California Mediation and Arbitration

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.

Arbitration, Qui Tam: Second District, Div. 6 Holds Qui Tam Action Is Not Subject To Arbitration

The Qui Tam Action Is Brought On Behalf Of The State Which Is Not A Party To The Arbitration Agreement.

        State of California ex rel. Aetna Health of California, Inc. et al., v. Pain Management Specialist Medical Group et al., B299025 (2/6  12/21/20) (Gilbert, Perren, Tangeman) involves a qui tam action brought under the Insurance Fraud Protection Act. An insurance company, Aetna, sued a surgical center, on behalf of the state, for insurance fraud. The provider, Pain Management, unsuccessfully petitioned to compel arbitration, and the Court of Appeal affirmed the denial of the petition. 

        "Here we decide," writes Justice Gilbert, "the qui tam action is not subject to arbitration because it is brought on behalf of the state which is not a party to the contract between the insurance company and the surgical center." The qui tam action belongs to the state, which is a nonsignatory, and which has not agreed to arbitrate.

        The court's explanation is the same as that  in Iskanian v. CLS Transportation Los Angeles, LLC, 59 Cal.4th 348 (2014), which in the context of the California Private Attorney General Act, "concluded that a private attorney general claim is not a dispute between an employee and an employer, but is a dispute between the employer and the State."

        I have written an article entitled "Qui tam actions can avoid arbitration in California" that appears in today's (December 24, 2020) Daily Journal. Because the Daily Journal is behind a paywall, I have not provided a link.