ADR Case Updates
Divided Ninth Circuit Embraces Iskanian - PAGA Claims Not Subject To Arbitration; Recent Case Informs How To Draft Pre-Employment Arbitration Agreements To Be Enforceable; And More, 12/09/2015
Divided Ninth Circuit Embraces Iskanian - PAGA Claims Not Subject To Arbitration
In Sakkab v. Luxottica Retail North America, Inc., 803 F. 3d 425 (9th Cir. 2015), Shukri Sakkab sued his former employer, Lenscrafters, an eyewear retailer owned by Luxottica Retail North America, Inc. Plaintiff filed the complaint in the Superior Court of the State of California in and for the County of San Diego alleging a putative class action for wage and hour violations of the California Labor Code. Specifically, the complaint alleged that Sakkab and other employees were misclassified as supervisors so as to be exempt from overtime wages as well as meal periods and rest breaks. Luxottica removed the case to federal court. Sakkab amended the complaint to add representative claims under the Private Attorneys General Act of 2004 (PAGA), Cal. Lab. Code § 2698 et seq. Luxottica filed a motion to compel arbitration based upon the dispute resolution provision in its "Retail Associate Guide" that Sakkab had acknowledged in writing. Plaintiff argued that the arbitration agreement did not prevent him from bringing the PAGA claims. Rejecting this argument, the district court granted the motion to compel arbitration and dismissed the amended complaint holding that the Federal Arbitration Act (FAA), 9 U.S.C. § 2 et seq., preempted state law barring the waiver of PAGA claims. Sakkab timely appealed.
Reversed. Under the FAA, agreements to arbitrate "shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract." Therefore, under the savings clause, an arbitration provision can be invalidated by generally applicable contract defenses, such as fraud, duress, or unconscionability so long as those defenses do not apply solely to arbitration agreements. Rather, state-law contract defenses must place arbitration agreements on equal footing with other agreements. Because California law bars waiver of PAGA claims in arbitration and non-arbitration agreements, it is aligned with the savings clause. The FAA only preempts state laws that prohibit arbitration of specific types of claims and which interfere with enforcement of the terms of arbitration agreements. Here, California's bar to waiver of PAGA claims, as recently set forth in Iskanian v. CLS Transportation Los Angeles, LLC (2014) 59 Cal. 4th 348 (2014), is not preempted by the FAA because that bar does not prevent other claims from being arbitrated. Moreover, because representative PAGA claims do not require special procedures, they do not diminish a parties' freedom to select arbitration to settle disputes. Rather, the Iskanian rule merely prevents parties from opting out of a key feature of PAGA's private enforcement scheme, not arbitration.
The Dissent. In a strongly-worded dissent, Justice N. Randy Smith relied upon AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740 (2011), a case in which the high court reversed the Ninth Circuit. Concepcion held that the FAA preempts almost any state attempt to limit the enforceability of arbitration clauses. The Iskanian rule adopted by the majority forces the parties to lose the benefits of arbitration and frustrates the purposes of the FAA and is contrary to Concepcion by making the arbitration process slower, more costly, complex, likely to generate a "procedural morass," and exposing defendants to substantial unanticipated risk. Because the Iskanian rule stands as an obstacle to the purposes and objectives of the FAA, there is no question the rule must be preempted according to the dissent.
Analysis. That this decision was 2-1, and because the result turned on a visiting district judge in Illinois' Northern District (Judge Joan Humphrey Lefkow) sitting by designation, increases the chance of an en banc review by the full Ninth Circuit panel.
Further, review by the U.S. Supreme Court is quite possible in light of the high court recently granting certiorari in two prior cases that invalidated arbitration agreements under California law. The fist was MHN Government Services v. Zaborowski, 136 S. Ct. 27 (2015), where the Ninth Circuit invalidated a military contractor's arbitration agreement as unconscionable. The second was Imburgia v. DIRECTV, Inc., 135 S. Ct. 1547 (2015), where the California Court of Appeal held that customers do not need to arbitrate their class action against DIRECTV for allegedly charging improper fees where the arbitration provision conflicted with California law.
The fact that Sakkab v. Luxottica Retail North America, Inc., was a split Ninth Circuit opinion, and that the U.S. Supreme Court has granted certiorari in two earlier cases where arbitration clauses have been invalidated under California law, increase the chance that the Sakkab decision will not be the final word on whether the FAA preempts the rule in Iskanian that PAGA claims are not subject to arbitration.
In Denying Employer's Motion To Compel Arbitration, Recent Case Informs Factors Employers Should Consider To Make Pre-Employment Arbitration Agreement Enforceable
In Carlson v. Home Team Pest Defense, Inc., (2015) 239 Cal. App. 4th 619, Julie Carlson filed a wrongful termination action against her former employer, Home Team Pest Defense, Inc., for wrongful termination. Home Team brought a motion to compel arbitration based upon the company's electronic "onboarding system," which contained company policies, including Home Team's "Agreement to Arbitrate (Agreement)."
Carlson opposed the motion claiming that she was never able to gain access to the electronic boarding system and could not review the Agreement. Carlson explained that the HR Manager offered to try to find a telephone number Carlson could call "in a couple of weeks" to see if someone had a copy of the Agreement, but also advised Carlson that, in any case, Home Team would not negotiate its terms. Carlson was also told that she could not wait and review the Agreement when it became available, but would have to sign her employment agreement that day, or it would be viewed as a refusal of the job offer. Carlson alleged that she had to "blindly sign this Agreement" or she would lose the job offer and her unemployment benefits.
Finding that the Agreement was procedurally and substantively unconscionable, the trial court denied Home Team's motion to compel arbitration of Carlson's claims. Home Team timely appealed.
Affirmed. The Agreement was procedurally unconscionable because it was presented to the weaker party on a "take-it-or-leave-it basis." It was oppressive, and the failure to disclose the terms of arbitration and the applicable rules also constitute surprise.
The Agreement was also substantively unconscionable. It included many provisions that favored Home Team over Carlson. For example, Home Team retained the right to sue Carlson for injunctive relief but Carlson had no similar reciprocal rights. Home Team was exempt from having to arbitrate its most likely claims against Carlson for unfair competition while Carlson was required to relinquish her access to the courts for all of her nonstatutory claims. The Agreement also stated that after an employee had submitted a Request for Dispute Resolution, he or she was required to submit to an unspecified form of alternative dispute resolution before demanding arbitration. During that process, the employee was forbidden from being represented by legal counsel. Here, the alternative dispute mechanism built into the Agreement would give Home Team an even more significant advantage than the informal dispute resolution mechanism. Finally, the Agreement required the employee to pay a $120 filing fee within 90 days after making an initial Request for Dispute Resolution, after which all fees and expenses incurred in connection with the arbitration were to be split between the parties. The risk that a claimant may bear substantial costs of arbitration, not just the actual imposition of those costs, may discourage an employee from exercising the right to pursue any remedy against the employer.
Finally, the trial court did not abuse its discretion by failing to sever the unconscionable provisions in the Agreement because substantive unconscionability permeated the entire Agreement. Both the trial and appellate courts found particularly offensive the provision that required Carlson to arbitrate all of her nonexempt claims while Home Team enjoyed unfettered access to the court for its most important and likely claims against Carlson. Moreover, only Carlson was required to demand dispute resolution of her claims against Home Team, and any subsequent arbitration would be limited to those of her claims for which an attempt to settle had been made. During that pre-arbitration period, Carlson would not be allowed representation, including legal counsel. None of these limitations were imposed on Home Team.
Analysis. This case underscores the provisions that courts find offensive in arbitration agreements. When drafting an enforceable pre-employment arbitration clause, care must be taken to make the provision fair to the employee. For example, the agreement should be made available to the employee so that the actual terms may be reviewed well before requiring written acknowledgment. Also, the agreement should be reciprocal. Any rights or restrictions to the employee should also apply to the employer. Most importantly, employers must avoid requiring the employee to pay fees. This factor is given great weight by the courts. Finally, employers should not restrict legal counsel to the employee. By following these lesson gleaned from Carlson, and avoiding the pitfalls of procedural and substantive unconscionability, employers' counsel can draft a valid and enforceable arbitration agreement.
Used Car Dealer May Not Compel Arbitration Against Spanish-Speaking Buyer Who Reasonably Relied On Spanish-Translated Version Of Contract That Did Not Include Arbitration Clause Contained In English-Version Of Contract
In Ramos v. Westlake Services LLC, (2015) 242 Cal. App 4th 674, Alfred Ramos sued Westlake Services LLC based upon his purchase of a used automobile. Westlake moved to compel arbitration under the arbitration clause in the sales contract between the parties. In opposition to the motion, Ramos submitted declarations in which he alleged that he was greeted by one of the dealership's employees who spoke to him in Spanish, his native tongue. All negotiations were negotiated primarily in Spanish. Arbitration was never discussed. Ramos was given a Spanish-translated version of the contract that did not include the arbitration clause in the English-version of the contract that Ramos signed. Based upon these facts, the trial court denied the motion to compel arbitration finding that Westlake failed to establish the existence of an arbitration agreement with Ramos.
Affirmed. Parties to a contract dealing at arm's length have no duty to explain to each other the terms of a tentative written contract. Nor can a party escape liability because he or she has not read the contract. "If he cannot read, he should have it read or explained to him." Therefore, Ramos' inability to understand English would not be a defense to enforcement of the arbitration clause. However, Ramos did not challenge enforcement on that basis. Rather, he relied on the fact the he was provided with a Spanish translation of the English contract that did not include the arbitration clause. Thus, there was no mutual assent because the arbitration provision was hidden in the English contract, which constituted "fraud in the execution." Therefore, Westlake failed to establish an agreement to arbitrate.
Unconscionable Fee And Cost Provision Can Be Severed From Parties Arbitration Agreement And Case Remanded To Allow Arbitrator To Decide Arbitrability Of Class Claims
In Brinkley v. Monterey Financial Services, Inc., (2015) 242 Cal. App. 4th 314, Tiffany Brinkley brought a putative class action against Monterey Financial Services, Inc., following a dispute over real estate investment classes. She alleged claims for invasion of privacy, unlawful recording of telephone calls, and unfair business practices. Monterey successfully moved to compel arbitration of Brinkley's individual claims under an arbitration provision in the "Retail Installment Contract (RIC)" between the parties. The trial court also dismissed the class claims.
Affirmed in part, reversed in part, and remanded. Brinkley challenged the trial court's order requiring her to arbitrate her individual claims and the dismissal of her class claims on three grounds: (1) her claims fell outside the scope of the arbitration provision; (2) the arbitration provision was unconscionable and could not be enforced; and (3) the court erred in dismissing her class claims.
The RIC provided that the parties would arbitrate "any claim or dispute arising out of or in any way related to the Agreement ... ." Brinkley's claims fell squarely within the scope the RIC's broad arbitration provision.
Substantive unconscionability involves cases "where a clause or term in the contract is ... one-sided or overly harsh." Here, the RIC contained a fee and cost shifting provision whereby the arbitrator's award "shall include the payment of all fees and costs of the prevailing party." Such a provision was substantively unconscionable because it was contrary to Brinkley's statutory right under Washington law to bring an action and recover attorney fees if she prevailed, without the corresponding risk of paying Monterey's fees if she lost. However, this provision could be severed from the RIC because it did not permeate the entire agreement.
Finally, the trial court's order dismissing the class claims was reversed because the parties agreed to apply the American Arbitration Association's rules of arbitration that incorporated a provision delegating to the arbitrator the question of whether class arbitration was permissible under the agreement. Therefore, the case was remanded so that the arbitrator could decide the arbitrability of the class claims.
Arbitration Is Proper Where Arbitrator (Not Court) Must Determine If Collective Bargaining Agreement Still Operative
In IATSE v. InSync Show Productions, Inc., 801 F. 3d 1033 (9th Cir. 2015), the International Alliance of Theatrical Stage and Moving Picture Technicians, Artists, and Allied Crafts of the United States, its Territories and Canada and its Trusted Local 720 Las Vegas, Nevada (IATSE), and InSync Show Productions, Inc. (InSync) entered into a collective bargaining agreement (CBA) in 2003 containing both a grievance and arbitration procedure. The CBA also included an "evergreen clause" providing that the CBA "shall continue in full force and effect to and including December 31st, 2007, and from year to year thereafter." After the parties were unsuccessful in negotiation a successor CBA, IATSE filed a petition to compel arbitration in district court. The court granted the petition and stayed the case pending completion of arbitration. InSync appealed the order compelling arbitration.
Affirmed. Procedurally, the court exercised jurisdiction over the district court's order after determining it was a final order and thus appealable notwithstanding the fact that the order suggested the action was "stayed."
On the merits, Brotherhood of Teamsters & Auto Truck Drivers Local 70 v. Interstate Distributor Co., 832 F. 2d 507 (9th Cir. 1987), governed the approach to take in this case where the parties disagreed about the meaning and interpretation of a termination clause in their collective bargaining agreement, and whether the arbitrator should decide that question. Acts of repudiation and termination must be submitted to arbitration when a collective bargaining agreement contains a customary arbitration clause. The arbitration clause in the CBA in this case was similar in scope to that in Interstate Distributor, which held "that where a dispute exists over whether a contract with an arbitration clause has expired or been terminated, the proper initial inquiry for the court is whether the arbitration clause covers such a dispute, not whether the termination clause means what [either party] says it means." As in Interstate Distributor, the arbitration clause here clearly covers the dispute. It was up to the arbitrator, and not the court, to determine what the termination clause means and whether the CBA has been terminated. Therefore, the district's court order compelling arbitration was affirmed.
"Death Knell" Doctrine Applies To PAGA Claims Such That An Order Compelling Arbitration Of Individual Claims With A Dismissal Of Representative Claims Is Immediately Appealable
In Miranda v. Anderson Enterprises, Inc., (2015) 241 Cal. App. 4th 196, Isidro Miranda sued his former employer, Anderson Enterprises, Inc., asserting various wage and hour claims including a claim under the Labor Code Private Attorneys General Act of 2004 (PAGA; Lab. Code, § 2698 et seq.). Anderson moved to compel arbitration of Miranda's individual claim and dismissal of the representative PAGA claims pursuant to the "Alternative Dispute Resolution Policy" that Miranda had signed during his employment. The trial court dismissed the class and PAGA claims and ordered Miranda to arbitrate his individual claim. Although orders compelling arbitration are generally not immediately appeal, Miranda appealed claiming the "death knell" doctrine exemption to the "one final judgement rule" that allows immediate appeals. Anderson argued that the death knell doctrine applied only to class actions and not representative PAGA claims so the order was not appealable.
Reversed and remanded. Under the death knell doctrine, "an order which allows a plaintiff to pursue individual claims, but prevents the plaintiff from maintaining the claims as a class action ... is immediately appealable because it 'effectively rings the death knell for the class claims.'" It requires an order that "amounts to a de facto final judgment" for absent plaintiffs and persistence of the individual claims "creates a risk no formal judgment will ever be entered."
Application of the doctrine should apply equally to representative PAGA claims. "The rationale underlying the death knell doctrine - 'that without the incentive of a possible group recovery the individual plaintiff may find it economically imprudent to pursue his lawsuit to a final judgment and then seek appellate review of an adverse class determination' thereby rendering the order 'effectively immunized by circumstances from appellate review' - applies equally to representative PAGA claims." Therefore, the order was appealable.
In the unpublished portion of the opinion, the appellate court relied upon the recent California Supreme Court decision in Iskanian v. CLS Transportation Los Angeles, LLC (2014) 59 Cal. 4th 348 (2014), which was rendered after the subject trial court order was appealed. Accordingly, the trial court order dismissing Miranda's representative PAGA claim and compelling arbitration of the individual PAGA claim was reversed and the matter remanded to the trial court.
Employer's Petition To Compel Arbitration Should Have Been Granted Because Truck Drivers' "Independent Contractor Agreements" Not Exempt Under Federal Arbitration Act
In Performance Team Freight Systems, Inc., v. Aleman (2015) 241 Cal. App. 4th 1233, the plaintiffs were truck drivers for defendant Performance Team Freight Systems who filed wage claims against Performance for unreimbursed business expenses and improper deductions. Performance petitioned to compel arbitration based upon arbitration provisions in the "Independent Contractor Agreements" the plaintiffs had entered into with Performance. The trial court denied the petition and refused to compel arbitration, finding that the agreements were exempt from the Federal Arbitration Act (9 U.S.C. § 1 et seq.) because the truck drivers were transportation workers and arbitration was not compelled under California law. The trial court also found that the arbitration provisions did not apply to the individual claims of the truck drivers.
Reversed and remanded. Section 1 of the FAA exempts from its coverage "contracts of employment of seaman, railroad employees, or any other class of workers engaged in foreign or interstate commerce." The issue was whether plaintiffs were "employees" engaged in interstate commerce. Unless the non-moving party (the truck drivers) proves the FAA does not apply, the court should apply the characterization of the relationship described in the parties' agreement. The agreements themselves were the only relevant evidence that was admitted regarding whether the agreements were contracts of employment. They characterized the truck drivers as independent contractors and therefore weighed against contracts of employment. The drivers failed to introduce any rebuttal evidence. Thus, the trial court erred in finding the agreements were not governed by the FAA. Moreover, the drivers' claims fell within the broad scope of the arbitration provision.
Union's Petition To Compel Arbitration Not Barred By Statute Of Limitations - Medical's Center 5-Month Delay In Responding To Arbitration Request Violates Good Faith
In SEIU v. Los Robles Regional Medical Center, 2015 WL 7769373 (9th Cir. Dec. 3, 2015), Service Employees International Union, United Healthcare Workers-West, sought to arbitrate a grievance with Los Robles Regional Medical Center, alleging a violation of the Collective Bargaining Agreement (CBA) between the parties. The Union generally followed the three-step grievance process under the CBA. After subsequent communication did not resolve the dispute, the Union ultimately sent a written demand for arbitration. The Medical Center failed to respond for five months, prompting the Union to file a petition to compel arbitration. Finding the Union's petition time-barred, the district court granted the Medical Center's motion for summary judgement.
Reversed and remanded. Under Section 301 of the Labor Management Relations Act, 29 U.S.C. Section 185, a claim for a petition to compel arbitration has a six-month statute of limitation. "Only an 'unequivocal, express rejection of the union's request for arbitration' will start the ... limitations period ... ." Here, the Union did not request arbitration until January 17, 2012. Therefore, contrary to the district court's finding, an earlier email from the Medical Center was not a rejection of the arbitration request. Rather, the Medical Center's later letter dated June 22, 2012, unequivocally stated it "will not arbitrate this matter," and triggered the running of the six-month statute. Therefore, the petition to compel was timely as it was filed on September 20, 2012. Moreover, the Medical Center's five-month delay in responding to the request to arbitrate constituted a violation of good faith.
AB 465 That Would Have Barred Pre-Dispute Arbitration Agreements As A Condition Of Employment Vetoed By Governor
On October 11, 2015, Gov. Jerry Brown vetoed Assembly Bill 465, which would have barred pre-dispute arbitration as a condition of employment. Citing "years of costly litigation and legal uncertainty," the Governor's veto statement read, "A blanket ban on mandatory arbitration agreements is a far-reaching approach that has been consistently struck down in other states as violating the Federal Arbitration Act." AB465 would have stopped employers from making new hires waive their right to sue over state labor code violations as a condition of employment.
The California opinions are posted at: click here, the Ninth Circuit opinions at: click here.
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