California AB-51 Update: Ninth Circuit Panel Declares A “Do-Over”

This article first appeared on the Securities Arbitration Alert Blog, here.

The split Ninth Circuit Panel that had ruled a year ago on California’s AB-51 has sua sponte withdrawn the decision and dissent and ordered a rehearing.

Years ago, kids resolving street game-related arguments would sometimes declare a “do-over” – meaning the play in contention was nullified and was to be replayed. In the same vein, a Ninth Circuit Panel has declared a “do-over” with its decision in the Chamber of Commerce of the United States v. Bonta, No. 20-15291 (9th Cir. Sep. 15, 2021).

Basic History

As reported in SAA 2021-36 (Sep. 23), a split Ninth Circuit in Chamber of Commerce ruled on the validity of California AB-51 – a law that restricts predispute arbitration clauses (“PDAA”) in employment relationships. The divided Court held that the mandatory PDAA use preclusions in the new law withstand Federal Arbitration Act (“FAA”) preemption scrutiny, but the criminal and civil penalties for mandatory PDAA use do not. Recall that our prescient editorial note in # 36 was: “We continue to see this one as destined for SCOTUS, with perhaps a petition for en banc review along the way.” In October 2021, the Chamber and the other challengers filed a Motion for En Banc Review. We later reported in SAA 2021-48 (Dec. 23) that the State and other Respondents filed their response in December 2021. The thrust of the argument, as expressed in their brief (ed: repeated essentially verbatim): 1) the Panel decision respects the FAA and Supreme Court precedent; 2) the Panel decision creates no intra- or inter-Circuit conflict; and 3) there is no special need to review this decision.

SCOTUS and Viking River

With the issue joined, as reported in SAA 2022-07 (Feb. 24), a majority of the Ninth Circuit Panel on February 14 sua sponte issued an Order deferring consideration of the Petition until after the Supreme Court decided Viking River Cruises, Inc. v. Moriana, No. 20-1573, set for argument March 30. The question presented in the granted May 2021 Petition for Certiorari in Viking River was: “Whether the Federal Arbitration Act requires enforcement of a bilateral arbitration agreement providing that an employee cannot raise representative claims, including under [California’s Private Attorney General Act] PAGA.” As our readers know, the United States Supreme Court on June 15 held 8-1 in Viking River that PAGA was in part preempted by the Federal Arbitration Act, insofar as PAGA allowed employees to evade bilateral predispute arbitration agreements. That would generally have been the end of the case as far as SCOTUS is concerned, but that was not the case here. On July 6, Moriana filed a Petition for  Rehearing, asking:

“Respondent Angie Moriana respectfully seeks rehearing of the Court’s decision in this case solely to the extent the disposition rests on two issues of state law that are outside the question presented, were not briefed by the parties, are inconsistent with a definitive ruling of the state’s highest court, and cannot in any event be authoritatively resolved by this Court.”

What are the two issues?

“I. The Court’s resolution of the state-law issues departs from its customary practice; and II. The Court’s state-law rulings are inconsistent with plain contractual and statutory language and controlling California precedent.” What is the ultimate objective? “[T]he Court should grant rehearing solely for the purpose of modifying Part IV of its opinion to state that the Court does not decide the state-law issues of severability and standing and that its disposition is limited to reversal in part of the state court’s holding that the lskanian rule is not preempted by the FAA ….”

A Bolt From the Blue

The reargument request was denied without comment by SCOTUS on August 22. That same day, the Ninth Circuit Panel issued a two-page Order stating:

“A majority of the panel has voted sua sponte to grant panel rehearing. Judge Fletcher and Judge Ikuta voted in favor of rehearing, and Judge Lucero voted against rehearing. The opinion and dissent filed on September 15, 2021 … are withdrawn, and the case is resubmitted. The petition for rehearing en banc … is DENIED as moot” (emphasis in original; internal citations omitted).

(ed: *Huh? Didn’t see that coming! While Viking River is certainly done, the AB-51 challenge lives on. **With Judge Fletcher joining dissenter Ikuta, it seems to us that AB-51 may be standing on shaky legs.)


George Friedman

George H. Friedman is the publisher and Editor-in-Chief of the Securities Arbitration Alert, a weekly online publication covering the latest developments in financial services arbitration and mediation. He is also the principal of George H. Friedman Consulting, LLC, providing expert advice on arbitration and mediation in general and the FINRA…

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