Articles from July 2012

New York’s Southern District has generated another arbitration-related decision that contributes to a far less dire post-Concepcion narrative than many had predicted.  See Rame, LLC v. Popovich, No. 12-cv-01684 (S.D.N.Y. Jul. 9, 2012) (Opinion re: petition to vacate) (available here).  Rather than expounding on whether cases are referred to arbitration in the first instance, which was the primary focus of Concepcion, Popovich addresses whether or not classwide arbitration is permissible where parties neither expressly waive nor expressly agree to classwide arbitration.

The underlying FLSA action was filed in the Southern District of New York by employees of Café Centro, a Park Avenue-based bistro and subsidiary of the elite Patina Restaurant Group.  The defendants moved to compel arbitration based on a Dispute Resolution Agreement (DRA) and Dispute Resolution Policy (DRP) that all employees were subject to.  In response, plaintiffs voluntarily dismissed the action and stipulated to arbitration, seemingly handing the defendants a victory.  See Opinion at 3.  The parties also stipulated to preliminary motion practice before an arbitrator as to the threshold issue of whether the claims for unpaid wages “could be brought in arbitration on a class or collective action basis,” since both the DRA and DRP were (as noted by the court) “devoid of any reference to arbitration on a class-wide or collective basis.”  Id. at 3, 6.  The arbitrator found that the FLSA action could proceed through arbitration on a classwide basis, prompting defendants to file a petition with the Southern District to vacate that decision.  Id. at 4.

Defendants primarily based their petition on a pre-Concepcion Supreme Court case, Stolt-Nielsen S.A. v. AnimalFeeds Int’l Corp., 130 S. Ct. 1758 (2010), which was widely assumed to stand for the inflexible proposition that, where an arbitration clause is silent as to collective or class treatment, classwide arbitration is impermissible, notwithstanding that the parties did not in fact expressly agree to foreclose it.  The defendants argued that collective or class treatment may not be compelled in such an instance, and an arbitrator who finds otherwise has exceeded his or her power under the Federal Arbitration Act.  See Opinion at 15-16.

However, the Popovich court distinguished Stolt-Nielsen, insofar as the parties in that case had stipulated to the at-issue arbitration clause being “silent” as to collective or class treatment.  See Opinion at 23.  The Second Circuit drew a similar distinction in Jock v. Sterling Jewelers Inc., 646 F.3d 113 (2d Cir. 2011), holding that, with no “silence” stipulation, a broadly-drafted arbitration clause constituted an implicit agreement to authorize class treatment.  Here, the DRA and DRP dictated that an arbitrator determine “all damages and relief allowed by law.”  Opinion at 25.  Analyzing Stolt-Nielsen, Jock, and New York state law principles of contract interpretation, the Popovich court found that, absent a stipulation of “silence,” broad language like that used in the DRA and DRP does in fact constitute an implicit agreement to submit to class arbitration.  Opinion at 23-25.  The Popovich court concluded that the arbitrator’s decision was not based upon the “alleged silence” on classwide arbitration in the DRA and DRP, but was instead based on the broad language that was actually present, to wit, that an arbitrator will decide “all claims” of an employee arising out of the employment and award “all damages and relief allowed by law.”  Id. at 24-25.  As such, the court found no basis for vacating the arbitrator’s decision.

Popovich, like Jock, demonstrates the limitations of the Stolt-Nielsen holding.  Indeed, Popovich demonstrates that, under Stolt-Nielsen, class arbitration may be proper even if the at-issue arbitration agreement contains no express authorization to that effect, and reaffirms that class arbitration is proper when parties have implicitly agreed to it.

In a major victory for consumers, a Santa Clara Superior Court judge has certified a class of Land Rover owners and lessees who allege that a factory defect in the vehicles’ alignment geometry created uneven tire wear.  See Colon v. Jaguar Land Rover North America, LLC, No. 1-06-CV-075163 (Santa Clara Super. Ct. Jul. 12, 2012) (Order Granting Motion for Class Certification) (available here).

Beyond the obvious benefit to the newly-certified Colon class members, this decision is expected to help countless other California plaintiffs in auto defect and product liability cases.  In Judge James P. Kleinberg’s analysis, he rejects the American Honda standard relied upon by the defendant, which requires a consumer class certification movant to “provide substantial evidence of a defect that is substantially certain to result in malfunction during the useful life of the product.”  Order at 6, citing American Honda Motor Co. v. Super. Ct., 199 Cal. App. 4th 1367, 1374 (Cal. Ct. App. 2011).  Judge Kleinberg held that, “under both federal and California law, proof of manifest damage is not a prerequisite to class certification.”  Order at 6.  He noted that such a requirement would violate the basic precepts of both California and federal class action jurisprudence, as “imposing this certification requirement . . . would require plaintiffs to prove the legal and factual merits of the claim at the time of class certification, which goes directly against clear contrary authority.  Id.

Additionally, the court rejected the defendant’s argument that individual issues would predominate because uneven tire wear did not occur in all class vehicles, and those with uneven tire wear have varying degrees of it among the affected models.  See Order at 7.  Judge Kleinberg concluded that such differences are “an issue of individual damages, not liability,” and “if Plaintiff can prove the existence of an inherent defect . . . Plaintiff will have demonstrated liability based on common evidence, and the fact that class members would later have to individually prove . . . their damages does not defeat class certification.”  Id.

It may soon be up to the California Supreme Court to determine the applicable scope of AT&T Mobility v. Concepcion (131 S. Ct. 1740 (2011)) in California.  Specifically at issue is the Second Appellate District’s ruling in Iskanian, which created multiple conflicts within California courts.  Iskanian v. CLS Transp. Los Angeles, LLC, ___ Cal. App. 4th ___ (2012) (available here).  As expected, the plaintiffs’ attorneys have filed a Petition for Review (available here), arguing the necessity of California Supreme Court intervention to resolve the numerous conflicting decisions.

The Petition for Review casts the Iskanian decision as a distinct outlier in California law, focusing on several new splits of authority within the California courts engendered by the Iskanian decision and requiring Supreme Court review.  Foremost, the Petitioners point out that, in Iskanian, the Second Appellate District, Division Two, rejected Brown v. Ralphs, 197 Cal. App. 4th 489 (2011), which was decided by Division Five of the same court just one year ago.  Whereas Brown held that PAGA waivers are outside the scope of the Supreme Court’s Concepcion decision, Iskanian disagreed, extending the scope of FAA preemption considerably to cover PAGA claims based on violations of employees’ workplace rights.  By ruling as it did, the Petition argues, the Iskanian court has ignored the California legislature, effectively “dismantle[ing] the entire statutory design of PAGA.”  Petition at 4.

The Petitioners also emphasize that the Iskanian decision, by purporting to invalidate the California Supreme Court’s Gentry decision (Gentry v. Super. Ct., 42 Cal. 4th 443 (2007)), upends years of California law that had treated employers’ arbitration agreements essentially as “choice-of-forum” clauses that in no case could force employees to give up their substantive rights.  Petition at 4.  The Petition asserts that Iskanian also disregards United States Supreme Court decisional law on this point, noting that the high Court “has never endorsed the notion that ‘arbitration agreements must be enforced according to their terms’ regardless of whether enforcement would eviscerate a party’s substantive rights, as the Court of Appeal did here.”  Petition at 3.  Moreover, the Petition contends that Iskanian usurps the California Supreme Court’s role by attempting to overrule the Gentry decision, a step that cannot be taken by an intermediate appellate court.  Petition at 5-6.

The Petition vividly evokes the practical considerations at stake: “If this decision takes root, California employers will demand arbitration not because of its traditional benefits of speed, cost-effectiveness and informality, but because it is a means to make any contract enforceable, thereby avoiding any liability for violations of California law.”  Petition at 8.

The Petition is expected to attract considerable amicus interest on both sides.

Last week, in one fell swoop, a Los Angeles Superior Court Judge denied a defendant’s motion for summary adjudication and motion to decertify the plaintiffs’ rest break class, granted plaintiffs’ motion for summary judgment, and issued a $90 million award to a class of 15,000 plaintiffs, while following the California Supreme Court’s landmark ruling in Brinker v. Super. Ct., 42 Cal. 4th 1004 (2012).  See Augustus v. Amer. Commercial Sec. Servs., No. BC336416 (Los Angeles Super. Ct. Jul. 6, 2012) (order granting summary judgment) (available here).  The Brinker decision, initially touted as a win for defendants, continues to favor plaintiffs alleging meal and rest break violations.

Here, the plaintiff class, made up of security guards, sought damages for missed rest periods, claiming that they were “on call” during their breaks and therefore not “relieved of all duty” as required under Brinker.  Defendants contended that, because plaintiffs were not required to carry radios during rest breaks, they were per se off duty.  See Order at 2-3.  Judge John Shepard Wiley, Jr. countered defendant’s argument, pointing out that “[t]here are many alternatives to the radio for hailing a person back to work,” and categorically agreed with plaintiffs, stating, “[p]ut simply, if you are on call, you are not on break” and “these on-call breaks are all legally invalid.”  Id. at 2-3.

Judge Wiley took the defendant to task several times in the order (to great comic effect), for citing to an unpublished opinion (id. at 2); for being critical of the length of plaintiffs’ reply brief despite having submitted an opposition brief that “included 21 small font footnotes” (id. at 3); and for arguing a due process violation despite having “had an opportunity to be heard — repeatedly, and at length” (id. at 4).