Clifford v. Quest Software Inc.

any unlawful, unfair or fraudulent business act or practice and unfair, deceptive, untrue or misleading advertising and any act prohibited by [the false advertising law, section 17500]." ( § 17200.) Although the UCL's "purpose 'is to protect both consumers and competitors by promoting fair competition in commercial markets for goods and services' " ( McGill v. Citibank, N.A. (2017) 2 Cal.5th 945 , 954, 216 Cal.Rptr.3d 627 , 393 P.3d 85 ( McGill )), it also protects employees. ( Alch v. Superior Court (2004) 122 Cal.App.4th 339 , 401, 19 Cal.Rptr.3d 29 .) An employer's unlawful employment practices, such as unlawful discrimination or failure to pay wages, may form the basis for a UCL claim. (See Sullivan v. Oracle Corp. (2011) 51 Cal.4th 1191 , 1206, 127 Cal.Rptr.3d 185 , 254 P.3d 237 ; Hodge v. Superior Court (2006) 145 Cal.App.4th 278 , 283, 51 Cal.Rptr.3d 519 .) Only two remedies are available under the UCL: injunctive relief and restitution (i.e., disgorgement of money or property unlawfully obtained). (§ 17203; Cruz, supra , 30 Cal.4th at p. 317, 133 Cal.Rptr.2d 58 , 66 P.3d 1157 ; Herr v. Nestlé U.S.A., Inc. (2003) 109 Cal.App.4th 779 , 789, fn. 15, 135 Cal.Rptr.2d 477 ( Herr ).)

because the injunction's benefit to the public would be frustrated if the remedy were entrusted to arbitrators. ( Id. at pp. 1079-1082, 90 Cal.Rptr.2d 334 , 988 P.2d 67 .)

Four years later, in Cruz , our Supreme Court extended that same reasoning to claims for "public" injunctive relief under the UCL. ( Cruz, supra , 30 Cal.4th at pp. 315-316, 133 Cal.Rptr.2d 58 , 66 P.3d 1157 .) The plaintiffs in Cruz alleged PacifiCare had fraudulently induced its customers to enroll in health care programs while at the same time discouraging primary care physicians from providing services to enrollees, and they sought injunctive and monetary relief under

court explained Broughton - Cruz only bars arbitration when the benefits of the requested injunctive relief would accrue " 'to the general public in danger of being victimized by the same deceptive practices as the plaintiff suffered.' "

the face of his complaint. In describing Quest's alleged acts of unfair competition, Clifford's complaint repeatedly refers to wage and hour violations directed at Clifford only , such as Quest's "failures to pay Plaintiff all earned overtime and premium-pay wages," Quest's failure "to reimburse Plaintiff for all necessary expenditures or losses incurred by Plaintiff ," Quest's failure "to provide Plaintiff suitable lockers, closets, or equivalent," Quest's "underreporting to federal and state authorities wages earned by Plaintiff ," and Quest's act of "exploiting Plaintiff by taking his labor without lawful compensation." (Italics added.) Clifford does not allege Quest directed similar conduct at other employees, much less the public at large.

Clifford's requests for injunctive relief under the UCL are similarly limited to him as an individual. He alleges Quest's "unfair business practices entitle Plaintiff to seek preliminary and permanent injunctive relief, including but not limited to orders that [Quest] account for, disgorge, and restore to Plaintiff all compensation unlawfully withheld." (Italics added.) He "further requests that a receiver be appointed to control and monitor all of the business affairs of [Quest] to ensure compliance with applicable wage-and[-]hour-laws of the State of California and to ensure that full restitution is made to Plaintiff of his owed and unpaid compensation." (Italics added.) Finally, he "requests that the Court issue a preliminary injunction against [Quest] to prevent [it] from committing further violations of the Labor Code and the unfair business practices alleged herein." The only express beneficiary of Clifford's requested injunctive relief is Clifford, and the only potential beneficiaries are Quest's current employees, not the public at large.

These allegations confirm Clifford's UCL claim for injunctive relief is private in nature. As our Supreme Court recently explained, injunctive relief that "primarily 'resolve[s] a private dispute' between the parties" and " 'rectif[ies] individual wrongs' " is private, not public, relief. ( McGill, supra , 2 Cal.5th at p. 955, 216 Cal.Rptr.3d 627 , 393 P.3d 85 [citing Broughton ].) Clifford's UCL claim does exactly that - it seeks to resolve a private dispute between him and his employer over his employer's act of allegedly misclassifying him as an exempt employee resulting in several Labor Code violations. That dispute is inherently distinguishable from the misleading advertising practices at issue in Broughton and Cruz because those practices directly impacted the public at large and the

relief that would impact the public. Second, even if Clifford's requested injunctive relief would benefit Quest's current employees, it is not "public" injunctive relief as defined in Broughton and Cruz. As the Supreme Court recently observed in McGill , "[r]elief that has the primary purpose or effect of redressing or preventing injury to an individual plaintiff- or to a group of individuals similarly situated to the plaintiff -does not constitute public injunctive relief" under Broughton - Cruz . ( McGill, supra , 2 Cal.5th at p. 955, 216 Cal.Rptr.3d 627 , 393 P.3d 85 , italics added.)

Clifford also contends his intent to add a PAGA claim confirms his UCL claim is public in nature. This argument is also without merit. First, the record discloses no such amendment to his complaint. Second, the addition of a PAGA claim would not impact Clifford's existing UCL claim. PAGA enables an aggrieved employee to bring a representative action on behalf of himself, other employees, and the State to recover civil penalties for an employer's Labor Code violations. ( Lab. Code, § 2698, et seq. ; see Iskanian v. CLS Transportation Los Angeles, LLC (2014) 59 Cal.4th 348 , 379, 173 Cal.Rptr.3d 289 , 327 P.3d 129 .) A PAGA claim may be asserted in the same complaint as a UCL claim ( Lab. Code, § 2699, subd. (g)(2) ), but it would be evaluated independently of the UCL claim. In other words, the addition of a seventh cause of action asserting a PAGA claim would not change the fact that Clifford's sixth cause of action under the UCL does not seek public injunctive relief.

Finally, Clifford cites to his complaint's allegation that he " acts in the public interest by exposing [Quest's] unfair business practices and seeking

Accordingly, Clifford's entire UCL claim is subject to arbitration along with his other causes of action.

We reverse the portion of the trial court's order denying Quest's motion to compel arbitration of Clifford's sixth cause of action and staying the prosecution of that cause of action pending the completion of the arbitration. The court is directed to compel the sixth cause of action to arbitration. The order

We reverse that portion of the trial court's order. Assuming Cruz remains good law - a question we need not answer here - Cruz at most stands for the proposition that UCL claims for "public" injunctive relief are not arbitrable. ( Cruz, supra , at pp. 315-316, 133 Cal.Rptr.2d 58 , 66 P.3d 1157 .) Cruz does not bar arbitration of a UCL claim for private injunctive relief or restitution, which is precisely what the UCL claim here seeks. The employee's UCL claim therefore is subject to arbitration, along with his other causes of action.

arbitration agreement, and it compelled arbitration of Clifford's first through fifth causes of action. However, it denied the motion on the sixth cause of action - his UCL claim - citing without discussion our Supreme Court's decision in Cruz, supra , 30 Cal.4th 303 , 133 Cal.Rptr.2d 58 , 66 P.3d 1157 . The court stayed the prosecution of that cause of action pending the completion of the arbitration. Quest timely appealed.

DISCUSSION

A. Appealability and Standard of Review

Because an order denying a petition to compel arbitration is appealable, we may review the portion of the trial court's order denying Quest's motion to compel arbitration of Clifford's UCL cause of action. ( Code Civ. Proc., § 1294, subd. (a).)

"When a trial court's order [denying a petition to compel arbitration] is based on a question of law, we review the denial de novo. [Citation.] Decisions on issues of fact are reviewed for substantial evidence. [Citation.]" ( Performance Team Freight Systems, Inc. v. Aleman (2015) 241 Cal.App.4th 1233 , 1239, 194 Cal.Rptr.3d 530 .)

B. The Arbitrability of UCL Claims and the Broughton-Cruz Rule

The UCL addresses "unfair competition," which "mean[s] and include[s]

The arbitrability of UCL claims depends on the type of relief the plaintiff seeks. Our Supreme Court held in Cruz that UCL claims for restitution "are fully arbitrable" ( Cruz , supra , 30 Cal.4th at pp. 318, 320, 133 Cal.Rptr.2d 58 , 66 P.3d 1157 ), but UCL claims for public injunctive relief cannot be arbitrated ( id. at pp. 315-316, 133 Cal.Rptr.2d 58 , 66 P.3d 1157 ). If a plaintiff's UCL cause of action includes both arbitrable and inarbitrable claims, such as a request for restitution and a request for public injunctive relief, the trial court must sever the cause of action, order the arbitrable portion to arbitration, and stay the inarbitrable portion pending the completion of arbitration. ( McGill , 2 Cal.5th at p. 966, 216 Cal.Rptr.3d 627 , 393 P.3d 85 ; Cruz, supra , 30 Cal.4th at p. 320, 133 Cal.Rptr.2d 58 , 66 P.3d 1157 .)

In concluding UCL claims for "public" injunctive relief cannot be arbitrated, the Cruz court relied in large part on its earlier holding in Broughton v. Cigna Healthplans (1999) 21 Cal.4th 1066 , 90 Cal.Rptr.2d 334 , 988 P.2d 67 ( Broughton ). The Broughton plaintiffs sued Cigna under the Consumers Legal Remedies Act (CLRA) ( Civ. Code, § 1750 et seq. ), which protects consumers against deceptive business practices, and they sought damages and injunctive relief based on Cigna's allegedly deceptive advertising methods. ( Broughton, supra , at p. 1072, 90 Cal.Rptr.2d 334 , 988 P.2d 67 .) Our Supreme Court held their CLRA damages claim was arbitrable because "[s]uch an action is primarily for the benefit of a party to the arbitration, even if the action incidentally vindicates important public interests." ( Id. at p. 1084, 90 Cal.Rptr.2d 334 , 988 P.2d 67 .) But it held the CLRA injunction claim was not arbitrable because the plaintiffs were "functioning as a private attorney general, enjoining future deceptive practices on behalf of the general public." ( Id. at pp. 1079-1080, 90 Cal.Rptr.2d 334 , 988 P.2d 67 .)

The Broughton court explained there is an " 'inherent conflict' " between the underlying purpose of the CLRA's injunctive relief remedy and private arbitration: injunctive relief under the CLRA "is for the benefit of the general public rather than the party bringing the action," and private arbitration is not well suited to issuing or enforcing public injunctions. ( Broughton , supra , 21 Cal.4th at pp. 1081-1082, 90 Cal.Rptr.2d 334 , 988 P.2d 67 .) Because "the judicial forum has significant institutional advantages over arbitration in administering a public injunctive remedy," the Broughton court concluded CLRA claims for "public" injunctive relief are not arbitrable

section 17200, which prohibits unfair business practices, and section 17500, which prohibits untrue or misleading statements designed to mislead the public. As in Broughton , the Cruz court held the claims for restitution were arbitrable because any public benefit from that relief would be "incidental to the private benefits obtained from those bringing the restitutionary or damages action." ( Id. at p. 318, 133 Cal.Rptr.2d 58 , 66 P.3d 1157 .) But it found "the request for injunctive relief [was] clearly for the benefit of health care consumers and the general public" and therefore not arbitrable. ( Id. at p. 315, 133 Cal.Rptr.2d 58 , 66 P.3d 1157 .)

These two cases generated what is often called the Broughton - Cruz rule: "[a]greements to arbitrate claims for public injunctive relief under the CLRA, the UCL, or the false advertising law are not enforceable in California." ( McGill, supra , 2 Cal.5th at p. 956, 216 Cal.Rptr.3d 627 , 393 P.3d 85 .) In other words, a plaintiff's claim for "public" injunctive relief under the CLRA or the UCL must be determined in a judicial forum, not in arbitration.

Importantly, the Broughton - Cruz rule distinguishes between public injunctive relief and private injunctive relief, and it only bars arbitration of claims for public injunctive relief. ( McGill, supra , 2 Cal.5th at p. 955, 216 Cal.Rptr.3d 627 , 393 P.3d 85 ; see Cruz , supra , 30 Cal.4th at p. 315, 133 Cal.Rptr.2d 58 , 66 P.3d 1157 [declining to decide whether a UCL claim for injunctive relief designed primarily to rectify individual wrongs is arbitrable]; Broughton , supra , 21 Cal.4th at p. 1081, fn. 5, 90 Cal.Rptr.2d 334 , 988 P.2d 67 [declining to decide whether a CLRA claim for private injunctive relief is arbitrable].) "[P]ublic injunctive relief under the UCL, the CLRA, and the false advertising law is relief that has 'the primary purpose and effect of' prohibiting unlawful acts that threaten future injury to the general public. [Citation.] Relief that has the primary purpose or effect of redressing or preventing injury to an individual plaintiff-or to a group of individuals similarly situated to the plaintiff-does not constitute public injunctive relief." ( McGill, supra , 2 Cal.5th at p. 955, 216 Cal.Rptr.3d 627 , 393 P.3d 85 .)

Because the Broughton - Cruz rule does not apply to claims for private injunctive relief, a plaintiff's request for private injunctive relief under the UCL is arbitrable, assuming the arbitration agreement is otherwise valid and enforceable. ( Kilgore v. KeyBank, Nat. Ass'n (9th Cir. 2013) 718 F.3d 1052 , 1061 ( Kilgore ).) In Kilgore , for example, students of a defunct flight school who had obtained student loans from KeyBank brought a putative class action under the UCL to enjoin KeyBank from reporting loan defaults to credit agencies and from enforcing notes against them. ( Id. at p. 1056.) The Ninth Circuit found their claims were arbitrable because their claims did "not fall within [the] purview" of the Broughton - Cruz rule. ( Id. at p. 1060.) The

( Ibid. [citing Broughton ].) It then reasoned the students' claim for injunctive relief did not fall within that " 'narrow exception' " because the requested relief "plainly would benefit only the approximately 120 putative class members." ( Id. at p. 1061.) It explained: "The central premise of Broughton - Cruz is that 'the judicial forum has significant institutional advantages over arbitration in administering a public injunctive remedy, which as a consequence will likely lead to the diminution or frustration of the public benefit if the remedy is entrusted to arbitrators.' " ( Ibid. ) That concern was "absent" in Kilgore , in large part because "the class affected by the alleged practices [was] small" so there was "no real prospective benefit to the public at large from the relief sought." ( Ibid. )

In recent years, several courts have concluded the Federal Arbitration Act (FAA) ( 9 U.S.C. §§ 1 et seq. ), which mandates the enforcement of certain arbitration agreements, preempts the Broughton - Cruz restriction on arbitrability. (See, e.g., Ferguson v. Corinthian Colleges, Inc. (9th Cir. 2013) 733 F.3d 928 , 930 ["we conclude that the Broughton - Cruz rule is preempted by the [FAA]"]; Nelsen v. Legacy Partners Residential, Inc. (2012) 207 Cal.App.4th 1115 , 1136, 144 Cal.Rptr.3d 198 [ Broughton - Cruz rule "is in conflict with the FAA"]; see also AT&T Mobility LLC v. Concepcion (2011) 563 U.S. 333 , 341, 131 S.Ct. 1740 , 179 L.Ed.2d 742 [FAA preempts any "state law [that] prohibits outright the arbitration of a particular type of claim"].) Our Supreme Court has not yet weighed in on the FAA preemption issue and in fact declined the opportunity to do so in 2017. (See McGill , supra , 2 Cal.5th at pp. 953, 954, 956, 216 Cal.Rptr.3d 627 , 393 P.3d 85 [after granting review of appellate court's finding that FAA preempted Broughton - Cruz , court determined Broughton - Cruz was "not at issue in this case" and expressly declined to address the preemption issue].)

C. Application

We must decide what impact, if any, Broughton - Cruz has on the arbitrability of Clifford's UCL cause of action, which seeks both injunctive relief and restitution. As noted, the trial court concluded Cruz renders the entire UCL claim inarbitrable. According to Quest, Clifford's injunctive relief claim only seeks private injunctive relief, so Broughton - Cruz does not render his injunctive relief claim inarbitrable. Quest further contends Broughton - Cruz mandates at a minimum arbitration of Clifford's UCL claim for restitution. Alternatively, Quest argues the FAA applies and preempts Broughton - Cruz . Clifford contends the injunctive relief portion of his UCL claim seeks "public" injunctive relief and thus is inarbitrable under Broughton - Cruz , and Quest waived any argument that the restitution portion of his UCL claim is severable from the inarbitrable portion of his UCL claim by failing to make that argument below.

We need not decide whether the FAA applies or whether it preempts Broughton - Cruz because, even if Broughton - Cruz is still viable, it would not bar the arbitration of any portion of Clifford's UCL claim. As we explain below, Clifford's UCL claim seeks only private injunctive relief and restitution, and thus does not fall within the purview of Broughton - Cruz 's restriction on the arbitrability of UCL claims for public injunctive relief.

The private nature of Clifford's UCL claim is immediately evident from

public stood to benefit from injunctive relief. Because Clifford's UCL claim does not seek public injunctive relief, it is not subject to the Broughton - Cruz restriction on arbitrability of public injunctive relief claims. ( Kilgore, supra , 718 F.3d at p. 1061.)

Clifford contends his UCL claim is public in nature because his complaint alleges Quest "reaped unfair benefit, illegal competitive advantage, and illegal profit at the expense of Plaintiff and other current and former employees, competitors, and the general public " and "should be made to disgorge [its] ill-gotten gains and restore such monies to Plaintiff and to those other current and former employees as restitution." (Italics added.)

There are several flaws with Clifford's argument. First, the complaint's references to Quest's other employees appears in the portion of Clifford's UCL claim seeking restitution , not the part seeking injunctive relief, so it does not render his claim for injunctive relief "public" in nature. Our review of Clifford's complaint discloses no request for injunctive

injunctive relief to remedy those practices" as further evidence his UCL injunctive relief claim is public in nature. (Italics added.) We are not persuaded. The public certainly has an interest in securing an employer's compliance with wage and hour laws. (See Dynamex Operations West, Inc. v. Superior Court (2018) 4 Cal.5th 903 , 913, 232 Cal.Rptr.3d 1 , 416 P.3d 1 [employer that misclassifies workers as independent contractors would have "unfair competitive advantage ... over competitors that properly classify similar workers as employees"]; Herr, supra , 109 Cal.App.4th at p. 790, 135 Cal.Rptr.2d 477 ["an employer which fails to pay overtime wages gains an unfair advantage over its competitors"].) But that public interest and any incidental benefit to the public from ensuring Quest's compliance with wage and hour laws do not transform Clifford's private UCL injunctive relief claim into a public one under the definitions of public and private injunctive relief articulated by our Supreme Court in Broughton, Cruz , and McGill. Under those definitions, an employee's request for an injunction requiring his employer to comply with the Labor Code is indisputably private in nature.

To summarize, Clifford's claim for injunctive relief under the UCL falls outside the Broughton - Cruz restriction on arbitrability because Clifford only seeks private injunctive relief, not "public" injunctive relief as defined in Broughton, Cruz , and McGill. The portion of his UCL claim seeking injunctive relief therefore is arbitrable, even if Broughton - Cruz remains good law and is not preempted by the FAA (a point we do not decide here).

The portion of Clifford's UCL claim seeking restitution is also arbitrable because the Broughton - Cruz bar on arbitrability only applies to claims for public injunctive relief, not to UCL claims for restitution. ( Cruz , supra , 30 Cal.4th at pp. 318, 320, 133 Cal.Rptr.2d 58 , 66 P.3d 1157 .)

is otherwise affirmed. Quest shall recover its costs on appeal. ( Cal. Rules of Court, rule 8.278(a)(1).)

WE CONCUR:

O'LEARY, P. J.

GOETHALS, J.