Melinda Mandviwala v. Five Star Quality Care ( 2018 )


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  •                            NOT FOR PUBLICATION                             FILED
    UNITED STATES COURT OF APPEALS                          FEB 2 2018
    MOLLY C. DWYER, CLERK
    U.S. COURT OF APPEALS
    FOR THE NINTH CIRCUIT
    MELINDA MANDVIWALA, as an                       No.    16-55084
    individual and on behalf of all employees
    similarly situated,                             D.C. No.
    8:15-cv-01454-VAP-SP
    Plaintiff-Appellee,
    v.                                             MEMORANDUM*
    FIVE STAR QUALITY CARE, INC., a
    Delaware corporation, DBA Five Star
    Quality Care-CA, Inc.; FVE MANAGERS,
    INC., a Maryland corporation,
    Defendants-Appellants.
    Appeal from the United States District Court
    for the Central District of California
    Virginia A. Phillips, Chief District Judge, Presiding
    Argued and Submitted December 7, 2017
    Pasadena, California
    Before: CALLAHAN and BEA, Circuit Judges, and WHALEY,** District Judge.
    Defendants-Appellants Five Star Quality Care, Inc. and FVE Managers, Inc.
    *
    This disposition is not appropriate for publication and is not precedent
    except as provided by Ninth Circuit Rule 36-3.
    **
    The Honorable Robert H. Whaley, United States District Judge for the
    Eastern District of Washington, sitting by designation.
    (“Five Star”) appeal from the district court’s order denying their motion to compel
    arbitration in an action brought by Plaintiff Melinda Mandviwala under the
    California Private Attorneys General Act (“PAGA”), alleging violations of various
    California labor laws. Mandviwala sought civil penalties under PAGA as well as
    unpaid wages on behalf of herself and similarly aggrieved employees. Five Star
    argued that Mandviwala had waived her representative PAGA claims and sought to
    arbitrate any other claims pursuant to an employment contract containing an
    arbitration agreement. We affirm in part, reverse in part, and remand.
    1. A federal court sitting in diversity follows the choice-of-law rules of the
    state in which it sits. Atl. Marine Const. Co., Inc. v. U.S. Dist. Court for W. Dist. of
    Tex., 
    134 S. Ct. 568
    , 582 (2013) (citing Klaxon Co. v. Stentor Elec. Mfg. Co., 
    313 U.S. 487
    , 496 (1941)). The district court applied California’s choice-of-law
    provision governing enforceability of a contract. See Nedlloyd Lines B.V. v.
    Superior Court, 
    3 Cal. 4th 459
    , 464-66 (1992).
    PAGA represents a fundamental California policy. See Iskanian v. CLS
    Transp. L.A., LLC, 
    59 Cal. 4th 348
    , 378-79, 381 (2014) (analysis of the purpose
    and background of PAGA). Because application of Maryland law would result in a
    waiver of Mandviwala’s representative PAGA claims, it is directly at odds with a
    fundamental policy of California. See Brack v. Omni Loan Co., Ltd., 
    164 Cal. App. 4th 1312
    , 1324-25 (finding that application of a choice-of-law provision was in
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    error when the selected state’s law conflicted with a fundamental policy of
    California). The district court did not err in applying California law rather than
    Maryland law, despite the choice of law provision in the employment contract.
    2. Under California law, the waiver of representative PAGA claims in an
    employment contract is unenforceable. Iskanian, 59 Cal. 4th at 384. As we have
    already held in Sakkab v. Luxottica Retail North America, Inc., the Federal
    Arbitration Act does not preempt Iskanian. 
    803 F.3d 425
    , 431 (9th Cir. 2015).
    The subsequent rulings in DirecTV, Inc. v. Imburgia, 
    136 S. Ct. 463
     (2015)
    and Kindred Nursing Centers Limited Partnership v. Clark, 
    137 S. Ct. 1421
     (2017)
    do not displace Sakkab. First, DirecTV dealt with the arbitration of private damage
    claims, distinct from PAGA’s enforcement of civil penalties. Tanguilig v.
    Bloomingdale’s, Inc., 
    5 Cal. App. 5th 665
    , 675 (2016). But more importantly,
    neither DirecTV nor Kindred announced new law; both cases reached a conclusion
    that “falls well within the confines of (and goes no further than) present well-
    established law.” See DirecTV, 136 S. Ct. at 471; Kindred, 137 S. Ct. at 1429. The
    Iskanian rule is distinct from the rules at issue in DirecTV and Kindred because it
    is a generally applicable contract defense in that it bars any waiver of a PAGA
    claim, regardless whether the waiver appears in an arbitration agreement. Sakkab,
    803 F.3d at 432-33.
    3
    3. While Mandviwala’s claims for PAGA civil penalties are not subject to
    arbitration, Mandviwala’s claims for unpaid wages under California Labor Code
    § 558 are subject to arbitration. Esparza v. KS Indus., L.P., 
    13 Cal. App. 5th 1228
    ,
    1234 (2017). Civil penalties are distinguishable from unpaid wages because they
    cannot be collected in an individual capacity and because of their unique payout
    structure defined by PAGA, in which most of the penalties are paid into the state
    treasury rather than exclusively to the aggrieved employee. Id. at 1242-43.
    Recovery of unpaid wages is a private dispute, particularly because it could
    be pursued individually by the employee. Id. at 1246. Iskanian is limited to claims
    “that can only be brought by the state or its representatives, where any resulting
    judgment is binding on the state and any monetary penalties largely go to state
    coffers.” Id. (quoting Iskanian, 59 Cal. 4th at 388).
    We recognize that there is conflict between Esparza and the California Court
    of Appeal’s recent holding in Lawson v. ZB, N.A., No. D071279, 
    2017 WL 6477857
     (Cal. Ct. App. 4th Dist., Div. 1, Dec. 19, 2017), as modified (Dec. 21,
    2017). Lawson held that claims for unpaid wages under California Labor Code §
    558 are not private because “prior to enactment of PAGA there was no private
    remedy under section 558.” 
    2017 WL 6477857
    , at *8. Thus, under Lawson, unpaid
    wages claims pursuant to § 558 are not subject to arbitration under a pre-dispute
    waiver of representative claims.
    4
    As such, we “must attempt to determine how the California Supreme Court
    might decide the issue.” Ileto v. Glock Inc., 
    349 F.3d 1191
    , 1200 (9th Cir. 2003).
    We find Esparza to be more consistent with the ruling of Iskanian. Esparza
    specifically distinguished between individual claims for compensatory damages
    (such as unpaid wages) and PAGA claims for civil penalties, which is more
    consistent with Iskanian and reduces the likelihood that Iskanian will create FAA
    preemption issues. See Esparza, 13 Cal. App. 5th at 1246 (“Employees claims for
    unpaid wages are subject to arbitration pursuant to the terms of the parties’
    arbitration agreement and the [FAA]. The rule of nonarbitrability adopted in
    Iskanian is limited to representative claims for civil penalties in which the state has
    a direct financial interest.”).
    Thus, based on Esparza, we reverse the district court’s order and remand to
    the district court to order arbitration of the victim-specific relief sought by
    Mandviwala.
    AFFIRMED IN PART, REVERSED IN PART, AND REMANDED.
    5