Posts belonging to Category Arbitration

CA Ct. of App. Follows 6th Cir.’s Reed Elsevier Ruling re Class Arbitration

In November, the California Court of Appeal, Fourth Appellate District, ruled unanimously in a wage-and-hour action involving Garden Fresh (owner and operator of Souplantation & Sweet Tomatoes restaurants) that courts, not arbitrators, decide whether an agreement to arbitrate disputes between parties authorizes class or representative arbitrations, where an agreement is silent as to the availability such non-individual arbitrations. Garden Fresh Restaurant Corp. v. Superior Court of San Diego County, No. D066208 (Fourth Dist. Div. 1 Nov. 17, 2014) (slip op. available here). Citing the Sixth Circuit’s decision in Reed Elsevier Inc. v. Crockett, 734 F.3d 594 (6th Cir. 2013), the court held that, where an arbitration agreement does not “clearly and unmistakably” provide for class and/or representative arbitration, a “gateway issue” for the court to determine is whether a collective arbitration is allowed. Slip op. at 14.

In 2013, the plaintiff, former employee Moreno, filed a class and representative action under the Private Attorney General Act (PAGA) against Garden Fresh, alleging violations of the California Labor Code, PAGA, and California Unfair Competition Law. Garden Fresh moved to compel to arbitration the plaintiff’s individual claims since plaintiff had signed arbitration agreements, and moved to dismiss the class and PAGA claims, arguing that the arbitration agreements did not address the arbitration of such claims. A trial court granted the motion to compel, but referred the claims to an arbitrator, deferring to the arbitrator to determine whether the parties’ agreements contemplated class and/or representative arbitration.

Citing Reed Elsevier, where the Sixth Circuit had stated that the Supreme Court had “given every indication that classwide arbitrability is a gateway issue” because resolving the question is fundamental to how the parties will resolve their dispute, the court stated, “[f]or similar reasons, we conclude that a court, not an arbitrator, should also decide whether the parties agreed to arbitrate representative claims, such as the [PAGA] claim in this case . . . .” Slip op. at 11-12. The United States Supreme Court has repeatedly left the question open, but has stated in the past that class proceedings change the scope and nature of arbitration so fundamentally that it cannot be assumed that the parties agreed to it implicitly, even though they entered into an arbitration agreement. The panel cited Concepcion, which held that class arbitration was inconsistent with arbitration under the Federal Arbitration Act, to support expanding its conclusions to representative claims in addition to classwide claims. Ultimately, the ruling vacated part of the trial court’s order and directed it to answer the question as to whether the parties agreed to arbitrate class and/or representative claims and to determine whether the PAGA claims should be bifurcated and handled outside of arbitration. 

9th Cir. Reverses Order Compelling Arbitration in TCPA Suit Against Sirius

Last week, the Ninth Circuit reversed a California federal court’s decision compelling individual arbitration of a putative class action alleging Sirius XM Radio violated the Telephone Consumer Protection Act (TCPA) by making unauthorized marketing calls to the plaintiff and other consumers. Knutson v. Sirius XM Radio Inc., No. 12-56120 (9th Cir. Nov. 10, 2014) (slip op. available here). The panel, comprised of circuit Judges Harry Pregerson, Marsha Berzon, and Michael Murphy (sitting by designation), held the at-issue arbitration agreement to be unenforceable due to lack of mutual assent, because the plaintiff was unaware he had entered into a contract with Sirius.

The plaintiff filed the suit as a class action in 2012, alleging that after he bought his new Toyota vehicle and began his 90-day free trial subscription for Sirius XM, he received three unsolicited marketing calls from Sirius to his cell phone, even though he had never provided his phone number to the company. Knutson alleged that the calls were a violation of the TCPA, a statute prohibiting the use of automatic dialing to cell phones. The defendant argued that the plaintiff’s failure to timely opt out of the agreement’s arbitration provision he had been sent just after his account activation, and failure to cancel his subscription, effected an implicit agreement to the customer agreement’s terms, including the binding arbitration provision. In June 2012, U.S. District Judge Anthony Battaglia sided with Sirius and sent the dispute to individual arbitration, dismissing the class action suit.

The Ninth Circuit reversed. In an opinion authored by Circuit Judge Pregerson, the panel wrote, “A reasonable person in Knutson’s position could not be expected to understand that purchasing a vehicle from Toyota would simultaneously bind him or her to any contract with Sirius XM, let alone one that contained an arbitration provision without any notice of such terms.” Slip op. at 13. The Court of Appeals found that Knutson had no reason to believe he was entering into a contract with Sirius when he purchased his car from Toyota and was given a Sirius trial subscription, because Sirius sent him the customer agreement over a month after the three-day period during which he could reject its terms. Moreover, because he never opened the welcome kit and therefore was not aware that he had ever entered into the contract, his continued use of the radio service after receiving the agreement did not constitute assent to the terms. Further, the panel rejected Sirius’ argument that Knutson could not avoid the terms of the contract simply because he had not read it and was similarly unconvinced by the defendant’s argument that the contract was enforceable even though it had only been sent after the service had already been activated, distinguishing it from other cases cited by Sirius, because Knutson had not specifically elected to receive the service. Since he did not initially receive any documentation from Sirius, the plaintiff was only aware of being in a contract with Toyota. Finally, finding that the arbitration clause in Sirius’ agreement was unenforceable for lack of mutual assent, the panel stated that it need not address whether the customer agreement was unconscionable. 

J.C. Penney Denied Arb in Seating Action Following Iskanian

In one of the first appellate decisions to apply the California Supreme Court’s landmark Iskanian decision, the California Court of Appeal affirmed the trial court’s decision to deny J.C. Penney’s motion to compel an ex-employee’s suitable seating action to arbitration. Jones v. J.C. Penney Corp., Inc., No. B246674 (2nd Dist. Div. 4 Sept. 5, 2014) (slip op. available here). 

The plaintiff in Jones was a sales associate/cashier at J.C. Penney from November 2007 to January 2008, and then again from November 2009 to December 2009.  Jones’ complaint alleged failure to provide suitable seating, in violation of Labor Code section 1198 and California Code of Regulations, title 8, section 11070, because J.C. Penny did not allow cashiers to sit in chairs while working.  Jones also sought civil penalties under PAGA for the seating violations.  As a condition of her employment, Jones signed an arbitration agreement that covered disputes “arising from, relating to, or asserted after the termination of . . . employment.”  Slip op. at 2 (quoting the arbitration agreement). The agreement contained a class and representative actions waiver.

In a unanimous, unpublished decision authored by Justice Lee Ann Edmon, the Second Appellate District denied the defendant’s petition to compel arbitration of the plaintiff’s seating claims under PAGA. Applying Iskanian, the court held that agreements such as J.C. Penney’s that waive an employee’s right to bring a representative PAGA action are unenforceable. The court also rejected J.C. Penney’s request to stay the appeal until after the U.S. Supreme Court decides on the Iskanian defendant’s petition for a writ of certiorari. J.C. Penney argued that Iskanian conflicts with U.S. Supreme Court precedent, but the court found that the defendant had already conceded in its brief that “[u]nless employers were to ask the LWDA [Labor and Workforce Development Agency] to sign arbitration agreements, and the LWDA was to sign them, there can be no circumstances under which an aggrieved employee could arbitrate any action for PAGA penalties.” Slip op. at 12 (internal citations omitted). “Without considering whether an arbitration agreement could ever be crafted that would permit arbitration of PAGA claims, we conclude that no such arbitration agreement was crafted here.” Id. at 12-13.

Herrera v. CarMax: Defendant Cannot Block Employees’ PAGA Action

U.S. District Court Judge Michael W. Fitzgerald refused to enjoin plaintiffs in a PAGA (Private Attorneys General Act) action filed in state court based on a prior ruling in the federal case ordering the plaintiffs’ wage-and-hour class action claims against CarMax to arbitration. Herrera, et al. v. CarMax Auto Superstores California, LLC, No. 5:14-cv-00776 (C.D. Cal. Aug. 27, 2014) (slip op. available here). The putative class action alleged that the used car retailer failed to sufficiently compensate non-exempt piece-rate employees, such as mechanics and detailers, for all hours worked. The court’s refusal was based in part on its finding that, by filing the state action, the plaintiffs were not attempting to circumvent the arbitration order in the federal case.

The first action was filed in state court in March 2014; CarMax removed the suit and defeated the plaintiffs’ efforts to remand the suit back to state court in June. CarMax then filed a motion to compel arbitration of the class claims, which the district court granted in July, and dismissed the case. The same plaintiffs then filed a second action in California state court in June, based on the same labor code violations as in the federal lawsuit, but only seeking civil penalties under the PAGA. The federal district court avoided rendering a decision on the merits of the res judicata issue, deferring it to the state court, and held that the injunction should not be issued under an exception to the Anti-Injunction Act. The Anti-Injunction Act (28 U.S.C. § 2283) permits a federal court to enjoin a state court action to “protect or effectuate its judgments” under the “relitigation exception.”

Although it largely deferred the res judicata issue to the state court, the federal district court noted that, because none of the substantive legal questions involved in the second action had been raised in the first action, the second lawsuit “presents the more difficult question, never considered by this Court, whether Plaintiffs’ PAGA claims may be compelled to arbitration . . . [and] never considered the merits of Plaintiffs’ underlying allegations of labor law violations.” Slip op. at 5. The district court also rejected CarMax’s argument that the plaintiffs were improperly attempting to circumvent the federal court’s arbitration ruling, finding instead that “Plaintiffs sought a state forum for their indisputably state-law PAGA claims . . . ” and acted properly to “reserve certain state law claims for resolution in the state courts.” Id. at 7 (emphasis added). Citing Iskanian v. CLS Transportation LLC (59 Cal. 4th 348 (2014)) and Arias v. Superior Court (46 Cal. 4th 969 (2009)), the court stated that “whether an order compelling arbitration of claims of labor law violations can preclude claims for PAGA remedies arising from the same violations is a particularly sensitive question of state law that has not been thoroughly addressed in the state courts. . . . [but g]iven the developments in California law on the precise contours of PAGA, these questions would be best answered by the state courts.” Id. at 6.