Amicus Curiae Brief — Five Star Senior Living Inc., fka Five Star Quality Care, Inc., et al., Petitioners v. Melinda Mandviwala

No. 17-1357

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

BRIEF OF THE CHAMBER OF COMMERCE OF

THE UNITED STATES OF AMERICA,

CALIFORNIA CHAMBER OF COMMERCE,

NATIONAL RETAIL FEDERATION, RETAIL

LITIGATION CENTER, CALIFORNIA

RETAILERS ASSOCIATION, AND NATIONAL

ASSOCIATION OF MANUFACTURERS

AS AMICI CURIAE

IN SUPPORT OF PETITIONERS

ANDREW J. PINCUS

Counsel of Record

ARCHIS A. PARASHARAMI

DANIEL E. JONES

Mayer Brown LLP

1999 K Street, NW

Washington, DC 20006

(202) 263-3000

apincus@mayerbrown.com

(additional counsel on signature page)

Counsel for Amici Curiae

i

TABLE OF CONTENTS

Page

TABLE OF AUTHORITIES...................................... ii

INTEREST OF THE AMICI CURIAE ......................1

INTRODUCTION AND SUMMARY OF

ARGUMENT ........................................................4

ARGUMENT ..............................................................7

I. The Ninth Circuit’s Endorsement Of The

Iskanian Rule Contravenes The FAA And

Defies This Court’s Precedents. ..........................7

A. The Iskanian Rule Is Not A Generally

Applicable Contract Defense.........................7

B. The Iskanian Rule Conflicts With

Fundamental Attributes Of

Arbitration As Envisioned By The

FAA. ...............................................................9

C. State Public Policy Objectives Cannot

Justify A Rule Requiring Procedures

Inconsistent With Arbitration As

Envisioned By The FAA. .............................16

II. The Questions Presented Are Of Significant

Practical Importance. ........................................18

CONCLUSION .........................................................23

ii

TABLE OF AUTHORITIES

Page(s)

Cases

14 Penn Plaza LLC v. Pyett,

556 U.S. 247 (2009)..............................................22

Allied-Bruce Terminix Cos. v. Dobson,

513 U.S. 265 (1995)..............................................22

American Express Co. v. Italian Colors Rest.,

570 U.S. 228 (2013)........................................17, 18

Amey v. Cinemark USA Inc.,

2015 WL 2251504 (N.D. Cal. May 13,

2015) .....................................................................12

AT&T Mobility LLC v. Concepcion,

563 U.S. 333 (2011)...................................... passim

Baumann v. Chase Inv. Servs. Corp.,

747 F.3d 1117 (9th Cir. 2014)..............................11

Chu v. Wells Fargo Inv., LLC,

2011 WL 672645 (N.D. Cal. Feb. 6,

2011) .....................................................................19

Circuit City Stores, Inc. v. Adams,

532 U.S. 105 (2001)..............................................22

Cline v. Kmart Corp.,

2013 WL 2391711 (N.D. Cal. May 13,

2013) .....................................................................12

DIRECTV, Inc. v. Imburgia,

136 S. Ct. 463 (2015)................................4, 5, 9, 17

Discover Bank v. Superior Court,

113 P.3d 1100 (Cal. 2005) ........................5, 6, 9, 13

iii

TABLE OF AUTHORITIES—continued

Page(s)

Driscoll v. Granite Rock Co.,

2011 WL 10366147 (Cal. Super. Ct.

Sept. 20, 2011)................................................11, 12

Franco v. Ruiz Food Prods., Inc.,

2012 WL 5941801 (E.D. Cal. Nov. 27,

2012) .....................................................................19

Garcia v. Gordon Trucking, Inc.,

2012 WL 5364575 (E.D. Cal. Oct. 31,

2012) .....................................................................19

Gilmer v. Interstate/Johnson Lane Corp.,

500 U.S. 20 (1991)................................................22

Iskanian v. CLS Transp. Los Angeles, LLC,

327 P.3d 129 (Cal. 2014) .............................. passim

Kilby v. CVS Pharmacy, Inc.,

739 F.3d 1192 (9th Cir. 2013)..............................14

Kindred Nursing Centers Ltd. P’Ship v.

Clark,

137 S. Ct. 1421 (2017)..............................6, 7, 8, 17

McKenzie v. Fed. Express Corp.,

2012 WL 2930201 (C.D. Cal. July 2,

2012) .....................................................................19

Nordstrom Comm’n Cases,

186 Cal.App.4th 576 (Cal. Ct. App. 2010)...........19

O’Bosky v. Starbucks Corp.,

2015 WL 2254889 (Cal. Super. Ct.

May 4, 2015).........................................................12

iv

TABLE OF AUTHORITIES—continued

Page(s)

Ortiz v. CVS Caremark Corp.,

2014 WL 2445114 (N.D. Cal. Jan. 28,

2014) .....................................................................12

Perry v. Thomas,

482 U.S. 483 (1987)................................................5

Preston v. Ferrer,

552 U.S. 346 (2008)................................................4

Quevedo v. Macy’s, Inc.,

798 F. Supp. 2d 1122 (C.D. Cal. 2011) ................15

Sakkab v. Luxottica Retail North Am., Inc.,

803 F.3d 426 (9th Cir. 2015)........................ passim

Southland v. Keating,

465 U.S. 1 (1984)....................................................5

Stolt-Nielsen S.A. v. AnimalFeeds Int’l Corp.,

559 U.S. 662 (2010)................................................9

Williams v. Super. Ct.,

236 Cal.App.4th 1462 (2015) ...............................14

Williams v. Super. Ct.,

398 P.3d 69 (Cal. 2017) ........................................14

Statutes, Rules and Regulations

9 U.S.C. § 2 ..................................................................7

Cal. Labor Code § 2699(a) ...........................................5

Cal. Labor Code § 2699(f)(2) .....................................10

v

TABLE OF AUTHORITIES—continued

Page(s)

Other Authorities

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)..............................................21

Robyn Ridler Aoyagi & Christopher J.

Pallanch, The PAGA Problem: The

Unsettled State of PAGA Law Isn’t Good

for Anyone, 2013-7 Bender’s California

Labor & Employment Bulletin 1 (2013)..............18

Aaron Blumenthal, 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).........................................21

Erin Coe, Iskanian Ruling to Unleash Flood of

PAGA Claims,” Law360 (June 24, 2014) ............19

Michael Delikat & Morris M. Kleiner, An

Empirical Study of Dispute Resolution

Mechanisms: Where Do Plaintiffs Better

Vindicate Their Rights?, 58 Disp. Resol. J.

56 (Nov. 2003-Jan. 2004) ...............................22, 23

Josh Eidelson, California Helps Workers Sue

Their Bosses. New York Has Noticed,

Bloomberg (Sept. 29, 2017)..................................21

vi

TABLE OF AUTHORITIES—continued

Page(s)

Tim Freudenberger et al., Trends in PAGA

claims and what it means for California

employers, Inside Counsel (Mar. 19, 2015) .........20

Matthew J. Goodman, Comment, The Private

Attorney General Act: How to Manage the

Unmanageable, 56 Santa Clara L. Rev.

413 (2016) .............................................................11

Emily Green, An alternative to employee

class actions, L.A. Daily Journal (Apr. 16,

2014) .....................................................................19

Lyra Haas, The Endless Battleground:

California’s Continued Opposition to the

Supreme Court’s Federal Arbitration Act

Jurisprudence, 94 B.U. L. Rev. 1419 (2014) .........5

Lewis L. Maltby, Private Justice:

Employment Arbitration and Civil Rights,

30 Colum. Hum. Rts. L. Rev. 29 (1998)...............22

Nat’l Workrights Inst., Employment

Arbitration: What Does the Data Show?

(2004)....................................................................23

Theodore J. St. Antoine, Labor and

Employment Arbitration Today: Mid-Life

Crisis or New Golden Age?, 32 Ohio St. J.

on Disp. Resol. 1 (2017) .......................................23

Toni Vranjes, Doubts Raised About New

California PAGA Requirements, Society

for Human Resource Management (Dec.

6, 2016) .................................................................19

INTEREST OF THE AMICI CURIAE1

The Chamber of Commerce of the United States

of America (the “Chamber”) is the world’s largest

business federation. It represents 300,000 direct

members and indirectly represents the interests of

more than three million companies and professional

organizations of every size, in every industry sector,

and from every region of the country. One of the

Chamber’s most important responsibilities is to represent the interests of its members in matters before

the courts, Congress, and the Executive Branch. To

that end, the Chamber regularly files amicus curiae

briefs in cases that raise issues of vital concern to the

nation’s business community.

The

California

Chamber

of

Commerce

(“CalChamber”) is a non-profit business association

with over 13,000 members, both individual and corporate, representing virtually every economic interest in the state of California. For over 100 years,

CalChamber has been the voice of California business. While CalChamber represents several of the

largest corporations in California, 75% of its members have 100 or fewer employees. CalChamber acts

to improve the state’s economic and jobs climate by

representing the business community on a broad

range of legislative, regulatory and legal issues.

CalChamber often advocates before the state and

Pursuant to Rule 37.6, amici affirm that no counsel for a party authored this brief in whole or in part and that no person

other than amici, their members, or their counsel made a monetary contribution to its preparation or submission. Counsel of

record for both parties received notice at least 10 days prior to

the due date of the intention of amici to file this brief. The parties have consented to the filing of this brief.

1

2

federal courts by filing amicus briefs in cases, like

this one, involving issues of paramount concern to

the business community.

The National Retail Federation (“NRF”) is the

world’s largest retail trade association, representing

all aspects of the retail industry. NRF’s membership

includes discount and department stores, home goods

and specialty stores, Main Street merchants, grocers,

wholesalers, chain restaurants, and Internet retailers. Retail is the nation’s largest private sector employer, supporting one in four U.S. jobs—42 million

working Americans. Contributing $2.6 trillion to annual GDP, retail is a daily barometer for the nation’s

economy. NRF regularly advocates for the interests

of retailers, large and small, in a variety of forums,

including before the legislative, executive, and judicial branches of government. As the industry umbrella group, NRF periodically submits amicus briefs in

cases raising significant issues that are important to

the retail industry.

The Retail Litigation Center, Inc. (“RLC”) is a

public policy organization that identifies and engages

in legal proceedings that affect the retail industry.

The RLC’s members include many of the country’s

largest and most innovative retailers. The member

entities whose interests the RLC represents employ

millions of people throughout the United States, provide goods and services to tens of millions more, and

account for tens of billions of dollars in annual sales.

The RLC seeks to provide courts with retail-industry

perspectives on important legal issues, and to highlight the potential industry-wide consequences of

significant cases.

The California Retailers Association (“CRA”) is

the only statewide trade association representing all

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segments of the retail industry including general

merchandise, department stores, mass merchandisers, restaurants, convenience stores, supermarkets

and grocery stores, chain drug, and specialty retail

such as auto, vision, jewelry, hardware and home

stores. CRA works on behalf of California’s retail industry, which currently operates over 418,840 retail

establishments with a gross domestic product of $330

billion annually and employs 3,211,805 people—one

fourth of California’s total employment.

The National Association of Manufacturers

(“NAM”) is the largest manufacturing association in

the United States, representing small and large

manufacturers in every industrial sector and in all

50 states. Manufacturing employs more than 12 million men and women, contributes $2.25 trillion to the

U.S. economy annually, has the largest economic impact of any major sector, and accounts for more than

three-quarters of all private-sector research and development in the nation. The NAM is the voice of the

manufacturing community and the leading advocate

for a policy agenda that helps manufacturers compete in the global economy and create jobs across the

United States. The NAM regularly submits amicus

briefs in cases presenting issues of importance to the

manufacturing community.

Amici’s members and affiliates regularly rely on

bilateral arbitration agreements in their contractual

relationships, including with their employees. Traditional, bilateral arbitration allows them to resolve

disputes promptly and efficiently while avoiding the

costs associated with traditional litigation. Such arbitration is speedy, fair, inexpensive, and less adversarial than litigation in court. Based on the policy

embodied in the Federal Arbitration Act (“FAA”),

many of amici’s members have structured millions of

4

contractual relationships around the use of bilateral

arbitration to resolve disputes.

Amici have a strong interest in the questions

presented by the petition. In Sakkab v. Luxottica Retail North America, Inc., 803 F.3d 426 (9th Cir.

2015), a divided Ninth Circuit concluded that the

FAA does not preempt a California judge-made rule

(the “Iskanian rule”2) holding that any arbitration

agreement requiring arbitration of claims under California’s Private Attorneys General Act of 2004

(“PAGA”) on an individualized basis may not be enforced as a matter of California public policy when an

employee brings a representative PAGA action. Relying on Sakkab, the court below reached the same

conclusion.

Sakkab and Iskanian threaten to disrupt existing arbitration agreements and to erode the benefits

of bilateral arbitration as an alternative to litigation.

Amici therefore have a strong interest in a grant of

certiorari by this Court to ensure uniform and accurate application of the FAA.

INTRODUCTION AND

SUMMARY OF ARGUMENT

The petition asks this Court to review one of the

latest chapters in a long and well-documented history of attempts by California courts to invent new

“devices and formulas” aimed at circumventing binding arbitration agreements and the preemptive force

of the FAA. AT&T Mobility LLC v. Concepcion, 563

U.S. 333, 342 (2011); see also, e.g., DIRECTV, Inc. v.

Imburgia, 136 S. Ct. 463 (2015); Preston v. Ferrer,

See Iskanian v. CLS Transp. Los Angeles, LLC, 327 P.3d 129

(Cal. 2014).

2

5

552 U.S. 346 (2008); Perry v. Thomas, 482 U.S. 483

(1987); Southland v. Keating, 465 U.S. 1 (1984); Lyra

Haas, The Endless Battleground: California’s Continued Opposition to the Supreme Court’s Federal

Arbitration Act Jurisprudence, 94 B.U. L. Rev. 1419,

1433-40 (2014).

Review is essential to prevent an end-run around

this Court’s longstanding precedents upholding the

strong federal policy in favor of arbitration, which

represent the “authoritative interpretation of [the

FAA]” that the “judges of every State must follow.”

Imburgia, 136 S. Ct. at 468. The Ninth Circuit, following the lead of the California Supreme Court, has

allowed enterprising plaintiffs to circumvent Concepcion and subsequent decisions by invoking California’s Private Attorneys General Act of 2004

(“PAGA”), which authorizes an “aggrieved employee”

to recover civil penalties on a representative basis by

raising alleged violations of California’s Labor Code

as to “himself or herself” and “other current or former employees.” Cal. Labor Code § 2699(a).

The California Supreme Court’s Iskanian decision first endorsed this strategy for circumventing

Concepcion. Echoing the rule from Discover Bank v.

Superior Court, 113 P.3d 1100 (Cal. 2005)—the rule

that this Court invalidated in Concepcion—Iskanian

held that any agreement requiring arbitration of

PAGA claims on an individualized basis is contrary

to “California’s public policy,” and therefore unenforceable, when an employee brings a representative

PAGA claim. 327 P.3d at 153. A divided Ninth Circuit panel followed suit in Sakkab—over the vigorous

dissent of Judge N.R. Smith—upholding the

Iskanian rule by pointing to technical distinctions

between representative PAGA actions and class ac-

6

tions under Rule 23 (or its state equivalents) that are

irrelevant to this Court’s reasoning in Concepcion.

As the petition details, the Iskanian rule runs

afoul of the FAA in at least two independent ways.

First, this PAGA-specific rule is not a generally applicable contract defense, but instead applies uniquely to disfavor the enforcement of agreements to arbitrate disputes on an individual, bilateral basis, “singling out those contracts for disfavored treatment.”

Kindred Nursing Centers Ltd. P’Ship v. Clark, 137 S.

Ct. 1421, 1427 (2017). Second, the rule “interferes

with” the same “fundamental attributes of arbitration” as the Discover Bank rule invalidated in Concepcion, “and thus creates a scheme inconsistent

with the FAA.” Concepcion, 563 U.S. at 344. Specifically, as the dissent in Sakkab recognized, the

Iskanian rule “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.” 803 F.3d at 444 (N.R. Smith,

J., dissenting).

The practical consequences of Iskanian and

Sakkab are enormous. While PAGA claims were once

an afterthought tacked onto putative employment

class actions in California, the number of PAGA filings has skyrocketed in recent years as plaintiffs

seek to evade the enforcement of their arbitration

agreements under this Court’s precedents. If the

holdings in Iskanian and Sakkab—on which the decision below rests—are permitted to stand, representative PAGA claims will become even more common, resulting in the effective invalidation of millions of arbitration agreements that are governed by

the FAA.

7

That result will have enormous repercussions for

businesses with employees in California, the nation’s

most populous state, by discouraging arbitration

programs covering labor and employment claims and

depriving both employers and employees of the important benefits that traditional, bilateral arbitration provides.

This Court’s review is essential to restore uniform application of the FAA and put an end to California’s latest efforts to exalt its policy preferences

over the determinations of Congress embodied in the

FAA and this Court’s FAA precedents.

ARGUMENT

I.

The Ninth Circuit’s Endorsement Of The

Iskanian Rule Contravenes The FAA And

Defies This Court’s Precedents.

A. The Iskanian Rule Is Not A Generally

Applicable Contract Defense.

“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.’” Kindred, 137 S. Ct. at 1426 (quoting 9

U.S.C. § 2). “That statutory provision establishes an

equal-treatment principle: A court may invalidate an

arbitration agreement based on ‘generally applicable

contract defenses’ like fraud or unconscionability, but

not on legal rules that ‘apply only to arbitration or

that derive their meaning from the fact that an

agreement to arbitrate is at issue.’” Ibid. (quoting

Concepcion, 563 U.S. at 339).

As the petition explains, the Iskanian rule runs

afoul of these settled principles. Pet. 12-18. Despite

the California Supreme Court’s “attempt to cast the

rule in broader terms,” (Kindred, 137 S. Ct. at 1427),

8

the Iskanian rule has been uniquely applied to prevent the enforcement of bilateral arbitration agreements. The rule prevents the waiver of a single type

of claim (representative claims under PAGA) in a

single type of contract (dispute resolution agreements with employees). That type of specialized defense bears no resemblance to generally applicable

common law doctrines like fraud, duress, or mutual

mistake. For that reason, the dissenting judge in

Sakkab expressed “serious doubts that the rule established by Iskanian falls into the same category as

* * * common law contract defenses” such as “duress

or fraud.” 803 F.3d at 442 n.1 (N.R. Smith, J., dissenting).

Moreover, the Iskanian rule has been applied to

prevent employees from waiving representative

PAGA claims in arbitration agreements, but not from

waiving such claims in other kinds of contracts, such

as settlement agreements. See Pet. 15 & n.7 (collecting cases permitting employees to waive representative PAGA claims in settlement agreements). Just as

there was no indication that the purportedly general

rule of Kentucky law this Court struck down in Kindred applied to “a settlement agreement” or “other

kinds of agreements” that waived the principal’s

right to bring a claim in court or to a jury (137 S. Ct.

at 1427 n.1), there is no indication that the Iskanian

rule bars waivers of representative PAGA claims in

other kinds of contracts besides arbitration agreements. “Mark that as yet another indication that”

the Iskanian rule “arises from the suspect status of

arbitration” (ibid.), rather than any inherently

unwaivable nature of representative PAGA claims.

Finally, neither the Sakkab majority nor the decision below pointed to a single example of a case applying the Iskanian rule outside of the arbitration

9

context—and amici are unaware of any such example. That absence is telling, and further indicates

that the Iskanian rule is not in fact a rule of general

applicability. Cf. Imburgia, 136 S. Ct. at 470 (noting

that the Court had “found no * * * case” applying the

California Court of Appeal’s interpretation outside of

the arbitration context).

B. The Iskanian Rule Conflicts With Fundamental Attributes Of Arbitration As

Envisioned By The FAA.

The Iskanian rule conditions enforcement of arbitration agreements on the ability to assert representative PAGA claims. Just like the Discover Bank

rule invalidated in Concepcion, which conditioned enforcement of arbitration agreements on the availability of class procedures, the Iskanian rule transforms

the parties’ bilateral arbitration agreement into

something that “is not arbitration as envisioned by

the FAA, lacks its benefits, and therefore may not be

required by state law.” Concepcion, 563 U.S. at 351.

And because the Iskanian rule “‘stands as an obstacle to the accomplishment and execution of the full

purposes and objectives of Congress,’” it “is preempted by the FAA.” Id. at 352 (citation omitted).

This Court recognized in Concepcion that “bilateral arbitration” is the type of informal, expedient

proceeding “envisioned by the FAA.” 563 U.S. at 351.

In “bilateral arbitration,” the “parties forgo the procedural rigor and appellate review of the courts in

order to realize the benefits of private dispute resolution,” including “lower costs” and “greater efficiency

and speed.” Id. at 348 (quoting Stolt-Nielsen S.A. v.

AnimalFeeds Int’l Corp., 559 U.S. 662, 685 (2010)).

This Court further explained why “class arbitration” is “not arbitration as envisioned by the FAA”

10

and “lacks its benefits.” Concepcion, 563 U.S. at 35051 (emphasis added). “[T]he 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. In

addition, “class arbitration greatly increases risks to

defendants,” because “when damages allegedly owed

to tens of thousands of potential claimants are aggregated and decided at once, the risk of an error will

often become unacceptable” in light of the limited judicial review available. Id. at 350.

As the dissenting judge in Sakkab explained in

detail, “[t]he Iskanian rule 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.” 803 F.3d at

444 (N.R. Smith, J., dissenting) (emphasis added).

First, arbitration of a representative PAGA action is inherently far slower and more costly than the

bilateral arbitration contemplated by the FAA (and

to which the parties agreed). Sakkab, 803 F.3d at

444-45 & n.4 (N.R. Smith, J., dissenting). Remedies

in a representative PAGA action are assessed

against the employer on a “per pay period” basis for

each “aggrieved employee” affected by each claimed

violation of the California Labor Code that is proven

by the representative plaintiff. Cal. Labor Code

§ 2699(f)(2).

Thus, in contrast to a bilateral wage-and-hour

dispute in which the arbitrator focuses solely on the

individual circumstances of the claimant, an arbitrator presiding over a representative PAGA action

11

“would have to make 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). “Because of the high stakes involved in

these determinations, both of these issues would

likely be fiercely contested by parties.” Ibid. And “[i]n

arbitrations involving large companies,” “the arbitrator would be required to make individual factual determinations regarding * * * hundreds or thousands

of employees, none of whom are party to such arbitration.” Ibid.

In fact, because representative PAGA claims are

not subject to the commonality or predominance requirements of Rule 23 or similar state procedures

(see Sakkab, 803 F.3d at 436 (citing Baumann v.

Chase Inv. Servs. Corp., 747 F.3d 1117, 1122-23 (9th

Cir. 2014))), arbitration of representative PAGA

claims could well produce a proceeding even slower,

less efficient, and more costly than class arbitration—by requiring the burdensome and timeconsuming adjudication of a huge number of individualized issues.

The Court need not speculate whether arbitration of representative PAGA claims will be unwieldy;

experience already proves the point. In Driscoll v.

Granite Rock Co., 2011 WL 10366147 (Cal. Super.

Ct. Sept. 20, 2011), for example, a bench trial on representative PAGA claims lasted 14 days and involved

55 witnesses and 285 exhibits, including expert witnesses to prove violations as to each employee. Id. at

*1. Cases like Driscoll illustrate the “inherent manageability problems” that representative PAGA actions inevitably raise. See Matthew J. Goodman,

Comment, The Private Attorney General Act: How to

12

Manage the Unmanageable, 56 Santa Clara L. Rev.

413, 441 (2016).

Indeed, Driscoll understates the complexity of

most PAGA actions, because that case involved a relatively small group of 200 current and former employees. See 2011 WL 10366147, at *1. The burdens

of representative arbitration balloon exponentially

for larger PAGA actions, which often include thousands if not tens of thousands of absent employees.3

Multiplying the detailed assessments required to

resolve an alleged Labor Code violation across hundreds, thousands, or even tens of thousands of absent

employees plainly would eviscerate the “lower costs”

and “greater efficiency and speed” that arbitration is

meant to achieve. Concepcion, 563 U.S. at 348 (citation omitted).

Second, for similar reasons, the procedures needed to resolve a representative PAGA arbitration will

necessarily be far more complicated than those in bilateral arbitration. “In an individual arbitration, the

employee already has access to all of his own employment records”; “[h]e knows how long he has been

working for the employer”; and he “can easily determine how many pay periods he has been employed.”

Sakkab, 803 F.3d at 446 (N.R. Smith, J., dissenting).

3 See, e.g., Amey v. Cinemark USA Inc., 2015 WL 2251504, at

*17 (N.D. Cal. May 13, 2015) (PAGA claim with “more than

10,000 class members”); see also Compl., O’Bosky v. Starbucks

Corp., 2015 WL 2254889, at *2 (Cal. Super. Ct. May 4, 2015)

(approximately 65,000 employees); Defs.’ Mot. to Strike, Ortiz v.

CVS Caremark Corp., 2014 WL 2445114, at *4 (N.D. Cal. Jan.

28, 2014) (more than 50,000 employees across 850 stores); Def.’s

Opp’n to Class Certification, Cline v. Kmart Corp., 2013 WL

2391711, at *1, 12 (N.D. Cal. May 13, 2013) (13,000 cashiers at

101 stores statewide).

13

By contrast, in a representative PAGA action, “the

individual employee does not have access to any of

this information” for “the other potentially aggrieved

employees,” and the “discovery necessary to obtain

these documents from the employer would be significant and substantially more complex than discovery

regarding only the employee’s individual claims.” Id.

at 446-47.

The Sakkab majority brushed aside these concerns by speculating that parties could agree to arbitrate representative PAGA actions using procedures

more informal than those required for class actions.

803 F.3d at 438-39. But as this Court pointed out in

explaining that class arbitration “as a structural

matter” includes “absent parties, necessitating additional and different procedures” (Concepcion, 563

U.S. at 347-48), the arbitration of representative

PAGA claims likewise necessitates procedures to assess whether and to what extent absent employees

were affected by the alleged Labor Code violations.

In other words, the “procedural complexity present in

representative PAGA claims is not attributable to

the use of formal versus informal procedures. Instead, such complexity is a function of the sheer

number of tasks and procedural hurdles present in

bringing a representative PAGA claim.” Sakkab, 803

F.3d at 447 (N.R. Smith, J., dissenting).

Those expansive procedures are incompatible

with the streamlined proceedings that are the hallmark of individual arbitration—and therefore States

may not impose such procedures on parties that have

not agreed to them. Concepcion, 563 U.S. at 351. Just

as “class arbitration, to the extent it is manufactured

by Discover Bank rather than consensual, is inconsistent with the FAA” (id. at 348), so too is repre-

14

sentative arbitration to the extent it is manufactured

by Iskanian and Sakkab.

The Sakkab majority was also mistaken in its

speculation that representative PAGA claims will not

need extensive discovery akin to a class action. In

support of that speculation, the majority cited a California Court of Appeal decision denying an employee

extensive statewide discovery near the outset of his

representative PAGA action. 803 F.3d at 439 (citing

Williams v. Super. Ct., 236 Cal.App.4th 1462, 1476

(2015)). But the California Supreme Court subsequently reversed that decision, holding that “a civil

litigant’s right to discovery is broad” and that California public policy “support[s] extending PAGA discovery as broadly as class action discovery has been

extended.” Williams v. Super. Ct., 398 P.3d 69, 81

(Cal. 2017) (emphasis added). This Court has already

held, of course, that class-wide discovery is incompatible with arbitration “as envisioned by the FAA.”

Concepcion, 563 U.S. at 351.

Third, the arbitration of representative PAGA

actions “greatly increases the risk to employers.”

Sakkab, 803 F.3d at 447 (N.R. Smith, J., dissenting)

(citing Concepcion, 563 U.S. at 350). The civil penalties available in a representative PAGA action may

total many millions of dollars when sought by reference to hundreds or thousands of potentially affected

employees for pay periods extending over multiple

years. “Even a conservative estimate would put the

potential penalties in [PAGA] cases in the tens of

millions of dollars.” Kilby v. CVS Pharmacy, Inc., 739

F.3d 1192, 1196 (9th Cir. 2013). Indeed, in some

PAGA cases, the fines to which an employer could be

subject are substantially higher than the actual

damages that would have been awarded had the suit

15

been brought as a class action. See Goodman, supra,

at 415.

These outsized civil penalties pose the same “unacceptable” risk of “devastating loss” that arises

“when damages allegedly owed to tens of thousands

of potential claimants are aggregated and decided at

once.” Concepcion, 563 U.S. at 350. Given the limited

appellate review of arbitration awards, “[d]efendants

would run the risk that an erroneous decision on a

PAGA claim on behalf of many employees would ‘go

uncorrected.’” Quevedo v. Macy’s, Inc., 798 F. Supp.

2d 1122, 1142 (C.D. Cal. 2011) (quoting Concepcion,

563 U.S. at 350); see also Sakkab, 803 F.3d at 448

(N.R. Smith, J., dissenting) (“the concerns expressed

in Concepcion are just as real in the present case”).

The significantly higher costs and exposure that

inevitably accompany these representative actions

place enormous pressure on defendants to settle rather than run even a small chance of catastrophic

loss because of the unfair “risk of ‘in terrorem’ settlements.” Concepcion, 563 U.S. at 350. The Sakkab

majority ignored that imposing representative procedures on PAGA actions subject to arbitration leaves

employers vulnerable to the same risks. As one observer has explained, “[t]he possibility of a ‘blackmail

settlement’ looms even larger in PAGA actions [than

in class actions]. * * * The threat of expensive litigation, combined with the unavailability of insurance,

will compel settlement for many employers and can

work as a type of ‘legalized blackmail.’” Goodman,

supra, at 447-48.

Finally, just as “class arbitration was not even

envisioned by Congress when it passed the FAA in

1925” (Concepcion, 563 U.S. at 349), it is equally inconceivable that Congress in 1925 contemplated the

16

arbitration of the types of representative actions that

did not exist until the modern era. PAGA was created by the California legislature nearly eighty years

after the passage of the FAA.

In sum, representative PAGA actions are every

bit as incompatible with the “fundamental attributes

of arbitration” as the class actions at issue in Concepcion, and “create[] a scheme inconsistent with the

FAA.” 563 U.S. at 344. State law cannot condition

the enforcement of arbitration agreements on the

availability of representative actions any more than

it can condition enforceability on the availability of

class procedures.

C. State Public Policy Objectives Cannot

Justify A Rule Requiring Procedures

Inconsistent With Arbitration As Envisioned By The FAA.

The Sakkab majority purported to “bolster[]” its

preemption holding by pointing to “PAGA’s central

role in enforcing California’s labor laws,” asserting

that representative PAGA actions reflect “the deterrence scheme [that] the [California] legislature

judged to be optimal.” 803 F.3d at 439. The Iskanian

court similarly justified its rule as “vindicat[ing] the

Labor and Workforce Development Agency’s interest

in enforcing the Labor Code.” 327 P.3d at 153; accord

Sakkab, 803 F.3d at 439 (quoting same).

But these statements are indistinguishable from

the policy justifications advanced by the plaintiffs in

Concepcion and rejected by this Court. The contention in Concepcion was that California’s policy interest in the broad enforcement of its consumer protection laws justified its rule conditioning enforcement

of arbitration agreements on the availability of

classwide procedures. 563 U.S. at 338.

17

This Court could not have been more direct in

holding that “States cannot require a procedure that

is inconsistent with the FAA, even if it is desirable

for unrelated reasons.” 563 U.S. at 351; see also

American Express Co. v. Italian Colors Rest., 570

U.S. 228, 238 & n.5 (2013). Thus, as the Sakkab dissent put it, “[a] [S]tate may not insulate causes of action [from arbitration] by declaring that the purposes

of the statute can only be satisfied via class, representative, or collective action.” 803 F.3d at 450 (N.R.

Smith, J., dissenting).

To hold otherwise, as the Sakkab majority and

court below did, “make[s] it trivially easy for States

to undermine the [FAA]—indeed, to wholly defeat it.”

Kindred, 137 S. Ct. at 1428. If the Ninth Circuit’s

endorsement of the Iskanian rule is permitted to

stand, all that a State need do to circumvent the

FAA and invalidate millions of binding arbitration

agreements is to declare that employees have an

unwaivable right under that State’s law to bring representative or collective claims.

Yet such an approach amounts to a transparent

evasion of Concepcion, and “the ‘Supremacy Clause

forbids state courts to disassociate themselves from

federal law because of disagreement with its content

or a refusal to recognize the superior authority of its

source.’” Imburgia, 136 S. Ct. at 468. Indeed, while

the Sakkab majority purported to disclaim reliance

on the “effective vindication” exception to the enforcement of arbitration agreements (803 F.3d at 433

n.9), it “stray[ed] awfully close” to invoking it “[b]y

relying so heavily on state policy grounds to support

its decision” (id. at 449 (N.R. Smith, J., dissenting)).

And, of course, the FAA does not contain an effectivevindication exception for state-law claims. Instead, as

all eight participating Justices in American Express

18

agreed, any effective-vindication exception can apply

only when “the FAA’s mandate has been ‘overridden

by a contrary congressional command.’” 570 U.S. at

233 (emphasis added); see also id. at 252 (Kagan, J.,

dissenting) (“a state law * * * could not possibly implicate the effective-vindication rule”).

In short, this Court should grant review and put

an end to this chapter in the California state and

federal courts’ long history of “attempt[s] to find creative ways to get around the FAA” and this Court’s

precedents. Sakkab, 803 F.3d at 450 (N.R. Smith., J.,

dissenting).

II. The Questions Presented Have Significant

Practical Importance.

The Ninth Circuit’s endorsement of the Iskanian

rule is not only wrong, but also imposes substantial

real-world harms that call out for this Court’s review.

1. Representative PAGA actions have flooded

California’s state and federal courts in the wake of

Iskanian and Sakkab, as enterprising plaintiffs and

their counsel seek to evade this Court’s decision in

Concepcion and end-run their otherwise binding

agreements to arbitrate employment-related claims

on an individual basis.

Formerly, PAGA claims were brought, if at all,

only on “the coattails of traditional class claims,”

largely because plaintiffs did not want to rely principally on a cause of action requiring them to remit

75% of their recovery to the State. Robyn Ridler Aoyagi & Christopher J. Pallanch, The PAGA Problem:

The Unsettled State of PAGA Law Isn’t Good for Anyone, 2013-7 Bender’s California Labor & Employment Bulletin 1-2 (2013) (noting the “strong incen-

19

tive” for plaintiffs to prefer class claims over PAGA

claims because of the allocation of PAGA proceeds).

Even when plaintiffs tacked on PAGA claims to complaints asserting other claims under federal and

state labor law, court-approved settlements in those

cases reveal that the parties agreed to allocate only a

tiny fraction of the recovery to the PAGA claims.4

Post-Concepcion, however, PAGA litigation has

increased dramatically. The number of PAGA suits

filed increased by 400% between 2005 and 2013—759

PAGA lawsuits were filed in 2005, but by 2013, that

number had risen to 3,137. Emily Green, An alternative to employee class actions, L.A. Daily Journal

(Apr. 16, 2014).

This deluge of cases has been encouraged further by Iskanian and Sakkab: the “practical effect” of

Iskanian has been to generate “a significant increase

in the filing of claims under PAGA.” Erin Coe,

Iskanian Ruling to Unleash Flood of PAGA Claims,”

Law360 (June 24, 2014), https://perma.cc/5UQ7YRXP; see also Toni Vranjes, Doubts Raised About

New California PAGA Requirements, Society for

Human Resource Management (Dec. 6, 2016),

See, e.g., Franco v. Ruiz Food Prods., Inc., 2012 WL 5941801,

at *2 (E.D. Cal. Nov. 27, 2012) ($10,000 allocated to PAGA

claim out of $2.5 million settlement); Garcia v. Gordon Trucking, Inc., 2012 WL 5364575, at *7 (E.D. Cal. Oct. 31, 2012)

($10,000 allocated to PAGA claim out of $3.7 million settlement); McKenzie v. Fed. Express Corp., 2012 WL 2930201, at *4

(C.D. Cal. July 2, 2012) ($82,500 allocated to PAGA claim out of

$8.25 million settlement); Chu v. Wells Fargo Inv., LLC, 2011

WL 672645, at *1 (N.D. Cal. Feb. 6, 2011) ($10,000 allocated to

PAGA claim out of $6.9 million settlement); see also Nordstrom

Comm’n Cases, 186 Cal.App.4th 576, 589 (Cal. Ct. App. 2010)

(upholding multimillion dollar settlement agreement that allocated zero dollars to the PAGA claim).

4

20

https://perma.cc/4VWK-CPLW

(“Following

the

Iskanian decision, PAGA claims skyrocketed.”); Tim

Freudenberger et al., Trends in PAGA claims and

what it means for California employers, Inside Counsel (Mar. 19, 2015), https://perma.cc/X3N7-LN4A

(“The immediate impact of the Iskanian decision has

been an increase in PAGA representative actions,

especially stand-alone PAGA claims in which a single plaintiff seeks to bring an action on behalf of other ‘aggrieved employees’ in California courts.”). As

another commentator remarked, “[t]he fact that

PAGA claims cannot be waived by agreements to arbitrate” under the Iskanian rule “contributes heavily

to the prevalence of these suits.” Goodman, supra, at

415.

A search of California state and federal district

court dockets for PAGA-related filings confirms the

dramatic increase in PAGA filings in the wake of

Iskanian and Sakkab.5 That search yielded 686 results for 2013—the year before Iskanian was decided. But for 2016—the year after the Ninth Circuit

upheld the Iskanian rule in Sakkab—that same

search yielded 1,645 results, a nearly 240% increase.

And this trend shows no sign of abating: for 2017,

the number of results increased still further, to

1,706. While not every result represents a separate

claim filed under PAGA, the results show that many

of them do represent distinct PAGA actions; the results are thus indicative of the increasing frequency

5 Specifically, counsel searched California state and federal dis-

trict court dockets in Bloomberg Law using the following search

terms: “private attorney general act” OR “PAGA” OR “private

attorneys general act” OR “private attorney generals act” OR

(“private attorney general” AND (labor n/20 2699) OR (labor

n/20 2698)).

21

with which PAGA-related claims have been filed in

recent years. See also Pet. 28 (noting the skyrocketing number of PAGA notices filed with the California

Labor & Workforce Development Agency, which has

reached at least as high as 635 new notices per

month).

2. The impact on California alone, which is home

to about 12% of the nation’s workers (see Pet. 28-29),

is already sufficiently substantial to warrant this

Court’s review. But to make matters worse, numerous observers hostile to arbitration and this Court’s

FAA precedents have urged other States to enact

PAGA-like statutes for the specific purpose of circumventing “binding arbitration clauses.” Aaron

Blumenthal, 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,

744 (2015). A law professor has described PAGA

claims as a model for “private aggregate enforcement

of * * * 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).

Advocacy organizations are taking these suggestions to the statehouse. A recent article quotes one

activist whose organization “plans to campaign for

PAGA-like bills in four states” in 2018, and it quotes

the lead organizer for another organization that is

currently campaigning for PAGA-like legislation in

New York. Josh Eidelson, California Helps Workers

Sue Their Bosses. New York Has Noticed, Bloomberg

(Sept. 29, 2017), https://perma.cc/R69J-R57H.

22

3. The result of the Iskanian rule is to undermine

the “real benefits to the enforcement of arbitration

provisions” specifying traditional, bilateral arbitration, including “allow[ing] parties to avoid the costs

of litigation.” Circuit City Stores, Inc. v. Adams, 532

U.S. 105, 122-23 (2001); see also, e.g., 14 Penn Plaza

LLC v. Pyett, 556 U.S. 247, 257 (2009) (“Parties generally favor arbitration precisely because of the economics of dispute resolution.”); Allied-Bruce

Terminix Cos. v. Dobson, 513 U.S. 265, 280 (1995)

(recognizing that one of the “advantages” of arbitration is that it is “cheaper and faster than litigation”)

(quotation marks omitted).

Indeed, this Court has been “clear in rejecting

the supposition that the advantages of the arbitration process somehow disappear when transferred to

the employment context.” Circuit City, 532 U.S. at

123 (citing Gilmer v. Interstate/Johnson Lane Corp.,

500 U.S. 20, 30-32 (1991)). On the contrary, the

Court emphasized that the lower costs of arbitration

compared to litigation “may be of particular importance in employment litigation, which often involves smaller sums of money than disputes concerning commercial contracts.” Id.

Empirical evidence confirms that employees tend

to fare better in arbitration: Studies have shown that

those who arbitrate their claims are more likely to

prevail than those who go to court. See, e.g., Lewis L.

Maltby, Private Justice: Employment Arbitration and

Civil Rights, 30 Colum. Hum. Rts. L. Rev. 29, 46

(1998). For example, one study of employment arbitration in the securities industry found that employees who arbitrated were 12% more likely to win their

disputes than were employees who litigated in the

Southern District of New York. See Michael Delikat

& Morris M. Kleiner, An Empirical Study of Dispute

23

Resolution Mechanisms: Where Do Plaintiffs Better

Vindicate Their Rights?, 58 Disp. Resol. J. 56, 58

(Nov. 2003-Jan. 2004). And the arbitral awards that

the employees obtained were typically the same as,

or larger than, the court awards. See id. A 2004 report compiled a number of employment arbitration

studies and concluded that employees were 19%

more likely to win in arbitration than in court. See

Nat’l Workrights Inst., Employment Arbitration:

What Does the Data Show? (2004), available at

goo.gl/nAqVXe.

As one scholar recently agreed, “there is no evidence that plaintiffs fare significantly better in litigation [than in arbitration]”; rather, arbitration is

“favorable to employees as compared with court litigation.” Theodore J. St. Antoine, Labor and Employment Arbitration Today: Mid-Life Crisis or New

Golden Age?, 32 Ohio St. J. on Disp. Resol. 1, 16

(2017) (quotation marks omitted; alterations in original).

In short, employment arbitration programs confer real and substantial benefits. But if Sakkab is allowed to stand (and spread), these benefits will be

lost—to the detriment of employees, businesses, and

the economy as a whole.

CONCLUSION

The petition for a writ of certiorari should be

granted.

24

Respectfully submitted.

WARREN POSTMAN

ANDREW J. PINCUS

JANET GALERIA

Counsel of Record

U.S. Chamber

ARCHIS A. PARASHARAMI

Litigation Center, Inc. DANIEL E. JONES

1615 H Street, NW

Mayer Brown LLP

Washington, D.C. 20062 1999 K Street, NW

Washington, DC 20006

Counsel for the Chamber (202) 263-3000

of Commerce of the Unit- apincus@mayerbrown.com

ed States of America

Counsel for Amici Curiae

HEATHER WALLACE

California Chamber

of Commerce

1215 K Street, Suite

1400

Sacramento, CA 95814

Counsel for the California Chamber of Commerce

STEPHANIE MARTZ

National Retail

Federation

1101 New York Ave,

NW, Suite 1200

Washington, D.C. 20005

Counsel for the National

Retail Federation

25

DEBORAH WHITE

Retail Litigation Center,

Inc.

1700 N. Moore Street,

Suite 2250

Arlington, VA 22209

Counsel for the Retail

Litigation Center

PETER C. TOLSDORF

LELAND P. FROST

Manufacturers’ Center

for Legal Action

733 10th Street, NW,

Suite 700

Washington, D.C. 20001

Counsel for the National

Association of Manufacturers

APRIL 2018