Arbitration, PAGA: 4th Dist. Div. 2 Holds That Losing Non-PAGA Claims In Arbitration Does Not Preclude Litigation Of PAGA Claims
Modified Opinion Addresses Viking River Cruises v. Moriana.
In a partially published and modified opinion, the Court of Appeal holds that an employee's loss of Labor Code violation claims in arbitration does not preclude her from bringing a PAGA claim that the trial court had stayed. The basis for this ruling is that the plaintiff was acting in different capacities, bringing Labor Code claims on her own behalf in arbitration, and acting in a different and representative capacity in the PAGA action. The PAGA action, which seeks civil penalties as a remedy, "is fundamentally a law enforcement action designed to protect the public and not to benefit private parties." Eleni Gavriiloglou v. Prime Healthcare Management, Inc., No. E076832 (4/2 9/20/22) (Ramirez, Slough, Fields).
COMMENT: The original opinion did not address Viking River Cruises v. Moriana, the subject of our 6/19/22 post. The modified opinion seems to suggest that in Viking River, SCOTUS didn't really understand California law: "It . . . held that the Federal Arbitration Act preempts a state-law rule that precludes the arbitration of an individual PAGA claim separately from a representative PAGA claim. …. In Prime’s view, Viking River 'explicitly recognizes an individual claim under PAGA . . . .' This is mere wordplay. What the Supreme Court called, as shorthand, an 'individual PAGA claim' is not actually a PAGA claim at all. It would exist even if PAGA had never been enacted. It is what we are calling, more accurately, an individual Labor Code claim."
We note one difference between Gavriiloglou case and Viking River. In Gavriiloglou, the issue in the published part of the opinion is whether the arbitrator's award denying non-PAGA claims precluded the PAGA claims, and the court held that it did not. In Viking River, the issue was different. SCOTUS held that the employee could be compelled to arbitrate PAGA individual claims (which Justice Ramirez now says are really better described as Labor Code claims).
Look forward to ongoing confusion about standing to bring representative PAGA claims in California in cases where there are mandatory arbitration provisions.
Arbitration, PAGA, Collective Bargaining: A PAGA Lawsuit Is Barred By A Collective Bargaining Agreement In The Construction Industry
A Statutory Route In California Avoids A Private Attorney General Act Of 2004 (PAGA) Lawsuit In The Construction Industry: Labor Code § 2699.6.
The issue presented in Jerome Oswald v. Murray Plumbing and Heating Corporation, B312736 (2/2 9/2/22) (Lui, Chavez, Hoffstadt), is whether an arbitration clause in a construction industry collective bargaining agreement bars a PAGA lawsuit. While the recent SCOTUS opinion in Viking River Cruises, Inc. v. Moriana (see our 6.19/22 post) limits the ability of employees to avoid arbitrating PAGA claims wherever federal preemption under the Federal Arbitration Act is involved, California has created its own statutory exception to bringing a PAGA lawsuit: Labor Code § 2699.6.
Section 2699.6 generally provides that the right to bring a civil action under PAGA shall not apply to an employee in the construction industry with respect to work performed under a valid collective bargaining agreement providing for wage and hour issues and conditions of work. The states legislative intention behind this legislation is to commit PAGA claims in the building and construction trades to the grievance and arbitration machinery in the building trades to CBAs that provide expressly for key coverage of issues. This was intended to allay "significant legal abuse" by limiting "class action type lawsuits over minor employment issues."
In Oswald, the Court of Appeal concluded that the CBA met the requirements of § 2699.6. There, it reversed the trial court's order that had denied a motion to compel arbitration under the CBA.
COMMENT: Perhaps application of the Supreme Court's Viking Cruises decision would have led to the same result. But the Court of Appeal did not discuss Viking Cruises, because California law provided an answer that would not have been incompatible with Viking Cruises.
Settlement: Conditional Acceptance Of A Settlement Offer Does Not Result In A Settlement Using Section 998 Procedure
An Offeree's Acceptance Of A Section 998 Offer Must Be "Absolute And Unqualified" To Form A Binding Settlement.
"Absolute and unqualified" did not describe the offeree Says Siri's acceptance of Sutter Home Winery's offer in Says Siri v. Sutter Home Winery [Trinchero Family Estates], A161923 (1/4 8/25/22) (Pollak, Streeter, Goldman). Instead, Siri accepted Trinchero's settlement offer on the condition that the trial court resolve issues relating to how much interest Siri could recover on the judgment. Invoking Section 998 procedure, the trial court ordered judgment be entered pursuant to Section 998, and ultimately denied the claim for prejudgment interest. Because Siri's acceptance was not absolute and unqualified, the Court of Appeal reversed the judgment of dismissal, remanding "for further proceedings consistent with this opinion."
COMMENT: Justice Pollak explains, "Treating Siri’s conditional acceptance as a counteroffer that Trinchero accepted by agreeing to have the court rule on Siri’s motion for an award of interest, the court might find that an enforceable settlement agreement had been reached. . . . Such an issue is not now before us; we hold only that Siri’s conditional acceptance did not create an agreement enforceable under section 998."
Justice Pollak is a very clever judge and this is a clever opinion. But we are a bit puzzled. Did Justice Pollak simply give the trial judge a roadmap to reach the same result as before? Or are there going to be further stumbling blocks that prevent reaching the same result?
Pending Cases: Viking Cruises Is No Longer “Pending” And 9th Circuit Withdraws Opinion Re AB 51 And Mandatory Arbitration
Catching Up From Last Week . . .
Viking Cruises v. Moriana, PAGA, And Federal Preemption.
We posted on June 19, 2022 about the Viking Cruises case, in which SCOTUS ruled individual PAGA claims can be arbitrated. In a concurrence, Justice Sotomayor wrote, "As a whole, the Court’s opinion makes clear that California is not powerless to address its sovereign concern that it cannot adequately enforce its Labor Code without assistance from private attorneys general." She so much as invited the California Supreme Court and the Legislature to address the interpretation of state law, and to clarify the issue of standing to bring representative claims. SCOTUS denied a request for rehearing of Viking Cruises on August 22, 2022. See the August 24, 2022 post by attorneys Mia Farber and Scott P. Lang.
Chamber of Commerce v. Bonta. California, ABA 51, And Federal Preemption.
We posted on September 19, 2021 about Chamber of Commerce v. Bonta, the 9th Circuit case holding the Federal Arbitration Act does not preempt AB 51, the California legislation forbidding employers from requiring agreement to mandatory arbitration as a condition of employment. The majority opinion drew a dissent from Judge Ikuta.
As we wrote in our post at the time, "The Ninth Circuit has probably set up a conflict between federal circuits in Chamber of Commerce v. Bonta, and with Judge Ikuta's dissent, there is a reasonable probability that the majority opinion will not be the last word on the subject." That turns out to have been an understatement, as the 9th Circuit took the unusual step of withdrawing the opinion and granting a panel rehearing. See August 23, 2022 post by attorneys Mia Farber, Scott P. Lang, and Cecilie E. Read.
Delegation, Gateway Issues: Ninth Circuit Affirms Judgment Of District Court To Compel Arbitration With Tribe Because Of Effective Delegation Clause
The Opinion Sets Forth The Steps For Analyzing A Delegation Issue.
The Chicksaw Nation opposed arbitrating a dispute with Caremark, the pharmacy benefit manager for health-insurance plans that cover many tribal members. The Nation argued that it could not be compelled to arbitrate because it had not waived tribal immunity and because a provision of the Indian Health Care Improvement Act, referred to as the “Recovery Act, would be violated by compelled arbitration. However, the question before the district court and the Ninth Circuit was not whether the tribe had waived sovereign immunity and whether there was a violation of the Recovery Act, but whether a delegation clause effectively delegated determination of those issues to an arbitrator or to a court. The district court held that the delegation clause was effective, and the Ninth Circuit agreed. Caremark v. Chicksaw Nation, et al, No. 21-16209 (9th Cir. 8/15/22) (Friedland, Wallace, Boggs).
"[A] delegation clause," explains Judge Friedland, "is essentially a mini-arbitration agreement, nested within a larger one."
The utility of this opinion is found in Judge Friedland's description of the principles in a delegation clause analysis: "First, a court must resolve any challenge that an agreement to arbitrate was never formed, even in the presence of a delegation clause. Next, a court must also resolve any challenge directed specifically to the enforceability of the delegation clause before compelling arbitration of any remaining gateway issues of arbitrability. Finally, if the parties did form an agreement to arbitrate containing an enforceable delegation clause, all arguments going to the scope or enforceability of the arbitration provision are for the arbitrator to decide in the first instance."
COMMENT: Note that delegation to the arbitrator means that the arbitrator now gets to decide whether there has been an effective waiver of tribal immunity and whether there is a violation of the Recovery Act.
Arbitration, Severability, Public Policy: Second Dist. Div. 8 Holds Arbitration Provision In Attorney Fee Dispute Was Enforceable, Though Attorney Unlicensed In California Had Done Some Work For Client
Just Because Some Work Was Done By An Attorney Not Licensed In California Doesn't Necessarily Mean The Arbitration Agreement Or The Fee Agreement Is Unenforceable.
Plaintiff Mark Brawerman sued Loeb & Loeb, arguing the law firm failed to protect his interests in negotiating with the venture capital firm Wasserstein & Co., resulting in the eventual loss of control of his successful business TMI marketing healthy frozen food desserts. As a result of the arbitration agreement in his retention agreement with Loeb & Loeb, the parties arbitrated. Brawerman was unhappy with the result. Learning that a substantial amount of Loeb & Loeb's services (382 of 928 hours) had been performed by an attorney unlicensed to practice law in California (but licensed in other states), Brawerman argued his agreement with Loeb & Loeb was against public policy, the arbitrator had exceeded the scope of his powers by proceeding under an invalid arbitration agreement, and the arbitration award should therefore be vacated rather than confirmed. The arbitration award was confirmed, and Brawerman's appeal followed. Mark Brawerman et al. v. Loeb & Loeb LLP et al, B305802 (2/8 8/3/22) (Harutunian, Grimes, Wiley).
The Court of Appeal affirmed, based on its analysis of two key cases: Sheppard, Mullin, Richter & Hampton, LLP v. J-M Manufacturing Co., Inc., 6 Cal.5th 59 (2018) and Birbrower, Montalbano, Condon & Frank v. Superior Court, 17 Cal.4th 119 (1998).
Sheppard held that the retention of the law firm, which happened to result in a severe conflict of interest, could be invalid as against public policy, resulting in a loss of attorney fees. In Brawerman, the court limited Sheppard by explaining Sheppard applied to a situation where a breach of professional ethics infected the entire agreement from its inception. Birbrower, like Brawerman, involved a situation in which an attorney unlicensed in California performed work for a California client. While the California Supreme Court held that the Birbrower firm could not collect under the contract for work illegally performed in California by New York attorneys, it did not void the entire retention agreement, because it was possible that some of the work had been properly done by New York attorneys in New York, and that work might be severable from the work illegally performed.
Unlike in Sheppard, in Brawerman there was no conflict of interest, nor was there a basis for finding that the retention agreement was improper from the beginning. In fact, but for the fact that an attorney unlicensed in California had performed some of the work in Brawerman, there would have been no basis for attacking the fees. Loeb & Loeb has plenty of California attorneys who could have been enlisted to do work for a California client under the retention agreement. Similar to Birbrower, the work improperly done by the attorney unlicensed in California, which involved filing an arbitration demand, might be separated from the work done by licensed California attorneys. The agreement in Brawerman need not be entirely invalid if work that was done properly can be severed from work that was done improperly.
The Court of Appeal affirmed the confirmation of the arbitration award in Brawerman.
COMMENT: Interestingly, the award in Brawerman resulted in disgorgement of fees to plaintiffs in the amount $138,075 for work done by the unlicensed attorney, and fees incurred in the arbitration of $94,833. So the retention agreement and arbitration agreement were legal, but the work done by the attorney unlicensed in California was not compensable. But this was surely small potatoes for Brawerman, who believed his attorneys had not protected him properly, resulting in loss of control over a multi-million dollar company, and who therefore wanted to undo the arbitration award in its entirety.
Out-of-state attorneys are, of course, happy to know that California fixed the problem after Birbrower regarding out-of-state participation in arbitrations. California now has what is essentially a "pro hac vice" approach to out-of-state attorneys wishing to participate in California arbitrations. Cal. Code Civ. Proc., § 1282.4.