Thursday, May 10, 2012

Two New Arbitration Decisions of Note: Samaniego v. Empire Today LLC and O'Brien v. Am. Express Co.

In Samaniego v. Empire Today LLC, 2012 Cal. App. LEXIS 540 (April 5, 2012), the First District (Division Three) upheld a trial court order which declined to enforce arbitration of class-wide wage claims based on a finding of unconscionability under the Armendariz test.  The Court’s decision builds on a growing list of circumstances satisfying the Armendariz factors which may be relied upon to overcome enforcement of an arbitration provision in the employment context.

With regard to the first element, the Court concluded that the evidence “amply” supported a finding of procedural unconscionability, as (1) employees “were told that they were ‘required’ to sign these documents, including the agreement, if they wanted to work for Empire” [See id., at 10], (2) “Empire failed to provide plaintiffs with a copy of the relevant arbitration rules”  [See id., at 11 (concluding that “[n]umerous cases have held that the failure to provide a copy of the arbitration rules to which the employee would be bound, supported a finding of procedural unconscionability.”)], and (3) the language of the arbitration provision was buried at the end of an 11 page document that was “neither flagged by individual headings nor required to be initialed by the subcontractor.” See id., at 12.
  • [Note: In Morvant v. P.F. Chang's China Bistro, Inc., 2012 U.S. Dist. LEXIS 63985 (N.D. Cal. May 7, 2012), Northern District Court Judge, Yvonne Gonzalez Rogers, concluded that continued employment – standing alone – does not prove acceptance of the terms of the Arbitration Agreement.  Rather, “[a]n employee's continued employment has been found to constitute implied acceptance of the changed terms of employment where the employee was informed that his or her continued employment would constitute acceptance of those changed terms.”  See Morvant, 2012 U.S. Dist. LEXIS 63985, at 8.]
With regard to substantive unconscionability, the Court concluded that the agreement was rendered one sided by terms that (1) unilaterally shifted fees only for the employer [which the Court noted was unlawful in the wage context], and (2) limited the statute of limitations of wage claims to 6 months.  As to the later issue, the Court refused to extend authority approving of this practice into the wage context, finding that an arbitration provision cannot be used as a means to undermine statutory rights:
[Empire] supports its argument only with authority for the general proposition that a contractual provision that unilaterally shortens a limitations period to six months, taken alone, does not necessarily render an adhesion contract substantively unconscionable. (See Soltani v. Western & Southern Life Ins. Co. (9th Cir. 2001) 258 F.3d 1038, 1043 [citing California cases].) The import of such a clause is quite different in the context of the statutory wage and hour claims asserted here.  The Labor Code provides the bases for the class claims, and it affords employees three or four years to assert them. (See Nyulassy v. Lockheed Martin Corp. (2004) 120 Cal.App.4th 1267, 1283 []; Martinez v. Master Protection Corp. (2004) 118 Cal.App.4th 107, 117 [].)  Where, as in this case, arbitration provisions undermine statutory protections, courts have readily found unconscionability. (Nyulassy, supra, at p. 1283; Martinez, supra, at p. 117; Wherry v. Award, Inc. (2011) 192 Cal.App.4th 1242, 1249 [] (Wherry).) As noted in Armendariz, supra, “an arbitration agreement cannot be made to serve as a vehicle for the waiver of statutory rights created by the FEHA.” (24 Cal.4th at p. 101.)
See Samaniego, 2012 Cal. App. LEXIS 540, at 14.

In the second opinion – O'Brien v. Am. Express Co., 2012 U.S. Dist. LEXIS 64553 (S.D. Cal. May 8, 2012) – Southern District Magistrate Judge, Bernard G. Skomal, concluded that “under California law, Plaintiff may obtain limited discovery to make the argument that the arbitration agreement is unconscionable.”  See O'Brien, 2012 U.S. Dist. LEXIS 64553, at 11. As reasoned by the Court, “Concepcion … reaffirmed that the FAA ‘permits agreements to arbitrate to be invalidated by 'generally applicable contract defenses, such as fraud, duress, or unconscionability…’” and “[b]ased on these available defenses to the validity of an arbitration agreement, courts have permitted parties opposing a motion to compel arbitration to take discovery on the unconscionability of an arbitration provision, including ones with class action waivers, post-Concepcion.”  See id., at 7-9 (collecting cases). 

Post-Concepcion, engaging in discovery prior to opposing a motion to compel arbitration is becoming increaringly more important (if not essential) in the wage and hour context.  This was recently highlighted in the Second District’s decision in Kinecta Alternative Financial Solutions, Inc. v. Superior Court, __ Cal.App.4th __ (2012) – previously discussed here.  In that opinion, the Court held that an “AT&T Mobility LLC v. Concepcion … did not overrule Gentry”, but explained that an employee is “required to establish that the arbitration provision invalidly prohibited arbitration of class claims by making a factual showing of the four factors showing that class arbitration is likely to be a significantly more effective practical means of vindicating employees' rights than individual arbitration.”  Making such a showing in most cases would require discovery.

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