Arbitration, PAGA, Waiver: First District, Div. 3 Holds Employee’s Waiver Of Representative PAGA Claims Is Ineffective
California Courts of Appeal Continue To Side With California Supreme Court Regarding Standing To Bring Representative PAGA Claims.
Affirming the trial court's denial of an employer's motion to compel arbitration, the Court of Appeal holds that the employees' waiver of a right to bring representative PAGA claims is unenforceable. Nicole DeMarinis et al. v. Heritage Bank of Commerce, A167091 (1/3 1/8/24) (Fujisaki, Tucher, Petrou).
Let's summarize the PAGA standing issue in California: Under Iskanian, California courts had not allowed employers to "split" PAGA claims between individual and representative claims, because Iskanian treated a PAGA claims as a dispute between the employer and the State, which did not waive the right to arbitrate, and not a dispute between an employer and an employee. However, the SCOTUS, in Viking River Cruises, Inc. v. Moriana, 596 U.S. ___ (2022) [142 S. Ct. 1906], held that precluding the splitting of PAGA causes of action into a representative and an individual cause of action was preempted by the Federal Arbitration Act, to the extent that this resulted in the inability to compel arbitration of individual PAGA claims in California. Once the individual cause was moved to arbitration, Justice Samuel Alito concluded, the employee had no standing to bring the PAGA representative action in court. Justice Sonia Sotomayor concurred, but added that California courts, which have the role of interpreting California law, might conclude instead that employees do have standing to bring PAGA representative actions. The California Supreme Court, in Adolph v. Uber Technologies, Inc., S274671 (Cal. Sup. Ct. 7/17/23) (Liu; Guerrero, Corrigan, Kruger, Groban, Jenkins, Evans), has had the last word, if not the final word, agreeing that employees have standing to bring representative PAGA claims. See our post dated 9/5/23.
Arbitration, Service: 9th Circuit Accepts Service On Foreign Party By Mail — Under The Circumstances
District Court Was Right, But For The Wrong Reasons.
The Court of Appeals decided three issues in Voltage Pictures, LLC v. Gussi, S.A., No. 23-55123 (9th Cir. 2/5/24) (M. Smith, Lee, Vandyke): subject matter jurisdiction, service, and comity. The underlying dispute, concerning rights under a Distribution and License Agreement, resulted in an arbitration award in favor of Voltage Pictures, which the district court had confirmed.
The district court held that it had jurisdiction to confirm the arbitration award because there was diversity between US-based Voltage Pictures and Gussi. While the Federal Arbitration Act enables federal courts to confirm arbitration awards, there must still be an independent basis for jurisdiction, and the Court of Appeals, doubtful that complete diversity had been established, rejected diversity as the district court's basis for accepting jurisdiction. However, 9 U.S.C. 203 "vests federal district courts with subject matter jurisdiction over motions seeking to confirm non-domestic arbitral awards." Gussi was a non-domestic party, and that provide the independent basis for jurisdiction.
Second, the district court erred in finding that California law provided the basis for service for mail on the foreign entity. However, Judge Smith found another way find that service by mail on Gussi's attorney was sufficient under the circumstances. Gussi did not reside in the Central District of California, and was not available for service in any other federal district in the US. Therefore, the FAA provisions, 9 USC § 9, governing service of residents of the district or elsewhere in the US, simply did not apply to the serving someone unavailable in the US. Relying on 9 USC § 61, Judge Smith explained that a summons was not required to confirm an arbitration award, only an application, and that notice of an application could be accomplished by the same means as providing notice of a motion: service on the party's attorney.
Third, the district court did not abuse authority by refusing to extend comity to an order from a Mexican court to enjoin the confirmation of the arbitration award. Gussi failed to properly authenticate the foreign order.
COMMENT. As Judge Smith observed, "We may affirm a district court’s decision 'on any ground supported by the record even if not explicitly relied upon by the district court.' Johnson v. Barr, 79 F.4th 996, 1003 (9th Cir. 2023)." And that's what happened here.
1"Any application to the court hereunder shall be made and heard in the manner provided by law for the making and hearing of motions, except as otherwise herein expressly provided."
Happy New Year To All My Readers !
Another Trip Around The Sun — Happy New Year !
WELCOME! And Let Us Hope You Will Be A Real HAPPY New Year. Puck. 1895.
Delegation: Ninth Circuit Addresses How To State A Challenge To Delegation Of The Issue Of Arbitrability And How To Analyze Issue
Judge Eric D. Miller Agrees Majority's Analysis, But Disagrees That The Ninth Circuit Rule Is Any Different From The Rule In Other Circuits.
Abraham Bielski has already made law in his case against Coinbase, Inc., a cryptocurrency exchange. Earlier this year, the Supreme Court held in Bielski's case that a district court must stay its proceedings while an interlocutory appeal on the question of arbitrability is ongoing. See our 7/03/23 post about the SCOTUS decision in Bielski v. Coinbase, Inc. In the newest iteration of Bielski v. Coinbase, Inc., 22-15566 (9th Cir. 12/5/23) (Mendoza (maj.), Sanchez, Miller (partially concurring)), the Ninth Circuit examined whether a delegation clause in Bielski's contract with Coinbase, Inc. effectively delegated the issue of arbitrability to the arbitrator. Bielski continues to make law, though not necessarily in his favor.
In deciding the delegation issue, the Ninth Circuit decided three issues, two of which Judge Mendoza described as issues of first impression.
The first issue of first impression is how much must a party challenging a delegation clause do to successfully allege a challenge? The answer is that specifically mentioning the delegation clause and presenting arguments against its enforceability is sufficient. Judge Mendoza suggests, however, that some other circuits require more substance in the challenge than does the Ninth Circuit.
The second issue of first impression is how should the court conduct its analysis? Should it just look at the delegation clause, or should it be able to interpret that provision in the context of the agreement as a whole? The answer here is that "the district court correctly considered the whole context surrounding the delegation provision in its analysis of the provision’s validity."
The third issue is whether the delegation clause was unconscionable — not an issue of first impression. The court found that it was not unconscionable, and therefore reversed the district court’s order denying Coinbase’s motion to compel arbitration.
COMMENT: Judge Miller partially concurred in the opinion. He agreed with the court’s holding that “'to sufficiently challenge a delegation provision, the party resisting arbitration must specifically reference the delegation provision and make arguments challenging it' and that 'a party may use the same arguments to challenge both the delegation provision and the arbitration agreement, so long as the party articulates why the argument invalidates each specific provision.' I do not join it, however, because I do not agree with the court’s characterization of the rule applied in other courts of appeals." In other words, he doesn't believe there is any real difference between the Ninth Circuit test and how other circuits address delegation.
Based on the Ninth Circuit majority opinion, there would appear to be a split among the circuits, and thus a firm basis for Supreme Court review. Based on Judge Miller's dissent there would be no reason for the Supreme Court to consider the case again, and if it did do so, it might conclude, as did Judge Miller, that the Ninth Circuit rule is a difference without a difference.
Class: Ninth Circuit Finds Individual Bound To Arbitrate Is Not An Adequate Representative For Putative Class
The District Court Had Already Approved a Class Settlement Twice Over Objections.
Lisa Kim, individually and on behalf of others, sued Tinder, alleging its pricing model was unfair. The district court approved the settlement — twice. Objectors, however, contended on appeal that Kim, bound by an arbitration clause to individually present her claims in arbitration, was not a proper representative of the putative class. The Ninth Circuit panel agreed with the Objectors. "On remand, the only matter before the district court will be Kim’s individual action against Tinder, which has been compelled to arbitration." Kim v. Tinder, Inc., 22-55345 (9th Cir. 12/5/23) (Smith, Friedland, Miller).
Judge Smith explained that as a party bound to arbitrate her claims, Kim did not have the incentive to litigate vigorously for the class. He also concluded that Kim failed to produce evidence she had litigated vigorously. And because her arbitration agreement could be subject to Texas law, she would not be able to represent litigants in California with Unruh Act claims.
Close, but no cigar.
BONUS: For a short video on the origin of the phrase "close but no cigar," click here. Readers who are not high-minded and who don't require a trigger warning can search YouTube on their own time for videos of Weird Al singing Close But No Cigar.
Health Care, Unconscionability: First District Div. 3 Agrees Residential Care Facility’s Arbitration Agreement Was Unconscionable
Health Care Facilities Continue To Generate Disputes About Enforceability Of Arbitration Provisions.
Sometimes you can predict the conclusion in a court opinion after reading the recitation of facts. Here, the evidence pointed to a 74 year old women, suffering from dementia, who entered a residential care facility between December 29, 2022, and January 1, 2023, and who alleged that she had been sexually assaulted in the care facility. She had signed an agreement that was 44 pages long, and included several appendices and other material. The agreement and arbitration clause were in 8 to 10 point font, and included multiple and confusing signature blocks. The trial judge credited the testimony in the declaration of Haydon's daughter that Haydon had been placed under considerable time pressure to sign, under pain of losing a discounted price. The agreement also contained a confidentiality clause providing not only that the proceedings would be confidential, but also that the existence, contents, and results of the arbitration would remain secret — a troubling provision in an Elder Abuse situation, as it would be in the interest of subsequent residential care applicants to know if the facility was implicated in elder abuse. Additionally, there were restrictions on discovery, and plaintiff was required to bear her own fees and costs, despite the nature of the consumer arbitration and Elder Abuse case. Small surprise that the trial court found the arbitration agreement to be unconscionable, and the Court of Appeal affirmed. Haydon v. Elegance at Dublin, A168767 (1/3 12/19/23) (Petrou, Fujisaki, Rodriguez).
COMMENT: The opinion mentions that Haydon suffered from dementia. It does not, however, say that she was mentally incompetent. In a case where the record is developed and establishes incompetence, it should be unnecessary to address substantive and procedural unconscionability, for the issue would simply be whether a contract had been formed.