Thursday the California Supreme Court heard oral argument in the much anticipated Iskanian v. CLS Transportation case. This post-Concepcion case is the second of three lead cases to be heard regarding arbitration. The first, Sonic-Calabasas v. Moreno was decided October 17, 2013, with Justice Liu authoring the opinion that the FAA preempts state-law rule requiring a Berman hearing prior to arbitration and the trial court could consider waiver of Berman protections when considering whether arbitration provision is unconscionable due to the forced waiver by the employee of affordable and accessible dispute resolution forum.
In a packed Los Angeles appellate courtroom and equally packed overflow room, Justice Liu opened questioning by requesting Appellant-Employees’ Counsel Glenn A. Danas give his best argument on why Concepcion has not preempted Gentry. Justice Kennard also wanted a quick overview of whether Gentry survived the SCOTUS decision in Concepcion, while Chief Justice Cantil-Sakauye inquired as to whether there could be a two-step modified Gentry rule, although Justice Liu seemed to disfavor a modified Gentry rule post-Concepcion and American Express v. Italian Colors. Justice Liu also noted the Berman waiver at issue in Sonic II is very different than the class action waiver at issue here, but Justice Chin’s inquiry focused on whether PAGA is a “representative” action with Justice Werdegar following suit by requesting counsel address the waiver of a representative action. Danas cited to the SCOTUS decision in Mitsubishi and argued that waiver of statutory rights is against public policy and this has been reaffirmed in Italian Colors.
Michael Rubin representing amici Service Employees International Union and the California Employment Lawyers Association took to the lectern and immediately addressed the procedural and substantive private right of action under the labor codes which confer civil penalties and attorneys fees and are inherently “representative.” Justice Werdegar raised SCOTUS decision in Kaiser Steel which stated the general rule that federal courts do not have jurisdiction over activity which is arguably subject to §7 of the National Labor Relations Act and inquired on whether amici was in favor or against the holding in Kaiser Steel. Then Justice Liu launched into a §7/PAGA/Class initiated inquiry into the timing of the statutes and class actions and what pre-existed Rule 23. Rubin eloquently laid out legislative history concluding that an opt-out system has been created which deprives individual employees of protections enshrined in the labor code.
David Faustman representing the Respondent-Employer introduced himself, ingratiated himself to the esteemed panel and gave special mention to Justice Kennard. Faustman’s opening statements went right to Gentry’s survival stating, “Gentry must fall.” Justice Kennard lodged the first question asking counsel if there was a distinction between Discover Bank as a categorical rule and Gentry which sets forth factors. Faustman quickly replied there is no distinction in the rules and that class waiver is “the center of the orbit” of Gentry and a modified test will never hold up upon SCOTUS review. Justice Kennard asked Faustman to consider Gentry’s survival and whether it would be inconsistent with Concepcion and Italian Colors. Faustman reiterated that there is no distinction between Discover Bank and Gentry and that unconscionability argument and facts to support unconscionability have only been raised by appellant in light of Sonic II and that the trial court below found there is absolutely no procedural unconscionability on the facts in this record. At that point, both Justice Kennard and Liu actively paged through the briefs before them.
Next, Justice Liu asked whether the FAA and the NLRA are in conflict. Faustman boldly pronounced that the FAA “trumps” the NLRA. Justice Liu aggressively challenged Faustman’s stance focusing on rules of construction culminating with Faustman’s acquiescence that “trumps” was the wrong term. Justice Liu continued analyzing the FAA and its omission or inclusion of the term “collective activity.” Faustman disagreed. Chief Justice agreed with Justice Liu. Faustman argued that a class action is a legal fiction. Justice Liu appeared to defend the class action procedure as a form of “collective action” by definition. Faustman vehemently disagreed stating it is not a “textual” argument. Justice Liu asked, “[w]hy is PAGA preempted?” Then, Liu moved to this court’s decision in Arias focusing on the employee standing as a proxy for the State and likening PAGA to a Qui Tam action. Faustman argued that although he has “no quarrel with Arias” there is no proxy by the State. Faustman claimed that here there are different procedural practices in play. Justice Liu’s reliance on Arias appeared resolute. Faustman simply claimed that the Arias argument may go to far. However, Justice Liu continued to further develop the analysis by drawing an inverse relationship to the SCOTUS’s EEOC v. Waffle House case. Faustman ended his time cautioning the court of SCOTUS’s power to overrule this Court as it has done previously in Discover Bank.
Andrew Pincus, amicus for the Chamber of Commerce of the United States, finished up Respondent’s argument by first addressing Justice Liu’s question regarding a modified Gentry rule. Pincus claimed that the unconscionability reasoning in Sonic II cannot be applied here. Justice Liu continued on the inverse Waffle House analysis questioning the permissibility of a plaintiff to file an initial complaint with the EEOC for any and all claims. Pincus responded that the EEOC is in command of the case and it is indisputable that the employee here controls the case. Chief Justice pointed out that under Pincus’ interpretation if an employee waives the right to bring a PAGA claim it undermines the purpose of the State. Pincus answered that PAGA claims cannot be individual and although important public rights may be lost, Concepcion dictates that class procedures cannot be enacted if waived even if a desirable policy is at issue.
Justice Corrigan raised the issue of assignment of a State’s right to an employee and whether an arbitration agreement is binding where the employee has waived that right. Justice Corrigan ended the Respondent’s argument by pointing out that a given employer could insulate itself from PAGA claims by demanding that every employee sign an arbitration agreement with a waiver.
On rebuttal, other than reciting a few clarifying citations to the record the argument came to a natural end with Justice Kennard asking the last question which was Appellant’s take on Faustman’s comment that he had “no quarrel with Arias” and whether Arias is controlling here. It should be noted that Justice Kennard penned Arias which held that an employee need not satisfy class action requirements to bring a representative action under PAGA. It also held that an employee plaintiff suing under the Labor Code Private Attorneys General Act of 2004, does so as the proxy or agent of the state's labor law enforcement agencies.
With that said, I believe this panel is going to try and salvage PAGA, and could potentially save the Cruz and Broughton line of cases. The inverse would be a crippling defeat for employees and consumers to police bad acts where public agencies, which lack adequate resources, are unable to bring actions. This would effectively insulate corporations and employers from blatant violations simply by requiring individual arbitration with a PAGA waiver as a condition of employment. One can only hope Faustman’s chiding of SCOTUS power does not dissuade this panel from doing the right thing.
That's the end of Edie's report. Again, the opinion is due by July 2, 2014.