California Courts of Appeal Continue To Side With California Supreme Court Regarding Standing To Bring Representative PAGA Claims.
Affirming the trial court's denial of an employer's motion to compel arbitration, the Court of Appeal holds that the employees' waiver of a right to bring representative PAGA claims is unenforceable. Nicole DeMarinis et al. v. Heritage Bank of Commerce, A167091 (1/3 1/8/24) (Fujisaki, Tucher, Petrou).
Let's summarize the PAGA standing issue in California: Under Iskanian, California courts had not allowed employers to "split" PAGA claims between individual and representative claims, because Iskanian treated a PAGA claims as a dispute between the employer and the State, which did not waive the right to arbitrate, and not a dispute between an employer and an employee. However, the SCOTUS, in Viking River Cruises, Inc. v. Moriana, 596 U.S. ___ (2022) [142 S. Ct. 1906], held that precluding the splitting of PAGA causes of action into a representative and an individual cause of action was preempted by the Federal Arbitration Act, to the extent that this resulted in the inability to compel arbitration of individual PAGA claims in California. Once the individual cause was moved to arbitration, Justice Samuel Alito concluded, the employee had no standing to bring the PAGA representative action in court. Justice Sonia Sotomayor concurred, but added that California courts, which have the role of interpreting California law, might conclude instead that employees do have standing to bring PAGA representative actions. The California Supreme Court, in Adolph v. Uber Technologies, Inc., S274671 (Cal. Sup. Ct. 7/17/23) (Liu; Guerrero, Corrigan, Kruger, Groban, Jenkins, Evans), has had the last word, if not the final word, agreeing that employees have standing to bring representative PAGA claims. See our post dated 9/5/23.
The court explained in Duran v. Employbridge Holding Company, F084167 (5th Dist. filed 4/27/23 pub. 5/30/23) (Franson, Hill, Smith) that the provision "claims under PAGA . . . are not arbitrable under this Agreement" is not ambiguous. "It is not objectively reasonable to interpret the phrase 'claims under PAGA' to include some PAGA claims while excluding others. Thus, the carve-out provision excludes all the PAGA claims from the agreement to arbitrate."
While the law in this area remains somewhat in flux, it appears that the rule is that an individual plaintiff's claim may be arbitrated, and under California law, as interpreted by California's courts, the PAGA plaintiff still has standing to pursue representative claims affecting other individuals in court. The standing issue is before the California Supreme Court.
File This Under "More Ways Than One To Skin A Cat."
Woman wearing a blue robe with Buzzer the cat. Photographer: Arnold Genthe. Library of Congress.
Alberto v. Cambrian Homecare, B14192 (2/4 filed 4/19/23, cert for pub. 5/10/23) (Daum, Collins, Currey), affirms the trial court's order finding an arbitration clause unconscionable.
Here's the wrinkle. Ordinarily, a contract and an arbitration provision are separately construed, and the court must decide whether the arbitration provision is unconscionable. Here, there was a confidentiality agreement, and a separate agreement to arbitrate. Or were they separate? Neither agreement incorporated by reference the other agreement.
But as we said above, there's more than one way to skin a cat. Here, the court construed the two agreements together, applying Civil Code §1642. That section provides: "Several contracts relating to the same matters, between the same parties, and made as parts of substantially one transaction, are to be taken together."
The confidentiality agreement allowed the employer to obtain immediate injunctive relief for a breach of confidentiality and apparently was not symmetrical. The discussion of wages among employees was prohibited. In contravention of PAGA, the arbitration agreement created a blanket prohibition of representative actions, absent mutual consent. The agreements, construed together, infected one another.
We Examine Whether California Cases Are Following Justice Alito's or Justice Sotomayor's Opinion About Standing To Bring PAGA Representative Claims.
The Daily Journal published a special issue on April 26, 2023, entitled "The Resolution Issue." My article entitled PAGA Arbitration: California Courts in the wake of Viking Cruises, is at p. 20 of the issue. It has been republished on the website of ARC (Alternative Resolution Centers).
The Viking Cruises opinion required that the plaintiff employee's individual PAGA claim against the cruise line be arbitrated. However, Justice Alito, in the majority opinion, took the position in what is arguably dictum that once individual PAGA claims are referred to arbitration, the plaintiff lacks standing to litigate PAGA representative claims in court. Justice Sotomayor concurred with the majority, but explained that the standing issue was one of state law and California courts might decide that after individual claims are sent to arbitration, the plaintiff still had standing to bring representative PAGA claims in court. California appellate courts have now addressed these issues, and the question of standing to bring representative PAGA claims is pending before the California Supreme Court.
One more California Court of Appeal follows the US Supreme Court in Viking Cruises v. Moriana, holding that arbitration of individual PAGA claims can be arbitrated. But the court also concludes that the employee "has standing to litigate nonindividual PAGA claims in the superior court notwithstanding his agreement to arbitrate individual PAGA claims." Nickson v. Shemran, Inc., No. D080914 (4/1 4/7/23) (Dato, Huffman, Buchanan).
Justice Dato explains in footnote 11: "As Justice Sotomayor made clear, the Supreme Court was opining on what it conceded could be a mistaken view of California law. (Viking River, at p. 1925 (conc. opn. of Sotomayor, J.) [“[I]f this Court’s understanding of state law is wrong, California courts, in an appropriate case, will have the last word.”]." Justice Dato relies on the California Supreme Court's opinion in Kimv. Reins, 9 Cal.5th 73 (2020): "As Kim explained, 'the Legislature did not intend to link PAGA standing to the maintenance of individual claims when such claims have been alleged' and '[t]his expansive approach to standing serves the state’s interest in vigorous enforcement.'”
COMMENT: Nickson joins other California decisions concluding that arbitration of individual PAGA claims can be compelled, but that the plaintiff has standing to pursue representative claims in court. See 3/30/23 post for references to other cases. But note that the Nickson also states: "We leave management of the superior court litigation during the pendency of arbitration to the trial court’s sound discretion." If trial courts stay litigation pending the outcome of arbitration, it remains to be seen how much this will dilute the strength of PAGA.
Court Follows Opening Provided By Justice Sonia Sotomayor's Concurrence In Viking Cruises v. Moriana.
Following the Supreme Court opinion in Viking Cruises v. Moriani, there could be no disagreement that employee Million Seifu's individual PAGA claim against Lyft for personal Labor Code violations he suffered could be arbitrated. But that left the hot issue to be decided: whether he had standing, after his individual claim had been directed to arbitration, to bring a representative claim for other employees.
In Milton Seifu v. Lyft, Inc., B301774 (2/4 3/30/23) (Collins, Currey, Stone), the court explained that Seifu did have standing: "We conclude that we are not bound by the analysis of PAGA standing set forth in Viking River. As Justice Sotomayor recognized in her concurring opinion, PAGA standing is a matter of state law that must be decided by California courts. Until we have guidance from the California Supreme Court, our review of PAGA and relevant state decisional authority leads us to conclude that a plaintiff is not stripped of standing to pursue non-individual PAGA claims simply because his or her individual PAGA claim is compelled to arbitration." The court remanded to the trial court to decide whether the representative claims should be stayed pending arbitration of the individual.
The court relied on the California Supreme Court case Kim v. Reins International, 9 Cal.5th 13 (2020) to reach its conclusion that Seifu had standing under California law. The law is remedial and given a liberal interpretation to effect the Legislature's purpose of enforcing California's labor laws. We have blogged about other California cases that reached the same conclusion about standing: Tricia Galarasa v. Dolgen California, LLC, post dated 3/8/23, and Tom Piplack v. In-N-Out Burgers, post dated 3/20/23. We're eager to see how this turns out when the California Supreme Court decides Adolph v. Uber Technologies.
Clinton & Charles Robertson from Del Rio, Texas & San Marcos. Wikipedia. Between Scylla and Charybdis. Wikipedia.
Between Horns Of A Dilemma And Between Scylla And Charybdis.
In a PAGA case, the Court of Appeal, employing mixed salad metaphors, explains that it is between the horns of a dilemma and between Scylla and Charybdis.Tom Piplack v. In-N-Out Burgers, G061098 (4/3 3/7/23) (Sanchez, Bedsworth, Delaney). This is a PAGA case in which the Court of Appeal held that plaintiff Piplack's individual PAGA claims could be arbitrated and plaintiff Sherrod's individual PAGA claims had to be sent back to the trial court for consideration of Sherrod's argument that Sherrod had been underage when he agreed to arbitrate. However, the Court of Appeal held that the plaintiffs' representative claims could be litigated.
Returning to horns, dilemmas, Scylla and Charybdis, quandaries, plights, puzzles, and predicaments, Justice Sanchez explains that the court must follow SCOTUS's ruling in Viking River Cruises, Inc. v. Moriana, ___ U.S. ___ [142 S.Ct. 1906] (2022) (Viking), holding that Iskanian's ruling that PAGA claims could not be forced into arbitration was preempted by the Federal Arbitration Act. But Viking only requires this result as to individual PAGA claims. Viking did not preempt the portion of Iskanian prohibiting waiver of the right to pursue representative PAGA actions. Yet Viking apparently concluded that if the individual PAGA claim was arbitrated, then no one was left with standing under California law to bring the representative claim, even if the right to litigate the representative claim was not preempted.
Standing to bring the representative claim is an issue of state law that Justice Sanchez explains was decided in Kim v. Reins International California, Inc., 9 Cal.5th 73 (Kim) (2020). Because Kim is a recent case decided by the California Supreme Court, and because SCOTUS does not decide state law, Justice Sanchez resolved the court's dilemma by following Kim on the issue of state law standing. Kim has only two requirements for a plaintiff to have standing to bring a representative action: “The plain language of [Labor Code] section 2699(c) has only two requirements for PAGA standing. The plaintiff must be an aggrieved employee, that is, someone ‘who was employed by the alleged violator’ and ‘against whom one or more of the alleged violations was committed.’” (quoting Kim).
In short, the court followed "Viking on FAA preemption and Kim on PAGA standing."
Tricia Galarsa v. Dolgen California, LLC, F082040A (5th Dist. 2/24/23) (Franson, Pena, Snauffer), is an addition to the growing cottage industry of cases seeking to make sense of Viking River Cruises, Inc. v. Moriana, 596 U.S. ___ [142 S.Ct. 1906] (2022) (Viking River). The case reverses a trial court order rejecting arbitration of individual PAGA claims and affirms insofar as it also rejected arbitration of representative PAGA claims.
The logic of Viking River is something like this: California case law rejected the splitting of PAGA claims into individual and representative claims. California law allowed representative claims to be litigated. The Federal Arbitration Act (FAA) and Supreme Court cases require individual PAGA claims subject to arbitration to be arbitrated. If representative claims cannot be arbitrated, individual claims must be arbitrated, and individual and representative claims can't be split, then the individual claims get to be arbitrated and severed from the representative claims, which must be dismissed, because no "aggrieved" individual will then have standing for the representative claims in litigation.
Galarsa develops a typology of PAGA claims. Type A claims are those seeking a civil penalty for violation of the Labor Code suffered by the plaintiff and covered by an arbitration agreement subject to the FAA. Type O claims are for those harms suffered by an employee other than plaintiff. Type A and Type O both apply to claims for which, before the enactment of PAGA, the civil penalties sought could only be enforced by the state's labor enforcement agencies. Type A and O claims exclude restitution of wages, and include only claims subject to civil penalties and the 75-25 % split of the penalties between the State and the plaintiff.
Galarsa concludes that under Viking River, waiver of litigation of the representative claims was invalid. Galarsa explains the federal court's interpretation of state law does not bind the state court, and in particular, Galarsa concludes that Type A and Type O claims can be split. If the waiver of litigation of Type O claims is invalid even under Viking River, and Type A and Type O claims can be split, then Type A claims can be sent to arbitration, the invalid waiver of the right to litigate Type O claims can be severed, and Type O claims will not get sent to arbitration.
COMMENT: The creative argument in Galarsa is its prediction that the California Supreme Court would rule that Type A and Type O claims can be split. The argument is splitting of Type A and Type O claims is necessary to carry out effective enforcement of labor laws, by protecting Type O claims, and Type A and Type O claims do not involve the same primary right, with harms to the plaintiff and harms to others being different injuries. However logical this argument may be, it would seem to put Galarsa at odds with other California appellate cases insisting that PAGA claims cannot be split. A creative argument that has not yet been considered has not yet been decided.
The Rocha brothers, Thomas and Jimmy, sued their former employer U-Haul Co. of California, and their manager Sandusky, alleging Sandusky had harassed them at work. The matter was arbitrated and the brothers lost their claim against U-Haul. However, before the matter went to arbitration, the trial judge denied the brothers' effort to amend their claims to add PAGA claims against U-Haul and to add wage and hour and PAGA claims against Sandusky. The brothers appealed confirmation of the arbitrator's award in favor of U-Haul, arguing that the arbitration agreement was unconscionable, and that they should have been allowed to amend their complaint. Thomas Rocha et al. v. U-Haul Co. of California, et al., B322599 (2/1 2/2/23) (Rothschild, Bendix, Benke) (partially published).
After a discussion of unconscionability (unpublished), and concluding that the agreement was not unconscionable, the court moved on to the trial judge's refusal to allow amendment of the complaint. Split decision on appeal: the court's refusal to amend and add a PAGA claim against U-Haul was affirmed, because the arbitrator had found no labor violations by U-Haul, and that precluded a PAGA claim against the employer by virtue of issue preclusion. But the Court of Appeal saw no reason to deny the brothers' request to add wage claims against Sandusky for work the brothers allegedly did for Sandusky personally outside their work for U-Haul, and thus no reason to deny the request to add a PAGA claim against Sandusky personally. So that part of the order denying the request to amend was reversed.
Court Holds That Viking River Cruises Requires Enforcement Of Pre-Dispute Arbitration Agreement.
Judge Harutunian explains that the trial court "understandably" denied the employer's motion to compel arbitration based on a rule in California that "predispute agreements to arbitrate PAGA claims are unenforceable." He concludes: "We hold that this rule cannot survive the U.S. Supreme Court’s recent decision in Viking River Cruises, Inc. v. Moriana (2022) ___U.S.___ [142 S.Ct. 1906] (Viking River)." Sylvester Lewis v. Simplified Labor Staffing, B312871 (2/8 12/5/22) (Harutunian, Stratton, Grimes).
However, because the AAA rules delegate the issue to the arbitrator, the arbitrator, rather than the court, must decide the scope of the arbitration agreement, specifically, whether non-individual PAGA claims are arbitrable in the same way that individual PAGA claims are arbitrable.
COMMENT: The opinion rejects what Judge Harutunian describes as the "State-must-consent" rule. Cases that held pre-dispute agreements to arbitrate PAGA claims were unenforceable reasoned that the PAGA dispute was between the employer and the state, and thus the employee could not agree to arbitrate until a dispute arose and the employee was "delegated" by the state to pursue the PAGA claim on behalf of the state. But Viking River allows the employer and employee to enter into a pre-dispute arbitration agreement to arbitrate the employee's PAGA claim. So Viking River destroys the reasoning behind the "State-must-consent" rule, though it does not explicitly name such a rule. In any case, Judge Harutunian concludes that the rule is preempted by the FAA, because state law that withdraws the power to enforce an arbitration agreement is preempted.
Court Of Appeals Affirms Denial Of Motion To Compel Arbitration.
It's alive, it's alive !
We harbor the suspicion that Navas v. Fresh Venture Foods, LLC, B31288A (2/6 11/21/22) (Gilbert, Yegan, Perren), was published so that the Court of Appeal could tell us that while Viking River Cruises v. Moriana overrules Iskanian, to the extent that Iskanian does not allow PAGA claims to be split between individual and representantive claims, "Nevertheless, Iskanian still survives."
Navas, Lopez, and Ramos sued their employer FVF for various wage and hour violations, including a PAGA claim. The trial court denied FVF's motion to compel arbitration. It held that the employer had not proved that Lopez and Ramos had signed the agreement. As to Navas, the court ruled his agreement was unconscionable. The employer appealed.,
The Court of Appeal agreed that there was a lack of sufficient evidence to establish that Lopez and Ramos signed the employment agreement. The Court also agreed that Navas' agreement was unconscionable.
The comments about PAGA are most interesting. The Court explains that in Viking River Cruises, "the United States Supreme Court held '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.'" In Viking, the trial court refused to allow arbitration of the individual claim because it could not be split from the representative claim. Under Viking, the employer and employee can agree to arbitrate an individual PAGA claim.
In Navas, however, the Court of Appeal concludes that though an individual PAGA claim can be arbitrated by agreement, here, the employer failed to observe standards required for a purported waiver of a PAGA claim by the employee. The employer failed to explain the employee waiver to a Spanish-speaking employee and to obtain the employee's consent to waiver of the right to bring a PAGA claim in court. So here the employee will be able to bring individual and representative PAGA claims in court.
COMMENT: The trial court also stayed the arbitration pending litigation, relying on CCP §1281.2. There is no provision in the Federal Arbitration Act like 1281.2, so defendant argued that the stay was preempted by the FAA, which required the arbitration to go forward. However, the Court of Appeal explains that while the agreement incorporated FAA law, it also incorporated California civil procedure, and California procedure had not been preempted by a reference to FAA law.
