Article Summary

Viking River Cruises, Inc. v. Moriana is a case about the enforcement of California labor laws — but depending on its outcome, it also could endanger the federal False Claims Act, a crucial anti-fraud statute. In oral arguments before the U.S. Supreme Court, the justices seemed mindful of the interplay but didn't telegraph a likely majority opinion.

This expert analysis by TELG managing principal R. Scott Oswald was published by Law360 on March 30, 2022.

Reprinted from:

Threat To False Claims Act Lurks In High Court PAGA Case

By R. Scott Oswald

Do the ever-growing tentacles of the Federal Arbitration Act endanger the U.S. government’s ability to pursue fraud under the False Claims Act?

That question didn’t arise squarely in today’s arguments before the U.S. Supreme Court in Viking River Cruises, Inc. v. Moriana, a California labor-law dispute — but it lurked in the shadows, as the justices debated whether employees may waive their right to pursue representative actions under the state’s 2004 Private Attorneys General Act.

PAGA’s enforcement mechanism, which empowers workers to litigate companywide labor-law violations against their employers on behalf of California authorities, is a kissing cousin to the FCA’s qui tam provision, which encourages individuals — usually employees with insider knowledge — to step into the shoes of the U.S. Department of Justice and file claims against entities that are defrauding taxpayers.

While they have important differences, both statutes allow individuals to litigate on behalf of the government, with the government remaining the real party in interest; both allow such a claimant to share in a resulting recovery.

If the Supreme Court finds that PAGA representative actions can be waived, or forced into arbitration without the consent of the government, it would hand another victory to corporations that already have used the FAA to avoid courtroom accountability on everything from race discrimination cases to consumer class-action lawsuits.

Worse, it might offer logic that would help employers to target FCA qui tam actions next, threatening a form of anti-fraud lawsuit that returned more than $1.6 billion to the U.S. Treasury in the most recent fiscal year.

No Barking Dogs?

Several briefs in Viking River Cruises drew a direct comparison between PAGA and the FCA, with amicus Taxpayers Against Fraud Education Fund urging the justices to warn against any application of the current case to FCA litigation. A decision holding that employees can waive a claim that is truly held by the government without somehow distinguishing FCA law “could threaten to undermine the public-private partnership that Congress crafted” under the FCA, TAFEF said.

Today’s arguments included several invocations of the FCA but no clear statements by the justices about how it interacts with the FAA. Appearing for Viking River Cruises, former Solicitor General Paul Clement implicitly distinguished PAGA and brushed off the FCA as one of several “dogs that aren’t barking here,” claiming that the DOJ would have gotten involved in the case if it was truly worried.

Justice Stephen Breyer, however, may have jangled some nerves when he said, early in arguments, that he sees no reason “you couldn’t … agree to have an arbitration in a qui tam action — why not?” (Depending on who he meant by “you,” it’s actually a very contentious issue.)

The likely disposition of the case wasn’t clear: While Justices Breyer, Sonia Sotomayor, and Elena Kagan appeared to support the decision below, which allowed the PAGA case to proceed in California state court notwithstanding an explicit waiver, their conservative brethren were quieter and harder to read.

In any event, when it comes to FCA, the exact wording of an opinion will matter intensely.

Who Is Being Represented?

In Mr. Clement’s framing today, the real problem with PAGA’s “representative” nature isn’t an employee’s representation of the California government in the action — it’s the employee’s representation of fellow employees.

“It’s not the state’s involvement here [that’s] the gravamen of our concern,” he said, focusing instead on the practicalities of arbitrating a PAGA claim. “The gravamen of our concern is that this action is not just trying to litigate [former Viking employee Angie] Moriana’s Labor Code violation, but the Labor Code violation[s] of essentially the entire salesforce.”

And while California provides PAGA as a tool to pursue such violations, he said, that option “has to yield” to the FAA’s supremacy if it’s waived in a valid arbitration agreement — just as the Supreme Court previously ruled in AT&T Mobility LLC v. Concepcion that otherwise valid consumer class actions must fall before an arbitration clause.

Ms. Moriana’s agreement had purported to send all her individual claims to arbitration — and to waive all “class, collective, representative or private attorney general” actions, regardless of forum. Arguing for Ms. Moriana, Scott Nelson of Public Citizen warned that many qui tam claims would be jeopardized by the enforcement of such a waiver against an FCA whistleblower, known as a relator.

“Because of the … contractual privity between many potential qui tam relators and defendants, because they’re often … employees who are in a position to be relators … if the potential defendant were to put in a properly worded arbitration agreement …, it could bar the assertion of a representative claim in exactly the same way, if [Viking’s] argument is accepted,” he said in response to a question from Justice Kagan.

Key Distinctions

Of course, there are important differences between PAGA and the FCA that should give any court pause before concluding that even an opinion here that’s favorable to employers — no matter its wording — applies to the FCA:

  • PAGA is a state law that is, in theory, subject to federal preemption doctrine; an FCA analysis would necessarily be very different;
  • An FCA claim is not brought on behalf of other employees, and isn’t comparable to a class or collective action;
  • All PAGA actions will arise in part from an employee’s employment, whereas few if any FCA claims will, even where the employee is a direct witness to fraud;
  • Under PAGA, the employee plaintiff controls the litigation; under the FCA, the DOJ can step in and take it over — and can limit the relator’s role even where it declines to intervene;
  • Under PAGA, the employee plaintiff can reach a settlement without government consent; under the FCA, written consent is required even in a declined case.

What’s more, the FCA was signed by Abraham Lincoln — and its qui tam provision was rejuvenated long before the Supreme Court’s recent flood of anti-employee FAA jurisprudence, with 35 years of very active use now under its belt. FCA cases are clearly not an end-run around the court, as Mr. Clement portrayed PAGA litigation.

“Before Concepcion [subordinated class actions to the FAA], PAGA was the statute nobody paid too much attention to,” Mr. Clement said, in a seeming appeal to the justices’ irritation at a Supreme Court ruling being circumvented. “After Concepcion, 17 PAGA complaints are being filed every day. These actions look, in every practical effect, just like class actions.”

Of course, as Justice Sotomayor had earlier observed, PAGA was passed before the crucial Concepcion decision.

“I’m having a series of problems with all your answers,” she told Mr. Clement. “PAGA came eight years before Concepcion … So it’s not California creating an intentional evasion …, correct? It didn’t intentionally predict that what we were going to do there and say now we got to find a way to get around [it]?”

Clement parried — and by the end of arguments, mostly due to a lack of engagement from the court’s conservatives, it was unclear who would prevail.

At least until the decision is handed down, the FCA’s fate remains in play.

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R. Scott Oswald is managing principal of The Employment Law Group, P.C. He is also a member of the Taxpayers Against Fraud Education Fund, which submitted an amicus brief in Viking River Cruises, Inc. v. Moriana, but was not involved in the production of that brief.

(Note: This version has been edited slightly from the version published by Law360.)