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Court of Appeal:
Group Suing Under Prop. 65 Is Not Bound by Agent’s Actions
Opinion Says Officer’s Consent to Arbitrate Claims Against Walmart Over Online Purchases Does Not Bind Consumer Agency Where Organization is Pursuing Legal Action on Behalf of State
By Kimber Cooley, associate editor
A consumer advocacy group suing Walmart Inc. under Proposition 65 for allegedly failing to warn that items offered for sale by the retail giant contained chemicals known to cause cancer or reproductive harm is not bound by an agreement to arbitrate purportedly entered into by the organization’s agent who purchased the offending products, Div. One of the First District Court of Appeal held yesterday.
In an opinion, written by Presiding Justice James M. Humes and joined in by Justices Kathleen Banke and Monique Langhorne Wilson, the court found guidance in case law governing the arbitration of claims filed under the Private Attorneys General Act (“PAGA”) and declared:
“We hold that a plaintiff cannot be compelled to arbitrate a Proposition 65 claim against a seller of consumer products simply because an agent of the plaintiff previously agreed to arbitrate disputes with the seller when purchasing the products online. The plaintiff’s agent was not acting on behalf of the state, the real party in interest, when purchasing the products, and thus the agent could not bind the state to arbitration. Accordingly, arbitration was properly denied here on the basis that no agreement to arbitrate the Proposition 65 claims was formed.”
The question arose after the Consumer Advocacy Group Inc. (“CAG”) filed two complaints against Walmart Inc. after product testing of items sold on the company’s website allegedly revealed the presence of toxic chemicals. CAG sent Walmart and other entities notices of alleged violations of Proposition 65 between January 2022 and February 2023.
Proposition 65, passed as a ballot initiative in 1986 and codified at Health and Safety Code §25249.5 et seq., requires the state to develop and maintain a list of chemicals “known to…cause cancer or reproductive toxicity.”
The statutory scheme specifies that “[a] person in the public interest” may sue a business that “knowingly and intentionally expose[s] any individual to a chemical known to the state to cause cancer or reproductive toxicity without first giving clear and reasonable warning” if local and state agencies fail to pursue legal action.
Walmart filed a petition to compel under the Federal Arbitration Act (“FAA”), pointing to evidence showing that the allegedly offending products were purchased by CAG’s chief financial officer, Michael Marcus.
Marcus was required to complete the Walmart.com checkout process, during which the website explained that by clicking on the “Place order” button, the consumer agreed to the hyperlinked Terms of Use, which included an arbitration agreement providing:
“[A]ll disputes arising out of or related to these Terms of Use or any aspect of the relationship between [the website user] and Walmart, whether based in contract, tort, statute, fraud, misrepresentation, or any other legal theory, will be resolved through final and binding arbitration.”
CAG does not dispute that Marcus was acting as its agent when he bought the items online.
The motions to compel were denied in both cases by then-Alameda Superior Court Judge Tara M. Desautels (now serving on the First District Court of Appeal) and Alameda Superior Court Judge Karin Schwartz. Each jurist found that Walmart failed to prove the existence of an agreement to arbitrate qui tam actions like those filed under Proposition 65.
Walmart challenged both decisions, and the appeals were consolidated.
PAGA Cases
Humes cited the 2020 decision by this district’s Court of Appeal in Bautista v. Fantasy Activewear Inc., which held that a party seeking to enforce labor laws on behalf of others under PAGA was not bound by an agreement to arbitrate entered into by the plaintiff and his employer because the state, not the individual litigant, was the real party in interest.
Reasoning that the plaintiff signed the arbitration contract with his employer before he satisfied the statutory notice requirements of PAGA, the Bautista court said he cannot be said to have entered into the agreement as an agent or representative of the state.
Finding this logic applicable to claims asserting violations of Proposition 65, Humes opined:
“An online purchaser of consumer products who enters into an arbitration agreement in connection with the purchase before notifying the government agencies of the intent to bring a suit and filing the suit, as was the case here, cannot be deemed to have done so as an agent for the state. 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, extending Bautista’s reasoning…to Proposition 65 claims, we conclude that while Walmart and CAG may have entered into an arbitration agreement, Walmart and the real party in interest, the state, did not.”
Walmart attempted to distinguish the instant case from Bautista, pointing to the U.S. Supreme Court’s 2022 decision in Viking River Cruises, Inc. v. Moriana, which differentiated between individual and representative PAGA claims.
In Viking River, the high court held that the employer was entitled to compel arbitration of any individual PAGA claims, relating to Labor Code violations affecting the plaintiff, based on a valid agreement.
Individual Versus Representative
The company argued that CAG’s complaint is more akin to an individual PAGA claim than a representative one because the organization’s agent actually purchased the products at issue. Rejecting this assertion, Humes said in a footnote:
“We disagree with the analogy and the premise counsel asserted in making it: that a plaintiff must buy a product to have standing to sue under Proposition 65…[U]nlike a PAGA plaintiff, who must have experienced a Labor Code violation to have standing to bring even a representative claim, a Proposition 65 plaintiff need not allege any individual injury at all.”
Saying that the “analysis is even more forceful in the context of a Proposition 65 suit, because Proposition 65 does not require that the plaintiff suffered any injury and includes no individual claims, only claims brought on behalf of the general public,” he declared:
“[T]he 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. To reach this conclusion, we need not and do not hold that Proposition 65 claims are categorically exempt from arbitration under the FAA or that the arbitration agreement is unenforceable against Marcus and CAG as to other claims they may individually possess. We hold 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 the state did not enter.”
The case is Consumer Advocacy Group Inc. v. Walmart Inc., 2025 S.O.S. 1861.
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