Structuring Employment Arbitration Agreements and Class Action - - PowerPoint PPT Presentation

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Structuring Employment Arbitration Agreements and Class Action Waivers After American Express and Oxford Health

T d ’ f l f

1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific THURS DAY, AUGUS T 15, 2013

Today’s faculty features:

Henry D. Lederman, S hareholder, Littler, Walnut Creek, Calif. William J. Emanuel, S hareholder, Littler, Los Angeles

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Arbitration Agreements After Italian Colors and Oxford Health

Presented by: William J. Emanuel

Littler Mendelson P.C. 2049 Century Park East 5th Floor

Henry D. Lederman

Littler Mendelson P.C. Treat Towers 1255 Treat Blvd Suite 600 5th Floor Los Angeles, CA 90067 310-553-0308 wemanuel@littler.com 1255 Treat Blvd, Suite 600 Walnut Creek, CA 94597 925-932-2468 hlederman@littler.com

Precursors: The Supreme Court Has Spoken – Arbitration Agreements Must Be Enforced As Written Arbitration Agreements Must Be Enforced As Written

• AT&T Mobility LLC v. Concepcion,

y p , 131 S.Ct. 1740 (2011)

• CompuCredit Corp. v. Greenwood,

132 S.Ct. 665 (2012)

• Marmet Health Care Center, Inc.

Bro n 132 S Ct 1201 (2012)

• v. Brown, 132 S.Ct. 1201 (2012)
• Nitro-Lift Technologies, LLC. V. Howard, 133

S Ct 500 (2012) S.Ct. 500 (2012)

6

AT&T Mobility v. Concepcion

• The Federal Arbitration Act prohibits States from

p conditioning the enforceability of arbitration agreements

• n the availability of class-wide arbitration procedures.

7

AT&T Mobility v. Concepcion

• Thus, a California court-made rule limiting the

, g enforcement of class action waivers in a consumer arbitration agreement “stands as an obstacle to the accomplishment and execution of the full purposes and accomplishment and execution of the full purposes and

• bjectives of Congress” and is

preempted by the FAA.

8

After Concepcion

• Concepcion has been repeatedly

p p y applied in the employment context and has been cited dozens of times in various court opinions and orders. p – Also, the Supreme Court vacated Sonic Calabasas A, Inc. v. Moreno 51 Cal 4th 659 (2011) Moreno, 51 Cal. 4th 659 (2011), which refused to enforce an employment arbitration agreement and remanded the agreement, and remanded the case for further consideration in light of Concepcion.

9

CompuCredit Corp. v. Greenwood, 132 S Ct 665 (2012)

• The federal Credit Repair Organizations Act does not

132 S. Ct. 665 (2012)

p g preclude enforcement of an arbitration agreement in a lawsuit alleging violations of that Act because the Act does not expressly provide that those claims may not be does not expressly provide that those claims may not be arbitrated.

10

CompuCredit Corp. v. Greenwood, 132 S Ct 665 (2012)

• The FAA requires that the arbitration agreement be

132 S. Ct. 665 (2012)

q g enforced as written absent an Act of Congress expressly stating otherwise. C fi i f th FAA’ bj ti t t

• Confirms primacy of the FAA’s objective to promote

alternative dispute resolution.

11

As for the State Courts, the U.S. Supreme Court’s Judicial Fuse is Getting Short Judicial Fuse is Getting Short

• States may not rely on their “public policy” to preclude enforcement of

arbitration agreements covered (and therefore protected) by the FAA. – Marmet Health Care Center, Inc. v. Brown, 132 S.Ct. 1201 (2012)

• West Virginia Supreme Court: Based on state public policy, tort

claims arising out of mistreatment of nursing home patients were not arbitrable.

• U.S. Supreme Court: “When this Court has fulfilled its duty to

interpret federal law a state court may not contradict or fail to interpret federal law, a state court may not contradict or fail to implement the rule so established.” – Nitro-Lift Technologies, LLC. V. Howard, 133 S.Ct. 500 (2012)

• Oklahoma Supreme Court: An arbitration clause in an illegal
• Oklahoma Supreme Court: An arbitration clause in an illegal

non-competition agreement was not enforceable.

• U.S. Supreme Court: Oklahoma “disregards this

Court’s precedents on the FAA.” Court s precedents on the FAA.

12

But What About Federal Statutory Class Claims?

Italian Colors Rest. v. Am. Express Travel Related Servs. Co. 667 F.3d 204, 217 (2d Cir. 2012)

• Second Circuit held class action waiver in arbitration

agreement unenforceable in an antitrust case. g

• Distinguished Concepcion, which applied to a state contract

law claim: “[O]ur holding rests squarely on a vindication of statutory rights ” statutory rights....

• Unavailability of class action makes cost of individual

arbitration “prohibitive, effectively depriving plaintiffs of the t t t t ti f th tit t l ” statutory protections of the antitrust laws.”

13

Supreme Court Reverses on June 20, 2013

• [A]rbitration is a matter of contract. See Rent-A-Center, West,
• Inc. v. Jackson, 561 U. S. ___, ___ (2010) (slip op., at 3). And

consistent with that text, courts must “rigorously enforce”arbitration agreements according to their terms, Dean Witt R ld I B d 470 U S 213 221 (1985) Witter Reynolds Inc. v. Byrd, 470 U. S. 213, 221 (1985), including terms that “specify with whom [the parties]choose to arbitrate their disputes,” Stolt-Nielsen, supra, at 683, and “the rules under which that arbitration will be conducted ” Volt rules under which that arbitration will be conducted, Volt Information Sciences, Inc. v. Board of Trustees of Leland Stanford Junior Univ., 489 U. S. 468, 479 (1989). That holds true for claims that allege a violation of a federal statute, true for claims that allege a violation of a federal statute, unless the FAA’s mandate has been “‘overridden by a contrary congressional command.’” CompuCredit Corp. v. Greenwood, 565 U. S. ___, ___ (2012) (slip op., at 2–3) . . ..

14

“Effective Vindication” Argument Not Effective

• But the fact that it is not worth the expense involved in

p proving a statutory remedy does not constitute the elimination ofthe right to pursue that remedy. . . . The class action waiver merely limits arbitration to the two class-action waiver merely limits arbitration to the two contracting parties. It no more eliminates those parties’ right to pursue their statutory remedy than did federal law f f f f before its adoption of the class action for legal relief in 1938 . . .. Or, to put it differently, the individual suit that was considered adequate to assure “effective q vindication”of a federal right before adoption of class- action procedures did not suddenly become “ineffective vindication” upon their adoption vindication upon their adoption.

15

Silent Agreements ≠ Class Arbitration? M b M b N t

• Stolt-Nielsen S.A. v. Animalfeeds Intl. Corp., 130 S.Ct. 1758 (2010)

Maybe, Maybe Not.

– The inquiry is, did the parties agree to “authorize” class arbitration? – Silent agreement does not allow for class arbitration. – Under the FAA, a party may not be compelled to submit to class , p y y p arbitration “unless there is a contractual basis for concluding that the party agreed to do so.” – “An implicit agreement to authorize class-action arbitration, however, is not a term that the arbitrator may infer solely from the fact of the parties’ agreement to arbitrate.” – Fundamental differences between bilateral arbitration and class arbitration are too great to allow for such a presumption arbitration are too great to allow for such a presumption. – Arbitration panel exceeded its authority under the arbitration contract by allowing class arbitration despite no contractual basis to do so.

16

The Sounds of Silence . . .

• How does agreement that says nothing about class

g y g actions, at least specifically, become one that permits class actions? Wh d id ?

• Who decides?
• What is the standard of review if the arbitrator decides

the issue? the issue?

17

Sutter v. Oxford Health Plans – Decided by Supreme Court on June 10, 2013

• Issue: “Whether an arbitrator acts within his powers

p ,

p under the Federal Arbitration Act (as the Second and Third Circuits have held) or exceeds those powers (as the Fifth Circuit has held) by determining that parties the Fifth Circuit has held) by determining that parties affirmatively “agreed to authorize class arbitration,” Stolt- Nielsen, 130 S. Ct. at 1776, based solely on their use of broad contractual language precluding litigation and requiring arbitration of any dispute arising under their contract.”

18

What You Get In Arbitration Is Finality . . . F B tt O W

• Parties asked the arbitrator to construe arbitration

For Better Or Worse

agreement that did not directly address availability of class actions A bit t t d th t l i

• Arbitrator construed the agreement, relying on

interpretation of words and phrases contained within it

• Arbitrator found that class actions were permitted

Arbitrator found that class actions were permitted

19

Supreme Court Upholds Arbitrator’s Award

• Here, Oxford invokes §10(a)(4) of the [Federal

, § ( )( ) [ Arbitration] Act, which authorizes a federal court to set aside an arbitral award “where the arbitrator[] exceeded [his] powers ” A party seeking relief under that provision [his] powers. A party seeking relief under that provision bears a heavy burden. “It is not enough . . . to show that the [arbitrator] committed an error—or even a serious ” S S error.” Stolt-Nielsen, 559 U. S., at 671. Because the parties “bargained for the arbitrator’s construction of their agreement,” an arbitral decision“even arguably g , g y construing or applying the contract” must stand, regardless of a court’s view of its (de)merits.

20

Is The Issue One Of Arbitrability? Maybe, But Th P ti A k d Th A bit t T D id

• We would face a different issue if Oxford had argued

The Parties Asked The Arbitrator To Decide

g below that the availability of class arbitration is a so- called “question of arbitrability.” Those questions—which “include certain gateway matters such as whether include certain gateway matters, such as whether parties have a valid arbitration agreement at all or whethera concededly binding arbitration clause applies to f ” f a certain type of controversy”—are presumptively for courts to decide.

21

NLRA v. FAA: NLRB Attacks Class Action Waivers Contained In Employment Arbitration Agreements

• D.R. Horton, 357 NLRB No. 184 (Jan. 3, 2012):

In Employment Arbitration Agreements , ( , ) – Participation in class actions is a form of “concerted protected activity.” – Mandatory arbitration agreements containing class action waivers violate Section 7 of the NLRA.

• Appeal is pending at the 5th Circuit: D R Horton v
• Appeal is pending at the 5

Circuit: D.R. Horton v. NLRB.

• Supreme Court decisions after D.R. Horton:

CompuCredit and Italian Colors require that a federal statute expressly preclude enforcement of an FAA agreement, and the NLRA is silent on this point. agreement, and the NLRA is silent on this point.

22

Horton Litigation Continues

• Numerous courts have rejected Horton. For example:

– Sutherland v. Ernst & Young LLP, 2013 U.S. App. LEXIS 16513 (2d Cir. Aug. 9, 2013) (court owes no deference to Horton’s reasoning) reasoning). – Owen v. Bristol Care, Inc., 702 F.3d 1050, 1054 (8th Cir. 2013) (federal court is not obligated to defer to the Board's interpretation of Supreme Court precedent.) – Ryan v. JPMorgan Chase & Co., 2013 U.S. Dist. LEXIS 24628 (S.D.N.Y. Feb. 21, 2013) (following Concepcion and rejecting the few non-binding decisions to the contrary, including Horton. Morvant v PF Chang’s China Bistro Inc 870 F Supp 2d 831 – Morvant v. P.F. Chang’s China Bistro, Inc., 870 F. Supp. 2d 831 (N.D. Cal. May 7, 2012) (D.R. Horton does not overcome direct controlling authority that class action waivers are enforceable.) – Morris v. Ernst & Young, Inc., 2013 U.S. Dist. Lexis 95714 (N.D. g, , (

• Cal. July 9, 2013).

23

Arbitration Agreements with Opt-Out Clauses

• NLRB did not decide this issue in D.R. Horton (fn. 28).

( )

• Several ALJs at the NLRB have decided that the agreements

are unlawful For example: Mastec Services Company Inc are unlawful. For example: Mastec Services Company, Inc., 16-CA-86102 (June 3, 2013).

• But at least one ALJ has upheld such an agreement as lawful

because of the opt-out. Bloomingdale’s, Inc., 31-CA-071281 (June 25, 2013). ( , )

24

So, if Horton goes by the wayside, it’s Game, Set, Match right?

• Not so fast:

Match, right?

– Congress may create exceptions to the enforceability

• f arbitration agreements (CompuCredit)

– State courts apply traditional contract law principles (like unconscionability) despite Marmet and Nitro-Lift.

25

We May Not Have Heard the Last from Congress

• The “Arbitration Fairness Act” so far has gone nowhere, BUT

from Congress

g ,

• Remember, under CompuCredit Congress can expressly

exempt certain claims from arbitration and it’s done so in: – Dodd-Frank Wall Street Reform Act - exempting certain employee whistleblower claims from mandatory, pre- dispute arbitration agreements. p g – Franken Amendment – U.S. Department of Defense appropriations bills forbid employers with contracts in f $1 illi f i i bit ti f Titl VII excess of $1 million from requiring arbitration of Title VII and certain state claims.

26

Not All State Laws are Preempted

• Arbitration agreements cannot be singled out for harsher treatment

than other contracts, BUT – §2 of the FAA provides: state law defenses applicable to all contracts may be applied to arbitration agreements. – So, generally applicable state laws (e.g. laws re: unconscionability) may be applied in deciding whether arbitration agreements are enforceable. – The states, not the Supreme Court, create contract law. Do the states control the application of that law to arbitration contracts?

27

Franco v. Arakelian Enterprises, Inc., 211 Cal. App. 4th 314 (2012) rev granted

• Court denied employer’s petition to enforce arbitration

4th 314 (2012), rev. granted

p y p agreement with class action waiver and compel individual arbitration of state law wage claims. Th t’ i

• The court’s reasoning:

– Concepcion recognized FAA “saving clause” permits courts saving clause permits courts to invalidate arbitration agreements under “generally applicable contract defenses applicable contract defenses, such as fraud, duress, or unconscionability.”

28

If Individual Arbitration Is Not Cost-Effective Can The Court Refuse To Enforce The Class Waiver?

– Plaintiff submitted attorney declarations stating: because

The Court Refuse To Enforce The Class Waiver?

y g recovery limited to around $10,000, they wouldn’t represent him on individual basis in arbitration or court. C t f d l ti i i bl b it – Court found class action waiver unconscionable because it prevented claimant from effectively pursuing unwaivable state statutory rights. – This is similar to the “prohibitive cost” argument used by the Second Circuit and rejected by the Supreme Court in Italian Colors only here it’s applied to a Italian Colors, only here it s applied to a state law claim, as opposed to the federal anti-trust claim.

29

Appeal Pending

• California Supreme Court has granted review of Franco

p g pending its decision in Iskanian v. CLS Transportation Los Angeles

• In Iskanian the California appellate court came to the opposite

In Iskanian, the California appellate court came to the opposite conclusion than Franco and enforced an employment arbitration agreement containing a class action waiver Whether case seeks to “ indicate stat tor rights” is – Whether case seeks to “vindicate statutory rights” is irrelevant in the wake of Concepcion

• At issue is the future of Gentry v. Superior Court, holding that

arbitration agreements preventing employees from vindicating statutory rights through the class action process are unenforceable and in violation of California’s public policy

30

Back to the Future . . .

• Can California’s application of

pp unconscionability law to arbitration agreements be sustained? H f t i l i

• How far may courts go in applying

that law to FAA agreements?

• Who ultimately decides if the state

Who ultimately decides if the state unconscionability law has been applied in a manner consistent with the FAA? with the FAA?

31

Sanchez v. Valencia Holding Company

• Does the Federal Arbitration Act, as interpreted by

, p y Concepcion, preempt state law rules invalidating mandatory arbitration provisions in a consumer contract as procedurally and substantively unconscionable? as procedurally and substantively unconscionable?

32

A Harbinger of Things to Come?

• In Concepcion, the U.S. Supreme Court observed that

p , p California courts were far more likely to find arbitration agreements unconscionable than other types of contracts contracts.

• If the California Supreme Court invalidates the

arbitration agreement in Sanchez, will the U.S. Supreme Court directly tackle this issue?

• That may require a finding that a state court is

purposely discriminating against arbitration agreements purposely discriminating against arbitration agreements by unfairly applying its own contract law to those agreements.

• 33

Sonic-Calabasas A, Inc. v. Moreno

• Can a mandatory employment arbitration agreement be

y p y g enforced prior to the conclusion of an administrative proceeding conducted by the Labor Commissioner concerning an employee’s statutory wage claim? concerning an employee s statutory wage claim?

• Was the Labor Commissioner’s jurisdiction over

employee’s statutory wage claim divested by the Federal Arbitration Act under Preston v. Ferrer (2008) __ U.S. __, 128 S.Ct. 978, 169 L.Ed.2d 917?

34

What about public injunctive relief?

• Does Concepcion apply to California’s other anti-

p pp y arbitration decisions, such as Broughton v. Cigna Healthplans (1999) 21 Cal.4th 1066 and Cruz v. Pacificare Health Systems Inc (2003) 30 Cal 4th 1157 Pacificare Health Systems, Inc. (2003) 30 Cal.4th 1157, holding that public injunctive relief claims under California’s Unfair Competition Law or Consumers Legal ( C Remedies Act are not arbitrable (the Broughton-Cruz rule)?

35

A new majority on the California Supreme C t? Court?

• Pinnacle Museum Tower Assn. v. Pinnacle Market

Development (US), LLC (2012) 55 Cal.4th 223 Justice Baxter authors majority opinion – Justice Baxter authors majority opinion – Joined by Chief Justice Cantil-Sakauye, and Justices Chin,

Corrigan and Liu (Justice Werdegar separately

i ) concurring)

36

Pinnacle Museum and the future of bit ti ifi l d th t lit t t

• “[T]he FAA precludes judicial invalidation of an arbitration

arbitration-specific rules and the mutuality test

[ ] p j clause based on state law requirements that are not generally applicable to other contractual clauses, such as proof of actual notice, meaningful reflection, signature by all parties, and/or a , g , g y p , unilateral modification clause favoring the nondrafting party.”

• “A contract term is not substantively unconscionable when it

merely gives one side a greater benefit; rather the term must merely gives one side a greater benefit; rather, the term must be "so one-sided as to `shock the conscience.'"

• “In . . . Armendariz, we made clear that arbitration clauses

b li it d t ifi bj t bj t d th t h may be limited to a specific subject or subjects and that such clauses are not required to ‘mandate the arbitration of all claims between [the parties] in order to avoid invalidation on grounds of unconscionability.'"

37

New From The Ninth Circuit?

• Mortensen v. Bresnan Communications, No. 11-35823,

, , decided July 15, 2013: “We interpret Concepcion’s holding to be broader than a restriction on the use of unconscionability to end run FAA preemption We take unconscionability to end-run FAA preemption. We take Concepcion to mean what its plain language says: Any general state-law contract defense, based in unconscionability or otherwise, that has a disproportionate effect on arbitration is displaced by the FAA.”

38