PAGA: Did Adolph round the bend on Viking River? Maybe not

The California Supreme Court has issued its highly anticipated decision on whether an order requiring arbitration under the Federal Arbitration Act (FAA) of the named plaintiff’s individual Private Attorney General Act (PAGA) claim eliminates that plaintiff’s standing to pursue in state court alleged PAGA violations toward others. A prior decision by the US Supreme Court held that it did, while deferring to the California Supreme Court as the ultimate decider on the question of state-court standing (Viking River Cruises Inc. v. Moriana). On Monday, the California Supreme Court held that a requirement to arbitrate the named plaintiff’s individual PAGA claims does not, in and of itself, eliminate that plaintiff’s standing to pursue representative PAGA claims in state court (Adolph v. Uber Technologies).

That is not the whole story. The California Supreme Court also held that if an arbitrator holds the named plaintiff is not aggrieved, the named plaintiff loses standing to pursue the representative PAGA claims in state court. This is because a PAGA claim must be brought by an “aggrieved employee” and not merely an employee who alleges he or she is aggrieved.

At the same time, the Court made plain that though defenses such as an individual release or the statute of limitation may bar recovery, they do not resolve the question of whether the named plaintiff suffered a Labor Code violation and was “aggrieved.” If the defendant prevails in arbitration based on a defense, the question of whether the named plaintiff is “aggrieved” remains, presumably for resolution in state court (but see below).

The Court also strongly suggested (as federal law Title 9 U. S. C. section 3 requires, and state California Code of Civil Procedure section 1281.4 strongly suggests) that during this inquiry in arbitration, the representative state court action should be stayed.

That said, Adolph may not be the last word on the topic.

First, the reasoning employed in Adolph, and the potential outcomes it allows, may run afoul of higher federal law, namely the FAA. Defendant’s primary argument was that the PAGA statute requires a plaintiff’s PAGA claim in Superior Court be “on behalf of himself ... and other current or former employees.” Defendant argued, as the US Supreme Court previously held, that the first requirement cannot be satisfied where the named plaintiff’s individual claims are in arbitration, and therefore separate from the representative claims remaining in Superior Court. In response, the California Supreme Court merely cited and quoted a prior California appellate decision, and without further analysis, ruled that “the individual PAGA claims in arbitration remains part of the same lawsuit as the representative claims remaining in court.” That conclusion, offered without analysis, may be vulnerable to an attack based on federal preemption per the FAA. An FAA arbitration is not a part of, and cannot be a part of, a state court action. See Viking River, 142 S. Ct. 1906, 1925 (2022) (stating when FAA arbitration agreement is enforced with respect to an individual PAGA claim, the claim has been “committed to a separate proceeding”); KPMG LLP v. Cocchi, 565 U.S. 18, 22 (2011) (stating FAA requires “separate proceedings in different forums”) (emphasis added in each). Indeed, the whole point of arbitration is to remove the arbitrable claim from the purview of state or federal court. As such, the Adolph decision may rely on a construct of state law that impinges on a central purpose of higher federal law and federal authorities interpreting it (similar to the holding in Viking River that PAGA’s mandatory-joinder rule violated the FAA and was preempted by it).

Second, the California Supreme Court’s holding that a defense against an individual PAGA claim does not preclude the named plaintiff from being considered “aggrieved” suggests that where an arbitration is resolved based on a defense, then the question of whether the named plaintiff is an “aggrieved employee” would be returned to the state court for resolution. That question, however, very likely falls within the parties’ obligation to arbitrate per an agreement governed by the FAA. Thus, the Court’s interpretation of state law to allow court resolution of that question likely would frustrate defendant’s contracted-for rights under the FAA, and may be preempted on that ground (again, similar to what the US Supreme Court held in Viking River).

In both these regards, Adolph’s seeming evasion of Viking River may not ultimately work.

Apart from potential preemption, there is the ballot box. As the Adolph decision notes, the California Legislature may step in to “curb alleged abuses of PAGA” stemming from its view of PAGA standing. It even highlights what some may consider abuse. For example, the Court rejected defendant’s argument that a plaintiff who has arbitrated his/her individual PAGA claim to conclusion lacks standing thereafter as he/she can gain nothing from the subsequent litigation. See Adolph (“standing must exist at all times until judgment is entered”); Limon v. Circle K Stores Inc., (2022) 84 Cal. App. 5th 671, 690 (the “standing requirement is to ensure that the courts will decide only actual controversies between parties with a sufficient interest in the subject matter of the dispute to press their case with vigor”). Yet the Adolph Court found continued standing even after arbitration of the individual claim, reasoning that PAGA’s attorney fee recovery provision “may help [the named plaintiff] secure representation by enticing attorneys to take cases they might not have if limited to recovering fees and costs for individual claims alone.” This reasoning seems strained, as how that will keep a named plaintiff interested in, and continuously and vigorously pursuing, litigation after all his/her interests are resolved is less than clear. The rationale looks backward and conflates the interests of the plaintiff’s bar with the interest of the plaintiff. Employers and associations like the CalChamber almost certainly will propose a ballot measure to voters in 2024 to reign in PAGA to conform to more traditional notions of standing.