Panel Holds the Federal Arbitration Act Did Not Preempt The California Rule Announced In Iskanian.
By a 2-1 majority, a Ninth Circuit panel has reversed a district court’s order that had granted an employer’s motion to compel arbitration of claims and dismissed claims for civil penalties under the Private Attorney General Act of 2004 (PAGA). Sakkab v. Luxottica Retail North America, Inc., No. 13-55184 (9th Cir. Sept. 28, 2015). Thus, the majority agreed with the rule in Iskanian v. CLS Transportation Los Angeles, LALC, 59 Cal.4th 348 (2014), barring the waiver of representative claims under PAGA. The majority reasoned that the Federal Arbitration Act and Concepcion do not preempt the rule in Iskanian, because the California rule barring waiver of PAGA claims is a “generally applicable” contract defense preserved by the FAA’s section 2 savings clause. Waiver of PAGA claims is barred, “regardless of whether the waiver appears in an arbitration agreement or a non-arbitration agreement.”
However, the majority noted: “The California Supreme Court’s decision in Iskanian expresses no preference regarding whether individual PAGA claims are litigated or arbitrated.” Thus, while reversing the order below, the Ninth Circuit panel also remanded to the district court to decide where the plaintiff’s representative PAGA claims should be resolved.
Judge N.R. Smith, dissenting, believes that Concepcion/FAA preemption should apply, that the FAA’s “liberal federal policy favoring arbitration” should have been followed, and that not enforcing the PAGA waiver provision crimps the parties’ ability to contract to the arbitration provision chosen.
COMMENT: In Concepcion, a Supreme Court majority has accepted an arbitration provision that results in waiver of class actions. In Sakkab, the Ninth Circuit panel majority distinguishes between class actions and PAGA actions that are representative actions akin to qui tam actions in which the plaintiff acts as a proxy for the state. Whereas class actions are not necessarily well-suited to arbitration, because an arbitrator may not be troubled to deal with the due process rights of third parties, a PAGA representative action involves obtaining penalties for the benefit of the state and the plaintiff, making it unnecessary to protect absent employees’ due process rights.
I recently authored an article entitled, “Can Private Attorney General Actions Be Forced Into Arbitration?” that appeared in California Litigation, Vol. 28, No. 2, 2015. You can find it here. By remanding to the district court to decide whether the PAGA claims should be litigated or arbitrated, Sakkab clarifies that whether PAGA claims can be forced into arbitration is not the same question as whether PAGA claims can be waived. Sakkab only holds the PAGA claims can’t be waived, leaving it to the district court to decide how the claims will be tried.
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