United States: High Court Says "Let It Ride"; Limo Company Fails To Flag Down Enough Justices To Hear PAGA Carve-Out Case

Last Updated: February 4 2015
Article by Timothy J. Long, Renee B. Phillips and Michael Disotell

On January 20, the United States Supreme Court denied certiorari in CLS Transportation Los Angeles LLC v. Iskanian, leaving intact a decision by the California Supreme Court holding that representative Private Attorney General Act (PAGA) claims cannot be waived in arbitration agreements. Enacted in 2004, PAGA deputizes private citizens to seek penalties on behalf of the state by bringing representative suits for workplace violations.

In the case, limo driver Arshavir Iskanian had signed an arbitration agreement containing a class and representative action waiver with the company. He filed a proposed class action claim for unpaid overtime notwithstanding the waiver. The case reached the California Supreme Court, which held that while class action waivers in arbitration agreements are generally enforceable under AT&T Mobility LLC v. Concepcion, an exception existed for PAGA claims as a matter of public policy. The California Supreme Court characterized PAGA as a qui tam statute and concluded that, because the plaintiff/employee stands in the stead of the state enforcement agency, PAGA actions are a matter of public, not simply private, concern. Waiver, therefore, would be against California's public policy, and could not be enforced.

Numerous federal district courts have disagreed with this rationale and declined to recognize an exception to Conception for PAGA claims. While this does not create a true Circuit split, many believed such a growing divide of authority would convince the U.S. Supreme Court to hear the case. Indeed, CLS Transportation's petition for certiorari and a pair of amicus briefs argued that the Iskanian ruling would undermine the U.S. Supreme Court's previous FAA decisions as plaintiffs could engage in an "end run" around class waivers.

Not all hope is lost for employers despite the U.S. Supreme Court's denial:  the Court will have another chance to take up the FAA preemption issue in Bridgestone Retail Operations LLC v. Brown if it chooses. The Bridgestone case involves a PAGA action similar to Iskanian, and the California Supreme Court also ruled against the auto parts retailer after it handed down its controversial opinion. Bridgestone's certiorari petition slightly modifies CLS Transportation's framing of the issues by arguing that the California Supreme Court's ruling: (1) directly conflicts with the FAA's statutory language; (2) directly conflicts with the U.S. Supreme Court's language in Concepcion; and (3) continues a "pattern of state court hostility to arbitration." The Justices have not held a conference to discuss taking the case yet, but we will be following any developments as they arise.

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