Ninth Circuit Case of Morris v. Ernst and Young Is One Of The Three Cases.
On December 9, 2016, I linked my article on "The Politics of Arbitration" to this blog. In that article, I predicted, "Morris [v. Ernst and Young] could serve as a springboard for sending divergent opinions about the enforceability of arbitration provisions used to prevent 'concerted activity' by employees to the Supreme Court for review." It has now happened.
Mediator and arbitrator Ross Runkel reports today that SCOTUS agreed on January 13, 2017 to hear three cases relating to arbitration class action waivers: Morris v. Ernst and Young, NLRB v. Murphy Oil, and Epic Systems Corp. v. Lewis.
On September 11, 2016, we posted about the Uber Drivers cases, Mohamed v. Uber Technologies, Inc., et al., and Gillette v. Uber Technologies, Inc., Nos. 15-16178 and 15-16181 (9th Cir. 9/7/16). The 9th Circuit opinion penned by Judge Clifton held that the issue of arbitrability was effectively delegated to the arbitrator by "clear and unmistakable" language. Similarly, the issue of arbitrability of the PAGA claims was clearly and unmistakably delegated to the arbitrator in Mohamed's case, but Gillette's PAGA claim could proceed in court on a representative basis under the holding of Iskanian v. CLS Transp. L.A., LLC, 327 P.3d 129 (Cal. 2014).
On December 21, 2016, an Order and Amended Opinion was issued, deleting a single sentence from a single footnote in a 28 page opinion. With this amendment, the panel voted to deny the Petition for rehearing en banc. The Petition was circulated to the full court, without garnering any support.
Very interesting. So what was footnote 6, and what was deleted from it?
Footnote 6 noted that Plaintiffs had raised the argument that the class and collective action waivers in the arbitration agreements may violate the NLRA. However, since this was raised for the first time in a sur-reply, the untimely submission waived the argument. Okay so far. The argument that class and collective action waivers violate NLRA rules prohibiting "concerted activity" was adopted by two judges on the panel in the 9th Circuit case, Morris v. Ernst & Young, with Judge Ikuta strenuously dissenting. See our August 23, 2016 blog post on Morris.
This is what has been deleted from footnote 6:
"Even if the argument had been properly raised, however, the option to opt out meant that Uber drivers were not required 'to accept a class-action waiver as a condition of employment,' and thus there was 'no basis for concluding that [Uber] coerced [Plaintiffs] into waiving [their] right to file a class action' in violation of the NLRA. Johnmohammadi v. Bloomingdale's, Inc., 755 F.3d 1072, 1075 (9th Cir. 2014); see also Morris v. Ernst & Young, No. 13-16599, 2016 WL 4433080 at n.4 (Aug. 22, 2016)."
Perhaps some judges felt uncomfortable with dictum in footnote 4 of Morris, stating that there is no violation of the NLRA just because an employee could have opted out of the individual dispute resolution agreement and chose not to?
Usually changes to footnotes are not very important. This change strikes us as important, because of the ongoing issue regarding concerted activity, class action waivers, and the NLRA.
In The Fifth Circuit, D.R. Horton Inc. v. NLRB, 737 F.3d 344, Is Dispositive.
In an unpublished opinion, Citigroup Technology, et al. v. NLRB, 15-60856 (5th Cir. 12/8/16) (per curiam), the Fifth Circuit grants Citigroup’s Petition for Review, and reverses the NLRB’s decision adverse to Citigroup, which seeks to enforce arbitration of an employee’s claims.
As pointed out recently in my August 23, 2016 post about Morris v. Ernst & Young (No. 13-16599 (9th Cir. 8/22/16), the Ninth Circuit and Fifth Circuit are not on the same page when it comes to enforcing arbitration agreements containing collective/class action waivers. The Ninth Circuit held an employer violates sections 7 and 8 of the National Labor Relations Act by requiring employees to sign an agreement precluding them from bringing, in any forum, a concerted legal claim regarding wages, hours, and terms of conditions of employment.
In Citigroup Technology, supra, Citigroup specifically argued that the NLRB erred in concluding the employee “was engaged in protected concerted activity when she joined the demand for arbitration . . . “ Citigroup prevailed in the Fifth Circuit.
Whether collective/class action waivers embedded in arbitration clauses violate the NLRB’s rule against prohibiting concerted activity by employees is the subject of petitions to SCOTUS.
The Circuits Disagree About Class Action Waivers In Arbitration, The NLRA, And Prohibition Of “Concerted Activities” In Pursuit Of Employees’ “Mutual Aid Or Protection”.
On October 11, 2016, I blogged that on September 8, a petition for a writ of certiorari had been filed by the accounting firm in Morris v. Ernst & Young, presenting the issue: ““Whether the collective-bargaining provisions of the National Labor Relations Act prohibit the enforcement under the Federal Arbitration Act of an agreement requiring an employee to arbitrate claims against an employer on an individual, rather than collective basis.”
The same source for my earlier post, Kate Howard’s Petition of the Day in SCOTUSBlog, reported on November 2 that on September 9, a petition for a writ of certiorari was filed in National Labor Relations Board v. Murphy Oil USA, Inc.,16-307, presenting the issue: ”Whether arbitration agreements with individual employees that bar them from pursuing work-related claims on a collective or class basis in any forum are prohibited as an unfair labor practice under 29 U.S.C. § 158(a)(1), because they limit the employees’ right under the National Labor Relations Act to engage in “concerted activities” in pursuit of their “mutual aid or protection,” 29 U.S.C. § 157, and are therefore unenforceable under the savings clause of the Federal Arbitration Act, 9 U.S.C. § 2.
So now we have a collision between the Ninth Circuit in Morris v. Ernst & Young and the Fifth Circuit in NLRB v. Murphy Oil USA. And the arbitration class action waiver/”concerted activities” issue has been squarely presented to the Supreme Court in dueling petitions for writ of certiorari.
On August 23, 2016, I blogged that the issue in Morris v. Ernst & Young was clearly framed by the majority and minority opinions, and almost certainly headed for Supreme Court Review. In that Ninth Circuit case, the majority held that an employer violates sections 7 and 8 of the National Labor Relations Act by requiring employees to sign an agreement precluding them from bringing, in any forum, a concerted legal claim regarding wages, hours, and terms of conditions of employment.
On October 10, 2016, Kate Howard reports for SCOTUSBlog that a petition for a writ of certiorari was in fact filed on September 8, 2016, and states the issue as follows: “Whether the collective-bargaining provisions of the National Labor Relations Act prohibit the enforcement under the Federal Arbitration Act of an agreement requiring an employee to arbitrate claims against an employer on an individual, rather than collective basis.”
Currently, the most important number relating to SCOTUS is eight. With the high court split 4-4 into liberal and conservative wings, arbitration issues, which also tend to break along political lines, could be affected by the appointment of a ninth justice to fill the empty chair.
In his August 28, 2016 post, Prof. Kenneth Jost suggests, as I did in my August 23, 2016 post about Morris v. Ernst & Young, that the split among the circuits concerning the enforceability of employment contract clauses requiring disputes to be resolved through individual arbitration is likely to be headed to the Supreme Court for resolution --especially after the Ninth Circuit panel neatly framed the split with majority and dissenting opinions in Morris.
But Jost goes one step further, drawing a parallel between the contemporary arbitration clause intended to stop concerted activity by employees and the notorious “yellow-dog contracts” of yesteryear, prohibiting employees from joining unions.
Court Of Appeal Rejects Waiver, Estoppel And Forfeiture Arguments Made By Lessor Who Failed To Timely Exercise Right To “Baseball Arbitration” In Rental Dispute.
Miss Myrtle Rowe holding a baseball bat. March 14, 2010. Library of Congress.
“Baseball arbitration” takes its name from salary arbitration in Major League Baseball, in which the arbitrator must choose which of two positions is the more reasonable position. Baseball arbitration is sometimes employed in lease disputes, as it was in Zawtocki v. Black Angus Steakhouses, LLC, No. E062969 (4/2 8/11/16) (Ramirez, Hollenhorst, Miller) (unpublished).
Zawtocki leased to Black Angus Steakhouse. The lessee exercised an offer to extend the lease, the lessor offered to do so for $220,000/year, and the lessee countered with $140,000.
However, instead of timely exercising a right to require baseball arbitration under the lease, the lessor went sideways by failing to make a timely demand. As a consequence, the trial court denied the lessor’s petition to compel arbitration. The lessor appealed, contending, among other things, that he was entitled to relief from forfeiture, and that the forfeiture should be excused by waiver or estoppel.
The Court of Appeal rejected waiver, estoppel, and forfeiture arguments, analogizing the failure to timely exercise the right to arbitrate to a failure to timely exercise an option – something that is not a forfeiture. Affirmed.
Presumably the lessor is now stuck with the $140,000 rental amount. Or, as the Court of Appeal put it: “The arbitration petition is, so to speak, the whole ball game.”
Above: Judge James Wickersham in council with Indian chiefs. Fairbanks, Alaska. c1900-1907. Library of Congress.
“As a matter of federal law, an Indian tribe is subject to suit only where Congress has authorized the suit or the tribe has waived its [sovereign] immunity.” Kiowa Tribe v. Manufacturing Tech., 523 U.S. 751, 760 (1998). The issue in Findleton v. Coyote Valley Band of Pomo Indians, No. A142560 (1/2 7/29/16) (Stewart, Kline, Richman) was whether, as a matter of law subject to de novo review, the resolutions of the Tribe’s General Council authorized its Tribal Council to waive the Tribe’s sovereign immunity for purposes of arbitrating contractual disputes with construction contractor Robert Findleton.
Reversing the trial court, the Court of Appeal concluded that the resolution of the General Council authorized the Tribal Council to waive the Tribe’s tribal immunity, and the Tribal Council did so with a broadly worded resolution. On a remand, the trial court will probably have to decide whether the court or the arbitrator needs to decide whether tribal administrative remedies were exhausted.
Panel Holds That Lengthy Amount of Time Litigating In Federal Court “Will Almost Inevitably” Cause Parties To Expend More Time, Money, And Effort Than Had They Proceeded Directly To Arbitration.
In Martin v. Yasuda, No. 15-55696 (9th Cir. 7/21/16) (Reinhardt, Wardlaw, Bennet), defendants, a cosmetology school and its principal, petitioned the 9th Circuit to hear an appeal of the district court’s order denying their motion to compel arbitration with cosmetology students who claimed they should be paid as employees. The Ninth Circuit stayed the district court action and agreed to hear the appeal, but then affirmed the district court’s order that defendants had waived their right to arbitrate by their litigation conduct.
Defendants argued unsuccessfully that (a) the issue of waiver should have been decided by the arbitrator under the broad language of an AAA delegation rule; and (b) plaintiffs were not prejudiced by the delay.
The panel disagreed, holding that waiver, like other so-called “gateway issues” involving arbitrability, must be decided by the court. The panel acknowledged that the 8th Circuit has held that the arbitrator presumptively should decide if a party has waived the right to arbitration by litigation conduct, but sought to distinguish that holding on the grounds that the litigation conduct occurred in state court. Nat’l Am. Ins. Co. v. Transamerica Occidental Life Ins. Co., 328 F.3d 462 (8th Cir. 2003).
Though no evidence was actually presented that proceeding in arbitration will be more expensive than proceeding in court going forward, it appears that the 9th Circuit will infer that a lengthy amount of time litigating in the federal court system “will almost inevitably cause the parties to expend more time, money, and effort than had they proceeded directly to arbitration.”
Finally, the panel concluded that a motion to dismiss filed by defendants had resulted in prejudice to plaintiffs, because the dismissal of the motion without prejudice constituted an “adverse ruling”. As a consequence, any party that now brings a motion to dismiss and loses must be concerned that ipso facto they have waived their right to arbitrate.
DISCLOSURE: I participated in drafting the appellant’s petition to the 9th Circuit to stay the district court action while an appeal was pending, and my colleague Mike Hensley argued the appeal for appellants.
Employer Claimed Appeal Was Based On Entire Record, But Failed To Provide Court With Entire Record.
Employer ICC Collision Centers, Inc. appealed the trial court’s order denying its motion to compel its employee Ogannesian to arbitrate his wage/hour claims. The trial court had concluded that the employer waived its right to arbitrate by delaying too long and taking actions inconsistent with asserting the right to arbitrate. Ogannesian v. ICC Collision Centers, Inc., G049836 (4/3 6/14/16) (Ikola, Moore, Thompson) (unpublished).
On appeal, the chief problem identified by Justice Ikola was a “woefully inadequate record.” While the employer did include its motion to compel arbitration, which purported to be based on “the documents on file in this action,” in fact the employer did not include the entire court file on appeal.
In particular, the employer failed to include a case management statement filed by ICC’s prior counsel, and stating ICC “may file a Motion to Compel Arbitration and Stay Proceeding. . . “ This contradicted the employer’s implication on appeal that its prior counsel “was unaware the arbitration agreement even existed.” In addition, the employer opposed efforts to augment the record with the case management statement.
The employer’s opposition to the motion to augment the record seems to have left a sour taste with Justice Ikola. Troubled by the argument, he wrote, “it suggests we should be more concerned about [the employee’s] delay in designating a record than about [the employer’s] own apparent misrepresentation of fact.” Ouch! Affirmed.
Best line: “Apparently, ICC believes that what we do not know cannot hurt it.” Not so, since the “onus is on appellants” to provide a complete record!