Construction And Enforceability Of Arbitration Agrement: Broad Arbitration Agreement May Be Applied Retroactively
Employee's Claims Arose Before He Signed Arbitration Agreement.
Is an arbitration agreement enforceable when the employee's claim arises before he signs the arbitration agreement? Yes, says the Court of Appeal in Franco v. Greystone Ridge Condominium, et al., G056559 (4/3 8/27/19) (Fybel, Aronson, Thompson). In this case, "[t]he parties' arbitration agreement is clear, explicit, and unequivocal with regard to the claims subject to it and contains no qualifying language limiting its applicability to claims that had yet to accrue."
The employees of Greystone, including plaintiff, had been presented with an arbitration agreement to sign. Instead of signing, plaintiff consulted with an attorney, and about ten days after receiving the agreement, filed claims for employment discrimination and wage and hour claims. Two days later, he signed the arbitration agreement. The trial court, finding that the agreement could not be applied retroactively, held that the the employee could not be compelled to arbitrate. The Court of Appeal reversed, interpreting the clear and broad language of the agreement not to be limited to prospective claims.
COMMENT: Under California law, the result would be different if the employer had unilaterally made the changes, and the employee had continued to work, without expressly agreeing to the changes. Under those circumstances, the implied covenant of good faith and fair dealing would require an interpretation that the unilateral change was intended to be prospective only. In Franco, however, unilateral modification of the arbitration agreement was not involved, because it was not disputed that the plaintiff agreed to the arbitration provision.
Arbitrability: Ninth Circuit Holds That ERISA Claims Can Be Subject To Mandatory Arbitration
Intervening Supreme Court Law Means Earlier Ninth Circuit Law Is No Longer Good Law.
ERISA claims may be the subject of mandatory arbitration: that's the holding and threshold issue in Dorman v. Charles Schwab Corp., 18-15281 (9th Cir. 8/20/19) (Pearson, Gould, Ikuta). To reach this result, the panel needed to conclude that Amaro v. Continental Can Co., 724 F.2d 747 (9th Cir. 1984), holding that ERISA claims were not arbitrable, was no longer good law. And the panel did so conclude, based on intervening Supreme Court case law, specifically, American Express Co. v. Italian Colors Restaurant, 570 U.S. 228 (2013).
The Amaro panel reasoned that "ERISA mandated 'minimum standards [for] assuring the equitable character of [ERISA] plans' that could not be satisfied by arbitral proceedings." But American Express, a recent Supreme Court case, held there is nothing unfair about arbitration, even on an individual basis, as long as individuals can vindicate their statutory rights in the arbitral forum.
In an unpublished memorandum opinion, the Ninth Circuit held that the specific arbitration clause in Dorman was enforceable.
COMMENT: In American Express, Justice Kagan, dissenting, wrote: "No rational actor would bring a claim worth tens of thousands of dollars if doing so meant incurring costs in the hundreds of thousands." Her "nutshell version" of the majority opinion in American Express Co.: "Too darn bad."
Arbitration, Employment: Fourth District, Div. 3 Holds Employee’s Unfair Competition Law Claim Seeking Private Injunctive Relief Is Arbitrable
Court Of Appeal Distinguishes The Broughton-Cruz Rule.
Clifford v. Quest Software, Inc., G055858 (4/3 8/14/19) (Aronson, O'Leary, Goethals) addresses, "whether an employee's claim against his employer for unfair competition under Business and Professions Code section 17200 (the UCL) is arbitrable." Assuming the arbitration clause is valid and enforceable, the Court holds that a UCL claim including a request for private injunctive relief is arbitrable. The Court distinguishes the so-called Broughton-Cruz rule, explaining that the "rule distinguishes between public injunctive relief and private injunctive relief, and it only bars arbitration of claims for public injunctive relief."
COMMENT: The Court observes that several courts have concluded that the Federal Arbitration Act preempts the Broughton-Cruz restriction on arbitrability. But the Court does not address that issue, since it concludes that even if the rule is not preempted by the FAA, it does not prevent the arbitration of a UCL claim requesting private injunctive relief and restitution. We've posted before about the Broughton-Cruz rule on March 7, 2012, December 18, 2014, and April 6, 2017.
PAGA: Fourth District, Division 1 Holds That PAGA Claim Could Not Be “Split” So As To Compel Arbitration Of Individual Claim
Fourth District, Division 1 Agrees With Conclusions Of Lawson and Zakaryan Courts.
The employer in Mejia v. Merchants Building Maintenance, LLC, D074620 (4/1 8/13/19) (Aaron, Benke, Huffman), tried to do what other employers have attempted: compel arbitration of the "victim-specific" relief portion of a PAGA claim. Appellate courts are divided on this question, and in Mejia, the trial court, and the Court of Appeal both came down on the side that has concluded the claim cannot be split so as to compel arbitrating a portion of the claim. The Court notes, however, that the issue is pending before the Supreme Court in Lawson v. ZB, N.A., 18 Cal.App.5th 705 (2017), review granted Mar. 21, 2018, S246711.
The Court explains: "We agree with the conclusion of the Lawson and Zakaryan courts on this question, and conclude that a single PAGA claim seeking to recover section 558 civil penalties may not be 'split' between that portion of the claim seeking an 'amount sufficient to recover underpaid wages' and that portion of the claim seeking the $50 or $100 per-violation, per-pay-period assessment imposed for each wage violation. The result is that an employee bringing a PAGA claim to recover the civil penalties identified in section 558 may not be compelled to arbitrate that portion of her PAGA claim that seeks an amount sufficient to recover underpaid wages pursuant to that statute, while the rest of the claim that seeks the $50 or $100 per-pay-period per violation portion of the penalty remains in a judicial forum. We therefore affirm the trial court's order denying the MDM defendants' motion to compel arbitration in this case."
The Court reasons that there are advantages and disadvantages to filing a PAGA claim. The employer can't compel arbitration, and the "employee may recover the civil penalties due for the wage violations for herself and for her fellow employees . . . but she will be required to give 75 percent of the total recovery to the agency and to split the remaining 25 percent with other aggrieved employees." The Court, however, says that the choice of whether to pursue the PAGA claim is one that belongs to the employee.
Settlement Agreements: 2/4 Cal Court of Appeal Holds That Stipulated Judgment Constituted An Unenforceable Penalty
And The Court Explains How The Stipulated Judgment Could Have Been Structured So As To Be Enforceable.
"The principal issue in this appeal is whether the stipulated judgment constitutes an unenforceable penalty." Red & White Distribution, LLC, et al. v. Osteroid Enterprises, LLC and cross-complaint, B291188 (2/4 8/9/19) (Currey, Manella, Willhite). Here, "the parties entered into a settlement agreement providing that if R&W defaulted, the Osteroid Parties could file a stipulation for entry of judgment, with the amount of the judgment being $700,000 more than the settlement amount plus interest and attorneys' fees." The Court of Appeal concluded that the additional $700K was an unenforceable remedy under Civ. Code section 1671(b), pertaining to whether a liquidated damage clause is valid or unenforceable.
And all this is well-established law under Ridgley v. Topa Thrift & Loan Assn., 17 Cal.4th 970 (1998) and Greentree Financial Group, Inc. v. Execute Sports, Inc., 163 Cal.App.4th 495 (2008). So why did the Court bother to publish?
We believe it is because the trial judge declined to follow Ridgley and Greentree, believing that it could instead follow Jade Fashion & Co., Inc. v. Harkham Industires, Inc., 229 Cal.App.4th 635 (2014). And so the Court of Appeal performed its educational role by explaining that the cases are not inconsistent, and that the stipulation, had it been structured à la Jade Fashion, could have been enforceable.
What would an enforceable stipulation require? An agreement to discount for timely payment of an admitted debt. Thus, the outcome of Red & White Distribution could have been an enforceable stipulation if the parties had agreed or the appellate record had demonstrated that R&W admitted it owed $2.8M, and the parties had stipulated to discount the debt to $2.1M upon timely payment, absent which the full amount would have been due.
But that is not how the parties structured the settlement.
COMMENT: My colleague Mike Hensley represented the successful party in the Greentree appeal. Mike and I are the co-creators of another blog, California Attorney's Fees.
Arbitration, Appealability, Delegation: 4/2 CCA Holds UCL Claim Not Arbitrable, And Denial Of Dismissal Of Class Claims Was Not Appealable
The Details Here Make The Difference . . .
Lacayo v. Catalina Restaurant Group Inc., et al., E069833 (4/2 8/1/19) (Miller, Fields, Menetrez) provides an in-depth discussion of the appealability of orders granting individual arbitration and delegating the issue of the availability of a class action suit to an arbitrator to decide. The plaintiff, an employee, brought seven causes of action raising violations of the Labor Code and an eighth cause raising an unfair competition law (UCL) claim based on the Labor Code violations. As is often the case, the employee/employer contract included a broad arbitration clause and a class action waiver.
The trial court granted the employer's motion to compel arbitration of the employee's individual claims, refused to dismiss the class claims, leaving it to the arbitrator to decide whether class claims were subject to arbitration, denied the motion to arbitrate as to the UCL claim, and stayed the matter till arbitration was completed. Predictably, the employer appealed, arguing that the refusal to grant the motion to dismiss the class claims was appealable, and the UCL claim should have been arbitrated. The Court of Appeal dismissed the appeal as to causes of action one through seven and affirmed the order on the eighth cause of action, the UCL claim.
Here's why. The order granting the motion to compel arbitration of causes one through seven but leaving the issue of classwide arbitration for the first seven causes to the arbitrator is non-appealable. An order granting a motion to compel arbitration does not decide the merits and is interlocutory (unlike a motion denying a motion to compel arbitration). As to the issue of classwide arbitration, the employer argued that an order compelling arbitration of a putative class action is a denial of a motion to compel arbitration and is appealable, citing Lamps Plus, Inc. v. Varela, — U.S. __ (2019). But Lamps Plus is distinguishable from Lacayo, because in Lacayo, the arbitration clause specifically delegated to the arbitrator the decision as to whether a class action would be allowed, and in Lacayo, the trial court never ordered class arbitration of a putative class action. So the trial court ruled the arbitrator will get to decide that issue, which is quite different from an order compelling a class action. And presumably, if the arbitrator whiffed it, little could be done, since mistakes of law or fact by an arbitrator are generally not appealable.
The trial court's decision that the UCL claim was not arbitrable is explained by the fact that under the heading "Claims Not Covered by the Agreement," employer and employee excluded claims requiring "immediate injunctive relief and/or other equitable relief for unfair competition . . . "
COMMENT: Interestingly, the trial judge thought thought the class action waiver was clear and enforceable but the decision about its enforceability had been delegated to the arbitrator by the parties. Sending the matter to the arbitrator is consistent with existing law. Avoiding that result would required drafting an employment agreement that does not delegate issues of arbitrability to the arbitrator, leaving it to the court to decide arbitrability, thereby creating the possibility of further appeals, lack of finality, and uncertainty. And since generally it is the employer who will draft the employment agreement (except in the case of top executives with bargaining power), it is going to be the employer who decides what issues to delegate to the arbitrator.