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Cal Supreme Court: Arbitration agreement waiver of right to class procedure approved; but right to bring PAGA representative action cannot be waived.

Arbitration.jpgIn Iskanian v. CLS Transportation Los Angeles, LLC (filed 6/23/14) S20432, the California Supreme Court majority has delivered a split decision on the question of whether an arbitration agreement that waives a party's right to bring a representative action on behalf of others is enforceable. Representative actions in the form of class actions brought to enforce the private rights of similarly situated parties (in Iskanian, fellow employees with wage-and hour claims) are enforceable in light of preemption by the Federal Arbitration Act (FAA) of a state law rule to the contrary. However, the right of a party to prosecute claims for the public benefit as a representative party for others under the California Private Attorneys General Act (PAGA), is neither preempted nor inconsistent with the FAA's goal of promoting arbitration--to say it is would be contrary to the strong public policy encouraging private parties to publicly enforce laws, such as wage and hour laws, that might otherwise go unenforced due to scant public prosecution resources.

Iskanian was employed as a driver for defendant CLS. He had signed an agreement that any and all claims arising out of his employment would be submitted to binding arbitration and that the parties would only submit individual claims; that no class action or representative action would be asserted. Iskanian sued CLS; CLS asserted the binding arbitration agreement, and the trial court granted its motion to compel arbitration, based in part on the concept that a state's refusal to enforce an arbitration clause because of a class waiver making it against public policy or unconscionable is preempted by the FAA . Shortly thereafter, the California Supreme decided Gentry v. Superior Court (2007) 42 Cal. 4th 443 which concluded to the contrary. The Court of Appeal in Iskanian then directed the trial court to reconsider its ruling in light of Gentry. CLS withdrew its motion to compel arbitration and the parties proceeded to litigate the case. Iskanian amended his complaint to include PAGA claims, also in a representative capacity of others. Iskanian's motion to certify his class and PAGA claims was granted.

After the Iskanian case was ordered certified, the U.S. Supreme Court issued its opinion in AT&T Mobility LLC v. Concepcion (2011) 563 U.S. ___, finding that requiring class-wide arbitration interfered with the FAA . CLS then renewed its motion to compel arbitration arguing that Gentry had been abrogated by U.S. Supreme Court authority. The trial court agreed, as did the Court of Appeal. Iskanian's petition for review to the California Supreme Court, asserting that Gentry was still viable, was granted, and the state high court ruled as stated above.

I will not endeavor to analyze the lengthy opinion in Iskanian, but several points stand out to me. One of Iskanian's arguments was that that CLS had waived arbitration by failing to diligently pursue it. Not so, said the court. Waivers are not to be lightly inferred and are questions of fact based on the circumstances. These circumstances certainly indicated CLS desired arbitration but state court rulings blocked their pursuit causing them to acquiesce temporarily, until higher authority supported its pursuit of arbitration.

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Must a wage-and-hour misclassification class action judgment be reversed because the trial court denied defendant employer the opportunity to impeach plaintiffs' statistical model where the sampling belied consistency in class member work habits?

worker-adjusts-watch-1365362-m.jpgIn the much-awaited California Supreme Court opinion of Duran v. U.S. Bank National Association (filed 5/29/14) S200923, the state high court answered affirmatively, reversing the judgment. There, loan officers sued for unpaid overtime, claiming they had been misclassified as exempt employees under the outside salesperson exemption, exempting from overtime pay entitlement employees who spend more than 50% of the workday engaged in sales activities outside the office. (Labor Code section 1171.) A class of 260 plaintiffs had been certified under a trial plan to determine the extent of defendant's liability to all class members by extrapolating from a purportedly random sample. The first phase of the trial concerned the work habits of 21 plaintiffs, while defendant was not permitted by the court to introduce evidence of work habits of those outside the small sample group; the court nonetheless found the entire class had been misclassified. The second phase focused on statistical expert testimony from which the court extrapolated the average amount of the sample group's overtime entitlement to that of the class as a whole. The resulting verdict was $15 million--$57,000 per class member.

The Supreme Court's discussion of the reasons for this reversal of the trial court certainly does not say that this class was not certifiable. On remand, the trial court will be allowed to recertify the class if done properly, with a sufficiently manageable and fair trial plan. The key point is that "once the issues common to the class have been tried, and assuming some individual issues remain, each plaintiff must still prove up his or her claim, allowing the defendant an opportunity to contest each individual claim on any ground not resolved in the common issues." (Johnson v. Ford Motor Co. (2005) 35 Cal.4th 1191, 1210.) So, yes, there can be a case certified even if individual issues as to liability and damages remain; but trial courts have the obligation to decertify a class action if individual issues prove unmanageable. Nor can a trial judge simply certify a case and then categorically deny the admission of any individualized evidence; the fact the matter proceeds as a class action does not mean that all evidence must be of a common nature. That is essentially what happened in Duran.

In Duran, the trial court did not manage individual issues arising from defendant's defense. There was no preliminary assessment here of the variability of the class. In the view of the high court, the trial court forged through the trial with a flawed statistical plan that, instead of managing individualized issues of how employees were expected to and did spend their work day, totally ignored individual issues. The key issue in a misclassification case is the employee's individual circumstances, not the employer's intent. To deny defense individualized evidence under these circumstances amounts to a denial of a parties' substantive rights.

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Don't trust article headnotes: Class arbitration required only on contractual principles.

September 5, 2012

Headlines.jpgI hope those of you reading this blog, or any other blog or case commentary, choose to read the discussed opinion rather than rely on the headnote or summary found in the commentary. Recently I came across the following headnote: "Gentry v. Superior Court, which permits invalidation of class action arbitration waivers, remains viable despite AT&T Mobility LLC v. Concepcion." The case opinion referred to is Truly Nolen of America v. Superior Court (certified for publication on August 13, 2012) 2012 DJDAR 11207.

If you think from this heading that you will find that the opinion discusses and supports the application of the Gentry analysis that policy considerations supporting class arbitration will rule the day over the applicable contract, you will find that you have been seriously misled. While the California Court of Appeal, Fourth Appellate District, Division One, does say that California Supreme Court case of Gentry has not been expressly overruled, it goes on to say that the U.S. Supreme Court's reasoning in Concepcion strongly suggests Gentry is toast (my term, not theirs). The appellate court states, "[T]o the extent the Gentry decision would permit such a generalized showing to negate the parties' contractual intentions, that conclusion is no longer valid after the Concepcion and Stolt-Nielsen decisions." (See previous blog of June 19, 2012.)

The appellate court found in Truly Nolen that, in any event, the trial court erred in requiring class arbitration; that even if the Gentry factors still apply, they were not established in this case. It remanded the matter to the trial court in issuing writ of mandate in favor of petitioner Truly Nolen. The trial court was instructed to determine whether there is a contractual basis for finding the parties mutually agreed to class arbitration. Thus the actual holding of the case left little doubt that it was applying the principles found in Concepcion rather the Gentry factors.

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Purported appeal of order compelling arbitration treated as extraordinary petition; order compelling individual arbitration affirmed

Thumbnail image for Court House.jpgIn Nelsen v. Legacy Partners Residential, Inc. (filed July 18, 2012) 2012 DJDAR 9956, plaintiff Lorena Nelson worked for defendant as a property manager from 2006 to 2009. Early in her employment she received a 43-page pre-printed form employee handbook that included a small-print arbitration clause at page 42 headed "TEAM MEMBER ACKNOWLEDGMENT AND AGREEMENT." The handbook gave no option to arbitration as a means of resolving employment disputes. She signed the agreement. In 2010, she filed a class-action lawsuit against defendant primarily alleging violations of wage and hour laws.

Defendant moved the trial court to compel plaintiff to arbitrate the matter as an individual party pursuant to the arbitration clause. Plaintiff opposed the motion, claiming the arbitration clause was unconscionable and in violation of California public policy favoring class actions in this type of lawsuit; if arbitration was to be compelled, argued plaintiff, the court would have to allow class arbitration. The trial court granted the motion to compel individual arbitration, and plaintiff appealed.

To start, the California Court of Appeal, First Appellate District, Division One, questioned whether plaintiff is allowed to appeal this order because it is not a final judgment. (Civil Code section 906.) Nelson argued the "death knell" doctrine, citing Franco v. Athens Disposal Co., Inc. (2009) 171 Cal.App.4th 1277: that the order is effectively the death of the class litigation. However, the appellate court pointed to the applicability of this doctrine only where it is unlikely that any individual action will proceed. But the court stops short of deciding this issue of appealability, and instead exercised its discretion to treat the appeal as a petition for writ of mandate.

On the merits, the Court of Appeal determined that plaintiff failed to meet her burden of showing (1) the arbitration clause was both procedurally and substantively unconscionable, and/or (2) that the clause required class-wide arbitration.

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Public policy considerations no longer a bar to enforcement of class action waiver in employment arbitration agreement

publicpolicy_forum_300x300px.jpgAT&T Mobility LLC v. Concepcion (2011) __ U.S.__ [131 S. Ct 1740] changed the legal landscape concerning class arbitrations. The United States Supreme expressly overturned the California Supreme Court ruling in Discover Bank v. Superior Court (2005) 36 Cal.4th 153, which had held that class action waivers in contracts of adhesion subject to arbitration are unenforceable.

A more recent California Supreme Court opinion--Gentry v. Superior Court (2007) 42 Cal. 4th 443--is not referenced in Concepcion. having lead some to believe Gentry is still viable. (See Kinecta Alternative Financial Solutions, Inc v. Superior Court (Malone) (2012) __Cal.App.4th__.) Gentry determined that, under some circumstances, a class arbitration waiver would impermissibly interfere with an employee's ability to vindicate unwaivable rights concerning overtime laws, and that such a waiver was contrary to public policy. The case to be discussed, Iskanian v. CLS Transportation, LLC (filed June 4, 2012) 2012 DJDAR 7371, finds that the Concepcion decision conclusively invalidates Gentry.

Plaintiff Iskanian worked as a driver for the defendant transportation company. After about 9 months of employment, in December 2004 he signed an arbitration agreement that any and all claims arising out of employment would be submitted to binding arbitration and that class claims could not be asserted. The employment concluded in August 2005, and plaintiff filed a break/wage-and-hour class action lawsuit in August 2006. The order appealed from is the trial court's order compelling arbitration and dismissing class claims. Plaintiff claims he can meet the Gentry test to invalidate the class waiver, or alternatively he should not be compelled to arbitrate. The Court of Appeal, Second Appellate District, Division Two found Gentry inapplicable and affirmed.

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Brinker: Clearing up some uncertainty in rest & meal period/ wage & hour class actions

rest.jpgThe California Supreme Court gave readers a "two-fer" when it issued its long-awaited opinion in Brinker Restaurant Corp. v. Superior Court (filed April 12, 2012) 2012 DJDAR 4615. As the court noted in its unanimous opinion, it granted review "to consider issues of significance to class actions generally and to meal and rest break class actions in particular."

Concerning class certifications, the court found that trial courts are not required in determining the issue of certification to resolve threshold disputes over the elements of a plaintiff's claims, unless necessarily dispositive of the certification question. Having said that, the state high court went on to address the "hot button" threshold disputes because the parties requested such, and impliedly because of the public interest involved. On the most debated of these disputes, the court ruled that an employer, while required to relieve its employees of all duties during a meal period, need not ensure that no work is done during this time. It also prescribed the proper interpretation concerning requirements of rate at which rest time must be permitted, and the timing of both rest and meal periods.

On the separate issue of off-the-clock certification, the high court saw no substantial evidence pointing to a uniform, companywide proof of employees performing work while clocked out during meal periods; the trial court's ruling that common questions predominate justifying class treatment was not supported by substantial evidence.

The Supreme Court took a more generous view than the Court of Appeal in interpreting the applicable rest time rate provisions. While the lower appellate court saw employees as entitled to 10 minutes of rest for shifts of 3 ½ hours or more and 20 minutes total for 7 ½ hours, the high court ruled the requirements as being 10 minutes for 3 ½ to 6 hour shifts and 20 minutes for 6 to 10 hour shifts. On the matter of timing of rest periods, the high court disagreed with the claim of the employees that a rest period must occur before any meal period.

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