Articles from January 2013

In a major win for consumers, the Ninth Circuit has affirmed a district court’s denial of Toyota’s petition to compel arbitration in a class action alleging brake defects in certain models of the automaker’s hybrid cars. See Kramer v. Toyota Motor Corp., __ F.3d __ (9th Cir. 2013), No. 12-55050. The court definitively sided with the plaintiffs, rejecting Toyota’s equitable estoppel argument, which sought to bind the plaintiffs to arbitration terms embodied in a contract that Toyota itself was not a signatory to. Apart from its effect on the Toyota brake defect litigation, the ruling is expected to be influential as to the numerous arbitration petitions pending in Ninth Circuit trial courts and beyond, particularly in consumer class actions where a viable equitable estoppel theory supporting arbitration is asserted.

The equitable estoppel issue arose around Toyota’s contention that the purchase agreements between the plaintiffs and the dealerships where they purchased the at-issue vehicles provided the contractual basis for arbitration, notwithstanding that Toyota was not a signatory to these agreements. See slip op. at 10. However, both the district court and Ninth Circuit took a more traditional view of contractual privity, with the appellate panel holding that “the arbitration agreements do not contain clear and unmistakable evidence that Plaintiffs and Toyota agreed to arbitrate.” Slip op. at 11. Further, and specifically bearing on Toyota’s equitable estoppel theory, the Ninth Circuit found none of the limited circumstances in which a nonsignatory may compel arbitration to be applicable. See slip op. at 24-25. In considerable detail, the decision finds neither that the plaintiffs brought claims “intertwined with” the purchase agreement nor that the plaintiffs’ claims were “intimately connected with the obligations of the” purchase agreement. Id.

Consequently, plaintiffs in numerous other class actions implicating equitable estoppel — such as so-called “lemon law” cases where automakers regularly advance equitable estoppel arguments premised on the purchase agreements between customers and dealers — are expected to benefit directly from the Kramer decision.

Last month, yet another case was granted review pending the California Supreme Court’s decision in Iskanian v. CLS Transport: Reyes v. Liberman Broadcasting, Inc., 146 Cal. Rptr. 3d 616 (Cal. Ct. App. 2012). In Reyes, the plaintiff worked as a security officer for the defendant. After the plaintiff’s employment ended, he filed both a class action and PAGA representative action alleging wage and hour violations. The trial court denied the defendant’s attempt to compel arbitration, ruling that it had waived any entitlement to arbitration by delaying before bringing a petition to compel arbitration. The California Court of Appeal reversed, however, holding that the defendant had not in fact waived its right to compel arbitration.

Iskanian is shaping up to be a lynchpin post-Concepcion decision on the issue of waiver. In addition to the grant and hold issued in Reyes, the Ninth Circuit is also hearing an appeal in Kilgore v. KeyBank, with the en banc panel contemplating issuing a stay of Kilgore pending a result in Iskanian. The California Supreme Court has the opportunity to use its decision in Iskanian to define the extent to which class actions remain available to enforce wage and hour violations.

In Reyes, the plaintiff contended that the defendant had waived any right to arbitrate through delay, as the defendant did not file its motion to compel arbitration until over a year after the original complaint was filed. Reyes at 620. The defendant, and subsequently the Court of Appeal, embraced a “futility” theory, arguing that prior to the U.S. Supreme Court’s ruling in AT&T Mobility v. Concepcion, the defendant perceived moving to compel arbitration to be futile. “LBI reasonably perceived that it likely would have been futile to seek to compel arbitration in light of Gentry . . . and California authority applying Gentry to invalidate class arbitration waivers.” Reyes at 629. The theory of futility as an excuse for delay is also an issue in Iskanian, and so will likely be addressed by the California Supreme Court.

The California Supreme Court has granted a request to depublish Tien v. Healthcare Corp., 209 Cal. App. 4th 1077 (2012), in which California’s intermediate appellate court had affirmed a trial court’s denial of certification of meal break claims. Tien’s depublication follows the Supreme Court’s recent issuance of orders to depublish two other meal break cases: Lamps Plus Overtime Cases, 146 Cal. Rptr. 3d 691 (2012), and Hernandez v. Chipotle Mexican Grill, Inc., 146 Cal. Rptr. 3d 424 (2012).

The common thread in all three depublished cases is their interpretation of Brinker v. Superior Court, 53 Cal. 4th 1004 (2012), all three having read Brinker to require employers simply to “make available” or “offer” meal periods. When Brinker was issued, public consensus was that neither the plaintiffs’ bar nor employers had clearly prevailed. The Court devised a standard that fell between employers’ proposal that they be required only to offer meal breaks, and plaintiffs’ argument that employers be required to ensure that meal breaks are taken. While Brinker engendered disappointment among workers’ advocates at the time it came down, the Supreme Court’s recent disagreement with cases holding that meal breaks must merely be offered could indicate a doctrinal shift towards a policy of meal break enforcement rather than availability.

In urging depublication of Tien, prominent class action specialist Kimberly Kralowec argued that Tien constitutes a “misreading” of Brinker, explaining that “[t]he Tien opinion wholly fails to acknowledge this Court’s explicit holding in Brinker that ‘[t]he wage orders and governing statute do not countenance an employer’s exerting coercion against the taking of, creating incentives to forego, or otherwise encouraging the skipping of legally protected breaks.’” Depublication Request at 4 (quoting Brinker at 1040).

Kralowec’s depublication request also assailed Tien for misreading Brinker with respect to California’s rest break law, and for adopting the reasoning of two federal cases frequently cited by employer defendants, Brown v. FedEx, 249 F.R.D. 580 (C.D. Cal. 2008), and Kenny v. Supercuts, 252 F.R.D. 641 (N.D. Cal. 2008). The employer defendant in Brinker had urged the Supreme Court to adopt the reasoning of Brown and Kenny, but the court “conspicuously declined to do so,” Kralowec’s letter notes.

The full text of Kraweloc’s letter is available here.

In one of the largest settlements of its type, oil refinery workers and ConocoPhillips Co. have reached a $15 million settlement of allegations that the workers were not relieved of all duties during meal breaks, as required by law. The settlement is now before Judge Phillip Guitierrez, who has granted plaintiff’s motion for preliminary approval, and before whom parties will conduct a fairness hearing on April 1, 2013. See United Steelworkers v. ConocoPhillips Co., No. 08-2068 (C.D. Cal. Dec. 12, 2012) (order granting preliminary approval).

The case was originally filed in Los Angeles Superior Court in 2008 and was removed to U.S. District Court later that year. In the intervening years since, the state of California’s meal and rest break laws have gone through a period of great transition, leading up to the California Supreme Court’s landmark decision in Brinker in April of 2012. Although Brinker is widely viewed as a mixed result for the plaintiffs’ bar, favoring employers in some respects while also creating employee-friendly doctrines, the substantial settlement here suggests that workers may benefit most from the Court’s ruling in Brinker. The $15 million total value of this settlement makes it the largest post-Brinker settlement of meal break claims.

The settlement agreement includes $15,000 incentive awards for the three named plaintiffs, which they will collect in addition to their recovery as class members. The award also includes an allocation of $3.5 million in attorneys’ fees, which amounts to less than the 25% benchmark that the Ninth Circuit has set for such fees.