United States: Post-Epic Systems Challenges To Iskanian Are Going Nowhere

In the landmark case of Iskanian v. CLS Transportation Los Angeles, LLC, 59 Cal. 4th 348 (2014), the California Supreme Court held that an arbitration agreement purporting to waive the right to bring a representative action under the Private Attorneys General Act (PAGA) was unenforceable under state law, and that the Federal Arbitration Act (FAA) did not preempt this rule.

At the time, it might have seemed inevitable that the Iskanian rule would be reviewed by the U.S. Supreme Court. The Court had taken at least one arbitration case in each of the last six years (and often more than one case), and had repeatedly reaffirmed that the "primary purpose of the FAA is to ensure that private agreements to arbitrate are enforced according to their terms." Stolt-Nielsen S.A. v. AnimalFeeds Int'l Corp., 559 U.S. 662, 682 (2010). Moreover, even in the immediate aftermath of Iskanian, the large majority of district courts to address the issue found "that PAGA action waivers are enforceable because a rule stating otherwise is preempted by the FAA." E.g., Ortiz v. Hobby Lobby Stores, Inc., 52 F. Supp. 3d 1070, 1087 (E.D. Cal. 2014).

Thus, it came as some surprise when the Supreme Court declined a petition for certiorari in Iskanian  in January 2015. Later that same year, the 9th Circuit overturned the weight of district court authority by holding that Iskanian's rule was not preempted by the FAA (Sakkab v. Luxottica Retail N. Am., Inc., 803 F.3d 425, 431 (9th Cir. 2015)), and in years since, the Court has repeatedly denied petitions seeking review of whether the FAA preempts Iskanian.

However, the Supreme Court breathed new life into the Iskanian debate in Epic Systems Corp. v. Lewis, 138 S. Ct. 1612 (2018). There, the Court rejected the argument that the National Labor Relations Act guaranteed a right for employees to bring class and collective actions against their employers, explaining that "the answer is clear" that "[i]n the Federal Arbitration Act, Congress has instructed federal courts to enforce arbitration agreements according to their terms—including terms providing for individualized proceedings." Id. at 1619.

If Epic Systems (and a 6-3 conservative majority) seemed to be an invitation to Iskanian's detractors, it appears they are about to be disappointed. In DoorDash, Inc. v. Campbell, Case No. 21-220, the petitioner asked the Supreme Court to take up the Iskanian rule, arguing that there is "no meaningful difference between the class action at issue in Concepcion [a case holding that a rule against class action waivers in arbitration was preempted by the FAA], the collective actions at issue in Epic Systems, and the [PAGA] representative actions at issue here." Petition at 20. Rather, Iskanian and Sakkab created a "unique, unwritten exception to the FAA" that was irreconcilable with the Supreme Court's command to enforce arbitration agreements "according to their terms." Id. at 17 (quoting Epic Sys., 138 S. Ct. at 1620).

Despite the language in Epic Systems that arguably was difficult to reconcile with Iskanian, the petition fared the same as every other certiorari petition to challenge the rule against PAGA waivers: the Court denied it on October 12, 2021. And although there are three other pending petitions for certiorari on point, they make the same arguments and are likely headed for the same fate.

Not surprisingly, the Epic Systems argument is also receiving a chilly reception in state courts. Two recent decisions rejected the same argument that Epic Systems abrogated the Iskanian rule against PAGA waivers. On October 18, 2021, in Williams v. RGIS, LLC, Case No. C091253, the California Court of Appeal (3rd District) affirmed that PAGA waivers remain unenforceable. The court noted that Epic Systems did not consider PAGA, "but instead 'considered the relationship between the FAA and a provision of the National Labor Relations Act guaranteeing workers the right to engage in 'concerted activit[y].'" Slip op. at 4. Analyzing the purpose of a PAGA action, it highlighted that the employee bringing the action is acting as a proxy of the state and, because the action seeks to recover civil penalties, it is "fundamentally a law enforcement action designed to protect the public and not to benefit private parties." Id. at 5. Thus, a PAGA claim lies outside the FAA's coverage, which is limited to disputes between and employer and employee arising out of a contractual relationship. Id. at 6.

On October 21, 2021, the Court of Appeal (2nd District) reached the same conclusion in Green v. Shipt, Inc., Case No. B309061. The court explained that "[o]n federal questions, intermediate appellate courts in California must follow the decisions of the California Supreme Court, unless the United States Supreme Court has decided the same question differently."  Slip op. at 10 (quotation omitted). Because Epic Systems did not consider "the unique nature of a PAGA action," it does not call into question Iskanian's holding about PAGA waivers. Id. at 11. As both Green and Williams also pointed out, their decisions are consistent with Court of Appeal precedent, which has repeatedly rejected the argument that Epic Systems abrogated Iskanian.

Some advocates (and even some judges) still believe that the Supreme Court will eventually face Iskanian head-on. E.g.,  Rivas v. Coverall N. Am., Inc., 842 F. App'x 55, 58 (9th Cir. 2021) (Bumatay, J., concurring) ("While I agree that Sakkab is not clearly irreconcilable with Epic Systems . . ., the writing is on the wall that the [Supreme] Court disfavors our approach."). Perhaps it will, but it appears increasingly likely that the Iskanian rule will survive at least another term, if not longer.

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