The Ninth Circuit Opens Door For Representative Actions Otherwise Barred By Arbitration Agreements

A waiver of the right to bring a class action is enforceable as part of an arbitration agreement, and a state law rule to the contrary is preempted by the Federal Arbitration Act, 9 U.S.C. §1, et seq.[1] The FAA does not, however, preclude a rule barring contractual waiver of a representative action that does not use a class procedure, according to a recent decision by the Ninth Circuit, Sakkab v. Luxottica Retail North America, Inc.[2]

In Sakkab, the plaintiff asserted a non-class, representative claim under California’s Private Attorneys General Act, which permits a private plaintiff to recover civil penalties for labor code violations in a representative capacity. The trial court granted the defendant’s motion to compel arbitration pursuant to an agreement that prohibited class arbitrations, as well as “any collective or representative arbitration claim.” In so doing, the trial court concluded that a rule of law precluding waiver of such claims[3] would be preempted by the Federal Arbitration Act.

Reversing, the Ninth Circuit held that California’s rule invalidating waiver of such private attorney general claims was not preempted as (1) a generally applicable contract defense (as opposed to one targeted at agreements to arbitrate) that (2) did not conflict with the purposes of the FAA. In particular, the court held that a representative action did not involve the procedural complexities of a class action (that could slow down an arbitration process intended to be comparatively streamlined) and did not raise due process concerns for absent class members (because such claims involve representation of the State expressly authorized by statute, as opposed to absent class members).

Although grounded in California law, the Ninth Circuit’s decision in Sakkab raises the question whether other types of non-class representative actions could survive an agreement presumed to be enforceable under Concepcion. For example, the Washington Supreme Court held a class-action waiver substantively unconscionable in the context of the Consumer Protection Act because it “undermines the legislature’s intent that individual consumers act as private attorneys general.”[4] Although it is unclear whether the CPA permits a Washington plaintiff to seek a judgment ordering payment of civil penalties on a representative basis,[5] the Ninth Circuit’s conclusion that the “FAA was not intended to preclude states from authorizing qui tam actions to enforce state law” could provide support for argument that Concepcion rule is not so broad as to require enforcement of a waiver of all types of representative actions in arbitration.

–Matthew H. Rice