Articles from September 2017

In a decision likely to spur defendants to make immediate motions to compel arbitration in class actions, the California Court of Appeal, Second District, found that a defendant who chose to wait for class certification before seeking arbitration had waived the right to arbitrate. Sprunk v. Prisma LLC, No. B268755 (2nd Dist. Div. 1 Aug. 23, 2017) (slip op. available here). In Sprunk, the plaintiff filed a wage-and-hour class action in October 2011, alleging she and a class of exotic dancers had been misclassified as independent contractors and had consequently been denied wages, meal periods, and reimbursement of business expenses. The plaintiff and all putative class members had signed arbitration agreements.

Sprunk moved for class certification in September 2014. In opposing the motion, Prisma argued that a class action was not superior to other forms of litigation because the class members had signed arbitration agreements. The trial court granted class certification in April 2015, rejecting Prisma’s “superiority” argument. In August of 2015, Prisma filed two motions to compel arbitration, seeking to enforce two different arbitration clauses. By that time, Sprunk and Prisma had litigated for four years, during which time discovery was conducted, depositions were taken, and defendant moved for arbitration, then withdrew the motion, and ultimately renewed its motion to compel arbitration. In October of 2015, the trial court denied the motions. Prisma appealed.

On appeal, Prisma relied upon Sky Sports, Inc. v. Superior Court, 201 Cal.App.4th 1363 (2011), for the proposition that it would have been premature to have filed its motion to compel arbitration prior to class certification. However, the Court of Appeal cited a critical distinction: in Sky Sports, the plaintiff had not signed an arbitration agreement although other members of the class had. In Prisma, the class representative (Sprunk) and all putative class members had signed arbitration agreements, giving Prisma the right to have sought to compel arbitration at the outset of litigation.

Noting that the trial court found Prisma had engaged in a strategic delay to give itself an opportunity to defeat the class, the Court of Appeal warned, “[a]n attempt to gain a strategic advantage through litigation in court before seeking to compel arbitration is a paradigm of conduct that is inconsistent with the right to arbitrate” and supports a finding of waiver. Slip op. at 18. The court also found Sprunk was prejudiced by the delay—had Prisma timely moved to compel arbitration, it could, “as a practical matter[,] have resolved the judicial proceedings with respect to the class” and could have “settled the question of whether the claims . . . should be adjudicated in a court or through arbitration.” Id. at 16-17.

This class action involving exotic dancers has clarified that a defendant wishing to compel arbitration must do so before the parties have invested time and energy in litigation, or risk waiver. Going forward, defendants must therefore dance quickly, or get off the table.

Authored by:
Arlene Turinchak, Senior Counsel
CAPSTONE LAW APC

In an unpublished decision, the Ninth Circuit Court of Appeals recently determined that The Finish Line, Inc., an athletic retailer, cannot arbitrate a former associate’s pregnancy discrimination claim, finding the company’s arbitration agreement to be both procedurally and substantively unconscionable. Capili v. The Finish Line, Inc., No. 15-16657 (9th Cir. July 3, 2017) (slip op. available here).

Capili alleges that she was fired by the company because she took a leave of absence to manage her pregnancy-related health issues. Upon hire in 2013, Capili was required to sign an arbitration agreement that required her to arbitrate any future employment-related disputes with Finish Line. On July 22, 2015, U.S. District Court Judge Haywood S. Gilliam denied Finish Line’s motion to compel arbitration in the suit, finding the cost-sharing provision in Finish Line’s arbitration agreement unconscionable. Capili v. The Finish Line, Inc., No. 3:15-cv-01158-HSG (N.D. Cal. July 22, 2015). The defendant appealed this decision. On July 3, 2017, the Ninth Circuit affirmed Judge Gilliam’s order.

Under the agreement, the plaintiff, a retail employee earning $15 per hour, would have to pay up to $10,000 at the outset of arbitration, not including fees and costs for legal representation—a provision that the three-judge panel found to be “substantively unconscionable.” The court determined that the provision imposes substantial non-recoverable costs on entry-level employees just to get their foot in the door in arbitration, essentially foreclosing vindication of employees’ rights. Slip op. at 3.

The court further concluded that the arbitration agreement allowed the company, but not Capili, to seek judicial resolution of certain claims, another provision that the panel found unconscionable. While judicial carveouts alone are not necessarily unconscionable, “exemptions must still have a modicum of bilaterality,” the panel stated. Slip op. at 3-4. While Capili acknowledged that her claims fell under the scope of Finish Line’s arbitration agreement, the plaintiff argued that the agreement itself was “an unenforceable contract of adhesion” and both procedurally and substantively unconscionable. The Ninth Circuit panel agreed, determining the agreement was “adhesive” because it was offered “on essentially a ‘take it or leave it’ basis.” Id. at 2-3.

While both elements of procedural and substantive unconscionability must be present for the court to find unconscionability, they need not be present in the same degree. Slip op. at 2. And while the Federal Arbitration Act endorses the enforcement of arbitration agreements, “employers may not stack the deck unconscionability in their favor to discourage claims.” Id. at 5. Thus, the Ninth Circuit affirmed, holding that the lower court had properly denied the employer’s motion to compel arbitration.

Authored by:
Natalie Torbati, Associate
CAPSTONE LAW APC