Articles from October 2011

Urbino v. Orkin: Underscoring the Viability of Post-Concepcion Unconscionability Analysis

A district court in the Central District of California has denied a motion to compel arbitration of a representative action brought pursuant to “PAGA,” the California Labor Code Private Attorneys General Act of 2004.  In Urbino v. Orkin Services of California, the Court deemed the parties’ arbitration agreement and representative action waiver unconscionable and unenforceable.  Urbino v. Orkin Services of California, Inc., No. 11-cv-6456, 2011 U.S. Dist. LEXIS 114746, *31-34 (C.D. Cal. Oct. 5, 2011) (available here).  In so ruling, the Court distinguished representative action waivers from the class action waivers enforced by the U.S. Supreme Court in Concepcion v. AT&T Mobility

The Urbino court refused to extend Concepcion to PAGA actions because of “the fundamental nature and purpose of a PAGA claim.”  Id. at *39.  PAGA cases are private actions that seek to enforce the Labor Code in the place of the California Labor and Workforce Development Agency.  Id. at *19.  Unlike the consumer claims at issue in Concepcion, which a plaintiff could pursue on an individual basis, PAGA actions must be brought as representative actions on behalf of the plaintiff and other aggrieved employees.  Id. at *41.  In other words, enforcement of a representative action waiver would leave the plaintiff with no viable PAGA claim whatsoever.  The Court’s decision to deny the motion to compel arbitration thus preserved the plaintiff’s right to pursue his PAGA action. 

In reaching this conclusion, the Court affirmed the continuing viability of a California case decided before Concepcion, Franco v. Athens Disposal Co., 171 Cal. App. 4th 1277 (2009).  In Franco, the court held that a PAGA representative action waiver was unconscionable, and thus unenforceable, because the waiver provision prevented aggrieved employees “‘from performing the core function of an attorney general.’”  Urbino, 2011 U.S. Dist. LEXIS 114746 at *35 (quoting Franco, 171 Cal. App. 4th at 1303). 

Urbino confirms the continuing viability of the unconscionability defense to representative action waivers in a post-Concepcion world.  Other California courts have also recently declined to enforce representative action waivers, despite Concepcion, perhaps signaling a positive trend in California towards permitting enforcement of employees’ rights pursuant to PAGA.  See Brown v. Ralphs Grocery Co., 197 Cal. App. 4th 489, 500 (2011) and Plows v. Rockwell Collin, Inc., No. SACV 10-01936, 2011 U.S. Dist. LEXIS 88781, *14-15 (C.D. Cal. Aug. 9, 2011). 

Degelmann v. Advanced Medical Optics: Federal Standing Established Where Consumers Allege Having Paid More than They Would Have

The Ninth Circuit recently issued a ruling that embraces a broad conception of standing for plaintiffs pursuing class claims under California’s Unfair Competition Law (“UCL”) in federal court.  In Degelmann v. Advanced Medical Optics, the plaintiffs’ alleged injury arose from paying more for defective contact lens solution than they would have, had the defendant manufacturer provided truthful and accurate information on the harmful product’s label.  Degelmann v. Advanced Medical Optics, No. 10-15222, 2011 U.S. App. LEXIS 19706, *1-8 (9th Cir. Sept. 28, 2011) (available here).  The Court held that the named plaintiffs met the UCL’s standing requirement of an “injury in fact” and “lost money or property.”  Id.

In so ruling, the Court reversed the District Court’s more narrow view of what constitutes an “injury in fact.”  The District Court granted summary judgment to the defendant on grounds that the plaintiffs did not suffer any injury because they (1) did not become ill from using the lens solution, (2) were not forced by a product recall to discard unused product, and (3) “did not lose any money because if they had not bought MoisturePlus [lens solution], they would have bought another lens solution.”  Id. at *3 (referencing Degelmann v. Advanced Medical Optics, No. C 07-3107, 2010 U.S. Dist. LEXIS 122, *10 (N.D. Cal. Jan. 4, 2010) (granting summary judgment)).

The Ninth Circuit conceded that the plaintiffs might have purchased another lens solution, had MoisturePlus been labeled accurately.  But, the Ninth Circuit also emphasized that “it does not necessarily follow that [the plaintiffs] did not suffer economic harm.”  Id. at *6.  Rather, “had the product been labeled accurately, [the plaintiffs] would not have been willing to pay as much for it as they did, or would have refused to purchase the product altogether.”  Id. at *6.  Thus, the plaintiffs did in fact have standing to pursue their UCL claim.  Id. at *7-8.

The Ninth Circuit based its ruling on the holding of a prior California Supreme Court case, Kwikset v. Super. Ct., 51 Cal. 4th 310 (2011).  In Kwikset, the plaintiff consumers alleged that they had purchased products falsely labeled “Made in the U.S.A.” and had paid more for the products than they might have, had the products been labeled accurately.  As in Degelmann, the Supreme Court concluded in Kwikset that the consumers had suffered an identifiable economic injury.  Id. at 329.  Key to both the Kwikset and Degelmann decisions are findings of economic harm caused by false and misleading advertising. 

While ruling that the plaintiffs had standing to proceed under the UCL, the Degelmann Court affirmed summary judgment for the defendant because the plaintiffs’ state law claims were preempted by federal Food and Drug Administration labeling standards for contact lens fluids.  Degelmann, 2011 U.S. App. LEXIS 19706, *8-*13.  Nonetheless, Degelmann has set a plaintiff-friendly precedent to which district courts must adhere when evaluating standing issues. 

Chen-Oster: Distinguishing Concepcion

Another federal district court has distinguished the U.S. Supreme Court’s AT&T Mobility v. Concepcion.  In Chen-Oster v. Goldman, Sachs & Co., the Court considered “whether the FAA’s [Federal Arbitration Act’s] objectives are . . . paramount when, as here, rights created by a competing federal statute are infringed by an agreement to arbitrate.”  Chen-Oster v. Goldman, Sachs & Co., No. 10-CV-06950, 2011 U.S. Dist. LEXIS 73200, at *10 (S.D.N.Y. Jul. 7, 2011) (order denying motion for reconsideration) (available here).  Whereas Concepcion held that the FAA preempted the California common law doctrine of contract unconscionability, Chen-Oster asserts the preeminence of federal statutory rights over the FAA’s preference for arbitration.

Chen-Oster arose as a Title VII gender discrimination class action against the investment bank Goldman Sachs.  In response to the class action complaint, Goldman Sachs moved to stay the action with respect to one of the plaintiffs, Lisa Parisi, and to compel arbitration on Ms. Parisi’s individual claims.  The Court denied Goldman Sachs’ motion only one day after the Supreme Court issued the Concepcion opinion.  Goldman Sachs then moved for reconsideration of its motion to compel arbitration, arguing that perhaps the Court had overlooked Concepcion given its very recent issuance.  However, the Court denied the motion for reconsideration, finding that, despite Concepcion, “it remains the law of the Second Circuit that an arbitration provision which ‘precludes plaintiffs from enforcing their [federal] statutory rights’ is unenforceable.  Id. at *15, citing In re American Express Merchants’ Litigation, 634 F.3d 187 (2d Cir. 2011).  

The federal statute under which Ms. Parisi brought suit—Title VII—“creates a substantive right to be free from a ‘pattern or practice’ of discrimination by an employer.”  Id. at *4 (emphasis added).  Federal law prohibits plaintiffs from proceeding as individuals on “pattern or practice” discrimination claims, meaning that Ms. Parisi would have no viable claim if her case were tried or arbitrated on an individual, rather than classwide, basis.  See id. at *11-12.  In other words, to prohibit Title VII class actions would be to prohibit Title VII actions generally.  The Court’s decision to deny the motion for reconsideration and disallow arbitration thus protected Ms. Parisi’s “right, guaranteed by Title VII, to be free from discriminatory employment practices.”  Id. at *10 (referencing Chen-Oster v. Goldman, Sachs & Co., No. 10-CV-06950, 2011 U.S. Dist. LEXIS 46994, at *12 (S.D.N.Y., Apr. 28, 2011) (order denying motion to compel arbitration)). 

The Court noted that Rule 23, the federal statute governing class actions, does not create a federal statutory “right” to proceed as a class.  Thus, while preserving Ms. Parisi’s right to a day in court on her substantive discrimination claims, the Court also indicated that Ms. Parisi’s right to proceed on a class action basis per Rule 23 has not been resolved in this case.  See id. at *11-12.

Chen-Oster is a positive development for employees in the wake of Concepcion.  The Chen-Oster opinion unequivocally protects workers’ rights (as conferred by Title VII) over the FAA’s directive for arbitration.  What remains unclear is whether courts will extend this logic to prioritize other substantive federal rights (statutory or otherwise) over FAA-mandated arbitration.

Chavarria v. Ralphs: Central District Finds Arbitration Agreement Unconscionable

In yet another decision limiting the applicability of the U.S. Supreme Court’s AT&T Mobility v. Concepcion opinion, a California Central District judge has denied the defendant’s motion to compel arbitration and held the at-issue arbitration clause to be unenforceable, without expressly referencing ConcepcionSee Chavarria v. Ralphs Grocer Co., No. CV 11-02109, 2011 U.S. Dist. LEXIS 104694 (C.D. Cal. Sept. 15, 2011) (order denying motion to compel arbitration) (available here).

The court’s unconscionability analysis was extensive, starkly distinguishing the at-issue arbitration clause from the notably consumer-friendly contract that had been adjudicated in Concepcion.  As to procedural unconscionability, the Chavarria court sharply observed that “Ralphs required Plaintiff to accept the ‘available’ Arbitration Policy not only as a condition of employment, but as a condition of Plaintiff’s application for employment” and concluded that “Ralphs does not have merely superior or stronger bargaining power, it has all of the bargaining power.”  Order at *14-15.  Substantively, the court found that “the method devised by Ralphs to select a ‘qualified arbitrator’ [is] a sham.”  Order at *16.  Moreover, the fee structure built into the at-issue arbitration clause vividly demonstrates the circumstances whereby arbitration of individual claims would result in plaintiffs effectively having no remedy for workplace violations:

Plaintiff worked at a Ralphs service deli for five months. She claims she was not paid for rest and meal breaks during which she worked. Her monetary claims likely total well under ten thousand dollars. Assuming a two day arbitration, Plaintiff would be required to pay somewhere between $7,000 and $14,000 in arbitrator’s fees alone.

Order at *22.  The restrained opinion leaves it to the reader to infer that only class treatment, in court, is likely to hold the prospect of meaningful enforcement of California’s meal and rest break laws.

Along with Brown v. Ralphs, 197 Cal. App. 4th 489 (2011), Chavarria suggests an emerging post-Concepcion jurisprudence that is far less draconian than some had projected.  In Brown, the first of The Ralphs Cases, the California Court of Appeal held Concepcion inapplicable to representative claims under PAGA, the California Labor Code’s Private Attorneys General Act.  Now, Chavarria provides a model for both federal and state courts’ evaluation of arbitration clauses to determine whether they foreclose “legitimate process and the real possibility for redress” and thus rise to the level of unconscionability.  Order at *24.