9th Cir. Affirms Denial of Samsung’s Motion to Compel Arb. in Norcia v. Samsung

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In Norcia v. Samsung Telecommunications America, LLC, et al., No. 14-16994 (9th Cir. Jan. 19, 2017) (slip op. available here), the Ninth Circuit Court of Appeals sided with a consumer in denying Samsung’s attempt to enforce an “in-the-box” arbitration clause (contained within a warranty brochure) accompanying his purchase of a Galaxy S4 phone. In February 2014, Plaintiff Norcia filed a consumer class action lawsuit alleging Samsung made misrepresentations as to the storage capacity and performance of the Galaxy S4 phone. Samsung moved to compel arbitration based on an arbitration clause buried within the 101-page “Product Safety & Warranty Information” brochure that accompanied the phone inside the box. The district court denied the motion to compel arbitration, holding that no agreement to arbitrate claims had formed between the two parties, and Samsung appealed.

On appeal, Samsung principally argued that the inclusion of the arbitration provision in the “Product Safety & Warranty Information” brochure created a valid contract under California law between Samsung and the plaintiff to arbitrate all claims related to the Galaxy S4 phone. The Ninth Circuit disagreed, relying on well-established principles of California contract law that generally an offeree’s silence in response to an offer does not constitute assent to a contract when the offeree reasonably did not know that an offer had been made. Slip op. at 9.

The court indicated that the inclusion of an offer by Samsung to arbitrate “[a]ll disputes with Samsung arising in any way from . . . the sale, condition or performance of the products” in a “Product Safety & Warranty Information” brochure would not put a “reasonable person in [Plaintiff] Norcia’s position . . . on notice that the brochure contained a freestanding obligation outside the scope of the warranty” and that a “reasonable person [would not] understand that receiving the seller’s warranty and failing to opt out of an arbitration provision contained within the warranty constituted assent to a provision requiring arbitration of all claims against the seller, including claims not involving the warranty.” Slip op. at 19. Thus, because the evidence before the court demonstrated that the plaintiff had not expressly assented to any agreement in the brochure, and that he had not signed the brochure or otherwise acted in a manner that would show his intent to use silence, or failure to opt out, as a means of accepting the arbitration agreement, no valid agreement to arbitrate had been formed. The court also separately rejected Samsung’s argument that it was a third-party beneficiary of the customer agreement between Verizon and Norcia and that Norcia had agreed to arbitrate his claims by signing the Customer Agreement based on the complete absence of any evidence that the plaintiff and Verizon had intended Samsung to benefit from the arbitration agreement.

This ruling denying Samsung’s push for arbitration is a narrow victory for consumer rights in what is an otherwise unfavorable climate for defeating such industry efforts. This ruling may also bode well for those consumers whose Galaxy Note 7 phones exploded or caught fire. The Galaxy Note 7, like the Galaxy S4 in Plaintiff Norcia’s case, was accompanied “in the box” by an arbitration clause tucked away in the safety and warranty brochure. If so, absent any evidence that the consumer expressly assented to the arbitration clause and in the event California law is applied, the Ninth Circuit’s ruling in Norcia should provide support for defeating any motion to compel arbitration in those actions. 

Authored By:
Lee Cirsch, Senior Counsel

Again, NLRB Strikes Arb Agreement Waiving Class Claims in Buy-Low Market v. Palacios

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In yet another decision, the National Labor Relations Board (“NLRB”) continues to mount pressure on employers seeking to enforce arbitration agreements that contain class action waivers. On February 3, 2017, in Buy-Low Market, Inc. v. Palacios, Case No. 21-CA-173346 (slip op. available here), the NLRB found that California-based retail grocery chain Buy-Low Market, Inc. (“Buy-Low”) violated the National Labor Relations Act (“NLRA”) and ordered the chain to cease and desist from enforcing an arbitration agreement that requires employees to waive their right to file employment-related class or collective actions in all forums (i.e. a class action waiver). Specifically, the NLRB found that the class waiver violated Section 8(a)(1) of the NLRA, which prohibits interference with or restraint of employees’ rights to organize and engage in concerted activities.

Back in July 2015, Plaintiff Nesked Palacios filed a wage-and-hour class action lawsuit against Defendant Buy-Low. On September 25, 2015, Buy-Low demanded that, pursuant to the parties’ arbitration agreement, Palacios submit his individual claim to arbitration and dismiss his class claims. The arbitration agreement stated, in pertinent part:

Agreement to Arbitrate: Designated Claims: The Employer and the Employee agree to resolve through binding arbitration any disputes or claims having anything to do with the Employer’s application for employment, employment, or separation from employment with the Employer [. . .].

Buy-Low Market, Case No. 21-CA-173346, at 2. Though the agreement did not expressly preclude class or collective action, on May 2, 2016, Judge Kenneth R. Freeman of Los Angeles County Superior Court granted Buy-Low’s motion, and not only compelled Palacios to arbitration, but also prevented Palacios from pursing class claims in arbitration.

On April 5, 2016, Palacios brought his case before the NLRB. The NLRB made several points in challenging the trial court’s interpretation of the parties’ arbitration agreement. First, Buy-Low contended that the provision was not, in fact, mandatory, but the NLRB rejected this contention, considering that the agreement was signed on the first day of employment, with other on-boarding documents, and did not clarify whether the arbitration provision was mandatory or optional. “When being asked to sign the Agreement, at the start of employment, an employee would not likely refuse to sign.” Slip op. at 4. Furthermore, the NLRB has held that an employer violates the National Labor Relations Act whether or not an arbitration agreement is mandatory or voluntary. Id. Even a “voluntary” arbitration agreement, or one that has an opt-out provision, that requires employees to prospectively waive their NLRA Section 7 right to self-organize, violates federal law. Id. (citing On 25 Assignment Staffing Services, 362 NLRB No. 189 (2015)).

With this holding, the battle over the validity of class action waivers continues and will not be resolved definitively until the Supreme Court of the United States decides a group of several related cases. On January 13, 2017, the Supreme Court granted certiorari in NLRB v. Murphy Oil USA, Inc., along with Epic Systems Corp. v. Lewis, 823 F.3d 1147 (7th Cir. 2016), cert. granted 2017 WL 125664 (Jan. 13, 2017), and Ernst & Young, et al. v. Morris, 834 F.3d 975 (9th Cir. 2016), cert. granted, 2017 WL 125665 (Jan. 13, 2017), to assess the validity of the NLRB’s D.R. Horton decision, which held that Section 7 protected employees’ ability to engage in “concerted activities” and superseded Concepcion. Oral argument has been postponed until the 2017 term, where many expect a full Supreme Court to be sitting. These three cases present the issue of whether arbitration agreements that bar employees from pursuing work-related claims on a collective or class basis in any forum violates Sec. 8(a)(1) of the Act, which was the very issue raised in Buy-Low Market. As such, the current legal landscape for class action waivers is in flux, and remains an issue to monitor. 

Authored by: 
Ruhandy Glezakos, Associate

After Spokeo: A Trend Toward State Court Remand

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In Medellin v. Ikea U.S.A .West, Inc., No. 15-55174 (9th Cir. Jan. 13, 2017) (slip op. available here), an unpublished ruling, the Ninth Circuit Court of Appeals recently endorsed plaintiffs’ most recent strategy for avoiding Article III standing requirements after Spokeo, Inc. v. Robins, 136 S. Ct. 1540, 1549 (2016). In Spokeo, the United States Supreme Court held that a plaintiff cannot “allege a bare procedural violation, divorced from any concrete harm, and satisfy the injury-in-fact requirement of Article III.” Id. at 1549. Without Article III standing, a federal court lacks subject matter jurisdiction and the case may be remanded to state court, where plaintiffs frequently fare better. In Medellin, rather than appealing the denial of class certification, the plaintiff requested that the case be remanded to state court. The Ninth Circuit vacated the district court’s order decertifying the class and remanded with instructions that the lower federal court dismiss the action without prejudice for lack of standing.

Medellin arose in 2012 when the plaintiff alleged that Ikea violated the Song-Beverly Credit Card Act by illegally collecting her and other consumers’ zip code information. The complaint was originally filed in state court and then removed under the Class Action Fairness Act. In 2012, the court certified a class, but then decertified it in 2014, concluding that, based on the evidence presented, individual cashiers may not have asked for zip code information and that customers knew that providing zip code information was voluntary. The plaintiff appealed the denial of class certification, but changed course after the Spokeo decision. Rather than pursuing an appeal of the decertification order, the plaintiff “admitted” that she did not have standing under Spokeo and requested that the court remand the case to state court. The Ninth Circuit agreed and remanded the case, instructing the district court to dismiss the action without prejudice based on the plaintiff’s concession that “she alleged only a bare procedural violation of the statute and suffered no other cognizable harm.” Slip op. at 2.

Judge Maxine M. Chesney reached a similar result in a Fair Credit Reporting Act (FCRA) case, partially granting a plaintiff’s motion to remand that was pending in the Northern District of California, Benton v. Clarity Services, Inc., Case No. 16-cv-06583-MMC (N.D. Cal. Jan. 24, 2017). The court severed the claims for which the court found that plaintiff lacked standing under Spokeo and remanded only those claims to state court. Courts in the Third Circuit also have opted for remand over dismissal when jurisdiction is lacking based on Spokeo. For example, in Mocek v. Allsaints USA Ltd., No. 2016-cv-08484 (N.D. Ill. Dec. 7, 2016), an Illinois district court judge remanded a FACTA case to state court, instead of dismissing it outright. The court noted that, “as a general matter, federal courts should interpret the removal statutes narrowly and presume that the plaintiff may choose his or her forum.” Id. at 5. The court also relied on 28 U.S.C. section 1447(c) which provides that “if at any time before final judgment it appears that the district court lacks subject matter jurisdiction, the case shall be remanded.” In Mocek, the court went even further and awarded attorneys’ fees to the plaintiff, finding that “defendant tried to have it both ways by asserting, then immediately disavowing, federal jurisdiction, apparently in hopes of achieving outright dismissal, with prejudice rather than the remand required under section 1447(c) . . . In short, it should have been obvious to defendant, based on well-settled law, that with no party asking for the merits of the plaintiff’s claim to be decided in federal court, and both sides arguing against federal jurisdiction, the only possible outcome was for the case to end up right where it started: in state court.” Id. Similarly, in In re Michaels Stores, Inc., Fair Credit Reporting Act (FCRA) Litigation, MDL No. 2615 (D.N.J. Jan. 24, 2017), a district court in New Jersey found that the plaintiffs lacked standing under Spokeo to pursue their FCRA claim in federal court, but remanded the California action to California state court, relying on section 1447(c). Id. at 20 (stating, “Having found that this Court lacks subject matter jurisdiction over Plaintiffs’ claims, I must remand this removed case to the California state court. See 28 U.S.C. § 1447(c) . . . .”).

In sum, a trend may be developing whereby federal courts are remanding statutory claims to state courts after Spokeo instead of dismissing them for lack of jurisdiction. However, plaintiffs need to be aware that proceeding in state court after remand could prove to be a double-edged sword. While jurisdiction will be established in the absence of Article III requirements, certain state statutes, such as California’s Consumer Legal Remedies Act, still require a showing of actual harm. Moreover, in conceding that there is no concrete harm or actual harm in order to avoid federal jurisdiction, the plaintiff may risk undercutting the value of any statutory penalty that could be negotiated in settlement or awarded by the court.

Authored By:
Jordan Lurie, Of Counsel

SB 1241: Choice-of-Law, Choice-of-Venue Provisions in Employment Agreements Now Voidable by Employees

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Thanks to a new Labor Code provision signed into law by Governor Brown last fall, California employees may no longer need to worry about being forced to litigate their employment cases in far-flung jurisdictions or under laws that provide less protection than California’s. On September 25, 2016, Governor Brown signed Senate Bill 1241 (available here), which enacted new Labor Code section 925. Under that new provision, for contracts entered into, modified, or extended on or after January 1, 2017, an employer cannot condition employment on requiring an employee who “primarily resides and works in California” to sign a provision that either (1) requires the employee to adjudicate outside of California a claim that arises in California or (2) deprives the employee of substantive protections of California law for claims arising in California.

The measure originated in the California Senate as an employee and consumer protection measure that would have allowed a California employee or consumer to void contractual provisions that require adjudicating disputes out-of-state or under the law of a foreign jurisdiction. The measure was, at least in part, aimed at companies’ oppressive arbitration provisions that attempted to exploit the United States Supreme Court’s decision in AT&T Mobility, LLC v. Concepcion, 563 U.S. 333 (2011). Many employers and businesses saw Concepcion as a green light to force employees and customers to resolve disputes in arbitration, in other states, and apply those states’ anti-consumer/anti-employee laws. As the bill made its way through the state legislature, lawmakers narrowed the bill’s scope to employment agreements. Importantly, the new law applies generally to all employment contracts and all forms of dispute resolution. As such, it is generally applicable, does not single out arbitration as a target, and therefore is likely not preempted by the Federal Arbitration Act.

The new law confirms California’s longstanding dedication to protecting employees’ rights, but it is not a sea change in the law. Indeed, the legislative history notes that some opponents of the bill questioned whether it was even necessary. Those opponents noted that California’s choice of law/choice of forum jurisprudence already allowed courts to invalidate such provisions if they would result in (a) litigation in an inconvenient forum or (b) applying law that conflicted with a fundamental California public policy. See e.g., The Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 17 (1972) (choice of forum clauses may be invalidated if they effectively deprive the litigant of their day in court); Wash. Mut. Bank v. Super. Ct., 24 Cal. 4th 906, 916 (2001) (court may refuse to enforce choice of law provision when the other state’s law fundamentally conflicts with California public policy).

Yet, although section 925 is consistent with prior jurisprudence, it is still a needed protection for California employees. As the bill’s supporters noted, under existing jurisprudence, Californians were still obliged to demonstrate that (a) the forum was inconvenient and/or (b) that the applicable law conflicted with fundamental California public policy. Litigating those issues presented substantial burdens both legally and practically. That said, section 925 presents some unanswered questions, such as defining what it means for an employee to “primarily reside[] and work[]” in California and what qualifies as a “substantive protection of California law” that needs to be defended. Needless to say, section 925 is a welcome addition to the Labor Code that will provide the state’s labor force additional protection and ensure that they are not deprived of the protections of California’s substantive law.

Authored By:
Andrew Sokolowski, Senior Counsel