Phillips v. Sprint: Court of Appeal Affirms Individual Arbitration on Renewed Motion After Concepcion

A recurring issue over the last year or so has been whether defendants can bring or renew motions to compel arbitration in the wake of the Supreme Court's decision in AT&T Mobility LLC v. Concepcion (discussed here). 

In Phillips v. Sprint PCS (9/26/12), a putative consumer class action, the trial court denied Sprint's motion to compel individual arbitration in 2006.  Sprint renewed its motion in June, 2011, just two months after Concepcion.  The trial court granted the motion, compelling individual arbitration.  The plaintiffs appealed, and the Court of Appeal affirmed.  

First, the Court held that the order compelling individual arbitration was not appealable, but exercised its discretion to consider the appeal as a writ.  Slip op. at 5-7.  The Court held that the death knell doctrine did not apply because the trial court did not rule on Sprint's request to dismiss the class claims before the plaintiff filed his appeal.  Slip op. at 6-7.  Regardless, the Court held that "the unusual circumstances of this case warrant immediate review."  Slip op. at 7.  

Second, the Court held that the trial court did not abuse its discretion in allowing Sprint to renew its motion to compel after Concepcion.  Slip op. at 7-9.  The trial court relied at least in part on its observation that, "despite the great age of this case, plaintiff has done little to advance it to trial."  Slip op. at 9.  

Third, the Court held that the prior order denying the motion to compel was not res judicata.  Slip op. at 9-13.  The Court agreed with Sprint that "the arbitrability issue was raised and renewed by motion in a single ongoing class action lawsuit, making res judicata principles inapplicable because there is no prior judgment."  Slip op. at 10.  

Fourth, the Court held that Sprint did not waive its right to compel arbitration by not appealing the denial of its original motion to compel arbitration.  Slip op. at 13-14.  The Court held that any such appeal would have been futile in the face of Discover Bank.  Ibid.  

Finally, the Court affirmed that trial court's ruling that the arbitrator should decide whether the contract as a whole, rather than just its class action waiver clause, was unconscionable and unenforceable.  Slip op. at 14-15.  The plaintiff challenged provisions -- a shortened statute of limitations and a limitation on damages -- that lay outside the arbitration clause and that presumably would apply whether the matter proceeded in arbitration or in court.  Ibid.  "[A] challenge to the validity of the contract as a whole, and not specifically to the arbitration clause, must go to the arbitrator." Ibid., citing Buckeye Check Cashing, Inc. v. Cardegna (2006) 546 U.S. 440, 449. "The basis of the challenge must be 'directed specifically to the agreement to arbitrate before the court will intervene.'" Ibid., citing Rent-A-Center, West, Inc. v. Jackson (2010) ___ U.S. ___ (discussed here). 

The opinion is available here. 

McCall v. Facebook: Court Affirms Settlement Despite Objections As To Cy Pres Beneficiary

In McCall v. Facebook, Inc. (9th Cir. 9/20/12), the Ninth Circuit held that the district court did not abuse its discretion in approving a somewhat unusual $9.5 million settlement in a case involving more than 3.5 million putative class members.

The case arose out of allegations that Facebook's "Beacon" program violated users' privacy. The settlement allocated about $3 million to attorney fees, costs, and class rep enhancements and the remaining $6.5 million to establish and fund a new entity, the Digital Trust Foundation (“DTF”), which would “fund and sponsor programs designed to educate users, regulators[,] and enterprises" regarding online privacy issues. One of DTF's three directors would be a Facebook employee. DTF would have a Board of Legal Advisors, which would consist of counsel for both the plaintiff class and Facebook. Four class members objected, the district court granted final approval, the objectors appealed, and the Ninth Circuit affirmed.

Of greatest interest was the Court's rejection of the objectors' argument that Facebook’s employee serving on DTF’s board of directors created an unacceptable conflict of interest that would prevent DTF from acting in the interests of the class. Slip op. at 11545-11548. Given that direct distribution to the more than 3.5 million class members would be infeasible, the Court held that DTF was an acceptable alternative, even if the objectors did not find it "ideal." Slip op. at 11545. "The cy pres remedy the settling parties here have devised bears a direct and substantial nexus to the interests of absent class members and thus properly provides for the 'next best distribution' to the class." Slip op. at 11546. 

The Court also rejected the objectors' argument that the district court did not sufficiently evaluate the plaintiffs’ claims and compare the value of those claims with the class’s $9.5 million recovery (slip op. at 11548-11554), that the notice of settlement was insufficient because it did not describe the value of the plaintiffs’ claims and “did not accurately describe what the class members would receive in exchange for the release” of those claims (slip op. at 11554-11555).  The Court concluded: 

Ultimately, we find little in Objectors’ opposition to the settlement agreement beyond general dissatisfaction with the outcome. That dissatisfaction may very well be legitimate insofar as Objectors would have acted differently had they assumed the role of class representatives. But while Objectors may vigorously disagree with the class representatives’ decision not to hold out for more than $9.5 million or insist on a particular recipient of  cy pres funds, that disagreement does not require a reviewing court to undo the settling parties’ private agreement. The district court properly limited its substantive review of that agreement as necessary to determine that it was “fair, adequate, and free from collusion.” 

Judge Kleinfield wrote a very strongly worded dissent, which begins as follows:  

This settlement perverts the class action into a device for depriving victims of remedies for wrongs, while enriching both the wrongdoers and the lawyers purporting to represent the class.

Slip op. at 11555.  The opinion is available here.  

Fillpoint, LLC v. Maas: Court Finds Employee's Non-Competition Agreement Unenforceable

In Fillpoint v. Maas (8/24/12) --- Cal.App.4th ---, an employee who held stock in his employer sold that stock to a company purchasing the employer.  He signed a stock purchase agreement, which contained a three-year covenant not to compete. 

He also signed an employment agreement containing a one-year covenant not to compete, which would become operative when employee's employment with the employer ended.  The employee resigned from the employer three years after its acquisition by the purchaser. About six months later, he began working for a competitor. Fillpoint, which had acquired the employer from the purchaser, sued the employee for breaching his employment agreement, and also sued his new employer for interference with contract. The trial court granted the defendants' nonsuit motion, and the Court of Appeal affirmed.

The Court held that the covenant not to compete executed in connection with the sale of the employee's stock was enforceable under Labor Code section 16601.  Slip op. at 7-9.  

It also held that the employment agreement must be read in conjunction with the stock purchase agreement.  Slip op. at 9-14. The Court explained: 

In this case, both the purchase agreement and the employment agreement contained covenants not to compete, but those covenants were not identical.... The two agreements were between the same parties; although the purchase agreement was between Handleman and Maas, and the employment agreement was between Crave and Maas, Crave was owned by Handleman after the acquisition.  Both agreements referenced each other, and the employment agreement contained an integration clause providing that in the event of any conflicts between the terms of the two agreements, the terms of the purchase agreement would prevail.  Based on these facts, we conclude the purchase agreement and the employment agreement must be read together as an integrated agreement. The trial court erred in concluding the purchase agreement and the employment agreement must be read separately.  

Slip op. at 13-14.  

Regardless, the Court concluded that the non-competition agreement contained in the employment agreement was not enforceable.  Slip op. at 14-16.  

The purchase agreement's covenant was focused on protecting the acquired goodwill for a limited period of time.  The employment agreement's covenant targeted an employee's fundamental right to pursue his or her profession. 

Slip op. at 16.  In addition, the Court held that the non-solicitation terms found in the employment agreement were overly broad and were not enforceable.  Ibid.  

The opinion is available here. 

Reyes v. Liberman Broadcasting: Court of Appeal Reverses Order Denying Motion to Compel Arbitration

In Reyes v. Liberman Broadcasting Inc. (8/31/12) --- Cal.App.4th ---, the plaintiff worked as a security officer for the defendant, LBI. After his employment ended, he filed a putative class action and PAGA representative action alleging wage and hour violations. The trial court denied LBI's petition to compel arbitration on grounds that LBI failed to timely raise the issue. The Court of Appeal reversed.

The Court held that LBI had not waived its right to compel arbitration. Slip op. at 3-23. LBI's failure to invoke the arbitration clause sooner was not inconsistent with asserting the right to arbitrate for a number of reasons:

1. The arbitration agreement did not authorize class arbitration. Slip op. at 4-6, citing Stolt-Nielsen S.A. v. AnimalFeeds Int’l Corp. (2010) 559 U.S. ___, (discussed here); Kinecta Alternative Financial Solutions, Inc. v. Superior Court (2012) 205 Cal.App.4th 506, 510 (discussed here).   
2. Prior to AT&T Mobility LLC v. Concepcion (2011) __ U.S. __, (discussed here), California law arguably barred enforcement of the arbitration agreement because it did not authorize class arbitration.  Slip op. at 6-8. 
3. There is a difference of opinion whether Concepcion implicitly overruled Gentry v. Superior Court (2007) 42 Cal.4th 443.  Slip op. at 8-12, citing Iskanian v. CLS Transportation Los Angeles, LLC (2012)  206 Cal.App.4th 949, review granted 9/19/12 (discussed here); but cf. Brown v. Ralphs Grocery Co. (2011) 197 Cal.App.4th 489, 497 (discussed here).  
4. Given the possibility that California law barred enforcement of the arbitration agreement, LBI did not waive its right to arbitration by not making its motion prior to Concepcion. Slip op. at 12-17; citing Quevedo v. Macy’s, Inc. (C.D.Cal. 2011) 798 F.Supp.2d 1122; In re Cal. Title Ins. Antitrust Litig. (N.D.Cal. June 27, 2011, No. 08-01341); but cf. Roberts v. El Cajon Motors, Inc. (2011) 200 Cal.App.4th 832 (discussed here).  

Further, LBI had not "substantially invoked the litigation machinery," LBI moved to compel arbitration just one month after Concpecion, LBI did not file a counterclaim, and the plaintiff showed no prejudice as a result of the delay.  Slip op. at 17-23.  

Finally, the Court held that the National Labor Relations Act did not apply, finding no "congressional command in the NLRA prohibiting the enforcement of the arbitration agreement according to its terms." Slip op. at 23-25, citing Iskanian, supra.  

Given the grant of review in Iskanian, it will be very interesting to see whether the Supreme Court allows Reyes to stand, or issues a grant-and-hold order.  

The opinion is available here.  

Missouri Title Loans v. Brewer: SCOTUS Denies Certiorari in Concepcion Follow-Up

Since the Supreme Court's decision in AT&T Mobility LLC v. Concepcion, 563 U.S. ___ (4/27/11) (discussed here), we have seen differing opinions on whether Concepcion overruled the California Supreme Court's decision in Gentry v. Superior Court (2007) 42 Cal.4th 443.  

As a reminder, Gentry held that the right to class arbitration is -- "at least in some cases" -- a necessary minimum requirement for the arbitration of non-waivable statutory rights because requiring individual arbitration may have an exculpatory effect, undermining the enforcement of those statutory rights.

The Supreme Court of the United States yesterday denied certiorari in a case that could have ended the debate over Concepcion and Gentry. In Brewer v. Missouri Title Loans, Inc., the Supreme Court of Missouri held that a class arbitration waiver in a loan agreement was unconscionable and unenforceable and that the appropriate remedy was to strike the entire arbitration agreement.  The Court reasoned that striking only the class arbitration waiver still would not allow for class arbitration (citing Stolt-Nielsen S.A. v. AnimalFeeds Int'l Corp., 559 U.S. ___  (2010)), and because a plaintiff would not be able to find counsel to represent her in an individual arbitration, she would have "no meaningful avenue of redressing complicated statutory and common law claims."  In other words, individual arbitration would have an exculpatory effect and undermine enforcement of the laws at issue.  

The defendant petitioned for certiorari, framing the issues as follows:  

1. Whether the Federal Arbitration Act ("FAA") preempts state law finding an arbitration agreement to be unconscionable when the plaintiff cannot vindicate her statutory rights without a class action; and
2. Whether the Supreme Court of Missouri, on remand from the Supreme Court, contravened the FAA by again refusing to enforce Missouri Title Loans' arbitration agreement, this time based upon alleged evidence submitted by the plaintiff aimed at substantiating the very public policy arguments that were held to be preempted in AT&T Mobility LLC v. Concepcion.  

I will not try to read the tea leaves on that one.  You can find more information, including the underlying decision and the parties' briefs, on SCOTUSblog.  

Governor Brown Acts On Employment Law Bills

As you probably know, Governor Brown has acted on a very large number of bills over the last week, and many of them impact employment law. The following is a list, compiled by DFEH Director Phyllis Cheng.  I will review a few of these bills in detail over the next week or so.

Bills Signed

AB 1203 by Assemblymember Tony Mendoza (D-Artesia) –Public school employee organizations: unelected members: paid leaves of absence.

AB 1565 by Assemblymember Felipe Fuentes (D-Los Angeles) – Public contracts: school districts: bidding requirements.

AB 1598 by Assemblymember Joan Buchanan (D-San Ramon) – Public contracts: public works: installation.

AB 1675 by Assemblymember Susan Bonilla (D-Concord) – Farm labor contractors: licenses: civil penalty.

AB 1744 by Assemblymember Bonnie Lowenthal (D-Long Beach) – Employee compensation: itemized statements.

AB 1794 by Assemblymember Das Williams (D-Santa Barbara) – Unemployment insurance: use of employer reports: reporting and payroll: enforcement. 

AB 1844 by Assemblymember Nora Campos - prohibits employers from requiring that applicants give up their e-mail or social media account passwords.

AB 1855 by Assemblymember Norma Torres (D-Pomona) – Employment: contractors: sufficient funds. 

AB 1865 by Assemblymember Luis Alejo (D-Salinas) – Residential tenancies: eviction: notices.

AB 1908 by Assemblymember Luis Alejo (D-Salinas) – Classified employees: notice of layoff.

AB 1960 by Assemblymember Roger Dickinson (D-Sacramento) – State contracts: reports: lesbian, gay, bisexual, and transgender businesses. 

AB 1964 by Assemblymember Mariko Yamada (D-Davis)- Clarifies that the practice of wearing religious clothing or a religious hairstyle as a belief or observance is covered by protections under the Fair Employment and Housing Act.

AB 2103 by Assemblymember Tom Ammiano (D-San Francisco) – Employment: wages and hours: overtime. 

AB 2140 by Assemblymember Ricardo Lara (D-South Gate) – Public employees' retirement: State Bargaining Unit 5: contribution rates.

AB 2212 by Assemblymember Marty Block (D-San Diego) – Human trafficking: civil penalties.

AB 2298 by Assemblymember Jose Solorio (D-Santa Ana) – Insurance: public safety employees: accidents. 

AB 2396 by the Committee on Arts, Entertainment, Sports, Tourism – Employment of infants: entertainment industry.

AB 2343 by Assemblymember Norma Torres (D-Pomona) – Criminal history information.

AB 2508 by Assemblymember Susan Bonilla (D-Concord) – Public contracts: public health agencies.

AB 2580 by Assemblymember Warren Furutani (D-Long Beach) – Public contracts: job order contracting.

AB 2663 by the Committee on Public Employees, Retirement and Social Security – Teachers' Retirement Law.

AB 2674 by Assemblymember Sandré Swanson (D-Oakland) – Employment records: right to inspect.

AB 2675 by Assemblymember Sandré Swanson (D-Oakland) – Employment contract requirements.

AB 2677 by Assemblymember Sandré Swanson (D-Oakland) – Public works: wages: employer payment contributions.

SB 114 by Senator Leland Yee (D-San Francisco) – Teachers: retirement. 

SB 615 by Senator Ronald Calderon (D-Montebello) – Multiple employer welfare arrangements: benefits.

SB 691 by Senator Ted Lieu (D-Torrance) - Unemployment insurance: use of information.

SB 987 by Senator Gloria Negrete McLeod (D-Chino) – Public employees' retirement.

SB 1255 by Senator Roderick Wright (D- Los Angeles) – Employee compensation: itemized statements. 

SB 1291 by Senator Noreen Evans (D-Santa Rosa) – Unemployment benefits: training: teacher credentialing.

SB 1294 by Senator Tom Berryhill (R-Stanislaus) – Public employee health benefits: Mariposa County. 

SB 1370 by Senator Tom Berryhill (R-Stanislaus) – Prevailing wages: public works: director: code list

Bills Vetoed

AB 889 by Assemblymember Tom Ammiano (D-San Francisco) – Domestic work employees. A veto message can be found here.

AB 1450 by Assemblymember Michael Allen (D-Santa Rosa) – Employment: discrimination: status as unemployed. A veto message can be found here. 

AB 1852 by Assemblymember Nora Campos (D-San Jose) – Vital records: fees. A veto message can be found here.

AB 1968 by Assemblymember Bob Wieckowski (D-Fremont) – Peace officers. A veto message can be found here.  

AB 2132 by Assemblymember Ricardo Lara (D-South Gate) – Public postsecondary education: tenure policy. A veto message can be found here.

AB 2346 by Assemblymember Betsy Butler (D-Marina Del Rey) – Agricultural employee safety: heat-related illness. A veto message can be found here. 

AB 2389 by Assemblymember Bonnie Lowenthal (D-Long Beach) – Contractor disclosure requirements. A veto message can be found here.  

AB 2623 by Assemblymember Michael Allen (D-Santa Rosa) –State hospitals: peace officers. A veto message can be found here.

AB 2676 by Assemblymember Charles Calderon (D-Whittier) – Agricultural employee safety. A veto message can be found here. 

SB 204 by Senator Carol Liu (D-Pasadena) – Local alternative transportation improvement program. A veto message can be found here.

SB 259 by Senator Loni Hancock (D-Berkeley) – Higher education: employees. A veto message can be found here. 

SB 1233 by Senator Alex Padilla (D-Pacoima) – Ballot measure petitions: translations. A veto message can be found here.

SB 1318 by Senator Lois Wolk (D-Davis) – Health facilities: influenza vaccinations. A veto message can be found here.

SB 1434 by Senator Mark Leno (D-San Francisco) – Location information: warrants. A veto message can be found here.

SB 1476 by Senator Mark Leno (D-San Francisco) – Family law: parentage. A veto message can be found here.

Paratransit v. UIAB: California Supreme Court Grants Review In Employee Misconduct Case

In Paratransit, Inc. v. Unemployment Insurance Appeals Board (Medeiros) (2012) 206 Cal.App.4th 1319, the Court of Appeal held that an employee's refusal to sign a disciplinary memorandum in connection with a prior incident of misconduct constituted work-related misconduct, not a good-faith error in judgment, rendering the employee ineligible for unemployment compensation.

Last week the California Supreme Court voted 7-0 to grant review. The Court's web page states the issue presented as follows:

Did the trial court properly find that employee misconduct within the meaning of Amador v. Unemployment Ins. Appeals Bd. (1984) 35 Cal.3d 671 disqualified a discharged employee from receiving unemployment insurance benefits?

The Court's web page is here. I have added Paratransit to our Watch List of pending cases, which you can find on the lower rights side of our home page.