Arbitration, Employment, FAA, Class, Waiver: Petition For Certiorari To SCOTUS Filed In Morris v. Ernst & Young
On August 23, 2016, I blogged that the issue in Morris v. Ernst & Young was clearly framed by the majority and minority opinions, and almost certainly headed for Supreme Court Review. In that Ninth Circuit case, the majority held that an employer violates sections 7 and 8 of the National Labor Relations Act by requiring employees to sign an agreement precluding them from bringing, in any forum, a concerted legal claim regarding wages, hours, and terms of conditions of employment.
On October 10, 2016, Kate Howard reports for SCOTUSBlog that a petition for a writ of certiorari was in fact filed on September 8, 2016, and states the issue as follows: “Whether the collective-bargaining provisions of the National Labor Relations Act prohibit the enforcement under the Federal Arbitration Act of an agreement requiring an employee to arbitrate claims against an employer on an individual, rather than collective basis.”
Currently, the most important number relating to SCOTUS is eight. With the high court split 4-4 into liberal and conservative wings, arbitration issues, which also tend to break along political lines, could be affected by the appointment of a ninth justice to fill the empty chair.
News: Can Wells Fargo Require Customers To Arbitrate Issues Regarding Unauthorized Accounts?
Attorney General Of Minnesota Say No, Joining Other Political Figures.
On October 4, 2016, Adam Betz reported for the Star Tribune that Minnesota’s Attorney General Lori Swanson opposes Wells Fargo’s use of arbitration clauses to require its customers to arbitrate claims concerning unauthorized accounts opened by Wells Fargo. And the LAT reports that on October 3, Sen. Sherrod Brown (Dem. – Ohio) introduced legislation in Congress to prevent Wells Fargo from invoking arbitration in contracts with customers.
Arbitration, PAGA: Employer Cannot Force Employees To Individually Arbitrate Whether They Qualified As “Aggrieved Employees” Before Pursuing Representative PAGA Claims
Takeaway: California Law Precludes Employer From Requiring Employee To Individually Arbitrate “Aggrieved Employee” Status While Preserving Right To Judicial Forum For Other Aspects Of Claim.
Perez v. U-Haul Co. of California, B262029 (2/7 8/16/16) (Zelon, Segal, Garnett) shows the ingenuity of an employer who tried to escape the reach of Iskanian v. CLS Transportation Los Angeles, LLC, 59 Cal.4th 348 (2014) and avoid having to face employees’ representative claims brought under the Private Attorney General Act of 2004 (PAGA) – albeit, unsuccessfully.
PAGA authorizes an “aggrieved employee” to bring a civil action personally and in a representative capacity to recover civil penalties for Labor Code violations. As with a qui tam statute, PAGA allocates 75% of the recovery to go to a state agency, and the remaining amount to go to “aggrieved employees.” (My 2015 article in California Litigation, entitled “Can Private Attorney General Actions Be Forced Into Litigation?” can be read by clicking here.)
U-Haul argued that the employees, who had signed a broad arbitration clause, should first have to individually arbitrate whether they were “aggrieved employees” as a predicate for pursuing their PAGA claims – i.e., they should have to first arbitrate whether there were Labor Code violations.
Relying on Iskanian, the Court rejected the employer’s argument, because Iskanian underscores that the representative nature of PAGA claims cannot be destroyed by requiring individual arbitration, and that the PAGA representative claims are really brought on behalf of the state (which is not a party to the arbitration agreement).
COMMENT: Note that the Court limited its ruling by stating: “For the purposes of this case, we need not determine whether PAGA claims are categorically exempted from private arbitration agreements.” Though the Court does not explain this limitation, I understand it to mean that PAGA claims may be arbitrable, if they can be arbitrated in a representative capacity.
However, given a choice between arbitrating or litigating in Court, an employer could have reasons to choose the court option, because the risk of error in a representative proceeding, where the stakes can be very high, weighs in favor of “multilayered review” lacking in arbitration See footnote 3 of Perez, relying on dictum in AT & T Mobility LLC v. Concepcion, 563 U.S. 333 (2011).
Mediation/Condition Precedent: Court Refuses To Strictly Enforce Mediation Requirement As A Condition Precedent To Collecting Attorney’s Fees Because Of Unique Procedural Posture Of Case
True, Mediation Conditions Precedent To Collecting Attorney’s Fees Are Strictly Interpreted – But Not Here, Where Commonsense Dictated Otherwise.
Check out the September 13, 2016 post in California Attorney’s Fees, the blawg my colleague Mike Hensley and I contribute to, about Lamar Central Outdoor, LLC v. Hwang, Case No. B266070 (2d Dist., Div. 5 Sept. 9, 2016) (unpublished). The unique procedural posture of this case leads to an unusual result: notwithstanding a contractual requirement to mediate before initiating an action, the Court recognizes that requiring mediation as a precondition would run counter to the purpose of promoting judicial efficiency, based on the unusual procedural posture of this case.
In Lamar Central Outdoor, LLC, the requirement that a party mediate first before commencing legal action, if that party prevails and is to ever collect legal fees, existed in the contract between co-defendants. So when the plaintiff sued the co-defendants, and co-defendant Milan cross-complained against defendant Hwang, the Court recognized that the counter-claim was a permissive counterclaim, and that delaying the permissive counter-claim between the two co-defendants, while the co-defendants mediated, would only have undermined, rather than promoted, judicial efficiency. In this unusual case, the Court did not strictly require the cross-complainant to mediate before cross-complaining as a condition precedent to obtaining attorney’s fees from its co-defendant.
Arbitration, Unconscionability, Consumers: Second District, Division 4 Holds Arbitration Agreement Between Low-Income Mobilehome Owners And Mobile Home Park Is Unconscionable
Defendants’ Failure To Disclose Prohibitively Expensive Arbitration Fees To Low Income Plaintiffs Weighed Against Enforcement Of The Arbitration Provision.
When 61 “primarily low-income mobilehome owners” sued Wildwood Mobile Home Country Club (“Westmont”), naturally Westmont moved to compel arbitration. After the trial court denied the motion, Westmont appealed. Unsuccessfully. Penilla v. Westmont Corporation, B262097 (2/4 9/9/16) (Manella, Epstein, Willhite).
The Court of Appeal affirmed the order denying arbitration because the arbitration provision was procedurally unconscionable: it failed to disclose “prohibitively expensive arbitration fees” and it was not provided in a Spanish language copy, nor explained to persons who did not understand written English. In addition, the arbitration provision was substantively unconscionable because (i) “it imposed arbitral fees that were unaffordable or would have substantially deterred respondents from asserting their claims” and (ii) there were “unreasonably shortened limitations periods.”
COMMENT: There are now a number of California cases in which language confusion has become a factor in finding procedural unconscionability. You can find my discussion of several of those cases by using the left-hand sidebar of this website and searching for “Spanish” in the “Search This Blog” rectangle.
The California courts have been sorting through the problem of figuring out when to take into consideration the ability of a person to pay for arbitration. California Code of Civil Procedure section 1284.3(b)(1) entitles “indigent consumers” to qualify for a fee waiver. The amount of income earned by the plaintiffs – average gross annual income of $35,600, and median annual income of approximately $32,000 in Penilla – placed them within the meaning of “indigent” under the statute.
Interestingly, the statute does not actually define “consumer.” However, the courts seem to be assimilating persons with low income who enter into adhesive contracts into the developing jurisprudence concerned with the high costs of arbitration for consumers. One of the primary arguments in support of mandatory consumer arbitration is “that it is less costly than civil litigation.” Sanchez v. Valencia Holding Co., LLC, 61 Cal.4th 899, 919 (2015). Here, however, the evidence was that JAMS arbitrator rates (which were not disclosed) ranged from $500 to $800 per hour, or $5,000 to $10,000 per day, plus a mandatory $400 arbitration filing fee. The low cost of arbitration can be an aspiration rather than a reality, especially when claims are small, and there is a class action waiver.
Arbitration, Delegation, PAGA: In Two Lawsuits Brought By Uber Drivers, Ninth Circuit Holds Issue Of Arbitrability Was Delegated To The Arbitrator, But PAGA Claims Go To District Court In One Of The Lawsuits
How Will This Ultimately Play Out?
In Mohamed v. Uber Technologies and Gillette v. Uber Technologies, Nos. 15-16178 and 16181 (9th Cir. 9/7/16), cases in which district court judge Edward M. Chen found arbitration clauses between Uber and its drivers to be unenforceable, the 9th Circuit panel has affirmed in part and reversed in part.
Uber drivers Mohamed and Gillette alleged that use of consumer credit reporting information violated the Fair Credit Reporting Act and other credit reporting statutes, and Gillette alleged Uber misclassified him and other employees as independent contractors.
The 9th Circuit, in an opinion penned by Judge Clifton, holds that the issue of arbitrability was effectively delegated to the arbitrator by “clear and unmistakable” language. Similarly, the issue of arbitrability of the PAGA claims was clearly and unmistakably delegated to the arbitrator in Mohamed’s case, but Gillette’s PAGA claim could proceed in court on a representative basis under the holding of Iskanian v. CLS Transp. L.A., LLC, 327 P.3d 129 (Cal. 2014).
Furthermore, the delegation provisions were not unconscionable. Here, an opportunity to opt-out of arbitration altogether appeared to be decisive.
Finally, arbitration against another defendant, Hirease, LLC, was held unenforceable. Hirease had allegedly violated credit reporting statutes by providing credit information about Uber drivers that Uber used to terminate Uber drivers. However, Hirease was not a signatory to the contracts with the arbitration provisions, nor was it an agent of Uber.
I note that the press has scored this as a big win for Uber. See for example Joel Rosenblatt and Linda Hurtado’s September 7 article in Bloomberg, entitled “Uber Gains Leverage Against Drivers With Arbitration Ruling.”
For one thing, this will not make settlement easier in another case involving Uber, because, as I posted on August 18, 2016, Judge Chen rejected a class settlement of Uber and Uber drivers precisely at a time when the enforceability of the arbitration clause was pending before the 9th Circuit.
However, there are still some likely twists in the road ahead.
First, the Uber drivers still have the ability to pursue PAGA claims in court in the Gillette lawsuit. The arbitrator must still make some decisions about the arbitrability of the PAGA claims in the Mohamed lawsuit. The existing PAGA claims are likely to be a source of some leverage for the Uber drivers.
Second, the fact that the arbitrator now gets to rule on the enforceability of the arbitration clauses does not necessarily mean that the Uber drivers have lost the right to proceed as a class. The Ninth Circuit ruled on August 22, 2016 in Morris v. Ernst & Young (see my August 23, 2016 post), that an employee class action waiver violates the National Labor Relations Act, because such a waiver prohibits employees from exercising their right to “concerted activity.” So Uber gets a “second bite of the apple”, but if the arbitrator follows Morris, the arbitrator could hold the class action waiver unenforceable.
Morris v. Ernst & Young included a strong dissent by Judge Ikuta who thought the majority opinion deviated from precedent.
Because a mistake of law is generally no reason for vacating the award of an arbitrator, an arbitrator could follow the reasoning of the panel opinion in Morris v. Ernst & Young, and blow out any class action waivers, or follow the dissenting opinion – and in either case, it would not provide a basis for vacating an arbitrator’s award.
So the road ahead for Uber and its drivers could be bumpy, winding, uncertain – and long.