Arbitration/Employment/Waiver/Class Action: Following Iskanian, 2nd District Div 2 Holds Employee Cannot Waive PAGA Representative Claims
Also,There Was No Basis Here For Sending The PAGA Representative Claims To Arbitration Rather Than Court
In Jones v. J.C. Penney Corporation, Inc., Case No. B246674 (2/4 Sept. 5, 2014) (Edmon, Willhite, Manella) (unpublished), plaintiff brought a representative claim under the Labor Code Private Attorneys General Act of 2004 (PAGA), alleging employer J.C. Penney did not permit her and others to sit at work, even when it would not interfere with performance of their duties, and did not provide employees with suitable seats. The Court of Appeal has affirmed the trial court’s order denying a petition to compel arbitration, on the grounds that Iskanian v. CLS Transportation Los Angeles, LLC, 59 Cal.4th 348 (2014) holds that employee waivers of the right to bring representative PAGA claims are unenforceable.
The unenforceability of a waiver of the representative PAGA claims left as a remaining issue whether plaintiff’s claims were to proceed in litigation or arbitration.
In connection with that issue, J.C. Penney conceded that the employee could not arbitrate PAGA claims unless the Labor & Workforce Development Agency (LWDA) also signed the arbitration agreement. This concession makes sense, because the California courts view PAGA claims as public disputes between an employer and the state, though initiated by the employee as a type of “qui tam” dispute in which a 75% of the civil penalties will go to the state, and 25% will go to the aggrieved employee. As the LWDA was not about to sign an arbitration agreement, there was no basis for arbitrating the PAGA claims, leaving them to be litigated.
J.C. Penney also urged that the Court of Appeal “stay this appeal until the high court can receive and rule on an anticipated petition for writ of certiorari in Iskanian.” The Court of Appeal did not follow that suggestion. However, if a writ is to be anticipated in Iskanian, then we have hardly heard the last word about the arbitrability of PAGA claims in the face of a waiver of the right to bring a representative action.
Construction Of Arbitration Agreement: Court Of Appeal Agrees Arbitration Clauses Were Unrelated To The Dispute For Which Respondents Seek Damages
Beware The Pleading Admission!
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"Beware the Jabberwock, my son!
The jaws that bite, the claws that catch!”
Plaintiffs/Respondents alleged Defendants/Appellants misrepresented they could raise sponsorship financing necessary for Plaintiffs to produce reality television shows, produced the show entitled “The Players Club” at considerable expense, and learned the financing was not forthcoming. Plaintiffs alleged negligence, fraud, misrepresentation, breach of contract, and breach of the implied covenant of good faith and fair dealing, seeking $3 million in damages, minus a $750,000 commission. Defendants sought, unsuccessfully, to compel arbitration, and appealed the order denying their request. Baseball-Players Club, LLC v. Brand-In Entertainment, LLC, Case No. B251173 (2/4 Sept. 2, 2014) (Epstein, Manella, Edmon) (unpublished).
The interesting wrinkle in this case is that both sides treated allegations in Plaintiffs’ unverified complaint as binding judicial admissions. In that unverified complaint, Plaintiffs referenced three reality shows, while claiming subsequently they were only seeking damages for The Players Club. The arbitration provision, however, did not mention The Players Club.
You can see where this is heading: Plaintiffs alleged they were not bound to arbitrate, because they only sought damages related to The Players Club, a reality show not mentioned by the arbitration provisions. Defendants, however, tried to stick Plaintiffs with judicial admissions, based on the complaint, that all three reality shows were implicated in the dispute, and therefore somehow covered by the various arbitration clauses.
Agreeing with Plaintiffs (and the trial court) that The Players Club dispute was not covered by an arbitration clause, the Court of Appeal explained that the doctrine that judicial admissions place factual allegations beyond dispute does not “apply when the admissions have been superseded by amendment, particularly when the original pleading is unverified. . . . To the extent respondents represent their claims are limited to ‘The Players Club,’ they have abandoned any alleged dispute regarding ‘The Natural’ or ‘Bragging Rights.’” Thus, the Court of Appeal has saved Plaintiffs from being ensnared by their own pleadings, while at the same time clarifying Plaintiffs have abandoned any claims that might have been covered by an arbitration clause.
Note: In an April 18, 2013 post, I wrote about another case in which a party seeking to avoid arbitration managed to avoid a binding judicial admission. Barsegian v. Kessler & Kessler, 215 Cal.App.4th 446 (2013) (partially certified for publication). In Barsegian, at oral argument, the defendant seeking to compel arbitration based on plaintiff’s allegation of agency, also made it clear it was reserving its right to argue it was not bound by the allegation of agency. Absent the agreement of the opposing party seeking a binding judicial admission, the court was not willing to treat the pleading as an admission.
Arbitration/Record/1281.2: Second District, Division 2 Affirms Trial Court’s Order Denying Petition To Compel Arbitration, Based On Slim Record
A Statement of Decision Couldn’t Have Hurt Appellants Here
The facts are somewhat odd here. Defendants/Appellants were involved in a fee dispute with Plaintiff/Respondent, a law firm. Defendants moved to compel arbitration, while arguing that the parties’ agreement, governed by the Los Angeles County Bar Association rules, did not allow the arbitrators to decide an alter ego claim. Plaintiff pointed out some of the interested parties were not subject to arbitration, but expressed a willingness to arbitrate, “noting that the only issue in dispute was whether the arbitration would include the alter ego claim.” The trial court said that if the parties “’really want to arbitrate, I’ll let you stipulate to arbitrate’ but emphasized that any arbitration must be ‘all or nothing.’” You guessed it – no stipulation, so no arbitration. Defendants appealed. Tesser Ruttenberg & Grossman LLP v. Forever Entertainment LLC, B249042 (2/1 Aug. 27, 2014) (Chavez, Boren Ashmann-Gerst) (unpublished).
The appellants failed to establish reversible error, perhaps because they failed to request a statement of decision. An order denying a petition to compel arbitration “is presumed to be correct, and all intendments and presumptions are indulged to support the order on matters at to which the record is silent.” Here, the record appeared to be silent on matters as to which Appellants argued the trial court had gone sideways. “The presumption of correctness is particularly applicable when, as was the case here, defendants failed to request a statement of decision explaining the factual and legal basis for the trial court’s ruling denying their motion to compel arbitration.”
That meant that the Court of Appeal only had to find one ground that would support the trial judge’s order, and it did in Cal. Code of Civ. Proc., section 1281.2(c), giving the trial court discretion to deny arbitration so all issues between the parties are resolved in a judicial proceeding.
Defendants argued that the record contained no ruling under section 1281.2(c). No matter. “Their failure to request a statement of decision resulted in the forfeiture on appeal of any objection based on the absence of such findings or ruling.” Surely there is a moral here.
Comment:
If the Federal Arbitration Act alone had governed the arbitration, Cal. Code Civ. Proc. section 1281.2(c) would have been preempted, and would not have been a basis for denying arbitration.
Arbitration/Employment/Enforceability/Unconscionability: 2nd District, Div. 1 Reverses Order Denying Motion To Compel Arbitration (Published), And 4th District, Div. 3 Affirms Order Denying Motion To Compel Arbitration (Unpublished) In Employment Cases
The Divergent Outcomes Are Explained By The Peculiar Facts (Of Course)
1. Cruise v. Kroger Co., B248430 (2/3 Aug. 27, 2014) (Aldrich, Klein – third member of panel unavailable).
Employer Kroger Co., parent of Ralphs, which had loaded an arbitration policy with one-sided provisions favoring the employer, moved to compel arbitration of an employment discrimination action. Unpersuaded that the arbitration policy really existed when the employee read and signed the employment application, the trial court denied Kroger’s motion.
In what could only be described as an ironic twist, the Court of Appeal accepted the trial judge’s finding that the stand-alone four-page arbitration policy may not have been part of the employment agreement, and concluded that here, that helped the employer — and possibly saved Kroger from having to defend an unconscionable arbitration policy.
Here, the employment application itself contained a broad agreement to arbitrate employment-related disputes, separate and apart from the arbitration policy document. The failure to incorporate the additional arbitration policy simply meant that the relationship between the parties would be governed by the California Arbitration Act, requiring an arbitrator to be chosen pursuant to the provisions of the CAA.
Also, the employer’s failure to incorporate the arbitration policy document very possibly stopped the Court of Appeal from torpedoing that policy, because the arbitration policy presented serious lopsidedness issues. Under the terms of the arbitration policy, arbitrators from the AAA and JAMS were not permitted to administer the arbitration – making it more likely, in the view of the trial judge, that Kroger would be able to hand-pick an individual arbitrator dependent on Kroger’s patronage. The trial judge also found that a fee provision requiring plaintiff to pay 50% up front for the arbitration was unconscionable under Armendariz. Also, the arbitrator was only empowered to resolve a fee dispute if there was on-point US Supreme Court authority .
Fortunately (at least for the employer), because Kroger was unable to establish the contents of the arbitration policy were effective, the arbitration was controlled by California statutory and case law. Therefore, plaintiff’s arguments “that Kroger’s Arbitration Policy is procedurally and substantively unconscionable are meritless.”
2. Carter v. Fannie Mae, G049112 (4/3 Aug. 26, 2014) (Bedsworth, Fybel, Thompson) (unpublished).
Carter sued her former employer, Fannie Mae, for whistleblower retaliation. Fannie Mae moved, unsuccessfully, to compel arbitration, and appealed. The Court of Appeal explains that Carter did have an implied-in-fact agreement to arbitrate, but that the agreement is one-sided, and therefore substantively unconscionable. Specifically, “the contract cannot be enforced because it exempts the kinds of claims that Fannie Mae is likely to bring against employees, such as trade secret claims.”
The Court of Appeal refused to sever the unconscionably one-sided provisions: “We would have to rewrite the arbitration clause – which we cannot do – or somehow choose ‘what to leave in, what to leave out’ [quoting ‘Against the Wind,’ Bob Seger, 1980] which is also beyond our mandate.”
Comment: Note that Cruise v. Kroger, supra, didn’t address the need to sever, presumably because Kroger failed to establish that the provisions in its four-page arbitration policy, lopsided or otherwise, were ever part of the arbitration agreement.
Arbitration/Disclosure/Waiver: 5th District Narrowly Construes Statutory Language That Ethics Requirements Applicable To Arbitrators “Are Nonnegotiable And Shall Not Be Waived”, Concluding Certain Disclosure Requirements Can Be Waived
It All Depends On What “Waiver” Means
In United Health Centers Of The San Joaquin Valley, Inc. v. Superior Court of Fresno County, Case No. FO67763 (5th Dist. Aug. 25, 2014) (Gomes, Kane, Detjen), Dr. Jennifer Vradenburg-Haworth, the Real Party in Interest, sued her employer UHC in a wrongful termination case, was compelled to arbitrate, didn’t like the arbitrator’s award, and tried to get the trial court to vacate the arbitration award because the arbitrator admittedly failed to comply with the mandatory disclosure requirements of Cal. Code Civ. Proc., sections 1281.9 and 1281.85. And in fact she succeeded in getting the trial judge to vacate the arbitration award, prompting UHC to initiate a writ proceeding..
The trial court refused to follow Dornbirer v. Kaiser Foundation Health Plan, Inc., 166 Cal.App.4th 831 (2008), “in which the appellate court held that the statutory scheme does not require an arbitration award be vacated when the arbitrator has disclosed the grounds for disqualification generally, but has not provided all of the specific details required by section 1281.9, and the parties nevertheless agreed to proceed with the arbitration.” Why didn’t the trial court believe that Dornbirer was good law? Because Cal. Code Civ. Proc., section 1281.85(c) provides that ethics requirements and standards applicable to arbitrators “are nonnegotiable and shall not be waived.”
This required the Court of Appeal to confront whether Dornbirer has been overruled by the explicit statutory language – and just exactly what “waiver” means.
The Court of Appeal explains that “’’waiver’ can have multiple meanings.” The Court endorses the position that section 1281.85(c), was enacted to “prohibit contractual waivers of the statutory right to disqualify an arbitrator, not forfeitures of rights resulting from the failure to perform an act.” Given this narrow reading of the meaning of “waiver”, the Court rejects “Vradenburg-Haworth’s contention that Dornbirer has been overruled by statute.”
Because the trial court rejected the applicability of Dornbirer, it never reached "[t]he issue in this case . . . whether the facts, as presented in the declarations filed below, show that Vradenburg-Haworth’s attorneys had actual knowledge of a ground for disqualification before the arbitration commenced.” Therefore, the Court of Appeal granted the writ petition, and the superior court must now reconsider the parties’ petitions in light of the Court’s view that Dornbirer is good law, and that “waiver” can occur by sitting on one’s rights after learning of grounds for disqualification.
Comment: The rule applied by the trial court – that disclosure requirements are nonnegotiable and shall not be waived – is a bright and broad line. The narrower reading of the meaning of waiver, allowing for waiver of disclosure requirements when a party is “on notice of a ground for disqualification, yet failed to inquire further,” will require a more probing and complicated inquiry.
News/Employment/Arbitration: Outcomes Of Employment Arbitration Versus Litigation Are Quantified In Recent Study
Mark D. Gough Of The Cornell University School Of Industrial & Labor Relations Has Studied The Outcomes
Mark D. Gough has published in the Berkeley Journal of Employment and Labor Law the results of a study of some 700 employment discrimination cases – and the results are striking, whether looked at from the perspective of management or labor.
Matthew M. Sonne, an attorney with an employer-based practice, draws the following conclusion from Dr. Gough’s study: “Should the Company Utitilize Arbitration Agreements? A Recent Empirical Study Says, ‘Yes.’” The Pros and Cons of Employment Arbitration Agreements, Orange County Business Journal, August 18, 2014, p. B-53.
Hunter Pyle, an attorney with an employee-based practice, surely agrees that arbitration agreements benefit employers, but has a different slant, as represented by his blog post entitled, “The Profoundly Negative Impact of Arbitration on Workers’ Rights.” Workers’ Rights Blog, March 2, 2014, published by Sundeen Salinas & Pyle.
While I have not found Dr. Gough’s article on line, Mssrs. Sonne and Pyle have summarized some of the key findings:
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Employees pursuing employment discrimination litigation in courts were nearly 40% more likely to win. (Sonne).
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Employee discrimination awards in court were nearly twice as large as in arbitration. (Sonne).
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The average award to a successful discrimination plaintiff in court was $802,487, versus $412,052 in arbitration.
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“Arbitration decreases the odds of an employee win by 59%.” (Pyle).
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“Award amounts decrease by 35% in arbitration.” (Pyle).
Take a look at my earlier August 15, 2014 post entitled, “Executive Order Limits Pre-Dispute Arbitration Clauses For Federal Contracts Exceeding $1 Million In Title VII And Sexual Assault/Harassment Cases” – and draw your own conclusions.