Monday, March 12, 2012

Southern District Declines to Enforce Class Action Waiver Secured After Filing of Lawsuit: Balasanyan v. Nordstrom, Inc.

On March 8, 2012, Southern District Court Judge, Jeffrey T. Miller, denied an employer’s motion to compel individual arbitration based on an arbitration agreement that was amended to include a class action waiver provision two months after the proposed class action complaint was filed.  See Balasanyan v. Nordstrom, Inc., 2012 U.S. Dist. LEXIS 30809 (S.D. Cal. Mar. 8, 2012).  In denying the motion, the Court reasoned that the employer’s efforts to revise the agreement – post filing of the lawsuit – was an improper communication with the class because it improperly sought to dissuade participation in a pending action:
While Wang dealt with improper attempts to persuade employees to opt out of a class action suit, the district court's power also extends to other communications that would affect participation in the lawsuit, such as the arbitration agreement at issue here. One case, for example, invalidated an arbitration agreement in part because institution of the agreement after the case had been filed constituted an improper communication with putative class members. In re Currency Conversion Fee Antitrust Litigation, 361 F.Supp.2d 237 (S.D.N.Y. 2005) (amended on other grounds). The plaintiffs in that case were Visa and MasterCard cardholders who sued various banks for alleged illegal charges based on foreign currency exchanges. Several of the banks mailed letters to their cardholders purporting to add an arbitration clause to the cardholder agreements after the litigation had begun, but did not inform the cardholders about the litigation in the notices. The court first noted that trial courts have authority over defendants' communications with class members under Fed. R. Civ. P. 23(d), id. at 252, and emphasized that a court must protect the interest of putative class members by preventing misleading communications, perhaps even disallowing communications if they attempt to "undermine Rule 23 by encouraging class members not to join the suit." Id. (citation omitted). The court found that because this type of communication had the potential for coercion, given that the cardholders had no other source of information concerning the litigation and they depended on defendants for their credit needs, the actions were improper. In conclusion, the court held "that [the arbitration clauses in question] may not be enforced because Chase and Citibank added them, without notice, after this litigation commenced." Id. at 254. See also Williams v. Securitas, 2011 U.S. Dist. LEXIS 75502 (E.D. Pa. 2011) (invalidating arbitration agreement imposed on defendant's employees during pendency of litigation because it was likely to confuse putative class members about whether agreement required them to opt out).
See Balasanyan, 2012 U.S. Dist. LEXIS 30809, at 7-9.

Significantly, the Court rejected the employer’s efforts to couch the communication as constituting an “employment communication” (as opposed to a “class communication”), and refused to find an exemption to the forgoing authorities based on the fact the lawsuit was not even mentioned in the communication with the class.  The Court found that the employer’s failure to mention the pending lawsuit when soliciting the revised agreement only served to enhance the deceptive/coercive nature of the communication:
Nordstrom states that "the August DRA cannot possibly constitute a misleading communication about the litigation" because the lawsuit was never mentioned in the agreement. Def. Reply at 10. Of course, by advocating a bright line rule that would focus on whether a communication specifically mentions the lawsuit, Nordstrom misses the point. One purpose of the court's control over class communication is to prevent improper contacts that could jeopardize the rights of the class members—abdicating that responsibility simply because a defendant does not specifically mention the litigation would defy common sense, as exemplified in In re Currency Conversion, 361 F.Supp.3d 237. n2 To allow defendants to induce putative class members into forfeiting their rights by making them an offer and failing to disclose the existence of litigation would create an incentive to engage in misleading behavior.
See Balasanyan, 2012 U.S. Dist. LEXIS 30809, at 9-10.

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