Posts belonging to Category Motion Practice

The California Court of Appeal has issued a unanimous decision reinforcing that California’s unconscionability doctrine is still substantially intact, notwithstanding the U.S. Supreme Court’s ruling in AT&T Mobility v. Concepcion.  See Samaniego v. Empire Today LLC, ___ Cal. App. 4th ___ (Cal. Ct. App. 2012) (available here).  The Court of Appeal affirmed the trial court’s ruling that the at-issue arbitration clause was “highly unconscionable from a procedural standpoint” and exhibited “strong indicia of substantive unconscionability,” while denying the defendant’s motion for reconsideration in light of Concepcion.  See slip op. at 3-4.

The action arose when plaintiffs, installers for prominent carpet company Empire, brought claims alleging that they had been misclassified as independent contractors, and challenged the mandatory arbitration provision which was part of an agreement that Empire required the plaintiffs to execute both at the inception of their employment and, again, during their employment.  Id. at 2-3.  The court gave particular emphasis to the procedural unconscionability of the agreement, noting that it was presented to plaintiffs only in English, though some had only a rudimentary grasp of the language and others could not read English at all.  Id. at 2.  Additionally, “[t]he contracts were offered on a non-negotiable, take it or leave it basis, with little or no time for review.  The Agreement is 11 single-spaced pages of small-font print riddled with complex legal terminology.  The arbitration provision is set forth in the 36th of 37 sections.”  Id.

The arbitration clause was also deemed substantively unconscionable, as it shortened the statute of limitations to sue under the contract from one year to six months and contained a unilateral fee-shifting provision which required employees to pay Empire’s attorneys’ fees.  Id. at 3.  Similarly, claims to enforce non-compete agreements — which, as a practical matter, are only brought by employers — were excluded from the arbitration clause’s ambit.  Id.

The court found its analysis unaltered by Concepcion, noting that the Supreme Court’s decision “explicitly reaffirmed that the FAA ‘permits agreements to arbitrate to be invalidated by “generally applicable contract defenses, such as fraud, duress, or unconscionability,’” and “arbitration agreements remain subject, post-Concepcion, to the unconscionability analysis employed by the trial court in this case.”  Id. at 11-12 (internal citations omitted).  California federal courts have also stricken unconscionable arbitration clauses.  See, e.g., Chavarria v. Ralphs Grocer Co., No. 11-CV-02109, 2011 U.S. Dist. LEXIS 104694 (C.D. Cal. Sept. 15, 2011).

The Samaniego ruling comes on the heels of the Consumer Financial Protection Bureau’s announcement that it has undertaken a critical examination of the impact of mandatory arbitration agreements on consumers. See http://s559594427.onlinehome.us/impactlitigation/2012/04/27/federal-consumer-protection-agency-to-assess-impact-of-mandatory-arbitration-on-consumers/. In holding that Concepcion does not alter the unconscionability analysis, the Samaniego court’s ruling will likely be influential as other courts, trial and appellate, state and federal, continue to confront the same issue.

The California Supreme Court has granted the Petition for Review in Duran v. U.S. Bank National Ass’n, No. S200823 (Cal. May 16, 2012) (order granting petition for review).  The docket is available here.  All seven Justices voted in favor of review.

Many observers saw the proverbial writing on the wall for Duran with the Supreme Court’s Brinker decision, which endorsed the type of sampling and statistical methods received skeptically in Duran. As the Brinker concurring justices noted, without statistical evidence, many class actions would be, as a practical matter, virtually impossible to pursue. See Brinker Restaurant Corp. v. Super. Ct., No. S166350 (Cal. Apr. 12, 2012) (Werderger, J., concurring).

Duran was widely criticized in the Petition for Review and amicus letters for encroaching on trial courts’ autonomy and was held up as an exemplar of the maxim that “bad facts make bad law,” as even advocates of statistical methods were critical of the particular methods deployed by the Duran plaintiffs. With the grant of review, Duran is rendered “depublished.” 

A Missouri district court judge has added to the increasing body of law holding that the U.S. Supreme Court’s Concepcion decision does not require the enforcement of arbitration clauses and class action waivers in all circumstances.  In Owen v. Bristol Care, the defendant moved to compel arbitration of a Fair Labor Standards Act (FLSA) action in which the plaintiff alleged that her employer had systematically misclassified her and other employees as exempt from overtime pay.  See Owen v. Bristol Care, No. 11-04258 (W.D. Mo. Feb. 28, 2012) (available here).  However, the court ruled that “in the employment context, Concepcion . . . is not controlling.”  Slip op. at 8.

The defendant’s motion to compel arbitration was based on the plaintiff having signed a standardized employment contract, which included a mandatory arbitration agreement and class action waiver.  Slip op. at 1-2.  Guided by Missouri’s “illusory contract” analysis, which is similar to California’s unconscionability doctrine, the Owen plaintiff argued that the arbitration clause should not be enforced because the employment agreement allowed the defendant to unilaterally modify or revoke the contract; the contract’s terms were one-sided, owing to the parties’ unequal bargaining power; and the arbitration provisions covered suits brought by employees but not claims typically brought by employers.  Slip op. at 2-3.

Judge Fernando J. Gaitan, Jr. of Missouri’s Western District agreed with the plaintiff, finding that the arbitration provision effectively prohibited the plaintiff from vindicating her federal statutory right to bring a collective action pursuant to the FLSA.  Slip op. at 3.  In finding Concepcion inapplicable to employment actions, Judge Gaitan distinguished the defendant’s citation to CompuCredit Corp v. Greenwood because “[t]he arbitration waiver in CompuCredit involved a consumer contract and not an employment contract.”  Slip op. at 8, n.3 (citing CompuCredit Corp v. Greenwood, 132 S.Ct. 665 (2012)).  The court concluded that “[i]n the employment context, waivers of class arbitration are not permissible.”  Id. (citing D.R. Horton, 357 NLRB No. 184, 2012 NLRB LEXIS 11 (Jan. 3, 2012) and Chen-Oster v. Goldman, Sachs & Co., No. 10-CV-06950, 2011 U.S. Dist. LEXIS 73200 (S.D.N.Y. Jul. 7, 2011)).

Judge Gaitan’s reliance on the D.R. Horton decision follows a recent ruling by Judge Kimba Wood, who also applied D.R. Horton outside the strict confines of the National Labor Relations Act.  See Sutherland v. Ernst & Young LLP, 2012 U.S. Dist. LEXIS 5024 at *23, n.5 (S.D.N.Y. Jan. 13, 2012) (“an arbitration agreement imposed upon individual employees as a condition of employment cannot be held to prohibit employees from pursuing an employment-related class, collective, or joint action in a Federal or State court.”) (quoting D.R. Horton, 2012 NLRB LEXIS 11 at *25).

A federal judge has denied the Quaker Oats Company’s request to dismiss a consumer class action arising out of the company’s questionable product advertisements.  The lawsuit alleges that the cereal manufacturer’s characterizations of its oatmeal and granola as “wholesome” and “heart-healthy” are deceptive, because the products actually contain unhealthy trans fats.  See Askin v. The Quaker Oats Co., No. 11-cv-0111 (N.D. Ill. Oct. 12 2011) (order denying motion to dismiss) (available here).    

The plaintiff claims that Quaker has “engaged in a wide-spread marketing campaign to mislead consumers about the nutritional and health qualities of its Products.”  Slip op. at 3.  Contrary to its health-focused advertisements, Quaker products “contain highly unhealthy, unwholesome artificial trans fat.”  Slip op. at 3.  The plaintiff alleges that he has suffered an “injury-in-fact” because he purchased Quaker products in reliance on these false advertisements and that, had he known the truth, he would not have been willing to pay as much as he did for the products.  Slip op. at 3-4.

Quaker moved to dismiss the case by a Rule 12 motion, arguing that the levels of trans fats are so insignificant that the plaintiff cannot establish standing.  Specifically, Quaker contended that the plaintiff’s health concerns are speculative, and therefore his economic damage is not “a real injury.”  Slip op. at 4-5. 

The court disagreed with Quaker. In the order denying Quaker’s Rule 12 motion, Magistrate Judge Young B. Kim found that “regardless of whether [Plaintiff] was physically harmed by the products he consumed, he alleges that he would not have purchased them absent the allegedly misleading statements.  That allegation states the kind of economic injury that is redressable through this suit.”  Slip op. at 9.

 Quaker was likewise unsuccessful in attempting to dismiss a California consumer action with similar claims.  See Chacanaca v.The Quaker Oats Co., 752 F. Supp. 2d 1111 (N.D. Cal. Oct. 14, 2010) (available here).