CA Ct. of App. Follows 6th Cir.’s Reed Elsevier Ruling re Class Arbitration

In November, the California Court of Appeal, Fourth Appellate District, ruled unanimously in a wage-and-hour action involving Garden Fresh (owner and operator of Souplantation & Sweet Tomatoes restaurants) that courts, not arbitrators, decide whether an agreement to arbitrate disputes between parties authorizes class or representative arbitrations, where an agreement is silent as to the availability such non-individual arbitrations. Garden Fresh Restaurant Corp. v. Superior Court of San Diego County, No. D066208 (Fourth Dist. Div. 1 Nov. 17, 2014) (slip op. available here). Citing the Sixth Circuit’s decision in Reed Elsevier Inc. v. Crockett, 734 F.3d 594 (6th Cir. 2013), the court held that, where an arbitration agreement does not “clearly and unmistakably” provide for class and/or representative arbitration, a “gateway issue” for the court to determine is whether a collective arbitration is allowed. Slip op. at 14.

In 2013, the plaintiff, former employee Moreno, filed a class and representative action under the Private Attorney General Act (PAGA) against Garden Fresh, alleging violations of the California Labor Code, PAGA, and California Unfair Competition Law. Garden Fresh moved to compel to arbitration the plaintiff’s individual claims since plaintiff had signed arbitration agreements, and moved to dismiss the class and PAGA claims, arguing that the arbitration agreements did not address the arbitration of such claims. A trial court granted the motion to compel, but referred the claims to an arbitrator, deferring to the arbitrator to determine whether the parties’ agreements contemplated class and/or representative arbitration.

Citing Reed Elsevier, where the Sixth Circuit had stated that the Supreme Court had “given every indication that classwide arbitrability is a gateway issue” because resolving the question is fundamental to how the parties will resolve their dispute, the court stated, “[f]or similar reasons, we conclude that a court, not an arbitrator, should also decide whether the parties agreed to arbitrate representative claims, such as the [PAGA] claim in this case . . . .” Slip op. at 11-12. The United States Supreme Court has repeatedly left the question open, but has stated in the past that class proceedings change the scope and nature of arbitration so fundamentally that it cannot be assumed that the parties agreed to it implicitly, even though they entered into an arbitration agreement. The panel cited Concepcion, which held that class arbitration was inconsistent with arbitration under the Federal Arbitration Act, to support expanding its conclusions to representative claims in addition to classwide claims. Ultimately, the ruling vacated part of the trial court’s order and directed it to answer the question as to whether the parties agreed to arbitrate class and/or representative claims and to determine whether the PAGA claims should be bifurcated and handled outside of arbitration.