Alternate Dispute Resolution Update

• Publication year: 2022
• Author: Written by Paul Dubow

ALTERNATE DISPUTE RESOLUTION UPDATE

Written by Paul Dubow^*

2022 might be dubbed the Arbitration Year of the Supreme Court. The United States Supreme Court issued five arbitration related decisions this year, the highest in over a decade.¹ Conversely, the California Supreme Court, for the second consecutive year, did not issue an ADR related decision. The Ninth Circuit issued eighteen ADR related decisions and the Court of Appeal issued 50 decisions. None of the decisions decided by the three courts involved mediation. The total of 73 decisions exceeded the record 64 issued in 2021. A discussion of the five Supreme Court decisions and some significant intermediate appellate court decisions follows.

THE PRIVATE ATTORNEYS GENERAL ACT

Viking River Cruises, Inc. v. Moriana² is the United States Supreme Court decision that most directly affected California jurisprudence. Viking argued that the holding in Iskanian v. CLS Transportation Los Angeles LLC,³ which barred arbitration of individual and representative actions alleging violation of the Private Attorney Generals Act⁴ was preempted by the Federal Arbitration Act.⁵ In Viking, Moriana filed an individual PAGA claim against Viking, her former employer, alleging a violation of the Labor Code and a representative PAGA claim on behalf of her fellow employees. Because she had signed an arbitration agreement with a class action waiver, Viking moved to dismiss the representative claim and compel arbitration of the individual claim. The trial court denied both motions and the Court of Appeal affirmed in an unpublished opinion, a result dictated by Iskanian. The California Supreme Court declined review, but the United States Supreme Court granted Viking's writ of certiorari.

The court ruled that the FAA preempted Iskanian, but only to the extent that it barred the arbitration of Moriana's individual claims. That was so because Iskanian allowed Moriana to abrogate an otherwise valid and enforceable arbitration agreement after the fact by the simple expedient of adding a representative PAGA claim to her complaint But the court, noting that it had previously held that "arbitration is poorly suited to the higher stakes of massive scale disputes,"⁶ affirmed the California Supreme Court's holding that the class action waiver in

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Moriana's agreement was invalid, because it resulted in a wholesale waiver of PAGA claims. Thus, the representative claim remained non-arbitrable Although the court found that class action waivers did not bar an employee from pursuing a representative PAGA claim, it ruled that Moriana could not be one of those employees. It stated that PAGA "provides no mechanism to enable a court to adjudicate nonindividual PAGA claims once an individual claim has been committed to a separate proceeding. Under PAGA's standing requirement, a plaintiff can maintain non-individual PAGA claims in an action only by virtue of also maintaining an individual claim in that action. . . . When an employee's own dispute is pared away from a PAGA action, the employee is no different from a member of the general public, and PAGA does not allow such persons to maintain suit."⁷ Consequently, Moriana lacked statutory standing to maintain her non-individual claims in court, and her remaining claims were dismissed.

The court cited Kim v. Reins International California, Inc.,⁸ when it held that California did not provide a "mechanism" to adjudicate non-individual claims once an individual proceeding was committed to a separate proceeding. But Kim provides such a "mechanism." In Kim, the plaintiff filed a PAGA lawsuit asserting individual and representative claims and then accepted a statutory offer to settle the individual claim. When he attempted to pursue the representative claim, the trial court granted the employer's motion for summary adjudication, holding that Kim was no longer an "aggrieved employee." The Court of Appeal affirmed.⁹ The California Supreme Court reversed. It held that an "aggrieved employee" is someone "who was employed by the alleged violator" and "against whom one or more of the alleged violations was committed," and that the plaintiff satisfied these requirements.¹⁰

Federal courts, including the United States Supreme Court, are bound by a state court's interpretation of state law that does not conflict with federal jurisprudence. If the holding in Kim is an interpretation of state law that does not conflict with federal jurisprudence, then it will be up to California courts to determine whether an employee can pursue a representative claim after the individual claim is referred to arbitration or otherwise resolved.¹¹

The Courts of Appeal have issued five decisions involving PAGA following the publication of Viking, but none of them directly addressed the question of whether reference of the individual claim to arbitration (or any type of resolution of the individual claim) barred the employee from pursuing a representative claim. In Howitson v. Evans Hotels LLC¹² and Gavriiloglou v. Prime Healthcare Management, Inc.,¹³ the courts did hold that an arbitrator's ruling in an individual claim did not bar the employee from pursuing the representative claim, but the decisions were based on the doctrine of claim preclusion because the state was the real party in interest in the representative claim.¹⁴ In Mills v. Facility Solutions Group, Inc.,¹⁵ the court concluded it did not need to decide whether plaintiff would have had standing to pursue his representative PAGA claim in the trial court had his individual PAGA claim been ordered to arbitration because the only question before it was whether the arbitration agreement's waiver of the representative PAGA claim was valid. The court in Navas v. Fresh Venture Foods, LLC,¹⁶ discussed Viking but did not reach the issue of the employee's ability to file a representative claim because it found the arbitration agreement to be unconscionable. And in Lewis v. Simplified Labor Solutions, Inc.,¹⁷ the court held that it need not decide whether an arbitration agreement could require that representative PAGA claims be arbitrated because the arbitration agreement incorporated the Employment Arbitration Rules & Procedures of the American Arbitration Association.¹⁸ Rule 6a of the AAA Employment Rules provides that "[t]he arbitrator shall have the power to rule on his or her own jurisdiction, including any objections with respect to the existence, scope or validity of the arbitration agreement." The court determined that this provision clearly left to the arbitrator to determine whether the agreement to arbitrate extended to the representative PAGA claims.

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The question of whether a plaintiff is an "aggrieved employee" at the time of the event or at the time of filing should be resolved in 2023 when the California Supreme Court decides Adolph v. Uber Technologies, Inc.¹⁹

WAIVER OF ARBITRATION

The most significant of the five Supreme Court decisions might be Morgan v. Sundance, Inc.,²⁰ because it abrogated one of the long-standing tenets of arbitration law, to wit, that to deny a motion to compel arbitration on grounds of waiver, a court must find that the opposing party was prejudiced by the proponent's delay. In Morgan, the Eighth Circuit reversed a denial of a motion to compel arbitration on the ground of waiver, holding that the federal policy favoring arbitration required Morgan to establish that she was prejudiced by Sundance's delay and that she had failed to do so.²¹ The Supreme Court reversed and remanded. It held that the FAA's policy favoring arbitration did not authorize federal courts to invent special, arbitration-preferring procedural rules. The policy is merely an acknowledgment of the FAA's commitment to overrule the judiciary's longstanding refusal to enforce agreements to arbitrate and to place such agreements upon the same footing as other contracts. Accordingly, a court must hold a party to its arbitration contract just as the court would to any other kind. But a court may not devise novel rules to favor arbitration over litigation. It concluded that the federal policy is about treating arbitration contracts like all others, not about fostering arbitration.²²

California law still requires a showing of prejudice where a party opposes a motion to compel arbitration on grounds of waiver. Indeed, just before Morgan was decided, the Court of Appeal ruled that a defendant's delay did not bar it from compelling arbitration because plaintiff was not prejudiced by the delay. It stated that the prejudice requirement for a waiver defense recognizes "that California's arbitration statutes reflect a strong public policy in favor of arbitration as a speedy and relatively inexpensive means of dispute resolution and are intended to encourage persons who wish to avoid delays incident to a civil action to obtain an adjustment of their differences by a tribunal of their own choosing."²³ Plaintiff's petition for review was granted by the California Supreme Court and so we will find out in 2023 if the United States Supreme Court and California courts differ on whether the policy favoring arbitration requires a party to show prejudice when opposing a motion to compel arbitration on grounds of waiver. If the difference persists, then a showing of prejudice will be required when a waiver argument is raised in those cases where the FAA does not apply because the transaction underlying the dispute is in intrastate commerce or the agreement states that the California Arbitration Act applies.²⁴

MOTIONS TO VACATE OR CONFIRM — FEDERAL JURISDICTION

In Badgerow v. Walters,²⁵ Badgerow filed a motion in Louisiana state court to vacate an arbitration award in favor of Walters. Both Badgerow and Walters were Louisiana residents. Walters removed the case to federal court and moved to confirm under section 9 of the FAA, citing a federal question in the cause of action as the basis for federal jurisdiction Badgerow moved to remand the case on the...