In Newirth v. Aegis Senior Communities the Ninth Circuit addresses the federal standard for waiver of the righ to compel arbitration

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I haven’t seen this federal arbitration issue pop up too often, so it stands out when it does. In Newirth v. Aegis Senior Communities (9th Cir. July 24, 2019), the Ninth Circuit applied the federal waiver standard when reviewing the District Court’s denial of a motion to compel arbitration.

The Ninth Circuit reaffirmed prior Ninth Circuit precedent, holding that, under federal law, a party seeking to prove that the right to compel arbitration has been waived must carry the burden of showing: (1) knowledge of an existing right to compel arbitration; (2) intentional acts inconsistent with that right; and (3) prejudice to the person opposing arbitration from the inconsistent behavior. Fisher v. A.G. Becker Paribas Inc., 791 F.2d 691, 694 (9th Cir. 1986). The Court held that because defendant Aegis was aware of its right to compel arbitration, but made a choice not to do so in order to take advantage of the judicial forum, and because the plaintiffs were prejudiced by incurring costs in defending against a motion to dismiss, the district court was well within its right to conclude that Aegis waived the right to arbitrate.

The Court reached this conclusion despite noting that waiver of a contractual right to arbitration is not favored. Aegis didn’t help its position by filing a motion to compel arbitration and then withdrawing it to, instead, file a motion to dismiss. Oops.

FAA section 1 held to exempt some California truck drivers from FAA coverage in Nieto v. Fresno Beverage Co.

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The arbitration battle lines have somewhat diminished in their spectacular scope, but that doesn’t mean the war is entirely over. Case in point: in Nieto v. Fresno Beverage Co. (certified for publication March 22, 2019), the Court of Appeal (Fifth Appellate District) affirmed a trial court ruling that found beverage company deliver drivers to be exempt from Federal Arbitration Act (9 U.S.C. §1 et seq., the “FAA”) by operation of the exemption in Section 1 for what the Supreme Court has denominated “transportation workers.”

The case is not too long of a read, but it nevertheless does a thorough job of reviewing decisions addressing the Section 1 exemption (see pages 6-13 for the state of affairs).

There is also a quick reminder in the discussion about waiver of arguments not raised in the Opening Brief.

Kenneth H. Yoon, Stephanie E. Yasuda, and Brian G. Lee of Yoon Law and Douglas Han, Shunt Tatavos-Gharajeh, and Daniel J. Par of Justice Law Corporation represented the prevailing plaintiff on appeal.

Inconsistent Spanish and English arbitration clauses leads to invalidation in Juarez v. Wash Depot Holdings, Inc.

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I won't hit you with too much analysis of a case right before the 4th of July holiday, but in Juarez v. Wash Depot Holdings, Inc. (July 3, 2018), the Court of Appeal (Second Appellate District, Division Six), upheld a trial court order declining to enforce an arbitration agreement.  The peculiarity that led to the result is pretty simple:

A company provides its employees with a handbook setting forth its employment policies. The handbook is written in English and Spanish. The handbook requires arbitration of employment disputes and denies an employee's right to bring an action under the California Private Attorneys General Act (PAGA). The English version states that the denial of the right to bring a PAGA action is severable if such denial is found by a court to be unenforceable. The Spanish version provides that the PAGA denial is not severable. 

Slip op., at 1.  The Court concluded that this was potentially deceitful and declined to sever the provision regarding PAGA, agreeing that the entire agreement was unenforceable.

Jack Bazerkanian of Shin Ryu Bazerkanian, LLP, and James M. Lee, Caleb H. Liang of LTL Attorneys LLP, represented the successful Plaintiff and Respondent.

Arbitration bid sunk in Sprunk

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Yes, yes I did write that post title.  In Sprunk v. Prisma LLC (August 23, 2017), the Court of Appeal (Second Appellate District, Division One) considered whether a defendant in a putative class action can waive its right to compel arbitration against absent class members by deciding not to seek arbitration against the named plaintiff.  The Court agreed that it did, holding that Prisma LLC "waived its right to seek arbitration by filing and then withdrawing a motion to compel arbitration against the named plaintiff, Maria Elena Sprunk, and then waiting until after a class had been certified to seek arbitration against class members."  Slip op., at 2.

Some of the less interesting issues in the opinion concern the sufficiency of evidence of arbitration agreements with class members.  The juicy stuff, however, is described as follows:

Plan B [Prisma LLC] also raises a legal issue concerning the status of absent class members. Plan B argues that the trial court erred in considering Plan B’s delay in moving to compel arbitration before the court decided class certification because the unnamed class members were not parties until a class was certified. Because this argument raises an issue of law concerning the time period that the trial court could properly consider in analyzing waiver, we review it de novo. (Sky Sports, Inc. v. Superior Court (2011) 201 Cal.App.4th 1363, 1367 (Sky Sports) [applying the de novo standard to the issue whether a defendant “waived its right to compel arbitration because it did not bring the motion before certification of a class that included parties to the arbitration agreement”].)

Slip op., at 12.  The Court concluded that strategic delay can properly result in waiver:

An attempt to gain a strategic advantage through litigation in court before seeking to compel arbitration is a paradigm of conduct that is inconsistent with the right to arbitrate. For example, Bower was a putative wage and hour class action in which the defendant engaged in discovery and attempted to settle the case on a classwide basis when the class was a modest size. (Bower, supra, 232 Cal.App.4th at pp. 1038–1040.) When the plaintiff sought an amendment that would have expanded the class, the defendant (Inter-Con) moved to compel arbitration. The trial court found waiver, and the appellate court affirmed, concluding that Inter-Con’s decision to delay seeking arbitration “appears to have been tactical.” (Id. at pp. 1045, 1049). Based upon Inter-Con’s litigation conduct, “[o]ne can infer that InterCon chose to conduct discovery, delay arbitration, and seek a classwide settlement because it saw an advantage in pursuing that course of action in the judicial forum.” (Id. at p. 1049.) Such conduct provided substantial evidence to support the finding that “Inter-Con’s actions were inconsistent with a right to arbitrate.” (Id. at p. 1045.)

Slip op., at 18.  The discussion about waiver is extensive (seriously - about 24 pages of the opinion concern waiver).  The Court seems to leave the door open for situations where the trial court believes that there is a bona fide desire to wait for an expected clarification in the law, but it would seem to be a risky bet for a defendant if its actions could just as well be perceived as done for strategic benefit.

I'm somewhat surprised that this hasn't come up more frequently.

Knapp, Petersen & Clarke, André E. Jardini, Gwen Freeman and K. L. Myles successfully represented Plaintiff and Respondent.

DOJ switches teams in NLRB v. Murphy Oil

The DOJ announced on Friday, June 16, 2017, that it was reversing its position on the validity of class action waivers in arbitration agreements and would file an amicus brief in support of the employer's position in NLRB v. Murphy Oil.  I get that a change in administration can bring with it a change in policy, but this is unfortunate in that it overtly politicizes a legal analysis that should at least attempt to be a textual analysis that doesn't depend on which way the wind blows.  I suppose Judge Posner has the right of it when he argues that all the supposedly dispassionate judicial reasoning is just a veneer over personal preference and wanting anything as significant as this issue to be decided apolitically is laughably naive.  Still, I think the better approach for the DOJ would have been to undertake the equivalent of a noisy withdrawal, officially retracting its position and choosing to take a neutral position in the case.

Ninth Circuit examines arbitration and PAGA claims in Mohamed v. Uber Technologies, Inc.

The Ninth Circuit tackles a complicated set of arbitration issues in Mohamed v. Uber Technologies, Inc. (9th Cir. Sept. 7, 2016).  Among other things, the panel held that the District Court erred when it decided the question of arbitrability, since the question of arbitrability was delegated under the agreement to an arbitrator.  But the panel agreed that the defendants could not compel arbitration of the PAGA claim asserted in the case, severing that claim for further proceedings in before the trial court.  Finally, the panel agreed that a separate defendant not party to the arbitration agreement could not assert a right to enforce the agreement as an agent of Uber.

The Proposed Arbitration Regulations from the CFPB

If you have insomnia or just want to test the lower bounds of your will to live, you can view the text of the proposed rules from the Consumer Financial Protection Bureau (along with about 350 pages of commentary before you actually get to the proposed rules - it's a lot like the longest law review article you've ever read).

The Proposed Rules

Chamber of Commerce concerned over proposed regulation that would prohibit class action bans in consumer agreements

Nothing says Cinco de Mayo like arbitration. I have no idea what that means, so don't ask.  Anyhow, the Consumer Financial Protection Bureau will propose a regulation today that will ban contract terms that prohibit consumers from filing class action lawsuits.  And the Chamber of Commerce is none to happy about this development.  You can read the details at politico.com, which posted an opinion piece by Lisa A.Rickard, the president of the U.S. Chamber of Commerce's Institute for Legal Reform and David Hirschmann, the president and CEO of the U.S. Chamber of Commerce's Center for Capital Markets Competitiveness.  If you don't have time to read the article, allow me to paraphrase: "Damn trial lawyers! Get off my lawn!"

Arbitration agreement that arguably applied California law on the issue of enforceability is, ironically, unenforceable

It's been a while since I have posted here.  It's not for lack of interest in finding something appropriate to address, but the interesting decisions have been few and far between.  Plus this "start your own firm" thing tends to eat up a lot of time in the early days.  Of course, with several big decisions likely to drop from the California Supreme Court any day, this may have been the calm before the storm.  While we wait for those fireworks, here's a fascinating arbitration decision.  In Imburgia v. DirecTV, Inc. (April 7, 2014), the Court of Appeal (Second Appellate District, Division One) affirmed the denial of a petition to compel arbitration.  The analysis is striking for the fact that it forcefully challenges some contrary conclusions by federal courts.  Whether it remains published while other arbitration decisions have been taken and held is another question.

The particulars of the case are all but ignored as irrelevant, though it is clear that the case is a consumer class action from the claims alleged.  The customer agreement specified that JAMS rules would apply.  However, the agreement went on to state as follows:

“Neither you nor we shall be entitled to join or consolidate claims in arbitration by or against other individuals or entities, or arbitrate any claim as a representative member of a class or in a private attorney general capacity. Accordingly, you and we agree that the JAMS Class Action Procedures do not apply to our arbitration. If, however, the law of your state would find this agreement to dispense with class arbitration procedures unenforceable, then this entire Section 9 is unenforceable.”

Slip op., at 3.  The customer agreement also specified that Section 9, containing the arbitration requirement, was governed by the FAA and that the entire section was unenforceable if the agreement to dispense with class arbitration procedures was found to be unenforceable.

The trial court found the agreement unenforceable.  On appeal, the Court considered the conundrum created by a clause incorporating state law into the determination as to whether a class action waiver was unconscionable:

The question before us, then, is how to interpret section 9’s choice of law concerning enforceability of the class action waiver. Where section 9 requires us to consider whether “the law of your state would find this agreement to dispense with class arbitration procedures unenforceable,” does it mean “the law of your state to the extent it is not preempted by the FAA,” or “the law of your state without considering the preemptive effect, if any, of the FAA”? Plaintiffs argue that it means the latter, and we agree

Slip op., at 6.  The Court agreed that the basic rule of construction under which the specific controls the general where the two are inconsistent.  The Court observed that:

If we apply state law alone (for example, the antiwaiver provision of the CLRA) to the class action waiver, then the waiver is unenforceable. If we apply federal law, then the class action waiver is enforceable and any state law to the contrary is preempted. That is a sufficient inconsistency to make plaintiffs’ principle of contract interpretation applicable. Indeed, the entire preemption analysis of Concepcion is based on a conflict or inconsistency between the Discover Bank rule and the FAA.

Slip op., at 6.  The Court then addressed decisions identified by DirecTV as having rejected the plaintiffs' argument.  After dismissing two as inapplicable to the issue before it, the Court squarely addressed the third:

The third case, however, is a decision in the federal multidistrict litigation that parallels the instant state court actions. In an “[i]ndicative [r]uling” under rule 62.1 of the Federal Rules of Civil Procedure, the federal district court stated that the reference to “the law of your state” in section 9 of the customer agreement could not mean that enforceability of the class action waiver should be determined exclusively under state law, because that would render “meaningless” section 10’s general statement that the arbitration agreement is governed by the FAA. (In re DIRECTV Early Cancellation Fee Marketing and Sales Practices Litigation (C.D.Cal. 2011) 810 F.Supp.2d 1060, 1071.) We disagree. The specific reference to state law concerning the enforceability of the class action waiver creates a narrow and specific exception to the general provision that the arbitration agreement will be governed by the FAA. It does not render that general provision meaningless. In addition, the district court’s analysis does not address the principles that a specific provision controls over a general one and that ambiguous language is construed against the interest of the drafter. For all of these reasons, we decline to follow the district court’s decision.

Slip op., at 8-9.

The Court then discussed Murphy v. DIRECTV, Inc.  724 F.3d 1218 (9th Cir. 2013), decided after briefing was completed, for its holding that federal law "is the law of ever state":

We find the analysis in Murphy unpersuasive. On the one hand, insofar as the court’s reasoning is a matter of contract interpretation, it means that when the parties used the phrase “the law of your state,” they meant “federal law plus (nonfederal) state law.”  Murphy provides no basis for concluding that the parties intended to use the phrase “the law of your state” in such a way, and we a re aware of none. On the contrary, a reasonable reader of the customer agreement would naturally interpret the phrase “the law of your state” as referring to (nonfederal) state law, and any ambiguity should be construed against the drafter.  On the other hand, insofar as the court reasoned that contract interpretation is irrelevant because the parties are powerless to opt out of the FAA by contract, we are aware of no authority for the court’s position. Rather, as we have already observed, if the customer agreement expressly provided that the enforceability of the class action waiver “shall be determined under the (nonfederal) law of your state without considering the preemptive effect, if any, of the FAA,” then that choice of law would be enforceable; Murphy cites no authority to the contrary.  Consequently, the dispositive issue is whether the parties intended to make that choice.  As a result, “the parties’ various contract interpretation arguments” are not “largely irrelevant.”

Slip op., at 9-10 (parentheticals added by Court when discussing Murphy because Murphy asserted that all federal law is state law; footnotes omitted).  After ripping a few federal decisions to shreds, the Court concluded that the entire arbitration provision was nullified by its own terms.

What will happen now?  We'll have to wait for the petition for review to see.

I'll be back with a podcast the day before Easter and any case write-ups that come along before then.  Sorry to be away so long.

Evidence still matters when moving to compel arbitration (Avery v. Integrated Healthcare)

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Once again, I find myself playing catch-up after devoting a lot of spare time to examining the logistics of career moves.  In this installment, we see that evidence still matters when moving to compel (or resist) arbitration.  In Avery v. Integrated Healthcare Holdings, Inc., (Jun. 27, 2013; pub. ord. Jul. 23, 2013), the Court of Appeal (Fourth Appellate District, Division Three) affirmed a trial court order denying motions to compel individual arbitration.  The plaintiffs filed a wage & hour class action against defendants, alleging failure to pay overtime properly for employees working on 12-hours shifts.  Defendants filed eight motions to compel individual arbitration against the plaintiffs.  The trial court denied all motions, finding Integrated “failed to meet [its] burden to show that any of the Plaintiffs are subject to an enforceable arbitration agreement."

The Court of Appeal agreed with the trial court’s conclusion that defendants could not simply collect an assortment of documents, modified over time, and claim enforceable arbitration agreements or class waiver clauses:

Integrated sought to compel Plaintiffs to individually arbitrate their claims based on two arbitration agreements: (1) the Fair Treatment Process in the Tenet Employee Handbook, and (2) the Alternative Dispute Resolution Process in the Integrated Employee Handbook. We conclude Integrated is limited to the Fair Treatment Process because (1) it issued the Integrated Employee Handbook and its Alternative Dispute Resolution Process after Plaintiffs’ claims accrued, and (2) it failed to notify Plaintiffs or any other employees about the Integrated Employee Handbook.
Four months after Avery filed her initial class action complaint, Integrated unilaterally modified the Fair Treatment Process in the Tenet Employee Handbook by renaming it the Alternative Dispute Resolution Process and adding a class arbitration waiver. Integrated modified the Fair Treatment Process based on a provision that authorized the employer to “change or modify the FTP procedures from time-to-time without advance notice and without the consent of employees.” Integrated posted the Integrated Employee Handbook containing the Alternative Dispute Resolution Process on its intranet page, but it did not provide employees with a copy of the new handbook, instruct employees to review the new handbook on the intranet page, or even notify employees of the new handbook’s existence.

Slip op., at 10.  The Court went on to hold that the right to unilateral modification is governed by the covenant of good faith and fair dealing:  “An arbitration agreement between an employer and an employee may reserve to the employer the unilateral right to modify the agreement. (24 Hour Fitness, supra, 66 Cal.App.4th at pp. 1214-1215.) But the covenant of good faith and fair dealing implied in every contract requires the employer to exercise that right fairly and in good faith so as not to deprive the employee of his or her reasonable expectations under the agreement.”  Slip op., at 10.

The Court also found that defendant failed to provide adequate evidence of an enforceable agreement accepted by the plaintiffs.  Having affirmed the trial court on that ground, the Court declined to analyze whether the class waivers that defendants added later were simply statements of existing law under Stolt-Nielsen.

The Court concluded its opinion by stating that an arbitration agreement in an employee handbook could be enforceable, so long as the agreement and its acceptance are adequately proven by substantial evidence.