Dike v. Zara USA, Inc.

672 F.Supp.3d 822

Ginika DIKE, Plaintiff, v. ZARA USA, INC., Defendant.

Case No. 23-cv-00342-WHO

United States District Court, N.D. California

Signed May 10, 2023

Jennifer Rue Kramer, Adrian Hernandez, Hennig Kramer Ruiz & Singh LLP, Los Angeles, CA, for Plaintiff.

Adam Ryan Rosenthal, Sheppard Mullin Richter & Hampton LLP, San Diego, CA, Krista Stevenson Johnson, Sheppard, Mullin, Richter & Hampton LLP, San Francisco, CA, Tyler J. Johnson, Sheppard Mullin Richter and Hampton, Los Angeles, CA, for Defendant.

ORDER GRANTING MOTION TO COMPEL ARBITRATION AND STAYING NON-INDIVIDUAL PAGA CLAIM

Re: Dkt. No. 18

William H. Orrick, United States District Judge

Defendant Zara USA, Inc. ("Zara"), an apparel company, moves to compel arbitration of individual claims brought by one of its former sales assistants, plaintiff Ginika Dike, who alleges that Zara violated California law when it failed to pay non-exempt workers for the time they spent screening for COVID-19 before beginning their shifts. Zara also moves to dismiss Dike's class and representative claims.

The motion is GRANTED, except for Dike's non-individual claim brought under California's Private Attorneys General Act ("PAGA"), which is not subject to arbitration and is STAYED until further guidance from the California Supreme Court. Dike's other claims must be arbitrated. Although the Arbitration Agreement ("Agreement") was a contract of adhesion, that alone does not render it procedurally unconscionable. Given the circumstances under which Dike signed the Agreement, and the language of the Agreement itself, any oppression or surprise was moderate at most. And she has made no showing of substantive unconscionability; the Agreement mutually binds the parties to arbitration and the PAGA waiver is not wholesale. Even if it were, the unenforceable portion could be severed and Dike's individual claim compelled to arbitration.

BACKGROUND

Dike, who worked from Zara from approximately November 2018 to March 2022, alleges that she and other Zara non-exempt employees were required to screen for COVID-19 by answering a series of questions on a computer and taking their temperatures before starting their shifts. First Am. Compl. ("FAC") [Dkt. No. 14] ¶¶ 7, 30-32. The FAC alleges that these screenings "could take several minutes," and that when employees clocked in for their shifts, they "were instructed not to include the time spent on pre-shift COVID-19 screening." Id. ¶¶ 33-35. The FAC further alleges that these employees were not paid for this time. Id. ¶ 30.

Dike sued Zara in state court on December 16, 2022, alleging various violations of California law. Dkt. No. 1-2. Zara removed the case to this court on January 23, 2023, 30 days after it was served. Dkt. No. 1. Dike then filed the FAC, which alleges five claims: failure to pay wages and compensation; failure to provide accurate wage statements; failure to pay wages upon separation of employment; violations of California's Unfair Competition Law ("UCL"); and for remedies under PAGA. See Dkt. No. 14. Each claim is brought on behalf of Dike and the class. See id.

In March 2023, Zara moved to compel arbitration of Dike's individual claims and to dismiss the class claims and representative PAGA claim. Dkt. No. 18. According to Zara, on March 22, 2019, the day that it hired Dike as a sales associate, she signed a "Mutual Dispute Resolution Agreement" ("the Agreement"). Mot. [Dkt. No. 18] 3:8-10 (citing Dmytryszyn Decl., Ex. A).¹ The relevant terms of the Agreement include:

3. Covered Claims: You and the Company agree that any controversy, dispute, or claim that could otherwise be raised in court ("Covered Claim") that the Company has against You or You have against the Company . . . must be resolved by binding arbitration and not in court. Covered Claims, by way of example only, include claims for wages and other compensation, breach of contract, theft of trade secrets or unfair competition, violation of public policy, wrongful termination; tort claims; claims for unlawful retaliation, discrimination and/or harassment; and claims for violation of any federal state, or other government law, statute, regulation, or ordinance . . . .

4. Claims Not Covered: . . . To the extent federal law prohibits enforcement of Section 5 with respect to representative claims under California's Private Attorneys General Act of 2004, California Labor Code §§ 2698, et seq. and representative claims for public injunctive relief under California Business and Professions Code § 17203, such claims also are not covered by this Agreement . . . .

5. Individual Claims Only: Covered Claims must be brought on an individual basis only, and arbitration on an individual basis is the exclusive remedy. Neither party may submit a multi-plaintiff, class, collective, or representative action for resolution under this Agreement, and no arbitrator has authority to proceed with arbitration on such a basis or to consolidate claims. Any disputes concerning the applicability or validity of this multi-plaintiff, class, collective, and representative action waiver will be decided by a court of competent jurisdiction, not by the arbitrator. In the event a court determines that this Section 5 is unenforceable with respect to any claim, it shall not apply to that claim, and that claim may then only proceed in court as the exclusive forum . . . .

Dmytryszyn Decl., Ex. A ("Agreement") §§ 3-5.

The last page of the Agreement is titled "Acknowledgement of Receipt and Agreement to be Bound," which states:

I acknowledge that I have received and read Zara USA, INC's ("the "Company") September 2018 Mutual Dispute Resolution Agreement ("Agreement"). By signing below, I affirm that I understand the Agreement's terms and that by accepting new employment with the Company or by continuing employment after its effective date, I knowingly and freely enter into this Agreement and agree to be bound by it.

I UNDERSTAND THAT THE MUTUAL DISPUTE RESOLUTION AGREEMENT IS A CONTRACT. THIS CONTRACT IS A BINDING ARBITRATION AGREEMENT WHICH MAY BE ENFORCED BY THE PARTIES. BY SIGNING BELOW, I ACKNOWLEDGE THAT I HAVE RECEIVED AND READ OR HAVE HAD THE OPPORTUNITY TO READ THIS ARBITRATION AGREEMENT. I UNDERSTAND THAT THIS ARBITRATION AGREEMENT REQUIRES THAT DISPUTES THAT INVOLVE THE MATTERS SUBJECT TO THE AGREEMENT BE SUBMITTED TO ARBITRATION PURSUANT TO THE ARBITRATION AGREEMENT RATHER THAN TO A JUDGE AND JURY IN COURT.

Id. at 3. Dike's name and signature appear directly below this attestation. Id.

LEGAL STANDARD

The Federal Arbitration Act ("FAA") governs motions to compel arbitration. 9 U.S.C. §§ 1 et seq. In deciding whether to compel arbitration, the court must consider two "gateway issues": (1) whether there is a valid agreement to arbitrate between the parties, and if so (2) whether the agreement encompasses the dispute. See Brennan v. Opus Bank, 796 F.3d 1125, 1130 (9th Cir. 2015) (citation omitted). "In determining whether a valid arbitration agreement exists, federal courts apply ordinary state-law principles that govern the formation of contracts." Nguyen v. Barnes & Noble Inc., 763 F.3d 1171, 1175 (9th Cir. 2014) (citation and quotations omitted). If the court is "satisfied that the making of the agreement for arbitration or the failure to comply therewith is not in issue, the court shall make an order directing the parties to proceed to arbitration in accordance with the terms of the agreement." 9 U.S.C. § 4. "[A]ny doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration." Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24-25, 103 S.Ct. 927, 74 L.Ed.2d 765 (1983).

DISCUSSION

Dike does not dispute that she signed the Agreement, or that it contains arbitration provisions. See Oppo. at 1:2-14, 2:10-12. Instead, she contends that the Agreement is unconscionable and thus unenforceable. Id. at 1:12-13. She further argues that unconscionable provisions so permeate the Agreement that they cannot be severed. Id. at 17:3-22.

"It is well-established that unconscionability is a generally applicable contract defense, which may render an arbitration provision unenforceable." Nagrampa v. MailCoups, Inc., 469 F.3d 1257, 1280 (9th Cir. 2006). Under California law, a provision is unenforceable if it is both procedurally and substantively unconscionable. See id. Procedural unconscionability focuses on "oppression or surprise that results from unequal bargaining power," while substantive unconscionability considers "overly harsh or one-sided results." MacClelland v. Cellco P'ship, 609 F. Supp. 3d 1024, 1033 (N.D. Cal. 2022) (citations omitted). Although both procedural and substantive unconscionability must be present for a court to deem a contract provision unenforceable, "they need not be present in the same degree." Sanchez v. Valencia Holding Co., LLC, 61 Cal. 4th 899, 910, 190 Cal.Rptr.3d 812, 353 P.3d 741 (2015) (citation omitted). Instead, they "operate on a sliding scale: the lesser the procedural unconscionability, the greater substantive unconscionability must be shown, and vice versa." MacClelland, 609 F. Supp. 3d at 1033 (same).

I. PROCEDURAL UNCONSCIONABILITY

"Procedural unconscionability concerns the manner in which the contract was negotiated and the respective circumstances of the parties at that time, focusing on the level of oppression and surprise involved in the agreement." Chavarria v. Ralphs Grocery Co., 733 F.3d 916, 922 (9th Cir. 2013) (citations omitted). "Oppression addresses the weaker party's absence of choice and unequal bargaining power that results in no real negotiation." Id. (citation and quotations omitted). "Surprise involves the extent to which the contract clearly discloses its terms as well as the reasonable expectations of the weaker party." Id. (citation omitted). The party asserting unconscionability bears the burden of proving it. OTO, LLC v. Kho, 8 Cal. 5th 111, 126, 251 Cal.Rptr.3d 714, 447 P.3d 680 (2019) (citations...