Erich Heidrich v. Pennymac Financial Services

FILED
NOT FOR PUBLICATION
FEB 7 2020
UNITED STATES COURT OF APPEALS MOLLY C. DWYER, CLERK
U.S. COURT OF APPEALS
FOR THE NINTH CIRCUIT
ERICH HEIDRICH; et al., No. 18-16494
Plaintiffs-Appellants, D.C. No. 2:16-cv-02821-TLN-EFB
v.
PENNYMAC FINANCIAL SERVICES, MEMORANDUM*
INC.; et al.,
Defendants-Appellees.
Appeal from the United States District Court
for the Eastern District of California
Troy L. Nunley, District Judge, Presiding
Argued and Submitted January 21, 2020
San Francisco, California
Before: W. FLETCHER and R. NELSON, Circuit Judges, and MOLLOY,**
District Judge.
Former employees of PennyMac Financial Services, Inc., appeal the district
court’s order compelling arbitration of their claims under the Federal Fair Labor
*
This disposition is not appropriate for publication and is not precedent
except as provided by Ninth Circuit Rule 36-3.
**
The Honorable Donald W. Molloy, United States District Judge for
the District of Montana, sitting by designation.
Standards Act, 29 U.S.C. §§ 201 et seq., and dismissing the action. We have
jurisdiction under 28 U.S.C. § 1291 and 9 U.S.C. § 16(a)(3). See Green Tree Fin.
Corp.-Ala. v. Randolph, 531 U.S. 79, 89 (2000); Interactive Flight Techs., Inc. v.
Swissair Swiss Air Transp. Co., 249 F.3d 1177, 1179 (9th Cir. 2001). We hold that
we are bound by a decision of the California Court of Appeal holding that
PennyMac’s arbitration agreement is unenforceable in its entirety, and we therefore
reverse.1
The district court compelled arbitration of the employees’ FLSA claims,
declined to exercise supplemental jurisdiction over their state-law claims,
dismissed all claims before it, and entered judgment. The district court reasoned
that the employees’ FLSA claims were arbitrable under Epic Systems Corp. v.
Lewis, 138 S. Ct. 1612 (2018), but it did not consider the employees’ alternative
argument that PennyMac’s arbitration agreement was unenforceable because it
contained an unlawful waiver of representative claims under the California Private
Attorneys General Act, Cal. Lab. Code §§ 2698 et seq., and that the waiver was
inseverable from the remainder of the arbitration agreement. After the district
court rendered its decision, the California Court of Appeal held in Smigelski v.
1
PennyMac’s motion for an order that the excerpts of record be
supplemented (Dkt. 41) is DENIED as moot.
2
PennyMac Financial Services, Inc., No. C081958, 2018 WL 6629406, at *12 (Cal.
Ct. App. Dec. 19, 2018) (unpublished), reh’g denied (Jan. 9, 2019), review denied,
S253796 (Cal. Apr. 10, 2019), cert. denied, 140 S. Ct. 223 (2019), that
PennyMac’s arbitration agreement contains an unlawful and inseverable PAGA
waiver and that therefore “PennyMac cannot compel arbitration of any of
Smigelski’s causes of action, including causes of action that would otherwise be
arbitrable.”
The Full Faith and Credit Clause and its implementing statute require that
federal courts “give to a state-court judgment the same preclusive effect as would
be given that judgment under the law of the State in which the judgment was
rendered.” Migra v. Warren City Sch. Dist. Bd. of Educ., 465 U.S. 75, 81 (1984);
Rodriguez v. City of San Jose, 930 F.3d 1123, 1130 (9th Cir. 2019); see also U.S.
Const. art. IV, § 1; 28 U.S.C. § 1738. Under California law, issue preclusion
applies against a party to a prior proceeding in which the issue to be precluded was
actually litigated and necessarily decided in a final decision on the merits unless
the application of issue preclusion would be inconsistent with public policy. See
White v. City of Pasadena, 671 F.3d 918, 927 (9th Cir. 2012) (citing Lucido v.
Superior Court, 795 P.2d 1223, 1225–27 (Cal. 1990)).
3
The requirements of issue preclusion under California law are met here.
PennyMac was a party to the prior proceeding; identical arbitration agreements
were at issue; the parties vigorously litigated whether the agreements contained
unenforceable PAGA waivers and whether those waivers were severable; the Court
of Appeal expressly decided those issues; and its decision is final on appeal.
PennyMac argues that the issues here differ from those decided in Smigelski
because the employees here assert claims under federal law. We disagree. The
Court of Appeal in Smigelski held that the severability provisions of PennyMac’s
arbitration agreement prohibited severance of provisions found to violate state law.
See 2018 WL 6629406, at *11. For that reason, the court held that the agreements
were unenforceable in their entirety, not only as to PAGA claims or to claims
under state law. See id. at *12. That PennyMac disagrees with the Court of
Appeal’s application of federal law is not a valid basis for refusing that decision
full faith and credit as required by § 1738. See Allen v. McCurry, 449 U.S. 90,
95–96 (1980).
The district court declined to exercise supplemental jurisdiction over the
employees’ state-law claims for the sole reason that it had dismissed all federal
claims before it. Because we reverse the district court’s order dismissing the
employees’ federal claims, we also reverse as to their state-law claims.
REVERSED.
4