Posts belonging to Category Arbitration



Cal. Supreme Court Hears Iskanian v. CLS Oral Arguments

Oral arguments in Iskanian v. CLS Transportation Los Angeles, LLC, No. S204032, took place before the California Supreme Court on April 3, 2014 (Mr. Iskanian is represented by Capstone Law APC). Previously, the Court of Appeal had affirmed an order compelling individual arbitration of the plaintiff’s California Labor Code claims by enforcing class action and representative action waivers, relying heavily on Concepcion. Iskanian v. CLS Transp. Los Angeles, LLC, 206 Cal.App.4th 949 (2012).

The California Supreme Court granted review of the following issues:

(1) Did AT&T Mobility LLC v. Concepcion (2011) 563 U.S. [321] impliedly overrule Gentry v. Superior Court (2007) 42 Cal.4th 443 with respect to contractual class action waivers in the context of non-waivable labor law rights? (2) Does the high court’s decision permit arbitration agreements to override the statutory right to bring representative claims under the Labor Code Private Attorneys General Act of 2004 (Lab. Code, § 2698 et seq.)? (3) Did defendant waive its right to compel arbitration?

With respect to the enforceability of the class action waiver under Gentry, the justices’ line of questioning reflected skepticism that it could survive Concepcion. Plaintiff’s counsel Glenn Danas suggested that, following the Court’s decision in Sonic-Calabasas A, Inc. v. Moreno, 57 Cal. 4th 1109 (2013) (“Sonic-Calabasas II”), the Gentry test be modified to a two-step unconscionability-based test, with the first step focused on whether the unavailability of class arbitration would lead to a de facto waiver of unwaivable statutory rights and, if so, the second step focused on whether the employer’s particular arbitration procedure provides alternative protections that ameliorate the claimants’ inability to utilize such aggregate procedures in arbitration. Several justices, including the Chief Justice and Justice Kennard, had probing follow-up questions regarding the proposed two-step analysis, but Justice Liu appeared skeptical that even the suggested modified test would not be foreclosed by Concepcion, due to its strongly-worded dicta against class arbitration.

Michael Rubin, on behalf of amicus curiae Service Employees International Union and the California Employment Lawyers Association, also argued before the high court, presenting an alternative basis for striking the class action waiver under federal labor statutes, thereby avoiding any possible preemption issue. This argument, which was adopted by the National Labor Relations Board in the D.R. Horton decision, asserts that employees’ right to join together in group litigation (utilizing a class, collective, or representative action) is protected activity under both the National Labor Relations Act and the Norris LaGuardia Act. 357 NLRB No. 184. Rubin’s argument compellingly articulated the position, and was met with a series of thoughtful questions by the justices demonstrating, at a minimum, a keen interest in the issue. For instance, picking up on the U.S. Supreme Court’s reasoning in American Express Co. v. Italian Colors Restaurant, 133 S. Ct. 2304 (2013), Justice Liu asked whether the class action procedure pre-dates the Federal Arbitration Act, the implication being that, if not, there can be no “right” to collective litigation of employment grievance. Rubin responded, without missing a beat, that certain antecedents to the Federal Rule 23 existed long before 1966. Justice Liu also had pointed questions for CLS’s counsel David Faustman, at one point growing weary of Faustman’s refusal to answer his question regarding the basis for his position that the Federal Arbitration Act “trumps” the later-enacted federal labor law statutes. Ultimately, Faustman moved on, unable to answer Justice Liu’s questions. However, it is also widely acknowledged that a decision based in part on upholding D.R. Horton would be more likely to draw review by the U.S. Supreme Court.

With regard to PAGA actions, the justices seemed inclined to reverse the Court of Appeal’s ruling, discerning that a complete ban on a statutory cause of action or the right to pursue statutory remedies cannot be completely foreclosed by any contract, arbitration or otherwise. Specifically, the justices focused their questions on the origin of the rights codified by PAGA—that PAGA actions are essentially government enforcement actions and that individual plaintiffs cannot waive the government’s right to enforce the labor laws. Drawing a parallel to EEOC v. Waffle House, 534 U.S. 279 (2002), where the U.S. Supreme Court held that the EEOC could pursue a discrimination claim on behalf of an employee despite the employee’s having signed an arbitration agreement, Justice Liu indicated that a PAGA plaintiff cannot waive the state’s right to collect civil penalties under PAGA by signing a private mandatory arbitration agreement. Moderate members of the Court including Chief Justice Cantil-Sakauye and Justice Corrigan both questioned Andrew Pincus, appearing for the Chamber of Commerce of the United States of America on behalf of CLS, pointing out the practical reality of enforcing PAGA waivers such as the one at issue would allow employers to entirely shield themselves from liability under PAGA, a result that cannot be squared with decades of U.S. Supreme Court case law.

The opinion is due in 90 days, on July 2, 2014.

Class and Collective Claims Not Arbitrable Under FINRA Rules

Earlier this month, in an unpublished opinion, the U.S. Court of Appeal for the Ninth Circuit ruled that a wage and hour class action, brought on behalf of financial advisors against Chase Investment Services Corp., would not be compelled to arbitration because the parties’ agreement calls for arbitration under Financial Industry Regulatory Authority (“FINRA”) rules, which exclude class claims from arbitration. Alakozai v. Chase Inv. Servs. Corp., No. 12-55553 (9th Cir. Feb. 7, 2014) (slip opinion available here).

The ruling affirmed the district court’s denial of Chase’s motion to compel arbitration, holding that “the plain language of the arbitration agreement incorporates the FINRA rules and requires arbitration of individual claims, but excludes class claims from arbitration.” Slip op. at 2. FINRA Rule 13204 provides that a FINRA member may not enforce an arbitration agreement against a member of a certified or putative class action until: class certification is denied; the class is decertified; the class member is excluded from the class by the court; or the class member elects not to participate in or withdraws from the class. The Ninth Circuit concluded that Rule 13204 precludes enforcement of Chase’s arbitration agreement because the district court had not yet addressed class certification in this case.

Similarly, last September, the Southern District court of New York denied JP Morgan Chase & Co.’s motion to compel arbitration as to four plaintiffs who had signed an employment agreement containing an arbitration provision incorporating the FINRA rules, and granted conditional certification to a class of financial advisors.  See Memorandum Order, Lloyd et al. v. JP Morgan Chase & Co. et al. and Ciullo v. JP Morgan Chase & Co. et al., Nos. 11-9305 and 12-2197 (S.D.N.Y. Sept. 9, 2013) (available here). The plaintiffs in the Lloyd and Ciullo cases alleged that JPMorgan Chase & Co. misclassified them as exempt workers and thus had denied them overtime wages. The court refused to dismiss the four plaintiffs’ claims (although it dismissed the claims of five other plaintiffs who had signed a different arbitration agreement which contained a class waiver and did not incorporate the FINRA rules), citing the district court’s decision in Alakozai. “Because the FINRA rules [13204(a) and 13204(b)], as currently in effect, clearly do not require, and indeed preclude at this juncture, arbitration of the class and collective action claims raised in this litigation, defendants’ motion to compel arbitration of the claims of [the four plaintiffs] must be denied.” Memorandum Order at 14.

D.R. Horton Survives Italian Colors

There was some question whether the National Labor Relations Board’s landmark D.R. Horton, 357 NLRB No. 184 (Jan. 3, 2012) decision would survive American Express v. Italian Colors Rest., 133 S. Ct. 2304 (2013), which narrowed the “effective vindication” limitation to the Federal Arbitration Act. However, the Administrative Law Judge deciding a Board charge in Cellular Sales of Missouri, LLC, held that D.R. Horton’s holding is unaltered by American Express:

I find that the Supreme Court does not expressly overrule the finding in D.R. Horton. The case at issue is distinguishable because the arbitration agreement precludes employees from exercising their substantive rights protected by Section 7 of the [National Labor Relations] Act. The NLRA “protects employees’ ability to join together to pursue workplace grievances, including through litigation. Id., slip op. at 2. By initiating arbitration on a classwide basis and filing a class action lawsuit in district court, both Bauer and the charging party in D.R. Horton were engaging in conduct that the Board has noted is “not peripheral but central to the Act’s purposes.” D.R. Horton, supra at 4. The Board went on to find that there was no conflict between the NLRA and the FAA “[s]o long as the employer leaves open a judicial forum for class and collective claims, employees’ NLRA rights are preserved without requiring the availability of class-wide arbitration.” D.R. Horton, slip op. at 16. The agreement in this matter does not provide for such an option.

The claim brought by the merchants in American Express Co., is distinguishable in that it was for a violation of antitrust laws. Unlike D.R. Horton and the case at issue, the merchants were alleging not that they were precluded from pursuing their claim but rather the cost to do so individually would be prohibitive. Id. at 2309. However, the Supreme Court noted “antitrust laws do not guarantee an affordable procedural path to the vindication of every claim.” American Express Co., supra at 2309.

Cellular Sales, slip op. at 7-8.

This decision comports with a recent administrative decision in Ralph’s Grocery Co., where D.R. Horton was harmonized with American Express. (This decision arose from a charge brought by Terri Brown, who is also the plaintiff in Brown v. Ralphs Grocery Co., 197 Cal. App. 4th 489 (2011) and is represented by Capstone Law APC in both state court and before the Board.)

Although D.R. Horton’s impact has thus far been limited, its reasoning is very powerful and may yet prove persuasive to higher courts. The D.R. Horton Board explained, in considerable detail, that an employee’s right to collective legal action, including filing of putative class actions, has long been considered a “concerted activity”— the core right protected by the NLRA and the Norris-LaGuardia Act (NLA). The Board found that a forced waiver of that right, whether in an ordinary agreement or tied to an arbitration clause — is an unfair labor practice under Section 8(a) of the NLRA.

In a particularly well-reasoned section, D.R. Horton harmonized its decision with the FAA, explaining that the Supreme Court has long held that an arbitration agreement cannot be enforced if it extinguishes a core substantive right. Also, the NLA, enacted in 1932, expressly supersedes any conflicting prior-enacted law, which would include the FAA, which was signed into law in 1925.

Thus far, employees taking collective action against their employer in the face of a mandatory class action waiver have had much greater success filing charges with the Board than by invoking D.R. Horton in court. In refusing to accept D.R. Horton, many courts have relied on an inapposite case called CompuCredit Corp. v. Greenwood, 132 S. Ct. 665 (2012), where the Court held that a claim under the Credit Repair Organization Act cannot be exempted from arbitration absent an explicit congressional command.

This appears to reflect a common confusion between arbitrability and the effect of an illegal waiver. D.R. Horton did not hold that employment class actions are exempt from arbitration, since a statutory claim can be exempt from arbitration only when the statutory language expressly provides. Rather, the Board held that a mandatory waiver of a core federal substantive right is not enforceable, whether the illegal waiver is tied to an arbitration clause or not. D.R. Horton’s reasoning is entirely consistent with American Express, which stated that an arbitration agreement cannot be enforced if it “forbid[s] the assertion of certain statutory rights.” American Express, 133 S. Ct. at 2310. As these administrative decisions move forward, courts should take a second look at the well-reasoned D.R. Horton and look to balance core substantive rights protected by the NLRA with the FAA.

Avery v. Integrated Healthcare: In Now-Published Decision, California Appellate Court Affirms Order Denying Motion to Compel Arbitration

The California Court of Appeal recently affirmed a trial court’s denial of defendant Integrated Healthcare’s petition to compel arbitration. Avery v. Integrated Healthcare Holdings, Inc., No. G046202, ___ Cal. App. 4th ___ (Jun. 27, 2013) (available here). Despite the decision’s ostensibly narrow holding, the unanimous three-judge panel underscored that employers facing a wage-and-hour class action will not be able to seize on recent developments in arbitration jurisprudence with evidence amounting to little more than an “incomplete and confusing patchwork of documents.” Slip op. at 25. On July 23, 2013, nearly a month after the decision was issued, California’s influential Fourth Appellate District, Division Three, ordered Avery published in the Official Reports, stating: “Pursuant to California Rules of Court, rule 8.1105(c), and for good cause shown, nonparty Capstone Law’s request to publish the opinion filed on June 27, 2013 is GRANTED.” See Order Granting Request for Publication.

The defendant premised its contention that the plaintiffs must proceed in individual arbitration rather than pursue a class action on the plaintiffs having signed a form acknowledging receipt of an employee handbook, which was purported to contain the hospital’s arbitration policy – euphemistically called the “Open Door Policy and Fair Treatment Process.” See slip op. at 3-5. (In fact, the defendant brought eight separate motions to compel eight named plaintiffs in related putative class actions to arbitrate.) The trial court denied all of the arbitration motions with the finding that the defendant had “‘failed to meet [its] burden to show that any of the Plaintiffs are subject to an enforceable arbitration agreement’” and the defendant appealed. Slip op. at 7.

In the 3-0 decision upholding the motions’ denial in all respects, despite one motion being subject to a “substantial evidence” standard while the rest were subject to de novo review, Associate Justice Richard Aronson began by noting that one plaintiff had not even signed the form acknowledging receipt of an employee handbook, and that plaintiff could not be deemed to have agreed to arbitration under an implied-in-fact contract theory premised on the plaintiff having continued working and thereby having implicitly agreed to arbitration. See slip op. at 13-14. In particular, the opinion gave emphasis to the defendant’s erroneous contention that it need not establish that the employee ever received the employee handbook to make out its implied-in-fact theory. Slip op. at 16-17.

As to the other employees, the decision faulted the defendant for failing to establish the actual arbitration terms that would govern the plaintiffs’ claims. “Although we agree Plaintiffs . . . generally agreed to a Fair Treatment Process by signing one or more of these documents, we nonetheless affirm the trial court’s order denying the motions to compel arbitration because Integrated failed to present sufficient evidence establishing the specific Fair Treatment Process it presented to the trial court was the Fair Treatment Process to which Plaintiffs agreed.” Slip op. at 17 (emphasis in original).

Thus, while the decision expressly limited its holding to the facts at hand, Avery reiterates a general proposition of law set forth earlier in Kleveland v. Chicago Title Ins. Co., 141 Cal. App. 4th 761 (2006), demanding specificity in the purported arbitration terms when a defendant attempts to enforce an arbitration agreement by way of an employee handbook acknowledgement. “The party seeking to enforce an arbitration provision incorporated by reference must establish the provision it seeks to enforce is the same provision to which the parties agreed.” Slip op. at 18, citing Kleveland at 765.

Again relying on the Kleveland decision, Avery takes seriously the “mutual consent [that] is an essential element of any contract,” a mutuality that many recent aggressively pro-arbitration decisions have seemingly disregarded. In a portion of Avery likely to be much cited by prospective wage-and-hour class representatives, the decision concludes that “it is not sufficient for the party seeking to compel arbitration to show the parties generally agreed to arbitrate their disputes by incorporating some arbitration provision into their contract. Rather, the party must establish the precise arbitration provision which the parties incorporated into their agreement to govern their disputes.” Slip op. at 19-20.