Date: 01-13-2015

Case Style: Elizabeth Montano v. The Wet Seal Retail, Inc.

Case Number: B244107

Judge: Epstein

Court: California Court of Appeal, Second Appellate District, Division Fourt on appeal from the Superior Court, Los Angeles County

Plaintiff's Attorney: Scott Cole & Associates, Matt Bainer and Molly DeSario for Plaintiff
and Respondent.

Defendant's Attorney: Sheppard, Mullin, Richter & Hampton, Ryan D. McCortney and Jason M. Guyser
for Defendant and Appellant.

Description: The Wet Seal Retail, Inc. (Wet Seal) appeals from the denial of its motion to
compel arbitration of this wage and hour action brought by employee Elizabeth Montano.
Wet Seal also challenges the grant of Montano’s motion to compel discovery responses.
We affirm the order denying the motion to compel arbitration and dismiss the challenge
to the discovery order as nonappealable.
FACTUAL AND PROCEDURAL SUMMARY
In October 2011, Montano filed this putative class action against Wet Seal,
alleging that it failed to offer all required meal and rest periods to its California nonexempt
retail employees; failed to provide all regular and overtime pay when due or
when employment terminated; and failed to provide accurate semi-monthly itemized
wage statements, in violation of the Labor and Business and Professions Codes, Industrial
Welfare Commission Wage Order No. 7, and Title 8 of the California Code of
Regulations. She brought this action on behalf of herself and, as a class action, on behalf
of all persons similarly situated and damaged by the alleged conduct during the specified
time period. Her complaint included a representative claim under the Private Attorneys
General Act (PAGA) (Lab. Code, § 2699).1

Montano propounded various discovery requests to Wet Seal, which responded
with objections but no substantive information. After an unsuccessful effort to meet and
confer, Montano filed a motion to compel discovery responses. Before the hearing date
for that motion, Wet Seal moved to compel arbitration of Montano’s individual claims
and to stay the action pending completion of arbitration.
Wet Seal’s motion to compel arbitration was based on a “Mutual Agreement to
Arbitrate Claims” (arbitration agreement) signed by Montano, which provided: “You and
the Company hereby agree that any and all disputes, claims or controversies arising out
of or relating to this Agreement, the employment relationship between the parties, the
termination of this Agreement or the termination of the employment relationship, that are
1 All further undesignated statutory references are to the Labor Code. 3
not resolved by their mutual agreement shall be resolved by final and binding arbitration
by a neutral arbitrator.”2

Montano opposed the motion to compel arbitration on several grounds, including
that the arbitration agreement was procedurally and substantively unconscionable. The
unconscionability argument was based in part on the arbitration agreement’s waiver of
the right to bring class actions and representative PAGA actions: “The parties also waive
their right to join or consolidate claims with others or to make claims with others as a
representative or a member of a class or as a private attorney general. The waiver in the
preceding sentence is a material or important term of this arbitration agreement. If either
party initiates or joins in a lawsuit or arbitration against the other party in violation of this
waiver and the waiver is found to be unenforceable for any reason by a court or
arbitrator, then this entire arbitration agreement is void and unenforceable by the parties.”
On March 28, 2012, the trial court heard Montano’s motion to compel discovery
and Wet Seal’s motion to compel arbitration. The transcript reflects the parties’
awareness of the trial court’s tentative ruling to invalidate the arbitration agreement’s
PAGA waiver and sever that invalid waiver from the remainder of the arbitration
agreement, which was otherwise enforceable, compel arbitration of Montano’s individual
claims, stay the action pending completion of arbitration, and defer Montano’s motion to
compel further discovery responses as moot.3
At the conclusion of the hearing, the court
took the matter under submission and indicated the final order would be sent to the
parties.
2 The arbitration agreement encompassed claims including but not limited to
claims for wrongful termination, breach of contract, breach of any duty “owed by you to
the Company or by the Company to you,” any tort claim, any claim for wages or other
compensation due, penalties, benefits, reimbursement of expenses, and any claim for
discrimination or harassment, retaliation, violation of any federal, state or other
governmental constitution, statute, ordinance or regulation (as originally enacted and as
amended), including but not limited to the California Labor Code, California Civil Code,
and California Wage Orders.
3 We granted Wet Seal’s motion to take judicial notice of the tentative ruling. 4
Later that day, the court issued its final order, but apparently did not send it to the
parties. In that order, the court declined to sever the invalid waiver provision, stating in
relevant part: “In terms of severing the PAGA waiver provision, the paragraph in which
it is contained states that if the waiver is found to be unenforceable for any reason by a
court, then the entire arbitration agreement is void and unenforceable by the parties.
Thus, the PAGA waiver is not severable.” Having determined that the entire arbitration
agreement was unenforceable, the court denied Wet Seal’s motion to compel arbitration.
As to Montano’s motion to compel discovery, the final order stated in relevant part: “The
Court does not find that any of the objections have merit, and in light of its ruling on the
motion to compel arbitration, the motion to compel further discovery responses is
granted.”
Based on the court’s Civil Case Summary—which indicated that the court had
adopted its tentative ruling as its final ruling—the parties mistakenly assumed that the
court had adhered to its tentative decision to sever the invalid PAGA waiver, enforce the
class action waiver, grant arbitration of the individual claims, stay the action, and defer
the motion to compel discovery as moot. Based on this mistaken belief, the parties
stipulated to the filing of a first amended complaint in which Montano would dismiss all
arbitrable claims, leaving only the representative claim for civil penalties under the
PAGA. The trial court approved the parties’ stipulation, which erroneously stated that
the court had severed the invalid PAGA waiver, enforced the class action waiver, granted
the motion to compel arbitration of the individual claims, stayed the action, and deferred
the motion to compel discovery as moot. With court approval, Montano filed a first
amended complaint that alleged only a representative PAGA claim.
Subsequently, the parties discovered the court actually had denied the motion to
compel arbitration and had granted the motion to compel discovery. Wet Seal timely
appealed from the order denying the motion to compel arbitration. (Code Civ. Proc.,
§ 1294, subd. (a).) We deferred oral argument in this case pending decisions by the 5
California Supreme Court in Sonic-Calabasas A, Inc. v. Moreno (2013) 57 Cal.4th 1109
and Iskanian v. CLS Transportation Los Angeles, LLC (2014) 59 Cal.4th 348 (Iskanian).4

DISCUSSION
I
Under section 2 of the Federal Arbitration Act (9 U.S.C. § 2 (FAA)), an agreement
to arbitrate is “valid, irrevocable, and enforceable, save upon such grounds as exist at law
or in equity for the revocation of any contract.” This section reflects a liberal federal
policy favoring arbitration, but the savings clause permits agreements to arbitrate to be
invalidated by ‘generally applicable contract defenses, such as fraud, duress, or
unconscionability,’ but not by defenses that apply only to arbitration or that derive their
meaning from the fact that an agreement to arbitrate is at issue.” (AT & T Mobility LLC
v. Concepcion et ux. (2011) 563 U.S. ___, 131 S.Ct. 1740, 1745–1746 (Concepcion).)
In Discover Bank v. Superior Court (2005) 36 Cal.4th 148, the California Supreme
Court applied this savings clause to find grounds for revocation where the arbitration
agreement between a bank and a credit card holder contained a class action waiver,
finding the waiver unconscionable. “[W]hen the waiver is found in a consumer contract
of adhesion in a setting in which disputes between the contracting parties predictably
involve small amounts of damages, and when it is alleged that the party with the superior
bargaining power has carried out a scheme to deliberately cheat large numbers of
consumers out of individually small sums of money, then, at least to the extent the
obligation at issue is governed by California law, the waiver becomes in practice the
exemption of the party ‘from responsibility for [its] own fraud, or willful injury to the
person or property of another.’ (Civ. Code, § 1668.) Under these circumstances, such

4 As both sides agree, Iskanian is binding on this court. In so acknowledging, Wet
Seal notes that counsel in Iskanian already have made known their intention to seek
review of the decision by the United States Supreme Court (petition for certiorari was
filed on Sept. 22, 2014, No. 14-341), and asks that we refrain from deciding this appeal
until that avenue of review has been exhausted. We believe the parties are entitled to our
judgment on this case, and we decline the request to stay our decision. 6
waivers are unconscionable under California law and should not be enforced.” (36 Cal
4th at pp. 162–163.) Under appropriate circumstances, the Supreme Court noted, a court
may refuse to enforce the class action waiver and instead order the parties to classwide
arbitration. (Id. at pp. 172–173.)
Two years later, the California Supreme Court extended Discover Bank to a
workplace arbitration agreement in Gentry v. Superior Court (2007) 42 Cal.4th 443
(Gentry). The court held that a class action waiver in an employment arbitration
agreement should not be enforced in an overtime case if the trial court concludes, based
on enumerated factors, that “class arbitration is likely to be a significantly more effective
practical means of vindicating the rights of the affected employees than individual
litigation or arbitration, and finds that the disallowance of the class action will likely lead
to a less comprehensive enforcement of overtime laws for the employees alleged to be
affected by the employer’s violations . . . .” (42 Cal.4th at p. 463.)
In Concepcion, supra, 131 S.Ct. 1740, the United States Supreme Court expressly
overruled what it called the Discover Bank rule, which classifies most collectivearbitration
waivers in consumer contracts as unconscionable and essentially allows any
party to a consumer contract to demand classwide arbitration. (Id. at p. 1750.)
“Requiring the availability of classwide arbitration interferes with fundamental attributes
of arbitration and thus creates a scheme inconsistent with the FAA.” (Id. at p. 1748.)
Noting that the principal purpose of the FAA is to ensure that private arbitration
agreements are enforced according to their terms, the court concluded that “class
arbitration, to the extent it is manufactured by Discover Bank rather than consensual, is
inconsistent with the FAA.” (Id. at p. 1751.)
Concepcion did not address the Gentry case. Nor did it address whether California
law applicable to waivers of statutory representative actions such as the PAGA, which are
a means to enforce state labor laws for the benefit of the public, is preempted by the
FAA. That brings us to the Iskanian decision, in which the California Supreme Court
resolved these questions. 7
II
Iskanian involved facts very similar to those in our case. The employee had
entered into an arbitration agreement in which employee and employer expressly waived
the right to assert class action and representative action claims against each other, in
arbitration or otherwise. (Iskanian, supra, 59 Cal.4th at pp. 360–361.) The employee
then sought to bring a class action lawsuit against his employer on behalf of himself and
similarly situated employees for failure to compensate for overtime, meal, and rest
periods. He also sought to bring a representative action under the PAGA. The Supreme
Court held that Gentry’s rule against employment class waivers is preempted by the
FAA. (59 Cal.4th at p. 364.) It reached a different conclusion as to the PAGA claims.
Under the PAGA, an aggrieved employee may bring a civil action individually
and on behalf of other current or former employees to recover civil penalties for Labor
Code violations. (§ 2699, subd. (a).) A PAGA representative action is in the nature of a
qui tam proceeding in which the employee plaintiff is authorized to file suit as the proxy
or agent of the state’s labor law enforcement agencies for recovery of civil penalties.
(Iskanian, supra, 59 Cal.4th at pp. 380–381.) The PAGA action “‘is fundamentally a law
enforcement action designed to protect the public and not to benefit private parties’
(People v. Pacific Land Research Co. (1977) 20 Cal.3d 10, 17.)” (59 Cal.4th at p. 381.)
As stated in Arias v. Superior Court (2009) 46 Cal.4th 969, 981, before bringing a PAGA
action, the employee must first give written notice of the alleged Labor Code violation to
both the employer and the Labor and Workforce Development Agency (Agency).
(§ 2699.3, subd. (a).) If the Agency does not respond within the allotted time, or
provides notice of its intention not to investigate, the employee may then bring a civil
action against the employer. (§ 2699.3, subd. (a)(2)(A).) If the Agency investigates the
matter within the allotted time, but either does not issue a citation or issues an untimely
citation, the employee may commence a civil action. (§ 2699.3, subd. (a)(2)(B).) The
Agency receives 75 percent of the recovered civil penalties for enforcement of labor laws
and education of employers and employees; aggrieved employees receive 25 percent of
the penalties. (§ 2699, subd. (i).) 8
In enacting the PAGA, “[t]he Legislature declared that adequate financing of labor
law enforcement was necessary to achieve maximum compliance with state labor laws,
that staffing levels for labor law enforcement agencies had declined and were unlikely to
keep pace with the future growth of the labor market, and that it was therefore in the
public interest to allow aggrieved employees, acting as private attorneys general, to
recover civil penalties for Labor Code violations, with the understanding that labor law
enforcement agencies were to retain primacy over private enforcement efforts. (Stats.
2003, ch. 906, § 1.)” (Arias v. Superior Court, supra, 46 Cal.4th at p. 980.)
Given that “the Legislature’s purpose in enacting the PAGA was to augment the
limited enforcement capability of the . . . Agency by empowering employees to enforce
the Labor Code as representatives of the Agency. . . . [a]n 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. Because such an agreement has as its ‘object,
. . . indirectly, to exempt [the employer] from responsibility for [its] own . . . violation of
law,’ it is against public policy and may not be enforced. (Civ. Code, § 1668.)”
(Iskanian, supra, 59 Cal.4th at p. 383.) “Such an agreement also violates Civil Code
section 3513’s injunction that ‘a law established for a public reason cannot be
contravened by a private agreement.’ (Ibid.) The PAGA was clearly established for a
public reason, and agreements requiring the waiver of PAGA rights would harm the
state’s interests in enforcing the Labor Code and in receiving the proceeds of civil
penalties used to deter violations.” (Iskanian, supra, at p. 383.)
The court rejected the employer’s claim that the arbitration did not violate public
policy because it prohibited only representative claims, not individual PAGA claims.
“[W]hether or not an individual claim is permissible under the PAGA, a prohibition of
representative claims frustrates the PAGA’s objectives. As one Court of Appeal has
observed: ‘[A]ssuming it is authorized, a single-claimant arbitration under the PAGA for
individual penalties will not result in the penalties contemplated under the PAGA to
punish and deter employer practices that violate the rights of numerous employees under
the Labor Code. That plaintiff and other employees might be able to bring individual 9
claims for Labor Code violations in separate arbitrations does not serve the purpose of the
PAGA, even if an individual claim has collateral estoppel effects. (Arias, supra, 46
Cal.4th at pp. 985–987.) Other employees would still have to assert their claims in
individual proceedings.’ (Brown v. Ralphs Grocery Co. (2011) 197 Cal.App.4th 489,
502, fn. omitted.)” (Iskanian, supra, 59 Cal.4th at p.384.)
The court then considered whether the state law rule prohibiting waiver of
representative PAGA claims was preempted by the FAA. “We conclude that the rule
against PAGA waivers does not frustrate the FAA’s objectives because . . . the FAA aims
to ensure an efficient forum for the resolution of private disputes, whereas a PAGA
action is a dispute between an employer and the state Agency.” (Iskanian, supra, 59
Cal.4th at p. 384.) “[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 Agency or aggrieved employees—that the employer has
violated the Labor Code.” (Id. at pp. 386–387.)5
III
As we have discussed, the waiver provision in the arbitration agreement provides:
“The parties also waive their right to join or consolidate claims with others or to make
claims with others as a representative or a member of a class or as a private attorney
general.” Under Iskanian, Montano’s purported waiver of her right to bring a
5 We recognize that several federal district courts in this state have found PAGA
waivers to be enforceable under the FAA and Concepcion. (Ortiz v. Hobby Lobby Stores,
Inc. (E.D. Cal. 2014) ___ F.Supp.3d ___, ___ [listing unpublished district court cases in
which PAGA waivers were found to be enforceable].) However, “‘[d]ecisions of the
lower federal courts interpreting federal law, although persuasive, are not binding on state
courts. [Citation.]’ (Raven v. Deukmejian (1990) 52 Cal.3d 336, 352.)” (People v.
Zapien (1993) 4 Cal.4th 929, 989.) Until the United States Supreme Court resolves this
issue, we are bound to follow the California Supreme Court’s decision in Iskanian that
PAGA waivers are invalid under state law. (Auto Equity Sales, Inc. v. Superior Court
(1962) 57 Cal.2d 450, 455; see 9 Witkin, Cal. Proc. (5th ed. 2008) Appeal, § 492, p. 551.) 10
representative action under the PAGA cannot be enforced. (Iskanian, supra, 59 Cal.4th
at p. 383.)
Based on its determination that the PAGA waiver was invalid, the trial court
applied the arbitration agreement’s nonseverability provision. Based on that provision,
the trial court declared the entire arbitration agreement was void and unenforceable.6
On
appeal, Wet Seal does not challenge the trial court’s application of the nonseverability
provision. We conclude that Wet Seal’s motion to compel arbitration was properly
denied.
IV
Finally, we turn to the portion of the order granting Montano’s motion to compel
further discovery responses. Wet Seal asserts the trial court should not have reached the
merits of the discovery motion while its motion to compel arbitration was
“undetermined.”
Wet Seal relies on Code of Civil Procedure section 1281.4, which provides that
while a motion to compel arbitration is “undetermined, the court in which such action or
proceeding is pending shall, upon motion of a party to such action or proceeding, stay the
action or proceeding until the application for an order to arbitrate is determined and, if
arbitration of such controversy is ordered, until an arbitration is had in accordance with
the order to arbitrate . . . .” (Italics added.) Wet Seal argues that an application for an
order to arbitrate is “undetermined” for purposes of section 1281.4 until the completion
of the appeal from the denial of that application.
In support of this proposition, Wet Seal cites this court’s language in Smith v.
Superior Court (1962) 202 Cal.App.2d 128: “The order denying the petition to compel
arbitration is an appealable order (Code Civ. Proc., § 1294, subd. (a)), and until
determination upon appeal ‘such application is undetermined’ within the meaning of
6 As previously discussed, the nonseverability clause provides that the waiver
provision “is a material or important term of this arbitration agreement. If either party
initiates or joins in a lawsuit or arbitration against the other party in violation of this
waiver and the wavier is found to be unenforceable for any reason by a court or
arbitrator, then this entire arbitration agreement is void and unenforceable by the parties.” 11
section 1281.4. (Code Civ. Proc. § 1049.)”7
(202 Cal.App.2d at p. 131, italics added.)
However, Smith has never been cited for this proposition in a published decision. We
rejected the proposition in Berman v. Renart Sportswear Corp. (1963) 222 Cal.App.2d
385. In Berman, as in this case, the defendant had appealed the order denying a motion
to compel arbitration. Claiming that the trial court should have stayed the action, the
defendant filed a petition for writ of prohibition. In denying that petition, we stated the
trial court had no obligation to stay the action under Code of Civil Procedure section
1281.4, because “[o]bviously, the request for a stay of proceedings falls with the denial of
arbitration.” (222 Cal.App.2d at p. 390.)
In this case, the court denied the motion to compel arbitration and granted the
motion to compel further discovery responses on the same date. When the court ruled on
the discovery motion, the motion to compel arbitration was no longer pending, and the
request for arbitration had been denied. The court thus had no obligation to stay the
action under Code of Civil Procedure section 1281.4. (Berman v. Renart Sportswear
Corp., supra, 222 Cal.App.2d at p. 390.)
Wet Seal recognizes that it has a more fundamental problem. A trial court order is
appealable only when made so by statute. (Griset v. Fair Political Practices Com. (2001)
25 Cal.4th 688, 696.) There is no statutory provision for appeal of an order compelling
discovery. (See Doe v. United States Swimming, Inc. (2011) 200 Cal.App.4th 1424,
1432; Code Civ. Proc., § 904.1.) Wet Seal urges us to treat the appeal as a petition for
mandate and reach the merits through a writ proceeding. It argues that a writ proceeding
is appropriate because, in light of the trial court’s tentative ruling to compel arbitration
and stay the action, it had no reason to argue the merits of a discovery motion that,
according to the tentative ruling, was moot.
7 Code of Civil Procedure section 1049 provides that “[a]n action is deemed to be
pending from the time of its commencement until its final determination upon appeal
. . . .” (Italics added.) The word “pending” does not appear in Code of Civil Procedure
section 1281.4. 12
We are not persuaded by this argument, particularly in light of counsel’s remarks
at the March 28 hearing. By stating “if Your Honor affirms the tentative . . . ” Wet Seal’s
counsel acknowledged the court’s right to change its tentative ruling. (Italics added.)
And Montano’s counsel encouraged the court to exercise that right, by arguing the
discovery motion was not moot in light of Montano’s intention to pursue her
representative PAGA action.
There is no requirement for a trial court to issue a tentative ruling, or to announce
its final ruling before taking a matter under submission. We find no support in the record
for Wet Seal’s claim of a due process violation, which was mentioned for the first time at
oral argument in this court. Finding no basis to treat the appeal from the nonappealable
order as a petition for writ of mandate, we conclude that this portion of the appeal must
be dismissed.

Outcome: The portion of the appeal seeking review of the nonappealable order granting
discovery is dismissed. In all other respects, the order is affirmed. The parties are to bear their own costs on appeal.

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