Posts belonging to Category Caselaw Developments

Last week, a twelve-member Ninth Circuit en banc panel issued a new decision in the battle over arbitration and the U.S. Supreme Court’s holding in AT&T Mobility v. Concepcion. See Kilgore v. KeyBank Nat’l Assn., No. 10-15934 (9th Cir. Apr. 11, 2013) (slip opinion available here). In Kilgore, students at a flight-training school sued KeyBank, the originator of their student loans, after KeyBank and the school allegedly colluded to mislead and defraud the students. A three-judge Ninth Circuit panel previously ruled that Concepcion overruled Broughton v. Cigna Healthplans, 21 Cal. 4th 1066, 988 P.2d 67 (1999), and Cruz v. PacifiCare Health Systems, Inc., 30 Cal. 4th 303 (2003), which held that public injunctive relief claims are not arbitrable as a matter of California public policy, in the CLRA and UCL contexts, respectively. See slip op. at 14-16.

In an opinion by Andrew D. Hurwitz, the en banc panel held that the district court should have compelled arbitration because the at-issue arbitration clause did not fall under the public injunction exception to the Federal Arbitration Act (FAA). See slip op. at 6. Accordingly, as the public injunction exception did not apply, the decision did not take the position that Concepcion overruled Broughton and Cruz. Instead, the decision embraces a public/private distinction that could inform the continuing debate around Concepcion’s scope. See slip op. at 16-17. The majority also rejected the plaintiffs’ contention that the at-issue arbitration clause is unconscionable under California law. See slip op. at 12-14.

In a compelling dissent, grounded in the case’s real-life facts rather than arcane doctrines purporting to divine the FAA’s application to Kilgore’s claim against KeyBank, Judge Harry Pregerson detailed the career “crash landing” awaiting the flight-training students who found themselves deeply in debt and without a job. See slip op. at 19-21 (Pregerson, J., dissenting). Pregerson concluded that “the majority opinion strips [the plaintiffs] and their classmates of the ability to find recourse in state or federal court,” and contrary to the majority found the at-issue arbitration clause substantively and procedurally unconscionable under California law. Slip op. at 22-26.

Connecting the unconscionability analysis to the purported efficiencies realized through arbitration, with distinctive candor and pragmatism, Pregerson explained that filing a claim in arbitration costs at least eight times more than filing the same case in California Superior Court, and that “[t]he high cost of arbitration will prevent many students from vindicating their rights, but will not limit KeyBank’s ability to defend itself. This asymmetry makes arbitration all the more unconscionable.” Slip op. at 25 (Pregerson, J., dissenting).

A Colorado federal court has sanctioned a class action defendant because of a letter sent by the defendant’s COO to former employees who were prospective class members. Sloan v. Ameristar Casinos, Inc., No. 12-1126 (D. Colo. Mar. 12, 2013) (order re defendant’s motion to stay). Magistrate Judge Kathleen Tafoya deemed the letter to be “misleading, coercive and . . . a blatant attempt to undermine the purposes of a collective action and to undermine the Notice approved by the court.” Order at 1-2. The Sloan sanction ruling closely coincides with a similar ruling sanctioning an FLSA defendant in a New York federal court. See Zamboni v. Pepe West 48th Street LLC, No 12-3157 (S.D.N.Y. Mar. 12, 2013).

Chiefly at issue in Sloan was a letter from Ameristar COO Larry Hodges, which was sent to putative class members who were former employees before any plaintiffs had opted into the conditionally-certified FLSA action. Judge Tafoya found a stay to be warranted, but not on the terms urged by the defendant. She determined that recipients of the letter “were misinformed about the case, the plaintiff, the plaintiff’s motives, the law and about any negative monetary ramifications of the case on opt-in plaintiffs” and that “it is imperative that all the putative class members receive correct information moving forward.” Order at 3. Judge Tafoya went on to say that “any stay, however, must be imposed on the case as a whole, . . . [and] until a corrective notice, at least, is sent to the putative class, the case is stalled.” Order at 4. Moreover, due to the defendant’s egregious conduct, she refused to stay the order enjoining defendants from communicating with absent class members. Id.

A detailed analysis of the arguments and counterarguments around a plaintiff’s motion to certify a class alleging meal and rest break violations has been published in the Federal Rules of Decision. See Avilez v. Pinkerton Gov’t Servs., 286 F.R.D. 450 (2012). The ruling, by Central District of California Judge David O. Carter, methodically works through the Rule 23 certification elements, and in doing so provides unusually broad guidance as to the more rigorous procedural requirements implied by the U.S. Supreme Court’s Dukes decision as well as the substantive aspects of California’s meal break statute set forth by the California Supreme Court in Brinker v. Superior Court, 53 Cal. 4th 1004 (2012).

While Pinkerton did not contest the easily-established numerosity requirement, the company did challenge typicality, the cited reason being that “some unstated number of putative class members signed a document purporting to waive their right to participate in a class action against Defendant, whereas Plaintiff signed no such document.” However, Judge Carter concluded that the defendant’s argument merely postulated that the plaintiff had a stronger claim than some other putative class members, and that there is no authority holding that such a circumstance precludes certification. Avilez at 456-7.

Judge Carter also rebuffed the defendant’s challenge to the named plaintiff’s adequacy, which was premised on a survey purporting to show that a majority of Pinkerton employees prefer the “present arrangement” with respect to meal breaks, seemingly irrespective of whether that arrangement complies with Brinker. See Avilez at 457-58. Judge Carter methodically deconstructed Lanzarone v. Guardsmark Holdings, Inc., 2006 U.S. Dist. LEXIS 95785 (C.D. Cal. Sept. 7, 2006), the defendant’s main authority supporting this point, finding that it “betrays a deep naïveté” about incumbent employees’ motivations and incentives. See Avilez at 458. Moreover, the survey that was the basis for the defendant’s adequacy argument covered only 30 employees, and the defendant failed to disclose the identity of the person who conducted the survey. Judge Carter thus struck the survey evidence, vitiating the defendant’s adequacy challenge. Avilez at 458-60.

Beyond providing plaintiffs with a favorable adequacy ruling, this analysis also offers useful benchmarks for contrasting the truly rigorous surveys that class action plaintiffs will often proffer in support of class certification. See id. For instance, the survey altogether excluded former employees, even though the defendant’s own deponent testified that former employees constituted at least half, and perhaps nearly three-quarters, of the class members. Id. Judge Carter also noted his skepticism with respect to “the motivations behind and credibility of current employees’ responses to employer-elicited questions regarding employees’ contentment with their employer’s policy.” Id. at 458.

Finally, as to the often pivotal question of whether common questions of law and fact predominate, Judge Carter’s analysis brought to bear the procedural and substantive mandates of Dukes and Brinker, and concluded that the plaintiff’s prima facie case is subject to common proof, “which is all that is necessary to meet the predominance requirement of Rule 23(b)(3).” Avilez at 469. Thus, the defendant’s challenges to predominance not focused on the prima facie case are not relevant, a finding that is in keeping with “courts ‘traditionally be[ing] reluctant to deny class action status’ under predominance requirement of Rule 23(b)(3) ‘simply because affirmative defenses may be available against individual members.’” Avilez at 469, citing Lorber v. Beebe, 407 F. Supp. 279, 294 (S.D.N.Y. 1975).

As the U.S. Supreme Court continues to take aim at class actions, federal and state trial courts are policing abuses that illuminate why employers would prefer that workplace protections not be broadly enforced by class and representative actions. For instance, a federal judge in the influential Southern District of New York recently found that an FLSA defendant engaged in deceptive and intimidating communications intended to dissuade class members from opting into a class action involving the non-payment of overtime. See Zamboni v. Pepe West 48th Street LLC, No 12-3157 (S.D.N.Y. Mar. 12, 2013) (order re: class member communications).

The Zamboni plaintiffs alleged that employees eligible to opt into the conditionally-certified FLSA class were summoned to a meeting presided over by the defendant employer, where they were instructed to sign, without reading, a document disavowing overtime work. One of the employees present at the meeting testified that he was handed a document and told to “read it quickly and sign it even quicker.” Order at 4. After initially being rebuffed when he asked to see a copy of the signed document, the employee discovered that it included the statement, “I do not believe that I am owed any monies for unpaid wages . . . or for any other reasons.” Id. Additionally, the employee was told that he could not opt into the FLSA class if he signed the document, even though the document had no actual bearing on employees’ ability to be members of the FLSA class. Id. Judge James C. Francis IV concluded that “it was inherently coercive for the defendants to solicit from each employee a statement that he does not have a claim for unpaid wages.” Order at 9.

Echoing the analysis around unconscionable contracts, Judge Francis found that “an employee who signs such a statement . . . may well believe that . . . he is precluded from opting in to this litigation. Furthermore, an employee could well sign such a statement without full recognition of the extent of his rights and potential claims under the FLSA.” Order at 9. As a remedy, Judge Francis ordered that a notice be disseminated informing the employees that they had not in fact waived FLSA rights and that the lawsuit’s opt-in period be extended. Order at 10.