Articles from July 2021

Winns et al. v. Postmates Inc.: Postmates Fails to Deliver PAGA Claims to Arbitration in Another Epic Challenge to Iskanian

In Winns et al. v. Postmates Inc., Cal. Ct. App. 1st Dist., No. A155717, July 20, 2021 (“Winns”) (slip op. available here), the California Court of Appeal held that Epic Systems Corp. v. Lewis, 138 S.Ct. 1612 (2018) (“Epic Systems”) does not overrule the California Supreme Court’s opinion in Iskanian v. CLS Transportation Los Angeles, LLC, 59 Cal.4th 348 (2014) (“Iskanian”), which held that representative action waivers are unenforceable.

The plaintiffs in Winns worked for Postmates as couriers. Their Fleet Agreement with Postmates contained a broad arbitration agreement, including a representative action waiver. The agreement contained an opt-out provision, but none of the plaintiffs submitted opt-out forms. Slip op. at 3. The plaintiffs’ operative complaint alleged individual and class claims under the Labor Code and Unfair Competition Law, including that Postmates illegally withheld wages, took gratuities given to couriers, and misclassified couriers as independent contractors. The plaintiffs also alleged representative claims under the PAGA for which they sought civil penalties. Id. at 3-4.

Postmates initially filed a typical motion to compel arbitration – seeking to arbitrate the plaintiffs’ individual claims and stay their PAGA claim pending the outcome of arbitration. Slip op. at 4. However, after the United States Supreme Court decided Epic Systems, Postmates requested that the plaintiffs also be compelled to arbitrate their PAGA claim for civil penalties. Postmates’ theory was that Epic Systems implicitly overruled the California Supreme Court’s opinion in Iskanian, to the extent Iskanian held that PAGA waivers in arbitration agreements were unenforceable. Id.

The trial court granted Postmates’ motion to compel arbitration with respect to the plaintiffs’ individual claims. However, as to the plaintiffs’ PAGA claim, the court concluded that Epic Systems did not compel the plaintiffs to arbitrate the PAGA claim because Epic Systems “addressed only the question of whether class or collective action waivers were enforceable under the FAA.” Slip op. at 5. It“did not address the enforceability of waivers of representative actions, such as those brought under PAGA.” Id. The trial court concluded that “representative action waivers remain unenforceable under Iskanian.” Id. Postmates appealed.

On appeal, the first important question was whether the opportunity to opt out of the arbitration agreement and the representative action waiver, which the plaintiffs did not exercise, affected the rule of non-waiverability in Iskanian. Slip op. at 7. Postmates argued that Iskanian did not apply to bar these waivers because they were not “a mandatory condition of a courier’s employment.” Id. Postmates relied on language in Iskanian, 59 Cal.4th at 360, stating “that an arbitration agreement requiring an employee as a condition of employment to give up the right to bring representative PAGA actions in any forum is contrary to public policy.” Id.

The Court of Appeal rejected the argument. It explained that “Iskanian’s holding that a PAGA waiver was unenforceable was premised on the public policy rationale that a PAGA waiver improperly circumvents the Legislature’s intent to empower employees to enforce the Labor Code as agency representatives and harms the state’s interest in enforcing the Labor Code.” Slip op. at 7. Moreover, “Iskanian did not turn on how the worker entered into the arbitration agreement, or the mandatory or voluntary nature of the worker’s consent to the agreement.” Id. Thus, under Winns, an employer cannot evade Iskanian’s holding that PAGA representative action waivers are unenforceable by virtue of an opt out option.

Postmates’ principal argument, however, was that Iskanian’s PAGA waiver rule cannot survive Epic Systems and its progeny. The Court of Appeal found the argument unavailing. Slip. op. at 8. This is not surprising because “California courts have uniformly rejected the argument that Epic Systems overruled Iskanian.Id. at 9-10 (citing cases).

The well-accepted reasoning behind these cases is the same. In Epic Systems, the Court did not decide whether representative actions like PAGA claims can be compelled to arbitration. Therefore, it did not “overrule” Iskanian. For a court to be bound by a decision of the United States Supreme Court, rather than the California Supreme Court, the United States Supreme Court must have decided the same question differently. Slip op. at 8 (citing Correia v. NB Baker Electric, Inc., 32 Cal.App.5th 602, 619 (2019)).

As the Winns court explained, “the U.S. Supreme Court did not decide or consider whether a worker may waive a right to bring a representative action on behalf of a state government.” Slip op. at 9. It follows, therefore, that “the Court’s reasoning in Epic Systems did not address the basis for our Supreme Court’s decision in Iskanian, namely, that a PAGA action is not an individual dispute between private parties but an action brought on behalf of the state by an aggrieved worker designated by statute to be a proper representative of the state to bring such an action.” Id. This situation – particularly including the involvement of the state, which is not party to any arbitration agreement – presents issues very different from those before Epic Systems.

Accordingly, the Winns court found that it was bound by the doctrine of stare decisis to follow the California Supreme Court’s decision in Iskanian that PAGA waivers are invalid under state law. It affirmed the trial court’s order denying Postmates’ petition to compel arbitration of the plaintiffs’ PAGA civil penalty claim. Slip op. at 15.

Authored by:
Robert Friedl, Senior Counsel

TransUnion LLC v. Ramirez: Divided Supreme Court Holds No Concrete Harm in Being Labeled a Terrorist; Dissenters Argue Violation of Private Rights Confers Standing

Is receiving a letter from one of the “big three” credit reporting agencies identifying you as a “potential” drug trafficker or terrorist sufficiently harmful to establish a “real injury” under Article III of the U.S. Constitution? If not, how about being flagged as a “potential” child molester? Or as a racist? Or finding out that your credit score was reduced because of your race? In TransUnion v. Ramirez, No. 20-297, 594 U.S. __ (Jun. 25, 2021) (“TransUnion”)(slip op. available here) Justice Thomas, joined by three other dissenting justices of the United States Supreme Court, seriously posed these questions in a critique of the majority opinion’s take on Article III standing. Thomas, J., dissenting, slip op. at 17.

In TransUnion, Sergio Ramirez visited a Nissan dealership to buy a car. After he and his wife picked out the car and negotiated a price, the dealership ran a credit check on them. Nissan refused to sell Mr. Ramirez the car because his name was on a “terrorist list.” Slip op. at 4.

Mr. Ramirez is not a terrorist. The U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) maintains a list of “specially designated nationals,” which largely includes terrorists and drug traffickers. Slip op. at 3. TransUnion’s credit check product flags anyone with the same first and last name as a person on the OFAC list, without comparing any other data. Id. at 4. The next day, Mr. Ramirez demanded a copy of his credit file. The mailing he received from TransUnion did not mention that his credit file contained the OFAC alert. In a subsequent second mailing, TransUnion informed him in a letter that his name was mentioned as a potential match to names on the list. Id. at 5.

Mr. Ramirez filed a class action alleging violations of the Fair Credit Reporting Act (“FCRA”) on behalf of himself and a class of 8,185 individuals with OFAC reports in their credit files. For 1,853 of the class members, TransUnion provided misleading credit reports to third-party businesses. The internal credit files of the other 6,332 class members were not provided to third-party businesses. Slip op. at 1-2. The United States District Court for the Northern District of California certified the class, and a jury awarded statutory and punitive damages totaling more than $60 million to the class. The Ninth Circuit affirmed, but reduced the punitive damages award, reducing the total award to approximately $40 million. 

The Supreme Court granted certiorari. The Court held that the 1,853 class members (including plaintiff) whose credit reports were provided to third-party businesses suffered a “concrete” harm and therefore had Article III standing. However, the Court held that the remaining 6,332 class members, whose credit reports were not provided to third-party businesses, did not. Slip. op. at 27. The Court analogized that for these class members “the plaintiffs’ harm is roughly the same, legally speaking, as if someone wrote a defamatory letter and then stored it in her desk drawer. A letter that is not sent does not harm anyone, no matter how insulting the letter is.” Id. at 19. The Court concluded, “[n]o concrete harm, no standing.” Id. at 27.

In the dissent, Justice Thomas retorted that “no concrete harm, no standing” “may be a pithy catchphrase, but it is worth pausing to ask why ‘concrete’ injury in fact should be the sole inquiry” in determining whether an injury is sufficient to establish standing. Thomas, J., dissenting, slip op. at 9. Justice Thomas examined how the law has historically distinguished between the enforcement of private rights and the enforcement of public rights by individuals. For example, an individual suing for violation of a private right – such as trespass on his land – needed only to allege the violation. Courts typically did not require any showing of actual damage. But an individual suing for violation of a duty owed broadly to the whole community, “such as the overgrazing of public lands,” had to show individual damage. Id. at 5. In the view of the minority, by violating the duties owed to individual class members under the FCRA, TransUnion violated the private rights of the 6,332 class members, who “thus have a sufficient injury to sue in federal court.” Id. at 8.

After all, “one need only tap into common sense to know that receiving a letter identifying you as a potential drug trafficker or terrorist is harmful,” which is “[a]ll the more so when the information comes in the context of a credit report.” Thomas, J., dissenting, slip op. at 17. This, however, was insufficient to establish a real injury for Article III standing here, which leaves one to wonder “what could rise to that level.” Id.  

Authored by:
Robert Friedl, Senior Counsel