The California Supreme Court’s Iskanian Opinion: Two Steps Forward, One Step Back

jenkinsGuest Commentary

by Kirk C. Jenkins, Sedgwick LLP*

On June 26, 2014, the California Supreme Court issued its long-awaited opinion in Iskanian v. CLS Transportation Los Angeles LLC. The decision was something of a mixed bag for the defense bar: two major steps forward in the California Supreme Court’s class action jurisprudence, but one step back of uncertain significance.

The plaintiff in Iskanian worked as a driver for the defendant in 2004 and 2005. Halfway through his employment, he signed an agreement providing that “any and all claims” arising out of his employment would be submitted to binding arbitration before a neutral arbitrator. The plaintiff agreed not to bring a representative action either in court or before the arbitrator.

A year after leaving his employment, the plaintiff filed a putative class action complaint, alleging failure to pay overtime, provide meal and rest breaks, reimburse business expenses and various other violations of the Labor Code. The defendant moved to compel arbitration and the trial court granted the motion. But while the matter was pending before the Court of Appeal, the California Supreme Court decided Gentry v. Superior Court, holding that most class action waivers were unenforceable in employment cases. The defendant dropped its motion to compel. Continue reading

Supreme Court Observations: BG Group PLC v. Republic of Argentina

supreme courtThe Supreme Court on Wednesday issued a divided opinion in a case that raised an important issue of arbitration law:  should an arbitrator or a judge decide whether an international treaty requires a private party to bring a commercial dispute before a judge prior to attempting arbitration?  In BG Group PLC v. Republic of Argentina, the Court ruled 7-2 against Argentina, concluding that arbitrators acted within their power when they concluded that a British firm was not required to file suit in Argentina’s courts before seeking arbitration.  Chief Justice Roberts, joined by Justice Kennedy, dissented; they argued that in signing the bilateral UK-Argentina investment treaty, Argentina agreed to arbitration only on condition that investors bring their disputes to an Argentine court first.  But there was one point on which the justices agreed unanimously:  Argentina has a sorry history of living up to its contractual commitments to investors.  That point of agreement does not bode well for Argentina, which in two pending Supreme Court cases is asking the Court to permit it to invoke sovereign immunity as the basis for resisting repayment of sovereign debt.

The case involved claims by a British firm, BG Group plc, that Argentina breached a natural gas distribution contract.  Washington, D.C.-based arbitrators awarded BG Group $185 million in damages, and Argentina turned to American courts to overturn the award.  It cited the terms of the UK-Argentina treaty as the basis for its claim that the arbitrators lacked jurisdiction to hear the case.  The treaty provides that an investor asserting a claim under the treaty may not initiate arbitration until 18 months after filing a claim against Argentina in an Argentine court.

The arbitrators held that BG Group should be excused from complying with the 18-month litigation requirement.  They noted that Argentina, after taking steps that essentially expropriated BG Group’s property, adopted a series of laws designed to block any BG Group lawsuit.  They held that these laws, “while not making litigation in Argentina’s courts literally impossible, nonetheless hindered recourse to the domestic judiciary to the point where the Treaty implicitly excused compliance with the local litigation requirement.” Continue reading

Fifth Circuit Overturnes NLRB in D.R. Horton Arbitration Case

maatmanStrumwasser_LilyHRBWGuest Commentary

by Gerald L. Maatman, Jr. and Lily M. Strumwasser, Seyfarth Shaw LLP

Last week the U.S. Court of Appeals for the Fifth Circuit delivered welcome news to employers and practitioners of labor and employment law.  After years of heated debate regarding whether employers are permitted to use bilateral arbitration to resolve employment disputes, the Fifth Circuit answered with a resounding “yes.”  In D.R. Horton, Inc. v. NLRB, No. 12-60031 (5th Cir. Dec. 3, 2013), the Fifth Circuit reversed the National Labor Relations Board’s (“NLRB”) 2012 ruling and held that employers and employees are permitted to resolve disputes through individual rather than class or collective arbitration.

Laying The Groundwork – The NLRB’s Decision

As we wrote about here last year for Washington Legal Foundation, in this case, a former employee of D.R. Horton filed an unfair labor practice charge with the NLRB, alleging that a class action waiver contained in his arbitration agreement with D.R. Horton violates the NLRA.  Based on the employee charge, the NLRB’s General Counsel issued a complaint alleging that D.R Horton’s arbitration agreement violated Section 8(a)(1) of the NLRA by infringing the right of D.R. Horton’s employees to exercise their rights under Section 7 of the NLRA, which provides that employees may “engage in . . . concerted activities for the purpose of collective bargaining or other mutual aid or protection.”

In a two-member majority of the three-member Board, the NLRB held that because the arbitration agreement directly infringes on the substantive Section 7 rights of D.R. Horton’s employees, it necessarily fails.  The Board rejected the suggestion that Section 7 rights are procedural and not substantive.  The Board drew a critical distinction between the process of certifying a class of employees (which it conceded is procedural in nature) and the “collective action inherent in seeking class certification,” which it held is a substantive right under Section 7. Continue reading

A Simplistic Compliment Endures: The Roberts Court As “Pro-Business”

supreme court

Cross-posted at WLF’s Forbes.com contributor page

“The Roberts Court is pro-business.”  The Roberts Court “comes to the defense of business.”

Stories peddling this angle seem to be a compulsory part of reporting at the conclusion of each Supreme Court term. The completion of the October 2012 term is no exception. King & Spalding’s Ashley Parrish took strong exception to this characterization of the Court during Washington Legal Foundation’s annual end-of-the-term briefing this past Tuesday. The entire program can be viewed here.

The “pro-business” bromide is a trite and woefully simplistic byproduct of the need to label things. One could argue that the term implies judicial bias, i.e. deciding cases based on the nature of the litigant rather than on the law. It can also be seen as ideological or political in nature. If, for instance, Justice Ginsberg happened to be the Chief Justice at a time when the Court’s rulings favored free enterprise, would we be seeing stories about how pro-business the “Ginsberg Court” is? Further, has anyone seen the justices who rule against business litigants described as “anti-business”?

As an institution which for 36 years has sought to advance legal principles which support the conduct of free enterprise, Washington Legal Foundation views “pro-business” Court as a compliment. We’re pleased that in the nine cases in which we filed during the October 2012 term, seven resulted in victories for “business” litigants. Our perspectives on the law, on the judiciary’s limited role, and on constitutional protections for business entities are prevailing. But WLF should not be alone in applauding this Court’s rulings against plaintiffs’ lawyers, activist groups, and federal regulators. Businesses employ Americans, Americans invest in businesses, and our free enterprise system gives people of all backgrounds a fighting chance to succeed.

So if a label must be imposed, did the Roberts Court earn its “pro-business” stripes this term? If one looks strictly at the numbers, generally it did.

By our count, in the 28 cases which directly affected free enterprise, free enterprise “won” 21 and “lost” 7. Continue reading

Supreme Court Upholds Contractual Provision Prohibiting Class-Wide Arbitration

supreme courtThe U.S. Supreme Court issue a highly anticipated ruling this morning in American Express v. Italian Colors Restaurant. A five-justice majority ruled that the Federal Arbitration Act anticipates that courts must enforce arbitration contracts according to their terms, and concerns that the cost of individually arbitrating a federal statutory claim exceeds the potential recovery do not invalidate a contract’s class arbitration waiver.

Justice Scalia’s opinion closely tracks the rationale offered by the “majority opinion” in Washington Legal Foundation’s February 27 On The Merits publication. Mary-Christine Sungaila of the law firm Snell & Wilmer L.L.P. authored the prevailing opinion for WLF’s publication; Public Citizen litigation attorney Scott Nelson penned the dissent.

Arbitration Round Up: Some Courts Still Won’t Respect Voluntary Contracts

Cross-posted at WLF’s Forbes.com contributor site

Despite the Supreme Court’s recent affirmation that arbitration agreements must be enforced by their terms (AT&T Mobility v. Concepcion), some courts continue to go to great lengths to avoid them.  Take for instance the California Court of Appeal that recently held an arbitration agreement unenforceable because it wasn’t signed, despite that the employee was herself tasked with obtaining signed arbitration agreements from the other employees, she represented to the company that she had signed it, and the company had required she sign it as a condition of her employment.

Of course, the National Labor Relations Board (NLRB) made it easier for judges to flout the Supreme Court’s decision in Concepcion when it ruled in D. R. Horton Inc. that to include a mandatory class arbitration waiver in an employment agreement is to commit an unfair labor practice, as it violates the employees’ right to engage in “concerted activities for the purpose of collective bargaining or other mutual aid or protection..”.  Continue reading

1st Circuit Holds No Right to Remain Silent When it Comes to Arbitration Agreements

Cross-posted at WLF’s Forbes.com contributor site

In raising the bar for what’s required to avoid class action arbitration, the U.S. Court of Appeals for the First Circuit may not only have run afoul of the Supreme Court’s ruling in Stolt-Nielsen, but effectively limited the possibility that the case will apply in the future.  In Fantastic Sams Franchise Corp. v. FSRO Association Ltd., the court held that silence in an arbitration agreement as to whether class wide arbitration is permissible does not bar the imposition of class arbitration.  Following Stolt-Nielsen v. AnimalFeeds International Corp.in which the Supreme Court had ruled that class arbitration could not be imposed on parties “who have not agreed to authorize class arbitration”–it was believed by some that class arbitration could only result if the agreement explicitly authorized it.  The First Circuit, however, factually distinguished Stolt-Nielsen, and in doing so limited its holding to the circumstances in that case.

In Fantastic Sams, plaintiff FSRO–an association of Fantastic Sams franchisees–brought suit against Fantastic Sams for alleged license agreement violations.  Because the license agreements of 25 of those franchisees explicitly provided for individual arbitration, the district court held that those parties could not move forward on a class-wide basis.  With respect to the remaining ten franchisees, whose license agreements were silent on the subject, Fantastic Sams argued that–pursuant to Stolt-Nielsen–collective arbitration similarly could not proceed.

The court, however, distinguished Stolt-Nielsen based on the fact that, in that case, not only was the contract silent as to class, but further both parties stipulated that they had reached no agreement as to the matter.  The determinative fact was not the contract’s silence, but rather that both parties agreed that they had not agreed as to class arbitration.  Thus, while in Stolt-Nielsen there was “no room for an inquiry regarding the parties’ intent,” in Fantastic Sams the agreements were merely silent, and the parties’ intent as to class arbitration was unclear. (After Fantastic Sams, one will be hard pressed to find a plaintiff willing to make the same stipulation.)  Subsequently it was for the arbitrator to determine if class arbitration was contemplated–as a matter of contract interpretation.  Continue reading

California Appeals Court Decision Upholds Class Action Arbitration Waiver

Guest Commentary

Katie Owens, a 2012 Judge K.K. Legett Fellow at the Washington Legal Foundation and a student at Texas Tech School of Law.

On June 4, 2012, the California Court of Appeal for the Second District issued a decision of great interest to businesses, upholding the use of class action waivers in employment arbitration agreements.

In Iskanian v. CLS Transportation Los Angeles, LLC the plaintiff, Arshavir Iskanian, was a driver for defendant CLS from March 2004 to August 2005. As part of his employment, Iskanian signed a “Proprietary Information and Arbitration Policy/Agreement,” an arbitration agreement providing that “any and all claims” arising from his employment be submitted to binding arbitration before a neutral arbitrator. In August 2006, Iskanian filed a class action complaint against CLS alleging several causes of action under California’s Labor Code and Unfair Competition Law, including failure to pay overtime, provide meal and rest breaks, and reimburse business expenses. CLS filed a motion to compel arbitration under the agreement signed by Iskanian, but then later withdrew it. The parties then proceeded to litigate the case.

Applying the California Supreme Court’s standard from Gentry v. Superior Court, where under certain circumstances a class waiver “would impermissibly interfere with employees’ ability to vindicate unwaivable rights and to enforce the overtime laws,” the trial court granted Iskanian’s motion to certify the case as a class action. Continue reading

Will Anti-Consumer Movement to Eliminate Arbitration Succeed?

Bloomberg Businessweek published an article yesterday with the hopeful title, Consumers May See New Limits on Mandatory Arbitration. The article parroted and quoted the perspectives of activists and former government regulators like Elizabeth Warren and Public Citizen’s Deepak Gupta that arbitration is deeply unfair to consumers and deprives them of their day in court.

For another view on how arbitration clause challenges have fared in court in federal agencies, we encourage you to view Washington Legal Foundation’s Web Seminar program, Arbitration after AT&T Mobility v. Concepcion: Judicial, Regulatory, and Strategic Legal Responses to High Court’s 2011 Ruling. Mayer Brown LLP partners Andy Pincus and Evan Tager, who argued on behalf of AT&T Mobility in the case in the Supreme Court and in the Ninth Circuit, respectively, were our speakers.

This hour-long program requires free registration, and the video and audio broadcast must be viewed using Internet Explorer.

Three Federal Courts Ignore NLRB’s Controversial Ruling On Arbitration

Millions of parties enter into arbitration agreements each year, and those parties expect courts to honor those agreements.  Congress enacted the Federal Arbitration Act (FAA) to protect this very freedom of contract.  And the Supreme Court has consistently reaffirmed that arbitration is a matter of consent, and that private agreements to arbitrate should be enforced according to their terms.

Plaintiffs’ attorneys, on the other hand, hate arbitration agreements because they deprive them of having contingency fee clients.  Resolution under mandatory arbitration is often swifter than trials, and plaintiffs’ attorneys often get little or no money out of them.

The National Labor Relations Board (NLRB) recently ruled against home builder D.R. Horton, holding that a class action waiver was unenforceable under the National Labor Relations Act (NLRA).  At issue was D.R. Horton’s mutual arbitration agreement and class action waiver that the company entered into with its employees.  The NLRB held that an agreement proscribing class and representative actions violates the NLRA, which gives employees the right to engage in “concerted activities for the purpose of collective bargaining or other mutual aid or protection.”

Continue reading