Court Opinion

ID: 9939731
Source: CourtListenerOpinion
Date Created: 2024-02-12 17:00:41.485472+00
Date Added: 2024-06-11T13:41:52.308917
License: Public Domain

FOR PUBLICATION

   UNITED STATES COURT OF APPEALS
        FOR THE NINTH CIRCUIT

MARIA JOHNSON, as an individual            No. 22-16486
and on behalf of all others similarly
situated, and as a private attorney     D.C. No. 2:21-cv-
general,                                00087-TLN-JDP

              Plaintiff-Appellant,
  v.                                        OPINION

LOWE'S HOME CENTERS, LLC, a
North Carolina limited liability
company,

              Defendant-Appellee.

       Appeal from the United States District Court
          for the Eastern District of California
        Troy L. Nunley, District Judge, Presiding

          Argued and Submitted October 4, 2023
                San Francisco, California

                 Filed February 12, 2024

  Before: William A. Fletcher, Richard C. Tallman, and
           Kenneth K. Lee, Circuit Judges.

              Opinion by Judge W. Fletcher;
               Concurrence by Judge Lee
2             JOHNSON V. LOWE’S HOME CENTERS, LLC

                          SUMMARY *

    Arbitration / California’s Private Attorneys General
                             Act

    In a putative class action in which Maria Johnson, a
former employee of Lowe’s Home Centers, LLC, brought
claims on behalf of herself and other Lowe’s employees
under California’s Private Attorneys General Act of 2004
(“PAGA”) for alleged violations of the California Labor
Code, the panel affirmed the district court’s order
compelling arbitration of Johnson’s individual PAGA claim,
vacated the district court’s dismissal of Johnson’s non-
individual PAGA claims, and remanded the non-individual
claims to allow the district court to apply California law as
interpreted in Adolph v. Uber Techs., Inc., 14 Cal. 5th 1104
(2023).
   Johnson signed a predispute employment contract that
contained an arbitration clause.
    The panel held that the district court properly compelled
Johnson to arbitrate her individual PAGA claim because a
valid arbitration agreement existed and the agreement
encompassed the dispute at issue.
    Relying on the U.S. Supreme Court’s interpretation of
PAGA in Viking River Cruises, Inc. v. Moriana, 596 U.S.
639 (2022), the district court dismissed Johnson’s non-
individual PAGA claims. While this case was on appeal, the
California Supreme Court in Adolph corrected Viking

*
 This summary constitutes no part of the opinion of the court. It has
been prepared by court staff for the convenience of the reader.
            JOHNSON V. LOWE’S HOME CENTERS, LLC            3

River’s interpretation of PAGA, holding that a PAGA
plaintiff can arbitrate his individual PAGA claim but at the
same time maintain his non-individual PAGA claims in
court. The panel therefore vacated the district court’s order
with respect to the non-individual PAGA claims and
remanded to the district court to apply Adolph. The panel
rejected Lowe’s contention that Adolph was inconsistent
with Viking River.
    Concurring, Judge Lee wrote separately to highlight the
tension between Adolph and the Federal Arbitration Act
(“FAA”). Although Judge Lee did not see an irreconcilable
conflict between California law and the FAA in this case, a
potential conflict could arise in future cases.

                        COUNSEL

Simon L. Yang (argued) and Larry W. Lee, Diversity Law
Group PC, Los Angeles, California; William L. Marder,
Polaris Law Group, Hollister, California; for Plaintiff-
Appellant.
Jason C. Schwartz (argued), Gibson Dunn & Crutcher LLP,
Washington, D.C.; Michele L. Maryott and Katie M.
Magallanes, Gibson Dunn & Crutcher LLP, Irvine,
California; Katherine V.A. Smith and Bradley J. Hamburger,
Gibson Dunn & Crutcher LLP, Los Angeles, California;
Joseph R. Rose, Gibson Dunn & Crutcher LLP, San
Francisco, California; for Defendant-Appellee.
4           JOHNSON V. LOWE’S HOME CENTERS, LLC

                        OPINION

W. FLETCHER, Circuit Judge:

   Appellant Maria Johnson is a former employee of
Lowe’s Home Centers, LLC (“Lowe’s”). Johnson signed a
predispute employment contract in which she agreed that
any controversy arising from her employment by Lowe’s
would be settled by arbitration. On November 23, 2020,
Johnson brought claims on behalf of herself and other
Lowe’s employees under California’s Private Attorneys
General Act of 2004 (“PAGA”) for alleged violations of the
California Labor Code.
    An action brought against an employer under PAGA
contains both “individual” and “non-individual” claims. An
“individual” PAGA claim is based on a violation of
California labor law that affects a PAGA plaintiff employee
personally. A “non-individual” PAGA claim, sometimes
referred to as a “representative” PAGA claim, is based on a
violation of California labor law that affects other
employees. See Viking River Cruises, Inc. v. Moriana, 596
U.S. 639, 648–49 (2022); Adolph v. Uber Techs., Inc., 14
Cal. 5th 1104, 1114 (2023).
    We affirm the district court’s order compelling
arbitration of Johnson’s individual PAGA claim.
    We vacate the district court’s order dismissing Johnson’s
non-individual PAGA claims. When the district court
dismissed those claims, its dismissal was consistent with
California law as then interpreted by the United States
Supreme Court in Viking River. While this case was on
appeal to us, the California Supreme Court in Adolph
corrected that interpretation of California law. We remand
            JOHNSON V. LOWE’S HOME CENTERS, LLC              5

Johnson’s non-individual PAGA claims to allow the district
court to apply California law as interpreted in Adolph.
           I. Factual and Procedural Background
    At all relevant times, Johnson was an employee of
Lowe’s. Johnson signed a contract providing that “any
controversy between [Johnson] and Lowe’s . . . arising out
of [her] employment or the termination of [her] employment
shall be settled by binding arbitration.” The contract
contains a “representative action waiver” prohibiting any
dispute from being “arbitrated as a representative action or
as a private attorney general action, including but not limited
to claims brought pursuant to the Private Attorney General
Act of 2004, Cal. Lab. Code § 2698.”
    On November 23, 2020, Johnson filed a complaint in
California state court alleging both individual and non-
individual PAGA claims. Lowe’s removed to federal district
court. After the Supreme Court decided Viking River on
June 15, 2022, Lowe’s moved to compel arbitration of
Johnson’s individual PAGA claim and to dismiss her non-
individual PAGA claims. On September 21, 2022, the
district court granted Lowe’s motion in its entirety. Johnson
timely appealed. On July 17, 2023, the California Supreme
Court decided Adolph. Prior to hearing oral argument, we
ordered the parties to submit supplemental briefing on the
impact of Adolph.
                  II. Appellate Jurisdiction
   We have appellate jurisdiction under 28 U.S.C. § 1291.
                    III. Governing Law
    PAGA authorizes an “aggrieved employee” to file an
action to recover civil penalties for violations of the
6           JOHNSON V. LOWE’S HOME CENTERS, LLC

California Labor Code “on behalf of himself or herself and
other current or former employees.” Cal. Lab. Code
§ 2699(a). PAGA authorizes aggrieved employees, acting
as private attorneys general, to bring suit as proxies of the
State. Adolph, 14 Cal. 5th at 1113. A “type of qui tam
action,” a non-individual PAGA claim is “fundamentally a
law enforcement action” where the State “is always the real
party in interest in the suit.” Id. (quoting ZB, N.A. v. Super.
Court, 8 Cal. 5th 175, 185 (2019)); Iskanian v. CLS Transp.
Los Angeles, LLC, 59 Cal. 4th 348, 382 (2014).
    In Iskanian v. CLS Transportation Los Angeles, LLC, 59
Cal. 4th 348 (2014), the California Supreme Court held that
a predispute arbitration agreement containing a waiver of the
right to bring non-individual PAGA claims in court is invalid
as against California public policy, and that the Federal
Arbitration Act (“FAA”) does not preempt the non-
waivability of non-individual PAGA claims. 59 Cal. 4th
348.
    In Viking River, the United States Supreme Court read
Iskanian as holding that predispute waivers of both
individual and non-individual PAGA claims were forbidden
under California law. Viking River interpreted Iskanian to
hold that PAGA requires joinder of individual and non-
individual claims, such that both claims must be tried in the
same forum. Because PAGA prohibits a predispute waiver
of the right to bring non-individual PAGA claims in court,
this mandatory joinder rule results in a de facto prohibition
of predispute waivers of the right to bring individual PAGA
claims in court.
    Viking River upheld Iskanian’s holding that PAGA
prohibits contractual waiver of the right to bring non-
individual PAGA claims in court. The Court wrote, “[T]hat
            JOHNSON V. LOWE’S HOME CENTERS, LLC               7

aspect of Iskanian is not preempted by the FAA.” Viking
River, 596 U.S. at 662. However, the Court held that the
FAA preempted what it understood to be PAGA’s
mandatory joinder rule as articulated in Iskanian. The Court
wrote, “Under our holding, that rule is preempted, so Viking
is entitled to compel arbitration of [the] individual claim.”
Id. at 662.
    Justice Sotomayor concurred in Viking River, but she
noted that the Court’s preemption holding was based on its
understanding of PAGA’s joinder rule. She wrote:

       The Court concludes that the FAA poses no
       bar to the adjudication of [plaintiff’s] “non-
       individual” PAGA claims, but that PAGA
       itself “provides no mechanism to enable a
       court to adjudicate non-individual PAGA
       claims once an individual claim has been
       committed to a separate proceeding.” Thus,
       the Court reasons, based on available
       guidance from California courts, that
       [plaintiff] lacks “statutory standing” under
       PAGA to litigate her “non-individual” claims
       separately in state court. Of course, if this
       Court’s understanding of state law is wrong,
       California courts, in an appropriate case, will
       have the last word.

Id. at 664 (Sotomayor, J., concurring) (citations omitted).
   In Adolph, decided a year after Viking River, the
California Supreme Court corrected Viking River’s
misunderstanding of PAGA. The California Court held in
Adolph that individual and non-individual PAGA claims
may be partially severed, such that a plaintiff’s individual
8            JOHNSON V. LOWE’S HOME CENTERS, LLC

PAGA claims may be sent to arbitration while the plaintiff’s
non-individual PAGA claims remain in court. The Court
wrote, “[W]here a plaintiff has filed a PAGA action
comprised of individual and non-individual claims, an order
compelling arbitration of individual claims does not strip the
plaintiff of standing to litigate non-individual claims in
court.” Adolph, 14 Cal. 5th at 1123. Only if there has been
a final determination that the plaintiff’s arbitrated individual
PAGA claim is without merit does the plaintiff lose statutory
standing under PAGA to pursue his or her non-individual
PAGA claims in court. The Court wrote, “If the arbitrator
determines that Adolph is not an aggrieved employee and the
court confirms that determination and reduces it to final
judgment, the court would give effect to that finding, and
Adolph could no longer prosecute his non-individual claims
due to lack of standing.” Id. at 1124–25.
                       IV. Discussion
   There are three questions before us. First, did the district
court properly compel Johnson to arbitrate her individual
PAGA claim? Second, how does the California Supreme
Court’s decision in Adolph affect Johnson’s non-individual
PAGA claims? Third, is Adolph inconsistent with Viking
River?
           A. Johnson’s Individual PAGA Claim
     A district court’s decision to “grant or deny a motion to
compel arbitration is reviewed de novo.” Stover v. Experian
Holdings, Inc., 978 F.3d 1082, 1085 (9th Cir. 2020). In
deciding whether to compel arbitration, a court must first
determine whether a valid agreement to arbitrate exists, and
if it does, whether the agreement encompasses the dispute at
issue. Lifescan, Inc. v. Premier Diabetic Servs., Inc., 363
F.3d 1010, 1012 (9th Cir. 2004). Because both conditions
            JOHNSON V. LOWE’S HOME CENTERS, LLC            9

here are met, we affirm the district court’s decision to
compel Johnson to arbitrate her individual claim.
    The contract signed by Johnson in 2019 contained an
arbitration clause providing that “any controversy between
[Johnson] and Lowe’s . . . arising out of [her] employment
or the termination of [her] employment shall be settled by
binding arbitration.”      The contract also included a
“Representative Action Waiver” and a severability clause.
Pursuant to the severability clause, any unlawful aspects of
the contract are severed. The rest of the contract—including
Johnson’s agreement to arbitrate her individual PAGA
claim—remains binding and enforceable. See Viking River,
596 U.S. at 660. We therefore affirm the district court’s
order that Johnson arbitrate her individual PAGA claim.
       B. Johnson’s Non-Individual PAGA Claims
    As noted above, the district court dismissed Johnson’s
non-individual PAGA claims, relying on Viking River’s
interpretation of PAGA. While this case was on appeal to
our court, the California Supreme Court in Adolph corrected
Viking River’s misinterpretation of PAGA, holding that a
PAGA plaintiff can arbitrate his individual PAGA claim but
at the same time maintain his non-individual PAGA claims
in court. We therefore vacate the district court’s order with
respect to Johnson’s non-individual PAGA claims and
remand those claims to the district court to apply Adolph.
       C. Consistency of Adolph with Viking River
   Lowe’s contends that Adolph is inconsistent with Viking
River. We disagree.
    It is axiomatic that a state court has the authority to
correct a misinterpretation of that state’s law by a federal
court. West v. Am. Telephone & Telegraph Co., 311 U.S.
10          JOHNSON V. LOWE’S HOME CENTERS, LLC

223, 236 (1940); see also Viking River, 596 U.S. at 663–64
(Sotomayor, J., concurring). However, a state court may not
interpret state law in such a manner that it conflicts with
supreme federal law. We hold that the California Supreme
Court in Adolph did not so interpret state law.
    In Viking River, the Supreme Court observed that “as
[the Court sees] it, PAGA provides no mechanism to enable
a court to adjudicate non-individual PAGA claims once an
individual claim has been committed to a separate
proceeding.” 596 U.S. at 663. Once an individual PAGA
claim was committed to arbitration, the plaintiff likely
“lack[ed] statutory standing to maintain her non-individual
claims in court,” and a court should dismiss her remaining
representative claims. Id. In her concurrence, Justice
Sotomayor acknowledged, however, that “if this Court’s
understanding of state law is wrong, California courts, in an
appropriate case, will have the last word.” Id. at 664.
    The California Supreme Court disagreed with the
Supreme Court’s reading of PAGA. In Adolph v. Uber
Techs., Inc., 14 Cal. 5th 1104 (2023), the California Supreme
Court held that a plaintiff in a bifurcated representative
PAGA claim still has statutory standing. See id. at 1121
(“Standing under PAGA is not affected by enforcement of
an agreement to adjudicate a plaintiff’s individual claim in
another forum.”).
    There is nothing in Adolph that is inconsistent with the
federal law articulated in Viking River. As required by the
FAA and Viking River, the California Supreme Court in
Adolph compelled the plaintiff to arbitrate his individual
PAGA claims. Further, as permitted by the FAA and Viking
River, the Court held in Adolph that PAGA prevented the
plaintiff from waiving his right to pursue his non-individual
            JOHNSON V. LOWE’S HOME CENTERS, LLC            11

PAGA claims in court. Finally, as may or may not have been
required but was certainly consistent with the FAA and
Viking River, the Court held that if the plaintiff lost on the
merits of his individual PAGA claims in arbitration, he no
longer had standing to pursue his non-individual PAGA
claims in court.
                       V. Conclusion
    We AFFIRM the district court’s grant of the motion to
compel arbitration of Johnson’s individual PAGA claim.
We VACATE and REMAND the district court’s dismissal
of Johnson’s non-individual PAGA claims.
    AFFIRMED in part; VACATED and REMANDED in
part.
   Each party shall bear its own costs on appeal.

LEE, Circuit Judge, concurring:

    The thorny question of whether Private Attorney General
Action (PAGA) claims can be arbitrated has ping-ponged
from the U.S. Supreme Court to the California Supreme
Court—and now to our court in this case. I agree with the
majority that Maria Johnson’s individual claims belong in
arbitration and that her non-individual (representative)
claims should be remanded to the district court, given the
California Supreme Court’s decision in Adolph v. Uber
Techs., Inc., 14 Cal. 5th 1104, 1114 (2023). But I write
separately to highlight a lurking tension between Adolph and
the Federal Arbitration Act (FAA). While I do not believe
that an irreconcilable conflict between California law and the
FAA exists in our case, we should be wary of a potential
conflict in future cases.
12          JOHNSON V. LOWE’S HOME CENTERS, LLC

    “The principal purpose of the FAA is to ensure that
private arbitration agreements are enforced according to
their terms.” AT&T Mobility LLC v. Concepcion, 563 U.S.
333, 344 (quoting Volt Info. Scis., Inc., v. Bd. of Trs. of
Leland Stanford Junior Univ., 489 U.S. 468, 478 (1989))
(cleaned up). And the “point of affording parties discretion
in designing arbitration processes is to allow for efficient,
streamlined procedures tailored to the type of dispute . . .
[because] the informality of the arbitral proceedings is itself
desirable, reducing the cost and increasing the speed of
dispute resolution.” Concepcion, 563 U.S. at 344–45
(citations omitted).
    But the bifurcation procedure outlined in Adolph—
where a plaintiff’s individual PAGA claim will be committed
to arbitration while the non-individual PAGA claims will be
stayed and remain in court—might blunt the efficiency and
informality of arbitration in some cases. The California
Supreme Court suggested that, once the procedures are
bifurcated and the individual claim is arbitrated:

       any party may petition the court to confirm or
       vacate the arbitration award under section
       1285 of the Code of Civil Procedure. If the
       arbitrator determines that Adolph is an
       aggrieved employee in the process of
       adjudicating his individual PAGA claim, that
       determination, if confirmed and reduced to a
       final judgment (Code Civ. Proc., § 1287.4),
       would be binding on the court, and Adolph
       would continue to have standing to litigate
       his nonindividual claims. If the arbitrator
       determines that Adolph is not an aggrieved
       employee and the court confirms that
             JOHNSON V. LOWE’S HOME CENTERS, LLC             13

       determination and reduces it to a final
       judgment, the court would give effect to that
       finding, and Adolph could no longer
       prosecute his non-individual claims due to
       lack of standing.

Adolph, 14 Cal. 5th at 1123–24 (citing Rocha v. U-Haul Co.
of California, 88 Cal. App. 5th 65, 76–82 (2023)).
     In other words, the California Supreme Court held that
the arbitration decision of a low-stakes individual PAGA
claim could have preclusive effect—at least for the statutory
standing issue of who is an “aggrieved employee”—on the
high-stakes non-individual PAGA claim in federal court. If
so, that could tilt the stakes of arbitration for defendants and
undermine the benefits of arbitration for everyone.
Arbitrations for individual claims are often low stakes for
companies. Sometimes, companies even send non-lawyers,
such as paralegals, to arbitration proceedings because an
individual claim of, say, $500 is not worth a lawyer’s hourly
rate. But if legal conclusions or factual findings from an
individual PAGA arbitration could be binding in a non-
individual PAGA court action, companies may have little
choice but to bring in the legal cavalry and devote substantial
resources at that individual arbitration. This outcome of
Adolph would undermine an arbitration’s efficiency, which
is the “point” of enforcing arbitration agreements according
to their terms. Concepcion, 563 U.S. at 344.
    Despite these concerns, I do not believe a conflict
between Adolph and the FAA exists in our case for two
reasons: (1) plaintiffs with non-individual PAGA claims
must still satisfy Article III standing in federal court, so any
issue preclusion about statutory standing from the arbitration
will likely be irrelevant, and (2) there may be no issue
14            JOHNSON V. LOWE’S HOME CENTERS, LLC

preclusion if the arbitration did not give the employer a full
and fair opportunity to litigate the issue, as required by
California and federal law on issue preclusion.
     First, PAGA plaintiffs in federal court must satisfy
Article III’s standing requirements. Lujan v. Defs. of
Wildlife, 504 U.S. 555, 560–61 (1992). So even if the
arbitrator’s finding of statutory standing under PAGA has
preclusive effect in federal court, it likely will have no
practical impact because a plaintiff still must show Article
III standing (which presumably is a more rigid requirement
than PAGA statutory standing). Cf. Magadia v. Wal-Mart
Assocs., Inc., 999 F.3d 668 (9th Cir. 2021) (requiring Article
III standing for PAGA claims). 1
    Second, issue preclusion does not prevent an employer
from re-litigating issues decided in an individual PAGA
arbitration. Issue preclusion requires at a minimum that:

        First, the issue sought to be precluded from
        relitigation must be identical to that decided
        in a former proceeding. Second, this issue
        must have been actually litigated in the
        former proceeding. Third, it must have been
        necessarily decided in the former proceeding.
        Fourth, the decision in the former proceeding
        must be final and on the merits. Finally, the
        party against whom preclusion is sought must

1
  If an arbitrator makes a finding that has a wider impact beyond PAGA
statutory standing, a small-stakes individual arbitration arguably could
have preclusive effect on a major issue in a federal case involving
millions of dollars. The parties, however, have not identified any such
scenario in our case, so only a hypothetical tension exists here between
the FAA and the Adolph decision.
             JOHNSON V. LOWE’S HOME CENTERS, LLC             15

       be the same as, or in privity with, the party to
       the former proceeding.

People v. Strong, 13 Cal. 5th 698, 716 (2022) (quoting
Lucido v. Superior Court, 51 Cal. 3d 335, 341 (1990)). And
issue preclusion does not apply “‘if such application would
not serve its underlying fundamental principles’ of
promoting efficiency while ensuring fairness to the parties.”
Strong, 13 Cal. 5th at 716 (quoting Gikas v. Zolin, 6 Cal. 4th
841, 849 (1993)). Issue preclusion thus does not apply if
“‘the party sought to be precluded. . . did not have an
adequate opportunity or incentive to obtain a full and fair
adjudication in the initial action.’” People v. Bratton, 314
Cal. Rptr. 3d 106, 119 (Cal. Ct. App. 2023) (quoting
Restatement (Second) of Judgments § 28 (5)) (emphasis
added).
    This “full and fair opportunity to litigate” exception to
issue preclusion is well-established at federal common law.
See 18 Charles Alan Wright & Arthur R. Miller, Federal
Practice and Procedure § 4423 (3d ed.) The Supreme Court
has said that “[i]ssue preclusion may be inapt if ‘the amount
in controversy in the first action [was] so small in relation to
the amount in controversy in the second that preclusion
would be plainly unfair.’” B&B Hardware, Inc. v. Hargis
Indus., Inc., 575 U.S. 138, 159 (2015) (quoting Restatement
(Second) of Judgments § 28, cmt. j)). See also Maciel v.
C.I.R., 489 F.3d 1018, 1023–1026 (9th Cir. 2007) (analyzing
the government’s incentives to litigate in the first proceeding
then denying issue preclusion).
   The full and fair opportunity to litigate exception thus
applies to the new PAGA framework outlined in Adolph
because an individual PAGA arbitration poses a much
smaller financial risk to defendants than non-individual
16         JOHNSON V. LOWE’S HOME CENTERS, LLC

PAGA actions. So an arbitration decision on an individual
PAGA claim may not be given preclusive effect in a later
non-individual PAGA lawsuit in court.
    Based on the facts of our case, I do not see any clear
conflict between Adolph and the FAA. But we should
carefully examine the facts of future cases to see if this
lurking tension morphs into an irreconcilable conflict.