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Hear the wonders of our pontification of what happened with arbitration agreements in two recent decisions right here, in Episode 29 of the Class Re-Action podcast. After you listen, be sure to leave a comment about how unbelievably exciting the episode was, as well as your favorite flavor of Icee.
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.
Other than the minor surprise I now experience when any motion to compel arbitration is denied, such agreements having achieved a status as super-contracts with super powers, the decision in Nunez v. Nevell Group, Inc. (pub. ord. May 28, 2019) isn’t too surprising. In Nunez, the Court of Appeal (Fourth Appellate District, Division Three) affirmed the trial court’s denial of a motion to compel arbitration on the basis of waiver, delay, and prejudice.
The Court covers two topics in its discussion of waiver that might be of use to others. First, the Court examines the idea of waiver generally. Second, the Court examines the “clear and unmistakable” standard that asks whether a CBA clearly and unmistakably waives the right to a judicial forum for the particular type of claim in question. Keep in mind that, as the Court here observed, federal and California state courts may reach slightly different conclusions regarding application of the “clear and unmistakable” waiver standard, since California Courts are not bound by federal court decisions on the subject.
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.
Following the Epic decision by the Supreme Court, today the Ninth Circuit formally vacated Morris v. Ernst & Young, LLP in a per curiam Opinion. And I bet you were wondering if they would Resist! They did not.
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.
When I started reading this opinion, I went a little too fast on the first page, read on a few more pages, got really confused, re-read the first page, and then re-read the next four pages, marveling and what happened. Cortez v. Doty Bros. Equipment Company (September 1, 2017) (Second Appellate District, Division Seven) is one of those decisions that you read and say, "I didn't know they could do that."
Here's what gets you. The first page say, "APPEAL from orders of the Superior Court of Los Angeles County, Jane L. Johnson, Judge. Appeal dismissed." Slip op., at 1. If you are rushing, you assume that some procedural failing led to a dismissal. This incorrect conclusion is only amplified when you read this:
While Cortez’s appeal was pending, the appellate courts in Munoz v. Chipotle Mexican Grill, Inc. (2015) 238 Cal.App.4th 291, 310 (Munoz) and Miranda v. Anderson Enterprises, Inc. (2015) 241 Cal.App.4th 196, 201-202 (Miranda) held the death knell doctrine did not apply to the denial of class certification or dismissal of class claims while a plaintiff’s PAGA claim remained pending in the trial court. Concerned about the viability of his initial appeal, Cortez voluntarily dismissed his PAGA claim with prejudice on March 30, 2016 and filed a second notice of appeal on May 20, 2016, again identifying the September 19, 2014 order compelling arbitration and the March 23, 2015 order dismissing all class claims as the orders subject to appellate review. We consolidated the two appeals.
Slip op., at 2-3. At this point (if you were me), you figure that the filing of the second appeal and the dismissal of the PAGA claim in the trial court were going to interact somehow to lead to the dismissal of the appeal, perhaps on some timeliness ground. Nah. You're way off base (if you are me).
Here's where the whiplash gets you:
Although not fully identified by the parties in their briefs, Cortez’s appeal poses several difficult jurisdictional questions, in particular, the effect of Cortez’s dismissal of his PAGA claim on the appealability of the earlier order dismissing the class claims, including whether a plaintiff’s voluntary action can create an appealable order under the death knell doctrine and whether the second notice of appeal from an order entered more than a year before was timely; and the applicability of Code of Civil Procedure section 906 to an order made appealable under the judicially created death knell doctrine rather than pursuant to Code of Civil Procedure section 904.1. We resolve none of those issues. Rather, in light of the uncertainty of the appealability of the orders challenged by Cortez and the absence of any delay or prejudice our intervention at this stage would cause, we find this an appropriate case in which to exercise our discretion to treat the consolidated appeal as a petition for writ of mandate and reach the merits of the superior court’s orders compelling arbitration of Cortez’s individual claims and terminating the class claims.
Slip op., at 4. "We resolve none of those issues." What? "[W]e find this an appropriate case in which to exercise our discretion to treat the consolidated appeal as a petition for writ of mandate and reach the merits of the superior court’s orders compelling arbitration of Cortez’s individual claims and terminating the class claims." Spectacular.
The actual result is far less amazing than the procedural knot that was circumvented to get there. The outcome is a fairly standard application of how Stolt-Nielsen is currently construed:
We grant Cortez’s petition in part, finding Cortez’s cause of action under the Labor Code for Doty Bros.’ failure to timely pay wages upon his separation from employment (Lab. Code, § 203) (sixth cause of action) and his unfair competition action based on that alleged statutory violation (Bus. & Prof. Code, § 17200) (seventh cause of action) are not encompassed by the arbitration provision in the CBA. In all other respects, we deny the petition, concluding the remaining causes of action are subject to 5 arbitration, and the court’s termination of class claims proper on the ground the CBA does not authorize classwide arbitration.
Slip op., at 4-5.
Near the end of the opinion, the Court notes the split of federal authority at the Circuit level on the issue of whether a ban on classwide arbitration is antithetical to the NLRA. While this panel might have done that issue justice, it noted that the California Supreme Court had rejected that argument in Iskanian, and concluded that it was bound by that determination.
Kingsley & Kingsley, Eric B. Kingsley, Liane Katzenstein Ly, Kelsey M. Szamet and Ari J. Stiller; DesJardins & Panitz, Michael A. DesJardins and Eric A. Panitz successfully represented Plaintiff and Appellant (though as a petitioner)
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.
Iskanian v. CLS Transportation Los Angeles, LLC, 59 Cal. 4th 348 (2014) held that PAGA representative claims for civil penalties are not subject to arbitration. In Esparza v. KS Industries, L.P. (August 2, 2017), the Court of Appeal (Fifth Appellate District) tackled the question of whether any claims asserted under PAGA can be "individual" claims, and, if so, how are they treated for purposes of arbitration agreements. The issue arose, in particular, because it appeared that the plaintiff asserted, within the PAGA claim, a claim to recover wages under Labor Code section 558, which, unlike the other PAGA penalties (in the sense of the word meaning something akin to a fine) sought, would result in the recovery of the underlying wages owed, with no portion going to the State from the recovered wages. The Court directed the plaintiff on remand to declare unequivocally whether only penalties would be sought or whether, in addition, individual recovery claims would be pursued. The Court concluded that such individual recovery claims would be severed and arbitrated.
Don't see the Fifth Appellate District having to wade into these issues regularly, so hat tip to that District for getting into the PAGA mix.
The trial court was technically affirmed, but the holding and directions on remand make this one a win for defendant/respondent, who was represented by Call & Jensen, John T. Egley and Jamin S. Soderstrom.
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.
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.
