ADR Case Updates
Federal Arbitration Act Does Not Preempt California PAGA Claims, 08/03/2011
A MORE DETAILED SUMMARY OF THE LEAD CASE FOLLOWS:
In Brown v. Ralphs Grocery Company (July 12, 2011, Second Dist., Div. Five), ___ Cal. App. 4th ___, 2011 WL 2685959, a split California court of appeal held that the U.S. Supreme Court decision in AT& T Mobility LLC v. Concepcion et ux. (2011) __ U.S. __, 131 S. Ct. 1740 ("AT&T"), holding that the Federal Arbitration Act (FAA) preempts California law regarding class action waiver, does not apply to contractual waiver of private attorney general claim for Labor Code violations. Plaintiff filed a class action suit against her employers alleging wage and hour claims. She also alleged satisfying the perquisites to pursue a representative action under the California Private Attorney General Act of 2004 (PAGA). The employers petitioned to compel arbitration citing Plaintiff's employment agreement that contained an arbitration provision. The trial court denied the petition, finding that the class action waiver was invalid, and the PAGA waiver was unconscionable, rendering the entire agreement unenforceable. While the appeal was pending, the U.S. Supreme Court decided AT&T, holding that the FAA preempted California law regarding class action waivers in consumer arbitration agreements.
Reversed and Remanded. The California Supreme Court has distinguished class actions from representative PAGA actions in holding that class action requirements do not apply to representative actions brought under PAGA, a mechanism by which the state can enforce state labor laws through an employing suing under state authority to act as an agent of state labor law enforcement. AT&T dealt with class action waivers in consumer cases, but did not provide that a public right could be waived where such a waiver is contrary to state law. Moreover, in light of the differing purposes than class actions, PAGA did not conflict with the purposes of the FAA. The case was remanded back to the trial court to determine whether the PAGA claim can be severed, or if the entire arbitration clause is rendered unenforceable.
According to the dissent, the preemptive effect of the FAA requires enforcement of the PAGA waiver in the employment arbitration agreement of this case under the holding of AT&T.
In my opinion, this is the first of many cases that will test the limits of the holding in AT&T.
In Desert Outdoor Advertising v. Superior Court (Murphy) (June 17, 2011, First Dist., Div. One), 196 Cal. App. 4th 866, Plaintiff and its principals hired an attorney to defend them in litigation. The initial fee agreement did not contain an arbitration clause. The attorney changed firms in the middle of the litigation. The clients signed a new engagement and fee agreement that included an arbitration clause in understandable terms. After the clients lost the case, they sued the attorney and new law firm for malpractice.
The attorneys moved to compel arbitration. The clients opposed on the grounds that the attorneys breached their fiduciary duties in failing to separately disclose the arbitration clause in the new fee agreement. The trial court granted the motion and compelled arbitration. The clients sought a petition for writ of mandate.
Writ denied. A party's failure to carefully read a contract before signing it is not a defense to the contract's enforcement. Here, the clients alleged that the attorneys breached their fiduciary duties to them by failing to explain the arbitration clause that was not in the original fee agreement. However, there was no duty to explain to sophisticated business persons the arbitration clause in the new fee agreement that was clearly set forth. The clients were sent the new fee agreement, urged to read it, and encouraged to seek the advice of their own counsel before executing it. Thus, the clients' arguments failed and the arbitration clause was enforceable against them.
IN ADDITION, THE FOLLOWING CASES HOLD:
Hartley v. Superior Court (Monex Deposit Company) (June 28, 2011, Fourth Dist., Div. One), 196 Cal. App. 4th 1249, (in action by elderly widow to recover losses from purchasing silver on margin against a precious metals dealer, court errors in granting motion to compel arbitration where parties' agreement does not clearly and unmistakably give determination of arbitrability issue to arbitrator);
Momot v. Mastro, ___ F. 3d ___ (Ninth Cir., June 22, 2010), 2011 WL 2464781 (On the other hand, in asset purchase transaction, court errs in enjoining arbitration where parties clearly entered into agreement indicating intent to have arbitrators decide threshold questions of arbitrability);
Rebmann v. Rohde (June 28, 2011, Fourth Dist., Div. Three), 196 Cal. App. 4th 1283, (in commercial dispute, Arbitrator does not need to disclose that his parents were German Jewish escapees who fled the Holocaust, where such facts were entirely irrelevant to case notwithstanding claims that Defendant's father served in the German army during World War II and that his wife's father was in the Schutzstaffel [SS]);
Countrywide Home Loans, Inc., v. Mortgage Guaranty Insurance Corp., 642 F. 3d 849 (Ninth Cir., June 15, 2011), (in declaratory relief action involving insurance coverage that was filed in state court and then removed to federal district court under diversity jurisdiction, district court must consider motion to compel arbitration under Federal Arbitration Act before remanding back to state court under Declaratory Judgment Act);
M&M Foods, Inc., v. Pacific American Fish Co., Inc., (June 10, 2011, Second Dist., Div. Five), 196 Cal. App. 4th 554, (in an action involving an asset purchase agreement that contained an arbitration clause, the trial court denied plaintiff's motion to compel arbitration because plaintiff lacked standing, since only the bankruptcy trustee has right to compel arbitration of claims where plaintiff failed to schedule such claims in prior bankruptcy proceeding, which do not revert back to the debtor);
Zullo v. Superior Court (Inland Valley Publishing Co.) (June 21, 2011, Sixth Dist.), ___ Cal. App. 4th ___, 2011 WL 2453482 (employer's arbitration agreement is unconscionable and unenforceable where it was placed in employee handbook on take-it-or-leave-it basis);
Tutti Mangia Italian Grill, Inc., v. American Textile Maintenance Company (July 18, 2011, Second Dist., Div. Four), ___ Cal. App. 4th ___, 2011 WL 2853218 (Arbitration award against party absent at arbitration is proper where clause was self-executing and award was valid under rules incorporated therein);
California Parking Services, Inc., v. Soboba Band of Luiseno Indians (July 20, 2011, Fourth Dist., Div. Two), ___ Cal. App. 4th ___, 2011 WL 2853218 (Arbitration clause does not waive Indian Tribe's sovereign immunity because clause excluded rule providing consent to court jurisdiction).
Cape Flattery Limited v. Titan Maritime, LLC, ___ F. 3d ___ (Ninth Cir., July 26, 2011), 2011 WL 3076859 (Parties may agree to apply non-federal arbitrability law only where clear and unmistakable evidence shows such intent);
Van Dusen v. U.S. District Court (Swift Transportation Co., Inc.,) ___ F. 3d ___ (Ninth Cir., July 27, 2011), 2011 WL 3134584 (District court, as opposed to arbitrator, should resolve claim of exemption from arbitration under Section 1 of Federal Arbitration Act before compelling arbitration); and
Mission Viejo Emergency Medical Associates v. Beta Healthcare Group (July 27, 2011, Fourth Dist., Div. Three), ___ Cal. App. 4th ___, 2011 WL 2565363 (Court errs in finding arbitration provision unenforceable when provision was clearly stated in insurance policy and disclosure of provision was not required).
The California opinions are posted at: http://www.courts.ca.gov/opinions.htm; and the Ninth Circuit opinions at: http://www.ca9.uscourts.gov/opinions/.
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