Posts belonging to Category Caselaw Developments

In yet another decision limiting the applicability of the U.S. Supreme Court’s AT&T Mobility v. Concepcion opinion, a California Central District judge has denied the defendant’s motion to compel arbitration and held the at-issue arbitration clause to be unenforceable, without expressly referencing Concepcion.  See Chavarria v. Ralphs Grocer Co., No. CV 11-02109, 2011 U.S. Dist. LEXIS 104694 (C.D. Cal. Sept. 15, 2011) (order denying motion to compel arbitration) (available here).

The court’s unconscionability analysis was extensive, starkly distinguishing the at-issue arbitration clause from the notably consumer-friendly contract that had been adjudicated in Concepcion.  As to procedural unconscionability, the Chavarria court sharply observed that “Ralphs required Plaintiff to accept the ‘available’ Arbitration Policy not only as a condition of employment, but as a condition of Plaintiff’s application for employment” and concluded that “Ralphs does not have merely superior or stronger bargaining power, it has all of the bargaining power.”  Order at *14-15.  Substantively, the court found that “the method devised by Ralphs to select a ‘qualified arbitrator’ [is] a sham.”  Order at *16.  Moreover, the fee structure built into the at-issue arbitration clause vividly demonstrates the circumstances whereby arbitration of individual claims would result in plaintiffs effectively having no remedy for workplace violations:

Plaintiff worked at a Ralphs service deli for five months. She claims she was not paid for rest and meal breaks during which she worked. Her monetary claims likely total well under ten thousand dollars. Assuming a two day arbitration, Plaintiff would be required to pay somewhere between $7,000 and $14,000 in arbitrator’s fees alone.

Order at *22.  The restrained opinion leaves it to the reader to infer that only class treatment, in court, is likely to hold the prospect of meaningful enforcement of California’s meal and rest break laws.

Along with Brown v. Ralphs, 197 Cal. App. 4th 489 (2011), Chavarria suggests an emerging post-Concepcion jurisprudence that is far less draconian than some had projected.  In Brown, the first of The Ralphs Cases, the California Court of Appeal held Concepcion inapplicable to representative claims under PAGA, the California Labor Code’s Private Attorneys General Act.  Now, Chavarria provides a model for both federal and state courts’ evaluation of arbitration clauses to determine whether they foreclose “legitimate process and the real possibility for redress” and thus rise to the level of unconscionability.  Order at *24.

Many of the largest payouts to class members in recent months have been in actions alleging that banks have rigged their internal software to maximize overdraft fees, typically by altering the order in which transactions are posted to customer accounts.  In March, Bank of America agreed to pay $410 million to settle overdraft claims.  The Bank of America settlement arose from a Florida-based MDL action, In re Checking Account Overdraft Litig., No. 09-MD-02036 (S.D. Fla. transferred June 10, 2009).  While Bank of America opted to settle, the remaining defendants chose to move for reconsideration of the pre-Concepcion denial of their motions to compel arbitration to enforce a class action waiver embedded in the arbitration clause.  That second set of motions was also denied, in an order issued earlier this month holding that Concepcion does not nullify all unconscionability-based defenses to the enforcement of arbitration agreements and class action waivers, and laying out a roadmap for post-Concepcion unconscionability analysis.  See In re Checking Account Overdraft Litig. (order denying renewed motions to compel arbitration) (available here).

The denial of defendants’ renewed arbitration motions presents an ideal before-and-after test case of Concepcion’s application, and reveals that Concepcion did not deal the death blow to the unconscionability doctrine as some had speculated.  The initial set of motions to compel arbitration was denied in May of 2010 because each of the defendants had required that the plaintiffs execute “deposit agreements,” requiring that all claims be arbitrated and prohibiting class actions; these terms were found to be unconscionable.  While that ruling precipitated the Bank of America settlement, the four remaining defendants—Branch Banking & Trust, M&T Bank, Regions Bank, and SunTrust—gambled on a favorable ruling by the U.S. Supreme Court in Concepcion.  These remaining defendants moved for reconsideration of the pre-Concepcion denial of the motions to compel arbitration following the Supreme Court’s 5-4 decision holding that similar terms in another consumer agreement (an arbitration clause and class action waiver) were inconsistent with and thus preempted by the Federal Arbitration Act (FAA).

Despite the seemingly on-point parallels with Concepcion, the defendants’ renewed motions to compel arbitration were denied, as Judge Lawrence King underscored that “Concepcion did not completely do away with unconscionability as a defense to the enforcement of arbitration agreements under the FAA.”  Order at 8.  Rather, Concepcion “simply narrows the permissible factors for consideration in the unconscionability analysis.” Id. at 9.  Judge King drew a sharp contrast between the “extremely consumer friendly” (id. at 4) arbitration agreement in Concepcion and the terms of the at-issue arbitration clauses.  For instance, the SunTrust arbitration agreement entitled the prevailing party to recover costs and attorney fees, and provided that those amounts could be removed from a losing customer’s SunTrust account, without notice.  See id. at 12.  Despite lacking the account-invading feature of the SunTrust agreement, both the Regions Bank and BB&T arbitration agreements provided only for the bank’s recovery of fees and costs as the prevailing party, not the customers’.  See id. at 15, 18.  These one-way fee shifting provisions were also held to be unconscionable, even under a post-Concepcion analysis.

In rigorously limiting Concepcion to its facts, the Checking Account Overdraft Litigation analysis provides the first example of a court distinguishing Concepcion on the basis of the specific provisions of the AT&T arbitration agreement.  In so doing, Checking Account Overdraft Litigation confirms that while unconscionability analysis is perhaps much transformed by Concepcion, it has not been rendered as toothless as some had predicted. 

When a class action goes to trial, it is a notable event, especially when there is over $70 million at stake.  The plaintiffs in Pippen v. Iowa (Iowa Dist. Ct. No. CL10738, filed Jul. 1, 2007) allege that the State of Iowa’s executive branch has systematically discriminated against black employees in hiring and promotion, resulting in an as much as $71 million in lost back pay and underpayment of current employees.  This figure does not include emotional damages, which could bring the total potential judgment to well over $100 million if the approximately 6,000-member class of plaintiffs receives a favorable judgment at trial.

The plaintiffs contend that Iowa neglected to follow its own training, testing, and documentation procedures, resulting in hiring and promotion decisions that are systematically biased against black candidates.  The state refutes these charges with an argument that the plaintiffs’ “unified theory of causation” cannot establish the necessary link between racial bias and statistically significant differences in the hiring and promotion of black and non-black employees, arguing that “African Americans’ employment successes vary widely by department, EEO category, job class and step within the hiring practices.”  Additionally, the state has posited that the proper damage award would be compensatory job interviews, not monetary relief.

Filed in 2007 and certified in September of 2010, Pippen v. Iowa appears to be the first certified Title VII discrimination case to go to trial following the U.S. Supreme Court’s Dukes v. Wal-Mart ruling, in which the Supreme Court reversed the certification of a class of approximately 1.5 million female Wal-Mart employees who had alleged discrimination in violation of Title VII.  A finding of liability in Pippen would likely result in an appeal by the defendant, which would inevitably address whether the significant difference in class size—Dukes’ 1.5 million versus the 6,000-member class in Pippen—provides a basis on which to distinguish Dukes.

In the latest action that will define the reach of the Supreme Court’s April ruling in AT&T Mobillity v. Concepcion, 131 S.Ct. 1740 (2011), the National Labor Relations Board (NLRB) will determine whether class action waivers in arbitration agreements violate the guarantee under the National Labor Relations Act (NLRA) that all non-government workers—union and non-union alike—must be permitted to engage in “concerted activities for the purpose of collective bargaining or other mutual aid and protection.”  29 U.S.C. § 157 (2011).  The case, D.R. Horton, Inc. (NLRB Case No. 12-CA-25764), has been fully briefed, and the NLRB may issue its ruling at any time.  Irrespective of the outcome, the losing party is expected to file an appeal, most likely in the Ninth Circuit.

At stake is whether Concepcion, which concerned a consumer contract, is properly applied to employment contracts.  If so, employers could insulate themselves from virtually all class actions seeking the enforcement of workplace laws by inserting arbitration clauses and class action waivers among the stacks of documents new employees sign.  Such a result could lead to the elimination of class actions in the employment context, since few workplace laws carry significant enough damages and penalties to justify individual lawsuits.  This could, in turn, result in the non-enforcement of a broad swath of employment laws.  By contrast, if the NLRB rules that Concepcion is inapplicable to employment contracts, workers’ long-standing ability to seek redress for violations of labor and employment laws, such as unpaid overtime or minimum wages, will remain intact.

Like Concepcion, the D.R. Horton case has its roots in California, as employees of homebuilder D.R. Horton, Inc. seek unpaid overtime by way of class-wide arbitration.  When the company invoked the class action waiver contained in the employees’ arbitration agreements, the employees responded by filing an NLRB complaint, alleging a violation of the NLRA’s “concerted activities” guarantee.  By making the NLRA guarantee the key issue of this case, the D.R. Horton plaintiffs will force the NLRB (and eventually, the Ninth Circuit) to address the tension between the federal government’s purportedly strong preference for arbitration, embodied in the Federal Arbitration Act, and the NLRA’s express protection of collective action by workers.  D.R. Horton is expected to be the second significant decision defining the application of Concepcion to workplace-protection statutes; this past July, in Brown v. Ralph’s Grocery Co., the California Court of Appeal held that Concepcion does not apply to the California Labor Code’s Private Attorneys General Act (PAGA).