Here’s the scenario: You file a wage and hour class action in California state court, including a Private Attorney General Act of 2004 (“PAGA”) claim. The defendant removes the case to Federal Court under the Class Action Fairness Act of 2005 (“CAFA”) and then waves an arbitration agreement at the judge in its motion to dismiss. The judge reviews the agreement, notes a class waiver, and sends you off to arbitrate your client’s claims on an individual basis.
- First, how can this happen under the Iskanian case?
- Second, what is a plaintiffs’ lawyer to do about it?
Although the California Supreme Court recently made it clear that PAGA claims cannot be forced into arbitration (a decision the U.S. Supreme Court has refused to review), the Ninth Circuit has yet to do the same. So even though there are a handful of Federal District Court Judges who have followed Iskanian’s lead in finding PAGA waivers unenforceable, many have not, instead opting to send both class and PAGA claims to arbitration on an individual basis.,  How can this be? Well, although federal courts in California are bound by Iskanian’s holding that an employee’s right to bring a PAGA claim cannot be waived through an arbitration agreement, they are not bound by Iskanian’s additional determination that such waivers do not frustrate the purposes of the Federal Arbitration Act (“FAA”) – an inherent question of federal law.Since federal jurisprudence on FAA preemption is sparse, and precedent involving PAGA waivers non-existent, federal district court judges must undertake their own analysis to determine whether PAGA waivers are FAA-preempted. Although the issue has been raised on appeal, we are months – if not years – away from any definitive rule requiring California federal courts to retain jurisdiction over PAGA claims when employer arbitration agreements waive the right to litigate them. So… how can plaintiffs’ lawyers keep their PAGA claims alive once they’ve been removed to federal court?
Amend your complaint to dismiss every claim but PAGA, then move to remand.
Once you’re in federal court and the class action portion of your case has been gutted, do you still meet the $5 million amount in controversy requirement? PAGA claims are penalty-based, cannot be aggregated and have a much shorter statute of limitations period, so it’s worth doing the math. If CAFA was the only basis for removal (and since PAGA claims aren’t subject to CAFA jurisdiction), take a second look at defendant’s removal papers which are required to provide detailed information on the amount in controversy. If you don’t have the information you need, ask for it. If the defendant won’t provide it without a formal discovery request or order from the judge, move to compel it and seek sanctions. Just like plaintiffs cannot withhold information regarding the amount in controversy to avoid removal, defendants cannot withhold it to avoid remand.
Dismiss your federal court case and re-file your PAGA claim in state court without class action claims.
Although you lose some of the statute of limitations period (probably a few months for the removal and motion to compel arbitration proceedings), you don’t need a new plaintiff. (Be sure to also include non-PAGA wage claims for just your client.) Defendant may cry foul (the old line about forum shopping), but so far no federal district court judge has refused to dismiss a plaintiff’s case just because that plaintiff wants to take advantage of the more favorable state court forum. Indeed, in one case, after ordering both class and PAGA claims to arbitration on an individual basis, Judge James Selna of the Central District granted the plaintiffs’ motion to dismiss after they re-filed a PAGA-only case in state court. As Judge Selna aptly put it, although “[the] dismissal may certainly inconvenience Hobby Lobby because it may have to litigate, rather than arbitrate, Plaintiffs’ PAGA cause of action,…this is not the type of prejudice that precludes Rule 41(a)(2) dismissal of claims.”
Got a case you haven’t filed yet? Engage in a preemptive strike.
Consider filing a PAGA-only claim in state court. As noted above, while class action claims can be removed to federal court under CAFA, PAGA claims cannot. And since state courts are bound by Iskanian, your PAGA claim cannot be forced to arbitration even if a clear agreement exists. Not sure you want to give up the meaty class action four-year statute of limitations period? File two separate cases – a PAGA-only case in state court and a class action case in state or federal court. Although you’ll need more than one plaintiff to avoid dismissal under the doctrine of concurrent jurisdiction, your PAGA case will not be delayed by a motion to compel arbitration (as the outcome is a done deal under Iskanian) and, as an added bonus, you’ll be able to immediately obtain merits discovery.
Given that class action complaints are now regularly sent to arbitration and, even when they aren’t, often fail to obtain certification in either state or federal court, PAGA claims are the “new black.” Class action lawyers who include PAGA claims in their complaints (and some have suggested it would be malpractice not to do so) need to be prepared to defend them. Until the Ninth Circuit weighs in on FAA preemption, plaintiffs’ attorneys are well-served to take advantage of California state courts’ get-out-of-arbitration-free card.
About the Author:
Molly A. DeSario serves as an Senior Associate for Scott Cole & Associates, APC. Ms. DeSario has experience representing workers in class action litigation and has collaborated with the Equal Employment Opportunity Commission on federal employment discrimination matters