Posts belonging to Category Arbitration

In another decision likely to be assigned “grant and hold” status pending the California Supreme Court’s decision in the soon-to-be landmark Iskanian v. CLS Transportation case, the California Court of Appeal’s First Appellate District has affirmed a trial court’s holding that an arbitration clause categorically proscribing class and representative actions is unconscionable. See Natalini v. Import Motors, Inc., ___ Cal. App. 4th ___ (Cal. Ct. App. 2013).

Natalini, like the pro-arbitration AT&T Mobility v. Concepcion decision, arose in the consumer context. The Natalini plaintiff filed claims against Import Motors, from which he had bought a car, including claims arising under California’s Consumer Legal Remedies Act (CLRA) and the Rees-Levering Motor Vehicle Sales and Finance Act. See slip op. at 1.

Despite conceding that Concepcion overruled Discover Bank v. Super. Ct., 36 Cal. 4th 148 (2005), a leading unconscionability decision, the unanimous Natalini panel found enduring vitality in the unconscionability doctrine, stating, “ ‘Concepcion did not overthrow the common law contract defense of unconscionability whenever an arbitration clause is involved. Rather, the [c]ourt reaffirmed that the [FAA’s] savings clause preserves generally applicable contract defenses such as unconscionability, so long as those doctrines are not “applied in a fashion that disfavors arbitration.” ’ ” Slip op. at 5-6 (internal citations omitted). The court went on to conclude that “an adhesive arbitration provision [that] is unconscionable because it is crafted overly in favor of the drafter does not rely on any ‘judicial policy judgment’ disfavoring arbitration.” Slip op. at 6 (internal citation omitted).

The decision candidly notes that “the Second District concluded in Flores v. West Covina Auto Group (2013) 212 Cal.App.4th 895, that a very similar provision was not substantively unconscionable.” Slip op. at 12 n.7. Unswayed, the Natalini panel stated, “[w]e adhere to our analysis and conclusion.” Id. However, it is the California Supreme Court, in Iskanian, that will establish the definitive analysis and conclusion of the unconscionability issue for California consumers.

Once again, a case named Brown has produced an arbitration ruling that is being greeted favorably by advocates for workers and consumers. See Brown v. Citicorp, No. 12-0062 (D. Idaho Feb. 21, 2013) (order denying motion to compel arbitration and to dismiss).

In Brown v. Citicorp, a federal district court has followed the National Labor Relations Board’s (NLRB) holding in In re D.R. Horton, Inc. that an employee’s lawsuit seeking a collective action under the federal Fair Labor Standards Act (FLSA) is “concerted action” protected by Section 7 of the National Labor Relations Act (NLRA). As such, enforcement of an arbitration clause relating to such a lawsuit would be precluded. See order at 5. Because enforcing the at-issue arbitration clause would materially impede the plaintiff’s ability to redress employee rights under the FLSA, the Brown v. Citicorp court held the clause unenforceable, stating, “[a] contract that violates public policy must not be enforced.” Order at 6-7.

Like many defendants in non-NLRB proceedings, Citicorp argued that D.R. Horton is inapplicable, contending that it “is not a valid decision because only two Board members joined in the decision.” Order at 5, n.2. However, the Brown v. Citicorp court rejected this argument, reasoning that “[t]he [NLRB’s] interpretation in Horton of Section 7 of the NLRA is rational and consistent with the Act: A collective action seeking recovery of wages for off-the-clock work falls easily within the language of Section 7 protecting ‘concerted action’ brought for the ‘mutual aid and protection’ of the employees.” On that basis, the court concluded that Citicorp’s proffered arbitration agreement “waives [the plaintiff’s] Section 7 rights to bring an FLSA collective action.” Order at 6.

Mirroring the NLRB in D.R. Horton, the court explained that “Citicorp’s arbitration agreement does more than merely waive Brown’s right to a procedural remedy; it bars her from asserting a substantive right that is critical to national labor policy.” Order at 6.

A Florida appellate court recently held that even though a vulnerable, elderly woman “could not possibly have understood” an arbitration clause, that fact had no bearing on the clause’s enforceability. On that basis, the Second District Court of Appeal reversed a trial court’s refusal to enforce an arbitration agreement between a 92-year-old woman with a fourth-grade education and her nursing home. See Spring Lake NC, LLC v. Holloway, No. 2D12-2140 (Fla. Dist. Ct. App. Feb. 1, 2013).

The plaintiff, Jessie V. Holloway (now deceased), had a history of memory problems and was documented to have been “increasingly confused” at the time she moved into Spring Lake Rehabilitation Center. Upon her admission to the nursing home, Ms. Holloway was asked to sign an assortment of forms that included an arbitration clause. See slip op. at 2. The Florida courts thus faced the question as to whether the plaintiff’s signature constituted consent to the at-issue arbitration clause. Despite the U.S. Supreme Court’s demanding standard applied to corporations when their consent to classwide arbitration is being determined, the Florida appellate court took a laissez-faire view of consent in this instance: “We have little doubt that the trial court correctly assessed Ms. Holloway’s ability to understand these documents. For better or worse, her limited abilities are not a basis to prevent the enforceability of this contract.” Slip op at 2.

With a momentary flash of nostalgia, the appellate court noted that “[t]here was a time when most contracts were individually negotiated and handwritten. In that period, perhaps the law could adequately describe a mutual agreement as a ‘meeting of the minds’ between the parties.” Slip op. at 4. However, echoing Justice Scalia’s aside in AT&T Wireless v. Concepcion to the effect that virtually all contracts in the modern, enlightened society are adhesion contracts, the Florida court made a pronouncement: “Our modern economy simply could not function if a ‘meeting of the minds’ required individualized understanding of all aspects of the typical standardized contract that is now signed without any expectation that the terms will actually be negotiated between the parties.” Slip op. at 4.

The opinion’s ultimate conclusion: “[T]he law must address abuses in standardized contracts by rules other than the ‘meeting of the minds.’” Slip op. at 4. No word yet on whether law school contracts casebooks are being revised accordingly.

In Noel Canning v. NLRB, No. 12-1115 (D.C. Cir. Jan. 25, 2013), the D.C. Circuit Court ruled that President Obama lacked the authority to make three recess appointments to the five-member National Labor Relations Board (NLRB). The recess appointments were deemed unconstitutional, leaving the NLRB with only one board member — two short of the three required to make a quorum and allow the NLRB to function. At least 30 workplace disputes pending before the NLRB are now in limbo.

Of greater consequence, Noel Canning potentially abrogates every NLRB decision since January of 2012, including: Costco Wholesale Corp., 358 NLRB No. 106 (Sept. 7, 2012) (employer’s “social media policy” prohibiting electronic postings that “damage the Company, defame any individual or damage any person’s reputation” held unlawful); Karl Knauz Motors, Inc., 358 NLRB No. 164 (Sept. 28, 2012) (employer’s rule prohibiting “disrespectful” language or “any other language which injures the image or reputation of” employer held unlawful); and Banner Health System, 358 NLRB No. 93 (July 30, 2012) (asking employee who was subject of an internal investigation to refrain from discussing matter violates the NLRA).  Also in question are D. R. Horton, Inc., 357 NLRB No. 184 (Jan. 3, 2012) and Convergys Corp., 2012 NLRB LEXIS 742 (Oct. 25, 2012), key pro-worker decisions finding class action waivers unconscionable.

Meanwhile, as his NLRB appointments are being assailed, President Obama has made two appointments to the Federal Circuit. Unique among the federal intermediate appellate courts, the Federal Circuit was established in 1982 pursuant to Article III of the Constitution, in order to effectuate the merger of the United States Court of Customs and Patent Appeals and the appellate division of the United States Court of Claims. The Federal Circuit’s jurisdiction covers patents and trademarks, but also takes the appeals of certain administrative agency decisions. Indeed, fully half of the Federal Circuit’s caseload is administrative law.

The president’s two most recent appointments, Raymond Chen and Todd Hughes, are notable in broadening the federal judiciary’s diversity. Hughes would be the first openly gay federal appeals court judge, while Chen would be the first Asian American to serve on the Federal Circuit in over 25 years.