In Morris v. Ernst & Young, LLP (9th Cir. 2016) ___ F.3d ___, the Ninth Circuit held that the National Labor Relations Act prohibits employers from requiring, as a condition of employment, that employees waive their right to participate in concerted legal claims in the form of a class action.

Ernst & Young required employees to sign agreements saying that they would pursue any legal claims through arbitration, and only as individuals, in separate proceedings, barring the joining of multiple plaintiffs or a putative class in any such arbitration. In fact, the agreement expressly barred any claims to be brought on behalf of any other person. Plaintiffs filed a wage and hour class and collective action in District Court, and the court granted Ernst & Young's motion to compel arbitration. The Ninth Circuit reversed, holding that the agreement’s “separate proceedings” provision violates the essential, substantive right established by the NLRA to participate in concerted activities for the purpose of collective bargaining "or other mutual aid or protection.”  The Court distinguished Johnmohammadi v. Bloomingdale's, Inc. (9th Cir. 2014) 755 F.3d 1072, 1075 by noting that Ernst & Young offered its workers no opportunity to opt out of the agreement. The decision leaves a split between the circuits, with the 7tth Circuit and 9th Circuit holding in favor of employees, and the 2nd, 5th and 8th Circuits siding with the employers.

California, in Iskanian v. CLS Transp. Los Angeles, LLC (2014) 59 Cal. 4th 348, 373, upheld class action waivers, but suggested that in some instances, they could violate the NLRA. Morris would appear to at least offer a distinction, if not a broad limitation of Iskanian, which may give some employers pause when considering whether to cite CAFA and remove a case to District Court, since district courts in California will now be bound to follow Morris.

You can download the full text of Morris here in PDF.

In Esparza v. Sand & Sea, Inc. (CA2/4 B268420 8/22/16), an employer tried to have its cake and eat it, too, with respect to an arbitration agreement. It included the arbitration provision in an employee handbook, which also made clear that nothing in the handbook was intended to create a binding agreement between the employee and the employer.The court found that this rendered the handbook insufficient to establish an agreement to arbitrate.

"The question in this case is whether an arbitration provision in an employee handbook is legally enforceable.  The employee handbook containing the arbitration provision included a welcome letter as the first page, which stated, “[T]his handbook is not intended to be a contract (express or implied), nor is it intended to otherwise create any legally enforceable obligations on the part of the Company or its employees.”  The employee signed a form acknowledging she had received the handbook, which mentioned the arbitration provision as one of the “policies, practices, and procedures” of the company.  The acknowledgement form did not state that the employee agreed to the arbitration provision, and expressly recognized that the employee had not read the handbook at the time she signed the form.  Under these circumstances, we find that the arbitration provision in the employee handbook did not create an enforceable agreement to arbitrate.  We therefore affirm the trial court’s denial of the employer’s petition to compel arbitration."

You can download the full text of the opinion here in Word of PDF.

The Ninth Circuit has reinstated an arbitration decision that had been vacated by the U.S. District Court. In SW Reg. Council of Carpenters v. Drywall Dynamics, Inc. (9th Cir. 14-55250 5/19/16), the arbitrator ruled that an employer was bound by a memorandum of understanding extending the term of a labor agreement. The district court vacated the arbitration award on the grounds that the arbitrator’s interpretation of the parties’ agreement was not plausible and was contrary to public policy. The Ninth Circuit held that the district court’s decision exceeded its narrow authority to determine whether the arbitrator’s award was based on the parties’ contract and whether it violated an explicit, well-defined, and dominant public policy. You can read the entire opinion at this link. [PDF]

Petitioner DIRECTV, Inc., and its customers entered into a service agreement that included a binding arbitration provision with a class-arbitration waiver. It specified that the entire arbitration provision was unenforceable if the “law of your state” made class-arbitration waivers unenforceable. The agreement also declared that the arbi­tration clause was governed by the Federal Arbitration Act. At the time that respondents, California residents, entered into that agree­ment with DIRECTV, California law made class-arbitration waivers unenforceable, see Discover Bank v. Superior Court, 36 Cal. 4th 148, 113 P. 3d 1100. This Court subsequently held in AT&T Mobility LLC v. Concepcion, 563 U. S. 333, however, that California’s Discover Bank rule was pre-empted by the Federal Arbitration Act, 9 U. S. C. § 2.

When respondents sued petitioner, the trial court denied DIRECTV’s request to order the matter to arbitration, and the Cali­fornia Court of Appeal affirmed. The court thought that California law would render class-arbitration waivers unenforceable, so it held the entire arbitration provision was unenforceable under the agree­ment. The fact that the Federal Arbitration Act pre-empted that Cal­ifornia law did not change the result, the court said, because the par­ties were free to refer in the contract to California law as it would have been absent federal pre-emption. The court reasoned that the phrase “law of your state” was both a specific provision that should govern more general provisions and an ambiguous provision that should be construed against the drafter. Therefore, the court held, the parties had in fact included California law as it would have been without federal pre-emption.

Held: Because the California Court of Appeal’s interpretation is preempted by the Federal Arbitration Act, that court must enforce the arbitration agreement. Pp. 5–11.

(a) No one denies that lower courts must follow Concepcion, but that elementary point of law does not resolve the case because the parties are free to choose the law governing an arbitration provision, including California law as it would have been if not pre-empted. The state court interpreted the contract to mean that the parties did so, and the interpretation of a contract is ordinarily a matter of state law to which this Court defers, Volt Information Sciences, Inc. v. Board of Trustees of Leland Stanford Junior Univ., 489 U. S. 468, 474. The issue here is not whether the court’s decision is a correct statement of California law but whether it is consistent with the Federal Arbitration Act. Pp. 5–6.

(b) The California court’s interpretation does not place arbitration contracts “on equal footing with all other contracts,” Buckeye Check Cashing, Inc. v. Cardegna, 546 U. S. 440, 443, because California courts would not interpret contracts other than arbitration contracts the same way. Several considerations lead to this conclusion.

First, the phrase “law of your state” is not ambiguous and takes its ordinary meaning: valid state law. Second, California case law—that under “general contract principles,” references to California law in­corporate the California Legislature’s power to change the law retro­actively, Doe v. Harris, 57 Cal. 4th 64, 69–70, 302 P. 3d 598, 601– 602—clarifies any doubt about how to interpret it. Third, because the court nowhere suggests that California courts would reach the same interpretation in any other context, its conclusion appears to re­flect the subject matter, rather than a general principle that would include state statutes invalidated by other federal law. Fourth, the language the court uses to frame the issue focuses only on arbitra­tion. Fifth, the view that state law retains independent force after being authoritatively invalidated is one courts are unlikely to apply in other contexts. Sixth, none of the principles of contract interpreta­tion relied on by the California court suggests that other California courts would reach the same interpretation elsewhere. The court ap­plied the canon that contracts are construed against the drafter, but the lack of any similar case interpreting similar language to include invalid laws indicates that the anti-drafter canon would not lead Cali­fornia courts to reach a similar conclusion in cases not involving arbi­tration. Pp. 6–10.

225 Cal. App. 4th 338, 170 Cal. Rptr. 3d 190, reversed and remanded.

DIRECTV, Inc. v. Imburgia (US 14–462 12/14/15). 6-3; BREYER, J., delivered the opinion of the Court, in which ROBERTS, C. J., and SCALIA, KENNEDY, ALITO, and KAGAN, JJ., joined. THOMAS, J., filed a dissenting opinion. GINSBURG, J., filed a dissenting opinion, in which SOTOMAYOR, J., joined.

 

http://www.supremecourt.gov/opinions/15pdf/14-462_2co3.pdf

Defendant Mid-Wilshire Health Care Center appealed from an order denying its motion to compel arbitration and to stay a wrongful termination action by plaintiff Maribel Mendez. The Court of Appeal holds hold that the arbitration provision in the collective bargaining agreement governing Mendez’s employment does not apply to Mendez’s statutory discrimination claims. Affirmed.

The trial court denied Mid-Wilshire‟s motion to compel arbitration of all of Mendez‟s claims, statutory and common law. Because the collective bargaining agreement did not clearly and unmistakably refer Mendez‟s statutory discrimination claims to arbitration, the trial court properly denied Mid-Wilshire‟s motion to compel arbitration of those claims. With respect to Mendez‟s common law claims, Mid-Wilshire has not presented any legal argument that the trial court‟s denial of Mid-Wilshire‟s motion to compel arbitration of those claims was erroneous. We therefore deem any claim of error forfeited.

The full opinion can be read here in Word or PDF.

© Walsh & Walsh, P.C., arbitration, published opinions

In Sonic-Calabasas A, Inc. v. Moreno (2011) 51 Cal.4th 659 (Sonic I), the California Supreme Court held as a categorical rule that it is contrary to public policy and unconscionable for an employer to require an employee, as a condition of employment, to waive the right to a Berman hearing, a dispute resolution forum established by the Legislature to assist employees in recovering wages owed. It further held that the rule prohibiting waiver of a Berman hearing does not discriminate against arbitration agreements and is therefore not preempted by the Federal Arbitration Act, and that, if one of the parties is dissatisfied with the result of the Berman hearing, it can move to arbitrate the wage dispute consistent with the arbitration agreement, just as a dissatisfied party can obtain a trial in court without such an agreement.

The United States Supreme Court granted certiorari, vacated the judgment, and remanded the case for consideration in light of AT&T Mobility LLC v. Concepcion (2011) 563 U.S. __,  131 S.Ct. 1740. In Concepcion, the court clarified the limitations that the FAA imposes on a state’s capacity to enforce its rules of unconscionability on parties to arbitration agreements. In light of Concepcion, the Californa Supreme Court concludes that because compelling the parties to undergo a Berman hearing would impose significant delays in the commencement of arbitration, the approach in Sonic I is inconsistent with the FAA. Accordingly, the FAA preempts any state law categorically prohibiting waiver of a Berman hearing in a predispute arbitration agreement imposed on an employee as a condition of employment.

Nonetheless, state courts may continue to enforce unconscionability rules that do not “interfere[] with fundamental attributes of arbitration.” (Concepcion, supra, 563 U.S. at p. __ [131 S.Ct. at p. 1748].

Although a court may not refuse to enforce an arbitration agreement imposed on an employee as a condition of employment simply because it requires the employee to bypass a Berman hearing, such an agreement may be unconscionable if it is otherwise unreasonably one-sided in favor of the employer.

Furthermore, the Berman statutes confer important benefits on wage claimants by lowering the costs of pursuing their claims and by ensuring that they are able to enforce judgments in their favor. There is no reason why an arbitral forum cannot provide these benefits, and an employee’s surrender of such benefits does not necessarily make the agreement unconscionable. The fundamental fairness of the bargain, as with all contracts, will depend on what benefits the employee received under the agreement’s substantive terms and the totality of circumstances surrounding the formation of the agreement.

The employee in Sonic II contends that the particular arbitration scheme at issue is unconscionable, while the employer contends that its arbitration agreement offers adequate protections and advantages to facilitate the employee’s claim and is not unreasonably one-sided. Because evidence relevant to the unconscionability claim was not developed below, the Supreme Court remands the matter to the trial court to determine whether the present arbitration agreement is unconscionable under the principles set forth in Sonic II.

The full opinion in Sonic II can be downloaded here in Word or PDF.

© Walsh & Walsh, P.C., arbitration, published opinions

The Ninth Circuit has affirmed a district court’s denial of defendant grocery company’s motion to compel arbitration in an action asserting claims under California labor law on behalf of the plaintiff and a proposed class of other grocery employees. Chavarria v. Ralphs Grocery Store (9th Cir. 11-56673 10/28/13)

Ralph sought to compel arbitration of an individual claim pursuant to its arbitration policy, to which all employees acceded upon submitting applications for employment. The 9th Circuit affirmed the district court’s holding that the arbitration policy was unconscionable under California contract law and therefore unenforceable. It  was procedurally unconscionable because it was a condition of applying for employment and was presented on a “take it or leave it” basis.In addition, its terms were not provided to the plaintiff until three weeks after she had agreed to be bound by it. It was  substantively unconscionable because it was unjustifiably one-sided to such an extent that it “shocked the conscience.” Specifically, the arbitrator selection process would always produce an arbitrator proposed by the defendant in employee-initiated arbitration proceedings; the policy precluded institutional arbitration administrators, which have established rules and procedures to select a neutral arbitrator; and the policy’s arbitrator-fee-apportionment provision would have the effect of pricing employees out of the dispute resolution process.

The decision distinguishes Kilgore v. Key Bank National Ass’n (9th Cir. 2013) 718 F.3d 1052 (the mere risk that plaintiff will face prohibitive costs is too speculative to justify invalidating arbitration agreement), on the ground that the fee provision was not speculative and there were other unconscionable terms.

State law supporting the unconsionability holding was not preempted by the FAA because it applies to contracts generally and did not in practice impact arbitration agreements disproportionately. The Supreme Court’s decision in American Express Corp. v. Italian Colors Restaurant (2013) __ U.S.__, 133 S. Ct. 2304 did not preclude the court from considering the cost that the defendant’s arbitration agreement imposed on employees in order for them to bring a claim.

The matter is remanded for further proceedings.

© Walsh & Walsh, P.C., federal appeals, arbitration

In another 5-4 decision, the Supreme Court has again declared its passion the Federal Arbitration Act, and specifically for 9 USC § 2 - Validity, irrevocability, and enforcement of agreements to arbitrate. Section 2 provides:

A written provision in any maritime transaction or a contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract or transaction, or the refusal to perform the whole or any part thereof, or an agreement in writing to submit to arbitration an existing controversy arising out of such a contract, transaction, or refusal, shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.

In American Express Co. v. Italian Colors Restaurant (2013) __ U.S. __ [No. 12-133) the Supreme Court extended its recent trend of rejecting challenges to the FAA, and arbitration agreements containing class action waivers, holding that a contractual waiver of class arbitration is enforceable under the FAA even where the cost of pursuing individual arbitration claims exceeds the amount in controversy. Although this is not an employment case and the plaintiff was a business entity and not an individual, the holding in American Express Co. v. Italian Colors Restaurant will likely have a substantial impact on employment class action litigation.

Barring a change in the FAA or a change in the majority bloc of justices on the Supreme Court, there may be only three ways left to avoid class action waivers in employee/employer arbitration agreements: disproving the existence of the agreement; invalidating the agreement under state unconscionability law or some other state law that is generally applicable to all contracts, and not just arbitration agreements; or suing under a federal statute that guarantees the plaintiff's right to bring a class action.

You can read the entire opinion in American Express Co. v. Italian Colors Restaurant here in PDF.

On June 6, 2013, the State Bar Labor & Employment Law Section will be presenting a Webinar entitled The Never-Ending Story – Arbitration Agreements and the Law. The program runs from 12 p.m. to 1:30 p.m. and offers 1.5 hours of participatory MCLE credits. The cost is $82.50. Advance registration is required and can be done at this link.

The U.S. Supreme Court heard oral arguments Wednesday in American Express Co. v. Italian Colors Restaurant, an arbitration class action waiver case from the Second Circuit that could expand or reduce the scope of AT&T Mobility LLC v. Concepcion, 131 S. Ct.1740 (2011). The Circuit Court decision can be read here.

The issue presented on review is:

Whether the Federal Arbitration Act permits courts, invoking the “federal substantive law of arbitrability,” to invalidate arbitration agreements on the ground that they do not permit class arbitration of a federal-law claim.

In Green Tree Financial v. Randolph, 531 U.S. 79, 90 (2000), the SCOTUS implied that plaintiffs shouldn’t have to arbitrate if they could prove that they could not effectively vindicate their federal statutory rights in the arbitral forum. A decade later, in Stolt-Nielsen S.A. v. AnimalFeeds International Corp., 130 S. Ct. 1758 (2010) , the SCOTUS held that the Federal Arbitration Act prohibits arbitrators from imposing class arbitration on parties that have not agreed to such procedures. A year after that, in AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740 (2011) , the SCOTUS held that the FAA preempts state laws invalidating commercial arbitration agreements on the ground that they forbid class arbitration. However, AT&T Mobility addressed unconscionability principles under state law, within the scope of Section 2 preemption, so it did not address the vindication of rights doctrine, which is a federal common law doctrine. Now, the SCOTUS addresses this issue in American Express

The Second Circuit held that the American Express class action waiver was unenforceable because its effect would be to prevent the plaintiffs from effectively vindicating their statutory rights plaintiffs, notwithstanding the holdings in Stolt-Nielsen or AT&T Mobility.

It is usually difficult to predict where a majority of justices stand based on the questions they pose during oral argument, but if you enjoy doing so, you can read the transcript here. We suspect that the vote will be 5-3 to overturn the Second Circuit (Justice Sotomayor recused herself because she sat on the Second Circuit panel that issued one of the earlier rulings). If we are right, companies will be able to effectively give themselves contractual immunity from liability for violating even important statutory rights on a large scale, as long as each individual's damages aren't large enough to warrant hiring a lawyer.

Review has been granted in the class action waiver case of Franco v. Arakelian Enterprises, Inc. (2012) 149 Cal.Rptr.3d 530 (SC S207760/B232583 review granted 2/13/13) in which the Court of Appeal affirmed an order denying a petition to compel arbitration. The court ordered briefing deferred pending its decision in Iskanian v. CLS Transportation Los Angeles, LLC, S204032 (#12-97), which will address whether AT&T Mobility LLC v. Concepcion (2011) 563 U.S. __ [131 S.Ct. 1740, 179 L.Ed.2d 742] impliedly overruled Gentry v. Superior Court (2007) 42 Cal.4th 443 with respect to contractual class action waivers in the context of non-waivable labor law rights.

WELLS FARGO ADVISORS, LLC. v. WATTS

WELLS FARGO ADVISORS, LLC, Claimant,

v.

CLIFFORD J. WATTS, III, Respondent. 

No. 5:11cv48.

United States District Court, W.D. North Carolina, Charlotte Division.

March 9, 2012.

Clifford John Watts, Respondent, represented by Matthew Kyle Rogers.

Wells Fargo Advisors, LLC, Claimant, represented by Charles E. Raynal, IV, Parker Poe Adams & Bernstein, LLP, Matthew Hilton Mall, Parker Poe Adams & Bernstein LLP, Brady James Hermann,, Michaels, Ward & Rabinovitz, LLP, Pro Hac Vice & Deborah Gale Evans,, Michaels, Ward & Rabinovitz, LLP, Pro Hac Vice.

MEMORANDUM OF DECISION AND ORDER

MAX O. COGBURN, Jr., District Judge.

 

Review and confirmation of the arbitration process by the federal courts has reached the point that when this court observed, in a hearing on the claimant bank's motion to confirm an arbitration award, that the court could refuse to enforce an illegal contract, counsel for the claimant bank immediately challenged the court's statement. Hrg. Tr. 71, docket no. 33. As counsel's open challenge to the court's review authority makes clear, arbitration under the Federal Arbitration Act is a process that, although retaining the appearance of constitutionality by involving the courts in confirming an award, does not even attempt to retain the appearance of fairness.¹ In the hearing before this court on the claimant bank's motion to confirm an arbitration award, counsel for the claimant bank noted that the bank handles hundreds of arbitrations a year and that counsel herself handles 30 to 40 a year and that she, by the way, has never lost a single case. Tr. 52 ("I've never lost one and I've never not gotten attorney's fees. I always win these cases.") (emphasis added). Now there's a level playing field.

 

Because of its constant and prolific participation in FAA arbitration, the claimant bank enjoys a clear advantage over the individual employee or customer. That is, the arbitration company or arbiter knows that the bank will participate in hundreds of arbitrations a year, whereas an individual employee or customer may participate in arbitration only once in their lifetime, if ever. The bank will know from experience, then, which arbiters are the most likely to favor the bank; therefore, the bank will naturally choose that arbiter to arbitrate the bank's case. The individual, on the other hand, has very limited knowledge of the arbiter. Couple that with the proposition that the arbiter's mistakes of facts or law are not reviewable by the courts and the result is a process in which, as in this case, counsel for the bank can remain undefeated 30 or 40 times a year. Tr. 52.

 

Counsel's argument that the parties voluntarily agreed to arbitration and that the process saves money is also disingenuous. Since financial institutions and large employers have virtually all of the available lending capital and a large number of the jobs, individuals have no recourse but to agree to an arbitration clause. Further, since the individuals seldom win and are forced to reimburse costs and attorney fees, the only ones saving money are large institutions like the claimant.

 

Had the contract in this case been an illegal one, this court would have refused to confirm the award. However, as the contract is not illegal, the court has reviewed the award under current applicable law and finds that the bank is entitled to have its award confirmed. The court will not, however, confirm the award of attorney's fees for the reasons stated below.

That was the question Justice Antonin Scalia posed during oral arguments today in AT&T Mobility LLC v. Concepcion. In one of the most closely watched cases of the new session, which some half-jokingly refer to as Arbitrations v. Class Actions, the Supreme Court will decide whether California law governing unconscionable contracts is preempted by the Federal Arbitration Act when a consumer contract specifies that the parties must arbitrate any disputes, and that the arbitration cannot include any claims on behalf of a class. All indications were that a majority of the justices were not interested in telling states that unconscionable agreements had to be enforced even if they fell under the scope of the FAA.

Andrew Pincus of Mayer Brown, who represents AT&T, argued that the California standard for determining unconscionability discriminated against arbitration and therefore ran afoul of the FAA. He called the lower court ruling "[making] up a special rule for arbitration." Justice Ruth Bader Ginsburg didn't buy it. "The rule is the same whether it's litigation or arbitration," she said.

If Justice Antonin Scalia and Justice Ruth Bader Ginsburg are suggesting that they hold the same position on the issue, it's a good bet that theirs is the majority position. If you want to read the transcript and draw your own inferences, click this link.

http://www.supremecourt.gov/oral_arguments/argument_transcripts/09-893.pdf

It looks like class actions are going to be with us a while longer.

In Sonic-Calabasas A, Inc. dba Acura 101 West v. Moreno (2009) __ Cal.App.4th __, the Court of Appeal considered whether an admittedly valid employment arbitration agreement that is governed by the Federal Arbitration Act may be enforced to dismiss an employee’s administrative wage claim against his former employer for unpaid vacation pay. The employee brought the claim with the Labor Commissioner according to the “Berman” process provided in Labor Code §§ 98 et seq. The employer responded with a petition to compel arbitration and to dismiss the Berman proceeding. The superior court denied the petition as premature. The Court of Appeal reversed.

Sonic contends that the Labor Commissioner’s jurisdiction over this statutory wage claim was divested by the FAA.  Sonic cites as controlling authority the United States Supreme Court’s recent decision in Preston v. Ferrer (2008) ___ U.S. ___ [128 S.Ct. 978] (Preston), in which the Labor Commissioner’s original and exclusive jurisdiction was held to be divested by the FAA with regard to a contract dispute arising under the Talent Agencies Act (§ 1700 et seq.) (TAA).  Alternatively, Sonic argues that even if the minimum requirements for arbitration set forth in Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83 (Armendariz) apply to this statutory wage claim, a Berman hearing is not a prerequisite to arbitration, either under Armendariz or Gentry v. Superior Court (2007) 42 Cal.4th 443 (Gentry). We conclude that Moreno waived his right to a Berman proceeding and enforcement of that waiver is not barred by Armendariz or Gentry.

How the court gets there in its analysis is an interesting read. The Court of Appeal found that Preston was not dispositive, and that Sonic's view of the holding in Preston was too broad.

Before concluding that the Labor Commissioner’s jurisdiction was preempted by the FAA, the Supreme Court emphasized that the validity and substantive rights of the arbitration agreement were not in dispute, stating:  “Finally, it bears repeating that Preston’s petition presents precisely and only a question concerning the forum in which the parties’ dispute will be heard.  See supra, at 983.  ‘By agreeing to arbitrate a statutory claim, a party does not forgo the substantive rights afforded by the statute; it only submits to their resolution in an arbitral . . . forum.’  Mitsubishi Motors Corp., 473 U.S., at 628, 105 S.Ct. 3346.  So here, Ferrer relinquishes no substantive rights the TAA or other California law may accord him.  But under the contract he signed, he cannot escape resolution of those rights in an arbitral forum.”  (Preston, supra, 128 S.Ct. at p. 987.)

For the above reasons, the Supreme Court concluded that the Labor Commissioner’s jurisdiction over the administrative action was divested by the FAA.  But it expressed this conclusion in a broadly worded statement:  “We hold today that, when parties agree to arbitrate all questions arising under a contract, state laws lodging primary jurisdiction in another forum, whether judicial or administrative, are superseded by the FAA.”  (Preston, supra, 128 S.Ct. at p. 981.)  By focusing solely on the breadth of this holding, Sonic argues that, under Preston, we are compelled to conclude the FAA preempts the Labor Commissioner’s jurisdiction over all wage claims filed under section 98 et seq.  We do not read Preston so broadly.

That did not save the employee's action, however. Sonic also contended that the record failed to show that the Berman waiver was unenforceable for public policy reasons under Armendariz or Gentry. On this dispositive point, the Court of Appeal agreed.

As we previously stated, however, Moreno has failed to persuade us that enforcing the Berman waiver in this case would deprive him of rights that are necessary to the vindication of a statutory wage claim.  Moreover, the record contains no evidence that Moreno or any other wage claimant lacks the knowledge, skills, abilities, or resources to vindicate his or her statutory wage rights in an arbitral forum.  Even assuming the arbitral process is more difficult to navigate than the Berman process, there is nothing in this record to indicate that enforcing a Berman waiver will significantly impair the claimant’s ability to vindicate his or her statutory rights.  In short, Moreno has failed to demonstrate either the inadequacy of the arbitral forum provided by his arbitration agreement or the existence of a factual basis to invalidate all Berman waivers as against public policy.

Exactly what sort of evidence the court would have found persuasive is left to one's imagination.

You can download the full text of Sonic-Calabasas A, Inc. here in Word or PDF.

We aren't sure why we needed a published opinion to tell us this, but the Court of Appeal has determined that the arbitrator of a labor dispute cannot simply issue an order compelling the employer to make the employee whole, and then leave it to the parties to figure out what that entails. Mossman v. City of Oakdale (2009) __ Cal.App.4th __.

In this twist arising from a contractual arbitration proceeding, we address whether an arbitrator's award that concludes (1) the City of Oakdale violated its own personnel rules, and (2) then directing the employee to be made whole without more, is an enforceable award As sometimes happens, the arbitrator ordered the parties to work out the details of the make-whole remedy, which they did not do. This appeal flows from a judgment denying a motion to vacate the arbitration award pursuant to Code of Civil Procedure section 1286.2 on the ground the arbitrator did not specify an adequate remedy and therefore did not resolve all issues submitted to arbitration. Although we conclude that the arbitrator resolved issues presented in the arbitration, we order the judgment reversed because, in its current form, the judgment is unenforceable. We remand to enable the original arbitrator to determine the appropriate nature of the make-whole remedy. 

So the case goes back to the arbitrator, who, it is worth noting, was held not to be bound by a 30-day time limit in the city personnel and arbitration rules. You can download the full text of Mossman here in Word or PDF. 

Slightly offtopic: The Supreme Court also denied review yesterday in Nelson v. American Apparel, Inc., the unpublished sham employment arbitration settlement case we discussed back in November in a post we called "You have to read this load of %$^*&! to believe it." Apparently, no request for publication was made.

A provision giving the arbitrator the authority to decide the enforceability of the arbitration agreement itself is unenforceable. Ontiveros v. DHL Express (USA), Inc. (2008) 164 Cal.App .4th 494. The determination of the arbitration agreement's enforceability belongs to the courts, not the arbitrator, as the existence of other unconscionable provisions may rendered the entire arbitration agreement voidable under Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83. 

Defendant DHL Express (USA), Inc. appeals the trial court’s order denying its motion to compel arbitration after plaintiff Gina Ontiveros filed a lawsuit against defendant DHL and four other defendants, raising various claims related to sex discrimination, harassment, and retaliation arising from her employment with defendant. Defendant claims that plaintiff’s lawsuit is precluded by an arbitration agreement previously entered into by both parties. Because we conclude the trial court properly found the arbitration agreement was unconscionable, and therefore unenforceable, we shall affirm the order.

An agreement to have the arbitrator decide enforceability is invalid. "[T]he potential for the inequitable use of such arbitration provisions in areas, such as employment, where the parties are not at arm’s length and do not have equal bargaining power.  In such situations, in which one party tends to be a repeat player, the arbitrator has a unique self-interest in deciding that a dispute is arbitrable.” Other improper terms in the agreement included limiting depositions to one percipient witness per side plus any expert witnesses, and requiring the parties to share the costs of arbitration. The cumulative effect of these improper provisions justified the trial court's determination that the entire agreement was unconscionable.

You can download the Ontiveros opinion here in PDF or Word format.

Continuing with a few 2008 case we haven't yet mentioned ...

Where a plaintiff filed a class action lawsuit against credit card company, the District Court erred in applying South Dakota law — which was chosen in the credit card agreement — and finding that the plaintiff was a party to an arbitration agreement waiving her right to proceed with classwide claims, without first applying California’s choice of law analysis and/or addressing whether the waiver was unconscionable under California law. Hoffman v. Citibank (South Dakota), N.A. (9th Cir. 2008) 546 F.3d 1078.

Plaintiff-Appellant Laura Hoffman appeals the district court's order compelling arbitration in her class action suit against her credit card company, Defendant-Appellee Citibank (South Dakota) N.A. The district court found that Hoffman was party to an arbitration agreement that waived her right to proceed on a class basis. Applying South Dakota law-the law chosen in the credit card agreement-the district court enforced the class arbitration waiver and ordered Hoffman to proceed on a non-class basis. Nonetheless, the district court found substantial grounds for a difference of opinion regarding a controlling issue of law, “whether California law or South Dakota law should be used to determine the enforceability of the arbitration agreement,” and issued an order for immediate appeal. The case was stayed without completion of discovery. We granted permission for the appeal, and we have jurisdiction under 28 U.S.C. § 1292(b). Because we are persuaded that the district court's order compelling arbitration erroneously relied on cases that do not properly apply California choice of law rules, we remand for a determination of whether California or South Dakota law applies to the class arbitration waiver.

That clear things up a bit, right? Truly only a bit. Judge Trott's concurring opinion is interesting enough to publish verbatim and in its entirety:

Given the narrow question presented by this appeal, I concur in our per curiam opinion. Nevertheless, I add some observations designed, I hope, to shed light on remand on the underlying question: is the arbitration “agreement”-including a class arbitration waiver-enforceable, or not.

California law is far from settled. In Citibank (South Dakota), N.A. v. Walker, No. A117770, slip op. at 8, 2008 WL 4175125 (Cal.Ct.App. September 11, 2008), Division Four of the First Appellate District held in an unpublished opinion that the arbitration waiver at issue is not unconscionable or unenforceable under California law. In so holding, that court focused on a cardholder's choices:

Here, although the change was made in a “bill stuffer,” Walker was given an opportunity to opt out of arbitration. By opting out of the amendment, Walker would have been permitted to use his card until it expired, at which time he would have been able to pay off his balance under the existing terms. This does not present the same take it or leave it scenario found to be procedurally unconscionable in Discover Bank [v. Superior Court, 36 Cal.4th 148, 30 Cal.Rptr.3d 76, 113 P.3d 1100 (2005).] Moreover, Discover Bank [v. Superior Court] does not stand for the proposition that “bill stuffer” amendments are per se unconscionable.

Rather, it focuses on the take it or leave it nature of the contractual modification.

However, Division Seven of the Second Appellate District held in Firchow v. Citibank (South Dakota), N.A., No. B187081, 2007 WL 64763, at 8-9, 2007 Cal.App. Unpub. LEXIS 178, at 26 (Ct.App. Jan. 10, 2007), that the “agreement” under our legal microscope is unconscionable.

This brings us to Jones v. Citigroup, Inc., 38 Cal.Rptr.3d 461 (Ct.App.2006). In Jones, Division Three of the Fourth Appellate District declined to conclude that a similar attempt to avoid classwide arbitration was unconscionable under California law:

Our case is different [from Discover Bank v. Superior Court ]. Here, although the change was made in a “bill stuffer,” plaintiffs were given an opportunity to opt out of arbitration. By giving written notice of their rejection of the amendment, they could continue to use their cards until the cards expired and then would be able to pay off their balances under the terms of their existing agreement without acceleration. This does not present the take it or leave it scenario described in Discover [Bank v. Superior Court] or Szetela [v. Discover Bank, 97 Cal.App.4th 1094, 118 Cal.Rptr.2d 862 (2002),] as being procedurally unconscionable. Rather, it appears that defendant was cognizant of the oppressive nature of forcing a nonconsenting cardholder to either agree to arbitration or immediately cancel the account and took steps to avoid it.

The good news, if there is any good news in all of this, is that the California Supreme Court vacated and remanded the Jones decision for further proceedings in light of its decision in Gentry v. Superior Court, 42 Cal.4th 443, 64 Cal.Rptr.3d 773, 165 P.3d 556 (2007). Jones v. Citigroup, Inc., 68 Cal.Rptr.3d 530, 171 P.3d 547 (Cal.2007).

There it is. Mixed signals from the California courts. One hopes on remand in this case that the legal dust will soon settle and that our district court will have some reliable authority upon which to base its decision.

Back to Judge Guilford it goes, with the hope that the California courts will sort this mess out soon enough.

An arbitration agreement may expressly provide for judicial review, on the merits, of the arbitrator’s decision. Cable Connection, Inc. v. DirectTV, Inc. (2008) 44 Cal.4th 1334 (upholding an arbitration agreement that permits review of decisions where the arbitrators “exceeded their powers” and provided that “arbitrators shall not have the power to commit errors of law or legal reasoning, and the award may be vacated or corrected on appeal to a court of competent jurisdiction for any such error.”)

Can someone remind us again how arbitration continues to sell itself as a fast, cheap alternative to litigation?

Cruise ship employees’ employment contracts are “considered as commercial” under Title 9 of the United States Code. Therefore, arbitration provisions contained in their employment contracts can be enforced by the employer. Rogers v. Royal Caribbean Cruise Line (9th Cir. Cal.) __ F.3d __, 2008 WL 4811882.

Have you ever wondered why the staff on those ships seem to come from every corner of the Earth except the U.S.? It's so the ship can hire people at wage rates like the ones described in this passage:

Michael Rogers, a citizen of Trinidad and Tobago, and Hulya Kar, a citizen of Turkey, worked on cruise ships operated by Royal Caribbean Cruises Ltd. (“Royal Caribbean”). Rogers worked as a “cabin boy” and “stateroom attendant,” and Kar worked as an assistant waiter.

Counsel for Rogers and Kar have stipulated that both employees signed a written employment agreement with Royal Caribbean. Kar’s employment agreement provided that Royal Caribbean would pay her $50 in “[m]onthly basic pay,” and that she was entitled to $890 in “[m]onthly [g]uaranteed [p]ay including [g]uaranteed [o]vertime.” According to the employment agreement, “the monthly guaranteed pay is inclusive of all gratuities provided by passengers.”

They need overtime to get to their guaranteed $890 per month ($10,680 a year)? Ouch. For American's working at sea, the wage protections are much greater than they are for foreign workers. As Judge Noonan's dissent points out:

Among the statutes enacted by the First Congress was the Act of July 20, 1790 establishing a seaman’s right to the prompt payment of his wages and a remedy for this right in federal court. 1 Stat. 133. No other class of contracts was so marked off. No other class of potential plaintiffs was provided with a timetable in terms of which the debt owed them had to be paid. Seamen’s wages were bound by law to the ship the seamen sailed. A lien on the vessel for their payment was “so sacred” that “it adheres to the last plank of the ship.” Sheppard v. Taylor, 30 U.S. 675, 710 (1831) (per Story, J.).

The connection of ship and wages due was such that it could be said that a seaman’s wages “are nailed to the ship.” The Eclipse, 58 F. 273, 277 (N.D. Cal. 1892). This extraordinary solicitude for seamen — this linkage of seamen and ship and federal supervision — was not the product of a romantic vision of life at sea, but came from a grasp of its grim realities: the resources, social status, and bargaining position of the vessel owner set over against the paltry options of the individual seaman. Together with that appreciation of the seaman’s lot went a sense of the importance of a merchant marine and its sailors to the economy of the nation and to its defense. The classic expression of the convergence of all these interests in federal solicitude for the seaman is the opinion of Justice Story, a native of the port of Salem, as he sat on circuit in Maine. Harden v. Gordon, 11 F. Cas. 480 (C.C.D. Me. 1823). The continuing strength of this convergence was confirmed by the Supreme Court’s citation and quotation of Harden in Vaughn v. Atkinson, 369 U.S. 527, 531 (1962).

In time the protection of federal law was extended by statute to foreign seamen whose ships were in American ports. Strathearn S.S. Co. v. Dillon, 252 U.S. 348, 354 (1920). The extension was undoubtedly designed to prevent American seamen, who could sue, from being replaced by those who could not. Id. at 355-56. The statute is of special relevance here where the plaintiffs are foreigners and where counsel for Royal Caribbean acknowledge in their brief that many of its employees are foreigners. Even with the significant change in bargaining power brought about by the National Labor Relations Act of 1937, the seaman’s right to sue directly for his wages was prized by individual seamen and upheld by the Supreme Court. U.S. Bulk Carrier, Inc. v. Arguelles, 401 U.S. 351 (1971). Deciding Arguelles, the Supreme Court noted that the explicit remedy permitting the seamen’s suit was “not clearly taken away” by the National Labor Relations Act. Id. at 357. The Court added: “What Congress has plainly granted we hesitate to deny.” Id. And the Court did not deny it. This precedent speaks powerfully in the case at bar.

Not powerful enough to let the cabin boy from Trinidad and Tobago have his day in court, unfortunately. It's off to the arbitrator for him and his Turkish assistant waiter friend. We hope they've been socking away a big chunk of that $890 a month guarantee, because the arbitrators are not going to be cheap.

Ralphs Grocery Company has lost some high profile attempts to enforce its employee arbitration ageements, but it recently won one in Macias v. Ralphs Grocery Co. (2nd App. Dist, Div 2, Case No. B202625) , wherein the trial court denied their petition to compel arbitration of an action for sexual harassment and retaliation under the FEHA, but the order was reversed on appeal. The Second District did not publish the opinion. No petition for review was filed, but Ralphs sought publication of the opinion, and the Supreme Court denied the publication request.

It isn't a wage & hour case, but this is the most ridiculous b.s. settlement tactic we've ever seen in an employment dispute: Nelson v. American Apparel, Inc. In an unpublished opinion, which should be published if for no other reason than so that people will read the facts, the Second District enforced an arbitration agreement under the most bizarre of circumstances:

Defendants, American Apparel, Inc., Dov Charney, and Martin Bailey, appeal from an order denying their petition to compel arbitration under a settlement agreement. Defendants seek to arbitrate two issues. First, defendants seek to arbitrate the issue of whether plaintiff, Nancy Nelson, and her attorneys breached the settlement agreement by failing to appear in San Francisco at an “arbitration” with foreordained facts and a predetermined award which would be followed by the issuance of a misleading press release. Second, defendants seek to compel arbitration of whether plaintiff or her attorneys breached the confidentiality provisions of the settlement agreement. We conclude the language in the arbitration clauses in the settlement agreement required the petition to compel arbitration of these two disputes be granted. We emphasize defendants are not seeking to compel arbitration of the questionable “arbitration” with foreordained facts and a predetermined award which would be followed by the issuance of a misleading press release.

Here are the facts:

On May 4, 2005, plaintiff filed an action against defendants American Apparel, Inc., its chief executive officer, Mr. Charney, and a vice president, Mr. Bailey. Plaintiff alleged that during her employment as a sales manager for American Apparel, Inc., Mr. Charney subjected her to a hostile work environment based on her gender by regularly making unwelcome, inappropriate comments, and suggestive non-verbal gestures, and ultimately wrongfully terminating her employment. In her first amended complaint, filed on September 19, 2005, plaintiff asserted causes of action for violations of the Government, Labor, and Business and Professions Codes, wrongful termination in violation of public policy, and defamation. The matter was set for trial on January 24, 2008.

On January 23, 2008, however, the parties entered into the settlement agreement. In the settlement agreement, defendants, without admitting liability, agreed to pay plaintiff $1.3 million. Also, plaintiff agreed to release all of her claims against defendants and to dismiss the present lawsuit.[1] Additionally, the parties agreed that an arbitrator selected by and paid for by defendants would enter a specified award (stated word for word) in defendant’s favor based on a stipulated record.

Paragraph 7 of the settlement agreement provided in part: “Confidential Arbitration [¶] The parties agree to conduct a confidential arbitration pursuant to the following terms and conditions: [¶] (a) The Arbitrator shall be selected by American Apparel at its sole and unfettered discretion. The Arbitrator’s fee will be paid by American Apparel. [¶] (b) The issue presented to the Arbitrator will be, ‘Did American Apparel or Dov Charney subject Mary Nelson to unlawful sexual harassment in violation of the California Fair Employment & Housing Act.’ [¶] (c) The Arbitrator will issue a decision based solely on the following stipulated record: [¶] (i) The Supreme Court’s decision in Lyle v. Warner Brothers Television Productions, including the concurring opinion by Justice Chin, 38 Cal.4th 264 (2006), is the governing law. [¶] (ii) Nelson complains that she was unlawfully harassed by American Apparel’s marketing materials, as well as the use of sexual speech by employees of American Apparel. [¶] (iii) Dov Charney never sexualized, propositioned or made any sexual advances of any nature whatsoever towards Mary Nelson. [¶] (iv) The marketing materials, sexual speech and much of the conduct about which Nelson complains are protected under the First Amendment’s guarantee of free speech. [¶] (v) The remainder of the speech and conduct about which Nelson complains was not directed at her or other women because of their gender. [¶] (d) The Arbitrator’s decision will state only the following: [¶] ‘Mary Nelson was not subjected to unlawful sexual harassment in violation of the California Fair Employment & Housing Act. Dov Charney never sexualized, propositioned or made any sexual advances of any nature whatsoever towards Mary Nelson. The marketing materials, sexual speech and much of the conduct about which Nelson complains are protected under the First Amendment’s guarantee of free speech and cannot form the basis for any claim. The remainder of the speech and conduct about which Nelson complains was not directed at her or other women because of their gender and therefore was not actionable.’”

The settlement agreement contemplated that following defendants’ receipt of the arbitrator’s order, and concurrent with receipt from plaintiff of a fully executed request for dismissal with prejudice—no later than February 7, 2008—defendants would deliver the $1.3 million to plaintiff.

Finally, the parties agreed American Apparel, Inc. would be allowed to issue a press release stating an arbitrator had ruled in defendants’ favor. Paragraph 7(e) of the settlement agreement provided: “Following issuance of the Arbitrator’s decision and order, American Apparel may issue the following press release:

‘American Apparel and its CEO Dov Charney announced today that an Arbitrator has ruled in their favor in the highly-publicized action brought by former sales manager Mary Nelson. The Arbitrator ruled that the marketing materials, sexual speech and much of the conduct about which Nelson complained are protected under the First Amendment’s guarantee of free speech and could not form the basis for any claim. The Arbitrator further ruled that Dov Charney never sexualized, propositioned or made any sexual advances of any nature whatsoever towards Mary Nelson, and the remainder of the speech and conduct about which Nelson complained was not directed at her or other women because of their gender, and therefore was not actionable. The decision puts an end to the sexual harassment claims against Charney and the Company. ‘I am pleased that we have been able to bring clarity to the role of the First Amendment in the American workplace,’ Charney stated.”

[1] Defendants, without admitting liability, agreed to compensate plaintiff as follows: “In consideration of the covenants undertaken and releases given herein by Plaintiff, specifically including but not limited to, the Arbitrator’s Award referenced in Paragraph 7 below, the Company shall provide Plaintiff with the following consideration in full and final settlement of any and all matters of any kind or nature which were alleged by, or could have been alleged by, Plaintiff against the Company and/or any of the Releasees identified in Paragraph 4 below: following receipt by the Company of the decision and order of the Arbitrator pursuant to Paragraph 7, below, and concurrent with the receipt by counsel for the Company of a fully executed Request for Dismissal with prejudice, as set forth in Paragraph 3, below (and in no event later than February 7, 2008), the Company will pay the total amount of One Million Three Hundred Thousand Dollars ($1,300,000.00), for alleged emotional distress damages . . . .”

Apparently, $1.3 million can buy you a fair amount of free speech, but it didn't really turn out to be so free.

Next week: we'll be reviewing 24 cases that came down in the last quarter and haven't yet been discussed here.

After the Supreme Court decided Gentry v. Superior Court (Circuit City Stores) (2007) 42 Cal.4th 443, it remanded the case so the trial court could make findings under the new standards it had announcedm for enforcement of arbitration agreement. On remand, Los Angeles County Superior Court judge Harold Cherness wrote a lengthy order denying Circuit City’s renewed motion to compel arbitration. The decision holds that the class action waiver, costs provision, a confidentiality provision, some discovery restrictions and the agreement's 1 year statute of limitations were all substantively unconscionable.

One of the non-legal lawyer blogs we read is called Cranky Greg's View. Yesterday, Cranky Greg had an amusing take on a Wall Street Journal article entitled "Arbitration Works Better Than Lawsuits." It was more colorful than the tone we tend to use, but we didn't disagree with much of it.

Americans generally disapprove of binding arbitration provisions in consumer contracts as an alternative to civil legal proceedings involving a judge or jury, according to a recent national poll by survey firm Peter D. Hart Research Associates Inc. According to the polling, when consumers learn that the company picks the arbitrator, and they give up their right to take the case to court and binding arbitration applies even if they are seriously injured, 81 percent disapprove.

The poll also shows broad support for Congressional legislation called the “Arbitration Fairness Act” that seeks to protect Americans from abusive arbitration agreements.  The legislation would ensure that the decision to arbitrate be made voluntarily and after a dispute has arisen.  In addition, the legislation enjoys very strong support across party lines with no statistically significant differences between Democrats (+38) and Republicans (+37). For more information on the poll results, contact Amaya Smith at [email protected] or 202-965-3500 x740.

Back in April, we mentioned two arbitration cases awaiting review by the U.S. Supreme Court. We were unaware, at the time, that one of the two cases had already been rejected. In IBEW, Local Union No. 21 v. Illinois Bell (7th Cir. 2007) 491 F.3d 685, the petititioners sought to reverse an opinion upholding an order to compel arbitration of a dispute over new employee performance evaluation guidelines. On March 17, 2008, the writ of certiorari was denied in Illinois Bell Tel. Co. v. IBEW, Local 21 (U.S. 2008) 128 S.Ct. 1696, 170 L.Ed. 2d 353, 2008 U.S. LEXIS 2405, 76 U.S.L.W. 3497, 183 L.R.R.M. (BNA) 2992.

On May 27, the Supreme Court also denied certiorari in T-Mobile USA, Inc. v. Laster (9th Cir. 2007) 252 Fed.Appx. 777 (2007 U.S. App. LEXIS 25265, 2007 WL 3194117), (S.Ct. No. 07-976, 2008 U.S. LEXIS 4492, 76 U.S.L.W. 3628) an unpublished Ninth Circuit decision. The question presented was:

Whether, under the Federal Arbitration Act, a federal court may refuse to enforce the terms of an agreement to arbitrate based upon a state-law policy that individual arbitration is unconscionable in cases involving small claims by a consumer.

The court had previously denied a similar petition for writ of certiorari taken from the California Supreme Court's decision in Circuit City Stores, Inc. v. Gentry (2007) 42 Cal.4th 443, decided by the California Supreme Court.

Even though existing precedent held that a refusal to sign an arbitration agreement was not a protected activity that could support a claim of retaliation, the Eleventh Circuit has published an opinion holding that an employee’s refusal to sign an agreement that applied to a pending charge of discrimination can support such a charge.

In Goldsmith v. Bagby Elevator Company (11th. Cir. 2008) 513 F.3d 1261, the plaintiff was willing to execute an amended dispute resolution agreement that would not have applied to his pending charge against the employer, but Bagby Elevator insisted that he sign an agreement that applied to the pending charge as well as future disputes, and fired him immediately after he refused to do so. The 11th Circuit held that Bagby Elevator was not entitled to a judgment as a matter of law against Goldsmith’s claim of retaliation because there was sufficient evidence of a causal relation between the filing of his pending charge and later termination. The case isn't very old, but has already been followed or cited seven times.

We've seen employers try that trick twice during pending wage and hour class actions. So far, no problem.

The Fourth District Court of Appeal has invalidated the arbitration agreement used by Ralphs Grocery Co. in California. In Metters v. Ralphs Grocery Co. (2008) __ Cal.App.4th __ (originally issued as an unpublished opinion, and but ordered published in April), the trial court found evidence that the employee had not been aware that he was agreeing to mandatory arbitration, and thus could not be bound by a "dispute form" used by Ralphs Grocery for its dispute resolution process.

The company's policy provides an agreement to arbitrate as part of the request for dispute resolution. The form is entitled "Notice of Dispute and Request for Resolution Form." Among other things, the court noted, the form does not resemble a contract, and its title does not alert employees to the nature of the document; it does not clearly warn employees to pay special attention to the arbitration provisions; no one tells employees they are signing an arbitration agreement. For these and other reasons, the trial court found no meeting of the minds, and therefore no contract to arbitration.

The court was not persuaded by language in the form which clearly stated that employees were not required to sign do so in order for their complaints to be investigated. "A transactional attorney sitting in an office somewhere…[could] figure out what it meant," but it wasn't likely that an employee would.

The court observed, “It could be that a transactional attorney sitting in an office somewhere could have this form, start kind of pulling on the string and follow it back somehow and maybe figure out what it meant, if that is possible. . . . [¶] . . . [¶] [I]t does appear to be an attempt to sort of backdoor . . . this employee through this kind of ambiguous, nebulous form and say, well, if you want your . . . complaint investigated, just sign this and life will be good. [¶] I don’t think I can find there is . . . in the real world a meeting of the minds between Mr. Metters and Ralphs based on this.”

Thus,

The record contains substantial evidence to support the trial court’s finding that there was no valid agreement to arbitrate Metters’ discrimination claim. The order denying the motion to compel arbitration is affirmed.

You can download the full opinion of Metters v. Ralphs Grocery Co. here in pdf or word format.

Code of Civil Procedure § 1281.2 requires a party moving to compel arbitration to allege the existence of a written agreement to arbitrate. Must a trial court deny a petition to compel arbitration where the moving party fails to allege the existence of a written agreement containing an arbitration clause? Of course. Brodke v. Alphatec Spine, Inc. (2008) __ Cal.App.4th __.

The gist of the case: it's not enough to merely point out that the plaintiffs allege such an agreement exists.

the evidence offered by defendants to prove the existence of a written agreement to arbitrate consisted solely of counsel's declaration attaching a copy of plaintiffs' complaint, which in turn attached a copy of the Brodke agreement. In short, defendants did not allege, or attempt to prove, that defendants contended an agreement to arbitrate existed - only that plaintiffs alleged the existence of an agreement.

If you want to read the whole thing, you can get a pdf or word version of the opinion from the court's website.

Several emails have asked what we meant on Wednesday by "other cases" with arbitration issues pending. We were talking about two, in particular:

1. In T-Mobile v. Laster (9th Cir. 2007) 252 Fed.Appx. 777 (2007 U.S. App. LEXIS 25265, 2007 WL 3194117), (S.Ct. No. 07-976), the issue presented is whether, under the FAA, a federal court may refuse to enforce the terms of an agreement to arbitrate based upon a state-law policy that individual arbitration is unconscionable in cases involving small claims by a consumer.

2. In IBEW, Local Union No. 21 v. Illinois Bell (7th Cir. 2007) 491 F.3d 685, the petititioners seek to reverse an opinion upholding an order to compel arbitration of a dispute over new employee performance evaluation guidelines.

If you want to follow the SCOTUS without waiting for the information to turn up in blogs or the Daily Journal, you can access the Court's orders here.

The US Supreme Court has denied certiorari in Circuit City Stores, Inc. v. Gentry, No. 07-998 (U.S. Mar. 31, 2008, cert. denied) on a petition filed to review the California Supreme Court's ruling in Gentry v. Superior Court (Circuit City Stores) (2007) 42 Cal.4th 443. We previously discussed the case is several posts, including this post regarding the argument and this post regarding the opinion:

In a 4-3 decision, the Supreme Court has reversed an appellate decision upholding a ban on class actions in wage and hour arbitrations, holding that, in certain cases, class action waivers/bans are unenforceable, even if the arbitration agreement itself was not procedurally unconscionable as a whole. The key part of the holding in Gentry v. Superior Court provided that:

[C]lass arbitration waivers should not be enforced if a trial court determines, based on [certain] factors ... that class arbitration would be a significantly more effective way of vindicating the rights of affected employees than individual arbitration. We therefore reverse the judgment of the Court of Appeal upholding the class arbitration waiver and remand for the above determination.

The questions presented by the petition were:

1.  Whether the Federal Arbitration Act permits a court to refuse to enforce an agreement calling for individual arbitration based on state labor law policies that do not apply generally to "any contract." 9 U.S.C. § 2.

2.   Whether the Federal Arbitration Act permits a state court to refuse to enforce an agreement to arbitrate based upon an unconscionability analysis "that takes its meaning precisely from the fact that a contract to arbitrate is at issue." Perry v. Thomas, 482 U.S. 483, 492 n.9 (1987).

For employers, this certainly looked like the best chance they had to get the SCOTUS to come to their rescue on this issue, using the Federal Arbitration Act. The court is currently packed with as pro-business and pro-arbitration a panel as we've seen in many decades, there were amicus briefs filed by the Chamber of Commerce of the United States, Ace American Insurance Company, et al., and the Pacific Legal Foundation. Circuit City was represented by veteran Supreme Court advocate Carter G. Phillips.

Gentry v. Superior Court looks like it will be the controlling law in California for the foreseeable future. The other arbitration-related petitions pending in the U.S. Supreme Court are procedurally and substantively distinguishable.