Betanco v. Living Spaces Furniture, LLC

Facts

The Federal Arbitration Act “compels judicial enforcement of a wide range of written arbitration agreements,” but section 1 removes from that reach “contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce.” (9 U.S.C. §§ 1, 2; Betanco v. Living Spaces Furniture, LLC (2026) __ Cal.App.5th __ (slip opn. at pp. 8–9), quoting Circuit City Stores, Inc. v. Adams (2001) 532 U.S. 105, 111.) The United States Supreme Court has read that residual clause to cover only “transportation workers.” (Betanco, supra, __ Cal.App.5th __ (slip opn. at p. 9), quoting Circuit City, supra, 532 U.S. at p. 119.) The question in this case was whether a furniture-delivery driver who makes purely intrastate, retail deliveries falls inside that narrow class.

Living Spaces is a chain furniture store with stores and distribution centers in several states, including two distribution centers in California (Rialto and Fremont). (Betanco, supra, __ Cal.App.5th __ (slip opn. at p. 2).) Its merchandise “is manufactured both inside and outside the state, including in Mexico, before it is shipped to Living Spaces stores and two distribution centers in California.” (Ibid.) The retailer contracts with delivery-service providers, including Of Service Transportation, LLC, to move products “from distribution centers to customers.” (Ibid.) In summer 2018, Luis Betanco “started working for Of Service as a delivery driver who delivered furniture from Living Spaces’ warehouse to customers,” and in August 2019 his company (Betanco Trucking, Inc.) signed an independent-contractor agreement with Of Service governing that work. (Id. (slip opn. at pp. 2–3).)

The agreement contained an arbitration clause requiring binding arbitration in Riverside County, “governed by the FAA,” and a waiver barring the parties from joining or consolidating claims or maintaining “any form of class, collective, or representative action” without mutual consent. (Betanco, supra, __ Cal.App.5th __ (slip opn. at pp. 2–3).) Living Spaces did not sign the agreement but argued Betanco’s claims against it were covered because it was an intended beneficiary. (Id. (slip opn. at p. 3).) Betanco stopped working for Of Service in August 2021 “after he complained about working long hours for insufficient pay.” (Ibid.)

The record on the interstate character of the work was developed largely through the retailer’s own declarations. Living Spaces’ director of consumer delivery acknowledged that the merchandise “is manufactured both inside and outside the state,” but stressed that the independent drivers “delivered furniture from distribution centers located in California to California customers.” (Betanco, supra, __ Cal.App.5th __ (slip opn. at p. 4).) A supplemental declaration explained that deliveries “are made only after individual orders are placed with [Living Spaces] by customers within California,” that the drivers “do not work in [Living Spaces’] distribution centers,” and that they “simply load the picked and staged furniture items from the loading dock into their own trucks” for delivery “to [Living Spaces] customers in the area surrounding the California distribution center from which the items originated.” (Id. (slip opn. at pp. 4–5).) Living Spaces also acknowledged that “at least some of its furniture orders are placed online.” (Id. (slip opn. at p. 14).)

Procedural history

Betanco filed two actions, later consolidated on appeal: a September 2021 class action alleging failure to pay minimum wage and overtime, failure to authorize meal and rest periods, and unlawful wage deductions; and a December 2021 action seeking civil penalties under the Private Attorneys General Act (PAGA) (Lab. Code, § 2698 et seq.). (Betanco, supra, __ Cal.App.5th __ (slip opn. at pp. 3–4).) About a year and a half into the litigation, Living Spaces and Of Service brought an “omnibus” petition to compel arbitration of all claims and to dismiss Betanco’s non-individual (representative) PAGA claims under Viking River Cruises, Inc. v. Moriana (2022) 596 U.S. 639. (Id. (slip opn. at p. 3).)

The trial court granted the petition in part. It found Betanco equitably estopped from resisting Living Spaces’ invocation of the agreement, found no waiver of the right to arbitrate, and found the agreement not unconscionable — rulings the parties did not challenge on appeal. (Betanco, supra, __ Cal.App.5th __ (slip opn. at p. 5).) Critically, the court agreed with Betanco “that he was a transportation worker engaged in interstate commerce (9 U.S.C. § 1) and thus exempt from the FAA.” (Ibid.) The court “then turned to state-law principles to determine whether to enforce the agreement,” declined to strike the class waiver under Gentry v. Superior Court (2007) 42 Cal.4th 443, but concluded that “Betanco’s claims for unpaid wages could be pursued in court under Labor Code section 229, notwithstanding the arbitration agreement.” (Id. (slip opn. at pp. 5–6).)

The practical result was a split order. The court held the wage claims — “failure to pay minimum wage, failure to pay overtime compensation, unlawful deduction from wages, failure to provide meal periods, and failure to authorize and permit rest periods” — were “subject to Labor Code section 229” and stayed in court, while the reimbursement, wage-statement, and unfair-competition claims “were not claims for unpaid wages and thus not exempt from arbitration under section 229.” (Betanco, supra, __ Cal.App.5th __ (slip opn. at p. 6 & fn. 2).) It ordered Betanco’s individual PAGA claims to arbitration but denied the motion to dismiss his representative PAGA claims, relying on Adolph v. Uber Technologies, Inc. (2023) 14 Cal.5th 1104. (Id. (slip opn. at p. 6).) Both defendants appealed. After oral argument, the Court of Appeal delayed submission until the United States Supreme Court decided Flowers Foods, Inc. v. Brock (2026) 608 U.S. __ [146 S.Ct. 1358], then took supplemental briefing on its effect. (Id. (slip opn. at p. 7 & fn. 4).) Review of the denial of the petition was de novo because the facts were undisputed. (Id. (slip opn. at p. 8).)

Issue

Two questions were presented. First, whether a driver who makes purely intrastate, retail deliveries of furniture from a California distribution center to California customers is a “class of workers engaged in foreign or interstate commerce” exempt from the FAA under section 1 — or whether the intrastate, retail character of the deliveries removes him from that class. Second, whether the trial court was “required to dismiss Betanco’s non-individual PAGA claims” once his individual claims were sent to arbitration. (Betanco, supra, __ Cal.App.5th __ (slip opn. at pp. 1–2, 8, 19).)

Holding

Reasoning

The exemption is narrow, and the inquiry is about the work. The court began where the Supreme Court did: section 2 of the FAA reaches any contract “involving commerce” and is read “to the full” extent of the commerce power, but section 1’s exemption for workers “engaged in” interstate commerce “is limited by the narrower ‘engaged in’ interstate commerce standard” and reaches only “transportation workers.” (Betanco, supra, __ Cal.App.5th __ (slip opn. at p. 9), quoting Circuit City, supra, 532 U.S. at pp. 112, 119, and Nieto v. Fresno Beverage Co., Inc. (2019) 33 Cal.App.5th 274, 280.) Reviewing the undisputed facts de novo, the court “agree[d] with the trial court that Betanco is a transportation worker since he was actually engaged in the transportation of goods in their interstate journey to customers.” (Id. (slip opn. at p. 8).) The recently decided Flowers reaffirmed the governing focus: whether the worker played “a ‘direct,’ ‘necessary,’ and ‘activ[e]’ role in moving goods across borders,” which, the court concluded, “Betanco no doubt did by loading and unloading furniture that was in the stream of interstate commerce.” (Id. (slip opn. at pp. 9–10), quoting Flowers, supra, 146 S.Ct. at p. 1365.)

The furniture never left the interstate stream. The heart of the analysis was continuity. Drawing on Nieto, the court reasoned that “[g]oods arriving from out of state that are unloaded and held in a warehouse before being loaded onto trucks and delivered to customers do not terminate their interstate journey if ‘there is a practical continuity of movement of the goods until they reach the customers for whom they are intended.’” (Betanco, supra, __ Cal.App.5th __ (slip opn. at p. 10), quoting Nieto, supra, 33 Cal.App.5th at p. 283.) The same logic ran through Muller v. Roy Miller Freight Lines, LLC (2019) 34 Cal.App.5th 1056 and Betancourt v. Transportation Brokerage Specialists, Inc. (2021) 62 Cal.App.5th 552, and through the Ninth Circuit’s Amazon “last-mile” line in Rittmann v. Amazon.com, Inc. (9th Cir. 2020) 971 F.3d 904, which held that packages “do not ‘come to rest[]’ at Amazon warehouses” but “are simply part of a process by which a delivery provider transfers the packages to a different vehicle for the last mile of the packages’ interstate journeys.” (Id. (slip opn. at pp. 11–13), quoting Rittmann, supra, 971 F.3d at p. 916.)

Why the furniture is Amazon packages, not slaughtered poultry. The court confronted the classic “coming to rest” line drawn in A.L.A. Schechter Poultry Corp. v. United States (1935) 295 U.S. 495, where live birds “‘came to rest’ when they reached slaughterhouses” for local sale. (Betanco, supra, __ Cal.App.5th __ (slip opn. at pp. 13–14), quoting Rittmann, supra, 971 F.3d at p. 916.) The difference, the court held, is transformation: the poultry “were killed before being sent to their next destinations,” so they “were not part of a continuous process of moving the same product from one place to the other.” The unaltered furniture “at issue here [is] more akin to the Amazon packages in Rittmann.” (Id. (slip opn. at p. 15).) The same distinction defeated the analogy to food-delivery cases: while “any interstate journey of an ingredient used to prepare restaurant food ends when it reaches its customer: the restaurant,” “taking raw ingredients … and transforming them into food that will be delivered locally is far different from delivering pieces of furniture that are in the same condition when they are deposited in a warehouse as when drivers such as Betanco deliver them to the final customer.” (Id. (slip opn. at p. 15), quoting Betancourt, supra, 62 Cal.App.5th at p. 559.)

Retail versus wholesale, and the timing of the order, do not control. Appellants’ central move was to distinguish Nieto, Muller, and Carmona Mendoza v. Domino’s Pizza, LLC (9th Cir. 2023) 73 F.4th 1135 as wholesale cases, and to argue that a driver who delivers goods “ordered only after they have arrived in the state” is not a transportation worker. (Betanco, supra, __ Cal.App.5th __ (slip opn. at pp. 12–13).) The court rejected the proposed bright line. What matters is the driver’s “actual role in delivering those goods — as opposed to whether the goods were wholesale or retail.” (Id. (slip opn. at pp. 15–16).) And it adopted Carmona Mendoza’s answer to the order-timing point: “‘[t]he issue is not how the purchasing order is placed, but rather whether the … drivers operate in a single, unbroken stream of interstate commerce that renders interstate commerce a central part of their job description.’” (Id. (slip opn. at p. 16), quoting Carmona Mendoza, supra, 73 F.4th at p. 1138.) As the court put it, “Betanco was engaged in the actual transportation of furniture that was intended from the outset of its interstate journey to be delivered to customers,” so the retail label and the moment of purchase were immaterial. (Ibid.)

The contrary federal authority, and the false “consensus.” The court engaged the out-of-circuit decisions appellants pressed and found them unpersuasive. Lopez v. Cintas Corp. (5th Cir. 2022) 47 F.4th 428 held that once goods reach a warehouse and are unloaded, “anyone interacting with those goods was no longer engaged in interstate commerce,” but the court preferred “the California cases that have analyzed whether the goods involved are part of a continuous part of interstate transportation.” (Betanco, supra, __ Cal.App.5th __ (slip opn. at p. 17), quoting Lopez, supra, 47 F.4th at p. 433.) Hamrick v. Partsfleet, LLC (11th Cir. 2021) 1 F.4th 1337 supported only the uncontroversial premise that courts should ask “whether a worker is actually engaged in the transportation of goods, and not simply the origin of the goods” — an inquiry the trial court had in fact performed. (Id. (slip opn. at pp. 17–18).) And Wallace v. Grubhub Holdings, Inc. (7th Cir. 2020) 970 F.3d 798 failed because those food-delivery plaintiffs “did not even try” to show interstate movement was central to the job, whereas “Betanco did make such a showing.” (Id. (slip opn. at p. 18), quoting Wallace, supra, 970 F.3d at p. 803.) Because “multiple cases have noted splits in authority,” the court “reject[ed] appellants’ characterization of ‘the overwhelming weight of federal authority’ having reached a ‘consensus’ on the issue.” (Id. (slip opn. at p. 17, fn. 5).) The court also declined to reach the raft of new arguments appellants raised only in supplemental briefing on Flowers, treating them as forfeited. (Id. (slip opn. at p. 7, fn. 4).)

Representative PAGA standing survives, and Perry v. Thomas does not rescue appellants. On the second issue, the court held Adolph “directly on point”: an “order compelling arbitration of individual claims does not strip the plaintiff of standing to litigate non-individual claims in court.” (Betanco, supra, __ Cal.App.5th __ (slip opn. at pp. 19–20), quoting Adolph, supra, 14 Cal.5th at p. 1123.) Appellants’ theory that the FAA independently barred the representative claims because all drivers had signed waivers, resting on Perry v. Thomas (1987) 482 U.S. 483, drew a pointed answer: Perry “is of little assistance here since it was decided before PAGA’s enactment and did not involve a transportation worker who was exempt under section 1 of the FAA.” (Id. (slip opn. at pp. 21–22).) A representative PAGA action belongs to the state, not the employees: “Just as an employer cannot force the state to arbitrate, nor can it foreclose a representative PAGA action because employees have submitted to arbitration agreements.” (Id. (slip opn. at p. 22), citing Kim v. Reins International California, Inc. (2020) 9 Cal.5th 73, 81.) The order was affirmed in full. (Id. (slip opn. at p. 22).)

Significance

Betanco extends California’s transportation-worker line — Nieto, Muller, and Betancourt — from wholesale and Amazon-fulfillment deliveries to the ordinary retail last mile, and does so as the first published California decision to apply the Supreme Court’s 2026 Flowers reaffirmation. The practical reach is large: it tells trial courts that a furniture, appliance, or big-box home-delivery driver who moves goods that entered the state through an interstate (or international) supply chain is presumptively a section 1–exempt transportation worker, and that neither the intrastate route, nor the retail character of the sale, nor the fact that the customer ordered after the goods reached a California warehouse defeats the exemption. The controlling question is continuity — whether the goods were “inevitably destined from the outset of their interstate journey” for the customer — and the dividing line is transformation, not geography: unaltered goods that merely pause in a warehouse stay in the stream, while goods that are slaughtered, cooked, or otherwise remade begin a new, local transaction. (Betanco, supra, __ Cal.App.5th __ (slip opn. at pp. 14–19).)

The decision’s second contribution is to confirm, at the appellate level, the downstream consequences of a successful section 1 argument in a California wage case. Once the FAA is out, the state-law arbitrability fight is what remains — and here that fight split the case: Labor Code section 229 kept the statutory wage causes of action in court, while the reimbursement, wage-statement, and unfair-competition claims (not “claims for unpaid wages”) went to arbitration under the still-enforceable agreement. It bears emphasis about what the court did not decide. It did not hold that “state law governs” as a general matter, did not analyze the California Arbitration Act or Code of Civil Procedure section 1281, and did not itself perform an FAA-preemption analysis of section 229; the trial court’s state-law enforceability rulings were left unchallenged, and the section 229 result followed from the exemption rather than from any new holding by the Court of Appeal. What the court squarely added on the state-law side is its treatment of Perry v. Thomas: because Perry’s holding that the FAA preempts section 229 presupposes an applicable FAA, it has no force against a section 1–exempt worker, for whom there is no FAA preemption to invoke. Read together with Adolph, Betanco gives a plaintiff who wins the section 1 argument a clear path to keeping both statutory wage claims and representative PAGA penalties in a judicial forum.

Key quotes

“We reject the contention because Betanco was actively engaged in the interstate transportation of goods even though he made retail (as opposed to wholesale) deliveries.” (Betanco, supra, __ Cal.App.5th __ (slip opn. at pp. 1–2).)

“We agree with the trial court that because Betanco was engaged in delivering goods that were inevitably destined from the outset of their interstate journey to the customers where Betanco delivered them, he was a transportation worker and thus the arbitration agreement he signed was exempt under section 1 of the FAA.” (Betanco, supra, __ Cal.App.5th __ (slip opn. at p. 19).)

“But Perry is of little assistance here since it was decided before PAGA’s enactment and did not involve a transportation worker who was exempt under section 1 of the FAA.” (Betanco, supra, __ Cal.App.5th __ (slip opn. at pp. 21–22).)

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Open questions

Several issues remain unresolved after Betanco. The opinion decides only that this worker is section 1–exempt and that Adolph preserves representative PAGA standing; it does not resolve the enforceability of the agreement under state law, because the trial court’s state-law rulings — that the class waiver was not unenforceable under Gentry v. Superior Court, and that the non-wage claims must be arbitrated — went unchallenged on appeal. (Betanco, supra, __ Cal.App.5th __ (slip opn. at pp. 5–6).) Nor does the court draw the outer boundary of the transformation principle: it holds unaltered furniture stays in the interstate stream and slaughtered poultry does not, but leaves for future cases where along that spectrum repackaging, assembly, or other handling begins a new, local transaction. (Id. (slip opn. at pp. 14–15).) The scope of Labor Code section 229 is also only partly mapped — the court accepted the line between “claims for unpaid wages” (which stay in court) and reimbursement, wage-statement, and UCL claims (which do not), without probing the harder classification questions that line will generate. (Id. (slip opn. at p. 6 & fn. 2).) Finally, because the opinion is not yet final and no petition for review has been resolved, its ultimate authority — and the precise contours of how Flowers will be read in California — remain to be settled. (Id. (slip opn. at pp. 7, 9–10).)