Arbitration, Public Injunctive Relief: Ninth Circuit Holds Non-Waivable Public Injunctive Relief Must Be Forward Looking And Benefit The General Public
Judge Berzon Dissents.
Plaintiff Brandon Hodges brought a putative class action against Comcast, challenging its privacy and data-collection practices and seeking injunctive relief. The trial court denied Comcast's motion to compel arbitration, on the ground that Hodges sought public injunctive relief that could not be waived with an agreement to arbitrate. The Ninth Circuit panel remanded with instructions to grant the motion. Judge Berzon dissented. Hodges v. Comcast, No. 19-16483 (9th Cir. 9/10/21) (Collins, VanDyke; Berzon, dsst.).
The majority and dissenting opinions rely on whether Hodges was seeking "public injunctive relief," because California's "McGill rule" is that a party seeking public injunctive relief cannot waive the right to go to court. California Civil Code §3513 provides: "Any one may waive the advantage of a law intended solely for his benefit. But a law established for a public reason cannot be contravened by a private agreement."
"[P]ublic injunctive relief within the meaning of McGill," writes Judge Collins, "is limited to forward-looking injunctions that seek to prevent future violations of law for the benefit of the general public as a whole, as opposed to a particular class of persons, and that do so without the need to consider the individual claims of any non-party." The majority's view is that Hodges' requested relief was for past wrongs, and would have benefited a limited private class; thus, public injunctive relief is not at issue. And if the injunctive relief requested by Hodges requires an individualized look at claims, then the speed, efficiency, and economy of arbitration would be undermined, and the Federal Arbitration Act would preempt an expansive interpretation of the McGill rule that would undermine the purpose of arbitration.
Judge Berzon dissents, pointing out that the injunctive relief requested by Hodges includes rewriting Comcast contracts, that such relief is forward looking, and that such relief would benefit a large swath of the public, given that "Comcast reportedly had 2.2 million subscribers in the state, or 40% of the state cable market." "At a minimum, in keeping with the liberal construction given to California's consumer protection statutes," writes Judge Berzon, "public injunctive relief must also include injunctions affecting the contract terms a business may offer to potential customers."
COMMENT: It is sometimes said that liberal judges want to keep the door to the federal courthouse wide open (for every wrong there is a remedy), whereas conservative judges want to shut the door to prevent a flood of cases. So is it noteworthy in Hodges v. Comcast that Collins and VanDyke are Trump appointments, and Berzon is a Clinton appointment?
Arbitration, FAA, Waiver: Ninth Circuit Holds In-State Trucker Delivering Goods That Once Crossed State Lines Is Exempt From Federal Arbitration Act
Delivery Truck Driver Had To Arbitrate Anyway.
Section 1 of the FAA exempts from the Act’s coverage all “contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce.” In Romero v. Watkins and Shepard Trucking, No. 20-55768 (9th Cir. 8/19/21) (Fisher, Watford, Bumatay), the court holds that Romero, an in-state delivery truck driver who delivered goods that had crossed state lines, was exempt from the coverage of the FAA, and this exemption from coverage cannot be waived in a private contract. In a concurrent unpublished memorandum opinion, the court concludes that Romero was required to arbitrate under state law anyway.
COMMENT: The §1 exemption is well-travelled legal ground for truckers. We've posted earlier about New Prime Inc. v. Oliveira, 139 S. Ct. 532 (2019), holding that the exemption for transportation workers engaged in interstate commerce applies to both employees and independent contractors. We also posted about Rittmann v. Amazon.com, Inc., 971 F.3d 904, 915 (9th Cir. 2020), cert. denied, 141 S. Ct. 1374 (2021), holding in-state delivery drivers engaged in the movement of goods interstate are covered by the §1 exemption.
Arbitration, Employment, Choice Of Law, FAA: Second Dist., Div. 7 Holds Choice Of California Law Incorporates Substantive Law But Not Procedural Limitations On Arbitration In Contract Governed By FAA
Parties Could Have Specifically Incorporated Arbitration Limitations In California Labor Code Instead Of Generally Choosing California Law — In Theory.
California Labor Code §229 provides, in part, that actions to collect due and unpaid wages may be maintained without regard to the existence of any private agreement to arbitrate. And parties to an employment contract could, if they wished, incorporate that limitation on arbitration directly into their contract. But that's not what happened in Nixon v. AmeriHome Mortgage Co., LLC, B302754 (2/7 8/16/21) (Perluss, Feuer, Ibarra), a case in which a loan review analyst sued for unpaid overtime and unfair business practices.
Instead, in Nixon, the contract had a California choice-of-law provision, but did not specifically incorporate the limitations on arbitration found in §229. Because the employer's business involved interstate commerce, the arbitration provision was governed by the Federal Arbitration Act, requiring the court to enforce the arbitration provision according to its terms. And the arbitration provision did not specifically incorporate the §229 arbitration limitation, so the parties must arbitrate.
COMMENT. Justice Perluss notes that, notwithstanding the general principle of preemption, "the parties could provide in their arbitration agreement that a dispute regarding unpaid wages—the subject of section 229—is not arbitrable." True 'nuff, but why would an employer who has drafted an employment agreement with an arbitration provision be motivated to do that? Which brings up our next point: employees with individually negotiated contracts and legal representation at the time they enter into their employment contract tend to do better in arbitration than employees with "take it or leave it" contracts they did not negotiate. Parties with bargaining power need to pay attention to choice-of-law and incorporation by reference issues in employment negotiations.
Arbitrability, Delegation, Enforceability, Jurisdiction, Unconscionability: A Trifecta of Ninth Circuit Published Opinions
August 12, 2021 Was A Day Rich In 9th Circuit Arbitration Decisions.
Santiago Lim v. TForce Logistics, LLC, No. 20-55564 (9th Cir. 8/12/21) (Smith, Owens, Robreno).
This case is about the gateway decision of arbitrability, delegation of that decision, and unconscionability. The panel holds that the delegation and arbitration clauses are procedurally and substantively unconscionable. Because the delegation clause is unconscionable, the court, not the arbitrator, gets to decide whether the arbitration clause is enforceable, and agrees that that too is unconscionable. The provisions are "take it or leave it", require costs splitting between the employer and the purported "independent contractors", call for fee-splitting, and have a Texas venue provision.
CLMS Management Services LP v Amwins Brokerage of Georgia, 20-35428 (9th Cir. 8/12/21) (Christen, Hawkins, McKeown).
This case presents an international law question: does the doctrine of reverse-preemption apply to a clause in an insurance contract, such that the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, a multilateral treaty, is preempted by a Washington State rule that arbitration clauses in insurance contracts are not enforceable? Ordinarily, state law applies to insurance contracts, and in fact the McCarran-Ferguson Act can operate to reverse-preempt laws that contradict state law. However, in the case of treaties, a rule applies that treaties that are "self-enforcing" are not preempted by state law. What does that mean?
A treaty is "self-enforcing" if it can be directly enforced in court without the need for implementing legislation. The panel holds that the Convention the the Recognition and Enforcement of Foreign is self-enforcing. And therefore, reverse preemption does not apply. And because Washington State law cannot be applied to invalidate the arbitration provision, it is enforceable.
Al-Qarqani v. Chevron, No. 19-17074 (9th Cir. 8/12/21) (Thomas, Kelly, Miller).
No small potatoes here, as the panel affirms the district court's refusal to allow enforcement of an $18,000,000,000 Egyptian arbitration award against Chevron. The core ruling is about jurisdiction.
The heirs of an official who entered into a land concession agreement with Chevron in 1949 claimed entitlement to rent, and evidently the Egyptian arbitrators agreed. But when it came time to petition to enforce the arbitral award under an arbitration agreement entered into earlier in 1933, the district court held that the parties never agreed to arbitrate, and therefore it denied enforcement on the merits.
The Court of Appeals held that the heirs had failed to make a non-frivolous argument for jurisdiction as to Chevron USA, which was not named in the Egyptian award, and because no non-frivolous argument for jurisdiction had been made, the Court could affirm the dismissal for lack of subject-matter jurisdiction. (If the heirs had made a non-frivolous argument in favor of jurisdiction, then the Court would have assumed subject-matter jurisdiction).
As to Chevron Corporation, the facts were a little different. The 1949 agreement failed to incorporate the 1933 arbitration agreement. As for the 1933 agreement with the arbitration clause, it had been signed by Saudi Arabia, not the heirs, and Chevron Corporation's rights and obligations under that earlier agreement had expired. The absence of an agreement to arbitrate was a reason to dismiss the petition to enforce the award on the merits rather than for a lack of jurisdiction
Arbitration, FAA, Employment: Ninth Circuit Agrees Uber Workers Are Subject To Mandatory Arbitration
Uber Workers Are Not Engaged In Interstate Commerce Says The Court.
Can Uber compel mandatory arbitration of disputes with its drivers? To answer this question, the Ninth Circuit in Capriole v. Uber Technologies, No. 20-16030 (9th Cir. 8/2/21) (Wardlaw, Nguyen, Eaton) had to confront whether Uber drivers are exempt from Federal Arbitration Act requirements by virtue of the so-called residual clause or transportation worker exemption in the Federal Arbitration Act. Section 1 of the FAA provides that it does not apply "to contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce." The emphasized part of the statutory text has been interpreted to apply to transportation workers "engaged in" interstate commerce, truckers being a good example. But Uber drivers are not the same as long-haul truckers.
The Ninth Circuit panel agreed with the district court that Uber workers primarily drive intrastate, not interstate, and therefore do not fall under the exemption to coverage by the FAA. Therefore, pursuant to their arbitration agreement with Uber, the drivers could be compelled to arbitrate pursuant to the FAA requirement that arbitration agreements be enforced.
The panel also agreed, "Plaintiffs' requested injunctive relief — reclassification as employees — does not constitute 'public injunctive relief.'" And so the emergency equitable relief requested, which was not public injunctive relief, could not be shoehorned into a California exception to mandatory arbitration.
Thus, the putative class of Uber drivers who sued in Massachusetts to obtain a preliminary injunction prohibiting Uber from classifying drivers in Massachusetts as independent contractors found their lawsuit transferred to the USDC, Northern District of California, pursuant to a forum selection clause. In sum, the Ninth Circuit has affirmed that the drivers do not fall under the FAA exemption, that the preliminary injunction was properly denied, and that arbitration is required.
COMMENT: Judge Wardlaw wrote that the new gig economy has "led to a Dickensian tale of two workforces." On the one side, there are the persons with technical skills able to design and operate the internet platform and who are deemed to be employees with concomitant benefits. "On the other side is a much larger bloc consisting of those who frequently directly transport goods or passengers, the so-called 'gig-economy workers,' most if not all of whom are classified as 'independent contractors,' a status conferring flexibility but little security."
On May 26, 2021, the Guardian newspaper reported, "Uber is to recognise the GMB trade union in the UK for its private hire drivers, marking the first deal between a union and a gig economy ride-hailing service." But this is in the United Kingdom, not the United States. And according to the Wikipedia article on the GMB trade union, "On 28 October 2016, in a landmark ruling if not overturned on appeal, the Central London Employment Tribunal ruled that Uber drivers are 'workers' entitled to the minimum wage, paid holiday, sick leave and other normal worker entitlements, rather than self-employed." In 2021, the ruling that Uber workers are employees was upheld on appeal.
In the United States the courts are deciding whether Uber workers must arbitrate their claims to achieve employment status in the gig economy. And in California, where legal precedent has created an expansive definition of employment, voters approved Proposition 22 to exempt companies such as Uber from having to classify their drivers as employees.
Arbitration, Deadline, Vacatur: Second District, Div. 2 Holds Missed Deadline Means Arbitration Award Can’t Be Vacated
Deadline To Move To Vacate Arbitration Award Is Jurisdictional.
Cover, First Edition of Charles Dickens' Bleak House. 1852-53.
Locked in sororicidal probate litigation over the disposition of mom and dad's estate, Sarah Plott Key prevailed at first, entitling her to one-third of her parents' estate which, at the time "was equivalent to about $20 million." To get to that result, Key borrowed $2.4M from Law Finance Group to pay for the probate action. Key paid back the principal, but refused to pay back the interest, claiming terms of the note violated the California Financing Law.
The loan agreement with LFG required binding arbitration. A panel of three arbitrators awarded LFG $778,351 interest plus $838,864 attorney fees and costs to LFG.
In superior court, Key filed a petition to vacate the award, arguing the arbitrators exceeded their power because they found the loan to be a consumer loan and should have voided the loan in violation of the California Financing Law. For good measure, Key also filed a response to LFG's petition to confirm the award, raising the same arguments as in her petition to vacate. And the superior court agreed with Key, vacating the award. LFG appealed. Law Finance Group, LLC v. Sarah Plott Key, B305790 (2/2 7/30/21) (Lui, Ashmann-Gerst, Hoffstadt).
With a nod to the recently departed Ron Popeil: "But wait, there's more!" The Court of Appeal never reached the substantive issue because it held Key did not timely request the arbitration award be vacated. Here's the timeline:
9/18/19 — panel of 3 arbitrators issued modified award
10/1/19 — LFG files petition to confirm award in superior court
1/27/20 — Key files petition to vacate award in superior court
2/5/20 — Key files response to LFG's petition to confirm, including her arguments from motion to vacate
The Court of Appeal held Key is SOL because her petition to vacate was filed 130 days after the modified award was issued, missing the 100 day deadline for filing the petition to vacate. Key argued she had ten days to respond to LFG's motion to confirm the award, which was true, and she included her objections to confirming the award in her timely response to the petition, which was also true. But that did not help her in the Court of Appeal, which concluded the dispositive statutory provision was the one governing time to file the petition to vacate the award (100 days), rather than the statutory provision giving her 10 days to respond to the petition to confirm the award. By the time Key filed her petition to confirm, and by the time she filed her response to LFG's petition to confirm, she was beyond the 100-day deadline to petition to vacate.
COMMENT: "Litigation among the sisters continues. . . . " (footnote 1 to the opinion). There is an anti-SLAPP motion filed in a probate proceeding to enforce a no contest clause in the parents' trust, and another currently pending appeal arising from a petition by Key alleging her sister breached fiduciary duties as trustee. It's a shame this roiling family dispute among sisters could not have been successfully mediated.