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Posts Tagged ‘Concepcion’

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

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U.S. Supreme Court Upholds Class Waiver in Arbitration Agreement

In Arbitration, Class Waiver on June 20, 2013 at 5:56 pm
American Express Co. shipping receipt, New Yor...

American Express Co. shipping receipt, New York City to St. Louis, MO (August 6, 1853) (Photo credit: Wikipedia)

In a five-to-three decision today, the U.S. Supreme Court issued its opinion in American Express Co. v. Italian Colors Restaurant, No. 12-133, 570 U.S. __ (June 20, 2013).  At issue was whether a contractual waiver of class arbitration is enforceable under the Federal Arbitration Act (“FAA”) when the plaintiff’s cost of individually arbitrating a federal statutory claim exceeds the potential recovery.  The Court held that it was.

“Respondents argue that requiring them to litigate their claims individually—as they contracted to do—would contravene the policies of the antitrust laws. But the antitrust laws do not guarantee an affordable procedural path to the vindication of every claim.”  Slip Op. at 4.

Nor does congressional approval of Rule 23 establish an entitlement to class proceedings for the vindication of statutory rights. . . . One might respond, perhaps, that federal law secures a nonwaivable opportunity to vindicate federal policies by satisfying the procedural strictures of Rule 23 or invoking some other informal class mechanism in arbitration. But we have already rejected that proposition in AT&T Mobility, 563 U. S., at ___ (slip op., at 9).

Slip Op. at 5.

Justice Scalia, writing for the majority, also rejected the argument that “Enforcing the waiver of class arbitration bars effective vindication, respondents contend, because they have no economic incentive to pursue their antitrust claims individually in arbitration.”  Id.

[T]he fact that it is not worth the expense involved in proving a statutory remedy does not constitute the elimination of the right to pursue that remedy. See 681 F. 3d, at 147 (Jacobs, C. J., dissenting from denial of rehearing en banc).  The class-action waiver merely limits arbitration to the two contracting parties. It no more eliminates those parties’ right to pursue their statutory remedy than did federal law before its adoption of the class action for legal relief in 1938, see Fed. Rule Civ. Proc. 23, 28 U. S. C., p. 864 (1938 ed., Supp V); 7A C. Wright, A. Miller, & M. Kane, Federal Practice and Procedure §1752, p. 18 (3d ed.2005). Or, to put it differently, the individual suit that was considered adequate to assure “effective vindication”of a federal right before adoption of class-action procedures did not suddenly become “ineffective vindication” upon their adoption.

Id. at 7.

By CHARLES 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

First District Approves of Arbitration Agreement, Despite Presence of Class Waiver and Arbitration of Public Claims

In Arbitration, Class Waiver, Concepcion, Public Claims on March 28, 2013 at 3:30 pm
Car Sales USA

Car Sales USA (Photo credit: emilio labrador)

Yesterday, the California Court of Appeal for the First Appellate District reversed a trial court’s denial of a motion to compel arbitration.  See Vasquez v. Greene Motors, Inc., et al., Case No. A134829, __ Cal.App.4th __ (1st Dist. Mar. 27, 2013).  The arbitration agreement related to the purchase of a used car on credit from defendants, but the opinion has implications for wage & hour class actions because the agreement contained a class waiver and the requirement to arbitration “public” claims.  Id. at 25-26.

The court found only minimal procedural unconscionability, but an absence of significant substantive unconsionability.  The arbitration clause was printed on the reverse side of a form contract, but the buyer was alerted to the presence of the clause.  The Court described the clause as follows:

The reverse side, also dense with text, contains a number of provisions in separate boxes, many dealing with typical ―boilerplate legal matters, such as warranties, applicable law, and buyer and seller remedies. None of the provisions on the back page requires a buyer‘s signature. Toward the bottom of the page is the arbitration clause. The entire text of the clause is outlined in a black border. In all capital letters and bold type at the top is written, ―ARBITRATION CLAUSE [¶] PLEASE REVIEW— IMPORTANT—AFFECTS YOUR LEGAL RIGHTS. Immediately below, three numbered provisions, also in all capital letters, inform the buyer either party may request arbitration, this would prevent a court or class-wide proceeding, and it might limit discovery. Read the rest of this entry »

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