Paul Dubow

Dubow is an arbitrator and mediator, focusing on employment, ERISA withdrawal liability, commercial law, legal malpractice and securities matters.

Appellate courts with jurisdiction over California regularly issue cases involving alternate dispute resolution. In the first half of this year, the United States Supreme Court has issued one opinion, the Ninth Circuit has issued seven opinions, the California Supreme Court has issued two opinions, and the Court of Appeal has issued 32 opinions involving ADR. We discuss below some of the significant ones decided during this period.

The Private Attorneys General Act

Ever since the decision in Iskanian v. CLS Transportation LLC, 59 Cal. 4th 348 (2014), the Private Attorneys General Act (PAGA), Lab. Code Section 2698 et. seq., has spawned repeated appellate decisions. The statute was designed to aid the Labor and Workforce Development Agency (LWDA) in its enforcement of Labor Code violations by empowering “aggrieved employees” to file suits against employers who violated the Code. The statute authorizes employees to file “representative” claims on behalf of their fellow workers and, if successful, the plaintiff employee receives 25% of the proceeds and the State receives the balance.

In Iskanian, the California Supreme Court ruled that the class action/representative claim waivers that are often contained in employment agreements are invalid because they violate California public policy, and that public policy also rendered the employees’ individual claims to be non-arbitrable. For the next eight years, a host of cases reached California and federal appellate courts wherein employers came up with novel ideas why Iskanian should not be followed. Those efforts were largely unsuccessful.

In 2022, the United States Supreme Court held in Viking River Cruises, Inc. v. Moriana, 142 S. Ct. 1906 that the Federal Arbitration Act (FAA) preempted the portion of Iskanian that denied arbitration of the individual claim but did not preempt the portion of Iskanian that barred arbitration of the representative (non-individual) claim. Nevertheless, the court, citing Kim v. Reins International, Inc., 9 Cal. 4th 73 (2020), ruled that plaintiff Moriana could not pursue her non-individual claim because California did not have a “mechanism” by which employees whose individual claims were ordered to arbitration could do so.

Kim did not involve a situation where an employee’s individual claim was ordered to arbitration. However, it was similar because the employee accepted a 998 offer from the defendant employer and, like an employee whose claim is resolved in arbitration, Kim no longer had an individual claim. Nevertheless, the California Supreme Court ruled that he could pursue the non-individual claim. It noted that Section 2699(c) defines an “aggrieved employee” as “any person who was employed by the alleged violator and against whom one or more of the alleged violations was committed.” Because the statute does not require the employee to claim that he or she suffered an economic injury from the alleged violation, Kim could pursue the non-individual claim even though his individual claim was settled.

State courts may ignore an interpretation of a state statute rendered by a federal court, including the Supreme Court and, as a consequence of the Supreme Court’s apparent misinterpretation of Kim, litigation involving an employee’s standing to pursue the non-individual claim continued. In every one of the cases decided this year, the Court of Appeal rejected arguments raised by employers that employees whose individual claims were ordered to arbitration could not pursue a non-individual claim. See Vaughn v. Tesla, Inc., 87 Cal. App. 5th 208; Galarsa v. Dolgen California LLC, 88 Cal. App. 5th 639; Piplack v. In-N-Out Burgers, 88 Cal. App. 5th 1281; Gregg v. Uber Technologies, Inc., 89 Cal. App. 5th 786; and Seifu v. Lyft, Inc., 89 Cal. App. 5th 1129. Basically, the panels held that there are only two requirements for a plaintiff to qualify as an “aggrieved employee” eligible to file a non-individual PAGA claim. The plaintiff must be a person “who was employed by the alleged violator” and “against whom one or more of the alleged violations was committed.”

These requirements preclude an employee who did not prevail in the arbitration from pursuing the non-individual claim. In Rocha v. U-Haul Co. of California, 88 Cal. App. 5th 65, two employees filed a lawsuit against U-Haul, alleging that they were whistleblowers and that U-Haul retaliated by firing them in violation of Labor Code Section 1102.5. U-Haul’s motion to compel arbitration was granted. The plaintiffs attempted to avoid arbitration by filing a motion to amend their complaint adding a PAGA claim alleging the Section 1102.5 violation as well as a failure to pay wages in violation of Labor Code Section 1194.2. The motion was denied because plaintiffs failed to allege that they were acting on behalf of other employees who may have been similarly victimized. The arbitration of the Section 1102.5 claim proceeded, and the arbitrator ruled in favor of U-Haul. The plaintiffs’ motion to vacate was denied and they appealed. The appeal also sought reversal of the denial of the motion to amend the complaint. The Court of Appeal affirmed in part, holding that plaintiffs could not pursue the non-individual Section 1102.5 claim because the arbitrator had found that there was no violation of Section 1102.5 and hence they were not aggrieved employees. However, the plaintiffs could pursue the Section 1194.2 claim because that issue was not arbitrated.

Finally, the California Supreme Court weighed in, and in a thorough decision written by Justice Liu, it reiterated the position that it took in Kim. In Adolph v. Uber Technologies, Inc., 2023 Cal LEXIS 4099, 2023 WL 4553702, the court held that standing under PAGA is not affected by enforcement of an agreement to adjudicate a plaintiff’s individual claim in another forum because a worker becomes an “aggrieved employee” with standing to litigate claims on behalf of fellow employees upon sustaining a Labor Code violation committed by his or her employer. Arbitrating a PAGA plaintiff’s individual claim does not nullify the fact of the violation or extinguish the plaintiff’s status as an aggrieved employee. The operative complaint in Adolph alleged that he experienced Labor Code violations while driving for Uber. That allegation sufficed to confer standing to bring a PAGA action.

Uber made several arguments urging that a PAGA plaintiff loses standing to litigate non-individual claims in court when the plaintiff’s individual claims are subject to arbitration. One of them was that unless Adolph’s non-individual claims were dismissed, his PAGA action would run afoul of Viking River because he would be permitted to twice litigate whether he was an aggrieved employee. Justice Liu disagreed, citing Rocha and Code of Civil Procedure Section 1281.4. The latter provides that where the court orders arbitration “of a controversy which is an issue involved in an action or proceeding pending before a court of this State,” the court in which the action or proceeding is pending “shall, upon motion of a party …stay the action or proceeding until an arbitration is had.” Thus, the non-individual claim would be stayed pursuant to Section 1281.4 pending the outcome of the arbitration. If the arbitrator determined that the plaintiff was not an aggrieved employee and the trial court confirmed that determination and reduced it to a final judgment, the court would give effect to that finding, and the plaintiff could no longer prosecute his non-individual claims due to lack of standing.

Thus, if the arbitration of the individual claim is tried ahead of litigation of the non-individual claim, and the employer prevails in the arbitration, the employer can obtain a dismissal of the representative claim because the plaintiff failed to establish that he was an aggrieved employee. And the employer can easily assure that the individual claim is tried first because of Section 1281.4.

Timeliness of filing a motion to vacate

In Law Finance Group LLC v. Key, 14 Cal. 5th 932, Law Finance Group (LFG) prevailed in an arbitration with Key. LFG advised Key that it planned to file a petition to confirm the award, and Key responded that she planned to file a motion to vacate. LFG filed its motion within two weeks of the award. Once LFG filed the motion to confirm, Code of Civil Procedure Section 1288.2 dictated that the response and any motion to vacate had to be filed within ten days. Subsequently, the parties agreed in writing to an extension of time within which Key could file a motion to vacate and respond to the petition to confirm. Key filed the motion to vacate 130 days after the award was issued and filed the response to the petition to confirm 139 days after the award was issued, wherein she also asked that the award be vacated. The trial court held that the motion to vacate was untimely pursuant to the 100-day limitation set forth in Code of Civil. Procedure Section 1288, but nevertheless granted Key’s motion and denied LFG’s motion because Code of Civil Procedure Section 1290.6 allows an extension of the 10-day deadline for a response to a petition to confirm if the parties agree to an extension in writing. LFG appealed and the Court of Appeal reversed, holding that Sections 1288 and 1288.2 are jurisdictional and cannot be extended.

Key appealed to the Supreme Court, which agreed that sections 1288 and 1288.2 are jurisdictional. Under their plain terms, Key had 100 days from the service of the final award to request that the arbitration award be vacated. Key argued that section 1290.6 – a general statutory provision permitting parties to extend the default 10-day period for any responsive filing in an arbitration matter – superseded the specific 100-day deadline for requesting that an arbitration award be vacated, at least when a petition to confirm has been filed within 100 days of the award’s service. The court responded that under the governing statutes, neither deadline superseded the other. Absent a written agreement or court order, the response must be filed within 10 days after service of the petition to confirm and in any event, no later than 100 days after service of the award.

Nevertheless, the court remanded the matter to the Court of Appeal to determine if equitable estoppel tolled the time within which Key could have filed the motion to vacate. Although Sections 1288 and 1288.2 are jurisdictional, the term “jurisdiction” has many different meanings. The jurisdictional argument in this case concerned whether the time limitation in the sections deprived the court of “fundamental” jurisdiction. A lack of fundamental jurisdiction is an entire absence of power to hear or determine the case because of an absence of authority over the subject matter or the parties. In such an instance, when a party fails to comply with a jurisdictional time bar, the court has no choice but to dismiss the case for lack of jurisdiction, even if equitable concerns would support reaching the merits. Those harsh consequences cause courts to apply a presumption that statutes do not limit the courts’ fundamental jurisdiction absent a clear indication of legislative intent to do so. This approach reflects a preference for the resolution of litigation and the underlying conflicts on their merits by the judiciary. Here, nothing in the sections’ instructions for the timing of responses requesting vacatur clearly indicated the Legislature’s intent to remove a class of cases from the court’s fundamental jurisdiction. Sections 1288 and 1288.2 speak only to obligations of the litigants and make no reference at all to the power of the courts – in other words, the sections read as an ordinary statute of limitations.

Darby v. Sisyphian LLC, 87 Cal. App. 5th 1100, was another case involving the time within which to appeal from the denial of a motion to vacate. In that matter, claimant Darby prevailed in the arbitration and filed a motion to confirm the award 19 days after the award was issued, which was well within the time within which to file the motion. Sisyphian filed a motion to vacate 32 days after the award was issued, which was beyond the 10-day limitation set forth in Section 1288.2. The trial court granted the motion to confirm and denied the motion to vacate because it was not timely. Sisyphian appealed and the Court of Appeal affirmed.

The court held that while the 100-day deadline to file a motion to vacate set forth in Section 1288 was immovable, the proviso in Section 1288.2 requiring the motion to vacate to be filed not more than 10 days after a motion to confirm is filed is a little more flexible. The Act authorizes an extension of the 10-day deadline in two situations – namely, (1) when the parties to the court proceeding agree in writing to an extension, or (2) when the court, either explicitly or implicitly, finds “good cause” to extend the deadline and where such an extension would not unduly prejudice the other party.

Applying these deadlines, Sisyphian’s stand-alone petition and its response to plaintiff’s motion to confirm were untimely. Sisyphian waited more than 10 days after the motion to confirm was filed to file its stand-alone petition and its response to plaintiff’s motion. Neither statutory exception to the 10-day deadline was invoked. The parties did not agree to extend the deadline, nor did the trial court find “good cause” to extend the deadline.

Appeal-order denying motion to compel arbitration-stay of litigation

Bielski filed a class action against Coinbase. Coinbase’s motion to compel arbitration was denied and it appealed, pursuant to Section 16(a) of the FAA. Coinbase’s motion to stay the litigation was denied by the district court and this ruling was affirmed by the Ninth Circuit. Coinbase appealed to the Supreme Court which, in a 6-3 decision written by Justice Kavanaugh, reversed. Coinbase, Inc. v. Bielski, 216 L. Ed. 2d 671, 2023 US LEXIS 2636,

Justice Kavanaugh found that section 16(a) does not say whether the district court proceedings must be stayed. But Congress enacted section 16(a) against a clear background principle prescribed by this Court’s precedents: An appeal, including an interlocutory appeal, “divests the district court of its control over those aspects of the case involved in the appeal.” Griggs v. Provident Consumer Discount Co., 459 U. S. 56, 58, 103 S. Ct. 400, 74 L. Ed. 2d 225 (1982). The Griggs principle reflects a longstanding tenet of American procedure and resolves the case. Because the question on appeal is whether the case belongs in arbitration or instead in the district court, the entire case is essentially “involved in the appeal.” Whether the litigation may go forward in the district court is precisely what the court of appeals must decide and so he held that it makes no sense for a trial to go forward while the court of appeals cogitates on whether there should be one.

In her dissent, Justice Jackson asserted that the mandatory stay rule “comes out of nowhere” and favored one class of litigants, to wit, defendants moving to compel arbitration. She argued that the majority materially expanded Griggs, which was based on the narrow issue of whether a party can file an appeal while the district court is contemplating amending the underlying judgment. She favored the general rule that gives courts discretion with respect to the issuance of a stay.

Justice Jackson challenged the majority’s belief that an automatic stay protects the party seeking arbitration and conserves resources in case the dispute ultimately heads to arbitration.The argument fades if the party seeking arbitration is unlikely to succeed on appeal. Her view was that a stay would harm the opposing party and the public interest much more than it would protect the party seeking arbitration because the party opposing arbitration loses the benefits of immediate litigation, a plaintiff’s request for injunctive protection against imminent harm goes unanswered and, ironically, the rule imposes settlement pressure on the party that won the arbitrability issue before the district court. Prior to this decision, the practice in California and federal courts was different. Although it was unclear whether Section 16(a) required a stay, Code of Civ. Proc. Section 1294(a) required a mandatory stay when there was an appeal from a denial of a motion to compel arbitration. The practice may continue to be different. That is so because SB 365, which is currently before the Legislature, eliminates the mandatory stay in Section 1294(a). The bill has sailed through the State Senate and the same result is expected in the Assembly and, if so, it will undoubtedly be signed by the Governor.

Opponents of SB 365 argue that the bill will not accomplish its proponents’ goal of a faster resolution of the dispute because if the party favoring arbitration is the loser at the trial level, it will move to stay execution of the judgment pending the resolution of its appeal from the denial of the motion to compel arbitration and/or an appeal from the trial court outcome. In addition, if such a party prevails on the appeal of the denial of the motion to compel arbitration, the party opposing arbitration will have wasted time and money litigating and would have given its adversary a free peek at its trial strategy. Proponents of the bill respond with the same arguments raised by Justice Jackson and also note that memories fade and witnesses can die while the appeal is pending but their testimony would be preserved if SB 365 is enacted because discovery will not be stayed.

Both sides make cogent arguments, but the bottom line is that practitioners will have to pay attention to the difference. The FAA does not preempt state court procedure. Assuming that SB 365 becomes law, if a complaint is filed in state court and a motion to compel arbitration is denied, the litigation will not be stayed even if the arbitration agreement provides that the FAA applies. Conversely, if a complaint is filed in or removed to federal court, the litigation will be stayed even if the arbitration agreement provides that the California Arbitration Act (CAA) applies.

Note, however, that Section 1 of the FAA exempts transportation workers who carry or are involved in the transportation of goods across state lines. Thus, Section 16(a) will not apply to disputes involving such workers, even if the dispute is in federal court. See Jackson v. Amazon.com, Inc., 64 F. 4th 1093, 1097 (9th Cir. 2023). Jackson did not involve a stay of litigation. Rather, the issue was whether Section 16(a) gave the court jurisdiction to hear an appeal of a denial of a motion to compel arbitration in the first place, and the Ninth Circuit ruled that it had such jurisdiction.

FAA preemption

In 2018, the California Legislature passed AB 3080, which prohibited an employer from requiring an employee or applicant for employment to waive any right, forum, or procedure for any violation of the Fair Employment and Housing Act (FEHA) or other specific statutes governing employment as a condition of employment. An employee who signs an arbitration agreement waives a court forum. Thus, the bill rendered mandatory employment agreements unenforceable. A statute that disfavors arbitration agreements is preempted by the FAA and Governor Brown vetoed it on this ground.

In 2019, the Legislature tried again. It passed and Governor Newsom signed AB 51, which was virtually the same as AB 3080. However, in an attempt to avoid preemption, the bill provided that if the employee signed the agreement, the agreement would be enforceable. The bill also provided that an employer committed a misdemeanor if it demanded that an employee or applicant for employment execute an arbitration agreement as a condition of employment. The Chamber of Commerce and other plaintiffs filed suit seeking to enjoin enforcement of the statute, asserting that it was preempted. The district court granted the injunction and defendants appealed, arguing that the statute was not preempted because it related only to formation of a contract.

The Ninth Circuit, in a 2-1 decision, reversed in part. Chamber of Commerce of the United States v. Bonta, 13 F. 4th 766 (9th Cir. 2021). It noted that AB 51 did not invalidate arbitration agreements if they were signed by all parties. It merely prevented employers from requiring employees to sign the agreements. If the employee opted to sign, the agreement was enforceable. Thus, the statute dealt only with contract formation, an issue that it held was not subject to federal preemption. But the court negated that portion of the statute that imposed criminal penalties on an employer who successfully induced an employee to sign the agreement. It held that a person could not be charged with criminal conduct by virtue of entering into a valid contract. The employer remained subject to criminal penalties if the employee declined to sign the agreement.

Judge Ikuta dissented. She disagreed with the finding that the concept of preemption did not reach the issue of contract formation. She also noted that the majority’s holding on criminal conduct would have a bizarre result. If the employer violated the statute by requiring employees to sign arbitration agreements, there would be no consequences if the scheme were successful. But if the employer failed in its attempt to obtain an employee’s signature, it would be subject to criminal penalties.

The losing plaintiffs moved for a rehearing en banc. Before the motion could be decided, the court withdrew its opinion. In a new opinion issued this year, Judge Fletcher, one of the two members of the majority in the original opinion, changed his mind and joined Judge Ikuta in affirming the district court. See Chamber of Commerce of the United States v. Bonta, 62 F. 4th 273.

In its second opinion, the court held that the Supreme Court has made clear that the FAA’s preemptive scope was not limited to state rules affecting the enforceability of arbitration agreements, but also extended to state rules that discriminate against the formation of arbitration agreements. See Kindred Nursing, 137 S. Ct. at 1428-29; Doctor’s Assocs. v. Casarotto, 517 U.S. 681. Nothing in Casarotto or Kindred Nursing suggested that a state rule targeting only the formation of an arbitration agreement fell outside of the FAA’s preemptive scope. If a state could criminalize the conduct of entering into an arbitration agreement, it could entirely defeat the FAA’s purpose and would allow states to wholly eviscerate Congressional intent to place arbitration agreements upon the same footing as other contracts. AB 51 disfavored the formation of agreements that have the essential terms of an arbitration agreement. The burden imposed on the formation of arbitration agreements was severe. AB 51 deterred an employer from including non-negotiable arbitration requirements in employment contracts by imposing civil and criminal sanctions on any employer who did so. The threat of criminal and civil liabilities was intended to have a deterrent effect, and so it was clear that the penalties imposed by AB 51 inhibited an employer’s willingness to create an arbitration contract with employees.

This ruling only applies to contracts that are covered by the FAA. If the contract does not involve interstate commerce or states that the CAA applies, employers who require their workers to enter into arbitration agreements as a condition of employment remain subject to criminal penalties, even if the employees sign the agreement.

Third party discovery

The difficulty in ordering a third party to produce documents prior to a hearing was demonstrated in McConnell v. Advantest America, Inc., 92 Cal. App. 5th 596. In this case, Advantest filed an arbitration proceeding against Kabbani, a former senior executive, after it learned that he controlled Lattice, one of Advantest’s suppliers. Prior to the hearing, Advantest’s attorneys asked several executives of Lattice, who were non-parties, to supply copies of text messages that they had received from Kabbani regarding Advantest, but they refused. The attorney thereupon prepared a subpoena ordering the non-parties to appear at a hearing with the documents. The subpoena also stated that the hearing would be adjourned after the documents were produced and that the non-parties would be required to appear at a hearing 12 months later. The arbitrator issued the subpoena.

The non-parties moved to quash the subpoena, citing Aixtron, Inc. v. Veeco Instruments, Inc., 52 Cal. App. 5th 360 (2020), wherein it was held that arbitrators cannot issue discovery subpoenas. The trial court denied the motion on the ground that the subpoena complied with Code of Civil Procedure Section1282.6 because the non-parties were required to appear at a hearing. The non-parties appealed and the Court of Appeal reversed.

The court rejected Advantest’s contention that because the subpoenas required production of the documents at a hearing, the analysis ended. If this were the case, parties to an arbitration proceeding could avoid the prohibition against non-party discovery, and demand any manner of documents, by simply requiring the non-party to produce the documents at any procedure that is dubbed to be an arbitration hearing. This literal reading of Section 1282.6 would defeat the purpose of the statutory scheme and lead to absurd results. Although the subpoenas required the document production at a hearing presided over by the arbitrator, the hearing was limited to the arbitrator appearing only for so long as needed for the documents to be collected with the intent that the hearing be adjourned for nearly 12 months, at which time the non-parties would be summoned to testify.

The subpoenas also allowed appellants to upload the documents to a website controlled by Advantest’s counsel. There is no indication in the record showing the arbitrator would have access to this website to review or evaluate the purported evidence. This defeated the purpose of production at a hearing which gives the arbitrator control over what is produced, such as ruling on objections and ordering redactions.