PAGA Issue Will Continue To Percolate Through Federal Courts.
The United States Supreme Court today denied the petition for a writ of certiorari brought by CLS Transportation Los Angeles, LLC, No. 14-341. Left intact, for now, is the California Supreme Court’s holding in Iskanian v. CLS Transportation Los Angeles, LLC, 59 Cal.4th 348 (2014), that the Federal Arbitration Act does not preempt a state law that prohibits waiver of PAGA representative actions in an employment contract.
The denial of the petition should not come as a great shock. There was no conflict among decisions of state supreme courts or federal courts of appeal.
However, the issue is percolating through the federal district courts in California, and the outcomes have been mixed. The issue is also pending in the Ninth Circuit in Hopkins v. BCI Coca Cola Bottling Co., No. 13-56126.
Court Agreed With Trial Court That Parties’ Arbitration Agreement Expressly Excluded Statutory Claims From The Arbitration Obligation.
On July 14, 2014, I blogged about Rebolledo v. Tilly’s, Inc., in which the Court of Appeal, 4th District, Division 3, affirmed the trial court’s order denying an employer’s motion to compel arbitration of an employee’s putative class action regarding statutory wage claims. The key to the case was that the operative language in the employment agreement provided for arbitration, except for “matters governed by the California Labor Commissioner.” The Court of Appeal held that the employee’s statutory wage claims were within the jurisdiction of the California Labor Commissioner if they would have fallen within its jurisdiction, even if the claims were not brought before the Commissioner – and that was the case. Therefore, the statutory wage claims were excluded from arbitration. On August 6, 2014, the Court certified the case for publication.
Unconscionability Of Arbitration Clause Involved In Car Wash Employees’ Contracts Was At Issue In This Case
Today, Carmona v. Lincoln Millenium Car Wash, Inc., Case No. B248143 (2nd Dist. Div. 8 filed April 21, 2014) (certified for publication May 9, 2014), originally not certified for publication, has been ordered to be published in the Official Reports. On April 23, 2014, I posted about this case. The Court of Appeal affirmed the trial court’s order, finding the arbitration agreement to be permeated by unconscionability, and refusing severance. An interesting aspect of the case is the weight given by the Court, in concluding that there was a high degree of procedural unconscionability, to the employer’s failure to translate key provisions into Spanish for Spanish-speaking employees.
On February 26, 2014, I posted the Delaware Chancery Courthad petitioned SCOTUS to allow the Chancery Court to oversee private arbitrations. An arbitration forum provided by Chancery Court judges was thought to be attractive and a draw for large corporations, with heavy-weight commercial disputes, desiring the expertise of the Chancery Court and the privacy afforded by arbitration.
Denniston explains the Delaware legislature had adopted the arbitration experiment because “it was concerned that other nations might be able to attract corporations to organize there by setting up user-friendly, closed systems of business arbitration.”
If the First Amendment provides a right of access to civil proceedings, including arbitrations administered by Chancery Court judges, that’s likely to be less of a draw for the multinationals.
This case was argued before the Supreme Court on December 2, 2013. It presents a unique fact pattern concerning arbitration between an investor (BG Group PLC) and a sovereign state (Argentina). The issue to be resolved by this appeal to the Supreme Court is whether a court or the arbitrator will get to determine whether a precondition to arbitration has been satisﬁed.
BG had obtained a 2007 arbitral award of $185M, despite the fact that it had not followed a bilateral investment treaty (BIT) clause requiring that a precondition be met before bringing arbitration. After de novo review, the D.C. Circuit vacated, finding a failure to comply with an explicit intent to comply with an arbitration precondition.
Delaware Chancery Court Petitions SCOTUS To Allow Chancery Court To Oversee Private Arbitrations
As reported by the ABAJournal on January 22, 2014, Delaware seeks a writ of certiorari from SCOTUS to review the decision of the Third Circuit ruling that the Delaware Chancery Court’s corporate arbitration program violated the First Amendment because it involved secret trials.
Delaware’s Chancery Court is well-known for its expertise in corporate matters, and touts its arbitration program as a benefit for sophisticated corporate clients. Besides, it will argue, secret arbitrations aren’t really trials. The Chancery Court is represented by Andrew J. Pincus of Mayer Brown. Mr. Pincus represented AT&T in its significant SCOTUS victory over consumer plaintiffs in AT&T Mobility v. Concepcion, 131 S. Ct. 1740 (2011).
Grossman v. Park Fort Washington Association Is Ordered Published
On December 19, 2012, I posted about Grossman v. Park Fort Washington Association, Case No. F063125 (5th Dist. Dec. 19, 2012) (Franson, J.), a case in which the Court of Appeal held that the trial court correctly awarded fees for pre-litigation mediation to homeowners involved in a tussle with their homeowners association over construction of a backyard cabana and fireplace. Today, January 15, 2013, the Court of Appeal ordered the case to be published with minor changes that do not affect the judgment.
The Issue Is Also Pending In The California Supreme Court
The latest in the crop of cases concerning car sales contracts and petitions to compel arbitration isNatalini v. Import Motors, Inc., Case No. A133236 (1st Dist. Div. 1 January 7, 2013) (Simons, J., author) (unpublished). The Court had no trouble affirming the denial of the petition to arbitrate on grounds of procedural and substantive unconscionability. As recently as New Year’s Day, I posted about arbitration, unconscionability, and an auto sales contract involving a Dodge Avenger in another case.
The analysis here in Natalini fits the template for these cases: the contract is an adhesive “take it or leave it” contract, and there is an element of surprise, because the arbitration provision is not particularly conspicuous, on the back of a form, and not pointed out to the buyer. That satisfies the “procedural unconscionability” prong.
As to the “substantive unconscionability” prong, the arbitration provision shares characteristics of other one-sided arbitration provisions designed to favor the car dealer in car sales contracts. Thus, the arbitration provision authorizes an appeal resulting in new arbitration before a three-arbitrator panel only for an award of $0 or in excess of $100,000, the provision authorizes an appeal resulting in a new arbitration before a three-arbitrator panel if the award includes injunctive relief, and the provision exempts self-help remedies, perhaps the car dealer’s most significant remedies. Those provisions, treated as one-sided in other cases, added up to substantive unfairness. And because the arbitration provision can be considered “permeated by unconscionability” if it has more than one unlawful provision, the trial court does not abuse its discretion by declining to sever unconscionable aspects of provision.
Keep in mind that Sanchez v. Valencia Holding Company (S199119) is pending before the California Supreme Court. The issue presented in Sanchez is: “Does the Federal Arbitration Act . . . as interpreted in AT&T Mobility LLC v. Concepcion . . . preempt state law rules invalidating mandatory arbitration provisions in a consumer contract as procedurally and substantively unconscionable.”
In 2012, the big issue was class arbitration, with several states having pro-class-arbitration decisions reversed based on the Supreme Court’s 2011 ruling in Concepcion. In the federal courts, divergent views emerged on how to apply Stolt-Nielsen, a SCOTUS case holding arbitrators exceeded their authority under the Federal Arbitration Act by permitting class-wide arbitration under circumstances where the parties had stipulated that their agreement was silent as to the availability of class-wide arbitration. Ms. Kramer observes that this is a rapidly changing area of law about which SCOTUS seems “passionate”, and concludes, “I can’t wait to see what’s on Scalia’s naughty list in 2013!”
Double Header in 2013
“Two Games Today.” Puck. 1913. Library of Congress.
On November 20, 2012, I posted about American Express Co. under the heading, “Can An Arbitration Class Action Waiver Be Enforced If The Plaintiff Would Not Be Able To Effectively Vindicate Federal Statutory Rights Through Arbitration?”
“In my view,” writes Liz Kramer, “the real issue here is will SCOTUS acknowledge any expense-based exception to its arbitration precedent?” In other words, are economic realities ever a sufficient reason to nix arbitration? The Second Circuit believed the answer was yes, in the case of antitrust litigation. But Ms. Kramer opines that this decision is likely to be reversed.
Oxford Health Plans affords SCOTUS an opportunity to resolve the split over the application of Stolt-Nielsen. Does class-wide arbitration require express authorization, or can it be implied through the traditional methods of contract interpretation by the arbitrator?
Note: I have added Arbitration Nation to my Blogroll.
Federal Preemption Of California’s Broughton-Cruz Rule Exempting Claims For Public Injunctive Relief Is At Issue
On March 7, 2012, we posted about Kilgore v. KeyBank, 673 F.3d 947 (9th Cir. March 7, 2012) (authored by Judge Trott). Kilgore held that California’s Broughton-Cruz rule, which provides claims for public injunctive relief cannot be arbitrated, is preempted by the Federal Arbitration Act (FAA). The case was heard en banc on December 11, 2012, and the video of the hearing is available online.
Kilgore involved students of a private helicopter vocational school alleging the school had a preferred lender who knew the school was “a slowly unfolding disaster”, yet continued to make loans to the hapless students. The students sought to have the loans declared unenforceable and to prevent the lender from reporting defaults to credit reporting agencies. Because the students had to first get over the hurdle of an arbitration provision, the case presented the issue of whether the Broughton-Cruz rule provides a carve-out exception to arbitration on the facts here, and whether the rule is now preempted by the FAA. In the opinion authored by Judge Trott earlier this year, the court found preemption.
The estimable Kimberly A. Kralowec has posted two reports of last week’s hearing on The UCL Practitioner, the first by Eric Kingsley of Kingsley & Kingsley in Encino, the second by Edie Mermelstein of the Offices of F. Edie Mermelstein in Huntington Beach.
Arbitration Clause In Contract To Purchase Used Automobile Was Found To Be Procedurally and Substantively Unconscionable
On August 26, 2012, we posted about Goodridge v. KDF Automotive Group, Inc., Case No. D060269 (4th Dist. Div. 1 August 24, 2012) (McDonald, Acting P.J., author). On September 13, 2012, the Court ordered that the case be published. Footnote 1 of Goodridge notes, “the circumstances (e.g., preprinted contract and arbitration clause) and issues in this case are virtually identical to those in Sanchez v. Valencia Holding Co., LLC (2011) (A201 Cal.App.4th, review granted Mar. 21, 2012, S199119 (Sanchez). The California Supreme Court will likely make the ultimate determination of the issues discussed in this case.”