Brown v. Ralphs Grocery: Court of Appeal Says Concepcion Does Not Apply in PAGA Actions

Brown v. Ralphs Grocery Company (July 12, 2011) --- Cal.App.4th ----, 2011 WL 2685959, mod. July 20, 2011 at 2011 WL 2892118, is the first California case that I'm aware of dealing with a class arbitration waiver in the wake of the Supreme Court's ruling in AT&T Mobility v. Concepcion.

The plaintiff brought a putative class and representative action under the Private Attorney General Act of 2004 (PAGA) against her employers (Ralphs) for alleged Labor Code violations. Ralphs petitioned to compel individual arbitration under its arbitration policy, which provided:

This Arbitration Policy applies to any and all employment-related disputes that exist or arise between Employees and Ralphs [Grocery Company] (or any of them) that would constitute cognizable claims or causes of action in a federal, state or local court or agency under applicable federal, state or local laws (referred to in this Arbitration Policy as ‘Covered Disputes').... “[T]here is no right or authority for any Covered Disputes to be heard or arbitrated on a class action basis, as a private attorney general, or on bases involving claims or disputes brought in a representative capacity on behalf of the general public, of other Ralphs [Grocery Company] employees (or any of them), or of other persons alleged to be similarly situated.... [T]here are no judge or jury trials and there are no class actions or Representative Actions permitted under this Arbitration Policy.

Ibid. (emphasis in original). The trial court (Los Angeles Superior, Judge Richard Rico) denied the petition, finding that the agreement was unconscionable and unenforceable, and Ralphs appealed. After submission of the appeal, the Supreme Court of the United States issued its decision in AT & T. The Court of Appeal affirmed in part, reversed in part, and remanded for further consideration.

The Court first considered the trial court's ruling that the arbitration waiver was unconscionable under Gentry v. Superior Court (2007) 42 Cal.4th 443 (invalidating class arbitration waiver in wage and hour class action):

Contrary to plaintiff's assertion, the court in Gentry, supra, 42 Cal.4th at page 446, required a factual showing under the four-factor test established in that case ["the modest size of the potential individual recovery, the potential for retaliation against members of the class, the fact that absent members of the class may be ill informed about their rights, and other real world obstacles to the vindication of class members' rights ... through individual arbitration"]. Plaintiff, however, made no such showing in opposing the petition to compel arbitration. Thus, there was no evidence, much less substantial evidence, supporting the trial court's finding that under Gentry, plaintiff had established a basis not to enforce the class action waiver. As a result, we reverse the trial court's ruling invalidating the class action waiver.

Accordingly, we do not have to determine whether, under AT & T, supra, 131 S.Ct. 1740, the rule in Gentry, supra, 42 Cal.4th 433 concerning the invalidity of class action waivers in employee-employer contract arbitration clauses is preempted by the FAA. (See Arguelles–Romero v. Superior Court (2010) 184 Cal.App.4th 825, 836 [“while Discover Bank is a case about unconscionability, the rule set forth in Gentry is concerned with the effect of a class action waiver on unwaivable rights regardless of unconscionability”]; People v. Landry (1996) 49 Cal.App.4th 785, 791 [California Supreme Court interpretation of federal law binding when there is “no contrary United States Supreme Court decision” on the issue]; see also Perry v. Thomas (1987) 482 U.S. 483, 489–491 [FAA preempted former § 299, which permits wage claims to be brought in court even though the parties had an arbitration agreement].)

Slip op. at 6-7. Having disposed of that issue without discussion, the Court next considered whether Ralphs could enforce the agreement's apparent waiver of plaintiff's right to bring a PAGA representative action.

The representative action authorized by the PAGA is an enforcement action, with one aggrieved employee acting as a private attorney general to collect penalties from employers who violate the Labor Code. “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."

Slip op. at 8, citing Franco v. Athens Disposal Co., Inc. (2009) 171 Cal.App.4th 1277, and Arias v. Superior Court (2009) 46 Cal. 4th 969, 986. The Court then held that PAGA representative actions, unlike individual actions, are not subject to the rule in AT&T, supra,which held that because “it ‘stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress’ [citation], California’s Discover Bank rule is preempted by the FAA.” The Court reasoned:

AT & T does not purport to deal with the FAA's possible preemption of contractual efforts to eliminate representative private attorney general actions to enforce the Labor Code. As noted, the PAGA creates a statutory right for civil penalties for Labor Code violations “that otherwise would be sought by state labor law enforcement agencies.” (Amalgamated Transit Union, Local 1756, AFL–CIO v. Superior Court (2009) 46 Cal.4th 993, 1003.) 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.” (Ibid.) This purpose contrasts with the private individual right of a consumer to pursue class action remedies in court or arbitration, which right, according to AT & T may be waived by agreement so as not to frustrate the FAA—a law governing private arbitrations. AT & T does not provide that a public right, such as that created under the PAGA, can be waived if such a waiver is contrary to state law.

Slip op. at 9. Applying a relatively narrow reading of AT & T, the Court concluded:

United States Supreme Court authority does not address a statute such as the PAGA, which is a mechanism by which the state itself can enforce state labor laws, for the employee suing under the PAGA “does so as the proxy or agent of the state's labor law enforcement agencies.” ( Arias, supra, 46 Cal.4th at p. 986, 95 Cal.Rptr.3d 588, 209 P.3d 923.) And, even if a PAGA claim is subject to arbitration, it would not have the attributes of a class action that the AT & T case said conflicted with arbitration, such as class certification, notices, and opt-outs. Until the United States Supreme Court rules otherwise, we continue to follow what we believe to be California law.

Slip op. at 13.

In a separate opinion concurring in part and dissenting in part, Justice Kriegler wrote:

I respectfully dissent, however, from the majority's further conclusion that Brown's waiver of the right to file a representative action under the Labor Code Private Attorneys General Act of 2004 (PAGA) (Lab.Code, § 2698 et seq.) was unenforceable. The preemptive effect of the Federal Arbitration Act (FAA) requires enforcement of the PAGA waiver in the employment arbitration agreement in this case under the holding of AT & T Mobility LLC v. Concepcion et ux. (2011) ––– U.S. ––––, 131 S.Ct. 1740, 179 L.Ed.2d 742 (AT & T).

Slip op. at 16.

I assume that the defense will petition the Supreme Court for review. It will be interesting to see whether the Court takes it up. My guess is that it will not do so.

The opinion is available here.