Cal. Supreme Court Hears Iskanian v. CLS Oral Arguments

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Oral arguments in Iskanian v. CLS Transportation Los Angeles, LLC, No. S204032, took place before the California Supreme Court on April 3, 2014 (Mr. Iskanian is represented by Capstone Law APC). Previously, the Court of Appeal had affirmed an order compelling individual arbitration of the plaintiff’s California Labor Code claims by enforcing class action and representative action waivers, relying heavily on Concepcion. Iskanian v. CLS Transp. Los Angeles, LLC, 206 Cal.App.4th 949 (2012).

The California Supreme Court granted review of the following issues:

(1) Did AT&T Mobility LLC v. Concepcion (2011) 563 U.S. [321] impliedly overrule Gentry v. Superior Court (2007) 42 Cal.4th 443 with respect to contractual class action waivers in the context of non-waivable labor law rights? (2) Does the high court’s decision permit arbitration agreements to override the statutory right to bring representative claims under the Labor Code Private Attorneys General Act of 2004 (Lab. Code, § 2698 et seq.)? (3) Did defendant waive its right to compel arbitration?

With respect to the enforceability of the class action waiver under Gentry, the justices’ line of questioning reflected skepticism that it could survive Concepcion. Plaintiff’s counsel Glenn Danas suggested that, following the Court’s decision in Sonic-Calabasas A, Inc. v. Moreno, 57 Cal. 4th 1109 (2013) (“Sonic-Calabasas II”), the Gentry test be modified to a two-step unconscionability-based test, with the first step focused on whether the unavailability of class arbitration would lead to a de facto waiver of unwaivable statutory rights and, if so, the second step focused on whether the employer’s particular arbitration procedure provides alternative protections that ameliorate the claimants’ inability to utilize such aggregate procedures in arbitration. Several justices, including the Chief Justice and Justice Kennard, had probing follow-up questions regarding the proposed two-step analysis, but Justice Liu appeared skeptical that even the suggested modified test would not be foreclosed by Concepcion, due to its strongly-worded dicta against class arbitration.

Michael Rubin, on behalf of amicus curiae Service Employees International Union and the California Employment Lawyers Association, also argued before the high court, presenting an alternative basis for striking the class action waiver under federal labor statutes, thereby avoiding any possible preemption issue. This argument, which was adopted by the National Labor Relations Board in the D.R. Horton decision, asserts that employees’ right to join together in group litigation (utilizing a class, collective, or representative action) is protected activity under both the National Labor Relations Act and the Norris LaGuardia Act. 357 NLRB No. 184. Rubin’s argument compellingly articulated the position, and was met with a series of thoughtful questions by the justices demonstrating, at a minimum, a keen interest in the issue. For instance, picking up on the U.S. Supreme Court’s reasoning in American Express Co. v. Italian Colors Restaurant, 133 S. Ct. 2304 (2013), Justice Liu asked whether the class action procedure pre-dates the Federal Arbitration Act, the implication being that, if not, there can be no “right” to collective litigation of employment grievance. Rubin responded, without missing a beat, that certain antecedents to the Federal Rule 23 existed long before 1966. Justice Liu also had pointed questions for CLS’s counsel David Faustman, at one point growing weary of Faustman’s refusal to answer his question regarding the basis for his position that the Federal Arbitration Act “trumps” the later-enacted federal labor law statutes. Ultimately, Faustman moved on, unable to answer Justice Liu’s questions. However, it is also widely acknowledged that a decision based in part on upholding D.R. Horton would be more likely to draw review by the U.S. Supreme Court.

With regard to PAGA actions, the justices seemed inclined to reverse the Court of Appeal’s ruling, discerning that a complete ban on a statutory cause of action or the right to pursue statutory remedies cannot be completely foreclosed by any contract, arbitration or otherwise. Specifically, the justices focused their questions on the origin of the rights codified by PAGA—that PAGA actions are essentially government enforcement actions and that individual plaintiffs cannot waive the government’s right to enforce the labor laws. Drawing a parallel to EEOC v. Waffle House, 534 U.S. 279 (2002), where the U.S. Supreme Court held that the EEOC could pursue a discrimination claim on behalf of an employee despite the employee’s having signed an arbitration agreement, Justice Liu indicated that a PAGA plaintiff cannot waive the state’s right to collect civil penalties under PAGA by signing a private mandatory arbitration agreement. Moderate members of the Court including Chief Justice Cantil-Sakauye and Justice Corrigan both questioned Andrew Pincus, appearing for the Chamber of Commerce of the United States of America on behalf of CLS, pointing out the practical reality of enforcing PAGA waivers such as the one at issue would allow employers to entirely shield themselves from liability under PAGA, a result that cannot be squared with decades of U.S. Supreme Court case law.

The opinion is due in 90 days, on July 2, 2014.

Young v. Hilton: 9th Cir. Reverses Dismissal of California Recording Case

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On March 20, 2014, the Ninth Circuit reversed a district court’s dismissal of a putative class action against Hilton, based on violations of the California Invasion of Privacy Act (“CIPA”) by recording incoming customer service phone calls without customers’ consent. Young v. Hilton Worldwide, Inc. and Hilton Reservations Worldwide, LLC, No. 12-56189 (9th Cir. March 20, 2014) (slip opinion available here).

The plaintiff alleged that defendant violated two provisions of CIPA; Section 632, which generally prohibits the eavesdropping and recording of “confidential communications” on landlines without all parties’ consent, and Section 632.7, which proscribes the eavesdropping on or recording of a communication on cell or cordless phones without all parties’ consent. The district court had dismissed the action, rubberstamping the defendant’s proposed dismissal order, and holding that the complaint failed to allege that the recorded communications were confidential and subject to a reasonable expectation of privacy. Plaintiff appealed the dismissal of the Section 632.7 claim, but not the Section 632 claim.

The Ninth Circuit found that the “reasonable expectation of privacy” requirement applied only to plaintiff’s section 632 claim regarding landlines, but not to plaintiff’s section 632.7 claim regarding cell or cordless phones: “The California Supreme Court has unequivocally held that no such [confidential communication] requirement applies to Section 632.7 . . . . The district court’s failure to so recognize was reversible error.” Slip op. at 2. Holding that Section 632.7 prohibits recording of calls made from cell and cordless phones regardless of whether a communication is initiated with a reasonable expectation of privacy, the Ninth Circuit reversed and remanded the case.

Dissenting Judge Motz from the District of Maryland, sitting by designation, wrote that he would have vacated the district court’s entire decision and remanded the case to the district court for full briefing on CIPA’s scope.

U.S. Supreme Court Denies Cert. in ATM Sticker Notice Case

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On March 10, 2014, the Supreme Court denied a certiorari petition in First National Bank of Wahoo v. Charvat, No. 13-679 (8th Cir. 2013), a case involving the core question of whether a statutory violation is enough to confer Article III standing on a plaintiff. See Supreme Court 2013 Term Order List 03/10/14 (available here). As previously mentioned, in Robins v. Spokeo, Inc., No. 11-56843, the Ninth Circuit recently held that a plaintiff in a Fair Credit Reporting Act case need not show actual injury to have standing.

In First National Bank, the U.S. Court of Appeals for the Eighth Circuit had ruled that the plaintiff had standing to proceed with his class claims alleging that a bank and a credit union failed to provide ATM sticker fee notices as required by the Electronic Fund Transfer Act (“EFTA”). Charvat v. First National Bank of Wahoo, No. 12-cv-02797 (8th Cir. 2013) (slip opinion available here). The Eighth Circuit disagreed with the district court’s finding that “because Charvat failed to allege some injury beyond the failure to receive an ‘on machine’ notice, he had not suffered a cognizable injury in fact,” stating, “[d]ecisions by this Court and the Supreme Court indicate that an informational injury alone is sufficient to confer standing, even without an additional economic or other injury.” Slip op. at 6.

By denying the petition, the Court declined to revisit the issue from First American Financial Corp. v. Edwards, 132 S. Ct. 2536 (2012), which had raised the same question regarding standing in the context of the Real Estate Settlement Procedures Act; the cert petition was later dismissed as having been granted “improvidently” on the last day of the Supreme Court’s 2012 term.

The impact of the Supreme Court’s denial of cert reaches further than suits brought under the EFTA; it would make suits by plaintiffs under consumer protection statutes with statutory damages provisions, such as the Truth in Lending Act, 15 U.S.C. §§ 1631-32; the Fair Debt Collection Practices Act, 15 U.S.C. § 1692(f); the Fair Credit Reporting Act, 15 U.S.C. § 1681e(b); and  the Telephone Consumer Protection Act, 47 U.S.C. § 227(b), easier to bring.

U.S. Supreme Court Grants Cert. in FLSA Security Screening Case

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On March 3, 2014, the Supreme Court granted a petition for certiorari in Busk v. Integrity Staffing Solutions, Inc., No. 11-16892 (9th Cir. April 12, 2013) (slip opinion available here). The Court will resolve the issue of whether time spent in security screenings is compensable under the Fair Labor Standards Act (“FLSA”), as amended by the Portal-to-Portal Act of 1947 (certiorari petition available here).

Busk involves claims by warehouse employees for back pay, overtime, and double damages under the FLSA for time spent in post-shift security screenings. The district court dismissed the employees’ claims, holding that security screenings are typical “preliminary” or “postliminary” activities, and are thus non-compensable under the FLSA pursuant to the Portal-to-Portal Act. The Ninth Circuit reversed, holding that time spent in post-shift security screenings was compensable under the FLSA because the screenings were “require[d]” by the employer, “necessary to employees’ primary work as warehouse employees,” and performed for the employer’s benefit in preventing employee theft. Slip op. at 11. In its cert petition, Defendant argued that the Ninth Circuit’s holding conflicts with decisions from the Second and Eleventh Circuits, which have ruled that time spent in security screenings is not subject to the FLSA because it is not “integral and indispensable” to employees’ principal job activities.

How the Supreme Court rules on this case should have a significant impact on the liability of employers who require employees to pass through security screenings before or after a shift.