Posts belonging to Category Caselaw Developments



Martin v. Milan Institute: 9th Cir. Affirms Trial Court’s Finding of Arbitration Waiver

In Martin, et al. v. Yasuda, et al., No. 15-55696 (9th Cir. July 21, 2016) (slip op. available here), the Ninth Circuit Court of Appeals reaffirmed its holding that a court—not the arbitrator—determines whether arbitration has been waived, unless the arbitration agreement specifically reserves that task for the arbitrator, and found that the defendants’ litigation conduct over a seventeen-month period resulted in a waiver of the defendants’ right to arbitrate. This important ruling rejects the defendants’ attempt to manipulate the judicial and arbitral systems to gain an unfair advantage due to their litigation conduct. Slip op. at 21.

In Martin, students of the Milan Institute of Cosmetology (“Milan”) sued the school in federal court alleging that Milan was, in fact, their “employer” because they were required to perform unpaid work to graduate from Milan’s cosmetology program, including cleaning, sweeping, selling retail products, and promoting Milan’s services. Slip op. at 4. The students’ Enrollment Agreement contained an arbitration agreement that stated, “[a]ll determinations as to the scope, enforceability and effect of this arbitration agreement shall be decided by the arbitrator and not by a court.” Id. The plaintiffs filed their complaint on October 28, 2013, and the following events transpired during litigation: (1) the parties filed a Joint Stipulation to extend the time to file a motion for conditional and class certification, noting the considerable time and effort spent by the parties to conduct discovery to focus on the issue of whether Milan employed the students; (2) the court denied in part and granted in part the defendants’ motion to dismiss the plaintiffs’ First Amended Complaint, holding the plaintiffs could assert California state law claims; (3) the defendants answered a Second Amended Complaint and asserted arbitration as an affirmative defense; (4) the parties submitted a Joint Rule 26(f) Report detailing an eight-month period of discovery related to the “employee” issue and, at the scheduling conference, the court warned defense counsel about possibly waiving their right to arbitrate; (5) written discovery occurred and the deposition of Milan’s CEO was taken; and (6) seventeen months after the start of the case, the defendant moved to compel arbitration. Id. 5-9. The district court denied the defendant’s motion to compel arbitration, finding that the defendant had waived its right to arbitrate. The defendants then appealed.

The Ninth Circuit first held that there is a presumption that that the court, and not the arbitrator, should decide the waiver issue. Citing the Ninth Circuit’s decision in Cox v. Ocean View Hotel Corp., 533 F. 3d 1114, 1120-21 (9th Cir. 2008), the panel stated that waiver by litigation conduct is a gateway issue to be decided by the court, not the arbitrator, under the Supreme Court’s decision in Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79, 83 (2002). Slip op. at 10-11. The broad language in Milan’s arbitration agreement assigning duties to the arbitrator does not overcome the presumption because the clause did not contain “clear and unmistakable language” that the arbitrator may decide the waiver issue. Id. at 12-13. Presumably, the arbitration agreement must clearly and specifically provide that only the arbitrator can determine whether litigation conduct waives the right to arbitrate. But, the court reasoned, such a provision would place this decision in the hands of the arbitrator, who is less familiar with the litigation than the court and with someone who has a financial interest in finding no waiver so that the arbitrator may keep the case. See id. at 12 n3.

The Court of Appeals, applying its arbitration waiver test announced in Fisher v. A.G. Becker Paribas, Inc., 791 F.2d. 691, 694 (9th Cir. 1986), then found that the defendants waived the right to arbitrate because they had engaged in conduct inconsistent with the right to arbitrate that prejudiced the plaintiffs. In so doing, the appeals court held that a statement by a party that is has the right to arbitration in the pleadings or motions is not enough to defeat a claim of waiver. Further, the court found it particularly key that the defendants had structured discovery, including a deposition, so that the trial court could rule on the defendants’ motion to dismiss on a key merits issue: whether the Cosmetology Act legally precluded the students from being classified as employees. Because the court found for the plaintiffs on the issue, the plaintiffs would be prejudiced by the delay in moving to arbitrate because they would be forced to re-litigate an issue on the merits on which they had already prevailed in court. Slip op. at 17. Finally, spending a lengthy amount of time litigating in the more complex federal court system inevitably causes the parties to spend more time, money, and effort than had they proceeded to arbitration. Id. at 18.

In affirming the district court’s decision, the Ninth Circuit agreed that the defendants couldn’t have their cake and eat it too: a party that signed a binding arbitration agreement and then is sued “can either seek to compel arbitration or agree to litigate in court. It cannot choose both.” Slip op. at 21 (emphasis added).

Authored By:
Robert Drexler, Senior Counsel
CAPSTONE LAW APC

Vaquero v. Ashley Furniture: 9th Cir. Ruling Clarifies, Eases Class Certification Requirements

In June, the Ninth Circuit Court of Appeals issued a ruling that could provide a significant boon to class action plaintiffs. In Vaquero v. Ashley Furniture Industries, Inc., et al. (9th Cir. June 8, 2016) (slip op. available here), the appellate panel affirmed a district court order granting certification in a wage and hour class action. In doing so, the court considered the applicability of several United States Supreme Court opinions from recent years, finding in favor of the Vaquero plaintiffs in each instance.

The Vaquero plaintiffs were commission-only salespeople who alleged that they were required to perform additional, non-sales work without being paid the requisite minimum wage for these tasks. The lower court certified the class, and the defendant-employer appealed, citing landmark U.S. Supreme Court cases Wal-Mart Stores, Inc. v. Dukes (564 U.S. 338 (2011)) and Comcast Corp. v. Behrend (133 S. Ct. 1426 (2013)), neither of which involved wage and hour issues.

Examining the commonality requirement, which requires that plaintiffs’ claims be capable of classwide resolution, the Ninth Circuit rejected the defendants’ reliance on Dukes. The appeals court distinguished Dukes from Vaquero, pointing out that the former was a Title VII discrimination case involving millions of employees and innumerable managerial decisions across thousands of store locations, while the present case has a proposed class of 600 employees who perform the same work, and whose injury is focused and objective as compared to Dukes. Thus, the Ninth Circuit in Vaquero limited the impact of Dukes on wage and hour commonality analyses.

As for the predominance requirement (that issues of law and fact predominate over individual issues), the court again shot down the defendants’ reasoning, this time with regard to Comcast, a consumer antitrust class action where the Supreme Court found a lack of predominance because the plaintiffs used a faulty damages model and were unable to demonstrate that their damages could be determined on a classwide basis. The panel concluded that the defendants’ interpretation of Comcast—that predominance cannot be found unless damages can be determined on a classwide basis—was too broad, and instead held that the plaintiffs need only “prove that damages resulted from the defendant’s conduct” in order to prevail. Slip op. at 8. Here, there was no doubt that the class members’ injuries had been caused by the employer’s conduct, unlike in the much more attenuated context of an antitrust action in Comcast. Id. at 9.

Finally, Vaquero references the recent Supreme Court decision in Tyson Foods v. Bouaphakeo, 136 S. Ct. 1036 (2016) (finding that representative evidence can be used to show both damages and liability) (previously covered on the ILJ here), noting that: “[t]he Supreme Court has not disturbed our precedent” and “the need for individual damages calculations does not, alone, defeat class certification.” Slip op. at 10. The Vaquero ruling not only paves the way for certification of this class of 600 Ashley Furniture employees, but will no doubt be helpful to many more California employees in the future.

Authored by: 
Robin Hall, Associate
CAPSTONE LAW APC

Brown v. Wal-Mart: 9th Cir.’s First Application of Kilby a Welcome Sign for Certifying Seating Claims

Last month, the Ninth Circuit applied the “suitable seating” framework from the California Supreme Court’s opinion in Kilby v. CVS Pharmacy, Inc., No. S215614 (Cal. April 4, 2016), for the first time in Brown v. Wal-Mart Stores, Inc., an unpublished decision. No. 12-17623 (9th Cir. June 8, 2016) (slip op. available here). Brown involved the Court of Appeals’ review of the district court’s grant of certification of a class of cashiers employed by Wal-Mart in California. In Kilby, the California Supreme Court answered questions certified by the Ninth Circuit involving California wage order requirements that “[a]ll working employees shall be provided with suitable seats when the nature of the work reasonably permits the use of seats.” Cal. Code Regs., tit. 8, § 11040, subd. 14(a) (Wage Order No. 4-2001) (Kilby previously covered on the ILJ here). After the California Supreme Court weighed in on the Kilby questions, the Ninth Circuit reversed and remanded two seating cases that were on appeal following denials of class certification: Kilby, No. 12-56130 (S.D. Cal. May 31, 2012, D.C. No. 09-cv-2051-MMA-KSC) and Henderson v. JPMorgan Chase Bank NA, No. 13-56095 (C.D. Cal March 4, 2013, D.C. No. 2:11-cv-03428-PSG-PLA).

In Brown, the Ninth Circuit applied the Kilby framework, affirming the lower court’s order granting certification. Wal-Mart had challenged the district court’s decision to certify the class, arguing the court had abused its discretion in finding that the requirements of commonality and predominance were met. See Fed. R. Civ. P. 23(a)(2) and 23(b)(3). Regarding commonality, the Ninth Circuit found the district court had not abused its discretion based on the lower court’s finding that both a common policy and a common nature of work were applicable to the proposed class, that is, that Wal-Mart had a common policy of not providing cashiers with seating, that cashiers spent the majority of their time working at registers, and that the work done by cashiers at registers was generally the same across variations in the stores, locations, and shifts. See slip op. at 2-3.

The Court of Appeals also noted that the district court’s consideration of whether cashiers spent the “majority” of their time working at register was inconsistent with Kilby, since the California Supreme Court rejected this “holistic approach” in favor of a more narrow analysis into each subset of tasks that employees were expected to perform in a particular location within the workplace. See slip op. at 3 n.1. However, since the Kilby interpretation would have been more beneficial for the plaintiffs than the “holistic approach” used by the district court and the district court had certified the class anyway, the Ninth Circuit found the application of the wrong legal standard to have been harmless error. Id. As to the predominance inquiry, the Ninth Circuit also found the district court had not abused its discretion based on the court’s conclusion that “a trier of fact could determine whether these common tasks could reasonably be performed while seated, and such a determination would apply to all Wal-Mart cashiers at its California stores,” since the answer to this question would determine whether Wal-Mart violated the Wage Order’s suitable seating provision as to all class members. Id. at 3-4.

The panel further noted that the plaintiffs’ claim under California’s Private Attorneys General Act (“PAGA”) does not require an individualized penalty assessment that would defeat certification. Slip op. at 4. The Ninth Circuit’s wording on this last issue apparently caused the defendants concern, as they have now filed a petition seeking rehearing en banc, despite the fact that the Brown decision is unpublished. Wal-Mart’s petition (available here) states that the panel’s conclusion failed to provide clear guidance and could lead to an expansive interpretation of PAGA that would permit aggregate penalties without any sort of individual assessment. In the alternative, Wal-Mart requests the court to grant rehearing and remand for reconsideration on the grounds that the Ninth Circuit’s reasoning that the Kilby framework appeared to be more beneficial for the plaintiff fell short of the “rigorous analysis” required by Wal-Mart Stores, Inc. v. Dukes, 564 U.S. 338, 350-51 (2011).

The Ninth Circuit’s simple and straightforward application of the Kilby framework is a welcome sign of things to come for plaintiffs seeking to certify seating claims.

Authored by: 
Brandon Brouillette, Associate
CAPSTONE LAW APC

Glenn v. Hyundai Motor: Defeating Primary Jurisdiction and Preemption Arguments

Last month, Judge David O. Carter of the Central District of California issued an order granting in part Hyundai’s Motion to Dismiss and/or Strike Allegations in First Amended Complaint in Glenn, et al. v. Hyundai Motor America, et al. No. SA CV 15-2052-DOC (June 24, 2016 C.D. Cal.) (slip op. available here). The Glenn plaintiffs had alleged that the Hyundai vehicles’ panoramic sunroofs had a tendency to spontaneously shatter. Notably, the National Highway Traffic Safety Administration (“NHTSA”) had already begun investigating the same sunroof issues in the Sorento, a vehicle produced by Kia, Hyundai’s sister company. The Glenn plaintiffs demanded injunctive relief in the form of a recall. Hyundai moved to dismiss the plaintiffs’ prayer for a recall injunction under the doctrines of primary jurisdiction and preemption. The district court, in addition to leaving intact the plaintiffs’ remaining fraud-based claims and allowing the plaintiffs to have standing to represent consumers who purchased different vehicles, denied Hyundai’s motion on the grounds of primary jurisdiction and preemption, providing guidance for other class action plaintiffs on how to avoid such a dismissal.

The primary jurisdiction doctrine applies, exempting an issue from federal court jurisdiction, based on: “(1) the need to resolve an issue (2) that has been placed by Congress within the jurisdiction of an administrative body having regulatory authority (3) pursuant to a statute that subjects an industry or activity to a comprehensive regulatory authority that (4) requires expertise or uniformity in administration.” Slip op. at 24 (quoting Astiana v. Hain Celestial Grp., Inc., 783 F.3d 753, 760 (9th Cir. 2015) (internal citations omitted)). The district court in Glenn held that, applying these considerations, the primary jurisdiction doctrine did not apply. As to the first two elements, the court found that because the plaintiffs sought monetary relief—relief beyond what NHTSA can provide in a recall—there is a substantial need to resolve the issue in court. Id. Regarding the third factor, there was also no authority suggesting that Congress intended NHTSA to have exclusive regulatory authority over vehicle safety. Id. at 24. Even though Hyundai had been asked to cooperate with NHTSA in its Kia Sorento sunroof investigation, the court found that the scope of NHTSA’s investigation did not clearly cover all of the Glenn class vehicles and thus, no actual conflict existed between the plaintiffs’ claims regarding the Hyundai sunroofs and NHTSA’s Kia investigation. Id. at 25 (quoting In re Toyota Motor Corp. Unintended Acceleration Mktg. Sales Practices and Prods. Liab. Litig., 754 F. Supp. 2d 1145, 1199 (C.D. Cal. 2010)). Finally, the court noted that the plaintiffs’ claims were strictly based on state and federal consumer protection laws, as opposed to the National Traffic and Motor Vehicle Safety Act (“Safety Act”) or NHTSA regulations, and thus there is no need to ensure uniformity of regulation and NHTSA is not better-equipped than the court to address the issues presented. Id.

Similarly, the court held that the plaintiffs’ request for injunctive relief was not preempted by the Safety Act at this point, finding that Hyundai had not “met its burden of showing that it was Congress’ clear and manifest intent for the Safety Act to preempt the relief Plaintiffs seek pursuant to their State law claims.” In re Toyota, at 1197 (emphasis added). Hyundai failed to show that the ongoing NHTSA investigation with Kia encompasses all the models of the Glenn class vehicles, and thus, the court declined to find preemption because there was no actual conflict between the relief the plaintiffs sought and the Safety Act. Slip op. at 26.

These findings are instructive when developing a car class action where a NHTSA investigation is already ongoing and the plaintiff is confronted with a defendant’s argument that its claims for a recall injunction should be dismissed due to the doctrines of primary jurisdiction or preemption. Plaintiffs should consider demanding monetary relief, distinguishing the vehicles at hand from those under investigation by NHTSA, and basing their claims strictly on state and federal consumer protection laws, with no reference to the Safety Act or NHTSA Regulations, to avoid primary jurisdiction and preemption.

Authored by: 
Tarek Zohdy, Associate
CAPSTONE LAW APC