be
compelled to arbitration without the state’s consent: “Because a PAGA plaintiff, whether
suing solely on behalf of himself or herself or also on behalf of other employees, acts as a
proxy for the state only with the state’s acquiescence (see § 2699.3) and seeks civil
penalties largely payable to the state via a judgment that will be binding on the state, the

                                               8
PAGA claim cannot be ordered to arbitration without the state’s consent.” (Tanguilig v.
Bloomingdale’s, Inc. (2016) 5 Cal.App.5th 665, 678; see Collie v. The Icee Company et
al., supra, 52 Cal.App.5th at p. 483; Bautista v. Fantasy Activewear, Inc. (2020) 52
Cal.App.5th 650, 657-658; Correia, supra, 32 Cal.App.5th at p. 622; Julian, supra, 17
Cal.App.5th at p. 872; Betancourt v. Prudential Overall Supply (2017) 9 Cal.App.5th
439, 445-446.)
              In Valdez, an unpublished opinion, the Ninth Circuit reversed the district
court’s denial of a motion to compel a PAGA claim to arbitration. It reasoned that
“[e]mployees can bind government agencies because they ‘represent[] the same legal
right and interest’ as the government in PAGA proceedings. [Citation.] Indeed, ‘[a]n
employee plaintiff suing . . . under the PAGA does so as the proxy or agent of the state’s
labor law enforcement agencies.’ [Citations.] Accordingly, an individual employee,
acting as an agent for the government, can agree to pursue a PAGA claim in arbitration.”
(Valdez, supra, 681 Fed. Appx. at p. 594.)
              But, as pointed out in Correia, Valdez failed to appreciate that under the
PAGA statutory scheme, the plaintiff does not assume this proxy role until it is an
‘“aggrieved employee.”’ (§ 2699, subds. (a), (c).) “When an employee signs a
predispute arbitration agreement, he or she is signing the agreement solely on his or her
own behalf and not on behalf of the state or any other third party. Thus, the agreement
cannot be fairly interpreted to constitute a waiver of the state’s rights to bring a PAGA
penalties claim in court (through a qui tam action by its deputized employee).” (Correia,
supra, 32 Cal.App.5th at pp. 623-624; see Julian, supra, 17 Cal.App.5th at p. 872 [“[A]n
arbitration agreement executed before an employee meets the statutory requirements for
commencing a PAGA action does not encompass that action. Prior to satisfying those
requirements, an employee enters into the agreement as an individual, rather than as an
agent or representative of the state”].)



                                             9
              Defendants claim the notion an employee can just file a PAGA claim to
evade a binding agreement to exclusively arbitrate their claims is irreconcilable with
Epic. We disagree. As set forth above, a PAGA action is not a dispute between an
employer and an employee but one between an employer and the state. A PAGA lawsuit
“‘“is fundamentally a law enforcement action designed to protect the public and not to
benefit private parties . . . .”’” (Iskanian, supra, 59 Cal.4th at p. 387.) In a PAGA action,
the plaintiff is not repudiating the arbitration agreement. Instead, the plaintiff is acting in
a different capacity, as a proxy of the state, to enforce provisions of the Labor Code on
behalf of the state. (Julian, supra, 17 Cal.App.5th at pp. 871-872.) As stated above, Epic
did not consider this issue and does not control here. Further, this proxy role is not
merely a legal fiction, as defendants suggest. This is evident from the manner in which
civil penalties are allocated, with 75 percent going to the state and only 25 percent going
to the “aggrieved employees.” (Iskanian, at pp. 386-387.) “Relief under PAGA is
designed primarily to benefit the general public, not the party bringing the action.” (Kim
v. Reins International California, Inc. (2020) 9 Cal.5th 73, 81.)
              Defendants also appear to argue that PAGA claims have a dual nature.
Though a PAGA claim is representative, defendants insist it also involves an individual
claim asserted by the employee against the employer. They suggest this individual aspect
of the claim should be arbitrable. This theory was recently rejected by the California
Supreme Court, which found “[a]lthough representative in nature, a PAGA claim is not
simply a collection of individual claims for relief . . . . There is no individual component
to a PAGA action because ‘“every PAGA action . . . is a representative action on behalf
of the state.”’ [Citation.] Plaintiffs may bring a PAGA claim only as the state’s
designated proxy, suing on behalf of all affected employees.” (Kim v. Reins
International California, Inc., supra, 9 Cal.5th at pp. 86-87, first italics added; id. at p. 88
[“Standing for . . . PAGA[-]only cases cannot be dependent on the maintenance of an
individual claim because individual relief has not been sought”].)

                                              10
              Finally, defendants cite federal decisions from the Southern District of
Ohio and the Fourth Circuit for the proposition that qui tam statutes are not categorially
excluded from arbitration. We are not bound by these cases. Nor do we find them
persuasive since they did not involve PAGA claims.


D. Severing Issues of Fact
              Even if the PAGA claim cannot be arbitrated, defendants contend the trial
court erred by refusing to send certain factual issues to arbitration, specifically, whether
both defendants were plaintiff’s employer. Defendants believe arbitration of this issue is
proper because it is within the arbitration agreement’s scope and resolution of this issue
does not involve the substantive Labor Code violations.
              In other words, defendants seek a determination as to whether plaintiff is an
“aggrieved employee” of both defendants. (§ 2699, subd. (c) [an “‘aggrieved employee’”
is a “person who was employed by the alleged violator and against whom one or more of
the alleged violations was committed”].) However, a “single cause of action under
PAGA cannot be split into an arbitrable ‘individual claim’ and a nonarbitrable
representative claim.” (Williams v. Superior Court (2015) 237 Cal.App.4th 642, 645
(Williams).) This includes a “determination of whether the party bringing the PAGA
action is an aggrieved party,” which “should not be decided separately by arbitration.”
(Hernandez v. Ross Stores, Inc. (2016) 7 Cal.App.5th 171, 178 (Hernandez).) Indeed,
“California law prohibits the enforcement of an employment agreement provision that
requires an employee to individually arbitrate whether he or she qualifies as an
‘aggrieved employee’ under the PAGA, and then (if successful) to litigate the remainder
of the ‘representative action in the superior court.’” (Perez v. U-Haul Co. of California
(2016) 3 Cal.App.5th 408, 421 (Perez).) A plaintiff “cannot be compelled to submit any
portion of [their] representative PAGA claim to arbitration, including whether [they
were] an ‘aggrieved employee.’” (Williams, at p. 649.)

                                             11
E. Defendants’ Other Arguments
               Defendants make several other arguments in favor of severing the issue of
plaintiff’s employer and compelling it to arbitration. None are persuasive.
               Citing Franco v. Arakelian Enterprises, Inc. (2015) 234 Cal.App.4th 947,
966, defendants proclaim that “courts have signaled a willingness to apply the arbitrator’s
findings of fact to non-arbitrable claims.” But this case is inapposite. The plaintiff in
Franco asserted individual claims and a PAGA claim. The court ordered the individual
claims to arbitration and stayed the PAGA claim. (Id. at pp. 965-966.) Here, plaintiff
asserted no individual claims, only a single cause of action under the PAGA.
               Next, defendants cite a section of Correia, which states, “under the PAGA
statutory scheme, the plaintiff does not assume [the role as the state’s proxy] until it is an
‘“aggrieved employee.”’” (Correia, supra, 32 Cal.App.5th at pp. 623-624.) They appear
to believe this statement means that no PAGA claim exists until a plaintiff has been
adjudicated to be an “aggrieved employee.” From this, they conclude a plaintiff’s status
as an “aggrieved employee” is separate from the PAGA claim and can be determined in
arbitration.
               As stated above, numerous courts have rejected defendants’ argument.
(See, e.g., Hernandez, supra, 7 Cal.App.5th at p. 178; Perez, supra, 3 Cal.App.5th at
p. 421; Williams, supra, 237 Cal.App.4th at p. 649.) Moreover, nothing in Correia
suggests that a plaintiff must be found to be an “aggrieved employee” before proceeding
with their PAGA claim. The section of Correia cited by defendants does not mean
“aggrieved employee” analysis is separate from, and must occur prior to, determining the
merits of a PAGA claim. Rather, it was only explaining that an employee is not acting as
a proxy of the state when they sign a predispute arbitration agreement, so the state is not
bound by that agreement. (Correia, supra, 32 Cal.App.5th at pp. 623-624.) The
plaintiffs in Correia signed their arbitration agreements at the onset of their employment.
They were not “aggrieved employees” acting as proxies of the state when they signed the

                                              12
                                                                              6
agreements because they had not yet suffered any of the alleged violations. (Id. at pp.
609-610, 622.)
              Finally, defendants maintain the only issues a court can consider when
deciding a motion to compel arbitration are whether a valid arbitration agreement exists
and whether the claims at issue are covered by it. (See Howsam v. Dean Witter Reynolds,
Inc. (2002) 537 U.S. 79, 84.) They claim a determination of plaintiff’s employer is
outside these issues and thus reserved for the arbitrator. Not so. As set forth above,
whether plaintiff is an “aggrieved employee” of defendants cannot be separated from her
PAGA claim. It is a threshold issue to be determined by the court. (See, e.g., Hernandez,
supra, 7 Cal.App.5th at p. 178; Perez, supra, 3 Cal.App.5th at p. 421; Williams, supra,
237 Cal.App.4th at p. 649.)
              Because we determine the trial court correctly ruled plaintiff’s PAGA claim
cannot be compelled to arbitration, we do not address plaintiff’s other arguments
regarding the applicability of the FAA to the arbitration agreement, waiver, and
unconscionability, which were also raised in this appeal.




6
  We do not mean to imply that a proxy relationship begins between the employee and
the state once an employee suffers any violation of the Labor Code. We express no
opinion as to when this proxy relationship specifically starts, though it appears to exist at
the time an employee files their PAGA lawsuit (assuming they have complied with the
statutory notice requirements). (See § 2699.3; Julian, supra, 17 Cal.App.5th at p. 872.)

                                             13
                                         III
                                   DISPOSITION
          The trial court’s order is affirmed. Plaintiff is entitled to costs on appeal.



                                               MOORE, J.

WE CONCUR:



BEDSWORTH, ACTING P. J.



ARONSON, J.




                                         14
