Oxford Health Plans LLC v. Sutter: SCOTUS Issues Decision on Arbitrator's Power to Order Class Arbitration

In Stolt-Nielsen S. A. v. AnimalFeeds Int’l Corp., 559 U. S. 662 (2010), the Supreme Court held that an arbitrator "may employ class procedures only if the parties have authorized them." The Supreme Court yesterday released its decision in Oxford Health Plans LLC v. Sutter, ___ U.S. ___ (6/10/13), in which it considered whether an arbitrator exceeded his authority by finding that the parties' agreement authorized class arbitration, even though it did not mention class arbitration.  Justice Kagan wrote the opinion for a unanimous Court. 

John Sutter filed a putative class action in state court against Oxford Health Plans, alleging that it failed to make full payment to him and other physicians, in violation of their agreements and state law. The court granted Oxford’s motion to compel arbitration, relying on the following clause in their contract: 

No civil action concerning any dispute arising under this Agreement shall be instituted before any court, and all such disputes shall be submitted to final and binding arbitration in New Jersey, pursuant to the rules of the American Arbitration Association with one arbitrator. 

The parties agreed that the arbitrator should decide whether the contract authorized class arbitration, and he determined that it did. He reasoned that the arbitration clause sent to arbitration “the same universal class of disputes” that it barred the parties from bringing “as civil actions” in court, including class claims.  

Oxford moved in federal court to vacate the arbitrator’s decision on the ground that he had “exceeded [his] powers” under §10(a)(4) of the FAA. The District Court denied the motion, and the Third Circuit Court of Appeals affirmed.  

Oxford asked the arbitrator to reconsider his decision on class arbitration after the Supreme Court issued Stolt-Nielsen. He issued a new opinion holding that Stolt-Nielsen had no effect. Unlike in Stolt-Nielsen, the arbitrator explained, the parties here disputed the meaning of their contract; he had therefore been required “to construe the arbitration clause in the ordinary way to glean the parties’ intent,” and had “found that the arbitration clause unambiguously evinced an intention to allow class arbitration.” 

Oxford made a renewed motion in district court to vacate the arbitrator’s decision under the FAA. The district court again denied the motion, and the Third Circuit again affirmed. The Supreme Court granted certiorari to address a circuit split on whether §10(a)(4) allows a court to vacate an arbitral award in similar circumstances. It held unanimously that it does not.  

The Court focused on the limited scope of review allowed in such circumstances. A party arguing that an arbitrator has "exceeded his powers" bears a heavy burden: 

“It is not enough . . . to show that the [arbitrator] committed an error—or even a serious error.” Because the parties “bargained for the arbitrator’s construction of their agreement,” an arbitral decision “even arguably construing or applying the contract” must stand, regardless of a court’s view of its (de)merits... [T]he sole question for us is whether the arbitrator (even arguably) interpreted the parties’ contract, not whether he got its meaning right or wrong.

Slip op. at 4-5 (citations omitted). 

The Court then held that the arbitrator had twice done what the parties requested and what the law required. "He considered their contract and decided whether it reflected an agreement to permit class proceedings. That suffices to show that the arbitrator did not 'exceed[ ] [his] powers.'" Slip op. at 6. 

The Court distinguished Stolt-Nielsen on grounds that the parties there had entered into an "unusual stipulation that they had never reached an agreement on class arbitration." Given that stipulation, the arbitrators in Stolt-Nielsen could not have concluded that the parties' agreement authorized class arbitration. "So in setting aside the arbitrators’ decision, we found not that they had misinterpreted the contract, but that they had abandoned their interpretive role." Slip op. at 6-7. 

The Court then addressed Oxford's argument that the arbitrator had misinterpreted the arbitration agreement: 

We reject this argument because, and only because, it is not properly addressed to a court. Nothing we say in this opinion should be taken to reflect any agreement with the arbitrator’s contract interpretation, or any quarrel with Oxford’s contrary reading. All we say is that convincing a court of an arbitrator’s error—even his grave error—is not enough. So long as the arbitrator was “arguably construing” the contract—which this one was—a court may not correct his mistakes under §10(a)(4). 

Slip op. at 8.  

In his concurring opinion, Justice Alito, joined by Justice Thomas, points out that the Court's opinion "follows directly from petitioner’s concession and the narrow judicial review that federal law allows in arbitration cases." He goes on to state that if the Court were reviewing the arbitrator's decision de novo, "we would have little trouble concluding that he improperly inferred '[a]n implicit agreement to authorize class-action arbitration . . . from the fact of the parties' agreement to arbitrate.'"  Slip op. at 1. 

I have to admit that I am surprised by the result here.  I thought that the Court would extend Stolt-Nielsen and invalidate the arbitrator's decision to allow class arbitration. And I certainly did not think that an opinion affirming the arbitrator's decision would be a unanimous one. All very interesting. 

The opinion is available here. 

Bluford v. Safeway: Court Holds that Employer Must Separately Compensate Piece Rate Employees for Rest Period Time; Reverses Denial of Class Certification

In Bluford v. Safeway Stores, Inc. (5/8/13, pub. 5/24/13) --- Cal.App.4th ---, Kenneth Bluford worked as a truck driver out of a distribution center operated by Safeway. He filed a putative class action, alleging that Safeway violated California's meal period, rest period, and wage statement laws. The trial court denied the class certification motion, holding that class members' individual reasons for missing meal or rest periods predominated over common issues and that the class members did not suffer any common injury from the alleged wage statement violations.  

The Court of Appeal reversed, but published only the general discussion of certification standards and the rest period certification issue. 

As to certification of the rest period class, the Court held that the plaintiff's theory of recovery was based on Safeway's uniform policies and procedures, and the trial court's denial of certification was not supported by substantial evidence. Common proof demonstrated that Safeway paid its drivers based on the miles driven and other factors and did not separately compensate them for their rest periods, as required.  

[U]nder the rule of Armenta v. Osmose, Inc. (2005) 135 Cal.App.4th 314, 323, rest periods must be separately compensated in a piece-rate system. Rest periods are considered hours worked and must be compensated. Under the California minimum wage law, employees must be compensated for each hour worked at either the legal minimum wage or the contractual hourly rate, and compliance cannot be determined by averaging hourly compensation.  

Thus, contrary to Safeway's argument, a piece-rate compensation formula that does not compensate separately for rest periods does not comply with California minimum wage law.  

There is no dispute that Safeway's activity based compensation system did not separately compensate drivers for their rest periods. Pay was calculated based on mileage rates applied according to the number of miles driven, the time when the trips were made, and the locations where the trips began and ended. None of these components directly compensated for rest periods. Driver pay was also based on fixed rates for certain tasks and hourly rates for other tasks and delays. There is no dispute that none of these fixed rates were applied to rest periods.

The only individual issue was damages, and the fact that damages would have to be calculated individually did not support denial of certification.  Slip op. at 7-10. 

The trial court's conclusion that individual issues will predominate is not supported by substantial evidence. Plaintiff's theory of recovery does not concern the drivers' subjective reasons for taking or not taking a rest period. Rather, it concerns Safeway's compensation system and its failure to separately compensate drivers for their rest periods. All of the disputes on the merits of this claim involve common evidence and argument, and individual damages. The rest period subclass must be certified. 

 Slip op. at 10. 

This case has an interesting link to Cicairos v. Summit Logistics, Inc. (2005) 133 Cal.App.4th 949, which has figured prominently in the meal and rest period certification debate. In Cicairos, truck drivers working out of the same distribution center at issue here sued their employer, Summit Logistics, for meal period, rest period, and itemized wage statement violations. The trial court granted summary judgment for Summit Logistics, and the Court of Appeal reversed. Safeway took over operation of the distribution center in 2003 and apparently continued some of the same compensation policies at issue in Cicairos. 

Bluford v. Safeway Stores, Inc. is available here. 

Westendorf v. West Coast Contractors: Court Affirms In Part and Reverses In Part Summary Judgment For Employer In Title VII Action

In Westendorf v. West Coast Contractors of Nevada, Inc., ___ F.3d ___ (9th Cir. 4/1/13), Jennifer Westendorf sued her former employer, West Coast Contractors, under Title VII for sexual harassment and retaliatory discharge. Westendorf alleged that her supervisor and a co-worker made "offensive sexual comments" to her, including calling her work “girly work,” commenting on another woman's breasts, asking if she found the woman's breasts “intimidating,” asking whether women “got off” when they used a particular kind of tampon, telling her that “women were lucky because [they] got to have multiple orgasms,” and  telling her to clean the workplace while wearing a French maid’s costume. When Westendorf complained to the company's president, Mario Ramirez, her supervisor began to criticize her work and use profanity against her. Westendorf continued to complain to Martinez, who terminated her approximately four months after she first raised the issue. Slip op. at 4-7. The district court granted West Coast's motion for summary judgment, and Westendorf appealed.  

The Court of Appeals affirmed summary judgment on the hostile work environment claim, holding that Westendorf did not make out a prima facie case of sexual harassment.  

Although we certainly do not condone Mr. Ellis’s crude and offensive remarks, we note that Ms. Westendorf went to his workplace only once a week for three months and often did not stay an entire day. Other than his references to the French maid’s costume, Mr. Ellis reportedly made offensive sexual remarks to Ms. Westendorf on only about four occasions. Mr. Joslyn joined Mr. Ellis in the “Double D” comments but otherwise made no sexual remarks to Ms. Westendorf, and he quickly apologized for his “girly work” remark, which she did not deem serious enough to complain about. The harassment was not physical and Ms. Westendorf did not say that her work suffered because of it. Because we conclude that the evidence, viewed favorably to her, did not show sexual harassment that was sufficiently severe or pervasive to alter the terms of Ms. Westendorf’s employment and subject her to an abusive environment, we affirm the judgment for West Coast on her sexual harassment claim. 

Slip op. at 9.  

The Court reversed as to the claim that West Coast fired Westendorf in retaliation for complaining about sexual harassment. Although the conduct did not rise to the level of sexual harassment, the Court held that it “could support a reasonable belief that she was subjected to actionable sexual harassment, and that she had such a belief.” Slip op. at 10. Accordingly, her complaints constituted protected activity. 

To make out a retaliation claim, Westendorf “had to show that her protected conduct was a but-for cause — but not necessarily the only cause — of her termination.” Slip op. at 10.  

We conclude that the record evidence was sufficient to raise a material question of fact as to whether Ms. Westendorf’s July 14 complaints — which we have already said could be “protected activity” — were a but-for cause of her termination. We therefore believe that the district court erred in granting the summary judgment motion on the ground that she failed to make out a prima facie case of retaliation. 

Slip op. at 11-12.  

The opinion is available here. 

Brown v. Superior Court: Court Invalidates Arbitration Agreement's Waiver of PAGA Representative Action

In Brown v. Ralphs Grocery Co. (7/12/11) 197 Cal.App.4th 489, review denied 10/19/2011 (discussed here), the Court of Appeal held that the Federal Arbitration Act (FAA), as explained in AT&T Mobility LLC v. Concepcion (2011) 563 U.S. ___ (discussed here) does not preempt California law invalidating an employee's waiver of her right to bring an action under the Labor Code Private Attorneys General Act (PAGA). That's a mouthful, but in other words, even if an employee waives the right to bring a PAGA representative action, he or she can bring the action because the waiver is invalid.

On June 4, the Court of Appeal issued another Brown case on the same issue: Brown v. Superior Court (Morgan Tire & Auto, LLC) (6/4/13) --- Cal.App.4th ---. The Court reversed in part a trial court order compelling individual arbitration of wage claims, again holding that the FAA does not preempt California law prohibiting waiver of an employee's right to bring a PAGA representative action.  

A plaintiff suing for PAGA civil penalties is suing as a proxy for the State. A PAGA claim is necessarily a representative action intended to advance a predominately public purpose. When applied to the PAGA, a private agreement purporting to waive the right to take representative action is unenforceable because it wholly precludes the exercise of this unwaivable statutory right. AT&T Mobility LLC v. Concepcion (2011) 131 S.Ct. 1740, does not require otherwise. 

Slip op. at 1-2.  

The Court held as follows: 

The defendant did not waive its right to compel arbitration by litigating the case in court for ten months before the U.S. Supreme Court issued its decision in Concepcion. In light of Gentry v. Superior Court (2007) 42 Cal.4th 443, it was reasonable for the defendant to believe that bringing a motion to compel individual arbitration would have been futile. Slip op. at 7-12. 

The National Labor Relations Board (NLRB) incorrectly decided D.R. Horton, Inc. (2012) 357 NLRB No. 184 (discussed here), and the National Labor Relations Act (NLRA) did not make the representative action waiver unenforceable. Citing Truly Nolen of America v. Superior Court (2012) 208 Cal.App.4th 487, 514-515 (discussed here) and Nelsen v. Legacy Partners Residential, Inc. (2012) 207 Cal.App.4th 1115, 1132-1135, review denied 11/2/12 (discussed here). Slip op. at 12-13. 

The FAA does not require "enforcement of a private agreement that wholly prevents the exercise of a statutory right intended for a predominantly public purpose." Slip op. at 16. The Court held that all PAGA actions are representative actions: 

The obvious public purpose of the law suggests that it is necessarily a representative action. Law enforcement does not take place on an individual basis. The PAGA does not give an employee any substantive rights. The PAGA merely allows the employee to act on behalf of the state when the employer violates other sections of the Labor Code. 

Slip op. at 17. 

The Court held that the portion of the agreement waiving the employee's right to bring a PAGA representative action was invalid, but the remainder of the agreement was valid, and the trial court should have compelled individual arbitration of the plaintiff's non-PAGA claims: 

It follows that the PAGA claim must be excluded from the order compelling arbitration and stayed pending resolution of the arbitration. 

Slip op. at 20. 

Even though the California Supreme Court denied review of Brown v. Ralphs Grocery back in 2011, I assume that it will grant review of this Brown decision and hold pending its decision in Iskanian v. CLS Transportation L.A., LLC (6/4/12) 206 Cal.App.4th 949, review granted 9/19/12 (discussed here). 

Brown v. Superior Court is available here.  

Harris v. Bingham McCutchen: Court Enforces Massachuetts Choice-of-Law Provision, Affirms Order Denying Motion to Compel Arbitration of Discrimination Claims

Harris v. Bingham McCutchen (3/29/13) --- Cal.App.4th ---, is an unusual arbitration decision that I will note briefly.

Hartwell Harris sued her former employer and others (Bingham) for discrimination and wrongful termination. Bingham moved to compel arbitration under an agreement to apply "the internal substantive laws of The Commonwealth of Massachusetts." The trial court denied the motion, and the Court of Appeal affirmed, holding: 

Massachusetts law governed questions of arbitrability.  Bingham created the arbitration agreement, including the Massachusetts choice-of-law provision, and it could not now attack that provision. Slip op. at 3-5. 

Under Massachusetts law, an agreement to arbitrate must "state in clear and unmistakable terms that plaintiff was waiving or limiting any statutory antidiscrimination rights." This rule applies to claims under California antidiscrimination law, as well as claims under Massachusetts antidiscrimination law. The agreement here did not meet this standard, and Bingham could not compel Harris to arbitrate.  Slip op. at 5-7. 

Massachusetts law is not preempted by the Federal Arbitration Act (FAA) because it is not inconsistent with the FAA's purposes, as articulated by the Supreme Court of the United States in Concepcion.  Slip op. at 7-9.  

In addition, we note that the Concepcion opinion itself contains language supportive of the Warfield court's conclusion on the preemption issue. Footnote six of Justice Scalia's majority opinion reads as follows: "Of course states remain free to take steps addressing the concerns that attend contracts of adhesion – for example, requiring class-action-waiver provisions in adhesive arbitration agreements to be highlighted. Such steps cannot, however, conflict with the FAA or frustrate its purpose to ensure that private arbitration agreements are enforced according to their terms." (Concepcion, supra, 131 S. Ct. at p. 1750.) This language suggests the Supreme Court would approve of the requirement at issue here, that contractual waivers of statutory antidiscrimination litigation rights must be expressly stated to be enforceable. 

Slip op. at 9.  I'm not sure that Justice Scalia would agree, but I suppose that is a question for another day.  

In the meantime, the opinion is available here. 

Leyva v. Medline Industries: Ninth Circuit Holds that Individual Damage Calculations Do Not Defeat Certification

In Leyva v. Medline Industries, Inc., ___ F.3d ___ (9th Cir. 5/28/13), the plaintiffs sued their employer, alleging that it failed to compensate its hourly employees for all hours worked, failed to calculate their overtime rates of compensation properly, failed to pay all earned wages on separation, and failed to provide timely and accurate wage statements.  The district court denied certification, and the Ninth Circuit reversed, holding that the district court abused its discretion in concluding that (1) individual questions predominated over common questions, and (2) class certification was not superior to other means of resolving the dispute. 

The district court applied the wrong legal standard by concluding that individual questions predominate over common questions. The only individualized factor that the district court identified was the amount of pay owed. “In this circuit, however, damage calculations alone cannot defeat certification.” 

Slip op. at 7-9.  

The district court incorrectly held that class certification was not the superior method of adjudication because of the difficulty of managing the approximately 500 member class and determining the putative class members' damages.  The district court failed to suggest any other means for putative class members to adjudicate their claims, and the Ninth Circuit held, "it appears that none exist."  

In light of the small size of the putative class members’ potential individual monetary recovery, class certification may be the only feasible means for them to adjudicate their claims. 

Slip op. at 9-11.

The opinion is available here.  

Serpa v. California Surety Investigations: Court Reverses Order Denying Motion to Compel Arbitration

Serpa v. California Surety Investigations, Inc. (3/21/13, pub. 4/19/13) --- Cal.App.4th ---, is an interesting arbitration decision that I missed in April. 

Valerie Serpa sued her former employer (CSI) for sexual harassment, discrimination, retaliation, and related claims. The trial court denied CSI's motion to compel arbitration, holding that the arbitration agreement was unconscionable and unenforceable because it lacked mutuality and any obligation to arbitrate by CSI was illusory.  The Court of Appeal reversed, holding: 

The arbitration agreement was a contract of adhesion and presented only a low level of procedural unconscionability. Slip op. at 8-9.  

Although the agreement, when read in isolation, appeared unilateral because it did not impose an obligation to arbitrate on CSI, the agreement's incorporation into the employee handbook "salvages the agreement by establishing an unmistakable mutual obligation on the part of CSI and Serpa to arbitrate 'any dispute' arising out of her employment." Slip op. at 9-10. 

Although CSI reserved the right to alter the terms of any policy contained in the handbook at its sole discretion and without notice, the implied covenant of good faith and fair dealing imposed a "fundamental limit" on CSI's ability to alter the agreement, and the agreement was not illusory.  Slip op. at 10-14. 

The arbitration agreement was substantively unconscionable because it required the parties to bear their own attorney fees, depriving Serpa of her unwaivable statutory right to recover fees if she prevailed on her claims under the FEHA.  However, because the agreement was not "otherwise permeated by unconscionability," the proper remedy was to sever this one clause and enforce the remainder.  Slip op. at 14-16. 

The clause stating that Serpa would submit her claims to arbitration if the dispute "cannot be resolved through informal internal efforts" did not shock the conscience and was not substantively unconscionable. Slip op. at 16-17. 

The opinion is available here.