Ninth Circuit Recognizes Limited Impact of California Supreme Court Decision on Federal Standing

In a recent unpublished opinion, the Ninth Circuit reversed the dismissal of a plaintiff’s representative claims, brought under California’s Private Attorneys General Act (PAGA). In doing so, the Ninth Circuit noted that recent California Supreme Court precedent was not dispositive on the issue of federal standing. Rivas v. Coverall North America, Inc., No. 22-56192 (9th Cir., filed on March 29, 2024).

In the underlying district court action, plaintiff Carlos Rivas brought a PAGA action against defendant Coverall North America, arguing that Coverall had misclassified him and similarly situated individuals as independent contractors rather than employees. After Coverall moved to compel arbitration of Rivas’ claim on an individual basis, the district court denied Coverall’s motion—a decision affirmed by the Ninth Circuit.

The Supreme Court, however, vacated the lower courts’ rulings and remanded the case, given that it had recently ruled in Viking River Cruises, Inc. v. Moriana that arbitration agreements could split PAGA actions into individual and representative claims. On remand, the district court granted Coverall’s renewed motion and ordered Rivas to arbitrate his individual claim. With no individual claim left to litigate, the district court relied on language in Viking River to dismiss Rivas’ representative claims for lack of statutory standing.

On appeal, the Ninth Circuit reversed this dismissal, noting that the California Supreme Court’s recent decision upheld that plaintiffs who proceed to arbitration on individual claims retain statutory standing to litigate representative claims. Nonetheless, the Ninth Circuit also noted that the question of whether a federal litigant retained Article III standing in such circumstances had not been answered in a precise way by the California Supreme Court. The appellate court therefore remanded the matter to the district court to examine that question in the first instance.

In its decision, the Ninth Circuit also rejected Rivas’ contention that Coverall’s arbitration provision impermissibly prohibited the effective vindication of his rights. Rivas argued that because the agreement contained a cost-splitting clause and delegated the issue of arbitrability to an arbitrator, he was required to pay an initial deposit of $4,000 to decide gateway issues of arbitrability.

Because he could not pay such an amount, Rivas argued that the agreement was subject to the federal “effective vindication” to the Federal Arbitration Act, which is a judicially created doctrine meant to invalidate certain arbitration agreements on public policy grounds. The Ninth Circuit noted that the exception does not apply to state statutes, and was therefore not applicable to Rivas’ PAGA claim.

Of course, this secondary issue pales in comparison with the potential impact of the standing ruling. Whether the district court will find Article III standing on remand, and whether the Ninth Circuit will adopt the district court’s reasoning in either event, remains to be seen. In the meantime, however, this case should be a reminder to California employers that compliance with California’s labor laws is of paramount importance.