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Ninth Circuit:
Parallel Process Required for Plaintiff’s PAGA Action
Bybee Says Interplay of Two Cases Mandates Arbitration of Individual Claims, Court Adjudication of Representative Ones
By a MetNews Staff Writer
The Ninth U.S. Circuit Court of Appeals held yesterday that non-individual claims filed under the California Private Attorneys General Act of 2004 may not be referred to arbitration where the arbitration agreement exempts class and collective actions—despite not specifically mentioning representative claims—nor may they be dismissed for lack of standing once the individual claims are referred to arbitration.
The decision comes in a case that had been stayed pending a U.S. Supreme Court case on the divisibility of a plaintiff’s individual claims and non-individual or representative claims under PAGA.
Senior Circuit Judge Jay S. Bybee wrote the opinion affirming in part and vacating in part an order by District Court Judge Philip S. Gutierrez for the Central District of California compelling arbitration of all claims. Circuit Judge Kenneth K. Lee and Third Circuit Judge D. Michael Fisher, sitting by designation, joined in the opinion.
Two Cases
Appealing the order compelling arbitration of all claims was Macy’s West Stores, Inc., which had been sued by former employee Yuriria Diaz. In May 2019, Diaz filed a complaint against the retailer under PAGA, on behalf of herself and other employees, alleging various wage and hour violations of the California Labor Code.
Both parties agreed to stay the proceedings pending the U.S. Supreme Court’s 2022 decision in Viking River Cruises, Inc. v. Moriana, which held—in an opinion by Justice Samuel Alito—that a plaintiff’s non-individual PAGA claims must be dismissed for lack of standing if the party’s individual claims are properly compelled to arbitration pursuant to an agreement.
After the stay was lifted, Diaz asked the District Court judge to again stay adjudication pending the California Supreme Court’s decision in Adolph v. Uber Technologies, a case to decide whether the U.S. Supreme Court’s approach in Viking River was, as a matter of California law, correct under PAGA.
Gutierrez declined to stay the matter a second time, granting Macy’s motion to compel arbitration of Diaz’s individual PAGA claims but denying the company’s request that all non-individual claims be dismissed under Viking River.
In a November 2022 order compelling arbitration of all claims, Gutierrez found that the individual claims were clearly covered by the arbitration agreement and that the language in the agreement providing that “the Arbitrator [shall not] have the power to hear an arbitration as a class or collective action” was not specific enough to exclude Diaz’s representative PAGA claims.
The California Supreme Court subsequently issued its decision in the Adolph case in July 2022. In a unanimous decision authored by Justice Goodwin H. Liu, the court held, contrary to Viking River, that an order compelling arbitration of the individual claims does not strip a plaintiff of standing to litigate claims on behalf of other employees under PAGA in court.
Arbitration Agreement
Bybee agreed with Guitierrez that the arbitration agreement, which provided for the arbitration of “all employment-related legal disputes,” covered Diaz’s individual PAGA claims, but disagreed that the exemption for class actions in the agreement did not apply to the plaintiff’s representative claims.
He said that “[b]y treating the term ‘class or collective action’ like a fixed algebraic variable,” Gutierrez ignored what the parties intended at the time they signed the agreement. The jurist wrote:
“We are convinced that at the time of contracting, the parties consented only to arbitration of claims relating to Diaz’s own employment….Our conclusion is reinforced by the exclusion of class and collective actions from arbitration. Although the waiver does not specifically reference non-individual PAGA claims, it does no violence to the agreement to read non-individual PAGA claims as an instance of a class or collective action.”
Fundamental Federalism Principles
Having determined that the individual claims were properly ordered to arbitration, Bybee was left with the question of how the non-individual claims should proceed, remarking:
“Our conclusion as to the arbitrability of Diaz’s individual claims is only half of the victory that Macy’s seeks. It asks us to further instruct the district court on remand to dismiss the non-individual claims, following the example of the Supreme Court in Viking River. We cannot, consistent with fundamental principles of federalism, do as Macy’s requests.”
Bybee wrote:
“Adolph’s holding is the final and binding authority on the meaning of PAGA…. The result is that under Viking River, Diaz’s non-individual PAGA claims cannot be referred to arbitration, as the district court ordered, and after Adolph, those claims cannot be dismissed, as Macy’s requests.”
He noted the “odd position” in which Macy’s is left under this interplay, and said:
“Having successfully shown that the arbitration agreement in this case does not encompass non-individual PAGA claims, Macy’s has opened the way for Diaz to bring those claims in a separate court proceeding that Macy’s surely did not desire. But there is no other tenable outcome.”
He continued:
“An aggrieved employee must have a forum in which to bring non-individual PAGA actions. Because the agreement between Macy’s and Diaz forecloses arbitration of those claims, court is the only option remaining.”
Parallel Process
Bybee acknowledged that the decision leaves open a “final question” as to what to do with the non-individual PAGA claims, which “can neither be arbitrated nor dismissed.” He commented: “Adolph contemplates that nonarbitrable claims may either proceed in the judicial forum in parallel with the arbitrated claims or be stayed pending completion of the arbitration.”
Looking to the arbitration agreement between the parties, Bybee said:
“[T]he arbitration agreement between Macy’s and Diaz addresses just the situation in which the parties now find themselves. It requires that the party who files a lawsuit raising both arbitrable and nonarbitrable claims request a stay of litigation for the nonarbitrable claims pending arbitration of the arbitrable claims. We therefore remand to the district court with instruction to treat the nonarbitrable non-individual claims consistent with Adolph, anticipating that the parties will, per their agreement, request a stay with respect to those claims.”
Final Decision
Diaz argued that the appellate court lacked jurisdiction because Gutierrez’s order compelling arbitration was not a final decision with respect to arbitration because it did not explicitly dismiss the underlying claims.
In his order compelling arbitration, Gutierrez denied Diaz’s request for a stay as moot, stating that there were “no remaining claims before the court.” Under those circumstances, Bybee concluded:
“Although the district court did not expressly state whether the underlying claims were dismissed or stayed, Macy’s argues that the denial of Diaz’s requested stay, combined with the language of closure, overcomes any presumption that the action is stayed pending the arbitration. We agree.”
The case is Diaz v. Macy’s West Stores, Inc., 22-56209.
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