Monday, June 20, 2022

SCOTUS Decision in Viking River Cruises: The California PAGA meets the FAA

Last week the Supreme Court issued its decision in Viking River Cruises, Inc. v. Moriana, another case on the Federal Arbitration Act (FAA). Justice Alito authored the majority opinion, which was joined in full by Justices Breyer, Sotomayor, Kagan, and Gorsuch (and in parts by Chief Justice Roberts and Justices Kavanaugh and Barrett). The question presented by the case is whether the FAA preempts a rule of California state law—from the California Supreme Court’s 2014 decision in Iskanian v. CLS Transportation—that invalidates contractual waivers of the right to assert representative claims under California’s Labor Code Private Attorneys General Act of 2004 (PAGA). The answer is—it’s complicated.

The Court notes an important distinction under the PAGA between “individual” claims, “which are premised on Labor Code violations actually sustained by the plaintiff,” and “non-individual claims,” which “aris[e] out of events involving other employees.” Here’s Justice Alito’s conclusion, from Part IV of the opinion:

We hold that the FAA preempts the rule of Iskanian insofar as it precludes division of PAGA actions into individual and non-individual claims through an agreement to arbitrate. This holding compels reversal in this case. The agreement between Viking and Moriana purported to waive “representative” PAGA claims. Under Iskanian, this provision was invalid if construed as a wholesale waiver of PAGA claims. And under our holding, that aspect of Iskanian is not preempted by the FAA, so the agreement remains invalid insofar as it is interpreted in that manner. But the severability clause in the agreement provides that if the waiver provision is invalid in some respect, any “portion” of the waiver that remains valid must still be “enforced in arbitration.” Based on this clause, Viking was entitled to enforce the agreement insofar as it mandated arbitration of Moriana’s individual PAGA claim. The lower courts refused to do so based on the rule that PAGA actions cannot be divided into individual and non-individual claims. Under our holding, that rule is preempted, so Viking is entitled to compel arbitration of Moriana’s individual claim.

The remaining question is what the lower courts should have done with Moriana’s non-individual claims. Under our holding in this case, those claims may not be dismissed simply because they are “representative.” Iskanian’s rule remains valid to that extent. But as we see it, PAGA provides no mechanism to enable a court to adjudicate non-individual 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. See Cal. Lab. Code Ann. §§ 2699(a), (c). 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. * * * As a result, Moriana lacks statutory standing to continue to maintain her non-individual claims in court, and the correct course is to dismiss her remaining claims.

Justice Sotomayor authored a concurring opinion emphasizing that California courts—and ultimately the California legislature—“will have the last word” regarding whether someone in Moriana’s situation does lack statutory standing to pursue non-individual PAGA claims.

Justice Barrett authored an opinion concurring in part, joined by Justice Kavanaugh and in part by Chief Justice Roberts, arguing that “[t]he discussion in Parts II and IV of the Court’s opinion is unnecessary to the result, and much of it addresses disputed state-law questions as well as arguments not pressed or passed upon in this case.”  

Justice Thomas dissented, writing: “I continue to adhere to the view that the Federal Arbitration Act (FAA), 9 U.S.C. § 1 et seq., does not apply to proceedings in state courts.”

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