The opinion
Filed 4/23/24
CERTIFIED FOR PUBLICATION
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION SEVEN
ANGEL MONDRAGON, B328425
Plaintiff and Respondent, (Los Angeles County Super. Ct.
No. 22STCV25672)
v.
SUNRUN INC.,
Defendant and Appellant.
APPEAL from an order of the Superior Court of
Los Angeles County, Michael P. Linfield, Judge. Affirmed.
Gordon Rees Scully Mansukhani, Matthew G. Kleiner,
Andrea K. Williams and Brandon Saxon for Defendant and
Appellant.
Lebe Law, Jonathan M. Lebe, Zachary T. Gershman and
Brielle D. Edborg for Plaintiff and Respondent.
INTRODUCTION
Sunrun Inc. required its employee, Angel Mondragon, to
sign an arbitration agreement, which he did. The agreement
covered most disputes relating to Mondragon’s employment, but
it excluded claims brought “as a representative of the state of
California as a private attorney general under” the Private
Attorney General Act of 2004 (PAGA; Lab. Code, § 2698 et seq.).
After his employment ended, Mondragon filed a complaint
asserting several causes of action under PAGA. Sunrun filed a
motion to compel arbitration of Mondragon’s claims, which the
trial court denied.
Sunrun appeals from the order denying the motion to
compel arbitration, arguing that, because the parties delegated
arbitrability decisions to the arbitrator, the trial court erred in
ruling on whether Mondragon’s claims were arbitrable. Sunrun
also argues that, if the parties did not delegate arbitrability
decisions to the arbitrator, the trial court erred in denying the
motion because the arbitration agreement excluded only PAGA
claims based on violations involving other employees, not
Mondragon’s “individual” PAGA claims. We conclude that, by
signing an arbitration agreement that (1) merely referred to the
rules of the American Arbitration Association; (2) included a
carve-out that arguably covered the dispute; and (3) included a
severability clause stating a court may not enforce certain
provisions, Mondragon, an unsophisticated party, did not
delegate arbitrability decisions to the arbitrator. We also
conclude the language of the arbitration agreement did not
require Mondragon to arbitrate his individual PAGA claims.
Therefore, we affirm.
2
FACTUAL AND PROCEDURAL BACKGROUND
A. Sunrun Hires Mondragon; The Parties Sign an
Arbitration Agreement
In January 2022 Sunrun hired Mondragon as an hourly
employee, contingent on Mondragon signing a two-and-a-half-
page arbitration agreement. Mondragon agreed, and he and a
Sunrun representative signed the arbitration agreement. The
agreement included a section describing which claims the
agreement covered and a section describing which claims it did
not. These are they:
“CLAIMS COVERED BY THIS AGREEMENT
“Except as provided below, Company and Employee (the Parties)
agree to arbitrate before a neutral arbitrator any and all existing
or future disputes or claims between or among them that arise
out of or relate to Employee’s . . . employment or separation from
employment with Company. This means that the Parties agree
to arbitrate any lawsuits that they may have against the other,
including (but not limited to) the following:
....
“claims for non-payment, incorrect or overpayment of wages . . .,
failure to pay wages for all hours worked, failure to pay overtime,
failure to pay wages due on termination, failure to provide
accurate, itemized wage statements, failure to provide breaks, . . .
entitlement to waiting time penalties and/or any other claims
involving wages, hours, or conditions of work.
3
“CLAIMS NOT COVERED BY THIS AGREEMENT
“Parties understand and agree that the following disputes are not
covered by this Agreement:
....
“claims brought by Employee in state or federal court as a
representative of the state of California as a private attorney
general under the PAGA (to the extent applicable) . . . .”
The agreement also included this provision governing the
procedures the parties would use “for arbitration”:
“ARBITRATION PROCEDURES
“The parties will use the American Arbitration Association
(‘AAA’) for arbitration, subject to its Employment Arbitration
Rules and mediation Procedures (‘Arbitration Rules’), available at
www.adr.org. . . . The Rules explain how to file a Demand for
Arbitration. If the Arbitration Rules conflict with this Agreement
in any way, this Agreement prevails and controls. The demand
for arbitration must be filed within the statute of limitations
applicable to the claim on which arbitration is sought.”
Finally, the agreement included a severability clause. This
is it: “The parties understand and agree that if a court or
arbitrator invalidates or refuses to enforce any term or portion of
this Agreement, the remainder of this Agreement shall not be
4
affected by such invalidity or unenforceability but shall remain in
full force and effect . . . .”
B. Mondragon Sues Sunrun After His Employment Ends
A year after his employment ended, Mondragon filed this
action against Sunrun, asserting a single cause of action under
PAGA for Labor Code violations involving him and other
employees. Mondragon alleged Sunrun failed to pay all earned
wages, including overtime wages; unlawfully deducted earned
wages; failed to provide required meal and rest breaks; and failed
to provide accurate wage statements.
C. Sunrun Files a Motion To Compel Arbitration;
The Trial Court Denies It
Sunrun filed a motion to compel arbitration of Mondragon’s
individual PAGA claims. Citing the United States Supreme
Court’s decision in Viking River Cruises, Inc. v. Moriana (2022)
596 U.S. 639 [142 S.Ct. 1906] (Viking River), Sunrun contended
that, where there is an arbitration agreement, a court may
compel a party to arbitrate individual PAGA claims, even if the
court may not compel the party to arbitrate non-individual PAGA
claims. Sunrun further contended the “PAGA carve-out”
provision in the arbitration agreement applied only to PAGA
claims filed on behalf of other employees, not to Mondragon’s
individual PAGA claims. 1
1 Sunrun also asked the court, if it compelled arbitration of
Mondragon’s individual PAGA claims, to rule Mondragon had no
standing to assert the non-individual claims and therefore
dismiss or stay them. The California Supreme Court has since
5
Sunrun also contended—somewhat inconsistently—that if
the court did not grant the motion to compel arbitration, an
arbitrator should decide whether Mondragon agreed to arbitrate
his claims. 2 Sunrun contended that the arbitration agreement
incorporated the rules of the AAA and that, under the applicable
rules, the arbitrator had authority to decide questions of
arbitrability. Therefore, according to Sunrun, by signing the
arbitration agreement, Mondragon agreed an arbitrator would
decide those questions.
The trial court denied the motion to compel arbitration.
The court first ruled it, not the arbitrator, should decide
questions of arbitrability. Quoting Pinela v. Neiman Marcus
Group, Inc. (2015) 238 Cal.App.4th 227 at page 239, the court
ruled that, “‘“unless the parties clearly and unmistakably provide
otherwise, the question of whether the parties agreed to arbitrate
is to be decided by the court”’” and that the agreement’s reference
to the AAA rules did not clearly and unmistakably delegate
arbitrability decisions to the arbitrator. The court next ruled the
agreement “unambiguously” excluded PAGA claims and did not
differentiate between individual PAGA claims and PAGA claims
brought on behalf of other employees. The court also ruled that,
even if the agreement were ambiguous regarding whether it
held “an order compelling arbitration” of a plaintiff’s individual
PAGA claims “does not strip the plaintiff of standing as an
aggrieved employee to litigate claims on behalf of other
employees under PAGA.” (Adolph v. Uber Technologies, Inc.
(2023) 14 Cal.5th 1104, 1114.)
2 Although unclear, it appears Sunrun was asking the court
to decide questions of arbitrability if (and only if) the court ruled
in favor of Sunrun.
6
covered individual PAGA claims, the court would construe the
ambiguity against Sunrun because Sunrun drafted the
arbitration agreement and because Sunrun’s employment offer to
Mondragon characterized the arbitration agreement as
“excluding Private Attorney General (PAGA) claims” (again,
without differentiating between individual and other claims).
Sunrun timely appealed from the order denying the motion.
DISCUSSION
A. Applicable Law and Standard of Review
Where, as here, the parties to a lawsuit have executed an
arbitration agreement, a “threshold question . . . presented by
every motion or petition to compel arbitration” is “whether the
parties’ dispute falls within the scope of that agreement.” (Ahern
v. Asset Management Consultants, Inc. (2022) 74 Cal.App.5th
675, 687; accord, Wilson-Davis v. SSP America, Inc. (2021)
62 Cal.App.5th 1080, 1086-1087; see Performance Team Freight
Systems, Inc. v. Aleman (2015) 241 Cal.App.4th 1233, 1244 [“Only
disputes that fall within the scope of an arbitration provision are
arbitrable.”].) In addition, “parties may disagree about who—the
court or the arbitrator—has the power to decide whether the
dispute is arbitrable.” (Wilson-Davis, at p. 1087; see Sandquist v.
Lebo Automotive, Inc. (2016) 1 Cal.5th 233, 243 (Sandquist) [“‘the
question “who has the primary power to decide arbitrability”
turns upon what the parties agreed about that matter’”]; Nelson
v. Dual Diagnosis Treatment Center, Inc. (2022) 77 Cal.App.5th
643, 654 (Nelson) [same].) While “[b]oth the federal government
and California have strong public policies ‘“in favor of arbitration
as an expeditious and cost-effective way of resolving disputes,”
7
there “is no policy compelling persons to accept arbitration of
controversies which they have not agreed to arbitrate . . . .”
(In re Uber Technologies Wage & Hour Cases (2023)
95 Cal.App.5th 1297, 1304-1305, internal quotation marks
omitted; see Victoria v. Superior Court (1985) 40 Cal.3d 734, 744;
B.D. v. Blizzard Entertainment, Inc. (2022) 76 Cal.App.5th 931,
943.) “Indeed, a trial court has no power to order parties to
arbitrate a dispute that they did not agree to arbitrate.” (Bouton
v. USAA Casualty Ins. Co. (2008) 43 Cal.4th 1190, 1202; accord,
Sellers v. JustAnswer LLC (2021) 73 Cal.App.5th 444, 460-461;
see Howard v. Goldbloom (2018) 30 Cal.App.5th 659, 663
[“no dispute may be ordered to arbitration unless it is within the
scope of the arbitration agreement”].)
“‘When deciding whether the parties agreed to arbitrate a
certain matter (including arbitrability), courts generally
. . . should apply ordinary state-law principles that govern the
formation of contracts.’” (Sandquist, supra, 1 Cal.5th at p. 244;
see Fleming v. Oliphant Financial LLC (2023) 88 Cal.App.5th 13,
21; Mendoza v. Trans Valley Transport (2022) 75 Cal.App.5th
748, 764.) “‘An arbitration agreement is subject to the same rules
of construction as any other contract.’” (Fleming, at p. 21; see
Mendoza, at p. 764; Chambers v. Crown Asset Management
(2021) 71 Cal.App.5th 583, 390.) “In determining the scope of an
arbitration [agreement], ‘[t]he court should attempt to give effect
to the parties’ intentions, in light of the usual and ordinary
meaning of the contractual language and the circumstances
under which the agreement was made.’” (Victoria v. Superior
Court, supra, 40 Cal.3d at p. 744; see Ahern v. Asset Management
Consultants, Inc., supra, 74 Cal.App.5th at pp. 784-785; Howard
v. Goldloom, supra, 30 Cal.App.5th at p. 664.) “Where, as here,
8
the evidence is not in conflict, we review the trial court’s denial of
arbitration de novo.” (Pinnacle Museum Tower Assn. v. Pinnacle
Market Development (US), LLC (2012) 55 Cal.4th 223, 236; see
Barrera v. Apple American Group LLC (2023) 95 Cal.App.5th 63,
77; Williams v. 3620 W. 102nd Street, Inc. (2020) 53 Cal.App.5th
1087, 1090.) 3
B. The Trial Court Properly Decided Arbitrability
Under both federal and state law, “courts presume that the
parties intend courts, not arbitrators, to decide . . . disputes about
3 Mondragon argues that, because the court considered
extrinsic evidence, we should review for substantial evidence the
court’s ruling the arbitration agreement excluded his individual
PAGA claims. That is not the appropriate standard of review. It
is true that, “‘[w]hen the competent extrinsic evidence is in
conflict, and thus requires resolution of credibility issues, any
reasonable construction” of a contract by the factfinder “‘will be
upheld if it is supported by substantial evidence.’” (Kim v. TWA
Construction, Inc. (2022) 78 Cal.App.5th 808, 831.) But where
“‘the competent extrinsic evidence is not in conflict, the appellate
court independently construes the contract.’” (Hewlett-Packard
Co. v. Oracle Corp. (2021) 65 Cal.App.5th 506, 531; see Coral
Farms, L.P. v. Mahony (2021) 63 Cal.App.5th 719, 726.) “‘This is
true even when . . . that extrinsic evidence renders the contract
terms susceptible to more than one reasonable interpretation.’”
(Kim, at p. 831; see Oakland-Alameda County Coliseum
Authority v. Golden State Warriors, LLC (2020) 53 Cal.App.5th
807, 919.) Here, the extrinsic evidence is not in conflict. Sunrun
disputes whether the arbitration agreement is ambiguous and
therefore whether we may consider extrinsic evidence (see
Oakland-Alameda, at p. 816), but the relevant documents
Mondragon contends support his interpretation (which we will
discuss in more detail) are not in dispute.
9
‘arbitrability,’” including “‘whether an arbitration clause in a
concededly binding contract applies to a particular type of
controversy.’” (BG Group, PLC v. Republic of Argentina (2014)
572 U.S. 25, 34 [134 S.Ct. 1198]; see Gostev v. Skillz Platform,
Inc. (2023) 88 Cal.App.5th 1035, 1048 (Gostev); Aanderud v.
Superior Court (2017) 13 Cal.App.5th 880, 891.) “The parties
may agree to delegate authority to the arbitrator to decide
arbitrability, but given the contrary presumption, evidence that
the parties intended such a delegation must be “‘clear and
unmistakable’” before a court will enforce a delegation
provision.” (Gostev, at p. 1048; see Henry Schein, Inc. v. Archer &
White Sales, Inc. (2019) 586 U.S. ___, [139 S.Ct. 524, 530];
Nelson, supra, 77 Cal.App.5th at p. 654; see also Brennan v. Opus
Bank (9th Cir. 2015) 796 F.3d 1125, 1129.) “The ‘clear and
unmistakable’ test reflects a ‘heightened standard of proof’ that
reverses the typical presumption in favor of the arbitration of
disputes.” (Sandoval-Ryan v. Oleander Holdings LLC (2020)
58 Cal.App.5th 217, 223; see Aanderud, at p. 892.)
As stated, the arbitration agreement provided: “The
parties will use the [AAA] for arbitration, subject to its
Employment Rules and mediation procedures . . . available at
www.adr.org.” The AAA rules, in turn, contain a section titled
“Jurisdiction,” which states: “The arbitrator shall have the power
to rule on his or her own jurisdiction, including any objections
with respect to the existence, scope, or validity of the arbitration
agreement.” Therefore, according to Sunrun, the parties, by
agreeing to use the AAA rules, clearly and unmistakably
delegated to the arbitrator authority to decide whether the
arbitration agreement covered Mondragon’s PAGA claims.
10
As Sunrun points out, state and federal courts have held
that—at least in some contexts—parties may clearly and
unmistakably agree to delegate arbitrability decisions to the
arbitrator by incorporating the arbitration rules of a dispute
resolution provider into an agreement. (See, e.g., Blanton v.
Domino’s Pizza Franchising LLC (6th Cir. 2020) 962 F.3d 842,
847 [“the incorporation of the AAA Rules (or similarly worded
arbitral rules) provides ‘clear and unmistakable’ evidence that
the parties agreed to arbitrate ‘arbitrability’’’]; Brennan v. Opus
Bank, supra, 796 F.3d at pp. 1128, 1130 [incorporation of the
AAA rules into an employment agreement between a bank and
an executive was a clear and unmistakable delegation to the
arbitrator to decide whether the agreement was unconscionable];
Dream Theater, Inc. v. Dream Theater (2004) 124 Cal.App.4th
547, 557 [incorporation of the AAA Commercial Arbitration Rules
was a clear and unmistakable delegation to the arbitrator to
decide whether a claim was arbitrable].) But state and federal
courts have also recognized circumstances where this rule does
not apply. This case involves several of those circumstances.
First, several California courts have questioned or rejected
the argument that, for unsophisticated parties like hourly
employees and consumers, merely incorporating by reference the
AAA arbitration rules is a clear and unmistakable agreement to
delegate arbitrability decisions to the arbitrator. Ajamian v.
CantorCO2e, L.P. (2012) 203 Cal.App.4th 771 (Ajamian), like this
case, involved a dispute between an employer and employee. The
employment agreement stated the parties would resolve disputes
by arbitration “according to the rules of the National Association
of Securities Dealers, Inc. (or, at [the employer’s] sole discretion,
the [AAA] . . . .)” (Id. at p. 777.) While acknowledging how
11
“incorporation of AAA rules into an agreement might be sufficient
indication of the parties’ intent in other contexts,” the court in
Ajamian “seriously question[ed] how it provide[d] clear and
unmistakable evidence that an employer and an employee
intended to submit the issue of the unconscionability of the
arbitration provision to the arbitrator, as opposed to the court.”
(Id. at p. 790.) Ultimately, however, the Ajamian court declined
to “decide whether an unqualified incantation of AAA rules”
would “establish a clear and unmistakable delegation” and held
there was no clear delegation because the agreement “did not
mandate that AAA rules would necessarily apply . . . .” (Id. at
pp. 790-791.)
In Beco v. Fast Auto Loans, Inc. (2022) 86 Cal.App.5th 292
(Beco) the court went a step further and held the parties to an
employer-employee arbitration agreement did not clearly and
unmistakably delegate to an arbitrator authority to decide
whether the agreement was unconscionable. In Beco the
employee signed an arbitration agreement that, like the one here,
stated arbitration would be “administered by the [AAA]) under
its National Rules for the Resolution of Employment Disputes
. . . .” (Id. at p. 300.) Adopting the reasoning of Ajamian, the
court in Beco held that, “[i]n the employment context, and
especially under the facts” of the case, “incorporation by reference
does not meet the clear and unmistakable test.” (Id. at p. 305.)
The court stated the agreement did not attach the AAA rules or
provide the employee a means to locate them. (Id. at p. 306.) 4
4 The arbitration agreement here at least provided the URL
of the homepage of AAA’s website (although not of the applicable
AAA rules) and stated Sunrun would provide a copy of the rules
12
Finally, in Gostev, supra, 88 Cal.App.5th 1035 the user of a
mobile game platform entered into an agreement containing an
arbitration provision that stated arbitration would be “‘conducted
by’” the AAA under its Commercial Arbitration Rules. (Id. at
p. 1045.) The court in Gostev held the incorporation did not
clearly and unmistakably delegate to the arbitrator authority to
decide arbitrability. Quoting a federal district court case, the
court in Gostev stated that, “‘[a]lthough incorporation [of the
AAA arbitration rules] by reference may fairly be deemed a clear
and unmistakable delegation where there are sophisticated
parties, a different result may obtain where one party is
unsophisticated.” (Id. at p. 1051, quoting Eiess v. USAA Federal
Savings Bank (N.D.Cal. 2019) 404 F.Supp.3d 1240, 1253.) 5
Ajamian, Beco, and Gostev are persuasive. As the United
States Supreme Court explained in First Options of Chicago, Inc.
v. Kaplan (1995) 514 U.S. 938 [115 S.Ct. 1920], the clear-and-
unmistakable test recognizes that “‘who (primarily) should decide
arbitrability’” is a “rather arcane” question. (Id. at p. 945.)
“A party often might not focus upon that question or upon the
on request. As we will discuss, however, the mere reference to
the URL and the offer to provide the rules were not enough to
delegate to the arbitrator authority to decide arbitrability.
5 In each of Ajamian, Gostev, Nelson, and Beco the applicable
AAA rules contained a provision identical to the one here
granting the arbitrator “the power to rule on his or her own
jurisdiction . . . .” (See Gostev, supra, 88 Cal.App.5th at p. 1050;
Beco, supra, 86 Cal.App.5th at p. 305; Nelson, supra,
77 Cal.App.5th at p. 656; Ajamian, supra, 203 Cal.App.4th at
p. 787.)
13
significance of having arbitrators decide the scope of their own
powers. [Citation.] And, given the principle that a party can be
forced to arbitrate only those issues it specifically has agreed to
submit to arbitration,” courts should not “interpret silence or
ambiguity on the who should decide arbitrability” point as giving
the arbitrators that power’ . . . .” (Ibid.)
The courts in Ajamian and Beco correctly recognized there
are “many reasons for stating that the arbitration will proceed by
particular rules, and doing so does not indicate that the parties’
motivation was to announce who would decide threshold issues of
enforceability.” (Beco, supra, 86 Cal.App.5th at p. 178; see
Ajamian, supra, 203 Cal.App.4th at p. 789.) Indeed, the
arbitration agreement here describes one such reason. The
provision incorporating the AAA rules is in a section titled
“Arbitration Procedures” and states that those rules “explain how
to file a Demand for Arbitration” and that the demand “must be
filed within the statute of limitations applicable to the claim on
which arbitration is sought.” The provision thus suggests the
primary purpose of incorporating the AAA rules is to establish
applicable procedures where a party elects to initiate arbitration
proceedings—not necessarily to answer the more “arcane”
question who decides questions of arbitrability.
Moreover, as the courts in Ajamian and Beco recognized,
the AAA rules do not state the arbitrator “has exclusive
authority” to determine arbitrability issues. (Beco, supra,
86 Cal.App.5th at p. 306; see Ajamian, supra, 203 Cal.App.4th at
p. 789.) The rules state only that the arbitrator has “the power”
to rule on the arbitrator’s jurisdiction. But courts also have that
power. (Beco, at pp. 305-306; Ajamian at p. 789.) As in AAA
international commercial arbitration proceedings, which have
14
essentially the same jurisdiction rule, 6 an “arbitral tribunal is
ordinarily considered to have the authority to rule on its own
jurisdiction to adjudicate a claim brought before it.” (Rest.3d
U.S. Law of International Commercial and Investor-State
Arbitration, § 2.8, com. a.) This authority, often referred to as
“competence-competence,” permits an arbitrator or arbitration
tribunal to “rule on all jurisdictional objections raised during the
pendency of the arbitration and, if it upholds its jurisdiction,
proceed with the arbitration. It is not obligated to suspend
proceedings and await a judicial ruling on those objections.”
(Ibid.) But, “[a]lthough arbitral tribunals have authority to rule
on challenges to their jurisdiction, it does not necessarily follow
that courts are precluded from entertaining those same
challenges if asked to do so prior to arbitration.” (Id., § 2.8,
com. b.)
The AAA rule at issue here reflects the competence-
competence principle. (See Blanton v. Domino’s Pizza
Franchising LLC, supra, 962 F.3d at p. 849 [“[t]he relevant AAA
rule looks like what’s known in the world of international
arbitration as a ‘competence-competence’ clause”].) The rule
permits the arbitrator to rule on jurisdictional objections, but
does not remove the court’s authority to (also) determine
arbitrability issues—particularly after “litigation has already
6 The rule at issue here, rule 6 of the AAA’s Employment
Arbitration Rules and Mediation Procedures, is virtually
identical to article 21 of the AAA’s International Dispute
Resolution Procedures.
15
commenced.” (Beco, supra, 86 Cal.App.5th at p. 306; see
Ajamian, supra, 203 Cal.App.4th at p. 789.) 7
Second, even if we could say Mondragon, as an
unsophisticated party, delegated to the arbitrator authority to
decide some threshold issues, Mondragon did not clearly and
unmistakably delegate authority to decide the specific
arbitrability question at issue here—whether the arbitration
agreement excluded Mondragon’s individual PAGA claims.
Multiple federal circuit courts have held that, even where an
agreement’s incorporation of arbitration rules may otherwise
constitute a clear and unmistakable delegation, the rules do not
apply where the arbitration agreement creates a carve-out for
certain claims and the arbitrability dispute is whether the
carve-out covers the claims at issue.
For example, in NASDAQ OMX Group, Inc. v. UBS
Securities, LLC (2d Cir. 2014) 770 F.3d 1010 a service agreement
between a securities exchange and a broker-dealer provided that,
“[e]xcept as may be provided in the NASDAQ OMX
Requirements, all claims, disputes, controversies and other
7 The AAA appears to have intended the rule to delegate
arbitrability decisions to the arbitrator under First Options of
Chicago, Inc. v. Kaplan, supra, 514 U.S. 938. (See AAA Revises
Commercial Arbitration Rules (1998) 53 Disp. Resol. J. 4, 95-96.)
But it is hard to see how an unsophisticated party would
understand the provision as a clear and unmistakable delegation
of exclusive authority to the arbitrator to decide arbitrability
issues. And given the competence-competence meaning of the
rule, even sophisticated parties with the resources to find
volume 53 of the Dispute Resolution Journal might not
understand the rule to delegate all arbitrability decisions to the
arbitrator.
16
matters in question between the Parties to this Agreement . . .
shall be settled by final and binding arbitration.” (Id. at p. 1016.)
The agreement further provided “any arbitration proceeding shall
be conducted in accordance with the Commercial Arbitration
Rules of the [AAA] . . . .” (Ibid.) The court held the parties did
not clearly and unmistakably delegate to the arbitrator authority
to decide whether the agreement covered the broker dealer’s
claims against the securities exchange. (Id. at p. 1032.) As the
court explained, a party may clearly and unmistakably delegate
arbitrability decisions to the arbitrator “where a broad
arbitration clause expressly commits all disputes to arbitration,”
but the same is not true where “a qualifying provision . . . at least
arguably covers the . . . dispute.” (Id. at p. 1031.) The court went
on to hold that, because the agreement stated the AAA rules
would “apply to such arbitrations as may arise under the
Agreement,” and because the carve-out for NASDAQ OMX
Requirements at least arguably applied to the broker-dealer’s
claims, the carve-out “thus delay[ed] application of AAA rules
until a decision [was] made” whether the claims fell “within the
intended scope of arbitration . . . .” (Id. at p. 1032.)
Similarly, in Archer & White Sales, Inc. v. Henry Schein,
Inc. (5th Cir. 2019) 935 F.3d 274, cert. dismissed as
improvidently granted Jan. 25, 2021, an agreement between two
companies provided: “Any dispute arising under or related to
this Agreement (except for actions seeking injunctive relief and
disputes related to trademarks, trade secrets, or other
intellectual property . . .), shall be resolved by binding arbitration
in accordance with the arbitration rules of the American
Arbitration Association.” (Id. at p. 278.) The court held that, for
disputes involving injunctive relief, the parties did not delegate
17
arbitrability decision to the arbitrator. The court stated the
“most natural reading of the arbitration clause” was that “any
dispute, except actions seeking injunctive relief, shall be resolved
in arbitration in accordance with the AAA rules.” (Id. at p. 281.)
Therefore, the court held, there was no “‘clear and unmistakable’
intent to delegate arbitrability” to the arbitrator. (Id. at pp. 281-
282.)
The structure of the agreement here is analogous to the
structure of the agreements in NASDAQ OMX Group and Archer
& White Sales. The agreement here states the parties agree to
arbitrate all disputes arising from Mondragon’s employment, but
includes a section carving out certain claims, including PAGA
claims. The “Arbitration Procedures” section states the parties
will use the AAA rules “for arbitration.” Had the agreement
stated the arbitrator would decide all disputes regarding the
scope of the arbitration agreement, the analysis might be
different. (Cf. Aanderud v. Superior Court, supra, 13 Cal.App.5th
at p. 892 [provision stating the parties “agree[d] to arbitrate all
disputes, claims and controversies arising out of or relating to
. . . [the parties’] Agreement, including the determination of the
scope or applicability of this Section . . . [the “Arbitration of
Disputes” section],” was a clear and unmistakable delegation].)
But by including separate sections that listed claims covered by
the agreement and claims not covered by the agreement, and
stating the parties would use the AAA rules “for arbitration,” it
was at least ambiguous whether the carve-out “delay[ed]
application of AAA rules” (NASDAQ OMX Group, Inc. v.
UBS Securities, LLC, supra, 770 F.3d at p. 1031) until a court
first determined whether Mondragon’s claims fell within one of
the carve-out provisions.
18
Finally, the arbitration agreement here contained a
severability provision indicating a court may decide at least some
arbitrability issues. “‘As a general matter, where one contractual
provision indicates that the enforceability of an arbitration
provision is to be decided by the arbitrator, but another provision
indicates that [a] court might also find provisions in the contract
unenforceable, there is no clear and unmistakable delegation of
authority to the arbitrator.’” (Jack v. Ring LLC (2023)
91 Cal.App.5th 1186, 1197; see Nelson, supra, 77 Cal.App.5th at
p. 657.) Nelson is a good example. There, a patient at a
treatment center signed an enrollment agreement that specified
“binding arbitration pursuant to the Commercial Arbitration
Rules” of the AAA. (Nelson, at p. 656.) The agreement also
contained a severability provision stating that, “[i]f a court finds
that any provision of this Agreement is invalid or unenforceable,”
the remaining provisions would not be affected. (Id. at p. 656 &
fn. 5.) The court in Nelson held that, “at best,” the dual
incorporation of the AAA rules and reference to the possibility a
court may hold provisions unenforceable “created uncertainty,”
which precluded finding there was a clear and unmistakable
delegation to the arbitrator. (Id. at p. 657.)
Similarly, the arbitration agreement here provides that,
“if a court or arbitrator” refuses to enforce any portion of the
agreement, the remainder of the agreement shall remain valid.
Like the severability provision in Nelson, the agreement’s
incorporation of the AAA rules and reference to a court refusing
to enforce certain provisions create an ambiguity regarding
whether the parties intended to delegate arbitrability decisions to
the arbitrator. Which means the parties did not clearly and
unmistakably delegate to the arbitrator authority to decide
19
whether Mondragon agreed to arbitrate his individual PAGA
claims. (See also Baker v. Osborne Development Corp. (2008)
159 Cal.App.4th 884, 892-894 [where “one provision of the
arbitration agreement stated that issues of enforceability or
voidability were to be decided by the arbitrator,” but “another
provision indicated that the court might find a provision
unenforceable,” the parties “did not ‘clearly and unmistakably’
reserve to the arbitrator the issue of whether the arbitration
agreement was enforceable”].)
Sunrun argues the severability provision does not create an
ambiguity whether the parties delegated arbitrability decisions to
the arbitrator because a separate provision specifies which terms
a court may invalidate or refuse to enforce. Sunrun is referring
to the class and collective action waiver, which requires
Mondragon to arbitrate “all claims covered by this Agreement
only as an individual” and waives the right “with respect to any
covered claims” to participate in a class or collective action. The
section also contains a provision stating, “Any issue concerning
the validity, enforceability, or scope of this class and collective
action waiver must be decided by a state or federal court.”
Therefore, according to Sunrun, the reference in the severability
clause to a court invalidating or refusing to enforce a term of the
agreement applies only to a court invalidating or refusing to
enforce the class and collective actions waiver.
Sunrun’s interpretation of the severability clause is
arguably reasonable. But the question is not whether the
interpretation is reasonable, or even whether “‘“ordinary rules of
contract interpretation . . . yield the result that arbitrators have
power”’” to decide whether Mondragon agreed to arbitrate his
individual PAGA claims. (Gostev, supra, 88 Cal.App.5th at
20
p. 1052; see Ajamian, supra, 203 Cal.App.4th at pp. 790-791.)
The question is whether the delegation is clear and
unmistakable. (Gostev, at p. 1052; Ajamian, at p. 791). And it
isn’t.
Mondragon was a nonexempt employee 8 whose highest
education level was high school and who did not understand what
an arbitration agreement was. The agreement listed certain
covered claims, but carved out others, including PAGA claims.
The agreement incorporated the AAA rules “for arbitration,” but
was otherwise silent on who would decide arbitrability issues,
and contained a severability provision indicating either an
arbitrator or a court could refuse to enforce a term of the
agreement. To hold Mondragon clearly and unmistakably
delegated to the arbitrator authority to decide whether a claim
was within the PAGA carve-out would require us to presume
Mondragon “locate[d] the arbitration rules at issue” (Gostev,
supra, 88 Cal.App.5th at p. 1051); found “‘and read . . . the
relevant rules governing delegation’” (ibid.); understood “‘the
importance of a specific rule granting the arbitrator jurisdiction’”
to resolve questions over the scope of the agreement (ibid.);
understood the incorporation of the AAA rules “for arbitration”
applied even to those claims carved out of the agreement; and
understood the severability clause’s reference to the court
refusing to enforce terms applied only to the class and collective
action waiver. That’s a lot of presumptions for a sophisticated
party, let alone for a party with no legal knowledge or counsel.
8 Mondragon’s job title was “Clean Energy Ambassador I.”
The nature of Mondragon’s duties is unclear from the record, but
his “Total Target Compensation” was $1,666.67 per month, plus
an hourly rate of $16.50.
21
“‘While such fictions might be permissible in other areas of
arbitration law, that is not the case with delegation, which
requires meeting a “‘“heightened standard.”’”’” (Gostev, at
p. 1052; see Beco, supra, 86 Cal.App.5th at p. 306.)
Sunrun argues that, because the agreement contains a
provision stating the Federal Arbitration Act (FAA) governs, we
should follow (only) federal cases (i.e., federal substantive law) in
deciding whether parties have delegated arbitrability decisions to
the arbitrator. We should not. The California Supreme Court
has held that, even where a contract “invoke[s] the coverage of
the Federal Arbitration Act,” when “deciding whether the parties
agreed to arbitrate a certain matter (including arbitrability),
courts generally . . . should apply ordinary state-law principles
that govern the formation of contracts.” (Sandquist, supra,
1 Cal.5th at p. 244.) “[I]nsofar as the question who decides
‘presents a disputed issue of contract interpretation,’ ‘state law,
not federal law, normally governs such matters.’” (Ibid.) We
follow decisions of California Supreme Court over the decisions of
lower federal courts that may have taken other positions. (Cf.,
e.g., Brennan v. Opus Bank, supra, 796 F.3d at p. 1129 [“federal
law governs the arbitrability question by default because the
Agreement is covered by the FAA [citation] and the parties have
not clearly and unmistakably designated that nonfederal
arbitrability law applies”].)
More importantly, federal and California law apply the
same standards in determining whether parties have agreed to
arbitrate arbitrability. As stated, under both federal and state
law the presumption is that parties intend courts, not arbitrators,
to decide arbitrability disputes and that parties have not agreed
to arbitrate arbitrability unless they “‘clearly and unmistakably
22
provide otherwise.’” (Nelson, supra, 77 Cal.App.5th at p. 655; see
BG Group, PLC v. Republic of Argentina, supra, 572 U.S. at p. 34;
First Options of Chicago, Inc. v. Kaplan, supra, 514 U.S. at p.
939.) To the extent there is any disagreement among state and
federal courts, it is not which standard applies for determining
whether a party has agreed to arbitrate arbitrability, but how
that standard applies in various contexts. 9
9 Some federal appellate courts have declined to adopt the
sophisticated-unsophisticated party distinction discussed in
Ajamian, Beco, and Gostev. (See Blanton v. Domino’s Pizza
Franchising LLC, supra, 962 F.3d at p. 851 [“nothing in the
Federal Arbitration Act purports to distinguish between
‘sophisticated’ and ‘unsophisticated’ parties”]; Arnold v.
Homeaway, Inc. (5th Cir. 2018) 890 F.3d 546, 552 [declining to
adopt the sophisticated-unsophisticated party distinction where
the agreement incorporates the AAA rules]; see also Brennan v.
Opus Bank, supra, F.3d at p. 1130 [“Our holding today should not
be interpreted to require that the contracting parties be
sophisticated . . . before a court may conclude that incorporation
of the AAA rules constitutes ‘clear and unmistakable’ evidence of
the parties’ intent”]; but see Eiess v. USAA Federal Savings
Bank, supra, 404 F.Supp.3d at p. 1252 [“In the wake of Brennan,
there has been a split among the district courts in the
Ninth Circuit as to whether the sophistication of the parties is a
relevant consideration in determining whether incorporation by
reference of arbitration rules amounts to a clear and
unmistakable delegation.”]; Allstate Ins. Co. v. Toll Brothers, Inc.
(E.D.Pa. 2016) 171 F.Supp.3d 417, 428 [incorporation of
arbitration rules “does not automatically constitute clear and
unmistakable evidence that the parties intended to arbitrate
threshold questions of arbitrability—at least where those parties
are unsophisticated”].) In any event, “we are not bound by
federal appellate decisions.” (Bennett v. Ohio National Life
Assurance Corp. (2023) 92 Cal.App.5th 723, 732.)
23
C. Mondragon Did Not Agree To Arbitrate His
Individual PAGA Claims
Having concluded the trial court properly decided the issue
whether Mondragon agreed to arbitrate his individual PAGA
claims, we now review the trial court’s ruling he did not. Because
both federal and California law favor arbitration of disputes,
where, as here, the parties have entered a binding arbitration
agreement, “‘“‘arbitration should be upheld unless it can be said
with assurance that an arbitration [agreement] is not susceptible
to an interpretation covering the asserted dispute.’”’” (Salgado v.
Carrows Restaurants, Inc. (2019) 33 Cal.App.5th 356, 360; see
Ahern v. Asset Management Consultants, Inc., supra,
74 Cal.App.5th at p. 688.) But the policy favoring arbitration
“‘“does not override ordinary principles of contract interpretation”
. . . . “[T]he terms of the specific arbitration clause under
consideration must reasonably cover the dispute as to which
arbitration is requested.”’” (Vaughn v. Tesla, Inc. (2023)
87 Cal.App.5th 208, 218-219; see Ahern, at p. 688.)
As stated, the arbitration agreement provided the following
disputes were “not covered” by the Agreement: “claims brought
by [Mondragon] in state or federal court as a representative of
the state of California as a private attorney general under the
PAGA (to the extent applicable) . . . .” Mondragon argues this
provision clearly and explicitly excluded all PAGA claims—both
those for violations regarding Mondragon and those for violations
regarding other employees—from the agreement to arbitrate.
Sunrun contends the provision only excluded Mondragon’s PAGA
claims on behalf of other employees, but not individual PAGA
claims. Mondragon’s interpretation of the arbitration agreement
is correct.
24
“When a dispute arises over the meaning of contract
language, the first question to be decided is whether the language
is ‘reasonably susceptible’ to the interpretation urged by the
party. If it is not, the case is over.” (Horath v. Hess (2014)
225 Cal.App.4th 456, 464; see Brown v. Goldstein (2019)
34 Cal.App.5th 418, 434.) “Whether the contract is reasonably
susceptible to a party’s interpretation can be determined from the
language of the contract itself [citation] or from extrinsic evidence
of the parties’ intent [citation].” (Horath, at p. 464; see Brown, at
p. 433.) Because Sunrun presented no extrinsic evidence
supporting its interpretation, we need only consider the language
of the arbitration agreement.
At the time the parties entered into the agreement,
California courts, including the California Supreme Court, had
consistently held “every PAGA action, whether seeking penalties
for Labor Code violations as to only one aggrieved employee—the
plaintiff bringing the action—or as to other employees as well, is
a representative action on behalf of the state.” (Iskanian v.
CLS Transportation Los Angeles, LLC (2014) 59 Cal.4th 348, 387;
see Kim v. Reins International California, Inc. (2020) 9 Cal.5th
73, 87 [“There is no individual component to a PAGA action
because ‘“every PAGA action . . . is a representative action on
behalf of the state”’”]; Correia v. NB Baker Electric, Inc. (2019)
32 Cal.App.5th 602, 625 [“every PAGA action seeking penalties
‘“is a representative action on behalf of the state”’”]; Perez v.
U-Haul Co. of California (2016) 3 Cal.App.5th 408, 420
[“Iskanian . . . held that every PAGA action, including one
brought on behalf of a single employee, is a representative
claim.”].) Because every PAGA action was a representative
action on behalf of the state, the carve-out here for claims
25
brought “as a representative of the state of California as a private
attorney general under the PAGA” was for all PAGA claims. (See
Ermolieff v. R.K.O. Radio Pictures (1942) 19 Cal.2d 543, 550
[“words in a contract are ordinarily to be construed according to
their plain, ordinary, popular or legal meaning, as the case may
be”]; George v. Automobile Club of Southern California (2011)
201 Cal.App.4th 1112, 1120 [same].) There is no other language
in the arbitration agreement suggesting the parties intended to
treat PAGA claims seeking penalties for violations regarding
Mondragon (i.e., individual PAGA claims) separately from PAGA
claims seeking penalties for violations regarding other employees
(i.e., non-individual PAGA claims). The PAGA carve-out is not
reasonably susceptible to the interpretation urged by Sunrun.
Sunrun argues the United Supreme Court’s decision in
Viking River, supra, 596 U.S. 639—decided after the parties
entered into the arbitration agreement—mandates a different
result. It does not.
Prior to Viking River the California Supreme Court had
held in Iskanian, supra, 59 Cal.4th 348 that “an agreement by
employees to waive their right to bring a PAGA action” was
unenforceable as against public policy. (Iskanian, at p. 383.)
Following Iskanian, some California courts had further “held that
employers may not require employees to ‘split’ PAGA actions in a
manner that puts individual and non-individual components of a
PAGA claim into bifurcated proceedings.” (Adolph v. Uber
Technologies, Inc. (2023) 14 Cal.5th 1104, 1118 (Adolph); see, e.g.,
Perez v. U-Haul Co. of California, supra, 3 Cal.App.5th at p. 421
[“an employer may not force an employee to split a PAGA claim
into ‘individual’ and ‘representative’ components, with each being
litigated in a different forum”].) In Viking River the United
26
States Supreme Court held the FAA did not preempt what the
Court described as “Iskanian’s principal rule prohibit[ing]
. . . parties from waiving representative standing to bring PAGA
claims in a judicial or arbitral forum,” but did “preempt[ ] the
rule of Iskanian insofar as it precludes division of PAGA actions
into individual and non-individual claims through an agreement
to arbitrate.” (Viking River, supra, 596 U.S. at pp. 649, 662; see
Adolph, at pp. 1117-1118.) Therefore, as the California Supreme
Court succinctly stated in Adolph, where an agreement is covered
by the FAA, “Viking River requires enforcement of agreements to
arbitrate a PAGA plaintiff’s individual claims . . . .” (Adolph,
14 Cal.5th at p. 1119.)
But Viking River has nothing to say about whether there
was an agreement to arbitrate Mondragon’s individual PAGA
claims. In Viking River the arbitration agreement had a broad
provision requiring the employee to arbitrate all disputes arising
out of her employment; it did not include a carve-out for PAGA
claims like the agreement here. (See Viking River, supra,
596 U.S. at p. 647.) The agreement in Viking River also included
a provision waiving the employee’s right to bring a PAGA
action—again, unlike the agreement here. (Ibid.) The United
States Supreme Court held that, although the latter provision
remained unenforceable under Iskanian “if construed as a
wholesale waiver of PAGA claims,” the employer could still
compel the employee to arbitrate her individual PAGA claims
under the terms of the agreement. (Id. at p. 662.) But nothing in
Viking River suggests a party must arbitrate individual PAGA
claims where, as here, the arbitration agreement specifically
carves out PAGA claims and does not distinguish between
individual and non-individual claims.
27
If anything, Viking River confirms Mondragon’s
interpretation that the carve-out applies to both individual and
non-individual claims. In Viking River the United States
Supreme Court characterized PAGA actions as “representative”
in two senses. “In the first sense, PAGA actions are
‘representative’ in that they are brought by employees acting as
representatives—that is, as agents or proxies—of the State.”
(Viking River, supra, 596 U.S. at p. 648.) In this sense, “every
PAGA claim is asserted in a representative capacity.” (Ibid.)
In the second sense, the word “‘representative’ . . . distinguish[es]
‘individual’ PAGA claims, which are premised on Labor Code
violations actually sustained by the plaintiff, from
‘representative’ (or perhaps quasi-representative) PAGA claims
arising out of events involving other employees.” (Viking River,
at p. 648.) Here, the language of the PAGA carve-out more
closely tracks the language describing representative claims in
the first sense—claims brought “as a representative of the state
of California.” Therefore, under Viking River, the carve-out
included (and the agreement to arbitrate excluded) “every PAGA
claim.” (Viking River, at p. 648.)
Sunrun asserts “the language ‘to the extent applicable’”
that follows the PAGA carve-out “requires the parties arbitrate
Mondragon’s individual claims . . . .” Sunrun provides no
argument or authority for this assertion, other than to state the
general proposition that courts should avoid interpretations that
render part of a contract surplusage. (See, e.g., Rice v. Downs
(2016) 248 Cal.App.4th 175, 186.) The problem for Sunrun is
that the phrase “to the extent applicable” does not mean, for
example, “except individual claims.”
28
While courts seek to interpret contracts “‘“to give effect to
every part”’” and “avoid a construction ‘that would render . . .
provisions surplusage,’” courts do so only where “‘“reasonably
practicable . . . .”’” (Colyear v. Rolling Hills Community Assn. of
Rancho Palos Verdes (2024) 100 Cal.App.5th 110, 124-125; see
Civ. Code, § 1641; Boghos v. Certain Underwriters at Lloyd’s of
London (2005) 36 Cal.4th 495, 503.) “‘The fundamental goal of
contract interpretation” remains “to give effect to the mutual
intention of the parties’” (State of California v. Continental Ins.
Co. (2012) 55 Cal.4th 186, 195; see Colyear, at p. 124), not to
conjure up creative interpretations for provisions. Because we
enforce the “‘“outward expression of the agreement,”’” we “‘are
not concerned as much with what the parties might tell us they
meant by the words they used as with how a reasonable person
would interpret those words.’” (Citizens for Amending
Proposition L v. City of Pomona (2018) 28 Cal.App.5th 1159,
1188; see Quantification Settlement Agreement Cases (2011)
201 Cal.App.4th 758.)
A reasonable person would not interpret the words “to the
extent applicable” following the PAGA carve-out as a substitute
for “except individual claims” or something like that. That is not
the natural meaning of the phrase. (See Series AGI West Linn of
Appian Group Investors DE, LLC v. Eves (2013) 217 Cal.App.4th
156, 163 [rules of contract interpretation do “not mean that words
are to be distorted out of their natural meaning, or that, by
implication, something can be read into the contract that it will
not reasonably bear”]; see also Cates Construction, Inc. v. Talbot
Partners (1999) 21 Cal.4th 28, 39.) And the agreement does not
explain what “to the extent applicable” refers to. Nor does
Viking River or any other authority prohibit parties from
29
agreeing to exclude all PAGA claims, individual and non-
individual, from the scope of an arbitration agreement. (See
McGill v. Citibank, N.A. (2017) 2 Cal.5th 945, 966 [“the FAA
‘does not . . . prevent parties who . . . agree to arbitrate from
excluding certain claims from the scope of their arbitration
agreement’”].)
It may be that, had Sunrun predicted the holding in Viking
River, Sunrun would have drafted the agreement in a way that
covered Mondragon’s individual PAGA claims and excluded only
his non-individual PAGA claims. But “[i]t is widely recognized
that the courts are not at liberty to revise an agreement under
the guise of construing it. Neither abstract justice nor the rule of
liberal interpretation justifies the creation of a contract for the
parties which they did not make themselves.” (JP-Richardson,
LLC v. Pacific Oak SOR Richardson Portfolio JV, LLC (2021)
65 Cal.App.5th 1177, 1192; see Series AGI West Linn of Appian
Group Investors DE, LLC, supra, 217 Cal.App.4th at p. 163.)
Because the agreement is not susceptible to the
interpretation urged by Sunrun, and because Sunrun presented
no extrinsic evidence supporting its interpretation, “the case is
over” (Brown v. Goldstein, supra, 34 Cal.App.5th at p. 434), and
we need not consider any extrinsic evidence in interpreting the
agreement. But even if we did consider extrinsic evidence, it
would confirm our conclusion the carve-out included all of
Mondragon’s PAGA claims, not just his individual ones.
Mondragon submitted an employee guidebook Sunrun gave him.
The guidebook contained a provision titled “Arbitration,” which
stated: “As a condition of employment, each employee must
execute an At-Will Employment, Confidential Information,
Invention Assignment, and Confidentiality Agreement (the
30
‘Confidentiality Agreement’) prior to beginning employment with
the Company. The Confidentiality Agreement specifically
provides for arbitration of all employment-related claims by the
employee against the Company and waives the right to a trial by
jury. Notwithstanding the foregoing, the Confidentiality
Agreement does not preclude an employee from bringing a
proceeding as a private attorney general, as permitted by law
. . . .” This provision of the Employee Guidebook suggests that,
by excluding PAGA claims (to the extent applicable), the
arbitration agreement was most likely referring to PAGA claims
Mondragon was “permitted by law” to bring. So that the PAGA
carve-out included (and the arbitration agreement excluded) all
PAGA claims Mondragon was permitted by law to bring—both
individual and non-individual.
DISPOSITION
The order is affirmed. Mondragon is to recover his costs on
appeal.
SEGAL, Acting P. J.
We concur:
FEUER, J. MARTINEZ, J.
31