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Wednesday, December 11, 2013

Ferguson v. Corinthian Colleges: Ninth Circuit Rejects Broughton-Cruz Rule

California's Broughton-Cruz rule prohibits arbitration of "public injunction" cases that are brought for the benefit of the general public rather than just the party bringing the action. Back in April, in Kilgore v. Keybank, N.A., ___ F.3d ___ (4/11/13) (discussed here), we thought that an en banc panel of the Ninth Circuit was going to give us its view of the continued viability of the rule in the wake of Concepcion. The Ninth Circuit did not address the issue in Kilgore, but addressed it directly in Ferguson v. Corinthian Colleges, Inc., ___ F.3d ___ (10/28/13), holding that the Federal Arbitration Act (FAA) preempts Broughton-Cruz

The Court started with the rule, stated in Concepcion, that “[w]hen state law prohibits outright the arbitration of a particular type of claim ... [the] conflicting rule is displaced by the FAA.” Slip op. at 11-12. The Court continued: 

That rule resolves this case. By exempting from arbitration claims for public injunctive relief under the [Consumer Legal Remedies Act], [Unfair Competition Law], and [False Advertising Law], the Broughton-Cruz rule similarly prohibits outright arbitration of a particular type of claim.
Slip op. at 12. 

The decision appears to leave a number of open questions: 
We decline to resolve in advance the question of what, if any, court remedy Plaintiffs might be entitled to should the arbitrator determine that it lacks the authority to issue the requested injunction. That is beyond the scope of this appeal. If the arbitrator comes to that conclusion, Plaintiffs may return to the district court to seek their public injunctive relief. We express no opinion on any question that might arise at that time. Similarly, we decline to resolve now questions that could arise if a motion is brought in court to confirm an arbitration award that includes injunctive relief, or whether it might be necessary for a court to enforce a public injunction awarded by an arbitrator. Those questions can be better addressed in the context of an actual case, with arguments directed more specifically to the questions raised in that case. 
Slip op. at 17. 

Ferguson v. Corinthian Colleges is available here

Tuesday, December 10, 2013

D.R. Horton v. NLRB: Fifth Circuit Overturns Ruling on NLRA Preemption of Class Action Waivers

A little more information on the Fifth Circuit's decision in D.R. Horton, Inc. v. NLRB, ___ F.3d ___ (5th Cir. 12/3/13).

In In re DR Horton, Inc., 357 NLRB 184 - 2012 (discussed here), the National Labor Relations Board (Board or NLRB) held that an employer violated section 8 of the National Labor Relations Act (NLRA) by requiring its employees to sign an arbitration policy. Horton appealed the decision to the Fifth Circuit Court of Appeals, which overturned the Board's decision.

After discussing a number of procedural and jurisdictional issues, the Court got to the heart of the analysis. The Court began with the premise that the Federal Arbitration Act (FAA) requires courts to enforce arbitration agreements according to their terms, then noted two exceptions to the rule: (1) an arbitration agreement may be invalidated on any ground that would invalidate a contract under the FAA’s “saving clause,” or (2) application of the FAA may be precluded by another statute’s contrary congressional command.

The Court held that under Concepcion, the Board’s rule "does not fit within the FAA’s saving clause." Slip op. at 19. "While the Board's interpretation [invalidating class action waivers] is facially neutral 
– requiring only that employees have access to collective procedures in an arbitral or judicial forum – the effect of this interpretation is to disfavor arbitration." Slip op. at 20. 

The Court then held that neither the text of the NLRA nor its 
legislative history evidences a "congressional command to override the FAA." Slip op. at 22. 

Finally, the Court affirmed the Board's holding that the arbitration language at issue violated the NLRA because it would lead employees to a reasonable belief that they were prohibited from filing unfair labor practice charges with the Board. Slip op. at 26-28.  

According to the Court, every Circuit Court of Appeals to consider D.R. Horton "has either suggested or expressly stated that [it] would not defer to the NLRB’s rationale, and held arbitration agreements containing class waivers enforceable." See Richards v. Ernst & Young, LLP, – F.3d — , No. 11-17530, 2013 WL 4437601, at *2 (9th Cir. Aug. 21, 2013); Sutherland v. Ernst & Young LLP, 726 F.3d 290, 297-98 n.8 (2d Cir. 2013); Owen v. Bristol Care, Inc., 702 F.3d 1050, 1055 (8th Cir. 2013). 

The Fifth Circuit's opinion is available here

Monday, December 9, 2013

Angelica Textile Services v. Park: Employer Could State Non-Trade Secret Claims Against Former Officer

In Angelica Textile Services, Inc. v. Park (10/15/13) --- Cal.App.4th ---, an employer, Angelica, sued a former officer, Park, and his new employer for misappropriating trade secrets, violating the Unfair Competition Law (Cal. Bus. & Prof. Code 17200), interfering with business relationships, breaching his employment contract, converting documents, and breaching his fiduciary duties. Angelica alleged that Park disparaged it to a local bank and, in negotiating new contracts with two of its large customers, gave the customers cancellation rights that are not customary in the industry and that permitted those customers to shortly thereafter take their business to Park's new employer.

Before trial, the court dismissed Angelica's claims, other than its claim for violation of the Uniform Trade Secret Act (UTSA). Cal. Civil Code section 3426 et seq. The Court found that all non-UTSA claims were based on the alleged misappropriation of trade secrets and were therefore preempted by UTSA. A jury then found for the defendants on the trade secret claim.

The Court of Appeal reversed the judgment as to the non-UTSA causes of action. It held:

The UTSA did not preempt Angelica's non-UTSA claims. Slip op. at 10-16.

Breach of contract claims, even when they are based on misappropriation or misuse of a trade secret, are not displaced by UTSA. Slip op. at 15. Angelica's breach of contract claim was not based on any misappropriation of a trade secret but on Park's violation of a noncompetition agreement and was outside the scope of UTSA displacement on that basis as well. Ibid.

Angelica's claims for breach of fiduciary duty, unfair competition, and interference with business relations also alleged Park's violation of a noncompetition agreement and were outside the scope of UTSA displacement. Slip op. at 16. Angelica's conversion claim alleged that Park took non-trade secret documents and was not displaced by the UTSA. Slip op. at 16.  

Business and Professions Code section 16600, which limits the use of non-competition agreements, "does not affect limitations on an employee's conduct or duties while employed." Slip op. at 17. As a corporate officer, Park owed Angelica "broad fiduciary duties" while employed there, and section 16600 did not apply. Ibid

The opinion is available here

Thursday, December 5, 2013

MacDonald v. State of California: Cal. Supreme Court Depublishes Decision That Employee Must Exhaust Administrative Remedies Before Filing Retaliation Action

In MacDonald v. State of California (8/27/13) 219 Cal.App.4th 67 (discussed here), the Court of Appeal affirmed dismissal of an action for retaliatory discharge in violation of Labor Code section 1102.5 and retaliatory and discriminatory discharge in violation of Labor Code section 6310, holding that an employee must exhaust administrative remedies under Labor Code section 98.7 before filing suit in Court.

The California Supreme Court last week denied review of that decision, but ordered the Reporter of Decisions not to publish it in the Official Appellate Reports. In other words, the case has been depublished. As is typical, the Court did not explain its decision.