On Wednesday, SCOTUS granted cert. in Viking River Cruises v. Moriana, Dkt. 20-1573, which addresses a potential conflict between the parties’ right to contract for limits on arbitration and state law.  Today “Highlights” looks at the case.

Any discussion of Viking River begins with the Supreme Court’s holding in AT&T Mobility LLC v. Concepcion, 563 U.S. 333 (2011).  In that case, the Court reversed the Ninth Circuit, which had held that, under California law, a contractual provision waiving the right to bring a class arbitration was unconscionable, see Laster v. AT&T Mobility LLC, 584 F. 3d 849 (9^th Cir. 2009).  Writing for a 5-4 majority, Justice Scalia opined that “the ‘principal purpose’ of the FAA is to ‘ensur[e] that private arbitration agreements are enforced according to their terms.’” (Quoted citation omitted; bracket in original).  Freedom for the parties to shape their arbitration, he wrote, “allow[s] for efficient, streamlined procedures tailored to the type of dispute.”  Allowing a state’s unconscionability doctrine to switch the proceeding from a bilateral to a class arbitration, contrary to the parties’ contract, would, the Court held, complicate the proceeding in violation of the FAA’s goal of efficient and speedier dispute resolution. Accordingly, a blanket waiver of class arbitration does not fall within the defenses to arbitration allowed under Section 2 of the FAA, which provides that an arbitration provision may be rejected “on such grounds as exist at law or in equity for the revocation of any contract.”  Concepcion was followed by Epic Systems Corp. v. Lewis, 138 S. Ct. 1612 (2018), which held, in a 6-3 split, that the National Labor Relations Act does not override the FAA; that an employment agreement barring class or collective actions is enforceable; and that such waivers are not unconscionable, even in the employment context.

That background brings us to the current case. The California Labor Code includes a Private Attorneys General Act (“PAGA”) provision, which authorizes an employee to assert claims for statutory penalties on behalf of himself and similarly situated employees, arising from violations of California’s wage-and-hour laws.  A portion of the recovery goes to the state and a portion to the employees impacted by the violation.  In Ishkanian v. CLS Transportation Los Angeles, LLC, 59 Cal. 4^th 348 (2014), the California Supreme Court held that a waiver of the employees’ right to bring a PAGA claim was unenforceable, despite the provisions of the FAA and the holding in Concepcion.   According to Ishkanian, “Simply put, a PAGA claim lies outside the FAA’s coverage because it is not a dispute between and employer and employee arising out of their contractual relationship.  It is a dispute between an employer and the state, which alleges directly through its agents – either the [Labor and Workforce Development] Agency or aggrieved employees – that the employer has violated the Labor Code. . . .” 59 Cal. 4^th at 386 (Emphasis in original).  The court continues, “We conclude that California’s public policy prohibiting waiver of PAGA claims, whose sole purpose is to vindicate the Agency’s interest in enforcing the Labor Code, does not interfere with the FAA’s goal of promoting arbitration as a forum for private dispute resolution.” 59 Cal. 4^th at 388-89 (Emphasis added).  The Court of Appeal of California, the intermediate court to which SCOTUS directs its certiorari, relied upon Ishkanian in refusing to dismiss Moriana’s PAGA claims in light of an employment agreement which required the employee to waive such claims and to arbitrate all disputes on an individual basis, Moriana v. Viking River Cruises, Inc., 202 Cal. Appl. Unpub. LEXIS 6045 (Cal. Court of Appeal, September 18, 2020). In doing so, the court rejected Viking’s claim that Ishkanian was inconsistent with Epic and should no longer be considered binding authority.

In a move which can most charitably be characterized as cautious, the California Supreme Court refused to consider the important question of the continued viability of one of its important decisions, leaving standing on a statewide issue the holding of a court covering a single Appellate District,  see Moriana v. Viking River Cruises, Inc., 2020 Cal. LEXIS 8525 (Cal. December 9, 2020).  The Supreme Court’s order of certiorari is directed to that Court of Appeals.

As presented by Viking, the issue before the Supreme Court is whether an employee’s agreement to arbitrate all employment claims on an individual basis, coupled with the FAA’s mandate to enforce arbitration agreements as the parties draft them, overrides PAGA’s prohibition of waivers of the right to bring actions thereunder. Viking’s petition for cert. lays out its position in simple terms. “This Court [SCOTUS] has emphasized the latter point – i.e., that the FAA preempts state-law rules that interfere with the parties’ ability to choose the efficiency and of bilateral arbitration – in two recent cases,” Petition for Writ of Certiorari, p. 6 (Emphasis in original). It,  then, discusses Concepcion and Epic.

As she did below, Moriana relies upon both Ishkanian and a Ninth Circuit decision, Sakkab v. Luxottica Retail North America, Inc., 803 F. 3d 429 (9^th Cir. 2015), for the proposition that PAGA “does not prohibit arbitration of specific types of claims or otherwise disfavor arbitration,” Brief in Opposition, p. 1.   “Although some intermediate California courts have suggested that PAGA claims may be nonarbitrable, the California Supreme Court has never decided that question.” Ibid, p. 2.  Further, she tries to avoid any conflict between PAGA and the FAA completely by falling back on the interpretation of her specific agreement, characterizing it as merely carving PAGA claims out of the arbitration provisions and, thereby, leaving PAGA issues open for litigation.  To the extent that the Supreme Court must face the conflict issue, however, Moriana falls back on Ishkanian’s holding that employees bringing PAGA claims are acting as arms of the state, not in their individual capacity. Implicit in this position is the argument that, since the right to bring a PAGA claim does not belong to the employees themselves, they are powerless to waive it.

It seems that at least once a week U.S. District Courts in California publish an opinion on the Ishkanian/PAGA issue.  In fact, there are currently at least four cases addressing the issue with still-pending applications for certiorari – Lyft, Inc. v. Seifu, Dkt. 21-742; Uber Technologies, Inc. v. Gregg, Dkt. 21-453; Postmates, LLC. v. Santana, Dkt. 21-420; Postmates, LLC v. Rimler, Dkt. 21-119.  To California practitioners, therefore, resolution of this issue one way or the other will probably be a great relief – although a decision will certainly be a bigger relief to one side or the other of the employment law bar.  But, the case has far broader policy implications.  States assert regulatory authority far beyond employment law into other areas where individual agreements may require arbitration.  Among those that immediately come to mind are laws governing registration and disclosures in franchise relationships, as to which the franchisor and franchisee later enter into individual agreements, and the truth-in-lending disclosures required in consumer transactions, which are papered in subsequent loans and promissory notes.  Such transactions often include contracts with broad arbitration provisions covering all disputes between the parties.  Might a decision in favor of the employee in Viking River Cruises impel state legislatures into adopting Private Attorney General Acts governing such other relationships?  The case is well-worth watching far beyond the employment bar.

The petitions for certiorari and the oppositions thereto in Viking and other PAGA cases petitions pending before the Court are available on Scotusblog.com, and the parties’ and amicis’ merits briefs will be available there, as well.  That great site will once again prove its worth.

Have a good weekend.  For those celebrating Christmas, this is your last trip to the mall.  Enjoy the crowds – and be safe.

David A. Reif, FCIArb
Reif ADR
Dreif@reifadr.com
Reifadr.com