Same Issue Is Pending Before California Supreme Court in Iskanian
Does the Supreme Court’s decision in AT&T Mobility LLC v. Concepcion, 131 S.Ct. 1740 (2011) permit arbitration agreements to override the statutory right to bring representative claims under the Labor Code Private Attorneys General Act of 2004 (PAGA)? That’s the issue pending before the California Supreme Court in Iskanian v. CLS Transportation of Los Angeles (2nd Dist. Div. 2), review granted Sept. 19, 2012, and in our next case, Brown v. Superior Court of Santa Clara, H037271 (6th Dist. June 4, 2013) (Premo, J., author 3:0) (for publication). (See my June 5, 2012 post on Iskanian).
Weighing in on this cutting-edge issue, the Sixth District holds that the Federal Arbitration Act and Concepcion do not demand enforcement of the arbitration agreement:
“A plaintiff suing for PAGA civil penalties is suing as a proxy for the State. A PAGA claim is necessarily a representative action intended to advance a predominantly public purpose. When applied to the PAGA, a private agreement purporting to waive the right to take representative action is unenforceable because it wholly precludes the exercise of this unwaivable statutory right.”
This result requires distinguishing Supreme Court cases, including Concepcion, and Marmet Health Care Center Inc. v. Brown, 132 S.Ct. 1201 (2012).
Concepcion held that a court may not invalidate an arbitration agreement based upon generally applicable contract principles, if those principles are applied in a way that categorically disfavors arbitration. In Brown, the Court acknowledges that “any statute providing a private remedy that may be effectively adjudicated in the arbitral forum must be arbitrated if that is what the parties have agreed to do.” However, the Court of Appeal says it is unaware of any Supreme Court case that “has held the FAA requires enforcement of a private agreement that wholly prevents the exercise of a statutory right intended for a predominantly public purpose.”
In Marmet, the Supreme Court held that a state law prohibiting the arbitration of claims against nursing homes was invalid. The distinction: this was a categorical prohibition of the arbitration of a routine common law claim, whereas a PAGA claim “is a statutory claim that provides a public remedy.” The key to PAGA is that the individual plaintiff steps in as a private attorney general – a proxy for the state – and the purpose of PAGA penalties is a public purpose: deterrence. That purpose is thwarted if one cannot make a representative claim.
The impact of the ruling is limited, even in Brown, for the Court held that “the PAGA claim must be excluded from the order compelling arbitration and stayed pending resolution of the arbitration.” Finally, it remains to be seen what the California Supreme Court will do in Iskanian.