Earlier today, the Court issued its decision in Viking River Cruises, Inc. v. Moriana, No. 20-1573 (June 15, 2022) (click here for a copy of the decision). This case involves a clash between California’s Private Attorneys General Act (PAGA) and arbitration under the Federal Arbitration Act (FAA). Can a worker be forced to arbitrate, one-on-one, his or her individual claims against the employer for violations of the California Labor Code? Or can there be an enforcement action in court on behalf of the State to recover penalties for violations of the California Labor Code? The Court today appeared to answer both questions as a “yes”. A worker can be compelled to arbitrate, one-on-one, his or her individual claims, and state law cannot condition arbitration on the availability of broad, procedural joinder rules. But at the same time, in Section IV of the opinion, the Court suggests that “non-individual claims,” which seem to be claims belonging to the State, could possibly remain in court (as long as state law provided a mechanism for the enforcement of these non-individual claims, but the current law in California did not appear to provide such a mechanism). Justices Barrett and Kavanaugh and Chief Justice Roberts did not join this Section IV of the opinion, and Justice Thomas issued a dissenting opinion based on his long-held view (and correct view in my opinion) that the FAA should not control in state court.
During oral argument, it appeared that the Justices struggled with how to characterize PAGA. Does PAGA provide a procedural joinder rule? Does a PAGA claim belong to the State? Does PAGA provide a substantive right for penalties? Depending on how one characterizes PAGA would probably drive how one interprets and applies the FAA in this case.
The majority here seemed to accept different views of PAGA as being correct. To some degree, PAGA can be viewed as embodying a joinder rule; PAGA allows for broad, “free-form” joinder of claims related to other workers. Applying principles from older cases like Concepcion and American Express, state law cannot interfere with a fundamental attribute of arbitration, and the majority viewed such free-form joinder imposed by the state as incompatible with the basic nature of “informal” arbitration. (Side note: arbitration is not as “informal” or homogeneous as the Court assumes it to be; arbitration can involve complex procedural rules.) Thus, the worker’s individual claims could be sent to one-on-one arbitration, and state law could not be used to impose the joinder of the claims of others in arbitration. But in Section IV of the opinion, the Court seems to conceptualize PAGA as also involving claims of the State. The Court in Section IV preserves the possibility of the “non-individual claims” as remaining in court. Although the decision does not cite the earlier case of EEOC v. Waffle House, Inc., it appears that the majority in Section IV may be trying to respect the Waffle House decision by suggesting that States are not bound by arbitration agreements entered into by private parties. But down the road, I’m wondering if some parties will try to argue that Section IV’s statements about the State’s claims or the “non-individual” claims are mere dicta. Justices Barrett and Kavanaugh and Chief Justice Roberts dismissed Section IV as “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.” We are uncertain how Justice Thomas views Section IV of the opinion because of his particular dissent, and Justice Breyer will no longer sit on the Court next term. Although five current Justices joined Section IV in the Viking River decision, if the statements in Section IV are interpreted as dicta down the road, a new group of five Justices in the future may disagree with the statements about the “non-individual claims” in Section IV.
Section IV also seems to assume that Ms. Moriana would lack statutory standing under California law to prosecute the non-individual PAGA claims as a proxy for the State. Section IV of the opinion says that “[w]hen an employee’s own dispute is pared away from a PAGA action, . . . PAGA does not allow such persons to maintain suit,” and the Court immediately cites the California Supreme Court’s Kim decision. But in Kim, the California Supreme Court actually allowed a worker to proceed with PAGA claims, even though the worker’s individual claims were settled. Kim v. Reins Int’l California, Inc., 9 Cal. 5th 73, 80, 459 P.3d 1123, 1126 (2020) (“Settlement of individual claims does not strip an aggrieved employee of standing, as the state’s authorized representative, to pursue PAGA remedies.”). It seems that the Kim case, instead of supporting the majority’s conclusion that no one is left here to prosecute the non-individual claims, actually undermines the majority’s conclusion.
Finally, some arbitration clauses contain “poison pills” or “blow-up” clauses, whereby the entire obligation to arbitrate vanishes if a class or collective action waiver is held in any way to be invalid. See, e.g., Kec v. Superior Ct. of Orange Cnty., 51 Cal. App. 5th 972, 976, 264 Cal. Rptr. 3d 761, 764 (2020) (“If [the waiver regarding class, collective, or representative proceedings] is found by a court of competent jurisdiction to be, in any way, unlawful, invalid, void or otherwise unenforceable, the [Arbitration] Agreement becomes null and void as to employee(s) who are parties to that particular dispute, for purposes of that dispute in the jurisdiction of the court delivering the ruling. If [the waiver] is found by a court of competent jurisdiction to be, in any way, unlawful, invalid, void or otherwise unenforceable, any class claims, collective claims, or any other representative claims may only be brought in a court of competent jurisdiction.”). Such a blow-up clause did not exist in Viking River, and the final result in Viking River depended in part on the particular language found in Viking River’s agreement. The Court found that the worker’s individual claims had to be sent to arbitration because portions of the arbitration agreement were still fully enforceable. If Viking River had an expansive blow-up clause in its arbitration agreement similar to the one above from the Kec case, whereby the entire obligation to arbitrate may vanish upon certain contingencies, it is possible the Court may have held that there would be no obligation to arbitrate under the terms of such a different agreement.