Court Opinion

ID: 4649851
Source: CourtListenerOpinion
Date Created: 2021-01-07 21:00:40.757219+00
Date Added: 2024-06-11T08:01:28.053073
License: Public Domain

NOT FOR PUBLICATION                          FILED
                    UNITED STATES COURT OF APPEALS                        JAN 7 2021
                                                                      MOLLY C. DWYER, CLERK
                                                                       U.S. COURT OF APPEALS
                            FOR THE NINTH CIRCUIT

CARLOS RIVAS, in his capacity as Private        No.    20-55140
Attorney General Representative,
                                                D.C. No.
      Plaintiff-counter-                        8:18-cv-01007-JGB-KK
      defendant-Appellee,

 v.                                             MEMORANDUM*

COVERALL NORTH AMERICA, INC.,

      Defendant-counter-claimant-
      Appellant.

                   Appeal from the United States District Court
                       for the Central District of California
                    Jesus G. Bernal, District Judge, Presiding

                    Argued and Submitted November 19, 2020
                              Pasadena, California

Before: CALLAHAN and BUMATAY, Circuit Judges, and PRESNELL,**
District Judge.
Concurrence by Judge BUMATAY

      Coverall North America, Inc., appeals the denial of its motion to compel

      *
             This disposition is not appropriate for publication and is not precedent
except as provided by Ninth Circuit Rule 36-3.
      **
            The Honorable Gregory A. Presnell, United States District Judge for
the Middle District of Florida, sitting by designation.
arbitration of Carlos Rivas’s Private Attorneys General Act (PAGA)1 claim on an

individual basis. We have jurisdiction under 9 U.S.C. § 16(a)(1)(B), and,

reviewing de novo, we affirm. See Knutson v. Sirius XM Radio Inc., 771 F.3d 559,

564 (9th Cir. 2014).

      Coverall first argues that the district court improperly decided issues that the

parties’ arbitration agreement reserved for an arbitrator. Specifically, the company

contends that the court had no business deciding whether Rivas could arbitrate

claims on behalf of other allegedly aggrieved employees. The problem with

Coverall’s argument, however, is that the company specifically and repeatedly

urged the district court to compel arbitration on “an individual, not a

representative, basis.” It further asserted that the question was for the court, not an

arbitrator. It is hard to see how Coverall’s position before the district court is

consistent with its position on appeal.2 In the end, the court answered the questions

1
       PAGA is a California law that “authorizes an employee to bring an action
for civil penalties on behalf of the state against his or her employer for Labor Code
violations committed against the employee and fellow employees, with most of the
proceeds of that litigation going to the state.” Iskanian v. CLS Transp. L.A., LLC,
327 P.3d 129, 133 (2014); see Cal. Lab. Code §§ 2698–99.6.
2
       In arguing that the district court overstepped its authority, Coverall invokes a
rule developed in the context of class arbitrations. See Shivkov v. Artex Risk
Solutions, 974 F.3d 1051, 1065–66 (9th Cir. 2020) (holding that the availability of
class arbitration is a “gateway” issue for the courts absent clear and unmistakable
evidence to the contrary). Setting aside whether such a rule is appropriately
applied to provisions governing the arbitration of PAGA claims, courts addressing
whether class arbitration is available necessarily also address the enforceability of

                                           2
put to it by Coverall; it simply ruled on the enforceability of a provision that it was

asked to enforce. We perceive no reversible error.

      Coverall next contends that the Federal Arbitration Act preempts

California’s rule against waivers of representative PAGA claims. Although

Sakkab v. Luxottica Retail North America, Inc., 803 F.3d 425 (9th Cir. 2015),

forecloses this argument, Coverall asserts that the Supreme Court effectively

overruled that decision in Epic Systems Corp. v. Lewis, 138 S. Ct. 1612 (2018), and

Lamps Plus, Inc. v. Valera, 139 S. Ct. 1407 (2019). We disagree. To the extent

tension exists between Supreme Court case law and Sakkab, it largely stems from

AT&T Mobility LLC v. Concepcion, 563 U.S. 333 (2011), a case Sakkab

considered at length. There, the Court held that the Federal Arbitration Act

preempts state laws that interfere with arbitration’s “fundamental attributes,”

including, primarily, its procedural informality. Id. at 348–49. The Supreme Court

then reiterated and reapplied that rule in Epic Systems and Lamps Plus. But neither

case expanded upon Concepcion in such a way as to abrogate Sakkab. See United

States v. Green, 722 F.3d 1146, 1150 (9th Cir. 2013) (specifying that even

“strong[] signals” from the Supreme Court that our precedent is wrong do not

class-waiver provisions, just as the district court decided the enforceability of the
purported representative PAGA waiver here. See, e.g., Reed Elsevier, Inc. ex rel.
LexisNexis Div. v. Crockett, 734 F.3d 594, 600 (6th Cir. 2013).

                                           3
allow a three-judge panel to overrule circuit precedent). Accordingly, insofar as

the disputed provision of the parties’ arbitration agreement bars Rivas from

arbitrating his PAGA claim in full, it remains unenforceable under California law.

      Coverall’s remaining arguments are similarly unavailing. The company

likens PAGA actions to class arbitrations, which, given their procedural

complexity, can frustrate the aims of the Federal Arbitration Act. See, e.g.,

Concepcion, 563 U.S. at 348–50. Yet in Sakkab we explained that the two

proceedings markedly differ.3 Namely, PAGA arbitrations “do not require the

formal procedures of class arbitration.” Sakkab, 803 F.3d at 436. Coverall lastly

urges that California’s rule fails to qualify as a generally applicable contract

defense under the Federal Arbitration Act’s savings clause. But because we also

rejected this argument in Sakkab, 803 F.3d at 432–33, the district court properly

applied California law and denied Coverall’s motion to compel arbitration on an

individual basis.

      AFFIRMED.

3
       This Court and the California Supreme Court have recently reiterated the
fundamental differences between the two types of proceedings. See Canela v.
Costco Wholesale Corp., 971 F.3d 845, 851–53 (9th Cir. 2020); Kim v. Reins Int’l
Cal., Inc., 459 P.3d 1123, 1130–31 (Cal. 2020).

                                           4
                                                                             FILED
Rivas v. Coverall North America, No. 20-55140                                 JAN 7 2021
                                                                         MOLLY C. DWYER, CLERK
BUMATAY, Circuit Judge, concurring:                                        U.S. COURT OF APPEALS

          Our precedent puts us in the middle of the jurisprudential equivalent of a rock

and a hard place. By affirming the denial of the motion to compel here, we have

faithfully applied our precedent as well as any three-judge panel of this court could.

I therefore join the majority decision.

          But I write separately to explain how that precedent has been seriously

undermined and should be revisited by our court en banc.

                                             I.

          Rivas’s PAGA claim is plainly within the scope of the arbitration agreement,

which requires that “all controversies, disputes or claims” between Coverall and

Rivas “be submitted promptly for arbitration.”           The agreement also requires

arbitration be conducted on an “individual, not class wide basis.” Without our

precedent, this would have been a simple case. To enforce the parties’ agreement,

we should have just compelled arbitration of Rivas’s PAGA claim on an individual

basis. That is the only solution that gives proper effect to the parties’ expressed

intent.

          But this isn’t a simple case.      The problem is that PAGA claims are

“representative” by their very nature. Iskanian v. CLS Transportation Los Angeles,

LLC, 59 Cal. 4th 348, 381 (2014); see Cal. Lab. Code § 2699(a) (2016). And forcing

                                             1
Rivas to arbitrate the PAGA claim on an “individual” basis would run headlong into

California law. As the majority decision summarizes, the so-called Iskanian rule

makes any waiver of representative PAGA claims in an employment agreement

unenforceable. See Iskanian, 59 Cal. 4th at 383. This wouldn’t have posed an

obstacle if, like most state laws that frustrate and interfere with arbitration

agreements, the Iskanian rule was preempted by the Federal Arbitration Act

(“FAA”). 9 U.S.C. § 2. But, here’s the rub: In Sakkab v. Luxottica Retail N. Am.,

Inc., 803 F.3d 425, 427 (9th Cir. 2015), we held the Iskanian rule was not preempted

by the FAA.

      This leaves us with several bad options. We could, like the district court

suggested, hold that the PAGA claim falls outside the scope of the arbitration

agreement. But doing so would have us ignore the plain text of the parties’

agreement, which is not something we can do. See American Express Co. v. Italian

Colors Restaurant, 570 U.S. 228, 233 (2013) (The FAA requires courts to rigorously

“enforce arbitration agreements according to their terms[.]”) (simplified).

      We could also compel arbitration of the PAGA claim, but on a

“representative” basis. Of course, that would require transforming the arbitration

agreement, which only permits arbitration on an individual basis, into one that allows

representative arbitration as well. Yet, we can’t just compel parties into any type of

arbitration without their consent. See Stolt-Nielsen S.A. v. AnimalFeeds Int’l Corp.,

                                          2
559 U.S. 662, 685 (2010) (holding that class arbitration cannot be imposed on parties

based on silence in the arbitration agreement).

         Instead, we affirm the district court, which held the arbitration agreement

unenforceable because, under Iskanian and Sakkab, it works as an implied waiver of

PAGA claims. This solution, while compelled by our precedent, undermines the

parties’ promises to each other and potentially upends all arbitration agreements.

We now creep closer to the day that a party may always sidestep an arbitration

agreement simply by filing a PAGA claim.1

                                          II.

         Recent Supreme Court decisions in Epic Systems Corp. v. Lewis, 138 S. Ct.

1612 (2018), and Lamps Plus, Inc. v. Varela, 139 S. Ct. 1407 (2019), make clear that

our precedent is in serious need of a course correction. While I agree that Sakkab is

not clearly irreconcilable with Epic Systems and Lamps Plus and that we are required

to continue to apply Sakkab, the writing is on the wall that the Court disfavors our

approach. We should correct our law before being countermanded by the Court yet

again.

         1
        When we arrive there formally, we’ll be late to the party: California courts
have already said as much. Collie v. Icee Co., 52 Cal. App. 5th 477, 481 (2020)
(suggesting that an otherwise valid arbitration agreement does not provide a basis to
compel arbitration of a PAGA claim) (collecting cases).

                                          3
      In Epic Systems, the Court overturned our view of the FAA’s saving clause.

138 S. Ct. at 1622–23, 1632. That provision states that an arbitration agreement

“shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law

or in equity for the revocation of any contract.” 9 U.S.C. § 2. We held that this

provision preserves the unenforceability of an agreement requiring individualized

arbitration proceedings based on federal law deeming such contracts illegal. See

Morris v. Ernst & Young, LLP, 834 F.3d 975, 985 (9th Cir. 2016). But the clause,

the Court instructed, “offers no refuge for defenses that apply only to arbitration or

that derive their meaning from the fact that an agreement to arbitrate is at issue.”

Epic Sys. Corp., 138 S. Ct. at 1622 (simplified). That means § 2 does not protect

“defenses that target arbitration either by name or by more subtle methods.” Id. In

other words, the saving clause doesn’t preserve defenses that interfere with the

“fundamental attributes of arbitration.” Id. (simplified).

      Most importantly here, Epic Systems specifically denoted that defenses that

“attack[] . . . the individualized nature of arbitration proceedings,” instead of “class

or collective ones,” fall into the category of law that interferes with arbitration’s

fundamental attributes. Id. (emphasis added). So the Court held preempted the

defense that allowed a party to demand a classwide arbitration since it alters “the

traditionally individualized and informal nature of arbitration.” Id. at 1623. The

lesson from Epic Systems is thus: defenses that render “a contract . . . unenforceable

                                           4
just because it requires bilateral arbitration” are not within the saving clause’s

aegis. Id.

      Only a year later, the Court again reviewed our arbitration jurisprudence in

Lamps Plus. There, we applied a California common-law contract principle to

construe an ambiguous arbitration agreement as requiring class arbitration. 139 S.

Ct. at 1417. Even though the contract-law canon was “nondiscriminatory” and

“neutral,” and gave “equal treatment” to all contracts, the Supreme Court still found

it not protected by the FAA’s saving clause. Id. at 1418. The Court reiterated that

“courts may not rely on state contract principles to reshape traditional individualized

arbitration by mandating classwide arbitration procedures without the parties’

consent.” Id. (simplified).

      The tensions between Epic Systems/Lamps Plus and Sakkab are obvious. By

holding that the Iskanian rule is not preempted by the FAA, we interfere with

“arbitration’s fundamental attributes.” Epic Sys. Corp., 138 S. Ct. at 1622. Indeed,

its application in this case requires that the parties not arbitrate a claim at all.

Otherwise, in other cases, Sakkab would mandate “representative,” rather than

individual, arbitration. 803 F.3d at 438–39; see id. at 436 (PAGA claims would

require arbitration of “penalties arising out of violations against others employees”).

But, that is precisely the type of defense that targets an arbitration agreement “just

because it requires bilateral arbitration,” which the Court held doesn’t survive the

                                          5
FAA. Epic Sys. Corp., 138 S. Ct. at 1623. Furthermore, Sakkab held the Iskanian

rule not preempted because its purpose is to enforce California’s labor laws, a

traditional police power. 803 F.3d at 439. But like the state’s traditional interest in

contract law in Lamps Plus, state law doesn’t survive preemption if it “reshape[s]

traditional individualized arbitration.” 139 S. Ct. at 1418 (simplified). Based on

these cases, Sakkab remains good—but severely hobbled—law.2

                                         III.

      The Supreme Court has repeatedly emphasized that the FAA’s saving clause’s

offers no protection to state laws that interfere with parties’ choice to engage in

individual, bilateral arbitration. To the extent that the Iskanian rule undermines that

choice—and it clearly does—it runs afoul of the FAA and must be preempted.

      Unfortunately, our saving-clause precedent is in disharmony with the

Supreme Court’s. Both Epic Systems and Lamps Plus required the Supreme Court

to step in and correct our saving-clause decisions—two times in the course of two

terms. We should listen to what the Court is telling us and revisit our precedent

before again being forced to do so.

      2
        Sakkab also held that the Iskanian rule is a “generally applicable” contract
defense under § 2. 803 F.3d at 432–33. I have serious doubts that such is the case.
See AT&T Mobility LLC v. Concepcion, 563 U.S. 333, 352–55 (2011) (Thomas, J.,
concurring) (explaining that, to come within § 2, a contract defense not only must
apply to any contract, but also that the defense must concern the revocability—not
enforceability—of the arbitration agreement).

                                          6