The Ninth U.S. Circuit Court of Appeals applied the California Supreme Court's interpretation of the U.S. Supreme Court's decision on the intersection of the Private Attorneys General Act (PAGA) claims and arbitration in Viking River Cruises, Inc. v. Moriana.
As an employee of Lowe's Home Centers, Maria Johnson signed a contract providing that "any controversy between [Johnson] and Lowe's ... arising out of [her] employment or the termination of [her] employment shall be settled by binding arbitration."
The contract also contained a "representative action waiver" prohibiting any dispute from being arbitrated as a representative action, including claims brought under PAGA.
Johnson filed a complaint in California state court alleging both individual and non-individual PAGA claims. Lowe's removed to federal district court.
In June 2022, the Supreme Court decided Viking River, holding that PAGA violates the rights of employers under the Federal Arbitration Act (FAA) to the extent that the it permits an employee who is contractually required to arbitrate employment-related disputes to bypass arbitration and pursue their claims against their employer in court.
Invoking Viking River, Lowe's moved to compel arbitration of Johnson's individual PAGA claim and to dismiss her non-individual PAGA claims. The district court granted the motion and Johnson appealed.
In the interim, the California Supreme Court decided Adolph v. Uber Technologies, Inc., ruling that individual and non-individual PAGA claims may be partially severed, such that a plaintiff's individual PAGA claims may be sent to arbitration while the plaintiff's non-individual PAGA claims remain in court.
Given Adolph's correction of Viking River's misunderstanding of PAGA, the Ninth Circuit affirmed the district court's order compelling arbitration of Johnson's individual PAGA claim, but vacated the dismissal of Johnson's non-individual PAGA claims and remanded.
Lowe's contended that Adolph was inconsistent with Viking River, but the federal appellate panel disagreed.
"It is axiomatic that a state court has the authority to correct a misinterpretation of that state's law by a federal court," the court wrote. "In her concurrence, Justice Sotomayor acknowledged ... that 'if this Court's understanding of state law is wrong, California courts, in an appropriate case, will have the last word.'"
The California Supreme Court did just that in Adolph, taking issue with the Supreme Court's reading of PAGA.
"There is nothing in Adolph that is inconsistent with the federal law articulated in Viking River," the court said. "As required by the FAA and Viking River, the California Supreme Court in Adolph compelled the plaintiff to arbitrate his individual PAGA claims. Further, as permitted by the FAA and Viking River, the Court held in Adolph that PAGA prevented the plaintiff from waiving his right to pursue his non-individual PAGA claims in court. Finally, as may or may not have been required but was certainly consistent with the FAA and Viking River, the Court held that if the plaintiff lost on the merits of his individual PAGA claims in arbitration, he no longer had standing to pursue his non-individual PAGA claims in court."
To read the opinion in Johnson v. Lowe's Home Centers, LLC, click here.
Why it matters
The Ninth Circuit respected the California Supreme Court's interpretation PAGA in the wake of Viking River, affirming the district court's grant of the motion to compel the plaintiff's individual PAGA claim, while vacating and remanding the dismissal of her non-individual PAGA claims. In a separate concurrence, one member of the panel highlighted a "lurking tension" between Adolph and the FAA, in that the bifurcation procedure outlined in Adolph "might blunt the efficiency and informality of arbitration in some cases." Arbitrations for individual claims are often low stakes for companies, but if legal conclusions or factual findings from an individual PAGA arbitration could be binding in a non-individual PAGA court action, companies may need to devote more resources to an individual arbitration, the concurrence pointed out.
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