By George H. Friedman, SAA Publisher & Editor-in-Chief
The Supreme Court heard oral argument this week in the remaining two of four cases involving arbitration it reviewed over the last two weeks.
As reported in SAA 2022-11 (Mar. 24) and in our blog, the Court last week heard oral argument on March 21 in Morgan v. Sundance Inc., No. 21-328, and on March 23 in ZF Automotive US, Inc. v. Luxshare, Ltd., No. 21-401, and AlixPartners LLP v. The Fund for Protection of Investors’ Rights in Foreign States, No. 21-518. This week, SCOTUS heard arguments in Southwest Airlines Co. v. Saxon, No. 21-309 on March 28, and Viking River Cruises, Inc. v. Moriana, No. 20-1573 on March 30. We offer in this squib a brief review of the cases and the arguments presented.
A Brief Review
We covered these cases in detail in SAA 2021-47 (Dec. 16) and in a feature article, After a Lull in 2021, a Busy Year Ahead Arbitration-wise for SCOTUS, 2021:48 Sec. Arb. Alert 1 (Dec. 23, 2021). We provide below a thumbnail on the issues involved.
Southwest Airlines: Federal Arbitration Act (“FAA”) section 1 exempts from the Act: “contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce.” As we have reported many times, there is a clear Circuit Court split on whether the FAA section 1 exemption embraces only workers actually moving goods or people in interstate commerce or is to be construed more broadly to cover those who are part of the “flow” or “stream” of interstate commerce. The question presented in the August 23 Petition is: “Whether workers who load or unload goods from vehicles that travel in interstate commerce, but do not physically transport such goods themselves, are interstate ‘transportation workers’ exempt from the Federal Arbitration Act.”
Viking River: We have reported many times on Iskanian v. CLS Transportation Los Angeles, LLC, 59 Cal.4th 348, 327 P.3d 129 (Calif. 2014), Cert. den., 135 S.Ct. 1155 (2015), where a divided 4-3 California Supreme Court – complete with partial concurrences and dissents – held that an employee could pursue claims against their employer under the California Private Attorneys General Act (“PAGA”), despite the existence of an arbitration agreement waiving such claims (see, for example, SAA 2015-01 and SAAs 2014-41 & -24). But did the U.S. Supreme Court’s subsequent decision in Epic Systems Corp. v. Lewis, 138 S.Ct. 1612 (2018), holding that class or collective action waivers are enforceable under the FAA, implicitly overrule Iskanian? The May 10 Petition in Viking River asks: “Whether the Federal Arbitration Act requires enforcement of a bilateral arbitration agreement providing that an employee cannot raise representative claims, including under PAGA.”
The Oral Arguments
Note: The oral arguments took place as scheduled with Justice Thomas participating in both remotely. Recall that, as reported in SAA 2022-11 (Mar. 24), Justice Thomas was out ill and did not participate in the oral arguments in Morgan, and ZF Automotive and AlixPartners. Chief Justice Roberts had announced up front before both of those arguments that Justice Thomas would: “participate in consideration and decision of the cases on the basis of the briefs and the transcripts of oral argument.” Justice Coney Barrett did not participate in Southwest, but did so in Viking River. There was no explanation about her absence in Southwest, but we think it was because she authored the Opinion in Wallace v. Grubhub Holdings, Inc., 970 F.3d 798 (7th Cir. 2020). The unanimous Wallace Court had rejected the drivers’ argument that the FAA section 1 carveout covered workers moving goods that had in the past been transported in interstate commerce but who themselves did not regularly move goods or people in interstate commerce. The case was referred to several times during the argument.
Southwest Airlines: The discussion featured repeated references to: drayage; seamen; stevedores; and wharfage. There were also frequent mentions of Circuit City Stores v. Adams, 532 U.S. 105 (2001) (FAA section 1 exemption for “workers engaged in interstate commerce" applies only to transportation workers) and New Prime Inc. v. Oliveira, 139 S.Ct. 532 (2019) (FAA section 1 covers independent contractors, not just “employees”). The discussion focused more on the narrow question of airline baggage handlers, and seemed to be saving for another day the broader issue of “last mile” or Uber/Lift drivers. Based on the questions from the pro-arbitration wing Justices, it seems to us that a narrow “stream” or “flow” of FAA section 1 engaged in interstate commerce ruling is in the offing. See, for example, the colloquy between Justice Gorsuch and Southwest’s counsel Shay Dvoretzky, beginning with this question on transcript page 12: “Counsel, let's say I -- I agree with everything you just said, but I still have a question about folks who unload cargo from interstate commerce and bring it into the state. Now what evidence is there that railroad workers who did that were or were not covered by this statutory language? And, if they were covered by it, do you lose?” In the spirit of the upcoming Passover holiday, Justice Thomas asked four questions. We recommend that readers peruse the excellent analysis, Looking for Definitions, the Supreme Court Weighs the Limits of the Federal Arbitration Act’s Sec. 1 Exemption, offered in the CPR Blog on March 28.
Viking River Cruises: With a full complement of Justices, the argument focused squarely on the preemptive effect of the FAA as defined by Concepcion, Epic Systems, and Lamps Plus versus California’s right to enforce its labor laws via private attorneys general using PAGA. The Court’s pro-arbitration wing was very quiet, with the bulk of the questions coming from Justices Breyer, Kagan and Sotomayor. This might just mean that there are enough votes to find PAGA is preempted by the FAA, so the pro-PDAA Justices saw no need to jump in (although Justice Thomas posed his usual question about the applicability of the FAA in State courts). Justice Sotomayor observed that PAGA was enacted before (ed: in 2004) the decisions in Concepcion, Epic Systems, and Lamps Plus, thus undermining any argument that PAGA was enacted to work around those holdings. Viking’s counsel Paul D. Clement responded that PAGA was moribund before the SCOTUS rulings, and that PAGA use exploded thereafter with 17 such cases now being filed every day. He also raised an interesting point: if PAGA-type laws were important to the States as an effective labor law enforcement mechanism, why did no other States file Amicus Briefs? He described the law as an “outlier” – a point that seemed to resonate with Justice Gorsuch. For a comprehensive “chapter-and-verse” analysis, we recommend that readers peruse these March 30 posts: Adding a Claim, and Avoiding Arbitration: The Supreme Court Reviews California’s Private Attorneys General Act, appearing in the CPR Blog; and Supreme Court Weighs Employer’s Challenge to California Labor Law in the LA Times.
A Handy Chart on All Four Cases
We again offer the chart below, which has information on the “Arbitration Final Four” cases.
March 23: ZF Automotive US, Inc. v. Luxshare, Ltd., No. 21-401, and AlixPartners LLP v. The Fund for Protection of Investors’ Rights in Foreign States, No. 21-518; 18 USC 1782: discovery in foreign arbitration. Transcript is here; audio recording is here.
March 28: Southwest Airlines Co. v. Saxon, No. 21-309: FAA section 1 exemption scope – is it limited to workers actually moving goods or people over state lines or is part of the “flow” or “stream” enough? Transcript is here; audio recording is here.
(ed: *Amicus Briefs aplenty were filed in all four cases and can be found by clicking on the link to each case. **As we’ve said before, one wonders if SCOTUS is setting up another “Steelworkers Trilogy” scenario, when the Court six decades ago simultaneously decided three landmark arbitration cases involving the United Steelworkers. The three cases, United Steelworkers v. American Manufacturing Co., 363 U.S. 564 (1960); United Steelworkers v. Enterprise Wheel & Car Corp., 363 U.S. 593 (1960); and United Steelworkers v. Warrior & Gulf Navigation Co., 363 U.S. 574 (1960), were all heard the same week (April 27-28, 1960), and the decisions were all announced seriatim on the same day (June 20, 1960). Is SCOTUS planning a redux with the “Arbitration Quartet”? Time will tell. )