Sakkab v. Luxottica Retail North America, Inc. , 803 F.3d 425 ( 2015 )

FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
SHUKRI SAKKAB, an individual, on No. 13-55184
behalf of himself, and on behalf of
all persons similarly situated, D.C. No.
Plaintiff-Appellant, 3:12-cv-00436-
GPC-KSC
v.
LUXOTTICA RETAIL NORTH OPINION
AMERICA, INC., an Ohio corporation,
Defendant-Appellee.
Appeal from the United States District Court
for the Southern District of California
Gonzalo P. Curiel, District Judge, Presiding
Argued and Submitted
June 3, 2015—Pasadena, California
Filed September 28, 2015
Before: Milan D. Smith, Jr., and N. Randy Smith, Circuit
Judges, and Joan H. Lefkow,* Senior District Judge.
*
The Honorable Joan Humphrey Lefkow, Senior District Judge for the
United States District Court for the Northern District of Illinois, sitting by
designation.
2 SAKKAB V. LUXOTTICA RETAIL N. AM.
Opinion by Judge Milan D. Smith, Jr.;
Dissent by Judge N.R. Smith
SUMMARY**
Federal Arbitration Act / CA Private Attorney
General Act
The panel reversed the district court’s order granting
Luxottica Retail North America, Inc.’s motion to compel
arbitration of claims and dismissing plaintiff’s first amended
complaint, in a putative class action raising class
employment-related claims and a non-class representative
claim for civil penalties under the Private Attorney General
Act.
Luxottica sought to compel arbitration under a dispute
resolution agreement contained in its Retail Associate Guide.
Plaintiff argued that the portion of the alternative dispute
resolution agreement prohibiting him from bringing any
PAGA claims on behalf of other employees was
unenforceable under California law.
After the district court entered judgment in this case, the
California Supreme Court announced the rule in Iskanian v.
CLS Transportation Los Angeles, LLC, 59 Cal. 4th 348
(2014), barring the waiver of representative claims under
PAGA.
**
This summary constitutes no part of the opinion of the court. It has
been prepared by court staff for the convenience of the reader.
SAKKAB V. LUXOTTICA RETAIL N. AM. 3
The panel held that the waiver of plaintiff’s representative
PAGA claim could not be enforced. The panel held that the
Federal Arbitration Act did not preempt the California rule
announced in Iskanian. Specifically, the panel held that
following the logic of AT&T Mobility LLC v. Concepcion,
131 S. Ct. 1740 (2011), the Iskanian rule is a “generally
applicable” contract defense that may be preserved by the
FAA’s § 2 savings clause, provided it did not conflict with
the FAA’s purposes. The panel further found that the
Iskanian Rule did not conflict with the FAA’s purposes.
The panel held that the non-PAGA claims in the first
amended complaint must be arbitrated. The panel remanded
for the district court and the parties to decide in the first
instance where plaintiff’s representative PAGA claim should
be resolved, and to conduct other proceedings consistent with
this opinion.
Dissenting, Judge N.R. Smith would hold that the
majority should have applied Concepcion and deferred to the
FAA’s “liberal federal policy favoring arbitration.” Judge
N.R. Smith would hold that the Iskanian rule is preempted by
the FAA, and he would affirm the district court.
COUNSEL
Kyle R. Nordrehaug (argued), Norman B. Blumenthal, and
Aparajit Bhowmik, Blumenthal, Nordrehaug & Bhowmik, La
Jolla, California, for Plaintiff-Appellant.
Keith A. Jacoby (argued), Scott M. Lidman, and Judy M.
Iriye, Littler Mendelson, P.C., Los Angeles, California, for
Defendant-Appellee.
4 SAKKAB V. LUXOTTICA RETAIL N. AM.
Andrew J. Pincus (argued) and Archis A. Parasharami, Mayer
Brown LLP, Washington, D.C., for Amici Curiae.
OPINION
M. SMITH, Circuit Judge:
This appeal presents issues of first impression regarding
the scope of Federal Arbitration Act (FAA) preemption,
9 U.S.C. § 2 et seq., and the meaning of the Supreme Court’s
decision in AT&T Mobility LLC v. Concepcion, 131 S. Ct.
1740 (2011). We must decide whether the FAA preempts the
California rule announced in Iskanian v. CLS Transportation
Los Angeles, LLC, 59 Cal. 4th 348 (2014), which bars the
waiver of representative claims under the Private Attorneys
General Act of 2004 (PAGA), Cal. Lab. Code § 2698 et seq.
After closely examining Concepcion and the Court’s other
statements regarding the purposes of the FAA, we conclude
that the Iskanian rule does not stand as an obstacle to the
accomplishment of the FAA’s objectives, and is not
preempted. We reverse the judgment of the district court and
remand for further proceedings.
FACTS AND PROCEDURAL BACKGROUND
The Plaintiff-Appellant, Shukri Sakkab (Sakkab), is a
former employee of Lenscrafters, an eyewear retailer owned
by the Defendant-Appellee, Luxottica Retail North America,
Inc. (Luxottica). On January 17, 2012, Sakkab filed a
putative class action complaint against Luxottica in the
Superior Court of the State of California in and for the
County of San Diego. The complaint asserted four causes of
action arising out of Sakkab’s employment by Luxottica,
SAKKAB V. LUXOTTICA RETAIL N. AM. 5
including (1) unlawful business practices, (2) failure to pay
overtime compensation, (3) failure to provide accurate
itemized wage statements, and (4) failure to pay wages when
due. The complaint alleged that Luxottica misclassified
Sakkab and other employees as supervisors so that they
would be exempt from overtime wages and meal and rest
breaks. Luxottica answered and timely removed the case to
federal court. On March 27, 2012, Sakkab filed a first
amended complaint (FAC) adding a non-class, representative
claim for civil penalties under the PAGA.
On April 23, 2012, Luxottica filed a motion to compel
arbitration under the dispute resolution agreement contained
in its “Retail Associate Guide.” The agreement provided, in
pertinent part:
You and the Company each agree that, no
matter in what capacity, neither you nor the
Company will (1) file (or join, participate or
intervene in) against the other party any
lawsuit or court case that relates in any way to
your employment with the Company or
(2) file (or join, participate or intervene in) a
class-based lawsuit, court case or arbitration
(including any collective or representative
arbitration claim).1
1
According to Luxottica, two different versions of the dispute resolution
agreement existed during the time that Luxottica employed Sakkab. In
June 2011, Luxottica circulated a revised version of the dispute resolution
agreement. The revised version provided:
You and the Company each agree that, no matter in
what capacity, neither you nor the Company will
(1) file (or join, participate or intervene in) against the
6 SAKKAB V. LUXOTTICA RETAIL N. AM.
Sakkab signed an acknowledgment indicating that he
understood and agreed to the terms of the dispute resolution
agreement on June 25, 2010.
On January 10, 2013, the district court granted
Luxottica’s motion to compel arbitration and dismissed the
FAC. The court noted that Sakkab did not dispute that his
first four claims were arbitrable. Sakkab argued, however,
that the portion of the alternative dispute resolution
agreement prohibiting him from bringing any PAGA claims
on behalf of other employees was unenforceable under
California law. For this reason, Sakkab argued, even if he
was required to arbitrate his claims, he could not be denied a
forum for his representative PAGA claim. The district court
rejected Sakkab’s argument that the right to bring a
other party any lawsuit or court case that relates in any
way to your employment with the Company or (2) file
(or join, participate or intervene in) a class-based
lawsuit or court case (including any collective action)
that relates in any way to your employment with the
Company or (3) file (or join, participate or intervene in)
a class-based arbitration (including any collective
arbitration claim) with regard to any claim relating in
any way to your employment with the Company to the
extent permitted by applicable law.
Sakkab acknowledged that he understood and agreed to the terms of the
revised version. For reasons that are not entirely clear, the district court
assumed that the earlier version governed the arbitrability of this dispute.
We need not resolve which version of the agreement governs. Neither
party has argued that the district court erred by construing the earlier
version of the agreement instead of the later version, or that the results
would be any different if one version applied instead of the other. On
appeal, Sakkab concedes that the version relied on by the district court
governs, and that this version purports to prohibit him from arbitrating
representative PAGA claims.
SAKKAB V. LUXOTTICA RETAIL N. AM. 7
representative PAGA claim is unwaivable under California
law. At the time, the California Supreme Court had not yet
considered whether PAGA waivers were enforceable under
California law. Relying on the Supreme Court’s decision in
AT&T Mobility LLC v. Concepcion, the district court
concluded that the FAA would preempt a state rule barring
waiver of PAGA claims. The court then granted the motion
to compel arbitration of the claims in the FAC, dismissed
Sakkab’s complaint, and entered judgment. This timely
appeal followed.
JURISDICTION AND STANDARD OF REVIEW
The district court had jurisdiction under 28 U.S.C.
§ 1332(d)(2). We have appellate jurisdiction under 28 U.S.C.
§ 1291 because this is an appeal from a final judgment of the
district court.
“The district court’s decision to grant or deny a motion to
compel arbitration is reviewed de novo.” Knutson v. Sirius
XM Radio Inc., 771 F.3d 559, 564 (9th Cir. 2014) (quoting
Bushley v. Credit Suisse First Boston, 360 F.3d 1149, 1152
(9th Cir. 2004)).
DISCUSSION
After the district court entered judgment in this case, the
California Supreme Court ruled that PAGA waivers are
unenforceable under California Law. Iskanian, 59 Cal. 4th
348. On appeal, Luxottica argues that the FAA preempts the
Iskanian rule. After considering the history of the PAGA
statute and the Supreme Court’s FAA preemption cases, we
hold that the FAA does not preempt the Iskanian rule.
8 SAKKAB V. LUXOTTICA RETAIL N. AM.
I. The Labor Code Private Attorneys General Act
California’s Labor Code Private Attorneys General Act of
2004, Cal. Lab. Code § 2698 et seq., “authorizes an employee
to bring an action for civil penalties on behalf of the state
against his or her employer for Labor Code violations
committed against the employee and fellow employees, with
most of the proceeds of that litigation going to the state.”
Iskanian, 59 Cal. 4th at 360. An action brought under the
PAGA is a type of qui tam action. Id. at 382.
The PAGA was enacted to correct two perceived flaws in
California’s Labor Code enforcement scheme. Id. at 378–79.
The first flaw was that civil penalties were not available to
redress violations of some provisions of the Labor Code. Id.
at 378. Those provisions only provided for criminal
sanctions, not civil fines, and could only be enforced in
criminal prosecutions brought by district attorneys, not in
civil actions brought by the Labor Commissioner. See id. at
379. As a result, many violations of the Labor Code went
unpunished. Id. The PAGA addressed this problem by
providing for civil penalties for most Labor Code violations.
“For Labor Code violations for which no penalty is provided,
the PAGA provides that the penalties are generally $100 for
each aggrieved employee per pay period for the initial
violation and $200 per pay period for each subsequent
violation.” Id. (citing Cal. Lab. Code § 2699(f)(2)).2
2
A court may award a lesser amount “if, based on the facts and
circumstances of the particular case, to do otherwise would result in an
award that is unjust, arbitrary and oppressive, or confiscatory.” Cal. Lab.
Code § 2699(e)(2).
SAKKAB V. LUXOTTICA RETAIL N. AM. 9
The second flaw the PAGA addressed was that, even
where the Labor Code provided for civil penalties, “there was
a shortage of government resources to pursue enforcement.”
Id.; see also 2003 Cal. Stat. ch. 906 § 1. The legislative
history of the PAGA describes the legislature’s perception of
the seriousness of this problem:
“Estimates of the size of California’s
‘underground economy’—businesses
operating outside the state’s tax and licensing
requirements—ranged from 60 to 140 billion
dollars a year, representing a tax loss to the
state of three to six billion dollars annually.
Further, a U.S. Department of Labor study of
the garment industry in Los Angeles, which
employs over 100,000 workers, estimated the
existence of over 33,000 serious and ongoing
wage violations by the city's garment industry
employers, but that DIR was issuing fewer
than 100 wage citations per year for all
industries throughout the state. [¶] Moreover,
evidence demonstrates that the resources
dedicated to labor law enforcement have not
kept pace with the growth of the economy in
California.” (Assembly Com. on Labor and
Employment, Analysis of Sen. Bill No. 796
(Reg.Sess. 2003–2004) as amended July 2,
2003, p. 4.)
Iskanian, 59 Cal. 4th at 379. To compensate for the lack of
“[a]dequate financing of essential labor law enforcement
functions,” the legislature enacted the PAGA to permit
aggrieved employees to act as private attorneys general to
collect civil penalties for violations of the Labor Code. 2003
10 SAKKAB V. LUXOTTICA RETAIL N. AM.
Cal. Stat. ch. 906 § 1(d). Labor Code section 2699(a)
provides:
any provision of [the Labor Code] that
provides for a civil penalty to be assessed and
collected by the Labor and Workforce
Development Agency or any of its
departments, divisions, commissions, boards,
agencies, or employees, for a violation of this
code, may, as an alternative, be recovered
through a civil action brought by an aggrieved
employee on behalf of himself or herself and
other current or former employees . . . .
Seventy-five percent of the civil penalties recovered by
aggrieved employees3 under the PAGA are distributed to the
Labor and Workforce Development Agency, while the
remainder is distributed to the aggrieved employees. Cal.
Lab. Code § 2699(i).4
3
An “aggrieved employee” is “any person who was employed by the
alleged violator and against whom one or more of the alleged violations
was committed.” Cal. Lab. Code § 2699(c).
4
Prior to bringing a PAGA action, an employee must notify the
employer and the Labor and Workforce Development Agency of the
specific provisions of the Labor Code alleged to have been violated. Cal.
Lab. Code § 2699.3(a)(1). The Agency is required to notify the employee
and employer of whether it intends to investigate the alleged violations.
Id. § 2699.3(a)(2)(A). An aggrieved employee may commence an action
if he receives notice that the Agency does not intend to investigate the
alleged violations, or if he does not receive notice from the Agency within
33 days of notifying the Agency and the employer. Id. An employee may
also bring a PAGA action if the Agency investigates the alleged violations
and does not issue a citation to the employer within a specified period of
time. Id. § 2699.3(a)(2)(B).
 SAKKAB V. LUXOTTICA RETAIL N. AM. 11
Pre-dispute agreements to waive PAGA claims are
unenforceable under California law. In Iskanian v. CLS
Transportation Los Angeles, Inc., the California Supreme
Court held that two state statutes prohibited the enforcement
of PAGA waivers. 59 Cal. 4th at 382–83. The first,
California Civil Code §1668, codifies the general principle
that agreements exculpating a party for violations of the law
are unenforceable.5 The Iskanian court observed that
allowing employees to waive the right to bring PAGA actions
would “disable one of the primary mechanisms for enforcing
the Labor Code.” Id. at 383. It reasoned that “[b]ecause such
an agreement has as its ‘object, . . . indirectly, to exempt [the
employer] from responsibility for [its] own . . . violation of
law,’ it is against public policy and may not be enforced.” Id.
(alterations in original) (quoting Cal. Civ. Code § 1668). The
Iskanian court also found that agreements waiving the right
to bring PAGA actions violated California Civil Code § 3513.
Id. Civil Code § 3513 codifies the general principle that a
law established for a public reason may not be contravened
by private agreement.6 The court reasoned that “agreements
requiring the waiver of PAGA rights would harm the state’s
interests in enforcing the Labor Code and in receiving the
proceeds of civil penalties used to deter violations.” Id.
5
California Civil Code §1668 provides that “[a]ll contracts which have
for their object, directly or indirectly, to exempt anyone from
responsibility for his own fraud, or willful injury to the person or property
of another, or violation of law, whether willful or negligent, are against the
policy of the law.”
6
California Civil Code § 3513 provides that “[a]ny one may waive the
advantage of a law intended solely for his benefit. But a law established
for a public reason cannot be contravened by a private agreement.”
12 SAKKAB V. LUXOTTICA RETAIL N. AM.
Agreements waiving the right to bring “representative”
PAGA claims–that is, claims seeking penalties for Labor
Code violations affecting other employees–are also
unenforceable under California law. In Iskanian, the court
held that even if the PAGA authorized purely “individual”
claims,7 an agreement to waive representative PAGA claims
would be unenforceable. Id. at 384. The court observed that
individual PAGA claims do not “result in the penalties
contemplated under the PAGA to punish and deter employer
practices that violate the rights of numerous employees under
the Labor Code.” Id. (quoting Brown v. Ralphs Grocery Co.,
197 Cal. App. 4th 489, 502 (Ct. App. 2011)).
II. The Federal Arbitration Act Does Not Preempt the
Iskanian Rule
If the Iskanian rule is valid, Sakkab’s waiver of his right
to bring a representative PAGA action is unenforceable.
Therefore, this case turns on whether the FAA, 9 U.S.C. § 2
et seq., preempts the Iskanian rule. We conclude that it does
not.
“The FAA was enacted in 1925 in response to widespread
judicial hostility to arbitration agreements.” Concepcion,
131 S. Ct. at 1745. Section 2 is the “primary substantive
provision of the Act.” Id. (quoting Moses H. Cone Mem’l
Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24 (1983)). It
provides:
A written provision in any maritime
transaction or a contract evidencing a
7
The court declined to decide whether the PAGA authorizes purely
“individual” claims. Iskanian, 59 Cal. 4th at 384.
SAKKAB V. LUXOTTICA RETAIL N. AM. 13
transaction involving commerce to settle by
arbitration a controversy thereafter arising out
of such contract or transaction, or the refusal
to perform the whole or any part thereof, or an
agreement in writing to submit to arbitration
an existing controversy arising out of such a
contract, transaction, or refusal, shall be valid,
irrevocable, and enforceable, save upon such
grounds as exist at law or in equity for the
revocation of any contract.
9 U.S.C. § 2. While “[t]he FAA contains no express
pre-emptive provision” and does not “reflect a congressional
intent to occupy the entire field of arbitration,” Volt Info.
Scis., Inc. v. Bd. of Trs. of Leland Stanford Junior Univ.,
489 U.S. 468, 477 (1989), it preempts state law “to the extent
that it ‘stands as an obstacle to the accomplishment and
execution of the full purposes and objectives of Congress,’”
id. (quoting Hines v. Davidowitz, 312 U.S. 52, 67 (1941)).
The final clause of § 2, its saving clause, “permits agreements
to arbitrate to be invalidated by ‘generally applicable contract
defenses, such as fraud, duress, or unconscionability,’ but not
by defenses that apply only to arbitration or that derive their
meaning from the fact that an agreement to arbitrate is at
issue.” Concepcion, 131 S. Ct. at 1746 (quoting Doctor’s
Assocs., Inc. v. Casarotto, 517 U.S. 681, 687 (1996)); see
also Marmet Health Care Ctr., Inc. v. Brown, 132 S. Ct.
1201, 1204 (2012). Even if a state-law rule is “generally
applicable,” it is preempted if it conflicts with the FAA’s
objectives. Concepcion, 131 S. Ct. at 1748.
14 SAKKAB V. LUXOTTICA RETAIL N. AM.
A. The Iskanian Rule is a Ground for the Revocation
of Any Contract
To fall within the ambit of § 2’s saving clause, the
Iskanian rule must be a “ground[] . . . for the revocation of
any contract.” 9 U.S.C. § 2 (emphasis added). We conclude
that it is.
The Supreme Court has clarified that a state contract
defense must be “generally applicable” to be preserved by
§ 2’s saving clause. Concepcion, 131 S. Ct. at 1746. It is
well established that the FAA preempts state laws that single
out arbitration agreements for special treatment. See, e.g.,
Doctor’s Assocs., 517 U.S. at 687. At minimum, then, § 2’s
“any contract” language requires that a state contract defense
place arbitration agreements on equal footing with non-
arbitration agreements. See id. The Iskanian rule complies
with this requirement. The rule bars any waiver of PAGA
claims, regardless of whether the waiver appears in an
arbitration agreement or a non-arbitration agreement.
Some of our cases can be read to suggest that the phrase
“any contract” in § 2’s saving clause requires that a defense
apply generally to all types of contracts, in addition to
requiring that the defense apply equally to arbitration and
non-arbitration agreements. See Ting v. AT&T, 319 F.3d
1126, 1147–48 (9th Cir. 2003) (holding that California’s
Consumer Legal Remedies Act, Cal. Civ. Code § 1751, is
“not a law of ‘general applicability’” within the ambit of § 2’s
saving clause because it applies only to noncommercial
consumer contracts); Bradley v. Harris Research, Inc.,
275 F.3d 884, 890 (9th Cir. 2001) (holding that California
Business & Professions Code § 20040.05 does not apply to
“any contract” because it “applies only to forum selection
SAKKAB V. LUXOTTICA RETAIL N. AM. 15
clauses and only to franchise agreements”).8 However, the
Court’s decision in AT&T Mobility, LLC v. Concepcion,
131 S. Ct. 1740, cuts against this construction of the saving
clause. The Court in Concepcion held that the FAA
preempted California law providing that class action waivers
in certain consumer contracts of adhesion were
unconscionable and unenforceable. 131 S. Ct. at 1748–53.
Even though the state-law rule at issue only applied to a
narrow class of consumer contracts, the Court strongly
implied that the rule was a “generally applicable contract
8
The reasoning of these cases was based on an ambiguous passage in
Southland Corp. v. Keating, 465 U.S. 1, 16 n.11 (1984). The Court in
Southland held that § 2 preempted a provision of California’s Franchise
Investment Law, Cal. Corp. Code § 31512 (1977), as applied to arbitration
agreements. Id. at 10. In a partial dissent, Justice Stevens argued that the
law was preserved by § 2 as a “ground[] . . . at law or in equity for the
revocation of any contract.” Id. at 18–20 (Stevens, J., concurring in part
and dissenting in part). The majority rejected this argument. It reasoned
that “the defense to arbitration found in the California Franchise
Investment Law is not a ground that exists at law or in equity ‘for the
revocation of any contract’ but merely a ground that exists for the
revocation of arbitration provisions in contracts subject to the California
Franchise Investment Law.” Id. at 16 n.11.
Cases following Southland appear to clarify that § 2’s “any contract”
language refers to whether a state law places arbitration agreements on
equal footing with non-arbitration agreements, not whether it applies to all
types of contracts. See Perry v. Thomas, 482 U.S. 483, 492 n.9 (1987)
(“A court may not . . . construe [an arbitration] agreement in a manner
different from that in which it otherwise construes nonarbitration
agreements under state law.”); Doctor’s Assocs., 517 U.S. at 686–87
(“States may not . . . decide that a contract is fair enough to enforce all its
basic terms (price, service, credit), but not fair enough to enforce its
arbitration clause. . . . [T]hat kind of policy would place arbitration clauses
on an unequal ‘footing,’ directly contrary to the [FAA]’s language and
Congress’s intent.” (quoting Allied-Bruce Terminix Cos., Inc. v. Dobson,
513 U.S. 265, 281 (1995))).
16 SAKKAB V. LUXOTTICA RETAIL N. AM.
defense[].” See id. at 1748. The Court held that the rule was
preempted because it conflicted with the purposes of the
FAA, even though the rule purported to apply to “any
contract.” See id. (“Although § 2’s saving clause preserves
generally applicable contract defenses, nothing in it suggests
an intent to preserve state-law rules that stand as an obstacle
to the accomplishment of the FAA’s objectives.”).
Following the logic of Concepcion, we conclude that the
Iskanian rule is a “generally applicable” contract defense that
may be preserved by § 2’s saving clause, provided it does not
conflict with the FAA’s purposes.
B. The Iskanian Rule Does Not Conflict with the
FAA’s Purposes
We turn now to whether the Iskanian rule conflicts with
the FAA’s purposes. We apply ordinary conflict preemption
principles to determine whether a state-law rule conflicts with
a federal statute containing a saving clause. See Geier v. Am.
Honda Motor Co., Inc., 529 U.S. 861, 870–72 (2000). In
determining whether a state law is impliedly preempted,
“[t]he purpose of Congress is the ultimate touchstone.”
Medtronic, Inc. v. Lohr, 518 U.S. 470, 485 (1996) (alteration
in original) (quoting Retail Clerks Int’l Ass’n, Local 1625,
AFL-CIO v. Schermerhorn, 375 U.S. 96, 103 (1963)). “What
is a sufficient obstacle is a matter of judgment, to be informed
by examining the federal statute as a whole and identifying its
purpose and intended effects . . . .” Crosby v. Nat’l Foreign
Trade Council, 530 U.S. 363, 373 (2000). In exercising our
judgment, we do not write on a blank slate, for the Supreme
Court has repeatedly identified the purposes of the FAA and
defined the scope of FAA preemption. See Allied-Bruce
Terminix Cos., Inc. v. Dobson, 513 U.S. 265, 283 (1995)
SAKKAB V. LUXOTTICA RETAIL N. AM. 17
(O’Connor, J., concurring) (describing the Court’s FAA
preemption jurisprudence as “an edifice of [the Court’s] own
creation”). After considering the objectives of the FAA, we
conclude that the Iskanian rule does not conflict with those
objectives, and is not impliedly preempted.9
1. The FAA’s Purpose to Overcome Judicial
Hostility to Arbitration
The Supreme Court has stated that Congress enacted the
FAA to “overrule the judiciary’s longstanding refusal to
enforce agreements to arbitrate and to place such agreements
upon the same footing as other contracts.” Granite Rock Co.
v. Int’l Bhd. of Teamsters, 561 U.S. 287, 302 (2010) (quoting
Volt, 489 U.S. at 478). The FAA therefore preempts state
laws prohibiting the arbitration of specific types of claims.
See, e.g., Marmet, 132 S. Ct. at 1203; Preston v. Ferrer,
552 U.S. 346, 356–59 (2008). The Amici Curiae argue that
the Iskanian rule conflicts with the FAA’s purpose to
overcome judicial hostility to arbitration because it prohibits
outright the arbitration of “individual” PAGA claims. We
reject this argument.
The California Supreme Court’s decision in Iskanian
expresses no preference regarding whether individual PAGA
claims are litigated or arbitrated. It provides only that
9
We reject Sakkab’s contention that the PAGA waiver is invalid
because it bars the assertion of statutory rights under American Express
Co. v. Italian Colors Restaurant, 133 S. Ct. 2304 (2013), and Mitsubishi
Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614 (1985).
“The ‘effective vindication’ exception, which permits the invalidation of
an arbitration agreement when arbitration would prevent the ‘effective
vindication’ of a federal statute, does not extend to state statutes.”
Ferguson v. Corinthian Colls., Inc., 733 F.3d 928, 936 (9th Cir. 2013).
18 SAKKAB V. LUXOTTICA RETAIL N. AM.
representative PAGA claims may not be waived outright.
59 Cal. 4th at 384. The Iskanian rule does not prohibit the
arbitration of any type of claim.
2. The FAA’s Purpose to Ensure Enforcement of
the Terms of Arbitration Agreements
The Supreme Court has stated that “[t]he ‘principal
purpose’ of the FAA is to ‘ensur[e] that private arbitration
agreements are enforced according to their terms.’”
Concepcion, 131 S. Ct. at 1748 (second alteration in original)
(quoting Volt, 489 U.S. at 478). The Court has also stated
that the FAA embodies “a liberal federal policy favoring
arbitration agreements, notwithstanding any state substantive
or procedural policies to the contrary.” Id. at 1749 (quoting
Moses H. Cone, 460 U.S. at 24). The Iskanian rule does not
conflict with these purposes.
Read broadly, these statements of the FAA’s purposes
would require strict enforcement of all terms contained in an
arbitration agreement, including terms that are unenforceable
under generally applicable state law. Such a broad
construction of the FAA’s purposes is untenable, of course,
because it would render § 2’s saving clause wholly
“ineffectual.” See Geier, 529 U.S. at 870; Prima Paint Corp.
v. Flood & Conklin Mfg. Co., 388 U.S. 395, 404 n.12 (1967)
(“As the ‘saving clause’ in § 2 indicates, the purpose of
Congress in 1925 was to make arbitration agreements as
enforceable as other contracts, but not more so.”). Congress
plainly did not intend to preempt all generally applicable state
contract defenses, only those that “interfere[] with
arbitration,” Concepcion, 131 S. Ct. at 1750.
SAKKAB V. LUXOTTICA RETAIL N. AM. 19
A defense interferes with arbitration if, for example, it
prevents parties from selecting the procedures they want
applied in arbitration. See id. at 1748–53. Concepcion
illustrates how a generally applicable contract defense might
do so. The California rule at issue in Concepcion, which
provided that class action waivers in certain consumer
contracts of adhesion were unconscionable, did not explicitly
discriminate against arbitration. See id. at 1745. As applied
to arbitration agreements, however, the rule “interfere[ed]
with fundamental attributes of arbitration,” id. at 1748, by
imposing formal classwide arbitration procedures on the
parties against their will. Id. at 1750–51. As the Court
explained,
“In bilateral arbitration, parties forgo the
procedural rigor and appellate review of the
courts in order to realize the benefits of
private dispute resolution: lower costs, greater
efficiency and speed, and the ability to choose
expert adjudicators to resolve specialized
disputes.” But before an arbitrator may
decide the merits of a claim in classwide
procedures, he must first decide, for example,
whether the class itself may be certified,
whether the named parties are sufficiently
representative and typical, and how discovery
for the class should be conducted.
Id. at 1751 (citation omitted) (quoting Stolt-Nielsen S.A. v.
AnimalFeeds Int’l Corp., 559 U.S. 662, 685 (2010)). The
Court observed that “the switch from bilateral to class
arbitration sacrifices the principal advantage of arbitration–its
informality–and makes the process slower, more costly, and
more likely to generate procedural morass than final
20 SAKKAB V. LUXOTTICA RETAIL N. AM.
judgment.” Id. The parties could not opt out of the formal
procedures of class arbitration because the procedures were
required to protect the due process rights of absent parties.
Id. Therefore, although the California rule prohibiting class
action waivers applied equally to both arbitration agreements
and non-arbitration agreements, it could not be applied to
arbitration agreements without interfering with parties’
freedom to select informal procedures.
The Iskanian rule prohibiting waiver of representative
PAGA claims does not diminish parties’ freedom to select
informal arbitration procedures. To understand why, it is
essential to examine the “fundamental[]” differences between
PAGA actions and class actions. See Baumann v. Chase Inv.
Servs. Corp., 747 F.3d 1117, 1123 (9th Cir. 2014) (quoting
McKenzie v. Fed. Express Corp., 765 F. Supp. 2d 1222, 1233
(C.D. Cal. 2011)). The class action is a procedural device for
resolving the claims of absent parties on a representative
basis. See Fed. R. Civ. P. 23; Ortiz v. Fibreboard Corp.,
527 U.S. 815, 832–33 (1999); Amchem Prods., Inc. v.
Windsor, 521 U.S. 591, 613–17 (1997). By contrast, a PAGA
action is a statutory action in which the penalties available are
measured by the number of Labor Code violations committed
by the employer. An employee bringing a PAGA action does
so “as the proxy or agent of the state’s labor law enforcement
agencies,” Iskanian, 59 Cal. 4th at 380 (quoting Arias v.
Superior Court, 46 Cal. 4th 969, 986 (2009)), who are the
real parties in interest, see id. at 382. As the state’s proxy, an
employee-plaintiff may obtain civil penalties for violations
committed against absent employees, Cal. Lab. Code
§ 2699(g)(1), just as the state could if it brought an
enforcement action directly. However, by obtaining such
penalties, the employee-plaintiff does not vindicate absent
employees’ claims, for the PAGA does not give absent
SAKKAB V. LUXOTTICA RETAIL N. AM. 21
employees any substantive right to bring their “own” PAGA
claims. See Amalgamated Transit Union, Local 1756, AFL-
CIO v. Superior Court, 46 Cal. 4th 993, 1003 (2009); see also
Iskanian, 59 Cal. 4th at 381 (explaining that “[t]he civil
penalties recovered on behalf of the state under the PAGA are
distinct from the statutory damages to which employees may
be entitled in their individual capacities”). An agreement to
waive “representative” PAGA claims–that is, claims for
penalties arising out of violations against other employees–is
effectively an agreement to limit the penalties an employee-
plaintiff may recover on behalf of the state.
Because a PAGA action is a statutory action for penalties
brought as a proxy for the state, rather than a procedure for
resolving the claims of other employees, there is no need to
protect absent employees’ due process rights in PAGA
arbitrations. Compare Concepcion, 131 S. Ct. at 1751–52
(observing “it is . . . odd to think that an arbitrator would be
entrusted with ensuring that third parties’ due process rights
are satisfied”), with Arias, 46 Cal. 4th at 984–87. PAGA
arbitrations therefore do not require the formal procedures of
class arbitrations. See Baumann, 747 F.3d at 1123.10
10
A judgment in a PAGA action binds absent employees because it
binds the government agency tasked with enforcing the labor laws. Arias,
46 Cal. 4th at 986. As the California Supreme Court has explained,
[w]hen a government agency is authorized to bring an
action on behalf of an individual or in the public
interest, and a private person lacks an independent legal
right to bring the action, a person who is not a party but
who is represented by the agency is bound by the
judgment as though the person were a party.
22 SAKKAB V. LUXOTTICA RETAIL N. AM.
Unlike Rule 23(c)(2), PAGA has no notice
requirements for unnamed aggrieved
employees, nor may such employees opt out
of a PAGA action. In a PAGA action, the
court does not inquire into the named
plaintiff’s and class counsel’s ability to fairly
and adequately represent unnamed
employees—critical requirements in federal
class actions under Rules 23(a)(4) and (g). . . .
Moreover, unlike Rule 23(a), PAGA contains
no requirements of numerosity, commonality,
or typicality.
Id. at 1122–23 (citations omitted). Because representative
PAGA claims do not require any special procedures,
prohibiting waiver of such claims does not diminish parties’
freedom to select the arbitration procedures that best suit their
needs. Nothing prevents parties from agreeing to use
informal procedures to arbitrate representative PAGA claims.
This is a critically important distinction between the Iskanian
rule and the rule at issue in Concepcion.
The dissent emphasizes that both the Iskanian rule and the
rule at issue in Concepcion “interfere[] with the parties’
freedom to limit their arbitration only to those claims arising
between the contracting parties.” We do not read Concepcion
to require the enforcement of all waivers of representative
claims in arbitration agreements. Whether a claim is
technically denominated “representative” is an imperfect
proxy for whether refusing to enforce waivers of that claim
Id. Since the aggrieved employee bringing the action “does so as the
proxy or agent of the state’s labor law enforcement agencies,” absent
employees are also bound by any judgment regarding civil penalties. Id.
SAKKAB V. LUXOTTICA RETAIL N. AM. 23
will deprive parties of the benefits of arbitration.11 Instead,
Concepcion requires us to examine whether the waived
claims mandate procedures that interfere with arbitration, as
the class claims in Concepcion did. Here, they do not.
We take the dissent’s broader point to be that the Iskanian
rule defeats the parties’ contractual expectations, as expressed
in their arbitration agreement. See Concepcion, 131 S. Ct. at
1752 (“Arbitration is a matter of contract, and the FAA
requires courts to honor parties’ expectations.”). We
recognize that Sakkab and Luxottica likely expected the
waiver of representative PAGA claims to be enforced, and
that the Iskanian rule prevents that expectation from being
fulfilled. Any generally applicable state law that invalidates
a mutually agreed upon term of an arbitration agreement will,
by definition, defeat the parties’ contractual expectations.
However, the FAA’s saving clause clearly indicates that
Congress did not intend for the parties’ expectations to trump
any and all other interests. As we have explained, a rule
requiring that the parties’ expectations be enforced in all
circumstances, regardless of whether doing so conflicts with
generally applicable state law, would render the saving clause
wholly ineffectual.
We acknowledge that the Court in Concepcion also
expressed concern that “class arbitration greatly increases
risks to defendants” by aggregating claims and increasing the
11
For example, even an “individual” PAGA claim does not arise solely
between an employer and an employee. As the court in Iskanian
observed, “every PAGA action, whether seeking penalties for Labor Code
violations as to only one aggrieved employee–the plaintiff bringing the
action–or as to other employees as well, is a representative action on
behalf of the state.” Iskanian, 59 Cal. 4th at 387.
24 SAKKAB V. LUXOTTICA RETAIL N. AM.
amount of potential damages. Id. at 1752. As the Court
observed, arbitration is “poorly suited to the higher stakes of
class litigation,” because it does not provide for judicial
review. Id. Although PAGA actions do not aggregate
individual claims, they may nonetheless involve high stakes.
Defendants may face hefty civil penalties in PAGA actions,
and may be unwilling to forgo judicial review by arbitrating
them. It does not follow, however, that the FAA preempts the
Iskanian rule just because the amount of civil penalties the
PAGA authorizes could make arbitration a less attractive
method than litigation for resolving representative PAGA
claims. By their nature, some types of claims are better
suited to arbitration than others. See Gilmer v.
Interstate/Johnson Lane Corp., 500 U.S. 20, 26 (1991)
(recognizing that agreements to arbitrate federal statutory
claims are enforceable even if they do not appear to be
“appropriate for arbitration”). But the FAA would not
preempt a state statutory cause of action that imposed
substantial liability merely because the action’s high stakes
would arguably make it poorly suited to arbitration. Cf.
Medtronic, 518 U.S. at 485 (“[B]ecause the states are
independent sovereigns in our federal system, we have long
presumed that Congress does not cavalierly pre-empt state-
law causes of action.”). Nor, we think, would the FAA
require courts to enforce a provision limiting a party’s
liability in such an action, even if that provision appeared in
an arbitration agreement. Cf. Booker v. Robert Half Int’l,
Inc., 413 F.3d 77, 83 (D.C. Cir. 2005) (assuming, without
deciding, that a term in an arbitration agreement barring
punitive damages was unenforceable as applied to a claim
under the District of Columbia Human Rights Act). The
FAA contemplates that parties may simply agree ex ante to
litigate high-stakes claims if they find arbitration’s informal
procedures unsuitable. By the same token, the FAA does not
SAKKAB V. LUXOTTICA RETAIL N. AM. 25
require courts to enforce agreements to waive the right to
bring representative PAGA actions just because the amount
of penalties an aggrieved employee is authorized to recover
for the state makes the formal procedures of litigation more
attractive than arbitration’s informal procedures. Just as the
high stakes involved in antitrust actions may cause parties to
agree ex ante to exclude antitrust claims from arbitration,
parties may prefer to litigate representative PAGA claims.
It is true that PAGA actions, like many causes of action,
can be complex. It is not true, however, that PAGA actions
are necessarily “procedurally” complex, as the dissent claims.
Rather, the potential complexity of PAGA actions is a direct
result of how an employer’s liability is measured under the
statute. The amount of penalties an employee may recover is
measured by the number of violations an employer has
committed, and the violations may involve multiple
employees. “[P]otential complexity should not suffice to
ward off arbitration,” Mitsubishi Motors Corp. v. Soler
Chrysler-Plymouth, Inc., 473 U.S. 614, 633 (1985), where, as
here, the complexity flows from the substance of the claim
itself, rather than any procedures required to adjudicate it (as
with class actions). Cf. id. (holding that an agreement to
arbitrate antitrust claims was enforceable).
The dissent argues that representative PAGA actions will
make the arbitration process “slower” and “more costly.”
There is no support for this conclusion in the record. Cf.
Concepcion, 131 S. Ct. at 1751 (citing American Arbitration
Association statistics regarding the duration of class
arbitrations). Moreover, even if there were evidence that
representative PAGA actions take longer or cost more to
arbitrate than other types of claims, the same could be said of
any complex or fact-intensive claim. Antitrust claims, for
26 SAKKAB V. LUXOTTICA RETAIL N. AM.
example, have the potential to make arbitration slower and
more costly. This does not mean that a rule declining to
enforce waivers of such claims interferes with the FAA in any
meaningful sense, since, unlike class claims, parties are free
to arbitrate them using the procedures of their choice. In
many ways, arbitration is well suited to resolving complex
disputes, provided that the parties are free to decide how the
arbitration will be conducted. See id.; see also American
Arbitration Association Commercial Arbitration Rules
(describing separate procedures for “Large, Complex,
Commercial Disputes”).
The dissent also argues that representative PAGA claims
are “more likely to generate procedural morass.” But whether
arbitration of representative PAGA actions is likely to
“generate procedural morass” depends, first and foremost, on
the procedures the parties select. One way parties may
streamline the resolution of complex PAGA claims is by
agreeing to limit discovery in arbitration. See Dotson v.
Amgen, Inc., 181 Cal. App. 4th 975, 983 (Ct. App. 2010)
(observing that “arbitration is meant to be a streamlined
procedure. Limitations on discovery, including the number
of depositions, is one of the ways streamlining is achieved”).
California courts have recognized that “discovery limitations
are an integral and permissible part of the arbitration
process.” Id. (citing Armendariz v. Found. Health Psychcare
Servs., Inc., 24 Cal. 4th 83, 106 n.11 (2000)); see also Roman
v. Superior Court, 172 Cal. App. 4th 1462, 1476 (Ct. App.
2009). Notably, California law permits parties to arbitrate
under the American Arbitration Association’s employment
dispute resolution rules. See Roman, 172 Cal. App. 4th at
1476. The rules give arbitrators broad authority to decide
how much discovery is appropriate, “consistent with the
expedited nature of arbitration.” See American Arbitration
SAKKAB V. LUXOTTICA RETAIL N. AM. 27
Association Employment Arbitration Rules and Mediation
Procedures (2009), at 19.
Of course, whether representative PAGA claims are likely
to “generate procedural morass” will also depend on whether,
and to what extent, state law purports to limit parties’ right to
use informal procedures, including limited discovery, in
representative PAGA arbitrations. It is conceivable that a
state law imposing such limits could run afoul of the Court’s
decision in Concepcion by requiring a degree of formality
that is inconsistent with traditional arbitration procedures.
See Concepcion, 131 S. Ct. at 1751. No such state law is
before us, however, and it is premature to conclude that
representative PAGA claims will necessarily result in
“procedural morass” when there is no indication that state law
limits parties’ freedom to select informal procedures, or limit
discovery, in PAGA arbitrations. Cf. Williams v. Superior
Court, 236 Cal. App. 4th 1151, 1156–58 (Ct. App. 2015)
(upholding trial court’s refusal to order statewide discovery
in a PAGA action and observing that “[p]laintiff’s proposed
procedure, which contemplates jumping into extensive
statewide discovery based only on the bare allegations of one
local individual having no knowledge of the defendant’s
statewide practices would be a classic use of discovery tools
to wage litigation rather than facilitate it”).
In sum, the Iskanian rule does not conflict with the FAA,
because it leaves parties free to adopt the kinds of informal
procedures normally available in arbitration. It only prohibits
them from opting out of the central feature of the PAGA’s
private enforcement scheme–the right to act as a private
attorney general to recover the full measure of penalties the
state could recover.
28 SAKKAB V. LUXOTTICA RETAIL N. AM.
Our conclusion that the FAA does not preempt the
Iskanian rule is bolstered by the PAGA’s central role in
enforcing California’s labor laws. The Court has instructed
that “[i]n all pre-emption cases” we must “start with the
assumption that the historic police powers of the States were
not to be superseded by the Federal Act unless that was the
clear and manifest purpose of Congress.” Medtronic,
518 U.S. at 485 (quoting Rice v. Santa Fe Elevator Corp.,
331 U.S. 218, 230 (1947)); see also Arizona v. United States,
132 S. Ct. 2492, 2503 (2012) (considering historic police
powers of the State in analyzing obstacle preemption).
“States possess broad authority under their police powers to
regulate the employment relationship to protect workers
within the State.” Metro. Life Ins. Co. v. Massachusetts,
471 U.S. 724, 756 (1985) (quoting DeCanas v. Bica, 424 U.S.
351, 356 (1976)).
Both the PAGA statute and the Iskanian rule reflect
California’s judgment about how best to enforce its labor
laws. “[T]he Legislature’s purpose in enacting the PAGA
was to augment the limited enforcement capability of the
Labor and Workforce Development Agency by empowering
employees to enforce the Labor Code as representatives of
the Agency.” Iskanian, 59 Cal. 4th at 383. And the “sole
purpose” of the Iskanian rule “is to vindicate the Labor and
Workforce Development Agency’s interest in enforcing the
Labor Code.” Id. at 388–89. The explicit purpose of the rule
barring enforcement of agreements to waive representative
PAGA claims is to preserve the deterrence scheme the
legislature judged to be optimal. See id. at 384.
As the California Supreme Court has explained, a PAGA
action is a form of qui tam action. See id. at 382. Qui tam
actions predate the FAA by several centuries. See Vermont
SAKKAB V. LUXOTTICA RETAIL N. AM. 29
Agency of Natural Res. v. United States ex rel. Stevens,
529 U.S. 765, 773–76 (2000). The FAA was not intended to
preclude states from authorizing qui tam actions to enforce
state law. Nor, we think, was it intended to require courts to
enforce agreements that severely limit the right to recover
penalties for violations that did not directly harm the party
bringing the action. The right to inform the state of violations
that did not injure the informer is the very essence of a qui
tam action. See id. at 775. That qui tam actions can be
difficult to arbitrate does not mean that the FAA requires
courts to enforce private agreements opting out of the state’s
chosen method of enforcing its labor laws.
III. Severability of the PAGA Waiver
Sakkab has not argued that the PAGA waiver contained
in the arbitration agreement rendered the entire arbitration
agreement void. Nor has he disputed that he is required to
arbitrate the four non-PAGA claims in the FAC. It is
therefore clear that the non-PAGA claims in the FAC must be
arbitrated.
We have held that the waiver of Sakkab’s representative
PAGA claims may not be enforced. It is unclear, however,
whether the parties have agreed to arbitrate such surviving
claims or whether they must be litigated instead.12
Accordingly, we reverse the district court’s order dismissing
the FAC, and return the issue to the district court and the
parties to decide in the first instance where Sakkab’s
representative PAGA claims should be resolved, and to
12
We note that the dispute resolution agreement provides that Luxottica
“expressly does not agree to arbitrate any claim on a . . . representative
basis.”
30 SAKKAB V. LUXOTTICA RETAIL N. AM.
conduct such other proceedings as are consistent with this
opinion.
REVERSED and REMANDED.
N.R. SMITH, dissenting:
In 1925, “Congress enacted the [Federal Arbitration Act]
in response to widespread judicial hostility to arbitration.”
Am. Express Co. v. Italian Colors Rest., 133 S. Ct. 2304,
2308–09 (2013). Despite ninety years of Supreme Court
precedent invalidating state laws deemed hostile to
arbitration, the majority today displays this same “judicial
hostility” to arbitration agreements. Our court employed the
same “judicial hostility” in Laster v. AT&T Mobility LLC,
584 F.3d 849 (9th Cir. 2009), rev’d sub nom. AT&T Mobility
LLC v. Concepcion, 563 U.S. 333, 131 S. Ct. 1740 (2011), for
which we were subsequently reversed.
In this case, rather than upholding the purposes of the
Federal Arbitration Act (“FAA”), the majority upholds a
“judicially created” state rule that prevents parties to an
arbitration agreement from agreeing that their future
arbitration will address individual claims arising between one
employee and one employer. To conclude that the state rule
(created by Iskanian v. CLS Transp. Los Angeles, LLC,
327 P.3d 129 (Cal. 2014)) does not frustrate the purposes of
the FAA, the majority ignores the basic precepts enunciated
in Concepcion. Because the majority should have applied
Concepcion and deferred to the FAA’s “liberal federal policy
favoring arbitration,” Moses H. Cone Mem’l Hosp. v.
SAKKAB V. LUXOTTICA RETAIL N. AM. 31
Mercury Constr. Corp., 460 U.S. 1, 24 (1983), rather than
circumventing it, I must dissent.
I. Concepcion
Because the majority essentially ignores the Supreme
Court’s direction in Concepcion (a case very similar in detail
to this case), I begin by describing this important precedent
in some detail.
In Concepcion, a consumer contract provided for
“arbitration of all disputes between the parties, but required
that claims be brought in the parties’ individual capacity, and
not as a plaintiff or class member in any purported class or
representative proceedings.” 131 S. Ct. at 1744 (internal
quotation marks omitted). Relying on the California Supreme
Court’s decision in Discover Bank v. Superior Court,
113 P.3d 1100 (Cal. 2005), abrogated by AT&T Mobility LLC
v. Concepcion, 131 S. Ct. 1740 (2011), which established a
rule that invalidated class action waivers in contracts of
adhesion, a federal district court “found that the arbitration
provision was unconscionable.” Concepcion, 131 S. Ct. at
1745. We affirmed, holding that the Discover Bank rule was
not preempted by the FAA, because it was simply “a
refinement of the unconscionability analysis applicable to
contracts generally in California.” Id. Further, we rejected
AT&T’s argument that “class proceedings will reduce the
efficiency and expeditiousness of arbitration.” Id.
The Supreme Court reversed and concluded that a rule
“[r]equiring the availability of classwide arbitration interferes
with fundamental attributes of arbitration and thus creates a
scheme inconsistent with the FAA.” Id. at 1748. The Court
held that, despite § 2’s savings clause, even generally
32 SAKKAB V. LUXOTTICA RETAIL N. AM.
applicable contract defenses can violate the FAA if they serve
as an obstacle to the objectives of the FAA. Id. The Court
also identified the appropriate inquiry: If the state rule “stands
as an obstacle to the accomplishment and execution of the full
purposes and objectives of Congress,” the rule is preempted.
Id. at 1753. As part of that inquiry, the Court clarified the
purpose and objective of the FAA. “The overarching purpose
of the FAA . . . is to ensure the enforcement of arbitration
agreements according to their terms so as to facilitate
streamlined proceedings.” Id. at 1748.
The Court then applied that analysis to the Discover Bank
rule prohibiting the class action waivers. The Court
explained that “arbitration is a matter of contract,” id. at
1745, and “[a]lthough the [Discover Bank ] rule does not
require classwide arbitration, it allows any party to a
consumer contract to demand it ex post,” id. at 1750. Thus,
rather than holding the parties to the terms of bilateral
arbitration agreed upon in their contract, the Discover Bank
rule allowed any party to subject the other to class-action
arbitration. Id. The Court reasoned that “class arbitration, to
the extent it is manufactured by Discover Bank rather than
consensual, is inconsistent with the FAA.” Id. at 1750–51.
The Court then provided three reasons why ex post, state-
mandated class arbitration worked as an obstacle to the
FAA’s purposes and objectives. First, “the switch from
bilateral to class arbitration sacrifices the principal advantage
of arbitration—its informality—and makes the process
slower, more costly, and more likely to generate procedural
morass than final judgment.” Id. at 1751. The Court
explained that “[i]n bilateral arbitration, parties forgo the
procedural rigor and appellate review of the courts in order to
realize the benefits of private dispute resolution: lower costs,
SAKKAB V. LUXOTTICA RETAIL N. AM. 33
greater efficiency and speed, and the ability to choose expert
adjudicators to resolve specialized disputes.” Id. (quoting
Stolt-Nielsen S.A. v. AnimalFeeds Int’l Corp., 559 U.S. 662,
685 (2010)). Because of the complex nature of class
litigation, those benefits are lost when parties are forced to
pursue class arbitration rather than the bilateral arbitration to
which the parties agreed in their agreement. See Concepcion,
131 S. Ct. at 1751.
Second, the Court reasoned that “class arbitration requires
procedural formality.” Id. “For a class-action money
judgment to bind absentees in litigation, class representatives
must at all times adequately represent absent class members,
and absent members must be afforded notice, an opportunity
to be heard, and a right to opt out of the class.” Id. (citing
Phillips Petroleum Co. v. Shutts, 472 U.S. 797, 811–12
(1985)). The Court found it unlikely that Congress, when
passing the FAA, envisioned requiring such complex
procedural requirements in an arbitration context. Id. at
1751–52.
Third, “class arbitration greatly increases risks to
defendants.” Id. at 1752. The Court explained:
Informal procedures do of course have a cost:
The absence of multilayered review makes it
more likely that errors will go uncorrected.
Defendants are willing to accept the costs of
these errors in arbitration, since their impact is
limited to the size of individual disputes, and
presumably outweighed by savings from
avoiding the courts. But when damages
allegedly owed to tens of thousands of
potential claimants are aggregated and
34 SAKKAB V. LUXOTTICA RETAIL N. AM.
decided at once, the risk of an error will often
become unacceptable. Faced with even a
small chance of a devastating loss, defendants
will be pressured into settling questionable
claims. . . . Arbitration is poorly suited to the
higher stakes of class litigation. . . . We find it
hard to believe that defendants would bet the
company with no effective means of review,
and even harder to believe that Congress
would have intended to allow state courts to
force such a decision.
Id.
After presenting these three reasons why ex post, state-
mandated class arbitration worked as an obstacle to the
objectives of the FAA, the Court addressed the argument that
class arbitration was “necessary to prosecute small-dollar
claims that might otherwise slip through the legal system.”
Id. at 1753. The Court rejected the argument, reasoning that
“States cannot require a procedure that is inconsistent with
the FAA, even if it is desirable for unrelated reasons.” Id.
Thus, the Court concluded that “[b]ecause ‘it stands as an
obstacle to the accomplishment and execution of the full
purposes and objectives of Congress,’ California’s Discover
Bank rule is preempted by the FAA.” Id. (quoting Hines v.
Davidowitz, 312 U.S. 52, 67 (1941)).
II. FAA’s preemption of the Iskanian rule
The majority cannot distinguish the present case from the
principles outlined in Concepcion. Concepcion dealt with a
state rule that prohibited class-action waivers in arbitration
agreements. The present case involves a state rule that
SAKKAB V. LUXOTTICA RETAIL N. AM. 35
prohibits representative action waivers in arbitration
agreements.
The Discover Bank rule and the Iskanian rule are
sufficiently analogous to guide our decision.1 Class actions
and PAGA actions both allow an individual (who can
normally only raise his or her own individual claims) to bring
an action on behalf of other people or entities. See Wal-Mart
Stores, Inc. v. Dukes, 131 S. Ct. 2541, 2550 (2011) (reasoning
that “[t]he class action is ‘an exception to the usual rule that
litigation is conducted by and on behalf of the individual
named parties only.’” (quoting Califano v. Yamasaki,
442 U.S. 682, 700–01 (1979)); Arias v. Superior Court,
209 P.3d 923, 986 (Cal. 2009) (explaining that an aggrieved
employee suing under PAGA “does so as the proxy or agent
of the state’s labor law enforcement agencies” and a
judgment binds the state law enforcement agencies and
1
The majority spends a significant portion of its decision discussing
whether Iskanian’s rule is a “generally applicable contract defense.” See
Concepcion, 131 S. Ct. at 1746 (quoting Doctor’s Assocs., Inc. v.
Casarotto, 517 U.S. 681, 687 (1996)). However, the parties do not
address the issue of whether the Iskanian rule is a generally applicable
contract defense. Therefore, I do not address the issue (although (a) I have
serious doubts that the rule established by Iskanian falls into the same
category as the common law contract defenses of duress or fraud, and
(b) the Supreme Court did not determine in Concepcion whether the
alleged unconscionability of failing to apply the Discover Bank rule was
a generally applicable contract defense). Further, declaring that the
Iskanian rule is a “generally applicable contract defense” does not help the
majority. Under Concepcion, even generally applicable contract defenses
may be preempted if they “stand as an obstacle to the accomplishment of
the FAA’s objectives.” Id. at 1748. The Iskanian rule stands as such an
obstacle to “[t]he overarching purpose of the FAA . . . to ensure the
enforcement of arbitration agreements according to their terms so as to
facilitate streamlined proceedings.” Id.
36 SAKKAB V. LUXOTTICA RETAIL N. AM.
nonparty aggrieved employees). Likewise, waivers of class
actions and representative actions both seek to prevent the
parties from raising claims on behalf of others by limiting
arbitration to only those claims arising between the parties to
the agreement.
Because the class action and representative action waivers
fulfill the same purpose, it should be no surprise that they are
often (if not always) grouped together and use similar
language.2 The common inclusion of both class action and
representative waivers in arbitration agreements indicates that
one waiver, without the other, would not be sufficient to
create the type of arbitration desired by the parties. For
example, an arbitration agreement that includes a class waiver
without including a representative waiver would not
effectively limit the arbitration to only individual claims
arising between the parties to the agreement. Thus, both the
Discover Bank rule and Iskanian rule (by invalidating these
waivers) act to prevent contracting parties from crafting
arbitration agreements in a way that limits the arbitration to
claims arising solely between the contracting parties.3
2
In Concepcion, the arbitration agreement required claims to be brought
in the parties’ “individual capacity, and not as a plaintiff or class member
in any purported class or representative proceeding.” Concepcion, 131 S.
Ct. at 1744. Here, Sakab’s arbitration agreement requires that he will not
“file (or join, participate or intervene in) a class-based lawsuit, court case
or arbitration (including any collective or representative arbitration
claim).” Both waivers expressly prohibited both class and representative
actions.
3
The majority responds by claiming that this argument would require
courts to enforce all waivers of representative claims, including individual
claims in a representative capacity, in arbitration agreements. However,
this argument regarding individual claims in a representative capacity
again is not relevant to the facts at hand. Sakkab was given the right to
SAKKAB V. LUXOTTICA RETAIL N. AM. 37
The majority emphasizes the differences between class
actions and PAGA claims. But differences between the two
types of actions, no matter how plentiful the majority would
want to characterize them, do not change the fact that a rule
prohibiting the waiver of either type of action in an
arbitration agreement interferes with the parties’ freedom to
limit their arbitration only to those claims arising between the
contracting parties. The majority recognizes that one of the
key problems with the Discover Bank rule in Concepcion was
that “it could not be applied to arbitration agreements without
interfering with parties’ freedom to select informal
procedures” for their own arbitrations. Maj. Op. at 20
(emphasis added). In an attempt to apply that principle to the
Iskanian rule, the majority reasons that “the Iskanian rule
does not conflict with the FAA, because it leaves parties free
to adopt the kinds of informal procedures normally available
in arbitration.” Maj. Op. at 27 (emphasis added). However,
the majority’s reasoning overlooks the simple fact that, by
preventing parties from limiting arbitration only to individual
claims arising between the two contracting parties, the
Iskanian rule interferes with the parties’ freedom to craft
arbitration in a way that preserves the informal procedures
and simplicity of arbitration (just as did the Discover Bank
rule). By requiring the availability of representative PAGA
claims in arbitration (i.e., claims not specific to the
contracting parties), the Iskanian rule interferes with the
fundamental attributes of arbitration and thus creates a
pursue his individual PAGA claim in this arbitration. His employer did
not object to Sakkab pursuing such an individual claim. Sakkab refused,
instead pursuing the broader claim at issue here. That said, when parties
contractually agree to waive any representative claims in an arbitration
agreement and a state rule mandates a different decision, an analysis under
Concepcion is warranted.
38 SAKKAB V. LUXOTTICA RETAIL N. AM.
scheme inconsistent with the FAA. See Concepcion, 131 S.
Ct. at 1748.
Because the effect of the waivers before challenged in
Concepcion and now challenged in this case are similar, the
analytic framework and reasoning in Concepcion is directly
applicable. Just like the Discover Bank rule in Concepcion,
the Iskanian rule does not require the parties to arbitrate
representative PAGA claims. However, by invalidating
representative waivers in an arbitration agreement (as applied
to PAGA claims), the rule allows any party to an employment
contract to demand arbitration of a representative PAGA
claim ex post, despite the fact that the parties agreed to forgo
such a demand in the agreement, where the parties have
already agreed to waive all other forums. See id. at 1750. As
explained below, by (a) preventing parties from crafting
arbitration agreements to limit the arbitration only to
individual claims and (b) allowing ex post demand for the
arbitration of representative PAGA actions, the Iskanian rule
forces the parties to lose the benefits of arbitration and
frustrates the purposes of the FAA. The Iskanian rule
burdens arbitration in the same three ways identified in
Concepcion: it makes the process slower, more costly, and
more likely to generate procedural morass; it requires more
formal and complex procedure; and it exposes the defendants
to substantial unanticipated risk. See id. at 1751–52.
A. The Iskanian rule makes arbitration slower, more
costly, and more likely to generate procedural
morass.
First, the switch from the arbitration of only individual
claims to the arbitration of representative PAGA claims on
behalf of the State and all other aggrieved employees
SAKKAB V. LUXOTTICA RETAIL N. AM. 39
“sacrifices the principal advantage of arbitration—its
informality—and makes the process slower, more costly, and
more likely to generate procedural morass.” Concepcion, 131
S. Ct. at 1751.4 When an aggrieved employee raises a
representative PAGA claim, he must first show that his
employer violated the California Labor Code. If the PAGA
claimant is successful in proving that his or her employer
violated the Labor Code, civil penalties are assessed against
the employer in the amount of “one hundred dollars ($100)
for each aggrieved employee per pay period for the initial
violation and two hundred dollars ($200) for each aggrieved
employee per pay period for each subsequent violation.” Cal.
Labor Code § 2699(f)(2). Thus, rather than merely focusing
on the individual employee, the hours he worked, and the
damages due to him, an arbitrator overseeing a representative
PAGA claim would have to make specific factual
determinations regarding (1) the number of other employees
affected by the labor code violations, and (2) the number of
4
For some unknown reason, the majority states that there is no support
in the record for the conclusion that representative PAGA actions will
make the arbitration process “slower” and “more costly.” However, the
arbitration of representative PAGA actions is clearly slower and more
costly than bilateral arbitration for the reasons outlined herein (for
example, the review of labor code violations and number of pay periods
for affected employees will inherently be slower and more costly when
brought in a representative capacity for multiple employees than the
review of labor code violations and number of pay periods when brought
in bilateral arbitration for a single employee). This conclusion is not
unique and is adequately reflected in the record. Indeed, the Chamber of
Commerce of the United States of America and Retail Litigation Center,
Inc. filed an amicus brief in this case detailing how such representative
claims lack “the simplicity, informality, and expedition that are
characteristic of arbitration” and concluding that the arbitration of
representative PAGA claims is as incompatible with arbitration as a class
proceeding.
40 SAKKAB V. LUXOTTICA RETAIL N. AM.
pay periods that each of the affected employees worked.
Because of the high stakes involved in these determinations,
both of these issues would likely be fiercely contested by
parties. In arbitrations involving large companies, the
arbitrator would be required to make individual factual
determinations regarding the employment status for hundreds
or thousands of employees, none of whom are party to such
arbitration. Further, the employee who brought the
representative PAGA claim would not initially have access to
the information needed to prove the number of affected
employees or the number of pay periods they worked.
Therefore, some kind of discovery would need to take place,
requiring the employer to divulge the necessary documents
(potentially a tremendous number of payroll and employment
forms) to the PAGA claimant. This would not be a minor
undertaking. All of these additional tasks and procedures
necessarily makes the process substantially slower,
substantially more costly, and more likely to generate
procedural morass than non-representative, individual
arbitration.
Despite these additional procedural hurdles present in a
PAGA claim, the majority denies that representative PAGA
claims would make the process slower, substantially more
costly, and more likely to generate procedural morass.
Instead, the majority reasons that any potential complexity of
PAGA claims does not render such claims incompatible with
arbitration. The majority holds that “arbitration is well suited
to resolving complex disputes, provided that the parties are
free to decide how the arbitration will be conducted.” Maj.
Op. at 26. However, that rationale ignores the problem the
Iskanian rule creates; the parties had already decided how
their arbitration would be conducted (individually, in a non-
representative capacity). The Iskanian rule instead allows the
SAKKAB V. LUXOTTICA RETAIL N. AM. 41
employee, ex post, to demand arbitration of representative
claims.5 Although two parties certainly could agree to
arbitrate representative PAGA claims when they construct
and sign the arbitration agreement, requiring the parties to
resolve representative actions (after a contrary agreement
between the parties has been struck) renders the arbitration
much more complex, costly, and time consuming than what
the parties had agreed to do. “Arbitration is a matter of
contract,” and “[t]he overarching purpose of the FAA . . . is
to ensure the enforcement of arbitration agreements according
to their terms so as to facilitate streamlined proceedings.”
Concepcion, 131 S. Ct. at 1745, 1748. When the parties have
agreed to a specific, streamlined method of arbitration (such
as the arbitration of individual claims only), and a relevant,
state rule forces the parties to forego their chosen method of
dispute resolution in favor of a procedure that is more costly
and time consuming, the state rule frustrates the purposes of
the FAA. As the Concepcion Court explained in the class
arbitration context, “The conclusion follows that class
arbitration, to the extent it is manufactured by Discover Bank
rather than consensual, is inconsistent with the FAA.” Id. at
1750–51. Likewise, it follows that representative arbitration,
5
The majority holds that parties could, ex ante, craft their arbitration
agreements to deal with the complexity involved in the arbitration of
representative PAGA claims. However, Concepcion’s analysis was not
concerned with the effect of the Discover Bank rule on future arbitration
agreements, but instead focused on the ex post effect of the rule on
arbitration agreements containing class waivers. See Concepcion, 131 S.
Ct. at 1750 (“California’s Discover Bank rule similarly interferes with
arbitration. Although the rule does not require classwide arbitration, it
allows any party to a consumer contract to demand it ex post.”).
Therefore, we also focus on Iskanian’s ex post effect on Sakkab’s
arbitration agreement.
42 SAKKAB V. LUXOTTICA RETAIL N. AM.
to the extent it is manufactured by Iskanian rather than
consensual, is inconsistent with the FAA.
The majority further reasons that, even if representative
PAGA actions will make the arbitration process slower or
more costly, the same could be said of any complex or fact-
intensive claim. The majority compares representative
PAGA actions to antitrust claims as an example of another
type of claim that has the potential to make arbitration slower
and more costly. This comparison is incorrect. Instead, the
principle enumerated in Concepcion requires us to compare
a representative PAGA claim (what the Iskanian rule would
require) to individual, bilateral arbitration (what the parties
had agreed to do in their arbitration agreement). Had the
majority conducted the correct comparison, it would be
forced to conclude that the arbitration of representative
PAGA claims is certainly more likely to make the process
slower, substantially more costly, and more likely to generate
procedural morass than non-representative, individual
arbitration.
B. The Iskanian rule requires more formal and complex
procedure.
Second, representative PAGA actions are procedurally
more complex than the arbitration of solely individual claims.
Specifically, the discovery required in a representative PAGA
claim is vastly more complex than would be required in an
individual arbitration. In an individual arbitration, the
employee already has access to all of his own employment
records (or can easily obtain them from his employer). He
knows how long he has been working for the employer and
can easily determine how many pay periods he has been
employed. Likewise, he knows whether he has been affected
SAKKAB V. LUXOTTICA RETAIL N. AM. 43
by the Labor Code violations he is alleging and can provide
individual evidence to support his claims. However, in a
representative PAGA claim, the individual employee does not
have access to any of this information on behalf of all the
other potentially aggrieved employees. Therefore, the
employee must be able to obtain the information from the
employer or the other employees. The discovery necessary
to obtain these documents from the employer would be
significant and substantially more complex than discovery
regarding only the employee’s individual claims. The
majority’s proposed solution to this complexity, the use of
hypothetical informal procedures instead of more formal
ones, misses the mark. The procedural complexity present in
representative PAGA claims is not attributable to the use of
formal versus informal procedures. Instead, such complexity
is a function of the sheer number of tasks and procedural
hurdles present in bringing a representative PAGA claim.
The majority completely dismisses the procedural
complexity that a representative PAGA claim entails. As the
majority suggests, the arbitration of representative PAGA
claims may not be as procedurally complex as class
arbitrations. See Concepcion, 131 S. Ct. at 1751–52.
However, (for the second time), the majority makes the
wrong comparison. Instead of comparing a representative
PAGA claim to individual, bilateral arbitration (i.e., what the
parties had agreed to versus what the Iskanian rule would
require, as the principle enumerated in Concepcion requires),
the majority compares a representative PAGA claims to class
arbitration and concludes that, because the two procedures are
different, a representative PAGA action is not inconsistent
with arbitration. Had the majority conducted the correct
comparison, the majority would be forced to conclude that the
44 SAKKAB V. LUXOTTICA RETAIL N. AM.
arbitration of representative PAGA claims is certainly more
procedurally complex than bilateral arbitration.
The majority holds that any potential procedural
complexity will depend on the arbitration procedures the
parties select and that the parties may streamline complex
PAGA claims by agreeing to informal procedures. However,
this type of reasoning was also considered and rejected in
Concepcion, where the plaintiff contended that because the
parties could agree to informal procedures, class procedures
were not necessarily incompatible with arbitration. 131 S. Ct.
at 1752–53. Again, the majority fails to recognize that,
although the parties could choose to employ procedures to
address the complexity inherent in representative PAGA
actions, they cannot be required by a state to do so. As the
Court in Concepcion reasoned:
The Concepcions contend that because parties
may and sometimes do agree to aggregation,
class procedures are not necessarily
incompatible with arbitration. But the same
could be said about procedures that the
Concepcions admit States may not
superimpose on arbitration: Parties could
agree to arbitrate pursuant to the Federal
Rules of Civil Procedure, or pursuant to a
discovery process rivaling that in litigation.
Arbitration is a matter of contract, and the
FAA requires courts to honor parties’
expectations. But what the parties in the
aforementioned examples would have agreed
to is not arbitration as envisioned by the FAA,
lacks its benefits, and therefore may not be
required by state law.
SAKKAB V. LUXOTTICA RETAIL N. AM. 45
Id. (citation omitted). Therefore, although parties may
choose to employ complex discovery procedures, as would be
required by a representative PAGA claim, state law cannot
demand that they do so. Here, Sakkab and Luxottica chose to
pursue individual, non-representative arbitration. Therefore,
the Iskanian rule frustrates the purposes of the FAA by
requiring them to undertake the procedural complexity of
representative PAGA claims.
C. The Iskanian rule exposes the defendants to
substantial unanticipated risk.
Third, the arbitration of representative PAGA claims
greatly increases the risk to employers. See id. at 1752.
Rather than awarding damages for Labor Code violations for
just one employee, representative PAGA claims award
damages for all affected employees. Cal. Labor Code
§ 2699(f)(2). A representative PAGA claim could therefore
increase the damages awarded in arbitration by a multiplier
of a hundred or thousand times (depending on the size of the
company). Thus, the concerns expressed in Concepcion are
just as real in the present case:
The absence of multilayered review makes it
more likely that errors will go uncorrected.
Defendants are willing to accept the costs of
these errors in arbitration, since their impact is
limited to the size of individual disputes, and
presumably outweighed by savings from
avoiding the courts. But when damages
allegedly owed to [hundreds or thousands] of
potential claimants are aggregated and
decided at once, the risk of an error will often
become unacceptable. Faced with even a
46 SAKKAB V. LUXOTTICA RETAIL N. AM.
small chance of a devastating loss, defendants
will be pressured into settling questionable
claims. . . . We find it hard to believe that
defendants would bet the company with no
effective means of review, and even harder to
believe that Congress would have intended to
allow state courts to force such a decision.
Concepcion, 131 S. Ct. at 1752.
The majority admits that representative PAGA actions
may involve high stakes, but then concludes that high stakes,
alone, cannot lead to invalidation of the Iskanian rule and
again compares PAGA actions to antitrust claims in
illustrating its argument. Once again, (for the third time), the
majority completely misses the point of Concepcion and
invokes an incorrect comparison. Parties to an arbitration
could agree to arbitrate high stakes issues. However, a state
court cannot “force such a decision.” Id. Comparing such
high stakes PAGA actions to antitrust claims is not relevant.
Again, the majority should have compared high stakes PAGA
actions against the individual, bilateral arbitration that the
parties actually agreed to undertake. When Sakkab and
Luxottica entered into their arbitration agreement, they chose
to limit the risk to which they were subjecting themselves to
damages arising out of individual claims between the two
parties. That is all. The Iskanian rule invalidates that
decision and allows Sakkab to demand ex post arbitration of
claims outside of that framework. Concepcion declared that
this increased risk, to which the parties did not agree,
frustrated the purposes of the FAA. When combined with the
increased cost, time, and procedural complexity inherent in
the arbitration of representative PAGA claims (when
compared to solely individual arbitration), the increased risk
SAKKAB V. LUXOTTICA RETAIL N. AM. 47
to a defendant works as yet another way that the benefits of
arbitration are lost through application of the Iskanian rule.
D. The Iskanian rule cannot be justified on state policy
grounds.
The majority holds that its decision “is bolstered by the
PAGA’s central role in enforcing California’s labor laws” and
that “[b]oth the PAGA statute and the Iskanian rule reflect
California’s judgment about how best to enforce its labor
laws.” Maj. Op. at 28. However, under Concepcion, “States
cannot require a procedure that is inconsistent with the FAA,
even if it is desirable for unrelated reasons.” 131 S. Ct. at
1753. As is evidenced by our discussion of the effective
vindication exception to the FAA in Ferguson v. Corinthian
Colls., Inc., when it comes to arbitration agreements, “‘[w]e
have no earthly interest (quite the contrary) in vindicating’ a
state law.”6 733 F.3d 928, 936 (9th Cir. 2013) (quoting
Italian Colors Rest., 133 S. Ct. at 2320 (Kagan, J.,
dissenting)). Thus, if a state law violates or frustrates the
FAA, the state law must give way, even if such a decision
prevents the state’s interest from being vindicated. Ferguson,
733 F.3d at 936–37. By relying so heavily on state policy
grounds to support its decision, the majority strays awfully
close to invocation of the effective vindication doctrine,
which the majority admits does not apply to the present case.
Therefore, because the Iskanian rule serves as an obstacle to
6
Sakkab argues that he cannot be denied a forum for his representative
PAGA claims. However, Sakkab has no right to the vindication of a state
law claim, as the majority correctly recognizes.
48 SAKKAB V. LUXOTTICA RETAIL N. AM.
the objectives of the FAA, the desirability and importance of
the rule to the State’s policies and purposes cannot save it.7
Although the State’s interest in an employee’s ability to
bring PAGA claims is ultimately irrelevant to the Concepcion
analysis, it is important to note that preemption of the
Iskanian rule does not preempt PAGA itself. In fact, PAGA
could continue to play a meaningful role in California’s labor
law enforcement scheme without the Iskanian rule. First, any
employee not subject to an arbitration agreement waiving
such actions is free to bring a PAGA claim. In the present
case, Luxottica gave Sakkab the option to opt out of the
arbitration agreement if he simply returned the opt-out form
to Luxottica within a specified period of time. We have
previously reasoned that an opt out provision prevents an
arbitration agreement from being a contract of adhesion, and
supports the enforceability of the agreements. See Circuit
City Stores, Inc. v. Ahmed, 283 F.3d 1198, 1199–1200 (9th
Cir. 2002). Thus, employers are incentivized to include opt
out provisions in their arbitration agreements. Any
employees who opt out of arbitration, or whose employers do
not utilize arbitration, will be free to bring PAGA claims.
Second, PAGA requires that potential claimants provide
notice to the State before pursuing a PAGA action. Cal.
Labor Code § 2699.3. As no one has asserted that the State
of California is prevented from raising the labor violations on
7
The majority holds that “[t]he FAA was not intended to preclude states
from authorizing qui tam actions to enforce state law.” Maj. Op. at 29.
However, the majority provides no support for that declaration. Under
Concepcion, if a state rule authorizing a qui tam action frustrated the
purposes or objectives of the FAA, that rule would certainly be
invalidated. The majority provides no authority to support the contention
that state law can preempt federal law if the state law involves qui tam
actions.
SAKKAB V. LUXOTTICA RETAIL N. AM. 49
its own, the notice provision of PAGA and the
implementation of statutory damages for Labor Code
violations can continue to provide a meaningful benefit to the
State of California. Finally, inasmuch as a PAGA claim can
be limited to damages stemming from a single employee’s
employment, PAGA continues to provide an opportunity for
individuals to collect damages on behalf of the State, even in
arbitration. Luxottica has expressly argued that an
“individual” PAGA claim could be raised under its arbitration
agreement with Sakkab. Although the existence of
“individual” PAGA claims is disputed, see Reyes v. Macy’s,
Inc., 202 Cal. App. 4th 1119, 1123 (Ct. App. 2011) (holding
that a PAGA claimant may not bring an individual PAGA
claim), the Iskanian court expressly chose not to decide the
issue. See Iskanian, LLC, 327 P.3d at 384. Instead, the court
reasoned that, even if such claims are available, individual
PAGA claims would not “result in the penalties contemplated
under the PAGA to punish and deter employer practices that
violate the rights of numerous employees under the Labor
Code.” Id. But, once again, the state’s purpose is irrelevant.
A state may not insulate causes of action from arbitration by
declaring that the purposes of the statute can only be satisfied
via class, representative, or collective action. If the rule
conflicts with the objectives of the FAA, the state rule must
give way. Concepcion, 131 S. Ct. at 1753.
Because the Iskanian rule stands as an obstacle to the
purposes and objectives of the FAA, there is no question—the
rule must be preempted. Preemption would be consistent
both with the Supreme Court’s controlling decision in
Concepcion and the FAA’s “liberal federal policy favoring
arbitration.” Moses H. Cone Mem’l Hosp., 460 U.S. at 24.
Numerous state and federal courts have attempted to find
creative ways to get around the FAA. We did the same in
50 SAKKAB V. LUXOTTICA RETAIL N. AM.
Laster, and were subsequently reversed in Concepcion. The
majority now walks that same path. Accordingly, I would
affirm.