Filed 4/8/22 Franco v. Prime Healthcare Huntington Beach 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NOT TO BE PUBLISHED IN OFFICIAL REPORTS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 publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

FOURTH APPELLATE DISTRICT

DIVISION THREE

Appeal from an order of the Superior Court of Orange County, Geoffrey T. Glass, Judge. (Retired judge of the Orange Super. Ct. assigned by the Chief Justice pursuant to art. VI, § 6 of the Cal. Const.) Reversed and remanded with instructions.

Littler Mendelson, Helene Wasserman and Michael L. Kibbe for Defendants and Appellants.

Law Offices of Gavril T. Gabriel and Gavril T. Gabriel for Plaintiff and Respondent.

INTRODUCTION

Under the Federal Arbitration Act (9 U.S.C. § 1 et seq.) (FAA), “[a] written provision in any maritime transaction or a contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract or transaction, or the refusal to perform the whole or any part thereof, or an agreement in writing to submit to arbitration an existing controversy arising out of such a contract, transaction, or refusal, shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.” (9 U.S.C. § 2, italics added.) But California Labor Code section 229 provides that certain actions “for the collection of due and unpaid wages claimed by an individual may be maintained without regard to the existence of any private agreement to arbitrate.”^[1] Because section 229 is in “unmistakable conflict with” FAA section 2, the United States Supreme Court has ruled section 229 must “give way” under federal preemption rules where the arbitration agreement is “part of a contract evidencing interstate commerce[.]” (Perry v. Thomas (1987) 482 U.S. 483, 489, 491.)

In this case, we must decide whether an arbitration agreement between an employer and employee falls into this category. The trial court did not think the employer met its burden to show the contract involved interstate commerce and thus denied its motion to compel arbitration of two wage and hour claims brought by the employee. We think the employer did meet its burden and therefore reverse.

FACTS

Alejandro Arguelles Franco was hired by Huntington Beach Hospital, a full-service medical facility, to work as a public safety officer in November 2018. His employer was appellant Prime Healthcare Huntington Beach, LLC (Prime LLC), which was doing business in the hospital’s name. On November 27, 2018, Franco and Prime LLC signed a mutual agreement to arbitrate, requiring disputes “arising out of [his] application for employment and/or the employment relationship between the Parties, or the formation or termination of the employment relationship, that are not otherwise resolved by mutual agreement,” to “be resolved by final and binding arbitration.”[2] Arbitrations were to be conducted under the JAMS (Judicial Arbitration and Mediation Services) employment arbitration rules before a neutral arbitrator. Additionally, the agreement provided as follows: “The Parties agree that this Agreement is governed by the Federal Arbitration Act, 9 U.S.C. §§ 1, et seq. The Parties also understand and agree that the Company is engaged in transactions involving interstate commerce.” There was no other choice of law provision in the agreement.

Franco’s job required him to patrol the hospital premises, maintain order, and assist with security or safety issues involving patients. In November 2020, Franco sued Prime LLC, along with its managing member, a corporate entity called Prime Healthcare Foundation, Inc. (Prime Inc.) and four individual managing agents. Franco’s complaint listed numerous labor and employment claims arising from his termination. Franco believed he was targeted in a series of retaliatory acts following an incident in which he questioned the legality of his supervisors’ orders to chase an emergency room patient off hospital grounds in or around September of 2019. Franco’s complaint describes more than one incident in which he was called over to certain areas of the hospital to assist in subduing combative patients, and then faulted for abandoning his post and leaving the emergency room unsecured. The complaint makes clear that Franco’s job involved a significant amount of contact with patients and visitors to the hospital, patrolling areas in which they would be present.

Defendants answered and shortly thereafter, Prime LLC and Prime Inc. filed a motion to compel arbitration under the arbitration agreements after Franco refused to stipulate to arbitrate the dispute. [3] He had brought several wage and hour claims, including the third cause of action for failure to pay wages and the fourth cause of action for failure to pay overtime. Franco’s counsel argued he was not bound to arbitrate these particular claims despite the existence of an arbitration agreement, pursuant to section 229 and Lane v. Francis Capital Management LLC (2014) 224 Cal.App.4th 676, 684 (Lane). In his opposition, Franco agreed to arbitrate all claims related to his wrongful termination, but not the wage and hour claims. Franco also argued the only way the wage and hour claims could be arbitrable was if the FAA applied to the agreement, and it did not because his employment did not involve interstate commerce. The trial court agreed with this argument, finding the FAA did not preempt section 229. It granted appellant’s motion as to all causes of action except the third and fourth to arbitration, which were stayed pending its outcome. Prime LLC and Prime Inc. appealed the denial of their motion as to the third and fourth causes of action.

DISCUSSION

Appellants believe the trial court erred in determining the FAA did not preempt section 229 in their case. They first point to language in the parties’ agreement invoking the FAA, which the trial court never addressed in its ruling. Additionally, they argue they adequately demonstrated the hospital was engaged in interstate commerce, which should have been sufficient for FAA preemption. We agree on both points.

“The party seeking to compel arbitration bears the burden of proving by a preponderance of the evidence an agreement to arbitrate exists. [Citations.] The party seeking to enforce the arbitration agreement also bears the burden of establishing the FAA applies and preempts otherwise governing provisions of state law or the parties’ agreement. (See Lane[, supra,] 224 Cal.App.4th [at p.] 687 [a petitioner seeking an order to compel arbitration pursuant to the FAA must show that the subject matter of the agreement involves interstate commerce]; Woolls v. Superior Court (2005) 127 Cal.App.4th 197, 211 [same]; see also Shepard v. Edward Mackay Enterprises, Inc. (2007) 148 Cal.App.4th 1092, 1101 [enforcing party bears the burden of demonstrating FAA preemption].) [¶] Once an agreement to arbitrate has been proved, the burden shifts to the party opposing arbitration to establish a defense to the enforcement of the agreement, including ‘the burden of demonstrating that the exemption [from arbitration] applies.’ (Performance Team Freight Systems, Inc. v. Aleman (2015) 241 Cal.App.4th 1233, 1241; see generally Rosenthal [v. Great Western Fin. Securities Corp. (1996) 14 Cal.4th [934,] 413.) [¶] We review de novo the superior court’s interpretation of an arbitration agreement, including whether federal or state law governing arbitration applies, when the interpretation does not involve conflicting extrinsic evidence. [Citations.]” (Nixon v. AmeriHome Mortgage Co., LLC (2021) 67 Cal.App.5th 934, 946.)

Here, the subject agreement contained language specifically providing it was to be “governed by” the FAA. “While Congress was no doubt aware that the [FAA] would encourage the expeditious resolution of disputes, its passage ‘was motivated, first and foremost, by a congressional desire to enforce agreements into which parties had entered.’ [Citation.] Accordingly, we have recognized that the FAA does not require parties to arbitrate when they have not agreed to do so, [citation], nor does it prevent parties who do agree to arbitrate from excluding certain claims from the scope of their arbitration agreement [citations]. It simply requires courts to enforce privately negotiated agreements to arbitrate, like other contracts, in accordance with their terms.” (Volt Information Sciences, Inc. v. Board of Trustees of Leland Stanford Junior University (1989) 489 U.S. 468, 478 (Volt).) In Volt, the parties had “agreed to abide by state rules of arbitration,” and so “enforcing those rules according to the terms of the agreement [wa]s fully consistent with the goals of the FAA[.]” (Id. at p. 479.)

We see no reason why – all things being equal – a converse situation should be viewed any differently. As Volt counsels, “[a]rbitration under the [FAA] is a matter of consent, not coercion, and parties are generally free to structure their arbitration agreements as they see fit. Just as they may limit by contract the issues which they will arbitrate [citation], so too may they specify by contract the rules under which that arbitration will be conducted.” (Volt, supra, 489 U.S. at p. 479; see also Cronus Investments, Inc. v. Concierge Services (2005) 35 Cal.4th 376, 394 [parties may “expressly designate that any arbitration proceeding should move forward under the FAA’s procedural provisions rather than under state procedural law”].) Here, the parties expressly designated the FAA as the law governing their agreement, saying not one word about California law. “They adopted the FAA – all of it – to govern their arbitration.” (Rodriguez v. American Technologies, Inc. (2006) 136 Cal.App.4th 1110, 1122.) As a matter of pure contractual interpretation, the FAA applies. [4] Therefore, all causes of action should go to arbitration under the agreement.[5]

Even if the contractual language were not so clear, we agree with appellant that it established the FAA also applies to the arbitration agreement because the hospital is engaged in interstate commerce. The United States Supreme Court has adhered to a “commerce in fact” interpretation of the FAA’s reference to “contract[s] evidencing a transaction involving commerce[.]” (FAA § 2; see also Allied-Bruce Terminix Cos., Inc. v. Dobson (1995) 513 U.S. 265, 281 (Dobson).) Under this interpretation, the statute is to be read “as insisting that the ‘transaction’ in fact ‘involve’ interstate commerce, even if the parties did not contemplate an interstate commerce connection.” (Dobson, supra, 513 U.S. at p. 281.) “The statute’s language, background, and structure establish that section 2’s ‘involving commerce’ words are the functional equivalent of the phrase ‘affecting commerce,’ which normally signals Congress’ intent to exercise its commerce power to the full[.]” (Id. at p. 265.) “Congress Commerce Clause power ‘may be exercised in individual cases without showing any specific effect upon interstate commerce’ if in the aggregate the economic activity in question would represent ‘a general practice . . . subject to federal control.’ [Citations.] Only that general practice need bear on interstate commerce in a substantial way.” (Citizens Bank v. Alafabco, Inc. (2003) 539 U.S. 52, 56-57 (Alafabco).)

This analysis becomes tricky in the employment context, which is evident from the parties’ arguments and the colloquy that occurred in the trial court. Franco seems to be of the view that it was not enough for appellants to simply show their business involved interstate commerce; they had to show Franco’s job itself involved interstate commerce. Appellants, on the other hand, say Alafabco does not require them to show Franco’s actual responsibilities involved interstate commerce, so long as the hospital’s business activities did. The trial court agreed with Franco, but we are more inclined toward appellants’ position.

Alafabco centered on agreements between two Alabama residents: a construction company and its lender. The agreements allowed for the restructuring of the company’s long-standing debts with the bank, but also called for arbitration under the FAA. (Alafabco, supra, 539 U.S. at pp. 53-54.) The trial court granted the bank’s motion to compel arbitration, but the Supreme Court of Alabama reversed, holding the proper interstate commerce analysis required a determination as to whether the debt-restructuring agreements themselves had a sufficient impact on interstate commerce. (Id. at p. 55.) In a per curiam opinion, the United States Supreme Court rejected this approach as “improperly cramped.” (Id. at p. 58.) The high court noted the company had used funds in out-of-state projects, and that its loans were secured by all of its assets, including those located out of state. Finally, the court felt the “broad impact of commercial lending on the national economy” was sufficient to bring federal interests into play. (Id. at pp. 57-58.) Therefore, it was unnecessary to analyze whether the loans involved out-of-state transfers or out-of-state projects. (Id. at p. 56.)

Adhering to the Alafabco example, we need not seek out evidence that Franco himself treated out-of-state patients, handled or processed Medicare reimbursements, and such the like. It is only necessary for appellants to show their economic activity involved interstate commerce, and Franco’s job responsibilities played a role. This burden was met.

On the first point, we cannot overlook the arbitration agreement’s own language, by which Franco agreed the hospital was engaged in interstate commerce. Furthermore, the hospital’s Human Resources Manager, Jodie Hay-Walker, submitted a declaration averring that the hospital served both in-state and out-of-state patients, received equipment and supplies through interstate commerce channels, and was reimbursed through the federal Medicare program.[6] Medicare is a federally regulated and administered program and reimbursements through the program are transactions involving interstate commerce. (See Willis v. Prime Healthcare Services, Inc. (2014) 231 Cal.App.4th 615, 626, citing Summit Health, Ltd. v. Pinhas (1991) 500 U.S. 322, 327.)

As to the second point, Franco’s complaint and his declaration submitted below demonstrate he had a public-facing position. He helped secure the premises, including the emergency room, which is a place that sees quite a bit of traffic in most hospitals. He also dealt directly with patients in a security capacity – helping to subdue those who became aggressive or combative.[7] We can reasonably assume at least some of these patients either came from out-of-state or were on Medicare, since the hospital’s business involved such transactions.[8] Indeed, Franco’s entire dispute with the hospital stems from his performance in dealing with patients. His position thus had a sufficient nexus to the hospital’s interstate business for the FAA to apply to his claims.

We do not believe any of Franco’s authorities compel a different conclusion. First of all, none of them – Lane, Hoover v. American Income Life Ins. Co. (2012) 206 Cal.App.4th 1193, 1207 (Hoover), or a case out of our court, Carbajal v. CWPSC, Inc. (2016) 245 Cal.App.4th 227 (Carbajal) – involved an agreement in which the FAA was explicitly designated its governing law, to the exclusion of any other. But these cases do not persuade us for other important reasons. In both Lane and Carbajal, the employer seeking FAA preemption of wage and hour claims had shown no evidence that its business involved interstate commerce.[9] And we decline to follow Hoover. In that case, the employee was a life insurance agent located in California who sold policies for a Texas firm. (Hoover, supra, 206 Cal.App.4th at p. 1207.) Division Two of this court held there was no evidence to show the employment relationship “had a specific effect or ‘bear[ing] on interstate commerce in a substantial way.’ [Citation.]” (Id. at p. 1208.) We must disagree with this conclusion for two reasons. The presence of a California employee and Texas employer seems to us sufficient to establish the employment relationship involved interstate commerce. But more importantly, we believe Hoover’s reasoning is contrary to Alafabco, which only requires the aggregate economic activity to “bear on interstate commerce in a substantial way.” (Alafabco, supra, 539 U.S. at p. 57.) Appellants made this showing.

DISPOSITION

The order denying the motion to compel arbitration as to the third and fourth causes of action is reversed and remanded with instructions to grant the motion as to all causes of action. Appellant to recover its costs on appeal.

BEDSWORTH, J.

WE CONCUR:

O’LEARY, P.J.

MOORE, J.

[1] All further statutory references are to the Labor Code unless otherwise indicated.

[2] Franco had signed an identical agreement with the hospital on November 15, 2018. It is not clear why there were two agreements if Huntington Beach Hospital was simply a fictitious business name for Prime LLC.

[3] The answer was filed jointly on behalf of all defendants. However, the motion to compel arbitration was brought only by the Prime defendants.

[4] On appeal, respondent appears to want to frame the issue as one of waiver. This theory was not raised before the trial court and we will not address it here.

[5] We note Franco never argued the arbitration agreement was unconscionable. Indeed, the trial court was the one to take the initiative and find it was not unconscionable.

[6] On appeal, Franco argues Hay-Walker’s declaration was not competent or admissible because insufficient foundation was laid for her personal knowledge regarding the hospital’s business. But Franco did not file evidentiary objections against the Hay-Walker declaration. We will not address an issue that was not brought to the trial court’s attention.

[7] To what extent a patient’s aggressiveness might impact his or her medical treatment is unknown, but it is at least conceivable that it could. For instance, we can conceive of a scenario in which security personnel helping to subdue a patient might be forced to use techniques that could result in unintended injury to the patient. This could lead to issues in reimbursement for services or even legal liability for a patient’s personal injuries.

[8] Franco averred he “did not provide treatment to patients,” and given he was a public safety officer, we certainly hope he didn’t. The wording seems artfully designed to avoid bringing attention to his seemingly regular interactions with not only patients, but the public.

[9] The employer in Lane only told the court it was “‘a firm which manages capital investments,’” and the employer in Carbajal ran a house-painting business serving California customers. (Lane, supra, 224 Cal.App.4th at p. 688; Carbajal, supra, 245 Cal.App.4th at pp. 240-241.)