Burgos v. Citibank, N.A

Background

Susana Burgos worked for Citibank from September 2010 until June 1, 2021. During her employment, she signed or acknowledged several employment documents, including updates to Citibank’s employee handbook. The handbook referred to an Employment Arbitration Policy and stated that employment-related disputes would be submitted to binding arbitration.

The policy made arbitration the required and exclusive forum for employment-related disputes based on statutory, regulatory, contractual, or common-law rights. It also included wage-and-hour claims among the disputes covered by the policy. The policy required covered claims to be brought and decided individually and waived class, collective, and representative proceedings.

In May 2022, Burgos served an arbitration demand asserting individual claims under state wage-and-hour laws and a related claim under California’s Unfair Competition Law. Citibank paid the initial filing fee and later paid a $750 case-management fee. The American Arbitration Association then sent an invoice for a $13,365 arbitrator-compensation deposit. Citibank’s outside counsel paid that invoice after the applicable deadline. The arbitration administrator notified Burgos’s counsel of the delayed payment, and Burgos objected. She later requested to withdraw from arbitration, and the administrator closed the arbitration under California Code of Civil Procedure section 1281.98.

Burgos then filed a proposed class action in state court asserting state wage-and-hour claims and a related Unfair Competition Law claim. Citibank removed the case to federal court. Citibank moved to compel arbitration of Burgos’s individual claims and to strike or dismiss the proposed class claims.

Whether California Code of Civil Procedure Section 1281.98 Was Preempted

Burgos argued that Citibank’s late payment was a material breach of the arbitration agreement and waived Citibank’s right to compel arbitration under section 1281.98. That statute provides that, when the drafting party must pay fees needed to continue an employment or consumer arbitration, failure to pay within 30 days after the due date creates a material breach, defaults the drafting party, and waives its right to compel the employee or consumer to continue in arbitration.

The court held that section 1281.98 was preempted by the Federal Arbitration Act. Preemption means that federal law displaces a conflicting state law. The court explained that the Federal Arbitration Act requires arbitration agreements to be treated like other contracts and permits generally applicable contract defenses, such as fraud or unconscionability. In the court’s view, section 1281.98 departed from ordinary contract principles by treating a late payment alone as a material breach and waiver in the arbitration context. The court therefore found that the statute applied a rule uniquely directed at arbitration and violated the federal equal-treatment requirement.

Whether the Policy Incorporated Section 1281.98

Burgos argued that the Employment Arbitration Rules and Mediation Procedures referenced in the policy incorporated section 1281.98, making the statute enforceable even if the Federal Arbitration Act preempted it. The court rejected that argument. It reasoned that state law is displaced when it conflicts with federal law, and that a contract’s supposed incorporation of a preempted state rule could not make the rule effective against the Federal Arbitration Act.

The court stated that, on the specific facts and arguments presented, section 1281.98 could not establish that Citibank materially breached the policy or waived its right to compel arbitration. The court therefore required Burgos to arbitrate her individual claims under the parties’ agreement.

Class Claims

Citibank argued that the policy’s class-action waiver required Burgos to proceed only on an individual basis. Burgos argued that Citibank’s alleged breach and waiver allowed her to pursue both her individual claims and the proposed class claims in court. Because the court found no breach or waiver based on the preemption analysis, it rejected Burgos’s argument concerning the proposed class claims.

Disposition

The court GRANTED Citibank’s motion to compel arbitration and DISMISSED the putative class claims. The action is STAYED pending arbitration of Burgos’s individual claims. The parties must file a joint status report every 120 days until they jointly inform the court that the matter can be closed and removed from the docket.