Ted Frank sure loves all class actions...

I just haven't found an instance yet where he actually commended the outcome of one.  But I'm looking.  Still looking...

I was going to link to a very recent example of his affection for a particular class action settlement by directing reader to a post on the blog he edits for publisher Center for Legal Policy at the Manhattan Institute.  However, his post is, arguably, defamatory and/or slander per se.  If I link to it, I could, theoretically, be construed as a republisher.  So, my apologies; I can't supply authority to support my sarcasm.

Update on 2012-08-15 17:07 by The Complex Litigator

Mr. Frank was kind enough to respond in the comments section!  I'm very excited.  Mr. Frank is something of a celebrity in the world of class actions.  I consider myself honored.

As an aside, due to the increasing volume of comment spam (things like shoe ads and mortgage refinance options), commenting on this blog goes into a hold queue until I can release the comment.  I will approve any substative comment that is not spam, even if it is highly critical of my post.  I will not approve profanity, spam, or any comment that advocated any unlawful or violent activity.  I will not respond to specific requests for legal advice about a specific fact pattern.  If a practitioner wants to debate a theoretical fact pattern as a way of testing a case holding or proposed alternative holding, that is entirely acceptable, but the theoretical nature of the discussion needs to be clearly stated.

A different other day, another arbitration decision: Gentry maybe not preempted

This is also a day of the week ending in the letter "Y."  Hence, a new arbitration opinion to discuss.  In Truly Nolen of America v. Superior Court (August 13, 2012), the Court of Appeal (Fourth Appellate District, Division One) examined several arbitration issues in a putative class action wage & hour matter.  Adding to the miasma of conflicting aribtration opinions in California, this Court concluded that Gentry was not preempted by Concepcion and must be followed under principles of stare decisis.  However, the Court also found that, on the factual record in the trial court, the Gentry test was not satisfied.  Instead, the Court directed the trial court to permit briefing on the issue of whether the parties' agreement includes an implied agreement to permit class arbitration.

In the trial court, defendant moved to compel arbitration.  The arbitration agreements did not contain a specific provision pertaining to the availability or unavailability of classwide arbitration.  The court granted the motion to compel arbitration, but rejected defendant's request that the court order individual arbitration, relying on Gentry v. Superior Court, 42 Cal. 4th 443 (2007).  Defendant petitioned for review.

The Court set forthan extensive history of arbitration law in California, beginning with cases before Stolt-Neilsen and Concepcion.  It is very exiting, so I will not spoil it by summarizing it here.  Then the Court discussed the impact of Concepcion on Discover Bank and Gentry.  Having concluded the history lesson, the Court had to choose from the conflicting decisions as to whether Gentry remains valid law.

Exercising caution, the Court threaded the eye of the needle, concluding that it doubted the analysis of cases finding Genry valid but agreeing with the plaintiffs that it was nevertheless obligated to follow decisions of the California Supreme Court until expressly invalidated: "On federal statutory issues, intermediate appellate courts in California are absolutely bound to follow the decisions of the California Supreme Court, unless the United States Supreme Court has decided the same question differently."  Slip op., at 23.

Having so concluded, the Court then considered whether the evidentiary record was sufficient to support a finding that the Gentry factors were present.  The Court concluded that the plaintiffs failed to connect attorney declarations with the facts of the case.  Based on an insufficient evidentiary record, the Court reversed the trial court's finding that Gentry required a class arbitration.

Next, the Court examined other contentions.  First, the Court agreed that an arbitartion agreement may include an implied agreement to class arbitration:  "Relying on Stolt-Nielsen, the courts have recognized that an implied agreement may be sufficient to support class arbitration."  (Slip op., at 33.)  Although plaintiffs did not raise the issue in the trial court, the Court concluded that they were not precluded from doing so on remand.  The Court left it to the trial court to develop the record as to whether the parties' agreement includes an implied agreement to class arbitrations.  Notably, the Court recognized that California contract law would govern the analysis of whether an implied agreement permitting arbitration agreements exists.

Next, as with several other Courts of Appeal, the Court, in cursory fashion, rejected the contention that the NLRA protects employees from the enforcement of contract provisions that would impede their right to undertake concerted activity, including class actions.  I have commented elsewhere on the paucity of analysis supplied by other Courts in California (Iskanian and Nelsen), and this Court did nothing to advance the analysis beyond more than something akin to bare assertion based on skepticism.  As an aside, even if the Court believes that its scant analysis is correct, the existence of the NLRA and the many decisions protecting class actions as concerted activity should, at minimum, supply the requisite implied intent to permit class arbitrations.  After all, the defendant could not have intended to violate the NLRA, could it?

With every class-related arbitration decision issued in California, the need for comprehensive, detailed holdings from the California Supreme Court grows.  I urge the California Supreme Court to assist parties in consumer and employment class actions by sweeping up all of these decisions and rendering a number of much needed rulings as quickly as possible.

Another day, another arbitration decision; employee handbook arbitration clause found to be illusory

Because this day of the week ends in the letter "Y," I thought I would focus on another arbitration clause opinion.  See what I did there?  Anyhow, in Sparks v. Vista Del Mar Child And Family Services (July 30, 2012), the Court of Appeal (Second Appellate District, Division Five) reviewed an order denying arbitration following a petition to compel arbitration in a wrongful termination action.  Summarizing the various reasons why the Court, in a split decision, affirmed, the majority opinion said:

We hold that plaintiff is not bound by the arbitration clause because that clause was included within a lengthy employee handbook; the arbitration clause was not called to the attention of plaintiff, and he did not specifically acknowledge or agree to arbitration; the handbook stated that it was not intended to create a contract; the handbook provided that it could be amended unilaterally by defendant and thus rendered any agreement illusory; the specific rules referred to in the arbitration clause were not provided to plaintiff; and the arbitration clause is unconscionable.

Slip op., at 2.

The case raises a number of interesting issues debated by the majority and dissent.  Does an employee handbook that disavows that it is intended to create a contract undermine an employer's reliance on an arbitration provision within that handook?  Does inadequate access to discovery in the arbitration render the agreement unconscionable?

On that last question, the dissent argued that certain rights are imputed into the agreement:

Sixth, the agreement is not unconscionable because of any problem relating to discovery. Plaintiff argues the American Arbitration Association rules do not permit for the sufficient use of discovery devices. Implied in an employer-employee arbitration agreement is the opportunity to utilize discovery devices in a case which potentially may involve emotional distress damages. (§ 1283.1; Little v. Auto Stiegler, Inc. (2003) 29 Cal.4th 1064, 1076-1081; Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, 105-106.) Here, there is a cause of action for intentional severe emotional distress infliction. Implied within the arbitration agreement is the right to adequate discovery.

Slip op., dissent, at 3-4.  I'm confused.  If we are implying terms into agreements, why, again, is the CLRA's ban on class action waivers not implied in every consumer contracts involving transactions in goods or services?  (I am referring to Caron and its holdings regarding preemption of the CLRA's anti-class waiver provision by the FAA, if that was not clear.)  Oh, I remember now.  In that case, the parties contractually agreed that they wouldn't arbitrate if the class waiver provision was not lawful.  Now it makes sense.  Huh?

The decisions interpreting arbitration provisions have, if anything, become substantially less clear in the last two years.  The result is that every conceivable argument on both sides of any arbitration issue will be flung at the wall in every trial court, and recapitualated in the Courts of Appeal after any petition is denied.  This is not helping anyone to control the costs and uncertainty of litigation.

Diverging from other California authority, the Fourth Appellate District, Division Three, holds that the FAA preempts the CLRA's ban on class action waivers

Opinions concerning arbitration issues seem less about uniformity of analysis these days and more about the politics of arbitration.  Sophistry comes to mind.  Consider the following observation: "Section 2 of the Federal Arbitration Act (FAA) provides that an arbitration provision 'shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.'  9 U.S.C. § 2."  AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740, 1753, 179 L. Ed. 2d 742 (2011), J. Thomas conc.  This seems straightforward enough.  And yet, in Caron v. Mercedes-Benz Financial Services USA LLC (July 30, 2012), the Court of Appeal (Fourth Appellate District, Division Three), managed to conclude that the Consumer Legal Remedies Act (CLRA) prohibition on class action waivers in any consumer contract was pre-empted by the FAA.  A rule prohibiting class action waivers in any form of consumer contract is, according to this reasoning, not a ground in law for the revocation of such contracts.  It is, instead, a provision that "interferes" with the FAA.

I could walk through the analysis and discuss it in a neutral and dispassionate tone, but that would waste precious minutes of my life.  Blunt will serve just as well here.  The reasoning in Caron is nonsensical.  The Supreme Court claims that its FAA jurisprudence is intended only to "place arbitration agreements on an equal footing with other contracts...."  Concepcion, 131 S. Ct. at 1742.  That's not what is happening here.  Instead, the FAA is being used to grant a superior status to arbitration agreements.  Case in point?  The Caron decision:

Defendants argue the trial court erred because the FAA preempts the CLRA's prohibition against class action waivers and therefore the trial court could not rely on the CLRA as a ground for denying Defendants' petitions. Based on the United State Supreme Court's decision in AT&T Mobility LLC v. Concepcion (2011) ___ U.S. ___, ___; 131 S.Ct. 1740 (AT&T Mobility), we agree the FAA preempts the CLRA's anti-waiver provision because the provision acts as an obstacle to the FAA's intention of enforcing arbitration agreements according to their terms.

Slip op., at 2.  What?  The FAA, in section 2, limits the FAA's reach.  The Caron Court doesn't ensure that an arbitration agreement is judged on an equal footing with other contracts.  It is placing arbitration agreements before a state's right to specify the lawful subject matter of contracts.  The reasoning used in Caron could be used to vitiate section 2 of the FAA.  After all, every defense to a contract is an "obstacle" to the FAA's intention of enforcing arbitration agreements according to their terms, even if those terms are unlawful.  Caron dismisses this limitation on the FAA's reach by simply concluding that the case before it presents the same situation as Concepcion:

The plaintiffs in AT&T Mobility “argue[d] that the Discover Bank rule, given its origins in California's unconscionability doctrine and California's policy against exculpation, is a ground that 'exist[ed] at law or in equity for the revocation of any contract' under FAA § 2” and therefore the FAA did not preempt the rule. (AT&T Mobility, supra, 131 S.Ct. at p. 1746.) The Supreme Court rejected that argument, explaining the FAA's preemptive effect may “extend even to grounds traditionally thought to exist '"at law or in equity for the revocation of any contract[]"'" when those grounds “have been applied in a fashion that disfavors arbitration.” (Id. at p. 1747.)

Slip op., at 13.  From this, the Caron Court concludes that the same reasoning would apply here.  However, that distorts the facts.  In Caron, the agreement at issue contained the following "poison pill" clause:

If any part of this Arbitration Clause, other than waivers of class action rights, is deemed or found to be unenforceable for any reason, the remainder shall remain enforceable. If a waiver of class action rights is deemed or found to be unenforceable for any reason in a case in which class action allegations have been made, the remainder or this Arbitration Clause shall be unenforceable.

Slip op., at 4.  This agreement anticipates the potential illegality of the clause at issue.  By its own terms, the agreement chooses to reject arbitration if it must occur in the class context.  There is no law banning arbitration here.  There is a general rule govering consumer contracts that specifies the lawful terms of those agreements.  The agreement contains a self-executing kill switch.  Had the agreement been silent, the Stolt-Neilsen analysis should have concluded that, aware of California law, the parties anticipated the potential for a class action.  But how the Court concludes that the CLRA's regulation of consumer contracts constitutes "interference" with consumer contracts sufficient to pre-empt the CLRA's general regulation of consumer contracts is beyond me.

Section 2 of the FAA is not a nugatory clause.  Efforts to interpret it out of existence should be rejected.  Given that Caron diverges from Fisher v. DCH Temecula Imports LLC, 187 Cal. App. 4th 601 (2010), it appears that further guidance from the California Supreme Court would benefit parties to consumer contracts.