Posts belonging to Category Arbitration



9th Cir. Affirms Denial of Samsung’s Motion to Compel Arb. in Norcia v. Samsung

In Norcia v. Samsung Telecommunications America, LLC, et al., No. 14-16994 (9th Cir. Jan. 19, 2017) (slip op. available here), the Ninth Circuit Court of Appeals sided with a consumer in denying Samsung’s attempt to enforce an “in-the-box” arbitration clause (contained within a warranty brochure) accompanying his purchase of a Galaxy S4 phone. In February 2014, Plaintiff Norcia filed a consumer class action lawsuit alleging Samsung made misrepresentations as to the storage capacity and performance of the Galaxy S4 phone. Samsung moved to compel arbitration based on an arbitration clause buried within the 101-page “Product Safety & Warranty Information” brochure that accompanied the phone inside the box. The district court denied the motion to compel arbitration, holding that no agreement to arbitrate claims had formed between the two parties, and Samsung appealed.

On appeal, Samsung principally argued that the inclusion of the arbitration provision in the “Product Safety & Warranty Information” brochure created a valid contract under California law between Samsung and the plaintiff to arbitrate all claims related to the Galaxy S4 phone. The Ninth Circuit disagreed, relying on well-established principles of California contract law that generally an offeree’s silence in response to an offer does not constitute assent to a contract when the offeree reasonably did not know that an offer had been made. Slip op. at 9.

The court indicated that the inclusion of an offer by Samsung to arbitrate “[a]ll disputes with Samsung arising in any way from . . . the sale, condition or performance of the products” in a “Product Safety & Warranty Information” brochure would not put a “reasonable person in [Plaintiff] Norcia’s position . . . on notice that the brochure contained a freestanding obligation outside the scope of the warranty” and that a “reasonable person [would not] understand that receiving the seller’s warranty and failing to opt out of an arbitration provision contained within the warranty constituted assent to a provision requiring arbitration of all claims against the seller, including claims not involving the warranty.” Slip op. at 19. Thus, because the evidence before the court demonstrated that the plaintiff had not expressly assented to any agreement in the brochure, and that he had not signed the brochure or otherwise acted in a manner that would show his intent to use silence, or failure to opt out, as a means of accepting the arbitration agreement, no valid agreement to arbitrate had been formed. The court also separately rejected Samsung’s argument that it was a third-party beneficiary of the customer agreement between Verizon and Norcia and that Norcia had agreed to arbitrate his claims by signing the Customer Agreement based on the complete absence of any evidence that the plaintiff and Verizon had intended Samsung to benefit from the arbitration agreement.

This ruling denying Samsung’s push for arbitration is a narrow victory for consumer rights in what is an otherwise unfavorable climate for defeating such industry efforts. This ruling may also bode well for those consumers whose Galaxy Note 7 phones exploded or caught fire. The Galaxy Note 7, like the Galaxy S4 in Plaintiff Norcia’s case, was accompanied “in the box” by an arbitration clause tucked away in the safety and warranty brochure. If so, absent any evidence that the consumer expressly assented to the arbitration clause and in the event California law is applied, the Ninth Circuit’s ruling in Norcia should provide support for defeating any motion to compel arbitration in those actions. 

Authored By:
Lee Cirsch, Senior Counsel
CAPSTONE LAW APC

Again, NLRB Strikes Arb Agreement Waiving Class Claims in Buy-Low Market v. Palacios

In yet another decision, the National Labor Relations Board (“NLRB”) continues to mount pressure on employers seeking to enforce arbitration agreements that contain class action waivers. On February 3, 2017, in Buy-Low Market, Inc. v. Palacios, Case No. 21-CA-173346 (slip op. available here), the NLRB found that California-based retail grocery chain Buy-Low Market, Inc. (“Buy-Low”) violated the National Labor Relations Act (“NLRA”) and ordered the chain to cease and desist from enforcing an arbitration agreement that requires employees to waive their right to file employment-related class or collective actions in all forums (i.e. a class action waiver). Specifically, the NLRB found that the class waiver violated Section 8(a)(1) of the NLRA, which prohibits interference with or restraint of employees’ rights to organize and engage in concerted activities.

Back in July 2015, Plaintiff Nesked Palacios filed a wage-and-hour class action lawsuit against Defendant Buy-Low. On September 25, 2015, Buy-Low demanded that, pursuant to the parties’ arbitration agreement, Palacios submit his individual claim to arbitration and dismiss his class claims. The arbitration agreement stated, in pertinent part:

Agreement to Arbitrate: Designated Claims: The Employer and the Employee agree to resolve through binding arbitration any disputes or claims having anything to do with the Employer’s application for employment, employment, or separation from employment with the Employer [. . .].

Buy-Low Market, Case No. 21-CA-173346, at 2. Though the agreement did not expressly preclude class or collective action, on May 2, 2016, Judge Kenneth R. Freeman of Los Angeles County Superior Court granted Buy-Low’s motion, and not only compelled Palacios to arbitration, but also prevented Palacios from pursing class claims in arbitration.

On April 5, 2016, Palacios brought his case before the NLRB. The NLRB made several points in challenging the trial court’s interpretation of the parties’ arbitration agreement. First, Buy-Low contended that the provision was not, in fact, mandatory, but the NLRB rejected this contention, considering that the agreement was signed on the first day of employment, with other on-boarding documents, and did not clarify whether the arbitration provision was mandatory or optional. “When being asked to sign the Agreement, at the start of employment, an employee would not likely refuse to sign.” Slip op. at 4. Furthermore, the NLRB has held that an employer violates the National Labor Relations Act whether or not an arbitration agreement is mandatory or voluntary. Id. Even a “voluntary” arbitration agreement, or one that has an opt-out provision, that requires employees to prospectively waive their NLRA Section 7 right to self-organize, violates federal law. Id. (citing On 25 Assignment Staffing Services, 362 NLRB No. 189 (2015)).

With this holding, the battle over the validity of class action waivers continues and will not be resolved definitively until the Supreme Court of the United States decides a group of several related cases. On January 13, 2017, the Supreme Court granted certiorari in NLRB v. Murphy Oil USA, Inc., along with Epic Systems Corp. v. Lewis, 823 F.3d 1147 (7th Cir. 2016), cert. granted 2017 WL 125664 (Jan. 13, 2017), and Ernst & Young, et al. v. Morris, 834 F.3d 975 (9th Cir. 2016), cert. granted, 2017 WL 125665 (Jan. 13, 2017), to assess the validity of the NLRB’s D.R. Horton decision, which held that Section 7 protected employees’ ability to engage in “concerted activities” and superseded Concepcion. Oral argument has been postponed until the 2017 term, where many expect a full Supreme Court to be sitting. These three cases present the issue of whether arbitration agreements that bar employees from pursuing work-related claims on a collective or class basis in any forum violates Sec. 8(a)(1) of the Act, which was the very issue raised in Buy-Low Market. As such, the current legal landscape for class action waivers is in flux, and remains an issue to monitor. 

Authored by: 
Ruhandy Glezakos, Associate
CAPSTONE LAW APC

Perez v. U-Haul: PAGA Claims Cannot Be Separated Into “Arbitrable” and “Inarbitrable” Components

The 2nd District Court of Appeal recently affirmed a ruling by Los Angeles Superior Court Judge Jane Johnson in Perez v. U-Haul Co. of California, denying the defendant company’s move to compel its workers to arbitrate their representative Private Attorney General Act claims for wage-and-hour violations. Perez, No. B262029 (2nd Dist. Div. 7 Sept. 16, 2016) (slip op. available here). Following the California Supreme Court’s decision in Iskanian v. CLS Transp. Los Angeles, LLC, 59 Cal. 4th 348 (2014), the three-judge appellate panel rejected U-Haul’s argument that it could force employees first to arbitrate whether they have individual standing to bring a PAGA claim.

While the California Supreme Court in the prominent Iskanian decision upheld the enforceability of class action waivers, it held that waiver of PAGA claims through a similar “representative action” waiver is unenforceable. In Perez, U-Haul attempted to circumvent this distinction by arguing that the issue of whether the plaintiffs were “aggrieved employees” as defined by the PAGA statute was a severable “threshold question” that should proceed to arbitration first, to determine standing. The appellate court disagreed, stating that “[g]iven that the parties did not agree to arbitrate representative claims, and that a PAGA action is by definition a form of representative claim, we conclude that PAGA claims are categorically excluded from the arbitration agreement.” Slip op. at 11. U-Haul’s lawyers tried to convince the court that the defendant was not seeking to prevent the plaintiffs from pursuing their PAGA claims entirely, but rather that it simply wanted to enforce its arbitration agreements to determine the plaintiffs’ “underlying employment claims” which could ultimately render the PAGA claims moot. However, the Court of Appeal held that the arbitration agreement did not contain any language suggesting that the parties had agreed to arbitrate whether the plaintiff had standing to bring a representative claim in court. Id. The court also added that, even if the agreement did contain such a provision, it would be unenforceable under California law since there is no authority supporting that a PAGA action can be split into individual “underlying claims” brought in arbitration and separate “representative” claims brought in court. Id. at 11-14.

PAGA is a vital enforcement mechanism for employees in California who work for companies that have implemented arbitration agreements banning class actions. Perez is another in the growing line of cases that shut down employers’ attempts at implementing arbitration agreements that seek to impede employees’ ability to bring PAGA claims.

Authored By:
Rebecca Labat, Partner
CAPSTONE LAW APC

Nguyen v. Applied Medical Resources: Availability of Class Arb is a Q for the Arbitrator

In October 2016, the California Court of Appeal held that a trial court erred in dismissing class claims due to a governing arbitration agreement. The court found that class arbitration may, in fact, be available—but that this was a question for the arbitrator to decide.

The Court of Appeal in Nguyen v. Applied Medical Resources Corporation, No. G052207 (4th Dist. Div. 3, Oct. 4, 2016) (slip op. available here), heard an appeal from Da Loc Nguyen, a former employee of surgical equipment manufacturer Applied Medical Resources Corporation (“Applied”), who had brought individual and class claims against her employer for violations of the California Labor Code and the Unfair Competition Law, and claims for civil penalties under the Private Attorneys General Act (“PAGA”). The trial court had granted Applied’s motion to compel arbitration due to an arbitration clause in Nguyen’s employment application, and had dismissed Nguyen’s class claims without prejudice, allowing only the PAGA claims to remain.

The Court of Appeal issued a writ of mandate ordering the trial court to vacate the portion of its order dismissing the class claims. Although arbitration could be compelled, the appellate court found, the trial court could not simply dismiss the class claims outright. The court’s analysis relied heavily on the California Supreme Court’s decision in Sandquist v. Lebo Automotive, Inc., 1 Cal.5th 233 (2016), which involved a very similar arbitration clause. Sandquist addressed the question of “‘who decides whether the [arbitration] agreement permits or prohibits classwide arbitration, a court or the arbitrator[?]’” Nguyen, slip op. at 24, emphasis in original (citing Sandquist, 1 Cal.5th at 241).

First, the Nguyen court followed Sandquist’s holding that state law, rather than federal law, applied to the question of “who decides” whether class arbitration is available, as this is a question of contract interpretation that is usually subject to state law. Slip op. at 26. Next, the court examined the language of the arbitration clause and found that it was similar in two key respects to Sandquist: (1) the arbitration clause contained “inclusive” language, that is, it provided that all disputes (as opposed to specific, enumerated disputes) should go to arbitration; (2) the provision extended to all claims “arising from, related to, or having any relationship or connection whatsoever” with the employment relationship within the parties. Id. at 26-28 (citing Sandquist, 1 Cal. 5th at 245-46). These factors weighed in favor of allowing the arbitrator to make all decisions regarding the case—including the arbitrability of class claims. Id.

Finally, Nguyen followed Sandquist in applying two general principles of law: first, “when the allocation of a matter to arbitration or the courts is uncertain, we resolve all doubts in favor of arbitration.” Slip op. at 28. Second, ambiguous terms in written contracts should be construed against the drafter—especially when the contract is one of adhesion. Id. Thus, because Applied, the employer, drafted the arbitration clause in its take-it-or-leave-it employment application, Applied could have expressly stated whether class claims could be arbitrated. It did not, so it could not benefit from that ambiguity after the fact. Id. at 28-29 (citing Sandquist, 1 Cal. 5th at 247-48). Consequently, Nguyen held that the arbitration agreement gave the arbitrator—not the trial court—the power to decide whether class arbitration may occur.

Authored By:
Jennifer Bagosy, Senior Counsel
CAPSTONE LAW APC