Class Action Defense Blog

In an Unpublished Opinion, California Appellate Court Holds that Trial Court did not Abuse Discretion in Denying Petition to Compel Arbitration of Labor Law Class Action on Ground that Defense Attorneys Failed to Prove that Plaintiffs Signed Arbitration Agreement

Plaintiffs filed a class action lawsuit against their employer, BLH Construction alleging labor law wage and hour claims. Aguilar v. BLH Construction Co., 2007 WL 4418105, *1 (Cal.App. December 19, 2007). Defense attorneys moved to compel arbitration, but the court opinion is silent on the arbitration clause purported to bar class actions or whether the defense sought to enforce a class action arbitration waiver. Id. The trial court denied the motion, finding that plaintiffs had not signed the arbitration agreement, id. The defense appealed, arguing that the trial court abused its discretion “by not continuing the hearing to permit oral testimony and cross-examination of witnesses on the issue.” Id. The Court of Appeal affirmed.

BLH hired plaintiffs as construction workers in February 2005 and, on the day they were hired, provided each plaintiff with an employee handbook, a form entitled “Receipt of Handbook and Acknowledgement of At-Will Employment,” and a form entitled “Mutually Binding Arbitration Agreement.” Aguilar, at *1. “Each form had lines for the employee's signature and the date of signing.” Id. As part of the petition to compel arbitration, defense attorneys submitted signed copies of the “Mutually Binding Arbitration Agreement.” Id. Plaintiffs, however, insisted that they had not signed this document and by declaration claimed that their signatures had been forged, id. In response, defense attorneys submitted (1) the declaration of a supervisor stating that he had given plaintiffs the employee documents referenced above and that plaintiffs “signed and dated the two signature pages contained within the Employee Handbook,” (2) the declaration of BLH’s chief operations officer stating that plaintiffs had signed the mutually binding arbitration agreement, and (3) the declaration of BLH’s counsel stating that the signed documents had been obtained from the BLH custodian of records, “and that it was BLH's custom and practice to have each employee sign the arbitration agreement.” Id.

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Posted In: Arbitration, Employment Law Class Actions, Class Action Court Decisions

Class Action Waiver Unconscionable Under Washington State Law and Federal Arbitration Act (FAA) so District Court Properly Denied Defense Motion to Dismiss Class Action Complaint and Order Individual Claims to Arbitration Ninth Circuit Holds

Plaintiffs filed a class action in Washington state court against their cellular telephone service provider, T-Mobile, “alleging that the service provider had improperly charged them for certain fees beyond the advertised price of service, charged them for calls during a billing period other than that in which the calls were made, and charged them for roaming and other services that should have been free.” Lowden v. T-Mobile USA, Inc., 512 F. 3d 1213, 1215 (9th Cir. 2008). The service agreements underlying the class action plaintiffs’ claims contained mandatory arbitration provisions that barred class action litigation, id. Defense attorneys removed the class action to federal court, and then moved the federal court to compel arbitration of the claims on an individual rather than class action basis. Id., at 1214. The district court denied the motion, concluding that the arbitration clauses were unenforceable because the class action waivers and the limitation on punitive damages rendered them substantively unconscionable, id., at 1217. Defense attorneys appealed and the Ninth Circuit affirmed.

The service agreements signed by the class action plaintiffs stated, directly above the signature line, that any disputes would be submitted to mandatory arbitration. Lowden, at 1215-16. The specific language in the two service agreements underlying the class action complaint differed slightly, but the differences did not impact the district court’s decision: each arbitration clause precluded class action litigation. Id. In ruling on T-Mobile’s motion to compel arbitration, the district court concluded that the arbitration provisions were not procedurally unconscionable, but “held that the prohibition on class relief and the limitation on punitive damages, found in both agreements, were each substantively unconscionable.” id., at 1217. The Ninth Circuit defined the issues on appeal as whether T-Mobile’s arbitration provisions “are enforceable under Washington state law and, if not, whether the state law is preempted by the Federal Arbitration Act (‘FAA’), 9 U.S.C. §§ 1-16.” Lowden, at 1214. It concluded that, in light of the Washington State’s Supreme Court opinion in Scott v. Cingular Wireless, 161 P.3d 1000 (Wash. 2007), “T-Mobile's arbitration provision is substantively unconscionable and unenforceable under Washington state law,” and that the FAA did not preempt Washington state law. Lowden, at 1214-15.

Continue reading "Arbitration Class Action Defense Cases-Lowden v. T-Mobile: Ninth Circuit Affirms District Court Denial Of Defense Motion To Compel Arbitration Of Class Action Finding Class Action Waiver In Arbitration Agreements Unconscionable And Unenforceable" »

Posted In: Arbitration, Class Action Court Decisions

Based on the Specific Facts Presented by this Class Action Case, the District Court Properly Compelled Arbitration of Plaintiffs’ Fair Labor Standards Act and State Law Equivalent Class Action Claims but Properly Found that the Class Action Waiver Clauses in the Employer’s Dispute Resolution Program were Unconscionable First Circuit Holds

Plaintiffs filed a class action lawsuit against their former employer, Dynamics Research, alleging violations of the federal Fair Labor Standards Act (FLSA) and the Massachusetts Minimum Fair Wage Law. Skirchak v. Dynamics Research Corp., ___ F. 3d ___, 2007 WL 4098823, *1 (1st Cir. November 19, 2007). The class action complaint followed a complaint by Skirchak with the U.S. Department of Labor that resulted in an agreement by the company to pay back $75,000 to employees and to change its practices, id. Plaintiffs’ class action alleged that Dynamics misclassified employees as exempt in order to avoid paying them overtime and improperly made partial-day deductions from employee paid leave balances, and sought damages beyond those recovered by the DOL. Id. Defense attorneys moved to dismiss the complaint and compel arbitration pursuant to the terms of a Dispute Resolution Program that required arbitration of all disputes and prohibited class action claims. Id., at *2. The district court granted the defense motion to compel arbitration, but held that class-wide relief could be pursued therein because the class action waiver was unconscionable under Massachusetts state law, id. Our prior article discussing the district court opinion may be found here. Both sides appealed: the defense challenged the striking of the class action waiver; plaintiffs challenged the order compelling arbitration. Id. Plaintiffs subsequently agreed to arbitration but insisted on the right to pursue a class action because the class action waiver was unenforceable, id. The First Circuit affirmed.

Preliminarily, it bears noting that the First Circuit “[did] not reach the argument that waivers of class actions themselves violate either the FLSA or public policy.” Skirchak, at *1. Further, whether plaintiffs will succeed in obtaining class action certification was left to the arbitrator, id. The Circuit Court addressed only (1) whether the arbitration clause was enforceable, and (2) whether the class action waiver was enforceable. The First Circuit began by summarizing the Dispute Resolution Program and the notice provided to employees of its terms. See id., at *2-*3. In pertinent part, the Circuit Court observed that if an employee “read only the e-mail, the descriptive memorandum and the fifteen-page Program description” concerning the Program, she “would not know of the class action waiver.” Id., at *3. The class action waiver clauses were contained only in the Appendices to the Program, id., but even if an employee found the class action waiver provisions he “would likely still be confused” because of apparent inconsistencies in the documentation, id., at *4. Finally, the First Circuit noted that the adopted and implemented by e-mail notification to employees sent shortly before a holiday that deemed employees to have consented to the class action waivers if they returned to work following the holiday. Id., at *5.

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Posted In: Arbitration, Employment Law Class Actions, Class Action Court Decisions

First Circuit Leaves Validity of Class Action Waiver in Arbitration Clause to Arbitrator, Holds Bar on Multiple Damages Invalid and Severs from Arbitration Agreement, Holds Bar on Recovery of Attorney Fees Invalid and Severs from Agreement, and Invalidates One-Year Limitations Period on Claims Against Comcast and Severs from Agreement

Plaintiff filed a putative class action lawsuit in Massachusetts state court against his telecommunications provider, Comcast, for violations of the state’s unfair business practices statute and other tort claims based on the allegation that it charged customers a monthly to lease a cable converter box and remote control for television service even if the customer already owned a cable-ready television. Anderson v. Comcast Corp., 500 F.3d 66, 68(1st Cir. 2007). Defense attorneys removed the class action to federal court based on diversity jurisdiction, and then moved to compel arbitration under an arbitration clause the prohibited class actions as well as “multiple or punitive damages,” id., at 69. Among the arbitration provisions central to the appeal were the following: (1) a class action waiver provision, (2) a requirement that any claims against Comcast be brought within one year, (3) a requirement that consumers pay their own costs of arbitration, including attorney's fees, (4) a bar on any award in arbitration of multiple or punitive damages, and (5) a severance clause. Id. The district court agreed with defense attorneys that plaintiff must arbitrate his claims but held that he could pursue a class action in arbitration, and while the district court granted the motion to compel arbitration and dismissed the class action complaint, id., at 69-70, it severed several other portions of the arbitration agreement, such as the requirement that each side bear its own costs - including attorney and expert fees, id., at 69 n.5. The First Circuit largely upheld the district court’s order, holding in part that the validity of the class action waiver provision must be addressed first by the arbitrator.

Plaintiff’s class action complaint alleged that Comcast violated the Massachusetts Consumer Protection Act and various common law torts. Anderson, at 68. The class action also sought treble damages, punitive damages and attorney fees, id., at 69. Defense attorneys moved to compel arbitration under provisions of its standard agreement with subscribers entitled, "Notice to Customers Regarding Policies, Complaint Procedures & Dispute Resolution." Id., at 68 n.1. The district court applied the First Circuit’s recent decision in Kristian v. Comcast, Corp., 446 F.3d 25 (1st Cir. 2006) - summarized<a href="http://classactiondefense.jmbm.com/2006/06/class_action_defense_cases_kri.html">here</a> - and granted the motion to compel, but “only after severing provisions in the arbitration agreement prohibiting attorney's fees, double or treble damages and a class action remedy in the arbitral forum.” Anderson, at 68. The district court also ruled that "the arbitrator will have the power to determine the validity and applicability of the agreement's one-year statute of limitations." Id. Both plaintiff and defense appealed the district court’s ruling.

The First Circuit began its analysis by observing that it considered the appeal “against the backdrop of a strong pro-arbitration policy expressed by Congress and repeatedly upheld by the courts.” Anderson, at 70. With respect to the class action bar, the Circuit Court held that there was no conflict between Massachusetts state law and the class action waiver provision, id., at 71. The First Circuit distinguished its holding in Kristian, which invalidated a Comcast class action wavier in an arbitration clause, because it found a conflict between such a waiver and the “nature and purposes of antitrust law”; here, by contrast, the class action bar, by its terms, applies “unless your state's laws provide otherwise,” and the consumer law statute in question expressly permits class action lawsuits be filed to enforce it. Id., at 72. The Court did not hold that the exception to class action litigation applied, however, concluding that the question of arbitrability must be addressed first by the arbitrator, id.

Continue reading "Comcast Class Action Defense Cases-Anderson v. Comcast: First Circuit Upholds Comcast Arbitration Clause But Severs Class Action Waiver and Holds Severability of Class Action Waiver Saves Arbitration Agreement from Unconscionability Claim" »

Posted In: Arbitration, Class Action Court Decisions

Class Action Waiver in Arbitration Provision Substantively Unconscionable “to the Extent it Prohibits the Subscribers from Bringing a Class Action Alleging State Law Claims” and Entire Arbitration Clause Fails Because Class Action Waiver “Cannot be Severed from the Agreement” Eleventh Circuit Holds

Plaintiffs filed a class action against their cable television service provider, Comcast, in Georgia state court alleging that it improperly passed through to customers franchise fees based on estimated revenue instead of the actual franchise fees paid local governments as allowed by the Cable Communications Policy Act of 1984, and that these estimates resulted in overcharges to subscribers. Dale v. Comcast Corp., 498 F.3d 1216, 1217-18 (11th Cir. 2007). Defense attorneys removed the class action to federal court, and then moved to compel arbitration and dismiss the class action complaint based on the mandatory arbitration clause (that included a class action waiver) contained in the subscriber agreements, id., at 1218. The “Mandatory & Binding Arbitration” provision permits either party to elect arbitration and “contains a class action waiver clause prohibiting subscribers from bringing claims on a class action or consolidated basis,” expressly providing that “[a]ll parties to the arbitration must be individually named” and that the parties shall have “no right or authority for any claims to be arbitrated or litigated on a class-action or consolidated basis.” Id. Plaintiffs’ lawyer argued that the class action waiver was unconscionable; the district court disagreed and granted the defense motion to compel arbitration and dismiss the class action complaint. Id. The Eleventh Circuit reversed.

It is well established that the enforceability of an arbitration clause is determined based on state law. Dale, at 1219 n.2. This is true because the Federal Arbitration Act (FAA) requires that federal court look to state law governing contracts generally (not arbitration agreements specifically) to determine the validity and enforceability of an arbitration agreement, id., at 1219 (citation omitted). Accordingly, the issue on appeal was “whether the Arbitration Provision’s class action waiver is unconscionable under Georgia law and thus unenforceable as a matter of law.” Id. Georgia law recognizes both procedural and substantive unconscionability, and the Circuit Court focused on substantive unconscionability of the class action waiver. Id.

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Posted In: Arbitration, Class Action Court Decisions

Class Action Waiver Unconscionable and Contractual Provision Requiring Arbitrator to Determine Enforceability of Class Action Waiver and Arbitration Provision also Unconscionable California Court Holds

Plaintiff filed a class action lawsuit against his employer, a payday lending company, for violations of state labor laws alleging “failure to pay…overtime…, accurate itemized wage statements, adequate meal and rest periods, and wages upon termination.” Murphy v. Check ‘N Go of Cal., Inc., ___ Cal.App.4th ___, 67 Cal.Rptr.3d 120, 2007 WL 3016414, *1 (Cal.App. 2007). Defense attorneys moved to compel arbitration and dismiss the class action complaint on the grounds that plaintiff had signed a “Dispute Resolution Agreement” that included an arbitration provision and a class action waiver, id. The trial court refused to compel arbitration, concluding that the class action waiver rendered the arbitration agreement unconscionable, id. Defense attorneys appealed, contending that the class action waiver is not unconscionable and that whether the class action waiver was unconscionable should be decided by the arbitrator, not by the trial court. Id. The Court of Appeal rejected the defense arguments and affirmed the trial court order.

Plaintiff spent 7 years as a “salaried retail manager” for defendant; her class action complaint alleged that defendant misclassified salaried retail managers as exempt employees and thus failed to pay overtime, failed to provide accurate wage statements, failed to provide required meal and rest periods, and failed to provide wages due on termination. Murphy, at *1. The class action complaint alleged that every employee had to sign the arbitration agreement, which covered “all claims arising from or relating to plaintiff’s employment,” including any claim that the arbitration agreement was “substantively or procedurally unconscionable.” Id. As noted above, the arbitration agreement contained a class action waiver, requiring that any dispute be maintained as an individual action only, id. Defense attorneys moved to dismiss the class action complaint and compel arbitration, arguing in part that the agreement expressly vests in the arbitrator the power to decide whether the class action waiver is unconscionable. Id., at *2. The Court of Appeal summarized the trial court’s order at page *2 as follows: “the court determined that : (1) it had the power to rule on the unconscionability issues; (2) the parties’ agreement…was a contract of adhesion; (3) the agreement’s class action waiver was substantively unconscionable under Discover Bank v. Superior Court (2005) 36 Cal.4th 148…; (4) the agreement’s provisions for arbitration of unconscionability issues and pre-existing claims were also substantively unconscionable; and (5) the unconscionability terms would not be severed from the agreement.”

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Posted In: Arbitration, Employment Law Class Actions, Class Action Court Decisions

Inherent Powers of Trial Court Include Power to Reconsider Interim Rulings Long After the Statutory Time Period for Motions for Reconsideration has Lapsed California Appellate Court Holds

Plaintiffs filed a putative class action against their employer, First Union Securities, and its successor, Wachovia Securities for alleged violations of state labor laws. Clark v. First Union Securities, Inc., ___ Cal.App.4th ___, 64 Cal.Rptr.3d 313, 315 (Cal.App. 2007). Defense attorneys moved to compel arbitration before the National Association of Securities Dealers (NASD) and to stay proceedings on the class action claims for injunctive or declaratory relief, which are not subject to arbitration, see Broughton v. Cigna Healthplans, 21 Cal.4th 1066, 1079-80 (Cal. 1999); the trial court granted the motion. Id. , at 314. After the arbitrators ruled that the class action claims were “not eligible for arbitration,” the trial court sua sponte reconsidered its ruling on the defense motion and ruled that the class action would proceed in state court. Id., at 314-15. Defense attorneys appealed, and the California court of appeal affirmed. The appellate court held that the trial court had the inherent authority to reconsider its ruling referring class action claims to arbitration, that the employment contract did not preclude state court jurisdiction over the putative class action complaint, and that the dismissal of the class action claims by the arbitrators did not constitute a class action waiver.

Plaintiff Clark was hired by First Union as an investment consultant candidate, which required that he hold a license from the NASD and to execute the SEC-approved Uniform Application for Securities Industry Registration or Transfer Form U-4 (Form U-4), which contains an arbitration clause that states "I agree to arbitrate any dispute, claim or controversy that may arise between me and my firm, or a customer, or any other person, that is required to be arbitrated under the rules, constitutions, or by-laws of the [NASD] as may be amended from time to time and that any arbitration award rendered against me may be entered as a judgment in any court of competent jurisdiction." Clark, at 315. Plaintiff executed the form in October 1998 and began working for First Union in November 1998, id. The SEC promulgated several rules directly implicated by this case, including Rule 10301(d) which addresses investor class action lawsuits filed under FRCP Rule 23. Id., at 316. As the Court of Appeal noted at page 316, “The SEC issued a public notice in connection with the approval of Rule 10301(d). In this 1992 approval order, the SEC gave notice that under the new provision class actions were excluded from arbitration.”

The class action complaint alleged numerous labor law violations based on an array of alleged misconduct ranging “from misrepresentations regarding the sale of securities, to the failure to pay wages and to reimburse for business expenses.” Clark, at 317-18. Defense attorneys moved to compel arbitration of each cause of action in the class action complaint except the claims seeking injunctive and declaratory relief; the defense argued that “because all allegations arose out of Clark's employment or termination of employment, they must be resolved in arbitration pursuant to the arbitration provision in the Form U-4 and the NASD Code.” Id., at 318. The appellate court noted that defense attorneys did not cite Rule 10301(d) in support of the motion, id. Plaintiff countered that the NASD arbitration procedures were unconscionable - an issue the Court of Appeal found unnecessary to address - and that because the class action claim for unfair practices was asserted on behalf of all Wachovia employees it was not subject to arbitration. Id. Plaintiff’s lawyer argued, "The only forum for the unfair practice claims is a civil lawsuit. The NASD arbitration rules do not even permit putative or class claims to be arbitrated." Id.

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Posted In: Arbitration, Employment Law Class Actions, Class Action Court Decisions

Absence of Ability to Recover Attorney Fees Rendered Class Action Waiver and Arbitration Clause Unconscionable Because it would Effectively Insulate Company from Liability for Small-Value Claims Eleventh Circuit Holds

Plaintiffs filed a class action lawsuit in Georgia federal court against their cable television provider, Comcast, alleging violations of the federal Cable Communications Policy Act of 1984 (Cable Act), 47 U.S.C. § 521 et seq., by miscalculating the “pass-through” franchise fees charged customers. Dale v. Comcast Corp., 498 F.3d 1216, 2007 WL 2471222, *1 (11th Cir. 2007). Defense attorneys moved to dismiss the class the action and compel arbitration based on the arbitration clause contained in the subscriber agreements; the district court granted the motion and dismissed the class action. Id. The Eleventh Circuit reversed, concluding the arbitration agreement and class action waiver provision to be unenforceable.

Defense attorneys argued that the class action had to be dismissed because in 2004, either in the “welcome kit” given new subscribers or with the December invoice of existing subscribers, each customer received a “Policies and Procedures” notice that contained a mandatory arbitration clause. Dale, at *1. The arbitration clause contained a class action waiver provision, id., and “Comcast argued the subscribers accepted the Arbitration Provision, including the class action waiver, by their continued subscription to Comcast’s services after receiving the notices,” id., at *2. Plaintiffs argued that the damages suffered by the class in this case were $0.66 every three months, or a total of $10.56 over the four-year class period, and so the class action waiver was substantively unconscionable because “if Comcast’s class action waiver is held valid, they will effectively be denied any remedy.” Id., at *3. Plaintiffs also challenged the arbitration fee structure imposed under the subscriber agreement, which placed on subscribers the financial burden of attorney fees and all costs incurred in the arbitration other than the filing fee and arbitrator’s costs. Id. The district court rejected plaintiffs’ argument that the class action waiver was unconscionable, dismissed the class action, and compelled arbitration of the dispute. Id., at *2.

Continue reading "Arbitration Class Action Defense Cases-Dale v. Comcast: Eleventh Circuit Distinguishes Prior Cases Upholding Class Action Waivers And Holds Class Action Waiver And Arbitration Clause Unconscionable" »

Posted In: Arbitration, Class Action Court Decisions

Class Action Waiver Rendered Arbitration Clause Unconscionable “Notwithstanding the Availability of Market Alternatives” and Federal Arbitration Act (FAA) does not Preempt California State Court Holding that Class Action Waivers are Unconscionable under California Law

Plaintiffs filed a putative class action in California state court against T-Mobile alleging violations of the state’s unfair business practices statute arising out of the early termination fees charged cellular telephone service customers and the sale of “locked” cellular phones that customers cannot use if they switch to another carrier. Gatton v. T-Mobile USA, Inc., 152 Cal.App.4th 571, 61 Cal.Rptr.3d 344, 346 (Cal.App. 2007). The trial court denied a defense motion to compel arbitration pursuant to the service agreement’s arbitration clause, which included a class action waiver, id., at 346-47. The California Court of Appeal affirmed, holding that “the class action waiver rendered the arbitration provision unenforceable” and that the Federal Arbitration Act (FAA) did not “preempt[] any rule that class action waivers are unconscionable under California law.” Id., at 347. The appellate court therefore affirmed the trial court order, which permitted plaintiffs to prosecute the putative class action in state court. The appellate court’s discussion of the FAA’s impact on class action waivers is contained in a portion of the court’s opinion that, pursuant to California Rules of Court, is not published and therefore many not cited; accordingly, we summarize here only that part of the opinion holding that the class action waiver rendered the arbitration clause unenforceable.

Plaintiffs signed cellular telephone service agreements with T-Mobile, acknowledging that they had “received and reviewed the T-Mobile Terms and Conditions” and that “ All disputes are subject to mandatory arbitration in accordance with paragraph 3 of the Terms and Conditions." Gatton, at 347. The introductory paragraph of the Terms and Conditions advised people to “carefully read these Terms and Conditions” and to “NOT USE THIS SERVICE OR YOUR UNIT” if they are unwilling to agree to be bound by the provisions contained therein. Id. Section 3 of the Terms and Conditions, entitled “Mandatory Arbitration; Dispute Resolution,” precluded customers from seeking class action relief, id., and the appellate court summarized at pages 347 and 348 that “The terms and conditions incorporated into each of the plaintiff's agreements included a mandatory arbitration clause including a class action waiver.” The contract required each party to pay for their own attorney fees, and for customers to pay $25 toward the arbitrator’s fee (save for claims of less than $25, in which case T-Mobile would pay for the arbitrator’s fee). Id., at 348, n.3.

With respect to the early termination fees underlying the class action allegations of certain plaintiffs, the class action complaint alleged that customers who terminate service prior to the expiration of the service contract are required to pay approximately $200 per telephone, and that this fee is also charged if T-Mobile cancels the contract for nonpayment or other reasons. Gatton, at 348. According to the class action complaint, the early termination fee is the same “whether the contract has been in effect for several weeks or several months,” and this “flat-fee early termination penalty constitutes an unlawful penalty under Civil Code section 1671, subdivision (d), is unlawful under the unfair competition law [(UCL)] (Bus. & Prof. Code, § 17200 et seq.), and is unconscionable under the Consumers Legal Remedies Act (CLRA) (Civ. Code, § 1750 et seq.).” Id., at 348-49 (footnote omitted). With respect to the class action’s claims concerning handset, the complaint charges that it is unlawful require prevent customers to purchase a new phone if they switch service providers. Id., at 349. The class action alleged that T-Mobile locked the SIM card so that the phone could not be programmed to operate on the service network of a competitor, and that the SIM can be unlocked simply by entering a numerical code, id. The class action complaint alleges that T-Mobile falsely represents that its phones “are not compatible with and will not work with other wireless networks” in violation of the UCL and the CLRA. Id. The complaint further alleges that locking the SIM “makes it impossible or impracticable for subscribers to switch cell phone service providers without purchasing a new handset.” Id.

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Posted In: Arbitration, Class Action Court Decisions