# Aguilera v. Matco Tools Corporation

> District Court, S.D. California · March 12, 2020

URL: https://www.frixlaw.com/law-library/cases/10080717

## Case

- **Court:** District Court, S.D. California
- **Decided:** March 12, 2020
- **Opinion:** 100trialcourt
- **Cited by:** 0 later opinions in the Frix Law Library

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## Opinion text

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8 UNITED STATES DISTRICT COURT
9 SOUTHERN DISTRICT OF CALIFORNIA
10
11 EMANUEL AGUILERA, an Case No.: 3:19-cv-01576-AJB-AHG
individual; ROCIO AGUILERA, an
12 ORDER:
individual; and SIMON GORO, an

13 individual,
(1) GRANTING IN PART AND
Plaintiffs,
14 DENYING IN PART DEFENDANT’S
v. MOTION TO DISMISS (Doc. No. 6)
15

MATCO TOOLS CORPORATION,
16 (2) GRANTING PLAINTIFFS’
a Delaware corporation,
MOTION FOR PRELIMINARY
17 Defendant.
INJUNCTION (Doc. No. 18)
18
19 This action can be distilled down to one simple dispute—whether this Court should
20 enjoin Defendant Matco Tools Corporation (“Matco”) from proceeding with arbitration
21 against Plaintiffs Emanuel Aguilera, Rocio Aguilera, and Simon Goro (“Plaintiffs”) in
22 Ohio. On January 31, 2020, the Court granted Plaintiffs’ ex parte application for a
23 temporary restraining order, temporarily enjoining Matco from arbitrating its claims
24 against Plaintiffs in the arbitration proceedings in Ohio. Now, currently pending before the
25 Court is: (1) Matco’s motion to dismiss, (Doc. No. 6) and (2) Plaintiffs’ motion for
26 preliminary injunction, (Doc. No. 18). Both motions have been fully briefed and the Court
27 heard both motions for oral argument on March 5, 2020. (Doc. Nos. 16, 17, 30, 32.) For
28 the reasons set forth below, the Court GRANTS IN PART AND DENIES IN PART
1 Matco’s motion to dismiss, and GRANTS Plaintiffs’ motion for preliminary injunction.
2 I. BACKGROUND
3 A. The Parties and Disputes
4 Headquartered in Stow, Ohio, Matco Tools Corporation markets mechanic repair
5 tools, diagnostic equipment, and toolboxes. (First Amended Complaint (“FAC”) ¶ 12.)
6 Matco contracts with individual entrepreneurs, also known as “Distributors,” to display
7 and sell Matco branded tools through “mobile distributorships.” (Doc. No. 28 at 12.) Matco
8 requires all Distributors and their spouses to sign its “Distributorship Agreement” and pay
9 a corresponding fee. (Doc. No. 24-1 at 6.)
10 Plaintiffs Emanuel Aguilera, his spouse, Rocio Aguilera, and Simon Goro are all
11 residents of California. (FAC ¶ 10–12.) Plaintiffs and their spouses signed a Distributorship
12 Agreement in June 2018. (Doc. No. 28 at 13.) Plaintiffs allegedly borrowed funds from
13 Matco pursuant to a promissory note in connection with their franchise distributorships.
14 (Id.) Plaintiffs then purchased tools from Matco, and sold the tools to customers. (Id.) Both
15 Plaintiffs Emanuel Aguilera and Simon Goro operated distributorships solely in California
16 until November 2018. (Id.)
17 Plaintiffs allege Matco refused to recognize the Distributors as employees, and
18 deprived the Distributors of protections under California law such as overtime pay and
19 reimbursement of business expenses. (Doc. No. 24-1 at 7.) Matco, on the other hand,
20 contends the Distributors are independent contractors. (Doc. No. 28 at 13.)
21 However, before getting to the merits of the case, the parties currently dispute which
22 forum, if any, the lawsuit should appropriately be filed in. Specifically, Plaintiffs and
23 Matco clash over Matco’s Dispute Resolution provisions in the Distributorship
24 Agreements, and the provisions requiring Distributors to submit to binding individual
25 arbitration in Ohio for nearly all disputes. (Doc. No. 24-1 at 7.) While Matco contends
26 otherwise, Plaintiffs allege the arbitration and forum selection clauses contained in their
27 Distributorship Agreements are unenforceable. (Id.)
28 //
1 B. Plaintiffs’ Dismissed California Action and Matco’s Petition to Compel
2 Arbitration Pending in Ohio
3 Previously on December 7, 2018, Plaintiffs filed a class action lawsuit on behalf of
4 themselves and other Matco Distributors and their spouses in Alameda County Superior
5 Court, alleging that they had been misclassified as “independent contractors.” (Doc. No.
6 24-1 at 7.) Matco removed the action to the United States District Court for the Northern
7 District of California (“Northern District of California”) on January 18, 2019. (Doc. No.
8 28 at 15); see Emanuel Aguilera et al. v. Matco Tools Corporation, Case No.: 19-CV-
9 00321-YGR (N.D. Cal. 2019). On March 11, 2019, Matco moved to dismiss or transfer the
10 action to the United States District Court for the Northern District of Ohio (“Northern
11 District of Ohio”). (Id.) Instead of opposing Matco’s motion, Plaintiffs agreed to dismiss
12 the case without prejudice, and the parties filed a request for dismissal on March 22, 2019.
13 (Id. at 16.) Plaintiffs did not re-file their lawsuit. (Doc. No. 24-1 at 7.) On March 25, 2019,
14 Matco then initiated an action against Plaintiffs in the Northern District of Ohio by filing a
15 petition to compel arbitration of Plaintiffs’ dismissed California claims. (Id. at 7); Matco
16 Tools Corporation v. Aguilera et al., Case No.: 19-cv-00641-PAB (N.D. Ohio 2019). The
17 petition is fully briefed, and currently pending before the Northern District of Ohio. (Id.)
18 C. Matco’s Ohio Arbitrations Against Plaintiffs
19 Then on June 28, 2019, Matco submitted an arbitration demand before the American
20 Arbitration Association (“AAA”) in Ohio against Plaintiffs Emanuel and Rocio Aguilera.
21 (Doc. No. 28 at 16.) That same day, Matco filed a separate demand for arbitration—again
22 before the AAA in Ohio—against Plaintiff Simon Goro and his wife. (Id.) In both
23 arbitrations before the AAA, Matco seeks amounts relating to Plaintiffs’ alleged failure to
24 pay on their promissory notes. (Doc. No. 6 at 14.)
25 On September 19, 2019, Plaintiffs Emanuel and Rocio Aguilera contested the
26 validity of the arbitration provision in their proceedings. (Doc. No. 30 at 16.) On December
27 16, 2019, the arbitrator ruled that the provision was enforceable. (Id.) Plaintiff Simon Goro
28 and his wife are also challenging the arbitration provision in their arbitration proceeding.
1 (Id. at 17.)
2 D. The Fleming Action: The Northern District of California and Ninth
3 Circuit Decisions
4 Matco’s classification of its workers as independent contractors is also being
5 challenged by a different plaintiff, John Fleming, in a putative class action filed on January
6 25, 2019 in the Northern District of California. See John Fleming v. Matco Tools
7 Corporation, et al., No. 3:19-cv-00463-WHO, (N.D. Cal. Jan 25, 2019) (the “Fleming
8 Action”); (Doc. No. 24-1 at 7.) Plaintiffs in this instant matter are absent class members in
9 the Fleming Action. (Doc. No. 16 at 7.) And Plaintiff Rocio Aguilera does not meet the
10 criteria for putative class membership as defined in the Fleming complaint. (Doc. No. 17
11 at 15 n.4.) While John Fleming’s Distributorship Agreement is not exactly the same as
12 Plaintiffs’ in this instant action, the dispute resolution provisions in John Fleming’s
13 Distributorship Agreement is not materially different from the provisions signed by
14 Plaintiffs here. (Id. at 10.) On February 19, 2019, in the Fleming Action, Matco moved to
15 enforce the Ohio forum selection clause in John Fleming’s Distributorship Agreement by
16 filing a motion to dismiss, or, in the alternative, motion to transfer venue based on forum
17 non conveniens. (Doc. No. 28 at 15.) The district court denied the motion on May 3, 2019,
18 holding the arbitration and forum selection clauses in John Fleming’s Distributorship
19 Agreement invalid. See Fleming v. Matco Tools Corp., 384 F. Supp. 3d 1124 (N.D. Cal.
20 2019). Specifically, the district court held the Federal Arbitration Act (“FAA”) did not
21 preempt Cal. Bus. & Prof. Code § 20040.5, which bars non-California forum selection
22 clauses in franchise agreements. Id. at 1137. Additionally, the district court reasoned the
23 arbitration provision containing the forum selection clause was invalid because it contained
24 a Private Attorneys General Act (“PAGA”) waiver, which triggered a “blow up” provision
25 invalidating the arbitration provision. Id. at 1133.
26 On June 4, 2019, Matco filed a petition for writ of mandamus with the Ninth Circuit,
27 on the issue of whether the district court properly determined the validity of the arbitration
28 provision before ruling on the enforceability of the forum selection clause set forth in the
1 arbitration provision. (Doc. No. 28 at 15.) On October 25, 2019, the Ninth Circuit denied
2 the petition, affirming the district court’s decision. In re Matco Tools Corp., 781 F. App’x
3 681 (9th Cir. 2019). The Ninth Circuit held that the district court “did not err—much less
4 clearly so—in considering the validity of the franchise agreement’s arbitration provision.”
5 Id. at 682. The Ninth Circuit also held that the district court followed “binding Ninth Circuit
6 precedent” in concluding that: (1) “Matco and Fleming did not agree to arbitrate their
7 dispute under the plain terms of their contract,” (2) absent a valid arbitration provision, the
8 FAA does not preempt Cal. Bus. & Prof. Code § 20040.5, and (3) the forum selection
9 clause was unenforceable. (Id.) Matco filed a petition for rehearing en banc, which was
10 denied by the Ninth Circuit on January 3, 2020. (Doc. No. 30 at 15.)
11 II. PROCEDURAL HISTORY
12 Plaintiffs filed this action in this Court on August 21, 2019. (Doc. No. 1.) A FAC
13 was filed on August 22, 2019. (Doc. No. 3.) In the FAC, Plaintiffs assert three causes of
14 action for: (1) declaratory judgment, holding the clauses requiring individual arbitration
15 exclusively in Ohio void and unenforceable, (2) injunctive relief enjoining the Ohio
16 proceedings, and (3) violation of California’s Unfair Competition Law. (Id.) On October
17 10, 2019, Matco filed a motion to dismiss for lack of jurisdiction and failure to state a
18 claim. (Doc. No. 6.) Matco seeks dismissal based on (1) the first-to-file rule, (2) lack of
19 jurisdiction because the Distributorship Agreement allegedly delegated issues of
20 arbitrability to an arbitrator, and (3) the failure to state a claim on the UCL, restitution, and
21 injunctive claims for relief. Plaintiffs opposed the motion, (Doc. No. 16) and Matco replied,
22 (Doc. No. 17).
23 Plaintiffs then filed a motion for preliminary injunction on December 27, 2019.
24 (Doc. No. 18.) Matco opposed the motion. (Doc. No. 30). Plaintiffs replied on January 31,
25 2020. On January 13, 2020, after filing their motion for preliminary injunction, Plaintiffs
26 filed an ex parte application for a temporary restraining order, or in the alternative, for an
27 order shortening time on Plaintiffs’ motion for preliminary injunction. (Doc. No. 24.)
28 Matco opposed the ex parte application, (Doc. No. 28) and Plaintiffs replied, (Doc. No.
1 29). On January 21, 2020, the Court granted Plaintiffs’ ex parte application for a temporary
2 restraining order. (Doc. No. 31.) This order follows.
3 III. REQUESTS FOR JUDICIAL NOTICE
4 Matco requests judicial notice of (1) numerous documents filed in various related
5 cases in federal court and state court, (2) the United States District Courts National Judicial
6 Caseload Profile, and (3) the California Assembly Committee on Judiciary’s Bill Analysis.
7 (Doc. Nos. 6-3, 17-1, 30-1.) Similarly, Plaintiffs also request judicial notice of several
8 documents filed in various related cases. (Doc. No. 16-1.)
9 Federal Rule of Civil Procedure 201 permits a court to take judicial notice of an
10 adjudicative fact if it is “not subject to reasonable dispute.” Fed. R. Evid. 201(b). A fact is
11 “not subject to reasonable dispute” if it is “generally known,” or “can be accurately and
12 readily determined from sources whose accuracy cannot reasonably be questioned.” Fed.
13 R. Evid. 201(b)(1)-(2). Under this rule, a court may “take judicial notice of matters of
14 public record without converting a motion to dismiss into a motion for summary
15 judgment,” but it “cannot take judicial notice of disputed facts contained in such public
16 records.” Khoja v. Orexigen Therapeutics, Inc., 899 F.3d 988, 999 (9th Cir. 2018).
17
Here, under Rule 201, judicial notice of the several documents filed in the related
18
case proceedings is appropriate. “Courts have consistently held that courts may take
19
judicial notice of documents filed in other court proceedings.” See NuCal Food, Inc. v.
20
Quality Egg LLC, 887 F. Supp. 2d 977, 984 (E.D. Cal. 2012). However, “[w]hile the
21
authenticity and existence of a particular order, motion, pleading or judicial proceeding,
22
which is a matter of public record, is judicially noticeable, veracity and validity of its
23
contents . . . are not.” United States v. S. Cal. Edison Co., 300 F. Supp. 2d 964, 974 (E.D.
24
Cal. 2004). Based on this authority, the Court GRANTS both Matco’s and Plaintiffs’
25
requests to the extent they seek judicial notice of the existence of the documents filed in
26 the various related court proceedings.
27 Additionally, Matco’s request for judicial notice of the United States District Courts
28 National Judicial Caseload Profile and the California Assembly Committee on Judiciary’s
1 Bill Analysis are also GRANTED as they are undisputed matters of public record. See Lee
2 v. City of Los Angeles, 250 F.3d 668, 689 (9th Cir. 2001).
3 IV. MATCO’S MOTION TO DISMISS
4 To start, the Court will first address Matco’s motion to dismiss. (Doc. No. 6.) Matco
5 moves to dismiss on multiple grounds, arguing (1) the first-to-file rule warrants dismissal
6 or a stay, (2) Plaintiffs’ claims should be dismissed for lack of subject matter jurisdiction
7 because the Distributorship Agreements delegate questions of arbitrability to an arbitrator,
8 (3) Plaintiffs’ UCL, restitution and injunctive relief claims are defective, and (4) the forum
9 non conveniens doctrine warrants dismissal or transfer. (Id. at 2–3.) The Court will address
10 each ground for dismissal in turn.
11 A. Legal Standards
12 1. Motion to Dismiss Under Federal Rule of Civil Procedure 12(b)(1)
13 A motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(1) tests
14 whether the court has subject matter jurisdiction. “A Rule 12(b)(1) jurisdictional attack
15 may be facial or factual.” Safe Air for Everyone v. Meyer, 373 F.3d 1035, 1039 (9th Cir.
16 2004). “In a facial attack, the challenger asserts that the allegations contained in a complaint
17 are insufficient on their face to invoke federal jurisdiction.” Id. The court “resolves a facial
18 attack as it would a motion to dismiss under Rule 12(b)(6): accepting the plaintiff’s
19 allegations as true and drawing all reasonable inferences in the plaintiff’s favor, the court
20 determines whether the allegations are sufficient as a legal matter to invoke the court’s
21 jurisdiction.” Leite v. Crane Co., 749 F.3d 1117, 1121 (9th Cir. 2014).
22 “[I]n a factual attack,” on the other hand, “the challenger disputes the truth of the
23 allegations that, by themselves, would otherwise invoke federal jurisdiction.” Safe Air for
24 Everyone, 373 F.3d at 1039. In resolving such an attack, unlike with a motion to dismiss
25 under Rule 12(b)(6), a court “may review evidence beyond the complaint without
26 converting the motion to dismiss into a motion for summary judgment.” Id. Moreover, the
27 court “need not presume the truthfulness of the plaintiff’s allegations.” Id. Once the
28 defendant has moved to dismiss for lack of subject matter jurisdiction under Rule 12(b)(1),
1 the plaintiff bears the burden of establishing the court’s jurisdiction. See Chandler v. State
2 Farm Mut. Auto Ins. Co., 598 F.3d 1115, 1122 (9th Cir. 2010).
3 2. Motion to Dismiss Under Federal Rule of Civil Procedure 12(b)(6)
4 A motion to dismiss under Rule 12(b)(6) tests the legal sufficiency of a plaintiff’s
5 complaint. See Navarro v. Block, 250 F.3d 729, 732 (9th Cir. 2001). “[A] court may dismiss
6 a complaint as a matter of law for (1) lack of cognizable legal theory or (2) insufficient
7 facts under a cognizable legal claim.” SmileCare Dental Grp. v. Delta Dental Plan of Cal.,
8 88 F.3d 780, 783 (9th Cir. 1996) (citation omitted). However, a complaint will survive a
9 motion to dismiss if it contains “enough facts to state a claim to relief that is plausible on
10 its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). In making this
11 determination, a court reviews the contents of the complaint, accepting all factual
12 allegations as true and drawing all reasonable inferences in favor of the nonmoving party.
13 See Cedars-Sinai Med. Ctr. v. Nat’l League of Postmasters of U.S., 497 F.3d 972, 975
14 (9th Cir. 2007). Notwithstanding this deference, a reviewing court need not accept legal
15 conclusions as true. See Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). It is also improper for
16 a court to assume “the [plaintiff] can prove facts that [he or she] has not alleged.” Assoc.
17 Gen. Contractors of Cal., Inc. v. Cal. State Council of Carpenters, 459 U.S. 519, 526
18 (1983). However, “[w]hen there are well-pleaded factual allegations, a court should assume
19 their veracity and then determine whether they plausibly give rise to an entitlement to
20 relief.” Iqbal, 556 U.S. at 664.
21 B. Discussion
22 1. The First-to-File Rule
23 The Court first turns to whether the first-to-file rule warrants a dismissal or stay of
24 the case. Matco argues this action should be dismissed under the “first-to-file” rule because
25 Plaintiffs’ action was filed after both the Ohio district court action, and after Matco’s
26 Petition for Writ of Mandamus proceeding. (Doc. No. 6 at 17.) Plaintiffs oppose, arguing
27 that exceptions to the first-to-file rule apply, and it would be inequitable to haul Plaintiffs
28 to Ohio to litigate claims Plaintiffs already dismissed. (Doc. No. 16 at 22.) The Court agrees
1 with Plaintiffs.
2 A federal district court has discretion to dismiss, stay, or transfer a case to another
3 district court under the first-to-file rule. Pacesetter Sys., Inc. v. Medtronic, Inc., 678 F.2d
4 93, 94–95 (9th Cir. 1982); Alltrade, Inc. v. Uniweld Prods. Inc., 946 F.2d 622, 628 (9th
5 Cir. 1991). The rule is primarily meant to alleviate the burden placed on the federal
6 judiciary by duplicative litigation and to prevent the possibility of conflicting judgments.
7 Church of Scientology of Cal. v. U.S. Dep’t of Army, 611 F.2d 738, 750 (9th Cir. 1979)
8 (citations omitted). Courts analyze three factors in determining whether to apply the first-
9 to-file rule: (1) chronology of the actions; (2) similarity of the parties; and (3) similarity of
10 the issues. Schwartz v. Frito–Lay N. Am., No. C–12–02740 EDL, 2012 WL 8147135, at *2
11 (N.D. Cal. Sept. 12, 2012) (citing Alltrade, 946 F.2d at 625).
12 Here, even if the foregoing three elements are met, the Court is persuaded by
13 Plaintiffs’ argument that an exception should apply to preclude application of the first-to-
14 file rule. “The most basic aspect of the first-to-file rule is that it is discretionary.” Alltrade,
15 946 F.2d at 628. The first-to-file rule “is not a rigid or inflexible rule to be mechanically
16 applied,” and in certain circumstances “even though the requisite factors for the rule’s
17 application have been met, courts nonetheless decline to follow its dictates.” Pacesetter,
18 678 F.2d at 95. Additionally, “[t]he circumstances under which an exception to the first-
19 to-file rule typically will be made include bad faith, anticipatory suit, and forum shopping.”
20 Alltrade, at 628. “Generally, a suit is anticipatory when the plaintiff files suit upon receipt
21 of specific, concrete indications that a suit by the defendant is imminent.” Youngevity Int’l,
22 Inc. v. Renew Life Formulas, Inc., 42 F. Supp. 3d 1377, 1383 (S.D. Cal. 2014).
23 Plaintiffs argue the anticipatory suit exception applies because Matco anticipatorily
24 filed suit in the Northern District of Ohio, and specifically mentioned in their petition to
25 compel arbitration: “Matco is informed and believes that [Plaintiffs] intend to violate the
26 Distributorship Agreements, again, by filing another lawsuit against Matco in California.”
27 (Doc. No. 16.) Plaintiffs also allege Matco agreed in bad faith to voluntarily dismiss
28 Plaintiffs’ claims in the Northern District of California, purely with the intent to engage in
1 forum shopping, and bring Plaintiffs’ claims in Ohio. (Id. at 24.) Matco, on the other hand,
2 states the anticipatory suit exception should not apply because Matco had no notice of any
3 “specific, concrete indications” that a suit by Plaintiffs was imminent. (Doc. No. 6 at 19.)
4 Matco’s position is unavailing. Matco’s argument before this Court that it did not
5 have “specific, concrete indications” that Plaintiffs was going to file suit cannot be
6 reconciled with Matco’s representation to the Ohio district court that it believed Plaintiff
7 was going to file another lawsuit in California. The two positions are clearly contradictory.
8 Additionally, it would be inequitable in this situation to apply the first-to-file rule in favor
9 of the Ohio forum because Matco seeks to arbitrate in Ohio claims Plaintiffs brought first
10 and voluntarily dismissed in California. As such, the Court exercises its discretion to
11 disregard the first-to-file rule. See Alaris Med. Sys. Inc. v. Filtertek Inc., No. CIV. 00-CV-
12 2404-LAJB, 2001 WL 34053241, at *3 (S.D. Cal. Dec. 20, 2001).
13 2. The Court Does Not Lack Subject Matter Jurisdiction
14 Next, Matco argues dismissal is warranted because the Court lacks subject matter
15 jurisdiction due to the delegation provision in the Distributorship Agreement. According
16 to Matco, the Distributorship Agreement “clearly and unmistakably” delegates questions
17 of arbitrability to an arbitrator. (Doc. No. 6 at 21.) Section 12.1 of the Distributorship
18 Agreement says all “disputes and controversies . . . arising from or related to this
19 Agreement . . . will be determined exclusively by binding arbitration.” (FAC, Ex. A & B
20 at § 12.1.) Plaintiffs respond with an attack on the arbitration agreement, arguing that
21 because the arbitration agreement is unenforceable, Plaintiffs did not delegate arbitrability.
22 (Doc. No. 16 at 16.) In short, Plaintiffs contend the arbitration agreement contains an
23 unenforceable PAGA waiver, which triggers a blow-up provision invalidating the entire
24 arbitration agreement and the delegation provision contained therein. (Id. at 16–18.)
25 “[U]nlike the arbitrability of claims in general, whether the court or the arbitrator
26 decides arbitrability is ‘an issue for judicial determination unless the parties clearly and
27 unmistakably provide otherwise.’” Oracle Am., Inc. v. Myriad Grp. A.G., 724 F.3d 1069,
28 1072 (9th Cir. 2013) (quoting Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79, 83
1 (2002)). “In other words, there is a presumption that courts will decide which issues are
2 arbitrable; the federal policy in favor of arbitration does not extend to deciding questions
3 of arbitrability.” Id. Clear and unmistakable evidence of an agreement to arbitrate
4 arbitrability “might include . . . a course of conduct demonstrating assent . . . or . . . an
5 express agreement to do so.” Momot v. Mastro, 652 F.3d 982, 988 (9th Cir. 2011) (quoting
6 Rent–A–Ctr., W., Inc. v. Jackson, 561 U.S. 63, 79–80 (2010) (Stevens, J., dissenting)).
7 Here, the delegation clause does not evince a clear and unmistakable intent to
8 arbitrate the issues of arbitrability. Given the generalized language of the alleged delegation
9 clause, the Court finds no such “clear and unmistakable” agreement to delegate. Notably
10 missing from this alleged delegation clause is any language delegating questions of
11 “interpretation, applicability, enforceability or formation” to an arbitrator. Cf. Armenta v.
12 Go-Staff, Inc., No. 16-CV-2548 JLS (AGS), 2017 WL 1711293, at *1 (S.D. Cal. May 3,
13 2017) (granting motion to compel arbitration where delegation clause stated “[t]he
14 arbitrator shall have exclusive authority to resolve any dispute relating to the interpretation,
15 applicability, enforceability, or formation of this Agreement, including, but not limited to,
16 any claim that all or any part of this Agreement is void or voidable.”); see Meadows v.
17 Dickey’s Barbecue Restaurants Inc., 144 F. Supp. 3d 1069, 1077 (N.D. Cal. 2015). And
18 tellingly, Matco’s cited authority to support its position are cases in which the delegation
19 clauses contain more specific language evidencing an intent to delegate. See Brock v.
20 Copart of Wash., Inc., No. 3:18-CV-02012-BR, 2019 U.S. Dist. LEXIS 30981, *5 (D. Ore.
21 Feb. 27, 2019) (“[T]he Arbitrator, and not any federal, state, or local court or agency, shall
22 have the exclusive authority to resolve any dispute relating to the interpretation,
23 applicability, enforceability, or formation of this Agreement.”) (emphasis added); Dvorsky
24 v. Axis Global Sys., LLC, No. CV 17-422 DMG (AJWx), 2017 U.S. Dist. LEXIS 222959,
25 *2 (C.D. Cal. June 15, 2017) (“Any and all disputes arising under or relating in any way to
26 the interpretation or application of this Agreement concerning Employee’s employment
27 with the Company, payment from that employment and/or termination thereof shall be
28 subject to arbitration”) (emphasis added). No similar language exists here.
1 Matco claims the Distributorship Agreement’s incorporation of the AAA Rules
2 demonstrates clear and unmistakable evidence of the parties’ intent to delegate
3 arbitrability. (Doc. No. 6 at 22.) It is true that under some circumstances, incorporating the
4 AAA rules into an agreement can support a clear and unmistakable intent to delegate. See
5 Brennan v. Opus Bank, 796 F.3d 1125, 1131 (9th Cir. 2015). But courts have held that
6 whether this rule applies depends on whether the parties are sophisticated and understand
7 the import of such an incorporation. See Meadows, 144 F. Supp. 3d at 1079. Indeed, “an
8 inquiry about whether the parties clearly and unmistakably delegated arbitrability by
9 incorporation should first consider the position of those parties.” Id. at *6. To a
10 sophisticated party, it might be reasonable to infer that incorporation of the rules
11 demonstrates an intent to delegate. “But applied to an inexperienced individual, untrained
12 in the law, such a conclusion is likely to be much less reasonable.” Id. Plaintiffs here are
13 unsophisticated franchisees, and there is no evidence showing it would be reasonable for
14 Plaintiffs to recognize that the incorporation of the AAA Rules meant delegating the
15 question of arbitrability to an arbitrator. Nagrampa v. MailCoups, 469 F.3d 1257, 1282
16 (9th Cir. 2006) (quoting Postal Instant Press, Inc. v. Sealy, 43 Cal. App. 4th 1704, 1715–
17 16 (1996)) (“Although franchise agreements are commercial contracts they exhibit many
18 of the attributes of consumer contracts. The relationship between franchisor and franchisee
19 is characterized by a prevailing, although not universal, inequality of economic resources
20 between the contracting parties.”).
21 Accordingly, the Court concludes this dispute should not be submitted to an
22 arbitrator.
23 3. Plaintiffs’ Unfair Competition Law (“UCL”), Restitution, and
24 Injunctive Relief Claims
25 Matco also seeks to dismiss Plaintiffs’ UCL, injunctive relief, and restitution claims
26 under Federal Rule of Civil Procedure 12(b)(6). The Court will review each basis for
27 dismissal below.
28 //
1 a) Plaintiffs Lack Standing Under the California UCL
2 In their FAC, Plaintiffs brings a claim against Matco under California’s UCL,
3 arguing Matco’s litigation activity in forcing arbitration contravenes California law. (FAC
4 ¶ 69.) In response, Matco seeks dismissal of the UCL claim, arguing Plaintiffs lack
5 standing to assert the claim, at least as the claim pertains to the litigation in Ohio district
6 court. The Court agrees.
7 A plaintiff injured by a violation of the UCL may only seek restitution and injunctive
8 relief. See Cal. Bus. & Prof. § 17203. A plaintiff bears the burden of establishing that she
9 has standing for each type of relief sought. Summers v. Earth Island Inst., 555 U.S. 488,
10 493 (2009). Standing under the UCL is substantially narrower than Article III standing.
11 Kwikset Corp. v. Superior Court, 51 Cal. 4th 310, 324 (2011). To satisfy this standing
12 requirement, the California Supreme Court requires a plaintiff to “(1) establish a loss or
13 deprivation of money or property sufficient to qualify as injury in fact, i.e. economic injury,
14 and (2) show that the economic injury was the result of, i.e., caused by the unfair business
15 practice . . . that is the gravamen of the claim.” Kwikset Corp., 51 Cal. 4th at 322.
16 Although Plaintiffs have likely expended significant resources in defending against
17 the proceedings in Ohio district court, Plaintiffs are still precluded from asserting their
18 UCL claim due to the Noerr–Pennington doctrine. The essence of the Noerr–Pennington
19 doctrine is that those who petition any department of the government for redress are
20 immune from statutory liability for their petitioning conduct. Sosa v. DIRECTV, Inc., 437
21 F.3d 923, 929 (9th Cir. 2006). Petitioning the government includes using courts to advocate
22 for one’s business and economic interests. California Motor Transp. Co. v. Trucking
23 Unlimited, 404 U.S. 508, 510–11 (1972).
24 Here, the Noerr–Pennington doctrine bars Plaintiffs’ UCL claim to the extent it is
25 premised on liability arising from Matco’s petition to compel arbitration in the Northern
26 District of Ohio. Plaintiffs’ response that the “sham litigation exception” applies does not
27 change this result. The sham litigation exception only applies where (1) the lawsuit is
28 objectively baseless and the defendant’s motive in bringing it was unlawful; (2) where the
1 conduct involves a series of lawsuits “brought pursuant to a policy of starting legal
2 proceedings without regard to the merits” and for an unlawful purpose; and (3) if the
3 allegedly unlawful conduct “consists of making intentional misrepresentations to the
4 court.” Sosa, 437 F.3d 923, 938 (9th Cir. 2006). But this exception does not apply as
5 Matco’s petition is not objectively baseless or fraught with misrepresentations.
6 Accordingly, to the extent Plaintiffs assert a UCL claim premised on the litigation
7 in the Northern District of Ohio, Plaintiffs lack standing and, the Court GRANTS
8 Defendants’ motion to dismiss, and this claim is DISMISSED WITHOUT LEAVE TO
9 AMEND.
10 b) Plaintiffs’ Claim for Restitution under the UCL
11 Matco also contends that Plaintiffs are not entitled to restitution under the UCL.
12 (Doc. No. 6 at 27.) Under California UCL law, a restitution order compels “a UCL
13 defendant to return money obtained through an unfair business practice to those persons in
14 interest from whom the property was taken, that is, to persons who had an ownership
15 interest in the property or those claiming through that person.” Korea Supply Co. v.
16 Lockheed Martin Corp., 29 Cal. 4th 1134, 1144–45 (2003). The Court agrees with Matco
17 that the only expenditures alleged are litigation costs, which were not paid to Matco. (Doc.
18 No. 6 at 27.) Thus, restitution is not available, and the Court GRANTS Matco’s motion on
19 this basis.
20 c) Plaintiffs’ Injunctive Relief Claims
21 Finally, Matco moves to dismiss Plaintiffs’ claims for injunctive relief to the extent
22 they are premised on enjoining the currently pending action in the Northern District of
23 Ohio. (Doc. No. 17 at 13.) Matco states that while it does not concede that an injunction
24 precluding arbitration in Ohio would be proper, it acknowledges “that such claims are not
25 necessarily defective as a matter of law and thus [Matco] did not seek dismissal of them
26 pursuant to Rule 12(b)(6).” (Doc. No. 17 at 13.) As to enjoining Matco from proceeding
27 with the litigation in the Northern District of Ohio, Matco argues Plaintiffs cannot
28 demonstrate that litigating in the Ohio district court will cause irreparable injury or that
1 Plaintiffs lack of adequate legal remedies. (Doc. No. 6 at 25–26.)
2 Courts have held that forcing parties to arbitrate under an invalid arbitration
3 agreement constitutes irreparable harm. World Grp. Sec. v. Tiu, No. CV 03-2609 NM
4 SHSX, 2003 WL 26119461, at *7 (C.D. Cal. July 22, 2003). But while this Court may
5 conclude that forcing Plaintiffs to arbitrate would constitute irreparable harm, and may
6 generally enjoin Matco from arbitrating in Ohio, Plaintiffs do not provide authority stating
7 that a district court may enjoin a party from proceeding in another district court.
8 Accordingly, the Court GRANTS Matco’s motion to the extent it seeks to dismiss
9 Plaintiffs’ injunctive relief claim as it pertains to the Ohio district court proceeding.
10 4. Motion to Dismiss Under Forum Non Conveniens
11 Lastly, the Court declines to address Matco’s alternative argument that the forum
12 non conveniens doctrine warrants dismissal or transfer. As Matco states, this argument “is
13 asserted in the alternative, if the Northern District of Ohio rules on Matco’s Petition to
14 Compel Arbitration, and, the Ninth Circuit rules on Matco’s Petition for Writ of
15 Mandamus, before this Court rules on the instant motion.” (Doc. No. 6 at 28 n.10.) Here,
16 the Northern District of Ohio has yet to rule on Matco’s petition to compel arbitration and
17 so, the Court will not address Matco’s motion to dismiss on this ground.
18 * * *
19 In summation, (1) the first-to-file rule does not warrant dismissal of this action, (2)
20 the Court does not lack subject matter jurisdiction due to the purported delegation
21 provision, (3) Plaintiffs’ UCL claim is DISMISSED WITHOUT LEAVE TO AMEND
22 to the extent it is premised on the Ohio district court proceeding, (4) Plaintiffs’ restitution
23 claim under the UCL is also DISMISSED WITHOUT LEAVE TO AMEND, and (5)
24 Plaintiffs’ injunction relief claim is also DISMISSED WITHOUT LEAVE TO AMEND
25 only to the extent it is premised on enjoining the Ohio district court proceeding.
26 V. PLAINTIFFS’ MOTION FOR PRELIMINARY INJUNCTION
27 Having addressed Matco’s motion to dismiss, the Court will now turn to Plaintiffs’
28 motion for preliminary injunction. (Doc. No. 18.) On January 31, 2020, the Court issued a
1 TRO temporarily enjoining Matco from arbitrating its claims against Plaintiffs in the
2 arbitration proceedings in Ohio. The TRO did not affect the parties’ proceeding before the
3 Northern District of Ohio. Plaintiffs’ motion for a preliminary injunction is substantially
4 similar to its ex parte application for a TRO. Because the standard for the issuance of a
5 TRO and preliminary injunction are the same, and there does not appear to be changed
6 circumstances, the Court GRANTS Plaintiffs’ motion for preliminary injunction.
7 A. Legal Standard
8 Federal Rule of Civil Procedure 65 provides authority to issue either preliminary
9 injunctions or temporary restraining orders. Plaintiffs seeking these forms of injunctive
10 relief must demonstrate (1) that they are likely to succeed on the merits, (2) that they are
11 likely to suffer irreparable harm in the absence of preliminary relief, (3) that the balance of
12 equities tips in their favor, and (4) that an injunction is in the public interest. Am. Trucking
13 Ass’ns v. City of Los Angeles, 559 F.3d 1046, 1052 (9th Cir. 2009) (quoting Winter v.
14 Natural Res. Def. Council, 555 U.S. 7 (2008)).
15 B. Discussion
16 1. Likelihood of Success on the Merits
17 Plaintiffs provide several reasons why they are likely to succeed in enjoining Matco
18 from pursuing with arbitration against Plaintiffs in Ohio. These arguments are with merit,
19 and the Court addresses them below.
20 a) Collateral Estoppel and the Unenforceability of the
21 Arbitration Provision
22 Plaintiffs argue collateral estoppel bars Matco from relitigating the validity of the
23 forum selection clause and the arbitration provision. (Doc. No.18-1 at 15.) Matco opposes,
24 maintaining that collateral estoppel is a gateway issue for an arbitrator, the elements of
25 collateral estoppel are not present, and its application would be unfair to Matco. (Doc. No.
26 28 at 22.) To invoke nonmutual offensive issue preclusion, a plaintiff has to prove: (1) the
27 defendant was afforded a full and fair opportunity to litigate the issues in the prior actions;
28 (2) the issues were actually litigated and necessary to support the judgments; (3) the issues
1 were decided against defendant in final judgments; and (4) defendant was a party or in
2 privity with a party in the prior proceedings. Resolution Tr. Corp. v. Keating, 186 F.3d
3 1110, 1114 (9th Cir. 1999).
4 In addressing these elements, the Court notes that the elements necessary for
5 collateral estoppel to apply are substantially met. However, at oral argument, Matco
6 represented that it intends to file a writ of certiorari to the United States Supreme Court
7 regarding the denial by the Ninth Circuit of its petition for writ of mandamus. As such, the
8 Court will defer ruling on the issue of collateral estoppel. However, whether or not
9 collateral estoppel applies, the Court finds the district court’s order in the Fleming Action,
10 and the Ninth Circuit’s decision regarding the petition for writ of mandamus persuasive
11 authority on the issue of the validity of the forum selection and arbitration clauses. See
12 Fleming, 384 F. Supp. 3d at 1137 (“Matco’s motion to dismiss is denied because by the
13 Distribution Agreement’s own terms, the arbitration provision is invalid and Section
14 20040.5’s prohibition of forum selection clauses in franchise agreements restricting venue
15 to a forum outside California is not preempted by the FAA.”); see also In re Matco Tools
16 Corp., 781 F. App’x at 682 (holding “the district court followed binding Ninth Circuit
17 precedent in concluding” that there was no agreement to arbitrate or a valid forum selection
18 clause). In considering this persuasive authority, the Court concludes Plaintiffs have
19 demonstrated a likelihood of success on the merits of invalidating the forum selection and
20 arbitration clauses. See Nuh Nhuoc Loi v. Scribner, 671 F. Supp. 2d 1189, 1201 n.10 (S.D.
21 Cal. 2009) (“Although still not binding precedent, unpublished decisions [postdating 2006]
22 have persuasive value and indicate how the Ninth Circuit applies binding authority.”).
23 a) The Unenforceability of the Arbitration Provision
24 Even if collateral estoppel were not to apply, Plaintiffs have demonstrated a
25 likelihood of success on their argument that Plaintiffs’ Distributorship Agreement is
26 unenforceable due to its inclusion of a Private Attorneys General Act (“PAGA”) claim
27 waiver. PAGA “authorizes an employee to bring an action for civil penalties on behalf of
28 the state against his or her employer for Labor Code violations committed against the
1 employee and fellow employees, with most of the proceeds of that litigation going to the
2 state.” Sakkab v. Luxottica Retail N. Am., Inc., 803 F.3d 425, 429 (9th Cir. 2015).
3 The PAGA waiver in Plaintiffs’ Distributorship Agreement reads, “THE
4 DISTRIBUTOR EXPRESSLY WAIVES ANY RIGHT TO ARBITRATE OR LITIGATE
5 AS A CLASS ACTION OR IN A PRIVATE ATTORNEY GENERAL CAPACITY.” (See
6 Doc. No. 24-3, Ex. A ¶ 12.7 (emphasis added).) Also included in the Distributorship
7 Agreement is a “blow-up provision” that provides, “if the provision prohibiting classwide
8 or private attorney general arbitration is deemed invalid, then the provision requiring
9 arbitration of breaches between the parties shall be null and void and there shall be no
10 obligation to arbitrate such breaches.” (Id. ¶ 12.12 (emphasis added).)
11 It is well-established in the Ninth Circuit that provisions purporting to waive PAGA
12 claims are unenforceable in arbitration agreements. Indeed, in Sakkab, the Ninth Circuit
13 held that pre-dispute agreements to waive PAGA claims are unenforceable because: (1)
14 agreements exculpating a party for violations of the law are unenforceable; and (2) a law
15 established for a public reason may not be contravened by private agreement. Sakkab, 803
16 F.3d at 429. It is quite clear that the arbitration provisions in Plaintiffs’ Distributorship
17 Agreement contain improper PAGA waivers. Thus, under settled Ninth Circuit law, the
18 PAGA waiver constitutes an impermissible pre-dispute agreement to waive PAGA claims.
19 This invalid PAGA waiver, read in conjunction with the “blow-up provision” renders the
20 arbitration agreement likely unenforceable.
21 b) The Invalid Forum Selection Clause
22 Also likely invalid is the forum selection clause. The forum selection clause in
23 Plaintiffs’ agreement states, “[u]nless this requirement is prohibited by law, all arbitration
24 hearings must and will take place exclusively in Summit or Cuyahoga County, Ohio. All
25 court actions, mediations or other bearings or proceedings initiated by either party against
26 the other party must and will be venued exclusively in Summit or Cuyahoga County,
27 Ohio.” (See Doc. No. 24-3, Ex. A ¶ 12.10.)
28 California Business and Professions Code § 20040.5 makes void any “provision in
1 a franchise agreement restricting venue to a forum outside this state . . . with respect to any
2 claim arising under or relating to a franchise agreement involving a franchise business
3 operating within this state.” Cal. Bus. & Prof. Code § 20040.5. The Ninth Circuit has held
4 that the statute “expresses a strong public policy of the State of California to protect
5 California franchisees from the expense, inconvenience, and possible prejudice of litigating
6 in a non-California venue.” Jones v. GNC Franchising, Inc., 211 F.3d 495, 498 (9th Cir.
7 2000). A forum selection clause “that requires a California franchisee to resolve claims
8 related to the franchise agreement in a non-California court[,]” such as the one here,
9 “directly contravenes this strong public policy and is unenforceable under the directives of
10 Bremen.” Id. (citing M/S Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 92 (1972)).
11 Here, Matco does not dispute that it styled its agreements with the Distributors as
12 franchise agreements. The Ninth Circuit in the Fleming Action explicitly determined that
13 “applying section 20040.5, the forum-selection clause here is unenforceable because it
14 would require Fleming, a California franchisee, to litigate in a non-California venue.” In
15 re Matco Tools Corp., 781 F. App’x at 683. The Court finds no reason to diverge from the
16 Ninth Circuit’s reasoning, given that the forum selection clause in Fleming’s
17 Distributorship Agreement does not materially differ from Plaintiffs’ here. Thus, given the
18 mandate of Cal. Bus. & Prof. Code § 20040.5, the Court holds that there is a likelihood of
19 success in invalidating the forum selection clause.
20 B. Irreparable Harm in The Absence of a Preliminary Injunction
21 A plaintiff seeking a preliminary injunction must establish a likelihood of irreparable
22 harm in the absence of relief. Herb Reed Enterprises, LLC v. Florida Entm’t Mgmt., Inc.,
23 736 F.3d 1239, 1242 (9th Cir. 2013). “Those seeking injunctive relief must proffer
24 evidence sufficient to establish a likelihood of irreparable harm.” Id. at 21. A court may
25 not rely on “unsupported and conclusory statements regarding harm [a plaintiff] might
26 suffer.” Id. at 19 (internal quotation marks omitted; emphasis in the original).
27 Without the issuance of a preliminary injunction, not only may Plaintiffs be forced
28 to arbitrate claims they already dismissed, Plaintiffs will suffer irreparable injury and
1 abridgement of their rights and remedies under California law. See Textile Unlimited, Inc.
2 v. ABMH and Co., 240 F.3d 781, 786 (9th Cir. 2001) (confirming preliminary injunction
3 based on district court’s finding that plaintiff would suffer irreparable harm if arbitration
4 were not stayed); World Grp. Sec. v. Tiu, No. CV 03-2609 NM SHSX, 2003 WL 26119461,
5 at *7 (C.D. Cal. July 22, 2003) (“[F]orcing Plaintiff to arbitrate would deprive it of its right
6 to choose a forum and result in simultaneous litigation of this dispute in two forums,
7 causing Plaintiff to expend time and incur additional legal expenses for which it has no
8 adequate remedy at law.”). Therefore, this factor weighs in favor of Plaintiffs.
9 C. Balance of Hardships
10 In order for a preliminary injunction to issue, courts must weigh “the competing
11 claims of injury and [] consider the effect on each party of the granting or withholding of
12 the requested relief.” Amoco Prod. Co. v. Village of Gambell, AK, 480 U.S. 531, 542
13 (1987). Here, the balance of equities tips sharply in favor of Plaintiffs as California
14 residents. Indeed, all of Plaintiffs’ work for Matco was performed in California. (Doc. No.
15 24-23 at ¶ 5; Doc. No. 24-26 at ¶ 5.) Plaintiffs have resided in California for their entire
16 adult lives. (Doc. No. 24-23 at ¶ 4; Doc. No. 24-26 at ¶ 4.) And outside of traveling to Ohio
17 for approximately ten days to receive training from Matco, Plaintiffs have never traveled
18 to Ohio, and never intend to return to Ohio. (Doc. No. 24-23 at ¶ 5; Doc. No. 24-26 at ¶ 5.)
19 Matco, on the other hand, does not explain why it would be harmed if its arbitration
20 proceedings against Plaintiffs in its home state were preliminarily enjoined. Furthermore,
21 the Court agrees with Plaintiffs that a preliminary injunction would not divest Matco of its
22 rights to pursue its claims in a proper forum. (Doc. No. 24-1 at 29.) Accordingly, this factor
23 weighs heavily in favor of Plaintiffs as well.
24 D. Public Interest
25 The public interest analysis for the issuance of a preliminary injunction requires
26 courts to consider whether there exists some critical public interest that would be injured
27 by the grant of preliminary relief. Cottrell, 632 F.3d at 1138 (citation omitted). An issuance
28 of a preliminary injunction based on these facts is not in contravention of the public’s
1 ||interest. Rather, it furthers the public’s interest in ensuring California franchisees are not
2 || burdened with the “expense, inconvenience, and possible prejudice of litigating in a non-
3 || California venue.” Jones, 211 F.3d at 498. Additionally, injunctive relief also furthers the
4 || public’s interest in ensuring that parties are not forced to arbitrate under invalid arbitration
5 || provisions. Lyon v. Neustar, Inc., No. 219CV00371KJMKJN, 2019 WL 1978802, at *9
6 ||(E.D. Cal. May 3, 2019) (“[A]ny contract provision that runs afoul of section 925 is
7 ||contrary to California’s strong public interest in protecting its employees. On that ground
8 alone, the public policy interests relevant here weigh in support of preliminarily enjoining
9 || Neustar’s pursuit of arbitration outside of California.”). As such, this factor too weighs in
10 || favor of a preliminary injunction.
11 % OK Ok
12 In conclusion, with all four factors favoring Plaintiffs, Plaintiffs have adequately
13 ||shown they are entitled to a preliminary injunction.
14 VI. CONCLUSION
15 In light of the foregoing, Court GRANTS IN PART AND DENIES IN PART
16 ||Matco’s motion to dismiss. The Court also GRANTS Plaintiffs’ motion for preliminary
17 ||injunction. Defendant Matco Tools Corporation is preliminarily enjoined from arbitrating
18 any claims against Plaintiffs Emanuel Aguilera, Rocio Aguilera, and Simon Goro under
19 || the “Distribution Agreement” including in any arbitration proceeding in the state of Ohio.
20 || This preliminary injunction does not affect the parties’ proceeding before the Northern
21 || District of Ohio. This injunction shall remain in effect until the Court enters judgment on
22 merits or until otherwise ordered by the Court.
23
24 || IT IS SO ORDERED.
25 ||Dated: March 12, 2020 © ¢
26 Hon. Anthony J.Battaglia
27 United States District Judge
28
21

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Source: Frix Law Library, https://www.frixlaw.com/law-library/cases/10080717. Public record. Not legal advice.