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Posts Tagged ‘Arbitration’

California Supreme Court Prohibits Waiver of PAGA Representative Claims

In Arbitration, Class Waiver, PAGA on June 23, 2014 at 1:44 pm

This morning, the California Supreme Court issued its long-awaited opinion in Iskanian v. CLS Transportation Los Angeles, LLC, No. S204032, __ Cal.4th __ (Jun. 23, 2014).

The Court held that the U.S. Supreme Court’s opinion in Concepcion abrogated Gentry v. Superior Court, 42 Cal. 4th 443 (2007).  The Court decided that class action waivers are enforceable.  But it also held that an arbitration agreement requiring an employee as a condition of employment to give up the right to bring representative PAGA actions in any forum is contrary to public policy.  Id. at *2.

[W]e conclude that the FAA’s goal of promoting arbitration as a means of private dispute resolution does not preclude our Legislature from deputizing employees to prosecute Labor Code violations on the state’s behalf. Therefore, the FAA does not preempt a state law that prohibits waiver of PAGA representative actions in an employment contract.

Id. 

Facts

Plaintiff Iskanian worked as a driver for CLS.  Id. He signed an arbitration agreement providing that “any and all claims” arising out of his employment were to be submitted to binding arbitration.  Id.  The arbitration agreement also contained a class and representative waiver that said:

[E]xcept as otherwise required under applicable law, (1) EMPLOYEE and COMPANY expressly intend and agree that class action and representative action procedures shall not be asserted, nor will they apply, in any arbitration pursuant to this Policy/Agreement; (2) EMPLOYEE and COMPANY agree that each will not assert class action or representative action claims against the other in arbitration or otherwise; and (3) each of EMPLOYEE and COMPANY shall only submit their own, individual claims in arbitration and will not seek to represent the interests of any other person.

Id. at *2-3.  After briefing on the motion to compel arbitration, the California Supreme Court decided the Gentry case, holding that a class action waiver may be unenforceable in some circumstances.  Id. at *5.  In April 2011, the U.S. Supreme Court issued AT&T Mobility LLC v. Concepcion, 563 U.S. __ (2011), invalidating the California Supreme Court’s decision in Discover Bank v. Superior Court, 36 Cal. 4th 148 (2005), which had restricted consumer class action waivers in arbitration agreements.

Holdings

 The Court held that Gentry was preempted by the FAA under the rule in Concepcion.  Iskanian, supra, __ Cal. 4th at *7.

It is thus incorrect to say that the infirmity of Discover Bank was that it did not require a case-specific showing that the class waiver was exculpatory.  Concepcion holds that even if a class waiver is exculpatory in a particular case, it is nonetheless preempted by the FAA.  Under the logic of Concepcion, the FAA preempts Gentry’s rule against employment class waivers.

The Court also distinguished its recent holding in Sonic-Calabasas A, Inc. v. Moreno (2013) 57 Cal.4th 1109 (Sonic II), which “established an unconscionability rule that considers whether arbitration is an effective dispute resolution mechanism for wage claimants without regard to any advantage inherent to a procedural device (a Berman hearing) that interferes with fundamental attributes of arbitration.”

By contrast, the Gentry rule considers whether individual arbitration is an effective dispute resolution mechanism for employees by direct comparison to the advantages of a procedural device (a class action) that interferes with fundamental attributes of arbitration.  Gentry, unlike Sonic II, cannot be squared with Concepcion.

Iskanian, supra, __ Cal. 4th at *10.

PAGA

The Court carved out an exception for PAGA claims:

In sum, the FAA aims to promote arbitration of claims belonging to the private parties to an arbitration agreement.  It does not aim to promote arbitration of claims belonging to a government agency, and that is no less true when such a claim is brought by a statutorily designated proxy for the agency as when the claim is brought by the agency itself.  The fundamental character of the claim as a public enforcement action is the same in both instances.  We conclude that California‘s public policy prohibiting waiver of PAGA claims, whose sole purpose is to vindicate the Labor and Workforce Development Agency‘s interest in enforcing the Labor Code, does not interfere with the FAA’s goal of promoting arbitration as a forum for private dispute resolution.

Id. at *43.

Attorneys

Glenn A. Danas of Capstone Law argued for Plaintiff and Appellant.

David F. Faustman of Fox Rothschild argued for Defendant and Respondent.

By CHARLES H. JUNG

Non-Mutual Arbitration Agreement Saved by Reference to Mutual Agreement to Arbitrate in Employee Handbook

In Arbitration, Employee Handbook, Mutuality on April 19, 2013 at 4:41 pm
Handbook

Handbook (Photo credit: Jeff Hester)

The Second District ordered published today an opinion reversing the denial of a motion to compel arbitration. Serpa v. California Surety Investigations, Inc., et al., No. B237363, __ Cal. App. 4th __ (filed Mar. 21, 2013, modified Apr. 19, 2013).  The case involved an agreement to arbitrate that was non-mutual, but which referenced an employee handbook’s arbitration clause.

At the trial court level, the court denied defendants’  motion to compel arbitration, finding the agreement to arbitrate lacked mutuality.  Defendants argued that the requisite mutuality was provided by the bilateral arbitration provisions in the employee handbook, incorporated by reference into the arbitration agreement.  The trial court rejected this argument because defendant could change the handbook at its sole discretion and without notice.  The Second District reversed.

Because the agreement incorporated the arbitration policy in the employee handbook, the Court concluded that this “salvages the agreement by establishing an unmistakable mutual obligation on the part of [employer and plaintiff] to arbitrate ‘any dispute’ arising out of her employment.”  Plaintiff argued that the while the arbitration policy in the handbook establishes a bilateral obligation to arbitrate, she insisted that the mutual obligation is illusory because, the employer is authorized to alter the terms of any policy contained in the handbook at its sole discretion and without notice.  The Court disagreed, reasoning that the right to alter the terms was limited by the covenant of good faith and fair dealing implied in every contract.

You can read more here.

By CHARLES H. JUNG

Second District Affirms Denial of Arbitration, Drawing Distinction Between Allegations and Judicial Admissions

In Arbitration on April 17, 2013 at 10:21 pm
English: Admission of the Senior Wrangler in 1842

English: Admission of the Senior Wrangler in 1842 (Photo credit: Wikipedia)

The Court of Appeal for the Second District affirmed on Monday a trial court’s denial of a motion to compel arbitration.  Barsegian v. Kessler & Kessler, et al., No. B237044, __ Cal.App.4th __ (2d Dist. Apr. 15, 2013), where some defendants moved to compel arbitration, but the remaining defendants did not.  Slip Op. at 2.  The trial court denied on the grounds of waiver and the possibility of inconsistent rulings.

Moving defendants sought a reversal, arguing that plaintiff’s complaint alleged that all defendants are agents of one another, and that allegation is a binding judicial admission that gives the non-moving defendants the right to enforce the arbitration agreement.  The court disagreed, noting that:

[N]ot every factual allegation in a complaint automatically constitutes a judicial admission.  Otherwise, a plaintiff would conclusively establish the facts of the case by merely alleging them, and there would never be any disputed facts to be tried. . . . A judicial admission is therefore conclusive both as to the admitting party and as to that party’s opponent. (4 Witkin, Cal. Procedure (5th ed. 2008) Pleading, § 454, p. 587.) Thus, if a factual allegation is treated as a judicial admission, then neither party may attempt to contradict it—the admitted fact is effectively conceded by both sides.

Here, the moving defendants sought to reserve the right to argue at arbitration that the allegation of mutual agency was false, and thus it was not conceded by both sides.

Although the Kessler defendants frame their argument using the term “judicial admission” and rely on case law concerning judicial admissions, their counsel confirmed at oral argument that they do not in fact wish to treat Barsegian‟s allegation of mutual agency as a judicial admission, because the Kessler defendants do wish to be able to contest the truth of that allegation, either in court or before an arbitrator. That is, the Kessler defendants wish to hold Barsegian to the mutual agency allegation only for purposes of the motion to compel arbitration, but, should they succeed in compelling arbitration on the basis of that allegation, they wish to retain the right to prove to the arbitrator that the allegation is false. That is not how judicial admissions operate.

You can read more here.

By CHARLES H. JUNG

Press Quotes About Analysis of Ninth Circuit’s Kilgore v. KeyBank, N.A. Case

In Arbitration, Injunctive Relief, Press Quotes, Public Claims on April 15, 2013 at 9:15 am
ProfWhiteboard_Injunctions

ProfWhiteboard_Injunctions (Photo credit: cali.org)

Abigail Rubenstein of Law360 published an article Friday quoting the blog author’s analysis of the Ninth Circuit’s recent en banc ruling in Kilgore v. KeyBank, N.A.  Kilgore v. Keybank, N.A., No. 09-16703, __ F.3d __ (9th Cir. Apr. 11, 2013) (en banc):

Employers who were hoping that the full court would adopt the original appellate panel in the case’s flat-out rejection of the Broughton-Cruz rule may be disappointed, but the narrower en banc decision will still likely prove useful to businesses trying to enforce their arbitration agreements in employment disputes, lawyers told Law360.

“The decision left open the question of the viability of the Broughton-Cruz rule, but the reasoning of the court at the end of the day might please the defense bar more than the plaintiffs bar because although the Ninth Circuit sidestepped the continued viability of the rule, what it did say was that to extent that an exception [to the FAA] for public injunctive relief exists, it is quite a narrow one,” Charles Jung of Nassiri & Jung LLP said.

And employers facing Private Attorney General Act claims, which plaintiffs often argue fit into that exception, can seize on the appeals court’s narrow construction to make the case that the claims should be sent to an arbitrator, employment defense lawyers said.

Ninth Circuit Avoids Broad Ruling, Leaving Question of Viability of Broughton-Cruz to Another Day

In Arbitration, Class Waiver, Concepcion, Public Claims on April 12, 2013 at 11:09 am
U.S. Court of Appeals for the Ninth Circuit

U.S. Court of Appeals for the Ninth Circuit (Photo credit: Wikipedia)

The Ninth Circuit’s en banc ruling yesterday in Kilgore v.Keybank, N.A. (you can read more here) was a decidedly restrained opinion.  The court could certainly have held, as many expected, that the Broughton-Cruz public injunction exception to the general rule that the “FAA requires state courts to honor arbitration agreements” does not stand in light of Concepcion, particularly in light of the Supreme Court’s reaction to state courts taking a narrow read of Concepcion.

But while some reports justifiably see Kilgore as a narrow victory for the plaintiff’s bar, the Ninth Circuit arguably took a narrow read of the public injunction exception.  The court held that the claim for injunctive relief fell outside Broughton-Cruz because the “requested prohibitions against reporting defaults on the Note and seeking enforcement of the Note plainly would benefit only the approximately 120 putative class members.”  Slip op. at 17 (emphasis supplied).

In Kilgore, defendant withdrew from the private school loan business, and accordingly the court concluded that the “injunctive relief sought thus, for all practical purposes, relates only to past harms suffered by the members of the limited putative class.”

The central premise of Broughton-Cruz is that “the judicial forum has significant institutional advantages over arbitration in administering a public injunctive remedy, which as a consequence will likely lead to the diminution or frustration of the public benefit if the remedy is entrusted to arbitrators.” Broughton, 988 P.2d at 78. That concern is absent here, where Defendants’ alleged statutory violations have, by Plaintiffs’ own admission, already ceased, where the class affected by the alleged practices is small, and where there is no real prospective benefit to the public at large from the relief sought.

This suggests an argument for defendants in class action cases where there is a mandatory arbitration agreement: where the company has stopped an alleged unlawful practice, and the proposed private attorney general action affects only the class members, then a defendant might argue that the Broughton-Cruz rule does not apply.  It’s worth noting that 120 putative class members is not an unusually small class in an employment case, and if the Ninth Circuit sees a class of that size as only a “limited putative class”, then it might arguably see many wage and hour cases as affecting only a limited portion of the public.

If this is a victory for the plaintiff’s bar, it is indeed a very narrow one.  And it highlights the importance of the California Supreme Court’s upcoming decision in Iskanian.

By CHARLES H. JUNG

Press Quotes About Analysis of Second District’s Compton Case

In Arbitration on March 25, 2013 at 4:22 pm
California Supreme Court

California Supreme Court (Photo credit: Jamison Wieser)

Law360 published an article today quoting the blog author’s analysis of the Compton v. Superior Court case.  Compton v. Superior Court of Los Angeles County, No. B236669, — Cal.Rptr.3d —-, 2013 WL 1120619 (2d Dist. Mar 19, 2013):

“In both cases, the First and Second districts applied Armendariz and invalidated arbitration agreements for lack of mutuality,” said Charles Jung, a Nassiri & Jung LLP attorney. “At least as far as California courts are concerned, Armendariz is alive and well, and it appears that this is going to continue to be the case until the California Supreme Court overrules it.”

In light of the latest ruling, plaintiffs and their attorneys looking to defeat mandatory arbitration agreements will keep an eagle eye out for any type of one-sidedness, according to Jung.

“The Compton ruling creates an avenue for employees to argue that mandatory agreements are unlawfully one-sided and that under Armendariz, they should be stricken,” he said. “For employers, it suggests the way to make arbitration agreements enforceable is by making them simple and even-handed. Employers can’t have their cake and eat it too.”

“The California Supreme Court really has its work cut out for it,” Jung said. “The challenge for the California Supreme Court is to try to preserve what it can of California’s public policy, yet not fall afoul of and directly contradict or simply ignore the U.S. Supreme Court. It’s a very tricky position for the court to be in.”

Second District Reverses Arbitration Order in Wage & Hour Case, Citing Lack of Bilaterality

In Arbitration, Class-wide Arbitration, Concepcion on March 20, 2013 at 5:48 pm
BgKahuna squeezes his way inside. Abandoned an...

BgKahuna squeezes his way inside. Abandoned and decaying Ambassador Apartments in Gary, Indiana (Photo credit: slworking2)

Yesterday, the California Court of Appeal for the Second District reversed the lower court’s order granting a petition to compel arbitration.  Compton v. Superior Court of Los Angeles County, No. B236669, — Cal.Rptr.3d —-, 2013 WL 1120619 (2d Dist. Mar 19, 2013).  Plaintiff was a property manager who filed a putative wage & hour class action complaint in Los Angeles Superior Court.  She was required to sign an arbitration agreement that also barred arbitration of class claims.  The trial court granted defendants’ petition to compel arbitration.

Normally an order compelling arbitration is not appealable.  But the Court of Appeal determined it had jurisdiction, citing the “death knell” doctrine:

An order compelling arbitration is not appealable. (Elijahjuan v. Superior Court (2012) 210 Cal.App.4th 15, 19.) The parties argue over whether this matter is appealable under the “death knell” doctrine, which applies when an order effectively terminates a class action. Rather than parse the case law on that issue, we conclude that we have jurisdiction to treat this nonappealable order as a petition for writ of mandate in this unusual case because: (1) the unconscionability issue is one of law based on undisputed facts and has been fully briefed; (2) the record is sufficient to consider the issue and it appears that the trial court would be only a nominal party; (3) if we were to dismiss the appeal, and the ultimate reversal of the order is inevitable, it would come in a post-arbitration award after the substantial time and expense of arbitrating the dispute; and (4) as a result, dismissing the appeal would require the parties to arbitrate nonarbitrable claims and would be costly and dilatory.

The Court concluded that the arbitration agreement was unconscionably one-sided because (1) it exempted from arbitration claims the employer would more likely bring, such as claims for injunctive or equitable relief from trade secret disclosures; (2) it limited the time to demand arbitration to a period shorter than the relevant statutes of limitation; (3) it retained the statute of limitations period for itself  and (4) it suggested that the arbitrator had the discretion not to award mandatory attorney’s fees under the Labor Code.

The Court determined that it was not violating Concepcion by enforcing Armendariz’s bilaterality rule.

Concepcion did not discuss the modicum of bilaterality standard adopted by Armendariz, which is not a class action case. And Concepcion did not overrule Armendariz. We both agree with and are therefore bound to follow our Supreme Court and apply Armendariz to this case. (Truly Nolen of America v. Superior Court, supra, 208 Cal.App.4th at p. 507.) Accordingly, we conclude that Concepcion does not apply to invalidate Armendariz’s modicum of bilaterality rule, at least in this context.

Justices and Judge

Justice Laurence D. Rubin wrote the opinion for the Court, with Justice Madeleine I. Flier concurring.  Presiding Justice  Tricia A. Bigelow dissented.  Judge Michael Johnson, Los Angeles Superior Court.

Attorneys

R. Rex Parris Law Firm, R. Rex Parris, Alexander R. Wheeler, Kitty Szeto and John M. Bickford; Lawyers for Justice and Edwin Aiwazian, for Petitioner.

Jackson Lewis, Thomas G. Mackey and Brian D. Fahy for Real Parties in Interest.

By CHARLES H. JUNG

After Substantial Litigation and Full Arbitration, Second District Reverses Order Compelling Arbitration Finding That Defendants Waived Right to Arbitrate

In Uncategorized on November 15, 2010 at 9:23 am
Day 222 (Or is this Day 1 now?) - Oops!
Image by ktpupp via Flickr

The Second District Court of Appeal reversed an order compelling arbitration after the conclusion of an arbitration and judicial confirmation of the arbitration award because defendants waived their right to arbitrate.  Knight v. Toe Brights, Inc., et al., No. B220648, 2010 WL 4542324 (Cal. App. 2d Dist. Nov. 12, 2010).

Background

Plaintiff Knight filed an action against her former employer, Toe Brights, Inc. (TBI), and two of its officers/directors/stockholders, alleging that they failed to pay her more than $9,000 in salary and reimbursement for expenses that was due at the time of her termination, and also failed to repay a loan from her to TBI in the amount of $41,783. Id. TBI filed its answer to Knight’s complaint, and alleged as an affirmative defense that “Plaintiff’s action is barred by any arbitration agreement requiring that this action be arbitrated.”  Id.

Defendants moved to compel arbitration about eight months after plaintiff Knight filed her suit.  Id. *1.  By that time, defendants had propounded multiple sets of discovery to which Knight had responded, and numerous discovery motions were pending.  Id. Defendants had claimed “priority” in discovery, and then refused to respond to Knight’s discovery.  Id. The court ordered the matter to arbitration less than three months before the date set for trial. Id.

The case proceeded through arbitration, and the arbitrator awarded Knight $40,000 for the repayment of her loan plus “interest at the statutory rate from the date she filed her lawsuit”.  Id. *4. Knight did not prevail on her other claims for unauthorized use of her jewelry designs, name and likeness, and the arbitrator awarded defendants $60,000 in attorney fees and $1,160 in filing fees as the prevailing parties on some of Knight’s claims. Id. The arbitrator denied Knight’s motion for attorney fees  and costs. Id. Read the rest of this entry »

Second District Compels Arbitration of Individual’s Overtime Claims Even Where Arbitration Agreement Included Unenforceable Class Arbitration Waiver

In Arbitration, Class-wide Arbitration on October 4, 2010 at 8:55 am
Settlement by Arbitration (383/2 BC)
Image by Tilemahos Efthimiadis via Flickr

The Second District compelled a class action plaintiff to arbitrate his individual claims in Maiorano v. Professional Community Management, Inc., No. B220127, 2010 WL 3786721 (Cal. Ct. App. 2d Dist. Sept. 30, 2010).  Defendant, Professional Community Management, Inc., appealed from an order denying its petition to compel arbitration of a putative class action filed by plaintiff, Ray A. Maiorano.  Id. *1.  The Second District held that “based solely on the parties’ agreement, we conclude they cannot be compelled to arbitrate on a class basis”, but it directed the trial court to compel arbitration of plaintiff’s individual claims. Id. The court reasoned that the “presence of a provision limiting arbitration to individual rather than joined or representative claims did not present a basis upon which the trial court could conclude the present arbitration agreement was permeated by an unlawful purpose.”  Id. *4.

Background

Plaintiff brought a class action complaint alleging violations of statutory meal and rest breaks, wage reporting and overtime requirements, and unlawful and unfair business practices.  Id. *2.  Plaintiff also asserted a cause of action for penalties under the Labor Code Private Attorneys General Act of 2004–Labor Code sections 2698 and 2699.  Id. Defendant filed a petition to compel arbitration. The trial court denied defendant’s petition, ruling that: Read the rest of this entry »

Third District Affirms Arbitrator’s Award Denying Mandatory Attorneys’ Fees to Prevailing Plaintiff

In Arbitration, Attorney's Fees on September 4, 2010 at 6:32 am
Seniors Dancing, Mayfest
Image by StevenM_61 via Flickr

The Third District in Miller v. Lifestyles Senior Housing Managers et al., No. C059843, 2010 WL 3398750 (Cal. Ct. App. 3d Dist. Aug. 31, 2010), affirmed the trial court’s judgment confirming an arbitrator’s decision denying statutorily mandated attorneys fees to the prevailing plaintiff.  Id. *1. Read the rest of this entry »