Posts belonging to Category Arbitration

In a major win for consumers, the Ninth Circuit has affirmed a district court’s denial of Toyota’s petition to compel arbitration in a class action alleging brake defects in certain models of the automaker’s hybrid cars. See Kramer v. Toyota Motor Corp., __ F.3d __ (9th Cir. 2013), No. 12-55050. The court definitively sided with the plaintiffs, rejecting Toyota’s equitable estoppel argument, which sought to bind the plaintiffs to arbitration terms embodied in a contract that Toyota itself was not a signatory to. Apart from its effect on the Toyota brake defect litigation, the ruling is expected to be influential as to the numerous arbitration petitions pending in Ninth Circuit trial courts and beyond, particularly in consumer class actions where a viable equitable estoppel theory supporting arbitration is asserted.

The equitable estoppel issue arose around Toyota’s contention that the purchase agreements between the plaintiffs and the dealerships where they purchased the at-issue vehicles provided the contractual basis for arbitration, notwithstanding that Toyota was not a signatory to these agreements. See slip op. at 10. However, both the district court and Ninth Circuit took a more traditional view of contractual privity, with the appellate panel holding that “the arbitration agreements do not contain clear and unmistakable evidence that Plaintiffs and Toyota agreed to arbitrate.” Slip op. at 11. Further, and specifically bearing on Toyota’s equitable estoppel theory, the Ninth Circuit found none of the limited circumstances in which a nonsignatory may compel arbitration to be applicable. See slip op. at 24-25. In considerable detail, the decision finds neither that the plaintiffs brought claims “intertwined with” the purchase agreement nor that the plaintiffs’ claims were “intimately connected with the obligations of the” purchase agreement. Id.

Consequently, plaintiffs in numerous other class actions implicating equitable estoppel — such as so-called “lemon law” cases where automakers regularly advance equitable estoppel arguments premised on the purchase agreements between customers and dealers — are expected to benefit directly from the Kramer decision.

Last month, yet another case was granted review pending the California Supreme Court’s decision in Iskanian v. CLS Transport: Reyes v. Liberman Broadcasting, Inc., 146 Cal. Rptr. 3d 616 (Cal. Ct. App. 2012). In Reyes, the plaintiff worked as a security officer for the defendant. After the plaintiff’s employment ended, he filed both a class action and PAGA representative action alleging wage and hour violations. The trial court denied the defendant’s attempt to compel arbitration, ruling that it had waived any entitlement to arbitration by delaying before bringing a petition to compel arbitration. The California Court of Appeal reversed, however, holding that the defendant had not in fact waived its right to compel arbitration.

Iskanian is shaping up to be a lynchpin post-Concepcion decision on the issue of waiver. In addition to the grant and hold issued in Reyes, the Ninth Circuit is also hearing an appeal in Kilgore v. KeyBank, with the en banc panel contemplating issuing a stay of Kilgore pending a result in Iskanian. The California Supreme Court has the opportunity to use its decision in Iskanian to define the extent to which class actions remain available to enforce wage and hour violations.

In Reyes, the plaintiff contended that the defendant had waived any right to arbitrate through delay, as the defendant did not file its motion to compel arbitration until over a year after the original complaint was filed. Reyes at 620. The defendant, and subsequently the Court of Appeal, embraced a “futility” theory, arguing that prior to the U.S. Supreme Court’s ruling in AT&T Mobility v. Concepcion, the defendant perceived moving to compel arbitration to be futile. “LBI reasonably perceived that it likely would have been futile to seek to compel arbitration in light of Gentry . . . and California authority applying Gentry to invalidate class arbitration waivers.” Reyes at 629. The theory of futility as an excuse for delay is also an issue in Iskanian, and so will likely be addressed by the California Supreme Court.

The new year began auspiciously for consumers and the plaintiffs’ bar with the Ninth Circuit issuing a twin victory for consumers by underscoring the focus on defendants’ conduct under the “fraudulent” prong of California’s Unfair Competition Law (UCL) and holding that the defendant waived any entitlement to compel arbitration. See Gutierrez v. Wells Fargo Bank, NA, ___ F.3d ___ (9th Cir. Dec. 26, 2012). Though the ruling remanded the action for the district court to apply the proper remedy, and in so doing vacated a judgment entered in favor of the plaintiff class, the Court of Appeals panel affirmed both the district court’s granting of class certification and the finding of classwide liability. See Slip op. at 2-4.

As to the class’ allegations that Wells Fargo made affirmative misstatements about its practices for posting deposits and transactions and making overdraft assessments to consumers’ accounts, the Ninth Circuit first concluded that the UCL is not preempted by federal banking legislation. See Slip op. at 25-27. With the preemption issue resolved, the panel found that the plaintiffs had adduced sufficient evidence of Wells Fargo making misleading statements as to how the bank would post deposits and charges, in particular the order in which such transactions would be recorded, which has direct implications as to the assessment of overdraft fees. See Slip op. at 34.

The court did not respond favorably to Wells Fargo’s contention that individual reliance issues predominate because “some class members would have engaged in the same conduct irrespective of the alleged misrepresentation,” stating, “we are hard pressed to agree that any class member would prefer to incur multiple overdraft fees.” Slip op. at 32.

Additionally, the Ninth Circuit clarified Article III standing vis-à-vis class actions by holding that only a single named class representative – not every class member – must have standing. Slip op. at 30-31.

Finally, with respect to arbitration, the Ninth Circuit held that Wells Fargo had waived any right to seek to compel arbitration, rebuffing Wells Fargo’s contention that seeking to move the action to an arbitral forum would have been futile before the U.S. Supreme Court’s AT&T Mobility v. Concepcion decision. See Slip op. at 10-17.

A Ninth Circuit en banc panel recently heard oral argument in the much-watched Kilgore v. KeyBank Nat’l Assn., No. 09-16703 (audio recording available here), which concerns whether two California Court of Appeal decisions remain good law in light of the U.S. Supreme Court’s holding in AT&T Mobility v. Concepcion. The two California cases are Broughton v. Cigna Healthplans, 21 Cal. 4th 1066, 988 P.2d 67 (1999) (public injunctive relief claims not arbitrable as a matter of California public policy; California’s Consumer Legal Remedies Act (CLRA) injunctive actions), and Cruz v. PacifiCare Health Systems, Inc., 30 Cal. 4th 303 (2003) (same; UCL injunctive actions).

Specifically at issue in Kilgore is whether public injunctive relief claims under the CLRA and UCL are not arbitrable as a matter of California public policy, as established in Broughton and Cruz. A three-judge Ninth Circuit panel had previously ruled that Concepcion overruled Broughton and Cruz. Additionally, Kilgore was issued just days after the California Supreme Court granted a petition for review in Iskanian v. CLS Transp. Los Angeles, LLC, ___ Cal. App. 4th ___ (2012). In Iskanian, the California Supreme Court will decide whether Concepcion overruled the unconscionability jurisprudence of Gentry v. Superior Court, 42 Cal. 4th 443 (2007). Since both appeals concern the extent of FAA preemption, with an underlying issue of California substantive law, the Kilgore appeal will likely be stayed until there is a disposition of Iskanian (the discussion of which provided a moment of levity during the oral argument as the attorney for KeyBank indicated that he was not familiar with Iskanian). Similarly, some members of the Kilgore panel queried whether a disposition of Kilgore ought to be deferred until the U.S. Supreme Court issues a decision in American Express Co. v. Italian Colors Restaurant, as to which a certiorari petition was just granted, or whether, instead of awaiting the Iskanian ruling, the procedure whereby a question is “certified” to the California Supreme Court ought to be used, thereby obtaining a definitive interpretation as to issues of state substantive law.

The Kilgore appeal has attracted considerable amicus interest, and the oral argument got underway with Chief Judge Kozinski questioning the Chamber of Commerce’s amicus counsel, asking if Concepcion is distinguishable on the most apparent ground: that the public injunctions in Broughton and Cruz are remedies, not claims. Responding to that and other similar inquires, the amicus counsel gave emphasis to the fact that seeking a public injunction under the UCL requires class certification, and was ready with an adept citation to Supreme Court precedent in which punitive damages were preempted by the Federal Arbitration Act (FAA).

Considerable time was devoted to discussing the FAA’s “savings clause,” which Concepcion held did not prevent FAA preemption. But does Concepcion bar any state-created legislation that might limit arbitration, even in circumstances where, as in Broughton and Cruz, public health and safety are implicated? Assuming a judicial posture, amicus counsel reiterated that the FAA had preemptive effect in the case at hand, sidestepping the broader hypothetical.

Judge M. Margaret McKeown pressed as to whether there is an intersection between unconscionability and public policy, and invoked the U.S. Supreme Court’s recent Marmet Health Care Ctr., Inc. v. Brown decision (132 S. Ct. 1201 (2012)), which seemingly puts state-created unconscionability doctrine outside the ambit of FAA preemption, before the proceedings focused on Cruz and Broughton. When questioned whether overruling Broughton and Cruz would be applicable only in federal courts or in California state courts as well, the voluble Chamber of Commerce amicus counsel opted for the more aggressive interpretation, whereby the disposition would be applicable in state and federal courts alike. While the degree to which the amicus parties worked cooperatively with counsel for KeyBank is unknown, but it is often an indication of confidence that an appellate panel is a favorable one when counsel opts for a broader interpretation when a narrower, more risk-averse interpretation is available.

Judge Harry Pregerson, widely viewed as among the most “plaintiff friendly” in the Ninth Circuit, questioned counsel only sparingly, and as to relatively technical issues of standing under the UCL. However, Judge William Fletcher worked off Judge Pregerson’s reference to UCL standing to elicit from KeyBank’s counsel the concession that there would be no injunctive relief available in a private action (i.e., other than in an action brought by the California Attorney General) even if there were a general fraud. Later in the oral argument, and at a moment of abrupt candor, Judge Pregerson asked the plaintiff’s counsel (who Pregerson let it be known is a personal acquaintance): “What is the bottom line of your lawsuit?” Counsel responded in essence that the preservation of the right to bring private actions that seek public injunctions to combat broad wrongs is the “bottom line” in Kilgore.

In addition to the judges referenced above, the 12-member Kilgore en banc panel consisted of Judges Paul Jeffrey Watford, Mary Murguia, Consuelo Callahan, Richard C. Tallman, Milan D. Smith Jr., Morgan Christen, and Andrew Hurwitz.