And Such An Agreement To Arbitrate Disputes Invoking The Criminal Law Would Be Contrary To Public Policy.
The context for our next case is California's Bad Check Diversion Program (Program), created to relieve California courts of the case overload caused by the criminalization of the writing of bad checks with intent to defraud. The statutory scheme allows district attorneys to contract with private parties to administer the Program, and participants who are diverted from the courts to the Program are given an opportunity to provide restitution, take a class, and pay fees. Victim Services, Inc. (VSI) is a private administrator under the Program. Defendants who elect to participate in the Program are subject to an arbitration provision purporting to be enforceable under the FAA, and entered into between the district attorneys and the private administrator.
When plaintiffs sued VSI for violations of state and federal consumer-protection laws, VSI filed an anti-SLAPP motion, and also sought to arbitrate with the only plaintiff who had elected to participate in the Program. The district court denied the anti-SLAPP motion on the grounds that the case was within the so-called "public interest exception" to an anti-SLAPP motion, and also held that the FAA did not apply to an agreement between a criminal suspect and local authorities about how to resolve a potential state-law criminal violation. VSI unsuccessfully appealed. Breazeale v. Victim Services, Nos. 15-16549 & 16-16495 (9th Cir. 12/27/17) (Schroeder, Tallman, Whaley).
We focus on the arbitration issue only.
The FAA applies to private commercial agreements. Judge Schroeder explains, "[a]gainst this historical backdrop, it is apparent that Congress never contemplated that the FAA would apply to agreements between prosecutors and citizens resolving alleged violations of a state's criminal law." Therefore, the FAA did not apply to the particular agreement here.
The Court was left to consider whether California state law required that arbitration be compelled. On this point, the Court agreed with the district court's ruling "that an agreement to arbitrate disputes invoking the criminal law would be contrary to public policy."
COMMENT: There are some situations in which the state's involvement in an arbitration agreement, and state interests, provide a reason to avoid FAA preemption and enforcement of arbitration. Breazeale is an example of a case in which the state's involvement in the criminal system, something altogether different from a normal commercial transaction, provides a reason to avoid compelling arbitration. The other outstanding example is provided by Iskanian, dealing with efforts by employers to compel arbitration of Private Attorney General Act of 2004 (PAGA) employee representative actions, brought on behalf of the state, against employers. The state has an interest in enforcing its labor laws by incentivizing private parties through the qui tam PAGA scheme to enforce the labor laws, and the California Supreme Court has viewed the state involvement and interest as a reason not to enforce an agreement between the employee and employer to arbitrate PAGA claims.
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