a California-centric collection of comments and resources about complex litigation and class action practice
In all my writing about arbitration cases impacting class actions, I haven't looked at the pattern of Petition acceptance and denial in the California Supreme Court. The UCL Practitioner has thankfully taken care of that, presenting an interesting theory here.
For what? For an exceptional class action symposium, that's what. I appreciated the fact that the program focused on advanced and current topics, and didn't attempt to provide a primer on basic class action litigation. I also had fun attempting to disabuse my co-panelist of his many strange notions about Concepcion and arbitration clauses, but I think I failed to cure him.
The back and forth of arbitration rulings that dominate the topic of conversation in class actions could make one seasick. Or at least sick and tired. The latest contribution to the discussion comes to us compliments of Goodridge v. KDF Automotive Group, Inc. (Ord. pub. Sept. 19, 2012), in which the Court of Appeal (Fourth Appellate District, Division One) affirmed a trial court order denying a motion to compel arbitration. The trial court concluded that the provision was unconscionable, and thus unenforceable.
There two points of interest here. First, the Court engaged in a straightforward unconscionability analysis, agreeing with the trial court that the agreement was designed to force car buyers into an inferior forum. Evidently unconscionability analysis is not as dead as defendant now argue after Concepcion.
Second, the Court noted that "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) 201 Cal.App.4th 74, review granted Mar. 21, 2012, S199119 (Sanchez)." As the Court observed, the issues it addressed will likely be decided by the California Supreme Court.
And the war rages on without an end in sight. In Reyes v. Liberman Broadcasting, Inc. (August 31, 2012), the Court of Appeal (Second Appellate District, Division One) reversed a trial court order denying a petition to compel arbitration. Along the way, the Court rejected a barrage of challenges to the enforceability of the arbitration agreement or the viablity of an implied class action bar. Here's a time-saving hint: it doesn't go well for the employee Respondent.
The Court summarized the issue like so:
The Arbitration Agreement is expressly governed by the Federal Arbitration Act (FAA) (9 U.S.C. § 1 et seq.). The Arbitration Agreement provides that LBI and Reyes "agree to submit to final and binding arbitration all claims, disputes and controversies arising out of, relating to or in any way associated with" Reyes's employment or its termination. Specific claims identified in the Arbitration Agreement include wage claims, unfair competition claims, and claims for violation of federal, state, local, or other governmental law. (Ibid.) The Arbitration Agreement does not contain an express class arbitration waiver. However, the Arbitration Agreement does provide that "each party to the arbitration may represent itself/himself/herself, or may be represented by a licensed attorney." The Arbitration Agreement provides for "discovery sufficient to adequately arbitrate [the parties'] claims,"but authorizes the "arbitrator to impose . . . appropriate limits on discovery." Reyes signed an acknowledgment of his receipt of the Arbitration Agreement stating that he could read the Arbitration Agreement in both English and Spanish.
Slip op., at 2. The case was litigated for just over one year before the employer indicated an intention to move to compel arbitration.
First, the Court examined whether the arbitration agreement allowed for class arbitration agreements, concluding that it did not:
Like the arbitration provision in Kinecta, the Arbitration Agreement in the instant case makes no reference to any parties other than plaintiff and defendant. It provides only for the "final and binding arbitration" of "all claims, disputes and controversies arising out of" Reyes's employment or its termination. The plain language of the Arbitration Agreement further states that each party may only represent "itself/himself/herself" or "may be represented by a licensed attorney." There is no mention of class action claims in the Arbitration Agreement. (As in Kinecta, class actions are not listed among the expressly excluded claims.) Furthermore, Reyes has not presented any evidence showing any intent by the parties to provide for class arbitration in the Arbitration Agreement. Therefore, we hold that because the plain language of the Arbitration Agreement provides only for the bilateral arbitration of Reyes's claims, the Arbitration Agreement does not authorize class arbitration. The Arbitration Agreement, like the arbitration provision in Kinecta, bars class arbitration because the parties did not agree to class arbitration.
Slip op., at 6.
Next, the Court concluded that the employer did not waive the right to petition to compel arbitration because, prior to doing so, the law in California appeared to require a class arbitration.
The Court also noted a difference of opinion as to whether Gentry was overruled by Concepcion. However, after an extensive discussion, the Court then concluded that even if Gentry remains good law, as was the ruling in Brown v. Ralphs, the plaintiff did not meet the burden of showing all Gentry factors.
The Court then wrapped up its waiver discussion with a detailed discussion of the various factors considered in the waiver context, including delay, extent that litigation machinery was invoked, and other factors. The Court easily concludes that waiver did not occur.
Finally, the Court discusses the NLRB's D.R. Horton decision. While the opinion gets roughly two full pages of opninion space, there is little in the way of full analysis of the underlying premise from D.R. Horton, namely, that the NLRA renders illegal any agreement that interferes with concerted activity. Instead, like other California appellate panels, this Court simply repeats the observation that the NLRB lacks the specific agency expertise to receive deference in its analysis of the FAA. That may be, but no effort is made to tackle the underlying analysis supplied by the NLRB. For example, the United States Supreme Court has held that illegal contract provisions are void. Kaiser Steel Corp. v. Mullins, 455 U.S. 72, 77-78, 102 S. Ct. 851, 856 (1982). In Kaiser Steel, the U.S. Supreme Court held that courts need not defer to the exclusive competence of the NLRB when asked to enforce an agreement that would violate sections 7 or 8 of the NLRA. Enforcement of an arbitration agreement that precludes class actions is enforcement of an agreement that interferes with the concerted activity right protected by the NLRA. That application of the FAA is void due to illegality. Illegality is a contractual defense of general application unaffected by Concepcion or the FAA. Until a Court of Appeal directly answers this argument, supported by authority well above the NLRB's pay grade, then the lip service given to D.R. Horton is meaningless and holdings resting on that lip service rest on nothing.
I just haven't found an instance yet where he actually commended the outcome of one. But I'm looking. Still looking...
I was going to link to a very recent example of his affection for a particular class action settlement by directing reader to a post on the blog he edits for publisher Center for Legal Policy at the Manhattan Institute. However, his post is, arguably, defamatory and/or slander per se. If I link to it, I could, theoretically, be construed as a republisher. So, my apologies; I can't supply authority to support my sarcasm.
Mr. Frank was kind enough to respond in the comments section! I'm very excited. Mr. Frank is something of a celebrity in the world of class actions. I consider myself honored.
As an aside, due to the increasing volume of comment spam (things like shoe ads and mortgage refinance options), commenting on this blog goes into a hold queue until I can release the comment. I will approve any substative comment that is not spam, even if it is highly critical of my post. I will not approve profanity, spam, or any comment that advocated any unlawful or violent activity. I will not respond to specific requests for legal advice about a specific fact pattern. If a practitioner wants to debate a theoretical fact pattern as a way of testing a case holding or proposed alternative holding, that is entirely acceptable, but the theoretical nature of the discussion needs to be clearly stated.
This is also a day of the week ending in the letter "Y." Hence, a new arbitration opinion to discuss. In Truly Nolen of America v. Superior Court (August 13, 2012), the Court of Appeal (Fourth Appellate District, Division One) examined several arbitration issues in a putative class action wage & hour matter. Adding to the miasma of conflicting aribtration opinions in California, this Court concluded that Gentry was not preempted by Concepcion and must be followed under principles of stare decisis. However, the Court also found that, on the factual record in the trial court, the Gentry test was not satisfied. Instead, the Court directed the trial court to permit briefing on the issue of whether the parties' agreement includes an implied agreement to permit class arbitration.
In the trial court, defendant moved to compel arbitration. The arbitration agreements did not contain a specific provision pertaining to the availability or unavailability of classwide arbitration. The court granted the motion to compel arbitration, but rejected defendant's request that the court order individual arbitration, relying on Gentry v. Superior Court, 42 Cal. 4th 443 (2007). Defendant petitioned for review.
The Court set forthan extensive history of arbitration law in California, beginning with cases before Stolt-Neilsen and Concepcion. It is very exiting, so I will not spoil it by summarizing it here. Then the Court discussed the impact of Concepcion on Discover Bank and Gentry. Having concluded the history lesson, the Court had to choose from the conflicting decisions as to whether Gentry remains valid law.
Exercising caution, the Court threaded the eye of the needle, concluding that it doubted the analysis of cases finding Genry valid but agreeing with the plaintiffs that it was nevertheless obligated to follow decisions of the California Supreme Court until expressly invalidated: "On federal statutory issues, intermediate appellate courts in California are absolutely bound to follow the decisions of the California Supreme Court, unless the United States Supreme Court has decided the same question differently." Slip op., at 23.
Having so concluded, the Court then considered whether the evidentiary record was sufficient to support a finding that the Gentry factors were present. The Court concluded that the plaintiffs failed to connect attorney declarations with the facts of the case. Based on an insufficient evidentiary record, the Court reversed the trial court's finding that Gentry required a class arbitration.
Next, the Court examined other contentions. First, the Court agreed that an arbitartion agreement may include an implied agreement to class arbitration: "Relying on Stolt-Nielsen, the courts have recognized that an implied agreement may be sufficient to support class arbitration." (Slip op., at 33.) Although plaintiffs did not raise the issue in the trial court, the Court concluded that they were not precluded from doing so on remand. The Court left it to the trial court to develop the record as to whether the parties' agreement includes an implied agreement to class arbitrations. Notably, the Court recognized that California contract law would govern the analysis of whether an implied agreement permitting arbitration agreements exists.
Next, as with several other Courts of Appeal, the Court, in cursory fashion, rejected the contention that the NLRA protects employees from the enforcement of contract provisions that would impede their right to undertake concerted activity, including class actions. I have commented elsewhere on the paucity of analysis supplied by other Courts in California (Iskanian and Nelsen), and this Court did nothing to advance the analysis beyond more than something akin to bare assertion based on skepticism. As an aside, even if the Court believes that its scant analysis is correct, the existence of the NLRA and the many decisions protecting class actions as concerted activity should, at minimum, supply the requisite implied intent to permit class arbitrations. After all, the defendant could not have intended to violate the NLRA, could it?
With every class-related arbitration decision issued in California, the need for comprehensive, detailed holdings from the California Supreme Court grows. I urge the California Supreme Court to assist parties in consumer and employment class actions by sweeping up all of these decisions and rendering a number of much needed rulings as quickly as possible.
Because this day of the week ends in the letter "Y," I thought I would focus on another arbitration clause opinion. See what I did there? Anyhow, in Sparks v. Vista Del Mar Child And Family Services (July 30, 2012), the Court of Appeal (Second Appellate District, Division Five) reviewed an order denying arbitration following a petition to compel arbitration in a wrongful termination action. Summarizing the various reasons why the Court, in a split decision, affirmed, the majority opinion said:
We hold that plaintiff is not bound by the arbitration clause because that clause was included within a lengthy employee handbook; the arbitration clause was not called to the attention of plaintiff, and he did not specifically acknowledge or agree to arbitration; the handbook stated that it was not intended to create a contract; the handbook provided that it could be amended unilaterally by defendant and thus rendered any agreement illusory; the specific rules referred to in the arbitration clause were not provided to plaintiff; and the arbitration clause is unconscionable.
Slip op., at 2.
The case raises a number of interesting issues debated by the majority and dissent. Does an employee handbook that disavows that it is intended to create a contract undermine an employer's reliance on an arbitration provision within that handook? Does inadequate access to discovery in the arbitration render the agreement unconscionable?
On that last question, the dissent argued that certain rights are imputed into the agreement:
Sixth, the agreement is not unconscionable because of any problem relating to discovery. Plaintiff argues the American Arbitration Association rules do not permit for the sufficient use of discovery devices. Implied in an employer-employee arbitration agreement is the opportunity to utilize discovery devices in a case which potentially may involve emotional distress damages. (§ 1283.1; Little v. Auto Stiegler, Inc. (2003) 29 Cal.4th 1064, 1076-1081; Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, 105-106.) Here, there is a cause of action for intentional severe emotional distress infliction. Implied within the arbitration agreement is the right to adequate discovery.
Slip op., dissent, at 3-4. I'm confused. If we are implying terms into agreements, why, again, is the CLRA's ban on class action waivers not implied in every consumer contracts involving transactions in goods or services? (I am referring to Caron and its holdings regarding preemption of the CLRA's anti-class waiver provision by the FAA, if that was not clear.) Oh, I remember now. In that case, the parties contractually agreed that they wouldn't arbitrate if the class waiver provision was not lawful. Now it makes sense. Huh?
The decisions interpreting arbitration provisions have, if anything, become substantially less clear in the last two years. The result is that every conceivable argument on both sides of any arbitration issue will be flung at the wall in every trial court, and recapitualated in the Courts of Appeal after any petition is denied. This is not helping anyone to control the costs and uncertainty of litigation.
Opinions concerning arbitration issues seem less about uniformity of analysis these days and more about the politics of arbitration. Sophistry comes to mind. Consider the following observation: "Section 2 of the Federal Arbitration Act (FAA) provides that an arbitration provision 'shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.' 9 U.S.C. § 2." AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740, 1753, 179 L. Ed. 2d 742 (2011), J. Thomas conc. This seems straightforward enough. And yet, in Caron v. Mercedes-Benz Financial Services USA LLC (July 30, 2012), the Court of Appeal (Fourth Appellate District, Division Three), managed to conclude that the Consumer Legal Remedies Act (CLRA) prohibition on class action waivers in any consumer contract was pre-empted by the FAA. A rule prohibiting class action waivers in any form of consumer contract is, according to this reasoning, not a ground in law for the revocation of such contracts. It is, instead, a provision that "interferes" with the FAA.
I could walk through the analysis and discuss it in a neutral and dispassionate tone, but that would waste precious minutes of my life. Blunt will serve just as well here. The reasoning in Caron is nonsensical. The Supreme Court claims that its FAA jurisprudence is intended only to "place arbitration agreements on an equal footing with other contracts...." Concepcion, 131 S. Ct. at 1742. That's not what is happening here. Instead, the FAA is being used to grant a superior status to arbitration agreements. Case in point? The Caron decision:
Defendants argue the trial court erred because the FAA preempts the CLRA's prohibition against class action waivers and therefore the trial court could not rely on the CLRA as a ground for denying Defendants' petitions. Based on the United State Supreme Court's decision in AT&T Mobility LLC v. Concepcion (2011) ___ U.S. ___, ___; 131 S.Ct. 1740 (AT&T Mobility), we agree the FAA preempts the CLRA's anti-waiver provision because the provision acts as an obstacle to the FAA's intention of enforcing arbitration agreements according to their terms.
Slip op., at 2. What? The FAA, in section 2, limits the FAA's reach. The Caron Court doesn't ensure that an arbitration agreement is judged on an equal footing with other contracts. It is placing arbitration agreements before a state's right to specify the lawful subject matter of contracts. The reasoning used in Caron could be used to vitiate section 2 of the FAA. After all, every defense to a contract is an "obstacle" to the FAA's intention of enforcing arbitration agreements according to their terms, even if those terms are unlawful. Caron dismisses this limitation on the FAA's reach by simply concluding that the case before it presents the same situation as Concepcion:
The plaintiffs in AT&T Mobility “argue[d] that the Discover Bank rule, given its origins in California's unconscionability doctrine and California's policy against exculpation, is a ground that 'exist[ed] at law or in equity for the revocation of any contract' under FAA § 2” and therefore the FAA did not preempt the rule. (AT&T Mobility, supra, 131 S.Ct. at p. 1746.) The Supreme Court rejected that argument, explaining the FAA's preemptive effect may “extend even to grounds traditionally thought to exist '"at law or in equity for the revocation of any contract[]"'" when those grounds “have been applied in a fashion that disfavors arbitration.” (Id. at p. 1747.)
Slip op., at 13. From this, the Caron Court concludes that the same reasoning would apply here. However, that distorts the facts. In Caron, the agreement at issue contained the following "poison pill" clause:
If any part of this Arbitration Clause, other than waivers of class action rights, is deemed or found to be unenforceable for any reason, the remainder shall remain enforceable. If a waiver of class action rights is deemed or found to be unenforceable for any reason in a case in which class action allegations have been made, the remainder or this Arbitration Clause shall be unenforceable.
Slip op., at 4. This agreement anticipates the potential illegality of the clause at issue. By its own terms, the agreement chooses to reject arbitration if it must occur in the class context. There is no law banning arbitration here. There is a general rule govering consumer contracts that specifies the lawful terms of those agreements. The agreement contains a self-executing kill switch. Had the agreement been silent, the Stolt-Neilsen analysis should have concluded that, aware of California law, the parties anticipated the potential for a class action. But how the Court concludes that the CLRA's regulation of consumer contracts constitutes "interference" with consumer contracts sufficient to pre-empt the CLRA's general regulation of consumer contracts is beyond me.
Section 2 of the FAA is not a nugatory clause. Efforts to interpret it out of existence should be rejected. Given that Caron diverges from Fisher v. DCH Temecula Imports LLC, 187 Cal. App. 4th 601 (2010), it appears that further guidance from the California Supreme Court would benefit parties to consumer contracts.
I was at a hearing today. I will omit all names and locations, but this exchange (recounted to the best of my recollection) between a Clerk and a purported objector to a class action settlement is too important to withhold from the world:
CLERK [to objector sitting at counsel's table]: Are you an attorney?
OBJECTOR: Yes, yes I am. I am a private attorney.....general.
The exchange went on a little longer, but, really, what more is there to say? I think we are all, at heart, private attorneys....general from time to time.
The issue of witness identity surfaces in a number of interesting ways in class actions. A few years ago, a number of cases examined whether plaintiffs could discovery the identity and contact information of putative class members. With little qualification, that question was answered in the affirmative (the nature of privacy interests involved define the outer limits on such discovery, but usually yield to the right to obtain discovery of witness identity). Today, in Coito v. Superior Court (June 25, 2012), the California Supreme Court examined the work product protections applicable to (1) recordings of witness interviews conducted by investigators employed by defendant's counsel, and (2) information concerning the identity of witnesses from whom defendant's counsel has obtained statements. The trial court sustained objections to production of such material, concluding as a matter of law that the recorded witness interviews were entitled to absolute work product protection and that the other information sought was work product entitled to qualified protection. A divided Court of Appeal reversed, concluding that work product protection does not apply to any of the disputed items.
The Supreme Court held that the correct result is somewhere between what the trial court decided and what the court of appeal decided:
We conclude that the Court of Appeal erred. In light of the legislatively declared policy and the legislative history of the work product privilege, we hold that the recorded witness statements are entitled as a matter of law to at least qualified work product protection. The witness statements may be entitled to absolute protection if defendant can show that disclosure would reveal its “attorney's impressions, conclusions, opinions, or legal research or theories.” (§ 2018.030, subd. (a).) If not, then the items may be subject to discovery if plaintiff can show that “denial of discovery will unfairly prejudice [her] in preparing [her] claim . . . or will result in an injustice.” (§ 2018.030, subd. (b).)
As to the identity of witnesses from whom defendant's counsel has obtained statements, we hold that such information is not automatically entitled as a matter of law to absolute or qualified work product protection. In order to invoke the privilege, defendant must persuade the trial court that disclosure would reveal the attorney's tactics, impressions, or evaluation of the case (absolute privilege) or would result in opposing counsel taking undue advantage of the attorney‟s industry or efforts (qualified privilege).
Slip op., at 2.
The Court went on to analyze first the recorded statements of witnesses collected by an investigator at the behest of an attorney. Following that analysis, the Court expressly overruled a number of cases on this issue:
In sum, we disapprove Fellows v. Superior Court, supra, 108 Cal.App.3d 55, People v. Williams, supra, 93 Cal.App.3d 40, Rodriguez v. McDonnell Douglas Corp., supra, 87 Cal.App.3d 626, and Kadelbach v. Amaral, supra, 31 Cal.App.3d 814 to the extent they suggest that a witness statement taken by an attorney does not, as a matter of law, constitute work product. In addition, Greyhound, supra, 56 Cal.2d 355, which was decided before the Legislature codified the work product privilege, should not be read as supporting such a conclusion. At the same time, we reject the dicta in Nacht & Lewis, supra, 47 Cal.App.4th at page 217 that said “recorded statements taken by defendants‟ counsel would be protected by the absolute work product privilege because they would reveal counsel's 'impressions, conclusions, opinions, or legal research or theories' . . . . [Citation.]” Instead, we hold that a witness statement obtained through an attorney-directed interview is entitled as a matter of law to at least qualified work product protection. A party seeking disclosure has the burden of establishing that denial of disclosure will unfairly prejudice the party in preparing its claim or defense or will result in an injustice. (§ 2018.030, subd. (b).) If the party resisting discovery alleges that a witness statement, or portion thereof, is absolutely protected because it “reflects an attorney's impressions, conclusions, opinions, or legal research or theories” (§ 2018.030, subd. (a)), that party must make a preliminary or foundational showing in support of its claim. The trial court should then make an in camera inspection to determine whether absolute work product protection applies to some or all of the material.
Slip op., at 20.
The Court then considered discovery directed at the identity of witnesses from whom statements were collected:
The Court of Appeal reasoned that, because the recorded witness statements themselves were not entitled to work product protection, defendant could not refuse to answer form interrogatory No. 12.3. In so concluding, the majority disagreed with Nacht & Lewis, which held that the information sought by form interrogatory No. 12.3 is entitled as a matter of law to qualified work product protection to the extent it consists of recorded statements taken by an attorney. (Nacht & Lewis, supra, 47 Cal.App.4th at p. 217.) Justice Kane, in his separate opinion below, identified a third approach. He would have adopted a default rule requiring parties to respond to form interrogatory No. 12.3, while permitting parties to make a showing that the responsive material is entitled to qualified or absolute protection. As explained below, the approach suggested by Justice Kane is most consistent with the policies underlying the work product privilege.
Slip op., at 21. The Court considered the various, hypothetical situations where a list of witnesses providing statements might reveal thoughts and impressions. After discussing the extreme situations, the Court concluded that such discovery should usually be answered:
Because it is not evident that form interrogatory No. 12.3 implicates the policies underlying the work product privilege in all or even most cases, we hold that information responsive to form interrogatory No. 12.3 is not automatically entitled as a matter of law to absolute or qualified work product privilege. Instead, the interrogatory usually must be answered. However, an objecting party may be entitled to protection if it can make a preliminary or foundational showing that answering the interrogatory would reveal the attorney's tactics, impressions, or evaluation of the case, or would result in opposing counsel taking undue advantage of the attorney's industry or efforts. Upon such a showing, the trial court should then determine, by making an in camera inspection if necessary, whether absolute or qualified work product protection applies to the material in dispute.
Slip op., at 24. The decision was unanimous.
Trial courts should groan in pain at this outcome. It guarantees that counsel will view their client as having nothing to lose in refusing to provide this information. Which guarantees that trial courts will have to resolve these fights by reviewing lists of names in camera. Of course, bad faith refusal to respond will, in the long run, cost parties their credibility with the trial court, but they won't internalize the cost effectively unless strict discovery sanctions are imposed.
The Complex Litigator reports on developments in related areas of class action and complex litigation. It is a resource for legal professionals to use as a tool for examining different viewpoints related to changing legal precedent. H. Scott Leviant is the editor-in-chief and primary author of The Complex Litigator.
