Posts belonging to Category Caselaw Developments

Classwide adjudication of workplace violations has become increasingly difficult in recent years, due to heightened certification scrutiny and the widespread use of arbitration agreements and class waivers by employers.  However, a tentative ruling by an intermediate appellate court portends an easier path, in tandem with the growing significance of the California Labor Code’s Private Attorneys General Act (PAGA).

California’s Second Appellate District, Division Eight, is expected to confirm that plaintiffs seeking civil penalties on the State’s behalf and representing fellow employees pursuant to PAGA may continue to do so even where class certification has been denied. See Nelson v. Southern Cal. Gas Co., No. B238845 (Cal. Ct. App. argued Mar. 28, 2013). During oral argument, the three-judge panel tentatively indicated that it would reverse the ruling of Los Angeles Superior Court Judge Zaven V. Sinanian (available here). Judge Sinanian denied the plaintiff’s motion for class certification, chiefly on the ground of insufficient common questions of law or fact, then subsequently ruled that the plaintiff’s PAGA claims couldn’t go forward, citing the same commonality problem that supported the denial of class certification.

Judge Sinanian issued this ruling despite the California Supreme Court having held, in Arias v. Super. Ct., that a PAGA representative action need not satisfy the familiar class certification requirements of numerosity, typicality, commonality, and adequacy of representation. Arias, 46 Cal. 4th 969 (2009) (available here). In its Arias decision, the court specifically distinguished PAGA actions from other representative actions, finding that “the employee plaintiff represents the same legal right and interest as state labor law enforcement agencies — namely, recovery of civil penalties that otherwise would have been assessed and collected by the Labor Workforce Development Agency.” Arias at 986.

The official decision in Nelson is expected to issue shortly.

As the battle between individual arbitration and litigated class actions continues across state and federal jurisdictions, California’s intermediate appellate court has underscored that, at least in California, an unconscionable contract that would otherwise be unenforceable will not be deemed enforceable merely because the subject matter is arbitration. See Compton v. Super. Ct., ___ Cal. App. 4th ___ (Cal. Ct. App. 2013) (available here).

In reaching this decision, the panel relied heavily on the California Supreme Court’s Armendariz v. Foundation Health Psychcare Servs., 24 Cal. 4th 83 (2000), a decision that defined the California standard for unconscionability at the time it was issued. Armendariz turned on the asymmetry of the at-issue arbitration provision, whereby the employer unilaterally got to determine which claims would be submitted to arbitration and which would be pursued in court. The court found such one-sidedness to be substantively unconscionable when presented in a contract of adhesion imposed by an employer on an employee, reasoning that, “[a]lthough parties are free to contract for asymmetrical remedies and arbitration clauses of varying scope, . . . the doctrine of unconscionability limits the extent to which a stronger party may, through a contract of adhesion, impose the arbitration forum on the weaker party without accepting that forum for itself.” Armendariz at 118. Reinforcing two prior appellate decisions, the court held that such arbitration agreements must have at least a “modicum of bilaterality” to be enforceable. Id. at 117.

Similarly, in Compton, the at-issue arbitration provision, along with other one-sided terms, enumerated the types of claims that could and could not be submitted to arbitration. The employer included claims most likely to be brought by employees, while excluding claims most likely to be brought by the employer, thus allowing the employer to litigate in court claims that were important to it, while forcing employees into arbitration on claims most important to them. Compton slip op. at 4-5. After discussing the provision’s many asymmetric terms, all of which accrued to the defendant employer’s benefit, the 2-1 Compton majority reversed the trial court and found the at-issue arbitration clause unconscionable. Id. at 17-22. Because the Compton majority reversed the trial court’s finding as to unconscionability, it did not address two additional grounds also offered for reversal: that the defendant waived any entitlement to arbitration and that the ability to bring class actions is protected concerted action under the National Labor Relations Act. Id. at 9-10.

The majority rejected the defendant’s contention that the Armendariz “bilaterality rule” imposes a requirement of “perfect mutuality of obligation” on arbitration contracts, but not contracts generally, thereby uniquely burdening arbitration contracts in contravention of AT&T v. Concepcion. See id. at 18-22. After extensively citing to and quoting from Armendariz, Justice Laurence D. Rubin (writing for the Compton majority and joined by Justice Madeline Flier) explained that: “Concepcion did not discuss the modicum of bilaterality standard adopted by Armendariz . . . [or] overrule Armendariz. We . . . are therefore bound to . . . apply Armendariz to this case. Accordingly, we conclude that Concepcion does not apply to invalidate Armendariz’s modicum of bilaterality rule, at least in this context.” Compton slip op. at 21 (internal citation omitted).

In dissent, Justice Tricia Bigelow found the at-issue arbitration terms entirely symmetric as to the wage and hour claims brought by the plaintiff, and concluded that the arbitration provision therefore “binds [the parties] equally.” See Compton dissent at 4. Additionally, Justice Bigelow noted that any one-sided carve-outs as to certain claims could easily be severed from the agreement. Id.

Bigelow also cited with approval the decision of the Second Appellate District, Division Two (Compton was decided within Division Eight) in Iskanian v. CLS Transp. Los Angeles, LLC, holding that a mandatory waiver of class claims does not render an arbitration agreement imposed by an employer on an employee unconscionable. The California Supreme Court has granted review in Iskanian, which is expected to reconcile the application of Concepcion in the employment context.

The U.S. Supreme Court has issued a 5-4 decision applying the Wal-Mart v. Dukes mandate, which compels federal district court judges to undertake a “rigorous” analysis of expert witness testimony when ruling on class certification motions, in the antitrust context. See Comcast v. Behrend, 569 U.S. ___ (2013) (available here).

Specifically, the Court has held that where an expert offers an antitrust damages model that incorporates three rejected theories of antitrust liability along with the lone liability theory that would have been adjudicated at trial, class certification must be denied. Slip op. at 2 (“A [damages] model that does not attempt to measure only those damages attributable to that theory cannot establish that damages are susceptible of measurement across the entire class for Rule 23(b)(3) purposes.”). Thus, the much-anticipated Comcast decision proved to be a relatively narrow application of already-established Dukes jurisprudence to the admissibility of expert testimony. As such, “the opinion breaks no new ground on the standard for certifying a class action under Federal Rule of Civil Procedure 23(b)(3).” Slip op. dissent at 3 (Ginsburg and Breyer, JJ., dissenting).

Even as a decision focused on the standard for admitting expert testimony at the class certification stage, Comcast falls well short of breaking new ground, as the Daubert criteria governing expert testimony were not applied to Rule 23 class certification motions, as had been widely speculated. Rather, the expert’s damages model was found deficient because, the plaintiff and expert conceded, “the model did not isolate damages resulting from any one theory of antitrust impact.” Slip op. at 4. Indeed, it is likely that even a pre-Dukes analysis would have found this particular expert testimony inadequate, as it consisted of regression analysis that, it was undisputed, lacked the sine qua non of regression analysis: isolating the influence of a particular independent variable.

As in Dukes, the proposed class in Comcast was unusually sprawling, even by class action standards, entailing “four theories of liability and 2 million subscribers located in 16 counties.” Slip op. at 10. The case arose in the often arcane area of antitrust law, casting further doubt on the decision’s ability to radically remake class actions. While the defense bar declared victory, it was in conspicuously muted terms, as with McDermott Will & Emery partner David L. Hanselman, Jr. who, quoted in Law360, observed merely that “[t]he court held that individualized issues of damages may preclude class certification; it did not hold that individualized issues of damages will always or necessarily preclude class certification.”

Once again, a court of law has weighed in on a case that has serially addressed the major issues in current class action jurisprudence. This time, the case was before the Second Circuit, where the panel considered the defendant’s appeal of a district court’s denial of its motion to compel arbitration. See Parisi v. Goldman, Sachs & Co., No. 11-5229 (2d Cir. Mar. 21, 2013) (available here).

In mid-2011, the at-issue motion to compel arbitration was referred to a Southern District of New York Magistrate Judge, who held the Federal Arbitration Act’s (FAA) preference for arbitration to be subordinate to federally-created statutory rights, and determined that the arbitration clause in plaintiffs’ contract with the defendant must be invalidated because arbitration would preclude the plaintiffs from vindicating a statutory right. See Chen-Oster v. Goldman, Sachs & Co., No. 10-6950, 2011 U.S. Dist. LEXIS 73200 (S.D.N.Y. Jul. 7, 2011) (“Chen-Oster I”). Then, in 2012, District Judge Leonard B. Sand denied the defendant’s motion to strike class allegations. See Chen-Oster v. Goldman, Sachs & Co., No. 10-6950 (S.D.N.Y. Jul. 17, 2012) (“Chen-Oster II”).

Parisi, aka Chen-Oster III, is the Second Circuit’s disposition of the defendant’s appeal of the denial of its motion to compel arbitration in Chen-Oster I. At issue in the appeal was the contention of the named plaintiffs, three female Goldman Sachs employees, that they had a substantive right under Title VII to pursue a “pattern-or-practice” discrimination claim, which is only available to class plaintiffs. The plaintiffs argued that because they cannot proceed on a class-wide basis in arbitration without the defendant’s consent, they must be permitted to proceed in court as a class action. See Chen-Oster I at *10-15. However, in holding that “there is no substantive statutory right to pursue a pattern-or-practice claim,” the Second Circuit reversed Chen-Oster I. See Parisi at 4.

While acknowledging that there are instances when the FAA must yield to federally-created statutory claims, the Second Circuit determined that plaintiffs’ purported pattern-or-practice claim is not eligible to join certain antitrust claims and claims related to statutorily-authorized damages in trumping the FAA: “The availability of the class action Rule 23 mechanism presupposes the existence of a claim; Rule 23 cannot create a non-waivable, substantive right to bring such a claim. Since private plaintiffs do not have a right to bring a pattern-or-practice claim of discrimination, there can be no entitlement to the ancillary class action procedural mechanism.” Parisi at 7 (internal citations omitted).

The Second Circuit relied heavily on the Supreme Court’s Wal-Mart v. Dukes decision in deciding Parisi, thus making it unlikely that this issue will be considered, much less reversed, by the U.S. Supreme Court. However, if the past is any indication, this is not the last we will be hearing of the Chen-Oster case.

Related Articles:  Chen-Oster: Distinguishing Concepcion;  Chen-Oster v. Goldman Sachs: Court Distinguishes Dukes, Denies Motion to Strike Class Allegations