Posts belonging to Category Arbitration

Long v. Provide Commerce: Arbitration Clause in Browsewrap Agreement Held Unenforceable

A California Court of Appeal affirmed an order issued by Judge Jane Johnson denying a motion to compel arbitration where the arbitration agreement was contained in an online “browsewrap” agreement. Long v. Provide Commerce, Inc., No. B257910, 2016 WL 1056555 (March 17, 2016) (slip op. available here). The plaintiff had purchased flowers through, a website operated by the defendant. In his putative consumer class action lawsuit, the plaintiff alleged that, despite being advertised as a completed, assembled product, the flowers were delivered in a “do-it yourself kit requiring assembly.” Slip op. at 3. The defendant moved to compel arbitration based on an arbitration clause in the website’s Terms of Use.

In Long, the Terms of Use were available via a hyperlink at the bottom of each page on the website—what is known in e-commerce as a browsewrap agreement. A browsewrap agreement does not require any express manifestation of agreement to the Terms of Use; rather, the user agrees to the Terms simply by using the website. Slip op. at 7. This is in contrast to a “clickwrap” agreement, where the consumer must click on a checkbox indicating his assent to be bound by the Terms of Use in order to continue using the website. Id. As there was no dispute that the plaintiff had no “actual knowledge” of the Terms of Use when he made his online purchase, the court analyzed the design and placement of both the hyperlink and the website to determine whether they were “sufficient to put a reasonably prudent Internet consumer on inquiry notice of the browsewrap agreement’s existence and contents.” Id. at 8.

The question of “what sort of website design elements would be necessary or sufficient to deem a browsewrap agreement valid in the absence of actual notice” was an issue of first impression in California. Slip op. at 9. While the hyperlink to the Terms of Use appeared on every page of the website and was visible without scrolling down, the hyperlink was nonetheless deemed too inconspicuous to provide the plaintiff with inquiry notice. Id. at 12-13. First, the hyperlink was light green-colored on a lime green background, and thus could blend in. Id. at 13. Additionally, there was nothing on the website to notify the consumer that, in using the website to buy flowers, “he should also be on the lookout for a reference to ‘Terms of Use’ [elsewhere] on the website[].” Id. at 12. Also, when a consumer selected his purchase and proceeded to checkout, the hyperlinks were not, contrary to the defendant’s characterization, “located next to” the form fields that a consumer would fill out to complete his order. Rather, there were several layers of other text and images that a consumer would need to look past to find the Terms. Furthermore, the inclusion of the Terms of Use hyperlink in a confirmation email did not remedy the problem; in the email, the Terms of Use hyperlink appears in inconspicuous grey font on a white background and was “located on a submerged page,” forcing the recipient to scroll down past layers of information, advertisements, logos, and other hyperlinks. Id. at 13.

The opinion expressly focused on the “practical reality” of how a consumer would interact with the website and the confirmation email. Slip op. at 13. Although it did not need to decide this issue, the court opined that, even if the hyperlink had been displayed conspicuously on the website, “without notifying consumers that the linked page contains binding contractual terms, the phrase ‘terms of use’ may have no meaning or a different meaning to a large segment of the Internet-using public.” Id. The court thus “advised” online retailers to include a conspicuous textual notice rather than just a hyperlink. Id. at 12-13 (agreeing with Nguyen v. Barnes & Noble, Inc., 763 F.3d 1171 (9th Cir. 2014)). Finally, the Court of Appeal also held that, as the plaintiff was not bound by the Terms of Use browsewrap agreement, the plaintiff also was not bound by the forum selection clause included therein. Id. at 14-15.

Authored By:
Katherine Kehr, Senior Counsel

NLRB Orders Cedars-Sinai to Rescind and Revise Its Mandatory Arbitration Pacts

Last month, a National Labor Relations Board (NLRB) judge in San Francisco ordered Los Angeles’s famed hospital, Cedars-Sinai Medical Center, to stop using its mandatory arbitration agreements to prohibit employees from bringing class action lawsuits. Administrative Law Judge Artiel Sotolongo also ruled that the hospital must fix the provisions of its agreements that could mislead employees to believe they cannot file unfair labor charges before the NLRB. Cedars-Sinai Med. Ctr. & Chandra Lips, 31-CA-143038, 2016 WL 1042504 (March 15, 2016) (slip op. available here).

In 2014, Chandra Lips, a medical staff assistant who worked for the hospital from July 2011 to May 2013, filed a complaint with the American Arbitration Association seeking class action status and an unfair labor practices charge with the NLRB. Thereafter, Cedars-Sinai moved to compel individual arbitration against her in February 2015 by filing a complaint for declaratory relief in a state action in Los Angeles Superior Court (BC571046).

Judge Sotolongo’s decision relied on the NLRB’s decisions in D. R. Horton, 357 NLRB 2277 (2012), enf. denied in relevant part 737 F.3d 344 (5th Cir. 3013), and Murphy Oil USA, Inc., 361 NLRB No. 72 (2014), enf. denied in part 808 F.3d 1013 (5th Cir. 2015), both of which held that enforcement of individual arbitration on employees seeking class labor law claims was illegal. See slip op. at 6-7. Unlike D.R. Horton and Murphy Oil, however, the mandatory arbitration agreement in Cedars-Sinai does not explicitly preclude employees from initiating or seeking class or collective action status in arbitration or in other forums; it is silent on the issue. Because of this, Judge Sotolongo held that the applicable standard here was an objective one—that is, whether employees could reasonably interpret the language of the agreement to act as a barrier to filing charges with the Board, among other criteria, such as whether the rule was issued in response to union activity (it was not). The court concluded that employees could reasonably interpret Cedars-Sinai’s agreement to bar class or collective actions. Slip op. at 6-8. Because of the sweeping language stating workers were required to submit to arbitration “all statutory, contractual and/or common law claims,” the judge gave little weight to the exceptions listed in the arbitration agreement, such as the exclusion of claims “preempted by federal labor laws,” finding it “too vague” for a worker with no legal training to understand its consequences. Id. at 6-7. However, D.R. Horton and Murphy Oil did apply where the hospital tried to enforce the arbitration agreement by filing the declaratory state court action to compel Lips into individually arbitrating her employment-related claims. This restricts employee rights under section 7 of the National Labor Relations Act to pursue concerted or collective action, and thus Cedars-Sinai was in violation.

Although the Fifth Circuit has rejected the NLRB’s views on both D. R. Horton and Murphy Oil, Judge Sotolongo wrote that he was “compelled to follow the Board’s decisions unless the Supreme Court overrules the Board.” Slip op. at 9. Thus, he ordered Cedars-Sinai to “rescind [or revise] the mandatory and binding arbitration agreements in all of its forms,” provide employees with notice of such changes, notify the state court of the revision and rescission of the arbitration agreement (upon which Cedars-Sinai had based its claim to compel individual arbitration), and to inform the state court that it no longer opposes the lawsuit on the basis of that arbitration agreement. Id. at 11. Any revision, the judge stated, should clarify that such an agreement does not restrict employees from pursuing wage-and-hour actions or other employment-related actions on a class or collective basis in any forum, and specifically does not prevent employees from filing charges with the NLRB. Id. at 10. Cedars-Sinai was also required to reimburse Lips for reasonable attorneys’ fees and expenses, with interest. Id. at 12. 

Authored by: 
Natalie Torbati, Associate

Restoring Statutory Rights Act (S. 2506): Bill Against Mandatory Arbitration

In recent years, bolstered by U.S. Supreme Court decisions, numerous businesses have successfully limited their potential exposure for consumer protection and employment law violations by requiring consumers and employees to enter into arbitration agreements. Now, the pendulum seems to be swinging back as Congress considers a bill limiting the practice.

On February 4, 2016, Democratic Senator Patrick Leahy introduced the Restoring Statutory Rights Act (S. 2506) (available here). The bill would create an exception in the Federal Arbitration Act (FAA) for disputes involving individuals and small businesses. Pursuant to the proposed statute, arbitration would be available only if the parties agreed to it after the dispute arose. By contrast, currently, individuals often agree to arbitration as a condition of purchasing a product or applying for employment. The bill explicitly criticizes recent U.S. Supreme Court decisions regarding the preemptive effect of the FAA, stating that the decisions “have enabled business entities to avoid or nullify legal duties created by congressional enactment, resulting in millions of people in the United States being unable to vindicate their rights in State and Federal courts.”

The proposed bill would also strengthen the power of the courts to reject mandatory arbitration if the arbitration clause is unconscionable or if a statute prohibits arbitration. Specifically, the bill provides that courts may decline to compel arbitration if “a Federal or State statute, or the finding of a Federal or State court, . . . prohibits the agreement to arbitrate on grounds that the agreement is unconscionable, invalid because there was no meeting of the minds, or otherwise unenforceable as a matter of contract law or public policy.” This provision is expressly aimed at cases such as AT&T Mobility v. Concepcion, 563 U.S. 333 (2011), that have interpreted the FAA to preempt substantive rights and remedies established under the law.

The success of this bill is uncertain as Republicans maintain control of both houses of Congress and generally favor arbitration, but it represents a serious effort to roll back some of the excesses in business entities’ use of arbitration.

Authored By:
Stan Karas, Senior Counsel

9th Cir. Articulates “Iskanian Rule” for Federal Courts

On September 28, 2015, the Ninth Circuit Court of Appeals weighed in on a very contentious issue—the enforceability of waivers of claims brought pursuant to the Private Attorneys General Act (“PAGA”)—an issue that had divided the district courts for the last several years. See Sakkab v. Luxottica Retail North America, Inc., 803 F.3d 425 (9th Cir. 2015) (slip op. available here). The majority, agreeing with the California Supreme Court’s decision in the landmark Iskanian case (Iskanian v. CLS Transportation Los Angeles, LLC, 59 Cal. 4th 348 (2014)), found that an employee cannot waive the right to bring a representative PAGA action, and that any agreement seeking to waive such rights prospectively is unenforceable, a holding that is now becoming known as the “Iskanian Rule.” As a result, the lower court’s holding that the Iskanian rule is preempted by the Federal Arbitration Act (“FAA”) was reversed in part, and the case was remanded for the district court to decide in which forum (court or arbitration) the plaintiff’s representative PAGA claims would be resolved.

The plaintiff, a former employee of LensCrafters, had filed an employment class action lawsuit against Luxottica, alleging that the defendant misclassified the plaintiff and other employees as supervisors, in order to improperly exempt them from overtime wages and meal and rest break requirements. The defendant sought to compel arbitration pursuant to an alternative dispute resolution (ADR) agreement contained in its “Retail Associate Guide.” The plaintiff argued that the portion of the ADR agreement prohibiting him from bringing PAGA claims on behalf of other employees was unenforceable under California law; thus, even if his claims were compelled to arbitration, he could not be denied a forum for his PAGA claims. The district court rejected the plaintiff’s argument and granted the defendant’s motion to compel arbitration only of the plaintiff’s individual claims, concluding that the FAA preempted the state law Iskanian rule. The plaintiff in Sakkab appealed.

Judge Milan Smith authored the majority opinion, arguing that Iskanian is not preempted by the FAA because it has nothing directly to do with arbitration. The thrust of the majority’s position was that PAGA actions are not necessarily “procedurally” complex, and that only state law rules that would require complex procedures in arbitration, resulting in “procedural morass,” run afoul of Concepcion’s rule against states interfering with “fundamental attributes of arbitration.” Slip op. at 19, 25-27. The majority bolstered its conclusion by adopting the preemption framework set out by the Iskanian court, which rested on the notion that PAGA claims are unique in that they are brought on behalf of the state to enforce the law, unlike private actions for damages which involve only private rights. As such, the United States Supreme Court’s FAA preemption case law, which mandates preemption of state law rules that implicate private rights, does not extend to a state law rule that disallows employers from enforcing waivers of PAGA claims. The dissent, however, reiterating the holding in AT&T Mobility v. Concepcion, 563 U.S. 333 (2007), would find that the FAA generally preempts any law that creates a special rule disfavoring arbitration or conflicts with the FAA’s objectives, and views no distinction between bans on PAGA claims and bans on class action waivers for the purpose of FAA preemption.

This ruling is particularly significant since it is the first endorsement of Iskanian, a state case, by a federal appellate court, and California federal courts will now be required to follow this rule. The defendant Luxottica has filed a petition seeking rehearing en banc, the plaintiff-appellant’s response to which is due by January 15, 2016.

Authored by: 
Robin Hall, Associate