Private Attorney General Act

The California Supreme Court has a reputation for hostility to arbitration, especially in the consumers and employment context. Much of the arbitration docket of the United States Supreme Court over the past 30 years has involved reversals of California Supreme Court decisions refusing to enforce arbitration agreements, most recently (and perhaps most notably) in AT&T Mobility v. Concepcion (in which the authors were counsel). Even when seemingly compelled to enforce an arbitration provision in the face of recent U.S. Supreme Court authority, the California court has often found a way to carve out some exception to arbitration in the particular case or to offer suggestions to plaintiffs seeking to avoid arbitration in a future case. A prime example is the 2014 decision in Iskanian v. CLS Transportation, which exempted from arbitration all wage-and-hour civil-penalty claims under the Private Attorney General Act.

The decision in Sanchez v. Valencia Holding Co. (pdf) represents a welcome break from this pattern, upholding an arbitration agreement against an array of unconscionability challenges without finding it necessary to sever even a single clause to render the agreement enforceable. Although every point decided in Sanchez is consistent with recent U.S. Supreme Court authority applying the Federal Arbitration Act, however, the opinion’s emphasis on the specific factual setting may seed further efforts to evade arbitration agreements . As so often is the case, the devil is often in the details.

Continue Reading Man Bites Dog: California Supreme Court unanimously rejects unconscionability challenge to consumer arbitration provision

In the wake of AT&T Mobility LLC v. Concepcion, the California Supreme Court granted review in three cases involving significant arbitration issues, including key questions about whether the Federal Arbitration Act preempts California law concerning the enforceability of arbitration agreements.

My colleagues and I have filed amicus briefs on behalf of the Chamber of Commerce of the United States in all three cases, the most recent of which is Iskanian v. CLS Transportation, No. S204032.

In Iskanian, the Second District of the California Court of Appeal had affirmed an order compelling individual arbitration in a putative class/representative action alleging, among other things, that the defendant had failed to pay overtime and provide required meal and rest breaks. For more background on the grant of review and the decision below, please see our prior blog post here.

The Chamber’s amicus brief (pdf) to the California Supreme Court explains why the court of appeal was correct.

Continue Reading U.S. Chamber of Commerce Files Amicus Brief On Arbitration Issues In Key California Supreme Court Case

The California Supreme Court held in Arias v. Superior Court that a plaintiff may bring a representative action on behalf of himself and other employees to recover civil penalties under California’s Private Attorney General Act (“PAGA”) without meeting California’s class-certification requirements. The court reasoned that, unlike a class action, where the plaintiff is suing on behalf of individual employees, a PAGA plaintiff steps into the shoes of state labor-law enforcement agencies. While that holding governs California state courts, the federal district courts have been split as to whether plaintiffs bringing PAGA claims in federal court must seek class certification under Federal Rule of Civil Procedure 23.

On January 14, 2013, Judge Gutierrez of the Central District of California held that PAGA plaintiffs need not bother with class certification in federal court. See Alcantar v. Hobart Serv. (No. 5:11-cv-1600-PSG-SP). In that case, the plaintiff had filed a class action and a PAGA action alleging overtime, meal-period, and other wage-and-hour violations. The court denied class certification and granted in part defendants’ motion for summary judgment. The defendants later filed a motion in limine, asserting that the plaintiff could no longer proceed with his PAGA claim because plaintiffs who cannot meet Rule 23’s class-certification requirements lack standing to represent the rights and interests of third parties. The district court denied the motion, holding that although a class action allows individuals to seek financial remuneration to redress personal injuries, a PAGA action is an enforcement action brought on behalf of the state labor agencies to penalize noncompliant employers, making class certification unnecessary.

The Alcantar court also rejected defendants’ argument that the PAGA claims could not be tried on a representative basis without violating defendants’ due process rights. Among other things, the defendants argued that they should have the right to call each employee to the stand as they would in defending a claim under California’s Unfair Competition Law (UCL). The Alcantar court disagreed, holding that, “unlike claims under the UCL, which require an individualized determination of the particular restitution due to each plaintiff, PAGA claims require only a showing that a Labor Code violation has occurred.”

Finally, the Alcantar court rejected the defendants’ remaining argument that Wal-Mart Stores, Inc. v. Dukes forbids the plaintiff from calculating the amount of PAGA penalties owed solely by using estimates derived from representative testimony and statistics. The district court disagreed, noting that the Dukes Court had analyzed the permissibility of “Trial by Formula” in the specific context of Title VII of the Civil Rights Act, while both the Ninth Circuit and California courts have permitted awards for California Labor Code violations based on a representative sampling of class members. (Note: The issue of use of representative testimony and statistical evidence at trial in wage and hour class action lawsuits is pending before the California Supreme Court in Duran v. U.S. Bank Nat’l Ass’n., No. S200823.)

Alcantar may give new encouragement to the plaintiffs’ bar in their pursuit of PAGA claims. Under its approach, defendants in PAGA cases are deprived not only of the protections of Rule 23, but also the due process right to present individualized defenses to each employee’s claim. Whether other district courts will follow Alcantar’s lead, or instead follow the decisions of other courts that (in our view) are more consistent with Rule 23 and due process—and how the federal appellate courts will eventually settle this issue—remains to be seen. In the meantime, defendants may be able to distinguish the Alcantar court’s reasoning by showing that their cases involve fact patterns where proof of a statutory violation will require highly individualized, fact-sensitive mini trials.