Filed 2/25/19
CERTIFIED FOR PUBLICATION
COURT OF APPEAL, FOURTH APPELLATE DISTRICT
DIVISION ONE
STATE OF CALIFORNIA
MARK CORREIA et al., D073798
Plaintiffs and Respondents,
v. (Super. Ct. No. 37-2017-00019945-CU-OE-NC) NB BAKER ELECTRIC, INC.,
Defendant and Appellant.
APPEAL from an order of the Superior Court of San Diego County, Earl H. Maas
III, Judge. Affirmed.
Finch, Thornton & Baird, Chad T. Wishchuk, Kathleen A. Donahue and Marlene
C. Nowlin for Defendant and Appellant.
Baker Law Group, Michelle Baker; Law Office of Alan S. Yockelson and Alan S.
Yockelson for Plaintiffs and Respondents.
Plaintiffs Mark Correia and Richard Stow sued their former employer, NB Baker
Electric, Inc. (Baker), alleging wage and hour violations and seeking civil penalties under the Private Attorney General Act of 2004 (PAGA). (Lab. Code, § 2699 et seq.) 1 Baker
responded by petitioning for arbitration under the parties' arbitration agreement. The
agreement provided that arbitration shall be the exclusive forum for any dispute and
prohibited employees from bringing a "representative action."
The trial court granted the arbitration petition on all causes of action except for the
PAGA claim. On the PAGA claim, the court followed the California Supreme Court
decision in Iskanian v. CLS Transportation Los Angeles, LLC (2014) 59 Cal.4th 348
(Iskanian), which held unenforceable agreements to waive the right to bring PAGA
representative actions in any forum, and the California Court of Appeal decision in
Tanguilig v. Bloomingdale's, Inc. (2016) 5 Cal.App.5th 665 (Tanguilig), which held a
PAGA claim cannot be compelled to arbitration without the state's consent. The trial
court stayed the PAGA claim pending the conclusion of the arbitration.
Baker contends the court erred because: (1) plaintiffs' response to its arbitration
petition was untimely; (2) Iskanian is no longer binding as it is inconsistent with a recent
United States Supreme Court decision, Epic Systems Corp. v. Lewis (2018) __ U.S. __
[138 S.Ct. 1612] (Epic); and (3) the parties' arbitration agreement should be interpreted to
mean that if the representative-action waiver is unenforceable, the PAGA claim for
statutory penalties remains subject to arbitration.
We determine the court acted within its discretion in considering plaintiffs'
response to the arbitration petition despite that plaintiffs filed the response after the
1 Undesignated statutory references are to the Labor Code.
2 statutory deadline. We additionally determine we remain bound by Iskanian. Although
the Epic court reaffirmed the broad preemptive scope of the Federal Arbitration Act
(FAA), Epic did not address the specific issues before the Iskanian court involving a
claim for civil penalties brought on behalf of the government and the enforceability of an
agreement barring a PAGA representative action in any forum. We thus conclude the
trial court properly ruled the waiver of representative claims in any forum is
unenforceable.
We also reject Baker's contention that the court erred in failing to order plaintiffs'
PAGA claim to arbitration. Although Iskanian did not decide the issue of whether courts
have the authority to order a PAGA representative action into arbitration, several
California Courts of Appeal have held a PAGA arbitration requirement in a predispute
arbitration agreement is unenforceable based on Iskanian's view that the state is the real
party in interest in a PAGA claim. These courts reasoned the state must have consented
to the agreement to effectively waive the right to bring the PAGA claim into court. We
agree with this analysis as applied to the circumstances before us.
We are aware the federal courts have reached a different conclusion regarding the
arbitrability of a PAGA representative claim, but find these decisions unpersuasive
because the courts did not fully consider the implications of the qui tam nature of a
PAGA claim on the enforceability of an employer-employee arbitration agreement.
Moreover, although we provided Baker the specific opportunity to do so, it failed to
identify a sound basis for this court to apply the federal decisions on this issue.
3 FACTUAL AND PROCEDURAL BACKGROUND
In 2014 and 2015, plaintiffs began working for Baker. At the outset, each
employee signed an identical arbitration agreement (Arbitration Agreement). This
agreement provided in relevant part:
"Section 4
"The Company and Employee agree that Employee's employment . . . involves interstate commerce and thus the [FAA] applies.
"Section 5
"Employee and the Company agree that in the event any dispute arises between Employee and the Company relating to Employee's employment with the Company, including without limitation, any claim(s) based on common law, any express or implied contract, any federal or state statute, any statute or provision relating to employment discrimination and/or employment rights, any wage and hour claims, the federal or any state constitution and/or any public policy, will be determined by binding arbitration and not by a lawsuit or resort to court process. [¶] . . . [¶]
"The arbitration provided for in this Agreement shall be the exclusive forum for any dispute between Employee and the Company related to the claims set forth above. . . . [¶] . . . [¶]
"Section 6
"No claims covered by this Agreement shall be permitted by the arbitrator or a court to proceed or be maintained as a class action or representative action by an Employee on behalf of other Employees.
"Section 7
"NOTICE: BY SIGNING THIS AGREEMENT, YOU ARE GIVING UP YOUR RIGHT TO MAINTAIN ANY CLASS ACTION OR REPRESENTATIVE ACTION IN ARBITRATION OR ANY COURT CONCERNING ANY DISPUTE SPECIFIED IN SECTION 5 ABOVE.
4 "Section 8
"NOTICE: BY SIGNING THIS AGREEMENT, YOU ARE AGREEING TO HAVE ANY ISSUE RELATING TO YOUR EMPLOYMENT OR OTHER DISPUTE SPECIFIED IN SECTION 5 ABOVE DECIDED BY NEUTRAL ARBITRATION AND YOU ARE GIVING UP YOUR RIGHT TO A JURY OR COURT TRIAL."
The Arbitration Agreement also contained a severance clause stating that if any provision
or part of a provision is found to be invalid, the finding shall not "invalidat[e]" the
remaining portions of the provision or any other part of the agreement.
In December 2016, the employment ended for both plaintiffs.
Six months later, in June 2017, plaintiffs filed a complaint against Baker. As
amended, the complaint asserted breach of contract, statutory unfair competition, and
wage and hour violations. 2 Plaintiffs sought damages for these violations and requested
penalties under PAGA. On their PAGA claim, plaintiffs alleged they were bringing the
action "on their own behalf, and in their representative capacity on behalf of other current
or former aggrieved employees, for penalties pursuant to [section] 2699 for [Baker's]
violations of the enumerated . . . Labor Code sections . . . ." (Italics omitted.) They
sought 25 percent of all penalties for the employees and the remaining 75 percent for the
2 The alleged wage and hour violations included: failure to pay wages; failure to provide accurate wage statements; waiting time penalties; failure to reimburse vehicle expense; failure to pay wages when due; failure to pay minimum wages due to misclassification; and failure to pay overtime wages due to misclassification. (See §§ 201, 203, 216, 226, 2802, 1194, 1194.2, 510, 1199.)
5 state. They alleged they previously notified the California Labor Workforce
Development Agency (Agency) of their intention to bring the PAGA claims.
On September 7, 2017, Baker petitioned for an order compelling plaintiffs to
submit their causes of action to separate, individual arbitrations under the Arbitration
Agreement. Baker scheduled the hearing for January 12, 2018.
On December 29, 2017, plaintiffs filed an opposition to Baker's petition. They
argued: (1) the Arbitration Agreement was procedurally and substantively
unconscionable; (2) the agreement was void because it contains an unenforceable waiver
of PAGA representative actions; (3) PAGA representative actions cannot be compelled to
arbitration; and (4) judicial economy would not be served by severing the remaining
claims from the PAGA claim that must be litigated in court.
In reply, Baker argued plaintiffs' response must be stricken because it was
untimely filed, and alternatively the Arbitration Agreement should be enforced because it
was not procedurally or substantively unconscionable. On the PAGA claim, Baker did
not seek to enforce the representative-action waiver, but urged the court to order this
claim into arbitration, asserting that Iskanian and a more recent Ninth Circuit decision
(Sakkab v. Luxottica Retail North America, Inc. (9th Cir. 2015) 803 F.3d 425 (Sakkab))
both contemplated that PAGA claims can be arbitrated, even if they could not be
completely barred. Baker argued that at the very least the PAGA "individual" claims
should be ordered to arbitration. Baker also asserted that the PAGA claims were asserted
in bad faith merely "as a means to gain additional damages unrelated to their own
6 individual claims" and that by failing to intervene, the state "waiv[ed] any interest" in
plaintiffs' claims.
At the hearing on the motion, Baker's counsel reiterated that she agreed plaintiffs'
PAGA representative-action waiver was not enforceable under Iskanian, but argued
Iskanian did not hold that PAGA claims could not be compelled to arbitration. The court
responded that it would adhere to its tentative ruling that all claims would be ordered to
arbitration except for the PAGA claim. The court also remarked: "It will be nice when
we get some firm direction on this . . . because the [state and federal courts] seem[] to be
all over the place on it. [¶] Right now, I think that the [law is] . . . I can't order a PAGA
claim to arbitration. [¶] . . . [¶] . . . To me, you can make a fair argument that it will be
much more efficient for everybody to do them all in one place . . . . [¶] [But] I'm going to
stay the PAGA case. I'm going to send the rest of it to arbitration. . . ."
In its written order, the court explained its rejection of plaintiffs' substantive
unconscionability arguments, and ordered all claims to arbitration except for the PAGA
claim. On the PAGA claim, the order stated: " 'A PAGA claim (whether individual or
representative) cannot be ordered to arbitration without the state's consent,' " citing
Tanguilig, supra, 5 Cal.App.5th 665.
DISCUSSION
Baker contends the court erred in refusing to enforce the Arbitration Agreement
provision barring plaintiffs from bringing representative claims in any forum. Baker
alternatively contends the court erred in refusing to order the PAGA representative and/or
individual claims to arbitration.
7 I. Timeliness of Plaintiffs' Opposition Papers
Before reaching plaintiffs' substantive arguments, we consider Baker's contention
the court erred in considering plaintiffs' response to the arbitration petition because
plaintiffs did not file the opposition by the statutory deadline date.
Code of Civil Procedure section 1290 authorizes a party to seek to compel
arbitration by filing a petition in court, and states the petition allegations "are deemed to
be admitted . . . unless a response is duly served and filed." Code of Civil Procedure
section 1290.6 provides: "A response shall be served and filed within 10 days after
service of the petition [with an exception not applicable here] . . . . The time provided in
this section for serving and filing a response may be extended by an agreement in writing
between the parties to the court proceeding or, for good cause, by order of the court."
Baker filed its petition to compel arbitration on September 7, 2017. The motion
identified the hearing date as January 12, 2018. Plaintiffs filed their opposition on
December 29, 2017. The opposition was untimely under Code of Civil Procedure section
1290.6's deadline. Plaintiffs apparently calculated their time from the general motions
deadline, which is nine court days before the hearing (Code Civ. Proc., § 1005, subd. (b)),
rather than 10 days after the arbitration moving papers are served (Code Civ. Proc.,
§ 1290.6). (See Ruiz v. Moss Bros. Auto Group, Inc. (2014) 232 Cal.App.4th 836, 847
(Ruiz).)
Baker contends the court had no jurisdiction to consider this untimely response.
We disagree. First, it is not clear that the arbitration petition statute—rather than the
general motions statute—governs the timing requirements when a complaint has been
8 filed in court. (See Mercury Ins. Group v. Superior Court (1998) 19 Cal.4th 332, 349;
see also Younger on California Motions (2d ed. 2017) § 9:11 ["when a party has already
commenced a lawsuit in a dispute subject to an arbitration agreement, . . . a motion is . . .
the proper procedure" and "[f]or practical purposes a petition is a motion"].)
Even if the petition timeline applied here, Code of Civil Procedure section 1290.6
specifically allows a court to extend the time for filing an opposition for good cause, and
reviewing courts have long held trial courts are authorized to consider late-filed
opposition papers for good cause if there is no undue prejudice to the moving party.
(Juarez v. Wash Depot Holdings, Inc. (2018) 24 Cal.App.5th 1197, 1201-1202; Ruiz,
supra, 232 Cal.App.4th at p. 847.) The circumstances surrounding an untimely
opposition to a petition or motion to compel arbitration should be viewed under "the
strong policy of the law favoring the disposition of cases on the merits . . . ." (Juarez, at
p. 1202.)
As the appellant, Baker has the burden to show the court had no good cause to
consider plaintiffs' opposition papers and/or that it suffered undue prejudice. Baker has
not met this burden. Baker had ample opportunity to oppose plaintiffs' arguments in its
reply brief and at the hearing, and does not identify any factual ground for finding
plaintiffs acted in bad faith. Baker's citation to several older authorities does not
convince us the court abused its discretion in considering plaintiffs' opposition papers, as
those cases are distinguishable. (See A.D. Hoppe Co. v. Fred Katz Construction Co.
(1967) 249 Cal.App.2d 154, 158 [no response to arbitration petition ever filed]; see also
Evans Products Co. v. Millmen's Union No. 550 (1984) 159 Cal.App.3d 815, 819.)
9 II. Iskanian Remains Good Law on Nonenforceability of Blanket PAGA Waivers
In the Arbitration Agreement, plaintiffs agreed to waive their rights to "maintain
any . . . representative action in arbitration or any court concerning any dispute specified
in Section 5 . . . ." (Capitalization and boldface omitted.) Section 5 identifies "any
dispute aris[ing] between Employee and [Baker] relating to Employee's employment with
[Baker]. . . ."
In the court below, the parties agreed a "representative action" included a PAGA
claim and that the Arbitration Agreement purported to ban these claims in any forum—
arbitration or court. Baker conceded that this complete ban was unenforceable under
Iskanian. On appeal, it has changed its position. Baker now asserts that the ban is
enforceable because Iskanian is no longer good law after the United States Supreme
Court's recent decision in Epic. Baker argues Epic's interpretation of the FAA
preemption clause undermines Iskanian's reasoning and requires that California courts
enforce PAGA representative-action waivers. We reject these arguments. Because Epic
did not rule on the precise issue before Iskanian, we remain bound by Iskanian's holding.
Moreover, Iskanian's holding and reasoning are not necessarily incompatible with Epic.
A. Applicable Law
Congress enacted the FAA in response to judicial hostility to arbitration and to
ensure that private arbitration agreements are enforced according to their terms.
(American Express Co. v. Italian Colors Restaurant (2013) 570 U.S. 228, 232 (Italian
Colors).) Under section 2 of the FAA, state laws inconsistent with the federal act's
provisions and objectives are preempted. (AT&T Mobility LLC v. Concepcion (2011) 563
10 U.S. 333, 343 (Concepcion).) Under this rule, a state law contract defense is
unenforceable if it applies only to arbitration contracts, derives its meaning from the fact
an arbitration agreement is at issue, or interferes with the fundamental attributes of
arbitration. (Id. at pp. 341-344; see Epic, supra, 138 S.Ct. at p. 1622.) But state laws
applying to arbitration contracts are enforceable to the extent they are not in conflict with
the FAA. (Concepcion, at pp. 339, 343.)
In Concepcion, the United States Supreme Court held the FAA preempted a
California Supreme Court decision (Discover Bank v. Superior Court (2005) 36 Cal.4th
148) holding that class action waivers are unenforceable in consumer contracts as against
public policy. (Concepcion, supra, 563 U.S. 333.) The Concepcion court found the
California Supreme Court's holding interfered with the "fundamental attributes of
arbitration" (id. at p. 344) because arbitration is "poorly suited" to resolve class actions
(id. at p. 350), emphasizing a class action's strict procedural formalities, complex notice
requirements, and potential severe consequences to a defendant (id. at pp. 346-352).
In Iskanian, the California Supreme Court considered Concepcion's impact on
arbitration agreements in the employment context. (Iskanian, supra, 59 Cal.4th at pp.
362-363.) The Iskanian plaintiffs (who had signed arbitration agreements with class
action and representative action waivers as part of their employment) asserted wage-and-
hour class action claims and PAGA claims seeking statutory penalties for Labor Code
violations. (Id. at p. 361.) The Iskanian court first addressed the issue whether the FAA
preempts the state law rule, embodied in Gentry v. Superior Court (2007) 42 Cal.4th 443,
providing class-action waivers in employment contracts generally violate public policy.
11 (Iskanian, at pp. 362-366.) The Iskanian court determined Concepcion's holding and
reasoning applied to class action waivers in employment contracts and overruled Gentry.
(Iskanian, at pp. 362-366.) The Iskanian court specifically recognized that—as in
Concepcion—the refusal to enforce the employment arbitration agreement class action
waivers interfered with the fundamental attributes of arbitration. (Iskanian, at p. 364.) In
so ruling, the Iskanian court rejected the employees' arguments that the class action
waiver was unlawful under the National Labor Relations Act (NLRA), finding the NLRA
did not override FAA's preemption provision. (Iskanian, at pp. 366-374.)
The Iskanian court, however, reached a different conclusion on the waiver of the
employee's PAGA cause of action, holding a complete ban on PAGA actions is
unenforceable. (Iskanian, supra, 59 Cal.4th at pp. 378-391.) The court's conclusion was
predicated on its view that a PAGA claim functions as a law enforcement mechanism to
implement state labor laws. (Id. at pp. 382, 386-387.) As explained by Iskanian, the
Legislature enacted PAGA to address the lack of civil penalties and the dearth of
available resources to enforce state labor laws in California's vast economy. (Id. at p.
379; see Williams v. Superior Court (2017) 3 Cal.5th 531, 545.) The Legislature sought
to remedy these problems by deputizing employees to bring civil penalty actions on
behalf of the state. (Iskanian, at p. 379.) To maintain some oversight, the Legislature
required the employee to provide the state labor agency with written notice of the alleged
violations and permitted an employee to pursue the PAGA claim in court only if the
agency did not intervene. (Id. at p. 380; see § 2699.3, subd. (a)(2)(A).) A successful
PAGA claimant is entitled to collect 25 percent of the civil penalties for the employees,
12 with the remainder going to the government. (§ 2699, subd. (i).) Although the agency
does not have supervisorial authority over the employee in the litigation (see Iskanian, at
pp. 390-391), the agency must be provided with prior notice of any proposed settlement,
and the superior court must approve the final settlement (§ 2699, subd. (l)(2)).
After describing the statutory scheme and explaining the scheme's vital role in
ensuring worker protections, the Iskanian court found that a predispute employment
agreement in which an employee agrees to waive his or her right to bring representative
claims under PAGA in any forum is contrary to public policy and thus unenforceable
under state law. (Iskanian, supra, 59 Cal.4th at pp. 360, 382-384.) The court then
determined this conclusion was not preempted by the FAA because it found the FAA was
intended to govern the resolution of "private disputes, whereas a PAGA action is a
dispute between an employer and the state Agency." (Id. at p. 384.) Based on the FAA's
language, its legislative history, and prior United States Supreme Court decisions (id. at
pp. 384-386), the Iskanian court stated: "Simply put, a PAGA claim lies outside the
FAA's coverage because it is not a dispute between an employer and an employee arising
out of their contractual relationship. It is a dispute between an employer and the state
. . ." (id. at p. 386). The court stressed the nature of a PAGA claim as " ' "fundamentally
a law enforcement action designed to protect the public and not to benefit private
parties" ' " (id. at p. 387) and that " 'an aggrieved employee's action under the [PAGA]
functions as a substitute for an action brought by the government itself' " (id. at pp. 387,
381). The court further observed that the government entity in a PAGA action "is always
13 the real party in interest" (id. at p. 382), and this is confirmed by "[t]he fact that any
judgment in a PAGA action is binding on the government" (id. at p. 387).
In reaching these conclusions, the court analogized a PAGA claim to a qui tam
action (Iskanian, supra, 59 Cal.4th at p. 382), and stated such actions generally fall
outside the FAA's purview:
"Nothing in the text or legislative history of the FAA nor in the Supreme Court's construction of the statute suggests that the FAA was intended to limit the ability of states to enhance their public enforcement capabilities by enlisting willing employees in qui tam actions. Representative actions under the PAGA, unlike class action suits for damages, do not displace the bilateral arbitration of private disputes between employers and employees over their respective rights and obligations toward each other. Instead, they directly enforce the state's interest in penalizing and deterring employers who violate California's labor laws. . . . [¶] . . . [¶]
"In sum, the FAA aims to promote arbitration of claims belonging to the private parties to an arbitration agreement. It does not aim to promote arbitration of claims belonging to a government agency, and that is no less true when such a claim is brought by a statutorily designated proxy for the agency as when the claim is brought by the agency itself. The fundamental character of the claim as a public enforcement action is the same in both instances." (Id. at pp. 387- 388.)
At the conclusion of the Iskanian opinion, the court cautioned that its
determinations left open procedural issues and remanded for the parties and court to
address those issues. (Iskanian, supra, 59 Cal.4th at pp. 391-392.) In discussing these
issues, the high court noted:
"Although the arbitration agreement can be read as requiring arbitration of individual claims but not of representative PAGA claims, neither party contemplated such a bifurcation. [The plaintiff] has sought to litigate all claims in court, while [the employer] has sought to arbitrate the individual claims while barring the PAGA
14 representative claim altogether. In light of the principles above, neither party can get all that it wants. [The plaintiff] must proceed with bilateral arbitration on his individual damages claims, and [the employer] must answer the representative PAGA claims in some forum. The arbitration agreement gives us no basis to assume that the parties would prefer to resolve a representative PAGA claim through arbitration." (Id. at p. 391.)
Fifteen months after the California Supreme Court filed Iskanian, the Ninth
Circuit considered the issue whether Iskanian's holding regarding the unenforceability of
predispute PAGA waivers in any forum (which it called the "Iskanian rule") was
preempted by the FAA. (Sakkab, supra, 803 F.3d at p. 427.) The Ninth Circuit
concluded Iskanian's rule was not preempted, although on somewhat different grounds
than the Iskanian court. (Sakkab, at pp. 431-440.)
The Sakkab court began its analysis with its view that the Iskanian court
"expresse[d] no preference regarding whether individual PAGA claims are litigated or
arbitrated." (Sakkab, supra, 803 F.3d at p. 434.) The court stated that Iskanian held
"only that representative PAGA claims may not be waived outright" and "[t]he Iskanian
rule does not prohibit the arbitration of any type of claim." (Sakkab, at p. 434.) The
court then engaged in a lengthy examination of the nature of PAGA representative
claims, and considered whether requiring such claims to be resolved in arbitration would
interfere with the fundamental attributes of arbitration and thus preempt the Iskanian rule
under the Concepcion rationale. (Sakkab, at pp. 435-439.)
Comparing PAGA claims with the class action procedure, the Sakkab court
concluded that PAGA claims do not interfere with the fundamental attributes of
arbitration because they do not diminish the parties' freedom to select informal arbitration
15 procedures. (Sakkab, supra, 803 F.3d at p. 436.) The court stated: "Because
representative PAGA claims do not require any special procedures, prohibiting waiver of
such claims does not diminish parties' freedom to select the arbitration procedures that
best suit their needs. Nothing prevents parties from agreeing to use informal procedures
to arbitrate representative PAGA claims. This is a critically important distinction
between the Iskanian rule and the rule at issue in Concepcion." (Ibid.) The court added
that its conclusion was "bolstered by the PAGA's central role in enforcing California's
labor laws" and observed that "[a]s the California Supreme Court has explained, a PAGA
action is a form of qui tam action. . . . The FAA was not intended to preclude states from
authorizing qui tam actions to enforce state law." (Id. at pp. 439-440.)
At the conclusion of the opinion, the Sakkab court noted that although the "waiver
of [the plaintiff's] representative PAGA claims may not be enforced," it is "unclear . . .
whether the parties have agreed to arbitrate such surviving claims or whether they must
be litigated instead." (Sakkab, supra, 803 F.3d at p. 440.) The court thus remanded the
matter to the "district court and the parties to decide in the first instance where [the
plaintiff's] representative PAGA claims should be resolved . . . ." (Ibid.)
More than two years later, the United States Supreme Court decided Epic. (Epic,
supra, 138 S.Ct. 1612.) In Epic, an accountant sued his employer for violations of the
federal Fair Labor Standards Act (FLSA) and California overtime law. (Id. at p. 1620.)
The accountant sought to litigate the FLSA claim on behalf of a nationwide class under
FLSA's collective action procedures (see 29 U.S.C. § 216(b)), and to pursue the state law
claim as a class action. (Epic, at p. 1620.) The FLSA authorizes an employee to
16 maintain an action on behalf of himself and other "employees similarly situated" if the
other employees sign written consent notices. (29 U.S.C. § 216(b).)
The Epic employer moved to compel arbitration under a provision in the parties'
arbitration agreement requiring individualized arbitration. (Epic, supra, 138 S.Ct. at pp.
1619-1620.) The Ninth Circuit held this provision was unenforceable because it violates
the NLRA by barring employees from engaging in " 'concerted activit[y].' " (Epic, at p.
1620.) In Epic, the United States Supreme Court disagreed. The court reconfirmed
Concepcion's holding that the FAA requires enforcement of class action waivers, and—as
did the Iskanian court—determined the NLRA does not take precedence over the FAA on
this issue. (Epic, at pp. 1623-1630.) Although most of the Epic opinion concerned an
analysis of the NLRA as it relates to the FAA, the court also strongly reiterated the
settled principles regarding the breadth of FAA preemption, and made clear that the FAA
requires courts " 'rigorously' to 'enforce arbitration agreements according to their terms,
including terms that specify with whom the parties choose to arbitrate their disputes and
the rules under which that arbitration will be conducted.' " (Id. at p. 1621.) The court
observed: "The parties . . . contracted for arbitration. They proceeded to specify the rules
that would govern their arbitrations, indicating their intention to use individualized rather
than class or collective action procedures. And this much the [FAA] seems to protect
pretty absolutely" (Epic, at p. 1621, italics added), citing Concepcion, supra, 563 U.S.
333; Italian Colors, supra, 570 U.S. 228; and DIRECTV, Inc. v. Imburgia (2015) ___
U.S. __ [136 S.Ct. 463], each of which involved disputes between private parties.
17 B. Analysis
Relying on Epic's reiteration of the FAA's broad preemptive scope barring state
laws interfering with arbitration provisions requiring individual arbitrations, Baker urges
us to disavow Iskanian's continuing validity on PAGA claims. We decline to do so.
On federal questions, intermediate appellate courts in California must follow the
decisions of the California Supreme Court, unless the United States Supreme Court has
decided the same question differently. (Auto Equity Sales, Inc. v. Superior Court (1962)
57 Cal.2d 450, 455 (Auto Equity); see Tanguilig, supra, 5 Cal.App.5th at p. 673; Truly
Nolen of America v. Superior Court (2012) 208 Cal.App.4th 487, 507.)
Iskanian held a ban on bringing PAGA actions in any forum violates public policy
and that this rule is not preempted by the FAA because the claim is a governmental
claim. (Iskanian, supra, 59 Cal.4th at pp. 384-389.) Epic did not consider this issue and
thus did not decide the same question differently. (See Whitworth v. Solarcity Corp
(N.D. Cal. 2018) 336 F.Supp.3d 1119, 1122-1123 [Epic is not irreconcilable with
Sakkab].) Epic addressed a different issue pertaining to the enforceability of an
individualized arbitration requirement against challenges that such enforcement violated
the NRLA. (Epic, supra, 138 S.Ct. at pp. 1619, 1623-1630.)
Moreover, the cause of action at issue in Epic differs fundamentally from a PAGA
claim. Epic held an employee who agrees to individualized arbitration cannot avoid this
agreement by asserting claims on behalf of other employees under the FLSA or federal
class action procedures. (Epic, supra, 138 S.Ct. at pp. 1619-1632.) The Iskanian court
distinguished this type of factual scenario from the PAGA context. Forecasting Epic's
18 outcome, the Iskanian court said: "Our opinion today would not permit a state to
circumvent the FAA by, for example, deputizing employee A to bring a suit for the
individual damages claims of employees B, C, and D. This pursuit of victim-specific
relief by a party to an arbitration agreement on behalf of other parties to an arbitration
agreement would be tantamount to a private class action, whatever the designation given
by the Legislature. Under Concepcion, such an action could not be maintained in the
face of a class waiver." (Iskanian, supra, 59 Cal.4th at pp. 387-388.) The Iskanian court
found the PAGA claim was outside this rule because the employee had been deputized by
the state to bring the qui tam claim on behalf of the state, not on behalf of other
employees. (Id. at pp. 384-389.) Although on somewhat different grounds, the Sakkab
court also found a refusal to enforce a total ban on the PAGA claim was not preempted
by the FAA. (Sakkab, supra, 803 F.3d at pp. 431-440.)
Epic's interpretation of the FAA's preemptive scope does not defeat Iskanian's
holding or reasoning for purposes of an intermediate appellate court applying the law.
The Iskanian court reached a different conclusion from Concepcion on the enforceability
of the contractual waiver—not because the Iskanian court interpreted the FAA differently
from Concepcion on the preemption issue, but based on the unique nature of a PAGA
claim as a qui tam type action, and the "PAGA litigant's status as 'the proxy or agent' of
the state" and his or her "substantive role in enforcing our labor laws on behalf of state
law enforcement agencies." (Iskanian, supra, 59 Cal.4th at pp. 388, italics added.)
Because the California Supreme Court found a PAGA claim involved a dispute
not governed by the FAA, and the waiver would have precluded the PAGA action in any
19 forum, it held its PAGA-waiver unenforceability determination was not preempted. Epic
did not reach the issue regarding whether a governmental claim of this nature is governed
by the FAA, or consider the implications of a complete ban on a state law enforcement
action. Because Epic did not overrule Iskanian's holding, we remain bound by the
California Supreme Court's decision. (See Auto Equity, supra, 57 Cal.2d at p. 455.)
III. Did Court Err in Refusing to Order PAGA Claim to Arbitration
Baker contends that even if it cannot enforce the contractual provision barring a
representative action in any forum, the court erred in refusing to order the PAGA action
to arbitration (as a representative action and/or an individual action). Plaintiffs counter
that they cannot be required to litigate the PAGA claims in arbitration because the state is
the real party in interest in a PAGA claim and the state never consented or waived its
right to bring its claim to court.
Before addressing these issues, we consider the threshold issue of whether the
parties agreed to arbitrate PAGA representative claims in the event the bar on
representative claims in any forum is unenforceable. If they did not, we need not reach
the issue of whether such arbitration agreement is enforceable with respect to a PAGA
claim. (See California Correctional Peace Officers Assn. v. State of California (2006)
142 Cal.App.4th 198, 204 ["in ruling on a petition to compel, the court must determine
whether the parties entered into an enforceable agreement to arbitrate that reaches the
dispute in question].) Without an agreement to arbitrate a claim, a court has no authority
to order the claim to arbitration.
20 Based on our review of the Arbitration Agreement and the parties' briefs and
supplemental briefs, we are satisfied the parties agreed (through the agreement's
severance clause) that if any provision (such as the representative claim waiver in all
forums) is found to be invalid, the finding does not preclude the enforcement of any
remaining portion of the agreement. We are also satisfied that the scope of the parties'
arbitration agreement encompasses PAGA representative actions (neither party has
suggested otherwise). Thus, the issue before us is whether the agreement to arbitrate a
PAGA representative action is enforceable in this case.
As discussed above, this precise issue was not addressed in Iskanian or Sakkab.
Iskanian held a waiver of an employee's right to bring a representative action in any
forum violated public policy and that this rule was not preempted by the FAA. (Iskanian,
supra, 59 Cal.4th at pp. 378-389.) It did not address the question whether an employee's
predispute agreement to arbitrate PAGA actions is enforceable by requiring arbitration of
the claim. It noted only that the parties' particular arbitration agreement appeared to
"read as requiring arbitration of individual claims but not of representative PAGA
claims," and therefore the plaintiff "must proceed with bilateral arbitration on his
individual damages claims, and [the employer] must answer the representative PAGA
claims in some forum." (Id. at p. 391.) The Sakkab court assumed PAGA claims could
be arbitrated, but did not address the nature of an enforceable arbitration agreement.
(Sakkab, supra, 803 F.3d at p. 440.) The court specifically stated that "it is unclear . . .
whether the parties have agreed to arbitrate such surviving claims or whether they must
be litigated instead," and thus remanded "for the district court and the parties to decide in
21 the first instance where [the plaintiff's'] representative PAGA claims should be resolved
. . . ." (Ibid.)
Although neither Iskanian nor Sakkab decided this issue, several California Courts
of Appeal have done so. These courts have uniformly held that an employee's predispute
agreement to arbitrate PAGA claims is not enforceable without the state's consent.
(Julian v. Glenair, Inc. (2017) 17 Cal.App.5th 853, 869-872 (Julian); Betancourt v.
Prudential Overall Supply (2017) 9 Cal.App.5th 439, 445-449 (Betancourt); Tanguilig,
supra, 5 Cal.App.5th at pp. 677-680.) Relying on the rationale underlying Iskanian's
PAGA waiver-enforceability and FAA-preemption conclusions, these courts reasoned
that because the state is the real party in interest in a PAGA action and a PAGA plaintiff
asserts the claim solely on behalf of, and as the proxy for, the state, the employee's
predispute arbitration agreement does not subject the claim to arbitration because the
state never agreed to arbitrate the claim. (Julian, at pp. 871-872; Betancourt, at pp. 448-
449; Tanguilig, at pp. 677-680.)
Under these decisions, predispute arbitration agreements generally do not support
the compelled arbitration of PAGA claims because the state retains control of the right
underlying the employee's PAGA claim at least until the state has provided the employee
with implicit or explicit authority to bring the claim. (See Julian, supra, 17 Cal.App.5th
at pp. 870-872.) At that point, an employee's waiver of the trial right and an agreement to
arbitrate may be enforceable. (Ibid.) But before that time, the employee has no authority
or authorization to waive the state's rights to bring the state's claims in court.
22 Under the logic of Iskanian's PAGA rulings, we agree with these conclusions.
Without the state's consent, a predispute agreement between an employee and an
employer cannot be the basis for compelling arbitration of a representative PAGA claim
because the state is the owner of the claim and the real party in interest, and the state was
not a party to the arbitration agreement. Under state and federal law, an arbitration
agreement applies only to the parties who agreed to its terms and a party cannot be
compelled to arbitrate a dispute that it has not elected to submit to arbitration. (County of
Contra Costa v. Kaiser Foundation Health Plan, Inc. (1996) 47 Cal.App.4th 237, 245.)
In this case, plaintiffs signed the Arbitration Agreement, agreeing to bring all
employment-related claims to arbitration. The state did not sign the agreement, nor did it
consent to its terms. Even assuming that in some circumstances an agent can waive a
party's jury trial right, plaintiffs were not acting as the state's agent or assignee at the time
they signed the arbitration agreement. They signed the agreements in 2014 and 2015,
before they were "aggrieved employees" entitled to bring the PAGA action on the state's
behalf. (See § 2699, subd. (c) [" 'aggrieved employee' means any person who was
employed by the alleged violator and against whom one or more of the alleged violations
was committed," italics added].)
This determination is consistent with conclusions reached by courts addressing qui
tam actions brought under the federal False Claims Act (31 U.S.C. § 3729 et seq.) that an
employee's arbitration agreement is not enforceable because the government was not a
party to the agreement. (See Mikes v. Strauss (S.D.N.Y. 1995) 889 F.Supp. 746, 755
[dicta]; United States ex rel. Welch v. My Left Foot Children's Therapy, LLC (D. Nev.
23 2016) 2016 U.S. Dist. LEXIS 76490.) The determination is also supported by California
law providing that a person who signs an agreement in a particular capacity is not
necessarily bound when acting in a different capacity. (See Goliger v. AMS Properties,
Inc. (2004) 123 Cal.App.4th 374, 377; Benasra v. Marciano (2001) 92 Cal.App.4th 987,
990; Fitzhugh v. Granada Healthcare & Rehabilitation Center, LLC (2007) 150
Cal.App.4th 469, 474-475.)
We recognize that several federal courts have reached a different conclusion on
this issue regarding the enforceability of a PAGA arbitration requirement contained in a
predispute arbitration agreement. (Valdez v. Terminix International Co. Ltd. P'ship (9th
Cir. 2017) 681 Fed. Appx. 592 (Valdez); Wulfe v. Valero Ref. Co.-Cal. (9th Cir. 2016)
641 Fed. Appx. 758, 760; Cabrera v. CVS Rx Services, Inc. (N.D. Cal. 2018) __
F.Supp.3d __ [2018 U.S. Dist. LEXIS 43681 at p. *12] [compelling arbitration of PAGA
claims because, while "the law is clear" that PAGA claims cannot be waived, "nothing
prevents them from being arbitrated"].)
The Valdez court described the reasoning underlying this conclusion. (Valdez,
supra, 681 Fed. Appx. 592.) The Valdez district court had found (similar to the Tanguilig
and Betancourt courts) that a PAGA claim " 'belongs to the state, and the state has not
waived the judicial forum,' " and therefore the PAGA claims could not be compelled to
arbitration. (Valdez, at p. 594.) The Ninth Circuit rejected this analysis and declined to
create a rule that PAGA claims "categorically cannot proceed to arbitration," explaining:
"Iskanian and Sakkab clearly contemplate that an individual employee can pursue a
PAGA claim in arbitration, and thus that individual employees can bind the state to an
24 arbitral forum. . . . Iskanian recognized that although '[t]he government entity on whose
behalf the plaintiff files suit is always the real party in interest in the suit,' [citation], 'the
judgment in a PAGA representative action is binding not only on the named employee
plaintiff but also on government agencies and any aggrieved employee not a party to the
proceeding' [citation]. Employees can bind government agencies because they
'represent[] the same legal right and interest' as the government in PAGA proceedings.
[Citations.] Indeed, '[a]n employee plaintiff suing . . . under the PAGA does so as the
proxy or agent of the state's labor law enforcement agencies.' [Citations.] Accordingly,
an individual employee, acting as an agent for the government, can agree to pursue a
PAGA claim in arbitration. Iskanian does not require that a PAGA claim be pursued in
the judicial forum; it holds only that a complete waiver of the right to bring a PAGA
claim is invalid. [Citation.] [¶] Sakkab likewise recognized that individual employees
may pursue PAGA claims in arbitration." (Ibid.)
We are not persuaded by Valdez's analysis on this issue. The court focused on the
employee's role as the state's proxy (with the ability to bind the state and other
employees) to support a rule that the employee's signature on a predispute arbitration
agreement waives the employee's rights to bring the state's enforcement claims in court.
However, under the PAGA statutory scheme, the plaintiff does not assume this proxy role
until it is an " 'aggrieved employee.' " (§ 2699, subds. (a), (c).) When an employee signs
a predispute arbitration agreement, he or she is signing the agreement solely on his or her
own behalf and not on behalf of the state or any other third party. Thus, the agreement
cannot be fairly interpreted to constitute a waiver of the state's rights to bring a PAGA
25 penalties claim in court (through a qui tam action by its deputized employee). Further,
Valdez's suggestion that Sakkab "recognized" PAGA claims could be compelled to
arbitration overstates the court's holding. (Valdez, supra, 681 Fed. Appx. at p. 594.)
Although Sakkab did assume PAGA claims can be arbitrated, the Sakkab court did not
consider the issue whether a private party can waive the state's right to litigate its PAGA
claims in court before any dispute has arisen. Instead, the court remanded for a
determination on the foundational question as to the nature of the parties' arbitration
agreement regarding the PAGA claim. (Sakkab, supra, 803 F.3d at p. 440.)
We recognize there are different ways of viewing a qui tam lawsuit regarding the
true claim owner and whether the state and the employee can both be considered to be
real parties in interest in the lawsuit for purposes of evaluating an employee's authority to
waive rights to bring claims in court. (See generally Andrews, Whistling in Silence: The
Implications of Arbitration on Qui Tam Claims under the False Claims Act (2015) 15
Pepp. Disp. Resol. L.J. 203, 210-230.) But we are not writing on a clean slate and are
compelled to follow our high court's views regarding a California statute. Moreover,
when we provided the parties the opportunity to submit supplemental briefs on the issue
of the propriety of Valdez's holding, Baker did not provide any analysis supporting its
position, other than to say that neither Iskanian nor Sakkab held that representative
actions cannot be compelled to arbitration. This comment is true, but unhelpful. Because
the Iskanian court believed the parties' particular arbitration contract did not contain the
parties' agreement to arbitrate PAGA representative actions, it had no need to consider
the issue before us in this case. The Sakkab court assumed the arbitrability of a PAGA
26 claim, but remanded the matter for a determination regarding the meaning of the parties'
arbitration agreement.
In sum, we agree with the California Courts of Appeal that have held Iskanian's
view of a PAGA representative action necessarily means that this claim cannot be
compelled to arbitration based on an employee's predispute arbitration agreement absent
some evidence that the state consented to the waiver of the right to bring the PAGA claim
in court. 3 There was no such evidence produced in this case.
Finally, we reject Baker's claim that the court erred in failing to order plaintiffs'
individual PAGA claims to arbitration. Generally, every PAGA action seeking penalties
" 'is a representative action on behalf of the state.' " (Iskanian, supra, 59 Cal.4th at p.
387, quoting id. at p. 394 (Chin, J., concurring), italics added.) Thus, a single
representative claim cannot be split into an arbitrable individual claim and a nonarbitrable
representative claim. (Williams v. Superior Court (2015) 237 Cal.App.4th 642, 649.)
3 Baker does not contend, nor do we find, this determination conflicts with the FAA. Because PAGA actions are public enforcement actions, they generally fall outside the scope of the FAA. (Iskanian, supra, 59 Cal.4th at pp. 386-387, 388-389; accord, Tanguilig, supra, 5 Cal.App.5th at p. 679 ["Iskanian holds that qui tam actions were never intended to be within the ambit of the FAA"].) "Representative actions under the PAGA . . . do not displace the bilateral arbitration of private disputes between employers and employees . . . , they directly enforce the state's interest in penalizing and deterring employers who violate California's labor laws." (Iskanian, at p. 387.)
27 DISPOSITION
Order affirmed. Appellant to bear respondents' costs on appeal.
HALLER, J.
WE CONCUR:
McCONNELL, P. J.
NARES, J.