Petition for Writ of Certiorari — Pennymac Financial Services, Inc., et al., Petitioners v. Erich Heidrich, et al.

No. 20In the

Supreme Court of the United States

PENNYMAC FINANCIAL SERVICES, INC.,

PRIVATE NATIONAL MORTGAGE ACCEPTANCE

COMPANY, LLC., AND PENNYMAC MORTGAGE

INVESTMENT TRUST,

Petitioners,

v.

ERICH HEIDRICH, ERIC KIDD, MARIA ANGELICA

CASTRO, AND JUSTIN ROBERSON,

Respondents.

On Petition for a Writ of Certiorari to the United

States Court of A ppeals for the Ninth Circuit

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

300 South Grand Avenue

One California Plaza, 37th Floor

Los Angeles, California 90071

(213) 620-0460

jbowles@hillfarrer.com

Counsel for Petitioners

296689

A

(800) 274-3321 • (800) 359-6859

i

QUESTION PRESENTED

Whether the Federal Arbitration Act requires

enforcement of an arbitration agreement as applied to

Fair Labor Standards Act claims where the parties’

agreement requires individualized arbitration, and if so,

whether 28 U.S.C. § 1738 requires a contrary result based

on a state court decision finding an identical agreement

unenforceable under a state law rule that is plainly invalid

under the FAA and federal substantive law interpreting

the FAA.

ii

PARTIES TO THE PROCEEDING BELOW

The case caption contains the names of all parties who

were parties in the Ninth Circuit and District 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.

iv

RELATED CASES

• Erich Heidrich, et al v. Pennymac Financial

Services, Inc., et al., 2:16-cv-02821-TLN-EFB,

United States District Court for the Eastern

District of California. Order compelling FLSA

claims to arbitration and dismissing state law

claims without prejudice entered July 11, 2018.

• Erich Heidrich, et al v. Pennymac Financial

Services, Inc., et al., 18-16494, United States

Court of Appeals for the Ninth Circuit. Judgment

entered February 7, 2020.

• Richard Smigelski v. PennyMac Financial

Services, Inc., et al., No. 34-2015-00186855-CUOE-GDS, Superior Court of Sacramento County.

Petitions to compel arbitration denied March 3,

2016 and April 22, 2016, motion for reconsideration

denied April 22, 2016.

• Richard Smigelski v. Pennymac Financial

Services, Inc., et al., No. C081958, Court of Appeal

of the State of California, Third Appellate District.

Judgment entered December 19, 2018, rehearing

denied January 9, 2019.

• Richard Smigelski v. Pennymac Financial

Services, Inc., et al., No. S253796, Supreme Court

of California. Petition for review denied April 10,

2019.

• PennyMac Financial Services, Inc., et al. v.

Richard Smigelski, No. 19-72, Supreme Court of

v

the United States. Petition for writ of certiorari

denied October 7, 2019.

vi

TABLE OF CONTENTS

Page

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

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

CORPORATE DISCLOSURE STATEMENT . . . . . . iii

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

TABLE OF CONTENTS . . . . . . . . . . . . . . . . . . . . . . . . . vi

TABLE OF APPENDICES . . . . . . . . . . . . . . . . . . . . . . ix

TABLE OF CITED AUTHORITIES . . . . . . . . . . . . . . . x

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

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

RELEVANT STATUTORY PROVISIONS . . . . . . . . . . 1

INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

STATEMENT OF THE CASE . . . . . . . . . . . . . . . . . . . . 6

The Smigelski State Court Action . . . . . . . . . . . . . . . . 8

REASONS FOR GRANTING REVIEW . . . . . . . . . . . 9

vii

Table of Contents

Page

I.

THE

DECISION

BELOW

CONFLICTS WITH THIS COURT’S

ARBITRATION PRECEDENTS AND

WAS INCORRECT . . . . . . . . . . . . . . . . . . . . . . . 9

A. The FAA Controls The Enforceability

Of Arbitration Agreements Absent

Contrary Congressional Command . . . . . . 10

B. The Court Below Was Wrong To

D i s r e g a r d T h i s C o u r t ’s E p i c

Decision And Its Own Precedents

On A rbitration Agreements That

I nc lude R epr e s ent at i ve A c t ion

Waivers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

C. The Supremacy Clause Nullifies

Judicially Created State Law Rules That

Conflict With The FAA And This Court’s

Interpretation Of the FAA . . . . . . . . . . . . . 13

D. T h e D e c i s i o n B e l o w R e l i e d

Exclusively On Invalid State Law

Anti-Arbitration Rules That Conflict

With The FAA . . . . . . . . . . . . . . . . . . . . . . . 15

E. The Federal Statute Relied Upon By

The Ninth Circuit Does Not Indicate A

Congressional Intent To Permit Invalid

State Law Judicial Rules To Override

The Mandate Of The FAA . . . . . . . . . . . . . 19

viii

Table of Contents

Page

II. T H E I S S U E S I M P L I C A T E D

BY THE DECISION BELOW A RE

EXCEPTIONALLY IMPORTANT. . . . . . . . . . 21

A. The Individual Arbitration Issue Arises

With Great Frequency. . . . . . . . . . . . . . . . . 21

B. There Is A Square Conflict Between The

Ruling Below And Other Ninth Circuit

Decisions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

C. This Court’s Intervention Also Will

Make Clear That Lower Cour ts

May Not Invalidate A rbitration

Agreements In Contravention Of The

FAA And This Court’s Precedents . . . . . . 23

D. Summary Reversal Or Remand Would Also

Be Appropriate In This Case. . . . . . . . . . . 25

CONCLUSION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26

ix

TABLE OF APPENDICES

Page

APPENDIX A — MEMORANDUM OF THE

UNITED STATES COURT OF APPEALS

FOR T HE NIN T H CIRCU I T, FILED

FEBRUARY 7, 2020 . . . . . . . . . . . . . . . . . . . . . . . . . . 1a

APPENDIX B — ORDER OF THE UNITED

STATES DISTRICT COURT FOR THE

EASTERN DISTRICT OF CALIFORNIA,

DATED JULY 11, 2018 . . . . . . . . . . . . . . . . . . . . . . . . 5a

APPENDIX C — OPINION OF THE COURT OF

APPEAL OF THE STATE OF CALIFORNIA,

T H I R D A P P EL L A T E DI S T R IC T,

SACRAMENTO, FILED DEEMBER 19, 2018 . . 14a

x

TABLE OF CITED AUTHORITIES

Page

CASES

Allied-Bruce Terminix Cos. v. Dobson,

513 U.S. 265 (1995) . . . . . . . . . . . . . . . . . . . . . . . . . . . 24

AT&T Mobility LLC v. Concepcion,

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

CarMax Auto Superstores California, LLC v.

Fowler,

134 S. Ct. 1277, 188 L. Ed. 2d 290 (2014) . . . 20, 21, 25

Citizens Bank v. Alafabco, Inc.,

539 U.S. 52 (2003) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

CompuCredit Corp. v. Greenwood,

132 S. Ct. 665 (2012) . . . . . . . . . . . . . . . . . . . 3, 5, 10, 11

Dean Witter Reynolds, Inc. v. Byrd,

470 U.S. 213 (1985) . . . . . . . . . . . . . . . . . . . . . . . . 10, 23

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) . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

Epic Systems Corp. v. Lewis,

138 S. Ct. 1612 (2018) . . . . . . . . . . . . . . . . . . . . . passim

xi

Cited Authorities

Page

Epic Systems v. Lewis,

138 S. Ct 1612, 200 L. Ed. 2d 889 (2018) . . . . . . . . . . 6

Gilmer v. Interstate / Johnson Lane Corp.,

500 U.S. 20 (1991) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

Green Tree Fin. Corp. v. Bazzle,

539 U.S. 444 (2003) . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

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) . . . . . . . . . . . . . . . . . 17

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) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

Lamps Plus, Inc. v. Varela,

139 S. Ct. 1407 (2019) . . . . . . . . . . . . . . . . . . . . . . 13, 19

Los Altos El Granada Investors v.

City of Capitola,

583 F.3d 674 (2009) . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

Marmet Health Care Center, Inc. v. Brown,

565 U.S. 530 (2012) . . . . . . . . . . . . . . . . . . . . . . . . 20, 23

xii

Cited Authorities

Page

Mitsubishi Motors Corp. v.

Soler Chrysler-Plymouth, Inc.,

473 U.S. 614 (1985) . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

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

568 U.S. 17 (2012) . . . . . . . . . . . . . . . . . . . . . . . . . 20, 23

PennyMac Financial Services, Inc., et al. v.

Richard Smigelski,

––– U.S. ––––, 140 S. Ct. 223,

205 L. Ed. 2d 126 (2019) . . . . . . . . . . . . . . . . . . . passim

Perry v. Thomas,

482 U.S. 483 (1987) . . . . . . . . . . . . . . . . . . . 4, 14, 16, 21

Poublon v. C.H. Robinson Co.,

846 F.3d 1251 (9th Cir. 2017) . . . . . . . . . . 12, 13, 16, 22

Preston v. Ferrer,

552 U.S. 346 (2008) . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

Richard Smigelski v. PennyMac Financial

Services, Inc., et al.,

Case No. 34–2015–00186855 . . . . . . . . . . . . . . . . . 8, 12

Ridgeway v. Nabors Completion

& Prod. Serv. Co.,

725 F. Appx 472 (9th Cir. 2018) . . . . . . . . . . . . . . 16, 22

Ritz-Carlton Development Co. v. Narayan,

136 S. Ct. 799 (2016) . . . . . . . . . . . . . . . . . . . . . . . . . . 25

xiii

Cited Authorities

Page

Rodriguez de Quijas v.

Shearson/American Exp., Inc.

490 U.S. 477 (1989) . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

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

803 F.3d 425 (9th Cir. 2015) . . . . . . . . . . . . . . . . . 16, 22

Schumacher Homes of Circleville, Inc. v.

Spencer,

136 S. Ct. 1157 (2016) . . . . . . . . . . . . . . . . . . . . . . . . . 25

Shearson / Am. Express Inc. v. McMahon,

482 U.S. 220 (1987) . . . . . . . . . . . . . . . . . . . . . . . . 10, 11

Sonic-Calabasas A, Inc. v. Moreno,

565 U.S. 973 (2011) . . . . . . . . . . . . . . . . . . . . . . . . 14, 21

Southland Corp. v. Keating,

465 U.S. 1 (1984) . . . . . . . . . . . . . . . . . . . . . . . . . . . 4, 13

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

559 U.S. 662 (2010) . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

Swift & Co. v. Wickham,

382 U.S. 111 (1965) . . . . . . . . . . . . . . . . . . . . . . . . . 4, 13

United States ex rel. Einstein v.

City of New York,

556 U.S. 928 (2009) . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

xiv

Cited Authorities

Page

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

681 Fed. Appx. 592 (9th Cir. 2017) . . . . . . . . 12, 16, 22

Villacres v. ABM Indus. Inc.,

189 Cal. App. 4th 562 (2010) . . . . . . . . . . . . . . . . . . . . 18

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

641 Fed. Appx. 758 (9th Cir. 2016) . . . . . . . . 12, 16, 22

STATUTES AND OTHER AUTHORITIES

U.S. Const., art. VI, cl. 2 . . . . . . . . . . . . . . . . . . . . . . . 4, 13

9 U.S.C. § 2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3, 10, 15

15 U.S.C. § 1226(a)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

28 U.S.C. § 1254(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

28 U.S.C. § 1738 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2, 19

Cal. Lab. Code § 229 . . . . . . . . . . . . . . . . . . . . . . . . . 14, 16

Cal. Lab. Code § 2699 . . . . . . . . . . . . . . . . . . . . . . 8, 17, 18

Cal. Labor Code § 2699.6 . . . . . . . . . . . . . . . . . . . . . . . . . 18

Matthew J. Goodman, The Private Attorney

General Act: How to Manage the Unmanageable,

56 Santa Clara L. Rev. 413 (2016) . . . . . . . . . . . . . . . 22

1

Petitioners Private National Mortgage Acceptance

Company, LLC (“PennyMac”), PennyMac Financial

Services, Inc. and PennyMac Mortgage Investment Trust

respectfully petition for a writ of certiorari to review the

judgment and memorandum of disposition of the United

States Court of Appeals for the Ninth Circuit in this case.

OPINIONS BELOW

The opinion of the Ninth Circuit, Appendix A at

1a – 4a, was not selected for publication but is available

at 792 Fed. Appx. 540 and 2020 WL 601894. The order

of the District Court granting PennyMac’s motion to

compel arbitration of the sole federal claim, Appendix B

at 5a – 13a, is not published in the Federal Supplement,

but is available at 2018 WL 3388458. The opinion of the

California Court of Appeal in the related Smigelski state

court action, Appendix C at 14a-49a, is not published but

is available at 2018 WL 6629406.

JURISDICTION

The judgment and memorandum of disposition of the

Court of Appeals was filed February 7, 2020. Appendix A

at 1a. The time for filing this Petition was extended by this

Court’s March 19, 2020 order. This Court’s jurisdiction is

invoked under 28 U.S.C. § 1254(1).

RELEVANT STATUTORY PROVISIONS

Section 2 of the Federal Arbitration Act (“FAA”)

provides:

A written provision in any maritime transaction

or a contract evidencing a transaction involving

2

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.

Section 4 of the FAA provides in relevant part:

A party aggrieved by the alleged failure,

neglect, or refusal of another to arbitrate under

a written agreement for arbitration may petition

any United States district court which, save

for such agreement, would have jurisdiction

under title 28, in a civil action or in admiralty

of the subject matter of a suit arising out of the

controversy between the parties, for an order

directing that such arbitration proceed in the

manner provided for in such agreement. . . . The

court shall hear the parties, and upon being

satisfied that the making of the agreement for

arbitration or the failure to comply therewith

is not in issue, the court shall make an order

directing the parties to proceed to arbitration

in accordance with the terms of the agreement.

Section 1738 of Title 28 of the United States Code

provides in pertinent part:

The records and judicial proceedings of any

court of any such State, Territory or Possession,

3

or copies thereof, shall be proved or admitted

in other courts within the United States and its

Territories and Possessions by the attestation

of the clerk and seal of the court annexed, if

a seal exists, together with a certificate of a

judge of the court that the said attestation is

in proper form.

Such Acts, records and judicial proceedings

or copies thereof, so authenticated, shall have

the same full faith and credit in every court

within the United States and its Territories and

Possessions as they have by law or usage in the

courts of such State, Territory or Possession

from which they are taken.

INTRODUCTION

This case is about the enforceability of arbitration

agreements under the FAA. As a matter of federal

substantive law, the FAA establishes a presumption in

favor of enforcing arbitration agreements as written.

See 9 U.S.C. § 2. This presumption may be overcome by

another federal statute, but only if that statute qualifies as

a “congressional command” that is “contrary” to the FAA’s

enforcement mandate. CompuCredit Corp. v. Greenwood,

132 S. Ct. 665, 669 (2012). As this Court held in Epic

Systems Corp. v. Lewis, 138 S. Ct. 1612, 1620 (2018), the

FAA requires enforcement of an agreement to arbitrate

putative collective action claims under the Fair Labor

Standards Act (“FLSA”), even where the arbitration

agreement “specified individualized arbitration.” The

Supremacy Clause mandates that this Court’s definitive

interpretation of the FAA in Epic cannot be subverted

4

by a judicially created state law rule that conflicts with

the FAA. Art. VI, cl. 2; Swift & Co. v. Wickham, 382 U.S.

111, 120 (1965); Southland Corp. v. Keating, 465 U.S. 1, 12

(1984); Perry v. Thomas, 482 U.S. 483, 490 (1987).

In this case, the Ninth Circuit reversed a District

Court order compelling arbitration of Respondents’

FLSA claims. The District Court compelled arbitration

of the FLSA claims based on a determination that

Epic required enforcement of the parties’ arbitration

agreement, notwithstanding the agreement’s specification

of individualized arbitration (“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.”)

Appendix A, 2a; Appendix B, 7a-12a. The District Court

properly applied the FAA and followed Epic. The Ninth

Circuit was wrong to reverse.

The Ninth Circuit’s error was to give preclusive effect

to a California appellate court decision in a related case

holding that the same agreement was unenforceable in

toto as applied to state law claims, based upon a state law

rule disfavoring waivers of class and representative claims

in arbitration agreements. The Ninth Circuit incorrectly

invoked the Full Faith and Credit Clause at the expense

of (and without discussing) the Supremacy Clause, and

disobeyed this Court’s clear holding in Epic in favor of an

invalid California rule of law that is contrary to both the

FAA and existing Ninth Circuit precedent. This Court’s

intervention is required to correct the mistake in this case

and to prevent California’s judicial antagonism toward

individualized arbitration from infecting the federal

5

courts within the Ninth Circuit and from affecting the

arbitrability of federal FLSA claims in other cases.

State legislatures and courts have a history of

attempting to evade the FAA, and California has led the

field. This Court has repeatedly rebuffed California’s antiarbitration agenda and has rebuked other State courts

who failed to heed this Court’s interpretation of the FAA

as required by the Supremacy Clause. The primacy of

this Court’s arbitration jurisprudence has been a bulwark

against a rising tide of state law devices and doctrines

intended to disfavor arbitration. And the obligation of

federal courts to follow this Court’s precedent has ensured

uniform rejection of state law based attacks in federal

courts on otherwise enforceable arbitration agreements.

In this case, however, the Ninth Circuit Court of

Appeals improperly allowed California state law to

subvert the FAA and the Supremacy Clause through

an erroneous application of the Full Faith and Credit

Clause and its enabling statute. But Section 1738 lacks

the requisite indicia of Congressional intent to satisfy the

CompuCredit test, and therefore the Ninth Circuit was

wrong to give preclusive effect to an invalid state law rule

that plainly conflicts with and is preempted by the FAA.

The Ninth Circuit was wrong to rely on that invalid state

law rule to reach a result that is the opposite of what this

Court’s decisions and the Ninth Circuit’s own precedents

require on the exact issues posed.

This case presents the straightforward question

whether the FA A preempts a state-law rule that

selectively disfavors arbitration agreements that require

individualized arbitration and, assuming it does, whether

6

such an invalid state law rule can nevertheless trump

this Court’s specific holding in Epic that arbitration

agreements precluding representative or collective

proceedings must be enforced as written against FLSA

claims.

The question presented is important, because

employees and employers throughout California routinely

agree to arbitrate their employment-related disputes at

the outset of the employment relationship. The state law

rule given effect by the Ninth Circuit in this case will

invalidate countless arbitration agreements covered by

the FAA in California, even when Epic dictates that those

agreements must be enforced in FLSA cases. This Court’s

review is therefore essential.

Given the failure of the Ninth Circuit to heed this

Court’s clear and repeated instruction that the FAA does

not permit state law 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), DIRECTV, Inc. v. Imburgia, 136 S.Ct. 463, 469471 (2015) and AT&T Mobility LLC v. Concepcion, 563

U.S. 333 (2011).

STATEMENT OF THE CASE

Petitioners are multi-state companies headquarted

in California and engaged in the business of mortgage

origination and servicing throughout the United States.

7

Respondents are three former California employees

and one former Texas employee of Petitioner Private

Nat iona l Mor tg age Accept a nce Compa ny, LLC

(“PennyMac”). App. B, 5a-6a. Respondents each signed

identical arbitration agreements during 2013 and 2014,

agreeing that “final and binding arbitration will be the

sole and exclusive remedy for any [cmployment] claim or

dispute . . .” with PennyMac. App. B, 6a. The agreements

included a waiver of “any right to bring claims on a

representative or class basis” and a severance provision

stating that if any provision of the accompanying

arbitration policy “is found unenforceable, that provision

may be severed without affecting this agreement to

arbitrate.” App. B, 7a; App. C, 16a.

On November 28, 2016, Respondents Heidrich, Kidd

and Castro filed an action in the District Court against

PennyMac and other Petitioners alleging putative

collective action claims under the FLSA and alleging

putative class action claims under California’s Labor

Code. On January 9, 2017 Respondents filed an amended

complaint prematurely attempting to plead a claim for

civil penalties under California Labor Code section 2699

(the Labor Code Private Attorney General Act [“PAGA”]).

In response, Petitioners moved to compel arbitration

of the sole federal claim – the FLSA claim – and asked the

District Court to dismiss the state law claims based on

the resulting absence of federal jurisdiction. App. B, 5a6a. While the motion was pending, Respondent Roberson

filed a consent to join the FLSA claim.

The District Court granted Petitioners’ motion to

compel arbitration of the FLSA claim and declined to

8

exercise supplemental jurisdiction over Respondents’

state law claims (including the PAGA claim), all of which

it dismissed without prejudice. App. B, 13a. The District

Court stated that this result was required by Epic Systems

Corp. v. Lewis, 138 S. Sct. 1612, 1632 (2018), rejecting the

argument that the entire agreement was unenforceable

because the representative waiver language within the

agreement was unlawful under California law.

Respondents appealed and the Ninth Circuit reversed

the District Court. App. A, 2a-4a. This Petition followed.

The Smigelski State Court Action

On November 17, 2015, before the Heidrich federal

action was filed, another former PennyMac employee,

Richard Smigelski, filed a nearly identical action against

Petitioners in Sacramento Superior Court, entitled

Richard Smigelski v. PennyMac Financial Services, Inc.,

et al., Case No. 34–2015–00186855 (Smigelski). ER 4547, 49-58, 60-62, 64-66. The Smigelski case was filed by

Respondents’ counsel, Chris Baker, who remains counsel

of record in both actions.

Smigelski originally alleged only a single claim for

civil penalties under PAGA (Cal. Lab. Code § 2699).

Smigelski did not allege an FLSA claim. In response,

PennyMac filed a petition to compel arbitration and stay

the action. The trial court denied the petition, finding

that the arbitration agreement was not enforceable as

applied to the PAGA claim. Armed with the ruling that

his arbitration agreement was unenforceable, Smigelski

filed an amended complaint adding additional individual

and putative class claims under California’s Labor Code

9

and 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.

PennyMac appealed. On December 19, 2018 the Court

of Appeal affirmed. App. C, 14a-15a. On April 10, 2019, the

California Supreme Court summarily denied PennyMac’s

Petition for Review and this Court subsequently denied

PennyMac’s Petition for Writ of Certiorari. PennyMac

Financial Services, Inc., et al. v. Richard Smigelski ,

––– U.S. ––––, 140 S. Ct. 223, 205 L.Ed.2d 126 (2019).

REASONS FOR GRANTING REVIEW

I.

THE DECISION BELOW CONFLICTS WITH

THIS COURT’S ARBITRATION PRECEDENTS

AND WAS INCORRECT

This Court’s intervention is needed because the Ninth

Circuit’s decision was wrong on the merits. The decision

of the Ninth Circuit ignores the Supremacy Clause and

defies this Court’s clear and repeated instruction that the

FAA preempts state-law rules that discriminate against

arbitration agreements. By prohibiting outright the

enforcement of Respondents’ agreements to individually

arbitrate their FLSA claims, the decision below

disregarded this Court’s definitive interpretation of the

FAA. In doing so, the Ninth Circuit created a clear conflict

between an invalid state law rule and substantive federal

law under the FAA, and also created an unnecessary but

implicit conflict between the Supremacy Clause and the

Full Faith and Credit Clause.

10

A.

The FAA Controls The Enforceability Of

Arbitration Agreements Absent Contrary

Congressional Command

The FA A is “[t]he background law governing”

questions relating to the enforcement of an arbitration

provision, even when other federal statutes are at issue.

CompuCredit, 132 S. Ct. at 668. The type of arbitration

“envisioned by the FA A” is “bilateral” (individual)

arbitration. Concepcion, 563 U.S. at 348, 351.

Under the FAA, the default rule is enforceability: “A

written provision *** to settle by arbitration a controversy

*** 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. Accordingly,

“[t]he burden is on the party opposing arbitration ***

to show that Congress intended to preclude a waiver

of judicial remedies for the statutory rights at issue.”

Shearson / Am. Express Inc. v. McMahon, 482 U.S.

220, 227 (1987). That is why, for decades, this Court has

consistently upheld the FAA’s policy favoring enforcement

of arbitration agreements as written. See, e.g., DIRECTV,

Inc. v. Imburgia, 136 S. Ct. 463 (2015); Am. Express Co.

v. Italian Colors Rest., 570 U.S. 228 (2013) 133 S. Ct. 2304;

CompuCredit, 132 S. Ct. 665; Concepcion, 563 U.S. 333;

Stolt-Nielsen S.A. v. AnimalFeeds Int’l Corp., 559 U.S.

662 (2010); Gilmer v. Interstate / Johnson Lane Corp.,

500 U.S. 20 (1991); McMahon, 482 U.S. 220; Mitsubishi

Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S.

614 (1985); Dean Witter Reynolds, Inc. v. Byrd, 470 U.S.

213 (1985).

Consistent with the strong federal policy favoring

arbitration, the FA A “requires courts to enforce

11

agreements to arbitrate according to their terms [,]

*** even when the claims at issue are federal statutory

claims, unless the FAA’s mandate has been ‘overridden

by a contrary congressional command.’ ” CompuCredit,

132 S. Ct. at 669 (quoting McMahon, 482 U.S. at 226). This

contrary congressional command cannot be “obtuse,” but

rather must indicate Congress’s contrary intent with some

“clarity.” CompuCredit, 132 S. Ct. at 672. And, as stated,

the directive must be “congressional,” id. at 669 - not

administrative or judicial.

With respect to federal claims under the FLSA, the

FAA requires enforcement of an employee’s arbitration

agreement even though it requires individualized

proceedings and that prohibits class, collective or

representative proceedings. Epic, 138 S. Ct. at 1621-1632.

B. The Court Below Was Wrong To Disregard This

Court’s Epic Decision And Its Own Precedents

On Arbitration Agreements That Include

Representative Action Waivers

The Ninth Circuit is obligated to follow the decisions

of this Court, as well as its own precedents, when they

have direct application to the relevant issues. Rodriguez

de Quijas v. Shearson/American Exp., Inc. 490 U.S. 477,

484 (1989).

The Ninth Circuit reversed the District Court’s order

compelling Respondent’s FLSA claim to arbitration

because it found that the parties’ arbitration agreement

was wholly unenforceable, due to its inclusion of a class

and representative action waiver that would be unlawful

under California law if applied to a PAGA claim for civil

12

penalties, and based on a finding that the waiver was

inseverable. Appendix A, 2a-3a. Both of these holdings,

based exclusively on the Smigelski state court ruling,

conflict directly with existing and controlling federal

precedent.

First, assuming the parties agreement included

a PAGA waiver and assuming that Petitioner sought

to enforce that waiver against Respondents’ PAGA

claim in the District Court (which PennyMac did not

do), existing Ninth Circuit precedent holds that PAGA

waivers that would be unenforceable under California law

cannot render the balance of an arbitration agreement

unenforceable under the FAA. See Wulfe v. Valero Ref.

Co.-Cal., 641 Fed. Appx. 758, 760 (9th Cir. 2016); Valdez

v. Terminix Int’l Co. Ltd. P’ship, 681 Fed. Appx. 592, 594

(9th Cir. 2017); Poublon v. C.H. Robinson Co., 846 F.3d

1251, 1273 (9th Cir. 2017) (“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.”) (emphasis added). Thus, the decision below

was wrong to allow an invalid California rule to dictate

a result directly contrary to existing Ninth Circuit

precedent on the precise issue.

Second, the Ninth Circuit should simply have followed

Epic and affirmed the District Court. The specification

of individualized arbitration proceedings in the parties’

agreement is, as applied to FLSA claims, precisely the

type of arbitration agreement that this Court found

enforceable under the FAA. Epic, supra, 138 S. Ct. at

1619-1620. And this Court’s clear instruction is that

attempting to contractually preserve the traditional,

13

bilateral nature of arbitration against the potential

imposition of fundamentally incompatible class or

collective action procedures is a lawful purpose. Lamps

Plus, Inc. v. Varela, 139 S. Ct. 1407, 1416-1417 (2019)

Epic, supra; Concepcion, supra, 563 U.S. at 336; see also

Poublon, 846 F.3d at 1264.

C.

The Supremacy Clause Nullifies Judicially

Created State Law Rules That Conflict With

The FAA And This Court’s Interpretation Of

the FAA

The Supremacy Clause prov ides that “[t]his

Constitution, and the Laws of the United States which

shall be made in Pursuance thereof ... shall be the supreme

Law of the Land; and the Judges in every State shall be

bound thereby, any Thing in the Constitution or Laws of

any State to the Contrary notwithstanding.” Art. VI, cl.

2. Thus, a valid federal law is substantively superior to

a state law; “if a state measure conflicts with a federal

requirement, the state provision must give way.” Swift &

Co. v. Wickham, 382 U.S. 111, 120 (1965).

This Court’s decisions and federal case law that has

developed under the FAA constitute a body of substantive

federal law on arbitration and the enforceability of

particular types of arbitration agreements. Southland

Corp. v. Keating, 465 U.S. 1, 12 (1984). The FAA and the

federal substantive law thereunder preempt and displace

contrary state law restrictions, whether imposed by state

legislatures or state courts. Id. at 10; Perry v. Thomas,

482 U.S. 483, 490 (1987); Green Tree Fin. Corp. v. Bazzle,

539 U.S. 444 (2003).

14

As a result, state law rules attempting to preclude

arbitration of California Labor Code claims have without

exception been invalidated under the FAA. 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 359360 (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 same fate befell California’s attempts

to prohibit enforcement of class action waivers in

arbitration agreements. Concepcion, supra, 563 U.S. at

352; DIRECTV, Inc. v. Imburgia, supra, 136 S.Ct. at 471.

“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. “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)). The

state law rules by the Smigelski decision plainly contradict

the FAA and are therefore invalid.

15

D.

The Decision Below Relied Exclusively On

Invalid State Law Anti-Arbitration Rules That

Conflict With The FAA.

In this case, the state law rule that was given

preclusive effect by the Ninth Circuit 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. C, 38a-39a.

By drawing a red circle around Labor Code section

2699 claims and declaring them exempt from arbitration

in all cases involving pre-dispute arbitration agreements,

the Smigelski decision stated a rule that is plainly in

conf lict with and therefore preempted by the FA A

as interpreted by Concepcion. A state law rule flatly

prohibiting enforcement of pre-dispute arbitration

agreements involving California Labor Code claims 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.1 Like California

1. 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 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 postdispute arbitration agreements and mandates that they be treated

16

Labor Code section 229 prohibiting arbitration of any

claim for wages (which this Court held preempted by the

FAA 30 years ago in Perry, supra, 482 U.S. at 492), the

Smigelski rule is an outright prohibition on arbitration of

a particular type of Labor Code claim and is thus a nullity

in any case governed by the FAA.

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 Smigelski decision also 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.

Indeed, an unbroken line of decisions by the Ninth

Circuit itself holds that the FAA requires exactly the

opposite result. These 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 (9 th Cir. 2018); Sakkab

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

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

758, 760 (9 th Cir. 2016); Valdez v. Terminix Int’l Co. Ltd.

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

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).

17

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

Hernandez v. DMSI Staffing, LLC., 79 F. Supp. 3d 1054,

1067 (N.D. Cal. 2015), aff’d sub nom. Hernandez v. DMSI

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

The Smigelski decision attempted to justify its antiarbitration rule as one of general applicability based on

the wrongheaded notion that because the State has an

interest in every PAGA claim for monetary penalties, it

is the “party” to the PAGA action and the named plaintiff

is not. This 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. 2

2. 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

18

But Smigelski’s 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. The

Smigelski rule and the decision below selectively disfavor

only agreements to submit PAGA claims to arbitration.

Recently, California’s Legislature made a distinct

subset of contracts in California expressly 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.

Such obvious inconsistency has led this Court to

conclude that similar judicial rules target arbitration

agreements. See, e.g. Kindred Nursing Centers, 137 S.Ct.

at 1427 (holding that FAA preempted Kentucky Supreme

Court’s special rule requiring express authorization by

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

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

19

principal of agent to enter into arbitration agreements

but not other contracts) ; 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.”).

The Smigelski decision also impermissibly and

uniquely disfavored arbitration in another way. Like

the nonsensical interpretation of contractual language

struck down by this Court in Imburgia (Imburgia, supra,

136 S.Ct. at 469) and Lamps Plus (Lamps Plus, supra,

139 S. Ct. at 1418-1419), the backward interpretation of

the severance language within PennyMac’s arbitration

agreement employed by the Smigelski court in order to

render the entire agreement unenforceable is plainly preempted by the FAA. App. C, 19a, 39a-45a.

The Ninth Circuit was wrong to rely on such plainly

invalid state law rules in a case governed by the FAA,

and should never have given them effect in violation of the

Supremacy Clause and federal precedent under the FAA.

E. The Federal Statute Relied Upon By The Ninth

Circuit Does Not Indicate A Congressional

Intent To Permit Invalid State Law Judicial

Rules To Override The Mandate Of The FAA.

The court of appeals below relied on 28 U.S.C. section

1738, the statute implementing the Full Faith and Credit

Clause, to override the FAA’s mandate and this Court’s

definitive interpretation in Epic of what that mandate

20

requires in an FLSA case where the employee has agreed

to waive class, collective and representative proceedings

in arbitration.

Section 173 8 , however, fails to mani fest any

Congressional intent to override the FAA, or to displace

the normal operation of the Supremacy Clause when the

FAA and this Court’s interpretation of the FAA invalidate

or displace contrary state law rules. Nor does this Court’s

jurisprudence under the Full Faith and Credit Clause

support the Ninth Circuit’s erroneous application of

invalid state law to override Epic. Petitioners are unaware

of any decision of this Court holding that the Full Faith

and Credit Clause requires a federal court to refuse

enforcement under the FAA of an arbitration agreement

that is enforceable under this Court’s precedent but that

is unenforceable under a rule of state law that conflicts

with the FAA and this Court’s interpretation of the FAA.

The Ninth Circuit itself, however, has recognized that in

circumstances where substantive federal law governs, a

federal court is not obligated to give preclusive effect to

a state judicial decision that is contrary to what federal

law requires. See e.g., Los Altos El Granada Investors v.

City of Capitola, 583 F.3d 674 (2009).

The decision below incorrectly gave preclusive effect

to the latest 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 pack in attempts

to circumvent the FAA with state law rules disfavoring

21

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. While such plain

disobedience may escape this Court’s review when arises

from state court proceedings, it should not be ignored

when a federal Court of Appeals invokes the invalid state

law rules to overturn a clear and correct application of

this Court’s interpretation of the FAA.

II. THE ISSUES IMPLICATED BY THE DECISION

BELOW ARE EXCEPTIONALLY IMPORTANT.

A.

The Individual Arbitration 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. 3 Many of those employees agree to arbitration

of their employment-related disputes at the outset of

their employment, before any dispute has arisen. If the

Smigelski rule must be given effect by District Courts,

then employment arbitration agreements under which

California employers and employees agreed to individually

arbitrate cannot be enforced in any case to which a PAGA

claim is appended.

3. 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.

22

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

Act: How to Manage the Unmanageable, 56 Santa Clara

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

B. There Is A Square Conflict Between The Ruling

Below And Other Ninth Circuit Decisions.

As explained above, the Ninth Circuit has held in

other cases that pursuant to the California Supreme

Court’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, and also has held that the presence

of an unenforceable PAGA waiver will not render an

arbitration agreement wholly unenforceable. Sakkab,

supra, 803 F.3d at 434; 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.

23

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 when

California courts abdicate their responsibility to follow the

FAA, such insubordination does not thwart the intention

of Congress and the instructions of this Court through an

inappropriate application of Section 1738.

C.

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. 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

24

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 Smigelski rule given effect by the Ninth Circuit,

selectively finding pre-dispute agreements invalid in

PAGA cases should fare no better.

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. 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

25

such a device. By reversing the Ninth Circuit decision

in this case, the Court can restore the District Court’s

proper application of Epic and signal its disapproval of

California’s conflicting rule. This case is an ideal vehicle

for doing so. It arises out of federal court, so it does not

implicate the views expressed by one member of this Court

that the FAA does not apply in state court proceedings.

D.

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 Epic, Kindred Nursing Centers, Imburgia,

and Concepcion. This Court has already taken that

course in other cases presenting a failure or 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 Ninth

Circuit (and California courts) that Epic is the conclusive

interpretation of the FAA and what it requires in FLSA

cases that involve agreements to individually arbitrate,

and it may not be ignored based on state law rules that

prohibit arbitration of a particular type of state law claim

or otherwise disfavor arbitration.

26

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 Epic, Kindred

Nursing Centers, Imburgia, and Concepcion.

Respectfully submitted,

James A. Bowles

Counsel of Record

Michael S. Turner

E. Sean McLoughlin

Warren J. Higgins

Hill, Farrer & Burrill LLP

300 South Grand Avenue

One California Plaza, 37th Floor

Los Angeles, California 90071

(213) 620-0460

jbowles@hillfarrer.com

Counsel for Petitioners

APPENDIX

1a

A

APPENDIX A —Appendix

MEMORANDUM

OF THE

UNITED STATES COURT OF APPEALS FOR THE

NINTH CIRCUIT, FILED FEBRUARY 7, 2020

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

No. 18-16494

D.C. No. 2:16-cv-02821-TLN-EFB

ERICH HEIDRICH; et al.,

Plaintiffs-Appellants,

v.

PENNYMAC FINANCIAL SERVICES, INC.; et al.,

Defendants-Appellees.

Appeal from the United States District Court

for the Eastern District of California.

Troy L. Nunley, District Judge, Presiding.

January 21, 2020, Argued and Submitted,

San Francisco, California;

February 7, 2020, Filed

Before: W. FLETCHER and R. NELSON, Circuit Judges,

and MOLLOY,* District Judge.

* The Honorable Donald W. Molloy, United States District

Judge for the District of Montana, sitting by designation.

2a

Appendix A

MEMORANDUM**

Former employees of PennyMac Financial Services,

Inc., appeal the district court’s order compelling arbitration

of their claims under the Federal Fair Labor Standards

Act, 29 U.S.C. §§ 201 et seq., and dismissing the action.

We have jurisdiction under 28 U.S.C. § 1291 and 9 U.S.C.

§ 16(a)(3). See Green Tree Fin. Corp.-Ala. v. Randolph,

531 U.S. 79, 89, 121 S. Ct. 513, 148 L. Ed. 2d 373 (2000);

Interactive Flight Techs., Inc. v. Swissair Swiss Air

Transp. Co., 249 F.3d 1177, 1179 (9th Cir. 2001). We hold

that we are bound by a decision of the California Court of

Appeal holding that PennyMac’s arbitration agreement is

unenforceable in its entirety, and we therefore reverse.1***

The district court compelled arbitration of the

employees’ FLSA claims, declined to exercise supplemental

jurisdiction over their state-law claims, dismissed all

claims before it, and entered judgment. The district

court reasoned that the employees’ FLSA claims were

arbitrable under Epic Systems Corp. v. Lewis, 138 S.

Ct. 1612, 200 L. Ed. 2d 889 (2018), but it did not consider

the employees’ alternative argument that PennyMac’s

arbitration agreement was unenforceable because it

contained an unlawful waiver of representative claims

under the California Private Attorneys General Act,

Cal. Lab. Code §§ 2698 et seq., and that the waiver

** This disposition is not appropriate for publication and

is not precedent except as provided by Ninth Circuit Rule 36-3.

1. PennyMac’s motion for an order that the excerpts of record

be supplemented (Dkt. 41) is DENIED as moot.

3a

Appendix A

was inseverable from the remainder of the arbitration

agreement. After the district court rendered its decision,

the California Court of Appeal held in Smigelski v.

PennyMac Financial Services, Inc., No. C081958, 2018

Cal. App. Unpub. LEXIS 8582, 2018 WL 6629406, at *12

(Cal. Ct. App. Dec. 19, 2018) (unpublished), reh’g denied

(Jan. 9, 2019), review denied, S253796, 2019 Cal. LEXIS

2417 (Cal. Apr. 10, 2019), cert. denied, 140 S. Ct. 223, 205 L.

Ed. 2d 126 (2019), that PennyMac’s arbitration agreement

contains an unlawful and inseverable PAGA waiver and

that therefore “PennyMac cannot compel arbitration of

any of Smigelski’s causes of action, including causes of

action that would otherwise be arbitrable.”

The Full Faith and Credit Clause and its implementing

statute require that federal courts “give to a state-court

judgment the same preclusive effect as would be given

that judgment under the law of the State in which the

judgment was rendered.” Migra v. Warren City Sch.

Dist. Bd. of Educ., 465 U.S. 75, 81, 104 S. Ct. 892, 79 L.

Ed. 2d 56 (1984); Rodriguez v. City of San Jose, 930 F.3d

1123, 1130 (9th Cir. 2019); see also U.S. Const. art. IV,

§ 1; 28 U.S.C. § 1738. Under California law, issue

preclusion applies against a party to a prior proceeding in

which the issue to be precluded was actually litigated and

necessarily decided in a final decision on the merits unless

the application of issue preclusion would be inconsistent

with public policy. See White v. City of Pasadena, 671

F.3d 918, 927 (9th Cir. 2012) (citing Lucido v. Superior

Court, 51 Cal. 3d 335, 272 Cal. Rptr. 767, 795 P.2d 1223,

1225-27 (Cal. 1990)).

4a

Appendix A

The requirements of issue preclusion under California

law are met here. PennyMac was a party to the prior

proceeding; identical arbitration agreements were at issue;

the parties vigorously litigated whether the agreements

contained unenforceable PAGA waivers and whether those

waivers were severable; the Court of Appeal expressly

decided those issues; and its decision is final on appeal.

PennyMac argues that the issues here differ from

those decided in Smigelski because the employees here

assert claims under federal law. We disagree. The Court of

Appeal in Smigelski held that the severability provisions of

PennyMac’s arbitration agreement prohibited severance

of provisions found to violate state law. See 2018 Cal.

App. Unpub. LEXIS 8582, 2018 WL 6629406, at *11. For

that reason, the court held that the agreements were

unenforceable in their entirety, not only as to PAGA claims

or to claims under state law. See 2018 Cal. App. Unpub.

LEXIS 8582, [WL] at *12. That PennyMac disagrees with

the Court of Appeal’s application of federal law is not a

valid basis for refusing that decision full faith and credit

as required by § 1738. See Allen v. McCurry, 449 U.S. 90,

95-96, 101 S. Ct. 411, 66 L. Ed. 2d 308 (1980).

The district court declined to exercise supplemental

jurisdiction over the employees’ state-law claims for the

sole reason that it had dismissed all federal claims before

it. Because we reverse the district court’s order dismissing

the employees’ federal claims, we also reverse as to their

state-law claims.

REVERSED.

5a

B THE UNITED

APPENDIX B —Appendix

ORDER OF

STATES DISTRICT COURT FOR THE EASTERN

DISTRICT OF CALIFORNIA, DATED JULY 11, 2018

UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF CALIFORNIA

No. 2:16-cv-02821-TLN-EFB

ERICH HEIDRICH, ERIC KIDD, MARIA

ANGELICA CASTRO, AND JUSTIN ROBERSON,

ON BEHALF OF THEMSELVES AND OTHERS

SIMILARLY SITUATED,

Plaintiffs,

v.

PENNYMAC FINANCIAL SERVICES, INC.;

PENNYMAC MORTGAGE INVESTMENT

TRUST; and PRIVATE NATIONAL MORTGAGE

ACCEPTANCE CO.,

Defendants.

ORDER GRANTING DEFENDANTS’ MOTION

TO COMPEL ARBITRATION OF FLSA

CLAIM AND TO DISMISS

This matter is before the Court pursuant to Defendants

PennyMac Financial Services, Inc., PennyMac Mortgage

Investment Trust, and Private National Mortgage

Acceptance Co.’s (collectively, “Defendants”) Motion to

Compel Arbitration of the Fair Labor Standards Act

6a

Appendix B

claim (“FLSA”), Motion to Dismiss, or alternatively,

Motion to Stay. (ECF No. 9.) Plaintiffs Erich Heidrich,

Eric Kidd, and Maria Angelica Castro (collectively,

“Plaintiffs”) oppose. (ECF No. 10.) Defendants replied.

(ECF No. 14.) For the reasons set forth below, the Court

GRANTS Defendants’ Motion to Compel Arbitration and

DISMISSES the action.

I.

Factual and Procedural Background

Plaintiffs allege Defendants did not include the full

amount of their non-exempt employees’ compensation

when calculating the regular rate of pay for overtime

purposes. (ECF No. 4 ¶ 1.) Plaintiffs allege Defendants

do not pay employees their bonuses on a timely basis and

do not pay employees all wages owed at the time of their

termination. (ECF No. 4 ¶ 1.) Plaintiffs allege Defendants

concealed violations of state and federal law by failing

to include all required information in wage statements.

(ECF No. 4 ¶ 14.) Plaintiffs allege the failures were part

of company-wide policies and practices. (ECF No. 4 ¶ 17.)

Plaintiffs seek to represent a class of similarly situated

employees and former employees of Defendants. (ECF

No. 4 ¶ 18.)

Defendants required employees, including Plaintiffs,

to sign an “Employee Agreement to Arbitrate” as a part of

a Mutual Arbitration Plan (“MAP”) and as a condition of

employment. (ECF No. 4 ¶ 2; ECF No. 9 at 6.) The MAP

provides: “I understand that final and binding arbitration

will be the sole and exclusive remedy for any [employment]

claim or dispute....” (ECF No. 9-1, Exs. 5-7.) The MAP

7a

Appendix B

includes a waiver which precludes Plaintiffs from engaging

in concerted activity by requiring Plaintiffs to pursue

work-related claims individually in arbitration. (ECF No.

9-1; Ex. 1 at 8; Exs. 5-7.) The MAP waiver includes the

following language: “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 Mutual Arbitration Plan (“MAP”), and

forego any right to bring claims on a representative or

class basis.” (ECF No. 9-1, Exs. 5-7.) The MAP further

explains the agreement to arbitrate “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.” (ECF

No. 9-1, Ex. 1 at 8.)

Defendants move to compel arbitration, arguing the

arbitration agreements are binding. (ECF No. 9 at 4.)

Plaintiffs argue the waiver is illegal under California law

and so the entire arbitration agreement is invalid under

binding Ninth Circuit precedent in Morris v. Ernst &

Young, LLP, 834 F.3d 975 (9th Cir. 2016). (ECF No. 10 at

15.) The Supreme Court granted certiori in Morris and

reversed. Epic Sys. Corp. v. Lewis, 138 S. Ct. 1612, 1632,

200 L. Ed. 2d 889 (2018.)

II. Standard of Law

“[T]he federal law of arbitrability under the Federal

Arbitration Act (“FAA”) governs the allocation of authority

between courts and arbitrators.” Cox v. Ocean View

8a

Appendix B

Hotel Corp., 533 F.3d 1114, 1119 (9th Cir. 2008). There is

an “emphatic federal policy in favor of arbitral dispute

resolution.” Mitsubishi Motors Corp. v. Soler ChryslerPlymouth, 473 U.S. 614, 631, 105 S. Ct. 3346, 87 L. Ed. 2d

444 (1985). As such, “any doubts concerning the scope of

arbitrable issues should be resolved in favor of arbitration,

whether the problem at hand is the construction of the

contract language itself or an allegation of waiver, delay,

or a like defense to arbitrability.” Id. at 626 (quoting Moses

H. Cone Mem’l Hosp. v. Mercury Constr. Corp., 460 U.S.

1, 24-25, 103 S. Ct. 927, 74 L. Ed. 2d 765 (1983)). “Because

waiver of the right to arbitration is disfavored, ‘any party

arguing waiver of arbitration bears a heavy burden of

proof.’” Fisher v. A.G. Becker Paribas Inc., 791 F.2d 691,

694 (9th Cir. 1986) (quoting Belke v. Merrill Lynch, Pierce,

Fenner & Smith, 693 F.2d 1023, 1025 (11th Cir. 1982)).

Generally, in deciding whether a dispute is subject to

an arbitration agreement, the Court must determine: “(1)

whether a valid agreement to arbitrate exists and, if it

does, (2) whether the agreement encompasses the dispute

at issue.” Chiron Corp. v. Ortho Diagnostic Sys., Inc.,

207 F.3d 1126, 1130 (9th Cir. 2000). As such, the Court’s

role “is limited to determining arbitrability and enforcing

agreements to arbitrate, leaving the merits of the claim

and any defenses to the arbitrator.” Republic of Nicaragua

v. Standard Fruit Co., 937 F.2d 469, 479 (9th Cir. 1991).

“In determining the existence of an agreement to

arbitrate, the district court looks to ‘general state-law

principles of contract interpretation, while giving due

regard to the federal policy in favor of arbitration.’”

9a

Appendix B

Botorff v. Amerco, No. 2:12-CV-01286, 2012 U.S. Dist.

LEXIS 179865, 2012 WL 6628952, at *3 (E.D. Cal. Dec.

19, 2012) (citing Wagner v. Stratton, 83 F.3d 1046, 1049

(9th Cir. 1996)). An arbitration agreement may only “be

invalidated by ‘generally applicable contract defenses,

such as fraud, duress, or unconscionability,’ but not by

defenses that apply only to arbitration or that derive their

meaning from the fact that an agreement to arbitrate

is at issue.” AT&T Mobility LLC v. Concepcion, 563

U.S. 333, 131 S. Ct. 1740, 1748, 179 L. Ed. 2d 742 (2011)

(quoting Doctor’s Assocs. Inc. v. Casarotto, 517 U.S. 681,

687, 116 S. Ct. 1652, 134 L. Ed. 2d 902 (1996)). Therefore,

courts may not apply traditional contractual defenses,

like duress and unconscionability, in a broader or more

stringent manner to invalidate arbitration agreements

and thereby undermine FAA’s purpose to “ensur[e] that

private arbitration agreements are enforced according

to their terms.” Id. at 1748 (quoting Volt Info. Scis., Inc.

v. Bd. of Trs. of Leland Stanford Junior Univ., 489 U.S.

468, 478, 109 S. Ct. 1248, 103 L. Ed. 2d 488 (1989)).

If the Court “determines that an arbitration clause is

enforceable, it has the discretion to either stay the case

pending arbitration or to dismiss the case if all of the

alleged claims are subject to arbitration.” Delgadillo v.

James McKaone Enters., Inc., No. 1:12-CV-1149, 2012 U.S.

Dist. LEXIS 130336, 2012 WL 4027019, at *3 (E.D. Cal.

Sept. 12, 2012). The plain language of the FAA provides

that the Court should “stay the trial of the action until such

arbitration has been had in accordance with the terms of

the agreement...” 9 U.S.C. § 3. However, “9 U.S.C. § 3 gives

a court authority, upon application by one of the parties,

10a

Appendix B

to grant a stay pending arbitration, but does not preclude

summary judgment when all claims are barred by an

arbitration clause. Thus, the provision does not limit the

court’s authority to grant dismissal in the case.” Sparling

v. Hoffman Constr. Co., 864 F.2d 635, 638 (9th Cir. 1988).

III. A nalysis

The parties agree Defendants required each plaintiff

to sign an arbitration agreement and also agree that its

provisions waive collective action and require “final and

binding arbitration” as the “sole and exclusive” remedy

for any employment claim or dispute between the parties.

(ECF No. 9 at 6; ECF No. 10 at 14.) Defendants move to

compel arbitration pursuant to the Federal Arbitration

Act (“FAA”) and to dismiss the suit. (ECF No. 9 at 4.)

Defendants argue this Court lacks jurisdiction over the

case because the arbitration agreements are binding so

the suit should be compelled to arbitration and dismissed.

(ECF No. 9 at 4.) Plaintiffs oppose the motions, arguing

the waiver provision is illegal under California law and so

the entire arbitration agreement is invalid under binding

Ninth Circuit precedent in Morris v. Ernst & Young, LLP,

834 F.3d 975 (9th Cir. 2016). (ECF No. 10 at 15.)

After the parties filed their briefs, the Supreme Court

granted certiori in Morris. Epic Sys. Corp., 138 S. Ct. at

1612. The Court considered Morris along with Seventh

Circuit and Fifth Circuit cases that addressed whether

employees should be allowed to bring class or collective

actions where they agreed to one-on-one arbitration and

reversed Morris. Id. at 1632.

11a

Appendix B

In Morris, the Ninth Circuit reversed a district

court’s grant of a motion to compel arbitration. Epic Sys.

Corp., 138 S. Ct. at 1620. The Ninth Circuit reasoned the

FAA’s “savings clause” does not require a court to compel

arbitration if the arbitration agreement violates another

federal law, such as violating sections of the National

Labor Relations Act (“NLRB”) by barring employees

from pursuing collective action. Id.

The Supreme Court found that Congress, in enacting

the FAA, not only required courts to “respect and enforce

agreements to arbitrate,” but “specifically directed them

to respect and enforce the parties’ chosen procedures.”

Epic Sys. Corp., 138 S. Ct. at 1621. The Court found the

FAA’s “savings clause” does not apply to defenses that

target arbitration, rather than defenses that would apply

to all contracts such as duress. Id. at 1622. Further,

the Court found, neither the NLRA (or its “precursor”

the Norris-LaGuardia Act) nor the FSLA displace the

FAA or prohibit individualized arbitration proceedings.

Id. at 1626-27. The Court stated, “a contract defense

‘conditioning the enforceability of certain arbitration

agreements on the availability of classwide arbitration

procedures’ is inconsistent with the Arbitration Act and

its saving clause.” Id. at 1631 (quoting AT & T Mobility

LLC v. Concepcion, 563 U.S. 333, 336, 131 S. Ct. 1740, 179

L. Ed. 2d 742 (2011)).

Under the FAA, where an issue in a suit can be

referred to arbitration pursuant to a written arbitration

agreement, district courts are required to order

arbitration of that issue. 9 U.S.C. §§ 3-4. The court’s role

12a

Appendix B

is “limited to determining (1) whether a valid agreement to

arbitrate exists and, if it does, (2) whether the agreement

encompasses the dispute at issue.” Chiron Corp. v.

Ortho Diagnostic Sys., Inc., 207 F.3d 1126, 1130 (9th Cir.

2000). Here, it is undisputed Plaintiffs signed arbitration

agreements which covered all employment related claims.

Plaintiffs’ FSLA claim alleging improper calculation of

rate of pay is a dispute relating to their employment.

Luchini v. Carmax, Inc., 2012 U.S. Dist. LEXIS 126230,

2012 WL 3862150, at *6 (E.D. Cal. Sept. 5, 2012) (citing

Albertson’s, Inc. v. United Food & Commercial Workers

Union, AFL-CIO & CLC, 157 F.3d 758, 762 (9th Cir.

1998). The parties differed on whether the arbitration

agreement was enforceable and valid given the inclusion

of the waiver. “[T]he law is clear: Congress has instructed

that arbitration agreements like those before us must be

enforced as written.” Epic Sys. Corp., 138 S. Ct. at 1632.

Accordingly, the Court must compel arbitration of the

FSLA claim. Id.; 9 U.S.C. § 3.

Plaintiffs’ FSLA claim is the sole basis for federal

subject matter jurisdiction in this suit. Plaintiffs

remaining claims are state law claims for violations

of California’s Labor Code and for Unfair Business

Practices. (ECF No. 4 at 1.) A federal court may decline

to exercise supplemental jurisdiction over state law claims

where it “dismissed all claims over which it has original

jurisdiction.” 28 U.S.C. § 1367(c)(3). “When, as here, the

court dismisses the federal claim leaving only state claims

for resolution, the court should decline jurisdiction over

the state claims and dismiss them without prejudice.” Les

Shockley Racing, Inc. v. Nat’l Hot Rod Ass’n, 884 F.2d

13a

Appendix B

504, 509 (9th Cir. 1989) (citing Carnegie-Mellon Univ.

v. Cohill, 484 U.S. 343, 348, 108 S. Ct. 614, 98 L. Ed. 2d

720 (1988)). Accordingly, the Court declines to exercise

supplemental jurisdiction over Plaintiffs’ state law claims

and dismisses the claims without prejudice.

IV. Conclusion

For the reasons set forth above, the Court hereby

GRANTS Defendants’ Motion to Compel Arbitration

and to Dismiss the FLSA claim and declines to exercise

supplemental jurisdiction over Plaintiffs’ state law

claims, which are dismissed without prejudice, (ECF

No. 9). Plaintiffs’ pending Motion to Toll the Statute of

Limitations is DENIED as moot, (ECF No. 18). The Clerk

of the Court is directed to close the case.

IT IS SO ORDERED.

Dated: July 9, 2018

/s/ Troy L. Nunley

Troy L. Nunley

United States District Judge

14a

AppendixOF

C THE COURT OF

APPENDIX C — OPINION

APPEAL OF THE STATE OF CALIFORNIA,

THIRD APPELLATE DISTRICT, SACRAMENTO,

FILED DEEMBER 19, 2018

IN THE COURT OF APPEAL OF

THE STATE OF CALIFORNIA

THIRD APPELLATE DISTRICT

(Sacramento)

C081958

(Super. Ct. No.

34201500186855CUOEGDS)

RICHARD SMIGELSKI,

Plaintiff and Respondent,

v.

PENNYMAC FINANCIAL SERVICES, INC. et al.,

Defendants and Appellants.

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

with a former employee, plaintiff and respondent Richard

Smigelski. PennyMac advances a number of arguments

on appeal. Of greatest significance, PennyMac argues

15a

Appendix C

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

as otherwise permitted by the MAP.” The employee

agreement further provides, “by agreeing to use

arbitration to resolve my dispute, both PennyMac and I

1. Undesignated statutory references are to the Labor Code.

16a

Appendix C

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

Arbitration Association (AAA Employment Rules). The

MAP further provides, “PennyMac will not modify or

change the agreement between you and PennyMac to

17a

Appendix C

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.

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

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).)

18a

Appendix C

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).)

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

3. We discuss Iskanian post.

19a

Appendix C

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.

The trial court also rejected PennyMac’s argument

that questions of arbitrability must be determined by the

20a

Appendix C

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

compel arbitration. The motion sought reconsideration of

the order denying the first petition to compel arbitration

21a

Appendix C

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

[employment agreement] contained provisions that violated

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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.

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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-

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Appendix C

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

25a

Appendix C

(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

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Appendix C

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

27a

Appendix C

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

28a

Appendix C

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.)

29a

Appendix C

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

30a

Appendix C

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.)

The court did not examine the severability of the PAGA

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Appendix C

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)

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Appendix C

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.

33a

Appendix C

“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.

34a

Appendix C

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 C

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,

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Appendix C

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.

37a

Appendix C

(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.)

38a

Appendix C

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

39a

Appendix C

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, 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.

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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

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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

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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

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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

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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

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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.

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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

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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

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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

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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).)

/s/

RENNER, J.

We concur:

/s/

HULL, Acting P. J.

/s/

ROBIE, J.