Cal Supreme Court: Arbitration agreement waiver of right to class procedure approved; but right to bring PAGA representative action cannot be waived.
In Iskanian v. CLS Transportation Los Angeles, LLC (filed 6/23/14) S20432, the California Supreme Court majority has delivered a split decision on the question of whether an arbitration agreement that waives a party's right to bring a representative action on behalf of others is enforceable. Representative actions in the form of class actions brought to enforce the private rights of similarly situated parties (in Iskanian, fellow employees with wage-and hour claims) are enforceable in light of preemption by the Federal Arbitration Act (FAA) of a state law rule to the contrary. However, the right of a party to prosecute claims for the public benefit as a representative party for others under the California Private Attorneys General Act (PAGA), is neither preempted nor inconsistent with the FAA's goal of promoting arbitration--to say it is would be contrary to the strong public policy encouraging private parties to publicly enforce laws, such as wage and hour laws, that might otherwise go unenforced due to scant public prosecution resources.
Iskanian was employed as a driver for defendant CLS. He had signed an agreement that any and all claims arising out of his employment would be submitted to binding arbitration and that the parties would only submit individual claims; that no class action or representative action would be asserted. Iskanian sued CLS; CLS asserted the binding arbitration agreement, and the trial court granted its motion to compel arbitration, based in part on the concept that a state's refusal to enforce an arbitration clause because of a class waiver making it against public policy or unconscionable is preempted by the FAA . Shortly thereafter, the California Supreme decided Gentry v. Superior Court (2007) 42 Cal. 4th 443 which concluded to the contrary. The Court of Appeal in Iskanian then directed the trial court to reconsider its ruling in light of Gentry. CLS withdrew its motion to compel arbitration and the parties proceeded to litigate the case. Iskanian amended his complaint to include PAGA claims, also in a representative capacity of others. Iskanian's motion to certify his class and PAGA claims was granted.
After the Iskanian case was ordered certified, the U.S. Supreme Court issued its opinion in AT&T Mobility LLC v. Concepcion (2011) 563 U.S. ___, finding that requiring class-wide arbitration interfered with the FAA . CLS then renewed its motion to compel arbitration arguing that Gentry had been abrogated by U.S. Supreme Court authority. The trial court agreed, as did the Court of Appeal. Iskanian's petition for review to the California Supreme Court, asserting that Gentry was still viable, was granted, and the state high court ruled as stated above.
I will not endeavor to analyze the lengthy opinion in Iskanian, but several points stand out to me. One of Iskanian's arguments was that that CLS had waived arbitration by failing to diligently pursue it. Not so, said the court. Waivers are not to be lightly inferred and are questions of fact based on the circumstances. These circumstances certainly indicated CLS desired arbitration but state court rulings blocked their pursuit causing them to acquiesce temporarily, until higher authority supported its pursuit of arbitration.