Calif. employers perverting arbitration law, private AG plaintiffs tell SCOTUS - Reuters

A view of the U.S. Supreme Court at Capitol Hill in Washington, U.S., February 22, 2022. REUTERS/Tom Brenner

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(Reuters) - Employers are misusing the Federal Arbitration Act as a tool to eliminate representative actions to police California labor code violations, according to a brief filed on Wednesday at the U.S. Supreme Court in a case that will decide the future of California’s Private Attorney General Act – and could have unintended implications in litigation ranging from False Claims Act qui tam suits to shareholder derivative cases.

Lawyers for Angie Moriana, a onetime sales representative for Viking River Cruises Inc who sued the company in California state court for numerous alleged labor code violations, warned the U.S. justices that employers are not simply asking the court to allow them to force employees to arbitrate PAGA cases, in which a representative worker stands in the shoes of the state to assert claims for civil penalties for breaching labor regulations.

Instead, wrote Moriana counsel, Viking and its business-friendly amici are counting on the Supreme Court to permit them, in the name of the Federal Arbitration Act, to require employees to forfeit their entire right under California state law to raise representative claims.

But Moriana’s lawyers from the Law Offices of Kevin T. Barnes, Altshuler Berzon and the Public Citizen Litigation Group told the Supreme Court that nothing in the statutory language or the historical context of the federal arbitration law supports Viking River’s assertion that the FAA displaces the California law that forbids the waiver of PAGA rights.

The brief’s primary argument is that the FAA was intended only to allow parties to dictate the forum in which claims can be heard. The pro-arbitration law can trump procedural rights, as we’ve seen in recent Supreme Court decisions upholding mandatory arbitration provisions that include class action waivers. But the FAA does not permit employers, Moriana said, to force employees to relinquish a substantive, state-law right. (Indeed, the brief noted, it’s not clear whether the FAA even has preemptive effect in a state-court proceeding like Moriana’s suit. Justice Clarence Thomas has said in a series of dissents dating back to the 1990s that he does not believe the FAA applies in state courts.)

“Viking’s arguments amount to a request that this court transform the FAA from a vehicle for protecting parties’ agreements to arbitrate into one for precluding individuals from submitting claims for resolution in court or arbitration, a result contrary to the FAA’s pro-arbitration policies.”

Viking counsel Paul Clement of Kirkland & Ellis did not respond to my email. Moriana lawyers Michael Rubin of Altschuler and Scott Nelson of Public Citizen declined to comment.

Moriana told the justices that Viking and its amici have mischaracterized PAGA suits as de facto class actions. As I told you last month, employers and business groups have claimed in amicus briefs in the Viking case that crafty California plaintiffs' lawyers are using PAGA suits as an end-run around Supreme Court precedent that allows employers to impose class action waivers on employees. According to Viking and its amici, plaintiffs' lawyers have switched from filing class actions on behalf of name plaintiffs whose claims can be compelled to arbitration to filing cookie-cutter PAGA suits that, under current California and 9th Circuit law, can remain in court. Those PAGA suits then become leverage, according to Viking's amici, that forces companies to agree to class action settlements.

But PAGA claims, according to Moriana’s brief, are completely distinct from employee class actions. PAGA suits are not brought on behalf of employees seeking damages, but on behalf of the state, seeking civil penalties for labor code violations. (California gets 75% of any recovery, with the remaining 25% divided among employees.) So it is “fundamentally mistaken,” the brief said, to attempt to equate two categories of cases that “seek entirely different remedies on behalf of different real parties in interest.”

The false equivalency between class actions and PAGA claims has at least two implications, according to the brief. First, employers’ assertion that PAGA suits are subject to arbitration provisions signed by employees ignores the true nature of PAGA claims, Moriana’s brief said. The claims belong to California, not to the individual employee prosecuting a PAGA case on the state’s behalf. And California never agreed to arbitrate claims against Viking. The Supreme Court, Moriana said, could affirm the lower-court ruling allowing the PAGA case to proceed, on that basis alone.

The representative nature of PAGA claims also that means they can be arbitrated without running into the due process problems that can arise from class arbitration implicating the rights of absent parties. There are only two parties with interests in PAGA cases, Moriana’s brief said: The employer and California, albeit through a representative employee. So if companies actually wanted to arbitrate PAGA cases as representative actions, they could do so, enjoying all of the purported benefits of arbitration. But, according to Moriana, companies don’t actually want to arbitrate PAGA claims as representative actions: They want to eliminate PAGA claims.

Moriana’s lawyers countered the policy arguments of Viking and its amici with their own doomsday predictions about potential fallout from the Supreme Court case. If the justices were to adopt Viking’s view that the FAA authorizes companies to prohibit representative actions, they said, it’s a good bet that “opportunistic companies” would test the outer limits of that proposition by attempting to ban other representative suits, such as ERISA litigation brought by individual employees on behalf of other plan beneficiaries or shareholder derivative suits brought on behalf of the corporation. Even state and federal qui tam suits, in which a private whistleblower asserts fraud claims on behalf of the government, could be in danger, the brief said, because qui tam whistleblowers are often employees.

“The FAA,” Moriana said, “does not grant potential defendants such unfettered power to choose which claims can be brought against them."

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Opinions expressed are those of the author. They do not reflect the views of Reuters News, which, under the Trust Principles, is committed to integrity, independence, and freedom from bias.

Alison Frankel has covered high-stakes commercial litigation as a columnist for Reuters since 2011. A Dartmouth college graduate, she has worked as a journalist in New York covering the legal industry and the law for more than three decades. Before joining Reuters, she was a writer and editor at The American Lawyer. Frankel is the author of Double Eagle: The Epic Story of the World’s Most Valuable Coin.

source: https://www.reuters.com/legal/government/calif-employers-perverting-arbitration-law-private-ag-plaintiffs-tell-scotus-2022-03-03/

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