California Mediation and Arbitration

Arbitration, FAA: Federal Arbitration Act Applied To Intrastate Driver Who Worked For Paratransit Service For Persons With Disabilities

Federal Preemption Of California's Gentry Rule Means Class Action Waiver Can Be Enforced.

        David Evenskaas, a driver, filed a wage and hour lawsuit against his employer, California Transit, Inc., which operates paratransit services for persons with disabilities in West and Central Los Angeles.  Evenskaas's employment agreement included a broad arbitration agreement with a class action waiver that the employer tried, unsuccessfully, to enforce in the trial court. The employer appealed. Evenskaas v. California Transit, Inc., B308354 (2/7  7/15/22) (Segal, Perluss, Feuer). 

        The issue was whether the Federal Arbitration Act preempted California law and the rule in Gentry v. Superior Court, 42 Cal.4th 443 (2007), which holds that certain class action waivers in employment arbitration agreements are unenforceable. The trial court had determined that interstate commerce was not involved, because California Transit, Inc. operated in California, and absent involvement in interstate commerce, there could be no federal preemption by the FAA.

        However, the Court of Appeal reached a different result, distinguishing those cases holding intrastate activities not affecting interstate commerce do not trigger federal preemption. "None of them involved an arbitration agreement between an employer and an employee hired to provide commercial services required by federal law enacted by Congress under its commerce power. Moreover, in Carbajal, Lane, and Woolls the party arguing the FAA applied did not present evidence of the party’s business that would show a connection to interstate commerce." The ADA is enacted with Congress exercising its commerce powers to the fullest, and transportation through a paratransit service affects the ability of persons with disabilities to participate in the national economy.

        COMMENT: If the driver, like a trucker, fell within a class of workers who was actually engaged in interstate commerce, then he would specifically be excluded from coverage under the FAA. 9 USC § 1.

 

 

 

 

Arbitration, Class, Waiver, FINRA: FINRA Rules Preventing Arbitration Of Class Actions Do Not Apply When There Is A Class Action Waiver

The Class Action Waiver Is Enforceable.

         When a financial advisor brought a putative class action against Credit Suisse for deferred compensation, Credit Suisse moved successfully to dismiss based on an arbitration requirement in its Employee Dispute Resolution Program. The financial advisor appealed, arguing that Financial Industry Regulatory Authority (FINRA) rule Rule 13204(a)(4) barred arbitration of his claim. Cristopher M. Laver v. Credit Suisse Securities (USA) LLC, No. . 18-16328 (9th Cir.  9/18/20) (Feinerman, Gould, Murguia).

        The FINRA rule provides in part, "A member or associated person may not enforce any arbitration agreement against a member of a certified or putative class action with respect to any claim that is the subject of the certified or putative class action" until certain conditions are met, for example, until there is a denial of  class certification.

        So why didn't the FINRA rule apply to bar arbitration of Mr.  Laver's class action claim? Because there was also a class action waiver, and the FINRA rules do not make a class action waiver unenforceable. Because the class action waiver is effective, there can be no class action, thus making the FINRA rule barring arbitration of class action claims inapplicable.

 

Arbitration: On Issue Of First Impression, 9th Circuit Holds Arbitration Obligations Survived Contract Termination

Shivkov v Artex Risk Solutions Arises From Tax Shelter Gone Sideways . . .

        The numerous Plaintiffs in Shivkov, et al v. Artex Risk Solutions, Inc., et al, No. 19-16746 (9th Cir.  9/9/20) (Smith, Fisher, Hawkins), probably felt that the Artex Risk Solutions was a misnomer by the time they brought suit. Defendants allegedly set up and managed "captive" insurance companies owned by Plaintiffs, to which Plaintiffs paid insurance premiums, claiming the insurance premiums as tax-deductible business expenses without recognizing them as income. Evidently the IRS had other ideas, for as the Court of Appeals wryly observes, "Although this arrangement offered the prospect of tax benefits, that prospect proved fleeting." After having to deal with an audit, delinquency notices, and threatened penalties, Plaintiffs brought suit against Defendants, alleging that the captive insurance companies "were illegal and abusive tax shelters, about which Defendants failed to inform or  advise Plaintiffs." Risk solutions too good to be true?

        Defendants, including some non-signatories, moved to compel arbitration, the trial court granted Defendants' motion to compel, and Plaintiffs appealed.

        The most interesting part of the opinion is "an issue of first impression in our circuit concerning the survival of arbitration obligations following contract termination," as to which the Court of Appeals holds: "the Agreements do not expressly negate the presumption in favor of post-termination arbitration or clearly imply that the parties did not intend for their arbitration obligations to survive termination." So the arbitration obligations survived. If arbitration obligations did not regularly survive contract termination, a party could always avoid arbitration by terminating a contract.

        The Court also held that Arizona state law recognized no fiduciary duty to point out and fully explain an arbitration clause. The arbitration clause encompassed all Plaintiffs' claims here. The availability of class arbitration was a gateway issue to be decided by the court, because there was no "clear and unmistakable" delegation of that issue to the arbitrator. And because the agreements were silent about class arbitration, they did not permit class arbitration. Finally, non-signatories, who were sued for alleged wrongs that arose from the contracts between the parties that Plaintiffs relied upon to bring suit, could invoke the arbitration clause.

        Affirmed.

        COMMENT: The slip opinion is 36 pages long. I appreciate the Court's concise enumeration of  its resolution of the issues at the beginning of the opinion.

Arbitration, Class, Waiver, Construction: Third District Holds Plaintiff Only Waived Right To Bring Class Action Lawsuit, Not Class Arbitration

Court Of Appeal Reverses Order Denying Motion To Compel Arbitration Of Class Claim.

        In an employment dispute, the trial court denied plaintiff' Garner's ability to  pursue class action claims in arbitration, relying on "language in the arbitration agreement stating that Garner waived his right to participate in class action lawsuits." Chris Garner v. Inter-State Oil Company, C088374 (3rd Dist.  7/23/20) (Mauro, Robie, Duarte). Garner appealed.

        One clause in the arbitration expressly provided for arbitration of  class actions, i.e., "any and all claims arising out of or related to your employment that could be filed ina a court of law, including . . . class action . . . shall be submitted to final and binding arbitration . . ."

        Therefore, respondent Inter-State Oil Company argued a second clause -- the one relied on by the trial court -- resulted in a waiver of the right to arbitrate a class action, because it provided that the employee "waived his right to 'participation in a civil class action lawsuit . .  .'" 

        The Court of Appeal harmonized the two provisions in favor of the employee, pointing out the obvious:  "Lawsuits generally refer to court actions." Therefore, the parties had agreed that the employee could arbitrate class actions, and also agreed that the  employee could not litigate class action lawsuits in court. 

        The Court of Appeal concluded that both the employee's individual and class claims required arbitration. 

 

Arbitration, Class Actions, Waiver, Construction of Agreement: SCOTUS Rules That Class Arbitration Is Not Allowed When Agreement Is Ambiguous

Majority Rejects State Law Rule That Ambiguous Contracts Are Interpreted Against The Drafter Because . . . 

    Frank Varela, an employee of Petitioner Lamps Plus, Inc., sued Lamps Plus because a hacker tricked Varela's employer into disclosing tax information about 1,300 employees. Mr. Varela was understandably miffed after a fraudulent income tax return was filed in his name. Lamps Plus sought to compel arbitration on an individual basis, relying on an arbitration provision. The District Court rejected the request for individual arbitration, but authorized class arbitration, and the Ninth Circuit affirmed. So Lamps Plus petitioned to the Supreme Court. Lamps Plus, Inc., et al. v. Varela, No. 17-988 (S.Ct.  4/24/19).

    It is established law that classwide arbitration may not be compelled when an agreement is silent about its availability. Stolt-Nielsen S.A. v. AnimalFeeds Int'l Corp., 559 U.S. 662 (2010). However, the Ninth Circuit believed that Stolt-Nielsen was not controlling, because in that case, the parties stipulated the agreement was silent, but here, the agreement was ambiguous. Therefore, the rule of interpreting an agreement against the drafter (contra proferentem) allowed the court to interpret the ambiguity against the draftsman/employer, and in favor of the employee.

    AT&T v. Concepcion, 559 U.S. 333 (2011) allowed for the application of defenses to arbitration when the defenses were neutral and did not uniquely burden arbitration. And it would seem that the contra preferentem rule of contractual interpretation, applied here by the employee to defend against individual arbitration, and to use in favor of class arbitration, would qualify as a neutral rule, since the rule applies to arbitration clauses as well as to other contractual clauses. 

    However, the SCOTUS majority, which is very much in favor of arbitration and specifically, individual arbitration, concluded that under the Federal Arbitration Act, an ambiguous agreement cannot provide a basis for class arbitration.

    Here's the scorecard with a brief summary of the opinions:

    1. Chief Justice Roberts delivered the Court's opinion, in which Thomas, Alito, Gorsuch, and Kavanaugh joined. The majority held that it had jurisdiction to hear the appeal, because even though the District Court compelled arbitration, the fact that it allowed for class arbitration instead of individual arbitration, meant a "fundamental" change, and resulted in a denial of the relief Lamps Plus was requesting. The FAA, rather than the state rule of contract interpretation, provided the default rule for resolving ambiguities in arbitration agreements, and here the majority concluded that ambiguity meant a lack of consent to class arbitration.

    2. Justice Thomas filed a concurring opinion. Thomas remains "skeptical of this Court's implied pre-emption precedents." But he remained comfortable with the majority opinion, because he believed that the contract was silent about class action, and thus Stolt-Nielsen applied, and he believed that California law would also reach the conclusion that the arbitration  provision did not provide a basis for class arbitration.

    3.  Justice Ginsburg, with whom Justices Breyer and Sotomayor joined, dissented, and joined Justice Kagan's dissent in full. The thrust of Ginsburg's dissent is that the FAA was intended "to enable merchants of roughly equal bargaining power to enter into binding agreements to arbitrate commercial disputes" (quoting from her own dissent in Epic Systems Corp.), and current jurisprudence has taken a turn to thwart "effective access to justice" for those who lack power and encounter violations of their rights (to quote another Ginsburg dissent in DIRECTV).

    4. Justice Breyer dissented, believing that there was no jurisdiction, based on Lamps Plus' appeal from an order allowing arbitration. Typically, there is no appeal from an order allowing arbitration, because such an order is interlocutory, rather than final, unlike a district court order refusing to compel arbitration. And because the order granting Lamps Plus' motion to compel was interlocutory, the District Court's dismissal of the case in the very same order was improper, according to Breyer. Lastly, Breyer disagreed with the majority's conclusion that class arbitration is so "fundamental[l]y" different from individual arbitration, that the District Court did not really grant a motion to arbitrate (which would be interlocutory), but rather denied the relief Lamps Plus really wanted. While class arbitration may be different than individual arbitration, Breyer argued that class arbitration was still arbitration, and that an order allowing class arbitration was still interlocutory.

    5. Justice Sotomayor dissented, joining Justice Ginsburg's dissent in full and Part II of Justice Kagan's dissent. She believed "[t]his Court went wrong years ago in concluding that a 'shift from bilateral arbitration to class-action arbitration' imposes such 'fundamental changes,' . . . that class-action arbitration 'is not arbitration as envisioned by the' Federal Arbitration Act. . . " She also disagreed that the FAA could be read "to pre-empt the neutral principle of state contract law on which the court below relied." 

    6. Justice Kagan, dissenting, is joined by Justices Ginsburg and Breyer, and as to Part II, by Justice Sotomayor. Part I of Kagan's dissent explains why she believes the arbitration provision authorizes class arbitration, and Part II explains why, even if the provision is ambiguous, California law provides a clear answer by construing ambiguities against the drafter. Justice Kagan explains that the FAA does not federalize basic contract law, except when state contract law discriminates against arbitration agreements. She happens to interpret the arbitration clause as allowing for class arbitration, and even if it doesn't unambiguously do so, then "a plain-vanilla rule of contract interpretation" applied in California and all other states, requires interpretation against the drafter. In effect, the majority has made a policy decision that class arbitration "undermine[s] the central benefits of arbitration itself" -- a policy decision with which Kagan disagrees, and that in she believes does not justify displacing applicable state law regarding the interpretation of ambiguous contracts.

    COMMENT. Back in December 2016, I wrote an article entitled "The Politics of Arbitration," describing how arbitration had become one more "hot button" issue for the Supreme Court, dividing the Justices along political lines. Notwithstanding the six different opinions described above in Lamps Plus, the fault line is along predictable political lines: Justices Roberts, Thomas, Alito, Gorsuch and Kavanaugh, all appointed by Republican presidents, formed the majority, while the dissenters, Justices Ginsburg, Breyer, Sotomayor, and Kagan, were all appointed by Democratic presidents.

    The majority's opinion brought to mind the title of David Lodge's satirical novel, How Far Can You Go? (1980). If the majority's policy decision that class arbitration is (fundamentally) not arbitration means it will not countenance a state rule of contract interpretation leading to a different result, just how far will it go to discard other background principles of contract law in arbitration cases?

 

    

Arbitration: Three Unpublished Employment Opinions Side With Employers' Positions

Issues Covered Include Class Action, Unconscionability, Powers Of Arbitrator, Enforcement, Non-Signatories, PAGA, Severability, Costs.

Martinez v. Ready Pac Produce, Inc., B279225 (2/3  11/20/18) (Lavin, Egerton, Dhanidina) (Unpublished): Waiver Of Class Action Meant Employee Could Not Participate In Pending Class Action.

    The Court of Appeal reverses order denying employer Read Pac's motion to compel arbitration. The superior court had found the arbitration agreement to be unconscionable because it included a provision waiving the right to participate in a class action, including a pending class action. Relying on Concepcion, the Court of Appeal stated, "It is well settled that class action waivers in arbitration agreements are generally enforceable." While the employee lost the right to participate in a pending class action, the employee still had the right to pursue her individual claims in arbitration.

O'Brien v. Sajahtera, Inc., B282037 (2/3  11/20/18) (Lavin, Egerton, Dhanidina) (Unpublished): Arbitrator Did Not Exceed Powers.

    The Court of Appeal affirms judgment entered after the superior court denied the plaintiff employee's petition to vacate an arbitration award in favor of defendant. 

    Plaintiff/appellant argued that the arbitrator had violated unwaivable statutory rights -- something that  would in fact be a basis for vacating an arbitrator's award. The Court of Appeal, however, disagreed, explaining plaintiff "improperly equates the violation of unwaivable statutory rights -- which may support vacatur of an arbitration award -- with an unfavorable resolution of a claim relating to unwaivable statutory right -- which does not."

Albarran v. Midwest Roofing Co., Inc., B284151 (2/1  11/19/18) (Bendix, Rothschild, Johnson) (Unpublished): Court Reverses And Orders Arbitration, Except For PAGA Claim.

    The Court of Appeal rejected trial court's finding that arbitration agreement was unconscionable because it lacked mutuality (a) because it was not signed by defendants; and (b) because it only required employees to arbitrate their claims. Generally an agreement can be enforced when signed by the parties against whom enforcement is  sought. As to the claim that the agreement was not mutual, the Court explained that the employee' agreement to arbitrate is read as mutual under existing case law. The Court added two caveats: first, certain of the cost-shifting provisions, which were unconscionable, had to be severed; second, the arbitration agreement did not apply to PAGA claims brought in the state's name.

 

    

Arbitration, Class, Pending Cases: SCOTUS Case May Decide Whether Arbitration Clause Allowed For Class Arbitration

The Case Is Lamps Plus Inc. v. Varela.

    Yesterday, I posted about three arbitration cases pending before the Supreme Court,  one of which is Lamps Plus Inc. v. Varela. Charlotte Garden, Co-Associate Dean For Research and Faculty Development,  and Associate Professor at the Seattle University School of Law, has drilled down with a preview of arguments in the Lamps Plus case in today's Scotusblog.

    "In Lamps Plus Inc. v. Varela," Prof. Garden explains, "the Supreme Court will decide whether the U.S. Court of Appeals for the 9th Circuit correctly held that an employer did consent to class arbitration when it included language in the arbitration contract that committed the parties to use arbitration 'in lieu of any and all lawsuits or other civil legal proceedings,' specified that arbitral claims include those 'that, in the absence of this Agreement, would have been available to the parties by law,' and authorized the arbitrator to 'award any remedy allowed by applicable law.'" [Query whether a convoluted explanation puts the 9th Circuit behind the eight ball]. Then Prof. Garden has some fun explaining the sub-arguments in the case that could, conceivably, enable SCOTUS to duck the issue entirely if it so chose to do.

    COMMENT: If SCOTUS were to reach the merits and conclude that the correct result is that the allegedly ambiguous arbitration clause referencing legal proceedings that "would have been available to the parties by law" authorizes class arbitration, it seems likely that sophisticated employers will soon find a drafting solution to forestall class arbitration in the future. Or SCOTUS may save them the effort.

    

Arbitration, Class Action: 9th Circuit Reverses District Court In Ongoing Litigation Brought By Uber Drivers

Consolidated Appeals Brought By Uber Overturn Pro-Driver Rulings Of District Court.

    O'Connor v. Uber, No. 16-5595, and related appeals (9th Cir.  9/25/18) (Clifton, Tallman, Ikuta) reverses the district court's denial of Uber's motions to compel arbitration, based on Mohamed v. Uber Technologies, Inc., 848 F. 3d 1201 (9th Cir. 2016). Mohamed, which we blogged about on September 11, 2016, reversed the district court's orders denying Uber's motion to compel arbitration, and held that the issues of arbitrability and of the arbitrability of PAGA claims had been delegated to the arbitrator in Mohamed, and in a related appeal, Gillette v. Uber Technologies, Gillette's PAGA claims could proceed in court on a representative basis. These Uber Driver cases are ones in which the drivers claim they have been misclassified as contractors rather than employees.

    In O'Connor v. Uber, the panel has now rejected plaintiffs' additional argument that the arbitration agreements were unenforceable. The panel was not persuaded by plaintiffs' first argument that the lead plaintiff could opt out of arbitration on behalf of the entire class. 

    In a December 21, 2016 follow-up post about the Uber Driver cases, we noted that the Ninth Circuit had amended a footnote in the Mohamed opinion so as to remove a suggestion that a class-action waiver would not violate the NLRA allowance of concerted action, so long as the Uber drivers had an opt-out provision. We suggested that the amendment of the footnote was a material change in light of the then-ongoing issue regarding whether class-action waivers fell afoul of the NLRA policy allowing concerted activity by employees.

    And as it turned out, the panel in O'Connor v. Uber rejected plaintiff's second argument that the arbitration agreements were unenforceable because they contained class action waivers that violated the NLRA. As the panel explained, the Supreme Court "answered that question and rejected Plaintiffs' argument in Epic Systems Corp. v. Lewis , 138 S.Ct. 1612 (2018)."

    In addition to reversing the district court's denial of Uber's motions to compel arbitration, the Court explained that the enforceability of the arbitration agreements required reversal of the district court's class certification orders. Additional orders governing communication with the class were reversed, because the class certification orders were reversed.

    COMMENT: Given SCOTUS's rulings over the past decade on the enforceability of arbitration agreements, it seems most likely that an appeal would lead to the same result.

Arbitration: Class Action, Waiver, FAA, Employment: Employment Contract Providing For Individualized Arbitration Provisions Not Invalidated By The Federal Arbitration Act’s Savings Clause, The Fair Labor Standards Act, Or National Labor Relations Act

FAA Collective Actions And Related State Law Class Actions Governed By Individualized Arbitration Proceedings Under Employment Contract.

          On May 21, 2018, the United State Supreme Court issued its decision in Epic Systems Corp. v. Lewis, 584 U.S. __, No. 16-285. SCOTUS decided that the FAA instructed federal courts to enforce individualized arbitration proceedings under an employer-employee arbitration agreement such that nothing in the FAA’s savings clause, FLSA, or NLRA dictated a different result. This was a 5-4 decision along political lines, authored by Justice Gorsuch. The minority justices believed that the result in this case will gut the effectiveness of FLSA collective actions and state court class actions in the wage/hour area.

        See my previous posts regarding this case, and the article I wrote entitled, “The Politics of Arbitration” wherein I discussed the same issue raised in Ernst & Young v. Morris.  My previous posts were on August 23, 2016, October 11, 2016, November 3, 2016, January 17, 2017, July 24, 2017,   September 28, 2017, and October 9, 2017.  See also, my post on June 19, 2017.

Arbitration, Class Action Waiver: SCOTUS Grants Certiorari To Review Whether Generalized Language In Arbitration Agreements Forecloses A State Law Interpretation Authorizing Class Arbitration Under The FAA

Issue Deals With Whether Generalized Language Was Akin To Silence Under Stolt-Nielsen.

            In Stolt-Nielsen v. AnimalFeeds International Corp., 55 U.S. 662, 684, 687 (2010), the U.S. Supreme Court (SCOTUS) held that the differences between bilateral and class-action arbitration are too great to presume the parties’ mere silence on the issue of class-action arbitration constitutes a consent to class-action arbitration.

            On April 30, 2018, SCOTUS granted certiorari to an unpublished Ninth Circuit opinion, Varela v. Lamps Plus, Inc., No. 16-56085 (9^th Cir. Aug. 3, 2017; now No. 17-988 (U.S. Sup.), which will confront this issue: “Whether the Federal Arbitration (FAA) forecloses a state-law interpretation of an arbitration agreement that would authorize class arbitration based solely on general language commonly used in arbitration agreements.”

            The arbitration case at issue in Varela was an arbitration clause which did not mention class arbitration. A divided Ninth Circuit, over a dissent by Circuit Judge Fernandez, inferred mutual assent to class arbitration from such standard language as the parties’ agreement that “arbitration shall be in lieu of any and all lawsuits or other civil legal proceedings.” “arbitrable claims are those that would have been available to the parties by law,” and “[the arbitrator was authorized to] award any remedy allowed by applicable law.” The Ninth Circuit majority used inferential logic to find class arbitration was permitted, placing special emphasis on the “in lieu of” and “claims” language. (interestingly enough, plaintiffs themselves argued for class arbitration after filing a federal class action and after employer Lamps Plus moved to compel arbitration.) In contrast, Circuit Judge Fernandez found that “[w]e should not allow Varela to enlist us in this palpable evasion of Stolt-Nielsen . . . .”

            This case is set for argument in the October 2018 term. At least one commentator believes that the Ninth Circuit engaged in undue “hair-splitting” in light of Stolt-Nielsen’s reasoning.

           BLOG OBSERVATION—Mike Hensley, co-contributor on the calattorneysfees.com blog, at Marc’s invitation, will be posting from time to time to Marc’s California mediation/arbitration blog.