Short take-away: PAGA action cannot be dismissed solely on manageability grounds

 

Short take-away:  Trial courts do not have inherent power to strike PAGA claims because they are supposedly "unmanageable"

The California Supreme Court has resolved a split of authority between appellate districts as to whether a trial court has inherent power to strike a Private Attorney General Act claim on grounds it is not manageable. (Estrada v. Royal Carpet Mills (January 18, 2024) S274340.)   Such PAGA claims are made under the "Labor Code Private Attorneys General Act of 2004," found at Labor Code section 2698, et seq.

Plaintiff Estrada filed suit, asserting Royalty violated Labor Code provisions requiring that it provide required break and rest periods, as well as seeking PAGA penalties for these Labor Code violations.  Plaintiff filed amended complaints realleging the individual claims as a class action.  The trial judge, the Hon. Randall J. Sherman, of the Orange County Superior Cout, held a bench trial as to the issue of individual vis a vis class claims and, though a class had already been certified, issued an order decertifying the class due to inconsistent individual claims, dismissing the PAGA claim, and entering a judgment of dismissal.

The Fourth District, Division Three, reversed the trial court and the Supreme Court granted review.  Chief Justice Guerrero wrote for a unanimous court and explained:

We now conclude that trial courts lack inherent authority to strike PAGA claims on manageability grounds. In reaching this conclusion, we emphasize that trial courts do not generally possess a broad inherent authority to dismiss claims. Nor is it appropriate for trial courts to strike PAGA claims by employing class action manageability requirements. And, while trial courts may use a vast variety of tools to efficiently manage PAGA claims, given the structure and purpose of PAGA, striking such claims due to manageability concerns — even if those claims are complex or time-intensive — is not among the tools trial courts possess. (Id., p. 2; footnote omitted.)

The Supreme Court explained that while trial courts do have inherent authority to establish procedures where no procedure exists, this does not extend to a broad power to dismiss claims.  Estrada  thus quoted from Weiss v. People ex rel. Dept. of Transportation (2020) 9 Cal. 5th 840, at 865, on this point:

While "[t]here may be cases in which the use of a nonstatutory motion procedure to dismiss a cause of action before trial is called for, . . . courts should be wary of such requests.” (Id., p. 8.)

Therefore, Estrada concluded that the requirement of "manageability" present in class action suits did not apply to PAGA claims. (Id., p. 20-22.)

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2024 California Supreme Court preveiw

2024 brings us the second year of service by California's new Chief Justice

On January 2, 2023, Chief Justice Patricia Guerrero was sworn in as the 29th Chief Justice of California.  She followed former Chief Justice Tani Cantil-Sakauye, who was regarded as a strong leader who brought stability and consistency to the administration of justice.  2024 will therefore be Chief Justice Guerrero's second year of service.

Predictions for 2024

If we were to hazard a prediction as to the ideology and direction of the Court in 2024, we would predict that its stability and consistency would continue.  In fact, there is only one remaining Republican appointee, Justice Corrigan, who was appointed by Governor Schwarzenegger in 2005.

More to the point, given the fact that Mr.  Schwarzenegger hardly governed as a political conservative, it appears the court is entirely moderate to left of center in terms of ideology.  There have been no notable four to three decisions in recent memory and the Court has become known for its unanimous seven to zero decisions. 

Key rulings likely to involve the scope of protections for employees

In 2024 the Supreme Court has already issued an opinion regarding whether a trial court may dismiss a Private Attorney General (PAGA) claim related to meal and rest breaks on "manageability" grounds. (Estrada v. California Commerce Club).  We will discuss Estrada in a future post, but it is worth noting this is not the only case relating to employment pending before the Supreme Court and, indeed, other cases with employment law issues may be granted review.  

The question then becomes:  will counsel for employees continue their recent success?  We will see, and, in the meantime, note that briefs of cases that have or will soon be argued are available here. 

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Court, not arbitrator, decides whether minor may disaffirm contract including arbitration provision

 

Class action suit by minors alleging deceptive practices in "in app" purchases may proceed despite the fact the videogame license came with arbitration provision

A minor, of course, may affirm or disaffirm a contract once they reach the age of majority. (Family Law Code sections 6700 and 6710.)  This is to protect minors from "their lack of judgment and experience. . . ." (Sparks v. Sparks (1950) 101 Cal. App. 2d 129, at 137.)  

California's Second District, Division Six, has upheld the role of a trial court in determining whether a minor has disaffirmed a contract made by said minor. (J.D. v. Electronic Arts (January 17, 2024) E080414.)  The appellate court summarized the complaint and challenges to such as follows:

On February 14, 2022, J.R. II filed a putative class action against EA, alleging causes of action for unlawful and unfair business practices in violation of the Unfair Competition Law (Bus. & Prof. Code, § 17200 et seq.), violation of the Consumer Legal Remedies Act (Civ. Code, § 1750 et seq.), and unjust enrichment.  J.R. alleged that EA deceptively induced players of Apex Legends, “especially impressionable minors,” to purchase digital game-specific currency in order “to purchase cosmetic items, characters, lootboxes, and other items within the Apex Legends virtual world.”
EA moved to stay the action and to compel arbitration under Code of Civil Procedure sections 1281.2 and 1281.4, arguing that J.R. II’s claims are covered by an arbitration agreement contained within EA’s user agreement, which J.R. II agreed to in order to play Apex Legends. (Id., p. 1.)

Finding it had the authority to decide whether J.R. disaffirmed the contract with EA, the trial court found he had done so according to the declaration he had submitted in opposition to the motion.  The Hon. Craig Riemer, Judge Presiding of the Riverside County Superior Court, thus denied EA's motion to compel contractual arbitration under the rules of the American Arbitration Association; therefore permitted the class action to proceed.

EA appealed and argued that because the contract provided arbitration should proceed according to the rules of the AAA, the arbitrator must decide the issue of whether J.R. disaffirmed all or part of the agreement to arbitrate.  J.R. argued that he had disaffirmed the entire user agreement, including the "delegation clause" regarding arbitration, and argued the trial court had the authority to decide this issue.

In an opinion written by Justice Menetrez, the Second District found J.R.'s declaration provided that he had in fact disaffirmed the entire contract, including the delegation provision.  The court also explained the delegation provision was severable from the remainder of the contract and that the disaffirmance of this provision was valid no matter whether defenses to other parts of the agreement were valid.    

Analysis

This opinion continues the California trend of the increasing role of trial courts supervising private arbitration and, indeed, in deciding major legal issues related to what can or cannot be arbitrated.  Put another way, the time in which a trial court was more likely to have the arbitrator decide all issues related to contractual arbitration appears to be long passed. 

This suit also illustrates the dangers inherent in the apparently lucrative business of encouraging minors to make in-app purchases without the permission of their parents.

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Short Take-Away - Insured Must Arbitrate UIM Claim Even Though Bad Faith Suit Has Already Been Filed Against the Insurer

 

The First Appellate District, Division Two, has held an insurer may demand arbitration of an underinsured motorist claim (UIM) made after the insured settled with the uninsured motorist (UM) and then made a claim for the UIM policy limits; indeed, the insured was required to arbitrate even though the insured had already filed a claim for bad faith against the insurer. (Tornal v. CSAA Ins. (Jan. 11, 2024) A167666.)  As Tornal explained:

Plaintiff’s policy provided UM/UIM coverage of up to $300,000 per accident. Plaintiff made a written demand to defendant under the policy for $275,000—the policy limits of $300,000, less the $25,000 she had already received from the settlement with the UIM. Defendant [insurer] refused to tender the $275,000 demanded. (Id., p. 3.)

Plaintiff and insured Tornal then filed a bad faith suit against CSAA, and the latter filed a petition to compel arbitration pursuant to the insurance policy and California's Insurance Code section 11580.2.  The trial court denied CSAA's request to compel arbitration of the underlying UIM claim and CSAA appealed.

Justice Richman and his colleagues reversed, finding the trial court erred in denying the petition.  The appellate court noted that CSAA was not challenging the right of its insured to sue for breach of contract and bad faith, but, instead, was seeking adjudication of the amount owed under its policy.  Said policy and California law provided that this should be resolved by way of arbitration and not a "bad faith" suit:

. . . [B]ecause the parties disagreed over the amount of UIM damages owed to plaintiff, defendant was entitled under section 11580.2, subdivision (f) and the terms of the policy to arbitrate the issue of UIM damages. (Id., p. 22.)

Commentary

A contrary result would have meant, of course, that an insured unable to settle a UIM or UM claim to their liking could stymie the request of the insured to arbitrate this issue by first filing a suit alleging bad faith breach of the insurance policy.

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