Arbitration/Class/Employment: Motion To Compel Arbitration Was Premature Before Class Was Certified Where Named Plaintiff Was Not Party To Arbitration Provision
Before Certification of Class, Court Lacked Personal Jurisdiction Over Putative Class Members Who Signed Arbitration Agreement
Prospective lead plaintiff Nguyen filed putative class action complaint for alleged wage and hour violations against his former employer Inter-Coast International Training, Inc. Of the 220 individuals in the putative class, only 59 had signed an arbitration agreement – but Nguyen was not one of those who had signed an arbitration agreement. The employer moved unsuccessfully to compel arbitration, and appealed the order denying its motion to compel arbitration and stay the proceedings. Nguyen v. Inter-Coast International Training, Inc., Case No. B241938 (2nd Dist. Div. 4, Aug. 21, 2013) (Suzukawa, J., author 3:0) (unpublished).
The Court of Appeal affirmed the order denying the motion to compel arbitration and stay the proceedings. Why? The motion to compel arbitration and stay litigation was premature prior to certification of the class. The court lacked jurisdiction over the putative class members who had signed the arbitration agreement. After all, parties who had signed the arbitration agreement might be excluded from the certified class, or class certification might even be denied.
Arbitration/Enforceability/Fees: Fourth District, Div. 3 Rules That Impoverished Plaintiffs Unable To Pay Arbitration Fees May Be Excused From Arbitration
Hobson’s Choice? – Defendant Can Choose To Pay Arbitration Fees If Trial Court Determines Plaintiffs Are Unable To Pay
“The only issue before us is whether plaintiffs, each of whom were subsequently granted permission to proceed in forma pauperis in the trial court, could likewise be excused from the obligation to pay fees associated with arbitration. We conclude they could.” That’s the holding in Roldan v. Callahan & Blaine, G047306 (4th Dist. Div. 3 Aug. 26, 2013) (Rylaarsdam, J. author 3:0) (published).
All the plaintiffs – elderly, of limited means, and relying on section 8 housing – settled the underlying case involving toxic mold, but reluctantly, after their attorneys (now defendants) unsuccessfully attempted to have their clients declared legally incompetent so that a guardian ad litem could be appointed to cooperate with the attorneys’ efforts. Plaintiffs sued their attorneys, based on the allegedly inadequate settlement, and attorney conduct. Defendants/attorneys successfully moved to compel arbitration.
The Court of Appeal refused “to effectively deprive [plaintiffs] of access to any form for resolution of their claims against Callahan.” An interesting comparison is the recent United States Supreme Court majority opinion, holding that the Federal Arbitration Act does not permit courts to invalidate a contractual waiver of class arbitration just because the plaintiff’s cost of individually arbitrating a federal statutory claim exceeds the potential recovery. American Express Co. et al. v. Italian Colors Restaurant et al., No. 12-133 (June 20, 2013). “Just too darn bad,” is how Justice Kagan, dissenting, described the Supreme Court majority opinion allowing arbitration and waiver of class action, even if the result was to effectively deprive plaintiffs of a viable forum – leaving them with a right but not an effective remedy.
Quotation of the day:
“In theory, a written contract is the embodiment of a fully and fairly negotiated agreement setting forth the terms and conditions governing a particular transaction or relationship. It reflects the mutual intentions and expectations of both parties, who have an equal understanding of the contract’s legal and practical effect. However, in cases where parties to the contract have widely divergent levels of sophistication, a written contract is often less the embodiment of true mutual agreement than it is the product of the drafting party’s desire and a series of legal fictions.”
Above: Rich and poor. Sol Eytinge. 1873. Library of Congress.
Arbitration/Employment/Unconscionability/Severability/Review: Second Dist., Div. 2 Affirms Denial Of Employer’s Motion To Compel Arbitration – Lack Of Mutuality Is Key Here
Also, Court Refuses To Sever Because Of Lack Of Mutuality
No sooner did I post about McElroy v. Tenet Healthcare Corporation, a case reversing an order denying arbitration to a healthcare organization sued by a nurse, than I came across our next case, decided on the same day, and affirming an order denying arbitration to a convalescent home sued by a dietician. Serdenia v. Granada Hills Convalescent Hospital Care, Inc., B243074 (2nd Dist. Div. 2 Aug. 21, 2013) (Chavez, J. author 3:0) (unpublished). Both cases involve wage-and-hour claims brought against healthcare organizations; both involve claims of unconscionability.
Matters were simplified in Serdenia, because there was no record of the trial court’s reasoning below. Therefore, the Court of Appeal only addressed “the theory of law which we find presents a basis for upholding the trial court’s decision”: unconscionability.
Most of these wage-and-hour cases involving lower-level employees will also involve contracts of adhesion. As was the case here, it is usually not hard to find some level of procedural unconscionability. (Though there is a considerable fudge factor. For example, in Serdenia, the Court stated: “[t]he contract is undeniably a contract of adhesion and is therefore highly procedurally unconscionable.” Another panel might have concluded that there was adhesion but that it was not “highly” procedurally unconscionable. Compare Nibler v. Monex Deposit Company, G046511 (4th Dist. Div. 3 May 13, 2013) (Moore, Acting P.J., author 2:1, with Justice Fybel concurring) (unpublished), in which the majority found that a contract of adhesion was not procedurally unconscionable, with Justice Aronson dissenting on this very point. See my May 19, 2013 post on Nibler.)
Serdenia turns on the issue of mutuality. The agreement was written so as to limit binding arbitration to employees. Furthermore, “claims covered” turned out to be those “which would logically be brought by an employee against an employer.” This lack of mutuality between employer and employee was the basis for the Court to conclude the provision was substantively unconscionable. And, because the agreement lacked mutuality, the Court further concluded that it was permeated with unconscionability, such that the severability would not suffice to cure the problem.
Affirmed.
Arbitration/Employment/Unconscionability/Class: Fourth District, Division 3 Reverses Trial Court’s Denial Of Petition To Arbitrate, Finding Insufficient Evidence Of Unconscionability
But Trial Court Was Correct That Class Arbitration Cannot Be “Inferred” From Silence On The Issue
The trial court judge denied Tenet Health Care Corporation’s motion to compel arbitration of a wage-and-hour lawsuit brought by a hospital nurse. Tenet appealed and obtained a reversal. McElroy v. Tenet Health Care Corporation, G047300 (4th Dist. Div. 3 Aug. 21, 2013) (Bedsworth, J. author 3:0) (unpublished).
The trial court identified three reasons for finding the agreement to arbitrate non-existent, each of which the Court of Appeal shot down. First, the AAA’s procedural rules were not shown to have been provided – but they were sufficiently incorporated by reference. Second, despite the employer’s right to make changes in the contract, it was not truly illusory. The covenant of good faith and fair dealing limits the unbridled exercise of power. Besides, the contract provided that the agreement could not be changed except by agreement. Third, the Court of Appeal interpreted language that the Employee Handbook is not a contract of employment as simply a disclaimer that the employee was something other than an at-will employee.
The Court of Appeal held that the claim of unconscionability simply wasn’t supported by the record. Thus, the arbitration provision was in bold type and not buried (for better or worse, the employee handbooks was not in the record.) Nor was a fee-sharing provision unduly onerous. The employee’s maximum out-of-pocket expenses for the arbitrator and administrative cost would be equal to one day’s pay for exempt employees, or eight times hourly rate for non-exempt employees.
The Court of Appeal, however, did credit the trial judge for concluding that consent to arbitrating class claims cannot be inferred from an agreement that is silent on the subject – “[t]his ruling comports with both federal and state law.” Stolt-Nielsen S.A. v. Animalfeeds International Corp., 559 U.S. 662 (2010).
Arbitration/Waiver: Ninth Circuit Reverses District Court’s Denial Of Motion To Compel Arbitration, Finding Plaintiff Had Not Established Any Prejudice Resulting From Delay
Delay Does Not Equal Prejudice
The Ninth Circuit has reversed the judgment of the district court denying Ernst & Young’s motion to compel arbitration, because the 9th Circuit concluded the employer’s delay in asserting arbitral rights did not result in prejudice. Richards v. Ernest & Young LLP, No. 11-17530 (9th Cir. Aug. 21, 2013) (per curiam) (published).
Why this result, given the fact that the motion to compel was brought after years of litigation?
A dismissal of certain of plaintiff’s claims in court, without prejudice, was not “a decision on the merits.” Discovery conducted in the court proceedings could have also been gained through arbitration. Expenses in court proceedings were a “self-inflicted” wound, given that the plaintiff employee was a party to a mandatory arbitration agreement, and she made a “deliberate choice of an improper forum.”
Finally, the 9th Circuit refused to entertain an argument that relied on D.R. Horton, 357 N.L.R.B. No. 184 (Jan. 3, 2012), that the arbitration agreement was unenforceable under the NLRA. Unfortunately for plaintiff, she raised the argument too late, only after the district court had denied the motion to compel. However, the cases addressing D.R. Horton trend toward the position that the NLRA did not explicitly overrule any provision in the FAA.
Reversed.
In the News: Bank Burned By Boilerplate
Read the Fine Print
As readers of this website will know, arbitration provisions are often located in boilerplate, found in take-it-or-leave-it contracts, raising procedural unconscionability issues in California. Our next case does not involve arbitration – though it does involve arbitration’s beloved mate, boilerplate.
So what happens when a bank fails to read doctored boilerplate?
Cory Doctorow posts on BoingBoing about a “wily Russian fellow” who “crossed out the fine-print on an unsolicited credit-card application . . . and wrote in his own terms, giving himself unlimited, interest-free credit and exemption from all fees, with a 3MM ruble fee [$91,000] should the bank change the terms and a 1MM ruble fee should they cancel his card.” He even crossed out the URL giving the terms and conditions, and wrote in his own URL !
Tinkoff Credit Systems, which provided the wily Russian with an unsolicited credit-card application, sued the customer. “However, the court held that his amendments were binding since the bank accepted them, whether it looked at them or not.”
We can only guess that, if Tinkoff Credit Systems, Russia’s largest on-line bank, had sued in California, it would have had an uphill battle arguing it was the feckless victim of procedural unconscionability.
On August 14, 2013, RT [previously Russia Today] reported that both parties had agreed to call off legal action:
“The conflict is unconstructive, this is why we decided to resolve it in a gentlemanly way, by lifting the mutual claims,” Tinkoff Credit Systems cites its President Oliver Hughes as saying.
“In 2008 it was just a joke, when I tailored my own form and produced that to the bank instead of the official form. But the joke has gone too far,” RIA Novosti cites the small print scribe Dmitry Agarkov as saying.
HAT TIP to attorney Colin Alexander, an avid reader of BoingBoing, who brought this story to my attention.