Cal. Supreme Court Hears Iskanian v. CLS Oral Argument

Oral argument in Iskanian v. CLS Transportation Los Angeles, LLC, No. S204032, took place before the California Supreme Court on April 3, 2014 (Mr. Iskanian is represented by Capstone Law APC). Previously, the Court of Appeal had affirmed an order compelling individual arbitration of the plaintiff’s California Labor Code claims by enforcing class action and representative action waivers, relying heavily on Concepcion. Iskanian v. CLS Transp. Los Angeles, LLC, 206 Cal.App.4th 949 (2012).

The California Supreme Court granted review of the following issues:

(1) Did AT&T Mobility LLC v. Concepcion (2011) 563 U.S. [321] impliedly overrule Gentry v. Superior Court (2007) 42 Cal.4th 443 with respect to contractual class action waivers in the context of non-waivable labor law rights? (2) Does the high court’s decision permit arbitration agreements to override the statutory right to bring representative claims under the Labor Code Private Attorneys General Act of 2004 (Lab. Code, § 2698 et seq.)? (3) Did defendant waive its right to compel arbitration?

With respect to the enforceability of the class action waiver under Gentry, the justices’ line of questioning reflected skepticism that it could survive Concepcion. Plaintiff’s counsel Glenn Danas suggested that, following the Court’s decision in Sonic-Calabasas A, Inc. v. Moreno, 57 Cal. 4th 1109 (2013) (“Sonic-Calabasas II”), the Gentry test be modified to a two-step unconscionability-based test, with the first step focused on whether the unavailability of class arbitration would lead to a de facto waiver of unwaivable statutory rights and, if so, the second step focused on whether the employer’s particular arbitration procedure provides alternative protections that ameliorate the claimants’ inability to utilize such aggregate procedures in arbitration. Several justices, including the Chief Justice and Justice Kennard, had probing follow-up questions regarding the proposed two-step analysis, but Justice Liu appeared skeptical that even the suggested modified test would not be foreclosed by Concepcion, due to its strongly-worded dicta against class arbitration.

Michael Rubin, on behalf of amicus curiae Service Employees International Union and the California Employment Lawyers Association, also argued before the high court, presenting an alternative basis for striking the class action waiver under federal labor statutes, thereby avoiding any possible preemption issue. This argument, which was adopted by the National Labor Relations Board in the D.R. Horton decision, asserts that employees’ right to join together in group litigation (utilizing a class, collective, or representative action) is protected activity under both the National Labor Relations Act and the Norris LaGuardia Act. 357 NLRB No. 184. Rubin’s argument compellingly articulated the position, and was met with a series of thoughtful questions by the justices demonstrating, at a minimum, a keen interest in the issue. For instance, picking up on the U.S. Supreme Court’s reasoning in American Express Co. v. Italian Colors Restaurant, 133 S. Ct. 2304 (2013), Justice Liu asked whether the class action procedure pre-dates the Federal Arbitration Act, the implication being that, if not, there can be no “right” to collective litigation of employment grievance. Rubin responded, without missing a beat, that certain antecedents to the Federal Rule 23 existed long before 1966. Justice Liu also had pointed questions for CLS’s counsel David Faustman, at one point growing weary of Faustman’s refusal to answer his question regarding the basis for his position that the Federal Arbitration Act “trumps” the later-enacted federal labor law statutes. Ultimately, Faustman moved on, unable to answer Justice Liu’s questions. However, it is also widely acknowledged that a decision based in part on upholding D.R. Horton would be more likely to draw review by the U.S. Supreme Court.

With regard to PAGA actions, the justices seemed inclined to reverse the Court of Appeal’s ruling, discerning that a complete ban on a statutory cause of action or the right to pursue statutory remedies cannot be completely foreclosed by any contract, arbitration or otherwise. Specifically, the justices focused their questions on the origin of the rights codified by PAGA—that PAGA actions are essentially government enforcement actions and that individual plaintiffs cannot waive the government’s right to enforce the labor laws. Drawing a parallel to EEOC v. Waffle House, 534 U.S. 279 (2002), where the U.S. Supreme Court held that the EEOC could pursue a discrimination claim on behalf of an employee despite the employee’s having signed an arbitration agreement, Justice Liu indicated that a PAGA plaintiff cannot waive the state’s right to collect civil penalties under PAGA by signing a private mandatory arbitration agreement. Moderate members of the Court including Chief Justice Cantil-Sakauye and Justice Corrigan both questioned Andrew Pincus, appearing for the Chamber of Commerce of the United States of America on behalf of CLS, pointing out the practical reality of enforcing PAGA waivers such as the one at issue would allow employers to entirely shield themselves from liability under PAGA, a result that cannot be squared with decades of U.S. Supreme Court case law.

The opinion is due in 90 days, on July 2, 2014.