The California courts say they like arbitration. But they don’t like the Federal Arbitration Act. Not one little bit. Especially that part about the FAA requiring that “private agreements to arbitrate are enforced according to their terms,” and barring any state rule that “stands as an obstacle to the accomplishment and execution of the full purposes and objectives” of the FAA. AT&T Mobility LLC v. Concepcion, 563 U.S. ––, 131 S.Ct. 1740, 1753, 1773 (2011). You see, California prides itself on its public policy, and it doesn’t like to see the “supreme law of the land” get in the way.
The latest example of California public policy trumping the “supreme law of the land” came last Tuesday from its Court of Appeal. Brown v. Superior Court held that a provision in an arbitration agreement providing that a party waived the right to seek class or representative relief in arbitration could not be enforced against a lawsuit under the Labor Code Private Attorneys General Act, California Labor Code §§ 2698 et seq. (“PAGA”).
PAGA is a rare beast that only lives inside the borders of California. It essentially does three things: First, it deputizes any employee to sue their employer to collect civil penalties that originally were enforced by state regulators. Second, it creates a “catch-all” penalty for any violation of the labor laws for which there is no existing penalty. Third, it permits employees to collect these penalties for all other “aggrieved” employees—without the messy complications of certifying a class action.
Brown decided that PAGA is too important to enforce a waiver of this third aspect of PAGA according to the waiver’s terms, even though the FAA requires enforcement of the terms of an arbitration agreement and preempts any state rules that stand in the way. And even though the U.S. Supreme Court has repeatedly said that the importance of conflicting state rules doesn’t matter, in cases such as AT&T Mobility and Marmet Health Care Center, Inc. v. Brown, 132 S.Ct. 1201 (2012). (By the way, not the same Brown.)
Brown v. Superior Court will be heading to the California Supreme Court, where a quartet of cases raising the same question are already pending. See CLS Transportation Los Angeles, LLC, 142 Cal.Rptr.3d 372 (2012) (rev. granted). See also Caron v. Mercedes-Benz Financial Services USA LLC, 145 Cal.Rptr.3d 296 (2012) (rev. granted, briefing held pending Iskanian); Franco v. Arkelian Enterprises, Inc., 149 Cal.Rptr.3d 530 (2012) (same); Reyes v. Liberman Broadcasting, Inc., 146 Cal.Rptr.3d 616 (2012) (same).
Was this a “one hit wonder?” Not a chance. Two years ago, the California Supreme Court pulled a similar move in Sonic-Calabasas A, Inc. v. Moreno 51 Cal.4th 659, vacated and remanded, 132 S.Ct. 496(2011). There, it held that the right to bring an administrative agency action for back wages against an employer was too important to be arbitrated. How wrong was the California Supreme Court? The U.S. Supreme Court didn’t bother to ask for briefing or oral argument. It summarily took the case, reversed the California Supremes and told it, “Try again.” The California Supreme Court held oral argument in April, and we are waiting for a new decision.
Soon we will see if the California Supreme Court continues thumbing its nose at the FAA—or “picks up what the U.S. Supremes are “putting down….”