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The Supreme Court has issued the most recent installment in its serial neutering of class and representative actions. See Genesis HealthCare Corp. v. Symczyk, 569 U.S ___ (2013) (slip opinion available here). Justice Clarence Thomas wrote the 5-4 majority opinion that staked out a holding contrary to longstanding authority prohibiting class and collective action defendants from “picking off” named plaintiffs.

The Symczyk plaintiffs had alleged that their employer arbitrarily subtracted 30 minutes from employees’ daily aggregate clocked-in time to account for meal breaks, irrespective of whether any breaks were actually taken, which resulted in employees not receiving overtime pay they were entitled to. The employer/defendant offered the named plaintiff $7500 to abandon the suit. When the plaintiff didn’t respond to the offer, the defendant asked the federal trial court to dismiss the case as moot, since the settlement offer met or exceeded any amount that the plaintiff would be able to recover in an individual lawsuit. Slip op. at 1-2.

The majority opinion first acknowledges (and declines to resolve) a Circuit split before concluding that the Supreme Court was simply without the power to address the issue: “The Third Circuit clearly held in this case that respondent’s individual claim was moot. 656 F. 3d, at 201. Acceptance of respondent’s argument to the contrary now would alter the Court of Appeals’ judgment, which is impermissible in the absence of a cross-petition from respondent.” Slip op. at 5. The immovable constraint of the mootness issue not being properly before the court thus had the fortuitous consequence of allowing the Third Circuit’s ruling to stand, to the effect that the $7500 offer had in fact mooted the case. By contrast, the Third Circuit had also ruled that, even though the plaintiff’s personal claim was moot, the case could nonetheless go forward if other employees opted into the FLSA collection action. On this point, the majority found itself fully empowered to overrule the Third Circuit, and did so. See slip op. at 10-11.

The dissent took the position long-codified in class and representative action case law that a mere offer to pay off a named plaintiff does not suffice to “moot” a case, the essence of which concerns the numerous other employees who are not the named plaintiff. The dissent presented a lengthy and pragmatic hypothetical, where fictional plaintiff Ms. Smith is presented with a settlement offer, which she declines in favor of moving forward with a representative action. After stating unequivocally that such a scenario could not serve to moot Smith’s claims, Justice Kagan added a twist to the hypo to highlight the absurdity of the result in this case:

[S]uppose the defendant additionally requests that the court enter judgment in Smith’s favor—though over her objection—for the amount offered to satisfy her individual claim. Could a court approve that motion and then declare the case over on the ground that Smith has no further stake in it? That course would be less preposterous than what the court did here; at least Smith, unlike Symczyk, would get some money. But it would be impermissible as well.

Slip op. dissent at 6-7 (Kagan, J.).

Although the underlying legal analysis is entirely unrelated to doctrines applicable to the Federal Arbitration Act (FAA) or satisfaction of Federal Rule 23’s predominance requirement, the Symczyk majority is composed of precisely the same justices as AT&T Mobility v. Concepcion and Wal-Mart v. Dukes.

Judge Susan Illston has stymied an employer’s attempt to force into arbitration a group of employees alleging that they were erroneously classified as independent contractors. See Zaborowski v. MHN Govt. Servs., Inc., No. 12-5109 (N.D. Cal. Apr. 3, 2012) (order denying motion to compel arbitration). The plaintiffs contend that by misclassifying them as independent contractors, their employer avoided providing them with benefits they are entitled to under California law. Judge Illston found the employment contract that plaintiffs signed to be “so permeated with unconscionability” that the arbitration clause within the contract was rendered unenforceable. Order at 13.

She began her analysis by noting that “Concepcion explicitly reaffirmed California’s general contract defense of unconscionability as applied to arbitration agreements,” adding that “[o]nly ‘defenses that apply only to arbitration or that derive their meaning from the fact that an agreement to arbitrate is at issue’ are preempted by the FAA, and therefore invalid,” quoting directly from the Supreme Court’s Concepcion decision to underscore the continued vitality of California’s unconscionability doctrine. Order at 4.

Judge Illston proceeded to enumerate the various ways in which the at-issue arbitration clause is unconscionable (order at 5-10):

• The arbitration clause is buried in the last of 23 paragraphs, and not set apart or highlighted in any way;
• Signing the arbitration clause was a condition of employment, with no opportunity to negotiate the terms;
• The clause imposes a six-month statute of limitations, far shorter than the usual three-year statute of limitations applicable to workplace violations;
• The clause unilaterally empowers the employer to choose the pool of arbitrators;
• Discovery is limited so as to disadvantage employees;
• The arbitration provision has the effect of negating California fee-shifting statutes designed to address the inherent asymmetry in resources between employers and employees; and
• Similarly, by prohibiting the arbitrator from awarding punitive damages, the arbitration provision further eliminates statutory protections.

Judge Illston concluded that the unconscionable provisions so permeated the at-issue arbitration clause as to not be severable, and on that basis denied the defendant’s motion. While unconscionability analysis is typically fact- and case-specific, the Zaborowski decision is likely to be much-cited by counsel and relied on by judges, as it addresses provisions that frequently appear in the arbitration clauses that are part of employment contracts.

Last week, a twelve-member Ninth Circuit en banc panel issued a new decision in the battle over arbitration and the U.S. Supreme Court’s holding in AT&T Mobility v. Concepcion. See Kilgore v. KeyBank Nat’l Assn., No. 10-15934 (9th Cir. Apr. 11, 2013) (slip opinion available here). In Kilgore, students at a flight-training school sued KeyBank, the originator of their student loans, after KeyBank and the school allegedly colluded to mislead and defraud the students. A three-judge Ninth Circuit panel previously ruled that Concepcion overruled Broughton v. Cigna Healthplans, 21 Cal. 4th 1066, 988 P.2d 67 (1999), and Cruz v. PacifiCare Health Systems, Inc., 30 Cal. 4th 303 (2003), which held that public injunctive relief claims are not arbitrable as a matter of California public policy, in the CLRA and UCL contexts, respectively. See slip op. at 14-16.

In an opinion by Andrew D. Hurwitz, the en banc panel held that the district court should have compelled arbitration because the at-issue arbitration clause did not fall under the public injunction exception to the Federal Arbitration Act (FAA). See slip op. at 6. Accordingly, as the public injunction exception did not apply, the decision did not take the position that Concepcion overruled Broughton and Cruz. Instead, the decision embraces a public/private distinction that could inform the continuing debate around Concepcion’s scope. See slip op. at 16-17. The majority also rejected the plaintiffs’ contention that the at-issue arbitration clause is unconscionable under California law. See slip op. at 12-14.

In a compelling dissent, grounded in the case’s real-life facts rather than arcane doctrines purporting to divine the FAA’s application to Kilgore’s claim against KeyBank, Judge Harry Pregerson detailed the career “crash landing” awaiting the flight-training students who found themselves deeply in debt and without a job. See slip op. at 19-21 (Pregerson, J., dissenting). Pregerson concluded that “the majority opinion strips [the plaintiffs] and their classmates of the ability to find recourse in state or federal court,” and contrary to the majority found the at-issue arbitration clause substantively and procedurally unconscionable under California law. Slip op. at 22-26.

Connecting the unconscionability analysis to the purported efficiencies realized through arbitration, with distinctive candor and pragmatism, Pregerson explained that filing a claim in arbitration costs at least eight times more than filing the same case in California Superior Court, and that “[t]he high cost of arbitration will prevent many students from vindicating their rights, but will not limit KeyBank’s ability to defend itself. This asymmetry makes arbitration all the more unconscionable.” Slip op. at 25 (Pregerson, J., dissenting).

While many predicted that 2012 would be the year in which interpretations of the U.S. Supreme Court’s ruling in Dukes v. Wal-Mart (131 S. Ct. 2541 (2011)) would effectively spell the end of class actions, this year has instead produced numerous pro-class judicial decisions, despite the more rigorous standards imposed by Dukes.

At the year’s outset, the Seventh Circuit affirmed class certification of wage and hour claims in a decision that provided considerable guidance as to the Dukes commonality requirement. In Ross v. Charter One, No. 10-3848 (7th Cir. Jan. 27, 2012), the Seventh Circuit found that Dukes did not require reversal of class certification, because the plaintiffs had shown sufficient evidence of classwide employment policies relating to unpaid overtime. Also in January, in Winfield v. Citibank, No. 10-7304 (S.D.N.Y. Jan. 27, 2012), the court granted conditional certification. In so ruling, New York’s Southern District rejected the application of Dukes v. Wal-Mart to motions for conditional certification under the FLSA. Similarly, in Myles v. Prosperity Mortgage Co., No. 11-01234 (D. Md. May 31, 2012), conditional FLSA certification was granted in an action alleging misclassification, with the express holding that Dukes is inapplicable at the certification stage of an FLSA action.

In addition to finding the post-Dukes defeat of class certification more difficult than expected, defendants also found themselves frequently rebuffed when attempting to decertify a previously certified class in light of Dukes. For instance, in Driver v. AppleIllinois, No. 06-6149 (N.D. Ill. Mar. 2, 2012), although the defendant argued that Dukes required the decertification of a wage and hour class, the court distinguished Dukes because class treatment in Dukes would have required the assessment of numerous subjective employment decisions, whereas class treatment in Driver was found to solely entail “strictly objective” issues of law and fact. Likewise, in Lyons v. Citizens Fin. Grp., No. 11-11187 (D. Mass. Nov. 9, 2012), the trial court responded to the First Circuit’s request that its certification ruling be revisited in light of Dukes by affirming its earlier certification of a class alleging misclassification and non-payment of overtime. And in California’s Northern District, in Ellis v. Costco, No. 04-3341 (N.D. Cal. Sept. 25, 2012), the court certified a class and meticulously distinguished the Title VII claims in that case from the far larger class that had been proposed in Dukes. This broader, plaintiff-friendly trend continued, as California’s Southern District narrowly interpreted Dukes by granting certification in Johns v. Bayer Corp., 09-1935 (S.D. Cal. Feb. 3, 2012).

Even the putatively conservative Seventh Circuit, in the person of Judge Richard Posner, participated in this trend. Early in 2012, in McReynolds v. Merrill Lynch, 672 F.3d 482 (7th Cir. 2012), Posner cautioned trial court judges to apply the same analytical rigor required by Dukes in denying class certification motions as they do to granting them. Later, in Butler v. Sears, Roebuck & Co., Nos. 11-8029, 12-8030 (7th Cir. Nov. 13, 2012), Posner set out to “clarify the concept of ‘predominance’ in class action litigation” in light of Dukes, and in so doing established analysis that, while more rigorous than in the pre-Dukes era, is hardly insurmountable for plaintiffs. And within the influential Second Circuit, in Chen-Oster v. Goldman Sachs, No. 10-6950 (S.D.N.Y. Jul. 17, 2012), the court rebuffed the defendant’s motion to strike class allegations, largely rejecting the defendant’s Dukes-based analysis.

Finally, in the ultimate testament to the post-Dukes vitality of class actions, Dukes itself was re-filed, with a streamlined class definition, in late 2011. Throughout 2012, Wal-Mart pursued a motion to dismiss, which was denied by Judge Charles Breyer in September. Dukes v. Wal-Mart, No. 01-2252, Dkt. No. 812 (N.D. Cal. Sept., 21, 2012) (Order Denying Motion to Dismiss). Thus, Dukes v. Wal-Mart, filed more than a decade ago, remains pending in California’s Northern District, having survived its own landmark U.S. Supreme Court ruling.