Posts belonging to Category PAGA

On Monday, June 1, 2015, the U.S. Supreme Court denied the defendant’s petition for a writ of certiorari in Brown, et al. v. Bridgestone Retail Operations, LLC, a wage-and-hour class action involving the enforceability of waivers of Private Attorneys General Act of 2004 (PAGA) claims—the same issues litigated in Iskanian v. CLS Transportation Los Angeles, 59 Cal. 4th 348 (2014). See Brown, 331 P.3d 1274 (Aug. 27, 2014) (cert. denied by Bridgestone Retail Operations, LLC v. Brown, et al., 2015 U.S. LEXIS 3644 (U.S. June 1, 2015)) (Mr. Brown is represented by Capstone Law APC). In Iskanian, the California Supreme Court held that an arbitration agreement purporting to waive the employee’s right to bring representative claims under PAGA is invalid under California law, and that California’s rule against PAGA enforcement action waivers is not preempted by the Federal Arbitration Act (FAA). In January 2015, the Supreme Court of the United States denied CLS’s petition for writ of certiorari.

Initially, in June 2013, the California Court of Appeal upheld a class action waiver in Brown, finding that the employers’ delay in compelling arbitration had not resulted in a waiver of their right to arbitrate, but found the representative action waiver unenforceable as a violation of public policy. Brown, 216 Cal. App. 4th 1302. The court directed the trial court to vacate its order and enter a new order granting the motion to compel arbitration with respect to all except the PAGA claim, and stay the action pending the arbitration. Id. The California Supreme Court then granted the plaintiffs’ petition for review in September 2013, putting on hold further action in Brown pending Iskanian. 307 P.3d 877. Following Iskanian, the California Supreme Court transferred Bridgestone back to the Court of Appeal with directions to vacate the latter’s prior decision and reconsider the cause in light of the Supreme Court’s holding in Iskanian. The Court of Appeal then issued a writ of mandate directing the superior court to vacate its order granting defendant’s motion to compel arbitration and for a stay.

By denying certiorari in Bridgestone, the U.S. Supreme Court leaves intact the California high court’s Iskanian decision requiring that representative actions brought under the PAGA proceed on a representative basis in some forum, whether it be court or in arbitration.

Authored by: 
Mao Shiokura, Associate
CAPSTONE LAW APC

On February 3, 2015, Judge Edward Chen of California’s Northern District issued an order in Hernandez v. DMSI Staffing LLC, No. C-14-1531 EMC (N.D. Cal Feb. 3, 2015) (slip op. available here), denying DMSI’s motion to compel arbitration to the extent it sought to enforce a waiver of the plaintiff’s representative claims under California’s Private Attorneys General Act (PAGA), following the reasoning of the California Supreme Court in its landmark ruling in Iskanian v. CLS Transportation. In Iskanian, the California Supreme Court held that an arbitration agreement precluding representative claims under PAGA is invalid as a matter of California public policy, and moreover that California’s rule against forced waivers of PAGA enforcement actions is not preempted by the Federal Arbitration Act (FAA). The Court emphasized that PAGA disputes—like qui tam actions—are between the state and the employer, and not between two contracting private parties.

Judge Chen’s recent ruling in Hernandez follows Iskanian’s reasoning, analogizing PAGA actions to qui tam actions, insofar as under PAGA a private citizen files suit in court to enforce the California Labor Code on behalf of the government. In Hernandez, the plaintiff sought civil penalties under PAGA for violations of the Labor Code, including: failure to pay minimum wage, failure to pay wages for all hours worked, failure to pay overtime, failure to pay wages timely upon termination, and failure to provide accurate and compliant wage statements. Defendants DMSI and Ross Stores sought to compel arbitration of the plaintiff’s individual claims, and to have the district court dismiss the plaintiff’s representative claims under PAGA. The court rejected the defendants’ arguments in support of enforcing the PAGA waiver, focusing on the enforceability of PAGA waivers under state law and on whether the state non-waiver rule is preempted by the FAA.

First, Judge Chen examined the issue of enforceability of PAGA waivers under state law. The court likened PAGA representative actions to qui tam actions, since they are both fundamentally law enforcement actions in which the real party in interest is the government, but where a private citizen plaintiff is authorized to bring the suit. The opinion went on to state that FAA preemption of the ban on PAGA waivers would not only “hinder the state’s ability to enforce its laws through qui tam actions” but would also “disable one of the primary mechanisms for enforcing the Labor Code.” (slip op. at 15, quoting Iskanian, 59 Cal. 4th 348 at 384.) Judge Chen expressed concern that compelling arbitration of a PAGA claim could “entirely waiv[e] a state agency’s statutory remedy,” since a PAGA action is invariably a “representative” action, and would thus be entirely extinguished by enforcing a “representative action” waiver. (Slip op. at 15.)

Second, Judge Chen analyzed whether the state law non-waiver rule is preempted by the FAA. The court noted that whether the FAA preempts the California rule announced in Iskanian is an issue of federal law, as to which the federal district courts are not bound by Iskanian. (Id. at 9.) Nonetheless, the court found Iskanian persuasive. The court further reasoned that the United States Supreme Court’s decision in AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740 (2011), only bars state rules that “interfere with fundamental attributes of arbitration,” such as efficiency, informality, and expeditiousness, and “[t]he Iskanian rule against waiver of PAGA claims does not threaten to undermine the fundamental attributes of arbitration” because PAGA actions need not adhere to the time-intensive formalities of a Rule 23 class action, such as class certification and notice to absent plaintiffs. (Slip op. at 10-11, discussing Baumann v. Chase lnv. Servs. Corp., 747 F.3d 1117 (9th Cir. 2014).)

The court also rejected the defendant’s reliance on Ferguson v. Corinthian Colleges, Inc., 733 F.3d 928 (9th Cir. 2013), which held that the FAA preempts the Broughton-Cruz rule. In Broughton-Cruz, a plaintiff seeking broad injunctive relief under various consumer statutes could not be compelled to arbitrate those claims; in Ferguson, the court determined that a state law that precludes arbitration of a particular type of claim must be preempted by the FAA. Judge Chen distinguished PAGA actions from the consumer claims addressed in Broughton-Cruz and Ferguson, reiterating the qui tam nature of PAGA actions—a PAGA action is not a dispute between two private parties, but brought on behalf of the state, which retains the majority of the penalties collected. On this point, the Hernandez court flatly disagreed with the several federal district courts that have refused to follow Iskanian, holding that these courts are simply incorrect because they fail to distinguish between the public law enforcement aspect of PAGA and the private enforcement actions for injunctive relief at issue in Ferguson.

Finally, and perhaps most importantly, the Hernandez court noted that principles of federalism support the court’s conclusion of no preemption, reasoning that labor law enforcement traditionally falls within a state’s police powers, and state sovereignty depends on a state’s authority over its law enforcement. Thus, “state laws dealing with matters traditionally within a state’s police powers are not to be preempted unless Congress’s intent to do so is clear and manifest.” (Slip op. at 14, citing Californians For Safe & Competitive Dump Truck Transp. v. Mendonca, 152 F.3d 1184, 1186 (9th Cir. 1998).)

In any event, given the firm rejection of the federal district courts that have refused to follow Iskanian, an eventual showdown in the Ninth Circuit Court of Appeals seems likely.

On Tuesday, January 20, 2015, the United States Supreme Court declined certiorari review of Iskanian v. CLS Transportation Los Angeles, LLC, No. 14-341. In June 2014, the California Supreme Court ruled that class action waivers in arbitration agreements are generally enforceable in light of Concepcion, but that waivers of representative claims brought under PAGA are not enforceable—holding that an employee’s right to bring a PAGA representative action is unwaivable and that the state law rule is not preempted by the FAA. Iskanian v. CLS Transportation Los Angeles, LLC, 59 Cal.4th 348 (June 23, 2014). By denying cert., the Supreme Court leaves intact the California high court’s ruling requiring that representative actions brought under the PAGA proceed on a representative basis in some forum, whether it be court or in arbitration.

On December 15, 2014, the U.S. Supreme Court denied Chase Investment Services Corp.’s petition for certiorari to review a precedent-setting decision in March by the Ninth Circuit in Baumann v. Chase Investment Services Corp., where the court had held the company could not remove the plaintiff’s wage-and-hour claims for PAGA penalties to federal court either under CAFA or traditional diversity jurisdiction. No. 12-55644 (9th Cir. March 13, 2014) (Mr. Baumann is represented by Capstone Law APC). Previously, a Ninth Circuit panel had denied Chase’s request to have the full court rehear the decision in the case. The decision by the Ninth Circuit in March reversed a California district court’s ruling that the aggrieved employees’ claims to civil penalties could be aggregated to satisfy the amount in controversy requirement for diversity jurisdiction.

Meanwhile, on the same day, the U.S. Supreme Court ruled that a class action defendant is not required to provide evidence to support its effort to remove its case. Dart Cherokee Basin Operating Co. LLC v. Owens, Case No. 13-719, 574 U.S. __ (2014) (slip op. available here). The plaintiff, royalty owner Brandon Owens, originally filed suit in Kansas state court. The majority concluded that the Tenth Circuit Court of Appeals had abused its discretion in refusing to review the lower court’s erroneous decision that the defendant, an energy company, had provided insufficient evidence to support its removal bid in a multi-million dollar class action over oil and gas royalties to federal court and further, could not cure the defect by submitting evidence post-removal. A defendant only needs to include a “plausible allegation” that the amount in controversy meets the jurisdictional threshold in a notice of removal, not evidentiary proof. Slip op. at 7.

The Court previously granted the defendant’s petition for writ of certiorari. Dart argued that the Tenth Circuit’s ruling split with other circuit courts which had held that the notice of removal need only satisfy a notice-pleading standard requiring a “short and plain statement of the grounds for removal.” 28 U.S.C. § 1446(a). Justice Ruth Bader Ginsburg wrote for the 5-4 majority, “[the Tenth Circuit’s denial of Dart’s request for review] froze the governing rule in the circuit for this case and future [CAFA] removal notices, with no opportunity for defendants in Dart’s position responsibly to resist making the evidentiary submission” and that the denial created a “bizarre” situation. Slip op. at 12-13. Justices John Roberts, Stephen Breyer, Samuel Alito, and Sonia Sotomayor also joined the majority, holding that a removal notice need only plausibly allege, not detail proof of, the amount in controversy.

Writing for the dissenters, Justice Antonin Scalia, joined by Justices Anthony Kennedy and Elena Kagan, said that the review was “improvidently granted” and the case should not have been taken up at all. Slip op., Scalia dissenting op. at 2. Since the Tenth Circuit gave no reason for its refusal to review the district court ruling, there was no evidence that the appeals court had abused its discretion. “Not long ago we held . . . that an appellate court should not presume that a district court intended an incorrect legal result when the order is equally susceptible of a correct reading . . . .” Slip op., Scalia dissenting op. at 2-3 (citing Sprint/United Management Co. v. Mendelsohn, 52 U.S. 379, 386 (2008)). Justice Clarence Thomas concurred with the dissent as to all but the last sentence—he opined that the high court did not even have jurisdiction to even review the Court of Appeals’ denial of permission to appeal.