Petition for Writ of Certiorari — PennyMac Financial Services, Inc., et al., Petitioners v. Richard Smigelski

Supreme Court briefJul 9, 2019

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No. 19In the

Supreme Court of the United States

PENNYMAC FINANCIAL SERVICES, INC.,

PRIVATE NATIONAL MORTGAGE ACCEPTANCE

COMPANY, LLC., AND PENNYMAC MORTGAGE

INVESTMENT TRUST,

Petitioners,

RICHARD SMIGELSKI,

Respondent.

On Petition for a Writ of Certiorari to the California

Court of A ppeal Third A ppellate District

PETITION FOR A WRIT OF CERTIORARI

James A. Bowles

Counsel of Record

Michael S. Turner

E. Sean McLoughlin

Warren J. Higgins

Hill, Farrer & Burrill LLP

One California Plaza

300 South Grand Avenue

Los Angeles, California 90071

(213) 620-0460

jbowles@hillfarrer.com

Counsel for Petitioners

289655

(800) 274-3321 • (800) 359-6859

QUESTION PRESENTED

Whether the Federal Arbitration Act preempts a statelaw rule that prohibits the enforcement of an arbitration

agreement in a dispute covered by that agreement unless

the State consents, based on the fiction that the State is a

party to the lawsuit, when in fact it is not.

PARTIES TO THE PROCEEDING BELOW

The case caption contains the names of all parties

who were parties in the California Court of Appeal and

California Supreme Court. The State of California is not

and never has been a party to this litigation.

iii

CORPORATE DISCLOSURE STATEMENT

Pursuant to Rule 29.6 of this Court’s Rules, Petitioners

state that PennyMac Financial Services, Inc. (NYSE:

PFSI) and PennyMac Mortgage Investment Trust (NYSE:

PMT) are publicly held. BlackRock, Inc. currently owns

more than 10% of the shares of both PennyMac Financial

Services, Inc. and PennyMac Mortgage Investment Trust.

Private National Mortgage Acceptance Company, LLC

has two parent companies that each own more than a 10%

membership intererest: PNMAC Holdings, Inc. (not a

party) and Petitioner PennyMac Financial Services, Inc.

RELATED CASES

1. Erich Heidrich, et al v. Pennymac Financial

Services, Inc., et al., 2:16-cv-02821-TLN-EFB (E.D. Cal)

(FLSA claim compelled to arbitration and dismissed, and

state law claims dismissed without prejudice on July 11,

2018) (slip opinion reported at 2018 WL 3388458).

2. Erich Heidrich, et al v. Pennymac Financial

Services, Inc., et al., 18-16494 (9 th Cir.)(appeal pending,

no judgment entered).

TABLE OF CONTENTS

Page

QUESTION PRESENTED . . . . . . . . . . . . . . . . . . . . . . . . i

PARTIES TO THE PROCEEDING BELOW . . . . . . . ii

CORPORATE DISCLOSURE STATEMENT . . . . . . iii

RELATED CASES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . iv

TABLE OF CONTENTS . . . . . . . . . . . . . . . . . . . . . . . . . v

TABLE OF APPENDICES . . . . . . . . . . . . . . . . . . . . . . vii

TABLE OF CITED AUTHORITIES . . . . . . . . . . . . . viii

OPINIONS BELOW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

JURISDICTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

RELEVANT CONSTITUTIONAL

AND STATUTORY PROVISIONS . . . . . . . . . . . . . . 2

INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

STATEMENT OF THE CASE . . . . . . . . . . . . . . . . . . . . 7

California’s Labor Code Private Attorney General

Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

FACTUAL BACKGROUND . . . . . . . . . . . . . . . . . . . . . . 9

The Smigelski State Court Action . . . . . . . . . . . . . . . . 9

Table of Contents

Page

The Related Heidrich Federal Court Action &

Appeal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

REASONS FOR GRANTING REVIEW . . . . . . . . . . 11

A. The Decision Below Conflicts With The FAA

And Defies This Court’s Precedents . . . . . . . . . 16

B. The Decision Below Is Exceptionally

Important . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24

This issue arises with great frequency . . . 25

There is a square conflict between the

ruling below and decisions on the very

same legal issue by the federal courts

in California - a conflict that produces

significant unfairness to litigants, such

as Petitioners, that are unable to remove

cases from state to federal court . . . . . . . . 26

This Court’s intervention also will

make clear that lower courts may not

invalidate arbitration agreements

in contravention of the FA A and

this Court’s precedents . . . . . . . . . . . . . . . . 31

Summary reversal or remand would

also be appropriate in this case . . . . . . . . . 34

CONCLUSION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35

vii

TABLE OF APPENDICES

Page

APPENDIX A — DENIAL OF PETITION FOR

REVIEW BY THE SUPREME COURT OF

CALIFORNIA, FILED APRIL 10, 2019 . . . . . . . . 1a

A P P E N DI X B — O P I N ION O F T H E

COURT OF A PPEA L OF THE STATE

OF CALIFORNIA, THIRD APPELLATE

DI S T R IC T (S ACR A M EN T O), F I L ED

DECEMBER 19, 2018 . . . . . . . . . . . . . . . . . . . . . . . . . 2a

APPENDIX C — MINUTE ORDER OF THE

SUPERIOR COURT OF CALIFORNIA,

COUNT Y OF SACRA MENTO,

DATED APRIL 22, 2016 . . . . . . . . . . . . . . . . . . . . . 38a

APPENDIX D — MINUTE ORDER OF THE

SUPERIOR COURT OF CALIFORNIA,

COUNT Y OF SACR A MENTO, DATED

APRIL 22, 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48a

APPENDIX E — MINUTE ORDER OF THE

SUPERIOR COURT OF CALIFORNIA,

COUNT Y OF SACR A MENTO, DATED

MARCH 3, 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51a

viii

TABLE OF CITED AUTHORITIES

Page

CASES

Allied-Bruce Terminix Cos. v. Dobson,

513 U.S. 265 (1995) . . . . . . . . . . . . . . . . . . . . . . . . . . . 32

AT&T Mobility LLC v. Concepcion,

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

Betancourt v. Prudential Overall Supply,

9 Cal. App. 5th 439 (2017) . . . . . . . . . . . . . . . . 15, 29, 30

Bui v. Northrop Grumman Sys. Corp.,

No. 15-CV-1397-WQH-WVG, 2015 WL 8492502

(S.D. Cal. 2015) . . . . . . . . . . . . . . . . . . . . . . . . . . . 14, 28

CarMax Auto Superstores California, LLC v.

Fowler,

134 S. Ct. 1277, 188 L. Ed. 2d 290 (2014) . . . . . . 16, 35

Circuit City Stores, Inc. v. Adams,

532 U.S. 105 (2001) . . . . . . . . . . . . . . . . . . . . . . . . . . . 31

Citizens Bank v. Alafabco, Inc.,

539 U.S. 52 (2003) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32

DIRECTV, Inc. v. Imburgia,

136 S. Ct. 463, 193 L. Ed. 2d 365 (2015) . . . . . . passim

Doctor’s Assocs., Inc. v. Casarotto,

517 U.S. 681 (1996) . . . . . . . . . . . . . . . . . . . . . . . . 12, 18

Cited Authorities

Page

EEOC v. Waffle House, Inc.,

534 U.S. 279 (2002) . . . . . . . . . . . . . . . . . . . . . 18, 20, 21

Epic Systems v. Lewis,

138 S. Ct 1612, 200 L. Ed. 2d 889 (2018) . . . . . passim

Esparza v. KS Industries, L.P.,

13 Cal. App. 5th 1228 (2019) . . . . . . . . . . . . . . . . . . . . 30

Ferguson v. Corinthian Colleges, Inc.,

733 F.3d 928 (9th Cir. 2013) . . . . . . . . . . . . . . . . . . . . 30

Galvan v. Michael Kors USA Holdings, Inc.,

2017 WL 253985 (C.D. Cal. 2017) . . . . . . . . . . . . 14, 28

Heidrich v. PennyMac Financial Services, Inc.,

2018 WL 3388458 (July 11, 2018) . . . . . . 10, 11, 15, 31

Hernandez v. DMSI Staffing, LLC.,

79 F. Supp. 3d 1054 (N.D. Cal. 2015), aff’d sub

nom. Hernandez v. DMSI Staffing, LLC,

677 F. App’x 359 (9th Cir. 2017) . . . . . . . . . . . . . . 14, 28

Iskanian v. CLS Transp. Los Angeles, LLC,

59 Cal. 4th 348 (2014) . . . . . . . . . . . . . . . 262, 27, 28, 29

Julian v. Glenair, Inc.,

17 Cal. App. 5th 853 (2017) . . . . . . . . . . . . . . . 15, 29, 30

Cited Authorities

Page

Kindred Nursing Centers Ltd. P’ship v. Clark,

137 S. Ct. 1421, 197 L. Ed. 2d 806 (2017) . . . . . passim

KPMG LLP v. Cocchi,

565 U.S. 18 (2011) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32

Marmet Health Care Center, Inc. v. Brown,

565 U.S. 530 (2012) . . . . . . . . . . . . . . . . . . . . . . . . 16, 32

Net2Phone, Inc. v. Superior Court,

109 Cal. App. 4th 583 (2003) . . . . . . . . . . . . . . . . . . . 23

Nitro-Lift Technologies, L.L.C. v. Howard,

568 U.S. 17 (2012) . . . . . . . . . . . . . . . . . . . . . . 12, 16, 32

Perry v. Thomas,

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

Poublon v. C.H. Robinson Co.,

846 F.3d 1251 (9th Cir. 2017) . . . . . . . . . . . . . . . . 14, 27

Preston v. Ferrer,

552 U.S. 346 (2008) . . . . . . . . . . . . . . . . . . . . . 12, 17, 21

Ridgeway v.

Nabors Completion & Prod. Serv. Co.,

725 F. App’x 472 (9th Cir. 2018) . . . . . . . . . . . . . . 14, 27

Ritz-Carlton Development Co. v. Narayan,

136 S. Ct. 799 (2016) . . . . . . . . . . . . . . . . . . . . . . . 34-35

Cited Authorities

Page

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

803 F.3d 425 (9th Cir. 2015) . . . . . . . . . . . . . . . 14, 27, 28

Schumacher Homes of Circleville, Inc. v.

Spencer,

136 S. Ct. 1157 (2016) . . . . . . . . . . . . . . . . . . . . . . . . . 34

Sonic-Calabasas A, Inc. v. Moreno,

565 U.S. 973 (2011) . . . . . . . . . . . . . . . . . . . . . . . . 16, 17

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

559 U.S. 662 (2010) . . . . . . . . . . . . . . . . . . . . . . . . . . . 31

Tanguilig v. Bloomingdales,

5 Cal. App. 5th 665 (2016) . . . . . . . . . . . . . . . . 15, 29, 30

United States ex rel. Einstein v.

City of New York,

556 U.S. 928 (2009) . . . . . . . . . . . . . . . . . . . . . . . . 20, 21

Valdez v. Terminix Int’l Co. Ltd. P’ship,

681 F. App’x 592 (9th Cir. 2017) . . . . . . . . 14, 27, 28, 29

Villacres v. ABM Indus. Inc.,

189 Cal. App. 4th 562 (2010) . . . . . . . . . . . . . . . . . 22, 23

Wulfe v. Valero Ref. Co.-Cal.,

641 F. App’x 758 (9th Cir. 2016) . . . . . . . . . . . . . . 14, 27

xii

Cited Authorities

Page

STATUTES AND OTHER AUTHORITIES

Article VI, Clause II, of the United States

Constitution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

9 U.S.C. § 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

9 U.S.C. § 2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2, 18

15 U.S.C. § 1226(a)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

28 U.S.C. § 1257(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Cal. Gov. Code § 12652 . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

Cal. Lab. Code § 98 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

Cal. Lab. Code § 229 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

Cal. Lab. Code § 2699 . . . . . . . . . . . . . . . . . . . . . . . passim

Cal. Lab. Code § 2699(a) . . . . . . . . . . . . . . . . . . . . . . . . . . 7

Cal. Lab. Code § 2699(f)(2) . . . . . . . . . . . . . . . . . . . . . . . . 8

Cal. Lab. Code § 2699(g)(1) . . . . . . . . . . . . . . . . . . . . . . . . 8

Cal. Lab. Code § 2699(i) . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

Cal. Lab. Code § 2699.3(a) . . . . . . . . . . . . . . . . . . . . . . . . . 8

xiii

Cited Authorities

Page

Cal. Lab. Code § 2699.3(a)(2) . . . . . . . . . . . . . . . . . . . . . . . 8

Cal. Lab. Code § 2699.6 . . . . . . . . . . . . . . . . . . . . . . . . . . 24

FAA § 2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

Sup. Ct. R. 13 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Black’s Law Dictionary (8th ed. 2004) . . . . . . . . . . . . . 21

C a l . D ept ’t I ndu s . R e l at ion s 2 016 / 2 017

Budget Change Proposal, Budget Request

No. 7350-003-BCP-DP2016-GB . . . . . . . . . . . . . . 8, 26

Ceilidh Gao, What’s Next for Forced Arbitration?

Where We Go After SCOTUS Decision in Epic

Systems, Nat’l Emp. L. Project (June 5, 2018) . 33-34

J a n e t C o o p e r A l e x a n d e r, To S k i n A

C a t : Q u i Ta m A c t i o n s A s A S t a t e

L e g i s l a tiv e R e s p o n s e t o C onc ep c ion ,

46 U. Mich. J.L. Reform (2013) . . . . . . . . . . . . . . . . . 33

Matthew J. Goodman, The Private Attorney

General Act: How to Manage the Unmanageable,

56 Santa Clara L. Rev. 413 (2016) . . . . . . . . . . . . 25-26

Petitioners Private National Mortgage Acceptance

Company, LLC, PennyMac Financial Services, Inc. and

PennyMac Mortgage Investment Trust respectfully

petition for a writ of certiorari to review the judgment

and opinion of the Court of Appeal of California, Third

Appellate District, filed on December 19, 2018.

OPINIONS BELOW

The opinion of the California Court of Appeal, Third

Appellate District, Appendix B at 2a – 37a, is unreported.

The summary order of the California Supreme Court

denying PennyMac’s petition for review, Appendix A at 1a,

is unreported. The Sacramento County Superior Court’s

orders denying PennyMac’s petitions to compel arbitration

and seeking reconsideration, Appendices C, D and E at

38a – 62a, are unreported.

JURISDICTION

The opinion of the California Court of Appeal

was entered on December 19, 2018. Appendix B at 2a.

PennyMac timely petitioned for review by the California

Supreme Court on January 28, 2019, which was denied

on April 10, 2019. Appendix A at 1a. Thus, the California

Supreme Court entered its final judgment on April 10,

2019. Pursuant to Supreme Court Rule 13, this petition

became due on July 9, 2019. This Court has jurisdiction

pursuant to 28 U.S.C. § 1257(a). Perry v. Thomas, 482

U.S. 483, 489 n. 7 (1987).

RELEVANT CONSTITUTIONAL

AND STATUTORY PROVISIONS

Article VI, clause ii, of the United States Constitution

provides:

This Constitution, and the Laws of the United States

which shall be made in Pursuance thereof; and all Treaties

made, or which shall be made, under the Authority of the

United States, 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.

Title 9, Section 2 of the United States Code provides:

A written provision in any maritime transaction or a

contract evidencing a transaction involving commerce to

settle by arbitration a controversy thereafter arising out

of such contract or transaction, or the refusal to perform

the whole or any part thereof, 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.

INTRODUCTION

State legislatures and courts have a history of

attempting to evade the Federal Arbitration Act (“FAA”),

and California has led the field. In this case, a California

Court of Appeal again ignored this Court’s decisions by

creating a rule that an employee’s arbitration agreement

with his employer will not be enforced in an action by the

employee for penalties authorized under California Labor

Code section 2699. This rule is based on the fiction that

the State is the “real party in interest” and therefore

must consent to arbitration. But this Court has repeatedly

instructed that the FAA preempts state-law rules that

prohibit or obstruct the enforcement of valid arbitration

agreements, or that prohibit outright the arbitration

of a particular type of claim. This case presents the

straightforward question whether the FAA preempts such

a state-law rule.

In stark contrast to the California Court of Appeal

whose decision is the subject of this petition, a District

Court in California applied this Court’s recent decisions

to the very same arbitration agreement in a related,

substantially identical lawsuit filed against Petitioners

by three other employees represented by Respondent’s

counsel. The District Court determined that the FAA

and this Court’s precedents required the agreement to

be enforced as written, notwithstanding the arguments

that the agreement contained a class and representative

action waiver made illegal by California law and therefore

was invalid in its entirety. The fundamental unfairness of

identical facts leading to opposite outcomes depending

solely upon the forum selected is self-evident. Left

undisturbed, however, the State Court of Appeal decision

now threatens to undo the District Court’s decision,

as Respondent’s counsel seeks to invoke the collateral

estoppel doctrine in that related case.

The Court of Appeal refused to enforce an arbitration

agreement entered into by an employee who later filed a

civil action against his former employer seeking monetary

penalties under California’s Labor Code for alleged wage

and hour violations. The statute under which the action

was filed – the California Labor Code Private Attorney

General Act, California Labor Code § 2699 et seq.

(“PAGA”) – does not expressly require a judicial forum,

and does not give the State any role in the prosecution of

the civil action once it is filed by an employee against his

employer. It mandates only that if monetary penalties are

recovered, they be shared with the State.

The Cour t of Appeal prohibited outr ight the

arbitration of PAGA claims any time the agreement to

arbitrate predates the lawsuit, stating: “any predispute

agreement to arbitrate individual PAGA claims was

ineffective.” Appendix B at 27a. To justify its refusal

to enforce the arbitration agreement, the Court of

Appeal relied on the fiction that the State was a party

to the lawsuit, even though the State plays no role in the

filing or prosecution of the case. The Court of Appeal

held that the employee’s arbitration agreement could

not be enforced, because at the time of the employee’s

agreement, the State had not authorized the employee to

pursue the State’s interest in any potential civil action,

stating: “Smigelski executed the employee agreement as

a condition of his employment in November 2014, before

he satisfied the statutory requirements for bringing a

PAGA claim, which occurred sometime in October 2015.

[] Prior to the time he satisfied those requirements,

Smigelski was not authorized to asssert a PAGA claim

as an agent of the state, which retained control of the

right underlying the claim. [] Because Smigelski entered

the arbitration agreement as an individual, and not as an

agent or representative of the state, the agreement cannot

encompass the PAGA claim, which relies on the right to

recover penalties then belonging to the state. [] It follows

that any predispute agreement to arbitrate individual

PAGA claims was ineffective.” Appendix B, 26a – 27a

[internal citations omitted.]

Underpinning the Court of Appeal’s refusal to enforce

the employee’s arbitration agreement is the utter fallacy

that the State is the real party in the PAGA action and the

equally false notion that the employee bringing the PAGA

lawsuit is not really a party. By this transparent ruse,

the Court of Appeal evaded the FAA’s requirement that

the employee’s arbitration agreement should be enforced.

This judicial shell game designed to avoid arbitration of

PAGA claims should not be countenanced by this Court.

The reality is that the State is not in any meaningful

way a party in a PAGA action. The State plays no role in

the prosecution, dismissal or settlement of the lawsuit.

By contrast, the employee signatory to the arbitration

agreement has all the attributes of a party-plaintiff:

(1) the employee files the PAGA action as the named

plaintiff; (2) the employee prosecutes the lawsuit;

(3) the employee makes all decisions regarding the action;

(4) the employee can settle the action; (5) the employee can

dismiss the case; (6) the employee can decide not to file

the PAGA action; (7) the employee obtains any monetary

judgment and retains 25% of the penalties; and (8) the

employee is awarded attorneys’ fees if he prevails in the

action.

The Court of Appeal’s decision is directly contrary

to the FAA and decisions of this Court that prohibit

such state anti-arbitration rulemaking for the following

reasons: First, the decision is contrary to the primary

purpose of the FAA to ensure that private arbitration

agreements are vigorously enforced according to their

terms. Second, the decision prohibits enforcement of

and erects barriers to the enforcement of arbitration

agreements covered by the FAA by transmuting standard

administrative exhaustion requirements into special

agency requirements that disfavor arbitration. Third, the

decision places arbitration agreements on unequal footing

with other contracts by requiring the State’s consent as a

condition for enforcing the arbitration agreement against

the claim asserted by the signatory employee who is the

only named plaintiff.

The Court of Appeal’s decision is also contrary to

the decisions of the Ninth Circuit Court of Appeals and

numerous federal district courts in California, which have

held that PAGA claims are not exempt from arbitration.

Instead, the federal cases hold that PAGA claims are

subject to arbitration, because an outright prohibition on

arbitrating PAGA claims is preempted by the FAA. Thus,

the enforceability of employment arbitration agreements

in California PAGA cases depends entirely on whether the

case is filed in, or can be removed to, federal court.

This is no hypothetical concern – the arbitration

ag reement at the heart of this case was refused

enforcement and declared invalid in its entirety by a

California Court of Appeal based solely on California’s

judicially created rule in PAGA cases, while the very

same agreement was enforced by a District Court to

compel bilateral arbitration of federal wage and hour

claims in a related case alleging identical State law wage

and hour claims (including PAGA). Different forums;

opposite results. No law of the land can function in such

an environment.

The question presented is immensely important,

because employees and employers throughout California

routinely agree to arbitrate their employment-related

disputes at the outset of the employment relationship.

The rule invoked by the Court of Appeal will invalidate

countless arbitration agreements covered by the FAA as

applied to PAGA claims in California. This Court’s review

is therefore essential.

Given the failure of the lower court to heed this Court’s

repeated instructions that the FAA does not permit states

to prohibit arbitration of particular claims and requires

arbitration agreements to be placed on equal footing with

other contracts, the Court may wish to consider summary

reversal or vacatur for reconsideration in light of Epic

Systems v. Lewis, 138 S.Ct 1612, 1632, 200 L.Ed. 2d 889

(2018), Kindred Nursing Centers Ltd. P’ship v. Clark,

137 S. Ct. 1421, 1427, 197 L. Ed. 2d 806 (2017) and AT&T

Mobility LLC v. Concepcion, 563 U.S. 333 (2011).

STATEMENT OF THE CASE

California’s Labor Code Private Attorney General Act.1

PAGA allows an employee to bring an action to recover

civil penalties for violations of California’s Labor Code

on behalf of that employee and other current and former

employees. Cal. Lab. Code § 2699 (a). PAGA claims may

be filed either on their own or along with claims seeking

1. References and descriptions in this section are to the

statutory provisions as they existed when Respondent filed his

civil action. California amended the statute effective June 27, 2016,

but the changes apply only to actions filed on or after July 1, 2016.

wages, damages and statutory penalties for the same

alleged Labor Code violations. PAGA’s default penalty

per violation is $100 for each aggrieved employee per pay

period for the first violation and $200 for each aggrieved

employee per pay period for each subsequent violation.

Cal. Lab. Code § 2699(f)(2). Of the penalties recovered,

the employees retain 25% and remit 75% to the State. Cal.

Lab. Code § 2699 (i). A prevailing plaintiff also recovers

attorneys’ fees. Cal. Lab. Code § 2699(g)(1).

Prior to filing a PAGA claim, the employee need

only provide written notice of the alleged violations to

the State and the employer. Cal. Lab. Code § 2699.3 (a).

PAGA does not mandate a judicial forum. If the State

chooses to investigate the alleged violations and finds them

meritorious, then an administrative citation and hearing

process follows, not a civil action in court. Lab. Code

§ 98. In practice, however, “review and investigations of

PAGA claims are quite rare.” Cal. Dept’t Indus. Relations

2016/2017 Budget Change Proposal, Budget Request

No. 7350-003-BCP-DP2016-GB, at 1. Indeed, only one

employee is staffed to review PAGA notices, and the State

investigates less than 1% of all PAGA claims. Id. at 1, n.1.

Thus, virtually every employee who files a PAGA notice

obtains the State’s tacit consent to bring his or her own

PAGA claim.

The employee is free to file a PAGA claim if, within

33 days of the written notice, the State either fails to

respond or notifies the employee that it does not intend to

investigate. Cal. Lab. Code § 2699.3(a)(2). 2 After that, the

2. In this respect, private plaintiff PAGA claims are like

private plaintiff ADEA or Title VII claims in which notice of the

employee alone controls any PAGA claim, without State

involvement. The State is not a named party and has no

right to intervene.

FACTUAL BACKGROUND

The Smigelski State Court Action

Petitioners are multi-state companies headquarted

in California and engaged in the business of mortgage

origination and servicing throughout the United States.

Smigelski was employed as an account executive at

PennyMac’s branch office in Sacramento for six months,

beginning in November 2014 and ending in April 2015.

At the commencement of his employment, Smigelski was

given PennyMac’s Mutual Arbitration Policy (“MAP”) and

signed an “Employee Agreement to Arbitrate” in which

he agreed “to submit to final and binding arbitration any

and all claims and disputes that are related in any way to

my employment or the termination of my employment with

[PennyMac], except as otherwise permitted by the MAP.”

On September 11, 2015, Smigelski provided notice to

the Labor Workforce and Development Agency (LWDA)

and to PennyMac of his intent to pursue a claim for civil

penalties under PAGA. On November 17, 2015, Smigelski

filed an action asserting a single claim under PAGA

seeking to recover civil penalties.

allegations must be filed with the agency, which then issues a

“right to sue” letter permitting the employee to pursue the claim

in the employee’s own name, either in a civil action or, when the

employee has agreed to arbitrate, in arbitration.

In response, PennyMac filed a petition to compel

arbitration and stay the action. The trial court denied the

petition. Appendix E, 51a.

Armed with the ruling that his arbitration agreement

was unenforceable, Smigelski filed an amended complaint

adding individual and putative class claims seeking unpaid

wages, statutory penalties, restitution, and damages,

in addition to civil penalties under PAGA. PennyMac

responded to the amended complaint with a motion for

reconsideration and a second petition to compel arbitration.

The trial court denied the motion for reconsideration and

the second petition. Appendix C, 38a; Appendix D, 48a.

PennyMac appealed. On December 19, 2018 the Court

of Appeal affirmed. App. B, 2a. On April 10, 2019, the

California Supreme Court summarily denied PennyMac’s

Petition for Review. App. A, 1a. This Petition follows.

The Related Heidrich Federal Court Action & Appeal

While the appeal in this case was pending before the

California Court of Appeal, counsel for Respondent filed

a substantially similar civil action in the United States

District Court for the Eastern District of California,

entitled Heidrich, et al v. Pennymac Financial Services,

Inc., et al. The Heidrich action alleged California wage

and hour claims against Petitioners substantially identical

to those alleged in Smigelski (including a PAGA claim),

but also alleged a single federal claim under the Fair

Labor Standards Act (“FLSA”). In Heidrich, Petitioners

moved to compel arbitration of the FLSA claim under

arbitration agreements identical to the agreement at

issue in Smigelski. The District Court granted the

motion, rejecting the argument that the representative

waiver language within the agreement was illegal under

California law and that the entire agreement was therefore

invalid. Instead, the District Court read this Court’s

decision in Epic Systems v. Lewis, 138 S.Ct. 1612, 1632

(2018) to require enforcement of the arbitration agreement

as written. Heidrich v. PennyMac Financial Services,

Inc., 2018 WL 3388458 (July 11, 2018). The District Court

dismissed the State law claims. The Heidrich plaintiffs

appealed to the Ninth Circuit Court of Appeals (case

number 18-16494). The appeal is fully briefed and awaiting

oral argument.

Recently, after the California Supreme Court denied

review in this case and the Smigelski Court of Appeal

decision became final, the Heidrich appellants filed

requests for judicial notice with the Ninth Circuit Court of

Appeals and filed a motion for an indicative ruling with the

District Court. In these filings, counsel for the Heidrich

appellants (who is also counsel for Respondent in this

case) argues that the Smigelski Court of Appeal decision

should be given collateral estoppel effect in the Heidrich

appeal and any remand. This latest development in the

related Heidrich case illustrates that what happens in

State courts does not stay in State courts, and underscores

the need for this Court to resolve the conflict between the

FAA and California’s latest device for avoiding arbitration.

REASONS FOR GRANTING REVIEW

This Court has declared that “State courts rather than

federal courts are most frequently called upon to apply

the Federal Arbitration Act (“FAA”), 9 U. S. C. §1 et seq.,

including the Act’s national policy favoring arbitration.

It is a matter of great importance, therefore, that state

supreme courts adhere to a correct interpretation of the

legislation.” Nitro-Lift Technologies, LLC v. Howard,

568 U.S. 17–18, 20 (2012) (per curiam). How California’s

courts implement this Court’s precedents and their

interpretation of the FAA presents a greatly important

question of law.

The decision below defies this Court’s clear and

repeated holdings that the FAA preempts state-law

rules that discriminate against arbitration agreements.

By prohibiting outright the enforcement of a plaintiff

employee’s pre-dispute agreement to arbitrate in all

PAGA cases, the court below disregarded this Court’s

definitive interpretation of the FAA. “When state law

prohibits outright the arbitration of a particular type of

claim, the analysis is straightforward: The conflicting rule

is displaced by the FAA.” Concepcion, supra, 563 U.S. at

341 (citing Preston v. Ferrer, 552 U.S. 346, 353 (2008)).

By requiring that the State expressly authorize the

plaintiff-employee to consent to arbitration – even though

California law does not impose that requirement for other

types of contracts – the court below flatly violated the

FAA’s mandate that courts must “place [] arbitration

agreements on equal footing with all other contracts.”

DIRECTV, Inc. v. Imburgia, 136 S. Ct. 463, 468, 193 L. Ed.

2d 365 (2015); see also Doctor’s Assocs., Inc. v. Casarotto,

517 U.S. 681, 686-87 (1996); Perry, 482 U.S. at 492 n. 9.

Whether PAGA claims are arbitrable was the issue

squarely presented to, and decided below by the trial

court and the Court of Appeal. The Court of Appeal held:

Smigelski executed the employee agreement as

a condition of his employment in November 2014,

before he satisfied the statutory requirements

for bringing a PAGA claim, which occurred

sometime in October 2015. [] Prior to the time

he satisfied those requirements, Smigelski

was not authorized to assert a PAGA claim as

an agent of the state, which retained control

of the right underlying the claim. [] Because

Smigelski entered the arbitration agreement

as an individual, and not as an agent or

representative of the state, the agreement

cannot encompass the PAGA claim, which relies

on the right to recover penalties then belonging

to the state. [] It follows that any predispute

agreement to arbitrate individual PAGA claims

was ineffective.

App. B, 26a – 27a. [emphasis added, internal citations

omitted].

By drawing a red circle around PAGA claims and

declaring them exempt from arbitration in all cases

involving pre-dispute arbitration agreements, the Court

of Appeal created a state law rule that is plainly in conflict

with and therefore preempted by the FAA.

Indeed, an unbroken line of decisions by the federal

appellate court for California and numerous decisions by

federal District Courts in California have held exactly the

opposite. These federal decisions hold that PAGA claims

are subject to arbitration under pre-dispute agreements

between the actual parties to the lawsuit, notwithstanding

the State’s interest in its share of any monetary penalties

recovered. See Ridgeway v. Nabors Completion & Prod.

Serv. Co., 725 F. Appx 472, 474 (9th Cir. 2018); Sakkab v.

Luxottica Retail N. Am., Inc., 803 F.3d 425, 434 (9 th Cir.

2015); Wulfe v. Valero Ref. Co.-Cal., 641 Fed. Appx. 758,

760 (9th Cir. 2016); Valdez v. Terminix Int’l Co. Ltd. P’ship,

681 F. App’x 592, 594 (9th Cir. 2017); Poublon v. C.H.

Robinson Co., 846 F.3d 1251, 1273 (9th Cir. 2017); Galvan

v. Michael Kors USA Holdings, Inc., 2017 WL 253985,

at *10 (C.D. Cal. 2017); Bui v. Northrop Grumman Sys.

Corp., No. 15-CV-1397-WQH-WVG, 2015 WL 8492502, at

*7 (S.D. Cal. 2015); Hernandez v. DMSI Staffing, LLC.,

79 F. Supp. 3d 1054, 1067 (N.D. Cal. 2015) (“The fact that

the waiver provisions of the arbitration clauses at issue

cannot be enforced to bar PAGA representative claims

does not necessarily dictate which forum is proper for

their adjudication.”), aff’d sub nom. Hernandez v. DMSI

Staffing, LLC, 677 F. App’x 359 (9th Cir. 2017).

These federal courts are correct. In addition, this

conflict between the state and federal courts of California

means that a party’s rights under the FAA currently turn

entirely on whether the lawsuit is prosecuted in state

or federal court. For PennyMac, this conflict is not just

hypothetical. Instead, it is quite real. While the California

Court of Appeal applied the “State must consent” rule

to find the arbitration agreement “ineffective” as to the

PAGA claim, and simultaneously (and contradictorily)

found the class and representative action waiver to be

unlawful under California law 3 , the District Court in

3. If Smigelski was not authorized to consent on behalf of the

State to arbitrate PAGA claims for representative penalties, how

could he waive any right to pursue representative PAGA claims in

arbitration? And if the waiver language was of no consequence to

the State’s rights or Smigelski’s future ability to vindicate them,

how could the waiver be “unlawful” or violate State public policy?

the related and virtually identical Heidrich case applied

Epic and this Court’s other FAA precedents to reject the

very same arguments that the class and representative

action waiver was illegal under California law. Whereas

the Court of Appeal used the alleged invalidity of the

representative waiver language to deny enforcement

of the entire agreement (even as to arbitrable claims),

the District Court enforced the whole agreement “as

written.” Now, however, Petitioners face the possibility

that the doctrine of collateral estoppel will be invoked in

the Heidrich case to force the District Court to invalidate

the entire arbitration agreement based on the Smigelski

Court of Appeal decision. This affront to the Supremacy

Clause should not be allowed to fester.

Because the question is cleanly presented, this case

is perfect vehicle to resolve the issue of arbitration of

PAGA claims. The Court of Appeal did not fully address

other issues raised by PennyMac, because it ruled that

PAGA claims are never arbitrable based on a pre-dispute

arbitration agreement entered into by the employee and

his employer. Therefore, this single issue is squarely

presented in this case.

The question presented in this case is fully ripe.

California’s Supreme Court now has refused to correct

three separate Courts of Appeal that have defied this

Court’s precedents by holding PAGA claims are exempt

from arbitration. Appendix A, 1a; Julian v. Glenair,

Inc., 17 Cal. App. 5th 583 (2017) (review denied February

14, 2018), Betancourt v. Prudential Overall Supply, 9

Cal. App. 5th 439 (2017) (review denied May 24, 2017),

Tanguilig v. Bloomingdales, 5 Cal. App. 5th 665, 677-678

(2016) (review denied March 1, 2017). The Ninth Circuit

has clearly and repeatedly rejected the California courts’

approach. Further percolation would serve no purpose.

Only this Court can resolve the question presented, and

that question is ripe for resolution now.

The decision below is yet another in a long line of state

court decisions seeking to evade this Court’s precedents

on arbitration. See, e.g., Kindred Nursing Centers Ltd.

P’ship, 137 S. Ct. at 1427; Imburgia, 136 S.Ct. 463; CarMax

Auto Superstores California, LLC v. Fowler, 134 S.Ct.

1277, 188 L.Ed.2d 290 (2014); Nitro-Lift Technologies,

L.L.C. v. Howard, 568 U.S. 17, 20 (2012) (per curiam);

Marmet, 565 U.S. 530, 533 (2012)(per curiam). California

leads the vanguard in such attempts to circumvent

the FAA with state law rules disfavoring arbitration.

DIRECTV, Inc. v. Imburgia, 136 S. Ct. 463, 468 (2015),

CarMax Auto Superstores California, LLC v. Fowler,

134 S.Ct. 1277, 188 L.Ed.2d 290 (2014), Sonic-Calabasas

A, Inc. v. Moreno, 565 U.S. 973 (2011) and Perry, supra,

482 U.S. at 489 n. 2. Review and reversal or vacatur of

the decision below is warranted to prevent the Court of

Appeal’s flouting of the FAA, to prevent the contagion of

such disobedience from infecting the related federal case

and to preserve the integrity of this Court’s precedents.

A. The Decision Below Conflicts With The FAA And

Defies This Court’s Precedents.

The FA A “ is a law of the United States, and

Concepcion is an authoritative interpretation of that Act.

Consequently, the judges of every State must follow it.”

Imburgia, supra, 136 S.Ct. 463.

In Concepcion, supra, 563 U.S. at 341, this Court

explained the most obvious type of state law rules that

are preempted by the FAA. “When state law prohibits

outright the arbitration of a particular type of claim,” it

presents a “straightforward” analysis: “The conflicting

rule is displaced by the FAA.”

In this case, the Court of Appeal’s holding prohibits

outright the arbitration of a particular type of claim –

PAGA claims for civil penalties – any time the agreement

to arbitrate was entered into by the parties before the

employee satisfied the minimal administrative notice

requirements of PAGA. App. B, 26-27a.

Leg islative and judicial attempts to preclude

arbitration of California Labor Code claims have been held

by this Court to be preempted by the FAA in numerous

cases. Perry v. Thomas, 482 U.S. 483, 490 (1987)(Labor

Code § 229, restricting arbitration of wage disputes,

preempted and invalidated by FAA); Preston, supra, 522

U.S. at 359-360 (FAA supersedes the California Talent

Agencies Act, which vests exclusive jurisdiction over

disputes with Labor Commissioner); Sonic-Calabasas,

supra, 565 U.S. 973 (2011)(vacating California rule

requiring Labor Commissioner administrative hearing

before arbitration of a wage dispute covered by arbitration

agreement) .

The California Court of Appeal’s rule prohibiting

enforcement of pre-dispute arbitration agreements as

applied to PAGA cases filed and prosecuted solely by the

signatory employee against the signatory employer cannot

be squared with the plain terms and manifest purpose of

the FAA.4

4. The Smigelski rule, which singles out pre-dispute

agreements to arbitrate PAGA claims for unequal treatment,

contravenes the text of FAA § 2: “A written provision in * * * a

Cong ress ena ct ed t he FA A t o “ rever se t he

longstanding judicial hostility to arbitration agreements,”

“to place [these] agreements upon the same footing

as other contracts,” and to “manifest a liberal federal

policy favoring arbitration agreements.” EEOC v. Waffle

House, Inc., 534 U.S. 279, 289 (2002)(quotation marks

omitted). Section 2 of the FAA therefore commands that

“[a]n agreement to arbitrate is valid, irrevocable, and

enforceable as a matter of federal law, *** ‘save upon such

grounds as exist at law or in equity for the revocation of

any contract.’ ” Perry, supra, 482 U.S. at 492, n. 9 (quoting

9 U.S.C. § 2).

This principle means that “Congress precluded States

from singling out arbitration provisions for suspect status”

(Casarotto, supra, 517 U.S. at 687) or from invalidating

arbitration provisions through state-law rules that

“apply only to arbitration or that derive their meaning

from the fact that an agreement to arbitrate is at issue.”

Concepcion, supra, 563 U.S. at 339; see also Imburgia,

supra, 136 S. Ct. at 469; Perry, 482 U.S. at 492 n.9. Nor

may States apply generally applicable state-law doctrines

contract evidencing a transaction involving commerce to settle by

arbitration a controversy thereafter arising out of such contract

* * * or an agreement in writing to submit to arbitration an

existing controversy arising out of such a contract * * * shall

be 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 (emphasis added). By its terms, then, the FAA

requires the enforcement of both pre-dispute and post-dispute

arbitration agreements and mandates that they be treated

equally. If Congress wanted to make only post-dispute arbitration

agreements enforceable under the FAA, it would have done so. See

15 U.S.C. § 1226(a)(2).

“in a fashion that disfavors arbitration.” Concepcion,

563 U.S. at 341; see also Kindred Nursing Centers Ltd.

P’ship v. Clark, 137 S. Ct. 1421, 1427, 197 L. Ed. 2d 806

(2017). Like California Labor Code section 229 prohibiting

arbitration of any claim under the Labor Code for wages

(which this Court held preempted by the FAA 30 years ago

in Perry, supra, 482 U.S. at 492), the Court of Appeal’s

rule is an outright prohibition on arbitration of a particular

type of Labor Code claim.

The Court of Appeal attempted to justify its antiarbitration rule as one of general applicability based on

the wrongheaded notion that because the State has an

interest in Smigelski’s PAGA claim for monetary penalties,

it is the “party” to the PAGA action and Smigelski is

not. Relying on this false premise, the Court of Appeal

concluded, “Smigelski executed the employee agreement

. . . before he satisfied the statutory requirements for

bringing a PAGA claim, . . . Because Smigelski entered

the arbitration agreement as an individual, and not as

an agent or representative of the state, the agreement

cannot encompass the PAGA claim, which relies on the

right to recover penalties then belonging to the state

. . . . It follows that any predispute agreement to arbitrate

individual PAGA claims was ineffective.” Appendix B, 2627a [p. 19] This artifice is in direct conflict with the FAA,

which required that Smigelski’s arbitration agreement

be enforced to compel arbitration of any action filed and

prosecuted by Smigelski.

The Smigelski rationale relies on a double fiction:

(1) that the State, despite being entirely absent from

the proceeding and having no authority to intervene,

is a party; and (2) that the plaintiff, despite statutory

authorization to sue in his own name and to prosecute or

settle the PAGA claims without any State involvement,

is nevertheless acting on the state’s behalf and therefore

his private agreement to arbitrate is inapplicable absent

State consent. 5

This case is in marked contrast to employment cases

where a State or federal agency is a direct party to

the lawsuit against the employer and directly controls

the litigation, in which case the employee’s arbitration

agreement with the employer does not bar the government

from pursuing the action in court. For example, this

Court ruled in EEOC v. Waffle House, Inc., 534 U.S. 279

(2002) held that an employee’s arbitration agreement with

his employer did not prevent the EEOC from suing the

5. The false analogy often drawn by California courts is

that PAGA claims are “a kind of qui tam” claim. This Court has

held that in a federal qui tam action the named plaintiff, not the

government, is the party plaintiff and the government is not a

party unless the government has intervened in the action. United

States ex rel. Einstein v. City of New York, 556 U.S. 928, 933

(2009). Furthermore, comparison of California’s actual qui tam

statute, Government Code section 12652, to Labor Code section

2699, shows that PAGA claims bear no resemblance to qui tam

actions, either in terms of the injured party whose rights were

violated or the continuing right of the State or its subdivisions

to control the litigation or any settlement, even in cases where

they do not intervene at the outset. California Government Code

§12652 authorizes qui tam actions in which the State has been

defrauded and monetarily injured, and authorizes the State to

intervene and control the litigation or its disposition at all stages.

PAGA authorizes additional penalties that are derivative of and

based solely upon Labor Code violations suffered by the employee,

and once the employee obtains standing to assert a PAGA claim,

the State lacks any ability to intervene or control the litigation.

employer on behalf of the employee for victim-specific

relief. The Court simply concluded that the EEOC was

not required to arbitrate, because the EEOC, not the

employee was the actual party to the litigation. See

Preston, supra, 552 U.S. at 359 (explaining “in Waffle

House . . . the Court addressed the role of an agency

. . . as prosecutor, pursuing an enforcement action in its

own name.”) But the Court’s conclusion in Waffle House

was based on the facts that: (1) the employee was not a

party to the lawsuit; (2) the employee did not exercise

control over the litigation; (3) the EEOC was not a proxy

for the individual employee; and (4) the EEOC could

prosecute the action without the employee’s consent. The

Court explained that the result would be different if “the

EEOC could prosecute its claim only with [the employee’s]

consent” or “if its prayer for relief could be dictated by

[the employee].” Id. 534 U.S. at 291.

The Court of Appeal’s reasoning here that the State

is the real party in the PAGA action and that Smigelski

is not a party is contrary to holding of Waffle House,

because Smigelski is the named party to the lawsuit and

he controls the litigation in its entirety. Smigelski alone

filed the lawsuit - he is a party to it and the State is not.

This Court held in United States ex rel. Einstein v. City

of New York, 556 U.S. 928, 933 (2009) that “A ‘party’ to

litigation is ‘[o]ne by or against whom a lawsuit is brought’”

the government’s ‘status as a ‘real party in interest’ in a

qui tam action does not automatically convert it into a

‘party’”, and stated that when a real party in interest “has

declined to bring the action or intervene, there is no basis

for deeming it a ‘party.’” This Court further stated: “A

‘party’ to litigation is ‘[o]ne by or against whom a lawsuit

is brought.’ Black’s Law Dictionary 1154 (8th ed.2004).

An individual may also become a ‘party’ to a lawsuit by

intervening in the action.”

Generally applicable California law is similar. A

California Court of Appeal in Villacres v. ABM Indus.

Inc., 189 Cal.App.4th 562, 591-592 (2010) held that the

employee, not the State, is the plaintiff in a PAGA action

when the State fails to pursue the matter itself, stating:

“[plaintiff employee] contends the State of

California is, as a legal matter, the actual

plaintiff here. Not so. The PAGA authorized

[the employee] to file this action ‘on behalf

of himself . . . and other current and former

employees.’ (§2699, subd.(a).) The act ‘empowers

or deputizes an aggrieved employee to sue

for civil penalties . . . as an alternative to

enforcement by the [State].” (emphasis added).

This case too involves PAGA. But the contrary rationale

of the Court of Appeal here treats arbitration agreements

more unfavorably than other types of agreements (e.g.

settlement agreements as in Villacres). The “State must

consent” rationale is a device employed only to evade FAA

preemption.

The Smigelski rule is preempted by the FAA, because

the reasoning does not apply to any agreement other than

an agreement to arbitrate. For example, California law

permits private plaintiffs to enter into agreements to

settle and release allegations of Labor Code violations

before any PAGA lawsuit is filed. Those agreements are

enforced to preclude derivative PAGA claims for penalties

entirely, without regard to whether the State signed the

settlement agreement or otherwise consented to the

settlement and release. Villacres v. ABM Indus. Inc.,

189 Cal. App. 4th 562, 591(2010). Indeed, PAGA itself

contemplates that private plaintiffs may choose to never

pursue claims for PAGA penalties (in which case the

State’s interest is extinguished by the employee’s inaction)

or may settle or dismiss PAGA actions without obtaining

the consent of the State. Cal. Lab. Code § 2699 (2015).

The decision below selectively disfavors only agreements

to submit PAGA claims to arbitration.

Another comparison illustrates the unequal treatment

given to the arbitration agreement here. Unlike the antiarbitration rule in this case, California courts have held

enforceable other types of agreements, even where the

private plaintiff filed the action in a private attorney

general capacity authorized by statute. In Net2Phone,

Inc. v. Superior Court, 109 Cal. App. 4th 583, 587-588

(2003), a California Court of Appeal held a forum selection

clause in a consumer contract was enforceable against

the private plaintiff suing in a private attorney general

capacity under California’s Unfair Competition Law,

even assuming the forum selection clause would not be

enforceable against the California Attorney General

making the same claims. In so holding, the court rejected

the argument that because the private plaintiff was suing

in place of the State’s Attorney General, that the forum

selection clause therefore could not be enforced against

the private plaintiff. As the court stated, “The filing of a

UCL action by a private plaintiff does not confer on that

plaintiff the stature of a prosecuting officer, and the fact

that the plaintiff may be acting as a so-called private

attorney general is irrelevant for purposes of the issue

presented here.” Net2Phone, Inc. v. Superior Court,

supra, 109 Cal. App. 4th at 588.

Recently, California’s Legislature made a distinct

subset of contracts in California enforceable to waive

PAGA penalty claims without requiring State consent

– collective bargaining agreements in the construction

industry that provide for binding arbitration of any

underlying Labor Code violations. Cal. Labor Code

§ 2699.6 (2019).

Such obvious inconsistency has led this Court to

conclude that similar judicial rules target arbitration

agreements. See, e.g. Kindred Nursing Centers (holding

that FAA preempted Kentucky Supreme Court’s special

rule requiring express authorization by principal of

agent to enter into arbitration agreements but not other

contracts) [137 S.Ct. at 1427]; Imburgia 136 S. Ct. at

470-71(holding that the FAA preempted the California

Court of Appeal’s interpretation of the term “law of your

state” because “nothing in the [state court’s] reasoning

suggest[ed]” that a court in that state “would reach the

same interpretation of ‘law of your state’ in any context

other than arbitration.”).

This Court should not countenance the Court of

Appeal’s decision, which is transparently incorrect and

concocted solely to evade FAA preemption.

B. The Decision Below Is Exceptionally Important.

This Court’s immediate intervention to prevent

California courts from continuing to evade the dictates of

the FAA is warranted for three basic reasons: (1) this issue

arises with great and increasing frequency; (2) there is

a square conflict between the State cour’s decision below

and decisions on the very same legal issue by the federal

court in California; and (3) this Court’s intervention will

make it clear that states may not invalidate arbitration

agreements on grounds which contravene the FAA and

this Court’s precedents.

This issue arises with great frequency.

California is the most populous state, is a hub to

numerous major U.S. and global industries, and is home

to approximately 12% of all employees in the United

States.6 Many of those employees agree to arbitration of

their employment-related disputes at the outset of their

employment, before any dispute has arisen. As a result

of Smigelski, employment arbitration agreements under

which California employers and employees agreed to

arbitrate PAGA claims cannot be enforced.

Enterprising plaintiffs and their attorneys are quickly

taking advantage of this new loophole, using it to shirk

their contractual obligation to arbitrate employment

claims. California courts’ refusal to enforce pre-dispute

agreements to arbitrate PAGA claims has caused the

number of PAGA actions to skyrocket. “Annual PAGA

filings have increased over 200 percent in the last five

years, and over 400 percent since 2004. The fact that

PAGA claims cannot be waived by agreements to arbitrate

contributes heavily to the prevalence of these suits.”

Matthew J. Goodman, The Private Attorney General

6. As of May 2019, California had an employed workforce

of 18,653,000. Bureau of Labor Statistics, California, https://

www.bls.gov/eag/eag.ca.htm. At that time, the United States

employed workforce was 156,758,000. Bureau of Labor Statistics,

Employment status of the civilian population by sex and age,

https://www.bls.gov/news.release/empsit.t01.htm.

Act: How to Manage the Unmanageable, 56 Santa Clara

L. Rev. 413, 415 (2016) (citation omitted). In California,

as many as 635 new PAGA notices are now being filed

every month with the State. Cal. Dep’t of Indus. Relations

2016/2017 Budget Change Proposal, Budget Request

No. 7350-003-BCP-DP-2016-GB, at 2. This trend will

accelerate without this Court’s intervention.

There is a square conflict between the ruling

below and decisions on the very same legal

issue by the federal courts in California - a

conflict that produces significant unfairness to

litigants, such as Petitioners, that are unable

to remove cases from state to federal court.

The Court of Appeal below relied on selected and

incomplete quotations from Iskanian v. CLS Transp.

Los Angeles, LLC, 59 Cal.4th 348 (2014) to hold that

PAGA claims are not arbitrable. App. B, at 16a – 24a. The

precise holding of Iskanian is that where “an employment

agreement compels the waiver of representative claims,”

whether or not the agreement specifically references

PAGA, it “frustrates the PAGA’s objectives” and “is

contrary to public policy and unenforceable as a matter of

state law.” Iskanian, supra, 59 Cal. 4th at 384. The focus of

Iskanian is not on preventing enforcement of arbitration

agreements in cases involving PAGA claims, but on

preventing waiver of substantive statutory remedies.

Iskanian held that an employer “cannot compel the waiver

of [the employee’s] representative PAGA claim but that

the agreement [to arbitrate] is otherwise enforceable

according to its terms”. Iskanian, supra, 59 Cal. 4th at 391.

Indeed, in Iskanian the court expressly remanded the

PAGA claims in that case for determination of “a number

of questions: (1) Will the parties agree on a single forum for

resolving the PAGA claim and the other claims? (2) If not,

is it appropriate to bifurcate the claims, with individual

claims going to arbitration and the representative PAGA

claim to litigation?” Iskanian, supra, 59 Cal. 4th at 39192. Iskanian did not rule out an arbitral forum for PAGA

claims, but stated that the employer “must answer the

representative PAGA claims in some forum.” 59 Cal.

4th at 392. The parties in this case already agreed on a

single forum for resolving the PAGA claim and all other

employment claims – they agreed on arbitration. App. B,

3a – 5a.

The Ninth Circuit Court of Appeal has explained

on several occasions that pursuant to Iskanian’s

interpretation of California law, PAGA claims are not

exempt from arbitration, but instead are subject to

arbitration if the parties’ agreement allows pursuit of

PAGA’s civil penalties. “The California Supreme Court’s

decision in Iskanian expresses no preference regarding

whether individual PAGA claims are litigated or arbitrated.

It provides only that representative PAGA claims may not

be waived outright. [] The Iskanian rule does not prohibit

the arbitration of any type of claim.” Sakkab, supra, 803

F.3d at 434 (internal citation omitted); see also Ridgeway

v. Nabors Completion & Products Serv. Co., 725 F. Appx

472, 474 (9th Cir. 2018); Poublon, supra, 846 F.3d at 1273

(“the waiver of representative claims is unenforceable to

the extent it prevents an employee from bringing a PAGA

action. This clause can be limited without affecting the

remainder of the agreement.”); Valdez, supra, 681 F. App’x

at 594; Wulfe, supra, 641 Fed. Appx. at 760.

Accordingly, under the Ninth Circuit’s interpretation

of California law, “[n]othing prevents parties from agreeing

to use informal procedures to arbitrate representative

PAGA claims.” Sakkab, supra, 803 F.3d at 436. Since

Sakkab determined that the narrow Iskanian rule was

not in conflict with the FAA, numerous district courts in

California have compelled arbitration of PAGA claims.7

As the Ninth Circuit noted, this limited state law rule

does not conflict with and therefore is not preempted by

the FAA. Sakkab, supra, 803 F.3d at 434 (“The Iskanian

rule does not prohibit the arbitration of any type of

claim.”). The same cannot be said of the per se rule against

arbitration of PAGA claims that the Court of Appeal in

this case created.

Indeed, the Ninth Circuit rejected the exact rule

proffered by the Court of Appeal below in this case. Valdez

v. Terminix Int’l Co. Ltd. P’ship, supra. As the Ninth

Circuit stated:

Iskanian and Sakkab clearly contemplate that

an individual employee can pursue a PAGA

claim in arbitration, and thus that individual

employees can bind the state to an arbitral

forum. *** Accordingly, an individual employee,

7. See e.g., Galvan v. Michael Kors USA Holdings, Inc., 2017

WL 253985, at *10 (C.D. Cal. 2017); Bui v. Northrop Grumman

Sys. Corp., No. 15-CV-1397-WQH-WVG, 2015 WL 8492502, at

*7 (S.D. Cal. 2015) (“Neither Iskanian nor Sakkab suggest that

PAGA claims cannot be arbitrated.”); Hernandez v. DMSI Staffing,

LLC., 79 F. Supp. 3d 1054, 1067 (N.D. Cal. 2015) (“ The fact that

the waiver provisions of the arbitration clauses at issue cannot be

enforced to bar PAGA representative claims does not necessarily

dictate which forum is proper for their adjudication.”), aff’d sub

nom. Hernandez v. DMSI Staffing, LLC, 677 F. App’x 359 (9th

Cir. 2017).

acting as an agent for the government, can

agree to pursue a PAGA claim in arbitration.

Iskanian does not require that a PAGA claim

be pursued in the judicial forum; it holds only

that a complete waiver of the right to bring a

PAGA claim is invalid.

Valdez, supra, 681 F. App’x at 594 (internal citations

omitted, emphasis added).

Here, the Court of Appeal below extracted the exact

opposite rationale from Iskanian, to justify a per se rule

that an employee’s pre-dispute agreement to arbitrate

may never be enforced against the employee’s asserted

PAGA claims.8 This rule, if allowed to stand, will invalidate

vast numbers of employment arbitration agreements when

applied to PAGA cases.

The Ninth Circuit also has held that the FAA as

interpreted by this Court in Concepcion preempts

California’s rule attempting to exempt from arbitration

private attorney general actions seeking public injunctive

8. The rationale of Julian, Betancourt and Tanguilig

adopted by the Court of Appeal is inconsistent with the holding

of Iskanian. If an employee who signs a predispute arbitration

agreement is incapable of agreeing to arbitrate PAGA claims,

then logically the employee must also be incapable of waiving any

rights with respect to PAGA claims. If that were so, the inclusion

of representative waiver language within a predispute arbitration

agreement could not offend California’s public policy, because it

would be a nullity with no potential application to any PAGA claim

that might later be filed by the employee. In that case, surely,

such a null term could not taint the entire agreement with an

illegal purpose or render the entire agreement unenforceable as

to arbitrable claims.

relief under California’s consumer protection laws.

Ferguson v. Corinthian Colleges, Inc., 733 F.3d 928, 934

(9th Cir. 2013) (holding that Concepcion’s core holding

“also resolves this case. By exempting from arbitration

claims for public injunctive relief under the CLRA, UCL,

and FAL, the Broughton–Cruz rule similarly prohibits

outright arbitration of a particular type of claim.”)

The Court of Appeal’s decision in this case cannot

be reconciled with the Ninth Circuit decisions discussed

above. This conflict between California’s state and federal

courts will prejudice companies like PennyMac, who are

headquartered in California and unable to remove PAGA

cases to federal court. California state courts will not

enforce pre-dispute arbitration agreements in those PAGA

cases based on Julian v. Glenair, Inc., 17 Cal. App. 5th 853

(2017)(refusing to enforce arbitration agreement against

signatory employee’s PAGA claim because State did not

consent to arbitration); Betancourt v. Prudential Overall

Supply, 9 Cal. App. 5th 439 (2017) (refusing to enforce

a pre-dispute arbitration agreement against signatory

employee’s PAGA claim because State had not expressly

consented to arbitrate), Tanguilig v. Bloomingdales, 5

Cal. App. 5th 665, 677-678 (2016) (same) and Esparza v. KS

Industries, L.P. 13 Cal. App. 5th 1228, 1246 (2019)(“The

rule of nonarbitrability adopted in Iskanian is limited to

representative claims for civil penalties in which the state

has a direct financial interest.”).

In contrast, companies headquartered or incorporated

elsewhere will be able to remove such cases to federal

court and enforce their arbitration agreements - thereby

allowing those companies “to realize the benefits of private

dispute resolution,” including “lower costs” and “greater

efficiency and speed.” Stolt-Nielsen S.A. v. AnimalFeeds

Int’l Corp., 559 U.S. 662, 685 (2010); see also, e.g., Circuit

City Stores, Inc. v. Adams, 532 U.S. 105, 123 (2001)

(“Arbitration agreements allow parties to avoid the costs

of litigation ***.”). That dichotomy places California

businesses like PennyMac at a distinct disadvantage.9

The circumstances here are therefore similar to those

that warranted this Court’s review in Imburgia. See

136 S. Ct. at 467-48 (observing that the petition granted

“not[ed] that the Ninth Circuit had reached the opposite

conclusion on precisely the same interpretive question

decided by the California Court of Appeal”). This Court’s

intervention is needed in order to ensure that parties’

rights in California under the FAA do not depend on

the forum - state or federal court - in which they seek to

enforce an arbitration agreement.

This Court’s intervention also will make

clear that lower courts may not invalidate

arbitration agreements in contravention of the

FAA and this Court’s precedents.

This Court repeatedly has intervened by granting

summary reversals when state courts have ignored or

refused to apply controlling precedents interpreting the

FAA. As the Court has explained, because “[s]tate courts

rather than federal courts are most frequently called upon

9. The Smigelski Court of Appeal decision threatens to

disadvantage Pennymac even in federal courts, as illustrated in

the related Heidrich case, where Respondent’s counsel is invoking

collateral estoppel in an effort to have California law as articulated

by the Smigelski Court of Appeal trump the FAA as interpreted

by this Court in Epic.

to apply the *** FAA,” “[i]t is a matter of great importance

*** that state supreme courts adhere to a correct

interpretation of the legislation.” Nitro-Lift, supra, 568

U.S. 17 at 501; accord Marmet Health Care Center, Inc. v.

Brown, 565 U.S. 530 at 532 (2012) (the Court summarily

vacated and remanded the lower court’s decision, because

“The West Virginia court’s interpretation of the FAA was

both incorrect and inconsistent with clear instruction in

the precedents of this Court.”); KPMG LLP v. Cocchi,

565 U.S. 18, 22 (2011) (per curiam) (the Court summarily

vacated the Florida District Court of Appeal’s refusal

to compel arbitration as “fail[ing] to give effect to the

plain meaning of the [Federal Arbitration] Act and to the

holding of Dean Witter [Reynolds, Inc. v. Byrd, 470 U.S.

213 (1985)].”); Citizens Bank v. Alafabco, Inc., 539 U.S. 52,

56-58 (2003) (per curiam) (the Court summarily reversed

the Alabama Supreme Court’s refusal to apply the FAA

based on an “improperly cramped view of Congress’

Commerce Clause power” that was inconsistent with this

Court’s decision in Allied-Bruce Terminix Cos. v. Dobson,

513 U.S. 265 (1995)).

This Court also recently reversed the Kentucky

Supreme Court, which had imposed a state law rule

prohibiting authorized agents from binding their principals

to arbitration agreements, despite broad authority under

Kentucky law to enter into all manner of other contracts.

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

1421, 1427, 197 L. Ed. 2d 806 (2017) (“Such a rule is too

tailor-made to arbitration agreements—subjecting them,

by virtue of their defining trait, to uncommon barriers—

to survive the FAA’s edict against singling out those

contracts for disfavored treatment.”). As this Court held in

that case, “[a] rule selectively finding arbitration contracts

invalid because improperly formed fares no better under

the Act than a rule selectively refusing to enforce those

agreements once properly made.” Id. at 1428. The rule

imposed by the Court of Appeal below, selectively finding

pre-dispute agreements invalid in PAGA cases should

fare no better.

This Court in 2015 reversed a decision of the California

Court of Appeal adopting an incorrect interpretation of an

arbitration agreement in an attempt to find the agreement

unenforceable. Imburgia, 136 S. Ct. at 468-71. This Court

was once again compelled to remind the lower courts of

their “undisputed obligation” to follow its precedents:

“The Federal Arbitration Act is a law of the United States,

and Concepcion is an authoritative interpretation of that

Act. Consequently, the judges of every State must follow

it.” Id. at 468.

The decision below indicates that California courts

continue to defy this Court’s instructions. Left to stand, the

decision below could well prompt other state legislatures

to “deputize” private plaintiffs in order to render their

previously signed arbitration agreements unenforceable or

could prompt state courts to manufacture interpretations

of state agency law that single out arbitration for

disfavored treatment in an effort to circumvent the FAA

and this Court’s precedents. This approach has already

been recommended to anti-arbitration State legislatures.

See 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). New York and Vermont

are considering PAGA-like measures for employment,

consumer and nursing home lawsuits as an end-run around

Epic, Kindred and Concepcion. See Ceilidh Gao, What’s

Next for Forced Arbitration? Where We Go After SCOTUS

Decision in Epic Systems, Nat’l Emp. L. Project (June

5, 2018), https://www.nelp.org/blog/whats-next-forcedarbitration-go-scotus-decision-epic-systems/ (discussing

other state statutes similar to PAGA).

Just last term this Court observed in Epic that: “Just

as judicial antagonism toward arbitration before the

Arbitration Act’s enactment “manifested itself in a great

variety of devices and formulas declaring arbitration

against public policy,” Concepcion teaches that we must

be alert to new devices and formulas that would achieve

much the same result today.” 138 S.Ct. at 1623. As this

case demonstrates, States deputizing private plaintiffs as

nominal “private attorneys general” and requiring State

“consent” to arbitration agreements previously agreed to

by those private parties is precisely such a device.

Summary reversal or remand would also be

appropriate in this case.

Given the clear conflict between the decision below and

this Court’s precedents, the Court may wish to consider

summarily reversing the decision below.

If the Court believes that neither plenary review nor

summary reversal is warranted, it may wish to consider

granting, vacating, and remanding the decision below

in light of Kindred Nursing Centers, Imburgia, Epic,

and Concepcion. This Court has already taken that

course in other cases presenting state courts’ refusal to

adhere to this Court’s precedents interpreting the FAA.

See Schumacher Homes of Circleville, Inc. v. Spencer,

136 S. Ct. 1157 (2016); Ritz-Carlton Development Co. v.

Narayan, 136 S. Ct. 799 (2016); CarMax Auto Superstores

California, LLC v. Fowler, 134 S.Ct. 1277, 188 L.Ed.2d

290 (2014). Doing the same here would remind the

California courts that they may not prohibit arbitration of

a particular type of state law claim or otherwise disfavor

arbitration.

CONCLUSION

The petition for a writ of certiorari should be granted.

The Court may wish to consider summary reversal, or

vacatur for reconsideration in light of Kindred Nursing

Centers, Imburgia, Epic and Concepcion.

Respectfully submitted,

James A. Bowles

Counsel of Record

Michael S. Turner

E. Sean McLoughlin

Warren J. Higgins

Hill, Farrer & Burrill LLP

One California Plaza

300 South Grand Avenue, 37th Floor

Los Angeles, California 90071

(213) 620-0460

jbowles@hillfarrer.com

Counsel for Petitioners

APPENDIX

AppendixOF

A PETITION FOR

Appendix A — DENIAL

REVIEW BY the supreme court of

California filed April 10, 2019

IN THE SUPREME COURT OF CALIFORNIA

S253796

En Banc

RICHARD SMIGELSKI,

Plaintiff and Respondent,

PENNYMAC FINANCIAL SERVICES, INC. et al.,

Defendants and Appellants.

Court of Appeal, Third Appellate District

No. C081958

The petition for review is denied.

/s/

Chief Justice

Appendix OF

B THE COURT OF

APPENDIX B — OPINION

APPEAL OF THE STATE OF CALIFORNIA,

THIRD APPELLATE DISTRICT (SACRAMENTO),

FILED DECEMBER 19, 2018

IN THE COURT OF APPEAL OF

THE STATE OF CALIFORNIA

THIRD APPELLATE DISTRICT

(Sacramento)

C081958

RICHARD SMIGELSKI,

Plaintiff and Respondent,

PENNYMAC FINANCIAL SERVICES, INC. et al.,

Defendants and Appellants.

Superior Court of Sacramento County

No. 34201500186855CUOEGDS

December 19, 2018, Opinion Filed

Defendants and appellants Private National Mortgage

Acceptance Company, LLC, PennyMac Financial

Services, Inc., and PennyMac Mortgage Investment Trust

(collectively, “PennyMac”) appeal from orders denying

successive petitions to compel arbitration of a dispute

Appendix B

with a former employee, plaintiff and respondent Richard

Smigelski. PennyMac advances a number of arguments

on appeal. Of greatest significance, PennyMac argues

the trial court erred in finding the parties’ arbitration

agreement contains unenforceable waivers of the right

to bring claims under the Private Attorneys General Act

of 2004 (PAGA) (Lab. Code, § 2699 et seq.), and erred in

declining to sever the waivers and enforce the remainder

of the agreement.1 We disagree and affirm.

I. BACKGROUND

PennyMac is engaged in the business of mortgage

orig ination and ser vicing throughout the United

States, including California. Smigelski was employed

as an account executive at PennyMac’s branch office in

Sacramento for six months, beginning in November 2014

and ending in April 2015.

A. The Arbitration Agreement

On his first day of work, Smigelski signed a document

entitled, “Employee Agreement to Arbitrate” (employee

agreement). The employee agreement acknowledges

receipt of another document entitled, “Mutual Arbitration

Policy” (MAP), and provides, “I agree that it is my

obligation to make use of the MAP and to submit to final

and binding arbitration any and all claims and disputes

that are related in any way to my employment or the

termination of my employment with [PennyMac], except

1. Undesignated statutory references are to the Labor Code.

Appendix B

as otherwise permitted by the MAP.” The employee

agreement further provides, “by agreeing to use

arbitration to resolve my dispute, both PennyMac and I

agree to forego any right we each may have had to a jury

trial on issues covered by the MAP, and forego any right

to bring claims on a representative or class basis.” The

employee agreement further provides, “If any provision

of the MAP is found unenforceable, that provision may be

severed without affecting this agreement to arbitrate.”

The MAP, which Smigelski denies having received,

similarly requires “mandatory binding arbitration

of disputes, for all employees, regardless of length of

service.” As relevant here, the MAP “covers all disputes

relating to or arising out of an employee’s employment

with PennyMac,” including “wage or overtime claims or

other claims under the Labor Code.” PennyMac adopted

the MAP in 2008.

The MAP specifies that, “both you and PennyMac

forego and waive any right to join or consolidate claims in

arbitration with others or to make claims in arbitration as

a representative or as a member of a class or in a private

attorney general capacity, unless such procedures are

agreed to by both you and PennyMac.” The MAP further

specifies that, “No remedies that otherwise would be

available to you individually or to PennyMac in a court

of law . . . will be forfeited by virtue of this agreement to

use and be bound by the MAP.”

The MAP incorporates the Employment Arbitration

Rules and Mediation Procedures of the American

Appendix B

Arbitration Association (AAA Employment Rules). The

MAP further provides, “PennyMac will not modify or

change the agreement between you and PennyMac to

use final and binding arbitration to resolve employmentrelated disputes without notifying you and obtaining

your consent to such changes, although specific MAP

procedures or AAA Employment Rules may be modified

from time to time as required by applicable law.” “Also,”

the MAP provides, “the Arbitrator or a court may sever

any part of the MAP procedures that do not comport with

the Federal Arbitration Act.”

B. The Complaint

On September 11, 2015, Smigelski provided notice to

the Labor Workforce and Development Agency (LWDA)

and PennyMac of his intent to pursue a cause of action

for civil penalties under PAGA. On November 17, 2015,

Smigelski filed a complaint asserting a single cause of

action under PAGA. 2 The complaint, which was styled

as a “Representative Action,” alleged that PennyMac

miscalculated overtime for hourly employees and failed

to provide accurate, itemized wage statements. The

complaint did not assert any individual claims and only

sought to recover civil penalties under PAGA.

2. LWDA had 33 days to notify Smigelski of its intent to

investigate the violations alleged in the PAGA notice under the

version of the statute in effect at the time. (Former § 2699.3, subd.

(a)(2)(A).)

Appendix B

C. First Petition to Compel Arbitration

PennyMac filed a petition to compel arbitration of

the complaint pursuant to the employee agreement and

MAP (together, the arbitration agreement) in February

2016. Relying on Iskanian v. CLS Transportation Los

Angeles, LLC (2014) 59 Cal.4th 348, 173 Cal. Rptr. 3d 289,

327 P.3d 129 (Iskanian), PennyMac argued, inter alia,

that (1) employers and employees may agree to arbitrate

PAGA claims (id. at p. 391), (2) the arbitration agreement

reflects such an agreement, (3) the Federal Arbitration Act

(FAA) requires enforcement of the purported agreement

to arbitrate PAGA claims, and (4) any unenforceable

provisions in the arbitration agreement should be severed,

and the remaining provisions enforced. 3 PennyMac also

argued that the question of arbitrability was for the

arbitrator to decide, not the trial court.

Smigelski opposed the petition, arguing that the

arbitration agreement contains unenforceable PAGA

waivers within the meaning of Iskanian. Smigelski

additionally argued that the terms of arbitration

agreement preclude severance of the PAGA waivers,

rendering the agreement as a whole unenforceable.

Smigelski also argued that the arbitration agreement

does not “clearly and unmistakably” demonstrate that the

parties intended to delegate questions of arbitrability to

the arbitrator, and therefore, any questions of arbitrability

must be decided by the trial court. (See Ajamian v.

CantorCO2e (2012) 203 Cal.App.4th 771, 781-782, 137 Cal.

Rptr. 3d 773 (Ajamian).)

3. We discuss Iskanian post.

Appendix B

The trial court denied PennyMac’s petition in a minute

order dated March 3, 2016, which was incorporated into a

formal order entered on March 11, 2016. The trial court

rejected as “strained” PennyMac’s argument that the

arbitration agreement contemplates arbitration of PAGA

claims, stating: “There is no ambiguity in the [employee

agreement] or the MAP. PAGA claims are prohibited

in arbitration given that the employee waives any right

to make representative claims or claims in a private

attorney general capacity. Such a prohibition violates

public policy and is unenforceable.” The trial court also

rejected PennyMac’s invitation to sever the PAGA waivers,

finding that severance would be inconsistent with the

parties’ intent, as expressed in the arbitration agreement.

The trial court explained: “[W]hile the [employee

agreement] contains an offending provision requiring

[Smigelski] to forego any representative claim, that [a]

greement specifically states that if ‘any provision of the

MAP is found to be unenforceable, that provision may be

severed without affecting this agreement to arbitrate.’

[Citation.] The [employee agreement] itself does not

contain a provision allowing for severance. This express

language reflects an intent not to sever any portion of the

[employee agreement] and striking the provision would

conflict with the parties’ intent. [Citation.] Further, the

MAP itself only provides for severance of any provision

that does not comport with the FAA. [Citation.] But here,

the waiver provisions do not comport with State law, and

thus severance of the provision in the MAP would also

conflict with the parties’ intent.” Accordingly, the trial

court determined that the arbitration agreement was

entirely unenforceable.

Appendix B

The trial court also rejected PennyMac’s argument

that questions of arbitrability must be determined by the

arbitrator, noting that the MAP provides, “the Arbitrator

or a court may sever any part of the MAP procedures that

do not comport with the [FAA].” (Italics added.) “Thus,”

the trial court explained, “the [arbitration] agreements

themselves indicate an intent that the [c]ourt itself may

decide questions of arbitrability, or at a minimum[,]

create an ambiguity on that point.” Accordingly, the trial

court concluded that the question of arbitrability was

appropriate for judicial determination.

D. First Amended Complaint

On March 10, 2016, Smigelski filed a first amended

complaint adding several non-PAGA causes of action to

the original complaint. The first amended complaint,

which is the operative pleading, alleges individual and

putative class claims for unpaid overtime under sections

510 and 1194, penalties for failure to provide accurate wage

statements under section 226, waiting time penalties under

section 203, and violations of the Business and Professions

Code section 17200, et seq. The first amended complaint

seeks unpaid wages, statutory penalties, restitution, and

damages according to proof, in addition to civil penalties

under PAGA.

E. Motion for Reconsideration and Second Petition to

Compel Arbitration

PennyMac responded to the first amended complaint

with a motion for reconsideration and a second petition to

Appendix B

compel arbitration. The motion sought reconsideration of

the order denying the first petition to compel arbitration

on the ground that the filing of the first amended complaint

constituted a “new and different” fact or circumstance

within the meaning of subdivision (a) of section 1008 of the

Code of Civil Procedure. The petition sought to compel

arbitration on the now familiar ground that the arbitration

agreement requires arbitration of all claims, including

PAGA claims, and any unenforceable PAGA waiver could

be severed. The second petition to compel arbitration also

argued, again, that the arbitration agreement delegates

questions of arbitrability to the arbitrator.

Smigelski opposed the motion and petition, arguing

that the filing of the first amended complaint was not a

new and different fact or circumstance within the meaning

of the reconsideration statute, and did not change the

fact that the PAGA waivers were impermissible and

the arbitration agreement unenforceable. Smigelski

additionally argued that the second petition to compel

arbitration was merely a repeat of the first, and should be

rejected for the reasons stated in the trial court’s order

denying that petition.

The trial court denied the motion for reconsideration

by written order dated April 22, 2016. The trial court

explained: “[T]he [c]ourt finds that [Smigelski’s] act of

filing the [first amended complaint] containing new claims

is not a new or different fact or circumstance which

would allow the [c]ourt to reconsider its previous order

denying [PennyMac’s first] petition to compel arbitration.

Indeed, to that end, it must be remembered that the

[c]ourt in denying the petition found that the MAP and the

10a

Appendix B

[employment agreement] contained provisions that violated

public policy and could not be severed thus rendering the

entire MAP and [employment agreement] unenforceable.

It is true that the [c]ourt’s ruling extensively discussed

the fact that [Smigelski] was only asserting a PAGA claim

at the time. But the [c]ourt specifically found that even so,

provisions prohibiting arbitration of PAGA claims could

not be severed from the agreements and the agreements

as a whole were therefore unenforceable. This of course

would preclude arbitration of not only PAGA claims, but

any claims whatsoever, including the new individual and

class claims set forth in the [first amended complaint].”

“In any event,” the trial court concluded, “even if the court

were to find that the [first amended complaint] was a new

or different fact or circumstance for purposes of [section

1008], it would simply affirm its previous order denying

[PennyMac’s first] petition to compel arbitration.”

The trial court denied PennyMac’s second petition

to compel arbitration the same day, stating that, “Even

if the [c]ourt were to find that a successive petition were

permitted as a result of the [first amended complaint]

being filed, the [c]ourt extensively addressed and rejected

these arguments in denying the original petition and

the [c]ourt simply rejects the arguments for the reasons

previously discussed.”

F. Notice of Appeal

PennyMac appeals from the orders denying its first

and second petitions to compel arbitration. PennyMac

does not appeal from the order denying its motion for

reconsideration.

11a

Appendix B

II. DISCUSSION

On appeal, PennyMac argues the trial court erred in

denying the petitions to compel arbitration for a number of

reasons, many of which appear to build upon one another

in ways that are not always easy to discern. As near as

we can tell, PennyMac’s argument can be reduced to four

principal contentions: (1) the arbitration agreement does

not contain invalid PAGA waivers, (2) any illegal aspects

of the arbitration agreement should be severed, and the

rest of the agreement enforced, (3) the parties delegated

the question of arbitrability to the arbitrator, and (4) the

FAA preempts any state law precluding employers from

requiring employees to waive their right to a judicial

forum for PAGA claims as a condition of employment.

Before addressing the substance of PennyMac’s

contentions, we pause to review the applicable statutory

scheme and standard of review. Because PennyMac’s

contentions require an understanding of PAGA, we will

also review the characteristics of a PAGA representative

action and the California Supreme Court’s ruling in

Iskanian. After we have reviewed the relevant statutory

background, we will address the substance of the parties’

contentions.

A. Statutory Scheme and Standard of Review

California’s procedures for a petition to compel

arbitration apply in California courts even if the arbitration

agreement is governed by the FAA. (Rosenthal v. Great

Western Fin. Securities Corp. (1996) 14 Cal.4th 394, 409-

12a

Appendix B

410, 58 Cal. Rptr. 2d 875, 926 P.2d 1061.) The party seeking

arbitration bears the burden of proving the existence of an

arbitration agreement by a preponderance of the evidence,

and the party opposing arbitration bears the burden of

proving any defense by a preponderance of the evidence.

(Pinnacle Museum Tower Assn. v. Pinnacle Market

Development (US), LLC (2012) 55 Cal.4th 223, 236, 145

Cal. Rptr. 3d 514, 282 P.3d 1217; Engalla v. Permanente

Medical Group, Inc. (1997) 15 Cal.4th 951, 972, 64 Cal.

Rptr. 2d 843, 938 P.2d 903.) In ruling on a petition to

compel arbitration, “the court must determine whether

the parties entered into an enforceable agreement to

arbitrate that reaches the dispute in question, construing

the agreement to the limited extent necessary to make

this determination. [Citation.] If such an agreement exists,

the court must order the parties to arbitration unless

arbitration has been waived or grounds exist to revoke

the agreement. [Citation.]” (California Correctional Peace

Officers Assn. v. State of California (2006) 142 Cal.App.4th

198, 204-205, 47 Cal. Rptr. 3d 717.)

“‘The scope of arbitration is a matter of agreement

between the parties.’ [Citation.] ‘A party can be compelled

to arbitrate only those issues it has agreed to arbitrate.’

[Citation.] Thus, ‘the terms of the specific arbitration

clause under consideration must reasonably cover the

dispute as to which arbitration is requested.’ [Citation.]

For that reason, ‘the contractual terms themselves must

be carefully examined before the parties to the contract

can be ordered to arbitration’ by the court. [Citation.]”

(Molecular Analytical Systems v. Ciphergen Biosystems,

Inc. (2010) 186 Cal.App.4th 696, 705, 111 Cal. Rptr. 3d 876

13a

Appendix B

(Molecular).) “Any doubts or ambiguities as to the scope

of the arbitration clause itself should be resolved in favor

of arbitration.” (Cronus Investments, Inc. v. Concierge

Services (2005) 35 Cal.4th 376, 386, 25 Cal. Rptr. 3d 540,

107 P.3d 217; accord Molecular, supra, at p. 705.)

An order denying a petition to compel arbitration is an

appealable order. (Code Civ. Proc., § 1294, subd. (a).) If the

trial court’s order denying a petition to compel arbitration

is based on a decision of fact, then the substantial evidence

standard applies; if the order is based on a decision of law,

then the de novo standard applies. (Ramos v. Westlake

Services LLC (2015) 242 Cal.App.4th 674, 686, 195 Cal.

Rptr. 3d 34; Robertson of Health Net of California, Inc.

(2005) 132 Cal.App.4th 1419, 1425, 34 Cal. Rptr. 3d 547.)

“‘[W]e review the trial court’s order, not its reasoning,

and affirm an order if it is correct on any theory apparent

from the record.’” (Adajar v. RWR Homes, Inc. (2008) 160

Cal.App.4th 563, 571, fn. 3, 73 Cal. Rptr. 3d 17.)

B. PAGA

PAGA was enacted to improve enforcement of our labor

laws. (See Caliber Bodyworks v. Superior Court (2005) 134

Cal.App.4th 365, 370, 36 Cal. Rptr. 3d 31 [noting that the

“stated goal” of the PAGA was “improving enforcement

of existing Labor Code obligations”].) “The Legislature

enacted PAGA to remedy systemic underenforcement of

many worker protections. This underenforcement was a

product of two related problems. First, many Labor Code

provisions contained only criminal sanctions, and district

attorneys often had higher priorities. Second, even when

14a

Appendix B

civil sanctions were attached, the government agencies

with existing authority to ensure compliance often lacked

adequate staffing and resources to police labor practices

throughout an economy the size of California’s. [Citations.]

The Legislature addressed these difficulties by adopting

a schedule of civil penalties ‘”significant enough to deter

violations”’ for those provisions that lacked existing

noncriminal sanctions, and by deputizing employees

harmed by labor violations to sue on behalf of the state

and collect penalties, to be shared with the state and

other affected employees.” (Williams v. Superior Court

(2017) 3 Cal.5th 531, 545, 220 Cal. Rptr. 3d 472, 398 P.3d

69 (Williams).)

Under PAGA, “an ‘aggrieved employee’ may bring a

civil action personally and on behalf of other current or

former employees to recover civil penalties for Labor Code

violations.” (Arias v. Superior Court (2009) 46 Cal.4th 969,

980, 95 Cal. Rptr. 3d 588, 209 P.3d 923 (Arias).) Before

bringing a PAGA claim, “an aggrieved employee acting on

behalf of the state and other current or former employees

must provide notice to the employer and the responsible

state agency ‘of the specific provisions of [the Labor

Code] alleged to have been violated, including the facts

and theories to support the alleged violation.’ [Citations.]

If the agency elects not to investigate, or investigates

without issuing a citation, the employee may then bring a

PAGA action.” (Williams, supra, 3 Cal.5th at p. 545.) “Of

the civil penalties recovered, 75 percent goes to the Labor

and Workforce Development Agency [LWDA], leaving

the remaining 25 percent for the ‘aggrieved employees.’”

(Arias, supra, at pp. 980-981; see also Iskanian, supra, 59

15a

Appendix B

Cal.4th at p. 360 [PAGA “authorizes an employee to bring

an action for civil penalties on behalf of the state against

his or her employer for Labor Code violations committed

against the employee and fellow employees, with most of

the proceeds of that litigation going to the state”].)

An action under PAGA “‘“is fundamentally a law

enforcement action designed to protect the public and

not to benefit private parties.”’” (Iskanian, supra, 59

Cal.4th at p. 381.) As one court of appeal has explained:

“The Legislature has made clear that an action under the

PAGA is in the nature of an enforcement action, with the

aggrieved employee acting as a private attorney general

to collect penalties from employers who violate labor laws.

Such an action is fundamentally a law enforcement action

designed to protect the public and penalize the employer

for past illegal conduct. Restitution is not the primary

object of a PAGA action, as it is in most class actions.”

(Franco v. Athens Disposal Co., Inc. (2009) 171 Cal.

App.4th 1277, 1300, 90 Cal. Rptr. 3d 539.) The aggrieved

employee sues “as the proxy or agent of the state’s labor

law enforcement agencies.” (Arias, supra, 46 Cal.4th at p.

986.) Thus, an action brought under the PAGA is “a type

of qui tam action.” (Iskanian, supra, at p. 382.)

Our Supreme Court examined the differences

between representative PAGA actions and class actions

in Arias. There, the court explained that PAGA actions

and class actions are both forms of “representative

action,” in which “the plaintiff seeks recovery on behalf

of other persons.” (Arias, supra, 46 Cal.4th at p. 977, fn.

2.) While recognizing that PAGA actions and class actions

16a

Appendix B

share common attributes as “representative actions,” the

court observed that PAGA actions are fundamentally

different from class actions, in that the former seek to

vindicate the public interest in enforcing the state’s labor

laws by imposing civil penalties, while the latter confer

a private benefit on the plaintiff and similarly situated

employees. (Id. at pp. 986-987; see also Amalgamated

Transit Union, Local 1756, AFL-CIO v. Superior Court

(2009) 46 Cal.4th 993, 1003, 95 Cal. Rptr. 3d 605, 209 P.3d

937 [“In bringing such an action, the aggrieved employee

acts as the proxy or agent of state labor law enforcement

agencies, representing the same legal right and interest as

those agencies, in a proceeding that is designed to protect

the public, not to benefit private parties”].) As such, the

court concluded, PAGA plaintiffs need not satisfy class

action requirements. (Arias, supra, at p. 975.) As we shall

discuss, the differences between representative and class

actions, which have been part of the legal landscape since

Arias, inform our understanding of the parties’ arbitration

agreement.

C. Iskanian

Having reviewed the basic statutory scheme for PAGA

claims, we now consider our Supreme Court’s opinion in

Iskanian. There, a driver for a transportation company

signed an arbitration agreement providing that “any

and all claims” arising out of his employment were to be

submitted to binding arbitration. (Iskanian, supra, 59

Cal.4th at p. 360.) The agreement also contained a waiver

of the employee’s right to pursue class or representative

claims against the defendant employer in any forum. (Id.

at pp. 360-361.)

17a

Appendix B

The employee filed a class action complaint against

the employer for failure to pay overtime, failure to provide

meal and rest periods, failure to reimburse business

expenses, failure to provide accurate and complete wage

statements, and failure to pay final wages in a timely

manner. (Iskanian, supra, 59 Cal.4th at p. 361.) The

employer moved to compel arbitration, and the trial

court granted the motion. (Ibid.) Shortly thereafter, our

Supreme Court issued its decision in Gentry v. Superior

Court (2007) 42 Cal.4th 443, 64 Cal. Rptr. 3d 773, 165

P.3d 556 (Gentry), invalidating class action waivers under

certain circumstances. (Iskanian, supra, at p. 361; see

also Gentry, supra, at pp. 463-464.) The court of appeal

issued a writ of mandate directing the superior court to

reconsider its ruling in light of Gentry. (Iskanian, supra,

at p. 361.)

On remand, the employer voluntarily withdrew its

motion to compel, and the parties proceeded to litigate

in the trial court. (Iskanian, supra, 59 Cal.4th at p. 361.)

Sometime later, the employee amended the complaint to

add representative claims under PAGA. (Ibid.)

During the pendency of the litigation, the U.S.

Supreme Court issued its opinion in AT&T Mobility LLC

v. Concepcion (2011) 563 U.S. 333, 131 S. Ct. 1740, 179 L.

Ed. 2d 742 (Concepcion), raising doubts as to the continued

viability of Gentry. (Iskanian, supra, 59 Cal.4th at pp. 361362.) The employer renewed its motion to compel, arguing

that Concepcion invalidated Gentry. (Id. at p. 361.) The

trial court granted the motion, ordering arbitration of

the employee’s individual claims and dismissing the class

18a

Appendix B

claims with prejudice. (Ibid.) The court of appeal affirmed,

and the California Supreme Court granted review and

reversed. (Id. at pp. 361-362.)

The court concluded that the arbitration agreement

was valid and enforceable, despite the class action waiver.

(Iskanian, supra, 59 Cal.4th at p. 362-378.) Under

Concepcion, the court concluded, arbitration agreements

may properly include class action waivers. (Id. at pp. 365366.) However, the court, following Arias, reaffirmed

that PAGA claims are fundamentally different from class

actions claims. (Id. at pp. 379-382.) Unlike class actions,

which are brought as a means of recovering damages

suffered by individuals, representative actions under

PAGA are brought as a means of recovering penalties

for the state. (Id. at p. 379.) The court explained: “The

PAGA was clearly established for a public reason, and

agreements requiring the waiver of PAGA rights would

harm the state’s interests in enforcing the Labor Code

and in receiving the proceeds of civil penalties used to

deter violations.” (Id. at p. 383.)

In recognition of PAGA’s public purpose, the court

concluded that, “an employee’s right to bring a PAGA

action is unwaivable.” (Iskanian, supra, 59 Cal.4th at p.

383.) Consequently, “an arbitration agreement requiring

an employee as a condition of employment to give up the

right to bring representative PAGA actions in any forum

is contrary to public policy.” (Id. at p. 360.) Put another

way, an arbitration agreement compelling the waiver of

representative PAGA claims is “contrary to public policy

and unenforceable as a matter of state law.” (Id. at p. 384.)

19a

Appendix B

The court did not examine the severability of the PAGA

waiver, presumably because the issue was not raised on

appeal. (Id. at pp. 360-361.)

Next, the court considered whether the rule prohibiting

waiver of representative PAGA claims (the anti-waiver

rule) was preempted by the FAA. (Iskanian, supra, 59

Cal.4th at pp. 384-389.) Relying on the fact that PAGA

serves as a mechanism by which the state seeks to enforce

its labor laws and collect monetary penalties, the court

explained: “Simply put, a PAGA claim lies outside the

FAA’s coverage because it is not a dispute between an

employer and an employee arising out of their contractual

relationship. It is a dispute between an employer and

the state, which alleges directly or through its agents—

either the [Labor and Workforce Development] Agency or

aggrieved employees—that the employer has violated the

Labor Code.” (Id. at pp. 386-387.) Accordingly, the court

concluded, “California’s public policy prohibiting waiver

of PAGA claims, whose sole purpose is to vindicate the

[Labor and Workforce Development] Agency’s interest

in enforcing the Labor Code, does not interfere with the

FAA’s goal of promoting arbitration as a forum for private

dispute resolution.” (Id. at pp. 388-389.)

Finally, the court made clear that the employer would

have to answer the employee’s representative PAGA

claims on remand in some forum, whether arbitral or

judicial. (Iskanian, supra, 59 Cal.4th at p. 391.) The court

observed that the arbitration agreement “gives us no

basis to assume that the parties would prefer to resolve

a representative PAGA claim through arbitration,” (id.

at p. 391) thereby raising “a number of questions: (1)

20a

Appendix B

Will the parties agree on a single forum for resolving

the PAGA claim and the other claims? (2) If not, is it

appropriate to bifurcate the claims, with individual claims

going to arbitration and the representative PAGA claim

to litigation? (3) If such bifurcation occurs, should the

arbitration be stayed pursuant to Code of Civil Procedure

section 1281.2?” (Id. at pp. 391-392.) The court concluded

that the parties could address these questions on remand.

(Id. at p. 392.)

D. The Arbitration Agreement Contains Invalid PAGA

Waivers

PennyMac argues the arbitration agreement does

not contain unenforceable PAGA waivers, but rather,

reflects the parties’ agreement to submit all employment

disputes, including PAGA claims, to arbitration. According

to PennyMac, the employee agreement, which contains

an agreement to “forego any right to bring claims on

a representative or class basis,” is ambiguous as to the

meaning of the term “representative,” and should be

narrowly interpreted as an enforceable waiver of the

right to bring a class action only, rather than broadly

interpreted as an enforceable waiver of the right to bring

a class action and an unenforceable waiver of the right

to bring a PAGA action. PennyMac argues (incorrectly)

that PAGA “does not use the word ‘representative’ at all,”

and urges us to construe the purported ambiguity in a

manner that renders the employee agreement enforceable,

rather than void. (See § 2699, subd. (l)(1) [requiring that

“aggrieved employee or representative” provide the

LWDA with a file-stamped copy of a complaint alleging a

PAGA cause of action].) We are not persuaded.

21a

Appendix B

“The ordinary rules of contract interpretation apply

to arbitration agreements. [Citation.] ‘The court should

attempt to give effect to the parties’ intentions, in light

of the usual and ordinary meaning of the contractual

language and the circumstances under which the

agreement was made. [Citations.]’ ‘The whole of a contract

is to be taken together, so as to give effect to every part,

if reasonably practicable, each clause helping to interpret

the other.’ [Citation.] ‘”A court must view the language in

light of the instrument as a whole and not use a ‘disjointed,

single-paragraph, strict construction approach’ [citation.]”’

[Citation.] An interpretation that leaves part of a contract

as surplusage is to be avoided.” (Rice v. Downs (2016) 248

Cal.App.4th 175, 185-186, 203 Cal. Rptr. 3d 555.)

PennyMac begins by asking us to construe the waiver

of “any right to bring claims on a representative or class

basis” as a waiver of the right to bring claims on a class

basis only, with the word “representative,” operating as

an illustration or amplification of the concept of a class

action.4 PennyMac’s proposed interpretation ignores the

differences between representative and class actions,

4. We note in passing that the Iskanian court uses the term

“representative” in two distinct ways: (1) in the sense that an

aggrieved employee brings a PAGA claim as a “representative”—i.e.,

a proxy or agent—of the state (Iskanian, supra, 59 Cal.4th at p. 387),

and (2) in the sense that an aggrieved employee brings a PAGA claim

on behalf of other employees (id. at pp. 383-384). (See also Julian v.

Glenair, Inc. (2017) Cal.App.5th 853, 866, fn. 6 (Julian).) PennyMac

does not argue that the double meaning of the term “representative,”

as used in the Iskanian court’s discussion of PAGA claims, renders

the term ambiguous in the context of the arbitration agreement.

Accordingly, we decline to consider the issue further.

22a

Appendix B

which were well established by the time the employee

agreement was entered. Although a claim brought on

a class basis is representative in the sense that it seeks

recovery on behalf of other people (Arias, supra, 46

Cal.4th at p. 977, fn. 2), a claim brought on a representative

basis need not seek recovery on behalf of a class. (Id. at p.

975; see also Huff v. Securitas Security Services USA, Inc.

(2018) 23 Cal.App.5th 745, 757, 233 Cal. Rptr. 3d 502 [“[A]

representative action under PAGA is not a class action”].)

It follows that a claim brought on a representative basis

is not coextensive with a claim brought on a class basis,

an interpretation reinforced by the use of the conjunction

“or,” which indicates that the parties intended to give the

terms different meanings, consistent with the established

technical usage at the time of contracting. (See Arias,

supra, at pp. 986-987; and see Civ. Code, § 1645 [“Technical

words are to be interpreted as usually understood by

persons in the profession or business to which they relate,

unless clearly used in a different sense”]; and cf. United

States v. Woods (2013) 571 U.S. 31, 45, 134 S. Ct. 557, 187

L. Ed. 2d 472 [recognizing that while the connection of

terms “by the conjunction ‘or’ . . . can sometimes introduce

an appositive—a word or phrase that is synonymous with

what precedes it (‘Vienna or Wien,’ ‘Batman or the Caped

Crusader’)—its ordinary use is almost always disjunctive,

that is, the words it connects are to ‘be given separate

meanings’”].)

Giving the terms of the employee agreement their

settled legal meaning, and giving meaning to each term

to avoid surplusage, we are convinced the waiver of the

right to bring a “representative” claim entails something

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Appendix B

more than a mere recapitulation of the waiver of the right

to bring a claim on a “class basis.” (See Weinreich Estate

Co. v. A.J. Johnston Co. (1915) 28 Cal.App. 144, 146, 151

P. 667 [“legal terms are to be given their legal meaning

unless obviously used in a different sense”]; and see In re

Marriage of Nassimi (2016) 3 Cal. App. 5th 667, 683, 207

Cal. Rptr. 3d 764 [“‘[c]ourts must interpret contractual

language in a manner which gives force and effect to every

provision’ [citation], and avoid constructions which would

render any of its provisions or words ‘surplusage’”].) We

therefore reject PennyMac’s attempt to read an ambiguity

into the terms of the waiver.

Having rejected PennyMac’s contention that the

waiver is ambiguous, we likewise reject the related

contention that the purported ambiguity should be

construed in a manner that renders the arbitration

agreement enforceable. As a general proposition,

ambiguous terms should be construed, where reasonable,

in favor of arbitration. (Pearson v. Dental Supplies, Inc. v.

Superior Court (2010) 48 Cal.4th 665, 682, 108 Cal. Rptr.

3d 171, 229 P.3d 83; see also Ajamian, supra, 203 Cal.

App.4th at p. 801.) But that rule does not apply where, as

here, the terms of the agreement do not lend themselves

to a lawful interpretation. (Ajamian, supra, at p. 801) We

therefore conclude that the arbitration agreement must be

construed as waiving both the right to bring class action

claims and the right to bring representative PAGA claims.

As we have discussed, an employment agreement

that compels the waiver of representative claims under

PAGA is unenforceable under Iskanian. (Iskanian,

24a

Appendix B

supra, 59 Cal.4th at p. 384 [“We conclude that where, as

here, an employment agreement compels the waiver of

representative claims under the PAGA, it is contrary to

public policy and unenforceable as a matter of state law”].)

Here, the arbitration agreement unambiguously requires

employees to waive their rights to bring representative

PAGA claims. We agree with the trial court that the PAGA

waivers set forth in the arbitration agreement are invalid

as against public policy and unenforceable under Iskanian.

In an attempt to avoid this result, PennyMac argues

somewhat confusingly that (1) Iskanian leaves open the

possibility that parties may agree to arbitrate PAGA

claims (Iskanian, supra, 59 Cal.4th at pp. 391-392),

(2) the arbitration agreement does not bar employees

from bringing PAGA claims, and (3) the MAP and AAA

Employment Rules empower the arbitrator to award

any statutorily authorized civil penalty, including PAGA

penalties. Connecting the dots, we understand PennyMac

to argue that the arbitration agreement does not contain

impermissible PAGA waivers because, though employees

may waive their right to bring representative claims in

any forum, they retain their right to bring individual

PAGA claims in arbitration. To the extent we understand

PennyMac’s argument, we reject it.

Following Iskanian, several courts of appeal have

considered—and rejected—similar arguments, reasoning

that predispute agreements to arbitrate PAGA claims

are unenforceable because the employee who signs the

agreement is not then authorized to waive the state’s right

to a judicial forum. (Tanguilig v. Bloomingdale’s, Inc.

25a

Appendix B

(2016) 5 Cal.App.5th 665, 667-680, 210 Cal. Rptr. 3d 352

(Tanguilig) [PAGA claim cannot be arbitrated pursuant to

predispute arbitration agreement without state’s consent];

Betancourt v. Prudential Overall Supply (2017) 9 Cal.

App.5th 439, 445-448, 215 Cal. Rptr. 3d 344 (Betancourt)

[PAGA action not subject to arbitration, as state not

bound by employee’s predispute agreement]; Julian,

supra, 17 Cal.App.5th at pp. 869-873 [same].) The Julian

court, following Tanguilig and Betancourt, elaborated

on its reasoning as follows: “In Iskanian, our Supreme

Court explained that ‘”every PAGA action, whether

seeking penalties for Labor Code violations as to only one

aggrieved employee—the plaintiff bringing the action—or

as to other employees as well, is a representative action

on behalf of the state.”’ [Citation.] A PAGA action is thus

ultimately founded on a right belonging to the state,

which—though not named in the action—is the real party

in interest. [Citation.] That is because PAGA does not

create any new substantive rights or legal obligations,

but ‘is simply a procedural statute allowing an aggrieved

employee to recover civil penalties—for Labor Code

violations—that otherwise would be sought by state labor

law enforcement agencies.’ [Citation.]” (Julian, supra, at

p. 871.)

The Julian court continued: “Ordinarily, when a

person who may act in two legal capacities executes an

arbitration agreement in one of those capacities, the

agreement does not encompass claims the person is

entitled to assert in the other capacity. [Citations.] That

rule reflects general principles regarding the significance

of legal capacities.” (Julian, supra, 17 Cal.App.5th at pp.

871-872.)

26a

Appendix B

The Julian court concluded: “Under the rule set

forth above, an arbitration agreement executed before

an employee meets the statutory requirements for

commencing a PAGA action does not encompass that

action. Prior to satisfying those requirements, an employee

enters into the agreement as an individual, rather than as

an agent or representative of the state. As an individual,

the employee is not authorized to assert a PAGA claim;

the state—through LWDA—retains control of the right

underlying any PAGA claim by the employee. Thus, such

a predispute agreement does not subject the PAGA claim

to arbitration. [Citations.] For that reason, enforcing

any such agreement would impair PAGA’s enforcement

mechanism.” (Julian, supra, 17 Cal.App.5th at p. 872.)

We agree with the reasoning in Julian and adopt its

analysis as our own. Following Julian, we conclude that

the arbitration agreement does not encompass the PAGA

claim. (Julian, supra, 17 Cal.App.5th at p. 871.) The

record establishes that Smigelski executed the employee

agreement as a condition of his employment in November

2014, before he satisfied the statutory requirements for

bringing a PAGA claim, which occurred sometime in

October 2015. (Former § 2699.3, subd. (a)(2)(A).) Prior

to the time he satisfied those requirements, Smigelski

was not authorized to assert a PAGA claim as an agent of

the state, which retained control of the right underlying

the claim. (See Arias, supra, 46 Cal.4th at pp. 980-981;

Julian, supra, at p. 872.) Because Smigelski entered

the arbitration agreement as an individual, and not as

an agent or representative of the state, the agreement

cannot encompass the PAGA claim, which relies on the

27a

Appendix B

right to recover penalties then belonging to the state.

(Julian, supra, at p. 872; see also Betancourt, supra,

9 Cal.App.5th at p. 448.) It follows that any predispute

agreement to arbitrate individual PAGA claims was

ineffective. (Tanguilig, supra, 5 Cal.App.5th at p. 680

[“the right to litigate a PAGA claim in court is not subject

to predispute waiver—with respect to an ‘individual’ or

a group claim—by an individual employee pursuant to a

private employment arbitration agreement”].)

These authorities lead us to reject PennyMac’s

apparent argument that the arbitration agreement can

or should be viewed as requiring a waiver of the right to

bring a representative PAGA action in any forum, on the

one hand, while preserving the right to bring an individual

PAGA claim in arbitration, on the other. In the absence of

any enforceable agreement to arbitrate individual PAGA

claims, the arbitration agreement can only be viewed as

requiring a complete waiver of the right to bring PAGA

claims. As we have discussed, such waivers are invalid

under Iskanian.

E. The PAGA Waivers Are Not Severable

Hav i ng concluded t hat t he PAGA wa iver i s

unenforceable, we must next determine whether the

waiver is severable from the rest of the arbitration

agreement. (Securitas Security Services USA, Inc. v.

Superior Court (2015) 234 Cal.App.4th 1109, 1124, 184 Cal.

Rptr. 3d 568 (Securitas).) PennyMac argues the waiver

is severable; Smigelski maintains the waiver renders the

entire arbitration agreement unenforceable. We agree

with Smigelski.

28a

Appendix B

The arbitration agreement contains two provisions

dealing with severability. We begin with the employee

agreement. The employee agreement, which contains a

PAGA waiver, provides, “If any provision of the MAP

is found unenforceable, that provision may be severed

without affecting this agreement to arbitrate.” The

employee agreement does not authorize severance of

unenforceable terms in the employee agreement itself.

Thus, the employee agreement does not authorize

severance of the PAGA waiver found within the employee

agreement. The MAP, which contains a separate PAGA

waiver, provides that “the Arbitrator or a court may sever

any part of the MAP procedures that do not comport

with the [FAA].” Here, however, the PAGA waivers

fail to comport with state law, not the FAA. Reading

the arbitration agreement as a whole, and applying the

principle that specific language controls general language

(Civ. Code, § 3534), we conclude that the parties only

intended to sever unenforceable provisions from the

MAP, and then only on the ground that the unenforceable

provision fails to comport with the FAA. (Kanno v. Marwit

Capital Partners II, L.P. (2017) 18 Cal.App.5th 987, 1017,

227 Cal. Rptr. 3d 334 [“a specific provision of a contract

controls over a general provision to the extent there is an

inconsistency”].) Applying the maxim expressio unius est

exclusio alterius, we further conclude that the parties did

not intend to sever any other unenforceable provisions

from the arbitration agreement. (Cf. Stephenson v. Drever

(1997) 16 Cal.4th 1167, 1175, 69 Cal. Rptr. 2d 764, 947 P.2d

1301 [under maxim expressio unius est exclusio alterius,

where parties’ contract expressly provided that certain

consequences would flow from termination of plaintiff’s

29a

Appendix B

employment, this tended to negate inference that parties

also intended another consequence to flow from the same

event].)

PennyMac argues that other provisions of the

arbitration agreement—specifically, the provision stating

that “specific MAP procedures or AAA Rules may be

modified from time to time as required by applicable

law”—evince “an intention to have any unenforceable

provisions or terms excised in order to maintain the

enforceability of the heart of the arbitration agreement—

i.e.[,] the mutual obligation to use arbitration as the

exclusive forum in which to resolve any employment

relate[d] disputes.” But PennyMac’s argument ignores the

arbitration agreement’s specific severability provisions,

which are the clearest expression of the parties’ intent

with respect to severability. (In re Tobacco Cases I

(2010) 186 Cal.App.4th 42, 47, 111 Cal. Rptr. 3d 313 [the

parties’ expressed objective intent, not their unexpressed

subjective intent, governs].)

PennyMac also argues that a proper severability

analysis would focus, not on the severability provisions in

the arbitration agreement, but the objects of the contract.

(See Civ. Code, § 1599 [contract with “several distinct

objects” may be void as to an unlawful one and valid as to a

lawful one].) We disagree. As the trial court appropriately

recognized, “‘the rule relating to severability of partially

illegal contracts is that a contract is severable if the court

can, consistent with the intent of the parties, reasonably

relate the illegal consideration on one side to some specified

or determinable portion of the consideration on the other

30a

Appendix B

side.’” (Securitas, supra, 234 Cal.App.4th at p. 1126.)

Here, as we have discussed, the terms of the arbitration

agreement evince an intention to limit severability to

circumstances not present here. Following Securitas, we

conclude that the terms of the arbitration agreement—

which we must rigorously enforce—preclude severance.

(Id. at p. 1125; see also American Exp. Co v. Italian Colors

Restaurant (2013) 570 U.S. 228, 233, 133 S. Ct. 2304, 186

L. Ed. 2d 417 [“courts must ‘rigorously enforce’ arbitration

agreements according to their terms”].)

PennyMac argues Franco v. Arakelian Enterprises,

Inc. (2015) 234 Cal.App.4th 947, 184 Cal. Rptr. 3d 501

(Franco III), is controlling and compels severance. Franco

III, though factually similar, is distinguishable. There, the

plaintiff, a truck driver, filed an initial complaint alleging

a mix of PAGA and non-PAGA claims. (Id. at pp. 951952.) The defendant filed a petition to compel arbitration

pursuant to a “mutual arbitration policy” that appears to

have contained the same provisions as the MAP in our case.

(Id. at pp. 952-953.) The trial court granted the motion,

and the appellate court reversed, holding that the class

action waiver in the MAP was unenforceable. (Franco v.

Athens Disposal Co., Inc. (2009) 171 Cal.App.4th 1277,

1282, 90 Cal. Rptr. 3d 539 (Franco I).) Following an

unsuccessful petition for certiorari to the U.S. Supreme

Court, the matter returned to the trial court, where the

defendant filed a second petition to compel arbitration,

relying, again, on the MAP. (Franco III, supra, at p.

954.) The second petition to compel arbitration argued

that the authorities forming the basis for the appellate

court’s decision in Franco I had been overruled by the

31a

Appendix B

U.S. Supreme Court in Stolt-Nielsen S.A. v. Animal Feeds

International Corp. (2010) 559 U.S. 662, 130 S. Ct. 1758,

176 L. Ed. 2d 605 (Stolt-Nielsen), rendering the MAP

enforceable. (Franco III, supra, at p. 954.) The trial court

denied the petition, and the defendant appealed again,

arguing that Stolt-Nielsen and Concepcion overruled

Gentry, on which Franco I relied. (Id. at p. 955.) The

appellate court affirmed. (Ibid.) Our Supreme Court

granted review and remanded for reconsideration in light

of Iskanian. (Franco, III, supra, at p. 951.)

Following Iskanian, the Franco III court concluded,

“the MAP’s waivers of Franco’s right to pursue nonPAGA claims as a class representative are enforceable,

precluding the prosecution of those claims in any forum;

however Franco’s purported waiver of his right to

prosecute the statutory claims afforded by the PAGA

is unenforceable, and his PAGA claims are not subject

to arbitration.” (Franco III, supra, 234 Cal.App.4th at

p. 957.) The plaintiff asked the court to find the MAP

unenforceable on the ground of unconscionability. (Id. at

p. 965.) The court declined, reasoning that the central

purpose of the MAP was not tainted with illegality and

could not be said to have been drafted with an intention

to thwart the policy announced in Iskanian, which was

decided some 10 years after the MAP was implemented.

(Ibid.) Franco III does not help PennyMac.

Although the Franco III court appears to have

considered the same MAP, the court does not appear to

have considered the arbitration agreement’s severability

provisions, as the plaintiff in that case does not

32a

Appendix B

appear to have relied on them. Instead, the plaintiff in

Franco III argued that the arbitration agreement was

unconscionable, an argument Smigelski does not advance.

(Franco III, supra, 234 Cal.App.4th at p. 965.) Though

Franco III may compel the conclusion that the MAP is not

unconscionable, that question is not before us. As the trial

court correctly recognized, Franco III does not address

the severability provisions in the arbitration agreement,

and cannot be viewed as controlling on the dispositive

question of severance. (Ulloa v. McMillin Real Estate

&Mortgage, Inc. (2007) 149 Cal.App4.th 333, 340 [“‘“It is

axiomatic that cases are not authority for propositions not

considered”’”].) Nothing in Franco III causes us to doubt

our conclusion that the severability provisions preclude

enforcement of the arbitration agreement as a whole. If

anything, Franco III supports our conclusion that the

arbitration agreement requires employees to waive their

PAGA claims, and therefore runs afoul of Iskanian.

(Franco III, supra, at p. 963.)

Doubling down on Franco III, PennyMac argues the

trial court ignored “controlling precedent” in refusing

to compel arbitration of Smigelksi’s non-PAGA claims.

Again, Franco III is distinguishable. There, the appellate

court reversed the order denying the petition to compel

arbitration and remanded with directions to grant the

petition with respect to the plaintiff’s non-PAGA claims

and stay the PAGA claims. (Franco III, supra, 234 Cal.

App.4th at pp. 965-966.) That outcome was appropriate

because the arbitration agreement as a whole was found

to be enforceable. As we have discussed, that finding was

limited to a conclusion that the MAP is not unconscionable.

(Id. at p. 965.) Here, by contrast, we have concluded that

33a

Appendix B

the arbitration agreement as a whole is unenforceable

by virtue of the severability provisions. Because the

arbitration agreement has been found to be unenforceable,

PennyMac cannot compel arbitration of any of Smigelski’s

causes of action, including causes of action that would

otherwise be arbitrable. That PennyMac must now litigate

non-PAGA causes of action is the result, not of the trial

court’s error, but its own drafting decisions.

F. The Arbitration Agreement Does Not Delegate

Questions of Arbitrability to the Arbitrator

Next, PennyMac argues the trial court erred in

adjudicating the arbitrability of the parties’ dispute

because the arbitration agreement delegates such

determinations to the arbitrator. We are not persuaded.

At the outset, we reiterate that a PAGA case “is not a

dispute between an employer and an employee arising out

of their contractual relationship. It is a dispute between

an employer and the state.” (Iskanian, supra, 59 Cal.4th

at p. 386.) Unlike a usual employment case, “the state

is the real party in interest.” (Id. at p. 387.) As a result,

the fact that Smigelski may have agreed to delegate

questions of arbitrability to an arbitrator is irrelevant.

(See Betancourt, supra, 9 Cal.App.5th at p. 448 [“The fact

that Betancourt, in 2006, agreed to arbitrate his private

employment disputes with Prudential is not relevant.

Betancourt’s lawsuit is a PAGA claim, on behalf of the

state. The state is not bound by Betancourt’s predispute

arbitration agreement”].) It is therefore unnecessary

for us determine whether the parties agreed to delegate

questions of arbitrability to the arbitrator.

34a

Appendix B

But even if we perceived a need to consider PennyMac’s

argument, we would reject it. “[C]ourts presume that

the parties intend courts, not arbitrators, to decide

. . . disputes about ‘arbitrablity[,]’ . . . such as ‘whether

the parties are bound by a given arbitration clause,’ or

‘whether an arbitration clause in a concededly binding

contract applies to a particular type of controversy.’” (BG

Group, PLC v. Republic of Argentina (2014) 572 U.S. 25,

34, 134 S. Ct. 1198, 188 L. Ed. 2d 220, quoting Howsam v.

Dean Witter Reynolds, Inc. (2002) 537 U.S. 79, 84, 123 S.

Ct. 588, 154 L. Ed. 2d 491.) However, “parties can agree

to arbitrate ‘gateway’ questions of ‘arbitrability,’ such as

whether the parties have agreed to arbitrate or whether

their agreement covers a particular controversy.” (Rent-ACenter, West, Inc. v. Jackson (2010) 561 U.S. 63, 68-69, 130

S. Ct. 2772, 177 L. Ed. 2d 403.) “Just as the arbitrability of

the merits of a dispute depends upon whether the parties

agreed to arbitrate that dispute, . . . so the question ‘who

has the primary power to decide arbitrability’ turns upon

what the parties agreed about that matter.” (First Options

of Chicago, Inc. v. Kaplan (1995) 514 U.S. 938, 943, 115 S.

Ct. 1920, 131 L. Ed. 2d 985.) “Although threshold questions

of arbitrability are ordinarily for courts to decide in the

first instance under the FAA [citation], the ‘[p]arties to

an arbitration agreement may agree to delegate to the

arbitrator, instead of a court, questions regarding the

enforceability of the agreement.’” (Pinela v. Neiman

Marcus Group (2015) 238 Cal.App.4th 227, 239, 190 Cal.

Rptr. 3d 159.)

“There are two prerequisites for a delegation clause

to be effective. First, the language of the clause must be

clear and unmistakable. [Citation.] Second, the delegation

35a

Appendix B

must not be revocable under state contract defenses

such as fraud, duress, or unconscionability.” (Tiri v.

Lucky Chances, Inc. (2014) 226 Cal.App.4th 231, 242, 171

Cal. Rptr. 3d 621; see also Rent-A-Center, West, Inc. v.

Jackson, supra, 561 U.S. at pp. 68, 69, fn. 1.) The “clear

and unmistakable” test reflects a “heightened standard

of proof” that reverses the typical presumption in favor

of the arbitration of disputes. (Ajamian, supra, 203 Cal.

App.4th at p. 787.)

Here, the arbitration agreement incorporates the

AAA Employment Rules, which provide, in pertinent

part, “The arbitrator shall have the power to rule on his

or her own jurisdiction, including any objections with

respect to the existence, scope or validity of the arbitration

agreement.” PennyMac argues the incorporation of

the AAA Employment Rules demonstrates the parties

intended to submit questions of arbitrability to the

arbitrator. Different courts have reached different

conclusions as to whether the incorporation of arbitral

rules serves as clear and unmistakable evidence of

an intent to delegate questions of arbitrability to an

arbitrator. (See, e.g., Greenspan v. LADT, LLC (2010)

185 Cal.App.4th 1413, 1442, 111 Cal. Rptr. 3d 468 [in

a commercial dispute between a trust and affiliated

companies, an arbitration agreement incorporating

JAMS rules constituted clear and convincing evidence of

the parties’ intent to delegate power to the arbitrator to

decide gateway issues of arbitrability]; Dream Theater,

Inc. v. Dream Theater (2004) 124 Cal.App.4th 547, 557,

21 Cal. Rptr. 3d 322 [in a contract dispute, arbitration

agreement incorporating AAA Commercial Arbitration

Rules constituted “clear and unmistakable evidence of the

36a

Appendix B

intent that the arbitrator will decide whether a Contested

Claim is arbitrable”]; but see Ajamian, supra, 203 Cal.

App.4th at p. 790 [expressing doubts as to whether mere

reference to AAA Employment Rules constitutes clear

and unmistakable evidence of intent in the employment

context].) We need not resolve this difference of opinion,

as the arbitration agreement indicates that questions of

arbitrability may be decided by the arbitrator or a court.

As noted, the MAP provides, “the Arbitrator or a

court may sever any part of the MAP procedures that do

not comport with the [FAA].” (Italics added.) Faced with

this language, the trial court concluded—and we agree—

that the arbitration agreement reflects an intent that “the

[c]ourt itself may decide questions of arbitrability, or at

a minimum[,] create ambiguity on that point.” We would

therefore reject PennyMac’s arbitrability argument, were

we to address it.

G. The FAA Does Not Preempt State Law Rules

Applicable To PAGA Claims

Finally, PennyMac argues the FAA requires us to

enforce the parties’ purported agreement to arbitrate

PAGA claims. We assume for the sake of argument

that PennyMac has carried its burden of establishing

the existence of such an agreement. Even so assuming,

PennyMac’s argument lacks merit.

As previously discussed, the Iskanian court held

that the state law rule against PAGA waivers does not

frustrate the objectives of the FAA because “the FAA

aims to ensure an efficient forum for the resolution of

37a

Appendix B

private disputes, whereas a PAGA action is a dispute

between an employer and the state Agency.” (Iskanian,

supra, 59 Cal.4th at p. 384, emphasis omitted.) “Read

in its entirety, the Iskanian opinion clearly holds that

the state is the real party in interest in a PAGA claim

regardless of whether the claim is brought in an individual

or representative capacity. . . . For this reason, the FAA,

which is primarily concerned with private disputes, does

not preempt the state law bar against a private predispute

waiver of a PAGA claim.” (Tanguilig, supra, 5 Cal.App.5th

at p. 680; see also Franco III, supra, 234 Cal.App.4th

at p. 964 [“the FAA does not preempt California’s state

law rule precluding predispute waivers of enforcement

rights under the PAGA”].) Applying these authorities,

we conclude that PennyMac’s preemption argument, like

much of its appeal, is foreclosed by Iskanian.

III. DISPOSITION

The orders denying PennyMac’s petitions to compel

arbitration are affirmed. Smigelski is awarded his costs

on appeal. (Cal. Rules of Court, rule 8.278(a)(1) & (2).)

We concur:

/s/

HULL, Acting P. J.

/s/

ROBIE, J.

/s/

RENNER, J.

38a

APPENDIX C —Appendix

MINUTECORDER OF THE

SUPERIOR COURT OF CALIFORNIA, COUNTY

OF SACRAMENTO, DATED APRIL 22, 2016

SUPERIOR COURT OF CALIFORNIA,

COUNTY OF SACRAMENTO

GORDON D SCHABER COURTHOUSE

MINUTE ORDER

DATE: 04/22/2016 TIME: 02:00:00 PM

DEPT: 53

JUDICIAL OFFICER PRESIDING: David Brown

CLERK: E. Brown

REPORTER/ERM:

BAILIFF/COURT ATTENDANT

CASE NO: 34-2015-00186855-CU-OE-GDS

CASE INIT.DATE: 11/17/2015

CASE TITLE: Richard Smigelski in his representative

capacity vs. Pennymac Financial Services Inc

CASE CATEGORY: Civil - Unlimited

EVENT TYPE: Motion for Reconsideration - Civil Law

and Motion

Nature of Proceeding: Ruling on Submitted Matter

(Motion for Reconsideration Re: Compel Arbitration)

taken under submission on 4/19/2016

39a

Appendix C

TENTATIVE RULING

Defendants Private National Mortgage Acceptance

Company, LLC, Penny Mac Financial Services, and

PennyMac Mortgage Investment Trust’s (“Defendants”)

motion for reconsideration “re: Defendants’ Petition to

Compel Arbitration and Stay Action” is denied.

In the instant action, Plaintiff Richard Smigelski initially

asserted a single representative cause of action under

the Private Attorney General Act (“PAGA”), Labor

Code § 2699 on behalf of the State and other aggrieved

employees for alleged Labor Code violations. Plaintiff

did not assert any individual claims and only sought an

award of penalties pursuant to PAGA. Defendants moved

to compel arbitration pursuant to its Mutual Arbitration

Policy (“MAP”) and an Employee Agreement to Arbitrate

(“Arbitration Agreement”) and the FAA. On March 3,

2016, after having taken Defendants’ petition to compel

arbitration and stay action under submission, the Court

affirmed its tentative ruling denying the petition. A formal

order was entered on March 11, 2016. In denying the

petition, the Court found that the Arbitration Agreement

and the MAP contained provisions prohibiting PAGA

claims in arbitration which violated public policy and was

unenforceable. Critically, the Court found that neither the

Arbitration Agreement nor the MAP can be saved through

severance of any provision and that as a result, “the entire

Arbitration Agreement and MAP are unenforceable.

On March 10, 2016, Plaintiff filed a first amended complaint

adding individual and putative class claims for unpaid

40a

Appendix C

overtime under Labor Code §§ 510 and 1194, penalties

based on the failure to provide accurate wage statements

under Labor Code § 226 and waiting time penalties under

Labor Code § 203.

Defendants seek reconsideration on the basis that the

Court was not able to consider these new claims in the

FAC as part of the original ruling because the complaint

only alleged the PAGA claim. It argues that these new

claims fall squarely within the terms of the arbitration

agreement and had the FAC been filed before the Court

ruled, it should have granted the petition to compel. It

argues that the Court should vacate its previous ruling

and grant their petition, or alternatively, compel Plaintiff

to arbitrate his new claims and stay the PAGA claim to

the extent it is deemed inarbitrable.

When an application for an order has been made to a judge,

or to a court, and refused in whole or in part, or granted,

or granted conditionally, or on terms, any party affected

by the order may, within 10 days after service upon the

party of written notice of entry of the order and based

upon new or different facts, circumstances, or law, make

application to the same judge or court that made the order,

to reconsider the matter and modify, amend, or revoke the

prior order. The party making the application shall state

by affidavit what application was made before, when and to

what judge, what order or decisions were made, and what

new or different facts, circumstances, or law are claimed

to be shown. (CCP § 1008.)

41a

Appendix C

Here, the Court finds that Plaintiff’s act of filing the

FAC containing new claims is not a new or different

fact or circumstance which would allow the Court to

reconsider its previous order denying Defendants’ petition

to compel arbitration. Indeed, to that end, it must be

remembered that the Court in denying the petition found

that the MAP and the Arbitration Agreement contained

provisions that violated public policy and could not be

severed thus rendering the entire MAP and Arbitration

Agreement unenforceable. It is true that the Court’s

ruling extensively discussed the fact that Plaintiff was

only asserting a PAGA claim at the time. But the Court

specifically found that even so, provisions prohibiting

arbitration of PAGA claims could not be severed from

the agreements and the agreements as a whole were

therefore unenforceable. This of course would preclude

arbitration of not only PAGA claims, but any claims

whatsoever, including the new individual and class claims

set forth in the FAC. Indeed, the FAC specifically alleges

that “the Sacramento Superior Court has declared the

arbitration agreement signed by Plaintiff unenforceable

in its entirety.” (FAC ¶ 13.)

In reality the FAC, filed in direct response to the Court’s

ruling on Defendants’ petition to compel arbitration has

no bearing on the Court’s ruling. That is, while the claims

asserted in this action have expanded, the MAP and the

Arbitration Agreement themselves, which contained the

provisions deemed to be invalid and which the Court found

were unenforceable in their entirety have not changed.

The FAC could not in any way alter the Court’s analysis

regarding the interpretation and/or the enforceability of

42a

Appendix C

the MAP and the Arbitration Agreement. The FAC was

specifically filed in reliance on the Court’s order denying

the petition to compel arbitration and is not a new fact or

circumstance for purposes of CCP § 1008. Moreover, the

motion argues that any invalid PAGA waiver cannot be

the basis for refusing arbitration of the new class claims

because the waiver cannot invalidate the entire agreements

and thus prevent arbitration of the class claims. In this

regard, Defendants essentially attempt to re-argue that

the inclusion of the PAGA waiver does not invalidate the

agreements and that the Court was essentially wrong in

concluding otherwise. But a disagreement with the Court’s

analysis is not a new or different fact or circumstance.

Absent such new or different facts or circumstances, the

Court lacks jurisdiction to consider this motion. (Gilberd

v. AC Transit (1995) 32 Cal. App.4th 1494, 1500.) The

motion is denied on this basis alone.

In any event, even if the Court were to find that the FAC

was a new or different fact or circumstance for purposes

of CCP § 1008, it would simply affirm its previous order

denying Defendants’ petition to compel arbitration.

Again, it bears repeating that when the Court denied

Defendants’ petition, it found that the MAP and Arbitration

Agreements that “the entire Arbitration Agreement and

MAP are unenforceable.” Nothing has changed which

could cause the Court to render any different finding. The

language of the agreements is the same. It is of course

true that if the invalid PAGA provision could be severed

from the agreements, than Plaintiff’s individual and class

claims could be compelled to arbitration. (E.g. Franco v.

Arkelian Enterprises (2015) 234 Cal.App.4th 947, 965.)

43a

Appendix C

In making their argument Defendants essentially argue

that the Court incorrectly determined that the PAGA

provision could not be severed. In previously finding that

the invalid PAGA waiver could not be severed from the

agreements, the Court focused mainly on the language

in the agreements given the parties’ intent controls. The

Court’s reasoning was as follows:

“Finally, neither the Arbitration Agreement nor the MAP

can be saved through severance of any provision. Indeed,

“the rule of severability of partially illegal contracts is

that a contract is severable if the court can, consistent

with the intent of the parties, reasonably relate the illegal

consideration on one side to some specified or determinable

portion of consideration on the other side.” (Securitas

Security Services USA, Inc., supra, 234 Cal.App.4th at

1125.) Here while the Arbitration Agreement contains

an offending provision requiring Plaintiff to forego

any representative claims, that Agreement specifically

states that if “any provision of the MAP is found to be

unenforceable, that provision may be severed without

affecting this agreement to arbitrate.” (Defendants’

Exhibit 3.) The Arbitration Agreement itself does not

contain a provision allowing for severance. This express

language reflects an intent not to sever any portion of the

Arbitration Agreement and striking the provision would

conflict with the parties’ intent. (Id. at 1126.) Further the

MAP itself only provides for severance of any provision

that does not comport with the FAA. (Defendants’ Exh.

1, p.3, ¶ 3.) But here the waiver provisions do not comport

State law, and thus severance of the provision in the

MAP would also conflict with the parties’ intent. As a

44a

Appendix C

result, the entire Arbitration Agreement and MAP are

unenforceable.” (March 11, 2016 order)

Defendants are correct that one of the basis on which

the Court distinguished Franco, that Plaintiff only

asserted PAGA claims, is no longer relevant given the

FAC which now asserts non-PAGA claims. This does not

affect the Court’s decision regarding the enforceability

given the main focus was on the express language of the

agreements which reflected an intent not to sever the

PAGA waiver. While the Court’s previous ruling also

extensively focused on the FAC that the complaint did

not assert any other claims other than PAGA claims,

the Court did not, as Defendants suggest in reply, only

find that the arbitration agreements were unenforceable

in their entirety only with respect to the PAGA claim

asserted in the complaint. When the Court found that the

MAP and the arbitration agreement were unenforceable,

it found they were unenforceable in their entirety, with no

limitations. That Plaintiff has now asserted new claims in

the FAC does not somehow change the unenforceability of

the agreements and render them enforceable. Again, that

finding was premised on the express contractual language

of the agreements which reflected an intent not to sever

the invalid PAGA waiver.

Defendants are correct that one of the basis on which

the Court distinguished Franco, that Plaintiff only

asserted PAGA claims, is no longer relevant given the

FAC which now asserts non-PAGA claims. This does not

affect the Court’s decision regarding the enforceability

given the main focus was on the express language of the

45a

Appendix C

agreements which reflected an intent not to sever the

PAGA waiver. While the Court’s previous ruling also

extensively focused on the FAC that the complaint did

not assert any other claims other than PAGA claims,

the Court did not, as Defendants suggest in reply, only

find that the arbitration agreements were unenforceable

in their entirety only with respect to the PAGA claim

asserted in the complaint. When the Court found that the

MAP and the arbitration agreement were unenforceable,

it found they were unenforceable in their entirety, with no

limitations. That Plaintiff has now asserted new claims in

the FAC does not somehow change the unenforceability of

the agreements and render them enforceable. Again, that

finding was premised on the express contractual language

of the agreements which reflected an intent not to sever

the invalid PAGA waiver.

Defendants also argue that this situation is akin to Franco

in that there is no evidence that the agreements were

drafted to thwart public policy because the MAP was

drafted six years before Iskanian and Iskanian was not

yet final because there was a petition for certiorari pending

in the US Supreme Court until two months after Plaintiff

signed the arbitration agreement. But again, the critical

analysis with the specific language in the agreements

which set forth when severance was permitted.

Perhaps realizing this, Defendants finally argue that

severance is not necessary to enforce the MAP and the

Arbitration Agreement as to the new individual and

putative class claims in the FAC. Defendants argue that

in Iskanian while the California Supreme Court found

46a

Appendix C

that the parties arbitration agreement contained an

unenforceable waiver of PAGA claims, it “enforced the

parties’ agreement as to the class claims alleged by the

plaintiff, and it did so without requiring formal severance

of the unenforceable term in the parties’ agreement.”

(Mot. 11:16-18.) But Iskanian found that the Court of

Appeal improperly enforced an arbitration agreement

that the contained both class action and PAGA waiver.

While the class action waiver was valid, the PAGA was

not and that matter was remanded so that the lower

courts could address how the arbitration should proceed

in light of such finding. (Iskanian, supra, 59 Cal.4th at

391-392.) Iskanian did not appear to specifically address

the question of severance, much less in the context of the

specific contractual language at issue here, and find that

an arbitration may proceed pursuant to an agreement that

contains an invalid PAGA waiver and a valid class action

waiver by simply ignoring, as opposed to severing the

invalid provision. Moreover, case law following Iskanian

makes clear that where it has been determined that

a PAGA waiver is invalid in an arbitration agreement

which also contains a valid class action waiver, the proper

analysis is to determine whether the PAGA waiver can

be severed so that the agreement can be enforced. (E.g.,

Securitas Security Services USA, Inc., supra, 234 Cal.

App.4th at 1124.). Here the Court has already concluded

that it cannot be. Defendants make no argument which

would show, contrary to what the Court found, that the

plain language of the agreement would allow for severance

in accordance with the parties’ intent.

47a

Appendix C

In sum the motion for reconsideration is denied on the

basis that Defendants failed to establish any new or

different facts or circumstances pursuant to CCP § 1008

based on the filing of the FAC and in any event, even if the

FAC was such a fact or circumstances, the Court would

simply affirm its original ruling denying the petition to

compel arbitration.

The minute order is effective immediately. No formal

order pursuant to CRC Rule 3.1312 or other notice is

required.

COURT RULING

The matter was argued and submitted.

Having taken the matter under submission on 4/19/2016,

the Court now rules as follows:

SUBMITTED MATTER RULING

The Court affirmed the tentative ruling.

48a

APPENDIX D —Appendix

MINUTEDORDER OF THE

SUPERIOR COURT OF CALIFORNIA, COUNTY

OF SACRAMENTO, DATED APRIL 22, 2016

SUPERIOR COURT OF CALIFORNIA,

COUNTY OF SACRAMENTO

GORDON D SCHABER COURTHOUSE

MINUTE ORDER

DATE: 04/22/2016 TIME: 09:00:00 AM DEPT: 53

JUDICIAL OFFICER PRESIDING: David Brown

CLERK: E. Brown

REPORTER/ERM:

BAILIFF/COURT ATTENDANT:

CASE NO: 34-2015-00186855-CU-OE-GDS CASE INIT.

DATE: 11/17/2015

CASE TITLE: Richard Smigelski in his representative

capacity vs. Pennymac Financial Services Inc

CASE CATEGORY: Civil - Unlimited

EVENT TYPE: Petition to Compel Arbitration - Civil

Law and Motion

Nature of Proceeding: Ruling on Submitted Matter

(Petition to Compel Arbitration) taken under submission

on 4/19/2016

49a

Appendix D

TENTATIVE RULING

Defendants Private National Mortgage Acceptance

Company, LLC, Penny Mac Financial Services, and

PennyMac Mortgage Investment Trust’s (“Defendants”)

petition to compel arbitration is denied.

Defendants previously unsuccessfully sought to compel

arbitration of Plaintiff’s complaint. They now seek to

compel arbitration of Plaintiffs’ First Amended Complaint.

The Court’s ruling denying Defendants’ motion for

reconsideration “re: Defendants’ Petition to Compel

Arbitration and Stay Action” effectively disposes of the

instant motion. Again, the Court noted in connection with

that ruling that the FAC did not constitute new or different

facts or circumstances which would allow the Court to

reconsider the original ruling denying Defendants’ first

petition and in any event, the Court found the arbitration

agreements invalid and unenforceable in their entirety.

The inclusion of individual and putative class claims cannot

change that result. Thus, even though a class action waiver

is valid and could be subject to the arbitration agreements,

the invalidity and unenforceability of the agreements

precludes arbitration of any claims.

To the extent that Defendants argue, as they did in

connection with the original petition, for example, that

the arbitration agreements do not preclude arbitration

of PAGA claims, or that the rule precluding the waiver of

PAGA claims is not pre-empted by the FAA, or that the

question or abritrability must be decided by the arbitrator,

these arguments are rejected. Even if the Court were to

50a

Appendix D

find that a successive petition were permitted as a result

of the FAC being filed, the Court extensively addressed

and rejected these arguments in denying the original

petition and the Court simply rejects the arguments for

the reasons previously discussed. The Court would also

note that any new argument attempting to demonstrate

that PAGA claims were not waived or that the Court

could sever any PAGA waiver found in the agreements

are inappropriate. Those arguments were fully addressed

in the Court’s original ruling and any attempt to reargue

those specific points is nothing more than an inappropriate

motion for reconsideration.

The minute order is effective immediately. No formal

order pursuant to CRC Rule 3.1312 or other notice is

required.

COURT RULING

The matter was argued and submitted.

Having taken the matter under submission on 4/19/2016,

the Court now rules as follows:

SUBMITTED MATTER RULING

The Court affirmed the tentative ruling.

51a

APPENDIX E —Appendix

MINUTEEORDER OF THE

SUPERIOR COURT OF CALIFORNIA, COUNTY

OF SACRAMENTO, DATED MARCH 3, 2016

CASE TITLE: Richard Smigelski in his representative

capacity vs. Pennymac Financial Services Inc

CASE NO: 34-2015-00186855-CU-OE-GDS

Having taken the matter under submission on 2/29/2016,

the Court now rules as follows:

SUBMITTED MATTER RULING

The Court affirms the Tentative Ruling as follows:

Defendants Private National Mortgage Acceptance

Company, LLC, PennyMac Financial Services, and

PennyMac Mortgage Investment Trust’s (“Defendants”)

petition to compel arbitration is denied.

In the instant action, Plaintiff Richard Smigelski asserts

a single representative cause of action under the Private

Attorney General Act (“PAGA”), Labor Code § 2699 on

behalf of the State and other aggrieved employees for

alleged Labor Code violations. Plaintiff does not assert

any individual claims and only seeks an award of penalties

pursuant to PAGA. Defendants move to compel arbitration

pursuant to the FAA.

Defendants argue that Plaintiff must arbitrate this action

pursuant to its Mutual Arbitration Policy (“MAP”) and

an Employee Agreement to Arbitrate (“Arbitration

52a

Appendix E

Agreement”) and the FAA. The Arbitration Agreement

states that the employee agrees that “it is my obligation

to make use of the MAP and to submit to final and binding

arbitration any and all claims and disputes that are related

in any way to my employment....I understand that final and

binding arbitration will be the sole and exclusive remedy

for any such claim or dispute ... and that by agreeing to

use arbitration to resolve my dispute, both PennyMac

and I agree to forego any right we may have had to a

jury trial on issued covered by the MAP, and forego any

right to bring claims on a representative or class basis.”

(Defendants’ Exh. 3.) The Arbitration Agreement further

states that “[i]f any provision of the MAP is found to be

unenforceable, that provision may be severed without

affecting this agreement to arbitrate.” (Id.)

The MAP provides that “this mutual agreement to

arbitrate claims also means that both you and PennyMac

forego and waive any right to join or consolidate claims in

arbitration with others, or to make claims in arbitration as

a representative or as a member of a class or in a private

attorney general capacity.” (Id. Exh. 1, p. 1, ¶ 4, p. 2, ¶ 1.)

The MAP also provided that “no remedies available to you

individually ... will be forfeited.” (ld. p.2, ¶ 1.) The MAP

provides that “the Arbitrator or a court may sever any

part of the MAP procedures that do not comport with the

[FAA].) (Id. p. 3, ¶ 3.)

The Court first rejects the argument that Plaintiff’s

complaint alleges non-PAGA Labor Code claims which are

properly subject to arbitration. In this regard, Defendants

attempt to argue that Plaintiff has utilized artful pleading

53a

Appendix E

to characterize his claim as simply a PAGA claim seeking

civil penalties. They argue that part of the PAGA claim

is premised on an alleged violation of Labor Code § 558

and that he is seeking to recover unpaid wages on behalf

of the employees not simply penalties. They assert that

a Labor Code § 558 violation is not one of the violations

enumerated in PAGA (Labor Code § 2699.5.) But a PAGA

claim is not limited to the Labor Code sections listed in

Labor Code § 2699.5. Labor Code § 2699(a) specifically

states that “notwithstanding any other provision of law,

any provision of this code that provides for a civil penalty

to be assessed and collected by the [LWDA] .... may, as

an alternative, be recovered by an aggrieved employee on

behalf of himself and herself and other current and former

employees pursuant to the procedures specified in Labor

Code § 2699.3.” (Labor Code § 2699(a) [emphasis added].)

Labor Code § 2699.3 specifically provides procedures for

bringing PAGA claims not only for violations based on the

statutes listed in Labor Code § 2699.5, but also for statutes

that are not listed in § 2699.5. (Labor Code § 2699.3(a),

(c).) Moreover, case law recognizes that civil penalties for

a violation of Labor Code § 558 may be recovered in a

PAGA action. “[P]ursuant to section 558, subdivision (a),

‘any person acting on behalf of an employer who violates,

or causes to be violated’ a statute or wage order relating

to working hours is subject to a civil penalty, payable

to the affected employee, equal to the amount of any

underpaid wages. As noted earlier, the Legislature has

provided that aggrieved employees may under certain

circumstances maintain civil actions to recover such

penalties. (§ 2699, subd. (a).) (Reynolds v. Bennet (2005)

36 Cal.4th 1075, 1089.) “In our view the language of section

54a

Appendix E

558, subdivision (a), is more reasonably construed as

providing a civil penalty that consists of both the $50 or

$100 penalty amount and any underpaid wages, with the

underpaid wages going entirely to the affected employee

or employees as an express exception to the general

rule that civil penalties recovered in a PAGA action are

distributed 75 percent to the [LWDA] and 25 percent to

the aggrieved employees (§ 2699, subd. (i)). (Thurman

v. Bayshore Transit Management, Inc. (2012) 203 Cal.

App.4th 1112, 1145.) It is clear that the complaint at issue

here is solely a representative action under PAGA seeking

civil penalties despite any inclusion of a claim premised

on Labor Code § 558.

Moreover, it cannot be overlooked that Plaintiff’s reference

in the complaint to Labor Code § 558 which provides for

civil penalties for an employer who “violates a section of

this chapter or any provision regulating hours and days of

work in any order of the Industrial Welfare Commission”

is premised on violations of Labor Code § 510. (Comp. ¶ 18.)

Section 510 is expressly identified in Labor Code § 2699.5.

Thus the request for civil penalties under Labor Code

§ 558 is premised on substantive provisions enumerated

in PAGA. “[I[t is the request for civil penalties for an

alleged violation of a substantive statutory provision listed

in section 2699.5” that triggers the employee’s right to

bring an action under PAGA. (Caliber Bodyworks, Inc.

v. Superior Court (2005) 134 Cal.App.4th 365, 379, fn, 15.)

This is not a suit by which Plaintiff is seeking to circumvent

arbitration by raising a non-PAGA wage and hour claim

under the guise of PAGA. The fact that Plaintiff ’s

55a

Appendix E

complaint indicates that the statute of limitations for

a Labor Code § 558 is three years while the statute of

limitations for a PAGA claim is one year does not mean

that Plaintiff has alleged no PAGA claims. It is of course

true that Plaintiff cannot recover penalties on behalf of

the State, himself, or other employees beyond the PAGA

one year statute of limitations. But the pleading here only

asserts a representative PAGA claim and the prayer for

relief seeks only “an award of civil penalties pursuant to

PAGA” in addition to fees and costs and interest.

Given that the entire complaint seeks only civil penalties

under PAGA, the Court now examines whether arbitration

can be compelled. The Arbitration Agreement at issue

requires Plaintiff to “forego any right to bring claims

on a representative or class basis.” The MAP states that

“this mutual agreement to arbitrate claims also means

that both you and PennyMac ... waive any right to join or

consolidate claims in arbitration with others or to make

claims in arbitration as a representative or as a member

of a class or in a private attorney general capacity.”

Such language certainly includes a PAGA representative

action. “We conclude that where, as here, an employment

ag reement compels the waiver of representative

claims under PAGA, it is contrary to public policy and

unenforceable as a matter of state law.” (Iskanian v. CLS

Transportation Los Angeles, LLC (2014) 59 Cal.4th 348,

384.) While Defendants attempt to argue that the language

of the Arbitration Agreement and the MAP do not prohibit

PAGA claims in arbitration, and at most “representative”

is ambiguous, this is a strained argument at best. Indeed,

the language clearly states that the parties waive any right

56a

Appendix E

to make claims “as a representative” or “in a private

attorney general capacity.” There is no ambiguity in

the Arbitration Agreement or the MAP. PAGA claims

are prohibited in arbitration given that the employee

waives any right to make representative claims or claims

in a private attorney general capacity. Such a prohibition

violates public policy and is unenforceable. To the extent

any ambiguity exists, it is construed against Defendants

who drafted the documents. (Securitas Security Services

USA, Inc. v. Superior Court (2015) 234 Cal.App.4th 1109,

1126.)

While Defendants correctly argue that Iskanian is not a

per se ban on the arbitration of PAGA claims, Iskanian

is clear, that it is against public policy for an employment

agreement to deprive employees of the ability to bring a

PAGA action before any dispute arises. (Iskanian, supra,

at 382-384, 387.) The instant Arbitration Agreement/

MAP does just that. While Defendants fault Plaintiff

for failing to discuss the authority cited indicating that

PAGA claims are not inherently unsuited for arbitration,

even those cases held that a waiver of PAGA claims

is invalid under Iskanian. (E.g., Sakkab v. Luxottica

Retail N. Amer., Inc. (9th Cir. 2015) 803 F.3d 425, 440.)

While Sakkab noted that Iskanian prohibits the waiver

of representative PAGA claims but does not diminish the

parties’ freedom to select informal arbitration procedures

with respect to such claims, it made no determination

on that issue. Here, even if the Court were to properly

sever the impermissible waiver of the PAGA claims, there

is nothing in the subject arbitration agreements which

indicate any intent by Plaintiff and Defendants to agree

57a

Appendix E

to arbitrate representative PAGA claims. Indeed, the

agreements are simply between Plaintiff and Defendants

and there is nothing suggesting in any manner that the

parties contemplated the claims of non-parties such as

the LWDA on whose behalf the instant lawsuit is brought

would be subject to arbitration. The waiver language in

the agreements reflects the exact opposite. That is, the

agreements make clear that both parties forego their rights

to pursue representative actions in arbitration. Given such

language the Court would be hard pressed to find that

even severing the invalid waiver would allow Plaintiff’s

PAGA claim to proceed to arbitration, as doing so would

contravene the expressed intent of the parties. Rather

they have clearly agreed not to arbitrate such claims.

The “arbitration agreement gives us no basis to assume

that the parties would prefer to resolve a representative

PAGA claim through arbitration.” (Iskanian, supra, 59

Cal.4th at 391.) In any event, as discussed more fully below,

severance of the illegal provision is not proper.

Further, and contrary to Defendants’ arguments, the

rule precluding waiver of PAGA claims is not pre-empted

by the FAA. “Simply put, a PAGA claim lies outside the

FAA’s coverage because it is not a dispute between an

employer and an employee arising out of their contractual

relationship. It is a dispute between an employer and the

state, which alleges directly or indirectly or through its

agents-either the Agency or aggrieved employees-that

the employer has violated the Labor Code .... ‘every

PAGA action, whether seeking penalties for Labor Code

violations as to only one aggrieved employee-the plaintiff

bringing the action-or as to other employees as well, is a

58a

Appendix E

representative action on behalf of the state.”’ (Iskanian,

supra, 59 Cal.4th at 386-387 [emphasis in original].) “We

conclude that California’s public policy prohibiting waiver

of PAGA claims, whose sole purpose is to vindicate the

Agency’s interest in enforcing the Labor Code, does not

interfere with the FAA’s goal of promoting arbitration as a

forum for private dispute resolution.” (Id. at 388-389.) The

Court rejects Defendants’ attempt to argue that California

law is preempted by FAA. Indeed, while Defendants are

of course correct that PAGA itself does not expressly state

that such claims are exempt from arbitration, Iskanian

has expressly found that waivers such as the one in the

instant case are against public policy. Defendants’ attempt

to argue that the California Supreme Court’s decision in

Iskanian itself is preempted by FAA because that decision

outright precludes the arbitration of a particular claim is

rejected. This Court is clearly bound by Iskanian and is

certainly not free to find that the decision is preempted

by FAA. In any event, Iskanian does not preclude the

arbitration of a particular claim but rather precludes the

outright waiver of PAGA claim pre-dispute which is the

situation in the instant case.

Finally, neither the Arbitration Agreement nor the MAP

can be saved through severance of any provision. Indeed,

“the rule of severability of partially illegal contracts is

that a contract is severable if the court can, consistent

with the intent of the parties, reasonably relate the illegal

consideration on one side to some specified or determinable

portion of consideration on the other side.” (Securitas

Security Services USA, Inc., supra, 234 Cal.App.4th at

1125.) Here while the Arbitration Agreement contains

59a

Appendix E

an offending provision requiring Plaintiff to forego

any representative claims, that Agreement specifically

states that if “any provision of the MAP is found to be

unenforceable, that provision may be severed without

affecting this agreement to arbitrate.” (Defendants’

Exhibit 3.) The Arbitration Agreement itself does not

contain a provision allowing for severance.

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