Garcia v. Din Tai Fung Restaurant, Inc.

Background

Juana Garcia brought ten employment-related claims against Din Tai Fung Restaurant, Inc., Din Tai Fung (SF) Restaurant, LLC, and Selena Soto. The claims included a federal Fair Labor Standards Act overtime claim and California wage-and-hour claims concerning minimum wages, overtime, reporting-time pay, meal and rest periods, final wages, unfair competition, employment records, and a California Labor Code Private Attorneys General Act (PAGA) claim. The opinion alleges that employees were required to perform tasks such as putting on protective equipment and washing their hands before clocking in, around meal periods, and after clocking out without compensation, among other alleged violations.

In early 2019, Din Tai Fung required employees to review a Mutual Arbitration Policy and sign an Employee Agreement to Arbitrate as a condition of continuing employment. Garcia signed the agreement on February 13, 2019, using a mobile phone application. The agreement required final and binding arbitration of claims related to employment or termination and waived jury-trial and class- or representative-action rights for covered disputes. It incorporated the American Arbitration Association’s employment-dispute rules and stated that the arbitrator would decide issues of arbitrability.

Din Tai Fung moved to compel Garcia to arbitrate her employment-related claims and to dismiss the state-law claims. Garcia argued that the agreement was unconscionable, meaning unfairly imposed or unfair in its terms, and that Din Tai Fung had waived its right to compel arbitration by not disclosing the agreement earlier. She also argued that the court should retain jurisdiction over the state claims, including by relying on the Class Action Fairness Act.

Arbitration Agreement

The court found that Garcia digitally signed the agreement and did not dispute that she signed it. It also found that the agreement covered her employment claims. Because the agreement incorporated the American Arbitration Association employment rules, the court concluded that the parties clearly and unmistakably delegated questions about whether claims were arbitrable to the arbitrator. Garcia did not challenge that delegation or argue that the agreement did not apply to her employment claims; instead, she challenged the agreement’s enforceability.

Applying California contract law, the court found that the agreement was an adhesion contract: a standardized, take-it-or-leave-it agreement offered by the party with greater bargaining power. Din Tai Fung conditioned Garcia’s employment on accepting the agreement, and Garcia could not negotiate its terms. The court therefore found some procedural unconscionability, which concerns unfairness in how a contract was presented or formed, but characterized that level as minimal.

The court rejected Garcia’s arguments that the procedural unfairness was greater because she was pregnant, had limited English proficiency, received the agreement through a mobile application, or was not given a paper copy of the American Arbitration Association rules. The court found insufficient evidence that Din Tai Fung used Garcia’s pregnancy to pressure her. It also noted that Garcia had until the next business day to review the agreement and could ask questions or request assistance. The court found that the three-page agreement was formatted to draw attention to its terms and that the agreement identified where the rules could be found or how to request them.

The court also found insufficient substantive unconscionability, which concerns whether contract terms are overly one-sided or oppressive. Garcia argued that the agreement did not provide enough discovery. The court concluded that the incorporated American Arbitration Association rules provided adequate discovery. It further found that the agreement provided for a neutral arbitrator, a written decision, the types of relief available in court, and limits on Garcia’s responsibility for filing and arbitrator fees. Because Garcia did not show a high degree of substantive unconscionability, the court held that the agreement was enforceable.

Waiver

The court rejected Garcia’s argument that Din Tai Fung waived arbitration. Under the standard applied by the court, Garcia had to show that Din Tai Fung knew about its arbitration right, intentionally acted inconsistently with that right, and prejudiced Garcia as a result. The court found that Garcia had not shown that Din Tai Fung intentionally declined to seek arbitration or actively litigated the case in court to her disadvantage. The court therefore held that Din Tai Fung had not waived its right to compel arbitration.

PAGA Claim and Jurisdiction

After compelling arbitration of the employment-related claims, the court treated Garcia’s PAGA claim as the only remaining claim. PAGA is a California law that allows an employee to pursue specified civil penalties on behalf of the state. The court concluded that the Class Action Fairness Act did not provide original federal jurisdiction over the PAGA claim. It then declined to exercise supplemental jurisdiction, which is a federal court’s discretionary authority to hear related state-law claims alongside claims within its original jurisdiction.

The court relied on the fact that the federal claims had been eliminated, the federal court had not considered the merits of the PAGA claim, and California courts have a strong interest in deciding issues of California law. The court therefore granted the motion to dismiss the remaining PAGA claim without prejudice, meaning the dismissal did not bar Garcia from refiling that claim in state court.

Disposition

Judge Beth Labson Freeman granted Din Tai Fung’s motion to compel arbitration and granted the motion to dismiss. The PAGA claim was dismissed without prejudice, and the clerk was directed to close the case. The opinion did not decide the underlying wage-and-hour claims on their merits.