Petition for Writ of Certiorari — Five Star Senior Living Inc., fka Five Star Quality Care, Inc., et al., Petitioners v. Melinda Mandviwala
Supreme Court briefMar 26, 2018
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No. 17-____
IN THE
Supreme Court of the United States
————
FIVE STAR SENIOR LIVING INC. AND
FVE MANAGERS, INC.,
Petitioners,
v.
MELINDA MANDVIWALA,
Respondent.
————
On Petition for a Writ of Certiorari to the
United States Court of Appeals
for the Ninth Circuit
————
PETITION FOR A WRIT OF CERTIORARI
————
CLIFFORD M. SLOAN
Counsel of Record
ALEX T. HASKELL
CAROLINE VAN ZILE
SKADDEN, ARPS, SLATE,
MEAGHER & FLOM LLP
1440 New York Ave., NW
Washington, DC 20005
(202) 371-7000
cliff.sloan@skadden.com
Counsel for Petitioner
WILSON-EPES PRINTING CO., INC. – (202) 789-0096 – WASHINGTON, D. C. 20002
QUESTIONS PRESENTED
This Court has made clear that the Federal Arbitration Act (“FAA”) preempts state rules that (1) discriminate against arbitration agreements or (2) thwart the
objectives of the FAA.
The questions presented are:
1. Whether a California rule that prohibits the
enforcement of arbitration agreements with respect to
representative employment claims under California’s
Private Attorneys General Act (“PAGA”), and that is
applied to no other type of agreement, is preempted
by the FAA because the rule discriminates against
arbitration agreements.
2. Whether a California rule that prohibits the
enforcement of arbitration agreements with respect
to representative employment claims under PAGA is
preempted by the FAA because the rule eviscerates
bilateral arbitration agreements and thereby thwarts
the objectives of the FAA.
(i)
ii
RULE 29.6 STATEMENT
No parent corporation or publicly held company
owns 10 percent or more of Five Star Senior Living
Inc.’s stock. ABP Acquisition LLC, a wholly-owned
subsidiary of ABP Trust, owns approximately 36
percent of Five Star Senior Living Inc.’s stock.
FVE Managers, Inc. is a wholly-owned subsidiary of
Five Star Senior Living Inc.
TABLE OF CONTENTS
Page
QUESTIONS PRESENTED ........................................ i
RULE 29.6 STATEMENT ........................................... ii
INTRODUCTION ........................................................ 1
OPINIONS BELOW .................................................... 3
STATEMENT OF JURISDICTION ............................ 4
CONSTITUTIONAL AND STATUTORY
PROVISIONS INVOLVED ...................................... 4
STATEMENT OF THE CASE .................................... 5
A. California’s Private Attorneys General
Act...................................................................... 5
B. Iskanian and Sakkab ........................................ 6
C. Proceedings Below ............................................ 9
REASONS FOR GRANTING THE WRIT ................ 11
I. The Iskanian Rule Is Not a Rule of General Applicability and Thus Is Preempted
by the FAA ...................................................... 12
II. The Iskanian Rule Frustrates the Purposes and Objectives of the FAA .................... 18
A. The Iskanian Rule Results in a Process
Substantially More Time-Consuming,
Costly, Complex and Risky than
Bilateral Arbitration ................................. 19
B. The Reasoning Used to Evade
Concepcion and Uphold the Iskanian
Rule Is Deeply Flawed .............................. 22
(iii)
iv
TABLE OF CONTENTS—Continued
Page
III. This Case Is an Ideal Vehicle for Addressing the Important Issues Presented in
this Petition..................................................... 26
A. This Petition Cleanly Presents Ripe,
Impactful and Pressing Questions
that Require this Court’s Review.............. 26
B. This Petition Is Especially WellSuited for a Grant of Certiorari ................ 31
CONCLUSION .......................................................... 34
APPENDIX
Appendix A: Decision of the Court of Appeals
for the Ninth Circuit (February 2, 2018) ............ 1a
Appendix B: Order Denying Defendants’
Motion to Compel Arbitration, District
Court for the Central District of California
(December 16, 2015) ............................................. 6a
Appendix C: Mutual Agreement to Resolve
Disputes and Arbitrate Claims (October 2,
2012) ................................................................... 15a
v
TABLE OF AUTHORITIES
FEDERAL CASES
Page(s)
Allied-Bruce Terminix Cos. v. Dobson,
513 U.S. 265 (1995) ......................................... 32
American Express Co. v. Italian
Colors Restaurant,
570 U.S. 228 (2013) ......................................... 18
Apple American Group, LLC v. Salazar,
136 S. Ct. 688 (2015) (No. 15-100) ................. 32
AT&T Mobility LLC v. Concepcion,
563 U.S. 333 (2011) ..................................passim
Athens Disposal Co. v. Franco,
558 U.S. 1136 (2010) (No. 09-272).................. 31
Bloomingdale’s Inc. v. Tanguilig,
138 S. Ct. 356 (2017) (No. 16-1503)................ 32
Bloomingdale’s Inc. v. Vitolo,
137 S. Ct. 2267 (2017) (No. 16-1110).............. 32
Bridgestone Retail Operations, LLC
v. Brown,
135 S. Ct. 2377 (2015) (No. 14-790)................ 32
Brooks v. Life Care Centers
of America, Inc.,
SACV 12-00659-CJC(RNBx),
2015 WL 13298569 (C.D. Cal.
Oct. 19, 2015) .................................................. 16
CarMax Auto Superstores
California, LLC v. Areso,
136 S. Ct. 689 (2015) (No. 15-236) ................. 32
Circuit City Stores, Inc. v. Gentry,
552 U.S. 1296 (2008) (No. 07-988).................. 31
vi
TABLE OF AUTHORITIES—Continued
Page(s)
CLS Transportation Los Angeles, LLC
v. Iskanian,
135 S. Ct. 1155 (2015) (No. 14-341)................ 32
County Bank of Rehoboth Beach,
Delaware v. Muhammad,
549 U.S. 1338 (2007) (No. 06-907).................. 31
Dean Witter Reynolds, Inc. v. Byrd,
470 U.S. 213 (1985) ........................................... 1
DIRECTV, Inc. v. Imburgia,
136 S. Ct. 463 (2015) ................................passim
Doctor’s Associates, Inc. v. Casarotto,
517 U.S. 681 (1996) ......................................... 13
EEOC v. Waffle House, Inc.,
534 U.S. 279 (2002) ............................. 22, 23, 24
Hernandez v. Best Buy Stores, LP,
No. 13-cv-2587, 2017 WL 2445438
(S.D. Cal. June 6, 2017) ............................. 15-16
Hines v. Davidowitz,
312 U.S. 52 (1941) ........................................... 18
Kindred Nursing Centers Ltd.
Partnership v. Clark,
137 S. Ct. 1421 (2017) ..............................passim
Mitsubishi Motors Corp. v.
Soler Chrysler-Plymouth, Inc.,
473 U.S. 614 (1985) ......................................... 33
Moses H. Cone Memorial Hospital v.
Mercury Construction Corp.,
460 U.S. 1 (1983) ............................................... 1
vii
TABLE OF AUTHORITIES—Continued
Page(s)
National Labor Relations Board v.
Murphy Oil USA, Inc.,
No. 16-307 (cert. granted, Jan. 13, 2017) ........ 25
Nitro-Lift Technologies, LLC v. Howard,
568 U.S. 17 (2012) ........................................... 33
Perry v. Thomas,
482 U.S. 483 (1987) ......................................... 13
Porter v. Nabors Drilling USA, L.P.,
No. 15-cv-00805, 2015 WL 13323135
(E.D. Cal. Sept. 21, 2015) ................................. 8
Preston v. Ferrer,
552 U.S. 346 (2008) ............................. 13, 23, 33
Sakkab v. Luxottica Retail
North America, Inc.,
803 F.3d 425 (9th Cir. 2015)....................passim
Shearson/American Express, Inc.
v. McMahon,
482 U.S. 220 (1987) ......................................... 33
Southland Corp. v. Keating,
465 U.S. 1 (1984) ....................................... 13, 33
Stolt-Nielsen S.A. v. AnimalFeeds
Inernational Corp.,
559 U.S. 662 (2010) .................................... 18-19
T-Mobile USA, Inc. v. Ford,
553 U.S. 1065 (2008) (No. 07-1103)................ 31
T-Mobile USA, Inc. v. Gatton,
553 U.S. 1064 (2008) (No. 07-1036)................ 31
viii
TABLE OF AUTHORITIES—Continued
Page(s)
T-Mobile USA, Inc. v. Janda,
555 U.S. 813 (2008) (No. 07-1331).................. 31
T-Mobile USA, Inc. v. Laster,
553 U.S. 1064 (2008) (No. 07-976).................. 31
T-Mobile USA, Inc. v. Lowden,
555 U.S. 813 (2008) (No. 07-1330).................. 31
Volt Information Sciences, Inc. v.
Board of Trustees of Leland
Stanford Junior University,
489 U.S. 468 (1989) ............................ 1-2, 11, 18
STATE CASES
Arias v. Superior Court,
209 P.3d 923 (Cal. 2009) ............................. 7, 21
Discover Bank v. Superior Court of L.A.,
113 P.3d 1100 (Cal. 2005) ......................... 6, 8, 9
Hernandez v. Ross Stores, Inc.,
212 Cal. Rptr. 3d 485 (Ct. App. 2016),
review denied (Mar. 29, 2017) ................... 26-27
Iskanian v. CLS Transportation
Los Angeles, LLC,
327 P.3d 129 (Cal. 2014), cert. denied,
CLS Transp. L.A., LLC v. Iskanian,
135 S. Ct. 1155 (2015) ..............................passim
Tanguilig v. Bloomingdales, Inc.,
210 Cal. Rptr. 3d 352 (Ct. App. 2016),
cert. denied, 138 S. Ct. 356 (2017) ............. 21-22
Villacres v. ABM Industries Inc.,
117 Cal. Rptr. 3d 398 (Ct. App. 2010) ............ 15
ix
TABLE OF AUTHORITIES—Continued
CONSTITUTION
Page(s)
U.S. Const. art. VI, cl. 2 ....................................... 4
STATUTES
28 U.S.C. § 1254(1) ............................................... 4
31 U.S.C. § 3730(a)(2)......................................... 24
31 U.S.C. § 3730(c)(3) ......................................... 24
Federal Arbitration Act, 9 U.S.C. § 1
et seq. ........................................................passim
§ 2 .......................................................... 4, 13, 14
Cal. Civ. Code § 1668 ........................................... 6
California Private Attorneys General Act,
Cal. Labor Code § 2698, et seq. ................passim
§ 2699(a) ............................................................ 5
§ 2699(c) ............................................................ 5
§ 2699(f)(2) ........................................................ 5
§ 2699(g)(1) ........................................................ 5
§ 2699(i) ............................................................. 5
§ 2699(l)(2)-(3) ................................................... 6
§ 2699.3(a)(1)(A) ................................................ 5
§ 2699.3(a)(2)(A)-(B).......................................... 5
RULES
Fed. R. Civ. P. 23 ................................................ 21
x
TABLE OF AUTHORITIES—Continued
COURT FILINGS
Page(s)
Appellants’ Excerpts of Record, Volume II,
Mandviwala v. Five Star Quality Care,
Inc., No. 16-55084 (9th Cir. May 31,
2017), Dkt. 19-2................................................. 9
Order Denying Petition for Rehearing En
Banc, Sakkab v. Luxottica Retail North
America, Inc., No. 13-55184 (9th Cir. Feb.
2, 2016), Dkt. 115 ............................................ 26
Respondent’s Brief in Opposition, Bloomingdale’s Inc. v. Vitolo, 137 S. Ct. 2267
(2017) (No. 16-1110) (May 15, 2017) .............. 32
OTHER AUTHORITIES
Aaron Blumenthal, Comment, Circumventing Concepcion: Conceptualizing Innovative Strategies to Ensure the Enforcement
of Consumer Protection Laws in the Age
of the Inviolable Class Action Waiver, 103
Cal. L. Rev. 699 (2015) ................................... 30
Amaan A. Shaikh, Comment, The PostConcepcion Contract Landscape: The
Role Socially Conscious Business Can
Play, 57 Santa Clara L. Rev. 223 (2017) ... 29-30
Department of Industrial Relations, State
of California Budget Change Proposal (submitted Jan. 7, 2016), http://web1a.esd.do
f.ca.gov/Documents/bcp/1617/FY1617_O
RG7350_BCP474.pdf ...................................... 28
xi
TABLE OF AUTHORITIES—Continued
Page(s)
Emily Green, State Law May Serve as Substitute for Employee Class Actions, L.A.
Daily Journal (Apr. 17, 2014), https://
www.dailyjournal.com/articles/266212 .......... 27
Janet Cooper Alexander, To Skin A Cat:
Qui Tam Actions As A State Legislative
Response to Concepcion, 46 U. Mich. J.L.
Reform 1203 (2013) ......................................... 30
Josh Eidelson, Bloomberg, California Helps
Workers Sue Their Bosses. New York
Has Noticed (Sept. 29, 2017), https://
www.bloomberg.com/news/articles/201709-29/california-helps-workers-sue-theirbosses-new-york-has-noticed .......................... 30
Legislative Analyst’s Office, Labor Code
Private Attorneys General Act Resources
(Mar. 25, 2016), http://www.lao.ca.gov/
Publications/Report/3403 ............................... 23
Legislative Analyst’s Office, Memorandum
on A.G. File No. 2017-035 (Nov. 27, 2017),
http://lao.ca.gov/ballot/2017/ 170607.pdf ......... 28
Matthew Goodman, Comment, The Private
Attorney General Act: How to Manage the
Unmanageable, 56 Santa Clara L. Rev.
413 (2016) ........................................................ 28
News Release, Bureau of Labor Statistics,
State Employment and Unemployment—
January 2018 (Mar. 12, 2018), https://
www.bls.gov/news.release/pdf/laus.pdf .......... 28
xii
TABLE OF AUTHORITIES—Continued
Page(s)
News Release, Bureau of Labor Statistics,
The Employment Situation—February
2018 (Mar. 9, 2018), https://www.bls.gov/
news.release/pdf/empsit.pdf ........................... 28
Salvatore U. Bonaccorso, Note, State Court
Resistance to Federal Arbitration Law,
67 Stan. L. Rev. 1145 (2015) .......................... 29
Tim Freudenberger et al., Trends in PAGA
Claims and What It Means for California
Employers, Corporate Counsel, Inside
Counsel (Mar. 19, 2015), http://web1.be
ta.insidecounsel.com/2015/03/19/trends-i
n-paga-claims-and-what-it-means-for-cal
ifo?slreturn=1522050847 ................................ 27
PETITION FOR A WRIT OF CERTIORARI
Petitioners Five Star Senior Living Inc. and FVE
Managers, Inc. (collectively, “Five Star”) respectfully
petition for a writ of certiorari to review the judgment
of the United States Court of Appeals for the Ninth
Circuit.1
INTRODUCTION
Congress enacted the Federal Arbitration Act
(“FAA”), 9 U.S.C. § 1 et seq., in 1925 “to overrule the
judiciary’s longstanding refusal to enforce agreements
to arbitrate.” Dean Witter Reynolds, Inc. v. Byrd, 470
U.S. 213, 219-20 (1985). As this Court has emphasized, the “judicial hostility towards arbitration that
prompted the FAA” has continued to “manifest[] itself
in a great variety of devices and formulas.” AT&T
Mobility LLC v. Concepcion, 563 U.S. 333, 342 (2011)
(citation omitted). The California Supreme Court’s
“Iskanian rule” is such an anti-arbitration device.
This petition seeks its review and invalidation in order
to preserve and protect the FAA’s “liberal federal
policy favoring arbitration.” Moses H. Cone Mem’l
Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24 (1983).
This Court has held that state-created rules that
selectively disfavor arbitration are preempted by the
FAA. See, e.g., Kindred Nursing Ctrs. Ltd. P’ship v.
Clark, 137 S. Ct. 1421 (2017); DIRECTV, Inc. v.
Imburgia, 136 S. Ct. 463 (2015). This Court also
has held that the “principal purpose of” the FAA is
“ensuring that private arbitration agreements are
enforced according to their terms.” Volt Info. Scis.,
Inc. v. Bd. of Trs. of Leland Stanford Junior Univ., 489
1
Five Star Senior Living Inc. was formerly known as Five Star
Quality Care, Inc.
2
U.S. 468, 478 (1989). With fidelity to that purpose, the
Court has invalidated state rules that undermine
agreements to arbitrate, including, in Concepcion, a
California rule that barred enforcement of agreements
to arbitrate individually, as opposed to on a class or
representative basis. See 563 U.S. at 344.
Nevertheless, in Iskanian v. CLS Transportation
Los Angeles, LLC, decided in the wake of Concepcion,
the California Supreme Court adopted a rule that
conflicts with this Court’s precedents. Iskanian, 327
P.3d 129 (Cal. 2014), cert. denied, 135 S. Ct. 1155
(2015). Iskanian held that bilateral agreements to
arbitrate on an individual basis may not be enforced
when an employee brings representative claims (claims
on behalf of herself and other employees) under
California’s Private Attorneys General Act (“PAGA”),
Cal. Labor Code § 2698, et seq. Representative PAGA
claims, according to the California Supreme Court, are
“unwaivable” in arbitration agreements. Iskanian,
327 P.3d at 148. Subsequently, in Sakkab v. Luxottica
Retail North America, Inc., 803 F.3d 425 (9th Cir.
2015), a divided panel of the Ninth Circuit upheld the
Iskanian rule and categorically exempted PAGA claims
from a contractual requirement of bilateral, individual
arbitration. With Iskanian and Sakkab in place, individual employees in California (and their attorneys)
now can, and do, routinely bypass their agreements to
arbitrate all claims on an individual basis.
That is exactly what Respondent Melinda Mandviwala
did in this case. The Ninth Circuit, applying Iskanian
and Sakkab, invalidated Mandviwala’s agreement to
arbitrate her claims against Five Star on an individual
basis, with regard to her representative PAGA claims.
Pet. App. (“App.”) 2a-3a. The Ninth Circuit’s decision,
and the Iskanian and Sakkab decisions on which it
3
relies, conflict with the FAA’s commands as well as
decades of this Court’s precedent.
If the FAA is to have the effect that Congress
intended, the Iskanian rule must be reviewed and
invalidated for two reasons. First, like the rules this
Court recently rejected in Kindred and DIRECTV, the
Iskanian rule is not a generally applicable contract
defense, but rather, has been used exclusively to
prevent arbitrations. Second, like the rule this Court
rejected in Concepcion, the Iskanian rule interferes
with the FAA’s core purpose and objectives by eliminating contractual commitments to arbitrate bilaterally.
Thus, for either of these reasons, the Iskanian rule is
preempted by the FAA.
Recognizing the importance of the FAA, this Court
has regularly granted certiorari to prevent states
from flouting the Act’s mandates. That is particularly
true of cases affecting California, the state with
the nation’s largest workforce. Today, the PAGAIskanian-Sakkab regime is well-known as a means for
circumventing this Court’s holding in Concepcion and
the dictates of the FAA. Indeed, the number of PAGA
actions has increased exponentially since Concepcion
was decided, and has also risen dramatically since
Iskanian and Sakkab were decided. This Court’s
review is necessary to prevent its precedents from
being undermined, as well as to ensure the appropriate application and uniform enforcement of the FAA.
OPINIONS BELOW
The opinion of the United States Court of Appeals
for the Ninth Circuit, App. 1a-5a, is unreported and
is available at 2018 WL 671138. The order of the
United States District Court for the Central District
of California denying Five Star’s motion to compel
4
arbitration, App. 6a-14a, is unreported and is not
available on a publicly accessible database.
STATEMENT OF JURISDICTION
The Ninth Circuit issued its judgment on February
2, 2018. This Court has jurisdiction under 28 U.S.C.
§ 1254(1).
CONSTITUTIONAL AND
STATUTORY PROVISIONS INVOLVED
The Supremacy Clause, U.S. Const. art. VI, cl. 2,
provides in pertinent part:
This Constitution, and the Laws of the United
States which shall be made in Pursuance
thereof . . . shall be the supreme Law of the
Land; and the Judges in every State shall be
bound thereby, any Thing in the Constitution
or Laws of any State to the Contrary notwithstanding.
Section 2 of the FAA, 9 U.S.C. § 2, provides in
pertinent part:
A written provision in . . . a contract
evidencing a transaction involving commerce to settle by arbitration a controversy
thereafter arising out of such contract or
transaction, . . . or an agreement in writing to
submit to arbitration an existing controversy
arising out of such a contract, transaction,
or refusal, shall be valid, irrevocable, and
enforceable, save upon such grounds as exist
at law or in equity for the revocation of any
contract.
5
STATEMENT OF THE CASE
A. California’s Private Attorneys General Act
Enacted in 2004 by the California legislature, PAGA
enables private persons to bring actions against their
employers seeking civil penalties for violations of
California labor laws. The actions may be brought on
behalf of the plaintiff and other employees.
The mechanics of the statute are straightforward.
An “aggrieved employee” is permitted to file an action
under PAGA against his or her employer. Cal. Labor
Code § 2699(a), (c). The employee may do so on a
representative basis on behalf of similarly-situated
employees. Id. The employer may be held liable for
“civil penalties” of $100 per “aggrieved employee” per
pay period for the first violation of a labor code provision, and $200 per aggrieved employee per pay period
for any subsequent violation of that same provision,
unless the relevant provision establishes a different
penalty. Id. § 2699(f)(2). Aggrieved employees that
prevail in PAGA actions receive 25 percent of the civil
penalties awarded. Id. § 2699(i). California’s Labor and
Workforce Development Agency (“LWDA”) receives the
remaining 75 percent. Id. A prevailing plaintiff also
is entitled to reasonable attorney’s fees and costs. Id.
§ 2699(g)(1).
Before filing a PAGA action, an aggrieved employee
must provide the LWDA with written notice of the
underlying violations. See id. § 2699.3(a)(1)(A). If the
agency does not intend to investigate or take action, or
if it does not respond within 65 days, the employee
may file suit. Id. § 2699.3(a)(2)(A)-(B). From that
point forward, the case is the employee’s, and his or
6
her attorney’s, to litigate. The state agency plays no
role in conducting the litigation.2
B. Iskanian and Sakkab
1. The California Supreme Court’s Iskanian decision held that, when an employee asserts a representative PAGA claim, an arbitration provision limiting
disputes to individual claims will not be enforced. 327
P.3d at 153. In Concepcion, decided three years before
Iskanian, this Court squarely rejected a California
Supreme Court rule establishing that, when an
individual asserts a class action claim, an arbitration
agreement limiting disputes to individual claims will
not be enforced. 563 U.S. at 352.
Nevertheless and notwithstanding Concepcion, the
California Supreme Court concluded in Iskanian that
agreements to arbitrate on an individual basis only
are “contrary to public policy and unenforceable as a
matter of state law” when applied to representative
PAGA actions. 327 P.3d at 149. Notably, in support
of its public-policy-backed conclusion, the California
Supreme Court invoked Section 1668 of the California
Civil Code, the same provision it had relied on as
support for the California rule this Court invalidated
in Concepcion. See Iskanian, 327 P.3d at 148-49;
Discover Bank v. Superior Court of L.A., 113 P.3d
1100, 1110 (Cal. 2005), abrogated by Concepcion, 563
U.S. at 340-41.
The Iskanian decision announced that “a PAGA
claim lies outside the FAA’s coverage.” Iskanian,
327 P.3d at 151. The California Supreme Court
stated that “the FAA aims to ensure an efficient forum
for the resolution of private disputes, whereas a PAGA
2
The LWDA receives copies of proposed settlements and
dispositive orders. Cal. Labor Code § 2699(l)(2)-(3).
7
action is a dispute between an employer and the
state [agency].” Id. at 149. Labeling a “PAGA
representative action . . . a type of qui tam action,” id.
at 148, the court found that “the state”—not the named
plaintiff who filed suit and who has unfettered control
over the litigation—“is the real party in interest.” Id.
at 151 (citing Arias v. Superior Court, 209 P.3d 923,
933-34 (Cal. 2009)). Because, according to the California
court, a PAGA action belongs to the state and the FAA
applies only to private parties, the FAA does not
preempt a judicial rule prohibiting waiver of
representative PAGA claims through individualclaim-only arbitration agreement provisions. Id. at
152-53.
2. In Sakkab, a divided panel of the Ninth Circuit
upheld the Iskanian rule. 803 F.3d at 427. The
majority held, first, “the Iskanian rule is a ‘generally
applicable’ contract defense” within the ambit of the
FAA’s “saving clause,” and, second, the rule “does
not conflict with [the FAA’s] objectives.” Id. at 433.
The latter holding was predicated on the view that
representative PAGA actions are not similar to the
class actions analyzed in Concepcion. Id. at 435-39.
The Ninth Circuit also found that its decision was
“bolstered by the PAGA’s central role in enforcing
California’s labor laws.” Id. at 439.
Judge N.R. Smith wrote a searing dissent. He
observed that, “[d]espite ninety years of Supreme
Court precedent invalidating state laws deemed
hostile to arbitration, the majority today displays this
same ‘judicial hostility’ to arbitration agreements.” Id.
at 440 (N.R. Smith, J., dissenting) (citation omitted).
The dissent detailed the similarities between the
PAGA claims in Sakkab and the class claims in
Concepcion. The dissent found that the “Iskanian rule
8
burdens arbitration in the same three ways identified
in Concepcion: it makes the process slower, more
costly, and more likely to generate procedural morass;
it requires more formal and complex procedure; and it
exposes the defendants to substantial unanticipated
risk.” Id. at 444. “Because the Iskanian rule stands
as an obstacle to the purposes and objectives of the
FAA,” the dissent concluded, “there is no question—
the rule must be preempted.” Id. at 450.3
The dissent further disagreed with the majority’s
argument that the Iskanian rule is justified by
California public policy. Judge Smith observed that,
in FAA preemption analysis, “the state’s purpose is
irrelevant”; “[i]f the rule conflicts with the objectives
of the FAA, the state rule must give way.” Id. The
dissent closed with a forecast for the majority opinion:
“Numerous state and federal courts have attempted to
find creative ways to get around the FAA. We did the
same [regarding Discover Bank], and were subsequently reversed in Concepcion. The majority now
walks that same path.” Id.
With regard to whether the Iskanian rule discriminates against arbitration agreements (as an independent
ground for rejecting the rule, in addition to the
argument that the rule frustrates the FAA’s purpose),
Judge Smith noted in his dissent that, because the
parties had not addressed the issue, he would not
resolve it. Sakkab, 803 F.3d at 442 n.1. Judge Smith
nonetheless stated that he had “serious doubts that
3
The majority of federal district courts considering the issue
before Sakkab concluded that the FAA preempts the Iskanian
rule. See Porter v. Nabors Drilling USA, L.P., No. 1:15-cv-00805MCE-JLT, 2015 WL 13323135, at *1 (E.D. Cal. Sept. 21, 2015)
(citing nine pre-Sakkab decisions holding that the FAA preempts
the Iskanian rule and four decisions finding the contrary).
9
the rule established by Iskanian falls into the same
category as the common law contract defenses of
duress or fraud,” and that “the Supreme Court did not
determine in Concepcion whether the alleged unconscionability of failing to apply the Discover Bank rule
was a generally applicable contract defense.” Id.
C. Proceedings Below
1. From November 2012 to July 2014, Mandviwala
was an employee of Five Star at a senior living
community in California. App. 7a. At the beginning
of her employment, Mandviwala voluntarily signed a
“Mutual Agreement to Resolve Disputes and Arbitrate
Claims.” Id. at 16a-26a. The agreement covered all
“claims” by one party against the other, defined as
“any and all disputes, claims or controversies arising
out of [Mandviwala’s] employment or the termination
of [Mandviwala’s] employment which could be brought
in a court.” Id. at 17a. The parties expressly “agree[d]
to waive all rights to bring, or be a party to, any class
or collective claims against one another and agree[d]
to pursue claims on an individual basis only.” Id. at
23a (emphasis added). The agreement provided for
Maryland law to apply to any dispute about its
enforcement. Id. at 24a.
2. On July 17, 2015, Mandviwala filed a lawsuit
against Five Star in California state court that asserted
six separate claims under PAGA on behalf of herself
and other aggrieved employees. See Appellants’ Excerpts
of Record, Volume II, ER0181-90, Mandviwala v. Five
Star Quality Care, Inc., No. 16-55084 (9th Cir. May 31,
2017), Dkt. 19-2. Mandviwala sought relief for herself
and for others in the form of civil penalties for the
six alleged PAGA claims, as well as unpaid wages on
her own behalf for four of the six claims. Id. at
ER0190-92.
10
3. Five Star timely removed the lawsuit to the
United States District Court for the Central District of
California. Five Star then moved, pursuant to the
parties’ arbitration agreement, to compel arbitration
and to dismiss the lawsuit. App. 6a.
4. The district court denied the motion. It held that
PAGA is a fundamental policy of California, and that
the unavailability of representative PAGA claims
under Maryland law demanded that California law
apply. App. 9a-14a. It then held that, under Iskanian
and Sakkab, the parties’ agreement to resolve all
claims through arbitration on an individual basis is
unenforceable, and it denied the motion to compel
arbitration in its entirety. Id. at 13a-14a.
5. Five Star appealed. The Ninth Circuit affirmed
the district court’s application of California law, rather
than Maryland law, and the district court’s resulting
invocation of the Iskanian rule to exempt Mandviwala’s
representative PAGA claims from the parties’ arbitration agreement. App. 2a-3a. Regarding this Court’s
recent decisions in Kindred and DIRECTV, which struck
down rules that disfavored arbitration agreements,
the panel stated that neither decision “announced new
law.” Id. at 3a. It then asserted that the “Iskanian
rule is distinct from the rules at issue in DIRECTV
and Kindred because it is a generally applicable
contract defense in that it bars any waiver of a PAGA
claim, regardless whether the waiver appears in an
arbitration agreement.” Id. The Ninth Circuit did not
cite any non-arbitration contractual context in which
the Iskanian rule ever has been applied.4
4
Regarding Mandviwala’s individual claims for unpaid wages,
the Ninth Circuit held that the terms of the arbitration agreement control and require that such claims be arbitrated.
11
REASONS FOR GRANTING THE WRIT
This Court should grant certiorari. The Iskanian
rule conflicts with this Court’s precedents and the
carefully calibrated scheme Congress set forth in the
FAA for two reasons: (1) the rule discriminates against
arbitration agreements, and (2) the rule thwarts the
objectives of the FAA.
First, the Iskanian rule clearly discriminates
against arbitration agreements and thus is not a
generally applicable contract defense. The Iskanian
rule renders representative PAGA claims “unwaivable”
only where enforcement of a PAGA waiver would
result in arbitration. On the other hand, California
courts permit the waiver of representative PAGA claims
in other contexts. That pick-and-choose approach
plainly violates the “equal-treatment principle” set
forth in the FAA. Kindred, 137 S. Ct. at 1426.
Accordingly, the Iskanian rule is preempted.
Second, the Iskanian rule obstructs the FAA’s
“principal purpose of ensuring that private arbitration
agreements are enforced according to their terms.”
Volt, 489 U.S. at 478. The Iskanian rule thus is invalid
for the same reasons that led this Court to strike down
the rule prohibiting arbitration of class claims in
Concepcion. The FAA’s purpose is defeated when parties’
agreements to arbitrate bilaterally are judicially
invalidated. The Iskanian rule produces that very
result. For this separate reason, the Iskanian rule is
preempted. The Court should grant certiorari to
Accordingly, it reversed the district court’s denial of the motion
to compel arbitration of Mandviwala’s individual claims. App.
3a-5a.
12
prevent the Iskanian rule’s continued subversion of
the objectives of the FAA.
Finally, this case is an excellent vehicle for addressing the important and pressing questions presented.
Both the California Supreme Court and the Ninth
Circuit have declined requests to revisit the Iskanian
rule, and this case presents a clean and direct path
to address the rule’s lawfulness. Moreover, the
Iskanian rule has serious practical consequences.
Since Concepcion, the incidence of PAGA actions has
increased exponentially, and also has risen dramatically since Iskanian and Sakkab. Consequently, the
number of arbitration agreements unjustly invalidated has increased enormously. Because California
has approximately 12 percent of our nation’s workforce, the effect of the Iskanian regime in that state
alone fully merits this Court’s grant of certiorari.
Indeed, even absent a conflict of authorities, this Court
repeatedly has prevented individual states from
undermining the uniform application of Congress’
carefully calculated, pro-arbitration policy. As long as
the Iskanian rule remains in place, the FAA’s objectives will be frustrated. The Court should grant this
petition to halt the Iskanian rule’s assault on the FAA.
I. The Iskanian Rule Is Not a Rule of General
Applicability and Thus Is Preempted by
the FAA.
The Iskanian rule is not a generally applicable
contract defense. The Ninth Circuit’s contrary holding
cannot be reconciled with this Court’s precedents,
including its recent decisions in Kindred and
DIRECTV.
The erroneous conclusion that the
Iskanian rule treats all contracts equally has caused
provisions in a great number of arbitration agreements to be unlawfully invalidated. Absent this
13
Court’s review, such unjust invalidation will continue
unabated, in contravention of the FAA and this
Court’s precedents.
The FAA makes arbitration agreements “valid,
irrevocable, and enforceable, save upon such grounds
as exist at law or in equity for the revocation of any
contract.” 9 U.S.C. § 2. This Court has made clear the
limits of the last clause: Arbitration agreements
cannot be voided “by defenses that apply only to
arbitration” or that “derive their meaning from the
fact that an agreement to arbitrate is at issue.”
Concepcion, 563 U.S. at 339. Rather, only “generally
applicable contract defenses, such as fraud, duress, or
unconscionability, may be applied to invalidate
arbitration agreements without contravening § 2.”
Doctor’s Assocs., Inc. v. Casarotto, 517 U.S. 681,
687 (1996) (emphasis added). On many occasions,
this Court has overturned rules, oftentimes from
California, that selectively targeted arbitration. See,
e.g., Preston v. Ferrer, 552 U.S. 346, 351 (2008)
(reversing California court determination that a state
agency had “exclusive original jurisdiction” over a type
of dispute notwithstanding the parties’ agreement to
arbitrate all claims); Perry v. Thomas, 482 U.S. 483,
484 (1987) (invalidating California labor law providing
“that actions for the collection of wages may be
maintained [in court] without regard to the existence
of any private agreement to arbitrate.” (citation
omitted)); Southland Corp. v. Keating, 465 U.S. 1, 10
(1984) (reversing California Supreme Court rule
“refus[ing] to enforce the parties’ contract to arbitrate”
claims brought under California statute).
While decades of precedent from this Court demonstrate that selective targeting of arbitration agreements
cannot be sustained, Kindred and DIRECTV are
14
especially illustrative. They highlight a particular
brand of unlawful state rules: those that, nominally,
are generally applicable, but that, in practice, target
arbitration for disfavored treatment. As this Court
explained in Kindred, the FAA “preempts any state
rule discriminating on its face against arbitration”
and also “displaces any rule that covertly accomplishes the same objective by disfavoring contracts
that (oh so coincidentally) have the defining features
of arbitration agreements.” 137 S. Ct. at 1426. And in
Kindred and DIRECTV, this Court identified guideposts that reveal a discriminatory rule’s true nature.
Those guideposts are conspicuously present in the
Iskanian rule. Thus, while neither DIRECTV nor
Kindred created new law, they make the claim that
the Iskanian rule is “grounds . . . for the revocation of
any contract” especially untenable. 9 U.S.C. § 2.
Both Kindred and DIRECTV involved rules that, on
their face, were of general applicability. In Kindred,
this Court invalidated a Kentucky power-of-attorney
rule that required specific authorization for an
attorney-in-fact to waive a grantor’s right to litigate in
court. See 137 S. Ct. at 1425-26. And in DIRECTV,
this Court invalidated the California Supreme Court’s
purportedly general interpretation of the term “law of
your state,” which the state court had employed to
resurrect previously reversed anti-arbitration precedents. See 136 S. Ct. at 466-67. In both cases, this
Court found that nominal statements of general
applicability did not save the rules from their impermissible anti-arbitration targeting. See Kindred, 137
S. Ct. at 1427 (“[T]he state court’s sometime-attempt
to cast the rule in broader terms cannot salvage its
decision.”); DIRECTV, 136 S. Ct. at 469 (despite the
state court’s framing of the disputed rule in general
contract terms, “we conclude that California courts
15
would not interpret contracts other than arbitration
contracts the same way”).
In Kindred and DIRECTV, this Court relied on
characteristics that identify rules that impermissibly
target arbitration. First, in both cases, no court could
point to a single example outside the arbitration
context in which the rule had been applied.5 Second,
in Kindred, the rule at issue actually was not being
applied in other contractual contexts.6
These guideposts of impermissible hostility to arbitration are prominent and unmistakable with regard
to the Iskanian rule. To begin, no state or federal court
has cited any case or example outside the arbitration
context in which the supposedly “generally applicable”
Iskanian rule has been applied. In addition, the
Iskanian rule plainly is not applied in all contractual
contexts. For example, while under the Iskanian rule,
employees may not waive representative PAGA claims
in arbitration agreements, they may freely waive representative PAGA claims in settlement agreements.7
5
See Kindred, 137 S. Ct. at 1427 (“No Kentucky court, so far
as we know, has ever before demanded that a power of attorney
explicitly confer authority to enter into contracts implicating
constitutional guarantees.”); DIRECTV, 136 S. Ct. at 470
(emphasizing that “we have found no such case” applying the rule
outside the arbitration context); id. (highlighting “[t]he fact that
we can find no similar case” in any other context).
6
See Kindred, 137 S. Ct. at 1427 n.1 (“Making matters worse,
the Kentucky Supreme Court’s clear-statement rule appears not
to apply to other kinds of agreements relinquishing the right to
go to court or obtain a jury trial.”).
7
See, e.g., Villacres v. ABM Indus. Inc., 117 Cal. Rptr. 3d 398,
418 (Ct. App. 2010) (an employee can freely waive the right to
bring PAGA claims in a settlement agreement even where “none
of the settlement proceeds . . . were allocated to PAGA claims”);
Hernandez v. Best Buy Stores, LP, No. 13cv2587 JM (KSC), 2017
16
Applicability to arbitration agreements, but not settlement agreements, was the precise fact that this Court
found to be “another indication” that the disputed rule
in Kindred impermissibly “ar[ose] from the suspect
status of arbitration.” 137 S. Ct. at 1427 n.1. In this
case, it is clear that the Iskanian rule, although
nominally general, “covertly accomplishes the . . .
objective” of disfavoring arbitration agreements, id. at
1426, just like the rules in Kindred and DIRECTV.
The indicators of the Iskanian rule’s anti-arbitration
animus also make clear that the California Supreme
Court’s public policy rationale is untenable. The court
stated that a prohibition on the waiver of representative PAGA claims is necessary to serve the “state’s
interests in enforcing the Labor Code and in receiving
the proceeds of civil penalties used to deter violations.”
Iskanian, 327 P.3d at 149. If that is true, then the
policy should apply with equal force to settlement
agreements: The FAA prohibits courts from picking
and choosing when to apply a legal principle in a
manner that disfavors arbitration. But that is exactly
how the Iskanian rule is applied, barring waiver of
representative PAGA claims in arbitration agreements based on an asserted public policy, but allowing
such waiver in settlement agreements.
WL 2445438, at *2-3 (S.D. Cal. June 6, 2017) (settlement
agreement “fully release[d] and forever discharge[d]” the defendant “from any and all PAGA claims that were asserted or
could reasonably have been asserted in th[e] case”) (citation
omitted)); Brooks v. Life Care Ctrs. of Am., Inc., SACV 12-00659CJC(RNBx), 2015 WL 13298569, at *7 (C.D. Cal. Oct. 19, 2015)
(“Defendants respond that . . . it is settled in California that
parties can settle PAGA claims even when those claims were not
asserted at all. They are correct.”).
17
Moreover, the Ninth Circuit’s reliance in this case
on a patently erroneous legal premise, and its failure
to consider the Kindred and DIRECTV guideposts,
further underscore the need for review. Addressing
Five Star’s argument regarding the FAA’s “generally
applicable” exception, the Ninth Circuit panel stated
that the “Iskanian rule . . . is a generally applicable
contract defense in that it bars any waiver of a PAGA
claim, regardless of whether the waiver appears in an
arbitration agreement.” App. 3a. As discussed, that
statement does not comport with this Court’s FAA
jurisprudence. The Iskanian rule does not bar any
waiver of a PAGA claim; it certainly does not bar such
a waiver in settlement agreements. And the Ninth
Circuit’s decision ignores the important indicators this
Court highlighted in Kindred and DIRECTV. Such
blatant disregard, or misinterpretation, of this Court’s
recent precedents cries out for review.
The Ninth Circuit further noted that “neither
DIRECTV nor Kindred announced new law” and that
these “subsequent rulings . . . do not displace Sakkab.”
App. 3a. But once again, the court missed the mark.
It is not DIRECTV or Kindred that “displace Sakkab”;
the FAA and decades of this Court’s precedent do so.
Sakkab and Iskanian were erroneous when they were
decided. Kindred and DIRECTV simply reinforced the
command that state rules cannot selectively target
arbitration, regardless of whether they do so expressly.
Such reinforcement clearly is necessary and urgent
in this context.
This Court should grant Five
Star’s petition to ensure the uniform and appropriate
enforcement of the FAA, just as it has done in other
cases where courts manifested hostility toward arbitration.
18
Finally, the decision in this case significantly
broadens the reach of the discriminatory Iskanian
rule. For the first time, the Iskanian rule’s effects
include invalidating contracting parties’ choice of law
(here, Maryland law). It is well-recognized, however,
that, with arbitration agreements as well as other
agreements, contracting parties may “choose to have
portions of their contract governed by the law of Tibet,
the law of pre-revolutionary Russia, or (as is relevant
here) the law of [a state].” DIRECTV, 136 S. Ct. at
468. The decision here, invalidating the parties’
contractual choice of law in order to allow enforcement
of the Iskanian rule, further expands the already
destructive anti-arbitration force of the rule. The
issue presented to this Court is the validity of
California’s Iskanian rule. But the lower courts’
resolution of the choice-of-law issue illustrates the
Iskanian rule’s astonishing breadth and its everincreasing potential to invalidate broad swathes of
provisions in arbitration agreements.
II. The Iskanian Rule Frustrates
Purposes and Objectives of the FAA.
the
Federal law preempts a state law that “stands as
an obstacle to the accomplishment and execution of
the full purposes and objectives of Congress.” Hines v.
Davidowitz, 312 U.S. 52, 67 (1941). Accordingly, the
FAA preempts a state rule that obstructs “Congress’
principal purpose of ensuring that private arbitration
agreements are enforced according to their terms.”
Volt, 489 U.S. at 478. The Court has repeatedly
applied this principle to overturn state rules invalidating agreements to resolve claims through bilateral
arbitration. See, e.g., Concepcion, 563 U.S. at 344-52;
Am. Express Co. v. Italian Colors Rest., 570 U.S. 228,
238 (2013); Stolt-Nielsen S.A. v. AnimalFeeds Int’l
19
Corp., 559 U.S. 662, 685-87 (2010). The Iskanian rule
is no different. This Court granted certiorari in
Concepcion to ensure that California courts would stop
unlawfully invalidating bilateral arbitration agreements. This Court should grant review here for that
same reason.
A. The Iskanian Rule Results in a Process
Substantially More Time-Consuming,
Costly, Complex and Risky than
Bilateral Arbitration.
Like the California rule that Concepcion renounced,
the Iskanian rule, as interpreted in Sakkab, replaces
the streamlined dispute resolution mechanism agreed
to by the contracting parties with a different and
substantially more onerous process. In Concepcion,
this Court addressed a rule that “condition[ed] the
enforceability of certain arbitration agreements on
the availability of classwide arbitration procedures.”
563 U.S. at 336. That rule—identical in effect to the
Iskanian rule as interpreted by the Ninth Circuit—
rendered meaningless agreements to arbitrate bilaterally.
In Concepcion, this Court emphasized that “the
switch from bilateral to class arbitration sacrifices the
principal advantage of arbitration—its informality—
and makes the process slower, more costly, and more
likely to generate procedural morass than final
judgment.” Id. at 348. Further, the Court found, class
arbitration “greatly increases risks to defendants”
by offering only limited judicial review of awards of
“damages allegedly owed to tens of thousands of
potential claimants” that “will often become unacceptable.” Id. at 350. As the Sakkab dissent explained,
the Iskanian rule has the same effects. See 803 F.3d
at 444 (N.R. Smith, J., dissenting). It thus should
20
meet the same fate: invalidation under the FAA
because it thwarts the objectives of arbitration and the
statute Congress enacted to protect those objectives.
First, like the resolution of class actions, the resolution of representative PAGA claims is “slower, more
costly, and more likely to generate procedural morass”
than bilateral arbitration. Concepcion, 563 U.S. at
348. For example, unlike individual claims, representative claims require “specific factual determinations
regarding (1) the number of other employees affected
by the labor code violations, and (2) the number of pay
periods that each of the affected employees worked.”
Sakkab, 803 F.3d at 445 (N.R. Smith, J., dissenting).
Second, as with class actions, resolution of representative PAGA claims requires procedures far more
complex and formal than bilateral arbitration. For
example, with an individual claim, “the employee
already has access to all of his own employment
records,” “knows how long he has been working for the
employer,” and “can easily determine how many pay
periods he has been employed.” Sakkab, 803 F.3d at
446 (N.R. Smith, J., dissenting). But discovery for a
representative claim is much more complex. “[T]he
individual employee does not have access to any of this
information on behalf of all the other potentially
aggrieved employees,” and the “discovery necessary to
obtain these documents . . . would be significant.” Id.
at 446. Parties enter into bilateral arbitration agreements precisely to avoid such burdensome discovery.
Absent intervention by this Court, the Iskanian rule
will continue to defeat the choices that the parties
have made.8
8
The Sakkab majority’s assertion that “there is no need
to protect absent employees’ due process rights in PAGA
21
Third, for every additional aggrieved employee
implicated in a representative PAGA action, there is
an increase in the civil penalties an employer may be
ordered to pay. And because the “absence of multilayered review makes it more likely that errors will go
uncorrected,” “[a]rbitration is poorly suited to the[se]
higher stakes.” Concepcion, 563 U.S. at 350. As this
Court explained in Concepcion, parties “are willing to
accept the costs of these errors in [an individual]
arbitration, since their impact is limited to the size
of individual disputes, and presumably outweighed
by savings from avoiding the courts.” Id. But any
contemplated benefits are lost when bilateral arbitration is jettisoned. Indeed, it is “hard to believe that
defendants would bet the company with no effective
means of review, and even harder to believe that
Congress would have intended to allow state courts to
force such a decision.” Id. at 351. This Court should
grant certiorari to prevent California courts from
continuing to undermine the parties’, and Congress’,
true intentions.9
arbitrations” is erroneous. 803 F.3d at 436. “[N]onparty
employees . . . are bound by the judgment in an action brought
under” PAGA. Arias, 209 P.3d at 934. Thus, while PAGA may
not include every one of Rule 23’s formal requirements for class
certification, the involvement in representative PAGA claims of
nonparty aggrieved employees unquestionably necessitates procedures far more complex and formal than bilateral arbitration.
9
The Ninth Circuit provides that representative PAGA claims
may be compelled into a group arbitration process. Sakkab, 803
F.3d at 444. For the reasons discussed, as in Concepcion, the FAA
preempts such judicially-compelled group arbitration when the
parties have agreed to bilateral arbitration and claims-resolution. Notably, since Iskanian, some California courts have gone
even further, holding that representative PAGA claims may not
be compelled to arbitration at all (at least absent the state’s
consent). See, e.g., Tanguilig v. Bloomingdales, Inc., 210 Cal.
22
B. The
Reasoning
Used
to
Evade
Concepcion and Uphold the Iskanian
Rule Is Deeply Flawed.
The California Supreme Court and the Ninth
Circuit relied on untenable arguments to defend the
Iskanian rule. The unsound justifications put forth by
the two courts cannot salvage this arbitrationdestroying rule.
First, the Iskanian court’s reliance on the proposition that an employee’s representative PAGA claims
are not subject to the FAA because they are not
“private” claims is unavailing. In Iskanian, the
California Supreme Court stated that the FAA simply
does not apply because “the FAA aims to ensure an
efficient forum for the resolution of private disputes,
whereas a PAGA action is a dispute between an
employer and the state [agency].” 327 P.3d at 149.
Under that logic, states can subvert the FAA merely
by asserting some nominal interest in a claim and
labeling as “private attorneys general” the plaintiffs
who bring it. Even two concurring justices in Iskanian
found this rationale to be a “novel theory, devoid of
case law support.” Id. at 157 (Chin, J., concurring in
the judgment). Such a broad exclusion from the FAA
is, at the least, unprecedented. It is itself a compelling
reason for this Court to grant review.
Second, the Iskanian court’s reliance on EEOC v.
Waffle House, Inc., 534 U.S. 279 (2002) is misplaced.
In Iskanian, the California Supreme Court asserted
that a private individual’s representative PAGA claim
is akin to the government enforcement action this
Rptr. 3d 352, 353-55 (Ct. App. 2016), cert. denied, 138 S. Ct. 356
(2017). For the same reasons, this invalidation of bilateral
arbitration provisions likewise is preempted.
23
Court addressed and precluded from arbitration in
Waffle House. But the actions in Iskanian and Waffle
House are not remotely similar. The action in Waffle
House was filed not by a private person, but by a
federal agency—the Equal Employment Opportunity
Commission (EEOC). The EEOC had “exclusive
jurisdiction over the claim” before it filed suit; deprived
“the employee [of an] independent cause of action”
when it filed suit; and was “the master of its own case”
after it filed suit. 534 U.S. at 291; see also Preston, 552
U.S. at 359 (in Waffle House, “the Court addressed the
role of an agency . . . as prosecutor, pursuing an
enforcement action in its own name[.]”). The EEOC
was “in command of the [litigation] process,” Waffle
House, 534 U.S. at 291, and was not party to any
arbitration agreement, see id. at 294. Accordingly, the
FAA did not bar the agency from litigating its case in
court. In striking contrast, any influence the LWDA
has over a PAGA action ceases when the agency
decides not to pursue the case, and “less than 1 percent
of PAGA notices have been reviewed or investigated
[by the LWDA].” Legislative Analyst’s Office, Labor
Code Private Attorneys General Act Resources (Mar.
25, 2016), http://www.lao.ca.gov/Publications/Report/
3403. The employee, and the counsel he or she chooses
to retain, have complete control over the claims,
including determining the violations alleged; the relief
sought; the universe of employees represented; and
whether and how the case is settled. No decision by
the employee or the employee’s counsel requires the
agency’s consent. Where, as here, a private plaintiff
who signed an agreement to arbitrate controls the
claims, “to the extent [Waffle House] is relevant,” it
points in the opposite direction and “does suggest that
the FAA preempts the [Iskanian] rule.” Iskanian, 327
P.3d at 158 (Chin, J., concurring in the judgment)
24
(quotation marks and alterations omitted). The state
court’s reliance on Waffle House to justify the
invalidation of arbitration provisions is a fundamental
error. The court’s reliance is further misplaced
because Waffle House concerned a federal agency and
the corresponding issue of the interplay between two
federal statutes.
Third, the Iskanian and Sakkab courts’ likening of
PAGA claims to qui tam claims is similarly unsound.
To begin, the question whether a state rule—such as
PAGA—is preempted by federal law, is different from
the question of whether a federal law—such as the
federal qui tam statute—conflicts with another federal
law. As the dissent in Sakkab explained, “[u]nder
Concepcion, if a state rule authorizing a qui tam action
frustrated the purposes or objectives of the FAA, that
rule would certainly be invalidated.” 803 F.3d at 449
n.7 (N.R. Smith, J., dissenting). But even if the
inquiries regarding conflicts between state and federal
laws, and conflicts between two federal laws, were
identical, the analogy between PAGA actions and qui
tam actions would be misplaced. In contrast to the
lack of state governmental involvement in PAGA
actions, the federal government maintains substantial
control over qui tam actions. For example, while the
federal government is considering whether to intervene in a qui tam case—a period which often lasts
for years—the plaintiff-relator cannot serve the
complaint, let alone litigate the case or negotiate a
settlement. 31 U.S.C. § 3730(a)(2). Further, if the
federal government initially declines to intervene, “a
showing of good cause” will permit it to intervene later
and assume total control over the litigation. 31 U.S.C.
§ 3730(c)(3). PAGA claims thus are nothing like qui
tam claims. Accordingly, the qui tam analogy asserted
25
by the California Supreme Court and the Ninth
Circuit is unfounded.10
Fourth, Sakkab’s reliance on “public policy” also
cannot insulate representative claims from the FAA.
The Sakkab decision sought to “bolster[]” its affirmance of the Iskanian rule by emphasizing “PAGA’s
central role in enforcing California’s labor laws,” and
the rule’s “explicit purpose . . . to preserve the deterrence scheme the legislature judged to be optimal.”
803 F.3d at 439 (citation omitted). But state public
policy has no place in FAA preemption analysis. On
that score, Concepcion again removed any doubt:
“States cannot require a procedure that is inconsistent
with the FAA, even if it is desirable for unrelated
reasons.” 563 U.S. at 351 (emphasis added). A contrary conclusion would permit states to insulate
claims from arbitration and the reach of the FAA
merely by referencing an “important” public policy
that the rule allegedly serves.
* * *
In sum, it is only by ignoring or misinterpreting this
Court’s FAA preemption jurisprudence, including “the
basic precepts enunciated in Concepcion,” Sakkab, 803
F.3d at 440 (N.R. Smith, J., dissenting), that the courts
in Iskanian and Sakkab arrived at the conclusion that
the Iskanian rule is not preempted.
And that
erroneous conclusion has led to the unjust invalidation
10
The relationship between a federal statute (such as the
federal qui tam statute) and the FAA is itself both complex and
context-specific. See, e.g., Nat’l Labor Relations Bd. v. Murphy
Oil USA, Inc., No. 16-307 (cert. granted, Jan. 13, 2017). The
Court need not resolve the question of how the FAA interacts
with federal qui tam statutes in order to address the questions
presented by a state statute like PAGA.
26
of an immense number of arbitration agreements,
including the agreement here. This Court should
grant review to prevent continued judicial nullification of the intent of parties who have agreed to
arbitrate—the very problem that Congress sought to
remedy when it passed the FAA.
III. This Case Is an Ideal Vehicle for Addressing the Important Issues Presented in this
Petition.
This Court’s review is required to prevent the
Iskanian rule’s continued and unfettered circumvention of the FAA. Iskanian and Sakkab provide an end
run around Concepcion and this Court’s FAA jurisprudence. The invalidation of an ever-increasing number
of arbitration provisions will continue unless this
Court acts. Because of the consequences of Iskanian
and Sakkab, and because of this case’s suitability as a
vehicle for resolving the questions presented, the
Court should grant certiorari.
A. This Petition Cleanly Presents Ripe,
Impactful and Pressing Questions that
Require this Court’s Review.
This case is an ideal vehicle for review of the
important questions it presents.
First, the issues presented are ripe for review. The
Ninth Circuit and the California Supreme Court have
made clear they are committed to the Iskanian rule.
Indeed, the Ninth Circuit declined the opportunity to
review the Iskanian rule when it denied a petition for
rehearing en banc in Sakkab. See Order Denying
Petition for Rehearing En Banc, Sakkab, No. 13-55184
(9th Cir. Feb. 2, 2016), Dkt. 115. The California
Supreme Court also has denied requests to review its
Iskanian holding. See, e.g., Hernandez v. Ross Stores,
27
Inc., 212 Cal. Rptr. 3d 485, 486 (Ct. App. 2016), review
denied (Mar. 29, 2017). Quite clearly, the issues now
before this Court are no longer percolating in
California courts, state or federal.
Second, this case squarely raises the questions
presented. The Ninth Circuit’s decision invalidating
Five Star’s bilateral arbitration provision is based
entirely on its own precedent in Sakkab and the
California Supreme Court’s precedent in Iskanian.
App. 3a. This petition thus presents a clean and direct
opportunity for the Court to examine the Iskanian
rule.
Third, Iskanian and Sakkab have substantial realworld implications. Leaving those decisions in place
would cause widespread harm. For example, the
torrent of PAGA actions that began after Concepcion
has only increased and accelerated in the wake of
Iskanian and Sakkab. Between 2005 and 2013,
the number of PAGA notices filed with the LWDA
increased by more than 400 percent, reaching 3,137 in
2013.11 “The immediate impact of the Iskanian decision
[was] an increase in PAGA representative actions.”12
11
Emily Green, State Law May Serve as Substitute for
Employee Class Actions, L.A. Daily Journal (Apr. 17, 2014),
https://www.dailyjournal.com/articles/266212.
12
Tim Freudenberger et al., Trends in PAGA Claims and What
It Means for California Employers, Corporate Counsel, Inside
Counsel (Mar. 19, 2015), http://web1.beta.insidecounsel.com/20
15/03/19/trends-in-paga-claims-and-what-it-means-for-califo?slre
turn=1522050847.
28
By 2014, the number of PAGA notices had climbed to
6,307.13 That number now approaches 8,000.14
That Iskanian and Sakkab are fueling the dramatic
increases in PAGA suits cannot be disputed. See, e.g.,
Matthew Goodman, Comment, The Private Attorney
General Act: How to Manage the Unmanageable, 56
Santa Clara L. Rev. 413, 415 (2016) (“The fact that
PAGA claims cannot be waived by agreements to
arbitrate contributes heavily to the prevalence of these
suits.”). Unless this Court reviews the question
whether the FAA preempts the Iskanian rule, the
number of arbitration agreements invalidated and the
number of representative PAGA actions filed will
continue to rise and accelerate.
Fourth, the size of California’s workforce means that
Iskanian and Sakkab directly affect a large proportion
of Americans. California contains approximately
12 percent of the American workforce. See News
Release, Bureau of Labor Statistics, The Employment
Situation—February 2018 4 (Mar. 9, 2018), https://
www.bls.gov/news.release/pdf/empsit.pdf (nationwide
civilian labor force as of January 2018 was 161,115,000);
News Release, Bureau of Labor Statistics, State
Employment and Unemployment—January 2018 10
(Mar. 12, 2018), https://www.bls.gov/news.release/
pdf/laus.pdf (California civilian labor force as of
13
See Dep’t of Indus. Relations, State of California Budget
Change Proposal 1 (submitted Jan. 7, 2016), http://web1a.esd.dof.
ca.gov/Documents/bcp/1617/FY1617_ORG7350_BCP474.pdf.
14
See id. at 2 (“The volume of PAGA notices is as high as 635
notices per month[.]”); Legislative Analyst’s Office, Mem. on A.G.
File No. 2017-035 (Nov. 27, 2017), http://lao.ca.gov/ballot/2017/
170607.pdf, at 2 (“In recent years, the state has received between
4,000 and 8,000 PAGA notices annually.”).
29
January 2018 was 19,294,630). Many of these workers
and their employers have agreed to arbitrate disputes
on an individual, bilateral basis. The result of
Iskanian and Sakkab is the nullification of those
agreements. Enforcement of the parties’ intent to
arbitrate, as mandated and guaranteed by the FAA,
thus is dependent on this Court’s review.
Fifth, while the impact of the Iskanian rule in
California is sufficiently great to merit a grant of
certiorari, the effects of the rule are now poised to
spread. As many scholars and commentators have
made clear, the combined forces of PAGA, Iskanian,
and Sakkab create a playbook for any state seeking a
path around Concepcion. For instance, a Stanford
Law Review Note entitled “State Court Resistance to
Federal Arbitration Law” outlines tactics that allow
states to evade this Court’s FAA jurisprudence. See
Salvatore U. Bonaccorso, Note, State Court Resistance
to Federal Arbitration Law, 67 Stan. L. Rev. 1145,
1163 (2015) (“[S]ome courts have developed legal
theories that . . . effectively render the FAA moot in
certain circumstances. The most prominent example
of this is the application of the Private Attorneys
General Act (PAGA) in California courts.”). The Note
encourages states to “develop[] novel theories that
function as valid work-arounds to preemption” and
characterizes Iskanian as “representative of this
approach.” Id. at 1167-68.
Other observers likewise have hailed the Iskanian/
Sakkab rule as a means of evading this Court’s FAA
decisions. One commentator noted that Sakkab is
“undoubtedly an important and guiding decision for
legislators and other states trying to fill the deterrence
gap created by Concepcion.” Amaan A. Shaikh,
Comment, The Post-Concepcion Contract Landscape:
30
The Role Socially Conscious Business Can Play, 57
Santa Clara L. Rev. 223, 238 (2017). Another called
PAGA a model for “private aggregate enforcement of
consumer and employment laws without triggering
FAA preemption or vulnerability to contractual class
waivers.” Janet Cooper Alexander, To Skin A Cat:
Qui Tam Actions As A State Legislative Response to
Concepcion, 46 U. Mich. J.L. Reform 1203, 1208-09
(2013). And still another—in an article whose title
begins, aptly, “Circumventing Concepcion”—asserts
that the “key benefit” of a state statute akin to PAGA
now “is that it bypasses any arbitration agreement in
a consumer contract.” Aaron Blumenthal, Comment,
Circumventing Concepcion: Conceptualizing Innovative
Strategies to Ensure the Enforcement of Consumer
Protection Laws in the Age of the Inviolable Class
Action Waiver, 103 Cal. L. Rev. 699, 742 (2015). The
author then expresses concern that this Court might
reject the Iskanian rule. Id. at 743. Those are
examples of the many voices “urging other states and
cities to follow” California’s lead by adopting PAGAlike legislation. Josh Eidelson, Bloomberg, California
Helps Workers Sue Their Bosses. New York Has
Noticed (Sept. 29, 2017), https://www.bloomberg.com/
news/articles/2017-09-29/california-helps-workers-suetheir-bosses-new-york-has-noticed.
In Kindred, this Court expressed the concern that
“copycatting” of Kentucky’s anti-arbitration precedent
would result absent invalidation of the clear-statement
rule. The Court observed that upholding the Kentucky
rule at issue “would make it trivially easy for States to
undermine the [FAA]—indeed, to wholly defeat it.”
137 S. Ct. at 1428. Just as declining to invalidate the
clear-statement rule in Kindred would have “allow[ed]
States to pronounce any attorney-in-fact incapable of
signing an arbitration agreement,” id., declining to
31
review the Iskanian rule will allow states to readily
evade the FAA. This Court should grant certiorari to
prevent the widespread circumvention of the FAA that
has been triggered by PAGA and the Iskanian rule.
B. This Petition Is Especially Well-Suited
for a Grant of Certiorari.
Although this Court has denied prior petitions for
certiorari challenging the Iskanian rule, this petition
is a superior vehicle for addressing whether the
arbitration-destroying rule is preempted by the FAA.
First, the fact that the Court has denied prior
petitions raising similar questions presented does not
in any way detract from the compelling nature of this
petition, or the need for the Court’s review. The Court,
of course, often denies petitions before determining to
take up a particular legal question, sometimes to allow
percolation or to await a preferable vehicle for review.
Such was the case with the rule considered in
Concepcion: This Court denied at least eight petitions
seeking review of that California rule before granting
certiorari.15
Second, this case is the best vehicle that has come
before the Court seeking review of the questions
presented. The previous petitions that challenged the
Iskanian rule were neither as compelling, nor as clean,
15
See Athens Disposal Co. v. Franco, 558 U.S. 1136 (2010) (No.
09-272); T-Mobile USA, Inc. v. Janda, 555 U.S. 813 (2008) (No.
07-1331); T-Mobile USA, Inc. v. Lowden, 555 U.S. 813 (2008) (No.
07-1330); T-Mobile USA, Inc. v. Ford, 553 U.S. 1065 (2008) (No.
07-1103); T-Mobile USA, Inc. v. Gatton, 553 U.S. 1064 (2008) (No.
07-1036); Cir. City Stores, Inc. v. Gentry, 552 U.S. 1296 (2008)
(No. 07-988); T-Mobile USA, Inc. v. Laster, 553 U.S. 1064 (2008)
(No. 07-976); Cty. Bank of Rehoboth Beach, Del. v. Muhammad,
549 U.S. 1338 (2007) (No. 06-907).
32
nor as ripe for review. Five of the six previously filed
petitions came from California state courts, thereby
implicating this Court’s divergent opinions as to
whether the FAA applies in state courts. See, e.g.,
Allied-Bruce Terminix Cos. v. Dobson, 513 U.S. 265,
285-97 (1995) (Thomas, J., dissenting).16 And four of
those five petitions were plagued by another
shortcoming: Sakkab either had not yet been decided
or the Sakkab request for en banc review had not been
ruled on at the time of each denial. As a result, for
those petitions, there was a possibility that the Ninth
Circuit might find Iskanian preempted without this
Court’s intervention.
Furthermore, while the sixth petition sought review
of a Ninth Circuit decision (Bloomingdale’s Inc. v.
Vitolo, 137 S. Ct. 2267 (2017) (No. 16-1110)), the
respondent in that case emphasized that, in her
view, the case was a deeply flawed vehicle for certiorari due to procedural issues not present here. The
respondent stressed that there was a serious question
as to whether the plaintiff had standing. The standing
question had been remanded to the district court
for further review and was unresolved.
Vitolo,
Respondent’s Brief in Opposition, 14 (May 15, 2017).
Thus, the Iskanian rule was not necessarily a casedispositive legal issue. Moreover, the respondent also
highlighted the fact that the Ninth Circuit had
remanded the issues for further proceedings. Id. at 15.
16
The five previous cert denials from state courts are:
Bloomingdale’s Inc. v. Tanguilig, 138 S. Ct. 356 (2017) (No. 161503); Apple Am. Grp., LLC v. Salazar, 136 S. Ct. 688 (2015) (No.
15-100); CarMax Auto Superstores Cal., LLC v. Areso, 136 S. Ct.
689 (2015) (No. 15-236); Bridgestone Retail Operations, LLC v.
Brown, 135 S. Ct. 2377 (2015) (No. 14-790); CLS Transp. L.A.,
LLC v. Iskanian, 135 S. Ct. 1155 (2015) (No. 14-341).
33
Thus, the question presented to this Court was potentially premature and not cleanly framed.
Third, because PAGA is a California-specific
statute, the Court should not delay review for want of
a conflict. The mere fact that states manifest their
hostility to arbitration in different ways, through their
own laws and rules, does not insulate such laws and
rules from review. The Court repeatedly has granted
certiorari to examine state-specific rules alleged to
disfavor arbitration. For example, in Preston, the
Court granted certiorari, absent conflicting authorities, to review a California rule that barred arbitration
of disputes involving California-based talent agents.
552 U.S. at 351-53. In Kindred, the Court did the
same—the Kentucky Supreme Court’s clear-statement rule had not been addressed by any other
appellate court. See also, e.g., Nitro-Lift Techs., LLC
v. Howard, 568 U.S. 17, 18 (2012) (rejecting Oklahoma
Supreme Court’s rule that reflected judicial hostility
to arbitration). It is clear that a state rule that
undermines arbitration, and that conflicts with both
the FAA and this Court’s precedents, merits review.
Such is the case here, where the Iskanian rule
contravenes this Court’s settled FAA jurisprudence,
including its decisions in Concepcion, DIRECTV, and
Kindred.17
17
The fact that the Ninth Circuit held that Mandviwala’s
individual, non-PAGA claims should be arbitrated also does not
counsel against review. This Court frequently has granted
certiorari to review FAA preemption issues in cases where some
claims had been ordered to arbitration. See, e.g., Shearson/Am.
Express, Inc. v. McMahon, 482 U.S. 220, 224-25 (1987);
Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473
U.S. 614, 620-24 & n.9 (1985); Southland, 465 U.S. at 5.
34
CONCLUSION
In sum, this petition is a perfectly suited vehicle for
review of the Iskanian rule and the ever-increasing
dangers to arbitration it presents. Five Star respectfully requests that this Court grant the petition to
address the critical question whether the Iskanian
rule is preempted by the FAA.
Respectfully submitted,
CLIFFORD M. SLOAN
Counsel of Record
ALEX T. HASKELL
CAROLINE VAN ZILE
SKADDEN, ARPS, SLATE,
MEAGHER & FLOM LLP
1440 New York Ave., NW
Washington, DC 20005
(202) 371-7000
cliff.sloan@skadden.com
Counsel for Petitioner
March 26, 2018
This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.