Court Acknowledges That Private Attorney General Laws “May Be Severely Undercut By Application Of The FAA”
On March 12, at the end of my previous post, I commented “we are still in a somewhat fuzzy area regarding FAA preemption of California statutory rights to file a court action – especially in those instances where the beneficiary of the statutory right may include the public, and not just the individual who is a party to the arbitration agreement. Example: Private Attorney General Act (PAGA) employment claims.”
The next day, the Court of Appeal issued an unpublished decision that addresses this very issue: Ybarra v. Apartment Investment and Management Company, B245901 (2nd Dist. Div. 2, March 13, 2014) (Ashmann-Gerst, Boren, Ferns) (Ybarra).
Employee Ybarra had successfully opposed a motion to compel her to arbitrate her individual PAGA claims, arguing that individual claims were not viable. Employer appealed, relying on preemption by the Federal Arbitration Act (FAA) and recent SCOTUS cases, to argue the arbitration agreement needed to be enforced against the employee.
The argument for not enforcing arbitration of PAGA claims is that the employee is essentially stepping into the shoes of the attorney general to enforce the labor laws, and thus the public benefits from public enforcement. The state attorney general could not be compelled to arbitrate claims, because the attorney general is not a party to the arbitration agreement. However, even though the employee may be acting as a private attorney general, the employee here was a party to the arbitration agreement. Should the “private attorney general” be treated like the state attorney general who is not a party to the arbitration agreement?
Rejecting Ybarra’s argument, the Court of Appeal relied on SCOTUS’s recognition that the FAA “reflects an emphatic federal policy in favor of arbitral dispute resolution,” and in particular, two cases I have blogged about: American Express Co. v. Italian Colors Restaurant, 133 S.Ct. 2304 (2013) [June 25, 2013 post] and Marmet Health Care Ctr., Inc. v. Brown, 132 S.Ct. 1201 (2012) [March 27, 2012 post] .
Interestingly, the Court acknowledged that “the PAGA serves to benefit the public and that private attorney general laws may be severely undercut by the FAA” – but believed that SCOTUS “had spoken on the issue.” Thus, while insisting that it was bound by SCOTUS authority, the Court must understand the view expressed by Justice Kagan that enforcing an arbitration agreement may make it impossible for a party to effectively vindicate rights through individual acts. In her American Express dissent, Justice Kagan pithily wrote: “And here is the nutshell version of today’s opinion, admirably flaunted rather than camouflaged: Too darn bad.”
Reversing the trial court in Ybara, the Court of Appeal held:
“Unless and until the California Supreme Court rules otherwise, we determine that the representative waiver provision in the parties’ arbitration agreement is enforceable, and that Aimco’s motion to compel Ybarra’s PAGA claim on an individual basis should have been granted.”
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