California Mediation and Arbitration

Arbitration, PAGA: Supreme Court Holds In Viking Cruises v. Moriana That PAGA Claims Can Be Arbitrated

I Told You So.

        In my January 7, 2022 post about Viking Cruises, Inc. v. Moriana, I predicted that the employee Angie Moriana would lose  her argument that her Private Attorney General Act (PAGA) employment claim against her employer Viking Cruises, could avoid mandatory arbitration. I promised, "If my prediction proves to be accurate, I will let you know." So I'm letting you know. However, I somewhat simplistically based my "prediction" on the way the Supreme Court is currently constituted. But as we will see, the court's opinions in this case do not fall along simple left-right lines, and only Justice Clarence Thomas dissented.

        Justice Samuel Alito delivered the majority opinion of the court. Viking Cruises, 20-1573 (6/15/22). The opinion states: "We hold that the FAA preempts the rule of Iskanian insofar as it precludes division of PAGA actions into individual and non-individual claims through an agreement to arbitrate. This holding compels reversal in this case."

        Part I of the opinion is an introduction that describes the background of the case and Moriana's claim. Alito explains that PAGA provides for "representative" claims in two different respects: first, the plaintiff employee represents state interests; second, the employee represents  other employee's PAGA claims, which may be predicated on violations different from those  of the plaintiff employee. Part II is an exegesis on the FAA and PAGA. In Part II, Alito explains that the fact that an employee represents state interests is not incompatible with bilateral arbitration. Instead, he maintains it is representation in the second sense -- representation of other claims by other claimants -- that is incompatible with arbitration. Part III states, "We think that . . . a conflict between PAGA’s procedural structure and the FAA does exist, and that it derives from the statute’s built-in mechanism of claim joinder." Part IV repeats the holding, and concludes that Viking Cruises is entitled to arbitrate Moriana's individual PAGA claim. But the representative PAGA claims of other employees cannot be arbitrated under the PAGA scheme by Moriana, because only an aggrieved party can bring a PAGA claim, meaning only the other employees can bring their own individual PAGA claims -- at least, that is how Alito interprets that PAGA statutory scheme.

        We have spent more time than usual describing the parts of the majority opinion, because it spawned a concurrence written by Justice Amy Coney Barrett,  joined by Justice Brett Kavanaugh and Chief Justice John Roberts (with the exception of a footnote), a concurrence by Justice Sonya Sotomayor, and a dissent by Justice Thomas.  Barrett concurred in Part III, but believed that parts I, II, and IV were unnecessary to the court's decision: "I agree that reversal is required under our precedent because PAGA’s procedure is akin to other aggregation devices that cannot be imposed on a party to an arbitration agreement." Chief Justice Roberts concurred in parts I and III.

        Justice Sotomayor concurred based on her understanding that, "As a whole, the Court’s opinion makes clear that California is not powerless to address its sovereign concern that it cannot adequately enforce its Labor Code without assistance from private attorneys general." She believes that in an appropriate case, California courts interpreting California law will get to decide whether the employee has "standing" to pursue representative PAGA claims, and that if necessary, the California legislature can "modify the scope of statutory standing under PAGA within state and federal constitutional limits." [Query whether the current case is an "appropriate case" in Sotomayor's understanding.] Sotomayor's concurrence seems to invite a continuing PAGA dialogue between the United States and California Supreme Courts.

        Justice Thomas dissents, based on his consistent position that the Federal Arbitration Act does not apply to the states. An explanation of his "iconoclastic" position can be found in an article by Brian Farkas, The Continuing Voice of Dissent:
Justice Thomas and the Federal Arbitration Act," Harvard Negotiation Law Review, vol 22:33 (2016). As the most conservative voice on the court, Thomas rejects a broad application of the Commerce Clause, accepts the limited interpretation of the Privilege and Immunities Clause of the 14th Amendment, and pretty much rejects incorporation of basic rights under the Due Process Clause of the 14th Amendment. He's a states rights guy. And so his position on the far-right spectrum of the Supreme Court bench would result in allowing California to limit arbitration to  protect employees. Presumably states following policies that do not protect employees as much as California does would also be protected by Thomas's deference to states' rights.

Arbitration, Waiver: Your Blogger Has An Article About Waiver Of The Right To Arbitrate In The Daily Journal

The Article Is Entitled "The United States and the California Supreme Courts are not on the same page."

        My article in the June 10, 2022 online edition of the Daily Journal contrasts the analysis of waiver of the right to arbitrate in the SCOTUS case Morgan v. Sundance  (2022) with the analysis in the California Supreme Court case St. Agnes Medical Center v. PacifiCare of California (2003). SCOTUS does not require a showing of prejudice by the party opposing arbitration before the party seeking arbitration can be found to have waived its right to arbitrate [see my 5/24/22 post on Morgan v. Sundance]. The California Supreme Court views the matter differently. In 2003, the St. Agnes court endorsed federal cases requiring a finding of prejudice before there could be a waiver of the right to arbitrate. That is no longer the case after Morgan v. Sundance. Time to rethink the matter?

        Viewing the article online requires a subscription the Daily Journal.

Arbitration, Discovery: SCOTUS Rules Federal Courts Can't Grant US Discovery For Arbitration Outside US

Foreign Arbitration Panels Are Not A "Foreign Or International Tribunal".

        A district court can order the production of evidence “for use in a proceeding in a foreign or international tribunal.” 28 U.S.C.  § 1782(a). The United States Supreme Court, in a unanimous decision authored by Justice Amy Coney Barrett, holds that a foreign arbitration panel outside the US is not a "proceeding in a foreign or international tribunal." Therefore, the district court cannot order the production of evidence. ZF Automotive US , Inc. v. Luxshare, Ltd, No. 21-401, together with No. 21–518, AlixPartners, LLP, et al. v. Fund for Protection of Investors’ Rights in Foreign States,  (S. Ct. 6/13/22).

        COMMENT: Limitations on discovery should be considered when agreeing to arbitrate (assuming one has a choice).

Arbitration, Nonsignatories: There Is No Agreement To Arbitrate Between San Diego And Instacart

PAGA Cases Are Not A Good Analogy For A Lawsuit Brought Directly By The City, Rather Than By Workers.

        If the City of San Diego city attorney sues Instacart for violating the Unfair Competition Law, Business and Professions Act, §§ 17200 et seq., is the City bound by arbitration agreements between Instacart's Shoppers and Instacart? No, says the Court of Appeal, agreeing with the trial court, in The People v. Maplebear Inc., D079209M.PDF (4/1  6/6/22) (McConnell, Irion, Dato).

        Maplebear Inc., doing business as Instacart, hires Shoppers to connect with buyers and help get products to the buyers. The Shoppers are characterized by Instacart as "independent contractors" and required to sign arbitration agreements with Instacart. However, the City is not a signatory, and the court explained that the City was suing under its enforcement powers on behalf of the people of California. The City claimed that misclassifying Shoppers as independent contractors denied them employee benefit protections, resulted in a loss of payroll tax, and created unfair advantage over competitors.

        COMMENT: Much of the opinion is devoted to a detailed discussion of Iskanian, the California Supreme Court case holding that employees are not required to arbitrate PAGA claims, because PAGA claims are analogous to qui tam claims in which the state has an interest, and the state is not a signatory to arbitration agreements between employers and employees. However, the city attorney and Instacart must recognize that the California rule that PAGA claims are not subject to mandatory arbitration is now the subject of a case that has been argued before the US Supreme Court in a case awaiting a decision. Instacart argued that the City is really suing for the benefit of the employees, and should therefore be bound by their arbitration agreements -- an argument that has been repeatedly made in PAGA cases by critics of Iskanian. If the rule in Iskanian falls in SCOTUS, then the City's argument could be weakened  -- but only if the rule in Iskanian applies to the City's argument.

        The Court of Appeal explained that Instacart "inverted" the ruling of Iskanian, and therefore Iskanian did not apply. Iskanian allowed the worker to sue on behalf of the state. That was not the case with the Shoppers, who did not bring the suit. Rather, the City of San Diego sued directly on behalf of the People's enforcement powers, not primarily for the benefit of the workers, and the City was not party to an arbitration agreement.

Settlement: Marital Settlement Agreement Is Held To Be Waiver Of Surviving Spouse's Spousal Rights

Read Probate Code §§ 144 - 144.

        An enforceable marital settlement agreement can lead to a waiver of spousal rights. In Welch v. Welch, B311507 (2/5  5/31/22) (Moor, Rubin, Kim), a husband and wife, anticipating the dissolution of their marriage, entered into a marital settlement agreement (MSA) to distribute their property. The court entered judgment, the wife died, and the surviving husband sought to undo the settlement agreement. He succeeded in the trial court, but failed in the Court of Appeal. 

        The issue was whether the surviving spouse, the husband, waived spousal rights enumerated in the Probate Code, § 141(a) by entering into the MSA. The Court of Appeal held that the MSA was enforceable, because it was a complete property settlement, the parties were represented by counsel, and the husband had  received a "fair and reasonable disclosure of the property or financial obligations" of his wife.

 

Arbitration, Enforceability: No Agreement Where Company Was Unable To Establish Automatic Sending Of Electronic Receipt

Existence Of Agreement Was Not An Issue To Delegate To Arbitrator.   

              Fiona Trinity sued Life Insurance Company of North America and individuals (LINA parties) for employment-related claims. The LINA Parties moved unsuccessfully to compel arbitration in the trial court, and the Court of Appeal affirmed. The LINA parties could not establish the existence of an agreement to arbitrate, and even if they could, the agreement would have been unconscionable. Trinity v. Life Insurance Company of America et al., B312302 (2/7  5/23/22) (Perluss, Segal, Feuer).

        The defendant's PMK had testified as to the contract procedure, explaining that  once the employee had  clicked on a link indicating he or she had read an online employee handbook, which included an arbitration agreement, they would receive an email confirming their assent to the terms of the handbook. The problem was that the employer could not produce the automatically generated receipt and did not know how to retrieve it, and the employee did not remember reading or agreeing to the handbook. 

        While issues of arbitrability were delegated to the arbitrator here, whether there is an agreement to arbitrate in the first place is an issue for the judge to decide. The issue of arbitrability cannot be delegated under the terms of a nonexistent agreement.

        COMMENT: In the 21st century, there is still at least one advantage to the use of a paper document with an inked signature. Electronic signing is permissible, but then one must carefully follow procedure and have a good storage and retrieval system for electronic data.

Arbitration, Waiver: Waiver Of The Right To Arbitrate Requires A Showing Of Prejudice Under California Law

The California Supreme Court And SCOTUS Disagree About Waiver Of The Right To Arbitrate.

    In Quach v. Cal. Commerce Club, B310458 (2/1  5/10/22 ) (Bendix, Rothschild; Crandall sitting by designation, conc. and dsst.), Justice Bendix, writing the majority opinion, explained that California Commerce Club had not waived its right to arbitrate, despite the fact that it knew from the time it filed its answer of its right to arbitrate, despite substantial delay, and despite engaging in litigation conduct inconsistent with arbitrate. Because? Because Plaintiff failed to demonstrate prejudice, having admitted he expended no costs in litigation he would not have expended had the case gone to arbitration earlier.  Under  St. Agnes Medical Center v. PacifiCare of California,  31 Cal.4th 1187, 1203 (2003) (St. Agnes Medical Center), prejudice is part of a multi-factor test used to establish waiver of the right to arbitrate, and spending money in litigation is not enough to establish prejudice. 

    Superior Court Judge Crandall concurred in part, agreeing that the arbitration agreement was not unconscionable, but he would have found prejudice based on the defendant's litigation conduct inconsistent with the right to arbitrate, knowledge of its right to arbitrate, and delay. He also pointed out that California courts have not applied a mechanical test to waiver, and have sometimes found great delay to result in prejudice. He did not believe that, under the circumstances, the plaintiff had to explain prejudice, and yet Crandall's dissent seems somewhat caught up in the straightjacket of having to rely on the finding of prejudice, based on California case law, in order to establish waiver. As my comment below explains, SCOTUS has now rejected a finding of prejudice as a necessary element in a waiver of the right to arbitrate. 

    "The unfairness of compelling non-unionized employees to forfeit their access to the civil justice system in favor of private arbitration is well recognized," write Crandall. He considers this "water under the bridge", but he would not extend mandatory arbitration for the benefit of the employer in a situation where he believes there has been a clear waiver of the right to arbitrate.

    COMMENT: In St. Agnes Medical Center, the California Supreme Court wrote: "More than two decades ago, we observed that '[u]nder federal law, it is clear that the mere filing of a lawsuit does not waive contractual arbitration rights. The presence or absence of prejudice from the litigation of the dispute is the determinative issue under federal law.'" That was then; this is now. Under Morgan v. Sundance [see my 5/24/22 post], decided this year, SCOTUS does not require a showing of prejudice to establish waiver of the right to arbitrate. Instead, SCOTUS places arbitration contracts on the same footing as other contracts. And the traditional test for waiver of a contractual right is intentional relinquishment of a known right. Presumably this could be established by showing that a party knew it had a right to arbitrate and acted inconsistently with its right to arbitrate by engaging in litigation. Adding "prejudice" as an element of waiver places arbitration agreements on a different footing than other contracts. Why should the rule in California be different than the rule established by SCOTUS? Of course, where California law applies, our appellate courts follow the California Supreme Court. But why should California's rule be different than SCOTUS's rule? 

    One might argue that adding the element of prejudice makes it harder to establish waiver, and thus harder to lose the right to arbitrate, and California wishes to encourage arbitration. But SCOTUS addressed this type of argument, and in the context of the Federal Arbitration Act, determined in an 9-0 decision penned by Justice Kagan, that the desire to promote arbitration should not trump the fundamental rule that arbitration agreements should be put on the same footing as other contracts. Perhaps it is time for the California Supreme Court to reconsider the rules governing waiver of the right to arbitrate.

        UPDATE: We have an article in the June 10, 2022 online edition of the Daily Journal entitled, "The United States and the California Supreme Courts are not on the same page." The article is about waiver of the right to arbitrate.

Settlements: Lawyer's Alleged Duress Doesn't Void Settlement Agreement With Defendant Who Didn't Know About Duress

“'Duress by a third person' is the legal label for this contract case."

       Plaintiff Laura Fettig entered into a settlement agreement, on the record, of her personal injury case. Later, she tried to set aside the settlement agreement, arguing she had only settled under duress caused by her attorney who threatened to abandon her case if she refused the settlement. Defendants did not know about the duress, and entered into the settlement in good faith. "But duress by a third person [i.e., by her lawyer] cannot void a contract when the other contracting party did not know about the duress and relied in good faith." Affirmed. "The court rightly refused to rescind the contract." Fettig v. Hilton Garden Inns Management LLC, No. 307348 (2/8  5/4/22) (Wiley, Grimes, Harutunian).  

Arbitration, PAGA: For Now PAGA Still Provides Exception To Mandatory Arbitration

Two Recent California Cases Uphold The Rule In Iskanian.

        California courts have repeatedly ruled, following Iskanian, that employees cannot be forced to arbitrate PAGA representative claims. Two recent published opinions follow the Iskanian rule. Wing v. Chico Healthcare & Wellness Centre, No.  B310232 (2/5  4/28/22) (affirming order denying motion to compel arbitration); Leshane v. Tracy VW, Inc. No. C093881 (3rd Dist. 4/29/22) (affirming trial court court's denial of defendants’ petition to compel arbitration).

        We are waiting to learn what SCOTUS will decide about the rule in Iskanian. The court has already heard argument in Viking Cruises, Inc. v. Moriana, and a majority of the justices seem likely to reject the Iskanian rule in cases where the Federal Arbitration Act governs. See my post dated 1/7/22.

        COMMENT: If SCOTUS rejects the rule in Iskanian, it does not follow that the California courts must follow SCOTUS in those cases where the parties are not engaged in interstate commerce, and therefore the Federal Arbitration Act does not apply.

 

Arbitration, FAA, Transportation Workers: SCOTUS Holds FAA Transportation Worker Exemption Applies To Airline Workers Who Load Cargo

The FAA Exempts Interstate-Transportation Workers And Others Like Them From Arbitration.

        On June 6, 2022, in an 8-0 opinion authored by Justice Clarence Thomas, SCOTUS held that Latrice Saxon, a ramp supervisor for Southwest Airlines, was exempted by the Federal Arbitration Act from having to arbitrate. Southwest Airlines v. Saxon, No. 21-309 (S. Ct. 6/6/22). A catchall-phrase in the FAA, exempting from arbitration "any other class of workers engaged in foreign or interstate commerce” covered Saxon. 

        COMMENT: Saxon brought a putative class action for wage and hour violations. How helpful the ruling will be for class actions involving workers engaged in foreign or interstate commerce is uncertain, because SCOTUS did not accept Saxon's argument that the exemption applied broadly to all airline workers. At the same time, SCOTUS did not accept Southwest Airlines' argument that the exemption applied  narrowly to workers who actually transported goods across state lines. In future cases, the courts will have to look closely at the specific facts to determine the scope of the exemption.