Viking River Cruises, Inc. v. Moriana

Issues

Does the Federal Arbitration Act preempt the California Private Attorneys General Act to require state courts to enforce a bilateral arbitration agreement stipulating that an employee cannot raise representative claims?

Oral argument:

March 30, 2022

Court below:

California Second District Court of Appeal

This case asks the Supreme Court to determine whether the Federal Arbitration Act demands that state courts enforce an arbitration agreement’s waiver of the statutory right of action to collect penalties on behalf of the state, despite state law prohibiting such a contractual waiver. Petitioner Viking River Cruises argues that the Federal Arbitration Act requires that arbitration agreements signed by employees must be enforced as written for claims brought under California’s Private Attorney General Act (PAGA) because such claims are individual disputes and incompatible with the procedures of individual bilateral arbitration. Respondent Angie Moriana counters that PAGA claims involve the state, not the individual, and that PAGA’s anti-waiver rule is necessary to bolster the state’s labor law enforcement. The outcome of this case has important implications for the enforcement of state labor codes, the availability of civil remedies for workers, and the effectiveness of arbitration agreements to resolve employment-related disputes.

Questions as Framed for the Court by the Parties

Whether the Federal Arbitration Act (“FAA”) requires state courts to a enforce an arbitration agreement that includes a waiver of a statutory right of action to collect penalties on behalf of a state, even when such a waiver is prohibited by the state’s law.

Facts

From 2016 to 2017, Angie Moriana worked as a sales representative for Viking River Cruises, Inc. (“Viking”), a company that globally operates and sells trips on ocean and river cruise lines. Brief for the Petitioner, Viking River Cruises, Inc., at 12. Before commencing her employment, Moriana signed an agreement with the company that required any dispute arising out of the employment to be submitted to bilateral arbitration. Moriana v. Viking River Cruises, Inc., at 2. The agreement stipulated that Moriana waived the right to bring a dispute as a class, representative, or private attorney general action. Id. A private attorney general action is a private cause of action brought on the state’s behalf to recover civil penalties. Brief for the Respondent, Angie Moriana, at 10. During her employment, the company allegedly subjected her, along with other sales representatives, to numerous violations of California’s Labor Code. Id. at 8. Subsequently, after the end of her employment, Moriana brought suit against Viking in California state court under the state’s Private Attorneys General Act of 2004 (“PAGA”). Id. at 8. Her complaint pleaded a representative claim seeking recovery of civil penalties on behalf of the State of California and on behalf of similarly aggrieved current and former employees. Moriana v. Viking River Cruises, Inc., at 1.

Viking sought an order to compel Moriana to submit her PAGA claim to arbitration as an individual claim and sought to dismiss the representative claim. Brief for the Respondent at 9. The trial court denied Viking’s motion to compel arbitration, finding that the individual plaintiff in a PAGA claim acts as a proxy for the state so that the interested party in a PAGA representative claim is the state rather than the plaintiff seeking individual relief. Moriana v. Viking River Cruises, Inc., at 1. Thus, the trial court found that the California Supreme Court’s holding in Iskanian v. CLS Transportation Los Angeles, LLC, 59 Cal.4^th 348, 327 P.3d 129 (2014) remains good law, finding that state courts cannot enforce arbitration agreements that waive the right to file PAGA representative actions. Id. at 2. On appeal, the California Court of Appeal, Second District, affirmed the trial court’s denial of the motion to compel arbitration. Id. at 2. The California Supreme Court declined to exercise its discretionary review on December 9, 2020. Brief for the Petitioner at 3.

The United States Supreme Court granted Viking’s petition for writ of certiorari on December 15, 2021. Brief for the Petitioner at 1.

Analysis

THE FEDERAL ARBITRATION ACT AND PREEMPTION

Petitioner Viking River Cruises contends that Section 2 of the FAA mandates enforcement of arbitration agreements according to their terms, thereby preventing non-bilateral actions by Moriana. Brief for Petitioner, Viking River Cruises, p. 28. To support this assertion, Viking River Cruises points to the language of the FAA and several cases in which the Supreme Court has enforced arbitration agreements that expressly waive the right to pursue class actions or other collective proceedings. Id. at 20. Viking River Cruises asserts that the rigid enforcement of agreed-upon bilateral arbitration stems from its unique attributes, including the lack of appellate review and lower procedural rigor intended to facilitate efficient, low-cost private dispute resolution. Id. at 20–21.

Viking River Cruises argues that the FAA preempts a California rule (the “Iskanian rule”) established under Iskanian v. CLS Transportation Los Angeles, LLC. Id. at 22–23. In Iskanian, the California Supreme Court addressed the enforceability of an individual, bilateral arbitration agreement where the employee sought to pursue a class action and representative PAGA action. Id. at 9. Viking River Cruises describes the Iskanian rule as stating that the FAA does not preempt privately brought PAGA actions because the FAA governs the resolution of “private disputes, whereas a PAGA action is a dispute between an employer and the state.” Id. at 11. Viking River Cruises argues, however, that PAGA claims fall under—and are therefore precluded by—the FAA because PAGA claims generate private, individual disputes rather than disputes between the state and an employer. Id. at 35–36. Pointing to the facts of this case, Viking River Cruises notes that the state of California played no role in initiating this litigation. Id. at 36. In addition, Viking River Cruises argues that the FAA preempts the Iskanian rule even if the logic under Iskanian were sound because PAGA actions should not be treated differently from explicitly preempted collection actions, such as class actions. Id. at 23. Viking River Cruises contends that PAGA operates in similar way to other collective actions like class action suits, enabling a plaintiff to procedurally pursue claims or obtain relief on behalf of other people. Id. at 24. As part of this contention, Viking River Cruises argues that PAGA claims “go[] one very large step beyond” other collective actions because they allow plaintiffs to pursue relief for other violations that did not affect them personally. Id.

Respondent Moriana counters that the FAA does not preempt the right to pursue PAGA claims because the employment agreement at issue expressly prevents the pursuit of any PAGA claim in any forum, rather than merely limiting the ability to pursue individual, bilateral claims. Brief for Respondent, Moriana, at 13. To support this assertion, Moriana relies on the Iskanian rule, which conceptualizes PAGA claims for civil penalties as claims in which the individual PAGA plaintiff “represents the State in asserting its claim.” Id. at 13–14. Moriana contends that the employment agreement at issue “unequivocally requires an employee to ‘forgo PAGA claims’” because it bars all PAGA actions generally. Id. at 14. Based on this contention, Moriana claims that FAA does not and should not preempt the rights of individual employees to pursue PAGA claims because doing so would effectively eliminate employees of their statutory rights under PAGA. Id. at 14–15.

Moriana emphasizes that questions of statutory preemption depend on a statute’s text and structure, and Moriana argues that the FAA contains no such text or structure to support preclusion of PAGA claims. Id. at 15. Noting that Section 2 of the FAA establishes the enforceability of contract provisions “to settle by arbitration a controversy,” Moriana contends that this specific language is meant to enforce agreements to arbitrate, not to prevent claims by “precluding the parties from asserting them in arbitration or court.” Id. at 16. According to Moriana, the FAA thus only compels parties to submit disputed issues to an arbitrator. Id. at 17. Furthermore, Moriana highlights language from other sections in the FAA to argue that the FAA specifically protects issues that are referrable to arbitration and does not bar claims, like PAGA claims, that parties have agreed are not addressable through arbitration. Id. at 17–18. Thus, Moriana concludes that neither the FAA’s text nor structure support the ability of an arbitration agreement to waive a plaintiff’s statutory claims in their entirety. Id. at 19–20.

PROCEDURAL COMPATIBILITY BETWEEN THE FAA AND PAGA

Viking River Cruises argues that mandated access to PAGA proceedings, even in the presence of exclusive bilateral arbitration agreements, would lead to inefficient, costly procedural complications. Brief for Petitioner, at 26. Viking River Cruises points to the features of bilateral arbitration that enable quick dispute resolution, such as reaching the merits of a claim without the fact determinations required under PAGA. Id. at 27. Viking River Cruises argues that allowing PAGA claims to preempt enforcement of contractual waiver under the FAA would open the door to “unwieldy proceedings” that involve hundreds of different plaintiffs. Id. at 28. Viking River Cruises emphasizes that such a result could generate procedural difficulties due to the ability for a PAGA action to encompass a large number of Labor Code disputes unrelated to the individual employee that had agreed to bilateral arbitration. Id. at 27. Furthermore, Viking River Cruises notes that PAGA actions themselves impose procedural burdens that “far exceed[] those in bilateral arbitration.” Id. at 28. For example, Viking River Cruises asserts that involving a large number of potentially aggrieved employees creates the likelihood that an individual employee initiating the PAGA action will not have access to central pieces of discovery for other employees. Id. at 28–29.

In contrast, Moriana asserts that arguments about procedural incompatibility between the FAA and PAGA are misguided because the FAA features no text, structure, or content that suggests that its purpose includes preventing states from authorizing claims of “magnitude and complexity . . . inconsistent with a defendant’s view of what is suitable for arbitration.” Brief for Respondent, at 26–27. Moriana contends that the FAA’s primary purpose was to enable parties to select arbitration as their dispute resolution mechanism, not to extinguish the right to arbitrate or litigate a claim based on its complexity or scope. Id. at 27. Thus, Moriana argues that the FAA embodies a Congressional policy for enabling parties to select arbitration as the forum for dispute resolution, rather than enabling parties to force forfeiture of submitting claims in their entirety. Id. at 24–25. Furthermore, Moriana notes that the Supreme Court has recognized arbitration’s capacity for resolving complex, high-stakes issues involving multiple parties. Id. For example, Moriana refers to Supreme Court decisions holding that complex securities-fraud and RICO claims are arbitrable despite their complexity and consideration of multiparty effects. Id. at 28. Moriana contends that such decisions undermine Viking River Cruises’ argument that the FAA is wholly incompatible with claims requiring consideration of effects on those other than the plaintiff, which would allegedly necessitate enforcement of waivers to such claims. Id.

Discussion

PAGA LITIGATION BURDEN

In support of Viking, Uber Technologies, Inc. and Postmates, LLC (“Uber”) argue that, in the wake of Iskanian, employers face an “explosive growth of PAGA claims.” Brief of Amici Curiae Uber Technologies, Inc. and Postmates, LLC (“Uber”), in support of Petitioner at 13. Uber asserts that PAGA claims have overwhelmingly replaced class actions for California Labor Code disputes. Id. at 14. Moreover, Uber points out that California Supreme Court’s application of the Labor Code to out-of-state employers will result in increased PAGA litigation for out-of-state companies. Id. at 15. The Restaurant Law Center emphasizes that PAGA’s purpose was to decrease the administrative burden of enforcement by allowing employees to seek civil penalties on behalf of the State. Brief of Amicus Curiae of Restaurant Law Center, in support of Petitioner at 20. However, Iskanian and subsequent cases, according to Restaurant Law Center, have undermined PAGA’s purpose by allowing employees to avoid contractual obligations and submit an unworkable number of PAGA claims similar to class actions. Id. at 21. The Restaurant Law Center asserts that increased case burden in courts will result in less recovery for employees and in increase litigation time and costs. Id.

Civil Procedure and Arbitration Law Professors (the “Professors”), in support of Moriana, counter that the increased influx of PAGA actions does not result in enhanced administrative burden because courts are already accustomed to dealing with fact-intensive, complex claims like PAGA actions. Brief of Amici Curiae Civil Procedure and Arbitration Law Professors (“Professors), in support of Respondent at 9–10. The Professors assert that California courts can parse which cases are too unmanageable for court and would better proceed in arbitration. Id. at 12. Furthermore, Steve Chow, a small business owner, argues that PAGA waivers would detrimentally impact small businesses. Brief of Amicus Curiae Steve Chow, in support of Respondent at 2. Chow posits that, unlike large corporations, small businesses would be forced to forego PAGA waivers because they cannot afford arbitration costs. Id. at 8. Because large corporations can easily disregard the Labor Code’s strict measures vis-à-vis PAGA waivers, Chow argues, “mom-and-pop shops” that will continue to be sued under PAGA will ultimately face a major competitive disadvantage in the market. Id. at 9.

REMEDIES FOR EMPLOYEES

The Retail Litigation Center, Inc., and the National Retail Federation (“RLC”), in support of Viking, contend that PAGA deprives employees of the primary benefit of bilateral arbitration agreements: avoiding the unpredictability and expenses of litigation. Brief of Amicus Curiae Retail Litigation Center, Inc., and the National Retail Federation (“RLC”), in support of Petitioner at 2. Because employees can always pursue the same claim in state courts, the RLC attests that parties will be hindered from reaching complete agreement and resolution. Id. at 2–3. The RLC emphasizes that allowing an employee to bring a representative PAGA claim will over-include other similarly situated employees, who will then be automatically foreclosed from pursuing the benefits of arbitration. Id. at 3–4. Additionally, the California Business and Industrial Alliance (“CABIA”) argues that the litigation of PAGA claims results in significantly diminish recovery payments for employees compared to arbitrated PAGA disputes. Brief of Amicus Curiae California Business and Industrial Alliance (“CABIA”), in support of Petitioner at 7. CABIA also asserts that employees must wait nearly a year longer for awards from litigated PAGA cases than awards from the California Labor and Workforce Development Agency (“LWDA”). Id. The CABIA contends that lack of a waiver does not serve public interest because employers pay nearly $300,000 more per PAGA case in comparison to a LWDA case. Id.

In support of Moriana, California Rural Legal Assistance, Inc., and California Rural legal Assistance Foundation (“CRLA”) highlight California’s history of protections for workers through administrative hearings and civil actions. Brief of Amici Curiae California Rural Legal Assistance, Inc., and California Rural legal Assistance Foundation (“CRLA”), in support of Respondent at 10. CRLA asserts that California enacted PAGA to curb the widespread violation of labor laws. Id. at 14–15. CLRA points out that wage theft is a particularly harmful issue in the low-wage worker sector and contends that PAGA properly protects the welfare of workers by strengthening enforcement of civil penalties for violations. Id. at 17-18. Moreover, PAGA serves the interests of employees, CRLA argues, by reimbursing them for taking on the burden of enforcing labor law on behalf of the state. Id. at 18. Public Justice asserts that the waiver of representative actions completely deprives employees of their statutory rights to recover. Brief of Amicus Curiae Public Justice, in support of Respondent at 12-13. Public Justice asserts that representative actions are frequently the only avenue for individuals to seek justice and PAGA waivers would allow arbitration agreements to dispossess people of their right to seek substantive remedies. Id. at 15.