The Supreme Court's Five Arbitration Decisions

• Publication year: 2023
• Author: Written by Paul Dubow

THE SUPREME COURT'S FIVE ARBITRATION DECISIONS

Written by Paul Dubow^*

Over the past few decades, the United States Supreme Court has issued many arbitration decisions, but rarely has there been more than two in a single session. This year, the Court outdid itself when it rendered five decisions that concerned arbitration.

The decision that substantially affected California jurisprudence, and perhaps the most controversial, was Viking River Cruises, Inc. v. Moriana (2022) __ U.S.__ [142 S.Ct. 1906], which determined the arbitrability of representative and individual claims filed pursuant to the Private Attorneys General Act (PAGA, Lab. Code, § 2699). PAGA authorizes any "aggrieved employee" to initiate an action against a former employer "on behalf of himself or herself and other current or former employees" to obtain civil penalties that previously could have been recovered only by the State in an enforcement action by the Labor Workforce Development Agency (LWDA). An employee who files such a representative claim under PAGA is entitled to 25% of the recovery.

Many California employers require their employees to sign arbitration agreements and often these agreements require the employee to waive the right to file class or representative claims. Consequently, employers regularly defend PAGA lawsuits by filing a motion to compel arbitration of the employee's individual claim and a motion to dismiss the representative claim.

In Iskanian v. CLS Transportation Los Angeles LLC (2014) 59 Cal.4th 348, the California Supreme Court held that the Legislature's purpose in enacting PAGA was to augment the limited enforcement capability of the LWDA by empowering employees to enforce the Labor Code as representatives of the agency. Thus, it concluded that an agreement by employees to waive their right to bring a representative action served to disable one of the primary mechanisms for enforcing the Labor Code. Because such an agreement had as its object, indirectly, to exempt the employer from responsibility for its own violation of the law, it was against public policy and could not be enforced. Furthermore, Civil Code section 3513 states that a law established for a public reason could not be contravened by a private agreement. Hence, the Court held that neither the individual nor the representative claim was arbitrable.

Notwithstanding Iskanian, employers continued their practice of seeking arbitration of the individual claim and dismissal of the representative claim, either raising new theories to get around Iskanian or arguing that the United States Supreme Court overruled Iskanian when it decided Epic Systems Corp. v. Lewis (2018) __ U.S. __ [138 S.Ct. 1612], a case that involved the National Labor Relations Act, not PAGA. Over a dozen of these cases reached the Court of Appeal, but few were successful. In Viking, Moriana filed an individual PAGA

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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.

Justice Alito ruled that Iskanian was preempted, 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 Justice Alito affirmed the California Supreme Court's holding that the class action waiver in Moriana's agreement, to the extent that it resulted in a wholesale waiver of PAGA claims, was invalid. Thus, the representative claim remains nonarbitrable, not only because it survived Viking's appeal, but also because the plaintiff in a representative action is an agent for the State and the State never agreed to arbitrate. This approach was followed in two post-Viking decisions decided by the Court of Appeal. (See Howitson v. Evans Hotels LLC (2022) 81 Cal.App.5th 475; Gavriiloglou v. Prime Healthcare Management, Inc. (2022) 83 Cal.App.5th 595.) In a third case, the Court noted that the arbitration agreement stated that arbitration would be conducted pursuant to the rules of the American Arbitration Association and those rules provided that the arbitrator would decide the issue of arbitrator jurisdiction. And so it reversed the lower court's denial of the motion to compel arbitration of the representative claim and ruled that the arbitrator should decide whether the representative claim could be arbitrated. (See Lewis v. Simplified Staffing Solutions, Inc. (2022) 2022 Cal App LEXIS 989.)

Although Justice Alito found that class action waivers did not bar an employee from pursuing a representative PAGA claim, he ruled that Moriana could...