QUI TAM ACTIONS

Consumer Advocacy Group, Inc. v. Walmart, Inc., 112 Cal. App. 5th 679


Michael Marcus, an officer of Consumer Advocacy Group (CAG), purchased two cleaning products online from Walmart, acting as an agent for CAG. In doing so, he executed an arbitration agreement which contained a delegation clause. CAG then filed two lawsuits against Walmart, asserting that the products violated Proposition 65 because they failed to warn the public about their level of toxicity. The parties agreed that the lawsuits were qui tam actions because the real party in interest was the state. Walmart’s motions to compel arbitration were denied. The court held that the arbitration agreements did not bind Marcus when he acted as an agent of the state. Walmart appealed. It argued that a delegation clause in the agreements barred the court from determining arbitrability and that even if the court had the power to decide arbitrability, the disputes were arbitrable.

The Court of Appeal affirmed. When the existence of an agreement to arbitrate is disputed, the issue must be decided by a court, not an arbitrator. This is because the delegation of gateway questions of arbitrability to the arbitrator presupposes the existence of an agreement between the parties, which the court necessarily must decide before it can enforce any such delegation. While any such agreement may bind the purchaser to arbitrate disputes regarding the purchases, it cannot bind the state to the arbitration of a later Proposition 65 lawsuit. In short, while Walmart and CAG may have entered into an arbitration agreement, Walmart and the real party in interest, the state, did not.

Walmart argued that in Viking River Cruises, Inc. v. Moriana (2022) 596 U.S. 639, 654, fn. 4, the Supreme Court rejected the proposition that the state is the real party in interest in a qui tam action. But the footnote did no such thing. It simply established that the FAA applied to PAGA claims because PAGA claims usually arise out of a plaintiff’s employment contract, even if those claims in some sense belong to the state. In fact, Viking River did not rule on the arbitrability of representative PAGA claims at all.

In summary, the challenged orders properly concluded that arbitration of CAG’s Proposition 65 claims could not be compelled on the basis of an agreement CAG’s agent entered in purchasing the products at issue. The court emphasized that it was not holding that Proposition 65 claims were categorically exempt from arbitration under the FAA or that the arbitration agreement was unenforceable against Marcus and CAG as to other claims they might individually possess. It was holding only that Proposition 65 claims belonging to the state, the real party in interest, cannot be compelled to arbitration on the basis of an agreement into which the state did not enter.