In June 2022, the Supreme Court recently issued its long-awaited decision on whether the Federal Arbitration Act preempts a California Supreme Court rule that forbade employment arbitration clauses from eliminating representative actions under the California Labor Code’s Private Attorneys General Act. This was the first time the Supreme Court has reviewed Iskanian v. CLS Transportation Los Angeles, LLC (2014) 59 Cal.4th 348.
In Viking River Cruises, Inc. v. Moriana, a five-justice majority opinion (Justice Alito writing, joined by Justices Breyer, Sotomayor, Kagan and Gorsuch) Court upheld one part of the California Supreme Court’s rule, but struck down another part. This majority of the Court preserved California’s rule outlawing waivers of PAGA representative standing, holding that the FAA does not preempt rules against waiving standing to assert claims on behalf of absent principals. Viking River Cruises, Inc. v. Moriana (U.S., June 15, 2022, No. 20-1573) 2022 WL 2135491, at *9. Since Iskanian, the California courts have treated PAGA cases as non-class representative cases where the plaintiff standing in the shoes of the State of California cannot waive the representative claim, and the Viking River decision made clear that nothing in the FAA changes that. Moreover, Part II of the decision found that federal law does not preempt a state rule barring private contracts that waive the state’s substantive rights to bring a multitude of claims. The state’s delegation of standing to a private attorney general plaintiff created a “representative” action distinct from class actions, because the PAGA plaintiff “represents a single principal, the LWDA, that has a multitude of claims. As a result, PAGA suits exhibit virtually none of the procedural characteristics of class actions. Id. at *2
Part III of the Court’s majority opinion struck down the Iskanian rule that PAGA actions could not be divided into individual and non-individual claims through an agreement to arbitrate. (Justices Barrett, Kavanaugh and Roberts joined this part of the opinion.) The Court held this rule was not compatible with the FAA as that federal statute has been interpreted in recent Supreme Court cases that upheld the use of employment arbitration agreements to waive class actions. PAGA has a built-in mechanism of claim joinder, according to the opinion, which means a party can “superadd new claims to the proceeding, regardless of whether the agreement between them committed these claims to arbitration.” The effect of such “expansive” joinder of claims under PAGA is to “coerce parties into withholding PAGA claims from arbitration.” Viking River Cruises, at *11.
Given that employee Moriana’s “individual PAGA claim” had to be arbitrated, what happens with the representative claim that could not be waived through arbitration? Here, in Part IV of the majority opinion, the Court waded into a question of state law: Whether a plaintiff who no longer has an “individual PAGA claim” in court can nevertheless continue to act as a representative of the State in prosecuting the PAGA representative action. On this question the majority opinion offered a slender reed, explaining only: “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. See Cal. Lab. Code Ann. §§ 2699(a), (c).” Viking River Cruises, at *11. With that, the Court found that Moriana lacked statutory standing to continue to maintain her non-individual claims in court, and directed the lower courts to dismiss her remaining claims. Id.
The decision to dismiss Moriana’s claim for lack of PAGA standing seems to have barely scraped by, securing a fifth vote that expressed doubt as to its correctness on a question of state statutory interpretation. In her concurrence, Justice Sotomayor indicated that further guidance from California courts would be appropriate, noting “Of course, if this Court’s understanding of state law is wrong, California courts, in an appropriate case, will have the last word. Alternatively, if this Court’s understanding is right, the California Legislature is free to modify the scope of statutory standing under PAGA within state and federal constitutional limits. With this understanding, I join the Court’s opinion.” Id. at *12.
Also notably, three justices – Barrett, Kavanaugh and Roberts, the Chief Justice – believed the Court should not have said anything at all about the disposition of Moriana’s court case. They said it was “unnecessary to the result, and most of it addressed disputed state-law questions as well as arguments not pressed or passed upon in this case.” Id.
What to make of all this? At best, for employers, it seems the U.S. Supreme Court was divided on what PAGA truly requires as to standing to sue. In fact, it is possible that only four justices actually believed that Moriana lost PAGA standing. Justice Sotomayor’s concurring opinion could be understood to be a tactful way of indicating what California PAGA practitioners must be asking themselves: Didn’t the California Supreme Court already state that a plaintiff need not continue to maintain an individual claim in a court in order to have PAGA standing?
In Kim v. Reins Int’l Calif., the California Supreme Court held:
The statutory language reflects that the Legislature did not intend to link PAGA standing to the maintenance of individual claims when such claims have been alleged. An employee has PAGA standing if “one or more of the alleged violations was committed” against him. (§ 2699(c), italics added.) This language indicates that PAGA standing is not inextricably linked to the plaintiff’s own injury. Employees who were subjected to at least one unlawful practice have standing to serve as PAGA representatives even if they did not personally experience each and every alleged violation. (§ 2699(c).) This expansive approach to standing serves the state’s interest in vigorous enforcement.
Kim v. Reins Int’l Calif., Inc. (2020) 9 Cal.5th 73, 85. This case was cited by the Viking River majority, but not for its core holding or analysis. Kim held that the only standing requirement was just as subdivision (c) of Section 2699 states: An “aggrieved employee” is defined as “any person who was employed by the alleged violator and against whom one or more of the alleged violations was committed.” Id. at 82. Hence, a plaintiff whose individual claim had been dismissed from court – in Kim’s case, due to settlement – would still retain standing under PAGA so long as that person had been employed by defendant and had been subjected to one or more of the Labor Code violations. If a plaintiff’s individual PAGA claim was compelled to arbitration and dismissed from court, the holding of Kim seems equally applicable.
So why did the U.S. Supreme Court’s majority opinion ignore this part of Kim? We might surmise that PAGA standing was not the question on review and apparently was not actually briefed by the parties in Viking River (as Justice Barrett’s concurrence suggests). We might also venture to guess that as federal judges more attuned to the more stringent standing requirements of Article II, the justices may have found it strange to behold an individual plaintiff with no personal case or controversy before the court.
These musings aside, after Viking River it is clear that the ball is in state court for clarification of California law on PAGA standing. It is within the province of the state courts to confirm their understanding of Kim as to whether an individual plaintiff whose individual PAGA claim must go to arbitration may nevertheless serve as the PAGA representative. Moreover, the California Legislature may well take up the invitation to clarify PAGA legislatively. If so, it remains to be seen in individual cases and depending on the arbitration agreement in question whether representative PAGA claims will proceed in court or arbitration.