Sakkab v. Luxottica Retail N. Am., Inc.

• Citation: 803 F.3d 425
• Decision Date: 28 September 2015
• Docket Number: No. 13–55184.,13–55184.
• Parties: Shukri SAKKAB, an individual, on behalf of himself, and on behalf of all persons similarly situated, Plaintiff–Appellant, v. LUXOTTICA RETAIL NORTH AMERICA, INC., an Ohio corporation, Defendant–Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

803 F.3d 425

Shukri SAKKAB, an individual, on behalf of himself, and on behalf of all persons similarly situated, Plaintiff–Appellant

v.LUXOTTICA RETAIL NORTH AMERICA, INC., an Ohio corporation, Defendant–Appellee.

No. 13–55184.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted June 3, 2015.

Filed Sept. 28, 2015.

Kyle R. Nordrehaug (argued), Norman B. Blumenthal, and Aparajit Bhowmik, Blumenthal, Nordrehaug & Bhowmik, La Jolla, CA, for Plaintiff–Appellant.

Keith A. Jacoby (argued), Scott M. Lidman, and Judy M. Iriye, Littler Mendelson, P.C., Los Angeles, CA, for Defendant–Appellee.

Andrew J. Pincus (argued) and Archis A. Parasharami, Mayer Brown LLP, Washington, D.C., for Amici Curiae.

Appeal from the United States District Court for the Southern District of California, Gonzalo P. Curiel, District Judge, Presiding. D.C. No. 3:12–cv–00436–GPC–KSC.

Before: MILAN D. SMITH, JR., and N. RANDY SMITH, Circuit Judges, and JOAN H. LEFKOW,^* Senior District Judge.

Opinion by Judge MILAN D. SMITH, Jr. ; Dissent by Judge N.R. SMITH

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, 563 U.S. 333, 131 S.Ct. 1740, 179 L.Ed.2d 742 (2011). We must decide whether the FAA preempts the California rule announced in Iskanian v. CLS Transportation Los Angeles, LLC, 59 Cal.4th 348, 173 Cal.Rptr.3d 289, 327 P.3d 129 (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, 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

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 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, 173 Cal.Rptr.3d 289, 327 P.3d 129. 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.

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, 173 Cal.Rptr.3d 289, 327 P.3d 129. An action brought under the PAGA is a type of qui tam action. Id. at 382, 173 Cal.Rptr.3d 289, 327 P.3d 129.

The PAGA was enacted to correct two perceived flaws in California's Labor Code enforcement scheme. Id. at 378–79, 173 Cal.Rptr.3d 289, 327 P.3d 129. The first flaw was that civil penalties were not available to redress violations of some provisions of the Labor Code. Id. at 378, 173 Cal.Rptr.3d 289, 327 P.3d 129. 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, 173 Cal.Rptr.3d 289, 327 P.3d 129. 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

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, 173 Cal.Rptr.3d 289, 327 P.3d 129. 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 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

Pre-dispute agreements to waive PAGA claims are unenforceable under California law. In Iskanian v. CLS Transportation Los Angeles, LLC, the California Supreme Court held that two state statutes prohibited the enforcement of PAGA waivers. 59 Cal.4th at 382–83, 173 Cal.Rptr.3d 289, 327 P.3d 129. The...