Class Action Defense Cases – Epic Systems v. Lewis: Supreme Court Holds FAA Compels Individual Arbitration Of Labor Law Disputes Rejecting Employee Claim That NLRA Permits Class Action Lawsuits Despite Arbitration Agreement With Employer

Employee Attempt to Pursue Class Action Lawsuit Despite Having Agreed to Individually Arbitrate Any Disputes with Employer Fails as Supreme Court Rejects NLRB’s Effort to Carve Out Labor Law Class Actions from FAA Requirement that Arbitration Agreements be Enforced The Supreme Court issued a seminal decision yesterday in Epic Systems Corp. v. Lewis, 584 U.S. ___ (May 21, 2018), ruling 5-4 that the Federal Arbitration Act (FAA) compels enforcement of an employer-employee arbitration agreement to resolve disputes on an individual basis, rejecting the employees’ claim that the National Labor Relations Act (NLRA) authorizes the utilization of the class action procedure to resolve employee complaints.

Arbitration Class Action Articles Employment Law Class Actions

Look Before You Leap: Practical Considerations Regarding Class Action Waivers in Arbitration Agreements

I recently contributed an article to Thomson Reuters’ Legal Current on Practical Considerations Regarding Class Action Waivers in Arbitration Agreements: After the Supreme Court decision in AT&T Mobility LLC v. Concepcion, 563 U.S. 333 (2011) – which held that class action waivers in arbitration agreements are valid under the Federal Arbitration Act (“FAA”) – companies rushed into class action waiver arbitration agreements without heeding the proverb, “Look before you leap.

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Class Action Defense Cases–American Express v. Italian Colors: United States Supreme Court Reverses Second Circuit Refusal To Enforce Class Action Waiver Under Federal Arbitration Act (FAA)

Federal Arbitration Act (FAA) Compels Enforcement of Class Action Waiver in Contract Even if Cost of Pursuing Federal Claim will be Prohibitively Expensive to Arbitrate U.S. Supreme Court Holds

Plaintiffs – a group of merchants who accept American Express cards – filed a putative class action against American Express alleging of the Sherman Act and seeking treble damages under the Clayton Act; the class action complaint alleged that American Express violated federal antitrust laws by “us[ing] its monopoly power in the market for charge cards to force merchants to accept credit cards at rates approximately 30% higher than the fees for competing credit cards.” American Express Co. v. Italian Colors Restaurant, __ U.S. __, __ S.Ct. __, 2013 WL 3064410, *1-2 (June 20, 2013). Plaintiffs’ contract with American Express “contains a clause that requires all disputes between the parties to be resolved by arbitration” and further provides that “[t]here shall be no right or authority for any Claims to be arbitrated on a class action basis.” Id., at *1 (citing In re American Express Merchants’ Litig., 667 F. 3d 204, 209 (2d Cir. 2012)). Accordingly, American Express moved under the Federal Arbitration Act (FAA) to compel arbitration of Plaintiffs’ individual claims, id., at *2. Plaintiffs opposed dismissal of their class action complaint, submitting an expert witness declaration that estimated the cost of proving Plaintiffs’ antitrust claims could “exceed $1 million,” while the maximum recovery for any individual plaintiff would be less than $40,000. Id. The district court rejected Plaintiffs’ argument, granted the motion to compel arbitration of the individual claims and dismissed the class action complaint. Id. The Second Circuit reversed, holding that because pursuit of Plaintiffs’ antitrust claims would be prohibitively expensive if pursued individually, the class action waiver was unenforceable. Id. (citing In re American Express Merchants’ Litig., 554 F. 3d 300, 315-16 (2d Cir. 2009)). The Supreme Court reversed.

Arbitration Class Action Articles Class Action Court Decisions

Class Action Defense Cases–KPMG v. Cocchi: Supreme Court Reiterates Requirement That State Courts Follow Concepcion And Enforce Arbitration Agreements Under The Federal Arbitration Act (FAA)

State Courts Erred in Denying Defense Motion to Compel Arbitration Under FAA (Federal Arbitration Act) because They Failed to Consider Whether Any Claims were Subject to Arbitration

Plaintiffs filed a putative class action in Florida state court against various defendants, including KPMG LLP, for damages suffered as a result of investments made with Bernard Madoff; the class action named the investment funds, the entity that managed the funds, and KPMG as auditor. KPMG LLP v. Cocchi, 565 U.S. ___ (November 7, 2011) [Slip Opn., at 1-2]. With respect to KPMG, the class action alleged negligent misrepresentation, professional malpractice, aiding and abetting a breach of fiduciary duty, and violation of Florida’s Deceptive and Unfair Trade Practices Act (FDUTPA). _Id._, at 2. KPMG moved to compel arbitration under the Federal Arbitration Act (FAA) on the grounds that the audit services agreement between it and the funds’ management company contained an arbitration clause. _Id._ The trial court denied the motion, and the state appellate court affirmed on the ground that “‘[n]one of the plaintiffs…expressly assented in any fashion to [the audit services agreement] or the arbitration provision.’” _Id._, at 2-3 (citation omitted). However, the state courts apparently found it sufficient to conclude that neither the FDUTPA claim nor the negligent misrepresentation claim were subject to arbitration, without analyzing whether the professional malpractice or breach of fiduciary duty claim were subject to arbitration. _Id._, at 3. The Supreme Court granted certiorari and reversed.

Despite its April 27, 2011 decision in AT&T Mobility LLC v. Concepcion, 131 S.Ct. 1740 (2011), some state courts have continued to find “creative” ways to avoid its mandate. “The Federal Arbitration Act reflects an ‘emphatic federal policy in favor of arbitral dispute resolution.’” KPMG, at 3 (citations omitted, italics added). “Agreements to arbitrate that fall within the scope and coverage of the [FAA]…must be enforced in state and federal courts.” Id., at 1 (italics added). Thus, “State courts…‘have a prominent role to play as enforcers of agreements to arbitrate.’” Id. (citation omitted). And because the FAA “has been interpreted to require that if a dispute presents multiple claims, some arbitrable and some not, the former must be sent to arbitration even if this will lead to piecemeal litigation,” id. (citation omitted), “[a] court may not issue a blanket refusal to compel arbitration merely on the grounds that some of the claims could be resolved by the court without arbitration,” id. (citation omitted).

Arbitration Class Action Court Decisions

Class Action Defense Cases–Kaltwasser v. AT&T Mobility: Federal Court Grants Motion To Compel Arbitration Under Federal Arbitration Act (FAA) Following Concepcion

Supreme Court Decision in Concepcion Compelled Granting AT&T’s Motion to Compel Arbitration of Individual Claims because FAA Preempts California Laws Barring Class Action Arbitration Waivers

Plaintiff filed a putative class action against cellular telephone service provider, AT&T Mobility, alleging violations of California’s Unfair Competition Law (UCL), False Advertising Law (FAL), Consumer Legal Remedies Act (CLRA) and breach of contract. Kaltwasser v. AT&T Mobility LLC, ___ F.Supp.2d ___, 2011 WL 4381748 (N.D.Cal. September 20, 2011) [Slip Opn., at 1-2]. According to the allegations underlying the class action complaint, plaintiff renewed his cell service with AT&T based on the company’s representations that it had the “fewest dropped calls.” _Id._, at 2. Because he alleges that this representation was false, plaintiff filed this lawsuit. AT&T moved to compel arbitration and to dismiss the class claims on the grounds that the service contract included an arbitration clause with a class action waiver. _Id._ In April 2008, the district court denied AT&T’s motion finding the class action waiver unconscionable under _Discover Bank v. Superior Court_, 36 Cal.4th 148 (Cal. 2005). _Id._, at 2-3. Plaintiff subsequently filed a motion to have his lawsuit certified as a class action; the district court delayed ruling on the motion pending the U.S. Supreme Court’s decision in _AT&T Mobility LLC v. Concepcion_, 131 S.Ct. 1740 (2011). _Id._, at 1. Based on _Concepcion_, the federal court denied plaintiff’s motion and ordered his claims to be arbitrated on an individual basis. _Id._, at 1-2.

After providing a general discussion of the FAA and Concepcion, the district court noted Concepcion’s holding that “California’s Discover Bank rule is preempted by the FAA.” Kaltwasser, at 5 (quoting Concepcion, at 1753). Plaintiff, however, argued that Concepcion did not require reconsideration of the district court’s prior order denying AT&T’ s motion to compel arbitration because (1) “Concepcion left intact a vindication-of-rights doctrine under federal common law” permitting him to avoid arbitration “if he can show that the costs involved in proving his claims exceed the damages he can potentially recover”; (2) “Concepcion did not affect public policy principles of contract law” which hold that “‘a law established for a public reason cannot be contravened by a private agreement’”; and (3) AT&T waived its right to arbitration. Id., at 5-6. The district court disagreed.

Arbitration Class Action Court Decisions

Federal Arbitration Act (FAA) Class Action Defense Cases–AT&T Mobility v. Concepcion: U.S. Supreme Court Reverses California’s Discover Bank Rule And Holds Class Action Waivers Valid And Enforceable In Arbitration Agreements

Class Action Waivers in Arbitration Agreements are Valid under Federal Arbitration Act (FAA) and California’s Discover Bank Rule, Which Found Such Waivers Unenforceable as Unconscionable Under State Law, is Preempted by the FAA Supreme Court Holds

Plaintiffs filed a putative class action in California federal court against AT&T Mobility, with whom they had cellular telephone service, alleging “false advertising and fraud by charging sales tax on phones it advertised as free.” AT&T Mobility LLC v. Concepcion, ___ U.S. ___ (April 27, 2011) [Slip Opn., at 2-3]. According to the allegations underlying the class action complaint, plaintiffs purchased cellular telephone service from AT&T based on an advertisement for “free phones” because, even though they were not charged for the telephones, “they were charged $30.22 in sales tax based on the phones’ retail value.” _Id._ Defense attorneys moved to compel arbitration, _id._, at 3. The cellular telephone service contract required arbitration of disputes between the parties and included a class action waiver, providing that claims must be brought in a “individual capacity, and not as a plaintiff or class member in any purported class or representative proceeding.” _Id._, at 1. Plaintiffs opposed arbitration on the grounds that the class action waiver was unconscionable under California law. _Id._, at 3. Despite viewing the arbitration agreement “favorably,” the district court denied AT&T’s motion to compel arbitration because the class action waiver rendered the arbitration clause unconscionable under California law based on _Discover Bank v. Superior Court_, 36 Cal.4th 148 (Cal. 2005). _Id._ The Ninth Circuit affirmed, holding that “the _Discover Bank_ rule was not preempted by the FAA because that rule was simply a ‘refinement of the unconscionability analysis applicable to contracts generally in California.’” _Id._, at 3-4 (citing _Laster v. AT&T Mobility LLC_, 584 F.3d 849, 857 (9th Cir. 2009). The Supreme Court granted certiorari and reversed.

The service agreement was consumer-friendly: It provided that a customer could initiate a dispute by filling out a one-page form available online, and if not resolved to the customer’s satisfaction within 30 days, the customer could initiate arbitration by filling out another form available online. If a customer commenced arbitration proceedings, the arbitration would be held “in the county in which the customer is billed” and AT&T was required to “pay all costs for nonfrivolous claims.” AT&T Mobility, at 2. (The customer could also elect to proceed in small claims court. Id.) Moreover, if the amount in dispute was less than $10,000, then the customer could elect whether the arbitration should be conducted “in person, by telephone, or based only on submissions.” Id. Additionally, “the arbitrator may award any form of individual relief, including injunctions and presumably punitive damages.” Id. AT&T was prohibited from seeking reimbursement of its attorney fees, and “in the event that a customer receives an arbitration award greater than AT&T’s last written settlement offer,” then the service agreement “requires AT&T to pay a $7,500 minimum recovery and twice the amount of the claimant’s attorney’s fees.” Id. (footnote omitted). Yet despite what appears to have been every effort to craft an arbitration clause favorable to its customer, albeit prohibiting class actions, the lower courts found the arbitration clause unconscionable and unenforceable under the Discover Bank rule. The Supreme Court reversed.

Arbitration Class Action Court Decisions

Arbitration Class Action Defense Cases–Puleo v. Chase Bank: Third Circuit Court Affirms District Court Order Compelling Arbitration Of Individual Claims Based On Class Action Waiver In Arbitration Clause

Unconscionability Challenge to Class Action Waiver in Cardmember Agreement Governing Credit Card was Properly Determined by District Court, not Arbitrator, so District Court did not Err in Granting Bank’s Motion in Putative Class Action to Compel Plaintiffs to Arbitrate Individual Claims Third Circuit Holds

Plaintiffs filed a putative class action against Chase Bank alleging that the Bank improperly increased the interest rates on their credit card account balances, and that it did so retroactively. Puleo v. Chase Bank USA, N.A., ___ F.3d ___ (3d Cir. May 10, 2010) [Slip Opn., at 1, 4]. The class action was filed in Pennsylvania state court, but removed to federal court on grounds on diversity. _Id._, at 6-7. According to the allegations underlying the class action complaint, the Bank retroactively increased the interest rate on one plaintiff’s account from 4.99% to 29.99%, and on another plaintiff’s account from 14.74% to 25.99%. _Id._, at 4. Defense attorneys argued that the terms of the Cardmember Agreements permitted the challenged interest rate increases, and that the interest rate increases did not violate state or federal laws. _Id._ However, the propriety of the increases is not relevant to the appeal. Rather, the appeal focused on the arbitration clause in the Cardmember Agreement, which prohibits class actions. _Id._, at 3. Plaintiffs filed the putative class action in state court, and Chase removed the action to federal court and moved the district court to compel plaintiffs to arbitrate their claims on an individual basis because of the class action waiver in the Cardmember Agreement, _id._ Plaintiffs countered that the class action waiver was unconscionable, and that the question of its enforceability should be decided by the arbitrator instead of the court. _Id._ The district court disagreed, “concluding, first, that [plaintiffs’] challenge to the enforceability of the class action waiver was a question of arbitrability for the court to decide, and, second, that the entirety of the Arbitration Agreement was enforceable.” _Id._ On appeal, plaintiffs argued only that the district court erred in ruling on the issue of the unconscionability of the class action waiver, _id._ In a 6-4 decision, the Third Circuit concluded that the district court properly determined the enforceability of the class action arbitration wavier and affirmed. _Id._

The Cardmember Agreement required credit card account customers to arbitrate any disputes with Chase on an individual basis. Puleo, at 5-6 (see NOTE, below). “Despite the express ban on class actions, [plaintiffs] initially brought this case as a putative class action in Pennsylvania state court on behalf of themselves and other similarly situated Chase credit card holders in Pennsylvania.” Id., at 6 (footnote omitted). As noted above, defense attorneys removed the putative class action to federal court, and the district court granted a defense motion to compel plaintiffs to arbitrate their claims on an individual basis, upholding the enforceability of the class action waiver. Id., at 7-8. The Third Circuit began its analysis by noting that “Congress enacted the Federal Arbitration Act (‘FAA’) ‘to reverse the longstanding judicial hostility to arbitration agreements . . . and to place arbitration agreements upon the same footing as other contracts.’” Id., at 9 (citations omitted). And with respect to the specific issue presented by the appeal, the Circuit Court noted that Supreme Court authority holds that “[t]he question whether the parties have submitted a particular dispute to arbitration, i.e., the question of arbitrability, is an issue for judicial determination unless the parties clearly and unmistakably provide otherwise.” Id., at 9-10 (citation omitted).

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Class Action Arbitration Defense Cases–Stolt-Nielsen v. AnimalFeeds: Supreme Court Holds Federal Arbitration Act (FAA) Requires Agreement To Arbitrate Claims Brought As Class Action

Party to Arbitration Clause Governed b y FAA (Federal Arbitration Act) may not be Compelled to Arbitrate Class Action Claims where Arbitration Clause is Silent on Class Action Arbitration Supreme Court Holds

Plaintiff AnimalFeeds is a company that “supplies raw ingredients, such as fish oil, to animal-feed producers around the world”; “AnimalFeeds ships its goods pursuant to a standard contract known in the maritime trade as a charter party.” Stolt-Nielsen S. A. v. AnimalFeeds Int’l Corp., ___ U.S. ___ (April 27, 2010) [Slip Opn., at 1]. Defendants are various “shipping companies that serve a large share of the world market for parcel tankers—seagoing vessels with compartments that are separately chartered to customers wishing to ship liquids in small quantities.” _Id._ The charterers – like plaintiff – “typically select the particular charter party that governs their shipments”– not the shipowners. _Id._, at 2. And the contracts here at issue contained an arbitration clause that was silent as to the availability of class action relief in any arbitration, _id._ After a Department of Justice criminal investigation uncovered an illegal price-fixing conspiracy among the defendants, plaintiff filed a class action complaint in federal district court alleging antitrust violations. _Id._, at 2-3. The Judicial Panel on Multidistrict Litigation eventually consolidated the class action with similar class action lawsuits brought by other charterers. _Id._, at 3. The parties agreed that plaintiff must arbitrate the antitrust dispute, and plaintiff served defendants with a demand for class action arbitration in New York. _Id._ Defendants argued that class action relief was unavailable under the arbitration clause because “[a]ll the parties agree that when a contract is silent on an issue there’s been no agreement that has been reached on that issue”; the parties agreed to submit the question of class arbitration to a panel of three arbitrators. _Id._, at 3-4. The arbitrators disagreed and concluded that class action relief could be had under the arbitration clause. _Id._, at 4. Defendants moved the district court to vacate the arbitrators’ award; the district court agreed with defendants that the arbitrators’ decision constituted a “manifest disregard” of federal maritime law and accordingly vacated the award. _Id._, at 4-5. The Second Circuit reversed on the ground that “because [defendants] had cited no authority applying a federal maritime rule of custom and usage against class arbitration, the arbitrators’ decision was not in manifest disregard of federal maritime law.” _Id._, at 5. The Supreme Court granted certiorari “to decide whether imposing class arbitration on parties whose arbitration clauses are ‘silent’ on that issue is consistent with the Federal Arbitration Act (FAA), 9 U. S. C. §1 et seq.” _Id._, at 1. The High Court reversed.

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Class Action Defense Cases–Jones v. DirecTV: Georgia Federal Court Denies Motion To Compel Arbitration Holding Class Action Waiver In Arbitration Clause Rendered It Unconscionable

Class Action Challenging Monthly Fees Imposed by Satellite TV Provider not Subject to Arbitration on Individual Basis because Class Action Waiver in Arbitration Provision was Unenforceable Georgia Federal Court Holds Plaintiff filed a putative class action in a Georgia federal court against his satellite television provider, DirecTV, alleging breach of contract and unjust enrichment, and seeking an accounting as well as injunctive and declaratory; specifically, the class action complaint alleged that DirecTV “collect[ed] excessive ‘tax’ charges and improperly billed lease fees” in connection with the satellite television service, and sought to prohibit it from collecting or billing customers “for taxes in excess of those actually due and owing.

Arbitration Class Action Court Decisions Uncategorized

Class Action Defense Arbitration Cases–Omstead v. Dell: Ninth Circuit Court Reinstates Class Action Complaint And Reverses District Court Order Compelling Arbitration Of Class Action Claims On Individual Basis

District Court Erred in Compelling Arbitration on Individual Basis of Class Action Claims because Texas Choice of Law Provision was Unenforceable and Class Action Waiver in Mandatory Arbitration Clause was Unenforceable under California law Ninth Circuit Holds

Plaintiffs filed a putative class action against Dell alleging product liability claims involving laptop computers; specifically, the class action complaint asserted various California state law claims “predicated on the allegation that Dell designed, manufactured, and sold defective notebook computers.” Omstead v. Dell, Inc., ___ F.3d ___ (9th Cir. February 5, 2010) [Slip Opn., at 2101, 2104-05]. According to the allegations underlying the class action complaint, plaintiffs had purchased notebook computers through Dell’s website, _id._, at 2105. As part of those purchases, “plaintiffs were required to accept a written agreement titled ‘U.S. Terms and Conditions of Sale’” (the “Agreement”). _Id._ In pertinent part, the Agreement stated that Texas law governed any dispute among the parties, and that any dispute between the customer and Dell “shall be resolved exclusively and finally by binding arbitration” and that the parties waived any right “to join or consolidate claims by or against other customers, or arbitrate any claim as a representative or class action,” _id._, at 2105-06. Defense attorneys moved to stay the class action and to compel arbitration of the plaintiffs’ individual claims based on an arbitration clause (which contained the class action waiver) in the Agreement. _Id._, at 2105, 2106. The district court granted the defense motion, _id._, at 2106. Plaintiffs, however, refused to comply with the arbitration order, so the district court dismissed the lawsuit based on plaintiffs’ failure to prosecute. _Id._, at 2105, 2106. Plaintiffs appealed the dismissal and the district court’s order compelling arbitration. _Id._, at 2105. The Ninth Circuit reversed.

Reviewing the district court order for an abuse of discretion, the Ninth Circuit first held that plaintiffs’ action should not have been dismissed for failure to prosecute the lawsuit. See Omstead, at 2107 et seq. Plaintiffs did not cause unreasonable delay of the lower court proceedings, id., at 2107-08, and they advised Dell and the district court of their interest in prosecuting the lawsuit as a class action and of their belief that the order compelling arbitration “was fatal to their action” and therefore requested “the district court to enter an order that would permit appellate review of the arbitration issue,” id., at 2108. In essence, the Circuit Court agreed with plaintiffs that the arbitration order placed them in an untenable position – prosecute the claims individually (which plaintiffs insisted that they lacked the financial means to do), or permit the court to dismiss the lawsuit and then pursue an appeal. Id., at 2108-09. The Ninth Circuit therefore exercised its discretion to treat the district court’s order of dismissal under Rule 41(b) as a voluntary dismissal with prejudice under Rule 41(a)(2), and turned to the merits of whether the class action claims should have been ordered to arbitration. Id., at 2109.

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