Supreme Court Airs Re-Run on Class Waivers in DirecTV But Disappoints Again by Declining PAGA Waiver Programming

by Seyfarth Shaw LLP
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As discussed by our Consumer Class Defense Blog, this week’s Supreme Court decision in DirecTV, Inc. v. Imburgia reversed a California Court of Appeal that had applied the California Consumer Legal Remedies Act’s prohibition of class waivers in arbitration agreements. According to the lower court’s decision, an arbitration agreement’s terms—directing application of the “law of your state”—permitted the court to effect the California law’s ban on class waivers. But as DirecTV reiterated, courts cannot ignore the Supreme Court’s 2011 decision in AT&T Mobility LLC v. Concepcion, which held that the Federal Arbitration Act (“FAA”) trumps contrary state laws when it comes to class waivers.

But on the same day the Supreme Court reaffirmed that California’s continuing hostility to honoring class waivers is impermissible, the Supreme Court also declined an opportunity to weigh in on California’s similar hostility to “PAGA waivers” in arbitration agreement. By denying a petition to review in CarMax Auto Superstores California, Inc. v. Areso, the Supreme Court left standing California’s “Iskanian rule” that holds PAGA waivers—or representative action waivers concerning claims under California’s Private Attorney General Act—are unenforceable.

Even though this is the third time that the Supreme Court has passed up an opportunity to invalidate the Iskanian rule, employers shouldn’t jump to conclusions that this week’s action in DirecTV and inaction in CarMax suggests that the Supreme Court is tacitly approving the Iskanian rule.

The Supreme Court simply may be deferring the question, since a petition for rehearing en banc is pending before the Ninth Circuit in Sakkab v. Luxottica Retail North America, Inc. Unlike several prior federal district court decisions that considered the Iskanian rule and found it inconsistent with both the FAA and Concepcion, the Ninth Circuit upheld the Iskanian rule in Sakkab. The Supreme Court might be waiting to see how the en banc panel addresses the Iskanian rule and take up that decision, if necessary. Or the Supreme Court may believe review is not procedurally proper because the CarMax decision is not final, since it did not hold PAGA claims to be non-arbitrable but held only that representative claims under PAGA could not be waived entirely.

In any event, while employers can all take solace from DirecTV’s reaffirmation of Concepcion, employers need not despair that CarMax means the Iskanian rule shall remain the law of the land (in California) forever. Maybe an en banc Ninth Circuit panel will deliver justice. If not, maybe the Supreme Court finally will weigh in. The only certainty is we’ll keep you posted.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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