Thursday, June 30, 2022
We were ever so happy to report on the first two Supreme Court cases this term interpreting the Federal Arbitration Act (FAA), Morgan v. Sundance, Inc., and Southwest Airlines v. Saxon. They were short; they were unanimous; and they rejected motions by corporations to compel arbitration of their employees' claims. The third, Viking River Cruises, Inc. v. Moriana, is more involved, generating a majority opinion from Justice Alito (left), a confusing flurry of concurrences, including one for the ages from Justice Barrett, and a quick dissent from Justice Thomas.
The challenge in Moriana is the interaction between the FAA and California's Private Attorneys General Act (PAGA). California's legislature determined that its Labor and Workforce Development Agency (LWDA) lacked resources necessary to enforce California's labor laws. PAGA permits "aggrieved employees" to initiate actions against former employers on behalf of themselves and other current or former employees. They must first exhaust administrative remedies and give the LWDA an opportunity to act. If it does not do so, they may bring their claims. LWDA gets 75% of any award, and the employees split the remaining 25%. PAGA operates like a qui tam action. A PAGA suit is not a class action because the aggrieved employee is suing as an agent the state.
When Viking Cruises hired Moriana, you'll never guess what happened! She signed an arbitration agreement that included a class action waiver. After she left Viking, she sued under PAGA alleging that she had not received her final wages in a timely way but she also brought numerous PAGA claims on behalf of other current and former employees. Viking moved to compel arbitration of Moriana's claim brought on her own behalf and to dismiss her PAGA claims. The California courts refused to do so, relying on Iskanian v. CLS Transp. Los Angeles, LLC, in which California Supreme Court held that waivers of the right to bring "representative" PAGA claims violate public policy and are invalid. The specific issue in Moriana is which of her claims count as "representative."
As we have covered in earlier posts, the Supreme Court issued a number of pro-arbitration decisions, starting with Rent-A-Center and Stolt-Nielsen in 2010. The upshot of those and other cases was that courts must enforce class action waivers in arbitration agreements on the ground that "a party may not be compelled under the FAA to submit to class arbitration unless there is a contractual basis for concluding that the party agreed to do so.” Viking, citing those cases, argued that California courts cannot rely on Iskanian to force them into class litigation to which they have not consented. The Court rejected that argument, because a PAGA claim is not a class claim. It is a claim brought on behalf of one party, the state, via a proxy.
Still there is a problem, from the perspective of the Court's decisions interpreting the FAA as requiring enforcement of class-action waivers in employment agreements. Iskanian does not permit the division of PAGA claims into individual actions (e.g., Moriana's claim brought on her own behalf) and non-individual claims (e.g., her claims brought on behalf of other current and former Viking employees). Justice Alito resolves the tension between the FAA and Iskanian using the severability provision in Viking's arbitration agreement. That agreement is invalid under Iskanian to the extent that it seeks to preclude Moriana's non-individual PAGA claims. However, she must arbitrate her individual PAGA claim.
As they did with their SMUGLER episode a few weeks back, Will Baude and Dan Epps' Divided Argument has again provided some helpful insights about the toughest aspects of the Moriana case in their COBRA episode. Justice Alito cannot cut through the Gordian knot that the case presents. PAGA claims must be brought by an "aggrieved employee." Once Moriana's individual claims are severed from her non-individual claims, she has no statutory standing to bring her non-individual claims, because she is not "aggrieved" by Viking's alleged misconduct that did not affect her. Not sure where to go from there, Justice Alito remands the case for "further proceedings not inconsistent with this opinion." Sucks to be that court.
Justice Sotomayor offers a little help in her concurrence. One option is that the California courts can offer a different interpretation of PAGA, perhaps somehow allowing non-individual PAGA claims to be brought after they have been severed from individual claims subject to arbitration. I'm not sure how they get there. The other option is that the state legislature can permit people other than "aggrieved workers" to bring PAGA claims. That seems like the more workable solution, if the California legislature has the will to actually fix a faulty statute.
And then comes the fun stuff. Justice Barrett wrote a concurrence, joined in full by Justice Kavanaugh. She joined only in Part III of Justice Alito's majority opinion. In her view, PAGA is just another means of aggregating claims, and those are all barred under the FAA if there is an arbitration agreement with a class action waiver. Stolt-Nielsen is right so let's compel arbitration. That's all the Court really needed to say. As to Parts II and IV, she wrote the following: "The 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." Chief Justice Roberts joined up to there. Then, she dropped a footnote, saying that the same was true of Part I. That was too much for the Chief apparently, and it's quite comical, because Part I lays out the facts of the case. Visions of the Marx brothers.
It seems like a snide dissent, but it might not be as bad as it looks. If she were writing for herself, she could have just said that she signs on to Part III and nothing more. But it's late in the term, and CJ Roberts didn't want to have to write a separate concurrence about how I and III are fine, so we get what looks like the ultimate mean girl footnote. Justice Alito? He doesn't even go here!
And finally, we get a lone dissent from Justice Thomas, who, as he has explained before, does not think the FAA applies in state courts.
On the whole, this strikes me as progress. I would have predicted a 6-3 court reasoning along Justice Barrett's lines. At best, even if this case came through a federal court, she only has four votes. The Court seems willing to allow the people of California to rein in limitations on representative actions, and that seems to me a very good thing given the ubiquity of contracts of adhesion and gross disparities of bargaining power in the world of employment law.